Message from the Chairman and President
It is with much pleasure that we report that in 2007 your Company again achieved record financial and operating results. Our focus on expanding our network of PAGCOR e-Games Cafés, coupled with our expansion into new modes of sports betting and mobile gaming, delivered overwhelmingly positive results.
This base of profitability lays the groundwork for our aggressive growth plans in the years ahead. As we look forward into the future of the gaming industry in the country, we see enormous potential for PhilWeb.
The Philippine Amusement and Gaming Corporation (PAGCOR), the Philippines’s regulatory agency for all gaming, is already the third largest contributor of revenues to the government. It is at least partially in recognition of their significance to the country that their congressional franchise was renewed for another 25 years, effective July 2008. As PAGCOR seeks to expand their revenue contribution in the coming years, your Company will continue to cooperatively work with them to deliver new gaming opportunities to tourists and other customers.
Creating Excellent Financial Results
Net Income for 2007 was P222.8 million, 92% better than the previous year. These results were fueled by excellent results in our core business – running PAGCOR’s e-Games Cafés – as well as strength in our other gaming businesses, new launches and equity investments.
On several levels, our Income Statement results can only be described as exponential. Our Net Revenue was P269 million in 2007, double that of the previous year. Operating Income quintupled to P121 million, from P23 million in 2006. We fully expect these revenue and operating income trends to continue in 2008.
Most significantly, your Company ended 2007 with a very strong balance sheet. We had cash of almost P500 million, which keeps us well positioned for aggressive expansion and/or acquisition of other gaming businesses, a number of which we are presently evaluating.
During the year, we increased our equity investment in ISM Communications Corporation from 16.4% to 22.3%. In turn, ISM has been increasing its ownership in the country’s oldest telecommunication company, Eastern Telecommunications Philippines, Inc., to 67.5% as of December 2007. Another 10.2% was acquired in early 2008, bringing ISM’s investment in ETPI to a total of 77.7%. These investments are channeling income to your Company, in fact a total of P102 million for 2007 alone.
In addition, the market value of our equity investments in ISM as of this writing and 2007 is P883 million. Compared to our total investment cost of P379 million, this is an unrealized profit over half a billion pesos.
Supporting National Government Objectives
More than the financial results, the contributions of your Company towards achieving the aims of PAGCOR and the national government cannot be ignored. One of the critical objectives of PAGCOR has always been to stamp out illegal forms of gambling. The agency realizes that simply shutting down jueteng, masiao and other forms of illegal gambling is not enough. It is also imperative to offer a legitimate alternative.
To this end, the products of your Company fit this national objective. Our PAGCOR e-Games Cafés and other products, such as Basketball Jackpot, offer a low-priced form of entertainment and gaming to many who look for fair and legitimate gaming, properly regulated by the government. By offering these legitimate PAGCOR-operated games, we provide venues such that Filipinos need not patronize the unsavory world of illegal gambling operators.
It is also important to note that the PAGCOR e-Games Café business model and the Internet Sports Betting Stations (ISBS) are both attractive opportunities for the small-and-medium-scale businessman to get into profitable enterprises. Today, most of our cafés and ISBS are, in fact, owned by independent entrepreneurs, all acting as agents of PAGCOR.
We also continue to work closely with the Department of Finance and the Bureau of Internal Revenue on their Premyo Sa Resibo program. PSR, as it has become known, has the objective of increasing tax collections by encouraging consumers to ask for Official Receipts. Since its inception in June 2006, it has issued over one hundred million Raffle Entry Numbers, making it the most successful on-going raffle in the country. Today the program continues to award a million pesos every Friday, with over P80 million in prize money given away so far.
Growing our Core Business
The Philippines has a strong regulatory framework supporting the gaming industry, a position that is unique in the ASEAN region. Not only are land-based casinos allowed, but internet-based gaming is also supported. This legal infrastructure is a strong foundation for PhilWeb’s future growth.
Today we have three segments in our core gaming business. The first is our network of PAGCOR e-Games Cafés, essentially internet cafés dedicated to casino games. There are two strategies we are focusing on to grow this segment.
The first and most obvious one is to grow the network itself. By December 2007, we had a total of 76 cafés, 73% more than the 44 cafés we had a year earlier. Café expansion will be more aggressive in 2008, expanding into the provincial areas. Second, we are strengthening the player base per café, by expanding the number of games available and improving marketing efforts.
The second segment of our gaming business is sports betting. A wager on a sports event differs from a bet on a casino game, in that the outcome of a sports event is based on skill rather than chance. Our sports betting business has a network of almost 300 Internet Sports Betting Stations. Each of these independently operated kiosks sells various games, including our core Basketball Jackpot product and newer games like Magic 5 Spin to Win and Lucky Wheel.
Mobile is the third and most promising segment of our gaming business. On a worldwide basis, gaming via mobile phone is one of the most rapidly growing segments of the industry. We believe that this technology offers the most capability of combating illegal gambling, which is mostly confined to small-scale bets that are manually collected.
In September 2007, we launched the country’s first text-based lottery, Txtingo, which offered a five million peso, progressively increasing jackpot. At a price of P9.00 per text, our mobile lottery has attracted a faithful core group of users. We are planning on increasing the marketing efforts behind Txtingo and PSR, our first mobile raffle, in 2008, such that this segment should become even more profitable for PhilWeb in the future.
Looking Beyond the Core
In early 2008, PhilWeb continued its strong growth and at a faster rate of acceleration. As of the date of this writing, we had 91 PAGCOR e-Games Cafés in operation, an increase of 15 from the year-end figure. Gross bets have reached P3.5 billion a month, a rate of growth over the previous year of some 70%. Daily bet volumes average over P120 million. Significantly, the number of players in our cafés has been averaging close to 40,000 per day, a three-fold increase from that of last year. Casino winnings are averaging over P3 million per day or a growth rate of 75% over last year. All these indicators have been most encouraging and by year-end 2008, we see another quantum leap in PhilWeb’s bottom line profitability.
As we look back at 2007, we would like to express our deepest appreciation to our café, kiosk and mobile players, whose growing numbers attest to the success of our strategies; to our business partners, whose support has been invaluable in bringing innovation to gaming; to our employees, whose dedication, integrity and loyalty have been instrumental to our growth; and to our Board of Directors and shareholders, whose faith has enabled us to chart the right course.
We look forward to the coming years, with your Company reaching for ever greater heights.
30 April 2008
Roberto V. Ongpin
Chairman |
Dennis O. Valdes
President |
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