2009-11-06 08:23:46 INTERIM REPORT Q3 2009
(NGM:BETT)
Low Margin
July-September
• Betting turnover: 1,758 SEK million (1,791)
• Net turnover after trading fees: -0.3 SEK million (13.2)
• Gross margin: -0.02% (0.74)
(Net Turnover after trading fees as percent of Betting Turnover)
• Operating income: -6.9 SEK million (8.0)
• Operating margin: N/A (61)
(Operating Income as percent of Net Turnover after trading fees)
• Net income: -10.1 SEK million (7.8)
• Profit per share: -1.06 SEK
January – September
• Betting turnover: 6,015 SEK million (7,951)
• Net turnover after trading fees: 28.8 SEK million (31.0)
• Gross margin: 0.48% (0.39)
(Net Turnover after trading fees as percent of Betting Turnover)
• Operating income: 10.4 SEK million (14.9)
• Operating margin: 36% (48)
(Operating Income as percent of Net Turnover after trading fees)
• Net income: 5.5 SEK million (13.1)
• Profit per share: 0.58 SEK
Managing Director comments
“The third quarter was disappointing but I remain convinced that the result during the period is due to natural fluctuations which are a part of our business”, says Johan Moazed, Managing Director of Betting Promotion. “Early indications show normalized volatility in the fourth quarter”.
Overview July – September 2009
Betting revenue for the third quarter was SEK -0.3 (13.2) million. This meant that the gross margin for the third quarter was close to zero which is the lowest in the company’s history. The expected profit, which historically has been a good indicator of actual profits, had been good in comparison to previous periods. Analysis clearly shows that this measurement is accurate. The actual profit varies around the expected profit. In the long term they show strong correlation. October figures have shown very little variance from expected profit. Betting Promotion’s business model involves risk taking and in extreme situations this can have the consequences seen in the third quarter. Like the second quarter the third quarter is influenced more by illiquid markets due to the summer break and this leads to higher volatility. On a rolling yearly basis the company achieved a net turnover after trading fees of SEK 56.2 million leading to a gross margin of 0.65%
Betting Promotion has commercial agreements with a number of different betting exchanges. Most are based on commission-free trading but on exchanges with higher turnover a trading fee is paid by Betting Promotion. During Q3 Betting Promotion paid SEK 3.4 million (2.1) as fees to betting exchanges. These fees are reflected in the gross margin and are itemised in the income statement.
Betting Promotion has recently launched a service for bookmakers. The company will use its existing platform to deliver odds and risk management to bookmakers on a commercial basis. The initial response has been positive and during the third quarter the company has integrated its first customer. The majority of turnover on sports betting is transacted through bookmakers. By joining forces with them Betting Promotion will have access to this part of the market as well as the traditional betting exchange market.
Overview January – September 2009
Betting Promotion Net Turnover after trading fees for the period amounted to SEK 28.8 (31.0) million, corresponding to a drop of 7.2%. The drop in Net Turnover is mainly due to the negative result in the third quarter. Betting Turnover for the period amounted to SEK 6,015 (7,951) million. The drop in Betting Turnover is a result of reducing certain trading activities which increased risk without necessarily increasing profit. The changes which have been implemented gradually during the second and third quarters of 2008, render comparisons to previous betting turnover of no further relevance.
Segment Reporting
Betting Promotion does not split operating costs, other than trading fees, on different products or services. This means that the operating result for Betting Promotion is reviewed on one level, based on the Result for the total company. Therefore Betting Promotion only has one operating segment.
Products
The company provides a breakdown of “Net Turnover after trading fees” and “Gross margin”, calculated as “Net Turnover after trading fees” as percent of “Betting Turnover” between various products. An important part of Betting Promotion’s business concept is to deliver full market-making services even if some markets offer better margins than others. Market making is the core of Betting Promotion’s business and is comparable to businesses that guarantee liquidity for different sorts of financial instruments.
Soccer
Soccer remains the core of Betting Promotion’s business and during the third quarter accounted for 71% of the total betting turnover and had a margin of -0,18%. This is the lowest margin in the history of the company and is explained by the exceptional volatility during the quarter.
Other
"Other" includes a number of different sports, e.g. tennis, ice hockey, rugby, basketball and American football. The bookmaker service has lead to an increased offering in this product group.
Live Betting
Live betting is presently offered in soccer and tennis. Turnover on tennis has mainly come from the major tournaments. There are good opportunities to increase turnover within this product group.
(For tables see attached file.)
Significant events during the period
Reduction of the statutory reserve and reimbursement to shareholders
The extraordinary general meeting decided April 24, 2009 to reduce the statutory reserve with a total of SEK 136.637.000. SEK 9.520.066 of these were used for reimbursement to shareholders, SEK 40.000.000 were allocated to a non-restricted reserve for buy-back of own shares, and the remaining SEK 87.116.934, 40 were allocated to a non-restricted reserve to be used in accordance to decisions from future general meetings. The decision was registered at the Swedish Companies Registration Office August 13, 2009. The reimbursement to shareholders of an amount equivalent to SEK 0.05 per share (before reversed split) was done August 26, 2009.
Reversed split of shares
The reversed split of the Betting Promotion share was executed during September. 20 old shares were exchanged with 1 new. After the reversed split the share capital, which amounts to SEK 19,983,570, is divided over 9,991,785 shares with a quota value of SEK 2.00 per share.
Purchased own shares
The total amount of shares that were purchased up to 30 September was 471,720 with an average price of 31.96 SEK.
GameVillage
GameVillage is a soft gaming company of which Betting Promotion owns 19%. GameVillage investment is held for sale in accordance with IFRS 5. Betting Promotion completed a sale transaction of 33% stake in GameVillage within one year from the date of classification as asset held for sale. Although GameVillage was not fully sold within one year, the board is still committed and actively seeking to sell the remaining 19% stake at a price that is reasonable in relation to its current fair value.
GameVillage is valued at the lower of cost and fair value and tested for impairment in accordance with IFRS’s. Management determined that the total expected discounted future cash flows directly related to GameVillage is less than the carrying value of the asset; therefore, an impairment charge was required. Betting Promotion has decided to write down the value of its shares by SEK 4.2 million (50%). The impairment charge was reflected in the Group Income Statement as a Financial Expenses. The book value of GameVillage after impairment is Management’s assessment of a reasonable fair value.
Other Events during the period
Option Scheme
The Options Scheme dating back to 31 March 2008 comprising of a total of 5,950,000 of the old shares with a strike price of SEK 2.41 was not exercised as at 30 September 2009. For more detailed information, refer to Note 15 in the Annual Report 2008.
Significant events after the period
Change of listing
Betting Promotion has decided to change its listing from NGM to NASDAQ OMX Small Cap. It is the intention of the board to finalize the change around the end of 2009.
Handling of purchased own shares
The board will recommend the AGM to delete the shares purchased.
GameVillage
Betting Promotion’s objective is to sell its shares in GameVillage as investment in soft gaming companies is no longer part of Betting Promotion’s business strategy. During quarter four, Betting Promotion will continue to actively seek to sell the remaining 19% stake. If the objective to sell not is fulfilled by the end of the year Betting Promotion will consider reversing the asset from asset held for sale to financial asset. The financial asset will then be valued at fair value based on IAS 39 Financial Instruments; Recognition and Measurement.
Option Scheme
Following the publication of quarter three report, Betting Promotion will offer a new option scheme to its employees according to a decision by the Annual General Meeting. The strike price of the option will be based on an average price of the share between the 9 November and 20 November. The price of the option will be determined by the Black and Scholes model.
Outlook for 2009
Betting Promotion’s policy is not to issue earnings forecasts.
Equity
The group’s equity as at 30 Sep 2009 was SEK 105.9 (129.6) million, which is equivalent to SEK 11.12 (13.0) per share. In the parent company the restricted reserve of SEK 136.6 million were allocated to unrestricted capital of which SEK 40 million to a fund to be used for buy-back of own shares and SEK 9.5 million was reimbursed to shareholders.
Cash and Cash flow
Cash and Cash equivalents at the end of the quarter amounted to SEK 71.8 (62.3) million. Cash flow for the period amounted to SEK -8.7 (-14.5) million. Operating cash flow amounted to SEK 17.2 (13.0) million. Cash held with licensed customers amounted to SEK 67.9 (53.8) million.
Parent Company
Betting Promotion Sweden AB acts as a holding company and provides managerial services to the rest of the group. The main revenue of the Betting Promotion Sweden AB is dividends received from fully owned subsidiaries. Betting Promotions Sweden AB also receives a Management Fee from a fully owned subsidiary. Revenue from Management Fees for the quarter amounted to SEK 0.5 (0.4) million. No dividends were received during this quarter.
The equity in the Parent company has been effected by a reduction of the statutory reserves and purchased of own shares, as explained in page 4. Short term receivables have decreased with SEK 18.4 million due to a payment from Permac Ltd and the non current liabilities have increased by SEK 7.4 million due to a loan from Betting Promotion Ltd.
(For table see attached file.)
GameVillage
On 3rd December 2007, Betting Promotion provided a loan facility of USD 1 million to GameVillage. The loan bear interest of 3% per annum which is payable annually in arrears. The principal amount of the loan is repayable no later than 31 December 2015.
KeyQuest
As at 30 Sep 2009, Betting Promotion has a total receivable of SEK 9.9 million from Key Quest. SEK 6.6 million is payable within one year and SEK 3.3 million is payable after one year. The receivable bears interest at the rate of 5% staring from June 2009.
Betting Promotion
As at 30 Sep 2009, Betting Promotion Sweden AB had a loan payable of SEK 7.4 million to Betting Promotion Ltd. The loan bears interest at the rate of 2.5% per annum and is payable by 31 August 2011.
For information regarding definition of the relationship with the parties described above, refer to Note 18 in the Annual Report 2008.
Accounting policy
Betting Promotion´s consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS). This interim report was prepared for the group in accordance with the IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. The accounting and calculation principles used in the interim report for the group are identical to those used in the most recent annual report.
For the parent company the interim report was prepared in accordance with RFR 2.2 “Accounting for legal entity” and the Swedish Annual Accounts Act. Except for new accounting principles described below, the interim report has been prepared in accordance with the same accounting principles as in 2008.
New accounting policies in 2009
Amendments to “IAS 1 Presentation of Financial Statements: A Revised Presentation”, in which the presentation of the financial statements are changed in some respects and new non-mandatory changes are proposed to the titles of financial statements. This revised IAS 1 standard has been applied for the group from 1 January 2009 with additional information regarding comprehensive income specified as a separate section in the Consolidated Income Statement and the Statement of Changes in Shareholders’ Equity. Betting Promotion has decided to retain the old headings for financial statements. This change has been applied retroactively from 31 December 2007.
IFRS 8; Operating Segments became effective as from 1 January 2009. Betting Promotion has only one operating segment and therefore disclosures required by IFRS 8 are not applicable for the group.
Assessment of risk environment
There have been no significant changes regarding the risks and uncertainties to which Betting Promotion is exposed since the publication of the previous report and Annual Report.
Betting Promotion is in the gaming business. Results are affected by the outcome of individual sporting events. Central to Betting Promotion’s business is the technology which manages this risk. In the short term margins can vary without affecting the long term development of the company.
A description of other risks and uncertainties can be found in the Annual Report 2008.
Financial information 2009:
End of year report 25 February 2010
Board assurance
The Board of Directors and managing director ensure that the interim report provides a true and fair overview of the Parent Company and the Groups operations, position and earnings and describes the material risks faced by the Parent Company and the Group.
Stockholm 5 November 2009
Betting Promotion Sweden AB (publ)
Org. nr. 556466-8860
Mats Hultin
Chairman
Johan Moazed
Member of the board and Managing director
Peder Keiller Alberoth
Member of the board
John Hodgson
Member of the board
Hampus Hägglöf
Member of the board
Helena Levander
Member of the board
This Interim Report is published in Swedish and English. In the event of any difference between the English version and the Swedish original, the Swedish version shall prevail.
For further information please contact:
Johan Moazed, Managing director of Betting Promotion Sweden AB.
Telephone +46 40 611 84 94
(For full report see attached file.)
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INTERIM REPORT Q2 2010