Worldlink Grp Regulatory News (WGP)

1 Jun 2005 07:00

World Gaming PLC01 June 2005 FOR IMMEDIATE RELEASE 1 JUNE 2005 WORLD GAMING PLC ("World Gaming" or "the Company") (TIDM:WGP) FIRST QUARTER RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2005 The Board of World Gaming, an internet Gaming Software provider offering acomprehensive suite of products and services for internet gaming Operators, ispleased to announce the Company's first quarter results for the three monthsended the 31 March 2005. HIGHLIGHTS • Like-for-like growth in royalty revenue of 54% in the quarter ended 31 March 2005 when compared to the same period last year; • Wagering volume on the Company's servers at $2.0 billion for the quarter ended 31 March 2005, up from $1.4 billion for the same period last year; • First quarter results have met or exceeded management's expectations on key indicators; • The Company signed two new licensees in the first quarter of 2005; • Successful placing and admission to AIM on 17 May 2005; • Further Poker launches to licensees scheduled for the second quarter of 2005. World Gaming plc CEO, Daniel Moran said: "The Company enters the new financialyear well placed to build upon its successes in 2004. The development of theworldwide industry of online gaming continues to grow at the same rates sinceits inception. Strong organic growth continues to be exploited by many operatorsand their suppliers." "The Board remains confident that the Company has the business model to share inthis growth through both its licensing model and acquisitive strategy duringthe forthcoming year. We look to the future with confidence." --ENDS-- Enquiries: BISHOPSGATE COMMUNICATIONS LIMITED Tel: 020 7430 1600Maxine BarnesDominic Barretto DANIEL STEWART & COMPANY PLC Tel: 020 7374 6789Ruari 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 inthe United States or to a U.S. person (as such term is defined in Regulations Sunder the Securities Act) absent registration or an applicable exemption fromregistration under the Securities Act. FULL STATEMENT ATTACHED CHIEF EXECUTIVE'S STATEMENTIntroduction The three months ended 31 March 2005 represent a solid period of trading whichhas produced results that have met or exceeded management's expectations on keyindicators. Underpinning this success has been a 54.1% rise in like-for-like royaltyrevenues generated by the success of World Gaming's licensing model through acombination of organic growth and new licensees. Growth in the quarter over theprior year is particularly high as the first two months of 2004 represent aperiod prior to the successful outsourcing of the Company's transactionprocessing division commencing February 2004. The increase in revenues hasfurther demonstrated significant economies of scale inherent in the Company'sbusiness model. The Company's operating profit margins on royalty revenue haveremained constant compared to the same period last year demonstrating strengthin scalability of the Company's business model. In addition to the licensing model, the Company continues to exploreopportunities to leverage its strength in infrastructure, both operational andfinancial. In this regard the Company will seek corporate transactions that willmeet with its objectives. Financial Results Three months ending 31 March 2005 Like-for-like revenue from continuing and new licensees increased by 54.1% or$702,000 to $2.00m for the quarter ended 31 March 2005, compared to $1.29m forthe same period last year. Like-for-like revenues exclude revenues fromSportingbet Plc ("Sportingbet") in 2004. Total revenues for the quarter ended 31March 2005 decreased by 50.9% or $2.72m to $2.63m compared to $5.36m for thesame period last year. The decrease in total revenue is wholly attributable tothe Sportingbet Transaction which was effective as of 1 October 2004 where inreturn for certain consideration and other arrangements, the Company no longercharges royalties to Sportingbet for use of the Software (see "SportingbetTransaction" below).Key financial aspects of the Sportingbet Transaction described below, forcomparative purposes are as follows: • The Company no longer charges royalties to Sportingbet, representing 68% of total revenue for the quarter ended 31 March 2004; • 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 in the quarter ended 31 March 2005; • All development costs previously incurred by the Company are paid by Sportingbet which equalled approximately $1.2m of costs for the quarter ended 31 March 2004; • The Company received certain cash and other consideration under the Sportingbet Transaction. Net profit from operations for the quarter ended 31 March 2005 was $836,000 or$0.03 per participating ordinary share compared to net profit of $1.98m or $0.04per participating ordinary share for the same period last year. Participatingordinary shares include those shares that have voting and economic rights andtherefore exclude those 13.5m shares held by Sportingbet in accordance with thetransaction effective 1 October 2004 described in "Sportingbet Transaction"below. Royalty revenue from software licensing decreased 59.5% or $2.94m to $2.00m forthe quarter ended 31 March 2005 compared to $4.94m for the same period lastyear. On a like-for-like basis, excluding royalties from Sportingbet, revenuefrom continuing and new licensees grew 54.1% to $2.00m for the quarter ended 31March 2005 when compared to the same period last year. Pursuant to theSportingbet Transaction described below, the Company received and continues toreceive hosting revenues from Sportingbet and Sportingbet funded and continuesto fund all development costs thus reducing operating costs excluding interestand deprecation by 63.7% in the quarter as described below. Pursuant to terms of the Sportingbet Transaction, the Company received hostingrevenue from Sportingbet of $635,000 in the quarter ended 31 March 2005 comparedto $nil in the same quarter last year. Hosting is charged on a percentage of usebasis. Sportingbet pays its proportion of the hosting use at cost plus 10%. In February 2004, the Company closed its transaction processing and customerservice divisions migrating licensees that utilized these services to a thirdparty supplier. For comparative purposes, $423,000 of transaction processing feerevenue was included in total revenues for the quarter ended 31 March 2004compared to $nil in the quarter ended 31 March 2005. Direct costs associatedwith this division exceeded fee revenue in every quarter up to the date of itsclosure. For the three months ended 31 March 2005, gross wagering volumes increased 42.9%to $2.0 billion when compared to $1.4 billion in the prior year. Growth inwagering volume from continuing licensees, excluding Sportingbet, was 70.3%.Management believes that the growth in wagering volume is attributable to acontinued expansion of the market for internet gaming. In addition, this growthis partially attributable to increased reliability of the Company's productsuite as a result of infrastructure and support services upgrades. Overall netwin experienced by licensees was consistent with the same period last year. (Netwin 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 31 March 2005 was 71.1% compared to 90.7%for the same period last year. The decrease is primarily the result of a changein accounting policy as of 1 January 2005 to treat all hosting costs as directcosts of sales. In the quarter ended 31 March 2004, such direct costs onlyconsisted of certain hosting costs and direct costs associated with transactionprocessing. On a like-for-like basis, approximately an additional $400,000 wouldhave been included in hosting costs for the quarter ended 31 March 2004.Operating expenses including interest and depreciation decreased 64.1% to $1.03mduring the quarter ended 31 March 2005 compared to $2.89m for the same periodlast year. The decrease occurred primarily due to the following: • Development costs being funded by Sportingbet as result of the Transaction described below, effective 1 October 2004. On a like-for-like basis this represented approximately $1.2m of operating costs in the quarter ended 31 March 2004; • Re-allocation of all hosting costs to direct cost of sales. On a like-for-like basis, this attributed to approximately $400,000 of operating costs in the quarter ended 31 March 2005; and • Depreciation charges during the quarter ended 31 March 2005 declined $208,000 or 52.4% when compared to the same period last year. In summary, for the quarter ended 31 March 2005 compared to the same quarterlast year, net profit decreased by 58.0%, primarily due to a 59.5% decrease inroyalty revenues. With associated reductions in operating expenses and recoveryof direct costs, operating profit margin for the Company on the basis of royaltyrevenue has increased 4.5% to 41.8% compared to 40% in the quarter ended 31March 2004. Management believes that this demonstrates the highly scalablenature of the business. Review of Operations During the quarter ended 31 March 2005, management spent significant timeestablishing the Company's listing on the Alternative Investment Market ("AIM")of the London Stock Exchange. The Company was admitted to trading during the second quarter on 17 May 2005 raising £2,499,000 from the private placement of4,760,000 ordinary shares. The Board sees this as a critical step in the Company's future strategicdirection in addition to offering existing shareholders greater value through amore stable trading platform. It is expected that the Company's listing on AIM will assist in meeting its strategic direction, in particular, completion ofcorporate transactions that will enhance shareholder value. In the first quarter of 2005 the Company signed two new licensees. Theselicensees have significant experience in the on-line gaming industry and it isexpected that they will begin to contribute material revenues in the finalquarter of 2005. The Company continues to roll out its third-party supplied multi-player pokersolution to its licensees. One of the Company's largest licensees has commenced going live with this product in the second quarter of 2005. Through the second quarter of 2005 the Company will continue to complete plannedhardware and software upgrades for busy winter sports season commencing in thethird quarter. Software upgrades will be completed through Alea Software Ltd. Recent Developments - "Sportingbet Transaction" Joint Venture Arrangements, effective 1 October 2004, were entered into on 12October 2004 between the Company and Sportingbet. The principle terms of thearrangements are as follows: • The ownership of the intellectual property in the Company's gaming software including it's gaming product suite ("Gaming Software") was transferred into a new exempt limited partnership, Bullen Road LP, based in the Cayman Islands, which was established under the equal joint ownership of SSII Limited and Sportingbet; • In consideration of this transfer, Sportingbet agreed to pay a total of $10 million in cash to the Company ($3 million was paid on each of 12 October 2004 and 1 March 2005 and the balance of $4 million is payable on or before 1 November 2005). In addition, the economic value of Sportingbet's then 29.6% (13,506,204 shares) shareholding in the Company was eliminated by the cancellation of all rights of any value attached to the ordinary shares of the Company then held by Sportingbet, and a convertible loan note representing indebtedness of $900,000 owing from the Company to Sportingbet was cancelled; • Each of the Company and Sportingbet has the right to appoint two directors to the four person board of Bullen Road LP which controls the development objectives of Alea Software Ltd, a wholly owned subsidiary of Sportingbet and the developer of the Gaming Software under the Joint Venture Arrangements; • During the period of the Joint Venture Arrangements, Sportingbet is responsible for all of Alea's costs associated with the development and maintenance of the Gaming Software (with a minimum spend of $4.5 million per year in the first 3 years and a minimum of $2.5 million in the fourth year); • The Company retains the right to determine 30% of the development time on the Gaming Software through a development plan devised by the Joint Venture Board consisting of two members of the Company and two members from Sportingbet; • The Company has a worldwide royalty free licence allowing it to continue to use and sublicense the Gaming Software. In the event that World Gaming becomes an operator it would pay a 5% royalty only on those revenues to Sportingbet; • Sportingbet has a worldwide royalty free licence to use the Gaming Software. Royalty payments of 5%. are due from Sportingbet in the event that they licence the Gaming Software to any new licensees; • Sportingbet pays its proportion of the hosting costs on the Company's systems and IT services at cost plus 10%; • The Joint Venture Arrangements may be terminated by the Company on three months notice. Except in the event of breach by World Gaming, Sportingbet may not terminate the Joint Venture Arrangements for three years. Thereafter, Sportingbet may terminate on 12 months notice to the Company; and • On termination of the Joint Venture Arrangements, (a) Sportingbet must pay $3 million to the Company (which would be retrospectively reduced by the amount of consideration received by the Company if it sells its rights to the Gaming Software within 2 years); and (b) each of the Company and Sportingbet will be granted a perpetual, non-exclusive royalty free licence to use, sub-licence and assign all of the then intellectual property rights underlying the improved Gaming Software, and neither party will have the rights to any further improvements or developments made by the other party. The additional $3 million payable to the Company upon termination of theAgreements by Sportingbet has not been included in the Company's consolidatedfinancial statements. Regulatory Developments The licensees of the Company's software products, and the Company itself, aresubject to applicable laws in various jurisdictions. As companies and consumersinvolved in Internet gaming are located around the globe, including theend-users of our licensees, there is uncertainty regarding exactly whichgovernments have jurisdiction or authority to regulate or legislate with respectto various aspects of the industry. The uncertainty surrounding the regulationof Internet gaming could have a material adverse effect on the Company'sbusiness, revenues, operating results, and financial condition. There is a riskthat criminal and civil proceedings could be initiated in various jurisdictionsagainst the Company's licensees, or, less likely, even the Company, and suchproceedings could involve substantial litigation expense, penalties, fines,diversion of the attention of key executives, injunctions or other prohibitionsbeing invoked against the licensee or the Company. Such proceedings could have amaterial adverse effect on the Company's business, revenues, operating resultsand financial condition. In addition, as electronic commerce develops further,it may generally be the subject of government regulation including taxationwhich could impact the Company's financial position. Also, current laws thatpre-date or are incompatible with Internet electronic commerce may be enforcedin a manner that restricts the electronic commerce market. Any such developmentscould have a material adverse effect on the Company's business, revenues,operating results and financial condition. The Company and the industry as a whole are under threat from certain factionswithin the U.S. Congress that seek to ban certain Internet gambling. Whilstlegislation has been introduced in both houses of Congress in recent years, noInternet 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 sucha bill might be introduced, and the Company continues to monitor this situationsince the passage of this legislation could have a substantial impact on thebusiness of the Company's licensees and ultimately the Company. If Internetgambling prohibition legislation is introduced and becomes law, it would have animmediate detrimental effect on the industry and would pose a serious threat tothe Company's continued operations. In March 2004, the World Trade Organization held in favour of Antigua andBarbuda and against the United States of America with regard to unlawful traderestrictions relating to Internet gaming. In April 2005 the US appeal to thisruling was heard, but it is too early to determine what, if any, influence thismay have on United States led legislation. Outlook The Company enters the new financial year well placed to build upon itssuccesses in 2004. The development of the worldwide industry of online gamingcontinues to replicate similar growth experienced since its inception. Strong organic growth continues to be exploited by operators and their suppliers. The Board remains confident that the Company has the business model to share inthis growth through both its licensing model and acquisitive strategy during theforthcoming year. Seasonality of the business means that the second quarter is generally theslowest trading quarter for the Company. It appears likely that while thegrowth from licensee revenue in first quarter of 2005 will continue, thepercentage increase in such revenues for the second quarter of 2005 compared tothe same period last year may be less pronounced. The Board is confident thatit can utilise this time to perform necessary software and infrastructureupgrades for its licensees in preparation for the busy winter sports seasoncommencing in the third quarter. The information contained herein is not for publication or distribution topersons in the United States of America. The securities referred to herein havenot been and will not be registered under the US Securities Act 1933, asamended, and may not be offered or sold without registration thereunder orpursuant to an available exemption therefrom. World Gaming plc Unaudited Consolidated Profit and Loss Account Three months ended the 31 March 2005 and 2004 +----------------------------------------------------+-------+-------------+---------+| | | 3 months| 3 months|+----------------------------------------------------+-------+-------------+---------+| | | 31 Mar| 31 Mar|+----------------------------------------------------+-------+-------------+---------+| | | 2005| 2004|+----------------------------------------------------+-------+-------------+---------+| | | $'000| $'000|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|TURNOVER | | 2,635| 5,364|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|Cost of sales | | (761)| (499)|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|GROSS PROFIT | | 1,874| 4,865|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|Other operating expenses (net) | | (1,084)| (2,890)|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+| | | | ||OPERATING PROFIT BEFORE INTEREST AND SIMILAR INCOME | | 790| 1,975|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|Interest income (net) | | 46| 14|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|PROFIT/(LOSS) BEFORE TAXATION | | 836| 1,989|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|Taxation | | -| -|+----------------------------------------------------+-------+-------------+---------+| | | | |+----------------------------------------------------+-------+-------------+---------+|PROFIT/(LOSS) FOR THE FINANCIAL PERIOD | | | || | | 836| 1,989|+----------------------------------------------------+-------+-------------+---------+| | | | |+---------------------------------------------------++-------+-+-----------+---------+|BASIC EARNINGS PER SHARE | | 0.02| 0.04|+---------------------------------------------------+----------+-----------+---------+|BASIC EARNINGS PER SHARE Excluding Non-Voting | | 0.03| 0.04|| | | | |+---------------------------------------------------+----------+-----------+---------+|DILUTED EARNINGS PER SHARE | | 0.02| 0.04|+---------------------------------------------------+----------+-----------+---------+|DILUTED EARNINGS PER SHARE Excluding Non-Voting | | 0.02| 0.04|| | | | |+---------------------------------------------------++-------+-+-----------+---------++---------------------------------------------------++-------+-+-----------+---------+ The operating profit for the quarter arises from the company's continuingoperations. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003 $'000 $'000 Profit for the financial period 836 1,989 Currency translation difference on foreign currency (13) 188net investment Total recognised gains relating to the year 823 2,177 World Gaming plc Consolidated Balance Sheets As at 31 March 2005 and 31 December 2004 31 Mar 31 December 2005 2004 (unaudited) $'000 $'000FIXED ASSETSTangible assets 1,308 1,419 1,308 1,419 CURRENT ASSETSDebtors 7,066 14,016Cash at bank and in hand 12,377 7,944 19,443 21,960 CREDITORS:Amounts falling due within one year (3,445) (7,094) NET CURRENT ASSETS 15,998 14,866 TOTAL ASSETS LESS CURRENT LIABILITIES 17,306 16,285 CREDITORS:Amounts falling due after more thanone year:Provisions for liabilities and (359) (257)charges NET ASSETS 16,947 16,028 CAPITAL AND RESERVESCalled up share capital 136 134Share premium account 1,769 1,675Deferred compensation reserve 567 567Merger reserve 23,528 23,528Profit and loss account (9,053) (9,876) SHAREHOLDERS' FUNDS 16,947 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 is based on the profit after tax at 31 March 2005 of $836,000 (2004: $1,975,000) 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 31 March 2005 and 2004 3 months 3 Months ended ended 31 March 31 Mar 2005 2004 $'000 $'000 Net cash inflow from operating activities 1,413 4,039 Returns on investment and servicing of 46 27finance Capital expenditure (95) (318) Consideration received - Sportingbet 3,000 - CASH INFLOW/(OUTFLOW) BEFORE FINANCING 4,364 3,748 Financing 82 (1,121) INCREASE IN CASH IN THE PERIOD 4,446 2,627 RECONCILIATION OF NET CASHFLOW TOMOVEMENT IN NET FUNDS Increase in cash in the period 4,446 2,627 Cash (inflow)/outflow from (increase)/ 14 168decrease in debt Currency translation differences (13) 188 MOVEMENT IN NET FUNDS RESULTING FROM CASHFLOWS IN PERIOD 4,447 2,983 Non-cash movements - - Movement in net funds in period 4,447 2,983 Net funds/(debt) at start of period 7,930 (287) NET FUNDS AT END OF PERIOD 12,377 2,696 This information is provided by RNS The company news service from the London Stock Exchange