BPTY.L Regulatory News (BPTY)

31 August 2012

bwin.party digital entertainment plc

Half year report for the six months ended 30 June 2012

Solid growth in Clean EBITDA as Merger synergies more than offset increased gaming taxes

● Pro forma# total revenue up 3% to €410.0m with growth in casino & games and sports partially offset by a decline in poker. Actual total revenue up 50% to €410.0m driven primarily by the Merger*

● Pro forma Clean EBITDA from Continuing operations up 13% to €92.3m due to revenue growth and synergies, partly offset by increased gaming duties from locally regulated markets. Actual Clean EBITDA from Continuing operations up 81% to €92.3m primarily due to the Merger

● Clean EPS from Continuing operations up 23% on a pro forma basis to 9.2 € cents per share (2011: 7.5 € cents per share)

● Strong cash generation in the period used to fund increased taxes, M&A and cash returns to shareholders; €100m in dividends and buybacks returned to shareholders in the twelve months to 30 June 2012 

● Social games unit established with substantial dedicated development team

● Half year dividend increased by 10% to 1.72 pence per share (2011: 1.56 pence)

● Board remains confident about the full year result; net gaming revenue down 8% versus Q2 12 reflecting the Euro 2012 Championship, the late start of the German Bundesliga and seasonality

Financial summary (unaudited)

* On 31 March 2011 PartyGaming Plc merged with bwin Interactive Entertainment AG ('the Merger').

# The actual results include PartyGaming's results throughout the entire period and the results of bwin Interactive Entertainment AG with effect from the Merger on 31 March 2011. Pro forma results set out the financial performance of the Group as if the Merger had always been in place.

~ Before the provision for costs associated with the Group's Non-Prosecution Agreement, reorganisation expenses, retroactive taxes and associated charges, merger and acquisition expenses, exchange differences and before non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit (loss) below).

^ Discontinued operations refers to Ongame's B2B business as well as operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA.

Earnings per share (unaudited)

~ EPS before the provision for costs associated with the Group's Non-Prosecution Agreement, reorganisation expenses, retroactive taxes and associated charges, merger and acquisition expenses, exchange differences, non-cash charges relating to share-based payments and amortisation and impairments on acquisitions (see reconciliation of Clean EPS to Basic EPS in note 8 to the Financial Information).

Commenting on today's results announcement, Jim Ryan and Norbert Teufelberger, Co-CEOs said:

"Our focus during the first half of 2012 was to continue to execute our integration plan in order to deliver the synergies committed to as part of the Merger, secure meaningful market positions in newly regulated markets and improve our core operations. With a shifting regulatory landscape and a challenging economic backdrop in several European markets, we have delivered on all three objectives as well as grown revenue and Clean EBITDA, a testament to the strength of our business model. The business remains highly cash generative and in the past 12 months we have returned €100 million to shareholders through share buy-backs and dividends.

"The fundamentals of our two largest product verticals, sports betting and casino, remain strong and we remain excited by their prospects as we develop our mobile offering in conjunction with our expansion into a number of regulated markets.

"Our UK bingo business has returned to revenue growth and we have stabilised the position in Italy where we remain the clear leader in terms of market share. In Spain, our new Binguez brand has started well and has secured a top three position in this newly regulated market.

"Poker is a key area of focus and we are determined to return it to growth through execution of a detailed plan that includes pooling our poker liquidity as well as repositioning our flagship PartyPoker brand. We expect both initiatives to have a positive impact on our performance, along with our recently launched FastForward Poker product.

"The regulatory landscape continues to evolve. During the first half we launched into Denmark where we have a strategic alliance with Danske Spil, the market leader, and also into Spain where we have established a top three position for each of our products. Having secured a sports betting licence in the northern state of Schleswig-Holstein, the regulatory backdrop in Germany, our largest market in terms of revenue, remains fluid. While we continue to believe that the proposed regime put forward by the other 15 Länder fails to meet the tests set by the European Commission and the Court of Justice of the European Union, we are engaging with the German authorities to develop and secure a long-term solution for all stakeholders."

On current trading and outlook they added:

"In the eight week period ended 25 August 2012 average gross daily revenue was down 11% and average net daily revenue was down 8% versus the second quarter of 2012. This reflects the end of the Euro 2012 Championship, the late start of the German Bundesliga and seasonality. As expected, there has been a marked reduction in bonus rates in sports betting since 1 July 2012 following the end of the Euro 2012 Championship and as a result net daily sports revenue was marginally above that in the second quarter. The Board remains confident about the full year result.

"The Board has declared an interim dividend of 1.72 pence per share, a 10% increase over 2011 and will consider making further share repurchases, subject to prevailing market conditions, other investment opportunities, appropriate gearing levels and the overall financial position of the Company. Further announcements will be made as and when market purchases are made."

Contacts:

bwin.party digital entertainment plc 

Investors Media

Peter Reynolds +44 (0) 20 7337 0100 John Shepherd +44 (0) 20 7337 0100

Interviews with Jim Ryan, Norbert Teufelberger and Martin Weigold

Interviews with Jim Ryan and Norbert Teufelberger, Co-CEOs, and Martin Weigold, Chief Financial Officer, in video/audio and text will be available from 7.00am BST on 31 August 2012 on: http://www.bwinparty.com.

Analyst meeting, webcast, dial-in and conference call details: 31 August 2012

There will be an analyst meeting for invited UK-based analysts at Numis Securities, The London Stock Exchange Building, 10 Paternoster Square, London, EC4M 7LT starting at 9.30am BST. 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, 31 August 2012

A recording of the meeting will be available for a period of seven days from 31 August 2012. To access the recording please dial the following replay telephone number:

Conference call: 2.30pm, Friday 31 August 2012

For international analysts and investors there will be an opportunity to put questions to Jim Ryan and Norbert Teufelberger, Co-Chief Executive Officers, and Martin Weigold, Chief Financial Officer, on a conference call using the following number:

A recording of the conference call will be available for seven days from 31 August on the following number:

All times are British Summer Time (BST).

About bwin.party

bwin.party digital entertainment plc is the world's largest listed online gaming company. The Company was formed from the merger of bwin Interactive Entertainment AG and PartyGaming Plc on 31 March 2011 ('the Merger'). Incorporated, licensed and regulated in Gibraltar, the Group has offices in Europe, India, Israel and the US and generated total pro forma revenue of €816.0m and pro forma Clean EBITDA of €199.3m in 2011. bwin.party is also licensed in Denmark, France, Germany (Schleswig Holstein), Italy, Spain and Alderney, and commands leading market positions in each of its four key product verticals: online sports betting, poker, casino and bingo with some of the world's biggest online gaming brands including www.bwin.com, www.PartyPoker.com, www.PartyCasino.comand www.FoxyBingo.com. At the heart of our business, our proprietary software, online gaming platforms and a strong portfolio of games collectively differentiate our customer offer.

Listed on the London Stock Exchange (ticker: BPTY), bwin.party is a constituent of the FTSE250 Index Series as well as the FTSE4Good Index Series.

Business Review

Introduction

The merger of bwin Interactive Entertainment AG ('bwin') and PartyGaming Plc ('PartyGaming') was completed on 31 March 2011 ('the Merger'). For accounting purposes PartyGaming was treated as the acquirer of bwin and as a result the Group's results for the first half of 2011 include a full period from PartyGaming while bwin was included from 1 April 2011 only. To assist analysts and investors in assessing the performance of the Group, we have also produced pro forma results for 2011 that set out the financial performance of the Group as if the combined operations had always been in place. For 2012 the pro forma and actual numbers are identical.

While further details of the consolidated performance of Continuing and Discontinued operations are contained in the financial information and the accompanying notes, all references to financial performance or key performance indicators throughout this document refer to the Continuing operations only, unless expressly stated otherwise.

Results overview

On a pro forma basis, total revenue increased by 3% to €410.0m (2011: €398.0m) with growth in casino & games and sports betting partially offset by a decline in poker that continues to be impacted by competitive pressures and a softer performance in certain southern European markets. The increase in total revenue, together with incremental synergy benefits, more than offset an 11% increase in gaming taxes (excluding retroactive taxes and associated charges) so that pro forma Clean EBITDA increased by 13% to €92.3m (2011: €81.9m). On a like-for-like basis excluding the impact of increased gaming taxes, pro forma Clean EBITDA would have increased by 17% to €95.6m (2011: €81.9m).

Actual total revenue for the period was up 50% to €410.0m (2011: €273.1m) primarily due to the Merger. Each of the product verticals benefited from the Merger reflecting the full year impact of bwin's business activities. Actual Clean EBITDA also increased as a result of the Merger by 81% to €92.3m (2011: €50.9m).

During the period, the Spanish tax authority contacted all of the major online gaming operators and made clear that, in their opinion, any online operator that has ever accepted customers from Spain has an obligation to pay Spanish taxes under two laws, one dating from 1966 and the other from 1977. Previously these laws were applied to operators based in Spain carrying out offline gaming activities and to certain kinds of bets (other than fixed-odds bets). As a result, together with a number of other operators, we completed a tax self-assessment in accordance with the Spanish tax authority's requirements and made a payment of €25.6m with respect to periods prior to June 2011. Including associated surcharges and interest, this has resulted in a charge of €31.5m in the period.

The amortisation and impairment of acquired intangibles totalled €52.1m (2011: €55.9m), which together with one-off deal and restructuring costs associated with the Merger of €2.5m (2011: €19.1m) and retroactive taxes and associated charges of €31.5m meant that on a pro forma basis the Group's Continuing operations reported a loss before tax of €15.3m (2011: €35.7m). On an actual basis, the Group's Continuing operations reported a loss before tax of €15.3m (2011: €50.8m).

Discontinued operations relate to the Ongame B2B poker business that is in the process of being sold as well as on-going costs associated with the Company's Non-Prosecution Agreement ('NPA') that was reached with the United States Attorney's Office for the Southern District of New York (the 'USAO') on 6 April 2009. The loss before tax on an actual basis after taking Discontinued operations into account was €22.4m (2011: loss before tax of €57.7m), and the actual total loss after tax was €21.3m (2011: loss after tax of €49.1m).

Reduced amortisation charges and Merger-related expenses, partially offset by increased gaming taxes during the first half of 2012 meant that the basic loss per ordinary share from Continuing operations on an actual basis was 1.7 € cents (2011: loss per share 6.6 € cents). Clean EPS from Continuing operations on an actual basis increased by 56% to 9.2 € cents (2011: 5.9 € cents). On a pro forma basis Clean EPS increased by 23% to 9.2 € cents (2011: 7.5 € cents).

Taking into account Discontinued operations, Clean EPS on an actual basis was up 65% to 8.4 € cents (2011: 5.1 € cents) while basic loss per ordinary share on an actual basis was 2.5 € cents (2011: loss per share of 7.6 € cents). On a pro forma basis, Clean EPS was up by 31% to 8.4 € cents (2011: 6.4 € cents). 

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

Reconciliation of Clean EBITDA to operating loss

During the period there were a number of strategic, operational and regulatory developments, a brief summary of which is set out below.

Strategic developments

Merger update

Having delivered €23.3m of financial and operational synergies in the full year to 31 December 2011, we have continued to make solid progress in executing our integration plan and delivered incremental synergies in the first half of 2012 of €7.3m. We remain on-track to deliver the full €65m of synergies in 2013 following the migration to our fully integrated technology platform for the dotcom markets by the end of this year. Progress in the first half included the successful launch of our download casino product onto the bwin.com platform in May 2012 that was already enjoying a significant uplift following the introduction of the no-download version to bwin customers in October 2011. Casino net revenue on bwin was up 24% in the first half with a 15% increase in active player days and an 18% increase in amounts wagered. Further revenue growth should deliver a meaningful saving on costs with reduced royalties to third parties as the share of casino revenue being generated from our in-house games increases.

We remain on-track to complete the integration of our gaming software onto a single unified technology platform as planned. Some of the operational benefits that we expect to realise include:

·; Removal of duplicate technology and supporting resources - a key source of financial synergies is the decommissioning of an entire technology platform;

·; Greater event processing capability- enabling targeted and personalised marketing content to be delivered for selected events, all linked in to our business analytics function so that we can track each and every promotion;

·; More advanced CRM - a fully integrated, centralised bonus management system capable of managing fully automated promotions to enable faster launch of new promotions as well as implementing changes to existing promotions and offers;

·; Integrated wallet management - a fully flexible wallet for all products and labels (including B2B partners), one that can be shared across multiple labels and brands;

·; Open API-based integration model- allowing an unlimited number of user interfaces and rapid integration into the platform as well as faster roll-out of new products and features;

·; Centralised fraud and risk management tools - providing detailed player profiles across all products, brands and markets, increasing player protection and reducing fraud costs; and

·; Integration of social features- leaderboards, player groups, connected players, achievements and other social features will be available on the new platform.

The financial benefits derived from each of the above have been factored in to our estimate of annualised synergies of €40m in 2012 and €65m in 2013.

Merger and acquisition-related expenses together with reorganisation expenses totalling €2.5m were incurred in the first half of 2012 (2011: €19.1m on a pro forma basis).

Sports sponsorship and media rights

With effect from 1 July 2012 we have become the new digital online betting and gaming partner for Manchester United, having secured a three-year deal with the club. Like bwin, the Manchester United brand is synonymous with the best in international sport and a recent study1 estimated that Manchester United was the world's most valuable sports brand with over 659 million fans worldwide, or 10% of the world's population.

This latest partnership complements the Group's focus on European football as evidenced by our existing relationships with Real Madrid and Bayern Munich that in the same survey referred to above were ranked respectively the second and fifth most valuable brands in international football1. In all of our main sports betting markets, football is the clear number one sport followed by sports fans.2

This focus on European football includes extending our multi-territory video streaming rights for the main football leagues in Germany and Spain for another three years to the end of the 2014/15 season. The rights for each season cover more than 700 matches in the Bundesliga and 2nd Bundesliga in Germany and over 800 matches for the La Liga, Liga Adelante and Copa del Rey in Spain.3

Positioning for entry into the US market

We are continuing to work closely with agents from the Nevada Gaming Control Board as part of our suitability review, a pre-requisite for being approved as a supplier of online gaming services in the state of Nevada.

Further to our joint venture and B2B agreements with MGM Resorts International ('MGM') and Boyd Gaming ('Boyd') announced last year, in May 2012 we announced our agreement with the United Auburn Indian Community ('UAIC'), one of California's leading tribal communities that owns and operates the Thunder Valley Casino just outside Sacramento. The agreement provides that in the event of suitable legislation being enacted, bwin.party would provide UAIC with the requisite technology and operations expertise to operate an online poker service in California. The Agreement would be for a 10-year period from the date that online poker services are launched.

Sale of Ongame's B2B platform

The process to sell the B2B assets of Ongame, one of the world's leading online poker networks is progressing. Whilst the sale is taking longer than planned following the exit of Shuffle Master from the process in June 2012, we remain on-track to migrate the bwin dotcom poker player base to the PartyPoker platform later this year as planned.

Launch of social gaming strategy

At the end of May 2012 we launched our strategy to enter the social gaming market supported by the purchase of a dedicated technology development team based in Eastern Europe for up to €16m. Social gaming is an exciting new market phenomenon in which we believe we can utilise many of our existing assets and skills. Whilst still early days, our first two games are in beta testing and the early results have been encouraging.

Operational developments

Our operational focus during the first half has centred on integrating our technology platforms, realising the financial synergies already identified as well as ensuring we are ready to launch into new markets as soon as regulations allow.

Launches into Denmark and Spain

We launched poker, casino and sports betting in Denmark on 1 January 2012 as well as poker and casino products for our local partner, Danske Licens Spil on schedule.

Whilst our local site in Spain did not launch until 5 June 2012, a great deal of effort was invested during the first half to ensure we were able to launch on time with our sports betting, poker, bingo and casino (blackjack and roulette only) products under the new regime. The launch represented the first real test of our new integrated technology platform, with all products operating on the same infrastructure. Having launched successfully ahead of the Euro 2012 football championship, we are pleased to have already secured a top three position in each product category and expect to consolidate our position further during the balance of the year.

Product development across all verticals

Having launched our bwin brand into Spain in June 2012 we have also increased significantly the scale of our live betting offer across all markets with over 29,250 live events offered during the first half, a 44% increase over the same period in 2011. In casino, having launched the no-download version of our leading PartyCasino product suite in October 2011, we launched the download version onto the bwin platform in May 2012 and have seen a meaningful uplift in player activity and the amount wagered. We also added seven new games to our casino portfolio, all of which were developed in-house. In poker, we have launched FastForward Poker in beta with full rollout next month and expect to complete the integration of our dotcom poker liquidity in the fourth quarter of 2012. In bingo we launched our new Spanish bingo product, Binguez that went live at the beginning of June 2012.

Mobile, Touch and Video

Our mobile offering is continuing to grow strongly, with total gross gaming revenue increasing by 116% to €23.1m (2011: €10.7m). The key driver of growth was in sports betting where gross gaming revenue increased by 112% to €18.4m in the first half, beating the total sports betting figure on mobile for 2011 as a whole. Mobile poker gross gaming revenue was up 314% versus the prior year to €2.0m while casino at €2.7m enjoyed a 78% increase over the prior year. We launched our new mobile sports betting portal: m.bwin.com ahead of the Euro 2012 football championship and also launched into Spain with m.bwin.es. Our mobile sportsbook customers now represent approximately 25% of our total active sports betting customers on bwin.com with six countries being over 30%. This compares with 2011 when the highest percentage in any country was 18%. By June 2012 approximately 44% of our sportsbook revenue was coming from customers that use both the web and mobile channels (2011: 31%).

Regulatory developments

There follows a review of the key regulatory developments as we see them and how they may have a bearing on our business.

Europe

In Brussels, Michel Barnier, the Commissioner for Internal Market and Services outlined his action plan in a speech to the European Parliament at the end of June. The five priority action areas that he intends to address in the announced communication on online gambling that will be published in the autumn are:

·; Consumer protection (focus on minors and vulnerable groups);

·; Prevention of fraud and money laundering;

·; Integrity of sport;

·; Enhanced administrative cooperation and efficient enforcement; and

·; Compliance of national regulatory frameworks with EU law

On the last point, there are pending infringement procedures against nine member states outstanding with the Commission and a total of 28 new complaints have been filed against the gambling regulations of 12 different member states. Michel Barnier said that the Commission would reactivate pending infringements - or based on complaints - initiate new infringement cases against member states whose gambling regulation is in violation of EU law. He went on to say "if blatant infringements persist, I will not hesitate to propose to my colleagues that the appropriate proceedings be taken or re-launched."

Germany (22% of net revenue in H1 2012)

Despite significant concerns remaining on whether or not the new German State Treaty on gambling is compliant with EU law, the new treaty was ratified by 14 out of the 16 Länder that are now in the process of preparing the requisite protocols to begin accepting licence applications and the first licences are expected to be issued in October/November 2012. Concerns have been raised both by the European Commission as well as the German Monopoly Commission that expressed serious doubts that the new treaty will meet the objectives set of avoiding gaming addiction and channelling customers to using regulated sites. bwin.party intends to apply for a licence under the new regime and work with the authorities to deliver a long-term solution that works for all stakeholders.

An amendment to the Race Betting and Lottery Act came into force on 1 July 2012 requiring all operators active in Germany to pay a 5% tax on sports betting turnover. As previously announced, we expect this will have a significant impact on our profitability in the second half.

Separately, Schleswig-Holstein, one of Germany's 16 Länder, has so far issued twelve sports betting licences and there are numerous further sports betting and casino (including poker) licence applications pending. But, following a change of government in the state at the beginning of May, the new administration has indicated that it wishes to repeal the current gambling law and no additional licences have so far been issued.

United Kingdom (10% of net revenue in H1 2012)

There has been little progress regarding the UK Government's proposal to introduce amendments to the existing Gambling Act 2005 by extending its licensing regime to include offshore online operators. Having completed a consultation process on introducing a place of consumption tax, the UK Treasury is expected to publish its conclusions and draft legislative proposals this autumn. Given the legislative timetable, it is anticipated that any changes will only be introduced in conjunction with amendments made to the Gambling Act 2005 by the Department of Culture, Media and Sport. These are not expected to be effected before December 2014. In our view, any such move would be a retrograde step as the UK currently has one of the most effective regulatory regimes for online gaming in the world, balancing the needs of effective safeguards with a competitive offering for consumers.

Italy (10% of net revenue in H1 2012)

In addition to introducing proposals that will expand the number of sports bets that can be offered under the licensing regime, the Italian government has confirmed that it will permit online slots to be offered in Italy from December 2012.

France (6% of net revenue in H1 2012)

Despite the continued critique of the current regime by numerous stakeholders, including Jean-François Villotte, president of the French regulator, ARJEL, there have not yet been any changes to the regime. The most common line of criticism is that high rates of taxation are preventing licensed operators from making a commercial return and are driving consumers to use black market sites. In the meantime there has been a significant reduction in marketing spend by licensed operators and a number of operators have chosen to exit the French market altogether.

Greece (4% of net revenue in H1 2012)

The challenging economic backdrop and the need to impose significant budget cuts and reforms has meant that there has been little development regarding the implementation of the new law covering online gaming.

Spain (4% of net revenue in H1 2012)

Having enacted the framework legislation on 29 May 2011, the new online gaming legislation came into effect at the beginning of June 2012. The regulations cover online sports betting (including live betting) poker, blackjack, roulette and bingo, but exclude online slot machines. Operators are subject to gaming tax of 25% of gross gaming revenue.

Denmark (1% of net revenue in H1 2012)

The Danish online gaming market opened at the beginning of January 2012 with regulations in place for sports betting, poker and casino games, all taxed at 20% of gross gaming revenue. Unlike a number of other jurisdictions, the market for community games is not ring-fenced and Danish players are able to play against other international consumers.

United States

There has been extensive speculation regarding the introduction by Senate Majority Leader Harry Reid and Senate Minority Whip Jon Kyl of a new federal bill to legalise online poker and tighten existing restrictions on other forms of online gaming. No such bill has yet been made public but the Senators are on-record as actively seeking support for their bill in both Houses. The political focus in the US has now turned to the Presidential election in November thereby reducing the expectations that a bill can be passed before a post-election 'lame duck' session.

At a state level, Delaware has become the second state to enact legislation that will see intra-state online gaming become legal in the US. In Nevada, the first state to pass such legislation, the state's gaming regulator has begun to issue licences to enable suitable applicants to offer intra-state online poker to Nevada-based consumers with the market expected to open in late 2012 or early 2013. In New Jersey, a bill seeking to regulate online poker and casino has passed its required committees and awaits voting on the Senate and Assembly floor. In California, efforts by Senator Rod Wright and Senate President Darrell Steinberg to regulate online poker continue. However, with the current session ending this month it is expected that the matter will likely be picked up again in the state in January 2013.

As with any political process, gauging the prospects of whether any of these federal or state measures might become law remains difficult to predict.

Dividend and distribution policy

In line with our progressive dividend policy, the Board has declared a half year dividend of 1.72 pence per Ordinary share (2011: 1.56 pence) representing a 10% increase over the prior year. The half year dividend will be payable to shareholders and depositary interest holders on the register of shareholders and register of depositary interest holders respectively on 14 September 2012 (the 'Record Date'). It is expected that dividends will be paid on 9 October 2012. 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 21 September 2012. A separate announcement regarding the dividend payment has been issued today.

Having renewed the authority to repurchase up to 10% of the Company's issued share capital at the Company's AGM on 7 June 2012 and having already repurchased a total of €70m of ordinary shares since September 2011, the Board will consider making further share repurchases in the market, subject to prevailing market conditions, other investment opportunities, appropriate gearing levels and the overall financial position of the Company. Any shares repurchased by the Company will be cancelled.

Key objectives for the rest of 2012

We remain focused on executing our stated strategy that comprises five key elements:

·; Focus on regulated and to-be-regulated markets;

·; Invest in the development of our technology and brands;

·; Secure long-term strategic alliances;

·; Extend into new areas of digital entertainment including social gaming and mobile; and

·; Act responsibly

As we do so, the following objectives are our top priorities for the rest of 2012:

·; Focus on poker

·; Drive revenue growth across each of our product verticals

·; Complete the merger integration as planned

·; Continue to leverage our assets into new areas

Focus on poker

As a key part of the final stage of our merger integration, we are now executing a detailed plan to put our poker business onto a stable footing and ultimately return the business to growth.

Over the past year our poker business has continued to operate within a challenging business environment. The competitive pressures for all operators within the global poker market remain intense and this has been compounded by the continued structural shift towards ring-fenced liquidity in locally regulated markets as well as the payment of gaming taxes. These factors, together with the technical demands arising from the integration process have prompted a further decline in poker revenues over the past year.

Our plan to return poker to growth comprises the following key elements:

1. Improved poker ecology- ensuring a healthy equilibrium within a poker room is a pre-requisite for long-term success. To improve this balance we have taken a number of steps that are expected to have a positive effect such as the removal of high-stakes tables above $5/$10 to reduce the ability for net depositing, lower stakes players to lose to higher stakes experienced players as well as improve the liquidity at lower stake levels.

2. Launch of FastForward Poker- given the popularity of a faster playing variant of Texas Hold 'em, we launched our own version in beta on PartyPoker.com on 8 August 2012. With four times as many hands played per hour FastForward Poker keeps the player in the action, and avoids any waiting time. If a player doesn't like the hand they are dealt they can fold and will be instantly moved to a new table and dealt in. We have been pleased with the early results and expect the full version to be available across all channels next month.

3. Integrate poker liquidity- as highlighted above we will integrate the dotcom platforms as well as the ring-fenced platforms in France later this year. Whilst we expect an initial level of player loss on migration we still expect to see a meaningful uplift in player liquidity and are focused on ensuring that we maximise the network effect from an increased numbers of players in each pool.

4. Repositioning of PartyPoker- having integrated our poker liquidity we will then be in a position to launch an all new version of our world-famous PartyPoker product. Having last relaunched PartyPoker in 2009 we have been working on the next generation version that will be rolled out during the first quarter of 2013. Comprising many new features and a new look and feel, our objective is to once again make PartyPoker the world's favourite poker room and return poker to growth.

We believe that each of these steps will have a positive effect on our poker performance.

Drive revenue growth across each of our product verticals

In addition to the challenges in poker outlined above, the effort and resources required in completing the integration as well as launching into new markets have constrained our ability to innovate our products as fast as we would like, holding back our top line growth.

Now that our integration is almost complete and having launched successfully into Denmark and Spain we are refocusing our efforts on driving revenue growth through the following strategies.

Mobile - our first mobile application was launched back in 2001 and it is clear that smartphone and tablet technology have revolutionised the opportunity for our products through the mobile channel. Following the launch of a dedicated Mobile, Touch and Video unit in 2011, the past year has seen us make significant progress in the first six months of 2012 with mobile gross gaming revenue up 116% versus the same period in 2011. Having launched a new mobile browser for sports betting ahead of Euro 2012, we are now working on delivering live video streaming through the mobile channel. Also on our product roadmap for the rest of this year are new mobile versions of our PartyPoker and PartyCasino products.

Product development - in addition to the evolution of our core poker product outlined above we are continuing to deliver exciting new content across each of our other verticals. In casino, we expect to launch an additional 16 new slot and mini games during the second half, all developed by our in-house team. This is in addition to the seven new games already added this year that included such titles as Ride of the Valkyries and Dr. Carter's Gene Machine. Adding new content on a regular basis is a critical success factor in the casino business and this remains a central feature of our development strategy. Our jackpot strategy is continuing to be a major draw for casino customers and our current big one jackpot is over $6.4m making it our biggest ever. In bingo we are developing an all new bingo platform, one that can support each of our regional products, the latest of which is Binguez, our all new Spanish product.

New markets - The launch of online slots into Italy at the end of this year could be a major opportunity, one that we are determined to capture and so we are already developing our launch strategy into that market. Following our successful launches into Denmark and Spain, we are examining opportunities in other markets where currently we have a limited presence. This includes Latin America, where we may be able to leverage some of our Spanish expertise following our successful launch there; and the United States where, having secured partnerships with MGM, Boyd as well as United Auburn Indian Community, we are working with our partners to ensure that, as and when the requisite laws allow, we are able to take full advantage of our strong brands in what will be the world's largest individual online poker market. 

Complete the Merger integration

Having successfully launched both no-download and download versions of our PartyCasino product onto the bwin platform, and also launched pooled poker liquidity on our new technology platform in Spain, we are now entering the final phase of our merger integration.

We remain on course to merge our poker liquidity for both the dotcom markets and the ring-fenced liquidity in France during the fourth quarter of this year, whilst Italy is scheduled for the end of the first quarter in 2013. This will increase the player liquidity on each of these platforms and should help to improve the quality of the gaming experience for all of our poker players. The end of the year will also see us move all of our gaming technology onto the new integrated systems platform, releasing significant resources as we decommission redundant technology systems and infrastructure. Approximately half our development capacity has been focused on managing the technology integration over the past 15 months and as we complete the final stages of the integration, we are already planning the redeployment of certain of these resources into product development and innovation projects to drive top line growth in each of our verticals.

We remain confident of delivering the full €65m of financial synergies as planned in 2013, an incremental €25m over and above the €40m of financial synergies expected in 2012.

Continue to leverage our assets into new areas

Outside of our four product verticals we are continuing to drive attractive returns and revenue growth through our investments in World Poker Tour, our strategic B2B relationships in key regulated markets, financial services and payment processing. More recently we have launched a new social gaming strategy and business unit with its own dedicated management team and infrastructure. Called 'Win', the new unit is based in Gibraltar and will draw on resources across the Group's locations, including dedicated technology resource based in Eastern Europe, to identify and develop new opportunities in social gaming.

Current trading and outlook

In the eight week period ended 25 August 2012 average gross daily revenue was down 11% and average net daily revenue was down 8% versus the second quarter of 2012. This reflects the end of the Euro 2012 Championship, the late start of the German Bundesliga and seasonality. As expected, there has been a marked reduction in bonus rates in sports betting since 1 July 2012 following the end of the Euro 2012 Championship and as a result net daily sports revenue was marginally above that in the second quarter.

A summary of the current trading performance relative to Q2 12 is shown below:

The transition to locally regulated markets requires investment in compliance (as markets tend to have differing specific requirements in this area) as well as the payment of additional gaming taxes, both of which put pressure on Clean EBITDA margins. Whilst these short-term headwinds cannot always be fully offset by market growth, the penetration of online gaming as a proportion of total gaming is expected to continue to expand and this bodes well for the online gaming industry as a whole. The technical and financial resources, together with strong brands required for long-term success also represent barriers to entry for new entrants or brands that are sub-scale. Given our strong international brands and proprietary technology, we believe we are well-placed to secure meaningful market shares in each market and in each of our four product verticals. We are encouraged by our progress to-date and remain confident about the outlook and the Group's prospects.

SUMMARY OF RESULTS

The actual results include PartyGaming's results throughout the entire period and the results of bwin with effect from the completion of the Merger on 31 March 2011. The pro forma results set out the financial performance of the Group as if the Merger had always been in place.

Pro forma results

Total revenue increased by 3% to €410.0m (2011: €398.0m) reflecting growth in all product verticals except poker that was impacted by continued competitive pressures and a softer performance in certain southern European markets. Despite the €2.3m increase in gaming taxes (excluding retroactive taxes and associated charges), pro forma Clean EBITDA margins increased to 22.5% (2011: 20.6%) and Clean EBITDA increased by 13% to €92.3m (2011: €81.9m), driven by the increase in revenue, financial synergies and a delay to marketing campaigns in Spain.

Actual results

The year-on-year movement in actual results was primarily driven by the inclusion of bwin for the full period for the first time, having only been included from 1 April 2011 in the prior year. As a result, total revenue increased by 50% to €410.0m (2011: €273.1m). On the back of the strong increase in revenue, actual Clean EBITDA increased by 81% to €92.3m (2011: €50.9m), despite the significant increase in gaming duties from regulated markets.

Both pro forma and actual Discontinued operations represent primarily the Ongame B2B business that is in the process of being sold together with costs associated with US customers that were no longer accepted following the enactment of the UIGEA.

The underlying performance of each of our consolidated key performance indicators, which are based on net revenue, are highlighted below.

Consolidated Key Performance Indicators

On a pro forma basis, active player days increased by 1% reflecting the impact of the Euro 2012 Championship partially offset by continued competitive pressures in poker and certain southern European markets. Yield per active player day increased by 2% with increases in all product verticals except for sports betting that experienced a decline from an increased number of casual players attracted by the Euro 2012 Championship. The total number of new player sign-ups decreased by 4% primarily due to a reduced number of poker and bingo sign-ups partly offset by an increase in the number of sports sign-ups following the marketing campaign around the Euro 2012 Championship. The combined effect of these movements was that pro forma average daily net revenue increased by 1% to €2,174,200 (2011: €2,143,100).

On an actual basis, with the exception of yield per active player day, each of our consolidated key performance indicators benefited from the inclusion of bwin for the full period for the first time. The drop in player yield that declined by 4% was due to the addition of more casual customers around the Euro 2012 Championship as well as the lower yields generated by bwin customers that were able to play PartyCasino products for the first time. The net effect was that actual average daily net revenue for the period increased by 48% year-on-year to €2,174,200 (2011: €1,472,900).

A detailed review of the Continuing operations including each of the individual product segments showing both actual and pro forma results is described below. Full details of all of the Group's historic quarterly key performance indicators (on a pro forma basis) can be downloaded from the Group's website at: www.bwinparty.com

Sports betting

Pro forma results

As expected, the Euro 2012 Championship delivered a meaningful uplift in the amounts wagered that increased by 15% year-on-year to €2.2 billion (2011: €1.9 billion). Despite having closed the bwin brand in Denmark as the market regulated, resulting in a €15.1m5 reduction in amounts wagered on sports in the country versus the prior year, a strong marketing campaign in several European territories ahead of the Euro 2012 Championship helped to more than offset this decline. A slightly lower gross win margin of 7.2% (2011: 7.5%) reflected the majority of games in the Championship playing out as expected. The net result was that gross gaming revenue increased by 9% to €154.2m (2011: €141.1m). A drive to increase new players and deposits from existing players in the run-up to Euro 2012 resulted in an increase in bonus costs that are expected to reduce in the second half. Active player days increased by 21% and new player sign-ups were up 40% versus the prior year. Clean EBITDA increased by 11% to €30.5m (2011: €27.4m) reflecting growth in revenue partially offset by higher gaming taxes in regulated markets.

Actual results

Having a full period of bwin included in the results for the first time meant that amounts wagered increased by 114% and gross and net revenue also more than doubled. The gross win margin increased to 7.2% (2011: 6.8%) reflecting an increase in margin in the first quarter of 2012 versus the comparable period in the prior year.

Bonuses and other fair value adjustments to revenue increased significantly for the reasons outlined above and, combined with an influx of more casual betters signed-up as part of the Euro 2012 Championship, yield per active player day fell to €5.1 (2011: €5.9). However, average net daily revenue more than doubled reflecting the Merger and the scale of bwin's sports betting business. The strong increase in revenue was the driver behind a substantial improvement in Clean EBITDA that increased to €30.5m (2011: €9.1m).

A summary of the key performance indicators for sports betting during the first half of 2012 both on a pro forma and actual basis is shown in the table below:

Sports betting - Key Performance Indicators

While the performance for sports betting overall has been solid, a strong performance in northern Europe has been mitigated by softer performances in southern European economies such as Italy and Greece that are being impacted by difficult economic conditions. That said, the launch of our new fully integrated platform in Spain was a key milestone for our sports business during the first half. Whilst we are continuing to refine our performance under the new regime, the launch of bwin.es went smoothly and trading to-date has been encouraging, particularly when viewed in the context of the economic challenges being faced in the region.

Casino & Games

Pro forma results

The Group's casino & games business has continued to deliver a strong performance with an 11% increase in gross gaming revenue. The drivers behind this were a 2% increase in active player days and a 9% improvement in yield per active player day. The gross win margin remained stable at 3.9% despite a few large winners of non-jackpot slots during the period, including the single largest non-jackpot win that we have ever had when one of our players won €0.8m in June. Net revenue increased by 12% to €139.7m (2011: €124.3m) and a strong performance by our B2B customers resulted in a €1.8m increase in other revenue lifting total revenue by 14% to €141.8m (2011: €124.6m). Clean EBITDA increased by 19% to €45.0m (2011: €37.7m) reflecting the growth in total revenue, partially offset by increased gaming taxes and promotional spend in newly regulated markets.

Actual results

The amounts wagered increased by 36% to €4.2 billion (2011: €3.1 billion), that in turn drove gross revenue up by 35% to €164.2m (2011: €121.7m) reflecting the increase in player activity due to the Merger and the introduction of our download and no-download versions of our PartyCasino product onto the bwin platform for the first time.

The strong growth in gross revenue fed through into net revenue that increased by 41%, helped by a reduction in bonus rates to 14.9% of gross revenue (2011:18.6%) reflecting the more casual nature of the bwin customer base. Clean EBITDA increased by 57% to €45.0m (2011: €28.6m) due to the strong growth in revenue.

Despite a heavy focus on launching the download version of our PartyCasino product suite onto the bwin platform, we still managed to launch seven new games during the period, including a tailor-made Euro 2012-themed slot game called Score that was launched prior to the start of the tournament.

A summary of the key performance indicators for the casino & games business during the first half of 2012 both on a pro forma and actual basis is shown in the table below:

Casino & Games - Key Performance Indicators

Active player days increased by 2% on a pro forma basis reflecting both the introduction of our PartyCasino product suite onto the bwin platform that went live in the popular no-download format in October 2011 and in the download format in May 2012, as well as the introduction of Italian casino games in July 2011. Player yields also increased by 9% primarily reflecting the improved casino playing experience arising from the introduction of the PartyCasino product suite onto the bwin platform. The drop in yield on an actual basis reflects the fact that bwin casino yields have historically been significantly lower than that of PartyCasino. Casino sign-ups increased by 6% on a pro forma basis, reflecting our continued drive to increase the number of dedicated casino customers. Taken together each of these factors combined to deliver a 12% increase in average daily revenue on a pro forma basis, and an increase of 40% on an actual basis.

Poker

Pro forma results

The year-on-year trends seen in the first quarter of 2012 continued into the second quarter, reflecting the continued competitive pressures in poker and a softer performance in certain southern European markets. The dotcom poker market has been particularly challenging having shown a steady decline over the past 18 months driven by the ring-fencing of certain newly regulated markets and associated gaming taxes extracting value from them. In Spain, where the market regulated at the beginning of June, the early performance has been encouraging and we have quickly secured a top three position in the market.

Against this backdrop, gross revenue fell by 9% to €120.6m (2011: €132.3m) with approximately half of the decline due to Italy reflecting the points highlighted above as well as challenges with our poker ecology that are now being addressed.

Overall, total poker revenue fell by 8% to €98.3m (2011: €106.7m). Clean EBITDA fell to €10.0m (2011: €13.5m) primarily due to the reduction in revenue referred to above, partially offset by lower affiliate expenses.

Actual results

The impact of the Merger meant that net revenue grew by 21% to €96.4m (2010: €79.8m). Clean EBITDA increased by 4% primarily due to the Merger.

A summary of the key performance indicators for poker during 2011 both on an actual and pro forma basis is shown in the table below:

Poker - Key Performance Indicators

Having amended our contractual relationship in February 2012 with certain of our larger affiliates that had been driving large numbers of marginally profitable players to our sites, active player days declined by 18% in the period and new player sign-ups fell 43% versus the prior year. However, there was a corresponding 11% increase in player yields, resulting in a net decline in average daily net revenue of 9% to €529,700 (2011: €579,600). The key driver behind this decision was to improve our overall poker ecology and despite the negative effect on absolute player numbers in the short-term, we believe that this is key to improving our medium to long-term performance. Active player days were also adversely impacted by the Euro 2012 Championship which took place in June 2012.

Improving the poker ecology is one element in our four part plan to return poker to growth. The next step will be the integration of the bwin and PartyPoker dotcom platforms during the fourth quarter of 2012. Meanwhile the roll-out of FastForward Poker will add a popular variant to our core poker product.

Bingo

Pro forma results

Gross revenue declined by 17% as promotions were focused away from marginally profitable players. This resulted in a reduction in bonus rates as a percentage of gross revenue and, consequently, net revenue was down by 5% to €31.5m (2011: €33.0). The primary reasons for the decline relate to our Italian business where we have lost some of our first-mover advantage following regulation of the market as well as the introduction of casino games in the second half of 2011 that attracted a number of players away from bingo. The decline in Italian bingo revenue was also the driver behind the 37% reduction in cost of sales which meant that gross profit was effectively flat year on year.

We expect the launch of our new Spanish bingo brand, Binguez, at the beginning of June to help revenue growth in the second half. Clean EBITDA increased to €9.0m (2011: €8.2m) reflecting lower gaming taxes and operational costs partially offset by a drop in revenue.

Actual results

The primary reason behind the increase in net revenue was the Merger and a full period's contribution from GiocoDigitale in Italy. Clean EBITDA increased by 22% to €9.0m (2011: €7.4m) primarily due to the Merger.

A summary of the key performance indicators for bingo during 2012 both on an actual and pro forma basis is shown in the table below:

Bingo - Key Performance Indicators

Active player days declined by 22% to 3.6 million (2011: 4.6 million) as focus in the UK was directed at reducing bonus costs and increasing player yields. This was successful as evidenced by the dramatic improvement in player yield that increased by 24% to €8.8 (2011: €7.1). Overall, average daily net revenue declined by 5% on a pro forma basis due to a decline in Italy as new competitors entered the market and there was some cannibalisation from the newly regulated casino games. On an actual basis, average gross daily revenue increased by 13% primarily reflecting the impact of the Merger.

Other revenue

Other revenue, that includes revenue from network services, payment services, domain sales, WPT and InterTrader was up 42% to €14.3m on a pro forma basis (2011: €10.1m) and up 120% on an actual basis (2011: €6.5m). The growth primarily reflects strong growth from WPT, the launch of a new network services customer, Danske Spil, and InterTrader.

Cost of sales

Cost of sales, primarily made up of gaming duties payable and television production costs in respect of WPT, increased by 109% to €68.5m on a pro forma basis (2011: €32.7m) and by 261% on an actual basis (2011: €19.0m). The primary drivers of the increase were the retroactive gaming tax payment and associated charges in Spain that amounted to €31.5m6 and gaming taxes payable in Denmark and Schleswig Holstein following regulation. As more markets regulate, cost of sales as a proportion of total revenue can be expected to increase.

Other operating expenses

This decreased from €16.9m on a pro forma basis in 2011 to €2.2m primarily due to merger and acquisition expenses incurred last year in respect of the Merger.

Distribution expenses

Pro forma results

Customer acquisition and retention expenses again fell year-on-year both in absolute terms as well as a percentage of total revenue, representing 20.2% of total revenue in 2012 (2011: 21.0%). This reduction reflects lower spending in both Italy and France following the initial marketing burst when these markets first regulated, partially offset by a significant marketing campaign ahead of the Euro 2012 championship. The steps outlined above to reduce our reliance on poker affiliates resulted in a reduction in affiliate costs to 7.3% of total revenue (2011: 8.5%). Customer bad debts improved further to just 0.7% of revenue (2011: 0.9%) on the back of the increasing proportion of revenue from locally regulated markets where bad debts tend to be lower. Our third-party content costs increased to €17.7m or 4.3% of revenue (2011: 3.6%), driven by a strong performance from casino & games and increased streaming content for our sports betting platform. The continued expansion in newly regulated markets meant that webhosting and technical services costs increased to 3.1% of total revenue (2011: 2.7%) reflecting the cost of developing bespoke systems and other customised requirements.

Actual results

Distribution expenses increased in the period as a result of the Merger. However, the shift in the revenue mix and the differences in amounts spent on marketing between product verticals meant that as a percentage of total revenue, distribution costs fell to 35.6% (2011: 40.4%).

Administrative expenses

Pro forma results

Transaction fees increased marginally in the period to 5.5% of total revenue (2011: 5.3%) reflecting increased payment processing for third parties. Staff costs were reduced to 15.6% of total revenue (2011: 16.8%) primarily due to synergies arising from the Merger. Outsourced services increased marginally to 3.5% of total revenue (2011: 3.4%) while the continued rationalisation of other overheads as part of the synergy programme saw these costs fall to 8.3% of revenue (2011: 9.1%). The net result was that Clean EBITDA administrative expenses reduced to 32.9% of total revenue (2011: 34.6%).

Depreciation increased in the period reflecting the fit-out of new office space in Gibraltar and India, as well as investment in new technology assets. The amortisation charge relating to acquired intangibles that is non-cash in nature, increased significantly following completion of the Merger but fell to 12.7% of total revenue in the period (2011: 15.5%) as these assets are progressively written down. There were no impairment losses on other intangibles in the period - the amount charged in the previous year of €15.3m related to software acquired as part of the Merger that would not be used for its normal economic life.

Actual results

Administration expenses increased in the period primarily as a result of the Merger. As a percentage of revenue, Clean EBITDA administrative expenses reduced to 32.9% (2011: 33.9%).

Taxation

The tax credit for the period is €1.1m (2011: credit of €8.3m) reflecting an effective tax rate for Continuing operations of 7.2% (2011: 16.3%). The decrease from the prior period is primarily attributable to a lower deferred tax credit associated with lower amortisation and impairment charges. There is immaterial tax associated with Discontinued operations and other comprehensive income.

Net cash

Cashflow