Interim Results for the Six Months Ended 30 June 2007
Interim Results for the Six Months Ended 30 June 2007
Financial Highlights*
• Total Revenues up by 80% to $44.0 million (2006 - $24.5 million)
Casino revenues up by 53% to $32.6 million (2006 - $21.3 million)
Poker revenues up by 275% to $10.5 million (2006 - $2.8 million)
• Current monthly royalty run rate now back to pre-October 2006 peak levels
• EBITDA (earnings before interest, tax, depreciation and amortisation), up by 2% to US$30.7 million (2006 - $30.2 million including US revenues)
• Basic EPS of 13.5 cents (2006 - 14.7 cents including US revenues)
• Interim dividend of 6.1 cents per share equating to approximately US$13 million to be paid on 19 October 2006.
*Unless otherwise stated revenue numbers are excluding US. (See reconciliation table included in financial review section below)
Operational Highlights
• Acquired Tribeca assets fully integrated making Playtech the world's largest independent online poker network (www.pokersitescout.com)
• 12 new licensees added (8 migrated from Tribeca) catering to European and
Asian markets
• New Indian and Philippines development centres now successfully integrated and new Bulgarian subsidiary is operating well
• Strong pipeline of new products aimed specifically at Asian and European markets
• Further investment in development, and pre and post sale resources bringing the total number of Playtech employees to over 550
• Land-based subsidiary Videobet expanding potential market through the introduction of unique switchable technology encompassing both server based and stand alone machine technology
Mor Weizer, Chief Executive, commented:
"This has been another highly successful first half for Playtech and we continue to enhance our position as the world's leading software solution provider to the gaming industry. The Group has further strengthened its foothold through the development of its relationship with existing licensees and through gaining additional licensees, as well as developing products specifically aimed at the Asian markets. We are also focusing on cross selling opportunities to existing licensees through the addition of supplementary gaming products. Playtech has a very healthy pipeline of new business for the second half of the year and we look forward to making continuing strong progress."
For further information:
Mor Weizer, CEO, Playtech Ltd
c/o Bell Pottinger
Tel: 020 7861 3232
www.playtech.com
David Rydell / Peter Otero
Bell Pottinger Corporate & Financial
Tel. 020 786 3232
Chairman's Statement
It gives me great pleasure to present very strong interim results for Playtech Limited. The Group revenues for the period have barely been affected by the withdrawal of our licensees from the US market. In the six months under review the Group has made outstanding progress in all key areas of performance. Total
revenues (in 2006 excluding US) for the period increased 80% to $44.0 million with casino revenues increasing 53% to $32.6 million and poker revenues increasing 275% to $10.5 million, boosted by the migration of the Tribeca licensees onto Playtech's platform. This now makes Playtech the world's largest
independent online poker network.
The business has grown significantly in terms of revenues generated from existing licensees and, in addition, it has also won new, high quality clients. In the period, 12 new licensees have been added to the portfolio, strengthening Playtech's position as one of the world's leading software providers to the gaming industry.
It has been Playtech's long standing commitment to diversify its business portfolio, in terms of both geography and product, and I am pleased to report that excellent progress continues to be made in this area. The Group has seen further penetration into the exciting Asian markets through its agreement with
Foundation Group Ltd and potential new licensees. Software improvements aimed specifically at the Asian market, such as the revamped live gaming software and specific backend tools have been recently released and several P2P games are currently under pilot. Videobet, the Group's subsidiary for land-based products, continues to build momentum. Furthermore, the Group has successfully integrated
its new Indian and Philippines development centres and its Bulgarian subsidiary is operating successfully.
Playtech's total commitment to the constant development of new products and solutions for the dynamic gaming industry is reflected in its investment in development and technical support resources, bringing the total number of Playtech employees to over 550. Indeed the figures presented today are a credit to the Group's employees and management team and I thank them for their considerable efforts.
In summary, the Board is very pleased with Playtech's progress in the first half of this year and looks forward to a strong second half.
Roger Withers
Chairman
Chief Executive Officer's Report
I am pleased to announce a very successful first half performance for 2007. The Group has reacted decisively to the changed regulatory environment in which it now operates and has focused during the first half of the year on the integration of the acquired Tribeca assets. In addition it has continued to build its licensee portfolio in the European and Asian markets in line with the Group's geographical diversification strategy. As a result Playtech has become the world's largest independent poker network and has further consolidated its market leading position in the online gaming software industry as a whole. The Group continues to enjoy and take advantage of its market leading position.
Strategy
The Group's goal is to enhance its position as the world's leading software solution provider to the gaming industry. We will achieve this by providing market leading unified systems to our licensees and allowing them to target specific markets to take advantage of the various cross selling opportunities and through this, additional revenue generation. In the last six months Playtech's poker network has become the world's largest independent network. The Group, being one of the few software providers that is able to provide a full range of state of the art gaming and management products, continues to attract high quality licensees. In order to stay at the forefront of product development, the Group continues to put considerable resources into this area. In addition the Group is focusing on markets which are in the process of regulating certain forms of online gaming and we believe that such markets hold significant growth opportunities for the Group.
An example of this is our investment in Foundation Group, a group that holds a licence to offer P2P games for the emerging Chinese market, and with whom we now hold a ten year software licence agreement and an equity stake.
Product Development
During the first half of 2007, the Group successfully integrated its new development centres in India and the Philippines and has now firmly established its Bulgarian subsidiary, which together have significantly extended the Group's development capabilities. The addition of these development centres will greatly improve the time to market of Playtech's products and will allow the Group to further concentrate on the development of new games to support its future growth in diversified markets.
The Casino product remains Playtech's flagship offering and it continues to show impressive growth. The Group intends to further develop this product to comply with the needs of the various licensees throughout the world. During the first half of 2007, the Group focused on converting the majority of its downloadable
casino games into flash technology, which is the preferred format in certain European markets. As a result, our licensees have experienced strong growth during the period.
During the last six months, the Bulgarian centre completed the development of an updated version of the downloadable Bingo product and a new Bingo flash version. Both Bingo versions have been added by several licensees and have seen significant growth since their introduction.
The Group continues to make progress in the development of its land-based product through its subsidiary Videobet. During the second quarter of 2007, Videobet received a certificate of approval for Videobet's Random Number Generator (RNG) from Gaming Laboratories International (GLI), which will allow the company to offer its products in certain regulated markets. In the same period it has also introduced unique switchable technology allowing Videobet's stand-alone terminals to be upgraded to a full server-based configuration effortlessly and with no additional cost. This will enable the company to
introduce its technology in those markets where server based gaming is not yet approved or which are in the process of regulatory changes and offer the operator a very cost effective option to switch to Videobet's server based capabilities when regulations permit. Videobet is continuing to invest in expanding its games portfolio to accommodate the requirements of the European, Asian and South American land-based gaming markets.
Licensees
In the first six months of 2007, Playtech signed up a total of 12 new software licensees - eight of which migrated from Tribeca - a level which historically has only been achieved over the course of an entire year. 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. These licensees are an important addition to Playtech's future growth, both organically and through the cross selling opportunities to other gaming products. This has been clearly demonstrated by the cross selling of Playtech's additional casino side games to all the former Tribeca poker licensees and the addition of a complete online casino suite to one of the migrated licensees.
Outlook and Current Trading
Playtech has a very healthy pipeline of new business for the second half of the year consisting of both the release of new products to existing licensees and through the addition of new licensees, for which it is in various stages of negotiations with several European and Asian groups. The Group expects that it
will be in a position to launch a new Asian P2P network and to make a significant addition to its poker network in the near future. In addition, the Group is focusing on the cross selling opportunities to existing licensees through the addition of supplementary gaming products. The Group sees further progress in the introduction of regulation in various jurisdictions and expects that once such changes are made it will open up considerable opportunities for Playtech.
Financial Review
Total revenues in the period amounted to $44.0 million (2006: $46.2 million, including the US revenues). The decline in revenues is fully attributable to our licensees' withdrawal from the US market.
The following table analyses the revenues for 2007 and 2006:
| Poker | Casino | Total | |||||||
| 30 June | Change | 30 June | Change | 30 June | Change | ||||
| 2007 $M | 2006 $M | 2007 $M | 2006 $M | 2007 $M | 2006 $M | ||||
| Q1 non US | 4.2 | 1.2 | 257% | 15.2 | 9.4 | 62% | 19.8 | 10.7 | 85% |
| Q2 non US | 6.3 | 1.6 | 288% | 17.4 | 11.9 | 46% | 24.2 | 13.8 | 76% |
| Total non US | 10.5 | 2.8 | 275% | 32.6 | 21.3 | 53% | 44.0 | 24.5 | 80% |
| US revenues | - | 2.0 | - | - | 19.1 | - | - | 21.7 | |
| Total revenues | 10.5 | 4.8 | 119% | 32.6 | 40.4 | (19%) | 44.0 | 46.2 | (5%) |
Total revenues for the period were $44.0 million, which represents an increase of 80% on the $24.5 million (excluding US revenues) achieved in the same period last year. On the same basis, casino revenues for the period totalled $32.6 million, an increase of 53% from $21.3 million in 2006 and poker revenues for the period totalled $10.5 million, an increase of 275% from the $2.8 million in 2006. Total revenues include other income of $0.9 million (2006: $1.0 million).
During the second quarter of 2007, total revenues were $24.2 million, representing an increase of 22% on the $19.8 million achieved in Q1 2007 and an increase of 76% on the $13.8 million in Q2 2006 (excluding US revenues). On the same basis, casino revenues totalled $17.4 million, an increase of 15% from $15.2 million in Q1 2007 and an increase of 46% from $11.9 million in Q2 2006; and poker revenues totalled $6.3 million, an increase of 50% from $4.2 million in Q1 2007 and an increase of 288% from $1.6 million in Q2 2006.
The Group's operating profit for the period was $24.6 million, a decrease of 17% over the same period in 2006 (actual numbers including US revenues). The decrease is partially as a result of the withdrawal from the US on the one hand and also the recruitment of additional of new staff to further enhance our service, speed to market and in investment into new products and games. As a result, the operating margin for the period was 56% compared to 64% in the same period in 2006 (actual numbers including US revenues).
EBITDA, which is defined as earnings before interest, tax, depreciation and amortisation, for the period was $30.7 million, an increase of 2% over the same period in 2006 (actual numbers including US revenues).
Reconciliation of EBITDA to profit before taxation
Six months to 30 June
| 2007 $M | 2006 $M | |
| EBITDA | 30.7 | 30.2 |
| Depreciation | (0.7) | (0.2) |
| Amortisation | (2.1) | (0.3) |
| Finance income | 2.3 | 1.1 |
| Finance cost | (0.8) | (0.1) |
| Profit before tax | 29.4 | 30.7 |
Net profit after tax for the period was $29.0 million, a decrease of 5% from the same period in 2006 (actual numbers including US revenues). EPS for the period is 13.5c per share compared to 14.7c per share in the first half of 2006 (actual numbers including US revenues). Diluted EPS for the period was 13.0c per share compared to 14.2c per share in 2006 (actual numbers including US revenues).
Cost of Operations
Playtech's strong recovery from the withdrawal by its licensees from the US market is due to the increased resources made available to its licensees, allowing them to penetrate new markets and alter their business objectives in a short space of time. In addition, during the period the Group added 12 new licensees and completed the Tribeca acquisition, while revenues attributed to such additional licensees will impact in full the Group's results in the second half of 2007. The cost of operations during the period was $19.4 million compared to $16.5 million (including a charge of $6.6 million for the founder's
cash contribution) in 2006.
Operating activity is conducted through the Company's operations in Estonia, Bulgaria and the Philippines. Operating expenses were $8.6 million, representing an increase of 164% from 2006. 80% of this increase is attributable to employees' cost, depreciation and amortisation (mainly in respect of the Tribeca acquisition amounting to $1.7 million).
Sales and Marketing expenses were $5.9 million, representing an increase of 56% over 2006. This was mainly as a result of increased costs attributable to the recruitment of pre and post sales staff to support the increased number of licensees during the period.
Development costs were $0.8 million, which is an increase of 95% from the previous period. These costs are associated with investment into the improvement of existing revenue generating products. The cost of new products under development are capitalised and amortised as part of the operating expenses. During the period the Group has capitalised costs in the amount of $1.6 million (2006: $1.0 million).
Administrative expenses were $4.2 million, a decrease of 54% from 2006. This decrease is mainly as a result of the $6.6 million charge relating to the founders' cash contributions to employees recorded in 2006.
Financial Income and Taxation
The Group holds its cash reserves in short-term US dollar deposits. Such deposits have generated in the period a financial income of $2.3 million.
Only the Bulgarian and Israeli subsidiaries have generated taxable income, which is charged on a cost plus basis.
Cash Flow
The Group generated $27.4 million of cash in the period from operating activities (2006: $39.1 million).
The Group's investment activities amounted to $38.2 million (2006: $2.5 million). This was mainly accounted for by the Tribeca acquisition ($21.1 million) and the investments into Foundation Group Limited shares ($7.5 million) and a joint venture in Copernicus Trading Limited ($6.5 million).
Tribeca Transaction
In November 2006, Playtech signed an agreement with Tribeca Tables Europe Limited in respect of certain non-US assets.
The consideration for this acquisition is calculated according to a formula based on Playtech's future earnings from the acquired assets. The conditions required to acquire control and complete the agreement were satisfied in January 2007. The total cash payable, including expenses is estimated to be $59.5 million. The cash payable has been allocated in the following way: $41.1 million to the identifiable intangible assets, $15.8 million for goodwill and $2.6 million to finance cost. Out of the $41.1 million, $40.3 million has been allocated to the migrated licensees which is being amortised over the estimated
useful life of 8 years.
Foundation Transaction
The Group entered into a 10 year software licence agreement with Foundation Group Limited, which during March 2007 re-listed on the Hong Kong Stock Exchange at a price of HK$1.28 ("Flotation Price"). In connection with the agreement the Group also entered into the following agreements in respect of ordinary shares in Foundation:
• a share sale and purchase agreement with Luck Continent Limited for $7.5 million to acquire 53,750,000 ordinary shares of HK$0.001 each in Foundation at a 15% discount to the Flotation Price;
• a share sale and purchase agreement with Emphasis Services Limited ("ESL") for $6.5 million to purchase 50% of the ordinary shares in Copernicus Trading Limited ("Copernicus"). Copernicus' only asset is a convertible note convertible into 400,000,000 shares in Foundation.
The Group has evaluated the benefit arising from the above investments and has recorded deferred revenues of $27.6 million which was calculated as the difference between the purchase price and the fair value at such time being the Flotation Price. Once royalty revenues commence under the Foundation software license agreement, the deferred revenues will be realised as income over the life time of the software licence agreement.
As at 31 August 2007, the closing price of Foundation shares was HK$0.83 compared to HK$1.41 as at 30 June 2007. As a result the carrying value of the total available for sale equity shareholding and investment in the joint venture has decreased to $24.2 million. This reduction in value is a non-adjusting post balance sheet event and has not therefore been accounted for as at 30 June 2007.
Dividend
On 4 September 2007, the Board declared an interim dividend of 6.1 cents per share (approximately $13 million). The dividend will be paid on 19 October 2007 to those Shareholders and Depositary Interest holders on the register on 21 September 2007. The ex-dividend date will be 19 September 2007. Shareholders and Depositary Interest holders may elect to receive the equivalent dividend amount in pounds sterling.
CONSOLIDATED INCOME STATEMENT
| For the six months ended | For the year ended | ||
| 30 June, | 30 June, | 31 December, | |
| 2007 | 2006 | 2006 | |
| US$000 | US$000 | US$000 | |
| (Unaudited) | (Unaudited) | (Audited) | |
| Revenues | 43,966 | 46,178 | 90,078 |
| Operating expenses | (8,553) | (3,237) | (9,247) |
| Sales & marketing expenses | (5,859) | (3,746) | (8,941) |
| Development costs | (769) | (395) | (1,567) |
| Administrative expenses | (4,222) | (9,132) | (13,101) |
| (19,403) | (16,510) | (32,856) | |
| Operating profit before charges related tofounders' cash contributions to employees, loss on disposal of available for sale investment and employee stock option expenses | 26,233 | 36,464 | 64,491 |
| Charge related to founders' cash contributions to employees | - | (6,566) | (6,566) |
| Loss on disposal of available for sale investment (note 4) | (654) | - | - |
| Employee stock option expense | (1,016) | (230) | (703) |
| (1,670) | (6,796) | (7,269) |
| Operating profit | 24,563 | 29,668 | 57,222 |
| Finance income | 2,314 | 1,144 | 3,638 |
| Finance cost | (808) | (68) | (101) |
| Share of profit in joint venture (note 4) | 3,300 | - | - |
| Profit before taxation | 29,369 | 30,744 | 60,759 |
| Tax expenses | (387) | (254) | (345) |
| Profit for the period attributable to the equity holders of the parent | 28,982 | 30,490 | 60,414 |
| Earnings per share (in Cents) | |||
| Basic | 13.5 | 14.7 | 28.7 |
| Diluted | 13.0 | 14.2 | 27.7 |
| As of 30 June, | As of 30 June, | As of 31 December, | ||
| 2007 | 2006 | 2006 | ||
| US$000 | US$000 | US$000 | ||
| (Unaudited) | (Unaudited) | (Audited) | ||
| NON-CURRENT ASSETS | 43,966 | 46,178 | 90,078 | |
| Property, plant and equipment | 3,805 | 1,460 | 3,015 | |
| Intangible assets | 61,584 | 2,778 | 4,355 | |
| Other non-current assets | 136 | 108 | 127 | |
| 65,525 | 4,346 | 7,497 | ||
| CURRENT ASSETS | ||||
| Trade receivables- other | 8,884 | 5,769 | 6,257 | |
| Trade receivables- related parties | 1,472 | - | - | |
| Other receivables | 1,779 | 683 | 1,280 | |
| Other receivables- related parties (note 4) | 3,750 | - | - | |
| Investment in joint venture (note 4) | 36,070 | - | - | |
| Available for sale investments (note 4) | 4,847 | - | - | |
| Cash and cash equivalents | 78,554 | 89,587 | 101,403 | |
| 135,356 | 96,039 | 108,940 | ||
| TOTAL ASSETS | 200,881 | 100,385 | 116,437 | |
| SHAREHOLDERS EQUITY | ||||
| Additional paid in capital | 59,341 | 55,637 | 56,370 | |
| Capital reserve (note 4) | 444 | - | - | |
| Employee stock option reserve | 1,741 | 252 | 725 | |
| Retained earnings | 61,685 | 36,308 | 47,731 | |
| Equity attributable to equity holders of the parent | 123,211 | 92,197 | 104,826 | |
| NON-CURRENT LIABILITIES | ||||
| Other non-current liabilities | 66 | 24 | 46 | |
| CURRENT LIABILITIES | ||||
| Trade payables- other | 6,955 | 889 | 4,576 | |
| Trade payables - related parties | 1,632 | 413 | 1,091 | |
| Other payables (note 3) | 39,433 | 3,512 | 3,080 | |
| Deferred revenues (note 4) | 29,584 | 3,350 | 2,818 | |
| 77,604 | 8,164 | 11,565 | ||
| TOTAL EQUITY AND LIABILITIES | 200,881 | 100,385 | 116,437 | |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share capital | Additional Paid in Capital | Capital reserve | Employee stock options reserve | Retained earnings | Total | |
| FOR THE SIX MONTHS ENDED 30 JUNE, 2007 | US$000 | US$000 | US$000 | US$000 | US$000 | US$000 |
| Balance at 1 January 2007 Changes in equity for the period | - | 56,370 | - | 725 | 47,731 | 104,826 |
| Profit for the period | - | - | - | - | 28,982 | 28,982 |
| Total recognized income and expense for the period | - | - | - | - | 28,982 | 28,982 |
| Dividend paid | - | - | - | - | (15,028) | (15,028) |
| Adjustments for change in fair value of available for sale equity investments (note 4) | - | - | 444 | - | - | 444 |
| Exercise of options | - | 2,971 | - | - | - | 2,971 |
| Employee stock option scheme | - | - | - | 1,016 | - | 1,016 |
| Balance at 30 June 2007 | - | 59,341 | 444 | 1,741 | 61,685 | 123,211 |
| FOR THE SIX MONTHS ENDED 30 JUNE, 2006 | ||||||
| Balance at 1 January 2006 Changes in equity for the period | 10 | 100 | - | 22 | 19,587 | 19,719 |
| Profit for the period | - | - | - | - | 30,490 | 30,490 |
| Dividend paid | - | - | - | - | (21,000) | (21,000) |
| Initial Public Offering proceeds | - | 59,862 | - | - | - | 59,862 |
| Share issue costs | - | (4,335) | - | - | 665 | (3,670) |
| Cancellation of issued shares | (10) | 10 | - | - | - | - |
| Founders' cash contribution to employees | - | - | - | - | 6,566 | 6,566 |
| Employee stock option scheme | - | - | - | 230 | - | 230 |
| Balance at 30 June 2006 | - | 55,637 | - | 252 | 36,308 | 92,197 |
| FOR THE YEAR ENDED 31 DECEMBER, 2006 | ||||||
| Balance at 1 January 2006 Changes in equity for the period | 10 | 100 | - | 22 | 19,587 | 19,719 |
| Profit for the year | - | - | - | - | 60,414 | 60,414 |
| Total recognized income and expense for the period | - | - | - | - | 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 |
CONSOLIDATED STATEMENT OF CASH FLOWS
| For the six months ended 30 June, | For the year ended 31 December, | ||
| 2007 | 2006 | 2006 | |
| US$000 | US$000 | US$000 | |
| (Unaudited) | (Unaudited) | (Audited) | |
| CASH FLOWS FROM OPERATING ACTIVITIES | |||
| Profit before tax | 29,369 | 30,744 | 60,759 |
| Tax | (387) | (254) | (345) |
| Net cash provided by operating activities (see below) | (1,543) | 8,652 | 12,213 |
| Net cash provided by operating activities | 27,439 | 39,142 | 72,627 |
| CASH FLOWS FROM INVESTING ACTIVITIES | |||
| Long term deposits | (9) | (117) | (135) |
| Acquisition of property, plant and equipment | (1,484) | (768) | (2,747) |
| Proceeds from sale of equipment | 5 | - | - |
| Acquisition of intangible assets (note 3) | (21,149) | (645) | (1,738) |
| Capitalized development costs | (1,616) | (1,007) | (1,835) |
| Investment in available for sale equity shareholding (note 4) | (7,500) | - | - |
| Investment in joint venture (note 4) | (6,478) | - | - |
| Net cash used in investing activities | (38,231) | (2,537) | (6,455) |
| CASH FLOWS FROM FINANCING ACTIVITIES | |||
| Related parties and shareholders | - | (205) | (205) |
| Dividends paid | (15,028) | (21,000) | (39,500) |
| Initial Public Offering proceeds | - | 59,862 | 59,862 |
| Exercise of options | 2,971 | - | 733 |
| Share issue costs | - | (3,670) | (3,671) |
| Others | - | - | 17 |
| Net cash (used in)/provided by financing activities | (12,057) | 34,987 | 17,236 |
| (DECREASE)/ INCREASE IN CASH AND CASH EQUIVALENTS | (22,849 | 71,592 | 83,408 |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 101,403 | 17,995 | 17,995 |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD | 78,554 | 89,587 | 101,403 |
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
| For the six months ended 30 June, | For the year ended 31 December, | ||
| 2007 | 2006 | 2006 | |
| US$000 | US$000 | US$000 | |
| (Unaudited) | (Unaudited) | (Audited) | |
| Income and expenses not affecting operating cash flows: | |||
| Depreciation | 692 | 241 | 666 |
| Amortization | 2,148 | 262 | 606 |
| Impairment loss (note 3) | 275 | - | - |
| Founders' cash contribution to employees | - | 6,566 | 6,566 |
| Employee stock option plan expenses | 1,016 | 230 | 703 |
| Share of profit of joint venture (note 4) | (3,300) | - | - |
| Loss on disposal on available for sale investment (note 4) | 654 | - | - |
| Finance income | (1,506) | (1,076) | (3,537) |
| Others | 16 | 11 | 18 |
| Changes in operating assets and liabilities: | |||
| Increase in trade receivables | (4,099) | (1,580) | (2,068) |
| Decrease in other receivables | 1,008 | 731 | 2,594 |
| Increase in trade payables | 2,920 | 952 | 4,785 |
| (Decrease)/increase in other payables | (534) | 3,278 | 3,745 |
| Decrease in deferred revenues | (833) | (963) | (1,865) |
| (1,543) | 8,652 | 12,213 | |
NON-CASH TRANSACTIONS
| For the six months ended 30 June, | For the year ended 31 December, | ||
| 2007 | 2006 | 2006 | |
| US$000 | US$000 | US$000 | |
| (Unaudited) | (Unaudited) | (Audited) | |
| Intangible assets (note 3) | (36,887) | - | - |
| Other payables (note 3) | 36,887 | - | - |
| Investments (note 4) | (24,293) | - | - |
| Trade receivables (note 4) | (3,750) | ||
| Deferred revenues (note 4) | 27,599 | - | - |
| Capital reserve (note 4) | 444 | - | - |
NOTE 1 - GENERAL
A. Playtech Limited (the "Company") was incorporated in the British Virgin Islands on 12 September, 2002 as an offshore company with limited liability.
Playtech develops 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.
B. The interim consolidated financial statements include the accounts of the Company and all its subsidiaries which together are referred to as the "Group".
C. The interim financial statements as at 30 June 2007, and 2006 and the six months then ended, respectively, have been reviewed by the Group's external auditors.
The financial statements for the year ended 31 December 2006, which were prepared under IFRS received an unqualified audit report. However, those financial statements included an emphasis of matter paragraph relating to contingent liabilities (see note 7).
The financial information for the periods ended 30 June 2006 and 30 June 2007 contained in this interim announcement is unaudited.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The consolidated interim financial information of the Group has been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards ("IAS") and interpretations (collectively IFRS) adopted by the International Accounting Standards Board
("IASB") and endorsed for use by companies listed on an EU regulated market.
These results have been prepared on the basis of accounting policies expected to be adopted in the Group's full financial statements for the year ended 31 December 2007 which are not expected to be significantly different to those set out in Note 2 to the Group's audited financial statements for the year ended 31 December 2006, except for the following accounting policies adopted for the first time:
Joint Ventures
The Group's investment in a jointly controlled entity is included in the financial statements under the equity method of accounting. The group includes the assets it controls, its share of any income and the liabilities and expenses of jointly controlled operations and jointly controlled assets in accordance with the terms of the underlying contractual arrangement.
Available- for- sale financial asset
Non- derivative financial assets classified as available- for- sale comprise the group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognized directly in equity. Where a decline in the fair value of an available- for- sale financial asset constitutes objective evidence of impairment, the amount of the loss is removed from equity and recognized in the income statement.
The financial information is presented in U.S. dollars because that is the currency the Group primarily operates in.
NOTE 3 - ACQUISITION
In November 2006, the Company signed an asset purchase agreement with Tribeca Tables Europe Limited ("Tribeca") in respect of certain non US assets.
The contingent consideration for the acquisition has been calculated according to a formula based on the future earnings of the acquired assets. The conditions required to acquire control and complete the agreement were satisfied in January 2007. Therefore the agreement has been accounted for as a business combination under IFRS 3 in this reporting period. Management estimates that the final consideration will be $58,227 thousands.
The value of the assets in the Tribeca books was not disclosed to the company. Accordingly, the book value on acquisition is unknown. The fair value of the net assets acquired is as below.
The intangible assets relate to the recognition of the customer lists and other intangibles acquired as part of the acquisition. These intangibles are being amortised over their estimated useful lives of 8 years. The
directors have reassessed the fair value of the assets acquired based on their present use and as a result the software valued at $275 thousands on acquisition has been charged to the income statement as an impairment.
| $'000 | |
| Cash consideration to Tribeca | 58,227 |
| Expenses | 1,267 |
| Total cash consideration | 59,494 |
| Finance cost arising on discounting of cash consideration | (2,590) |
| Present value of consideration including expenses | 56,904 |
| Fair value of assets acquired | 41,121 |
| Goodwill | 15,783 |
| Present value of the consideration including expenses | 56,904 |
The payment of the consideration to Tribeca is by way of cash in four instalments on 9 March 2007, 13 August 2007, 13 May 2008 and 13 November 2008, and has been discounted back to present values. As at 30 June 2007, unpaid consideration amounted to $39,477 thousands.
NOTE 4 - INVESTMENTS
During the period the Group entered into a 10 year software licence agreement with Foundation Group Limited ("Foundation"), a company incorporated in Bermuda which during March 2007 re-listed on the Hong Kong Stock Exchange at a price of HK$1.28 ("Flotation Price"). In connection with the software licence agreement the Group also entered into the following agreements in respect of ordinary shares in Foundation:
• a share sale and purchase agreement with Luck Continent Limited to acquire 53,750,000 ordinary shares of HK$0.001 each in Foundation;
• a share sale and purchase agreement with Emphasis Services Limited ("ESL") to purchase 50% of the ordinary shares in Copernicus Trading Limited ("Copernicus"), a private company incorporated in the British Virgin Islands. Copernicus' only asset is a convertible note convertible into 400,000,000 shares in Foundation.
The 53,750,000 shares in Foundation were acquired for $7,500 thousands, which represented an aggregate discount of 15% to the Flotation Price. These shares have been classified as an available for sale asset. The Group also entered into an agreement to sell 50% of the 53,750,000 shares it acquired in Foundation to ESL for a consideration of $3,750 thousands payable in September 2007. As a consequence, the loss from the disposal of $654 thousands has been reflected in the income statement for the period. The fair value of 50% of the shares at time of acquisition was $4,403 thousands. The fair value at 30 June 2007 amounted to $4,847. The increase in value of $444 thousands has been classified as a capital reserve.
The Group acquired the shares in Copernicus for a consideration of $6,478 thousands. Based on Foundation's share price at this time, the underlying value of the Group's interest in the convertible note amounted to $32,770 thousands. The Group's interest in the Copernicus shares has been equity accounted for as an investment in a joint venture. The Group's interest at 30 June 2007 was $36,070 thousands. The increase in value from the time of acquisition to 30 June 2007 of $3,300 thousands has been reflected in the income statement for the period.
The Directors consider the fair value of the consideration received by way of discount to the market value of the 53,750,000 Foundation shares of $1,307 thousands and the fair value of the Copernicus joint venture in excess of consideration paid of $26,292 thousands, to represent deferred income of the software licence agreement. As a consequence, $27,599 thousands have been included in deferred revenues. Once royalty revenues commence under this software license agreement the deferred revenues will
be realised as income over the life time of the software licence agreement.
As at 31 August 2007, the closing price of Foundation shares was HK$ 0.83 compared to HK$ 1.41 as at 30 June 2007. This has resulted in the fair value of the total available for sale equity shareholding and investment in the joint venture decreasing by $16,767 thousands to $24,150 thousands. This reduction in value is a non-adjusting post balance sheet event and has not therefore been accounted for as at 30 June 2007.
A director of the Company, Tom Hall, is also a director and shareholder of ESL.
NOTE 5 - EARNINGS PER SHARE
Earnings per share have been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue and the earnings, being profit after tax are as follows:
| For the six months ended 30 June, | For the year ended 31 December, | |||
| 2007 | 2006 | 2006 | ||
| In cents | In cents | In cents | ||
| Basic | 13.5 | 14.7 | 28.7 | |
| Diluted | 13.0 | 14.2 | 27.7 | |
| US$000 | US$000 | US$000 | ||
| Profit for the year | 28,982 | 30,490 | 60,414 | |
| Number | Number | Number | ||
| Denominator - basic | ||||
| Weighted average number of equity shares | 213,911,016 | 206,924,493 | 210,168,682 | |
| Denominator - diluted | ||||
| Weighted average number of equity shares | 213,911,016 | 206,924,493 | 210,168,682 | |
| Weighted average number of option shares | 9,665,864 | 7,747,512 | 7,962,839 | |
| Weighted average number of shares | 223,576,880 | 214,672,005 | 218,131,521 | |
NOTE 6 - SHAREHOLDERS EQUITY
A. Share capital
| Number of shares | |||
| 30 June, | 30 June, | 31 December, | |
| 2007 | 2006 | 2006 | |
| Authorized | N/A(*) | N/A(*) | N/A(*) |
| Issued and fully paid | 214,760,618 | 213,333,333 | 213,741,096 |
(*) The company has no authorized share capital but is authorized under its memorandum and articles of association to issue up to 1,000,000,000 shares of no par value.
B. Distribution of Dividend
On 29 May 2007, the Company distributed $15,028 thousands as a dividend to its existing shareholders.
NOTE 7 - CONTINGENT LIABILITIES
The Company is not a gaming operator and does not provide gaming services to players. From 13 October, 2006, following the approval by the US President of the Unlawful Internet Gambling Enforcement Act 2006 (the "UIGEA"), the Company requested all of its licensees to cease their US facing activity. Such request was accepted and implemented by all licensees and the Company stopped collecting royalties deriving from the licensees' US facing activity. The directors believe that the Company has taken all measures necessary to be in full compliance with UIGEA. The directors are aware of activity by certain regulatory authorities in the US, creating uncertainty as to further actions that may occur, if any. Accordingly, the directors have considered any residual risk arising from the Company's activities and no provision has been made in the financial statements in respect of the possibility of any adverse impact that may arise from such activities.
Independent review report to the shareholders of Playtech limited
Introduction
We have been instructed by the Company to review the financial information for the six months ended 30 June 2007 which comprises the Consolidated Income Stateme
