Online growth fails to offset retail declines for GVC in H1

GVC Holdings has reported an 11.2% year-on-year decline in revenue for the first half of 2020, after online growth failed to offset declines in UK and European retail resulting from the novel coronavirus (Covid-19) lockdown.

Net gaming revenue for the six months to 30 June came to £1.62bn (€1.79bn/$2.12bn), down 10.7% from the prior year, reducing to revenue of £1.58bn after £34.2m in value added tax and duties were factored in.

The vast majority of H1 revenue came from GVC’s online business, which accounted for £1.21bn of the total, a 19.0% improvement on the prior year, or 21.0% rise on a constant currency basis.

This broke down to £752.6m in igaming NGR, up 31.0%, aided by strong performances from the group’s bingo and poker products. In the UK, with bingo halls shuttered due to Covid-19, players migrated online, with GVC estimating that 40% of Gala Bingo players in the period had migrated from retail.

PartyPoker, meanwhile, saw revenue grow around 60% year-on-year. Looking at gaming as a whole, the UK performed particularly well, with NGR 43% ahead of the prior year, and Germany NGR up 18% thanks to a strong performance from the vertical.

Online sports betting NGR grew 4.8% to £484.5m, with a strong margin of 12.8% - up two percentage points - offsetting a 15.3% decline in stakes to £4.70bn.

In the UK, GVC said targeted customer relationship management and tight management of customer bonuses helped limit the decline in betting NGR to 3%. Australia, on the other hand, saw horse racing continue during the pandemic, which led to a successful reactivation of customers from April, and ultimately saw NRG grow 43% on a constant currency basis.

Italian sports NGR ended the half-year period up 11% on a constant currency basis, and Brazil shrugged off the suspension of the Campeonato Brazileiro Serie A to record a 33% constant currency rise in revenue.

The operator also reported £8.0m in B2B online revenue, down 7.0%.

Turning to retail, the impacts of Covid-19 were much clearer. For GVC’s UK retail operation, revenue fell 52.6% to £277.9m, after land-based venues were closed from mid-March to 15 June.

Customers staked £724.8m, down 54.5% from H1 2019’s stakes of £1.59bn, though gross win margin was up 2.5 percentage points to 20.0%, resulting in retail sports NGR of £144.4m. GVC noted that UK retail had been performing well prior to the cancellation of major sports from 15 March and the closure of shops.

Machines revenue fell 57.2% to £133.5m, having already been tracking 28% below 2019 levels pre-15 March, which the operator blamed on the cut in B2 gaming machine stakes to £2.

European retail, comprising shops in Belgium, Ireland and Italy, saw revenue fall 47.6% to £75.5m. For sports betting, amounts wagered were down 54.4% to £379.8m, and revenue fell 44.8% to £59.1m. During the period, all GVC’s European shops were closed for a time due to Covid-19, and other over the counter revenue declined to £15.5m, with machines (already small) contribution cut to £0.98m.

GVC reported a further £20.1m in revenue (down 44.0%) from its smaller brands, such as betting exchange Betdaq, telephone betting operation Telebet and financials business Intertrader.

“Given the unprecedented trading environment, GVC has delivered an encouraging performance in the first half, underlining the strength of our diversified business model and the expertise, adaptability and dedication of our people,” new GVC chief executive Shay Segev commented.

Cost of sales for H1 declined 7.9% to £550.8m, leaving a gross profit for the period of £1.03bn, down 12.9%.

After marketing costs of £249.5m, GVC’s GVC’s contribution - earnings after all direct costs are removed - stood at £782.2m, down 15.4%.

Once a further £423.2m in operating costs were factored in, earnings before interest, tax, depreciation and amortisation for H1 declined 4.7% to £359.0m.

When total administrative costs of £824.5m were factored in (comprising £112.1m in depreciation and amortisation charges, and £25.3m in separately disclosed items) operating profit for the half amounted to £207.2m.

While this marks a significant improvement on 2019’s £37.0m figure, the prior year included £224.4m, mainly related to the amortisation of acquired intangibles, in exceptional items.

GVC also recorded an £8.6m loss from its share of joint ventures, ie the Roar Digital joint venture with MGM Resorts, its H1 operating profit amounted to £198.6m. After finance costs including £42.7m in financial expenses and a £126.0m foreign exchange loss, pre-tax profit came to £24.8m.

Once income tax of £22.7m was factored in, GVC’s net profit for the first half stood at £2.1m, flat year-on-year.