TTR.L Regulatory News (TTR)

32Red Plc

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

Interim results for the six months ended 30 June 2012

32Red, the award-winning online gaming operator, today reports interim results for the six months ended 30 June 2012.

Key Financials:

Exceptional costs of £59,000 (H1 2011: £41,000) relate to costs in respect of legal action taken against William Hill

Key points:

·; Record H1 Revenues, up 50% on H1 2011

·; 12% increase in EBITDA before share options and exceptional items

·; 32Red brand set for H2 launch in Italy

·; William Hill's appeal over trade mark infringement dismissed

·; Interim 2012 dividend of 0.6p declared today, up 20% on 2011

·; Current trading remains strong and in line with management expectations

Key performance indicators

·; Active casino players in first 6 months up 81% to 31,722* (H1 2011: 17,548)

·; Casino player yield £457* (H1 2011: £543)

·; New Casino players up 93% to 18,724* (H1 2011: 9,704) 

·; Casino cost per acquisition: £166* (H1 2011: £173)

Revenues for July and August 2012 are up 22% on the corresponding period in 2011 despite the Olympics taking place at that time. The Board continues its strategy of investing in UK marketing and will commence marketing activity in Italy during the second half of the year. 

Ed Ware, CEO commented:

"We are very pleased to have delivered another strong performance during the first half of 2012, across all key measures. This performance has continued during the first 2 months of the second half of the year, despite the excitement and distraction of the Olympic Games. The sustained revenue growth across the Group has been primarily driven by the 32Red Casino and we continue to work on further enhancing the player experience as well as our marketing effectiveness.

As previously stated, we intend to enter the Italian online casino market in early Q4 and we are looking forward to commencing marketing and operational activities. While we continue to focus on our core market of the UK, we look forward to utilising our Italian licence to expand the profile of the brand and to grow the business in another regulated market.''

5 September 2012

* In previous periods, the Company had reported the number of players by defining a player as a customer who had placed a 'real money bet' during the period. In January 2012, the Company introduced a more relevant definition for a player as a customer who has played for real money but has also made a deposit during the period. This definition is used in today's trading statement. For reference, under the old definition the number of new players in H1 2012 totalled 60,861 (H1 2011: 13,901) and the number of active players who placed a real money bet in H1 2012 totalled 73,909 (H1 2011: 21,745).

Enquiries:

32Red plc

Performance Summary

As reported in its trading update on 23 July 2012, 32Red is pleased to announce an excellent first half trading in 2012, building on the strong trading growth experienced throughout 2011. Record revenues for the six month period in the first half of 2012 of £16.5m, up 50% on 2011, has resulted in EBITDA before exceptional items and share option costs of £1.7m (H1 2011: £1.5m). Profit before taxation totalled £1.2m (H1 2011: £1.1m) and earnings per share totalled 1.60p (H1 2011: 1.59p). The Company today declares an interim dividend of 0.6p per share (H1 2011: 0.5p) to be paid on 5 October 2012 to all shareholders on the Company share register on 14 September 2012.

The continued acceleration in the growth of our player base, a result of increased investment in the marketing of the 32Red Casino, has yielded strong results and the revenue generated by the 32Red casino represents 88% of total group revenues in the first half of the year (H1 2011: 86%).

Casino Revenues

The continued marketing drive has resulted in a record level of casino revenue for the first half of the year and reflects increased levels of active customers, which in turn is assisted by continued strong recruitment of new customers. This strong recruitment of new customers, particularly through the 32Red mobile channel, is testament to the strength of the 32Red brand, but will inevitably put short-term pressure on player yields.

Other Revenues

Revenues from 32Red Poker remain flat at £0.6m for the first half of the year (H1 2011: £0.6m). Increased investment in marketing has grown 32Red Bingo revenues to £0.3m (H1 2011: £0.2m) and 32Redbet revenues have increased to £0.4m (H1 2011: £0.1m). Casino revenue from acquired brands totalled £0.7m in the first half of the year (H1 2011: £0.6m) and remain very much secondary to the core 32Red brand.

Italy

On 6 March 2012, the Company announced that it had been successful in its application for a remote gaming licence in Italy. Since incorporation in 2002, 32Red has been focused on the UK's online gaming market and has been keen to ensure that earnings have been from a regulated market. Italy represents an excellent opportunity for 32Red to utilise its core skills and apply its longstanding business philosophy in a new and regulated market.

The 32Red Casino will go live in Italy during Q4 of 2012 and the Company aims to ultimately offer casino, poker and bingo services to Italian customers. We have been encouraged by recent Italian legislation purported to allow online operators to offer online bingo as early as November and online casino slots in December.

Trade Mark litigation update 

Following a six day trial in October 2010 in the High Court, judgment was handed down in January 2011 detailing 32Red's success in its trade mark action against members of the William Hill group ("William Hill"). As a result of that successful action, the William Hill-owned 32Vegas business was held to have infringed two of 32Red's European community trade marks. William Hill's counterclaim that the "32Red" and "32" trade marks should be invalidated, failed. Subsequently, the judge ordered that 32Red be granted an injunction against William Hill and ordered an inquiry to assess monetary damages.

William Hill appealed this decision and a hearing took place in the Court of Appeal on 5 and 6 December 2011. The Court of Appeal described William Hill's case as a "full-scale, wide-ranging attack on the judge's analysis and conclusions on virtually every aspect of his judgment". In a judgment handed down in January 2012, the entire William Hill appeal was dismissed.

Furthermore, the Appeal court found that William Hill also infringed 32Red's registered trade mark for "32" and in addition held that William Hill took unfair advantage of 32Red's well-known trade marks.

In summary, and following approximately three years of argument, liability is now firmly established as follows:

·; The "32Red" and "32" trade marks are valid

·; The "32Red" marks were infringed by William Hill's use of 32Vegas

·; The "32" mark was infringed by William Hill's use of 32Vegas

·; The use of 32Vegas took unfair advantage of 32Red's trade marks

The costs associated with the Appeal, along with interest, have been awarded to 32Red and an initial sum of £70,000 was paid to 32Red on 4 February 2012. The balance of costs associated with the Appeal, together with interest will be payable later in the year.

The level of damages relating to this case and the liability for costs associated with the original Hearing will be assessed in an inquiry process before the High Court, now scheduled to be heard early in 2013. It is not possible at this stage to quantify the financial impact that the Court Judgment will eventually have and for reasons of prudence, the Board has decided to expense the full legal costs incurred less the costs recovered in the period ended 30 June 2012. The Company will treat the future recovery of costs and the award of damages as an exceptional gain in future periods.Strategy

While the regulatory environment for our industry remains uncertain, the Board remains committed to its strategy to invest in marketing to licensed and regulated markets. Consequently, marketing expenditure in the second half of the year will be focussed on the Group's primary market, the UK, and will be supplemented by the initiation of a marketing campaign in Italy. The Company remains watchful of other regulatory developments in Europe and the rest of the world, which if properly implemented, should provide further exciting expansion opportunities in the near future.

Current Trading and Outlook

The second half of the year has started encouragingly with revenues for July and August up 22% on the corresponding period in 2011 and the Company confirms that trading remains in line with management expectations. 

32Red Plc

Consolidated Statement of Comprehensive Income

for the six months ended 30 June 2012

32Red Plc

Consolidated Statement of Changes in Equity

for the six months ended 30 June 2012

32Red Plc

Consolidated Statement of Financial Position

as at 30 June 2012

32Red Plc

Consolidated Statement of Cash Flows

for the six months ended 30 June 2012

Notes:

1. Accounting policies

The consolidated interim financial results have been prepared in accordance with the measurement principles of applicable International Financial Reporting Standards (''IFRSs'') as adopted by the EU. The accounting policies have remained unchanged from the previous year, as set out in the Annual Report for the year ended 31 December 2011, available on www.32redplc.com.

2. Exceptional item

During the period, 32Red incurred further legal and other expenses in respect of the legal proceedings against three William Hill companies ("William Hill") in respect of the online casino, 32Vegas. 

Following a six day trial in October 2010 in the High Court, judgment was handed down in January 2011 detailing 32Red's success in its trade mark action against members of the William Hill group ("William Hill"). As a result of that successful action, the William Hill-owned 32Vegas business was held to have infringed two of 32Red's European community trade marks. William Hill's counterclaim that the "32Red" and "32" trade marks should be invalidated, failed. Subsequently, the judge ordered that 32Red be granted an injunction against William Hill and ordered an inquiry to assess monetary damages.

William Hill appealed this decision and a hearing took place in the Court of Appeal on 5th and 6th December 2011. The Court of Appeal described William Hill's case as a "full-scale, wide-ranging attack on the judge's analysis and conclusions on virtually every aspect of his judgment". In a judgment handed down in January 2012, the entire William Hill appeal was dismissed.

Furthermore, the Appeal court found that William Hill also infringed 32Red's registered trade mark for "32" and in addition held that William Hill took unfair advantage of 32Red's well-known trade marks.

In summary, and following approximately three years of argument, liability is now firmly established as follows:

·; The "32Red" and "32" trade marks are valid

·; The "32Red" marks were infringed by William Hill's use of 32Vegas

·; The "32" mark was infringed by William Hill's use of 32Vegas

·; The use of 32Vegas took unfair advantage of 32Red's trade marks

The costs associated with the Appeal, along with interest, have been awarded to 32Red and an initial sum of £70,000 was paid to 32Red on 4 February 2012. The balance of costs associated with the Appeal, together with interest will be payable later in the year.

The level of damages relating to this case and the liability for costs associated with the original Hearing will be assessed in an inquiry process before the High Court, now scheduled to be heard early in 2013. It is not possible at this stage to quantify the financial impact that the Court Judgment will eventually have and for reasons of prudence, the Board has decided to expense the full legal costs incurred less the costs recovered in the period ended 30 June 2012. The Company will treat the future recovery of costs and the award of damages as an exceptional gain in future periods.

3. Earnings per share

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 70,361,860 shares (2011: 69,930,000).

To calculate the diluted earnings per share figure, the weighted average of employee share options and awards made under the Long Term Incentive Plan expected to vest has been added. This number represents management's best estimate at the balance sheet date, which is also used for calculating employee payments relating to share based payment transactions. At 30 June 2012, the weighted average number of share options expected to vest was 5,498,168 (2011: 4,111,507).

4. Taxation

5. Intangible assets

6. Property, plant and equipment