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Sportingbet Plc has announced preliminary Results for the Year Ended 31 July 2006. The results are not only a taste of what might have been, but they also provide a glimpse into the health of the group's remaining assets.
As previously stated the group notes the disposal of US-facing sports and casino operations for $1, dischargingexcess liabilities of approximately $13.2m and saving potential severance and closure costs amounting to approximately $14.0m. Paradise Poker will continue to focus on Europe and other relevant markets
Exceptional costs of £210m estimated in year ending 31 July 2007 consisting of £200m of goodwill impairment and £10m of restructuring and related costs. Cash on balance sheet net of client liabilities of £35.2m as at 13 October 2006.
FINANCIAL RESULTS
Turnover for the year ended 31 July 2006 was £2,063.5m (2005: £1,526.2m), earning a gross margin of £303.3m (2005: £175.8m) at 14.7% of turnover (2005: 11.5%). Sports betting turnover was £1,869.8m (2005: £1,422.0m), earning a gross margin of £109.6m (2005: £71.6m) at a gross margin percentage of 5.9% (2005: 5.0%). Casino and gaming, poker and fee income contributed a further £65.8m, £117.2m and £10.7m respectively to both turnover and gross margin (2005: £45.2m, £49.5m and £9.5m).
Of the £303.3m of gross margin generated, £89.6m (2005:£47.1m) was generated by customers residing in Europe, £196.7m (2005: £119.7m) by US based customers and £17.0m (2005: £9.0m) by the rest of the world.
Turnover and margin for the period are stated after deducting customer bonuses of £19.6m (2005: £12.5m). The sports gross margin percentage as reported was 5.9% (2005: 5.0%). Without the bonus deduction, sports margin percentage was 6.4% (2005: 5.5%).
Costs (excluding goodwill amortisation and share option charge) in the year of £200.3m (2005: £115.3m) represented 66.0% (2005: 65.6%) of gross profit. Costs comprised marketing £80.7m (2005: £40.8m), banking fees £42.5m (2005: £28.3m), information technology £18.9m (2005: £12.5m), employee costs £33.6m (2005: £21.9m), other administration costs £19.1m (2005: £8.8m) and depreciation £5.5m (2005: £3.0m).
Operating profit (before exceptional items, goodwill amortisation and share option charge) for the year was £103.0m (2005: £60.5m), representing a margin of 34.0% (2005: 34.4%) of gross profit.
Profit before tax was £71.5m (2005: £40.8m), after including share option charge of £6.4m (2005: £nil), goodwill amortisation of £22.1m (2005: £16.4m), net finance costs of £3.0m (2005: £4.6m), exceptional profit of £nil (2005: £1.0m), and adding the share of operating profit in associated undertakings of £nil (2005: £0.3m).
US
In the year ended 31 July 2006, the number of customers who bet on the region's sports betting websites rose by 65.2% to 312,022 (2005: 188,856). The number of sports bets placed by those customers rose by 35.6% to 34.5m (2005: 25.4m) averaging 110 bets per active customer per annum (2005: 135 bets). The average sports bet size was relatively constant at $54 (2005: $58). Following strong performance in the second half of the year, the sports margin percentage was above historical levels at 6.7% (2005: 6.1%).
The number of customers who bet on the region's gaming websites rose by 47.1% to 164,630 (2005: 111,919). The number of gaming bets placed by those customers rose by 27.0% to 328.0m (2005: 258.2m) at an average bet size of $11 (2005: $11). In addition, 45,299 sports customers, representing 18.3% of the region's active customer base, also played poker at Paradise Poker.
Paradise Poker
Paradise Poker performed strongly during the year, exceeding the Board's expectations in all of its key performance indicators. As a result, earnout targets were met during the year realising $50m of contingent consideration. This amount, payable as £17.9m in cash and the issue of 9.8m shares, is due to be paid in November 2006.
During the year, the number of active customers who have contributed to rake at Paradise Poker rose by 63.0% to 345,575 (2005: 212,000). The average daily revenue increased by 81.1% to $513,995 (2005: $283,824) representing a yield per active player of $543 (2005: $489). During the year, 58,190 (19.4%) active real money poker customers also bet on the Group's US-facing sports or casino websites. Non US-resident customers generated 19% of the Paradise Poker rake.
Regarding the future prospects of the company, the Group notes;
"...following the significant fall in total customers now able to play at Paradise Poker, this revenue may potentially be at risk if significant numbers of these customers now seek larger, more liquid "black market" poker rooms. The Group will have a better idea of whether this will have a material impact or not as the year unfolds.
Australia
During the year, the percentage of total bets taken over the internet has risen further to 66.0% (2005: 60.1%). These actions, together with good sports results, have increased sports gross margin to 3.8% (2005: 2.3%). In accordance with Australian licensing regulations, no casino or poker products are offered within Australia.
The number of customers who bet with Sportingbet Australia during the year rose by 181.6% to 17,732 (2005: 6,298). The number of sports bets placed by these customers rose by 51.4% to 4.6m (2005: 3.0m) averaging 259 bets per active customer per annum (2005: 482 bets). The average sports bet size was lower at AUS$181 (2005: AUS$301), reflecting the increased activity on the more leisure-orientated internet platform.
New active customers increased by 4,862 (122.1%) to 8,843 (2005: 3,981). The cost of acquiring a new active customer fell to AUS$521 (2005: AUS$917), yielding a cash payback of under three months.
Internet customers now represent 81% of the bets made compared to 67% in the prior year. In addition, volume to date is strong with sports bets up 80% compared to the same period last year.
Europe
The number of active customers who bet on the region's sports betting websites rose by 55.9% to 382,160 (2005: 245,215). The number of sports bets placed by these customers rose by 74.3% to 35.3m (2005: 20.2m) averaging 92 bets per active customer per annum (2005: 83 bets). The average sports bet size increased marginally to £13.8 (2005: £13.3). The overall sports margin percentage, after betting tax, was 7.5% (2005: 7.9%), impacted in part, by lower margins in European soccer and low margins across the World Cup.
The number of customers who bet on the region's gaming websites rose by 161.1% to 155,596 (2005: 59,596) at an average bet size of £5.1 (2005: £5.0). The gaming margin percentage was constant at 3.8% (2005: 3.8%). In addition, the European business generated £14.7m of poker rake (2005: £5.2m).
New active customers increased by 131,004 (79.6%) to 295,532 (2005: 164,528). The cost of acquiring new active customers was£158 (2005: £137), yielding a cash payback period of less than six months. This included launch costs into new markets.
The company states that in Europe sports bets are 62% ahead of the same period last year and gross margin is more than 50% ahead of the previous year, following strong sports margins in recent weeks. In addition, poker rake from the European Boss Media platform is 75% ahead of last year.
Interestingly, particularly from the perspective of the UK Government and the Gambling Commission the Group concludes;
"In the UK, the Gambling Act moves nearer to full implementation (scheduled for September 2007). Accordingly, the Gambling Commission continues to consult with the industry on the content of the numerous regulations that will supplement the Gambling Act. The Board has been actively involved in the consultation process. The tax rates that will be imposed on UK-licensed operators under the Gambling Act remain undecided and, as a result, there will not necessarily be an influx of operators into the UK on its implementation. Indeed, the reverse may well be the case as UK operators seek lower taxes offshore.
Commenting on the results, Andrew McIver, incoming Group Chief Executive, said:
"My first review as Group Chief Executive comes at a very disappointing time. The Board and I are particularly dismayed by the regulatory developments in the US over recent months. The Unlawful Internet Gambling Enforcement Act, passed by Congress on 29 September and enacted by President Bush on 13 October 2006, resulted in the Board having no choice but to withdraw all services to US based customers. This will have a significant impact on the Group's trading results going forward. However, we retain strong European and Australian businesses along with the non US-facing element of Paradise Poker, and we will build on these.
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