Intralot Suffers in First Half

Intralot, a Greek lottery operator and gaming service supplier has announced that it suffered a 55% decline in revenue in the first half of the year. The operator has chalked the lost revenue down to the difficulties the company has faced in Bulgaria and Turkey with regards to its business to business and business to consumer business ventures.

A marina in Istanbul with boats on the water.

Intralot has suggested that its difficult first half was caused by the outbreak of COVID-19, as well as difficulties in the Bulgarian and Turkish markets. ©smuldur/Pixabay

During the six months leading up to the 30th of June, the revenue generated by Intralot declined to €168.2 million. Additionally, during this time, the operator also saw the revenue that was created by its licensed business to business operations plummet to €57.7 million. This loss was significant as the business to business arm of Intralot is a historically strong revenue stream. In the first half of this year, it declined by 74.9%, however.

The main culprit for the reduced intake for Intralot appears to be the upheaval that has been seen in Bulgaria earlier in the year. During February, the Bulgarian gambling commission revoked the license of the country’s oldest betting operator, Eurofootball. The suspension of the license came after the business failed to pay its gambling taxes over a period of three months.

The decision was made by the gambling commission because of the scale of the fees that had not been paid to the state, as well as the interest that these fees were accruing. Overall, the fees totaled some BGN328.9 million (equivalent to €168.2 million). According to Bulgarian law, the government can suspend the license of an operator if there is over BGN5,000 in unpaid fees or taxes and the business does not hold any collateral. As such, the commission was justified in its decision to suspend the license.

According to the operator, the suspended license caused issues with its point-of-sale partners, of which there are nearly 800. Eurofootball also predicted that this would prove problematic for its 2,300 members of staff and beyond this, even to the people of Bulgaria due to the losses the suspension represents in tax revenue.

The suspension had a severe effect on the revenue of Intralot as well. The shut-down of gambling saw the amount generated by the operator fall by €140.3 million. This loss of revenue was compounded by the outbreak of the novel coronavirus, COVID-19. The pandemic and ensuing shutdowns became the norm across the continent of Europe. The virus saw the operator’s revenue fall by a further €17.6 million in Malta and other declines were seen in the Brazilian and Argentinian markets, which dropped by €14.0 million.

Intralot’s business to business division that handles government contracts also underperformed during the first six months of 2020. There was a distinct lack of government contracts awarded to the operator during the first half which saw revenue from this stream nosedive by 73.2% to €11.8 million.

These losses highlighted an area that has been an issue for Intralot for some time now. Back in April of 2019, Intralot lost the contract to manage and direct the sports betting monopoly in Turkey. This ten-year deal was handed to Scientific Games and Demiröen Group rather than Intralot after a lengthy tender process.

The company has had little success in securing lucrative government contracts since it lost out on this deal and this has been impacting the revenue of this arm of the business. In addition to this, the operator also experienced declines in the amount of money that has been generated by the sportsbook operator Bilyoner this year. Intralot owns a 50.1% stake of Bilyoner so has undoubtedly felt the pinch from this declining revenue.

The outbreak of the pandemic did cause issues for Intralot, but the company has stated that due to the lifting of restrictions earlier than had been anticipated in certain regions, the lost revenues were not as severe as was initially expected.

One example of this was in the US. The data collected by Intralot in this region suggests that its operations in this region proved resilient to the pressures of the pandemic. In other markets, such as the one in Malta, restrictions were eased as early as May. This was earlier than had been planned for by Intralot so helped the company to mitigate some of its losses.

This is not to say that the early easing of restrictions was a saving grace for the operator in all of the markets it operates in. For example, in Morocco, lockdown measures were also reduced earlier than the operator had been anticipating. This did not come without its challenges, however, and uncertainty in the market left the operator in a somewhat unstable position as a result.

Intralot’s other business to business division is the technology and support services arm of the company. This did also experience declines in revenues, but the drop was far less pronounced. Overall, this only saw a decline of 5.5%, dropping to €98.8 million. Whilst in a usual year, a drop of 5.5% would not be celebrated, 2020 has not been a usual period for any business so far, so despite being a loss is still positive for Intralot.

The technology and support services department of the business saw increased revenue from the operations in the US because of a new lottery deal that was agreed in Illinois. There was also increased revenue from the British Columbia Lottery Corporation as well as a boost from the Ohio Lottery.

The Bottom Line

Overall, gross gaming revenue for the business to business contributions and the other licensed operations that were carried out Intralot amounted to €133.5 million, a 38.8% decline in the revenue for the same period of 2019. This figure accounts for the amount of money that was paid out by the operator in winnings to consumers, which was €23.0 million, a decline of 67.0%.

In terms of outgoings and costs that were paid by the operator, the costs that were associated with sales closed by Intralot fell in line with the drop in revenue. These dropped by 54.4% to €137.6 million. When these costs are accounted for, the overall gross profit during the first half of 2020 for Intralot stood at €30.6 million, a fall of 59.9%.

Overall, when all of the costs that Intralot was expected to pay such as other administrative expenses are factored in, the company posted earnings of €26.7 million, a decline of 54.5%. This figure also takes into account the interest, depreciation, and amortization the business is expected to pay during the period.

The company also had to pay several other finance-related fees. These included a payment of €25.1 million in interest and a €4.6 million loss that it took from poor investments. This left Intralot with a €42.8 million pre-tax loss for the first six months of 2020, which is a hefty blow to the prospects of the operator considering for the same period of 2019, it posted a loss of just €1.5 million.

Intralot has blamed the difficulties associated with the outbreak of COVID-19 for these less than stellar results alongside the significant issues that the business has faced in the Bulgarian and Turkish markets. The company has emphasized its commitment to changing its strategy to roll with the punches and to deal with issues as they come up.

The operator is hopeful that this revised approach will enable it to better serve its shareholders in the future and to improve its profitability in the coming months. This remains to be seen, however, as the company has been struggling of late. The poor results from this year so far, and the increased net loss in 2019, has left many with little confidence in the future of the business.

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