JAXX Issues 2009 Profit Warning

Shares in JAXX AG have slumped by over 10% in Frankfurt this morning as the company warned that its profit target for the year was unlikely to be fulfilled after recording a net loss of €3.9 million for the first nine months of 2009, despite revenues increasing 3% to €88.9 million as the company continues to reposition itself as a sports betting rather than a lottery provider.

With margins stabilising during the third quarter following the exceptionally weak margins recorded in Q2, revenues from sports betting increased 26% to €62.1 million for the nine month period, with 44% of betting stakes generated online and 56% via offline terrestrial channels. Sports betting now accounts for 71% of the company's total revenues.

Sales from the JAXX's lottery product fell 15% to €14.5 million with continued growth in the Spanish market offsetting the company's exit from the German syndicate business, while revenues from horse betting contributed a further €12.3 million during the period, down 39% on 2008 levels, with third quarter revenues well below last year's figure.

Operating expenses fell 10% to €7.8 million in the third quarter as the company launched a restructuring programme to cut costs by making use of synergy benefits and combining departments. As part of the short-term cost savings, personnel cutbacks of more than 10% have already been made while service contracts and commission agreements have also been renegotiated.

The company said that operations such as software development and customer service, as well as product divisions, will be merged to avoid duplication of activities and costs.

For the nine month period, cost of sales including betting winnings increased 6% to €56.9 million, while personnel expenses were up marginally to €7.6 million. Other operating expenses including marketing remained stable at €24.4 million.

As a result the company reported a net loss for the period of €3.9 million versus a net loss of €1.2 million in the corresponding period last year.

JAXX said that the fourth quarter is generally considered the strongest due to seasonal factors, with the football season in full swing and sales of tickets for the Spanish Christmas Lottery traditionally soaring in the final few weeks of the year.

Fourth quarter revenues are expected to show a general improvement on the previous two quarters, however the company warned that it was unlikely the profit targeted for the quarter will be able to compensate for the accumulated loss of the first nine months. The company remains confident however that a turnaround can be completed next year based on measures in progress to expand business and reduce costs.

As at September 30th the company held cash and cash equivalents of €9.4 million compared to €12.9 million last year.

Shares in JAXX AG (Co. Profile) (FXXN) have fallen 10.53% to €1.53 per share this morning in Frankfurt following the announcement.