International expansion drives JPJ to record 2018 results

19 March 2019

London-listed online bingo and casino operator JPJ Group has credited efforts to diversify its geographic footprint with helping the business report record revenue and earnings in 2018.

Revenue for the year ended December 31, 2018 was up 10% year-on-year at £319.6m (€373.5m/$424.0m), the highest full-year figure since the business was formed in 2014.

This growth came despite a difficult year for its UK-facing business, which resulted revenue for in its largest operating unit, Jackpotjoy, remaining flat year-on-year. The operator explained that the shift to paying remote gaming duty on gross, rather than net, gaming revenue had increased tax costs, while changes enforced by the Competition and Markets Authority had fundamentally altered how the business acquired and retained customers.

Furthermore, JPJ said, General Data Protection Regulation had also impacted customer retention and reactivation efforts, while stricter responsible gambling and anti-money laundering measures had driven down high-value customer numbers. As a result Jackpotjoy revenue for the year remained flat at £216.0m, which prompted efforts to expand its Vera&John operating unit into new markets.

This saw the business successfully grow the Vera&John, Botemania and InterCasino brands in Germany, Japan, Spain and Brazil, as well as expanding B2B operations with a focus on the Asian market. Revenue from the Vera&John division grew 42% year-on-year to £103.6m, with non-UK markets now accounting for 43% of group revenue, up from 36% in 2017.

As well as expanding into new markets, JPJ Group also moved to streamline its business in 2018, divesting its social casino business for an £18.0m consideration in August, allowing it to focus on its core real-money offering. This streamlining has continued into 2019, with the operator selling its Mandalay business unit to 888 Holdings for £18.0m earlier this month, allowing it to focus on the Jackpotjoy brands in the UK market.

Vera&John’s growth resulted in full-year distribution costs rising 13% to £158.9m. Sales and marketing expenses were up 15% at £55.5m, while licensing fees rose to £44.3m. Gaming taxes grew to £40.4m, despite Vera&John’s growth being partially offset by lower taxes in the UK, as a result of declines from the Jackpotjoy UK and Mandalay brands. Administrative costs also rose in 2018 to £109.4m, due to staff-related expenses growing to £33.5m. This resulted in total full-year expenses for JPJ growing 6% to £271.0m.

However, corporate costs fell significantly, from £125.5m in 2017 to £43.9m, as a result of a debt refinancing completed in the fourth quarter of the prior year, which resulted in lower interest expenses, as well as a lower foreign exchange loss for the year. The 2017 debt refinancing was aided further by the 2018 performance, which saw adjusted net debt cut by £85.2m, resulting in the net leverage ratio declining to 2.68x. As of December 31, 2018, JPJ Group’s net debt stood at £302.1m.

Net income after costs for the year stood at £18.1m, though JPJ then saw its income boosted by £60.8m from amortisation and depreciation. Coupled with £7.2m from fair value adjustments on contingent considerations and a £1.9m contribution from transaction-related costs, this saw adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) for the year was up 9% at £112.7m.

Once corporate costs were stripped out, net profit for the year stood at £90.1m, up 27% from the prior year.

“2018 has proven to be a very successful year for JPJ Group plc and one where we have delivered both revenue and profit growth,” JPJ Group chief executive Simon Wykes said. “In June 2018, the final earn-out payment to Gamesys was made in relation to Botemania and at the same time there has been further significant progress in deleveraging the business.

"This has all been achieved despite a challenging regulatory backdrop in our core UK market,” he continued. “Our strategy is underpinned by three key tenets: putting the customer at the heart of everything we do, geographic diversification, and adding capability across the group.”

Looking at the operator’s performance over the first two months of 2019, the business said it has seen double-digit revenue growth to the end of February, in line with management expectations for the year.

“Overall, we look forward to continued progress in our international operations and to taking advantage of growth opportunities in the UK market during the second half of 2019, as we pass the anniversary of the introduction of enhanced responsible gambling measures,” JPJ said.