REVENUES AND PROFITS UP AT NETENT

7 November 2008

Good result in both quarterly and YTD numbers from Swedish provider

 

The Swedish listed online gambling software provider Net Entertainment has turned in another sterling set of quarterly and year-to-date results, with rising after tax profits and substantially improved revenues.

Highlights in the Year To Date numbers for the nine months to end September include:

• Revenue for the nine-month period increased by 50 percent to SEK 143.0 (95.1) million.
• Profit after tax rose by 65 million to SEK 52.8 (32.1) million
• Operating margin was 40.0 (37.0) percent
• 16 new license agreements.

And for the third quarter 2008:

• Revenues increased by 63 percent to SEK 52.6 (32.3) million.
• Profit after tax rose by 104 percent to SEK 19.9 (9.8) million.
• Operating margin was 42.2 (32.9) percent
• 8 new license agreements

Chief Executive Officer Johan Öhman said: “Net Entertainment is continuing to evolve strongly. The primary driving force is volume growth with our existing customers and the infusion of new. The games and [software] functionalities that the company has launched have strongly contributed to the success. Development during the second and third quarter is characterised by a lower seasonal effect compared to previous years. We see no tendencies for a slowdown in the market growth for online gaming and the fourth quarter has started off strongly.

"The [NetEnt] development work in the Ukraine is proceeding well and the company now has two development teams in place. The downloadable casino is at present undergoing acceptance testing and will be launched for our customers shortly. During the third quarter a virtual horseracing game in the category “soft games” was launched. The result will determine whether additional soft games will be developed.

"Sales aimed at new customers have been successful. Agreements in the first nine months of the year have been signed with four Tier 1 operators. As a result of this the company’s dependence on individual customers is drastically diminished."

A statement from the company revealed that growth in the third quarter has been strong thanks to successful marketing initiatives, with three new games released during the period and three new licensee operations launched, thereby boosting the company's revenue base. A further eight new agreements were inked during the quarter, including King, Chipleader, 21Media, Bingo Las Vegas, No IQ Poker and three operators that for now wish to remain anonymous. Four others were cancelled when the operators did not reach minimum turnover levels.

Revenue was favourably affected by the higher volumes reported for the third quarter as compared with the equivalent period 2007. However, higher volumes also meant a somewhat lower average price due to a policy through which higher volumes generate a lower price. The royalty levels per pricing system remained stable throughout the quarter. Third quarter sales increased 9 percent over the previous quarter.

Operating profit was up 108 percent compared with the period last year and 21 percent over the previous quarter as the company accelerated its development pace broadened its selection of products. Contract developments in the Ukraine and outsourced development resources in Stockholm helped to increase the rate of development. The company also incurred costs related to the ongoing listing process for the trading of shares on the OMX Nordic Exchange in Stockholm.

At the end of the quarter, Net Entertainment had 17 contracted customers that have not yet been launched.

The company says that the market for online gaming has exhibited strong growth over previous years and global sales for internet gaming are expected to exceed USD 16 billion in 2008. In the next few years, Europe is expected to represent more than half the total gaming revenues and grow by 15-20 percent annually, making it by far the largest online gaming market. Net Entertainment therefore views the conditions for continued expansion in the Internet casino market as good.

The company's intention to target a broader market and expand will depend on a more generous product portfolio, organic growth or could be achieved through acquisitions or in-licensing.

Net Entertainment has increased headcount and now employs 77 persons and 30 subcontractors.

The fourth quarter has started strongly, with the company achieving accreditation by the respected independent player protection and standards body eCOGRA, and signing another new licensee. The company currently has an operational customer base of some sixty international gaming companies. Net Entertainment releases a new games every twelve weeks, with each release comprising 4-6 new games that licensees.

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