Nektan PLC (LON:NKTN) Acting Chief Executive Officer Gary Shaw caught up with DirectorsTalk for an exclusive interview to discuss the performance of their US joint venture Respin, growth rates in European gaming, the delay of a large material contract and how the company has reduced costs to achieve break-even
Q1: Gary, can you tell us how your US joint venture Respin is performing?
A1: At the moment we’re very pleased with the commercial development of the business in terms of where we got to, whilst we’ve mentioned that we’ve got 54 deals, when you actually get under the skin of that situation a lot of the operators that we’re talking about there are of significant size, they’re not small casino operators in backwaters, it’s the larger tribal and commercial operators in accommodation in Nevada and California so from our perspective, we’re delighted by the progress we’ve made on the commercial side. Clearly, with 54 partners to deliver to over 2016, we’ve got plenty of activity and revenue that’s going to be coming in.
Q2: OK, can you talk me through the progress and growth rates in the European gaming?
A2: In terms of the growth we’ve seen, clearly we’ve announced that Nektan Plc has been in a situation where one material contract is not delivering the revenues that we potentially expected, that contract has not gone away, the acceleration of the delivery of it has been put back slightly so the contract is still going to be coming in, there’s just a delay. If you look at the other parts of the business in Europe, if you look at the 30 odd percent compound growth we’re seeing month on month with the record month in January, that’s been achieved from the other parts of the business and indeed in those other areas, our white label business as an example is actually performing ahead of expectation. So we’re actually seeing very strong fundamentals in large parts of the business in terms of the growth and we’re particularly delighted by the progress of all the other parts. As I say there is a material contract, a large contract with a large partner, that has a delay which will impact this year which we’ve clearly communicated in the RNS this morning.
Q3: How has the delayed accelerated launch of the large contract, mentioned earlier, impacted on the business?
A3: From our perspective, obviously it’s going to reduce the top line number this year, however we’re still driving towards being EBITDA positive before the end of the financial year in our second half. What’s good about where the business is at is we’ve reduced the costs on the admin side in order that we can make sure we hit EBITDA positive for circa about £940,000 of Net Gaming Revenue and as we achieved £825,000 in January, it’s clear we are not that far away if you look at the compound growth that we’re actually achieving. So we’re quietly pleased in a lot of areas of the business, we’ve got this large contract which has had this material impact but as I say from our perspective, lots of the parts of the business are actually performing bang on the budgets and the forecasts that we expected to deliver upon.
Q4: What actions have Nektan Plc taken on reducing costs and how have these helped to achieve break-even point?
A4: What we looked as was we looked at two sides of the business and we separated them out, we looked at admin expenses and then we looked at actual running costs of the business and I felt that really we need to look at that side of the business and look quite carefully at what we could do to reduce what we would consider to be the administration expenses. So we’re being very careful with everything we’re spending and clearly with the kind of growth we’ve got, it brings in that point where you go EBITDA positive into the near term versus pushing it out and it gives a more solid long term outlook for the business. So when you can go EBITDA positive and you can do that within a matter of months, it gives confidence to all shareholders that with the kind of growth you’ve got, you become a very interesting business. I don’t know of any companies that are achieving 30% compound growth on revenues and as I say, our cost base is fixed because it’s software so we’ve a very interesting business as we scale out into Europe.
