Profile: Martin Weigold CFO of PartyGaming

It was late March and Martin Weigold was tired. He had just worked another
18-hour day, something that had become a regular occurrence over the previous
three months. Since joining online gambling company PartyGaming as chief
financial officer at the beginning of the year, the workload had been
unremitting.

He knew it would be demanding, but since the board decided to pursue a
listing in London, the pressure had been relentless, and there was no sign of
any let up.

For Weigold the stakes were as high as they had ever been in his career. He
had worked on a float before when he joined Fox Kids Europe as CFO prior to its
IPO on Euronext, but this was a job of a completely different scale.

He was sitting on a company with the potential to raise more than £5bn upon
listing, a figure that would place a value on the business above that of Rolls
Royce, ITV or Morrisons. A place on the board of a FTSE100 company beckoned, it
was the opportunity of a lifetime, but there was still so much to do, there was
so much that could still get in the way of the dream.

Endless roadshows would have to be attended and tough questions would have to
be fielded as the group wooed investors. Then there was the small matter of due
diligence.

PartyGaming was a private company and its reporting would have to be muscled
up to meet the standards of a listed group.

It meant Weigold was going to have to produce a set of audited accounts for
the last three years, virtually from scratch, and then go a step further by
converting all those results into IFRS.

Time was running out, the group wanted to float in the summer. It was going
to be tough, maybe the toughest thing Weigold and his fellow board members had
ever attempted, but they had put their cards on the table. There was no turning
back now.

Six months down the line, Weigold strolls into PartyGaming’s City offices,
just a block down from the Bank of England, as CFO of one of the FTSE100’s most
colourful companies. He is visibly more relaxed than he was in March, and admits
that since PartyGaming catapulted into the LSE’s blue chip index at the end of
June the hours have ‘dropped back a little bit’. He has no regrets.

‘It was an incredible experience. The decision to go on the board involved a
fair degree of risk, but the challenge was equally attractive and, more
importantly, I thought we could do it,’ Weigold says, recalling the IPO.

‘Pretty much everyone was working 18 hours a day, seven days a week for six
months. There were times when we wondered whether we were going to make it, but
we all remained focused on the goal, even though at times it looked far away.’

During the process PartyGaming decided to go outside the Big Four when it
chose its auditor.

Weigold says the decision to go with BDO Stoy Hayward, now the only firm
outside the Big Four with a FTSE100 audit, was simply because the mid-tier firm
was ‘the industry’s leading authority’.

‘We wanted the best advice so we decided to go with the recognised leader.
It’s as simple as that,’ Weigold says.

But the PartyGaming CFO isn’t one for dwelling on past success.

‘The story doesn’t stop at the listing,’ he says. ‘The listing is just the
beginning and now we want to deliver on the promises that we made and that is
going to be just as much work going forward as the listing. It is still a very
demanding role.’

Demanding is something of an understatement when one considers the roller
coaster ride PartyGaming has endured since the stock began trading.

In the weeks following the listing, the group’s share price soared by more
than 30% as investors rushed to get a piece of what Weigold describes as ‘one of
the few growth stories out there’.

That all changed when PartyGaming issued its first set of interim results in
September. It was a stellar set of numbers. Revenue for the six months to the
end of June 2005 was up 81% on the same period the previous year at $437.4m
(£255.4m) and operating cashflow climbed 67% to $270.9m.

But along with the strong numbers came a warning that growth in the sector
may be slowing, and suddenly a share price that had been on a steady upward
curve went into freefall. Within a day, a third of PartyGaming’s market value
had been wiped out, and over the coming months it dropped even further, sinking
as low as 71p. The 150p highs seemed a distant memory.

‘The share-price reaction was more than we anticipated. We obviously expected
it to come down but we didn’t expect it to come down to where it was at – that
was a surprise to us,’ Weigold says. ‘A lot of short-term money had bought the
stock just before the interims, anticipating that we were going to exceed our
numbers. We didn’t realise that when we cautioned the market .’

As much as the warning on trading hurt the stock, Weigold is adamant
PartyGaming will always be upfront about its prospects, even if the news is bad.

‘We took the decision at the outset that we are going to be a very
transparent company and wherever we can we are going be industry leader and set
the market leading best practice,’ Weigold says. ‘We weren’t confident that
there were any other companies that were going to come out and say there would
be a slowing in the rates of growth in the industry. We decided to communicate
to the market rather than bury our head in the sand and hope that it would go
away.’

Weigold insists, however, that despite the warning the sector is still a
lucrative one. His frustration with the reaction to PartyGaming’s announcement
is palpable.

‘There are not many companies out there that post revenue growth in excess of
80% and earnings growth of 70%, that is for sure. Those numbers were ahead of
expectation I just want to be clear on the fact first. We also confirmed that we
were going to hit our numbers for the full year,’ he says.

‘The consensus earnings estimate, following announcement, came down for the
following year by around 6% to 8%. I also want to be clear about that because
people have been using words like profit warnings. Well a profit warning is
currently at 10%, which is clearly not the case here.’

Since the slump, PartyGaming’s stock has clawed its way back and is now
trading at around 95p a share. The group has acquired Multipoker, the largest
online poker site in Scandinavia, new products are coming out at a rate of two a
year and a mobile phone gaming product is being tested.

Weigold believes PartyGaming is a solid business with excellent prospects.

‘The business is still highly profitable and there are substantial growth
opportunities out there,’ Weigold says. ‘Our job is to run the business and
share price will be what it is. All we can do is focus on what we are doing and
not spend time worrying about the share price or what’s in the press because
then you take your eye of the ball.

The US and regulation

In the past year, the issue that has remained inextricably linked to
PartyGaming’s fortunes has been the ongoing concern that US lawmakers will
criminalise online gambling.

The US accounts for the bulk of PartyGaming’s revenues and any US legislation
outlawing gambling on the internet would put a large dent in the group’s
earnings. It is a risk Weigold is well aware of, but one that he believes is
under control.

Weigold says numerous attempts have been made in the US senate to introduce
laws banning online gaming and none have been successful.

‘The usual reason that these bills fail is because they inevitably involve
carve outs to special interest groups,’ he explains. ‘The special interest
groups are typically the horseracing lobby, the Native American Indian Gaming
Association and the American Gaming Association and they have all got different
interests.’

According to Weigold, any ban on online gaming would have to extend to these
powerful lobby groups. ‘For the state lottery and the horseracing lobby, there
are very lucrative revenue streams. This legislation needs carve-outs for these
groups to get through, but this flies in the face of World Trade Organisation
rules. It’s clearly inconsistent, but what they have said is that if you want to
go down that route you have to do everything and, of course, they can’t.’

PartyGaming continues to monitor the situation, but Weigold is not overly
concerned. ‘If you read some of the public filings and examine what the senators
involved in congress are actually saying, it is virtually impossible to pass
this legislation. They have been trying for seven years unsuccessfully,’ he
says.

‘It is obviously something that we watch very closely, but our intention, in
terms of where the market is likely to land up, is to operate in a regulated
market place going forward and that is the best for everyone.’