Five things we learned from GVC’s full-year financial results

GVC brushed off regulatory headwinds in 2019 to report a double-digit revenue rise in all key markets as online net gaming revenue increased by 11% in the UK.

As overall revenue reached £3.65bn and Ladbrokes Coral staff were handed a £2.5m bonus, chief executive Kenny Alexander said GVC had navigated a very challenging year with flying colours.

With global regulatory upheaval on the agenda in 2020 – not to mention the looming threat of coronavirus – will GVC be able to post double-digit growth again next year?

It will largely depend on the talking points below:

Will it be woe in Germany or a potential opportunity?

Germany is GVC’s biggest market outside of the UK and accounts for 15% of total revenue. German online net gaming revenue rose 15% in 2019, but the next two years will be truly headache-inducing for the operator’s legal counsel after German states revealed their latest attempt at an interstate treaty. Having scoured the depths of the proposals, the worst reading for operators is a potential €1 limit for online slots, while table games could be outlawed completely.

When asked how this might impact GVC – a market leader in Germany through its bwin brand – Alexander said: “The German regulatory situation – and this is no exaggeration – almost changes day-by-day. Do I think the stake limits around slots will be as low as has been suggested? No, I don’t. I think they will be eased and the final number will be higher than that.

“I would love to be able to sit here and give you clarity about Germany, but there is a lot of uncertainty over timings and also uncertainty over restrictions of the product,” he added.

The outlook in Germany is as clear as mud, then.

US marketing costs bite as GVC plays the long game

GVC’s Roar Digital joint venture made a £12.5m loss in the US for 2019. The JV – launched in combination with MGM Resorts – is expected to gain market share in the US in 2020, having signed recent partnerships with Yahoo Sports and Buffalo Wild Wings. But progress stateside has been slow since Alexander announced GVC’s intention to become the US market leader back in 2018.

Roar Digital has now secured access to 19 US states and plans to be up and running in 11 by the end of this year, ahead of imminent launches in Michigan, Tennessee and Colorado. US sports betting until now has been dominated by New Jersey, but GVC is confident it will capitalise on opportunities in other regulating states where MGM has a particularly strong retail presence.

Discussing the loss, GVC CFO Rob Wood said yesterday: “We have been consistent in saying that every time a large state opens, we will expect losses in year one, broadly break-even in year two, and then reach profitability thereafter. We will however invest what it takes to fulfil our ambition of becoming a leading player.”

Bolt-on acquisitions likely as Georgia entry pays dividends

Georgia shot up the ranks to become GVC’s fifth most lucrative market in 2019, as online revenue increased by 59% following the 2018 acquisition of Crystalbet. Alexander quashed the idea of raising equity for another big purchase, insisting industry consolidation had starved the market of worthwhile suitors, but he did not rule out launching in new markets via M&A.

“The best example of M&A I would like to do is to repeat the Georgia acquisition. It was a market we weren’t in, we bought it, we retained the management and kept them on post-earn-out,” said Alexander. “If we could find another deal like that, then we would definitely pull the trigger on it.”

When asked whether GVC would consider paying its way into new markets with an existing brand, Alexander added: “We’ve toyed with that in the past and weighed up the pros and cons of just using the bwin brand, or any of our existing brands. I think it makes more sense to go in and acquire an established brand with local expertise. Industry examples show that it would be a better and more efficient use of our time and capital to acquire a brand via M&A, rather than to plough in there with our brand and a new team.”

Too soon for coronavirus concerns?

The media coverage of coronavirus is more impossible to escape than the disease itself, and analysts and investors are understandably concerned. Sporting fixtures have already been called off in Italy as speculation continues to mount over the cancellation of book-boosting favourites the Cheltenham Festival and Euro 2020. Coronavirus has already had a negative financial impact on GVC supplier Playtech, but Alexander adopted Jurgen Klopp’s approach when he was asked about the outbreak.

"It's not important what famous people say. We have to speak about things in the right manner, not people with no knowledge like me."

Jurgen Klopp says he is not qualified to talk about coronavirus, insisting he is 'just a man in a baseball cap'. pic.twitter.com/KBeaJ1zggd

— Sky Sports (@SkySports) March 4, 2020

Alexander said: “If sporting events do start to get cancelled on mass, then that is obviously going to have an impact, but I am no medical expert and I don’t know how it is going to play out.”

CFO Wood added: “We have a large retail estate in Italy (Eurobet) but we are fortunate that it is southern-bias in location. So far, there is no material impact being reported from the ground.”

UK still vital despite imminent online clampdown

Alexander was keen to highlight the operator’s performance in the UK as domestic rivals like William Hill search elsewhere for growth, having failed to cope with FOBT stake restrictions and a rise in Remote Gaming Duty. The UK accounts for 35% of total revenue after online increased by 11%, but Alexander admitted it would be tricky to maintain double-digit growth, suggesting the figure could normalise at 6% or 7% in the coming years.

GVC management has highlighted further online growth in Ladbrokes as a key driver of future growth, insisting it is the only UK operator where market share does not match brand recognition.

Alexander said: “We shoot for double digits in all markets, but UK will be toughest. Six percent is banker for sustainable growth, but we will never satisfy ourselves just growing with the market in any of our digital markets. It will be a tough ask but we think we can do it.”

Parliament’s gambling APPG has made no secret of the fact it is seeking a £2 stake limit for online casino, while a review of the 2005 Gambling Act could also see share prices fall across the board. Alexander admitted a £2 limit would be a nightmare, but that GVC would take the blow head on.

“If a £2 limit is put in place in the UK, that is not going to be a good day in the office,” he said. “It wouldn’t be a good day for ourselves, or for William Hill, or Flutter, or anyone quite frankly.

“I don’t think there should be a £2 stake limit and I genuinely don’t think there will be. It would drive business towards the black market.

“We have not put a figure out there in regard to what the hit might be, but if you are growing as fast as we are, we are much better positioned to absorb these sorts of hits than any of our competitors,” he added.