31 May 2005 The Manager Company Announcements Australian Stock Exchange Limited Exchange Centre Level 6, 20 Bridge Street Sydney NSW, 2000 13 pages
Dear Sir, ANNUAL GENERAL MEETING CEO’S ADDRESS In accordance with Listing rule 3.13.3, attached herewith is the address of the CEO to be made at the Annual General Meeting of Betcorp Ltd on 31 May 2005. Yours faithfully, Betcorp Limited
Nick Tyshing Company Secretary
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Betcorp Limited Annual General Meeting – 31 May 2005 Chief Executive Officer’s address Good morning Ladies and Gentlemen. I intend this morning to clarify the direction in which the new management team is seeking to take the business. Our primary objective is to raise the profitability of the business, reduce the volatility of that profit stream and ultimately improve shareholder value. First, though I must report on the outcome of 2004 which was a disappointing year for the Company, and then show how actions management have taken have improved performance on the way to the fulfilment of the strategy that I’ll outline. SLIDE 1 – FINANCIAL RESULTS – FULL YEAR 2004 This slide shows the headline 2004 result – a loss at EBITDA level of US$7.4 million. During this year the Company failed to make anywhere near an adequate gross margin from the business it wrote – making just 2.59% underlining the dangers of relying too much on larger and wiser clients who have the knowledge to beat the book. The greater part of these trading losses and poor returns was experienced in the first part of the year where we would traditionally expect lower margins from the mix of sports. The Company’s profitability was further damaged by a high increase in the operating costs of the business. This was a combination of higher payment processing costs and a generous bonus campaign for clients which was not successfully implemented. The Exceptional loss incurred in the year related to the costs of selling the loss making Australian subsidiary Sportsbet to its management, the costs of closing the Group Headquarters in Sydney and making staff redundant, and the writing off of exceptional costs incurred in Due Diligence on a prospective acquisition and the expensing of software development costs on a new operating & bet acceptance system. This trading scenario has been transformed in the Q1 of 2005 as SLIDE 2 – FINANCIAL RESULTS – 2005 Q1 indicates. First let me draw your attention to the bottom left where you will see that Q1 2005 was profitable against a loss in the same quarter last year and a turnaround of nearly US$2 million in the WWTS trading company. This was achieved by our making a higher gross margin but on a lower turnover, due to our policy of not accepting bets from major Asian agents and reducing both the number and the terms at which we accepted wise guy business. I would expect this process of
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earning a higher gross margin on a lower betting turnover to continue throughout the year. We expect this approach both to be more profitable and to be less volatile. On the right hand slide you see the initial impact of the acquisition of Sinsational Intertainment. Sinsational was targeted because it had a large number of recreational clients from whom we could earn a higher percentage and because they had a good mix of business from sportsbook on the one hand and casino games on the above, resulting in a lower volatility. A third attraction, which will become apparent, is the fact that there is a low cross over of clients between the 2 companies, so we have a ready made target audience for WWTS improved Casino product and Poker. I think at this point it would be constructive to add, that one of the difficulties of explaining our business to shareholders here in Australia, is that a number of the products we have identified as growth products for the Group, cannot be offered legally to any Australian residents who may be our clients. SLIDE 3 – KEY OPERATIONAL INDICATORS shows some of the key indicators in the business. There are rather a lot of numbers here, but if I may draw your attention to the second line where you will see that the size of the average sports bet accepted by WWTS has been reduced from US$191 to US$153. This is a move in the right direction, and a move towards a lower risk profile and a lower volatility of income because it reflects the fact that we are accepting fewer large bets from knowledgeable clients who traditionally beat the book. In strategic terms, this process has still quite a way to go, as shown by the average bets accepted by Sinsational, an internet book catering for recreational players. The lower staking levels is further reflected in the lower total turnover you witnessed on the previous slide and the gross margin percentage shown in line 3 here. Other points of significance here are the emergence of online poker. Poker is really the hot button in online gaming at the moment as has been explained in our Annual Report. Sinsational, when acquired, did not have a poker product and this represents an upside for the Group. Finally, I draw your attention to the fact that for the Group as a whole and for the 2 operating companies separately, both the sports margin and the total margin including casino income, earned in the 1st quarter, has positioned the Company well in terms of exceeding last years totals over the full year.
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If I may now return to the Company’s Strategy SLIDE 4 - STRATEGY. What I want to leave you with today is both an understanding of the direction in which we are moving, and how clearly, the acquisition of Sinsational was a first, logical and cost effective step in that direction. Betcorp will be transformed into a broadly based online gaming and entertainment company offering a comprehensive range of betting and gaming activity in multiple currencies and several languages. This will include sports betting catering for the global market, a wide range of casino games, poker and other card games relevant to an adult gaming audience, and other games of skill suitable for single player or multi player activity. Income will be generated both by the acceptance of bets where the company accepts a risk on the outcome and from participation fees where the company carries no risk. The objective is to appeal to a wider range of clientele, increasing earnings whilst at the same time reducing their volatility. In terms of the timing of these moves, the Company already uses industry leading products from third party suppliers for Poker, where we are a member of the second largest network, casino games where we use Playtech products, and Game Account which supplies a range of games of skill to many leading sportsbooks in the industry. We can foresee the situation by the end of July, where our customers will enjoy all these products on one seamless account. Once they have logged in, and deposited funds, they will be able to move in & out of the various betting activities without having to login again or consciously move funds. This will represent a substantially more attractive product offering than we currently have. We also expect by the end of July to be able to accept deposits in a wide range of currencies, which will then enable us to be more competitive in those parts of the world where soccer is the primary betting activity. This is clearly critical to our geographic expansion, and a further reduction in the volatility of our earnings stream. Following on from this, is the introduction of websites in languages other than English. This is a facility that has been offered for a number of years by leading sportsbooks based in Europe, although is much less common amongst sportsbooks targeting the north American market. WWTS currently only offers a Chinese language site and the addition of other languages is a 2006 project.
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SLIDE 5 – INTEGRATION OF SINSATIONAL shows the key datelines in the timely integration of our two operating companies BetWWTS and Sinsational. The plan is firstly to offer Sinsational clients all the benefits of BetWWTS’s superior casino and Poker plus Games of Skill, and then to migrate the BetWWTS client base onto the Sinsational platform. When this is complete, BetWWTS will be able to offer Sinsational’s superior Horse racing product to its customers. In addition, many client handling activities which are currently manual in BetWWTS will then be able to be handled by the automated processes acquired from Sinsational. We are planning for this to be complete by the 30th June. The beta launches of the casino and poker products to Sinsational clients has been well received and has been technically faultless. Accordingly, a full roll out of these products to all Sinsational clients will start from tomorrow right on schedule. SLIDE 6 – OUTLOOK If I may I would like to conclude by talking to our Acquisition Strategy. Management believe that it will be beneficial to shareholders if the Company were to grow more quickly than we currently foresee as being possible solely through organic means. As far as North America is concerned, the reduced opportunities and higher costs of recruiting clients may make it more cost effective to acquire clients through buying their company. We are therefore actively reviewing potential acquisitions that will deliver recreational clients cost effectively and which will reduce our overall volatility of earnings probably by having a good proportion of casino & activity. An added attraction would be a company that delivers a client base substantially outside the United States. Companies like this are attractive to our competitors as well as to ourselves and it is partly for this reason that we will keep under active consideration a listing on the AIM in London. This market understands and has been accommodating to Gaming businesses whose shares often trade at more attractive earnings multiples. The actual process through which this could take place is under review and the Board is determined that the interests of all shareholders will be properly considered. Thank you for your attention. My colleagues and myself will be happy to answer any questions.
Colin Walker Chief Executive Officer
BETCORP LIMITED
ANNUAL GENERAL MEETING
Melbourne 31 May 2005
Financial Results – Full Year 2004
Betcorp Group USD’000
Turnover Gross Margin Gross Margin (%) Less Direct Costs Less Overheads Less Exceptional Items Total Costs EBITDA
FY2003
665,000 27,800 4.18% (4,500) (12,000) (16,500) 11,300
FY2004
790,000 20,500 2.59% (8,100) (13,700) (6,100) (27,900) (7,400)
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Financial Results – 2005 Q1
2005 Q1 Results
WWTS 2005 Q1 USD’000 Wagering Turnover Gross Margin Gross Margin Rate Direct (Variable) Costs Direct (Variable) costs Rate Net Margin Operating Expenses EBITDA Net Profit/(Loss) 142,591 5,153 3.61% (1,684) 1.18% 3,469 (2,036) 1,433 1,346 2004 Q1 USD’000 193,392 4,568 2.36% (2,114) 1.09% 2,454 (2,985) (531) (531) Betcorp Group 2005 Q1 WWTS Sinsational Betcorp USD’000 142,591 5,153 3.61% (1,684) 1.18% 3,469 (2,036) 1,433 1,346 USD’000 USD’000 38,608 1,807 4.68% (365) 0.95% 1,442 (920) 522 413 (290) (290) (270)
Total USD’000 181,199 6,960 3.84% (2,049) 1.13% 4,911 (3,246) 1,665 1,489
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Key Operational Indicators
Key Indicators
Number of Sports Bets Average Sports Bet Size Sports Gross Margin Funded New Customer Sign-ups Casino Gross Margin Poker Gross Margin Other Gross Margin Sports Gross Margin Total Gross Margin
Units
# USD % # USD’000 USD’000 USD’000 USD’000 USD’000
WWTS 2004 FY
2.906m 191 2.77% 7,599 3,648 215 19 15,366 19,248
WWTS 2005 Q1
0.673m 153 4.10% 1,739 697 244 4,237 5,178
Sinsational 2004 FY
1.746m 46 5.70% 4,514 2,054 4,605 6,659
Sinsational 2005 Q1
0.555m 51 7.07% 1,907 745 1,983 2,728
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Strategy
To re-align the Group into a broad based online gaming and entertainment group offering:
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a more comprehensive range of betting & gaming products covering: o A wider variety of sports for the global market; o A wider range of casino games; o Multiplayer poker; o Bingo; o Games of skill. to a wider geographical audience through: o New betting options; o Additional languages; o Provision of alternative deposit currencies.
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The objective to expand the revenue base into less volatile and seasonally affected gaming products.
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Integration of Sinsational
18 May 2005 (completed) Beta launch of WWTS poker and WWTS download casino on SII websites 6 June 2005 Hard launch of WWTS poker and WWTS download casino on SII websites Beta launch of Games of Skill on SII websites 30 June 2005 Physical move of WWTS employees to SII office building Migration of WWTS customers onto SII operating platform 31 July 2005 All products working on both WWTS and Sinsational ready for new season under “Shared Purse” system – one seamless account – log in once and access all products
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Outlook
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Acquisition Strategy AIM Listing
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