Gaming VC Holdings S.A.
AIM : GVCq.L

Gaming VC Holdings S.A.

April 11, 2006 02:24 ET

Gaming VC Holdings S.A.: Preliminary Results

LONDON, UNITED KINGDOM--(CCNMatthews - April 11, 2006) - Gaming VC Holdings S.A. ("Gaming VC" or "the Group")(AIM:GVCq.L) , a leading European online casino provider, today announces its unaudited Preliminary Results for the year ended 31 December 2005.

Financial Highlights

The Casino business was acquired by Gaming VC on 21 December 2004 so the comparative 2004 figures only reflect 11 days trading.

- Recommended final dividend of 21p per share to be paid on 22 May 2006. Total dividend for year of 42p per share represents yield of 9.7% on last night's closing price.

- Turnover of EUR 40.4 million (2004: EUR 0.7 million)

- Gross margin 76% (2004: 79%)

- Operating profit of EUR 13.4 million (2004: EUR 0.4 million)

- Profit before tax of EUR 12.8 million (2004: EUR 0.3 million)

- Basic earnings per share of EUR 0.41

- Average daily revenue EUR 113k for 1Q 2006

Business Highlights

- Average 2% per month revenue growth since October 2005 achieved

- New registrations continue to increase: 14,700 Q1 06 (11,200 Q4 05; 8,450 Q3 05)

- New depositing player numbers tracking registrations

- German speaking markets show continued strong growth

- New technology has enabled greater customer differentiation and targeting

- Gaming VC does not accept wagers from residents of the USA

- Relative value of players acquired over last two quarters is on par with players acquired in previous years (EUR 60 revenue per month per player)

Commenting on these results, Steve Barlow, Chief Executive of Gaming VC, said: "These results demonstrate Gaming VC's ability to deliver strong increases in revenues as seen by the achievement of at least 2% per month revenue growth since October 2005. Our cost base remains broadly fixed with incremental revenues contributing directly to profits.

"The Group's focus on non-US markets has led to improved awareness of Gaming VC amongst our peer group and shareholders. The Board anticipates that this financial year will deliver another strong set of results, with the creation of shareholder value a key objective for the Group."



For further information:
Gaming VC Holdings S.A.

Steve Barlow, Chief Executive Tel: +44 (0) 20 7398 7700
investors@gamingvc.com www.gamingvc.com

Media enquiries:
Abchurch

Chris Lane / Katherine Murphy Tel: +44 (0) 20 7398 7700
katherine.murphy@abchurch-group.com www.abchurch-group.com


Chairman's statement

I am pleased to present Gaming VC's maiden set of preliminary results since our admission to AIM in December 2004. These results are in line with market expectations and I am pleased to say that we are delivering our target of 2% average revenue growth per month.

The results for the year ended 31 December 2005 show an operating profit of EUR 13.4 million (2004: EUR 0.4 million) and a net profit of EUR 12.8 million (2004: EUR 0.3 million). The Board has recommended a final dividend of 21p (gross) per share, giving a total distribution of 42p for the year. Earnings per share on profit after tax were EUR 0.41 (2004: EUR 0.02). The dividend will be paid on 22 May 2006 to holders on the share register at 21 April 2006.

Gaming VC provides a proven business model and is a leading online gaming operator in German speaking countries. Importantly, we do not accept wagers from US customers and as such are not affected by current or potential prohibitive legislation in that market. The Board is confident that this lack of exposure to the United States significantly enhances the value of the Group relative to our peer group. Our aim is to continue growing in our core German markets, where new marketing initiatives have proven to be successful and we are continuing to expand market share. We are also selectively looking at opportunities to replicate this model in other geographic areas.

A key factor in Gaming VC's growth is its committed and experienced management team. In January 2006, we welcomed Gerard Cassels to Gaming VC's management commitee as Finance Director. Gerard brings a wealth of experience to the Group, having held the position of Finance Director within several successful listed companies in Europe.

Furthermore, the Board proposes that Adrian J R Smith is appointed as a Non-Executive Director. Adrian is the CEO of the Woolton Group, and has significant public company and corporate governance experience, having been the Non-Executive Chairman of the Carter and Carter Group from 2002 through to its flotation in 2005. In addition to his continued non-executive director position at Carter and Carter plc, he serves on the board of Tutogen Medical Inc. in the USA, and the Harbor Branch Oceanographic Institution. His management experience includes Deloitte Touche Tohmatsu, Grant Thornton LLP and Arthur Andersen LLP, as well as Procter and Gamble. It is expected that Adrian will be Chairman of the Remuneration committee and will also sit on the other core governance committees of Audit and Nomination.

Shareholders will be asked to confirm Gerard Cassels' and Adrian Smith's appointments at the forthcoming AGM.

We are well positioned to maintain our growth in 2006 and are confident that our efforts to build Gaming VC's presence in the online casino market will continue to deliver positive results. Trading in 2006 to date has been comfortably in line with management's expectations.

Nigel Blythe-Tinker

Chairman

Chief Executive's Statement

Over the past financial year we have established a robust operational framework which will allow Gaming VC to move to the next stage of growth as we leverage our position as a leading online Casino in German speaking markets. The strong increase in revenues is a testament to the durability of our Casino business and the strengths of our marketing strategy which both indicate future growth opportunities. The German gaming market remains considerably buoyant and we are consistently adding to our customer base.

The strategy going forward is to continue to build on the strongly cash generative core business in German speaking markets, whilst looking selectively at opportunities to enter other national markets with a Casino offering that is custom tailored to each targeted country.

Casino

Gaming VC is now in a position where we have a reliable customer base that provides the Group with good forward visibility of earnings. To further sustain growth, we have developed a monthly direct mail campaign for customer acquisition, in addition to the quarterly publication of our Casino Club magazine. These new campaigns follow two high volume test direct mail campaigns that we ran in July and August 2005. The combination of these two marketing initiatives has resulted in strong customer acquisition and retention levels that are among the highest in the industry with our average customer playing for 22 months.

This anchor marketing campaign has now been operating for 6 months and has significantly improved the performance of the core business as shown below:



Q3 2005 Q4 2005 Q1 2006
New registrations 8,458 11,187 14,777
New depositing customers 4,663 5,245 7,428
Daily average revenue EUR 98,500 EUR 106,350 EUR 112,800


In addition, we have begun to add e-mail, banner and affiliate programmes to our overall marketing strategy in support of our direct mail efforts, and we are also working on the launch of new casino games, such as a football biased slot game for the World Cup in June 2006.

New territories

One of our growth strategies is to examine opportunities to replicate our proven business model in new geographical markets.

In Spain, additional marketing spend has been allocated to drive the customer numbers needed to achieve critical mass. Spain was selected as the first test market for a new casino as it was identified as a market that had no contentious legislation for internet gaming, an appropriate level of internet infrastructure and no current dominant market leader in the online gaming sector. An initial broad media campaign to heighten customer awareness of the Casino Club brand was launched in September 2005.

Encouragingly, visits to the Spanish site in September and October 2005 were over 9,000 per day, with online channels showing good leads to the site. However, the conversion of leads to paid play was significantly slower than expected. Subsequent analysis identified areas of web navigation and Spanish support services as contributing factors. These issues have now been addressed with both site and customer support improvements. Phase two of the Spanish marketing campaign, which entails a low additional cost, went live in March 2006.

Since February 2006, we have soft launched a second new casino in Russia in conjunction with experienced local business people who have significant internet and marketing experience. The new site (www.casino-club.ru) offers the usual suite of casino games in both Euros and Roubles. Gaming VC's initial financial investment in this new casino represents only a small part of our overall marketing budget for 2006.

With both Spain and Russia, it is still too early to have statistically meaningful operating data. Following a detailed operational review in 2005, we now have sophisticated reactive feedback controls in place which are integral to both trials. These give us instant and detailed market data which will ensure that additional resources will only be committed where we have a strong degree of confidence about the potential for significant upside.

Poker

Casino Club's online poker room completed a soft-launch in August 2005, and underwent beta-level testing during the European summer holidays. A marketing programme to promote this new product began in September 2005, including promotion in Casino Club magazine to the existing German customer base, a direct marketing campaign to new prospects and inclusion in the rollout of the Spanish marketing campaign. Poker is now accounting for about 4% of our daily revenues.

With this offering, members of the Casino have the ability to play poker on our website although we expect that growth in 2006 will come predominantly from the Casino operation.

Group Financial Performance

The Casino business was acquired on 21 December 2004 so the comparative 2004 figures only reflect 11 days trading.

The total gross wagers placed were EUR 1.6 billion (2004: EUR 58 million) and net revenues were EUR 40.4 million (2004: EUR 0.7 million). The gross profit for the financial year ended 31 December 2005 was EUR 30.8 million (2004: EUR 0.5 million) with the primary operating cost element for the Group being the turnkey online casino services provided by Boss Media SA and its subsidiaries.

In the financial year there were no significant one-off jackpot winners in the Group's slot machine games with associated "progressive" jackpots. The total of the available jackpots at the end of December 2005 was EUR 1.7 million (2004: EUR 0.9 million) with the largest available individual jackpot being EUR 0.8 million (2004: EUR 0.4 million). Upon this jackpot becoming payable it will be a charge against the relevant period's gross profit. The last major jackpot win was for EUR 0.5 million in November 2004.

The Group operating profit for the financial year ended 31 December 2005 was EUR 13.4 million (2004: EUR 0.4 million) after the deduction of distribution and administrative expenses.

Distribution costs of EUR 7.4 million (2004: nil) reflect the third party marketing costs incurred by the Group to recruit active members to the Casino.

The marketing costs for 2005 include over EUR 2 million that was related to the initial launch of the Casino in Spain and nearly EUR 3 million associated with the launch and promotion of poker. Neither of these one-off expenses is expected to be repeated in the ongoing operation of the business. The core marketing of the Casino in 2006 is expected to account for circa EUR 5 million out of a total estimated marketing expenditure of EUR 9 million. The balance will be spent testing alternative marketing channels to direct mail and marketing in new territories outside Germany and Austria.

The major items within the administrative expenses incurred during the financial year are detailed below



2005 2004
EUR '000 EUR '000

Employment costs 2,378 26
Travel 1,121 59
Legal, accounting and tax 1,941 40
Re-organisation costs 545 0
Amortization of intangible assets 2,802 37
All other costs 1,207 1

------------------------------
Total administrative expenses 9,994 161
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------------------------------


Employment costs are analysed in note 2 to the financial results.

The 2005 legal, accounting and tax costs included a one-off charge for a full audit after 6 months trading which cost EUR 0.2 million. This was needed to give initial audited numbers as at the time of the IPO in December 2004, because audited accounts for the business being acquired were not available. In addition, given the Group's complex physical and legal structures, ongoing professional advice costs are higher than for a business based in one domicile.

The re-organisation costs include the costs related to closure of the London office, reductions in headcount and a EUR 0.2 million settlement of contractual obligations to Dr Willis on his standing down as an executive director of the Group.

The amortization of intangible assets is detailed in note 5 to the financial results. This is a non-cash charge primarily to reflect the reduction in economic value over their useful lives of the intangible assets acquired on the purchase of the Casino business in December 2004.

Net financing costs for the financial year ended 31 December 2005 of EUR 0.6 million (2004: EUR 0.007 million) are analysed in note 3 to the financial results. The majority of Group revenues are in Euros, as are both the cost of sales and marketing. Employment costs are primarily US Dollar denominated and most legal, tax and accounting services are incurred in Sterling. Dividend payments are also Sterling denominated.

The Group's operational structure, with the core business in Curacao, allows for an effective global tax charge of EUR 0.01 million. The Group periodically reviews all of the relevant and controlling tax regulations to optimise the available benefits. A Group effective tax charge of less than 2% of net profit is envisaged to continue for the foreseeable future.

In the reporting period the Group generated EUR 17 million (2004: consumed EUR 0.2 million) from operating activities. After payment of the interim dividend of EUR 9.6 million during the year, the Group's closing cash balance at 31 December 2005 was EUR 7.3 million (2004: EUR 1.3 million). Due to the nature of the business there are no significant working capital pressures on the Group during periods of revenue growth. The Group had no significant capital expenditure during the year and does not envisage any in 2006.

Dividends

We consider that the current dividend policy remains appropriate for the Group. The core business is cash generative and not capital intensive and we will continue to return excess capital to shareholders, as appropriate.

The Board recommends a final dividend of 21p (gross) (c EUR 0.302) per share (2004: nil), making a total distribution of 42p (c EUR 0.604) for the year. This will be paid on 22 May 2006 to shareholders on the register at the close of business on 21 April 2006.

While the total dividend for 2005 will be greater than the earnings per share in the year, given the financial performance of the Group in 2005 and the strong start to 2006, the Board considers the final dividend is merited. As at 31 March 2006 our cash balances were more than sufficient to cover the final dividend.

Outlook

Gaming VC has started 2006 in a strong position. We are exploring opportunities to replicate our casino product in other markets on a selective basis, but we will only commit meaningful resources after detailed feedback analysis and when we have confidence about the upside potential. In the meantime, our leading position in German speaking markets provides a very stable foundation, especially as we see significant potential for further growth in these core markets over the foreseeable future. We look forward to the remainder of the current financial year with much confidence.

Steve Barlow

Chief Executive



Consolidated Income Statement
For the year ended 31 December 2005

1 month
Period
Year ended ended
31 December 31 December
2005 2004(i)
In thousands of euro Note

Revenue 1 40,443 670
Cost of Sales (9,677) (137)
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Gross profit 30,766 533

Distribution expenses (7,410) -
Administrative expense (9,994) (161)
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Operating profit before
financing costs 13,362 372

Financial income 3 46 7
Financial expense 3 (601) -
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Net financing costs (555) 7
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Profit before Tax 12,807 379
Income tax expense 4 (13) (5)
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Profit for the year/period 12,794 374
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Basic earnings per share (euro) 6 0.41 0.024
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Diluted earnings per share (euro) 6 0.41 0.024
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Consolidated statement of recognised income and expense
For the year ended 31 December 2005

1 month
Period
Year ended ended
31 December 31 December
2005 2004(i)
In thousands of euro

---------------------------------------------------------------------
Profit and total recognised income
and expense for the year/period 12,794 374

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(i) Prior period since incorporation on 30 November 2004



Consolidated Balance Sheet
As at 31 December 2005 31 December 31 December
2005 2004
In thousands of euro Note

Assets
Property, plant and equipment 46 -
Intangible assets 5 102,752 105,479
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Total non-current assets 102,798 105,479
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Trade receivables 2,151 620
Prepayments 531 132
Cash and cash equivalents 7,233 1,270
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Total current assets 9,915 2,022
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Total assets 112,713 107,501
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Equity
Issued share capital 38,608 38,608
Share premium 67,522 67,522
Retained earnings 4,109 383
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Total equity attributable to
equity holders of the parent 110,239 106,513
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Liabilities
Trade and other payables 1,158 736
Accrued expenses 1,316 252
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Total current liabilities 2,474 988
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Total liabilities 2,474 988
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Total equity and liabilities 112,713 107,501
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Consolidated statement of cashflows
For the year ended 31 December 2005

1 month
Period
Year ended ended
31 December 31 December
2005 2004(i)
In thousands of euro Note

Cash flows from operating activities
Cash receipts from customers 38,911 50
Cash paid to suppliers and employees (21,966) (268)
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Net cash from operating activities 16,945 (218)
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Cash flows from investing activities
Interest received 46 -
Acquisition of business - (105,516)
Acquisition of property,
plant and equipment (67) -
Acquisition of intellectual property 5 (75) -
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Net cash from investing activities (96) (105,516)
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Cash flows from financing activities
Proceeds from the issue of share
capital - 117,562
Payment of transaction costs (867) (10,565)
Dividend paid (9,559) -
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Net cash from financing activities (10,426) 106,997
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Net increase in cash and
cash equivalents 6,423 1,263
Cash and cash equivalents at
beginning of the year/period 1,270 -
Effect of exchange rate fluctuations
on cash held 3 (460) 7
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Cash and cash equivalents at
end of the year/period 7,233 1,270
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(i) Prior period since incorporation on 30 November 2004


Notes to the consolidated financial statements

1 Segment reporting

Segment information is presented in respect of the Group's business and geographical segments.

Business segments

Based on risks and returns the management considers that the primary reporting format is by business segment. The directors consider that there currently is only one business segment being the casino operation of games of chance. Therefore the disclosures for the primary segment have already been given in these financial statements. A second business segment of skill based games was launched in the last quarter of the year. It only achieved revenue of EUR 327,000 in the year which has been included in games of chance. It is expected to be sufficiently material to be disclosed separately in the full year accounts for 2006.

Geographical segments

Within the year the core business activity has been concentrated in the German language countries.

Development specifically tailored for other European language countries is ongoing. Owing to current legislation in the US the company continues to block access to its games to potential players located there.

Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the location of the assets themselves.

Geographical segments



Germany Austria Other Countries Consolidated
In
thousands
of euro 2005 2004 2005 2004 2005 2004 2005 2004

Revenue
from
games
of
chance 30,293 496 7,805 134 2,345 40 40,443 670
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Segment
assets - - - - 112,713 107,501 112,713 107,501
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Capital
expenditure - - - - 142 105,516 142 105,516


2 Personnel expenses

1 month
Period
Year ended ended
31 December 31 December
2005 2004
In thousands of euro
Wages and salaries 1,713 15
Compulsory social security contributions 135 -
Contributions to defined contribution plans 39 1
Equity-settled transactions 491 9
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2,378 25
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3 Net financing costs

1 month
Period
Year ended ended
31 December 31 December
2005 2004
In thousands of euro
Interest income 46 -
Net foreign exchange gain through profit - 7
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Financial income 46 7
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Interest expense -
Interest expenses and bank charges (141) -
Net foreign exchange loss through profit (460)
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Financial expenses (601) -
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Net financing costs (555) 7
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4 Income tax expense

1 month
Period
Year ended ended
31 December 31 December
2005 2004
Recognised in the income statement
In thousands of euro
Current tax expense
Current year 13 5
Adjustments for prior period - -
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13 5
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Deferred tax expense
Origination and reversal of temporary
differences - -
Reduction in tax rate - -
Benefits of tax losses recognises - -
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- -
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Total income tax expense in income statement 13 5
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Reconciliation of effective tax rate
In thousands of euro

1 month
Period
Year ended ended
31 December 31 December
2005 2004

Profit before tax 12,807 374
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Income tax using the domestic
corporation tax rate 2,818 82
Effect of tax rates in foreign
jurisdictions (Rates decreased) (2,805) (75)
Tax exempt revenues - (2)
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13 5
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5 Intangible assets

Trade- Software
Goodwill marks licence Consulting Magazine Total
In
thousands
of euro
Cost
Balance
at 30
November
2004 - - - - - -
Acquisitions
through
business
combinations 73,613 15,144 11,840 419 4,500 105,516
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Balance at
31 December
2004 73,613 15,144 11,840 419 4,500 105,516

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Balance at
1 January
2005 73,613 15,144 11,840 419 4,500 105,516
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Other
acquisitions - - 75 - - 75
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At 31 December
2005 73,613 15,144 11,915 419 4,500 105,591
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Amortisation
Balance at
30 November
2004 - - - - - -
Amortisation
for the period - - 16 1 20 37
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Balance at 31
December 2004 - - 16 1 20 37
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Balance at 1
January 2005 - - 16 1 20 37
Amortisation
for the year - - 1,197 105 1,500 2,802
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At 31 December
2005 - - 1,213 106 1,520 2,839
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Carrying amounts
At 31 December
2004 73,613 15,144 11,824 418 4,480 105,479
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At 31 December
2005 73,613 15,144 10,702 313 2,980 102,752
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Valuation methodologies

The valuation methodology of each type of identifiable intangible
asset is detailed below.

Asset Valuation methodology
Magazine-related Cost
Consulting Income (cost saving)
Software licence Income (incremental value plus loss of profits)
Trade-marks Relief from royalty
Goodwill Residual balance


The valuation conclusions, for the assets acquired through business combinations, were cross-checked relative to the overall consideration paid in the transaction over net tangible assets, to ensure that the proportion of value attributed to (i) each identifiable tangible asset: and (ii) to all of the identified intangible assets combined in the total purchase price appears reasonable.

In addition, the implied weighted average return on assets was reconciled with the cost of capital derived for the business as a whole to check for the reasonableness of values placed on intangible assets and the discount rates/returns used.

Amortisation and impairment charge

The amortisation is recognised in the following line items in the income statement:



1 month
Period
Year ended ended
31 December 31 December
2005 2004

In thousands of euro
Administrative expenses 2,802 37
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Impairment tests for cash-generating units containing goodwill

The following units have significant carrying amounts of goodwill:

31 December 2005 31 December 2004
In thousands of euro

Casino operation: GVC
Corporation II B.V. 73,613 73,613
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All the intangible assets acquired in 2004 were valued at the year end and the resultant goodwill was tested for reasonableness.

6 Earnings per share

The calculation of basic earnings per share at 31 December 2005 was based on the profit attributable to ordinary shareholders of EUR 12,793,954 (2004: EUR 373,040) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2005 of 31,135,762 (2004: 15,555,381), calculated as follows:



Profit attributable to ordinary shareholders

1 month
Period
Year ended ended
31 December 31 December
2005 2004

In thousands of euro
Profit attributable to ordinary shareholders 12,794 374
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Weighted average number of ordinary shares

1 month
Period
Year ended ended
31 December 31 December
2005 2004

Issued ordinary shares beginning of
the year/period 31,135,762 25,000
Effect of shares issued in December 2004 - 15,555,381
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Weighted average number of ordinary shares
at end of the year/period 31,135,762 15,580,381
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Earnings per share

1 month
Period
Year ended ended
31 December 31 December
2005 2004
In euro
Basic earnings per share 0.411 0.024
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Diluted earnings per share

The calculation of diluted earnings per share at 31 December 2005 was based on the profit attributable to ordinary shareholders of EUR 12,793,954 (2004: EUR 373,040) and a weighted average number of ordinary shares outstanding during the year ended 31 December 2005 of 31,135,762 (2004: 15,555,381), calculated as follows:



Profit attributable to ordinary shareholders (diluted)

1 month
Period
Year ended ended
31 December 31 December
2005 2004

In thousands of euro

Profit attributable to ordinary
shareholders (diluted) 12,794 374
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Weighted average number of ordinary shares (diluted)

1 month
Period
Year ended ended
31 December 31 December
2005 2004

Weighted average number of ordinary
shares at end of the year/period 31,135,762 15,580,381
Effect of share options on issue - -
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Weighted average number of ordinary
shares (diluted) at end of year/period 31,135,762 15,580,381
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Diluted earnings per share

1 month
Period
Year ended ended
31 December 31 December
2005 2004

Diluted earnings per share 0.411 0.024
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