Gambling Industry Acquisitions and Financial News — Weekly Round-up for March 2, 2018

Australian Operational Woes Weigh Heavily On William Hill Results

2017 a good year for revenues and profits, but the tough Australian market pushes the group into a loss

Despite a solid operational performance and positive revenue numbers in FY 2017, online and land gambling group William Hill plc slid into a loss of GBP 74.6 million – down year over year from a GBP 181.3 million profit achieved in 2016.

The cause was primarily the need for a write-down of GBP238.3 million as a “goodwill impairment” following “adverse tax and regulatory changes” in the increasingly tough Australian market.

A GBP 6.2 million settlement with the UK Gambling Commission over regulatory issues (see previous InfoPowa reports) and charges related to a group-wide transformation program did little to help the negative situation.

The group delivered FY revenues up 7 percent year-on-year at GBP 1.7 billion, with adjusted operating profit up 11 percent y-o-y at GBP 291.3 million, mainly due to a 13 percent year-on-year growth in the digital divisions of the company.

The company claimed that it is gaining market-share in both the retail and online sectors of the UK market, and that its online and retail businesses are growing at or above market growth rates.

Other interesting financial stats in the William Hill report include:

* Overall Australian revenue down 2 percent y-o-y at A$ 201 million;

* Australian adjusted operating profit up 11 percent at A$ 30 million, achieved through marketing expenditure reduced by over a third;

* Non-Australian digital operations reported revenue up 13 percent y-o-y at GBP 617 million;

* Adjusted operating profit at non-Australian digital operations up over 33 percent at GBP 132.5 million (despite UK costs increases in the horse betting levy and tax on free bets;

* Online sports bnetting turnover rose 10 percent, generating revenues up 14 percent at GBP 308.3 million;

* Group mobile operations now account for 82 percent of sports revenue – up by 12 points;

* Group digital gaming revenue was up 12 percent at GBP 308.6 million, with a 3 percent increase in digital account holders;

* Retail operations delivered 54 percent of group revenue and were up a modest 2 percent at GBP 913 million, although operating profit declined 1 percent to GBP 161 million;

* Retail sports betting revenue was up 1 percent at GBP 415.4 million;

* Retail gaming revenue was up 3 percent at GBP 497.7 million;

* US operations achieved turnover of $1.15 billion – up 22 percent year-on-year, creating revenues up 24 percent at $72 million and boosting operatingprofit 18 percent to $22.8 million;

US mobile wagering comprised 58 percent of revenues – up 6 percent.

The gambling group is currently conducting a review of its Australian business, a course it committed to late last year as legislative changes continued to make viable operations in the country more difficult.

In his report, CEO Philip Bowcock observed:

“William Hill begins 2018 in a stronger position after a year of significant change for the business.

“We continue to gain ground in the UK where customers are responding to our improved Online and omni-channel offers.

“We are a leader in sports betting in the US and are well positioned to benefit should more states start to regulate if the pending Supreme Court decision is positive.

“Looking ahead, we will invest in more innovation in online and our omni-channel platform, as well as in the US to ensure we can unlock its full potential at the right moment.

“A key pillar of our strategy moving forward will be to act in a sustainable way. While it is imperative that the gambling sector as a whole embraces this, there is no doubt that leading brands like William Hill must play a key role in setting the right standards and taking greater account of all our stakeholders.”

The board of directors recommended a final dividend up by six percent to 13.2p per share.

Zeal Network Hails Preliminary 2017 Results

EBIT and total operating performance above guidance range despite challenging conditions

ZEAL Network has released preliminary full year 2017 results reporting double digit growth in new registered customers and EBIT above guidance ranges despite an “exceptionally weak” jackpot environment in the third quarter, higher hedging costs as a result of rule changes to EuroMillions, and “significant pay-outs” including a single Euro 15 million prize in the first quarter.

Key performance indicators include:

– Total stakes of Euro 280.5 million (2016: Euro 280.4 million)

– Revenue of Euro 134.3 million (2016: Euro 112.9 million

– Total operating performance of Euro 141.2 million (2016: Euro 139.6 million)

– EBIT of Euro 25.2 million (Euro 38 million)

– Net Profit of Euro 16.3 million (Euro 26 million)

– Earnings per share of Euro 1.95 (2016: Euro 3.09)

– 31 percent increase in new registered customers

The Group’s fourth quarter performance was particularly strong with billings of Euro 78.8 million; up 21 percent since the third quarter, ZEAL said, which it attributed to the successful Powerball product launch and record billings from Spain’s Christmas Lottery El Gordo.

Dr. Helmut Becker, Chief Executive, ZEAL Group said: “We made good strategic progress in 2017: launching in three new markets, improving our products, enhancing our technology and operational efficiency, acquiring more new customers, and continuing to unearth new ways to disrupt the lottery industry.

“While the regulatory environment remains challenging, we believe the global lottery market is full of, as yet, untapped potential. As a diverse and long-term focused business, we are well positioned to take advantage of those opportunities.”

ZEAL Group anticipates EBIT in the range of Euro 33 million to Euro 43 million, and Total Operating Performance of Euro 150 million to Euro 160 million for full year 2018.

GIG Acquires 36 Percent Stake In D-Tech Games Studio

For Euro 360,000 consideration

Gaming Innovation Group (GIG) has entered into a partnership with Hong Kong-based game studio, D-Tech in which it has acquired a 36 percent stake in the company for a Euro 360,000 consideration.

“We are very happy with this investment and with the partnership between us and D-Tech,” Mathias Larsson, managing director of GIG Games, said. “The people behind the studio are industry veterans and masters of their craft. So we know that they will produce great games.

“Investing in an Asian game studio helps us build games for Asian players in Europe, effectively increasing our output in number of games per year to match the volume of larger game providers in the industry.”

A selection of D-Tech content will be built directly into GIG Games’ Remote Gaming Server and be branded GiG Games. Following launch, this content will enjoy a period of exclusivity on GIG’s own casino brands before a wider rollout to other operators.

D-Tech aims to launch ten games in 2018, the first of which will be ‘Year of Dog’ in March 2018. As part of the deal, GiG will receive eight exclusive titles.

“GiG’s entrepreneurial and innovative culture is a perfect fit with our own and this deal provides D-Tech with a fantastic opportunity to team up with the leading innovative iGaming operator while we focus on building games for Asian players,” added Harmen Brenninkmeijer, Founder of D-Tech.

Kambi Secures 25 Percent Stake In Virtual Sports Firm

Virtus Sports stake costs sports betting company GBP 500,000 in cash

Online sports betting platform provider Kambi has announced a deal with virtual sports start-up Virtus Sports that will enable Kambi to offer a high-quality and complementary virtual sports betting product to operators.

Kambi Group plc has made the strategic investment in order to acquire a 25 percent stake in Virtus through a GBP 500,000 investment paid in full from Kambi’s net cash, which as of 31 December 2017 stood at Euro 26.9 million.

Founded in 2014 and with offices in Malta and the UK, privately-held Virtus Sports delivers betting opportunities across a wide range of virtual sports, including football, horseracing, greyhounds and motor sport.

As part of its investment, Kambi will integrate Virtus Sports’ 3D virtual sports product into the Kambi Sportsbook platform, in turn making it available to Kambi’s network of operators.

Kambi believes Virtus Sports’ high-quality virtual sports portfolio will complement its current offering and provide its customers with further opportunities to engage with players. Developed for online and retail channels, the games are fully customisable so operators can, among other options, incorporate their own branding, modify game content and adjust pay out margins.

Kambi chief executive, Kristian Nylen, said in a statement Tuesday: “Despite being in its early stages of development, Virtus Sports has shown an ability to produce high-quality and engaging virtual sports games.

“Through this investment, not only will Kambi close a product gap by integrating the games into the Kambi Sportsbook, but we will also support Virtus Sports’ ongoing product development and sales to the wider market.”

Virtus Games founder and CEO, Andrea Brecevich, commented: “We are delighted the management team at Kambi has recognised the potential of the Virtus Sports’ business and the high-quality production of our games, and look forward to releasing additional sports and other product enhancements very soon.”

Scientific Games Reports Broad Growth In 2017

Q4-2017 and FY 2017 results show losses decreased significantly

Fourth quarter and FY 2017 reports from Scientific Games Wednesday show that net loss declined to $43.1 million from $110.8 million in the prior-year period, reflecting improvements in operating income and a $14.8 million decrease in interest expense. The improvement was partially offset by a $62.1 million decline in income tax benefit.

Q-4 kpis included:

* Revenue up 9 percent y-o-y at $823 million;

* Growth achieved in all three business segments, with Gaming segment revenue up 7 percent to a quarterly record $492.5 million; Lottery segment revenue up 9 percent to $217.2 million led by a quarterly record level of instant games revenue; and the Interactive segment generated ongoing strong revenue growth of 24 percent to $113.3 million;

* Total interactive revenue reflected a 28 percent increase in social gaming B2C revenue due to the ongoing popularity of the Jackpot Party Social Casino and Quick Hit Slots apps, coupled with the growing success of more recent apps, such as the 88 Fortunes app launched in the first quarter of 2017, and the contribution of the Bingo Showdown app, acquired in April 2017.

* Foreign exchange had a $10.3 million favourable impact on revenue;

* Operating income in the fourth quarter increased to $97.2 million from an operating loss of $12.3 million a year ago;

* Attributable EBITDA increased 11 percent to $324.5 million; AEBITDA margin rose 39.4 percent from 39 percent a year ago;

* Net cash provided by operating activities increased $41.9 million to $118.1 million from a year ago;

* The company recently completed refinancing transactions that will result in an approximate $69 million reduction in annualised cash interest costs at current interest rates and extended a portion of its debt maturities.

FY 2017 highlights included:

* Revenue up 7 percent year over year to $3,083.6 million;

* Operating income was $393.1 million compared to $130.6 million in the prior year, which included the $69.0 million goodwill impairment;

* Net loss was $242.3 million compared with a net loss of $353.7 million a year ago;

* AEBITDA increased 11 percent to $1,224.9 million compared with $1,103.6 million in the prior year;

* Net cash from operating activities increased to $507.1 million compared with $419.0 million in the prior year;

* Free cash flow rose to $179.5 million from $120.0 million in the prior year;

“Our results in the fourth quarter 2017 reflect the improvements achieved in revenue, operating income and AEBITDA growth by each of our business segments,” said Kevin Sheehan, CEO and President of Scientific Games.

“For 2018, we believe the company is well positioned to continue to grow and build on the success attained in the past year.”

LeoVegas Completes Acquisition Of I.P.S. Assets

Assets now rebranded as Rocket X

Mobile gambling group LeoVegas has announced the completion of its acquisition of the assets of Intellectual Property & Software Limited (“IPS”) and related assets from two other companies with top brands such as 21.co.uk, Slotboss, BetUK and UKCasino.

On 12 January 2018 LeoVegas announced its acquisition of the assets, and it advised this week that these acquisitions have now been rebranded Rocket X.

The acquisitions were secured at a purchase price of GBP 65 million, and all elements of the agreement have now been met, the company announced Thursday.

LeoVegas hereby announces that all of the conditions have been met and that the acquisition was completed today.

Rocket X has a strategy that focuses on digital and data-driven customer acquisition

Macau February Performance Lags Analyst Expectations

Year-on-year revenue rise of 5.7 percent disappoints

Figures for February 2018 released Thursday by the Macau regulator showcase a performance lower than that expected by analysts, with revenues up y-o-y just 5.7 percent at 24.3 billion patacas ($3.02 billion).

Whilst this was still the highest growth achieved in the past year, analysts pointed out that expectations were higher given a big-spending Chinese new year holiday period. On the bright side, they noted that February was the 19th month of consecutive gains in the world’s largest gambling hub.

Analysts had predicted gains of between 7 and 12 percent.

High rollers may have stayed away from the gambling hub over the holiday period in order to avoid the holiday crowds. The number of visitors during the national holiday week rose 6.5 percent, preliminary government data showed.

Macau revenues still trail highs hit in 2014 and are around monthly revenues seen in 2012, Thomson Reuters Datastream showed.

Morgan Stanley analysts say that Macau’s gross gaming revenue could hit $60 billion by 2022 as the number of visitors from China’s lower tier cities increase, coupled with higher visitor spending. Infrastructure developments including high-speed train extensions and a bridge connecting Hong Kong, Macau and neighbouring city Zhuhai, set to start operating in the next two years, are likely to boost revenues.