Lottery solutions provider Pollard Banknote said that it experienced a number of challenges across its core instant tickets business during the second quarter of its 2022 financial year, and expects price rises to continue to impact operations in Q3 and Q4.
Instant tickets remains Pollard Banknote’s largest business, but increases in the prices of key inputs such as paper, ink and freight, coupled with ongoing significant demand from lottery customers, have led to increased spending.
Pollard Banknote said the nature of instant ticket contracts includes longer terms, averaging at four years, with primarily fixed prices for the entirety of the term, which in turn makes it difficult to pass on large input cost increases immediately.
Co-chief executive John Pollard said one strategy to offset costs will be to increase selling prices during contract extensions and requests for proposals (RFPs) as they come up for bid, but as these contracts do not start immediately, it could be some time before an impact is seen.
Furthermore, Pollard Banknote noted that instant ticket production volume in Q2 fell short of budget by approximately 8-10%. This was put down to continuing challenges recruiting and retaining entry level staff, increased staffing challenges with a higher number of call-outs and absences, and a higher number of unexpected mechanical and production issues.
“Our sales volumes were also lower than budget reflecting the lower production volume, further negatively impacting our margins,” Pollard said.
“We are focused on increasing our production volumes going forward as this is one of our best levers to help mitigate the higher input costs associated with our instant tickets. We believe a number of initiatives we have implemented will address the issues experienced in the second quarter and expect our production numbers to be higher in the third quarter and beyond.”
Breaking down the Q2 performance, revenue was up 2.2% at $115.9m (£95.0m/€112.7m), with the provider highlighting particularly high demand for both its charitable gaming and egaming operations.
The provider also noted its share in revenue from the NeoPollard Interactive joint venture with NeoGames, which also reported its results this week, more than doubled from $2.5m to $5.1m.
Cost of sales increased 4.6% to $94.7m, while administration and selling expenses were also up year-on-year.
After also taking into account finance-related costs and tax, it ended the quarter with a net profit of $2.5m, a 67.5% drop from $7.7m in 2021. In addition, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) slipped 16.4% to $18.9m.
“We remain very excited about our business and the opportunities before us,” Pollard said. “While it will take time to absorb our unprecedented key input cost increases and return our instant ticket margins to their historic levels through higher selling prices, we have already seen the market accepting higher pricing during contract extensions and RFP’s and we believe this will continue.
“And our remaining businesses including charitable gaming, egaming systems and ilottery remain extremely strong with expectations this will continue to provide growth in the future.”
Meanwhile, Pollard Banknote has reappointed Jerry Gray as an independent director. Gray previously served as a director of Pollard and its preceding businesses from the time of the initial IPO in 2005 until his retirement in 2021.
He has been reappointed to the board of directors on an interim basis until a permanent director is elected. This is anticipated to occur at the annual general meeting in May 2023.
