FLUXX posts 37 percent growth in first half of 2005 – ISA-GUIDE.de

FLUXX posts 37 percent growth in first half of 2005

First-half EBITDA rises by 497 percent to EUR 2.9 million – Net cash rises to EUR 28.3 million following capital increase – 1,000 terminals for Direct Lotto project ordered

Kiel, May 10, 2005 – The SDAX-listed company FLUXX AG (ISIN DE0005763502), a specialist in the handling of lotteries and betting, today publishes its report on the first half and second quarter of 2005. The report reveals that gross consolidated sales rose by 27 percent in the second quarter of 2005, from EUR 21.0 million to EUR 26.8 million. The lottery and betting stakes handled by the company’s own services and via partner platforms rose by around 25 percent in the same period, from EUR 16.7 million to EUR 20.8 million. Net revenues, which essentially comprise commissions from the betting stakes and handling fees, rose by an overproportional 38 percent from EUR 4.3 million in the second quarter of 2004 to EUR 6.0 million in the second quarter of 2005.

Compared with the prior-year period, sales were up 25 percent from EUR 41.5 million to EUR 52.1 percent. Betting stakes rose by 23 percent from EUR 33.4 percent to EUR 40.9 percent. Revenues rose by 37 percent from EUR 8.2 million in the first half of 2004 to EUR 11.2 million in the first half of 2005.

Increased expenses from launch of Direct Lotto

In the second quarter, the operating costs before depreciation and amortisation rose by a much lower rate than sales compared with the prior-year quarter. This again underlines the high scalability of the FLUXX Group’s business model. The principal expense items are other operating expenses, which rose by 12 percent on the second quarter of 2004 from EUR 2.8 million to EUR 3.1 million. Other operating expenses showed a 25 percent increase on the first quarter of 2005, on the one hand because there are higher investor relations costs in the second quarter for seasonal reasons, and in particular in connection with the Shareholders‘ Meeting and the production of the Annual Report. On the other hand, initial expenses in connection with the development of the project for playing the Lottery while shopping (Direct Lotto) and increased marketing costs for the acquisition of new customers by the FLUXX subsidiary JAXX were incurred in the second quarter.

Compared with the prior-year first half, operating costs likewise rose by well below the average, at 7 percent, and other operating expenses rose by 8 percent from EUR 5.2 million to EUR 5.6 million.

Almost seven-fold increase in EBITDA for quarter

Earnings before interest, tax, depreciation and amortisation (EBITDA) again rose sharply in the second quarter. EBITDA has increased almost seven-fold compared with the prior-year quarter, and rose by 586 percent in the second quarter of 2005 from EUR 228 thousand to EUR 1,565 thousand. FLUXX posted EBITDA growth of 497 percent in the first half. EBITDA consequently rose from EUR 488 thousand to EUR 2,912 thousand and has thus surpassed the entire prior-year EBITDA of EUR 2,409 thousand after only six months. The EBITDA margin rose from 6 percent to 26 percent.

This development has nevertheless gone hand in hand with a significant rise in depreciation and amortisation, resulting substantially from the recognition of lottery syndicate contracts as an intangible asset pursuant to IAS 38. Depreciation and amortisation rose from EUR 208 thousand in the second quarter of 2004 to EUR 1,032 thousand in the second quarter of 2005. In the first quarter of 2005, depreciation and amortisation totalled EUR 930 thousand. In the half-year comparison, depreciation and amortisation rose from EUR 408 in 2004 to EUR 1,962 in 2005.

Despite the higher depreciation and amortisation, the operating result before interest and tax (EBIT) showed a further substantial improvement thanks to the high level of sales in the second quarter. Compared with the prior-year quarter, EBIT in the second quarter of 2005 rose from EUR 20 thousand to EUR 533 thousand. In the first quarter of 2005, EBIT totalled EUR 417 thousand. Compared with the first half of the previous year, EBIT improved from EUR 80 thousand in the first half of 2004 to EUR 950 thousand in the first half of 2005.

First-half earnings rise to EUR 540 thousand

Earnings for the second quarter were influenced by the reduction in the corporation tax rate in Austria, which has led to an additional tax expense of EUR 290 thousand from the remeasurement of the deferred tax assets for the Austrian subsidiary Interjockey. Consolidated earnings nevertheless improved, quarter on quarter, from EUR 1 thousand to EUR 178 thousand and earnings per share rose from EUR 0.00 to EUR 0.015. The comparison for the first half showed a rise in earnings from EUR 99 thousand to EUR 540 thousand, with earnings per share up from EUR 0.01 to EUR 0.05.

Capital increase strengthens liquidity and shareholders‘ equity

Following the capital increase in June and the exercising of employee stock options, the company accrued net financial resources of EUR 24.6 million. Capital expenditure in the first half of the year rose significantly due to investment in syndicate business and the Direct Lotto project and totalled EUR 2.1 million. As a result of the reduction in liabilities and the temporary buildup of receivables, the cash flow from operating activities is EUR -0.5 million. Cash and cash equivalents (net cash) totalled EUR 28.3 million on June 30, 2005.

The capital measures have resulted in an increase in the equity capital of FLUXX AG to a present EUR 46.2 million. The equity ratio has risen to
87 percent.

Outlook

The next few months will be dominated by the new topics of Direct Lotto and sports betting. By placing an order initially for 1,000 terminals, the management intends to integrate the branches of the partners EDEKA, OIL! and Fotopoint into the Direct Lotto system as soon as possible. The aim is to start operating the resulting systems within the next six to twelve months. Initial sales should thus be generated in the fourth quarter of 2005. On the other hand, there will be increased investment in the development of the infrastructure and the installation of the terminals from the third quarter. To this end, FLUXX intends to establish a partnership with a logistics service provider which will assume responsibility for the installation, servicing and support of the systems.

FLUXX is currently conducting negotiations on partnerships for Direct Lotto with a number of other potential partners, predominantly from the groceries retail sector. It can be expected that further agreements will be signed in the course of the year. In response to the increased costs as a result of acquiring and supporting new sales partners, a separate sales unit will initially be established within the stock corporation to handle Direct Lotto matters. Here again, initially higher costs in the third quarter will not yet be offset by any significant proceeds.

In the area of sports betting, FLUXX intends to base its approach on the fundamental ruling to be announced by the Federal Constitutional Court on the lawfulness of handling sports betting products licensed abroad. However, a definitive decision is no longer expected this year. Irrespective of national outline conditions, it is of decisive strategic importance for FLUXX to position itself as soon as possible in the European field of competitors. On the basis of the existing platform, FLUXX has therefore already developed a sports betting product that can be brought onto the market in the short term in order to develop a competitive product, outside Germany at least, on the basis of the existing European licences.

In the core segment, we continue to expect sales growth of more than 30 percent, with the cost basis remaining stable. As well as launching new products such as KENO for the commercial content on JAXX, AOL and freenet, FLUXX is currently also conducting negotiations with new potential sales partners for the online promoting of lottery and horse betting. Whether or not agreements can be concluded during the remainder of the year depends essentially on the final contractual negotiations.