6th Sep 2005 07:04
PartyGaming Plc06 September 2005 6 September 2005 PartyGaming Plc Interim Results for the six months to 30 June 2005 Highlights • Revenues up 81% to $437.4m (2004: $241.5m) reflecting continued strong growth in poker • EBITDA before share option and IPO related expenses up 70% to $257.7m; EBITDA after share option and IPO related expenses of $195.4m (2004: $151.9m) • Basic earnings per share before share option and IPO related expenses of 6.2 cents; basic earnings per share of 4.5 cents (2004: 3.6 cents) • Operating cashflow up 67% to $270.9m (2004: $162.0m); net debt reduced by $231.2m to $119.5m in period • Poker KPIs - strong growth in real money sign-ups (up 73%) and active player days (up 102%); 7% decline in yield per active player day to $17.8 (2004: $19.2) • Casino KPIs - small increase in active player days; yield per active player day up 3% to $76.4 All references to "$" mean US dollars. Commenting on the interim results, Richard Segal, Chief Executive, said: "Following the successful IPO of the Group in June, we are delighted to beannouncing our first set of interim results as a listed company. The Group'sperformance further demonstrates the strength of our brands, the quality of ourgaming products and the financial attractions of our business model. PartyGaming continues to enjoy strong positions in each of its core markets. Asexpected, whilst the online gaming market and poker in particular continues toshow strong year on year growth, the rate of growth is continuing to moderate.As it does so, the Group will continue to adapt its marketing strategy andinfrastructure to provide greater focus on customer retention and player value. Looking forward, the Group's financial strength, strong market positions andscale provide a unique platform from which to grow the business through furtherinternational expansion, the development of new gaming products and additionaldistribution channels." Details of an analyst presentation, live webcast and conference call takingplace later today are provided at the end of this press release. Contacts:PartyGaming Plc On 6 September 2005: +44 (0)20 7831 3113 Thereafter: +350 78700 (Gibraltar)Richard Segal, Chief Executive OfficerMartin Weigold, Group Finance DirectorPeter Reynolds, Director of Investor Relations Financial Dynamics +44 (0)20 7831 3113Edward Bridges / Juliet Clarke OPERATING AND FINANCIAL REVIEW Introduction These are the Group's first set of interim results as a listed company sincesuccessfully completing the flotation of the Group's shares on the London StockExchange in June 2005. PartyGaming Plc is the world's leading online gamingcompany and operates PartyPoker.com, the world's largest online poker room, aswell as other online gaming sites including StarluckCasino.com, PlanetLuck.com,PokerNOW.com and PartyBingo.com. Results During the first six months of 2005 the Group continued to deliver strong yearon year growth. Overall Group revenues were up 81% and earnings beforeinterest, tax, depreciation and amortisation ("EBITDA"), before share option andIPO related expenses, was up 70% over the same period in 2004. The Group's PartyPoker network (including skins) continues to maintain itsleadership of the global online poker market, despite increasing competitivepressures. In June 2005, the PartyPoker network had a 51% market share in ringgames and a 40% market share in online tournaments1. PartyPoker was the drivingforce behind the Group's results, delivering an impressive financial performancewith overall poker revenues up by 89% to $412.0m (2004: $217.5m). EBITDA beforeshare option and IPO related expenses for the poker business increased by 76% to$244.9m (2004: $138.9m). Increased marketing activity and an increase inadministration expenses due to the transition to a publicly listed company,meant that EBITDA margins (before share option and IPO related expenses) forpoker during the first half were lower than the previous year at 59.4% (2004:63.9%). The casino business made steady but modest progress with revenues up 6% to$25.4m (2004: $24.0m) and EBITDA before share option and IPO related expenses up3% to $13.7m (2004: $13.3m). With the management team having been focused untilrecently on meeting the high levels of demand in poker, the casino operation hasyet to reap the benefits of having a greater level of management attention. Thisis expected to have a positive impact on the casino business' performance in thesecond half of 2005. 1 PokerPulse Business development The successful flotation of the Company on the London Stock Exchange in June2005 was a major step in the Group's evolution and one which has already broughtwith it some real commercial benefits in the form of a number of new businessopportunities as well as an enhanced media profile. The Group's continued success remains founded upon the three key pillars whichremain the bedrock of its operations: marketing, systems and customer service. Marketing Following the flotation, the management team has increased its focus ondelivering its stated strategy of consolidating its position in the US pokermarket as well as expanding its presence in a number of international marketsincluding the UK, Scandinavia, Germany and Australia. During the period, theproportion of real money sign-ups on PartyPoker coming from countries outsidethe US increased from 10% to 19% in the period. Revenue growth in the US yearon year was 77% compared with 2004 whilst outside the US it was 110%. As aresult, the percentage of total revenue generated outside the US in the firsthalf was 14% compared with 12% in the previous year. With a detailed programme of international marketing campaigns alreadyscheduled, the Board is confident that further progress can be made incontinuing to grow the group's international revenues in the second half. Television advertising and sponsorship continue to be the Group's main marketingchannel. The Group has excellent relationships with a number of the majorcommercial television networks in a number of key markets such as the US and theUK and is exploring what further opportunities there are to promote the Group'sactivities using television. The Group has also invested significantly in a comprehensive data mining projectwhich is beginning to provide a much greater insight into our players' trendsand behaviour. This project is integral to the Group's strategy of increasingits focus on retention as part of our efforts to maximise lifetime playervalues. Systems and product development The real money casino gaming servers were successfully relocated from Canada toGibraltar in February 2005. The Group intends to relocate its real money pokerservers from Canada to Gibraltar as soon as the required telecommunicationscapacity and resilience are available, in accordance with the terms of itsprimary gaming licence. The Group has continued to develop its technology and associated systemsinfrastructure. Constant development of the Group's systems, incorporating newfeatures, systems upgrades and general improvements in the overall customerexperience are key factors behind the Group's continued success. In poker, inaddition to the introduction of high-limit tables in July 2005, work hasaccelerated on developing a number of new features to be launched during thefourth quarter such as "deal-making" in tournaments (allowing tournamentfinalists to agree to split the winnings rather than risk losing outaltogether). Each of the new features seeks to enhance the overall customerexperience and player loyalty. In casino, the Group has recently launched fournew slot machines offering progressive jackpots with a prize pool of over $1m. The availability of the Group's systems are critical to maintaining high levelsof customer confidence in the Group's online gaming brands. The systemavailability improved during the period with PartyPoker available for 99.8%(2004: 99.1%) comprising planned downtime of 0.1% and unplanned downtime of just0.1% (2004: 0.5%). Despite the relocation of the casino servers to Gibraltarduring the period, planned downtime for the casino and bingo sites remained inline with last year at 0.5%, whilst unplanned downtime at the Group's casino andbingo sites was minimal at 0.1% (2004: 0.5%). Customer service The Group has continued to invest in developing its substantial customer serviceinfrastructure and now has an additional 120 service operator workstations inthe Group's business process outsourcing operation in Hyderabad, India which areready for use as customer demand grows. The Group now has over 370 customerservice operators providing customer support on a daily basis and in the sixmonths to 30 June 2005 the Group had over 2 million contacts with PartyGamingcustomers of which 1.2 million were by phone and 0.8 million were by email.This compares with a total of 1.4 million contacts in the same period in 2004. The Group was particularly pleased to have become one of only four online gamingoperators to have been certified by Gamcare in the UK, recognising the strengthand depth of the Group's systems and processes regarding responsible gaming.The Group's commitment to responsible gaming has been further enhanced by theestablishment of an Ethics Committee of the Board. Future business developments As we look forward to 2006, the Group is planning a number of exciting newdevelopments across a range of areas within the business. These include thelaunch of new gaming products with two new games; the launch of an integratedplatform for all of the Group's gaming products with a common purse, allowingplayers to seamlessly move from poker to casino and bingo and vice versa(expected to take place during the first half of 2006); and a multi-lingual anda multi-currency offering (anticipated to be launched during the second half of2006) to broaden the appeal of the Group's products internationally, supportingthe continued expansion into a number of new geographic markets. The Group plans to launch an integrated affiliate programme for a number of itsbrands under a new single affiliate brand: PartyPartners. Recognising theimportance of affiliates as a valuable source of customer traffic, PartyPartnerswill combine a number of the Group's affiliate programmes making it easier foraffiliates to promote a number of the PartyGaming brands using one account, withcommon reporting, systems and payment mechanisms. In particular it is hopedthat, through PartyPartners, a number of existing PartyPoker affiliates will beencouraged to promote PartyBingo.com and PartyCasino.com when they are launchedas part of an integrated platform during the first half of 2006. During the first six months of 2005, income from "skins", or third partywebsites which utilise one of the Group's gaming platforms in return for a fee,represented approximately 3.6% of the Group's poker revenue (2004: 2.3%). Skinswere originally put in place to help drive traffic and build liquidity for theGroup's poker and casino sites. The Group believes that this is no longeroptimal and therefore no new skins are expected to be added to the existingpoker network. The Group continues to believe that there are exciting opportunities for each ofits existing online games, as well as for new products and new distributionchannels such as wireless applications (e.g. mobile phones and personal digitalassistants) and interactive television. Today, we are delighted to haveannounced an agreement with Cellectivity Limited, to rollout PartyGamingproducts on wireless applications within the UK market commencing with StarluckCasino (roulette and slots) in September 2005. PartyPoker is due to be rolledout shortly thereafter. The Group continues to monitor the regulatory environment and developments thatcould have an impact on its business. These currently include progress of apossible bill to be introduced by Senator Kyl to the US Senate, the USGovernment reaction to the recent WTO ruling and the ongoing Casino City appeal. Current trading and outlook PartyGaming continues to enjoy strong positions in each of its core markets. Asexpected, whilst the online gaming market and poker in particular continues toshow strong year on year growth, the rate of growth is continuing to moderate.As it does so, the Group will continue to adapt its marketing strategy with agreater focus on customer retention and player value. The Group has started the second half with the volume of new sign-ups in linewith expectations, an increased proportion of which are from outside the US.Retention rates and player yields continue to decline, albeit at rates that aregreater than anticipated, as more casual players are attracted to the playerpool. Against a background of moderating market growth, Group revenues are expected tocontinue to show good year on year growth, although at rates lower than thesubstantial rates previously experienced. In addition, further increases in theproportion of player bonuses netted from revenue, are expected to contribute toreduced rates of revenue growth but with the benefit of correspondingly lowerdistribution expenses. The Group remains focused on driving revenues andcontrolling costs and the Board is confident of continued progress in the secondhalf of 2005 and as a result is comfortable with the current consensusexpectations for EBITDA (before share option charges and IPO related expenses)for the full year. Looking further forward, the Group's financial strength, strong market positionsand scale provide a unique platform from which to grow the business throughfurther international expansion, the development of new gaming products, theintroduction of a common purse and additional distribution channels. Key performance indicators for the third quarter of 2005 will be announced onFriday 21 October 2005. SUMMARY OF RESULTS Six months to 30 June Revenue EBITDA before share option and IPO related expenses 2005 2004 2005 2004 $m $m $m $m Poker 412.0 217.5 244.9 138.9Casino 25.4 24.0 13.7 13.3Unallocated (0.9) (0.3) 437.4 241.5 257.7 151.9 Revenue was up 81% over the same period in 2004, driven by the growth in theGroup's poker business which grew by 89%. The casino business grew revenue by6%. EBITDA before share option and IPO related expenses increased by 70%,driven by strong growth in poker. Reconciliation of EBITDA before share option and IPO related expenses tooperating profit Six months to 30 June 2005 2004 $m $mEBITDA before share option and IPO related expenses 257.7 151.9Depreciation (4.6) (2.0)Share option charges (39.7) -IPO related expenses (22.6) -Operating profit 190.8 149.9 Basic earnings per share before share option andIPO related expenses (cents) 6.2 3.6 Basic earnings per share (cents) 4.5 3.6 Operating profit before share option charges and IPO related expenses was 69%ahead of 2004. The reduction in operating profit margin (before share optioncharges and IPO related expenses) to 57.9% (2004: 62.1%) reflected increasedadministration costs ahead of the Group's flotation on the London Stock Exchangeas well as increased marketing expenses within the poker business. Share optionand IPO related expenses totalled $62.3m in the period (2004: nil). The shareoption charge of $39.7m reflected the granting of nil-cost share options to theGroup's workforce ahead of the flotation which took place on 30 June 2005. Basic earnings per share before share option and IPO related expenses was 6.2cents (2004: 3.6 cents), an increase of 72%. Basic earnings per share aftershare option and IPO related expenses was 4.5 cents, an increase of 25% over theprior year. REVENUE Revenue was up 81%, driven by the growth in the Group's poker business whichgrew by 89% over the comparable period in 2004. The casino business grewrevenues by 6%. A breakdown of the two business segments, poker and casino issummarised below. POKER Six months to 30 June 2005 2004 % change $m $m Net revenue from own sites 397.3 212.4 87%Income from skins 14.7 5.1 188%Net poker revenue 412.0 217.5 89% EBITDA before share option and IPOrelated expenses 244.9 138.9 76%Profit before tax, share option and IPOrelated expenses 243.5 138.2 76% PartyPoker.com is the world's largest online poker room. With 415,633 activecustomers in June, revenue from customers playing on the site was up by 89%compared with the same period in 2004. During June 2005, the PartyPoker network, including skins, had an average marketshare as measured by ring game revenue of approximately 51% (2004: 56%)1.Despite PartyPoker's strong market position, operating margins in the first halfwere lower than the previous year as a result of increased competition in anumber of territories, a number of marketing initiatives aimed at expanding theGroup's presence in new markets and increased administration expenses arisingfrom the transition to becoming a public company. 1 PokerPulse The appeal of online poker has continued to grow as evidenced by the stronggrowth in both real money sign-ups and the number of active players. A summaryof the key performance indicators of the business during the period is shown inthe table below: Key Performance IndicatorsThree months to 30 June 2005 2004Active Player Days 11,402,342 5,987,966Daily average players 125,300 65,802Yield per Active Player Day $17.0 $18.7New real money sign-ups 186,560 104,936Unique active players during the period 630,539 304,868Unique active players in June 417,533 207,369 Six months to 30 June 2005 2004Active Player Days 22,343,683 11,054,312Daily average players 123,446 60,738Yield per Active Player Day $17.8 $19.2New real money sign-ups 400,668 231,774Unique active players during the period 842,382 374,676Unique active players in June 417,533 207,369 During the first half active player days doubled to over 22m (2004: 11m) with arecord level of player activity during the first few months of the year, drivenby strong growth in the level of new real money sign-ups; 214,108 were addedduring the first quarter. A more modest rate of growth in new real moneysign-ups during the second quarter, reflecting the seasonal nature of thebusiness, meant that the record levels of activity seen in the first quarterwere not sustained throughout the period, although the overall level of playeractivity remains twice that of the prior year. Subsequent to the period end,active player days for July and August in aggregate were 7,934,159. Rates of attrition of new sign-ups in 2005 have continued to increase with 29.1%of the sign-ups in January 2005 remaining active in June 2005. Managementbelieves that this trend has been driven by a combination of the continuedstrong growth in new sign-ups as well as an increase in the proportion ofsign-ups which are more casual players, who play less often than our coreplayers. Across all real money poker sign-ups to date, the average rate ofattrition after six months is approximately 34.0% and after 12 months it is31.2%. Whilst the US remains the Group's largest market, the investment in marketinginitiatives in a number of new territories, including the UK, has resulted instrong growth in the number of sign-ups outside the US which increased to 76,231(2004: 22,693) or 19% of total sign ups (2004: 10%). The rapid growth in new sign-ups, most of which are believed to have been morecasual players, together with increasing competitive pressures which prompted anincrease in the level of customer bonuses netted from revenue, meant that therewas a consequent impact on yield per active player day which was down 7%compared with the same period in 2004 to $17.8 (2004: $19.2). The number of unique active players has also continued to grow strongly,reaching 417,533 in June 2005 which was double that of the previous year. Ofthese, approximately 15% were outside the US (2004: 9%). CASINO Six months to 30 June 2005 2004 % change $m $m Net casino revenue 25.4 24.0 6% EBITDA before share option and IPOrelated expenses 13.7 13.3 3%Profit before tax , share option and IPOrelated expenses 13.4 13.0 3% The Group's principal online casino, StarluckCasino.com and online bingobusiness, PartyBingo.com, made steady progress in the first half. Revenues wereup 6% on the previous year with a 18% increase year on year in the number ofunique active players to 16,358 in June 2005. Whilst EBITDA margins (beforeshare option and IPO related expenses) have been relatively stable, the businesscontinues to be prone to short term fluctuations in margin, particularly whenhigh value players are exceptionally active. Recent promotional activity whereplayers exiting the PartyPoker site are being prompted to visit StarluckCasinohas been particularly successful and as a result is being sustained into thesecond half. A reorganisation of the management structure took place during theperiod to ensure a greater level of management focus on the casino business andit is expected that these changes will begin to feed through into improvedoperational and financial performance during the second half. A summary of the key performance indicators of the business during the secondquarter and for the first six months is shown in the table below: Key Performance Indicators Three months to 30 June 2005 2004Active Player Days 164,314 173,576Daily active players 1,806 1,907Yield per Active Player Day $79.7 $66.5New real money sign-ups 20,185 13,925Unique active players during the period 26,823 25,551Unique active players in June 16,358 13,874 Six months to 30 June 2005 2004Active Player Days 333,078 325,630Daily active players 1,840 1,789Yield per Active Player Day $76.4 $73.9New real money sign-ups 34,489 30,169Unique active players during the period 42,661 41,087Unique active players in June 16,358 13,874 Activity levels on the casino site have been steady throughout the period withthe prior year benefiting from one extra day, being a leap year. Overall thelevel of active player days showed a small increase compared with the prior yearand the yield per active player day was up 3% to $76.4 (2004: $73.9). Distribution costs Six months to 30 June 2005 2004 % change $m $m Customer acquisition and retention (52.0) (14.8) 251%Affiliates (45.1) (19.5) 131%Other customer bonuses(not netted from revenue) (5.9) (3.7) 59%Customer bad debts (24.0) (16.4) 46%Webhosting and technical services (3.8) (1.8) 111%Total distribution costs (130.8) (56.2) 133%Total distribution costs as % of revenue 29.9% 23.3% As mentioned above, the increasingly competitive nature of the poker market,which is now estimated to have over 300 poker rooms worldwide, meant that asubstantial increase in the level of investment in a variety of marketinginitiatives, in particular offline advertising campaigns and campaigns with ouraffiliates, were put in place during the first half. Whilst customer bad debtsas well as other customer bonuses fell as a proportion of revenue, overalldistribution costs increased to 29.9% of revenues (2004: 23.3%) in line with ourexpectations. Overall, customer acquisition costs in poker (including bonuses which are nettedfrom revenue) have continued to rise to $286 per new real money sign-up fornon-affiliate sources which is 125% higher than during the same period lastyear. Administration costs Six months to 30 June 2005 2004 % change $m $m Transaction fees (21.1) (12.8) 66%Depreciation and amortisation (4.6) (2.0) 130%Staff costs (13.9) (8.8) 58%Other overheads (13.0) (11.5) 13% (52.6) (35.1) 50%Share option charges (39.7) -IPO related expenses (22.6) -Total administration costs (114.9) (35.1)Total administration costs as % of revenue 26.3% 14.5% Overall administration costs (excluding share option charges and IPO relatedexpenses) increased by 50%. While transaction costs increased at a lower ratethan revenue, increased staffing levels as well as a number of costs associatedwith the transition to becoming a listed company, meant that administrationcosts increased substantially to $114.9m (2004: $35.1m), although as aproportion of revenue (excluding share option and IPO related expenses), totaladministration costs were lower than last year at approximately 12.0% ofrevenues (2004: 14.5%). The growth in other overheads was partially mitigatedby a payment processor bad debt in the prior year. Share option charges Prior to flotation, the founding shareholders established a share option planfor the benefit of the current and future workforce. Under the terms of theplan, the existing workforce were granted a number of nil-cost options to besatisfied by existing shares which had been gifted by the founding shareholdersto a dedicated employee trust. As such, the exercise of these options will haveno dilutive effect on new shareholders and will have no cash impact on theCompany. International Financial Reporting Standards requires that the fairvalue of the options be amortised through the profit and loss account over thelife of the options. As a result there is a non-cash charge of $39.7m (2004:nil) which has been included within the profit and loss account in the period. IPO related expenses Given that no new money was being raised for the Company, the IPO relatedexpenses were apportioned between the selling shareholders and the Company basedon contractual arrangements. The total IPO related expenses were $88.0m of whichthe Company incurred $22.6m (2004: nil). Associates and joint ventures Six months to 30 June 2005 2004 $m $m 35% interest in a company incorporated in England & Wales (0.7) - The Group acquired a 35% interest in the ordinary share capital of a companyincorporated in England & Wales during the period. The Group's share of lossesduring the period totalled $0.7m (2004: nil). Finance income and costs Six months to 30 June 2005 2004 $m $m Interest payable and other charges (5.2) (3.6)Interest receivable 1.4 0.3 (3.8) (3.3) Net debt1 As at 30 June 2005, the Group had net debt of $119.5m, including shareholderloans totalling $25.0m. Prior to the IPO, the Group had repaid a total of$457.8m of outstanding shareholder loans and refinanced $200m of the balancewith a revolving credit facility provided by Royal Bank of Scotland Plc andBarclays Capital. Since the period end the Group has repaid the balance of theoutstanding shareholder loan. The margin on the revolving credit facility is 1%over LIBOR (or EURIBOR where relevant). 1 Net debt is defined as cash, cash equivalents and short term investments lessshareholder loans and bank debt Taxation The effective tax rate, before share option charges and IPO related expenses is6.2% (2004 full year: 5.8%). Dividend As stated in the formal listing documents, no interim dividend is now beingdeclared in respect of the period to 30 June 2005. The first dividend which isexpected to be paid following the IPO is the final dividend to be paid in May2006 in respect of the year ending 31 December 2005. This is expected to be anaggregate amount of approximately $200m, representing two thirds of the totaldividend which would have been paid had the Company been listed since 1 January2005. Cashflow Six months to 30 June 2005 2004 $m $mCashflow from operations before movements in working capital 235.1 151.9Working capital movements 35.8 10.1Net cashflow from operating activities 270.9 162.0Capital expenditure (24.1) (5.8)Purchase of other assets (8.2) (5.8)Investment in associated undertaking (1.9) -Short term investments (19.0) -Issue of shares - 0.8Net finance (cost) / income (5.5) 0.3Repayment of shareholder loans (457.8) (118.0)Net proceeds from revolving credit facility 197.8 -Cash inflow / (outflow) (47.8) 33.5 Operating cashflow before movements in working capital of $235.1m (2004:$151.9m), was up 55% on the previous year, driven by strong profit growth.Positive movements in working capital of $35.8m (2004: $10.1m) reflectedefficient management of receivables and lower payment processing reserves,resulting in net cashflow from operations of $270.9m, an increase of 67% overthe previous year. During the period, $457.8m of outstanding shareholder loans were repaid. Capital expenditure Capital expenditure during the period was $24.1m (2004: $5.8m) and is analysedin more detail in the table below: Six months to 30 June 2005 2004 $m $m Poker 5.3 2.2Casino 0.3 0.1Corporate assets 18.5 3.5Total 24.1 5.8 The substantial increase in capital expenditure year on year reflected a numberof capital projects, the most significant of which was the relocation of boththe real money casino and play money poker servers to Gibraltar and theimplementation of a data warehousing solution. Other capital expendituresduring the period included refitting of offices in Gibraltar, Hyderabad andLondon. Purchase of other intangible assets During the period the Group acquired certain intangible assets including thebrand and customer database, of PokerNOW.com and PokerNOW.net and one of ourlarger affiliates. Analyst Meeting, webcast and conference call details: Tuesday 6 September 2005 There will be an analyst meeting for invited UK-based analysts at CharteredAccountants' Hall, One Moorgate Place, London EC2R 6EA, starting at 9.30am BST.There will be a simultaneous webcast and dial-in broadcast of the meeting. Toregister for the live webcast, please pre-register for access by visiting theGroup website (www.partygaming.com). Details for the dial-in facility are givenbelow. A copy of the webcast and slide presentation given at the meeting willbe available on the Group's website later today. In addition, there will be an interactive conference call for internationalinvestors and analysts starting at 2.30pm BST, details of which are set outbelow. An interview with Richard Segal, Chief Executive, and Martin Weigold, GroupFinance Director, in video/audio and text will also be available from 7.00am BSTon 6 September 2005 on: http://www.PartyGaming.com and on http://www.cantos.com. Dial-in details to listen to the analyst presentation: Tuesday 6 September 2005 9.20 am Please call +44 (0)20 7365 1854 (UK)9.30 am Meeting starts A recording of the meeting will be available for a period of seven days from 7September 2005. To access the recording please dial the following replaytelephone number:Replay telephone number +44(0)20 7784 1024 (UK)Replay Passcode: 2409017# Conference call Tuesday 6 September 2005 For international analysts and investors there will also be an opportunity toput questions to Richard Segal, Chief Executive, and Martin Weigold, GroupFinance Director, by way of a conference call. The details of the call are asfollows: 2.20 pm Please call +44(0)20 7365 1856 (UK)2.30 pm Conference call starts A recording of the conference call will be available for a period of seven daysfrom 7 September 2005. To access the recording please dial the following replaytelephone number: Replay telephone number +44(0)20 7784 1024 (UK)Replay Passcode: 7137846# All times are BST. About PartyGaming Plc Founded in 1997, PartyGaming Plc is the world's leading online gaming companyand owns and operates PartyPoker.com, the world's largest online poker room.Other online gaming activities include casino, principally throughStarluckCasino.com and also online bingo through PartyBingo.com. Since 30 June 2005, PartyGaming Plc has been listed on The London Stock Exchangeunder the ticker: PRTY. In the year to 31 December 2004, the Group had revenuesof $601.6m and generated earnings before interest, tax, depreciation andamortisation of $387.8m and profit before tax of $371.7m. Regulated and licensed by the Government of Gibraltar, the Group has over 1,200employees located in the head office and operations centre in Gibraltar, abusiness process outsourcing operation in Hyderabad, India and a marketingservices subsidiary in London. The Group has customers in over 170 countries. PartyPoker.com hosted over one billion hands of poker in 2004 and supports up to80,000 people playing online at any one time. Financial Information Consolidated income statements Six months Six months Year ended ended ended 30 June 05 30 June 04 31 Dec 04 Notes $m $m $m Revenue - net gaming revenue 1 437.4 241.5 601.6Other operating revenue/(expenses) (0.9) (0.3) 0.1 Administrative expenses • Other administrative expenses (52.6) (35.1) (73.1) • Share option charges (39.7) -. (3.2) • IPO related expenses (22.6) -. - ------ ------ ------Total administrative expenses (114.9) (35.1) (76.3) Distribution expenses (130.8) (56.2) (142.2) ------ ------ ------Profit from operating activities 190.8 149.9 383.2 Finance income 2 1.4 0.3 1.4Finance costs 2 (5.2) (3.6) (12.9)Share of loss of associate 7 (0.7) - - ------ ------ ------Profit before tax 186.3 146.6 371.7 Tax 3 (15.3) (8.5) (21.6) ------ ------ ------Profit after tax 171.0 138.1 350.1 Minority interest - (1.6) (1.6) ------ ------ ------Profit from ordinary activities attributableto equity holders of the parent 171.0 136.5 348.5 ------ ------ ------Basic earnings per share (cents) 4 4.5 3.6 9.2Diluted earnings per share (cents) 4 4.5 3.6 9.2 All amounts relate to continuing activities. Consolidated statement of changes in equity Six months Six months Year ended ended ended 30 June 05 30 June 04 31 Dec 04 Notes $m $m $m Exchange differences on translation of foreign operations 0.0 0.0 0.0Net income/expense recogniseddirectly in equity - - - Profit after tax for the period 171.0 138.1 350.1 Total recognised income and expense for the period 171.0 138.1 350.1 Attributable to: Equity holders of the parent 12 171.0 136.5 348.5 Minority interests - 1.6 1.6 171.0 138.1 350.1 Consolidated balance sheets Six months Six months Year ended ended ended 30 June 05 30 June 04 31 Dec 04 Notes $m $m $m Non-current assetsIntangible assets 15.9 7.9 7.7Property, plant and equipment 5 32.8 9.7 13.3Investment in associates 7 1.2 - - ------ ------ ------ 49.9 17.6 21.0 ------ ------ ------Current assetsTrade and other receivables 143.2 75.0 107.8Cash and cash equivalents 86.4 109.1 133.9Short term investments 19.0 - - ------ ------ ------ 248.6 184.1 241.7 ------ ------ ------Total assets 298.5 201.7 262.7 ------ ------ ------Current liabilitiesBank overdrafts (2.1) (1.0) (1.8)Trade and other payables (51.9) (26.3) (39.5)Shareholder loans 9 (25.0) (216.1) (223.9)Income tax payable (56.5) (15.2) (28.0)Client liabilities (143.6) (58.7) (104.6)Provisions 10 (10.6) (5.4) (4.7) ------ ------ ------ (289.7) (322.7) (402.5) ------ ------ ------Non-current liabilitiesTrade and other payables (5.0) (7.1) (6.1)Revolving credit facility 9 (197.8) -. -Shareholder loans 9 -. (491.9) (258.9) ------ ------ ------ (202.8) (499.0) (265.0) ------ ------ ------Total liabilities (492.5) (821.7) (667.5) ------ ------ ------Total net liabilities (194.0) (620.0) (404.8) ------ ------ ------EquityShare capital 11 0.1 0.0 0.0Share premium account 12 0.4 0.4 0.4Share option reserve 12 42.9 - 3.2Retained earnings 12 588.0 205.0 417.0Other reserve 12 (825.4) (825.4) (825.4) ------ ------ ------Equity attributable to equity holders of the parent (194.0) (620.0) (404.8) ------ ------ ------ Consolidated statement of cashflows Six months Six months Year ended ended ended 30 June 05 30 June 04 31 Dec 04 $m $m $m Profit before tax 186.3 146.6 371.7Adjustments for:Amortisation of intangibles - 0.1 0.3Interest expense 5.2 3.6 12.9Interest income (1.4) (0.3) (1.4)Depreciation of property, plant and equipment 4.6 1.9 4.3Increase in share option reserve 39.7 - 3.2Loss on investment in associate 0.7 - - ------ ------ ------Operating cashflows before movements in working capital and provisions 235.1 151.9 391.0 ------ ------ ------Increase in trade and other receivables (35.6) (21.8) (54.6)Increase in trade and other payables 67.0 28.4 89.9Increase in provisions 5.9 3.5 2.8Income taxes paid (1.5) - - ------ ------ ------Cash generated / (used) by working capital 35.8 10.1 38.1 ------ ------ ------Net cash from operating activities 270.9 162.0 429.1 Investing activitiesPurchases of property, plant and equipment (24.1) (5.8) (11.9)Purchases of intangible assets (8.2) - -Purchase of minority interest in subsidiary - (5.8) (5.8)Interest received 1.4 0.3 1.4Purchase and cancellation of own shares - (0.1) (2.0)Investment in associated undertaking (1.9) - -Increase in short-term investments (19.0) - - ------ ------ ------Net cash used in investing activities (51.8) (11.4) (18.3) ------ ------ ------Financing activitiesIssue of shares - 0.9 0.9Interest paid (6.9) - (11.0)Proceeds from revolving credit facility 197.8 - -Repayment of shareholder loans (457.8) (118.0) (343.2) ------ ------ ------Net cash used in financing activities (266.9) (117.1) (353.3) ------ ------ ------Net increase/(decrease) in cash and cash equivalents (47.8) 33.5 57.5Cash and cash equivalents at beginning of period 132.1 74.6 74.6 ------ ------ ------Cash and cash equivalents at end of period 84.3 108.1 132.1 ------ ------ ------ Notes to the consolidated financial information Accounting policies Basis of preparation These results have been prepared on the basis of the accounting policiesexpected to be adopted in the Group's full year financial statements and are notexpected to be significantly different to those set out in the Group's auditedfinancial statements for the year ended 31 December 2004. The FinancialInformation has been prepared in accordance with International FinancialReporting Standards including International Accounting Standards (IASs) andinterpretations, (collectively IFRS), published by the International AccountingStandards Board (IASB). The financial information for the year ended 31 December 2004 is extracted fromthe Group's audited financial statements for the period ended 31 March 2005.The financial information included in this announcement is unaudited and doesnot comprise statutory accounts. Accounts for the period ended 31 March 2005,which were prepared under IFRS, received an unqualified audit report. Copies ofthese financial statements are available at the Company's website(www.partygaming.com) and in hard copy from its registered office. Basis of accounting The Financial Information has been prepared in accordance with thoseInternational Financial Reporting Standards including International AccountingStandards (IASs) and interpretations, (collectively IFRS), published by theInternational Accounting Standards Board (IASB) which are expected to have beenendorsed in the Group's full year financial statements. These IFRS form theISAB's "stable platform" which, subject to certain amendments to IAS 39Financial Instruments and the endorsement of certain interpretations, have beenendorsed for use in the EU by companies listed on a regulated market foraccounting periods commencing on or after 1 January 2005. The Group has notransactions affected by the EU amendments to IAS 39 or the interpretations,which have not yet been endorsed by the EU. Accordingly, this FinancialInformation is prepared on the same basis as consolidated financial informationthat will be prepared by companies listed on an EU regulated market foraccounting periods commencing on or after 1 January 2005. The Financial Information has been prepared under the historical cost conventionother than for the valuation of certain financial instruments. The functional currency used in the preparation of this Financial Information isUnited States Dollars (USD) as is the presentation currency. The functionalcurrency is the currency in which the parent company operates and it reflectsthe economic substance of the underlying events and circumstances of the Group.A small minority of Group companies operate in Pounds Sterling and Indian Rupeesbut the amounts involved are not material. Assets, liabilities and expenses of the Group are translated from PoundsSterling and Indian Rupees into USD as follows: • assets and liabilities are translated at the closing rate existing at the balance sheet date; • income and expenses are translated at the exchange rates existing at the dates of the transactions or at a rate that approximates the actual exchange rates; • equity items other than the net profit or loss for the period that are included within retained earnings are translated at the closing rate existing at the balance sheet date; and • any exchange differences arising from the above translations are recognised in the income statement. Basis of consolidation Subsidiaries are those companies controlled, directly or indirectly byPartyGaming Plc. Control exists where the Company has the power to govern thefinancial and operating policies of an enterprise so as to obtain benefits fromits activities. Except as noted below, subsidiaries are consolidated from thedate of acquisition (i.e. the date on which control of the subsidiaryeffectively commences) to the date of disposal (i.e. the date on which controlover the subsidiary effectively ceases). Except as noted below, the Financial Information of subsidiaries is included inthe consolidated Financial Information using the acquisition method ofaccounting. On the date of acquisition the assets and liabilities of therelevant subsidiaries are measured at their fair values. The interest ofminority shareholders is stated at the minority's proportion of the fair valuesof the assets and liabilities recognised. All intra-Group transactions, balances, income and expenses are eliminated onconsolidation. Accounting for the Company's acquisition of the controlling interest inPartyGaming Holdings Limited The Company's controlling interest in its directly held, wholly owned,subsidiary PartyGaming Holdings Limited (formerly Headwall Ventures Limited) wasRelated Shares:
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