Israel tax settlement slashes Aspire Global’s 2019 profits

Aspire Global has put a 97.5% year-on-year decline in net profit for 2019 primarily down to a major tax settlement in Israel, though the igaming solutions provider was able to report an increase in revenue for the year.

Net revenue for the 12 months to 31 December 2019 totalled €131.4m (£109.5/$142.4m), up by 26.0% from €104.6m in the previous year.

The majority of revenue was derived from Aspire’s B2B segment, which accounted for €81.1m (or 62.0% of overall revenue), a year-on-year increase of 43.3%.

In comparison, B2C revenue from Aspire’s proprietary brands totalled €50.3m for the full year, a 4.8% rise.

Focusing on geographical performances, Aspire reported declines from the Nordics and the UK and Ireland. Nordic revenue fell 16.6% to €25.2m, with the UK and Ireland's contribution down 8.3% to €18.7m. This left the rest of Europe as the supplier's largest region in terms of revenue, accounting for €83.2m following a 62.8% year-on-year rise.

The rest of the world's contribution was up 48.3%, albeit from a low base, to €4.3m.

However, alongside this revenue increase Aspire also saw spending climb, with overall costs for the year hiking by 30.1% from €81.3m to €105.8m. Aspire saw the largest increase within its distribution expenses, which were up 35.9% to €87.1m.

Gaming duties declined to €4.2m, but administrative expenses were up 14.1% to €14.6m, mainly due to ongoing investment in technology and new hires. In addition, depreciation and amortisation costs rocketed 105.3% to €3.9m primarily as a result of higher capitalised development costs related to Aspire’s proprietary technology assets.

Higher spending pushed operating income down 8.3% year-on-year to €17.7m for the year, while income before taxes also fell by 13.3% to €16.9m.

However, it was the Israeli tax settlement in December that hit Aspire hardest. At the end of 2019, Aspire announced that it was to pay €13.7m in retroactive tax in the country after reaching an agreement with authorities.

The payment to the Israel Tax Authority related to a tax audit that examined management and control jurisdiction, the busines tax base, and transfer pricing among the group entities.The resolution brought an end to all related investigations into the company in Israel, Aspire noted.

This tax payment, coupled with income tax payments amounting to €1.4m, meant net income before company share in the results of associated companies fell 89.7% to €1.9m. After a net loss of €1.5m from these companies, net income for the year amounted to €405,000, down 97.5% from €16.2m in 2018.

However, Aspire did note that earnings before interest, tax, depreciation and amortisation (EBITDA) for the year climbed 2.4% to €21.7m, with its EBITDA margin falling from 20.3% to 16.5%.

Reflecting on the full-year results, Aspire’s chief executive Tsachi Maimon was largely upbeat, focusing on revenue and EBITDA growth during the year.

“I am pleased to conclude that we have delivered another year of strong growth, despite changes in the market environment,” Maimon said. “Revenues increased by 26% to €131.4m with an EBITDA margin of 16.5%, in line with our financial targets.

“We have proven that our strategy is efficient, and we have a solid foundation to continue to expand our business through organic growth and M&A.”

In terms of Aspire’s performance in the final quarter of the year, revenue was down 2.0% to €32.2m, primarily due to a 18.4% drop in B2C revenue to €11.1m. However, Aspire was able to partially offset this with a 9.8% increase in its B2B revenue to €21.2m.

Net loss for Q4 stood at €12.1m, compared to a net income of €4.6m last year, as a result of the tax payment in Israel. Income before tax for the quarter was down 56.7% to €2.6m, while operating income slipped 33.3% to €4.4m. In addition, EBTIDA fell by 33.6% year-on-year to €4.4m.

“We had a somewhat disappointing last quarter of the year due to new regulatory requirements in regulated markets, such as the UK, as well as markets to become regulated,” Maimon said.

“Compliance is top on our agenda and we swiftly adapt to new regulatory requirements, knowing that our longer-term benefits are larger than the short-term impact.

“Our settlement with the Israeli tax authorities had a significant impact on net income and earnings per share in the quarter.”

Looking ahead, Aspire said it aims to have revenue of €200m by the end of 2021, with an EBTIDA of €32m, and Maimon said that the business remains confident of hitting these targets.

“Our broad market presence and product offering give us a solid foundation for sustainable profitable growth,” Maimon said. “We will continue to enhance our multi-vertical offering while maintaining the search for M&A – opportunities, supported by our strong balance sheet.”