TTR.L Regulatory News (TTR)

23 Sep 2005 07:00

32Red Plc 23 September 2005 32Red Plc ('32Red' or 'the Company') 32Red Plc floats with a market capitalisation of approximately £60 million Admission to the Alternative Investment market ('AIM') 32Red Plc is a UK-focused online gaming business predominantly comprising two distinct activities: casino and poker. The Company offers customers over 200 online casino games (including roulette, blackjack and slot machines), played against the house. The Company also operates a multiplayer online poker room. Application has been made to the London Stock Exchange for the Ordinary Shares to be admitted to trading on AIM. Admission will take place and dealings in the Ordinary Shares on AIM will commence at 8.00 a.m. today. On Admission the Company will have 47,335,500 Ordinary Shares in issue and a market capitalisation of approximately £60 million. Highlights • 32Red offers casino games to customers via the Company's gaming site at 32Red.com. At 32Redpoker.com customers can play in ring games and tournaments via the Prima Poker network, which has 400,000 registered members. During the six months to 30 June 2005, 93.4% of revenues were derived from casino games and 6.6% from poker • A large majority of 32Red's customers are based in the UK. For the six months to 30 June 2005, approximately 83% of revenues from casino and approximately 78% of revenues from poker were drawn from the UK and Ireland • 32Red generated net gaming revenues of approximately £5.9 million in the year to 31 December 2004 and net profit of £1.1m. In the six months to 30 June 2005, the Company generated net gaming revenues of approximately £4.2 million and net profit of approximately £1.0 million • The Company's casino gross win for the month of July 2005 was 59 per cent higher than the equivalent period in 2004. Poker also continues to show strong growth and generated a higher revenue figure in July than in any previous month • 32Red was established in 2002. The CEO, Ed Ware, was previously Managing Director of Ladbrokes International Limited and over the past three years has assembled a team of experienced betting and gaming professionals to manage and grow the business • 32Red operates under a gaming licence granted by the Government of Gibraltar. Software is provided under licence by MicroGaming, which also operates the Prima Poker network. The Company uses Barclaycard Services for the processing of all credit and debit card transactions • The directors believe that the 32red.com website has distinctive branding and other characteristics which make it particularly attractive to UK online casino players. In addition, the Directors believe that 32Red's high levels of customer service, for which it has received industry awards, are a key differentiator and will form an important element in the Company's future success • The directors believe that the Company is well positioned to take advantage of continued growth in the online casino and poker markets. It is intended that 32Red will continue to focus its marketing activities on the UK but with increased online and offline activity in Japan, Scandinavia and other European regions Ed Ware, CEO of 32Red said: '32Red has built a strong reputation in the UK for delivering one of the best gaming experiences available online. Our investment in software, fast payment processing, customer service and marketing has paid off and delivered strong revenue growth in a competitive market'. 'Admission to AIM takes us forward to the next stage. It will give us greater flexibility in this fast moving market and the option to raise funds at the appropriate time.' 23 September 2005 Enquiries 32Red plc Tel: 00 35 049 396 Ed Ware, CEO Simon Dimmer, Finance Director Numis Securities Limited Andrew Dawber Tel: 020 7776 1500 College Hill Associates Tel: 020 7457 2020 Matthew Smallwood Tom Baldock 1. Introduction 32Red Plc is a UK-focused online gaming business predominantly comprising two distinct activities: casino and poker. The Company offers customers over 200 online casino games (including roulette, blackjack and slot machines), played against the house. The Company also operates a multiplayer online poker room. The Company was established in 2002. The CEO, Ed Ware, was previously Managing Director of Ladbrokes International Limited and has assembled a team of experienced betting and gaming professionals over the past 3 years. Since inception, all 32Red operations (including marketing, customer support, IT, maintenance of customer accounts and payment processing) have been managed from offices in Gibraltar. The Company's servers host MicroGaming casino software which is used to generate all casino game play and to maintain customer accounts. 32Red's Poker activities are offered through the Prima Poker network with customer support and account maintenance managed by the 32Red team in Gibraltar. 32Red operates under a gaming licence granted by the Government of Gibraltar. In the six months to 30 June 2005, the Company generated net gaming revenue of approximately £4.2 million and net profit of approximately £1.0 million. For the six months to 30 June 2005, approximately 83 per cent of revenue from casino and approximately 78 per cent of revenue from poker was drawn from the UK and Ireland. 32Red has historically generated new customers primarily through online marketing techniques, including search engine optimisation (SEO) and banner advertising, particularly on other gaming related websites, and also through a network of affiliates. As of 30 June 2005, 32Red had attracted over 15,000 new real money casino players to 32red.com since the launch of the site in July 2002 and over 4,000 new real money poker players to 32redpoker.com since its launch in August 2003. In June 2005 alone, the Company attracted 600 new real money casino players to 32red.com and 380 new real money poker players to 32redpoker.com. These figures represent an increase on June 2004 figures of 11.6 per cent for casino players and 336.8 per cent for poker players. Between 1 January 2005 and 30 June 2005, 5,848 real money casino players and 2,984 real money poker players played on the Company's 32red.com and 32redpoker.com websites. The Directors believe that the Company's key strengths include: • experienced management and staff with strong gaming expertise; • focused and cost-effective marketing with effective systems for analysing the success of its campaigns; • high levels of customer service and an award winning casino operation; • memorable URL and differentiated brand; • fast payouts for winners utilising recognised customer payment partners; • UK-focus; • leading gaming software; • an extensive affiliate programme managed from head office; and • motivated and incentivised employees. 2. The Business Casino The Company's principal activity (by revenue) is the operation and promotion of the online casino website 32red.com. 32Red offers a wide range of online casino games, including blackjack, roulette, baccarat and slots, some of which have several variations. 32Red has won various awards including 'Best Online Casino' in 2003 and 2004 from Casinomeister, an independent body recognised in the online gaming industry as an advocate for players. In its review of 2004, Casinomeister described 32Red's support as 'exceptional customer service' and claims 32Red should 'serve as a template for their peers and competitors as the epitome of a well-run casino.' Customers are brought to the Company's website through online and offline marketing and advertising and through affiliate programmes. Once logged onto the 32red.com website, new customers are able to either download casino software or use a Flash format to access casino tables. Following verification of their identity, customers are then asked to make a deposit into their own 32Red account to enable them to gamble for real money. Customers are also offered the option of playing for fun, without gambling real money. The Directors consider that the 32red.com casino website has distinctive characteristics which make it particularly attractive to UK online casino players. 32red.com features an on-screen livery which contrasts with Las-Vegas style graphics favoured by some rival online casinos. 32Red also gives players the opportunity to enjoy UK celebrity Patsy Kensit as the voice of their croupier for casino games. The Company generates net gaming revenue from its casino operations by taking a margin, also referred to as gross win. This is calculated as the difference between the value of bets placed and the value of bets paid out. For example, in the twelve months ended 30 June 2005, 32Red received a margin of approximately 2.65 per cent of all sterling bets placed on the 32red.com website. The Company also offers certain other games under a section of the Company's website known as Trafalgar Park. The revenue from Trafalgar Park represents less than 0.01 per cent. of the Company's casino revenue and is included within the Company's casino gross win for the purposes of this document. The Company operates under a software agreement with MicroGaming for the provision of all the games offered by 32Red. This agreement includes a player tracking system which provides the Company with comprehensive data on its players and operations. The Company generated net gaming revenue of approximately £5.68 million from casino operations in the year to 31 December 2004 and approximately £3.94 million in the six months to 30 June 2005. In the six months to 30 June 2005, 32Red achieved an average yield per player per month of approximately £326. In the six months to 30 June 2005, 32Red had an average number of real money casino players per month of approximately 2,026 of which an average of approximately 30 per cent per month were new real money players. Poker As with casino games, customers are brought to the Company's website through online and offline marketing and advertising, and through affiliate programmes. New 32Red Poker players go through a similar process to casino players when opening an account, downloading software (there is no flash function currently available for poker) and beginning play. The key difference from the Company's casino product is that 32Red Poker operates as part of the Prima Poker network. 32Red Poker offers both ring games and tournaments with several variations of poker, the most popular of which is Texas Hold 'Em. The Company generates revenue from poker by taking a percentage of the rake charged to real money players by Prima Poker. For ring games, 32Red withholds a rake from each pot played of between $0.25 and $3.00 (amounts in between these figures are typically two to three per cent of the final pot in each hand). The Company is then charged a royalty fee on the rake based on the number of 32Red players that participate in each hand. For each tournament, players pay a buy in and an entry fee which vary depending on the size of the prize pot. The buy in is used wholly to fund the tournament prize pool while the entry fee is paid to the Company. The Company makes payments to MicroGaming and Prima Poker of a fixed percentage of 32Red's poker rake and poker tournament entry fees. An important differential from the casino revenue model is that poker players compete against one another, with no risk to the house. The Directors believe that real money players that win consistently at poker are more valuable to 32Red than losing players as they are likely to play more hands, play for a longer period of time and thus generate more rake. The Company generated net gaming revenue of approximately £189,000 from poker operations in the year to 31 December 2004 and approximately £277,000 in the six months to 30 June 2005. In the six months to 30 June 2005, 32Red achieved average yield per real money player per month of approximately £38. For the same period, 32Red had an average number of real money poker players per month of approximately 1,129, of which an average of approximately 33 per cent per month were new real money players. Customer acquisition and retention 32Red generates online poker and casino players through a mixture of online and offline marketing techniques which are aimed at generating new real money players and reactivating or increasing revenues from existing customers. To date, the Company has focused on online marketing techniques. Payment processing and customer accounts 32Red uses Barclaycard Services for the processing of all credit and debit card transactions. The Directors believe that the Company's advertised use of a recognised card services brand such as Barclaycard gives customers confidence when making deposits and that this adds to players' perception of 32Red's integrity. Intellectual property The Company owns the copyright to the '32Red' logo. The Company has protected its trade mark rights through trade mark registrations of the '32Red' word mark in various countries including the Republic of Korea, Japan, Hong Kong, Singapore and the European Union, and has pending trade mark applications in USA and Canada for the '32Red' word mark, and the European Union for the '32Red' device mark. Further, the Company has an extensive list of domain name registrations for a number of '32Red' casino themed domain names, '32Red' poker themed domain names, other casino themed domain names, and other product themed domain names. All domain names are registered to or are in the process of being transferred to the Company. IT systems The 32Red IT team is based at the Company's offices in Gibraltar and provides operational management support and monitors the 32Red Web environment, gaming and back-end systems. 32Red's gaming system servers, which provide the Company's online product, are hosted in the 32Red offices in Gibraltar. Additional front end servers are positioned in the UK to provide UK players with higher levels of response and shorter download times than would otherwise be possible if these servers were located elsewhere. The Company also has back-up servers providing the same functionality which are hosted in the 32Red offices in Gibraltar. The Directors believe that 32Red's existing IT systems have sufficient capacity and that staff have sufficient expertise to support continued growth in the number of real money players over the medium term. This view is supported by an independent technical review, commissioned by the Company and conducted in April 2005. 3. BUSINESS DEVELOPMENT AND STRATEGY The Company's marketing expenditure is linked to the revenue generated from its previous month's performance. 32Red has focused its marketing on Internet-based activity enabling significant transparency of effectiveness as discussed earlier in this document. The Company also undertakes some offline marketing campaigns mainly through pitch side advertising at UK football grounds and British horseracing sponsorships. The Directors intend to continue to focus the Company's marketing activities on the UK but with increased activity in Japan, Scandinavia and other European regions through the following channels: • online marketing to non-gaming areas; • online marketing to gaming related sites; • natural search development; • increased cost per click advertising and search engine optimisation; • offline sports related sponsorship; • offline direct marketing; • offline mainstream advertising; and • increased use of affiliates. As part of the Company's strategy for growth, the Directors intend that 32Red will invest further in its customer service staff as part of a continued focus on providing high levels of service for its players. The Company expects to further explore the opportunities available for new media such as mobile gaming and may also consider adding other games to its existing casino and poker online offerings. The Company has already held discussions with a software partner in one of these areas and has undertaken some investigation around the other possible new delivery channels for its services. The Directors will also consider acquiring businesses complementary to the Group should appropriate opportunities arise. 4. HISTORICAL FINANCIAL INFORMATION Set out below is an extract of selected financial information on the Company for the three years ended 31 December 2002, 2003 and 2004 and for the six months ended 30 June 2004 and 2005. In order to make a proper assessment of the Group's business, investors should not rely solely on the summary information set out below but should read the whole of this document including the historical financial information set out in Part 2A of this document. The information below is extracted from the historical financial information set out in Part 2A of this document. Period Year Year Six Six ended 31 ended ended months months Dec 31 Dec 31 Dec ended ended 2002 2003 2004 30 30 June June 2004 2005 £'000 £'000 £'000 £'000 £'000 Casino net gaming revenue 214 2,105 5,677 2,554 3,939 Poker net gaming revenue - 15 189 66 277 Total net gaming revenue 214 2,120 5,866 2,620 4,216 Gross profit (117) 598 1,971 1,006 1,652 Operating results (452) 112 1,129 667 994 Result for the period before (446) 113 1,121 660 987 tax Result after tax for the (446) 113 1,121 660 987 period The pro forma statement of net assets of the Company is set out in Part 3 of this document. 5. CURRENT TRADING AND PROSPECTS The Directors are encouraged by trading in relation to both poker and casino related activities since 30 June 2005. The Company's casino gross win for the month of July 2005 of £845,455 was 59 per cent higher than the equivalent period in 2004. Poker continues to show strong growth for 32Red who generated combined poker rake and entry fees in July 2005 of £70,565, a higher figure than in any previous month. In the month of July 2005, the Company recorded 2,048 real money casino players, of whom 587 were new real money casino players, and 1,572 real money poker players, of whom 487 were new real money poker players. The Directors believe that the Company is well positioned to take advantage of continued growth in the online casino and online poker markets and look forward to the Company's future with confidence. 6. DIRECTORS Brief biographies of the Directors are set out below: David Fish, QC, Non-executive Chairman (aged 55) David's main line of work is criminal defence cases and he became Queen's Counsel in 1997. David is a member of the Criminal Bar Association and the Northern Circuit. Appointments include Assistant Recorder (1990) and Recorder of the Crown Court (1994). Other than acting for the Defence in all areas of serious crime, commercial fraud and murder/manslaughter, David also undertakes Licensing work (including betting and gaming). David is a major shareholder in 32Red and has been a non-executive director of 32Red since inception. Edward Ware, Chief Executive (aged 38) Ed has a wealth of experience in the betting and gaming industry. He worked with Ladbrokes for nearly 15 years becoming Managing Director of Ladbrokes International Ltd. Ed is the creative driving force behind 32Red and is responsible for the strategy and direction of the company. Ed has been the chief executive of the Company since its inception. Simon Dimmer, Finance Director (aged 44) Simon has been with 32Red from the outset. He has worked for Deloitte Touche in Bermuda and a leading Jersey based trust company in the British Virgin Islands. Prior to joining 32Red, Simon was Chief Executive of BDO Gibraltar, a member of BDO International. Simon is a qualified Chartered Accountant and a member of The Institute of Compliance. Simon has been the Company's Finance Director since September 2003. Patrick Harrison, Operations Director (aged 44) Pat has spent his entire working life in the gambling industry, including 23 years at Ladbrokes. In addition to a great deal of service in the field in management positions, Pat was also Divisional Operations Manager based in Ladbrokes Head Office. In this role Pat was responsible for representing the entire Ladbrokes shop estate. As Operations Director at 32Red Pat takes responsibility for all customer relations activities within the Company including player support operations, payment processing and management, and security and fraud prevention. Graham Campbell, Systems Director (aged 39) Graham, also with experience at Ladbrokes as System Controller, is responsible for ensuring 32Red provides a fast and reliable service 24 hours a day, every day of the year. Graham has been Systems Director at the Company since inception and manages the Company's online gaming services, back office functionality as well as overseeing software and hardware development. Prior to his roles in the online betting and gaming area, Graham was Technical Support Manager for Matthew Clarke plc and responsible for IT operations for all UK manufacturing and distribution facilities for that company. John Hodgson, Non-executive Director (aged 46) John practises law in Gibraltar as a sole-practitioner under the name of Hodgson Bilton. A Solicitor and Notary Public, John also holds a directorship in The Sovereign Group. John was admitted as a Solicitor in England & Wales in 1983, as a Solicitor in Hong Kong in 1989 with Notary Public appointments in Hong Kong and Gibraltar in 1994 and 2001 respectively. Memberships include: the Society of Trust and Estate Practitioners; International Bar Association; the Law Society of England and Wales; and the Gibraltar Bar Association. He has been a non-executive director of 32Red since inception. Bruno Callaghan, Non-executive Director (aged 40) Bruno's main activities are in insurance. As Managing Director of Willis Management (Gibraltar) Ltd, he is responsible for the management and formation of captives and insurance companies in Gibraltar. Bruno also runs Callaghan Insurance and is a Director of Ace Holdings Ltd. Until 2004, Bruno was President of the Gibraltar Chamber of Commerce. Bruno Callaghan was a member of the Government of Gibraltar Economic Advisory Council for three years. He has been a non-executive director of 32Red since inception. This information is provided by RNS The company news service from the London Stock Exchange