TTR.L Regulatory News (TTR)

10 March 2016

32Red Plc("32Red" or the ''Group" or the ''Company")

'A record revenue year'

Final results for the year ended 31 December 2015

32Red, the award-winning online gaming operator, today announces its final results for the year ended 31 December 2015

Key highlights:

· Record revenue performance with total net gaming revenues up 52%

· Strong organic revenue growth, accelerating throughout the year

· Successful integration of Roxy Palace, acquired in July 2015

· 80% of net gaming revenues derived from regulated and taxed markets

· Mobile revenues up 71% on 2014, representing 44% of total casino revenues (2014: 32%)

· Marketing spend ROI metrics continued to strengthen in 2015

· Further solid progress in Italy, expected to break even in 2016

· Recommended final dividend of 1.7p per share (2014: 1.4p) bringing full ordinary dividend for the financial year to 2.8p (2014: 2.4p) in addition to Special Dividend of 3.0p per share declared on 10 February 2016

· Strong start to 2016 with like-for-like net gaming revenues for the first nine weeks of the year up 35% on the same period in 2015 and up 66% including the contribution from Roxy Palace

Key Financials:

Commenting on the results, Ed Ware, Chief Executive Officer, said:

"2015 was a very exciting and indeed record-breaking year for 32Red, achieved despite significant external regulatory and tax headwinds. These results are an excellent demonstration of 32Red's core strengths - a talented and dedicated team, first class ROI-driven marketing skills and established, highly appealing online gaming brands.

The acquisition of the Roxy Palace business in July complements the strong organic growth delivered in the core business as we exploited targeted marketing opportunities and attracted new customers to the 32Red brand. Marketing expenditure will be increased again in 2016 we are well positioned for another year of progress, building on the excellent achievements in 2015."

Enquiries:

*Underlying EBITDA is Earnings before Interest, Tax, Depreciation and Amortisation derived from the 32Red & Roxy Palace businesses i.e. excluding results from its Italian operations and is stated before share option costs and exceptional items.** Adjusted Earnings Per Share is calculated on Underlying Earnings adding back exceptional items, share option costs, amortisation and losses from the Italian business and uses the weighted average number of ordinary shares for diluted earnings as calculated in note 6 to these accounts.

CHAIRMAN'S STATEMENT

I am pleased to report a year of outstanding growth for 32Red Plc in 2015, which was a year when the industry faced a fresh challenge following the introduction of a new Point of Consumption Tax ('POCT') regime in the UK. These record results are testament to the strengths of the 32Red brand, our reputation amongst customers for delivering a consistent and first class experience and the effectiveness of our targeted, returns driven marketing.

Financial review

32Red delivered an outstanding trading performance throughout 2015 with total net gaming revenues increasing by 52% to £48.7m (2014: £32.1m). This strong performance was driven by a combination of accelerated organic growth in our core business (+35% on 2014) and a contribution from Roxy Palace acquired on 14 July 2015.

This strong revenue growth resulted in a 76% increase in pre-POCT underlying EBITDA* to £11.2m (2014: £6.4m). After the payment of POCT of £4.8m in 2015 (2014: £0.4m), post-POCT underlying EBITDA* increased by 7% to £6.4m (2014: £6.0m). In line with our strategy for the long-term development of the 32Red brand in Italy, we saw opportunities to increase marketing investment in that market during the year which resulted in losses of £1.2m (2014 loss: £0.6m). After accounting for this investment, reported EBITDA for the year totalled £5.2m (2014: £5.4m).

Further to the acquisition of the business assets of Roxy Palace during the year, amortisation of intangible fixed assets increased to £2.2m for the year (2014: £1.1m) and exceptional items totalled £0.6m (2014: £0.2m). This resulted in Profit before Taxation of £1.1m (2014: £3.4m).

The Group had a cash balance of £10.3m as at 31 December 2015 (2014: £7.0m) and has no borrowings.

Further information of the underlying performance and of progress in Italy is detailed in the Chief Executive's Statement.

Roxy Palace acquisition

On 14 July 2015, the Company announced the acquisition of Roxy Palace, the remote online gaming business founded in 2002 with 230,000 registered players, for a total consideration of £8.4 million, comprising £2.0m in cash and the issue of 10,000,000 new Ordinary Shares. The Company acquired the customer database, intellectual property rights and certain other assets used in connection with the Roxy Palace business.

Roxy Palace is an excellent addition to the Group with a strong and well established complementary brand and market expertise. Since acquisition, the Roxy business has generated net gaming revenues of £5.2m (2014: nil) and was earnings accretive from the date of acquisition. The integration of the Roxy Palace business with the 32Red business was completed ahead of schedule and will deliver material cost synergies in 2016 and beyond.

Final dividend

Reflecting this strong performance as well as the Board's confidence in the outlook, 32Red is pleased to recommend a final dividend of 1.7p per share (2014: 1.4p) bringing the full ordinary dividend for the financial year ended 31 December 2015 to 2.8p (year ended 31 December 2014: 2.4p). If approved by shareholders, the final dividend will be paid on 15 April 2016 to shareholders on the register on 17 March 2016. The final dividend is in addition to a Special Dividend of 3.0p per share that was declared on 10 February 2016 and is payable on 16 March 2016 to all shareholders on the register on 19 February 2016.

People

A key driver behind the growth of the 32Red business is our excellent team of gaming professionals. Their skill and dedication means that we continue to achieve our goal of always exceeding customer expectations and growing the 32Red brand. I would like to take this opportunity to thank the entire 32Red team, including new colleagues joining from Roxy Palace, for their achievements during the year.

Current Trading and OutlookTrading during 2016 to date has been very strong across the Group's portfolio with like-for-like net gaming revenues for the first nine weeks of the year up 35% on the same period in 2015 and up 66% including the contribution from Roxy Palace. The Board remains committed to delivering strong growth, both organically and via acquisitions and, as the landscape continues to evolve, we remain encouraged by regulatory developments in new European markets. 32Red remains very well positioned to capture growth opportunities in the online gaming market and build on the excellent progress made in 2015. The Board looks forward to updating shareholders on progress at the interim trading update in July 2016.

*Underlying EBITDA is Earnings before Interest, Tax, Depreciation and Amortisation derived from the 32Red & Roxy Palace businesses i.e. excluding results from its Italian operations and is stated before share option costs and exceptional items.** Adjusted Earnings Per Share is calculated on Underlying Earnings adding back exceptional items, share option costs, amortisation and losses from the Italian business and uses the weighted average number of ordinary shares for diluted earnings as calculated in note 6 to these accounts.

CEO REVIEW

Our focused growth strategy

32Red has a clear and focused growth strategy underpinning the Group's record performance in 2015. This is aimed at successfully exploiting organic and selective M&A opportunities and therefore delivering sustainable long-term growth for all our stakeholders. This strategy revolves around three core pillars:

1. Growing our brands in our core UK market

The Company is focused on growing its established brands in our core UK market, where we continue to see significant growth potential. We will do this through developing and implementing return on investment (ROI) driven marketing campaigns that deliver real value for the 32Red business.

Following the introduction of new regulatory and licensing regimes in the UK, net gaming revenues derived from the UK were subject to a new 15% Point of Consumption Tax ("POCT'') from 1 December 2014, resulting in a change in the dynamics of the UK market. Smaller operators have withdrawn from the UK market and with some larger operators choosing to reduce their marketing expenditure, 32Red identified an opportunity to leverage its strong, established brand and grow its UK market share by accelerating marketing investment. This strategy resulted in a 35% organic growth in revenues, with growth accelerating during the year and H2 net gaming revenues for the core business up 34% on H1. Furthermore, I am pleased to report that this momentum has so far carried forward into 2016.

2. Expansion in new regulated markets

The Company is focused on growing its presence in regulated online gaming markets where the Board feels that 32Red has commercially viable opportunities and can exploit its full marketing strength. Currently the company generates 80% of net gaming revenues from taxed or regulated markets.

The Group's marketing expenditure in the core UK market will continue to be supplemented by controlled investment in Italy where we are establishing the 32Red brand to deliver the exciting long-term potential we see in that major online gaming market. Furthermore, the global online gaming regulatory landscape continues to evolve and the Board is encouraged by developments in potential new markets for 32Red.

3. Continue to do what's right for our customers

At the very core of everything we do is the customer. 32Red has a heritage in pure online gaming and the Company has established a strong reputation by innovating for its customers' enjoyment as well as protecting them. This is not only the right thing to do, but it strengthens our trusted brand in the marketplace, in turn driving more customers to our business and keeping them for longer.

2015 review - a record year

In 2015, the Company generated record levels of net gaming revenue of £48.7m in 2015, up 52% on 2014. Key to this progress was accelerated growth in the core 32Red business (+35% on 2014), as we attracted more customers to the 32Red brand through highly effective marketing. The Group also enjoyed a strong contribution from Roxy Palace, which was acquired in July, and fully integrated by the end of the year, slightly ahead of plan.

* Roxy Palace business was acquired on 14 July 2015

Brand and marketing

In terms of evaluating the effectiveness of marketing, the business has historically reported 'Cost per Acquisition' and 'Yield per active player' KPIs. However, these KPIs are no longer a true reflection of how the business measures and evaluates its marketing and have been superseded by a 'Return on Investment' based analysis.

During the year we continued to drive our online and offline marketing campaigns to support and grow the brand. Our 'Master of Wow' theme and TV advertising continued to prove successful and emphasised the 32Red core proposition that the customer is at the centre of our 'pure-gaming' experience.

32Red Casino

Our core 32Red Casino brand enjoyed a year of excellent growth, with net gaming revenue up 34% to £39.3m (2014: £29.3m). Throughout 2015, marketing expenditure incurred in any one month was 'paid back' within less than 90 days in gross gaming revenue derived from new players directly attracted by that month's marketing spend. It is particularly pleasing to see this payback period remain fairly constant as marketing expenditure increases and provides further encouragement to accelerate marketing investment in this area. The Company has confidence in its detailed Customer Relationship Management ("CRM") techniques and award-winning player support, both of which are designed to build on this initial payback and maximise lifetime player value.

The fastest growing platform remains mobile devices and revenues derived from mobile customers increased by 71% on 2014, representing 44% of total 32Red casino revenues (2014: 32%). 

32Red Other ProductsKambi Sports Solutions continues to provide a fully managed sportsbook solution, enabling 32Red to offer a competitive sports betting experience to its customers through online and mobile channels, whilst also providing the Group with a cost effective customer acquisition channel.

In recognition of the importance of the racing industry to the betting industry, 32Red was delighted to enter into an agreement with the British Horseracing Authority to become an Authorised Betting Partner ("ABP'') in December 2015. 32RedSport has made voluntary contributions to the Levy since it commenced operations and, under this agreement, will continue to make voluntary contributions in respect of all bets placed on UK horseracing. Overall, sports betting revenues continue to grow and focus remains centred on cross-selling the casino products to new sportsbook players.

Poker and Bingo operations continue to benefit from increased investment in the marketing and value of the 32Red brand and from increased activity levels at the 32Red casino from which we can cross-sell and maximise lifetime player value. 

Roxy Palace

The successful integration of the recently acquired Roxy Palace operations was completed in December 2015, slightly ahead of schedule. Net Gaming Revenues have been in line with expectations during this integration phase and the Roxy Palace business will benefit from increased and more efficient marketing in the year ahead, as well as leveraging the skills and expertise in the 32Red business. This acquisition demonstrates the Company's ability to identify and successfully deliver attractive acquisitions and we will continue to explore further value creating opportunities in 2016.

ItalyFurther to the regulatory changes implemented at the beginning of 2015, we saw opportunities to increase our marketing expenditure and have made solid further progress. Net Gaming Revenues increased by 54% to £1.7m in 2015 (2014: £1.1m) and a total of 6,413 new players were recruited in 2015 (2014: 5,011) bringing the total number of active players to 12,774 (2014: 8,628).  While Italy remains a competitive market, the potential rewards are significant and we expect our Italian operations to break even during 2016 as the brand gains continued traction.

OutlookWe are confident that 2016 will be another year of strong organic revenue growth as we continue to increase marketing investment in both the 32Red and Roxy Palace brands. We will monitor the returns on this investment and are fully prepared to accelerate marketing spend if 'payback' averages remain encouraging and satisfy our strict criteria.

The online gaming industry continues to grow, driven by mobile devices and regulation. Consolidation will remain a key feature and the industry and we continue to evaluate potential acquisitions that may complement our strong organic growth. With our strong brands, marketing expertise and reputation for first class customer service we are well positioned for another year of progress, building on the excellent achievements in 2015.

Edward Ware,Chief Executive Officer, 32Red Plc

* Certain prior year expenses have been reclassified (see note 11)

Notes:

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and issued by the International Accounting Standards Board ('IASB'). These accounting policies comply with each IFRS that is mandatory for accounting periods commencing on or after 1 January 2015. The financial statements have been prepared under the historical cost convention and on a going concern basis.

Business segment

For management purposes and for transacting with customers, the Group's operations can be segmented into the following reporting sections:

Non-current assets are used by all the business segments and a split has not been made by segment because management internally review the assets and liabilities in aggregate. Furthermore "social security and other taxes" relate to all business segments and cannot be split in a meaningful way.

During the year, legal costs of £96,973 (2014: £150,000) were expensed in respect of industry lobbying and legal advice received in connection with the UK Government's proposed Point of Consumption Tax and regulation. As a result of the acquisition and subsequent relocation of the Roxy Palace business on 14 July 2015, the Company incurred due diligence costs of £126,988 (2014: £nil) and restructuring costs of £363,541 (2014: £nil). The Roxy Palace relocation and restructuring was completed on 10 December 2015 and no further exceptional costs are expected to be incurred in 2016 in respect of the acquisition. 

The following amounts have been included in the income statement for the reporting periods presented:

Basic earnings per share have been calculated by dividing the net results attributable to ordinary shareholders by the weighted average number of shares in issue during the relevant financial periods.

The weighted average number of shares used for basic earnings per share amounted to 78,337,590 shares (2014: 72,950,326).

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

In 2015, assessable income is taxed in Gibraltar at the mainstream corporate income tax rate of 10% (2014: 10%).

8 Intangible assets

9 Property, plant and equipment

10 Business CombinationsOn 14 July 2015, the Company acquired the trade and business assets of the Roxy Palace casino for total consideration of £8,400,000 comprising £2,000,000 in cash and the issuance of 10,000,000 new Ordinary Shares. The business assets acquired consist of the customer database, intellectual property rights and domain names used in connection with the Roxy Palace business and were acquired via the acquisition of the entire issued share capital of Eucalyptus Investment Limited, a wholly-owned subsidiary of Hyperlink Media Limited and Applied Logics Limited. The sole liabilities assumed by the Group are in respect of player balances and this amount was deducted from the cash consideration payable. Under IFRS 3 'Business Combinations', the Board has assigned fair values to the assets and liabilities acquired as detailed below:-

In 2015, the Group's net gaming revenue from Roxy Palace gaming operations amounted to £5,205,341.

11 Reclassification of prior year expensesLicence fees and gaming taxation costs have historically been included in Administrative expenses, but following the introduction of Point of Consumption Tax in the UK in December 2014, the Company now includes such costs in Cost of Sales. The 2014 Consolidated Statement of Comprehensive Income has been restated to reflect this reclassification. There is no change to the reported EBITDA or Profit before Taxation in 2014.

12 Publication of Non-Statutory Accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined under Gibraltar company law.

The summarised Consolidated Statement of Financial Position at 31 December 2015 and the summarised Consolidated Statement of Comprehensive Income, summarised Consolidated Statement of Changes in Equity, summarised Consolidated Statement of Cash Flows and associated notes for the year then ended have been extracted from the Group's 2015 statutory financial statements upon which the auditor's opinion is unqualified and unmodified. The full 2015 statutory financial statements are detailed on the Company's website www.32Redplc.com.

Those financial statements have not yet been delivered to the registrar of companies.