Nektan sees full-year loss widen despite revenue growth

London-listed Nektan has reported a 51.5% year-on-year increase in revenue for its financial year ended June 30 2018, though increased costs have seen the gaming solutions provider’s loss for the period grow.

Revenue for the 12 months grew to £20.1m, driven by the strong performance of its European managed services business. Nektan added 38 white label sites to its network over the reporting period, contributing to a 48.1% increase in net gaming revenue to £19.4m, with 113 sites live by the end of June 2018.

This saw first-time depositors grow 20.4% year-on-year to 156,703, with amounts wagered up 43.4% at £559.8m.

A further £556,000 was generated from B2B revenue, derived from Nektan’s Evolve Lite content aggregation platform, which launched in November 2017. The move into this vertical is designed to unlock more profitable revenue streams, and the solution has since been deployed with Malta-based Tyche Digital in the Asian market. Following the end of the reporting period, in October 2018, Evolve Lite was also rolled out with BetVictor.

A further £99,000 was generated from site set-up and management fees from Nektan’s US-facing Respin US operating subsidiary, which has now been rebranded as Rapid Games. Nektan today announced that it has struck a deal to sell a majority stake in the division to an unnamed third-party partner.

Cost of sales rose 57.8% year-on-year to £7.5m, leaving Nektan with a gross profit of £12.6m, up 47.9% from FY2018. However, with the majority of revenue derived from white label partnerships, which are based on revenue share agreements, Nektan saw marketing, partner and affiliate costs rise 31.8% to £9.5m.

Administrative expenses, meanwhile, rose to £5.4m. This was due in part to costs associated with the US division, which was only fully consolidated for six months of the prior year. Administrative expenses from the European business were up 11.8% to £4.4m as a result of increased costs related to the managed services division, and the establishment of a team for the new B2B business unit.

Adjusted earnings before interest, tax, depreciation and amortisation loss for the year fell to £2.4m. Nektan also incurred an exceptional expense of £404,000, relating to fundraising and restructuring costs.

This saw the company’s make an operating loss of £5.5m, up 18.4% year-on-year, and a pre-tax loss of £7.2m, once finance income and expenses were factored in. Following a £230,000 tax credit, Nektan made a full-year loss of £7.0m, up up 13.6% from the prior year.

Despite the full-year loss widening, the supplier reiterated its intention to break even in terms of EBITDA during its 2019 financial year, while Nektan founder and executive director Gary Shaw hailed FY2018 as a “transformational” year for the business.

Following the end of the reporting period, Nektan has struck a deal to sell a 57.5% stake in its US subsidiary for £2.0m, and will raise £1.5m through an equity placing and subscriptions for new ordinary shares.

It will also be led by new chief executive Lucy Buckley, who joined the business on December 3, 2018.

“I am delighted to have joined Nektan at this pivotal point in the company's evolution,” Buckley said following the publication of the company’s full-year results. “The global gaming market, in particular on mobile, is still growing rapidly and I believe Nektan is well positioned to increase its market share and capture new value from emerging markets.

“Our next-generation mobile casino platform, Evolve, is new technology that has been built mobile-first; a key competitive advantage as we see mobile play outstrip desktop and tablet globally,” she explained. “Nektan's extensive experience in managing over 150 casino brands in competitive and highly regulated markets, ensures that new platform features are data driven and experience-led.”