warns overhaul to cut full-year revenue

Reuters News
Posted: Aug 30, 2013 6:34 AM

By Rhys Jones

LONDON (Reuters) - Online gambling company warned that full-year revenue would fall by up to 17 percent as it shrinks the business to focus on fewer markets where it can make higher returns.

The company, formed by the 2011 merger of PartyGaming and Bwin Interactive Entertainment, is focusing on regulated markets and is also preparing to expand in the United States as markets open up there.

The strategy, which sacrifices short-term revenue in an attempt to produce a more stable business model, is similar to one being followed by betting exchange operator Betfair., which offers sports betting and online games, is focusing on fewer, higher-paying customers to increase its average yield per player. That metric rose 7 percent to 9.6 euros ($12.7) in the first half of the year. The company did not give a long-term yield target.

However, as a result of the new strategy,, which has cut investment in 18 non-core markets including Brazil and Cyprus, expects full-year revenue to be between 14 percent and 17 percent below the 801.6 million euros reported last year.

The earnings before interest, tax and depreciation (EBITDA) margin will likely be 2 percentage points lower than last year's 20.6 percent, the company said. said first-half EBITDA fell 34 percent to 60.7 million euros and that like-for-like revenue in the eight weeks to August 25 fell by a fifth.

Shares in the group were 14.6 percent lower at 108.7 pence, their lowest level for seven months, valuing the business at around 920 million pounds.

"These forecast downgrades reflect the unpredictability of a business in transition, and of regulatory action," said Numis analyst Ivor Jones, who retains a "buy" recommendation on the stock reflecting potential growth from new products and U.S. expansion.'s recent trade has been hit by the introduction last year of a turnover tax on sports betting in Germany, its largest market, and competition in the bingo sector in Britain and Italy. It also suffered after Greek internet service providers unexpectedly started blocking gambling websites.

"This was always going to be a major year of transition for us...however, our performance and revenue is behind where we expected it to be at this point," Chief Executive Norbert Teufelberger told reporters.

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The company, which plans to roll out a new version of its popular partypoker game in the coming months, said its systems were being installed ahead of an expected launch of poker and casino games in the U.S. state of New Jersey in November.

The third quarter should represent "the nadir of the group's fortunes" according to Peel Hunt analyst Nick Batram, who expects to report 2013 EBITDA of around 126 million euros on revenues around 677 million euros.

The company, which hopes to cut 70 million euros of costs this year, increased the half-year dividend by 5 percent to 1.80 pence per share, reflecting its confidence on new products, the 2014 soccer World Cup and the prospect of U.S. expansion.

(Editing by Erica Billingham)

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