Interim Results
August 27 2008 - 2:00AM
UK Regulatory
RNS Number : 0627C
Leisure & Gaming plc
27 August 2008
27 August 2008
Leisure & Gaming plc
Interim Results for the six months ended 30 June 2008
Leisure & Gaming plc ("L&G" or "the Group"), the online betting and gaming group, today announces its unaudited interim results for the
six months to 30 June 2008, which are marginally ahead of market expectations.
The Group's interim results incorporate its main operating subsidiary Betshop Group (Europe) Limited ("Betshop"), Grouse Entertainment
NV, its Acropolis-branded online casino business, and central costs for L&G.
Financial Highlights - First half results marginally ahead of expectations
* Amounts wagered down to EUR41.3m (2007: EUR65.4m)
* Net win down to EUR11.5m (2007: EUR13.9m)
* Net win margin up to 27.8% (2007: 21.3%)
* Gross profit up to EUR3.4m (2007: EUR1.2m)
* Gross profit percentage up to 8.2% (2007: 1.8%)
* Overheads down to EUR2.0m (2007: EUR2.6m)
* Operating profit up to EUR1.4m (2007: Loss EUR1.4m)
* Diluted earnings per share up to 1.5c (2007: Loss 1.2c)
* Cash held in escrow up to EUR2.2m (2007: EUR1.7m)
The trading update guidance issued on 11th July 2008 reported a Net win of EUR12.8m which included the gross amount taken on lotto and
skill games, whereas the figures above include only the net win (see note 6 to the condensed financial information for further details). The
reported EBIT of EUR1.4m was EUR0.2m higher than in the guidance note primarily due to the inclusion of foreign exchange gains.
Key Business Performance Indicators - Solid base for profitable growth established
* Consolidated partner network - average number of active Italian "partners" in the six months was 474 (2007: 533)
* Focused approach to generate profits with a lower level of risk
* Stable IT platform and links with regulators
* Call centre for partners and customers established in Italy
* Number of active "partners" in Cyprus increased to15
* Greece online business successfully launched
* Continued overhead reductions
Richard Creed, CEO of Leisure & Gaming plc said:
"Results for the first half are marginally ahead of expectations and we are currently on-track to meet the full year forecasts.
We now have a solid base established, which will provide us with a platform to drive profitable growth going forward, allowing us to
diversify geographically, drive online performance and provide additional products.
Every market has its own nuances and specific requirements and we have an excellent and experienced management team to cope with these
needs. I look forward to the future challenge. "
For further information, please contact:
Richard Creed, Leisure & Gaming plc
Tel: 020 8545 2190
Billy Clegg/Caroline Stewart, Financial Dynamics
Tel: 020 7831 3113
William Vandyk, Blue Oar Securities
Tel: 020 7448 4400
FINANCIAL RESULTS
6 months ended 30th June 2008
In total, the amounts wagered on all our products for the six months to 30th June 2008 were EUR41.3m (2007: EUR65.4m), earning net win
of EUR11.5m (2007: EUR13.9m) generating a net win margin of 27.8% (2007: 21.3%).
Amounts wagered on sports betting were EUR37.4m (2007: EUR56.9m) generating a net win of EUR10.0m (2007: EUR10.9m) at a net win
percentage of 26.7% (2007: 19.2%).
Amounts wagered on horses was EUR1.9m (2007: EUR5.1m) generating a net win of EUR0.6m (2007: EUR1.3m) at a net win percentage of 31.5%
(2007: 25.5%).
Amounts played on casino products were EUR18.7m in plays (2007: EUR34.3m) generating net win of EUR0.6m (2007: EUR1.1m). (Please note
that amounts wagered include the net win in casino products).
Amounts played on lotto and skill games were EUR1.4m (2007: EUR2.3m) generating net win of EUR0.3m (2007: EUR0.6m).
Other income comprised advertising revenue generated on our results web site, www.goalslive.com.
The cost of sales of EUR8.2m (2007: EUR12.9m) includes commissions payable to our partner network, betting duties, IT software provider
commissions, bonuses given to customers and the cost of processing payments to and from customers. The decrease was mainly attributable to
the revision of the commission structure and lower amounts wagered.
Administrative costs of EUR2.0m (2007: EUR2.6m) include salaries of EUR0.8m(2007:EUR1.1m), IT hosting and servicing costs of EUR0.5m
(2007:EUR0.6m), risk management costs of EUR0.2m (2007: EUR0.2m) and legal and professional fees of EUR0.2m (2007:EUR0.4m). The other costs
of EUR0.4m (2007: EUR0.2m) represent rent of premises, telephone, insurance and other operational costs.
In this period the cost was reduced by exchange gains of EUR0.1m (2007: loss of EUR0.1m) and reflects the continued drive to reduce
overheads.
The balance sheet shows the goodwill value decreased due to the movement in exchange rates. Other intangible assets comprise the gaming
licences which increased by EUR0.3m through the acquisition of an online gaming licence in Italy.
The net cash position was comprised of the bank loan of EUR1.0m (2007: EUR1.4m), bank overdraft of EUR0.6m (2007: nil) and client funds
of EUR1.0m (2007: EUR1.2m) totalling EUR2.6m (2007: 2.6m).Cash amounted to EUR0.6m (2007: EUR0.9m) plus cash held in escrow of EUR2.2m
(2007: EUR1.7m) totalling EUR2.8m (2007: EUR2.6m). The Group is on track to repay the bank loan by 31 December 2008.
REVIEW OF OPERATIONS
Strategy
The Group has targetted emerging markets in Europe with an offering of gaming products through the internet and land based retail
outlets under the brand name "Betshop".
In new markets, the Group will either:
� establish land based operations which will be used to gain credibility and brand awareness, before offering products through the
internet, or
� provide internet offerings which will be used to test markets before land based operations are established.
The Group believes that by supplying a high quality service to both partners and customers, retention rates will remain high and allow for a
wider and more extensive range of products to be made available.
The timing and extent of expansion into new countries is dependent on the regulatory position, finding suitable local managers and
partners and financial and tax evaluations.
The offerings in each country are tailored to local requirements and the partner model is favoured as it eliminates high staffing levels
and overheads. The ability to be innovative and adaptable is crucial in establishing businesses in emerging countries where gaming regimes
are relatively new.
Sports betting
The Group has an odds compilation and risk management team based in Cyprus which also updates our real time results web site
www.goalslive.com
In the 6 months to 30th June 2008 the number of sports bets placed by customers was 3.9m (2007: 5.2m) at an average bets size of EUR9.58
(2007: EUR10.93). 76% of bets were multiples, being over two propositions as compared to 75% in 2007.
The majority of bets were placed on soccer and covered the major European leagues, with a preference for the Italian leagues, followed
by English, Spanish, French and German matches in order of preference.
The net win margin achieved was 26.7% (2007: 19.2%) reflecting more competitive leagues and a non Italian team winning the Champions
League.
Euro 2008 in June 2008 was beneficial in generating bets, with volume of EUR2.5m however, even though Italy was defeated in the quarter
finals, the semi finals and finals were won by favourites and the satisfactory net win achieved amounted to EUR0.6m.
Horse betting
We have experienced difficulties with the supply and reliability of suitable horse betting software and results feeds. In addition, in
2007 a large proportion of the amounts wagered were generated by a few partners who were not profitable and ceased. This led to the
reduction in amounted wagered to EUR1.9m (2007: EUR5.1m). as a consequence, the net win margin improved to 31.6% (2007: 25.5%), though in
monetary terms, decreased to EUR0.6m (2007: EUR1.3m).
Online casino
The online casino products, including the Acropolis casino, suffered from a lack of marketing resource allocation and the loss of two
partners who were unprofitable. The amount played decreased to EUR18.7m (2007: EUR34.3m) and net win to EUR0.6m (2007: EUR1.1m).
Online lotto and skill games
Similar to the online casino, the amounts played decreased to EUR1.4m (2007: EUR2.3m) with a net win of EUR0.3m (2007: EUR0.6m). Also,
the initial attraction of lotto and skill games has clearly waned.
Other income - Goalslive
This web site attracts over 100,000,000 page impressions monthly by over 1.6m unique users. The database of information has been built
over 5 years. The Group has attracted over 5,000 subscribers receiving real time short message services (SMS) on live scores and half time
and final results with over 10,000 subscribers receiving the service through e-mail.
Italy
The Group's largest market is Italy where the Group has licenses and pays betting duties. Currently, the Group has 472 partners.
Following the initial launch and a full year of trading, during which results and trends were assessed, in late 2007, a review of partners
showed that a few high volume partners were generating unfavourable margins to the Group and these have now been stopped.
This targetted streamlining of the partner network has resulted in an improved profitability and this lower volume/higher profit
approach has significantly reduced the risk exposure of the Group.
In September 2007, the Group acquired 59 new "corner" licenses. The process of selecting partners is intense and time consuming and
to-date, 32 are open, 10 await final clearance from the regulators to start operating, a further 10 require completion of relevant
documentation,( i.e. a total of 52, almost 90% will be opened).
In June 2008, the Group acquired an online license in Italy that allows for bets to be taken online from any location in Italy, which
significantly widens the Group's coverage in the country. This offers a major opportunity to develop the business however, internet
penetration and usage levels are lower in the areas of Italy where the Group primarily operates.
The regulator, AAMS, has indicated that poker and skill games will be allowed by the end of this year and the group is negotiating with
poker software providers.
The Group has now successfully moved its call centre and support operations to Reggio Calabria, in Italy.
Cyprus
In addition to the odds compilation and risk management teams, the Group now has 15 outlets in Cyprus, opened in 2008 and operated on a
partner basis that have demonstrated that a strong market exists. The Group intends to expand the number of outlets to 20 by the end of the
year.
Greece
In April 2008, the Group signed a partnership agreement to develop an online offering in Greece which was successfully launched and has
gained a steady increase in customers attracted by a EUR100,000 prize, which was fully underwritten by the Group's local marketing partner.
This online development will continue until land based retail outlets are regulated, when the Group intends to apply for a license and
establish a land based network.
Romania
The Group has a license and operates one land based outlet. The main challenge has been in finding a suitable local partner.
Regulatory developments
The Group continues to seek operations in regulated jurisdictions and will apply for licenses in countries as and when they become
available.
The Italian market appears to be stabalising in terms of regulation and the Group pays betting duty on a monthly basis to the Italian
Treasury. The precise timing of regulations governing both poker and other gaming products is still unclear.
OUTLOOK
The Group has established a strong presence in Italy and successfully introduced and consolidated a partnership based business model.
This has delivered a result which is marginally ahead of market expectations for the first half.
The Board is now looking to diversify further its geographical concentration, improve online performance and introduce gaming products
that will expand its product offering both in Italy and in other countries.
The fund raising exercise in July has provided EUR700,000 to acquire the online license in Italy and strengthen its working capital
resources.
Current trading since 1st July, in the seasonally quiet third quarter, is in-line with management's expectations and as such, the Group
is currently on-track to meet expectations for the full year.
Condensed Consolidated Income Statement
Unaudited Unaudited Audited
6 months 6 months
ended ended Year ended
30 June 2008 30 June 2007 31 Dec 2007
Notes EURm EURm EURm
Amounts wagered 6 41.3 65.4 109.1
Net win 6 11.5 13.9 24.7
Other income 0.1 0.2 0.3
Net win and other income 11.6 14.1 25.0
Cost of sales 6 (8.2) (12.9) (21.5)
Gross profit 6 3.4 1.2 3.5
Share option charge - - (0.1)
Administrative expenses (2.0) (2.6) (5.1)
Operating profit/(loss) 1.4 (1.4) (1.7)
Net interest (0.1) (0.1) (0.3)
Profit /(Loss) before tax 1.3 (1.5) (2.0)
Tax 0 0.6 (0.1)
Profit / (Loss) for the period 1.3 (0.9) (2.1)
attributable to equity holders
of the parent
Earnings per share (cents)
Basic 7 1.5c (1.2c) (2.7c)
Diluted 7 1.5c (1.2c) (2.7c)
In accordance with gaming industry practice, amounts wagered do not represent the Group's statutory revenue and comprises the total
amounts wagered by customers on sports betting, horses and lotto games and net win on casino and other gaming activities.
Condensed Consolidated Balance Sheet
Unaudited Unaudited Audited
30 June 2008 30 June 2007 31 Dec 2007
Notes EURm EURm EURm
ASSETS
Non-current assets
Property, plant and equipment 0.1 0.1 0.1
Goodwill 8 17.4 25.1 18.7
Other intangibles 9 2.1 2.0 1.8
19.6 27.2 20.6
Current assets
Trade and other receivables 1.3 2.5 1.1
Cash held in escrow 2.2 1.7 1.9
Cash and cash equivalents 0.6 0.9 0.6
4.1 5.1 3.6
Total assets 23.7 32.3 24.2
LIABILITIES
Current liabilities
Borrowings (1.6) (1.4) (1.7)
Trade and other payables (2.1) (4.6) (2.2)
Deferred income (1.4) - (1.8)
Client funds (1.0) (1.2) (1.1)
Loan notes (0.5) (0.5) (0.5)
Current tax liabilities - (0.2) (0.2)
(6.6) (7.9) (7.5)
Non-current liabilities
Deferred and contingent - (4.8) -
consideration
Borrowings - - -
Loan notes - - -
- (4.8) -
Total liabilities (6.6) (12.7) (7.5)
Net Assets 17.1 19.6 16.7
EQUITY
Share capital 27.1 27.1 27.1
Share premium 77.6 77.6 77.6
Share option reserve 0.6 0.5 0.6
Shares to be issued 0.6 0.6 0.6
Foreign exchange reserve (8.3) (5.6) (7.4)
Retained earnings (80.5) (80.6) (81.8)
Equity attributable to equity 17.1 19.6 16.7
holders of the parent
Consolidated Statement of Changes in Equity
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Share Share Share Shares Foreign Retained Total
Capital Premium Option to be exchange earnings
Reserve issued reserve
EURm EURm EURm EURm EURm EURm
EURm
Balance as at 1 January 2007 23.4 76.2 0.5 3.2 (5.6) (79.7) 18.0
Loss for the period - - - - - (0.9) (0.9)
Total recognised income and - - - - (0.9) (0.9)
expense
Issue of ordinary shares 3.7 1.6 - (2.6) - - 2.7
Costs attributable to issue - (0.2) - - - - (0.2)
Net change directly in equity 3.7 1.4 - (2.6) - - 2.5
Balance as at 30 June 2007 27.1 77.6 0.5 0.6 (5.6) (80.6) 19.6
Loss for the period - - - - - (1.2) (1.2)
Foreign exchange movements - - - - (1.8) - (1.8)
Total recognised income and - - - - (1.8) (1.2) (3.0)
expense
Share option charge - - 0.1 - - - 0.1
Net change directly in equity - - 0.1 - - - 0.1
Balance as at 31 December 2007 27.1 77.6 0.6 0.6 (7.4) (81.8) 16.7
Profit for the period - - - - - 1.3 1.3
Foreign exchange movements - - - - (0.9) - (0.9)
Total recognised income and - - - - 1.3 0.4
expense (0.9)
Share option charge - - - - -
Net change directly in equity - - - - -
Balance as at 30 June 2008 27.1 77.6 0.6 0.6 (8.3) (80.5) 17.1
Condensed Consolidated Cashflow Statements
Unaudited Unaudited Audited
6 months 6 months
ended ended Year ended
30 June 30 June 31 Dec 2007
2008 2007 Total
EURm EURm EURm EURm EURm EURm
Operating profit / (loss) 1.4 (1.4) (1.7)
Adjustments for:
Decrease/ (Increase) in trade (0.5) 0.1 (1.1)
and other receivables
(Decrease) / Increase in trade (0.1) (0.7) (3.0)
and other payables
(Decrease) / Increase in (0.4) - 1.8
deferred income
(Decrease) / Increase in (0.1) - (0.1)
client funds
Depreciation and amortisation 0.2 0.1 -
Share option charge - - 0.1
Net cash from operating 0.5 (1.9) (4.0)
activities
Tax paid (0.2) (0.1) (0.2)
Investing activities
Purchases of intangible assets (0.1) (1.8) (1.7)
Net cash used in investing (0.1) (1.8) (1.7)
activities
Financing activities
Proceeds from issue of - 2.5 2.5
ordinary shares
Repayment of bank loan (0.1) (0.9) (0.6)
Net interest received / (paid) (0.1) (0.1) (0.3)
Net cash from financing (0.2) 1.5 1.6
activities
Movement in cash 0 (2.3) (4.3)
Cash and cash equivalents at 0.6 4.9 4.9
beginning of period
Cash and cash equivalents at 0.6 2.6 0.6
end of period
Notes to the condensed financial information
1. Basis of preparation
The form and content of the interim report comply with the requirements of IAS 34.
Unless stated otherwise the interim financial statements are unaudited and do not comprise full financial statements within the meaning
of the Companies Act 1985.
The interim financial statements have been prepared using policies consistent with those in the annual report and accounts for the year
ended 31 December 2007 on which the auditors gave their unqualified report and did not contain a statement under Sec 237 (2) or (3) of the
Companies Act 1985. However, the report of the auditors drew attention to the ability of the Group to continue as a going concern and the
related uncertainties.
The annual report and accounts for the year ended 31 December 2007 have been delivered to Companies House and copies are available
on-line at www.lngplc.com or by post from the Company's registered office.
The financial statements have been prepared on the historical cost basis.
2. Going concern
The Directors have considered the detailed business projections to 30 June 2009 and general business expectations into the foreseeable
future.
The achievement of the projections is dependent on two main assumptions:
� Achieving the volume of business which assumes the present portfolio of shops and partners, and
� Achieving forecast margins which, for sports* betting is highly dependent on the outcome of sporting fixtures.
The share placing on 11th July 2008 raised EUR700,000,(net of costs) which was used to fund the acquisition of the online license and has
provided working capital to ensure the Group has adequate resources to continue in operation for the foreseeable future, so the going
concern basis is considered appropriate.
3. Foreign currency
The interim financial statements are presented in Euro (EUR), which is the Group's functional and presentational currency.
4. Key assumptions and estimations
There have been no changes in estimation techniques adopted in preparing the interim financial statements as compared to the financial
statements for the year ended 31 December 2007. The key assumptions and estimations that could have a material impact on the carrying value
of the Group's assets and liabilities in future accounting periods are those relating to contingent consideration payable in respect of past
acquisitions and those relating to the impairment reviews of goodwill.
5. Seasonality of results
The results are affected by the timing of the European football seasons, particularly the Italian leagues, where the fourth quarter of
every year is seasonally the busiest, followed by the first quarter. The third quarter is the least busy as it includes the football off
season.
6. Segmental information
The Directors review the business activities by products offered.
Unaudited Unaudited Audited
6 months ended 30 6 months ended 30 June 2007. Year ended
Amounts wagered June 2008. 31
December
2007.
EURm EURm EURm
Sports book 37.4 56.9 95.4
Horses 1.9 5.1 7.2
Casino 0.6 1.1 1.8
Lotto and skill games 1.4 2.3 4.7
41.3 65.4 109.1
Net win, other income and 6 months ended 30 6 months ended 30 June 2007. Year ended
gross profit June 2008. 31
December
2007.
EURm EURm EURm
Sports book 10.0 10.9 19.9
Horses 0.6 1.3 1.9
Casino 0.6 1.1 1.8
Lotto and skill games 0.3 0.6 1.1
11.5 13.9 24.7
Other income 0.1 0.2 0.3
Total income 11.6 14.1 25.0
Cost of sales (mainly (8.2) (12.9) (21.5)
commissions and duties)
Gross profit 3.4 1.2 3.5
Allocation of assets and liabilities
It is not practicable or meaningful to allocate the assets and liabilities of the Group between differing business segments as all
activities are run on common systems.
7. Earnings per share
Unaudited Unaudited Audited
6 months ended 30 6 months ended 30 June Year ended
June 2008. 2007. 31
December
2007.
Profit / (Loss) attributable EUR1.3m (EUR0.9 m) (EUR2.1m)
to equity holders of the
Company
Weighted average number of 84,906,692 72,114,510 78,563,172
ordinary shares
Basic and diluted earnings per 1.5c (1.2c) (2.7c)
share
Share options are non-dilutive for the period. In previous periods, since the conversion of potential ordinary shares to ordinary shares
would decrease the net loss per share, they are non - dilutive.
8. Goodwill
At cost or valuation EURm
At 1 January 2007 27.6
Foreign exchange movement (0.1)
At 30 June 2007 27.5
Change to provisional fair value (4.8)
Foreign exchange movement (1.6)
At 31 December 2007 21.1
Foreign exchange movement (1.3)
At 30 June 2008 19.8
Impairment EURm
At 1 January 2007, 30 June 2007, 31 December 2007 and 30 June 2008 2.4
Net book value EURm
At 30 June 2007 25.1
At 31 December 2007 18.7
At 30 June 2008 17.4
9. Other intangibles - Gaming licenses
At cost or valuation EURm
At 1 January 2007 0.9
Additions 1.7
Foreign exchange movement 0.1
At 30 June 2007 2.7
Foreign exchange movement (0.2)
At 31 December 2007 2.5
Additions 0.3
At 30 June 2008 2.8
Accumulated amortisation EURm
At 1 January 2007, 30 June 2007, 31 December 2007 and 30 June 2008. (0.7)
Net book value EURm
At 30 June 2007 2.0
At 31 December 2007 1.8
At 30 June 2008 2.1
10. Subsequent events
On 17th July 2008, the Company placed 9,216,000 ordinary shares of 5 pence each in the Company at 6 pence each.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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