BPTY.L Regulatory News (BPTY)

15 March 2013

bwin.party digital entertainment plc

Audited results for the year ended 31 December 2012

Transition from integration to innovation in 2013

● Solid performance in sports, casino & games and emerging businesses offset by new German gaming tax and a decline in poker. Pro forma revenue down 2% to €801.6m. Actual revenue up 16% driven primarily by the Merger*

● Pro forma Clean EBITDA from Continuing operations down 17% to €164.9m due to flat revenue, increased gaming taxes and compliance costs. Actual Clean EBITDA from Continuing operations down 2% to €164.9m

● Continuing pro forma Clean EPS of 14.7 € cents per share (2011: 18.5 € cents); actual Clean EPS of 14.7 € cents per share (2011: 17.9 € cents)

● Current trading impacted by dotcom migration and increased focus on nationally regulated markets with associated reduction in dotcom marketing spend: average gross daily revenue of €2.4m (Q412: €2.6m) but with an offsetting increase in Clean EBITDA margins

● Simplifying our operating model to focus on value rather than volume to drive the core business in regulated markets and invest in new growth areas

● Revenue for 2013 now expected to be slightly lower than current market estimates, but impact on Clean EBITDA to be offset by cost savings. The Board remains confident about the full year result

● Recommended final dividend up 10% to 1.72 pence per share (2011: 1.56 pence) making a total FY12 dividend of 3.44 pence per share (2011: 3.12 pence)

Financial summary

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

# The actual results include PartyGaming's results throughout 2011 and the results of bwin 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, loss on disposal of assets held for sale, 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

~ EPS before the provision for costs associated with the Group's Non-Prosecution Agreement, reorganisation expenses, retroactive taxes and associated charges, loss on disposal of assets held for sale, merger and acquisition expenses, exchange differences, non-cash charges relating to share-based payments and amortisation and impairment of acquired intangibles (see reconciliation of Clean EPS to Basic EPS in note 10 to the Financial Information).

Commenting on today's results announcement, Norbert Teufelberger, Chief Executive Officer said:

"Most of last year was focused on integration. 2013 will be about completing this effort and transforming our business through innovation as we revitalise our offer with a string of product updates and extend our reach through mobile and social media channels. With most of our single technology platform in place, we are now optimising the shape and size of our business in order to maximise our operational and financial performance.

"Our strategy is unchanged, but we are not relying on innovation alone to return our business to growth. We are accelerating the pace of change by shifting our revenue mix towards nationally regulated and to-be-regulated markets. This includes gearing up for a launch in the US, which now seems to be a more likely prospect within the next twelve months following recent events at state level.

"At the same time we are changing our approach to dotcom markets with increased focus on fewer but more valuable customers. We are simplifying our business, moving from 'volume' to 'value', which we believe will allow us to further increase our operational efficiency. We expect this approach to generate significant additional cashflow to offset increased investment and taxes as additional markets regulate and also to fund growth in new business areas such as payments and social gaming.

"Our current trading in January and Februrary was impacted by some user experience issues following the dotcom migration in December 2012, the impact of which was slightly higher than expected. It was also impacted by decisions taken in January 2013 to increase our focus on nationally regulated markets and on high value customers. The result was that gross average daily revenue was down 7% versus the fourth quarter of 2012 to €2.4m (Q412: €2.6m). However, Clean EBITDA margins for the same period are running higher than expected which has fully mitigated the revenue shortfall.

"The migration problems have now stabilised and while the user experience issues coupled with the actions taken to-date mean that 2013 total revenue is expected to be lower than current market estimates, associated cost savings mean that the Board remains confident about the full year result. We are recommending a final dividend of 1.72p per share making 3.44p per share for the full year, a 10% increase over 2011."

Contacts:

bwin.party digital entertainment plc 

Investors

Peter Reynolds +44 (0) 20 7337 0177

Media

John Shepherd +44 (0) 20 7337 0100

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 Friday 15 March 2013 on: www.bwinparty.com.

Analyst meeting, webcast, dial-in and conference call details: Friday 15 March 2013

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, Friday 15 March 2013

A recording of the meeting will be available for a period of seven days from Friday 15 March 2013. To access the recording please dial the following replay telephone number:

Conference call: 2.30pm, Friday 15 March 2013

For international analysts and investors there will be an opportunity to put questions to Norbert Teufelberger and Martin Weigold on a conference call using the following number:

A recording of the conference call will be available for seven days from 15 March 2013 on the following number:

All times are Greenwich Mean Time (GMT).

About bwin.party

bwin.party digital entertainment plc (LSE: BPTY) 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. Incorporated, licensed and regulated in Gibraltar, the Group also has licences in Alderney, France, Italy, Denmark, Germany (Schleswig-Holstein) and Spain. With offices in Europe, India, Israel and the US, the Group generated continuing revenue of €801.6m and Clean EBITDA of €164.9m in 2012. 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. 

Business review

Introduction

In preparing these full year results for 2012, we have provided a detailed review of the operational performance of the combined business and our progress on integrating bwin Interactive Entertainment AG ('bwin')and PartyGaming Plc ('PartyGaming'). In addition, we have included a detailed review of our business strategy, achievements against that strategy to-date and objectives for 2013.

The Merger was completed on 31 March 2011. For accounting purposes PartyGaming is treated as the acquirer of bwin and as a result the Group's statutory results for the year ended 31 December 2011 include a full period from PartyGaming while bwin is 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 that set out the financial performance of the Group as if the combined operations had always been in place.

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 on a pro forma basis only, unless expressly stated otherwise.

Reconciliation of Clean EBITDA to operating loss

2012 - Key developments

During the past year there were several important strategic, operational and regulatory developments that affected the Group's performance and which also underpin our long-term prospects.

Merger integration

Having completed the organisational blueprint in 2011, 2012 was focused on continuing our journey to create a single technology platform, one capable of supporting all of our current and future revenue streams across multiple labels, products and jurisdictions. The migration of over 13 million bwin.com customer accounts in December 2012 represented a major milestone in this effort and means that we are well on our way to completing this complex, but important task. Our technology will underwrite our long-term success by providing a solid foundation upon which we can secure and build leading positions in all nationally regulated and to-be-regulated markets. Creating a single, scaleable platform is not just about supporting our real money gaming franchise of today, it is already opening up new revenue opportunities for us, opportunities that will see us extend our reach into new areas of digital entertainment including social gaming, payments and sports content.

We delivered €46.5m of merger synergies in 2012, better than our original target of €40.0m. Of the €46.5m total synergies delivered (2011: €23.3m), €36.9m related to Continuing operations (2011: €18.3m) and €9.6m (2011: €5.0m) related to Discontinued operations.

Strategic developments

We continued to execute our stated business strategy and achieved several strategic milestones during 2012. These included:

·; securing a partnership agreement with the United Auburn Indian Community, one of California's leading casino operators so that we are well-positioned to take advantage of regulated online gaming in the state of California, should requisite laws allow;

·; acquiring a dedicated social gaming development team based in Eastern Europe and launching our own social gaming strategy, spearheaded by a new business unit call Win;

·; concluding a joint venture partnership with Nordeus, one of the world's leading developers of social sports applications;

·; completing the sale of Ongame to Amaya for €15m with up to €10m additional consideration should online gaming become regulated in the US;

·; extending our multi-territory video streaming rights for the main football leagues in Germany and Spain;

·; partnering with Groupe Partouche in Belgium to secure access to the regulated online gaming market in Belgium;

·; concluding our agreement with Zynga to be their chosen supplier of real money poker and casino games in the UK; and

·; becoming the digital online betting and gaming partner for Manchester United.

Operational developments

While the performance of each of our business verticals is covered within the financial review below, a few of the key operational highlights during the year, in addition to the integration progress outlined above, included our launch of all products into Denmark as well as poker and casino products for our local partner, Danske Licens Spil on 1 January 2012; we also launched all products into Spain at the beginning of June 2012. Following the introduction of a 5% turnover tax on sports betting in Germany on 1 July 2012, along with the rest of the industry, we began to pass on the majority of the tax to customers by requiring that winning customers pay a 5% withholding on their pay-out.

Whilst many of our planned product developments were delayed pending the completion of the dotcom migration that took place in December 2012, we added a number of features to our core gaming products. We significantly increased our live betting offer that saw us increase the number of live events offered per year by 60% to 65,000; we launched the download version of the PartyCasino product under the bwin label and also launched FastForward Poker that has proven a popular addition to our core poker product. Despite having to defer the optimisation of our mobile offer until the migration to a single technology platform was complete, we still managed to increase our mobile gross gaming revenue by 78%, reaching €42.6m in 2012 (2011: €24.0m).

Regulatory developments

The regulatory landscape has continued to evolve and we have obtained licences and launched in Denmark, Spain and Schleswig-Holstein (Germany) during 2012. The transition to regulated markets, especially in Europe, continues to be a major factor influencing our revenue and Clean EBITDA performance. In December 2012 approximately 35% of our gaming revenues came from nationally regulated markets and 38% of our gaming revenues were subject to gaming taxes. This compares with the figures in December 2011 that were 26% and 26% respectively. A summary of key regulatory developments is set out in the Appendix.

Plans for 2013

Since completing the Merger in March 2011, we have executed our stated strategy and integration programme as planned. However, the complexity of the merger integration and external factors such as regulation and associated taxation, as well as significant macroeconomic pressures in Europe, have hampered our financial performance - revenue has been flat and Clean EBITDA has declined.

In order to return the business to growth we are changing our approach in a number of key operational areas which we believe can deliver a step-change in our future performance.

This does not mean a change in our strategy, the five pillars of which remain in place:

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

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

·; Secure strategic partnerships;

·; Extend into new areas of digital entertainment; and

·; Act responsibly

However, by changing the way we execute certain elements of the strategy we believe we can significantly improve our financial and operating performance. Before coming on to the new initiatives, we still have five core projects to complete, each of which will underpin our future plans. They are:

1. Complete our technology integration

Unlike most of our competitors, we have chosen to build and control all elements of the value chain: front-end services, gaming software and content, payments, data warehouse, business intelligence, regulatory compliance as well as premium B2B services, where we offer a turnkey solution to strategic customers such as Zynga, PMU and Danske Licens Spil. Our approach gives us both the flexibility and control to be able to enter multiple markets with multiple labels and products, without incurring significant third-party costs. Taxation and regulatory compliance in newly regulated markets naturally put pressure on operating margins. Having to also incur additional and significant third-party costs can make market entry uneconomic. Our approach means that we have a competitive advantage with which to enter new markets and secure a strong market position - we have already secured a top three position in all nationally regulated products in Italy, France, Denmark and Spain. The alternative is to remain focused on just one, or a limited number of regulated markets - an approach that we believe fails to capitalise on the inherent operational leverage of the online gaming model and places too great a reliance on a limited number of territories.

2. Innovate our core gaming products

The creation of a single technology platform required that we delay a number of product improvements and this has certainly been a factor in holding back our performance over the past 18 months. This will change in 2013. As already announced, we will be launching a new version of PartyPoker during the first half of 2013 with further enhancements scheduled for later in the year. We are also developing an all new casino product, targeting more casual players who are looking for fun games to play that are available through all channels and optimised for mobile and touch devices. Our proprietary bingo product is currently being developed for launch later this year and our sports offer will benefit from a series of product enhancements that will deliver new features that we believe will once again put the bwin brand at the vanguard of the industry.

3. Leverage our assets through strategic partnerships

In addition to our existing partnerships with Danske Licens Spil in Denmark and PMU in France, we will launch a real money online poker and casino service in the UK for Zynga in the next few weeks and are now working with them towards being able to offer their service through all other channels.

4. Prepare for US entry

Recent developments in New Jersey and other states would appear to indicate that regulated real money internet gaming in the US will soon become a reality. Together with our existing partners, MGM, Boyd Gaming and United Auburn Indian Community, we are well placed to capitalise on any opening of this exciting new market. In addition to ensuring we complete the requisite licensing and suitability processes, we are now ring-fencing the infrastructure and resources needed to launch in the US market thereby ensuring that this opportunity is not compromised by other business demands.

5. Go mobile

While bwin was one of the first sports betting brands to go live with a mobile product back in 2001 and despite being able to increase our mobile gross gaming revenues by 78% in 2012 to €42.6m (2011: €24.0m), the technology integration has meant that our current offering is not yet optimised. Regulatory as well as technical hurdles meant that in 2012 less than half of our business footprint was available through mobile extensions. However, having migrated our dotcom customers onto a single technology platform, we are now in a position to launch mobile extensions for each of our core products and will also supply mobile extensions for several of our B2B partners. A completely new interface for our sports product, together with new features, is expected to be launched later this year. We are moving towards a position where we will be 'channel agnostic' and aim to optimise the customer experience, irrespective of which channel is being used by the customer (web, mobile, tablet or social media). We are embracing this change by leveraging our in-house expertise within our Mobile, Touch, Video unit and using our in-house mobile platform.

While these initiatives will make important contributions to our revenue and Clean EBITDA, we need to go further to transform the trajectory of our business. Therefore, in addition to the initiatives above, we are implementing a series of changes to simplify our business and release significant resources, some of which will be reinvested to deliver meaningful growth in our core markets, as well as extend our reach into new growth areas. The changes, which fall under three main headings, are described in more detail as follows:

1. Greater focus on regulated and to-be-regulated markets

The transition to nationally regulated markets is inevitable with consequential increased costs and taxes. However, the long-term prize remains: online gaming is destined to become a greater proportion of total gaming driven by increasing broadband speeds and availability, greater use of smartphone and tablet technology, an increasing propensity to use the internet as the primary channel for consumer entertainment and regulation itself.

But as a number of markets have matured, the marginal returns from new customer acquisition in a number of those markets have declined whilst the costs required to support them in terms of marketing, risk management, IT operations, customer service, affiliate management and legal and regulatory services, have not.

Whilst geographic diversity can be an advantage, being spread too thin across too many jurisdictions can also prevent the allocation of marketing spend from being optimised and lead to operational inefficiency. Outside of our core regulated and to-be-regulated markets, we are therefore reducing the number of jurisdictions where we provide a full suite of services. The net result of this shift will likely reduce dotcom revenues but should also deliver a significant reduction in associated costs, increasing net cashflow.

On the back of the planned product improvements outlined above and with the savings generated from an increased focus on nationally regulated and to-be-regulated markets, we intend to push aggressively in growing revenue in our core markets. This will be led by improved product positioning as well as through a shift in our marketing approach to employ new marketing models recognising that many of today's consumers are less interested in being told what products and services to choose and are much more focused on what their friends, family and work colleagues recommend. By shifting our marketing mix to one that is less focused on conventional marketing channels, that employs 'recommendation' as well as 'promotion' tools, underwritten by engaging and state-of-the-art products that are available through all channels, is how we will succeed.

2. Improved service for core customers

At the same time, outside our core regulated and to-be-regulated markets, we are shifting our approach by focusing more effort on retaining our premium customers than on acquiring new ones. Recognising the importance of these customers, we are going to provide them with a much more tailored service and associated support. These customers tend to not only be higher value but they also have the lowest rates of churn. As a result, reduced dotcom marketing is unlikely to impact their playing activity and will increase our overall returns. However, we also believe there is scope to reduce that churn further, by enhancing the service they receive currently through more proactive engagement and reward.

The net result of these actions should be to release significant savings and generate positive cashflow, some of which we will invest in securing revenue growth in nationally regulated and to-be-regulated markets, including the US that will require its own dedicated resources.

3. Invest in new revenue streams

The Merger yielded a number of distinct revenue opportunities outside of our core real money gaming business that with modest investment have the potential to deliver substantial value. By releasing value through a greater focus on regulated markets and on our core customer base, we intend to invest some of these resources in three emerging businesses.

Kalixa Group - our in-house payments business, formerly known as CQR, has evolved over the past 18 months to become a fully-fledged financial services operation. Unlike many of its competitors, Kalixa owns and controls three parts of the payments value chain: issuing, acquiring and acceptance. This means it can act as a gateway to over 90 payment methods and can process payments on their behalf; it can issue pre-paid cards linked to an associated online wallet; and it can enable SMEs to accept card, e-wallet and alternative payments. Having processed 40 million internet transactions with a value of €2.6bn in 2012 (approximately 85% of which is in house), with modest investment and a clear strategy, over the next few years we intend to grow processing volumes substantially, increase the number of Kalixa account holders as well as the number of merchants accepting Kalixa payments. This is an ambitious target but one that we believe is credible given the growth expected in online payments and the quality of the Kalixa technology and management team.

Social gaming - Since announcing our market entry strategy in May 2012 with the formation of WIN, and completing the acquisition of a dedicated technology resource, we have made significant progress in social gaming. Our first in-house developed slots game, Slots Craze, went live on Facebook at the end of February 2013 and is performing in line with our expectations. During 2013 we will also launch more slots, a bingo product for social platforms, a social casino product and a pioneering approach to social sports betting that we are developing with our partner, Nordeus. The social gaming market is already generating an estimated $1.7bn of gross gaming revenue annually and this is expected to increase to $2.5bn by 2015[1]. We are determined to capture a meaningful share of this market and believe that by producing the very best game content, supported by creative marketing and our own real-time analytics platform, we have the tools necessary to succeed.

Sports content - As well as securing international media rights for a variety of sports content that we can use to both enhance the experience of our sports betting customers and sell-on to third parties, we have also developed a process to capture and sell-on a variety of sports data and related content. Whilst still in its infancy, such a revenue model is already proving profitable and we are now looking to expand it significantly in 2013.

Employees

Our employees have continued to perform to a very high standard, despite the workload of integrating our technology platform combined with the testing circumstances in which we have had to operate over the past two years. At the time of the Merger we identified a number of core values that underpinned our culture and collective approach. Built around three key themes of insight, passion and creativity, they differentiate us from many of our competitors and continue to support our vision and determination to succeed.

Current trading and outlook

Our current trading in January and February was impacted by some user experience issues following the dotcom migration in December 2012, the impact of which was slightly higher than expected. It was also impacted by decisions taken in January 2013 to increase our focus on nationally regulated markets and on high value customers. The result was that in the period to 11 March 2013 average gross daily revenue was down 7% versus the fourth quarter of 2012 to €2.4m (Q4 12: €2.6m). However, Clean EBITDA margins for the same period are running higher than expected which has mitigated the revenue shortfall. The migration issues have now stabilised and with the launch of a series of new products and services later this year we remain confident about the outlook for the full year.

A summary of the current trading performance relative to the fourth quarter of 2012 is shown below:

Directors

As previously announced, both Jim Ryan, Co-CEO, and Joachim Baca, COO, stepped down from the Board on 15 January 2013. As a result the Board's composition is now in full compliance with the UK Corporate Governance Code recommendation regarding the balance of independent and non-independent Directors. Mr Baca remains a core member of the Group's senior management team and continues to report directly to Norbert Teufelberger, CEO.

Having instigated a process to search for two new independent Directors with technology and/or regulatory backgrounds and to address the Company's aim of having at least one woman serving on the Board by the end of 2013, we were pleased to announce on 8 March 2013 the appointment of Sylvia Coleman to the Board who brings a wealth of relevant experience from the transformation of the music industry's business model triggered by the advent of digital technology.

Dividend

The Board is recommending a 10% increase in the final dividend to 1.72p per share which together with the interim dividend of 1.72 pence per share makes a total dividend of 3.44p per share for the year ended 31 December 2012 (2011: 3.12p). The final dividend, if approved at the Annual General Meeting, will be payable to shareholders on the register of shareholder interests on 24 May 2013 (the 'Record Date'). It is expected that dividends will be paid on 24 June 2013. 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 31 May 2013. A separate announcement regarding the dividend payment has been issued today.

Share repurchases

Using the authorities granted by shareholders at the 2011 and 2012 AGMs to repurchase up to 10% of the Company's issued share capital, in 2012 the Company bought back 27,256,981 shares for cancellation at a total cost, including commission of £40.1m. The Company has not purchased any shares for cancellation since the year end. The total number of bwin.party shares in issue as at 14 March 2013 is 813,806,201 and the total number of voting rights in issue is 807,340,505 (total number of shares in issue minus 6,465,696 shares held by the employee benefit trust in respect of which the voting rights have been waived).

 SUMMARY OF RESULTS

The actual results include PartyGaming's results throughout the entire period and the results of bwin Interactive Entertainment AG 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.

Reconciliation of Clean EBITDA to Clean earnings used to calculate Clean EPS

Pro forma results

Total revenue fell slightly to €801.6m (2011: €816.0m) with growth in sports and casino offset by a decline in poker. While the Merger integration and continued macroeconomic challenges in Europe were certainly factors behind the revenue performance, ISP blocking in Belgium, the closure of Spanish slots from June 2012 and the closure of the bwin brand in Denmark were additional factors. Higher gaming taxes (excluding retroactive taxes and associated charges), that reached €82.8m, a €17.1m increase year-on-year meant that the net effect was that pro forma Clean EBITDA margins decreased to 20.6% (2011: 24.4%) and Clean EBITDA fell by 17% to €164.9m (2011: €199.3m).

Actual results

The year-on-year movement in actual results was 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 16% to €801.6m (2011: €691.1m). Despite the increase in revenue, a significant increase in gaming duties from regulated markets meant that actual Clean EBITDA fell by 2% to €164.9m (2011: €168.3m).

Both pro forma and actual discontinued operations represent the Ongame B2B business that was sold on 1 November 2012 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 declined by 6% reflecting declines in poker and bingo, partly offset by the impact of the 2012 Euro Championship that increased sports betting activity during the first half. The introduction of a 5% turnover tax in Germany, our largest market, reduced sports betting volumes significantly in the second half of 2012. While the decision to improve our poker ecology with a greater focus on the more casual customer impacted overall player activity, it also benefited player yields that increased to €9.5. Having terminated our relationship with a number of major poker affiliates during the year, total new player sign-ups were down 16%, despite the positive effect of a major marketing campaign around Euro 2012 that increased new sign-ups in sports betting. The net impact of these factors was that pro forma average daily net revenue fell 4% to €2,100,800 (2011: €2,180,300).

On an actual basis, most of our consolidated key performance indicators trended positively, reflecting the inclusion of bwin for a full year for the first time. The one exception was yield per active player day that declined marginally due to the shift in the revenue mix. The net effect was that actual average daily net revenue for the period increased by 14% year-on-year.

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

Sports betting

Pro forma results

While the Euro 2012 Championship helped to drive the amounts wagered during the year this was tempered by a number of other factors including the introduction of a 5% turnover tax in Germany, the Group's biggest market, from 1 July 2012 that reduced the amounts wagered in Germany during the second half of 2012. The closure of the bwin brand in Denmark when the market regulated on 1 January 2012, also impacted the total amount wagered versus the prior year. Having experienced a gross win margin of 7.2% in the first half, this increased sharply in the second half thanks to a marked increase in Germany where customers were encouraged to bet on longer odds and also because from August 2012 we began to withhold 5% of players' winning bets to cover the gaming tax due. The net result was that gross win margins increased marginally year on year to 7.8% (2011: 7.7%) and gross revenue increased by 2% to €298.2m (2011: €291.1m). A concerted effort to reactivate customers in the run up to the 2012 Euro Championship meant that bonus costs increased year-on-year to €35.4m (2011: €31.4m).

The introduction of gaming taxes in Germany resulted in additional taxes in the second half that fed through directly into Clean EBITDA. While this was the single biggest factor affecting profitability, the impact of closing bwin in Denmark as well as ISP blocking in Belgium were additional factors driving down Clean EBITDA margins to 16.2% (2011: 24.7%) and Clean EBITDA to €42.7m (2011: €64.3m).

Actual results

The increase in metrics on an actual basis reflects the fact that in 2012 bwin was included for the full 12 months. The total amount wagered increased by 32% driving both gross and net revenue. The increase in bonus costs reflects the marketing push around the 2012 Euro Championship.

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

Sports betting - Key Performance Indicators

The impact of the 2012 Euro Championship on the key performance indicators was somewhat masked by the introduction of a 5% turnover tax on all German sports betting from 1 July 2012. In the first half of 2012, Germany represented approximately 27% of total sports wagering but this fell to 21% in the second half reflecting the impact of the tax. Having elected to pass on part of the tax to German customers in the form of a 5% withholding on their pay-out, we removed all single bets below odds of 1.1 in Germany as these no longer represented attractive betting propositions for our customers. As a result, we saw a marked reduction in betting volume but a corresponding increase in gross win margin as customers shifted their betting behaviour away from high volumes on short odds to lower volumes on longer odds. The gross win margin was increased further by the 5% withholding on winning customers' pay-out. The net result was that German sports betting revenues have remained broadly unchanged year-on-year although gross profit from Germany has declined reflecting the 5% turnover tax that has increased cost of sales. Active player days and new player sign-ups were up 8% and 14% respectively primarily driven by the Euro 2012 Championship. Player yields fell 6% versus the prior year reflecting a higher proportion of casual players on the back of Euro 2012 as well as macroeconomic factors. The net impact was that average daily revenue was marginally ahead year on year at €718,000 (2011: €711,500).

Our live betting offer increased substantially with a 60% increase in the number of live events offered year-on-year. Our mobile offer also grew strongly in 2012 and we expect further strong growth in 2013. Sports gross gaming revenue through the mobile channel increased by 81% to €37.2m in 2012 (2011: €20.5m). Mobile is a key part of our sports betting strategy and we plan to launch a new sports betting application for mobile during 2013.

Casino & Games

Pro forma results

The Group's casino & games business delivered a solid performance in 2012. The amount wagered increased by 5%, despite the fact that the bwin casino business in Denmark was closed from 1 January and we also had to close our Spanish slots business on 6 June 2012 (these games are not allowed under the new Spanish regulatory regime). A slightly lower gross win margin at 3.9% (2011: 4.0%) reflected a different mix of games played on bwin casino and the loss of Spanish slots. Bonus costs in the second half of 2012 were similar to that in the first half resulting in net revenue up 2% versus the prior year. Other revenue that includes B2B revenues grew very strongly in the period following the launch of Danske Spil on 1 January 2012 and meant that total revenue was up 3% versus the prior year.

The loss of Spanish slots from the beginning of June coupled with increased gaming taxes meant that Clean EBITDA margins fell to 29.5% (2011: 35.0%) and Clean EBITDA also declined to €80.1m (2011: €92.3m)

Actual results

The amount wagered increased by 15%  reflecting a full twelve month contribution from the bwin casino business as well as the impact of offering download and no-download versions of our PartyCasino product onto the bwin platform for the first time. With gross win margins little changed versus 2011, this fed through into gross revenue that increased by 12%.

Actual Clean EBITDA declined by 4% reflecting the factors highlighted above.

Having added seven new games to our portfolio during the first half of 2012, we continued to expand our casino portfolio with a further eight full-screen games, six mini-games and four games on mobile channels added in the second half, all of which were developed in-house. While PartyCasino's performance was hampered by the declines in poker, bwin casino performed strongly on the back of a full year of Italian casino that opened in July 2011, as well as no-download and download versions of the bwin casino having launched in February and May 2012 respectively. As a result, casino betting volumes and net gaming revenue on bwin were up by 14% and 13% respectively, mitigated by a softer performance on PartyCasino that continues to rely on poker as a major source of player traffic. The addition of our new live dealer product has also proven popular and represents a further opportunity for growth in 2013. Having already secured a top three market position in Denmark, Italy and Spain we are looking to grow further with our new proprietary mobile product now live on bwin and PartyCasino.

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

Casino & Games - Key Performance Indicators

Active player days fell by 4% versus the prior year, in part reflecting the challenging comparator in 2011 that was boosted by a strong performance from Italy in the second half following the launch of online casino as well as the launch of our own no-download casino on bwin.com in November 2011. The loss of Spanish slots in June 2012 was a further impediment to growth. Player yields continued to improve as the proportion of pure play casino players increased as well as our efforts to increase the yields from our bwin casino customers that are significantly below those for players on PartyCasino. The net result was that average daily revenue in the period was up 2% on a pro forma basis and up 13% on an actual basis.

Poker

Pro forma results

The trend in poker revenue and player activity continued into the second half of 2012 reflecting challenging market conditions in several markets including Italy as well as the short-term impact of certain management actions (see below). As expected, the dotcom poker market continued to decline in 2012 driven by the ring-fencing of certain newly regulated markets and the impact of associated gaming taxes. In Spain, despite having secured a top three position in the market, the overall market size has turned out to be smaller than previously thought, perhaps a function of the particularly challenging economic conditions in Spain.

Gross revenue fell 17% to €219.0m (2011: €263.8) with a large part of the decline due to lower Italian revenues reflecting a decline in the market as a whole (down 6.5% according to AAMS), as well as the impact of some of the steps we are taking to improve our poker ecology and that are described in more detail below. Bonus rates remained broadly unchanged at 20.6% of gross revenue while other revenue, that includes revenue from our B2B partners, also declined reflecting the wider challenges in the online poker market.

Overall, total poker revenue fell by 17% to €176.5m (2011: €213.0m). While revenue was impacted by the factors mentioned above, the management actions taken in the second half significantly reduced costs and Clean EBITDA margins recovered accordingly to deliver a full year margin of 16.1% (2011: 14.1%). As a result the impact of lower revenues was largely mitigated and Clean EBITDA fell by 5% to €28.5m (2011: €30.0m).

Actual results

Net revenue fell by 6% to €173.8m (2011: €184.6m). With B2B revenues flat because of the inclusion of an extra quarter, this resulted in a 6% decline in total revenue. The management actions taken in the second half of 2012 refered to above meant that actual Clean EBITDA increased by 12%.

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

Poker - Key Performance Indicators

The decision to renegotiate a number of our major affiliate deals (see below) coupled with the removal of high stakes tables prompted a 46% reduction in new player sign-ups and a 23% reduction in active player days and daily average players. Having become clear that large numbers of historic sign-ups were failing to generate positive ROI, we have re-based our poker business which is focused on player value and a much improved poker ecology. While this is reflected in the 7% uplift in player yields, the net effect was a 17% decline in average net daily revenue, a trend we are determined to reverse.

In our half year results in August 2012 we set out a four point plan to revitalise our poker business. The plan is on-track and we have already improved our poker ecology through a number of discrete actions including: the removal of high-stakes tables above $5/$10 thereby reducing the likelihood that lower stakes (but net depositing) less experienced players might lose to higher stakes, more experienced players; at the same time this step improved our poker liquidity at lower stake levels and we also removed high stakes heads-up tables for the same reason. Other steps included the removal of badbeat jackpot tables that tended to appeal to more experienced players and we also renegotiated a number of key affiliate agreements that prompted a number of higher stakes players to leave our sites, improving the balance of casual and experienced players and improving the ecology.

Innovating our poker product was the second part of our plan and we launched FastForward Poker onto PartyPoker.com in August 2012. The speed version of our Texas Hold 'Em game is proving popular with our players representing 30% of all cash game hands played.

The third element of our plan was the migration of the bwin.com poker players onto PartyPoker.com that was completed in December 2012. The migration has resulted in a significant increase in the size of our dotcom liquidity pool.

The final stage of the plan will be the launch of a new version of PartyPoker that is on-track to take place during the first half of 2013. Having analysed the online poker market and conducted extensive customer research, it became clear that while the advent of social media and new technologies have revolutionised the way that consumers behave and entertain themselves, the online poker product has not really changed for a decade. Our plan is to revitalise PartyPoker as a brand with broad appeal, centred around the recreational player. We are not only changing the way it looks and feels but also significantly improving the playing experience to one which meets the expectations of the modern digital consumer.

Pro forma results

Total revenue in bingo was flat with an 8% reduction in gross revenue offset by an equivalent reduction in bonuses. This reflected the elimination of many customers that were marginally profitable for the business. Revenues in the second half grew 2% over the first half reflecting the launch of Binguez in Spain as well as the stabilisation of revenue in Italy, following some loss in market share caused by new entrants. Foxy Bingo has maintained its market leadership position in the UK as has Gioco Digitale in Italy with an estimated 25% market share. In Spain, our Binguez brand has secured a top three position with an estimated market share of approximately 15%[2].

The impact of lower revenues in Italy and the launch into Spain during the second half meant that Clean EBITDA margins declined slightly to 29.2% (2011: 31.9%). While this fed through into a small decline in Clean EBITDA to €18.8m (2011: €20.6m), the second half delivered a 9% increase in Clean EBITDA versus the first half and this bodes well for 2013.

Actual results

An additional quarter of Gioco Digitale in Italy was the primary driver behind the increase in net revenue in the period. However, the year on year declines at Gioco Digitale meant that actual Clean EBITDA fell by 5% versus the prior year.

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

Bingo - Key Performance Indicators

The strategic decision to reduce bonus costs and focus on those players generating the greatest returns impacted overall player activity resulting in a 16% decline in active player days. There was however a corresponding 19% increase in player yield to €8.9 (2011: €7.5) resulting in average daily revenues of €173,500, down 1% versus the prior year.

We have continued to leverage the social nature of bingo to promote our brands and over the past year have more than doubled the number of followers of Foxy Bingo and Cheeky Bingo on Facebook to 32,000 and 35,000 respectively. We are launching an all-new bingo product later this year that will form the backbone of a single, integrated bingo offering that ultimately will drive all of our bingo brands across all jurisdictions.

Other revenue

Other revenue, that includes revenue from network services, payment services to third parties, domain sales, software services, World Poker Tour, Win and InterTrader was up 62% to €32.7m on a pro forma basis (2011: €20.2m) and up 97% on an actual basis (2011: €16.6m). The primary drivers of this increase were software services (through the acquisition of social gaming assets during the year) and growing revenues from network services and InterTrader.

Cost of sales

Pro forma results

Gaming taxes payable in newly regulated and to-be-regulated markets remains the largest element within cost of sales. Excluding the €31.5m charge (2011: nil) for retroactive taxes and associated charges in Spain, the remaining €19.4m increase was primarily due to increased taxes in Germany following the introduction of a 5% tax on sports turnover from 1 July 2012. During the year gaming taxes were paid in Argentina, Austria, Denmark, France, Germany, Gibraltar, Italy and Spain. Other items within cost of sales include television production costs in respect of WPT and licensing costs. As more markets regulate, cost of sales and in particular gaming tax as a proportion of total revenue can be expected to increase.

Actual results

Gaming taxes increased significantly as a result of the inclusion of bwin for an additional three months, with the additional quarter of expenditure in Italy being the primary driver behind the increase in cost of sales.

Distribution expenses

Pro forma results

Customer acquisition and retention expenses increased both in absolute terms as well as a percentage of total revenue, representing 19.6% of total revenue in 2012 (2011: 18.2%). This increase reflects a significant marketing campaign ahead of the Euro 2012 championship together with launches into the newly regulated markets of Spain and Denmark. The decision to reduce our reliance on poker affiliates reduced associated costs significantly to 6.7% of total revenue (2011: 8.5%). Customer bad debts also improved to 0.7% of revenue (2011: 1.0%) reflecting improved fraud management as well as the increasing proportion of revenue coming from locally regulated markets where bad debts tend to be lower. Our third-party content costs increased slightly to 4.2% of revenue (2011: 4.1%), reflecting the continued strong performance of our slots business and increased streaming content for our sports betting platform. Webhosting and technical services costs increased to 3.6% of total revenue (2011: 2.7%) reflecting the cost of developing bespoke systems and other customised requirements for newly regulated markets including Denmark, Spain, Schleswig-Holstein and Belgium.

Actual results

With the exception of affiliate and bad debt expenses, that both fell due to the reasons outlined above, all distribution expenses increased in the year as a result of the inclusion of bwin for an additional three months. However, as a percentage of total revenue actual Clean EBITDA distribution expenses fell to 34.8% of total revenue (2011: 35.6%).

Administrative expenses