The Pollard Bank Note Company, despite strong sales throughout the year and record-breaking income, witnessed a decrease in profits compared to the previous year due to inflationary pressures in its instant lottery division.
Home > Finance > Inflation diminishes Pollard’s net earnings, despite revenue expansion
Inflation diminishes Pollard’s net earnings, despite revenue expansion
The Pollard Bank Note Company’s revenue for the three months ending December 31 was C$126.9 million (£78 million/€87.5 million/$92.3 million), an increase of 8.9% from C$116.5 million in the same period the previous year, itself a new quarterly high.
The growth was driven by robust sales in the company’s charitable gaming, electronic gaming systems and lottery divisions, which were not significantly impacted by consumer pressures during the year.
“Consumer demand remained very strong across most of our business lines in 2022,” said John Pollard, co-CEO of Pollard. “Charitable gaming saw continued robust demand for all paper products, including pull tabs and bingo paper, with revenue up 21% over 2021 and 50% over 2020, now well above pre-pandemic levels.”
These factors also led to the company’s quarterly net income more than doubling to $10.5 million, compared to $5.2 million in the fourth quarter of 2021.
Profit margin reduction
However, for the entire year, the supplier’s net income actually declined by 2%, from $19.7 million to $19.3 million.
The firms modified earnings before interest, taxes, depreciation, and amortization (EBITDA) also dropped by 4% annually, from $84 million to $80.5 million.
Despite record sales, the decrease in profitability was primarily attributed to the company’s struggling instant ticket division, which is more vulnerable to inflation than the company’s other business segments.
The company repeatedly emphasized this issue throughout its financial reporting for the year.
Specifically, the cost of raw materials used in the business, such as paper and ink, increased considerably, while it was also affected by rising packaging and transportation prices. According to Pollard Notes, many input costs skyrocketed between 30% and 50%.
The company’s total cost of goods sold for the year increased by 8.8%, from $368.2 million to $400.5 million. The company stated the $32.3 million increase was primarily due to the aforementioned price increases in the instant ticketing area.
“Our instant ticketing client agreements are primarily long-term fixed price contracts,” said John Pollard. “Therefore, in the short term, we are unable to pass on these significant cost increases, and our instant ticketing margins have experienced a very negative decline.
“These input cost increases have been ongoing throughout the year, leading to a negative impact on profits that has intensified over time.”
Although Pollard Lottery Corporation has not faced any extra price hikes in this field so far this year, the business cautions that this does not necessarily imply prices will not increase.
The company stated, “The substantial price increases that occurred in 2022 were implemented gradually throughout the year, with most of the higher costs being absorbed by the end of 2022.” “On a yearly basis, our production expenses will be greater in 2023, reflecting these continued higher cost levels throughout the year.”
Looking ahead
According to the company’s statement, it sees “substantial opportunities” in the iLottery market, both in the short and long term. Pollard Lottery Corporation participates in serving this segment through its subsidiary NeoPollard, a joint venture with NeoGames.
Through this joint venture, the company has been involved in providing iLottery games since 2014, when it first secured a contract with the Michigan Lottery.
The company stated that while growth in US iLottery has been a gradual process, it believes that “with our recent substantial investments in cutting-edge iLottery platforms and game content libraries, we believe Pollard is well-positioned to take advantage of these opportunities.”
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