GVC proposes special dividend as 2013 results exceed expectations

After reporting full year results for 2013 ahead of market expectations, UK-listed online gaming operator GVC Holdings said Wednesday that it is ready for the next stage in its corporate development and further geographic expansion through organic growth and acquisitions.

Revenue rose 69 per cent to €180.6m for the full 2013 year following the acquisition of Sportingbet's non-Australian business last March, with the company generating more than €1.2bn in sports wagers during the period.

GVC said that the business of Sportingbet was “profoundly indebted, loss-making and cash-burning”, but in the nine and a half months since acquisition, the company has converted these substantial losses into a profit of just under €5m. Of this, the majority was generated in the back-end of the year, with €3.8m being earned in Q4 alone.

“Executing the complex acquisition and turnaround of Sportingbet has been a milestone for GVC and has led to greater geographical diversification and a significant increase in profits and dividends,” said GVC CEO Kenneth Alexander.

2013 Results

Total sports wagers soared by 125 per cent to €1,169.5m during the year, of which more than half was generated by Sportingbet (€661.9m).

With a sports margin of 9.6 per cent, compared to 11.3 per cent the previous year, GVC reported total revenue of €180.6m, which was equally split between sports betting (€90.8m) and gaming (€89.8m).

Sportingbet’s online gaming products brought in €35.2m, up 35 per cent year-on-year, helping to offset a 2 per cent drop in gaming revenue from GVC’s existing business.

Total net gaming revenue soared 179 per cent to €168.4m, with Sportingbet’s contribution amounting to €74.7m and the remainder generated by GVC’s existing business.

GVC said that it has been investing in its mobile product and has witnessed a significant increase in the take-up of mobile to around 19 per cent of sportsbook NGR, although from a low base of around 10 per cent.  

In-play betting continues to grow and now represents around 70 per cent of the sports wagers placed, with football, tennis and basketball represent around 90 per cent of customer wagering.

Total operating costs rose significantly by 278 per cent to €88.5m, which included restructuring costs of €11.9m as well as other transaction costs of €9.3m related to the acquisition of Sportingbet. Personnel expenditure rose 201 per cent to €32.5m, while technology costs soared 593 per cent to €19.8m.

Despite these increases, operating profit rose 8 per cent to €14.1m during the year, with profit for the period amounting to €12.3m, up 33 per cent year-on-year.

Alexander said that the company is ready for further acquisitions and investments, but said that whatever the size of the transactions, none will be considered if they might undermine the maintenance of the dividend for its shareholders.

“We are now ready for the next stage in our corporate development and further geographic expansion through organic growth and acquisitions,” said Alexander. “GVC aims to deliver this without diluting the dividend.
 
“The board is confident of meeting current market expectations for the 2014 financial year as underpinned by our proposed dividend of 16 cents total.”

GVC has proposed a final dividend for 2013 of 11.5 cents, as well as an additional special dividend of 4.5 cents, reflecting results ahead of recently upgraded market expectations. As a result, the total dividend for the year has risen 120 per cent to 48.5 cents.

In the next 12 months, GVC said that it will seek to accelerate its penetration in Brazil, the host nation of the FIFA World Cup, drive further synergies from the Sportingbet acquisition, while improving its product offering, particularly mobile and continuing to grow the many markets in which it operates. The company will also devote more executive time to non-dilutive investment and acquisition opportunities.

GVC added that current trading is at record levels, with NGR for the first quarter exceeding €50m for the first time, compared to €35.6m a year ago. Sports wagers are averaging €3.8m per day, with NGR up by 41 per cent following a sports margin of 10.1 per cent. Gaming revenue has also increased across all of the group's markets and is expected to benefit further from the company’s continued investment in mobile.

Analyst Edison investment research said that GVC had beaten the odds, reporting 2013 results ahead of analyst expectations despite currency and market headwinds.

“Management has shown that it can execute well on deals, with Sportingbet turning in a profit compared with the breakeven we had expected,” said Edison’s Jane Anscombe. “It has clearly signalled that is it keen on making further acquisitions to absorb into its sports betting platform, but not at the expense of cash generation and dividend payments.
 
“GVC has a much greater than average exposure to ‘unregulated’ online gambling markets, but for investors prepared to accept those risks, cash is king.”

Analyst Daniel Stewart & Company reiterated a Buy recommendation on the company and has forecast revenue of €191.6m for this year, which would be an increase of 6 per cent.

“Football World Cup in Brazil 2014 provides a positive backdrop for the business which is well placed to generate further shareholder returns in our view,” said Daniel Stewart’s Michael Campbell.

As at December 31st the company held cash and cash equivalents of €18.8m compared to €6.6m a year ago.

Shares in GVC Holdings plc (Co. Data) (AIM:GVC) have gained 5.64 per cent to 401.45 pence per share in London this morning following the announcement.