Interactive

Australia – Strong sales in Australia boost Jumbo’s results

By Phil - 25 February 2015

Jumbo Interactive reported strong growth in Australia with record ticket sales of $66m for the half year, an increase of 21 per cent over the comparative half year and a 28 per cent increase over the preceding half year period.

Strong sales in December also helped lift Net Profit Before Tax to $800K and a lower than expected Net Loss After Tax of $23K.

The number of customer accounts on OzLotteries.com has grown from 1.64m to 1.82m over the 12 months to 31 December 2014.

Mike Veverka, CEO and Founder of Jumbo Interactive, said: “21 per cent growth in Total Transaction Value to a record $66m clearly demonstrates continuing customer demand and acceptance of Jumbo’s online lottery service. Plans have been established for additional revenue streams in the short term from our 1.82 million customer accounts while international markets slowly gain traction.”

The balance sheet remains healthy with Net Assets of $19.2 m as at 31 December 2014 despite continuing international expansion expenses in Germany, Mexico and the USA. The Company’s cash position remains strong at $23.8m as at 31 December 2014 ($14.4m net cash plus $9.4m players’ funds).

Jumbo’s 1.82m customer accounts provide opportunity for additional revenue streams to bolster growth in the short term while international markets need time to gain traction. Work is nearing completion on a significant rebuild, rebrand and relaunch of the Company’s flagship App and website, OzLotteries.com which will provide capabilities for new products integrated into the lottery game play process.

The new App and website will also provide customers with a more engaging lottery experience designed to further increase new customer conversion rates as well as improve customer retention and yield.
“With the continuing rise in popularity of the OzLotteries App and website, we have increased our investment in technology to further escalate growth through efficiency and product rather than just be proportional to marketing spend and optimisation,” said Mr Veverka.

Progress in Germany in the first six months since the nationwide launch has been slower than expected due to a number of factors which are being addressed.

Expenses have been reduced for the second half of the financial year to allow time for the changes to take effect.

Jumbo and other licensed operators are lobbying the German government to take action against these illegal operations to protect the online lottery industry.

“Jumbo has reduced spending in Germany to allow time for changes to take effect and provide a foundation for a more sustainable operation”, said Mr Mike Veverka. “The fundamental attractiveness of the German market remains and I am confident that Jumbo can achieve its strategic goal of diversified earnings from multiple jurisdictions.”

The $11bn German lottery market is almost twice the size of the Australian market however the internet is still very much in its infancy with penetration only around 1one per cent compared to 10 per cent in Australia. Because of this, management believe a significant opportunity exists in Germany however caution must be exercised during the early phase of the industry’s development.

Losses in Germany have not reduced the effective income tax expense for the Group. This is due to directors taking a conservative approach by not recognising a deferred tax asset until the business becomes further established. However, these losses are still available to offset against future profits.

In November 2012, Jumbo established a 50/50 joint venture company called “Lotto Points Plus” with a local partner to provide interactive lottery solutions to the US lottery industry. This company has raised US$500,000 in equity funding this month at a US$3.5m post funding valuation. Jumbo retains a 43 per cent shareholding worth approximately US$1.5m based on the post funding valuation. The company operates the website Lotteryrewards.com providing second chance games to US lottery players as a pathway to further interactive lottery offerings in the future.

“Following the early success of Lotto Points Plus, Jumbo welcomes new investors who will strengthen management and help propel the business to the next level with fresh skills, contacts and capital,” Mr Veverka, explained.

Efforts in Mexico are continuing with a focus on ensuring market conditions are favourable before committing significant levels of expenditure.

Management is in advanced discussions with one of the main national lotteries in Mexico, regarding a suitable timeframe for a launch of JumboLotto.mx.

“Based on our experience in Germany, we have identified certain market criteria that need to be established before full interactive marketing can commence,” added Mr Veverka.“These include a suitable product offering, marketing channels and competitor framework to be in place before we commit fully.”