Final Results
FOR IMMEDIATE RELEASE
11 November 2002
BETINTERNET.COM PLC
('the Company' or 'betinternet')
PRELIMINARY RESULTS FOR THE YEAR ENDED
31 MAY 2002
betinternet.com plc, the global on-line gaming group, today announces
preliminary results for the 12 months ended 31 May 2002.
The Company has undertaken two successful fund raising exercises in the period
and it believes that it is strongly placed to achieve its aim of becoming one
of the leading integrated, e-gaming companies in the global gaming market.
Highlights of the results are:
* Internet betting turnover increased 330% to £38.67m
* Internet betting margin (after duty) 6.2% (2001: 4.8%)
* Telephone betting margin (after duty) 3.3% (2001 : 1.9%)
* Gross profit increased 140% to £2.87m
* Total turnover increased 9.2% to £53.01m (2001: £48.54m)
* Customer accounts increased by 188% to 23,795
* Group operating loss reduces to £1.69m (2001: £2.38m)
* Basic and diluted loss per share 2.33p (2001: Loss 2.96p)
* Year-end cash £1.85m - excluding balance due from fund-raising (£1.25m)
During the year, the company increased Internet betting turnover, whilst also
reducing its emphasis on its riskier and more costly call centre operations.
The resulting margin improvements are apparent.
The board continues to see potential for the company's tote joint venture, Euro
Off-Track. The technical infrastructure has proved to work, with wagers
currently being `co-mingled' into the pools of 54 tracks in the USA and
Ireland, 20 of which are on an exclusive basis. Active steps are being taken to
increase customer accounts and current activity levels.
Vincent Caldwell, Chairman and Managing Director of betinternet commented: 'We
are very pleased with the solid progress we have made. We have continued to
invest in leading edge technology which has aided the switch of our operations
away from the telephone betting towards higher margin internet business.
Our immediate aim is to achieve consistent monthly profit and cash generation,
and current trading provides us with the confidence that this will be achieved
in the short-term.
Changes among the Board and our advisers will also help us meet our long-term
goal of becoming one of the leading integrated, e-gaming companies in the
global gaming market.'
ENDS
For further information:
betinternet.com plc Tel: 01624 629699
Vincent Caldwell, Chairman & Managing Director (On 11th November
07624 450024)
Paul Doona, Finance Director
Waughton Tel: 020 7796 9999
Robin Hepburn/Sorrel Davies
Notes to editors:
The following are attached:
* Chairman's Statement
* Operational Review
* Consolidated Profit & Loss Account
* Consolidated Balance Sheet
* Consolidated Cash Flow Statement
* Notes to the Accounts
CHAIRMAN'S STATEMENT
Introduction
I am pleased to report upon a year of solid progress for your company during
which the controlled organic growth of the business and the board's strategy of
moving towards more stable markets were underpinned by two successful fund
raising exercises. Accordingly, the company is now strongly placed to achieve
its aim of establishing a long-term, and profitable presence in the global
gaming market.
Overview of Results
Turnover, including the group's share of joint ventures, was £53.01m an
increase of 9.2% compared with the previous year (£48.54m). More importantly,
the mix of business changed substantially with the turnover from Internet and
pari-mutuel gaming accounting for 74% of group turnover compared with 18.5% in
the previous year. Customer accounts were 23,795 at the period end, an increase
of 188% during the year.
Gross profit increased by 139% to £2.87m (2001: £1.20m), representing 5.5% of
turnover (2001: 2.5%). The gross margin on bets taken over the internet was
6.24% compared with 3.26% for bets taken via the call centre, vindicating the
Board's decision to focus on the former.
After taking account of administration expenses, its share of the operating
loss in its Euro Off-track joint venture, and interest, the deficit for the
period reduced to £1.98m (2001: loss of £2.32m). The basic and diluted loss per
share was 2.33p (2001: loss of 2.96p).
Strategy
It remains the Board's intention to selectively grow your company's presence in
the global Internet and pari-mutuel gaming markets and maintain its current
level of activity in respect of its telephone operations. In this way it aims
to establish a less volatile and a more risk-free income stream.
The Board believes it inevitable that a process of consolidation will take
place in the sector. Accordingly, the company is actively seeking opportunities
by way of acquisition or partnership which are consistent with its overall
strategic aims.
Regulation
As a result of the Company's location in the Isle of Man it operates in a
regulatory system, which recognises the legitimacy of the internet as a way of
transacting business globally.
Unfortunately, the position is less clear-cut in other territories, including,
importantly, the US. In view of this continuing uncertainty, the Board took the
decision to close all US fixed odds betting accounts during the year. It still
remains your board's view however, that there will be an eventual move by the
US authorities towards the legalisation of gaming via the internet. By
operating in a transparent manner, within a well regulated environment, your
company is well placed to participate in that market growth when, and if, the
opportunity arises.
Corporate Matters
As mentioned above, by way of separate subscription and placing agreements,
your company has raised additional equity, net of expenses, of £3.7m. Of this
amount, £800,000 was received after the period end and a further £800,000 is
due to be received in December 2002 subject to satisfying warranties contained
in the subscription agreement. Your company also declared a bonus issue of 1
warrant for every 4 shares held by existing and subscription shareholders at
the date of the subscription agreement. The warrants are listed on AIM and may
be exercised during a period of three years following their issue. At the time
of the placing agreement, Williams de Broe was issued with warrants over
312,500 ordinary shares at a price of 16p. These warrants may be exercised at
any time prior to May 2007.
We recently announced the resignation from the board of Pat Flanagan,
Operations Director, and David Craine, Finance Director. Pat and David both
made significant contributions to the establishment and growth of the company
and I thank them for their efforts. I am delighted that David will continue to
assist the company as Company Secretary. Paul Doona replaces David as Finance
Director and has a wealth of public company experience, including considerable
exposure to the leisure and gaming sectors. Sean Graham, who joined the board
in April 2000, will have responsibility for Operations and Trading.
Your Board was pleased to announce the appointments of Williams De Broe as
nominated advisor and broker to the company and KPMG Audit LLC as auditors. We
look forward to a long and fruitful relationship with both organisations and
thank Capital International Ltd, Insinger English Trust and Deloitte and Touche
for their previous support.
Prospects
Your company entered the new financial year well funded and having achieved a
number of its strategic objectives. The Football World Cup held in June 2002
provided further impetus to both turnover and customer accounts. A trend which
has continued with the commencement of the new European Soccer Season.
I am confident therefore that the current financial year will see a continued
improvement in turnover, margin and cash generation.
OPERATIONAL REVIEW
Introduction
The twelve months ended 31 May 2002 represented a year of solid progress for
betinternet. As with many of our peers, we have yet to reach the 'holy grail'
of consistent monthly profit and positive cash flow; but we met or exceeded all
of our strategic objectives and improved upon our business Key Performance
Indicators ('KPIs') in all areas. Accordingly we remain confident that by
continuing to grow in a controlled manner whether by way of organic growth,
business combination, or an amalgam of the two, the company will, in the
short-term, achieve consistent profitability and cash generation.
Our business model has high operational gearing and we aim to benefit from the
significant economics of scale inherent in it.
Review Of Operations
The key strategic objective achieved during the year was to grow the Internet
sportsbook whilst managing a reduction in emphasis on call centre operations;
the latter being relatively more costly from an operational point of view and
contains far greater liability management issues.
Telephone betting tends to attract a more professional gambler, whilst the
internet is an attractive medium for the 'fun' gambler seeking to enhance his
or her leisure experience.
The successful achievement of this objective can be illustrated by the increase
in Internet turnover from £8.99m in 2001 to £38.67m in 2002 - a 330% increase.
At the same time, by positive management, we were able to reduce
telephone-betting turnover from £39.55m in 2001 to £13.95m in 2002 - a 65%
reduction.
Importantly, however, the margins from both operations improved. The Internet
operation achieved a gross margin percentage, after betting duty of 6.24%
compared with 4.83% in the previous year. This provided a gross profit after
betting duty paid of £2.41m compared with £0.43m in the previous year. The
telephone operation on the other hand, produced a reduced gross profit of £
0.46m compared with £0.76m in the previous year. Gross margin, after betting
duty paid, increased, however, to 3.26% compared with 1.83% in the previous
year.
Internet Operations
In addition to the increase in turnover and margin mentioned above, other KPls
were also positive.
Customer accounts, which at the date of this report are 32,154 increased to
23,795 compared with 8,262 at the previous year-end. Of the new accounts
opened, 4,900 came from Asia and 3,100 from the UK, the latter with minimal UK
marketing.
The Far East continues to be betinternet's strategically most important market
with 69% of Internet turnover coming from that region. The UK accounted for 6%
of turnover and the rest of the world, predominantly Europe, accounted for the
balance of 25%. Our spread of business can be seen, however, by the fact that
we serve customers in around 140 countries.
Growth in turnover from the Far East has more than compensated for the loss in
activity caused by the Board's decision to close all US fixed odds betting
accounts. Whilst we consider that the US market will move towards a regulated
online regime, we believe that our decision to withdraw from that market was a
correct one. In the meantime, we believe that further growth will come from the
markets we currently serve, although we continually review the targeting and
emphasis of our marketing in those markets which we believe are under
exploited.
Increased emphasis on the UK remains a medium-term possibility. We are
currently unable to market directly into the UK and our penetration is,
therefore, limited. Marketing is the most important element in building
customer traffic and in order for betinternet to market into the UK we would
need to establish a UK presence and pay the UK betting duty on UK bets. The
Board's view is that currently the costs associated with such a move outweigh
the benefits; but the matter will be kept under review.
Our turnover growth has also been fuelled by our specialism in soccer betting
and our flexibility in offering a range of 'exotic' bets to our target customer
- the young, low stakes gambler, seeking to enhance his or her leisure
experience.
Soccer now accounts for approximately 78% of Internet turnover, with the next
most popular sports being American Sports, which have a combined 19% of
turnover. Tennis and Golf are the next most popular, measured by size of
turnover. In addition, the company regularly offers odds on up to 20 other
sports.
Amongst the 'exotic' bets on offer is 'Asian Handicaps' a form of handicap
betting on soccer matches, which appeals to our customer base, not only in
Asia, but also world-wide.
In addition to customer and turnover growth, other KPIs such as the cost of
acquiring customers and average revenue per customer have improved, as
illustrated below:
Average Revenue Cost of Acquiring
per Customer Customers
2002 2001 2002 2001
£ £ £ £
Far East 4,500 1,800 33 88
Rest of the World 3,122 2,171 30 44
United Kingdom 1,305 n/a 16 n/a
2002 Soccer World Cup
A considerable amount of marketing effort was directed towards this event, the
results of which will be felt in the current financial period. Whilst the event
proved to be a financial success for the company, its success will also be
measured by customer retention and improved brand awareness. In this regard, we
have been averaging 1,300 account openings per month in the current financial
year.
Technology
Further development of our technical infrastructure was undertaken during the
year, in particular during the build up to the World Cup. This significantly
increased our handling capacity for deposit transactions, concurrent visitors
to our site and 'bets per second'. Indeed, the resilience of the system was
demonstrated by the fact that we handled more than 10,000 bets per day during
the tournament. As well as growing our systems 'vertically' we invested
substantially to increase the resilience of our systems. In this regard we were
able to deliver 99.9% availability of our platform to clients during the
period. We also rolled out a major revamp of our software in advance of the
World Cup, which delivered further improvements for the customer in
functionality, navigation and transactability.
Enhancements to our on-line banking systems have delivered increased security
and anti-fraud measures for the company, and delivered a 6 second transaction
processing time for our customers. The payment solutions employed by the
company have continued to prove their worth in a cost effective manner.
We remain committed to the use of leading edge technology as a means of
strengthening customer relationships and new product generation.
Telephone Operations
As reported elsewhere, the company has successfully managed a reduction in its
call centre operations. We now offer odds to a manageable core of customers,
well known to us, from whom we are able to deliver a satisfactory margin at
considerably less cost than was previously the case.
We intend to continue with this fixed-odds operation at its current level of
activity for the foreseeable future.
Euro Off-Track
This 50/50 partnership with US Off-Track Inc. has proved to be a technical
success as we have demonstrated our ability, through the use of the Amtote
Spectrum 'Super Hub', to accept wagers from B2C customers and then transmit
these wagers to 'host' tracks, thus allowing customers to participate in global
totalisator pools. We are also able to offer a similar service to B2B
customers. In addition, we have successfully trialled our ability to transmit
live pictures from Irish tracks into the US during the Irish Greyhound Derby
held in September 2002. The potential of this offering is demonstrated by the
hub's ability to handle 29 million bets per hour and host up to 50 B2B betting
communities.
However, progress measured by customer account opening and activity, and the
establishment of business-to-business relationships has, been slower.
Our current focus therefore is to exploit the potential afforded by our ability
to `co-mingle' wagers into 54 thoroughbred, greyhound, harness and Jai Alai
tracks in the USA and Ireland, 20 of which are on an exclusive basis. We are
concentrating out efforts on building up relationships both with content
providers and with outlets which have access to content, but which are unable
to participate directly in host track pools.
An example of the former is our recent collaboration with Gaming Insight Plc
who own GoBarkingMAD Ltd, a greyhound information site that uses the Sky
platform to offer live greyhound races to its viewers. Under this short-term
agreement, which we hope to extend and use as a model for further agreements
with providers, GoBarkingMAD viewers have had access to our exclusive Irish
greyhound racing content from Shelbourne Park and Harold's Cross. The aim is
that viewers who can currently participate in the host track pools via
www.euroofftrack.com will, in due course, be able to participate directly into
the same pools via the interactive television platform and by telephone. In
order to facilitate this we are developing a cash wagering interface into the
Euro Off-Track tote hub which, in addition to the access it will give
betinternet's customers to global pools through a single betinternet account,
will provide all B2B partners with the ability to `co-mingle' wagers and
participate directly in the pools of host tracks.
An example of how we intend to use the hub technology to develop B2B
relationships is our proposed venture with Artax Gaming Consultants Inc of
Oklahoma, by which Artax will forward wagers placed by its customers to Euro
Off-Track for onward transmission and participation in event pools.
Despite its slow progress, the Board continues to see great potential for this
operation, which offers access to much larger pools and, therefore, bigger
dividends, to customers and a risk-free revenue stream to betinternet and its
B2B customers.
Anti Money Laundering
The company is located in a well-regulated jurisdiction, which supports the use
of the internet for business transactions both locally and on a global basis.
We support our Government's efforts to ensure that customers can transact with
Isle of Man based companies with the utmost confidence. On our part, we aim to
ensure that we will only transact with customers of integrity. Accordingly,
under the direction of Harley Corkill, one of our non-executive directors, and
with external expert support, we have committed to a programme of continuing
education for all staff against the threat of money laundering.
The Future
betinternet's ambition is to establish itself as a respected, integrated,
e-gaming company, operating on a global basis. The Board believes that
ingredients which will drive market growth are still in place and the company
has the management strength and experience to deliver that ambition.
The immediate aim is to achieve consistent monthly profit and cash generation.
This will be achieved by concentrating on growing the core Internet based
sports book to achieve critical mass and by establishing a small number of key
relationships for our tote operations.
Growth can be achieved organically by the careful targeting of marketing spend,
but could be aided by opportunistic acquisitions or joint ventures.
The achievement of critical mass will allow expansion into new gaming
activities and into new territories such as Latin America, Australasia, Canada.
We continue to monitor and review our options in relation to both the US and
UK.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year Ended 31 May 2002
Note 2002 2001
£ £
Turnover including share of joint
venture
Betting stakes received
Internet 38,672,608 8,985,227
Telephone 13,953,019 39,551,612
Pari Mutuel 384,776 -
53,010,403 48,536,839
Less share of joint venture (384,776) -
Total group turnover 1 52,625,627 48,536,839
Cost of Sales
Winnings paid and bets laid off (49,626,900) (47,194,317)
Betting duty paid (130,841) (146,430)
Gross Profit 1 2,867,886 1,196,092
Administration expenses (4,560,419) (3,579,270)
Group operating loss (1,692,533) (2,383,178)
Share of operating loss in joint (306,178) (8,169)
venture
Total operating loss including share (1,998,711) (2,391,347)
of joint venture
Interest receivable and similar 17,477 71,507
income
Interest payable and similar charges (2,877) (384)
Loss on ordinary activities before (1,984,111) (2,320,224)
and after taxation and retained loss
for the year
Basic and diluted loss per share 2 (2.33) (2.96)
(pence)
CONSOLIDATED BALANCE SHEET
31 May 2002
2002 2002 2001 2001
£ £ £ £
FIXED ASSETS
Intangible assets 498,088 377,739
Tangible assets 480,237 226,692
Investments in joint
ventures
- Share of gross assets - 131,943
- Share of gross - (130,943)
liabilities
- Share of net assets - 1,000
Investments in associates - 116,802
978,325 722,233
CURRENT ASSETS
Debtors 822,607 833,880
Cash at bank and in hand 1,850,421 947,013
2,673,028 1,780,893
CREDITORS:
amounts falling due within (2,463,218) (1,761,573)
one year
NET CURRENT ASSETS 209,810 19,320
PROVISIONS FOR LIABILITIES
AND CHARGES
Investments in joint
ventures
- Share of gross assets 86,009 -
- Share of gross (391,187) -
liabilities
- Share of net liabilities (305,178) -
NET ASSETS 882,957 741,553
CAPITAL AND RESERVES
Called up share capital 1,006,870 783,296
Share premium 5,519,720 3,617,779
Profit and loss account (5,643,633) (3,659,522)
EQUITY SHAREHOLDERS' FUNDS 882,957 741,553
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 May 2002
2002 2001
£ £
Net cash outflow from operating (811,282) (2,163,802)
activities
Returns on investments and servicing of 14,600 71,123
finance
Capital expenditure and financial (770,927) (278,176)
investment
Cash outflow before use of liquid (1,567,609) (2,370,855)
resources and financing
Financing 2,475,515 2,695
Increase/(Decrease) in cash in the year 907,906 (2,368,160)
Reconciliation of net cash flow to
movement in net funds
2002 2001
£ £
Net funds at 1 June 925,919 3,294,079
Increase/(Decrease) in cash in the year 907,906 (2,368,160)
Cash inflow from net increase in debt (350,000) -
Net funds at 31 May 1,483,825 925,919
NOTES TO THE ACCOUNTS
Year ended 31 May 2002
1. SEGMENTAL ANALYSIS
Year ended 31 May 2002 Telephone Internet Total
£ £ £
Betting stakes received 13,953,019 38,672,608 52,625,627
Winnings paid and bets laid off (13,462,982) (36,163,918) (49,626,900)
Betting duty paid (34,691) (96,150) (130,841)
Gross profit 455,346 2,412,540 2,867,886
Margin 3.26% 6.24% 5.45%
Year ended 31 May 2001 Telephone Internet Total
£ £ £
Betting stakes received 39,551,612 8,985,227 48,536,839
Winnings paid and bets laid off (38,669,986) (8,524,331) (47,194,317)
Betting duty paid (119,322) (27,108) (146,430)
Gross profit 762,304 433,788 1,196,092
Margin 1.93% 4.83% 2.46%
2. LOSS PER SHARE
The basic loss per share is calculated by dividing the losses attributable to
ordinary shareholders by the weighted average number of ordinary shares during
the year.
Calculation of loss per share is based on losses of £1,984,111 (2001: £
2,320,224 loss) and the weighted average number of ordinary shares being the
equivalent of 85,030,112 (2001: 78,298,098 ordinary 1p shares).
The diluted loss per share is the same as the basic loss per share as the
adjustment to assume conversion of dilutive potential ordinary shares would
decrease the loss per share. The comparative diluted loss per share has been
restated accordingly.
3. TAX CHARGE
There is no tax charge for the year. There are tax losses available to carry
forward and set off against future profits of the same trade, subject to
agreement with the Isle of Man Assessor of Taxes.
4. DIVIDEND
The directors propose no dividend be paid for the year.
5. OTHER INFORMATION
i. The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 May 2002 nor 2001. The financial
information for 2001 is derived from the statutory accounts for 2001 which
have been delivered to the Companies Registry. The previous auditors,
Deloitte & Touche, reported on the 2001 accounts and their report was
unqualified.
The statutory accounts for 2002 will be finalised on the basis of the financial
information presented by the directors in this preliminary announcement and
will be delivered to the Companies Registry following the company's annual
general meeting.
ii. All profits derive from continuing activities.
iii. The preliminary statement was approved by the board on 11 November 2002.
iv. The Report and Accounts will be posted to shareholders on 15 November 2002.
Further copies will be available for inspection from the Company's Head
Office; Viking House, Nelson Street, Douglas, Isle of Man IM1 2AH; and the
Company's Registered Office, Burleigh Manor, Peel Road, Douglas, Isle of
Man, IM1 5EP.
v. The Company's nominated advisor and broker is Williams de Broe, PO Box 515,
6 Broadgate, London EC2M 2RP.
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