Back To Business, Says Neteller

Published: Thursday, August 23, 2007 Online-Casinos.com

BACK TO BUSINESS, SAYS NETELLER

Six months results to end June 2007 released

Focusing on the European and Asian market sectors after its traumatic run-in with the US Department of Justice earlier this year (see previous Online-Casinos.com/InfoPowa reports) the Isle of Man based e-wallet Neteller published its six months results to the end of June 2007 this week. Highlights of the report included:

Stabilised business following US resolution to provide solid foundation for future growth

Active customers (excluding North America) up 29 percent to 97 216 in Q2 2007 from 75 381 (Q2 2006)

Completed restructuring to align costs with anticipated revenues

Continued globalisation programme to yield revenue growth in Europe and Asia Pacific

Delivered first phase of strategy to solidify position as pre-eminent provider serving online gaming sector in selected markets

Financial Highlights


Revenue in H1 2007 was US$ 50.8 million, a decrease of 57 percent from H1 2006 due to withdrawal from US market

European revenue in H1 2007 grew 46 percent to US$ 21.2 million; Asia Pacific grew 46 percent to US$ 5.4 million

Gross margin in H1 2007 was 55 percent, compared to 72 percent in H1 2006

Loss before tax in H1 2007 was US$ 24.7 million due to US restructuring and legal related expenses

Cash at 30 June 2007 was US$ 210.5 million; before US$ 136 million due to US authorities

Cash flow from operations neutral in H1 2007.

Due to recent events and the resulting significant change in market concentration, gross margin has decreased to 55 percent (compared to 71.8 percent during the same period in 2006).

Ron Martin, President & Chief Executive Officer of the group, said: "These results have been produced during a very challenging period for the Neteller Group and they represent the first stage of rebuilding the business into a platform for growth within the European and Asia Pacific markets.

"The resolution of our US situation announced in July 2007 allows us to start implementing our strategy to develop further innovative payment solutions for our customers and merchants within our selected markets.

"We will initially focus on our core market of online gaming where we have developed considerable expertise. In the medium term, however, we will look to add further offerings for our customers that add value to the e-wallet proposition such as payment cards and other payment features.

"We believe online payments is a rapidly growing market and Neteller is well positioned to benefit from this. The Board looks forward to the next six months and beyond with confidence about the Group's prospects."

Under the heading "Litigation" the report comments that Neteller is aware of potential litigation resulting from an alleged breach of contract with an [unidentified] vendor. No claim has yet been filed and the outcome and potential damages are unknown.

The second quarter figures released today are the first set of results without significant residual North American-generated revenue. The Group voluntarily ceased processing funds transfers between US residents and online gambling sites on 18 January 2007, and during the first half of 2007, it exited the Canadian, Turkish and Israeli markets, too.

Despite this, business exclusive of North American earnings has grown substantially in the first half of 2007 compared to the same period in 2006. At 30 June 2007, Neteller had 97 216 active customers from Europe, Asia Pacific and the Rest of World which represents an increase of 29 percent from 75 381 active customers as at 30 June 2006. Active customers are the key driver of revenues for the group.

The company says it recognised in advance of its withdrawal from the US market that it would be necessary to realign the cost base to its likely revenues to ensure a profitable and cash generative operation going forward.

The restructuring and downsizing of the Group's principal operations in Calgary and the UK in early 2007 resulted in a reduction in staff from over 1 000 to around 425 people worldwide, the report reveals. Severance and other costs related to this reorganisation amounted to $2.7 million in the first half of 2007.

Further costs relating to the US resolution including approximately $9 million in professional and legal fees were incurred during the period. In addition, $13 million was recognised as an expense during the first half as a result of the write-down of the Group's assets related to its former North American facing business.

Total cash available at 30 June 2007 totaled $210.5 million. This figure is before allowing for the up to $60 million of funds seized by the US authorities in January 2007 and thereafter. As part of the resolution with the US authorities in July 2007 Neteller agreed to forfeit a total of $136 million to the US. This amount included up to $60 million which was seized by the US authorities and which shall be applied to satisfy a portion of Neteller's forfeiture obligation. The company agreed that it will pay a further amount of $40 million on or before 15 October 2007, with the remaining balance to be paid on or before 17 January 2008.

As part of the US resolution, Neteller has implemented the Distribution Plan to return approximately $94 million of funds owed to US customers. To date, over $71 million of these funds has been requested and is currently in the process of being repaid or has already been repaid to the e-wallet's US customers.

Neteller indicates in the report that it is about to sell its Calgary, Canada properties. It has received and accepted a conditional Letter of Intent for the purchase of Calgary property located on 27th Avenue which is expected to lead to a sale agreement closing in the fourth quarter of 2007. Expected proceeds of the sale are approximately CAD $39 million. However, Neteller will continue to lease facilities at this location.

The e-wallet has also entered into a sale agreement for Calgary property located on 41st Avenue. The agreement is expected to close on 31 August 2007 for proceeds of approximately CAD $4 million, with CAD $0.75 million payable as a vendor take back mortgage over three years.