6th Aug 2010 07:00
6 August 2010
PartyGaming Plc
Half year report for the six months ended 30 June 2010
Financial summary (unaudited)
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
|
|
|
|
Revenue |
|
|
|
Poker |
64.4 |
71.2 |
|
Casino |
76.4 |
62.1 |
|
Bingo |
25.8 |
1.2 |
|
Sports Betting |
10.2 |
5.4 |
|
|
|
|
|
|
|
|
|
Net revenue |
176.8 |
139.9 |
|
Other revenue |
4.4 |
- |
|
|
|
|
|
|
|
|
|
Total revenue |
181.2 |
139.9 |
|
|
|
|
|
|
|
|
|
Clean EBITDA* |
|
|
|
Poker |
8.6 |
18.0 |
|
Casino |
24.3 |
25.0 |
|
Bingo |
7.2 |
0.1 |
|
Sports Betting |
3.4 |
1.0 |
|
Unallocated Corporate |
4.6 |
(1.8) |
|
|
|
|
|
|
|
|
|
Clean EBITDA* from Continuing operations |
48.1 |
42.3 |
|
Clean EBITDA* from Discontinued operations# |
- |
(0.5) |
|
|
|
|
|
|
|
|
|
Total Clean EBITDA* |
48.1 |
41.8 |
|
|
|
|
|
|
|
|
|
Profit from operating activities - Continuing operations |
24.2 |
25.7 |
|
Profit before tax - Continuing operations |
22.8 |
26.4 |
|
Profit after tax - Continuing operations |
20.3 |
24.5 |
|
Profit (loss) after tax |
19.7 |
(46.5) |
|
|
|
|
|
|
|
|
|
Basic EPS (€ cents) - Continuing operations |
4.9 |
6.0 |
|
Basic Clean EPS* (€ cents) - Continuing operations |
6.0 |
6.7 |
|
|
|
|
|
|
|
|
|
Basic EPS (€ cents) |
4.8 |
(11.5) |
|
Basic Clean EPS* (€ cents) |
6.0 |
6.6 |
|
|
|
|
|
|
|
|
● Total revenue up 30% to €181.2m (2009: €139.9m) driven by acquisitions and strong growth in casino and sports betting
● Continuing Clean EBITDA* up 14% to €48.1m (2009: €42.3m)
● Continuing Basic Clean EPS* of 6.0 € cents (2009: 6.7 € cents); Total Basic Clean EPS of 6.0 € cents (2009: 6.6 € cents)
● Transformational Proposed Merger with bwin expected to complete in first quarter 2011
● Solid progress in newly regulated markets (France and Italy); Denmark is on-track to open early in 2011
● Net cashflow from Continuing operations up 65% to €55.3m (2009: €33.5m) with net cash at 30 June 2010 of €146.8m (2009: €166.7m)
* EBITDA/EPS before the provision for costs associated with the Group's Non-Prosecution Agreement, reorganisation costs, and before non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit (loss) below).
# Operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA.
Commenting on today's results announcement, Jim Ryan, PartyGaming Chief Executive Officer, said:
"We delivered another robust financial performance in the first half and also made great progress in executing our strategy. While poker was impacted by the football World Cup and remained difficult from a competitive perspective, our other verticals continued to perform strongly. Total revenue was up 30% and Clean EBITDA from Continuing Operations was up 14% versus the prior year. As previously announced, Clean EBITDA margins in the first half were slightly lower than expected due to the delayed launch of cash game poker in Italy but we retain our previous full year guidance of approximately 28%, subject to the returns achieved on planned marketing spend in both France and Italy where we are continuing to expand the share of our respective poker networks.
''Our proposed merger with bwin is a transformational opportunity for the Group and we expect that it will provide significant strategic, operational and financial benefits for the shareholders of both companies. Whilst there is much work to do ahead of completion in early 2011, we are excited about the prospects for what will then be the clear market leader in online gaming with strong positions in all key product verticals and territories."
On current trading and outlook Jim Ryan added:
"Since 30 June 2010, the Group has continued to perform in-line with the Board's expectations. Seizing a strong position in newly regulated markets is a key focus for us. Our strategy of combining a strong B2C franchise with significant local brands is already proving to be a powerful force as evidenced by our network's position in French poker. As other markets follow Italy and France, we expect that a limited number of large networks and brands will emerge to become market leaders - we are determined that together PartyGaming/bwin will be one of them. This natural consolidation of the marketplace will accelerate through corporate mergers and acquisitions and as one of the largest players in the sector we remain committed to continue playing an active role. Whilst the macroeconomic and competitive environments remain challenging, we remain confident about the Group's prospects for the rest of the year and beyond."
Contacts:
|
PartyGaming Plc |
+44 (0) 207 337 0100 |
|
Peter Reynolds, Director of Corporate Affairs |
|
|
John Shepherd, Director of Corporate Communications |
|
Interview with Jim Ryan and Martin Weigold
An interview with Jim Ryan, Chief Executive Officer, and Martin Weigold, Group Finance Director, in video/audio and text will be available from 7.00am BST on 6 August 2010 on: http://www.partygaming.com and on http://www.cantos.com.
Analyst meeting, webcast, dial-in and conference call details: 6 August 2010
There will be an analyst meeting for invited UK-based analysts at Numis Securities, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT starting at 9.30am BST. There will be a simultaneous webcast and dial-in broadcast of the meeting. To register for the live webcast, please pre-register for access by visiting the Group website (www.partygaming.com). Details for the dial-in facility are given below. A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.
Dial-in details to listen to the analyst presentation: 6 August 2010
|
9.20 am |
Please call +44 (0) 20 3003 2666 |
|
Title |
PartyGaming Interim Results |
|
9.30 am |
Meeting starts |
A recording of the meeting will be available for a period of seven days from 6 August 2010. To access the recording please dial the following replay telephone number:
|
Replay telephone number |
+44 (0) 208 196 1988 |
|
Replay passcode: |
9050397# |
About PartyGaming Plc
The Group is a constituent of the FTSE 250 share index with its shares listed on The London Stock Exchange under the ticker: PRTY. In the year ended 31 December 2009, PartyGaming's Continuing operations generated revenue of €310.1m and Clean EBITDA of €93.8m. PartyGaming's principal brands are www.PartyPoker.com, one of the world's largest online poker rooms, www.PartyCasino.com, the world's largest online casino, www.PartyBingo.com, www.PartyGammon.com, www.PartyBets.com, www.InterTrader.com, www.FoxyBingo.com, www.GetMinted.com, www.Gamebookers.com and www.WorldPokerTour.com. None of the Group's sites accept real money customers located in the US. PartyGaming is regulated and licensed by the Governments of Gibraltar, Italy and France and by the Alderney Gambling Control Commission. The Group is also certified as a responsible gaming operator by GamCare, the leading UK authority on the provision of advice, practical help, support and counselling in addressing the social impact of gambling. PartyGaming's shares are also a constituent member of the FTSE4Good Index Series, which enables investors to identify companies that meet globally recognised corporate responsibility standards. For more information, please visit www.partygaming.com.
Business Review
Introduction
The Group delivered a robust performance during the first six months of 2010 and continued to make solid progress against the three-year plan that was introduced in September 2008. Despite the impact of the football World Cup on our non-sports betting verticals during the period, the Group has achieved strong growth in our casino business as well as maiden first half contributions from the acquisitions of Cashcade and World Poker Tour ('WPT') during the second half of 2009. Strategically, the Group is in a strong position in the French poker market, is ready to launch cash game poker and certain casino games as soon as Italian laws allow and is preparing for the opening of the Danish poker, casino and sports betting markets in the first quarter of 2011.
As announced on 6 July 2010, the Group's financial results are now reported in Euros (€) rather than US dollars ($). This reflects the fact that the greatest proportion of the Group's customers now choose to fund their accounts in Euros and this is expected to grow further given the expected opening of a number of newly regulated regimes in the Eurozone. The functional currencies of the Group's gaming companies, where appropriate, have also been changed to Euros as of 1 January 2010. All comparative financial results for the six months ended 30 June 2009 have been translated into Euros at a rate of €0.695/$1. To assist investors and analysts, we have also provided an unaudited consolidated statement of financial performance over the period in US dollars as Appendix 1.
While full details of the consolidated performance of Continuing and Discontinued operations are contained in the financial information and the accompanying notes, all references to financial performance or key performance indicators throughout this document refer to the Continuing non-US facing business only, unless expressly stated otherwise.
Results overview
Total revenue for the six months to 30 June 2010 was up 30% to €181.2m (2009: €139.9m) due to strong growth in casino and sports, together with maiden first half contributions from both Cashcade and WPT that were both acquired during the second half of 2009. Excluding acquisitions, total revenue was up 7% from last year to €150.3m (2009: €139.9m).
Casino was again the star performer with revenue up 23% to €76.4m (2009: €62.1m) driven primarily by a higher average hold due to an improved product and player mix that boosted player yields. As expected, poker had a difficult first half due to continued competitive pressures from US-facing sites and reduced player activity during the World Cup. However, a favourable run of results during the early stages of the World Cup combined with continued improvement in gross win margins and lower bonus costs meant that sports betting performed strongly in the period with revenue up 89% to €10.2m (2009: €5.4m). The inclusion of Cashcade meant that bingo net revenue was up substantially year-on-year to €25.8m (2009: €1.2m). Other revenue from WPT, network services and InterTrader increased to €4.4m (2009: nil).
Cost increases were largely driven by the acquisitions of Cashcade and WPT in the second half of 2009. Clean EBITDA increased by 14% to €48.1m (2009: €42.3m) with Clean EBITDA margins of 26.5% (2009: 30.2%), slightly lower than our full year target of 28%. This was due partly to a delay to the introduction of cash game poker in Italy which resulted in lower than expected returns on marketing spend that had already been booked prior to this deferral and the re-seeding of a casino jackpot of €1.3m that paid out in the period.
Discontinued operations relate to ongoing costs associated with the Company's Non-Prosecution Agreement ('NPA') that was reached with the United States Attorney's Office for the Southern District of New York (the 'USAO') on 6 April 2009. The one-off nature of the provision made in 2009 meant that costs associated with Discontinued operations decreased significantly to €0.6m (2009: €71.0m). As a result, the total profit before tax after taking Discontinued operations into account was €22.2m (2009: loss before tax of €44.6m), and the total profit after tax was €19.7m (2009: loss after tax of €46.5m).
Increased amortisation costs associated with the acquisitions of both Cashcade and WPT during the second half of 2009 meant that Continuing Clean EPS decreased by 10% to 6.0 Euro cents (2009: 6.7 Euro cents). Having completed two acquisitions in the second half of 2009, the associated amortisation of acquired intangible assets has a material impact on Clean EPS. Excluding the amortisation of acquired intangibles, Clean EPS increased by 12% to 9.5 Euro cents (2009: 8.5 Euro cents). Basic EPS from Continuing operations decreased by 18% to 4.9 Euro cents (2009: 6.0 Euro cents). Total Clean EPS decreased by 9% to 6.0 Euro cents (2009: 6.6 Euro cents) while basic EPS, taking into account Discontinued operations, increased to 4.8 Euro cents (2009: loss of 11.5 Euro cents).
The following table provides a reconciliation of the movements between Clean EBITDA and operating profit (loss):
Reconciliation of Clean EBITDA to operating profit (loss)
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
Continuing operations |
|
|
|
Clean EBITDA |
48.1 |
42.3 |
|
Depreciation |
(3.2) |
(4.7) |
|
Amortisation |
(16.4) |
(8.4) |
|
Share-based payments |
(4.3) |
(2.9) |
|
Impairment losses - assets held for sale |
- |
(0.6) |
|
|
|
|
|
|
|
|
|
Profit from operating activities - Continuing operations |
24.2 |
25.7 |
|
|
|
|
|
Discontinued operations |
|
|
|
Clean EBITDA |
- |
(0.5) |
|
Provision for payments associated with the Group's Non-Prosecution Agreement |
- |
(70.2) |
|
|
|
|
|
|
|
|
|
Loss from operating activities - Discontinued operations |
- |
(70.7) |
|
|
|
|
H1 2010 business developments
The Group has continued to execute its three-year plan, focusing on the four pillars of our business strategy namely:
·; grow the player base;
·; localise the customer offer;
·; broaden the product base; and
·; act responsibly
In executing each of these strategies, we have continued to draw upon the following key success factors:
·; Operational excellence - raising our already high operational standards
·; Delighting the customer- ensuring we deliver the most exciting gaming products and the best customer service
·; Leveraging our core assets - developing our B2B and B2G offer through white labels and network services
·; Leveraging the assets of others- licensing the most popular brands in entertainment and the best games available from third-party providers to supplement our own market-leading games
Whilst the economic and regulatory backdrop has shifted substantially over the past three years, each of these factors remains key to our long-term success and we have continued to apply each of them in the execution of our strategy. The first six months of 2010 have again seen the Group make significant progress, both strategically and operationally.
The proposed merger between PartyGaming and bwin announced on 29 July 2010 represents a major strategic step for the Group. It is consistent with our aspirations to conclude a transformational acquisition as well as our desire to secure market-leading positions in all key product verticals, including sports betting. As described in that announcement, the Group has for some time been committed to playing an active role in consolidating the online gaming sector and full details regarding the rationale for and the expected benefits from the Proposed Merger are set out in that announcement.
Elsewhere on the strategic front, we have continued to build our B2B franchise with the addition of several new partners, with a particular focus on newly regulated markets. In anticipation of further regulatory shifts, we have also been active in building relationships with land-based gaming groups in a number of markets, exploring ways in which we might collaborate to exploit any further changes in the regulatory landscape.
Operationally, we prepared the way for the launch of our French poker network that took place on 1 July 2010, we grew our share of the Italian poker market, added a further 10 new games to PartyCasino including a number of proprietary slots that were developed in-house, launched Gamebookers casino using our own platform, launched Rollover Bingo in the UK and continued to improve our risk management tools in sports betting. Further details on some of these developments are summarised below.
B2B
Arising from our desire to leverage our core assets, our business-to-business ('B2B') strategy was born in September 2008. Since then we have quickly established a reputation for quality service and expertise, attributes that are now being recognised by government bodies as well as international corporations. The opening of newly regulated markets such as Italy and France have required that we adjust our business model to cater for the fact that player liquidity for peer-to-peer games in some of these new markets is restricted to residents of that country only. By combining B2C and B2B offerings, we are able to create large liquidity pools quickly that can then attract further players to create a virtuous circle of player liquidity. During the first half of 2010 we announced a number of key agreements in France that we expect will secure a pre-eminent position for our French poker network. PMU was the first of three agreements to be announced in the period. With annual revenues of €2.2billion, distribution through 10,000 outlets and six million customers in France, PMU represents a cornerstone of our poker network in France. We will also launch poker services for AB Groupe, the television network and Aviation Club de France, one of the country's most prestigious card rooms and private members clubs later this year.
Mindful of current proposals for regulating and licensing online gaming on either a Federal or State level, we are advancing our discussions with a number of major groups based in the US and we expect to close one or more of these opportunities prior to such proposals becoming law.
French poker
The implementation of new legislation saw the French government award online gaming licenses covering sports betting and poker for the first time in June 2010. During the previous six months we addressed all of the technical and regulatory requirements that involved all areas of the business to ensure that our service would be ready to launch as soon as the law allowed. Our license application ran to thousands of pages, addressing all of the detailed disclosure and compliance requirements and we were delighted to be one of the first poker networks to go live in France on 1 July 2010. In addition to launching www.partypoker.fr we also launched our first B2B service in France for PMU on the same day and while it is still only a month old, the early results are encouraging.
Italian poker
Whilst late to enter the regulated Italian poker market in June 2009, we have continued to make good progress, tripling our network's market share to 2.4% in June 2010[1]. Having signed Francesco Totti as our poker ambassador in Italy, we have continued to build our player base though both our B2C and B2B franchise that includes INTRALOT and Fueps. We plan to continue to grow our Italian revenue with the launch of cash game poker and certain casino games, expected later this year.
New casino games
We have already added over 10 new casino games during the first half. As well as games from third party providers, our in-house games developers have continued to deliver outstanding and unique content that is proving to be a valuable source of additional revenue. Our Circus slot launched on 31 March 2010 and with four different characters to choose from, is the world's first role-play slot. During June 2010, three out of our top ten slot games in terms of amounts wagered were developed by our in-house team.
Regulatory developments
There follows a review of the key regulatory developments as we see them and how they may have a bearing on our business.
United States
Having clarified the Group's legal status in the US in April 2009, when the United States Attorney's Office for the Southern District of New York ('USAO') agreed not to prosecute the Group for providing internet gaming services to customers in the US prior to the enactment of the Unlawful Internet Gambling Enforcement Act ('UIGEA') in October 2006, we believe that the Group is well-placed to enter the US market, should either individual states or the Federal Government enact the requisite legislation.
Despite having been enacted on 13 October 2006, the requirements placed on US-based financial institutions by the UIGEA only came fully into force on 1 June 2010. To date, the impact of these provisions on those online gaming businesses that continue to offer real money games to customers in the US appears to have been limited, with US-facing poker sites continuing to identify ways to circumvent the new law. We believe that the US authorities will seek to enforce their laws against these operators and that any steps to do so will ultimately create a level playing field for the publicly listed online gaming companies that comply with the UIGEA.
There are a number of legislative initiatives underway at a federal as well as state level, each of which are at different stages of evolution.
At a federal level, The Internet Gambling, Regulation Consumer Protection and Enforcement Act sponsored by Barney Frank, the Chair of the US House of Representatives Financial Services Committee (the 'Frank Bill'), that proposes to regulate and license online gaming in the US and its companion Internet Gambling Tax Act, sponsored by Jim McDermott (the 'McDermott Bill'), have continued to make progress in Washington. In addition to the fact that, despite being prohibited, online gaming is alive and well in the US, the key driver behind the Frank and McDermott bills remains the economic assessment by the Joint Committee on Taxation that if introduced they could generate incremental tax revenue of approximately $42 billion for the Federal Government over a 10 year period. During a hearing in the House Ways and Means Committee on 19 May 2010, the McDermott Bill prompted a lively debate about the way in which online gaming could and should be taxed in the US. On 28 July 2010, the Frank Bill was amended and approved by the Committee with 42 votes in favour to 21 against.
While Congressmen Frank and McDermott continue to advocate the merits of their proposals and the tax revenue that could be generated, given the proximity of the US mid-term elections and the fact that regulating online gaming remains a politically sensitive topic, further progress in the House in the short-term may be difficult to achieve until these elections are concluded.
In the Senate, the position of Harry Reid, the Majority Leader and the Senator for Nevada is deemed to be key as any legislation will also have to pass through the Senate before becoming law. Having historically been sceptical about the technical ability of systems to properly regulate online gaming, it is believed that Senator Reid might now be of the view that this is possible and that he may lend his support to a bill that would look to regulate and license online gaming in the US.
At a state level, proposals to regulate and license intra-state online poker in several states, including California and New Jersey, have yet to reach any conclusion. Californian Senator Roderick Wright decided to defer a vote that was due to take place on his bill at the end of June in the light of opposition that the bill was facing. Whilst having the greatest financial need to pass such a bill given the tax revenue it would raise and the size of its budget deficit, California also has a large number of vested interest groups, including a large number of Indian reservation casinos and land-based card rooms, all of which have different views on the benefits of regulating online poker. In New Jersey, Senator Lesniak's bill, which proposes to allow licensed operators to offer online gaming in the state, has attracted concerns over possible breaches of federal law and is also on-hold pending a decision of whether or not New Jersey should allow sports betting within the state.
As with any political process, the timing and prospects of any of these federal or state measures becoming law remains uncertain.
Europe
In Brussels, Michel Barnier, the new Internal Market Commissioner, has stated his intent to publish a green paper on the online gaming industry in Europe. This will be a welcome, fact-based review and could serve as a pre-cursor to any future community directive on online gaming.
At the European Court of Justice ('ECJ'), we have seen further opinions and judgments supporting the premise that domestic monopolies may be justified, although the ECJ has made clear that it is for the national courts to determine whether or not they can indeed be justified. However, given the financial pressures of the economic downturn and the reality that online gaming remains a popular leisure pursuit throughout Europe, we continue to believe that Member States and other countries will follow the lead set by the UK, Italy and France and recognise the benefits of creating a proper regulated framework for online gaming, one that can provide a safe and secure gaming environment for their citizens.
France opened its market for online sports betting in June and online poker on 1 July 2010. Italy has already created a regulatory framework for licensing online tournament poker and is expected to expand the regime to include cash game poker and certain casino table games during the fourth quarter of this year. As the fastest growing poker market in Europe in 2009, we look forward to taking advantage of further liberalisation in Italy as soon as it occurs.
The Danish government remains committed to opening its online gaming market in early 2011 and we plan to take full advantage of the new regime, assuming the requisite legislation is passed as planned. Spain, Greece and Belgium are other countries that have been linked with similar proposals.
Not all countries are in favour of opening their online gaming markets. However, whilst objections still remain in parts of Europe and other markets, the financial crisis and the need to raise tax receipts coupled with the fact that online gaming is already a popular leisure pursuit for millions of adults around the world means that many commentators, including The Economist[2], believe that regulation rather than prohibition of the online gaming sector is the most sensible option for governments.
Directors
As mentioned in the Annual Report, Stephen Box, an independent Non-Executive Director, sadly passed away this year following a period of illness. He has not yet been replaced but an active search is currently being conducted, although this process is being managed in the context of possible changes to the membership of the Board arising from the Proposed Merger, details of which were disclosed in the Company's announcement of 29 July 2010.
Dividend
Our desire to continue to play an active role in the consolidation of the online gaming sector means that the Board believes it is imprudent to declare an interim dividend in 2010 and under the terms of an agreement entered into with bwin as part of the Proposed Merger, it has been agreed not to pay a dividend prior to completion of the Proposed Merger.
Key objectives
For the remainder of 2010 the Group will be focused on executing a number of tactical plans covering both strategic and operational initiatives that together will take us closer to achieving our long-term objectives. So far as practicable, the Group will also be focused on ensuring that upon completion of the Proposed Merger, we will be in a position to maximise the potential benefits from combining PartyGaming and bwin as quickly as possible.
M&A
Consummating the Proposed Merger is obviously a priority but both companies agree that as markets look to regulate, the advantages derived from scale increase further. The operational leverage that exists within online gaming businesses means that the potential financial benefits from consolidation can be substantial. With this in mind we intend to continue to seek value enhancing deals for the benefit of shareholders.
B2B and B2G
As highlighted above, the focus of our B2B effort is very much on regulated markets. With Italy, France and Denmark already built into our strategic plan, we are actively seeking to expand our B2B franchise into new geographic markets where we believe that there is a short or medium-term prospect of regulatory change and also where we think we can secure meaningful market share. This includes the US where we continue to pursue a number of exciting potential opportunities with land-based licensed operators and manufacturers.
Operations
Operationally, the business has continued to deliver a number of product and customer-focused enhancements. Of particular note has been the successful launch of our French poker network that includes both B2C and B2B channels. The rest of 2010 will be spent extracting value from this exciting new market, preparing for the future expansion of the Italian online gaming market during the fourth quarter as well as the licensing of the Danish market for poker, casino and sports betting at the start of 2011. As we do so, we will continue our quest to deliver the very best in online gaming entertainment across all of our key product segments whilst maintaining tight control over our costs.
Poker - the online poker market remains extremely competitive with continued dominance by the US-facing sites. While such sites have substantial financial resources, in newly regulated ring-fenced markets they are unable to leverage their superior player liquidity and this creates an opportunity for larger players like PartyGaming to regain some ground. We plan to build upon our early success in the newly opened French market through our brands as well as those of our B2B partners. Driving further player liquidity for our French network, our services for AB Groupe and Aviation Club de France are expected to go live in the third quarter of 2010. Our Italian cash game poker offering, as well as those of our B2B partners in Italy, are ready to launch as soon as the regulations allow, now expected in October 2010. Across all of our networks our objective is to increase both player numbers and revenue. Outside of ring-fenced markets, we continue to seek to leverage our large liquidity base and are ready to capitalise on any enforcement action against those sites that continue to accept wagers from players located in the US.
Casino - we have continued to make good progress in reducing our reliance on poker players as a source of casino revenue. With a dedicated casino affiliate programme now in place and further marketing initiatives planned for the second half this trend is set to continue. Our plan to add at least 50 new casino games to our portfolio in 2010 is on-track, drawing upon a mix of our own-in-house games as well as those supplied by third parties.
Bingo - we will launch our FoxyBingo brand into Scandinavia during the third quarter of 2010 and also plan to launch into Italy in conjunction with a local land-based partner. The launch of a new bingo brand in the UK, Rollover Bingo, that offers free entry into the National Lottery, together with a new dedicated bingo affiliate programme, should also help to stimulate growth in the second half of 2010.
Sports betting - the performance during the first half benefited from both improved risk management as a result of new and improved live trading models that were developed in-house, as well as the recruitment of experienced 'live traders'. Margins were also better than expected on the back of favourable results during the group stages of the World Cup. We are looking to make further progress in the second half with several marketing campaigns planned for key territories once the football season recommences later this month.
In respect of margins, we are retaining our previous guidance for Clean EBITDA margins of approximately 28% for the full year, although this will be subject to the rate of return on planned marketing spend in newly regulated markets such as Italy and France.
Current trading and outlook
Since 30 June 2010, the Group has continued to perform in-line with the Board's expectations. During the month of July 2010, average gross daily revenue was down 9% versus that in the second quarter to €1,318,000 (Q210: €1,442,000) reflecting the closure of our French casino business as well as the normal seasonal pattern. If French casino is excluded from the analysis then gross average daily revenue was down 6% versus the previous quarter.
In poker, average gross daily poker revenue was flat at €437,500 (Q210: €438,800). In casino, average gross daily revenue was down 18% to €491,000 (Q210: €596,400) or excluding France, down 12%. In bingo, average gross daily revenue was down 5% to €320,700 (Q210: €337,500) and in sports betting, average gross daily revenue was €68,800 (Q210 €69,400). Whilst the macroeconomic and competitive environment remains challenging, we remain focused on executing our stated strategy and are confident about the Group's prospects.
SUMMARY OF RESULTS
|
|
Total revenue |
Clean EBITDA |
||
|
Six months ended 30 June |
2010 €million |
2009 €million |
2010 €million |
2009 €million |
|
|
|
|
|
|
|
Poker |
64.6 |
71.2 |
8.6 |
18.0 |
|
Casino |
76.4 |
62.1 |
24.3 |
25.0 |
|
Bingo |
26.3 |
1.2 |
7.2 |
0.1 |
|
Sports Betting |
10.2 |
5.4 |
3.4 |
1.0 |
|
Unallocated Corporate |
3.7 |
- |
4.6 |
(1.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Continuing operations |
181.2 |
139.9 |
48.1 |
42.3 |
|
Discontinued operations |
- |
- |
- |
(0.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
181.2 |
139.9 |
48.1 |
41.8 |
|
|
|
|
|
|
|
|
|
|
|
|
The acquisition of Cashcade, together with a strong performance in both casino and sports betting meant that despite the impact of a challenging macroeconomic environment and an unlevel playing field in poker, total revenue increased by 30% versus the previous period to €181.2m (2009: €139.9m). Excluding Cashcade, net revenue increased by 7% year on year. Increased marketing spend, particularly in Italy, meant that overall Clean EBITDA margins fell to 26.5% (2009: 30.2%). Clean EBITDA increased by 14% to €48.1m (2009: €42.3m) on the back of the increase in revenue.
The underlying performance of each of our consolidated key performance indicators, which are based on net revenue, are highlighted below. Also provided below is the geographic split of new player sign-ups and active player days:
Consolidated Key Performance Indicators*
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
Active player days (million) |
16.1 |
11.9 |
35% |
|
Daily average players (000s) |
88.9 |
65.7 |
35% |
|
Yield per active player day (€) |
11.0 |
11.8 |
(7%) |
|
New player sign-ups (000s) |
462.6 |
381.0 |
21% |
|
Average daily net revenue (€000) |
976.7 |
772.8 |
26% |
|
|
|
|
|
|
|
|
|
|
New player sign-ups (000)
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
EMEA# |
423.6 |
340.1 |
25% |
|
Americas (non-US) |
27.6 |
28.9 |
(4%) |
|
Asia Pacific |
11.4 |
12.0 |
(5%) |
|
|
|
|
|
|
|
|
|
|
|
Total |
462.6 |
381.0 |
21% |
|
|
|
|
|
|
|
|
|
|
Active player days (m)
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
EMEA# |
14.1 |
9.8 |
44% |
|
Americas (non-US) |
1.6 |
1.7 |
(6%) |
|
Asia Pacific |
0.4 |
0.4 |
-% |
|
|
|
|
|
|
|
|
|
|
|
Total |
16.1 |
11.9 |
35% |
|
|
|
|
|
|
|
|
|
|
* Excludes WPT, network services and InterTrader
# Europe, Middle East and Africa
The majority of our consolidated key performance indicators were boosted by the inclusion of Cashcade for the first time but also by an improved player loyalty programme that was implemented in July 2009. Active player days increased by 35% driven by a 21% increase in new player sign-ups with lower activity levels in poker and casino being offset by the addition of Cashcade and an improvement in sports betting. Yield per active player day was the only KPI that declined year-on-year with reduced yields in poker and bingo outweighing strong performances in casino and sports betting. As a result, overall consolidated yield per active player day fell 7% to €11.0. The net effect was that average daily net revenue for the period as a whole increased by 26% year-on-year to €976,700(2009: €772,800).
There follows a more detailed review of the Continuing operations including each of the individual product segments. Full details of all of the Group's historic quarterly key performance indicators can be downloaded from the Group's website at: http://www.partygaming.com/investor/documentation.html.
Poker
|
Six months ended 30 June |
2010 €million |
2009 €million |
% change |
|
|
|
|
|
|
Gross revenue |
85.9 |
88.5 |
(3%) |
|
Bonuses and other fair value adjustments to revenue |
(21.5) |
(17.3) |
(24%) |
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
64.4 |
71.2 |
(10%) |
|
Other revenue |
0.2 |
- |
n/a |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
64.6 |
71.2 |
(9%) |
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
8.6 |
18.0 |
(52%) |
|
Clean EBITDA margin |
13.3% |
25.3% |
|
|
|
|
|
|
|
|
|
|
|
Gross poker revenue declined by 3% versus the prior period with intense competitive pressures being the largest single driver but the impact of a consumer downturn and the increasingly casual nature of the Group's customer base also acted as contributory factors. While player numbers and overall player activity increased, average spend declined by a greater amount resulting in a small decline in gross revenue. At the net revenue level, poker revenue declined by 10% to €64.4m due to an increase in bonus rates from 19.5% to 25.0% of gross revenue as expected, reflecting the competitive nature of the marketplace.
Despite the intensity of the competitive landscape, the Group has retained its position as the largest pool of player liquidity excluding US-facing sites, a position it has held since the beginning of 2010. In the week ended 31 July 2010, it is estimated that the Group had approximately 6%[3] of the global online poker market, broadly in-line with the position in February 2010.
The reduction in net revenue as well as increased marketing spend in Italy impacted the Clean EBITDA margin that fell to 13.3% (2009: 25.3%) and, consequently, poker Clean EBITDA also declined to €8.6m (2009: €18.0m).
The table below shows the key performance indicators for poker:
Poker - Key Performance Indicators
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
Active player days (million) |
9.6 |
9.1 |
5% |
|
Daily average players (000s) |
53.2 |
50.0 |
6% |
|
Yield per active player day (€) |
6.7 |
7.9 |
(15%) |
|
New real money sign-ups (000s) |
263.5 |
250.3 |
5% |
|
Average daily net revenue (€000) |
356.0 |
393.7 |
(10%) |
|
|
|
|
|
|
|
|
|
|
A concerted effort to expand into new markets such as Eastern Europe, together with a much improved player loyalty programme, resulted in a 5% increase in player activity with active player days up to 9.6 million (2009: 9.1 million). New player sign-ups also increased strongly, up by 5% to 263,500 (2009: 250,300). Average daily player numbers increased by 6% in the period, reflecting a strong first quarter mitigated by a softer performance in the seasonally weaker second quarter that was exacerbated this year due to the World Cup. Since the end of the period, the Group launched its poker network in France and while it has only been live a few weeks, the early signs are encouraging.
The trends in player retention have continued during the first half of 2010 with approximately 13.7% of all 2010 poker sign-ups remaining active after six months versus 16.3% of all 2009 sign-ups. As at 30 June 2010, across all real money poker sign-ups, the proportion of players remaining active after six months was approximately 22.4% (2009: 23.4%), after 12 months it was 16.9% (2009: 18.2%) and after 18 months it was 13.3% (2009: 14.4%).
Whilst the strategic decision during the third quarter of 2009 to become more competitive on player bonuses was a factor in reducing yield per active player day, the continued competitive nature of the online poker market and the distraction of the World Cup during June meant that player yields in the period fell to €6.7 (2009: €7.9). As a result, average daily net poker revenue was down to €356,000 (2009: €393,700).
Casino
|
Six months ended 30 June |
2010 €million |
2009 €million |
% change |
|
|
|
|
|
|
Gross revenue |
103.9 |
84.7 |
23% |
|
Bonuses and other fair value adjustments to revenue |
(27.5) |
(22.6) |
(22%) |
|
|
|
|
|
|
|
|
|
|
|
Net and total revenue |
76.4 |
62.1 |
23% |
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
24.3 |
25.0 |
(3%) |
|
Clean EBITDA margin |
31.8% |
40.3% |
|
|
|
|
|
|
|
|
|
|
|
The Group's casino business delivered another strong performance in 2010, consolidating our position as the world's largest online casino. While the total amount wagered on casino games in the first six months of 2010 increased 4% to €2.7 billion (2009: €2.6 billion), gross revenue increased by 23% to €103.9m (2009: €84.7m) driven by a higher hold percentage which increased from 3.3% to 3.9%. The higher hold was driven by a continued improvement in the mix of games played, the acquisition of Cashcade's casinos that operate at higher holds than PartyCasino, as well as a reduction in customer numbers coming from affiliates that tend to have lower than average player values. Of the total amount wagered in the period, blackjack represented 18% (2009: 24%) with slots and jackpot slots now representing 50% of total casino wagers (2009: 43%).
Net revenue increased by 23% to €76.4m (2009: €62.1m) with bonus rates being consistent in both periods. Despite this increase in revenue, Clean EBITDA fell by 3% to €24.3m due to increased offline marketing spend with the costs being fully expensed in the period. However, despite this and the re-seeding of a jackpot of €1.3m that paid out earlier than expected, PartyCasino continues to outperform the other Party brands. A summary of the key performance indicators for the casino business during 2010 is shown in the table below:
Casino - Key Performance Indicators
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
Active player days (000s) |
2,048.5 |
2,003.3 |
2% |
|
Daily average players (000s) |
11.3 |
11.1 |
2% |
|
Yield per active player day (€) |
37.3 |
31.0 |
20% |
|
New real money sign-ups (000s) |
51.4 |
56.9 |
(10%) |
|
Average daily net revenue (€000) |
422.2 |
343.0 |
23% |
|
|
|
|
|
Casino sign-ups fell by 10% year-on-year to 51,400 due to the removal of a number of affiliates that tended to deliver lower quality players. Our efforts in player recruitment together with the addition of popular new content meant that we continued to grow the volume of active player days by 2%. As has been the case in previous periods, the shift towards higher hold games continued during the first half and as a result yield per active player day increased by 20% to €37.3 (2009: €31.0). The net result was that average daily revenue in the period was €422,200, a 23% increase over the prior period (2009: €343,000).
Bingo
|
Six months ended 30 June |
2010 €million |
2009 €million |
% change |
|
|
|
|
|
|
Gross revenue |
59.8 |
1.5 |
3,887% |
|
Bonuses and other fair value adjustments to revenue |
(34.0) |
(0.3) |
(11,233%) |
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
25.8 |
1.2 |
2,050% |
|
Other revenue |
0.5 |
- |
n/a |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
26.3 |
1.2 |
2,092% |
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
7.2 |
0.1 |
7,100% |
|
Clean EBITDA margin |
27.4% |
8.3% |
|
|
|
|
|
|
|
|
|
|
|
Our bingo business was completely transformed by the acquisition of Cashcade that completed at the end of July 2009, putting the Group into a market-leading position in this exciting and valuable market. This transformation is evidenced by the substantial movement in bingo revenue and Clean EBITDA between the two periods.
Having acquired the business for between five and six times Clean EBITDA, depending upon future performance, Cashcade has continued to meet our expectations at the time of acquisition, delivering quarter-on-quarter growth in both revenue and Clean EBITDA. With the addition of other revenue from network services of €0.5m in the period (2009: €nil), bingo now represents approximately 15% of total revenue, up from just under 1% in 2009.
A summary of the key performance indicators for bingo are shown below:
Bingo - Key Performance Indicators
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
Active player days (000s) |
3,664.7 |
144.9 |
2,429% |
|
Daily average players (000s) |
20.2 |
0.8 |
2,425% |
|
Yield per active player day (€) |
7.0 |
8.2 |
(15%) |
|
New real money sign-ups (000s) |
112.1 |
3.1 |
3,516% |
|
Average daily net revenue (€000) |
142.3 |
6.6 |
2,056% |
|
|
|
|
|
All of the key performance indicators for bingo showed substantial growth over the prior year with the exception of yield per active player day that reflects Cashcade's business model that is focused on higher volume but lower value players. Future performance should also benefit from our planned launch of FoxyBingo into Scandinavia and Italy during the second half of 2010. Average daily net revenue increased over twenty-fold versus the prior year to €142,300 (2009: €6,600). Bingo Clean EBITDA was €7.2m with a Clean EBITDA margin of 27.4% (2009: 8.3%).
Sports Betting
|
Six months ended 30 June |
2010 €million |
2009 €million |
% change |
|
|
|
|
|
|
Total stakes |
176.8 |
185.0 |
(4%) |
|
Gross win margin |
7.0% |
4.9% |
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenue |
12.3 |
9.1 |
35% |
|
Bonuses and other fair value adjustments to revenue |
(2.1) |
(3.7) |
43% |
|
|
|
|
|
|
|
|
|
|
|
Net and total revenue |
10.2 |
5.4 |
89% |
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
3.4 |
1.0 |
240% |
|
Clean EBITDA margin |
33.3% |
18.5% |
|
|
|
|
|
|
|
|
|
|
|
This year's football World Cup proved to be highly profitable for the bookmaking industry and while still a relatively small part of the overall Group, PartyBets.com and Gamebookers.com delivered an excellent performance during the period. While performance was boosted by a favourable set of results during the early stages of the World Cup, the improvements made to our risk management in previous periods meant that while tighter control over bonus costs prompted a 4% decline in the amount wagered to €176.8m (2009: €185.0m), the increase in gross win margin to 7.0% (2009: 4.9%) delivered a much improved financial result. We have continued our efforts to increase the proportion of combination bets rather than singles as they tend to attract higher gross win margins. During the first half, combination bets represented approximately 25% of the amount wagered versus 20% in the comparable period in 2009. As is the case for most bookmakers, live betting continues to attract substantial betting volume and represented 48% of total stakes in the period (2009: 46%). Our gross win margin on live betting was 3.5% in 2010, up from 2.3% in 2009 while the margin on our main book was 9.4% (2009: 6.9%).
Bonuses and other fair value adjustments to revenue fell from 2.0% of the amount wagered in 2009 to 1.2% in the first half of 2010, in-line with our previous guidance and further boosting net revenue. As a result, average net daily revenue was up 90% to €56,200 (2009 €29,600). The increase in net revenue fed through into Clean EBITDA margins that increased to 33.3% (2009: 18.5%) and Clean EBITDA rose by 240% to €3.4m (2009: €1.0m).
Sports Betting - Key Performance Indicators
|
Six months ended 30 June |
2010 |
2009 |
% change |
|
|
|
|
|
|
Active player days (000s) |
1,905.5 |
1,863.5 |
2% |
|
Daily average players (000s) |
10.5 |
10.3 |
2% |
|
Yield per active player day (€) |
5.3 |
2.9 |
83% |
|
New real money sign-ups (000s) |
35.6 |
70.7 |
(50%) |
|
Average daily net revenue (€000) |
56.2 |
29.6 |
90% |
|
|
|
|
|
A new bonus structure introduced to eliminate unprofitable players meant that new player sign-ups decreased by 50% but despite this, average daily players increased by 2% year-on-year to 10,500 helped by the positive impact of the World Cup. The elimination of unprofitable players was a major factor behind the 83% increase in yield per active player day to €5.3 (2009: €2.9).
Other revenue
Other revenue was €4.4m in the period (2009: nil) and reflects maiden first half contributions of €0.7m from our B2B network services customers as well as €3.7m from WPT.
Cost of sales
Cost of sales, comprising TV production costs in respect of WPT and gaming duties payable in regulated markets increased to €2.3m (2009: nil) due to the acquisition of WPT and the launch of services in Italy.
Distribution costs
|
Six months ended 30 June |
2010 €million |
2009 €million |
% change |
|
|
|
|
|
|
Customer acquisition and retention |
38.0 |
21.4 |
(78%) |
|
Affiliates |
24.4 |
21.1 |
(16%) |
|
Other customer bonuses (not netted from revenue) |
2.8 |
3.0 |
7% |
|
Customer bad debts |
3.1 |
2.2 |
(41%) |
|
Webhosting and technical services |
18.2 |
8.5 |
(114%) |
|
|
|
- |
|
|
|
|
- |
|
|
Distribution costs |
86.5 |
56.2 |
(54%) |
|
|
|
|
|
|
|
|
|
|
|
Distribution costs as a % of total revenue |
47.7% |
40.2% |
|
|
|
|
|
|
Customer acquisition and retention costs increased sharply in the period reflecting the acquisitions of Cashcade and WPT as well as a concerted effort to push into newly regulated markets. Lower than expected returns on marketing spend associated with the delayed launch of cash game poker in Italy was also a factor. As a result, customer acquisition and retention costs increased to 21.0% of revenue (2009: 15.3%). Affiliate expenses as a percentage of revenue were slightly lower than the previous year at 13.5% (2009: 15.1%) reflecting our continued effort to rationalise our affiliates and improve commercial terms wherever possible. Other customer bonuses showed a small decrease in absolute terms, but as a percentage of revenue fell from 2.1% to 1.5% of revenue, reflecting a decrease in the proportion of revenue coming from poker. While the decision was taken to make it easier for customers to deposit, there was also an improvement in fraud recovery, leading to a small overall increase in bad debts (chargebacks net of fraud recovery) as a percentage of revenue to 1.7% (2009: 1.6%). Webhosting and technical service costs increased to 10.0% of revenue (2009: 6.1%) reflecting the inclusion of fees for software, hosting and supporting Cashcade's bingo games for the first time.
Administrative expenses
|
Six months ended 30 June |
2010 €million |
2009 €million |
% change |
|
|
|
|
|
|
Transaction fees |
9.9 |
8.3 |
(19%) |
|
Staff costs |
28.5 |
22.9 |
(24%) |
|
Other overheads |
10.1 |
8.8 |
(15%) |
|
|
|
- |
|
|
|
|
- |
|
|
Clean EBITDA administrative expenses |
48.5 |
40.0 |
(21%) |
|
Depreciation |
3.2 |
4.7 |
32% |
|
Amortisation |
16.4 |
8.4 |
(95%) |
|
Share-based payments |
4.3 |
2.9 |
(48%) |
|
Impairment losses - assets held for sale |
- |
0.6 |
100% |
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses |
72.4 |
56.6 |
(28%) |
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA administrative expenses as a % of total revenue |
26.8% |
28.6% |
|
|
Administrative expenses as a % of total revenue |
40.0% |
40.5% |
|
|
|
|
|
|
Administrative expenses tend to be more fixed in nature than distribution expenses. Consequently, as a result of the increase in revenue, most administration costs have continued the historic trend of continuing to fall relative to revenue. The primary drivers of the increase in absolute terms were the additions of Cashcade and WPT. Staff costs represent the largest single item under this heading and while we now have the staff costs of both Cashcade and WPT for the first time, these additional costs were mitigated in part by the 6% reduction in staff numbers that took place during the second half of 2009. Overall staff costs fell from 16.4% of total revenue to 15.7%. Other overheads decreased marginally as a proportion of revenue due to continuing savings while transaction fees fell from 5.9% of revenue in 2009 to 5.5% of revenue in 2010 thanks to the successful renegotiation of a number of third-party contracts. Overall, Clean EBITDA administrative expenses as a proportion of revenue fell by almost two percentage points to 26.8% of total revenue in 2010 versus 28.6% in 2009.
The increase in amortisation costs is due to the acquired intangible assets associated with the acquisitions of both Cashcade and WPT. In-line with our previous guidance, this added €8.8m of additional costs in the period, albeit non-cash in nature. Depreciation continued to fall, reaching 1.8% of total revenue (2009: 3.3%) reflecting reduced capital expenditure in prior periods.
Taxation
The tax charge for the period is €2.5m (2009: €1.9m) reflecting an effective tax rate for Continuing operations of 11.0% (2009: 7.2%). The increase from the prior period is primarily attributable to Cashcade, which is subject to UK tax at 28.0%. There is no tax associated with Discontinued operations and other comprehensive income.
Net cash
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
|
|
|
|
Cash and cash equivalents |
185.9 |
160.5 |
|
Short-term investments |
3.2 |
6.2 |
|
Loans and borrowings |
(42.3) |
- |
|
|
|
|
|
|
|
|
|
Net cash |
146.8 |
166.7 |
|
Payment service providers |
15.0 |
15.8 |
|
|
|
|
|
|
|
|
|
Net cash including amounts held by processors |
161.8 |
182.5 |
|
Less: Client liabilities and progressive prize pools |
(108.3) |
(86.1) |
|
|
|
|
|
|
|
|
|
Net cash including amounts held by processors less client liabilities |
53.5 |
96.4 |
|
|
|
|
|
|
|
|
Cashflow
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
|
|
|
|
Net cashflow from Continuing operations |
55.3 |
33.5 |
|
Net cashflow from Discontinued operations |
(12.2) |
(4.0) |
|
|
|
|
|
|
|
|
|
Net cashflow from operating activities |
43.1 |
29.5 |
|
Issue of ordinary shares |
1.2 |
0.7 |
|
Acquisitions - deferred payment |
(9.7) |
- |
|
Capital expenditure |
(4.3) |
(2.6) |
|
Purchases of intangible assets |
(2.3) |
(1.6) |
|
Other |
3.1 |
0.4 |
|
|
|
|
|
|
|
|
|
Net cashflow |
31.1 |
26.4 |
|
|
|
|
|
|
|
|
Net cashflow from Continuing operations increased by 65% to €55.3m (2009: €33.5m) reflecting the increase in Clean EBITDA and currency gains. The net cashflow from Discontinued operations relates to payments made to the US authorities in association with the Group's NPA. The deferred payment for acquisitions comprises payments to the previous owners of Cashcade in accordance with the terms of the earn-out agreement as well as ongoing revenue-share payments to the previous owners of WPT.
Principal risks
The principal risks facing the Group, together with the Group's risk management process in relation to these risks, are unchanged from those reported in the Group's Annual Report for the year ended 31 December 2009 (which is available for download at www.partygaming.com) and relate to the following areas:
• Technology
• Regulatory compliance
• Competitive environment
• Taxation
By order of the Board of Directors
Martin Weigold
Group Finance Director
6 August 2010
Statement of Directors' responsibilities
This interim management report is the responsibility of, and has been approved by, the Directors of PartyGaming Plc. Accordingly, the Directors confirm that to the best of their knowledge:
• the condensed consolidated set of financial information has been prepared in accordance with IAS 34 - Interim Financial Reporting as issued by the IASB and endorsed and adopted by the European Union;
• the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed consolidated set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the Annual Report for the year ended 31 December 2009.
The Directors of PartyGaming Plc are listed in the PartyGaming Annual Report for the year ended 31 December 2009 and a list of current Directors is also maintained on the PartyGaming Plc website: www.partygaming.com.
By order of the Board of Directors of PartyGaming Plc
Martin Weigold
Group Finance Director
6 August 2010
Financial Information (unaudited)
Condensed consolidated statement of comprehensive income
|
Six months ended 30 June |
Notes |
2010 €million |
2009 €million |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
Net revenue |
|
176.8 |
139.9 |
|
|
Other revenue |
|
4.4 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
3 |
181.2 |
139.9 |
|
|
Cost of sales |
|
(2.3) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
178.9 |
139.9 |
|
|
Other operating income (expense) |
|
4.2 |
(1.4) |
|
|
Administrative expenses |
|
(72.4) |
(56.6) |
|
|
Distribution expenses |
|
(86.5) |
(56.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operating activities |
|
24.2 |
25.7 |
|
|
Finance income |
|
0.4 |
0.7 |
|
|
Finance expense |
|
(1.8) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
22.8 |
26.4 |
|
|
Tax |
4 |
(2.5) |
(1.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after tax from Continuing operations |
|
20.3 |
24.5 |
|
|
Loss after tax from Discontinued operations |
5 |
(0.6) |
(71.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the period attributable to the equity holders of the parent |
|
19.7 |
(46.5) |
|
|
Other comprehensive income: |
|
|
|
|
|
Exchange differences on translation of foreign operations, net of tax |
|
11.4 |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (expense) for the period attributable to the equity holders of the parent |
|
31.1 |
(46.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (cents) |
|
|
|
|
|
Basic |
6 |
4.8 |
(11.5) |
|
|
Diluted |
6 |
4.6 |
(11.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing earnings per share (cents) |
|
|
|
|
|
Basic |
6 |
4.9 |
6.0 |
|
|
Diluted |
6 |
4.7 |
5.7 |
|
|
|
|
|
|
|
Condensed consolidated statement of financial position
|
|
Notes |
As at 30 June 2010 €million |
As at 31December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
|
Non-current assets |
|
|
|
|
|
Intangible assets |
7 |
242.5 |
232.9 |
121.4 |
|
Property, plant and equipment |
|
10.4 |
8.5 |
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252.9 |
241.4 |
131.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
Assets held for sale |
|
2.5 |
4.0 |
3.8 |
|
Trade and other receivables |
8 |
50.3 |
35.0 |
34.2 |
|
Short-term investments |
|
3.2 |
8.1 |
6.2 |
|
Cash and cash equivalents |
|
185.9 |
145.1 |
160.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241.9 |
192.2 |
204.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
494.8 |
433.6 |
336.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
Trade and other payables |
9 |
(69.0) |
(57.8) |
(46.1) |
|
Income taxes payable |
|
(8.6) |
(4.8) |
(2.4) |
|
Client liabilities and progressive prize pools |
10 |
(108.3) |
(87.2) |
(86.1) |
|
Loans and borrowings |
|
(6.5) |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(192.4) |
(149.8) |
(134.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
Trade and other payables |
9 |
(40.8) |
(54.8) |
(49.8) |
|
Loans and borrowings |
11 |
(35.8) |
(38.7) |
- |
|
Deferred tax |
|
(9.8) |
(10.9) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(86.4) |
(104.4) |
(49.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
(278.8) |
(254.2) |
(184.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets |
|
216.0 |
179.4 |
151.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
12 |
0.1 |
0.1 |
0.1 |
|
Share premium account |
|
48.9 |
47.7 |
46.8 |
|
Own shares |
12 |
(2.8) |
(2.8) |
- |
|
Capital contribution reserve |
|
24.1 |
24.1 |
24.1 |
|
Retained earnings |
|
709.4 |
685.4 |
654.1 |
|
Other reserve |
|
(573.7) |
(573.7) |
(573.7) |
|
Currency reserve |
|
10.0 |
(1.4) |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to equity holders of the parent |
216.0 |
179.4 |
151.6 |
|
|
|
|
|
|
|
Condensed consolidated statement of changes in equity
|
|
Share capital €million |
Share premium account €million |
Own shares €million |
Capital contribution reserve €million |
Retained earnings €million |
Other reserve €million |
Currency reserve €million |
Total equity €million |
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2009 |
0.1 |
46.1 |
- |
24.1 |
697.7 |
(573.7) |
(0.2) |
194.1 |
|
Issue of shares |
- |
0.7 |
- |
- |
- |
- |
- |
0.7 |
|
Total comprehensive income (expense) for the period |
- |
- |
- |
- |
(46.5) |
- |
0.4 |
(46.1) |
|
Share-based payments |
- |
- |
- |
- |
2.9 |
- |
- |
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2009 |
0.1 |
46.8 |
- |
24.1 |
654.1 |
(573.7) |
0.2 |
151.6 |
|
Issue of shares |
- |
0.9 |
- |
- |
- |
- |
- |
0.9 |
|
Purchase of shares |
- |
- |
(2.8) |
- |
- |
- |
- |
(2.8) |
|
Total comprehensive income (expense) for the period |
- |
- |
- |
- |
28.0 |
- |
(1.6) |
26.4 |
|
Share-based payments |
- |
- |
- |
- |
3.3 |
- |
- |
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2009 |
0.1 |
47.7 |
(2.8) |
24.1 |
685.4 |
(573.7) |
(1.4) |
179.4 |
|
Issue of shares |
- |
1.2 |
- |
- |
- |
- |
- |
1.2 |
|
Total comprehensive income for the period |
- |
- |
- |
- |
19.7 |
- |
11.4 |
31.1 |
|
Share-based payments |
- |
- |
- |
- |
4.3 |
- |
- |
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2010 |
0.1 |
48.9 |
(2.8) |
24.1 |
709.4 |
(573.7) |
10.0 |
216.0 |
|
|
|
|
|
|
|
|
|
|
Share premium is the amount subscribed for share capital in excess of nominal value. Capital contribution reserve is the amount arising from share-based payments made by parties associated with the Principal Shareholders and cash held by the Employee Trust.
Retained earnings represent cumulative profit / (loss) for the period, share-based payments and any other items of other comprehensive income not disclosed as separate reserves in the table above.
Currency reserve represents the gains / (losses) arising on retranslating the net assets of overseas operations into Euros.
The other reserve of €573.7 million is the amount arising from the application of accounting which is similar to the pooling of interests method, as set out in the Group's accounting policies in the 2009 Annual Report. Under this method of accounting, the difference between the consideration for the controlling interest and the nominal value of the shares acquired is taken to other reserves on consolidation. As a result, the retained earnings reflect the cumulative profits as if the current Group structure had always been in place.
Condensed consolidated statement of cashflows
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
|
|
|
|
Profit (loss) for the period |
19.7 |
(46.5) |
|
Adjustments for: |
|
|
|
Depreciation of property, plant and equipment |
3.2 |
4.7 |
|
Amortisation of intangibles |
16.4 |
8.4 |
|
Impairment of assets held for sale |
- |
0.6 |
|
Interest expense |
2.4 |
- |
|
Interest income |
(0.4) |
(0.7) |
|
Increase in reserves due to share-based payments |
4.3 |
2.9 |
|
Income tax expense |
2.5 |
1.9 |
|
|
|
|
|
|
|
|
|
Operating cashflows before movements in working capital and provisions |
48.1 |
(28.7) |
|
(Increase) decrease in trade and other receivables |
(13.7) |
0.2 |
|
Increase in trade and other payables |
9.4 |
59.4 |
|
Increase in provisions |
0.3 |
- |
|
|
|
|
|
Cash generated from operations |
|
|
|
Cash generated from operations |
44.1 |
30.9 |
|
Income taxes paid |
(1.0) |
(1.4) |
|
|
|
|
|
|
|
|
|
Net cash inflow from operating activities |
43.1 |
29.5 |
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
Acquisition of subsidiaries and businesses, net of cash acquired - deferred payment |
(9.7) |
- |
|
Purchases of intangible assets |
(2.3) |
(1.6) |
|
Purchases of property, plant and equipment |
(4.3) |
(2.6) |
|
Sale of property, plant and equipment |
- |
0.1 |
|
Sale of assets held for sale |
1.8 |
- |
|
Interest received |
0.4 |
0.7 |
|
Decrease (increase) in short-term investments |
1.8 |
(0.4) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
(12.3) |
(3.8) |
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
Issue of ordinary shares |
1.2 |
0.7 |
|
Interest paid |
(0.9) |
- |
|
|
|
|
|
|
|
|
|
Net cash generated by financing activities |
0.3 |
0.7 |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
31.1 |
26.4 |
|
Exchange differences |
9.7 |
(0.1) |
|
Cash and cash equivalents at beginning of period |
145.1 |
134.2 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
185.9 |
160.5 |
|
|
|
|
Notes to the condensed consolidated financial information
1. Basis of preparation
The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2010 have been prepared in accordance with International Accounting Standard ('IAS') 34 - Interim Financial Reporting, and have been prepared on the basis of International Financial Reporting Standards ('IFRSs') and International Financial Reporting Interpretations Committee ('IFRIC') interpretations as adopted by the European Union that are effective for the year ending 31 December 2010.
The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2010, which were approved by the Board on 5 August 2010, do not comprise statutory accounts, and should be read in conjunction with the Annual Report for the year ended 31 December 2009. Those accounts have been reported upon by the Group's auditors and delivered to Companies House in Gibraltar. The report of the auditors on those accounts was unqualified. The Annual Report is published in the Investors section of the Group website at www.partygaming.com and is available from the Company on request.
Except as described below, the unaudited interim condensed consolidated financial statements are prepared on the basis of the accounting policies stated in the Group's Annual Report 2009 which is available on the Group's website at www.partygaming.com.
Reporting and functional currency
Reflecting the fact that the Eurozone has become the predominant economic environment in which the Group's gaming companies operate based on the currencies with which players fund their accounts, as well as the expected opening of a number of newly regulated regimes in France, Italy and other Eurozone markets, the Group has changed the functional currency of certain of its gaming companies from US dollars to Euros.
In line with IAS 21 the change took effect from the date the Group determined that the characteristics required to identify the functional currency had changed. The Group determined this occurred during 2010 and for accounting purposes, this is effective from 1 January 2010.
In addition, the Group has changed in 2010 the reporting currency used for the financial statements of the Group from US dollars to Euros, as the gaming companies referred to above represent a significant majority of the Group's revenue.
All financial data for prior periods has been converted using the exchange rate at 1 January 2010 of 1 US dollar = 0.695 Euros.
As the Company's only significant transactions are in US dollars, instalments of the Non-Prosecution Agreement, funded by surplus US dollars generated by the rest of the Group, the US dollar continues to be its functional currency. To be consistent with the Group in the 2010 Annual Report, the reporting currency of the Company will also be Euros.
Accounting standards and interpretations
The following relevant standards, issued by the International Accounting Standards Board ('IASB'), are effective for the first time in the current financial year and have been adopted by the Group with no significant impact on its consolidated results or financial position:
IFRS 2 (Amended) - Group Cash-settled Share-based Payment Transactions (effective for annual periods beginning on or after 1 January 2010).
IFRS 3 (Revised) - Business Combinations (effective for annual periods beginning on or after 1 July 2009).
The following relevant standard, issued by the IASB, has been adopted early by the Group in line with best practice with no significant impact on its consolidated results or financial position:
IAS 32 (Amended) - Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010).
The following relevant standards and interpretations were issued by the IASB or the IFRIC before the period end but are as yet not effective for the 2010 year end:
IAS 24 (Revised) - Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011).
IFRS 9 - Financial Instruments (effective for annual periods beginning on or after 1 January 2013).
1. Basis of preparation (continued)
IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 April 2010).
The Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results.
2. Seasonality of operations
Seasonality is one of many factors that affect quarter-on-quarter revenue growth. Like many other online businesses with customer bases located in the Northern hemisphere, during the winter months consumers tend to spend more time online than during the summer months. In addition, as the Group's customer base becomes more casual in nature, so seasonality can be expected to have a greater impact as customers that have a broad variety of interests, including online gaming, can be expected to take advantage of longer daylight hours and better weather conditions to enjoy other leisure pursuits.
3. Segment information
For management purposes and transacting with customers, the Group's operations can be segmented into the following reporting segments:
> poker (including backgammon),
> casino,
> bingo,
> sports betting and
> unallocated corporate (including World Poker Tour and network services revenue).
These segments are the basis upon which the Group reports its segment information. Unallocated corporate expenses, assets and liabilities relate to the Group as a whole and are not allocated to individual segments. The measure of reporting segment performance is Clean EBITDA and the basis for arriving at this is the same as the Group accounts.
|
Six months ended 30 June 2010 |
Poker €million |
Casino €million |
Bingo €million |
Sports betting €million |
Unallocated corporate €million |
Consolidated €million |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
Net revenue |
64.4 |
76.4 |
25.8 |
10.2 |
- |
176.8 |
|
Other revenue |
0.2 |
- |
0.5 |
- |
3.7 |
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
64.6 |
76.4 |
26.3 |
10.2 |
3.7 |
181.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
8.6 |
24.3 |
7.2 |
3.4 |
4.6 |
48.1 |
|
Profit (loss) before tax |
6.9 |
21.8 |
(0.1) |
0.6 |
(6.4) |
22.8 |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
Clean EBITDA |
- |
- |
- |
- |
- |
- |
|
Loss before tax |
- |
- |
- |
- |
(0.6) |
(0.6) |
|
|
|
|
|
|
|
|
|
Total operations |
|
|
|
|
|
|
|
Net revenue |
64.4 |
76.4 |
25.8 |
10.2 |
- |
176.8 |
|
Other revenue |
0.2 |
- |
0.5 |
- |
3.7 |
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
64.6 |
76.4 |
26.3 |
10.2 |
3.7 |
181.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
8.6 |
24.3 |
7.2 |
3.4 |
4.6 |
48.1 |
|
Profit (loss) before tax |
6.9 |
21.8 |
(0.1) |
0.6 |
(7.0) |
22.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
33.3 |
61.1 |
116.0 |
79.5 |
204.9 |
494.8 |
|
|
|
|
|
|
|
|
3. Segment information (continued)
|
Six months ended 30 June 2009 |
Poker €million |
Casino €million |
Bingo €million |
Sports betting €million |
Unallocated corporate €million |
Consolidated €million |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
|
|
Net revenue |
71.2 |
62.1 |
1.2 |
5.4 |
- |
139.9 |
|
Clean EBITDA |
18.0 |
25.0 |
0.1 |
1.0 |
(1.8) |
42.3 |
|
Profit (loss) before tax |
16.7 |
23.2 |
0.1 |
(3.2) |
(10.4) |
26.4 |
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
|
|
|
|
|
|
Clean EBITDA |
- |
- |
- |
- |
(0.5) |
(0.5) |
|
Loss before tax |
- |
- |
- |
- |
(71.0) |
(71.0) |
|
|
|
|
|
|
|
|
|
Total operations |
|
|
|
|
|
|
|
Net revenue |
71.2 |
62.1 |
1.2 |
5.4 |
- |
139.9 |
|
Clean EBITDA |
18.0 |
25.0 |
0.1 |
1.0 |
(2.3) |
41.8 |
|
Profit (loss) before tax |
16.8 |
23.2 |
0.1 |
(3.2) |
(81.4) |
(44.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
36.8 |
60.1 |
0.4 |
70.9 |
167.8 |
336.0 |
|
|
|
|
|
|
|
|
Geographical analysis of total revenue
The following table provides an analysis of the Group's total revenue by geographical segment:
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
United Kingdom |
39.5 |
12.2 |
|
Germany |
25.9 |
28.7 |
|
Canada |
21.5 |
21.5 |
|
Other |
94.3 |
77.5 |
|
|
|
|
|
|
|
|
|
Total revenue |
181.2 |
139.9 |
|
|
|
|
4. Tax
Analysis of tax charge
|
Six months ended 30 June |
|
2010 €million |
2009 €million |
|
|
|
|
|
|
Current tax expense for the period |
|
4.4 |
1.9 |
|
Deferred tax credit for the period |
|
(1.9) |
- |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense for the period |
|
2.5 |
1.9 |
|
|
|
|
|
The effective tax rate for Continuing operations for the period based on the associated tax expense is 11.0% (2009: 7.2%). There is no tax associated with Discontinued operations and other comprehensive income.
The total expense for the period can be reconciled to accounting profit as follows:
|
Six months ended 30 June |
|
2010 €million |
2009 €million |
|
|
|
|
|
|
Profit before tax from Continuing operations |
|
22.8 |
26.4 |
|
Loss before tax from Discontinued operations |
|
(0.6) |
(71.0) |
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before tax |
|
22.2 |
(44.6) |
|
|
|
|
|
|
|
|
|
|
|
Tax at effective rate in Gibraltar |
|
- |
- |
|
Effect of different tax rates applied in overseas jurisdictions |
|
4.4 |
1.9 |
|
Effect of deferred tax originating in overseas jurisdictions |
|
(1.9) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
2.5 |
1.9 |
|
|
|
|
|
4. Tax (continued)
Factors affecting the tax charge for the period
The Group's policy is to manage, control and operate Group companies only in the countries in which they are registered. At the period end there were Group companies registered in 13 countries including Gibraltar. However, the rules and practice governing the taxation of eCommerce activity are evolving in many countries. It is possible that the amount of tax that will eventually become payable may differ from the amount provided in the financial information.
Factors that may affect future tax charges
In Gibraltar, the Group benefits from the exempt company regime. The Gibraltar exempt company regime will be phased out on 31 December 2010. Assessable income will be taxed in Gibraltar at the rate of 10% thereafter.
In India, the Group benefits from a tax holiday on income from qualifying activities, which has been extended until March 2011; under current rules assessable income is taxed in India at approximately 34%. The Minimum Alternative Tax has increased from 11.33% to 17% from 1 April 2009. Fringe benefit tax, which is payable at approximately 34% on a proportion of specified benefits provided or deemed to have been provided to past and present employees in India, was abolished with effect from 1 April 2009.
In the second half of 2009, the Group acquired businesses in the UK and the US. As the Group is involved in worldwide operations, future tax charges will be affected by the levels and mix of profitability in different jurisdictions.
Future tax charges will be reduced by a deferred tax credit in respect of amortisation of certain acquired intangibles.
5. Discontinued operations
Condensed consolidated statement of comprehensive income
|
Six months ended 30 June |
Notes |
2010 €million |
2009 €million |
|
|
|
|
|
|
Non-Prosecution Agreement |
|
- |
70.2 |
|
Other |
|
- |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses |
|
- |
70.7 |
|
|
|
|
|
|
|
|
|
|
|
Loss from operating activities |
|
- |
70.7 |
|
Finance expense |
|
0.6 |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Loss after tax |
|
0.6 |
71.0 |
|
|
|
|
|
|
|
|
|
|
|
Loss per share (€ cents) |
|
|
|
|
Basic and diluted |
6 |
0.1 |
17.5 |
|
|
|
|
|
Condensed consolidated statement of cashflows
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
|
|
|
|
Loss for the period |
(0.6) |
(71.0) |
|
Adjustment for interest expense |
0.6 |
0.3 |
|
|
|
|
|
|
|
|
|
Operating cashflows before movements in working capital and provisions |
- |
(70.7) |
|
(Decrease) increase in trade and other payables |
(12.2) |
66.7 |
|
|
|
|
|
|
|
|
|
Net cash outflow from operating activities |
(12.2) |
(4.0) |
|
Exchange differences |
11.2 |
- |
|
|
|
|
|
|
|
|
|
|
(1.0) |
(4.0) |
|
|
|
|
Discontinued operations refers to those operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA.
On 6 April 2009 the Group entered into a Non-Prosecution Agreement ('NPA') with the US Attorney's Office for the Southern District of New York (the 'USAO'). Under the terms of the agreement, the USAO will not prosecute the Group for providing internet gaming services to customers in the US prior to the enactment of the UIGEA and the Group agreed to pay $105 million, payable in semi-annual instalments over a period ending on 30 September 2012. The cost of the NPA above of €70.2 million in 2009 represented the present value of the settlement amount at that time. Finance expenses relate to its accretion.
5. Discontinued operations (continued)
Other costs in 2009 relate primarily to legal fees associated with the above, net of amounts reimbursed by the Group's insurers.
6. Earnings per Share ('EPS')
|
|
|
|
2010 |
|
|
2009 |
|
Six months ended 30 June |
Continuing operations € cents |
Discontinued operations € cents |
Total € cents |
Continuing operations € cents |
Discontinued operations € cents |
Total € cents |
|
|
|
|
|
|
|
|
|
Basic EPS |
4.9 |
(0.1) |
4.8 |
6.0 |
(17.5) |
(11.5) |
|
Diluted EPS |
4.7 |
(0.1) |
4.6 |
5.7 |
(17.5)* |
(11.5)* |
|
Basic Clean EPS |
6.0 |
- |
6.0 |
6.7 |
(0.1) |
6.6 |
|
Diluted Clean EPS |
5.7 |
- |
5.7 |
6.4 |
(0.1)* |
6.3 |
|
|
|
|
|
|
|
|
* A diluted EPS calculation may not increase a basic EPS calculation when the basic EPS is a loss.
Basic earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held as treasury shares.
|
Six months ended 30 June |
2010 Total |
2009 Total |
|
|
|
|
|
Basic EPS |
|
|
|
Basic earnings (loss) (€million) |
19.7 |
(46.5) |
|
Weighted average number of ordinary shares (million) |
408.2 |
406.1 |
|
Basic earnings (loss) per ordinary share (€ cents) |
4.8 |
(11.5) |
|
|
|
|
|
|
|
|
|
Basic Clean EPS |
|
|
|
Adjusted earnings (€million) |
24.6 |
26.9 |
|
Weighted average number of ordinary shares (million) |
408.2 |
406.1 |
|
Adjusted earnings per ordinary share (€ cents) |
6.0 |
6.6 |
|
|
|
|
Clean earnings per share
Management believes that Clean earnings per share reflects the underlying performance of the business and assists in providing a clearer view of the fundamental performance of the Group. Clean EBITDA and Clean earnings per share are performance measures used internally by management to manage the operations of the business and remove the impact of one-off and non-cash items. They are therefore calculated before the provision for items associated with the Group's Non-Prosecution Agreement, reorganisation costs and before non-cash charges relating to share-based payments.
Clean net earnings attributable to equity shareholders is derived as follows:
|
|
|
|
2010 |
|
|
2009 |
|
Six months ended 30 June |
Continuing operations €million |
Discontinued operations €million |
Total €million |
Continuing operations €million |
Discontinued operations €million |
Total €million |
|
|
|
|
|
|
|
|
|
Earnings (loss) for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent |
20.3 |
(0.6) |
19.7 |
24.5 |
(71.0) |
(46.5) |
|
Share-based payments |
4.3 |
- |
4.3 |
2.9 |
- |
2.9 |
|
Provision for payments associated with the Group's Non-Prosecution Agreement |
- |
- |
- |
- |
70.2 |
70.2 |
|
Unwinding of discount associated with the Group's Non-Prosecution Agreement |
- |
0.6 |
0.6 |
- |
0.3 |
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Clean net earnings (loss) |
24.6 |
- |
24.6 |
27.4 |
(0.5) |
26.9 |
|
|
|
|
|
|
|
|
6. Earnings per Share ('EPS') (continued)
|
Six months ended 30 June |
2010 Number million |
2009 Number million |
|
|
|
|
|
Weighted average number of shares |
|
|
|
Number of shares in issue as at 1 January |
412.4 |
411.5 |
|
Number of shares in issue as at 1 January held by the Employee Trust |
(4.6) |
(6.7) |
|
Weighted average number of shares issued during the period |
0.3 |
0.1 |
|
Effect of vested share options |
0.1 |
1.2 |
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares for the purposes of basic earnings per share |
408.2 |
406.1 |
|
Effect of potential dilutive unvested shares |
24.0 |
23.6 |
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares for the purposes of diluted earnings per share |
432.2 |
429.7 |
|
|
|
|
In accordance with IAS 33, the weighted average number of shares for diluted earnings per share takes into account all potentially dilutive shares granted which are not included in the number of shares for basic earnings per share above. Although the unvested, potentially dilutive shares are contingently issuable, in accordance with IAS 33, the period end is treated as the end of the performance period. Those option holders who were employees at that date are deemed to have satisfied the performance requirements and their related potentially dilutive shares have been included for the purpose of diluted EPS.
7. Intangible assets
|
|
Goodwill €million |
Acquired intangibles €million |
Other intangibles €million |
Total €million |
|
|
|
|
|
|
|
Cost or valuation |
|
|
|
|
|
As at 1 January 2009 |
145.0 |
109.5 |
7.5 |
262.0 |
|
Additions |
- |
- |
1.6 |
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2009 |
145.0 |
109.5 |
9.1 |
263.6 |
|
Acquired through business combinations |
67.1 |
57.6 |
- |
124.7 |
|
Additions |
- |
- |
1.3 |
1.3 |
|
Exchange movements |
(1.0) |
(0.4) |
(1.0) |
(2.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2009 |
211.1 |
166.7 |
9.4 |
387.2 |
|
Additions |
- |
- |
2.3 |
2.3 |
|
Exchange movements |
26.1 |
21.2 |
2.7 |
50.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2010 |
237.2 |
187.9 |
14.4 |
439.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
As at 1 January 2009 |
52.9 |
78.3 |
2.6 |
133.8 |
|
Charge for the period |
- |
7.2 |
1.2 |
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2009 |
52.9 |
85.5 |
3.8 |
142.2 |
|
Charge for the period |
- |
11.8 |
1.0 |
12.8 |
|
Exchange movements |
- |
(0.1) |
(0.6) |
(0.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2009 |
52.9 |
97.2 |
4.2 |
154.3 |
|
Charge for the period |
- |
14.0 |
2.4 |
16.4 |
|
Exchange movements |
9.2 |
15.5 |
1.6 |
26.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2010 |
62.1 |
126.7 |
8.2 |
197.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts |
|
|
|
|
|
As at 30 June 2009 |
92.1 |
24.0 |
5.3 |
121.4 |
|
As at 31 December 2009 |
158.2 |
69.5 |
5.2 |
232.9 |
|
As at 30 June 2010 |
175.1 |
61.2 |
6.2 |
242.5 |
|
|
|
|
|
|
7. Intangible assets (continued)
Acquired intangible assets are those intangible assets purchased as part of an acquisition and primarily include customer lists, brands, software and broadcast libraries. The value of acquired intangibles is based on cashflow projections at the time of acquisition. Customer lists from existing customers take into account the expected impact of player attrition.
Other intangibles primarily include development expenditure, long-term gaming and intellectual property licences and purchased domain names. Development expenditure represents software infrastructure assets that have been developed and generated internally.
In the interim condensed consolidated financial statements for the six months ended 30 June 2009, intangible assets were classified as goodwill, development expenditure, and other intangibles. The carrying amount of development expenditure at 30 June 2009 was €5.1 million and other intangibles was €24.2 million.
In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 31 December 2009 to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets using cashflow projections for a ten-year period. The review concluded that no impairments were required. The Board is not aware of any evidence of impairment during the current period.
8. Trade and other receivables
|
|
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
Payment service providers |
16.9 |
17.8 |
17.2 |
|
Less: chargeback provision |
(1.9) |
(1.5) |
(1.4) |
|
|
|
|
|
|
|
|
|
|
|
Payment service providers - net |
15.0 |
16.3 |
15.8 |
|
Prepayments |
16.3 |
11.3 |
12.8 |
|
Other receivables |
19.0 |
7.4 |
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
50.3 |
35.0 |
34.2 |
|
|
|
|
|
The Directors consider that the carrying amount of trade and other receivables approximates to their fair values, which is based on estimates of amounts recoverable. The recoverable amount is determined by calculating the present value of expected future cashflows.
In the interim condensed consolidated financial statements for the six months ended 30 June 2009 the provision for chargebacks was disclosed separately on the face of the statement of financial position. The Group has reclassified these balances to be in line with best practice. Given the immateriality of these balances no further disclosures are deemed necessary.
Provisions are expected to be settled within the next year and relate to chargebacks which are recognised at the Directors' best estimate of the provision based on past experience of such expenses applied to the level of activity.
Movements on the provision are as follows:
|
Six months ended |
30 June 2010 €million |
31 December 2009 €million |
30 June 2009 €million |
|
|
|
|
|
|
At beginning of period |
1.5 |
1.4 |
1.4 |
|
Charged to condensed consolidated statement of comprehensive income |
4.2 |
1.2 |
3.7 |
|
Credited to condensed consolidated statement of comprehensive income |
(3.8) |
(1.1) |
(3.7) |
|
|
|
|
|
|
|
|
|
|
|
At end of period |
1.9 |
1.5 |
1.4 |
|
|
|
|
|
9. Trade and other payables
|
|
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
Amounts due under Non-Prosecution Agreement |
24.2 |
20.6 |
17.2 |
|
Deferred and contingent consideration |
12.1 |
9.2 |
- |
|
Other payables |
32.7 |
28.0 |
28.9 |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
69.0 |
57.8 |
46.1 |
|
|
|
|
|
|
|
|
|
|
|
Amounts due under Non-Prosecution Agreement |
35.5 |
40.1 |
49.8 |
|
Deferred and contingent consideration |
1.8 |
12.2 |
- |
|
|
|
|
|
|
|
|
|
|
|
Later than one year but not later than five years |
37.3 |
52.3 |
49.8 |
|
|
|
|
|
|
|
|
|
|
|
Deferred and contingent consideration |
3.5 |
2.5 |
- |
|
|
|
|
|
|
|
|
|
|
|
More than five years |
3.5 |
2.5 |
- |
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
40.8 |
54.8 |
49.8 |
|
|
|
|
|
On 6 April 2009 the Group entered into a Non-Prosecution Agreement with the USAO. Under the terms of the agreement the Group agreed to pay $105 million, payable in semi-annual instalments over a period ending on 30 September 2012.
Deferred and contingent consideration relates to amounts payable for the acquisitions of Cashcade and WPT.
Other payables comprise amounts outstanding for trade purchases and other ongoing costs. The carrying amount of other payables approximates to their fair value which is based on the net present value of expected future cashflows.
The amount due under the Non-Prosecution Agreement is recognised at fair value and carried at amortised cost using an effective interest rate of 2%. The amount due for deferred and contingent consideration is recognised at fair value and carried at amortised cost using effective interest rates of between 2% and 15%.
The non-discounted book values for these amounts are as follows:
|
|
Amounts due under Non-Prosecution Agreement |
Deferred and contingent consideration |
||||
|
|
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
|
|
|
Within one year |
24.4 |
20.9 |
17.4 |
12.4 |
9.3 |
- |
|
Later than one year but not later than five years |
36.7 |
41.7 |
52.1 |
3.2 |
13.7 |
- |
|
More than five years |
- |
- |
- |
8.2 |
7.0 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61.1 |
62.6 |
69.5 |
23.8 |
30.0 |
- |
|
|
|
|
|
|
|
|
10. Client liabilities and progressive prize pools
|
|
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
Client liabilities |
102.5 |
80.5 |
77.8 |
|
Progressive prize pools |
5.8 |
6.7 |
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
108.3 |
87.2 |
86.1 |
|
|
|
|
|
Client liabilities and progressive prize pools represent amounts due to customers including net deposits received, undrawn winnings, jackpots and tournament prize pools and certain promotional bonuses. The carrying amount of client liabilities and progressive prize pools approximates to their fair value which is based on the net present value of expected future cashflows.
11. Loans and borrowings
|
|
Book value |
Fair value |
||||
|
|
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
|
|
|
Secured bank loan |
4.6 |
- |
- |
6.5 |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
4.6 |
- |
- |
6.5 |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured bank loan |
38.1 |
39.3 |
- |
35.8 |
38.7 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Later than one year but not later than five years |
38.1 |
39.3 |
- |
35.8 |
38.7 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities |
38.1 |
39.3 |
- |
35.8 |
38.7 |
- |
|
|
|
|
|
|
|
|
Bank borrowings are recognised at fair value and subsequently carried at amortised cost based on their internal rates of return. The discount rate applied was 5.44%.
Principal terms and the debt repayment schedule of loans and borrowings before amortisation are as follows:
|
As at 30 June 2010 |
Amount |
Nominal rate |
Year of maturity |
Security |
|
|
|
|
|
|
|
The Royal Bank of Scotland plc |
£35 million |
6 months LIBOR plus 3.75% |
2012 |
Floating charge over the assets of Cashcade Limited and its subsidiary undertakings |
|
|
|
|
|
|
|
As at 31 December 2009 |
Amount |
Nominal rate |
Year of maturity |
Security |
|
|
|
|
|
|
|
The Royal Bank of Scotland plc |
£35 million |
6 months LIBOR plus 4.25% |
2012 |
Floating charge over the assets of Cashcade Limited and its subsidiary undertakings |
|
|
|
|
|
|
The maturity analysis of loans and borrowings, including interest and fees, is as follows:
|
|
As at 30 June 2010 €million |
As at 31 December 2009 €million |
As at 30 June 2009 €million |
|
|
|
|
|
|
Within one year |
6.8 |
2.2 |
- |
|
Later than one year and not later than five years |
40.2 |
41.9 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
47.0 |
44.1 |
- |
|
|
|
|
|
12. Share capital
Ordinary shares
|
|
Issued and fully paid €million |
Issued and fully paid $ |
Number million |
|
|
|
|
|
|
As at 1 January 2009 |
0.1 |
103,866 |
411.5 |
|
Employee share options exercised during the period |
- |
74 |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2009 |
0.1 |
103,940 |
411.9 |
|
Employee share options exercised during the period |
- |
119 |
0.5 |
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2009 |
0.1 |
104,059 |
412.4 |
|
Employee share options exercised during the period |
- |
99 |
0.4 |
|
|
|
|
|
|
|
|
|
|
|
As at 30 June 2010 |
0.1 |
104,158 |
412.8 |
|
|
|
|
|
Shares issued are converted into US dollars at the exchange rate prevailing on the date of issue. The issued and fully paid share capital of the Group amounts to $104,157.75 and is split into 412,778,398 ordinary shares. The share capital in UK sterling is £61,916.76 and translates at an average exchange rate of 1.6822 US dollars to £1 sterling.
12. Share capital (continued)
Authorised share capital and significant terms and conditions
On 7 May 2009 the Company's authorised share capital was increased from £75,000 divided into 500 million ordinary shares with a par value of 0.015 pence each to £105,000 divided into 700 million ordinary shares of 0.015 pence each. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company. The Trustee of the Employee Trust has waived all voting and dividend rights in respect of shares held by the Employee Trust.
Treasury shares
|
|
Own shares reserve €million |
Number million |
|
|
|
|
|
As at 1 January 2009 |
- |
6.7 |
|
Employee share options exercised during the period |
- |
(2.2) |
|
|
|
|
|
|
|
|
|
As at 30 June 2009 |
- |
4.5 |
|
Purchase of own shares for the Employee Trust |
(2.8) |
1.0 |
|
Employee share options exercised during the period |
- |
(0.9) |
|
|
|
|
|
|
|
|
|
As at 31 December 2009 |
(2.8) |
4.6 |
|
Employee share options exercised during the period |
- |
(0.2) |
|
|
|
|
|
|
|
|
|
As at 30 June 2010 |
(2.8) |
4.4 |
|
|
|
|
As at 30 June 2010 4,365,533 (2009: 4,467,307) ordinary shares were held as treasury shares by the Employee Trust. During 2009 the Company donated £2.49 million to the Employee Trust, which the Employee Trust then used to purchase 1,000,000 ordinary shares in the market.
13. Contingent liabilities
From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of success of such claims and actions.
As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the business and takes appropriate advice in respect of these developments.
The Board is not aware of any regulatory issue or litigation that would give rise to a contingent liability.
14. Related parties
Group
Transactions between the Group companies have been eliminated on consolidation and are not disclosed in this note.
Principal Shareholders
A former Principal Shareholder and certain other Principal Shareholders have given certain indemnities to the Group.
Directors and key management
Key management are those individuals who the Directors believe have significant authority and responsibility for planning, directing and controlling the activities of the Group. The aggregate short-term and long-term benefits, as well as share-based payments of the Directors and key management of the Group are set out below:
|
Six months ended 30 June |
2010 €million |
2009 €million |
|
|
|
|
|
Short-term benefits |
3.7 |
4.8 |
|
Share-based payments |
3.2 |
1.7 |
|
|
|
|
|
|
|
|
|
|
6.9 |
6.5 |
|
|
|
|
At 30 June 2010 an aggregate balance of €1.5 million (2009: €1.1 million) was due to Directors and key management.
14. Related parties (continued)
The Group purchased telecommunication services and equipment of €1.4 million (2009: €1.2 million) from a company on an arm's length basis for whom a Board member is a director, with amounts owed at 30 June 2010 of €0.5 million (2009: €nil).
During 2009 furnished property was leased to a member of key management at an annual lease rental of €42,000, which the Directors believe is the fair rental value of the property. There were no amounts owed at 30 June 2010.
During the six months ended 30 June 2010 furnished property was leased to a member of key management at an annual lease rental of £42,000, which the Directors believe is the fair rental value of the property. There were no amounts owed at 30 June 2010.
After the former Chairman of the Board stepped down as a Director in 2008, he was engaged by the Group under a consultancy agreement to provide services, as required, to the Group. The consultancy terminated on 29 August 2009 and for a further six months afterwards he was prevented from providing services to other gaming businesses. A fee of £110,000 was paid to the former Chairman under this consultancy agreement.
Certain Directors and certain key management were granted share options under service contracts which were granted under a Group share option plan (see note 15).
15. Share options
The Group has adopted and granted awards under the Nil-Cost Plan, FMV Plan, PSP Plan and Executive FMV Plan as a reward and retention incentive for employees of the Group, including the Executive Directors. The Group has used the binomial options pricing model to value these options. An appropriate discount has been applied to reflect the fact that dividends are not paid on options that have not vested or have vested and have not been exercised.
|
Six months ended 30 June 2010 |
Nil-Cost Plan Number million |
FMV Plan Number million |
PSP Plan Number million |
Executive FMV Plan Number million |
||
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period |
4.3 |
19.2 |
2.3 |
1.4 |
||
|
Shares over which options granted during the period |
1.0 |
5.8 |
1.3 |
0.5 |
||
|
Shares in respect of options lapsed during the period |
- |
(1.2) |
(0.2) |
- |
||
|
Exercised during the period |
(0.1) |
(0.4) |
- |
(0.1) |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Outstanding at end of period |
5.2 |
23.4 |
3.4 |
1.8 |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Exercisable at the end of period |
1.7 |
5.7 |
0.1 |
0.1 |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Shares over which options granted during the period (number) |
1,016,000 |
5,760,000 |
1,300,000 |
450,000 |
||
|
Percentage of total issued share capital |
0.25% |
1.40% |
0.31% |
0.11% |
||
|
|
|
|
|
|
||
|
Six months ended 30 June 2009 |
Nil-Cost Plan Number million |
FMV Plan Number million |
PSP Plan Number million |
Executive FMV Plan Number million |
||
|
|
|
|
|
|
|
|
|
Outstanding at beginning of period |
6.0 |
21.0 |
1.7 |
1.2 |
||
|
Shares over which options granted during the period |
0.5 |
4.1 |
1.0 |
0.5 |
||
|
Shares in respect of options lapsed during the period |
(0.1) |
(3.1) |
(0.4) |
(0.3) |
||
|
Exercised during the period |
(2.2) |
(0.4) |
- |
- |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Outstanding at end of period |
4.2 |
21.6 |
2.3 |
1.4 |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Exercisable at the end of period |
1.4 |
3.1 |
- |
- |
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
Shares over which options granted during the period (number) |
475,000 |
4,086,166 |
996,817 |
462,500 |
||
|
Percentage of total issued share capital |
0.12% |
0.99% |
0.24% |
0.11% |
||
|
|
|
|
|
|
||
15. Share options (continued)
Terms and conditions
Nil-Cost Plan
These options are not generally subject to performance conditions as this is regarded as detracting from their attraction and retention capabilities and instead usually vest on a phased basis over a four- to five-year period. The main exception to this general policy is the award made to key employees in the bingo segment, which will only vest subject to the satisfaction of a stretching EBITDA target for that business unit for 2012.
FMV Plan
Options granted under this plan during the period generally vest in instalments over a three-year period. There are no performance conditions attached to options issued by the Group under the terms of the FMV Plan. Directors are not eligible to receive any awards under this plan.
PSP Plan
These options vest subject to the achievement of a total shareholder return ('TSR') performance target over the three-year period commencing on 1 January or 1 July of each year from 2007 compared to the median TSR of a comparator group. The threshold for vesting at which 25% will vest, will be TSR equalling the median of the comparator group, rising on a straight-line basis to 100% vesting if the Company's TSR exceeds the median by 10% per annum calculated over the three-year period. It is estimated that outperformance of the median by 10% per annum over that period is performance in excess of the upper quartile.
Executive FMV Plan
For awards made between, until and including 2009 these options vest subject to the growth in the Company's Clean Earnings per share equalling or exceeding 15% per annum in the three year period from 1 January of each year from 2007. For awards made in 2010 the threshold for vesting at which 25% of an award will vest, will be average Clean Earnings per share growth of 5% per annum, rising on a straight-line basis to 100% vesting for Clean Earnings per share growth of at least 15% per annum.
Outstanding share options issued under the FMV Plan and Executive FMV Plan have been granted at exercise prices between 155.0 pence and 457.5 pence (2009: between 155.0 pence and 457.5 pence).
16. Events after the reporting period
On 29 July the Group announced that it had reached agreement for the basis of a Proposed Merger between PartyGaming Plc and bwin Interactive Entertainment AG which is expected to complete in the first quarter of 2011. Further details can be found in the press release issued on that date and from the Group's website: www.partygaming.com.
There have been no other material events after the reporting period which would require disclosure or adjustment to the condensed consolidated set of financial information for the six months ended 30 June 2010.
17. Dividend
The Board did not pay any dividend in respect of 2009. Our desire to continue to play an active role in the consolidation of the online gaming sector means that the Board believes it is imprudent to declare an interim dividend in 2010 and under the terms of an agreement entered into with bwin as part of the Proposed Merger, has agreed not to pay a dividend prior to completion of the Proposed Merger.
Independent review report to PartyGaming Plc
Introduction
We have been engaged by the Company to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cashflows and related notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed consolidated set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the half-yearly financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect to half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
BDO LLP
Chartered Accountants and Registered Auditors
55 Baker Street
London W1U 7EU
6 August 2010
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). Appendix I
Pro-forma consolidated statement of financial performance in US $ (unaudited)
|
Six months ended 30 June |
|
2010 $million |
2009 $million |
|
|
|
|
|
|
|
|
Continuing operations |
|
|
|
|
|
Poker |
|
87.5 |
102.6 |
|
|
Casino |
|
103.1 |
89.3 |
|
|
Bingo |
|
34.8 |
1.7 |
|
|
Sports Betting |
|
13.7 |
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue |
|
239.1 |
201.3 |
|
|
Other revenue |
|
6.0 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
245.1 |
201.3 |
|
|
Cost of sales |
|
(3.1) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
242.0 |
201.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income (expense) |
|
5.9 |
(2.1) |
|
|
|
|
|
|
|
|
Transaction fees |
|
(13.5) |
(12.0) |
|
|
Staff costs |
|
(38.4) |
(33.0) |
|
|
Other overheads |
|
(13.7) |
(12.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA administrative expenses |
|
(65.6) |
(57.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer acquisition and retention |
|
(51.6) |
(30.8) |
|
|
Affiliates |
|
(33.1) |
(30.3) |
|
|
Other customer bonuses (not netted from revenue) |
|
(3.8) |
(4.3) |
|
|
Customer bad debts |
|
(4.2) |
(3.2) |
|
|
Webhosting and technical services |
|
(24.6) |
(12.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution expenses |
|
(117.3) |
(80.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean EBITDA |
|
65.0 |
60.7 |
|
|
Depreciation and amortisation |
|
(26.4) |
(18.8) |
|
|
Impairment losses |
|
- |
(0.8) |
|
|
Share-based payments |
|
(5.7) |
(4.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit from operating activities |
|
32.9 |
36.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
0.5 |
1.2 |
|
|
Finance expense |
|
(2.4) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax |
|
31.0 |
38.0 |
|
|
Tax |
|
(4.4) |
(2.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after tax from Continuing operations |
|
26.6 |
35.2 |
|
|
Loss after tax from Discontinued operations |
|
(0.8) |
(102.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) for the period attributable to the equity holders of the parent |
|
25.8 |
(66.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share (cents) |
|
|
|
|
|
Basic |
|
6.3 |
(16.5) |
|
|
Diluted |
|
6.0 |
(16.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing earnings per share (cents) |
|
|
|
|
|
Basic |
|
6.5 |
8.7 |
|
|
Diluted |
|
6.2 |
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clean Continuing earnings per share (cents) |
|
|
|
|
|
Basic |
|
7.9 |
9.7 |
|
|
Diluted |
|
7.5 |
9.2 |
|
|
|
|
|
|
|
The figures from 2009 are those as previously reported in the 2009 Interim Report. For 2010 the average exchange rate used in converting figures from Euros to US$ is 1.35.
Glossary and definitions
|
'Active player days' |
aggregate number of days in the given period in which active players have contributed to rake and/or placed a wager. This can be calculated by multiplying average active players by the number of days in the period
|
|
'Attrition' |
the ratio of real money signups which are active during the period. The measure indicates the retention profile of the players
|
|
'Average active players' or 'Daily average players' |
the daily average number of players who contributed to positive rake and/or placed a wager in the given period. This can be calculated by dividing active player days in that period, by the number of days in that period
|
|
'bwin'
|
bwin Interactive Entertainment AG |
|
'Cashcade' |
Cashcade Limited and its subsidiaries
|
|
'Clean EBITDA/EPS' |
EBITDA/EPS before charges associated with the Group's Non-Prosecution Agreement, reorganisation costs and non-cash charges relating to share-based payments.
|
|
'Company' or 'PartyGaming'
|
PartyGaming Plc |
|
'Discontinued operations' |
operations located physically outside of the US but which relate to customers in the US that were no 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
|
|
'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
|
|
'FoxyBingo' |
www.foxybingo.com, one of the Group's bingo sites
|
|
'Group' or 'PartyGaming Group' |
the Company and its consolidated subsidiaries and subsidiary undertakings from time to time or, prior to 7 February 2005, PartyGaming Holdings Limited (formerly Headwall Ventures Limited) and its consolidated subsidiaries and subsidiary undertakings
|
|
'IASB'
|
International Accounting Standards Board
|
|
'KPIs' |
Key Performance Indicators, such as active player days and yield per active player day
|
|
'NPA' |
The Non-Prosecution Agreement entered into by the Group and the US Attorney's Office for the Southern District of New York (the 'USAO') on 6 April 2009. Under the terms of the agreement, the USAO will not prosecute the Group for providing internet gambling services to customers in the US prior to the enactment of the UIGEA.
|
|
'PartyBets' |
www.partybets.com, one of the Group's sports betting websites
|
|
'PartyBingo' |
www.partybingo.com, one of the Group's bingo websites
|
|
'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 Shareholders' |
Anurag Dikshit (holding through Crystal Ventures Limited) until 25 January 2010, James Russell DeLeon (holding through Stinson Ridge Limited) and Ruth Parasol DeLeon (holding through Emerald Bay Limited)
|
|
'Proposed Merger'
|
The proposed merger between PartyGaming and bwin announced on 29 July 2010 |
|
'Real money sign-up' or 'sign-up' |
a new player who has registered and deposited funds into an account with the company. Customers are 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 player' |
a player who has contributed to rake or placed a wager in the period
|
|
'USAO' |
the United States Attorney's Office for the Southern District of New York |
|
'WPT' |
The business and substantially all of the assets of the World Poker Tour acquired by the Group
|
|
'Yield per unique active player' |
net revenue (net of customer bonuses and other fair value adjustments to revenues) divided by the number of unique active players in the period |
[1] Source: Agenzia Autonoma Monopolio di Stato, the Italian Regulator
[2] 'Shuffle up and deal' - A special report on gambling - The Economist, 10 July 2010
[3]Based on the average number of daily real money cash game players - source: PokerScout.com.
Related Shares:
BPTY.L