Talarius PLC
20 September 2005
20th September 2005
Talarius plc
Maiden interim results for the period ended 16 July 2005
Talarius owns and operates two brands 'Quicksilver', with 142 High Street Adult
Gaming Centres ('AGC') across the UK, and 'Cyberslotz', an interactive online
gaming platform. Today's interim results are for the period from flotation on 4
April 2005 to 16 July 2005
Highlights
• Placing and Admission on AIM on 4 April 2005, raising £5.5m
• Acquisition of RAL Holdings Ltd ('RAL') on 3 June 2005 for £39m
- Consolidation platform for future acquisitions
- Acquired on 6.5 times normalised 2004 EBITDA
- 129 AGCs under the Quicksilver brand with 5,500 machines
- Cyberslotz interactive online open platform
- Appointment of Nick Harding as Group Chief Executive
• £11m acquisition of Leisure Promotions Ltd and In To Save Ltd
(together 'Leisure Promotions') on 7 July 2005
- Operate 13 AGCs in North East England and Scotland
- Acquired on a historic multiple of 4.5 times normalised EBITDA
- Significant synergies identified
• Estate of 7,000 gaming machines, the largest on the High Street
• Appointment of Andy Hall as Group Finance Director
Pro forma Financial Highlights
• Turnover of £21.3m (2004: £20.0m) up 7%
• Operating profit of £2.3m (2004: £2.2m) up 6%
• EBITDA of £4.9m (2004: £4.4m) up 9%
• Trading strong - positive outlook
Nick Harding, CEO of Talarius plc said:
'It has been a successful period for the Company. The acquisitions are being
integrated, with significant synergies identified, giving us a strong and
growing market leadership position in High St AGCs in the UK. The ultimate
enactment of the Gambling Act will encourage further consolidation and we have
built a strong team to deliver the Group's strategy in this exciting market
context.
'In the eight week period since the half year on 16 July through to 10
September, the sales trend for the whole of the Quicksilver estate has continued
to improve, on a year on year basis, well above the growth rate experienced in
the first half.'
- Ends -
For further information, call:
Nick Harding, CEO 01908 246 119
Andy Hall, FD 01908 246 111
Talarius plc
Jonathon Brill/Billy Clegg 020 7831 3113
Financial Dynamics
INTERIM REPORT
Introduction
Following the admission of Talarius to trading on AIM on 4 April 2005 the
Company completed the acquisition of RAL Holdings Ltd (RAL) on 3 June 2005 for a
total consideration of £39m. This was a reverse takeover and the initial step to
implementing the strategy to acquire, or make investments in, companies or
businesses engaged primarily in the High Street gambling market. RAL delivered
an experienced management team, led by Nick Harding who took over as the Group's
Chief Executive.
The RAL business comprised two key brands: 'Quicksilver' with 129 High Street
Adult Gaming Centres (AGCs) in the UK and 'Cyberslotz', an interactive online
gaming platform. Subsequently, and using the Quicksilver business as the
foundation for consolidation of the High Street AGC market as intended, the
Group completed the £10.7m acquisition of Leisure Promotions Ltd and In To Save
Ltd (together 'Leisure Promotions') on 7 July 2005. The total consideration
represented a multiple of 4.5 times normalised 2004 EBITDA. Leisure Promotions
operated 13 AGCs under the 'Royals' format across Northern England and Scotland.
Once the Royals outlets are re-branded, it will take Quicksilver to 142 sites
and over 7,000 gaming machines, making it one of the largest gaming machine
estates on the High Street and certainly the largest within its own sector in
the UK.
During the period, the Group continued to make good progress both operationally
and financially. In order to assist the understanding of the underlying
performance of the business, additional segmental information has been included
on a pro forma basis for both Quicksilver and Royals as though they existed
together as the 'Enlarged Group' for the whole of the current and prior year.
On 6 June 2005 Andy Hall joined as Group Finance Director and was appointed to
the Board on 6 September 2005. Andy (50) brings over twenty years of PLC
experience from the high street retail and leisure sectors. From 1992 to 1999
Andy was Group Financial Controller at Whitbread plc with financial
responsibility for all aspects of the brewing to leisure businesses, which
included the acquisition and integration of David Lloyd Leisure, Marriott
Hotels, Costa Coffee, Cafe Rouge and Bella Pasta. From 1999 to 2004 Andy was
Group Finance Director of Blacks Leisure Group plc where he oversaw the
acquisition and integration of Millets, Just Add Water, Famous Army Stores and
Sports Shop (Fife). This appointment further strengthens the platform from which
to take advantage of future consolidation opportunities in both the UK and
European AGC markets.
Ben Shaw has today stepped down as a Non-Executive Director of the Company and
is replaced by Mark Watts. Mark is a Director of Marwyn Capital Limited and its
subsidiary companies, Zetar plc and Inspicio plc. Mark has extensive corporate
finance experience, including recently advising managements of Augean Plc on its
£106m acquisition of two hazardous waste businesses in the UK, of Talarius on
its acquisitions of RAL and Leisure Promotions and Zetar plc on its £32m
acquisition of a UK chocolate manufacturer; and their subsequent related
admissions to AIM. Save as disclosed above, there is nothing further to disclose
in relation to the appointment of Mr Mark Watts under schedule two, paragraph
(f) of the AIM Rules. We would like to record our thanks to Ben for his
contribution during the IPO and the subsequent acquisitions.
The Board has also taken the opportunity to incentivise the middle management
team by the grant of share options so as to closely align their interests with
those of our shareholders.
Much has been achieved, since the RAL acquisition, both in terms of preparing
the business for further acquisitions and their integration and also to ensure
plans have been agreed to grow organically, with a pipeline of greenfield sites
to be developed to augment the acquisition of existing businesses.
Operations - Adult Gaming Centres
Quicksilver
Overall Quicksilver AGCs reported an increase in EBITDA of 4.5% to £3.35m (2004:
£3.21m). Total sales growth was 1.7% ahead year on year at £16.176m and
operating profit was up 0.7% at £1.5m (2004: £1.49), largely as a result of the
injection of higher payout 'Section 16' machines. These machines operate with a
maximum stake of £2 and a top cash payout of £500. The second half will see an
accelerated roll out and it is planned to incorporate up to four of these
machines in each centre by mid 2006, representing a total investment of £2.8m.
Innovation in the existing 'amusements with prizes' (AWP) machine market
continues to suffer as a result of the delay in the 'Triennial review' of stakes
and prizes by the government. However this can be seen as an opportunity for
future growth when the new stake levels of 50p, detailed in the Gambling Act,
are finally introduced.
The new Quicksilver branded livery of red and gold with a 'Romanesque' shop
front continues to be rolled out. It is planned to have all sites branded in
this style by 2007. Future and current acquisitions will be re-branded as soon
as practical following completion.
The AGC concept of low ticket, high volume High Street gaming continues to grow
in acceptance by both consumers and local authorities. The former seeing it
increasingly as part of the leisure/shopping experience and the latter
demonstrating less resistance to planning and licence applications.
No new stores were opened in the first half (2004:eight) and, as these are
mainly destination sites which can take up to two years to break even, they
initially reduce operating profit. We are seeking to develop a pipeline of new
stores, to break even on a cash basis within three years, ready for next year.
There were two sites which closed in the first half; whilst eight sites closed
last year.
'Royals': Leisure Promotions Ltd and In to Save Ltd
We had been in discussion with the vendors of these businesses for some time
prior to agreeing a deal and were very familiar with the locations, the style of
operation and the quality of the machine estate. The extrapolated full year
results with sales of £4.3m up 21.7%, EBITDA of £1.4m up 18.6% and operating
profit of £0.78m up 13.9% indicate that the 13 Royals AGCs, were already showing
good growth, enhanced by two greenfield sites starting to mature. We believe
that we will continue to see strong growth from these sites as we review and
improve upon machine selection, including the injection of more higher payout
machines.
We also see a number of synergies and cost saving opportunities in the acquired
business simply through better husbandry of the machine estate, stronger staff
leadership and through leveraging Talarius' ability to obtain better prices for
both capital equipment and utilities; an example being gaming equipment from
distributors charging as much as 30% more than we can obtain through purchasing
direct from manufacturers.
Operations - Interactive
The interactive business continues to grow at a substantial rate with sales at
£0.865m growing at over 60% year on year. Several new games were added to the
Cyberslotz site during the period. The multi wheel roulette game, launched in
April was one of the first games on the internet to offer a guaranteed jackpot
payout of £1m. In May our first progressive jackpot game was launched and this
has been well received by cash players.
The site has been profitable for over 12 months and remains entirely self
sufficient in terms of cash investment. Recent market research has indicated to
management that there is exceptionally strong loyalty to the Cyberslotz brand
and its site, and the challenge is therefore to drive the business forward
through enhanced marketing and promotion.
To our knowledge, the Cyberslotz gaming engineTM is unique in the remote gaming
sector: we design, build and operate all our own software so have been able to
create an open platform with a wide range of slot gaming products, provided by a
number of different suppliers. This allows a richer blend of slot gaming and
means that we have products which have been designed by providers who also
design games for the terrestrial market. In some instances the product is
identical to the terrestrial product (e.g. the Bar X game). Thus, we have
designed and built our own virtual gaming machine lounge and are able to
populate it with games from different suppliers in precisely the same way that
we do on the High Street.
Cyberslotz currently operate 23 games and that should rise to 25 by the year
end. In addition we are planning shortly to introduce our own Bingo product.
The challenge is not how to improve this product, but how to market it more
widely than we currently do. It should be noted that we do not currently take
bets from Canada or the US.
We have also recently introduced into the market a new mobile gaming product,
the 'Quicksilver Mobile Casino' (text Quick to 89128 to download this product).
This product is the result of a joint venture between Talarius and Probability
Games Corporation Ltd.
Market - New legislation and regulation
The Gambling Act 2005 was passed earlier in the year and in October 2005 will
see the formal establishment of the new Gambling Commission. Given the intention
to relocate the existing regulator, The Gaming Board, from London to Birmingham,
it is likely that there will not be full enactment of the Act until late 2007 or
even early 2008.
We continue to see the new Act as positive with, in particular, higher payout
machines continuing as 'Category B3' machines which will eventually take the
place of the increasingly successful S 16 machines. Indeed our view is that the
proper course of action would be to permit 'grandfather rights' over the use of
this equipment and that we should be allowed to operate up to four S.16 machines
alongside category B3 machines. This view is at present forming the basis of an
ongoing discussion with government.
A number of smaller AGC estates are likely to become available as private owners
perceive that the time is now right for them to exit a sector which will become
more tightly regulated, and taxed, in the future. This movement will continue to
provide acquisition opportunities for Talarius and provides confidence that we
will be able to undertake a number of acquisitions in the coming months.
Financial Review
The most significant events in the period since Talarius was first floated on 4
April 2005 were the acquisitions of RAL and of Leisure Promotions (the latter
trading under the 'Royals' format).
RAL was acquired on 3 June 2005 with the proceeds of the initial share placing
and a further issue of shares on readmission to AIM. A total of 37 million
shares were placed in two tranches with total cash proceeds before expenses of
£35.7m. Furthermore debt facilities of £20m were arranged. Total consideration
was £38.8m, plus deal costs of £3.9m, revealing goodwill of £28.7m as shown in
note 7 to the accounts.
As this was a reverse takeover, RAL's accounting policies and practices were
adopted by the Talarius Group. It operates with 13 four weekly accounting
periods, with a year ending the last Saturday in December, and hence the choice
of the first half of the year being in mid-July, and 28 weeks in length going
forward.
On 7 July 2005 the £10.7m acquisition of the Royals companies was completed. The
total drawdown at that stage was £18.75m. The goodwill calculation is again
given in note 7; along with the small amortisation charge recognising the twenty
year life used.
Due to the timing of the acquisitions only short periods of trading are included
in these results; being six weeks for RAL and one and a half weeks for Royals.
In order to provide more meaningful information for performance comparison, pro
forma additional segmental information has been provided below. In this respect,
the Enlarged Group represents the combined businesses of RAL, which operated the
Quicksilver AGCs and Cyberslotz interactive gaming, and Leisure Promotions which
traded AGCs under the Royals format.
As well as turnover and operating profit, also highlighted is earnings before
interest, taxation, depreciation and amortisation (EBITDA) which we regard as
one of the best overall evaluation measures.
Additional segmental analysis for the Enlarged Group prepared on a pro forma
basis (unaudited)
28 Weeks ended 28 Weeks ended 53 Weeks ended
16 July 2005 10 July 2004 1 January 2005
£000 £000 £000
Turnover
Adult Gaming Centres
Quicksilver 16,176 15, 910 29,664
Royals 4,301 3,535 7,282
20,477 19,445 36,946
Interactive Gaming 865 538 1,310
Total Turnover 21,342 19,983 38,256
EBITDA*
Adult Gaming Centres
Quicksilver 3,354 3,209 5,870
Royals 1,426 1,202 2,573
4,780 4,411 8,443
Interactive Gaming 70 38 90
Total EBITDA* 4,850 4,449 8,533
Operating Profit*
Adult Gaming Centres
Quicksilver 1,500 1,489 2,980
Royals 780 685 1,452
2,280 2,174 4,432
Interactive Gaming 62 32 78
Total Operating Profit* 2,342 2,206 4,510
*Before goodwill amortisation and
exceptional item
Outlook
The outlook remains positive for the Talarius Group. As the Section 16 gaming
product is refined and penetration increases, there is the potential to deliver
over the coming months a similar effect on gross receipts as the Bookmakers did
following the introduction of the highly successful Fixed Odds Betting Terminal
(FOBT) products. Indeed even if S16 product is scheduled to ultimately disappear
it will be replaced, in the AGC sector, with Category B3 machines, a more
refined slot gaming product. This future change and transition will be painless
for Quicksilver and our customers.
There is also still an opportunity for further debate with the government over
the grandfathering of numbers of these machines. The ultimate enactment of the
Gambling Act will see a significant increase in stakes and prizes for AWP
machines which will boost revenue derived from this equipment. In addition the
new Gambling Commission is likely to be more willing and able to embrace
technological change in the sector which may ultimately lead to further cost
reducing innovation such as enabling customers to play off the 'winning meter'
and 'ticket in, ticket out'.
Our interactive business will also be allowed to apply for a UK operators
licence, allowing us to advertise in the UK and to operate all our systems in
the UK.
In the eight week period since the half year on 16 July through to 10 September,
the sales trend for the whole of the Quicksilver estate has continued to
improve, on a year on year basis, well above the growth rate experienced in the
first half.
Glossary
AGC Adult Gaming Centres
AWP amusements with prizes
Category B3 machines new machines to be introduced through the Gambling Act
EBITDA Earnings before interest tax depreciation and amortisation
FOBT Fixed Odds Betting Terminal
Leisure Promotions Leisure Promotions Ltd and In To Save Ltd
RAL RAL Holdings Ltd
Section 16 machines high payout machines
Summarised Consolidated Profit and Loss Account
Results for the period Pro forma results for
from 4 April to RAL Holdings Limited
16 July 2005 for 53 weeks ended
Unaudited 1 January 2005
Audited
Notes £'000 £'000
Turnover 2 3,962 30,974
Gross profit 1,043 8,146
Operating profit before goodwill
amortisation and exceptional item 212 3,058
Amortisation of goodwill 7 (185) (1,052)
Exceptional item: Costs of flotation 3 (336) -
OPERATING (LOSS)/ PROFIT 2 (309) 2,006
Other interest receivable and
similar income 43 369
Interest payable and similar charges (89) (4,249)
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION (355) (1,874)
Taxation 4 56 272
RETAINED LOSS FOR THE PERIOD (299) (1,602)
Basic loss per share - pence 5 (0.61)
All recognised gains and losses are included in the profit and loss account.
Summarised Consolidated Balance Sheet
Pro forma
RAL Holdings Limited
At 16 July 2005 At 1 January 2005
Unaudited Audited
Notes £'000 £'000 £'000 £'000
FIXED ASSETS
Intangible assets 7 36,689 19,517
Tangible assets 19,211 14,729
55,900 34,246
CURRENT ASSETS
Stock 279 199
Debtors 3,859 3,035
Cash at bank and in hand 5,193 4,070
9,331 7,304
CREDITORS: AMOUNTS FALLING DUE
WITHIN ONE YEAR (7,421) (5,542)
NET CURRENT ASSETS 1,910 1,762
TOTAL ASSETS LESS CURRENT
LIABILITIES 57,810 36,008
CREDITORS: AMOUNTS FALLING DUE
AFTER MORE THAN ONE YEAR (18,750) (36,400)
PROVISIONS FOR LIABILITIES AND
CHARGES (3,689) (1,435)
NET ASSETS/(LIABILITIES) 35,371 (1,827)
CAPITAL AND RESERVES
Called up share capital 35,670 5
Share premium account - 156
Profit and loss account (299) (1,988)
SHAREHOLDERS' FUNDS 35,371 (1,827)
Summarised Consolidated Cash Flow Statement
Results Pro forma results for
for the period from 4 RAL Holdings Limited
April to for the 53 weeks ended
16 July 2005 1 January 2005
Notes £'000 £'000 £'000 £'000
NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES 6 (97) 4,508
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 43 369
Interest paid (89) (1,862)
Interest element of finance lease rental payments (2)
-
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (46) (1,495)
CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT
Sale of tangible fixed assets 14 169
Purchase of tangible fixed assets (302) (5,825)
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (288) (5,656)
ACQUISITIONS
Purchase of subsidiary undertakings 7 (53,976) -
Cash acquired on acquisition 5,180 -
(48,796) -
FINANCING
Issue of ordinary share capital 35,670 -
Capital element of finance lease payments - (86)
New loans and finance leases 18,750 2,217
Repayment of loan capital (1000)
-
NET CASH INFLOW FROM FINANCING 54,420 1,131
INCREASE/ (DECREASE) IN CASH 5,193 (1,512)
NOTES TO THE ACCOUNTS
For the period from 4 April to 16 July 2005
1. Basis of preparation
The balance sheet at 1 January 2005 and the profit and loss account and cash
flow statement for the 53 weeks ended on that date are extracts from the
financial information included in the Admission Document dated 4 May 2005
relating to the proposed acquisition by Talarius plc of RAL Holdings Ltd. The
accountants' report on the financial information was unqualified. The unaudited
financial information has been approved by the directors.
2. Segmental analysis
Period from 4 April 53 Weeks Ended
to 16 July 2005 1 January 2005
Unaudited Audited
£000 £000
Turnover and profit
Adult Gaming Centres 3,749 29,664
Interactive Gaming 213 1,310
3,962 30,974
Operating profit before goodwill amortisation and exceptional items
Adult Gaming Centres 189 2,980
Interactive Gaming 23 78
212 3,058
The period since 4 April 2005 includes costs of being a plc which have been
allocated against each segment in line with their share of turnover.
3. Exceptional item
Professional fees relating to flotation
4. Taxation
The credit for taxation has been calculated on the basis of the expected annual
effective tax rate of 33% (2004: 33%) to the loss before taxation and before
goodwill amortisation.
5. Loss per share
The calculation of basic loss per share is based on the results after taxation
of loss after tax of £114,000 by reference to the weighted average of 18,639,230
shares. Additionally the Directors have calculated loss per share based on
headline earnings excluding the exceptional item and before amortisation of
goodwill. The Directors believe this gives a better view of ongoing maintainable
earnings.
Pence
Basic (0.61)
Add Back:
Exceptional item 1.8
Amortisation of goodwill 0.99
Adjusted basic (Headline) 2.18
6. Reconciliation of operating profit to operating cash flow
Period from 4 April to 53 Weeks Ended
16 July 2005 1 January 2005
Unaudited Audited
£000 £000
Group operating (loss)/ profit (309) 2,006
Depreciation 413 2,902
Impairment of fixed assets - 154
Amortisation of goodwill 185 1,052
Profit on disposal of fixed assets - 73
Movement in stocks 7 (43)
Movement in debtors 29 119
Movement in creditors (410) (1,703)
Decrease in provisions (12) (52)
Net cash (outflow)/inflow from operating activities (97) 4,508
7. Purchase of Subsidiary Undertakings
RAL Holdings Ltd 'Royals' Total
Acquired on Acquired on
3 June 2005 7 July 2005
£000 £000 £000 £000 £000
Tangible fixed assets 13,812 5,468
Current assets
Stocks 208 78
Debtors 3,375 513
Creditors (5,781) (2,050)
Cash acquired 4,840 340 5,180
Net working capital 2,642 (1,119)
Provisions (3,642) (59)
Carrying value of net assets 12,812 4,290
Goodwill on acquisition 29,964 6,910 36,874
Consideration 38,845 10,700
Deal costs 3,931 500
Total consideration 42,776 11,200 53,976
The values above represent the book values at the acquisition date. The
Directors are currently assessing the fair value of the net assets acquired and
any adjustments to those book values.
Goodwill has been amortised on a straight-line basis over 20 years which in the
period since acquisition was £185,000 leaving a value of £36,689,000.
The profit and loss account includes the following amounts attributable to the
above undertakings in the period since acquisition:
Turnover Operating Profit
£000 £000
RAL Holdings Ltd 3,710 353
Leisure Promotions Ltd & In To Save Ltd ('Royals') 252 39
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