888 launches cost-cutting scheme as profits fall
Company scraps dividend payment as pre-tax profits fall; marketing costs rise 20%; France and Italy yet to generate return on investment
Egaming business 888 Holdings has announced a cost cutting programme to prevent further losses that have forced the company to forgo an interim dividend payment, its chief executive has said while announcing its first half profits this morning. Pre-tax profit fell 43% to US$8.4m (£5.4m) in the six months to June, from US$14.9m last year. Gigi Levy, CEO of 888, blamed the slump on a decline in the online poker market, currency exchange movements and the World Cup. The company, however, said poker revenues have since jumped 15% in August, returning to normal levels for the time of year.
888 recorded revenues of US$130m for the six months to June 30, 10.5% higher than the same period last year, however they were much lower than expected, the company said. Marketing costs rose almost 20% from US$35.3m in the first half of 2009 to US$47.5m resulting in a 39% drop in earnings before interest, tax, depreciation and amortisation to US$12.6m this year from US$20.6m in the same period in 2009.
Levy said the cost-cutting programme would reduce overheads by up to US$6m in the second half of this year; however he was unclear on where exactly the savings would be made. Levy added the dividend was being scrapped “in order to continue investing for future growth, and to support potential acquisitions”.
Bingo overtook poker generating US$23.5m in revenues, while poker fell from US$26.2m to US$19.6m. Casino revenues rose from $55.9m to $59.3m.
Earlier this month Levy said the business was “highly likely” to enter into merger discussions with interested parties in the next six months as the egaming market continues to consolidate following Bwin/PartyGaming tie-up. Levy, announcing the company’s second quarter results on 3 August, said there was a “very high likelihood” a merger would take place and that he saw “the advantages of scale” in the light of the industry’s two largest gaming companies consolidating.
Levy said he did not yet know which company or companies 888 Holdings would potentially merge with, if it decided to do so, but did not rule out a deal with listed rival Ladbrokes.
During today’s first half results announcement Levy added: “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.”
888 said it had made progress in France and Italy but added it would take time for its investment to come to fruition.