Novomatic Records Low Profits Despite Revenue Spike in H1
One of the world’s most renowned iGaming companies, Novomatic, recently published its financial report for H1 2023. The figures in the report are bittersweet for the company as the revenue has soared 20 percent year-on-year (YoY) but the increased operating costs have reduced the profits in the first six months of this year. The operating profit (EBIT) rose by 22 percent but the free cash flow figures continued to plummet after multiple acquisitions.
Revenue rises for Novomatic but costs slash profits.
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Novomatic is one of the most popular gambling brands in the world and has been operating in the gambling sector for over 40 years. As time passed by, the company gained traction and climbed up the rankings to become one of the largest gambling and iGaming operators in the world. After completing 30 years in this industry, offering gambling services via brick-and-mortar casinos, Novomatic decided to establish an iGaming vertical. The Austria-based company completed a majority-stake acquisition of the United Kingdom-based Greentube Studio in 2010. The expansion continued five years later as Novomatic acquired Bluebat Games Studio via Greentube in 2015. Acquisition of the Canadian-based entity enabled Novomatic to enter the North American iGaming market, where it continues to expand to date. In 2018, Novomatic completed its largest acquisition in eight years after splashing €300 million to acquire 52 percent of Australia-based Ainsworth Game Technology Limited. Strategic developments over the past decade have helped Novomatic enter markets across all continents worldwide.
Operating more than 2,000 casinos and gaming facilities in about 50 countries, Novomatic has become a renowned brand. It primarily operates via the Admiral Casino brand. As the Austrian company entered the iGaming market, it saw potential in the B2B vertical as well. That is when Novomatic commenced the development of iGaming solutions. The leading product in this category is NovoVision – a casino management system. Utilizing its own experience in the world of casinos, Novomatic created a product that eliminated issues that were faced by the company itself. Featuring a contemporary, dynamic, and flexible Content Management System (CMS), the company released state-of-the-art software to streamline tedious processes, boost operational security, and increase convenience for guests. Apart from NovoVision, the company also created gaming platforms and online sports betting solutions. This year, annual revenue growth of €3.2 billion has been projected for the company which has almost 22,000 employees in various corners of the planet.
The target could be achievable as Novomatic has reeled in revenue of €1.58 billion in the first half of 2023. In the corresponding period last year, the total revenue was €1.32 billion. The increase of €263.6 million has resulted in a 20 percent YoY increase in revenues from all segments. The EBITDA was up by almost four percent, rising from €371.7 million to €386.1 million. The operating profits increased by 22 percent as they touched €197.8 million. According to Novomatic, the biggest YoY revenue spike came in the B2B segment of slot machines. A total of €124.5 million was collected in rent for the slot machines, marking a 20.8 percent YoY increase. The performance of the Austria-based company in Europe stayed over par as revenue spikes were recorded in multiple regulated jurisdictions including Germany, Italy, and other Eastern European countries. Revenue increased by over €40 million in Germany, while an increase of almost €26 million was recorded in Italy. The combined revenue increase in Eastern European countries amounted to a total of almost €25 million.
Greentube’s rampant growth in North America and LATAM
The decision to acquire Greentube over a decade ago has paid off for Novomatic as the subsidiary continues rampant expansion across several competitive markets. Last year in March, Greentube announced a strategic partnership with a leading iGaming operator, Betsson. The deal was struck exclusively to bring a set of slot titles like Star Supreme, Book of Ra, and more to Buenos Aires in Argentina.
As one tie-up with a renowned iGaming company was confirmed in South America, Greentube established another significant partnership in North America in December last year. The Novomatic subsidiary entered the gambling market of Ontario after establishing a partnership with another iGaming giant, Entain. Greentube was already active in several gambling jurisdictions in North America and the entry in Ontario just boosted its expansion in the region.
Greentube has continued its strong performance this year too. In June 2023, the subsidiary secured yet another gambling license in North America as it entered the market of Pennsylvania. This move enabled the operator to offer games like Diamond Cash and the Thunder Cash series in the jurisdiction. These games have already gained a lot of traction in several other jurisdictions and are expected to perform the same way in Pennsylvania.
Profits slashed due to finance costs
The significant spikes in revenue signify growth in all segments and verticals of Novomatic. However, the concern stems from the company’s low-profit figures. Towards the end of last year, Novomatic made one of the largest transactions in its history to complete the majority-stake acquisition of HBG Group. The acquired company is one of the biggest gambling operators in the regulated jurisdiction of Italy. Apart from online gambling, HBG also offers online sports betting and online bingo.
After completing the take-over, Novomatic ended the year with another majority-stake acquisition, by nabbing a majority stake in Serbia’s leading live gaming casino company, Grand Casino D.O.O. With this deal, Novomatic could offer live gaming in the Serbian jurisdiction for the first time and also increased its market share in the gambling market of South-East Europe. However, all these acquisitions increased several costs including capital for acquisition, funds for hiring or retaining employees for the acquired company, and other operational costs.
This activity has taken financial costs from €0.6 million in H1 2022 to €36.6 million in the first six months of 2023. This staggering increase combined with increased interest rates and inflation has eaten up a hefty chunk of profits that were recorded by Novomatic. In the H1 2023 financial report, the Austria-based operator has confirmed a pre-tax income of a little over €161 million. This figure came down to €98.3 million after taxation. During the corresponding period last year, the sum after taxation was almost €123 million.
