The German sportsbetting group FLUXX is aiming for a return to profitability in 2008, and judging by the first quarter results released last week, the odds are good that it will achieve management's ambitions.
Quarter 1 2008 results were encouraging, with the gaming specialist improving both its revenue and earnings. Revenue doubled from Euro 14.0 million to Euro 28.3 million, with Euro 6.8 million of this amount contributed by Sportwetten.de, which is included in the consolidated accounts for the first time. The adjusted revenue growth was around 52 percent.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) were increased from Euro 1.7 million in the first quarter of 2007 to Euro 2.1 million in the first quarter of 2008, and investments acquired over the past two years such as the sports betting, casino & poker outfit myBet; the Spanish lottery agent DigiDis and Sportswetten.de made a positive contribution towards the result.
The core activity of lottery agency business in Germany was severely hampered by the new regulations governing the gaming market, Fluxx said in a statement. Since the start of this year the State Treaty on gaming has made it more difficult both to market products and to register new customers. There was consequently a quite substantial drop in income from commissions and handling fees.
Despite these more difficult conditions, Fluxx succeeded in improving its earnings before interest and tax (EBIT) from – Euro 792 000 in Q1 of 2007 to – Euro 377 000 in the first quarter of 2008. Consolidated earnings improved from – Euro 637 000 to – Euro 519 000, some Euro 400 000 of this loss attributable to start-up costs for the British subsidiary JAXX UK, which commenced trading at the end of 2007. Sportwetten.de contributed around Euro 48 000 to the improved Q1 result.
Management takes a bullish view of the second quarter, where a rise in sales, especially in the sports and horse betting areas, is anticipated. The European Championship – one of the year's top sporting events – will be taking place in Austria and Switzerland at the start of June, and all betting platforms of the Fluxx group stand to benefit from this occasion.
Business in the UK in particular, which will become increasingly important in the future, should acquire critical momentum as a result of the European Championship. The investment-intensive start-up phase of JAXX UK is scheduled to be completed by the end of the year.
Horse betting business will receive a boost on the one hand from the start of the summer season and on the other hand from the forthcoming inclusion of US races on the platform Pferdewetten.de. There are also plans to include the products of Pferdewetten.de in the JAXX platform in the second quarter, increasing the customer base for the horse betting products of the newly acquired subsidiary Sportswetten.de more than ten-fold. Sportwetten.de recently signed a partnership agreement with America’s Magna Entertainment Corporation to offer betting services at leading US racetracks.
The company is hopeful of a more liberal legal approach to gambling in Germany, noting that in France and Spain this was already materialising, and that despite the State Treaty on gaming having taken effect in Germany, individual regional councils appear to have doubts regarding EU enforcability and are suspending court orders and rulings by referencing the conflicted European legal position.
Administrative courts in Cologne (North Rhine-Westphalia), Giessen (Hesse), Stuttgart (Baden-Württemberg) and Schleswig (Schleswig-Holstein) have all expressed doubt on the compatibility of the State Treaty with EU law and have referred the matter to the European Court of Justice for clarification.
Fluxx highlights two key legal events in the immediate future:
* The extended deadline for the Federal German government to submit a statement of position to the European Commission expires on June 2. The Commission has made it clear since the end of January that it will bring an action before the European Court of Justice if its criticisms of the new State Treaty on gaming are not addressed.
* On June 8 the Federal Supreme Court in Germany will be announcing its verdict on the competition dispute between the Federal Competition Authority and the lottery companies, which are accused of anti-competitive practices. Even if the proceedings are based on the old legalization, observers expect the court to provide an indication of whether it considers the State Treaty to be lawful. Reports suggest that in the oral proceedings held at the end of April, the court had already voiced the opinion that particularly the ban on lottery agency activities over the Internet was clearly incompatible with European law.
The Management Board of Fluxx AG confirmed its forecast of double-digit revenue growth for 2008 as a whole.
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