“Record” Q2 drives first half growth for NetEnt

Slot specialist NetEnt has credited a strong second quarter performance for helping the business return to organic growth and record a year-on-year increase for the first half of 2020.

However, rising costs drove down profit for both the three months and six months to 30 June.

Total revenue for the first half rose 30.2% to SEK1.09bn (£95.7m/€105.5m/$120.1m), which broke down into SEK1.05bn from licensing agreements (up 31.7%), with a further SEK19.5m in set-up fees and SEK24.4m in other revenue.

Excluding non-recurring items, earnings before interest, tax, deprecation and amortisation for H1 came to SEK567m, up 42.8%.

Costs rose significantly during the first half. Personnel expenses grew to SEK268.3m, while depreciation and amortisation charges jumped 52.3% to SEK215.3m.

NetEnt incurred a further SEK293.9m in other expenses, up 53.4% from H1 2019. This left an operating profit of SEK312.7m, a 22.1% advance on the prior year’s SEK256.1m.

In a period where NetEnt opted to integrate Red Tiger – acquired in September 2019 – into the wider business and accelerate the earn-out for the vendors, financial expenses rose markedly, from SEK27.4m in 2019 to SEK205.9m.

While this was mitigated in part by increased financial income of SEK80.1m, this resulted in profit before tax falling 28.6% to SEK186.9m. After income tax of SEK16.4m, profit for the first half of 2020 was down 29.0% at SEK170.4m.

This followed a second quarter which NetEnt chief Therese Hillman (pictured) described as a record for the supplier, and saw the business return to organic growth thanks to a strong US performance.

Revenue rose 36.5% year-on-year to SEK572.6m, with 89% of gross gaming revenue coming from slots, and the remaining 11% from table games.

The UK was NetEnt’s largest single market for the quarter, accounting for 21% of revenue – up from 15% in Q2 2019 – though the Nordic region’s contribution of 16% is now almost half that of the prior year.

The US continues to perform strongly for the business, during a period where igaming revenue has soared in states such as Pennsylvania and New Jersey. It now accounts for 10% of group GGR, with New Jersey’s contribution up 148% year-on-year, and Pennsylvania revenue doubling quarter-over-quarter.

A further 41% of GGR came from other European markets, with 12% coming from the rest of the world. NetEnt noted that 53% of revenue came from locally regulated markets in Q2.

“Overall, the second quarter was strong for both NetEnt and Red Tiger, resulting in record revenues, earnings and cash flow for the Group,” Hillman said. “On a proforma basis, the Group’s total revenues increased by 15% in euro compared to the same period in 2019.”

Excluding SEK13m in transaction costs related to Evolution Gaming’s SEK19.6bn offer to acquire NetEnt, earnings before interest and tax for the quarter amounted to SEK312m, up 55.2%.

As in H1, operating expenses rose significantly, up 31.0% to SEK379.0m, with personnel costs and depreciation and amortisation rising. Despite this, the higher revenue saw operating profit rise 48.8% to SEK193.5m.

Much of the increased financial expenses was then realised in Q2, dragging down group profit. Financial costs rose to SEK116.2m, compared to SEK15.2m in Q2 2019, with financial income rising to SEK21.1m. This left a pre-tax profit of SEK98.4m which after SEK10.0m in income tax left a net profit of SEK88.5m, down 26.3% year-on-year.

“Hard work and transformational steps taken in the past year are now starting to create value,” Hillman said in conclusion. “We remain fully committed to continue on this path and with growth engines such as US, Red Tiger and live casino, I feel that we are well positioned to continue delivering profitable growth and strong cash flows for the rest of this year and onwards.”