Swedish restrictions slow LeoVegas growth in Q3

Total revenue in the three months through to 30 September reached €88.9m (£80.2m/$104.4m), up 0.8% from the third quarter of last year.

LeoVegas’ core casino product accounted for 77% of total revenue in the period, ahead of live casino on 16% and sports betting with 7%.

The operator said its sportsbook rebounded from a difficult Q2 in which the novel coronavirus (Covid-19) pandemic saw sporting events cancelled or suspended.

LeoVegas was helped in Q3 by a 23.6% year-on-year increase in new depositing customers (NDCs) to 178,995, though this was lower than both the first and second quarters.

In contrast, returning depositing customers continued to climb on both year-on-year and quarter-on-quarter, reaching a record 259,696 in Q3. This was 28.2% more than last year and 8.6% up on Q2.

Looking at geographical performance, Europe outside of the Nordic region was the main driver of revenue in Q3, accounting for 47% of total revenue. The Nordic region – in which LeoVegas launched Royal Panda in Finland – brought in 35%, and other markets 18%.

LeoVegas said NGR in the Nordics was down 20.0% year-on-year, primarily due to temporary Covid-19 restrictions in Sweden, including new deposit limits. In comparison, rest of Europe NGR climbed 13%, while rest of world NGR was also up 21% on Q3 last year.

LeoVegas president and chief executive Gustaf Hagman warned that with licensed operators subject to an SEK5,000 monthly deposit limit, this was creating room for offshore competitors to take market share.

“In Sweden we are seeing a troubling development in which the unlicensed market continues to grow unhindered,” he explained. “A growing number of operators without licences are actively targeting Swedish players, including those who have been barred by the self-exclusion tool Spelpaus.”

Revenue from locally regulated markets accounted for 44% of total revenue in Q3, down from 50% in Q3 last year, with the operator blaming this on the performance of its Swedish division, which was impacted by Covid-19 measures.

In terms of spending in Q3, cost of sales were down 10.3% to €15.7m, though gaming duties remained level at €12.4m for the quarter, leaving a gross profit of €60.9m, up from €58.4m last year.

However, marketing expenses, the operator’s main outgoing in Q3, increased 14.8% year-on-year to €31.8m, though this was slightly lower than planned due to the timing of new campaigns and launches of new brands.

Personnel costs edged up 9.7% to €12.4m, though LeoVegas at the end of Q3 put in place an efficiency improvement programme, which will see a number of staff being made redundant as it seeks to cut costs.

Other operating costs were down by 14.9% to €7.4m, while capital development costs climbed 33.3% to €2.4m.

Earnings before interest, tax, depreciation and amortisation (EBITDA) amounted to €11.9m, down 6.3%. Depreciation and amortisation costs came to €2.7m, while amortisation and impairment of acquired intangible assets (including goodwill) expenses reached €4.1m, leaving an operating profit of €5.2m, down 15.0%.

After accounting for €422,000 in finance costs, profit before tax was €4.7m, a fall of 14.6% on last year. Once €607,000 in income tax, and foreign exchange adjustments were factored in, net profit for Q3 was €4.1m, down 19.6% year-on-year.

“During the quarter we maintained a high pace of innovation and investment, which is strengthening our long-term position and growth prospects,” Hagman said.

“During the quarter, among other measures we realised synergies from previous acquisitions and instituted a clearer organisational and group structure. This has led to a slight level of staff redundancy, and operating profit was charged with €500,000 for measures coupled to this.

“At the same time, we estimate that yearly net savings from these measures will amount to roughly €1.5m starting with next year. Our efficiency improvement work equips us for continued profitable growth and makes us – combined with greater diversification of the revenue base – more resilient to rapid fluctuations in individual markets.”

Looking at the operator’s year-to-date performance, revenue for the nine months to the end of September reached €289.1m, up by 7.5% on €269.0m at the same point in 2019.

Gross profit was 8.5% higher at €195.4m, while EBITDA also increased by 25.4% to €43.9m. Operating profit was up 55.3% to €23.6m, and after accounting for finance costs, profit before tax was €23.0m, some 70.4% more than at the same point last year.

LeoVegas paid a total of €1.7m in income tax in the nine-month period, and after also accounting for the impact of exchange difference on translations of foreign operators, this left a total comprehensive profit of €21.2m, up 69.6% on 2019.

The operator also provided a short update on its performance in Q4, saying preliminary revenue for the month of October amounted to €33.0m, up 26.9% on last year.

However, LeoVegas noted new regulations in Germany have had a slightly negative impact on revenue. It has moved quickly to adjust its offering to comply with the terms of the online casino transition period, Hagman noted.

“With a positive start to the fourth quarter, a record-large customer base and many exciting initiatives, I am looking forward to a strong end to the full year,” he said.