GLOBAL EXPANSION A PRIORITY SAYS NEW CRYPTOLOGIC CHIEF

4 April 2008

$77.5 million war chest available for ambitious future plans


The recently appointed CEO for online gambling software provider Cryptologic provided some interesting insights on the company this week in an interview with the Irish newspaper The Tribune.ie.

CEO Brian Hadfield said that his company's technology has carried wagers totalling more than $50 billion since its establishment in 1995, and that its west Dublin based servers carry more transactions a day than the Tokyo stock exchange.

Hadfield, appointed last month, sees his role as taking the originally Canadian-based firm - which has shown an annual profit throughout its 13-year history - to new levels, particularly in Europe and Asia. And he has a not insignificant $77.5 million war chest to make that aim a reality.

"Our plan is to continue to expand, and part of that is almost inevitably through acquisitions, " says Hadfield, who has three acquisitions already "lined up" at the moment. With offices in Toronto, Minsk, Kiev and Singapore, the company is moving from temporary offices to a new HQ at St Stephen's Green in Dublin.

Last year Cryptologic bought the website Casino.co.uk, an "advertising-and-education" online portal that acts as a conduit for delivering players to the 280 games available at Cryptologic's licensees, and this is the model that will be followed in Asia. Language is the key element there, and Cryptologic prides itself on its multilingual products. Hadfield was himself a language teacher before entering the business milieu in a career which has seen him hold several senior management positions with major firms.

Deals in Ireland have not been ruled out either, he revealed, commenting that Paddy Power is "one of a few" bookies which has had discussions with Cryptologic since it relocated to Ireland.

Cryptologic announced its plans to move to Ireland before the US Congress passed its Unlawful Internet Gambling Enforcement Act (UIGEA) in December 2006. The move to Ireland was decided on the basis of the large number of customers in Europe, and greater proximity to emerging markets in Asia.

"This is a good mid-point for our business between Toronto and Asia, " said Hadfield.

The company did not receive any government grants to set up in the Republic of Ireland, and not even Ireland's much-vaunted 12.5 percent corporate tax rate was the draw, as Cryptologic pays tax at only 5 percent through its Maltese brass plate.

"It's a good place to do business here, and it's a gaming-friendly environment, " says Hadfield. This sentiment is echoed by company financial officer Stephen Taylor, and is clearly visible in the company's accounts, filed last week, which showed surging fourth-quarter profits ahead of analysts' expectations of $5 million based on a three month turnover of $20.4 million.

"Ireland doesn't have a regulated online gaming regime in place at the moment, " Hadfield commented, adding that Cryptologic's Irish legal advisers expect the government to enact legislation similar to Britain's industry-friendly 2005 Gambling Act.

"The government of Ireland is open minded enough to consider that type of framework. We believe that regulation and responsible gaming is important, and so we endorse jurisdictions that support that," he said.

Hadfield says he has not yet had discussions with Department of Justice representatives on plans for regulating the gaming industry, but his plan is "to take that agenda as far as we can. . . We have to be able to stand up as a publicly traded company on three exchanges and talk about the fact that we believe proper regulation is the way to go".

Proper regulation is, without doubt, not what springs to mind when Hadfield recalls the US ban on Internet gambling financial transactions which, in one fell swoop reduced the global market by 50 percent. The October 2006 law has contributed to an overall 29 percent fall in Cryptologic's 2007 sales to $73.7 million, with annual profits falling 78 percent to $5.5 million.

"Two years ago we had a strategy of fewer large licensees and we were less aggressive. Now it's a very different market . . . a very different world . . . as the focus is not on the US but more on Europe and Asia and therefore we have adopted a more aggressive outlook and strategy," Hadfield revealed.

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