Higher spending pushes profit down at 888 in first half

888 Holdings has put a significant year-on-year decline in profit before tax in the first half down to higher spending, although the online gambling operator was able to post an increase in revenue for the period.

Group revenue for the six months through to June 30, 2019 came in at $277.3m (£224.9m/€251.1m), up 2% from $273.2m in the corresponding period last year.

However, 888 also noted that when accounting for a VAT accrual release in 2018, group revenue was actually down 2% on a year-on-year basis, with total revenue for the first half of last year at $283.9m, including the VAT release.

B2C revenue increased 6% year-on-year from $246.7m to $262.5m, with growth across several areas of this business. Casino revenue climbed by 9% to $175.4m, while sport revenue jumped 19% to $44.5m. Bingo revenue climbed 10% to $19.5m, aided by the acqusition of JPJ Group's Mandalay operating business, which had previously been a client of its B2B division.

The operator did see a 24% decline in poker revenue for the period, with this down from $30.6m last year to $23.1m in the opening six months of 2019.

888 was also hit by a sharp drop in B2B revenue, which slipped 44% to $14.8m. The operator put this down to the previously announced migration of Cashcade bingo to its proprietary platform, as well as the impact of UK regulatory changes, primarily higher gaming duties, on the Dragonfish bingo network. 888 said this in turn led to lower marketing spend and other cost reductions. The Mandalay acquisition also resulted in revenue from the business no longer being counted as B2B income.

Shifting to spending during the first half, total operating expenses at the business were up 1% year-on-year to $71.5m. 888 put this down to continued growth in its casino and sport businesses, with this resulting in higher charges related to third-party sport platform and game providers.

Gaming taxes and duties were up by 19% from $37.8m to $44.9m, due to strong revenue growth in the UK, coupled with the increase in the UK remote gaming duty rate from 15% to 21% effective from April 2019. 888 said that expansion in other markets such as Sweden and Portugal also meant it incurred additional taxes.

Research and development expenses climbed 10% to $18.3m, primarily due to investment in the BetBright Sport platform, while selling and marketing costs were up 2% to €84.3m. Administrative expenses increased from $13.3m to $16.5m, with 888 citing higher professional and corporate costs relating to Brexit preparations and its launch in new markets.

Depreciation and amortisation charges were up from $10.1m to $15.3m, with 888 putting this down to its acquisition of AAPN and a portfolio of bingo brands including Costa Bingo from JPJ Group.

This, according to 888, ultimately had an impact on profit before tax, which fell 63.0% from $60.1m to $22.2m in the first half. The operator also said lower earnings before interest, tax, depreciation and amortisation (EBITDA) hit this result, but noted that last year’s figure was boosted by the VAT accrual release.

Adjusted EBITDA was down from $52.4m to $44.9m, while adjusted profit before tax slipped from $42.5m to $27.1m. Profit after tax stood at $19.7, compared to $55.4m last year.

Reflecting on the results, 888 chief executive Itai Pazner described the operator’s showing in the first half as a solid performance, highlighting recovery in the UK, as well as growth in Sweden and Portugal.

“The board continues to believe that 888 is very well positioned for the future as a result of the group’s diversification across products and markets, product leadership, and first-class team,” Pazner said.

“Trading during the second half of the financial year to date has been in line with the board’s expectations with average daily revenue 6% higher year-on-year representing a 9% increase at constant currency. This has been led by a 24% year on year revenue increase in the UK.”

Pazner added: “888 has a number of exciting growth opportunities ahead which will leverage the group’s new product developments and marketing innovation. As a result, the board remains confident that the outcome for the full year will be in line with its expectations.”