Interim Results
Empire Online Limited
01 August 2005
1 August 2005
For Immediate Release
EMPIRE ONLINE LIMITED MAIDEN INTERIM RESULTS FOR SIX MONTHS ENDED 30 JUNE 2005
Empire Online Limited (the 'Company' or 'Empire Online'), a leading provider of
marketing services to the online gaming industry, today announces its interim
results for the six months ended 30 June 2005.
OPERATING AND FINANCIAL HIGHLIGHTS:
• Successful listing on AIM raising approximately $222m before expenses of $13.7m.
• Interim dividend of US 3.4 cents per Ordinary Share.
Pro forma:
• Net gaming revenues up 97.2% to $49.7m (H1 2004: $25.2m).
• Gross profit up 75.7% to $25.3m (H1 2004: $14.4m).
• Profit before taxation up 87.5% to $25.5m (H1 2004: $13.6m).
• Number of New Real Money Players acquired by the Company during
H1 2005 (Poker and Casino) rose by 101% to 92,213 (H1 2004: 45,862).
• Increase of 222% in Poker Active Player Days 2,846,549 (H1 2004: 885,339)
Pro forma is defined as the aggregation of the results of the company for the
six months till 30 June 2005 and the results of Tradal Limited till May 31,
2005.
Commenting on the results, Noam Lanir, CEO of Empire Online Limited, said:
'Empire Online has experienced a strong half-year and remains focused on rapid
growth while containing costs. The resource for the half-year show that these
two core objectives have been achieved despite investing in operations to
support continued growth and management's focus on successfully taking the
Company public. 2005 is shaping up to be a landmark year for the Company'.
There will be a presentation to analysts at 9.00am today at Citigate Dewe
Rogerson, 3 London Wall Buildings, London EC2M 5SY. For further investor
information please go to http://investors.ep.com/company_information.htm
Enquiries:
Empire Online Limited +44(0) 20 7638 9571
Noam Lanir, Chief Executive officer
Yossef Pereg, Chief Financial officer
Andrew Burnett
Numis Securities +44(0) 20 7776 1500
James Black
Citigate Dewe Rogerson +44(0) 20 7638 9571
Simon Rigby
Sarah Gestetner
Ged Brumby
The information contained herein is not for publication or distribution to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.
FINANCIAL RESULTS
The 'pro forma' statements refer to the aggregated results of the company and
Tradal Limited as if they were one operating company for the entire period under
review.
POKER: The Group's poker revenues have grown rapidly in H1 2005, with all
elements meeting the Board's expectations.
• Pro Forma Poker revenue up 180.6% to US$39.0m (H1 2004: US$13.9m).
CASINO: Casino net revenues have dropped off a little from last year's levels
due to an extraordinary series of Jackpots won by the Company's players in
excess of, US$1 million, in aggregate.
• Pro Forma Casino revenue down 6.1% to US$10.7m (H1 2004: US$11.4m).
Pro Forma Financial Results for the Group. See note (6)
• Revenue up 97.2% to US$49.7m (H1 2004: US$25.2m).
• Cost of sales for the six months ended 30 June 2005 up 125.9% to $24.4m (H1 2004: $10.8m).
• Gross profit of US$25.3m, up 75.7% (H1 2004: US$14.4m).
• Gross margin decreased to 50.9% (H1 2004: 57.0%). The increase in the cost of sales is due to the Company
investing in further strong future growth and relates to, inter alia, an increase in offline activities.
• Administrative expenses grew to $1.1m (H1 2004 US$1.0m). The percentage of administrative expenses to revenue
decreased from 4% at H1 2004 to 2% at H1 2005.
• Operating profit for 2005 H1 was up 83.6% to US$24.6m (2004: US$13.4m).
• Net finance income increased 312.9% to $0.9m (H1 2004 $0.2m).
• Profit before taxation increased by 87.6% to $25.5m (2004: US$13.6m).
• Basic and diluted earnings per share were $0.09 (H1 2004: US$0.05).
• During the six months ended 30 June 2005, the group generated cash from operating activities of $21.8 (2004
US$37.4). In H1 2004 the company granted the shareholders loans of US$16.4m. These loans where set against
dividend in 2005.
Q2 2005 SUMMARY
FINANCIAL RESULTS
During the second quarter of 2005 the Company has continued its planned offline
marketing scheme, which has delivered positive results. The Company is planning
to launch offline campaigns in four more countries during the next six months.
Key highlights pro forma for Q2 2005 include:
• Strong net gaming revenues at US$25.3m.
• Poker revenue of US$20.3m and casino revenue of US$ 5.0m.
The casino revenue decrease is explained by an extraordinary series of Jackpots
won by the Company's players in excess of US$1 million.
• Net profit of US$13.1m.
KEY PERFORMANCE INDICATORS (KPIS)
• Number of New Real Money Players acquired by the Company during the second
quarter was 42,772 (Poker 32,934 and Casino 9,838). The decrease is
explained by seasonality in the business.
• Number of Active Players (players who played for real money during the
last 90 days) increased to 126,507 (Poker 102,698 and Casino 23,809).
• Average Number of Active Players per day (Average real money players
playing during a day for Poker and Casino) increased to 17,555 (Poker 16,229
and Casino 1,326).
PUBLIC SHARE OFFERING
On June 15, 2005 the company successfully floated its shares on AIM. The Placing
comprised a total of 70,555,556 shares, representing 24.1 per cent of the
enlarged issued share capital of the company, at 175p per Ordinary Share.
Following admission, the number of Ordinary shares in issue was 292,777,772.
Based on the Placing Price, the market capitalisation of Empire Online on
commencement of dealings in the Ordinary Shares was £512m. Gross proceeds of the
Placing was approximately £123.47m (US$222.3m.) Flotation expenses were
approximately US$13.7m. On 1 June 2005, the Group purchased certain trade and
assets of Tradal Limited, a company involved in the provision of marketing
services for e-gaming activities over the Internet for £97.2m. Although Empire
Online and Tradal Limited had essentially the same controlling shareholders and
management and have effectively operated as sister companies, they have not and
do not form part of the same corporate group.
DIVIDEND
As set out in the AIM Admission document issued by the Company dated 10 June
2005, it is the Directors' intention that the Company should pay dividends to
Shareholders in respect of the year ending 31 December 2005 of approximately
US$30 million. The Directors have pleasure in declaring a dividend in respect of
the six months ended 30 June 2005 of US$10 million, being 3.4 cents per Ordinary
Share. The dividend will be paid on September 12, 2005 to Shareholders on the
register at the close of business on August 10, 2005.
REVIEW OF OPERATIONS
Empire Online Limited
KEY PERFORMANCE INDICATORS (KPIs)
In the six months ended 30 June 2005, Empire Online Limited has made strong progress across the business. The number of
registered customers has increased by 92,213 to 496,213.
Key performance indicators (KPIs) H1 2005 H1 2004 Change %
(1) Number of New Real Money Players acquired Company 92,213 45,862 101
Poker 70,567 27,680 155
Casino 21,646 18,182 19
(2) Number of Active Players (players who played for real money Company 126,507 51,367 146
during the last 90 days)
Poker 102,698 32,147 219
Casino 23,809 19,220 24
(3) Average number of Active Players per day (Average Real Money Company 17,120 6,037 184
players playing during a day)
Poker 15,724 4,865 223
Casino 1,396 1,172 19
(4) Number of New Real Money Players acquired outside the USA Company 30,739 12,072 155
Poker 21,808 5,075 330
Casino 8,931 6,997 28
(5) Poker Active Player Days - (i.e the number of days each player 2,846,549 885,339 222
generates rake)
TRADING OUTLOOK
Trading has been strong during the first month following the World Series of
Poker. This level of activity is consistent with the Board's expectations.
STRATEGIC UPDATE
The Company aims to pay particular attention to expanding its player base in
targeted European countries in the medium term, with the intention of raising
its profile and reducing the Group's reliance on the North American market.
However, Empire Online will also continue to pursue its existing strategies in
relation to its primary markets of the United States and Canada to maintain its
strong position in these markets.
The Company intends to increase its offline activity and branding campaigns in
targeted European countries. The Company intends to use a part of the proceeds
of the Placing to fund the acceleration of its plans to penetrate these
identified countries by the end of the year.
The Group is reviewing its strategy going forward and may also seek agreements
with online gaming operators with which it is not already working to allow
Empire Online to direct players to those operators' gaming websites.
The company is planning to launch, in the near future, an online multi player
backgammon platform. The platform will allow players to play with other players
for fun and real money. The company is planning to use the platform developed
for other multi player games.
The company has appointed Mr. Andrew Burnett, a leading leisure and gaming
analyst and latterly corporate financier at Numis Securities as a consultant to
lead its mergers and acquisitions drive. Andrew Burnett was a member of the
team at Numis Securities, which advised the company during its recent placing in
London. He will also play an active role in Investor Relations advice and
support.
Financial results
Empire Online Limited consolidated Income Statements for six months 30 June 2005
Period ended Period ended Year Ended
30 June 30 June 31 December 2004
2005 2004
$000 $000 $000
Unaudited Unaudited Audited
Net gaming revenue 41,953 17,344 48,319
Cost of sales (20,838) (7,993) (20,716)
------ ------ ------
Gross profit 21,115 9,351 27,603
Other income 415 - -
Administrative expenses (1,028) (863) (1,643)
------ ------ ------
Operating profit 20,502 8,488 25,960
Net finance income 695 112 266
------ ------ ------
Profit before taxation 21,197 8,600 26,226
Taxation (3) - -
------ ------ ------
Profit after taxation for the period 21,194 8,600 26,226
Earnings per share
Basic $0.86 $79.96 $243.85
------ ------ ------
Diluted $0.86 $79.96 $243.85
------ ------ ------
Empire Online Limited
Consolidated balance Sheet as at 30 June 2005
As at 30 June As at As at
2005 30 June 31 December
2004 2004
$000 $000 $000
Unaudited Unaudited Audited
Assets
Non-current assets
Intangibles 175,750 381 794
Current assets
Trade and other receivables 7,413 12,080 18,331
Cash and cash equivalents 43,958 1,748 14,830
------ ------ ------
51,371 13,828 33,161
------ ------ ------
Total assets 227,121 14,209 33,955
Equity
Share capital - 1 1
Share premium 210,251 604 604
Retained earnings 12,317 12,540 30,166
------ ------ ------
Total equity 222,568 13,145 30,771
------ ------ ------
Liabilities
Current liabilities
Trade and other payables 4,550 1,064 3,184
Current tax payable 3 - -
------ ------ ------
Total liabilities 4,553 1,064 3,184
------ ------ ------
Total equity and liabilities 227,121 14,209 33,955
Consolidated statement of changes in equity for the period ended 30 June 2005
Note Share Share Retain
capital premium Earnings Total
$000 $000 $000 $000
Balance at 1 January 2004 1 - 3,940 3,941
Net profit for the period - - 26,226 26,226
Issue of Share Capital - 604 - 604
------ ------ ------ ------
Balance at 31 December 2004 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 issued of 31 December 2004, had a par value of US $0.01 each. On 15
June 2005 these shares where converted and reclassified to 2,066.222427 each to
ordinary shares of no par value.
Empire Online Limited
Consolidated Cash Flow statement of cash flows for the six months ended 30 June 2005
Period ended Period ended Year Ended 31
December 2004
30 June 30 June
2005 2004
$000 $000 $000
Unaudited Unaudited Audited
Cash flows from operating activities
Profit before taxation 21,197 8,600 26,226
Adjustments for
Depreciation and amortisation 242 127 173
Interest income (712) (130) (309)
Interest expense 17 18 -
------ ------ ------
20,744 8,615 26,090
------ ------ ------
Changes in working capital
(Increase)/Decrease in trade and other (6,795) 1,416 881
receivables
Increase in trade and other payables 1,230 510 2,630
Increase/(decrease) in related party balances 5,345 (383) (4,739)
------ ------ ------
(220) 1,543 (1,228)
------ ------ ------
Net cash generated from operating activities 20,524 10,158 24,862
Cash flows from investing activities
Purchase of intangible assets (175,198) (508) (967)
Interest income received 712 130 309
------ ------ ------
Net cash used in investing activities (174,486) (378) (658)
------ ------ ------
Cash flows from financing activities
Repayments/(advance) of loans by/to shareholders 12,504 (9,779) (11,139)
Dividends paid (39,043) - -
Proceeds from issue of shares 209,646 - -
Interest paid (17) (18) -
------ ------ ------
Net cash generated from/(used in) financing 183,090 (9,797) (11,139)
activities
------ ------ ------
Net increase/(decrease) in cash and cash 29,128 (17) 13,065
equivalents
Cash and cash equivalents at the beginning of the 14,830 1,765 1,765
period
------ ------ ------
Cash and cash equivalents at the end of the period 43,958 1,748 14,830
Empire Online Limited
Notes to the financial information
Six months ended 30 June 2005
1. 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.
2. 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, and are
not expected to be significantly different from those set out in the Group's
audited financial statements for the quarter ended 31 March 2005, with the
exception of goodwill which was not present at 31 March 2005.
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 results are in accordance with International Financial Reporting Standards
('IFRS') including International Accounting Standards ('IAS') and
interpretations adapted by the International Accounting Standards Board
('IASB').
The financial information for the period ending 30 June 2004 is extracted from
the Group's financial statements for the year ended 31 December 2004.
3. Earnings per share
Basic earnings per share
Basic earnings per share have been calculated by dividing the net profit
attributable to ordinary shareholders (profit for the year) by the weighted
average number of shares in issue during the year.
Period ended Period ended Year Ended 31
December 2004
30 June 30 June
2005 2004
Net profit attributable to ordinary 21,194 8,600 26,226
shareholders ($000)
--------- --------- ---------
Weighted average number of ordinary shares/ 24,505,698 107,550 107,550
(number)
--------- --------- ---------
Basic earnings per share ($) $0.86 $79.96 $243.85
--------- --------- ---------
Weighted average number of ordinary shares/ 24,564,494 107,550 107,550
(number)
--------- --------- ---------
Diluted earnings per share ($) $0.86 $79.96 $243.85
--------- --------- ---------
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 year) by the weighted average number of
shares in issue during the period.
4. Acquisition of trade and certain assets from Tradal Limited.
With effect from 1 June 2005 the Group purchased certain trade and assets of
Tradal Limited, a company incorporated in St Vincent and the Grenadines, a
company involved in the provision of marketing services for e-gaming activities
over the Internet. The cash consideration for the purchase of approximately
£97.2 million being considered by both parties to be the fair value of the
assets acquired at the acquisition date. The goodwill generated represents the
difference between the fair market value of the assets acquired as at the date
of acquisition and the consideration paid. Full consideration was paid on the
date of acquisition.
The assets acquired are summarised in the following table:
$'000
Intangible assets including software and website design cost 83
Net assets 83
Fair value of assets acquired 83
Consideration 175,000
Goodwill 174,917
5. Dividend
On 9 June 2005, the Company declared dividends totaling $39m, representing
$363.02 per share. Of the total amount declared, $7m was paid in cash and the
balance of $32m was applied to settle outstanding shareholder loan balances.
6. Pro Forma aggregation of the income statements and statements of cash flows
for both Empire Online Limited and Tradal Limited
To provide comparable financial information with that included within the
prospectus, the aggregation of the income statements for both Empire Online
Limited and Tradal Limited are shown below.
This aggregation has been prepared from the audited financial statements for the
year ended 31 December 2004 and quarter ended 31 March 2005, and the unaudited
results for the quarter to 30 June 2005.
The financial statements of the Company and Tradal Limited have been prepared
for the same reporting period, using consistent accounting policies.
3 months 3 months 6 months 6 months 12 Months ended
ended ended ended ended 31 December
30 June 30 June 30 June 30 June
2005 2004 2005 2004 2004
$000 $000 $000 $000 $000
Unaudited Unaudited Unaudited Unaudited Audited
Net gaming revenue 25,330 13,814 49,744 25,203 65,186
Cost of sales (12,516) (5,489) (24,439) (10,837) (26,192)
------ ------ ------ ------ ------
Gross profit 12,814 8,326 25,305 14,366 38,994
Other income 415 - 415 - -
Administrative expenses (537) (685) (1,134) (992) (1,827)
------ ------ ------ ------ ------
Operating profit 12,692 7,640 24,586 13,374 37,167
Net finance income 436 107 925 224 531
------ ------ ------ ------ ------
Profit before taxation 13,128 7,747 25,511 13,598 37,698
Taxation (8) (4) (15) (8) (16)
------ ------ ------ ------ ------
Profit after taxation 13,120 7,743 25,496 13,590 37,682
Earnings per share
Basic $0.04 *$0.03 $0.09 * $0.05 * $0.13
------ ------ ------ ------ ------
Diluted $0.04 *$0.03 $0.09 * $0.05 * $0.13
------ ------ ------ ------ ------
* Calculated as for the number of shares after the June 2005 placing.
6 months ended 12 months ended
30 June 31 December
2005 2004
$000 $000
Cash flows from operating activities Unaudited Audited
Profit before taxation 25,511 37,698
Adjustments for
Depreciation and amortisation 299 317
Interest income (951) (625)
Interest expense 22
Non cash item: aggregation adjustments - (3,384)
------ ------
24,881 34,006
------ ------
Changes in working capital
Decrease/(increase) in trade and other receivables (6,715) 855
(Decrease)/increase in trade and other payables 2,311 2,386
Taxation (paid)/received (26) 1
(Increase)/decrease in trading investments - 104
Change in related party balances 1,377 -
------ ------
(3,053) 3,346
------ ------
Net cash (used in)/generated from operating activities 21,828 37,352
Cash flows from investing activities
Purchase of property, plant and equipment (48) (152)
Purchase of intangible assets (175,253) (1,037)
Interest income received 951 627
------ ------
Net cash used in investing activities (174,350) (562)
------ ------
Cash flows from financing activities
Advance of loans to shareholders 12,533 (16,413)
Dividends paid (39,043) (5,004)
Proceeds from issue of shares 209,646 -
Interest paid (22) -
------ ------
Net cash used in financing activities 183,114 (21,417)
------ ------
Net increase/(decrease) in cash and cash equivalents 30,592 15,373
Cash and cash equivalents at the beginning of the period 21,835 6,462
------ ------
Cash and cash equivalents at the end of the period 52,427 21,835
------ ------
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