Nektan cuts losses after restructuring

31 March 2020

Nektan’s revenue from continuing operations more than doubled to £797,000 and losses fell more than 40% in the six months ended 31 December 2019 as the business pivoted to focus on B2B operations.

The gaming content provider’s revenue increased 157.1% to £797,000 in the six months as its number new of live sites rose from five to 28. Of this total, £288,000 came from the UK, up 242.9%, and the remaining £509,000 - up 125.2% - came from the rest of the world.

However, Nektan incurred £266,000 in costs of sales, a new expense for 2019. This resulted in gross profit of £531,000, up 71.3%.

Nektan’s administrative expenses for the six-month period - which include impairment, depreciation and amortisation - came to exactly £3.0m, up 12.7%.

The content provider’s earnings before interest, tax, depreciation and amortisation (EBITDA) therefore fell to £1.7m, down 6.8% year-on-year.

Amortisation of intangible assets declined slightly to £464,000 while depreciation costs more than tripled to £95,000 and impairment costs of fixed assets created a new expense of £47,000. Exceptional costs, meanwhile, rose from £6,000 to £209,000.

As a result, Nektan’s operating loss came to £2.5m, up 6.9% from 2018’s loss.

After a net financial loss of £454,000, Nektan’s pre-tax loss came to £2.9m, down 1.0% year-on-year.

The business paid £1,000 in taxes for a loss of £2.9m from continuing operations. After accounting for a £157,000 gain through discontinued operations, compared to a £1.8m loss in FY2018, Nektan’s loss from all operations came to £2.8m, down 42.3% year-on-year.

These discontinued operations consist of Nektan’s white label B2C arm, which was sold to Grace Media for a total cash consideration of £200,000 as part of a restructuring effort. Income and expenditure from these operations were counted only as discontinued operations for both 2018 and 2019, meaning Nektan’s revenue for the six months ended December 2018 was much lower than was reported at the time.

Nektan made a further £63,000 loss from currency exchanges, resulting in a total comprehensive loss of £2.8m, down 40.5% from H1 2018’s loss.

The technology provider said that with its new business focus, it expects to break even in the first half of its 2020-21 fiscal year in the six months ending 31 December 2020.

"While we are currently live with 34 sites across multiple continents, we see a strong pipeline of partner launches from leading global businesses to deliver their online gaming solutions,” Gary Shaw, interim chief executive officer of Nektan, said. “The roll-out of these sites should take place over the next 2-3 months, which will significantly transform the revenue profile of the group.

“This higher margin revenue is forecast to drive the group to EBITDA break-even by the end of this current financial year.”

However, Shaw - who took over when Lucy Buckley resigned in August 2019 - added that, like many companies in the gambling industry and beyond, it faces uncertainty over the effects of novel coronavirus (Covid-19). Nektan intends to make a further statement regarding the outbreak’s effect on its business in the near future.

“The effects of Covid-19 are only beginning to be understood by the company and our sector, which creates material uncertainty as we understand the effects on our key stakeholders,” Shaw said. “The directors are assessing all available options and we will provide further updates as appropriate.”

In January, Nektan was suspended from trading in London after failing to publish its accounts for the year ending June 30 2019 before the end of the year. However, it was restored to the Alternative Investment Market on 27 January this year, after publishing its accounts for the year to 30 June 2019.