LOTTERY platform Jumbo Interactive (ASX:JIN) will scale down operations in Germany rather than continue to flog a dead horse.
The Brisbane-based business plans to stop ongoing losses from its German internet lottery division and focus on the Australian market.
Jumbo Interactive founder and CEO Mike Veverka (pictured) says adverse conditions in Germany are causing several licensed resellers to exit the market, transition to a secondary lottery market model or wait until conditions improve.
"After two years in the German market, it has become clear that market conditions are not favourable for a licensed reseller model," Veverka says.
"While we strongly considered transitioning the business to a secondary market model, it was decided that the Australian market holds more potential at this point in time.
"To continue operations in Germany under the current model, a much larger investment would be needed and even then, it is still uncertain that it would yield an acceptable return on investment within a reasonable timeframe."
The German business contributed losses after tax of $2.6 million in FY15 and $1.6 million in FY16 to Jumbo. After the scale down, the loss is expected to be $1 million this financial year with no further expenses in the future.
Jumbo has finalised a customer referral agreement with independent lottery reseller Lotto14, and will receive payment for each of its customers that sign up to that website.
The Jumbolotto.de website and app will continue to operate as a customer referral service. Management has retained the ability to relaunch in the market should conditions improve in Germany.
Maintenance costs of the limited digital presence will be minor and absorbed by Jumbo's Brisbane technology teams.
"Jumbo's Australian business is thriving and so it makes better sense to focus on areas that have a greater positive impact to our bottom line," Veverka says.
He says since Charity Lotteries was introduced on the OzLotteries.com platform last June, product sales now exceed the German division's monthly total transaction value and continue to grow at a greater rate with minimal capital investment.
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