Intralot revenue and profit decline continues into Q3

Lottery and gaming solutions provider Intralot has once again reported a year-on-year decline in quarterly revenue, with the total for the three months to 30 September falling 5.4%.

Reported consolidated revenue for the third quarter of Intralot’s financial year fell to €177.5m (£151.6m/$195.5m), with each quarter for 2019 to date falling below 2018’s figures.

In Q3, this decline was blamed on forex headwinds hitting revenue from Argentina, while the revised payout strategy for its Bulgarian sports betting operating continued to result in lower revenue from the market.

Turkish revenue also fell, as a result of its Inteltek joint venture with telecommunications giant Turkcell losing the contract to operate the Iddaa sport betting monopoly.

However, Intralot added, this was partially offset by increased US sales, aided by the start of a new contract to power the Illinois State Lottery. It also reported an improved sports betting performance in the Netherlands, where it provides technology to Nederlandse Loterij.

On a constant currency basis, however, Intralot noted that even including the negative €12.1m FX impact from Argentina, revenue would have been up marginally at €189.6m.

Revenue was derived largely from licensed operations in Q3 - ie, B2C activity - which accounted for €110.0m or 62% of the total, followed by technology supply contracts, which made up €53.3m (30%). A further €14.2m (8% of revenue) came from game management contracts.

Cost of sales declined 2.1% during the quarter to €150.6m, which left a gross profit of €26.9m, down 20.2% year-on-year. Earnings before interest, tax, depreciation and amortisation fell to €20.1m, predominantly due to the Turkish operations being discontinued, and increased marketing expenses related to its Bilyoner sports betting agent.

While Intralot recorded an additional €3.7m in other income, this was wiped out by other expenses, including €18.2m in administrative costs and €9.0m in selling expenses, both up year-on-year. Research and development costs increased to €742,000 with other operating expenses climbing to €3.7m.

Coupled with lower profits, this led to a €1.1m loss before interest and tax, compared to a €12.3m profit for the prior year. Once finance-related costs including interest payments of €13.4m and a foreign exchange gain of €1.8m (down from €6.3m in Q3 2018) were factored in, Intralot’s operating loss for the quarter stood at €4.4m.

After tax of €3.1m was paid, the company’s total loss from continuing and discontinuing operations stood at €7.5m.

Heading into the end of Q3 and beyond, Intralot made significant progress on disposing of non-core assets, agreeing the sale of its stake in Hellenic Lotteries to OPAP for €20.0m on 18 September. This was followed by the sale of its stake in Italian operator Gamenet to private equity firm Apollo Global Management for €78.0m, for which the transaction is awaiting regulatory sign-off to be completed.

Furthermore, its US subsidiary Intralot Inc was awarded a contract to provide sports betting technology to the New Hampshire Lottery Commission, which will see it roll out its solutions to more than 1,300 retailers in the state early next year.

Group chairman and chief executive Sokratis Kokkalis said this would boost the operator’s cash position and reduce its net debt, with the benefits to be recorded in its 2019 results.

This new contract and asset disposals were two key elements of it three-pronged approach to returning the business to growth, alongside reducing costs.