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Annual Report & Accounts 2005 - Chief Executive's Review
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Poker Casino Club’s online poker room completed a soft-launch in August 2005, and underwent beta-level testing during the European summer holidays. A marketing programme to promote this new product began in September 2005, including promotion in Casino Club magazine to the existing German customer base, a direct marketing campaign to new prospects and inclusion in the rollout of the Spanish marketing campaign. Poker is now accounting for about 4% of our daily revenues. With this offering, members of the Casino have the ability to play poker on our website although we expect that growth in 2006 will come predominantly from the Casino operation. Group Financial Performance The Casino business was acquired on 21 December 2004 so the comparative 2004 figures only reŁect 11 days trading. The total gross wagers placed were e1.6 billion (2004: e58 million) and net revenues were e40.4 million (2004: e0.7 million). The gross profit for the financial year ended 31 December 2005 was e30.8 million (2004: e0.5 million) with the primary operating cost element for the Group being the turnkey online casino services provided by Boss Media SA and its subsidiaries. In the financial year there were no significant one-off jackpot winners in the Group’s slot machine games with associated ‘‘progressive’’ jackpots. The total of the available jackpots at the end of December 2005 was e1.7 million (2004: e0.9 million) with the largest available individual jackpot being e0.8 million (2004: e0.4 million). Upon this jackpot becoming payable it will be a charge against the relevant period’s gross profit. The last major jackpot win was for e0.5 million in November 2004. The Group operating profit for the financial year ended 31 December 2005 was e13.4 million (2004: e0.4 million) after the deduction of distribution and administrative expenses. Distribution costs of e7.4 million (2004: nil) reŁect the third party marketing costs incurred by the Group to recruit active members to the Casino. The marketing costs for 2005 include over e2 million that was related to the initial launch of the Casino in Spain and nearly e3 million associated with the launch and promotion of poker. Neither of these one-off expenses is expected to be repeated in the ongoing operation of the business. The core marketing of the Casino in 2006 is expected to account for circa e5 million out of a total estimated marketing expenditure of e9 million. The balance will be spent testing alternative marketing channels to direct mail and marketing in new territories outside Germany and Austria. The major items within the administrative expenses incurred during the financial year are detailed below: 2005 2004 g’000 e’000 Employment costs 2,378 25 Travel 1,121 58 Legal, accounting and tax 1,941 40 Re-organisation costs 545 0 Amortization of intangible assets 2,802 37 All other costs 1,207 1 Total administrative expenses 9,994 161 Employment costs are analysed in note 3 to the financial results. The 2005 legal, accounting and tax costs included a one-off charge for a full audit after 6 months trading which cost e0.2 million. This was needed to give initial audited numbers as at the time of the IPO in December 2004, because audited accounts for the business being acquired were not available. In addition, given the Group’s complex physical and legal structures, ongoing professional advice costs are higher than for a business based in one domicile. The re-organisation costs include the costs related to closure of the London office, reductions in headcount and a e0.2 million settlement of contractual obligations to Dr Willis on his standing down as an executive director of the Group.