Lowen Play GmbH
Lowen Play’s €350M Notes Drop to About 90 as Investors Worry About New Regulation Effect on AWP Revenue
Fri 01/04/2019 11:55 AM
Relevant Documents:
Lowen Play Q3 Report
Moody’s Rating
German gaming center operator Lowen Play’s €350 million bond due in 2022 dropped from near par in mid-December and is at about 90 today. Regulatory changes in Germany and a negative outlook for the company’s performance after it reported that customers’ reception of new amusement with prize slot machines, or AWP, was weak, have been weighing on the bond’s levels.
In its third-quarter results the company, which is owned by private equity group Ardian, announced lower results in Germany from amusement with prizes, or AWP, machines as a new gaming ordinance came into effect on Nov. 11. The legislation requires a minimum distance between gaming arcades as well as minimum space for each AWP. This will reduce the number of AWPs in Germany. Additionally, the ordinance requires AWPs to have automatic breaks and limitations on maximum possible losses/wins per hour.
In 2017, when Lowen Play marketed its bond, it said it expected to lose 25% of its AWPs by 2021, with a significant portion of the loss to take place in 2018. After 2021, AWPs will have been cumulatively reduced by 40%, the company said.
Every German arcade is obliged to implement a new generation of AWPs but the overall acceptance of the new generation of AWPs by players has been low, Lowen Play said. While it is still too early to quantify the effects from the AWP changes over time the company expects lower results. Lowen Play said it is analyzing the situation and is taking measures in order to mitigate the effects but investors say the company’s strategy on what to do about the new machines is unclear and the outlook for the company’s performance remains negative.
Safari Holding, Lowen Play’s parent organization, reported €82 million of consolidated revenue in the third quarter, or a 10% increase from €74.6 million year over year. Revenue for the nine months period ending Sept. 30, 2018, rose 5.1% year over year to €240.6 million. Adjusted EBITDA grew 21.2% to €32.6 million in the third quarter, with the comparative third quarter a year prior at €27.1 million. For the nine-month period, adjusted EBITDA improved by 4.1% year over year. Despite the increase in personnel costs, operating expenses and entertainment taxes, further growth in sales and arcade sites significantly lifted revenue, the company said. As a result, EBITDA margin on a year-to-date basis were at 38.8% compared to 38.9% a year earlier.
Lowen Play recorded net cash flow from operating activities of €26.8 million in the third quarter, slightly up by €2.7 million compared to the same period in 2017. Leverage based on adjusted LTM EBITDA as of September 2018 totaled 2.3x.
Due to gaming regulations becoming effective from July 2017 the average number of multi-concession sites decreased, the company said. As a consequence, the overall average number of AWPs for the nine-month period in 2018 decreased by 1.8% year over year.
The German gaming market is regulated through three different regulatory regimes - a trade regulation act, the gaming ordinance and the federal gaming treaty. New regulation on a national level, which was due to come into effect in January 2018 failed in 2017 after one state rejected it. New regulation will have to be introduced in 2021 with negotiations to take place over the next few years.
The company’s capital structure as of Sept. 30, is below:
Ardian declined to comment on the company’s performance on behalf of Lowen Play.
Lowen Play Q3 Report
Moody’s Rating
German gaming center operator Lowen Play’s €350 million bond due in 2022 dropped from near par in mid-December and is at about 90 today. Regulatory changes in Germany and a negative outlook for the company’s performance after it reported that customers’ reception of new amusement with prize slot machines, or AWP, was weak, have been weighing on the bond’s levels.
In its third-quarter results the company, which is owned by private equity group Ardian, announced lower results in Germany from amusement with prizes, or AWP, machines as a new gaming ordinance came into effect on Nov. 11. The legislation requires a minimum distance between gaming arcades as well as minimum space for each AWP. This will reduce the number of AWPs in Germany. Additionally, the ordinance requires AWPs to have automatic breaks and limitations on maximum possible losses/wins per hour.
In 2017, when Lowen Play marketed its bond, it said it expected to lose 25% of its AWPs by 2021, with a significant portion of the loss to take place in 2018. After 2021, AWPs will have been cumulatively reduced by 40%, the company said.
Every German arcade is obliged to implement a new generation of AWPs but the overall acceptance of the new generation of AWPs by players has been low, Lowen Play said. While it is still too early to quantify the effects from the AWP changes over time the company expects lower results. Lowen Play said it is analyzing the situation and is taking measures in order to mitigate the effects but investors say the company’s strategy on what to do about the new machines is unclear and the outlook for the company’s performance remains negative.
Safari Holding, Lowen Play’s parent organization, reported €82 million of consolidated revenue in the third quarter, or a 10% increase from €74.6 million year over year. Revenue for the nine months period ending Sept. 30, 2018, rose 5.1% year over year to €240.6 million. Adjusted EBITDA grew 21.2% to €32.6 million in the third quarter, with the comparative third quarter a year prior at €27.1 million. For the nine-month period, adjusted EBITDA improved by 4.1% year over year. Despite the increase in personnel costs, operating expenses and entertainment taxes, further growth in sales and arcade sites significantly lifted revenue, the company said. As a result, EBITDA margin on a year-to-date basis were at 38.8% compared to 38.9% a year earlier.
Lowen Play recorded net cash flow from operating activities of €26.8 million in the third quarter, slightly up by €2.7 million compared to the same period in 2017. Leverage based on adjusted LTM EBITDA as of September 2018 totaled 2.3x.
Due to gaming regulations becoming effective from July 2017 the average number of multi-concession sites decreased, the company said. As a consequence, the overall average number of AWPs for the nine-month period in 2018 decreased by 1.8% year over year.
The German gaming market is regulated through three different regulatory regimes - a trade regulation act, the gaming ordinance and the federal gaming treaty. New regulation on a national level, which was due to come into effect in January 2018 failed in 2017 after one state rejected it. New regulation will have to be introduced in 2021 with negotiations to take place over the next few years.
The company’s capital structure as of Sept. 30, is below:
Ardian declined to comment on the company’s performance on behalf of Lowen Play.
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