LeoVegas postpones growth targets after challenging 2018

LeoVegas saw a decrease in operating profit during 2018 as the company experienced what CEO Gustaf Hagman (pictured) described as the “most challenging” year in its history.

The operator finished the year with a 25% rise in revenue during Q4 as well as year-on-year gains in gross profit. However, a series of market and regulatory challenges over the course of the 12 months and the decision to undertake some strategically crucial projects affected its balance sheet.

Coupled with concerns about its performance in the key UK market, the company has now pushed back its deadline for achieving its target of reaching €600m in revenue and €100m in EBITDA from 2020 to 2021. LeoVegas’ share price was down around 2.8% this morning (February 12).

For 2018, revenue increased by 51% to €327.8m, while Q4 was up 25% to €84.5m. Moderate organic growth of 7% in the three months to the end of December was in part due to a slowdown in the UK. Organic growth excluding the UK was up 14%, with December particularly strong.

The LeoVegas site was the biggest contributor to revenue, making up 77% of income in the final quarter of the year. Rocket X, the UK-facing business which was acquired as Rocket 9 in March, brought in €32.7m up to December 31, and accounted for 10% of revenue in Q4.

Online casino Royal Panda, which was acquired in November 2017, made up 13% of revenue in the final three months of the year.

LeoVegas was buoyed by an increase in new depositing customers during Q4, increasing by 13% over the same period a year ago and by 3% over the preceding quarter. Net gaming revenue (NGR) increased by 21% compared with the same period a year ago and increased sequentially by 5% from Q3 to Q4. The increase in NGR was slightly lower than for deposits, which LeoVegas said is explained by a lower hold and game margin than during the comparison periods.

In total, classic casino made up 77% of gross gaming revenue during Q4, with live casino at 14% and sportsbook at 9%.

Rising personnel costs and other expenses played a role in LeoVegas seeing a fall in operating profits from €19.9m to €19.2m for the full year, although EBITDA was up 61% to €41.6m and gross profit increased 44% to €235.5m.

The operating profit figure was better for Q4, up €2.1m to €2.6m. EBITDA was up 33% to €8.1m and gross profit grew 20% to €60.0m.

One area of particular concern in terms of expenditure was personnel costs, which increased by 55% from 2017 to 2018 as the operator's headcount grew from 566 to 888.

This increase was in part due to the acquisition of Rocket X, while LeoVegas also embarked on a series of technology projects, including the upgrade of its technical front-end platform, which took place during the second quarter. Furthermore, capitalised development costs doubled to €7.2m. The company plans to streamline in the coming year.

“Our personnel costs in relation to revenue remained at a higher level than we are pleased with,” Hagman said. “We will thus now focus on cost control, improving efficiency in our ways of working, and increase automation in our operations.”

LeoVegas also significantly increased marketing spend by 32% to €120.8m, which it felt was necessary to maintain its leading position in Sweden ahead of the market’s regulation in January. Marketing costs amounted to 37.9% during the fourth quarter, compared with 35.6% during the third quarter.

LeoVegas saw cost of sales increase markedly year-on-year, rising from €39.2m in 2017 to €62.6m in 2018, while gaming duties rose from €15.1m to €29.7m.

Acquisitions boosted the operator's post-tax profit for 2018, which more than doubled to €43.2m.

LeoVegas said it has made a promising start to 2019, with revenue up 16% in January to €28.7m. It said underlying customer activity remains strong, with 42% growth in depositing customers compared to the same period last year.

Hagman said: “After a challenging 2018 we now see improved momentum with a record strong December and a positive start to 2019. Entering the new year we have full focus on expansion, cost control, increased profitability and to continue building the world’s best mobile casino.”