Announcements

Unaudited consolidated operating results for nine months of 2007

Posted on 15.11.2007


Since 26 September, the shares of OEG have been traded on the Warsaw Stock Exchange. Membership in the fourth-largest stock exchange in Europe supports our future ambitions, broadens our international reach and makes OEG’s shares available to a larger number of foreign investors.

We continued implementing our expansion plans. In July, we acquired a 97.5% interest Kesklinna Hotelli OÜ with a view to launching a new business line - the development of casino hotels and casino complexes. In September, our Ukrainian subsidiary Olympic Casino Ukraine TOV signed an agreement by which it completed the acquisition of the best-known Ukrainian casino operator Eldorado. Eldorado casinos, which are operated by Alea Private Company, Eldorado Leisure Company and Ukraine Leisure Company, comprise five gaming halls, including three with game tables, all situated in prime locations in Kiev’s city centre and the surrounding areas. The cost of the transaction amounted to approx. 144 million kroons (9.2 million euros). The results of the Eldorado casinos will be consolidated from the fourth quarter of 2007.


The merger of Olympic Casino Eesti AS and Kristiine Kasiino AS was finalised in July. Within a year, all Kristiine Kasiino casinos, except the casino in Kristiine Trading Center, will be integrated under the Olympic Casino brand name. The revamp and refurbishment of the Kristiine Kasiino facilities will cost approx. 80 million kroons (5 million euros).

In August, the Group penetrated a new, category B gaming halls segment in Lithuania.

In the last quarter of the year, our Latvian subsidiary Olympic Casino Latvia SIA concluded a preliminary agreement for the acquisition of Admirāļu klubs AS (AK). The preliminary price of the 100% shareholding is 625.9 million kroons (40 million euros). After the transaction, the Group’s share in the Latvian gaming market will increase to 25%. AK`s current year turnover prognosis is approx. 18 million Latvian lats, AK operates approx. 2400 slots. We expect to finalise the transaction at the beginning of 2008.

Selected financial data

9 months 2007

Revenue:             1,691.5 million kroons (year-over-year growth 45.7%)

Operating profit:    297.8 million kroons (year-over-year decrease 6.7%)

Operating margin*:   17.6% (9 months 2006: 27.5%)

Profit before tax:  309.4 million kroons (year-over-year decrease 0.7%)

Net profit **:       283.3 million kroons (year-over-year decrease 2.0%)

Net margin***:       16.7% (9 months 2006: 24.9%)

 

*  Operating margin = operating profit / revenue

** Net profit before minority interest

** Net margin = net profit / revenue

 

EUR 1 = EEK 15.6466

The Group ended the first nine months of 2007 with consolidated revenue of 1,691.5 million kroons (108.1 million euros), a 45.7% improvement on the corresponding period in 2006.

Consolidated operating profit for the first nine months amounted to 297.8 million kroons (19.0 million euros), a 6.7% decrease compared with the same period in 2006, and consolidated net profit amounted to 283.3 million kroons (18.1 million euros), a 2.0% decline compared with a year ago. The operating margin of the first nine months of 2006 was 27.5% and net margin 24.9%.

The revenue and profit for the first nine months of 2007 were influenced by major third-quarter wins at the Polish Casino Sunrise which reduced revenue by approx. 10 million kroons (0.7 million euros). In addition, operating results were adversely affected by the continuing renovation of the hotel building were our leading casino in Kaunas is situated, a decline in the revenue generated by our Rocca al Mare and Grand Hotel Tallinn casinos in Estonia (caused by the renovation of related premises), and delays in the launch of casinos in Ukraine and Belarus.

Gaming operations accounted for 94.3% of consolidated revenue while other operations contributed 5.7%.

Distribution of revenue by geographical segments (in thousands of kroons)

 

9 months 2007

Proportion

9 months 2006

Proportion

Revenue growth

Estonia

624,804

36.9%

468,015

40.3%

33.5%

Latvia

498,105

29.4%

351,838

30.3%

41.6%

Lithuania

312,672

18.5%

278,554

24.0%

12.2%

Ukraine

107,451

6.4%

62,015

5.4%

73.3%

Belarus

6,940

0.4%

405

-

-

Poland

131,566

7.8%

-

-

-

Romania

9,979

0.6%

-

-

-

Total

1,691,517

100%

1,160,827

100%

45.7%

          

 

EUR 1 = EEK 15.6466

The largest proportion of the Group’s revenue was earned in Estonia. Compared with the same period in 2006, the contribution of the Group’s Estonian entities has decreased to 36.9%. The contributions of Ukraine and Poland have increased notably but the highest year-over-year growth rates have been achieved in Ukraine (a 73.3% increase) and Latvia (a 41.6% increase). The decline in the proportion of Lithuanian revenues and the fact that revenue growth in Lithuania is lagging behind the Group’s average may be attributed to the temporary closure of the leading casino in Kaunas (the hotel in which the casino is located is being renovated) and the allocation of the Group’s investments to swiftly developing markets in Ukraine, Poland and Romania. In the third quarter, the Group entered a new, category B casino segment in Lithuania, which should start boosting revenues at the beginning of next year.

In the first quarter, the Group forecast that in view of geographical expansion and growth in existing markets annual revenue would amount to 2.67 billion kroons (170.5 million euros) and annual operating profit to 595 million kroons (38.0 million euros). Anticipated annual growth rates were 60% for revenue and 34% for operating profit.

The revenue and operating profit forecasts for 2007 were made assuming that Admirāļu klubs AS would be acquired at the beginning of the second half-year. The forecasts were based on operating revenues and expenses without taking into account non-capitalisable renovation and expansion expenses which totalled 37.8 million kroons (2.4 million euros) in the first nine months of 2007. In connection with unexpected delays in the acquisitions and opening of new casinos and the fact that some facilities are still in their start-up phase, the Group now forecasts that annual revenue will amount to 2.3 billion kroons (147.0 million euros) in place of the formerly projected 2.67 billion kroons (170.5 million euros). Because of expansion expenses and the adjustment of the revenue forecast, the annual operating profit forecast is set at 450 million kroons (28.8 million euros) in place of the previously projected 595 million kroons (38.0 million euros).

Consolidated operating expenses for the first nine months totalled 1,393.8 million kroons (89.1 million euros), 65.6% up on the 841.7 million kroons (53.8 million euros) incurred a year ago. The growth rate of operating expenses has been inhibited and the nominal growth of expenses is related to acquisition of Casino Polonia and Kristiine Kasiino in Q2, 2007. The structure of operating expenses has not changed. The period’s largest expense item was personnel expenses which amounted to 443.2 million kroons (28.3 million euros). The next in size were gaming tax and activity licence expenses of 204.4 million kroons (13.0 million euros) and depreciation and amortisation expenses of 174.6 million kroons (11.2 million euros), followed by marketing expenses of 129.6 million kroons (8.3 million euros) and buildings-related lease expenses of 113.1 million kroons (7.2 million euros). The growth in operating expenses is related to Group’s expansion and the opening of new casinos.

Operating expenses for the first nine months of 2007 include non-recurring items of 27.0 million kroons (1.7 million euros): the expenses of researching new markets (4.1 million kroons (0.3 million euros)), the costs of entering the Polish market (6.0 million kroons (0.4 million euros)), and taxes related to options provided to supervisory and management boards members and the key personnel (16.9 million kroons (1.1 million euros)).

Consolidated net profit for the period is affected by an unrealised exchange differences – a net exchange loss of 12.3 million kroons (0.8 million euros) arisen from fluctuations in the euro-US dollar exchange rate. Exchange differences are recognised in the income statement in Net financial items.



Balance sheet and capital expenditures

At 30 September 2007, the consolidated balance sheet stood at 2,498.9 million kroons (159.7 million euros), up 8.2% on the 2,309.2 million kroons (147.6 million euros) measured at 31 December 2006.

Current assets amounted to 577.9 million kroons (36.9 million euros), accounting for 23.1% of total assets, while non-current assets amounted to 1,920.9 million kroons (122.8 million euros), accounting for 76.9% of total assets. The proportion of current assets has decreased due to the acquisition of subsidiaries, investment and the distribution of dividends.

Consolidated liabilities totalled 278.2 million kroons (17.8 million euros) and consolidated equity equalled 2,220.7 million kroons (141.9 million euros). The Group’s liabilities consist of items incurred in the ordinary course of business. The largest liabilities include tax commitments of 70.7 million kroons (4.5 million euros), trade payables of 68.9 million kroons (4.4 million euros), payables to employees of 59.9 million kroons (3.8 million euros), and finance lease liabilities of 27.2 million kroons (1.7 million euros).

In the first nine months of 2007, the Group’s investments excluding business combinations totalled 438.5 million kroons (28.0 million euros). Expenditures on the renovation of leased premises amounted to 108.6 million kroons (6.9 million euros), equipment acquisitions totalled 258.3 million kroons (16.5 million euros), and expenditures on other items of property, plant and equipment equalled 40.9 million kroons (2.6 million euros). Prepayments for tangible assets totalled 30.6 million kroons (2.0 million euros. Business combinations increased the carrying amount of property, plant and equipment by 152.5 million kroons (9.8 million euros).

Intangible assets increased on account of assets and goodwill of 541.6 million kroons (34.6 million euros) acquired through business combinations. Software-related investments totalled 3.4 million kroons (0.2 million euros).

People

In connection with the opening of new casinos, the number of staff grew by more than 59% year-over-year, reaching 3,779 on 30 September 2007 (30 September 2006: 2,243). At the end of September, the Group employed 700 people in Estonia, 1055 in Latvia, 732 in Lithuania, 656 in Ukraine, 75 in Belarus, 426 in Poland and 135 in Romania.

Employee remuneration expenses for the first nine months of 2007 including social charges amounted to 443.2 million kroons (28.3 million euros) against 263.9 million kroons (16.9 million euros) a year ago.


Results of casino operators

At the end of September 2007, the Group had 114 casinos with a total area of 32,823 square metres. A year ago, the number of casinos was 73 and their total area 20,979 square metres.

Number of casinos by markets

                       30 Sept 2007       30 Sept 2006

Estonia

35

20

Latvia

36

38

Lithuania

12

8

Ukraine

18

6

Belarus

3

1

Poland

8

0

Romania

3

0

TOTAL

115

73

 

OLYMPIC CASINO EESTI AS

At the end of September 2007, there were 35 Olympic casinos in Estonia including 9 outside Tallinn; 28 of the casinos operated under the Olympic Casino and 7 under the Kristiine Kasiino brand name. The casinos had a total of 1,217 slot machines and 25 game tables.

Olympic Casino Eesti AS (OCE) ended the first nine months of 2007 with revenue of 568.6 million kroons (36.3 million euros), 25.8% up on a year ago. OCE’s net profit for nine months amounted to 225.6 million kroons (14.4 million euros), 7.1% up year-over-year. Profit growth was attained thanks to revenue growth at existing casinos and a successful launch of new casinos.


OLYMPIC CASINO LATVIA SIA

The legal merger of Olympic Casino Latvia SIA (OCL) and Baltic Gaming AS (BG) was successfully finalised on 5 July. In the third quarter, three BG casinos which operate under the Bumerangs brand name were refurbished and renovation will continue in the last quarter of the year. At the end of September 2007, OCL was operating 36 casinos with a total of 1,184 slot machines and 40 game tables.

OCL’s and BG’s revenues for the first nine months of 2007 totalled 475.0 million kroons (30.4 million euros), a more than 45% improvement on their combined revenue for the first nine months of 2006. Net profit for the period amounted to 66.6 million kroons (4.3 million euros), a figure similar to the one achieved a year ago. Profit growth is impeded by surging personnel expenses, larger gaming tax expenses (caused by a rise in the tax rate), increasing sales which boost jackpot and bonus point expenses, the costs of combining BG and OCL, and investment-triggered expansion in depreciation and amortisation expenses.


OLYMPIC CASINO GROUP BALTIJA UAB

In the reporting period, Olympic Casino Group Baltija UAB (OCGB) penetrated a new, category B gaming segment and opened two new casinos in September 2007. OCGB’s leading casino in Kaunas is still closed because the hotel in which it is located is undergoing renovation. At the end of September 2007, OCGB was operating 10 casinos under the Olympic Casino brand name (including the one temporarily closed for renovation) and 2 under the Bumerangas brand name. The casinos have a total of 460 slot machines and 62 game tables.

OCGB ended the first nine months of 2007 with revenue of 298.8 million kroons (19.1 million euros), 11.7% up year-over-year. Compared with the first nine months of 2006, net profit increased by 10.9% to 65.5 million kroons (4.2 million euros).


OLYMPIC CASINO UKRAINE TOV

At the end of September, Olympic Casino Ukraine TOV (OCU) was operating 13 Olympic Casinos. In September, a final contract was signed for the acquisition of 5 casinos including 2 table casinos operating under the Eldorado brand name. The results of the Eldorado casinos will be consolidated from the fourth quarter of 2007.

OCU ended the first nine months of 2007 with revenue of 107.4 million kroons (6.9 million euros), a 73.8% upswing on a year ago. The increase may be attributed to revenue growth at existing casinos and the opening of new gaming facilities. OCU’s net profit amounted to 2.5 million kroons (0.2 million euros), 6.4 million kroons (0.4 million euros) down from a year ago. Profit has shrunk due to rapid expansion which has increased expenses (especially lease expenses) and an investment-related rise in depreciation and amortisation expenses.


OLYMPIC CASINO BEL IP

At the end of September, Olympic Casino Bel IP (OCB) was operating 3 casinos in Minsk. In October the fourth Olympic Casino was opened and another one should be launched before the year-end.

OCB’s revenue for the first nine months of 2007 amounted to 6.4 million kroons (0.4 million euros). Due to delays in the opening of new casinos and the start-up phases of launched facilities, the period ended in a loss of 14.8 million kroons (0.9 million euros).


CASINO POLONIA - WROCLAW SP. Z.O.O

Casino Polonia Wroclaw Sp. Z.o.o (CP) ended the period May-September 2007 with revenue of 130.8 million kroons (8.6 million euros). CP’s revenues remained smaller than expected due to major wins at Casino Sunrise in September which reduced revenue by approx. 10 million kroons (0.7 million). Due to the wins and restructuring expenses, the period ended in a loss of 18.7 million kroons (1.2 million euros).


OLYMPIC CASINO BUCHAREST S.R.L.

Two casinos in the Romanian capital Bucharest are still closed for renovations which should be completed by the end of 2007. The casino located in the Sofitel Hotel was opened for business on 1 June.

Olympic Casino Bucharest S.r.l. ended the period June-September with revenue of 10.0 million kroons (0.7 million euros). Because of expenses incurred in connection with preparations made for the opening of new gaming halls and reorganisation of operations, the period June-September ended in a loss of 17.8 million kroons (1.1 million euros).

 

The Group’s key financials

 

9 months 2007

9 months 2006

Change

Revenue (kroons, millions) 

1691.5   

1160.8

45.7%

EBITDA(kroons, millions)     

472.3

443.2  

6.6%

Operating profit (kroons, millions)

297.8    

319.2 

-6.7%

Net profit (kroons, millions)  

283.3    

289.0  

-2.0%

EBITDA margin             

27.9%   

38.2% 

-26.9%

Operating margin                

17.6%   

27.5% 

-36.0%

Net margin              

16.7%   

24.9% 

-32.7%

Equity ratio          

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