Stride hit by fiscal and regulatory changes in second half

London-listed bingo operator Stride Gaming expects net gaming revenue for the six months to February 28, 2018, to be 5% lower than in the previous year due to various fiscal and regulatory changes during the period.

Speaking in a trading update, CEO Eitan Boyd has said that changes in the UK’s regulatory environment have particularly impacted Stride in recent months, with the operator adjusting its internal processes and product offering in preparation.

Stride did not make reference to any regulations in particular, but the UK has recently approved new laws increasing the remote gaming duty rate from 15% to 21%, effective as of April 1. In addition, operators are subject to tighter data protection regulations, which have negatively impacted customer retention and reactivation efforts for UK licensees, and stricter responsible gambling and anti-money laundering measures that have hit high-value customers

However, despite the impact of regulatory changes, the Stride board has said it sees “encouraging signs that the impact of these disruptive factors have now been largely absorbed and the business model is adjusting accordingly”.

Although Stride does not expect to recover the first half revenue shortfall through trading in the second half, the operator’s board is confident that its ongoing growth strategy will deliver “strong long term, cash backed value for shareholders”.

This strategy includes leveraging the group’s infrastructure and proprietary technology to migrate more mass market, recreational bingo and casino customers onto its higher margin proprietary platform.

“In common with the rest of the industry, the period to end of February 2019 proved to be unusually busy for the group,” Boyd said.

“Trading was testing as we adjusted to the new paradigm of the UK’s current fiscal and regulatory environment, however we continue to invest in our proprietary technology, product offering and content which provides us with a strong foundation from which to adapt to these changes.”

In relation to this, Stride said it expects to report a strong performance from its ‘Stride Together’ B2B joint venture and is also encouraged by additional new joint venture opportunities.

In addition, as a result of encouraging growth trends for India-facing Passion Gaming, in which it holds a 51% stake, Stride is to increase its technology and marketing investment in the rummy operator. This is expected to result in incremental costs of approximately £400,000 for Stride.

The trading update comes as Stride continues a strategic review of its business in relation to a possible sale. Stride began the process in February, but at the time said it was yet to receive an offer for the business.

Boyd said the operator is now well advanced with the review and “will make a future announcement when appropriate”.

The review follows a mixed 2018 for Stride, during which revenue increased 23.8% year-on-year to £60.5m, but yield per player fell by 2% to £144 and adjusted earnings before interest and deductions slipped 18.2% to £16.1m.

At the time, Stride’s non-executive chairman Nigel Payne said while the operator had performed in line with expectations in “challenging trading conditions”, it was to retain a focus on controlling costs.