Business

SVL bottom line squeezed by 'economic realities'

BY JULIAN RICHARDSON Assistant business coordinator richardsonj@jamaicaobserver.com

Wednesday, March 05, 2014    

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LOTTERY operator Supreme Ventures Limited (SVL) posted a 55 per cent decline in net profits last year despite higher sales in most of its gaming products.

Annual revenue grew 15 per cent to $34.1 billion during the year ended December 31, 2013, led by a 21 per cent rise in Cash Pot sales to $23 billion. But SVL's net profit dipped by 55 per cent as direct expenses jumped by a fifth to $30.8 billion.

"While the higher revenues reflect our efforts at achieving sustained business growth, the increased direct expenses remind us of the economic realities of our operating environment," Brian George, SVL's president and CEO, told the Business Observer yesterday.

"The Supreme Ventures Group bears an enormous and increasing tax burden, which when combined with its devaluation-sensitive costs and a stagnant VLT (Video Lottery Terminal) market segment, resulted in a challenging business environment," he said.

The significant increase in direct expenses was partly driven by a $3.1 billion or 18 per cent rise in lottery and sports betting prizes against the background of increased Cash Pot liability, which was 74.54 per cent in 2013 compared to 70.94 per cent in 2012 amid a game design of 72.22 per cent.

Additionally, lottery and gaming taxes were 13 per cent higher, contributions and the regulator's levies rose by 84 per cent, and service contractor fees were up by 26 per per cent primarily due to the devaluation of the local currency, SVL said. A decline in margins from SVL's Pin Code business, due to reduced rates received from telecommunications partners, was also reported to have impacted the company.

While Cash Pot continues to surge in popularity, SVL saw increased sales as well in Lotto, by 10 per cent to $1.1 billion; Super Lotto, up 24 per cent to $646.6 million; Lucky 5, up 12 per cent to $334.3 million; Sports Betting, up 16 per cent to $266.2 million; Dollaz, up 34 per cent to $243.2 million; and Instant Win, up 30 per cent to $60 million. However, Pick 2, Pick 3, Pick 4 all recorded decline in sales, by 13 per cent, five per cent and 30 per cent respectively.

"Our Cash Pot game continues to enjoy strong growth... and lived up to its adage as Jamaica's favourite game. We benefitted from the additional lottery selling days (Sundays and Public Holidays) that came into effect on April 1, 2013, as well as the betting churn derived from increased prize payouts in the Cash Pot game," George explained.

"The 'Pick' family of fixed payout games -- Pick 2, Pick 3 and Pick 4 -- performed within game design but registered declines in revenue share for the year. This, we attribute, to players switching game choices based on the dominant sales and payout performance of the Cash Pot game," he added.

The SVL CEO noted, however, that the Lucky5, Dollaz! and Instant Win games "all weathered the 'Cash Pot' storm and saw increased sales due to additional promotions". Dollaz! also benefitted from the introduction of two additional game draws each day, as of December 1, 2013, he said.

According to George, the multi-jurisdictional Super Lotto game benefitted from last year's 'Doubler' prize payout promotion in which the value of all subsidiary prizes was doubled.

While Sports Betting revenues rose behind promotional efforts and the introduction of additional company-operated locations, growth of the business continues to be hindered by the delay in implementation of the Sports Betting regulations, George said.

"This is affecting our ability to expand our agent network," he argued.

Gaming lounge revenues were down 20 per cent in a highly competitive market, with over 600 premises operating gaming machines, of which 27 were classified as gaming lounges up to the beginning of 2013.

"The Gaming Lounges, with reduced revenues, continue to be impacted by challenging marketing conditions. They were also faced with further challenges in patronage, as a result of the smoking ban in enclosed places," George revealed.

In January, SVL shut down its Coral Cliff Gaming lounge in Montego Bay, citing economic challenges, in addition to the significant increase in lottery gaming taxes that have forced the company to streamline operations.

Unclaimed prizes for the year under review fell from $110.8 million to $14.5 million, as SVL is now required to pay over unclaimed prizes to the BGLC under new conditions of its gaming licence. The company expects the fallout in unclaimed prizes to reduce its sponsorships and donations.

Hospitality and related revenue dropped from $77.8 million to $4.9 million, reflecting the company's decision to exit the food and beverages business.

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