Final Results
betinternet.com PLC
07 September 2006
FOR IMMEDIATE RELEASE
07 September 2006
BETINTERNET.COM PLC
('the company' or 'betinternet')
PRELIMINARY RESULTS FOR THE YEAR ENDED 28 MAY 2006
betinternet.com plc, the global on-line gaming group, today announces
preliminary results for the year ended 28 May 2006
Highlights are:
• Group turnover decreased to £67.6m (2005: £93.7m) due to the cessation in
International Players Association activity as announced in January 2005
• Sportsbook turnover rose to £57.5m (2005: £47.9m)
• Pari-mutuel turnover shows continued signs of growth after last year's setback
• Administration expenses reduced 13.9% on 'like for like' basis
• Group loss of £1.9m maintained as last year
• New sportsbook platform launched May 2006
• Enhanced platform with diversity of sports, casinos and games
• EBITDA profit achieved in April and May 2006
• Continued support of principal shareholder
Commenting on the results, Denham Eke, chairman of betinternet.com, said: 'We
have made considerable and encouraging progress towards our stated aim of having
a compelling and exciting one-stop entertainment website for the fixed-odds
business. I am confident that this will be the boost that is required to bring
sustainable profitability in the coming financial year.
'We can also expect a continued strong profitable performance from our
pari-mutuel business, European Wagering Services, as it builds on the growth and
success that we have seen during the last six months.'
ENDS
For further information:
betinternet.com plc Tel: 01624 698141
Garry Knowles, Managing Director
Evolution Securities Tel: 01132 431619
Joanne Lake
Britton Financial PR Tel: 020 7251 2544
Tim Blackstone
Notes to editors:
The following are attached:
Chairman's Statement
Operational Review
Consolidated Profit & Loss
Consolidated Balance Sheets
Consolidated Cash Flow Statements
Notes to the Accounts
Chairman's Statement
Introduction
Following the announcement of our interim results, our pari-mutuel operation,
European Wagering Services (EWS), continued with its strong performance for the
remainder of the year. After last year's set-back, its operations have expanded
to offer a variety of wagering services through the Isle of Man hub. Turnover
has improved and this, coupled with strong margins, now means that this company
is again operating profitably. As we indicated, our fixed-odds business,
betinternet.com, still faced challenges in the second half of the year, again
placing considerable pressure on operating margins and profitability.
However, we fully expect that the fixed-odds revenue will increase significantly
following the development of a new website with added functionality and a
contemporary look, together with an enhanced games suite and a more substantial
casino offering. The improved site, launched at the end of May 2006, has already
received favourable reports. The early indications confirm that income from this
source is increasing and this, coupled with further cost cutting, means that we
expect that fixed-odds wagering and gaming will produce a sustainable profit
throughout the forthcoming year.
Strategy
Our initial strategy was to improve the fixed-odds performance by using Curacao
as a hosting jurisdiction, developing a new and enhanced betting platform
incorporating additional games, and by accepting wagers from the USA.
The execution of this strategy, however, was hindered as our chosen software
supplier for the development of our new platform, IGW, was unable to provide a
working product that suited our specific needs in time for the World Cup finals
in June 2006. The board took the early decision to terminate the IGW contract,
obtaining a full refund of costs, and to pursue a different route in order to
have a new website live in time for the World Cup.
We opted to acquire an unencumbered licence for our existing platform's source
code and contracted with a local software company to complete our planned
development by our deadline. As the software company we selected to carry out
this project was responsible for the development of a large part of the existing
platform's code, they had an intimate working knowledge of the product and the
gaming industry. In addition, our own Marketing Manager, Graphic Designer and IT
team worked round the clock to complete the project.
The decision to control our own fixed-odds platform and development is already
proving to be a success. We are now able to implement additions and enhancements
to the sportsbook site much more speedily. The new site with its contemporary
look-and-feel, incorporating a new suite of games and an additional casino, was
launched in time for the World Cup. The new look to the site has been extremely
well received by our customers and the new gaming products have all proved to be
successful revenue generators for the Company, as well as offering our customers
a greater variety of gaming options.
It is the board's intention to continue with the development of our own
software. This will give the Company much greater control over its future plans
and give a quicker route to market for new products or improved functionality. I
am sure that the shareholders have seen the progress that the fixed-odds
business has made in the short time that we have followed this strategy.
Alongside these developments, it became clear that the Company would be able to
accept wagers from US customers without having to relocate its fixed-odds
servers away from the Isle of Man. The board therefore decided to continue to
operate the fixed-odds servers under its licence in the Isle of Man, although
the games and casino will operate on servers based in Curacao, where the Company
had successfully been granted a gaming licence.
However, in the light of the recent increasingly negative political focus on
online gaming within the US, the Company has decided to take a more cautious
view of the US market. As such, the Company's exposure in this region is very
small and represents an insignificant percentage of its current turnover. The
board will continue to monitor developments and adapt its strategy accordingly.
We will continue to develop the Group as a holding company with two separate and
distinct operating profit centres. This will allow our pari-mutuel operation to
further demonstrate independence from our fixed-odds activities and remove any
potential conflict that this could create.
We will also continue to grow the fixed-odds activities into an integrated
gaming platform with a strong customer focus. As part of this strategy, we hope
to include coreFootball, the initial product from our investment in Global
Coresports Limited which is currently undergoing advanced beta-testing, into the
site. We believe that this football manager game demonstrates two opportunities:
It is the first peer-to-peer game to use an 'artificial intelligence' to power
the action; and it will be the first skill-based game to appeal to a mass
wagering environment.
Overview of results
Group turnover fell to £67.6m (2005: £93.7m), a decrease of 28%, as a result of
the previously announced setback in pari-mutuel turnover and the effect of the
reduction in fixed-odds marketing, held back pending the new website launch.
Despite being able to maintain the pari-mutuel gross operating profit, the group
loss was £1.9m, the same as the previous period. This is the last year that the
high amortisation figure will be charged.
It is important to note that the Group ended the year very strongly, showing
EBITDA profits in the months of April and May following the impact of the new
strategy. This trend has continued into the new financial year and the board is
confident that the new initiatives in place show every indication that the Group
will produce a full year profit for the coming financial year.
A more detailed analysis of the results is presented in the Operational Review.
Fund-raising
The original strategy of developing the fixed-odds website and locating gaming
servers in Curacao was supported through a further placement of shares to
Burnbrae Ltd in January 2006.
Board and executive changes
In May 2006, we appointed Simon Nicholls as an executive director with
responsibility for the Company's pari-mutuel operation. Simon resigned from this
position in August 2006. We are actively seeking a replacement for this role.
In February 2006, we strengthened our financial team with the appointment of
Damon Waddington as the Group Financial Controller and subsequently he has
recently taken over the role of Company Secretary. Damon had previously been a
Financial Controller for the Fortis group. Damon has substantially increased the
quality of financial reporting provided to the board and has been able to
identify many areas for cost reductions.
Summary
We have made considerable and encouraging progress towards our stated aim of
having a compelling and exciting one-stop entertainment website for the
fixed-odds business. I am confident that this will be the boost that is required
bring to bring sustainable profitability in the coming financial year.
We can also expect a continued strong profitable performance from European
Wagering Services as it builds on the growth and success that we have seen
during the last six months.
Finally, the staff at betinternet have worked very hard throughout the year to
ensure that the business continues to be better positioned for the future. I
would like to thank them for their continued dedication and commitment.
Denham Eke
Chairman
Operational Review
The key project in making the sportsbook website more attractive to customers
and offering a better variety of betting products has been the main focus of the
development of the business through the latter part of the year. Our plans to
have this done by a recognised software development company, unfortunately
didn't work out as we had planned, as they were unable to complete the contract
in the required time, and this set us back several months whilst we awaited
delivery. Under these circumstances, the only decision that we could make was to
terminate the contract and concentrate on getting control of our own source code
and completing the project under our own, more closely monitored instructions.
This decision has proved to be the catalyst for a number of very quick,
revenue-generating improvements to the website, which were launched at the very
end of the Company's financial year and prior to the World Cup finals in June
2006. The look of the website and its associated brand has a much more
contemporary feel and the introduction of a suite of fixed-odds games together
with a download casino from Real Time Gaming has added greatly to the revenue
stream potential for the business. These additional new products complement our
existing Play Live Casino product, which continues to be very popular with our
Far East based customers. Further products will be added to the website in the
coming months, including a fully embedded flash casino and Mahjong, a
multi-player game popular in the Far East. Importantly, these additional
products reduce the company's reliance on the volatile fixed-odds sports
wagering. The development team will also be working on a white-label version of
the website for potential future business ventures and to consolidate the
European Wagering Services (EWS) platform onto one operating system.
EWS is now running as a successful profitable operation. The levels of turnover
have increased throughout the year and our margin remains strong. We are able to
take advantage of our position of owning our own totalisator hub in the Isle of
Man, by offering direct electronic access to racecourse pools to our customers
as well as providing a telephone call centre and B2C website. There are a number
of development projects in the pipeline that will bring additional revenue in
the coming financial year. In addition, we plan to continue to increase the
turnover through the hub by offering incentives to a select group of customers
betting predominantly on greyhound racing as well as increasing our marketing
spend to bring more customers to the link2bet.com website.
During the financial year, we took the decision to dispose of our share in our
joint venture with Phumelela Gold Enterprises. The Company has received little
revenue from this joint venture and there were apparent conflicts of interests
between the two Companies.
Coresports (Global Coresports Limited), in which betinternet.com purchased a
22.5 per cent stake, is due to launch their first product, coreFootball, to
coincide with the new football season. The delay in the previously announced
launch date is as a result of personnel and technical issues that have now been
resolved. coreFootball is a dynamic football management game using artificial
intelligence and its offering will be unique in the gaming environment. The
board eagerly awaits the commercial launch of this exciting project.
Results
The results, although accurately reflecting the challenging year that we have
had, do not highlight the progress that the company has made within the last
quarter. Many of the operational changes that have been made with both the
sportsbook and EWS have only made their way through to the bottom line within
the last few months of the reporting year. As a result of these changes, the
company reached a break-even point for the last quarter.
The first half of the year was impacted by the fall in turnover within EWS and
the lack of marketing for the sportsbook as we awaited the new platform's
arrival. Consequently, group turnover dropped to £67.6m (2005: £93.7m).
The group operating loss before amortisation was £1.3m compared with £1.1m last
year.
The overall loss was similar to last year at £1.9m which includes an
amortisation charge of £0.5m, which will fall away after the first quarter of
the new financial year.
As expected, we have continued to reduce overheads, which fell by 14% to £3.6m
(2005: £4.2m), through a series of cost-cutting measures including a reduction
in the number of higher paid staff. We expect a further reduction in this figure
during the coming year.
Post year
Subsequent to the year end, we have seen the business reach profitability in the
first quarter and the board is confident that this will continue through to the
half year and beyond. The revenue streams from the additional products added to
the sportsbook are already outperforming our expectations and the World Cup
proved a successful time for the Company, with a significant increase in the
number of registrants. Our aim will now be to continue to grow our customer
base, in the knowledge that we have a much improved and diverse offering.
Furthermore, the pari-mutuel turnover through EWS has consistently improved
month-on-month and it is pleasing to see that there are regular enquiries for
the variety of services that we are able to offer.
It has been an interesting but productive time since I took on the role of
Managing Director in January. The business is now on a very sound base from
which I am confident that it will continue to grow. We have addressed many
issues and have achieved a great deal, especially in the last quarter, but there
are many more projects for us to focus on. This is an industry that rarely sits
still and opportunities continue to present themselves. It is my intention to
ensure that betinternet.com is correctly positioned to take advantage of these
opportunities to guarantee its future success.
Garry Knowles
Managing Director
Consolidated Profit and Loss Account
for the period ended 28 May 2006
2006 2005
Note £000 £000
Turnover including share of joint venture
Betting stakes received
Sportsbook 57,496 47,904
Pari-Mutuel 10,073 47,197
---------- ----------
67,569 95,101
Less: share of joint venture - (1,403)
---------- ----------
Total group turnover 1 67,569 93,698
Cost of sales
Winnings paid and bets laid off 1 (65,246) (90,564)
Betting duty paid 1 (58) (82)
---------- ----------
Gross profit 1 2,265 3,052
Administration expenses (3,588) (4,169)
---------- ----------
Operating loss before amortisation (1,323) (1,117)
Amortisation of goodwill (498) (675)
---------- ----------
Operating loss after amortisation (1,821) (1,792)
Share of operating loss in joint venture - (105)
---------- ----------
Total operating loss including share of (1,821) (1,897)
joint venture
Interest paid (87) -
Interest received 4 5
---------- ----------
Loss on ordinary activities before and
after taxation and retained loss for the
year (1,904) (1,892)
---------- ----------
Basic and diluted loss per share (pence) 2 (1.18) (1.4)
---------- ----------
Consolidated Balance Sheet
for the period ended 28 May 2006
2006 2006 2005 2005
£000 £000 £000 £000
Fixed assets
Intangible assets 43 541
Tangible assets 224 351
Investments 271 83
---------- ----------
538 975
---------- ----------
Current assets
Debtors 549 207
Cash at bank and in hand 458 650
---------- ----------
1,007 857
---------- ----------
Creditors
Amounts falling due within one year (1,490) (1,611)
---------- ----------
Net current liabilities (483) (754)
---------- ----------
Creditors
Amounts falling due after more than one - (63)
year
---------- ----------
Net assets 55 158
---------- ----------
Capital and reserves
Called up share capital 1,969 1,505
Share premium 9,550 8,213
Profit and loss account (11,464) (9,560)
---------- ----------
Equity shareholders' funds 55 158
---------- ----------
Consolidated Cash Flow Statement
for the period ended 28 May 2006
2006 2005
Note £000 £000
Net cash outflow from operating 3 (1,467) (1,182)
activities
Returns on investments and servicing (83) 5
of finance
Capital expenditure (141) (94)
Acquisition 4 (188) 328
---------- ----------
Cash outflow before use of liquid resources (1,879) (943)
and financing
Financing 4 1,738 985
---------- ----------
(Decrease) / increase in cash during (141) 42
the period
---------- ----------
Reconciliation of net cash flow to movement in net funds
2006 2005
£000 £000
Operating net funds 479 437
Decrease in cash during the period (141) 42
---------- ----------
Closing net funds 5 338 479
---------- ----------
Notes to the Accounts
1 Segmental Analysis
Period ended 28 May 2006
Sportsbook Pari-Mutuel Total
£000 £000 £000
Betting stakes received 57,496 10,073 67,569
Winnings paid and bets laid (56,146) (9,100) (65,246)
off
---------- ---------- ----------
Gross Margin 1,350 973 2,323
---------- ----------
% 2.3% 9.7%
Betting Duty (58)
----------
Gross Profit 2,265
----------
Period ended 29 May 2005 Sportsbook Pari-Mutuel Total
£000 £000 £000
Betting stakes received 47,904 45,794 93,698
Winnings paid and bets laid (45,836) (44,728) (90,564)
off
---------- ---------- ----------
Gross margin 2,068 1,066 3,134
---------- ----------
% 4.3% 2.3%
Betting duty (82)
----------
Gross profit 3,052
----------
In line with the development of our one stop entertainment website, casino and
games results are now included under the sportsbook segment.
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 £1,903,950 (2005:
£1,892,156) and the weighted average number of ordinary shares being the
equivalent of 161,915,279 (2005: 135,517,660) 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 ordinary shares would decrease the loss per share.
Notes to the Accounts (continued)
3 Reconciliation of operating loss to net cash outflow from operating activities
2006 2005
£000 £000
Operating loss (1,821) (1,792)
Depreciation and amortisation 766 1,140
charges
(Increase) / decrease in debtors (342) 537
Decrease in creditors (70) (1,067)
---------- ----------
Net cash outflow from operating (1,467) (1,182)
activities
---------- ----------
4 Analysis of cash flows for headings netted in the cash flow statement
2006 2005
£000 £000
Acquisition
Investment (188) (83)
Cash acquired from subsidiary - 411
---------- ----------
(188) 328
---------- ----------
Financing
Issue of new shares including 1,801 922
share premium
Amounts falling due after more (63) 63
than one year
---------- ----------
1,738 985
---------- ----------
5 Analysis of net funds At 30 May Cash Flow At 28 May
2005 2006
£000 £000 £000
Cash in hand and at bank 650 (192) 458
Bank overdraft (171) 51 (120)
---------- ---------- ----------
479 (141) 338
---------- ---------- ----------
6 Basis of preparation of the final statements
(i) The results for the period ended 28 May 2006 are prepared in accordance with
applicable UK accounting standards, using the same account policies as set out
in the group accounts for the year ended 29 May 2005. These preliminary
statements are unaudited, but have been reviewed, in accordance with Auditing
Practices Board guidance by the Auditors, KPMG Audit LLC, whose report will be
included in the report and accounts to be sent to shareholders.
(ii) The abridged accounts for the year to 29 May 2005 are an extract from the full
group accounts for that period on which an unqualified report was made by the
group's auditors and which have been delivered to the Registrar of Companies.
(iii) In preparing these financial statements the directors considered the adequacy of
the cash resources and working capital available to the group for the next 12
months.
Notes to the Accounts (continued)
7 Other information
(i) All profits derive from continuing activities.
(ii) The preliminary statement was approved by the board on 7 September 2006.
(iii) The report and accounts upon which KPMG Audit LLC will deliver their report will
be posted to shareholders on 13 September 2006. Following posting, copies will be
available for inspection at the Company's Registered Office; Viking House, Nelson
Street, Douglas, Isle of Man IM1 2AH.
(iv) The Company's nominated advisor and broker is Evolution Securities Limited, Kings
House, 1 King Street, Leeds, LS1 2HH
End
This information is provided by RNS
The company news service from the London Stock Exchange END
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