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AfricaMoney | September 21, 2017

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Lottotech’s earnings dented by tight measures on gaming sector in Mauritius Budget 2015

Lottotech’s earnings dented by tight measures on gaming sector in Mauritius Budget 2015

Mauritian gaming major Lottotech has seen its financial performance dampened by tighter government controls on the gaming industry, leading to a 98.7% drop in profits and a 61.9% decline in gross ticket sales for the six months ended June 2015. (Image: Company)

Mauritius gaming major Lottotech Ltd has seen profits decline by a towering 98.7% to Rs 1.4 million against Rs 113.5 million in the same period of 2014,while its net income was down 43.9% to Rs 235.8 million for the six month from January to June 2015, upon drastic measures taken against a ‘Nation Zougadere’(literally translating to ‘Gambling Nation’) in Budget 2015.

Lottotech recorded a drastic drop in gross tickets sales, which declined by 61.9% to reach Rs 901.6 million, leading to lower profits for the six month ended June 2015.This was mainly attributed to lower sales upon decline in aggregate jackpots being advertised.

Furthermore, these dampened results were driven by the measures announced in the March 2015 Budget. For instance, as a result of the ban on Quick Win games effective 30 June 2015, there was an exceptional inventory write off of Rs 26.1mmillion.Had the impact of exceptional items as a result of the budgetary measures not been felt, the company would have registered a profit before exceptional items and tax of Rs 41.9 million.

The performance of the company for the period under review has been adversely affected by stringent budgetary measures to ban Quick Win cards and to prohibit advertising of the lottery. In addition, Loto sales for the six months ended 30 June 2015 were lower compared to the corresponding period in 2014 as the aggregate Loto jackpots were Rs 576million lower.

As a result of the budgetary measures, the company has restructured its operations during the second quarter of 2015. This restructuring exercise resulted in a staff reduction of 30% which, in turn, led to an exceptional severance payment of Rs 6.2million.

The balance sheet side shows shareholder funds of Rs 101.8 million, and, compounded by an unfavourable cash flow position, the earnings per share now stand at a reduced Rs 0.00 per share against Rs 0.33 in 2014.

It may be noted that the government declared that regulations for the gaming industry included a total ban on advertising and issue of license for a period of 5 years (except for new casinos) making it difficult for both new entrants and existing players. Existing players will also be impacted by an increase in license and fees together with limitation on range of games given a ban on scratch card games and relocation of all gaming house outside city centres.

The company has implemented various initiatives to sustain profitability over the next six months and into the future. Loto remains a flagship brand of the company.

Meanwhile, the board continues to work with management to ensure that the company is taking appropriate actions to mitigate the impact of the budgetary measures and protect the value of the company. An independent consulting firm was contracted to fulfil two engagements during the second quarter.

The first engagement centred around conducting an independent review in connection with the Quick Win inventory balance as of 02 June 2015, and severance costs payable. The company intends to seek compensation from the Gambling Regulatory Authority (GRA) for the exceptional inventory write offs and severance which were caused by the 2015 budgetary measures.

The second engagement was to conduct a review of the contribution rate to the Consolidated Fund with a view to enabling the company to establish and negotiate independently a revised contribution rate with the GRA with regards to Lottotech’s contribution to the Consolidated Fund. The results of the negotiations with the GRA will determine the level of profitability of the company going forward.

Lottotech Ltd, listed on the Stock Exchange of Mauritius since 11 June 2014 after a successful public offering with a subscription ratio of 2.99 times, has seen a tumble in its share price on the Stock Exchange of Mauritius (SEM), following measures announced in the budget against the gambling industry. The gaming major’s shares are currently trading at Rs 5.00 representing a drop of 52.8% since the beginning of 2015.

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