1st Quarter Results
World Gaming PLC
01 June 2005
FOR IMMEDIATE RELEASE 1 JUNE 2005
WORLD GAMING PLC
('World Gaming' or 'the Company')
(TIDM:WGP)
FIRST QUARTER RESULTS FOR THE THREE MONTHS ENDED 31
MARCH 2005
The Board of World Gaming, an internet Gaming Software provider offering a
comprehensive suite of products and services for internet gaming Operators, is
pleased to announce the Company's first quarter results for the three months
ended the 31 March 2005.
HIGHLIGHTS
• Like-for-like growth in royalty revenue of 54% in the quarter ended 31
March 2005 when compared to the same period last year;
• Wagering volume on the Company's servers at $2.0 billion for the quarter
ended 31 March 2005, up from $1.4 billion for the same period last year;
• First quarter results have met or exceeded management's expectations on key
indicators;
• The Company signed two new licensees in the first quarter of 2005;
• Successful placing and admission to AIM on 17 May 2005;
• Further Poker launches to licensees scheduled for the second quarter of
2005.
World Gaming plc CEO, Daniel Moran said: 'The Company enters the new financial
year well placed to build upon its successes in 2004. The development of the
worldwide industry of online gaming continues to grow at the same rates since
its inception. Strong organic growth continues to be exploited by many operators
and their suppliers.'
'The Board remains confident that the Company has the business model to share in
this growth through both its licensing model and acquisitive strategy during
the forthcoming year. We look to the future with confidence.'
--ENDS--
Enquiries:
BISHOPSGATE COMMUNICATIONS LIMITED Tel: 020 7430 1600
Maxine Barnes
Dominic Barretto
DANIEL STEWART & COMPANY PLC Tel: 020 7374 6789
Ruari McGirr
The Ordinary Shares have not been and will not be registered under the U.S.
Securities Act of 1933 (the 'Securities Act') and may not be offered or sold in
the United States or to a U.S. person (as such term is defined in Regulations S
under the Securities Act) absent registration or an applicable exemption from
registration under the Securities Act.
FULL STATEMENT ATTACHED
CHIEF EXECUTIVE'S STATEMENT
Introduction
The three months ended 31 March 2005 represent a solid period of trading which
has produced results that have met or exceeded management's expectations on key
indicators.
Underpinning this success has been a 54.1% rise in like-for-like royalty
revenues generated by the success of World Gaming's licensing model through a
combination of organic growth and new licensees. Growth in the quarter over the
prior year is particularly high as the first two months of 2004 represent a
period prior to the successful outsourcing of the Company's transaction
processing division commencing February 2004. The increase in revenues has
further demonstrated significant economies of scale inherent in the Company's
business model. The Company's operating profit margins on royalty revenue have
remained constant compared to the same period last year demonstrating strength
in scalability of the Company's business model.
In addition to the licensing model, the Company continues to explore
opportunities to leverage its strength in infrastructure, both operational and
financial. In this regard the Company will seek corporate transactions that will
meet with its objectives.
Financial Results
Three months ending 31 March 2005
Like-for-like revenue from continuing and new licensees increased by 54.1% or
$702,000 to $2.00m for the quarter ended 31 March 2005, compared to $1.29m for
the same period last year. Like-for-like revenues exclude revenues from
Sportingbet Plc ('Sportingbet') in 2004. Total revenues for the quarter ended 31
March 2005 decreased by 50.9% or $2.72m to $2.63m compared to $5.36m for the
same period last year. The decrease in total revenue is wholly attributable to
the Sportingbet Transaction which was effective as of 1 October 2004 where in
return for certain consideration and other arrangements, the Company no longer
charges royalties to Sportingbet for use of the Software (see 'Sportingbet
Transaction' below).
Key financial aspects of the Sportingbet Transaction described below, for
comparative purposes are as follows:
• The Company no longer charges royalties to Sportingbet, representing 68%
of total revenue for the quarter ended 31 March 2004;
• The Company charges Sportingbet hosting fees on a cost plus 10% basis
for its share of usage of the Company's hosting facilities which generated
revenues of $635,000 in the quarter ended 31 March 2005;
• All development costs previously incurred by the Company are paid by
Sportingbet which equalled approximately $1.2m of costs for the quarter
ended 31 March 2004;
• The Company received certain cash and other consideration under the
Sportingbet Transaction.
Net profit from operations for the quarter ended 31 March 2005 was $836,000 or
$0.03 per participating ordinary share compared to net profit of $1.98m or $0.04
per participating ordinary share for the same period last year. Participating
ordinary shares include those shares that have voting and economic rights and
therefore exclude those 13.5m shares held by Sportingbet in accordance with the
transaction effective 1 October 2004 described in 'Sportingbet Transaction'
below.
Royalty revenue from software licensing decreased 59.5% or $2.94m to $2.00m for
the quarter ended 31 March 2005 compared to $4.94m for the same period last
year. On a like-for-like basis, excluding royalties from Sportingbet, revenue
from continuing and new licensees grew 54.1% to $2.00m for the quarter ended 31
March 2005 when compared to the same period last year. Pursuant to the
Sportingbet Transaction described below, the Company received and continues to
receive hosting revenues from Sportingbet and Sportingbet funded and continues
to fund all development costs thus reducing operating costs excluding interest
and deprecation by 63.7% in the quarter as described below.
Pursuant to terms of the Sportingbet Transaction, the Company received hosting
revenue from Sportingbet of $635,000 in the quarter ended 31 March 2005 compared
to $nil in the same quarter last year. Hosting is charged on a percentage of use
basis. Sportingbet pays its proportion of the hosting use at cost plus 10%.
In February 2004, the Company closed its transaction processing and customer
service divisions migrating licensees that utilized these services to a third
party supplier. For comparative purposes, $423,000 of transaction processing fee
revenue was included in total revenues for the quarter ended 31 March 2004
compared to $nil in the quarter ended 31 March 2005. Direct costs associated
with this division exceeded fee revenue in every quarter up to the date of its
closure.
For the three months ended 31 March 2005, gross wagering volumes increased 42.9%
to $2.0 billion when compared to $1.4 billion in the prior year. Growth in
wagering volume from continuing licensees, excluding Sportingbet, was 70.3%.
Management believes that the growth in wagering volume is attributable to a
continued expansion of the market for internet gaming. In addition, this growth
is partially attributable to increased reliability of the Company's product
suite as a result of infrastructure and support services upgrades. Overall net
win experienced by licensees was consistent with the same period last year. (Net
win for the Company's licensees is the difference between the amount wagered
(bet placed) by a customer and the amount paid back to (won by) that customer).
The gross margin for the quarter ended 31 March 2005 was 71.1% compared to 90.7%
for the same period last year. The decrease is primarily the result of a change
in accounting policy as of 1 January 2005 to treat all hosting costs as direct
costs of sales. In the quarter ended 31 March 2004, such direct costs only
consisted of certain hosting costs and direct costs associated with transaction
processing. On a like-for-like basis, approximately an additional $400,000 would
have been included in hosting costs for the quarter ended 31 March 2004.
Operating expenses including interest and depreciation decreased 64.1% to $1.03m
during the quarter ended 31 March 2005 compared to $2.89m for the same period
last year.
The decrease occurred primarily due to the following:
• Development costs being funded by Sportingbet as result of the Transaction
described below, effective 1 October 2004. On a like-for-like basis this
represented approximately $1.2m of operating costs in the quarter ended 31
March 2004;
• Re-allocation of all hosting costs to direct cost of sales. On a
like-for-like basis, this attributed to approximately $400,000 of operating
costs in the quarter ended 31 March 2005; and
• Depreciation charges during the quarter ended 31 March 2005 declined
$208,000 or 52.4% when compared to the same period last year.
In summary, for the quarter ended 31 March 2005 compared to the same quarter
last year, net profit decreased by 58.0%, primarily due to a 59.5% decrease in
royalty revenues. With associated reductions in operating expenses and recovery
of direct costs, operating profit margin for the Company on the basis of royalty
revenue has increased 4.5% to 41.8% compared to 40% in the quarter ended 31
March 2004. Management believes that this demonstrates the highly scalable
nature of the business.
Review of Operations
During the quarter ended 31 March 2005, management spent significant time
establishing the Company's listing on the Alternative Investment Market ('AIM')
of the London Stock Exchange. The Company was admitted to trading during the
second quarter on 17 May 2005 raising £2,499,000 from the private placement of
4,760,000 ordinary shares.
The Board sees this as a critical step in the Company's future strategic
direction in addition to offering existing shareholders greater value through a
more stable trading platform. It is expected that the Company's listing on AIM
will assist in meeting its strategic direction, in particular, completion of
corporate transactions that will enhance shareholder value.
In the first quarter of 2005 the Company signed two new licensees. These
licensees have significant experience in the on-line gaming industry and it is
expected that they will begin to contribute material revenues in the final
quarter of 2005.
The Company continues to roll out its third-party supplied multi-player poker
solution to its licensees. One of the Company's largest licensees has commenced
going live with this product in the second quarter of 2005.
Through the second quarter of 2005 the Company will continue to complete planned
hardware and software upgrades for busy winter sports season commencing in the
third quarter. Software upgrades will be completed through Alea Software Ltd.
Recent Developments - 'Sportingbet Transaction'
Joint Venture Arrangements, effective 1 October 2004, were entered into on 12
October 2004 between the Company and Sportingbet. The principle terms of the
arrangements are as follows:
• The ownership of the intellectual property in the Company's gaming software
including it's gaming product suite ('Gaming Software') was transferred
into a new exempt limited partnership, Bullen Road LP, based in the Cayman
Islands, which was established under the equal joint ownership of SSII
Limited and Sportingbet;
• In consideration of this transfer, Sportingbet agreed to pay a total of $10
million in cash to the Company ($3 million was paid on each of 12 October
2004 and 1 March 2005 and the balance of $4 million is payable on or before
1 November 2005). In addition, the economic value of Sportingbet's then
29.6% (13,506,204 shares) shareholding in the Company was eliminated by the
cancellation of all rights of any value attached to the ordinary shares of
the Company then held by Sportingbet, and a convertible loan note
representing indebtedness of $900,000 owing from the Company to Sportingbet
was cancelled;
• Each of the Company and Sportingbet has the right to appoint two directors
to the four person board of Bullen Road LP which controls the development
objectives of Alea Software Ltd, a wholly owned subsidiary of Sportingbet
and the developer of the Gaming Software under the Joint Venture
Arrangements;
• During the period of the Joint Venture Arrangements, Sportingbet is
responsible for all of Alea's costs associated with the development and
maintenance of the Gaming Software (with a minimum spend of $4.5 million
per year in the first 3 years and a minimum of $2.5 million in the fourth
year);
• The Company retains the right to determine 30% of the development time on
the Gaming Software through a development plan devised by the Joint Venture
Board consisting of two members of the Company and two members from
Sportingbet;
• The Company has a worldwide royalty free licence allowing it to continue to
use and sublicense the Gaming Software. In the event that World Gaming
becomes an operator it would pay a 5% royalty only on those revenues to
Sportingbet;
• Sportingbet has a worldwide royalty free licence to use the Gaming
Software. Royalty payments of 5%. are due from Sportingbet in the event
that they licence the Gaming Software to any new licensees;
• Sportingbet pays its proportion of the hosting costs on the Company's
systems and IT services at cost plus 10%;
• The Joint Venture Arrangements may be terminated by the Company on three
months notice. Except in the event of breach by World Gaming, Sportingbet
may not terminate the Joint Venture Arrangements for three years.
Thereafter, Sportingbet may terminate on 12 months notice to the Company;
and
• On termination of the Joint Venture Arrangements, (a) Sportingbet must pay
$3 million to the Company (which would be retrospectively reduced by the
amount of consideration received by the Company if it sells its rights to
the Gaming Software within 2 years); and (b) each of the Company and
Sportingbet will be granted a perpetual, non-exclusive royalty free licence
to use, sub-licence and assign all of the then intellectual property rights
underlying the improved Gaming Software, and neither party will have the
rights to any further improvements or developments made by the other party.
The additional $3 million payable to the Company upon termination of the
Agreements by Sportingbet has not been included in the Company's consolidated
financial statements.
Regulatory Developments
The licensees of the Company's software products, and the Company itself, are
subject to applicable laws in various jurisdictions. As companies and consumers
involved in Internet gaming are located around the globe, including the
end-users of our licensees, there is uncertainty regarding exactly which
governments have jurisdiction or authority to regulate or legislate with respect
to various aspects of the industry. The uncertainty surrounding the regulation
of Internet gaming could have a material adverse effect on the Company's
business, revenues, operating results, and financial condition. There is a risk
that criminal and civil proceedings could be initiated in various jurisdictions
against the Company's licensees, or, less likely, even the Company, and such
proceedings could involve substantial litigation expense, penalties, fines,
diversion of the attention of key executives, injunctions or other prohibitions
being invoked against the licensee or the Company. Such proceedings could have a
material adverse effect on the Company's business, revenues, operating results
and financial condition. In addition, as electronic commerce develops further,
it may generally be the subject of government regulation including taxation
which could impact the Company's financial position. Also, current laws that
pre-date or are incompatible with Internet electronic commerce may be enforced
in a manner that restricts the electronic commerce market. Any such developments
could have a material adverse effect on the Company's business, revenues,
operating results and financial condition.
The Company and the industry as a whole are under threat from certain factions
within the U.S. Congress that seek to ban certain Internet gambling. Whilst
legislation has been introduced in both houses of Congress in recent years, no
Internet gambling bills have been introduced in the current session of Congress,
and thus there are no bills pending. There is no way of knowing if and when such
a bill might be introduced, and the Company continues to monitor this situation
since the passage of this legislation could have a substantial impact on the
business of the Company's licensees and ultimately the Company. If Internet
gambling prohibition legislation is introduced and becomes law, it would have an
immediate detrimental effect on the industry and would pose a serious threat to
the Company's continued operations.
In March 2004, the World Trade Organization held in favour of Antigua and
Barbuda and against the United States of America with regard to unlawful trade
restrictions relating to Internet gaming. In April 2005 the US appeal to this
ruling was heard, but it is too early to determine what, if any, influence this
may have on United States led legislation.
Outlook
The Company enters the new financial year well placed to build upon its
successes in 2004. The development of the worldwide industry of online gaming
continues to replicate similar growth experienced since its inception. Strong
organic growth continues to be exploited by operators and their suppliers.
The Board remains confident that the Company has the business model to share in
this growth through both its licensing model and acquisitive strategy during the
forthcoming year.
Seasonality of the business means that the second quarter is generally the
slowest trading quarter for the Company. It appears likely that while the
growth from licensee revenue in first quarter of 2005 will continue, the
percentage increase in such revenues for the second quarter of 2005 compared to
the same period last year may be less pronounced. The Board is confident that
it can utilise this time to perform necessary software and infrastructure
upgrades for its licensees in preparation for the busy winter sports season
commencing in the third quarter.
The information contained herein is not for publication or distribution to
persons in the United States of America. The securities referred to herein have
not been and will not be registered under the US Securities Act 1933, as
amended, and may not be offered or sold without registration thereunder or
pursuant to an available exemption therefrom.
World Gaming plc
Unaudited Consolidated Profit and Loss Account
Three months ended the 31 March 2005 and 2004
+----------------------------------------------------+-------+-------------+---------+
| | | 3 months| 3 months|
+----------------------------------------------------+-------+-------------+---------+
| | | 31 Mar| 31 Mar|
+----------------------------------------------------+-------+-------------+---------+
| | | 2005| 2004|
+----------------------------------------------------+-------+-------------+---------+
| | | $'000| $'000|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|TURNOVER | | 2,635| 5,364|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|Cost of sales | | (761)| (499)|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|GROSS PROFIT | | 1,874| 4,865|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|Other operating expenses (net) | | (1,084)| (2,890)|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
| | | | |
|OPERATING PROFIT BEFORE INTEREST AND SIMILAR INCOME | | 790| 1,975|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|Interest income (net) | | 46| 14|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|PROFIT/(LOSS) BEFORE TAXATION | | 836| 1,989|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|Taxation | | -| -|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+----------------------------------------------------+-------+-------------+---------+
|PROFIT/(LOSS) FOR THE FINANCIAL PERIOD | | | |
| | | 836| 1,989|
+----------------------------------------------------+-------+-------------+---------+
| | | | |
+---------------------------------------------------++-------+-+-----------+---------+
|BASIC EARNINGS PER SHARE | | 0.02| 0.04|
+---------------------------------------------------+----------+-----------+---------+
|BASIC EARNINGS PER SHARE Excluding Non-Voting | | 0.03| 0.04|
| | | | |
+---------------------------------------------------+----------+-----------+---------+
|DILUTED EARNINGS PER SHARE | | 0.02| 0.04|
+---------------------------------------------------+----------+-----------+---------+
|DILUTED EARNINGS PER SHARE Excluding Non-Voting | | 0.02| 0.04|
| | | | |
+---------------------------------------------------++-------+-+-----------+---------+
+---------------------------------------------------++-------+-+-----------+---------+
The operating profit for the quarter arises from the company's continuing
operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003
$'000 $'000
Profit for the financial period 836 1,989
Currency translation difference on foreign currency (13) 188
net investment
Total recognised gains relating to the year 823 2,177
World Gaming plc
Consolidated Balance Sheets
As at 31 March 2005 and 31 December 2004
31 Mar 31 December
2005 2004
(unaudited)
$'000 $'000
FIXED ASSETS
Tangible assets 1,308 1,419
1,308 1,419
CURRENT ASSETS
Debtors 7,066 14,016
Cash at bank and in hand 12,377 7,944
19,443 21,960
CREDITORS:
Amounts falling due within one year (3,445) (7,094)
NET CURRENT ASSETS 15,998 14,866
TOTAL ASSETS LESS CURRENT LIABILITIES 17,306 16,285
CREDITORS:
Amounts falling due after more than
one year:
Provisions for liabilities and (359) (257)
charges
NET ASSETS 16,947 16,028
CAPITAL AND RESERVES
Called up share capital 136 134
Share premium account 1,769 1,675
Deferred compensation reserve 567 567
Merger reserve 23,528 23,528
Profit and loss account (9,053) (9,876)
SHAREHOLDERS' FUNDS 16,947 16,028
Notes
1. All amounts are in thousands of U.S. Dollars.
2. Earnings per share excluding shares with no voting or economic rights
refers to the 13,506,204 shares held by Sportingbet PLC and its affiliates
that have been set aside as a result of the Transaction with Sportingbet
PLC and may be repurchased by the Company for an aggregate $1 when the
Company has retained earnings to do so. This transaction had no impact on
the earnings per share calculation for the same period in 2004.
3. The calculation of basic earnings per share is based on the profit after
tax at 31 March 2005 of $836,000 (2004: $1,975,000) and on the weighted
average number of ordinary shares in issue.
4. There have been no material changes to the accounting policies of the Group
as set out in 31 December 2004 consolidated financial statements.
World Gaming plc
Unaudited Consolidated Cash Flow statement
Three months to the 31 March 2005 and 2004
3 months 3 Months
ended ended
31 March 31 Mar
2005 2004
$'000 $'000
Net cash inflow from operating activities 1,413 4,039
Returns on investment and servicing of 46 27
finance
Capital expenditure (95) (318)
Consideration received - Sportingbet 3,000 -
CASH INFLOW/(OUTFLOW) BEFORE FINANCING 4,364 3,748
Financing 82 (1,121)
INCREASE IN CASH IN THE PERIOD 4,446 2,627
RECONCILIATION OF NET CASHFLOW TO
MOVEMENT IN NET FUNDS
Increase in cash in the period 4,446 2,627
Cash (inflow)/outflow from (increase)/ 14 168
decrease in debt
Currency translation differences (13) 188
MOVEMENT IN NET FUNDS RESULTING FROM CASH
FLOWS IN PERIOD 4,447 2,983
Non-cash movements - -
Movement in net funds in period 4,447 2,983
Net funds/(debt) at start of period 7,930 (287)
NET FUNDS AT END OF PERIOD 12,377 2,696
This information is provided by RNS
The company news service from the London Stock Exchange
Wednesday, 15th May 2024
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