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Regulatory pressures a concern for 888

Online gaming entertainment company 888 issued its audited annual financial results for the year ended 31 December on Tuesday, reporting a 4% increase in group revenue to $541.8m.
The FTSE 250 firm said revenue improved 26% in regulated markets, excluding the UK, and was up in each quarter of 2017 on a year-on-year basis.

Business-to-consumer revenue was ahead 6% at $486.6m, while casino revenue increased 4% to $293.9m and cport revenue rose 45% to$75.5m.

Adjusted EBITDA was 12% higher year-on-year at $100.7m, while on a constant currency basis, adjusted EBITDA increased 19%.

The company's adjusted EBITDA margin was up to 18.6%, compared to 17.3% on in 2016, while the company said it was 19.5% at constant currency.

As the board disclosed in its half year results, exceptional charges of $50.8m were incurred during the period, out of which $45.3m related to potential past VAT matters and $5.5m in connection with the UK Gambling Commission settlement.

The board said it saw "substantial" free cash flow, allowing for dividend payments during the year of $70.5m - up from $56.6m.

Adjusted basic earnings per share increased 15% to 20.1 cents, with basic earnings per share dropping 76% to 3.5 cents.

"Reflecting the strong performance of the Group but in light of regulatory developments and mindful of the importance of retaining adequate cash to fund potential investment activities, the board of directors is recommending a final dividend of 5.9 cents per share in accordance with 888's dividend policy, plus an additional one-off 5.6 cents per share, bringing the total for the year to 15.5 cents per share," the company's board said in its statement.

That was a reduction in the annual total, from 19.4 cents in 2016.

On the operational front, 888 said revenue from regulated and taxed markets continued to represent the "significant majority" of group revenue at 70%, down from 71%, and despite heightened regulatory scrutiny in the UK market.

Mobile revenue continued to increase across verticals, the board reported, and represented 70% of UK business-to-consumer revenue, rising from 60% in the prior year.

888 saw continued strong growth in Spain and Italy - the group's two fastest growing regulated markets - with revenue increasing by 34% in each market.

Spain expanded to represent 12% of group revenue, which was reportedly driven by "significant growth" in casino and sport, as well as increased and efficient marketing investment.

In January 2018, post year end, the group launched to build on the successful casino and sports betting offerings available in the Italian market, the board noted, while 30 new 'skins' were added to the Dragonfish Bingo network during the year.

A revised senior management structure was also implements to support 888's continued growth, with the appointment of Itai Pazner as its chief operating officer.

In regulatory concerns, 888 said that - as its had previously stated in the risk management strategy section of its annual report and accounts, regulatory uncertainty was extant in certain territories in which the company operated, including Germany.

Following a recent ruling by the Federal Administrative Court of Germany, the board of 888, together with its legal counsel, was currently assessing the status and breadth of its offerings in the German market.

"888 has delivered another year of progress achieving record revenues of $541.8m and a 12% increase in adjusted EBITDA," said 888 CEO Itai Frieberger.

"The group's growth was driven by further expansion in casino, sport and across regulated markets.

"This very robust outcome was achieved despite the group's withdrawal from certain markets during the year and demonstrates 888's resilience and agility that is underpinned by first-class technology and an outstanding team."

Freiberger said the group continued to reap the rewards of its investments in recent years in several growth markets, including Spain and Italy.

Those markets helped to drive "very strong" revenue growth in regulated markets excluding the UK of 26%, Freiberger added, explaining that the group was continuing to gain momentum in sport, where revenue increased an "impressive" 45%.

"Current trading since the start of the year is in line with our expectations with average daily revenue 6% above the previous year, representing an 8% increase when adjusted for the withdrawn markets.

"888 is a resilient and diversified operator with scalable proprietary technology," Freiberger said.

"The group has a number of significant growth opportunities ahead and the board is confident of another year of operational progress."

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