Evolution NGR up 15% despite cyber attacks and Georgia strike action
Evolution’s net gaming revenue (NGR) increased by 14.7% year-on-year to âŹ519.4m in Q3 despite strike disruptions and targeted cyber-attacks in Asia impacting earnings during the three-month period.
NGR growth for Evolution was up to 19% in constant currency, largely driven by live casino gains, once again. Â
Total operating revenues were up by 27.9% to âŹ579m thanks to a one off âŹ59.7m related to reduced earn-out liability. Â
Live casino recorded double digit growth of 16% year-on-year, as new tables were launched by Evolution during the quarter in Colombia and Czech Republic.Â
RNG growth ticks up on vertical improvements and increased releasesÂ
After a number of consecutive quarters of its random number generator (RNG) business struggling, Q3 growth came in at 8.5% to âŹ72.5m. This segment comprises slot businesses NetEnt, Red Tiger, Big Time Gaming and NoLimit City. This is also up on the âŹ70.3m reported in Q2.
âWe are beginning to see the results of our incremental improvements in the RNG offering,â CEO Martin Carlesund said. The supplier initiated a turnaround effort of its RNG product earlier in the year, increasing its game releases and developing new features to improve the gameplay experience.
Georgia strike action impacts earnings Â
Addressing the ongoing strike action at its Georgia operations, which started in July, Carlesund said the company had managed to offset lost capacity by beefing it up across other studios. The Georgia studio is currently operating at 60% capacity, with around 550 employees involved in the union action. Â
âWe are able to offset lost capacity using other studios to limit the impact on our customers but overall, the disruption has had a negative effect,â he said. Â
In a note, Regulus Partners said the actions have âclearly impacted both growth and marginâ. The consultancy says additional disruptions could be damaging as the Georgian business makes up 40% of the group and is an integral operation. Â
âThe situation is now described as stable, but the danger is that trouble continues to disrupt a Georgian workforce of 7,000 out of 18,000 across the group (40%), albeit only 550 (8%) of the workforce went on strike during the quarter,â it said in a note on Evolutionâs Q3 earnings. Â
Georgia studio âtoo big to be replacedâ says Regulus
âGeorgia is too big and historically too efficient to be easily replaced, in our view. To put the flexibility as well as the scale of Georgia into context, the next largest dealer pool is in Latvia (c. 3,200 total employees), where the average salary across the country is c. 2x higher and labour laws are stricter.â Â
Carlesund said Evolution did support the rights of workers to participate in unions. But it said a small number of union-affiliated activists had illegally disrupted operations on 1 August, including âvandalising buildings, taking violent actions and harassing working employees in actions that had caused the company to down-size its capacity at the studio. Â
âCurrently, the situation in Georgia is stable and we will continue to rebuild and increase capacity in other locations in the network over the coming quarters to be able to support future growth,â he said. Â
Asia cyber-attacks could indicate an end to growth in the regionÂ
On Asia, the Evolution CEO noted various cyber-attacks against its Asian video distribution. He said Evolution had beefed up its cybersecurity and had successfully countered the attacks. Â
âWe continue to see attacks and we will continue to aggressively scale up counter measures,â he said.
Regulus warns the attacks could continue and a cycle of disruption is likely to mount. They estimate the attacks could be linked to the closure of the POGO sector in the Philippines, which has unearthed various criminal groups and activities. Â
âIt is also possible that the cyber-attacks are linked to the coming closure of POGOs in the Philippines, of which Evolution might be a significant beneficiary, much to the chagrin of the losers (some of which have been linked to mass people trafficking and serious organized crime). Whatever the reasons and potential upside, Evolutionâs period of easy Asian growth with few questions asked and no local response now seems to be over, in our view,â the note said. Â
Asia revenue grew from âŹ172.1m in Q3 last year to âŹ202.2m (up 17.5%), despite the disruptions. Â
Finally, Evolution group EBITDA increased by 30.3% to âŹ415.3m during the period, corresponding to a margin of 71.7%. Profit amounted to âŹ328.6 million.
