9 Aug, 2012

Gambling Group Targets Cambodia, Indochina As Next Growth Areas

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HONG KONG, August 07, 2012 – (BUSINESS WIRE) – Entertainment Gaming Asia Inc. (NYSE MKT: EGT) (“Entertainment Gaming Asia” or “the Company”), a gaming company focused on emerging gaming markets in Pan-Asia,  reported operating results for the second quarter ended June 30, 2012 and reviewed recent corporate progress.

Highlights:

• Record quarterly total revenue from gaming operations of $5.2 million for the second quarter of 2012
• Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and non-cash charges) of $2.8 million for the second quarter of 2012
• Net income of $484,000 for the second quarter of 2012
• Average consolidated win per unit per day (WUD) for the slot operations (formerly referred to as the participation business) of $147 for the second quarter of 2012
• Gaming chip and plaque sales of $978,000 for the second quarter of 2012, representing nearly 50% of total gaming chip and plaque sales for the full year 2011
• Cash balance of $11.8 million as of June 30, 2012
• Total debt reduced to $3.1 million as of June 30, 2012
• In May 2012, the Company opened the mass market floor of Dreamworld Pailin in Cambodia, its first casino development project. Operations are in the early ramp-up stages and results are not yet normalized.
• Dreamworld Poipet in Cambodia is under development and expected to open in the first quarter of 2013.
• The Company has secured a $2 million gaming chip and plaque order from an existing customer to be delivered in the third quarter of 2012.

Editor’s Note

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The growing presence of gambling organisations in Indochina is almost certain lead to accompanying social problems such as gambling addiction, indebtedness and organised crime. It will also lead to pressure on other countries such as Thailand to legalise casinos, and on Laos and Myanmar to enhance the “competitiveness” of their own fledgling casino operations.

Over time, such illusionary get-rich-quick expansion in a region that is clearly unprepared for it could prove to be one of the worst side-effects of the tourism boom.

Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, commented, “The second quarter of 2012 was a strong quarter for our slot and gaming chips and plaques operations. Our slot operations experienced record revenues due to strong performance at NagaWorld, improvements in the Philippines and the addition of our newest operations in Thansur Bokor during the quarter. Consolidated average daily net wins were a solid $147 per seat for the quarter. Our gaming chips and plaques business posted strong revenue growth and we have secured a $2 million order for delivery later this year. In May 2012, we opened the mass market floor of Dreamworld Pailin and are working to ramp up revenues for this operation. Further, we have been actively developing our next project, Dreamworld Poipet. With steady recurring cash flow from our slot machine operations and meaningful improvement in our casino chips and plaques business, we are now focused on the execution our new casino development strategy.

Q2 2012 Financial Review

The Company effected a 1:4 reverse stock split of its common shares on June 12, 2012. All historical share amounts and share information presented have been proportionally adjusted to reflect the impact of this reverse stock split, including basic and diluted weighted-average shares and shares issued and outstanding.

Entertainment Gaming Asia’s second quarter of 2012 consolidated revenue was $7.6 million, an increase of 13% compared to $6.7 million in the second quarter of 2011. The increase was due to solid improvements in the Company’s gaming operations and sales of gaming chips and plaques.

Revenue from gaming operations was $5.2 million in the second quarter of 2012, an increase of 14% compared to $4.6 million in the second quarter of 2011. The increase reflected gains from the Company’s slot operations (formerly referred to as the participation business) in both Cambodia and the Philippines and approximately $213,000 of incremental revenue from Dreamworld Pailin, which opened in May 2012.

The Company achieved record performance of $5.0 million in revenue for its slot operations during the quarter driven by strong growth in both its Cambodia and Philippines operations. In Cambodia, the Company’s performance was driven by strong average WUD from its operations in NagaWorld, which reached $258 for the quarter. Cambodia slot revenue also included incremental revenue from its operations at Thansur Bokor, which officially opened in May 2012; however, this operation created a drag on average Cambodia WUD as it is still ramping up. In the Philippines, the Company’s operations continued to benefit from strategic management of its slot machine placements and marketing initiatives focused on its most promising venues in this market. Despite a reduced machine base primarily due to a venue closure during the quarter, both revenue and WUD for the Philippines operations improved during the quarter.

		Slot Operations
		WUD (1)
				Q2:12		Q2:11		Y/Y ∆
		Cambodia		$215		$250		-14%
		Philippines		$72		$61		18%
		Consolidated		$147		$147		–
		EGM Seats in Operation
				6/30/12		6/30/11		Y/Y ∆
		Cambodia		818		718		14%
		Philippines		623		784		-21%
		Consolidated		1,441		1,502		-4%

 

(1) Represents WUD for the Company’s slot machine operations. It excludes EGM seats in operation during venue soft launch opening periods, if applicable, and includes cash payments for venues for which revenue is recognized on a cash basis. Had such applicable seats been included and revenue recognized on an accrual basis for the second quarter of 2012, WUD would have been $208 for Cambodia, $74 for Philippines and $148 for the consolidated average. Had such applicable seats been included and revenue recognized on an accrual basis for the second quarter of 2011, WUD would have been $230 for Cambodia, $60 for Philippines and $139 for the consolidated average.

 

Revenue from other products was $2.4 million in the second quarter of 2012, an increase of 11% from the second quarter of 2011. The increase was a result of higher sales of gaming chips and plaques, which were $978,000 for the second quarter of 2012 compared to $274,000 in the prior-year period.

The solid top-line growth combined with higher expenses primarily related to start-up and general operating costs associated with its new casino operations resulted in adjusted EBITDA of $2.8 million for the second quarter of 2012 compared to $3.3 million for the second quarter of 2011.

Entertainment Gaming Asia reported net income of $484,000, or $0.02 per share, on a weighted average diluted share count of approximately 31.3 million shares for the second quarter of 2012. This compared to net income of $307,000, or $0.01 per share, on a weighted average diluted share count of approximately 30.1 million shares for the second quarter of 2011.

Focus on Improving Slot Returns

The Company continues its efforts to improve returns on its slot operations by focusing on its higher potential venues. These efforts include the closure of under-performing venues and the strategic movement of machines to focus on those higher performing venues. During the second quarter and through August 1, 2012, the Company added one slot operation location, Thansur Bokor, and terminated three slot contracts, of which two were in the Philippines and one was in Cambodia. The three terminated contracts comprised approximately 232 seats of which 84 have been redeployed so far to other higher potential locations.

Strengthening Gaming Chips and Plaques Operations

The Company continued to focus on improving the financial performance of its other products division, which includes the manufacture and sale of gaming chips and plaques. Through its expanded product offerings, which include new styles of chips and more innovative, state of the art security features, and its targeted marketing programs, the Company has further strengthened its existing customer relationships in its core markets of Australia and Macau and is working to broaden its customer base in existing and new geographies. As a result, the Company recorded strong revenue growth for this business during the quarter driven by customer reorders and secured a $2 million order from an existing customer to be delivered in the third quarter of 2012. Further, the Company has begun its expansion and improvement plans for the manufacturing plant, which are expected to increase operating efficiencies and automation.

While these combined efforts are not expected to minimize the normal fluctuation in quarterly sales flow of this business segment, the Company anticipates they will drive meaningful long-term improvement in revenue and gross profit for these operations.

Dreamworld Pailin Ramping Up

In May 2012, the Company opened the mass market floor of its first casino development project, Dreamworld Pailin. Dreamworld Pailin is located at the Cambodia-Thailand border on a growing trade route connecting the two countries. This was a milestone event as it marked the Company’s first casino opening in Indo-China and begins a new phase in its growth strategy.

The mass market floor currently includes 26 popular table games such as baccarat and dice games and an attractive suite of 50 slot machines. Dreamworld Pailin also has two VIP rooms with a total of four tables which are not yet open. These operations are still in their infancy as the Company expedited the opening date in the second quarter of 2012 to fast-track operation of the casino’s mass market floor and establish its presence in the local market.

Given the early stage of the operations and the fact that the casino is not yet fully operational, results are not normalized. The Company is working on a number of marketing initiatives to continue to ramp up the operations.

Dreamworld Poipet Update

The Company’s next development project is Dreamworld Poipet, a stand-alone slot hall in an existing popular casino in Poipet at the Cambodia-Thailand border. Poipet is an established gaming market and one of the most significant border crossings between Cambodia and Thailand. It is located approximately 1.5 hours by car from the Pailin Province of Cambodia.

This $7.5 million project will be constructed as a stand-alone extension of an existing casino owned by a local Cambodian company and will connect to the main casino’s table game floor. Dreamworld Poipet will operate under the casino owner’s gaming license. It is expected to house 300 EGM seats, which will include multi-player electronic tables and live dealers to provide players the full casino experience. The Company and casino owner will share the daily net win generated by the EGMs in the Company’s slot hall and certain operating costs on a 40%/60% respective basis.

The Company held the ground breaking ceremony in May and is working on completing the sub-structure work and finalizing the architectural plans. Full construction efforts are expected to begin in August 2012. Based on the current timeline, the Company expects to open Dreamworld Poipet in the first quarter of 2013.

Clarence Chung, Chairman and Chief Executive Officer of Entertainment Gaming Asia, concluded, “We are focused on the execution of our plans to develop and operate regional casinos and gaming venues under our Dreamworld brand in the Indo-China region. With the opening of our first project, Dreamworld Pailin, we have taken the initial steps in achieving our long-term objectives for this growth strategy. With a strong operational team in place, we are working diligently to ramp up Dreamworld Pailin’s operations and believe this property has facilitated the development of strong systems and controls for the benefit of future expanded casino operations. We are also enthusiastic about the potential for Dreamworld Poipet, which is currently under development in the promising Poipet market. With our focus on professional management, quality gaming products, and superior customer service, we believe our Dreamworld properties will be quality leaders in their respective markets and will achieve meaningful long-term growth that reflects the true earnings potential of our regional gaming model.”

Entertainment Gaming Asia hosted a conference call and simultaneous webcast at 8:30 a.m. ET on August 7, 2012, both of which were open to the general public. Questions and answers were reserved for call-in analysts and investors. Interested parties may also access the live call on the Internet at www.EGT-Group.com. Allow 15 minutes to register and download and install any necessary software. Following its completion, a replay of the call can be accessed for thirty days on the Internet at www.EGT-Group.com.