Losses widen at Nektan despite revenue growth in 2019

White label and gaming content provider Nektan has reported a year-on-year rise in operating losses for 2019, despite also experiencing an increase in revenue for the year.

Net gaming revenue for the 12 months through to 30 June 2019 amounted to £22.6m (€27.8m/$29.6m), up by 13.5% on £19.9m in the previous year.

Nektan’s primary source of revenue was its B2C division, with this segment of the business bringing in £21.6m in net gaming revenue, 10.0% more than last year.

However, this contribution will all but disappear after Nektan this month sold its UK B2C business to Grace Media for £200,000 as part of a restructuring effort. Mark Phillips and Julie Swan of PCR London were appointed as joint administrators of its Nektan Gibraltar subsidiary by court order, with the pair finalising the deal.

Meanwhile, Nektan, which this month was also suspended from trading in London after failing to publish its accounts before the end of 2019, saw B2B net gaming revenue grew by 308.3% to £1.0m. This comes after a decision to focus more on this area of the business.

Though Nektan reported a 16.3% decline in first-time depositors to 131,128, it did note a 6.8% increase in B2C cash wagering to £597.8m.

In terms of spending, total administrative expenses were up 33.9% year-on-year to £8.3m. Administrative expenses, excluding exceptional items, depreciation, amortisation and share based payment charges, jumped 26.2% to £5.3m as Nektan incurred increased costs associated with its managed services division.

There was also a sharp rise in exceptional items, with spending up 273.8% to $1.5m, mainly due to a full impairment of £919,000 against the goodwill arising on its acquisition of Mfuse. There was also a full impairment of £147,000 related to investment in Respin, and a £332,000 impairment provision for amounts due from certain partners in respect of net house loss.

In addition, Nektan reported a slight increase in marketing, partner and affiliate costs, with this rising 1.1% from £9.5m in 2018 to $9.6m in the past year.

Higher spending meant Nektan was hit elsewhere, with operating loss for the year standing at £5.1m, up 54.6% from a loss of £3.3m last year. Adjusted earnings before interest, tax, depreciation and amortisation loss also expanded from £1.3m in 2018 to £2.0m.

Loss before tax from continuing operations widened from £5.0 to £6.5m, while loss for the year from discontinued operations expanded by 47.4% from £1.9m to £2.8m. Nektan noted that the loss from discontinued operations included a loss for the period of £800,000 and a £2.0m loss resulting from the disposal of assets.

The overall loss for the year increased 31.4% from £7.0m to £9.2m, with Nektan putting this down to increased trading losses, the impact of restructuring and the loss on disposal of £2.8m, compared to a loss of £1.9m from discontinued operation in 2018.

Reflecting on the results, Nektan’s interim chief executive Gary Shaw highlighted how the provider was able to perform well against a “backdrop of challenging conditions in the UK B2C market”, citing growth in its B2B arm as a key factor moving forward.

“Significantly, this financial year saw Nektan develop and deliver commercial opportunities in emerging international markets, which have the potential to grow our revenue, margin and profitability in the coming years,” Shaw, who took over from former CEO Lucy Buckley in August last year, said.

“We believe that our proprietary technology is unique, and we continue to attract major global partners who wish to use the feature rich gaming content we have worked so hard to populate our platforms with.

“By working closely with the best developers of casino games globally, we can provide our partners with engaging, socially responsible and compliant content, suitable to the geographical location of their players and the local mobile technology.

“The growth in B2B we have seen during this financial year reflects the progress we have made in adding more content and providing this to a growing list of partners.”

Shaw added: “With the restructuring completed we enter 2020 with a clear focus on our strategy – to deliver enhanced casino technology and gaming content into emerging international markets with leading operators. A truly global approach supporting local and international partners in new territories underpins our year ahead.”