PartyGaming Plc
07 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: $235.1m)
• Total real money sign-ups up by 19% to 519,532 with 46% of Q2 sign-ups
coming from outside the US
• Interim dividend of 3.0 cents per share (2005: nil)
* EBITDA / earnings per share before IPO-related expenses and non-cash charges
relating to share options which are to be satisfied by existing shares that were
effectively gifted to the Employee Trust by the Principal Shareholders.
All references to '$' mean US Dollars.
Commenting on the interim results, Mitch Garber, Chief Executive Officer, said:
'PartyGaming has delivered a strong first half performance. These results
demonstrate the strength of our business model and also the potential to grow
our business through investment in the development of new products and new
territories outside North America.
'Our ability to adapt and innovate has ensured that we remain the clear market
leader. The recent additions of backgammon and an exclusively non-US facing
sportsbook should add momentum to our expanding international revenue base,
assisted by the forthcoming launch of multi-lingual versions of our games and
marketing initiatives in a number of new territories
Whilst regulatory uncertainties continue, the Board remains confident about the
Group's full year prospects.'
Details of an analyst presentation, live webcast and conference call taking
place later today are provided later in this press release.
Contacts:
PartyGaming Plc 7 September 2006: +44 (0)20 7831 3113
Mitch Garber, Chief Executive Officer
Martin Weigold, Group Finance Director
Peter Reynolds, Director of Investor Relations
John Shepherd, Director of Corporate Communications
Financial Dynamics +44 (0)20 7831 3113
Edward Bridges / Juliet Clarke
CHIEF EXECUTIVE'S REVIEW
Introduction
PartyGaming Plc is the world's leading online gaming company and operates
PartyPoker.com, the world's largest online poker room, PartyCasino.com, the
world's largest online casino, PartyGammon.com one of the world's largest online
backgammon sites, as well as Gamebookers.com, an exclusively non-US facing
sportsbook, and PartyBingo.com. Other online gaming sites within the Group's
portfolio include EmpirePoker.com, StarluckCasino.com and PlanetLuckCasino.com.
Results
The Group has continued to deliver strong year on year growth during the first
half of 2006. Group revenue was up 51% to $661.9m, driven by strong growth in
international markets which meant that 23% of total revenue was generated
outside the US in the first half of 2006 compared with 14% in the first half of
2005. Earnings before interest, tax, depreciation and amortisation, as well as
share option and IPO-related expenses ('Clean EBITDA'), was up 47% to $380.0m
over the same period in 2005.
The Group's poker business delivered another strong performance. PartyPoker.com
continues to maintain its leading position in online poker and, despite an
increase in customer bonuses and the dilutive impact of many of the Group's
poker players now playing other PartyGaming products, net poker revenues were up
by 22% year on year to $502.7m (2005: $412.0m). Clean EBITDA for the poker
business rose by 12% to $274.3m (2005: $244.9m). The continued expansion into
territories such as Scandinavia and the UK resulted in an increase in overall
marketing spend while an increase in administration expenses, principally
additional staff costs, meant that the Clean EBITDA margin (before share option
and 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 with
the launch of PartyCasino.com in February 2006, delivered a 527% increase in net
revenue 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 of
innovative marketing, product development and by providing an excellent customer
experience. At the same time, the Group is seeking to broaden its geographic
spread aggressively which will provide a number of new and exciting
opportunities for growth, as well as reduce further the Group's dependence on
the US market. Mergers and acquisitions are likely to form a key part of the
Group'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 on
driving new poker sign-ups through a series of highly targeted and effective
campaigns. As the Group's product portfolio and international reach has
expanded, there is a need to establish a more integrated and multi-dimensional
brand strategy. This is likely to include a number of strategic branding
partnerships that will aim to cross-promote the Group's games to new and
existing customers as well as build brand equity for each of the key product
brands.
In addition to increasing the marketing spend in non-US markets, management
intend to continue to localise the Group's product offerings by launching full
multi-lingual versions of our sites as well as offering players the ability to
hold balances and play in currencies other than the US dollar.
The Group is committed to increasing the number of games available on the
Party-branded integrated platform. By having more games we aim to attract new
customers, lengthen average player life and through cross-selling, increase the
Group's share of gaming wallet for current and future customers. While
historically all games have been developed in-house, going forward we intend to
license a number of new games from third parties. PartyGaming represents a
particularly attractive licensee for games developers around the world given its
large international customer base, proven marketing skills, strong brands and
pre-eminent payment processing technology. This approach will accelerate the
pace with which new games can be added to the platform. Following the
acquisition of Gamebookers on 3 August 2006, it is expected that the Group's own
Party-branded sports betting business will be launched onto the integrated
platform by the end of the year at which point all of the Group's non-US
customers will be able to place bets on sporting events using their PartyAccount
in the same way that they can already play PartyPoker, PartyCasino, PartyGammon
and PartyBingo games.
Business development
PartyGaming's success has been founded upon its ability to innovate, developing
new approaches as to what can be achieved from a product, technological and
marketing perspective. The pace of development remains rapid with significant
progress having been made during the first six months of 2006 across each of the
three main business operating areas: marketing, systems and customer service.
1. Marketing
The Group's marketing function has been the primary driver behind the continued
growth in the Group's global customer base. The total registered player base as
at 30 June 2006 was over 19 million players, up from 9 million a year ago and
the 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 six
months of 2006 (2005: 435,157), of which 43% came from countries outside the US
compared to 20% in the first half of 2005. The number of active non-US players
grew by 193% year on year to 380,775 (2005: 129,940) and the total active player
base across all countries increased by 47% to 1.3 million (2005: 885,043).
Given the continued growth and expansion outside the US, together with an
increased focus on customer retention, the organisational structure of the
Group's marketing function has been changed. Customer acquisition has been
separated from customer retention and it is now split between US and non-US
teams, reflecting the scale and importance of our business outside the US. As
anticipated, Vikrant Bhargava has now stepped back from the day to day
management of the marketing function and will leave the Group by the end of the
year.
The Group continues to exploit a broad marketing mix using a variety of
different channels to reach an increasingly international customer base.
PartyGaming's extensive affiliate network continues to be a differentiating
factor compared with its competitors and through its PartyPartners affiliate
programme the Group is now able to reward affiliates for driving real money
sign-ups to PartyPoker, PartyCasino and PartyBingo as well as PartyGammon.
Other important elements of the marketing mix include online and offline
marketing, as well as bespoke promotions such as the PartyPoker Monster
Tournament, which is expected to have the largest prize pool ever for an online
poker tournament.
Wherever possible, television advertising and sponsorship remain the preferred
marketing channels and the Group has entered into a number of exclusive
arrangements with television networks around the world.
Player retention remains a key element of the marketing function. Improving our
understanding of the playing desires and behaviour of our players is at the very
heart of our strategy. The investment made in 2005 in developing a highly
sophisticated player analytics tool through an extensive data mining project is
now beginning to bear fruit. Embedding this knowledge into our systems will
enable us to ensure that our players receive the right offer, through the right
channel, at the right time, therefore maximising their lifetime value to the
Group. One example of the benefit we are starting to see from this initiative
is that we have been able to improve the appeal of our 'reload' campaigns and
increase the response rates from players. This has helped to improve the trends
in 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 a
substantial increase in the simultaneous player capacity in tournaments.
Further enhancements to the systems infrastructure are expected in the second
half as part of the continued effort to add new features, systems upgrades and
generally improve the overall customer experience. Recognising the increasing
scale of the business, as well as the complexity of our integrated systems
platform, the Group's technology and systems teams have been reorganised into a
more focused structure. There are now dedicated functions that focus on
improving the existing systems and architecture, while product development is
managed by a separate team. Since the reorganisation, the process for releasing
new software has improved markedly, accelerating the release of new product and
reducing system downtime.
The launch of PartyCasino in February 2006 was one of the Group's largest ever
software upgrades. At the same time, the Group also launched PartyAccount which
allows players to use a single account to deposit money and then play a variety
of games on the integrated, Party-branded platform. Now, in addition to poker
and blackjack on PartyPoker.com, players can play 40 different casino games at
PartyCasino.com, as well as backgammon on PartyGammon.com and bingo and slots at
PartyBingo.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 they
are 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'). Maintaining
high service levels is a key priority and IVY prides itself on meeting the
standards set by PartyGaming.
The customer service teams are now split so as to allow a more focused approach
on individual customer segments, identified by different playing patterns and by
value. The nature of queries tends to vary by segment and so we have improved
the alignment of our customer service operation with the structure of our
customer base which should help to improve the effectiveness of our customer
service operations. In addition, our higher value customers are now able to get
much faster resolution of any issues they may have which should improve
retention among this important player group.
Providing excellent customer service also extends to providing a safe and secure
environment for our players. This has been recognised by the award to the Group
of a second GamCare certificate in June 2006. GamCare is widely regarded as one
of the world's leading promoters of responsible attitudes towards gambling.
Acquisitions
The online gaming market remains highly competitive but also highly fragmented
with over 2,500 gaming sites currently available1. The Board intends to be
opportunistic regarding mergers and acquisitions where it believes that a
transaction can both enhance the overall balance of the Group's business more
effectively than through organic investment, as well as deliver superior
long-term returns for shareholders.
On 14 February 2006 the Group announced the acquisition of the EmpirePoker.com
skin and other associated white label and affiliate agreements relating to
AceClub.com and StarluckCasino.com, together with the withdrawal of all legal
claims by Empire Online Limited against the Group, for a total cash
consideration of $250m plus costs. From the date of acquisition to 30 June
2006, EmpirePoker.com generated $12.2m of net poker revenue or 2.4% of total
poker revenue.
On 3 August 2006, the Group announced the acquisition of Gamebookers, an
exclusively non-US facing sportsbook, for a total cash consideration of
approximately €102m ($130.5m). The Group believes that sports betting will
prove to be a valuable addition to the Group's product portfolio as a number of
its 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 dividend
will be paid on 31 October 2006 to shareholders and depositary interest holders
on the register of members or depositary interest register respectively at the
close of business on 6 October 2006 and therefore the Company's shares will
trade ex-dividend from 4 October 2006. Shareholders will receive their
dividends in US Dollars, unless they elect for Sterling on or before 17 October
2006 by completing the appropriate election form that will be sent to
shareholders with the interim report. Currency elections are enduring for future
dividends. The Sterling equivalent of dividends declared in US Dollars will be
calculated by reference to a rate prevailing on 23 October 2006.
Regulatory background
The regulatory position for online gaming companies continues to be uncertain in
a number of countries around the world. Accordingly, the Group continues to
monitor closely and take appropriate advice in respect of its numerous
regulatory environments as part of its ongoing operational risk assessment
process.
In the US a bill that would address the scope of gaming prohibited under the
Wire Act and other prohibitions relating to online gaming has passed the House
of Representatives and is now one of a number of bills that may or may not be
considered by the Senate during this Congress. In order for any bill to become
law during this Congress, it would at least need to have been passed in
identical form by both the Senate and the House of Representatives before the
end of 2006. Elsewhere, the UK Government is moving towards the full
implementation of the 2005 Gambling Act which is expected in late 2007. Having
announced that it will be hosting an international summit to discuss the merits
of a proper regulated framework for online gaming later this year, it is hoped
that the UK model may help to establish a blueprint for many other countries
around the world. In Brussels, the EU Commissioner in charge of Internal
Markets and Services continues to press a number of EU states to explain why
they are preventing online gaming sites that are based in the EU from offering
their products to their own citizens while at the same time the Italian
authorities are continuing to block access to certain gaming sites using
Internet Service Providers.
The Board believes that a proper regulatory framework, like that being developed
in the UK, is the most sensible way forward but also that the regulatory
position in a number of countries is likely to remain unclear for many months
and possibly years to come.
Current trading and outlook
New player sign-ups have returned to levels seen in the first quarter with over
3,000 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 well
and 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's
expectations with distribution expenses increasing as a proportion of revenue.
Whilst regulatory uncertainties continue, the Board remains confident about the
Group's full year prospects.
Key performance indicators for the third quarter of 2006 will be announced on 20
October 2006.
SUMMARY OF RESULTS
Six months to 30 June Revenue Clean EBITDA
2006 2005 2006 2005
$m $m $m $m
Poker 502.7 412.0 274.3 244.9
Casino 159.2 25.4 107.4 13.7
Emerging 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 the
Group's casino business following the launch of blackjack in October 2005 and
the launch of PartyCasino in February 2006. Clean EBITDA increased by 47%, also
driven by the strong growth in casino.
Reconciliation of Clean EBITDA to operating profit
Six months to 30 June 2006 2005
$m $m
Clean EBITDA * 380.0 257.7
Depreciation (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 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.
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 in
casino where bonus rates as a percentage of gross revenue were lower than normal
following the launch of blackjack.
Operating profit was 67% ahead of 2005 reflecting the strong growth in revenues
and the absence of any IPO-related expenses. As a result, the operating profit
margin 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 7.8
cents, 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 22,676,761
Daily average players 159,341 125,286
Yield per active player day $22.9 $18.6
Yield per unique active player in the period $507.8 $477.6
New real money sign-ups 519,532 435,157
Unique active players during the period 1,301,073 885,043
Average 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's
sites (2005: $20.8bn), having deposited $1.7 billion and redeemed $1.1 billion
in the period.
Unique active players increased by 47% over the comparable period in 2005 to
over 1.3 million players, with substantial increases experienced in all
geographic 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 in
2005 driven by continued growth in the size of the active player base, partially
offset by a reduction in the average frequency of play.
Yield per active player day increased by 23% to $22.9 reflecting the positive
impact 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 at
least two games on the integrated platform.
As previously announced, the Group plans to focus on consolidated KPIs in the
future, however in order to provide additional data points for investors, a
summary of the key performance indicators for both the poker and casino business
segments during the period are included within the respective review of each
segment below.
REVENUE
Revenue was up 51%, driven by the growth in the Group's casino business which
was up 527% following the launch of blackjack in October 2005 and PartyCasino in
February 2006. The poker business grew by 22% over the comparable period in
2005. A breakdown of the three business segments, poker, casino and emerging
games 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 was
gambled 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 the
previous year, reflecting increases in affiliate costs and administration
expenses.
Poker - Key Performance Indicators
Six months to 30 June 2006 2005
--------------------------------------------------------------------------------------------------------------
Active player days 27,946,765 22,343,683
Daily average players 154,403 123,446
Yield per active player day $17.9 $17.8
New real money sign-ups 495,700 400,668
Unique active players during the period 1,249,229 842,382
Average daily revenue (excluding skins) $2,770,388 $2,194,652
Online poker has continued to grow as a popular leisure pursuit in a number of
countries around the world, as demonstrated by the strong growth in both real
money sign-ups (up 24% to 495,700 versus 400,668 in 2005) and the number of
unique active players (up 48% to 1,249,229 versus 842,382 in 2005). Even in the
US, which is probably the most mature online poker market, the Group's number of
active players increased by 23% year on year to 888,190. While total active
player days in poker increased by 25% to almost 28m (2005: 22m), driven by the
growth in new real money sign-ups and improved trends in retention, these
positive effects were mitigated by a reduction in the average frequency of play,
which management believe reflects the increasing proportion of the overall
player base that are more recreational in nature.
Some 27.7% of the new poker sign-ups in January 2006 remained active after six
months, which was exactly the same as that for players signed up in 2005. The
introduction of a series of reactivation programmes using the Group's player
analytics 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 of
players who were active after six months was approximately 31.5%, after 12
months 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 first
half. Whilst the US remains the Group's largest market, countries outside the
US represented 42% of total real money sign-ups in the first half versus 19% in
the comparable period in 2005. As we seek to expand even more aggressively into
new markets in the second half, supported by local language versions of our
sites, 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 a
number of higher raking players to PartyPoker.com over the past 9 months (77% of
total poker revenue in the period was generated by the top 10% of active players
versus 70% the previous year) together with the rapid growth of a number of
markets outside the US, where yields tend to be higher initially, was able to
offset the impact of more casual players being added to the player base and a
small 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 added
to the PartyPoker platform during the second half of 2005. The launch of
PartyCasino.com in February 2006 also had a significant impact on the
year-on-year performance. The amount gambled in our casino business increased
substantially to $8.6bn, up from $881m in the comparable period in the previous
year. Over 80% of the amount gambled in the period was on blackjack, equivalent
to $38m per day. As a result, gross casino revenue increased by 440% to $178.6m
and 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 revenue
generated by blackjack, reflecting the removal of the novelty factor associated
with 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 and
PlanetLuck Casino have continued to generate average daily net revenue of $0.1m
while PartyCasino generated average net revenue per day of $0.8m (including
blackjack).
The Clean EBITDA margin increased to 67.5% (2005: 53.9%), in part reflecting the
fact that the majority of the increase in revenue has come from existing
PartyGaming players and therefore there was no associated customer acquisition
cost and also reflecting the lower bonus rates versus the prior year (10.6% of
gross revenue versus 23.4% in the first half of 2005).
A summary of the key performance indicators for the casino business during the
first six months is shown in the table below:
Key Performance Indicators
Six months to 30 June 2006 2005
--------------------------------------------------------------------------------------------------------------
Active player days 4,312,922 333,078
Daily average players 23,829 1,840
Yield per active player day $36.9 $76.4
New real money sign-ups 23,758 34,489
Unique active players during the period 521,158 42,661
Average daily revenue $879,640 $140,506
All of the casino activity metrics such as active player days and daily average
players showed a substantial increase compared with the prior year reflecting
the impact of blackjack and PartyCasino.com. The yield per active player day
fell to $36.9 from $76.4 in the previous year due to the popularity of blackjack
which tends to have a lower yield than other casino games. PartyCasino.com now
has 40 individual games including blackjack, roulette, baccarat as well as a
variety of slot machines and, despite having had limited marketing support so
far, it is already attracting an average of over 23,000 real money players per
day.
EMERGING GAMES AND SPORTS BETTING
The Group launched PartyGammon.com, its real money backgammon site, on 23 June
2006 and, consequently, it did not make a material contribution in the first
half, generating net revenue of $43,000 in the period. Going forward, the Group
will report the performance of Emerging Games as a separate business segment.
Following the acquisition of Gamebookers, an exclusively non-US facing
sportsbook, on 3 August 2006, a new business segment called Sports Betting will
also 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 most
significant increase being in affiliate costs. This reflects the increasing
importance of affiliates that were responsible for sourcing 39% of Group
revenues in the six months to 30 June 2006 (2005: 33%). Affiliates are a
particularly effective marketing channel for promoting the Group's products in
territories outside the US and accounted for 54% of non-US revenue during the
period. Customer acquisition and retention costs fell as a proportion of
revenue reflecting the benefits of cross selling blackjack to poker players.
Customer acquisition costs as a proportion of revenue were 8.1% in the first
quarter and increased to 12.2% in the second quarter, reflecting the expansion
into a number of new territories. Customer bad debts continued to fall as a
proportion of revenues, and overall distribution costs were slightly lower than
the previous year at 28.3% of revenue (2005: 29.9%) which was in line with our
expectations. It is expected that distribution costs will increase as a
proportion of revenue during the second half, reflecting the move into new
territories and increased marketing spend on initiatives such as the World
Series 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-related
expenses) 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 were
certain one-off costs relating to the change of Chief Executive Officer
totalling $7.5m. Depreciation costs increased to $9.5m (2005: $4.6m) reflecting
investment in new systems and premises and there were also amortisation costs of
$11.8m (2005: nil) associated with the acquisition of EmpirePoker.com. The
growth in other overheads reflected the Group's transition to a listed company
since 30 June 2005 and increased property-related expenses associated with the
move into new offices in Gibraltar as well as higher staffing levels.
Share option charges
Prior to flotation, the Principal Shareholders established a share option plan
for the benefit of the current and future workforce. Under the terms of the
plan, the existing workforce were granted a number of nil-cost options to be
satisfied by existing shares which had been effectively gifted by the Principal
Shareholders to a dedicated employee trust. As such, the exercise of these
options will have no dilutive effect on new shareholders and will have no cash
impact on the Company. International Financial Reporting Standards requires
that the fair value of the options be amortised through the income statement
over 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 reflects
the award of options to a number of senior personnel in the period.
Associates and joint ventures
Six months to 30 June 2006 2005
$m $m
35% 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 period
totalled $0.3m (2005: $0.7m).
Finance income and costs
Six months to 30 June 2006 2005
$m $m
Interest 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 financial
flexibility, the Group has replaced its existing $200 million revolving credit
facility with a $500 million multi-currency revolving credit facility, with the
following banks participating: Royal Bank of Scotland, Dresdner Kleinwort, Bank
of Scotland, West LB and Commerzbank. The margin on the new credit facility is
1% over LIBOR (or EURIBOR where relevant). At 30 June 2006 there was a $40m
drawdown 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-related
settlement costs).
1 Net cash is defined as cash, cash equivalents and short term investments less
shareholder loans and bank debt
Cashflow
Six months to 30 June 2006 2005
$m $m
Cashflow from operations before movements in
working capital 380.0 235.1
Working capital movements associated with purchase
of EmpirePoker.com (127.8) -
Other working capital movements (4.1) 35.8
---------------------------------
Net cashflow from operating activities 248.1 270.9
Capital 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 of
legal claims with Empire Online Limited resulted in a payment of $127.8m being
made as part of the $250m consideration for EmpirePoker.com. Operating cashflow
before the movements associated with the acquisition of EmpirePoker.com was up
39% to $375.9m (2005: $270.9m). Net cashflow from operations after this charge
was $248.1m (2005: 270.9m).
Capital expenditure
Capital expenditure during the period was $30.8m (2005: $24.1m) and is analysed
in more detail in the table below:
Six months to 30 June 2006 2005
$m $m
Poker 0.4 5.3
Casino 0.3 0.3
Emerging 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 application
licenses, hardware and property costs.
Purchase of other intangible assets
During the period the Group acquired the EmpirePoker.com skin, and other
associated white label and affiliate agreements relating to AceClub.com and
StarluckCasino.com, from EmpireOnline Limited ('EOL') together with the
withdrawal of all legal claims by EOL against the Group, for a total cash
consideration of $250 million, excluding related expenses. Of the total
consideration, $122.2m was attributed to the acquisition and the balance to the
settlement 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 Dresdner
Kleinwort, 30 Gresham Street, London, EC2P 2XY starting at 9.30am BST. There
will be a simultaneous webcast and dial-in broadcast of the meeting. To
register for the live webcast, please pre-register for access by visiting the
Group website (www.partygaming.com). Details for the dial-in facility are given
below. A copy of the webcast and slide presentation given at the meeting will
be available on the Group's website later today.
In addition, there will be an interactive conference call for international
investors and analysts starting at 2.30pm BST, details of which are set out
below.
An interview with Mitch Garber, Chief Executive Officer and Martin Weigold,
Group Finance Director, in video/audio and text will also be available from
7.00am 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 2006
9.20 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 7
September 2006. To access the recording please dial the following replay
telephone number:
Replay telephone number +44 (0)20 7806 1970
Replay passcode: 9854815
Conference call: Thursday 7 September 2006
For international analysts and investors there will also be an opportunity to
put questions to Mitch Garber, Chief Executive Officer, and Martin Weigold,
Group Finance Director, by way of a conference call. The details of the call
are 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 days
from 7 September 2006. To access the recording please dial the following replay
telephone number:
UK Replay telephone number +44 (0) 1452 550 000
UK Replay passcode: 4098005
US Replay no: +1 866 247 4222
US 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 on
The London Stock Exchange under the ticker: PRTY. In the year to 31 December
2005, 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 has
over 2,000 employees located in Gibraltar, India, the United Kingdom and
Bulgaria and has customers in 190 countries.
PartyGaming's principal brands are PartyPoker.com, the world's largest online
poker room, and PartyCasino.com, the world's largest online casino. The Group
also operates EmpirePoker.com, PartyBingo.com, PartyGammon.com, and
Gamebookers.com, an exclusively non-US facing sportsbook acquired in August
2006.
PartyGaming is regulated and licensed by the Government of Gibraltar and is
certified 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 2 661.9 437.4 977.7
Other 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 3.5
Finance 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 7.7
Diluted 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 $m
Exchange 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 298.0 171.0 293.2
Issue of share capital - - 0.1
Share option charge 39.4 39.7 65.6
Equity 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 $m
Non-current assets
Intangible assets 6 144.4 30.3 15.9
Property, plant and equipment 7 58.3 37.1 32.8
Investment in associates 9 0.7 1.0 1.2
------ ------ ------
203.4 68.4 49.9
------ ------ ------
Current assets
Trade and other receivables 155.8 128.3 143.2
Cash and cash equivalents 132.9 194.9 86.4
Short-term investments 10 1.9 6.8 19.0
------ ------ ------
290.6 330.0 248.6
------ ------ ------
Total assets 494.0 398.4 298.5
------ ------ ------
Current liabilities
Bank 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 liabilities
Trade 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)
------ ------ ------
Equity
Share capital 13 0.1 0.1 0.1
Share premium account 14 0.4 0.4 0.4
Share option reserve 14 108.2 68.8 42.9
Retained earnings 14 808.3 710.2 588.0
Other reserve 14 (825.4) (825.4) (825.4)
Currency reserve 14 (0.1) - -
------ ------ ------
Equity attributable to equity
holders 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 320.5 186.3 324.9
Adjustments for:
Amortisation of intangibles 11.8 - 4.3
Interest expense 1.3 5.2 10.2
Interest income (2.8) (1.4) (3.5)
Depreciation of property, plant and equipment 9.5 4.6 13.0
Increase in share option reserve 39.4 39.7 65.6
Loss on investment in associate 0.3 0.7 0.8
Loss 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) 67.0 225.7
Increase in provisions 1.3 5.9 1.5
Income 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 activities
Purchases 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 3.5
Investment 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 activities
Issue 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 beginning
of 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 86.4 194.9
Bank 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 stated
in the Group's Annual Report 2005 which are available on the Group's website at
www.PartyGaming.com. The Financial Information has been prepared in accordance
with International Financial Reporting Standards including International
Accounting Standards (IASs) and interpretations, (collectively IFRS), published
by the International Accounting Standards Board (IASB) and which have been
endorsed in the EU. The financial information included in this announcement is
unaudited and does not comprise statutory accounts.
The Group has not wholly applied IAS34 in the preparation of these interim
financial statements.
2. Business and geographical segment information
For management purposes and transacting with customers, the Group is divided
into 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 segmental
information. Unallocated corporate expenses, assets and liabilities relate to
the entity as a whole and cannot be reasonably allocated to individual segments.
Six months ended Poker Casino Emerging Unallocated Consolidated
30 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 information
Capital additions 0.4 0.3 3.9 26.2 30.8
Depreciation and amortisation 14.8 0.3 - 6.2 21.3
Balance sheet
Assets
Assets - tangible 9.3 1.0 3.9 44.1 58.3
Assets - intangible 144.4 - - - 144.4
Assets - associates 0.7 - - - 0.7
Segment assets 166.7 8.5 - 115.4 290.6
Total 321.1 9.5 3.9 159.5 494.0
Liabilities
Segment liabilities 214.6 11.8 - 176.1 402.5
Impairment losses 24.9 3.9 - - 28.8
Product development 1.3 0.3 0.1 - 1.7
Cashflows from operating activities 225.0 119.3 (0.7) (95.5) 248.1
Cashflows 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 Consolidated
30 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 information
Capital additions 5.3 0.3 - 18.5 24.1
Depreciation and amortisation 1.4 0.3 - 2.9 4.6
Balance sheet
Assets
Assets - tangible 7.6 1.3 - 23.9 32.8
Assets - intangible 15.9 - - - 15.9
Assets - associates 1.2 - - - 1.2
Segment assets 107.8 11.4 - 129.4 248.6
Total Assets 132.5 12.7 - 153.3 298.5
Liabilities
Segment liabilities 165.6 6.0 - 320.9 492.5
Impairment losses 22.0 2.1 - - 24.1
Cashflows from operating activities 279.2 0.8 - (9.1) 270.9
Cashflows 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 Consolidated
31 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 information
Capital additions 12.4 0.3 - 24.1 36.8
Depreciation and amortisation 8.6 0.6 - 8.1 17.3
Balance sheet
Assets
Assets - tangibles 12.2 1.0 - 23.9 37.1
Assets - intangibles 30.3 - - - 30.3
Assets - associates 1.0 - - - 1.0
Segment assets 144.1 9.2 - 176.7 330.0
Total assets 187.6 10.2 - 200.6 398.4
Liabilities
Segment liabilities 329.2 10.1 - 105.0 444.3
Impairment losses 43.6 5.2 - - 48.8
Product development 1.1 0.4 - 0.7 2.2
Cashflows from operating activities 558.6 78.6 - (17.0) 620.2
Cashflows 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 geographical
market.
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
$m $m $m
USA 512.1 377.6 824.5
Europe 90.6 24.0 81.0
Canada 43.5 22.2 54.1
Rest 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 31.7
Deferred 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 assessable
profit for the period. Taxation for other jurisdictions is calculated at the
rate 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 settlement
costs).
(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 the
countries in which they are registered. However, the rules and practice
governing the taxation of e-commerce activity are evolving in many countries.
It is possible that the amount of tax that will eventually become payable may
differ from the amount provided in these financial statements. In calculating
the tax provision, in addition to any amounts due in respect of jurisdictions in
which the Group companies are currently incorporated or domiciled, a provision
has been made to cover the Directors' best estimate of additional taxation
exposures which may arise.
The Group has received indemnities from the Principal Shareholders in connection
with certain potential historic corporate taxation liabilities. The Directors
consider the likelihood of any such liability arising to be remote. Accordingly,
neither has a provision for any such potential taxation been made, nor has an
asset 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 Gibraltar
exempt company regime will be phased out between 1 July 2006 and 31 December
2010; under current rules assessable income is taxed in Gibraltar at 35.0%.
In India, the Group benefits from a tax holiday on income from qualifying
activities until March 2009; under current rules assessable income is taxed in
India 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 7.7
Diluted earnings per share 7.6 4.5 7.5
Basic earnings per share before share
option charges, IPO-related expenses
and skin-related settlement costs 8.8 6.2 13.9
Diluted 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 the
following data:
Earnings
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
$m $m $m
Earnings for the purposes of basic and
diluted earnings per share being profit
from ordinary activities attributable to
equity holders of the parent 298.1 171.0 293.2
Share option charges 39.4 39.7 65.6
IPO-related expenses - 22.6 22.6
Skin-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 and
diluted earnings per share takes into account the one to four ordinary share
sub-division that occurred on 5 May 2005 and the number of shares which vested
following flotation (see note 13).
Six months Six months Year
ended ended ended
30 June 30 June 31 December
Number of shares for basic earning per share 2006 2005 2005
Number Number Number
m m m
Number of shares in issue 4,000.0 4,000.0 4,000.0
Number 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 diluted
earnings per share takes into account all potentially dilutive shares granted,
which are not included in the number of shares for basic earnings per share
above. Although the unvested potentially dilutive shares are contingently
issuable, in accordance with IAS 33 the period end is treated as the end of the
performance period. Those option holders who were employees at that date are
deemed to have satisfied the performance requirements and their related
potentially dilutive shares have been included for the purpose of diluted EPS
(see note 16).
Six months Six months Year
ended 30 ended 30 ended
June June 31 December
Number 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 4,000.0
Number 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
Effect of potential dilutive vested and
unvested 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 $m
Cost or valuation
As at 30 June 2005 8.2 10.1 18.3
Additions 18.7 - 18.7
------ ------ ------
As at 31 Dec 2005 26.9 10.1 37.0
Additions 52.0 73.9 125.9
------ ------ ------
As at 30 June 2006 78.9 84.0 162.9
------ ------ ------
Amortisation
As at 30 June 2005 - 2.4 2.4
Charge for the period 4.3 - 4.3
------ ------ ------
As at 31 Dec 2005 4.3 2.4 6.7
Charge for the period 11.8 - 11.8
------ ------ ------
As at 30 June 2006 16.1 2.4 18.5
------ ------ ------
Carrying amount
As 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 intangibles
which are being amortised over their estimated useful economic lives of between
18 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 $m
Cost or valuation
As at 30 June 2005 5.3 2.9 35.7 43.9
Additions 2.3 0.9 9.5 12.7
------ ------ ------ ------
As at 31 Dec 2005 7.6 3.8 45.2 56.6
Additions 9.0 0.5 21.3 30.8
Disposed - - (0.1) (0.1)
------ ------ ------ ------
As at 30 June 2006 16.6 4.3 66.4 87.3
------ ------ ------ ------
Depreciation and impairment losses
As at 30 June 2005 0.2 0.8 10.1 11.1
Charge for the period 0.5 0.5 7.4 8.4
------ ------ ------ ------
As at 31 Dec 2005 0.7 1.3 17.5 19.5
Charge 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 amount
As 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 Poker
Channel Ltd, a company incorporated in England and Wales, in the period ended 30
June 2005, for a cash consideration of $1.8m (this represents 35% of the voting
rights). This is accounted for under the equity method. The Group's share of
losses for the period ended 30 June 2006 was $0.3m, resulting in a carrying
value 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 4.7
Additional 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 to
chargebacks which are recognised at the Directors' best estimate of the
provision based on past experience of such expenses applied to the level of
activity.
13. Share capital
Issued Number
$ (m)
Ordinary shares
As at 31 December 2005 100,452 4,000
Issued 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 shares
with a par value of 0.0015p (the 'Shares'). All the Shares are fully paid. The
holders of the Shares are entitled to receive dividends when declared and are
entitled to one vote per Share at general meetings of the Company. The share
capital 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 Shares
Trust (the 'Employee Trust'). Following exercises by participants granted
options under the PartyGaming Plc Share Option Plan (the 'Plan') in respect of
37.32m Shares during the reporting period, as at 30 June 2006 155.36m Shares
were held in the Employee Trust.
2. As at 31 December 2005, a total of 126.72m Shares were allocated under
the Plan. In the six month period to 30 June 2006, further options in respect
of 48.1m Shares were granted, options in respect of 37.32m Shares were exercised
and options in respect of 17.97m Shares lapsed. As a result, as at 30 June 2006
a 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 of
accounting which is similar to the pooling of interests method, as set out in
the accounting policies published in the Group's 2005 Annual Report and
available at www.partygaming.com. Under this method of accounting, the
difference between the consideration for the controlling interest and the
nominal value of the shares acquired is taken to other reserves on
consolidation. As a result, the share capital reflects PartyGaming Plc's share
capital and the retained earnings for each of the periods ended 30 June 2006,
reflecting the cumulative profits as if the current group structure had always
been in place.
15. Related parties
Relationships
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
Anurag Dikshit, Ruth Parasol and Russ DeLeon are the ultimate controlling
shareholders of the Group. During the period the controlling shareholders, and
corporate entities controlled by controlling shareholders, received aggregate
remuneration in the form of salary, bonuses and consulting fees as follows:
$m
Six months ended 30 June 2005 0.1
Year ended 31 December 2005 0.5
Six months ended 30 June 2006 0.7
Remuneration of key management personnel
Key management personnel are those individuals who the Directors believe have
significant authority and responsibility for planning, directing and controlling
the activities of the Group. The aggregate short term and long term benefits,
as well as share based expenses of the Directors and key management personnel of
the 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 22.3
Year ended 31 December 2005 9.7 - 39.5 49.2
Six months ended 30 June 2006 11.1 - 18.8 29.9
Transactions
The following aggregate balances were due to/(from) key management at each
period 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 Indian
subsidiary. Rentals paid during the period were:
$
Six months ended 30 June 2005 14,473
Year ended 31 December 2005 30,323
Six months ended 30 June 2006 14,858
In terms of property related transactions, certain of the Group's subsidiaries
have 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 employees
of the Group. The Directors believe that these lease arrangements are fair
value personal arrangements between the parties involved and independent of the
Group.
Share option arrangements
Certain key management and certain directors were granted nil cost options under
service contracts, which were formally granted under the Group's share option
plan, (see note 13).
16. Share option charge
The Group has designed a Share Option Plan ('the Plan') as a reward and
retention incentive for employees and self-employed consultants of the Group,
including the executive directors (the 'Participants'). Certain individuals
have nil-cost option arrangements under their service contracts, which were
formally granted under the Plan during the period. During the period, 48.1m
options were granted to Participants, representing 1.2% of the total issued
share 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 five
year 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 40.0
Options granted during the period 48.1 106.7 119.0
Options 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 income
statement 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 63.4
Nil-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 of
EmpirePoker.com. In calculating the goodwill arising on acquisition, the fair
value of the net assets of EmpirePoker.com has been assessed and adjustments
from book value have been made where necessary. These adjustments are summarised
as 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. These
intangibles are being amortised over their estimated useful economic lives of
between 18 months and 15 years.
Fair value of net assets acquired 52.0
Goodwill 73.9
------
Fair value of consideration including expenses 125.9
------
Which is represented by:
Cash consideration to Empire Online Limited 122.2
Expenses 3.7
------
125.9
18. Post balance sheet events
Gamebookers
On 3 August 2006 the Group announced the acquisition of the business and assets
of Gamebookers, an exclusively non-US facing online sportsbook business, from
Trident 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/or
days' 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 the
players' 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 legal
EPS' 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 Plc
PartyGaming'
'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, prior
PartyGaming to 7 February 2005, PartyGaming Holdings Limited (formerly Headwall Ventures Limited) and its
Group' 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 websites
Casino'
'Principal Anurag Dikshit (holding through Crystal Ventures Limited), James Russell DeLeon (holding through
Shareholders' 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 are
sign-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 period
player'
'yield per unique net gaming revenue (net of customer bonuses and other fair value adjustments to revenues) divided by
active 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 for
the six months ended 30 June 2006 set out on pages 14 to 29. We have read the
other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Our report has been prepared in accordance with the terms of our engagement to
assist the company in meeting the requirements of the Listing Rules of the
Financial Services Authority and for no other purpose. No person is entitled to
rely on this report unless such a person is a person entitled to rely upon this
report by virtue of and for the purpose of our terms of engagement or has been
expressly authorised to do so by our prior written consent. Save as above, we do
not accept responsibility for this report to any other person or for any other
purpose and we hereby expressly disclaim any and all such liability.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with Listing Rules of
the Financial Services Authority which require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with International Standard on Auditing (UK and Ireland)
and therefore provides a lower level of assurance than an audit. Accordingly we
do 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 that
should be made to the financial information as presented for the six months
ended 30 June 2006.
BDO Stoy Hayward LLP
Chartered Accountants
London
7 September 2006
This information is provided by RNS
The company news service from the London Stock Exchange
