ACQUISITION OF 50% EURO OFF-TRACK JOINT VENTURE, STRATEGIC REVIEW, TRADING UPDATE, ADDITIONAL SHAREHOLDER FINANCING AND BOARD CHANGES
betinternet.com plc, (betinternet or the Company) the global on-line gaming group, today announces a year-end update on trading, a strategic review coupled with the acquisition of the outstanding 50% share in the Euro Off-Track (EOT) joint venture, fresh shareholder financing, and changes to the Board.
The Company completed the second half of its financial year on 30 May 2004. The margins achieved by the Sports Book business in the second half of the financial year showed a significant improvement over that achieved in the first half of the year. This was largely a result of the strategic action taken to enhance the Company’s risk management policies, which has led to a focussed reduction in turnover as less profitable markets within the Sports Book business have been discontinued.
The Pari-Mutuel business has now moved into profitability and this, combined with the reduction in the losses incurred in the Sports Book business, is expected to lead to a substantial reduction in the level of trading losses (excluding goodwill and depreciation) incurred in the second half. Nevertheless, the loss before tax and goodwill for the financial year as a whole is expected to exceed that reported for the first half.
Against an improving trading performance, the Board has commenced a strategic review of the options open to its Sports Book and Pari-Mutuel businesses. This review, which is intended to address the longer term strategy and financing of the Company, is expected to be completed by 30 September 2004.
Acquisition of 50% Euro Off-Track Joint Venture
As part of the review, the Board has taken the decision to acquire the outstanding 50% share in the EOT joint venture with immediate effect. Euro Off-Track is the Company’s Pari-Mutuel business, which until now has been a 50:50 joint venture with US Off-Track, a US market leader in simulcasting and interactive wagering. Pari-mutuel wagering provides a risk-free return to the promoter. The acquisition, therefore, not only improves the risk profile of the Company’s income stream, but gives the Company full control over the activities of EOT; including the opportunity to more fully exploit its hub operations on an international basis.
In the twenty-six week period from 2 June 2003 to 30 November 2003, EOT turnover had increased to £14.6 million from £314,000 in the corresponding period of the previous financial year, with a first-time profit of £338,000, compared with a prior period loss of £296,000. The pre tax-loss in EOT for the period ended 1 June 2003, as derived from the audited financial statements of the betinternet group at that date, was £478,000 on turnover of £2.03m. The Balance Sheet deficit of EOT at that date, similarly derived, was £1.09m.
Consideration for the acquisition of the additional shares in EOT will be satisfied by the issue of 8,761,125 new Ordinary Shares in the Company to US Off-Track, equivalent to approximately 7.0% of the enlarged share capital of betinternet.com plc. US Off-Track do not currently hold any shares in the Company. Application will be made for admission to trading on the Alternative Investment Market of the London Stock Exchange of the new Ordinary Shares to be issued pursuant to the acquisition. Completion of the acquisition is conditional on these shares being admitted to AIM not later than 31 July 2004 (or such other date as the Company and US Off-Track may agree).
Additional Shareholder Financing
In support of the strategic review, and in order to ensure that the Company’s potential funding requirements can be satisfied during the period of that review, Mill Properties Limited and Burnbrae Limited (vehicles respectively, for the Caldwell family shareholding and Mr. J. Mellon) have signed guarantees in favour of the Company, providing access to additional cash funding. The guarantees expire on 24 October 2004 and enable the Company to require the guarantors to provide additional short term loan finance of up to £400,000. Interest is payable on any amounts drawn down under this arrangement at the rate of 2% above the base rate of the Royal Bank of Scotland plc. By way of security for the repayment by the Company to the guarantors of any amounts drawn, betinternet has assigned its rights to receive repayment of development funds which it advanced to EOT as part of the hub development. Additionally, it has granted a charge over the hardware and software assets and intellectual property rights used for the purposes of the Pari-Mutuel business.
As the guarantors are significant shareholders in the Company, the guarantee arrangement constitutes a related party transaction. By virtue of the nature of their association with the guarantors, certain members of the Board have an interest in this arrangement. Accordingly, the arrangement has been considered by those directors who remain independent, namely Harley Corkill, Paul Doona and William Mummery. These independent directors, who have consulted the Company’s nominated advisor, Williams de Broë Plc with respect to the terms of the guarantee arrangement, consider that they are fair and reasonable insofar as shareholders are concerned.
In order to assist the Company in its strategic review, referred to above, Mr Jim Mellon has been invited by the Board to become a non-executive director, with immediate effect. Mr Mellon, whose appointment is subject to formal approval by the Isle of Man Gambling Control Commissioners, has significant commercial experience drawn from a number of roles during his career and his expertise will be particularly invaluable during the strategic review.
Mr William Mummery, executive director responsible for technology, has tendered his resignation as a director with immediate effect, but will remain with the Company for the next six months focussing entirely on developing the Pari-Mutuel business.
The Board has also concluded that this is the appropriate time to rebalance the board between executive directors and non-executive directors, and has, therefore, also agreed to accept the resignations, with immediate effect, of Mr Mark Child and Mr Harley Corkill, both non-executive directors of the Company.
In the light of these changes and the strategic review of the business, the Company expects to announce its preliminary results for the year ended 30 May 2004, together with the outcome of its strategic review, towards the end of September 2004.
Denham Eke, chairman of betinternet commented: The EOT joint venture was established in 2000 to develop a hub on the Isle of Man. With the financial results having shown the potential of this investment, we are delighted to have been able to acquire the outstanding 50%.