Interim Results

World Gaming PLC 01 August 2005 FOR IMMEDIATE RELEASE 1 AUGUST 2005 WORLD GAMING PLC ('World Gaming' or 'the Company') (TIDM:WGP) SECOND QUARTER RESULTS FOR THE THREE AND SIX MONTHS ENDED 30 JUNE 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 second quarter results for the three and six months ended the 30 June 2005. HIGHLIGHTS •Like-for-like growth in royalty revenue of 55.5% in the quarter ended 30 June 2005 when compared to the same period last year; •Wagering volume on the Company's servers at $3.6 billion for the six months ended 30 June 2005, up from $2.6 billion for the same period last year; •Strong balance sheet and cash flows in the period with net working capital up 34.0% to $19.9m; •Two new licensees signed in the second quarter of 2005; •Successful debut on Alternative Investment Market ('AIM') of the London Stock Exchange; •Poker launched to a major licensee during the second quarter. World Gaming plc CEO, Daniel Moran said: 'The second quarter is seasonally the industry's least busy period in the year and the Company has utilised this time well to pursue new licensing opportunities and implement robust software and hardware upgrades. We are delighted with the results of these efforts which have resulted in new licensees and greater system speed and capacity. We look to the third quarter 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 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 quarter and six months ended 30 June 2005 has continued to demonstrate significant growth in licensee revenue. During the quarter the Company has worked to integrate its new licensees in preparation for the seasonally busy autumn and winter sports calendar together with carrying out planned infrastructure upgrades. Similar to the first quarter of this year, results continue to meet or exceed management's expectations on key indicators. Royalty revenues continue to show strong growth with a 55.5% rise in like-for-like royalty revenues for the quarter and a 54.7% rise year to date. The Company enters the third quarter of 2005 well placed to continue its strong revenue growth both organically and through the addition of its new licensees. Financial Results Three and six months ending 30 June 2005 Revenue from continuing and new licensees increased by 55.5% or $546,000 to $1.530m for the quarter ended 30 June 2005 when compared to $984,000 for the same period last year. For the six months ended 30 June 2005 revenue from these licensees increased 54.7% or $1.248m to $3.530m when compared to $2.282m for the same period last year. Total revenues for the quarter ended 30 June 2005 decreased by 47.8% or $1.983m to $2.165m compared to $4.148m for the same period last year. For the six months ended 30 June 2005 total revenues decreased $4.712m or 49.5% to $4.800m compared to $9.512m 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 76% and 72% of total revenue for the quarter and six months ended 30 June 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 $635,000 for the quarter ended 30 June 2005 and $1.270m in the six months ended 30 June 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 $1.200m 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 June 2005 decreased by 80.5% to $328,000 or $0.01 per participating ordinary share compared to net income of $1.684m or $0.03 per participating ordinary share for the same period last year. For the six months ended 30 June 2005, net income from operations decreased by 68.3% to $1.163m or $0.04 per participating ordinary share compared to net income of $3.672m or $0.08 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 June 2005 the Company received hosting revenue from Sportingbet of $635,000 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 six months ended 30 June 2004 compared to $nil in the quarter and six months ended 30 June 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 30 June 2005, total gross wagering volumes handled by the Company's hosting facility increased 33.3% to $1.6 billion when compared to $1.2 billion in the three months ended 30 June 2004. For the six months ended 30 June 2005 gross wagering volume increased to $3.6 billion up 38.5% from $2.6 billion for the same period last year. Growth in wagering volume from continuing licensees, excluding Sportingbet, was 69.3% for the quarter and stands at 69.8% for the six months ended 30 June 2005. 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 during the quarter and six months ended 30 June 2005 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 30 June 2005 was 68.7% compared to 95.6% for the same period last year. For the six months ended 30 June 2005 gross margin was 70.0% compared to 92.9% 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 six months ended 30 June 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 six months ended 30 June 2004, approximately $380,000 and $780,000 respectively would be re-allocated from operating expenses to direct cost of sales. Operating expenses including depreciation decreased 45.7% to $1.240m during the quarter ended 30 June 2005 compared to $2.283m 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 $700,000 of operating costs in the quarter ended 30 June 2004. •Re-allocation of all hosting costs to direct cost of sales which would have otherwise attributed to approximately $380,000 of operating costs in the quarter ended 30 June 2005. •Depreciation charges during the quarter ended 30 June 2005 declined $174,000 or 49.1% when compared to the same period last year. Operating expenses including depreciation in the six months to 30 June 2005 decreased 55.0% to $2.326m compared to $5.173m for the same period last year. Review of Operations On 17 May, 2005 the Company was admitted to trading on the Alternative Investment Market ('AIM') of the London Stock Exchange raising £2,499,000 from a placing of 4,760,000 ordinary shares. 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 July 2005, the Company announced the signing of two new licensees. Under commercial terms with one of these licensees, the Company will license its rights to the gambling.net domain name. It is expected that the gambling.net portal will launch in the third quarter of 2005 utilising the full suite of products offered by the Company. The Company believes that gambling.net has the potential to develop as a key brand within the industry. The Company launched a multi-player poker solution to one of its largest licensees in the quarter. Planned hardware and software upgrades continued through the second quarter in preparation for the busy autumn and winter sports season commencing in the third quarter. Testing to date on these upgrades has indicated 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, 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. In March 2004, the World Trade Organization held in favor of Antigua and Barbuda and against the United States of America with regard to unlawful trade restrictions relating to Internet gaming. The United States appealed the finding and in April 2005, the WTO Appellate Body held that The United States had made a commitment under the General Agreement on Trade in Services (GATS) to permit free trade in gambling services, but can restrict such trade to protect public morals and public order, if it does so in a non-discriminatory manner. However, the United Interstate Horse Racing Act (IHRA) is discriminatory because it permits domestic suppliers to accept wagers on horse races but does not permit foreign suppliers to do so. The United States must remove the discrimination so foreign suppliers can provide the same services as domestic suppliers. This can be done either by permitting foreign suppliers to provide services or barring domestic suppliers from providing services. In either case, World Gaming could benefit. If the IHRA is amended to permit foreign suppliers to legally accept wagers on horse racing over the Internet, it can positively impact World Gaming by allowing it to offer such services to its licensees. If the United States decides to ban all interstate remote betting on horse races, it could eliminate the existing domestic providers. Outlook The Company continues to build on its existing revenue streams through the addition of new licensees in addition to maintaining strong relationships with its existing licensees. 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. In addition, the Board remains committed to its intention to complete strategically sound and earnings enhancing acquisitions. The Board is confident that it has the skill base and resources to deliver on this strategy. From an earnings perspective, the seasonally fluctuating nature of the business is expected to be less pronounced as new products such as poker and other non- event reliant products continued to be added to the Company's product suite. The Board is confident that the Company is well placed to continue strong earnings growth throughout 2005 and beyond. 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 months ended the 30 June 2005 and 2004 3 3 6 6 months months months months 30 June 30 June 30 June 30 June 2005 2004 2005 2004 $'000 $'000 $'000 $'000 TURNOVER 2,165 4,148 4,800 9,512 Cost of sales (678) (181) (1,439) (680) -------- -------- ------- ------- GROSS PROFIT 1,487 3,967 3,361 8,832 Other operating expenses (net) (1,240) (2,283) (2,326) (5,173) -------- -------- ------- ------- OPERATING PROFIT BEFORE INTEREST AND SIMILAR INCOME 247 1,684 1,035 3,659 Interest income (net) 81 - 128 13 -------- -------- ------- ------- PROFIT/(LOSS) BEFORE TAXATION 328 1,684 1,163 3,672 Taxation - - - - -------- -------- ------- ------- PROFIT/(LOSS) FOR THE FINANCIAL PERIOD 328 1,684 1,163 3,672 ======== ======== ======= ======= BASIC EARNINGS PER SHARE 0.01 0.04 0.02 0.08 BASIC EARNINGS PER SHARE Excluding Non-Voting 0.01 0.04 0.03 0.08 DILUTED EARNINGS PER SHARE 0.01 0.03 0.02 0.06 DILUTED EARNINGS PER SHARE Excluding Non-Voting 0.01 0.03 0.03 0.06 The operating profit for the quarter arises from the company's continuing operations. STATEMENT OF TOTAL RECOGNISED GAINS AND $'000 $'000 $'000 $'000 LOSSES Profit for the financial period 328 1,684 1,163 3,672 Currency translation difference on foreign currency net investment 10 (57) (3) 130 -------- -------- ------- ------- Total recognised gains relating to the 338 1,627 1,160 3,802 year ======== ======== ======= ======= World Gaming plc Consolidated Balance Sheets As at 30 June 2005 and 31 December 2004 30 June 31 December 2005 2004 (unaudited) $'000 $'000 FIXED ASSETS Tangible assets 1,174 1,419 --------- --------- 1,174 1,419 CURRENT ASSETS Debtors 6,941 14,016 Cash at bank and in hand 16,527 7,944 --------- --------- 23,468 21,960 CREDITORS: Amounts falling due within one year (3,537) (7,094) --------- --------- NET CURRENT ASSETS 19,931 14,866 --------- --------- TOTAL ASSETS LESS CURRENT LIABILITIES 21,105 16,285 CREDITORS: Amounts falling due after more than one year: Provisions for liabilities and charges (428) (257) --------- --------- NET ASSETS 20,677 16,028 ========= ========= CAPITAL AND RESERVES Called up share capital 151 134 Share premium account 5,147 1,675 Deferred compensation reserve 567 567 Merger reserve 23,528 23,528 Profit and loss account (8,716) (9,876) --------- --------- SHAREHOLDERS' FUNDS 20,677 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 June 2005 of $328,000 (2004: $1,684,000) 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 30 June 2005 and 2004 6 months 6 months ended ended 30 June 30 June 2005 2004 $'000 $'000 Net cash inflow from operating activities 1,259 3,664 Returns on investment and servicing of finance 128 13 Capital expenditure (125) (1,148) Consideration received - Sportingbet 3,000 - --------- --------- CASH INFLOW/(OUTFLOW) BEFORE FINANCING 4,262 2,529 Financing (14) (1,409) Issue of shares 4,325 - --------- --------- INCREASE IN CASH IN THE PERIOD 8,573 1,120 ========= ========= RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET FUNDS Increase in cash in the period 8,573 1,120 Cash (inflow)/outflow from (increase)/decrease in debt 14 1,250 Currency translation differences 10 130 --------- --------- MOVEMENT IN NET FUNDS RESULTING FROM CASH FLOWS IN PERIOD 8,597 2,500 --------- --------- Non-cash movements - - --------- --------- Movement in net funds in period 8,597 2,500 --------- --------- --------- --------- Net funds/(debt) at start of period 7,930 (287) --------- --------- NET FUNDS AT END OF PERIOD 16,527 2,213 ========= ========= This information is provided by RNS The company news service from the London Stock Exchange

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