TTR.L Regulatory News (TTR)

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

Preliminary results for the year ended 31 December 2010

32Red, the award-winning casino operator, today announces preliminary results for the year ended 31 December 2010

Key points:

·; 2010 produced record Net Gaming Wins for the Company

·; Profit Before Taxation doubled

·; High Court victory in trade mark litigation dispute with William Hill

·; Smooth integration of acquired Nedplay and Golden Lounge casinos

·; Inaugural Final Dividend declared

·; Current trading very strong

Key financials and performance indicators

·; Net Gaming Wins increased by 33% to £16.95m (2009: £12.75m)

·; Like for Like ('LFL')* Casino Net Gaming Wins increased by 29% to £14.83m (2009: £11.54m) 

·; Casino brands acquired during the year contributed £0.86m Net Gaming Wins

·; EBITDA increase by 90% to £1.65m (2009: £0.87m)

·; Profit before tax increased by 98% to £1.05m (2009: £0.53m)

·; EPS 1.50p (2009: 0.76p)

·; Final dividend of 0.5p per share (2009: nil)

·; Active LFL casino customers 30,933 up 23% on 2009

·; LFL Casino player yield £479 (2009: £458)

·; LFL New Casino players 21,853, up 14% on 2009 

·; Casino cost per acquisition: £119 (2009: £95)

(*Like for Like (LFL) financials exclude any contribution from casinos acquired during 2010.)

Current trading

Revenues for January and February 2011 are up 29% on the corresponding period in 2010 with strong active player levels and improved player yields. The Board continues to be watchful of the general economic environment but looks forward to a successful and exciting year for 32Red Plc.

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

"The excellent performance in 2010 is particularly pleasing in times of continued economic uncertainty in our primary market, the UK. The recruitment of good numbers of new players and our improved customer retention are tribute to the strength of the 32Red brand and to the continued excellent levels of service and entertainment provided to our players.

The 32Red brand has been further strengthened by our victory in the High Court in our trade mark dispute with William Hill. The Judgment which was handed down in January firmly establishes our Intellectual Property Rights and should deter other operators from infringing our trade marks. As highlighted by the judge, we have an excellent reputation as an online casino operator and a strong brand - these are extremely valuable assets in any marketplace.

We will continue to focus the 32Red brand in the UK and maintain a close watching brief on regulatory developments in Europe and the Rest of the World.''

The Audit Committee has determined that, due to dispute with William Hill, it is in the interests of audit quality that the current audit partner should continue in his role for a further year beyond his fifth year of involvement. The Audit Committee is satisfied that by the application of safeguards, the extension does not undermine the objectivity and independence of the auditor.

Grant Thornton UK LLP has agreed to this extension, as permitted by the Ethical Standards.

8 March 2011

Chairman's Statement

I am pleased to set out below my review of the Directors' Report and Consolidated Financial Statements of 32Red Plc ("the Company") for the year ended 31 December 2010.

Financial review

Further to our trading update issued on 18 January 2011, 32Red is delighted to confirm that revenues increased by 33% to £16.95m in 2010 (2009: £12.75m). This performance constitutes a record year for revenues and earnings before interest, taxation, depreciation and amortisation has increased by 90% to £1.65m (2009: £0.87m). The Company had cash reserves of £2.20m at 31 December 2010 (2009: £1.71m) and has repaid all borrowings during the year. Profit before taxation has increased by 98% to £1.05m (2009: £0.53m). The Board is committed to delivering value to shareholders and is today pleased to announce the intention to commence the payment of dividends. The Board now recommends the payment of a final dividend of 0.5p per share for the financial year ended 31 December 2010 (2009: nil).

Key Financials:

The strong trading performance during the year was primarily the result of a 29% increase in revenues at the 32Red casino. This performance was supported by contributions from the Nedplay and Golden Lounge acquisitions made early in 2010. 

32Red wins Trade Mark litigation dispute with William Hill 

On 21 January 2011, 32Red reported that the High Court had ruled in favour of 32Red, holding that the use of "32 Vegas" and "32V" infringe 32Red's European Community Registered Trade Marks. The Court held that William Hill's 32 Vegas casino signs were sufficiently similar to 32Red's marks to cause a likelihood of confusion amongst consumers. The Court also held that William Hill's infringement caused detriment to the distinctive character and repute of 32Red's trade marks. The Court dismissed William Hill's counterclaim as to the validity of 32Red's trade mark rights in the UK and European Community.

This positive judgment follows nearly two years of proceedings against William Hill. On 7 March 2011, the Court made an Order that:-

− William Hill will be subject to an injunction from infringing 32Red's Community Trade Marks

− The Judgment should be publicised on the William Hill websites

− There should be an inquiry procedure to assess damages or profits arising from infringement which will also deal with the costs of the litigation

− William Hill have permission to Appeal the decision

This comprehensive Judgment fully supports our commitment to taking action in order to protect 32Red's valuable intellectual property. Legal costs incurred have been treated as an exceptional cost in the accounts and the subsequent recovery of costs and award of damages will be treated as an exceptional gain in future periods.

Acquisitions

On 15 February 2010, the Group announced that it had acquired the assets of two European-focused online casinos. The acquisition of the business assets of Nedplay casino (www.nedplay.com) from Floryntia Play Group NV was completed on 21 January 2010 and the acquisition of the assets of Golden Lounge casino (www.goldenlounge.com) from Golden Lounge Limited was completed on 12 February 2010.

Accounting rules under IFRS 3 require the board to assign fair values to the assets and liabilities aquired and these are detailed in note 10 to these accounts. The result of this 'fair value' exercise is the recognition of an exceptional 'gain on bargain purchase' of £0.8m in the 2010 accounts.

Strategy

The increase in marketing spend in 2010 yielded strong revenue growth and the Board remains committed to further investment in marketing to drive growth during 2011. Investment will continue to be primarily focused on the United Kingdom online casino market but we remain convinced that other 32Red products and services, along with careful expansion into new territories, remain part of our future growth.

Dividend

The Board believes that it is now appropriate to recommence the payment of dividends and accordingly is recommending a final dividend of 0.5p per share for the financial year ended 31 December 2010 (2009: nil). If approved by shareholders at the AGM on 28 April 2011, the dividend will be paid to all shareholders on the register at 8 April 2011. The shares will go ex-dividend on 6 April 2011.

It is intended that the Company will pursue a progressive dividend policy in future years. Next year we expect to declare both an interim dividend with the half year results and a final dividend at the year end. The total of next year's dividend will build upon the base set by this year's dividend all of which has been paid as a final dividend.

A dividend reinvestment plan (DRIP) will be available to all shareholders. Those shareholders who would like to participate in the DRIP scheme may do so by contacting Capita Registrars on 0870 162 3131. The last day for election for the final dividend reinvestment is 11 April 2011 and any requests should be made in good time ahead of that date.

Current Trading and Outlook

Trading in 2011 to date has been strong across the Company's portfolio with revenues for the first two months of the year up 29% on the same period in 2010. The Board continues to be watchful of the general economic environment but looks forward to a successful and exciting year for 32Red Plc.

David Fish QC

Chairman, 32Red Plc

Chief Executive's Statement

An important and ultimately very successful year for the Company (ended 31 December 2010) with the highlights being:-

·; Strong revenue and profit growth, testament to the continued high levels of performance in all aspects of the customer journey; successful execution of our strategy to significantly increase our UK marketing activities and reach; and the smooth integration of two acquired casinos in the early part of the year.

·; A High Court Judgment ruling in favour of 32Red in respect of our action against William Hill for trade mark infringement. The financial consequences of this successful litigation will be determined at a later date. However, an injunction preventing William Hill from using the infringing marks has been ordered by the judge along with an order for William Hill to publish the Judgment on a number of relevant websites within its group. As an online gaming business with no physical presence in its main market, having our trade marks validated in the High Court, having the Court remark on our excellent reputation and having a much larger opponent found to be infringing the 32Red trade mark, this Judgment represents a landmark in the Company's history. 32Red is very pleased to have had the validity of its trade marks and strength of its reputation reinforced so authoritatively.

32Red Key Performance Indicators

Net gaming wins for the Group totalled £16.95m in 2010 (2009: £12.75m) with Casino revenues once again dominating the Group's trading and representing some 93% of total Company revenues (2009: 91%).

Casino

Casino net gaming wins increased by 38% to £15.68m in 2010 (2009: £11.54m) and were boosted by the acquisitions of the Nedplay and Golden Lounge casinos in the early part of the year. However, these contributions should not deflect attention away from the encouraging growth of the underlying 32Red Casino which saw net gaming wins increase by an excellent 29% to £14.83m (2009: £11.54m).

The main driver behind the 29% growth in net gaming wins is the very healthy 23% increase in active player numbers. This increased level of player activity has been delivered through a combination of a record number of new players recruited in the period (up 14% on 2009) and by a reinvigorated player retention programme. The level of total active players attracted to 32Red is supported by a more modest but very pleasing growth in player yields of 5% over our 2009 performance.

New player recruitment

The increased investment in targeted marketing activities has yielded a record number of new casino players during the year, albeit these players were recruited at a higher average Cost per Acquisition ("CPA") of £119 (2009: £95). CPA remains a key performance indicator for the business but should be monitored in tandem with the annual player yield of £479 per player (2009: £458).

32Red enjoyed successful results from both online and offline marketing programmes in the United Kingdom in 2010 and we plan to continue to expand our investment in similar activities during this year. We are delighted with our continuing sponsorship of leading Football League Championship team Swansea City. On behalf of everyone at 32Red, I would like to take this opportunity to record our delight at being associated with the Club and to wish Swansea the very best of luck in the run in to the close of the current season. We look forward to a continued and fruitful relationship in the coming years.

32Red continues to be a significant sponsor of UK horse racing and our flagship racing event in the summer at Newmarket, featuring the 32Red Trophy, has now been complimented by the establishment of a top class winter contest with the first running of the 32Red Hurdle at Sandown taking place this January. These race days provide good coverage in their own rights but importantly feature terrestrial TV (Channel 4) coverage and enables 32Red to continue to expand its reach. We have also taken steps to raise awareness of our brand within racing by way of starting stalls sponsorships across the country with racecourses within both the Northern Racing and Arena Leisure groups.

Player retention

Increased active player levels and higher than industry average player yields are a reflection of the unrivalled customer service delivered by the 32Red team. These financial indicators are supported by the recognition given by independent watchdog and player advocate, Casinomeister. In addition, this public forum, along with others available on the Internet, enable 32Red to continue to take on board unsolicited feedback on our product and service directly from the consumer.

32Red continues to put the player first and aims to deliver the best overall level of player support, value and entertainment, and overt trustworthiness in our sector. We continue to structure our proposition around these important areas and maintain the competitive edge to our communications.

Other products

32Red Poker operations have generated revenues of £0.92m in 2010 (2009: £0.97m). As reported by other operators, the poker market remains tough.

32Red Bingo and emerging products generated £0.34m of revenue in the 2010 (2009: £0.24m). 32Red Bingo continues to grow steadily and will be used to grow the business through new access points to the market. Of the emerging products, 32Redbet is likely to make a more meaningful contribution in 2011. 32Redbet also provides an additional marketing portal to our potential customers and also gives the Company an effective defensive measure to those regular casino and poker players requiring a sportsbetting account for occasional use.

Outlook

This is an exciting period in 32Red's development and although one eye is kept on the continued world-wide economic backdrop, I look forward to 2011 with optimism.

Edward Ware, Chief Executive Officer

32Red Plc

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 2010. The financial statements have been prepared under the historical cost convention and on a going concern basis.

Amortisation and depreciation are charged to administrative expenses.

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 "employee tax obligations" and bank loans relate to all business segments and cannot be split in a meaningful way.

During the year, 32Red acquired the trade and assets of the Nedplay and Golden Lounge casinos. The acquisitions were made for a nominal consideration and the excess of the fair value of the assets acquired over the nominal consideration paid generates a 'gain on bargain purchase' under IFRS 3 'Accounting for Business Combinations.' A more detailed breakdown is given in note 10 to these accounts.

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. On 7 March 2011, the Court made an Order that:-

− William Hill will be subject to an injunction from infringing 32Red's Community Trade Marks

− The Judgment should be publicised on the William Hill websites

− There should be an inquiry procedure to assess damages or profits arising from infringement which will also deal with the costs of the litigation 

− William Hill have permission to Appeal the decision

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 any recovery of costs and the award of damages as an exceptional gain in future periods.

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 69,734,384 shares (2009: 69,381,904).

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.

The Group has been granted tax exempt status under the Companies (Taxation and Concessions) Act . Under the terms of such status an annual charge of £450 is payable to the Government of Gibraltar. Provided the Group complies with the necessary criteria, payment of such charges will satisfy the Group's tax obligation in Gibraltar in relation to the year ended 31 December 2010.

8 Intangible assets

On 21 January 2010 the Group acquired the trade and assets of Nedplay casino from Floryntia Play Group NV. On 12 February 2010 the Group acquired the trade and assets of Golden Lounge casino from Golden Lounge Limited. The business assets acquired in both cases comprise of the player database, software agreements, the domain names and other intellectual property that were purchased for a nominal consideration with nil transaction costs. The sole liabilities assumed by the Group are in respect of player balances and pending player cash ins. Under IFRS 3 'Business Combinations', the Board has assigned fair values to the assets and liabilities acquired as detailed below:-

The Gain on Purchase has been recognised in full in the Statement of Comprehensive Income as an exceptional item (see note 4).

Summary of Trading of Acquired Assets

Due to the volatile trading nature of small casinos, the Board believes that it is not practical to assess revenues and profits from the combined entity as though the acquisition dates occurred at the beginning of the reporting period.

11 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 2010 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 2010 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.