BPTY.L Regulatory News (BPTY)

29 Aug 2008 07:00



29 August 2008

PartyGaming Plc

Half year results for the six months to 30 June 2008

Financial summary
Six months to 30 June						2008	2007^
						$million	$million
Net revenue
Poker						153.9	144.6
Casino						89.9	65.1
Bingo						2.0	1.1
Sports Betting						9.0	6.6
Total net revenue						254.8	217.4
Clean EBITDA*
Poker						36.0	22.8
Casino						27.0	15.3
Bingo						(0.4)	(0.1)
Sports Betting						1.2	0.7
Unallocated Corporate						1.1	(1.8)
Total Clean EBITDA * from Continuing operations						64.9	36.9
Total Clean EBITDA * from Discontinued operations#						(4.0)	(19.0)
Total Clean EBITDA *						60.9	17.9
Profit (loss) from operating activities from Continuing operations						27.8	(32.2)
Profit (loss) before tax from Continuing operations						30.3	(32.0)
Profit (loss) after tax from Continuing operations						26.7	(35.5)
Clean EPS* (cents) from Continuing operations						10.6	2.9
Basic EPS (cents) from Continuing operations						6.6	(9.0)
Clean EPS* (cents)						9.6	(1.9)
Basic EPS (cents)						5.6	(12.8)

^ During the first half of 2007, $4.9m was derived from inactive fees and similar items that have been included in net revenue. In prior years, these were netted against operating costs as they were not material. Casino revenues and Clean EBITDA have been adjusted to exclude bingo which is now disclosed as a separate business segment.

* EBITDA/EPS before reorganisation income and costs and non-cash charges relating to share-based payments. 

 # Operations located physically outside of the US but which relate to US customers that were no longer accepted following the passing of the Unlawful Internet Gambling Enforcement Act on 13 October 2006.

Commenting on today's results announcement, Jim Ryan, PartyGaming Chief Executive Officer, said:

"PartyGaming is a company that has transformed itself into a truly international business. The Group's performance over the first six months of 2008 is a testament to that transition. Since arriving as CEO a few weeks ago, I have found a world class business with enormous potential. As our markets evolve so must our business strategy. Our poker business continues to grow but is being held back by the continued competition from those sites that accept players from the US. We will continue to leverage our skills and technology through our own brands which remain strong and also through the brands of others in the form of white labels. We also now plan to enter into relationships with other gaming companies across all our products. As well as leveraging our skill set, I am also determined that we refocus on our core asset, our customer base. The imminent relaunch of PartyPoker will be at the heart of this initiative and should foster further growth of our existing franchise, whilst greater licensing of our technology will create new and, I believe, significant opportunities to grow revenue and profit."

Regarding current trading he added:

"In the 8 weeks ended 25 August 2008, average gross daily revenue was $1,601,600.  In poker, new player sign-ups averaged 993 per day and there were on average 50,800 active players per day, generating average gross daily revenue of $835,300.  In casino, average gross daily revenue was $694,100, in bingo it was $27,600 while in sports betting, average gross win per day was $44,600. 

"The Group has made good progress in 2008 in a competitive and challenging environment. Whilst trading in poker since 30 June 2008 has been slightly softer than we would have expected, with a number of new initiatives underway, including the relaunch of PartyPoker and our refocused strategy in place, the Board remains confident about the Group's future prospects."

Contacts:

PartyGaming Plc	+44 (0) 207 337 0100
Peter Reynolds, Group Director of Corporate Affairs
John Shepherd, Director of Corporate Communications

  Analyst meeting, webcast, dial-in and conference call details: 29 August 2008

There will be an analyst meeting for invited UK-based analysts at Dresdner Kleinwort, 30 Gresham Street, London, EC2P 2XY starting at 9.30am BST.  There will be a simultaneous webcast and dial-in broadcast of the meeting.  To register for the live webcast, please pre-register for access by visiting the Group website (www.partygaming.com).  Details for the dial-in facility are given below.  A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

 

In addition, there will be an interactive conference call for international investors and analysts starting at 2.30pm BST, details of which are set out below.

 

An interview with Jim Ryan, Chief Executive Officer and Martin Weigold, Group Finance Director, in video/audio and text will also be available from 7.00am BST on 29 August 2008 on: http://www.partygaming.com and on http://www.cantos.com.

 

Dial-in details to listen to the analyst presentation: 29 August 2008

9.20 am	Please call +44 (0)20 8609 3822 (UK)
Title	PartyGaming Interim Results
9.30 am	Meeting starts

 

A recording of the meeting will be available for a period of seven days from 29 August 2008. To access the recording please dial the following replay telephone number:

 

Replay telephone number	+44 (0)20 8609 0289
Replay passcode:	227655#

 

Conference call: Friday 29 August 2008

For international analysts and investors there will also be an opportunity to put questions to Jim Ryan, Chief Executive Officer, and Martin Weigold, Group Finance Director, by way of a conference call. The details of the call are as follows:

 

2.20 pm	Please call +44 (0)20 8609 3822 (UK)
2.30 pm	Conference call starts

 

A recording of the conference call will be available for a period of seven days from 29 August 2008.  To access the recording please dial the following replay telephone number:

 

UK Replay telephone number	+44 (0)20 8609 0289
UK Replay passcode:	227658#

All times are British Summer Time.

About PartyGaming Plc

PartyGaming Plc is the world's leading listed online gaming company.  Founded in 1997, the Group is a constituent of the FTSE 250 share index with its shares listed on The London Stock Exchange under the ticker: PRTY. In the year to 31 December 2007, PartyGaming's Continuing operations generated revenues of $476.0m and Clean EBITDA of $111.7m. PartyGaming's principal brands are PartyPoker.com, one of the world's largest online poker rooms, EmpirePoker.com, PartyCasino.com, PartyBingo.com, PartyGammon.com, PartyBets.com, PartyMarkets.com and Gamebookers.com. None of the Group's sites accept real money customers located in the US.

PartyGaming is regulated and licensed by the Government of Gibraltar and by the Alderney Gambling Control Commission and is certified by GamCare as a responsible gaming operator. For more information, please visit www.partygaming.com.

  Business Review

Introduction

PartyGaming offers a broad range of games and owns some of the biggest and best known brands in online gaming, including PartyPoker.com, one of the world's largest online poker rooms, EmpirePoker.com, PartyCasino.com, PartyBingo.com, PartyGammon.com, PartyBets.com, PartyMarkets.com and Gamebookers.com.

While full details of the consolidated performance of Continuing and Discontinued operations are contained in the financial information and the accompanying notes, all references to financial performance or key performance indicators throughout this document refer to the Continuing non-US facing business only, unless expressly stated otherwise.

Results

Net revenue was up by 17% year-on-year to $254.8m (2007: $217.4m) with growth across all gaming segments. The primary driver was casino that grew by 38% year-on-year on the back of higher player numbers, an increase in spend per gaming session as well as increased frequency of play. Poker grew by 6% versus 2007, held back by strong competition, particularly from sites that continue to take bets from customers based in the US, continued cross-selling of casino to the Group's poker players and the impact of the Euro 2008 football tournament that took place during the period. Bingo and sports betting also showed substantial growth, albeit from lower bases.

As explained in the full year results for the year ended 31 December 2007, net revenue was adjusted to take account of $9.6m that had been derived from inactive fees and similar items that in prior years had been netted against operating costs as they were not material. As a result, a corresponding adjustment has been made to the comparative figures for the first half of 2007 totalling $4.9m. 

The inherent operational leverage in the Group's business model meant that Clean EBITDA grew by 76% to $64.9m (2007: $36.9m) with Clean EBITDA margins rising from 17.0% to 25.5%. This was despite incurring costs of $4.1m (2007: $nil) associated with the change of Chief Executive Officer during the first half of 2008. 

Discontinued operations incurred a loss at the Clean EBITDA level of $4.0m (2007: loss of $19.0m). This loss in the first half of 2008 primarily reflected legal fees associated with the Group's ongoing discussions with the Attorney's Office for the Southern District of New York ('DoJ'). This was substantially lower than the prior year comparative which also included a charge relating to a contractual obligation with Harrah's License Company LLC for The World Series of Poker.

Total Clean EBITDA (including Discontinued operations) was up 240% to $60.9m (2007: $17.9m) driven by revenue growth, a lower level of sign-ups generated by CPA affiliates1 and lower charges in respect of the Discontinued operations. Total operating profit grew by $71.1m to $23.8m in the period (2007: operating loss $47.3m) reflecting substantially higher Clean EBITDA and a much reduced share-based payments charge. The total profit before tax was $26.3m (2007: loss before tax $47.1m) and the total profit after tax was $22.7m (2007: loss after tax $50.6m).

1Cost per acquisition ('CPA') affiliate sign-ups are those where the Group pays a fixed fee to the affiliate for each real money sign-up whereas the associated revenue benefit is received over the lifetime of the player. This contrasts to revenue share affiliate sign-ups where a % of the revenue generated by the player (minus certain deductions) is paid to the affiliate over the lifetime of the player.

Continuing Clean EPS was up by 266% to 10.6 cents (2007: 2.9 cents) and basic EPS from Continuing operations was 6.6 cents (2007 loss of 9.0 cents per share). Total Clean EPS was 9.6 cents (2007: loss per share 1.9 cents) and basic EPS was 5.6 cents (2007: loss per share 12.8 cents). 

The table below provides a reconciliation of the movements between Clean EBITDA and operating profit (loss):

  

Reconciliation of Clean EBITDA* to operating profit
Six months to 30 June						2008	2007
						$million	$million
Clean EBITDA* - Continuing operations						64.9	36.9
Depreciation						(9.4)	(11.3)
Amortisation						(11.4)	(10.8)
Share-based payments						(16.3)	(47.0)
Operating loss from Discontinued operations						(4.0)	(19.0)
Reorganisation income						-	3.9
Profit (loss) from operating activities						23.8	(47.3)
Earnings (loss) per share
Clean EPS* (cents) from Continuing operations						10.6	2.9
Basic EPS (cents) from Continuing operations						6.6	(9.0)
Clean EPS* (cents)						9.6	(1.9)
Basic EPS (cents)						5.6	(12.8)

*EBITDA/EPS before reorganisation income and costs and non-cash charges relating to share-based payments 

H1 2008 business developments 

The Group has made good progress on a number of business development initiatives during the first half of 2008. One of our stated objectives is to leverage the Group's skills and proprietary technology through a series of alliances to help drive the business forward and broaden our product base.

Central to our strategy has been the licensing of popular international brands to enhance the quality of our casino offering. At the end of 2007 we established an alliance with Paramount Pictures giving us access to a large number of blockbuster movie titles and we were delighted to add the Mission: Impossible and Saturday Night Fever slots to PartyCasino.com during the first half of 2008. When launched, Mission: Impossible immediately became our best performing slot in terms of amount wagered and continues to be one of our most popular casino slots.  Since the period end we have launched The Godfather slot, that is performing well and has already produced a $1 million jackpot winner.

Further deals were secured during the first half and we have already announced an alliance with STUDIOCANAL, part of the Canal+ Group to add The Terminator and Rambo slots to our suite of games over the coming months. Whilst excited about the prospects for each of these movie-branded slots, we have also looked for alternative sources of global brands that will create value in online gaming and hope to provide further details over the coming months.

PartyMarkets, the Group's new product vertical, was launched on 30 June 2008. Formed through an alliance with City Index, one of the UK's leading providers of contract for difference ('CFD') and financial spread-betting services, we plan to promote the many similarities between live betting and CFD trading to new and existing customers. In the Autumn of 2008 we will introduce a fresh customer interface that we hope will significantly broaden PartyMarkets' appeal to betting and gaming customers around the world.

Product innovation has always been at the heart of PartyGaming's success. The launch of Bingo Night Live in the UK on 4 June 2008 represented another industry first for PartyGaming. As sponsor of the programme, this was an initiative to stimulate interest in bingo and has been a major success.  Whilst no revenues are generated directly from the programme for PartyGaming, such mass market exposure for bingo has had a powerful impact on the Group's bingo business that has grown strongly since the show was launched. 

As part of our continued efforts to localise the customer offer, we launched our licensed Italian sportsbook, PartyBets.it, on 4 June 2008. The sports betting market (excluding horse racing) in Italy totalled approximately €2.8 billion of gross turnover in 2007 and, according to official statistics2, in the first six months of 2008 total amounts wagered have increased by 64% over the previous year to €1.98 billion (H1 2007; €1.21 billion), of which we estimate approximately 20% is online.

2 Source: AAMS

An update on developments within each of the Group's three key operational areas during the first half of 2008 is provided below. 

1. Sales and player marketing

The Group has continued to add large numbers of new real money players, albeit not at the same rate as during the first half of 2007 when there was a strategic decision to rebuild player liquidity in poker following the enactment of the UIGEA. While this meant that the number of poker sign-ups was down 32% overall versus the prior year, casino delivered strong growth in new player sign-ups with an increase of over 50%, bingo sign-ups increased five-fold while sports betting grew its new player sign-ups by 24%. The growth in casino reflected the success of a major campaign both on television and through online channels that took place during the second quarter of 2008, as well as a tactical offline campaign to support the launch of the Group's new slots Mission: Impossible and Saturday Night Fever. The sponsorship of Bingo Night Live on UK television by ITV Casino, one of the Group's white label products, was also the primary factor in driving volumes of new player sign-ups. In sports, in addition to a campaign in the UK earlier in the year, a marketing plan to support our new Italian license went live on 9 June 2008.

The Group's affiliate network continues to contribute to the Group's performance. During the first half of 2008 the Group integrated all of the affiliate management across our Party-branded sites and sites operated on third party platforms in order to drive synergies and greater operational efficiencies.

The distribution of our library of advertiser-funded poker programming continued to grow during the first half of 2008 with deals secured or at final stages of negotiation in a number of new territories.  In the UK, a deal with ITV4 means that the Group has now secured deals with each of the major UK commercial broadcasters including a third successive annual broadcast and sponsorship deal with Five, part of the RTL network.

An analysis of international sign-ups, unique active players and consolidated active player days in each of our key international segments is provided below:

New player sign-ups (000)
Six months to 30 June	2008	2007	% change
EMEA*	273.6	342.4	(20%)
Americas (non-US)	36.3	42.3	(14%)
Asia Pacific	14.4	19.0	(24%)
Total	324.3	403.7	(20%)

Unique active players (000)
Six months to 30 June	2008	2007	% change
EMEA*	708.7	608.8	16%
Americas (non-US)	131.2	120.9	9%
Asia Pacific	41.5	38.5	8%
Total	881.4	768.2	15%

Active player days (m)
Six months to 30 June	2008	2007	% change
EMEA*	11.1	11.4	(3%)
Americas (non-US)	2.4	2.5	(4%)
Asia Pacific	0.6	0.6	0%
Total	14.1	14.5	(3%)

* Europe, Middle East and Africa

The number of unique active players for the six months to 30 June 2008 increased by 15% to 881,400 (2007: 768,200) through the addition of over 324,000 new player sign-ups. Despite this growth in the active player base, the average number of daily players fell by 3% to 77,700 reflecting a reduction in player frequency caused by an increasing proportion of casual players as well as an increasing proportion of players from non-poker segments that, on average, tend to play less frequently than poker players. It also reflects the fact that players are now more likely to play on a number of different gaming sites rather than just one site.

2. Systems and product development

The Group's proprietary technology infrastructure and operating platform form the backbone of PartyGaming's operations and lie at the very heart of the customer experience. During the first six months of 2008 the Group's product development, systems and infrastructure activities continued to make great progress. Our focus in product development was on extending our games offerings and creating a new platform for delivery of rich internet applications using flash software for both our casino and bingo products. Our systems and infrastructure team made major upgrades to existing data centres and have continued to increase the level of reliability in our production systems.

After the successful re-launch of PartyBingo on the flash platform in 2007, the Group began to develop a new suite of flash casino games. The first suite of games includes some of our most popular branded slot games: Mission: Impossible, Saturday Night Fever and The Godfather.  The new flash-based, no-download version of the full casino is scheduled to launch in a few weeks' time, allowing these games to be offered both PartyCasino and PartyBingo.  

As well as developing new products, we have also made a series of upgrades to the Group's gaming platform, enhancing both the customer experience and overall platform performance.  These include improved systems for player loyalty, VIP customer service, player marketing and marketing operations, all of which were launched in the first half of 2008.

The product development group has also been designing and building our next generation poker product which is due to launch in the second half of 2008.  This will be the first major re-launch of PartyPoker in the last three years and will be a mark of our ongoing commitment to provide our customers with unique tools and features that combine to deliver the best poker product in the industry.

3. Customer service

The Group's customer service activities are an important element of our overall service proposition, providing help to those requiring assistance or with queries regarding their player account. Our customer service teams are also an important factor in helping to improve customer conversion by solving problems with log-in or payments. In total the Group now has over 190 full-time customer service agents who provide support in 11 languages other than English (Danish, French, German, Greek, Italian, Polish, Romanian, Russian, Spanish, Swedish and Portuguese). The increasingly international balance of the customer base is demonstrated by the mix of customer contacts: approximately 29% (2007: 14%) of the 362,000 customer contacts received during the period were conducted in languages other than English.

Regulatory developments

The Group continues to employ a strict and rigorous assessment process to manage operational risk and regulatory compliance. The regulatory environment for online gaming in many key jurisdictions continues to move quickly and as a result the Group regularly reviews key territories.

In the US, discussions initiated with the Department of Justice ("DoJ") on 4 June 2007 are still progressing. While it remains too early to assess the likelihood of any particular outcome from these discussions, obtaining such a resolution remains one of the Board's priorities.

As mentioned in the Group's 2007 Annual Report, certain online gaming businesses continue to offer real money games to customers in the US. This represents a continuing competitive threat to listed businesses like PartyGaming that immediately stopped customers in the US from playing or making deposits on any of the Group's real money sites following the enactment of the UIGEA. While PartyGaming believes that the DoJ is investigating companies that accept online gaming customers in the US, there can be no guarantee that any action will be taken against such companies. On the legislative front, there continue to be a number of initiatives that are seeking to establish a regulatory as well as fiscal framework for online gaming in the US. However, the prospects of success for each of these measures remains uncertain.

In Europe, during the first half of 2008 the European Commission has continued to take steps against Member States that it believes are in breach of European Community law. At the end of January 2008 Letters of Formal Notice were sent to both Sweden and Germany, while Reasoned Opinions were sent to both Greece and the Netherlands at the end of February 2008. Italy also received a further Letter of Formal Notice at the beginning of April 2008 having failed to follow an appropriate process for the allocation of licenses under its new regulatory regime. The European Commission is expected to refer at least one of the seven Member States that have been issued with a Reasoned Opinion to the European Court of Justice ('ECJ'), although no such reference has yet been made. The next meeting of the Commissioners to review the infringement process takes place in September 2008.

Irrespective of whether any country is referred to the ECJ or not, it is clear that the steps taken by the European Commission are beginning to have an impact. France has announced its intention to introduce a regulatory framework as has Ireland and Spain while Sweden is conducting a review of its own gambling market. We will continue to pursue a level playing field for our products and services across Europe and continue to believe that a regulatory framework can strike the right balance between providing adults with a safe and secure online gaming environment whilst ensuring protection for children and the vulnerable. However, we also believe that a uniform framework across Europe is unlikely to become a reality in the short-term. 

Directors and management

On 15 May 2008 it was announced that Jim Ryan would become Chief Executive Officer and his formal appointment took effect on 30 June 2008. John O'Malia was appointed to the Board as Managing Director on 16 May 2008. At the Company's Annual General Meeting in May 2008, Michael Jackson, announced that he would be standing down as Chairman of the Group once Jim Ryan had settled into his new position and a successor Chairman had been selected. In a separate announcement today, it has been confirmed that with immediate effect Michael Jackson is stepping down and Rod Perry, currently the Senior Independent Director of the Company, has been appointed Non-Executive Chairman. Lord Moonie will succeed Mr. Perry as the Senior Independent Director.

Dividend

While the Group has delivered a strong year-on-year performance in the first six months of 2008, the Board has again not declared an interim dividend. The Board will continue to review the appropriate dividend policy for the Group going forward, taking account of the need to retain sufficient financial flexibility to take advantage of consolidation opportunities that are expected to arise when the DoJ discussions are concluded.

Refocused business strategy and future developments

Since the enactment of the UIGEA in 2006 the Group has transformed itself into a truly international online gaming business, offering a broad range of gaming products in different languages and currencies.

The merits of the strategy to diversify further into new products and geographic areas are clear from the Group's financial performance, with casino and European markets having grown particularly strongly. However, we believe that we have yet to extract the full potential from our business model; we can improve our current business performance yet further and can also exploit a wealth of opportunities that will deliver additional value. Having been the largest listed online gaming company in the world and one of the largest gaming companies in the world before the UIGEA, we are determined to recapture that position and get back to where we want to be - on top.

However, simply repeating successful tactical and strategic campaigns of the past are unlikely to be as successful in the current environment. Since the enactment of the UIGEA, the structure and dynamics of the marketplace have changed considerably, as have the desires and objectives of our current and potential customer base. Players now have a broad range of gaming sites to play on and general awareness of online gaming has increased substantially. In poker, sites that continue to accept bets from customers located in the US are able to provide greater player liquidity, which makes for a challenging competitive environment.

It is against this background that almost immediately following his arrival as CEO, Jim Ryan instituted a strategic review of the business, involving all of the senior management team in order to set a clear agenda for the Group. Having completed that review, we will continue to build upon the four pillars of our stated strategy namely to:

Grow the player base;

Broaden the product base;

Localise the customer offer; and

Act responsibly.

However, our review has prompted us to refocus the way in which we deliver the business strategy with a particular emphasis on each of the following four elements:

Operational excellence - having restructured the business into a diverse and international enterprise, we believe we can further improve the execution of our customer proposition. Drawing upon their  considerable industry experience the new management team is taking steps to increase our operational focus and raise our already high standards even further.

Delighting the customer - As well as changes in market structure, consumer tastes have also evolved - online customers have become more discerning about what they want and are prepared to shop around to find it. This means that the strength of individual brands can expect to become increasingly important as will the ability to differentiate our customer offer.

Leveraging our core assets - Given the sustained competitive pressures and the quality of our gaming products and operating platform, we plan to both broaden our customer reach as well as monetise some of the investment tied up in our franchise through licensing our services to third parties. Whilst the Group has licensed its poker software in the past, it has never before offered its casino, bingo or sports betting products. Over the coming months we will be looking to exploit the opportunities across each of the major product areas, including poker. Having already revitalised our casino, bingo and sports betting software, we will soon be relaunching PartyPoker.com and we are confident that individually or as a whole, our service offer will be a highly attractive alternative to other software suppliers and networks.

Leveraging the assets of others - following the success of bingo on the back of our alliance with ITV in the UK, the potential for white labels is clear and their ability to reach customers that would otherwise pass us by. The success of our Mission: Impossible, Saturday Night Fever, and The Godfather slots also demonstrates the potential for international brands in an online gaming environment.

Future developments 

Over the coming weeks and months we will be executing a series of initiatives across all of our business segments to reinforce our new focus on each of the four elements above.

At the heart of this will be the relaunch of PartyPoker.com that will take place over the next two quarters. Over the past 10 months we have been researching and developing what we hope will represent a major step forward in the quality of the online poker product. We will be providing a range of new features and tools, many of which are currently unique and which will improve the experience for all our players, whether they are a seasoned hand or a relative novice. The relaunch will be supported by a major rebranding exercise and marketing campaign that will aim to highlight the great benefits of playing at PartyPoker versus other sites, one that we believe will ultimately return PartyPoker to being the world's largest poker room outside the US.

In casino we will be broadening the product offering yet further with the addition of a full suite of soft games, as well as more slots. This is all in addition to yet more branded slots such as Top Gun that launched yesterday. Great content is what consumers demand and we intend to deliver both branded and unbranded games that will deliver great gaming entertainment.

Bingo Night Live has already been very successful in driving our bingo business and we continue to build on the momentum already established with UK customers. During the second half we will be launching a suite of flash side games to be integrated into the bingo client, as well as bigger promotions such as our £1m guaranteed jackpot that is already live. We believe that we can become a market leader in bingo and are making great progress to achieving that goal.

In sports betting, we have recently completed a major overhaul of both the PartyBets and Gamebookers websites and also launched our Italian licensed website. Live betting is now available within the main betting frame and customers can place live combination bets with odds updated in real time. Other changes include improved navigation and the creation of a family view of leagues, games markets and odds. This is expected to substantially improve the appeal of our betting product over the coming months.

PartyMarkets, our new product vertical, went live on the evening of 30 June 2008 and so has not been split out in the results for the six months to 30 June 2008. During the third quarter of 2008 we will be launching the planned upgrade to the PartyMarkets interface which will feature a series of products that are easier to understand and have been designed to appeal more to the online gamer rather than the typical investor that might frequent CFD trading and spread betting services.  Marketing for this new segment will also commence during the third quarter of 2008. 

We will soon be launching a further suite of games under the PartyGames brand. PartyGames will offer a suite of soft games including those developed internally as well as those licensed from third parties. Underpinning the launch has been our first licensing deal for PartyGames with Electracade that is providing us with a suite of games including such gaming favourites as Hi-Lo, scratch cards and Top Trumps. PartyGames will be available within the casino and bingo products, broadening consumer choice and enhancing the overall player experience.

A plan is only as good as those chosen to execute it. PartyGaming is no ordinary business and at its heart is an extraordinary workforce. They have been through a great deal over the past 18 months but their huge drive and determination to succeed is not diminished, if anything it is greater than ever, driven by the desire to get PartyGaming back to the top. Through appropriate incentive and reward structures, as well as carefully crafted career development plans we are building a workforce with the skills and international perspective to execute our strategic plan and meet our long-term objectives.

We are entering a new and challenging phase of development for our business, but one that is full of opportunity. We remain focused, determined and excited about our prospects.

Current trading and outlook

In the 4 weeks ended 28 July 2008, average gross daily revenue was $1,679,700.  In poker, new player sign-ups averaged 1,050 per day and there were on average 51,100 active players per day, generating average gross daily revenue of $855,300.  In casino, average gross daily revenue was $739,100 while in bingo it was $28,800. In sports betting, gross win per day averaged $56,500.

In the following 4 weeks, ended 25 August 2008, average gross daily revenue was $1,523,600, reflecting the peak holiday period in a number of key markets and temporary technical difficulties experienced during the month.  In poker, new player sign-ups averaged 936 per day and there were on average 50,600 active players per day, generating average gross daily revenue of $815,400.  In casino, average gross daily revenue was $649,000 while in bingo it was $26,500. In sports betting, average gross win per day was $32,700. 

The Group has made good progress in 2008 to-date in a competitive and challenging environment.  Whilst trading in poker since 30 June 2008 has been slightly softer than we would have expected, with a number of initiatives already underway, including the relaunch of PartyPoker.com and our refocused strategy in place, the Board remains confident about the Group's full year prospects.

  SUMMARY OF RESULTS

			Net revenue			Clean EBITDA
Six months to 30 June			2008	2007		2008	2007
			$million	$million		$million	$million
Poker			153.9	144.6		36.0	22.8
Casino			89.9	65.1		27.0	15.3
Bingo			2.0	1.1		(0.4)	(0.1)
Sports Betting			9.0	6.6		1.2	0.7
Unallocated Corporate			-	-		1.1	(1.8)
Total Continuing operations			254.8	217.4		64.9	36.9
Discontinued operations			-	-		(4.0)	(19.0)
Total			254.8	217.4		60.9	17.9

Net revenue was up 17% over the prior year, with all business segments showing year-on-year growth. The primary driver was casino where revenue increased by 38% year-on-year on the back of higher player numbers, an increase in spend per gaming session as well as increased frequency of play. Whilst poker revenue was up 6% year-on-year, this was against a particularly strong performance in 2007 and also in the context of strong growth in casino, most of the players for which still come from poker. Bingo and sports betting also delivered strong growth in the period but are still relatively small in the context of the Group. Clean EBITDA grew by 76% to $64.9m (2007: $36.9m), reflecting the growth in revenue, a lower number of CPA affiliate sign-ups than the previous year and the inherent operational leverage within the Group's business model.

These factors also helped to lift the Clean EBITDA margin to 25.5% (2007: 17.0%), the prior year margin having been impacted by the strategic decision to rebuild player liquidity in poker during the first quarter of 2007.

Clean earnings per share from Continuing operations was 10.6 cents (2007: 2.9 cents).  Total Clean earnings per share was 9.6 cents per share (2007: loss per share of 1.9 cents).

The consolidated key performance indicators underlying this performance are highlighted below:

Consolidated Key Performance Indicators
				Growth in
Six months to 30 June			Annual	Q2 08
Continuing operations	2008	2007	Growth	vs Q1 08
Active player days (million)	14.1	14.5	(3%)	(11%)
Daily average players (000s)	77.7	80.1	(3%)	(10%)
Yield per active player day ($)	18.0	15.0	20%	9%
Yield per unique active player ($)	289.1	283.0	2%	(0%)
New real money sign-ups (000s)	324.3	403.7	(20%)	(11%)
Unique active players during the period (000s)	881.4	768.2	15%	(2%)
Average daily net revenue ($000)	1,400.0	1,201.2	17%	(2%)

Meaningful year-on-year comparisons for a number of the key performance indicators were distorted by the strategic initiatives employed by the Group to increase player liquidity, particularly in poker, immediately following the enactment of the UIGEA.

Total active player days for the Continuing operations fell 3% versus the prior year to 14.1m and the average number of daily players also fell by 3%. Unique active players rose by 15% to over 881,400 in the period, driven by new player sign-ups.  

Yield per active player day increased strongly to $18, reflecting the lower numbers of new player sign-ups that tend to generate below average yields but also due to the strong growth in casino, where yields are higher than poker, as well as the impact of certain revenue enhancing initiatives that were introduced during 2007. The interaction of each of the key performance indicators above resulted in average daily revenue for the six months to 30 June 2008, of $1,400,000 per day, up 17% from $1,201,200 in the same period the previous year.

There follows a more detailed review of the Continuing operations including each of the individual product segments.  Full details of all of the Group's historic quarterly key performance indicators can be downloaded from the Group's website at: http://www.partygaming.com/investor/documentation.html. 

Poker
Six months to 30 June				2008		2007	%
				$million		$million	change
Gross revenue				180.3		163.7	10%
Bonuses and other fair value adjustments to revenue				(26.4)		(19.1)	(38%)
Net poker revenue				153.9		144.6	6%
Continuing Clean EBITDA				36.0		22.8	58%
Clean EBITDA margin				23.4%		15.8%

The Group's strategy to create a more broadly-based business in terms of product continues to gather pace. Poker remains the largest business segment at 60% of net revenue and 55% of Clean EBITDA, a reduction on the previous year (67% and 62% respectively). Whilst poker revenues have grown year-on-year, PartyPoker.com has lost market share, particularly to competitor sites that offer real money games to players in the US, but also to certain poker networks. It is estimated that in the week ended 24 August 2008 PartyPoker.com had approximately 8%3 of the global online poker market (versus approximately 12% in August 2007). Continuing net poker revenue increased by 6% versus the previous year to $153.9m (2007: $144.6m).

3 Based on the average number of daily real money cash game players - source: PokerSiteScout.com.

Changes made to the Group's loyalty programme during the second half of 2007 resulted in a sharp increase in fair value adjustments to gross revenue, particularly in poker where they reached 19.2% during the fourth quarter of 2007. Further adjustments to the programme were effected during the first and second quarters of 2008 that have returned the fair value adjustment for PartyPoints to previous levels. However, overall fair value adjustments to poker revenue were 14.6% in the period (2007: 11.7%), with increased competitive pressures resulting in higher bonus costs that off-set the benefits of the revised loyalty programme.

Poker - Key Performance Indicators
				Growth in
Six months to 30 June			Annual	Q2 08
	2008	2007	Growth	vs Q1 08
Active player days (million)	11.4	12.2	(7%)	(13%)
Daily average players (000s)	62.6	67.2	(7%)	(14%)
Yield per active player day ($)	13.5	11.9	13%	5%
Yield per unique active player ($)	220.4	230.8	(5%)	(3%)
New real money sign-ups (000s)	235.2	344.0	(32%)	(20%)
Unique active players during the period (000s)	698.3	626.3	11%	(7%)
Average daily net revenue ($000)	845.7	798.8	6%	(9%)

The year-on-year comparisons, particularly in poker, have been distorted by the major drive to boost player liquidity that took place during the first half of 2007 and in particular during the first quarter of that year. This is most clearly seen by the year-on-year movement in new player sign-ups that was down 32% versus the prior year. As noted above, the performance in poker was also affected by changes made to the Group's customer loyalty programme as well as by an increasingly competitive environment and the success of a number of the Group's key territories in the Euro 2008 football tournament that affected new player sign-ups and active player days. Overall activity levels were also affected by the continued strong growth in casino (with the majority of players historically coming from poker). Poker's performance in the second quarter reflected the normal seasonal pattern but was adversely impacted by these additional factors.

On player retention, approximately 20.4% of all 2008 poker sign-ups remained active after six months versus 24.6% of all 2007 sign-ups. As at 30 June 2008, across all real money poker sign-ups, the proportion of players remaining active after six months was approximately 25.8% (2007: 26.8%), after 12 months it was 20.2% (2007: 21.1%) and after 18 months it was 16.3% (2007: 19.0%).

Yield per active player day increased to $13.5 (2007: $11.9) due to lower levels of sign-ups (that tend to reduce average player yields as new players tend to generate less revenue than more experienced ones) but also by the introduction of a number of revenue generating initiatives. 

The net impact of the movements in each of the KPIs above meant that average daily net revenue in poker increased by 6% in the period to $845,700 (2007: $798,800), while Clean EBITDA grew by 58% to $36.0m (2007: $22.8m) the difference in rate of growth reflecting a lower number of CPA affiliate sign-ups than the previous year, as well as the operational leverage of the Group's fixed cost base.

Casino
Six months to 30 June				2008		2007	%
				$million		$million	change
Gross revenue				122.2		84.8	44%
Bonuses and other fair value adjustments to revenue				(32.3)		(19.7)	(64%)
Net casino revenue				89.9		65.1	38%
Continuing Clean EBITDA				27.0		15.3	76%
Clean EBITDA margin				30.0%		23.5%

The Group's casino business delivered another outstanding performance during the first half of 2008 with net revenue up by 38% versus the prior year while revenue in the second quarter of 2008 was up 12% on the previous quarter. As a result, casino represented 35% of Group revenues in the six months to 30 June 2008 (2007: 30%). The casino segment now excludes bingo which is disclosed separately.

In addition to changes made to the Group's loyalty scheme and increased competition in the marketplace, a reduction in the proportion of casino revenue generated by poker players playing blackjack meant that bonuses and other fair value adjustments to revenue increased from 23.2% in 2007 to 26.4% of gross revenue in the six months to 30 June 2008.  Whilst this impacted revenue growth, the Clean EBITDA margin increased to 30.0% from 23.5% reflecting the operating leverage of the business. A summary of the key performance indicators for the casino business during the half year and the percentage movement between the first and second quarter of 2008 is shown in the table below:

  

Casino - Key Performance Indicators
				Growth in
Six months to 30 June			Annual	Q2 08
	2008	2007	Growth	vs Q1 08
Active player days (000s)	2,276.5	1,999.8	14%	0%
Daily average players (000s)	12.5	11.0	14%	0%
Yield per active player day ($)	39.5	32.5	22%	12%
Yield per unique active player ($)	246.6	189.4	30%	6%
New real money sign-ups (000s)	35.9	23.4	53%	27%
Unique active players during the period (000s)	364.7	343.7	6%	5%
Average daily net revenue ($000)	494.2	359.6	37%	12%
	Y

In 2005 the average net revenue per day in casino was approximately $37,000. Since launching blackjack on PartyPoker.com in October 2005, launching PartyCasino.com in February 2006, acquiring the gaming assets of EOL and IOG and enhancing the product offering during 2007, average daily net revenue has increased substantially to reach an average of $494,200 per day over the six months to 30 June 2008 (2007: $359,600). This uplift has come from both increased player activity and player yields. During the first half of 2008 the average number of daily players increased by 14% and the total number of unique active players increased by 6%. While the majority of players on PartyCasino continue to come from PartyPoker, the EOL and IOG casinos also delivered a strong performance in the period with revenue up by 51% year-on-year to $23.6m (2007: $15.6m). A successful marketing campaign during the second quarter helped to drive new player sign-ups to the Group's casinos with a 53% increase to 35,900 in the period (2007: 23,400). The popularity of the Group's products is helping to increase frequency and this, together with an improving mix of games, is helping to increase player yields. The launch of new games and an improvement in the mix towards higher yielding games such as slots, jackpot slots and a much improved roulette, were all contributing factors to this year-on-year growth. Blackjack, which is a lower hold game, now represents approximately 23% of gross casino revenue compared with over 35% in the first half of 2007. While average yield per unique active player grew by 30% year-on-year and 6% quarter on quarter, the absolute level is still lower than some of our competitors, reflecting the fact that the majority of our casino customers are poker players rather than dedicated casino customers. Management believe that this represents a future opportunity for the Group.  

Bingo
Six months to 30 June				2008		2007	%
				$million		$million	change
Gross revenue				2.8		1.1	155%
Bonuses and other fair value adjustments to revenue				(0.8)		-	n/a
Net bingo revenue				2.0		1.1	82%
Continuing Clean EBITDA				(0.4)		(0.1)	(300%)
Clean EBITDA margin				(20.0%)		(9.1%)

Bingo represents an exciting opportunity for the Group. While the absolute performance in the first half was modest, the recent trends are such that we expect bingo will become a material business segment and hence we have presented its financial performance separately from casino, where it was previously included.

Through the business segment's alliance with ITV Consumer Limited (a subsidiary of ITV plc) in the UK and following improvements made to our bingo software, the Group's average daily gross revenues in bingo have more than doubled and we expect further growth in the second half of 2008. Building on this success we are also exploring the possibility of working with international media groups to see if we can replicate a similar model in other territories.

Bingo - Key Performance Indicators
				Growth in
Six months to 30 June			Annual	Q2 08
	2008	2007	growth	vs Q1 08
Active player days (000s)	181.4	142.1	28%	4%
Daily average players (000s)	1.0	0.8	25%	0%
Yield per active player day ($)	11.1	7.6	46%	6%
Yield per unique active player ($)	58.2	45.0	29%	10%
New real money sign-ups (000s)	10.8	2.2	391%	92%
Unique active players during the period (000s)	34.5	23.9	44%	0%
Average daily net revenue ($000)	11.0	5.9	86%	10%

Having refreshed our bingo software earlier in the year, the launch of Bingo Night Live towards the end of the period had a substantial impact on all of the key performance indicators. The number of unique active players and active player days both increased strongly as did player yields that benefited from an increase in the gross win margin.

Sports Betting
Six months to 30 June				2008		2007	%
				$million		$million	change
Total stakes				279.4		147.9	89%
Gross revenue (or gross win)				12.4		10.1	23%
Bonuses and other fair value adjustments to revenue				(3.4)		(3.5)	3%
Net Sports Betting revenue				9.0		6.6	36%
Gross win margin				4.4%		6.8%
Continuing Clean EBITDA				1.2		0.7	71%
Clean EBITDA margin				13.3%		10.6%

The Group's sports betting activity, primarily PartyBets.com and Gamebookers.com, has continued to grow strongly during the first half of 2008 with gross turnover reaching over $279m in the period (2007: $148m). Live betting has been a major factor behind this growth and it represented over 39% of total stakes in the period (2007: 28%).

While the amounts wagered have continued to grow strongly, the overall gross win margin at 4.4% (2007: 6.8%) was lower than expected in the period. Contributing factors were the strong growth in live betting that tends to have lower gross win margins, the increasing proportion of Canadian customers that bet on lower margin sports, such as baseball and the impact of the Euro 2008 football tournament, that was less profitable than expected following a poor run of results during the early part of the tournament. As a result and with a reduction in bonus rates, net revenue increased by 36% to $9.0m and Clean EBITDA grew by 71% to $1.2m (2007: $0.7m).

  

Sports Betting - Key Performance Indicators
				Growth in
Six months to 30 June			Annual	Q2 08
	2008	2007	growth	vs Q1 08
Active player days (000s)	1,807.0	1,721.0	5%	1%
Daily average players (000s)	9.9	9.5	4%	1%
Yield per active player day ($)	4.9	3.9	26%	(13%)
Yield per unique active player ($)	68.7	59.4	16%	(16%)
New real money sign-ups (000s)	42.4	34.1	24%	(3%)
Unique active players during the period (000s)	129.7	112.4	15%	6%
Average daily net revenue ($000)	49.0	36.9	33%	(12%)

Although average daily net revenue grew by 33% year-on-year, the growth was tempered by the decision to stop taking bets from players in Turkey during the first half of 2007 following a change in Turkish legislation.  During the third quarter of 2008 a number of product enhancements are being introduced that are expected to provide a further boost to betting volumes whilst some operational and structural changes should help to improve the gross win margin.

Distribution costs
Six months to 30 June	2008	2007	%
	$million	$million	Change
Customer acquisition and retention	48.6	40.1	21%
Affiliates	36.6	44.1	(17%)
Other customer bonuses (not netted from revenue)	4.2	1.5	180%
Customer bad debts	1.2	4.3	(72%)
Webhosting and technical services	15.8	10.1	56%
Continuing distribution costs	106.4	100.1	6%
Continuing distribution costs as a % of continuing net revenue	41.8%	46.0%

An increasingly competitive environment, coupled with an increasing proportion of sign-ups coming from direct sources, particularly in poker, resulted in an increase in customer acquisition and retention costs in the period rising by 21% to over $48m where they represented 19.1% of net revenue (2007: 18.4%). However, the decision to increase player liquidity in poker in the first half of 2007 increased affiliate costs sharply in that period and with no similar campaign in the first half of 2008 these costs were significantly lower as a proportion of net revenue, falling from 20.3% of net revenue in 2007 to 14.4% in 2008. Other customer bonuses increased due to an increase in the level of payments made to cover shortfalls in tournament prizes but customer bad debts fell as a proportion of net revenue thanks to continued efforts in fraud protection including the capture of fraudulent balances from players and affiliates. The increase in webhosting and technical services costs reflects a full period of charges relating to the revenue share on the EOL and IOG casinos that are hosted on a third-party network as well as royalties paid to studios for licensing their brands on the new branded casino slots. As a proportion of net revenue, Continuing distribution costs fell to 41.8% (2007: 46.0%). 

  

Administrative expenses
Six months to 30 June	2008	2007	%
	$million	$million	change
Transaction fees	17.1	15.3	12%
Depreciation	9.4	11.3	(17%)
Amortisation	11.4	10.8	6%
Staff costs	48.3	39.2	23%
Other overheads	19.3	24.1	(20%)
Continuing administrative expenses before share-based payments	105.5	100.7	5%
Share-based payments	16.3	47.0	(65%)
Continuing administrative expenses	121.8	147.7	(18%)
Continuing administrative expenses before share-based payments as a % of net revenue	41.4%	46.3%
Continuing administrative expenses as a % of net revenue	47.8%	67.9%

Administrative expenses before share-based payments increased by 5% to $105.5m (2007: $100.7m) but as a proportion of net revenue they fell from 46.3% to 41.4%. This reflected the operational leverage of the business with modest rises in the combined total of staff costs and other overheads (the combined total allowing a more meaningful year-on-year comparison as the latter includes contractors, many of whom are often replaced with full time employees).  A charge of $4.1m relating to the change of CEO that was completed during the period has been included within administrative expenses.  

Share-based payments

Prior to flotation, the Principal Shareholders established a share option plan for the benefit of the current and future workforce. Under the terms of the plan, existing employees were granted a number of nil-cost options to be satisfied by existing shares which had effectively been gifted by the Principal Shareholders to a dedicated employee trust. As such, the exercise of these options had no dilutive effect on shareholders who subscribed at the IPO and will have no cash impact on the Company. International Financial Reporting Standards require that the fair value of the options be amortised through the income statement over the life of the options. As a result, a non-cash charge of $13.4m has been incurred in the period (2007: $43.2m, including a $0.2m charge relating to The Bonita Trust) matched by an increase in reserves.

The Company has also granted awards to Executives and Group employees under a number of new share option schemes that had previously been approved by shareholders. This resulted in a charge of $2.9m in the period (2007: $3.8m). Further details are contained in note 6 to the Financial Information below.

Finance income and costs

The Group generated net income from its cash balances in the period of $2.5m (2007: $0.2m).  The increase from the prior year primarily reflects increased cash balances versus the prior year.

Taxation

The tax charge for the period is $3.6m (2007: $3.5m).

Net cash4

As at 30 June 2008 the Group had net cash of $158.0m (31 December 2007: $127.8m). 

4 Net cash is defined as cash, cash equivalents and short term investments less bank debt

  

Cashflow
Six months to 30 June						2008	2007
						$million	$million
Operating cashflows before movements in working capital						62.2	21.7
Working capital inflow						3.9	11.0
Net cash inflow from operating activities						66.1	32.7
Capital expenditure						(4.3)	(6.1)
Acquisitions of intangibles						(32.3)	(3.0)
Proceeds from sale of fixed assets						-	2.5
Short-term investments						(1.0)	(2.1)
Net interest received						0.7	0.5
Repayment of revolving credit facility						-	(12.0)
Cash inflow						29.2	12.5

Cashflow from operations before movements in working capital was substantially higher than the previous year due to the increase in Clean EBITDA. The cashflow related to acquisitions of intangibles in the current period relates primarily to the payment of the deferred consideration due in respect of acquisitions in prior periods.

Capital expenditure 

Capital expenditure during the period was $4.3m (2007: $6.1m) and is analysed in more detail in note 11 to the Financial Information below.

Principal risks 

The principal risks facing the Group for the remaining six months of the year are unchanged from those reported in the Annual Report 2007. These risks, together with the Group's risk management process in relation to these risks, are detailed on pages 84 to 86 of the Annual Report 2007 and relate to the following areas:

• Regulatory compliance 

• Technology 

• Competitive environment 

• Taxation

  Statement of Directors' responsibilities

The interim report complies with the Disclosure and Transparency Rules ('DTR') of the United Kingdom's Financial Services Authority in respect of the requirement to produce a half-yearly financial report.  The interim report is the responsibility of, and has been approved by, the Directors.

We confirm that to the best of our knowledge:

• the condensed set of financial information has been prepared in accordance with IAS 34;

•  the interim management report includes a fair review of the important events during the first six months and description of the principal risks and uncertainties for the remaining six months of the year, as required by DTR 4.2.7R; and

•  the interim management report includes a fair review of disclosure of related party transactions and changes therein, as required by DTR 4.2.8R.

By order of the Board of Directors

Robert Hoskin

Company Secretary

29 August 2008

  Financial Information

Consolidated income statement
Six months to 30 June		2008	2007
	Notes	$million	$million
Continuing operations
Net revenue	5	254.8	217.4
Other operating income (expense)		1.2	(1.8)
Administrative expenses
• Other administrative expenses		(105.5)	(100.7)
• Share-based payments	6	(16.3)	(47.0)
Total administrative expenses		(121.8)	(147.7)
Distribution expenses		(106.4)	(100.1)
Profit (loss) from operating activities		27.8	(32.2)
Finance income	7	2.7	0.9
Finance costs	7	(0.2)	(0.7)
Profit (loss) before tax		30.3	(32.0)
Tax	8	(3.6)	(3.5)
Profit (loss) after tax from continuing operations		26.7	(35.5)
Loss after tax from discontinued operations	4	(4.0)	(15.1)
Profit (loss) after tax		22.7	(50.6)
Earnings (loss) per share
Basic (cents) - continuing operations	9	6.6	(9.0)
Diluted (cents) - continuing operations	9	6.2	(8.6)
Basic (cents)	9	5.6	(12.8)
Diluted (cents)	9	5.3	(12.3)
Consolidated statement of recognised income and expense
Six months to 30 June		2008	2007
		$million	$million
Exchange differences on translation of foreign operations		2.4	-
Net income recognised directly to equity		2.4	-
Profit (loss) after tax for the period		22.7	(50.6)
Total recognised income and expense for the period		25.1	(50.6)

  

Consolidated balance sheet
			As at	As at	As at
			30 June	31 December	30 June
			2008	2007	2007
	Notes		$million	$million	$million
Non-current assets
Intangible assets	10		193.4	203.2	210.2
Property, plant and equipment	11		24.7	37.7	46.9
			218.1	240.9	257.1
Current assets
Trade and other receivables			56.7	64.0	47.8
Cash and cash equivalents			148.5	119.3	58.8
Short-term investments	13		9.5	8.5	11.2
			214.7	191.8	117.8
Assets held for sale	14		9.0	-	-
Total assets			441.8	432.7	374.9
Current liabilities
Bank and other loans			-	-	(2.7)
Trade and other payables			(65.0)	(107.1)	(106.8)
Income taxes payable			(6.0)	(3.8)	(70.1)
Other taxes payable			-	-	(19.3)
Client liabilities and progressive prize pools			(132.7)	(123.4)	(103.5)
Provisions	15		(3.3)	(5.0)	(6.5)
			(207.0)	(239.3)	(308.9)
Non-current liabilities
Trade and other payables			-	-	(1.3)
			-	-	(1.3)
Total liabilities			(207.0)	(239.3)	(310.2)
Total net assets			234.8	193.4	64.7
Equity
Share capital	17		0.1	0.1	0.1
Share premium account	18		66.4	66.4	66.4
Share-based payments	18		-	-	202.7
Capital contribution reserve	18		34.7	34.7	32.7
Retained earnings	18		954.2	915.2	588.0
Other reserve	18		(825.4)	(825.4)	(825.4)
Currency reserve	18		4.8	2.4	0.2
Equity attributable to equity holders of the parent			234.8	193.4	64.7

  

Consolidated statement of cashflows
Six months to 30 June	2008	2007
	$million	$million
Profit (loss) before tax	26.3	(47.1)
Adjustments for:
Amortisation of intangibles	11.4	10.8
Interest expense	0.2	0.7
Interest income	(2.7)	(0.9)
Depreciation of property, plant and equipment	9.4	11.3
Increase in reserves due to share-based payments	16.3	46.8
Increase in capital contribution reserve	-	0.2
Loss (Profit) on sale of assets	0.2	(0.1)
Currency translation reserve	1.1	-
Operating cashflows before movements in working capital and provisions	62.2	21.7
Decrease in trade and other receivables	6.8	19.4
Decrease in trade and other payables	(0.3)	(8.7)
(Decrease) Increase in provisions	(1.7)	1.1
Income taxes paid	(0.9)	(0.8)
Cash generated by working capital	3.9	11.0
Net cash inflow from operating activities	66.1	32.7
Investing activities
Purchases of property, plant and equipment	(4.3)	(6.1)
Sale of property, plant and equipment	-	2.5
Purchases of intangible assets	(32.3)	(3.0)
Interest received	2.7	0.7
Increase in short-term investments	(1.0)	(2.1)
Net cash used in investing activities	(34.9)	(8.0)
Financing activities
Interest paid	(2.0)	(0.2)
Repayment of revolving credit facility	-	(12.0)
Net cash used in financing activities	(2.0)	(12.2)
Net increase in cash and cash equivalents	29.2	12.5
Net cash and cash equivalents at beginning of year	119.3	46.3
Net cash and cash equivalents at end of period	148.5	58.8
Cash and cash equivalents	148.5	58.8

  Notes to the consolidated financial information

1. Basis of preparation

The unaudited interim condensed financial statements for the six months ended 30 June 2008 have been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting' ('IAS 34'), and have been prepared on the basis of International Financial Reporting Standards ('IFRSs') and International Financial Reporting Interpretations Committee ('IFRIC') interpretations as adopted by the European Union that are effective for the year ending 31 December 2008.

The unaudited interim condensed financial statements for the six months ended 30 June 2008, which were approved by the Board on 29 August 2008, do not comprise statutory accounts, and should be read in conjunction with the Annual Report for the year ended 31 December 2007. Those accounts have been reported upon by the Group's auditors and delivered to Companies House Gibraltar. The report of the auditors was unqualified but included an emphasis of matter paragraph relating to certain contingent liabilities (see note 16). The Annual Report is published in the Investors section of the Group website (www.partygaming.com) and is available from the Company on request.

Except as described below, the accounting policies adopted in the preparation of the unaudited interim condensed financial statements are consistent with the policies applied by the Group in its consolidated financial statements for the year ended 31 December 2007.

In the current financial year the Group will adopt the following standards and interpretations, issued by the International Accounting Standards Board or the IFRIC, for the first time with no significant impact on its consolidated results or financial position:

IFRIC 11 - Group and treasury share transactions (effective for annual periods beginning on or after 1 March 2007).

IFRIC 12 - Service concession arrangements (effective for annual periods beginning on or after 1 January 2008).

In the current financial year the Group has a new class of asset, Assets Held For Sale. In line with IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations which the Group has already adopted, the accounting policy regarding such assets is outlined below.

Assets held for sale

Non-current assets and disposal groups are classified as held for sale if the carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, management is committed to a sale plan, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification.  These assets are measured at the lower of carrying value and fair value less associated costs of sale.

2. Seasonality of operations

Seasonality is one of many factors that affect quarter on quarter revenue growth. Like many other online businesses with customer bases located in the Northern hemisphere, during the winter months consumers tend to spend more time online than during the summer months. In addition, as the Group's customer base becomes more casual in nature, so seasonality can be expected to have a greater impact as customers that have a broad variety of interests, including online gaming, can be expected to take advantage of longer daylight hours and better weather conditions to enjoy other leisure pursuits.

  3. Restatement of prior periods

Number of shares and earnings per share

At an Extraordinary General Meeting on 15 May 2008 an ordinary resolution was passed to consolidate the Company's 4,115,193,850 ordinary shares of 0.0015 pence per share into 411,519,385 ordinary shares of 0.015 pence per share. The consolidation became effective on 19 May 2008. The number of shares and earnings per share for the periods to 30 June 2007 and 31 December 2007 have been restated as if the consolidation had taken place prior to those periods. There is no other effect on the financial information.

Reclassification of inactive fees and similar items

In the interim accounts for the period ended 30 June 2007 inactive fees and similar items were netted against transaction fees within administrative expenses. These fees are now reclassified as part of net revenue in line with their accounting treatment for the financial statements for the year ended 31 December 2007. Other than increasing both net revenue and administrative expenses for the prior period by $4.9 million there is no other effect on the prior period.

Analysis of business segments

In the interim accounts for the period ended 30 June 2007 and the annual accounts for the year ended 31 December 2007, bingo was classified as part of casino. This business segment is now reported separately. As per the annual accounts for the year ended 31 December 2007, emerging games are now included within poker. For the interim accounts for the six months ended 30 June 2007 emerging games were shown separately.

4. Discontinued operations

Income statement
Six months to 30 June	2008	2007
	$million	$million
Administrative expenses	(4.0)	(7.9)
Distribution expenses	-	(11.1)
Profit (loss) from operating activities before reorganisation income	(4.0)	(19.0)
Reorganisation income	-	3.9
Loss after tax	(4.0)	(15.1)
Earnings (loss) per share
Basic (cents)	(1.0)	(3.8)
Diluted (cents)	(0.9)	(3.7)

The loss in 2008 primarily reflected legal fees associated with the Group's ongoing discussions with the United States Attorney's Office for the Southern District of New York. This was substantially lower than the prior year comparative which also included a charge relating to a contractual obligation with Harrah's License Company LLC for The World Series of Poker.

In 2007 a net $4.5 million was received from payment processors that had previously been provided for as part of the 2006 reorganisation charge. The reorganisation income credit of $3.9 million reflects this recovery net of $0.6 million associated with changes in estimates made in respect of the 2006 reorganisation charge.

Statement of cashflows
Six months to 30 June	2008	2007
	$million	$million
Net cash inflow from operating activities	(4.0)	(10.8)
Net cash used in investing activities	-	-
Net cash used in financing activities	-	-
Net decrease in cash and cash equivalents	(4.0)	(10.8)

5. Revenue and business segment information

For management purposes and transacting with customers, the Group's operations are segmented into the following four operating segments:

● Poker, including Emerging Games, currently comprising backgammon

● Casino

● Bingo

● Sports Betting

These divisions are the basis on which the Group reports its primary segment information. Unallocated corporate expenses, assets and liabilities relate to the entity as a whole and cannot be allocated to individual segments.

				Sports	Unallocated
Six months to 30	Poker	Casino	Bingo	Betting	Corporate	Consolidated
June 2008	$million	$million	$million	$million	$million	$million
Continuing operations
Net revenue	153.9	89.9	2.0	9.0	-	254.8
Clean EBITDA	36.0	27.0	(0.4)	1.2	1.1	64.9
Profit before tax	34.5	24.2	(0.4)	(4.9)	(23.1)	30.3
Discontinued operations
Net revenue	-	-	-	-	-	-
Clean EBITDA	-	-	-	-	-	-
Profit before tax	-	-	-	-	(4.0)	(4.0)
Total operations
Net revenue	153.9	89.9	2.0	9.0	-	254.8
Clean EBITDA	36.0	27.0	(0.4)	1.2	1.1	64.9
Profit before tax	34.5	24.2	(0.4)	(4.9)	(27.1)	26.3
				Sports	Unallocated
Six months to 30	Poker	Casino	Bingo	Betting	Corporate	Consolidated
June 2007	$million	$million	$million	$million	$million	$million
Continuing operations
Net revenue	144.6	65.1	1.1	6.6	-	217.4
Clean EBITDA	22.8	15.3	(0.1)	0.7	(1.8)	36.9
Profit before tax	18.3	12.7	(0.1)	(5.8)	(57.1)	(32.0)
Discontinued operations
Net revenue	-	-	-	-	-	-
Clean EBITDA	(11.1)	-	-	-	(7.9)	(19.0)
Profit before tax	(16.5)	4.2	-	-	(2.8)	(15.1)
Total operations
Net revenue	144.6	65.1	1.1	6.6	-	217.4
Clean EBITDA	11.7	15.3	(0.1)	0.7	(9.7)	17.9
Profit before tax	1.8	16.9	(0.1)	(5.8)	(59.9)	(47.1)

  

Geographical analysis of net revenue
Six months to 30 June					2008	2007
					$million	$million
Germany					51.4	38.1
Canada					43.0	40.3
United Kingdom					27.1	25.5
Other					133.3	113.5
Net revenue					254.8	217.4

6. Share-based payments

Six months to 30 June	2008	2007
	$million	$million
Charge relating to nil-cost options:
- issued pre-IPO	1.2	(1.2)
- issued post-IPO	12.2	44.2
Total charge relating to nil-cost options	13.4	43.0
FMV Plan	2.9	3.7
Executive FMV Plan	-	0.1
Total charge relating to options	16.3	46.8
Bonita Trust charge (see note 19)	-	0.2
Total charge	16.3	47.0

Prior to flotation, the Principal Shareholders established the PartyGaming Plc Share Option Plan (the 'Nil-Cost Plan') for the benefit of the current and future workforce.  Under the terms of the Nil-Cost Plan each option takes the form of a right, exercisable at nil-cost, to acquire shares in the Company, the vesting of which are satisfied by existing shares which had been issued to the Employee Trust.

Following the enactment of the UIGEA, the Company implemented on 29 December 2006 a one-off adjustment to existing incentive awards and also granted new incentive awards by using an additional 40 million shares gifted to the Employee Trust by certain Principal Shareholders of the Company. As such, the exercise of these options has no dilutive effect on shareholders who subscribed at the IPO and will have no cash impact on the Company.  IFRS require that the fair value of the options be amortised through the income statement over the life of the options.

The charge associated with the nil-cost options decreased from $43.0 million in 2007 to $13.4 million in 2008 reflecting the one-off adjustment to equity incentive awards referred to above.

7. Finance income and costs

Six months to 30 June	2008	2007
	$million	$million
Interest income	2.7	0.9
Interest expense	(0.2)	(0.7)
Net finance income	2.5	0.2

  8. Tax

(a) Analysis of tax charge

Six months to 30 June	2008	2007
	$million	$million
Income tax expense for the period	(3.6)	(3.5)

In Gibraltar, the Group benefits from the exempt company regime. Taxation for other jurisdictions is calculated at the rate prevailing in the relevant jurisdiction.

There are no material deferred tax balances arising during the period.

 (b) Factors affecting the tax charge for the period

The Group's policy is to manage, control and operate Group companies only in the countries in which they are registered. At the period end there were Group companies registered in 11 countries including Gibraltar.

The Group has received indemnities from the Principal Shareholders in connection with certain potential historic corporate taxation liabilities. The Directors consider the likelihood of any such liability arising to be remote. Accordingly, neither has a provision for any such potential taxation been made, nor has an asset been recognised in respect of the indemnity.

(c) Factors that may affect future tax charges

In Gibraltar, the Group benefits from the exempt company regime. The Gibraltar exempt company regime will be phased out by 31 December 2010; assessable income is taxed in Gibraltar at the mainstream corporation tax rate.

In India, the Group expects to benefit from a tax holiday on income from qualifying activities until March 2010; under current rules assessable income is taxed in India at approximately 34%.  A Minimum Alternative Tax (MAT) of 11.33% applies. Fringe benefit tax is payable at approximately 34% on a proportion of specified benefits provided or deemed to have been provided to past and present employees.

9. Earnings per share ('EPS')

Six months to 30 June			2008			2007
	Continuing	Discontinued		Continuing	Discontinued
	operations	operations	Total	operations	operations	Total
	Cents	Cents	Cents	Cents	Cents	Cents
Basic EPS	6.6	(1.0)	5.6	(9.0)	(3.8)	(12.8)
Diluted EPS	6.2	(0.9)	5.3	(8.6)	(3.7)	(12.3)
Basic Clean* EPS	10.6	(1.0)	9.6	2.9	(4.8)	(1.9)
Diluted Clean* EPS	10.1	(1.0)	9.1	2.8	(4.6)	(1.8)

*EPS before reorganisation income and costs and non-cash charges relating to share-based payments.

  Basic earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held by the Employee Trust which are accounted for as treasury shares

Six months to 30 June						2008	2007
Basic EPS
Basic earnings (loss) ($ million)						22.7	(50.6)
Weighted average number of ordinary shares (million)						404.6	395.9
Adjusted earnings (loss) per ordinary share (cents)						5.6	(12.8)
Basic Clean EPS
Adjusted earnings (loss) ($ million)						39.0	(3.6)
Weighted average number of ordinary shares (million)						404.6	395.9
Adjusted earnings (loss) per ordinary share (cents)						9.6	(0.9)

Clean earnings per share

Management believes that Clean earnings per share reflects the underlying performance of the business and assists in providing a clearer view of the fundamental performance of the Group. Clean EBITDA and Clean earnings per share are performance measures used internally by management to manage the operations of the business and remove the impact of one-off and non-cash items. They are therefore calculated before reorganisation income and costs and non-cash charges relating to share-based payments.

Clean net earnings attributable to equity shareholders is derived as follows:

Six months to 30 June			2008			2007
	Continuing	Discontinued		Continuing	Discontinued
	operations	operations	Total	operations	operations	Total
	$million	$million	$million	$million	$million	$million
Earnings (loss) for the purposes of basic and diluted earnings per share being profit from ordinary activities attributable to equity holders of the parent	26.7	(4.0)	22.7	(35.5)	(15.1)	(50.6)
Reorganisation income	-	-	-	-	(3.9)	(3.9)
Share-based payments	16.3	-	16.3	47.0	-	47.0
Clean net earnings	43.0	(4.0)	39.0	11.5	(19.0)	(7.5)

Six months to 30 June					2008	2007
					Number	Number
					million	million
Weighted average number of shares
Number of shares in issue as at 1 January					411.5	400.0
Number of unvested shares held by the Employee Trust as at 1 January					(8.7)	(16.1)
Weighted average number of shares issued during the period					-	10.3
Weighted average number of share options which vested during the period					1.8	1.7
Weighted average number of ordinary shares for the purposes of basic earnings per share					404.6	395.9
Effect of potential dilutive vested and unvested shares					23.0	16.8
Weighted average number of ordinary shares for the purposes of diluted earnings per share					427.6	412.7

In accordance with IAS 33, the weighted average number of shares for diluted earnings per share takes into account all potentially dilutive shares granted, which are not included in the number of shares for basic earnings per share above. Although the unvested, potentially dilutive shares are contingently issuable, in accordance with IAS 33 the period end is treated as the end of the performance period. Those option holders who were employees at that date are deemed to have satisfied the performance requirements and their related potentially dilutive shares have been included for the purpose of diluted EPS.

10. Intangible assets

	Other		Development
	intangibles	Goodwill	expenditure	Total
	$million	$million	$million	$million
Cost or valuation
As at 1 January 2007	128.6	171.1	-	299.7
Additions	29.0	37.6	2.5	69.1
As at 30 June 2007	157.6	208.7	2.5	368.8
Additions	-	-	3.9	3.9
As at 31 December 2007	157.6	208.7	6.4	372.7
Additions	0.6	-	1.0	1.6
As at 30 June 2008	158.2	208.7	7.4	374.3
Amortisation
As at 1 January 2007	71.7	76.1	-	147.8
Charge for the period	10.8	-	-	10.8
As at 30 June 2007	82.5	76.1	-	158.6
Charge for the period	10.4	-	0.5	10.9
As at 31 December 2007	92.9	76.1	0.5	169.5
Charge for the period	10.3	-	1.1	11.4
As at 30 June 2008	103.2	76.1	1.6	180.9
Carrying amounts:
As at 30 June 2007	75.1	132.6	2.5	210.2
As at 31 December 2007	64.7	132.6	5.9	203.2
As at 30 June 2008	55.0	132.6	5.8	193.4

The other intangible assets primarily include the customer lists, brands and other intangibles acquired in respect of Gamebookers and the acquisitions from EOL and IOG which are being amortised over their estimated useful economic lives of between 18 months and five years. The values are based on cashflow projections from existing customers taking into account the expected impact of player attrition.

Development expenditure represents software infrastructure assets that have been developed and generated internally. They are being amortised over their estimated useful economic lives of between three and five years.

In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 31 December 2007 to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets using cashflow projections for a three to five year period. The Board are not aware of any evidence of impairment during the current period.

The discount rates for the review were based on company specific pre-tax weighted average cost of capital percentages and ranged from 9% to 15%. The future cashflows have been modelled to decline in line with historic player attrition patterns which are consistent with those experienced by the Group in recent years.

11. Property, plant and equipment

			Fixtures,
		Plant,	fittings,
	Land and	machinery	tools and
	buildings	and vehicles	equipment	Total
	$million	$million	$million	$million
Cost or valuation
As at 1 January 2007	16.2	4.9	83.6	104.7
Additions	-	-	6.1	6.1
Disposals	(1.7)	(0.1)	(0.7)	(2.5)
As at 30 June 2007	14.5	4.8	89.0	108.3
Exchange movements	0.1	0.2	0.8	1.1
Additions	0.1	0.2	2.7	3.0
Disposals	(0.1)	(0.1)	(2.7)	(2.9)
As at 31 December 2007	14.6	5.1	89.8	109.5
Exchange movements	1.4	(0.2)	(0.4)	0.8
Additions	0.2	1.5	2.6	4.3
Reclassified as assets held for sale (see note 14)	(9.0)	-	-	(9.0)
Disposals	-	(0.3)	(3.5)	(3.8)
As at 30 June 2008	7.2	6.1	88.5	101.8
Depreciation
As at 1 January 2007	2.4	2.5	45.2	50.1
Charge for the period	0.1	0.7	10.5	11.3
As at 30 June 2007	2.5	3.2	55.7	61.4
Charge for the period	0.8	0.5	11.0	12.3
Disposals	-	-	(1.9)	(1.9)
As at 31 December 2007	3.3	3.7	64.8	71.8
Exchange movements	0.6	(0.5)	(0.6)	(0.5)
Charge for the period	0.6	0.4	8.4	9.4
Disposals	-	(0.2)	(3.4)	(3.6)
As at 30 June 2008	4.5	3.4	69.2	77.1
Carrying amounts:
As at 30 June 2007	12.0	1.6	33.3	46.9
As at 31 December 2007	11.3	1.4	25.0	37.7
As at 30 June 2008	2.7	2.7	19.3	24.7

  12. Commitments for capital expenditure

	As at	As at	As at
	30 June	31 December	30 June
	2008	2007	2007
	$million	$million	$million
Contracted but not provided for	3.1	0.4	2.8

13. Short-term investments

	As at	As at	As at
	30 June	31 December	30 June
	2008	2007	2007
	$million	$million	$million
Cash on deposit for more than three months	5.2	5.4	6.8
Restricted cash	4.3	3.1	4.4
	9.5	8.5	11.2

As at 30 June 2007 and 31 December 2007 restricted cash related to the remaining cash held in the Employee Trust payable to Mitch Garber relating to incentive awards over a 30-month period from December 2006. At 30 June 2008 restricted cash relates to amounts held as interest-bearing security deposits.

14. Assets held for sale

	As at	As at	As at
	30 June	31 December	30 June
	2008	2007	2007
	$million	$million	$million
Transferred from non-current assets	9.0	-	-

Assets held for sale comprise residential properties that are no longer required by the Group. There are no associated liabilities.

15. Provisions

	As at	As at	As at
	30 June	31 December	30 June
	2008	2007	2007
	$million	$million	$million
Provision at beginning of period	5.0	5.5	5.5
Charged to income statement	1.2	1.7	1.4
Credited to income statement	(2.9)	(2.2)	(0.4)
	3.3	5.0	6.5

Provisions are expected to be settled within the next year and relate to chargebacks which are recognised at the Directors' best estimate of the provision based on past experience of such expenses applied to the level of activity.

16. Contingent liabilities

From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of success of such claims and actions.

  (a) Regulatory issues

As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the business and continues to take appropriate advice in respect of these developments.

Following the enactment of the UIGEA on 13 October 2006, the Group stopped taking any deposits from customers in the US and barred such customers from wagering real money on all of the Group's sites. Notwithstanding this, the actions taken by certain US regulatory authorities suggest that there remains a residual risk of an adverse impact arising from the Group having had customers in the US prior to the enactment of the UIGEA.

Furthermore, the Group is aware that certain US regulatory authorities have made enquiries of banks and other financial advisers that have had involvement with the internet gaming industry. Certain customary indemnities have been given by the Company to its advisers in connection with the Company's initial public offering in June 2005 and other assignments, and claims under such indemnities cannot be ruled out. The Group has not, however, received notice of any such claim to date.

On 4 June 2007, the Company announced that it had initiated discussions with the United States Attorney's Office for the Southern District of New York and is in the process of voluntarily responding to requests for information issued by that office. These discussions are progressing and it is possible that an agreement will be reached in the foreseeable future.

The Board believes that a sufficiently reliable estimate of the potential liability in connection with this matter cannot be made. Furthermore, the Board believes that the disclosure of any range of potential settlement would be prejudicial to the Group's interests.

(b) Litigation

The Group is a defendant in a US action which is based on alleged collusion taking place on the Group's online poker tables. This action has been brought by two individual plaintiffs who are seeking class certification. The class seeking to be represented comprises poker customers in the US who from 1 January 2002 played real money games on the Group's sites.

The Group believes the action to be speculative, without merit and open to challenge on a number of grounds. The Group had not hitherto submitted to US jurisdiction and therefore the action had not been contested. In light of a number of factors, not all of which pertained at the time of the decision not to contest, the Group has decided to seek to challenge the proceedings and has accordingly sought and been granted permission to enter a defence and contest the action on the merits.  The Group has also applied to have the action dismissed for lack of a good cause in the meantime.

The Board believes that the disclosure of a range of potential liability, if any, would be prejudicial to the Group's interests.

17. Share capital

	Issued and
	fully paid	Number
	$	million
As at 1 January 2007	100,452	400.0
Issued during the six months ended 30 June 2007	3,414	11.5
As at 30 June 2007, 31 December 2007 and 30 June 2008	103,866	411.5

Shares issued are converted into US dollars at the exchange rate prevailing on the date of issue.  The issued and fully paid share capital of the Group amounts to $103,866 and is split into 411,519,385 ordinary shares. The share capital in UK sterling is £61,727.91 and translates at an average exchange rate of $1.6822 USD to GBP. As at 30 June 2008, 7,544,977 (2007: 14,184,933) ordinary shares were held as treasury shares by the Employee Trust.

Authorised share capital and significant terms and conditions

The total authorised number of shares comprises 500 million ordinary shares with a par value of 0.015 pence. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company.  The Trustee has waived all voting and dividend rights in respect of shares held by the Employee Trust.

At an Extraordinary General Meeting on 15 May 2008 an ordinary resolution was passed to consolidate the Company's 4,115,193,850 ordinary shares of 0.0015 pence per share to 411,519,385 ordinary shares of 0.015 pence per share as at 19 May 2008. The number of shares and earnings per share for 30 June 2007 and 31 December 2007 have been restated as if the consolidation had taken place prior to those periods.

18. Reserves

		Capital
	Share	contribution	Retained	Other	Currency
	premium	reserve	earnings	reserve	reserve
	$million	$million	$million	$million	$million
As at 31 December 2007	66.4	34.7	915.2	(825.4)	2.4
Profit after tax attributable to equity holders of the parent	-	-	22.7	-	-
Share-based payments	-	-	16.3	-	-
Exchange differences on translation of foreign operations	-	-	-	-	2.4
As at 30 June 2008	66.4	34.7	954.2	(825.4)	4.8

		Capital		Share-based
	Share	contribution	Retained	payments	Other	Currency
	premium	reserve	earnings	reserve	reserve	reserve
	$million	$million	$million	$million	$million	$million
As at 31 December 2006	0.4	32.5	638.6	155.9	(825.4)	0.2
Issue of shares	66.0	-	-	-	-	-
Loss after tax attributable to equity holders of the parent	-	-	(50.6)	-	-	-
Share-based payments	-	0.2	-	46.8	-	-
As at 30 June 2007	66.4	32.7	588.0	202.7	(825.4)	0.2

Share premium is the amount subscribed for share capital in excess of nominal value. Capital contribution reserve is the amount arising from share-based payments made by The Bonita Trust and cash held by the Employee Trust. Retained earnings are the cumulative net gains and losses recognised in the consolidated income statement after the effect of share-based payments. In prior periods the amounts arising from share-based payments made by the Group were shown in a separate reserve. The Currency reserve is the gains/losses arising on retranslating the net assets of operations into US dollars.

The other reserve of $825.4 million is the amount arising from the application of accounting which is similar to the pooling of interests method, as set out in the Group's accounting policies in the annual accounts for the year ended 31 December 2007. Under this method of accounting, the difference between the consideration for the controlling interest and the nominal value of the shares acquired is taken to other reserves on consolidation.

  19. Related parties

Principal Shareholders

Anurag Dikshit, Ruth Parasol and Russ DeLeon are the ultimate controlling shareholders of the Group. During the period the controlling shareholders, and corporate entities controlled by controlling shareholders, did not receive any remuneration in the form of salary, bonuses or consulting fees (2007: $nil).

The wife of a Principal Shareholder owns a property leased to the Group's Indian subsidiary. Rentals paid were:

Six months ended 30 June			2008  $	2007 $
Rentals paid			37,472	15,320

Former Directors and Principal Shareholders have leased their personal properties to employees of the Group. The Directors believe that these lease arrangements are fair value personal arrangements between the parties involved and are independent of the Group.

The Principal Shareholders have also given certain indemnities to the Group.

Bonita Trust

The Bonita Trust was established in Gibraltar in 2004 in effect by the Group's Principal Shareholders to benefit the communities where the Group and its employees and service providers operate.  The Bonita Trust is operated by an independent professional trustee. The Bonita Trust has philanthropic objectives and supports medical, cultural and educational programmes, principally directed to benefit the communities of Gibraltar, India and the UK.  In addition, employees of PartyGaming and their families are a beneficiary class of The Bonita Trust.

In December 2006 and subsequently, The Bonita Trust made or committed to make payments to certain individuals that were employed or had previously been employed by the Group. These payments were made independently of the Group and were over and above the amounts that the Board had already determined should be paid by the Group to those employees and former employees. However, as these payments were based primarily on the Company's share price, the Board considers these to fall under the criteria for Share-based Payments under IFRS 2 and in the six months ended 30 June 2008 has charged an amount to the income statement totaling $nil (2007: $0.2 million) as if such amounts had been paid by the Group itself.  A corresponding amount has been recorded as a capital contribution in the Group's balance sheet.  No such payments were made during the first six months of 2008.

Further details on The Bonita Trust can be found at www.bonitatrust.org.

Directors and key management 

Key management are those individuals who the Directors believe have significant authority and responsibility for planning, directing and controlling the activities of the Group. The aggregate short-term and long-term benefits, as well as share-based expenses of the Directors and key management of the Group are set out below:

	Short-term	Long-term	Share-based	Total
	$million	$million	$million	$million
Six months ended 30 June 2007	7.4	-	40.0	47.4
Year ended 31 December 2007	18.0	-	63.0	81.0
Six months ended 30 June 2008	8.6	-	11.5	20.1

  The following aggregate balances were due to Directors and key management at each period end:

Six months to 30 June			2008	2007
			$million	$million
Due to			0.6	-

The Group's subsidiaries continued to provide the following property arrangements during the period:

the former Chief Executive Officer had two furnished properties available for his use in Gibraltar which the Directors believe have a fair rental value of approximately $150,000 per annum (plus service and utility costs); and

the former Chief Executive Officer had an additional property available for his use at fair rental value.  The former Chief Executive Officer did not avail himself of the property and the property has been leased to other employees and third parties at fair rental value.

The Group purchased telecommunication and utility services of $2.3 million from companies on an arm's length basis for whom a Board member is a director, with $0.3 million owed to that company at 30 June 2008.  No amounts were owed to these companies at 30 June 2007.

On 1 February 2008, the Group paid the final element of the consideration due to Trident Gaming Plc in respect of the acquisition of the business and assets connected with the Gamebookers.com website. This amounted to Euro 21.0 million and interest of Euro 1.3 million. John O'Malia, Managing Director, was the former CEO of Gamebookers and received Euro 2.1 million of the total consideration.

Certain Directors and certain key management were granted nil-cost options under service contracts which were granted under a Group share option plan (see note 20).

20. Share options

As disclosed in note 6, the Group has adopted and granted awards under the Nil-Cost Plan, FMV Plan, PSP Plan and Executive FMV Plan as a reward and retention incentive for employees of the Group, including the Executive Directors (the 'Participants'). The Group has used the binomial options pricing model for determining the fair value of share options. An appropriate discount has been applied to reflect the fact that dividends are not paid on options that have not vested or have vested and have not been exercised.

	Nil-Cost Plan	FMV Plan	PSP Plan	Executive FMV Plan
Six months ended 30 June 2008	Number	Number	Number	Number
	million	million	million	million
Outstanding at beginning of period	9.0	7.3	0.4	0.2
Shares over which options granted during the period	2.1	12.5	0.4	0.2
Shares in respect of options lapsed during the period	(0.5)	(1.4)	(0.1)	(0.1)
Exercised during the period	(3.5)	-	-	-
Outstanding at end of period	7.1	18.4	0.7	0.3
Exercisable at the end of period	1.7	1.0	-	-
Shares over which options granted during the period	2,100,000	12,539,268	407,498	171,402
Percentage of total issued share capital	0.51%	3.05%	0.10%	0.04%

  

	Nil-Cost Plan	FMV Plan	PSP Plan	Executive FMV Plan
Six months ended 30 June 2007	Number	Number	Number	Number
	Million	million	million	million
Outstanding at beginning of period	17.0	-	-	-
Shares over which options granted during the period	0.5	6.3	0.3	0.2
Shares in respect of options lapsed during the period	(2.1)	(0.1)	-	-
Exercised during the period	(3.1)	-	-	-
Outstanding at end of period	12.3	6.2	0.3	0.2
Exercisable at the end of period	1.3	0.3	-	-

Terms and conditions

(a) Nil-Cost Plan

Options granted under this plan during the period generally vest in instalments over a four to five year period. There are no performance conditions attached to these options.

(b) FMV Plan

Options granted under this plan during the period generally vest in instalments over a three year period. There are no performance conditions attached to options issued by the Group under the terms of the FMV Plan. Executive Directors are not eligible to receive any awards under this plan.

(c) PSP Plan

These awards vest subject to the achievement of a total shareholder return ('TSR') performance target over the three year periods compared to the median TSR of a sector comparator group. The threshold for vesting at which 25% will vest, will be TSR equalling the median of the comparator group, rising on a straight-line basis to 100% vesting if the Company's TSR exceeds the median by 10% per annum calculated over the three year period. It is estimated that outperformance of the median by 10% per annum is broadly equivalent to upper quartile performance over three years.  To date awards have been granted in respect of three performance periods - 1 January 2007 to 31 December 2009, 1 July 2007 to 30 June 2010 and 1 January 2008 to 31 December 2010.

(d) Executive FMV Plan

These options vest subject to the growth in the Company's Clean Earnings per share equalling or exceeding 15% per annum in the three year period associated with the grant date. To date awards have been granted in respect of two three-year periods beginning 1 January 2007 and 1 January 2008.  Independent review report to PartyGaming Plc 

Introduction 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the Consolidated income statement, the Consolidated balance sheet, the Consolidated statement of recognised income and expense, the Consolidated statement of cashflows and related notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect to half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Emphasis of matter - Regulatory issues

In forming our opinion, which is not qualified, we have considered the adequacy of, and draw attention to, the disclosures made in note 16 to the financial information concerning the residual risk of adverse action arising from the Group having had customers in the US prior to the enactment of the Unlawful Internet Gambling Enforcement Act. Note 16 includes a statement that the Group has not been able to quantify any potential impact of the regulatory uncertainty on the financial statements for the period ended 30 June 2008.

  Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

BDO Stoy Hayward LLP

Chartered Accountants and Registered Auditors

London

29 August 2008

  Glossary and definitions

'Active player days'	aggregate number of days in the given period in which active players have contributed to rake and/or placed a wager. This can be calculated by multiplying average active players by the number of days in the period
'Affiliates'	third-party online or offline marketers who drive traffic to PartyGaming's gaming sites for a flat fee or on a revenue share basis
'Attrition'	the ratio of real money signups which are active during the period. The measure indicates the retention profile of the players
'Average active players' or 'Daily average players'	the daily average number of players who contributed to positive rake and/or placed a wager in the given period. This can be calculated by dividing active player days in that period, by the number of days in that period
'CFD'	Contract for difference
'Clean EBITDA/EPS'	EBITDA/EPS before reorganisation income and costs and non-cash charges relating to share-based payments
'Company' or 'PartyGaming'	PartyGaming Plc
'Discontinued operations'	operations located physically outside of the US but which relate to customers in the US that were no longer accepted following the enactment of the UIGEA on 13 October 2006
'EBITDA'	earnings before interest, tax, depreciation and amortisation
'EMEA'	Europe, the Middle East and Africa
'Empire Poker'	EmpirePoker.com
'EOL'	Empire Online Limited
'Employee Trust'	the PartyGaming Plc Shares Trust, a discretionary share ownership trust established by the Company
'Gamebookers'	www.gamebookers.com, one of the Group's sports betting websites
'Group' or 'PartyGaming Group'	the Company and its consolidated subsidiaries and subsidiary undertakings from time to time or, prior to 7 February 2005, PartyGaming Holdings Limited (formerly Headwall Ventures Limited) and its consolidated subsidiaries and subsidiary undertakings
'IAS'	International Accounting Standards
'IOG'	Intercontinental Online Gaming Ltd
'IFRS'	International Financial Reporting Standards
'KPIs'	Key Performance Indicators, such as active player days and yield per active player day
'PartyBets'	www.partybets.com, one of the Group's sports betting websites that is also fully integrated into the Group's shared wallet
'PartyBingo'	www.partybingo.com, the Group's bingo website
'PartyCasino'	www.partycasino.com, the Group's principal casino website
'PartyGammon'	www.partygammon.com, the Group's backgammon website
'PartyMarkets'	www.partymarkets.com, the Group's financial spread betting and CFD trading website
'PartyPoker'	www.partypoker.com, the Group's principal poker website
'Principal Shareholders'	Anurag Dikshit (holding through Crystal Ventures Limited), James Russell DeLeon (holding through Stinson Ridge Limited), Ruth Monicka Parasol (holding through Emerald Bay Limited) and Vikrant Bhargava (holding through Coral Ventures Limited)
'Real money sign-up'  or 'sign-up'	a new player who has registered and deposited funds into an account with the company. Customers are categorised between lines of business according to where they first register on the gaming site to address the issues posed by shared wallets
'UIGEA'	The Unlawful Internet Gambling Enforcement Act that was enacted in the US on 13 October 2006
'Unique active player'	a player who has contributed to rake or placed a wager in the period
'Yield per unique active player'	net gaming revenue (net of customer bonuses and other fair value adjustments to revenues) divided by the number of unique active players in the period
'Yield per active player day'	net gaming revenue (net of customer bonuses and other fair value adjustments to revenues) divided by the number of active player days in the period

ENDIR PPMPTMMATBTP