Final Results
Playtech Limited
04 March 2008
4 March 2008
Playtech Limited
('Playtech' or 'the Company' or 'the Group')
Audited full year results for the year ended 31 December 2007
Playtech (AIM: PTEC), the international designer, developer and licensor of
software for the online, mobile and land-based gaming industry is pleased to
announce its audited full year results for the year ended 31 December 2007.
Financial Highlights*
• Total Revenues up by 86% to $103.6 million (2006: $55.6 million)
o Casino revenues up by 58% to $74.7 million (2006: $47.3 million)
o Poker revenues up by 269% to $27.4 million (2006: $7.4 million)
• Adjusted net profit** before tax of $70 million (2006: $68 million,
Including US)
• Cash generated from operating activities of $62.6 million (2006:
$72.6 million) was 95% of the Group's operating profit before non
cash items
• Adjusted basic EPS** of 32 cents per share (2006: 32 cents per share)
• Recommended Final Dividend of 9.9 US cents per share, making a total
of approximately $21.5 million. Once approved and paid, this will
result in shareholders receiving an aggregate dividend for 2007 of
16.0 cents per share or approximately $34.6 million (2006: $33.5
million (15.7 cents per share))
• Cash investment in CY Foundation of $10.25 million and the fair value
of such investment on 31 December 2007 was $18.9 million. Deferred
revenues of $27.6 million recorded in the balance sheet
• Cash investment in AsianLogic of US$5.0 million and the fair value of
investment on 31 December 2007 was US$15.9 million. Deferred revenues
of $10.6 million recorded in the balance sheet
• For ease of comparison all 2006 revenues exclude contributions from
the US from where the Company's licensees withdrew more than a year
ago.
** The adjusted net profit excludes various non cash items unrelated to the
underlying cash trading performance totalling $27.7 million including $18.3
million relating to the accounting treatment of the CY Foundation investment
(2006: $7.3 million).
Operational Highlights:
• Playtech's iPoker network became the world's largest online poker
network***
• Successful completion of the migration and integration of the non US
assets of the Tribeca poker network to the iPoker network
• 15 new licensees added (8 migrated from Tribeca) including new
licensees in the rapidly expanding Asian and European markets
• Further investment in development, and pre and post sale resources
bringing the total number of Playtech employees to approximately 650
• Enhanced product development including the conversion of the majority
of the downloadable casino games into flash, introduction of flash
Bingo and upgrade of the live gaming software
• Completion of Videobet switchable technology which allows an operator
to operate gaming machines on a stand alone basis and switch it to
server-based, should they choose, without any additional cost or time
• Joint venture agreement with Unicum, which will allow Videobet's
software to be utilised in at least 500 stand alone gaming machines
located in the Ukraine
• In December the iPoker network held the European Championship of
Online Poker ('ECOOP') which saw over 44,000 players participating
for an aggregate of $2.85 million in prize money
Current Trading and Outlook:
• Significant Growth in January with 14.4% growth in revenues over the
monthly average revenues in the fourth quarter of 2007
• 6 new licence agreements already signed in 2008 in line with the
Group's strategy to diversify geographically, focus on regulated
markets and migrate licensees from competitors
• Leading position attracts well established online and land based
operators
• Strong pipeline of potential additional licensees
• Launch of new Asian P2P games, which are extremely popular in the
Asian market, planned to the end of the first quarter of 2008
• Acceleration of the development of new games including a large number
of slot, table and card games and additional Asian P2P games
• Following the success of the first ECOOP tournament, further
tournaments are planned for this year including a second ECOOP
tournament with an aggregate of more than $3.5 million in prize money
*** www.pokerscout.com
Roger Withers, Non-executive Chairman, commented:
'I am pleased to report another strong set of full year results for Playtech
with all key performance indicators performing ahead of targets. The Group
continues to expand rapidly with increased product development in new
geographical markets leading to a number of new significant revenue streams.
We have had an excellent start to 2008 and the Board is highly confident of the
Group's performance for 2008 and beyond and its ability to maintain our position
as the world's leading provider of software solutions to the online gaming
industry.'
- ends -
For Further Information:
Mor Weizer, CEO, Playtech Ltd
Guy Emodi, CFO, Playtech Ltd
c/o Bell Pottinger Tel: 020 7861 3232
www.playtech.com
Tim Mickley
Collins Stewart Tel: 020 7523 8000
David Rydell / Chris Hamilton / Helen Tarbet
Bell Pottinger Corporate & Financial Tel: 020 7861 3232
There will be an analyst meeting and presentation for analysts today commencing
at 09:15 for 09:30 start to be held at Floor 24, Tower 42, 25 Old Broad Street,
EC2N 1HQ.
Dial-in details to listen to the analyst presentation:
9.30 am Please call +44 (0) 20 8609 0582 (UK)
+ 1 866 388 1925
A recording of the meeting will be available for a period of seven days from 3
March 2008. To access the recording please dial the following replay telephone
number:
Replay telephone number: +44 (0) 20 8609 0289 (UK)
+ 1 866 676 5865
Replay passcode: 206595#
An audiocast of the meeting and slide presentation given at the meeting will be
available on the Group's website later today.
Chairman's Report
It gives me great pleasure to report Playtech's second full year financial
results as a publicly traded company. Our expectations have been exceeded with
all key performance indicators performing ahead of targets. For a business that
is growing rapidly, the year has not been without its challenges - principally
in controlling expansion through the correct channelling of resources into the
relevant commercial operations without losing sight of our end objectives. I am
proud to state that this has been achieved as a result of the enormous
commitment and drive of all employees. My thanks go to everyone within Playtech,
including my fellow directors, for their outstanding contribution throughout
2007.
The growth of the business was driven by two key factors: our geographical
presence in growing markets and our ability to deliver comprehensive best of
breed solutions for our licensees. Our relationship with licensees is far more
than a purely commercial one - we help to drive their growth by providing
innovative products that meet their market demands. This is an evolving and
never-ending process whereby Playtech is constantly developing, marketing and
launching new products to ensure our partner customers maintain their
competitive advantage in fast-moving markets. That is why we believe that
Playtech is the world's leading provider of software solutions to the online
gaming industry.
On a global scale, the online gaming market continues to grow across all major
economic regions and as such still constitutes a young and growing marketplace.
There is much to play for and Playtech's world leading position means it is
ideally placed to further benefit from growth in all of its operations. Our
focus is on innovation, imagination, a diversified business model and strength
as a software and platform provider. With a strong balance sheet and cash
resources, Playtech is well placed to make strategic acquisitions and will be
opportunistic in its approach. The Group will continue to follow its successful
strategy of organic and acquisitive growth.
A number of key achievements were reached during the year. The first was when
the Group's monthly revenues exceeded those reached prior to the withdrawal of
the Group's licensees from the US market and the second saw Playtech's iPoker
network become the world's largest independent online poker network. The Group
also successfully completed the migration and integration of the non US assets
of the Tribeca poker network onto Playtech's iPoker platform. This acquisition
has been highly beneficial to the Group and has contributed greatly to
Playtech's ongoing success. The Group continues to win new licensees, with the
addition of 15 during the year. Eight of these were the former Tribeca poker
licensees as well as notable additions Mansion and CY Foundation, both of which
are focusing on the rapidly expanding China and Asian markets.
In financial terms, I am pleased to report continued growth in total revenues to
$103.6million, representing an increase of 86% on the $55.6million achieved in
2006 (excluding US derived revenues of $34.5 million). The adjusted net profit
before tax (which ignores significant non-cash charges relating to the CY
Foundation and AsianLogic investments, the Tribeca non-US assets acquisition
and the stock option charges as well), was an impressive US$70 million (68% of
total revenues).
The Board recommends the payment of a final dividend of 9.9c per share which is
payable, subject to shareholder approval, on 20 May 2008 to all shareholders on
the register at 28 March 2008. This follows the interim dividend payment of 6.1c
per share announced in October 2007 making a total dividend of 16.0c per share.
The overall dividend is in line with our stated dividend policy and is an
acknowledgment of our continued confidence in the Group's businesses.
I have been delighted to welcome to the Board both Mor Weizer and Guy Emodi as
Group CEO and CFO respectively. Mor is a qualified chartered accountant and was
a senior operational manager within Playtech for approximately two years prior
to joining the Board. His experience in managing customer relations, product
delivery and technical support as Chief Executive Officer of Techplay Marketing
Ltd, a Playtech subsidiary, provides the ideal grounding as the Group's Chief
Executive Officer. Guy has more than 18 years of experience in international
finance and brings a wealth of skills and expertise in his core competence of
financial management of large companies. They both have much to offer Playtech.
I would also like to thank Avigur Zmora, who stepped down from his roles as CEO
and more latterly as Executive Vice Chairman to become a Non-executive Director
of the Company, for his invaluable contribution to the success of the Group.
Avigur has adopted a senior consultancy role and will continue to work closely
with management with a particular focus on strategic matters.
In summary, Playtech has enjoyed an excellent year of progress. The business is
still at a formative stage and its aspirations are a long way in front of where
the Group is now. There are new geographic markets to penetrate, new products
to launch, existing and new licensees to migrate and if appropriate,
acquisitions to make. As a result, the Board is highly confident of its
performance for 2008 and beyond.
Roger Withers
Chairman
Chief Executive Officer's Report
Introduction
I am delighted to introduce my maiden set of preliminary results as CEO and
report on another excellent year for Playtech. The Group made strong financial
progress, again recording record levels of revenue and operating profit. The
successful performance of 2007 includes a few major milestones. The first was
when Playtech's iPoker network became the world's largest independent online
poker network. The second was achieved in September, when the Group's monthly
revenues exceeded those reached prior to the withdrawal of the Group's licensees
from the US market, which reduced, at that time, our monthly revenues by
approximately half. The third was the addition of seven new licensees signed
last year bringing the number of new licensees during 2007 to fifteen. This is a
clear demonstration of the robustness and flexibility of Playtech's business
model and the figures presented are a credit to the management team and all
those who work for the Group.
The licensees withdrawal from the US market has forced them to seek new markets,
such new markets required enhanced offering of new languages and products.
Playtech has supplied these requirements within weeks and by that provided its
licensees with the superior software they needed to establish market leading
position in most countries. In addition, many countries are considering or
already in the process of regulating online gaming and Playtech is well
positioned to crystallise the opportunity taken its robust platform and
products, leading to further growth in 2008 and beyond.
Review of Operations
The 2007 results show excellent growth over the previous year from all our
divisions. Revenues have grown to US$103.6 million (2006:$55.6 million excluding
US revenues of $34.5 million), adjusted** net profit before taxation was up to
US$70.0 million and basic adjusted** earnings per share was 32 cents (2006:32
cents) which is the indicator to the groups core activity. Cash reserves remain
very healthy at US$86.5 million at 31 December 2007 (2006: US$101.4 million).
The Group's business model continued to support a high conversion ratio of cash
from operating profit before non cash items of 95%. In 2007 Playtech's casino
revenues increased by 58% (ex-US) and its poker revenues increased by 269%
(ex-US). In 2007, 71% of Playtech's player base came from Europe, 21% from Asia
and 8% from the rest of the world. The exceptional strong growth in Europe is
attributed to the organic growth of our existing licensees and the gaining of
new licensees targeting the European market, notably those poker licensees who
were formally on the Tribeca poker network and migrated to Playtech's poker
network when Playtech acquired the Tribeca poker networks non US assets.
One of the major highlights of 2007 was the successful completion of the
migration and integration of the non US assets of the Tribeca poker network to
the iPoker network. This migration gave Playtech a significantly increased
liquidity base and further strengthened Playtech's position as the leading
software provider to the online gaming industry. As a result, the Group is now
in the enviable position of providing the largest poker network in the world*.
The iPoker network continues to attract quality online poker operators who value
a strong network supported by our cutting edge software. In December the iPoker
network held the European Championship of Online Poker ('ECOOP') which saw over
44,000 players participating for an aggregate of $2.85 million in prize money.
Following the success of the first ECOOP tournament, further tournaments are
planned for this year including a second ECOOP tournament with an aggregate of
more than $3.5 million in prize money.
The year also saw a significant strengthening of the development team through
the retention of more than 100 former Tribeca employees in India and the P
hilippines, as well as the management team, which was necessary to oversee the
expansion of the Group's enlarged operations.
The recently completed Bulgarian development centre and the acquisition of the
Indian and Philippines development operations as part of the Tribeca transaction
means that the Group is now a truly multinational organisation, with
subsidiaries in Asia and Europe. In all, the Group employs approximately 650
valued personnel. A key element of our success is the ability to offer existing
and potential licensees market-leading research, development and production
capabilities which allow them to achieve their strong organic growth, penetrate
new markets rapidly and successfully launch new products. I am confident that
our growing investment in research and development will help Playtech maintain
its leading position.
The Group's land based division, Videobet, gradually expands its operations and
line of products. A major milestone for the division was the completion of its
server supported application which allows an operator to operate gaming machines
on a stand alone basis and convert it to server based according to legislation
and operational requirements, using the same platform. This has enabled
Videobet to enter into several Memoranda of Understanding with operators in the
rapidly expanding South American and Eastern European markets. A significant
milestone was achieved when Videobet entered into a joint venture agreement
with Unicum in January 2008. This joint venture will allow Videobet's software
to be utilised in at least 500 stand alone gaming machines located in the
Ukraine.
Investment into strategic relationships
We have strategic stakes in two of our licensees, CY Foundation Group Limited
('Foundation') and AsianLogic Limited, ('AsianLogic'). The Group invested
US$10.2 million into Foundation, which as at 31 December 2007 was worth $18.9
million based on the closing share price of Foundation shares on the Hong Kong
stock Exchange. This resulted in an unrealised economic benefit of
approximately $8.7 million). The IFRS rules require the fair value of the
Group's benefit in excess of cost to be treated as deferred revenue and spread
over the term of the software licence agreement. Any change in the share price
from the time of investment is accounted for as a revenue item. Due to the
change in the Foundation share price since the time of our investment, this has
resulted in a non-cash loss for 2007 in this investment of $18.3 million while
the deferred revenues are $27.6 million. The Group remains committed to its
relationship with Foundation and views them as a key partner in Playtech's
continuing expansion into the rapidly expanding Asian and China gaming markets.
Playtech, as the key supplier to AsianLogic, was given an opportunity to
participate in its IPO and it was allocated additional shares as part of the
renewal of the licence agreement. Accordingly its total cash investment
AsianLogic was 5.0 million which on 31 December 2007 was worth 15.9 million
based on the closing share price of AsianLogic shares on the London Stock
Exchange. This has resulted in an unrealised economic gain of US$10.9 million.
We look forward to sharing in AsianLogic's success in the Asian market.
Development
During 2007 the Group continued to place considerable resources into enhancing
its product portfolio. The Casino product remains Playtech's flagship offering
and it continues to show impressive growth. The Group is continuing to invest
in its poker product as it has rapidly become a significant contributor to
Playtech's growth. During the year we also completed the development of an
updated version of the downloadable Bingo product and a new Bingo flash version.
Our mobile product was launched with one of our licensees during the year and we
are committed to offering our licensees multiple distribution channels.
The development of products which are tailored towards specific markets is a key
component of our geographical diversification strategy. During the first half
of 2007, the Group focused on converting the majority of its downloadable casino
games into flash technology and introduced flash version of our bingo product,
which is the preferred format in Europe and the UK sportsbook market in
particular. In addition, we completed the upgrade of the live gaming software,
a key offering for the Asian market. We also focused on the development of
Asian P2P games, the first of which we expect to launch at the end of the first
quarter of 2008.
We also continued to upgrade the Playtech back end system, which is the
cornerstone of Playtech's software offering. This unified system contains the
tools and features which enable our licensees to offer multiple products on
different platforms and monitor all activity from a single interface in real
time. Furthermore, Playtech is one of the few providers which is able to offer
licensees the full range of gaming and management products and its backend is
considered to be the best in the industry. This benefit was clearly
demonstrated when the migrated poker licensees from Tribeca were able to offer
casino side games on the online poker room software which has significantly
enhanced the revenues that the licensees are able to generate.
The Group maintains a strong pipeline of additional games and products. The
Group has accelerated the development of new games and we expect to release a
large number of new games, including a variety of slot, table and card games and
additional Asian P2P games, in the coming year to support the efforts of our
licensees in their various markets. In addition, the Group continues with the
development of new products and we expect to release flash poker technology in
the second quarter of 2008 and the Mahjong product in the fourth quarter of
2008.
Regulatory Environment
The Board considers it prudent to monitor and be familiar with the regulatory
environment in which the Group operates. Accordingly our in-house Legal and
Regulatory Department undertakes this on a regular basis and from time to time
and where necessary we also seek external legal advice from leading experts in
the industry
Contract Wins
Throughout 2007, the Group continued to win new licensees, with fifteen new
licensees joining the stable. Eight of these were the Tribeca migrated poker
licensees who are now firmly established on the iPoker network. All of these
licensees are operators which cater to the European and Asian markets and this
is therefore in line with the Group's geographical diversification strategy. The
successful migration of the Tribeca poker licensees also led to Bet365, an
existing casino software licensee, choosing to move its poker offering to the
iPoker network. The Group continued to develop opportunities in the Asian
market, with the signing in 2007 of two new Asian-facing licensees, the first of
which was Foundation, which I have already mentioned and the second of which is
one of the largest Asian facing online gaming operators.
The Group will continue to seek to attract high quality licensees with an
established customer base and track record whilst developing new technology
platforms and aiming to be at the forefront of industry standards.
Strategy
We will continue with our previous stated strategy of cross selling to existing
licensees, new and existing products and acquiring new licensees in strategic
geographic markets with a particular emphasis on regulated markets. I believe
that regulation will be the avenue that many governments will take in relation
to the online gaming industry and Playtech, as a public company, is ideally
placed to take advantage of the opportunities that will present itself as such
markets are established.
Using our strong cash position, if appropriate, we will also look at the
acquisition of complementary businesses. The successful completion of the
Tribeca acquisition and integration of Tribeca's Indian and Philippine
development centres demonstrated our ability to complete and integrate deals of
this type and scale. Importantly, the Group will continue to actively seek
further earnings-enhancing acquisitions.
Current Trading and Outlook
This year has started strongly with average daily royalties in January 2008
showing 11.7% growth over the average in the fourth quarter of 2007 (total
revenues are up 14.4%), the momentum continued in February. The Group has
already signed 6 new licensees in line with its strategy to diversify
geographically, focus on regulated markets and migrate licensees from
competitors. As a market leading software provider to the industry, we are
constantly receiving enquiries from well established online and land based
operators in the industry. Accordingly the Group has a strong pipeline of
potential additional licensees.
The Group will continue to support the organic growth of our existing licensees
through new products and new games that are in development or will be developed
during this year. Such development will be in line with our licensees' efforts
to penetrate new markets. New products assist our existing licensees to grow
further and also attract additional licensees. We intend to launch the new Asian
P2P games, which are extremely popular in the Asian market, by the end of the
first quarter of 2008.
Our aim in 2008 is to further enhance Playtech's market leading position with a
focus on regulated markets. In January 2008, one of Playtech's key licensees
in Asia, AsianLogic Limited announced a deal with Philweb, the official licensed
provider of online games in the Philippines, which will utilise Playtech's
software. The Group has also made significant progress in signing MOUs and
agreements with companies located in regulated markets.
It would be remiss of me not to pay tribute to the outstanding contribution made
by our employees during the year ended 31 December 2007. The work they
undertook to ensure the success of the Tribeca acquisition was a testament to
their dedication and talent. Our people are the lifeblood of the Group and the
Board of Directors is committed to continually investing in their growth and
development. On behalf of the Board, I would like to extend my sincere thanks to
all our employees for their tremendous efforts during 2007 and I look forward
to 2008 with great confidence.
Mor Weizer
Chief Executive Officer
Financial and Operational Review
I am pleased to announce Playtech's financial results for the year ended 31
December 2007. It was another successful year of growth for the Group
demonstrating the strong diversified business model. The Group's revenue
expansion in 2007 was principally due to three factors. The first was the
organic growth of our existing licensees. The second the completion of the
migration and integration of the former non-US Tribeca Tables licensees onto
Playtech's iPoker platform, resulting in the network assuming the position of
the world's largest independent online poker network. The third was the addition
of seven further licensees onto Playtech's platform during the year.
For ease of comparison all 2006 revenues exclude contributions from the US from
where the Company's licensees withdrew more than a year ago.
Total revenues for the year were $103.6 million which represented an increase of
86% on the $55.6 million achieved in 2006. Casino revenues for the year
totalled $74.7 million, an increase of 58% from $47.3 million in the previous
year. Poker revenues for the year totalled $27.4 million, an increase of 269%
from the $7.4million in 2006.
Revenues for the fourth quarter of 2007 grew strongly with a 22% rise compared
to the third quarter of 2007 and 101% increase compared to the fourth quarter of
2006. Both casino and poker revenues grew strongly, 20% and 26% respectively
compared to the previous quarter and 72% and 265% respectively compared to the
same quarter in 2006.
The net profit includes various significant non cash charges relating to both
the investment in CY Foundation Group Limited and AsianLogic Limited and also
the acquisition of the assets of Tribeca, the employee stock option plan and the
founder's one-off cash contribution to employees in 2006. These are detailed as
below:
2007 2006
US$000 US$000
Profit after tax 41,507 60,414
Tax 834 345
Profit before tax 42,341 60,759
Charge related to founder's cash contribution to employees - 6,566
Loss on disposal of available for sale investment in CY Foundation 654 -
Decline in fair value of available for sale investment in CY Foundation 18,269 -
Impairment of software on acquisition of Tribeca 275 -
Amortisation of customer list on acquisition of Tribeca 4,233 -
Discounting of deferred consideration of Tribeca acquisition 1,619 -
Employee stock option expenses 2,645 703
Adjusted net profit before taxation 70,036 68,028
Adjusted net profit after tax 69,202 67,683
Adjusted EPS (cents US) 32 32
Investment in CY Foundation Group Limited
During 2007 the Group entered into a 10 year software licence agreement with CY
Foundation Group Limited ('Foundation'), which during March 2007 re-listed on
the Hong Kong Stock Exchange at a price of HK$1.28. The fair value of the shares
and convertible notes in Foundation as at 31 December 2007, based on the
closing price of Foundation shares on the Hong Kong Stock Exchange (HK$0.65)
was $18.9 million. The total cash paid by the Group for the shares and notes in
Foundation was $10.2 million. As such the economic unrealised gain on 31
December 2007 was $8.7 million. The accounting treatment of this transaction
takes into account the fact that the shares were acquired in connection with the
software licence agreement.
As a result of such accounting treatment, the Group was required to evaluate the
benefit arising from the above shareholdings and record such benefit in its
financial reports as deferred revenues. The Group evaluated such benefit as
$27.6 million. Once royalty revenues commence under the Foundation software
license agreement, the deferred revenues will be realised as income over the
term of the licence agreement.
As previously mentioned, the closing price of Foundation shares on 31 December
2007 was HK$0.65, resulting in a decrease in value of the investment in
Foundation and a non-cash charge of $18.3 million, which was accounted for in
the Group's income statement.
Investment in AsianLogic
In December 2007, the Group entered into share purchase agreement to acquire
shares of AsianLogic Limited ('ALL') for a total consideration of $5 million.
Following the completion of such agreement, ALL was admitted to the AIM market,
and entered into a new 5 year term licence agreement. In connection with such
licence agreement, the Group also received additional shares in ESL, which was
subsequently replaced with shares in ALL. The market value of the investment as
at 31 December 2007 amounted to $15.9 million presenting an economical
unrealised gain of $10.9 million. The accounting treatment of this transaction
takes into account the fact that the shares were acquired in connection with
the software licence agreement, and considered the transaction as an available
for sale investment.
As a result of such accounting treatment, the Group was required to evaluate
the benefit arising from the above shareholdings and recorded such benefit in
its financial reports as deferred revenues. The Group evaluated such benefit as
$10.6 million. The deferred revenues are recognized as income over the term of
the licence agreement.
The closing price of ALL shares on 31 December 2007 was ?1.12, resulting in a
decrease in value of the investment in Foundation of $0.3 million and, which was
accounted for as capital fund.
Acquisition of non-US assets of Tribeca Tables Europe
In November 2006, the Group signed an asset purchase agreement with Tribeca
Tables Europe Limited ('Tribeca') in respect of certain non US assets for a
consideration calculated according to a formula based on the future earnings of
the acquired assets. The final consideration payable is $59,750,000.
The intangible assets purchased in the framework of the acquisition are being
amortized over their estimated useful lives of 8 years. The amortisation charge
for 2007 totalled $4.2 million. The directors have also reassessed the fair
value of the assets acquired based on their present use and as a result the
software which was valued at $275,000 on acquisition has been charged to the
income statement as an impairment.
The payment of the consideration to Tribeca is by way of cash in four
instalments, and has been discounted back to present values resulting in a
finance cost charge of $1.6 million. Two instalments have been paid during
2007 ($26.8 million) and the remaining two instalments will be paid during 2008.
The total balance to be paid in 2008 is $32.95 million.
Net profit before tax and adjusted net profit before taxation
Net profit before taxation, following the recognition of the significant non
cash charges of $27.1 million (2006: $7.3 million) was $42.3 million, compared
to $60.8 in 2006. This has resulted in the earnings per share ('EPS') for the
year, based on the weighted average number of shares, of 19 cents, compared to
29 cents per share in 2006. The fully diluted EPS for 2007 was 18 cents
compared to 28 cents in 2006.
Adjusted net profit before taxation for 2007 (net of the mentioned above
significant non cash items relating to both the investment in CY Foundation
Group Limited and AsianLogic Limited and also the acquisition of the assets of
Tribeca and the employee stock option plan as detailed in the table above) was
$70.0 million (2006: $68.0 million), an increase of 3.0% over 2006 which also
included revenues derived from US activity. The adjusted EPS for the year, based
on the weighted average number of shares is 32 cents, which was the same as in
2006. The fully diluted adjusted EPS for 2007 was 31 cents which was also the
same as in 2006.
Dividend
The Board has recommended a final dividend of 9.9 US cents per share, totalling
approximately $21.48 million. Once approved and paid, this will result in
shareholders receiving an aggregate dividend for the 2007 year of 16.0 cents per
share or approximately $34.60 million which is an amount of 50% of the adjusted
net profit (as previously described).
The Company paid dividends in respect of the 2006 year in the amount of
approximately $33.5 million or approximately 15.7 cents per share.
Cost of Operations
Playtech's successful recovery from the withdrawal of its licensees from the US
market in October 2006 was due to the huge investment made into the business as
a result of the increased focus on European and Asian markets, where licensees
require multiple languages, currencies and different products. As a result, the
Group incurred increased costs in relation to penetrating new markets,
developing new products, improving existing products, and searching for
additional strategic acquisitions and joint ventures. While this has resulted in
increased operating, sales and marketing, development and general and
administration costs, the Board believes that this is a sound investment to gain
an increasing foothold in one of the world's most active gaming markets. The
migration of the Tribeca Tables licensees onto Playtech's platform contributed
significantly to its success in 2007. As expected, this has resulted in an
increase in the number of employees in the Group to approximately 650, which
included two new development and operating centres located in India and the
Philippines. Additionally there was further recruitment by our Estonian
operation and the new Bulgarian subsidiary.
Operating expenses excluding significant non cash charges of $27.7 million
(2006: $7.3 million) were $15.5 million, representing an increase of 71% over
2006.
Sales and Marketing expenses were $12.9 million, representing an increase of 47%
on 2006.
Development costs increased by 78% from the previous year, to $2.7 million.
These costs are associated with investment in the improvement of existing
products. The cost of new products are capitalised and amortised as part of the
operating expenses when they are launched. The total capitalized costs in 2007
were $3.6 million.
General and administrative expenses, excluding exceptional items were $7.4
million, an increase of 18% over 2006.
Financial Income and Taxation
Cash is generally held in short-term deposits. Such deposits generated a
financial income of $5 million in 2007.
Only the Bulgarian and Israeli subsidiaries incurred taxable income. Total
tax charges in 2007 amounted to $0.8 million, representing 1.2% effective tax
rate of the adjusted net profit before taxation. The majority of profits arise
in the British Virgin Islands where no tax in assessed.
Balance Sheet
Cash and cash equivalents as at 31 December 2007 amounted to $86.5 million,
representing 42% of the Group's balance sheet (2006: 87%).
The majority of trade receivables balance as at 31 December 2007 is due to
amounts payable by licensees for the month of December 2007.
Intangible assets totalling $61.4 million as at 31 December 2007 mainly consist
of the Tribeca customer list, goodwill, patent and intellectual property rights
and development costs of products such as the iPoker platform, mobile platform,
and the Videobet product. The development of Mahjong and other Asian games is
also included under this section.
Available for sale investments totalling $34.8 million are due to the equity
investments in both Foundation and AsianLogic. The cash costs of these
investments are $15.25 million. Following the accounting treatment of those
investments, deferred revenues amounting to $39.6 million are recorded under
current liabilities and are to be recognized over the term of the relevant
license agreement.
Other accounts payable totalling $34 million as at 31 December 2007 mainly
consist of the Tribeca deferred consideration which will be fully settled by
the end of 2008.
Cash Flow
In 2007, the Group generated cash of $62.6 million from operating activities
which is a conversion of 95% of the Group's operating profit before the above
mentioned non cash charges. This high cash conversion rate demonstrates the
strength of the Group's business model. The Group's cash usage in investing
activities was $55.2 million (2006: $6.5 million), which was mainly accounted
for from the Tribeca asset deal ($27.5 million), the available for sale
investments ($19 million), capitalised development costs ($3.6 million) and the
acquisition of fixed assets ($2.6 million).
Guy Emodi
Chief Financial Officer
*Source: www.pokerscout.com
** See reconciliation below of adjusted net profit before taxation
Playtech Limited
Directors' statement of responsibilities
The directors have elected to prepare the financial statements for the Group in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Group, for safeguarding the assets and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
International Accounting Standard 1 requires that financial statements present
fairly for each financial year the Group's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's 'Framework
for the preparation and presentation of financial statements'. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable International Financial Reporting Standards. A fair presentation also
requires the directors to:
• select and apply appropriate accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information; and
• provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity's financial position and financial performance.
All of the current Directors have taken all the steps that they ought to have
taken to make themselves aware to any information needed by the Group's auditors
for the purposes of their audit and to establish that the auditors are aware of
that information. The Directors are not aware of any relevant audit information
of which the auditors are unaware.
The financial statements are published on the Group's website. The maintenance
and integrity of the Group's website is the responsibility of the Directors. The
Directors' responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Report of the Independent Auditors to The Directors of Playtech Limited
We have audited the consolidated financial statements (the ''financial
statements'') of Playtech Limited for the year ended 31 December 2007 which
comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the
Consolidated Cash Flow Statement, the Consolidated Statement of Changes in
Equity and the related notes. These financial statements have been prepared
under the accounting policies set out therein.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union are set
out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the information given in the Directors' Report is
consistent with those financial statements. We also report to you if, in our
opinion, the company has not kept proper accounting records, or if we have not
received all the information and explanations we require for our audit.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Directors' Report, the Directors' Remuneration Report, the
Chairman's report, the Chief Executive Officer's report, the Financial and
Operational Review and the Corporate Governance section. We consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do
not extend to any other information.
Our report has been prepared pursuant to the terms of our engagement 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 the terms of our 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.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
• The financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the Group's affairs
as at 31 December 2007 and of its profit for the year then ended; and
• The information given in the Directors' report is consistent with the
financial statements.
Emphasis of matter - regulatory issues
In forming our opinion on the financial statements, which is not qualified, we
have considered the adequacy of the disclosures made in the financial statements
concerning the uncertainty of the actions, if any, that certain regulatory
authorities may take. Further information is set out in note 23a, which states
that the Directors consider that no provision is necessary in respect of this
matter.
BDO Stoy Hayward LLP
Chartered Accountants
55 Baker Street, London W1U 7EU
United Kingdom
3 March 2008
CONSOLIDATED INCOME STATEMENT
For the year ended
31 December,
2007 2006
Note US$000 US$000
Revenues 4 103,604 90,078
Operating expenses (21,171) (9,247)
Sales & marketing expenses (13,902) (8,941)
Development costs (2,905) (1,567)
Administrative expenses (26,523) (13,101)
(64,501) (32,856)
Operating profit before the 66,250 65,097
following items:
Charge related to founders' cash 9 - (6,566)
contributions to employees
Employee stock option expense 9 (2,645) (703)
Amortization of intangible assets 11 (5,304) (606)
Impairment of software on 12 (275) -
acquisition
Decline in fair value of 16 (18,269) -
available for sale investment
Loss on disposal of available for 16 (654) -
sale investment
Total (27,147) (7,875)
Operating profit 5 39,103 57,222
Financing income 6 4,988 3,638
Financing cost - discounting of (1,619) -
deferred consideration
Financing cost - other (131) (101)
Total financing cost 6 (1,750) (101)
Profit before taxation 42,341 60,759
Tax expense 7 (834) (345)
Profit for the year attributable 41,507 60,414
to the equity holders of the
parent
Earnings per share (in Cents) 8
Basic 19 29
Diluted 18 28
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Employee
stock
Share Additional Available options Retained
capital paid in for sale reserve earnings Total
capital reserve
US$000 US$000 US$000 US$000 US$000 US$000
For the year ended 31
December, 2006
Balance at 1 January 2006
Changes in equity for the year 10 100 - 22 19,587 19,719
Profit for the year - - - - 60,414 60,414
Total recognized income and
expense for the year - - - - 60,414 60,414
Dividend paid - - - - (39,500) (39,500)
Initial Public Offering proceeds - 59,862 - - - 59,862
Share issue costs - (4,335) - - 664 (3,671)
Cancellation of issued shares (10) 10 - - - -
Founders' cash contribution
to employees - - - - 6,566 6,566
Exercise of options - 733 - - - 733
Employee stock option scheme - - - 703 - 703
Balance at 31 December 2006 - 56,370 - 725 47,731 104,826
Changes in equity for the
year ended 31 December, 2007
Profit for the year - - - - 41,507 41,507
Total recognized income and
expense for the year - - - - 41,507 41,507
Dividend paid - - - - (28,125) (28,125)
Adjustments for change in
fair value of available for
sale investments (note 16) - - 309 - - 309
Exercise of options - 5,266 - - - 5,266
Employee stock option scheme - - - 2,645 - 2,645
Balance at 31 December 2007 - 61,636 309 3,370 61,113 126,428
CONSOLIDATED BALANCE SHEET
As of 31 December,
2007 2006
Note US$000 US$000
NON-CURRENT ASSETS
Property, plant and equipment 10 5,095 3,015
Intangible assets 11 61,355 4,355
Other non-current assets 405 127
66,855 7,497
CURRENT ASSETS
Trade receivables 13 12,501 6,257
Other receivables 14 5,617 1,280
Available for sale investments 16 34,846 -
Cash and cash equivalents 17 86,491 101,403
139,455 108,940
TOTAL ASSETS 206,310 116,437
EQUITY AND LIABILITIES
Additional paid in capital 18 61,636 56,370
Available for sale reserve 16 309 -
Employee stock option reserve 9 3,370 725
Retained earnings 61,113 47,731
Equity attributable to equity holders of the parent 126,428 104,826
NON-CURRENT LIABILITIES
Other non-current liabilities 104 46
CURRENT LIABILITIES
Trade payables 19 5,260 5,667
Tax 911 397
Deferred revenues 16 39,631 2,818
Other accounts payables 20 33,976 2,683
79,778 11,565
TOTAL EQUITY AND LIABILITIES 206,310 116,437
The financial statements were approved by the board and authorized for issue on
4 March, 2008
Mor Weizer Guy Emodi
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended
31 December
2007 2006
Note US$000 US$000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 42,341 60,759
Tax (834) (345)
Adjustments to reconcile net income to net cash
provided by operating activities (see below) 21,089 12,213
Net cash provided by operating activities 62,596 72,627
CASH FLOWS FROM INVESTING ACTIVITIES
Long term deposits (278) (135)
Acquisition of property, plant and equipment (2,620) (2,747)
Proceeds from sale of equipment 35 -
Acquisition of intangible assets (1,674) (1,738)
Acquisition of business 11 (27,539) -
Investment in available for sale equity
shareholding 16 (18,989) -
Capitalized development costs 16 3,584) (1,835)
Net cash used in investing activities (54,649) (6,455)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (28,125) (39,705)
Initial Public Offering proceeds - 59,862
Exercise of options 5,266 733
Share issue costs - (3,671)
Others - 17
Net cash (used in) provided by financing
activities (22,859) 17,236
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,912) 83,408
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 101,403 17,995
CASH AND CASH EQUIVALENTS AT END OF YEAR 86,491 101,403
For the year ended
31 December
2007 2006
Note US$000 US$000
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Income and expenses not affecting operating cash
flows:
Depreciation 10 1,667 666
Amortization 11 5,304 606
Impairment loss 12 275 -
Decline in fair value of available for sale
investment 16a 18,269 -
Loss on disposal on available for sale investment 16a 654 -
Founders' cash contribution to employees - 6,566
Employee stock option plan expenses 9 2,645 703
Finance income (3,238) (3,537)
Others 52 18
Changes in operating assets and liabilities:
Increase in trade receivables (6,244) (2,068)
Decrease in other receivables 2,651 2,594
(Decrease) Increase in trade payables (623) 4,785
Increase in other payables 1,084 3,745
Decrease in deferred revenues (1,407) (1,865)
21,089 12,213
NON-CASH TRANSACTIONS
For the year ended 31
December
2007 2006
Note US$000 US$000
Intangible assets (30,752) -
Other payables- deferred consideration 20 30,723 -
Trade payables 215 -
Investments 16 (34,779) -
Property, plant and equipment- accrued costs (186) -
Trade receivables- deferred payment 16 (3,750) -
Deferred revenues 16 38,220 -
Available for sale reserve 16 309 -
NOTE 1 - GENERAL
Playtech Limited (the 'Company') was incorporated in the British Virgin Islands
on 12 September, 2002 as an offshore company with limited liability.
Playtech and its subsidiaries (the 'Group') develop unified software platforms
for the online and land based gambling industry, targeting online and land based
operators. Playtech's gaming applications - online casino, poker and other P2P
games, bingo, mobile, live gaming, land-based kiosk networks, land based
terminal and fixed-odds games - are fully inter-compatible and can be freely
incorporated as stand-alone applications, accessed and funded by the operators'
players through the same user account and managed by the operator by means of a
single powerful management interface.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the financial
statements, on a consistent basis, are:
A. Accounting principles
These financial statements have been prepared in accordance with International
Financial Reporting Standards, International Accounting standards and
interpretations (collectively IFRS) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union ('adopted IFRSs'). In
the current year the Group has adopted all of the new and revised standards and
interpretations issued by the IASB and the International Financial Reporting
Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the
European Union, that are relevant to its operations and effective for accounting
periods beginning on 1 January 2007. The adoption of the following new and
revised standards and interpretations had not resulted in any significant
changes to the Group's accounting policies nor have they had a material effect
on the amounts reported for the current or prior years.
Changes in accounting policies
IFRS 7, Financial Instruments: disclosures and a complementary amendment to IAS
1, Presentation of Financial Statements - capital disclosures (effective for
accounting periods beginning on or after 1 January 2007). IFRS 7 introduces new
requirements aimed at improving the disclosure of information about financial
instruments. It requires the disclosure of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk. Where those risks are deemed to be material to the Group it
requires disclosures based on the information used by key management. It
replaces the disclosure requirements in IAS 32 'Financial Instruments:
disclosure and presentation'. The amendment to IAS 1 introduces disclosures
about the level and management of an entity's capital. The Group has applied
IFRS 7 and the amendment to IAS 1 to the financial statements for the period
beginning on 1 January 2007.
IFRIC 8, Scope of IFRS 2 (effective for accounting periods beginning on or after
1 May 2006). IFRIC 8 requires consideration of transactions involving the issue
or grant of equity instruments to establish whether or not they fall within the
scope of IFRS 2. It applies to situations where the identifiable consideration
received is or appears to be less than the fair value of the equity instruments
issued. There was no impact on the Group's financial statements from its
adoption.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
IFRIC 9, Reassessment of embedded derivatives (effective for accounting periods
beginning on or after 1 June 2006). IFRIC 9 requires an assessment of whether an
embedded derivative is required to be separated from the host contract and
accounted for as a derivative when an entity becomes a party to the contract.
Subsequent reassessment is prohibited unless there is a change in the terms of
the contract that significantly modifies the cash flows that otherwise would be
required under the contract, in which case reassessment is required. There was
no impact on the Group's financial statements from its adoption.
IFRIC 10, Interim Financial Reporting and Impairment (effective for accounting
periods beginning on or after 1 November 2006). IFRIC 10 prohibits impairment
losses recognized in an interim period on goodwill and investments in equity
instruments and on financial assets carried at cost to be reversed at a
subsequent balance sheet date. There was no impact on the Group's financial
statements from its adoption.
Standards, amendments and interpretations not yet effected
The following standards, amendments and interpretations to published standards
are mandatory for accounting periods beginning on or after 1 January 2007 but
are currently not relevant to the Group's operations:
IFRIC 7, Applying the restatement approach under IAS 29, Financial Reporting in
Hyperinflationary Economies (effective for accounting periods beginning on or
after 1 March 2006). IFRIC 7 is not relevant to the Group as none of the Group
companies has a currency of a hyperinflationary economy as its functional
currency.
Certain new standards, amendments and interpretations to existing standards have
been published that are mandatory for the Group's accounting periods beginning
on or after 1 January 2008 or later periods and which the Group has decided not
to adopt early. These are:
IFRS 8, Operating Segments (effective for accounting periods beginning on or
after 1 January 2009). This standard sets out requirements for the disclosure of
information about an entity's operating segments and also about the entity's
products and services, the geographical areas in which it operates, and its
major customers. It replaces IAS 14, Segmental Reporting. As this is a
disclosure standard it does not have any impact on the results or net assets of
the Group.
IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on
or after 1 January 2009). The revised IAS 23 is still to be endorsed by the EU.
The main change from the previous version is the removal of the option of
immediately recognising as an expense borrowing costs that relate to qualifying
assets, broadly being assets that take a substantial period of time to get ready
for use or sale. Management is currently assessing its impact on the financial
statements.
IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for
accounting periods
beginning on or after 1 March 2007). IFRIC 11 requires share-based payment
transactions in which an entity receives services as consideration for its own
equity instruments to be accounted for as equity settled. This applies
regardless of whether the entity chooses or is required to buy those equity
instruments from another party to satisfy its obligations to its employees under
the share-based payment arrangement. It also applies regardless of whether: (a)
the employee's rights to the entity's equity instruments were granted by the
entity itself or by its shareholder(s); or (b) the share-based payment
arrangement was settled by the entity itself or by its shareholder(s).
Management is currently assessing the impact of IFRIC 11 on the financial
statements.
IFRIC 12, Service Concession Arrangements (effective for accounting periods
beginning on or after 1 January 2008). IFRIC 12 is still to be endorsed by the
EU. IFRIC 12 gives guidance on the accounting by operators for public-to-private
service concession arrangements. IFRIC 12 is not relevant to the Group's
operations due to absence of such arrangements.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
IFRIC 13, Customer Loyalty Programmes (effective for accounting periods
beginning on or after 1 July 2008). IFRIC 13 is still to be endorsed by the EU.
IFRIC 13 addresses sales transactions in which the entities grant their
customers award credits that, subject to meeting any further qualifying
conditions, the customers can redeem in future for free or discounted goods or
services. Management is currently assessing the impact of IFRIC 13 on the
financial statements.
IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective for accounting periods beginning
on or after 1 January 2008). IFRIC 14 is still to be endorsed by the EU. IFRIC
14 clarifies when refunds or reductions in future contributions should be
regarded as available in accordance with paragraph 58 of IAS 19, how a minimum
funding requirement might affect the availability of reductions in future
contributions and when a minimum funding requirement might give rise to a
liability. IFRIC 14 is not expected to have any impact on the financial
statements.
Revised IFRS 3, Business Combinations and complementary Amendments to IAS
27,'Consolidated and separate financial statements (both effective for
accounting periods beginning on or after 1 July 2009). This revised standard and
amendments to IAS 27 is still to be endorsed by the EU. The revised IFRS 3 and
amendments to IAS 27 arise from a joint project with the Financial Accounting
Standards Board (FASB), the US standards setter, and result in IFRS being
largely converged with the related, recently issued, US requirements. There are
certain very significant changes to the requirements of IFRS, and options
available, if accounting for business combinations. Management is currently
assessing the impact of revised IFRS 3 and amendments to IAS 27 on the financial
statements.
Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations
(effective for accounting periods beginning on or after 1 January 2009). This
amendment is still to be endorsed by the EU. The Amendment to IFRS 2 is of
particular relevance to companies that operate employee share saving schemes.
This is because it results in an immediate acceleration of the IFRS 2 expense
that would otherwise have been recognized in future periods should an employee
decide to stop contributing to the savings plan, as well as a potential revision
to the fair value of the awards granted to factor in the probability of
employees withdrawing from such a plan. Management is currently assessing the
impact of the Amendment on the financial statements.
B. Financial statements in U.S. Dollars
The financial statements of the Company and its subsidiaries are prepared in
United States dollars (the measurement currency), which is the currency that
best reflects the economic substance of the underlying events and circumstances
relevant to the Group.
Transactions and balances in foreign currencies are converted into dollars in
accordance with the principles set forth by International Accounting Standard
(IAS) 21 ('The Effects of Changes in Foreign Exchange Rates'). Accordingly,
transactions and balances have been converted as follows:
Monetary assets and liabilities - at the rate of exchange applicable at the
balance sheet date; Income and expense items - at exchange rates applicable as
of the date of recognition of those items excluding depreciation and other items
deriving from non-monetary items which are converted at the rate of exchange
used to convert the related balance sheet items. Exchange gains and losses from
the aforementioned conversion are recognized in the income statement.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
C. Basis of consolidation
Where the Company has the power, either directly or indirectly, to govern the
financial and operating policies of another entity or business so as to obtain
benefits from its activities, it is classified as a subsidiary. The consolidated
financial statements present the results of the Company and its subsidiaries
('the Group') as if they formed a single entity. Intercompany transactions and
balances between Group companies are therefore eliminated in full.
D. Share capital
Ordinary shares are classified as equity and are stated at the proceeds received
net of direct issue costs.
E. Dividend distribution
Final dividends are recorded in the Group's financial statements in the period
in which they are approved by the Group's shareholders. Interim dividends are
recognized when paid.
F. Provisions
Provisions, which are liabilities of uncertain timing or amount, are recognized
when the Group has a present obligation as a result of past events, if it is
probable that an outflow of funds will be required to settle the obligation and
a reliable estimate of the amount of the obligation can be made.
G. Property, plant and equipment
Property, plant and equipment comprise computers, leasehold improvements, office
furniture and equipment, and motor vehicles and are stated at cost less
accumulated depreciation. Carrying amounts are reviewed on each balance sheet
date for impairment. Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately to its recoverable
amount.
Depreciation is calculated to write off the cost of fixed assets on a straight
line basis over the expected useful lives of the assets concerned. The principal
annual rate used for this purpose, which is consistent with those of the
previous years, is:
%
Computers 33.33
Office furniture and equipment 7.00
Leasehold improvements 10.00
Motor vehicles 15
Subsequent expenditures are included in the assets carrying amount or recognized
as a separate asset, as appropriate, only when it is probable that future
economic benefits will flow to the Group and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to the income
statement during the financial period in which they incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying
amount and are included in the income statement.
H. Long term liabilities
Long term liabilities are those liabilities that are due for repayment or
settlement in more than twelve months from balance sheet date.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
I. Revenue recognition
Royalty income receivable from contracting parties comprises a percentage of the
revenue generated by the contracting party from use of the Group's intellectual
property in online gaming activities and is recognized in the accounting periods
in which the gaming transactions occur. Royalty and other income receivable
under fixed-term arrangements are recognized over the term of the agreement on a
straight line basis.
J. Intangible assets
Intangible assets comprise patents, domains, customer list and internally
generated software development costs capitalized and are stated at cost less
accumulated amortization. Carrying amounts are reviewed on each balance sheet
date for impairment. Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down to its recoverable amount.
Amortization is calculated using the straight-line method at annual rates
estimated to write off the costs of the assets over their expected useful lives
and is charged to operating expenses. The principal annual rates used for this
purpose, which are consistent with those of the previous years, are:
%
Domain names Nil
Internally generated capitalized development costs 33.33
Source code 33.33
Customer list 12.5%
Patents Over the expected useful
lives 10%-33%
Management believes that the useful life of the domain names is indefinite.
Domain names are reviewed for impairment annually.
Expenditure incurred on developing activities including the Group's software
development is capitalized only where the expenditure will lead to new or
substantially improved products, the products are technically and commercially
feasible and the Group has sufficient resources to complete development.
Subsequent expenditure on capitalized intangible assets is capitalized only
where it clearly increases the economic benefits to be derived from the asset to
which it relates. All other expenditure, including that incurred in order to
maintain intangible asset's current level of performance, is expensed as
incurred.
K. Income taxes
Provision for income taxes is calculated in accordance with the tax legislations
and applicable tax rates in force at the balance sheet date in the countries the
Group companies have been incorporated. Deferred tax is not significant to the
Group's operations.
L. Share-based payments
Certain employees participate in the Group's share option plan which commenced
with effect from 1 December 2005. The fair value of the options granted is
charged to the Income Statement on a straight line basis over the vesting period
and the credit is taken to equity, based on the Group's estimate of shares that
will eventually vest. Fair value is determined by the Black & Scholes valuation
model. The share options plan does not have any performance conditions other
than continued service.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
M. Operating expenses, development costs and sales & marketing expenses
Operating expenses represent the direct costs of the function of providing
services to customers. Development costs represent the costs of the development
function. Advertising costs are charged to sales & marketing expenses as
incurred.
N. Business combinations
The consolidated financial statements incorporate the results of business
combinations using the purchase method. In the consolidated balance sheet, the
acquiree's identifiable assets, liabilities and contingent liabilities are
initially recognized at their fair values at the acquisition date. The results
of acquired operations are included in the consolidated income statement from
the date on which control is obtained.
O. Goodwill
Goodwill on acquisition is initially measured at cost being the excess of the
cost of the business combination over the acquirer's interest in the net fair
value of the identifiable assets, liabilities and contingent liabilities. Cost
comprises the fair values of assets given, liabilities assumed and equity
instruments issued, plus any direct costs of acquisition. Goodwill is
capitalised as an intangible asset with any impairment in carrying value being
charged to the consolidated income statement. Goodwill is not amortized and is
reviewed for impairment, annually or more specifically if events or changes in
circumstances indicate that the carrying value may be impaired.
P. Financial assets
The Group classifies its financial assets into one of the categories discussed
below, depending on the purpose for which the asset was acquired. The Group has
not classified any of its financial assets as held to maturity.
Receivables
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally through
the provision of services to customers (e.g. trade receivables), but also
incorporate other types of contractual monetary asset. They are initially
recognized at fair value plus transaction costs that are directly attributable
to their acquisition or issue and are subsequently carried at amortized cost
using the effective interest rate method, less provision for impairment.
The Group's receivables comprise trade and other receivables and cash and cash
equivalents in the balance sheet.
Trade receivables which principally represent amounts due from licensees are
carried at original invoice value less an estimate made for bad and doubtful
debts based on a review of all outstanding amounts at the year-end. An estimate
for doubtful debts is made when there is objective evidence that the Group will
not be able to collect amounts due according to the original terms of
receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with
banks and other short term highly liquid investments with original maturities of
three months or less.
Available-for-sale financial assets
Non-derivative financial assets classified as available-for-sale comprise the
Group's strategic investments in entities not qualifying as subsidiaries,
associates or jointly controlled entities.
They are carried at fair value with changes in fair value recognized directly in
equity. In accordance with IAS 39, a significant or prolonged decline in the
fair value of an available-for-sale financial asset is recognized in the income
statement. Where available for sale assets are held for the short term with the
intention of disposal, they are included in current assets.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Purchases and sales of available for sale financial assets are recognized on
settlement date with any change in fair value between trade date and settlement
date being recognized in the available for sale reserve. On sale, the amount
held in the available for sale reserve associated with that asset is removed
from equity and recognized in the income statement.
Q. Financial liabilities
Trade payables and other short-term monetary liabilities are initially
recognized at fair value and subsequently carried at amortized cost using the
effective interest method.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The areas requiring the use of estimates and critical judgments that may
potentially have a significant impact on the Group's earnings and financial
position are impairment of goodwill, the recognition and amortization of
development costs and the useful life of property, plant and equipment, the fair
value of financial instruments, share based payments, legal proceedings and
contingent liabilities, determination of fair values of intangible assets
acquired in business combinations and income tax.
Estimates and assumptions
A. Impairment of goodwill
The Group is required to test, on an annual basis, whether goodwill has suffered
any impairment. The recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of future cash
flows and the choice of a discount rate in order to calculate the present value
of the cash flows. Actual outcomes may vary.
B. Recognition and amortization of development cost and the useful life of
property, plant and equipment
Intangible assets and property, plant and equipment are amortized or depreciated
over their useful lives. Useful lives are based on management's estimates of the
period that the assets will generate revenue, which are periodically reviewed
for continued appropriateness. Changes to estimates can result in significant
variations in the carrying amounts charged to the consolidated income statement
in specific periods. More details including carrying values are included in
notes 10 and 11.
C. Fair value of financial instruments
The Group determines the fair value of financial instruments that are not quoted
using valuation techniques. Those techniques are significantly affected by the
assumptions used, including discount rates and estimates for future cash flows.
In that regard, the derived fair value estimates cannot always be substantiated
by comparison with independent markets and, in many cases, may not be capable of
being realized immediately.
D. Share based payments
The Group has a share based remuneration scheme for employees. The fair value of
share options is estimated by using the Black-Scholes model, on the date of
grant based on certain assumptions. Those assumptions are described in note 9
and include, among others, the dividend growth rate, expected volatility,
expected life of the options and number of options expected to vest.
E. Legal Proceedings and contingent liabilities
Management regularly monitors the key risks affecting the Group, including the
regulatory environment in which the Group operates. Provision will be made if it
is possible that there will be an outflow of economic benefit.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Cont.)
F. Determination of fair value of intangible assets acquired in a business
combination
The fair value of the customer list acquired in a business combination is based
on the discounted cash flows expected to be derived from the use of the asset.
G. Income taxes
The Group is subject to income tax in two jurisdictions and judgement is
required in determining the provision for income taxes. During the ordinary
course of business, there are transactions and calculations for which the
ultimate tax determination is uncertain. As a result, the Group recognizes tax
liabilities based on estimates of whether additional taxes and interest will be
due. The Group believes that its accruals for tax liabilities are adequate for
all open audit years based on its assessment of many factors including past
experience and interpretations of tax law.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Although these
estimates are based on management's best knowledge of current events and
actions, actual results ultimately may differ from those estimates.
NOTE 4 - SEGMENT INFORMATION
The directors consider that the Group has one business segment. Revenues are
derived from the following geographic regions:
December 31
2007 2006
US$000 US$000
Canada 53,072 57,882
Philippines 8,967 11,926
Curacao and Antigua 22,314 18,944
Rest of World 19,251 1,326
103,604 90,078
Segmentation by geographical regions is made according to the jurisdiction of
the gaming license of the licensee. This does not reflect the region of the end
users of the Group's licensees whose locations are worldwide.
Revenues are derived from the following products (excluding US contributions):
December 31
2007 2006(*)
US$000 US$000
Casino 74,740 47,282
Poker 27,440 7,441
Other 1,424 884
103,604 55,607
(*)Excluding US contribution
NOTE 4 - SEGMENT INFORMATION (Cont.)
The assets, liabilities and capital additions of the Group arise in the
following countries:
December 31
2007 2006
Assets Assets
US$000 US$000
Estonia 4,732 3,251
Israel 1,557 661
Philippines 522 -
Isle of Man 536 360
Bulgaria 527 258
British Virgin Islands 198,436 111,907
206,310 116,437
December 31
2007 2006
Liabilities Liabilities
US$000 US$000
Estonia 811 486
Israel 1,220 385
Philippines 3 -
Isle of Man 97 115
Bulgaria 142 58
British Virgin Islands 77,609 10,567
79,882 11,611
December 31
2007 2006
Capital Capital
additions additions
US$000 US$000
Estonia 1,341 1,824
Israel 325 123
Philippines 96 -
Isle of Man 12 223
Bulgaria 225 103
British Virgin Islands 64,356 4,047
66,355 6,320
NOTE 5 - OPERATING PROFIT
Operating profit is stated after charging:
For the year ended
December 31
2007 2006
US$000 US$000
Directors compensation:
Short term benefits of directors 1,747 910
Share based benefits of directors 1,026 241
Bonuses to executive directors 514 587
3,287 1,738
For the year ended
December 31
2007 2006
US$000 US$000
Audit services
Parent company and Group audit 198 148
Audit of overseas subsidiaries 36 32
Total Audit 234 180
Non-audit services
Other assurance services 188 90
IPO services - 176
422 446
NOTE 6 - FINANCING INCOME AND COSTS
For the year ended
December 31
2007 2006
US$000 US$000
Finance income
Bank interest received 3,804 3,361
Exchange differences 1,184 277
4,988 3,638
Finance cost
Interest paid (21) (40)
Financial cost- discounting of deferred
consideration (note 12) (1,619) -
Bank charges (110) (61)
(1,750) (101)
Net financing income 3,238 3,537
NOTE 7 - TAXATION
For the year ended
December 31
2007 2006
US$000 US$000
Current income tax
Income tax on profits of subsidiary operations 517 130
Provision for prior periods (*) 317 215
Total tax charge 834 345
The majority of profits arose in the British Virgin Islands. No tax is assessed
in the British Virgin Islands, the Company's country of incorporation. The tax
charge shown above arises from the different tax rates applied in subsidiaries'
jurisdictions.
(*) On May 23, 2006, the Israeli subsidiary of the Company 'Techplay Marketing
Ltd' ('Techplay') signed a tax ruling with the Israeli Tax Authorities ('ITA')
according to which Techplay will be assessed on an agreed 'cost plus' basis
commencing in 2002. The total charge agreed was $532 thousand, of which $215
thousand had already been recognized in 2006. The income tax charge for 2007
reflects the new basis.
NOTE 8 - EARNINGS PER SHARE
A. Earnings per share has been calculated using the weighted average number of
shares in issue during the relevant financial periods. The weighted average
number of equity shares in issue and the earnings, being profit after tax are as
follows:
For the year ended December 31
2007 2006
In cents In cents
Basic 19 29
Diluted 18 28
US$000 US$000
Profit for the year 41,507 60,414
Number Number
Denominator - basic
Weighted average number of equity
shares 214,715,335 210,168,682
Denominator - Diluted
Weighted average number of equity
shares 214,715,335 210,168,682
Weighted average number of option
shares 10,476,036 7,962,839
Weighted average number of shares 225,191,371 218,131,521
NOTE 8 - EARNINGS PER SHARE (Cont.)
B. Adjusted earnings per share
The adjusted earnings per share present the profit for the year before certain
significant non cash expenses included in the income statement, being the
decline in fair value of available for sale investments, the loss on disposal on
available for sale investment, the impairment of software on acquisition, the
amortization of the customer list on acquisition, the finance cost on
discounting of deferred consideration, the employee stock option expense and
charges relating to the founders' cash contribution, as the directors believe
that the adjusted profit represents more closely the underlying trading
performance of the business.
For the year ended December 31
2007 2006
In cents In cents
Basic - adjusted 32 32
Diluted - adjusted 31 31
US$000 US$000
Profit for the year 41,507 60,414
Decline in fair value of available for
sale investments 18,269 -
Loss on disposal of available for sale
investment 654 -
Impairment of software on acquisition 275 -
Amortization on acquisition 4,233 -
Finance cost on discounting of
deferred consideration 1,619 -
Employee stock option expense 2,645 703
Charges related to founders cash
contribution - 6,566
Adjusted profit for the year 69,202 67,683
The loss on disposal of the available for sale investment and the
impairment of software on acquisition, whilst not individually
material, have been included above as they are linked to larger
transactions (see note 12 and 16).
Denominator - basic
Weighted average number of equity
shares 214,715,335 210,168,682
Number Number
Denominator - diluted
Weighted average number of equity shares 214,715,335 210,168,682
Weighted average number of option shares 10,476,036 7,962,839
Weighted average number of shares 225,191,371 218,131,521
NOTE 9- EMPLOYEE BENEFITS
Total staff costs comprise the following:
December 31
2007 2006
US$000 US$000
Salaries and wages 18,507 10,851
Founders cash contribution to employees - 6,566
Employee stock option expenses 2,645 703
21,152 18,120
NOTE 9- EMPLOYEE BENEFITS (Cont.)
December 31
2007 2006
Number Number
Average number of employees
(including Directors)
Operating 285 176
Development 180 73
Marketing 73 37
General and administration 8 6
546 292
The Group has an employee share option plan ('ESOP') for the granting of non
transferable options to certain employees. Options granted under the plan vest
on the first day on which they become exercisable which is typically between one
to four years after grant date. The overall term of the ESOP is five years.
These options are settled in equity once exercised.
At 31 December 2007, options issued under this scheme were as follows:
•7,524,666 shares vesting between 1 December 2006 and 30 November 2008 at
exercise prices between $2.5 and $4.5 per share
•3,159,500 shares vesting between 2 February 2007 and 30 December 2009 at
exercise prices between $3.24 and $7.48 per share
•2,346,400 shares vesting between 31 December 2007 and 30 December 2010 at
exercise prices between $6.19 and $7.79 per share
•992,000 shares vesting between 3 October 2008 and 31 December 2011 at
exercise prices between $6.9 and $7.68 per share
The fair value of the options that were granted in respect of equity settled
schemes is recognized as an expense in the income statement of 2006 and 2007 at
the amount of $2,645,000 and $703,000, respectively.
The following table illustrates the number and weighted average exercise prices
of shares options for the ESOP.
December 31 December 31
2007 2006 2007 2006
Weighted Weighted
Number of Number of average average
options options exercise exercise
price price
US$ US$
Outstanding at the beginning
of the year 10,096,737 6,011,600 3.49 2.88
Granted during the year 3,588,400 4,535,500 7.42 4.19
Forfeited (70,334) (42,600) (4.82) (2.5)
Exercised (1,820,557) (407,763) (2.81) (2.5)
Outstanding at the end of the
year 11,794,246 10,096,737 4.78 3.49
The weighted average share price at the date of exercise of options was 7.08 and
4.56 in 2007 and 2006 respectively.
NOTE 9- EMPLOYEE BENEFITS (Cont.)
Share options outstanding at the end of the year have the following exercise
prices:
Expiry date Exercise price 2007 2006
Number Number
December 1st 2010 Between $2.5 and $4.5 3,911,645 5,561,237
Between February 6th 2011 and
December 11th 2011 Between $3.24 and 4,294,201 4,535,500
$5.75
Between 15 May 2012 and 31 Between $6.19 and
December 2012 $7.79 3,588,400 -
11,794,246 10,096,737
The fair value of the options granted under the ESOP is estimated as at the date
of grant using the Black-Scholes model. The following table gives the
assumptions made during the years ended 31 December 2006 and 2007:
For options granted on 6 February 2006, 1 March 2006, 28 March 2006, 21 June
2006, 11 October 2006, 11 December 2006
Dividend yield (%) 5%
Expected volatility (%) 26.3%to 76.8%
Risk free interest rate (%) 4.5%
Expected life of options (years) 1 to 3
Weighted average exercise price ($) 4.35 to 5.75
For options granted on 15 May 2007, 16 May 2007, 18 June 2007, 13 August 2007,
26 September 2007, 3 October 2007, 10 October 2007, 20 November 2007, 31
December 2007
Dividend yield (%) 5%
Expected volatility (%) 50%
Risk free interest rate (%) 4.5%
Expected life of options (years) 1 to 4
Weighted average exercise price ($) 6.19 to 7.79
The volatility assumption, measured at the standard deviation of expected share
price return, is based on a statistical analysis of daily share price over a
period starting from the initial date of floatation through the grant date.
NOTE 10 -PROPERTY, PLANT AND EQUIPMENT
Office
furniture
and Motor Leasehold
Computers equipment vehicles improvements Total
US$000 US$000 US$000 US$000 US$000
Cost -
As of January 1 2006 1,313 117 - 39 1,469
Additions 2,100 274 151 222 2,747
Disposals (2) - - - (2)
As of December 31 2006 3,411 391 151 261 4,214
Accumulated depreciation-
As of January 1 2006 521 14 - - 535
Charge 623 19 11 13 666
Disposals (2) - - - (2)
As of December 31 2006 1,142 33 11 13 1,199
Net Book Value -
As of December 31 2006 2,269 358 140 248 3,015
Office
furniture
and Motor Leasehold
Computers equipment vehicles improvements Total
US$000 US$000 US$000 US$000 US$000
Cost -
As of January 1 2007 3,411 391 151 261 4,214
Additions 2,447 231 - 128 2,806
Assets acquired on
business combinations
(note 12) 774 173 - 23 970
Disposals (5) - (31) - (36)
As of December 31 2007 6,627 795 120 412 7,954
Accumulated depreciation-
As of January 1 2007 1,142 33 11 13 1,199
Charge 1,485 91 24 67 1,667
Disposals (1) - (6) - (7)
As of December 31 2007 2,626 124 29 80 2,859
Net Book Value -
As of December 31 2007 4,001 671 91 332 5,095
NOTE 11 - INTANGIBLE ASSETS
Development
costs
Domain Source (internally
Patents names code generated) Goodwill Total
US$000 US$000 US$000 US$000 US$000 US$000
Cost -
As of January 1 2006 76 173 100 1,234 262 1,845
Additions 1,724 14 - 1,835 - 3,573
As of December 31 2006 1,800 187 100 3,069 262 5,418
Accumulated amortization -
As of January 1 2006 10 80 100 267 - 457
Provision 258 - - 348 - 606
As of December 31 2006 268 80 100 615 - 1,063
Net Book Value -
As of December 31 2006 1,532 107 - 2,454 262 4,355
Development
costs
Domain Source (internally Customer
Patents names code generated) list Goodwill Total
US$000 US$000 US$000 US$000 US$000 US$000 US$000
Cost -
As of January 1 2007 1,800 187 100 3,069 - 262 5,418
Additions 1,700 3 - 3,584 - - 5,287
Assets acquired on
business
combinations (note 12) - - 275 - 40,318 16,699 57,292
Disposals - - (275) - - - (275)
As of December 31 2007 3,500 190 100 6,653 40,318 16,961 67,722
Accumulated amortization -
As of January 1 2007 268 80 100 615 - - 1,063
Provision 297 - - 774 4,233 - 5,304
As of December 31 2007 565 80 100 1,389 4,233 - 6,367
Net Book Value -
As of December 31 2007 2,935 110 - 5,264 36,085 16,961 61,355
Management believes that Domain names are stated at fair value and have an
indefinite life due to their nature.
NOTE 12 - ACQUISITIONS
In November 2006, the Group signed a purchase agreement with Tribeca Tables
Europe Limited ('Tribeca') in respect of certain non US assets.
The conditions required to acquire control and complete the agreement were
satisfied in January 2007. Therefore the agreement has been accounted for as a
business combination under IFRS 3 in this reporting period. The contingent
consideration for the acquisition has been calculated according to a formula
based on the future earnings of the acquired assets. The final consideration is
$59,750 thousands.
The value of the assets in the Tribeca books was not disclosed to the Group.
Accordingly, the book value on acquisition is unknown. The fair value of the net
assets acquired is as below.
The intangible assets relate to the recognition of the customer lists and other
intangibles acquired as part of the acquisition. These intangibles are being
amortized over their estimated useful lives of 8 years. The directors have
reassessed the fair value of the assets acquired based on their value in use and
as a result the software valued at $275 thousands on acquisition has been
charged to the income statement as an impairment.
$'000
Cash consideration to Tribeca 59,750
Expenses 1,267
Total cash consideration 61,017
Finance cost arising on discounting of cash
consideration (2,755)
Present value of consideration including expenses 58,262
Fair value of customer lists 40,318
Fair value of fixed assets 970
Fair value of software 275
Goodwill 16,699
Present value of the consideration including 58,262
expenses
The payment of the consideration to Tribeca is by way of cash in four
instalments on 9 March 2007, 13 August 2007, 13 May 2008 and 13 November 2008,
and has been discounted back to present values. As at 31 December 2007, unpaid
consideration amounted to $31,859 thousands before the remaining discounting
charge of $1,136 thousands (net $30,723 thousands). The amount of consideration
paid during the year was $27,539 thousands.
Of the total finance cost of $2,755 thousands arising on the discounting of the
cash consideration, $1,619 thousands was recognized in the year. The directors
consider that it is impracticable to determine the profit for the year
attributable to Tribeca because it is now subsumed within the business.
Following the requirements of IFRS 3, it is impracticable to present the
revenues and profit or loss of the Group as though the acquisition had occurred
at the beginning of the period, due to lack of information related to the
revenues generated by the Tribeca Tables licensees prior to the acquisition
date.
NOTE 12 - ACQUISITIONS (Cont.)
The main factors leading to the recognition of goodwill are the synergistic
revenues and cross selling opportunities and cost savings which result in the
Group being prepared to pay a premium. The recoverable amount of goodwill is
based on value in use. In accordance with IAS 36, the Group regularly monitors
the carrying value of its intangible assets, including goodwill. At 31 December
2007 a review was carried out to assess whether the carrying value of goodwill
was supported by the net present value of forecast cash flows, based on approved
budgets and plans for the next five years. The growth rate and discount rate
used were company specific cost of capital percentages and market growth rates.
The underlying assumptions of these cash flows are based on Management's past
experience and probability expectations for new business generation. The results
of the review indicated that there was no impairment of goodwill at 31 December
2007
The key assumptions used by Management to determine the value in use of the
customer list are:
1. The income approach was applied for the valuation of the customer
list, considering projected revenues deriving from the Tribeca
licensees.
2. The annual growth rate attributed to the expected revenues were based
on market analysis.
3. The customers are assumed to exist for 8 years.
4. Management has assumed no attrition rate for the first four years and
the loss of one average size customer per year for the remaining 4 years.
Management have also reviewed the key assumptions and forecasts for the customer
list and the results of the review indicated that there was no impairment of the
intangible asset at 31 December 2007.
NOTE 13 - TRADE RECEIVABLES
December 31
2007 2006
US$000 US$000
Customers 10,901 6,257
Related party receivable 1,600 -
12,501 6,257
NOTE 14 - OTHER ACCOUNTS RECEIVABLE
December 31
2007 2006
US$000 US$000
Prepaid expenses 857 269
VAT and other taxes 718 631
Short term investment 38 13
Advances to suppliers 169 19
Funds receivable due to
options exercised - 296
Related party 3,750 -
Others 85 52
5,617 1,280
NOTE 15 - RELATED PARTIES AND SHAREHOLDERS
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party's making of
financial or operational decisions, or if both parties are controlled by the
same third party.
Playtech Software Limited, Video B Holdings Limited, OU Video B, Techplay
Marketing Ltd, OU Playtech, Networkland Ltd, Playtech Bingames Ltd, Playtech
Live Ltd, PTVB Management Limited and Playtech Bulgaria EOOD are wholly owned
subsidiaries. Tech Corporation, Oriental Support Services, Gamepark Trading Ltd
and 800pay Ltd are related by virtue of a common significant shareholder.
Emphasis Services Limited ('ESL'), AsianLogic Limited ('ALL') and S-tech Limited
are related by virtue of the former chief executive officer and current director
interest in those Companies.
The following transactions arose with related parties:
December 31
2007 2006
US$000 US$000
Revenue
ESL 3,699 -
S-tech Ltd. 264 18
Operating expenses
Gamepark Trading Limited - 316
ESL 1,629 -
Loans
ESL 1,000 -
Investment in related parties
ESL (note 16b) 5,011 -
Sale of assets to a related party
ESL (note 16a) 3,750 -
The following are year-end balances:
December 31
2007 2006
US$000 US$000
Gamepark Trading Limited - 1,051
Tech Corporation - 40
ESL (included in deferred revenue) 10,621 -
Total related party creditors 10,621 1,091
S tech Ltd. 18 -
ESL 5,332 -
Total related party debtors 5,350 -
ALL 15,942 -
Total investment in related party 15,942 -
The details of key Management remuneration (being the remuneration of the
Directors) are set out in note 5.
NOTE 16 - INVESTMENTS
December 31
2007 2006
US$000 US$000
Available for sale investments
comprise:
A. Investment in Foundation
Group Limited
• Shares 2,239 -
• Convertible notes 16,665 -
18,904 -
B. Investment in AsianLogic 15,942 -
34,846 -
A. During 2007 the Group entered into a 10 year software licence agreement
with CY Foundation Group Limited ('Foundation'), a company incorporated in
Bermuda which during March 2007 re-listed on the Hong Kong Stock Exchange at a
price of HK$1.28 ('Flotation Price'). In connection with the software licence
agreement the Group also entered into the following agreements in respect of
ordinary shares in Foundation:
• a share sale and purchase agreement with Luck Continent Limited to
acquire 53,750,000 ordinary shares of HK$0.001 each in Foundation;
• a share sale and purchase agreement with Emphasis Services Limited
('ESL') to purchase 50% of the ordinary shares in Copernicus Trading Limited
('Copernicus'), a private company incorporated in the British Virgin
Islands. Copernicus' only asset is a convertible note convertible into
400,000,000 shares in Foundation.
The above investments have been accounted for as available for sale investments
and are reflected as current assets as they will only be held for the short
term.
The 53,750,000 shares in Foundation were acquired for $7,500 thousands, which
represented an aggregate discount of 15% to the Flotation Price. These shares
have been classified as an available for sale asset. The Group also entered into
an agreement to sell 50% of the 53,750,000 shares it acquired in Foundation to
ESL for a consideration of $3,750 thousands payable in September 2007. In
September 2007, it was agreed that the payment of this consideration would be
deferred until March 2008. As a consequence, the loss from the disposal of $654
thousands has been reflected in the income statement for the period. The fair
value of 50% of the shares at time of acquisition was $4,403 thousands. The fair
value at 31 December 2007 amounted to $2,239 thousands. In accordance with IAS
39, the decrease in value of $2,164 thousands has been reflected in the income
statement.
The Group acquired the shares in Copernicus for a consideration of $6,478
thousands. Based on Foundation's share price at this time, the underlying value
of the Group's interest in the convertible note amounted to $32,770 thousands.
The Group's interest in the convertible note was transferred in November 2007 to
Evermore Trading Limited, a 100% subsidiary of Playtech Software Limited. The
Group's interest at 31 December 2007 was $16,665 thousands. In accordance with
IAS 39, the decrease in value from the time of acquisition to 31 December 2007
of $16,105 thousands has been reflected in the income statement for the period.
NOTE 16 - INVESTMENTS (Cont.)
December 31
2007 2006
US$000 US$000
Decline of fair value of available
for sale investments from the time
of acquisition:
• Shares 2,164 -
• Convertible notes 16,105 -
Total decline of fair value of
available for sale investments
from the time of acquisition 18,269 -
The Directors consider the fair value of the consideration received by way of
discount to the market value of the 53,750,000 Foundation shares of $1,307
thousands and the fair value of the convertible notes in excess of consideration
paid of $26,292 thousands, to represent deferred income of the software licence
agreement. As a consequence, $27,599 thousands have been included in deferred
revenues. Once royalty revenues commence under this software license agreement
the deferred revenues will be realised as income over the life time of the
software license agreement.
As at 29 February 2007, the closing price of Foundation shares was HK$ 0.51
compared to HK$ 0.65 as at 31 December 2007. This has resulted in a decrease in
the fair value of the total available for sale equity shareholding and
convertible notes of $4,040 thousands. This reduction in value is a
non-adjusting post balance sheet event and has not therefore been accounted for
as at 31 December 2007.
A director of the Group, Tom Hall, is also a director and shareholder of ESL.
B. In December 2007 the Group entered into a share purchase agreement to
acquire 246 shares of ESL for a total consideration of $5,011 thousands.
Following the completion of such agreement, AsianLogic Limited ('ALL') was
admitted to the AIM market at a price of £1.1162 ('Flotation Price'). Separately
and in connection with the entry into a new software license agreement with ESL
for a 5 year term, the Group received 467 shares in ESL for no consideration. In
addition, the Group entered into a Share Exchange Agreement with ALL, the parent
company of ESL, incorporated in the British Virgin Islands. Pursuant to the
Share Exchange Agreement, ALL acquired all 713 of the Group's shares in ESL in
consideration for the issue of 7,130,000 shares in ALL.
The 246 shares in ESL were acquired for $5,011 thousands, which represented an
aggregate discount of 15% to the Flotation Price. The same discount which a
number of other pre IPO investors were offered. These shares have been
classified as an available for sale asset. The fair value at 31 December 2007
amounted to $5,500 thousands. The increase in value of $489 thousands has been
classified as an available for sale reserve (including foreign exchange
differences of $(101) thousands).
The Group received the 4,670,000 shares in ALL in consideration for agreeing a
lower licence fee percentage in the software licence agreement with ESL. Based
on ALL's share price at this time, the underlying value of the Group's interest
in the shares amounted to $10,622 thousands. The Group's interest at 31 December
2007 was $10,442 thousands. The decrease in value, created due to the changes in
the exchange rates, from the time of acquisition to 31 December 2007 of $180
thousands has been classified as an available for sale reserve.
The Directors consider the fair value of the consideration received by way of
discount to the market value of the 4,670,000 shares, to represent deferred
income of the software licence agreement. As a consequence, $10,621 thousands
have been included in deferred revenues, which will be realised as income over
the lifetime of the software license agreement.
The total value of available for sale investments in ALL at 31 December 2007
amounted to $15,942 thousands.
NOTE 16 - INVESTMENTS (Cont.)
As at 29 February 2007, the closing price of ALL shares was £1.01 compared to
£1.12 as at 31 December 2007. This has resulted in a decrease in the fair value
of the total available for sale shareholding of $1,651 thousands. This reduction
in value is a non-adjusting post balance sheet event and has not therefore been
accounted for as at 31 December 2007.
NOTE 17 - CASH AND CASH EQUIVALENTS
December 31
2007 2006
US$000 US$000
Cash at bank 15,994 4,339
Deposits 70,497 97,064
86,491 101,403
The Group held cash balances which includes monies held on behalf of operators
in respect of operators' jackpot games. The balances held at the year-end are
set out below and the liability is included in trade payables:
For the year ended
December 31
2007 2006
US$000 US$000
Funds attributed to jackpots 3,131 1,642
NOTE 18 - SHAREHOLDERS EQUITY
December 31
2007 2006
A. Share Capital Number of Shares
Share capital is comprised of
no par value shares as
follows:
Authorized N/A(*) N/A(*)
Issued and paid up 215,561,342 213,741,096
On 24 February 2006, the Group repurchased all of its 1,000,000 outstanding
ordinary issued shares of $0.01 par value and cancelled them. The existing
shareholders then subscribed for and were issued and allotted by the Group,
200,000,000 ordinary shares of no par value for an aggregate subscription amount
of $10,000.
During the year 1,820,557 of shares were exercised under the ESOP scheme.
(*) Playtech Limited has no authorized share capital but is authorized under its
memorandum and articles of association to issue up to 1,000,000,000 shares of no
par value.
B. Distribution of Dividend
In March 2007, the Group distributed $15,000,000 as a final dividend for 2006.
In October 2007, the Group distributed $13,125,000 as an interim dividend for
2007.
No dividends were waived.
NOTE 18 - SHAREHOLDERS EQUITY
C. Reserves
The following describes the nature and purpose of each reserve within owners
equity:
Reserve Description and purpose
Additional paid in Share premium (i.e. amount subscribed for share
capital capital in excess of nominal value)
Employee stock Amount in respect of employee stock option benefit
option reserve
Available for sale Changes in fair value of available for sale
reserve investments (note 16)
Retained earnings Cumulative net gains and losses recognized in the
consolidated income statement
NOTE 19 - TRADE PAYABLES
December 31
2007 2006
US$000 US$000
Suppliers 1,657 2,932
Progressive and other operators' jackpots 3,131 1,642
Customer in credit 472 -
Related parties - 1,091
Other - 2
5,260 5,667
NOTE 20 - OTHER ACCOUNTS PAYABLES
December 31
2007 2006
US$000 US$000
Payroll and related expenses 3,100 2,354
Accrued expenses 108 320
Deferred consideration (note 12) 30,723 -
Other payables 45 9
33,976 2,683
NOTE 21 - SUBSIDIARIES
Details of the Group's subsidiaries as at the end of the year are set out below:
Proportion of
voting rights
Country of and ordinary
incorporation share capital
Name held Nature of business
Playtech Software British Virgin 100% Main trading company
Ltd Islands of the Group, owns
the intellectual
property rights and
licenses the
software to
customers.
OU Playtech Estonia 100% Designs, develops
(Estonia) and manufactures
online software
Techplay Marketing Israel 100% Marketing and
Ltd advertising
Video B Holding Ltd British Virgin 100% Trading company for
Islands the Videobet
software, owns the
intellectual
property rights of
Videobet and
licenses it to
customers.
OU Videobet Estonia 100% Develops software
for fixed odds
betting terminals
and casino machines
(as opposed to
online software)
Playtech Bulgaria Bulgaria 100% Designs, develops
and manufactures
online software
PTVB Management Ltd Isle of Man 100% Management
Playtech (Cyprus) Cyprus 100% Dormant
Ltd
Playtech Live Ltd British Virgin 100% Dormant
Islands
Networkland Ltd British Virgin 100% Dormant
Islands
Playtech Bingames British Virgin 100% Technical support
Ltd Islands
Evermore Trading British Virgin 100% Holder of
Ltd Islands convertible notes in
Foundation
NOTE 22 - FINANCIAL RISKS
The Group's financial assets are shown on the face of the balance sheet. The
Group is exposed to interest rate risk, currency risk, credit risks and market
price risks relating to the financial instruments it holds. The risk management
policies employed by the Group to manage these risks are discussed below.
a. Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Group's income and
operating cash flows are substantially independent of changes in market interest
changes. The management monitors interest rate fluctuations on a continuous
basis and acts accordingly.
Where the Group has generated a significant amount of cash, it will invest in
higher earning interest deposit accounts. These deposit accounts are short term
and the Group is not unduly exposed to market interest rate fluctuations.
A 1% change in deposit interest rates would impact on the profit before tax by
between $500 thousands and $1,000 thousands.
NOTE 22 - FINANCIAL RISKS (Cont.)
b. Credit risk
Credit risk arises when a failure by counterparties to discharge their
obligations could reduce the amount of future cash inflows from financial assets
on hand at the balance sheet date.
The Group closely monitors the activities of its counterparties and controls the
access to its intellectual property which enables it to ensure the prompt
collection of customers' balances.
The Group's main financial assets are cash and cash equivalents as well as trade
and other receivables and represent the Group's maximum exposure to credit risk
in connection with its financial assets. Trade and other receivables are carried
on the balance sheet net of bad debt provisions estimated by the Directors based
on prior year experience and an evaluation of prevailing economic circumstances.
2007 2006
US$000 US$000
A provision for doubtful debtors is
included within trade receivables that
can be reconciled as follows:
At 1 January 289 -
Charged/(credited) to income statement 118 289
Utilized (181) -
At 31 December 226 289
The ageing of trade receivables before
provision can be analyzed as follows:
Not past due 10,937 3,118
1-2 months past due 709 3,136
More than 2 months past due 1,081 292
At 31 December 12,727 6,546
The above balances relate to customers with no default history.
c. Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate
due to changes in foreign exchange rates.
Foreign exchange risk arises because the Group has operations located in various
parts of the world. However, the functional currency of those operations is
substantially the same as the Group's primary functional currency (US dollars)
and the Group is not substantially exposed to fluctuations in exchange rates in
respect of assets held overseas.
Bank deposits are held with high-rated banks.
Foreign exchange risk also arises when Group operations are entered into in
currencies denominated in a currency other than the functional currency. The
Group's policy is not to enter into any currency hedging transactions.
d. Market price risk
The Group's balance sheet is exposed to market risk by way of holding some
investments in other companies on a short term basis (note 16). Variations in
market value over the life of these investments have or will have an impact on
the balance sheet and the income statement.
NOTE 22 - FINANCIAL RISKS (Cont.)
The directors believe that the exposure to market price risk is acceptable in
the Group's circumstances.
The Group's balance sheet at 31 December 2007 includes available for sale
investments with a value of $34,846 thousand which are subject to fluctuations
in the underlying share price.
e. Capital risks
Given the Group's position with no borrowings and significant retained earnings,
capital risk is not considered significant.
f. Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
financial charges and repayments on its liabilities.
The Group's policy is to ensure that it will have sufficient cash to allow it to
meet its liabilities when they become due.
There is no significant difference between the fair values and carrying values
of the Group's financial assets and liabilities.
NOTE 23 - CONTINGENT LIABILITIES
a. Regulatory
The Group is not a gaming operator and does not provide gaming services to
players. From 13 October, 2006, following the approval by the US President of
the Unlawful Internet Gambling Enforcement Act 2006 (the 'UIGEA'), the Group
requested all of its licensees to cease their US facing activity. Such request
was accepted and implemented by all licensees and the Group stopped collecting
royalties deriving from the activity of US players. The directors believe that
the Group has taken all measures necessary to be in full compliance with the
UIGEA.
The directors are aware of activity by certain regulatory authorities creating
uncertainty as to further actions that may occur, if any. Accordingly, the
directors have considered any residual risk arising from the Group's activities,
and the potential impact on the financial statements, and no provision has been
made in the financial statements in respect of the likelihood of any adverse
impact that may arise from such activities.
b. Other
Management is not aware of any contingencies that may have a significant impact
on the financial position of the Group in addition to the above mentioned.
Management is not aware of any additional material, actual, pending or
threatened claims against the Group.
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