TTR.L Regulatory News (TTR)

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

Preliminary results for the year ended 31 December 2011

32Red, the award-winning online casino operator, today announces preliminary results for the year ended 31 December 2011

Key points:

·; Record Net Gaming Revenues for the Company

·; Profit before taxation doubled

·; William Hill Appeal dismissed

·; Italian Licence granted

·; Full year Dividend increased by 140%

·; Current trading very strong, up 69%

Key financials and performance indicators

·; Net Gaming Revenues increased by 48% to £25.03m (2010: £16.95m)

·; EBITDA increase by 70% to £2.80m (2010: £1.64m)

·; Profit before tax increased by 102% to £2.12m (2010: £1.05m)

·; EPS up 96% to 2.94p (2010: 1.50p)

·; Final dividend of 0.7p per share (2010: 0.5p) bringing theFull year dividend to 1.2p per share (2010: 0.5p)

·; Active depositing casino customers 39,687 up 47% on 2010

·; Casino player yield £550 (2010: £519)

·; New Casino depositing players 27,648, up 42% on 2010 

·; Casino cost per acquisition of depositing player: £143 (2010: £133)

Current trading

Revenues for January and February 2012 are up 69% on the corresponding period in 2011 with strong new player recruitment responding to increased marketing investment. The Board is pleased to announce that its application for an Italian remote gaming licence has been successful and the 32Red brand will be launched into Italy during the first half of 2012. The Board continues to be watchful of the general economic and regulatory environment but looks forward to another successful and exciting year for 32Red.

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

"32Red progressed considerably in 2011 and we have improved key metrics right across the business. While we remain focused on the United Kingdom, we also look forward to expanding our profile in the regulated market in Italy where we intend to utilise our core skills and apply our business philosophy to establish the 32Red brand.

Performance in the first two months of 2012 has been strong and serves as further encouragement to continue to grow marketing investment in the business."

7 March 2012

Chairman's Statement

I am pleased to set out below my review of the Directors' Report and Consolidated Financial Statements of 32Red Plc ("the Group") for the year ended 31 December 2011.

Financial review

Further to our trading update issued on 26 January 2011, 32Red is delighted to confirm that revenues increased by 48% to £25.03m in 2011 (2010: £16.95m). This performance constitutes a record year for revenues and Profit before taxation has doubled to £2.12m (2010: £1.05m). The Group had cash reserves of £3.4m at 31 December 2011 (2010: £2.2m) and has no borrowings. The Board is committed to delivering value to shareholders and is pleased to recommend a final dividend of 0.7p per share (2010: 0.5p) bringing the full dividend for the year ended 31 December 2011 to 1.2p (2010: 0.5p).

Key Financials:

The strong trading performance during the year was primarily the result of a 47% increase in revenues at the 32Red casino and, once again, our increased investment in UK marketing programmes has been pivotal to the sustained growth experienced in 2011. This increased level of new player acquisition allied with increased activity and yield per player performance is a powerful combination and has resulted in another successful year for the Group.

Italian Licence

The Company announces that it has been successful in its application for a remote gaming licence in Italy. Work continues on our technical platform in order to be ready to go live in the first half of 2012. We are excited to have been granted a licence to operate in Italy and look forward to building another successful business in that jurisdiction.

32Red High Court victory in trade mark dispute with William Hill 

Following a six day trial in the High Court in October 2010, 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 was found to be detrimental to and 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.

Strategy

The increased investment in UK marketing activity in 2011 has yielded strong revenue growth and the Board remains committed to further investment in this area throughout 2012. Offline marketing expenditure will be supplemented by a renewed focus on player retention activity and the further development of a results-driven approach to social media marketing opportunities.

Following the successful licence application in Italy, 2012 will also see the launch of the full suite of 32Red products in that country and the Board will continue to monitor regulatory developments in other European jurisdictions, while keeping a close watch on developments in the United States.

Dividend

The Board recommends a final dividend of 0.7p per share (2010: 0.5p) bringing the full dividend for the financial year ended 31 December 2011 to 1.2p (year ended 31 December 2010: 0.5p). If approved by shareholders, the final dividend will be paid on 11 May 2012 to shareholders on the register on 13 April 2012.

Current Trading and Outlook

Trading in 2012 to date has been strong across the Group's portfolio with revenues for the first two months of the year up 69% on the same period in 2011. The Board continues to be watchful of the general economic environment but looks forward to a successful and exciting year for 32Red.

David Fish QC

Chairman, 32Red Plc

Chief Executive's Statement

The Group delivered record profits derived from record levels of revenue in what proved to be a landmark year for 32Red. Net gaming revenues for the Group totalled £25.03m in 2011 (2010: £16.95m) and this substantial growth is primarily the result of a rise in activity levels generated by increased and more effective marketing. Over the last two years, the Group has been able to progress its investment in advertising and this has delivered strong results.

The increased investment in online marketing programmes has been coupled with successful offline campaigns including the launch of a new series of television advertisements; continued support of UK horse racing; and a heightened level of exposure through our sponsorship of Swansea City FC. This promotional activity has resulted in strong recruitment of new players during the year. The 32Red team continues to deliver an unrivalled level of customer service which in turn delivers increased player loyalty and higher yields.

32Red Key Performance Indicators

Casino revenue once again dominates the Group's trading representing some 93% of total Group revenues (2010: 93%). While there have been increased contributions from acquired casinos, it is the growth in the 32Red casino that underpins the financial performance.

This 47% growth in 32Red casino net gaming revenue is particularly encouraging in light of the strong 2010 comparative figures that were, in turn, 29% ahead of 2009. Consequently, 32Red's 2011 net gaming revenues are 89% ahead of those recorded in 2009 and since the second half of that year the 32Red casino has enjoyed five successive periods of record revenues. I have no doubt that our successful High Court action against William Hill and the subsequent recovery of other infringing Internet domains have both directly and indirectly made this performance possible.

Active player levels are 39% higher than in 2010 and given such an increase in volumes, it is pleasing to see that we have also managed to grow the average value of each player with yield per player increasing to £550 (2010: £519). Growth in this area is key and, along with the three important industry awards won recently (listed below), it is testament to the outstanding quality of player support and service delivered to our customers in an always friendly and professional manner. 32Red is delighted to have accepted the following prestigious industry awards over recent weeks:

·; eGaming Review 'Casino Operator of the Year'

·; Casinomeister 'Casino Operator of the Year' (awarded for the ninth consecutive year)

·; International Gaming Awards 'Casino Operator of the Year'

Other products

32Red Poker operations have generated revenues of £1.06m in 2011 (2010: £0.92m) from 13,607 active players (2010: 11,871). We look forward to launching into the Italian market although, generally, the poker market remains very competitive. However, we remain focused on and active in this area in order to ensure that we are able to grasp any upcoming regulatory opportunities both in Europe and further afield.

Naturally we are taking a keen interest in developments in the United States and believe we are well-equipped to take part in the development of that market should the opportunity arise.

32Red Bingo and emerging products generated £0.67m of revenue in the 2011 (2010: £0.34m). 32Red Bingo continues to grow steadily and of the emerging products, 32RedBet has experienced the strongest growth in 2011. Both products will benefit from increased investment in marketing in 2012.

Italy

Since the Group began operating in 2002, 32Red has been focused on the United Kingdom's online gaming market and, accordingly, over three-quarters of the Company's revenues originate from Britain. Historically, the Group has been reluctant to invest in markets away from the UK and has ensured earnings have been from a regulated market.

Italy represents an excellent opportunity for 32Red to utilise our core skills and apply our business philosophy to move into a new and regulated market. The 32Red licence application was submitted at the end of last year to Amministrazione autonoma dei monopoli di Stato (AAMS) in Rome and granted in early March 2012. We hope to launch the 32Red Casino into Italy in the first half of 2012 and aim to offer Italian customers casino, poker and bingo services.

Outlook

Trading in 2012 has started strongly and we anticipate another year of growth in the underlying business. We have a clear focus on staying ahead of the pack when it comes to delivering outstanding customer service, increasing our marketing expenditure in an effective way and making a successful entrance into the Italian market. The opportunity to extend our reach into Italy is exciting, while we appreciate the challenge in establishing 32Red in a new territory and without losing focus on the UK market. The return on the initial investment in Italy is likely to be recognised next year and beyond. We believe this year will prove to be another progressive and productive year for the Group. We are actively monitoring developments in potential new markets, while also taking opportunities to input into the ongoing discussions centred on proposed changes to UK regulations.

Edward Ware,

Chief Executive Officer, 32Red Plc

* In previous periods, the Group has reported the number of players by defining a player as a customer who has placed a real money bet during the period. The Group feels it is now more relevant to users of the accounts to amend the definition of a player to a customer who has played for real money but has also made a deposit during the period. This new definition is used in today's trading statement. For reference, under the old definition the number of new players in 2011 totalled 56,178 (2010: 21,853) and the number of active players who placed a real money bet in 2011 totalled 68,217 (2010: 30,933).

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 2011. 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, 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. On 21 January 2011, the Court ruled in favour of 32Red, holding that the use of "32 Vegas" and "32V" infringe 32Red's European Community Registered Trade Marks. William Hill appealed the decision and in a Judgment handed down on 24 January 2012, the Court dismissed William Hill's Appeal.

Additionally, the Appeal court went further than the High Court and found that William Hill also infringed 32Red's registered trade mark for "32" and held that a further reason for finding infringement was 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 was found to be detrimental to and 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 this year in the successful pursuit of the case and will treat the recovery of costs and the award of damages as an exceptional gain in future periods.

In 2010, 32Red acquired the trade and assets of the Nedplay and Golden Lounge casinos for a nominal consideration. The directors assessed the fair value of the assets acquired and this generated a 'gain on bargain purchase' under IFRS 3 'Accounting for Business Combinations' in 2010.

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 69,930,000 shares (2010: 69,734,384).

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.

From 1 January 2011, assessable income is taxed in Gibraltar at the mainstream corporate income tax rate of 10%. Pre 1 January 2011, the Company enjoyed a tax exempt status under the Companies (Taxation and Concessions) Act.

8 Intangible assets

9 Property, plant and equipment

10 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 2011 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 2011 statutory financial statements upon which the auditor's opinion is unqualified and unmodified.

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