Interim Results

Empire Online Limited 26 September 2006 26 September 2006 EMPIRE ONLINE LIMITED INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2006 Empire Online Limited (the 'Company' or 'Empire Online'), a provider of marketing services to the online gaming industry, today announces its interim results for the six months ended 30 June 2006. OPERATING AND FINANCIAL HIGHLIGHTS: • Earnings before interest taxation depreciation and amortisation (EBITDA) and non-recurring exceptional items of $15.7m (H1 2005: $24.9m*). • Net cash position of over $260m. • Net profit before taxation, non-recurring items and amortisation of $20.0m (H1 2005: $25.5m*) including net finance income of $4.7m (H1 2005: $0.9m*). • Net gaming revenue for H1 2006 was $38.2m (H1 2005: $49.7m*). Net gaming revenue across all gaming platforms excluding Empire Poker for H1 2006 was $34.7m (H1 2005: $10.7m*). • Casino net gaming revenue for H1 2006 was $30.2m (H1 2005: $10.7m*). • Poker net gaming revenue for H1 2006 was $8.0m (H1 2005: $39.0m*). • Geographic diversification with 55% of new real money players driven from outside of the USA (H1 2005 39%). • Reported profit after amortisation and non-recurring charges before taxation of $253.1m (H1 2005 $21.2m). * Pro forma figure which is defined as the aggregation of the Company for six months to 30 June 2005 and the results of Tradal Limited to 31 May 2005. There will be a presentation to analysts at 9.00am today at Hudson Sandler, 29 Cloth Fair, London, EC1A 7NN. For further investor information please go to http://investors.ep.com/company_information.htm Enquiries: Empire Online Limited +357 25 847 700 Noam Lanir, Chief Executive Officer Andrew Burns, Chief Financial Officer Hudson Sandler +44(0) 20 7796 4133 Jessica Rouleau (The information contained herein is not for publication or distribution to persons in the United States of America. The securities referred to herein have not been and will not be registered under the US Securities Act 1933, as amended, and may not be offered or sold without registration thereunder or pursuant to an available exemption therefrom.) Chief Executive's Statement FINANCIAL REVIEW Net gaming revenues for the first six months of 2006 were $38.2m (2005: $49.7m*). The increase in casino revenues arising from the Playtech licencees acquired in the second half of 2005 offset the reduction in Poker revenues due to the termination of Empire Poker following the settlement agreement with Partygaming plc in February 2006. Total casino revenues for the first six months of 2006 rose to $30.2m (2005: $10.7m*). By contrast, poker revenues for the first six months of 2006 fell to $8.0m (2005: $39.0m*). Gross profit for the first six months of 2006 was $17.6m, 46.1% of revenue (2005: $21.1m, 50.3% of revenue). Gross profit margin has reduced due to the change in product mix towards casino activities. Administration expenses have risen to $2.3m, 6.0% of revenues, for the first six months of 2006 (2005: $1.0m, 2.5% of revenues). This increase is due to additional expenditure due to listing and lag in re-organisation following the disposal of Empire Poker. Administration costs, as a percentage of revenues, is low compared with the sector in general. Net finance income has increased substantially to $4.7m for the first six months of 2006 (2005: $0.7m). This reflects the financial resources available to the group following the Empire Poker settlement. In the second half of the current financial year the Company expects to obtain a yield in excess of LIBOR on its cash resources. The profit from non-recurring items and amortisation of intangible assets excluding goodwill and employee share options was $233m for the period (2005: nil). The net profit from the settlement of Empire Poker was $237m after deducting related costs, which consisted of professional fees and termination costs for affiliates and agents of $13m. Amortisation of intangible assets of $2m was charged during the period mainly relating to Player Data and Domain names associated with the Club Dice and Noble Poker acquisitions. Employee share option amortisation was $1.5m for the period. DIVIDEND The Board declares an interim dividend of $5m, which equates to 1.7 US cents per share. The dividend will be paid on 30 November 2006 to those shareholders on the register at 27 October 2006. TRADING OUTLOOK As was reported within the Q2 KPI announcement, the normal slow down in trading activity seen in Q2 has been more pronounced this year when compared to previous years. Current daily sign up rates of new real money players are approximately 250 players per day. Whilst the Board expects the outcome for the current year to be broadly in line with market expectations, if there is no improvement in this rate of sign ups, earnings growth for 2007 will be challenging. STRATEGIC UPDATE The regulatory uncertainty that the on line gaming industry has always faced has increased as a consequence of recent events. In light of this, the Board will review carefully all uses for the Company's surplus capital in order to maximize shareholder value. The Company will update shareholders in due course. * Pro forma figure which is defined as the aggregation of the Company for six months to 30 June 2005 and the results of Tradal Limited to 31 May 2005. Independent Review Report to Empire Online Limited Introduction We have been instructed by the company to review the financial information for the six months ended 30 June 2006 which comprises the consolidated income statement, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes 1 to 12. We have read the other information contained in the interim report, which comprises only of the operating and financial highlights and the Chief Executive's statement, and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Our responsibilities do not extend to any other information. This report is made solely to the company in accordance with guidance contained in APB Bulletin 1999/4 'Review of Interim Financial Information'. Our review work has been undertaken so that we might state to the company those matters we are required to state to it in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusion we have formed. 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 and for ensuring 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. This Interim report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 'Review of Interim Financial Information' issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of 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 Standards 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. GRANT THORNTON UK LLP Chartered Accountants Slough 26 September 2006 Notes: 1 The maintenance and integrity of the Empire Online website is the responsibility of the directors: the interim review does not involve consideration of these matters and, accordingly, the company's reporting accountants accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. 2 Legislation in the United Kingdom governing the preparation and dissemination of the interim report differs from legislation in other jurisdictions. Financial results Empire Online Limited Consolidated Income Statement for the six months ended 30 June 2006 Amortisation Pre- amortisation and and non-recurring non recurring items items Six months ended 30 June 2006 2006 2006 2005 Year ended 31 December 2005 Unaudited Unaudited Unaudited Unaudited Audited Note $000 $000 $000 $000 $000 Net gaming revenue 38,203 - 38,203 41,953 97,389 Cost of sales (20,560) - (20,560) (20,838) (49,644) ------ ------ ------ ------ ------ Gross profit 17,643 - 17,643 21,115 47,745 Other income - - - 415 - Amortisation and 9 non-recurring items - 233,130 233,130 - (4,581) Administrative expenses (2,353) - (2,353) (1,028) (3,171) ------ ------ ------ ------ ------ Operating profit 15,290 233,130 248,420 20,502 39,993 Net finance income 4,722 - 4,722 695 1,191 ------ ------ ------ ------ ------ Profit before taxation 20,012 233,130 253,142 21,197 41,184 Taxation (4) - (4) (3) (10) ------ ------ ------ ------ ------ Profit after taxation 20,008 233,130 253,138 21,194 41,174 for the period ------ ------ ------ ------ ------ Earnings per share 8 Basic $0.86 $0.86 $0.16 ------ ------ ------ Diluted $0.83 $0.86 $0.16 ------ ------ ------ Empire Online Limited Consolidated Balance Sheet as at 30 June 2006 As at 30 June 31 December 2006 2005 2005 Unaudited Unaudited Audited Note $000 $000 $000 Assets Non-current assets Plant and Equipment 11 167 - 119 Intangibles 221,778 175,750 224,628 ------ ------ ------ 221,945 175,750 224,747 ------ ------ ------ Current assets Trade and other receivables 7,092 7,413 11,431 Cash and cash equivalents 262,114 43,958 16,297 ------ ------ ------ 269,206 51,371 27,728 ------ ------ ------ Total assets 491,151 227,121 252,475 ------ ------ ------ Equity Share capital - - - Share premium 209,807 210,251 209,807 Share option reserve 1,728 - 277 Retained earnings 275,435 12,317 22,297 ------ ------ ------ Total equity 486,970 222,568 232,381 ------ ------ ------ Liabilities Current liabilities Trade and other payables 4,171 4,550 20,088 Current tax payable 10 3 6 ------ ------ ------ Total liabilities 4,181 4,553 20,094 ------ ------ ------ Total equity and liabilities 491,151 227,121 252,475 ------ ------ ------ Consolidated Statement of Changes in Equity for the period ended 30 June 2006 Share Share Share Retained Capital Premium Option Earnings Total Reserve Reserve $000 $000 $000 $000 $000 Balance at 1 January 2005 1 604 - 30,166 30,771 Net profit for the period - - - 41,174 41,174 Issue of Share Capital (1) 222,601 - - 222,600 IPO expenses - (13,398) - - (13,398) Share option reserve - - 277 - 277 Dividends paid - - - (49,043) (49,043) ------ ------ ------ ------ ------ Balance at 31 December - 209,807 277 22,297 232,381 2005 Net profit for the period - - - 253,138 253,138 Share option reserve - - 1,451 - 1,451 ------ ------ ------ ------ ------ Balance at 30 June 2006 - 209,807 1,728 275,435 486,970 ------ ------ ------ ------ ------ Comparative prior period Balance at 1 January 2005 1 604 - 30,166 30,771 Net profit for the period - - - 21,194 21,194 Issue of Share Capital - 209,646 - - 209,646 Adjustment * (1) 1 - - - Dividends paid - - - (39,043) (39,043) ------ ------ ------ ------ ------ Balance at 30 June 2005 - 210,251 - 12,317 222,568 ------ ------ ------ ------ ------ * Shares in issue at 1 January 2005, had a par value of US $0.01 each. On 15 June 2005 each share was converted and reclassified to 2,066.222427 ordinary shares of no par value. Empire Online Limited Consolidated Cash Flow statement for the six months ended 30 June 2006 Year ended Six months ended 30 June 2006 2005 31 December 2005 Unaudited Unaudited Audited Cash flows from operating activities Note $000 $000 $000 Profit before taxation 253,142 21,197 41,184 Adjustments for Depreciation and amortisation 2,508 242 2,898 Change in accounting estimate 798 - - Interest income (4,682) (712) (1,159) Interest expense 68 17 55 Equity settled share options 1,451 - 277 Profit on EP disposal (236,657) - - ------ ------ ------ 16,628 20,744 43,255 ------ ------ ------ Changes in working capital Decrease/(increase) in trade and other receivables 4,339 (1,450) 6,900 (Decrease)/increase in trade and other payables (15,917) 1,230 16,904 Taxation paid - - (4) ------ ------ ------ (11,578) (220) 23,800 ------ ------ ------ Net cash generated from operating activities 5,050 20,524 67,055 ------ ------ ------ Cash flows from investing activities Purchase of plant and equipment (83) - (131) Purchase of intangible assets (421) (175,198) (5,528) Acquisition of business - - (221,192) Disposal of assets 9 236,657 - - Interest income received 4,682 712 1,159 ------ ------ ------ Net cash generated from/(used in) investing activities 240,835 (174,486) (225,692) ------ ------ ------ Cash flows from financing activities Loans to shareholders - 12,504 - Dividends paid - (39,043) (49,043) Proceeds from issue of shares - 209,646 209,202 Interest paid (68) (17) (55) ------ ------ ------ Net cash (used in)/generated from financing activities (68) 183,090 160,104 ------ ------ ------ Net increase in cash and cash equivalents 245,817 29,128 1,467 Cash and cash equivalents at the beginning of the 16,297 14,830 14,830 period ------ ------ ------ Cash and cash equivalents at the end of the period 262,114 43,958 16,297 Empire Online Limited Notes to the financial information Six months ended 30 June 2006 1. Accounting Policies The Interim financial statements of Empire Online Limited have been prepared on the basis of the accounting policies stated in the Annual Report 2005, available on www.ep.com. The financial information has been prepared in accordance with IAS 34 'Interim Financial Reporting'. Basis of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. The subsidiaries are companies controlled by Empire Online Limited. Control exists where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Subsidiaries are consolidated from the date the parent gained control until such time as control ceases. The financial statements of the subsidiaries are included in the consolidated financial statements using the acquisition method of accounting. On the date of the acquisition the assets and liabilities of a subsidiary are measured at their fair values and any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Intercompany transactions and balances are eliminated on consolidation. Basis of preparation These results have been prepared on the basis of the accounting policies expected to be adopted in the Company's full year financial statements, which are expected to be prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union. Goodwill is initially measured at cost, being the excess of the consideration paid over the net fair value of the assets acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is not amortized. Goodwill is reviewed annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The financial information for the period ending 30 June 2005 is extracted from the Group's financial statements for the year ended 31 December 2005. 2. Unusual items During the period the company has disposed of certain assets as a result of a legal dispute with PartyGaming Plc. This disposal may be considered as unusual due to its size and form. The impact of this is disclosed in notes 4 and 5. 3. Change of Estimates During the year ended 31 December 2005, a provisional amount was used in respect of goodwill $44,074,000 relating to the acquisition of Club Dice. This was reduced by $798,000 during the period upon finalization of the total amount due to the selling party. 4. Effect of changes in the composition of the entity In February 2006 certain trade assets were disposed to PartyGaming for $250m. The assets included in the disposal are certain domain names and the brand names 'Empire Poker' and 'Ace Club'. These brands and domain names were used by Empire Online to direct online poker and casino players to Partygaming's websites, creating net gaming revenue for the Group. In the year ended 31 December 2005, the gross profit before administrative expenses attributable to the assets being sold was approximately $38.5 million. In the quarter ended 31 December 2005 the assets contributed gross profit before administrative expenses of $5.0 million. The balance sheet value of the net assets pursuant to the disposal was less than $0.1 million as at 31 December 2005. In the quarter ended 31 March 2006 the assets contributed gross profit before administrative expenses of $2.5 million. 5. Segment Information in respect of assets disposed during period Business Segment Six months ended 30 June 2006 Unaudited $000 Revenue by business segment Poker 3,553 Casino 556 ------ 4,109 ------ Segment result by business segment Poker 2,007 Casino 540 ------ Gross profit before central costs 2,547 ------ 6. Dividend The Board declares an interim dividend of $5m, which equates to 1.7 US cents per share. The dividend will be paid on 30 November 2006 to those shareholders on the register at 27 October 2006. 7. Segment Information for the period Business segments The Group's performance is analysed by its two business segments below: Year ended 2006 2005 31 December 2005 Six months ended 30 June Unaudited Unaudited Audited $000 $000 $000 Revenue and result by business segment Casino Net gaming revenue 30,209 2,943 23,635 ------ ------ ------ Segmental result 15,754 2,089 12,719 ------ ------ ------ Poker Net gaming revenue 7,994 39,010 73,754 ------ ------ ------ Segmental result 3,163 24,030 38,274 ------ ------ ------ Consolidated Net gaming revenue 38,203 41,953 97,389 ------ ------ ------ Segmental results 18,917 26,119 50,993 Central costs (1,274) (5,004) (3,248) ------- ------- ------- Gross Profit 17,643 21,115 47,745 ------ ------ ------ 8. Earnings per share Basic earnings per share have been calculated by dividing the net profit attributable to ordinary shareholders (profit for the period) by the weighted average number of shares in issue during the period. Six months ended 30 June 2006 2005 Year ended 31 December 2005 Unaudited Unaudited Audited $000 $000 $000 Net profit attributable to ordinary shareholders 253,138 21,194 41,174 ($000) --------- --------- --------- Weighted average number of ordinary shares/ (number) 292,777,772 24,505,698 260,689,492 --------- --------- --------- Basic earnings per share ($) 0.86 $0.86 $0.16 --------- --------- --------- Weighted average number of ordinary shares/ (number) 305,767,612 24,564,494 260,862,570 --------- --------- --------- Diluted earnings per share ($) 0.83 $0.86 $0.16 --------- --------- --------- There are potentially dilutive shares in existence at the period end. Diluted earnings per share have been calculated by dividing the net profit attributable to ordinary shareholders (profit for the period) by the weighted average number of shares in issue during the period. 9. Amortization and non-recurring items These items are of a non-recurring nature and they include the net profit from the disposal to PartyGaming, the amortisation of the share options scheme and the amortisation of the Player Data and Domains acquired during 2005. 2006 2006 Unaudited Unaudited $000 $000 Disposal proceeds received 250,000 Legal and other expenses paid (11,800) Affiliate costs paid (1,543) ------- Profit from disposal to PartyGaming 236,657 Less amortisation: Player Data and Domains (2,076) Share Options (1,451) (3,527) ------- ------- Total amortisation and non-recurring items 233,130 ------- 10. Related parties transactions Six months ended 30 June 2006 2005 Unaudited Unaudited $000 $000 Administration services provided by Tradal Ltd 305 631 --- --- Tradal Limited is a related party by virtue of common ownership with Empire Online Limited. 11. Property, plant and equipment During the six months ended 30 June 2006, the group has acquired property, plant and equipment with a cost of $83,000. Depreciation of $35,000 has been charged during the period. 12. Preparation of Interim Statements The financial information does not constitute statutory accounts within the meaning of the BVI International Business Companies Act 1984 (as amended). Financial Statements for Empire Online Limited for the year ended 31 December 2005, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, on which the auditors gave an unqualified audit report are available from the company's website, www.ep.com. Pro Forma Financial Information The pro-forma financial information has been prepared so as to provide comparable information for the transitional year of 2005 during which certain assets were acquired by the Group from Tradal Ltd, a related company incorporated in St. Vincent and the Grenadines. Tradal Ltd will continue to play an important role for the Group as some of the key members of staff are employed by this company. This company charges a service fee for the services provided by its staff members. To provide comparable financial information with that included within the AIM admission document, the aggregation of the income statements for both Empire Online Limited and Tradal Limited is shown below. This aggregation has been prepared from the audited financial statements for the year ended 31 December 2005 and the unaudited results for the interim period ended on 30 June 2006. Empire Online Limited Pro Forma Income Statement for the six months ended 30 June 2006 Pre- amortisation and Amortisation non-recurring and non items recurring items Six months ended 2006 2006 2006 2005 Year ended 31 December 2005 $000 $000 $000 $000 $000 Unaudited Unaudited Unaudited Unaudited Unaudited Net gaming revenue 38,203 - 38,203 49,744 105,181 Cost of sales (20,560) - (20,560) (24,439) (53,244) ------ ------ ------ ------ ------ Gross profit 17,643 - 17,643 25,305 51,937 Other income - - - 415 - Amortisation and non-recurring items - 233,130 233,130 - (4,581) Administrative (2,353) - (2,353) (1,134) (3,249) expenses ------ ------ ------ ------ ------ Operating profit 15,290 233,130 248,420 24,586 44,107 Net finance income 4,722 - 4,722 925 1,392 ------ ------ ------ ------ ------ Profit before 20,012 233,130 253,142 25,511 45,499 taxation Taxation (4) - (4) (15) (22) ------ ------ ------ ------ ------ Profit after taxation for the period 20,008 233,130 253,138 25,496 45,477 ------ ------ ------ ------ ------ Earnings per share Basic $0.86 $0.09 $0.17 ------ ------ ------ Diluted $0.83 $0.09 $0.17 ------ ------ ------ Empire Online Limited Pro Forma Cash Flow statement for the six months ended 30 June 2006 Year ended Six months ended 30 June 2006 2005 31 December 2005 Unaudited Unaudited Unaudited Cash flows from operating activities $000 $000 $000 Profit before taxation 253,142 25,511 45,499 Adjustments for Depreciation and amortisation 2,508 299 2,928 Change in accounting estimate 798 - - Interest income (4,682) (951) (1,395) Interest expense 68 22 90 Equity settled share options 1,451 - 277 Exceptional profit of EP disposal (236,657) - - ------ ------ ------ 16,628 24,881 47,399 ------ ------ ------ Changes in working capital Decrease/(increase) in trade and other 4,339 (6,715) 14,039 receivables (Decrease)/increase in trade and other payables (15,917) 2,311 15,793 Taxation paid - (26) (4) Change in related party balances - 1,377 - ------ ------ ------ (11,578) (3,053) 29,828 ------ ------ ------ Net cash generated from operating activities 5,050 21,828 77,227 ------ ------ ------ Cash flows from investing activities Purchase of plant and equipment (83) (48) (131) Purchase of intangible assets (421) (175,253) (5,558) Acquisition of business - - (221,192) Elimination of Tradal Ltd assets and liabilities - - 216 Disposal of assets 236,657 - - Interest income received 4,682 951 1,395 ------ ------ ------ Net cash generated from/(used in) investing 240,835 (174,350) (225,270) activities ------ ------ ------ Cash flows from financing activities Loans to shareholders - 12,533 - Dividends paid - (39,043) (49,043) Proceeds from issue of shares - 209,646 209,203 Decrease in Capital Account - - (18,010) Decrease in Treasury Shares - - 445 Interest paid (68) (22) (90) ------ ------ ------ Net cash (used in)/ generated from financing (68) 183,114 142,505 activities ------ ------ ------ Net increase/(decrease) in cash and cash 245,817 30,592 (5,538) equivalents Cash and cash equivalents at the beginning of the 16,297 21,835 21,835 period ------ ------ ------ Cash and cash equivalents at the end of the 262,114 52,427 16,297 period ------ ------ ------ END This information is provided by RNS The company news service from the London Stock Exchange

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