Swedish regulations continue to harm GiG as losses widen in Q3

6 November 2019

Gaming Innovation Group (GiG) has reported lower revenue and wider losses in the third quarter, primarily due to the ongoing impact of new regulations in Sweden, while the operator and supplier has also announced the permanent appointment of Richard Brown as its chief executive.

Total revenue in the three months to 30 September 2019 amounted to €30.2m (£26.0m/$33.5m), down 23.5% from €37.3m in the corresponding period last year.

GiG put this year-on-year decline down to new regulations in Sweden, with the operator saying that such measures pushed revenue down by €4.5m. GiG also noted the impact of the loss of a customer contract in Q4 last year, saying this had a negative impact of €2.7m on revenue.

B2C revenue from GiG’s in-house operators fell 20.8% from €24.4m to €20.2m, with GiG saying this was solely caused by lower revenue in Sweden due to the impact of betting duties and restrictions on marketing. GiG’s Rizk brand was the main source of B2B income, generating 75% of all B2C revenue in Q3.

In terms of B2B, revenue was down by 29.4% year-on-year to €11.9m, with GiG putting this down to the loss of the customer in the final quarter of 2018. GiG said this should be treated as an isolated one-off-effect when comparing the year-on-year revenue performance from the previous year.

B2B media services revenue slipped from €8.4m to €8.0m, primarily because the comparable period last year benefitted from the latter stages of the 2018 Fifa World Cup. Platform services revenue fell 47.1% to €3.6m as a result of the lost customer, while sports betting revenue was level at €200,000.

GiG was able to soften the impact of lower revenue by cutting back on spending in the quarter, with total operating expenses down from €25.9m to €20.8m.

Marketing expenses were down 33.0% to €7.1m, which GiG said was supported by seasonal, lower marketing levels, as well as a change in channels to reduce above the line marketing and use more efficient channels.

Other operating expenses were cut by 10.5% to €13.7m as a result of both cost control and operational efficiency taken in the previous year, together with a reduction in the number of employees from 734 in Q3 of 2018 to 656 this year.

However, cutting back on spending was not enough to stop GiG posting a net loss for the quarter of €8.4m, compared to a loss of €2.6m last year. Gross profit was also down 24.0% year-on-year to €23.6m, while earnings before interest and tax fell from a positive of €100,000 to a loss of €6.7m.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were also down by 46.0% to €2.7m.

In terms of GiG’s year-to-date performance, revenue for the nine months to the end of September amounted to €93.6m, down 16.0% on €111.5m at the same point last year.

Gross profit for the nine-month period was also down 20.0% to €73.9m, while EBITDA slipped 16.0% to €9.3m. Net loss for the three quarters amounted to €17.4m, compared to €6.2m in the previous year.

However, despite posting wider losses for both Q3 and the first three quarters of the year, chairman Petter Nylander was upbeat about future prospects at GiG.

“I am confident that we are making the necessary strategic adjustments to ensure the full potential of Gaming Innovation Group and shareholder value creation,” Nylander said.

“With increased regulation and taxation putting pressure on margins, it is time to adapt to the new reality in order to steer out of the epicentre. Because it is important to remember that a storm will end, and with the exciting trends in Germany, Latin America, New Zealand and other jurisdictions which are looking to regulate in the upcoming years, we believe this will present growth and business opportunities for Gaming Innovation Group.

“Short term it might seem a bit cloudy, however the global potential in our industry is still substantial, and GiG is well positioned for the future.”

Meanwhile, GiG has confirmed the appointment of Richard Brown as its new, permanent chief executive. Brown took on the role on an interim basis in September after Robin Reed opted to step down, just weeks after GiG reported a net loss of €9.0m for the first half of 2019.

Brown joined GiG in February 2016 as managing director of its GiG Media arm, going on to serve as chief digital officer before moving to his most recent role as chief operating in November of last year.

Prior to his time with GiG, Brown served in various senior roles with Highlight Media Group and also had spells with THG Sports and Web Guide Partner.

Speaking about the appointment, Brown said: “While industry headwinds may have dampened progress in 2019, I am extremely excited about the future potential of the group and this new phase of the company’s life cycle. My focus will be on delivery, execution and optimisation, putting us on a path for great focus and renewed growth.”

Nylander added: “The gambling industry is experiencing a challenging period of structural change. However, it is still backed by fundamental strong underlying growth and we need to plan and position ourselves to be most relevant to our partners and end users in order to benefit and accelerate our sustainable growth.

“Richard has a strong track record of operational excellence and will be focusing on making the company more efficient by creating a clear and directional strategy, reducing costs and driving execution.”

Image: reynermedia