Consolidated unaudited results for 2006
Posted on 21.02.2007Highlights, 12 months of 2006:
Revenue: 1,669.2 million Estonian kroons (growth 89.7%)
Operating profit: 443.5 million Estonian kroons (growth 98.4%)
Operating margin*: 26.6% (2005: 25.4%)
Profit before tax: 445.1 million Estonian kroons (growth 100.9%)
Net profit: 388.3 million Estonian kroons (growth 87.5%)
Net margin**: 23.3% (2005: 23.5%)
* Operating margin = operating profit / revenue
** Net margin = net profit / revenue
EUR 1 = EEK 15.6466
The consolidated revenue of Olympic Entertainment Group AS (hereinafter also the "Group") for the fourth quarter of 2006 amounted to EEK 508.4 million (EUR 32.5 million), a 76% increase on a year ago.
Consolidated operating profit for the fourth quarter was EEK 124.3 million (EUR 7.9 million) and consolidated net profit for the fourth quarter amounted to EEK 110.1 million (EUR 7.0 million). The fourth quarter's operating margin was 24.5% and net margin 21.7%.
Fourth quarter results were affected by the recognition of the employees' bonuses for 2006 and other provisions and impairment losses in the expenses of December. There was also an increase of corporate income tax expenses (especially in Latvia where Olympic Casino Latvia SIA had used up the losses of preceding periods which until then had reduced its income tax expense). At the end of the last year the Group started activities to enter the Polish market and this generated additional expenses. Expenses were also increased by the opening of new casinos during the last months of 2006 and changed depreciation rates for gaming equipment in Lithuania.
The Group ended 2006 with consolidated revenue of EEK 1,669.2 million (EUR 106.7 million), close to a 90% improvement compared to the EEK 879.9 million (EUR 56.2 million) attained a year ago.
Consolidated operating profit surged to EEK 443.5 million (EUR 28.3 million), a two fold increase compared to 2005, and consolidated net profit grew 88% from EEK 207.1 million (EUR 13.2 million) earned a year ago to EEK 388.3 million (EUR 24.8 million).
The notable growth in the revenue and profit figures may be attributed to several factors. Firstly, the revenues generated by the Group's existing casinos increased substantially. Secondly, a number of new casinos were opened during 2006, triggering additional growth in sales. The two factors increased the Group's revenues by a total of EEK 580.5 million (EUR 37.1 million).
In addition, since 2006 the Group's consolidated results include Baltic Gaming AS (hereinafter also "BG") and its former subsidiaries. BG and its former subsidiaries contributed EEK 208.8 million (EUR 13.3 million) to the Group's overall revenue growth.
Olympic Entertainment Group AS acquired BG in December 2005. In addition to the casino operator BG, the Group includes Faraons SIA, which operates BG's bars, and Tower SIA, which used to operate a restaurant in Riga until August 2006. In September 2006, BG signed a preliminary agreement on the sale of its shares in Tower SIA. The transaction was completed in November 2006 and as a result the Group received 9.7 million (EUR 0.6 million) in financial income. BG's former subsidiaries in Estonia - Nordic Gaming AS (a former casino operator) and
Vikings Services OÜ (a former bar operator) are in liquidation.
Excluding the results of BG and its former subsidiaries, the Group's revenue for 2006 would amount to EEK 1,460.4 million (EUR 93.3 million), operating profit would amount to EEK 412.1 million (EUR 26.3 million) and net profit would amount to EEK 354.5 million (EUR 22.7 million). Excluding BG and its former subsidiaries, revenue growth compared to 2005 would be 66%; the increase in operating profit would be 84% and the growth in net profit 71%.
92% of the Group's revenue for 2006 resulted from gaming operations; other operations contributed 8%.
Consolidated revenue by geographical segments (in thousands of Estonian kroons):
Q4 2006 Q4 2005 Change 2006 2005 Change
Estonia 204,037 147,744 38.1% 672,052 465,693 44.3%
Latvia 159,373 40,571 292.8% 511,211 121,683 320.1%
Lithuania 110,815 83,065 33.4% 389,369 260,817 49.3%
Ukraine 32,867 18,193 80.7% 94,881 31,701 199.3%
Belarus 1,271 - - 1,676 - -
TOTAL 508,363 289,573 75.6% 1,669,189 879,894 89.7%
EUR 1 = EEK 15.6466
Consolidated operating expenses of 2006 totalled EEK 1,225.7 million (EUR 78.3 million), 86.7% growth on the EEK 656.4 million (EUR 42.0 million) incurred in 2005. Similarly to previous periods, the largest cost item was labour costs, which extended to EEK 382.0 million (EUR 24.4 million); the next in size were depreciation and amortisation expense of EEK 159.9 million (EUR 10.2 million), gaming tax expenses of EEK 145.2 million (EUR 9.3 million), marketing expenses of EEK 144.3 million (EUR 9.2 million), and buildings-related lease expenses of EEK 88.9 million (EUR 5.7 million). In the income statement, gaming taxes, marketing and lease expenses are recognised in "Other operating expenses".
The increase in operating expenses is related, above all, to the Group's rapid expansion and revenue growth. The largest growth occurred in labour costs which increased by EEK 180.3 million (EUR 11.5 million), i.e. 89.4%. Labour costs have grown on account of the acquisition of BG and its subsidiaries (close to one-third of the total labour costs growth; excluding them, labour costs would have grown by 63%); the Groups' rapid expansion and the opening of new casinos
(the main reason for a rise in labour costs); and heightening competition in the labour market. The growth in gaming tax expenses is related to the opening of new casinos and an increase in gaming tax rates in Latvia at the beginning of 2006. Depreciation and amortisation expenses have increased due to investment into new casinos, gaming equipment and information technology. The
rise in lease expenses results from the opening of new casinos. The growth in marketing expenses stems from expanding sales which increase the bonus points acquired by customers, jackpot expenses and the costs related to new casinos.
At 31 December 2006, the consolidated balance sheet total of Olympic Entertainment Group AS was EEK 2,308.4 million (EUR 147.5 million), more than a 2.4 fold increase on the EEK 944.9 million (EUR 60.4 million) measured at 31 December 2005. The growth in balance sheet volume is related to the IPO in the fourth quarter (increase in cash and bank and equity).
Current assets amounted to EEK 1,300.2 million (EUR 83.1 million), i.e. 56.3% of total assets, while non-current assets amounted to EEK 1,008.2 million (EUR 64.4 million), i.e. 43.7% of total assets.
The Group's liabilities totalled EEK 236.2 million (EUR 15.1 million) and consolidated equity grew to EEK 2,072.2 million (EUR 132.4 million).
In September 2006, Olympic Entertainment Group AS made the first instalment payment of EEK 11.7 million (EUR 0.75 million) and in December 2006, the second payment of EEK 15.6 million (EUR 1.0 million) for the shares in Casino-Polonia-Wroclaw Sp. z o.o. in accordance with the preliminary agreement on the purchase of the shares which was made in 2005.
Due to the acquisition of BG and its subsidiaries and the opening of new casinos, the average number of the Group's employees increased year-on-year 1.8 times to 2,208 in 2006 (2005: 1,230). At 31 December 2006 the Group employed 2,342 people (31 December 2005: 1,940) - 625 in Estonia and 1,717 outside Estonia (837 in Latvia, 683 in Lithuania, 168 in Ukraine and 29 in Belarus).
Employee remuneration expenses for 2006 including social taxes amounted to EEK 382.0 million (EUR 24.4 million) against EEK 201.7 million (EUR 12.9 million) a year ago.
In 2007 option agreements were concluded with members of the management board of Olympic Entertainment Group AS and key employees of the Group. Option agreements entitle a member of the management board to subscribe altogether 166,812 shares of Olympic Entertainment Group and every employee respectively 66,723 shares during the period of 2008 – 2010. The exact number of shares that may be subscribed by every member of the management board and every employee of the Group depends on fulfilment of the financial goals and the goals related to
specific area of activity of the member of the management board and the employee. The options may be exercised every year from 2008 until 2010.
Results of casino operators
At the end of December 2006, the Group operated 79 casinos with the total area of 22,316 square metres. A year ago, the Group had 66 casinos with a total area of 17,144 square metres.
Casinos by countries:
Estonia 22 16
Latvia 38 38
Lithuania 10 8
Ukraine 8 4
Belarus 1 0
TOTAL 79 66
At 21 February 2007, the Group operates 82 casinos.
OLYMPIC CASINO EESTI AS
In January 2006, Olympic Casino Eesti AS (OCE) opened its second Olympic slot casino in Tartu; the casino is located in Annelinn. At the beginning of the year, the refurbishment of Viking casino on Tartu Road, Tallinn, was completed and in March 2006 OCE's 18th casino was opened there. Formerly, the operator of Viking casino was Nordic Gaming AS. In May 2006 the first Olympic Casino was opened in Jõhvi and in July, OCE opened its second casino in Narva (in Astri Hypermarket). In October a casino in Norde Centrum (Tallinn) and in December in Kristine district (Tallinn, Sõpruse 2) were opened. At the end of 2006, 22 casinos (6 outside of Tallinn) with 833 slot machines and 19 gaming tables were operated under the Olympic Casino brand in Estonia.
During the first hours of 2007 a new casino close to the Marja store (Tallinn) was opened. On February 3rd OCE opened the biggest slot casino in Estonia (386 square metres)in Järve Centrum (Tallinn). This was already the 24th casino of OCE.
OCE's consolidated (intra group transactions are eliminated) sales for 2006 amounted to EEK 612.7 million (EUR 39.2 million), 32% up on a year ago, while consolidated net profit grew 1.7 fold to EEK 289.6 million (EUR 18.5 million). The significant upswing in net profit was attained, above all, thanks to substantial revenue growth at the company's casinos in Tallinn, the opening of
new casinos and effective cost management.
OLYMPIC CASINO LATVIA SIA
For Olympic Casino Latvia SIA (OCL), the highlight of the period was the opening of Olympic Voodoo Casino at the end of May 2006. The new casino, which operates both gaming tables and slot machines, located at Reval Hotel Latvija in Riga is the largest casino in the Baltic countries. Investments in Olympic Voodoo Casino amounted to EEK 85 million (EUR 5.4 million). In addition to the launch of the Group's largest casino, in February 2006 OCL opened a casino in
Talava, Riga, and in March its operations were expanded to Jelgava. In July and August two former Baltic Gaming casinos in Riga (Dzelzavas and Zolitudes) were brought under the Olympic Casino brand name and at the end of 2006, OCL was operating 10 casinos with 461 slot machines and 39 gaming tables.
OCL's consolidated sales for 2006 amounted to EEK 296.0 million (EUR 18.9 million), 2.5 times up on a year ago, and consolidated net profit for the period amounted to EEK 69.9 million (EUR 4.5 million), 2.7-fold growth on a year ago. Exceptionally strong results may be attributed to significant revenue growth at both old and new casinos (including revenues from Olympic Voodoo
Casino) and effective cost management.
BALTIC GAMING AS
In connection with the incorporation of the casinos of Baltic Gaming AS (BG) under the Olympic Casino brand name and the closure of some small casinos, the number of BG's casinos has shrunk from 33 at the end of 2005 to 28 at the end of 2006. The main changes for BG were the closure of Voodoo Tower casino at Reval Hotel Latvija and the opening of Olympic Voodoo Casino by OCL at the end of May. Since then, BG does not operate any table casinos. At the end of 2006,
the company operated 28 slot casinos with a total of 750 slot machines in Riga and other Latvian cities.
BG ended 2006 with consolidated sales of EEK 180.7 million (EUR 11.5 million) and a consolidated net profit of EEK 41.8 million (EUR 2.7 million). Sales for 2005 amounted to EEK 200.0 million (EUR 12.8 million) and net profit for the same period was EEK 53.5 million (EUR 3.4 million). The results for 2005 have not been consolidated in the Group’s financial statements. The reason of a decrease in the sales and net profit figures is the integration of OCL and BG.
According to management's assessment, the integration process will be completed in 2007.
OLYMPIC CASINO GROUP BALTIJA UAB
Olympic Casino Group Baltija UAB (OCGB) opened two new casinos during 2006 – OCGB's ninth casino was opened at the end of October in Seskiene, Vilnius and in November the second casino of OCGB started operations in Kaunas (Savanoriu 170). During the first half of the year, the company focused on increasing revenue in existing casinos through customer loyalty programmes. At the end of 2006, 10 casinos with 436 slot machines and 67 gaming tables were operated under the Olympic Casino brand name in Lithuania.
OCGB ended the reporting period with consolidated sales of EEK 373.8 million (EUR 23.9 million), a 1.5-fold increase on a year ago, and a consolidated net profit of EEK 87.6 million (EUR 5.6 million), a 22% improvement on 2005. The growth in net profit was achieved thanks to revenue growth in existing casinos.
OLYMPIC CASINO UKRAINE TOB
Olympic Casino Ukraine TOB (OCU) sustained rapid growth, opening 4 new casinos during 2006. The fifth casino was opened in March 2006 on Geroi Dnepra Street and the sixth one in the Global Shopping Centre in April. In November, OCU opened a casino in Arena’s trade and entertainment centre and at the end of December a new casino started operations in the centre of Spektr. All 8 casinos with a total of 396 slot machines are located in Kiev.
The ninth casino of OCU was opened in the middle of January 2007 on Sofievsky Street.
OCU's consolidated sales for 2006 amounted to EEK 94.9 million (EUR 6.1 million), a 3.3-fold improvement on a year ago. In contrast to 2005 which ended in a loss of EEK -9.8 million (EUR -0.6 million), the reporting period ended with a consolidated net profit of EEK 12.1 million (EUR 0.8 million). The strong improvement in the results came from significant revenue growth at
existing and new casinos.
OLYMPIC CASINO BEL IP
Olympic Casino Bel IP (OCB), which was established in July 2005, opened its first casino in the middle of August 2006. The company's consolidated sales for four and a half months amounted to EEK 1.7 million (EUR 0.1 million). Due to expenses incurred in connection with the opening of the first casinos, 2006 ended with a consolidated loss of EEK -7.0 million (EUR -0.4 million). Loss for 2005 was EEK -0.4 million (EUR -23 thousand).
2006 2005 Change
Revenue (EEK, millions) 1,669.2 879.9 89.7%
EBITDA (EEK, millions) 630.9 302.0 108.9%
Operating profit (EEK, millions) 443.5 223.5 98.4%
Net profit (EEK, millions) 388.3 207.1 87.3%
EBITDA margin 37.8% 34.3% 10.1%
Operating margin 26.6% 25.4% 4.6%
Net margin 23.3% 23.5% -1.2%
Equity ratio 89.8% 63.1% 42.4%
ROA 23.9% 28.5% -16.2%
ROE 29.1% 42.2% -31.0%
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 less 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
o ROA = net profit / total average assets
o ROE = net profit / total average equity
EUR 1 = EEK 15.6466
For additional information please contact:
Member of the Management Board
Olympic Entertainment Group
Phone + 372 667 1250