NPT.L Regulatory News (NPT)

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NetPlay TV plc

Final Results for year ended 31 December 2014

NetPlay TV plc (AIM: NPT), the interactive gaming company, is pleased to announce its final results for the year ended 31 December 2014. The full annual report and financial statements are available on the website www.netplaytv.com

2014 Financial Highlights

· Net revenue of £27.4m (2013: £28.5m)

· Adjusted EBITDA[*] of £3.6m (2013: £5.2m)

· Adjusted earnings per share of 1.09 pence per share (2013: 1.68 pence per share)

· Cash and cash equivalents at year end increased to £14.2m (2013: £13.9m)

· 10% increase in proposed total dividend to 0.55 pence per share (2013: 0.50 pence per share) as a result of increasing the proposed final dividend to 0.33 pence per share (2013: 0.32 pence per share).

2014 Operational Highlights

· Bjarke Larsen, having extensive knowledge of the Company and wider industry, appointed as CEO

· Operating cost base streamlined, in preparation for the Point of Consumption (POC) duty

· Marketing strategy revised delivering improved returns through more accurately targeted marketing spend

· Implementation of single wallet across all brands, upgrades to mobile wallet and release of new games across web and mobile

· 19% increase in new depositing players to 75,687 (2013: 63,832) and 20% increase in active depositing players to 101,532 (2013: 84,833)

Post period highlights & trading update

· NetPlay TV has strengthened the relationship with a new Channel 5 agreement which runs until December 2018. This illustrates the strength of the partnership between the Companies and the commitment NetPlay has to its core broadcast strategy.

· Following a positive final quarter of 2014, the Group's core business has continued to perform well into the first quarter of 2015.

Commenting on the results, Bjarke Larsen, NetPlay TV's Chief Executive said:

"We are pleased to announce that the Group performed in-line with market expectation in 2014.

"The recently announced Channel 5 deal clearly illustrates our strong focus on TV as a marketing strategy and the fact it remains our key USP. In addition we have addressed and implemented a successful marketing review that is yielding good results.

"Whilst the full environmental impact of the Point of Consumption duty on the industry is yet to be seen, we are confident with our post-POC operational strategy and believe the Group is in a strong position for opportunistic M&A. We look forward to the year ahead with confidence and to creating long term value for our shareholders." 

Enquiries:

Jonny Franklin-Adams/ Jen Boorer

Notes to Editors:

About NetPlay TV plc

NetPlay TV plc is admitted to trading on the AIM market of the London Stock Exchange (NPT). NetPlay TV 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 STATMEMENT

Dear Shareholder,

The Group continues to focus on providing our customers with the best true multi-channel live gaming experience in the industry across mobile, web and TV. TV is at the core of our marketing strategy, and continues to be an important and unique source of customer acquisition for the Group.

Importantly the Group has recently been focused on renegotiating terms with Channel 5 / Viacom[†] to secure its

long-term television arrangements. I am pleased to report that the Group has now signed a new three year partnership agreement, on improved terms, which incorporates the existing post-midnight airtime, supporting pre-midnight media and an option to deliver new show formats. This ensures SuperCasino remains on UK terrestrial TV until December 2018 and is testament to the value this long term relationship brings to both parties and in particular the SuperCasino brand.

Building on the success of the Big Brother Sponsorship in 2013 the Group renewed the partnership with Channel 5 for 2014. Deals were also signed for Vernons sponsorship of Walkabout bars and its brand ambassador Jimmy Bullard.

During the course of 2014 the wider gaming industry underwent significant regulatory change through the introduction of the Point of Consumption ("POC") duty, creating challenging market conditions for the Group. At the end of Q3, the Board focused its marketing programme on its major TV partners maximising the effectiveness of the guaranteed TV airtime agreements. The Group, also, terminated onerous and inefficient marketing contracts and these strategic changes have delivered positive results, with marketing spend subsequently reduced, the average cost to acquire new depositing player's reduced, and average revenue per active depositing player increased.

Financial review

In-line with the trading update issued in January 2015, the Group posted net revenue of £27.4m and adjusted EBITDA[‡] of £3.6m in-line with market expectation.

The Group has no debt, is cash generative and holds a strong balance sheet with cash balance at 31 December 2014 of £14.2m. The Board has undertaken a review of its cash position and has agreed that this should remain with the Group, while we assess all M&A opportunities which we are presented with.

Board appointments & changes

In September, the Group announced that Clive Jones, Non-Executive Chairman, had informed the Board of his intention to step down from his role. Clive has been Non-Executive Chairman of the Group since June 2009 and we want to thank him for his valuable contribution over the last 5 years, navigating the business from a small opportunistic gaming company to the operator we are today.

After four years in my role as Chief Executive of the Group, I became Non-Executive Chairman in September. I continue to work closely alongside the Executive team supporting them to drive the business forward.

Bjarke Larsen was appointed as Commercial Director in August 2014 and subsequently became the Interim CEO while the Board conducted a search process for a new CEO. In January 2015, Bjarke was appointed to the role of permanent CEO. He brings to the role significant industry and Company experience which will be of great benefit to the Group as it embarks on the next phase of development.

Employees

I would like to take this opportunity to express my sincere thanks to all our employees for their continued commitment to the Company. The Board truly appreciate all the hard work, support and dedication from each and every member of the NetPlay TV team.

Dividend

The business remains firmly cash generative and is supported by a strong balance sheet. The Board is pleased to propose a final dividend of 0.33 pence per share, subject to final approval by the shareholders at the Annual General Meeting to be held on the 28 May 2015, bringing the full year dividend to 0.55 pence per share. The dividend is payable on the 11 June 2015, for shareholders on the register on the 22 May 2015.

Outlook for 2015

It has been an encouraging start to 2015 and we are particularly pleased with the results from the new marketing strategy implemented by the Executive team at the end of Q3 2014. Looking ahead, organic growth will be supported by an acquisition strategy which will continue to be an important part of our future growth plans.

Thanks to a particularly strong balance sheet and cash generating position, the Group has the financial capacity to look at both bolt-on acquisitions and larger strategic acquisitions. The Group will assess all M&A opportunities, with a focus on those that enable the Group to re-enforce its position in the current UK interactive gaming market.

We look forward to the year ahead and creating long-term value for our shareholders.

Charles Butler

Chairman

CHIEF EXECUTIVE'S REVIEW

Overview

2014 saw the Group deliver a fourth consecutive year of cash generation and a second year of bets in excess of £1 billion.

The Group has strengthened its relationships with its key commercial and software partners in the period. One particular recent highlight was the extension of the Channel 5 agreement until December 2018 showing the importance of the Group's TV and broadcast strategy. I am particularly pleased to secure this longer term arrangement as it will further strengthen NetPlay TV's product offering, broaden customer following and appeal.

In addition, I am pleased to report that the Group signed a new five year deal with its back-end software provider, which allows the Group to offer best-in-breed content and build on its previous success. The product continued to develop in 2014, and I was particularly pleased that the single wallet was successfully implemented across all three brands allowing for a richer and enhanced customer experience.

POC

After much discussion about the Point of Consumption duty, the Act referred to as the Gambling (Licensing and Adverting) Act 2014 was given assent. This new licensing regime came into force on the 1 November 2014 and was followed by the Point of Consumption ("POC") duty from the 1 December 2014.

Prior to the implementation of POC, the Group performed a full review of its operating cost base. This resulted in further consolidation of overseas locations, the realigning of the key software contracts and the renegotiation of supplier agreements which all helped to mitigate a large portion of this duty.

The changes position the Group's business for the future. The Group's strong balance sheet puts NetPlay TV in a good position to consider opportunistic M&A.

License

The Group was successful in its application for a continuation license in respect of the UK gaming operations and expects to receive its full license in 2015.

Marketing

Strategy

As stated in the recent trading updates, the Group completed a thorough review of the marketing programme, subsequently developing a new strategy designed to deliver improved returns through increased cost efficiencies and more accurately targeted marketing spend. This shift in strategy saw the Group working closely with its TV partners to maximise the available airtime as customers acquired through these sources provide the Group with the highest value. In addition, the Group has terminated onerous and ineffective marketing contracts. These strategic changes have already delivered encouraging results with cost per acquisition ("CPA") falling and average revenue per active depositing player increasing.

We continue to invest in the customer experience by enhancing the CRM program through implementing a number of data-driven marketing tools. These new tools will help us strengthen brand loyalty and enhance the customer lifetime values. We should start to see the results of these enhancements later this year.

Commercial partners

Commercial partners remain a unique source of acquisition for the Group and we continue to see long term shareholder value in these partnerships. This position is reflected in the recent renewal of the new Channel 5 Agreement for three years, taking the partnership to the end of 2018.

As highlighted in the Chairman's statement we have an agreement providing us with pre-midnight advertising, which is used in support of our post-midnight teleshopping airtime. The Group can further capitalise on this airtime by rolling out new show formats, which are currently in development.

Sponsorship

Following a number of successful sponsorship opportunities in 2013, the Group took the decision to extend the amount of sponsorship it undertook in 2014:

January 2014 The Group's core brand SuperCasino sponsored Celebrity Big Brother, driving a record number of new depositing players.

May 2014 The Group announced that it had signed a year's sponsorship deal with Walkabout Bars which would give the recently acquired Vernon's brand a platform to build brand awareness ahead of the mobile product release.

The Group also announced that SuperCasino would be the headline sponsor for Channel 5's Big Brother and Celebrity Big Brother being broadcast between June and September.

August 2014 The Group signed ex-Premier League footballer Jimmy Bullard as the new brand ambassador for Vernons Sports.

Product

During 2014 the Group delivered a number of developments. This included the implementation of the single wallet across the SuperCasino, Jackpot247 and Vernons brands, upgrades to the mobile wallet and the release of over 40 new web games and 20 new mobile games.

The Group also hosted a number of user experience focus groups allowing us to better understand the user needs. These findings are driving a series of changes to the brands in 2015 with the intention of positively impacting the Group's KPI's.

At the end of 2013 the Group acquired Vernons and has been working on its rebranding, which is due to be rolled out in the first half of 2015. The brand has been performing well, and the Group is imminently launching its mobile sportsbook. This will provide the Group with a new platform to acquire, cross-sell and monetise its sports players.

Results

The year ended on a firm financial footing, with the core KPIs remaining stable. New depositing players and total active depositing players over the year increased by 19% and 20% respectively. The Group generated net revenue of £27.4m and adjusted EBITDA of £3.6m.

The Group experienced its fourth consecutive year of cash generation with its cash position increasing to £14.2m. As we remain confident on our outlook the Board have recommended that the total dividend for the year be increased by 10% to 0.55 pence per share.

Due to the refocused strategy, described above, the Group will now be reporting KPIs on a half yearly basis at the time of its results.

Current Trading and Outlook

The Group's start to the year has been encouraging, with the Group's core business performing well into the first quarter of 2015.

The year ahead will be an exciting one for the Group with a raft of improvements and enhancements in the pipeline for the casino product offerings. In addition to the enhancements we have an additional 30 new games titles to release across web and mobile sites.

Our mobile sportsbook is in the final stages of testing and will be launched in summer 2015 followed by the roll out of the re-branded Vernons sports website.

As we are still in the early stages of the regulatory change, the full impact of the UK POC duty remains to be seen. However we expect to see operators without the scale that we have, struggling to remain cash generative, which in itself may present M&A opportunities for the Group. We look to the future with confidence and look forward to creating value and growth for shareholders.

Bjarke Larsen

Chief Executive Officer

FINANCIAL AND PERFORMANCE REVIEW

Overview

NetPlay TV delivered net revenue of £27.4m (2013: £28.5m) and adjusted EBITDA of £3.6m (2013: £5.2m) in-line with market expectation.

The Group continues to be highly cash generative with net cash generated (from the online gaming operation) of £3.0m (2013: £4.4m). As a result the Board has proposed that the total dividend per share for the full year should be increased by 10% to 0.55 pence (2013: 0.50 pence). The Group's financial position remains strong with cash and cash equivalents at the year-end of £14.2m (2013: £13.9m) with no debt.

The table above reconciles the statutory format of the Income statement to adjusted EBITDA and adjusted profit before tax which is used by management internally to evaluate the underlying performance of the business. In the opinion of the Board this format better reflects the operational performance of the Group. The discussion in this section below will focus on the adjusted information.

Income statement items

Net revenue for the year was £27.4m (2013: £28.5m).

The Point of Consumption ("POC") Duty came into effect on 1 December 2014. The duty is set at 15% of gaming net revenue and 15% of sports betting gross win. The Group has accrued a charge of £0.3m for the month of December which will be paid on or before 30 April 2015.

Marketing expenses decreased by £0.3m to £12.9m (2013: £13.3m). The average quarterly expenditure for the first three quarters of the year was £3.4m reducing to £2.7m in the final quarter, a decrease of £0.7m which reflects the effect of the revised marketing programme. These expenses include the cost of the revenue share agreements in respect of key broadcast agreements with ITV and Channel 5, TV advertising and the cost of pure online digital marketing which was reduced in Q4.

Operating expenses have increased by £0.1m from £6.3m in 2013 to £6.4m in 2014. These costs have increased as a percentage of net revenue from 22% in 2013 to 23% in 2014 predominantly as the Group is now incurring additional operating expenses associated with servicing the additional products (namely bingo and sportsbook) acquired as part of the Vernons acquisition in 2013.

Administrative expenses have increased by £0.4m to £4.1m. This increase can be explained by the increase in aggregate marketing staff costs, which are classified in this category with other salary expenses, where headcount has increased from an average of 15 individuals in 2013 to 27 individuals in 2014 as the Group has looked to bring some of the services in-house which were provided by external marketing consultants.

Depreciation and amortisation are separately shown from Administrative expenses on the income statement, so that their quantum can be compared against the prior years. Finance income relates to bank interest received.

The Group has incurred an impairment charge of £0.9m (2013: £nil) in respect of domain names acquired as part of the Bingos transaction in 2008 which the Group was holding on its balance sheet. The domain names which have been impaired are Bingo assets acquired as part of the Bingos transaction in 2008 relating to non UK territories. As part of the Group reviewing its strategy and concentrating predominantly on its core-UK business and brands, the Directors have reviewed the carrying value of these domains and have written the net book value down to £0.3m in-line with an external valuation.

Reorganisation and other expenses of £0.8m (2013: £nil) represent costs associated with the consolidation of business locations and other one-off costs in respect of contracts (which are described in note 3). It is the view of the Board of Directors that these costs, in aggregate, are non-recurring and therefore these costs should not be considered when evaluating the underlying operating performance of the Group. Of the £0.8m expenditure incurred in the year, £0.6m was paid with a further £0.2m accrued at the year-end to be paid in 2015.

The Group has incurred a share based payments credit of £0.1m in the period (2013: charge of £0.2m) due to the movement in the Group's share price and number of existing options expected to exercise. On the reconciliation in the table above, we have separately disclosed the amortisation of specifically identified intangible assets arising on acquisitions, to better reflect the underlying performance of the Group.

Earnings per share

Reported earnings per share for the year was a loss of 0.03 pence per share (2013 earnings per share: 1.43 pence per share). However, 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 after adding back the amortisation of specifically identified intangible assets arising on acquisitions, impairment of intangible assets, share based payments and reorganisation and other expenses.

Adjusted profit for the year was £3.2m (2013: £4.9m) resulting in a basic adjusted earnings per share of 1.09 pence per share (2013: 1.68 pence per share).

Cash balance

The Group's cash balance increased to £14.2m, which is equivalent to 4.8 pence per ordinary share in issue at 31 December 2014 (2013: 4.7 pence per ordinary share). Of this balance £2.1m is in relation to balances which players have in their gaming account on deposit with NetPlay TV (offsetting the player funds liability) leaving a corporate cash balance of £12.1m (2013: £12.2m), which is equivalent to 4.1 pence per ordinary share (2013: 4.1 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 adjusted EBITDA reconciles to the net cashflow from the online gaming operation and the total movement in cash:

To support our platform for long term growth, during the year the Group has invested in capital expenditure associated with software development for the message broker platform between the software provider and our own proprietary roulette games. In addition to this, capital expenditure has been incurred to increase the security infrastructure within the Group.

Dividend

Given the Group's continued strong cash generation the Directors propose to increase the final dividend by to 0.33 pence per share. If approved at the AGM on 28 May 2015 this dividend will be paid on 11 June 2015 to shareholders whose names are on the register of members at the close of business on 22 May 2015 following an ex-dividend date of 21 May 2015. This payment, together with the interim dividend of 0.22 pence per ordinary share paid on 23 October 2014, makes a total of 0.55 pence per share, an increase of 10% on the prior year (2013: 0.50 pence per share). Based on the Group's closing share price at 31 December 2014, this would equate to total dividend yield of 7.6%.

Corporation & Deferred Taxation

The Group has circa £6.9m (2013: £6.4m) of UK corporation tax losses carried forward which equates to a total deferred tax asset of £1.4m (2013: £1.5m). Of this, the deferred tax asset recognised on the balance sheet is £38,000 (2013: £231,000) as this amount of tax benefit is deemed to be probable within one financial year and the remaining £1.4m of the potential deferred tax asset is unrecognised. The charge through the income statement of £193,000 in the year represents the movement in the deferred tax asset between 2013 and 2014. The Group works closely with its advisers to ensure that its tax position is optimal.

Akshay Kumar

Group Finance Director

NetPlay TV plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2014

NetPlay TV plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2014

Company registration number: 03954744

NetPlay TV plc

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2014

NetPlay TV plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2014

NOTES TO THE FINANCIAL STATEMENTS

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 2013 or 31 December 2014.

Statutory accounts for the year ended 31 December 2013 have been filed with the Registrar of Companies and those for the year ended 31 December 2014 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 2013 and 31 December 2014 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 2013 and 31 December 2014. 

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 8 in the British Virgin Islands.

3. Reorganisation and other expenses

Reorganisation expenses relate to one-time costs predominantly associated with the consolidation of business locations as the business prepared itself for the UK Point of Consumption Duty.

Provision and incurred expenditure for breach of contract relates to an external marketing agency which the Group believes has failed to perform its obligation under its agreement. The Group has taken a prudent view and has provided for 100% of this liability.

Onerous costs relate to TV airtime and expenditure which have not driven any value in the year and is not expected to drive any value in future periods. The onerous TV airtime relates to Freeview airtime which is simulcast on a terrestrial television channel and therefore deemed not to provide any value. In addition the group entered a sponsorship agreement which did not deliver the level of new depositing players and net revenue which were forecast.

The classification of these expenses in the Consolidated Statement of Comprehensive Income is as follows:

4. Income tax

Factors affecting the tax expense for the year

The tax assessed in the year differs from the standard rate of corporation tax in the UK of 21.5% (2013: 23.3%). The differences are explained below

5. Earnings per share

Adjusted earnings per share

An adjusted earnings per share, based on the profit before taxation from 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.

Adjusted EBITDA per share

The Directors also believe that EBITDA per share 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.

6. Property, plant and equipment - Group

7. Goodwill

£2,565,000 of goodwill relates to the SuperCasino cash generating unit, which arose on the acquisition of NetPlay TV Services Limited and NetPlay TV 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. 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 12.56% has been used over five years plus a terminal value.

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.

8. Intangible assets

The Group holds several 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 NetPlay TV Marketing BVI Limited, a company resident in the British Virgin Islands.

As part of the Group reviewing its strategy and concentrating on its core UK business and brands, management have considered any indications of impairment for these domain names as the intended use of these assets has changed in the year. As a result of the strategic review, these domain names have been valued at fair value less costs of disposal. These fair value measurements have been classified as Level 2 in accordance with IFRS 13 as management have obtained an external valuation, considering similar market transactions in a relatively illiquid market. As a result these assets have been impaired by £869,000. The carrying value of these domain names was previously supported by the value in use method.

9. Share capital & share premium