JPJ : Full Year Results

RNS Number : 2272T JPJ Group PLC

19 March 2019

JPJ Group plc

Results for the Year Ended 31 December 2018

Record revenue and adjusted EBITDA ahead of market consensus

Strong start to 2019 with double digit revenue growth

LONDON, 19 March 2019 - JPJ Group plc (LSE: JPJ) (the 'Group'), a leading global online bingo-led operator, today announces the results for the year ended 31 December 2018.

Financial summary[1]

Year ended

31 December 2017

Year ended 31 December 2018

(£m)

Reported change

(£m)

(%)Gaming revenue

319.6

289.3

10

Net income / (loss) from continuing operations (as reported under IFRS)

18.1

(70.7)

Adjusted EBITDA[2]

112.7

103.4

Adjusted net income2

90.1

70.9

Operating cash flows

105.9

100.9

Diluted net income / (loss) per share from continuing operations[3]

£0.24

£(0.96)

- 9 27 5 -

Diluted adjusted net income per share from continuing operations2,3

£1.20

£0.95

26

Financial highlights

• · Strong financial performance ahead of market consensus

  • o Gaming revenue up 10% year-on-year, reflecting strong organic growth[4] at Vera&John

  • o Adjusted EBITDA2 increased 9% year-on-year

  • o Adjusted net income2 increased 27% year-on-year, assisted by a £10.4 million decrease in interest expense

• · Ongoing growth in cash generation

  • o OperaAng cash flow of £105.9 million, an increase of 5% year-on-year, and 142p of operaAng cash flow per share3 (2017 - 135p)

  • o Adjusted EBITDA2 to cash conversion of 94%; free cash flow[5] of £100.6 million (2017 - £97.8 million)

  • o Adjusted net debt[6] reduced by £85.2 million year-on-year; adjusted net leverage raAo[7] of 2.68x down from 3.57x

• · Strong trading in the first two months of 2019 with double digit growth in revenues to the end of February and a positive outlook for the full year; the Group is trading in line with management's expectations

Operational highlights

·

Ongoing improvement in core KPIs[8] year-on-year

• o Average AcAve Customers per Month8 grew to 259,664 in the twelve months to 31 December 2018, an increase of 4% year-on-year

• o Average Real Money Gaming Revenue per Month8 grew to £26.0 million, an increase of 10% year-on-year

• o Monthly Real Money Gaming Revenue per Average AcAve Customer of £100, an increase of 6% year-on-year

8

Business segments highlights

·

Jackpotjoy[9],[10] (68% of Group revenue)

• o Full year gaming revenue was flat year-on-year and adjusted EBITDA decreased by 4%, mainly due to

2

a decline in the Mandalay and Jackpotjoy UK brands, parAally offset by increases in Starspins and Botemania. The lower revenues from Jackpotjoy UK were principally due to the impact of enhancedBotemania. The lower revenues from Jackpotjoy UK were principally due to the impact of enhanced responsible gambling measures from Q2 and the closure of a small number of high value accounts

• o On 31 August 2018, JPJ Group disposed of its social gaming business for cash consideraAon of £18.0 million (excluding working capital adjustments and costs of disposal paid by the Group) enabling it to focus exclusively on its core acAvity of real money gaming and represenAng another posiAve step in reducing net leverage

• o On 12 March 2019, JPJ Group completed the sale of Mandalay to a subsidiary of 888 Holdings plc for consideraAon of £18.0 million. The divestment of Mandalay will enable the Group to concentrate on a more focussed brand strategy in the UK through Jackpotjoy9,10

·

Vera&John (32% of Group revenue)

• o Full year gaming revenue grew by 42% reflecAng strong organic growth4 in the segment which operates on our own proprietary technology plaLorm; on a constant currency basis[11], revenue increased by 40% year-on-year

• o Adjusted EBITDA2 grew by 71%; on a constant currency basis11, adjusted EBITDA2 increased by 69%

• o The rate of revenue growth increased in each quarter during 2018 which highlights the value in our proprietary technology as a cornerstone of future strategy

• o Our technology plaLorm supports product differenAaAon as well as allowing us more control over market, product and services selecAon. This has enabled Vera&John to successfully diversify from its traditional Scandinavian base and we have seen significant growth in Germany, Asia and Brazil

Neil Goulden, Executive Chairman, commented:

"I am pleased with the progress we have made in 2018 as JPJ Group plc conAnued to deliver on its strategy. We have

2 reported record revenue and adjusted EBITDA , growing 10% and 9%, respecAvely, demonstraAng the benefits of our diversified geographic footprint. Our conAnued strong organic cashflow generaAon has also enabled us to deleverage further, with net debt/EBITDA now at 2.68x. The Board is comfortable retaining the current significant cash on the balance sheet given the optionality which this confers.

Returning excess cash to shareholders is a key priority for the Group, once we can do so on a progressive and sustainable basis. Our debt facility allows us to return cash to shareholders once net leverage falls below 2.5x, but for returns to be sustainable, net leverage needs to be comfortably below this level. The Board remains commiRed to introducing a progressive dividend policy and also sees the value in a sustainable share buyback programme should the Group's share price remain, in its view, materially undervalued and at a discount to the peer group.

The past 12 months also saw the Group achieve several important corporate milestones. In June 2018, we substanAally completed the earn-out payments to Gamesys for the assets we acquired in 2015 and in July 2018, we moved to a premium lisAng on the Official List in London. We sold our social gaming business in August 2018 and this month, we announced we had completed the sale of Mandalay, allowing us to concentrate on a more focussed brand strategy in the UK.

We have also worked hard to ensure the Group meets the highest industry standards on responsible gambling. Our commitment to providing a safe and enjoyable environment for our customers is unwavering and while the vast majority of players' game-play represents fun and entertainment, we conAnue to implement and develop responsible gambling measures to protect all customers, especially those at risk from potential harm."

Outlook

Trading over the first two months of the financial year has been strong with double digit growth in revenues to the end of February and the Group is trading in line with management's expectaAons for FY 2019. Overall, we look forward to conAnued progress in our internaAonal operaAons and to taking advantage of growth opportuniAes in the UK market during the second half of 2019, as we pass the anniversary of the introducAon of enhanced responsible gambling measures.

Conference call

A conference call for analysts and investors will be held today at 1.00pm GMT / 9.00am ET. To parAcipate, interested parAes are asked to dial [phone] or 1 800 608-0547 in Canada, or for US shareholders 1 866 966-5335, 10 minutes prior to the scheduled start of the call using the password "JPJ" when prompted.

A replay of the conference call will be available for 30 days by dialling [phone] or 1 866 583-1039 in the US and using reference 4145638# . A transcript will also be made available on JPJ Group plc's website athttp://www.jpjgroup.com/investors.

Enquiries

JPJ Group plc Jason Holden

[e-mail] [phone]

Director of Investor Relations

Amanda Brewer

Vice President of Corporate Communications

[e-mail] [phone]

Media Enquires

Finsbury

James Leviton, Andy Parnis

[e-mail] [phone]

Executive Chairman's Review

Overview and summary of results

2018 was another record year in terms of revenues and EBITDA for JPJ Group plc, our new name for the company which became effective from June. We also substantially completed the earn-out payments to Gamesys for the assets we acquired in 2015 leaving only two small 'milestone' payments of a maximum of £5.0 million each should the Jackpotjoy brands aRain certain EBIT targets for the 12 months ending March 2019 and March 2020. The second of these £5.0 million milestone payments has now been revalued to £nil, primarily reflecAng the impact of increased gaming duty in the UK. The payment for Botemania in June 2018, the Spanish business within the Jackpotjoy division, as well as the first milestone payment, amounted to £63.5 million and was comfortably met by exisAng cash resources.

The benefits of our strong underlying cash flows should now become even more apparent going forward. In addiAon, we also completed the disposal of our social gaming business for a cash consideraAon of £18.0 million which enables the Group to focus exclusively on our core acAvity of real money gaming. Subsequent to the end of the 2018 financial year, in March 2019 we completed the sale of Mandalay to a subsidiary of 888 Holdings plc for £18.0 million. This will enable the Group to concentrate on a more focussed brand strategy in the UK through Jackpotjoy9,10.

Successful move to the premium list in July 2018

On 26 July 2018, we were pleased to announce the approval by the Financial Conduct Authority (FCA) of the transfer of the lisAng category of all of our ordinary shares from a standard lisAng to a premium lisAng on the Official List of the FCA. This took place aWer a period of intensive due diligence and it was pleasing to be able to achieve this milestone ahead of plan. Not only does a premium lisAng confer qualitaAve benefits in terms of how the Group is perceived by the investment community, it also means that our shares are included in the FTSE All-Share indices thereby creating additional demand from index funds.

Record operational results

2018 results represented a record performance for the Group since its creaAon in 2014. Gaming revenues grew 10% to

2 £319.6 million, while adjusted EBITDA increased 9% to £112.7 million. Following a payment of £63.5 million in June

(primarily for Botemania), the vast majority of our earn-out payments have now been met. We finished the year with adjusted net debt6 of £302.1 million and adjusted net leverage7 of 2.68x was therefore considerably lower than the 3.57x at the end of 2017.

Leadership team and Board developments

Andria Vidler joined the Company's Board of Directors as a Non-ExecuAve Director following the Company's AGM on 7

June 2018. She also joined the Group's RemuneraAon CommiRee and is the Chair of the Group's Corporate Social Responsibility CommiRee. Andria has extensive public markets experience and is currently Chief ExecuAve Officer of Centaur Media PLC (CAU:LSE), a leading business information group.

Paul Pathak and David Danziger have stated it is their intenAon not to seek re-elecAon at the forthcoming AGM. Paul and David have been on the Board since the Intertain Group was admiRed to the Toronto Stock Exchange in 2014.

They have made a huge contribuAon to the development of what is now JPJ Group plc, including the lisAng on the London Stock Exchange in January 2017. On behalf of shareholders I would like to thank them for their contribuAon and wish them well for the future.

Capital structure

JPJ Group plc conAnues to generate a significant free cash flow5; in 2018 this amounted to £100.6 million. The primary utilisation of the free cash flow5 continues to be deleveraging the balance sheet; as at 31 December 2017 the adjusted net leverage ratio7 stood at 3.57x and at the end of 2018 this had reduced to 2.68x. The Board is comfortable retaining the current significant cash on the balance sheet given the opAonality which this confers. We will review the opportunity to use some or all of this spare cash to pay down debt on a quarterly basis.

The Board remains commiRed to returning excess cash to shareholders, when it can do so on a progressive and sustainable basis. Our debt facility allows us to return cash to shareholders once the adjusted net leverage raAo7 falls below 2.5x, but for this to be sustainable, the adjusted net leverage raAo7 needs to be comfortably below this level.

The Board remains commiRed to introducing a progressive dividend policy and also sees the value in a sustainable share buyback programme should the Group's share price remain, in its view, materially undervalued and at a discount to the peer group.

We remain focused on the delivery of operaAonal progress and revenue growth and also an appropriate balance sheet to support these ambitions.

Our people, customers and outlook

2018 was another record year in terms of financial results. This robust performance reflects the hard work of our employees throughout the enAre organisaAon and is once again testament to their diligence and dedicaAon. As part of our commitment to meeAng the highest industry standards on responsible gambling, revenues at Jackpotjoy UK were impacted in 2018 by the associated and enhanced measures we have implemented and the closure of a small number of high value accounts but, provided there are no further regulatory challenges, we expect the Jackpotjoy9,10 division to return to revenue growth during the latter part of 2019.

Our commitment to providing a safe and enjoyable environment for our customers is unwavering. While for the vast majority of players game-play represents fun and entertainment, the Group will conAnue to implement and develop responsible gambling measures to protect all customers, especially those at risk from potenAal harm. The Group has a strong track record in responsible gambling and is dedicated to safe game-play and posiAve gambling behaviour. It offers a variety of tools to help educate and protect customers in real Ame, while maintaining secure data and ensuring that acAviAes are marketed in a fair and transparent way. Finally, we are confident of our prospects for revenue growth against a posiAve market backdrop in global online gambling and we aim to conAnue to provide an entertaining, fun and responsible environment for all our customers to enjoy.

Neil Goulden

Executive Chairman 19 March 2019

Chief Executive Officer, Jackpotjoy Operations Ltd.'s Review

2018 has proven to be a very successful year for JPJ Group plc and one where we have delivered both revenue and profit growth. In June 2018, the final earn-out payment to Gamesys was made in relaAon to Botemania and at the same Ame 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. Our strategy is underpinned by three key tenets: puXng the customer at the heart of everything we do, geographic diversificaAon, and adding capability across the Group.

Putting the customer first

Our long-term, sustainable business model is based around puXng the customer at the heart of our business and 'knowing our customer' remains an organisational imperative.

We have invested significantly in building a data architecture during 2018 so that we can beRer understand our customers and their behaviour. The benefits of this investment will be realised fully in 2019 as they enable us to build long-term, sustainable relationships with our customers to support revenue growth into the future.

This has been combined with a thorough review of how we best manage customers, parAcularly with regard to any signs of problem gambling. For us this is not just morally the right thing to do, but makes clear commercial sense as problem gamblers do not suit a high retention business model.

We have made the business accountable for responsible gambling rather than delegaAng it to a separate funcAon and a responsible gaming or corporate social responsibility objecAve is part of the bonus scheme of employees who report directly to me.

Geographic diversification; adapting to a new regulatory environment in the UK

The Group has historically been very reliant on our core UK operaAons and these faced significant fiscal and regulatory challenges in 2018. To miAgate risk and open up new opportuniAes for growth, a focus of strategy has been geographic diversification. In 2018 43% of our revenues were generated outside of the UK compared to 36% in 2017.

Across our internaAonal markets, we have been parAcularly pleased with the significant growth being delivered in Germany, Japan, Spain and Brazil through our Vera&John, Botemania and InterCasino brands, and also in our B2B offering which is largely focused on Asia.

The UK on the other hand has proved to be a very challenging market due to four significant fiscal and regulatory changes each of which impacted the traditional JPJ Group plc business model, namely:

• 1. The move to calculate Remote Gaming Duty (RGD) on Gross Gaming Revenue (GGR) rather than Net Gaming

  Revenue (NGR) represented a significant increase in our taxaAon costs which we have successfully mitigated through geographical diversification and business model adjustments.

• 2. The CompeAAon and Markets Authority (CMA) requirements announced in February 2018 dictate a fundamental change in the way we both acquire and retain customers. We introduced the changes promptly, parAcularly around our use of bonus offers. We believe that our product-led soluAons can offer us a competitive advantage going forward.

• 3. The implementaAon of General Data ProtecAon RegulaAon (GDPR) in May 2018 also required changes to the way we have traditionally retained and reactivated customers.

• 4. Increased responsible gambling and anA-money laundering (AML) measures proved to be challenging as a number of our highest value customers were not prepared to share the level of detail we now require to ascertain their sources of wealth.

The implementaAon of the above measures all iniAally had a negaAve impact on profitability but as the organisaAon has learnt through the process we have been able to change our business model for the beRer in a number of areas. We believe that these measures in the longer term will make the strong stronger and the weak weaker. In fact, we have seen evidence of that in our own results in 2018.

Despite all of the challenges, there was a robust performance from our flagship Jackpotjoy brand in the UK; both the number of First Time Depositors (FTDs) and the revenue they generate increased significantly. We also grew both customers and revenue within every segment of our business, with the excepAon of our top Aer VIPs. The small decline in year-on-year revenue is solely due to a decline in our top Aer VIP customers following the implementaAon of the enhanced responsible gambling and AML measures during the year.

While it is always disappoinAng to experience a decline in revenue, we consider a lower reliance on VIPs to be healthy in the long term. The growth in every metric and the stabilisaAon of our top Aer VIPs in the laRer part of the trading period fills us with confidence about our future success.

In our smaller brands, parAcularly those in Mandalay, this proved far more challenging and we struggled to acquire, retain and reacAvate customers. Following a strategic review, we therefore took the decision to dispose of Mandalay; in March 2019 we completed the sale of the business to a subsidiary of 888 Holdings plc for £18.0 million.

Adding capability

2018 has also been a year of adding capability into our business, parAcularly in terms of people, product, plaLorm and marketing.

OrganisaAonally, we have started taking a more holisAc view of the business and have added a number of high-quality individuals who have significantly improved the capability of our organisation.

We have invested in above the line (ATL) markeAng during 2018 for Jackpotjoy in the UK, Botemania in Spain and for Vera&John and InterCasino in Germany and Sweden. We have also established a markeAng services company specialising in digital marketing.

Significant investment has been made in technology during the year. The investment in our proprietary enJoy plaLorm has enabled us to now generate a significant proporAon of our revenue on our proprietary technology. This has largely been focused around compliance, reducing technical debt, creaAng a modular architecture and integraAng payment providers. The outcome of this investment means that the enJoy plaLorm is now suitable for delivering our global ambiAons of serving both regulated and unregulated markets with one plaLorm. Meanwhile, we have maintained good relationships with our third party platform providers who have supported both our core and growing brands.

A product funcAon was established over the course of the year to build our product roadmap and ensure that the quality of the customers' experience is enhanced. We have a simple philosophy that customers play online for the fun and entertainment of game-play. We will work hard to reduce the amount of Ame customers are involved in non-play activities. The 2018 investment has again provided the infrastructure to deliver this vision in 2019.

A content studio has also been launched to build our own in-house content which should both enable us to differenAate our offer and increase our operaAng margins. We have been involved with the development of a number of games over the course of 2018, but we are parAcularly proud of 'Hawaiian Dreams' which has become our No.1 game in Asia.

We have also built a content aggregaAon business which has enabled us to serve content to operators worldwide. While it is early days, the business is beginning to generate some momentum with revenue more than doubling from H1 to H2.

Outlook for 2019

Once more the business faces significant cost headwinds with an increase in RGD in the UK from 15% to 21% in April and the regulaAon and subsequent tax introducAon in Sweden. However, we remain confident that we will conAnue to deliver healthy revenue growth and fully expect to conAnue to pursue our internaAonal ambiAons in high-growth markets and to solidify our market-leading position in the UK.

Simon Wykes

Chief Executive Officer Jackpotjoy Operations Ltd 19 March 2019

Note regarding non-IFRS financial measures

The following non-IFRS definitions are used in this release because management believes that they provide addi'onal useful informa'on regarding ongoing opera'ng and financial performance. Readers are cau'oned that the defini'ons are not recognised measures under IFRS, do not have standardised meanings prescribed by IFRS, and should not be considered in isola'on or construed to be alterna'ves to revenues and net income/(loss) and comprehensive income/(loss) for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. Our method of calcula'ng these measures may differ from the method used by other en''es. Accordingly, our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.

Adjusted EBITDA, as defined by the Group, is income from con'nuing opera'ons before interest expense including accelerated debt costs and other accre'on (net of interest income), income taxes, amor'sa'on and deprecia'on, share-based compensa'on, severance costs, realised loss on cross currency swap, fair value adjustments on con'ngent considera'on, transac'on related costs, foreign exchange (gain)/loss, and gain on sale of intangible assets. Management believes that Adjusted EBITDA is an important indicator of the issuer's ability to generate liquidity to service outstanding debt and fund the remaining acquisi'on milestone payment and uses this metric for such purpose. The exclusion of share-based compensa'on eliminates non-cash items and the exclusion of realised loss on cross currency swap, fair value adjustments on con'ngent considera'on, severance costs, transac'on related costs, foreign exchange (gain)/loss, and gain on sale of intangible assets eliminates items which management believes are either non-operational and/or non-routine.

Adjusted Net Income, as defined by the Group, means net income from con'nuing opera'ons plus or minus items of note that management may reasonably quan'fy and believes will provide the reader with a be7er understanding of the Group's underlying business performance. Adjusted Net Income is calculated by adjus'ng net income for accre'on on financial liabili'es, amor'sa'on of acquisi'on related purchase price intangibles (including non-compete clauses), share-based compensa'on, severance costs, realised loss on cross currency swap, fair value adjustments on con'ngent considera'on, transac'on related costs, foreign exchange (gain)/loss and gain on sale of intangible assets. The exclusion of accre'on on financial liabili'es and share-based compensa'on eliminates the non-cash items and the exclusion of amor'sa'on of acquisi'on related purchase price intangibles (including non-compete clauses), realised loss on cross currency swap, fair value adjustments on con'ngent considera'on, severance costs, transac'on related costs, foreign exchange (gain)/loss, and gain on sale of intangible assets eliminates items which management believes are non-opera'onal and/or non-rou'ne. Adjusted Net Income is considered by some investors and analysts for the purpose of assis'ng in valuing a company.

Diluted Adjusted Net Income per share, as defined by the Group, means Adjusted Net Income divided by the diluted weighted average number of shares outstanding, calculated using the IFRS treasury method, for the applicable period. Management believes that Diluted Adjusted Net Income per share assists with the Group's ability to analyse Adjusted Net Income on a diluted weighted average per share basis.

Cautionary Note Regarding Forward-Looking Information

This release contains certain informa'on and statements that may cons'tute 'forward-looking informa'on' (including future-oriented financial informa'on and financial outlooks) within the meaning of applicable laws, including Canadian securi'es laws. O9en, but not always, forward-looking informa'on can be iden'fied by the use of words such as 'plans', 'expects', 'es'mates', 'projects', 'predicts', 'targets', 'seeks', 'intends', 'an'cipates', 'believes', or 'is confident of' or the nega've of such words or other varia'ons of or synonyms for such words, or state that certain ac'ons, events or results 'may', 'could', 'would', 'should', 'might' or 'will' be taken, occur or be achieved. Forward-looking informa'on involves known and unknown risks, uncertain'es and other factors which may cause actual results, performance, achievements or developments to be materially different from those an'cipated by the Group and expressed or implied by the forward-looking statements. Forward-looking informa'on contained in this release includes, but is not limited to, statements with respect to the Group's future financial performance, the future prospects of the Group's business and opera'ons, the Group's growth opportuni'es and the execu'on of its growth strategies, the Group's milestone payment obliga'ons, the future performance of the Jackpotjoy segment, the possibility of the Group drawing on the RCF, and the statements made under the heading 'Outlook' of this release. Certain of these statements may cons'tute a financial outlook within the meaning of Canadian securi'es laws. These statements reflect the Group's current expecta'ons related to future events or its future results, performance, achievements or developments, and future trends affec'ng the Group. All such statements, other than statements of historical fact, are forward-looking