NET ENTERTAINMENT HALF YEARLY RESULTS IN

22 August 2008

44 percent rise in revenues and 47 percent growth in after tax profits make good news for investors


The Swedish online gambling software provider Net Entertainment delivered sterling half yearly 2008 results to its investors this week, showcasing a rise in revenues over the first six months of the year of 44 percent to SEK 90.5 million (H1: 2007 SEK62.9 million) and after tax profits up 47 percent to SEK 32.9 million (H1:2007 SEK 22.3 million)

Eight new license agreements for the company's popular CasinoModule system were signed in the period, prompting CEO Johan Ohman to comment: "More progress in sales combined with strong sales growth marked the first half of 2008 for Net Entertainment. A total of eight new license agreements for CasinoModule were signed, with among others, bet-at-home.com, an influential European online operator. Our efforts to address new market segments and tier 1 operators have proven highly productive largely due to our strong, competitive product portfolio."

The company's second quarter results were also positive, with an increase in revenues of 62 percent to SEK 48 million, yielding after tax profits of SEK 17.5 percent - a rise of 61 percent. Four of the new licensees were signed in the second quarter. At the end of the quarter, the company had a backlog of 13 licensees whose casinos will be ready to open in the autumn.

Since the end of Q2, the company has signed six new CasinoModule delivery agreements, including one with King.com - one of the world's largest online operators. Other contracts involve two European tier 1 operators that for the moment have chosen to remain anonymous and with 21media, Chipleader and Bingo Las Vegas.

During the Q2, new agreements for delivery of CasinoModule were signed with four operators: Happybet, Simbat, Starprice Online and Intragame. In addition the company renewed the agreement with NordicBet.

Contract development work in the Ukraine continued, including a downloadable online casino to supplement Net Entertainment's existing product portfolio. Development activities have progressed well and the product launch is scheduled for the third quarter 2008, providing NetEnt with a more generous product portfolio that will enable the company to target a broader market.

This imperative has also spurred development of a range of soft games, the company revealed, advising that the Development and Operations staff has been boosted by 7 new qualified personnel.

Net Entertainment had 74 active employees at the end of the H1 period, of which women comprised 26 percent. The total headcount at the company, including subcontractors, was 91 at the end of the period.

Assessing future prospects, the company says that the market for online gaming has exhibited strong growth over the past years and global sales for Internet gambling are expected to exceed US$ 16 billion in 2008. "In the next few years, Europe is expected to represent more than 50 percent of total gaming revenues and grow by 15-20 pecent annually, making it by far the largest gaming market," the statement advises.

"Net Entertainment views the conditions for continued expansion in the casino market as good," the statement continues. "The market for online gaming is maturing, resulting in consolidations and increased competition between operators. This means that fewer players will dominate the market, which will increase demand for "best-of-breed" solutions."

The statement identifies six primary NetEnt competitors, naming Boss Media, Chartwell Tecnology, Cryptologic, Playtech, Microgaming and Real Time Gaming, all of which have a broader product portfolio than Net Entertainment, which concentrates on casino activities. The management's assessment is that the company has a market share of about 10 percent, based on the fact that Net Entertainment delivers casino games to around 10 of the 100 largest sport betting sites.

"Online operators continue to add new products, making them more and more like gaming portals," the report informs. "This helps attract new players while simultaneously boosting revenues from existing customers through cross-sales. All in all, this development benefits Net Entertainment and the company means to take an active role in the market restructuring."

Market demographics are shifting, the statement claims: "Market surveys show, for example, an increasing percentage of women, partly driven by the growth of such new gaming segments as bingo and skill games. The traditional image of a typical player, a man aged between 25 and 35, is thus much less predominant than before.

"At the same time, we are observing how gaming activities are becoming increasingly popular among older age groups. Mature players are sometimes collectively referred to as "Silver Surfers". The younger generation of players, with their experience of playing TV games and easy familiarity with computer technology, are demanding more sophisticated games and features. As a games development company, it is vital to concentrate on the demands from the market and ensure that new products continuously meet the customers' demands."

NetEnt was established in 1996 and has a customer (licensee) base of close to sixty international gaming companies. Revenues consist of royalties based on the revenues generated by the company's products and setup fees when new agreements are signed. Net Entertainment is a pure development company and thus does not conduct any gaming operations of its own. The Group, which is headed by chairman Rolf Blom Vigo Carlund Niclas Eriksson has offices in Stockholm, where all of the company's technical development activities take place, and on Malta where all commercial operations including sales, marketing and product management, are conducted.

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