Audited full year results
4 March 2008
Playtech Limited
("Playtech" or "the Company" or "the Group")
Audited full year results for the year ended 31 December 2007
Playtech (AIM: PTEC), the international designer, developer and licensor of
software for the online, mobile and land-based gaming industry is pleased to
announce its audited full year results for the year ended 31 December 2007.
Financial Highlights*
• Total Revenues up by 86% to $103.6 million (2006: $55.6 million)
o Casino revenues up by 58% to $74.7 million (2006: $47.3 million)
o Poker revenues up by 269% to $27.4 million (2006: $7.4 million)
• Adjusted net profit** before tax of $70 million (2006: $68 million,
Including US)
• Cash generated from operating activities of $62.6 million (2006:
$72.6 million) was 95% of the Group's operating profit before non
cash items
• Adjusted basic EPS** of 32 cents per share (2006: 32 cents per share)
• Recommended Final Dividend of 9.9 US cents per share, making a total
of approximately $21.5 million. Once approved and paid, this will
result in shareholders receiving an aggregate dividend for 2007 of
16.0 cents per share or approximately $34.6 million (2006: $33.5
million (15.7 cents per share))
• Cash investment in CY Foundation of $10.25 million and the fair value
of such investment on 31 December 2007 was $18.9 million. Deferred
revenues of $27.6 million recorded in the balance sheet
• Cash investment in AsianLogic of US$5.0 million and the fair value of
investment on 31 December 2007 was US$15.9 million. Deferred revenues
of $10.6 million recorded in the balance sheet
• For ease of comparison all 2006 revenues exclude contributions from
the US from where the Company's licensees withdrew more than a year
ago.
** The adjusted net profit excludes various non cash items unrelated to the
underlying cash trading performance totalling $27.7 million including $18.3
million relating to the accounting treatment of the CY Foundation investment
(2006: $7.3 million).
Operational Highlights:
• Playtech's iPoker network became the world's largest online poker
network***
• Successful completion of the migration and integration of the non US
assets of the Tribeca poker network to the iPoker network
• 15 new licensees added (8 migrated from Tribeca) including new
licensees in the rapidly expanding Asian and European markets
• Further investment in development, and pre and post sale resources
bringing the total number of Playtech employees to approximately 650
• Enhanced product development including the conversion of the majority
of the downloadable casino games into flash, introduction of flash
Bingo and upgrade of the live gaming software
• Completion of Videobet switchable technology which allows an operator
to operate gaming machines on a stand alone basis and switch it to
server-based, should they choose, without any additional cost or time
• Joint venture agreement with Unicum, which will allow Videobet's
software to be utilised in at least 500 stand alone gaming machines
located in the Ukraine
• In December the iPoker network held the European Championship of
Online Poker ("ECOOP") which saw over 44,000 players participating
for an aggregate of $2.85 million in prize money
Current Trading and Outlook:
• Significant Growth in January with 14.4% growth in revenues over the
monthly average revenues in the fourth quarter of 2007
• 6 new licence agreements already signed in 2008 in line with the
Group's strategy to diversify geographically, focus on regulated
markets and migrate licensees from competitors
• Leading position attracts well established online and land based
operators
• Strong pipeline of potential additional licensees
• Launch of new Asian P2P games, which are extremely popular in the
Asian market, planned to the end of the first quarter of 2008
• Acceleration of the development of new games including a large number
of slot, table and card games and additional Asian P2P games
• Following the success of the first ECOOP tournament, further
tournaments are planned for this year including a second ECOOP
tournament with an aggregate of more than $3.5 million in prize money
*** www.pokerscout.com
Roger Withers, Non-executive Chairman, commented:
"I am pleased to report another strong set of full year results for Playtech
with all key performance indicators performing ahead of targets. The Group
continues to expand rapidly with increased product development in new
geographical markets leading to a number of new significant revenue streams.
We have had an excellent start to 2008 and the Board is highly confident of the
Group's performance for 2008 and beyond and its ability to maintain our position
as the world's leading provider of software solutions to the online gaming
industry."
- ends -
For Further Information:
Mor Weizer, CEO, Playtech Ltd
Guy Emodi, CFO, Playtech Ltd
c/o Bell Pottinger Tel: 020 7861 3232
www.playtech.com
Tim Mickley
Collins Stewart Tel: 020 7523 8000
David Rydell / Chris Hamilton / Helen Tarbet
Bell Pottinger Corporate & Financial Tel: 020 7861 3232
There will be an analyst meeting and presentation for analysts today commencing
at 09:15 for 09:30 start to be held at Floor 24, Tower 42, 25 Old Broad Street,
EC2N 1HQ.
Dial-in details to listen to the analyst presentation:
9.30 am Please call +44 (0) 20 8609 0582 (UK)
+ 1 866 388 1925
A recording of the meeting will be available for a period of seven days from 3
March 2008. To access the recording please dial the following replay telephone
number:
Replay telephone number: +44 (0) 20 8609 0289 (UK)
+ 1 866 676 5865
Replay passcode: 206595#
An audiocast of the meeting and slide presentation given at the meeting will be
available on the Group's website later today.
Chairman's Report
It gives me great pleasure to report Playtech's second full year financial
results as a publicly traded company. Our expectations have been exceeded with
all key performance indicators performing ahead of targets. For a business that
is growing rapidly, the year has not been without its challenges - principally
in controlling expansion through the correct channelling of resources into the
relevant commercial operations without losing sight of our end objectives. I am
proud to state that this has been achieved as a result of the enormous
commitment and drive of all employees. My thanks go to everyone within Playtech,
including my fellow directors, for their outstanding contribution throughout
2007.
The growth of the business was driven by two key factors: our geographical
presence in growing markets and our ability to deliver comprehensive best of
breed solutions for our licensees. Our relationship with licensees is far more
than a purely commercial one - we help to drive their growth by providing
innovative products that meet their market demands. This is an evolving and
never-ending process whereby Playtech is constantly developing, marketing and
launching new products to ensure our partner customers maintain their
competitive advantage in fast-moving markets. That is why we believe that
Playtech is the world's leading provider of software solutions to the online
gaming industry.
On a global scale, the online gaming market continues to grow across all major
economic regions and as such still constitutes a young and growing marketplace.
There is much to play for and Playtech's world leading position means it is
ideally placed to further benefit from growth in all of its operations. Our
focus is on innovation, imagination, a diversified business model and strength
as a software and platform provider. With a strong balance sheet and cash
resources, Playtech is well placed to make strategic acquisitions and will be
opportunistic in its approach. The Group will continue to follow its successful
strategy of organic and acquisitive growth.
A number of key achievements were reached during the year. The first was when
the Group's monthly revenues exceeded those reached prior to the withdrawal of
the Group's licensees from the US market and the second saw Playtech's iPoker
network become the world's largest independent online poker network. The Group
also successfully completed the migration and integration of the non US assets
of the Tribeca poker network onto Playtech's iPoker platform. This acquisition
has been highly beneficial to the Group and has contributed greatly to
Playtech's ongoing success. The Group continues to win new licensees, with the
addition of 15 during the year. Eight of these were the former Tribeca poker
licensees as well as notable additions Mansion and CY Foundation, both of which
are focusing on the rapidly expanding China and Asian markets.
In financial terms, I am pleased to report continued growth in total revenues to
$103.6million, representing an increase of 86% on the $55.6million achieved in
2006 (excluding US derived revenues of $34.5 million). The adjusted net profit
before tax (which ignores significant non-cash charges relating to the CY
Foundation and AsianLogic investments, the Tribeca non-US assets acquisition
and the stock option charges as well), was an impressive US$70 million (68% of
total revenues).
The Board recommends the payment of a final dividend of 9.9c per share which is
payable, subject to shareholder approval, on 20 May 2008 to all shareholders on
the register at 28 March 2008. This follows the interim dividend payment of 6.1c
per share announced in October 2007 making a total dividend of 16.0c per share.
The overall dividend is in line with our stated dividend policy and is an
acknowledgment of our continued confidence in the Group's businesses.
I have been delighted to welcome to the Board both Mor Weizer and Guy Emodi as
Group CEO and CFO respectively. Mor is a qualified chartered accountant and was
a senior operational manager within Playtech for approximately two years prior
to joining the Board. His experience in managing customer relations, product
delivery and technical support as Chief Executive Officer of Techplay Marketing
Ltd, a Playtech subsidiary, provides the ideal grounding as the Group's Chief
Executive Officer. Guy has more than 18 years of experience in international
finance and brings a wealth of skills and expertise in his core competence of
financial management of large companies. They both have much to offer Playtech.
I would also like to thank Avigur Zmora, who stepped down from his roles as CEO
and more latterly as Executive Vice Chairman to become a Non-executive Director
of the Company, for his invaluable contribution to the success of the Group.
Avigur has adopted a senior consultancy role and will continue to work closely
with management with a particular focus on strategic matters.
In summary, Playtech has enjoyed an excellent year of progress. The business is
still at a formative stage and its aspirations are a long way in front of where
the Group is now. There are new geographic markets to penetrate, new products
to launch, existing and new licensees to migrate and if appropriate,
acquisitions to make. As a result, the Board is highly confident of its
performance for 2008 and beyond.
Roger Withers
Chairman
Chief Executive Officer's Report
Introduction
I am delighted to introduce my maiden set of preliminary results as CEO and
report on another excellent year for Playtech. The Group made strong financial
progress, again recording record levels of revenue and operating profit. The
successful performance of 2007 includes a few major milestones. The first was
when Playtech's iPoker network became the world's largest independent online
poker network. The second was achieved in September, when the Group's monthly
revenues exceeded those reached prior to the withdrawal of the Group's licensees
from the US market, which reduced, at that time, our monthly revenues by
approximately half. The third was the addition of seven new licensees signed
last year bringing the number of new licensees during 2007 to fifteen. This is a
clear demonstration of the robustness and flexibility of Playtech's business
model and the figures presented are a credit to the management team and all
those who work for the Group.
The licensees withdrawal from the US market has forced them to seek new markets,
such new markets required enhanced offering of new languages and products.
Playtech has supplied these requirements within weeks and by that provided its
licensees with the superior software they needed to establish market leading
position in most countries. In addition, many countries are considering or
already in the process of regulating online gaming and Playtech is well
positioned to crystallise the opportunity taken its robust platform and
products, leading to further growth in 2008 and beyond.
Review of Operations
The 2007 results show excellent growth over the previous year from all our
divisions. Revenues have grown to US$103.6 million (2006:$55.6 million excluding
US revenues of $34.5 million), adjusted** net profit before taxation was up to
US$70.0 million and basic adjusted** earnings per share was 32 cents (2006:32
cents) which is the indicator to the groups core activity. Cash reserves remain
very healthy at US$86.5 million at 31 December 2007 (2006: US$101.4 million).
The Group's business model continued to support a high conversion ratio of cash
from operating profit before non cash items of 95%. In 2007 Playtech's casino
revenues increased by 58% (ex-US) and its poker revenues increased by 269%
(ex-US). In 2007, 71% of Playtech's player base came from Europe, 21% from Asia
and 8% from the rest of the world. The exceptional strong growth in Europe is
attributed to the organic growth of our existing licensees and the gaining of
new licensees targeting the European market, notably those poker licensees who
were formally on the Tribeca poker network and migrated to Playtech's poker
network when Playtech acquired the Tribeca poker networks non US assets.
One of the major highlights of 2007 was the successful completion of the
migration and integration of the non US assets of the Tribeca poker network to
the iPoker network. This migration gave Playtech a significantly increased
liquidity base and further strengthened Playtech's position as the leading
software provider to the online gaming industry. As a result, the Group is now
in the enviable position of providing the largest poker network in the world*.
The iPoker network continues to attract quality online poker operators who value
a strong network supported by our cutting edge software. In December the iPoker
network held the European Championship of Online Poker ("ECOOP") which saw over
44,000 players participating for an aggregate of $2.85 million in prize money.
Following the success of the first ECOOP tournament, further tournaments are
planned for this year including a second ECOOP tournament with an aggregate of
more than $3.5 million in prize money.
The year also saw a significant strengthening of the development team through
the retention of more than 100 former Tribeca employees in India and the P
hilippines, as well as the management team, which was necessary to oversee the
expansion of the Group's enlarged operations.
The recently completed Bulgarian development centre and the acquisition of the
Indian and Philippines development operations as part of the Tribeca transaction
means that the Group is now a truly multinational organisation, with
subsidiaries in Asia and Europe. In all, the Group employs approximately 650
valued personnel. A key element of our success is the ability to offer existing
and potential licensees market-leading research, development and production
capabilities which allow them to achieve their strong organic growth, penetrate
new markets rapidly and successfully launch new products. I am confident that
our growing investment in research and development will help Playtech maintain
its leading position.
The Group's land based division, Videobet, gradually expands its operations and
line of products. A major milestone for the division was the completion of its
server supported application which allows an operator to operate gaming machines
on a stand alone basis and convert it to server based according to legislation
and operational requirements, using the same platform. This has enabled
Videobet to enter into several Memoranda of Understanding with operators in the
rapidly expanding South American and Eastern European markets. A significant
milestone was achieved when Videobet entered into a joint venture agreement
with Unicum in January 2008. This joint venture will allow Videobet's software
to be utilised in at least 500 stand alone gaming machines located in the
Ukraine.
Investment into strategic relationships
We have strategic stakes in two of our licensees, CY Foundation Group Limited
("Foundation") and AsianLogic Limited, ("AsianLogic"). The Group invested
US$10.2 million into Foundation, which as at 31 December 2007 was worth $18.9
million based on the closing share price of Foundation shares on the Hong Kong
stock Exchange. This resulted in an unrealised economic benefit of
approximately $8.7 million). The IFRS rules require the fair value of the
Group's benefit in excess of cost to be treated as deferred revenue and spread
over the term of the software licence agreement. Any change in the share price
from the time of investment is accounted for as a revenue item. Due to the
change in the Foundation share price since the time of our investment, this has
resulted in a non-cash loss for 2007 in this investment of $18.3 million while
the deferred revenues are $27.6 million. The Group remains committed to its
relationship with Foundation and views them as a key partner in Playtech's
continuing expansion into the rapidly expanding Asian and China gaming markets.
Playtech, as the key supplier to AsianLogic, was given an opportunity to
participate in its IPO and it was allocated additional shares as part of the
renewal of the licence agreement. Accordingly its total cash investment
AsianLogic was 5.0 million which on 31 December 2007 was worth 15.9 million
based on the closing share price of AsianLogic shares on the London Stock
Exchange. This has resulted in an unrealised economic gain of US$10.9 million.
We look forward to sharing in AsianLogic's success in the Asian market.
Development
During 2007 the Group continued to place considerable resources into enhancing
its product portfolio. The Casino product remains Playtech's flagship offering
and it continues to show impressive growth. The Group is continuing to invest
in its poker product as it has rapidly become a significant contributor to
Playtech's growth. During the year we also completed the development of an
updated version of the downloadable Bingo product and a new Bingo flash version.
Our mobile product was launched with one of our licensees during the year and we
are committed to offering our licensees multiple distribution channels.
The development of products which are tailored towards specific markets is a key
component of our geographical diversification strategy. During the first half
of 2007, the Group focused on converting the majority of its downloadable casino
games into flash technology and introduced flash version of our bingo product,
which is the preferred format in Europe and the UK sportsbook market in
particular. In addition, we completed the upgrade of the live gaming software,
a key offering for the Asian market. We also focused on the development of
Asian P2P games, the first of which we expect to launch at the end of the first
quarter of 2008.
We also continued to upgrade the Playtech back end system, which is the
cornerstone of Playtech's software offering. This unified system contains the
tools and features which enable our licensees to offer multiple products on
different platforms and monitor all activity from a single interface in real
time. Furthermore, Playtech is one of the few providers which is able to offer
licensees the full range of gaming and management products and its backend is
considered to be the best in the industry. This benefit was clearly
demonstrated when the migrated poker licensees from Tribeca were able to offer
casino side games on the online poker room software which has significantly
enhanced the revenues that the licensees are able to generate.
The Group maintains a strong pipeline of additional games and products. The
Group has accelerated the development of new games and we expect to release a
large number of new games, including a variety of slot, table and card games and
additional Asian P2P games, in the coming year to support the efforts of our
licensees in their various markets. In addition, the Group continues with the
development of new products and we expect to release flash poker technology in
the second quarter of 2008 and the Mahjong product in the fourth quarter of
2008.
Regulatory Environment
The Board considers it prudent to monitor and be familiar with the regulatory
environment in which the Group operates. Accordingly our in-house Legal and
Regulatory Department undertakes this on a regular basis and from time to time
and where necessary we also seek external legal advice from leading experts in
the industry
Contract Wins
Throughout 2007, the Group continued to win new licensees, with fifteen new
licensees joining the stable. Eight of these were the Tribeca migrated poker
licensees who are now firmly established on the iPoker network. All of these
licensees are operators which cater to the European and Asian markets and this
is therefore in line with the Group's geographical diversification strategy. The
successful migration of the Tribeca poker licensees also led to Bet365, an
existing casino software licensee, choosing to move its poker offering to the
iPoker network. The Group continued to develop opportunities in the Asian
market, with the signing in 2007 of two new Asian-facing licensees, the first of
which was Foundation, which I have already mentioned and the second of which is
one of the largest Asian facing online gaming operators.
The Group will continue to seek to attract high quality licensees with an
established customer base and track record whilst developing new technology
platforms and aiming to be at the forefront of industry standards.
Strategy
We will continue with our previous stated strategy of cross selling to existing
licensees, new and existing products and acquiring new licensees in strategic
geographic markets with a particular emphasis on regulated markets. I believe
that regulation will be the avenue that many governments will take in relation
to the online gaming industry and Playtech, as a public company, is ideally
placed to take advantage of the opportunities that will present itself as such
markets are established.
Using our strong cash position, if appropriate, we will also look at the
acquisition of complementary businesses. The successful completion of the
Tribeca acquisition and integration of Tribeca's Indian and Philippine
development centres demonstrated our ability to complete and integrate deals of
this type and scale. Importantly, the Group will continue to actively seek
further earnings-enhancing acquisitions.
Current Trading and Outlook
This year has started strongly with average daily royalties in January 2008
showing 11.7% growth over the average in the fourth quarter of 2007 (total
revenues are up 14.4%), the momentum continued in February. The Group has
already signed 6 new licensees in line with its strategy to diversify
geographically, focus on regulated markets and migrate licensees from
competitors. As a market leading software provider to the industry, we are
constantly receiving enquiries from well established online and land based
operators in the industry. Accordingly the Group has a strong pipeline of
potential additional licensees.
The Group will continue to support the organic growth of our existing licensees
through new products and new games that are in development or will be developed
during this year. Such development will be in line with our licensees' efforts
to penetrate new markets. New products assist our existing licensees to grow
further and also attract additional licensees. We intend to launch the new Asian
P2P games, which are extremely popular in the Asian market, by the end of the
first quarter of 2008.
Our aim in 2008 is to further enhance Playtech's market leading position with a
focus on regulated markets. In January 2008, one of Playtech's key licensees
in Asia, AsianLogic Limited announced a deal with Philweb, the official licensed
provider of online games in the Philippines, which will utilise Playtech's
software. The Group has also made significant progress in signing MOUs and
agreements with companies located in regulated markets.
It would be remiss of me not to pay tribute to the outstanding contribution made
by our employees during the year ended 31 December 2007. The work they
undertook to ensure the success of the Tribeca acquisition was a testament to
their dedication and talent. Our people are the lifeblood of the Group and the
Board of Directors is committed to continually investing in their growth and
development. On behalf of the Board, I would like to extend my sincere thanks to
all our employees for their tremendous efforts during 2007 and I look forward
to 2008 with great confidence.
Mor Weizer
Chief Executive Officer
Financial and Operational Review
I am pleased to announce Playtech's financial results for the year ended 31
December 2007. It was another successful year of growth for the Group
demonstrating the strong diversified business model. The Group's revenue
expansion in 2007 was principally due to three factors. The first was the
organic growth of our existing licensees. The second the completion of the
migration and integration of the former non-US Tribeca Tables licensees onto
Playtech's iPoker platform, resulting in the network assuming the position of
the world's largest independent online poker network. The third was the addition
of seven further licensees onto Playtech's platform during the year.
For ease of comparison all 2006 revenues exclude contributions from the US from
where the Company's licensees withdrew more than a year ago.
Total revenues for the year were $103.6 million which represented an increase of
86% on the $55.6 million achieved in 2006. Casino revenues for the year
totalled $74.7 million, an increase of 58% from $47.3 million in the previous
year. Poker revenues for the year totalled $27.4 million, an increase of 269%
from the $7.4million in 2006.
Revenues for the fourth quarter of 2007 grew strongly with a 22% rise compared
to the third quarter of 2007 and 101% increase compared to the fourth quarter of
2006. Both casino and poker revenues grew strongly, 20% and 26% respectively
compared to the previous quarter and 72% and 265% respectively compared to the
same quarter in 2006.
The net profit includes various significant non cash charges relating to both
the investment in CY Foundation Group Limited and AsianLogic Limited and also
the acquisition of the assets of Tribeca, the employee stock option plan and the
founder's one-off cash contribution to employees in 2006. These are detailed as
below:
2007 2006
US$000 US$000
Profit after tax 41,507 60,414
Tax 834 345
Profit before tax 42,341 60,759
Charge related to founder's cash contribution to employees - 6,566
Loss on disposal of available for sale investment in CY Foundation 654 -
Decline in fair value of available for sale investment in CY Foundation 18,269 -
Impairment of software on acquisition of Tribeca 275 -
Amortisation of customer list on acquisition of Tribeca 4,233 -
Discounting of deferred consideration of Tribeca acquisition 1,619 -
Employee stock option expenses 2,645 703
Adjusted net profit before taxation 70,036 68,028
Adjusted net profit after tax 69,202 67,683
Adjusted EPS (cents US) 32 32
Investment in CY Foundation Group Limited
During 2007 the Group entered into a 10 year software licence agreement with CY
Foundation Group Limited ("Foundation"), which during March 2007 re-listed on
the Hong Kong Stock Exchange at a price of HK$1.28. The fair value of the shares
and convertible notes in Foundation as at 31 December 2007, based on the
closing price of Foundation shares on the Hong Kong Stock Exchange (HK$0.65)
was $18.9 million. The total cash paid by the Group for the shares and notes in
Foundation was $10.2 million. As such the economic unrealised gain on 31
December 2007 was $8.7 million. The accounting treatment of this transaction
takes into account the fact that the shares were acquired in connection with the
software licence agreement.
As a result of such accounting treatment, the Group was required to evaluate the
benefit arising from the above shareholdings and record such benefit in its
financial reports as deferred revenues. The Group evaluated such benefit as
$27.6 million. Once royalty revenues commence under the Foundation software
license agreement, the deferred revenues will be realised as income over the
term of the licence agreement.
As previously mentioned, the closing price of Foundation shares on 31 December
2007 was HK$0.65, resulting in a decrease in value of the investment in
Foundation and a non-cash charge of $18.3 million, which was accounted for in
the Group's income statement.
Investment in AsianLogic
In December 2007, the Group entered into share purchase agreement to acquire
shares of AsianLogic Limited ("ALL") for a total consideration of $5 million.
Following the completion of such agreement, ALL was admitted to the AIM market,
and entered into a new 5 year term licence agreement. In connection with such
licence agreement, the Group also received additional shares in ESL, which was
subsequently replaced with shares in ALL. The market value of the investment as
at 31 December 2007 amounted to $15.9 million presenting an economical
unrealised gain of $10.9 million. The accounting treatment of this transaction
takes into account the fact that the shares were acquired in connection with
the software licence agreement, and considered the transaction as an available
for sale investment.
As a result of such accounting treatment, the Group was required to evaluate
the benefit arising from the above shareholdings and recorded such benefit in
its financial reports as deferred revenues. The Group evaluated such benefit as
$10.6 million. The deferred revenues are recognized as income over the term of
the licence agreement.
The closing price of ALL shares on 31 December 2007 was ?1.12, resulting in a
decrease in value of the investment in Foundation of $0.3 million and, which was
accounted for as capital fund.
Acquisition of non-US assets of Tribeca Tables Europe
In November 2006, the Group signed an asset purchase agreement with Tribeca
Tables Europe Limited ("Tribeca") in respect of certain non US assets for a
consideration calculated according to a formula based on the future earnings of
the acquired assets. The final consideration payable is $59,750,000.
The intangible assets purchased in the framework of the acquisition are being
amortized over their estimated useful lives of 8 years. The amortisation charge
for 2007 totalled $4.2 million. The directors have also reassessed the fair
value of the assets acquired based on their present use and as a result the
software which was valued at $275,000 on acquisition has been charged to the
income statement as an impairment.
The payment of the consideration to Tribeca is by way of cash in four
instalments, and has been discounted back to present values resulting in a
finance cost charge of $1.6 million. Two instalments have been paid during
2007 ($26.8 million) and the remaining two instalments will be paid during 2008.
The total balance to be paid in 2008 is $32.95 million.
Net profit before tax and adjusted net profit before taxation
Net profit before taxation, following the recognition of the significant non
cash charges of $27.1 million (2006: $7.3 million) was $42.3 million, compared
to $60.8 in 2006. This has resulted in the earnings per share ("EPS") for the
year, based on the weighted average number of shares, of 19 cents, compared to
29 cents per share in 2006. The fully diluted EPS for 2007 was 18 cents
compared to 28 cents in 2006.
Adjusted net profit before taxation for 2007 (net of the mentioned above
significant non cash items relating to both the investment in CY Foundation
Group Limited and AsianLogic Limited and also the acquisition of the assets of
Tribeca and the employee stock option plan as detailed in the table above) was
$70.0 million (2006: $68.0 million), an increase of 3.0% over 2006 which also
included revenues derived from US activity. The adjusted EPS for the year, based
on the weighted average number of shares is 32 cents, which was the same as in
2006. The fully diluted adjusted EPS for 2007 was 31 cents which was also the
same as in 2006.
Dividend
The Board has recommended a final dividend of 9.9 US cents per share, totalling
approximately $21.48 million. Once approved and paid, this will result in
shareholders receiving an aggregate dividend for the 2007 year of 16.0 cents per
share or approximately $34.60 million which is an amount of 50% of the adjusted
net profit (as previously described).
The Company paid dividends in respect of the 2006 year in the amount of
approximately $33.5 million or approximately 15.7 cents per share.
Cost of Operations
Playtech's successful recovery from the withdrawal of its licensees from the US
market in October 2006 was due to the huge investment made into the business as
a result of the increased focus on European and Asian markets, where licensees
require multiple languages, currencies and different products. As a result, the
Group incurred increased costs in relation to penetrating new markets,
developing new products, improving existing products, and searching for
additional strategic acquisitions and joint ventures. While this has resulted in
increased operating, sales and marketing, development and general and
administration costs, the Board believes that this is a sound investment to gain
an increasing foothold in one of the world's most active gaming markets. The
migration of the Tribeca Tables licensees onto Playtech's platform contributed
significantly to its success in 2007. As expected, this has resulted in an
increase in the number of employees in the Group to approximately 650, which
included two new development and operating centres located in India and the
Philippines. Additionally there was further recruitment by our Estonian
operation and the new Bulgarian subsidiary.
Operating expenses excluding significant non cash charges of $27.7 million
(2006: $7.3 million) were $15.5 million, representing an increase of 71% over
2006.
Sales and Marketing expenses were $12.9 million, representing an increase of 47%
on 2006.
Development costs increased by 78% from the previous year, to $2.7 million.
These costs are associated with investment in the improvement of existing
products. The cost of new products are capitalised and amortised as part of the
operating expenses when they are launched. The total capitalized costs in 2007
were $3.6 million.
General and administrative expenses, excluding exceptional items were $7.4
million, an increase of 18% over 2006.
Financial Income and Taxation
Cash is generally held in short-term deposits. Such deposits generated a
financial income of $5 million in 2007.
Only the Bulgarian and Israeli subsidiaries incurred taxable income. Total
tax charges in 2007 amounted to $0.8 million, representing 1.2% effective tax
rate of the adjusted net profit before taxation. The majority of profits arise
in the British Virgin Islands where no tax in assessed.
Balance Sheet
Cash and cash equivalents as at 31 December 2007 amounted to $86.5 million,
representing 42% of the Group's balance sheet (2006: 87%).
The majority of trade receivables balance as at 31 December 2007 is due to
amounts payable by licensees for the month of December 2007.
Intangible assets totalling $61.4 million as at 31 December 2007 mainly consist
of the Tribeca customer list, goodwill, patent and intellectual property rights
and development costs of products such as the iPoker platform, mobile platform,
and the Videobet product. The development of Mahjong and other Asian games is
also included under this section.
Available for sale investments totalling $34.8 million are due to the equity
investments in both Foundation and AsianLogic. The cash costs of these
investments are $15.25 million. Following the accounting treatment of those
investments, deferred revenues amounting to $39.6 million are recorded under
current liabilities and are to be recognized over the term of the relevant
license agreement.
Other accounts payable totalling $34 million as at 31 December 2007 mainly
consist of the Tribeca deferred consideration which will be fully settled by
the end of 2008.
Cash Flow
In 2007, the Group generated cash of $62.6 million from operating activities
which is a conversion of 95% of the Group's operating profit before the above
mentioned non cash charges. This high cash conversion rate demonstrates the
strength of the Group's business model. The Group's cash usage in investing
activities was $55.2 million (2006: $6.5 million), which was mainly accounted
for from the Tribeca asset deal ($27.5 million), the available for sale
investments ($19 million), capitalised development costs ($3.6 million) and the
acquisition of fixed assets ($2.6 million).
Guy Emodi
Chief Financial Officer
*Source: www.pokerscout.com
** See reconciliation below of adjusted net profit before taxation
Playtech Limited
Directors' statement of responsibilities
The directors have elected to prepare the financial statements for the Group in
accordance with International Financial Reporting Standards (IFRSs) as adopted
by the European Union.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Group, for safeguarding the assets and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
International Accounting Standard 1 requires that financial statements present
fairly for each financial year the Group's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's 'Framework
for the preparation and presentation of financial statements'. In virtually all
circumstances, a fair presentation will be achieved by compliance with all
applicable International Financial Reporting Standards. A fair presentation also
requires the directors to:
• select and apply appropriate accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information; and
• provide additional disclosures when compliance with the specific
requirements in IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity's financial position and financial performance.
All of the current Directors have taken all the steps that they ought to have
taken to make themselves aware to any information needed by the Group's auditors
for the purposes of their audit and to establish that the auditors are aware of
that information. The Directors are not aware of any relevant audit information
of which the auditors are unaware.
The financial statements are published on the Group's website. The maintenance
and integrity of the Group's website is the responsibility of the Directors. The
Directors' responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Report of the Independent Auditors to The Directors of Playtech Limited
We have audited the consolidated financial statements (the ''financial
statements'') of Playtech Limited for the year ended 31 December 2007 which
comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the
Consolidated Cash Flow Statement, the Consolidated Statement of Changes in
Equity and the related notes. These financial statements have been prepared
under the accounting policies set out therein.
Respective responsibilities of directors and auditors
The directors' responsibilities for preparing the Annual Report and the
financial statements in accordance with applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union are set
out in the Statement of Directors' Responsibilities.
Our responsibility is to audit the financial statements in accordance with
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the information given in the Directors' Report is
consistent with those financial statements. We also report to you if, in our
opinion, the company has not kept proper accounting records, or if we have not
received all the information and explanations we require for our audit.
We read other information contained in the Annual Report and consider whether it
is consistent with the audited financial statements. The other information
comprises only the Directors' Report, the Directors' Remuneration Report, the
Chairman's report, the Chief Executive Officer's report, the Financial and
Operational Review and the Corporate Governance section. We consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements. Our responsibilities do
not extend to any other information.
Our report has been prepared pursuant to the terms of our engagement and for no
other purpose. No person is entitled to rely on this report unless such a person
is a person entitled to rely upon this report by virtue of and for the purpose
of the terms of our engagement or has been expressly authorised to do so by our
prior written consent. Save as above, we do not accept responsibility for this
report to any other person or for any other purpose and we hereby expressly
disclaim any and all such liability.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgments made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion:
• The financial statements give a true and fair view, in accordance with
IFRSs as adopted by the European Union, of the state of the Group's affairs
as at 31 December 2007 and of its profit for the year then ended; and
• The information given in the Directors' report is consistent with the
financial statements.
Emphasis of matter - regulatory issues
In forming our opinion on the financial statements, which is not qualified, we
have considered the adequacy of the disclosures made in the financial statements
concerning the uncertainty of the actions, if any, that certain regulatory
authorities may take. Further information is set out in note 23a, which states
that the Directors consider that no provision is necessary in respect of this
matter.
BDO Stoy Hayward LLP
Chartered Accountants
55 Baker Street, London W1U 7EU
United Kingdom
3 March 2008
CONSOLIDATED INCOME STATEMENT
For the year ended
31 December,
2007 2006
Note US$000 US$000
Revenues 4 103,604 90,078
Operating expenses (21,171) (9,247)
Sales & marketing expenses (13,902) (8,941)
Development costs (2,905) (1,567)
Administrative expenses (26,523) (13,101)
(64,501) (32,856)
Operating profit before the 66,250 65,097
following items:
Charge related to founders' cash 9 - (6,566)
contributions to employees
Employee stock option expense 9 (2,645) (703)
Amortization of intangible assets 11 (5,304) (606)
Impairment of software on 12 (275) -
acquisition
Decline in fair value of 16 (18,269) -
available for sale investment
Loss on disposal of available for 16 (654) -
sale investment
Total (27,147) (7,875)
Operating profit 5 39,103 57,222
Financing income 6 4,988 3,638
Financing cost - discounting of (1,619) -
deferred consideration
Financing cost - other (131) (101)
Total financing cost 6 (1,750) (101)
Profit before taxation 42,341 60,759
Tax expense 7 (834) (345)
Profit for the year attributable 41,507 60,414
to the equity holders of the
parent
Earnings per share (in Cents) 8
Basic 19 29
Diluted 18 28
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Employee
stock
Share Additional Available options Retained
capital paid in for sale reserve earnings Total
capital reserve
US$000 US$000 US$000 US$000 US$000 US$000
For the year ended 31
December, 2006
Balance at 1 January 2006
Changes in equity for the year 10 100 - 22 19,587 19,719
Profit for the year - - - - 60,414 60,414
Total recognized income and
expense for the year - - - - 60,414 60,414
Dividend paid - - - - (39,500) (39,500)
Initial Public Offering proceeds - 59,862 - - - 59,862
Share issue costs - (4,335) - - 664 (3,671)
Cancellation of issued shares (10) 10 - - - -
Founders' cash contribution
to employees - - - - 6,566 6,566
Exercise of options - 733 - - - 733
Employee stock option scheme - - - 703 - 703
Balance at 31 December 2006 - 56,370 - 725 47,731 104,826
Changes in equity for the
year ended 31 December, 2007
Profit for the year - - - - 41,507 41,507
Total recognized income and
expense for the year - - - - 41,507 41,507
Dividend paid - - - - (28,125) (28,125)
Adjustments for change in
fair value of available for
sale investments (note 16) - - 309 - - 309
Exercise of options - 5,266 - - - 5,266
Employee stock option scheme - - - 2,645 - 2,645
Balance at 31 December 2007 - 61,636 309 3,370 61,113 126,428
CONSOLIDATED BALANCE SHEET
As of 31 December,
2007 2006
Note US$000 US$000
NON-CURRENT ASSETS
Property, plant and equipment 10 5,095 3,015
Intangible assets 11 61,355 4,355
Other non-current assets 405 127
66,855 7,497
CURRENT ASSETS
Trade receivables 13 12,501 6,257
Other receivables 14 5,617 1,280
Available for sale investments 16 34,846 -
Cash and cash equivalents 17 86,491 101,403
139,455 108,940
TOTAL ASSETS 206,310 116,437
EQUITY AND LIABILITIES
Additional paid in capital 18 61,636 56,370
Available for sale reserve 16 309 -
Employee stock option reserve 9 3,370 725
Retained earnings 61,113 47,731
Equity attributable to equity holders of the parent 126,428 104,826
NON-CURRENT LIABILITIES
Other non-current liabilities 104 46
CURRENT LIABILITIES
Trade payables 19 5,260 5,667
Tax 911 397
Deferred revenues 16 39,631 2,818
Other accounts payables 20 33,976 2,683
79,778 11,565
TOTAL EQUITY AND LIABILITIES 206,310 116,437
The financial statements were approved by the board and authorized for issue on
4 March, 2008
Mor Weizer Guy Emodi
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended
31 December
2007 2006
Note US$000 US$000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax 42,341 60,759
Tax (834) (345)
Adjustments to reconcile net income to net cash
provided by operating activities (see below) 21,089 12,213
Net cash provided by operating activities 62,596 72,627
CASH FLOWS FROM INVESTING ACTIVITIES
Long term deposits (278) (135)
Acquisition of property, plant and equipment (2,620) (2,747)
Proceeds from sale of equipment 35 -
Acquisition of intangible assets (1,674) (1,738)
Acquisition of business 11 (27,539) -
Investment in available for sale equity
shareholding 16 (18,989) -
Capitalized development costs 16 3,584) (1,835)
Net cash used in investing activities (54,649) (6,455)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (28,125) (39,705)
Initial Public Offering proceeds - 59,862
Exercise of options 5,266 733
Share issue costs - (3,671)
Others - 17
Net cash (used in) provided by financing
activities (22,859) 17,236
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,912) 83,408
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 101,403 17,995
CASH AND CASH EQUIVALENTS AT END OF YEAR 86,491 101,403
For the year ended
31 December
2007 2006
Note US$000 US$000
ADJUSTMENT TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Income and expenses not affecting operating cash
flows:
Depreciation 10 1,667 666
Amortization 11 5,304 606
Impairment loss 12 275 -
Decline in fair value of available for sale
investment 16a 18,269 -
Loss on disposal on available for sale investment 16a 654 -
Founders' cash contribution to employees - 6,566
Employee stock option plan expenses 9 2,645 703
Finance income (3,238) (3,537)
Others 52 18
Changes in operating assets and liabilities:
Increase in trade receivables (6,244) (2,068)
Decrease in other receivables 2,651 2,594
(Decrease) Increase in trade payables (623) 4,785
Increase in other payables 1,084 3,745
Decrease in deferred revenues (1,407) (1,865)
21,089 12,213
NON-CASH TRANSACTIONS
For the year ended 31
December
2007 2006
Note US$000 US$000
Intangible assets (30,752) -
Other payables- deferred consideration 20 30,723 -
Trade payables 215 -
Investments 16 (34,779) -
Property, plant and equipment- accrued costs (186) -
Trade receivables- deferred payment 16 (3,750) -
Deferred revenues 16 38,220 -
Available for sale reserve 16 309 -
NOTE 1 - GENERAL
Playtech Limited (the "Company") was incorporated in the British Virgin Islands
on 12 September, 2002 as an offshore company with limited liability.
Playtech and its subsidiaries (the "Group") develop unified software platforms
for the online and land based gambling industry, targeting online and land based
operators. Playtech's gaming applications - online casino, poker and other P2P
games, bingo, mobile, live gaming, land-based kiosk networks, land based
terminal and fixed-odds games - are fully inter-compatible and can be freely
incorporated as stand-alone applications, accessed and funded by the operators'
players through the same user account and managed by the operator by means of a
single powerful management interface.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed in the preparation of the financial
statements, on a consistent basis, are:
A. Accounting principles
These financial statements have been prepared in accordance with International
Financial Reporting Standards, International Accounting standards and
interpretations (collectively IFRS) issued by the International Accounting
Standards Board (IASB) as adopted by the European Union ("adopted IFRSs"). In
the current year the Group has adopted all of the new and revised standards and
interpretations issued by the IASB and the International Financial Reporting
Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the
European Union, that are relevant to its operations and effective for accounting
periods beginning on 1 January 2007. The adoption of the following new and
revised standards and interpretations had not resulted in any significant
changes to the Group's accounting policies nor have they had a material effect
on the amounts reported for the current or prior years.
Changes in accounting policies
IFRS 7, Financial Instruments: disclosures and a complementary amendment to IAS
1, Presentation of Financial Statements - capital disclosures (effective for
accounting periods beginning on or after 1 January 2007). IFRS 7 introduces new
requirements aimed at improving the disclosure of information about financial
instruments. It requires the disclosure of qualitative and quantitative
information about exposure to risks arising from financial instruments,
including specified minimum disclosures about credit risk, liquidity risk and
market risk. Where those risks are deemed to be material to the Group it
requires disclosures based on the information used by key management. It
replaces the disclosure requirements in IAS 32 'Financial Instruments:
disclosure and presentation'. The amendment to IAS 1 introduces disclosures
about the level and management of an entity's capital. The Group has applied
IFRS 7 and the amendment to IAS 1 to the financial statements for the period
beginning on 1 January 2007.
IFRIC 8, Scope of IFRS 2 (effective for accounting periods beginning on or after
1 May 2006). IFRIC 8 requires consideration of transactions involving the issue
or grant of equity instruments to establish whether or not they fall within the
scope of IFRS 2. It applies to situations where the identifiable consideration
received is or appears to be less than the fair value of the equity instruments
issued. There was no impact on the Group's financial statements from its
adoption.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Cont.)
IFRIC 9, Reassessment of embedded derivatives (effective for accounting periods
beginning on or after 1 June 2006). IFRIC 9 requires an assessment of whether an
embedded derivative is required to be separated from the host contract and
accounted for as a derivative when an entity becomes a party to the contract.
Subsequent reassessment is prohibited unless there is a change in the terms of
the contract that significantly modifies the cash flows that otherwise would be
required under the contract, in which case reassessment is required. There was
no impact on the Group's financial statements from its adoption.
IFRIC 10, Interim Financial Reporting and Impairment (effective for accounting
periods beginning on or after 1 November 2006). IFRIC 10 prohibits impairment
losses recognized in an interim period on goodwill and investments in equity
instruments and on financial assets carried at cost to be reversed at a
subsequent balance sheet date. There was no impact on the Group's financial
statements from its adoption.
Standards, amendments and interpretations not yet effected
The following standards, amendments and interpretations to published standards
are mandatory for accounting periods beginning on or after 1 January 2007 but
are currently not relevant to the Group's operations:
IFRIC 7, Applying the restatement approach under IAS 29, Financial Reporting in
Hyperinflationary Economies (effective for accounting periods beginning on or
after 1 March 2006). IFRIC 7 is not relevant to the Group as none of the Group
companies has a currency of a hyperinflationary economy as its functional
currency.
Certain new standards, amendments and interpretations to existing standards have
been published that are mandatory for the Group's accounting periods beginning
on or after 1 January 2008 or later periods and which the Group has decided not
to adopt early. These are:
IFRS 8, Operating Segments (effective for accounting periods beginning on or
after 1 January 2009). This standard sets out requirements for the disclosure of
information about an entity's operating segments and also about the entity's
products and services, the geographical areas in which it operates, and its
major customers. It replaces IAS 14, Segmental Reporting. As this is a
disclosure standard it does not have any impact on the results or net assets of
the Group.
IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on
or after 1 January 2009). The revised IAS 23 is still to be endorsed by the EU.
The main change from the previous version is the removal of the option of
immediately recognising as an expense borrowing costs that relate to qualifying
assets, broadly being assets that take a substantial period of time to get ready
for use or sale. Management is currently assessing its impact on the financial
statements.
IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for
accounting periods
beginning on or after 1 March 2007). IFRIC 11 requires share-based payment
transactions in which an entity receives services as consideration for its own
equity instruments to be accounted for as equity settled. This applies
regardless of whether the entity chooses or is required to buy those equity
instruments from another party to satisfy its obligations to its employees under
the share-based payment arrangement. It also applies regardless of whether: (a)
the employee's rights to the entity's equity instruments were granted by the
entity itself or by its shareholder(s); or (b) the share-based payment
arrangement was settled by the entity itself or by its shareholder(s).
Management is currently assessing the impact of IFRIC 11 on the financial
statements.
IFRIC 12, Service Concession Arrangements (effective for accounting periods
beginning on or after 1 January 2008). IFRIC 12 is still to be endorsed by the
EU. IFRIC 12 gives guidance on the accounting by operators for public-to-private
service concession arrangements. IFRIC 12 is not relevant to the Grou
