Half Year Report - February 2010

Feb 24, 2010

ASX RELEASE – Wednesday 24 February 2010

NET PROFIT AFTER TAX UP 12%

• INTERIM DIVIDEND DECLARED • SUCCESSFUL LAUNCH OF THE ONLINE LOTTERY PLATFORM   Leading Australian online lottery company Manaccom Corporation Limited, today announced a 12% increase in Net Profit after tax to $1.15 million for the half year to December 2009. A 0.5 cents (half cent) per share fully-franked interim dividend has been declared which is the Company’s fifth consecutive half year dividend. The result was a combination of a $2.7 million net profit before tax from the online lottery division and a $480,000 net loss before tax from the software distribution division. The net loss in the distribution division was due mainly to the change-over from Trend Micro to McAfee following the signing of a 3 year contract with McAfee in May 2009. The $2.7 million half year net profit in the online lottery division represents a 202% growth over the previous corresponding period from revenue up 98% to $32.5 million, driven particularly by strong growth in new customer signups to www.ozlotteries.com as well as the successful 5 year exclusive agreement with NSW Lotteries signed in December 2008. “The excellent result from the online lottery business proves our online lottery platform can be used by a major lottery operator such as NSW Lotteries to achieve growth via an internet channel”, said Mr Mike Veverka   Performance of the online lottery business The performance of the online lottery business for the half year was primarily due to: 1. Record website traffic. 2. Improved customer acquisition methods. 3. Improved customer retention methods. 4. Operation of the NSW Lotteries internet channel.   In June 2009 an Australian record $90 million jackpot substantially increased the size of the player database which translated into higher sales during the following lower jackpot months. This effect can be seen by a 26% increase in sales from the June 2009 half year to the December 2009 half year despite the absence of record jackpot in the December 2009 half. The business has had a good start in 2010 with a record January result 58% higher than in January 2009. This was as a result of the much larger customer database and two large jackpots ($30 million Saturday Lotto and $30 million Oz Lotto). The privatisation of NSW Lotteries is expected in the second half year with the new owner contractually required to continue the exclusive 5 year relationship with Manaccom until December 2013. “We will be working closely with the new owner to demonstrate the advantages of our online lottery model with the aim of securing further agreements beyond December 2013 to ensure continuing benefits for both parties”, Mr Veverka said.   Performance of the software distribution and publishing business In May 2009, Manaccom signed a 3 year exclusive agreement with McAfee to distribute their products through key mass merchant retailers in Australia and New Zealand. Being a new brand to Manaccom this meant a period of change. Not only did the stock need to be changed over in the channel but also the mindset in the market. The Manaccom model is now behind McAfee, the largest dedicated internet security company in the world. During the change over period a drop in revenue was anticipated with an increase expected over the duration of the agreement. The division also underwent a change in management in November 2009 including the resignation of Mr Ian Mackay who served as manager of the division and also deputy chairman of the group. The group CEO, Mr Mike Veverka has stepped into this role and has begun the task of improving the division. "While industry reports show that the McAfee market share has increased, it has not increased as fast as we would have liked", said Mr Mike Veverka. "We are close to an agreement with McAfee on a new plan designed to accelerate the growth of McAfee's market share. With the support of McAfee, our key retail partners and the major release of McAfee 2011 later this year, we will be able to improve the performance of the division", he said.   Future Growth The bulk of future growth is expected to come from the online lottery business, both domestically and internationally. Plans are being put into place for longer term growth from the online lottery business with expansion plans into USA, Canada and Europe. Discussions are progressing with a number of major lottery operators. “We have been investigating the US market which we believe to be close to allowing online sales of US lotteries. This is a huge opportunity for Manaccom as very few companies worldwide can match our experience, marketing and software as a platform for online lotteries”, said Mr Mike Veverka. “The European online lottery market is another huge opportunity we are investigating for long term growth”, he said.   About Manaccom Manaccom began selling lotteries online in 2000 with state based charity lotteries in Queensland. In 2005 the Company acquired TMS Global Services Pty Ltd which gave the company access to the national lotteries via agreements with NSW Lotteries and Tattersals. 2009 was a breakthrough year following the signing of a 5 year exclusive agreement with NSW Lotteries in December 2008. The Company has developed the popular www.ozlotteries.com website from which it sells games such as OzLotto and Powerball. This website has been developed in a way that can also be used by major lottery operators, such as NSW Lotteries, as their internet channel. In 2007 the Company acquired a software distribution and publishing business that markets popular software titles such as McAfee through large retailers and independent resellers in Australia and New Zealand.   Manaccom reported a string of record results in the 2009 financial year, including the following: • Net Profit After Tax grew 78% to $3.0 million. • Revenue grew 57% to $59 million. • Dividends grew 50% to 1.5c per share. • EBITDA grew 77% to $5.1 million.   For further Information: Mike Veverka CEO and Executive Director Ph: 07 3831 3705