25-09-2006 Leisure & Gaming reports mixed results

The online betting and gaming group announced its interim results for the six months ended June 30, which saw a 33% increase in turnover up to $339.9m and a total net win of $45.7m, up 24%. Gross profit for the first half was $24.3m, up 9% over the same period last year, while the profit before tax was $6.8m, down from a pro forma result of $7.4m in the first half of 2005.

Sportsbook (including racebook) net win was $22.3m, representing an increase of 27% on the prior year and at a net margin of 7.1%, in line with 2005. Net win from Casino operations was $22.0m, up 14%, and net win from Poker operations was $1.4m (2005 pro forma: $0.2m).

During the period, the company concentrated on integrating the acquisitions of Nine.com, English Harbour and Stanley Entertainment. While operating performance at both VIP and English Harbour has been very pleasing in the first half and to date, ahead of the company's expectations, the operating performance at Nine has been weaker than expected and management is actively addressing this trend.

Completed milestones include the launch of the core VIP.com brand, the new Nine.com casino platform in July 2006 and the StanleyVIP casino and poker platform in September 2006. With the American football season now underway, the group expects to see the benefits of this work in the remaining part of 2006.

VIP continues to lead the industry with customer retention, averaging 21 months against 17 months a year ago and an industry average of approximately 12 months. Unique active players across the group have increased by over 12% compared to the same period last year and at the same time real money sign ups have increased by 9%. Customer value has also improved, with a yield per active customer increased to $738 (2005 pro forma: $652). Cost per acquisition was $296 in the period (2005 pro forma: $257). Approximately 30% of real money new signs ups are referred to the group from affiliate partners.

At present, approximately 30% of group net win comes from US sportsbook customers. However, across all products, including Casino and Poker, approximately 80% of group net win is from the US. The recent acquisition of BetShop brings not only the added dimension of geographical diversity but also a capable team with significant experience in Europe who will lead the group's planned growth outside of North America. BetShop has continued to grow within its core Italian market and now has in excess of 800 land based affiliate relationships against the 600 it had when it was acquired.

Finally, in June 2006, L&G acquired its key technology assets and software from IGW, the group's historic software provider enabling the group to own and directly control its core software and infrastructure.

Chief Executive Alistair Assheton commented: "The results for the half year are very pleasing showing continued growth across our business and the last twelve months has been one of progress for the Group. Our recently acquired European business in particular is showing encouraging signs and following this acquisition, the Group has growing revenue streams from an increasing number of sources. We have a strong cash balance and a solid business model and remain well placed to capitalise on opportunities for growth in the coming periods."

"The first half is traditionally the slower half of the year and it is disappointing however, that our performance as we enter the main sportsbook trading season has been weaker than our expectations. While I remain confident in the prospects for the Group, the Board is taking a prudent view that we may not meet external expectations in this financial year. We continue to monitor regulatory developments and are aware of the macro industry challenges we face. As a Group, we remain focused on growing our core business and deriving additional benefits through the robust integration of our acquisitions."

For the 80 day period to September 18, trading has been mixed, with a 34% increase in total net win compared to the same period last year, a 15% increase in year to date Unique Active Players and a 13% increase in Real Money Sign Ups, but also weak operating margings, particularly in the sportsbook. In light of current trading, the Board has taken the prudent view that were the recent weakness in sportsbook margins at both VIP and Nine to continue, the group would expect to report results for the full year below market expectations.