PARTY GAMING PREDICTS BETTER PROFITS

1 February 2008

Trading update confident 2007 numbers will beat analyst's forecasts


Mitch Garber, CEO of the multi-faceted UK online gambling group Party Gaming, was in bullish mood this week in a trading update covering underlying profit for 2007, saying that the numbers would be slightly ahead of analysts' forecasts and that January trading was in line with expectations.

Revenue rose 52 percent to $120 million in the fourth quarter to December, giving full-year revenue of $448.2 million - well up on the $324.7 million achieved the year before. Earnings before interest, tax, depreciation and amortisation (EBITDA) would be slightly ahead of current expectations, buoyed by lower than anticipated costs and customer bad debts, the executive revealed.

Poker revenue year on year was up 23 percent to US$72.6 million while casino revenue soared 156 percent over the same period in 2006 to US$42.3 million. The company said that cross-selling “remained the main source of growth” in this product area.

The sports-betting operation, Party Bets, saw revenue rise 50 percent over the 2006 figure to US$5.1million. Party Bets has been promoted heavily in the UK within the past three months, with a series of adverts appearing on UK TV screens.

Party Gaming is possibly feeling the pinch of increased competition, with its statement noting: “Along with a number of competitors, Party Poker has lost a small amount of market share to those sites that continue to take bets from players located in the US and other countries from which we will not accept players for regulatory reasons.”

Analysts are expecting 2007 EBITDA of $104.5 million, according to the average forecast of a Reuters Estimates poll of six banks.

"We continue to build on the four pillars of our strategy: growing the player base, localising the customer offer and broadening the product base whilst acting responsibly," Garber said in the statement. "These results show that we have built a solid platform for growth... and we remain confident about the Group's future prospects."

Party Gaming said average gross daily revenue rose by 1 percent in the four weeks ended January 28 from the fourth quarter.

The firm is looking for new ways to boost revenue as it faces stiffer competition for poker players and continues to try to compensate for the loss of U.S. gamblers following the UIGEA in late 2006 which banned financial transactions with online gambling companies and caused Party to withdraw from the US market.

Together with competing online gambling companies like 888.com and Sportingbet, Party Gaming is talking to the U.S. Department of Justice in a bid to avoid prosecution for accepting U.S. Internet wagers prior to the UIGEA. Such a deal would not only remove legal obstacles but could pave the way for a re-entry to the lucrative American market should bans on Internet gambling transactions be lifted.

Analysts say it would also trigger major consolidation in the fragmented sector, and Garber remarked that should this take place his company could be a target as the most compliant and conservative in the sector. “We’re the prettiest girl at the party,” he quipped.

Garber confirmed that discussions with U.S. authorities continued, and undertook to report any significant developments.

Earlier, the group said that its new poker customer loyalty scheme had adversely impacted sales; the group's gross poker revenue rose 7 percent from the third quarter, but net revenue dropped 3 percent, as the restructuring of the player loyalty programme led to a rise in bonuses as a percentage of gross revenue. This would be offset, however, with lower-than-expected costs and customer bad debts.

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