BAD QUARTER FOR ONLINE GAMBLING SOFTWARE PROVIDER

2 November 2007

Boss Media reports decline in operating profit of 35 percent


It hasn't been a happy third quarter for online gambling software developer Boss Media, which has reported a decline in operating profit of nearly 35 percent to SEK 11.7 million (2006: SEK 17.9 million) on total revenues of SEK 68.8 million, a fall of nearly 11 percent against the same period last year. Net profit for the third quarter was SEK 8.3 million (2006: SEK 23 million).

The nine month numbers were similarly disappointing. In its interim report for the period 1 January to 30 September, Boss posted results of SEK 230.7 million in Sales (same period last year: SEK 231.5 million) Royalty revenues fell by 8 percent to SEK 169.4 (2006: SEK 184.1 million) and operating profit slipped to SEK 39.2 million (2006: SEK 44.8 million) Net profit for the nine months was SEK 35.2 million (last year: SEK 57.1 million)

The company reported that the market for Internet gaming experienced continued moderate growth within most gaming segments during the third quarter. Increased Internet penetration continued to have a positive long-term effect on growth in several markets. The poker segment appears capable of continued growth, albeit at a slower rate than in recent years, while Bingo is currently the fastest growing segment.

However, during the third quarter, sales growth remained unsatisfactory and determined efforts to increase sales volumes were initiated. Work on changing and strengthening the sales organisation was initiated. The ongoing launches of new and updated products is also expected to have a favourable impact on revenues.

During the quarter, activity within the customer base was high and a large number of upgrades and expansions of game offerings was implemented. In addition, a few completely new contracts were secured. Royalty revenues stabilised and a cautiously positive trend was discernible during the latter part of the quarter – this was after the gradual negative changes seen earlier in the year, as a result of altered terms in two major customer contracts.

At the end of September, the Boss poker network (IPN) switched its base currency from US dollars to the Euro, which reflected IPN’s European focus and led to a reduced currency risk.

Several successful casino games were launched during the period, which had a positive impact on several operator customers. In August, Ireland’s largest bookmaking company, Paddy Power, entered into an agreement with Boss Media regarding delivery of casino systems.

The Gaming Management System (GMS) product is scheduled to be deployed among customers towards the end of the year. GMS is a business system for gaming operators that allows them to have a common system for players, gaming products and digital distribution channels, thus providing greater control and profitability. Its open architecture allows gaming products from different suppliers to be managed on the same platform, which is unique.

However, Boss Media’s GMS product alone is not expected to generate any significant revenues during 2007 and 2008. The primary goal of GMS is to increase the company’s competitiveness within all gaming segments by offering the same modern platform for all games. The GMS architecture is also expected to increase Boss Media’s efficiency in game development.

The trend in the Interactive Gaming Machines product segment remained favorable during the third quarter. The healthy growth is deriving from cooperation with Synot Lotto, which is successful in the Eastern European market, mainly in the Czech Republic and Slovakia.

The launch of Boss Media’s new product generation within the Bingo segment has begun and the initial licensees will launch their gaming operations in December. As sales increase, the Bingo segment could become an additional major source of revenues.

Exchange rates had a negative impact of about SEK 8.6 million on sales. Adjusted for changes in exchange rates, the underlying increase in sales was 3 percent, compared with the year-earlier period. Revenues from license sales amounted to SEK 30.6 (21.0) million, an increase by 46 percent compared with the same period last year. Service revenues from operational, support and payment management services amounted to SEK 29.7 (25.1) million, an increase by 18 percent compared to last year.

Royalty revenues decreased by 8 percent to SEK 169.4 (184.1) million. Changes in the terms of the agreements with Sportingbet in January and with Gaming VC in July accounted for a significant part of the decrease. The agreement with Gaming VC involved a reduction of Boss Media’s revenues by approximately SEK 9 million during the second half of the year, compared with the previous level. At the same time, the scope of the contract was increased and the period of the contract was set at two years.

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