3rd Quarter Results

World Gaming PLC 17 November 2005 FOR IMMEDIATE RELEASE 17 NOVEMBER 2005 WORLD GAMING PLC ('World Gaming' or 'the Company') (TIDM:WGP) THIRD QUARTER RESULTS FOR THE THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2005 The Board of World Gaming, an internet Gaming Software provider offering a comprehensive suite of products and services for internet gaming Operators through its subsidiaries, is pleased to announce the Company's third quarter results for the three and nine months ended the 30 September 2005. HIGHLIGHTS •Like-for-like growth in royalty revenue of 56.6% in the quarter ended 30 September 2005 and 59.5% for the nine months ended 30 September 2005 when compared to the same period last year; •Wagering volume on the Company's servers at $5.2 billion for the nine months ended 30 September 2005, up from $3.9 billion for the same period last year; •Strong balance sheet and cash flows in the period with net working capital up 40.7% on the same period last year to $20.9m; •Two new licensees launched in the third quarter of 2005 plus a European white-label partner signed and launched; •Announcement of acquisition of the SPORTSBETTING.COM group effective 1 October 2005 under conditional agreements subject to approval at the Company's AGM in December. World Gaming plc CEO, Daniel Moran said: 'The Company continues to experience strong organic growth in revenue from its existing licensees, a focus of the business that is highly profitable. In addition, new opportunities within the licensing business continue to emerge. Consistent with our stated strategies, we are pleased to be entering the gaming operations space through the acquisition of the SPORTSBETTING.COM group. As the Company enters its busiest trading period, we look to the future with confidence and a resolve to continue to deliver on our strategies.' --ENDS-- Enquiries: WORLD GAMING PLC Tel: +1 888 883 0833 Daniel Moran, Chief Executive BISHOPSGATE COMMUNICATIONS LIMITED Tel: 020 7430 1600 Maxine Barnes Dominic Barretto DANIEL STEWART & COMPANY PLC Tel: 020 7776 6550 Ruari McGirr The Company's 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 quarter and nine months ended 30 September 2005 has continued to demonstrate significant growth in licensee revenue. From an operational standpoint, the Company has integrated its new licensees and built upon its infrastructure network to continue to support these licensees through the seasonally busy autumn and winter sports calendar and beyond. Revenues continue to show strong growth with a 56.6% rise in like-for-like royalty revenues from the Company's software licensing business for the quarter and a 59.5% rise for the nine months to 30 September 2005. The Company enters the fourth quarter of 2005 well placed to strengthen its revenue growth, firstly through its acquisition of the SPORTSBETTING.COM group, effective 1 October 2005, secondly through continued organic growth and finally through the addition of its new licensees. Financial Results Three and nine months ending 30 September 2005 Like-for-like revenue from continuing and new licensees increased by 56.6% or $684,000 to $1.893m for the quarter ended 30 September 2005 when compared to $1.209m for the same period last year. For the nine months ended 30 September 2005 revenue from these licensees increased 59.5% or $2.023m to $5.422m when compared to $3.399m for the same period last year. Total revenues for the quarter ended 30 September 2005 decreased by 37.4% or $1.509m to $2.529 compared to $4.038m for the same period last year. For the nine months ended 30 September 2005 total revenues decreased $6.222m or 45.9% to $7.328m compared to $13.550m for the same period last year. The decrease in total revenues is wholly attributable to the Sportingbet Transaction effective 1 October 2004 (referred to previously), where in return for certain consideration and other arrangements, the Company no longer charges royalties to Sportingbet for use of the Software. Key financial aspects of the Sportingbet Transaction having a material effect for comparative purposes are described below: •The Company no longer charges royalties to Sportingbet, which represented 70% and 72% of total revenue for the quarter and nine months ended 30 September 2004 respectively; •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 $636,000 for the quarter ended 30 September 2005 and $1.906m in the nine months ended 30 September 2005. These hosting fees were not charged to Sportingbet during the corresponding periods in 2004; •All software development costs previously incurred by the Company are paid by Sportingbet which on average equalled approximately $1.100m per quarter in 2004; •The Company received certain cash and other consideration under the Sportingbet Transaction described below. Net income from operations for the quarter ended 30 September 2005 decreased by 14.6% to $979,000 or $0.03 per participating ordinary share compared to net income of $1.146 or $0.03 per participating ordinary share for the same period last year. For the nine months ended 30 September 2005, net income from operations decreased by $2.676m or $0.05 per participating ordinary share compared to net income of $4.818m or $0.11 per participating ordinary share for the same period last year. Participating ordinary shares include those shares that have voting and economic rights and exclude those shares held by Sportingbet in accordance with the transaction effective 1 October 2004. In the quarter ended 30 September 2005 the Company received hosting revenue from Sportingbet of $636,000 compared to $nil in the same quarter last year. The hosting revenue is charged on a percentage of usage basis plus a 10% mark-up for Sportingbet's usage of the Company's hosting facilities. 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 nine months ended 30 September 2004 compared to $nil in the quarter and nine months ended 30 September 2005. Direct costs associated with this division exceeded fee revenue in every quarter up to the date of its closure. The gross margin for the quarter ended 30 September 2005 was 74.0% compared to 95.0% for the same period last year. For the nine months ended 30 September 2005 gross margin was 72.3% compared to 93.5% for the same period last year. The decrease resulted from a change in accounting policy as of 1 January 2005 to treat all hosting costs as direct costs of sales. During the three months and nine months ended 30 September 2004, such direct costs only consisted of certain hosting costs and direct costs associated with transaction processing. Applying this change in accounting policy to the three months and nine months ended 30 September 2004, approximately $450,000 and $1.230m respectively would be re-allocated from operating expenses to direct cost of sales. Operating expenses including depreciation decreased 63.0% to $996,000 during the quarter ended 30 September 2005 compared to $2.692m 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 which represented approximately $950,000 of operating costs in the quarter ended 30 September 2004. •Re-allocation of all hosting costs to direct cost of sales which would have otherwise attributed to approximately $450,000 of operating costs in the quarter ended 30 September 2005. •Depreciation charges during the quarter ended 30 September 2005 declined $169,000 or 45.4% when compared to the same period last year. Operating expenses including depreciation in the nine months to 30 September 2005 decreased 56.9% to $3.388m compared to $7.865m for the same period last year. Review of Operations The Company launched its two new licensing arrangements announced as signed in the second quarter. The key brands of these licensees include gambling.net and gosportsbet.com. The Company, through its joint marketing arrangement with Sportingbet plc whereby it can market the Sportingbet European Gaming solution, has recruited a new white label partner, Vista Gaming. The Vista Gaming web-site www.vistabet.com is now live and marketing will begin shortly. Vistabet are initially offering the integrated sportsbook, casino and poker solution to the Greek community in various countries around the world. The Company will derive revenue from this new site through its arrangement with Sportingbet. The Company continues to experience strong growth in its multi-player poker solution which was launched to one of largest licensees in the second quarter. Planned hardware and software upgrades that took place in the second quarter have established increases in processing speeds experienced by licensees' customers and greater volume and storage capacity. Regulatory Developments 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, there are no bills pending at the present time of which the Company is aware. There is no way of knowing if and when such a bill may be introduced, and the Company continues to monitor this situation closely since the passage of legislation of this type 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 November 2004, the World Trade Organisation ('WTO') found that the US was in violation of its commitments under international trade rules by not allowing operators of Internet Gaming services licensed in Antigua and Barbuda to access US markets. The decision was appealed and, in April 2005, the WTO ruled that the US had shown that its laws prohibiting gambling are 'necessary to protect public morals or maintain public order' but had failed to demonstrate, in light of its laws in respect of on-line gambling on horseracing, that such prohibitions are applied equally to both foreign and domestic providers of on-line gambling services for horseracing. Consequently, the WTO recommended that the US bring its legislation into conformity with its obligations under international trade rules. Pursuant to the report of the arbitrator circulated in August 2005 initiated by Antigua and Barbuda, the US has been given until 3 April 2006 to clarify its policies on Internet gambling and the purported extraterritorial application of its laws. It remains to be seen what legislative proposals will be adopted in the US in relation to Internet gambling and whether this will lead to a change in US Internet Gaming policy. Outlook The Company's strategy to broaden its revenue base beyond licensing and hosting is apparent now with the acquisition of the SPORTSBETTING.COM Group effective 1 October 2005. This new operations dimension will provide the Company with a solid platform on which to build its operating business. The acquisition is expected to be significantly earnings enhancing for the Company. The Company remains committed to building and maintaining its licensing and hosting infrastructure so that it can continue to exploit the continued growth trends within the on-line gaming industry as a whole. This includes integrating new products and investing in robust technologies. The Company will continue to pursue acquisition opportunities that will enhance and further leverage its existing assets and those acquired through the SPORTSBETTING.COM group. The fourth quarter of 2005 is historically one of the busiest quarters for the Company as the U.S. winter sports season dominates the sporting event calendar. Daniel Moran Chief Executive 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 and nine months ended the 30 September 2005 and 2004 3 months 3 months 9 months 9 months 30 30 30 30 September September September September 2005 2004 2005 2004 $'000 $'000 $'000 $'000 TURNOVER 2,529 4,038 7,328 13,550 Cost of sales (658) (200) (2,030) (880) -------- -------- -------- ------- GROSS PROFIT 1,871 3,838 5,298 12,670 Other operating expenses (net) (996) (2,692) (3,388) (7,865) -------- -------- -------- ------- OPERATING PROFIT BEFORE INTEREST AND SIMILAR INCOME 875 1,146 1,910 4,805 Interest income (net) 104 - 232 13 -------- -------- -------- ------- PROFIT/(LOSS) BEFORE TAXATION 979 1,146 2,142 4,818 Taxation - - - - -------- -------- -------- ------- PROFIT/(LOSS) FOR THE FINANCIAL PERIOD 979 1,146 2,142 4,818 ======== ======== ======== ======= BASIC EARNINGS PER SHARE 0.02 0.03 0.04 0.11 BASIC EARNINGS PER SHARE Excluding Non-Voting 0.03 0.03 0.06 0.11 DILUTED EARNINGS PER SHARE 0.02 0.02 0.04 0.08 DILUTED EARNINGS PER SHARE Excluding Non-Voting 0.02 0.02 0.05 0.08 The operating profit for the quarter arises from the company's continuing operations. STATEMENT OF TOTAL RECOGNISED $'000 $'000 $'000 $'000 GAINS AND LOSSES Profit for the financial period 979 1,146 2,142 4,818 Currency translation difference on foreign currency net investment 10 (6) (3) 136 -------- -------- ------- ------- Total recognised gains relating to the year 989 1,140 2,139 4,954 ======== ======== ======= ======= World Gaming plc Consolidated Balance Sheets As at 30 September 2005 and 31 December 2004 30 September 31 December 2005 2004 (unaudited) $'000 $'000 FIXED ASSETS Tangible assets 1,413 1,419 --------- --------- 1,413 1,419 CURRENT ASSETS Debtors 9,099 14,016 Cash at bank and in hand 16,596 7,944 --------- --------- 25,695 21,960 CREDITORS: Amounts falling due within one year (4,766) (7,094) --------- --------- NET CURRENT ASSETS 20,929 14,866 --------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 22,342 16,285 CREDITORS: Amounts falling due after more than one year: Provisions for liabilities and charges (524) (257) --------- --------- NET ASSETS 21,818 16,028 ========= ========= CAPITAL AND RESERVES Called up share capital 156 134 Share premium account 5,304 1,675 Deferred compensation reserve 567 567 Merger reserve 23,528 23,528 Profit and loss account (7,737) (9,876) --------- --------- SHAREHOLDERS' FUNDS 21,818 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 in the quarter is based on the profit after tax at 30 September 2005 of $979,000 (2004: $1,146,000) 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 Nine months to the 30 September 2005 and 2004 9 months 9 months ended ended 30 September 30 September 2005 2004 $'000 $'000 Net cash inflow from operating activities 2,352 4,326 Returns on investment and servicing of finance 232 (15) Capital expenditure (566) (1,050) Consideration received - Sportingbet 3,000 - --------- --------- CASH INFLOW/(OUTFLOW) BEFORE FINANCING 5,018 3,261 Financing (14) (579) Issue of shares 3,651 62 --------- --------- INCREASE IN CASH IN THE PERIOD 8,655 2,744 ========= ========= RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS Increase in cash in the period 8,655 2,744 Cash (inflow)/outflow from (increase)/decrease in debt 14 (1,238) Currency translation differences (3) 136 --------- --------- MOVEMENT IN NET FUNDS RESULTING FROM CASH FLOWS IN PERIOD 8,666 1,642 --------- --------- Non-cash movements - - --------- --------- Movement in net funds in period 8,666 1,642 --------- --------- --------- --------- Net funds/(debt) at start of period 7,930 2,657 --------- --------- NET FUNDS AT END OF PERIOD 16,596 4,299 ========= ========= This information is provided by RNS The company news service from the London Stock Exchange BFEFBLFBX

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