August 31, 2010

888 cuts costs as World Cup hits online poker

888 Holdings, the online gambling company, has announced the launch of a cost-cutting programme to help arrest a slump in pre-tax profits that has forced the online gambling company to forgo an interim dividend payment.

Gig Levy, chief executive, blamed the decline on weakness in the online poker market, currency exchange movements and the distraction of the soccer World Cup on regular poker and casino activity.

Revenues of $130m for the six months to June 30, although 10.5 per cent higher than the same period last year, were lower than expected, the company said.

Bingo overtook poker, generating $23.5m in revenues, while poker fell from $26.2m to $19.6m. Casino revenues rose from $55.9m to $59.3m.

The search for business forced spending on marketing to rise from $35m in the first half of 2009 to $48m. The upshot was a 39 per cent drop in earnings before interest, tax, depreciation and amortisation to £12.6m.

Pre-tax profit, including $2.2m of restructuring costs and share benefit charges of $1.9m, fell 56 per cent to $4.3m. Earnings per share dropped from 2.3 cents in the 2009 period to 0.8 cents.

The cost-cutting programme will reduce overheads by $5m-$6m in the second half, said 888, without specifying where the economies would be made. Mr Levy said the dividend was being scrapped “in order to continue investing for future growth, and to support potential acquisitions”.

With rivals PartyGaming and Bwin announcing a merger in July, 888 is seen as vulnerable to consolidation in the online gambling sector.

Mr Levy said: “We look at consolidation as one of the possible routes to realising our full value and feel that longer term this is the direction the industry will take. We have always stated that we will look into all relevant deals and expect the recent merger news to accelerate such discussions in the industry.”

Mr Levy added that early signs of second-half trading suggested a return to historical patterns, with daily revenues falling due to seasonality. Innovations in its business-to-customer products, including a 3D casino offering, is helping to stimulate a rise in first-time depositors, compared with the previous quarter.

“Trading in August has been significantly stronger than in July, with a double-digit daily revenue increase especially in casino and poker,” 888 said. Poker revenues in August were up more than 15 per cent.

888 welcomed movements of varying degrees in regulating online gambling in France, Italy and the US, although it said they would take time and investment to come to fruition.

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