Consolidated unaudited operating results for Q1, 2007
Posted on 18.05.2007
To date, expansion activities and the Group's operations have proceeded according to set objectives and plans. Q1 revenue and expenses do notinclude the results of newly acquired entities but expansion has increased the parent's Q1 operating expenses.
In March 2007 Olympic Entertainment Group established the subsidiary Olympic Casino Bucharest SRL (OCB) in Romania and on 12 April OCB signed an agreement on the acquisition of the assets of the Romanian casino operator Empire International Game World. Under the agreement, OCB is going to acquire three casinos the Romanian capital Bucharest.
At the beginning of April the Group completed the acquisition of the shares in AS Kristiine Kasiino and OÜ Casinova. The purpose of the transaction was to expand operations and consolidate the Group's position in the Estonian gaming market.
In April 2007 Group established the subsidiary in Slovakia. The transaction was performed to prepare the ground for the Group's entry to the Slovakian gaming market.
At the end of April the Group finalised the acquisition of an 80% stake in Casino Polonia-Wroclaw Sp. z o.o.(CP). In May 2007 CP is going to open a new casino at Hilton Hotel in Warsaw. The total investment will amount approximately to 110 million kroons (€7 million). With its 1500 square metres, 100 slot machines and 20 game tables, the new Olympic Casino Sunrise will be the largest casino in Poland.
Thanks to successful geographical expansion and growth of operating volumes in the existing markets, the Group is expecting to end Q2 with revenue of 638 million kroons (€40.8 million) and an operating profit of 123 million kroons (€7.9 million). Revenue and operating profit growth forecasts are 70% up and 69% up on Q2, 2006 respectively. Revenue and operating profit forecasts for the first half- year amount to 1.1 billion kroons (€70.3 million) and 211 million kroons (€13.5 million) respectively.
According to forecasts, consolidated revenue for 2007 will amount to 2.67 billion kroons (€170.5 million), 60% up on 2006, and consolidated operating profit for 2007 will amount to 595 million kroons (€38.0 million), 34% up on 2006.
Highlights of Q1, 2007:
Revenue: 461.1 million kroons (year-on-year change +32%)
Operating profit: 87.4 million kroons (year-on-year change -17%)
Operating margin*: 19.0% (Q1, 2006: 30.1%)
Profit before tax: 96.9 million kroons (year-on-year change -5%)
Net profit **: 82.7 million kroons (year-on-year change -12%)
Net margin***: 17.9% (Q1, 2006: 26.9%)
* Operating margin = operating profit / revenue
** Net profit before minority interest
*** Net margin = net profit / revenue
€1 = 15.6466 kroons
The Group ended Q1, 2007 with consolidated revenue of 461.1 million kroons (€29.5 million), a 32% increase on a year ago.
The period's consolidated operating profit amounted to 87.4 million kroons (€5.6 million). The decline from a year ago results primarily from non-recurring expenses such as operating expenses of 6 million kroons (€0.4 million) incurred on the implementation of the Group's aggressive expansion policy, i.e., penetration of the Polish gaming market, acquisition of Kristiine Kasiino and preparations made for entry to other new markets (Romania and Slovakia), and taxes of 14 million kroons (€0.9 million) paid on the stock options issued to members of the Group's management board and other key executives. Consolidated net profit for Q1 amounted to 82.7 million kroons (€5.3 million) including net profit attributable to equity holders of the parent of 79.3 million kroons (€5.1 million). The period's operating margin was 19.0% and net margin 17.9%.
Revenue growth may be attributed to several factors: revenue growth at most of our established casinos, new casinos openings in 2006 and in the first months of 2007. Significant influence on revenue growth comes from the opening of, Olympic Voodoo Casino, the largest casino in the Baltic countries in May 2006.
In the first quarter of 2007, 94% of consolidated revenue resulted from gaming operations, other operations contributed 6%.
Consolidated revenue by geographical segments (in thousands of Estonian kroons):
Q1,2007 Share Q1,2006 Share Revenue growth
Estonia 176,307 38.2% 139,227 39.9% 26.6%
Latvia 155,847 33.8% 105,367 30.2% 47.9%
Lithuania 95,515 20.7% 88,319 25.3% 8.1%
Ukraine 31,893 6.9% 16,377 4.6% 94.7%
Belarus 1,501 0.4% - - -
TOTAL 461,063 100% 349,290 100% 32.0%
€1 = 15.6466 kroons
Similarly to prior periods, the largest share of the Group's revenue is earned in Estonia. However, the contributions of Latvia and Ukraine, which posted the highest year-on-year growth rates, have increased considerably. The decline in the proportion of revenue earned in Lithuania and the fact that revenue growth in Lithuania is lagging behind the Group's average may be explained by the temporary closure of the leading casino in Kaunas (the hotel in which the casino is located is undergoing renovation) and the direction of the Group's investments to swiftly developing markets in Ukraine and Poland.
Consolidated operating expenses for Q1, 2007 totalled 373.7 million kroons (€23.9 million), 53% up on the 244.2 million kroons (€15.6 million) incurred a year ago. The largest expense item was still labour costs which extended to 119.2 million kroons (€7.6 million), followed by depreciation and amortisation expenses of 47.2 million kroons (€3.0 million), gaming tax and operation licence expenses of 44.9 million kroons (€2.9 million), marketing expenses of 34.3 million kroons (€2.2 million) and buildings-related lease expenses of 28.9 million kroons (€1.8 million). In the income statement, gaming taxes and marketing and lease expenses are shown on the other operating expenses.
The increase in operating expenses is related, above all, to the Group's rapid expansion and revenue growth. In absolute terms the largest growth occurred in labour costs which increased by 39.8 million kroons (€2.5 million), i.e., 50% compared to Q1, 2006. The increase in labour costs may be explained by the Group's swift expansion, the opening of new casinos (the main reason for a rise in labour costs) and heightening competition in the labour market which boosts wages and salaries. The Group adjusted its salaries at the beginning of 2007 and is not planning any major pay-rises for subsequent periods. The growth in gaming tax expenses is related to the opening of new casinos and an increase in gaming tax rates in Latvia. Depreciation and amortisation expenses have increased due to investment in new casinos, gaming equipment and information technology. The rise in lease expenses results from the opening of new casinos while the growth in marketing expenses stems from expanding sales which increase bonus points acquired by customers, jackpot expenses and the costs of promoting new casinos.
Balance sheet and capital expenditures
At 31 March 2007 the consolidated balance sheet of Olympic Entertainment Group AS stood at 2,388.5 million kroons (€152.7 million), 3% up on the 2,309.2 million kroons (€147.6 million) measured at 31 December 2006.
Current assets amounted to 1,272.7 million kroons (€81.4 million), accounting for 53% of total assets, while non- current assets amounted to 1,115.8 million kroons (€71.3 million) accounting for 47% of total assets.
The Group's liabilities totalled 236.1 million kroons (€15.1 million) and consolidated equity equalled 2,152.4 million kroons (€137.6 million).
The period's capital expenditures totalled 99.3 million kroons (€6.3 million). Investments in the renovation of leased premises amounted to 19.2 million kroons (€1.2 million), investments in equipment totalled 39.2 million kroons (€2.5 million), and investments in other items of property, plant and equipment equalled 31.1 million kroons (€2.0 million). At the balance sheet date, prepayments for property, plant and equipment amounted to 9.5 million kroons (€0.6 million) and investments in software licences and intangible assets totalled 0.3 million kroons (€0.02 million).
In connection with the opening of new casinos, the average number of the Group's employees grew from 2,066 on 31 March 2006 to 2,406 on 31 March 2007, a 17% increase. At the end of the reporting period we employed 630 people in Estonia and 1,776 people outside Estonia (867 in Latvia, 671 in Lithuania, 188 in Ukraine and 50 in Belarus).
Employee remuneration expenses for Q1, 2007 including social taxes amounted to 119.2 million kroons (€7.6 million) against 79.4 million kroons (€5.1 million) a year ago.
Results of casino operators
At the end of March 2007, the Group had 82 casinos with the total area of 23,169 square metres. A year ago, the number of casinos was 70 and their total area 18,616 square metres.
Number of casinos by markets:
31 March 2007 31 March 2006
Estonia 24 18
Latvia 38 39
Lithuania 10 8
Ukraine 9 5
Belarus 1 0
TOTAL 82 70
OLYMPIC CASINO EESTI AS
Olympic Casino Eesti AS (OCE) opened a new casino near Marja supermarket in Tallinn in the first hours of 2007 and its 24th casino and the largest slot casino in Estonia (386 square metres) in Järve Centre, Tallinn on 3 February 2007. At the end of March 2007 the number casinos operating under the Olympic Casino brand in Estonia was 24 including 6 outside Tallinn. The casinos have a total of 952 slot machines and 19 gaming tables.
Together with the casinos of AS Kristiine Kasiino, whose acquisition was finalised on 9 April 2007, the Group now has 35 casinos and 1,237 slot machines in Estonia.
OCE ended Q1 with sales of 165.3 million kroons (€10.6 million), 13% up on a year ago, including gaming revenue of 163.4 million kroons (€10.4 million), 28% up on a year ago. Net profit amounted to 66.5 million kroons (€4.3 million), 10% up on Q1, 2006. Profit growth was attained thanks to revenue growth of the formerly established casinos and the successful launch of new casinos.
OLYMPIC CASINO LATVIA SIA
In 2007 Olympic Casino Latvia SIA (OCL) is going to focus on transferring most of the casinos of Baltic Gaming AS (BG) under the Olympic Casino brand name (smaller casinos will remain under the Bumerangs brand) and performing the legal merger of the two companies. In Q1, 2007 no new casinos were opened but two former BG casinos in Ventspils were transformed and harmonised with the standards of Olympic Casino. At the end of March, OCL was operating 10 casinos with a total of 461 slot machines and 39 gaming tables.
OCL's sales for Q1, 2007 amounted to 107.3 million kroons (€6.9 million), a 2.5-fold increase on a year ago. Net profit for the period amounted to 22.1 million kroons (€1.4 million), a 2.0-fold improvement on Q1, 2006. The upsurge in sales and profit was achieved thanks to the opening of Olympic Voodoo Casino, the largest Baltic casino, in May 2006 and strong revenue growth at most of the established casinos.
BALTIC GAMING AS
At the end of March 2007, BG was operating 28 slot casinos with a total of 734 slot machines in Riga and other Latvian cities.
BG ended the reporting period with sales of 41.0 million kroons (€2.6 million) and net profit of 1.3 million kroons (€0.1 million). A year ago sales revenue and net profit amounted to 54.4 million kroons (€3.5 million) and 14.0 million kroons (€0.9 million) respectively. In comparing the results for Q1, 2007 and Q1, 2006 it is important to note that financials for Q1, 2007 have been significantly affected by the transfer of the operation of Voodoo Tower casino and four slot casinos to OCL. This reduced both BG's sales and profit.
OLYMPIC CASINO GROUP BALTIJA UAB
Olympic Casino Group Baltija UAB (OCGB) did not open any new casinos in Q1. On 1 March OCGB's leading casino in Kaunas was closed for half a year for renovation and refurbishment. At 31 March 2007, 10 casinos (including the one closed for renovation) with 398 slot machines and 61 gaming tables were being operated under the Olympic Casino brand in Lithuania.
OCGB's Q1 sales revenue and net profit amounted to 90.8 million kroons (€5.8 million), 6.2% up on a year ago, and 13.6 million kroons (€0.9 million), 47% down from a year ago, respectively. The decrease in net profit was caused by an increase in marketing and depreciation expenses and the temporary closure of the leading casino in Kaunas (the work of the casino was disrupted already before closure of the casino due to the renovation of the hotel facilities).
OLYMPIC CASINO UKRAINE TOV
In the middle of January 2007 Olympic Casino Ukraine TOV (OCU) opened its 9th casino in Sofievsky Street, Kiev. At the end of March OCU had nine casinos with a total of 442 slot machines, all located in Kiev.
At the end of April 2007 OCU opened its 10th casino on Prospekt Pobeda, one of Kiev's largest and busiest avenues.
OCU ended Q1, 2007 with sales of 31.9 million kroons (€2.0 million), a 2-fold increase on a year ago, and a net profit of 2.2 million kroons (€0.1 million). Net profit for Q1, 2006 amounted to 1.6 million kroons (€0.1 million). Profit growth may be attributed to strong revenue growth at both formerly established and new casinos.
OLYMPIC CASINO BEL IP
Olympic Casino Bel IP, which was established in July 2005, opened its first casino in the middle of August 2006. The second slot casino was opened on 9 May 2007 in Pritytskovo district in Minsk and Olympic Casino Bel IP is preparing for the opening of three more Olympic Casinos. Sales revenue for Q1, 2007 amounted to 1.5 million kroons (€0.1 million). Due to expenses incurred in connection with the opening of new casinos, the reporting period ended in a loss of 5.2 million kroons (€0.3 million).
The Group's significant financials (kroons, millions)
Q1,2007 Q1,2006 Change
Revenue 461.1 349.3 32.0%
EBITDA 134.6 134.0 0.0%
Operating profit 87.4 105.1 -16.9%
Net profit 82.7 94.0 -12.0%
EBITDA margin 29.2% 38.5% -24.3%
Operating margin 19.0% 30.1% -37.0%
Net margin 17.9% 26.9% -33.4%
Equity ratio 90.1% 66.1% 36.2%
o EBITDA = earnings before financial expenses, taxes, depreciation,
amortisation and impairment losses
o Operating profit = profit before financial expenses and taxes
o Net profit = net profit for the period before minority interest
o EBITDA margin = EBITDA / revenue
o Operating margin = operating profit / revenue
o Net margin = net profit / revenue
o Equity ratio = equity / total assets
€1 = 15.6466 kroons
Member of the Management Board
Olympic Entertainment Group
Tel +372 667 1250
Interim financial report Quarter 1, 2007 - Unaudited (in English, PDF)