Message from the Chairman and President
Dear valued shareholders,
The year 2008 marked a seminal point in the history of your Company, PhilWeb Corporation. With three years of solid financial results behind us, we are poised to move to a higher level of corporate performance where dependable profitability generates consistent dividends for investors.
Recession-proof Revenues
Indeed, the past three years of strong growth have shown that we have a remarkable, recession-proof core business, our PAGCOR e-Games Cafés or PEGS. This café-casino business is only in its early stages of growth and will be a fantastic revenue driver for many years.
In 2008, your Company’s revenues totaled P450 million, 68% higher than the previous year. Majority, but not all, of these revenues were generated by our core PEGS business.
We ended 2008 with 121 cafés, 45 more than we had in December 2007. While opening 45 cafés was our fastest café-opening rate ever, this is only a 59% growth year on year. It is important to note, when comparing the pace of revenue growth to that of café growth, that the former exceeds the latter. Thus, the average café’s revenue continues to grow even as more cafés open up.
This may seem paradoxical since one might expect a certain amount of cannibalization as new cafés are opened. Rather, this speaks of the infancy of the business model. At this stage, we can compare the PEGS Cafés today to other successful franchises when their brands were initially launched.
With only a few cafés open, not all consumers are aware of the PEGS product and the entertainment prospects it offers. As in any successful franchise, in its infancy, no one would have been aware of their excellent products with only a few stores around. There needs to be a few hundred stores open before consumers become fully aware of the product and what it offers.
Once this “tipping point” is achieved, only then does the product get mainstreamed in the minds of consumers. As profitable as the PEGS model is, we are not yet at this stage, which is why our cafés continue to experience high average revenue growth.
2008 Growth Highlights
It is also interesting to note that our strongest performing month in 2008 was December, which is traditionally not a strong performer considering all the holidays and events during the month. Instead, December 2008 turned in not only a spectacular performance, it also set the records for the strongest days of the PEGS café business. On December 23, we set the record for Gross Bets in one day with a total of P239 million wagered in our cafés. Three days later, we set the record for total daily Casino Win, with a total of P8.14 million for the day.
Some of our other 2008 growth highlights vs. 2007 include:
- Number of Players per Day grew 113%, to 17,574 from 8,239
- Total Bet Volume grew 65%, to P47.2 billion from P28.6 billion
- Total Casino Win grew 72%, to P1.47 billion from P857 million
- Total PhilWeb Revenue from PEGS grew 82%
The financial performance of the PEGS café network continues to defy the credit crunch that is affecting so much of the world today. As of this writing, January 2009 had beaten December, February would have beaten January if not for the fact that it has three days less, and March 2009 is currently your Company’s historical best month ever. Total Bet Volume for PEGS reached a record P5.7 billion in March, with a record month Casino Win of P194 million or a win rate of 3.4%.
Early April is already showing promise, with the record for daily Casino Win reset with a new total of P8.55 million on April 4. As a result, when compared to the same period last year, we are tracking 107% growth in your Company’s revenue from PEGS. We expect this recession-proof revenue performance to continue, if not accelerate, as we continue to open more cafés this year.
Contributors to Core Net Income
As satisfying as it is to note our revenue growth rates, it is even more heartening to see our other business units doing well and contributing to Core Net Income.
Basketball Jackpot, our sports-betting game sold in Internet Sports Betting Stations, had another consistent and solid year. Premyo Sa Resibo, our mobile raffle, also delivered modest growth. We continue to invest in our mobile businesses, growing our management team and planning more product launches this year, and are confident that this unit will deliver profits in 2009 and beyond.
All these business units contributed to a total consolidated Net Income of P292 million, a 31% growth from previous year and a record for your Company. This Net Income figure includes our equity in the net earnings of ISM Communications Corporation, totaling P61 million in 2008, a drop from the P102 million that was contributed in 2007. Taking into account only the Net Income contributed by our core gaming businesses, our Core Net Income had a growth rate of 92%.
Stellar Cash Flows
One measure of our financial performance that should not be missed is our stellar cash flow. At yearend, our total cash bank balance was P702 million, a growth of P206 million or 41% from a year ago. We focus very keenly on cash management in our gaming businesses, never allowing betting on credit and reconciling all accounts on a daily basis. By all measures, all our financial condition is in excellent shape.
Partnering with PAGCOR
The Philippines has a unique position in the ASEAN region. It is the first country to have established a strong regulatory framework supporting the gaming industry, one that has now been in place for close to thirty years, through the Philippine Amusement and Gaming Corporation or PAGCOR. On July 11, 2008, Congress reaffirmed this regulatory superiority, by passing Republic Act 9487, known as the PAGCOR Charter, which extended the life of PAGCOR for "another period of twenty-five years, renewable for another twenty-five years."
With this regulatory foundation in place, PAGCOR can focus on increasing the revenues that it delivers to the Philippine Government. PAGCOR is the third largest contributor of revenues to the government, after the Bureau of Internal Revenue and the Bureau of Customs. We continue to work very closely with PAGCOR to deliver new gaming opportunities to tourists and Filipinos.
The PEGS Café expansion fits in nicely with PAGCOR’s growth objectives. There are now 13 PAGCOR land-based casinos nationwide. There are not many more areas where a full-blown, land-based casino, with its huge capital outlay and operating costs, makes financial sense. The PEGS Café model involves comparatively minimal capital and operating costs, and is thus perfect for penetrating many provincial cities.
Also among our PAGCOR-related projects for 2009 are plans to double the number of outlets that offer our Basketball Jackpot game, by making this game available in our PEGS Cafés. We also plan to enhance the game by offering NBA games, as well as the current PBA, PBL and UAAP games it covers. As of this writing, PAGCOR has already approved our NBA Ending product and we are rolling it out in time for the NBA playoffs that runs from now until June.
We are bullish on the ability of NBA Ending to increase revenues for Basketball Jackpot, as there are over 1,300 NBA games in one year, compared to about 300 for the PBA, PBL and UAAP combined.
We also reinvigorated our kiosk network offering Basketball Jackpot last year, offering enhancements like a thermal printer, a stand-alone computer and new signage. We got rid of some unprofitable sites and opened new ones, thus strengthening the entire network.
Mobile continues to be a growth area for your Company, working hand-in-hand with PAGCOR. The Philippines continues to be the text capital of the world, with 1.3 billion texts sent per day. Most of these are simple SMS messages, of course, but the volume for games and gaming is growing as well, as Filipinos learn to use the phone for entertainment.
In 2008, we tripled the headcount of our Mobile group, hiring more managers with telco and VAS experience. This group will be launching several new products this year, as well as tweaking existing ones to enhance their profitability.
Looking Beyond
Unlike many industries that are playing it safe during the current worldwide recession, your Company looks at the near future with great optimism. There are many opportunities in front of us and we are bullish that we can create more shareholder value from these projects.
For example, today we are the largest operator of café- or kiosk-based gaming. As of this writing, we have 138 PEGS Cafés and 155 Basketball Jackpot kiosks, with 50 more cafés in the pipeline. This network model will work in many countries where the population cannot afford to own their own computers and connects to the Internet via cafés. It can also work in countries where there is poor credit card penetration or where people prefer to pay cash for gaming entertainment. We are working on several opportunities where we can “export” the PEGS model to these countries.
By the end of 2009, as a result of our continued strong profitability, we expect to have positive Retained Earnings on our Balance Sheets. This financial situation, when combined with our robust cash position, brings into play the prospect of distributing dividends to stockholders.
We also continue to be on the constant lookout for potential acquisitions of companies involved in the gaming industry. Many over-leveraged companies, both local and international, will find themselves in financial distress during this worldwide credit crunch. It is a time when financially strong companies like us can seek further growth.
As we look forward to delivering on these opportunities to you, our stockholders, we would also like to thank you for the faith you have shown us over the past years. It is your unwavering support that has enabled us to work hard towards delivering on the great promise and potential of your Company.
30 April 2009
Roberto V. Ongpin
Chairman |
Dennis O. Valdes
President |
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