1st Mar 2007 07:05
PartyGaming Plc01 March 2007 1 March 2007 PartyGaming Plc Preliminary announcement of results for the year ended 31 December 2006 Financial Summary 2006 2005$ million Continuing Discontinued Continuing Discontinued Operations Operations# Total Operations Operations# Total Revenue Poker 266.4 559.2 825.6 139.7 719.4 859.1 Casino 51.0 219.2 270.2 13.5 105.1 118.6 Sports Betting 5.6 - 5.6 - - - Emerging Games 2.0 1.5 3.5 - - -Total Revenue 325.0 779.9 1,104.9 153.2 824.5 977.7 Clean EBITDA* Poker 42.7 341.7 384.4 19.0 490.2 509.2 Casino 8.2 160.1 168.3 1.8 73.8 75.6 Sports Betting 2.3 - 2.3 - - - Emerging Games 0.3 (2.0) (1.7) - - - Unallocated Corporate (2.6) - (2.6) (1.1) - (1.1) Total Clean EBITDA* 50.9 499.8 550.7 19.7 564.0 583.7 Operating Profit (77.6) 216.3 138.7 (209.1) 541.5 332.4Profit before Tax (77.4) 216.3 138.9 (216.6) 541.5 324.9Profit after Tax (83.4) 211.8 128.4 (223.1) 516.3 293.2 Basic EPS (cents) (2.2) 5.6 3.4 (5.9) 13.6 7.7Clean EPS* (cents) 0.4 12.5 12.9 (0.1) 14.0 13.9 # Operations located physically outside of the US but which relate to UScustomers that were no longer accepted following the passing of the UIGEA on 13October 2006 Highlights • Enactment of the Unlawful Internet Gambling Enforcement Act("UIGEA") resulted in immediate shut down of all real money games to customersin the US; Continuing operations comprise activities by customers outside the US • Operating profit is after reorganisation costs of $250.4m (ofwhich $243.2m relates to Discontinued operations) and share-based payments of$113.2m • Continuing revenue up 112% to $325.0m (2005: $153.2m)reflecting strong growth in Europe, Middle East and Africa ("EMEA"); totalrevenue up 13% to $1,104.9m (2005: $977.7m) • Continuing Clean EBITDA* up 158% to $50.9m (2005: $19.7m);Discontinued Clean EBITDA of $499.8m (2005: $564.0m); total Clean EBITDA of$550.7m (2005: $583.7m) • Continuing Clean EPS* of 0.4 cents (2005: loss per share of0.1 cents); total Clean EPS of 12.9 cents (2005: 13.9 cents); Continuing Basicloss per share of 2.2 cents (2005: loss per share of 5.9 cents); total Basic EPSof 3.4 cents (2005: 7.7 cents) • Trading patterns since the year end have seen continuedrecovery in poker and casino revenue, in line with the Board's expectations.Gross revenue per day in the 4 weeks to 25 February 2007 has averaged $1.3m $ refers to US Dollars throughout * EBITDA / EPS before reorganisation costs, IPO-related expenses, non-recurringcosts associated with the settlement of legal claims by certain skins, andcharges relating to share-based payments (see reconciliation of Clean EBITDA tooperating profit below). Commenting on today's results announcement, Mitch Garber, PartyGaming CEO said: "We are pleased to be announcing full year results that confirm the strength ofthe Group's business model. Whilst the decision to stop accepting customersfrom the US was a bitter blow for our business, our Continuing operations havegrown strongly from the lows reached in November 2006, benefiting from the rapidreorganisation of our business and the acceleration of our efforts ininternational territories. The addition of multi-lingual and multi-currencyversions of our games should further increase their market potential. Whileregulatory uncertainty continues in some territories, our Continuing operationsare in excellent shape and we have made a solid start to 2007." Contacts:PartyGaming Plc On 1 March 2007: +350 78700Peter Reynolds, Director of Investor RelationsJohn Shepherd, Director of Corporate Communications Financial Dynamics +44 (0)20 7831 3113Edward Bridges / Juliet Clarke Conference call details: Thursday, 1 March 2007 There will be a simultaneous webcast and dial-in broadcast of a presentation tobe made by Mitch Garber, Chief Executive Officer, and Martin Weigold, GroupFinance Director at 9.30am GMT. To access the live webcast, please visit theGroup website (www.partygaming.com). Immediately following the presentation,analysts and investors will be able to ask questions using the conference callfacility. Details for the dial-in facility are given below. The slidepresentation and a replay of the webcast will be available on the Group'swebsite later today. An interview with Mitch Garber, Chief Executive Officer, and Martin Weigold,Group Finance Director, in video/audio and text will also be available from7.00am GMT on 1 March 2007 on: http://www.partygaming.com and on http://www.cantos.com. Dial-in details to participate in the conference call for investors and analystson Thursday 1 March 2007 9.20 am Please call +44 (0) 20 7138 0835 (UK)9.30 am Meeting starts A recording of the conference call will be available for a period of seven daysfrom 1 March 2007. To access the recording please dial the following replaytelephone number: UK Replay telephone number: +44 (0) 20 7806 1970UK Replay Passcode: 6158466 All times are GMT. Business Review Introduction PartyGaming Plc is the world's leading listed online gaming company. Offering awide variety of online games, PartyGaming owns some of the biggest and bestknown brands in online gaming including PartyPoker.com, one of the world'slargest online poker rooms, EmpirePoker.com, PartyCasino.com, ClubDice.com,PartyBingo.com, PartyGammon.com and Gamebookers.com. The Group's financial performance in 2006 was impacted by the passing of theUnlawful Internet Gambling Enforcement Act (the "UIGEA") in the United Statesand the Group's decision to suspend immediately all real money games tocustomers in the US upon enactment of the UIGEA on 13 October 2006. Despite theimpact of the UIGEA on the Group's operations, PartyGaming's non-US facingbusiness continued to grow strongly in 2006. Results - Group Total revenue was up 13% to $1,104.9m (2005: $977.7m) reflecting a mixed picturewith strong revenue growth from outside the US, but US revenue was down 5% as aresult of the suspension of all real money games to players in the US from 13October 2006. Administrative expenses fell from $373.1m to $350.5m, the prior year having beenimpacted by skin-related settlement costs of $145.8m and IPO-related expenses of$22.6m. Excluding these non-recurring expenses, administration expensesincreased by 71% to $350.5m. This reflected a $47.6m increase in share-basedpayments driven by new issues of nil cost options to management following thepassing of the UIGEA, and a share-based payment charge arising from paymentsmade by the Bonita Trust to past and present employees of the Group. Distribution expenses increased by 34% to $362.8m driven primarily by increasedlevels of activity. As a percentage of revenue, distribution expenses increasedfrom 27.7% to 32.8% reflecting marketing activities focused on new geographicmarkets and the opening of a new disaster recovery centre in Guernsey. During the year, reorganisation costs totalling $250.4m were incurred. Of thisamount, $243.2m related to reorganisation costs arising from the decision tosuspend all real money games to customers in the US following the enactment ofthe UIGEA and has been included in Discontinued operations. The primarycomponents of these reorganisation costs related to the consequent impairment ofintangible assets, principally Empire Poker, totalling $115.5m; provisions madein respect of potential payment processor bad debts of $63.9m are detailed innote 12; the write-off of committed marketing expenditures of $32.3m relates tocontracts entered into before the enactment of the UIGEA for which no benefit tothe Group arises; impairment of technology licences relating to onerouscontracts; and redundancy and other costs totalling $17.0m. These factors together meant that despite the increase in revenues, operatingprofit fell by 58% to $138.7m, profit before tax fell by 57% to $138.9m, andprofit after tax fell by 56% to $128.4m. Clean EBITDA fell by 6% to $550.7m (2005: $583.7m) despite a strong performanceby casino, the benefit of which was more than off-set by increases in fixedcosts that were not fully recovered following the loss of revenue in the fourthquarter. Basic Clean EPS fell to 12.9 cents (2005: 13.9 cents) and basic EPSfell to 3.4 cents (2005: 7.7 cents). Having paid a $200m final dividend in respect of the 2005 financial year in May2006, the impact of the UIGEA meant that no interim dividend was paid during theyear in order to provide the Board with the flexibility to deploy its resourceseffectively, including on acquisitions, should suitable opportunities arise.The Board also believes that in the current environment, it would be imprudentto recommend the payment of a final dividend for the 2006 financial year. The table below provides a reconciliation of the movements between Clean EBITDAand operating profit after including the effect of the reorganisation costs. Reconciliation of Clean EBITDA to operating profit Year to 31 December 2006 2005 $m $mClean EBITDA* - Continuing 50.9 19.7Depreciation (20.3) (10.8)Amortisation (10.1) (0.3)Non-recurring settlement charge - (145.8)Share-based payments (90.9) (49.3)IPO-related expenses - (22.6)Operating loss from Continuing operations before reorganisation costs (70.4) (209.1)Operating profit from Discontinued operations before reorganisation costs# 459.5 541.5Operating profit before reorganisation costs 389.1 332.4Reorganisation costs (250.4) -Total operating profit 138.7 332.4 Continuing Clean earnings (loss) per share* (cents) 0.4 (0.1)Continuing Basic loss per share (cents) (2.2) (5.9)Total Clean earnings per share* (cents) 12.9 13.9Total Basic earnings per share (cents) 3.4 7.7 * EBITDA / EPS before reorganisation costs, IPO-related expenses, non-recurringcosts associated with the settlement of legal claims by certain skins as well ascharges relating to share-based payments # After charging share-based payments of $22.3m (2005: $16.3m) and depreciationand amortisation of $18.0m (2005: $6.2m) to Discontinued operations To provide a clearer picture of PartyGaming's Continuing operations and incompliance with relevant accounting standards, the financial results for both2006 and 2005 have been segmented between Continuing operations (comprisingrevenues and costs associated with customers located outside the US) andDiscontinued operations (operations located physically outside of the US butwhich relate to customers in the US that were no longer accepted following theenactment of the UIGEA on 13 October 2006). While full details of theconsolidated performance of Continuing and Discontinued operations are containedin the financial statements and the accompanying notes, all references tofinancial performance or key performance indicators throughout this documentrefer to the continuing non-US facing business only, unless expressly statedotherwise. Results - Continuing operations The Continuing operations again delivered a strong performance in 2006 withrevenue up 112% to $325.0m (2005: $153.2m). Clean EBITDA from Continuing operations was adversely impacted by the enactmentof the UIGEA, as well as by $7.5m of one-off costs relating to the change ofChief Executive Officer, but still grew strongly in 2006 reaching $50.9m, anincrease of 158% over the previous year. Poker remained the largest individual business segment within Continuingoperations, representing 82% of 2006 revenues (2005: 91%) and 80% of CleanEBITDA (2005: 91%). However, the launches of PartyCasino during the firstquarter of 2006 as well as PartyGammon and PartyBets later in the year haveimproved the balance of the Group's business. PartyPoker remained the majorforce behind the Group's poker business in 2006 and continuing poker revenuegrew by 91% to $266.4m (2005: $139.7m). Clean EBITDA from poker increased by125% to $42.7m (2005: $19.0m), driven by the substantial growth in poker revenuefrom outside the US. The casino business also enjoyed strong revenue growth in 2006: up 278% to$51.0m (2005: $13.5m). This was due to the addition of blackjack in October2005, the launch of PartyCasino during the first quarter of 2006 as well as anincrease in the popularity of the casino product amongst non-US customers.Clean EBITDA for this business segment also increased strongly by 356% to $8.2m(2005: $1.8m). Sports Betting and Emerging Games made first-time contributions to revenue of$5.6m and $2.0m respectively and to Clean EBITDA of $2.3m and $0.3mrespectively. Despite the passage of the UIGEA, that required immediate action to realign thecost base and consequently impacted margins, the Group's Continuing Clean EBITDAmargin was impacted but still increased from 12.9% to 15.7%. Regulation In executing the business strategy, the Group monitors and seeks advice inrespect of each of the relevant regulatory environments as part of an ongoingoperational risk and regulatory compliance assessment process. On 13 October 2006, PartyGaming stopped customers in the US from playing ormaking deposits on any of the Group's real money sites. Whilst a number ofother operators continue to take bets from US customers, we made our decisionout of respect for the clear policy choice made by the US Congress throughpassage of the UIGEA. PartyGaming respectfully disagrees with that policydetermination and believes that internet gaming offered by regulated, reputableoperators remains the right approach to this industry sector. Following the enactment of the UIGEA, an enforcement action was taken by certainUS regulatory agencies against third parties that had previously been active inthe online gaming sector and the Group is aware of speculation that thoseagencies have made enquiries of certain banks and other advisers. In the viewof the Board, this makes it uncertain as to what further actions, if any, USregulatory agencies may take in the future. Further information is provided innote 17a. The World Trade Organisation ("WTO") has found that the US legislative positionon internet gambling is in violation of US trade commitments and the EuropeanUnion's top financial regulator recently commented that the US position was "protectionist". Whether this may prompt further action by the European Union ("EU") remains to be seen. In Europe, the EU Commissioner in charge of Internal Markets and Services ispressing ahead with proceedings against several Member States that he believesmay be in breach of European Community law, specifically Article 49 of theTreaty of Rome: the freedom to provide and receive services within the EUwithout discrimination on grounds of nationality - a fundamental principle uponwhich the European single market is founded. These infringement proceedingshave been issued against Member States that seek to prohibit internationaloperators that are licensed and regulated within the EU from offering gamblingservices within their Member State. While a process to decide the matter isunderway, it is unlikely that the position will be resolved in the short-term.In the meantime, a number of Member States are seeking to enforce laws that willeffectively prohibit residents from accessing and enjoying games provided byonline gaming operators, despite the view taken by the EU that such action maybe in contravention of Article 49. In other jurisdictions such as parts of Asia,while certain online games are permitted using subscription-based gaming models,in many markets gambling online is currently prohibited under local law. The Board continues to believe that the development of a modern regulatoryframework, like those in Gibraltar, the UK, Alderney and Antigua is the mostsensible way forward. Online gaming is already enjoyed by millions of adultsaround the world and the market is expected to grow substantially. PartyGamingbelieves regulation can strike the right balance between providing adults with asafe and secure gaming environment online whilst ensuring that appropriateprotections are put in place to protect children and the vulnerable. What isalso clear from the recent experience in the US is that prohibition only drivescustomers to seek alternative, less transparent sources of online games frombusinesses that are less likely to provide the protections afforded bypublicly-listed and regulated companies. Objectives and Strategy Whilst the enactment of the UIGEA had a substantial impact on the scale andstructure of PartyGaming, the Group's business objectives and strategy remainrobust. The Group's primary objective has always been to deliver attractivelong-term returns for our shareholders and the effective closure of a majormarket is clearly a significant setback. However, PartyGaming has a proventrack record in seizing opportunities during periods of rapid change andbelieves it is well placed to capitalise on the anticipated growth andopportunities that exist in international markets. Nonetheless, whilst thebusiness model has proved its ability to generate high returns, itssustainability will be heavily dependent on the continued management of bothregulatory compliance and reputation risk. Online gaming is a new and relatively young industry and operates in regulatoryand legal environments that tend to lag behind market and product developments.Whilst the combination of the internet and gaming has proved to be contentiousin a number of territories, we continue to believe that ultimately a regulatoryframework for online gaming is the only sensible, long-term solution. Companieslike PartyGaming are setting the standard both in terms of the quality ofoperations and also in helping to assist governments and regulators to formulateappropriate safeguards for the benefit of consumers. As eGaming Review's 'Operator of the Year' in 2006, we have been widely recognised by our peers forthe quality of our operations but also for our approach to responsible gaming.By setting high standards we are able to demonstrate what can be achieved toensure fair play and protect our customers around the world. Understanding regulatory developments and managing regulatory compliance areclearly key to the long-term success of our business. Closely aligned with themanagement of regulatory compliance is the management and preservation of ourcorporate reputation. As a gaming business that means ensuring that ourcustomers are treated fairly. In practical terms, we have to ensure that ourgames and services are offered to customers in a safe and secure environment,one that seeks to protect children and the vulnerable. Our objective, to drive shareholder returns whilst managing regulatorycompliance and reputation risk, has been set in the context of a highlycompetitive international marketplace that is continuing to grow and is changingdaily from a technological as well as a regulatory perspective. The businessstrategies that we are executing to achieve our objective, in order of priority,are as follows: Grow the Group's customer base - This is a key driver of revenue. The take-upof online gaming by adults around the world is still very small and the sectoraccounts for just 5.4%1 of the global gaming market by value. The market rateof growth from international territories since 2003 has been much faster thanfrom the US and this is expected to continue. Since early 2005, PartyGaming'sinternational expansion has been focused on developing markets outside of the USand this has been accelerated following the passing of the UIGEA. Through thecontinued development of new and exciting marketing campaigns as well as theexploitation of a broad variety of marketing channels, the Group continues tosee considerable potential in a number of markets. Mergers and acquisitions ("M&A") have also proved to be an incremental source of new customers andPartyGaming will continue to explore opportunities that meet its financial andstrategic criteria. 1 Based on gross gaming yield - Global Betting and Gaming Consultants, February2007 Localise the customer offer - The Group's already substantial success ininternational markets has been achieved despite the fact that players have hadto play all games in English, rather than their local language. PartyGaming isset on broadening the appeal of its games in international markets andincreasing the number of active players by offering multi-lingual as well asmulti-currency options for its games as well as through the development of localpartnerships. Broaden the product base - For some time the Group has offered a broad suite ofonline games on the back of both internal development that included poker,casino and bingo, as well as through M&A and the licensing of technology fromthird parties. The addition of backgammon took place in June 2006 and the Groupacquired Gamebookers, a non-US facing sports betting company, on 3 August 2006.The Group has since launched PartyBets, its own Party-branded sports book thatis fully integrated into the PartyAccount shared wallet. Responsible gaming - Setting, maintaining and improving high standards ofresponsibility are key elements of the Group's business strategy. This isimportant from a regulatory and reputation standpoint and also makes soundcommercial sense. Whilst the vast majority of PartyGaming's customers enjoyplaying games, a small minority can find themselves in a position where gamblingmay be assuming too large a part of their lives. The Group has put in place aseries of checks and balances to help such players recognise the signs ofproblem gaming and provide them with information about where they can turn tofor help. The "know your limits" logo that now appears on all of our sitesseeks to ensure that customers are aware of and play within their own means.Players are encouraged to set time and deposit limits to improve self-awarenessof how much they are playing and self-exclusion tools are also available ifrequired. Protecting children is a paramount objective. The Group usesthird-party databases wherever practicable to verify the identity and age ofcustomers before they play and also seeks to encourage parents and guardians tokeep their log-in and payment details confidential to prevent misuse bychildren. Business developments in 2006 The past financial year again witnessed rapid change and development across allaspects of the Group's business. Even before the UIGEA, the number one prioritywas to continue to drive international revenue growth. Whilst broadening theappeal of PartyGaming's products and services to international customers throughthe introduction of multi-lingual and multi-currency offerings was justconceptual in the first half of 2006, PartyPoker.com is now available in 13languages while the poker client is fully functional in six languages.Gamebookers is available in 11 languages, and both PartyCasino and PartyBingoclients are available in English and German with other languages to follow. Theintroduction of multi-lingual functionality is just one example of how once astrategic objective has been identified, the Group has mobilised resources toprovide an end-to-end solution including design, testing and final executionwithin a very short timeframe. Such skills differentiate the Group from many ofits competitors and require excellent project management and communicationacross each of the three pillars of our business: sales and player marketing,technology and customer service. Further details regarding the developments ineach of these three areas during the year is provided below. 1. Sales and player marketing New player sign-ups are a key driver of revenue growth. The Group's marketingfunction is the engine behind the growth in new player sign-ups, and has againdelivered a strong performance. Over 527,000 new real money non-US players wereadded to the Group's shared wallet - an increase of 133% over the previous year.This was achieved despite the fact that the marketing function underwent asubstantial reorganisation following the suspension of all real money games tocustomers in the US that affected the operation during the fourth quarter of2006. New player sign-ups are sourced across a variety of different channels includingan extensive affiliate network and offline as well as online media. Thisapproach has delivered strong growth in international sign-ups, unique activeplayers and consolidated active player days in each of our key internationalsegments: New player sign-ups (000) 2006 2005 % increaseEMEA1 382.6 131.1 192%Americas (non-US) 102.2 71.6 43%Asia Pacific 42.4 23.1 84% ------ ------Total 527.2 225.8 133% ------ ------ Unique active players (000) 2006 2005 % increaseEMEA1 530.3 163.5 224%Americas (non-US) 162.3 95.5 70%Asia Pacific 56.4 25.7 119% ------ ------Total 749.0 284.7 163% ------ ------ 1 Europe, Middle East and Africa Active player days (m) 2006 2005 % increaseEMEA 11.3 3.3 242%Americas (non-US) 4.7 2.8 68%Asia Pacific 1.0 0.4 150% ------ ------Total 17.0 6.5 162% ------ ------ The total number of unique active players for the twelve months to 31 December2006 increased by 163% to almost 749,000, (2005: 285,000) with the averagenumber of daily players increasing by 160% to nearly 47,000. Despite strongcompetition from those sites that continue to offer real money games tocustomers in the US, it is estimated that in the week ended 25 February 2007PartyPoker.com had approximately 15.4%(1) of the global online poker market(versus 10.7% in mid November 2006), although this is still significantly belowits estimated share before the UIGEA was enacted. (1) based on the average number of daily real money cash game players - source:PokerSiteScout.com, week to 25 February 2007 2. Systems and product development 2006 was a year of constant change from the perspective of our productdevelopment, systems and infrastructure activities. The launch of a new systemsplatform in February 2006 marked the first step in our transformation to amulti-product, multi-lingual and, in 2007, multi-currency operation. Theintegrated platform supports four distinct product lines: poker, casino(including bingo), sports betting and emerging games (currently backgammon).All of them are fully integrated through one PartyAccount, allowing access tothe full range of Party games through a single deposit. Also during 2006, theGroup moved to a multi-channel offering with the launch of a web-based 'nodownload' poker product. Following the simultaneous launch of PartyCasino and the integrated platform inFebruary 2006, the Group has added PartyGammon, PartyBingo (now with 90-ballbingo), PartyBets, virtual racing and multi-player blackjack. The Group's proprietary technology infrastructure and operating platform lie atthe very heart of the customer's experience. In addition to delivering newproducts and services, there is a continuous programme of upgrades and systemimprovements to maintain and improve the gaming experience for our customers.Creating new tools to assist with the design and testing of new products as wellas systems to improve customer security and protection are all part of the remitof the Group's systems and product development function. The Group has a dedicated team of approximately 300 full time software engineersbased in Gibraltar and Hyderabad, that have a proven track record for innovationand process improvement. In 2007 their focus will be on delivering the roll-outof new features, new games and continuing to improve the quality of the customerexperience. 3. Customer service PartyGaming's dedicated round-the-clock customer support sets it apart from manyof its competitors. Since suspending all real money games to customers in theUS, the international spread of the Group's player base has prompted severalchanges to the structure of the customer service operation. Multi-lingualcustomer service is now supported from purpose-built premises in Europe thatwill provide ready access to a large pool of suitably skilled personnel. The Group separated the customer service teams earlier in the year to allow amore focused approach on individual customer segments, with revised targets forcustomer times via phone and email. Having been awarded a second GamCarecertificate in June 2006 for our approach to and high standards of responsiblegaming, PartyGaming continues to seek ways in which to improve further itssystems and processes to ensure the protection of children and the vulnerable oranyone for whom gaming may have become too large a part of their lives. GamCareis widely regarded as one of the world's leading promoters of responsibleattitudes towards gaming. Management The plans for realigning the Group's cost base following the passing of theUIGEA, whilst painful, were executed rapidly and with the highestprofessionalism. Over 40% of the workforce was laid-off within a three monthtime frame and the rationalisation was at all levels of the business and acrossall of our locations. The Board has also undergone significant change duringthe year with the appointment of Mitch Garber as CEO following the departure ofRichard Segal, the departure of Anurag Dikshit and Vikrant Bhargava, bothfounders of the Group, as well as three non-executive Directors: Brian Larcombe,Nigel Kenny and Janos Libor. The Board would like to thank each of the formerdirectors for their substantial contribution and wishes them well for thefuture. Acquisitions The online gaming industry has grown rapidly and has for some time been expectedto experience a major consolidation in terms of the number of operators. Whilethere have been some corporate transactions in the sector, the massconsolidation expected has yet to materialise. The Board continues to believethat M&A can complement the Group's organic growth strategies in achieving theprimary objective of delivering attractive long-term returns for shareholders.During 2006 the Group announced four acquisitions for an aggregate considerationof approximately $450m in cash and stock. A summary of the acquisitionsannounced during 2006 is provided below: Date completed Business and assets acquired Description Consideration6 March 2006 EmpirePoker.com Poker $254m* 3 August 2006 Gamebookers Non-US sports betting €103m# 19 January 2007 Various websites from Empire Online Limited Casino and poker $48m 19 January 2007 Various websites from Intercontinental Online Gaming Limited Casino and bingo $18m * includes $127.8m for the settlement of litigation claims relating to EmpireOnline Limited and expenses of $3.7m # includes deferred consideration Dividend On 19 May 2006 the Group paid a final dividend in respect of the 2005 financialyear totalling $200m. Following the decision to suspend all real money games tocustomers in the US and the consequent reorganisation of the business, the Boardbelieved that it was inappropriate to pay an interim dividend for the 2006financial year. The Board also believes that in the current environment, itwould be imprudent to recommend the payment of a final dividend for the 2006financial year. The Board continues to review the appropriate dividend policyfor the Group going forward. 2007 developments This year will see PartyGaming complete a number of key projects and commenceother initiatives aimed at driving the business forward into 2008 and beyond.The full roll-out of our multi-lingual project is expected to be completedduring the first half of 2007 and the Group may add further languages asrequired. The multi-currency offering will launch during the first half of2007, allowing customers to play games and hold their client balances in eitherPounds Sterling, Euros or US dollars. While peer-to-peer games such as poker,multi-player blackjack, progressive jackpot games and tournaments will continueto be played in US dollars, individual games against the house such as singleplayer blackjack and sports betting will soon be available in these currencies.Both these initiatives should broaden the appeal of the Group's gamesinternationally. Having already launched a "no download" version of PartyPoker, allowing playersto enjoy games even when they are not at home or using their regular computer,we plan to launch similar versions for all of the Group's real money games,providing greater access for customers around the world. A new mobileapplication for PartyCasino now provides another alternative channel forcustomers. Current trading and outlook In the 4 weeks ended 28 January 2007, average gross daily revenue reached$1,172,000, a 19% increase from that achieved in the four weeks to 11 December2006, as disclosed in the last trading update given by the Company. In poker,new player sign-ups averaged over 2,300 per day and there were on average 58,000active players per day, generating average gross daily revenue of $789,000. Incasino, average gross daily revenue was $318,000(1) per day while in sportsbetting, gross win per day averaged $58,000 per day. Backgammon generatedaverage gross revenue of $7,000 per day. In the following 4 weeks, ended 25 February 2007, average gross daily revenuehad increased to $1,327,000, a 13% increase over January. In poker, new playersign-ups averaged over 2,400 per day and there were on average 66,000 activeplayers per day, generating average gross daily revenue of $856,000. In casino,average gross daily revenue had increased to $378,000 per day while in sportsbetting, gross win per day had increased to $86,000 per day. Backgammonrevenues fell to gross revenue of $6,000 per day. The growth in revenue has hada positive influence on profitability and Clean EBITDA margins of the Continuingoperations should benefit from further revenue growth. Territories within EMEA have been and continue to grow rapidly and thus provideexciting opportunities for the Group. Our product development, marketing andcustomer service is now totally focused on customers outside the US, includingAsia. Customers from parts of Asia may represent a substantial but as yetuntapped opportunity for the Group. We are exploring several initiatives in theregion and believe that these opportunities and our plans in other internationalmarkets will bear fruit in the medium to long term. The legislative landscape and market dynamics around the world are constantlychanging making it difficult to predict exactly what things will look like in 12months' time. However, it is clear that online gaming has huge popular appealamong adults around the world and it is generally accepted that this trend willcontinue. It is against this background that the Board believes that whilst regulatoryuncertainties continue in a number of territories, the Group has the resourcesand the necessary skills to execute its strategy and achieve its long-termobjective of delivering attractive returns for shareholders. (1) Including Empire Online and Intercontinental Online Gaming casinos at theiraverage daily rate post-acquisition on 19 January 2007. SUMMARY OF RESULTSYear to 31 December Revenue Clean EBITDA* 2006 2005 2006 2005 $m $m $m $m Poker 266.4 139.7 42.7 19.0Casino 51.0 13.5 8.2 1.8Sports Betting 5.6 - 2.3 -Emerging Games 2.0 - 0.3 -Unallocated Corporate - - (2.6) (1.1)Total Continuing 325.0 153.2 50.9 19.7Discontinued operations 779.9 824.5 499.8 564.0Total 1,104.9 977.7 550.7 583.7 * EBITDA before reorganisation costs, IPO-related expenses, non-recurring costsassociated with the settlement of legal claims by certain skins, as well ascharges relating to share-based payments (see reconciliation of clean EBITDA tooperating profit above) Revenue from the continuing business was up 112% over the previous year,reflecting our continued drive into a number of new territories, strong growthin established markets, particularly within EMEA, and by first timecontributions from acquisitions made in the period. Whilst poker revenue grewstrongly, the largest percentage year-on-year increase was in the casinobusiness that benefited from the launch of blackjack on PartyPoker in October2005 and the launch of PartyCasino in February 2006. Clean EBITDA fromContinuing operations increased by 158%, also driven by the strong growth incasino. The Clean EBITDA margin for the continuing business was 15.7% (2005: 12.9%).Whilst higher than the previous year, it was impacted by the immediate loss ofrevenue following the passing of the UIGEA when a number of high valueinternational players migrated to sites that continued to offer real money gamesto customers in the US and could therefore offer greater player liquidity. Theconsequent impact on overall margins was mitigated in part by growth in newplayer sign-ups and a strong performance in casino where bonus rates as apercentage of gross revenue remained lower than normal following the launch ofblackjack and PartyCasino. The suspension of all real money games to customers in the US was the primarydriver behind reorganisation costs incurred during the fourth quarter of 2006totalling $250.4m of which $7.2m related to Continuing operations. Clean earnings per share from Continuing operations was 0.4 cents (2005: lossper share of 0.1 cents). Total Clean earnings per share (including Discontinuedoperations), was 12.9 cents per share (2005: 13.9 cents). Consolidated Key Performance Indicators (including Sports Betting) Year to 31 December 2006 2005 Annual Growth in growth Q4 06 vs Continuing Operations* Q3 06Active player days (m) 17.0 6.5 162% 22%Daily average players (000s) 46.6 17.9 160% 23%Yield per active player day ($) 19.1 21.6 (12%) (31%)New real money sign-ups (000s) 527.2 225.8 133% 4%Unique active players during the period (000s) 749.0 284.7 163% 12%Average daily revenue ($000) 889.5 387.1 130% (15%) * excluding skins Total active player days for the continuing operations reached 17.0m, anincrease of 162% over 2005, driven by strong growth in new player sign-ups thatincreased by 133% to over 526,000. Sign-ups were particularly strong in EMEAfollowing the introduction of new marketing campaigns and an increased focus onthis geographic market. As a result, despite a dip in average daily playervolumes immediately following the passing of the UIGEA, the number of uniqueactive players during the year increased strongly to 749,000 players, anincrease of 163% over the comparable period in 2005. EMEA performedparticularly strongly with a 224% increase in unique active players to over530,000, or 71% of the total. While a number of high value players stopped playing during the fourth quarter,active player days still grew by 162% versus 2005 driven by the rapid growth innew player sign-ups and the consequent increase in the active player base. Theloss of high value players had a significant impact on overall yield per activeplayer day that fell to $19.1 versus $21.6 in the previous year. Average dailyrevenue for the year as a whole increased to nearly $890,000 per day, up from$387,000 in 2005. There follows a more detailed review of the Continuing operations including eachof the individual product segments. Full details of all quarterly keyperformance indicators can be downloaded from the Group's website at: http://www.partygaming.com/investor/documentation.html POKER Year to 31 December 2006 2005 % change Continuing Operations $m $m Gross revenue 301.0 146.9 105%Bonuses and other fair value adjustments to revenue (34.9) (19.1) 83%Net revenue from own sites 266.1 127.8 108%Income from skins 0.3 11.9 (97%)Net poker revenue 266.4 139.7 91% Continuing Clean EBITDA 42.7 19.0 125%Clean EBITDA margin 16.0% 13.6% Poker continued to represent the largest business segment at 82% of revenue and80% of Clean EBITDA. After falling sharply following the suspension of realmoney games to customers in the US, PartyPoker.com's market position hasrecovered strongly. Excluding skins, continuing net poker revenues increased by108% versus the previous year to $266.1m (2005: $127.8m) with average dailyrevenue of $729,000 (2005: $350,000). The impact of the UIGEA on the Continuingoperations can best be seen by the fact that average daily poker revenues in thefourth quarter of 2006 fell to $632,000 per day versus $821,000 in the thirdquarter. Clean EBITDA margins in poker increased to 16.0% from 13.6% the previous year,reflecting growth in revenues partially offset by investment in corporateinfrastructure. Poker - Key Performance IndicatorsYear to 31 December 2006 2005 Annual Growth growth in Q4 06Continuing Operations* vs Q3 06Active player days (m) 15.0 6.4 134% 15%Daily average players (000s) 41.1 17.6 134% 16%Yield per active player day ($) 17.7 19.9 (11)% (34)%New real money sign-ups (000s) 467.5 204.4 129% 0%Unique active players during the period (000s) 634.5 261.0 143% 8%Average daily revenue ($000) 728.7 350.1 108% (23)% * excluding skins The popularity of online poker has continued to expand throughout the world andover the past twelve months both real money sign-ups and the number of uniqueactive players have grown strongly by 129% and 143% respectively. Total activeplayer days in poker more than doubled reaching 15.0m (2005: 6.4m), primarilydriven by the growth in new real money sign-ups. As we expected, attrition rates increased following the UIGEA with approximately24% of all 2006 poker sign-ups remaining active after six months and 20% after12 months. This compares with the six and twelve month figures for 2005sign-ups of 29% and 23% respectively. Across all real money non-US pokersign-ups as at 31 December 2006, the proportion of players who were active aftersix months was approximately 27%, after 12 months it was 24% and after 18 monthsit was 22%. Yield per active player day was down by 11% year on year to $17.7 (2005: $19.9).Whilst the continued expansion into a number of new territories had a positiveinfluence on yield (early adopters are usually the first to start playing andtend to have above average spend), this was outweighed by the growth in thenumber of casual players in maturing markets as well as by the loss of a numberof high value players during the fourth quarter of 2006 when continuing pokeryield fell to $12.9 versus $19.4 in the previous quarter. CASINO Year to 31 December 2006 2005 % change Continuing Operations $m $m Gross revenue 59.7 15.2 293%Bonuses and other fair value adjustments to revenue (8.7) (1.7) 412%Net casino revenue 51.0 13.5 278% Clean EBITDA 8.2 1.8 356%Clean EBITDA margin 16.1% 13.3% Having been totally transformed by the launch and cross-selling of blackjack topoker players during the second half of 2005, the casino business was given afurther boost in February 2006 with the launch of PartyCasino.com. This in turnincreased the proportion of revenue generated by casino to 16% of continuingoperations in 2006 (2005: 9%). The Clean EBITDA margin increased to 16.1% (2005: 13.3%) and was influenced by anumber of factors. While there were positive effects on margin, from both lowacquisition cost (the majority of the increase in revenue coming almostexclusively from existing PartyGaming players) and lower bonus rates than theprevious year, the loss of a number of high value poker players did have aknock-on effect in casino. A summary of the key performance indicators for thecasino business during the year, together with the percentage movement betweenthe third and fourth quarter 2006 is shown in the table below: Casino - Key Performance Indicators Year to 31 December 2006 2005 Annual Growth growth in Q4 06Continuing Operations* vs Q3 06Active player days (000s) 1,838.9 386.1 376% 38%Daily average players (000s) 5.0 1.1 355% 39%Yield per active player day ($) 27.8 34.9 (20%) (15%)New real money sign-ups (000s) 25.8 21.1 22% (29%)Unique active players during the period (000s) 276.8 82.2 237% 26%Average daily revenue ($000) 139.8 37.0 278% 17% * excluding skins Now hosting 47 different casino games including blackjack, roulette, slots,video poker, as well as virtual horse and dog racing, PartyCasino offers a fullsuite of casino games to players and all using one player account. While therehas not yet been any dedicated marketing effort to support the new brand pendinglaunch of the multi-lingual and multi-currency offerings, the casino businesshas already seen a material uplift in player traffic, activity levels andrevenue. Daily average players increased by 355% and active player daysincreased by 376% while the number of unique active players was up by 237% yearon year. Yield per active player day was down to $27.8 (2005: $34.9),reflecting the launch of blackjack that tends to attract more casual playersthan regular casino games. Whilst yield was also impacted by the loss of anumber of high yielding players from the platform in the fourth quarter of 2006,average net daily casino revenue still increased substantially from $37,000 tonearly $140,000 in 2006. Customer bonuses remained below long-term normsaveraging 15% of gross revenue (2005: 11%). SPORTS BETTINGYear to 31 December 2006 2005 % change Continuing Operations $m $m Total Stakes 114.3 - n/a Gross Revenue (or Gross Win) 7.8 - n/aBonuses and other fair value adjustments to revenue (2.2) - n/aNet Sports Betting revenue 5.6 - n/aGross win margin 6.8% -Clean EBITDA 2.3 - n/aClean EBITDA margin 41.1% - n/a The acquisition of Gamebookers was completed on 3 August 2006 and inmid-November the Group released PartyBets to a limited number of customersbefore going live a month later. PartyBets is now fully integrated onto theParty-branded systems platform. In the period from acquisition to 31 December2006 Sports Betting produced total gross win of $7.8m and Clean EBITDA of $2.3m.Due to being operational for only a couple of weeks, PartyBets did not make ameaningful contribution in 2006. Sports Betting - Key Performance Indicators Year to 31 December 2006 2005 Annual Growth growth in Q4 06Continuing Operations vs Q3 06Active player days (000s) 1,409.0 - n/a 68%Daily average players (000s) 9.3 - n/a 8%Yield per active player day ($) 4.0 - n/a (7%)New real money sign-ups (000s) 31.4 - n/a 68%Unique active players during the period (000s) 78.8 - n/a 57%Average daily revenue ($000) 37.3 - n/a 1% Gamebookers has performed in line with our expectations since its acquisition inAugust 2006 with customer volumes, numbers of bets placed and gross win marginsall ahead of the previous year. Gamebookers is particularly popular in centraland eastern Europe and will continue to operate as a betting brand. PartyBetswill be promoted more aggressively later in the year, by which stage it will beavailable in multi-currency format. EMERGING GAMESYear to 31 December 2006 2005 % change Continuing Operations $m $mGross revenue 2.2 - n/aBonuses and other fair value adjustments to revenue (0.2) - n/aGross win 2.0 - n/a Clean EBITDA 0.3 - n/aClean EBITDA margin 15.0% - n/a The Emerging Games segment comprises PartyGammon.com, the Group's real moneybackgammon site that was launched on 23 June 2006. Having benefited from thepresence of a number of customers based in the US, the business experienced asubstantial reduction in player liquidity following the suspension of all realmoney games to customers in the US and this affected player activity and averagedaily revenue. Total revenue from continuing operations in the period was $2.0mand the business generated Clean EBITDA of $0.3m. Emerging Games - Key Performance Indicators Year to 31 December 2006 2005 Annual Growth growth in Q4 06Continuing Operations vs Q3 06Active player days (000s) 249.1 - n/a 22%Daily average players (000s) 1.3 - n/a 25%Yield per active player day ($) 8.2 - n/a (59)%New real money sign-ups (000s) 2.5 - n/a 40%Unique active players during the period (000s) 35.2 - n/a 139%Average daily revenue ($000) 10.7 - n/a (50)% DISTRIBUTION COSTSYear to 31 December 2006 2005 % change $m $m Customer acquisition and retention 60.1 21.0 186%Affiliates 56.1 25.0 124%Other customer bonuses (not netted from revenue) 4.6 1.8 156%Customer bad debts 4.5 1.9 137%Webhosting and technical services 8.1 1.6 406%Total Continuing distribution costs 133.4 51.3 160%Total distribution costs as % of revenue 41% 33%Discontinued distribution costs 229.4 219.8 4%Total distribution costs 362.8 271.1 34% Total distribution costs for the Continuing operations increased by 160%compared with the previous year, the most significant increases being incustomer acquisition costs and affiliate costs. As a proportion of revenue,total distribution costs increased to 41% (2005: 33%) reflecting the move into anumber of new territories that require some general brand promotion that doesnot generate revenue in the short-term. Affiliates remain an importantmarketing channel for promoting the Group's products in new territories andcontinue to account for a significant proportion of the Group's revenue. Customer bad debts, as a proportion of revenues, were similar to the previousyear while webhosting costs increased as a result of the opening of a disasterrecovery centre in Guernsey and increased customer volume. ADMINISTRATIVE EXPENSESYear to 31 December 2006 2005 % change $m $m Transaction fees 22.1 9.5 133%Depreciation 20.3 10.8 88%Amortisation 10.1 0.3 3,267%Staff costs 68.2 34.4 98%Other overheads 47.9 37.2 29% 168.6 92.2 83%Share-based payments 90.9 49.3 84%Continuing administrative costs before non-recurring items 259.5 141.5 83%IPO-related expenses - 22.6 n/aSkin-related settlement costs - 145.8 n/aContinuing administrative costs 259.5 309.9 (16%)Continuing administrative costs as a % of revenue 80% 92%Discontinued administrative costs 91.0 63.2 44%Total administrative costs 350.5 373.1 (6%) Administration costs before share-based payments, IPO-related expenses andskin-related settlement costs increased by 83% to $168.6m but fell from 60% ofrevenue to 52% reflecting the substantial growth in revenues and operatingleverage of the business, in particular in respect of staff costs and otheroverheads. Transaction fees increased by 133% to $22.1m reflecting a substantial increasein player deposits and withdrawals. As a proportion of revenue, transactionfees increased from 6.2% to 6.8% reflecting the introduction of lower depositlimits in October, as well as the cost of employing additional customerverification methods that became available during the year. Depreciation and amortisation increased from $11.1m to $30.4m reflectinginvestment in new IT infrastructure and the acquisition of Empire Poker.com andGamebookers during the year. Share-based payments Prior to flotation, the Principal Shareholders established a share option planfor the benefit of the current and future workforce. Under the terms of theplan, existing employees were granted a number of nil-cost options to besatisfied by existing shares which had effectively been gifted by the PrincipalShareholders to a dedicated employee trust. As such, the exercise of theseoptions had no dilutive effect on shareholders who subscribed at the IPO andwill have no cash impact on the Company. International Financial ReportingStandards requires that the fair value of the options be amortised through theincome statement over the life of the options. As a result, there is a non-cashcharge of $90.9m including a $17.4m charge relating to The Bonita Trust (2005:$49.3m) which has been included within the income statement. Prior to year end, a further 73.9m nil-cost options were granted to theExecutive Directors and other key employees of the Group resulting in anincrease in the share-based payments required under IFRS. The exercise of theseoptions will be satisfied by shares held by the Employee Trust. The EmployeeTrust received an additional gift totalling 40.0m PartyGaming shares from thePrincipal Shareholders on 29 December 2006. Bonita Trust The Bonita Trust was established in Gibraltar in 2004 by a subsidiary ofPartyGaming Plc to enable the Group's Principal Shareholders to benefit thecommunities where the Company and its people and service providers live andwork, or have lived and worked. It is primarily a philanthropic organisationsupporting well-established medical and educational non-profit organisationswith funds principally directed to benefit the communities of Gibraltar, Indiaand the UK. Employees of PartyGaming and their families are also eligible to becomebeneficiaries of the trust. In December 2006, Bonita Trust made or committed tomake payments to certain individuals that were employed or had previously beenemployed by the Group. These payments were made independently of the Group andwere over and above the amounts that the Board had already determined should bepaid by the Group to those employees and former employees. However, as thesepayments were based primarily on the Company's share price, the Board considersthese to fall under IFRS2 - Share-Based Payments and in the year to 31 December2006 has charged an amount to the income statement totalling $26.8m as if suchamounts had been paid by the Group itself. A corresponding amount has beenrecorded as a capital contribution in the Group's balance sheet. Of the $26.8m,$9.4m relates to Discontinued operations. Associates and joint ventures Year to 31 December 2006 2005 $m $m 35% interest in a company incorporated in England (0.3) (0.8) The Group acquired a 35% interest in a company incorporated in England duringthe first half of 2005 which was sold in November 2006. The Group's share oflosses during the period totalled $0.3m (2005: $0.8m). Finance income and costs Year to 31 December 2006 2005 $m $m Interest payable and other charges (3.7) (10.2)Interest receivable 4.2 3.5Net interest receivable (payable) 0.5 (6.7) Taxation The effective tax rate based on the total tax charge is 7.6% (2005: 9.8%). Theeffective tax rate for the period is 9.8% before share-based payments (2005:5.7% before share-based payments, IPO-related expenses and skin-relatedsettlement costs). Net cash(1) As at 31 December 2006, the Group had net cash of $43.4m (31 December 2005:$199.9m) after substantial player balance withdrawals, as evidenced by a $96.2mreduction in client liabilities during the fourth quarter of 2006. Followingthe enactment of the UIGEA and subsequent discussions with its bankers, theGroup's multi-currency revolving credit facility will be cancelled on or before30 April 2007. As at 31 December 2006 there was a $12.0m drawdown on thisfacility. (1) Net cash is defined as cash, cash equivalents and short term investmentsless bank debt CASHFLOW Year to 31 December 2006 2005 $m $mCashflow from operations before movements in working capital 431.0 415.3Working capital movements (116.2) 204.9Net cashflow from operating activities 314.8 620.2Capital expenditure (48.3) (36.8)Acquisitions of intangibles (224.4) (22.6)Investment in associated undertaking - (1.8)Short term investments (2.3) (6.8)Net finance income (costs) 1.4 (6.1)Drawdown of revolving credit facility 12.0 (2.3)Repayment of shareholder loans - (482.8)Equity dividends paid (200.0) -Cash (outflow) inflow (146.8) 61.0 Operating cashflow before movements in working capital increased by 4% to$431.0m. The movements in working capital year-on-year were affected by thewithdrawal of deposits by customers based in the US during the fourth quarter aswell as by the presence of a one-off charge in 2005 relating to non-recurringskin-related settlement costs of $142.2m that was paid in 2006. Acquisitionsand capital expenditure of $272.7m and the final dividend for 2005 of $200.0mresulted in a net cash outflow during the year of $146.8m (2005: inflow of$61.0m). Capital expenditure Capital expenditure during the period was $48.3m (2005: $36.8m) and is analysedin more detail in the table below: Year to 31 December 2006 2005 $m $m Poker 0.4 12.4Casino 0.4 0.3Sports Betting 1.5 -Emerging Games 4.0 -Corporate assets 42.0 24.1Total 48.3 36.8 The increase in spend on corporate assets relates primarily to technologyinfrastructure, including a new disaster recovery centre in Guernsey, thirdparty application licenses and office fit-out costs. Purchase of intangible assets During the period the Group acquired the EmpirePoker.com skin, and otherassociated white label and affiliate agreements relating to AceClub.com andStarluckCasino.com, from EmpireOnline Limited ("EOL") together with thewithdrawal of all legal claims by EOL against the Group, for a total cashconsideration of $250 million, excluding related expenses. Of the totalconsideration, $122.2m was attributed to the acquisition and the balance to thesettlement of the legal claims by EOL against the Group. On 3 August 2006 the Group announced the acquisition of the business and assetsof Gamebookers, an exclusively non-US facing online sportsbook business, fromTrident Gaming PLC for net cash consideration of €103.3 million ($132.0m). Two further acquisitions were completed following the balance sheet date and aredescribed in note 23 to the financial statements. About PartyGaming Plc PartyGaming Plc is the world's leading listed online gaming company. Founded in1997, the Group is a constituent of the FTSE 250 share index with its shareslisted on The London Stock Exchange under the ticker: PRTY. In the year to 31December 2006, PartyGaming's continuing operations generated revenues of $325.0mand Clean EBITDA of $50.9m. The Group has over 1,000 employees located inGibraltar, India, the United Kingdom and Bulgaria. PartyGaming's principal brands are PartyPoker.com, one of the world's largestonline poker rooms, EmpirePoker.com, PartyCasino.com, ClubDice.com,PartyBingo.com, PartyGammon.com and Gamebookers.com. None of the Group's sitesaccept real money customers located in the US. PartyGaming is regulated and licensed by the Government of Gibraltar and by theAlderney Gambling Control Commission and is certified by GamCare as aresponsible gaming operator. For more information, please visitwww.partygaming.com. Glossary and definitions 'active player aggregate number of days in the given period in which active players have contributed to rake and/ordays' placed a wager. This can be calculated by multiplying average active players by the number of days in the period 'affiliates' third party online or offline marketers who drive traffic to PartyGaming's gaming sites for a flat fee or on a revenue share basis 'attrition' the ratio of real money signups which are active during the period. The measure indicates retention profile of the players 'average active the daily average number of players who contributed to positive rake and/or placed a wager in theplayers' given period. This can be calculated by dividing active player days in that period, by the number of days in that period 'Clean EBITDA/EPS' EBITDA / EPS before reorganisation costs, IPO-related expenses, non-recurring costs associated with the settlement of legal claims by certain skins, as well as non-cash charges relating to share-based payments 'Company' or ' PartyGaming PlcPartyGaming' 'Discontinued operations located physically outside of the US but which relate to customers in the US that were nooperations' longer accepted following the enactment of the UIGEA on 13 October 2006 'EBITDA' earnings before interest, tax, depreciation and amortisation 'EMEA' Europe, the Middle East and Africa 'Empire Poker' EmpirePoker.com 'Employee Trust' the PartyGaming Plc Shares Trust, a discretionary share ownership trust established by the Company 'Gamebookers' www.gamebookers.com, one of the Group's sports betting websites'Group' or ' the Company and its consolidated subsidiaries and subsidiary undertakings from time to time or,PartyGaming Group' prior to 7 February 2005, PartyGaming Holdings Limited (formerly Headwall Ventures Limited) and its consolidated subsidiaries and subsidiary undertakings 'IAS' International Accounting Standards 'IFRS' International Financial Reporting Standards 'KPIs' Key Performance Indicators, such as active player days and yield per active player day 'PartyAccount' The Group's shared wallet that enables customers to play a variety of games, all using a single customer account 'PartyBets' www.partybets.com, one of the Group's sports betting websites that is also fully integrated into the PartyAccount shared wallet. 'PartyBingo' www.partybingo.com, the Group's bingo website 'PartyCasino' www.partycasino.com, the Group's principal casino website'PartyGammon' www.partygammon.com, the Group's backgammon website'PartyPoker' www.partypoker.com, the Group's principal poker website 'Principal Anurag Dikshit (holding through Crystal Ventures Limited), James Russell DeLeon (holding throughShareholders' Stinson Ridge Limited), Ruth Monicka Parasol (holding through Emerald Bay Limited) and Vikrant Bhargava (holding through Coral Ventures Limited), each of which was a promoter of the Company 'real money A new player who has registered and deposited funds into an account with the company. Customers aresign-up' categorised between lines of business according to where they first register on the gaming site to address the issues posed by shared wallets 'UIGEA' The Unlawful Internet Gambling Enforcement Act that was enacted in the US on 13 October 2006'unique active A player who has contributed to rake or placed a wager in the periodplayer''yield per unique net gaming revenue (net of customer bonuses and other fair value adjustments to revenues) divided byactive player' the number of unique active players in the period Financial Information Audited consolidated income statement Year ended $ million 31 Dec 06 31 Dec 05 Continuing Discontinued Continuing Discontinued Notes Operations Operations Total Operations Operations Total Revenue - net gaming revenue 2 325.0 779.9 1,104.9 153.2 824.5 977.7 Other operating expense (2.5) - (2.5) (1.1) - (1.1)Administrative expenses• Other administrative expenses (168.6) (68.7) (237.3) (92.2) (46.9) (139.1)• Share-based payments 4 (90.9) (22.3) (113.2) (49.3) (16.3) (65.6)• IPO-related expenses 3(a) - - - (22.6) - (22.6)• Skin-related settlement costs 3(b) - - - (145.8) - (145.8) ------ ------ ------ ------ ------ ------Total administrative expenses (259.5) (91.0) (350.5) (309.9) (63.2) (373.1) Distribution expenses (133.4) (229.4) (362.8) (51.3) (219.8) (271.1) ------ ------ ------ ------ ------ ------Profit (loss) from operating activities before reorganisation costs (70.4) 459.5 389.1 (209.1) 541.5 332.4 Reorganisation costs 3 (7.2) (243.2) (250.4) - - - ------ ------ ------ ------ ------ ------Profit (loss) from operating activities (77.6) 216.3 138.7 (209.1) 541.5 332.4 Finance income 5 4.2 - 4.2 3.5 - 3.5Finance costs 5 (3.7) - (3.7) (10.2) - (10.2)Share of loss of associate 11 (0.3) - (0.3) (0.8) - (0.8) ------ ------ ------ ------ ------ ------Profit (loss) before tax (77.4) 216.3 138.9 (216.6) 541.5 324.9 Tax 6 (6.0) (4.5) (10.5) (6.5) (25.2) (31.7) ------ ------ ------ ------ ------ ------Profit (loss) after tax (83.4) 211.8 128.4 (223.1) 516.3 293.2 ------ ------ ------ ------ ------ ------Earnings per shareBasic (cents) 7 (2.2) 5.6 3.4 (5.9) 13.6 7.7Diluted (cents) 7 (2.2) 5.4 3.3 (5.9) 13.3 7.5 Audited consolidated statement of changes in equity Year ended 31 Dec 06 31 Dec 05 $ million NotesExchange differences on translation of foreign operations 0.2 - ------ ------Net income recognised directly to equity 0.2 - Profit after tax for the year 128.2 293.2 Total recognised income and expense ------ ------ for the year 128.4 293.2 Issue of share capital - 0.1Equity share-based payments 4 113.9 65.6Increase in Employee Trust assets 19 5.7 -Movement in currency reserve 0.2Equity dividend at 5.25 cents per share 24 (200.0) - ------ ------Total changes in equity 48.2 358.9 ------ ------Attributable to: Equity holders of the parent 48.2 358.9 ------ ------ Audited consolidated balance sheet As at 31 Dec 06 31 Dec 05$ million Notes Non-current assetsIntangible assets 8 151.9 30.3Property, plant and equipment 9 54.6 37.1Investment in associates 11 - 1.0 ------ ------ 206.5 68.4 ------ ------Current assetsTrade and other receivables 12 67.3 128.3Cash and cash equivalents 13 46.3 194.9Short term investments 14 9.1 6.8 ------ ------ 122.7 330.0 ------ ------Total assets 329.2 398.4 ------ ------Current liabilitiesBank overdrafts 13 - (1.8)Bank and other loans 15 (14.1) -Trade and other payables (78.7) (201.5)Income taxes payable (67.6) (57.9)Other taxes payable (18.2) (6.9)Client liabilities and progressive prize pools (109.1) (165.8)Provisions 16 (5.5) (6.2) ------ ------ (293.2) (440.1) ------ ------Non-current liabilitiesTrade and other payables (30.0) (4.2)Bank and other loans 15 (3.7) - ------ ------Total liabilities (326.9) (444.3) ------ ------ Total net assets (liabilities) 2.3 (45.9) ------ ------EquityShare capital 18 0.1 0.1Share premium account 19 0.4 0.4Share-based payments reserve 19 155.9 68.8Capital contribution reserve 19 32.5 -Retained earnings 19 638.6 710.2Other reserve 19 (825.4) (825.4)Currency reserve 19 0.2 - ------ ------Equity attributable to equityholders of the parent 2.3 (45.9) ------ ------ Audited consolidated statement of cashflows Year ended 31 Dec 06 31 Dec 05$ million Notes Profit before tax 138.9 324.9Adjustments for: Amortisation of intangibles 25.6 4.3 Impairment of intangibles 115.5 - Interest expense 3.7 10.2 Interest income (4.2) (3.5) Depreciation of property, plant and equipment 22.8 13.0 Impairment of tangible assets 7.8 - Increase in share option reserve 87.1 65.6 Increase in capital contributions reserve 32.5 - Loss on investment in associate 0.3 0.8 Impairment of associate 0.7 - Loss on sale of assets 0.1 - Currency translation reserve 0.2 - ------ ------Operating cashflows before movements in working capital and provisions 431.0 415.3 ------ ------Decrease (increase) in trade and other receivables 61.0 (20.0)(Decrease) increase in trade and other payables (175.7) 225.7(Decrease) increase in provisions (0.7) 1.5Income taxes paid (0.8) (2.3) ------ ------Cash generated by working capital (116.2) 204.9 ------ ------Net cash inflow from operating activities 314.8 620.2 Investing activitiesPurchases of property, plant and equipment (48.3) (36.8)Purchases of intangible assets (224.4) (22.6)Interest received 4.2 3.5Investment in associated undertaking - (1.8)(Increase) in short term investments (2.3) (6.8) ------ ------Net cash used in investing activities (270.8) (64.5) ------ ------Financing activitiesInterest paid (2.8) (9.6)Equity dividend paid (200.0) -Revolving credit facility 12.0 (2.3)Repayment of shareholder loans - (482.8) ------ ------Net cash used in financing activities (190.8) (494.7) ------ ------Net (decrease) increase in cash and cash equivalents (146.8) 61.0 Net cash and cash equivalents at beginning of year 193.1 132.1 ------ ------Net cash and cash equivalents at end of year 46.3 193.1 ------ ------ Cash and cash equivalents 13 46.3 194.9Bank overdraft - (1.8) ------ ------ 46.3 193.1 ------ ------ MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BPTY.L