Martin Carlesund, CEO of Evolution Gaming, recently admitted during the Q2 earnings call that the company's investment in blocking illegal markets in Europe far exceeded expectations, affecting overall profitability in the first half of the year. He pointed out that although the measures are effective, they are costly and continue to put pressure on revenue in the short term.
Since the first quarter, Evolution has intensified its geographical blocking efforts to prevent its products from flowing to unlicensed operators, especially after the UK Gambling Commission launched an investigation into its compliance. Carlesund revealed that it is currently impossible to determine how long the investigation by the UK regulatory authorities will last, and he can only actively cooperate and wait for further guidance.
He stated that in addition to the UK, the company also voluntarily exited several black or grey markets in Europe starting in February to protect its legitimate business areas. However, these series of actions put pressure on Evolution's profits in the first half of the year, especially in the first quarter, where profits fell by 5.4% to 254.7 million euros.
In the second quarter, although the impact of the black market has slightly eased, operating profit still decreased by 1.5% year-on-year to 306.4 million euros, and net profit decreased by 8% year-on-year to 248.3 million euros. Carlesund described the performance as "cautiously optimistic," stating that the profits were basically in line with expectations, but the overall financial performance was still not ideal.
However, Carlesund emphasized that although short-term profits were affected, the company is using this opportunity to establish a stronger compliance foundation to consolidate long-term development in the European market. "Ensuring legal compliance is more resource-intensive than we anticipated, but it is a battle we must win," he said.
In terms of global expansion, Evolution established two new studios in the Philippines and Brazil this quarter, advancing its internationalization strategy. Operating costs therefore increased by 10.4% year-on-year to 218 million euros. Carlesund stated that the Brazilian studio is "the most advanced and larger facility," just as the local market is transitioning towards legal regulation.
Although these new studios will not significantly contribute to profits in the short term, the company believes they will become engines of growth in the coming years. In the second quarter, live games remained the core source of revenue, accounting for 87%. Total revenue was 524 million euros, up 3% year-on-year.
Additionally, Carlesund disclosed that the company has successfully countered cyber attacks in the Asian market, beginning to reverse the downward trend since last year. Previously, these attacks had caused revenue in the Asian region to stagnate. Now, by strengthening intellectual property protection and deploying technical measures, revenue in the Asian market grew by 4% in the second quarter, reaching 209 million euros.
"Our technology in intellectual property defense is at the forefront of the industry. Although it takes time and patience, we have already seen results," Carlesund said.
Overall, Evolution has adopted a more proactive stance in blocking illegal markets, expanding into emerging markets, and strengthening technical protection, and although short-term profitability is under pressure, the company believes these investments are laying a solid foundation for medium and long-term growth.
