25th Jul 2006 07:01
World Gaming PLC25 July 2006 WORLD GAMING PLC (TIDM:WGP) RESULTS FOR THE THREE AND SIX MONTHS ENDED 30 JUNE 2006 The Board of World Gaming plc ("World Gaming"), whose subsidiary companies (the"Group) operate internet gaming sites and license software and services to thirdparty operators, is pleased to announce the Group's second quarter and firsthalf year results for the three and six months ended 30 June 2006. HIGHLIGHTS - SIX MONTHS ENDED 30 JUNE 2006 • Operating profit before goodwill amortisation for the first half of 2006 of $8.9m compared to $1.0m for the first half of 2005. • Growth in proforma* net win after bonus deductions from operations of 39.3% to $17.4m. • 31,288 new customers added in the six months representing a 24% increase in new customers compared to the first half of 2005*. • Two new licensees signed and expected to launch in August 2006. • Strong cross-sell with 35.6% of sports bettors expanding their play to casino gaming and poker products in the period. HIGHLIGHTS - THREE MONTHS ENDED 30 JUNE 2006 • Operating profit before goodwill amortisation for the quarter of $1.9m compared to $0.2m for the second quarter of 2005. • Growth in proforma* net win after bonus deductions from operations of 40.0% to $6.9m. • Growth in new customers over 3 times the rate of growth in the second quarter of 2005* partially supported by growth from the World Cup. • Average yield per unique active player of $1,540 at 30 June 2006 up from $1,472 at 30 June 2005. World Gaming plc CEO, Daniel Moran said: "Similar to our first quarter, growthrates from the SPORTSBETTING.COM business have continued at or near 40% acrossall key performance indicators. The Group has recorded strong growth in itsseasonally slowest April - June trading quarter, complemented by the World Cup.The growth in revenues has been preserved through a scalable business model thathas invariably delivered strong earnings growth. We look to maintain organicgrowth levels in addition to continuing to seek further acquisitionopportunities both strategic in terms of geography or product and scalable ascomplementary to our existing strong operating business. The Group continues toclosely monitor recent events in the United States." * Assuming that the SPORTSBETTING.COM business had been owned throughout 2005for comparative purposes. 25 July 2006 Enquiries: WORLD GAMING PLC Tel: +1 888 883 0833Daniel Moran, Chief Executive COLLEGE HILL Tel: 020 7457 2000Matthew SmallwoodJamie Ramsay DANIEL STEWART & COMPANY PLC Tel: 020 7776 6550Ruari McGirr The Company's Ordinary Shares have not been and will not be registered under theU.S. Securities Act of 1933 (the "Securities Act") and may not be offered orsold in the United States or to a U.S. person (as such term is defined inRegulations S under the Securities Act) absent registration or an applicableexemption from registration under the Securities Act. CHIEF EXECUTIVE'S STATEMENT Introduction A successful second quarter of 2006 has rounded off an excellent first half yearfor the Group. Strength in key performance indicators and sports margins thatwere experienced in the first quarter of 2006 have continued into the secondquarter of 2006 and this has delivered strong earnings growth for the Group. Underpinning the robust growth has been a consistent pattern of strength inplayer activity, deposit volumes, wagering volumes and net win, the combinationof which validates the stability in revenue. Consistent with the Group'sscalable business model, operating profit margins on gross profit of 47% weremaintained through the first half. As at the end of the first half, the Group had paid down $9.0m of its $40mBarclays loan facility and continued to maintain an unutilised $5m revolvingfacility. During the first half, the Group signed two new licensees that are expected tolaunch in the third quarter of 2006. The Group has concentrated efforts in the second quarter on implementing robustsoftware and hardware upgrades. These efforts will continue through July and arebuilding greater system speed and capacity in support of future growth. The third and fourth quarters are seasonally the busiest periods in playeractivity and we are eager to continue converting this activity into stronggrowth in earnings. Financial Results Currency amounts set forth in this Statement are in U.S. dollars. Three and six months ending 30 June 2006 Turnover for the quarter ended 30 June 2006 increased by $55.7m to $57.9mcompared to $2.2m for the same period last year. Turnover for the six monthsended 30 June 2006 increased by $130.4m to $135.2m compared to $4.8m for thesame period last year. The increase in turnover is wholly attributable to theSportsbetting Transaction effective 1 October 2005 at which time the Groupacquired all of the business and assets of its then largest licensee whoseleading brand is SPORTSBETTING.COM (hereinafter referred to the "Operatingdivision"). The Group's two key revenue streams are: 1. Operations, representing revenue derived from its wholly-owned internet gaming sites; and 2. Royalties and fees which includes royalties charged to the Group's continuing licensees plus hosting fees charged to Sportingbet plc ("Sportingbet") for hosting services provided from its wholly-owned hosting infrastructure. Turnover from operations, representing gross sports and horse racing wagers andnet casino and poker win was $57.2m before netting of customer bonuses of $0.7mfor the quarter ended 30 June 2006, compared to $nil for the same period in2005. For the six months ended 30 June 2006, turnover from operations was$133.2m before netting of customer bonuses of $1.1m compared to $nil for thesame period last year. For comparative purposes, the proforma growth in turnoverin the Operating division was 39.2% to $57.2m from before netting of customerbonuses of $0.7m for the quarter ended 30 June 2005 and 36.3% to $133.2m beforenetting of customer bonuses of $1.1m for the six months ended 30 June 2006. Turnover from new and continuing licensees on a like-for-like basis grew by$0.1m to $0.7m representing a 12.4% growth in licensing revenue for the quarterended 30 June 2006. For the six months ended 30 June 2006, like-for-likelicensing revenue grew $0.5m to $1.8m representing a 36.0% growth in licensingrevenue for the year to date. Overall turnover from royalties and fee incomedecreased by 36.4% or $0.8m to $1.4m for the quarter ended 30 June 2006 and35.7% or $1.7m to $3.1m for the six months ended 30 June 2006. The reduction isattributable to the Group no longer receiving software royalties from theSPORTSBETTING.COM business as a result of the acquisition. Gross profit increased $6.0m to $7.5m for the quarter ended 30 June 2006compared to $1.5m for the same quarter last year. For the six months ended 30June 2006, gross profit increased $15.5m to $18.9m compared to $3.4m for thesame period last year. On a proforma basis gross profit from the Operating division grew 40.0% to $6.9min the quarter after deducting $0.7m of customer bonuses and jackpot transfers.For comparative purposes, the proforma gross profit contribution from theOperating division for the quarter ended 30 June 2005 was $4.9m after deducting$0.4m in customer bonuses and jackpot transfers. For the six months ended 30June 2006, proforma gross profit grew 39.3% to $17.4m after deducting $1.3m incustomer bonuses and jackpot transfers. The total gross margin percentage for the quarter ended 30 June 2006 was 12.7%compared to 68.7% for the same period last year. Gross margin percentage for thesix months ended 30 June 2006 was 14.0% compared to 70.0% for the same periodlast year. The considerable change resulted from the significant change in revenue mix as aresult of the acquisition of SPORTSBETTING.COM. On a proforma basis the gross margin percentage for the Operating division forthe quarter ended 30 June 2006 was 12.2% compared to 12.1% for the quarter ended30 June 2005. The proforma gross margin percentage for the six months ended 30June 2006 was 13.2% compared to 12.9% for the comparative period of 2005. Theincrease is attributable to strong win margins on sports throughout the quarterand six months and the contribution of net poker rake for the quarter and sixmonths ended 30 June 2006 of $0.8m and $1.8m respectively compared to $nil inboth corresponding periods of 2005. Operating expenses before goodwill amortisation increased by $3.5m to $4.7mduring the quarter ended 30 June 2006 compared to $1.2m for the same period lastyear. For the six months ended 30 June 2006 operating expenses before goodwillamortisation increased by $7.7m to $10.1m. The increase is wholly attributableto Operating division costs not included in the comparative period. Costsassociated with operations, primarily consisting of transaction processing,customer service and marketing, contributed $3.2m of total operating expenses inthe quarter and $7.2m to total operating expenses for the year to date. Operating profit before goodwill amortisation for the quarter ended 30 June 2006increased by $2.6m to $2.8m compared to $0.2m for the comparative period in2005. For the six months ended 30 June 2006, operating profit before goodwillamortisation increased $7.9m to $8.9m compared to $1.0m for the comparativeperiod in 2005. The increase is attributable to the profit contribution from theOperating division as well as increase in like-for-like royalty and fee revenue. Goodwill amortisation for the quarter and six months ended 30 June 2006 was$0.9m and $1.8m respectively, compared to $nil for the comparative periods in2005. Finance costs, representing net interest and loan cost amortisation, was$0.7m for the quarter and $1.4m for the six months ended 30 June 2006 comparedto income of $0.1m in each of the comparative periods of 2005. Other income of $0.5m in the quarter ended 30 June 2006 represents a gain onsale in respect of certain redundant Oracle licenses held by the Group. Thesefunds are in the process of being reinvested in the Group's hosting facility. Profit after tax for the quarter ended 30 June 2006 increased $1.3m to $1.6mfrom $0.3m for the quarter ended 30 June 2005. Profit after tax for the sixmonths ended 30 June 2006 increased $4.9m to $6.1m from $1.2m for the six monthsended 30 June 2005. Basic earnings per share before goodwill amortisation per participating ordinaryshare for the quarter ended 30 June 2006 was 4.6 cents (3.0 cents after goodwillamortisation) compared to 1.3 cents (1.3 cents after goodwill amortisation andexceptional items) for the same quarter in 2005. Participating ordinary sharesinclude those shares that have voting and economic rights and exclude thoseshares held by Sportingbet in accordance with the transaction effective 1October 2004. For the six months ended 30 June 2006, basic earnings per share before goodwillamortisation per participating ordinary share was 14.6 cents (11.3 cents aftergoodwill amortisation) compared to 3.4 cents (3.4 cents after goodwillamortisation and exceptional items) for the comparative period in 2005. On a fully diluted basis earnings per share before goodwill amortisation perparticipating ordinary share for the quarter ended 30 June 2006 was 4.2 cents(2.7 cents after goodwill amortisation) compared to 1.1 cents (1.1 cents aftergoodwill amortisation) for the same quarter in 2005. For the six months ended 30 June 2006, fully diluted earnings per share beforegoodwill amortisation per participating ordinary share was 13.2 cents (10.2cents after goodwill amortisation) compared to 3.0 cents (3.0 cents aftergoodwill amortisation) for the comparative period in 2005. At the end of the second quarter of 2006, the Group paid down a further $3.0m ofits loan facilities in addition to the $6m paid down in the first quarter of2006. The Group's $5m revolving credit facility remains unutilised. A further$10m is scheduled to be repaid throughout the third and fourth quarters of 2006. Review of Operations Operating Division (SPORTSBETTING.COM) The Operating division added 31,288 new customers in the first half of 2006;19,360 new customers in the first quarter and 11,928 in the seasonally slowersecond quarter of 2006. The customer number increases for the year to daterepresent 24% increase in new customer sign-ups compared to 25,222 new customersfor the six months to 30 June 2005. The Group expects that sign up rates willincrease again as we enter the seasonally busier second half of the year. Ofthese new customers 48% were converted to new active betting customers comparedto 46% for the six months ended 30 June 2005. New customer sign up rates for the second quarter of 2006 grew over 3 timesfaster than growth rate of 2005. The addition of players signing up for WorldCup betting boosted these growth rates in the quarter. The Group is compliant with the KPI harmonisation definitions released on 6 July2006, see "KPI Harmonisation" below. New player cost per acquisition, excluding retention bonuses to existing playersfor the six months to 30 June 2006 were $101 compared to $100 in 2005. Inclusiveof retention bonuses and rebates to existing players, new active customeracquisition costs were $164 in the six months to 30 June 2006 compared to $146in 2005. The increase in customer acquisition costs inclusive of existing playerretention bonuses is the result of growth in player activity driving higherloyalty bonuses in the period. The Group has successfully integrated the majority of the marketing function ofthe SPORTSBETTING.COM acquisition while maintaining highly efficient customeracquisition costs. The Board believes that the strength of the SPORTSBETTING.COMbrand together with maintaining its established marketing relationships willcontinue to drive its efficient customer acquisition costs. The average yield per unique active player on a rolling annual basis was $263 asat 30 June 2006 compared to $266 as at 30 June 2005. The average life of acustomer as at 30 June 2006 was approximately 527 days compared to 498 days asat 30 June 2005. The average lifetime value of a customer at 30 June 2006 on arolling twelve month basis was approximately $1,540. Sports margins including horse racing in the second quarter ended 30 June 2006were 7.0% (2005: 7.0%) and for the six months ended 30 June 2006 were 8.3%(2005: 8.2%). Gaming margins in the second quarter ended 30 June 2006 were 2.1% (2005: 2.2%)and for the six months ended 30 June 2006 were 2.1% (2005: 2.2%). SPORTSBETTING.COM's poker product, launched in the middle of 2005, yieldedrevenue before commissions of $1.4m (2005: $nil) for the quarter ended 30 June2006 bringing total poker revenue before commissions for the year to date to$2.7m (2005: $nil). Continued growth in poker has been derived primarily fromcross-selling the sports betting product. The Operating division continued to deliver strong cross-sell from sportsbetting players with an average 35.6% (2005: 35.3%) of players in the six monthsto 30 June 2006 placing a sports wager going on to place a bet on a gamingproduct or poker. This yielded $5.5m (2005: $4.8m) of gaming revenue and $1.5m(2005: $0.1m) of poker revenue for the Group in the period. The cross-sell ofproducts within the database is enhanced by the Group's single player accountstatus across all products. Growth in the Group's 3-card poker product that waslaunched in March 2006 has been encouraging. KPI Harmonisation Consistent with the recently issued KPI harmonisation definitions released byits industry peers, the Group confirms that all references to key performanceindicators for the current and future reporting periods are compliant with thesedefinitions. As a result of adopting these definitions there is only one changerequired to the Group's cost per acquisition key performance indicator. Allbonus costs, whether new player bonuses or player retention bonuses are nowincluded in the cost per acquisition key performance indicator. In priorperiods, it should be noted that, consistent with several industry peers, andthe Group's accounting treatment to net such costs against revenue, these wereexcluded from customer acquisition costs. The Group has set out in the table below restated active customer acquisitioncosts for all periods it has reported. In restating the customer acquisitioncosts it should be noted that of the bonus amounts included in the cost peracquisition, approximately 84% of total bonus amounts relate to customerretention throughout the reported periods. For the purposes of KPIharmonisation, all of these retention bonuses from programs such as "casinocomp's" that are only available to existing customers, are now applied entirelyagainst new customers. Q4 2005 Q1 2006 H1 2006 Reported Restated(2) Reported Restated(2) Reported(1) Restated(2)Current $101 $146 $76 $119 $89 $164Comparative $108 $147 $79 $141 $91 $146 (1) proforma for comparative purposes.(2) Inclusive of all retention bonuses/rebates representing 84% of totalbonuses. Licensing Division During the first half, the Group added two new licensees. These licensees areexpected to launch in August 2006. No immediate material revenue is expectedfrom these new licensees. Growth in the European white-label site launched in the first six months of 2006has been encouraging. The Group continues to monitor further licensing andwhite-label opportunities. Consistent with the Board's strategy, the Group expects to continue to sign anaverage of one quality licensee per quarter, thus further leveraging its highlyscalable software and infrastructure resources. Regulatory Developments Over the past several years, authorities in certain jurisdictions, such as theUnited States, have taken steps to restrict online gaming by seeking to preventor deter banks, payment processors, media providers and other suppliers fromtransacting with and providing services to online gaming operators, even thoughmany of these online gaming operators are legally licensed in the jurisdictionin which they operate. The application or enforcement (or threat of enforcement)of restrictive laws or regulations, or a change in sentiment by regulatoryauthorities or the enactment of new legislation prohibiting or restrictingonline gaming or services used by online gaming businesses or the taking ofcertain indirect steps, may severely and adversely impact the business andfinancial position of online gaming companies such as the Group's. Recently, two separate pieces of proposed legislation (one authored byCongressman Leach and the other by Congressman Goodlatte) were merged into onepiece of proposed legislation. The merged legislation took the number and titleof Congressman Leach's original bill and is now known as H.R. 4411, the UnlawfulInternet Gambling Enforcement Act of 2006 (the "Bill"). During the week of July10, 2006 in the United States, the proposed Bill was introduced forconsideration and vote to the full House of Representatives where it was debatedfor over three and a half hours with much of discussion concerning certain"carve-outs" to certain US domestic groups that undertake US domestic gamingactivities (horseracing and lotteries) and some of the impracticalities ofenforcement. Eventually, a vote was held where the Bill was approved by 317-93. The Bill having passed the House of Representatives now moves over to the USSenate for consideration, where it will have to follow a process similar to thatof the House of Representatives. Once the Bill has been introduced in theSenate, it is referred to various committees/sub-committees, where it will beconsidered and possibly amended. The Bill, with any amendments, if it were tobe reported out by the appropriate committee(s) would then be sent to the Senatefloor where it would be debated and voted upon. If a bill were to pass theSenate, assuming there are differences in the two versions of the Bill, (onefrom the House of Representatives and one from the Senate), are then sent to aconference committee, resulting in a compromise bill which is sent back to eachchamber for final approval. Once approved, the President would be asked to signthe final version into law. Obviously, we will continue to monitor developmentsclosely. In November 2004, the World Trade Organisation ("WTO") held that the US was inviolation of its commitments under international trade laws by not allowingoperators of Internet Gaming services licensed in Antigua and Barbuda to accessUS markets. The decision was appealed and the WTO ruled that the US had shownthat its laws prohibiting gambling are "necessary to protect public morals ormaintain public order" but had failed to demonstrate, in light of its laws inrespect of on-line gambling on horseracing, that such prohibitions are appliedequally to both foreign and domestic providers of on-line gambling services forhorseracing. Consequently, the WTO recommended that the US bring its laws intoconformity with its obligations under international trade rules. Pursuant tothe report of the arbitrator circulated in August 2005, the US was given until 3April 2006 to clarify its policies on Internet gambling and the purportedextraterritorial application of its laws. This date has now passed and the UShas not taken action to change the US domestic laws that the WTO panelidentified as in violation of the US's GATS commitments. It remains to be seenwhat effect, if any, will result from this inaction on Internet Gambling policyin the US and whether the "Carveouts" in H.R. 4411, that are seen by some tofurther enhance the protection of the Horse Racing Industry and their acceptanceof wagers on the Internet, will be considered by the Senate during its debateson Internet Gambling policy later this year. Trading Outlook The first three weeks of the third quarter of 2006 have continued to demonstrategrowth in all key performance indicators broadly in-line with the year to date.July is historically the quietest trading month in the year and the Groupcontinues to utilise this time to carry out software and infrastructure upgradesto its operating platform. Trading throughout the first half of 2006 has been underpinned by strong keyperformance indicators. Provided these same robust indicators are maintainedthrough the second half of 2006, it is likely that full year results will exceedmanagement's expectations. The Group continues to closely monitor developments in respect of the passage ofthe Bill described above and, more recently, actions taken by U.S. authoritiesin respect of BetonSports. Any material developments will be communicatedimmediately. The Group expects to report its results for the third quarter and nine monthsended 30 September 2006 on 25 October 2006. Daniel MoranChief Executive World Gaming plc Unaudited Consolidated Profit and Loss Account Three and six months ended 30 June 2006 and 2005 (Currency amounts in U.S. dollars) Note 3 months 3 months 6 months 6 months 30 June 30 June 30 June 30 June 2006 2005 2006 2005 $'000 $'000 $'000 $'000 TURNOVER 2 57,896 2,165 135,158 4,800 Cost of sales (50,359) (678) (116,209) (1,439) GROSS PROFIT 7,537 1,487 18,949 3,361 Goodwill amortisation (905) - (1,786) - Other administration expenses (4,711) (1,240) (10,056) (2,326) Total administration expenses (5,616) (1,240) (11,842) (2,326) Operating profit before goodwill 2,826 247 8,893 1,035amortisationGoodwill amortisation (905) - (1,786) - Operating profit before finance costs andextraordinary items 1,921 247 7,107 1,035 Other income 458 - 458 - Finance costs 5 (734) 81 (1,428) 128 Profit before tax 1,645 328 6,137 1,163 Taxation - - - - Profit for the financial period 1,645 328 6,137 1,163 Earnings per ordinary share (cents) 3Basic 3.0 1.3 11.3 3.4Diluted 2.7 1.1 10.2 3.0 Earnings per share adjusted (cents) 3Basic 4.6 1.3 14.6 3.4Diluted 4.2 1.1 13.2 3.0 World Gaming plc Consolidated Balance Sheets As at 30 June 2006 and 31 December 2005 (Currency amounts in U.S. dollars) 30 June 31 December 2006 2005 Note (unaudited) $'000 $'000FIXED ASSETSIntangible assets - goodwill 84,036 85,662Tangible assets 1,386 1,231 85,422 86,893 CURRENT ASSETSDebtors 6,877 9,601Prepayments and accrued income 830 989Consideration recoverable - 3,481Cash at bank and in hand 7,140 7,605 14,847 21,676 CREDITORS: Amounts falling due within one yearBank loans 5 19,506 14,711Other creditors and accruals 7,299 9,659Deferred consideration - 3,600 26,805 27,970 NET CURRENT (LIABILITIES)/ASSETS (11,958) (6,294) TOTAL ASSETS LESS CURRENT LIABILITIES 73,464 80,599 CREDITORS: Amounts falling due after more than one yearBank loans 5 10,609 24,396PROVISION FOR LIABILITIES AND CHARGES - - NET ASSETS 62,855 56,203 CAPITAL AND RESERVESCalled up share capital 214 197Share premium account 36,739 27,793Shares to be issued - 8,440Deferred compensation reserve 567 567Merger reserve 23,528 23,528Profit and loss account 1,807 (4,322) SHAREHOLDERS' FUNDS 62,855 56,203 World Gaming plc Unaudited Consolidated Cash Flow statement Six months to 30 June 2006 and 2005 (Currency amounts in U.S. dollars) 6 months ended 6 months ended 30 June 30 June 2006 2005 $'000 $'000 Net cash inflow from operating activities 10,399 1,259 Returns on investment and servicing of finance (1,307) 128 Acquisitions (554) - Capital expenditure (601) (125) Consideration received - Sportingbet - 3,000 CASH INFLOW/(OUTFLOW) BEFORE FINANCING 7,937 4,262 Financing (9,045) (14) Issue of shares 517 4,325 Net (DECREASE)/INCREASE IN CASH IN THE PERIOD (591) 8,573 RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS (Decrease)/Increase in cash in the period (591) 8,573 Cash (inflow)/outflow from (increase)/decrease in debt 9,045 14 MOVEMENT IN NET FUNDS RESULTING FROM CASH FLOWS IN PERIOD 8,454 8,587 Currency translation differences (44) 10Non-cash movements - -Movement in net funds in period 8,410 8,597 Net funds/(debt) at start of period (31,502) 7,930 NET (DEBT)/ FUNDS AT END OF PERIOD (23,092) 16,527 1. Consolidated statement of total recognised gains and losses 3 months 3 months 6 months 6 months 30 June 30 June 30 June 30 June 2006 2005 2006 2005 $'000 $'000 $'000 $'000 Profit for the financial period 1,645 328 6,137 1,163 Currency translation difference on foreigncurrency net investment - 10 (8) (3) Total recognised gains relating to the year 1,645 338 6,129 1,160 2. Analysis of turnover 3 months 3 months 6 months 6 months 30 June 30 June 30 June 30 June 2006 2005 2006 2005 $'000 $'000 $'000 $'000Analysis of revenue by activity: Sports betting & racing 52,702 - 123,608 -Casino and gaming 3,116 - 6,673 -Poker rake 1,368 - 2,916 -Customer bonuses (667) - (1,126) -Royalty and fee income 1,377 2,165 3,087 4,800 57,896 2,165 135,158 4,800 Turnover represents the amount staked in respect of bets placed on sporting andhorse racing events and net win in respect of bets placed on casino games andrake for poker games that have concluded in the period. Turnover from royaltyand fee income represents royalties charged to licensees of the Group's softwareand fees charged for usage of the Group's infrastructure. 3. Earnings per share The calculation of basic earnings per share for the quarter and six months ended30 June 2006 is based on the profit after tax at 30 June 2006 of $1.6m and $6.1mrespectively (2005: $0.3m and $1.2m respectively) and on the weighted averagenumber of ordinary shares in issue of 55,170,747 and 54,355,196 respectively(2005: 34,173,534 in each period). The calculation of diluted earnings per share for the quarter and six monthsended 30 June 2006 is based on the profit after tax at 30 June 2006 of $1.6m and$6.1m respectively (2005: $0.3m and $1.2m respectively) and on the weightedaverage number of ordinary shares in issue adjusted to assume the exercise ofoptions over shares and the dilutive effect of shares to be issued in respect ofthe acquisition in the period of 60,947,002 and 60,131,452 respectively (2005:40,188,905 in each period). Adjusted basic and diluted earnings per share before goodwill excludesamortisation of goodwill of $0.9m for the quarter and $1.8m for the six monthsended 30 June 2006 (2005: $nil). Earnings per share excludes shares with no voting or economic rights in respectof the 13,506,204 shares held by Sportingbet PLC and its affiliates that havebeen set aside as a result of the Transaction with Sportingbet PLC and may berepurchased by the Company for an aggregate $1 when the Company has retainedearnings to do so. 4. Basis of preparation There have been no material changes to the accounting policies of the Group asset out in audited 31 December 2005 consolidated financial statements. 5. Finance costs 3 months 3 months 6 months 6 months 30 June 30 June 30 June 30 June 2006 2005 2006 2005 $'000 $'000 $'000 $'000 Interest receivable 56 81 184 128Interest payable (667) - (1,365) -Amortisation of loan agreement fees (123) - (247) - (734) 81 (1,428) 128 Deferred finance costs of $839,455 as at 30 June 2006, netted against the loanbalances outstanding at 30 June 2006 are being amortised over the period of theloan agreement. 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