The past year was a banner year for PhilWeb Corporation, as your Company turned a profit for the first time since its inception. Net Income was P116 million, driven by the strength of our Internet Casino Stations (PEGS) and Internet Sports Betting Stations (ISBS). This profit turnaround was due to the strategic redirection executed by top management three years ago, refocusing the Company on gaming. While the profit picture is satisfying, we have barely scratched the surface of what is possible. The total Philippine gaming market is worth P100 billion annually. With our continuous efforts to expand our existing businesses and introduce new games of chance to the local market, we are poised to become a significant, if not the dominant, gaming service provider to PAGCOR in the years ahead.
ISM Communications Corporation is proving to be a jewel in our financial statements. Based on stock market data as of the end of April 2007, the market value of our investment in ISM is over P800 million, although our total acquisition cost only amounts to P115 million. The unreflected gain we could realize from ISM illustrates how our financial statements do not fully show the strength of your Company.
It is also noteworthy that PhilWeb had over P480 million in cash at yearend, an asset that management is already aggressively planning uses for to substantially grow our business in the near future.
Vote of Confidence
In May 2006, ePLDT, the information and communications technology arm of the Philippine Long Distance Telephone Company, completed the purchase of 20% of PhilWeb, a deal valued at over P400 million. Shortly thereafter, they purchased an additional block from the market, bringing their total shareholdings to 25.5% of the Company. The size and timing of these deals are a vote of confidence in PhilWeb by the PLDT group, the most profitable company in the country and also the largest by market capitalization. As a significant minority shareholder, ePLDT has been working hand-in-hand with us on several key projects, including the launch of a peso-based, ATM-enabled electronic wallet that allows seamless pay-in and payout for internet-based gaming. This “e-Pitaka” will be a platform for significant growth – as it enables gamers to play both web- and mobile-based games using a single e-wallet.
Internet Casino Stations
In July, we changed our casino software provider to Real Time Gaming (RTG), one of the top gaming software providers in the world. The change in software was much appreciated by our players, resulting in continuous, month-on-month growth in bet volumes – by December, total bet volume was 2.5 times the July figure. On an annual basis, total bet volume grew 60%, from P10.8 billion in 2005 to P17.3 billion in 2006. As of early 2007, bet volume growth remains strong, with days when more than P100 million is wagered in our PEGS. In revenue terms, we grew 46% year-on-year, from P71 million in 2005 to P102 million in 2006.
In 2007, we are focusing on three areas to exponentially grow our Internet Casino business.
Last year, we opened a modest number of Internet Casino Stations, bringing our total PEGS up to 44 as of December. In January 2007, PAGCOR increased the operators’ commission rate from 25% to 28% of gross winnings, thus making the PEGS business more profitable to the operators. With this more attractive commission rate, we are aggressively expanding, with a target to reach 100 PEGS by yearend.
A second area of growth will come from introducing new casino games into the existing suite of games. Working with RTG, we have launched new slot machine variants and card games to attract a wider user base. We have also partnered with Digiwave, a Korean software provider, and introduced Korean casino games to serve this fast-growing niche market. We are also working with other software providers on various multi-player games such as mahjong, poker, tong-its and pusoy dos.
A final area of significant growth in our Internet Casino business will be the long-awaited launch of Play Away in 2007. Play Away is our brand for online play of e-Casino Filipino games. Gamers from around the Philippines will be able to play their favorite casino games in the comfort and privacy of their homes or from any place online, and at any time they wish. Given that our current stellar PEGS business is generated from only an average 11,000 players per day, and that by some estimates there are over 4 million computers connected to the internet in the country, we have very high hopes for this new business.
Internet Sports Betting Stations
Basketball Jackpot has seen remarkable growth from 2005, with PhilWeb revenue up 2.5 times year-on-year, from P8 million to P26 million. Tracked on a bet-volume basis, the numbers look just as attractive. Total 2006 wagers on Basketball Jackpot came to P267 million, a 33% growth over the 2005 total of P201 million.
With the Filipino penchant for basketball, we see even greater growth for our ISBS business and Basketball Jackpot in 2007. In the latter case, Basketball Jackpot will also be made available to online users, as part of the Play Away system.
As far as ISBS are concerned, we have currently introduced new betting terminals to our pool of operators. These new terminals allow ISBS operators to sell more games to players, thus enabling the stations to keep selling even on days when there are no basketball games. Now that the new terminals are in place, we will also be expanding the number of ISBS, with a target of 300 ISBS by yearend.
A third area of growth for Basketball Jackpot will be to introduce a mobile, text-based version of the game, which we are calling Basketball Ending. Given that mobile phones outnumber computers by at least a 10 to 1 margin, we expect a substantial increase in bet volumes from this enhancement.
Premyo Sa Resibo (PSR)
PSR marked several firsts for PhilWeb. It was our first text-based game, launched in June 2006. The PSR program is a cooperative effort between the Bureau of Internal Revenue (BIR), the Department of Finance, PAGCOR and PhilWeb with the objective of encouraging consumers to ask for Official Receipts (OR).
This program solidifies our role as a key supporter of government’s revenue-increasing efforts. At the end of 2006, the BIR was looking at how we could continue to cooperate in 2007, as they had seen significant increases in their tax collection efforts as a result of PSR.
PSR works by having consumers text in OR details, for which they are given raffle entry numbers corresponding to the value of the amount sent in. Each raffle entry costs just P1.50. With PhilWeb’s assistance, BIR analyzes the data from the text database, detecting anomalies such as spurious and unregistered receipts.
By yearend, the BIR data-mining team reported uncovering over 70,000 anomalies a week. Finance Secretary Margarito B. Teves was quoted saying the government was hoping to collect at least 10% or P 6.5 billion in uncollected taxes through PSR. In 2006, PSR generated a total of 27 million entries. Revenue showed a strong monthly growth rate but was just modestly less than the prize money guaranteed by the Company. In 2007 though, revenue is outpacing prizes as PSR has moved to a new weekly format that has spurred immediate texting in of OR’s.
A further enhancement will be the introduction of PSR Jackpot in early 2007, which will offer a progressive prize to PSR entrants. We can already see that the PSR program is becoming a significant revenue generator for the Company.
A Look Forward
We are already looking forward to 2007 and beyond, having planted the seeds for years of exciting growth for the Company.
Among the products we will be introducing are other mobile-based games, such as Txtingo9. This load-based, daily lottery game will be offering an initial prize of P5 million, progressively increasing whenever no one is lucky enough to hit the jackpot.
Another 2007 launch will be TV Sabong, our long-awaited, internet-based cockfighting game. Admittedly, this game has had some delays, primarily from lining up the cockpits willing to broadcast their matches to other cockpits. This roadblock has recently been hurdled with our agreement with one such “originating” cockpit to be the source of matches and the game should be launched in 2008.
More importantly, we are also working on other gamingrelated projects that will strategically propel PhilWeb into an even stronger relationship with PAGCOR. Our contributions to PAGCOR and other government agencies are becoming more significant and PhilWeb management will to continue to focus on building on this symbiotic relationship to generate shareholder value.
In closing, we thank all of you, our stockholders, for the support you have shown over the past years. We are proud that we have finally delivered profitability to your Company and look forward to achieving even more in the years to come.
2 May 2007
Roberto V. Ongpin
Chairman |
Dennis O. Valdes
President |
