NPT.L Regulatory News (NPT)

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NetPlayTV plc

Final Results for year ended 31 December 2013

NetPlayTV plc (AIM: NPT), the interactive gaming company, is pleased to announce its final results for the year ended 31 December 2013. The full annual report and financial statements are available on the website www.NetPlayTVplc.com

2013 Financial Highlights

· 31% increase in net revenue to £28.5m (2012: £21.8m)

· 21% increase in EBITDA1to £5.2m (2012: £4.3m)

· 32% increase in adjusted earnings per share2 to 1.68 pence per share (2012: 1.27 pence per share)

· 15% increase in profit for the year and total comprehensive income to £4.1m (2012: 3.6m)

· Cash and cash equivalents increase by 13% from £12.3m to £13.9m

· 42% increase in final dividend proposed to 0.32 pence per share (2012: 0.225 pence per share) resulting in a total dividend of 0.50 pence per share (2012: 0.375 pence per share).

2013 Operational Highlights

· New three year ITV agreement signed in April 2013, extending the number of nights of Jackpot247 from four to six per week

· SuperCasino.com was the headline sponsor of Big Brother and Celebrity Big Brother

· Acquisition of Vernons.com, the e-gaming business, delivering diversification through online casino, bingo, and sportsbook

· Significant investment in pure online digital marketing

· Management structure strengthened for next phase of growth

Commenting on the results, Charles Butler, NetPlay TV's Chief Executive said:

"This has been a great year for NetPlayTV, delivering our third consecutive year of net revenue growth in excess of 20% and increasing EBITDA by 21% to a record £5.2m. We have continued to be highly cash generative during the year and are pleased to announce a 42% increase in the final dividend to 0.32 pence per ordinary share.

The Group continues its significant investment in marketing and product development which has resulted in an impressive 25% increase in new depositing players. The acquisition of the Vernons.com e-gaming business towards the end of the year presents new growth opportunities with the addition of sportsbetting and bingo to the existing core casino offering. This acquisition highlights our strategy for growth both organically and via strategic acquisitions.

The Group is well positioned in its current markets, and looks forward to building upon the success of 2013."

Enquiries:

Jonny Franklin-Adams/ Jen Boorer

Notes to Editors:

About NetPlayTV plc

NetPlayTV plc is admitted to trading on the AIM market of the London Stock Exchange (NPT). NetPlayTV operates a number of interactive gaming services under an Alderney gaming license, including SuperCasino.com, Jackpot247.com and Vernons.com. Its TV services can also be viewed 24 hours a day live on Sky Channel 862, six nights a week on ITV1, and every evening on Channel 5.The Company is focused on the delivery of a converged interactive gaming experience allowing its players to interact with its games on a variety of platforms, TV, internet, mobile and tablet from a common integrated wallet.

Chairman's statement

Dear Fellow Shareholder,

It is a pleasure to report on a very strong set of results for NetPlayTV plc for 2013.

Strategy

NetPlayTV's strategy remained focused on providing our customers with the best true multi-channel live gaming experience in the industry across mobile, web and TV through acquisition and organic growth. The strategy has proved successful and has delivered impressive results in 2013 with profit before tax increasing by 33% to £4.2m.

We have continued to develop our relationships with key TV broadcasters and signed a new three-year agreement with ITV in April to extend the number of nights from four to six per week. In the summer of 2013 we entered into our first TV show sponsorship, with the SuperCasino brand as headline sponsor for Big Brother and Celebrity Big Brother. This was a significant success, and was followed up in January 2014 with the sponsorship of Celebrity Big Brother, which had the highest viewer numbers since Channel 5 first produced this show.

While TV is core to our business, we believe it is important to diversify our business: We have substantially increased marketing and customer recruitment from pure online digital marketing initiatives, and continue to evaluate complimentary M&A opportunities. At the end of the year we purchased the Vernons.com e-gaming business from Sportech plc which brought a large database of customers and additional product verticals in bingo and sportsbook. We are currently applying our proven marketing strategy and I am confident that this will provide further opportunities to grow the business.

People

The senior management team has been strengthened for the next phase of growth with a number of new roles.

Akshay Kumar was appointed as Group Finance Director. Akshay served as Group Financial Controller from January 2011 and brings considerable strategic and financial input to the Board.

Bjarke Larsen has been made Chief Operating Officer. Bjarke has been with the Group since 2007 and is responsible for the day to day running of the gaming operations.

The Group also created a new role in 2014 to head up digital marketing to further build upon the positive traction gained in 2013, in expanding customer recruitment opportunities.

Every member of the NetPlayTV team has contributed to the Group's success during 2013 and I would like to thank them all for their hard work and the contribution they have made.

Results overview

NetPlayTV has delivered a record set of 2013 results, with net revenue increasing 31% to £28.5m and EBITDA increasing 21% to £5.2m.

The Group has no debt and cash generation continues to be strong with the year-end balance increasing £1.6m from £12.3m to £13.9m. This is after the dividend payments of £1.2m and the £3.0m acquisition of Vernons.com business from existing cash balances.

Looking ahead

The 2013 results show that the Group has now firmly established itself and is now a well-positioned and integrated business. 2014 has started with a strong increase in the core KPIs that drive the growth of the business and I am confident that we will continue to improve performance year on year.

Dividend

During the year the Board announced an interim dividend of 0.18 pence per share and is proposing a final dividend of 0.32 pence per share, subject to approval by the shareholders at the Annual General Meeting to be held on 29 May 2014, bringing the full year dividend to 0.50 pence per share and an increase of 33% on 2013. The dividend is payable on 19 June 2014 for shareholders on the register on 23 May 2014.

Clive Jones

Non-Executive Chairman

7 April 2014

Chief Executive's review

Delivering against strategy

2013 has seen the Group deliver its third consecutive year of net revenue growth in excess of 20% and the first year that gross bets exceeded £1 billion. We have continued to focus on our core strategy of delivering a cutting edge interactive gaming experience for our customers and this has delivered very strong year on year growth with net revenue increasing by 31% to £28.5m and EBITDA by 21% to £5.2m.

The business has been built on firm footings, is performing well and is highly cash generative. With this in mind, the Group is focused on diversification both in terms of marketing channels and product verticals enabling further customer reach and growth. This is illustrated by the strong increase in pure digital marketing, new customer numbers and the first acquisition since the business was restructured in 2010.

Marketing

The Group continued to invest significantly in marketing during 2013 and this resulted in a 25% increase in new depositing players to 63,832 and an increase in total depositing players of 30% to 84,833. Mobile and tablet is now an integral part of the overall marketing strategy and continues to grow well, accounting for 36% of all new depositing players, up from 21% in 2012. All TV adverts we produce have a strong 'call to action' for mobile customers and we expect the percentage of new customers from mobile and tablet to continue to increase throughout 2014.

In April 2013, a new three year agreement was signed with ITV to extend the number of nights the Jackpot247 show is aired on ITV from four to six, being Monday to Saturday inclusive. This is testament to the success of the format to date and reinforces the proven strategy of using TV to target new customers.

In addition, and again in line with the strategy of using TV to target new customers the Group entered into its first TV sponsorship deal in the summer of 2013 with its SuperCasino brand as the headline sponsor of Big Brother and Celebrity Big Brother. As part of the overall marketing strategy this proved a success and had the desired effect of increasing both brand awareness and customer reach leading to the decision for the sponsorship again of Celebrity Big Brother in January 2014. This series of Celebrity Big Brother was the most popular for Channel 5 yet with viewing audiences peaking at 4.2 million.

While player recruitment via TV is still at the heart of the business, during the year we increased our investment in pure online digital customer recruitment as part of a more diversified marketing strategy. This resulted in 27% of new depositing players coming from pure online, an increase of 16% since 2012.

Player retention remains key to the business model and works side by side with new player recruitment to ensure the best customer user experience, loyalty and in turn player value. In 2013, 45% of net revenue came from players who had an account for more than 12 months, up from 41% in 2012.

Acquisition

On 31 October 2013, the Group bought Vernons.com, the e-gaming division of Sportech plc. Vernons.com operates online casino, bingo and sportsbook. The acquisition includes the brand, customer database and various other gaming assets. These assets were purchased through the Group's subsidiary NetplayTV Group Limited in Alderney for a total consideration of £3 million which was satisfied by existing cash balances.

This acquisition provides significant synergy opportunities. With further product differentiation it will enable cross marketing of the existing live roulette TV product to the Vernons' customer base post integration as well as pushing the Vernons' sportsbook to the Group's largely male dominated SuperCasino database and provide a source of new customers, particularly with a view to the Football World Cup this year.

Product

The Group's core product offering throughout 2013 has been interactive TV casino via its brands SuperCasino and Jackpot247. With the strong interaction between TV and mobile and tablet the Group has been continually developing a best in class mobile offering. The success of this is illustrated by an increase of 188% in mobile and tablet net revenue which in turn accounted for 33% of total net revenue in 2013.

Whilst the primary product vertical for the Group remains casino, with the acquisition of Vernons.com brings new opportunities in bingo and sports betting. As the acquisition was only at the end of the year, it will be 2014 and beyond where the positive effect of these new product verticals on the business will really be seen. Sports betting is currently only operating online, however we are aiming to launch mobile sports betting in Q2 2014, ready for the Football World Cup in Brazil.

All products are integrated with a single wallet now including bingo and sports betting. However in Q2 of 2014 all three brands will be moving onto the new state of the art version of the Playtech integrated wallet offering. This gives substantial enhancements to CRM and with customer retention playing such a key part in the overall offering it should bring with it enhanced player loyalty and value.

Results

The Group produced a very strong set of financial results during 2013. The core KPIs driving the business are new depositing players and total depositing players which increased by 25% and 30% respectively compared with 2012. This led to an increase in net revenue of 31% to £28.5m and an increase in EBITDA of 21% to £5.2m.

Whereas marketing expenditure increased by 44% as the Group continues to commit to driving strong net revenue growth, operating and administrative expenses only increased by 28% and 14% respectively in comparison to 2012.

The Group increased cash during 2013 by £1.6m to £13.9m after paying £3.0m during the year for the acquisition of Vernons.com from existing cash balances.

Trading update & outlook

Q1 2014 was a record quarter for new depositing players and active depositing players, up 13% to 19,978 and 23% to 37,467 with net revenue increasing by 1% to £7.1m on a very strong Q1 2013 comparative. The net revenue increase would have been more significant if it had not been for SuperCasino's margin reducing to 1.5% in February from an average of 2.8% over the prior 12 months as a result of several VIP winners. The margin has returned to the expected 2.8% in March 2014.

Delivering a truly multi-product interactive gaming experience is still an important part of our strategy. Mobile is continuing to show strong growth and in February 2014 we launched live, real time TV roulette streaming to mobile. Net revenue from mobile contributed 35% of overall net revenue in Q1 2014.

There are substantial product enhancements in the pipeline for 2014 for both player recruitment and retention. The new version of the Playtech single wallet was launched in March for our SuperCasino brand and will be rolled out across Jackpot247 and Vernons during Q2. This enables enhanced CRM capabilities which in turn should further improve player retention and average revenue per user.

The Group continues to look at potential acquisition opportunities in line with the strategy to grow the business to complement organic growth.

NetPlayTV is well positioned in its current markets and has strong growth opportunities both in its existing UK market and internationally. The Group looks forward to building on the very successful set of 2013 results.

Charles Butler

Chief Executive Officer

7 April 2014

Financial and performance review

Overview

NetPlayTV delivered a record set of results in 2013, with a net revenue increase of 31% to £28.5m (2012: £21.8m) and profit before taxation increase of 33% to £4.1m (2012: £3.1m).

The Group continues to be highly cash generative with cash generated from operations of £6.0m (2012: £4.3m) and net cashflow (from the online gaming operation) of £4.6m, an increase of £0.6m on 2012. As a result the Board has decided to propose that the final dividend per share be increased by 42% to 0.32p (2012: 0.225p). The Group's financial position remains strong with cash and cash equivalents at the year-end of £13.9m (2012: £12.3m) with no debt.

Income statement items

Net revenue increased by 31% to £28.5m (2012: £21.8m).

Marketing expenses increased by £4.1m to £13.3m (2012: £9.2m). These expenses include the cost of the revenue share agreements in respect of key broadcast agreements with ITV and Channel 5 as well as TV advertising and pure online digital marketing. While clearly an element of the marketing expenditure is associated with customer retention and loyalty the aggregate marketing expenditure per new depositing player has increased by 15%. This is primarily due to an increase in pure online digital marketing expenditure. These new player recruitment costs are higher than traditional TV player recruitment, however early indications suggest that the lifetime contribution of these players should also be greater than a traditional TV player.

Operating expenses have increased by £1.4m from £4.9m in 2012 to £6.3m in 2013 although have decreased as a percentage of net revenue from 23% in 2012 to 22% in 2013. These expenses include both variable and fixed costs of the broadcast and gaming operation.

Administrative expenses have increased by £0.4m to £3.7m. This increase can be explained by the increase in aggregate staff costs which have increased from £2.7m in 2012 to £3.1m in 2013. The average headcount has increased by 15% from 78 people in 2012 to 90 people in 2013 as the Company has expanded some of its operations to reflect the increased size of the Group. Administrative expenses have reduced from 15 to 13% of net revenue as the business starts to scale.

Earnings per share

Reported profit for the year and total comprehensive income was £4.1m (2012: £3.6m) resulting in an increase in basic earnings per share of 19% to 1.43 pence per share (2012: 1.20 pence per share).

The Directors have additionally chosen to report an adjusted earnings per share as they believe it better reflects the underlying performance of the Group. This is calculated on the profit before taxation from continuing operations and deducting the cost of amortisation of specifically identified intangible assets arising on acquisitions and the share based payments. 

Adjusted profit for the year was £4.9m (2012: £3.6m) resulting in an increase in basic adjusted earnings per share of 32% to 1.68 pence per share (2012: 1.27 pence per share).

Cash balance

The Group's cash balance increased by £1.6m to £13.9m, which is equivalent to 4.7 pence per ordinary share in issue at 31 December 2013 (2012: £4.3 pence per ordinary share). Of this balance £1.7m is in relation to balances which players have in their gaming account on deposit with NetPlayTV (offsetting the liability described in Note 19 to the financial statements) leaving a corporate cash balance of £12.2m (2012: £10.6m), which is equivalent to 4.1 pence per ordinary share (2012: 3.7 pence per ordinary share).

Cashflow

The table below separates the movements in player balances, working capital, exceptional items paid, share capital issued, acquisitions / discontinued operations, dividend paid and net finance income received to show how EBITDA reconciles to the net cashflow from the online gaming operation and the total movement in cash:

During the year the Group has invested additional capital expenditure to improve the quality of the on-air broadcast graphics, to upgrade the web environment to provide scalability in a new tier-1 hosting facility and the purchase of software licenses. All staff costs in relation to continual web and other platform development have been expensed through the income statement in full during the year.

Dividend

Given the Group's strong cash generation the Directors propose to increase the final dividend by 42% to 0.32 pence per ordinary share. If approved at the AGM on 29 May 2014 this dividend will be paid on 19 June 2014 to shareholders whose names are on the register of members at the close of business on 23 May 2014. This payment, together with the interim dividend of 0.18 pence per ordinary share paid on 11 October 2013, makes a total of 0.50 pence per ordinary share (2012: 0.375 pence per ordinary share).

Acquisition of Vernons.com

During the period the Group acquired the assets of Vernons.com from Sportech (Alderney) Limited for total cash consideration of £3.0m. This transaction was financed from existing cash balances.

The Vernons brand contributed £0.9m to the Group's net revenue. Due to the effective and immediate integration into our existing operations we do not prepare a separate contribution statement for the Vernons brand.

The Group has incurred no exceptional material expenditure in relation to the acquisition of Vernons.com therefore all costs in relation to the completion of this transaction have been expensed in the statement of comprehensive income through administrative expenses.

Taxation

The Group has £5.9m (2012: £6.7m) of tax losses carried forward which equates to a total deferred tax asset of £1.3m (2012: £1.4m). Of this the deferred tax asset recognised on the balance sheet is £231,000 (2012: £248,000) as this amount is tax benefit is deemed to be probable within one financial year and the remaining £1.0m of the potential deferred tax asset is unrecognised. The charge through the income statement of £17,000 in the year represents the movement in the deferred tax asset between 2012 and 2013. The Group works closely with its advisers to ensure that its tax position is optimal.

Akshay Kumar

Group Finance Director

Point of Consumption tax

In the March 2013 Budget, the UK Government confirmed its intention to apply a 'Point of Consumption' (POC) tax to operators providing remote gambling into the United Kingdom. As widely reported it is currently expected that the POC tax will be applied from December 2014 and charged as 15% of net revenue.

As a leading operator within the UK gaming market, NetPlayTV will pay such POC tax on the majority of its net revenue. We estimate that the potential effect of the POC tax on the Group, if the regulation had been in place during 2013, would have been a reduction of circa £1.7m in profit for the year after incurring a gaming tax charge of £4.2m and implementing applicable contractual offsets and cost base efficiencies as outlined in points 1 and 2 below.

1. Contractual offsets: NetPlayTV has a number of contractual offsets with suppliers, where the revenue generated is directly linked to the amount payable to a supplier, and the potential additional cost due to the POC tax will consequently reduce the amount payable to these suppliers.

2. Consolidation of locations and cost base efficiencies:NetPlayTV currently runs two TV operations: one in the UK and one outside the UK. The Group may look to consolidate this into one location within the UK and has also already identified further cost efficiencies that can be achieved.

In addition to these two factors, the Board believes there are further opportunities for the Group to pursue as a result of the POC tax charge, including:

3. Opportunity to take market share and consolidation: There will be competitors within the UK gaming market who will have very low or negative profits after the introduction of the POC tax and maybe forced to exit the market3. NetPlayTV is well positioned to take advantage of a potential increase in market share. This also presents further opportunities for NetPlayTV to take part in the inevitable consolidation within the industry.

4. Operational gearing: While the POC tax will impact the EBITDA margin, the operational gearing in the business means that the EBITDA margin will rise again as the business continues to scale.

5. International expansion: Expanding our customer base internationally is a longer term objective and will further counterbalance the POC tax impact on our business.

NetPlayTV plc

Consolidated statement of comprehensive income

for the year ended 31 December 2013

NetPlayTV plc

Consolidated statement of financial position

as at 31 December 2013

NetPlayTV plc

Consolidated statement of cash flows

for the year ended 31 December 2013

NetPlayTV plc

Consolidated statement of changes in equity

for the year ended 31 December 2013

Notes to the financial information

1. Basis of preparation

The financial information set out in this document does not constitute the Company's statutory accounts for the year ended 31 December 2012 or 31 December 2013.

Statutory accounts for the year ended 31 December 2012 have been filed with the Registrar of Companies and those for the year ended 31 December 2013 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2012 and 31 December 2013 were unqualified, did not draw attention to any, matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The financial information in this document has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standard and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The principal accounting policies adopted have been consistently applied to all the years presented and are consistent with the policies adopted in the statutory accounts for the year ended 31 December 2012 and 31 December 2013.

2. Segmental information

The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Group has one reportable segment, being the online gaming segment. This division consists of all online products and ancillary income. The brands operated in this division are Supercasino.com, Jackpot247.com and Vernons.com which are aggregated into one reportable segment.

The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Board evaluates performance on the basis of segment EBITDA. This measurement basis excludes head office costs not derived from operations of any segment and are only disclosed in total.

The Group holds some domain names as specified in note 7 in the British Virgin Islands.

3. Income tax

4. Earnings per share

Adjusted earnings per share

An adjusted earnings per share, based on the profit before taxation from continuing operations and before the amortisation of specifically identified intangible assets arising on acquisitions and the share based payments, has been presented below in order to highlight the performance of the Group.

EBITDA per share

The Directors also believe that EBITDA per share (from continuing operations) reflects the underlying performance of the business and assists in providing a clearer view of the performance of the Group. It is also a performance measure used internally to manage the operations of the business.

5. Property, plant and equipment - Group

6. Goodwill

£2,565,000 of goodwill, relates to the SuperCasino cash generating unit, which arose on the acquisition of NetPlayTV Services Limited and NetPlayTV Broadcasting Limited in December 2006. £1,050,000 of goodwill, relating to the Jackpot247 (formerly known as Challenge Jackpot) cash generating unit, arose on the business combination due to the acquisition of certain assets from Two Way Gaming Limited and the simultaneously entering into production and gaming contract with Virgin Media Television to operate the Jackpot247 Service in May 2009. £556,000 of goodwill arose on the business combination due to the acquisition Vernons.com business acquired from Sportech (Alderney) Limited in October 2013, as described in note 9. The recoverable amount of the SuperCasino, Jackpot247 and Vernons.com cash generating units, to which this goodwill has been allocated, has been determined using value in use calculations.

The calculation of value in use is based on several assumptions which feed into a forecast model based on past player behaviour. The key assumptions of the forecast were as follows:

· number of new player depositing registrations;

· rate of retention of existing players;

· spending patterns of players

· cost per acquisition (CPA) from different acquisition sources;

· the growth rate applied to cash flows arising after the end of approved budgets; and

· the discount rate applied to cash flows.

The above assumptions are based on past experience, as considered appropriate for any external influences. For example a planned increase of marketing activity or TV airtime would be expected to increase player registrations.

Management forecasts cover a 12-month period and beyond that no growth rate is applied to cash flows. A discount rate of 13.7% has been used over five years.

The Directors do not believe that any reasonably possible change in key assumptions would lead to an impairment of the carrying amount of the SuperCasino, Jackpot247 or Vernons.com cash generating unit.

£2,000 of goodwill arising on the consolidation of NetPlay IP Limited was disposed of in the year ended 31 December 2012 as this company was dissolved.

7. Intangible assets

The Group holds several highly desirable domain names which were acquired as part of the Bingos transaction in 2008, some of which being .de, .fr and .it domains, are particularly attractive for use in the German, French and Italian markets respectively. These domain names are held by NetPlayTV Marketing BVI Limited, a company resident in the British Virgin Islands. During the year, the Directors of the Group have considered any indications of impairment and have come to the conclusion that there are none.

The useful economic life of a domain name will be affected by the demand for the game or product to which it relates (e.g. the relative demand of bingo compared, for example, to poker). In recent years, the directors have noted that, whilst customers' interest in online gaming products in general remains robust, their interest in specific games is becoming more transitory and susceptible to prevailing trends. In consequence, the directors have revised the useful economic life of the Group's domain names from 20 to 10 years. This will have the effect of increasing the annual amortisation charge by £98,000.

Domain names with a cost of £225,000 and amortisation of £75,000 and therefore a net book value of £150,000 were disposed of during the year ended December 2012 as part of the discontinued operations.

8. Share capital & share premium

9. Acquisitions

On 31 October 2013 the Group acquired the trade and assets of Vernons.com, the e-gaming division of Sportech plc, from Sportech (Alderney) Limited. The principal reason for the acquisition is to enhance the Group's scale and product offering. Details of the fair value of the identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

Acquisition costs of £32,000 arose as a result of the transaction. These costs have been recognised within administrative expenses in the statement of comprehensive income.

Since the date of acquisition, Vernons.com has contributed £902,000 to the Group Net Gaming Revenue. If the acquisition had occurred on 1 January 2013, the Group net gaming revenue would have been £4,412,000. It is impractical to consider the effects on the Group profit as business expense have not been attributed by brand.