11 March 2015

 

bwin.party digital entertainment plc

 

Audited results for the year ended 31 December 2014

 

Norbert Teufelberger, Chief Executive Officer, said:

 

"We have made solid progress this year in growing our share of revenues from nationally regulated and/or taxed markets, increasing our mobile footprint and reducing our cost base.  However, the full year impact of ISP blocking in Greece coupled with the structural decline of regulated poker markets in Continental Europe affected our overall financial performance for the year. 

 

"Having announced our shift to a label-led approach in August, we are now accelerating our transformation.  This programme is already improving our operational effectiveness and customer focus, both of which are key drivers of our long-term financial performance, with particular opportunities flowing from the commercialisation of our technology through our new Studios business unit."

 

Key points

 

●     Total revenue of €611.9m (2013: €652.4m) reflected the full year impact of ISP blocking in Greece and further declines in poker, partially mitigated by the FIFA World Cup; nationally regulated and/or taxed markets represented 56% of total revenue (2013: 53%)

 

●     Gross gaming revenue through mobile/touch grew by 99% to €153.2m (2013: €76.9m) with solid growth across all verticals

 

●     Planned cost reductions of €30m within Clean EBITDA were exceeded and a further €15m of additional savings remain on-track for 2015

 

●     Clean EBITDA^~ of €101.2m (2013: €108.0m) declined primarily due to lower revenues and increased start-up losses in the US

 

●     Non-cash impairment charge of €104.4m (2013: €9.4m) against poker-related and certain other intangible assets and non-core investments resulted in a €94.3m loss after tax (2013: profit of €41.1m)

 

●     Industry consolidation: discussions with several parties continuing following receipt of indicative proposals regarding a variety of possible business combinations

 

●     Clean EPS^~ of 4.8 € cents per share (2013: 7.3 € cents)

 

●     Current trading and outlook: betting volumes ahead but softer than expected gross win margins resulted in a decline in average daily revenues; trading overall has been broadly in-line with expectations and we remain confident about the full year outlook

 

●     Recommended full year dividend up 5% to 1.89 pence per share (2013: 1.80 pence) making a total FY14 dividend of 3.78 pence per share (2013: 3.60 pence)

 

Financial highlights

Year ended 31 December				2014 €million	2013 €million
Net revenue				563.0	609.4
Other revenue				48.9	43.0
Total revenue				611.9	652.4
Clean EBITDA~				101.2	108.0
Operating (loss) profit				(97.9)	51.9
(Loss) profit after tax				(94.3)	41.1
Basic EPS (loss) per ordinary share
Standard				(11.3)	5.4
Clean~				4.8	7.3

~EBITDA adjusted for exchange differences, reorganisation expenses, income or expenses that relate to exceptional items, and non-cash charges relating to impairments and share-based payments (see reconciliation of Clean EBITDA to operating profit/(loss) below and reconciliation of Clean EPS to Basic EPS in note 9 to the Audited Financial Information).

Taxed and/or nationally regulated revenue

A segmental analysis of the Group's total revenue between markets that are nationally regulated and/or subject to local gaming taxes and those that are not is provided below:

 

Total revenue (€ million) Year ended 31 December	Nationally regulated and /or taxed*		% change	Other		% change	Total		% change
	2014	2013		2014	2013		2014	2013
Sports betting	166.6	158.5	5%	70.5	77.3	(9%)	237.1	235.8	1%
Casino & games	54.0	51.9	4%	149.7	163.7	(9%)	203.7	215.6	(6%)
Poker	36.3	46.8	(22%)	45.4	67.8	(33%)	81.7	114.6	(29%)
Bingo	50.8	52.2	(3%)	1.1	0.9	22%	51.9	53.1	(2%)
Other	37.5	32.9	14%	0.0	0.4	-	37.5	33.3	13%
Total revenue	345.2	342.3	1%	266.7	310.1	(14%)	611.9	652.4	(6%)

*Austria, Belgium, Denmark, France, Germany (sports betting only), Italy, Spain, UK and USA (New Jersey)

 

The shift to a new label-led structure announced in the latter half of 2014 will mean that the segmental reporting for the Group will change for 2015.  Had the new approach been in place since 1 January 2014 then the revenue performance and the split between nationally regulated and/or taxed markets would have been as follows:

 

Total revenue (€ million) Year ended 31 December	Nationally regulated and /or taxed*			Other			Total
	2014		2013	2014		2013	2014	2013
bwin labels	200.4		191.1	164.9		172.4	365.3	363.5
Gaming labels	94.2		112.9	101.8		137.7	196.0	250.6
US	19.7		10.4	-		-	19.7	10.4
Studios	7.9		9.2	-		-	7.9	9.2
Other	23.0		18.7	-		-	23.0	18.7
Total revenue	345.2		342.3	266.7		310.1	611.9	652.4

*Austria, Belgium, Denmark, France, Germany (sports betting only), Italy, Spain, UK and USA (New Jersey)

 

Consolidated Key Performance Indicators

Year ended 31 December	2014		2013		% change
Active player days (million)	54.0		62.4		(13%)
Daily average players (000s)	147.9		171.0		(14%)
Yield per active player day (€)	10.4		9.8		6%
New player sign-ups (000s)	815.1		915.9		(11%)
Average daily net revenue (€000)	1,542.5		1,669.6		(8%)

 

Full details of all of the Group's historic quarterly key performance indicators can be downloaded from the Group's website at: www.bwinparty.com.

 

Performance by business segment

	Total revenue			Clean EBITDA
Year ended 31 December	2014 €million	2013 €million	% change	2014 €million	2013 €million	% change
Sports betting	237.1	235.8	1%	50.1	53.7	(7%)
Casino & games	203.7	215.6	(6%)	43.5	45.0	(3%)
Poker	81.7	114.6	(29%)	7.9	7.7	3%
Bingo	51.9	53.1	(2%)	11.8	8.2	44%
Other	37.5	33.3	13%	(12.1)	(6.6)	(83%)
Total operations	611.9	652.4	(6%)	101.2	108.0	(6%)

 

 

Sports betting

·      Total stakes down 3% to €2.7bn reflecting ISP blocking in Greece, partially mitigated by increased activity around the FIFA World Cup; sports betting active player days overall were down 8% but up 4% in nationally regulated/taxed markets

·      1% growth in total revenue with 5% growth in nationally regulated and/or taxed markets

·      New player sign-ups fell 4% overall but were up 10% in nationally regulated and/or taxed markets

·      Yield per active player day was up 8% from €6.3 to €6.8 due to our focus on more valuable customers and an increase in gross win margin to 10.3% (2013: 9.2%)

·      Mobile/touch: Increased to 45% of gross gaming revenue in Dec 2014 (Dec 2013: 28%)

·      Nationally regulated and/or taxed markets increased to 70% of total revenue (2013: 67%)

·      Clean EBITDA reduced due to the impact of ISP blocking and an increased share of central costs, partially mitigated by a positive contribution from the FIFA World Cup

 

Casino & games

·      Total stakes were flat at €7.0bn (2013: €7.0bn) reflecting increased cross-sell from sports-betting, the full year impact of New Jersey and growth in mobile, offset by lower cross-sell from poker and the impact of ISP blocking

·      Active player days were flat overall but up 5% in nationally regulated and/or taxed markets

·      Yield per active player day was down 7% at €27.3 (2013: €29.2) due to an increase in cross-sell activity from sports betting with sports bettors tending to wager on lower hold games (gross win margins were 3.5% versus 3.7% in 2013)

·      Mobile/touch: increased to 17% of gross gaming revenue in Dec 2014 (Dec 2013: 10%)

·      Nationally regulated and/or taxed markets increased to 27% of casino & games revenue (2013: 24%)

·      Clean EBITDA down 3% due to the full year impact of ISP blocking in Greece and start-up losses in New Jersey, partially mitigated by cost reductions and growth in mobile

 

Poker

·      Total revenue down 29% reflecting challenging conditions in several markets and the loss of Greece, partially mitigated by a full year contribution from New Jersey; poker active player days were down 31%; yield per active player was up 3%

·      Mobile/touch: increased to 10% of gross gaming revenue in Dec 2014 (Dec 2013: 5%)

·      Nationally regulated and/or taxed markets increased to 44% of poker revenue (2013: 41%)

·      Clean EBITDA up 3% due to reduced costs partially offset by start-up losses in New Jersey

 

Bingo

·      Total revenue down 2% due to an increase in bonus rates and further market declines in Italy

·      Active player days down 11%;  yield per active player day up 10%

·      Mobile/touch: increased to 34% of gross gaming revenue in Dec 2014 (Dec 2013: 6%) driven by new Foxy Bingo App released in the UK

·      Nationally regulated and/or taxed markets remained at 98% of bingo revenue (2013: 98%)

·      Clean EBITDA increased by 44% due to a reduction in costs  

Other

·      Other revenue increased by 14% to €37.5m (2013: €32.9m) driven by the contribution from PXP that was acquired by Kalixa at the end of May 2014 and strong growth from InterTrader.  This growth was partially offset by lower domain sales

 

Current trading, full year outlook and final dividend

Trading in the first eight weeks of 2015 has been broadly in-line with our expectations.  While betting volumes as well as overall player activity on sports and gaming (excluding poker) have been above last year, lower margins in sports betting and casino meant that average daily net revenue was down 12% year-on-year.

 

New gaming and other indirect taxes, continued pressures in European poker and the absence of a major football tournament this year represent significant headwinds in 2015.  However, the steps taken during 2014 to reduce costs and the early results from some of our recent product launches and other initiatives mean that we remain confident about the full year outlook. 

 

The Board is recommending a final dividend of 1.89 pence per share, a 5% increase over the prior year making 3.78 pence per share for the full year.

A summary of the current trading performance for the eight weeks to 25 February 2015 in terms of net daily revenue relative to the same period in 2014 and also to Q4 2014 is shown below:

 

Average daily net revenue (€)	8 weeks to 25 February
	2015	2014	% change	Q4 2014	% change
Sports	649,800	691,900	(6%)	533,600	22%
Casino	513,900	600,800	(14%)	540,600	(5%)
Poker	187,300	268,100	(30%)	199,100	(6%)
Bingo	147,600	145,100	2%	140,100	5%
Total	1,498,600	1,705,900	(12%)	1,413,400	6%

 

Contacts:

bwin.party digital entertainment plc 

Investors                                                          Media

Peter Reynolds             +44 (0) 20 7337 0177     Jay Dossetter       +44 (0) 20 7337 0134

                                              

Interviews with Norbert Teufelberger and Martin Weigold

Interviews with Norbert Teufelberger, Chief Executive Officer, and Martin Weigold, Chief Financial Officer, in video/audio and text will be available from 7.00am GMT on 11 March 2015 on: http://www.bwinparty.com.

 

Analyst meeting, webcast, dial-in and conference call details: Wednesday 11 March 2015

There will be an analyst meeting for invited UK-based analysts at De Vere Venues, 138-142 Holborn, London EC1N 2NQ starting at 9.30am GMT.  There will be a simultaneous webcast and dial-in broadcast of the meeting.  To register for the live webcast, please pre-register for access by visiting the Group website (www.bwinparty.com).  Details for the dial-in facility are given below.  A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

 

Dial-in details to listen to the analyst presentation at 9.30am, Wednesday 11 March 2015

9.20 am	Please call:+44 (0) 203 003 2666
Title	bwin.party 2014 Results
9.30 am	Meeting starts

 

A recording of the meeting will be available for a period of seven days from 11 March 2015.  To access the recording please dial the following replay telephone number:

Replay telephone number:	+44 (0) 208 196 1988
Replay passcode:	1403775

 

All times are Greenwich Mean Time (GMT).

 

About bwin.party

bwin.party digital entertainment plc (LSE: BPTY) is a global online gaming company. The Company was formed from the merger of bwin Interactive Entertainment AG and PartyGaming Plc on 31 March 2011.  Incorporated, licensed and regulated in Gibraltar, the Group also has licences in Alderney, Austria Belgium, France, Italy, Denmark, Germany (Schleswig-Holstein), Malta, Spain, the UK and the necessary approvals to operate in New Jersey. With offices in Europe, India, Israel and the US, the Group generated revenue of €611.9m and Clean EBITDA of €101.2m in 2014.  bwin.party commands leading market positions in each of its four key product verticals: online sports betting, casino & games, poker and bingo with some of the world's biggest online gaming brands including bwin, partypoker, partycasinoand FoxyBingo.  The Group's scale, technology and strong portfolio of games collectively differentiate its customer offer from those of its competitors. bwin.party is a constituent member of the FTSE 250 Index and the FTSE4Good Index Series, which identifies companies that meet globally recognised corporate responsibility standards. For more information about bwin.party, visit www.bwinparty.com. 

 

 

Chief Executive's review

 

Overview

Betting volumes on sports and casino in our core nationally regulated and/or taxed markets were both up year-on-year, however total revenues and Clean EBITDA were lower than expected.  This was largely due to further declines in poker that also held back casino and the full year impact of ISP blocking in Greece. 

 

Progress towards a European landscape of commercially viable and well-regulated markets continues, albeit more slowly than we would like.  While several European countries are at various stages in developing what should prove to be reasonable regulatory frameworks, others have yet to do so.  Such attributes are critical for long-term success as they ensure that both the regulatory as well as the fiscal objectives of national governments are capable of being met by licensed operators.

 

In the United States, the size of the online gaming market in New Jersey remains some way short of original expectations and whilst new bills introducing online gaming legislation have been published in California and Pennsylvania, there is little visibility on when or if these may be considered for the statute book.  At the same time, proponents of a new federal initiative to ban all forms of online gaming across the United States are seeking support to get a bill passed in Washington DC.

 

As well as regulatory changes, developments in technology continue to create new opportunities, as well as challenges for our business.  Expanding our mobile footprint is an exciting source of potential revenue growth and we remain focused on growing our presence in all products and across all platforms, wherever commercially viable.  While differing regulatory rules and compliance protocols present additional barriers to us both in expanding our international presence and introducing new and appealing game content, we have made good progress in this area. 

 

We are improving our digital marketing and customer relationship management capabilities through the introduction of powerful new tools that are opening up a raft of new opportunities for eCommerce companies like bwin.party.  As a technology integrator we are able to use our comprehensive set of data sources to provide a detailed view of customer behaviour.  As we embed this into our operations, we can differentiate the quality of our offer through better customer experience, personalisation and improved performance management in an increasingly competitive digital landscape.

 

Our transition to a label-led, rather than product-led approach is almost complete and has already increased transparency and accountability throughout the Group, speeding-up our decision-making and improving the execution of our plans.  

 

Outside of our core gaming activities, we have made good progress on growing Kalixa, our digital payments business.  Following the acquisition of PXP in May 2014, we have secured a number of large third-party contracts and concluded an international joint venture with Millicom to exploit payment opportunities in Latin America and Africa.

 

We are making good progress on the sale of our other non-core businesses and assets that we expect will realise between €30m and €50m in aggregate. 

 

Whilst the industry faces several headwinds in 2015 in the form of additional gaming and indirect taxes, the absence of a major football tournament and further projected declines in the European poker market, the year ahead also offers some significant opportunities: we remain on-track to deliver €15m of additional cost savings this year through several initiatives that have already been implemented; we plan to launch under licence in two new territories later this year, both of which represent material markets for our business; we will continue to expand our mobile footprint, led by our bwin label but also through partycasino, partypoker and Foxy Bingo; we are revitalising our digital marketing and CRM through a programme of investment in both infrastructure and people; and we expect to secure additional B2B customers that should ensure that our Studios business unit becomes Clean EBITDA positive during 2016.

 

2014 - Operational highlights

Operationally in 2014 we focused on continuing to expand our presence in nationally regulated and/or taxed markets, growing our mobile footprint as well as improving our operational performance through increased productivity and cost efficiencies.

 

 

 

Nationally regulated and/or taxed markets

The proportion of the Group's total revenue coming from nationally regulated and/or taxed markets increased to 56% in 2014 versus 53% in 2013.  Having launched into New Jersey towards the end of 2013, we sustained our network's leadership position throughout the year and in December 2014 had a combined market share of 33%.  In Belgium, another recent market entry, we also continued to make good progress growing revenue by 59% versus the prior year.

 

Mobile growth

Sports betting - the launch of our new mobile sports offer ('MS2') helped to increase the share of gross sports betting revenue coming through mobile and touch devices to 32% (2013: 19%).  However, the breadth of our geographic coverage masks the fact that in certain markets the proportion coming through mobile and touch is much higher.  The annual figure also conceals the pace of growth throughout the year and in December 2014, mobile and touch represented approximately 45% of total sports betting gross gaming revenue.

 

Casino & games - Having added 32 new mobile games to our casino & games offer during 2014, we saw a marked uptick in the share of casino gross gaming revenue coming through mobile and touch that more than doubled from 6% in 2013 to 14% in 2014. 

 

Poker - We launched single-table and then multi-table tournaments on mobile that both contributed to a 126% increase in our mobile poker gross gaming revenues in 2014 that represented 9% of the total, up from 3% in 2013.  With the advent of mobile devices with larger screens and increasing network speeds, mobile is proving to be an attractive channel for players.

 

Bingo - As we reported at the time of the half year results, our Foxy Bingo mobile app has been particularly popular and we have seen a near doubling of bingo gross gaming revenue through mobile and touch in 2014, accounting for approximately 21% of total bingo gross gaming revenue in 2014, up from 10% in 2013.

 

Productivity and operational performance

Technology - We successfully completed the migration of our French technology platforms in August 2014 resulting in improved poker liquidity for our network as well as the scope for cost savings as we began to decommission technologies that were no longer required.  The absence of any major issues bodes well for the migration of our Italian platforms that will be completed this month and will also help to reduce costs as we close down legacy systems.  This will complete the integration of platforms following the Merger. Our software release cycle has increased significantly during 2014 with a marked increase in automated testing and benefits from a much improved systems architecture.

 

Digital and mobile marketing - Having embarked upon a significant investment in third party systems and infrastructure, we are improving our CRM and digital marketing capabilities with the goal of developing a single view of the customer irrespective of product or channel.

 

New label-led approach - Our shift away from a product-led approach has allowed us to remove several layers of middle management whilst at the same time increasing accountability for and visibility of projects that now reside within a single label.  Whilst such a shift is not without risk, we are already seeing a marked increase in the speed of decision-making, improved execution as well as meaningful reduction in staff costs. 

 

2014 - Other developments

 

Industry structure

Increasing complexity, regulatory oversight and taxes mean that scale and technology have never been more important for long-term success.  At the time of the half year results we stated our belief that the online gaming industry was set to enter a period of consolidation and that the Board believed bwin.party should be prepared to play an active role in any future reshaping of the industry, assuming further value can be delivered.  We announced on 12th November 2014 that we had entered into preliminary discussions with several third parties regarding possible business combinations to see if additional value could be created for shareholders. Since then there have also been some notable transactions which have occurred in the sector.

 

Further to the announcement in November, we continue to be in discussions with several parties regarding a variety of potential business combinations.  Aware that there has been speculation regarding the status of these discussions in recent weeks, the Board can confirm that it has received a number of indicative proposals.  Together with its advisers, the Board has entered a further stage of discussions with each party with a view to assessing the relative attractions of these proposals against the Board's objective of creating additional value for shareholders.  Whilst such proposals may or may not result in an offer being made for all or part of the Company, the Board confirms that as and when there are further material developments, it will make an appropriate announcement.

 

Payments

Having acquired PXP in May 2014, our Kalixa payments business continued to make solid progress during 2014.  In September 2014 we announced the establishment of a 50:50 joint venture with Millicom, a leading international telecommunications and media company dedicated to emerging markets in Latin America and Africa so that we could seek to exploit Kalixa's capabilities in both of these new and exciting markets.  Since then, Kalixa has also succeeded in winning new third party business from customers including Abercrombie & Fitch and expects to secure further contract wins over the coming weeks.   

 

Disposal of non-core assets

Having announced our intention to focus our resources on our core real money gaming business, we have made good progress since the year-end.  On 20 February 2015 New Game Capital LP realised its only remaining investment through a placing of a 10.4% stake in Gaming Realms plc.  New Game Capital LP is now being wound up and the proceeds distributed to shareholders.  As the largest shareholder in New Game Capital LP, the Group expects to receive approximately €4.5m.

 

Regulatory developments

The regulatory landscape across Europe and in the United States remains complex and is continuing to evolve.  A brief summary of some of the key regulatory developments affecting our business is set out in the Appendix.

 

Impairment of intangible and other assets

In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets and investments. A non-cash impairment charge of €104.4m (2013: €9.4m) was taken relating to intangible assets within poker and social gaming, almost all of which was taken in the first half of 2014 and was included in the half year results and impairments of non-core investments including those held as available for sale.

 

Board changes

On 9 April 2014, Philip Yea joined the Board as a Non-Executive Director and became Chairman at the AGM on 22 May 2014 when Simon Duffy stepped down. Manfred Bodner stepped down as a Non-Executive Director at the AGM and on 10 June 2014 Daniel Silvers was appointed a Non-Executive Director.  Daniel Silvers' appointment was made under the terms of a relationship agreement entered into by amongst others, bwin.party, Emerald Bay Limited ('Emerald') and Stinson Ridge Limited ('Stinson') that was approved by shareholders on 28 January 2011 and to which SpringOwl Gibraltar Partners B Limited ('SpringOwl') became a party on 28 February 2014 as a result of acquiring 6% of bwin.party's issued share capital from Emerald and Stinson together with the director nomination right.  SpringOwl exercised this nomination right on 22 May 2014. 

 

In respect of the Company's announcement on 16 May 2014 regarding Director changes and succession planning, the Board has announced the appointment of Barry Gibson and Liz Catchpole to succeed Rod Perry (Deputy Chairman, Senior Independent Director and Chairman of the Remuneration Committee) and Helmut Kern (Chairman of the Audit & Risk Committee), both of whom are retiring in accordance with the UK Corporate Governance Code.  The Board's Nomination Committee is also engaged with further candidates with extensive knowledge and expertise in information technology and in consumer-facing digital businesses and hopes to announce an appointment shortly.

 

 

Dividend and share buy-back

The Board is recommending a final dividend of 1.89 pence per Ordinary share (2013: 1.80 pence) representing a 5% increase over the prior year and making a total dividend payment for the 2014 financial year of 3.78 pence (2013: 3.60 pence).  The final dividend, if approved at the AGM will be payable to shareholders and depositary interest holders on the register of shareholders and register of depositary interest holders respectively on 24 April 2015 (the 'Record Date').  Dividends will be paid on 27 May 2015.  Shareholders wishing to receive dividends in Euros rather than Pounds Sterling will need to register a currency election with bwin.party's registrars on or before 8 May 2015.  A separate announcement regarding the dividend payment has been issued today.

 

Using the authorities granted by shareholders at the 2013 and 2014 AGMs to repurchase up to 10% of the Company's issued share capital, during 2014 the Company bought back 1,556,867 shares for cancellation at a total cost, including commission, of £1,579,437.  There have been no further purchases since the year end.   As at 6 March 2015 the total number of bwin.party shares in issue is 824,106,369 and the total number of voting rights in issue is 822,749,091  (total number of shares in issue minus 1,357,278 shares held by the employee benefit trust in respect of which the voting rights have been waived).

 

Plans for 2015/2016

We remain focused on maximising both the accessibility and appeal of our gaming products and services and on striving to achieve operational excellence in each of our key business units.  This will continue for the rest of 2015 as we continue to improve our operational focus to deliver a great experience for our customers.

 

As from 1 January 2015 the business is now organised as follows:

 

·      bwin labels (including Gamebookers);

·      Games labels (partycasino, partypoker, Foxy Bingo, Gioco Digitale);

·      US (including B2C, B2B and the World Poker Tour);

·      Studios - the Group's technology provided through arms-length B2B agreements with both internal and external customers; and

·      Other - includes Kalixa, social gaming, as well as InterTrader, Winners and some smaller, non-core assets.

 

Shared and corporate functions such as finance, legal and HR are performed by the corporate centre. 

 

Establishing these new business units was the first step in transforming our operational performance and we are now accelerating this process with an even greater focus on core markets, channels and brands.  Technology will remain at the heart of this effort as we transform our Studios business into a stand-alone provider of B2B gaming services worldwide.  Having built a fully-integrated and scaleable technology platform, with a proven capability of entering newly regulated markets with all products, we are now preparing to leverage this capability by driving incremental third party volume through the platform with a view to moving Studios into profit during 2016.  In addition to the Group's own B2C labels, we are in the process of securing new B2B customers that are keen to use our technology, particularly for sports betting, which we believe represents a unique and valuable opportunity for the Group.

 

Having already exited a number of non-core businesses, we are continuing to review how value can be maximised for our Kalixa payments business that is making good progress following the acquisition of PXP in May 2014.  As a result and given the increased focus on our core operations we have rationalised our strategic framework to the following three areas:

 

·      focus our B2C operations on nationally regulated and/or taxed markets;

·      secure long-term strategic partners for our B2B business, driven by sports betting; and

·      continuing to act responsibly.

 

 

Had the new business units been in place since 1 January 2014, the 2014 revenue and Clean EBITDA would have been apportioned as follows:

 

Year ended 31 December 2014   €million	bwin labels		Games labels		US		Studios		Non-core	Corporate functions	Total segmental revenue	Removal of inter-segmental revenue	Total revenue
Net revenue	360.6		195.7		6.7		-		-	-	563.0	-	563.0
Other revenue (external)	4.7		0.3		13.0		7.9		23.0	-	48.9	-	48.9
Other revenue (internal)	-		-		5.3		71.0		16.4	41.6	134.3	(134.3)	-
Total revenue	365.3		196.0		25.0		78.9		39.4	41.6	746.2	(134.3)	611.9
Clean EBITDA	76.4		69.8		(6.1)		(18.0)		(11.8)	(9.1)	101.2	-	101.2

 

Using this new approach, each business unit has a clear set of objectives and operational KPIs for 2015/16 that fall under one or more of the following four headings:

 

Increase B2C revenue from nationally regulated and/or taxed markets

Each of our B2C business units are focused on achieving this goal.  We plan to launch under licence in two new territories during the second half of 2015 as well as consolidate our position in other nationally regulated and/or taxed markets.  Whilst a lack of new regulated markets opening over the past year has held back the pace at which we can make progress, we did increase the proportion of revenue coming from these markets to 56% of total revenue in 2014 (2013: 53%).

 

KPI target:    Increase gross profit (net revenue less gaming taxes) from existing nationally regulated and/or taxed markets

 

Grow mobile

Mobile represents a major growth opportunity for the Group.  The increase in smartphone penetration around the world in conjunction with improving connectivity is enabling huge growth in the amount of data consumed and time spent using these devices - mobile is where our customers want to consume  services, including gaming.  Whilst the complexity of our international footprint, with its mosaic of regulatory regimes presents additional hurdles, we are determined that each of our recently upgraded products is available on the very latest mobile and touch devices, wherever commercially viable, during 2015.

 

KPI target: 50% of gross gaming revenue coming through mobile/touch by December 2015

 

Enhance the quality and breadth of our customer offer

As outlined in the Review of 2014 below, we have already increased the appeal of our products with significant improvements to our offer across each of our own labels and those of our B2B customers.  However this journey is only just beginning and we plan a raft of additional product upgrades and new features during 2015.  A release programme of new games and features on mobile as well as desktop will continue throughout the rest of the year, complemented by improved CRM and digital marketing.

 

 KPI target:   Continue to add new content through a variety of channels

                   Secure additional B2B customers for our Studios business unit

 

Operational excellence - reliability and productivity

Each of our objectives above cannot be achieved without continuing to improve our operational performance and allocation of capital.  Our shift to a new label-led structure needs to be accompanied by a shift in working practices that combine to increase our focus on the customer.  Through greater transparency and accountability, this shift will also help us to realise €15m of additional cost savings already identified.  

 

KPI targets:  Deliver €15m of cost savings as planned

                   Improve system availability and reduce planned downtime

                   Maximise the value of non-core business via divestment or strategic partnerships

 

 

Current trading and full year outlook

Trading in the first eight weeks of 2015 has been broadly in-line with our expectations.  While betting volumes as well as overall player activity on sports and gaming (excluding poker) have been above last year, lower margins in sports betting and casino meant that average daily net revenue was down 12% year-on-year.

 

New gaming and other indirect taxes, continued pressures in European poker and the absence of a major football tournament this year represent significant headwinds in 2015.  However, the steps taken during 2014 to reduce costs, the early results from some of our recent product launches and other initiatives mean that we remain confident about the full year outlook. 

 

Norbert Teufelberger

Chief Executive Officer

 

SUMMARY OF RESULTS

Total revenue
Year ended 31 December			2014 €million	2013 €million
Sports betting			237.1	235.8
Casino & Games			203.7	215.6
Poker			81.7	114.6
Bingo			51.9	53.1
Other			37.5	33.3
Total			611.9	652.4

 

Clean EBITDA
Year ended 31 December			2014 €million	2013 €million
Sports betting			50.1	53.7
Casino & Games			43.5	45.0
Poker			7.9	7.7
Bingo			11.8	8.2
Other			(12.1)	(6.6)
Total			101.2	108.0

 

Total revenue fell 6% to €611.9m (2013: €652.4m) primarily reflecting the full year impact of ISP blocking in Greece and a decline in poker partially offset by the FIFA World Cup.  The drop in revenue, together with start-up losses from New Jersey of €9.8m (2013: €4.9m) and €6.7m of losses from the Group's social gaming activities (2013: €6.5m), meant that total Clean EBITDA declined to €101.2m (2013: €108.0m).

 

While amortisation fell by 26% to €51.0m (2013: €68.9m), depreciation charges increased to €26.3m (2013: €24.4m) reflecting the increased capital expenditure; the non-cash impairment charge of €104.4m relating to the write-down of poker was the primary driver behind the reported loss after tax of €94.3m (2013: profit after tax of €41.1m).

 

Basic loss per ordinary share was 11.3 € cents (2013: earnings per share 5.4 € cents).  Clean EPS fell to 4.8 € cents (2013: 7.3 € cents). 

 

The following table provides a reconciliation of the movements between Clean EBITDA and operating (loss) profit:

 

Reconciliation of Clean EBITDA to operating (loss) profit

Year ended 31 December	2014 €million	2013 €million
Clean EBITDA	101.2	108.0
Exchange differences	(3.1)	(8.0)
Depreciation	(26.3)	(24.4)
Amortisation	(51.0)	(68.9)
Retroactive taxes and associated charges	-	(0.6)
Share-based payments	(9.8)	(16.6)
Merger and acquisition expenses	(1.5)	-
Impairment losses	(104.4)	(9.4)
Market exit costs	(5.4)	(2.5)
Contingent consideration adjustments	11.3	-
Release of acquisition fair value provision	-	83.8
Reorganisation expenses	(8.9)	(9.5)
(Loss) profit from operating activities	(97.9)	51.9

 

A detailed review of each of the individual product segments is set out below.  Full details of all of the Group's historic quarterly key performance indicators can be downloaded from the Group's website at:  www.bwinparty.com.

 

Sports betting

Year ended 31 December	2014 €million	2013 €million	Change
Total stakes	2,700.5	2,775.3	(3%)
Gross win margin	9.7%	9.2%
Gross revenue	261.5	256.7	2%
Bonuses and other fair value adjustments to revenue	(28.1)	(22.7)	(24%)
Net revenue	233.4	234.0	(0%)
Other revenue	3.7	1.8	106%
Total revenue	237.1	235.8	1%
% of total revenue from nationally regulated and/or taxed markets*	70%	67%
Cost of sales	(56.3)	(55.0)	(2%)
			(0(
Gross profit	180.8	180.8	(0%)
Clean EBITDA	50.1	53.7	(7%)
Clean EBITDA margin	21.1%	22.8%

*Austria, Belgium, France, Denmark, Germany, Italy, Spain and UK

 

Sports betting - Key Performance Indicators

Year ended 31 December				2014	2013	Change
Active player days (million)				34.2	37.1	(8%)
Daily average players (000s)				93.7	101.6	(8%)
Yield per active player day (€)				6.8	6.3	8%
New player sign-ups (000s)				533.2	555.9	(4%)
Average daily net revenue (€000)				639.5	641.1	(0%)

 

Growth in nationally regulated and/or taxed markets helped to mitigate declines in wagering from dotcom markets which were impacted by ISP blocking in Greece.  While overall betting volumes fell 3%, the total amount wagered in nationally regulated and/or taxed markets increased by 5% year-on-year driven by a 4% increase in active player days and a 10% increase in new player sign-ups.  This, together with an increase in gross win margin resulted in a modest increase in total gross revenue.  However, promotions around the FIFA World Cup meant that bonus costs increased relative to both the total amount wagered as well as to gross revenue so that total net revenue was broadly flat year-on-year.  The addition of new B2B contracts offset the modest decline in overall net revenue so that total revenue increased by 1%.  Higher marketing costs around the FIFA World Cup coupled with the full year impact of ISP blocking in Greece meant that Clean EBITDA fell slightly to €50.1m (2013: €53.7m).

 

Mobile and touch remains a clear priority for us and we grew gross gaming revenues through this channel by 69% in absolute terms to €83.8m (2013: €49.5m) representing 32% of total sports betting GGR (2013: 19%).  The popularity of our new MS2 mobile product has meant that in certain markets in December 2014 mobile represented more than 50% of GGR.

 

Casino & games

Year ended 31 December	2014 €million	2013 €million	Change
Total stakes	7,005.9	7,023.6	(0%)
Gross win margin	3.5%	3.7%
Gross revenue	248.2	262.3	(5%)
Bonuses and other fair value adjustments to revenue	(48.8)	(49.5)	1%
Net revenue	199.4	212.8	(6%)
Other revenue	4.3	2.8	54%
Total revenue	203.7	215.6	(6%)
% of total revenue from nationally regulated and/or taxed markets*	27%	24%
Cost of sales	(11.5)	(9.8)	(17%)
Gross profit	192.2	205.8	(7%)
Clean EBITDA	43.5	45.0	(3%)
Clean EBITDA margin	21.4%	20.9%

*Austria, Belgium, Denmark, Italy, Spain, UK and US (New Jersey)

 

Casino & Games - Key Performance Indicators

Year ended 31 December							2014		2013		Change
Active player days (million)							7.3		7.3		-%
Daily average players (000s)							20.0		20.0		-%
Yield per active player day (€)							27.3		29.2		(7%)
New player sign-ups (000s)							43.8		59.2		(26%)
Average daily net revenue (€000)							546.3		583.0		(6%)

 

Total stakes were broadly flat year-on-year with the impact of ISP blocking in Greece and a declining poker business that remains a driver for partycasino, being mitigated by the full year benefit of New Jersey and increased cross-sell from sports betting.  The cross-sell from sports betting tends to be at a lower gross win margin than cross-sell from poker as sports betting customers tend to have less activity on the higher margin casino games such as slots. 

 

Total revenues from nationally regulated and/or taxed markets increased by 4%, driven by a 5% increase in active player days, albeit with slightly lower yield.  This contrasts with other markets where revenues fell by 9%, with the result that overall net revenue fell by 6%.  Other revenue benefited from a full year's contribution from Borgata's online casino which helped to drive an increase in Clean EBITDA margins to 21.4% (2013: 20.9%), even after an increase in cost of sales due to higher gaming taxes.  While higher EBITDA margins softened the impact of the reduction in revenue, Clean EBITDA fell by 3% to €43.5m (2013: €45.0m).

 

Poker

Year ended 31 December	2014 €million	2013 €million		Change
Gross revenue	93.5	135.5		(31%)
Bonuses and other fair value adjustments to revenue	(14.8)	(25.4)		42%
Net revenue	78.7	110.1		(29%)
Other revenue	3.0	4.5		(33%)
Total revenue	81.7	114.6		(29%)
% of total revenue from nationally regulated and/or taxed markets*	44%	41%
Cost of sales	(9.3)	(13.7)		(32%)
Gross profit	72.4	100.9		(22%)
Clean EBITDA	7.9	7.7	3%
Clean EBITDA margin	9.7%	6.7%

*Austria, Belgium, Denmark, France, Italy, Spain, UK and US (New Jersey)

 

Poker - Key Performance Indicators

Year ended 31 December				2014	2013	Change
Active player days (million)				12.0	17.3	(31%)
Daily average players (000s)				32.9	47.4	(31%)
Yield per active player day (€)				6.6	6.4	3%
New player sign-ups (000s)				120.6	177.3	(32%)
Average daily net revenue (€000)				215.6	301.6	(29%)

 

Despite a contribution from New Jersey, the challenges in international poker continued to impact overall revenue performance during 2014.  Further declines were experienced in some of the Group's key regulated markets, notably France, Italy and Spain. In addition, activity levels were impacted during the summer months by the FIFA World Cup in June and July. 

 

Despite these challenges, we have improved our product offer through the introduction of a number of new features and functions such as our universal sit-out feature and 'casual cash games' as well as a continuous effort to enhance our tournament schedule.  Whilst seeking to attract players of all levels, we are particularly focused on ensuing that our depositing customers are well looked after and enjoy their time at the tables. 

 

We also made good progress on our mobile offering in 2014 so that both multi-table and single table tournaments are now available on mobile, helping to increase the share of gross gaming revenue coming through this channel that rose to 9% of poker gross gaming revenue (2013: 3%). 

 

Whilst encouraged by the positive response of players to these initiatives, the market pressures outlined above meant that average daily net revenue declined by 29% to €215,600 (2013: €301,600).  As disclosed at the time of the half year results and as detailed in note 10 to the financial information, in accordance with IAS 36 a non-cash impairment charge was taken against the value of our poker intangible assets totalling €88.4m in the year.

 

Bingo

Year ended 31 December	2014 €million	2013 €million	Change
Gross revenue	114.0	104.8	9%
Bonuses and other fair value adjustments to revenue	(62.5)	(52.3)	(20%)
Net revenue	51.5	52.5	(2%)
Other revenue	0.4	0.6	(33%)
Total revenue	51.9	53.1	(2%)
% of total revenue from nationally regulated and/or taxed markets*	98%	98%
Cost of sales	(4.6)	(3.7)	24%
Gross profit	47.3	49.4	(4%)
Clean EBITDA	11.8	8.2	44%
Clean EBITDA margin	22.7%	15.4%

* Italy, Spain and UK

 

Bingo - Key Performance Indicators

Year ended 31 December				2014	2013	Change
Active player days (million)				5.7	6.4	(11%)
Daily average players (000s)				15.6	17.5	(11%)
Yield per active player day (€)				9.0	8.2	10%
New player sign-ups (000s)				117.5	123.5	(5%)
Average daily net revenue (€000)				141.1	143.8	(2%)

 

Gross revenue increased by 9%, driven by a strong performance in the UK where both Foxy Bingo and Cheeky Bingo continued to perform well despite increasingly competitive conditions.  This is in sharp contrast to Italy that remains a challenging market and while Gioco Digitale maintained its market-leading position with an estimated 23% market share, the market continued to fall by 14% in terms of gross gaming revenue.  The competitive nature of the UK market ahead of the introduction of the UK point of consumption tax resulted in higher bonus costs at 54.8% of revenue (2013: 49.9%) prompting a 2% decline in net revenue.   

 

The success of Foxy Bingo's mobile app has continued throughout the year.  Since its original launch in January 2014 we have upgraded the application and seen even further improvement.  For the year as a whole, the share of gross gaming revenue coming through mobile and touch has increased three-fold reaching 24% for the year as a whole (2013: 6%).   

 

Other revenue

Other revenue increased by 14% to €48.9m (2013: €43.0m) despite lower revenue from domain sales versus the prior year.  InterTrader and B2B both delivered strong growth but it was Kalixa that delivered the greatest year-on-year increase helped by the acquisition of PXP in May 2014.

 

World Poker Tour ('WPT') has continued to build its international presence through major sponsorship deals like Monster® and Hublot but also through multi-year licensing deals with companies like Ourgame in Asia.  WPT is attracting significant attention through strong US TV ratings on Fox Sports and through its international programme of live events including the WPT500 at Aria Resort and Casino in Las Vegas and Dusk Till Dawn in Nottingham, UK.

 

Cost of sales

Total cost of sales increased by 2% to €91.3m (2013: €89.5m), of which ongoing gaming taxes totalled €80.2m (2013: €80.1m).  As more markets regulate, cost of sales as a proportion of total revenue is expected to increase.

 

 

Year ended 31 December				2014 €million	2013 €million		Change
Gaming taxes				80.2	80.1		(0%)
Broadcasting costs				6.4	6.6		3%
Other				4.7	2.2		(114%)
Clean EBITDA cost of sales				91.3	88.9		(3%)
Retroactive taxes and associated charges				-	0.6		100%
Total cost of sales				91.3	89.5		(2%)

 

Other operating income

Other operating income principally comprised €11.3m released from contingent consideration  adjustments relating to changes in assumptions arising on the PXP acquisition whilst in 2013 there was a credit of €83.8m arising from the release of a fair value provision relating to the settlement of certain legal and regulatory disputes that was created at the time of the Merger. 

 

Other operating expenses

Lower foreign exchange losses was the primary driver of a reduction to €3.1 m (2013: €8.0m).

 

Distribution expenses

					As a percentage of total revenue
Year ended 31 December	2014 €million	2013 €million	Change		2014 %		2013 %
Customer acquisition and retention	122.7	126.0	3%		20.1%		19.3%
Affiliates	27.4	32.4	15%		4.5%		5.0%
Customer bad debts	2.3	6.3	63%		0.4%		1.0%
Third-party content	27.7	28.9	4%		4.5%		4.4%
Webhosting and technical services	29.1	26.5	(10%)		4.8%		4.1%
Clean EBITDA distribution expenses	209.2	220.1	5%		34.2%		33.7%
Reorganisation expenses	1.4	2.5	44%		0.2%		0.4%
Distribution expenses	210.6	222.6	5%		34.4%		34.1%

 

Customer acquisition and retention spend fell by 3% reflecting efforts to reduce spend in New Jersey and despite increased marketing around the FIFA World Cup.  Affiliate spend also fell as we sought to reduce our reliance on this channel.  Webhosting and technical services costs rose by 10% due to the full year impact of hosting costs in New Jersey.  Customer bad debts fell to 0.4% of revenue due to the removal of certain payment options and increased exposure to nationally regulated and/or taxed markets. Third-party content costs fell by 4% due to lower casino revenues but increased slightly to 4.5% of revenue (2013: 4.4%) due to the addition of more third-party games during the year.

 

Administrative expenses

						As a percentage of total revenue
Year ended 31 December	2014 €million		2013 €million	Change		2014 %		2013 %
Transaction fees	27.2		30.1	10%		4.4%		4.6%
Staff costs	109.9		121.0	9%		18.0%		18.5%
Outsourced services	24.4		25.6	5%		4.0%		3.9%
Other overheads	49.7		58.0	14%		8.1%		8.9%
Clean EBITDA administrative expenses	211.2		234.7	10%		34.5%		36.0%
Depreciation	26.3		24.4	(8%)		4.3%		3.7%
Amortisation	51.0		68.9	26%		8.3%		10.6%
Impairment losses	104.4		9.4	(1,011%)		17.1%		1.4%
Market exit costs	5.4		2.5	(116%)		0.9%		0.4%
Reorganisation expenses	7.5		7.0	(7%)		1.2%		1.1%
Administrative expenses before share based payments	405.8		346.9	(17%)		66.3%		53.2%
Share-based payments	9.8		16.6	41%			1.6%	2.5%
Administrative expenses	415.6		363.5	(14%)			67.9%	55.7%

 

As promised, we continued to reduce Clean EBITDA administration costs in 2014, achieving €23.5m of savings versus the prior year and the total now representing 34.5% of total revenue (2013: 36.0%).  Transaction fees fell from 4.6% to 4.4% of revenue due to a change in mix in processing volumes as well as improved commercial terms from our suppliers.  Staff costs and outsourced services were reduced by €11.1m and €1.2m respectively following a series of cost reduction initiatives throughout the year, although there was a slight increase versus the half year following the addition of PXP in May 2014.  Other overheads were reduced by €8.3m reflecting our efforts to deliver further cost savings.  The net result was that Clean EBITDA administrative expenses were reduced by €23.5m to €211.2m (2013: €234.7m).

 

Depreciation increased by €1.9m due to an increase in capital expenditure.  Total amortisation, that is almost entirely related to acquired intangibles, continued to fall to 8.3% of total revenue (2013: 10.6%) as these assets are progressively written down.  As noted above and in notes 10, 13 and 14 to the financial information, following a review undertaken on the carrying value of these intangibles, predominantly with respect to poker, an impairment charge of €95.9m (of which €94.7m was included in the Group's half year results) has been taken in the year.  A further €8.5m impairment has been charged against certain of the Group's non-core investments including those held for sale. Reorganisation expenses of €7.5m (2012: €7.0m) were as a direct result of our efforts to achieve the targeted cost savings. 

 

Taxation

The tax credit for the period was €3.6m (2013: charge of €3.8m) which arises from a deferred tax credit.  The deferred tax credit of €13.4m (2013: €6.9m) is related to the release of deferred tax provisions set up on the Merger arising from the amortisation and impairments of short life intangible assets.  The increase over the prior year is primarily due to the impairment of intangibles during the year.

 

Net cash

 

As at 31 December	2014 €million	2013 €million
Cash and cash equivalents	162.9	173.3
Short-term investments	13.5	12.7
Loans and borrowings	(56.9)	(46.1)
Net cash	119.5	139.9
Payment service providers (less chargebacks)	31.2	48.7
Net cash including amounts held by processors	150.7	188.6
Less: Client liabilities and progressive prize pools	(116.1)	(124.8)
Net cash including amounts held by processors less client liabilities	34.6	63.8

 

Net cash (after deducting all customer liabilities but adding back net payment processor receivables) declined to €34.6m (31 December 2013: €63.8m) primarily due to the acquisition of PXP during the year.

 

Cashflow

Cashflow from operating activities increased from €49.8m to €92.8m reflecting favourable working capital movements versus the prior year including reductions in certain deferred consideration balances, a reduction in client liabilities associated with the 'volume to value' strategy and the settlement of litigation in Kentucky in 2013.

 

The overall fall in cash reflects other significant cash flow movements including €25.0m in respect of the acquisition of PXP together with dividend payments of €37.8m (2013: €33.6m) and capital expenditure (including intangibles) of €46.1m (2013: €45.8m). 

 

 

	2014		2013
Year ended 31 December	€million		€million
Clean EBITDA	101.2		108.0
Exchange differences	(3.1)		(8.0)
Movement in trade and other receivables	36.4		11.7
Movement in trade and other payables	(29.4)		(27.6)
Contingent consideration adjustments	11.3		-
Movement in provisions	-		(11.7)
Income taxes paid	(8.8)		(12.2)
Merger and acquisition costs	(1.5)		-
Reorganisation costs	(8.9)		(9.5)
Market exit costs	(5.4)		(2.5)
Retroactive taxes and associated charges	-		(0.6)
Other	1.0		2.2
Net cash inflow from operating activities		92.8	49.8
Issue of ordinary shares		0.8	1.6
Purchase of own shares		(2.2)	(5.8)
Dividends paid		(37.8)	(33.6)
Repayment of bank borrowings		(31.2)	(7.6)
New bank borrowing		37.7	18.1
Acquisitions - net of cash acquired		(25.0)	-
Acquisitions - deferred payment		-	(1.8)
Capital expenditure		(23.4)	(22.3)
Purchases of intangible assets		(22.7)	(23.5)
Purchases of investments		(0.8)	-
Net movement in loans (advanced to) repaid by joint ventures		1.0	5.7
Loans repaid by associates		-	1.5
(Increase) decrease in short term investments		(0.7)	17.9
Other		1.1	(0.7)
Issue of ordinary shares
Net cash outflow		(10.4)	(0.7)

 

Principal risks

There are a number of potential risks and uncertainties which could have a material impact on the Group's performance over the course of the financial year and could cause actual results to differ materially from expected and historical results. To mitigate against these risks bwin.party conducts a continuous process of Group-wide assessments that examine whether any risk has increased, decreased or become obsolete; identify any new risks, especially from recent key business events; and the likelihood of a risk occurring and what level of impact it would have on the Group.

 

Many of the threats and challenges faced by online gaming companies are similar to those faced by other leisure and entertainment industries. They include competition, changes to consumer tastes, maintaining healthy financial ratios in compliance with banking covenants and loss of key personnel.

 

There are also certain risks that are more specific to bwin.party and to the online gaming industry.  These risks and how we seek to manage them are set out below:

 

1.    Technology

 

The Group's customer offer includes products operated using different labels and gaming licences, the majority of which are driven by the Group's proprietary technology. 

 

2013 saw the successful completion of the dotcom player migration project and during 2014 our customer base in France was migrated successfully onto our target platform.  The migration of our Italian customers to the target platform represents the last of our integration projects following the Merger and is due to be completed in March 2015.

 

The fact that 88% of our customer base is already supported by our target platform, highlights how important our technology is to the Group.  In an industry where service reliability and integrity are key differentiating factors, our continual commitment to providing a reliable, safe, secure, compliant and continuous service has been our focus this year.

 

Through the combined efforts of our Technology and Internal Audit and Risk Assurance teams, an independent review of the Group's Production Incident and Problem Management process was performed on behalf of the Audit and Risk Committee, highlighting risks and key areas for improvement.  In parallel, a Group-wide initiative on achieving close to 100% system availability was introduced and we have made significant progress in ensuring our customer facing systems are available for 24 hours a day, 7 days a week.

 

Other technology-related risks, such as our continuing operations in the event of a natural or man-made disaster, have been addressed with a substantial investment during 2014 and both the Group's disaster recovery and business continuity solutions have been updated and tested during the year. 

 

With continuous shifts in how consumers choose and are able to access our services (via different devices and/or channels), the process of maintaining and improving our technology will become more complex.  As mentioned elsewhere, the Group's key focus in 2014 and 2015 is to improve our customer experience through an expanded mobile offer across all products as well as high levels of availability.

 

2.    Regulation

 

Focusing on nationally regulated and/or taxed markets safeguards our gaming revenues from potential national legislation threatening to prohibit or restrict one or more of the products that we offer, or online gaming entirely. There are potential risks to the operations and financial position of the Group from all markets where regulation is not clearly defined or adopted, especially in relation to EU legislation and associated cases.

 

To manage this risk, the Group continues to engage (either directly or indirectly) with national governments and regulators on to-be regulated markets. The Group's Compliance and Regulatory Affairs team keeps abreast of the regulatory landscape and report to the Audit & Risk Committee on any developments. However, it should be noted that most of the risks in relation to the regulatory landscape are outside of our direct control.

 

Operating in nationally regulated and/or taxed markets necessitates that we comply with the required rules and protocols. Currently, the Group holds licences for and offers real money gambling in 11 different territories, each with their own unique licence obligations. The need to sometimes develop bespoke technological, operational and promotional offers in each market requires significant investment. The Group is committed to meeting its licence obligations and monitors its compliance with regulatory requirements by performing reviews of its licenced operations on a periodic basis with the results reported to the Audit and Risk Committee. The Group also submits the licenced entities to a series of external audits by regulators and industry specialists to ensure that policies and procedures are being followed as intended.

 

3.    Taxation

 

As outlined above the Group's strategic focus is to operate in nationally regulated and/or taxed markets.  Revenues earned from customers located in a particular jurisdiction may give rise to further taxes in that jurisdiction.  If such taxes are levied, either on the basis of existing law or the current practice of any tax authority, or by reason of a change in law or practice, then this may have a material adverse effect on the amount of tax payable by the Group.

 

Group companies operate only where they are incorporated, domiciled or registered.  The multi-location set up of the Group gives rise to transfer pricing risk, mitigated by the fact that all intra-group transactions are documented and take place on an arm's length basis unless local legislation or other business conditions make an arm's length basis impossible or impractical.

 

During the course of the year, a review on the transfer pricing arrangements was conducted on behalf of the Audit and Risk Committee.  The Group Director of Tax routinely holds workshops with senior management and business unit leaders during the course of the year. 

 

On 1 January 2015, new VAT rules came into force across the EU impacting several areas of the digital economy.  Gambling has typically been exempt from VAT but falls within the rules for VAT on electronically supplied services.  Under EU law, Member States have the ability to apply VAT to gambling subject to certain limitations and conditions, and tax may be due depending on where customers are located and how Member States implement any exemption.  Whilst substantial uncertainty remains, in the light of the new rules the bwin.party Board expects to file for, and pay VAT, in certain EU Member States.  It is possible that VAT could be payable in other EU Member States.

 

4.    Shift to a new label-led approach

 

In 2014, the Group announced a fundamental shift in its operations away from a product-led approach (sports betting, casino & games, poker and bingo) towards one driven by label (bwin labels, Games labels, US, Studios and other).

 

Whilst this shift to a new approach created some uncertainty for employees, continuous support through regular communications via location-driven 'Town Halls', webinars through the Group's intranet and one-on-one 'question and answer' sessions with Human Resource teams have each helped to maintain a transparent and continuous channel of communication that has aided this transition.

 

Having business units and labels resourced across various locations does give rise to specific location risks as well as decentralisation risks; however this new approach has allowed the creation of teams dedicated to specific labels rather than products enabling faster decision-making, an improved customer offer and better service.

 

The Group's corporate functions continue to be administered from the corporate centre covering areas such as procurement, financial reporting, budgeting, legal and HR services, with appropriate service levels in place to provide each business unit with a benchmark of service quality. The 2015 Internal Audit Plan as approved by the Audit and Risk Committee ('ARC') reflects this new operational set-up and findings will be communicated to the ARC during the year ahead.

 

5.    Country and currency risk

 

Whilst the continuing uncertainty in the global economic outlook inevitably increases the trading and balance sheet risks to which the Group is exposed, the diversified nature of the Group's business means that such risks are not disproportionately different from any other commercial enterprise of a similar scale and international reach.  Conditions in the Eurozone remain challenging and reference has already been made in previous statements to the challenging economic backdrop in several European countries, reducing the spending power of customers particularly in Southern European countries, which the Group has attempted to reflect in its financial forecasts.  The weaker European economies are also increasing the risk of currency volatility and the potential for significant currency devaluation and business disruption if one or more of these countries exits the Euro currency.  Accordingly, the Group's treasury processes and policies have been revised with the aim of minimising the Group's exposure to the Eurozone economic risk and to preserve our ability to operate if such events arise.

 

The functional currency of the Company and a majority of the Company's subsidiaries is the euro.  bwin.party's treasury policy dictates that all material transaction and currency liability exposures are fully hedged with financial derivatives or cash.  Consequently, those bwin.party companies that have adopted the Euro as their functional currency ensure their financial assets and liabilities in non-euro currencies are equal and that any residual balance is held in Euros.  With the so-called 'GIPSI' countries (Greece, Ireland, Portugal, Spain and Italy), if one or more of these countries exits the Euro then the Group may be exposed to a currency devaluation of its financial assets to the extent that the financial assets located in the exiting jurisdiction exceed its financial liabilities.  Accordingly, the treasury policy requires that wherever practical and subject to regulatory requirements, the financial assets located in each GIPSI country are limited so they do not exceed the financial liabilities associated with that jurisdiction.   

 

 

By order of the Board of Directors

Martin Weigold

Chief Financial Officer

 

11 March 2015

Statement of Directors' responsibilities

This management report is the responsibility of, and has been approved by, the Directors of bwin.party digital entertainment plc.  Accordingly, the Directors confirm that to the best of their knowledge:

(a)  the Group's financial statements have been prepared in accordance with IFRS and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and

 

(b)  the Annual Report includes a fair review of the development and performance of the business and the financial position of the Group and the Company, together with a description of the principal risks and uncertainties that they face.

 

The Directors of bwin.party digital entertainment plc are listed on the bwin.party website: www.bwinparty.com.

By order of the Board of Directors

Martin Weigold

Chief Financial Officer

 

11 March 2015

 

 

bwin.party digital entertainment plc

Audited financial information

 

Consolidated statement of comprehensive income

Year ended 31 December	Notes	2014 €million	2013 €million
Net revenue		563.0	609.4
Other revenue		48.9	43.0
Total revenue	2	611.9	652.4
Cost of sales		(91.3)	(89.5)
Gross profit		520.6	562.9
Other operating income	3	12.3	84.1
Other operating expense	4	(4.6)	(9.0)
Administrative expenses		(415.6)	(363.5)
Distribution expenses		(210.6)	(222.6)
Clean EBITDA		101.2	108.0
Exchange losses		(3.1)	(8.0)
Merger and acquisition costs	5	(1.5)	-
Amortisation	10	(51.0)	(68.9)
Depreciation	11	(26.3)	(24.4)
Retroactive taxes and associated charges		-	(0.6)
Impairment losses	10,13,14	(104.4)	(9.4)
Market exit costs	5	(5.4)	(2.5)
Contingent consideration adjustments	3	11.3	-
Release of acquisition fair value provision		-	83.8
Share-based payments		(9.8)	(16.6)
Reorganisation costs	5	(8.9)	(9.5)
(Loss) profit from operating activities	5	(97.9)	51.9
Finance income	7	1.2	1.1
Finance expense	7	(3.6)	(10.4)
Share of profit of associates and joint ventures	14	2.4	2.3
(Loss) profit before tax		(97.9)	44.9
Tax credit/(expense)	8	3.6	(3.8)
(Loss) profit for the year		(94.3)	41.1
Other comprehensive income (expense):
Items that will or may be reclassified to profit or loss:
Exchange differences on translation of foreign operations, net of tax		10.9	(3.0)
Change in fair value of available-for-sale investments		(0.4)	1.3
Total comprehensive (expense) income for the year		(83.8)	39.4
(Loss) profit for the year attributable to:
Equity holders of the parent		(92.1)	43.9
Non-controlling interests	29	(2.2)	(2.8)
		(94.3)	41.1
Total comprehensive (expense) income for the year attributable to:
Equity holders of the parent		(81.6)	42.2
Non-controlling interests	29	(2.2)	(2.8)
		(83.8)	39.4

 

Earnings per share attributable to the ordinary equity holders of the parent:
(Loss) earnings per share (€ cents)
Basic	9	(11.3)	5.4
Diluted	9	(11.3)	5.3

 

Consolidated statement of financial position

		Notes	As at 31 December 2014 €million	As at 31 December 2013 €million
Non-current assets
Intangible assets		10	545.1	626.1
Property, plant and equipment		11	55.9	36.8
Investments		14	11.0	16.1
Other receivables		15	10.6	10.9
			622.6	689.9
Current assets
Assets held for sale		13	27.5	-
Trade and other receivables		15	87.5	126.9
Short-term investments		16	13.5	12.7
Cash and cash equivalents		17	162.9	173.3
			291.4	312.9
Total assets			914.0	1,002.8
Current liabilities
Trade and other payables		18	(82.6)	(60.6)
Income and gaming taxes payable			(41.4)	(43.2)
Client liabilities and progressive prize pools		19	(116.1)	(124.8)
Loans and borrowings		21	(31.8)	(23.0)
Liabilities held for sale		13	(7.4)	-
			(279.3)	(251.6)
Non-current liabilities
Trade and other payables		18	(17.4)	(13.6)
Loans and borrowings		21	(25.1)	(23.1)
Deferred tax		22	(27.2)	(36.9)
			(69.7)	(73.6)
Total liabilities			(349.0)	(325.2)
Total net assets			565.0	677.6
Equity
Share capital		25	0.1	0.1
Share premium account			3.0	2.2
Own shares		25	(2.1)	(5.2)
Capital contribution reserve			24.1	24.1
Capital redemption reserve			0.0	0.0
Available-for-sale reserve			2.2	2.6
Retained earnings			1,115.7	1,240.5
Other reserve			(573.7)	(573.7)
Currency reserve			2.7	(8.2)
Equity attributable to equity holders of the parent			572.0	682.4
Non-controlling interests		29	(7.0)	(4.8)
Total equity			565.0	677.6

 

Consolidated statement of changes in equity

Year ended 31 December 2014	As at 1 January 2014 €million	Share of additional investment €million	Other issue of shares €million	Dividends paid €million	Purchase of shares €million	Total comprehensive income for the year €million	Share-based payments €million	As at 31 December 2014 €million
Share capital	0.1	-	(0.0)	-	(0.0)	-	-	0.1
Share premium account	2.2	-	0.8	-	-	-	-	3.0
Own shares	(5.2)	-	3.3	-	(0.2)	-	-	(2.1)
Capital contribution reserve	24.1	-	-	-	-	-	-	24.1
Capital redemption reserve	0.0	-	-	-	0.0	-	-	0.0
Available-for-sale reserve	2.6	-	-	-	-	(0.4)	-	2.2
Retained earnings	1,240.5	-	(2.7)	(37.8)	(2.0)	(92.1)	9.8	1,115.7
Other reserve	(573.7)	-	-	-	-	-	-	(573.7)
Currency reserve	(8.2)	-	-	-	-	10.9	-	2.7
Total attributable to equity holders of parent	682.4	-	1.4	(37.8)	(2.2)	(81.6)	9.8	572.0
Non-controlling interests	(4.8)	-	-	-	-	(2.2)	-	(7.0)
Total equity	677.6	-	1.4	(37.8)	(2.2)	(83.8)	9.8	565.0

 

Year ended 31 December 2013	As at 1 January 2013 €million	Share of additional investment €million		Other issue of shares €million		Dividends paid €million		Purchase of shares €million	Total comprehensive income for the year €million	Share-based payments €million	As at 31 December 2013 €million
Share capital	0.1	-		(0.0)		-		(0.0)	-	-	0.1
Share premium account	0.6	-		1.6		-		-	-	-	2.2
Own shares	(9.9)	-		6.3		-		(1.6)	-	-	(5.2)
Capital contribution reserve	24.1	-		-		-		-	-	-	24.1
Capital redemption reserve	0.0	-		-		-		0.0	-	-	0.0
Available-for-sale reserve	1.3	-		-		-		-	1.3	-	2.6
Retained earnings	1,224.1	-		(6.3)		(33.6)		(4.2)	43.9	16.6	1,240.5
Other reserve	(573.7)	-		-		-		-	-	-	(573.7)
Currency reserve	(5.2)	-		-		-		-	(3.0)	-	(8.2)
Total attributable to equity holders of parent	661.4	-		1.6		(33.6)		(5.8)	42.2	16.6	682.4
Non-controlling interests	(2.8)	0.8		-		-		-	(2.8)	-	(4.8)
Total equity	658.6	0.8		1.6		(33.6)		(5.8)	39.4	16.6	677.6

 

Share premium is the amount subscribed for share capital in excess of nominal value.  

 

Capital contribution reserve is the amount arising from share-based payments made by parties associated with the original shareholders and cash held by the Employee Trust.

 

Capital redemption reserve is the amount transferred from share capital on redemption of issued shares.

 

Available-for-sale reserve is the change in fair value arising on financial assets classified as available for sale.

 

Retained earnings represent cumulative profit / (loss), share-based payments and any other items of other comprehensive income not disclosed as separate reserves in the table above. 

 

The other reserve of €573.7 million is the amount arising from the application of accounting which is similar to the pooling of interests method, as set out in the Group's accounting policies.

 

Currency reserve represents the gains/losses arising on retranslating the net assets of overseas operations into Euros.

 

Non-controlling interests relate to the interests of other shareholders in certain subsidiaries (see note 29).

Consolidated statement of cashflows

 

Year ended 31 December	2014 €million	2013 €million
(Loss) profit for the year	(94.3)	41.1
Adjustments for:
Depreciation of property, plant and equipment	26.3	24.4
Amortisation of intangibles	51.0	68.9
Adjustment to consideration of prior business combinations	-	1.4
Impairment of property, plant and equipment	-	1.0
Impairment of goodwill	19.7	-
Impairment of acquired and other intangible assets	76.2	2.3
Impairment of available-for-sale investments	3.2	6.1
Impairment of assets held for sale	5.3	-
Share of profit of associates and joint ventures	(2.4)	(2.3)
Interest expense	3.6	10.4
Interest income	(1.2)	(1.1)
Increase in reserves due to share-based payments	9.8	16.6
Loss on sale of property, plant and equipment	1.3	0.8
Income tax expense	(3.6)	3.8
Operating cashflows before movements in working capital and provisions	94.9	173.4
Decrease in trade and other receivables	36.4	11.7
Decrease in trade and other payables	(29.7)	(27.6)
Decrease in provisions	-	(95.5)
Cash generated from operations
Cash generated from operations	101.6	62.0
Income taxes paid	(8.8)	(12.2)
Net cash inflow from operating activities	92.8	49.8
Investing activities
Acquisition of subsidiaries and businesses - net of cash acquired	(25.0)	-
Acquisition of subsidiaries and businesses - deferred payment	-	(1.8)
Purchases of intangible assets	(22.7)	(23.5)
Purchases of property, plant and equipment	(23.4)	(22.3)
Sale of property, plant and equipment	1.4	-
Purchase of investments	(0.8)	-
Issue of loan to joint venture	(1.0)	-
Distribution received from associate	-	1.5
Repayment of loan from joint venture	2.0	5.7
Interest received	1.2	1.1
(Increase) decrease in short-term investments	(0.7)	17.9
Net cash used by investing activities	(69.0)	(21.4)
Financing activities
Issue of ordinary shares	0.8	1.6
Purchase of own shares	(2.2)	(5.8)
Dividends paid	(37.8)	(33.6)
Repayment of bank borrowings	(31.2)	(7.6)
New bank borrowings	37.7	18.1
Interest paid	(1.5)	(1.8)
Net cash used in financing activities	(34.2)	(29.1)
Net increase (decrease) in cash and cash equivalents	(10.4)	(0.7)
Exchange differences	1.5	4.3
Cash and cash equivalents at beginning of the year	173.3	169.7
Cash and cash equivalents at end of the year	164.4	173.3

 

Cash and cash equivalents

Included within cash and cash equivalents is €1.5m (2013: €nil) held within assets held for sale (see note 17).  Cash and cash equivalents balances also include€35.6m (2013: €30.3m) related to cash held in segregated accounts in certain regulated markets.

Notes to the audited consolidated financial information

 

1. Accounting policies

Basis of preparation

The consolidated financial information for the year ended 31 December 2014 has been prepared in accordance with those International Financial Reporting Standards including International Accounting Standards (IASs) and interpretations, (collectively 'IFRS'), published by the International Accounting Standards Board ('IASB') which have been adopted by the European Commission and endorsed for use in the EU for the purposes of the Group's full year financial statements.

 

The consolidated financial information complies with the Gibraltar Companies (Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended).

 

The financial information does not constitute the Group's statutory accounts for the year ended 31 December 2014 or the year ended 31 December 2013, but is derived from those accounts. The financial information is presented in Euro and rounded to the nearest €0.1m.

 

Statutory accounts for the year ended 31 December 2014 will be filed with Companies House Gibraltar following the Company's Annual General Meeting.  The auditors have reported on those accounts and their report was unqualified and did not contain statements under section 10(2) of the Gibraltar Companies (Accounts) Act 1999 or section 182(1) (a) of the Gibraltar Companies Act 1930.  Statutory accounts for the year ended 31 December 2013 have been delivered to the Registrar of Companies in Gibraltar together with a report under section 10 of the Gibraltar Companies (Accounts) Act 1999. 

 

The consolidated financial information is prepared on the basis of the accounting policies stated in the Group's Annual Report 2013 which is available on the Group's website at www.bwinparty.com. In the current reporting year, the Group has adopted a number of revised Standards and Interpretations including IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities. However, none of these have had a material impact on the Group's reporting. In addition, the IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

 

2. Segment information

 

For management purposes and transacting with customers, the Group's operations are segmented into the following reporting segments which reflect the Group's reporting of results to the Chief Operating Decision Makers ('CODMs'):

 

> sports betting,

> casino & games,

> poker,

> bingo and

> other

 

The segment 'other' includes a number of businesses that in aggregate are not large enough to account for more than 10% of the Group's revenues, Clean EBITDA or assets. Included within this segment are: World Poker Tour; the third party payment processing business, Kalixa; the financial spreadbetting business, InterTrader; software services, social gaming, profit on domain sales and the Winners retail business.

 

Under the Group's basis of segmental reporting, a high proportion of costs are allocated directly to each segment, and the remaining central costs are allocated pro rata to gross profit.  Certain product verticals are dependent on the cross-sell of players from other product verticals and thus includes a reallocation of marketing costs between these verticals in order to more accurately reflect the true profitability of that segment on a standalone basis.   Unallocated corporate expenses are allocated to each of these operating segments.  The measure of reporting segment performance is Clean EBITDA and the basis for arriving at this was the same as for the Group accounts. This measure will continue to be the case in future periods.

 

These segments were the basis upon which the Group reported its segments in 2014.  As from 1 January 2015 the Group will change its basis of internal and external segmental reporting to a label-led structure.

 

2. Segment information (continued)

 

 

Year ended 31 December 2014	Sports betting €million	Casino & Games €million	Poker €million	Bingo €million	Other €million	Consolidated €million
Total operations
Net revenue	233.4	199.4	78.7	51.5	-	563.0
Other revenue	3.7	4.3	3.0	0.4	37.5	48.9
Total revenue	237.1	203.7	81.7	51.9	37.5	611.9
Clean EBITDA	50.1	43.5	7.9	11.8	(12.1)	101.2
(Loss) profit before tax	14.0	15.5	(97.2)	0.7	(30.9)	(97.9)

 

 

Year ended 31 December 2013	Sports betting €million	Casino & Games €million	Poker €million	Bingo €million	Other €million	Consolidated €million
Total operations
Net revenue	234.0	212.8	110.1	52.5	-	609.4
Other revenue	1.8	2.8	4.5	0.6	33.3	43.0
Total revenue	235.8	215.6	114.6	53.1	33.3	652.4
Clean EBITDA	53.7	45.0	7.7	8.2	(6.6)	108.0
(Loss) profit before tax	28.4	42.3	(6.3)	1.2	(20.7)	44.9

 

Other revenue was up 14% to €48.9m (2013: €43.0), with growth across all categories year on year. The major constituents of other revenue are: WPT (€10.5m), Kalixa (€8.8m), and B2B (€8.1m).

 

Geographical analysis of total revenue

The following table provides an analysis of the Group's total revenue by geographical segment:

 

Year ended 31 December	2014 €million	2013 €million
Germany	151.9	155.3
United Kingdom	69.7	68.4
Other	390.3	428.7
Total revenue	611.9	652.4

 

3. Other operating income

 

Year ended 31 December	2014 €million	2013 €million
Release of acquisition fair value provision	-	83.8
Deferred consideration adjustments	11.3	-
Other	1.0	0.3
	12.3	84.1

 

Deferred consideration adjustments relate to changes in assumptions arising on the PXP acquisition (see note 27).  The release of the acquisition fair value provision relates to the settlement of certain legal and regulatory disputes that were created at the time of the Merger. 

 

4. Other operating expenses

 

Year ended 31 December	2014 €million	2013 €million
Merger and acquisition costs - aborted	-	1.0
Merger and acquisition costs - successful	1.5	-
Exchange losses	3.1	8.0
	4.6	9.0

 

 

5. Profit (loss) from operating activities

 

Year ended 31 December	2014 €million	2013 €million
This has been arrived at after charging (crediting):
Directors' emoluments	2.7	3.5
Amortisation of intangibles	51.0	68.9
Depreciation on property, plant and equipment	26.3	24.4
Loss on disposal of fixed assets	1.0	0.8
Exchange loss	3.1	8.0
Reorganisation expenses	8.9	9.5
Chargebacks on trade receivables (bad debts)	6.4	6.3
Impairment losses	104.4	9.4
Market exit costs	5.4	2.5
Auditors' remuneration - audit services	1.4	0.9
Auditors' remuneration - audit related services	0.1	0.1
Auditors' remuneration - transaction services	0.1	0.3
Merger and acquisition costs	1.5	1.0

 

Market exit costs relate to expenses incurred on the Group's exit from the Argentinean market and certain committed expenditure on markets where the Group is withdrawing its marketing focus. These totalled €5.4m in the year (2013: €2.5m).

 

Reorganisation costs relate to expenses incurred on restructuring the business including redundancy costs and certain contracts which will expire once migration activities are completed.

 

6. Staff costs

 

 

Year ended 31 December	2014 €million	2013 €million
Aggregate remuneration including Directors comprised:
Wages and salaries	106.3	117.8
Share-based payments	9.8	16.6
Employer social insurance contribution	15.5	17.2
Other benefits	4.9	5.3
Total staff costs	136.5	156.9
Staff costs capitalised in respect of internally generated intangible assets	(10.7)	(12.3)
Net staff costs	125.8	144.6

 

Details of Directors' emoluments will be included in the Annual Report.

 

 

Year ended 31 December	2014	2013
Average number of employees
Directors	11	11
Administration	207	185
Customer service	501	535
Others	1,834	2,087
	2,553	2,818

 

 

7. Finance income and expense

 

Year ended 31 December	2014 €million	2013 €million
Interest income	1.2	1.1
Finance income	1.2	1.1
Interest expense	(2.6)	(1.8)
Unwinding of discount on current and non-current liabilities	(1.0)	(8.6)
Finance expense	(3.6)	(10.4)
Net finance expense	(2.4)	(9.3)
		€million

 

8. Tax

 

Analysis of tax charge

 

Year ended 31 December	2014 €million	2013 €million
Current tax expense for the year	9.8	10.7
Deferred tax credit for the year	(13.4)	(6.9)
Tax (credit) expense	(3.6)	3.8

 

The effective tax rate for the year based on the associated tax expense is 3.7% (2013: 8.5%). 

 

The total expense for the year can be reconciled to accounting (loss) profit as follows:

 

Year ended 31 December		2014 €million	2013 €million
(Loss) profit before tax		(97.9)	44.9
Tax rate in Gibraltar of 10% (2013: 10%)		(9.8)	4.5
Effect of tax in other jurisdictions		6.9	6.3
Effect of non-taxable income		(1.2)	(8.4)
Effect of impairment not allowed for tax purposes		10.4	0.9
Effect of deferred tax on acquired intangibles and impairments		(13.4)	(6.9)
Effect of other expenses not allowed for tax purposes		3.5	7.4
Total tax (credit) expense for the year		(3.6)	3.8

 

The expenses not allowed for tax purposes are primarily depreciation, amortisation and impairment of assets.  In 2014 the effect of non-taxable income primarily represents IFRS required adjustments to deferred consideration (see note 27) whilst in 2013 it represented the release of the fair value provision (see note 20).

 

Factors affecting the tax charge for the year

The Group's policy is to manage, control and operate Group companies only in the countries in which they are registered.  At the year end there were Group companies registered in 23 countries including Gibraltar.  However, the rules and practice governing the taxation of eCommerce activity are evolving in many countries.  It is possible that the amount of tax that will eventually become payable may differ from the amount provided in the financial information.

 

Factors that may affect future tax charges

As the Group is involved in worldwide operations, future tax charges will be affected by the levels and mix of profitability in different jurisdictions.

 

Future tax charges will be reduced by a deferred tax credit in respect of amortisation of certain acquired intangibles.

 

 

9. Earnings per Share ('EPS')

 

Year ended 31 December	2014 €cents	2013 €cents
Basic EPS	(11.3)	5.4
Diluted EPS *	(11.3)	5.3
Basic Clean EPS	4.8	7.3
Diluted Clean EPS	4.7	7.2

 

* A diluted EPS calculation may not increase a basic EPS calculation when the basic EPS is a loss.

 

Basic earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held as own shares.

 

Year ended 31 December	2014	2013
Basic EPS
Basic profit (loss) (€million)	(92.1)	43.9
Weighted average number of ordinary shares (million)	817.8	809.2
Basic earnings (loss) per ordinary share (€ cents)	(11.3)	5.4
Basic Clean EPS
Adjusted earnings (€million)	39.5	59.2
Weighted average number of ordinary shares (million)	817.8	809.2
Adjusted earnings per ordinary share (€ cents)	4.8	7.3

 

Clean earnings per share

The performance measure of EPS used internally by management to manage the operations of the business and remove the impact of one-off and certain non-cash items is Clean EPS, which is calculated before exchange differences, reorganisation expenses, income or expenses that relate to exceptional items and non-cash charges relating to share-based payments. Clean net earnings excluding amortisation on acquired intangibles and impairments attributable to equity shareholders is derived as below.

 

Management believes that this better reflects the underlying performance of the business and assists in providing a clearer view of the fundamental performance of the Group.

 

 

	2014	2013
Year ended 31 December	Total €million	Total €million
(Loss) profit for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent	(92.1)	43.9
Reorganisation expenses	8.9	9.5
Merger and acquisition costs	1.5	-
Exchange losses	3.1	8.0
Share-based payments	9.8	16.6
Release of fair value provision	-	(83.8)
Contingent consideration adjustments	(11.3)	-
Retroactive taxes and associated charges	-	0.6
Market exit costs	5.4	2.5
Amortisation on acquired intangible assets	40.0	59.4
- Tax thereon	(5.1)	(6.9)
Impairments on acquired intangible assets and goodwill	79.1	2.3
- Tax thereon	(8.3)	-
Impairments on available-for-sale investments and joint ventures	3.2	6.1
Impairments on assets held for sale	5.3	-
Impairments on property, plant and equipment	-	1.0
Clean net earnings	39.5	59.2

 

 

9. Earnings per Share ('EPS') (continued)

 

Year ended 31 December	2014 Number million	2013 Number million
Weighted average number of shares
Number of shares in issue as at 1 January	817.7	813.0
Number of shares in issue as at 1 January held by the Employee Trust	(2.8)	(6.0)
Weighted average number of shares issued during the year	4.2	3.1
Weighted average number of shares purchased during the year	(1.3)	(0.9)
Weighted average number of ordinary shares for the purposes of basic earnings per share	817.8	809.2
Effect of potential dilutive unvested share options and contingently issuable shares	16.3	17.4
Weighted average number of ordinary shares for the purposes of diluted earnings per share	834.1	826.6

 

 

In accordance with IAS 33, the weighted average number of shares for diluted earnings per share takes into account all potentially dilutive equity instruments granted which are not included in the number of shares for basic earnings per share above. Although the unvested, potentially dilutive equity instruments are contingently issuable, in accordance with IAS 33, the period end is treated as the end of the performance period.  Those option holders who were employees at that date are deemed to have satisfied the performance requirements and their related potentially dilutive equity instruments have been included for the purpose of diluted EPS.  

 

10. Intangible assets

 

	Goodwill €million	Acquired intangibles €million	Other intangibles €million	Total €million
Cost or valuation
As at 1 January 2013	728.5	756.2	30.9	1,515.6
Adjustment to consideration of prior business combinations	(0.7)	(0.7)	-	(1.4)
Additions	-	-	23.5	23.5
Reclassification of assets	-	(0.2)	0.2	-
Exchange movements	(2.1)	(1.7)	(0.4)	(4.2)
As at 31 December 2013	725.7	753.6	54.2	1,533.5
Acquired through business combinations	22.0	18.0	-	40.0
Additions	-	-	22.7	22.7
Disposals	-	-	(1.4)	(1.4)
Reclassified as assets held for sale	(8.4)	(13.9)	(7.7)	(30.0)
Exchange movements	7.6	3.6	0.2	11.4
As at 31 December 2014	746.9	761.3	68.0	1,576.2
Amortisation
As at 1 January 2013	460.7	360.7	14.6	836.0
Charge for the year	-	59.4	9.5	68.9
Impairment	-	2.3	-	2.3
Reclassification of assets	-	0.1	(0.1)	-
Exchange movements	-	(0.3)	0.5	0.2
As at 31 December 2013	460.7	422.2	24.5	907.4
Charge for the year	-	40.0	11.0	51.0
Impairment	19.7	59.4	16.8	95.9
Disposals	-	-	(1.4)	(1.4)
Reclassified as assets held for sale	(7.8)	(9.9)	(7.5)	(25.2)
Exchange movements	1.0	2.2	0.2	3.4
As at 31 December 2014	473.6	513.9	43.6	1,031.1
Carrying amounts
As at 1 January 2013	267.8	395.5	16.3	679.6
As at 31 December 2013	265.0	331.4	29.7	626.1
As at 31 December 2014	273.3	247.4	24.4	545.1

 

Acquired intangible assets are those intangible assets purchased as part of an acquisition and primarily include customer lists, brands, software and broadcast libraries.  The value of acquired intangibles is based on cashflow projections at the time of acquisition.  The fair value of customer lists from existing customers take into account the expected impact of player attrition.

 

Other intangibles primarily include development expenditure, long-term gaming and intellectual property licences and purchased domain names.  Development expenditure represents software infrastructure assets that have been developed and generated internally.  Licences are amortised over the life of the licences and other intangibles are being amortised over their estimated useful economic lives of between three and five years. Amortisation charges are charged through administration costs on the income statement.

 

 

10. Intangible assets (continued)

 

Goodwill

Goodwill is allocated to the following cash generating units (CGUs):

 

As at 31 December	2014 €million	2013 €million
Sports	98.8	98.8
Casino & Games	67.7	67.7
Poker	-	12.8
Bingo	77.9	73.1
PXP	22.0	-
Other	6.9	12.6
At end of year	273.3	265.0

 

Impairment

In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets.  A detailed review was undertaken at 31 December 2014 to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets. The recoverable amounts of all the above CGUs have been determined from value in use calculations based on cash flow projections from formally approved budgets and long-range forecasts.  These budgets and forecasts assume the underlying business models will continue to operate on a comparable basis under the current regulatory and taxation regimes, adjusted for any known changes.

 

Sports

The recoverable amount of the Sports CGU of €350.0m has been determined from value in use calculations based on cashflow projections covering the following ten year period.  The Group believes that going beyond five years' cashflows in the value in use calculations is appropriate given the Group is an established business and is a market leader in a growth industry.

 

Operating margins have been based on past experience and future expectations in the light of anticipated economic and market conditions. Discount rates are based on the Group's weighted average cost of capital.

 

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount.

 

	Key assumptions used in the projections
Sports	Discount rate	Operating margin	Terminal growth  Rate
Key assumptions used in the projections	11.4%	22.7%	1.0%
Change in assumption required to equal carrying value	15.4%	19.1%	(18.3%)
Effect of 1% increase in assumption	(€29.9m)	€25.1m	€15.4m
Effect of 1% decrease in assumption	€36.3m	(€25.1m)	(€12.7m)

 

Casino & Games

The recoverable amount of the Casino & Games CGU of €237.7m has been determined from value in use calculations based on cashflow projections covering the following ten year period.  The Group believes that going beyond five years' cashflows in the value in use calculations is appropriate given the Group is an established business and is a market leader in a growth industry.

 

The Directors have concluded that there are no reasonably possible changes in the key assumptions which would cause the carrying value of goodwill and other intangibles to exceed their value in use. The major assumptions used for the Casino & Games CGU are as follows:

 

	Key assumptions used in the projections
CGU	Discount rate	Operating margin	Terminal growth  rate
Casino & Games	11.4%	16.1%	1.0%

 

 

10. Intangible assets (continued)

 

Poker

The weaker than expected poker market across both Europe and New Jersey has had an adverse effect on the projected value in use of the poker assets which have consequently been written down to their fair value. An impairment of €19.7m has been charged against goodwill, €59.4m against acquired intangibles and €9.3m against other intangibles.

 

Bingo

The recoverable amount of the Bingo CGU of €101.4m has been determined from value in use calculations based on cashflow projections covering the following ten year period.  The Group believes that going beyond five years' cashflows in the value in use calculations is appropriate given the Group is an established business and is a market leader in a growth industry.

 

Operating margins have been based on past experience and future expectations in the light of anticipated economic and market conditions. Discount rates are based on the Group's weighted average cost of capital.

 

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount.

 

	Key assumptions used in the projections
Bingo	Discount rate	Operating margin	Terminal growth  Rate
Key assumptions used in the projections	11.4%	23.8%	1.0%
Change in assumption required to equal carrying value	13.2%	21.2%	(4.6%)
Effect of 1% increase in assumption	(€8.7m)	€5.6m	€4.5m
Effect of 1% decrease in assumption	€10.6m	(€5.6m)	(€3.7m)

 

PXP

The recoverable amount of the PXP CGU, that was acquired during the year, of €45.1m has been determined from value in use calculations based on cashflow projections of the PXP business and synergies brought to all of the Group's operations. The cashflow projections have been made over a 5-year period.

 

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount.

 

	Key assumptions used in the projections
Other - PXP		Discount rate	Terminal growth  Rate
Key assumptions used in the projections		17.0%	2.0%
Change in assumption required to equal carrying value		18.4%	(8.5%)
Effect of 1% increase in assumption		(€3.2m)	€0.4m
Effect of 1% decrease in assumption		€3.7m	(€0.4m)

 

Other

Other comprises a number of individual CGUs which in themselves are not significant and the assumptions used to determine their carrying value cannot be aggregated.

 

Following a strategic review by the Board certain internally generated non-core assets within the Other segment have been written down to their recoverable value. During the year an impairment of €7.5m was charged to administration costs in the income statement in relation to other intangible assets within the Other CGU.

 

 

11. Property, plant and equipment

 

	Land and buildings €million	Plant, machinery and vehicles €million	Fixtures, fittings, tools and equipment €million	Total €million
Cost or valuation
As at 1 January 2013	18.5	5.5	117.6	141.6
Additions	2.4	0.8	19.1	22.3
Disposals	(2.3)	(0.3)	(5.4)	(8.0)
Exchange movements	(0.4)	(0.6)	(3.3)	(4.3)
As at 31 December 2013	18.2	5.4	128.0	151.6
Acquired through business combinations	-	-	0.2	0.2
Additions	0.2	0.5	49.3	50.0
Disposals	(3.3)	(1.9)	(32.6)	(37.8)
Exchange movements	0.8	0.6	7.9	9.3
Reclassified as assets held for sale	(3.2)	(1.1)	(5.2)	(9.5)
As at 31 December 2014	12.7	3.5	147.6	163.8
Depreciation
As at 1 January 2013	3.8	3.7	91.5	99.0
Charge for the year	2.4	1.3	20.7	24.4
Impairment	1.0	-	-	1.0
Disposals	(1.0)	(0.3)	(5.4)	(6.7)
Exchange movements	(0.1)	(0.2)	(2.6)	(2.9)
As at 31 December 2013	6.1	4.5	104.2	114.8
Charge for the year	1.6	0.9	23.8	26.3
Disposals	(1.7)	(1.9)	(31.5)	(35.1)
Exchange movements	0.3	0.3	6.0	6.6
Reclassified as assets held for sale	(0.9)	(0.5)	(3.3)	(4.7)
As at 31 December 2014	5.4	3.3	99.2	107.9
Carrying amounts
As at 1 January 2013	14.7	1.8	26.1	42.6
As at 31 December 2013	12.1	0.9	23.8	36.8
As at 31 December 2014	7.3	0.2	48.4	55.9

 

 

As at 31 December	2014 €million	2013 €million
Contracted but not provided for	4.0	1.9

 

13. Assets and liabilities held for sale

 

In accordance with the Group's focus on disposing of non-core activities, the Group have classified certain of its non-core assets as held-for-sale.  Following the decision to classify as held-for-sale, the directors have reviewed the carrying value of the business groups included within this category and an impairment charge of €5.3m has been made against certain business groups. The directors now believe that the carrying value of the holding represents the lower of cost and the current fair value of each of the business groups held for sale.

 

The Group is exploring various options with respect to the various non-core assets but believe that external sales represents the most likely option for the disposal groups included and the Group anticipates that these sales will likely complete by the end of 2015.  The assets and liabilities reclassified as held-for-sale are shown in the table below.

           

 

13. Assets and liabilities held for sale (continued)

 

As at 31 December 2014	Balance on transfer €million	Reclassified as assets held for sale €million	Impairment €million	Fair value €million
Non-current assets	13.6	(13.6)	-	-
Current assets	19.2	13.6	(5.3)	27.5
Current liabilities	(6.9)	(0.5)	-	(7.4)
Non-current liabilities	(0.5)	0.5	-	-
Assets held for sale	32.8	-	(5.3)	27.5
Liabilities held for sale	(7.4)	-	-	(7.4)

 

 

14. Investments

 

	Associates €million	Joint ventures €million	Available-for-sale financial assets €million	Total €million
As at 1 January 2013	2.0	8.4	15.4	25.8
Distribution of profits	(1.5)	-	-	(1.5)
Repayment of loan	-	(5.7)	-	(5.7)
Share of  profit	1.4	0.9	-	2.3
Unrealised gains transferred to equity	-	-	1.3	1.3
Impairments	-	-	(6.1)	(6.1)
As at 31 December 2013	1.9	3.6	10.6	16.1
Additions including loans advanced	-	1.4	0.4	1.8
Repayment of loan	-	(2.0)	-	(2.0)
Share of  profit	0.3	2.1	-	2.4
Unrealised loss transferred to equity	-	-	(0.4)	(0.4)
Impairments	-	(1.0)	(2.2)	(3.2)
Transfer to assets held for sale	(0.1)	(3.9)	-	(4.0)
Revaluations	-	-	0.3	0.3
As at 31 December 2014	2.1	0.2	8.7	11.0

 

Investment in associates

The following entity meets the definition of an associate and has been equity accounted in the consolidated financial statements. 

 

		Proportion of voting rights held at 31 December
Name	Country of incorporation	2014	2013
bwin e.k.	Germany	50%	50%

 

The Group's investment in Restaurante Cominbra II SL was transferred to assets held-for-sale as part of the transfer of non-core assets (see note 13). 

Aggregated amounts relating to associates are as follows:

 

	2014 €million	2013 €million
Non-current assets	0.2	0.4
Current assets	4.6	3.0
Current liabilities	2.6	1.7
Revenues	3.0	4.8
Profit	0.6	0.4

 

 

 

14. Investments (continued)

 

There is no unrecognised share of losses arising during the year. Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment.

 

Investment in joint ventures

The following entities meet the definition of a joint venture and have been equity accounted in the consolidated financial statements:

 

		Proportion of voting rights held at 31 December
Name	Country of incorporation	2014	2013
Circulo Payment Limited	United Kingdom	50%	n/a
Nordeus WIN (Gibraltar) Limited	Gibraltar	50%	50%

 

Aggregated amounts relating to joint ventures are as follows:

 

	2014 €million	2013 €million
Non-current assets	2.0	4.9
Current assets	16.4	6.9
Total liabilities	10.4	10.7
Revenues	37.6	36.5
Profit	4.4	2.3

 

There is no unrecognised share of losses arising during the year.

 

The Group had a joint venture agreement with Nordeus LLC to develop, market, distribute and publish a social betting platform and loaned the joint venture company €1m to develop the software platform.  In 2014, in line with the Group's policy to concentrate on its core business, the Group exited from its future commitments with respect to Nordeus WIN (Gibraltar) Limited and impaired the loan investment accordingly.

 

Circulo Payment Limited is a new venture launched in 2014 with Millicom International Cellular S.A., to develop a payment service provider to operate in Africa and Latin America.  This entity has been set up in 2014 and the Group has contributed €0.4m of investment into this business.

 

Other joint ventures included Conspo Sportcontent GmbH which repaid the final €2m of the loan which the Group had advanced.  This investment was then transferred into assets held for sale as part of the review of non-core investments (see note 13).

 

Available-for-sale investments

Available-for-sale investments primarily relate to the Group's interests in several early stage digital entertainment investment funds.

 

Investments are held in Wave Crest Holdings Limited, a payment processing company, and various gaming and non-gaming investment funds including New Game Capital LP and Axon Capital ICT Funds and Aldorino Trust, an investment trust. The value of overall investments fell by €1.8m (2013: loss of €4.8m), principally as a result of an impairment charge of €2.2m against the full carrying value of Wave Crest Holdings Limited partially offset by an additional investment of €0.4m in a further investment fund. 

 

The Directors consider that the carrying amount of the investments approximates to their fair values or estimates of the present value of expected future cashflows. 

 

 

15. Trade and other receivables

 

	As at 31 December 2014 €million	As at 31 December 2013 €million
Payment service providers	32.4	50.0
Less: chargeback provision	(1.2)	(1.3)
Payment service providers - net	31.2	48.7
Prepayments	17.2	32.2
Derivative financial assets	1.9	-
Other receivables	37.2	46.0
Current assets	87.5	126.9
Contingent consideration	10.6	10.9
Non-current assets	10.6	10.9

 

 

The Directors consider that the carrying amount of trade and other receivables approximates to their fair values, which is based on estimates of amounts recoverable.  The recoverable amount is determined by calculating the present value of expected future cashflows.

 

Deferred and contingent consideration relates to amounts receivable for the sale of Ongame and domain names.  The non-discounted book values for these amounts are €12.4m (2013: €11.8m) due later than one year but not later than five years.

 

Provisions are expected to be settled within the next year and relate to chargebacks which are recognised at the Directors' best estimate of the provision based on past experience of such expenses applied to the level of activity.

 

Movements on the provision are as follows: 

 

	€million
As at 1 January 2013	1.9
Charged to consolidated statement of comprehensive income	6.3
Credited to consolidated statement of comprehensive income	(6.9)
As at 31 December 2013	1.3
Charged to consolidated statement of comprehensive income	6.4
Credited to consolidated statement of comprehensive income	(6.5)
As at 31 December 2014	1.2

 

 

 

16. Short-term investments

 

As at 31 December	2014 €million	2013 €million
Restricted cash	13.5	12.7
	13.5	12.7

 

Restricted cash represents cash held as guarantees for regulated markets' licences and significant marketing contracts together with client funds held for payment service provider transactions. In addition, at 31 December 2014 there are other guarantees in place that are not secured with cash of €26.8m (2013: €25.0m).

 

17. Cash and cash equivalents

 

As at 31 December	2014 €million	2013 €million
Total cash in hand and current accounts	164.4	173.3
Cash held within assets held for sale (see note 13)	(1.5)	-
Cash in hand and current accounts	162.9	173.3

 

 

 

18. Trade and other payables

 

	As at 31 December 2014 €million	As at 31 December 2013 €million
Contingent consideration	0.2	1.0
Other payables	82.4	59.6
Current liabilities	82.6	60.6
Contingent consideration	4.5	3.8
Other payables	12.9	9.8
Later than one year but not later than five years	17.4	13.6
Non-current liabilities	17.4	13.6

 

Contingent consideration relates to amounts payable for the acquisitions of WPT and PXP.

 

Other payables comprise amounts outstanding for trade purchases and other ongoing costs.  The carrying amount of other payables approximates to their fair value which is based on the net present value of expected future cashflows.

 

The non-discounted book values for these amounts are as follows:

 

		Contingent consideration		Other payables
		As at 31 December 2014 €million	As at 31 December 2013 €million	As at 31 December 2014 €million	As at 31 December 2013 €million
Within one year		0.2	1.0	83.3	59.6
Later than one year but not later than five years		5.6	4.4	14.1	10.0
		5.8	5.4	97.4	69.6

 

19. Client liabilities and progressive prize pools

 

	As at 31 December 2014 €million	As at 31 December 2013 €million
Client liabilities	106.9	116.0
Progressive prize pools	9.2	8.8
	116.1	124.8

 

Client liabilities and progressive prize pools represent amounts due to customers including net deposits received, undrawn winnings, progressive jackpots and tournament prize pools and certain promotional bonuses.  The carrying amount of client liabilities and progressive prize pools approximates to their fair value which is based on the net present value of expected future cashflows.

 

20. Provisions

 

Following the successful settlement of an outstanding dispute, €83.8m of a fair value provision created at the time of the Merger was written-back during 2013.  The settlement agreed was for €1.9m resulting in a write-back of €83.8m to the statement of comprehensive income and a transfer to creditors of €1.9m. During 2013 there was also an agreement reached to settle claims from the state of Kentucky for €11.9m which was paid in that year.

 

Onerous contracts related to provisions made against the future costs of contracts where subsequent changes in legislation in certain countries meant that the future economic benefits received by the Group were less than the costs involved with fulfilling the remaining terms and conditions of the contracts and were recognised at the Directors' best estimate based on their knowledge of the markets of the countries involved.  €4.2m in respect of this provision was brought forward from 1 January 2013 and was fully utilised in that year.

 

The amounts due for provisions are recognised at fair value based on the above and carried at the best estimate of the provision discounted for the time value of money.

 

There are therefore no brought forward or closing provisions in the current year.

 

 

21. Loans and borrowings

 

As at 31 December				2014 €million		2013 €million
Secured bank loan				31.8		23.0
Current liabilities				31.8		23.0
Secured bank loan				25.1		23.1
Later than one year but not later than five years				25.1		23.1
Non-current liabilities				25.1		23.1

 

Bank borrowings are recognised at fair value and subsequently carried at amortised cost based on their internal rates of return. The discount rate applied was 5.26% (2013: 6.48%).  There are no material differences between book and fair values.

 

Principal terms and the debt repayment schedule of loans and borrowings before amortisation are as follows:

 

As at 31 December 2014	Amount	Nominal rate	Year of maturity of facility	Security
The Royal Bank of Scotland plc	£25 million	3 months LIBOR plus 3.25%	2015	Floating charge over the assets of Cashcade Limited and its subsidiary undertakings
The Royal Bank of Scotland plc	£20 million	1 months LIBOR plus 3.00%	2016	Floating charge over the assets of various of the Group's subsidiary undertakings
As at 31 December 2013
The Royal Bank of Scotland plc	£25 million	3 months LIBOR plus 3.25%	2015	Floating charge over the assets of Cashcade Limited and its subsidiary undertakings
The Royal Bank of Scotland plc	£15 million	1 months LIBOR plus 3.00%	2016	Floating charge over the assets of various of the Group's subsidiary undertakings

 

The maturity analysis of loans and borrowings, including interest and fees, is as follows:

 

As at 31 December	2014 €million	2013 €million
Within one year	34.3	25.3
Later than one year and not later than five years	26.6	25.0
	60.9	50.3

 

The £20 million loan outstanding to The Royal Bank of Scotland plc as at 31 December 2014 was a drawdown of part of a £50 million facility. 

 

22. Deferred tax

	€million
As at 1 January 2013	44.1
Exchange differences	(0.3)
Credited to consolidated statement of comprehensive income	(6.9)
As at 31 December 2013	36.9
Acquired through business combinations	3.5
Exchange differences	0.2
Credited to consolidated statement of comprehensive income	(5.1)
Credited on impairment of intangible fixed assets	(8.3)
As at 31 December 2014	27.2

 

22. Deferred tax (continued)

 

Deferred tax relates primarily to temporary differences arising from fair value adjustments of acquired intangibles.

 

23. Operating lease commitments

 

The total future minimum lease payments due under non-cancellable operating lease payments are analysed below:

 

As at 31 December	2014 €million	2013 €million
Within one year	8.6	7.5
Later than one year but not later than five years	24.5	20.8
More than five years	13.1	14.6
	46.2	42.9

 

All operating lease commitments relate to land and buildings.  Rental costs under operating leases are charged to the consolidated statement of comprehensive income in equal annual amounts over the period of the leases.

 

24. Contingent liabilities

 

From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of success of such claims and actions.

 

As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the business and takes appropriate advice in respect of these developments.

 

Indirect taxation

 

Group companies may be subject to VAT on transactions which have been treated as exempt supplies of gambling, or on supplies which have been zero rated for export to Gibraltar where legislation provides that the services are received or used and enjoyed in the country where the service provider is located. Revenues earned from customers located in any particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or on its financial position. Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where the likelihood of a liability arising is considered remote, or the possible contingency is not material to the financial position of the Group, the contingency is not recognised as a liability at the balance sheet date.

  

Litigation

 

As a consequence of the as yet non-harmonised regulatory environment for online gaming in Europe, a number of civil and administrative proceedings are pending against the Group and/or its board members in several countries (including but not limited to Germany, Portugal and Spain) aimed at preventing bwin.party from offering its services in these countries. Further, there are criminal proceedings pending against a current and former board member for the alleged violation of local gaming laws in France.

 

 

 

24. Contingent liabilities (continued)

 

On 16 October 2014, the Portuguese Supreme Court confirmed a ruling of the Oporto Court of First Instance of September 2011 against Liga Portuguesa de Futebol Profissional ("Liga"), bwin.party digital entertainment plc and bwin.party services (Gibraltar) Ltd ("bwin.party"). In this ruling the first instance Court had (i) declared the (already terminated) sponsorship agreement between bwin.party and the Liga as illegal, (ii) declared bwin.party's gaming offer and advertising measures as illegal in Portugal, (iii) prohibited bwin.party to exploit mutual bets and lottery games in Portugal and to carry out any form of publicity or promotion of the website bwin.com, (iv) imposed on the defendants pecuniary sanctions of (A) €50,000 for each day the infraction lasts, payable to the Portuguese Casino Association ("APC") and (B) €50,000 for each infraction, payable to Santa Casa de Misericórdia da Lisboa, and (v) ordered the publishing of the ruling and the notification of Portuguese media organisations.  Following the first instance ruling, the Liga and bwin.party already took measures in order to comply with the decision.  However, it cannot be ruled out that certain activities may still be considered as violation of the ruling. As the Liga and bwin.party are of the view that the courts have interpreted Portuguese rules on advertising in breach of the Portuguese Constitution, the Liga and bwin.party filed an appeal to the Portuguese Constitutional Court on 3 November 2014, which is currently pending.

 

In June 2012, APC initiated enforcement proceedings against the Liga and bwin.party, requesting the payment of pecuniary sanctions in the total amount of €6.35 million for the alleged violation of the first instance court judgment during the period between 24 September 2011 and 31 January 2012. The Liga and bwin.party remain firmly of the view that such enforcement action is formally incorrect and without merit. In June 2012, the Oporto enforcement court dismissed APC's enforcement claim for lack of enforceability. APC filed an appeal against this decision, which the second instance enforcement court granted on 25 November 2014 and decided that pecuniary sanctions were enforceable at the time APC initiated the enforcement proceeding without assessing the enforcement case on its merits. The Liga and bwin.party submitted an appeal to the Supreme Court on 12 January 2015, which is currently pending. Despite the appeal pending at the Supreme Court merely on the formal question of enforceability, the enforcement proceedings will continue before the Oporto enforcement court, where the Liga and bwin.party will be requested to submit their comprehensive defence arguments. 

 

In July 2012, the Spanish gaming operator, Codere, filed an unfair competition complaint against various bwin.party group companies. Prior to this complaint, the Spanish Court rejected Codere's request for a preliminary injunction. The complaint filed by Codere seeks damages and prejudicial consequences in the amount of approx. €25 million. On 10 July 2014, the Court issued the ruling dismissing Codere's claim and all of its petitions. On 16 October 2014, Codere filed an appeal against the ruling of first instance.

 

On 28 February 2014, bwin.party digital entertainment plc received a claim filed at the District Court of Limassol by Rodolfo Odoni against Nomato Investments Limited and six other defendants, including bwin.party digital entertainment plc and BAW International Limited (now bwin.party services (Gibraltar) Limited) in a total of seven defendants, seeking, inter alia, damages in the amount of €6.9 million.

 

No provision has been made for contingent liabilities relating to the above detailed claims.

 

In 2007, bwin Argentina S.A. ("bwin Argentina") filed an amparo complaint (protective order) requesting extraordinary constitutional protection to operate its licence granted by the gaming regulatory authority of the Province of Misiones in case of any threat or act from any specific third parties. On 26 June 2012, the court rejected the amparo complaint. Following a final decision against bwin Argentina with regard to requesting constitutional protection to operate its licence granted in the Province of Misiones, bwin Argentina must bear all costs of the proceedings (including fees of the counsels to the prevailing parties).

 

 

24. Contingent liabilities (continued)

 

As a result of various freezing orders, BBVA Banco Francés has frozen ARS 5,000,000 (approx. EUR 0.5 million) and Banco Hipotecario has frozen ARS 5,000,000. bwin Argentina has challenged the freezing orders on the grounds that the sums frozen are not proportionate to the debts. On 14 November 2013, the Federal Court of Appeal confirmed a decision pursuant to which the basis for calculating the legal fees is the amount of bwin Argentina's profits from February 2008 to December 2012. bwin Argentina appealed this decision. Full provision for the frozen funds was charged in the 2013 financial year. In August and December 2014 respectively, bwin.party was notified of the Supreme Court's decisions rejecting bwin Argentina's appeal and subsequent extraordinary appeal. bwin.party has therefore exhausted local remedies. The fees amount to ARS 18,852,489.64 plus 21% VAT (approx. EUR 1.9 million plus VAT), calculated as 25% of the net wins of bwin Argentina S.A.  In 2014 bwin.party provided for the €1.0m being the outstanding amount of these fees and is included within other payables.

 

The Directors do not consider that there are any other contingent liabilities requiring disclosure.

 

25. Share capital

 

Ordinary shares

	Issued and fully paid €	Number million
As at 1 January 2013	145,644	813.0
Employee share options exercised during the year	1,092	6.1
Issued for satisfaction of consideration	107	0.6
Redeemed as part of share buy-back scheme	(465)	(2.6)
As at 31 December 2013	146,378	817.1
Employee share options exercised during the year	1,009	7.0
Issued for satisfaction of consideration	107	0.6
Redeemed as part of share buy-back scheme	(301)	(1.6)
As at 31 December 2014	147,193	823.1

 

The issued and fully paid share capital of the Group amounts to €147,192.90 and is split into 823,147,855 ordinary shares.  The share capital in UK Sterling is £123,472.18 and translates at an average exchange rate of 1.1921 Euros to £1 Sterling.

 

Authorised share capital and significant terms and conditions

The Company's authorised share capital is £225,000 divided into 1,500 million ordinary shares of 0.015 pence each. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company. The Trustee of the Employee Trust has waived all voting and dividend rights in respect of shares held by the Employee Trust.

 

Own shares

	Own shares reserve €million	Number million
As at 1 January 2013	(9.9)	5.7
Purchase of own shares for the Employee Trust	(1.6)	1.2
Employee share options exercised during the year	6.3	(4.1)
As at 31 December 2013	(5.2)	2.8
Purchase of own shares for the Employee Trust	(0.2)	0.1
Employee share options exercised during the year	3.3	(2.0)
As at 31 December 2014	(2.1)	0.9

 

As at 31 December 2014 891,631 (2013: 2,775,627) ordinary shares were held as treasury shares by the Employee Trust. Additionally 494,453 (2013: 365,083) were held in the Employee Trust on behalf of employees of the Group.  In 2014 the Company donated £0.2m (2013: £1.3m) to the Employee Trust, which the Employee Trust then used to purchase 293,462 (2013: 1,207,565) ordinary shares in the market. 

 

 

26. Related parties

 

Group

Transactions between Group companies have been eliminated on consolidation and are not disclosed in this note.

 

Directors and key management

Key management are those individuals who the Directors believe have significant authority and responsibility for planning, directing and controlling the activities of the Group.  The aggregate short-term and long-term benefits, as well as share-based payments of the Directors and key management of the Group are set out below:

 

Year ended 31 December	2014 €million	2013 €million
Short-term benefits	6.4	9.1
Share-based payments	3.6	7.2
Termination benefits	0.6	1.3
X
	10.6	17.6

 

Entitlement under service contracts arise in respect of certain Directors and certain key management who have been granted share options under a Group share option plan. As at 31 December 2014 an aggregate balance of €nil (2013: €nil) was due to Directors and key management.

 

The Group purchased certain consultancy services of €0.2m (2013: €0.2m) from a company for whom a Board member was a director during the year with amounts owed at 31 December 2014 of €0.1m (2013: €nil).

 

The Group increased its investment in a fund by €0.4m during the year to €2.0m (2013: €1.8m). A former Board member and key shareholder was a partner of this fund.  The value of the fund fell by €0.2m in the year.  An existing loan with interest accrued was extended to this former Board member with a current value of €3.1m.  This loan is held with certain guarantees and is believed to be fully recoverable.

 

One director has a loan with the Group of €3.1m with interest accrued.  The Group holds certain guarantees against this loan and believes the amounts to be fully recoverable.

 

In the year to 31 December 2013 one Director made a deposit into a customer account with the Group with a balance as at 31 December 2014 of €2.1m (2013: €2.1m).

 

In 2013 and 2014 a furnished property was leased to two separate members of key management at an annual lease rental of €nil for which the open market value of rent of the property was €42,100.

 

A member of key management was given a short-term interest free loan of €122,000 related to relocation. This amount is being repaid on a monthly basis over 9 months. The balance outstanding at 31 December 2014 was €96,000 and is expected to be fully recoverable.

 

Associates and joint ventures

The Group purchased certain advertising services of €1.3m (2013: €1.0m) from a company that has a non-controlling interest in a Group subsidiary with amounts owed at 31 December 2014 of €0.1m (2013: €nil).

 

The Group purchased certain customer services of €3.1m (2013: €4.1m) from an associate, with amounts owed at 31 December 2014 of €0.3m (2013: €0.4m).

 

The Group purchased certain rights to broadcast licensed media of €3.5m (2013: €3.5m) from a joint venture, with amounts prepaid at 31 December 2014 of €0.3m (2013: €nil).

 

27. Acquisitions during the year

 

On 26 May 2014 the Group acquired 100% of the voting equity instruments of Servebase Group Limited. The Group of companies acquired included PXP Solutions Limited, a global multi-channel payment gateway whose in-store payments technology is used by 8,000 merchants and retailers in 27 countries worldwide.  Servebase Group Limited's principal activity is software design with technical support and computer consultancy services.  The principal reasons for the acquisition was to add in-store payment processing to Kalixa's product suite as well as provide access to cross sell Kalixa's products to PXP's customer base. 

 

27. Acquisitions during the year (continued)

Details of the provisional fair values of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

 

	Book value €million	Fair value  adjustments €million	Fair value €million
Property, plant & equipment	0.2	-	0.2
Developed software	1.5	7.1	8.6
Customer relationships	-	9.4	9.4
Trade and other receivables	1.0	-	1.0
Cash and cash equivalents	0.2	-	0.2
Trade and other payables	(1.6)	-	(1.6)
Deferred tax liability	-	(3.5)	(3.5)
Net assets acquired	1.3	13.0	14.3
Goodwill			22.0
Consideration			36.3
Cash paid on completion			22.7
Cash paid on finalisation of completion accounts			2.5
Contingent consideration			11.1
Consideration			36.3

 

The intangible assets other than goodwill are being amortised over their estimated useful economic lives of up to three years for developed software and up to five years for customer relationships.  The main factors leading to the recognition of goodwill (none of which is deductible for tax purposes) are the expertise of the workforce, synergies of the deal, the opportunity to cross-sell Kalixa's products to PXP's customer base and other non-recognisable benefits.  The amount included above for contingent consideration represents the Directors' current best estimate of the amount payable which they consider is likely to be paid, after the effects of discounting.

 

Initial cash consideration of £20.1 million (€25.2 million) was paid with contingent consideration payable of up to £20 million (€25.1 million) dependent on which of two options the Group selects before the first anniversary of the acquisition. Under 'Option A' a further £10 million (€12.3 million) would be payable on the first anniversary of the acquisition. Under 'Option B' up to £20 million (€24.6 million) would be payable based on the value of existing PXP Solutions merchant volumes transferred to Kalixa for provision of card acquiring services,  as measured on each of the first three anniversaries of the acquisition. The Group has determined the fair value of contingent consideration taking into account the probability of expected outcomes and appropriate discount rates.

 

Subsequent to the acquisition, various technical development issues, in particular the deferment of work relating to the integration of a third party supplier's platform as they go through a major upgrade, has meant that the value of the merchant volumes which could be transferred to Kalixa for card acquiring will be significantly lower than anticipated over the performance period for which deferred consideration is measured.  However, the anticipated annual synergies are expected to be ultimately realised.  As a result, the expectations relating to the deferred consideration which would be payable were revisited and the balance expected to be paid was reduced significantly.  After the unwinding of some of the interest relating to the deferred consideration, this has led to a credit to other operating income of €11.3m as required by IFRS with the resulting deferred consideration balance of €0.4m remaining within other payables.

 

In the period since acquisition, The Servebase Group has contributed €3.3 million in revenue and €0.3 million in Clean EBITDA to the Group. Had the acquisition been made on 1 January 2014, Group revenue would have been €613.9 million with an increase in loss after tax of less than €0.1 million.  Merger and acquisition costs in the year in respect of the acquisition totalled €1.5m. 

 

 

28. Dividend

 

The Board is recommending a final dividend of 1.89p per share which together with the interim dividend of 1.89 pence per share makes a total dividend of 3.78p per share for the year ended 31 December 2014 (2013: 3.60p).  The final dividend, if approved at the Annual General Meeting, will be payable to shareholders on the Register of Shareholder Interests on 24 April 2015 (the 'Record Date').  It is expected that dividends will be paid on 27 May 2015.  Shareholders wishing to receive dividends in Euros rather than pounds sterling will need to file a currency election and return it to the Group's registrars on or before 8 May 2015.  A separate announcement regarding the dividend payment has been issued today.

 

29. Non-controlling interests

 

Non-controlling interests include a 28% holding in BES S.A.S, a company incorporated in France. The loss attributable to the non-controlling interest was €1.4m (2013: €2.4m).

 

It also includes a 10% holding in bwin.party entertainment (NJ) LLC, a company incorporated in the United States. The loss attributable to the non-controlling interest was €0.8m (2013: €0.4m). 

 

The balance of retained earnings attributable to non-controlling interests is disclosed in the table below:

 

	€million
As at 1 January 2013	2.8
Loss attributable to non-controlling interests	2.8
Share of additional investment	(0.8)
As at 31 December 2013	4.8
Loss attributable to non-controlling interests	2.2
As at 31 December 2014	7.0

 

30. Post balance sheet events

 

On 20 February 2015 New Game Capital LP realised its only remaining investment through a placing of a 10.4% stake in Gaming Realms plc.  New Game Capital LP is now being wound up and the proceeds distributed to shareholders.  As the largest shareholder in New Game Capital LP, the Group expects to receive approximately €4.5m.

 

APPENDIX

 

Regulatory overview

Europe

Two important milestones were achieved during 2014. First, on 14 July 2014 the European Commission issued its recommendation on consumer protection and advertising as part of its action plan for online gambling.  While the recommendations are not legally binding, they set common standards for all Member States and will act as a 'benchmark' when assessing Member States' regulatory regimes and whether they meet the requirements set by EU law and could represent a first step towards greater harmonisation of regulatory frameworks across the EU.  The recommendation therefore complements the Commission's legal approach of re-launching pending and new infringement procedures as part of its 2012 action plan on online gambling. 

 

Second, on 16 October 2014 the European Commission confirmed that it would be taking Sweden to the Court of Justice for the European Union ('CJEU') for alleged breaches of EU law regarding its gambling regulations.  Having first initiated an infringement against Sweden in 2007, this is the first time that the Commission has launched such legal proceedings against a Member State.  In a press release issued at the time the Commission commented that:

 

"changes to the Swedish gambling law in order to make it compliant with EU law have long been envisaged but never implemented."

 

With several other Member States having also received infringement notices from the Commission regarding alleged breaches of EU law in the field of online gambling, the Swedish case should encourage Member States to ensure that their regulatory regimes meet the demands set by the EU Treaty and encourage them to make the requisite changes to comply.

 

Germany (27% of net revenue in 2014)

Having been informed that bwin.party was one of the 20 operators to be awarded a sports betting licence under the new State Lottery treaty, the licensing procedure remains on hold pending the outcome of a series of legal actions by unsuccessful applicants that are seeking to challenge the selection of licencees.  A process to facilitate a review of the original applications that is a necessary step before the merit of any legal action can be ascertained, has yet to be approved and as such further delays seem inevitable.

 

It remains to be seen whether Germany's evaluation of the State Treaty's implementation indeed satisfies the Commission's question of whether or not the restrictions imposed can be justified.  Further complications may arise from a pending case at the CJEU that is due to consider whether or not the State Treaty is compliant with EU laws.  A separate case at the German Federal Supreme Court has considered, amongst other things and having received input from the CJEU, the wider implications of the consistency of the State Treaty in the light of the originally proposed Schleswig Holstein regime. The ruling in this case is expected during the second quarter of 2015.

 

United Kingdom (11% of net revenue in 2014)

The Group was granted a continuation licence in October 2014 ahead of the introduction of the Gambling (Licensing and Advertising) Act on 1 November 2014 and from 1 December the Group has been accruing gambling duty.  A legal challenge against the introduction of the tax has been mounted by the Gibraltar Betting and Gaming Association.

 

Whilst the outcome of the forthcoming General Election on 7 May 2015 may have implications for the land-based gaming sector, changes to the online regulations seem less likely.  That said, changes to the way that horseracing is funded in the UK seem to be inevitable, changes that may then have wider implications for sports betting generally.

 

Italy (8% of net revenue in 2014)

Total gross gaming revenue across all products for the Italian market fell by 2% in 2014 to €683m according to official statistics with growth in sports betting and casino being more than offset by a 22% year-on-year decline in poker/skill games and a 14% decline in bingo.  The industry continues to lobby for a change in the way that gaming taxes are levied, moving from turnover to gross gaming revenue and while some government documents appear to indicate that they may consider such a change for offline slots, there has yet to be any confirmation that such a change may be applied to online sports betting.

France (6% of net revenue in 2014)

According to ARJEL, the French regulator, online sports betting gross gaming revenues in France grew 38% to €227m in 2014 versus €164m the prior year, driven by the FIFA World Cup.  This contrasts with poker where gross gaming revenues declined 7% to €241m (2013: €258m).  Despite concerns expressed by the regulator over the declines in poker, there is still no concrete sign of any plans to improve the regulatory or fiscal regime in France.

 

Spain (5% of net revenue in 2014)

According to data from the Spanish regulator, the total online gaming market grew by 13% in 2014 versus the previous year in terms of gross gaming revenue. This again was driven by sports betting that grew by 21% due to the FIFA World Cup. Casino grew GGR by 17% while poker declined by 1%.  Bingo remains small compared with the other products but grew by 7% year-on-year. The industry is still hoping to launch online slots in Spain later this year but an exact date remains unclear.

 

Belgium (3% of net revenue in 2014)

Despite an initiative to seek to restrict the licensed gambling offer this has not happened and in fact bwin.party was one of seven operators approved to offer live dealer games by the Belgian authorities in February 2015. 

 

Denmark (<1% of net revenue in 2014)

According to the latest figures from the Danish regulator, the market in Denmark is estimated to have grown by 21% in 2014, driven by sports betting that is estimated to have grown by 30%.  Casino grew by 8% while poker declined by 13%.  Danske Spil, our local partner, remains the market leader.

 

Elsewhere, there are moves to introduce legislation for online gaming in several countries including, Czech Republic, Hungary, Ireland, Romania, Netherlands and Portugal, to name but a few. The details of such proposals and whether such legislation may become law and when remain uncertain.

 

United States (New Jersey 1% of net revenue in 2014)

New Jersey remains the largest regulated market in the US with a total gross gaming revenue in 2014 of $123m.  The Borgata/bwin.party network remained market leader throughout the year and in December 2014 had a combined market share of approximately 33%.

 

New bills proposing to regulate online poker in the State of California have been introduced however with numerous stakeholders and a lack of consensus on some key areas including who is eligible for licensing, it remains unclear whether agreement can be reached so that the bill can become law.  New bills are also being considered in other states such as Pennyslvania but again there is no certainty as to whether or not they will receive the requisite support to become law.

 

At the federal level, there is an effort to strengthen the Wire Act through a bill that contemplates all forms of online gaming in the US.  Whilst it has received some support, there has also been some staunch opposition to the principle that the federal government should interfere with what has always been a state matter.

 

Glossary

 

'Active player days'	aggregate number of days in the given period in which active players have contributed to rake and/or placed a wager. This can be calculated by multiplying average active players by the number of days in the period
'active player' or 'active real money'	in relation to the Group's products, a player who has contributed to rake and/or placed a wager
'average active players' or 'Daily average players'	the daily average number of players who contributed to rake and/or placed a wager in the given period. This can be calculated by dividing active player days in the given period, by the number of days in that period
'B2B'	business-to-business
'B2C'	business-to-consumer
'Board' or 'Directors'	the Directors listed on the Company's website, www.bwinparty.com
'bwin'	bwin Interactive Entertainment AG, its subsidiaries and its associated companies
'bwin.party'	bwin.party digital entertainment plc, the name of the Group formed by the Merger of PartyGaming Plc and bwin Interactive Entertainment AG
'bwin.party Shares'	the Company's existing Shares and the new shares issued to the bwin shareholders in conjunction with the completion of the Merger
'Cashcade'	Cashcade Limited and its subsidiaries
'Clean EBITDA and 'Clean EPS'	EBITDA adjusted for exchange differences, reorganisation expenses, income or expenses that relate to exceptional items, and non-cash charges relating to impairments and share-based payments (see reconciliation of Clean EBITDA to operating profit/(loss) and reconciliation of Clean EPS to Basic EPS within this release)
'Company' or 'PartyGaming' or 'bwin.party'	PartyGaming Plc prior to completion of the Merger and bwin.party digital entertainment plc ('bwin.party') after the Merger
'EBITDA'	earnings before interest, tax, depreciation and amortisation
'Employee Trust'	the bwin.party Shares Trust, a discretionary share ownership trust established by the Company in which the potential beneficiaries include all of the current and former employees and self-employed consultants of the Group
'Foxy Bingo'	www.foxybingo.com, one of Europe's largest active bingo sites that was acquired as part of the purchase of Cashcade
'FTSE4good Index Series'	a benchmark of tradeable indices for responsible investors. The index is derived from the globally recognised FTSE Global Equity Index Series
'Gioco Digitale'	www.giocodigitale.it, one of the Group's principal bingo websites
'gross win margin'	gross win as a percentage of the amount wagered
'gross win'	customer stakes less customer winnings
'gross gaming revenue' or 'GGR'	gross win added to rake
'Group' or 'bwin.party Group'	the Company and its consolidated subsidiaries and subsidiary undertakings
'IAS'	International Accounting Standards
'IASB'	International Accounting Standards Board
'IFRS'	International Financial Reporting Standards
'InterTrader'	Our financial markets service, formerly known as PartyMarkets.com
'Kalixa'	The Group's payments business
'KPIs'	Key Performance Indicators such as active player days and yield per active player day
'Merger'	the merger of bwin Interactive Entertainment AG and PartyGaming Plc that was completed on 31 March 2011, accounted for under IFRS 3 as an acquisition of bwin
'new player sign-ups'	new players who register on the Group's real money sites
'partycasino'	www.partycasino.com, the Group's principal casino website
'partypoker'	www.partypoker.com, the Group's principal poker website
'player' or 'unique active player'	Customers who placed a wager or generated rake in the period
'PXP'	PXP Solutions, a private company with a 27-year track record in the card payment processing sector
'rake'	the money charged by the Group for each qualifying poker hand played on its websites in accordance with the prevailing and applicable rake structure
'real money sign-ups' or 'sign-ups'	new players who have registered and deposited funds into an account with 'real money' gambling where money is wagered, as opposed to play money where no money is wagered
'Shareholders'	holders of Shares in the Company
'Shares'	the ordinary shares of 0.015 pence each in the capital of the Company
'sports betting'	placing bets on sporting events
'UIGEA'	the Unlawful Internet Gambling Enforcement Act that was enacted in the US on 13 October 2006
'wager'	a bet on a game or sporting event
'WIN'	the Group's Social Gaming business unit established in May 2012
'WPT'	the business and substantially all of the assets of The World Poker Tour acquired by the Group on 9 November 2009
'yield per active player day'	net revenue in the period divided by the number of active player days in that period