BPTY.L Regulatory News (BPTY)

13 March 2014

bwin.party digital entertainment plc

Audited results for the year ended 31 December 2013

Norbert Teufelberger, Chief Executive Officer, said:

"2013 was a challenging year for our business, but it also marked a turning point as we increased our focus on regulated and to-be-regulated markets, began to roll-out new and refreshed versions of our mobile and desktop products, and commenced the transformation of our technology infrastructure through the adoption of the Agile development methodology. Having streamlined the shape and size of our business we now have the foundations to return our business to sustainable growth."

Key points

● Total revenue of €652.4m (2012: €801.6m) reflecting shift from 'volume to value', ISP blocking in Greece, migration losses and the full year impact of gaming taxes in Germany; nationally regulated and/or taxed markets represented 53% of total revenue (2012: 43%)

● Gross gaming revenue through mobile/touch grew by 77% to €76.9m (2012: €43.4m)

● Successful US launch - number one online poker network in New Jersey

● Costs reduced by €97m in 2013 versus 2012 compared with targeted savings of €70m

● Clean EBITDA~ from Continuing operations of €108.0m (2012: €164.9m) due to lower revenue, increased gaming taxes in Germany and start-up costs in New Jersey

● Continuing operating profit of €51.9m (2012: loss of €16.5m) driven by release of acquisition fair value provisions, absence of retroactive taxes and lower amortisation costs

● Continuing Clean EPS~ of 7.3 € cents per share (2012: 14.7 € cents)

● Current trading: average daily net revenue up 6% versus Q4 13 with nationally regulated and/or taxed markets representing 56% of net revenue

● Recommended final dividend up 5% to 1.80 pence per share (2012: 1.72 pence) making a total FY13 dividend of 3.60 pence per share (2012: 3.44 pence)

Financial highlights

~ EBITDA adjusted for exchange differences, reorganisation expenses, income or expenses that relate to exceptional items, and non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit/(loss) below and reconciliation of Clean EPS to Basic EPS in note 11 to the Audited Financial Information).

^ 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.

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:

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

Consolidated Key Performance Indicators

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.

Current trading, outlook and final dividend

Trading in the first 10 weeks of 2014 has been in-line with our expectations with average daily net revenue down 10% year-on-year primarily due to the tactical shift from 'volume to value' but up 6% versus the previous quarter and with nationally regulated and/or taxed markets representing 56% of net revenue.

A summary of the current trading performance in terms of net revenue relative to the same period in 2013 and also to Q4 13 is shown below:

While New Jersey has yet to reach its full potential because of geolocation and payment processing issues that are continuing to impact all operators, the Group has made a solid start in this newly regulated market. Despite the headwinds of lost revenue from Greece and continued pressures in European poker, based on the Group's performance to-date and the planned developments outlined below, we are confident that we can deliver year-on-year revenue and Clean EBITDA growth in 2014. As a result, the Board remains confident in the Group's prospects and is recommending a final dividend of 1.80 pence per share, a 5% increase over the prior year making 3.60 pence per share for the full year - a 5% increase over 2012.

Performance by business segment

* New basis - see 'Business and Financial Review' below for further details

# Old basis

Sports betting

· Total betting turnover down 27% reflecting the shift from 'volume to value', a full year impact of the 5% turnover tax in Germany and ISP blocking in Greece; sports betting active player days down 18%

· Increase in yield per active player day from €5.8 to €6.3 due to shift from 'volume to value'

· Increase in gross win margins to 9.2% (2012: 7.8%) primarily due to tax recovery in Germany and increased volume of combination bets

· Mobile/touch: 28% of gross gaming revenue in December 2013 (December 2012: 15%)

· Nationally regulated and/or taxed markets represented 67% of sports betting revenue (2012: 47%)

· Clean EBITDA impacted by lower revenue, increased taxes in Germany and ISP blocking in Greece

Casino and games

· Total turnover down 13% reflecting shift from 'volume to value', lower cross-sell from poker and ISP blocking in Greece; casino and games active player days down 26%

· Yield per active player day up from €27.2 to €29.2 due to shift from 'volume to value'

· Slight reduction in gross win margins to 3.7% (2012: 3.9%) due to increased proportion of wagers on table games

· Mobile/touch: 10% of gross gaming revenue in December 2013 (December 2012: 1%)

· Nationally regulated and/or taxed markets represented 24% of casino and games revenue (2012: 22%)

· Clean EBITDA impacted by lower revenue, ISP blocking in Greece and launch costs in New Jersey

Poker

· Gross gaming revenue down 38% reflecting lower poker volumes in Europe and ISP blocking in Greece, partially mitigated by launch in New Jersey in November 2013; overall poker active player days down 39%

· Mobile/touch: 5% of gross gaming revenue in December 2013 (December 2012: 1%)

· Nationally regulated and/or taxed markets represented 41% of poker revenue (2012: 42%)

· Clean EBITDA impacted by lower revenue, declines in the Italian and French poker markets and launch costs in New Jersey

Bingo

· Gross gaming revenue down 12% reflecting competitive conditions in UK and market declines in Italy; active player days down 10%

· Mobile/touch: 6% of gross gaming revenue in December 2013 (2012: n/a)

· Nationally regulated and/or taxed markets represented 98% of bingo revenue (2012: 97%)

· Clean EBITDA impacted by lower revenue and competitive pressures in UK and Italy

Other

· 25% increase in other revenue to €33.3m (2012: €26.7m), driven by domain sales of €6.7m (2012: €nil) as well as growth in Kalixa, InterTrader, Win, Winners and software services

Contacts:

bwin.party digital entertainment plc 

Investors

Peter Reynolds +44 (0) 20 7337 0177

Media

John Shepherd +44 (0) 20 7337 0141

Video 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 Thursday 13 March 2014 on: www.bwinparty.com.

Analyst meeting, webcast, dial-in and conference call details: Thursday 13 March 2014

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 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's 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 together with a spreadsheet containing the Group's historic KPI data will be available on the Group's website later today.

Dial-in details to listen to the analyst presentation at 9.30am, Thursday 13 March 2014

A recording of the meeting will be available for a period of seven days from Thursday 13 March 2014. To access the recording please dial the following replay telephone number:

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), Spain and the necessary approvals to operate in New Jersey. With offices in Europe, India, Israel and the US, the Group generated continuing revenue of €652.4m and Clean EBITDA of €108.0m in 2013. 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, partycasino and Foxy Bingo. 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

2013 was a challenging year for our business, but it also marked a turning point as we increased our focus on nationally regulated and to-be-regulated markets, began to roll-out new and refreshed versions of our mobile and desktop products, and commenced the transformation of our technology infrastructure.

With further shifts towards regulated frameworks in several markets, we optimised the shape and size of our business with the aim of returning to growth in 2014. While focusing on fewer markets would reduce revenues it would also allow us to reduce our cost base significantly, and we delivered €97m of cost savings in 2013 compared with our original target of €70m of savings. However, ISP blocking in Greece, poker market declines in France and Italy as well as losses associated with the migration of players to our new technology platform in December 2012, meant that revenues declined by more than we had expected. Total revenue declined by 19% and total Clean EBITDA fell by 25% year-on-year.

Whilst disappointing, this masks good progress on several key objectives: we increased the proportion of our business in regulated and/or taxed markets having launched into Belgium and New Jersey; we began the transformation of our software delivery process with our shift to an Agile working methodology; we launched our new poker product; we grew the proportion of our revenue coming through mobile and touch and introduced our new mobile product for sports betting in Spain.

Total operating profit of €51.9m (2012: operating loss of €55.7m) reflecting the absence of retroactive taxes and lower amortisation costs as well as the write-back of acquisition fair value provisions following the successful settlement of the outstanding disputes. Having provided €85.7m at the time of the Merger, the settlement now agreed with the authorities is for €1.9m resulting in a write-back of €83.8m and a transfer to creditors of the balance. Consequently, the Group delivered a profit after tax of €41.1m (2012: loss after tax of €64.7m).

Market backdrop

Opting to reduce revenue and downsize our business is not a natural choice for an entrepreneurial enterprise like ours, but it was clear that in order to maximise our long-term prospects we had to focus our operations on fewer and more sustainable markets - a process that initially would result in lower revenues and Clean EBITDA. Whilst painful to execute, we are now in a stronger position from which we can begin to move forward - evidenced by the sequential revenue growth we have delivered since the third quarter of 2013.

As we predicted several years ago, the regulatory landscape for online gaming has continued to fragment with governments ring-fencing their online gaming markets. This development, together with the introduction of new national taxes on gaming and increased complexity, have combined to reduce financial returns.

In 2013, while we were impacted by the introduction of ISP blocking in Greece, we secured regulatory clearance to operate in both Belgium and New Jersey[1]. We do not anticipate any significant markets will implement new regulations in 2014, however several markets are continuing to develop regulatory frameworks that may come into force during 2015. In addition, the UK intends to revise its existing regime as well as introduce a point-of-consumption tax from December 2014. A summary of key regulatory developments affecting the Group is set out in the Appendix.

The opportunity

Despite an increasingly complex business environment, we believe that the market opportunity for real money gaming through digital channels is set to expand. While the structure and dynamics vary for each of our core gaming verticals (sports betting, casino & games, poker and bingo), we have established leading positions in most products and in most territories.

We are determined to monetise the opportunity before us by making our products accessible in regulated markets, through as many channels and on as many different devices as we can. But to be truly successful, we also need to ensure that our products appeal to the largest possible audience over the medium-term. These two factors: accessibility and customer appeal define the core drivers of our business model that is focused on driving sustainable growth in revenue and Clean EBITDA. 

Strategy for growth

The shift towards regulation means that the previous, so-called 'dotcom' approach to online gaming markets: one product (sports, poker, casino & games or bingo), one channel (worldwide web) and one domain (dotcom), is no longer sustainable. With governments seeking to raise additional taxes, the transition to fragmented, nationally regulated digital gaming markets is inevitable, as are the increasing demands of the modern digital consumer. Our strategy has been set to maximise the long-term potential of our business model in this fast changing and complex environment.

The five pillars of our strategy have not changed since bwin.party was first conceived as a new entity back in the summer of 2010:

· Be a leader in nationally regulated and to-be-regulated markets

· Invest in our core assets: technology, products, brands and people

· Secure long-term strategic partnerships

· Extend into new areas

· Act responsibly

Each pillar is focused on either improving accessibility to our products, enhancing the appeal of our products, or both. Our long-term success will be driven by our ability to execute against each strategic pillar and we have established a series of key performance indicators ('KPIs') against which our success and future progress can be measured.

Implementing our strategy

Online operators have adopted different approaches in order to harness the online gaming opportunity and our own path is different from most. While many have sought to embed third-party software into their existing franchise, we have developed almost all of the requisite technological skills and assets in-house. However, recognising that we do not have a monopoly on good ideas, we have also developed the requisite tools to enable third party developers to connect to our systems through open application programming interfaces ('API's), thereby maximising the potential product offering for our customers. Our objective is to reach our customers using a flexible, modular, scalable and highly resilient technology platform; one that provides easy access to games through traditional, as well as new digital channels including mobile and social platforms; can easily switch between B2C as well as B2B business models; and that can be tailored to meet prevailing regulatory requirements and demands that continue to vary from market-to-market.

We acknowledge that, to-date at least, we have yet to realise the full potential of what we are building. However, we are starting to see what can be achieved - being able to launch new product labels through multiple channels quickly and at low cost into newly regulated markets is the acid test. Our early success in New Jersey has proven what is now possible.

Managing key risks

The online gaming sector has to contend with continuous regulatory, technological and fiscal change as part of its day-to-day business. Regulatory change remains one of our biggest challenges but we have developed significant experience and invested in the resources needed to manage this risk as well as seize the opportunities that also arise from regulatory change.

While regulation and other external factors are largely outside our control, through a coherent risk management framework we are able to sustain our business model as well as identify new opportunities for future growth.

Achievements in 2013

As summarised in the 'business and financial review' below, our results last year were below what we had initially expected to achieve. While external and some internal factors such as migration losses meant that the rebasing of our business was more painful than we had anticipated, we made solid progress against many of the operational objectives set out in my review last year and are now well-positioned to return to growth. I do not propose to go through all of these achievements, but there are three that I wanted to highlight.

First, increasing the proportion of our business coming from nationally regulated and/or taxed markets was a key objective. The shift from 'volume to value' saw us reduce or discontinue new customer acquisition in 18 countries and shift our focus onto the more sustainable regulated markets. As explained below, whilst we successfully reduced our exposure to territories without nationally regulated frameworks, a number of regulated markets actually shrank in 2013 due to macroeconomic and other factors and this affected our overall revenue and Clean EBITDA performance.

Second, the launch of our network in New Jersey at the end of November 2013 was a key milestone for us in expanding our presence in regulated markets. Having secured the leadership position[2], we remain optimistic that New Jersey will continue to grow and become an attractive and profitable market for us, although as already announced, we do not believe that we will achieve profitability there until 2015.

Third, innovating our core gaming products and improving the experience of our customers was another key objective for us in 2013. The first version of our new poker product went live in September but so far has only been available to our dotcom customers and the recently opened New Jersey market (together representing approximately 65% of our total active customer base in December 2013). Given the challenging market backdrop in Europe, we are pleased with the new product's performance to-date and plan to enhance our offer and add many more features throughout 2014 that we believe will help to drive additional growth. During 2014 we plan to roll-out the new product to more countries, increasing its coverage of our total active base. Our new mobile sports betting product launched into Spain in December 2013 and, once through its initial testing phase, will be launched in other key markets during 2014. Each of these product enhancements will be complemented by a marked improvement in our digital marketing capabilities, leveraging our extensive international player base.

Each of these initiatives represent important steps towards returning our business to growth.

Things we still need to do

Despite having delivered against many of our objectives for 2013, there were some items that we have yet to complete. Whilst we made good progress towards achieving our target technology platform, we still have further work to do and as a result continue to run duplicate technologies across our platforms in France and Italy. Delays to the launch of our new poker software in dotcom markets until September 2013, coupled with the launch into New Jersey in November, meant we were unable to integrate France and Italy during the year as we had originally intended. Both integrations are now scheduled to take place later this year, releasing additional synergies in 2015 and simplifying our operations further.

Some late changes to design and user experience meant that there were some delays in launching mobile applications for our new poker product before the year-end. However, we are now live in New Jersey on iOS and Android and expect to launch a number of new features including sit 'n' go tournaments and an HTML5 version of 'FastForward' within the next few weeks.

In our half year results presentation in August 2013 we talked about addressing what we call 'technical debt' - areas of our software and technology set-up that need to be improved and updated to ensure maximum platform stability and a smooth user experience. With the demands of many other projects in 2013 we still have work to do in order to reduce the level of technical debt further and this is scheduled to take place during the first half of 2014.

Plans for 2014 and KPI targets for 2015

Focus on sustainable markets

Against this backdrop, our plans for 2014 are clear: first, we will continue to focus on nationally taxed, regulated and to-be-regulated markets. This will include the US where we want to consolidate our market-leading position in New Jersey as well as secure market entry into other states that pass the requisite legislation and that represent a significant business opportunity for us.

As part of our desire to increase focus, we will look to divest non-core assets in order to further reduce complexity and costs. Any surplus funds raised from disposals will be returned to shareholders when appropriate.

Mobile/touch

Second, the explosion in mobile/touch represents a major opportunity for the Group and we are determined to increase our mobile footprint significantly. Having been held back from releasing cutting-edge mobile products until now due to other priorities, we believe there is an opportunity to replicate the success achieved on mobile/touch by several operators in the UK, across each of our core markets in Europe as well as the US. Our new sports betting application for mobile that is built in HTML5 will be rolled-out across key markets later this year.

Increase productivity

Now that we are emerging from the complex integration of our multiple technology platforms, we are determined to deliver a marked improvement in productivity, stability and speed to market during 2014, This will be assisted by our transition to the Agile development methodology.

For the three plans highlighted above, our KPIs are as follows:

· By the end of 2015 we plan to have 75% of our net revenue coming from nationally taxed and /or regulated markets[3]. Having shifted our tactics from 'volume to value' during 2013, we had already reached 53% of net revenue coming from these markets in 2013 and want to continue to build on the positive start that we have made in New Jersey where our network currently has an approximate 40% market share[4]. By the end of 2015 we want to continue to command a leadership position in New Jersey and aim, legislation permitting, to have launched into at least one other state;

· In mobile, we have big ambitions. Users that typically use mobile as well as desktop devices tend to be higher value players. Therefore, we are aiming to increase the proportion of our gross gaming revenue that comes through mobile and touch devices from 10% in 2013 to 50% by December 2015; and

· For both our US and non-US technology platforms we are aiming to increase significantly the volume of technology releases delivered each year and improve the availability of our services. Having implemented seven major platform releases on our non-US platform in 2013, this will increase to eleven releases in 2014 and our target is to be able to deliver 24 platform releases and 52 gaming-related releases per annum by the end of 2015, all of which will help to ensure that we deliver on our strategic objectives.

Board changes

Back in November 2013, Simon Duffy, Non-Executive Chairman notified the Board of his intention not to stand for re-election to the Board at the forthcoming AGM. The Board wishes to thank Simon for his contribution over the past three years and wishes him every success for the future. As previously announced, a process is underway, led by the independent directors, to find Simon's successor.

Dividend

The Board is recommending a 5% increase in the final dividend to 1.80p per share which together with the interim dividend of 1.80 pence per share makes a total dividend of 3.60p per share for the year ended 31 December 2013 (2012: 3.44p).  The final dividend, if approved at the Annual General Meeting, will be payable to shareholders on the register of shareholder interests on 25 April 2014 (the 'Record Date'). It is expected that dividends will be paid on 28 May 2014.  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 2 May 2014. A separate announcement regarding the dividend payment has been issued today.

Share repurchases

Using the authorities granted by shareholders at the 2012 and 2013 AGMs to repurchase up to 10% of the Company's issued share capital, in 2013 the Company bought back 2,635,677 shares for cancellation at a total cost, including commission of £3,513,586. The Company has purchased 500,000 shares for cancellation since the year-end at a total cost, including commission of £577,437. The total number of bwin.party shares in issue as at 11 March 2014 is 817,477,478 and the total number of voting rights in issue is 814,398,097 (total number of shares in issue minus 3,079,381  shares held by the employee benefit trust in respect of which the voting rights have been waived).

Norbert Teufelberger

Chief Executive Officer

BUSINESS AND FINANCIAL REVIEW

^ 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.

~ EBITDA adjusted for exchange differences, reorganisation expenses, income or expenses that relate to exceptional items, and non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit/(loss) below and reconciliation of Clean EPS to Basic EPS in note 11 to the Audited Financial Information).

Total revenue was €652.4m (2012: €801.6m) reflecting the shift from 'volume to value' announced in March 2013, the impact of reduced cross-sell volumes following the dotcom platform migration in December 2012, as well as market declines in certain regulated markets and ISP blocking in Greece. The introduction of a 5% turnover tax on sports betting in Germany and the securing of a licence in Belgium contributed to higher gaming taxes in these two countries. However, market declines in other regulated markets meant that total gaming taxes (excluding retroactive taxes) fell by €2.7m to €80.1m. Increased TV production costs at WPT meant that total cost of sales, excluding retroactive taxes and associated charges, increased by €0.2m to €88.9m (2012: €88.7m). Taken together with lower revenue and start-up costs in New Jersey, Clean EBITDA declined to €108.0m (2012: €164.9m).

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

Reconciliation of Clean EBITDA to operating profit

Amortisation fell by 28% to €68.9m (2012: €95.5m), partially offset by a small increase in depreciation charges, reflecting the acquisition of the business and assets of Orneon and Velasco Services that were acquired in May 2012.

€83.8m of a fair value provision created at the time of the Merger was written-back during the second half of 2013. €1.9m was transferred to creditors.

Share based payments fell by €3.5m to €16.6m (2012: €20.1m) because of a reduction in the number of senior executives participating in the Group's incentive schemes as part of the Merger synergy programme and other cost-saving measures.

Impairment losses of €9.4m (2012: €2.0m) were incurred in respect of write-downs of certain non-core investments held by the Group. Market exit costs relate to expenses incurred on the Group's exit from the Argentinean market. These totalled €2.5m in the period (2012: nil).

As a result, the Group's Continuing operations reported a profit before tax of €44.9m (2012: loss of €23.5m).

Discontinued operations relate to the Ongame B2B poker business that was sold in October 2012 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. No further charges were incurred during the period. The profit before tax after taking Discontinued operations into account was €44.9m (2012: loss before tax of €62.9m).

Taking into account Discontinued operations, total Clean EPS of 7.3 € cents was down 40% (2012: 12.1 € cents) while total basic EPS was 5.4 € cents (2012: loss per share of 7.8 € cents).

New basis of segmental reporting

As disclosed at the time of the 2013 half year results, the basis for the allocation of costs and resources for the latest reporting period has changed and is no longer comparable with the prior year. While total Clean EBITDA is directly comparable with the prior year, the Clean EBITDA generated by each vertical is not and so we have provided the figure on both the new as well as the previous basis, against which the prior year is directly comparable. It has not been possible to provide a comparable Clean EBITDA figure by vertical on the new basis for 2012 as the new organisation structure did not then exist.

The new basis aims to reflect more appropriately the fact that certain product verticals are dependent on the cross-sell of players from other product verticals and thus includes a re-allocation of marketing costs between these verticals in order to reflect more accurately the profitability of that segment on a stand-alone basis. Also, under the new basis a higher proportion of costs are allocated directly to each segment and the remaining central costs are now allocated pro rata to gross profit instead of net revenue.

There follows a more detailed review of the Continuing operations including each of the individual product segments.

Sports betting

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

In addition to the shift from 'volume to value' and ISP blocking in Greece, the introduction of a 5% turnover tax for German customers on 1 July 2012 contributed to a 27% decline in amounts wagered as well as a 22% increase in cost of sales. The new fiscal regime in Germany partly contributed to an increase in gross win margin as we sought to recover some of the tax due from customers as well as encourage them to shift towards betting on longer odds and combination bets. As a result, the total gross win margin increased to 9.2% (2012: 7.8%). Our increased focus on higher value customers together with the absence of the Euro Championship saw bonuses reduce to 0.8% of the amount wagered (2012: 0.9%) and this helped to mitigate the impact of lower turnover on net revenue which was down 11% at €234.0m (2012: €262.8m). Having generated approximately €32m of net revenue in 2012, ISP blocking in Greece from August 2013 saw Greek revenue almost eliminated during the fourth quarter. While there are several legal challenges underway in Greece, it seems unlikely that there will be any positive resolution there in the short-term.

The impact of lower revenue and a €10.1m increase in gaming taxes, primarily in Germany, resulted in Clean EBITDA from sports betting of €53.7m on the new basis and €23.2m on the old basis (2012: €42.7m).

Under the previous basis of segmental reporting, costs that were not able to be directly allocated to a particular vertical were allocated pro rata to the net revenue generated by each vertical. Following the introduction of the turnover tax on sports betting in Germany, the sports betting segment was allocated a disproportionately high share of central costs under the old basis. Under the new basis of segmental reporting, a higher proportion of costs are allocated directly to each segment, and the remaining central costs are now allocated pro rata to gross profit.

A summary of the key performance indicators for sports betting during 2013 is shown in the table below:

Sports betting - Key Performance Indicators

Whilst new player sign-ups and player volumes declined by 30% and 18% respectively, this was driven by the shift from 'volume to value', ISP blocking in Greece and the fact that prior year volumes (activity and new player sign-ups) were flattered by the Euro 2012 Championship that had resulted in a higher than normal level of activity. The greater focus on more valuable players can be seen by the increase in player yields that also benefited from a reduced number of casual players during the Euro 2012 Championship. The net impact was that average daily revenue was down year-on-year at €641,100 (2012: €718,000).

While bwin remains a leading brand across continental Europe, our digital partnerships with Manchester United (UK), Real Madrid (Spain), Bayern Munich (Germany), Olympique de Marseille (France), RSC Anderlecht (Belgium) and Juventus (Italy) have all helped to raise our brand profile in each of these nationally regulated and/or taxed markets. Based on external market data, our estimated market share in terms of gross gaming revenue in Belgium was 8% (went live under licence in March 2013), in France it was 18%, in Italy it was 9% and it was 20% in Spain[5].

Mobile and touch is an increasingly popular channel for sports bettors across Europe. In 2013, mobile/touch represented 19% of sports gross gaming revenue (2012: 12%) and in December 2013 it had reached 28% of gross gaming revenue versus 15% a year earlier. Our analysis shows that bwin customers that play on both mobile and desktop generate incremental value over those that use the desktop alone. As a result, we expect that by increasing the proportion of our customers using our next generation mobile product as well as desktop, our revenue will also grow.

Key objectives for 2014/15:

As mentioned above, increasing our share in regulated markets is at the heart of our business strategy. We plan to increase our already strong brand presence in these markets using our digital partnerships with six of Europe's leading football clubs by offering unique experiences and content to bwin customers. This effort will be complemented by improvements in our digital marketing capabilities, leveraging our extensive international player base. We also plan to expand the reach of our new mobile and touch products significantly and expect that by December 2015, 50% of total net revenue will be through mobile and touch devices, driven by sports betting.

The first stage of the FIFA World Cup starts on 12 June and the final takes place on 13 July. With all of the major European countries competing, this should provide a meaningful uplift in betting turnover for the Group during June and July.

Having entered into a supply agreement with Fortuna Entertainment Group in January 2014, we are looking to add further B2B agreements with a view to leveraging our extensive sports content through partnerships in non-core markets.

Casino & Games

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

Total stakes fell by 13% in the year driven by the shift from 'volume to value', ISP blocking in Greece and a softer performance in poker that continues to act as a major source of player traffic for partycasino. Performance was also impacted by migration losses incurred following the transfer of 13 million bwin customer accounts onto our integrated technology platform at the end of 2012. While the full launch into New Jersey on 26 November provided some growth in December, it was insufficient to prevent the decline year-on-year.

A reduction in gross win margin to 3.7% (2012: 3.9%) reflected a shift in business mix towards lower hold table games driven by the popularity of these games among bwin sports betting customers. As a result, gross revenue fell by 18% to €262.3m (2012: €318.6m). Whilst bonus costs remained flat in absolute terms, they increased as a proportion of gross revenue reflecting increased loyalty points generated and redeemed by top tier players and as a result net revenue fell 21%. Lower total revenue and launch-related marketing costs associated with New Jersey meant that Clean EBITDA was €45.0m on the new basis and €72.6m on the old basis, a 9% decline versus the previous year (2012: €80.1m). A summary of the key performance indicators for casino and games is shown in the table below:

Casino and games - Key Performance Indicators

Active player days fell by 26% which was in line with the performance in the first half of 2013, driven by the shift from 'volume to value'. This also impacted new player sign-ups following the decision to cease player acquisition and registration in 18 countries. Despite steps taken to improve operational performance in the second half such as improved mini games and mobile offerings, ISP blocking in Greece in August acted as a significant drag on performance with a significant reduction in the number of daily players from Greece during the second half versus the same period in 2012. While the focus on more valuable customers meant that player yields increased by 7%, lower player activity meant that average daily revenue declined by 21% to €583,000 (2012: €734,400).

Objectives for 2014/15:

Regulated markets will remain a consistent theme although for casino & games, customer traffic is much more dependent on cross-sell from sports betting and poker than from stand-alone customer acquisition. While the main cross-sell in Europe will be from sports betting, in the US it will be from partypoker. By tailoring our offer to maximise the appeal of our casino offer to sports bettors and poker players respectively and by improving our digital marketing capabilities, we aim to increase player volumes and revenue.

Having represented 6% of total casino gross gaming revenue in 2013, we plan to increase the proportion of casino & games revenue coming through mobile/touch channels significantly over the next 18 months, driven by the launch of mobile casino apps in several regulated territories following our successful launch in Belgium in January 2014.

We plan to differentiate our content offering with a greater selection of exclusive proprietary games, including games leveraging our sports sponsorships, while at the same time sourcing 'best of breed' games from leading content suppliers so that we will have over 120 new games in our portfolio by June 2014, of which 25 will be available on mobile/touch devices.

Poker

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

While the launch of our new poker product on 5 September 2013 to customers using our dotcom poker services helped to improve the recent revenue trend, structural declines in many markets including Italy and France, coupled with ISP blocking in Greece made for a challenging operating environment. While the new product has so far only been made available to customers in dotcom markets and New Jersey (it has not yet been launched in Belgium, Denmark, France, Italy or Spain), overall customer feedback has been positive and we are pleased with its performance in a difficult market.

Having exited the US market on 13 October 2006, partypoker's return in New Jersey was undoubtedly one of the highlights of 2013 and represented a major milestone for our poker business. Having received the requisite transactional waiver from the Division of Gaming Enforcement and after a five-day test period, we went live with poker and casino products within the state of New Jersey on 26 November 2013. While pleased with the early performance of our network, that operates on a completely stand-alone platform and is distinct from the rest of our technology, one month's contribution in 2013 was not sufficient to make any meaningful impact on the overall poker result for the year as a whole.

The shift from 'volume to value' coupled with the challenges outlined above meant that new player sign-ups and activity levels were down 55% and 39% respectively. Our increased focus on more valuable customers delivered a 44% reduction in bonus costs, the result being that net revenue declined by 37%. Despite an increase in other revenue following the launch in New Jersey, total poker revenue fell by 35% to €114.6m (2012: €176.5m). The drop in revenue was matched by a similar reduction in cost of sales due to market declines in a number of regulated markets including France where taxes are particularly high. Clean EBITDA on the new basis was €7.7m and €22.3m on the old basis (2012: €28.5m) a 22% decline on the prior year, driven by lower revenue and costs associated with our launch into New Jersey.

Poker - Key Performance Indicators

For the reasons mentioned above, player volumes were down significantly versus the prior year. Whilst pleased with the response to our new poker product, we have yet to launch our new products into some of our largest regulated markets and were also hampered by the loss of Greece that in 2012 averaged 3,326 players per day. Although player yields increased by 5% due to lower bonus rates, the reduction in player volumes meant that average daily revenue fell 36% to €301,600 (2012: €474,900).

Objectives for 2014/15:

Having launched the first phase of our new poker product on dotcom as well as in New Jersey in 2013, we plan to introduce further new product features throughout 2014 and roll these out to our key regulated markets including Belgium, France, Italy and Spain. Enhancing our mobile offering is a key objective and we will launch enhanced versions of our native mobile clients (Android and iOS) in our key markets as well as an HTML5 version of 'FastForward' that we believe will prove popular. Having grown the proportion of our revenue coming from mobile during the second half of 2013, we expect this to increase further in both 2014 and 2015.

Having overhauled our tournament structure in January 2014, we will continue to add new tournaments throughout the year and offer new missions for players to embark upon every two weeks. In New Jersey we will seek to build upon our solid start since the market opened and capitalise on our new sponsorship deals with the New Jersey Devils in the NHL and the Philadelphia 76ers in the NBA.

Bingo

* Italy, Spain and UK

Both the UK and Italy remained highly competitive during 2013. In the UK, the expected introduction of a point-of-consumption tax in December 2014 prompted a significant increase in marketing activity by competitors, many of whom seemed determined to try and increase market share, irrespective of cost. The strength of the Foxy Bingo brand meant that while we did lose some revenue due to aggressive, competitor promotions, we were able to maintain a strong market position overall. In Italy, a 26% decline in the size of the bingo market[6] made for a challenging market backdrop. However, despite aggressive attempts by competitors to seize market share, we maintained a leadership position with an estimated 26% share of the Italian market in terms of gross gaming revenue. In Spain, we have seen solid growth in revenue, in part due to the full year impact in 2013 following the Spanish launch that took place in June 2012. Overall, Spanish net revenue increased by 47% versus 2012 although the market remains small as a proportion of the bingo segment.

Gross revenue declined by 12% due to the factors outlined above but also by a 5% weakening of Sterling versus the Euro. An increase in the bonus rate meant that net revenue fell by 17% to €52.5m (2012: €63.5m). The declines in Italy meant that gaming taxes also fell to €3.7m (2012: €5.0m), helping to offset the impact on gross profit as well as Clean EBITDA that was €8.2m on the new basis or €12.9m on the old basis (2012: €18.8m).

A summary of the key performance indicators for bingo is shown in the table below:

Bingo - Key Performance Indicators

New player sign-ups and player volumes were down 12% and 10% respectively, reflecting the market decline in Italy as well as the highly competitive environment in the UK. While the launch of bwin bingo in several markets in December 2013 provided some incremental revenue, as did the launch of Foxy Bingo on mobile in April 2013, these initiatives were unable to reverse the year-on-year decline seen in the Italian bingo market that shrank in 2013. The net impact was that average daily revenue was down 17% year-on-year at €143,800 (2012: €173,500).

Objectives for 2014/15:

Preliminary discussions are already underway with 888 Holdings regarding possible options for the Group's existing supply agreement under which several of the Group's UK bingo sites are operated using 888 software. The contract is scheduled to terminate in May 2014. The two main options for the Group are to either terminate the agreement and migrate customers to the Group's proprietary technology platform; or extend the existing agreement under revised terms. It is expected that a decision will be reached over the coming weeks.

Mobile is again a key area of focus and represented approximately 7% of total bingo GGR in 2013. We are aiming to reach 40% of GGR coming through mobile/touch devices by December 2015 as we launch mobile apps for all of our key bingo brands. Since launching our new Foxy iOS app in the UK in January 2014, we have seen a significant jump in mobile activity and are confident of hitting our 2015 target.

Other revenue

Other revenue includes revenue from network services, payment services to third parties, domain sales, software services, World Poker Tour, Win, InterTrader and Winners, our retail franchise. Total other revenue was up 31% to €43.0m, (2012: €32.7m) driven by domain sales of €6.7m as well as a maiden contribution from social gaming and growth in Winners, B2B and InterTrader.

We are continuing to invest in Kalixa, our digital payments business that is performing well and in-line with our original plans. The dynamics of the digital payments industry are such that we are considering several opportunities to accelerate Kalixa's expansion through a combination of organic growth and externally funded bolt-on acquisitions,

Cost of sales

Gaming taxes fell slightly reflecting market declines in Italy and France and this more than offset increased taxes in Belgium and Germany. Broadcasting costs increased significantly driven by higher amortisation costs arising from the production of the new Alpha 8 Series by the World Poker Tour and lower sales of WPT library programming to third-party broadcasters.

Distribution expenses

As a result of our shift from 'volume to value', we stopped player acquisition in 18 markets where the returns from marketing spend were insufficient or where there was significant regulatory uncertainty. By focusing our marketing efforts on fewer, nationally regulated and taxed markets, there was a significant reduction in customer acquisition-related spend as well as affiliates that fell to 19.3% and 5.0% of total revenue respectively. Customer bad debts increased to 1.0% of total revenue (2012: 0.7%) reflecting a change in the mix of deposits following the dotcom platform migration. However, this increase was more than offset by an associated reduction in transaction fees (see below). Third-party content costs fell by 15% in absolute terms but increased slightly as a proportion of total revenue reflecting the addition of new third-party games to our casino during the year. Webhosting and technical services costs fell by €2.1m reflecting the realisation of merger-related synergies. The net result was that Clean EBITDA distribution expenses were reduced by €59.2m or 21% to €220.1m (2012: €279.3m), representing 33.7% of total revenue (2012: 34.8%).

Reorganisation costs of €2.5m reflected ongoing costs of the poker platforms in Italy and France that are still operated using the Ongame software and which are due to be migrated in 2014 and costs incurred following the ISP blocking in Greece.

Administrative expenses

Transaction fees fell both in absolute terms and relative to revenue reflecting the reduction in revenue, Merger-related synergies and the increased focus on nationally regulated and/or taxed markets where fees tend to be lower. Staff costs and outsourced services were reduced by €12.6m and €2.8m respectively reflecting the realisation of Merger-related synergies. Other overheads were reduced by €11.5m or 17% reflecting synergies arising from the Merger. The net result was that Clean EBITDA administration costs fell by €37.7m.

Taxation

The tax charge for the period was €3.8m (2012: €1.4m) reflecting an effective tax rate for Continuing operations of 6.9% (2012: 6.0%). The deferred tax credit of €6.9m (2012: €11.6m) is related to the release of deferred tax provisions set up on the Merger arising from amortisation of short life intangible assets.

Net cash

Cashflow

Continuing operations

Operating cashflow from Continuing operations increased by 49% to €61.0m (2012: €40.9m), due primarily to the prior year having been impacted by a payment of €31.5m in retroactive taxes and associated charges in Spain.

After dividend payments of €33.6m (2012: €33.0m), capital expenditure (including intangibles) of €45.8m (2012: €39.7m) and a reduction in short-term investments of €17.9m (2012: €8.3m), the net cash inflow in the period was €10.5m (2012 outflow: €94.9m). This was a marked increase over the prior year that was impacted by substantial share repurchases, retroactive taxes and associated charges, as well as payments relating to acquisitions made.

Discontinued operations

The net cash outflow arising from Discontinued operations in 2013 comprises the settlement of the Kentucky litigation for €11.9m (2012: nil) and contingent consideration due from the sale of Ongame of €0.7m (2012: nil). In 2012, the net cash outflow of €24.8m was driven primarily by the payments arising under the Non-Prosecution Agreement, the last payment of which was made in September 2012, coupled with the loss on disposal of Ongame. A summary of the Group's cashflow in the period is shown below:

Current trading and outlook

Trading in the first 10 weeks of 2014 has been in-line with our expectations with average daily net revenue down 10% year-on-year but up 6% versus the previous quarter and with nationally regulated and/or taxed markets representing 56% of net revenue. While our shift from 'volume to value' means that our year-on-year performance remains down versus 2013, we have achieved sequential growth since the third quarter of 2013, in line with our guidance.

A summary of the current trading performance in terms of net revenue relative to the same period in 2013 and also to Q4 13 is shown below: