PartyGaming Still Talking to US; Garber Stepping Down

PartyGaming completed 2007, its tenth year of operations, with solid earnings but lower revenue growth than anticipated. The operational figures are contained in an annual report filed today -- along with an announcement of chief executive Mitch Garber's plans to resign and a revelation that the company continues to communicate with law enforcement officials in America.

The company with the most to lose from the U.S. prohibition spent the last year adapting to a new business plan of "transforming ourselves into a broadly based and internationally focused business," according to the statement.

To look at earnings, it appears the plan may be working. Earnings from continuing operations grew 119 percent to $112 million. On the other hand, revenue from continuing operations grew 41 percent to $457.8 million, which is less than hoped for.

"While growth in net revenue has been lower than expected, clean earnings before interest, tax, depreciation and amortization, our primary measure of financial performance, is in line with expectations and the group remains confident about the full year outlook," the company said in a prepared statement.

PartyGaming does not operate in markets that are presided over by governments that are unfriendly to foreign online gambling. Jackson describes the approach as "conservative", and "responsible", but concedes that it can limit revenue potential. "Whilst our approach means that we continue to forego revenue opportunities in the short-term, we believe that such revenue streams are at risk and we remain confident that our chosen strategy will generate superior returns for shareholders over the long-term," he explained.

According to the company's annual financial report: "Differing regulatory approaches mean that PartyGaming has chosen not to accept customers from a large number of countries. In this context, the Group's continued growth in the number of active players is even more impressive. It has been achieved through the continued exploitation of traditional marketing channels, such as online and offline marketing, as well as affiliates.

"In 2007, we added a further channel through a series of business alliances with leading companies around the globe. Using their brands, products or media we hope to be able to expand our reach even further. Mergers and acquisitions have also proven to be a helpful source of new customers, although such deals must first meet our strict financial and strategic criteria."

Commenting on prospects in the Asian market, where many rivals have directed their attention following exile from the U.S. market, Jackson said: "Asia remains an exciting prospect for the Group which is why we continue to build local relationships with potential partners and are exploring a number of strategic alliances in the region. However, the prevailing regulatory regime in most territories means that opportunities to replicate the Group's success in the region are currently limited."

PartyGaming emphasizes the strength of alliances it formed in 2007 as an important part of its strategy. The company has formed deals with ITV, the English Football League, Sporting Index, RTL and Paramount Pictures.

Departing CEO; US Negotiations

After two years at the helm of PartyGaming, Mitch Garber announced today that he does not want to renew his contract past May 1, 2009. PartyGaming's Board said it will employ an executive search firm to help find a replacement. Garber will remain CEO until a successor is found and will remain available for some time after to ensure a smooth transition, according to the announcement.

Jackson credits Garber with guiding PartyGaming through "an extraordinary turnaround following the enactment of the UIGEA" and with executing its "increasingly proactive stance with Government and regulators around the world."

A Canadian national, Garber says he wants to return to North America with his family, but many in the interactive gaming industry may question the wisdom of such a move if they remember what happened to David Carruthers, Peter Dicks, John Lefebvre and Stephen Lawrence. But perhaps Garber knows a few things the rest of the industry doesn't.

Regarding the company's ongoing negotiations with U.S. authorities, a striking part of today's financial report said: "The Group is continuing to respond voluntarily to any requests for information issued by [the United States Attorney's Office for the Southern District of New York]. The Group remains unable to assess the likelihood of any particular outcome of these discussions but is actively pursuing a resolution as soon as practicable. While it is possible that a conclusion may be reached in the foreseeable future, the exact timing of such a conclusion remains uncertain."

Last month during conference call meeting of investors and analysts Garber spoke of his optimism toward the negotiations. "We feel that discussions are going well, we feel that they will end well, and I would be extremely surprised and disappointed if they didn't end in 2008," he said.

As reported:

Fourth quarter highlights– Continuing operations

Group revenue* up 52% to $120.0m (2006: $78.8m) making $448.2m for the full year (2006: $324.7m)

Poker revenue* up 23% to $72.6m (2006: $58.8m) making $288.8m for the full year (2006: $268.1m)

Casino revenue up 156% to $42.3m (2006: $16.5m) making $143.6m for the full year (2006: $51.0m)

Sports Betting revenue up 50% to $5.1m (2006: $3.4m) making $15.8m for the full year (2006: $5.6m)

Clean EBITDA for the full year in 2007 expected to be slightly ahead of current consensus market expectations

Board remains confident about prospects for 2008