Impairment charges lead to widening losses at GVC in 2019

GVC Holdings has announced a year-on-year increase in loss after tax for 2019 despite also reporting a 2.3 % rise in proforma net gaming revenue during the year.

Proforma revenue for the 12 months to 31 December 2019 totalled £3.66bn (€4.24bn/$4.72bn), based on the assumption that the Ladbrokes Coral business was part of GVC for all of 2018. GVC completed its acquisition of Ladbrokes Coral in March 2018.

Reported net gaming revenue – based on the Ladbrokes Coral business being part of GVC for nine months of 2018 – also totalled £3.66bn, but was up by 22.7% from £2.98bn in the previous year.

GVC put the proforma increase primarily down to strong performances by its online, European retail and UK retail over-the-counter operations, but did note that UK retail was impacted by the new £2 maximum stake on fixed-odds betting terminals (FOBTs).

Online revenue climbed 13.3% to £2.12bn, despite the comparative period containing a football FIFA World Cup. However, it was gaming that was the main source of online income, with proforma revenue amounting to $1.19bn, up 12.6% on 2018.

Online sports betting revenue climbed by 15.7% to £966.5m, but GVC did also report a 37.1% year-on-year drop in proforma B2B net gaming revenue for its online business.

For UK retail, net gaming revenue slipped 15.1% to £1.13bn as GVC felt the effect of the new stake restrictions on FOBTs in the UK. As a result, machine revenue was down 28.0% to £561.9m for the year.

However, it was not all bad news for the UK retail business as GVC saw sports net gaming revenue climb 3.4% year-on-year to £565.9m, as customers placed more bets over the counter.

Looking at European retail and proforma net gaming revenue for the year was up by 4.0% to £289.8m, with GVC seeing growth across several areas of this segment. Sports revenue climbed 3.8% to £218.2m, while other over-the-counter revenue was up 5.0% to £69.3m.

GVC did see a decline in machine gaming revenue within its European retail business, with this falling 11.5% year-on-year to £2.3m.

In terms of other revenue, this was up 32.6% on a proforma basis to £70.4m, as GVC felt the positive impact of the acquisitions of both contracts for difference trader Sigma and investment dealer Argon in the previous year.

Focusing on costs, spending across the business was up by 2.3%, with operating expenses amounting to £1.10bn for the year. GVC said this was driven by the acquisitions of Georgian operator Crystalbet and Australia-facing Neds in the prior year, as well as inflation.

GVC did note that this increase was partly offset by the delivery of synergies and savings in UK retail as a result of mitigation of the restrictions on FOBTs.

Despite the increase in revenue, GVC saw proforma gross profit decline 1.1% to £2.38bn, while proforma operating profit before tax slipped by 19.7% to £490.1m and underlying earnings before interest, tax, depreciation and amortisation fall 10.2% to £678.3m.

GVC did not publish its proforma underlying profit before tax, but based on its reported performance, this was up 23.3% year-on-year to £535.8m. However, after charging £710.0m of separately disclosed items, up from £453.5m in 2018, loss after tax amounted to £140.7m, compared to £56.4m in the previous year.

Of these separately disclosed items, £376.2m related to non-cash amortisation of acquired intangibles, primarily arising from the acquisitions of Ladbrokes Coral and bwin, as well as £245.0m to a non-cash impairment of the group’s Australian online business

Reflecting on the results, GVC’s chief executive Kenneth Alexander said it had been a good first full year since the Ladbrokes Coral acquisition.

“We have delivered very strong growth in our online business, including market share gains in all major territories, and good momentum in our European retail business,” Alexander said. “This revenue growth has more than offset the impact on the UK retail business of the £2 restriction on B2 machines stakes.

“During the year, we have also continued to clearly demonstrate our leadership in, and commitment to, responsible gambling with a number of decisive actions, not least being the first in our industry to commit to a ten-fold increase in contributions to responsible gambling causes and our call for a total ban on sports-betting television advertising in the UK.

“Looking ahead, we are confident that GVC’s broad international footprint, proven track record of acquisition and strong organic growth will continue to present significant opportunities for further expansion.”