GiG blames Swedish regulation as revenue dips in Q1

Gaming Innovation Group (GiG) has cited the impact of new regulations in the Swedish market as the main reason behind a year-on-year decline in revenue in the first quarter.

Revenue for the three months through to March 31, 2019, amounted to €32.4m (£27.8m/$36.2m), compared to €37.3m in the corresponding period last year.

GiG saw B2C segment slip from €25.4m to €20.2m, which it put down to new operating restrictions in Sweden, following the opening of the country's regulated igaming market January 1. However, GiG expects the market to mature and revenue to improve in the second half.

B2B segment revenue was down from €15.3m to €14.2m, and GiG cited the increased regulatory pressure on its clients in Sweden as the main reason for this decline. However, with a number of new clients signing on in the quarter and the new software as a service client to sign in Q2 – the largest to date – GiG said this segment is making good strategic progress.

GiG was able to offset some of this lost revenue by cutting costs across various areas. Marketing expenses were down from €11.9 to €8.6m as a result of lower marketing activities in Sweden and a diversification of marketing channels.

Other operating expenses were also down from €14.3m to €13.3m after the roll-out of various cost control initiatives in 2018 and a drop in the total number of staff at business, as it seeks to become “more streamlined and efficient in its operations”. 

However, lower spending did not stop GiG posting a lower gross profit in Q1, with €26.0m down 14.8% year-on-year. This, it said, was due to the 18% gross revenue tax levied on Swedish licensees from January 1.

Earnings before interest, tax, depreciation and amortisation came in at €4.3m, which GiG said is relatively in line with €4.1m last year as a result of increased operational efficiency – a key focus of the group.

CEO Robin Reed said he was reasonably satisfied with the Q1 performance, adding that it was the first time the business experienced re-regulation in one of its core markets. However, the impact of changes in Sweden are expected to lessen as the year progresses.

“We believe Sweden will stabilise over the course of the year and are looking forward to compete for market shares,” he said. “Regulated markets are key to secure long term sustainability for the business and in addition to Sweden we will launch Spain in Q3-19 and start marketing there in Q4-19.”

Reed also said that GiG would continue to invest in new content as it looks to expand the range of games available to clients. He said this investment, combined with the solutions and content already available, would mark the conclusion of four years of significant capital expenditure on developing its product and technical architecture.

“Once complete, it will yield us lower cost, increased development velocity and innovation, and allow us to greatly accelerate sales and market launches whilst we will aim to migrate the entire current business over throughout 2020,” Reed said.

“Q1 was a tough quarter for the industry and for us, but we delivered in a challenging environment. Going into Q2, I believe we have navigated through the storm and are in good shape with plenty of opportunities.”