Final Results
Gaming VC Holdings S.A.
22 April 2008
Press Release 22 April 2008
Gaming VC Holdings S.A.
('Gaming VC' or 'the Group')
Preliminary Results
Gaming VC Holdings S.A., a leading European online gaming company, today
announces its preliminary results for the year ended 31 December 2007.
Highlights
• Gross profit increased 9.5% to €32.2 million (2006: €29.4 million);
• Operating profit up* 28.1% to €17.3 million (2006: €13.5 million);
• Net revenues were up 5.2% to €42.7 million (2006: €40.6 million);
• Maltese gaming licences acquired, reducing regulatory risk in the European Union;
• Successful diversification, having acquired a sports betting licence;
• Recommended final dividend of €0.20 (c£0.16) (2006:€0.19 (£0.13)).
*before exceptional items and share option charge
Commenting on the results, Kenneth Alexander, Chief Executive of Gaming VC,
said: 'I am delighted with the performance of the Group during 2007 with record
profitability delivered during the year. It has been a year of transformation
and change in strategic direction. Acquiring our European licences and
diversifying into new products and markets leaves the Group in a much stronger
position moving forward. I am confident that Gaming VC is now well placed to
continue its successful growth story.'
- Ends -
For further information:
Gaming VC Holdings S.A. Tel: +44 (0) 20 7398 7700
Kenneth Alexander, Chief Executive
investors@gamingvc.com www.gamingvc.com
Arbuthnot Securities Limited Tel: +44 (0) 20 7012 2000
James Steel / Paul Vanstone, Corporate Finance www.arbuthnotsecurities.co.uk
Media enquiries:
Abchurch
Stephanie Cuthbert / Nick Probert Tel: +44 (0) 20 7398 7718
stephanie.cuthbert@abchurch-group.com www.abchurch-group.com
Chairman's Statement
I am pleased to present the 2007 full year results for Gaming VC which
demonstrate strong growth and are in line with expectations.
Over the last year, the Group has successfully implemented the important
strategic and operational objectives as set out in Gaming VC's 2006 results by
the then newly appointed Chief Executive, Kenneth Alexander, including:
• Reducing the risk from potential German legislative issues;
• Improving the profitability of the German business;
• Diversifying into other territories and into other products; and
• Strengthening the level of expertise within the business.
The outcome of carefully following these strategies is record profitability for
the Group. The financial results for the year ended 31 December 2007 show an
operating profit before exceptional items and share option charges of €17.3
million (2006: €13.5 million), an increase of 28 per cent.
I believe that the current dividend policy remains appropriate for the Group.
The core business is cash generative and not capital intensive, and we will
continue to return excess cash flow to shareholders as appropriate. The Board
is recommending a final dividend of €0.20 (c£0.16) giving a total distribution
of €0.40 (c£0.29) for the current financial year (2006: €0.384 and £0.26). This
final dividend will be paid on 30 May 2008 to all shareholders of record at the
close of business on 9 May 2008.
To reduce risk from potential legislative issues in Europe the majority of our
business, including all of our German operations, now operates under our Maltese
licences. We look forward to a resolution of the regulatory debate within the
EU.
We are pleased with the results for the first quarter of 2008 and are confident
that we will continue to build on the strong momentum created in 2007.
Adrian Smith, Chairman
22 April 2008
Chief Executive's Statement
The successful implementation of our strategy has produced record results for
the 2007 financial year.
The Group has taken a number of steps to improve the profitability of its core
German business, including tighter control of overheads and expenditure. The
distribution of all direct mail to recruit customers was stopped in May 2007 and
marketing efforts were concentrated on affiliate marketing and search engine
optimisation with customer recruitment remaining at historic levels.
In June 2007, the Group renegotiated its casino/poker operating contract with
Boss Media on more favourable commercial terms. In order to remain competitive,
Gaming VC believes it is important to utilise other software providers. New
brands utilising flash casino and live dealer casino products will be launched
during 2008 and a new poker brand www.pokerkings.com was launched in December
2007.
In September 2007, Gaming VC launched a sportsbook licenced in Malta
(www.betaland.com) and in the first quarter of 2008, has secured an Italian
sportsbook licence (www.betpro.it). The Maltese sportsbook launch has exceeded
our expectations and represents a significant step for Gaming VC in developing
business outside of Germany. The new business has continued to grow during 2008
and Italy will be a key strategic market for the Group in the financial year
ahead. Further sportsbook sites will be launched under the 'Betaland' brand in
2008 to assist with diversification.
To further extend the Group's product range, Gaming VC launched a bingo site,
www.winzingo.es, in the first quarter of 2008, using the proven software from
Parlay. This site will initially be focused on the Spanish female market and
rolled out across other European territories in due course.
Consistent with the change in marketing strategy, the Group replaced direct
marketers with experienced executives from the online gaming industry including
affiliate marketing. In addition, an experienced Customer Relationship
Management (CRM) team allows us to concentrate on the retention of existing
casino customers. The CRM expertise that was recruited in 2007, together with
further recruits, will be employed to set up a new CRM centre during the second
quarter of 2008 to handle all aspects of customer service, currently provided by
Boss Media. By bringing all areas of customer contact in-house Gaming VC will
have complete control over all areas of the customer interface. This should
significantly enhance retention and maximise the lifetime value of customers.
Group Financial Performance
All € Net Revenue Gross Profit
'000
2007 2006 2007 2006
Casino 38,164 38,365 28,685 28,377
Poker 3,420 2,208 2,409 1,038
Sports Betting 1,123 - 1,075 -
Total 42,707 40,573 32,169 29,415
In 2007, the total gross wagers placed were €1.8 billion (2006: €1.6 billion)
and net revenues were €42.7 million (2006: €40.6 million). A significant
propotion of the revenue growth is attributable to the commencement of sports
betting during the year, which accounted for €1.1 million of the increase. The
gross profit for the financial year ended 31 December 2007 was €32.2 million
(2006: €29.4 million). €1.1 million of the increased gross profit was generated
from the sportsbook activity started in 2007. Casino operating activities in
2007 remained at a similar level and margin to 2006 and poker net revenues
increased by 55% year-on-year. In both 2007 and the prior year less than 1% of
the gross margin was earned from customers residing outside the European Union
and Gaming VC has never transacted any wagering activity by customers in the US.
In the 2007 financial year there were no significant one-off jackpot winners on
the Group's slot machine games with associated 'progressive' jackpots. The
total of the available jackpots at the end of December 2007 was €3.2 million
(2006: €2.2million) with the largest available individual jackpot being €1.6
million (2006: €1.3 million).
The Group operating profit before exceptional items and share option charges for
the financial year ended 31 December 2007 increased by 28% to €17.3 million
(2006: €13.5 million) after the deduction of distribution and administrative
expenses. The Group incurred no exceptional charges in the year (2006: €41.5
million) and generated an operating profit before financing of €16.5 million
(2006: loss of €28.9 million).
Distribution costs of €5.8 million (2006: €7.1 million) reflect the savings
generated due to the change in customer recruitment from direct mail to
affiliate marketing which has been partly offset by the additional costs of €1.0
million for the 2007 sportsbook launch.
The major items within the administrative expenses incurred (excluding
amortisation) during the financial year are detailed below
2007 2006
€'000 €'000
Employment costs 2,886 3,434
Travel 548 886
Legal, accounting and tax 2,432 1,682
All other costs 990 775
Total administrative expenses 6,856 6,777
Employment costs are analysed in note 2 to the financial results.
Within the legal, accounting and tax costs for 2007 are expenses related to the
acquisition of the Maltese operating licences in the year.
The amortization of intangible assets is detailed in note 6 to the financial
results. This is a non-cash charge primarily to reflect the reduction in
economic value over the useful lives of these assets.
Net financing income for the financial year of €0.1 million (2006: net financing
income €0.1 million) are analysed in note 3 to the financial results. The
majority of Group revenues are in Euros, as are the majority of both the cost of
distribution and administration.
Due to the increased levels of business in both Malta and Italy projected in
2008 compared to 2007, it is estimated that Gaming VC will increase its tax
charge from a current base level of 2% of operating profits to closer to 5% in
2008. The final charge will depend on both the markets where growth is achieved
and future developments on taxation in the domiciles Gaming VC operates in.
In the reporting period the Group generated €19 million (2006: €17.9 million) of
cash flows from operating activities. After payment of the dividends totalling
€12.2 million during the year, the Group's closing cash balance as at 31
December 2007 was €15.9 million (2006: €9.4 million). Capital expenditure in
the financial year across the Group was € 0.6 million (2006: €0.3 million) which
primarily reflects new equipment and software related to the setting up of the
Maltese operations. A similar level of capital expenditure is envisaged in 2008
relating to the acquisition of the Italian licence and the establishment of an
in-house customer service centre.
Dividends
The Board is recommending a final dividend of €0.20 (c£0.16) giving a total
distribution of €0.40 (c£0.29) for the current financial year (2006: €0.38 and
£0.26). This final dividend will be paid on 30 May 2008 to all shareholders of
record at the close of business on 9 May 2008.
Outlook
During the first three months of the 2008 financial year trading has been
slightly ahead of expectations due to both resilience in the German casino
business and better than expected sportsbook performance. The total revenues
are 12% ahead of the same period in the previous year and 6% more funded
accounts have been recruited. Compared to the fourth quarter of 2007 revenue is
23% higher and there have been 3% more funded accounts recruited.
We will continue to focus on maintaining German casino volumes with the reduced
cost base and aggressively growing revenue outside Germany through new
initiatives including the Italian operation, bingo and through affiliate
marketing.
We move into 2008 with an experienced team now in place and a clear strategic
direction that will continue the transformation of the business from a German
casino supported by direct mail into a significant European gaming business
using efficient online marketing for recruitment and industry leading CRM.
Kenneth Alexander, Chief Executive
22 April 2008
Consolidated Income Statement
For the year ended 31 December 2007
Year ended 31 December 2006
Year ended Before Goodwill Total
31 December goodwill impairment
2007 impairment
In thousands of euro Note
Revenue 1 42,707 40,573 - 40,573
Cost of Sales (10,538) (11,158) - (11,158)
Gross profit 32,169 29,415 - 29,415
Net operating expenses ( including (15,665) (25,075) (33,274) (58,349)
exceptional items and share option
charges)
Operating profit before exceptional items 17,319 13,505 - 13,505
and share option charge
Share option charge (815) (893) - (893)
Exceptional items 6 - (8,272) (33,274) (41,546)
Operating profit/(loss) before financing 16,504 4,340 (33,274) (28,934)
EBITDA 19,480 15,536 - 15,536
Depreciation (57) (35) - (35)
Amortisation (2,919) (11,161) (33,274) (44,435)
Financial income 3 459 163 - 163
Financial expense 3 (332) (68) - (68)
Net financing income 127 95 - 95
Profit/Loss before Tax 16,631 4,435 (33,274) (28,839)
Income tax income 4 11 - - -
Profit/(Loss) for the year 16,642 4,435 (33,274) (28,839)
Profit/(Loss) per ordinary share
Basic earnings per share (euro) 7 0.534 (0.93)
Diluted earnings per share (euro) 7 0.534 (0.93)
Consolidated statement of recognised income and expense
For the year ended 31 December 2007
Year ended Year ended
31 December 31 December
2007 2006
In thousands of euro
Profit/(Loss) and total recognised income and expense for the year 16,642 (28,839)
Consolidated Balance Sheet
As at 31 December 2007
31 December 31 December
2007 2006
In thousands of euro Note
Assets
Property, plant and equipment 5 521 56
Intangible assets 6 55,724 58,548
Deferred tax asset 11 -
Total non-current assets 56,256 58,604
Trade receivables 3,021 1,892
Other receivables and prepayments 1,274 417
Cash and cash equivalents 15,859 9,407
Total current assets 20,154 11,716
Total assets 76,410 70,320
Equity
Issued share capital 38,608 38,608
Share premium 51,977 57,926
Retained earnings (18,623) (29,853)
Total equity attributable to equity holders of the parent 71,962 66,681
Liabilities
Income tax payable 4 18 18
Trade and other payables 1,538 1,317
Accrued expenses 2,892 1,101
Withholding tax on dividends - 1,203
Total current liabilities 4,448 3,639
Total liabilities 4,448 3,639
Total equity and liabilities 76,410 70,320
Consolidated statement of cashflows
For the year ended 31 December 2007
Year ended Year ended
31 December 31 December
2007 2006
In thousands of euro Note
Cash flows from operating activities
Cash receipts from customers 41,578 40,833
Cash paid to suppliers and employees (22,545) (22,934)
Net cash from operating activities 19,033 17,899
Cash flows from investing activities
Interest received 459 154
Disposal of equipment 40 -
Acquisition of property, plant and equipment 5 (562) (45)
Acquisition of intellectual property 6 (95) (231)
Net cash from investing activities (158) (122)
Cash flows from financing activities
Dividend paid (12,176) (15,612)
Net cash from financing activities (12,176) (15,612)
Net increase in cash and cash equivalents 6,699 2,165
Cash and cash equivalents at beginning of the year 9,407 7,233
Effect of exchange rate fluctuations on cash held (247) 9
Cash and cash equivalents at end of the year 15,859 9,407
1 Segment reporting
Segment information is presented in respect of the Group's business and
geographical segments.
Business segments
Based on risks and returns and transacting with customers, the management
considers that the Group's primary reporting format is by following three
business segments:
• Casino;
• Poker;
• Sports Betting;
Following the acquisition of new operating licences during the year, and the
expectation of additional licences being acquired in 2008 the management
reporting now places more emphasis on vertical product groups and majority of
distribution costs being allocated on an activity basis to each business
segment. The 2006 data has been restated on a consistent basis.
Unallocated corporate expenses, assets and liabilities relate to the entity as a
whole and cannot be allocated to individual segments.
Segment capital expenditure is the total cost incurred during the year to
acquire segment assets that are expected to be used for more than one year.
Year ended 31 Casino Poker Sports Unallocated Consolidated
December 2007 Betting Corporate
€ '000
Revenue 38,164 3,420 1,123 - 42,707
Gross Profit 28,685 2,409 1,075 - 32,169
Distribution costs 3,649 780 1,013 391 5,833
Administrative expenses - - - 6,856 6,856
Profit Before Tax 24,927 1,629 62 (9,987) 16,631
Segmental assets 57,842 100 1,519 16,949 76,410
Capital Expenditure 77 80 289 210 656
Year ended 31 Casino Poker Sports Unallocated Consolidated
December 2006 Betting Corporate
€ '000
Revenue 38,365 2,208 - - 40,573
Gross Profit 28,377 1,038 - - 29,415
Distribution costs 5,841 385 - 911 7,137
Administrative expenses - - - 6,777 6,777
Profit Before Tax 22,536 653 - (52,028) (28,839)
Segmental assets 60,457 269 - 9,594 70,320
Capital Expenditure 266 10 - - 276
Geographical analysis of net revenue
Year ended 31 Dec 07 31 Dec 06
€'000 €'000
Germany 32,083 75.1% 30,330 74.8%
Austria 6,297 14.7% 7,515 18.5%
Italy 2,337 5.5% 130 0.3%
Other 1,990 4.7% 2,598 6.4%
Total Revenue 42,707 100% 40,573 100%
Non current assets within Luxembourg total € nil (2006: € nil) and non-current
assets in other locations total € 56.2 million (2006: € 58.6 million).
All segments are continuing operations.
2 Personnel expenses
Year ended Year ended
31 December 31 December
2007 2006
In thousands of euro
Wages and salaries 1,957 2,400
Compulsory social security contributions 65 154
Contributions to defined contribution plans 49 (13)
Equity-settled transactions 815 893
2,886 3,434
3 Net financing costs
Year ended Year ended
31 December 31 December
2007 2006
In thousands of euro
Interest income 459 154
Net foreign exchange gain through profit - 9
Financial income 459 163
Interest expense
Interest expenses and bank charges (85) (68)
Net foreign exchange loss through profit (247) -
Financial expenses (332) (68)
Net financing income 127 95
4 Income tax expense
Current tax
Current tax for the current and prior periods is classified as a current
liability to the extent that it is unpaid. Amounts paid in excess of amounts
owed are classified as a current asset.
Year ended Year ended
31 December 31 December
2007 2006
Recognised in the income statement
In thousands of euro
Current tax expense
Current year - -
Adjustments for prior period - -
- -
Deferred tax income
Origination and reversal of temporary differences (11) -
Reduction in tax rate - -
Benefits of tax losses recognises - -
- -
Total income tax (income)/expense in income statement (11) -
Reconciliation of effective tax rate
In thousands of euro Year ended Year ended
31 December 31 December
2007 2006
Profit/(loss) before tax 16,631 (28,839)
Income tax using the domestic corporation tax rate 4,936 -
Effect of tax rates in foreign jurisdictions (Rates decreased) (4,936) -
Capital allowances for period in excess of depreciation (11) -
(11) -
A deferred tax asset was recognised as the Group considers that it more probable
than not that future taxable profits will be available against which the asset
could be utilised.
5 Property, plant and equipment Fixtures & Total Property
Fittings Plant and
Equipment
In thousands of euro
Cost
Balance at 1 January 2007 112 112
Disposal (112) (112)
Other acquisitions 562 562
Balance at 31 December 2007 562 562
Depreciation and impairment losses
Balance at 1 January 2007 56 56
Disposal (72) (72)
Depreciation charge for the year 57 57
Balance at 31 December 2007 41 41
Carrying amounts
At 31 December 2006 56 56
At 31 December 2007 521 521
Capital expenditure related primarily to the setup of the Maltese office in the
year.
6 Intangible assets Goodwill Trade-marks Software Consulting Magazine Total
licence
In thousands of euro
Cost
Balance at 1 January 2006 73,613 15,144 11,915 419 4,500 105,591
Acquisitions - - 231 - - 231
Balance at 31 December 2006 73,613 15,144 12,146 419 4,500 105,822
Balance at 1 January 2007 73,613 15,144 12,146 419 4,500 105,822
Acquisitions - - 95 - - 95
At 31 December 2007 73,613 15,144 12,241 419 4,500 105,917
Amortisation and Impairment
losses
Balance at 1 January 2006 - - 1,213 106 1,520 2,839
Amortisation for the year - - 9,556 105 1,500 11,161
Impairment loss for the year 33,274 - - - - 33,274
Balance at 31 December 2006 33,274 - 10,769 211 3,020 47,274
Balance at 1 January 2007 33,274 - 10,769 211 3,020 47,274
Amortisation for the year - - 1,335 104 1,480 2,919
At 31 December 2007 33,274 - 12,104 315 4,500 50,193
Carrying amounts
At 31 December 2006 40,339 15,144 1,377 209 1,480 58,548
At 31 December 2007 40,339 15,144 137 104 - 55,724
Valuation methodologies
The valuation methodology of each type of identifiable intangible asset is
detailed below.
Asset Valuation methodology
Magazine-related Cost
Consulting Income (cost saving)
Software licence Income (incremental value plus loss of profits)
Trade-marks Relief from royalty
Goodwill Residual balance
The valuation conclusions, for the assets acquired through business
combinations, were cross-checked relative to the overall consideration paid in
the transaction over net tangible assets, to ensure that the proportion of value
attributed to (i) each identifiable tangible asset: and (ii) to all of the
identified intangible assets combined in the total purchase price appears
reasonable.
In addition, the implied weighted average return on assets was reconciled with
the cost of capital derived for the business as a whole to check for the
reasonableness of values placed on intangible assets and the discount rates/
returns used.
Amortisation and impairment charge
The amortisation for the year and the accelerated amortisation on the software
licence in 2006 are recognised in the following line items in the income
statement.
Year ended Year ended
31 December 31 December 2006
2007
In thousands of euro
Net operating expenses 2,919 2,889
Exceptional items - 8,272
Impairment tests for cash-generating units containing goodwill
An Impairment Review was carried out at the year end of the Company's goodwill
in the Casino operation. The carrying values of the assets were compared with
the recoverable amounts, these were determined with the assistance of
independent valuers. It was viewed that the goodwill was not impaired.
The following units have significant carrying amounts of goodwill:
31 December 31 December 2006
2007
In thousands of euro
Casino operation: GVC Corporation II B.V. 40,339 40,339
7 Earnings per share
The calculation of basic earnings per share at 31 December 2007 was based on the
profit attributable to ordinary shareholders of €16,641,810 (2006: loss of
€28,838,575) and a weighted average number of ordinary shares outstanding during
the year ended 31 December 2007 of 31,135,762 (2006: 31,135,762), calculated as
follows:
Profit attributable to ordinary shareholders
Year ended Year ended
31 December 31 December 2006
2007
In thousands of euro
Profit/(Loss) attributable to ordinary shareholders 16,642 (28,839)
Exceptional item - 41,546
Profit before exceptional item 16,642 12,707
Weighted average number of ordinary shares
Year ended Period ended
31 December 31 December 2006
2007
Issued ordinary shares beginning of the year 31,135,762 31,135,762
Weighted average number of ordinary shares at end of the year 31,135,762 31,135,762
Earnings per share Year ended Year ended
31 December 31 December 2006
2007
In euro
Basic earnings per share 0.534 (0.926)
Basic earnings per share before exceptional items 0.534 0.408
Diluted earnings per share
The calculation of diluted earnings per share at 31 December 2007 was based on
the profit attributable to ordinary shareholders of €16,641,810 (2006: loss of
€28,838,575) and a weighted average number of ordinary shares outstanding during
the year ended 31 December 2007 of 31,135,762 (2006: 31,135,762), calculated as
follows:
Profit attributable to ordinary shareholders (diluted) Year ended Year ended
31 December 31 December
2007 2006
In thousands of euro
Profit/(Loss) attributable to ordinary shareholders (diluted) 16,642 (28,839)
Exceptional item - 41,546
Profit before exceptional item 16,642 12,707
Weighted average number of ordinary shares (diluted)
Year ended Year ended
31 December 31 December 2006
2007
Weighted average number of ordinary shares at end of the year 31,135,762 31,135,762
Effect of share options on issue - -
Weighted average number of ordinary shares (diluted) at end of year 31,135,762 31,135,762
Diluted earnings per share
Year ended Year ended
31 December 31 December 2006
2007
Diluted earnings per share 0.534 (0.926)
Diluted earnings per share before exceptional items 0.534 0.408
Report and Accounts
Copies of the annual report and accounts will be posted to shareholders shortly
and will be available at www.gamingvc.com
Annual General Meeting
The annual general meeting of the Company will be held at the registered office,
73 Cote d'Eich, L-1450, Luxembourg on 20 May 2008 at 10:00 am. Notice of, and
further details in relation to the annual general meeting of the Company will be
posted out with the report and accounts as detailed above.
-Ends-
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