Intralot losses widen in Q1 as B2C revenue plummets
Intralot's losses drastically widened in Q1 of 2020, as B2C operations and management contract turnover fell by almost two thirds, leading to sharp drops in turnover and gross gaming revenue.
Because of the collapse of revenue in other divisions, technology and support services made up the majority of Intralot’s turnover in the three months to 31 March, at €52.3m, up 5.4%. This increase was mostly due to new contracts in the US and Canada.
Management contract revenue had the steepest fall at 66.4% to €8.1m. Intralot said a major reason for this decline was the loss of the rights to operate Turkey's sports betting monopoly iddaa, which continues to weigh on results, as well as the global impact of novel coronavirus (Covid-19).
Turnover from licensed (B2C) operations was down 65.1% to €41.6m, with revenue (turnover minus payouts to players) fell 53.4% to €16.6m.
The business said the decrease in operating revenue and turnover was mostly due to discontinued contracts with local operator Eurobet and a change in reporting methods for Eurofootball in Bulgaria. Bulgarian turnover alone, across all verticals declined by €71.4m. Eurofootball’s licence was suspended by the Bulgarian Gambling Commission in March. Revenue from Malta also declined due to the suspension of sports from mid-March, while the loss of iddaa also reduced Turkish revenue.
As a result, Intralot’s overall turnover came to €101.9m, down 47.1% year-on-year. Of this figure, €49.6m came from the Americas, up 2.5%. However, turnover from Europe fell 66.6% to €47.9m, while turnover from other markets fell 52.4% to €14.0m. The business processed €3.72bn of wagers during the quarter, of which €1.93bn came from North America, up 22.6%, while €834m (down 19.5%) came from Western Europe.
Looking at turnover by vertical, sportsbook's contribution plummeted 85.0% from its largest contributor to just €13.7m. Lottery turnover fell 15.4% to €66.4m. IT product and service turnover grew 2.7% to €13.2m and video lottery terminal (VLT) turnover declined 0.2% to €7.9m.
Gross gaming revenue – comprising management contract and technology sales, plus B2C turnover minus winnings – was down 29.5% to €76.9m.
Intralot paid costs of sales – including €25.0m in winnings paid out via its B2C operations – of €81.8m, down 47.5%, for a gross profit of €20.2m. Of this gross profit, €9.1m came from the Americas, down 4.2% year-on-year. Just €3.7m came from Europe, down 64.8%, while €9.7m came from other countries, down 56.9%. A further €2.3m was removed from profits through eliminations.
The business made a further €3.7m in other operating income, almost entirely from rents, down 25.1%. However it paid selling expenses of €6.8m, down 37.7%, and administrative expenses of €18.5m, down 7.0%. Intralot’s research and development expenses declined 41.1% while its other operating expenses fell 18.5% to €468,000.
As a result, Intralot’s earnings before interest and tax (EBIT) came to a loss of €2.6m, compared with €12.3m profit in 2019. With depreciation and amortisation costs amounting to €18.4m, down 6.2%, Intralot’s earnings before interest, tax, depreciation and amortisation (EBITDA) came to €15.8m, down 50.3%.
Intralot made €200,000 from investment income, up from €8,000 in 2019, and an additional €54,000 through asset disposal, impairment and write-offs of assets, compared to a €2.3m loss in this area the prior year. This profit was mostly due to the write-off of lease liabilities, which outweigh the cost of writing off right-of-use assets.
The business paid interest expenses of €12.7m, down 3.8% and earned interest income of €691,000, down 68.2%.
Intralot lost a further €460,000 through foreign exchange, compared to a €3.5m gain in 2019, and made a loss of €154,000 through businesses in which it holds a noncontrolling stake, down 77.8% from 2019’s loss. It gained a further €188,000 through changes in the fair value of monetary assets, down 18.3%.
As a result, the business made a €14.8m pre-tax loss, compared to a €2.0m profit in 2019.
After paying €2.0m in tax, Intralot lost €16.8m in the quarter, up 329.6% from 2019’s loss.
The business made a €15.1m loss from the European Union, up more than 800% from 2019. It made a €1.4m profit from other European countries, compared to an €800,000 loss in 2019. Intralot lost €5.9m in the Americas, compared to a €2.7m profit the year prior, and lost €30,000 elsewhere, after making an €8.8m profit in these countries in 2019. Intralot, however, recoreded a €3.1m gain through adjustments.
With a €768,000 profit attributable to noncontrolling interests, total losses attributable to Intralot’s equity holders came to €17.6m, up 44.3% year-on-year.
Despite the results, Intralot Group chief executive Christos K. Dimitriadis said he remains confident about the long term, which he said will be built around a new strategy focused on five pillars: digital technology, an advanced service delivery model, partnerships for B2C Licenses, growth in key jurisdictions, and optimisation of capital structure.
“During the first quarter of the year, we have kept witnessing an increase in the handled wagers and an improvement of the performance of technology contracts in North America, demonstrating the dynamics of the region,” Dimitriadis said. “Group revenue and EBITDA were mainly impacted by the regulatory changes in Bulgaria, the developments in Turkey and the impact of the pandemic in non-US jurisdictions.
“Going forward, we expect that our new strategy, as presented during the AGM and as already being implemented, will return the company to growth.”
The business says it continues to expect EBITDA of €25m for 2020.
Last month (5 May), Intralot released its financial results for the 2019 full year. Its net loss from continuing operations grew to €111.9m after what the business described as a “transition year” in which group turnover and gross revenue both fell. Later that month (29 May), the DC Lottery's sports betting platform, developed in partnership with Intralot, launched.
However, Covid-19 is expected to continue to affect operations, with Intralot saying in April that it does not expect to return to normal levels of activity until November this year.