7th Sep 2006 07:03
PartyGaming Plc07 September 2006 7 September 2006 PartyGaming Plc Interim results for the six months to 30 June 2006 Highlights • Revenues up 51% to $661.9m (2005: $437.4m) with continued growth in poker and very strong growth in casino; non-US revenues up 151% to $149.8m (2005: $59.8m) • Clean EBITDA* up 47% to $380.0m (2005: $257.7m); EBITDA after share option charges and IPO-related expenses up 74% to $340.6m (2005: $195.4m) • Clean earnings per share* up 42% to 8.8 cents (2005: 6.2 cents); basic earnings per share up 73% to 7.8 cents (2005: 4.5 cents) • Cashflow from operating activities before movements in working capital up 62% to $380.0m (2005: $235.1m) • Total real money sign-ups up by 19% to 519,532 with 46% of Q2 sign-ups coming from outside the US • Interim dividend of 3.0 cents per share (2005: nil) * EBITDA / earnings per share before IPO-related expenses and non-cash chargesrelating to share options which are to be satisfied by existing shares that wereeffectively gifted to the Employee Trust by the Principal Shareholders. All references to "$" mean US Dollars. Commenting on the interim results, Mitch Garber, Chief Executive Officer, said: "PartyGaming has delivered a strong first half performance. These resultsdemonstrate the strength of our business model and also the potential to growour business through investment in the development of new products and newterritories outside North America. "Our ability to adapt and innovate has ensured that we remain the clear marketleader. The recent additions of backgammon and an exclusively non-US facingsportsbook should add momentum to our expanding international revenue base,assisted by the forthcoming launch of multi-lingual versions of our games andmarketing initiatives in a number of new territories Whilst regulatory uncertainties continue, the Board remains confident about theGroup's full year prospects." Details of an analyst presentation, live webcast and conference call takingplace later today are provided later in this press release. Contacts: PartyGaming Plc 7 September 2006: +44 (0)20 7831 3113Mitch Garber, Chief Executive OfficerMartin Weigold, Group Finance DirectorPeter Reynolds, Director of Investor RelationsJohn Shepherd, Director of Corporate Communications Financial Dynamics +44 (0)20 7831 3113Edward Bridges / Juliet Clarke CHIEF EXECUTIVE'S REVIEW Introduction PartyGaming Plc is the world's leading online gaming company and operatesPartyPoker.com, the world's largest online poker room, PartyCasino.com, theworld's largest online casino, PartyGammon.com one of the world's largest onlinebackgammon sites, as well as Gamebookers.com, an exclusively non-US facingsportsbook, and PartyBingo.com. Other online gaming sites within the Group'sportfolio include EmpirePoker.com, StarluckCasino.com and PlanetLuckCasino.com. Results The Group has continued to deliver strong year on year growth during the firsthalf of 2006. Group revenue was up 51% to $661.9m, driven by strong growth ininternational markets which meant that 23% of total revenue was generatedoutside the US in the first half of 2006 compared with 14% in the first half of2005. Earnings before interest, tax, depreciation and amortisation, as well asshare option and IPO-related expenses ("Clean EBITDA"), was up 47% to $380.0mover the same period in 2005. The Group's poker business delivered another strong performance. PartyPoker.comcontinues to maintain its leading position in online poker and, despite anincrease in customer bonuses and the dilutive impact of many of the Group'spoker players now playing other PartyGaming products, net poker revenues were upby 22% year on year to $502.7m (2005: $412.0m). Clean EBITDA for the pokerbusiness rose by 12% to $274.3m (2005: $244.9m). The continued expansion intoterritories such as Scandinavia and the UK resulted in an increase in overallmarketing spend while an increase in administration expenses, principallyadditional staff costs, meant that the Clean EBITDA margin (before share optionand IPO related expenses) for poker was lower than the previous year at 54.6%(2005: 59.4%). The year on year growth of the casino business has been particularly strong.The introduction of blackjack onto PartyPoker.com in October 2005, combined withthe launch of PartyCasino.com in February 2006, delivered a 527% increase in netrevenue to $159.2m (2005: $25.4m). Clean EBITDA was also up strongly to $107.4m(2005: $13.7m). Business strategy The Group is focused on continuing to grow its business through a combination ofinnovative marketing, product development and by providing an excellent customerexperience. At the same time, the Group is seeking to broaden its geographicspread aggressively which will provide a number of new and excitingopportunities for growth, as well as reduce further the Group's dependence onthe US market. Mergers and acquisitions are likely to form a key part of theGroup's strategic development as will the continued investment in people,systems and infrastructure. To-date the Group's marketing approach has been focused almost exclusively ondriving new poker sign-ups through a series of highly targeted and effectivecampaigns. As the Group's product portfolio and international reach hasexpanded, there is a need to establish a more integrated and multi-dimensionalbrand strategy. This is likely to include a number of strategic brandingpartnerships that will aim to cross-promote the Group's games to new andexisting customers as well as build brand equity for each of the key productbrands. In addition to increasing the marketing spend in non-US markets, managementintend to continue to localise the Group's product offerings by launching fullmulti-lingual versions of our sites as well as offering players the ability tohold balances and play in currencies other than the US dollar. The Group is committed to increasing the number of games available on theParty-branded integrated platform. By having more games we aim to attract newcustomers, lengthen average player life and through cross-selling, increase theGroup's share of gaming wallet for current and future customers. Whilehistorically all games have been developed in-house, going forward we intend tolicense a number of new games from third parties. PartyGaming represents aparticularly attractive licensee for games developers around the world given itslarge international customer base, proven marketing skills, strong brands andpre-eminent payment processing technology. This approach will accelerate thepace with which new games can be added to the platform. Following theacquisition of Gamebookers on 3 August 2006, it is expected that the Group's ownParty-branded sports betting business will be launched onto the integratedplatform by the end of the year at which point all of the Group's non-UScustomers will be able to place bets on sporting events using their PartyAccountin the same way that they can already play PartyPoker, PartyCasino, PartyGammonand PartyBingo games. Business development PartyGaming's success has been founded upon its ability to innovate, developingnew approaches as to what can be achieved from a product, technological andmarketing perspective. The pace of development remains rapid with significantprogress having been made during the first six months of 2006 across each of thethree main business operating areas: marketing, systems and customer service. 1. Marketing The Group's marketing function has been the primary driver behind the continuedgrowth in the Group's global customer base. The total registered player base asat 30 June 2006 was over 19 million players, up from 9 million a year ago andthe Group now has players in over 190 territories around the world. A total of 519,532 new real money customers were added during the first sixmonths of 2006 (2005: 435,157), of which 43% came from countries outside the UScompared to 20% in the first half of 2005. The number of active non-US playersgrew by 193% year on year to 380,775 (2005: 129,940) and the total active playerbase across all countries increased by 47% to 1.3 million (2005: 885,043). Given the continued growth and expansion outside the US, together with anincreased focus on customer retention, the organisational structure of theGroup's marketing function has been changed. Customer acquisition has beenseparated from customer retention and it is now split between US and non-USteams, reflecting the scale and importance of our business outside the US. Asanticipated, Vikrant Bhargava has now stepped back from the day to daymanagement of the marketing function and will leave the Group by the end of theyear. The Group continues to exploit a broad marketing mix using a variety ofdifferent channels to reach an increasingly international customer base.PartyGaming's extensive affiliate network continues to be a differentiatingfactor compared with its competitors and through its PartyPartners affiliateprogramme the Group is now able to reward affiliates for driving real moneysign-ups to PartyPoker, PartyCasino and PartyBingo as well as PartyGammon.Other important elements of the marketing mix include online and offlinemarketing, as well as bespoke promotions such as the PartyPoker MonsterTournament, which is expected to have the largest prize pool ever for an onlinepoker tournament. Wherever possible, television advertising and sponsorship remain the preferredmarketing channels and the Group has entered into a number of exclusivearrangements with television networks around the world. Player retention remains a key element of the marketing function. Improving ourunderstanding of the playing desires and behaviour of our players is at the veryheart of our strategy. The investment made in 2005 in developing a highlysophisticated player analytics tool through an extensive data mining project isnow beginning to bear fruit. Embedding this knowledge into our systems willenable us to ensure that our players receive the right offer, through the rightchannel, at the right time, therefore maximising their lifetime value to theGroup. One example of the benefit we are starting to see from this initiativeis that we have been able to improve the appeal of our 'reload' campaigns andincrease the response rates from players. This has helped to improve the trendsin player attrition increasing overall player activity. 2. Systems and product development During the first half the Group has added new games as well as delivered asubstantial increase in the simultaneous player capacity in tournaments.Further enhancements to the systems infrastructure are expected in the secondhalf as part of the continued effort to add new features, systems upgrades andgenerally improve the overall customer experience. Recognising the increasingscale of the business, as well as the complexity of our integrated systemsplatform, the Group's technology and systems teams have been reorganised into amore focused structure. There are now dedicated functions that focus onimproving the existing systems and architecture, while product development ismanaged by a separate team. Since the reorganisation, the process for releasingnew software has improved markedly, accelerating the release of new product andreducing system downtime. The launch of PartyCasino in February 2006 was one of the Group's largest eversoftware upgrades. At the same time, the Group also launched PartyAccount whichallows players to use a single account to deposit money and then play a varietyof games on the integrated, Party-branded platform. Now, in addition to pokerand blackjack on PartyPoker.com, players can play 40 different casino games atPartyCasino.com, as well as backgammon on PartyGammon.com and bingo and slots atPartyBingo.com. 3. Customer service The Group's customer service teams in Gibraltar and India are available 24/7,helping customers to resolve any issues they may have with the games that theyare playing as well as issues regarding payments to and from their PartyAccount.The Group has a wholly-owned and exclusive business process outsourcing ("BPO") operation based in Hyderabad, India called IVY Comptech ("IVY"). Maintaininghigh service levels is a key priority and IVY prides itself on meeting thestandards set by PartyGaming. The customer service teams are now split so as to allow a more focused approachon individual customer segments, identified by different playing patterns and byvalue. The nature of queries tends to vary by segment and so we have improvedthe alignment of our customer service operation with the structure of ourcustomer base which should help to improve the effectiveness of our customerservice operations. In addition, our higher value customers are now able to getmuch faster resolution of any issues they may have which should improveretention among this important player group. Providing excellent customer service also extends to providing a safe and secureenvironment for our players. This has been recognised by the award to the Groupof a second GamCare certificate in June 2006. GamCare is widely regarded as oneof the world's leading promoters of responsible attitudes towards gambling. Acquisitions The online gaming market remains highly competitive but also highly fragmentedwith over 2,500 gaming sites currently available1. The Board intends to beopportunistic regarding mergers and acquisitions where it believes that atransaction can both enhance the overall balance of the Group's business moreeffectively than through organic investment, as well as deliver superiorlong-term returns for shareholders. On 14 February 2006 the Group announced the acquisition of the EmpirePoker.comskin and other associated white label and affiliate agreements relating toAceClub.com and StarluckCasino.com, together with the withdrawal of all legalclaims by Empire Online Limited against the Group, for a total cashconsideration of $250m plus costs. From the date of acquisition to 30 June2006, EmpirePoker.com generated $12.2m of net poker revenue or 2.4% of totalpoker revenue. On 3 August 2006, the Group announced the acquisition of Gamebookers, anexclusively non-US facing sportsbook, for a total cash consideration ofapproximately €102m ($130.5m). The Group believes that sports betting willprove to be a valuable addition to the Group's product portfolio as a number ofits existing non-US customers already place bets on sporting events. 1 Casinocity.com - September 2006 Dividend The Board has declared an interim dividend of 3.0 cents per share. The dividendwill be paid on 31 October 2006 to shareholders and depositary interest holderson the register of members or depositary interest register respectively at theclose of business on 6 October 2006 and therefore the Company's shares willtrade ex-dividend from 4 October 2006. Shareholders will receive theirdividends in US Dollars, unless they elect for Sterling on or before 17 October2006 by completing the appropriate election form that will be sent toshareholders with the interim report. Currency elections are enduring for futuredividends. The Sterling equivalent of dividends declared in US Dollars will becalculated by reference to a rate prevailing on 23 October 2006. Regulatory background The regulatory position for online gaming companies continues to be uncertain ina number of countries around the world. Accordingly, the Group continues tomonitor closely and take appropriate advice in respect of its numerousregulatory environments as part of its ongoing operational risk assessmentprocess. In the US a bill that would address the scope of gaming prohibited under theWire Act and other prohibitions relating to online gaming has passed the Houseof Representatives and is now one of a number of bills that may or may not beconsidered by the Senate during this Congress. In order for any bill to becomelaw during this Congress, it would at least need to have been passed inidentical form by both the Senate and the House of Representatives before theend of 2006. Elsewhere, the UK Government is moving towards the fullimplementation of the 2005 Gambling Act which is expected in late 2007. Havingannounced that it will be hosting an international summit to discuss the meritsof a proper regulated framework for online gaming later this year, it is hopedthat the UK model may help to establish a blueprint for many other countriesaround the world. In Brussels, the EU Commissioner in charge of InternalMarkets and Services continues to press a number of EU states to explain whythey are preventing online gaming sites that are based in the EU from offeringtheir products to their own citizens while at the same time the Italianauthorities are continuing to block access to certain gaming sites usingInternet Service Providers. The Board believes that a proper regulatory framework, like that being developedin the UK, is the most sensible way forward but also that the regulatoryposition in a number of countries is likely to remain unclear for many monthsand possibly years to come. Current trading and outlook New player sign-ups have returned to levels seen in the first quarter with over3,000 new additions per day along with average gross daily poker revenue of$2.9m in July 2006 and $3.0m in August 2006. Casino continues to perform welland Backgammon has made a promising start with average gross revenue of over$30,000 per day. Trading since 30 June 2006 has been in line with management'sexpectations with distribution expenses increasing as a proportion of revenue. Whilst regulatory uncertainties continue, the Board remains confident about theGroup's full year prospects. Key performance indicators for the third quarter of 2006 will be announced on 20October 2006. SUMMARY OF RESULTS Six months to 30 June Revenue Clean EBITDA 2006 2005 2006 2005 $m $m $m $m Poker 502.7 412.0 274.3 244.9Casino 159.2 25.4 107.4 13.7Emerging Games - - (0.7) -Unallocated - - (1.0) (0.9) --------------------------------------------------- 661.9 437.4 380.0 257.7 Revenue was up 51% over the same period in 2005, driven by strong growth in theGroup's casino business following the launch of blackjack in October 2005 andthe launch of PartyCasino in February 2006. Clean EBITDA increased by 47%, alsodriven by the strong growth in casino. Reconciliation of Clean EBITDA to operating profit Six months to 30 June 2006 2005 $m $m Clean EBITDA * 380.0 257.7Depreciation (9.5) (4.6)Amortisation (11.8) -Share option charges (39.4) (39.7)IPO-related expenses - (22.6) -----------------------Operating profit 319.3 190.8 -----------------------Clean earnings per share* (cents) 8.8 6.2 Basic earnings per share (cents) 7.8 4.5 *EBITDA/ earnings per share before IPO-related expenses and non-cash chargesrelating to share options which are to be satisfied by existing shares that wereeffectively gifted to the Employee Trust by the Principal Shareholders. The Clean EBITDA margin at 57.4% was slightly lower than the prior year (2005:58.9%), the reduction in the poker margin being off-set by strong margins incasino where bonus rates as a percentage of gross revenue were lower than normalfollowing the launch of blackjack. Operating profit was 67% ahead of 2005 reflecting the strong growth in revenuesand the absence of any IPO-related expenses. As a result, the operating profitmargin increased to 48.2% (2005: 43.6%). Clean earnings per share was 8.8 cents (2005: 6.2 cents), an increase of 42%.Basic earnings per share after share option and IPO-related expenses was 7.8cents, an increase of 73% over the prior year. Consolidated Key Performance Indicators Six months to 30 June 2006 2005--------------------------------------------------------------------------------------------------------------Active player days 28,840,802 22,676,761Daily average players 159,341 125,286Yield per active player day $22.9 $18.6Yield per unique active player in the period $507.8 $477.6New real money sign-ups 519,532 435,157Unique active players during the period 1,301,073 885,043Average daily revenue (excluding skins) $3,650,266 $2,335,158 During the first half, customers gambled a total of $36.4 billion on the Group'ssites (2005: $20.8bn), having deposited $1.7 billion and redeemed $1.1 billionin the period. Unique active players increased by 47% over the comparable period in 2005 toover 1.3 million players, with substantial increases experienced in allgeographic segments. Europe performed particularly strongly with a 250%increase in unique active players to 226,200. Active player days in the first half increased by 27% versus the same period in2005 driven by continued growth in the size of the active player base, partiallyoffset by a reduction in the average frequency of play. Yield per active player day increased by 23% to $22.9 reflecting the positiveimpact from cross-selling higher yielding casino games to PartyPoker players.As a result, average daily revenue increased sharply to $3.7m per day, up from$2.3m in 2005. In June 2006, 25% of our active players in the month played atleast two games on the integrated platform. As previously announced, the Group plans to focus on consolidated KPIs in thefuture, however in order to provide additional data points for investors, asummary of the key performance indicators for both the poker and casino businesssegments during the period are included within the respective review of eachsegment below. REVENUE Revenue was up 51%, driven by the growth in the Group's casino business whichwas up 527% following the launch of blackjack in October 2005 and PartyCasino inFebruary 2006. The poker business grew by 22% over the comparable period in2005. A breakdown of the three business segments, poker, casino and emerginggames is summarised below. POKER Six months to 30 June 2006 2005 % change $m $m Gross revenue 548.4 436.5 26%Bonuses and other fair value adjustments to revenue (46.9) (39.2) 20% ----------------------------------Net revenue from own sites 501.5 397.3 26%Income from skins 1.2 14.7 (92)% ----------------------------------Net poker revenue 502.7 412.0 22% ---------------------------------- Clean EBITDA 274.3 244.9 12%Profit before tax, share option and IPO-related expenses 259.2 243.5 6% PartyPoker.com is the world's largest online poker room. Over $27.8 billion wasgambled on the Group's poker sites in the first half, an increase of over 39%compared with 2005. With 601,585 active customers in June 2006 (2005: 417,533)gross revenue from customers playing during the first half was up by 26%compared with the same period in 2005. Clean EBITDA margins in poker of 54.6% in the first half were lower than theprevious year, reflecting increases in affiliate costs and administrationexpenses. Poker - Key Performance Indicators Six months to 30 June 2006 2005--------------------------------------------------------------------------------------------------------------Active player days 27,946,765 22,343,683Daily average players 154,403 123,446Yield per active player day $17.9 $17.8New real money sign-ups 495,700 400,668Unique active players during the period 1,249,229 842,382Average daily revenue (excluding skins) $2,770,388 $2,194,652 Online poker has continued to grow as a popular leisure pursuit in a number ofcountries around the world, as demonstrated by the strong growth in both realmoney sign-ups (up 24% to 495,700 versus 400,668 in 2005) and the number ofunique active players (up 48% to 1,249,229 versus 842,382 in 2005). Even in theUS, which is probably the most mature online poker market, the Group's number ofactive players increased by 23% year on year to 888,190. While total activeplayer days in poker increased by 25% to almost 28m (2005: 22m), driven by thegrowth in new real money sign-ups and improved trends in retention, thesepositive effects were mitigated by a reduction in the average frequency of play,which management believe reflects the increasing proportion of the overallplayer base that are more recreational in nature. Some 27.7% of the new poker sign-ups in January 2006 remained active after sixmonths, which was exactly the same as that for players signed up in 2005. Theintroduction of a series of reactivation programmes using the Group's playeranalytics tool has proved to be particularly effective during the first half.Across all real money poker sign-ups as at 30 June 2006, the proportion ofplayers who were active after six months was approximately 31.5%, after 12months it was 27.3% and after 18 months it was 25.2%. The Group's strategy to grow its non-US business continued during the firsthalf. Whilst the US remains the Group's largest market, countries outside theUS represented 42% of total real money sign-ups in the first half versus 19% inthe comparable period in 2005. As we seek to expand even more aggressively intonew markets in the second half, supported by local language versions of oursites, this trend is expected to continue. The yield per active player day increased marginally to $17.9 compared with$17.8 in the first half of 2005. The positive impact from the return of anumber of higher raking players to PartyPoker.com over the past 9 months (77% oftotal poker revenue in the period was generated by the top 10% of active playersversus 70% the previous year) together with the rapid growth of a number ofmarkets outside the US, where yields tend to be higher initially, was able tooffset the impact of more casual players being added to the player base and asmall increase in bonus rates to 10.4% of gross poker revenue (2005: 10.1%). CASINO Six months to 30 June 2006 2005 % change $m $m Gross revenue 178.6 33.2 438%Bonuses and other fair value adjustments to revenue (19.4) (7.8) 149% ----------------------------------Net casino revenue 159.2 25.4 527% ---------------------------------- Clean EBITDA 107.4 13.7 684%Profit before tax, share option and IPO-related expenses 107.1 13.4 699% The Group's casino activities were totally transformed when blackjack was addedto the PartyPoker platform during the second half of 2005. The launch ofPartyCasino.com in February 2006 also had a significant impact on theyear-on-year performance. The amount gambled in our casino business increasedsubstantially to $8.6bn, up from $881m in the comparable period in the previousyear. Over 80% of the amount gambled in the period was on blackjack, equivalentto $38m per day. As a result, gross casino revenue increased by 440% to $178.6mand with only a modest increase in bonuses compared with the previous year,casino net revenue in aggregate was up by 527% to $159.2m. As expected, during the period there was a decline in the average daily revenuegenerated by blackjack, reflecting the removal of the novelty factor associatedwith its introduction - the average amount wagered on blackjack in June 2006 was$32.9m per day versus $42.7m in January 2006. Both Starluck Casino andPlanetLuck Casino have continued to generate average daily net revenue of $0.1mwhile PartyCasino generated average net revenue per day of $0.8m (includingblackjack). The Clean EBITDA margin increased to 67.5% (2005: 53.9%), in part reflecting thefact that the majority of the increase in revenue has come from existingPartyGaming players and therefore there was no associated customer acquisitioncost and also reflecting the lower bonus rates versus the prior year (10.6% ofgross revenue versus 23.4% in the first half of 2005). A summary of the key performance indicators for the casino business during thefirst six months is shown in the table below: Key Performance Indicators Six months to 30 June 2006 2005--------------------------------------------------------------------------------------------------------------Active player days 4,312,922 333,078Daily average players 23,829 1,840Yield per active player day $36.9 $76.4New real money sign-ups 23,758 34,489Unique active players during the period 521,158 42,661Average daily revenue $879,640 $140,506 All of the casino activity metrics such as active player days and daily averageplayers showed a substantial increase compared with the prior year reflectingthe impact of blackjack and PartyCasino.com. The yield per active player dayfell to $36.9 from $76.4 in the previous year due to the popularity of blackjackwhich tends to have a lower yield than other casino games. PartyCasino.com nowhas 40 individual games including blackjack, roulette, baccarat as well as avariety of slot machines and, despite having had limited marketing support sofar, it is already attracting an average of over 23,000 real money players perday. EMERGING GAMES AND SPORTS BETTING The Group launched PartyGammon.com, its real money backgammon site, on 23 June2006 and, consequently, it did not make a material contribution in the firsthalf, generating net revenue of $43,000 in the period. Going forward, the Groupwill report the performance of Emerging Games as a separate business segment. Following the acquisition of Gamebookers, an exclusively non-US facingsportsbook, on 3 August 2006, a new business segment called Sports Betting willalso be included within the full year results. Distribution costs Six months to 30 June 2006 2005 % change $m $m Customer acquisition and retention (66.6) (52.0) 28%Affiliates (71.4) (45.1) 58%Other customer bonuses (not netted from revenue) (11.9) (5.9) 102%Customer bad debts (28.8) (24.0) 20%Webhosting and technical services (8.7) (3.8) 129% ---------------------------------------Total distribution costs (187.4) (130.8) 43% ---------------------------------------Total distribution costs as % of revenue 28.3% 29.9% Marketing costs increased by 43% compared with the previous year, the mostsignificant increase being in affiliate costs. This reflects the increasingimportance of affiliates that were responsible for sourcing 39% of Grouprevenues in the six months to 30 June 2006 (2005: 33%). Affiliates are aparticularly effective marketing channel for promoting the Group's products interritories outside the US and accounted for 54% of non-US revenue during theperiod. Customer acquisition and retention costs fell as a proportion ofrevenue reflecting the benefits of cross selling blackjack to poker players. Customer acquisition costs as a proportion of revenue were 8.1% in the firstquarter and increased to 12.2% in the second quarter, reflecting the expansioninto a number of new territories. Customer bad debts continued to fall as aproportion of revenues, and overall distribution costs were slightly lower thanthe previous year at 28.3% of revenue (2005: 29.9%) which was in line with ourexpectations. It is expected that distribution costs will increase as aproportion of revenue during the second half, reflecting the move into newterritories and increased marketing spend on initiatives such as the WorldSeries of Poker, the PartyGammon Million and the PartyPoker Monster tournament. Administration costs Six months to 30 June 2006 2005 % change $m $m Transaction fees (33.4) (21.1) 58%Depreciation (9.5) (4.6) 107%Amortisation (11.8) - -Staff costs (38.3) (13.9) 176%Other overheads (21.8) (13.0) 68% --------------------------------------- (114.8) (52.6) 118%Share option charges (39.4) (39.7) (1)%IPO-related expenses - (22.6) (100)% ---------------------------------------Total administration costs (154.2) (114.9) 34% ---------------------------------------Total administration costs as % of revenue 23.3% 26.3% Overall administration costs (excluding share option charges and IPO-relatedexpenses) increased by 118% to $114.8m representing 17.3% of net revenue (2005:12.0%). While transaction costs increased broadly in line with revenue,staffing levels increased substantially to 1,846 at 30 June 2006 (2005: 1,190)as the business continues to expand. Also included within staff costs werecertain one-off costs relating to the change of Chief Executive Officertotalling $7.5m. Depreciation costs increased to $9.5m (2005: $4.6m) reflectinginvestment in new systems and premises and there were also amortisation costs of$11.8m (2005: nil) associated with the acquisition of EmpirePoker.com. Thegrowth in other overheads reflected the Group's transition to a listed companysince 30 June 2005 and increased property-related expenses associated with themove into new offices in Gibraltar as well as higher staffing levels. Share option charges Prior to flotation, the Principal 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 effectively gifted by the PrincipalShareholders to a dedicated employee trust. As such, the exercise of theseoptions will have no dilutive effect on new shareholders and will have no cashimpact on the Company. International Financial Reporting Standards requiresthat the fair value of the options be amortised through the income statementover the life of the options. As a result there is a non-cash charge of $39.4m(2005: $39.7m) which has been included within the income statement and reflectsthe award of options to a number of senior personnel in the period. Associates and joint ventures Six months to 30 June 2006 2005 $m $m35% interest in a company incorporated in England and Wales (0.3) (0.7) -------------------------- The Group acquired a 35% interest in a company incorporated in England & Wales,during the first half of 2005. The Group's share of losses during the periodtotalled $0.3m (2005: $0.7m). Finance income and costs Six months to 30 June 2006 2005 $m $mInterest payable and other charges (1.3) (5.2)Interest receivable 2.8 1.4 --------------------------Net interest receivable / (payable) 1.5 (3.8) ========================== Net cash1 As at 30 June 2006, the Group had net cash of $92.8m (June 2005: net debt of$119.5m). Since 30 June 2006, in order to give the Group additional financialflexibility, the Group has replaced its existing $200 million revolving creditfacility with a $500 million multi-currency revolving credit facility, with thefollowing banks participating: Royal Bank of Scotland, Dresdner Kleinwort, Bankof Scotland, West LB and Commerzbank. The margin on the new credit facility is1% over LIBOR (or EURIBOR where relevant). At 30 June 2006 there was a $40mdrawdown on the previous facility. Taxation The effective tax rate, before share option charges, was 6.6% (2005 full year:5.7% before share option charges, IPO-related expenses and skin-relatedsettlement costs). 1 Net cash is defined as cash, cash equivalents and short term investments lessshareholder loans and bank debt Cashflow Six months to 30 June 2006 2005 $m $m Cashflow from operations before movements inworking capital 380.0 235.1Working capital movements associated with purchaseof EmpirePoker.com (127.8) -Other working capital movements (4.1) 35.8 ---------------------------------Net cashflow from operating activities 248.1 270.9Capital expenditure (30.8) (24.1)Proceeds from sale of fixed assets 0.1 -Acquisitions (125.9) (8.2)Investment in associated undertaking - (1.9)Short term investments 4.8 (19.0)Net finance income / (costs) 1.5 (5.5)Repayment of shareholder loans - (457.8)Net proceeds from revolving credit facility 40.0 197.8 =================================Equity dividends paid (200.0) - =================================Cash outflow (62.2) (47.8) ================================= Operating cashflow, before movements in working capital, increased by 62% to$380.0m (2005: $235.1m), driven by strong profit growth. The settlement oflegal claims with Empire Online Limited resulted in a payment of $127.8m beingmade as part of the $250m consideration for EmpirePoker.com. Operating cashflowbefore the movements associated with the acquisition of EmpirePoker.com was up39% to $375.9m (2005: $270.9m). Net cashflow from operations after this chargewas $248.1m (2005: 270.9m). Capital expenditure Capital expenditure during the period was $30.8m (2005: $24.1m) and is analysedin more detail in the table below: Six months to 30 June 2006 2005 $m $m Poker 0.4 5.3Casino 0.3 0.3Emerging Games 3.9 -Corporate assets 26.2 18.5 ---------------------------------Total 30.8 24.1 ================================= The increase in spend on corporate assets relates to third party applicationlicenses, hardware and property costs. Purchase of other intangible assets During the period the Group acquired the EmpirePoker.com skin, and otherassociated white label and affiliate agreements relating to AceClub.com andStarluckCasino.com, from EmpireOnline Limited ("EOL") together with thewithdrawal of all legal claims by EOL against the Group, for a total cashconsideration of $250 million, excluding related expenses. Of the totalconsideration, $122.2m was attributed to the acquisition and the balance to thesettlement of the legal claims by EOL against the Group. Analyst meeting, webcast and conference call details: Thursday 7 September 2006 There will be an analyst meeting for invited UK-based analysts at DresdnerKleinwort, 30 Gresham Street, London, EC2P 2XY starting at 9.30am BST. Therewill 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 Mitch Garber, Chief Executive Officer and Martin Weigold,Group Finance Director, in video/audio and text will also be available from7.00am BST on 7 September 2006 on: http://www.partygaming.com and on http://www.cantos.com. Dial-in details to listen to the analyst presentation: 7 September 20069.20 am Please call +44(0)20 7138 0835 (UK)9.30 am Meeting starts A recording of the meeting will be available for a period of seven days from 7September 2006. To access the recording please dial the following replaytelephone number: Replay telephone number +44 (0)20 7806 1970Replay passcode: 9854815 Conference call: Thursday 7 September 2006 For international analysts and investors there will also be an opportunity toput questions to Mitch Garber, Chief Executive Officer, and Martin Weigold,Group Finance Director, by way of a conference call. The details of the callare as follows: 2.20 pm Please call +44 (0) 1452 562 815 (UK) / +1 866 629 0054 (US)2.30 pm Conference call starts A recording of the conference call will be available for a period of five daysfrom 7 September 2006. To access the recording please dial the following replaytelephone number: UK Replay telephone number +44 (0) 1452 550 000UK Replay passcode: 4098005US Replay no: +1 866 247 4222US Replay passcode: 4098005 All times are British Summer Time. About PartyGaming Plc PartyGaming Plc is the world's largest online gaming company. Founded in 1997,the Group is a constituent of the FTSE 100 share index with its shares listed onThe London Stock Exchange under the ticker: PRTY. In the year to 31 December2005, PartyGaming received total wagers of over $47bn, generated revenues of$977.7m, clean EBITDA of $583.7m and profit before tax of $324.9m. The Group hasover 2,000 employees located in Gibraltar, India, the United Kingdom andBulgaria and has customers in 190 countries. PartyGaming's principal brands are PartyPoker.com, the world's largest onlinepoker room, and PartyCasino.com, the world's largest online casino. The Groupalso operates EmpirePoker.com, PartyBingo.com, PartyGammon.com, andGamebookers.com, an exclusively non-US facing sportsbook acquired in August2006. PartyGaming is regulated and licensed by the Government of Gibraltar and iscertified by GamCare as a responsible gaming operator. For more information, please visit www.partygaming.com Financial Information Consolidated income statements Six months Six months Year ended ended ended 30 Jun 06 30 Jun 05 31 Dec 05 Notes $m $m $m Revenue - net gaming revenue 2 661.9 437.4 977.7Other operating expenses (1.0) (0.9) (1.1) Administrative expenses+---------------------------------------------------------------------------------------------------------------+| • Other administrative expenses (114.8) (52.6) (139.1)|| || • Share option charges (39.4) (39.7) (65.6)|| || • IPO-related expenses - (22.6) (22.6)|| || • Skin-related settlement costs - - (145.8)|+---------------------------------------------------------------------------------------------------------------+ ------ ------ ------Total administrative expenses (154.2) (114.9) (373.1) Distribution expenses (187.4) (130.8) (271.1) ------ ------ ------Profit from operating activities 319.3 190.8 332.4 Finance income 3 2.8 1.4 3.5Finance costs 3 (1.3) (5.2) (10.2)Share of loss of associate 9 (0.3) (0.7) (0.8) ------ ------ ------Profit before tax 320.5 186.3 324.9 Tax 4 (22.4) (15.3) (31.7) ------ ------ ------Profit after tax 298.1 171.0 293.2 ------ ------ ------Profit from ordinary activities attributable to equity holders of the parent 298.1 171.0 293.2 ------ ------ ------Basic earnings per share (cents) 5 7.8 4.5 7.7Diluted earnings per share (cents) 5 7.6 4.5 7.5 All amounts relate to continuing activities. Consolidated statement of changes in equity Six months Six months Year ended ended ended 30 June 06 30 June 05 31 Dec 05 $m $m $mExchange differences on translation of foreign operations (0.1) - - ------ ------ ------Profit after tax for the period 298.1 171.0 293.2 ------ ------ ------Total recognised income and expense for the period 298.0 171.0 293.2Issue of share capital - - 0.1Share option charge 39.4 39.7 65.6Equity dividend (200.0) - - ------ ------ ------Total changes in equity 137.4 210.7 358.9 ------ ------ ------ ------ ------ ------Attributable to equity holders of the parent 137.4 210.7 358.9 ------ ------ ------ Consolidated balance sheet 30 Jun 06 31 Dec 05 30 Jun 05 Notes $m $m $mNon-current assetsIntangible assets 6 144.4 30.3 15.9Property, plant and equipment 7 58.3 37.1 32.8Investment in associates 9 0.7 1.0 1.2 ------ ------ ------ 203.4 68.4 49.9 ------ ------ ------Current assetsTrade and other receivables 155.8 128.3 143.2Cash and cash equivalents 132.9 194.9 86.4Short-term investments 10 1.9 6.8 19.0 ------ ------ ------ 290.6 330.0 248.6 ------ ------ ------Total assets 494.0 398.4 298.5 ------ ------ ------Current liabilitiesBank overdrafts (2.0) (1.8) (2.1)Trade and other payables (67.2) (201.5) (51.9)Shareholder loans 11 - - (25.0)Income & other taxes payable (90.0) (64.8) (56.5)Client liabilities & prize pools (192.6) (165.8) (143.6)Provisions 12 (7.5) (6.2) (10.6) ------ ------ ------ (359.3) (440.1) (289.7) ------ ------ ------Non-current liabilitiesTrade and other payables (3.2) (4.2) (5.0)Revolving credit facility 11 (40.0) - (197.8) ------ ------ ------ (43.2) (4.2) (202.8) ------ ------ ------Total liabilities (402.5) (444.3) (492.5) ------ ------ ------Total net assets / (liabilities) 91.5 (45.9) (194.0) ------ ------ ------EquityShare capital 13 0.1 0.1 0.1Share premium account 14 0.4 0.4 0.4Share option reserve 14 108.2 68.8 42.9Retained earnings 14 808.3 710.2 588.0Other reserve 14 (825.4) (825.4) (825.4)Currency reserve 14 (0.1) - - ------ ------ ------Equity attributable to equityholders of the parent 91.5 (45.9) (194.0) ------ ------ ------ Consolidated statement of cashflows Note Six months Six months Year ended ended Ended 30 Jun 06 30 Jun 05 31 Dec 05 $m $m $m Profit before tax 320.5 186.3 324.9Adjustments for:Amortisation of intangibles 11.8 - 4.3Interest expense 1.3 5.2 10.2Interest income (2.8) (1.4) (3.5)Depreciation of property, plant and equipment 9.5 4.6 13.0Increase in share option reserve 39.4 39.7 65.6Loss on investment in associate 0.3 0.7 0.8Loss on sale of asset 0.1 - -Currency translation reserve (0.1) - - ------ ------ ------Operating cashflow before movements in working capital and provisions 380.0 235.1 415.3 ------ ------ ------Increase in trade and other receivables (27.7) (35.6) (20.0)(Decrease) / increase in trade and other payables (105.5) 67.0 225.7Increase in provisions 1.3 5.9 1.5Income taxes paid - (1.5) (2.3) ------ ------ ------Cash (used) / generated by working capital (131.9) 35.8 204.9 ------ ------ ------Net cash from operating activities 248.1 270.9 620.2 Investing activitiesPurchases of property, plant and equipment (30.8) (24.1) (36.8)Sale of property, plant and equipment 0.1 - -Acquisitions 17 (125.9) (8.2) (22.6)Interest received 2.8 1.4 3.5Investment in associated undertaking - (1.9) (1.8)Decrease / (increase) in short-term investments 4.8 (19.0) (6.8) ------ ------ ------Net cash used in investing activities (149.0) (51.8) (64.5) ------ ------ ------Financing activitiesIssue of shares - - -Interest paid (1.3) (6.9) (9.6)Equity dividend paid (200.0) - -Proceeds from revolving credit facility 40.0 197.8 (2.3)Repayment of shareholder loans - (457.8) (482.8) ------ ------ ------Net cash used in financing activities (161.3) (266.9) (494.7) ------ ------ ------Net (decrease) / increase in cash and cash equivalents (62.2) (47.8) 61.0 Cash and cash equivalents at beginningof period 193.1 132.1 132.1 ------ ------ ------Cash and cash equivalents at end of period 130.9 84.3 193.1 ------ ------ ------Cash and cash equivalents 132.9 86.4 194.9Bank overdraft (2.0) (2.1) (1.8) ------ ------ ------ 130.9 84.3 193.1 ------ ------ ------ Notes to the consolidated financial information 1. Accounting policies The interim results are prepared on the basis of the accounting policies statedin the Group's Annual Report 2005 which are available on the Group's website atwww.PartyGaming.com. The Financial Information has been prepared in accordancewith International Financial Reporting Standards including InternationalAccounting Standards (IASs) and interpretations, (collectively IFRS), publishedby the International Accounting Standards Board (IASB) and which have beenendorsed in the EU. The financial information included in this announcement isunaudited and does not comprise statutory accounts. The Group has not wholly applied IAS34 in the preparation of these interimfinancial statements. 2. Business and geographical segment information For management purposes and transacting with customers, the Group is dividedinto the following three operating divisions: • Poker; • Casino; and • Emerging Games, currently comprising Backgammon These divisions are the basis on which the Group reports its primary segmentalinformation. Unallocated corporate expenses, assets and liabilities relate tothe entity as a whole and cannot be reasonably allocated to individual segments. Six months ended Poker Casino Emerging Unallocated Consolidated30 June 2006 Games Corporate $m $m $m $m $m Revenue 502.7 159.2 - - 661.9 Clean EBITDA 274.3 107.4 (0.7) (1.0) 380.0 Profit before tax 259.2 107.1 (0.7) (45.1) 320.5 Other informationCapital additions 0.4 0.3 3.9 26.2 30.8Depreciation and amortisation 14.8 0.3 - 6.2 21.3 Balance sheetAssetsAssets - tangible 9.3 1.0 3.9 44.1 58.3Assets - intangible 144.4 - - - 144.4Assets - associates 0.7 - - - 0.7Segment assets 166.7 8.5 - 115.4 290.6Total 321.1 9.5 3.9 159.5 494.0 LiabilitiesSegment liabilities 214.6 11.8 - 176.1 402.5 Impairment losses 24.9 3.9 - - 28.8Product development 1.3 0.3 0.1 - 1.7Cashflows from operating activities 225.0 119.3 (0.7) (95.5) 248.1Cashflows from investing activities (126.2) (0.3) (3.9) (18.6) (149.0)Cashflows from financing activities - - - (161.3) (161.3) Six months ended Poker Casino Emerging Unallocated Consolidated30 June 2005 Games Corporate $m $m $m $m $m Revenue 412.0 25.4 - - 437.4 Clean EBITDA 244.9 13.7 - (0.9) 257.7 Profit before tax 243.5 13.4 - (70.6) 186.3 Other informationCapital additions 5.3 0.3 - 18.5 24.1Depreciation and amortisation 1.4 0.3 - 2.9 4.6 Balance sheetAssetsAssets - tangible 7.6 1.3 - 23.9 32.8Assets - intangible 15.9 - - - 15.9Assets - associates 1.2 - - - 1.2Segment assets 107.8 11.4 - 129.4 248.6Total Assets 132.5 12.7 - 153.3 298.5 LiabilitiesSegment liabilities 165.6 6.0 - 320.9 492.5 Impairment losses 22.0 2.1 - - 24.1Cashflows from operating activities 279.2 0.8 - (9.1) 270.9Cashflows from investing activities (15.3) (0.3) - (36.2) (51.8)Cashflows from financing activities -. -. - (266.9) (266.9) Year ended Poker Casino Emerging Unallocated Consolidated31 December 2005 Games Corporate $m $m $m $m $m Revenue 859.1 118.6 - - 977.7 Clean EBITDA 509.2 75.6 - (1.1) 583.7 Profit before tax 354.0 75.0 - (104.1) 324.9 Other informationCapital additions 12.4 0.3 - 24.1 36.8Depreciation and amortisation 8.6 0.6 - 8.1 17.3 Balance sheetAssetsAssets - tangibles 12.2 1.0 - 23.9 37.1Assets - intangibles 30.3 - - - 30.3Assets - associates 1.0 - - - 1.0Segment assets 144.1 9.2 - 176.7 330.0Total assets 187.6 10.2 - 200.6 398.4 LiabilitiesSegment liabilities 329.2 10.1 - 105.0 444.3 Impairment losses 43.6 5.2 - - 48.8Product development 1.1 0.4 - 0.7 2.2Cashflows from operating activities 558.6 78.6 - (17.0) 620.2Cashflows from investing activities (36.8) (0.3) - (27.4) (64.5)Cashflows from financing activities - - - (494.7) (494.7) Revenue by geographical segment The following table provides an analysis of the Group's sales by geographicalmarket. Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 $m $m $m USA 512.1 377.6 824.5Europe 90.6 24.0 81.0Canada 43.5 22.2 54.1Rest of the world 15.7 13.6 18.1 ------ ------ ------Total revenue 661.9 437.4 977.7 ------ ------ ------ 3. Finance income and costs Six months Six months Year ended Ended ended 30 June 30 June 31 December 2006 2005 2005 $m $m $m Interest payable (1.3) (5.2) (10.2)Interest on bank deposits 2.8 1.4 3.5 ------ ------ ------ Net finance income / (cost) 1.5 (3.8) (6.7) ------ ------ ------ 4. Tax (a) Analysis of tax charge for the year Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 $m $m $m Current tax expense for the period 22.4 15.3 31.7Deferred tax - - - ------ ------ ------ Income tax expense for the year 22.4 15.3 31.7 ------ ------ ------ Domestic income tax is calculated at 35% (2005: 35%) of the estimated assessableprofit for the period. Taxation for other jurisdictions is calculated at therate prevailing in the relevant jurisdiction. There are no material deferred tax balances arising in the period. The effective tax rate, before share option charges is 6.6% (2005 full year 5.7%before share option charges, IPO-related expenses and skin-related settlementcosts). (b) Factors affecting the tax charge for the period Six months Six months Year ended ended ended 31 30 June 30 June December 2006 2005 2005 $m $m $m Profit before tax from continuing operations 320.5 186.3 324.9 Tax at the weighted average tax rate of the Group being tax expense at effective tax rate for the period 21.2 15.3 18.5 Effect of IPO-related expenses, share option charges and skin-related settlement costs 1.2 - 13.2 ------ ------ ------Income tax expense 22.4 15.3 31.7 ------ ------ ------ The Group's policy is to manage, control and operate Group companies only in thecountries in which they are registered. However, the rules and practicegoverning the taxation of e-commerce activity are evolving in many countries.It is possible that the amount of tax that will eventually become payable maydiffer from the amount provided in these financial statements. In calculatingthe tax provision, in addition to any amounts due in respect of jurisdictions inwhich the Group companies are currently incorporated or domiciled, a provisionhas been made to cover the Directors' best estimate of additional taxationexposures which may arise. The Group has received indemnities from the Principal Shareholders in connectionwith certain potential historic corporate taxation liabilities. The Directorsconsider the likelihood of any such liability arising to be remote. Accordingly,neither has a provision for any such potential taxation been made, nor has anasset been recognised in respect of the indemnity. (c) Factors that may affect future tax charges In Gibraltar, the Group benefits from the exempt company regime. The Gibraltarexempt company regime will be phased out between 1 July 2006 and 31 December2010; under current rules assessable income is taxed in Gibraltar at 35.0%. In India, the Group benefits from a tax holiday on income from qualifyingactivities until March 2009; under current rules assessable income is taxed inIndia at approximately 36.6%. 5. Earnings per share Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 cents cents cents Basic earnings per share 7.8 4.5 7.7Diluted earnings per share 7.6 4.5 7.5Basic earnings per share before share option charges, IPO-related expenses and skin-related settlement costs 8.8 6.2 13.9Diluted earnings per share before share option charges, IPO-related expenses and skin-related settlement costs 8.6 6.2 13.6 The calculation of basic and diluted earnings per share is based on thefollowing data: Earnings Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 $m $m $mEarnings for the purposes of basic and diluted earnings per share being profit from ordinary activities attributable to equity holders of the parent 298.1 171.0 293.2Share option charges 39.4 39.7 65.6IPO-related expenses - 22.6 22.6Skin-related settlement costs - - 145.8 ------ ------ ------Earnings for the purposes of basic and diluted earnings per share before share option charges, IPO-related expenses and skin related settlement costs 337.5 233.3 527.2 ------ ------ ------ In accordance with IAS 33, the weighted average number of shares for basic anddiluted earnings per share takes into account the one to four ordinary sharesub-division that occurred on 5 May 2005 and the number of shares which vestedfollowing flotation (see note 13). Six months Six months Year ended ended ended 30 June 30 June 31 DecemberNumber of shares for basic earning per share 2006 2005 2005 Number Number Number m m mNumber of shares in issue 4,000.0 4,000.0 4,000.0Number of shares issued to the Employee Trust (224.0) (224.0) (224.0)Shares vested during 2005 36.2 - -Effect of shares which vested during the period 7.7 0.2 15.6 ------ ------ ------Weighted average number of ordinary shares for the purposes of basic earnings per share 3,819.9 3,776.2 3,791.6 ------ ------ ------ The shares held by the Employee Trust are accounted for as treasury shares. In accordance with IAS 33, the weighted average number of shares for dilutedearnings per share takes into account all potentially dilutive shares granted,which are not included in the number of shares for basic earnings per shareabove. Although the unvested potentially dilutive shares are contingentlyissuable, in accordance with IAS 33 the period end is treated as the end of theperformance period. Those option holders who were employees at that date aredeemed to have satisfied the performance requirements and their relatedpotentially dilutive shares have been included for the purpose of diluted EPS(see note 16). Six months Six months Year ended 30 ended 30 ended June June 31 DecemberNumber of shares for diluted earnings per share 2006 2005 2005 Number Number Number m m m Number of shares in issue 4,000.0 4,000.0 4,000.0Number of shares issued to the Employee Trust (224.0) (224.0) (224.0)Shares vested during 2005 36.2 - -Effect of shares which vested during the period 7.7 0.2 15.6Effect of potential dilutive vested andunvested shares 126.9 0.6 92.6 ------ ------ ------Weighted average number of ordinary shares for the purposes of diluted earnings per share 3,946.8 3,776.8 3,884.2 ------ ------ ------ 6. Intangible assets Other intangibles Goodwill Total $m $m $mCost or valuationAs at 30 June 2005 8.2 10.1 18.3Additions 18.7 - 18.7 ------ ------ ------As at 31 Dec 2005 26.9 10.1 37.0Additions 52.0 73.9 125.9 ------ ------ ------As at 30 June 2006 78.9 84.0 162.9 ------ ------ ------ AmortisationAs at 30 June 2005 - 2.4 2.4Charge for the period 4.3 - 4.3 ------ ------ ------As at 31 Dec 2005 4.3 2.4 6.7Charge for the period 11.8 - 11.8 ------ ------ ------As at 30 June 2006 16.1 2.4 18.5 ------ ------ ------Carrying amountAs at 30 June 2005 8.2 7.7 15.9 ------ ------ ------As at 31 December 2005 22.6 7.7 30.3 ------ ------ ------As at 30 June 2006 62.8 81.6 144.4 ------ ------ ------ Other intangibles assets represent customer lists, brands and other intangibleswhich are being amortised over their estimated useful economic lives of between18 months and 15 years. 7. Property, plant and equipment Fixtures, Plant, fittings, Land and machinery tools and buildings and vehicles equipment Total $m $m $m $mCost or valuationAs at 30 June 2005 5.3 2.9 35.7 43.9Additions 2.3 0.9 9.5 12.7 ------ ------ ------ ------As at 31 Dec 2005 7.6 3.8 45.2 56.6Additions 9.0 0.5 21.3 30.8Disposed - - (0.1) (0.1) ------ ------ ------ ------As at 30 June 2006 16.6 4.3 66.4 87.3 ------ ------ ------ ------Depreciation and impairment lossesAs at 30 June 2005 0.2 0.8 10.1 11.1Charge for the period 0.5 0.5 7.4 8.4 ------ ------ ------ ------As at 31 Dec 2005 0.7 1.3 17.5 19.5Charge for the period 0.7 0.5 8.3 9.5 ------ ------ ------ ------As at 30 June 2006 1.4 1.8 25.8 29.0 ------ ------ ------ ------Carrying amountAs at 30 June 2005 5.1 2.1 25.6 32.8 As at 31 December 2005 6.9 2.5 27.7 37.1 ------ ------ ------ ------As at 30 June 2006 15.2 2.5 40.6 58.3 ------ ------ ------ ------ 8. Commitments for capital expenditure: As at As at As at 30 June 30 June 31 December 2006 2005 2005 $m $m $m Contracted but not provided for 5.3 1.9 3.7 ------ ------ ------ 9. Investment in associates The Group acquired a 35% interest in the ordinary share capital of The PokerChannel Ltd, a company incorporated in England and Wales, in the period ended 30June 2005, for a cash consideration of $1.8m (this represents 35% of the votingrights). This is accounted for under the equity method. The Group's share oflosses for the period ended 30 June 2006 was $0.3m, resulting in a carryingvalue of $0.7 million. 10. Short-term investments As at As at As at 30 June 30 June 31 December 2006 2005 2005 $m $m $m Cash on deposit for more than 3 months 1.9 19.0 6.8 ------ ------ ------ 11. Bank debt and shareholder loans As at As at As at 30 June 30 June 31 December 2006 2005 2005 $m $m $m Current - 25.0 -Non-current - - -Bank debt 40.0 197.8 - ------ ------ ------Total bank debt and shareholder loans 40.0 222.8 - ------ ------ ------ 12. Provisions As at As at As at 31 30 June 30 June December 2006 2005 2005 $m $m $m Provision at beginning of period 6.2 4.7 4.7Additional net provision in period 1.3 5.9 1.5 ------ ------ ------Provision at end of period 7.5 10.6 6.2 ------ ------ ------ Provisions are expected to be settled within the next year and relate tochargebacks which are recognised at the Directors' best estimate of theprovision based on past experience of such expenses applied to the level ofactivity. 13. Share capital Issued Number $ (m)Ordinary sharesAs at 31 December 2005 100,452 4,000Issued during the period ended 30 June 2006 - - ------- -------As at 30 June 2006 100,452 4,000 ------- ------- Authorised share capital and significant terms and conditions The total authorised number of shares comprises 5,000,000,000 ordinary shareswith a par value of 0.0015p (the "Shares"). All the Shares are fully paid. Theholders of the Shares are entitled to receive dividends when declared and areentitled to one vote per Share at general meetings of the Company. The sharecapital is shown on the basis that it has been in issue throughout the period.The following changes in share capital occurred during the period: 1. On 31 December 2005, 192.68m Shares were held by the PartyGaming SharesTrust (the "Employee Trust"). Following exercises by participants grantedoptions under the PartyGaming Plc Share Option Plan (the "Plan") in respect of37.32m Shares during the reporting period, as at 30 June 2006 155.36m Shareswere held in the Employee Trust. 2. As at 31 December 2005, a total of 126.72m Shares were allocated underthe Plan. In the six month period to 30 June 2006, further options in respectof 48.1m Shares were granted, options in respect of 37.32m Shares were exercisedand options in respect of 17.97m Shares lapsed. As a result, as at 30 June 2006a total of 119.52m Shares were allocated under the Plan. 14. Reserves Share Share Retained Other option Currency premium earnings reserves reserve reserve $m $m $m $m $m As at 31 December 2005 0.4 710.2 (825.4) 68.8 - Profit from ordinary activities attributable to equity holders of the parent - 298.1 - - -Share option charge - - - 39.4 -Currency reserve - - - - (0.1)Equity dividend - (200.0) - - - -------- -------- -------- -------- --------As at 30 June 2006 0.4 808.3 (825.4) 108.2 (0.1) -------- -------- -------- -------- -------- The other reserve of $825.4m is the amount arising from the application ofaccounting which is similar to the pooling of interests method, as set out inthe accounting policies published in the Group's 2005 Annual Report andavailable at www.partygaming.com. Under this method of accounting, thedifference between the consideration for the controlling interest and thenominal value of the shares acquired is taken to other reserves onconsolidation. As a result, the share capital reflects PartyGaming Plc's sharecapital and the retained earnings for each of the periods ended 30 June 2006,reflecting the cumulative profits as if the current group structure had alwaysbeen in place. 15. Related parties Relationships Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. Anurag Dikshit, Ruth Parasol and Russ DeLeon are the ultimate controllingshareholders of the Group. During the period the controlling shareholders, andcorporate entities controlled by controlling shareholders, received aggregateremuneration in the form of salary, bonuses and consulting fees as follows: $mSix months ended 30 June 2005 0.1Year ended 31 December 2005 0.5Six months ended 30 June 2006 0.7 Remuneration of key management personnel Key management personnel are those individuals who the Directors believe havesignificant authority and responsibility for planning, directing and controllingthe activities of the Group. The aggregate short term and long term benefits,as well as share based expenses of the Directors and key management personnel ofthe Group are set out below: Short-term Long-term Share-based Total $m $m $m $m Six months ended 30 June 2005 7.7 - 14.6 22.3Year ended 31 December 2005 9.7 - 39.5 49.2Six months ended 30 June 2006 11.1 - 18.8 29.9 Transactions The following aggregate balances were due to/(from) key management at eachperiod end: As at As at As at 31 December 30 June 30 June 2005 2006 2005 $m $m $m Due to 0.2 0.6 2.5 -------- -------- -------- Due from 0.6 - (0.1) -------- -------- -------- The wife of a principal shareholder owns a property leased to the Group's Indiansubsidiary. Rentals paid during the period were: $Six months ended 30 June 2005 14,473Year ended 31 December 2005 30,323Six months ended 30 June 2006 14,858 In terms of property related transactions, certain of the Group's subsidiarieshave entered into the following arrangements: - leased an unfurnished property to the Group Finance Director at an annual lease rental of £44,400 ($84,000), which the Directors believe is the fair rental value of the property. - acquired a long lease over furnished properties for the use of the Chief Executive Officer which the Directors believe has a fair rental value of £84,000 ($158,800) per annum. - acquired a property which is available for the use of the Chief Executive Officer at fair rental value. The Chief Executive Officer has not availed himself of the property and the property has been leased to an employee at fair rental value. Former directors and founders have leased their personal properties to employeesof the Group. The Directors believe that these lease arrangements are fairvalue personal arrangements between the parties involved and independent of theGroup. Share option arrangements Certain key management and certain directors were granted nil cost options underservice contracts, which were formally granted under the Group's share optionplan, (see note 13). 16. Share option charge The Group has designed a Share Option Plan ("the Plan") as a reward andretention incentive for employees and self-employed consultants of the Group,including the executive directors (the "Participants"). Certain individualshave nil-cost option arrangements under their service contracts, which wereformally granted under the Plan during the period. During the period, 48.1moptions were granted to Participants, representing 1.2% of the total issuedshare capital. Each option takes the form of a right, exercisable at nil-cost,to acquire shares in the Company. Options granted under the Plan generally vest in instalments over a four to fiveyear period, commencing on 30 June 2005 or thereafter. Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Number Number Number m m m Outstanding at beginning of the period 126.7 40.0 40.0Options granted during the period 48.1 106.7 119.0Options lapsed during the period (18.0) - (1.0)Exercised during the period (37.3) (28.6) (31.3) -------- -------- -------- Outstanding at end of period 119.5 118.1 126.7 ======== -------- -------- Exercisable at the end of period 1.6 0.8 4.9 ======== -------- -------- The non-cash charge of $39.4 million which has been included in the incomestatement in this period can be analysed as follows: Six months Six months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 $m $m $m Charge relating to Nil-cost options issued pre IPO 19.1 39.7 63.4Nil-cost options issued post IPO 20.3 - 2.2 -------- -------- -------- Total 39.4 39.7 65.6 ======== -------- -------- 17. Acquisitions made in the period EmpirePoker.com On 14 February 2006 the Group acquired the business and assets ofEmpirePoker.com. In calculating the goodwill arising on acquisition, the fairvalue of the net assets of EmpirePoker.com has been assessed and adjustmentsfrom book value have been made where necessary. These adjustments are summarisedas follows: Book value on Fair value Fair value to acquisition adjustment the Group $m $m $m Intangible fixed assets - 52.0 52.0 -------- -------- -------- Net assets - 52.0 52.0 ======== -------- -------- The fair value adjustment relates to the recognition of the customer lists,brands and other intangibles acquired as part of the acquisition. Theseintangibles are being amortised over their estimated useful economic lives ofbetween 18 months and 15 years. Fair value of net assets acquired 52.0Goodwill 73.9 ------Fair value of consideration including expenses 125.9 ------ Which is represented by: Cash consideration to Empire Online Limited 122.2Expenses 3.7 ------ 125.9 18. Post balance sheet events Gamebookers On 3 August 2006 the Group announced the acquisition of the business and assetsof Gamebookers, an exclusively non-US facing online sportsbook business, fromTrident Gaming PLC for an estimated net cash consideration of €102 million($130.5m) after estimated working capital adjustments of €3.0 million. Glossary 'active player aggregate number of days in the given period in which active players have contributed to rake and/ordays' placed a wager. This can be calculated by multiplying average active players by the number of days in the period'affiliates' third party online or offline marketers who drive traffic to PartyGaming's gaming sites for a flat fee or on a revenue share basis'attrition' the ratio of signups which are active during the period. The measure indicates retention profile of the players'average active the daily average number of players who contributed to positive rake and/or placed a wager in theplayers' given period. This can be calculated by dividing active player days in that period, by the number of days in that period 'Clean EBITDA/ EBITDA / EPS before IPO-related expenses, non recurring costs associated with the settlement of legalEPS' claims by certain skins as well as non-cash charges relating to share options which are to be satisfied by existing shares that were effectively gifted to the Employee Trust by the Principal Shareholders prior to 30 June 2005'Company' or ' PartyGaming PlcPartyGaming' 'EBITDA' earnings before interest, tax, depreciation and amortisation 'Employee Trust' the PartyGaming Plc Shares Trust, a discretionary share ownership trust established by the Company 'Group' or ' the Company and its consolidated subsidiaries and subsidiary undertakings from time to time or, priorPartyGaming to 7 February 2005, PartyGaming Holdings Limited (formerly Headwall Ventures Limited) and itsGroup' consolidated subsidiaries and subsidiary undertakings 'IAS' International Accounting Standards 'IFRS' International Financial Reporting Standards 'KPIs' Key Performance Indicators, such as active player days and yield per active player day 'PartyBingo' www.partybingo.com, the Group's bingo website 'PartyCasino' www.partycasino.com, the Group's principal casino website'PartyGammon' www.partygammon.com, the Group's backgammon website 'PartyPoker' www.partypoker.com, the Group's principal poker website 'PlanetLuck www.planetluckcasino.com, one of the Group's casino websitesCasino''Principal Anurag Dikshit (holding through Crystal Ventures Limited), James Russell DeLeon (holding throughShareholders' Stinson Ridge Limited), Ruth Monicka Parasol (holding through Emerald Bay Limited) and Vikrant Bhargava (holding through Coral Ventures Limited), each of which was a promoter of the Company 'real money A new player who has registered and deposited funds into an account with the company. Customers aresign-up' categorised between lines of business according to where they first register on the gaming site to address the issues posed by shared wallets'Starluck Casino' www.starluckcasino.com, one of the Group's casino websites'unique active A player who has contributed to rake and/or placed a wager in the periodplayer''yield per unique net gaming revenue (net of customer bonuses and other fair value adjustments to revenues) divided byactive player' the number of unique active players in the period Independent Review Report to PartyGaming Plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 set out on pages 14 to 29. We have read theother information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. Our report has been prepared in accordance with the terms of our engagement toassist the company in meeting the requirements of the Listing Rules of theFinancial Services Authority and for no other purpose. No person is entitled torely on this report unless such a person is a person entitled to rely upon thisreport by virtue of and for the purpose of our terms of engagement or has beenexpressly authorised to do so by our prior written consent. Save as above, we donot accept responsibility for this report to any other person or for any otherpurpose and we hereby expressly disclaim any and all such liability. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with Listing Rules ofthe Financial Services Authority which require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standard on Auditing (UK and Ireland)and therefore provides a lower level of assurance than an audit. Accordingly wedo not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. BDO Stoy Hayward LLPChartered AccountantsLondon 7 September 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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