25th Sep 2007 07:02
Gaming VC Holdings S.A.25 September 2007 Press Release 25 September 2007 Gaming VC Holdings S.A. ("Gaming VC" or "the Group") Interim Results and Q3 update Gaming VC Holdings S.A. (AiM:GVC), a leading European online gaming operator,today announces its Interim Results for the six months ended 30 June 2007 andthird quarter outlook for the three months ended 30 September 2007. Interim Highlights• Recommend interim dividend increased 5.3% to €0.20 per share (c.13p) to be paid on 31 October 2007 (H1 2006: €0.19 per share (c. 13p)• Turnover increased 3.8% to €22.0 million (H1 2006: €21.2 million)• Gross margin 74.1% (H1 2006 73.9%)• Operating profit before share option charges increased 20.3% to €8.9 million (H1 2006: €7.4 million)• EBITDA increased 22.0% to €10.0 million (H1 2006: €8.2 million)• Basic earnings per share increased 28.6% to €0.27 (H1 2006: €0.21) Q3 Business Update• On-line marketing maintains player sign-ups reducing customer acquisition costs• Renegotiated contract for German market with Boss Media generates cost savings• Grant of Maltese gaming licence• Successful launch of gaming operations in Italy Commenting on the results, Adrian Smith, Chairman of Gaming VC, said: "I ampleased to report we have delivered on the new direction set out at KennethAlexander's appointment as Chief Executive in March of this year. We havesuccessfully laid the foundations and are continuing to improve the Group'soverall profitability and diversification outside of Germany within Europe. Costreductions have enhanced first half results and we expect them to continue tocontribute further benefits in the second half of the year. I look forward tothe performance in Quarter 4 of 2007 from both our new affiliate programs andthe launch of the Italian business." - Ends - For further information: Gaming VC Holdings S.A.Kenneth Alexander, Chief Executive Tel: +44 (0) 20 7398 [email protected] www.gamingvc.com Arbuthnot Securities Limited Tel: +44 (0) 20 7012 2000Nick Marsh, Corporate FinancePaul Vanstone, Corporate Finance www.arbuthnotsecurities.co.uk Media enquiries: AbchurchChris Lane / Franziska Boehnke Tel: +44 (0) 20 7398 [email protected] www.abchurch-group.com Operating and Financial Review In the first half of the 2007 financial year, we made significant changes inorder to grow Gaming VC's profitability from the core cash generative Germancasino and seek growth outside Germany to reduce the dependence of ouractivities on that geographic market. These changes include: • Changing from direct mail to online marketing channels thus lowering the Group's customer acquisition cost • Enhancing Customer Relationship Management (CRM) to ensure that the Group manages its customer base to maximise lifetime customer value • Diversifying the Group's interests outside of Germany. The Group has made solid progress with regard to all of the above objectives. In addition, the turnkey casino operating contract with Boss Media S.A. (Boss)was renegotiated in June 2007 and has improved the financial performance.Formerly a fixed price contract, Gaming VC is now on a variable fee dependent onrevenue volumes generated. It is anticipated that this deal will produce costsavings of approximately €2 million per annum based on current run rates, andwill deliver material financial benefits in the second half of 2007 and beyond. New marketing channels and enhanced CRM In terms of making the core German business more profitable, a significantchange in strategic direction has been the move away from direct mail to onlinemarketing supported by affiliate networks. This decision was made afteranalysis showed that lifetime value of new customers recruited through directmail could not be justified in terms of cost per acquisition. Direct mail forrecruitment purposes ended in May 2007 and increased resource was given to CRMwith a dedicated team being put in place to maximise value from existingcustomers, reduce membership attrition and therefore increase the lifetime valueof new recruits to the casino. An experienced affiliate marketing team has been recruited, and a new affiliatemarketing system will be fully operational for the beginning of the fourthquarter of 2007. The affiliate marketing team will initially be Pan Europeanand recruit customers throughout European markets to assist with thediversification plans outside the core German market. The Group has not only been successful in delivering KPI's ahead of last year asdetailed below, but also significantly reducing the marketing spend, which hasresulted in a positive effect on the profitability of the business. Casino KPI's H1 2007 H1 2006 H2 2006 New Registrations 36,602 26,900 25,872New Depositing Customers 13,623 12,700 10,156Daily average revenue •'000 113.1 112.8 97.6 Poker KPI's H1 2007 H1 2006 H2 2006 New Registrations 19,772 9,413 16,544New Depositing Customers 11,513 2,759 9,086Daily average revenue •'000 8.3 3.6 6.6 The ongoing online customer recruitment strategy benefits from focussing onmeasurable marketing channels. This allows us to continually refine our approachand improve the overall effectiveness of our marketing efforts. Diversification Gaming VC is diversifying into new territories outside its core German speakingmarkets to grow its business and consequently reduce the potential business riskof adverse legislation in Germany. In addition, the Group is also extending therange of online products offered, as well as the demographics of the customerbase. In order to implement its strategy, Gaming VC has successfully launched anItalian facing sports book - www.betaland.com and has conditionally acquired twoItalian licences for €1.75 million allowing the Group to take both sports andhorseracing bets. The Italian business will focus on building up an offlineagents and affiliates network as well as creating a retail online business. In addition to the strategy of diversifying by territory via the affiliate teamsand the launching of www.betaland.com in Italy, Gaming VC aims to diversifydemographically by launching a female orientated gaming site in Q4 2007. Thesite will lead with a bingo product and offer further soft gaming experiences. Outside Germany, Casino Club is in positive discussions with an alternativesoftware provider to use their platform. This agreement should support thegrowth of business through the new affiliate programme as the new platformoffers specific strengths in back end functionality and customers are able tochoose from an attractive blend of the leading games offered by them in additionto the brand value of Casino Club. Legislative review The European Commission continues to bring pressure on the German States overthe new State Treaty on Gambling, which seeks the continuation of the state'smonopoly until 2011, and is in violation of Community law. Gaming VC continuesits strategy to reduce the impact on the business of any adverse legislation inGermany through both diversification and the acquisition of online gaminglicenses in other European countries. Since the end of June 2007, the Maltese Lotteries and Gaming Authority hasauthorised Gaming VC to hold gaming licenses' for sports betting, casino gamesand poker. The new Maltese operation went live in August 2007, and will provideboth administrative and technical support for Casino Club. Malta is also now the base for customer support and market making for the newGaming VC Italian gaming site www.betaland.com. Financial performance For the six months ended 30 June 2007, the Group achieved a gross profit of€16.3 million (H1 2006: €15.7 million) with an unchanged margin of 74%. TheGroup EBITDA of €10.0 million (H1 2006: €8.3 million) is an increase of 20.5% onthe corresponding period last year. The improved financial performance, over the first 6 months of 2007, hasprimarily been achieved by cost savings throughout the operation, including thedecision to end direct marketing in May 2007 and concentration of marketingefforts on retention until the new online marketing strategy is implemented.This has been successful and resulted in a significantly reduced cost base andrevenues in line both with the prior year as well as with market expectations. Total gross wagers placed, excluding poker, were €904 million (H1 2006: €787million), and net revenues were €22.0 million (H1 2006: €21.2 million). Thegross profit for the first six months of 2007 was €16.3 million (H1 2006: €15.7million) with the Group's primary cost of service sold being the turnkey onlinecasino services provided by Boss Media S.A. and its subsidiaries. In the six months to 30 June 2007 there were no significant one-off jackpotwinners in the Group's slot machine games with associated 'progressive'jackpots. The total of the available jackpots at the end of June 2007 was €3.1million (30 June 2006: €2.2 million) with the largest individual jackpot being€1.6 million (30 June 2006: €1.2 million). The Group operating profit for the six months to 30 June 2007 was €8.5 million(H1 2006: €6.8 million) after net operating expenses of €7.8 million (30 June2006: €8.9 million) which consist of distribution and administrative costs. Distribution costs of €3.2 million (H1 2006: €3.6 million) represent the thirdparty marketing costs incurred by the Group to recruit active members to theCasino. Approximately €2.1 million was related to direct mail campaigns, andthe balance on the Casino-Club magazine, limited email marketing and pokerpromotion. The level of ongoing spend will be significantly reduced followingthe withdrawal of the direct mail marketing campaigns which have been replacedby the increased use of affiliate networks in the third quarter of 2007. The major items within the administrative expenses incurred for the first halfof 2007 are detailed below: 6 month period 6 month period ended ended 30 June 2007 30 June 2006 •'000 •'000 Direct employment costs 958 1,473Share options charge 430 636Legal, accounting and tax 1,068 719Amortisation of intangible assets 1,470 1,417Depreciation 17 17All other costs 661 998 Total administrative expenses 4,604 5,260 The reduction in employment costs reflects the run down and final closure of thedirect mail marketing operations in May 2007. The formation of the Maltese andItalian operations, the licensing of new software platforms and the acquisitionof the associated gaming licenses all contributed to the increased legalexpenditure in 2007. The Group has been structured to provide maximum earnings efficiency through theuse of advantageous tax treaties between countries where the Group hasestablished legal entities. The result of this is a nil tax charge for thefirst six months of 2007 (H1 2006: nil). The Group periodically reviews all ofthe relevant and controlling tax regulations to optimise the available benefits. The development of both the Italian and Maltese businesses is expected toincrease the overall tax charge of the Group, which will be dependant on thedifferent rates of growth of the various parts of the Group. Current forecastsindicate that an effective tax charge of less than 10% of net profit will beachieved in 2008. In the reporting period, the Group generated cash of €9.3 million (H1 2006: €8.9million) from operating activities. After payment of the 2006 final dividend of€6.1 million during the period, the Group's closing cash balance at 30 June 2007was €12.7 million (2006: €6.3 million). Dividend The core business is cash generative and capital which cannot be effectivelyredeployed within the Group will continue to be returned to shareholders. Thebusiness plans discussed above to develop the Italian, Maltese and bingooperations will require an investment over the next 12 months of €1.9 million inintangible assets and approximately €3.0 million of business development workingcapital. The Board proposes to pay an interim dividend of €0.20 (c £0.13) pershare (H1 2006: €0.19 (c £0.13)). This will consume a total of €6.3 million incash (H1 2006: €6.0 million). The dividend will be paid on 31 October 2007 toholders on the share register at 5 October 2007. Outlook Trading volumes and margins in the third quarter to date have been in line withthe same period in 2006. The cost savings generated from the renegotiated Bosscontract as well the marketing efficiencies from the termination of direct mailfor customer recruitment are expected to enhance profitability in the future.Gaming VC's new sports book in Italy has seen a positive start with initialtrading in the first few weeks of the Italian football season being encouraging.With an experienced management team, affiliate marketing and advanced CRMapplications in place, the Group is now in a position to deliver continued goodcash generation from the core German business and profitable growth from othergeographic markets in the fourth quarter and beyond. Kenneth Alexander Adrian SmithChief Executive Chairman25 September 2007 Condensed consolidated interim income statementFor the period ended 30 June 2007 6 month 6 month Year ended Year ended Period ended Period ended 31 December 31 December Year ended 30 June 2007 30 June 2006 2006 2006 31 December (Unaudited) (Unaudited) before goodwill 2006 goodwill impairment (Audited) impairment In thousands of euro Revenue 22,001 21,208 40,573 - 40,573Cost of Sales (5,707) (5,523) (11,158) - (11,158) Gross profit 16,294 15,685 29,415 - 29,415Net operating expenses (including exceptional items and share optioncharges) (7,811) (8,877) (25,075) (33,274) (58,349) Operating profit before exceptional items and share option charge 8,913 7,444 13,505 - 13,505Share option charge (430) (636) (893) (893)Exceptional items - - (8,272) (33,274) (41,546) Operating profit/(loss) before financing 8,483 6,808 4,340 (33,274) (28,934) EBITDA 9,970 8,242 15,536 - 15,536Depreciation (17) (17) (35) - (35)Amortisation (1,470) (1,417) (11,161) (33,274) (44,435) Financial income 200 31 163 - 163Financial expense (139) (163) (68) - (68)Net financing income/ (costs) 61 (132) 95 - 95 Profit/(Loss) before Tax 8,544 6,676 4,435 (33,274) (28,839)Income tax expense - - - - -Profit/(Loss) for the period/year 8,544 6,676 4,435 (33,274) (28,839) Profit/(Loss) per ordinary share Basic earnings per share (euro) 0.27 0.21 (0.93)Diluted earnings per share (euro) 0.27 0.21 (0.93) Profit per share before exceptionalitems Basic earnings per share (euro) 0.27 0.21 0.41Diluted earnings per share (euro) 0.27 0.21 0.41 Condensed consolidated interim statement of recognised income and expenseFor the period ended 30 June 2007 6 month 6 month Year ended Period ended Period ended 31 December 30 June 2007 30 June 2006 2006 (Unaudited) (Unaudited) (Audited)In thousands of euro Profit/loss and total recognised income and expense for the period/year 8,544 6,676 (28,839) Condensed consolidated interim balance sheetAs at 30 June 2007 30 June 30 June 31 December 2007 2006 2006 (Unaudited) (Unaudited) (Audited) In thousands of euro AssetsProperty, plant and equipment - 73 56Intangible assets 57,078 101,440 58,548 Total non-current assets 57,078 101,513 58,604 Trade receivables 2,746 2,220 1,892Other receivables and prepayments 336 553 417Cash and cash equivalents 12,658 6,328 9,407 Total current assets 15,740 9,101 11,716 Total assets 72,818 110,614 70,320 EquityIssued share capital 38,608 38,608 38,608Share premium 51,978 57,927 57,926Retained earnings (20,879) 11,421 (29,853) Total equity attributable to equity holders of the parent 69,707 107,956 66,681 LiabilitiesIncome tax payable 18 18 18Trade and other payables 776 1,370 1,317Accrued expenses 1,345 1,270 1,101Withholding tax on dividends 972 - 1,203 Total current liabilities 3,111 2,658 3,639 Total liabilities 3,111 2,658 3,639 Total equity and liabilities 72,818 110,614 70,320 Condensed consolidated interim statement of cashflowsFor the period ended 30 June 2007 6 month 6 month Year ended Period ended Period ended 31 December 30 June 30 June 2006 2007 2006 (Audited) (Unaudited) (Unaudited) In thousands of euro Cash flows from operating activitiesCash receipts from customers 21,109 21,141 40,833Cash paid to suppliers and employees (11,789) (12,220) (22,934) Net cash from operating activities 9,320 8,921 17,899 Cash flows from investing activitiesInterest received 200 30 154Acquisition of property, plant and equipment - (44) (45)Acquisition of intellectual property - (105) (231) Net cash from investing activities 200 (119) (122) Cash flows from financing activitiesDividend paid (6,179) (9,595) (15,612) Net cash from financing activities (6,179) (9,595) (15,612) Net increase/(decrease) in cash and cash equivalents 3,341 (793) 2,165Cash and cash equivalents at beginning of the period/year 9,407 7,233 7,233Effect of exchange rate fluctuations on cash held (90) (112) 9 Cash and cash equivalents at end of the period/year 12,658 6,328 9,407 Condensed consolidated interim statement of change in shareholder's equity Share Share Retained Total Capital premium earningsIn thousands of euroBalance at 1 January 2006 38,608 67,522 4,109 110,239Equity settled transactions net of tax - - 636 636Dividend paid in period - (9,596) - (9,596)Total recognised income and expense - - 6,676 6,676Balance at 30 June 2006 38,608 57,926 11,421 107,956 Balance at 1 July 2006 38,608 57,926 11,421 107,956Equity settled transactions net of tax - - 636 636Dividend paid in period - - (6,016) (6,016)Total recognised income and expense - - (35,515) (35,515)Balance at 31 December 2006 38,608 57,926 (29,853) 66,681 Balance at 1 January 2007 38,608 57,926 (29,853) 66,681Equity settled transactions net of tax - - 430 430Dividend paid in period - (5,948) - (5948)Total recognised income and expense - - 8,544 8,544Balance at 30 June 2007 38,608 51,978 (20,879) 69,707 Notes to the condensed consolidated interim financial information Basis of preparation Gaming VC Holdings SA (the ''Company'') is a company registered in Luxembourg.These interim consolidated financial statements are presented in accordance withthe requirements of IAS 34 Interim Financial Reporting. The Accounting policiesused in the preparation of the interim financial statements comply with theInternational Financial Reporting standards ("IFRS") as adopted by the EuropeanUnion. They are consistent with those used in the annual financial statementsfor the year ended 31 December 2006. The interim report contains the unaudited financial information of the Companyand its subsidiaries (together referred to as the "Group") for the 6 monthsended 30 June 2007. The condensed consolidated interim financial information was authorised forissue by the Directors on 25 September 2007. These interim financial statements should be read in conjunction with the 2006consolidated financial statements. 1 Segment reporting Segment information is presented in respect of the Group's business andgeographical segments. Business segments Based on risks and returns the management considers that the primary reportingformat is by business segment. The directors consider that there are twobusiness segments being the casino operation of games of chance and skilledbased games, primarily Poker which was launched in the last quarter of 2005. Geographical segments Within the period the core business activity has been concentrated in the Germanlanguage countries. Development specifically tailored for other European language countries isongoing. Owing to current legislation in the US the company continues to blockaccess to its games to potential players located there. Segment capital expenditure is the total cost incurred during the period toacquire segment assets that are expected to be used for more than one year. In presenting information on the basis of geographical segments, segment revenueis based on the geographical location of customers. Segment assets are based onthe location of the assets themselves. Geographical segments Games of Chance Germany Austria Switzerland Other Countries ConsolidatedIn thousands of euro 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Revenue 16,176 15,648 3,071 3,578 615 816 614 368 20,476 20,410Segment assets - - - - - - 72,641 110,475 72,641 110,475Capital expenditure - - - - - - - 149 - 149 Games of Skill Germany Austria Switzerland Other Countries ConsolidatedIn thousands of euro 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Revenue 1,205 566 213 136 63 24 46 72 1,525 798Segment assets - - - - - - 177 139 177 139Capital expenditure - - - - - - - - - - Assets and liabilities are not specifically allocated to business segments asthe total assets and liabilities of the Group are utilised, managed and reportedcentrally across all business segments. Consequently it is not possible toprovide a meaningful allocation of assets and liabilities for each businesssegment as this cannot be done on a reasonable basis. All segments are continuing operations. 2 Taxation The group has been structured to provide earnings efficiency through the use ofadvantageous tax treaties between countries where the Group has establishedlegal entities. The result of this structuring is a total tax charge of •Nil inH1 2007 and •Nil in H1 2006. The Group periodically reviews all of the relevantand controlling tax regulations to optimise the available benefits. A Groupeffective tax charge of less than 10% of net profit is envisaged to continue forthe foreseeable future. 3 Dividends A dividend in respect of the financial year 2007 of €0.193 per share wasdeclared by the Annual General Meeting held on 15 May 2007 and paid on 29 May2007. 4 Earnings per share The calculation of basic earnings per share at 30 June 2007 was based on theprofit for the period attributable to ordinary shareholders of €8,544,000 (2006interim: €6,676,000; full year: loss of €28,838,575) and on a weighted averagenumber of ordinary shares in issue during the period, which totalled 31,135,762shares (2006 interim: 31,135,762; full year: 31,135,762). The calculation of diluted earnings per share at 30 June 2007 was based on theprofit attributable to ordinary shareholders of €8,544,000 (2006 interim:€6,676,000; full year: loss of €28,838,575) and on a weighted average number ofordinary shares outstanding at 30 June 2007 of 31,135,762 shares (2006 interim:31,382,665; full year: 31,135,762). The share options issued in the period are anti-dilutive and have had no impacton the calculation of the diluted earnings per share. 5 Subsequent Events In July 2007 GVC Holdings SA incorporated two wholly owned subsidiaries, GVCCorporation Limited in Malta and GVC Corporation SpA in Italy. - Ends - This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
GVC.L