Evolution NGR up 15% despite cyber attacks and Georgia strike action

NGR growth for Evolution was up to 19% in constant currency, largely driven by live casino gains, once again.  

Total operating revenues were up by 27.9% to €579m thanks to a one off €59.7m related to reduced earn-out liability.  

Live casino recorded double digit growth of 16% year-on-year, as new tables were launched by Evolution during the quarter in Colombia and Czech Republic. 

RNG growth ticks up on vertical improvements and increased releases 

After a number of consecutive quarters of its random number generator (RNG) business struggling, Q3 growth came in at 8.5% to €72.5m. This segment comprises slot businesses NetEnt, Red Tiger, Big Time Gaming and NoLimit City. This is also up on the €70.3m reported in Q2.

“We are beginning to see the results of our incremental improvements in the RNG offering,” CEO Martin Carlesund said. The supplier initiated a turnaround effort of its RNG product earlier in the year, increasing its game releases and developing new features to improve the gameplay experience.

Georgia strike action impacts earnings  

Addressing the ongoing strike action at its Georgia operations, which started in July, Carlesund said the company had managed to offset lost capacity by beefing it up across other studios. The Georgia studio is currently operating at 60% capacity, with around 550 employees involved in the union action.  

“We are able to offset lost capacity using other studios to limit the impact on our customers but overall, the disruption has had a negative effect,” he said.  

In a note, Regulus Partners said the actions have “clearly impacted both growth and margin”. The consultancy says additional disruptions could be damaging as the Georgian business makes up 40% of the group and is an integral operation.  

“The situation is now described as stable, but the danger is that trouble continues to disrupt a Georgian workforce of 7,000 out of 18,000 across the group (40%), albeit only 550 (8%) of the workforce went on strike during the quarter,” it said in a note on Evolution’s Q3 earnings.  

Georgia studio ‘too big to be replaced’ says Regulus

“Georgia is too big and historically too efficient to be easily replaced, in our view. To put the flexibility as well as the scale of Georgia into context, the next largest dealer pool is in Latvia (c. 3,200 total employees), where the average salary across the country is c. 2x higher and labour laws are stricter.”  

Carlesund said Evolution did support the rights of workers to participate in unions. But it said a small number of union-affiliated activists had illegally disrupted operations on 1 August, including “vandalising buildings, taking violent actions and harassing working employees in actions that had caused the company to down-size its capacity at the studio.  

“Currently, the situation in Georgia is stable and we will continue to rebuild and increase capacity in other locations in the network over the coming quarters to be able to support future growth,” he said.  

Asia cyber-attacks could indicate an end to growth in the region 

On Asia, the Evolution CEO noted various cyber-attacks against its Asian video distribution. He said Evolution had beefed up its cybersecurity and had successfully countered the attacks.  

“We continue to see attacks and we will continue to aggressively scale up counter measures,” he said.

Regulus warns the attacks could continue and a cycle of disruption is likely to mount. They estimate the attacks could be linked to the closure of the POGO sector in the Philippines, which has unearthed various criminal groups and activities.  

“It is also possible that the cyber-attacks are linked to the coming closure of POGOs in the Philippines, of which Evolution might be a significant beneficiary, much to the chagrin of the losers (some of which have been linked to mass people trafficking and serious organized crime). Whatever the reasons and potential upside, Evolution’s period of easy Asian growth with few questions asked and no local response now seems to be over, in our view,” the note said.  

Asia revenue grew from €172.1m in Q3 last year to €202.2m (up 17.5%), despite the disruptions.  

Finally, Evolution group EBITDA increased by 30.3% to €415.3m during the period, corresponding to a margin of 71.7%. Profit amounted to €328.6 million.