29 August 2008

PartyGaming Plc

Half year results for the six months to 30 June 2008

^ During the first half of 2007, $4.9m was derived from inactive fees and similar items that have been included in net revenue. In prior years, these were netted against operating costs as they were not material.  Casino revenues and Clean EBITDA have been adjusted to exclude bingo which is now disclosed as a separate business segment.

* EBITDA/EPS before reorganisation income and costs and non-cash charges relating to share-based payments. 

 # Operations located physically outside of the US but which relate to US customers that were no longer accepted following the passing of the Unlawful Internet Gambling Enforcement Act on 13 October 2006.

Commenting on today's results announcement, Jim Ryan, PartyGaming Chief Executive Officer, said:

'PartyGaming is a company that has transformed itself into a truly international business.  The Group's performance over the first six months of 2008 is a testament to that transition.  Since arriving as CEO a few weeks ago, I have found a world class business with enormous potential. As our markets evolve so must our business strategy.  Our poker business continues to grow but is being held back by the continued competition from those sites that accept players from the US.  We will continue to leverage our skills and technology through our own brands which remain strong and also through the brands of others in the form of white labels.  We also now plan to enter into relationships with other gaming companies across all our products.  As well as leveraging our skill set, I am also determined that we refocus on our core asset, our customer base.  The imminent relaunch of PartyPoker will be at the heart of this initiative and should foster further growth of our existing franchise, whilst greater licensing of our technology will create new and, I believe, significant opportunities to grow revenue and profit.'

Regarding current trading he added:

'In the 8 weeks ended 25 August 2008, average gross daily revenue was $1,601,600.  In poker, new player sign-ups averaged 993 per day and there were on average 50,800 active players per day, generating average gross daily revenue of $835,300.  In casino, average gross daily revenue was $694,100, in bingo it was $27,600 while in sports betting, average gross win per day was $44,600. 

'The Group has made good progress in 2008 in a competitive and challenging environment.  Whilst trading in poker since 30 June 2008 has been slightly softer than we would have expected, with a number of new initiatives underway, including the relaunch of PartyPoker and our refocused strategy in place, the Board remains confident about the Group's future prospects.'

Contacts:

  Analyst meeting, webcast, dial-in and conference call details: 29 August 2008

There will be an analyst meeting for invited UK-based analysts at Dresdner Kleinwort, 30 Gresham Street, London, EC2P 2XY starting at 9.30am BST.  There will be a simultaneous webcast and dial-in broadcast of the meeting.  To register for the live webcast, please pre-register for access by visiting the Group website (www.partygaming.com).  Details for the dial-in facility are given below.  A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

In addition, there will be an interactive conference call for international investors and analysts starting at 2.30pm BST, details of which are set out below.

An interview with Jim Ryan, Chief Executive Officer and Martin Weigold, Group Finance Director, in video/audio and text will also be available from 7.00am BST on 29 August 2008 on: http://www.partygaming.com and on http://www.cantos.com.

Dial-in details to listen to the analyst presentation: 29 August 2008

A recording of the meeting will be available for a period of seven days from 29 August 2008.  To access the recording please dial the following replay telephone number:

Conference call: Friday 29 August 2008

For international analysts and investors there will also be an opportunity to put questions to Jim Ryan, Chief Executive Officer, and Martin Weigold, Group Finance Director, by way of a conference call.  The details of the call are as follows:

A recording of the conference call will be available for a period of seven days from 29 August 2008.  To access the recording please dial the following replay telephone number:

All times are British Summer Time.

About PartyGaming Plc

PartyGaming Plc is the world's leading listed online gaming company.  Founded in 1997, the Group is a constituent of the FTSE 250 share index with its shares listed on The London Stock Exchange under the ticker: PRTY. In the year to 31 December 2007, PartyGaming's Continuing operations generated revenues of $476.0m and Clean EBITDA of $111.7m. PartyGaming's principal brands are PartyPoker.com, one of the world's largest online poker rooms, EmpirePoker.com, PartyCasino.com, PartyBingo.com, PartyGammon.com, PartyBets.com, PartyMarkets.com and Gamebookers.com. None of the Group's sites accept real money customers located in the US.  

PartyGaming is regulated and licensed by the Government of Gibraltar and by the Alderney Gambling Control Commission and is certified by GamCare as a responsible gaming operator. For more information, please visit www.partygaming.com.

  Business Review

Introduction

PartyGaming offers a broad range of games and owns some of the biggest and best known brands in online gaming, including PartyPoker.com, one of the world's largest online poker rooms, EmpirePoker.com, PartyCasino.com, PartyBingo.com, PartyGammon.com, PartyBets.com, PartyMarkets.com and Gamebookers.com.  

While full details of the consolidated performance of Continuing and Discontinued operations are contained in the financial information and the accompanying notes, all references to financial performance or key performance indicators throughout this document refer to the Continuing non-US facing business only, unless expressly stated otherwise.

Results

Net revenue was up by 17% year-on-year to $254.8m (2007: $217.4m) with growth across all gaming segments. The primary driver was casino that grew by 38% year-on-year on the back of higher player numbers, an increase in spend per gaming session as well as increased frequency of play.  Poker grew by 6% versus 2007, held back by strong competition, particularly from sites that continue to take bets from customers based in the US, continued cross-selling of casino to the Group's poker players and the impact of the Euro 2008 football tournament that took place during the period.  Bingo and sports betting also showed substantial growth, albeit from lower bases.

As explained in the full year results for the year ended 31 December 2007, net revenue was adjusted to take account of $9.6m that had been derived from inactive fees and similar items that in prior years had been netted against operating costs as they were not material. As a result, a corresponding adjustment has been made to the comparative figures for the first half of 2007 totalling $4.9m. 

The inherent operational leverage in the Group's business model meant that Clean EBITDA grew by 76% to $64.9m (2007: $36.9m) with Clean EBITDA margins rising from 17.0% to 25.5%.  This was despite incurring costs of $4.1m (2007: $nil) associated with the change of Chief Executive Officer during the first half of 2008. 

Discontinued operations incurred a loss at the Clean EBITDA level of $4.0m (2007: loss of $19.0m). This loss in the first half of 2008 primarily reflected legal fees associated with the Group's ongoing discussions with the Attorney's Office for the Southern District of New York ('DoJ').  This was substantially lower than the prior year comparative which also included a charge relating to a contractual obligation with Harrah's License Company LLC for The World Series of Poker.

Total Clean EBITDA (including Discontinued operations) was up 240% to $60.9m (2007: $17.9m) driven by revenue growth, a lower level of sign-ups generated by CPA affiliates¹ and lower charges in respect of the Discontinued operations. Total operating profit grew by $71.1m to $23.8m in the period (2007: operating loss $47.3m) reflecting substantially higher Clean EBITDA and a much reduced share-based payments charge. The total profit before tax was $26.3m (2007: loss before tax $47.1m) and the total profit after tax was $22.7m (2007: loss after tax $50.6m).

¹Cost per acquisition ('CPA') affiliate sign-ups are those where the Group pays a fixed fee to the affiliate for each real money sign-up whereas the associated revenue benefit is received over the lifetime of the player. This contrasts to revenue share affiliate sign-ups where a % of the revenue generated by the player (minus certain deductions) is paid to the affiliate over the lifetime of the player.

Continuing Clean EPS was up by 266% to 10.6 cents (2007: 2.9 cents) and basic EPS from Continuing operations was 6.6 cents (2007 loss of 9.0 cents per share). Total Clean EPS was 9.6 cents (2007: loss per share 1.9 cents) and basic EPS was 5.6 cents (2007: loss per share 12.8 cents). 

The table below provides a reconciliation of the movements between Clean EBITDA and operating profit (loss):

*EBITDA/EPS before reorganisation income and costs and non-cash charges relating to share-based payments 

H1 2008 business developments 

The Group has made good progress on a number of business development initiatives during the first half of 2008.  One of our stated objectives is to leverage the Group's skills and proprietary technology through a series of alliances to help drive the business forward and broaden our product base.

Central to our strategy has been the licensing of popular international brands to enhance the quality of our casino offering.  At the end of 2007 we established an alliance with Paramount Pictures giving us access to a large number of blockbuster movie titles and we were delighted to add the Mission: Impossible and Saturday Night Fever slots to PartyCasino.com during the first half of 2008. When launched, Mission: Impossible immediately became our best performing slot in terms of amount wagered and continues to be one of our most popular casino slots.  Since the period end we have launched The Godfather slot, that is performing well and has already produced a $1 million jackpot winner.

Further deals were secured during the first half and we have already announced an alliance with STUDIOCANAL, part of the Canal+ Group to add The Terminator and Rambo slots to our suite of games over the coming months.  Whilst excited about the prospects for each of these movie-branded slots, we have also looked for alternative sources of global brands that will create value in online gaming and hope to provide further details over the coming months.  

PartyMarkets, the Group's new product vertical, was launched on 30 June 2008. Formed through an alliance with City Index, one of the UK's leading providers of contract for difference ('CFD') and financial spread-betting services, we plan to promote the many similarities between live betting and CFD trading to new and existing customers. In the Autumn of 2008 we will introduce a fresh customer interface that we hope will significantly broaden PartyMarkets' appeal to betting and gaming customers around the world.

Product innovation has always been at the heart of PartyGaming's success. The launch of Bingo Night Live in the UK on 4 June 2008 represented another industry first for PartyGaming. As sponsor of the programme, this was an initiative to stimulate interest in bingo and has been a major success.  Whilst no revenues are generated directly from the programme for PartyGaming, such mass market exposure for bingo has had a powerful impact on the Group's bingo business that has grown strongly since the show was launched. 

As part of our continued efforts to localise the customer offer, we launched our licensed Italian sportsbook, PartyBets.it, on 4 June 2008.  The sports betting market (excluding horse racing) in Italy totalled approximately €2.8 billion of gross turnover in 2007 and, according to official statistics2, in the first six months of 2008 total amounts wagered have increased by 64% over the previous year to €1.98 billion (H1 2007; €1.21 billion), of which we estimate approximately 20% is online.  

2 Source: AAMS

An update on developments within each of the Group's three key operational areas during the first half of 2008 is provided below. 

1. Sales and player marketing

The Group has continued to add large numbers of new real money players, albeit not at the same rate as during the first half of 2007 when there was a strategic decision to rebuild player liquidity in poker following the enactment of the UIGEA. While this meant that the number of poker sign-ups was down 32% overall versus the prior year, casino delivered strong growth in new player sign-ups with an increase of over 50%, bingo sign-ups increased five-fold while sports betting grew its new player sign-ups by 24%.  The growth in casino reflected the success of a major campaign both on television and through online channels that took place during the second quarter of 2008, as well as a tactical offline campaign to support the launch of the Group's new slots Mission: Impossible and Saturday Night Fever.  The sponsorship of Bingo Night Live on UK television by ITV Casino, one of the Group's white label products, was also the primary factor in driving volumes of new player sign-ups. In sports, in addition to a campaign in the UK earlier in the year, a marketing plan to support our new Italian license went live on 9 June 2008.

The Group's affiliate network continues to contribute to the Group's performance. During the first half of 2008 the Group integrated all of the affiliate management across our Party-branded sites and sites operated on third party platforms in order to drive synergies and greater operational efficiencies.  

The distribution of our library of advertiser-funded poker programming continued to grow during the first half of 2008 with deals secured or at final stages of negotiation in a number of new territories.  In the UK, a deal with ITV4 means that the Group has now secured deals with each of the major UK commercial broadcasters including a third successive annual broadcast and sponsorship deal with Five, part of the RTL network.

An analysis of international sign-ups, unique active players and consolidated active player days in each of our key international segments is provided below:

* Europe, Middle East and Africa

The number of unique active players for the six months to 30 June 2008 increased by 15% to 881,400 (2007: 768,200) through the addition of over 324,000 new player sign-ups. Despite this growth in the active player base, the average number of daily players fell by 3% to 77,700 reflecting a reduction in player frequency caused by an increasing proportion of casual players as well as an increasing proportion of players from non-poker segments that, on average, tend to play less frequently than poker players. It also reflects the fact that players are now more likely to play on a number of different gaming sites rather than just one site.  

2. Systems and product development

The Group's proprietary technology infrastructure and operating platform form the backbone of PartyGaming's operations and lie at the very heart of the customer experience.  During the first six months of 2008 the Group's product development, systems and infrastructure activities continued to make great progress. Our focus in product development was on extending our games offerings and creating a new platform for delivery of rich internet applications using flash software for both our casino and bingo products. Our systems and infrastructure team made major upgrades to existing data centres and have continued to increase the level of reliability in our production systems.

After the successful re-launch of PartyBingo on the flash platform in 2007, the Group began to develop a new suite of flash casino games. The first suite of games includes some of our most popular branded slot games: Mission: Impossible, Saturday Night Fever and The Godfather.  The new flash-based, no-download version of the full casino is scheduled to launch in a few weeks' time, allowing these games to be offered both PartyCasino and PartyBingo.  

As well as developing new products, we have also made a series of upgrades to the Group's gaming platform, enhancing both the customer experience and overall platform performance.  These include improved systems for player loyalty, VIP customer service, player marketing and marketing operations, all of which were launched in the first half of 2008.

The product development group has also been designing and building our next generation poker product which is due to launch in the second half of 2008.  This will be the first major re-launch of PartyPoker in the last three years and will be a mark of our ongoing commitment to provide our customers with unique tools and features that combine to deliver the best poker product in the industry.

3. Customer service

The Group's customer service activities are an important element of our overall service proposition, providing help to those requiring assistance or with queries regarding their player account. Our customer service teams are also an important factor in helping to improve customer conversion by solving problems with log-in or payments. In total the Group now has over 190 full-time customer service agents who provide support in 11 languages other than English (Danish, French, German, Greek, Italian, Polish, Romanian, Russian, Spanish, Swedish and Portuguese).  The increasingly international balance of the customer base is demonstrated by the mix of customer contacts: approximately 29% (2007: 14%) of the 362,000 customer contacts received during the period were conducted in languages other than English.

Regulatory developments

The Group continues to employ a strict and rigorous assessment process to manage operational risk and regulatory compliance.  The regulatory environment for online gaming in many key jurisdictions continues to move quickly and as a result the Group regularly reviews key territories.  

In the US, discussions initiated with the Department of Justice ('DoJ') on 4 June 2007 are still progressing. While it remains too early to assess the likelihood of any particular outcome from these discussions, obtaining such a resolution remains one of the Board's priorities.

As mentioned in the Group's 2007 Annual Report, certain online gaming businesses continue to offer real money games to customers in the US. This represents a continuing competitive threat to listed businesses like PartyGaming that immediately stopped customers in the US from playing or making deposits on any of the Group's real money sites following the enactment of the UIGEA. While PartyGaming believes that the DoJ is investigating companies that accept online gaming customers in the US, there can be no guarantee that any action will be taken against such companies. On the legislative front, there continue to be a number of initiatives that are seeking to establish a regulatory as well as fiscal framework for online gaming in the US.  However, the prospects of success for each of these measures remains uncertain.

In Europe, during the first half of 2008 the European Commission has continued to take steps against Member States that it believes are in breach of European Community law. At the end of January 2008 Letters of Formal Notice were sent to both Sweden and Germany, while Reasoned Opinions were sent to both Greece and the Netherlands at the end of February 2008.  Italy also received a further Letter of Formal Notice at the beginning of April 2008 having failed to follow an appropriate process for the allocation of licenses under its new regulatory regime. The European Commission is expected to refer at least one of the seven Member States that have been issued with a Reasoned Opinion to the European Court of Justice ('ECJ'), although no such reference has yet been made. The next meeting of the Commissioners to review the infringement process takes place in September 2008.  

Irrespective of whether any country is referred to the ECJ or not, it is clear that the steps taken by the European Commission are beginning to have an impact.  France has announced its intention to introduce a regulatory framework as has Ireland and Spain while Sweden is conducting a review of its own gambling market.  We will continue to pursue a level playing field for our products and services across Europe and continue to believe that a regulatory framework can strike the right balance between providing adults with a safe and secure online gaming environment whilst ensuring protection for children and the vulnerable. However, we also believe that a uniform framework across Europe is unlikely to become a reality in the short-term. 

Directors and management

On 15 May 2008 it was announced that Jim Ryan would become Chief Executive Officer and his formal appointment took effect on 30 June 2008. John O'Malia was appointed to the Board as Managing Director on 16 May 2008. At the Company's Annual General Meeting in May 2008, Michael Jackson, announced that he would be standing down as Chairman of the Group once Jim Ryan had settled into his new position and a successor Chairman had been selected. In a separate announcement today, it has been confirmed that with immediate effect Michael Jackson is stepping down and Rod Perry, currently the Senior Independent Director of the Company, has been appointed Non-Executive Chairman. Lord Moonie will succeed Mr. Perry as the Senior Independent Director.

Dividend

While the Group has delivered a strong year-on-year performance in the first six months of 2008, the Board has again not declared an interim dividend.  The Board will continue to review the appropriate dividend policy for the Group going forward, taking account of the need to retain sufficient financial flexibility to take advantage of consolidation opportunities that are expected to arise when the DoJ discussions are concluded.

Refocused business strategy and future developments

Since the enactment of the UIGEA in 2006 the Group has transformed itself into a truly international online gaming business, offering a broad range of gaming products in different languages and currencies.  

The merits of the strategy to diversify further into new products and geographic areas are clear from the Group's financial performance, with casino and European markets having grown particularly strongly. However, we believe that we have yet to extract the full potential from our business model; we can improve our current business performance yet further and can also exploit a wealth of opportunities that will deliver additional value. Having been the largest listed online gaming company in the world and one of the largest gaming companies in the world before the UIGEA, we are determined to recapture that position and get back to where we want to be - on top.

However, simply repeating successful tactical and strategic campaigns of the past are unlikely to be as successful in the current environment.  Since the enactment of the UIGEA, the structure and dynamics of the marketplace have changed considerably, as have the desires and objectives of our current and potential customer base. Players now have a broad range of gaming sites to play on and general awareness of online gaming has increased substantially. In poker, sites that continue to accept bets from customers located in the US are able to provide greater player liquidity, which makes for a challenging competitive environment.  

It is against this background that almost immediately following his arrival as CEO, Jim Ryan instituted a strategic review of the business, involving all of the senior management team in order to set a clear agenda for the Group.  Having completed that review, we will continue to build upon the four pillars of our stated strategy namely to:

• Grow the player base;

• Broaden the product base;

• Localise the customer offer; and

• Act responsibly.  

However, our review has prompted us to refocus the way in which we deliver the business strategy with a particular emphasis on each of the following four elements:

Operational excellence - having restructured the business into a diverse and international enterprise, we believe we can further improve the execution of our customer proposition. Drawing upon their  considerable industry experience the new management team is taking steps to increase our operational focus and raise our already high standards even further.  

Delighting the customer - As well as changes in market structure, consumer tastes have also evolved - online customers have become more discerning about what they want and are prepared to shop around to find it. This means that the strength of individual brands can expect to become increasingly important as will the ability to differentiate our customer offer.  

Leveraging our core assets - Given the sustained competitive pressures and the quality of our gaming products and operating platform, we plan to both broaden our customer reach as well as monetise some of the investment tied up in our franchise through licensing our services to third parties. Whilst the Group has licensed its poker software in the past, it has never before offered its casino, bingo or sports betting products. Over the coming months we will be looking to exploit the opportunities across each of the major product areas, including poker. Having already revitalised our casino, bingo and sports betting software, we will soon be relaunching PartyPoker.com and we are confident that individually or as a whole, our service offer will be a highly attractive alternative to other software suppliers and networks.

Leveraging the assets of others - following the success of bingo on the back of our alliance with ITV in the UK, the potential for white labels is clear and their ability to reach customers that would otherwise pass us by. The success of our Mission: Impossible, Saturday Night Fever, and The Godfather slots also demonstrates the potential for international brands in an online gaming environment.  

Future developments 

Over the coming weeks and months we will be executing a series of initiatives across all of our business segments to reinforce our new focus on each of the four elements above.

At the heart of this will be the relaunch of PartyPoker.com that will take place over the next two quarters. Over the past 10 months we have been researching and developing what we hope will represent a major step forward in the quality of the online poker product. We will be providing a range of new features and tools, many of which are currently unique and which will improve the experience for all our players, whether they are a seasoned hand or a relative novice. The relaunch will be supported by a major rebranding exercise and marketing campaign that will aim to highlight the great benefits of playing at PartyPoker versus other sites, one that we believe will ultimately return PartyPoker to being the world's largest poker room outside the US.  

In casino we will be broadening the product offering yet further with the addition of a full suite of soft games, as well as more slots. This is all in addition to yet more branded slots such as Top Gun that launched yesterday. Great content is what consumers demand and we intend to deliver both branded and unbranded games that will deliver great gaming entertainment.

Bingo Night Live has already been very successful in driving our bingo business and we continue to build on the momentum already established with UK customers. During the second half we will be launching a suite of flash side games to be integrated into the bingo client, as well as bigger promotions such as our £1m guaranteed jackpot that is already live. We believe that we can become a market leader in bingo and are making great progress to achieving that goal.

In sports betting, we have recently completed a major overhaul of both the PartyBets and Gamebookers websites and also launched our Italian licensed website. Live betting is now available within the main betting frame and customers can place live combination bets with odds updated in real time. Other changes include improved navigation and the creation of a family view of leagues, games markets and odds. This is expected to substantially improve the appeal of our betting product over the coming months.

PartyMarkets, our new product vertical, went live on the evening of 30 June 2008 and so has not been split out in the results for the six months to 30 June 2008. During the third quarter of 2008 we will be launching the planned upgrade to the PartyMarkets interface which will feature a series of products that are easier to understand and have been designed to appeal more to the online gamer rather than the typical investor that might frequent CFD trading and spread betting services.  Marketing for this new segment will also commence during the third quarter of 2008. 

We will soon be launching a further suite of games under the PartyGames brand. PartyGames will offer a suite of soft games including those developed internally as well as those licensed from third parties.  Underpinning the launch has been our first licensing deal for PartyGames with Electracade that is providing us with a suite of games including such gaming favourites as Hi-Lo, scratch cards and Top Trumps. PartyGames will be available within the casino and bingo products, broadening consumer choice and enhancing the overall player experience.

A plan is only as good as those chosen to execute it. PartyGaming is no ordinary business and at its heart is an extraordinary workforce. They have been through a great deal over the past 18 months but their huge drive and determination to succeed is not diminished, if anything it is greater than ever, driven by the desire to get PartyGaming back to the top. Through appropriate incentive and reward structures, as well as carefully crafted career development plans we are building a workforce with the skills and international perspective to execute our strategic plan and meet our long-term objectives.  

We are entering a new and challenging phase of development for our business, but one that is full of opportunity. We remain focused, determined and excited about our prospects.  

Current trading and outlook

In the 4 weeks ended 28 July 2008, average gross daily revenue was $1,679,700.  In poker, new player sign-ups averaged 1,050 per day and there were on average 51,100 active players per day, generating average gross daily revenue of $855,300.  In casino, average gross daily revenue was $739,100 while in bingo it was $28,800. In sports betting, gross win per day averaged $56,500.

In the following 4 weeks, ended 25 August 2008, average gross daily revenue was $1,523,600, reflecting the peak holiday period in a number of key markets and temporary technical difficulties experienced during the month.  In poker, new player sign-ups averaged 936 per day and there were on average 50,600 active players per day, generating average gross daily revenue of $815,400.  In casino, average gross daily revenue was $649,000 while in bingo it was $26,500. In sports betting, average gross win per day was $32,700. 

The Group has made good progress in 2008 to-date in a competitive and challenging environment.  Whilst trading in poker since 30 June 2008 has been slightly softer than we would have expected, with a number of initiatives already underway, including the relaunch of PartyPoker.com and our refocused strategy in place, the Board remains confident about the Group's full year prospects.

  SUMMARY OF RESULTS

Net revenue was up 17% over the prior year, with all business segments showing year-on-year growth. The primary driver was casino where revenue increased by 38% year-on-year on the back of higher player numbers, an increase in spend per gaming session as well as increased frequency of play.  Whilst poker revenue was up 6% year-on-year, this was against a particularly strong performance in 2007 and also in the context of strong growth in casino, most of the players for which still come from poker.  Bingo and sports betting also delivered strong growth in the period but are still relatively small in the context of the Group.  Clean EBITDA grew by 76% to $64.9m (2007: $36.9m), reflecting the growth in revenue, a lower number of CPA affiliate sign-ups than the previous year and the inherent operational leverage within the Group's business model.  

These factors also helped to lift the Clean EBITDA margin to 25.5% (2007: 17.0%), the prior year margin having been impacted by the strategic decision to rebuild player liquidity in poker during the first quarter of 2007.  

Clean earnings per share from Continuing operations was 10.6 cents (2007: 2.9 cents).  Total Clean earnings per share was 9.6 cents per share (2007: loss per share of 1.9 cents).

The consolidated key performance indicators underlying this performance are highlighted below:

Meaningful year-on-year comparisons for a number of the key performance indicators were distorted by the strategic initiatives employed by the Group to increase player liquidity, particularly in poker, immediately following the enactment of the UIGEA.  

Total active player days for the Continuing operations fell 3% versus the prior year to 14.1m and the average number of daily players also fell by 3%.  Unique active players rose by 15% to over 881,400 in the period, driven by new player sign-ups.   

Yield per active player day increased strongly to $18, reflecting the lower numbers of new player sign-ups that tend to generate below average yields but also due to the strong growth in casino, where yields are higher than poker, as well as the impact of certain revenue enhancing initiatives that were introduced during 2007.  The interaction of each of the key performance indicators above resulted in average daily revenue for the six months to 30 June 2008, of $1,400,000 per day, up 17% from $1,201,200 in the same period the previous year.  

There follows a more detailed review of the Continuing operations including each of the individual product segments.  Full details of all of the Group's historic quarterly key performance indicators can be downloaded from the Group's website at:  http://www.partygaming.com/investor/documentation.html. 

The Group's strategy to create a more broadly-based business in terms of product continues to gather pace. Poker remains the largest business segment at 60% of net revenue and 55% of Clean EBITDA, a reduction on the previous year (67% and 62% respectively).  Whilst poker revenues have grown year-on-year, PartyPoker.com has lost market share, particularly to competitor sites that offer real money games to players in the US, but also to certain poker networks.  It is estimated that in the week ended 24 August 2008 PartyPoker.com had approximately 8%3 of the global online poker market (versus approximately 12% in August 2007).  Continuing net poker revenue increased by 6% versus the previous year to $153.9m (2007: $144.6m).  

3 Based on the average number of daily real money cash game players - source: PokerSiteScout.com.

Changes made to the Group's loyalty programme during the second half of 2007 resulted in a sharp increase in fair value adjustments to gross revenue, particularly in poker where they reached 19.2% during the fourth quarter of 2007. Further adjustments to the programme were effected during the first and second quarters of 2008 that have returned the fair value adjustment for PartyPoints to previous levels.  However, overall fair value adjustments to poker revenue were 14.6% in the period (2007: 11.7%), with increased competitive pressures resulting in higher bonus costs that off-set the benefits of the revised loyalty programme.

The year-on-year comparisons, particularly in poker, have been distorted by the major drive to boost player liquidity that took place during the first half of 2007 and in particular during the first quarter of that year. This is most clearly seen by the year-on-year movement in new player sign-ups that was down 32% versus the prior year.  As noted above, the performance in poker was also affected by changes made to the Group's customer loyalty programme as well as by an increasingly competitive environment and the success of a number of the Group's key territories in the Euro 2008 football tournament that affected new player sign-ups and active player days.  Overall activity levels were also affected by the continued strong growth in casino (with the majority of players historically coming from poker). Poker's performance in the second quarter reflected the normal seasonal pattern but was adversely impacted by these additional factors.

On player retention, approximately 20.4% of all 2008 poker sign-ups remained active after six months versus 24.6% of all 2007 sign-ups.  As at 30 June 2008, across all real money poker sign-ups, the proportion of players remaining active after six months was approximately 25.8% (2007: 26.8%), after 12 months it was 20.2% (2007: 21.1%) and after 18 months it was 16.3% (2007: 19.0%).  

Yield per active player day increased to $13.5 (2007: $11.9) due to lower levels of sign-ups (that tend to reduce average player yields as new players tend to generate less revenue than more experienced ones) but also by the introduction of a number of revenue generating initiatives. 

The net impact of the movements in each of the KPIs above meant that average daily net revenue in poker increased by 6% in the period to $845,700 (2007: $798,800), while Clean EBITDA grew by 58% to $36.0m (2007: $22.8m) the difference in rate of growth reflecting a lower number of CPA affiliate sign-ups than the previous year, as well as the operational leverage of the Group's fixed cost base.

The Group's casino business delivered another outstanding performance during the first half of 2008 with net revenue up by 38% versus the prior year while revenue in the second quarter of 2008 was up 12% on the previous quarter. As a result, casino represented 35% of Group revenues in the six months to 30 June 2008 (2007: 30%).  The casino segment now excludes bingo which is disclosed separately.  

In addition to changes made to the Group's loyalty scheme and increased competition in the marketplace, a reduction in the proportion of casino revenue generated by poker players playing blackjack meant that bonuses and other fair value adjustments to revenue increased from 23.2% in 2007 to 26.4% of gross revenue in the six months to 30 June 2008.  Whilst this impacted revenue growth, the Clean EBITDA margin increased to 30.0% from 23.5% reflecting the operating leverage of the business.  A summary of the key performance indicators for the casino business during the half year and the percentage movement between the first and second quarter of 2008 is shown in the table below:

In 2005 the average net revenue per day in casino was approximately $37,000.  Since launching blackjack on PartyPoker.com in October 2005, launching PartyCasino.com in February 2006, acquiring the gaming assets of EOL and IOG and enhancing the product offering during 2007, average daily net revenue has increased substantially to reach an average of $494,200 per day over the six months to 30 June 2008 (2007: $359,600). This uplift has come from both increased player activity and player yields. During the first half of 2008 the average number of daily players increased by 14% and the total number of unique active players increased by 6%. While the majority of players on PartyCasino continue to come from PartyPoker, the EOL and IOG casinos also delivered a strong performance in the period with revenue up by 51% year-on-year to $23.6m (2007: $15.6m).  A successful marketing campaign during the second quarter helped to drive new player sign-ups to the Group's casinos with a 53% increase to 35,900 in the period (2007: 23,400).  The popularity of the Group's products is helping to increase frequency and this, together with an improving mix of games, is helping to increase player yields. The launch of new games and an improvement in the mix towards higher yielding games such as slots, jackpot slots and a much improved roulette, were all contributing factors to this year-on-year growth. Blackjack, which is a lower hold game, now represents approximately 23% of gross casino revenue compared with over 35% in the first half of 2007.  While average yield per unique active player grew by 30% year-on-year and 6% quarter on quarter, the absolute level is still lower than some of our competitors, reflecting the fact that the majority of our casino customers are poker players rather than dedicated casino customers.  Management believe that this represents a future opportunity for the Group.  

Bingo represents an exciting opportunity for the Group. While the absolute performance in the first half was modest, the recent trends are such that we expect bingo will become a material business segment and hence we have presented its financial performance separately from casino, where it was previously included.

Through the business segment's alliance with ITV Consumer Limited (a subsidiary of ITV plc) in the UK and following improvements made to our bingo software, the Group's average daily gross revenues in bingo have more than doubled and we expect further growth in the second half of 2008.  Building on this success we are also exploring the possibility of working with international media groups to see if we can replicate a similar model in other territories.

Having refreshed our bingo software earlier in the year, the launch of Bingo Night Live towards the end of the period had a substantial impact on all of the key performance indicators. The number of unique active players and active player days both increased strongly as did player yields that benefited from an increase in the gross win margin.  

The Group's sports betting activity, primarily PartyBets.com and Gamebookers.com, has continued to grow strongly during the first half of 2008 with gross turnover reaching over $279m in the period (2007: $148m).  Live betting has been a major factor behind this growth and it represented over 39% of total stakes in the period (2007: 28%).  

While the amounts wagered have continued to grow strongly, the overall gross win margin at 4.4% (2007: 6.8%) was lower than expected in the period. Contributing factors were the strong growth in live betting that tends to have lower gross win margins, the increasing proportion of Canadian customers that bet on lower margin sports, such as baseball and the impact of the Euro 2008 football tournament, that was less profitable than expected following a poor run of results during the early part of the tournament.  As a result and with a reduction in bonus rates, net revenue increased by 36% to $9.0m and Clean EBITDA grew by 71% to $1.2m (2007: $0.7m).

Although average daily net revenue grew by 33% year-on-year, the growth was tempered by the decision to stop taking bets from players in Turkey during the first half of 2007 following a change in Turkish legislation.  During the third quarter of 2008 a number of product enhancements are being introduced that are expected to provide a further boost to betting volumes whilst some operational and structural changes should help to improve the gross win margin.

An increasingly competitive environment, coupled with an increasing proportion of sign-ups coming from direct sources, particularly in poker, resulted in an increase in customer acquisition and retention costs in the period rising by 21% to over $48m where they represented 19.1% of net revenue (2007: 18.4%). However, the decision to increase player liquidity in poker in the first half of 2007 increased affiliate costs sharply in that period and with no similar campaign in the first half of 2008 these costs were significantly lower as a proportion of net revenue, falling from 20.3% of net revenue in 2007 to 14.4% in 2008.  Other customer bonuses increased due to an increase in the level of payments made to cover shortfalls in tournament prizes but customer bad debts fell as a proportion of net revenue thanks to continued efforts in fraud protection including the capture of fraudulent balances from players and affiliates. The increase in webhosting and technical services costs reflects a full period of charges relating to the revenue share on the EOL and IOG casinos that are hosted on a third-party network as well as royalties paid to studios for licensing their brands on the new branded casino slots.  As a proportion of net revenue, Continuing distribution costs fell to 41.8% (2007: 46.0%).