Swedish gaming operator LeoVegas has reported a 3.6% year-on-year rise in revenue for the first quarter of 2020, aided by growth the Nordic region offsetting a decline in revenue from the rest of Europe.
Revenue for the three months to 31 March grew to €89.4m (£78.1m/$96.6m), of which 41% came from Nordic markets, up two percentage points from Q1 2019, thanks to a 10% rise in net gaming revenue for the region.
However, revenue for the region fell 2% sequentially, as a result of new restrictions on bonuses and deposit limits in Denmark, though this was mitigated by continued growth from Sweden.
The rest of Europe, including the UK, saw its share of revenue decline to 46% of the group total, with net revenue down 3% year-over-year. Despite Royal Panda being pulled from the British market, LeoVegas said its remaining brands had performed strongly, aided by their migration to the operator’s proprietary platform at the end of the quarter.
Germany, meanwhile, had been negatively affected by the loss of a key payment solution in September 2019, but continued to recover in Q1.
For the rest of the world, revenue was up 12%, despite a decrease in Canada, and now accounts for 13% of group revenue, up one percentage point.
Of all revenue, 53% came from locally regulated markets, up from 50% in the prior year, but down marginally quarter-over-quarter. This was a result of land-based players in international markets shifting online as a result of the novel coronavirus (Covid-19) pandemic, LeoVegas said.
Looking at revenue by product, casino accounted for 74% of the total, followed by live casino on 17%. While sports betting was hit by the suspension of almost all major sports from mid-March, its contribution remained unchanged at 9% of group revenue.
LeoVegas’ cost of sales, comprising fees for gaming content and payment solutions, declined marginally to €16.0m, while gaming duties increased 18.5% to €13.6m. This left a gross profit of €59.8m, up 3.3% year-on-year.
While marketing and personnel costs both declined – thanks to more efficient operating processes, LeoVegas noted – other operating costs were up 24.6% to €10.1m. This was due in part to some sportsbook operating costs being reallocated to the reporting segment, and a €1.4m loss from foreign exchange fluctuations.
After operating expenses were stripped out, LeoVegas’ earnings before interest, tax depreciation and amortisation was up 24.4% to €9.0m. After depreciation and amortisation charges of €2.6m, and the amortisation and impairment of intangible assets knocking €4.1m off EBITDA, operating profit jumped to €2.2m.
LeoVegas incurred finance related costs of €400,000 during the quarter, but also reported €700,000 in fair value gains. This saw the company swing from a €31,000 pre-tax loss in the prior year to a profit of €2.4m.
Once income tax of €171,000 was paid, LeoVegas’ net profit for the quarter stood at €2.3m.
The operator’s chief executive Gustaf Hagman said during the quarter and into Q2, cancelled and postponed sporting events had resulted in a sharp drop in sports betting revenue.
“At the same time, LeoVegas has likely taken market shares in casino mainly from the land-based industry as well as from competitors that are more sportsbook oriented,” he said. “Our assessment is that the Covid-19 crisis thus far has had a neutral to slightly negative impact on the group’s Swedish revenues.
“Moreover, the assessment is that international revenues have increased somewhat relating to market shares moving from land-based to online gaming,” Hagman explained. “At the same time, we are cognizant of the risk for a global recession, during which people’s leisure budgets would likely decrease, in turn affecting the company.”
He said that regardless of the economic situation, LeoVegas remained focused on protecting customers, actively promoting responsible gambling practices and using algorithms to identify early warning signs of unhealthy play.
“This allows us to act before a customer’s gaming becomes a problem. In addition, we are exercising extra restraint in our advertising,” he said. “Thus far we have not seen signs from our data that problem gaming among our established and new customers has risen, and we are paying great attention at the individual level to ensure that this remains the case.”
It was therefore “unfortunate” that the Swedish government, “on weak grounds” had proposed new operating restrictions, Hagman said.
“If the proposal goes through, the new limits will undermine the existing legislation and drive the most vulnerable players to the black market, where there is no consumer protection.”
Looking ahead to the second quarter, LeoVegas revealed that revenue in April grew 23.3% year-on-year to €37.6m. This was driven by the successful migration of its UK brands to the operators proprietary platform, and improved payment options across multiple markets.
This, it said, was aided by land-based customers shifting online, especially in territories where all bricks and mortar gambling has been shut down. Swedish revenue, however, was flat year-over-year, while there was signs the European gaming market as a whole had contracted during the crisis.
“It is hard to predict the long-term effects for LeoVegas, but the longer the crisis continues, the greater the risk is that revenue will be negatively impacted by consumers’ reduced purchasing power,” Hagman said. “At the same time, an accelerated structural shift is expected from land-based to online gaming, which makes LeoVegas well-positioned for the future.”