Probability plc
03 July 2007
Probability plc / Index: AIM / Epic: PBTY / Sector: Gaming
3 July 2007
Probability plc ('the Company')
Final Results
Foundations laid for Profitable Growth
Probability plc, the AIM quoted mobile phone gambling specialist, today
announces its results for the year ended 31 March 2007.
Financial highlights
• Admission to AIM in August 2006 with £3.7m new investment (net of
expenses)
• Turnover for the year up to £11.9m (2006: £833,000), with significant
revenue growth in second half of the year. (See Turnover note below. The
equivalent net win for the year to 2007 is £1.6m)
• In line with management expectations, operating losses before exceptional
items of £2.2m (2006: £733,000) following investment in technology and
infrastructure to support future growth
• Current cash at bank £1.67m
Commercial highlights
• Vertically integrated offering including games development, in house
technical team and proprietary electronic wallet
• New, high margin Bingo! game launched
• Own brand launched and relationships secured with major Telco's including
Orange, Three and T-Mobile, as well as O2 i-mode
• Well positioned to move into a period of rapid growth from a stable
technological, regulatory and cost base
Charles Cohen, Chief Executive Officer, said, '2006 was a foundation setting
year for the Company in which we established a firm base for future growth. The
addressable market for mobile gambling is now experiencing the rapid expansion
which has long been forecast. Our position and reputation as a specialist in
mobile gambling puts Probability at the forefront of what we believe will be the
next great race in the development of the remote gaming industry in the UK and
world wide: the mobile opportunity. We have built our business by bringing
familiar regulated gaming formats - Casino, Bingo and Slots - to mobile. This
is, and will remain, the backbone of our business.
'We also believe that we have an opportunity during 2007 to deploy our mobile
technology, expertise and relationships in developing new products for our
portfolio which could provide new and significant mobile gambling revenue
streams. We look forward to sharing with investors the fruits of our innovation
programme in the coming months.'
For further information visit www.probabilityplc.com or contact:
Charles Cohen (CEO) Probability plc Tel: 020 7290 0640
Ravi Ruparel (FD) Probability plc Tel: 020 7290 0640
Isabel Crossley St Brides Media & Finance Ltd Tel: 020 7242 4477
Stuart Andrews Evolution Securities Limited Tel: 020 7071 4300
CHAIRMAN'S STATEMENT
This has been a year of strong growth for the Company and I believe Probability
has consistently demonstrated an ability to achieve its growth targets and
secure its position as being a leading company in the newly emerging mobile
gambling industry. Importantly, the particularly strong growth experienced in
the period post flotation underlines the potential which this business has to
secure a leading position in this newly emerging sector.
The underlying strength of Probability's business remains our focus on the
mobile consumer and in the technologies we have developed that enable us to
overcome the distinctive challenges presented by a mobile environment, in which
as many as ten new phones reach the market each week.
Changes in the regulatory environment in the past year have favoured us and
strengthened our position. The Company has never taken bets from the United
States and is currently largely focussed on the UK domestic market. The move of
our gambling operations to Alderney post flotation placed us on a sound footing
in the context of the 2005 Gambling Act. From September 2007 we anticipate a
relaxation of the rules for advertising and promotion of our services that will
significantly increase our potential marketing choices.
Looking ahead, our strategy remains to focus on the mobile user and to move
towards profitability in our core Casino, Bingo and Slots business. We are
confident of achieving this within current resources. In addition, we are
pursuing an aggressive programme of innovation aimed at bringing entirely new
gambling formats to market, which are uniquely positioned to take advantage of
people's mobile lifestyles. Any one of the new concepts currently under
consideration could add significant new revenue streams to the Company and
support the core business with additional customer flows. However, no new
revenues have been forecast at this point in time.
Ahead of management expectations, Probability is reporting a turnover of £11.9m
(2006: £833k). Following investment in technology and building a platform for
sustained growth and in line with expectation is reporting a full year pre-tax
loss before exceptional items of £2.2 million (2006: £733,000).
Having raised £3.7m (net) at the time of its AIM flotation, the Company's cash
position at 31 March 2007 was £1.67m (2006: £572km). The Directors continue to
focus on achieving profitability in the UK during the coming financial year.
The Directors do not recommend the payment of a dividend, but continue to invest
in the development of the business.
I would like to thank our whole team for their continued dedication and
contribution to the Company and its development. Our achievements genuinely are
theirs. Every day we are breaking new ground and being presented with challenges
to overcome, which demand teamwork, imagination, intelligence and persistence -
which we unerringly do.
We are fully confident that the next stage of our growth will see us achieve
positive cash flow in our core business with the opportunity to generate
significant new revenues through innovative new products for mobile gambling
customers.
Graham Parr
Chairman
3 July 2007
BUSINESS REVIEW
Probability is a vertically integrated developer, operator and manager of
gambling services for mobile phone users. Our strategy at this stage of our
business development and in the early stages of the market is to control as much
of the value chain as possible in order to control margins and reduce risk.
We therefore maintain a technology development and design department in house,
as well as marketing and customer relationship management. Currently, all bets
are taken by us under our own gambling licence in Alderney.
Ownership of our own electronic wallet enables us to manage all payments to and
from users through a variety of financial instruments ranging from traditional
credit card payments to over-the-counter cash vouchers and mobile bill charging.
During the year we made significant progress in all aspects of the operation:
Expanded product portfolio
In the year to 31 March 2007, Probability continued to advance its strategy of
developing and operating a wide portfolio of popular mobile gambling formats and
associated payment services for mobile phone users. As well as completing the
'classic' Casino games we introduced a very successful Bingo product, which now
accounts for some 50% of revenues.
We plan to make significant additions to the product portfolio during 2007 by
improving our existing offering and adding potential new revenue streams from
innovative new mobile gambling services currently under consideration.
Introduced 'house' brand: Lady Luck's
As well as a 'white label' service for larger mobile content distributors and
other gambling companies, the Company extended the promotion of its house brand,
Lady Luck's, to smaller affiliates and through performance marketing.
During the coming year we plan to review our branding strategy as the market
develops and have explored other opportunities including the creation of a
Bingo! service endorsed by the astrologer Russell Grant.
Driving Customer Acquisition through diverse channels
Access to varied and dynamic streams of new customers on their mobile devices is
and remains the key marketing channel for all our services. Our strategy is to
favour performance based marketing and where this is not available, to identify
routes to acquiring customers which have a predictable return on investment.
The market for mobile content distribution changed significantly during 2006
following a shake-out of many firms using subscription payment models and a
sharp decline in margins for products such as ring tones. At the same time, a
critical mass of more capable devices in the hands of consumers created a new
market for more sophisticated and higher value products and services on mobile
phones, particularly for games and video content.
We have positioned ourselves to take advantage of this change in the market by
developing our capability to recruit customers through links and adverts on
mobile internet sites, including mobile network operator portals, and
establishing strong relationships with the key companies in the mobile
advertising agencies and networks. We anticipate that mobile internet
advertising will continue to grow and become a major, if not the major, source
of cost effective customer recruitment for us in the near future.
We have portal presence on a revenue share basis on Orange, Three and T-Mobile,
as well as O2 i-mode. We expect to be able to access other operator portals in
due course as they introduce appropriate sections or allow advertising.
A very recent and positive development has been the emergence of a mobile search
market, which allows us to bid for positions in mobile internet searches.
Google, MSN and Yahoo! currently dominate this area and we have begun working
with all of these directly or through specialist agencies. We expect mobile
search to provide a significant additional source of new customers in the coming
year.
At the same time we will retain our white label business focussing on those
partners who wish to mobilise an existing base of gambling customers, using our
unique technology and mobile skills, as well as long standing relationships with
mobile content companies who have significant databases of customers.
Customer Relationship Management ('CRM')
A significant part of the investment post flotation was on back-end systems
designed to provide a tailor-made platform for SMS and in-game promotion to
existing players. We are now able to generate promotional campaigns to our
players in real time with precision targeting capabilities that yield ROI
figures as high as 1000% and response periods of less than two minutes.
A creative and data driven approach to CRM is a key success factor in any
gambling business. Ownership of such tools and our experience in using them is
perceived as a key asset, which will reward continued investment in every way.
Geographic focus
Uncertainty in the international arena led us to scale back our international
ambitions to small scale trial marketing in South Africa and Ireland. Future
activity is under review and is subject to legal risk assessment. We have never
taken bets from the United States and have no plans to do so. Our focus for the
coming year will remain achieving profitability in the UK market.
Regulation and Social Responsibility
The Company is committed to operating at the highest level of regulatory probity
and ethical standards as a critical success factor in the execution of its
commercial plans. In September 2006, following flotation on the AIM market,
Probability relocated its gambling operations to Alderney under a full
E-Gambling licence, one of the most respected jurisdictions for remote gaming.
The Company also secured a certificate for social responsibility from GamCare,
the leading charity concerned with problem gambling.
We continue to keep a close eye on developments in the regulatory environment
and will take any actions necessary to mitigate any potential risks which may
arise, although we do not currently perceive any short or medium term regulatory
risk affecting our existing business.
Management Information Systems
An additional investment was made during the year in a real-time management
information system, which produces a 'live' profit and loss screen for internal
use as well as flexible and powerful tools for different parts of our operation
to manage our services pro-actively and with reliable data.
Market trends
Several significant trends are creating a rising tide for mobile gambling which,
properly positioned, Probability will be able to take advantage of. In
particular, the main trends in the marketplace are:
1. Mobile internet usage is creating mass market demand for mobile content and
services. Previously a youthful early adopter community drove mobile
services with low value purchases such as ring tones and small games. Now,
however, sufficient numbers of regular consumers have capable devices to
create a substantial new market for higher value services. 27% of UK mobile
customers now regularly use mobile internet services, with some networks
such as Three having over 60% uptake.
2. Mobile operators are reducing the cost of going on-line with your mobile. O2,
T-Mobile and Three all have flat-rate data tariffs. Other operators are
cutting their package charges or considering flat-rate options for
consumers. Evidence from the domestic broadband market and also overseas
mobile markets (particularly Japan) suggests that removing the pay-as-you-go
barrier from data charging can have a significant positive impact on usage.
3. Deregulation of promotion of gambling services by the 2005 Act alters the
landscape for direct to consumer promotion in the UK. The provisions of the
2005 Gambling Act will come into force on 1 September 2007 to substantially
relax the rules governing the promotion of gambling services in the UK.
Until now, promotion direct to consumer has been less effective than it
might because of the restrictions which will fall away when the Act comes
into force.
In addition to these trends in the market for mobile content and services, we
believe that long term re-structuring of the gambling industry also works in our
favour. In particular we believe that:
a) The trend of remote gambling as a socially acceptable activity, which
began in earnest with the introduction of the National Lottery, is now
deeply rooted and will be reinforced by the new regulatory regime of the
2005 Act, which puts consumer protection at the heart of the legal
framework. This creates a positive atmosphere for innovative services
such as ours.
b) UK Gamblers have significantly more choice than previously and have
demonstrated a willingness to try new things and engage with new brands.
In particular, this is demonstrated by the success of Fixed Odds Betting
Terminals in licenced betting premises, and by the emergence of new brands
for gambling that exist only on the Internet for Casino and Poker. We
believe that this indicates an opportunity for Probability to be closely
identified with mobile gambling as a separate and additional type of
gambling rather than a cross-over from other forms of gambling by existing
brands.
These trends provide support for the core vision of our business and indicate
the scale of the opportunity available to us. We will therefore continue to
pursue our strategy of focussing on the UK mobile consumer by offering a first
rate mobile Casino product, mobile Bingo and Slots.
Outlook
The strategy outlined above will, we believe, continue to drive the business to
positive cash flow during the coming financial year.
In addition to the core business, we are pursuing an aggressive programme of
innovation aimed at developing new, mobile-centric, gambling formats which
could, if successful, provide new flows of customers to the core business as
well as generate significant new revenue streams in their own right.
Probability continues to grow at a pace both in terms of number of players
acquired and revenue generated. We believe that the market is moving in our
favour. Together with our advanced technology and our first mover advantage, we
believe we will continue to deliver accelerated levels of growth as we move
towards profitability.
Group Profit and Loss Account
For the year ended 31 March 2007
2007 2006
£ £
Group Turnover 11,941,800 833,459
Cost of sales (11,797,537) (697,482)
---------- ----------
Gross profit 144,263 135,977
Distribution costs (295,715) (135,680)
Administrative expenses excluding exceptional items (2,049,516) (758,558)
Other operating income - 25,000
---------- ----------
Operating loss before exceptional items (2,200,968) (733,261)
---------- ----------
Operating exceptional item (1,569,127) -
---------------------------- ---------- ----------
Total administration expenses (3,618,643) (758,558)
---------------------------- ---------- ----------
Operating loss (3,770,095) (733,261)
Interest receivable 75,987 13,099
Interest payable (25,026) (15,000)
---------- ----------
Loss on ordinary activities before taxation (3,719,134) (735,162)
Tax on loss on ordinary activities - 195,483
---------- ----------
Loss for the financial year (3,719,134) (539,679)
---------- ----------
Loss per ordinary share
Basic and diluted (23.65p) (4.82p)
The profit and loss account has been prepared on the basis that all operations
are continuing operations.
There are no recognised gains or losses other than those recorded in the profit
and loss account.
Group Balance Sheet
As at 31 March 2007
2007 2006
£ £
Fixed assets
Intangible assets 122,670 64,120
Tangible assets 170,466 25,604
---------- ----------
293,136 89,724
Current assets
Debtors due within one year 299,548 318,701
Debtors due after more than one year 195,483 195,483
Cash at bank and in hand 1,670,781 572,285
---------- ----------
2,165,812 1,086,469
Creditors: amounts falling due within one year (399,936) (553,902)
---------- ----------
Net current assets 1,765,876 532,567
---------- ----------
Total assets less current liabilities 2,059,012 622,291
Creditors: amounts falling due after more than one
year - (40,556)
---------- ----------
Net assets 2,059,012 581,735
---------- ----------
Capital and reserves
Called up share capital 179,699 121,160
Share premium 3,568,744 -
Merger reserve 1,379,873 1,379,873
Other reserve 1,569,128 -
Profit and loss account (4,638,432) (919,298)
---------- ----------
Shareholders' funds 2,059,012 581,735
---------- ----------
Group Cash Flow Statement
For the year ended 31 March 2007
2007 2006
£ £
Reconciliation of operating profit to net cash
inflow from operating activities
Operating loss (3,770,095) (733,261)
Share based payments 1,569,128 -
Depreciation charges 27,989 8,132
Amortisation of Intangibles 43,457 -
Decrease/(increase) in debtors 19,153 (267,793)
(Decrease/increase in creditors (175,627) 391,004
Movement in Provision - (25,000)
--------- ----------
Net cash outflow from operating activities (2,285,995) (626,918)
--------- ----------
CASH FLOW STATEMENT
Net cash outflow from operating activities (2,285,995) (626,918)
Returns on investments and servicing of finance 50,961 13,099
Taxation - -
Capital expenditure (274,858) (96,416)
--------- ----------
(2,509,892) (710,235)
Financing 3,627,283 1,194,019
--------- ----------
Increase in cash 1,117,391 483,784
--------- ----------
Reconciliation of net cash flow to movement in net funds
Increase in cash in the period 1,117,391 483,784
--------- ----------
Change in net funds 1,117,391 483,784
Notes to the Accounts
For the year ended 31 March 2007
1. Probability plc was incorporated on 26 May 2006 for the purpose of achieving
admission to trading on Alternative Investment Market ('AIM') of the existing
business of Probability Games Corporation Limited (which was originally
established in 2003) and its subsidiaries. On 12 June 2006, Probability plc
acquired the entire share capital of Probability Games Corporation Limited
('PGC') by means of a share for share exchange. The transaction qualified as a
group reconstruction within the meaning of Financial Reporting Standard 6
'Acquisitions and Mergers', and has been accounted for using the merger
accounting method.
Basis of preparation
a) Current period
The financial statements consolidate the results, cash flows and assets and
liabilities of the company and its wholly owned subsidiary undertakings by the
method of merger accounting. As shareholders are aware the Group's commercial
business and trading are carried out almost entirely by the subsidiary
undertakings, PGC and Probability Games (Alderney) Limited ('Alderney').
Both the Companies Act 1985 and applicable accounting standards require that the
results of the subsidiary undertakings should be included for the full period of
the company's financial year, which is the ten month period from incorporation
from 26th May 2006 to 31 March 2007.
However, the directors consider that to present the profit and loss for the
Group which comprises essentially the profit and loss of PGC and Alderney on
this ten month basis would be misleading, as financial statements reflecting the
normal (12 month) accounting period of PGC and Alderney would give a fairer
presentation of the trading results of the Group.
The directors have therefore prepared these financial statements including the
results of its subsidiary undertakings from 1 April 2006 in order to present a
true and fair view.
b) Corresponding amounts
As these are the company's first annual accounts, there are no corresponding
amounts. However, in order to provide meaningful comparative information,
corresponding amounts have been prepared as if the company and hence group had
been in existence prior to 1 April 2005.
Accounting convention
The accounts have been prepared under the historical cost convention and in
accordance with applicable United Kingdom Accounting Standards.
Depreciation
Depreciation is provided on all tangible fixed assets, other than freehold land,
at rates calculated to write off the cost, less estimated residual value, of
each asset evenly over its expected useful life, as follows:
Plant and machinery 25% straight line
Fixtures, Fittings and equipment 25% straight line
Deferred taxation
Deferred Tax is provided in full in respect of taxation deferred by timing
differences between the treatment of certain items for taxation and accounting
purposes. The deferred tax balance has not been discounted.
Deferred tax assets are recognised to the extent that they are recoverable. They
are regarded as recoverable to the extent that, on the basis of all available
evidence, it can be regarded as more likely than not that there will be suitable
taxable profits from which the future reversal of the underlying timing
differences can be deducted.
Foreign currencies
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are translated at the rate of exchange ruling at the balance sheet
date. All differences are taken to the profit and loss account.
Share based payments
From 1 March 2006 the group adopted FRS 20 which deals with share-based payments
made for services or goods rendered. The fair value of share options granted is
calculated using the Black Scholes option pricing model. The expense is spread
over the period from the date of grant to the date that options vest and are
exercisable, based on the company's best estimate of the number of shares that
will eventually vest.
Research and development costs
Research costs are charged as an expense in the period in which they are
incurred. Development costs are charged as an expense in the period incurred
unless the Company believes a development project meets generally accepted
accounting criteria for deferral and amortisation.
Pensions
The group makes contributions to the personal pension plans of certain
employees. Contributions are charged to the profit and loss account as they
become payable.
Operating leases
Operating lease rentals are charged to the profit and loss account on a straight
line basis over the lease term.
Players deposits
The players deposits are considered as amounts held for third parties and kept
separately from those of the company's own cash deposits. These deposits are
fully repayable on demand. Included within cash at bank and in hand as at the
balance sheet date is an amount of £49,000 relating to player deposits with a
corresponding liability within other creditors.
Financial instruments
Financial Reporting Standard 13 requires information to be disclosed about the
impact of financial instruments on the group's risk profile, how the risks
arising from financial instruments might affect the entity's performance, and
how these risks are being managed.
The group's policies include that no trading in derivative financial instruments
shall be undertaken for speculative purposes.
2. Turnover
Turnover represents the value of goods and services supplied by the company.
During the year this was either invoices raised, gross wagers or license fee
income.
The total turnover of the group for the year has been derived from its principal
activity wholly undertaken within the United Kingdom.
Since 1st September 2006 the Group has derived its Turnover from Gross Wagers
through its Alderney Company. Prior to this all turnover was fee income and not
Gross wagers. This is because it was from this date that the Company started to
operate its gambling services under license in Alderney.
The financial information contained in this report does not constitute full
statutory accounts within the meaning of Section 240 of the Companies Act 1985.
The figures are extracted from the unaudited financial statements for the period
ended 31 March 2007 which will be filed with the Registrar of Companies
following formal completion of the audit.
* *ENDS * *
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