Restructuring costs hit LeoVegas’ earnings in 2019

Online gambling operator LeoVegas has reported a sharp year-on-year decline in profit for 2019 as a result of depreciation, amortisation and impairment charges, despite seeing consolidated revenue increase by 9%.

Revenue for the 12 months through to 31 December 2019 amounted to €356.0m (£296.4m/$386.2m), up from €327.8m.

LeoVegas did not publish further details about its full-year revenue at this stage, but did give an insight into spending for the year. Marketing was the operator’s main outgoing, with costs amounting to €118.5m, though this was slightly lower than €120.8m in the previous year.

Personnel costs increased by 20.5% year-on-year from €41.0m to €49.4m, while other operating expenses were down from €41.2m to €34.5m.

Depreciation and amortisation costs jumped 108.2% to €10.2m and expenditure related to amortisation and impairment of acquire intangible assets, including goodwill, was up 52.6% to €26.7m.

These charges pushed operating profit down from €19.2m in 2018 to €12.7m. Profit before tax dropped by 76.9% to €10.3m and, after paying tax of €730,000, net profit for the year was €9.5m, compared to €43.2m in 2018.

However, LeoVegas did see adjusted earnings before interest, tax, depreciation and amortisation improve from €41.1m in 2018 to €44.2m last year.

“During 2019 we worked hard to reduce complexity in the group, be more efficient and adapt to the changes taking place in the gaming industry,” LeoVegas chief executive and president Gustaf Hagman said.

“In parallel with this we have enhanced the attraction of our product through new functionality and greater personalisation. We have launched new brands, focused more on Casino, and expanded to new markets.

“Towards the end of the year we intensified the integration of our previous acquisitions, which is expected to contribute to cost savings and increased economies of scale.”

Focusing on the operator’s performance in the fourth quarter of 2019, revenue was up 3% year-on-year to €87.1m. LeoVegas was boosted by a 7% rise in the total number of depositing customers in the period, while returning depositing customers was also up 14%.

In terms of product performance, casino accounted for 72% of gross gaming revenue in the three months to 31 December 2019, with live casino on 19% and sports betting 9%.

The Nordics were the main source of income for LeoVegas in Q4, accounting for 45% of total gross gaming revenue, ahead of the rest of Europe on 42% and the rest of the world on 13%.

However, net gaming revenue was down 1% year-on-year, despite the operator noting growth in the Swedish market. Rest of Europe revenue was down 6%, with LeoVegas citing weak development of its Royal Panda brand in the UK as a particular concern in the quarter.

Personnel costs for the quarter were up slightly to €12.3m, but other operating costs were down year-on-year. Marketing expenses were lowered from €32.0m to €29.9m, while other operating expenses were down from €11.6m to €8.1m.

However, LeoVegas noted higher depreciation and amortisation costs of €2.7m, while amortisation and impairment of acquire intangible assets rocketed 251.2% to €14.4m.

As a result, LeoVegas reported an operating loss of €2.5m for the quarter, compared to a profit of €2.6m last year. Loss before tax totalled €3.2m, a stark contrast to a profit of €22.3m in Q4 of 2018, while net loss amounted to €3.0m, compared to a profit of €22.1m last year.

“A couple of weeks ago we communicated a number of strategic decisions coupled mainly to the UK and our ambitions to create a less complex and more scalable organisation,” Hagman said.

“These initiatives gave rise to one-off restructuring costs that affected fourth quarter earnings by a total of €6.1m and are expected to lead to annual cost savings of approximately €3.7m. The savings consist mainly of platform and product costs, a more efficient organisation and more optimised premises.

“As previously communicated, we are addressing the challenges in the UK by migrating all of our brands in the UK to our proprietary technical platform. In parallel with this we are refining our brand portfolio and closing Royal Panda in the UK.”

However, he added, the measures would allow for a more focused and efficient operation, that would open up economies of scale within the group.