let the world play for real

Transcription

Annual report & accounts 2011
For more information
visit us online at
www.bwinparty.com
Annual report
& accounts
2011
let the world
play for real
Inside
this report
02 Overview
66 Board of Directors
03
04
06
08
10
18
70 Governance
Pro forma financial highlights
Our product verticals
Our business environment
Chairman’s statement
Co-CEO’s review
Our business model
20 Strategy
22 Regulated and to-beregulated markets
24 Invest in our core assets
26 Strategic alliances
28 New areas of digital entertainment
30 Act responsibly
32 Review of 2011
47 Markets and risks
48
50
52
54
55
Sports betting
Casino & games
Poker
Bingo
Key risks
58 Responsibility and relationships
59
61
63
64
64
Corporate responsibility
Customers and responsible gaming
Employees
Suppliers
Shareholders and other providers
of capital
65 Environment and community
75
77
78
79
80
97
Audit Committee report
Ethics Committee report
Integration Committee report
Nominations Committee report
Directors’ Remuneration report
Other governance and
statutory disclosures
100 Annual General Meeting
102 Statement of Directors’
responsibilities
103Financial statements
104 Auditors’ report
105 Consolidated statement
of comprehensive income
of financial position
of changes in equity
of cashflows
110 Notes to the consolidated
financial statements
150 Company statement
of cashflows
153Share information
158Notice of Annual General
Meeting
162Glossary and definitions
See our online report at
www.bwinparty.com
Welcome
Our strategy and vision stretches far beyond
real money gaming on the internet: our aim
is to ‘let the world play for real’ by extending
our reach into new areas of digital
entertainment on a global scale.
Technology, consumer tastes and
government regulations are changing fast.
This makes for a challenging business
environment but, given the underlying
growth prospects for our sector, we
are embracing change to secure long-term
outperformance.
Overview
02
bwin.party
Integration update
We completed the merger of bwin Interactive
Entertainment and PartyGaming on
31 March 2011, creating the world’s largest
listed online gaming company. It also marked
the start of our operations as one company
and the implementation of our detailed
integration plans.
Key facts
• 2,700 employees with offices in
Europe, India and the United States
• Headquartered in Gibraltar where
we are licensed and regulated
• Also licensed in Alderney, Denmark,
France and Italy
• Listed on the London Stock Exchange
(ticker: BPTY)
Operational highlights
• Reorganisation into four business
verticals completed in Q4 2011
• On-track to deliver approximately
€40m of synergies in 2012 and €65m
in 2013
• 27% of revenue from newly regulated
markets (France, Italy and UK)
• Strategic alliances with MGM, Boyd
Gaming and Danske Licens Spil
• Launched new products into Italy
and prepared for launch into Denmark
and Spain
In 2011 our focus was very much on
integration and regulation. Delivering
the targeted €40m of synergies from
the Merger in 2012 remains a top
priority, as well as ensuring that we
foster and protect the value of
opportunities relating to newly
regulated and to-be-regulated markets.
Balancing these two sometimes
competing objectives has been a
challenge, having been forced to
reschedule certain of our integration
plans in order to meet strict schedules
imposed by governments and
regulators alike.
As more governments embrace
the regulation of online gaming
markets, so the dynamics of our
industry are shifting. Real money and
social gaming, together with other
forms of digital entertainment are
converging. At the same time mobile
platforms are increasingly important
channels of distribution – each of
these developments is being driven
by advances in technology, new
regulations and changes in
consumer demand.
03
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
Responsibility and relationships
58
Governance
Pro forma financial highlights1
Total revenue
Performance €m
70
Financial statements
103
Gaming segmentation
2011
¤m
2010 Change
¤m
%
2010
814.0
2010
2011
2011
816.0
816.0
2011
2011
Sports betting
260.6
258.6
Casino & games
263.7
241.0
9
2010
Poker
213.0
227.4
(6)
Bingo
64.6
72.4
(11)
Unallocated corp0rate
14.1
14.6
(3)
816.0
814.0
–
€816.0m
2010
814.0
+0%
Clean EBITDA
Performance €m
2010
2011
2011
€199.3m
2010
Gaming segmentation
193.2
199.3
199.3
193.2
24.4%
(2010: 23.7%)
2011
¤m
2010 Change
¤m
%
Sports betting
64.3
64.6
(0)
Casino & games
92.3
79.2
17
Poker
30.0
27.7
8
Bingo
20.6
21.1
(2)
0.6
n/a
193.2
3
2010
2011
2011
2010
Unallocated corporate
+3%
Clean EBITDA margin
Total
1
Total
(7.9)
199.3
Net gaming revenue by country
Germany
22%
Italy
10%
UK
10%
France
7%
Americas
6%
Greece
4%
Clean EPS
Spain
5%
Denmark
2%
18.5€c
Rest of EU
18%
Rest of World
17%
(2010: 19.0€c)
1
Continuing operations
Our product
verticals
04
bwin.party
Sports betting
Casino & games
We offer bets on a pre-event and
live basis on all key sports in all
of our markets
With traditional casino games
and some of the largest jackpots
in the industry, this is our
largest vertical
Key brands
Amount wagered in 2011
Key brands
bwin
Gioco Digitale
betoto
Gamebookers
¤3.8bn
PartyCasino
bwin
GD Casino
¤7.7bn
2011 net gaming revenue
2011 Clean EBITDA1
2011 Clean EBITDA1
¤259.7m +0%
€64.3m (0%)
¤262.7m +9%
€92.3m +17%
Daily average players in 2011
Net gaming revenue via mobile in 2011 Daily average players in 2011
Largest jackpot win in 2011
114,200
€20.5m +92%
US$4.5m
1
Excludes unallocated corporate
28,200
23 May 2011
05
bwin.party
Poker
Bingo
The second largest poker
network in the world2, we have
thousands of players each day,
covering all levels of stakes
With leading market positions in
both the UK and Italian markets,
we are looking to expand into
new territories
Key brands
Key brands
PartyPoker
bwin
GD Poker
¤11.2bn
Foxy Bingo
Cheeky Bingo
Gioco Digitale
¤1.2bn
2011 Clean EBITDA1
2011 Clean EBITDA1
¤209.7m (7%)
€30.0m +8%
¤63.7m (11%)
€20.6m (2%)
Market share
Largest geographic market
100,500
2
10% in dotcom markets
15% in France4
14% in Italy5
Source: PokerScout.com
Source PokerScout.com, based on assumed combined liquidity for PartyPoker.com
and bwin.com
3 3
23,300
4
5
UK – 73% of total
bingo revenue
Combined liquidity across all Group platforms based on company estimates
Source: AAMS
Overview
06
bwin.party
Spotlight on:
Key growth drivers
The global online gaming industry is a growing and valuable
segment of the digital economy with an increasing share of
the global gaming market. Excluding the US, 2011 online Gross
Gaming Revenue or Yield (‘GGY’) for the four major product
segments, sports betting, poker, casino and bingo was
estimated to be worth ¤18.8bn, up 7.4% versus the previous
year. This growth is forecast to continue, reaching ¤24.7bn by
2015, implying a compound annual growth rate (‘CAGR’) of 7.2%1.
2011 Broadband penetration %
1. 2011 Broadband penetration and expected
growth to 20152
100
80
60
40
20
0
Online gaming market size (excluding US)1
€9.6bn
€5.0bn
€2.9bn
€1.3bn
Sports betting
Casino
Poker
Bingo
10
15
Estimated CAGR 2011–2015 (%)
Estimated CAGR
2011 – 2015
2011 gross gaming revenue
5
6.8%
8.4%
5.7%
8.5%
China
France
Brazil
US
South Korea
Canada
Japan
Italy
Netherlands
Germany
Russia
Australia
UK
Spain
Denmark
2. Smartphone and tablet growth3
Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones + Tablets
2005–2013E
Units (m)
700
600
500
For further details on each of the key online gaming markets see pages 47 to 54.
400
Note: Notebook PCs include Netbooks.
300
Online gaming as a % of total gambling2
200
0
100
¤bn
400
%
10
100
0
200
300
300
but this proportion is forecast to increase.
Online gaming currently makes up only a small percentage of total gambling,
200
All gambling (land-based and interactive)
Percentage interactive
100 20
06
0
200
7
200
8
0
06
100 20
200
7
200
8
200
9
200
9
201
0
201
0
201
201
1E
1E
201
201
2E
2E
201
201
3E
3E
201
201
4E
4E
201
201
200
8
200
9
201
0
201
1
201
2E
201
3E
5
200
6
200
7
200
8
200
9
200
0
201
1
201
2E
201
3E
201
Desktop PCs
Notebook PCs
Smartphones
4
3.
600Propensity to play games online
400
6
9
10
%
700
Units
(m) generation online
Younger
% of 9–16 year olds playing games online
Not playing
The Internet is one of the primary sources
of entertainment for the next generation.
As they reach adulthood, this is likely to
act as a further driver for real money
gaming online.
* Based on a survey of 25,000 children across the EU
3
Source: Morgan Stanley research
Source: ‘Risks and safety on the Internet – the perspective of European Children’ – London
School of Economics, co-funded by the European Union, January 2011
Tablets
500
0
3
Source: H2 Gambling Capital, February 2012
400
Source: PricewaterhouseCoopers, Global entertainment and media outlook 2011–2015
¤bn
200
7
6
5E
2
Tablets
200
6
9
3
0
1
Smartphones
200
5
Note: Notebook PCs include Netbooks.
5E
All gambling (land-based and interactive)
Percentage interactive
200
Online gaming currently makes up only a small percentage of total gambling,
but this proportion is forecast to increase.
300
Notebook PCs
Desktop PCs
4
* Based on a survey of 25,000 children across the EU
gaming online.
07
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
4. The changing regulatory landscape
Europe
Several countries in Europe have introduced or are planning to introduce online
gaming regulations.
1 UK
Products
Tax rate5
Ring-fenced
Market size6
5 Germany7
S, P, C, B
15% onshore
0% offshore
No
€2.2bn
Products
Tax rate5
Ring-fenced
Market size6
6 Denmark
2 France
Products
Tax rate
Ring-fenced
Market size2
Products
Tax rate5
Ring-fenced
Market size6
S, P
9.3% S turnover
2% P turnover
Yes
€1.1bn
6
5
S, P, C, B
25%
Yes
€0.4bn
2
4 Austria
Products
Tax rate5
Ring-fenced
Market size6
S, P, C, B
20% S, P, C, B
Yes
€1.1bn
8 Greece
4
Products
Tax rate5
Ring-fenced
Market size6
7
S, P, C, B
2% S turnover
40% P, C, B
No
€0.2bn
S, P, C
20%
No
€0.2bn
7 Italy
Products
Tax rate5
Ring-fenced
Market size6
1
3 Spain
Products
Tax rate5
Ring-fenced
Market size6
S, P, C (slots only)
20%
No
€0.89bn
3
S, P, C
30%
Not known
€0.26bn
8
USA
An opinion issued by the Department of Justice on 23 December 2011 prompted several
states to initiate proposals that would seek to implement online gambling regulations.
With a number of draft bills in both the Senate and House of Representatives, there is
speculation that the federal government may also seek to introduce a nationwide
regulatory framework. Below is a summary of some of the initiatives that have been
seen in individual states to date.
5 New Jersey*
Products
Tax rate5
Ring-fenced
Population8
1 California*
Products
Tax rate5
Ring-fenced
Population8
P
10%
Yes
29.1m
6 Mississippi*
2 Nevada
Products
Tax rate5
Ring-fenced
Population8
2
P
6.75%
Yes
2.1m
4
5
1
P, C
All proceeds to state
Yes
1.0m
Products
Tax rate5
Ring-fenced
Population8
6
3
7
4 Iowa*
Products
Tax rate5
Ring-fenced
Population8
P
24%
Yes
2.4m
Key
5
As a % of gross gambling revenue
Source: H2 Gambling Capital, February 2012, all products
7
Regime in Schleswig‑Holstein, Germany’s most northern state
8
Population over 21 years old
Source: US census bureau
6
P, C
5%
Yes
2.3m
7 Florida*
Products
Tax rate5
Ring-fenced
Population8
3 Hawaii*
Products
Tax rate
Ring-fenced
Population8
P, C
12.5 – 15%
Yes
6.9m
S = Sports betting
P = Poker
C = Casino & games
B = Bingo
* Proposed, not enacted
P
10%
Yes
14.6m
Chairman’s
statement
08
bwin.party
Twelve months into the merger of bwin
and PartyGaming, the combined enterprise
is ahead of schedule in integrating the
businesses and delivering the synergies
expected and is on track to extend its reach
into new areas of digital entertainment.
Simon Duffy
Chairman
• Completion of Merger on
31 March 2011
• On-track with integration –
delivering synergies
• Ready to enter new markets –
including US
• Extending our reach into digital
entertainment
• Final dividend of 1.56p per share
• Over 31 million shares repurchased
Integration and regulation
The rapid evolution of the online
gaming industry is continuing, driven
by advances in technology and changes
to the regulatory landscape, resulting
in a business environment that is both
challenging and full of opportunity.
In such an environment, where the
competitive landscape is usually settled
within a short space of time, late entry
into any newly-regulated market is not
an option. The enlarged enterprise of
bwin.party provides a unique platform
from which to launch into new markets
with the requisite scale to take full
advantage of the freedom to advertise,
often for the first time. As part of our
goal of participating in all major newlyregulated markets, we were among the
first wave of operators to launch on the
opening of the Danish market at
the beginning of 2012, as we will be
when Spain opens later this year.
Our agreements with MGM and Boyd
mean that we are well-placed to be in
the first wave when regulations allow
entry into the United States, either
on a federal or state-by-state basis.
The early performance and the
potential of bwin.party are
encouraging, as detailed in the
‘Co‑CEOs’ Review’ on pages 10 to 17,
where they expand upon the Group’s
progress and business strategy. In
addition to reaping the rewards from
our investment in technology, brands
and people, we will extend our reach
into new areas of digital entertainment,
such as social gaming, by capitalising
on the Group’s existing resources to
create new revenue streams.
09
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Governance
As we navigate this critical phase in the
Company’s development, the Board’s
approach to corporate governance
has to be mindful of both the need to
avoid disrupting the integration of two
businesses with different governance
backgrounds and the detailed
negotiations that led up to the Merger.
During those negotiations bwin and
PartyGaming agreed a balanced Board
would be in the best interests of the
combined Group, a decision that is
supported by the success of the
integration to-date. However, this
resulted in a Board structure that was
not in compliance with the Code on
Corporate Governance in terms of the
balance between independent and nonindependent Directors.
Despite this imbalance, the Board
is satisfied that it has maintained
a sufficient degree of independence
for the following reasons:
• On the majority of business items
considered by the Board, a nonindependent Non-Executive Director
is independent because the interests
of the relevant founder shareholders
and the Company do not conflict;
• On issues when the interests of the
Company and interests of a founder
shareholder may conflict, mechanisms
in the relationship agreement and/or
letters of appointment for the nonindependent Non-Executive Director
allow the independent Directors to
exclude them from the decisionmaking process;
• The independent Directors have not
been and will not be in a minority to
the Executive Directors;
• The Chairman of the Board was
independent on appointment; and
• The Board had the appropriate
balance of skills and experience to
manage the imbalance appropriately.
This matter, together with details about
how the Board oversees the interests
of bwin.party through its operating and
management structure, is explored in
more depth in the Governance Review
on pages 70 to 101 of this Annual report.
The Board has considered Lord Davies
of Abersoch’s review, ‘Women on
Boards’, which requested FTSE 350
companies to set out aims for having
women serve on boards. Gender
diversity is an important factor that we
will take into account when considering
any new candidates to join the Board.
However, gender is only one of many
issues that have to be considered
alongside a candidate’s experience,
knowledge and skills. Our aim is to
appoint at least one woman to the
Board by the end of 2013 and to have
at least two women serving on the
Board by 2015.
Directors
Further to the additions to the Board
that became effective on completion
of the Merger, Geoff Baldwin replaced
Rami Lerner as a Non-Executive
Director of the Company on 15 July 2011.
Mr Baldwin’s appointment was made
following a nomination under the terms
of a relationship agreement entered
into by amongst others, bwin.party
digital entertainment plc, Emerald Bay
Limited and Stinson Ridge Limited that
was approved by shareholders on
28 January 2011. All Directors will be
standing for re-election at the
forthcoming AGM.
70
103
Dividend
The Board is recommending a final
dividend of 1.56p per share which,
together with the interim dividend of
1.56p per share, makes a total dividend
of 3.12p per share for the year ended
31 December 2011 (2010: nil). The final
dividend, if approved at the Annual
General Meeting will be payable to
shareholders on the register of
shareholder interests on 11 May 2012.
It is expected that dividends will be paid
on 12 June 2012. Shareholders wishing
to receive dividends in Euros rather
than pounds sterling will need to file
a currency election and return it to
the Group’s registrars on or before
25 May 2012. Further details are
contained in Share information
on pages 154 to 156.
Share buyback
Since launching our €75m buyback
programme in September, the Group
had purchased 15.7 million shares at
a total purchase price of £19.9m by
31 December 2011. As at 22 March 2012,
we had purchased a further 15.5 million
shares. All purchased shares have
been cancelled.
Outlook
Current trading has been robust
and in-line with our expectations.
The enlarged Group is in a strong
position to capture a greater share
of the expanding digital
entertainment market.
Norbert Teufelberger
Co-CEO
Jim Ryan
Co-CEO
Co-CEO’s review
Integration
and regulation
Co‑CEO’s review
11
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
We have provided a detailed review of
the operational performance in 2011 and
our progress on integrating bwin and
PartyGaming. In addition, we have set
out our business strategy, achievements
against that strategy to-date and our
objectives for 2012.
Spotlight on:
20111
• Revenue slightly ahead to €816.0m.
• Clean EBITDA up 3% to €199.3m
• Clean EPS of 18.5 € cents
• DPS of 3.12p2
• Alliances with MGM, Boyd Gaming
and Danske Licens Spil
• Sale of Ongame for up to €29.5m
• Synergies of €23.3m realised in 2011,
ahead of plan
• On-track to deliver €40m of synergies
in 2012 and €65m in 2013 as planned
• Current trading robust
1 Pro forma, Continuing operations
Including recommended final dividend of 1.56p per share
2 We made excellent progress in 2011.
The swift execution of a number of
integration plans for our technology,
people, products and brands has been
rewarded with financial synergies
coming through more quickly than
expected, offsetting increased gaming
duties payable as markets regulate.
We remain on-track to deliver
approximately €40m of synergies
this year and €65m in 2013.
2011 results
The Group’s robust operating
performance in 2011 is confirmation of
our progress. Despite the operational
challenges of integrating two
businesses in such a dynamic business
environment, the Group delivered total
pro forma revenue from Continuing
operations of €816.0m (2010: €814.0m)
and pro forma Clean EBITDA from
Continuing operations of €199.3m
(2010: €193.2m). However, the financial
numbers do not tell the whole story: a
simple comparison of the year-on-year
financial performance appears to show
modest growth on both metrics, but,
as explained in our ‘Review of 2011’,
this belies the transformation of our
business, an increasing proportion
of which is now licensed, regulated
and taxed.
As more governments embrace the
regulation of online gaming markets,
so the dynamics of our industry are
shifting. Real money and social gaming
together with other forms of digital
entertainment are converging.
At the same time mobile platforms
are increasingly important channels of
distribution – each of these developments
is being driven by advances in technology,
new regulations and changes in
consumer demand.
Co‑CEO’s review
12
bwin.party
Integration
The integration process touched
upon each of our core assets in 2011:
our people, technology, products
and brands.
“We expect to move
to a single e-gaming
platform by the end
of 2012”
Chip leader
PartyPoker is our global
poker brand
People
Following completion, our first step
was to appoint the members of the
senior management team, each
with responsibility for leading the
integration of their respective
disciplines and designing and
implementing an organisation
structure to deliver the business
strategy and synergies already
identified. We reorganised the business
into four product verticals so that all
personnel, so far as practicable, are
allocated to one of the verticals. This
structure should help us maintain our
leadership position in each vertical
which is now able to allocate its own
development and financial resources
to execute its plans. Following some
initial adjustments, the target
organisation structure was completed
in the fourth quarter of 2011. Aligning
business processes and controls is an
ongoing task but just 12 months after
completion, the majority of our internal
procedures are already up and running.
With employees located on three
continents, differences of language and
culture posed additional challenges as
we executed the integration plan and
continued to drive the business
forward. Thanks to the direction and
diligence of our dedicated Integration
Management Office and the enormous
efforts of our management and
employees, we are delivering on
our plans.
Technology
One advantage of the long lead-time
between the merger announcement
on 29 July 2010 and completion on
31 March 2011 was that we had several
months to plan the integration,
including the assessment of our
technology needs. Having two of
everything it was clear that choosing
one technology platform for each task
would release resources and generate
value. This was challenging for the
senior team given the implications for
our staff and key locations. Drafting the
technology roadmap was relatively
straightforward compared with the
complexity of moving from two systems
to a unified back-office platform, as well
as having a single gaming platform for
each of the product verticals. This was
complicated further by the introduction
of new regulated markets such as
Denmark and Spain, that each have
different technology requirements.
Although these interruptions delayed
the integration of our technology
platforms, we expect to move to a single
e-gaming platform by the end of 2012
and deliver the €40m of synergies as
previously announced. A further €25m
of synergies are expected in 2013.
13
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Products and brands
Choosing bwin as our lead brand for
sports betting was obvious given its
leading presence across Europe.
Choosing PartyPoker as our lead poker
brand was also straightforward given
its brand strength not just in existing
markets across Europe, but also
potential new markets, such as the
United States. Notwithstanding this,
we will also continue to offer bwinPoker
across all key markets and intend to
continue to make full use of the World
Poker Tour (‘WPT’). In Italy we will
continue to use GD Poker. In casino,
as a large proportion of our customers
continue to come from poker and
sports betting, we will continue to
offer games through both bwin and
PartyPoker, as well as the industryleading PartyCasino brand. We believe
that the quality of the product offering
in casino is key and so have continued
to add new games to our suite using our
in-house development team as well as
through selective licensing deals with
third parties. Bingo remains a localised
product and Foxy Bingo and Cheeky
Bingo will remain our core brands in
the UK and Gioco Digitale in Italy. As we
move into new markets we will launch
additional bingo brands that will be
tailored for local tastes.
Market environment
We believe that the underlying drivers
of revenue growth in the online gaming
sector remain strong: the increasing
prevalence of broadband; growth in
smartphone and tablet technology;
an expanding population of online
consumers with an increasing
propensity to socialise, transact and
play games online; and a growing
acceptance that gaming online is
a mainstream activity, one that can and
should be regulated (see ‘Spotlight on:
our business environment’ on pages
6 to 7). While these long‑term drivers
remain, shifts in the regulatory,
competitive as well as technological
landscapes can and already have had a
significant impact on the online gaming
market in the short-term.
Regulation
A number of national developments
took place in 2011, most of which
represented a further positive step
in the transition from an embryonic
unregulated activity just a few years
ago into one that is increasingly
becoming fully licensed and regulated.
While this transition brings additional
compliance costs and gaming taxes,
it is also likely to prompt industry
consolidation as consumers gravitate
to the larger operators and brands.
Germany (22% of pro forma net
gaming revenue in 2011)3
In April 2011, 15 out of the 16 German
states or Länder, put forward a proposal
for a new regulatory framework. While
it proposed to regulate, license and tax
online sports betting for the first time,
it proposed to do so in a very restrictive
way that was not compliant with EU
law. Following criticism from the
European Commission, the draft was
amended in December 2011 but
remains highly restrictive. Limited to
sports betting only it includes a de facto
ban on live betting, limits on the stakes
wagered in any month and a maximum
of 20 licensees. We believe this revised
proposal also fails to meet the
requirements of EU law. Having been
asked by the Länder for a ‘green light’
to proceed with the proposals, the
European Commission issued a
70
103
response on 20 March 2012 stating that
the Länder needed to provide detailed
evidence in order for the Commission to
assess whether or not the restrictions
embodied within the draft State Treaty
comply with EU law. The Commission
was also unable to assess the
consistency and coherence of the
proposals due to a lack of notification
of federal legislation amending the
rules for slot machines and horse race
betting. In the absence of such
notifications and evidence, the
Commission did not give the Länder the
‘green light’ they required to proceed.
Meanwhile, Schleswig-Holstein,
Germany’s most northern Land has
adopted its own licensing regime for
online sports betting, poker and casino4
with a 20% tax on gross gaming revenue
and which has been approved by the
European Commission. bwin.party
along with many other reputable
operators has applied for a licence
in Schleswig-Holstein and intends
to operate under that licence across
Germany. While the position of the
other 15 Länder remains unclear,
we remain committed to securing a
commercially viable regulatory regime,
one that complies with EU law and
meets the needs and desires of
consumers, operators and regulators.
Italy (10% of pro forma net gaming
revenue in 2011)3
Italy expanded its online gaming
regime to include cash game poker and
certain casino table games in July 2011.
The Group launched both products
under its main brands including
bwin, PartyPoker and Gioco Digitale
and now has a strong market share
in all products.
3
4
Share of pro forma net gaming revenue in
2011 – Continuing operations
Excludes blackjack, baccarat and roulette
Co-CEO’s review
14
bwin.party
United Kingdom (10% of pro forma
net gaming revenue in 2011)5
Tower block
France is expected to review its
restrictive gaming regulations after
the Presidential election in May 2012
The UK Government has announced
that it intends to amend the existing
Gambling Act and extend its licensing
regime to include offshore online
operators. It is unclear when the
legislation to effect such a change
will be considered. Meanwhile, the UK
Treasury has announced a consultation
on changing the taxation regime in
line with the Department for Culture,
Media and Sport’s proposals and
taxing operators on the basis of
customer location. The potential
outcome of its conclusions remain
unclear. The industry argued strongly
that any changes to the basis of
taxation should only be introduced
if and when the requisite amendments
to the UK Gambling Act have already
been effected, if at all. Such proposals,
if introduced, may be subject to legal
challenge by online gaming operators.
France (7% of pro forma net gaming
revenue in 2011)5
Despite the calls for changes to the
French regulatory model put forward
by Monsieur Villotte, president of the
French regulator, ARJEL, who argues
that the regime is not working
effectively, no change has yet been
made. Other senior figures such as
Senator Trucy and Jean-Francois
Lamour MP have also expressed
concerns that the regime is preventing
regulated operators from making
an economic return as they cannot
compete with black market operators –
evidenced by the decline in the French
regulated sports betting market in the
fourth quarter 2011. There has been
5
Share of pro forma net gaming revenue in
2011 – continuing operations
speculation in the media that some
changes might be effected before the
end of 2012 although any such changes
are unlikely to take place until after
the Presidential election in May 2012.
Whether or not this will include any
reduction in taxation or an expansion
in the number of regulated products
is unclear.
Greece (4% of pro forma net gaming
revenue in 2011)5
Greece has pressed ahead with its
proposals for a new gaming law that
was enacted in August 2011 despite
the receipt of a detailed opinion from
the European Commission that raised
a number of concerns. The requirement
to have a legal presence in Greece
together with a proposal to impose
taxes on operators retrospectively from
1 January 2010 are just two aspects that
we believe are in breach of EU law and
which are the subject of a formal
complaint submitted by the Remote
Gambling Association. In the absence
of any clarity we continue to keep the
situation under review.
Spain (5% of pro forma net gaming
revenue in 2011)5
It has been reported that over 290
licence applications have been filed
with the Spanish regulator by 59
companies, including bwin.party
ahead of the country’s new regulatory
framework coming into force. Whilst
the exact date upon which licences will
be issued remains unclear, we expect
that this will take place during the
second quarter of 2012. The regulations
cover all forms of online gaming,
including live betting and bingo
but excludes online slot games, with
a 25% tax on gross gaming revenue.
In accordance with the regulations we
have been paying taxes on all Spanish
revenue generated since 29 May 2011.
15
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Denmark (2% of pro forma net gaming
revenue in 2011)5
The new regulatory framework that
covers sports betting, casino and
poker went live on 1 January 2012.
We launched services in each licensed
product category as well as on behalf
of our local B2B customer, Danske
Licens Spil, the leading Danish landbased gaming operator. Gaming duty
is payable at 20% of gross
gaming revenue.
While several other countries are in
the throes of discussing, drafting as
well as legislating new laws to regulate,
the trend is clear: online gaming is
becoming increasingly recognised as a
legitimate activity in most EU countries
and is a branch of eCommerce that can
and should be regulated. Following the
adoption of a report by the European
Parliament6 in 2011, there is also an
acceptance that agreeing a common
approach to the regulation of online
gaming is in the interests of European
stakeholders and consumers.
United States (Nil share of pro forma
net gaming revenue in 2011)5
An opinion from the US Department
of Justice on 23 December 2011 made
clear that regulated intra-state online
games of chance did not breach any
federal laws. This prompted several
initiatives in a number of states seeking
to regulate license and tax online
gaming activities including California,
Iowa, Hawaii, New Jersey and
Mississippi. The state of Nevada has
already enacted the requisite legislation
to allow intra-state online poker. With
the prospect of a ‘patchwork quilt’ of
regulation, compliance and tax rules,
the federal government may yet decide
6
Source: “Online Gambling in the Internal Market” – own
initiative report by the Committee on the Internal Market
and Consumer Protection, adopted in Plenary Session of
the European Parliament on 15 November 2011
7
Source: H2 Gambling Capital
that it needs to regulate this activity at
a national level. Estimated to have been
worth approximately $1.6 billion of
gross gaming revenue (‘GGR’) in 2006,
assuming a federal bill was introduced
the US online poker market could be
worth up to $4.2 billion in GGR7 in the
first full year after regulation.
Through our joint venture agreements
with MGM Resorts International and
Boyd Gaming Corporation that were
concluded during the year, we believe
that we are well-placed to capitalise on
any such opportunities as and when
they arise.
Competition
The competitive landscape is also
continuing to evolve rapidly, partly
as a result of some of the regulatory
changes outlined above and partly due
to other factors. The indictment of the
founders of PokerStars, Full Tilt Poker
and Absolute Poker/Ultimate Bet on 15
April 2011 represented the start of what
we believe will prove to be a
fundamental shift in the shape and
structure of the global online poker
market. With the exception of
PokerStars, all of these sites have now
closed. PokerStars’ relative size meant
that it was able to capture the lion’s
share of Full Tilt’s non-US players,
consolidating its position as market
leader in most territories. This makes for
a challenging operating environment
for our poker business but we believe
that we can remain one of the largest
networks in each market. Our position
should be further enhanced when we
pool our player liquidity across our
poker brands in the dotcom as well as
the ring-fenced markets in Italy and
France later this year.
70
103
Separately, the past 18 months have
seen the emergence of a new gaming
phenomenon on the internet: social
gaming. Zynga, Playdom, Playfish and
other social gaming platforms have all
experienced spectacular growth with
their virtual currency and virtual goodsdriven business models that have
attracted millions of customers across
the globe. Zynga’s CEO, Mark Pincus was
quoted recently saying that online
gambling is a “natural fit” with virtual
goods and social games.
We believe it is only a matter of time
before the worlds of real money gaming
and social gaming converge. This
represents a major opportunity for
bwin.party and we have a number of
initiatives already underway in this
area that we expect to drive value for
shareholders in the medium to long‑term.
Co-CEO’s review
16
bwin.party
Technology developments
The continued evolution of smartphone,
tablet and other mobile technology
has driven strong growth in the
consumption of gaming products
through the mobile channel. Customers
no longer have to be in front of their PC
or laptop to enjoy playing online games.
We expect this trend to continue as
new devices emerge but also as
network infrastructure continues to
improve and as payment processing
and personal identification
technologies evolve.
In its recent filing with the Securities
and Exchange Commission, Facebook
stated that 425 million or 50.2% of
users accessed its services via a
mobile device. The penetration of
smartphones is continuing to expand
and is already greater than PCs or
laptops. In its recent fourth quarter
results for 2011, Apple Inc. announced
that it had sold 37 million iPhones and
over 15 million iPad’s, a 128% and
11% increase respectively over the
previous year.
Whilst transactional-based gambling
such as sports betting is already
flourishing over existing networks,
the next generation of networks are
emerging and can be expected to
revolutionise the gaming experience
on mobile platforms. With transmission
speeds of up to 10 Mbps (Megabits per
second) these networks will be over
five times the speed of existing 3G
networks, significantly improving the
mobile gaming experience, particularly
for games such as poker, casino and
bingo that typically require greater
volumes of data traffic. The other
dynamic that is driving the accessibility
of online games is the increasing
prevalence of Wi-Fi that is available in
public locations and that most mobile
devices are now able to use. In its March
2012 budget the UK Government
announced funding for ultrafast
broadband and Wi-Fi in ten of the UK’s
biggest cities, with additional funding
for smaller cities too.
Against this backdrop, our business
is continuing to perform well and we
remain on-track.
Summary, current trading
and outlook
Since 31 December 2011, the Group
has performed in-line with the Board’s
expectations with growth in all
verticals versus the previous quarter.
A summary of the current trading
performance relative to the fourth
quarter of 2011 is shown below:
Pro forma and Actual
Gross average
daily revenue (€)
Period
ended
24 March
2012
Q4 11
Change
Sports betting
932,600
900,200
4%
Casino & games
923,800
902,700
2%
Poker
747,300
747,200
0%
Bingo
324,100
319,000
2%
2,927,800
2,869,100
2%
Total
The pace of regulatory, technological
and competitive change is showing no
sign of slowing down. But, the scale and
breadth of our revenue base, coupled
with our significant resources all mean
that we are in a strong position to
capture a bigger share of the expanding
digital entertainment market. Current
trading has been robust with gross
average daily revenue in the 12 weeks
to 24 March 2012 up 2% versus the
fourth quarter of 2011 to €2,927,800
(Q4 11: €2,869,100). While the current
macroeconomic environment appears
to be impacting performance in parts of
southern Europe, this is being offset by
stronger performances elsewhere.
Active player days increased in all
verticals versus the previous quarter
and amounts wagered in both sports
and casino were up strongly although
17
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
there was a small drop in gross win
margin to 7.9% in sports (Q4 11: 8.5%)
and 3.9% in casino (Q4 11: 4.1%).
Should the proposed regulatory
framework in Schleswig-Holstein
become effective and we are awarded
a licence, we propose to offer sports
betting, casino and poker products
across Germany and pay the proposed
tax of 20% of gross gaming revenue
on all products. While this will impact
Clean EBITDA in 2012, we have identified
€10m – €15m of savings in 2012 and
2013 that will partially mitigate the
impact on our financial performance.
While regulatory uncertainties
continue, the prospect of the Euro 2012
championship later this year, the
opening of the regulated Spanish
market and our delivery of additional
synergies mean that we remain
confident about the Group’s prospects.
2011 was the year of integration and
regulation. 2012 will be the year of
integration, regulation and innovation –
we have made an excellent start.
“Even in such a
challenging business
environment we
continue to deliver
positive cashflow
thanks to the
strength of our
business model.”
Key players (Left to right)
Jim Ryan, Joachim Baca, Norbert
Teufelberger and Martin Weigold
head the Group’s executive
management team
70
103
Our business model
18
bwin.party
Spotlight on:
Our business model
We are focused on delivering long‑term profitable growth through growing
revenue and managing our cost base. As a consumer-facing business we need to
be consistent in the delivery of great content in a safe and secure environment,
at a price that represents good value for money and in a way that is easy to use.
Revenue
Whilst the dynamics vary by product, our revenue model applies to each of our
four verticals: how many players do we have on a daily basis and how much do
they spend each time they visit? Multiply one by the other and we have gross
gaming revenue. Other revenue comes from our business-to-business (‘B2B’)
customers (such as PMU in France and Danske Licens Spil in Denmark) and
non‑gaming activities such as WPT, InterTrader (our financial spread betting
site) and payment services supplied to third parties.
Revenue
Number of
active players
Player
retention
New player
sign-ups
Average yield per
active player day
Multiply
Existing
active players
Mix of games
Frequency
of play
Key Performance Indicators
Each of our KPIs lies behind one of our core revenue drivers, affecting either
the number of active players or average player yield. We provide quarterly,
data on each of these metrics on our website. Other factors influencing
revenue include player retention and the number of existing players that leave
the site through ‘churn’; the mix of games played (as different games/bets have
different revenue characteristics); how often people play and the mix of
players i.e. are they experienced high value players or novice low value players?
Each of our product KPIs are detailed in the Review of 2011 on pages 37 to 42.
To find out more, visit
www. bwinparty.com.
Player mix
19
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Cost base
Distribution costs as a % of total revenue1
We categorise costs as follows: ‘distribution’ or marketing-related costs
that tend to be more variable in nature, rising and falling with revenue; and
‘administrative expenses’ that tend to include those items that are more fixed
in nature and therefore provide a source of operational leverage.
€m
300
We maintain a tight control on costs and have identified €65m in annual
synergies from the Merger, three quarters of which are cost savings such as
rationalisation of surplus systems and technology, greater purchasing power
from our increased scale and reduced reliance on third-party suppliers.
The balance is expected to come from revenue synergies such as cross-selling
and improved yield management.
Balance sheet
Strategy
Our strategy to deliver long-term revenue growth includes five key elements:
C
G
B
P
S
C
G
B
S Sports betting P Poker C Casino G Games B Bingo
Pro forma Continuing operations
Webhosting and technical services
Customer bad debts
18%
Casino & games
Bingo
C
C
G
B
21%
50
0
2011
2010
050
2011
2010
100
18%
Customer bad debts
21%
9%
200 Third-party content
8%
250 Affiliates
4%
3% and retention
Customer acquisition
1%
300
€m
35%
4%
2%
1%
36%
Distribution
as a % of total
revenue1
Clean
EBITDAcosts
administrative
expenses
as a % of total revenue1
33%
35%
250 Transaction fees9%
11%
200 Staff costs
3%
Outsourced services
3%
Other overheads
16%
16%
2011
5%
5%
2011
2010
5%
5%
2010
16%
Other overheads
16%
050
100
150
Outsourced services
3%
200 Staff costs
3%
250 Transaction fees9%
11%
300
€m
33%
New common platform
(loyalty, player management, customer support, data warehouse and payments)
1
100
0
50
Target business structure
P
150
100
We are organised into four product verticals: sports betting, casino & games,
poker and bingo. This provides greater control over resources for each product
and greater flexibility to manage the particular challenges and different
dynamics faced by each. This also reflects the way in which the business is
being structured technically with each of the gaming verticals plugged into
a common technical platform that hosts all of the back-office functions such
as loyalty, payments, data warehouse and customer service.
S
8%
200 Third-party content
9%
150
Organisation and business structure
PartyPoker
1%
2%
4%
€m
300
focus on regulated and to-be-regulated markets;
invest in our core assets;
secure long-term strategic partnerships;
extend our reach into new areas of digital entertainment; and
act responsibly
bwin
36%
1%
3% and retention
4%
250 Affiliates
150
We generate net cash and have no net debt. We paid a €15m half year dividend
in October 2011 and are recommending a final dividend of approximately €15m.
Since September 2011 we have also repurchased 31.2 million ordinary shares
for a total consideration of approximately £44.9m. Our policy is to continue to
manage our balance sheet whilst retaining the flexibility to seize opportunities
should they arise.
•
•
•
•
•
35%
as a % of total revenue1
Clean EBITDA administrative expenses
G
B
35%
Strategy
Extending
into a new
digital landscape
Our top priority remains completing the Merger
integration as planned and delivering the annual
synergies already identified.
The shifting business environment has meant that
our business strategy has continued to evolve and
now comprises the following five elements:
1
Focus on regulated
and to-be-regulated
markets
read more
p22
2
Invest in our core
assets – technology,
product, brands
and people
read more
p24
3
Secure long-term
strategic alliances
read more
p26
4
Extend into new
areas of digital
entertainment
read more
p28
5
Act responsibly
read more
p30
bwin.party
Focus on regulated and to-be-regulated markets
The transition to regulated markets is
continuing to gather momentum. Several
countries in Europe are moving towards the
implementation of a regulated framework
for online gaming. The US is also moving in
a similar direction. This transition is a major
opportunity for bwin.party although it
comes at the cost of greater gaming duties.
2011 achievements
Following the expansion of permitted
games, we launched cash game poker
and casino games into Italy in July 2011
and have already secured meaningful
market share in each segment. In
France, we sustained our market share
in poker and increased it in sports
betting despite the country’s
challenging fiscal and regulatory
regime. We continue to lobby for
change to the current regime and are
encouraged by the recent comments by
Monsieur Villotte, the French regulator,
who has called for an “analysis of the
fiscal constraints and economic model”.
Elsewhere, much of the second half of
2011 was spent preparing our systems
and offerings for the newly regulated
markets of Denmark and Spain. While
our poker, casino and sports betting
offering launched successfully in
Denmark on 1 January 2012 as planned,
a change of government meant that the
opening of the Spanish market was
delayed until later this year.
French poker market share
%
40
30
Source: Company estimates based on player numbers
1
Combined liquidity across all group networks
40
%
French poker market share
p
rk
pk
r
P
tra
uo
c
eh
Pa
rto
uc
he
C
lih
pi
o
ek
i/r
op
k
re
Ch
ilip
ok
er
/ip
ok
er
aB
irr
rè
e
P
ko
re
Ba
rri
èr
eP
ok
er
E
ev
er
t/s
eB
ct
cil
Ev
er
es
t/B
et
cli
c
20
bw
in
.pa
rty
1
0
10
W
in
am
ax
10
0
iW
an
m
xa
20
b
w
.ni
p
ra
1 yt
30
P
ko
re
tS
a
sr
1
22
Po
ke
rS
ta
rs
Strategy
bwin.party
23
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Measures of success
Pro forma NGR – regulated v non-regulated
• Launched casino and cash game
poker into Italy in July 2011
2011
103
2012
27%
• Launched poker, casino and sports
betting in Denmark in January 2012
31%
39%
• Increased share of the online poker
market in France
• 27% of 2011 net gaming revenue
came from regulated markets (France,
Italy and UK)
• Introduced a new sports software
framework, increasing delivery speeds
and flexibility that is vital for newly
regulated markets
73%
Regulated
To-be-regulated
Unregulated
Regulated
73%
To-be-regulated
Unregulated
Regulated markets in 2011: UK, Italy France
Regulated markets in 2012: UK, France, Italy, Denmark
To-be-regulated markets in 2012*: Spain, Greece, Germany
*(Based on NGR in 2011)
30%
30%
39%
27%
2011
Pro forma NGR – regulated v non-regulated
Plans for 2012
The transition to regulated markets
will continue with the opening of the
Spanish market where we plan to
launch sports betting, poker, casino
and bingo. Should we be successful in
securing a licence in Schleswig-Holstein,
we plan to launch all products except
bingo in Germany under this regime.
The exact timing of when markets will
open is always a challenge for operators
as are additional amendments to
legislative requirements by regulators.
However, through an active programme
of engagement with regulators and
governments around the world, we
aim to stay fully informed and are ready
to mobilise our launch teams quickly.
Our objective is always to launch as
soon as regulations allow.
Land of opportunity
The Group is well-positioned
to enter the US, should the
requisite legislation be enacted
2012
31%
Strategy
2
24
bwin.party
Invest in our core assets – technology, product,
brands and people
To attract and retain real money players we
have to provide the very best online gaming
experience, which is why we continue to
invest in our technology, products and
brands as well as the people that make it all
happen. Through targeted allocation of our
capital we enhance our reputation for trust
and quality, driving revenue and cashflow.
2011 achievements
If you can stand the heat...
Satsumo is one of the characters from
Enter the Kitchen, one of our 28 new
games that will launch in 2012
Our live betting offer has improved
significantly with a new interface and
increased coverage by our live-betting
traders through greater automation,
allowing us to redeploy bookmakers
to cover additional events. In casino
we launched into Italy and added 21
new casino games of which 14 were
developed in-house. We also launched
our own no-download casino product
onto the existing bwin technology
platform in October 2011 and the early
results have been very encouraging. In
poker, we changed to a weighted
contribution rake calculation that
benefited more recreational players
and helped us secure the clear number
two position behind PokerStars in the
dotcom liquidity pool, a position that
has been sustained into 20122. In bingo
we consolidated our UK bingo networks
2
into a single liquidity pool with bigger
prizes and higher jackpots thereby
making our offering more attractive
and this is beginning to feed through
into our financial performance.
The challenge of merging two working
cultures across multiple locations has
been met through the implementation
of several people-related initiatives
including a new Leadership
Development Programme spanning all
levels of our management structure as
well as the introduction of a unified
approach to training across the Group.
We have also put in place a new identity
and market positioning for IVY
Comptech, our subsidiary that provides
software development and IT-enabled
business process outsourcing. IVY has
also relocated to a brand new, state-ofthe-art facility and has put in place an
improved incentive scheme to attract
and retain the very best talent in
Hyderabad, India.
25
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Measures of success
• Improved live betting margins on
all labels with 9% more live events
on bwin and 57% more on PartyBets
and Gamebookers
103
Sports betting – Amount wagered and gross win margin
¤m
1000
%
10
800
8
• Launched 21 new casino games
in 2011
600
• Poker Operator of the Year –
International Gaming Awards
20
200 10 Q1
0
201
0Q
2
201
0Q
3
201
201
0Q
1Q
4
1
201
1Q
2
201
1Q
3
201
1Q
4
2
0
• First ever spread betting app for the
iPad launched by InterTrader.com
0
200 10 Q1
20
2
0Q
201
3
0Q
201
1
4
1Q
0Q
201
201
2
1Q
201
3
1Q
201
4
1Q
201
0
2
• Spread Betting Operator of the Year –
EGR Awards
• Innovation in Payment Solutions 2011
– EGR B2B Awards
• Launch of MegaGames on bwin.com
400
400
6
Bet amount ¤m
Bet amount ¤m
Gross win margin %
4
Gross win margin %
600
6
800
8
1000
¤m
10
%
Sports betting – Amount wagered and gross win margin
Plans for 2012
As mentioned above, while completing
the integration of our products and
platforms is a key priority we will
also continue to deliver a number
of operational and product
developments in 2012.
These will include expanding the
number of live events covered in
our sports offer, repositioning the
PartyPoker product and brand and
completing the sale of Ongame.
In casino we will launch a download
casino for bwin.com and add 28 new
casino games developed by our
in‑house production team. The opening
of the Spanish market will see us launch
3
Excluding slots
4
sports betting, poker, casino3 as well
as a brand new Spanish bingo brand,
all of which will be running on the new
integrated back-office platform.
To improve our appeal as an employer
we are launching a new total rewards
package and flexible benefits scheme
for staff in our key locations.
Market on the move
InterTrader’s spread betting iPad
app was an industry first
Strategy
3
26
bwin.party
Secure long-term strategic alliances
We continue to leverage our own assets
and the assets of others through a series of
long‑term strategic relationships that include
B2B relationships, sports sponsorships and
industry affiliations.
Our bwin brand is synonymous with
sports, supported by our long-term
marketing relationships with some of
the world’s most recognised brands
such as Real Madrid and MotoGP.
Our sports sponsorship strategy
remains focused on European football,
motorcycle racing and basketball where
we sponsor Euroleague Basketball and
the industry association, FIBA.
2011 achievements
Preparing for the launch of our
B2B service for Danske Licens Spil in
Denmark on 1 January 2012 was a major
project in 2011. Similar to our deals with
PMU and ACF in France, the agreement,
which covers poker and casino games,
is designed to augment our B2C offering
as well as generate additional revenue.
We also announced similar arrangements
with MGM and Boyd Gaming two of the
largest and most respected casino
operators in the US, in anticipation of
either state or federal legislation, the
objective again being to support our
planned B2C franchise should
regulations allow.
During the year we extended our
sponsorship with FIBA and Euroleague
Basketball until 2014, MotoGP until
2013 and also began a multi-year
sponsorship of the Pro Padel Tour.
Competitive edge
We again sponsored the famous
Hahnenkamm downhill ski race
in Austria in 2011
27
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Measures of success
• Strategic agreements with MGM
and Boyd
• Successful launch of poker and casino
for Danske Licens Spil in Denmark
• Improved B2B integration technology
makes it easier to launch services for
our customers
• Consolidation of position in French
poker with strong growth by PMU
Plans for 2012
We are focused on delivering excellent
service and product to our existing B2B
customers . We also continue to explore
regulated and to-be regulated markets
for meaningful partners that can make
a difference to our performance and/or
deliver a strategic benefit that we
cannot achieve alone.
Playing partners
We have secured strategic
relationships with some
of the world’s leading
gaming companies
103
Strategy
4
28
bwin.party
Extend into new areas of digital entertainment
At the time of the Merger we recognised the
opportunity to extend our assets and skills
into new areas of digital entertainment, in
particular social gaming. We also identified
a major opportunity to exploit our existing
products and brands through mobile, touch
and video.
As a result, the Board has added a new
element to the strategy, one that is
focused on extending our reach into
these new and exciting markets.
Social gaming
Poker +
We launched our Aces
Hangout game on Google+
in March 2012
Social gaming is a rapidly growing
market and shares many characteristics
with our core business including the
need to develop high quality online
games, manage large numbers of
simultaneous players with the support
of fully-integrated business intelligence
and analytics, provide a payments
platform as well as sophisticated online
marketing through a range of channels.
However, we recognise that it is also very
different in terms of what drives customer
behaviour and how revenue is generated.
Having researched the business case
thoroughly and balanced this against
other opportunities, the Board has
formally adopted this addition to the
strategy and we have established a
stand-alone and dedicated vehicle
to pursue social gaming opportunities
that sits outside our core real money
gaming activities. Recognising the
different skills required we have
recruited a knowledgeable and
experienced management team that
will be supported by its own software
development resource that will develop
a range of social games for launch in 2012.
Mobile
The mobile channel is not new to
bwin.party having launched our first
mobile sports betting in 2001. However,
the advent of smartphone and tablet
technology in conjunction with
increasing connection speeds has
revolutionised the mobile gaming
proposition. A fast-growing part of our
business, mobile gross gaming revenue
increased by 104% year-on-year to
€25.3m (2010: €12.4m) and we expect
further strong growth in 2012.
2011 achievements
We established a dedicated resource
within the Group to manage all of our
development and investment in each
of the mobile platforms. Called Mobile,
Touch, Video, we continued to expand
our mobile offer with the launch of
multiple apps on both Android and
iOS platforms – our products are now
available in app stores in 18 countries
and there were over 31,000 downloads
of our bwin sports betting iPhone app
in January 2012. On the social gaming
front we launched a beta version of a
new poker concept called Aces Hangout
on Google+ that has a social webcam
platform connecting each of the
participating players.
29
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Measures of success
Total mobile GGR
• Established a dedicated internal
resource for Mobile, Touch and Video
€m
25
• Strong growth in gross gaming
revenue derived from mobile –
up 104%
20
• Our gaming apps are now available
in 18 countries
10
• Launch of Aces Hangout, a social
online poker game
• Established a dedicated vehicle to
execute our social gaming strategy
02
11
20
11
02
01
20
10
02
90
20
09
02
70
02
80
20
08
05
20
07
05
02
60
15
20
06
• Launch of Android app for bwinPoker
in France
103
10
15
20
25
€m
Total mobile GGR
Plans for 2012
During 2012 we will establish a
proprietary social game technology
platform and launch online and
smartphone applications in several
of the Group’s core product verticals,
as well as an independent social game
destination website. The first social
gaming product to launch will be a
poker-based product followed by a
casino and sportsbook application
by the end of 2012. In Mobile, we will
launch a new PartyPoker mobile app
and plan to launch HTML5 mobile
versions of our key gaming sites.
As we complete elements of our
integration plans in 2012, we will be able
to redeploy even more resources into
extending our business into these
exciting new business areas.
In mobile we trust
We will launch a dedicated
coaching app in support
of our sponsorship of
Euroleague Basketball
Strategy
5
30
bwin.party
Act responsibly
Being responsible is a prerequisite for
success. However, to sustain our business
model we choose to go beyond the
requirements prescribed by regulation and
statute with the objective of providing the
world’s safest and most innovative gaming
platform founded upon operational
excellence and scientific research.
Since 2005 we have been working
with the Division on Addiction (‘DOA’),
Cambridge Health Alliance, a Harvard
Medical School teaching affiliate in
order to both expand our knowledge
of gambling-related problems and also
to help us develop a multi-layered
responsible gaming tool that can be
tailored to an individual’s requirements.
Good Citizen
FTSE4Good again
recognised the Group as
a responsible company
However, our approach to
responsibility extends beyond our
core gaming business and includes all
of our core stakeholders including the
communities where we have a physical
presence. For more details regarding
our approach to stakeholder
management please see the
Sustainability section of our corporate
website: www.bwinparty.com.
2011 achievements
We continued our pioneering
collaboration with the DOA that
published three more peer-reviewed
academic papers into gambling-related
issues in 2011. As well as being widely
acclaimed in the academic world,
our collaboration with the DOA was
4
commended as part of the independent
assessment of our working practices
by GoodCorporation (see page 60). In
Europe, we helped to establish a Europewide agreement on responsible remote
gambling measures. The European
Committee of Standardisation (‘CEN’)
adopted the agreement in February
2011, outlining 134 practical measures
aimed at safeguarding a high level of
consumer protection and ensuring that
remote gambling operators behave
responsibly in the European Union. In
2011, together with some of the world’s
largest corporations including Google
and Vodafone, bwin.party became a
founding member of the ICT Coalition
for a Safer Internet for Children and
Young People – details of the coalition
were published in January 20124.
As well as these corporate initiatives,
our employees have also been playing
their part in acting responsibly by
participating in pro bono activities for
worthy causes in local communities.
In recognition of our efforts during the
year we were again entered into the
FTSE4Good Index Series.
http://www.gsma-documents.com/safer_mobile/ICT_Principles.pdf
31
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Measures of success
• Received certification from CEN5 for
our responsible gambling measures
• Re-accredited as a member of the
FTSE4Good Index Series
• Re-certificated by GamCare as a
responsible operator
• Voted Socially Responsible Operator
of the Year, 2011 at eGaming Awards
• In 2011 our staff participated in 120
separate pro bono projects
Setting EU standards
We passed our audit of 134
CEN standards in 2011
• A further three papers published by
the Division on Addiction
Our approach
The graphic below summarises
our approach to responsible and
sustainable business practice
Plans for 2012
En
t
e
r
ta
i
t
en
nm
Res
Ga p
ce
ian
pl
re of Gaming
Futu& Society
C
Em
pl
Reg
Auth ulato
ori ry
tie
s
nt
me
on
r
i
v
otection
mer Pr
En
nsu sociations
o
C As
ity
egr
Int ions
rts ciat
so
Co
m
Tr
a
n
s
p
a
re
Projec ncy
t
Employee
s
Sp
As o
e
nc
a
n
e
App
sibl
on ing Rese l
m
ey
on
M ing
m
En om
ga
g
Business
Hea S
lth cie
ca
s
ee
oy
rk
c&
ifi two
nt Ne
re
Dig
ita
lG
o
ve
r
European Committee for Standardisation
N
Di etw
alo
g
Stakeholders
tion
ova
Inn
ity
un ent
m em
Rea
Ga l
5
Kn
ow
le
Society
e&
dg
y
fet
Sa
k
or ue
He
alt
h&
d
ie rch
a
We will continue to build on our
research programme with the DOA
as we seek to improve our knowledge
and understanding and work towards
a model of consumer protection tools
that can be tailored to individual
customers. Our investment in research
is not limited to the DOA, we are also
committed to supporting the GREaT
Foundation in the UK and other
responsible gaming charities around
the world. We will support local
communities through our pro bono
scheme that we intend to expand
across former bwin offices, as well
as through charitable donations.
32
Review of 2011
bwin.party
The year
in play
Review of 2011
33
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
The Merger was completed on 31 March 2011.
For accounting purposes PartyGaming is treated as
the acquirer of bwin and as a result the Group’s statutory
results for the year ended 31 December 2011 include
a full period from PartyGaming while bwin is included
from 1 April 2011 only.
Spotlight on:
key highlights
• Clean EBITDA ahead of market expectations due to faster than
expected synergies
• Pro forma# total revenue slightly ahead at €816.0m despite closure
of French casino and World Cup in 2010. Actual total revenue up
93% to €691.1m primarily due to the Merger*
• Pro forma Clean EBITDA from Continuing operations up
3% to €199.3m primarily due to synergies coming through
more quickly than expected, offsetting increased gaming duties
from regulated markets. Actual Clean EBITDA from Continuing
operations up 79% to €168.3m primarily due to the Merger
• Synergies realised in 2011 of €23.3m (including €5.0m related to
Discontinued operations), ahead of target. Integration plans ontrack to deliver €40m of synergies in 2012 and €65m in 2013
• Continuing pro forma Clean EPS of 18.5 € cents per share (2010: 19.0
€ cents); actual Clean EPS of 17.9 € cents per share (2010: 17.8 € cents)
• Non-cash impairment of intangible assets of €408.7m (2010: nil)
following the introduction of proposed changes to the European
regulatory and fiscal landscape in 2011
• Recommended final dividend of 1.56p per share (2010: nil) making
a total FY11 dividend of 3.12p per share (2010: nil)
• Current trading robust with average gross daily revenue up 2%
versus the previous quarter to €2.93m (Q4 11: €2.87m)
* On 31 March 2011 PartyGaming Plc merged with bwin Interactive Entertainment AG
(‘the Merger’)
# The actual results include PartyGaming’s results throughout 2011 and the results of bwin
with effect from the Merger on 31 March 2011. Pro forma results set out the financial
performance of the Group as if the Merger had always been in place
Introduction
In preparing these full year results for 2011, we have provided
a detailed review of the operational performance of the
combined business and our progress on integrating bwin
Interactive Entertainment AG (‘bwin’) and PartyGaming Plc
(‘PartyGaming’). In addition, we have included a detailed
review of our business strategy, achievements against that
strategy to-date and objectives for 2012.
To assist analysts and investors in assessing the performance
of the Group, we have also produced pro forma results that
set out the financial performance of the Group as if the
combined operations had always been in place.
While further details of the consolidated performance of
Continuing and Discontinued operations are contained in
the financial information and the accompanying notes, all
references to financial performance or key performance
indicators throughout this document refer to the Continuing
operations on a pro forma basis only, unless expressly
stated otherwise.
“We made excellent progress
in 2011. We remain on-track to
deliver approximately €40m of
synergies this year and €65m
in 2013.”
Jim Ryan and Norbert Teufelberger
Co-CEOs
Review of 2011
34
bwin.party
Financial summary
Results overview
Pro forma#
Audited results for the year ended 31 December
Year ended 31 December
2011
€million
2010
€million
Actual#
2011
€million
2010
€million
Revenue
Sports betting
259.7
258.6
193.9
20.7
Casino & games
262.7
241.0
237.5
152.1
Poker
209.7
226.3
184.6
124.2
Bingo
63.7
71.3
58.5
51.4
795.8
797.2
674.5
348.4
Net revenue
Other revenue
20.2
16.8
16.6
8.9
Total revenue
816.0
814.0
691.1
357.3
Clean EBITDA~ from Continuing operations
199.3
193.2
168.3
94.2
Clean EBITDA~ from Discontinued
operations^
(17.5)
(25.8)
(13.1)
(0.2)
Total Clean EBITDA~
181.8
167.4
155.2
94.0
(Loss) profit after tax – Continuing
operations
(401.2)
85.7
(414.7)
40.2
(Loss) profit after tax
(422.3)
50.4
(431.0)
Earnings per share
2011
€cents
2010
€cents
2011
€cents
38.9
2010
€cents
Basic EPS (loss per ordinary share) –
Standard
(47.1)
10.4
(56.0)
9.8
Clean~
18.5
19.0
17.9
17.8
Basic EPS (loss per ordinary share) –
Total operations
Standard
(49.6)
6.2
(58.2)
9.5
Clean~
16.0
14.8
15.8
17.7
* On 31 March 2011 PartyGaming Plc merged with bwin Interactive Entertainment AG
(‘the Merger’)
# The actual results include PartyGaming’s results throughout 2011 and the results of bwin
with effect from the Merger on 31 March 2011. Pro forma results set out the financial
performance of the Group as if the Merger had always been in place
~ Before the provision for costs associated with the Group’s Non-Prosecution Agreement,
amortisation and impairment of acquired intangibles, reorganisation expenses, merger
and acquisition expenses, exchange differences and before non-cash charges relating to
share-based payments (see reconciliation of Clean EBITDA to operating profit (loss) on the
next page)
^ Discontinued operations refers to Ongame’s B2B business as well as operations located
physically outside of the US but which relate to US customers that were no longer accepted
following the enactment of the UIGEA
~EPS before the provision for costs associated with the Group’s Non-Prosecution Agreement,
amortisation and impairment of acquired intangibles, reorganisation expenses, merger and
acquisition expenses, share-based payments and foreign exchange differences (see
reconciliation of Clean EPS to Basic EPS in note 9 to the financial statements)
Total revenue was slightly ahead at €816.0m (2010: €814.0m)
with a strong casino performance offset by a soft first half in
poker, the loss of French casino revenues in the second half of
2010 and the absence of the FIFA World Cup that flattered our
overall performance in 2010. However, with merger synergies
coming through more quickly than previously expected, pro
forma Clean EBITDA increased to €199.3m (2010: €193.2m).
This was despite a €27.8m increase in gaming duties versus
2010. On a like-for-like basis, excluding the impact of increased
gaming duties, the closure of our French casino and the
2010 FIFA World Cup, pro forma Clean EBITDA would have
increased by 27% to €225.3m (2010: €177.1m).
Actual total revenue for the period was up 93% to €691.1m
(2010: €357.3m) primarily due to the Merger. Each of the
product verticals benefited from the Merger reflecting
the inclusion of bwin’s business activities for the first time.
Actual Clean EBITDA from Continuing operations also
increased primarily as a result of the Merger by 79% to
€168.3m (2010: €94.2m).
Although the Merger was effectively a merger of equals with
all consideration satisfied in shares, IFRS requires the Merger
to be accounted for as if PartyGaming had acquired bwin. The
accounting for this resulted in the recognition of goodwill at
the time of the Merger measured as the difference in the fair
value of the consideration and the fair value of the separately
identified assets and liabilities of bwin. Proposed regulatory
changes in Germany that were announced one week later
resulted in a substantial reduction in the Company’s share
price. As a result, the financial statements include a non-cash
impairment of the goodwill of €391.7m. Had the Merger
completed one week later, no such impairment would have
been required. These items together with one-off deal and
restructuring costs associated with the Merger of €23.8m
(2010: €12.6m) meant that on a pro forma basis the Group’s
Continuing operations reported a pro forma loss before tax of
€407.8m (2010: profit before tax of €85.8m). On an actual basis,
the Group’s Continuing operations reported a loss before tax
of €422.9m (2010: profit before tax of €43.8m).
bwin.party
35
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Discontinued operations relate to the Ongame B2B business
that is in the process of being sold to Shuffle Master and ongoing costs associated with the Company’s Non-Prosecution
Agreement (‘NPA’) that was reached with the United States
Attorney’s Office for the Southern District of New York (the
‘USAO’) on 6 April 2009. The total loss after tax after taking
Discontinued operations into account was €422.3m (2010:
profit after tax of €50.4m). On an actual basis, the total loss
after tax was €431.0m (2010: profit after tax of €38.9m).
Clean EPS from Continuing operations was down 3% at
18.5 € cents (2010: 19.0 € cents), and on an actual basis
Clean EPS from Continuing operations increased by 1% to
17.9 € cents (2010: 17.8 € cents). The increased amortisation
and impairment of acquired intangibles during 2011 meant
that on an actual basis the basic loss per ordinary share from
Continuing operations was 56.0 € cents (2010: EPS 9.8 € cents).
Taking into account Discontinued operations, Clean EPS was
up 8% to 16.0 € cents (2010: 14.8 € cents) whilst on an actual
basis was 15.8 € cents (2010: 17.7 € cents).
The following table provides a reconciliation of the
movements between Clean EBITDA and operating (loss) profit:
Actual
2011
€million
2010
€million
2011
€million
2010
€million
199.3
193.2
168.3
94.2
Clean EBITDA
Exchange differences
(4.7)
3.7
(4.5)
6.1
Depreciation
(20.9)
(15.0)
(18.9)
(6.4)
Amortisation
(132.5)
(61.0)
(125.6)
(32.8)
(12.5)
(17.0)
(12.0)
(9.1)
Share-based payments
Acquisition expenses
Impairment losses
Reorganisation expenses
(Loss) profit from operating activities –
(17.4)
(11.9)
(12.0)
(4.9)
(408.7)
(0.1)
(408.7)
(0.1)
(6.4)
(0.7)
(6.3)
(0.7)
(403.8)
91.2
(419.7)
46.3
Discontinued operations
Clean EBITDA
(17.5)
(25.8)
(13.1)
(0.2)
1.7
(0.9)
0.4
–
Depreciation
(1.4)
(2.7)
(0.7)
–
Amortisation
(2.3)
(5.0)
(1.3)
–
(0.2)
(0.9)
(0.1)
–
Acquisition expenses
(0.3)
–
(0.3)
–
(20.0)
(35.3)
(15.1)
(0.2)
Loss from operating activities –
In 2011 our focus was very much on integration and
regulation. Delivering the targeted €40m of synergies from
the Merger in 2012 remains a top priority, as well as ensuring
that we foster and protect the value of opportunities relating
to newly regulated and to-be-regulated markets. Balancing
these two sometimes competing objectives has been a
challenge, having been forced to reschedule certain of our
integration plans in order to meet strict schedules imposed
by governments and regulators alike.
Summary of Results
Total revenue
Pro forma
Actual
2011
€million
2010
€million
2011
€million
2010
€million
Sports betting
260.6
258.6
194.7
20.7
Casino & games
263.7
241.0
238.4
152.1
Poker
213.0
227.4
187.5
125.3
Bingo
64.6
72.4
59.4
52.5
14.1
14.6
11.1
6.7
816.0
814.0
691.1
357.3
Total
Pro forma
Key developments
Reconciliation of Clean EBITDA to operating (loss) profit
103
14.1
16.1
10.1
–
830.1
830.1
701.2
357.3
Clean EBITDA
Pro forma
Actual
2011
€million
2010
€million
2011
€million
Sports betting
64.3
64.6
46.0
9.0
Casino & games
92.3
79.2
83.2
52.7
2010
€million
Poker
30.0
27.7
26.1
19.3
Bingo
20.6
21.1
19.8
15.2
(7.9)
0.6
(6.8)
199.3
193.2
168.3
(2.0)
94.2
(17.5)
(25.8)
(13.1)
(0.2)
Total
181.8
167.4
155.2
94.0
The actual results include PartyGaming’s results throughout
the entire period and the results of bwin Interactive
Entertainment AG with effect from the completion of the
Merger on 31 March 2011. The pro forma results set out the
financial performance of the Group as if the Merger had
always been in place.
Review of 2011
36
bwin.party
Reconciliation of Clean EBITDA to Clean
earnings used to calculate Clean EPS
Pro forma
Pro forma results
2011
2010
Continuing Discontinued
Total Continuing Discontinued
Total
€million
€million €million
€million
Clean EBITDA
199.3
(17.5)
181.8
193.2
(25.8)
167.4
Depreciation
(20.9)
(1.4)
(22.3)
(15.0)
(2.7)
(17.7)
Amortisation
(132.5)
(2.3) (134.8)
(61.0)
(5.0)
(66.0)
Amortisation
on acquired
intangible
assets
124.3
–
124.3
51.4
–
51.4
Finance income
6.5
–
6.5
1.4
–
1.4
Finance
expense
(9.2)
(9.8)
(3.6)
(1.3)
(4.9)
–
1.3
1.3
(1.3)
(3.2)
–
(3.2)
6.1
(0.1)
(0.2)
(0.3)
Unwinding of
discount
associated with
the Group’s NPA
–
Share of loss of
associates
(1.3)
Tax per
accounts
6.6
(0.6)
–
–
(0.5)
–
Tax on
amortisation
on acquired
intangible
assets
(15.1)
–
(15.1)
(4.7)
–
(4.7)
Tax on
impairments
on acquired
intangible
assets and
goodwill
(4.5)
–
(4.5)
–
–
–
Non-controlling
interests
Clean earnings
2.8
156.0
–
(22.3)
2.8
2.4
–
2.4
133.7
160.8
(33.7)
127.1
Total revenue increased slightly to €816.0m (2010: €814.0m)
driven by a strong and consistent performance throughout
the period from casino & games and other revenue that
more than offset year-on-year declines in poker and bingo.
Casino & games grew by 9%, despite the closure of our
French casino business that generated revenue of €7.5m in
2010. Sports betting was broadly flat in the period which
implied underlying growth as 2010 was flattered by the
FIFA World Cup. Poker declined year-on-year due to continued
pressure from US facing sites in the first half. However,
following the closure of Full Tilt and the launch of cash games
in Italy, poker was stable in the second half of the year. Bingo
continued to suffer from the intense competition in both the
UK and Italy. Other revenue, that includes B2B revenue, WPT,
payment processing fees and InterTrader, grew by 20%. Faster
than expected realisation of financial synergies from the
Merger meant that pro forma Clean EBITDA increased to
€199.3m (2010: €193.2m) and with it the Clean EBITDA margin
also increased to 24.4% (2010: 23.7%), slightly above the top
end of our target range for 2011 of 22% to 24%. This has been
achieved despite the increase in gaming taxes that reached
€65.7m (2010: €37.9m) together with the financial impact of
marketing campaigns in newly regulated markets.
Actual results
The year-on-year comparison of the actual results, while
also affected by the absence of the FIFA World Cup and the
closure of French casino, were driven by the inclusion of bwin
from 1 April 2011 as well as a strong performance from the
casino & games vertical. Total revenue increased by 93% to
€691.1m (2010: €357.3m) and actual Clean EBITDA increased
by 79% to €168.3m (2010: €94.2m).
Both pro forma and actual Discontinued operations
represent primarily the Ongame B2B business along with
costs associated with US customers that were no longer
accepted following the enactment of the UIGEA.
The underlying performance of each of our consolidated key
performance indicators, which are based on net revenue, are
highlighted below.
37
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Consolidated Key Performance Indicators
Sports betting
Pro forma
Active player days
(million)
Daily average players
(000s)
Yield per active player
day (€)
New player sign-ups
(000s)
Average daily net
revenue (€000)
2011
2010
Change
Actual
2011
2010
Pro forma
Change
86.6
237.3
93.7
256.7
9.2
8.5
1,726.4
1,968.8
2,180.3
2,184.1
(8%)
(8%)
71.0
194.5
31.3
85.8
Total stakes
2011
€million
2010
€million
Change
711%
3,873.5
(3%) 2,887.0
355.9
7.5%
7.6%
7.2%
127%
Gross revenue
291.1
291.4
218.7
25.7
751%
(31.4)
(32.8)
4%
(24.8)
(5.0)
(396%)
259.7
258.6
0%
193.9
20.7
837%
Other revenue
0.9
–
n/a
0.8
–
n/a
Total revenue
260.6
258.6
1%
194.7
20.7
841%
64.4
64.6
(0%)
46.1
9.0
412%
24.7%
25.0%
23.7%
43.5%
(14%)
(12%) 1,509.9
896.2
68%
Net revenue
954.4
Change
7.7%
11.1
1,847.9
2010
€million
3,759.5
9.5
(0%)
2011
€million
Actual
Gross win margin
127%
Bonuses and other fair
value adjustments to
revenue
8%
103
94%
On a pro forma basis, active player days declined by 8%
reflecting the absence of the FIFA World Cup and a shift in our
poker marketing strategy where we have continued to reduce
our reliance on affiliates, a number of which were successfully
generating large numbers of player acquisitions but that
were only marginally profitable. This change in mix also fed
through into the movement in new player sign-ups and the
daily average number of players that were down 12% and
8% respectively. However, there was also a corresponding
positive impact on yield per active player day that increased
by 8%, effectively offsetting the reduced volume of players.
The net impact was that pro forma average daily net revenue
remained stable at €2,180,300 (2010: €2,184,100).
On an actual basis, most of our consolidated key performance
indicators trended positively, reflecting the inclusion of bwin
for the first time. The one exception was yield per active
player day that declined due to the shift in the revenue mix.
The net effect was that actual average daily net revenue for
the period increased by 94% year-on-year to €1,847,900
(2010: €954,400).
There follows a more detailed review of the Continuing
operations including each of the individual product segments
showing both actual and pro forma results. Full details of all
of the Group’s historic quarterly key performance indicators
(on pro forma basis) can be downloaded from the Group’s
website at: www.bwinparty.com
Clean EBITDA
Clean EBITDA margin
(0%)
Pro forma results
Lower player volumes impacted the amounts wagered which
were down 3% year-on-year to €3,759.5m (2010: €3,873.5m)
primarily due to the FIFA World Cup in 2010. The impact on
gross revenue was offset by an increase in gross win margin
to 7.7% (2010: 7.5%) after a particularly strong second half that
benefited from operational improvements in our live betting
product and an increase across the former PartyGaming
sports betting brands (PartyBets and Gamebookers), both of
which are now benefiting from being part of a larger sports
book operation. A small decrease in bonus costs meant that
overall net revenue increased to €259.7m (2010: €258.6m).
Clean EBITDA was stable at €64.4m (2010: €64.6m) as increased
gaming duty was offset by cost savings elsewhere.
Actual results
The scale of the bwin sports business meant that all key
metrics increased substantially on an actual basis. Total
amount wagered increased by 711% driving both gross
and net revenue. The increase in gross win margins to 7.6%
(2010: 7.2%) reflects the factors outlined above, as does the
increase in bonus costs, although as a percentage of the
amount wagered these have fallen to 0.9% (2010: 1.4%) due to
the greater strength of the bwin brand and product offering.
The net impact was to increase yield per active player day to
€6.2 (2010: €5.6) and average net daily revenue to €531,200
(2010: €56,900). The substantial increase in net revenue fed
through to Clean EBITDA that increased substantially to
€46.1m (2010: €9.0m).
Review of 2011
38
bwin.party
A summary of the key performance indicators for sports
betting during 2011 both on a pro forma and actual basis
is shown in the table below:
Sports betting – Key Performance Indicators
Pro forma
Actual
2011
2010
Change
2011
2010
Change
Active player days
(million)
41.7
44.5
(6%)
31.3
3.7
746%
(000s)
114.2
121.9
(6%)
85.8
10.1
750%
day (€)
6.2
5.8
7%
6.2
5.6
11%
New player sign-ups
(000s)
696.9
857.5
(19%)
537.7
66.1
713%
Average daily net
revenue (€000)
711.5
708.5
0%
531.2
56.9
834%
The absence of the FIFA World Cup can clearly be seen from
the year-on-year movement in player activity. Active player
days were down 6% while new player sign-ups fell 19%.
However, the impact on average daily revenue was mitigated
through a 7% increase in yield per active player day as a result
of higher gross win margins.
As part of the preparation to integrate our existing sports
betting platforms into a single sports betting platform by the
end of 2012, we made some important changes to our sports
software in 2011 that is now much more flexible and allows us
to deliver any requisite changes for newly regulated markets
much more easily and faster than before. We introduced new
semi-automatic trading models for more sports, resulting
in a marked improvement in all aspects of performance and
in live betting, that represented 72.9% of the total amount
wagered in 2011 (2010: 72.4%), we increased the number
of events covered with a 9% increase on bwin and a 57%
increase on PartyBets/Gamebookers. Our live gross win
margin increased across all sports betting labels and for
the Group as a whole in 2011 it was 5.5% (2010: 5.2%).
Our mobile offer continued to grow strongly in 2011. Sports
net gaming revenue through the mobile channel increased by
92% to €20.5m in 2011 (2010: €10.7m) and in some of our larger
markets, represented between 20–35% of our active sports
betting users (the average across all countries is 16%). WAP
remained the largest platform and the iPhone our fastest
growing mobile channel with our iOS apps now available in
19 countries. Mobile is a core element of our strategy in sports
betting and we will be continuing to drive it further in 2012.
We have applied for a licence in Schleswig-Holstein and,
assuming we are successful, we expect to offer online sports
betting across Germany under this licence. We also expect to
launch our new regulated Spanish sports offer as soon as the
new regulations become effective later this year.
Increasingly mobile
16% of our active sports betting
customers used the mobile
channel in 2011
39
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Casino & games
Actual results
Pro forma
Total stakes
2011
€million
2010
€million
Change
Actual
2011
€million
2010
€million
Change
38%
7,742.2
8,196.2
(6%) 7,054.2
5,118.0
Gross win margin
4.0%
3.7%
4.0%
4.0%
Gross revenue
309.4
301.3
3%
283.3
204.0
39%
value adjustments to
revenue
(46.7)
(60.3)
23%
(45.8)
(51.9)
12%
Net revenue
262.7
241.0
9%
237.5
152.1
56%
Other revenue
1.0
–
n/a
0.9
–
n/a
Total revenue
263.7
241.0
9%
238.4
152.1
57%
92.5
79.2
17%
83.4
52.7
58%
35.1%
32.9%
35.0%
34.6%
Clean EBITDA
Clean EBITDA margin
70
103
The casino & games vertical now includes backgammon,
(previously included in poker) and certain other games
(previously included in sports). These changes are not
material and prior year comparatives have been
restated accordingly.
Pro forma results
The Group’s casino & games business delivered another
strong performance in 2011 with strong growth in revenue
and Clean EBITDA. While the amount wagered was down on
the previous year, this was due to the closure of the French
casino business at the end of June 2010 and lower poker
volumes that remain a major source of casino customers.
The total amount wagered fell 6% year-on-year to €7.7bn
(2010: €8.2bn). However, the trend seen in the first half
continued during the second half with lower bonus costs and
an improvement in the gross win margin that for the year as a
whole was 4.0% (2010: 3.7%). This increase is as a direct result
of the drive to improve the games mix as we continue to
increase the proportion of player activity on higher hold
games such as slots and jackpot slots. The launch of casino
games (excluding slots) in Italy in July 2011 was also a positive
factor helping to increase revenue in the second half. Overall
net revenue increased to €262.7m (2010: €241.0m). Clean
EBITDA increased by 17% to €92.5m (2010: €79.2m) reflecting
the growth in net revenue and faster than expected synergies
from the launch of the no-download casino for bwin
customers, partially mitigated by the increased gaming
taxes payable.
The amount wagered increased by 38% to €7.1bn
(2010: €5.1bn) reflecting the addition of the bwin casino
business that increased gross revenue by a similar percentage
to €283.3m (2010: €204.0m). As bwin had a much more casual
player base with significantly lower average yields, bonus
costs were also significantly lower and this fed through into
net revenue that increased by 56% to €237.5m (2010: €152.1m).
Clean EBITDA margins increased to 35.0% (2010: 34.6%) driven
by the inclusion of bwin casino which generated additional
scale economies.
During 2011, we added 21 new games to our portfolio of
which 14 were developed in-house. This remains a core
element of our casino strategy and a key differentiator from
many of our competitors. Our own proprietary slot games
remain some of our most popular representing approximately
50% of the amount wagered on casino slots in December
2011. We continued to innovate with the launch of the first
ever raffle jackpot slot and new jackpot slots that are now
contributing towards our industry leading Big One jackpot
that currently stands at over $5m. For the current year we
have increased our production capacity and expect to launch
28 new games in 2012.
Review of 2011
40
bwin.party
A summary of the key performance indicators for the
casino & games business during 2011 both on a pro forma
and actual basis is shown in the table below:
Poker
Casino & games – Key Performance Indicators
Pro forma
Pro forma
Actual
2011
2010
Change
2011
2010
Change
Active player days
(million)
10.3
9.9
4%
8.7
3.9
123%
(000s)
day (€)
28.2
27.1
4%
23.8
10.7
122%
25.5
24.3
5%
27.3
39.0
(30%)
New player sign-ups
(000s)
148.3
152.7
(3%)
135.8
92.0
48%
Average daily net
revenue (€000)
719.7
660.3
9%
650.7
414.8
57%
Active player days increased by 4% buoyed by the opening of
the Italian casino market in July 2011 as well as the launch of
our own no-download casino on bwin.com in November 2011.
Player yields continued to benefit from our efforts to both
improve the mix of games being played as well as increase
yields from bwin casino customers. Since we launched the
PartyCasino no download version on the bwin platform we
have already started to see a marked improvement but yields
still remain below that on PartyCasino which is why there
was a decline on an actual basis. The net result was that
average daily revenue in the period was up 9% on a pro forma
basis, despite these factors, and up 57% on an actual basis.
1
Source: Company estimates and AAMS based
on combined share across all platforms
Gross revenue
Actual
2011
€million
2010
€million
Change
2011
€million
2010
€million
Change
263.8
294.1
(10%)
234.1
166.7
40%
(16%)
value adjustments
to revenue
(54.1)
(67.8)
20%
(49.5)
(42.5)
Net revenue
209.7
226.3
(7%)
184.6
124.2
49%
Other revenue
3.3
1.1
200%
2.9
1.1
164%
Total revenue
213.0
227.4
(6%)
187.5
125.3
50%
Clean EBITDA
29.4
27.7
6%
25.5
19.3
32%
13.8%
12.2%
13.6%
15.4%
Clean EBITDA margin
There has been a small adjustment to 2010 numbers to
reflect the fact that backgammon is now included within the
casino & games vertical. Prior year comparatives have been
adjusted accordingly.
Pro forma results
On a combined basis, the Group’s poker networks continue
to hold a significant share of the three major liquidity pools:
dotcom, Italy and France although trading remains tough
given the competitive nature of all markets. In the aftermath
of the legal actions launched by the US authorities on 15 April
2011, Full Tilt Poker was forced to close at the end of June 2011
which helped the revenue performance in the second half.
The Group is now a clear number two player ahead of iPoker
in the dotcom market, while in France and Italy, where player
liquidity is ring-fenced, we continue to hold market shares of
15% and 14% respectively1. While net revenue declined by 7%
year-on-year, the second half was stable versus the first half
of 2011, reflecting the benefit from Full Tilt’s demise as well
as the launch of cash game poker in Italy in July 2011. An
increased focus on more casual players allowed us to reduce
bonus costs to 20.5% of gross gaming revenue (2010: 23.1%)
while other revenue benefited from another strong
performance from our B2B partners in the period. The net
impact was that total revenue fell by 6%. The impact of lower
marketing spend in regulated markets meant that Clean
EBITDA margins increased to 13.8% (2010: 12.2%) and Clean
EBITDA increased by 6% to €29.4m (2010: €27.7m).
41
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Actual results
The impact of the Merger, together with the launch of cash
game poker in Italy resulted in a significant increase in gross
revenue. The impact of lower bonus rates that fell to 21.1%
of gross gaming revenue (2010: 25.5%) helped to drive net
revenue to €184.6m, a 49% increase over the prior year
(2010: €124.2m). Clean EBITDA increased by 32% to €25.5m
(2010: €19.3m) due to the increased revenues arising from
the Merger. However, margins fell from 15.4% to 13.6% due to
the lower margin on the bwin poker business and increased
gaming taxes payable on poker revenues in France
and Austria.
A summary of the key performance indicators for poker
during 2011 both on an actual and pro forma basis is shown
in the table below:
103
Poker – Key Performance Indicators
Pro forma
Actual
2011
2010
Change
2011
2010
Change
Active player days
(million)
36.7
41.2
(11%)
31.2
18.5
69%
(000s)
100.5
112.9
(11%)
85.5
50.7
69%
day (€)
5.7
5.5
4%
5.9
6.7
(12%)
New player sign-ups
(000s)
720.7
726.4
(1%)
679.8
530.4
28%
Average daily net
revenue (€000)
574.5
620.0
(7%)
505.8
341.9
48%
While overall player activity was down year-on-year with an
11% reduction in active player days and daily average players,
this reflects our focus on overall player value management
and in particular a shift in the ecology of our poker rooms.
Our shift to a weighted contributed rake calculation for
player points has helped us to rebalance the way that player
rewards are distributed, making it better for the more casual
player and reducing significantly our bonus costs. While this
impacted player activity as a number of high volume players
sought more generous offers elsewhere, the impact upon
player yields has been positive, increasing by 4% . These steps,
together with the closure of Full Tilt and the launch of Italian
cash games meant that poker remained stable in the second
half of 2011.
Liquid assets
PartyPoker is the second largest pool
of player liquidity in dotcom poker2
2
Review of 2011
42
bwin.party
Bingo
Actual results
Pro forma
Actual
2011
€million
2010
€million
Change
2011
€million
2010
€million
Change
(9%)
124.9
121.9
2%
Gross revenue
130.4
143.9
value adjustments
to revenue
(66.7)
(72.6)
8%
(66.4)
(70.5)
6%
Net revenue
63.7
71.3
(11%)
58.5
51.4
14%
(18%)
Other revenue
0.9
1.1
(18%)
0.9
1.1
Total revenue
64.6
72.4
(11%)
59.4
52.5
13%
Clean EBITDA
20.6
21.1
(2%)
19.8
15.2
30%
31.9%
29.1%
33.3%
29.0%
Clean EBITDA margin
The addition of Gioco Digitale in Italy via the Merger was
the primary driver behind the increase in both gross and net
revenue in the period. Similarly, the 30% increase in Clean
EBITDA to €19.8m (2010: €15.2m) was also primarily due to the
Merger. We expect to launch a brand new bingo brand for
Spain when the market opens later this year.
A summary of the key performance indicators for bingo
during 2011 both on an actual and pro forma basis is shown
in the table below:
Bingo – Key Performance Indicators
Pro forma
Pro forma results
The performance of our bingo business was somewhat
disappointing with a softer performance in both Italy and to a
lesser extent the UK. Gross gaming revenue declined by 9% to
€130.4m (2010: €143.9m) reflecting a more intense competitive
environment in both countries but particularly in Italy, where
a number of operators have entered the market and Gioco
Digitale’s first mover advantage has been eroded. In the UK
a number of our competitors launched aggressive marketing
campaigns in the second half that held back our financial
performance. In an effort to defend our market position in
both countries we increased bonuses as a percentage of
gross revenue to 51.2% (2010: 50.5%) and while successful
in maintaining a strong market position in both Italy
(30% market share3) as well as the UK (estimated 29% market
share4), it also meant that net revenue was impacted. Clean
EBITDA reduced marginally year on year to €20.6m (2010:
€21.1m) as the reduction in revenue was almost fully offset
by a reduction in costs.
3
Source: Italy – AAMS
Source: UK – Company estimates based on H2 Gambling Capital data
4
Active player days
(million)
Actual
2011
2010
Change
2011
2010
Change
8.5
9.2
(8%)
8.0
7.4
8%
(000s)
23.3
25.2
(8%)
21.9
20.4
7%
day (€)
7.5
7.8
(4%)
7.3
6.9
6%
New player sign-ups
(000s)
160.5
232.2
(31%)
156.6
207.7
(25%)
Average daily net
revenue (€000)
174.5
195.3
(11%)
160.3
140.8
14%
While actual player activity levels benefitted from the
inclusion of Gioco Digitale, underlying player activity was
down by 8% due to competitive pressures in each of our
major markets. Player yields also fell on a pro forma basis
reflecting increased bonus rates in an effort to hold market
share coupled with a challenging economic climate. On an
actual basis, the yield per active player day increased by 6% to
€7.3 reflecting the higher yields enjoyed by the Italian bingo
business. While average daily net revenue increased by
14% on an actual basis it fell by 11% on a pro forma basis,
reflecting the challenges faced in our two largest markets.
43
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Other revenue
Other revenue, that includes revenue from network services,
payment services to third parties, domain sales, WPT and
InterTrader was up 20% to €20.2m on a pro forma basis (2010:
€16.8m) and up 87% to €16.6m on an actual basis (2010: €8.9m).
Cost of sales
The largest element within cost of sales is gaming duties
payable in newly regulated and in some cases to-be-regulated
markets. The full year impact of gaming duties in France and
Austria together with just over seven months’ duties in Spain
saw total cost of sales increase to €69.4m on a pro forma
basis (2010: €41.9m) and to €55.7m on an actual basis (2010:
€6.9m). Other items within cost of sales include television
production costs in respect of WPT. As more markets regulate,
cost of sales and in particular gaming duties as a proportion
of total revenue can be expected to increase.
Other operating expenses
These are primarily merger and acquisition-related expenses
totalling €17.4m (2010: €11.9m) on a pro forma basis and
€12.0m (2010: €4.9m) on an actual basis. We still expect
that the total amount of pro forma merger-related and
restructuring-related costs, will be within the €50m
estimate that we gave when the Merger was announced.
To-date a total of €29.2m of merger and acquisition
related expenses and €7.8m of reorganisation costs have
been incurred.
Share buyback programme
Having commenced our share buyback programme on
6 September 2011, by 31 December the Company had
bought back 15,710,401 shares for cancellation at a total
cost, including commission of £19,915,861. Since the year end
and up to 22 March 2012, the Company had purchased for
cancellation a further 15,501,381 shares. The total number of
bwin.party shares in issue as at 22 March 2012 is 821,882,694
and the total number of voting rights in issue is 819,161,516
(total number of shares in issue minus 2,721,178 shares held
by the employee benefit trust in respect of which the voting
rights have been waived).
103
Distribution expenses
Pro forma
Actual
2011
€million
2010
€million
Change
2011
€million
and retention
148.3
172.1
14%
124.4
71.4
(74%)
69.7
64.7
(8%)
64.3
48.7
(32%)
Affiliates
2010
€million
Change
Customer bad debts
8.4
6.5
(29%)
8.0
4.6
(74%)
Third-party content
33.3
31.8
(5%)
29.6
17.6
(68%)
Webhosting and
technical services
Distribution expenses as
a % of total revenue
21.7
19.6
(11%)
19.9
16.4
(21%)
281.4
294.7
5%
246.2
158.7
(55%)
34.5%
36.2%
35.6%
44.4%
Pro forma results
Overall distribution expenses, that represent the majority
of the Group’s variable and marketing-related expenses, fell
to 34.5% of total revenue (2010: 36.2%). The absence of the
FIFA World Cup together with a more focused approach on
marketing our core brands meant that customer acquisition
and retention expenses fell year-on-year both in absolute
terms as well as a percentage of total revenue, representing
18.2% of total revenue in 2011 (2010: 21.1%). The scale of the
reduction was flattered by the fact that in 2010 we conducted
a major marketing push into the newly regulated French
market in order to secure a meaningful market position that
was not repeated in 2011. Affiliate costs increased to reach
8.5% of total revenue (2010: 7.9%) due to increased affiliate
activity around the closure of Full Tilt and Absolute Poker on
29 June 2011. Third‑party content costs such as software and
brand licensing fees increased slightly to 4.1% (2010: 3.9%) of
total revenue due to the strong growth in casino and games
revenue relative to the other product verticals. Webhosting
and technical services costs increased to 2.7% of total
revenue (2010: 2.4%) reflecting our expansion into newly
regulated markets.
Review of 2011
44
bwin.party
Actual results
Pro forma results
All distribution expenses increased in the year as a result
of the Merger. However, as a percentage of total revenue
actual distribution expenses fell to 35.6% of total revenue
(2010: 44.4%).
Transaction fees increased by 1%, in-line with the increase
in revenue and remained stable at 5.3% of total revenue
(2010: 5.2%). Staff costs remained flat in absolute terms
as inflationary pressures were fully mitigated by synergy
benefits. Outsourced services fell by 10% to €20.4m (2010:
€22.6m) due to a reduction in the number and the off-shoring
of certain technical contract staff. Other overheads have
continued to fall throughout 2011 reflecting lower expenses
incurred ahead of the launch into regulated markets in 2010
and Merger-related synergies. The net effect was that Clean
EBITDA administrative expenses fell to 32.7% of total revenue
(2010: 34.9%).
Administrative expenses
Pro forma
Transaction fees
Staff costs
Actual
2011
€million
2010
€million
Change
2011
€million
2010
€million
43.1
42.5
(1%)
37.0
18.9
(96%)
130.2
130.8
0%
110.9
57.4
(93%)
Change
Outsourced services
20.4
22.6
10%
13.6
–
n/a
Other overheads
72.9
88.5
18%
59.9
21.2
(183%)
Clean EBITDA
administrative
expenses
266.6
284.4
6%
221.4
97.5
(127%)
Depreciation
20.9
15.0
(39%)
18.9
6.4
(195%)
Amortisation
132.5
61.0
(117%)
125.6
32.8
(283%)
Impairment losses –
other intangibles
408.7
0.1
n/a
408.7
0.1
n/a
Reorganisation
expenses
6.4
0.7
(814%)
6.3
0.7
(800%)
Administrative
expenses before sharebased payments
835.1
361.2
(131%)
780.9
137.5
(468%)
12.5
17.0
26%
12.0
9.2
(30%)
Administrative
expenses
847.6
378.2
(124%)
792.9
146.7
(440%)
Clean EBITDA
administrative expenses
as a % of total revenue
32.7%
34.9%
32.0%
27.3%
Investment in additional infrastructure as part of the
integration meant that depreciation increased to 2.6% of
total revenue (2010: 1.8%). As expected, the nature of the
assets acquired under the terms of the Merger meant that
there was a large movement year-on-year related to the
amortisation charge that totalled €124.3m or 15.2% of total
revenue (2010: 6.3%). The impairment losses on intangible
assets relate to proposed changes to the regulatory and fiscal
landscape in a number of European countries, including
Germany that remains the Group’s largest market as well as
software acquired as part of the Merger, €15.3m of which was
accounted for in the first half of 2011. Reorganisation costs
increased slightly in the second half versus the first six
months of the year reflecting the completion of the
organisation blueprint. As mentioned above, total Mergerrelated transaction and reorganisation costs are still
expected to be within than the €50m originally announced.
Actual results
Network effect
A strong performance from our B2B
customers, such as PMU, helped
grow other pro forma revenue
by 20% in 2011
All administrative expenses increased due to the Merger.
The largest absolute movement year-on-year relates to
the amortisation and impairment of acquired intangibles
associated with the Merger (see note 10 to the financial
statements on page 127). The underlying year-on-year
movements are more easily explained using the pro forma
figures above.
45
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Taxation
Cashflow
The tax credit for the period is €8.2m (2010: charge of €3.6m)
reflecting an effective tax rate for Continuing operations
of 2.0% (2010: 8.2%). The tax credit is caused by deferred tax
arising from increased amortisation that is partially mitigated
by an increase in the tax rate in Gibraltar.
Actual
Net cash
Actual
Cash and cash equivalents
Short-term investments
As at
31 December
2011
€million
As at
30 June
2011
€million
289.0
193.6
39.7
3.1
Year ended
31 December
Clean EBITDA
103
2011
2010
Continuing Discontinued
Total Continuing Discontinued
Total
€million
€million
168.3
(13.1)
Exchange
differences
(4.5)
0.4
Movement in
inventory
155.2
94.2
(0.2)
94.0
(4.1)
6.1
–
6.1
(0.1)
–
(0.1)
–
–
–
Movement in
trade and other
receivables
(23.0)
2.1
(20.9)
(12.3)
–
(12.3)
Movement in
trade and other
payables
(24.8)
(19.9)
(44.7)
8.2
(22.4)
(14.2)
Loans and borrowings
(33.2)
(40.0)
Movement in
provisions
(7.3)
–
(7.3)
(0.1)
–
(0.1)
Net cash
295.5
156.7
Income taxes paid
(3.9)
–
(3.9)
(4.2)
–
(4.2)
59.3
22.2
Other
0.9
–
0.9
–
–
–
Net cash including amounts held by processors
354.8
178.9
Less: Client liabilities and progressive prize pools
(156.2)
(93.1)
Net cash including amounts held by processors less
client liabilities
198.6
85.8
Payment service providers (less chargeback provision)
Net cash inflow
(outflow) from
operating
activities premerger related
costs
105.6
(30.5)
75.1
91.9
(22.6)
69.3
Merger-related
costs
(12.0)
(0.3)
(12.3)
(4.9)
–
(4.9)
Reorganisation
costs
(6.3)
(6.3)
(0.7)
–
(0.7)
Net cash inflow
(outflow) from
operating
activities
87.3
56.5
86.3
(22.6)
63.7
Issue of
ordinary shares
1.8
–
1.8
–
(30.8)
1.0
–
1.0
Purchase of
own shares
(27.5)
–
(27.5)
–
–
–
Dividends paid
(15.0)
–
(15.0)
–
–
–
(8.6)
–
–
–
–
–
–
(6.4)
(9.2)
–
(9.2)
Repayment of
bank borrowings
Net cash acquired
Acquisitions –
deferred payment
Capital
expenditure
Purchases of
intangible assets
Purchase of
investments
Other
Net cashflow
(8.6)
156.8
(6.4)
–
2.4
–
159.2
(28.8)
(1.8)
(30.6)
(8.0)
–
(8.0)
(9.6)
(1.4)
(11.0)
(3.8)
–
(3.8)
(14.6)
(1.7)
(14.6)
–
134.6
–
–
(31.6)
(1.7)
–
–
5.8
–
5.8
103.0
71.2
(22.6)
48.6
Review of 2011
46
bwin.party
Underlying cashflow from operations remained strong.
Adjusting for merger-related expenses and reorganisation
costs that both increased versus the prior year, net cashflow
from operating activities increased to €105.3m. Working
capital movements were negative in the period primarily
reflecting $30.0m of payments due under the NPA and the
settlement of expenses associated with the Merger.
Pro forma income statement
2011
2010
Sports betting
259.7
Casino & games
262.7
241.0
Poker
209.7
226.3
Bingo
258.6
63.7
71.3
795.8
797.2
The Group’s share buyback programme began in September
2011 and by the year end €23.2m had been spent out of the
total cap of €75m to be achieved by the end of June 2012.
The Group declared a half year dividend of €15.0m that
was paid in October 2011 while investment in integration
related activities and regulated markets as well additional
infrastructure costs meant that capital expenditure
increased to €28.8m. The purchase of investments relates
primarily to investments in the Conspo joint venture and
NewGame Capital. The effect of all these movements was
that net cashflow from Continuing operations increased
to €134.6m (2010: €71.2m).
Other overheads
(72.9)
(88.5)
Clean EBITDA administrative expenses
(266.6)
(284.4)
Customer acquisition and retention
(148.3)
(172.1)
(69.7)
(64.7)
Customer bad debts
(8.4)
(6.5)
Third-party content
(33.3)
(31.8)
(21.7)
(19.6)
Clean EBITDA distribution expenses
(281.4)
(294.7)
Clean EBITDA
199.3
193.2
The decrease in trade and other payables is largely due
to the ongoing semi-annual payments relating to the
Non-Prosecution Agreement, netted against an increase
in creditors in Ongame’s B2B business.
Principal risks
Net revenue
Other revenue
20.2
16.8
Total revenue
816.0
814.0
Cost of sales
(69.4)
(41.9)
Gross profit
746.6
772.1
Other operating income
Transaction fees
Staff costs
Outsourced services
Affiliates
0.7
0.2
(43.1)
(42.5)
(130.2)
(130.8)
(20.4)
(22.6)
The principal risks facing the Group are set out on pages
55 to 57 and are unchanged from those reported in the
Group’s Annual report for the year ended 31 December 2010
and the Company’s prospectus and circular published on
23 December 2010.
Administrative expenses – amortisation
(132.5)
(61.0)
By order of the Board of Directors
Administrative expenses – depreciation
(20.9)
(15.0)
Martin Weigold
Chief Financial Officer
Administrative expenses – impairment losses
29 March 2012
Administrative expenses – reorganisation costs
Other operating expenses – exchange gains (losses)
Other operating expenses – merger and acquisition costs
Administrative expenses – share-based payments
Profit (loss) from operating activities
(4.7)
3.7
(17.4)
(11.9)
(408.7)
(0.1)
(12.5)
(17.0)
(6.4)
(0.7)
(403.8)
91.2
Net finance expenses
(2.7)
(2.2)
Share of profit losses of associate
(1.3)
(3.2)
(407.8)
85.8
Profit (loss) before tax
Tax
6.6
(0.1)
Profit (loss) after tax from Continuing operations
(401.2)
85.7
Profit (loss) after tax from Discontinued operations
(21.1)
(35.3)
Profit (loss) for the year
(422.3)
50.4
Equity holders of the parent
(419.5)
52.8
Non-controlling interests
Profit (loss) for the year
(2.8)
(2.4)
(422.3)
50.4
Markets and risks
Balanced
approach
Markets and risks
Our markets, products
and brands
48
bwin.party
Market snapshot
Spotlight on:
The global sports betting market is highly fragmented, with
a large number of privately owned companies in addition to
a few large publicly-listed operators. Excluding the US, the
global online sports betting market was estimated to be
worth €9.6bn in GGY in 2011, an increase of 6.9% on the prior
year. This growth is forecast to continue, with the market
worth an estimated €12.5bn by 2015, a CAGR of 6.8%1.
Sports betting
Key brand:
bwin
Other brands:
Gioco Digitale
betoto
Gamebookers
Success factors
Bet type:
Against the house or bookmaker
Key offer:
Odds on a broad range of sports both pre-event and ‘live’
or ‘in-running’ where punters can place a bet after the game
or event has already started
Variations:
Single bets as well as combination or accumulator bets
on multiple results and special bets on individual elements
such as ‘first goal scored’
How we make money:
Gross revenue is total amount wagered less winnings. By
offering odds that are attractive to customers, bookmakers
seek to balance the portfolio of bets taken on a particular
event so that they achieve a targeted return or ‘gross win
margin’ based on the expected outcome. By predicting the
correct result more often than not, a bookmaker can achieve
an average gross win margin of 6–8% of the total amount
wagered, depending upon the mix of live and pre-event
betting that tend to generate different returns as
summarised below
Example revenue model
Live
Pre-event
Total
Amount wagered
700
300
1,000
Typical Gross win margin
5%
15%
8%
Gross revenue
Less bonus costs
Net gaming revenue
1
35
45
80
10%
10%
10%
31
40
71
Pro forma Continuing operations – excluding unallocated corporate
2
Offering odds on a wide variety of sporting events is clearly
important but so too is scale. By having a broadly-based pool
of bets, a sports book operator is better able to manage its
portfolio of risk. Punters bet against the house and so it is
possible for the operator to lose money if it fails to set odds
correctly. But, across a wide variety of bets and events, an
operator should be able to make a positive return, or gross
win margin. The increasing popularity of live betting means
that operators also need to be able to offer an extensive
range of live bets in order to remain competitive.
Our offer
Sports betting is our second largest product vertical,
generating total revenue of €260.6m (2010: €258.6m) or 32% of
the total and Clean EBITDA of €64.3m (2010: €64.6m) 31% of the
total2. The Group’s offer is led by the bwin brand, a pioneer in
online sports betting, which today offers odds on more than
90 different sports in 22 different languages with up to 30,000
bets being placed simultaneously. We also operate a number
of smaller brands including Gamebookers and PartyBets,
which are focused on regional markets.
More than 100 bookmakers are responsible for managing our
sports offer and work around the clock to manage odds on
sports including all popular ball-related sports, US Sports and
motorsport such as Formula 1 and MotoGP. By far our most
popular sport is European football, where we offer odds on
more than 500 leagues in over 100 different countries.
As well as pre-event betting, we revolutionised the industry
in 2002 with the creation of the first live bet on bwin.com,
enabling customers to bet on sports events while they were
taking place. We now offer live multi-bets and integrate realtime streaming of audio and video coverage including all
games in the German Football Bundesliga, games from the
Spanish Liga BBVA (Primera Division), as well as the qualifiers
for the Champions League, the Europa League and the
European Championships.
49
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
€m
30
25
20
15
10
15
Sponsorship
20
Sponsorship has always been a key aspect of the Group’s
sports marketing programme and reflects our close
connection with the world of sport. Our focus is on European
football where bwin is the shirt sponsor for Real Madrid; is
a premium partner to FC Bayern Munich; and is also the title
sponsor of Italy’s second-tier football league, Serie B. Away
from football, bwin sponsors MotoGP, the International
Basketball Federation (‘FIBA’) European and World
Championships, Euroleague Basketball and Pro Padel.
25
30
€m
Mobile Sports GGR
Each of our sponsorships is subject to a continuous process
of evaluation including the impact on brand awareness and
the media value obtained. Both Real Madrid and MotoGP
have delivered outstanding media performance and brand
awareness in Spain and Italy as well as across Europe.
The total TV audience viewing figures for Real Madrid
games exceeded five billion across European markets
in 2010/2011 meaning that the bwin logo was on screen
for more than 200 hours.
International reach
We extended our sponsorship
of FIBA as well as Euroleague
Basketball in 2011
02
11
20
11
02
01
20
10
02
90
20
09
02
80
20
08
50
20
07
05
02
70
10
02
60
Having launched our first mobile product in 2001, we have
continued to innovate with the addition of dedicated mobile
apps on a range of different platforms. In 2011 we launched
an updated sports app for both of the major smartphone
platforms, Apple’s iOS and Android, bringing together both
live and pre-event betting for the first time. We also launched
a prototype browser-based product that is optimised for
tablet devices. These developments contributed to a 92%
year-on-year increase in net sports betting revenue generated
from our mobile channel. In 2012 our offer in sports betting
will be further enhanced with the launch of a new touchbased mobile portal and further optimisations to our existing
apps portfolio.
Mobile Sports GGR
20
06
Mobile
103
Markets and risks
and brands
50
bwin.party
Market snapshot
Spotlight on:
Online casinos were some of the first online gaming
sites to emerge in the mid-1990s and have been one of the
best performing segments of the online gaming sector.
Excluding the US, the global online casino market was
estimated to be worth €5.0bn of GGY in 2011, up 10.2%
versus 2010. It is forecast to reach €6.9bn by 2015, implying
a compound annual growth rate of 8.4%3.
Casino & games
Key brands:
PartyCasino
bwin
GD Casino
Bet type:
Against the house that extracts a statistical margin or ‘edge’
being a fixed percentage of the amount wagered. The edge
varies depending upon which game is being played
Key offer:
A variety of slot games, jackpot slots and traditional table
casino games such as blackjack and roulette
Variations:
Casino tournaments, raffle jackpot slots, virtual racing,
video poker
How we make money:
Gross revenue is total stakes less prizes paid out. Games pay
out randomly and therefore over short periods, revenues can
be volatile but over time will gravitate to the pre-determined
rate of return or ‘edge’. Prizes for progressive or jackpot slots
are accrued out of gross revenue
Total
Amount wagered
1,000
Gross revenue
Less bonus costs
Net gaming revenue
3%
30
15%
25
Success factors
As players play against the house, player liquidity is not
as important as in poker. However, scale does mean that
an operator is able to offer larger jackpot prizes and this
can act as a major draw for customers. Reputation is also
important as players need to be confident that games are fair
and that if they win a major prize, the operator will pay them.
Having a broad range of popular games that is continually
being refreshed with new content is another important
success factor, ensuring that players can always find a
game they want to play.
Our offer
Our online casino business has a global footprint and is
a market leader. In 2011, Casino & games generated total
revenue of €263.7m (2010: €241.0m) or 32% of the total and
Clean EBITDA of €92.3m (2010: €79.2m), 45% of the total4.
These represent an increase of 9% and 17% over the
previous year respectively.
In addition to our dotcom offer, our casino products are also
now licenced in Italy (since July 2011) where we operate under
the local Gioco Digitale brand and also in Denmark (since
January 2012) under the PartyCasino brand. Table-based
casino games are set to launch in Spain when the market
regulates during 2012.
PartyCasino is our largest brand and is the world’s largest
online casino. In casino, ‘content is king’ and the Group has
developed a unique portfolio of games including those
produced by our in-house production team such as Loot’em
Khamun, Aztec Gold and Kung Food. To supplement our own
branded content, we partnered with several Hollywood
studios and other companies to build an exclusive range
of unique slot games including The Godfather Part I, Rambo,
Terminator, Sin City, Gone With The Wind and Resident Evil.
Developing our own games is a key point of differentiation
from other operators that rely on third-party suppliers for
their content. While this differentiation is a key attraction
for customers, we also offer many well-established online slot
games licensed from third-parties such as Monopoly, Midas
Millions and Cleopatra.
3
4
51
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
As well as creating our own versions of existing games, we
continue to develop new concepts such as Circus, the first
role-playing slot game, and Raffle Jackpot which, instead of
paying out on a certain outcome, is instead guaranteed to
pay-out at a pre-determined time and date, just like a raffle.
Our mega jackpots are some of the largest and most popular
in the industry: our biggest jackpot winners include $4.5m
that was paid out on our in-house produced Melon Madness
slot. The chart opposite shows how our own games are an
increasingly important driver of our casino revenues.
The Group’s casino products are offered in both download
and instant play variants, the latter, which is the most popular
of the two options, does not require the installation of any
software onto the customer’s computer.
103
Importance of proprietary content
Trends in total amounts wagered on PartyCasino (scale removed)
%
60
50
40
30
In-house games
Third-party content
% from in-house games (RH scale)
20
0
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Sep
Oc
t
No
v
De
c
10
0
0
Jan
b
Fe
r
Ma
r
Ap
y
Ma
Jun
Jul
g
Au
Sep
t
Oc
v
No
c
De
0
10
In-house games
Third-party content
20
% from in-house games (RH scale)
30
40
VIP
Just as in the land-based casino environment, high value
players are an important feature of any online casino. As a
result, we work hard to provide excellent customer support
for our VIP players and seek to ensure that they are well
looked after and have access to a variety of benefits including
a concierge service and dedicated customer support.
Mobile casino GGR
50
€m
Trends in total amounts wagered on PartyCasino (scale removed)
3
60
%
Importance of proprietary content
2
Mobile
2
3
€m
Mobile casino
Circus
CircusGGR
Our Circus slot was the
first ever role-play slot
02
11
20
11
02
01
20
10
02
90
20
09
02
80
02
70
1
20
08
0
20
07
0
02
60
1
20
06
Similar to sports betting, the mobile channel represents an
exciting channel for future growth in our casino segment.
In 2011 we enhanced our web-based mobile casino with
the introduction of new games and through the expansion
of the number of handsets supported on the Android
platform. In 2012 we will add further titles from the
PartyCasino offer and enter new regulated markets.
The chart opposite shows the growth of revenue from
our mobile casino product since 2006.
Markets and risks
and brands
52
bwin.party
Market snapshot
Spotlight on:
Online poker is the third largest segment of the online gaming
market. Excluding the US, the global online casino market was
estimated to be worth €2.9bn of GGY in 2011, up 1.9% on 2010.
It is forecast to reach €3.6bn by 2015, implying a compound
annual growth rate of 5.7%5.
Poker
Key brand:
PartyPoker
Other brands:
bwin
GD Poker
Bet type:
Peer-to-peer
Key offer:
Texas Hold’em is the most popular variant, played in both
cash game and tournament formats. In cash games, players
directly bet their own money against each other while in
tournament play, chips are used as a virtual currency, with
a knockout format adopted where the winner is the player
who ultimately wins all of the allotted chips
Variations:
Other formats include Omaha and 7 Card Stud in both
standard and Hi/Lo versions
How we make money:
The Group does not act as principal but acts as the
facilitator of games and in cash games takes a small
commission on the amount wagered on each hand referred
to as ‘rake’. In tournaments the operator charges an entry fee
Total
Amount wagered
1,000
Gross revenue
Less bonus costs
Net gaming revenue
2%
20
18%
16
The online poker market has experienced two major shocks
over the past decade. The first was when the US enacted the
UIGEA that prompted many of the world’s largest poker
operators to withdraw from the US market. The second was
in April 2011 when the founders of three online operators
(PokerStars, Full Tilt and Absolute Poker/Ultimate Bet), were
indicted by the US Department of Justice and their dotcom
domains seized by the Federal Bureau of Investigation.
Whilst the legal proceedings against these individuals as well
as related civil actions against the companies concerned have
not yet run their course, the short-term impact prompted the
collapse of Full Tilt and Absolute Poker/Ultimate Bet that had
insufficient funds to repay their players.
While our flagship brand, PartyPoker was able to pick up
approximately 15% of Full Tilt’s active non-US player base,
by far the greatest beneficiary was PokerStars that has
consolidated its position as the world’s largest poker
operator in the dotcom market. PartyPoker remains the
second largest poker network6.
The regulation of certain markets has resulted in the
fragmentation of the global poker player liquidity pool.
In addition to the large dotcom liquidity pool, there is also a
pool of ring-fenced player liquidity in France and a separate
pool in Italy (i.e. Players in France cannot play against players
in other countries). Denmark is a recent exception to this
trend, its players being allowed to play against international
players in the dotcom liquidity pool.
While the total online poker market is expected to grow over
the next few years, given PokerStars’ size and player liquidity,
they will remain a very strong competitor. However, an
opening of the US online poker market could alter that course
as it is not expected that PokerStars or other companies that
continued to operate in the US post-UIGEA would be eligible
to participate.
Success factors
In addition to excellent software and safe and secure
payments, having sufficient player liquidity is a prerequisite
for success in online poker. It means that players can quickly
find a table to play at the stakes they want. Being able to offer
attractive tournaments and promotions are also important
for success.
5
6
53
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Since its acquisition by the Group in late 2009, WPT has
expanded its reach outside the US, hosting 22 main tour
casino events in 2011 (2010: 17) in addition to ten new smaller
events in the US (2010: 2). Now into its tenth season, WPT
programming is broadcast in over 150 countries and the
number of entrants who played in a WPT Main Tour event
increased by 33% from 2010 to 2011.
Mobile
From a relatively low base, our mobile poker offer grew
significantly in the past year, gross gaming revenue was up
by 410% following the successful introduction of dedicated
iPhone and Android apps.
Whilst our mobile poker offer is mainly on bwinPoker, we plan
to launch apps under the PartyPoker brand in 2012 as well as
develop an HTML5-based product that works across multiple
devices, channels and brands. Additionally our poker app is
currently being optimised for tablet devices and a product
launch is expected in the first half of 2012.
7
30,000
4,000
20,000
2,000
10,000
0
11
Jan
1
r1
Ap
iPoker
FullTilt (RH scale)
PartyPoker
11
Jul
12
Jan
1
t1
Oc
Ongame
PokerStars (RH scale)
Italian market share
Based on turnover
25%
15%
Source: AAMS
20%
25%
Based on turnover
Italian market share
Raising the stakes
We have approximately 15%
of the French poker market
across all networks
E
ru
bo
te
iS
las
Sis
al
Eu
ro
be
t
S
ian
10%
0
5%
5%
0
10%
Sn
ai
15%
b
iw
p.n
rta
y
20%
bw
in
.pa
rty
The World Poker Tour or ‘WPT’, while not included in our
poker segment from a financial reporting perspective, is
an important part of our overall poker offer. WPT was a major
force behind the explosive growth in the early years of online
poker, breaking new ground by televising high stakes
tournaments that proved to be a hugely popular format.
Televised coverage of poker games has soared since the WPT
enabled viewers to see each player’s cards during a game,
enhancing the broadcasting appeal of the game.
6,000
L
to
ot
m
a
it
ac
World Poker Tour
40,000
Lo
tto
m
at
ica
While PartyPoker is our global poker brand, we will continue
to operate bwinPoker due to both the strength of the bwin
brand and also the importance of cross-selling poker to
bwin’s sports betting customers. In France and Italy we
operate ‘dot.national’ PartyPoker sites. In France a large part
of our liquidity is driven through our strategic alliance with
PMU, the French horseracing giant. In Italy our largest brand is
GDPoker, part of the Gioco Digitale brand acquired by bwin in
2010. The Group’s combined market share across all platforms
in Italy is shown in the table opposite.
Average daily players
8,000
P
ko
re
tS
a
sr
Following the shutdown of Full Tilt in 2011, the Group is now
the clear number two operator in the dotcom marketplace
in terms of average daily player numbers, through our
PartyPoker brand4 (see chart opposite). This position will be
bolstered further in 2012, when we complete the migration
of bwin Poker customers onto the PartyPoker network.
In 2011 our poker segment generated total revenue of €213.0m
(2010: €227.4m) or 26% of the total and Clean EBITDA of €30.0m
(2010: €27.7m), 14% of the total7.
Poker liquidity – dotcom market
Po
ke
rS
ta
rs
Our offer
103
0
Markets and risks
and brands
54
bwin.party
Market snapshot
Spotlight on:
Bingo, our smallest product vertical, is a highly disparate and
dynamic market. Excluding the US, the global online bingo
market was estimated at €1.3bn of GGY in 2011, up 13.4% on
2011. It is forecast by H2GC to reach €1.8bn by 2015, implying
a compound annual growth rate of 8.5%.
Bingo
Key brands:
Foxy Bingo (UK)
Cheeky Bingo (UK)
Gioco Digitale (Italy)
The UK is the world’s largest single bingo market, estimated to
be worth €358.8m in 2011 (2010: €330.5m), our primary brand is
Foxy Bingo, the UK’s number one bingo site supplemented by
a number of secondary brands including Cheeky Bingo, which
targets a younger demographic. Gioco Digitale is our leading
brand in the Italian market.
Bet type:
Bingo players buy draw tickets to win an accumulated
jackpot from which the house takes a rake
Key offer:
75 and 90-ball bingo, with guaranteed and
progressive jackpots
Success factors
Like poker, player liquidity in bingo is important for long-term
success. As a pari mutual game, the more players there are
then the bigger the potential prizes on offer to customers
that itself acts as a draw for customers. The online bingo
experience has sought to replicate many of the offline bingo
characteristics including the ability for players to socialise
through online chat rooms.
Variations:
Side games include tournament bingo, team bingo
and casino games, especially slots
How we make money:
The Group takes a percentage of each virtual bingo
card sold, with the majority making up the prize fund.
Revenue on side games and casino games is statistical
gross win margin
Another important success factor and business driver for
online bingo operators are side games that are played while
the main bingo game is taking place.
Our offer
Total
Amount wagered
1,000
35%
Gross revenue
350
Less bonus costs
50%
Net gaming revenue
175
Currently our Cashcade brands remain hosted on a
third‑party platform until at least 2014. Gioco Digitale
operates on its own bespoke platform. As we move to an
integrated back-office, we will look to add bingo to our
common platform.
Growth in Global Bingo GGR (excluding US)
€m
2,000
1,500
1,000
1,500
8
2
10
E5
2
10
E4
E
02
11
2
10
E2
02
31
20
11
20
12
E
20
13
E
20
14
E
20
15
E
02
80
02
90
02
01
20
08
20
09
20
10
02
50
02
60
02
70
20
05
20
06
20
07
20
03
20
04
0
500
02
30
02
40
1,000
500
0
Our online bingo business generated total revenue of €64.6m
(2010: €72.4m) or 8% of the total and Clean EBITDA of €20.6m
(2010: €21.1m), 10% of the total8. Our primary markets
for bingo are currently the UK and Italy where we have built
leading market positions through the historical acquisitions
of Cashcade and Gioco Digitale respectively.
2,000
€m
Markets and risks
Key risks
55
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
The Merger has resulted in some changes to our key
risks but our management of risk has not changed and
reflects the previous approach adopted by both bwin
and PartyGaming of asking: What if?
Spotlight on:
Our key risks
Change in risk versus 2010
Rationale for change
Technology
Increased
Impact of the Merger and
changing systems
Regulation and compliance
Increased
Increased number of regulatory
regimes and added complexity
mitigated by greater experience from
operating in regulated markets
Taxation
Increased
Increased number of tax-paying
jurisdictions
Integration of bwin and PartyGaming
No change
Unlevel playing field in poker
Reduced
Following action by the US authorities,
the large US-facing sites are no longer
active in that market. However,
PokerStars remains a large competitor
Assessing key risks
We conduct a continuous process of Group-wide assessments
that examine whether any risk has increased, decreased or
become obsolete; identify any new risks, especially from
recent key business events; and the likelihood of a risk
occurring and what level of impact it would have on
the Group.
Following the completion of the Merger, we held eight risk
workshops across key business areas as well as for the
executive team, that included the Co-CEOs, Jim Ryan and
Norbert Teufelberger, the Chief Financial Officer, Martin
Weigold, and the Chief Operating Officer, Joachim Baca.
In addition, the Group Risk Committee, chaired by
Martin Weigold, has met twice since the Merger completed
to ensure that all strategic risks were identified and to reach
a consensus on the significant risks identified by the eight
functional workshops. These risks are then reported to the
Audit Committee for review.
The workshops also serve to impress the importance
of risk management throughout all business functions.
Facilitated by the Internal Audit & Risk Management team,
the workshops involve key people from each of the Group’s
prime functions including Technology, Marketing, each of the
product verticals, Human Resources, Operations, Finance,
Regulatory Affairs, Legal and Company Secretarial.
Many of the threats and challenges faced by online gaming
companies are similar to those faced by other leisure and
entertainment industries. They include competition,
changes to consumer tastes, maintaining healthy financial
ratios in compliance with banking covenants and loss of
key personnel.
Markets and risks
Key risks
56
bwin.party
There are also certain risks that are more specific to
bwin.party and to the online gaming industry that deserve
particular mention.
Our five main risk groups are:
• Technology
• Regulation and compliance
• Taxation
• Integration
• Unlevel playing field in poker
Technology
Technology is at the core of our business. Improving our
gaming platform and products is a never-ending and vital
process that maintains our competitive edge, keeps us
abreast of evolving consumer tastes and upholds our
valuable reputation for offering responsible, safe and
secure gaming products.
Most of our gaming technology is proprietary, which means
that we are better placed to manage risks associated with
technological and regulatory change than competitors that
rely on third-party software and systems.
However, we share the industry’s general risks that arise from
sourcing broadband and communications, data management
and storage services as well as a raft of other services from
external suppliers. We seek to offset these risks by not
becoming overly reliant on any single supplier as well as
having in place disaster recovery centres and business
continuity plans across the Group.
The Merger has prompted an increase in technology risk as
we migrate from separate platforms and systems to a single
centralised operating system, one that supports four gaming
verticals across multiple brands and territories. Other backoffice functions are also being harmonised and while less
important from a revenue perspective, this also increases
operational risk for the business. To mitigate this risk we have
planned extensively and will run appropriate tests before
switching to any new systems.
Regulation and compliance
Regulation is probably the most complex of our key risks and
managing it effectively is a critical process for the Group,
especially given the number of countries that are introducing
regulatory regimes each of which have different requirements.
Our compliance obligations range from administration of
our gaming licences in Gibraltar, Alderney, Denmark, France
and Italy to assessing what impact country-specific and
pan‑regional rules and regulations might have on our business
and the wider industry. Whilst political and cultural attitudes
towards online gaming continue to evolve, there is always a risk
that certain territories may seek to prohibit or restrict one or
more of the products that we offer or online gaming entirely.
We have a dedicated regulatory and compliance function
that reports directly to the Co-CEOs and is closely supported
by our legal and country management teams. We undergo
a series of external audits as required under our gaming
licences and also perform our own compliance assessment
process, ensuring that policies and procedures are being
followed and are working effectively.
We advocate that the best way to protect consumers is to
license and regulate online gaming with a commercially
viable framework, one in which there is a greater incentive to
be within the regulatory net than outside it. To do otherwise
serves the interests of black-market operators that are only
too happy to accept wagers from unsuspecting consumers
focused on the best returns. Through our efforts, this is a
concept that is now being grasped by several countries
around the world and particularly so in Europe where a
number of countries are actively considering developing
their own regulatory regimes.
Taxation
Taxation is the third category of risk which we believe is
material. Group companies operate for tax purposes only
where they are incorporated, domiciled or registered.
Revenues earned from customers located in a particular
jurisdiction may give rise to further taxes in that jurisdiction.
If such taxes are levied, either on the basis of existing law
or the current practice of any tax authority, or by reason of
a change in law or practice, then this may have a material
adverse effect on the amount of tax payable by the Group.
We manage these risks by considering tax as part of our
overall business planning.
57
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Integration
The process of integrating bwin and PartyGaming is
extremely complex, requiring substantial management
attention and other resources. While there can be no
guarantee that all elements of the integration will be
successful, the significant investment in planning and
preparation ahead of the Merger has proved worthwhile.
The main risks in this category are achieving financial
synergies; the loss of key personnel; and the eventual
migration of players to a single e-gaming platform. To ensure
we remain on target, a dedicated Integration Management
Office was established to, inter alia, drive and monitor
progress across each of the synergy streams as well as
identify constraints and inter-dependencies. The Board has
put in place a series of incentive plans, the details of which
can be found in the Remuneration Report, in order to ensure
that key personnel are retained. There remains a risk
associated with the migration of players to a single
technology platform, however we have put together a
detailed plan to ensure a smooth transition that will take
place during the second half of 2012 and have already
assumed a 15% player loss into our financial synergy
targets disclosed at the time of the Merger.
Unlevel playing field in poker
This risk arose principally from US-facing poker sites that
up until 15 April 2011 had enjoyed a significant competitive
advantage from the fact that they continued to accept
wagers from US-based customers, providing superior player
liquidity and cashflow that could be reinvested in European
markets. However, following the steps taken on 15 April 2011
by US authorities that resulted in the closure of the US-facing
activities of PokerStars, Full Tilt and Absolute Poker/Ultimate
Bet, this risk has now changed.
While PokerStars remains the largest operator in most
markets and a very strong competitor, the risk level has been
reduced to one of ‘strong competition’. Full Tilt Poker has
been closed since losing its gaming licence on 29 June 2011
and Absolute Poker/Ultimate Bet has also ceased trading.
On the ball
Eight risk workshops were held
across key business areas following
completion of the Merger
70
103
58
Responsibility
and relationships
bwin.party
Playing by
the rules
Responsibility
and relationships
59
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Our approach to corporate responsibility
70
103
Our focus is on the long-term returns that can be
obtained from committed investment in responsible
and sustainable business practices, particularly in
relation to our core business and our key stakeholders
including the communities where we have a
physical presence.
A core objective is to embed acting responsibility into
our business. As an industry leader, we aim to provide
the world’s safest and most innovative gaming platform,
one that is based upon customer trust, a desire for
operational excellence and supported by evidencebased scientific research.
There is no set definition for corporate responsibility, but it is
without question a complex area comprising many different
components. We draw upon both internal and external
expertise and procedures to uphold high standards. We have
invested large amounts of human and financial capital in
building the requisite trust and confidence in our products
and brands: attributes that are valuable for our franchise
and that we seek to protect.
As well as ensuring that we have a high level and independent
oversight of our corporate and responsible gaming practices,
our approach also covers wider corporate responsibility
initiatives, including our contribution to society through
charitable donations and a pro bono scheme that enables
employees to take time out from work to support local
community projects.
Martin Weigold, Chief Financial Officer, has executive
responsibility for our corporate responsibility matters, a role
he has held since 2005. The overall process is overseen by
the Ethics Committee of the Board chaired by Tim Bristow,
an Independent Non-Executive Director. The Committee has
three other Non-Executive Board members, Per Afrell, Helmut
Kern and Lord Moonie who meet regularly to review ethical
and social matters relating to all of our activities.
There is no formal requirement to have an ethics committee,
but the Board agrees that corporate responsibility is
important for the Group’s long-term success. The Ethics
Committee has a broad remit, including reviewing the
adequacy of our corporate responsibility-related policies;
proposals and procedures, which in turn include responsible
gaming, compliance with our gaming licences, anti-money
laundering, fairness and integrity of gaming systems; and
our impact on the environment and communities where we
have offices.
The remainder of this section of the Annual report provides
insight into our overall approach to each of our key
stakeholder groups.
Responsibility
and relationships
60
bwin.party
GoodCorporation
As part of our commitment to responsible and sustainable
business practice, towards the end of 2011 we commissioned
GoodCorporation to undertake an independent assessment
of our management processes and policies regarding key
stakeholders. GoodCorporation is recognised globally as
a leading organisation working in the field of corporate
responsibility and business ethics.
Assessment of 55 business practices impacting five
stakeholder groups were conducted at six of our offices.
The five stakeholder groups were employees, customers,
shareholders, community, and management. Almost 150
managers and employees were interviewed, equal to around
5% of the total workforce as well as a number of our key
external stakeholders.
For each of the stakeholder groups, the general scope of
GoodCorporation’s independent assessment involved asking:
• Does a policy exist?
• Is there a system to implement the policy?
• Do records show that the system works in practice?
• Do stakeholders agree that it works and is fair?
Given that the assessment was conducted just nine months
after the completion of our merger, during an intense period
of integration activity and regulatory change, we were
satisfied with GoodCorporation’s findings. We anticipated
that the review would identify matters that needed to be
addressed and areas where we could improve. Whilst we were
aware of most of the items identified, there were also some
additional issues raised and we plan to address these in 2012.
Not surprisingly, many of the observations made by
GoodCorporation related to unfinished integration work.
For instance, there remained some inconsistencies across
locations regarding employee contracts, policies and
procedures. Many of these have already been rectified or are
in the process of being updated. A number of issues will be
and are being resolved through improvements in both
internal communications and training.
At the positive end of the assessment spectrum, we were
commended for our approach to corporate responsibility
with GoodCorporation citing that: “The study on addiction
and plans to use this to prevent problem gambling is industryleading.” As GoodCorporation noted, our challenge now is
to convert the study on addiction into a workable model.
This will take time, but we intend to make it happen.
Our engagement with shareholders was also commended
for “setting the standards for the sector”.
The responsibility to rectify areas of weakness and also
improve what is already working well falls upon our senior
management team that has an action plan to implement
during the course of 2012.
61
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Millions of customers around the world
place their trust in our promise to provide
them with great entertainment in
a safe and secure gaming environment.
Trust is more than a fundamental
customer need: it is essential for our
long‑term success.
We seek to engrain our approach to ‘act responsibility’ into
everything we do. Our commitment to responsible gaming
is underpinned by pioneering scientific research undertaken
through our close collaboration with the Division on
Addiction, Cambridge Health Alliance, a Harvard Medical
School teaching Affiliate (‘DOA’).
Responsible gaming at bwin.party is built around three pillars:
Game fairness
Independent organisations closely monitor the fairness and
random nature of our gaming products. We design our
marketing communications to try and ensure that they are
clear and not misleading and that they present a fair gaming
offer. In addition, our in-house investigations teams and our
experienced bookmakers work together to ensure customers
are protected against fraud and manipulation. This protective
shield is reinforced by our close cooperation with the
European Sports and Security Association (‘ESSA’), an
international non-profit organisation dedicated to
promoting integrity in sports betting through the monitoring
of bookmaker odds to identify suspicious betting patterns
and report them within the framework of an early warning
system to the relevant governing sporting body.
Keeping crime and corruption out of sports helps to ensure
a level playing field for betting. The industry has developed
a co-operation programme with the European Elite Athletes
Association representing member associations from 15
countries with over 25,000 professional athletes. The result
has been a joint code of conduct to provide general advice to
all athletes throughout Europe about the issues surrounding
the integrity of sport and betting. In 2011, the code of conduct
was accompanied by a comprehensive educational campaign
carried out by top athletes in the locker room. Hearing about
the dangers of corruption in sport and betting from
fellow athletes has proven to be a powerful channel of
communication and the programme has already reached
more than 8,500 athletes.
70
103
Protection of minors and vulnerable people
The vast majority of online gamblers play in a moderate way,
purely as a means of entertainment – a claim that we can
substantiate through analysis of our own players. However,
gambling problems can arise for a small percentage of players
– a number of national prevalence studies have shown that
typically between 0.5% and 2% of populations are estimated
to gamble excessively, possibly indicating pathological
gambling. Our aim has been to understand our customers’
behaviour and to be able to develop player protection tools
based upon a solid body of scientific evidence. It was this
objective that prompted our close collaboration with the
DOA to answer some fundamentally important questions:
• How do gamers play on the internet?
• How can we make online gambling safe?
• Is it possible to create an algorithm to help identify online
players who may be at risk?
Since it began in 2005, this collaboration has resulted in the
world´s largest body of scientific evidence for online gambling
based upon actual behaviour of tens of thousands of our
customers.
The DOA has recognised the possibilities that the internet
offers, utilising precise data about each individual gaming
transaction to launch a stream of research documenting
actual online gaming behaviour and creating new
opportunities to develop safer online gaming environments.
Our gaming sites use several different verification
mechanisms to prevent underage gambling and our policies
are scientifically evaluated to protect players effectively.
Our approach to responsibility also led to the creation
of our ‘Transparency Project’ that makes available
all of the research data and studies online at:
www.thetransparencyproject.org/.
To date, the collaboration with the DOA has resulted in 16
scientific papers being published – three of them in 2011.
All research is published only after a strict peer-review
process in recognised international scientific journals.
Responsibility
and relationships
62
bwin.party
We have continued to develop an international healthcare
network to facilitate a valuable exchange of best practise and
foster scientific-based co‑operation for the prevention of
problem gambling. Two more members joined the network
in 2011 – the Federación Española de Jugadores de Azar
Rehabilitados (Spain) and the Research Clinic on Gambling
Disorders of Aarhus University Hospital (Denmark).
A prime benefit of the network, which now spans seven EU
Member States, is that customers can quickly access contact
details for counselling services in several different languages.
Other player protection mechanisms on our sites include
deposit limits, self-exclusion and tools to help them assess
whether they are at risk of developing a gambling problem.
For our employees, we enhanced our online responsible
gaming training programme in 2011. The training is called
EMERGE (Executive, Management, Employee Responsible
Gaming Education) and was developed by the DOA.
Our efforts were rewarded in 2011 by being voted
Socially Responsible Operator of the Year at the eGaming
industry awards.
Further information about all the aspects of our approach
to corporate sustainability can be accessed at:
www.bwinparty.com/Sustainability
Soon after the end of 2011, we became a founding member
of the ICT Coalition for a Safer Internet for Children and Young
People (‘ICT’). Twenty-five of the world’s leading companies
from across the information and communications technology
sector are signatories to the ICT’s principles, which aim to
ensure that children and young people obtain the greatest
benefit from new technologies while avoiding the challenges
and risks which are of concern to people worldwide. As well as
bwin.party, other ICT members include Facebook, RIM, Nokia,
Vodafone, France Telecom-Orange, LG Electronics and Google.
(See: www.gsma-documents.com/safer_mobile/ICT_
Principles.pdf)
Player security
Security is a key priority. The protection of our players,
especially their confidential data, is based upon the
requirements of our gaming licenses and also the robust
industry framework for self-regulation stipulated by the
European Gaming and Betting Association (‘EGBA’). Protecting
players also includes our compliance with the EU Money
Laundering Directive and the reporting of any suspicious
activity to the relevant authority.
Following our engagement in 2010/11 with the European
Committee for Standardisation to develop an evidencebased standard for high level player protection on the
internet, bwin.party has achieved certification for the
134 control measures contained in the resulting CWA
16259:2011 standard.
Our efforts to take player protection standards to a higher
level also involved working together with leading European
non-profit organisations that included eCOGRA, which
provides an international framework for best operational
practice, and GamCare, the UK’s leading provider of
information, advice, support and free counselling for
the prevention and treatment of problem gambling.
High standards
At the eGaming Review awards
we received the award for Socially
Responsible Operator of the year
in 2011
63
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Employees
One of the unfortunate but inevitable
consequences from a merger of equals is
the need to remove duplicate roles across
a number of disciplines. This is never an
easy process. Having determined the right
organisation structure, we then had to
select the right people for the right jobs
in the right locations.
During 2011, 122 employees were made redundant with
a further 81 due to leave during 2012. We put in place an
Employee Assistance Programme, which includes utilising
outplacement services where practicable, to help employees
whose role was being removed to find a new job outside
the Group.
Delivering the new organisation structure was of paramount
importance: it marked the beginning of our future as one
company. This was only the beginning of the process as we
still had to meld different cultures, working practices, policies,
reward schemes, training programmes and much more
besides. We made great progress during 2011, but there
are still things to do including:
• Unifying our approach to performance management,
especially learning and development and the setting
of measurable personal objectives;
• Ensuring that employees learn and benefit from bringing
together different cultures;
• Introducing a universal flexible approach to remuneration
and benefits;
• Creating a new employer brand to articulate to current and
future employees what it is like to work for bwin.party;
• Developing new employee values that enhance our business
performance; and
• Rolling out a specially-developed leadership training
programme for managers.
70
103
We believe that the investment we make in supporting
employees with their continuing career development helps
to create a sustainable approach to meet our current and
future skill requirements. It also underpins our commitment
to create a working environment that facilitates and
enhances the career development and training of all
employees. We provide employees with the time to develop
skills and learn new ones to fulfil their personal potential.
Improving our internal communications remains a key focus.
We know that a well-motivated and engaged workforce will
understand and commit to our business strategy. We make
extensive use of our intranet, strategy road shows, Town Hall
meetings, email and other information channels – channels
that are not just for managers to disseminate corporate
messages, but also for employees to feedback to
management, recognising the merits of open dialogue
that flows throughout the organisation.
What’s it like to work for us? Find out at:
www.bwinparty.com/Careers
Clear benefits
In March 2012 we launched
Just.rewards, a flexible benefits
scheme, in London and Gibraltar that
we plan to extend to all employees
Responsibility
and relationships
64
bwin.party
Suppliers
Shareholders and other providers of capital
Just a few months after the completion
of the Merger, our procurement systems
became fully integrated using a single
Enterprise Resource Planning system to
govern each stage of the supply chain.
Our approach to investor relations is to
be as transparent as possible through a
regular programme of investor relations
activities supported by transparent
financial reporting.
Our procurement team in Gibraltar oversees the entire
Group’s supply chain, adhering to policies and procedures
that have been put in place to reduce risk, develop mutually
beneficial long-term business relationships, and deliver best
value from our suppliers on a long-term basis.
The Merger combined two shareholder registers with
different balances of institutional, retail and founder
investors. Following completion there was some
readjustment of the enlarged shareholder register, in part
because a number of EU-based institutions were unable
to hold sterling-denominated investments.
We have a large and diverse supplier base. Our affiliate
network, which markets our online gaming brands, contains
more than 11,200 unique active suppliers. In 2011 we used
2,500 other suppliers for a diverse range of goods and services
including; broadband and telephony services, advertising
and marketing, computer hardware and software and media
buyers. We conducted €10.5m of trade with our largest
supplier and there were 33 other companies that were paid
over €1.5m in 2011.
Our procurement policy includes a ‘Supplier Acknowledgement
and Self-Certification Checklist’, which requests information
relating to:
• Financial strength, to ensure long-term reliability;
• Ability to deliver enduring quality and value;
• Commitment to innovation and their ability to help us
develop new products, processes and ways of working that
will give the Group a commercial advantage; and
• Commitment to a wider corporate responsibility agenda
relating to the environment, labour/employment standards,
equal opportunities and employee rights.
In return, we seek to operate to the highest professional
standards and treat our suppliers in a fair and reasonable
manner and aim to settle invoices promptly.
We aim to build and maintain strong and long-term
relationships with our investors and providers of capital
through direct access to our senior management, a high level
of financial and operational transparency, and regular
investor road shows led by Jim Ryan and Norbert Teufelberger,
Co-CEOs of bwin.party, supported by Martin Weigold, CFO and
Peter Reynolds, Director of Communications.
We raised the bar further with regards to our disclosure in
2011, largely reflecting the demands to compare and contrast
historic data and also to provide greater insight into our
business strategy as a new company.
Keeping analysts and investors informed about our
trading performance and operational developments is
also supplemented by a comprehensive investor section
on the Group’s website where investors can access the
latest consensus of analysts’ forecasts as prepared by
an independent third-party, presentations and webcasts,
share price tools and regulatory news announcements.
We know there is always room for improvement and we will
aim to progress this year through the continued development
of our corporate website www.bwinparty.com. For further
information about our significant shareholders see page 98.
65
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Environment and community
As an online business we believe that
we are a ‘low-impact’ company from an
environmental perspective, but we are
not complacent. While we are a relatively
small company in terms of numbers
of employees versus many other
corporations and produce little in the
way of corporate ‘waste’, we do consume
electricity and other basic utilities.
As an international business we also
spend money on travel and recognise
that we can continue to try and reduce
our environmental impact.
We aim to minimise energy and resource usage; support the
reduction and recycling of materials; and ensure the legal
disposal of all waste arising from the activities of the business
throughout the Group. Wherever possible, product and
materials purchased will be from sustainable sources with
an emphasis on using recycled materials.
Measures undertaken in our offices to reduce electricity
consumption include switching off air-conditioning outside
of normal office hours, using energy efficient light sources
and ensuring computer and electrical equipment is switched
off when not in use.
We maintain tight control on employee travel. All flights by
employees have to be approved by executive management.
Greater use of video conferencing facilities between offices
benefits the environment, our finances and also productivity
by reducing travel time. We do not have a company car
scheme and staff use public transport whenever possible.
As referenced above, we assess our suppliers’ commitment
to a wider corporate responsibility agenda relating to the
environment – this alignment of interests means that we can
try and make a bigger difference with regards to our impact
on the environment.
Our approach to reducing our environmental impact is not
a new one – it was a common denominator for both bwin
and PartyGaming. However, both companies differed in their
approach to community engagement, with bwin heavily
focused on advancing research in responsible gaming and
70
103
tackling gambling addiction and PartyGaming’s bias towards
greater community engagement through pro bono schemes
and charitable donations to responsible gaming organisations
and other worthy causes.
After assessing the merits of these differences, we decided
to carry on with all of them. Why not? We have made some
refinements, but we now house all of the elements under a
single corporate responsibility roof. As highlighted in the
‘Customers and responsible gaming’ section on pages 61
and 62, our industry-leading research into gambling addiction
will continue. So too will our philanthropy and community
engagement – we plan that a greater allocation of our
contribution to charities and good causes will be made
available to the pro bono scheme that we plan to roll-out
to former bwin offices in 2012. In aggregate we target
approximately 0.2% to 0.25% of the prior year’s Clean EBITDA
to be allocated for charitable and responsible gaming causes.
At least 60% of which is earmarked for gambling-related
charities such as the Gambling Research Education and
Treatment Foundation in the UK and the establishment of the
international healthcare network referred to above.
The pro bono scheme enables employees to spend
4-8 hours of Company time on charitable, community or
environmental projects so that they can enhance their
personal development whilst returning something to
our local communities. Whilst only former PartyGaming
employees participated in pro bono initiatives in 2011, we
are proud to say that a third of them took time out from
work to provide help and support for the less fortunate in
their local communities. We plan to extend the pro bono
scheme to all of our main offices by the end of 2012.
Board of Directors
66
bwin.party
1
2
3
4
5
6
1. Simon Duffy
Non-Executive Chairman
Passionate about: Cricket
2. Norbert Teufelberger
Co-Chief Executive Officer
Passionate about: Tennis
4. Joachim Baca
Chief Operating Officer
Passionate about: Skiing
5. Martin Weigold
Passionate about: Motorsport
3. Jim Ryan
Co-Chief Executive Officer
Passionate about: Poker
6. Rod Perry
Deputy Chairman and Senior Independent
Non-Executive Director
Passionate about: Rugby
bwin.party
67
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
7
10
8
11
9
12
7. Per Afrell
Independent Non-Executive Director
Passionate about: Mountain biking
8. Geoff Baldwin
Passionate about: Pool
9. Manfred Bodner
Non-Executive Chairman of the
Integration Committee
Passionate about: Kite-surfing
10.Tim Bristow
Passionate about: Chess
11.Helmut Kern
Passionate about: Golf
12.Lord Moonie
Passionate about: Shooting
13.Georg Riedl
Passionate about: Motorsport
103
13
Board of Directors
68
1 Simon Duffy (62) Non-Executive Chairman
Appointed: 31 March 2011
Last re-elected: 30 June 2011
3 Jim Ryan (50) Co-Chief Executive Officer
Appointed: 30 June 2008
Last re-elected: 7 May 2009
Background and other roles: Simon also serves as
a non‑executive director of Oger Telecom Limited
and Modern Times Group AB and as a non‑executive
Chairman of Cell C (Pty) Limited and mBlox Inc.
Previous non‑executive directorships include
Imperial Tobacco Group plc, GWR Group plc, HMV
Media Group Plc and Gartmore Plc. From 2007 until
2008 he was Executive Chairman of Tradus plc
(formerly QXL Ricardo plc). Prior to Tradus, he
was Executive Vice Chairman of ntl:Telewest Inc.
(now Virgin Media Group) having previously been
President, Chief Executive Officer and Chief
Operating Officer of ntl Inc., the major component
of Virgin Media Group. Prior to ntl, Simon was Chief
Financial Officer of Orange SA and before that Chief
Executive Officer of Denmark based wireless data
company, End2End AS. He joined End2End from
internet service provider WorldOnline International
BV, where he was Chief Executive Officer and Deputy
Chairman. Previously he had spent eight years at
EMI Group plc, where he was Group Finance Director
and Deputy Chairman, and six years at Guinness plc,
including three as Operations Director of
United Distillers.
Background and other roles: Jim joined PartyGaming
in June 2008 as CEO. Prior to joining, he was CEO of
St. Minver Limited and he has also held senior posts
at three publicly listed companies as President and
Chief Executive Officer of Excapsa Software Inc and
as Chief Financial Officer of CryptoLogic Inc. and
Chief Financial Officer of SXC Health Solutions Corp.
Educated at Brock University in Ontario, Canada,
where he obtained a business degree with first‑class
honours, Jim obtained professional qualifications as
a Chartered Accountant from the Canadian Institute
of Chartered Accountants.
2 Norbert Teufelberger (46) Co-Chief Executive Officer
Background and other roles: Norbert was the
Co-CEO of bwin Interactive Entertainment AG from
June 2001, having joined that company in September
1999 and was instrumental in drawing up the initial
business plan of bwin and the subsequent
structuring and preparation for the public listing
of bwin Interactive Entertainment AG. Norbert has
been involved in the national and international
casino and betting business since 1989. He occupied
key positions with Casinos Austria, was a consultant
to the Novomatic Group of companies and
co-founded a land based casino company currently
listed on the Nasdaq Capital Market and on the
Prime Market of the Vienna Stock Exchange.
Norbert is chairman of the Supervisory Board of the
European Gaming and Betting Association (‘EGBA’)
and held the post of non-executive director with
betbull Holding SE until he resigned at the
beginning of 2010. He holds a Masters in Business
Administration from the University of Economics
and Business Administration in Vienna.
bwin.party
4 Joachim Baca (40)
Chief Operating Officer
Background and other roles: Prior to joining
the bwin.party Board, Joachim Baca was Chief
Operations Officer for bwin Interactive
Entertainment AG from 2006, steering that business
through a period of rapid growth, as it transitioned
from being a start-up to an industry leader. He was
instrumental in consolidating operations and
leading product development, as well as overseeing
key business functions such as products and
services, technology, organisational development
and human resources. Before joining bwin in 2004
Joachim Baca had been engaged in e-commerce
business, leading various projects for Red Bull GmbH
and Marchfifteen AG.
5 Martin Weigold (46)
Appointed: April 2005
Background and other roles: Martin joined the
Company in January 2005 and was appointed to the
Board in April 2005. Prior to joining, he was the Chief
Financial Officer of Jetix Europe NV, formerly Fox
Kids Europe NV, for five years from its listing on
Euronext in 1999. Before holding this position, he
was the Vice President of Finance of Walt Disney
Television International for four years and
previously was an Assistant Director of Guinness
Mahon Development Capital for six years following
a three-year period as a management consultant
with Arthur Andersen. He holds a joint honours
degree in economics and accounting from Bristol
University and is a member of the Institute of
Chartered Accountants of England and Wales.
6 Rod Perry (66) Deputy Chairman and
Senior Independent
Appointed: 31 May 2005
Background and other roles: Rod originally joined the
Company in April 2005 and became a Non‑Executive
Director in May 2005, serving as Chairman of the
Board from 29 August 2008 to 31 March 2011. He is
Chairman of the Remuneration Committee and a
member of the Audit, Nominations and Integration
Committees. Until 2009, Rod was a non‑executive
Director at Gulf of Guinea Energy (a private Cayman
company with operations in Nigeria) and Indago
Petroleum, an AIM listed oil and gas exploration
company incorporated in Guernsey and operating in
Oman. He is also an advisor, director and member of
the investment committee at Ithmar Capital, which is
a $250 million private equity fund focused on the GCC
region from its base in Dubai. More recently he has
become a Partner in Life Africa Emerging Markets
Capital. This is a new fund which is acquiring cellular
phone operations across sub Saharan Africa. The first
company (Madamobil) has just become operational
in Madagascar. Rod had previously been an executive
director at 3i Group plc, latterly responsible for
venture capital investment activities worldwide.
He joined 3i in 1985 as an industrial adviser and
was appointed to the executive committee in 1997.
He retired from the 3i board in July 2005.
7 Per Afrell (54) Independent Non-Executive Director
Background and other roles: Per was a member of
bwin Interactive Entertainment AG’s supervisory
board from 2007 and chairman of Ongame e
solutions AB before it was acquired by bwin in 2006.
He is a founding partner in the real estate
investment group Profi Management AB and is
chairman of Profi’s two investment vehicles, Profi I
AB and Profi II AB. Per has been a member of the
Stockholm Stock Exchange Listing Committee, the
Board of the Swedish Accounting Standards
Committee and has held various management
positions in the financial industry.
69
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
8 Geoff Baldwin (47)
Appointed: 15 July 2011
Background and other roles: Geoff is an investment
banking professional with more than 24 years’
experience, including serving as a M&A generalist
in New York for five years and a technology M&A
specialist for the last 19 years, primarily in Silicon
Valley, California. He is a founder of GCA Savvian, a
global investment bank that is publicly listed on the
Tokyo Stock Exchange with dual headquarters in
Tokyo and San Francisco. In the United States, GCA
Savvian specialises in technology investment
banking and is recognised as having a leading
franchise in digital media, including social and
mobile gaming, internet advertising and
ecommerce. He currently serves on the board of
directors of GCA Savvian’s listed parent company
(GCA Savvian Group Corp.) and its European
subsidiary, is a member of the firm’s global executive
committee and is head of the firm’s M&A advisory
practice in the United States. Prior to founding GCA
Savvian, Geoff was a Managing Director in Morgan
Stanley’s mergers and acquisitions group.
9 Manfred Bodner (49) Non-Executive Chairman of the
Background and other roles: Manfred was the
Co-CEO of bwin Interactive Entertainment AG from
June 2001, having joined that company in May 1999,
where he started operations from scratch and was
responsible for marketing/sales and technology
throughout his term of service. Manfred has
occupied various management positions since 1989.
From 1989 to 1995 he was CEO of Trend Versand AG
which operated a mail order business in the
emerging markets of Eastern Europe. He was one of
the two founding partners of the company, and he
built and ran its technology and the marketing sales
department. The company was founded in Hungary
in 1989 and quickly expanded into Poland, the Czech
Republic and Slovakia. In 1995 he moved to the
executive board of the Eastern European holding
company of Neckermann Handels AG based in
Vienna, and he remained in this position until 1998.
In 1998 he co-founded Eastern Press AG a publishing
house providing subscription services in Hungary,
Poland and the Czech Republic. In 1997 Manfred
started the gastronomy group Bar Italia GmbH.
70
103
10 Tim Bristow (56) Independent Non-Executive Director
Appointed: 4 May 2007
Last re-elected: 29 April 2010
12
Lord Moonie (65) Independent Non-Executive Director
Appointed: 13 December 2007
Last re-elected: 29 April 2010
Background and other roles: Tim became
an Independent Non-Executive Director of
PartyGaming in May 2007 and is Chairman of
the Ethics Committee. He is the Chief Executive
Officer of Gibtelecom, Gibraltar’s primary
telecommunications provider. His other
directorships have included subsidiaries
of the Northumbrian Water Group, Verizon
Communications and British Telecom, and he is
currently on the Board of Tradewise Insurance.
Tim was a former Financial and Development
Secretary of Gibraltar and before that a director
at the National Audit Office in London, where he
trained as an accountant after graduating and
was the Private Secretary to the UK Comptroller
and Auditor General.
Background and other roles: Lewis joined
PartyGaming in December 2007 and served as the
Senior Independent Director between August 2008
and March 2011. He has previously chaired the
Remuneration Committee and the Audit Committee.
Before being made a Life Peer he was the UK Member
of Parliament for Kirkcaldy between 1987 and 2005.
He held the position of Under Secretary for State at
the Ministry of Defence between January 2000 and
June 2003. Before becoming an MP, Lewis studied
medicine and was a consultant in public health
medicine, a senior medical adviser and clinical
pharmacologist in the pharmaceutical industry.
11 Helmut Kern (46) Independent Non-Executive Director
Background and other roles: Prior to his
appointment Helmut had served on bwin’s
supervisory board since 2004. Helmut is owner
and CEO of Beyond Consulting GmbH and Beyond
Holding GmbH and until October 2011 he was
also Head of Consulting Austria with
PricewaterhouseCoopers. Previously, he also acted
as Global Partner of Deloitte Consulting and was
CEO of an Austrian Private Foundation (DFGJ
Privatstiftung) and interim director of Wellcon
Gesellschaft für Prävention und Arbeitsmedizin
GmbH. Helmut Kern holds a Master in Business
Administration (‘Magister’) from the University of
Economics and Business Administration in Vienna
and has completed an Executive Leadership
Development Program at Columbia University, N.Y.
13 Georg Riedl (52)
Background and other roles: Georg served as a
member of bwin’s supervisory board from 2005.
He is a lawyer with the Riedl law firm in Vienna.
He has sat on the boards of Österreichische Salinen
AG and group companies, AT&S Austria Technologie
& System technik AG, paysafecard.com Wertkarten
AG and Wiesenthal & Co AG and bwin Services AG
(now bwin.party services (Austria) GmbH). Georg is
also a director of Androsh Privatstifung, a large
bwin.party shareholder.
Key to Committees
Audit Committee member
Integration Committee member
Nominations Committee member
Remuneration Committee member
Ethics Committee member
Governance
70
bwin.party
Good corporate governance has become a necessary condition for
sustainable success in business. The purpose of this section of the Annual
report is to demonstrate how the Board oversees the interests of the
Company through its operating structure and to review bwin.party’s
compliance with the UK Corporate Governance Code (the ‘Code’).
This chapter comprises the following sections:
A.Leadership
Board structure
The bwin.party digital
entertainment plc Board
Audit Committee
A Leadership
Ethics Committee
B How the Board functions
C Effectiveness
D Relations with shareholders
E Audit Committee Report
F Ethics Committee Report
G Integration Committee Report
Executive Directors
Nominations Committee
Senior Management Team
Remuneration Committee
H Nominations Committee Report
I Remuneration Report
J Other Governance & Statutory Disclosures and the 2012 AGM
While being strongly committed to good governance, the Company has
undergone considerable change in the recent past and consequently did
not comply with the Code in all respects during the reporting period.
In particular, it did not comply in the following areas:
The composition of the Board during 2011 and to date is set out on page 71.
Biographies of the current Directors are set out on pages 68 and 69 .
1 Less than half the Board are determined to be independent.
This matter is addressed below on page 71.
During 2011 the following changes to the Board occurred:
2 The membership of the Audit Committee. However this was rectified
on 31 March 2011 with the completion of the merger with bwin
(see page 75).
3 The membership of the Remuneration Committee. However this was
rectified on 31 March 2011 with the completion of the merger with
bwin (see page 81).
4 In relation to various legacy share plans:
a) the performance-related elements of certain Executive Directors’
remuneration (see page 91);
b) executive share options being offered at a discount (see page 91);
and
c) certain Non-Executive Directors holding share options
(see page 91)
The explanations for these deviations and the actions that have already
been taken or will be taken in an appropriate timeframe to remedy them
are set out in this section.
Simon Duffy
Chairman
29 March 2012
Changes during 2011
• On completion of the merger with bwin on 31 March 2011, Simon Duffy,
Norbert Teufelberger, Joachim Baca, Per Afrell, Manfred Bodner, Helmut
Kern and Georg Riedl were appointed Directors on 31 March 2011.
• R
ami Lerner stepped down as a Director and was replaced by Geoff
Baldwin on 15 July 2011.
Simon Duffy succeeded Rod Perry as Chairman on 31 March 2011 and
Rod Perry became the Deputy Chairman and Senior Independent
Director, having been independent when originally appointed to the
Board. Having served on the Board for six years, following a review of his
independence by the Nominations Committee, Rod Perry was re‑elected
as a Director at the 2011 AGM.
The Chairman, Co-CEOs and Senior Independent Director
The responsibilities of the Chairman and the Co-CEOs are clearly defined
and are summarised below:
Chairman
• Overseeing the effective running of the Board
• Ensuring that the Board as a whole plays a full and constructive part
in the development and determination of the Company’s strategy and
overall commercial objectives
• Acting as the guardian of the Board’s decision-making process
• Promoting the highest standards of integrity, probity and corporate
governance throughout the Company and particularly at Board level
71
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Co-CEOs
• Running the Company’s business
• Proposing and developing the Company’s strategy and overall
commercial objectives, which they do in close consultation with
the Chairman and the Board
• Responsible, with the executive team, for implementing the decisions
of the Board and its Committees
• Promoting, and conducting the affairs of the Company with, the
highest standards of integrity, probity and corporate governance
Senior Independent Director
As well as performing the normal duties expected of a Non-Executive
Director, the Senior Independent Director is required to:
• B
e available to shareholders if they have concerns which contact
through the Chairman, Co-CEOs or CFO has failed to resolve or for
which contact is inappropriate;
• L ead the Non-Executive Directors in evaluating the performance
of the Chairman, taking into account the views of the
Executive Directors;
• Maintain sufficient contact with shareholders to understand their
issues and concerns; and
• Perform such other roles and responsibilities as the Senior
Independent Director as may be contemplated by the Code or best
practice guidelines in place from time to time.
Board independence
The Code recommends that at least half the members of a Board
(excluding the Chairman) should be Non-Executive Directors who are
independent in character and judgement and free from relationships
or circumstances which are likely to affect, or could appear to affect,
their judgement.
During 2011 the Company has not complied with this recommendation.
Prior to the completion of the merger with bwin on 31 March 2011, the
Board was served by two independent Non-Executive Directors (Lewis
Moonie and Tim Bristow), three non-independent Directors (Jim Ryan,
Martin Weigold and Rami Lerner) and the Chairman of the of the Board
(Rod Perry). A project to increase the number of independent Directors
was instigated in 2010, but following the announcement of the proposed
merger with bwin this recruitment exercise was suspended.
Currently, excluding the Chairman, the Board is composed of five
independent Non-Executive Directors (Rod Perry, Per Afrell, Tim Bristow,
Helmut Kern and Lewis Moonie) and seven non-independent Directors
(Joachim Baca, Geoff Baldwin, Manfred Bodner, Georg Riedl, Jim Ryan,
Norbert Teufelberger and Martin Weigold). As part of the merger
negotiations, both the bwin and PartyGaming boards agreed a balanced
management structure was in the best interests of the combined Group,
drawing upon the considerable management strength and experience
of both organisations. The combined experience and knowledge of the
bwin.party Board, coupled with continuity of leadership, have been
critical to the initial stages of integrating the bwin and PartyGaming
online gaming businesses, whilst also guiding the Group to focus on
new business opportunities.
70
103
Despite the technical imbalance of independent and non-independent
Directors, the Board is satisfied that it has maintained a sufficient
degree of independence for the following reasons:
• On the majority of business items considered by the Board, a nonindependent Non-Executive Director is independent, because the
interests of the relevant founder shareholders and the Company
do not conflict
• On issues when the interests of the Company and interests of a
founder shareholder may conflict, mechanisms in the relationship
agreement and/or letters of appointment for the non-independent
Non-Executive Director allow the independent Directors to exclude
them from the decision-making process
• The independent Directors have not been and will not be in a minority
to the Executive Directors
• The Chairman of the Board was independent on appointment
• The Board had the appropriate balance of skills and experience
to manage the imbalance appropriately
The Company stated in the Merger prospectus and circular that if the
composition of the Board remained non-compliant with the Code’s
independence recommendation on 31 December 2011, the composition
of the Board would be changed by the appointment of two additional
independent Directors to ensure compliance. For the reasons given
above, the Board and in particular the independent Directors believe for
the time-being sufficient independence exists to ensure the Board can
operate effectively and in the best interests of shareholders as a whole.
Furthermore, with 13 members the Board is already larger than the
boards of most comparable companies. Therefore, rather than choosing
to increase the size of the Board to comply with the Code’s independence
criteria, which would have resulted in an unwieldy board of 15, the Board
is going through a thorough Board performance evaluation using a
third-party (see page 74) with the aim of reviewing how well the Board
and its committees are operating and what improvements could be
made to ensure it has the right experience and knowledge to lead
the Company once the merger integration is complete. A statement
regarding changes to the composition of the Board will be made
later in 2012.
The Board has also considered the review of Lord Davies of Abersoch
entitled ‘Women on Boards’, published in 2011, which requested FTSE
350 companies to set out aims for percentages of women serving on
boards. Gender diversity on the Board will be an important factor the
Nominations Committee will take into account when considering any
new candidates to join the Board. However, gender is only one of a
number of issues that the Nominations Committee must consider and
the Directors will always regard a candidate’s experience, knowledge
and skills as critical selection drivers. bwin.party will aim to appoint at
least one woman to the Board by the end of 2013, with at least two
women serving on the Board by 2015. Over that period the Board will
also be reduced in size so that the percentage of women on the Board
will be greater than it would be if it remained at its present size.
Governance
72
bwin.party
B. How the Board functions
Responsibility and delegation
In accordance with the Code, the Company is headed by an effective
Board, which is collectively responsible for the success of the Company.
The Board provides entrepreneurial leadership of the Company whilst
ensuring that a framework of prudent and effective controls exists in
order to assess and manage risk.
The Directors have adopted a formal schedule of matters reserved to
the Board, setting out which issues must be referred to the Board for
decision. These can be categorised into a number of key areas including
but not limited to:
Meetings
• Restructuring or reorganisation of the Group and material
acquisitions and disposals;
The Board and its committees met in Gibraltar throughout 2011
and details of the number of meetings and attendance records are
set out in the table overleaf. The agenda of Board meetings usually
cover the following:
• Long-term business plan, strategy, budgets and forecasts;
• The Group’s finance, banking and capital structure arrangements;
• Approval of capital expenditure and financial guarantees above
certain levels;
• Strategy, covering both the existing real-money gaming business
(poker, sports, casino and bingo) as well as adjacent businesses such
as social gaming, monetised digital gaming and payment systems
• Financial reporting (interim and annual financial results and interim
management statements);
• Geographical expansion
• Shareholder circulars, convening shareholder meetings and stock
exchange announcements;
• Operational and business performance updates
• Financial updates
• Regulatory and licensing developments
• Industry consolidation opportunities
In order to ensure that the Board has an appropriate level of knowledge
about the operations of the business and to enable it to assess the
calibre of management below Executive Director level, members of the
senior management team are regularly invited to attend meetings to
present on and take part in discussions on particular items of business.
Following the independent assessment of the functioning of the Board,
the Chairman will meet with the Non-Executive Directors individually
to review governance issues. The Senior Independent Director has met
with the Non-Executive Directors as part of the process of reviewing the
performance of the Chairman and has communicated the results of that
meeting to him. He will take account of the feedback in his future
management of the Board and of governance issues.
• Dividend policy;
• Approval of the Group’s remuneration policy (following
recommendations from the Remuneration Committee);
• Approval of the Group’s risk management and control framework and
the appointment/re-appointment of the external auditors (following
recommendations from the Audit Committee); and
• Approval of the Group’s policies in relation to corporate and social
responsibility, health and safety and the environment
73
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
In addition, the Board has adopted a formal delegation of authority memorandum which sets out the level of authority for employees of the business
below Board level.
The Board has delegated certain responsibilities to the following committees of Directors:
Audit
Committee
Ethics
Committee
Integration
Committee
Nominations
Committee
Remuneration
Committee
Helmut Kern (C)
Tim Bristow
Rod Perry
Tim Bristow (C)
Per Afrell
Helmut Kern
Lewis Moonie
Manfred Bodner (C)
Simon Duffy
Rod Perry
Jim Ryan
Simon Duffy (C)
Per Afrell
Rod Perry
Rod Perry (C)
Per Afrell
Helmut Kern
Lewis Moonie
(C) denotes Chairman of the committee
Each committee reports separately on its work on the following pages.
During the year the Board and its committees met in Gibraltar and details of the number of meetings and attendance records are set out in the
table below:
Total number of meetings held during the year ended 31 December 2011 and the number of
meetings attended of the maximum number that each Director was entitled to attend
Total held in year
Board
Audit
Committee
Ethics
Committee
Integration
Committee
Nominations
Committee
Remuneration
Committee
7
5
3
4
2
6
Per Afrell
5/5
–
2/2
–
1/1
4/4
Joachim Baca
5/5
–
–
–
–
–
Geoff Baldwin
3/3
–
–
–
–
–
Manfred Bodner
4/5 (i)
–
–
4/4
1/1
2/2
Tim Bristow
7/7
5/5
3/3
–
2/2
–
Simon Duffy
5/5
–
–
4/4
1/1
–
Helmut Kern
4/5(ii)
4/4
2/2
–
1/1
4/4
Rami Lerner
4/4
–
1/1
4/4
1/1
–
Lewis Moonie
5/7(iii)
1/1
3/3
–
2/2
6/6
Rod Perry
7/7
4/4
1/1
4/4
2/2
6/6
Georg Riedl
5/5
–
–
–
1/1
–
Jim Ryan
7/7
–
–
4/4
2/2
–
5/5
–
–
4/4
1/1
–
Martin Weigold
7/7
–
–
–
–
–
(i) Manfred Bodner was absent from a meeting whilst on business in the United States representing the Company’s interests
(ii) Helmut Kern was absent from one meeting through illness
(iii) Lewis Moonie was absent in person from two meetings, because one meeting was convened in Gibraltar at short notice and in respect of the other meeting he had
to remain in the United Kingdom to attend an important vote in the House of Lords. For both meetings he attended by telephone, however, the Company’s articles
of association provide that any Director present by telephone from the United Kingdom cannot be regarded as present for the purposes of ascertaining a quorum
Governance
74
bwin.party
Internal controls
In accordance with the Code, the Board has reviewed, with assistance
from the Audit Committee, the effectiveness of the Company’s risk
management and internal control systems put in place to manage the
risks attaching to the business in pursuing its strategic objectives. This
review covers all material controls, including financial, operational and
compliance controls. The Board is satisfied that the Company maintains
an ongoing sound system for identifying, evaluating and managing risk.
For more information on this subject please see the Audit Committee
report on page 76.
Tenure
The Company’s articles of association require every new Director to
stand for re-election by shareholders at the next AGM immediately
following their appointment. Thereafter each Director is required to
seek re-election by shareholders at an AGM at least once every three
years. The Code, however, recommends that Directors stand for
re‑election annually and in accordance with this recommendation,
all the Directors are seeking re-appointment at the 2012 AGM.
The tenure of the current Board is as follows:
Number
of Directors
Period
of service
8
Less than 12 months
1
3–4 years
2
4–5 years
2
6–7 years
Succession
The Nominations Committee keeps under review the succession plans
for Directors and senior managers. In doing so, the Nominations
Committee focuses on whether the Board is appropriately diverse with
a range of generalist and specialist knowledge and skills. For further
information please refer to the Nominations Committee report.
ensuring Board procedures are complied with and advising the Board
through the Chairman, on all governance matters.
Independent legal advice
The Board has adopted a procedure for Directors to seek independent
professional advice at the expense of the Company if they judge it
necessary to discharge their responsibilities as Directors. Each
Committee of the Board also has authority under its terms of reference
to obtain outside legal or other independent professional advice if the
Committee considers it necessary in order to perform its duties.
Induction and ongoing training
Each new Director receives a full induction on joining the Board
and major Shareholders are offered the opportunity to meet new
Non‑Executive Directors. The Chairman ensures that all Directors
continually update their skills, knowledge and familiarity with the
Company to fulfil their roles on the Board and Board Committees
via reports and information collated by management, the Company
Secretary and the Company’s advisers.
Performance evaluation
Each year the Directors undertake a formal evaluation of the
performance of the Board, its Committees and of individual Directors
during the prior year. The evaluation of 2010’s performance (carried
out in early 2011) resulted in a review of the content and format of
management’s reports to the Board and a decision to increase the
frequency of presentations by senior managers to Board meetings.
Each year the Board has utilised the services of a third-party corporate
governance consultancy to assist in the evaluation process. Even though
the Board has existed in its present form for less than a year, for the
review of 2011’s performance, carried out in early 2012, the Board
decided to use the services of Lintstock Limited, a third-party corporate
governance adviser, to carry out a full questionnaire and interview
process. More information on the performance evaluation process is
set out in the Nominations Committee’s report on page 79.
Insurance and indemnity
D.Relations with Shareholders
bwin.party maintains an insurance policy for its Directors and
officers and the Company has also entered into deeds of indemnity
with its Directors.
The Directors recognise the importance of maintaining effective
communications with shareholders. This is serviced in the
following ways:
C. Effectiveness
Information flow to the Directors
• Throughout the year the Co-CEOs, Chairman and Director of
Communications meet with existing and potential institutional
investors
The Chairman oversees, with the assistance of the Company Secretary,
the process of ensuring that all Directors receive timely and accurate
information in order to enable them to perform their duties.
Management provides detailed information ahead of each Board or
Committee meeting and additional information or updates between
meetings when deemed necessary.
• All Directors attend the Annual General Meeting and shareholders are
invited to attend and ask questions either during or after the meeting.
Notice of the AGM is set out on page 158 of this document and details
of the meeting are set out on pages 100 and 101. In accordance with
the Code, the AGM notice has been dispatched to shareholders more
than 20 working days before the AGM
Each Executive Director is readily available to the Non-Executive
Directors if the latter should need clarification or amplification on any
information provided. All the Directors have access to the advice and
services of the Company Secretary, who is responsible to the Board for
• The corporate website contains useful information for all
shareholders on the Company’s strategy, financial results,
share price and announcements
Governance
Audit Committee
Report
75
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
• Founder shareholders of both bwin and PartyGaming (holding
in aggregate 22% of bwin.party’s share capital) have Board
representatives which facilitates a productive dialogue with
these investors
• Meet with the external auditors post-audit at the reporting stage to
discuss the audit, including problems and reservations arising from
the audit, and any matters the auditor may wish to discuss (in the
absence of management, where appropriate);
• Maintaining good communications with the investment analyst
community so that there exists a portfolio of research on the
business. This also allows the Company to understand how
it is being perceived by the investor community generally
• Make recommendations to the Board concerning any proposed,
new or amended accounting policy;
E. Audit Committee Report
Purpose
The Board is required by the Code to establish formal and transparent
arrangements for considering how it should apply the required financial
reporting and internal control principles and for maintaining an
appropriate relationship with the Company’s joint auditors, BDO LLP
and BDO Limited.
Membership
The Board has done this by appointing an Audit Committee.
The members of the Audit Committee are:
• Helmut Kern (Chairman)
• Monitor and review the internal audit programme and its
effectiveness;
• Ensure co-ordination between the officers responsible for internal
audit and the external auditors, and that the internal audit function
is adequately resourced and has appropriate standing within
bwin.party;
• Consider any major audit recommendations and the major findings
of internal investigations and management’s response (in the
absence of management, where appropriate);
• Monitor and review bwin.party’s systems for internal control,
financial reporting and risk management; and
• Reviewing the individual internal audit reports covering various areas
and activities of the business
• Tim Bristow
Business during the year
• Rod Perry
During the year to 31 December 2011, the Audit Committee met five
times to review and consider the following items of business:
Helmut Kern has recent and relevant financial experience and was
appointed to the Audit Committee with effect from 31 March 2011.
From 1 January 2011 to 31 March 2011 Lewis Moonie chaired the Audit
Committee and Tim Bristow was regarded as the member with relevant
financial experience.
The Code recommends that a minimum of three independent directors
should serve on the Audit Committee. From 1 January 2011 to 31 March
2011 the Company was not compliant with this recommendation,
because there were only two independent Directors serving on the
Board. Since 31 March 2011 the Audit Committee has complied with
the Code in having three independent Directors.
Responsibilities
The Audit Committee has adopted terms of reference, approved by
the Board that are available on the Company’s website: http://www.
bwinparty.com/AboutUs/CorporateGovernance/AuditCommittee.aspx.
In summary the main responsibilities of the Audit Committee are to:
• Consider and make recommendations to the Board as regards the
appointment of the head of the internal audit function and also the
external auditors as well as the re-appointment of the latter;
• Recommend the audit fee to the Board and develop and recommend
to the Board bwin.party’s policy in relation to the provision of nonaudit services by the external auditor;
• Monitor the integrity of the financial statements of bwin.party and
any formal announcements relating to the Company’s financial
performance and to review, and challenge where necessary, the
actions and judgements of management in relation to the half-year
and annual financial statements before submission to the Board;
February:
– 2010 Annual report
– The external auditors’ report and the required letter of representation
from the Company
– The non-audit services provided by the external auditors
– The re-appointment of the external auditors at the 2011 AGM
– The internal audit status report
April:
– The external audit process post-merger
– The internal audit and risk management functions post-merger
June:
– External auditors’ management letters
– The external auditors’ 2011 planning report and engagement letter
– The level of non-audit services provided by the external auditors
– Latest internal audit status report
– Internal audit charter
– Risk management status report
August:
– External auditors’ half year review relating to the 2011 half year
results and the required letter of representation from bwin.party
– Review of the 2011 half year results
– The Company’s functional currency
– Latest internal audit status report
– Five-year internal audit plan and universe
– Update for treasury management policy and currency risk review
Governance
Audit Committee
Report
76
bwin.party
December:
– Group risk register
– Latest internal audit status report and ongoing projects
– Follow-up in respect of the management letter arising from the
last audit
– Updated code of conduct and whistle-blowing policy
– Updated report from the external auditors on their plans for auditing
the 2011 annual financial results
– Company balance sheet restructuring
At these meetings, members met with management and with the
internal and external auditors. The Audit Committee members also met
privately with the external auditors and separately with the internal
audit function, without management representatives present.
Through these meetings and review process the Audit Committee has
satisfied itself that proper and satisfactory internal control systems
remain in place to identify and contain business risks and that the
integrity of the Company’s financial reporting is sound. In doing so the
Audit Committee continues to exercise its authority to seek any
information it requires from any employee of the Company.
In 2012, the Audit Committee has met once to review and recommend
the approval of the 2011 full year results and the 2011 Annual Report.
Risk management and effective internal controls
The section, ‘Key risks’ on pages 55 to 57 of the Annual report sets out the
main risks impacting the Group’s business.
bwin.party maintains a robust system of internal control for the purpose
of safeguarding the investment of shareholders in the Company and the
Group’s assets. At least annually the Board conducts a review of the
effectiveness of the Group’s system of internal controls, covering all
material controls, including financial, operational and compliance
controls and risk management systems. bwin.party’s system of internal
control reduces the probability that business risks might impede the
Company in achieving its objectives, but it cannot eliminate these risks
and can therefore provide only reasonable, not absolute, assurance
against material misstatement or loss.
The Group has an internal audit department, which also carries out the
Company’s risk management monitoring. During the year, management
identified the risks attaching to the business and, on an ongoing basis,
efforts are being taken to mitigate these risks. Throughout the year
bwin.party’s internal auditors performed internal audits of offices and
departments within the business to assess whether adequate internal
controls are in place to protect the Group, its employees and
shareholders. The internal audit reports are presented to the Audit
Committee and the Head of Internal Audit meets regularly with the Audit
Committee as well as Chairman of the Audit Committee, to whom he has
direct access.
In accordance with the guidance contained in the Turnbull Report, the
Board, with the assistance of the Audit Committee, has completed its
annual review of the effectiveness of the internal system of control,
and is satisfied that it is in accordance with that guidance.
The Group continues to adopt and publicise a formal ‘whistleblowing’
procedure by which employees can, in confidence, raise concerns about
possible improprieties in financial or other matters. This procedure is set
out in the Group’s employee handbooks and has been reviewed by the
Audit Committee. The Audit Committee is satisfied that arrangements
are in place for the proportionate and independent investigation of such
matters and for appropriate follow-up action.
External Auditors
During the year ended 31 December 2011, BDO LLP was appointed under
an engagement letter to act as auditors to enable the Company to meet
its obligations to prepare financial statements in accordance with the
Listing Rules. For the purposes of filing the Company’s financial
statements in Gibraltar, BDO LLP and BDO Limited have been appointed
to act as joint auditors to allow an audit report to be issued under
section 10 of the Gibraltar Companies (Accounts) Act 1999.
In accordance with its duties, the Audit Committee made
recommendations to the Board on the appointment of the external
auditors, approved their remuneration (both subject to Shareholder
approval) and also approved their terms of engagement. The Audit
Committee has also established a policy regarding the appointment of
auditors to perform non-audit services for the Group and will keep this
under continual review. This policy dictates that in the Company’s
financial year, the total fees for non-audit services provided by the
external auditors, excluding non-audit fees for due diligence for
acquisitions and other specific matters noted below, should not
exceed the total fees for audit services they provide. In the year
ended 31 December 2011, the proportion of total non-audit fees
to total audit fees paid to the external auditors was 0.09:1.0.
In addition to their statutory duties, BDO LLP is also employed where,
as a result of their position as auditors or for their specific expertise,
they either must, or the Audit Committee accepts they are best placed
to, perform the work in question. This is primarily work in relation to
matters such as shareholder circulars, Group borrowings, regulatory
filings and certain business acquisitions and disposals. In such
circumstances the Audit Committee will separately review the specific
service requirements and consider any impact on objectivity and
independence of the auditors and any appropriate safeguards to this.
As such the Audit Committee believes it appropriate for these non-audit
services to be excluded from the 1:1 ratio set out above. In the year
ended 31 December 2011 the total fees paid to the external auditors
in respect of due diligence for acquisitions was €0.17 million.
Helmut Kern
Chairman of the Audit Committee
29 March 2012
Governance
Ethics Committee
Report
77
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
F. Ethics Committee Report
Purpose
During 2011 the Ethics Committee met three times to review and
consider the following business items:
The Board believes that the way in which the Group behaves and
interacts with its stakeholders is key to the Group’s long-term success
and development. Reflecting the importance the Group places on
corporate and social responsibility (‘CSR’), the Board has appointed an
Ethics Committee, despite there being no requirement to do so under
the Code.
Membership
The members of the Ethics Committee are:
•
•
•
•
T im Bristow (Chairman)
Per Afrell
Helmut Kern
Lewis Moonie
Rami Lerner and Rod Perry were members until 31 March 2011.
Responsibilities
The Ethics Committee has adopted terms of reference, approved by
the Board that are available on the Company’s website: http://www.
bwinparty.com/AboutUs/CorporateGovernance/EthicsCommittee.aspx.
In summary, the main responsibilities of the Ethics Committee are to
ensure that the Group has policies and effective controls regarding
the following:
• Responsible gaming including the prevention of underage or problem
gambling;
• Compliance with the gaming licenses held by the Company or any
of its subsidiaries;
• Gambling licence probity matters;
• Anti-money laundering;
February:
– CSR disclosures in the 2010 annual report
– Update reports from the Head of Regulatory Compliance and the
Anti‑Money Laundering Officer
– eCOGRA audit results
– Charitable donations made by the Group in 2010 and proposed
for 2011
– The Committee’s work in 2010 and its terms of reference
June:
– 2011 proposed charitable donations following the Merger
– Structure of regulatory affairs department
– Reports from the Head of Regulatory Compliance and the Anti-Money
Laundering Officer
– CSR review and proposed strategy for the Group post-Merger
– UK Bribery Act and updates to the anti-bribery policy and procedures
– 2010 charitable donations
December:
– Updated probity policy
– Reports from the Head of Regulatory Compliance and the Anti-Money
Laundering Officer
– CSR report
– Sports betting integrity and regulation
– 2012 CSR budget and proposed charitable donations
– GoodCorporation review
In 2012 the Ethics Committee has met once to consider the CSR
disclosures in the 2011 annual report and receive reports from the
Head of Regulatory Compliance, the Anti-Money Laundering Officer,
GoodCorporation and to approve the proposed charitable donations
for 2012.
• The fairness and integrity of the Company’s gaming systems and the
process for managing any challenges to the fairness and/or integrity
of these systems;
The Group’s approach to CSR and related issues is included in the
section of the Annual report on ‘Responsibility and relationships’
on pages 58 to 65.
• Privacy and data protection;
Tim Bristow
Chairman of the Ethics Committee
29 March 2012
• Employment matters relating to codes of conduct and health
and safety;
• Charitable donations and investment in the local community;
• The Company’s suppliers and service providers; and
• The Company’s impact on the environment
From a day-to-day management perspective, the Chief Financial Officer
has executive responsibility for CSR matters and he is invited to attend
Ethics Committee meetings. The Co‑CEOs attend meetings from time
to time.
70
103
Governance
Report
78
bwin.party
G.Integration Committee Report
Purpose
As many corporate mergers experience significant challenges in
achieving their objectives, the Board wanted to ensure sufficient
oversight was given to bringing about the delivery of economic
synergies and effective exploitation of the combined PartyGaming and
bwin assets. The purpose of the Integration Committee is to oversee
bwin.party’s Merger integration plan and ensure it is implemented
effectively in a timely manner.
• Making recommendations to the Board regarding any decisions
about the gaming platforms to be used by the Group or the software
rationalisation process, including any decisions relating to the
disposal of platforms and software;
• Ensuring that any product branding, cultural or employee morale
issues arising from the Merger are effectively addressed and resolved
by management; and
• Monitoring communication of the progress of the integration process
to employees, shareholders, governments, regulators and any other
stakeholders and making recommendations to the Board accordingly
Membership
The Integration Committee was established on 31 March 2011 and its
members are:
During 2011 the Integration Committee met four times to review and
consider the following business items:
•
•
•
•
•
April:
– Integration plan and timetable
– Management structure and headcount
– Sale of surplus assets
– Integration budget and synergies
Manfred Bodner (Chairman)
Simon Duffy
Rod Perry
Jim Ryan
The Chief Financial Officer and Chief Operating Officer have also been
invited to attend and participate in Integration Committee meetings.
Responsibilities
The Integration Committee has adopted terms of reference, approved
by the Board that are available on the Company’s website: http://www.
bwinparty.com/AboutUs/CorporateGovernance/IntegrationCommittee.
aspx. In summary, the main responsibilities of the Integration
Committee are to ensure that the Group has effective controls and
policies regarding the following:
• O
versight of the preparations and implementation in a timely manner
of an effective plan across the Group to integrate the businesses of
bwin and PartyGaming;
• Ensuring that the integration plan complements and supports the
Group’s rolling business strategy;
• Resolving any management disputes over any element of the
integration process;
• Reviewing and making recommendations to the Board regarding any
material investment management proposes making in order to
facilitate the integration plan;
• In consultation with the Company’s Audit Committee, overseeing
that at all times the Group has in place the necessary management
structure and staffing resource across all functions to continue to
effectively manage the risks attaching to the Group’s business
relating to integration matters;
• Making recommendations to the Board regarding the sale of any of
the Group’s material assets or businesses regarded by management
as redundant following the Merger;
June:
– Update on integration process and tracking
– Employee headcount
– Updated synergy forecasts
August:
– Update on integration process
– Technology and software resources and location
– Impact of new gaming licenses on the integration process
December:
– Status of integration projects
– Synergy status update
– Integration project resource and capacity
– Remaining 2011 projects
In 2012 the Integration Committee has met once to review the status
of the integration projects and the latest forecast synergies.
Manfred Bodner
Chairman of the Integration Committee
29 March 2012
Governance
Nominations Committee
Report
79
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
H.Nominations Committee Report
Purpose
The Board has adopted a formal, rigorous and transparent procedure
for the appointment of new Directors to the Board by appointing a
Nominations Committee to lead the process of appointment and make
recommendations to the Board. The Nominations Committee also
advises the Board on its structure, size, composition and matters of
Director and senior management succession.
Membership
The members of the Nominations Committee are or have been:
• Simon Duffy (Chairman) (appointed 31 March 2011)
• Per Afrell (appointed 31 March 2011)
• Rod Perry
• Manfred Bodner (from 31 March 2011 to 15 March 2012)
• Tim Bristow (until 15 March 2012)
• Helmut Kern (from 31 March 2011 to 15 March 2012)
• Lewis Moonie (until 15 March 2012)
• Georg Riedl (from 31 March 2011 to 15 March 2012)
• Jim Ryan (until 15 March 2012)
• Norbert Teufelberger (from 31 March 2011 to 15 March 2012)
From 1 January 2011 to 31 March 2011, Rod Perry chaired the
Nominations Committee and Rami Lerner was a member.
Responsibilities
The Nominations Committee has adopted terms of reference,
approved by the Board that are available on the Company’s website:
http://www.bwinparty.com/AboutUs/CorporateGovernance/
NominationsCommittee.aspx. In summary, the main responsibilities
of the Nominations Committee are to:
• Regularly review the structure, size and composition (including the
skills, knowledge and experience) required of the Board compared
to its current position and make recommendations to the Board with
regard to any adjustments that are deemed necessary;
• Give full consideration to succession planning for Directors and other
senior management in the course of its work, taking into account the
challenges and opportunities facing the Company, and what skills and
expertise are needed on the Board in the future;
• B
e responsible for identifying and nominating candidates for the
approval of the Board, to fill Board vacancies as and when they arise;
and
• Make recommendations to the Board concerning the re‑appointment
by shareholders of any Director.
During 2011 the Nominations Committee met twice to deal with the
following business:
70
103
February:
– Agree the recommendation for the re-appointment of certain
Directors at the 2011 AGM
– Review the Committee’s work and its terms of reference
December:
– Review the Board’s composition, size, independence and diversity
The composition and size of the Board changed significantly in March
2011 following the completion of the Merger. The Board has functioned
well and effectively in overseeing the Merger integration process as
demonstrated by the fact that bwin.party is now forecasting larger
synergy savings than forecast when the Merger was originally proposed.
The Nominations Committee, however, is mindful of both the Board’s
size and the independence issue, as well as of the need to ensure it has
an appropriate balance of skills and experience. Consequently,
as disclosed on page 74, in 2012 the Board has undergone a detailed
performance evaluation with Lintstock Limited, an experienced
third‑party corporate governance adviser. The aim of this exercise has
been to review how well the Board and its committees are operating
and what improvements can be made to ensure the experience and
knowledge of the Board are appropriate to lead bwin.party beyond
the Merger integration stage. This process required each Director to
answer a series of questions on the performance of the Board, the
Chairman, individuals and committees and was followed up by each
Director being interviewed by Lintstock’s consultants. The results will
be presented to the Nominations Committee and the Board once the
Chairman has discussed the conclusions of the review with each
Director individually. Thereafter the Nominations Committee will agree
what recommendations to make regarding the Board’s composition.
Terms of appointment
The letters of appointment for each of the Non-Executive Directors
do not specify a fixed term of appointment. The Board has resolved,
however, that if any Non-Executive Director remains in office for a
period of six years, having satisfied annual performance evaluations and
been re appointed by shareholders at an AGM at least twice, then that
Non-Executive Director’s re-appointment will be subject to a review by
the Nominations Committee and Board, both bodies taking into account
the need to maintain an active and progressive Board. The Board does
not expect that any Non-Executive Director will serve for a period of
greater than nine years.
The Code recommends that notice or contract periods for Directors
should be set at one year or less. As disclosed in the Remuneration
Report on pages 93 and 94, the notice periods for all the Directors
comply with this recommendation.
The letters of appointment for the Non-Executive Directors and the
service agreements for the Executive Directors will be available for
inspection 30 minutes prior to and during the AGM.
Simon Duffy
Chairman of the Nominations Committee
29 March 2012
Governance
Directors’ Remuneration
Report
80
bwin.party
I. Directors’ Remuneration Report
Unaudited
Introduction
Purpose of the Committee
bwin.party continues to operate in a dynamic and challenging
environment and it remains a core objective of the Group’s
remuneration policy to provide competitive remuneration packages
that support the business and its strategic goals, by recruiting and
retaining high calibre individuals. It is essential that these individuals
have the necessary skills and entrepreneurial drive to grow this fast
moving business and ensure bwin.party continues to be a leader in
digital entertainment.
The Board has appointed the Remuneration Committee to oversee
the remuneration policy and practices adopted by the Group. The
Committee’s terms of reference are available on bwin.party’s website,
http://www.bwinparty.com/AboutUs/CorporateGovernance/
RemunerationCommittee.aspx.
The Merger has been a time of significant change for employees and has
raised retention challenges for the business. Simultaneously, the United
States looks increasingly likely to introduce regulated online poker
which, while a welcome business growth opportunity for bwin.party,
creates additional employee retention issues, as US and other operators
seek to build up their online gaming teams and look to bwin.party as a
valuable source of knowledgeable and experienced staff. Despite these
challenges, the remuneration policy, based on the new equity plans
introduced in 2011, continues to attract, incentivise and retain the
experienced online gaming experts and entrepreneurs who are key
to bwin.party’s success.
The Remuneration Committee regularly reviews the Company’s risk
policy against the operation of the Company’s incentive plans to ensure
that their operation is consistent with this policy. The Committee
believes that the opportunities within the incentive arrangements are
warranted by the challenges set out above and that these arrangements
encourage the sustainable long-term value of the Company.
This report has been prepared on behalf of the Board in accordance
with Schedule 8 of the Large and Medium‑sized Companies and Groups
(Accounts and Reports) Regulations 2008 (the ‘Regulations’). The report
also meets the relevant requirements of the Listing Rules of the
Financial Services Authority and describes how the Board has applied
the principles and complied with the provisions of the UK Corporate
Governance Code relating to Directors’ remuneration. An advisory
resolution to approve the report will be proposed at the Company’s
Annual General Meeting on 7 June 2012.
The key objectives of the remuneration policy are to:
• Establish competitive remuneration terms that allow the Group
to recruit, retain and incentivise the most talented managers;
• Promote the achievement of bwin.party’s rolling three-year business
strategy through the provision of appropriate targets that stretch
and motivate employees to deliver on the strategic objectives;
• Ensure effective risk management and sustainable performance
is encouraged through reward; and
• Ensure senior executive remuneration is aligned with the interests
of bwin.party’s shareholders and other stakeholders
The Committee’s main responsibilities are:
• A
gree the remuneration policy for the Chairman of the Board,
Executive Directors, Company Secretary and senior executives
(together the ‘Senior Officers’) and review regularly the ongoing
appropriateness and relevance of the remuneration policy;
• Ensure the remuneration policy provides for individuals to receive
appropriate remuneration and incentives to encourage enhanced
performance and to be rewarded, in a fair and responsible manner,
for their individual contributions to the success of the Group;
• Review annually the total individual remuneration package of the
Senior Officers;
• Liaise with the Nominations Committee to ensure that the
remuneration of any newly appointed Senior Officer is within the
Company’s overall remuneration policy;
• S
et and monitor performance criteria for any bonus arrangements
for the Senior Officers and the framework of the bonus structure for
staff generally;
The auditors are required to report on the ‘auditable’ part of this report
and to state whether, in their opinion, that part of the report has been
properly prepared in accordance with the Directors’ Remuneration
Report Regulations 2002. BDO LLP and BDO Limited have audited the
sections headed ‘Summary of the long-term incentive plans’ and
‘Total emoluments overview’ to the extent they are required to
do so by the Regulations.
• A
pprove the length and terms of all service contracts and the
appointment letter for the Board Chairman and Executive Directors;
Rod Perry
Chairman of the Remuneration Committee
29 March 2012
• Approve the terms of termination of the Chairman of the Board or any
Executive Director and ensure such terms are fair and reasonable and
not excessive, that failure is not rewarded and that the duty to
mitigate loss is fully recognised
• R
eview and approve the introduction of new share option and share
award schemes, set or recommend the performance criteria for
awards, determine each year whether awards will be made and the
overall amount of the awards and approve any awards proposed for
Senior Officers; and
81
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Membership
The members of the Remuneration Committee are all independent
Non‑Executive Directors:
During 2011 the Remuneration Committee met six times to review and
consider the following items of business:
• Rod Perry (Chairman from 31 March 2011)
February:
– Approve the 2010 senior management bonuses
– Set the 2011 performance formula for the Bonus Banking Plan
– Set the 2011 performance formula for the Bonus & Shares Plan
– Determine the extent outstanding awards under the Executive Share
Option Plan and Performance Share Plan have met their performance
objectives
– Review the proposed Directors’ Remuneration Report for the year
ended 31 December 2010
• Tim Bristow (until 31 March 2011)
• Per Afrell (appointed 31 March 2011)
• Helmut Kern (appointed 31 March 2011)
• Lewis Moonie (Chairman until 31 March 2011)
Advisers
PricewaterhouseCoopers LLP (‘PwC’) in London provides guidance
to the Remuneration Committee on remuneration trends, short and
long‑term incentives and general market remuneration developments.
PwC was appointed by the Committee following a tender process
in mid-2010 in which a number of potential advisers participated.
A separate department of PwC provided an internal audit review of
bwin.party’s marketing function during 2011, however this work was
completely unrelated to and segregated from the work performed by
PwC’s remuneration consultancy and in the Remuneration Committee’s
view did not undermine their independence. Whilst Helmut Kern was
a management consultant partner with PwC in Austria until October
2011, he was not a Director when PwC were appointed and took no part
in any decision regarding their continued appointment. His function
with PwC Austria was completely independent of and segregated from
the work performed by PwC’s remuneration team in London.
The Company Secretary is the secretary to the Remuneration
Committee.
In performing its duties during the year, the Remuneration Committee
consulted with the Chairman of the Board, the Group Human Resources
Director, the Co-CEOs and the CFO. The Remuneration Committee
ensured, however, that no individual was involved in any decisions
about their own remuneration.
April:
– Set the 2011 financial and individual objectives for the Bonus
Banking Plan
– Considered setting the initial price of the Value Creation Plan and
allocation of the participation rights in any Value Creation Plan pool
of value
– Set the 2011 financial objectives for the Bonus & Shares Plan.
– Agreed an amendment to the terms of the share awards granted
to key Cashcade employees
June:
– Further review of the 2011 personal objectives set for the Co-CEOs
to ensure in practice they were complimentary and remained
appropriate
– Reviewed shareholder feedback from the setting of the initial price
for the Value Creation Plan
August:
– Agreed the remuneration of the new Group Director of Poker
– Agreed the remuneration of the new Group Director of Bingo
December:
– Advised by PwC on current market remuneration trends
– Reviewed the Group’s remuneration policy
– Met with PwC without management representatives present
– Reviewed the remuneration consultants
Governance
Report
82
bwin.party
Remuneration policy
The Group’s remuneration policy continues to be to provide marketcompetitive total remuneration packages enabling the business to
recruit and retain high calibre entrepreneurs required to drive the future
growth and performance of its business. The online gaming sector
continues to be a highly competitive and dynamic environment and
the following key factors are taken into account:
– The nature of the market in which the Group operates and, in
particular, the fact that the regulation and legality of online gaming
varies from jurisdiction to jurisdiction, is subject to uncertainties and
may be impacted by adverse changes to regulation of online gaming
or the interpretation of regulation by regulators;
– The need for incentive arrangements to incorporate suitable
risk adjustment provisions to ensure executives do not receive
unjustified windfalls;
– The need to attract and retain key talent and drive high performance;
– Increasing regulation impacting the Group’s margins due to
additional cost of compliance and taxation;
– The requirement for the Executive Directors and certain senior
executives to relocate and discharge all of their responsibilities
from Gibraltar;
– The opening of the US online gambling market under a federal or state
licensing regime, together with the timing of such a development,
may have a substantial impact on the Group’s financial and share
price performance. The remuneration policy has to be flexible and
durable enough to accommodate these changes without becoming
compromised; and
– The need to reconcile UK corporate governance guidance with
market remuneration practices in all jurisdictions where the Group
has employees
In this context particular focus is placed on providing a share-based
remuneration package appealing to entrepreneurial and innovative
executives. The current share-based awards were designed in 2010 and
introduced in 2011 following the completion of the Merger and aim to
take account of the risks associated with the online gaming business
and seek to address the following:
– Long-term incentives with standard three-year performance periods
are difficult to use to motivate and retain senior executives due to the
fast moving nature of the market;
– Comparative total shareholder return targets are inappropriate as
even direct industry comparators have a different focus on the
various gaming verticals and different risk exposure;
– Incentives need to be flexible enough to deal with the changing
regulatory environment in which the Group operates; and
– The remuneration challenge for the Group is to have remuneration
arrangements in place where part of the reward provided to senior
executives is linked to shareholder return and is not completely
undermined by the risk factors impacting the sector and the Group
As a result of the above considerations, the Group has adopted a highly
leveraged incentive policy to ensure that the profile of the remuneration
on offer is supportive of the Group’s business strategy and the effect of
legislative changes. In conjunction with this approach, the policy adopts
comparatively modest elements for the fixed elements of the total
remuneration package, with generally lower to median quartile salaries,
minimal benefits and no pension provision.
Comparator groups
The Remuneration Committee has adopted a combination of the
following comparator groups to benchmark its remuneration:
(i) Companies in the FTSE 250 Index;
(ii)Companies in the FTSE 51–100;
(iii) A bespoke comparator group of the following international companies:
888 Holdings
ASOS
Betsson AB
Boyd Gaming Corporation
Concur Techs
Cybersource
Digital River
E*Trade Financial
Expedia
Fortinet
IAC/Interactivecorp
International Game Technology
Ladbrokes
Las Vegas Sands
MGM Resorts Intl.
Moneysupermarket.Com Grp
Monster Worldwide
NCR
Net Entertainment Ne AB
Opentable
Paddy Power
Playtech
Rank Group
Rightmove
Sportingbet
Unibet
Verisign
William Hill
WMS Industries
Yell Group
83
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
The following table summarises the Remuneration Committee’s policy for each element of the remuneration package against the previous comparators:
Base salary
Bonus
Pension
Benefits in kind
Potential total
short-term
remuneration available
Lower Quartile to
Median
Upper
Quartile
None
Lower
Quartile
Median to
Upper Quartile
This supports the performance based culture of the Company. Fixed costs are minimised and total
short‑term remuneration will only reach and exceed the median if the performance-based bonus is earned
for the relevant financial year. In certain circumstances, the Remuneration Committee will, at its discretion,
set base salary outside of policy in order to secure the recruitment and retention of the appropriate
individual for the role. In such cases the Committee will take into account factors such as the individual’s
skills and level of experience.
Potential annual
share awards
Potential total
compensation value
Upper
Quartile
Median to
Upper Quartile
The policy in respect of long-term incentives and
potential compensation value is an extension
of the policy on total short term remuneration.
Executive Directors will only receive a market
competitive package if the annual bonus and longterm incentives are earned.
The charts on page 84 show the on target and maximum compensation for each of the Executive Directors based on the following assumptions for 2012:
Assumption
On Target
Maximum
Salary
Salary
Salary
Benefits
Benefits
Benefits
Bonus
50% of Maximum
Contribution
100% of Maximum
Contribution
Fair Value of
VCP Award at Grant
50% of the
Fair Value
100% of the
Fair Value
The Committee also considers corporate performance on environmental, social and governance (‘ESG’) issues when setting the remuneration
of Executive Directors and senior managers, ensuring these good practice objectives are appropriately addressed in each individual’s objectives.
The Remuneration Committee also reviews whether incentive structures may raise ESG risks by inadvertently motivating irresponsible behaviour
and is of the view that this is not the case with the current incentive structures.
Governance
Report
84
Jim Ryan (Co-CEO) Target
bwin.party
Jim Ryan (Co-CEO) Maximum
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Norbert Teufelberger (Co-CEO) Target
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Norbert Teufelberger (Co-CEO) Maximum
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Joachim Baca (COO) Maximum
Joachim Baca (COO) Target
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Martin Weigold (CFO) Target
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Martin Weigold (CFO) Maximum
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
Salary
Benefits
Bonus Banking Plan
VCP (Fair Value)
85
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Remuneration components
a. Salaries
Policy – Lower Quartile to Median of Comparator Groups
2011
Basic Salary
2012
Basic Salary
Percentage
Increase
Jim Ryan Co-CEO
£500,000
£500,000
0.0
Norbert Teufelberger Co-CEO
£500,000
£500,000
0.0
Joachim Baca COO
£428,500
£446,000
4.1
Martin Weigold CFO
£428,500
£446,000
4.1
Name & Role
When determining the base salary of the Executive Directors the
Committee takes into consideration:
• The levels of base salary for similar positions with comparable
status, responsibility and skills in organisations of broadly similar
size and complexity;
• The performance of the individual Executive Director;
• The individual Executive Director’s experience and responsibilities;
and
c. Pensions
Policy – No pension provision
During 2011 there was no company pension scheme in Gibraltar. In April
2012 the Group is introducing a flexible benefits programme and this will
provide the option for employees to contribute to a company provided
pension, with a modest contribution by the employing entity of 1% of
salary if the employee contributes at least 3% of their salary.
d. Incentives
• Pay and conditions throughout the Company. The Committee has
access to pay and conditions of other employees within the Group
when determining remuneration for the Executive Directors and also
considered the relationship between general changes to pay and
conditions within the Group as a whole. The general increase in
salaries across the Group was 3 to 4%
(Bonus and long-term incentives)
The Committee uses comparisons with caution to avoid increasing
remuneration levels without a corresponding improvement
in performance.
During 2011 the Executive Directors participated in the Bonus Banking
Plan and Value Creation Plan, which were both introduced in 2011 in
conjunction with the Merger and following extensive shareholder
consultation and a binding vote at the extraordinary general meeting
of the Company’s shareholders on 28 January 2011.
b. Benefits
Policy – Lower Quartile of Comparator Groups
Benefits only include private medical insurance, permanent health
insurance and life assurance. In line with the remuneration policy the
level of fixed costs incurred as part of the executive remuneration
package has been set at the minimum level. Details of the monetary
values attributable to these benefits for 2011 are set out in the
emoluments table on page 95.
Policy – Upper Quartile of Comparator Groups
The incentive plans remain a core element of the remuneration policy in
incentivising and retaining executives and aligning their interests with
those of bwin.party’s shareholders.
(i) Bonus Banking Plan (‘BBP’)
The key features of the BBP are:
• In 2011, at the beginning of the plan period of three financial years,
participants were given a plan account to which contributions will
be made
• No contribution is be made to a participant’s plan account unless the
performance criteria are met
• Each participant has a maximum annual contribution as a percentage
of salary, set out in the table overleaf, which provides the following
total cash opportunities for the Executive Directors
Governance
Report
86
bwin.party
Maximum annual
contribution as a %
of basic salary
Company Total Cash
(including value of
deferred share
element under the
BBP)
£000’s
Jim Ryan Co-CEO
300
1,500
300
1,500
Joachim Baca COO
250
1,071
Martin Weigold CFO
250
1,071
150–200
236–690
Name / Role
Top tier senior managers
* Total Cash is base salary plus targeted levels of bonus. It should be noted that under the BBP 50% of the element earned is deferred in shares.
• The Remuneration Committee sets the performance criteria for each
plan year. The performance criteria are as follows:
The Remuneration Committee believes that the BBP is appropriate and
supports the remuneration policy for the following reasons:
– a minimum threshold level of Clean EBITDA for each financial year
is required for there to be any payment under the BBP;
(i) the BBP provides flexibility for the Remuneration Committee to set
annual targets mitigating against some of the risks of the sector;
– assuming the threshold is met a percentage of Clean EBITDA
is used to create the bonus pool;
(ii) the use of strategic key performance indicators as additional
conditions for payments to be made under the BBP allows a more
holistic, flexible and durable approach rather than focusing purely
on a relatively narrow set of financial metrics;
– a participant’s annual payment from the bonus pool is also
subject to the satisfaction of additional individual performance
objectives;
– where the forfeit threshold Clean EBITDA is not achieved 50%
of the deferred balance in a participant’s plan account will be
forfeited; and
• Participants are entitled to an annual payment of 50% of their plan
account at the end of each plan year. All balances are deferred into
shares. On the fourth anniversary of the start of the plan period
(1 January 2014) the remainder of the balance of participants’ plan
accounts will be paid
(iii)it ensures that any objectives based on integration and synergy
savings from the Merger are underpinned by profit performance
before any bonus is earned;
(iv)the minimum performance thresholds ensure that key executives are
encouraged to focus on sustainable long‑term performance; and
(v) the deferral in shares and the real risk of forfeiture through
claw‑back ensure a balance between the interests of shareholders
and key executives
87
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
2011 Outcomes
The following table sets out the Clean EBITDA targets for 2011 and their level of satisfaction:
Clean EBITDA
Threshold
Clean EBITDA
on Target
Clean EBITDA
Maximum
€161.9m
€202.4m
€242.9m
2.4%
3.8%
3.2%
Clean EBITDA
%age of Clean EBITDA
credited to the Bonus Pool
Value of Contribution
to the Bonus Pool
€199.3m
3.8%
€7.67m
EBITDA
% of EBITDA credited
to the Bonus Pool
2011 Outcomes
€m
2011 EBITDA
Clean EBITDA Maximum
Clean EBITDA on Target
Clean EBITDA Threshold
0
50
100
150
200
250
In addition, the Remuneration Committee has reviewed the performance of the Executive Directors and senior executives against their personal
objectives set for 2011. The objectives for the COO, CFO and senior executives were set by the Co-CEOs, whilst the objectives for the Co-CEOs were set
by the Chairman. All the personal objectives were reviewed and approved by the Remuneration Committee at the beginning of 2011 before being
rolled out.
The 2011 objectives included:
Co-CEOs
COO
CFO
– Oversee the delivery of the integration plan
and forecast synergies
– Manage the process of capturing the
forecast synergies
– Implement strategic plans to exploit new or related
business channels
– Manage the form and delivery of the Group’s
products and services
– Oversee the combined Group’s profit and
loss account and budget and financial tracking
and control
– Embed innovation into the Group’s strategy
– Oversee the optimisation of software development
and IT operations
– Identify and enter into new strategic partnerships
– Implement the tactical plan to re-enter the US online – Align the bwin and PartyGaming processes
–E
nable quick and effective entry into newly
poker market when it becomes regulated
regulated markets
– Implement tactical plans relating to new markets
and Group culture
– Enhance the Group’s payment processing operation
– Improve the customer experience
– Integrate the bwin financial systems with
those of PartyGaming
– Conduct a budgeting exercise for the
combined Group
– Track and oversee the realisation of the
Merger synergies
– Support the strategic decision‑making process
Governance
Report
88
bwin.party
As a result of this review process, the Remuneration Committee has determined that the Executive Directors are entitled to the following
contributions in respect of 2011:
Deferred
shares/
Value
Total
value
% of
Basic
salary
Name/Role
Cash
payment
Jim Ryan Co-CEO
£453,125
327,095
£453,125
£906,250
181
£453,125
327,095
£453,125
£906,250
181
Joachim Baca COO
£319,813
230,862
£319,813
£639,626
149
Martin Weigold CFO
£320,486
231,348
£320,486
£640,972
150
* Number of shares calculated using the average share price for the 30-day measurement period to 31 December 2011, which was 138.53 pence.
The following chart shows the actual Company contribution to the plan accounts for the Executive Directors for 2011 compared to their maximum
annual contribution:
%
Jim Ryan (Co-CEO)
(Co-CEO)
Joachim Baca (COO)
Martin Weigold (CFO)
0
50
100
150
200
250
300
Maximum Contribution (% of Salary)
Actual Bonus Contribution (% of Salary)
2012 maximum annual contribution and performance targets
The Company 2012 maximum annual contribution for Executive Directors participating in the BBP is the same as the levels set for 2011.
For 2012 the Remuneration Committee has again set the minimum threshold for a payment under the BBP. This is not disclosed in this report
because the information is commercially sensitive, but will be disclosed in the 2012 Directors’ Remuneration Report (using the format set out above).
The personal objectives for the Executive Directors and senior executives have also been set and agreed by the Remuneration Committee.
89
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
(ii) Value Creation Plan (‘VCP’)
The key features of the VCP are:
• Under the VCP, participants have been allocated a number of VCP
points from a total pot and the Executive Directors have received
the following:
Name
Number of
VCP Points
% of VCP Pool
Jim Ryan
1,000,000
10
1,000,000
10
Joachim Baca
1,000,000
10
Martin Weigold
1,000,000
10
200,000 – 400,000
2-4
Top-tier senior manager
• T hese VCP points have no value on grant but give the participants
the opportunity, during the three‑year performance period, to share
in 4% of the total value created for shareholders in excess of an annual
hurdle of 10% share price growth from the initial share price at annual
measurement points
• The annual hurdle will be the higher of:
– 10% compounded annually from the initial price; and
– the average share price at the start of the relevant year (or
previous measurement date if this is higher than at the start of
the relevant year); and
• T he value to each participant will be set by reference to the number
of VCP points held in proportion to the total VCP points allocated and
will be delivered in shares
• The initial price for determining the level of value required to be
generated in 2011 was 151.52 pence
• The size of the VCP Pool is not capped
The VCP fits with the Group’s remuneration policy because:
• At each measurement date participants will bank shares (in the
form of a nil-cost option) with a value equivalent to the excess value
created using the prevailing share price. 50% of any banked shares
will become exercisable at the end of year 3 (2013), with the remainder
at the end of year 4 (2014)
• The level of value created for shareholders will be determined by
reference to the appreciation in the Company’s share price, the
amount of dividends paid and any share buybacks (absolute total
shareholder return)
• The shareholder value created at each measurement date will be
calculated using the average share price over the 30 day period prior
to the relevant measurement date
Share price on measurement date is 138.53 pence
10% p.a.
10% p.a.
Year 1
Threshold
Price
166.67 pence
Year 1 (2011)
Year 2
Threshold
Price
183.34 pence
Year 2 (2012)
Depends on the
outcome at the
end
of Year 2;
however
minimum
Threshold Price
would be
201.67 pence
Year 3 (2013)
– it incentivises participants to focus on building shareholder value;
– key executives will only benefit from material increases in absolute
total shareholder return ensuring a direct alignment between the
benefits received and value to shareholders; and
– the annual banking of shares under the VCP results in an immediate
shareholding which because of the restrictions on disposal provides
an ongoing exposure to the share price of the Company, encourages
decisions maintaining and enhancing shareholder value
The average share price for the 30-day period to 31 December 2011
was 138.53 pence. With an initial price of 151.52 pence the share price
had to reach a minimum of 166.67 pence before a VCP pool was created
and therefore there are no awards to be granted under the VCP in
respect of 2011.
The price at which a VCP pool will begin to be created in respect of 2012
is if the average share price for the 30-day period to 31 December 2012
is 183.34 pence.
Governance
Report
90
bwin.party
Total remuneration
Policy – median to upper quartile of comparator groups
The Remuneration Committee’s policy is to set the potential total
remuneration at the median to upper quartile of the comparator groups.
The level of total remuneration actually received will be dependent on
the level of bonus earned under the BBP and the shares awarded under
the VCP.
The table below shows for each of the Executive Directors the following
information:
• the total remuneration payable under the Company’s remuneration
policy against the comparators. Total remuneration consists of:
– base salary
– on target bonus
– fair value of long-term incentives
– pension contributions
• the actual total remuneration provided by the Company for 2011
Average of Comparators
Company
Policy Level
£000’s
Median
£000’s
Upper Quartile
£000’s
Company
2011 Actual
£000’s
Jim Ryan
Co-CEO
2,101
1,980
2,831
1,406
Co-CEO
2,101
1,980
2,831
1,406
Joachim Baca
COO
1,772
1,037
1,445
748
Martin Weigold
CFO
1,772
1,077
1,475
749
Name
Other share plans
In addition to the above plans, the Company also operates the following
plans some of which the Directors do or may participate in:
bwin.party Global Share Plan (Current Plan)
(All bwin.party employees including Executive Directors)
Under the Global Share Plan launched in 2011 following the Merger
participants are able to purchase a maximum of £1,500 shares annually.
Subject to retaining these purchased shares for three years and
continued employment, the Company can provide a matching share for
each employee share purchased. Participants, excluding the Executive
Directors, may also be awarded a nil-cost option (no cost on grant and
no strike price) or restricted bwin.party stock up to a value of £25,000 per
annum (Executive Directors can only be granted an award up to £3,000
in value per annum). These discretionary free share awards generally do
not have any performance conditions and vest over a three-year period.
New shares are used to satisfy free share awards, whilst shares are
purchased in the market in respect of the purchased share and
matching share programme.
bwin.party Bonus & Shares Plan (Current Plan)
(bwin.party mid to senior management excluding those in the VCP
and BBP)
The Bonus & Shares Plan, launched in 2011 after the completion of the
Merger duplicates in many respects the BBP. It uses the same Clean
EBITDA target set for the BBP and in determining a participant’s
contribution performance against individual objectives set at the
beginning of the year are considered. As with the BBP, bonuses are paid
in the form of a cash payment and deferred shares (awarded as nil-cost
share options or restricted stock), but unlike the BBP there is no
clawback mechanism for underperformance in future years. Deferred
shares vest over a three‑year period. The maximum annual contribution
that can be earned under this plan is 150% of basic salary. The deferred
shares are funded through the allotment of new shares.
91
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
PartyGaming Plc Share Option Plan (legacy pre-Merger plan)
(Jim Ryan, Martin Weigold and former PartyGaming employees and
consultants only)
bwin.party Rollover Option plan (legacy pre-Merger plan)
(Norbert Teufelberger, Joachim Baca, former bwin non-executive
directors and former bwin employees only)
Under this plan launched in 2005, option awards have been awarded
with no cost on grant or exercise and generally without any
performance conditions. The shares used to fund exercised awards
under this plan come solely from the employee benefit trust, no new
shares are allotted to satisfy awards and the shares were largely
donated to the employee benefit trust by the founder shareholders of
PartyGaming in 2005 and 2006. Whilst the Remuneration Committee at
the time these options were granted recognised the recommendation
in the Combined Code on Corporate Governance (predecessor to the
UK Corporate Governance Code) not to award Executive Directors
long‑term incentive awards without performance conditions or to
award options at a discount, the Remuneration Committee deemed
it necessary at the time to make these awards in order to attract and
retain the services of the recipients. The awards generally vest over a
period of five years. Other employees of the Group have participated
in this plan and the majority of awards were made in the period 2005
to 2007. No awards have been made under this plan since 2010 and no
awards will be granted in the future.
The Company introduced the bwin.party Rollover Option Plan (‘ROP’) at
the time of the Merger. The purpose of this plan was to effect the grant
of rollover options over bwin.party shares to replace unexercised
options granted under the two bwin fair market value option plans,
some of which were subject to performance conditions. On the day the
Merger took effect the bwin options over bwin shares were rolled over
into equivalent options under the ROP over bwin.party shares on
terms which reflected the same exchange ratio as applied to bwin
shareholders – 12.23 bwin.party shares for each bwin share. The shares
continue to vest on the same vesting timetable as the original
bwin options.
PartyGaming Plc Performance Share Plan (legacy pre-Merger plan)
(Jim Ryan, Martin Weigold and former PartyGaming senior management
team only)
Under this plan launched in 2007, awards of restricted stock were
made and vested subject to the Company’s total shareholder return
performance over a three‑year period versus that of a peer group.
Only the Executive Directors of PartyGaming and the senior
management team participated in this plan. Details of how this legacy
plan operated were set out in the 2010 Remuneration Report and all
outstanding awards had their performance measured to 28 January
2011, when shareholders approved the Merger. The vesting schedule for
all outstanding awards did not change. As a result, the Remuneration
Committee determined as follows:
– April 2009 awards: TSR performance outperformance of 11.2% so
100% of each award will vest on 31 March 2012. As a result Jim Ryan
will receive 125,000 shares and Martin Weigold will receive
337,500 shares
– September 2009 awards: TSR performance of 4.4% determining that
57.8% of each award will vest on 30 September 2012. None of the
Executive Directors received an award
– April 2010 awards: The TSR threshold was not met and therefore these
awards have lapsed in their entirety. Jim Ryan and Martin Weigold had
250,000 and 200,000 shares respectively under these grants
No awards have been made under this plan since 2010 and no awards
will be granted in the future. New bwin.party shares will be issued
to satisfy vested awards.
New bwin.party shares will be issued to satisfy exercised ROP awards,
however, as explained in the Merger prospectus and circular, these bwin.
party shares will not count towards the Company’s 10% dilution limit.
Details of the awards under the ROP granted to Norbert Teufelberger,
Joachim Baca, Per Afrell, Manfred Bodner, Helmut Kern and Georg Riedl
are contained in the table in the section below. Whilst the UK Corporate
Governance Code recommends against granting options to NonExecutive Directors, Per Afrell, Manfred Bodner, Helmut Kern and Georg
Riedl received their original bwin options under a different corporate
governance regime (Austrian) and the ROP awards simply convert the
value of these original awards into bwin.party shares. No further share
awards will be made under the ROP.
PartyGaming Plc Executive Share Option Plan (legacy pre-Merger plan)
(Jim Ryan, Martin Weigold and former PartyGaming senior management
team only)
Under this plan launched in 2007, Executive Directors and senior
managers were awarded fair market options vesting after three years
subject to the satisfaction of a Clean EPS growth target. All awards
made under this plan have lapsed. No future awards will be granted
under this plan.
PartyGaming All-Employee Option Plan (legacy pre-Merger plan)
(All former PartyGaming employees except Executive Directors)
Under this plan launched in 2007, all employees excluding the Executive
Directors were eligible to receive fair market options. These awards
vested over three years and were not subject to any performance
conditions. These awards, when exercised are satisfied by the issuance
of new shares. No new awards have been granted since 2010 and no
future awards will be granted under this plan.
Governance
Report
92
bwin.party
Summary of the long-term incentive plans
Number of
shares over
which
awards
granted at 1
January 2011
Number of
shares over
which
awards
granted
during the
year ended
31 December
2011
Exercise
price of
award
granted
(pence)
Vesting
Date
Vested
number of
shares
Exercise
Date
Exercised
number of
shares
Lapsed
Number of
shares over
which
awards
remain
unvested or
unexercised
at
31 December
2011
Expiry
date
Director
Award
Jim Ryan*
Co-CEO
Executive
Share Option
Plan
1,020,000
Nil
–
–
Nil
–
Nil
1,020,000
Nil
22.02.11
Performance
Share Plan
1,020,100
Nil
–
31.08.11
358,030
31.08.11
358,030
537,070
125,000
31.03.12
Share Option
Plan
775,000
Nil
–
31.03.11
30.06.11
30.09.11
31.12.11
87,500
87,500
75,000
75,000
31.03.11
30.06.11
30.09.11
31.12.11
87,500
87,500
75,000
75,000
Nil
450,000
30.06.18
Norbert
Teufelberger
Co-CEO
Rollover
Option Plan
Nil
2,503,958
123.0
31.03.11
2,503,958
–
Nil
Nil
2,503,958
01.04.20
2,503,958
157.0
31.03.11
2,503,958
–
Nil
Nil
2,503,958
01.04.20
2,503,971
Joachim Baca
COO
Rollover
Option Plan
Nil
244,600
154.0
31.03.11
2,503,971
–
Nil
Nil
2,503,971
18.05.20
113.0
31.03.11
244,600
–
Nil
Nil
244,600
02.01.17
Martin
Weigold
CFO
Executive
Share Option
Plan
797,262
Nil
–
–
Nil
–
Nil
797,262
Nil
22.02.11
Performance
Share Plan
708,902
Nil
–
31.03.11
171,402
200,000
337,500
31.03.12
Share Option
Plan
929,554
Nil
–
31.12.11
50,000
Nil
100,000
829,554
Per Afrell
NED
Rollover
Option Plan
Nil
163,075
155.0
31.03.11
163,075
–
Nil
Nil
163,075
22.05.20
Nil
163,063
151.0
31.03.11
163,063
–
Nil
Nil
163,063
22.05.20
Manfred
Bodner
NED
Rollover
Option Plan
Nil
2,503,958
123.0
31.03.11
2,503,958
–
Nil
Nil
2,503,958
01.04.20
Nil
2,503,958
157.0
31.03.11
2,503,958
–
Nil
Nil
2,503,958
01.04.20
Nil
2,503,971
154.0
31.03.11
2,503,971
–
Nil
Nil
2,503,971
18.05.20
Helmut Kern
NED
Rollover
Option Plan
Nil
163,075
155.0
31.03.11
163,075
–
Nil
Nil
163,075
22.05.20
Georg Riedl
NED
Rollover Option
Plan
Nil
163,063
151.0
31.03.11
163,063
–
Nil
Nil
163,063
22.05.20
Nil
163,075
155.0
31.03.11
163,075
–
Nil
Nil
163,075
22.05.20
Nil
163,063
151.0
31.03.11
163,063
–
Nil
Nil
163,063
22.05.20
*In addition to the above awards, part of Jim Ryan’s 2010 annual bonus was deferred into bwin.party shares. The total number of deferred shares he was awarded was
272,278, vesting in four tranches of 68,182 shares on 30 June 2011, 30 September 2011, 31 December 2011 and 31 March 2012.
The information contained in this table has been audited by BDO LLP and BDO Limited.
93
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Dilution summary
Issued share capital as at 19 March 2012
822,901,408
10% of issued share capital
82,290,140
5% of issued share capital
41,145,070
New issue limits
No more than 10% of issued share capital can be committed to the Global Share
Plan, BBP, VCP, Bonus & Shares Plan, PartyGaming Plc All‑Employee Option Plan
and PartyGaming Plc Performance Share Plan.
Within the above limit, no more than 5% of the issued share capital can be
committed to BBP, VCP, Bonus & Shares Plan and PartyGaming Plc Performance
Share Plan.
Total Number of free shares committed to the Global Share Plan
1,514,920
Total number of shares committed to the PartyGaming Plc All-Employee Option Plan
18,351,601
Total number of shares committed to PartyGaming Plc Performance Share Plan
958,837
Total Share commitments as at 19 March 2012
20,825,358
To date no share awards have been made under the BBP, VCP or Bonus & Shares Plan. As described above, shares allotted in respect of the bwin.party Rollover Option Plan
(32,105,881 bwin.party shares), which addresses the legacy bwin.party options awarded prior to the Merger, do not count towards the Company’s 10% dilution limit.
Service agreements
Notice Periods
Date of appointment
Nature of contract
From bwin.party
From Director
Compensation
provisions for early
termination
Joachim Baca
31.03.11
Rolling
12 months
12 months
None
Jim Ryan
30.06.08
Rolling
12 months
12 months
None
31.03.11
Rolling
See below
See below
See below
Martin Weigold
04.04.05
Rolling
12 months
12 months
None
Name
If Norbert Teufelberger’s employment is terminated prior to 31 March
2014 by the Company or by Norbert Teufelberger in certain prescribed
circumstances under the Regulatory Process Agreement or on a change
of control, in each case where there are no grounds for summary
termination by the Company, the Company will offer to engage him
as a consultant until 31 March 2014 on terms which are in respect of
remuneration (including incentive arrangements) no less favourable
when taken as a whole than the terms of his employment arrangements
would have been had they continued until 31 March 2014.
No compensation will be payable upon expiry of the term on the
third anniversary of his appointment date unless the period of the
consultancy agreement is less than 12 months, in which case Norbert
Teufelberger will receive an additional payment on the expiry of the
consultancy agreement equal to the amount (if any) by which the
aggregate of any termination payments under the service agreement
and payments under the consultancy agreement is less than the
payment in lieu of notice which Norbert Teufelberger would have
received under the service agreement if the Company had chosen
to exercise its right to terminate the service agreement by making a
payment in lieu of notice. If Norbert Teufelberger accepts the Company’s
offer, he will have no right to claim compensation in respect of the
termination of his contract of employment under the provisions
described above.
If a change of control of the Company (as defined in each service
agreement) takes place, each of the Executive Directors may, in
the 12 months following the change of control, terminate his
employment if the Company makes a material adverse change to
his title, responsibilities or status or changes his principal place of
work to a place other than Gibraltar by giving three months’ notice to
the Company in writing. The Company will then be required to pay the
relevant Executive Director a payment equal to the amount he would
have received had his employment been terminated in accordance with
the payment in lieu provision in his service agreement.
The service agreements are governed by English law and contain
non‑compete provisions which apply during employment and for
12 months following termination.
Governance
Report
94
bwin.party
Non-Executive Directors
The fees paid to the Non-Executive Directors, excluding the Chairman of the Board, are determined by the Board on recommendation from
the Executive Directors. The Chairman’s fee is determined by the Remuneration Committee. Fees are determined by reference to market information
and the particular risks attaching to online gaming.
Position
Annual Fee
Chairman of the Board*
£350,000
Deputy Chairman & Senior Independent Director**
£250,000
Chairman of the Integration Committee
£465,000
£130,000
£100,000
Additional fee for chairing the Audit Committee
£20,000
Additional fee for chairing the Ethics Committee
£20,000
* This fee includes chairing the Nominations Committee
** This fee includes chairing the Remuneration Committee
The Chairman of the Integration Committee is a temporary appointment
for a three-year period to 31 March 2014 and is a position held by
Manfred Bodner. The role is important in overseeing that management
implements an effective integration of the bwin and PartyGaming
businesses and recognises many merging businesses fail to deliver the
synergy savings and other benefits from a consolidation. In recognition
of the importance and special duties of the role, the Chairman of the
Integration Committee receives a higher fee than a Non-Executive
Director performing normal duties.
As part of the Chairman of the Integration Committee’s remuneration
package, he also participates in the Value Creation Plan and Bonus
Banking Plan. Under the Value Creation Plan, Manfred Bodner has been
awarded 1,000,000 VCP points, representing an entitlement to 10% of
any available VCP pool. As disclosed earlier in this report, no value was
created under the Value Creation Plan in respect of 2011. Under the
Bonus Banking Plan, Manfred Bodner is entitled to a maximum annual
contribution of 300% of his annual fee (equivalent £1,395,000). The
mechanics of the Bonus Banking Plan have been described earlier in this
report and Manfred Bodner is subject to the same Clean EBITDA target
and his personal objectives relate to the achievement of synergy cost
realisations. The Board resolved that in respect of his performance in
2011 he would receive a total contribution of £697,500 (equivalent to
150% of his annual fee), payable £348,750 in cash and in 251,750 deferred
bwin.party shares (this number calculated using the average share price
for the 30-day measurement period to 31 December 2011, which was
138.53 pence and has a value on the date of calculation of £348,750).
With the exception of the Chairman of the Integration Committee, the
Non-Executive Directors cannot participate in the Value Creation Plan
and Bonus Banking Plan or any other incentive arrangements operated
by the Company.
Each of the Non-Executive Directors has been appointed under a letter
of appointment. With the exception of the Chairman of Integration
Committee, these agreements do not provide for a fixed term of
service, but each Director stands for re-appointment by shareholders
each year and the Nominations Committee and Board reviews matters
of independence, commitment and performance before recommending
a Director for re-appointment.
Notice Periods
Dates of letters of
appointment
Nature of contract
From bwin.party
From Director
Compensation provisions
for early termination
Simon Duffy
21.10.10
Rolling
6 months
6 months
None
Per Afrell
16.12.10
Rolling
3 months
3 months
None
Geoff Baldwin
14.07.11
Rolling
3 months
3 months
None
Manfred Bodner
24.12.10
Rolling
See below
See below
See below
Tim Bristow
01.05.07
Rolling
3 months
3 months
None
Helmut Kern
16.12.10
Rolling
3 months
3 months
None
Lewis Moonie
16.12.10
Rolling
3 months
3 months
None
Rod Perry
16.12.10
Rolling
3 months
3 months
None
Georg Riedl
16.12.10
Rolling
3 months
3 months
None
Name
95
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
If the appointment of Manfred Bodner is terminated prior to 31 March
2014 by the Company, by him not being re-elected by the shareholders
in a general meeting, or by Manfred Bodner in certain prescribed
circumstances under the Regulatory Process Agreement or on a change
of control, in each case where there are no grounds for summary
termination of the appointment by the Company, the Company will offer
to engage him as a consultant until 31 March 2014 on terms which are no
less favourable in terms of fees (including incentive arrangements) than
the terms of his letter of appointment would have been had it continued
until the third anniversary of his original appointment date.
No compensation will be payable upon expiry of the term on 31 March
2014 unless the period of the consultancy agreement is less than 12
months, in which case Manfred Bodner will receive an additional
payment on the expiry of the consultancy agreement equal to the
amount (if any) by which the aggregate of any termination payments
under the appointment letter and payments under the consultancy
agreement is less than the payment in lieu of notice which Manfred
Bodner would have received under the appointment letter if the
Company had chosen to exercise its right to terminate the appointment
letter by making a payment in lieu of notice. If Manfred Bodner accepts
the Company’s offer, he will have no right to claim compensation in
respect of the termination of his appointment under the provisions
described above.
103
Upon termination of the appointment of Manfred Bodner (except
where terminated summarily or where the appointment is terminated
in circumstances where the Company is required to offer him a
consultancy agreement – as described above), the Company will offer
him a new appointment letter on its standard terms then applicable
to Non-Executive Directors.
If a change of control of the Company takes place, Manfred Bodner
may, in the 12 months following the change of control, terminate his
appointment if the Company makes a material adverse change to his
title, responsibilities or status or changes his principal place of work
to a place other than Gibraltar by giving three months’ notice to the
Company in writing. The Company will then be required to pay him
a payment equal to the amount he would have received had his
appointment been terminated in accordance with the payment
in lieu provision in his letter of appointment.
External appointments
Executive Directors are required to seek the consent of the Board before
accepting external appointments as non-executive directors of other
companies. None of the Executive Directors is a director of a company
outside the Group for which they or the Company receives or received
a fee during the year to 31 December 2011.
Total emoluments overview
The information contained in this table has been audited by BDO LLP
and BDO Limited.
Name
Bonus
Basic
Banking Plan
fee/salary (Cash element only)
€
€
Allowances/
benefits
€
Total
emoluments
€
Net proceeds
from exercise
of options
€
2011
total
€
2010
total
€
–
300,825
–
300,825
–
Chairman
Simon Duffy
300,825
–
Joachim Baca
409,217
366,506
6,700
782,423
–
782,423
–
Jim Ryan
573,000
519,281
15,933
1,108,214
–
1,108,214
1,724,562
429,750
519,281
7,241
956,273
–
956,273
–
Martin Weigold
491,067
367,277
8,933
867,277
1,072,830
1,940,107
918,206
Executive Directors
NEDs
Per Afrell
111,735
–
–
111,735
–
111,735
–
Geoff Baldwin*
52,599
–
–
52,599
–
52,599
–
Manfred Bodner
399,668
399,656
3,453
802,776
–
802,776
–
Tim Bristow
171,900
–
–
171,900
–
171,900
174,791
Helmut Kern
134,655
–
–
134,655
–
134,655
–
Rami Lerner*
61,921
–
–
61,921
–
61,921
116,527
Lewis Moonie
160,317
–
–
160,317
–
160,317
198,096
Rod Perry**
313,425
–
–
313,425
–
313,425
402,018
Georg Riedl
85,950
–
–
85,950
–
85,950
–
* Rami Lerner resigned as a Director with effect from 15 July 2011 and was succeeded by Geoff Baldwin
** Rod Perry was the Chairman of the Board (annual fee £345,000/€395,370) until 31 March 2011, when he became the Deputy Chairman and Senior Independent Director
(annual fee £250,000/€286,500)
Governance
Report
96
bwin.party
Directors’ interests in bwin.party shares
Shares
Shares held under share plans
1 January
2011
31 December
2011
1 January
2011
31 December
2011
Total at 31 December
2011
Per Afrell
0
40,114
0
326,138
366,252
Joachim Baca
0
0
244,600
244,600
Geoff Baldwin
0
100,000
0
0
100,000
Manfred Bodner
0
12,298,427
0
7,511,887
19,810,314
Director
Tim Bristow
8,000
8,000
0
0
8,000
Simon Duffy
0
22,192
0
0
22,192
Helmut Kern
Lewis Moonie
Rod Perry
Georg Riedl
Jim Ryan
Martin Weigold
0
0
0
326,138
326,138
15,940
16,152
0
0
16,152
5,086
5,086
0
0
5,086
0
856,100
0
326,138
1,182,238
725,000
1,469,394
2,815,200
0
12,298,427
0
7,511,887
19,810,314
68,444
319,400
2,435,718
437,500
756,900
786,364*
2,255,758
* Includes 68,182 shares awarded in respect of the 2010 annual bonus deferred into bwin.party shares
Performance graph
To assist shareholders in reviewing the appropriateness of bwin.party’s
remuneration policies and practices, the Company is required by
regulation to set out a graph in this report showing the total shareholder
return (‘TSR’) of bwin.party’s shares against the TSR performance of a
suitable index over a five-year period. The Remuneration Committee
have chosen to use the FTSE250 Index as the comparator, because the
Company has been a constituent of this index for the last five years.
The following graph plots the value of £100 in bwin.party’s shares and
in the FTSE250 Index from 31 December 2006 to 31 December 2011.
The change in value of the holdings in the FTSE250 Index reflects any
changes in the constituent companies over the period. The value of
dividend income is treated as reinvested in the period.
Value of £100 since December 2006
140
120
100
80
60
40
20
0
c
De
31 2006
bwin.party
c
De
31 2007
c
De
31 2008
FTSE 250
c
De
31 2009
c
De
31 2010
c
De
31 2011
Governance
Other Governance and
Statutory Disclosures
97
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
J. Other Governance and Statutory Disclosures
and the 2012 AGM
Share capital
(i) Authorised share capital: £225,000 dividend into 1,500,000,000
ordinary shares of £0.00015 pence each.
(ii) Share allotment history:
Event
Shares allotted/(purchased)
Total shares in issue
28 February 2011 (2010 annual results released)
–
413,065,372
31 March 2011 (completion of the bwin merger)
439,209,325
852,271,026
638,245
852,909,271
(15,710,401)
837,198,870
Shares allotted for share plans during 2011
Shares bought back for cancellation in 2011
Shares allotted for share plans in 2012 (to 19 March 2012)
Shares bought back for cancellation in 2012 (to 19 March 2012)
bwin.party maintains a primary listing on the London Stock Exchange.
As securities issued by non-UK companies cannot be held or transferred
through the CREST paperless settlement system, the Company has put
in place arrangements for a depositary to hold bwin.party shares and
issue dematerialised depositary interests representing the underlying
shares which are held on trust for the holders of the depositary
interests.
The rights attaching to the ordinary shares and depositary interests
are contained in the bwin.party articles of association and deed poll
respectively. Both these documents are available on the bwin.party
corporate website, www.bwinparty.com.
Further information regarding bwin.party’s shares and depositary
interests are set out in the ‘Shareholder Information’ section on pages
153 to 157 of the Annual report.
(iii)Allotment authority
On 28 January 2011 shareholders authorised the Directors to allot up
to 450 million new shares to bwin shareholders to effect the Merger.
This authority was used to allot 439.21 million shares and lapsed at
the 2011 AGM on 30 June 2011.
At the 2011 AGM the Directors were authorised to allot new shares up to
an initial aggregate nominal amount of £42,643 (284 million shares), with
a further authority to allot further new shares up to an aggregate of
£42,643 to be used only for a fully pre-emptive rights issue. This 2011 AGM
authority expires at the Company’s 2012 AGM (or, if earlier, at close of
business on 30 September 2012).
185,205
837,384,075
(14,482,667)
822,901,408
The Directors were also empowered at the 2011 AGM, pursuant to the
articles, to allot shares for cash, pursuant to the above 2011 AGM
authority, as if pre-emption rights did not apply to the allotment,
provided that such authority be limited to (i) the allotment of shares in
connection with a rights issue, open offer or any other pre-emptive offer
in favour of shareholders, but subject to such exclusions as may be
necessary to deal with the fractional entitlements, or legal or practical
problems under any laws, or requirements of any regulatory body in any
jurisdiction; and (ii) the allotment (otherwise pursuant to (i) above) of
shares for cash up to an aggregate nominal amount of £6,396 (42 million
shares). This authority also expires at the Company’s 2012 AGM (or, if
earlier, at close of business on 30 September 2011).
The 2011 AGM authorities have not been utilised to date. The Directors
do, however, believe it is in the Company’s best interests to have the
flexibility to issue new shares within these parameters and are seeking
a renewal of these authorities at the 2012 AGM.
(iv) Share buyback authority
At the 2011 AGM shareholders granted the Board authority to purchase
on behalf of the Company 85,286,000 bwin.party shares, representing
at the time 10% of the Company’s issued share capital. bwin.party
announced on 30 June 2011 a distribution policy which included a
commitment to buyback up to €75 million of the Company’s issued
share capital over the following twelve months. Information about the
number of shares purchased is set out in the table above and is available
on the bwin.party corporate website (www.bwinparty.com). As there is
no facility to hold shares in treasury under Gibraltar company law, all
purchased shares have been cancelled.
The Board will review in June 2012 bwin.party’s distribution policy and
in particular future share buybacks. The Directors believe it is in the
Company’s best interests to have the power to purchase a proportion
of its share capital and therefore the Board is seeking a renewal of this
authority at the 2012 AGM.
Governance
Other Governance and
Statutory Disclosures
98
bwin.party
Non-voting shares
(vi) Significant shareholders
(v) Employee Benefit Trust
Set out below is a list of shareholding notifications disclosed to the
Company in accordance with the Disclosure and Transparency Rules,
the Company’s articles and deed poll and Gibraltar Disclosure of
Interests in Shares Act 1998:
As at 19 March 2012, of the 822,901,408 shares in issue, 2,721,178 shares
were held in the Company’s employee benefit trust, the bwin.party
Shares Trust (the ‘Employee Trust’). The trustee of the Employee Trust has
waived all dividend and voting rights in respect of Shares held by the
Employee Trust to satisfy the future exercise of share options under all
the bwin.party share plans except the Global Share Plan. This waiver
only subsists while the shares are held in the Employee Trust. The shares
are transferred out of the Employee Trust upon exercise of share options
under certain share plans.
Shares held as at
19 March 2012
% of total issued shares
% of total voting rights
Janus Capital Management LLC
68,240,798
8.06
8.10
Emerald Bay Limited (1)
58,498,667
6.86
6.91
Stinson Ridge Limited (2)
58,498,666
6.86
6.91
SRS Investment Management LLC
42,851,000
5.05
5.09
Androsch Foundation
38,650,591
4.53
4.56
New Media Gaming & Holding Limited (3)
24,596,854
2.89
2.90
Shareholder
(1)
Emerald Bay limited is a company wholly-owned by Ruth Parasol. Ruth Parasol and Russell DeLeon (see note below) are married
(2)
Stinson Ridge Limited is a company wholly-owned by Russell DeLeon. Russell DeLeon and Ruth Parasol (see note above) are married
(3)
New Media Gaming & Holding Limited is wholly-owned jointly by Manfred Bodner and Norbert Teufelberger
The disclosures in the table above are based on the last notifications received and have not been changed to take account of changes to the total
voting rights or issued share capital. The interests of the Directors in the Company’s issued share capital are set out in the Directors’ Remuneration
Report on page 96.
Emerald Bay Limited and Stinson Ridge Limited entered into a relationship agreement with the Company when it floated on the London Stock
Exchange in 2005, governing their combined rights to nominate a representative for appointment to the Board and governing the process for
them selling their shares. This agreement was superceded by a new relationship agreement which took effect on 29 January 2011. Under this new
relationship agreement Emerald Bay Limited and Stinson Ridge Limited have the right whilst they both hold in aggregate 5% or more of the
Company’s issued share capital, to nominate a suitable individual for appointment to the Board. Geoff Baldwin is their current nominee.
This nomination right may be transferred to another party where Emerald Bay Limited and Stinson Ridge Limited transfer 6% or more of the
Company’s share capital to that other party. Emerald Bay Limited and Stinson Ridge Limited are also required to give the Company not less than
four days’ notice of any proposed sale. Emerald Bay Limited and Stinson Ridge Limited are subject to the Company’s share dealing code whilst they
maintain a representative on the Board. The relationship agreement also contains restrictions limiting Emerald Bay Limited and Stinson Ridge
Limited and their associates from investing in other online gaming businesses.
Androsch Foundation and New Media Gaming and Holding Limited, founder shareholders of bwin Interactive Entertainment AG, have also entered
into a relationship agreement with the Company on the same terms as detailed above. This relationship agreement came into effect on 31 March
2011. Their representative on the Board is Manfred Bodner.
99
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Dividend
During the year ended 31 December 2011 bwin.party paid an interim
dividend of 1.56 pence per share which was paid on 7 October 2011.
The Board is recommending a final dividend of 1.56 pence per share
payable on 12 June 2012, with a record date of 11 May 2012.
Customer and creditor payment policy
The Group is committed to prompt payment of customer cashout
requests and maintains adequate cash reserves to cover customer
withdrawals and balances. Normally payments will be made to
customers within seven days of receiving a customer instruction.
In the case of other creditors, it is the Group’s policy to agree terms at
the outset of a transaction and ensure compliance with such agreed
terms. In the event that an invoice is contested then the Group informs
the supplier without delay and seeks to settle the dispute quickly.
Going concern
The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out in the
‘Overview’, ‘Strategy’ and ‘Review of 2011’ sections of the Annual report.
The financial position of the Group, its cashflow, liquidity position and
borrowings are set out in the aforementioned section. In addition, note
28 to the financial statements on pages 142 to 146 includes the Group’s
objectives, policies and processes for managing its capital; its financial
risk management objectives; details of financial instruments and
hedging activities; and its exposures to credit risk and liquidity risk.
The Group has considerable financial resources together with a large
number of players and long-term contracts with a number of corporate
customers and suppliers across different geographic areas and
industries. As a consequence, the Directors believe the Group is well
placed to manage its business risks successfully despite the current
challenging economic outlook.
70
103
After making enquiries, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the
Annual Report.
Audit
The Directors who held office at the date of approval of the annual
report and financial statements for the year ended 31 December 2011,
confirm that, so far as they are each aware, there is no relevant audit
information of which bwin.party’s auditor is unaware; and each Director
has taken all steps that they reasonably ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Company’s auditor is aware of
that information. As recommended by the Audit Committee, a resolution
for the re-appointment of BDO LLP and BDO Limited as joint auditors to
bwin.party is being proposed at the 2012 AGM.
Governance
2012 Annual
General Meeting
100
bwin.party
The Annual General Meeting will be held on Thursday 7 June 2012
at 12.30 p.m. at The Caleta Hotel, Catalan Bay, Gibraltar. The AGM notice
is set out on pages 158 to 161 of this document. The following is a
summary of resolutions to be considered:
Resolution 1: To receive and consider the Company’s Annual report
and accounts together with the Reports of the Directors and Auditor
for the year ended 31 December 2011.
The Directors present to the meeting bwin.party’s audited annual
accounts for the year ended 31 December 2011 together with the
Directors’ Report and Auditors’ Report.
Resolution 2: To approve the Directors’ Remuneration Report for the
year ended 31 December 2011.
The Directors’ Remuneration Report is set out on pages 80 to 96 of this
document. The vote will have an advisory status only and will be in
respect of the remuneration policy and overall remuneration packages
generally and will not be specific to individual levels of remuneration.
Resolution 3: To re-appoint BDO LLP and BDO Limited as auditors
of the Company with BDO Limited acting as auditor for the purposes
of section 10 of the Gibraltar Companies (Accounts) Act 1999.
In accordance with section 180 of the Companies Act 1930 (as amended)
the Company at each annual general meeting has to appoint an auditor
to hold office until the next annual general meeting and BDO LLP and
BDO Limited have expressed their willingness to be re-appointed as
auditors. The Audit Committee recommends and the Board agrees with
the re-appointment of BDO LLP and BDO Limited as auditors.
Resolution 4: To authorise the Directors to set the auditors’
remuneration
The resolution authorises the Directors to set the remuneration payable
to the auditors, in accordance with best practice. The Audit Committee
is tasked with reviewing the auditors’ remuneration and making a
recommendation to the Board.
Resolution 5: To declare a final dividend
The Board is proposing a final dividend in respect of the year ended
31 December 2011 of 1.56 pence per ordinary share. This is in line
with bwin.party’s distribution policy announced on 30 June 2011,
under which the Board proposed a progressive dividend policy. If
approved by shareholders this final dividend will be payable on 12 June
2012 to those shareholders on the register of members on 11 May 2012.
Resolutions 6 to 18: Director re-appointments
The Company’s articles of association require any Director appointed by
the Board to seek re-appointment at the following AGM. Geoff Baldwin
was appointed a Director on 15 July 2011 and is therefore standing for
re‑appointment at the 2012 AGM. The articles also require one-third of
all the other Directors to see re-appointment. However, in accordance
with the recommendation of the Code, all the Directors are standing for
re-appointment at the 2012 AGM. The biographies for each Director are
set out on pages 68 to 69.
The Nominations Committee has reviewed these re-appointments
and on the basis of experience, performance, skills and commitment
demonstrated, has recommended to the Board that each Director
be re-appointed. The Board has considered and agrees with this
recommendation and is therefore advising shareholders to support
the re-appointments of all the Directors.
Resolution 6 – to re-appoint Per Afrell
Resolution 7 – to re-appoint Joachim Baca
Resolution 8 – to re-appoint Manfred Bodner
Resolution 9 – to re-appoint Tim Bristow.
Resolution 10 – to re-appoint Simon Duffy
Resolution 11 – to re-appoint Helmut Kern
Resolution 12 – to re-appoint Lewis Moonie
Resolution 13 – to re-appoint Rod Perry
Resolution 14 – to re-appoint Georg Riedl
Resolution 15 – to re-appoint Jim Ryan
Resolution 16 – to re-appoint Norbert Teufelberger
Resolution 17 – to re-appoint Martin Weigold
Resolution 18 – to re-appoint Geoff Baldwin
Resolution 19: Share allotment authority
The Board is proposing to update the Company’s authority to issue
new share capital in accordance with UK corporate governance
guidelines, specifically those of the Association of British Insurers.
The Company is seeking authority to issue new shares up to an amount
equal to one-third of the existing issued share capital. If these shares
are issued and paid-up wholly or partly otherwise than for cash (for
example, in connection with an acquisition by the Company using its
shares for consideration), then pursuant to the provisions of the Articles,
no pre-emption rights will apply to such an issue of shares.
In addition, the Company is seeking authority to issue further new
shares in an amount up to a further one-third of the existing issued
share capital. This further additional authority will only be used for
a full-pre-emptive rights issue.
This authority if granted will expire at the 2013 AGM or, if earlier,
7 September 2013.
101
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
Resolution 20: Disapplication of pre-emption rights
The Articles require any new shares to normally be offered to the current
shareholders in proportion to their existing holdings to prevent their
shareholdings being significantly diluted by the Company acting
unilaterally. To give the Company a degree of flexibility in managing its
share capital and raising new funds, the Board is seeking shareholder
authority to issue up to 5% of the Company’s issued share capital for
cash without pre-emption rights applying to such an allotment. It is
normal practice for UK-listed companies to have this limited authority,
which accords with UK corporate governance best practice guidelines.
In accordance with the latter, the Board confirms its intention that no
more than 7.5% of the issued share capital will be issued for cash on a
non pre-emptive basis during any rolling three-year period. Resolution
20 is subject to resolution 19 being passed.
Resolution 21: Share buyback authority
In certain circumstances, it may be advantageous for the Company to
purchase its own shares and Resolution 21 seeks authority from the
shareholders to do so. The resolution specifies the maximum number
of shares that may be acquired (10% of the Company’s issued shares)
and the maximum and minimum prices at which they may be bought.
Any shares purchased in this way will be cancelled and the number
of shares in issue will be reduced accordingly. The Directors will only
purchase such shares after taking into account the effects on earnings
per share and the benefit for shareholders. As disclosed previously, bwin.
party announced on 30 June 2011, as part of its distribution policy that
for the following 12 months the Company would acquire up to
€75 million of its shares and so the current purchase authority has been
utilised. The current authority will lapse at the 2012 AGM. The proposed
new authority will expire at the conclusion of the 2013 annual general
meeting or, if earlier, 7 September 2013.
Directors’ report
Together with the Overview, Strategy and Review of 2011 sections of the
Annual report, this governance section constitutes the Directors’ report
for the year ended 31 December 2011.
By order of the Board
Robert Hoskin
Company Secretary
29 March 2012
70
103
Governance
Statement of Directors’
responsibilities
102
bwin.party
Statement of Directors’ responsibilities in respect
of the Annual report and financial statements
In preparing the financial statements the Directors are required to:
The Directors are responsible for preparing the Annual report and
consolidated financial statements in accordance with the Gibraltar
Companies (Consolidated Accounts) Act 1999, the Gibraltar Companies
(Accounts) Act 1999, the Gibraltar Companies Act 1930 (as amended),
International Financial Reporting Standards as adopted by the
European Union (‘IFRS’) and Article 4 of the IAS Regulation, and
the FSA’s Disclosure and Transparency Rules and Listing Rules.
(ii) Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information
The Directors are also responsible for preparing the Company’s financial
statements in accordance with the Gibraltar Companies (Accounts) Act
1999 and the Gibraltar Companies Act 1930 (as amended). The Directors
have also chosen to prepare the Company’s financial statements in
accordance with IFRS.
The Directors are responsible for keeping proper accounting records
which disclose with reasonable accuracy at any time the financial
position of the Company, for safeguarding the assets, for taking
reasonable steps for the prevention and detection of fraud and other
irregularities and for the preparation of a Directors’ Report which
complies with the Gibraltar Companies (Consolidated Accounts) Act
1999, the Gibraltar Companies (Accounts) Act 1999 and the Gibraltar
Companies Act 1930 (as amended), and a Directors’ Remuneration
Report which complies with the requirements of the UK’s Large
and Medium-Sized Companies and Groups (Accounts and Reports)
Regulations 2008, Schedule 8.
Financial statements are published on the Group’s website in
accordance with legislation in the United Kingdom governing the
preparation and dissemination of financial statements, which may vary
from legislation in other jurisdictions. The maintenance and integrity of
the Group’s website is the responsibility of the Directors. The Directors’
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
In accordance with International Accounting Standard 1 the Directors
are required to prepare financial statements for each financial year that
present fairly the financial position of the Group and the Company and
the financial performance and cashflows of the Group and the Company
for that period. This requires the faithful representation of the effects
of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board’s
‘Framework for the Preparation and Presentation of Financial
Statements’. In virtually all circumstances, a fair presentation
will be achieved by compliance with all applicable IFRS.
(i) Select suitable accounting policies and then apply them consistently
(iii)Provide additional disclosure when compliance with the specific
requirements in IFRS is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
Group’s financial position and financial performance
In accordance with DTR 4.1.12 of the FSA’s Disclosure and Transparency
Rules, the Directors confirm to the best of their knowledge:
a) the Group’s financial statements have been prepared in accordance
with IFRS and Article 4 of the IAS Regulation and give a true and fair
view of the assets, liabilities, financial position and profit and loss
of the Group; and
b) the Annual report includes a fair review of the development and
performance of the business and the financial position of the Group
and the Company, together with a description of the principal risks
and uncertainties that they face
Robert Hoskin
Company Secretary
29 March 2012
Financial
statements
2011
the numbers
Financials
Independent auditors’
report
104
bwin.party
Independent auditors’ report
We have audited the financial statements (the ‘financial statements’)
of bwin.party digital entertainment plc for the year ended 31 December
2011 which comprise the Group statement of comprehensive income,
the Group and Company statements of financial position, the Group
and Company statements of changes in equity, the Group and Company
statements of cashflows and the related notes. The financial reporting
framework that has been applied in their preparation is applicable law
and International Financial Reporting Standards (‘IFRSs’) as adopted by
the European Union.
This report is made solely to the Company’s members, as a body,
in accordance with our engagement letter. Our audit work has been
undertaken so that we might state to the Company’s members those
matters that we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the Company
and the Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Statement of Directors’ responsibilities,
the Directors’ are responsible for preparation of the financial
statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial
statements and in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s (‘APB’s’) Ethical Standards
for Auditors.
bwin.party digital entertainment plc has complied with the
requirements of rules 9.8.6 and 9.8.8 of the Listing Rules of the UK
Financial Services Authority and in accordance with section 421
of the UK Companies Act 2006 in preparing its Annual report, as if it
was incorporated in the United Kingdom. As auditors, we have agreed
that our responsibilities in relation to the Annual report will be those
as set out below.
We report to you our opinion as to whether the financial statements
give a true and fair view and whether the financial statements have
been properly prepared in accordance with the Gibraltar Companies
(Consolidated Accounts) Act 1999, the Gibraltar Companies (Accounts)
Act 1999 and the Gibraltar Companies Act 1930 (as amended), and the
part of the Remuneration report to be audited has been properly
prepared in accordance with section 421 of the UK Companies Act 2006.
We also report to you whether in our opinion, the information disclosed
in the Directors’ report is consistent with the financial statements,
if the Company has not kept proper accounting records, if we have not
received all the information and explanations we require for our audit,
or if information specified by the Listing Rules and Gibraltar legislation
regarding Directors’ remuneration and other transactions is not disclosed.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided
on the APB’s website at www.frc.org.uk/apb/scope/private. cfm.
Opinion on financial statements
In our opinion:
– The financial statements give a true and fair view of the state of the
Group’s and the Company’s affairs as at 31 December 2011 and of the
Group’s loss for the year then ended;
– The Group and Company’s financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union;
– The financial statements have been properly prepared in accordance
with the Gibraltar Companies (Consolidated Accounts) Act 1999, the
Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies
Act 1930 (as amended); and
– The part of the Remuneration report described as having been
audited has been properly prepared in accordance with section 421
of the UK Companies Act 2006
Opinion on other matters prescribed by legal and
regulatory requirements
In our opinion information given in the Directors’ report for the year
ended 31 December 2011 for which the financial statements are
prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under Gibraltar legal and regulatory requirements we are required
to report to you if, in our opinion:
– The Company has not kept proper accounting records;
– If we have not received all the information and explanations
we require for our audit; or
– If information specified by law regarding Directors’ remuneration
and other transactions is not disclosed.
Under the Listing Rules we are required to review:
– The Directors’ statement in relation to going concern;
– The part of the corporate governance statement relating to the
Company’s compliance with the nine provisions of the UK Corporate
Governance Code specified for our review; and
– Certain elements of the Remuneration report.
BDO LLP
Chartered Accountants
55 Baker Street
London W1U 7EU
United Kingdom
29 March 2012
Christian Summerfield (Statutory Auditor)
For and on behalf of
BDO Limited
Registered Auditors
Regal House
PO Box 1200
Gibraltar
29 March 2012
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
BDO Limited, a Gibraltar limited company, is registered in Gibraltar
with company number 52200.
Financials
Consolidated statement
105
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Notes
103
2011
2010
€million
€million
674.5
348.4
Net revenue
Other revenue
Total revenue
2
16.6
8.9
691.1
357.3
Cost of sales
(55.7)
(6.9)
Gross profit
635.4
350.4
0.5
6.2
(16.5)
(4.9)
(792.9)
(146.7)
(246.2)
(158.7)
168.3
94.2
Other operating expense
3
Clean EBITDA
Exchange (losses) gains
Merger and acquisition costs
Amortisation
Depreciation
Impairment losses
Reorganisation costs
(4.5)
6.1
(12.0)
(4.9)
(125.6)
(32.8)
(18.9)
(6.4)
(408.7)
(0.1)
(12.0)
(9.1)
(6.3)
(0.7)
(Loss) profit from operating activities
4
(419.7)
46.3
Finance income
6
6.4
0.9
Finance expense
6
(9.1)
(3.4)
Share of loss of associates and joint ventures
(Loss) profit before tax
Tax credit (expense)
7
(Loss) profit after tax from Continuing operations
Loss after tax from Discontinued operations
8
(Loss) profit for the year
(0.5)
–
(422.9)
43.8
8.2
(3.6)
(414.7)
40.2
(16.3)
(1.3)
(431.0)
38.9
Other comprehensive (expense) income:
Exchange differences on translation of foreign operations, net of tax
Total comprehensive (expense) income for the year
(7.5)
3.7
(438.5)
42.6
(428.9)
38.9
(Loss) profit for the year attributable to:
(2.1)
–
(431.0)
38.9
(436.4)
42.6
Total comprehensive (expense) income for the year attributable to:
(2.1)
–
(438.5)
42.6
(Loss) earnings per share (€ cents)
Basic
9
(58.2)
9.5
Diluted
9
(58.2)
9.0
Basic
9
(56.0)
9.8
Diluted
9
(56.0)
9.3
Continuing (loss) earnings per share (€ cents)
Financials
106
bwin.party
As at
As at
31 December 2011 31 December 2010
Notes
€million
€million
Intangible assets
10
738.6
211.9
Property, plant and equipment
11
32.8
9.5
Investments
13
Non-current assets
23.1
1.7
794.5
223.1
51.3
2.2
Current assets
Assets held for sale
Inventories
0.6
–
129.7
48.3
Trade and other receivables
14
15
39.7
3.1
16
289.0
193.6
510.3
247.2
1,304.8
470.3
17
(112.7)
(60.9)
(28.7)
(8.2)
Client liabilities and progressive prize pools
18
(156.2)
(93.1)
Provisions
19
(10.8)
–
20
(33.2)
(9.9)
Total assets
Current liabilities
Trade and other payables
Income taxes payable
Liabilities held for sale
(27.7)
–
(369.3)
(172.1)
(27.7)
Non-current liabilities
17
(5.2)
Provisions
19
(77.7)
–
–
(30.1)
(59.1)
(7.4)
(142.0)
(65.2)
Total liabilities
(511.3)
(237.3)
Total net assets
793.5
233.0
Deferred tax
21
Equity
Share capital
24
Share premium account
Own shares
24
Capital contribution reserve
Retained earnings
0.2
0.1
1,018.4
49.5
(7.1)
(2.8)
24.1
24.1
340.6
733.5
(573.7)
(573.7)
Currency reserve
(5.2)
2.3
(3.8)
–
793.5
233.0
Other reserve
Equity attributable to equity holders of the parent
These consolidated financial statements were approved by a duly appointed and authorised committee of the Board
on 29 March 2012 and were signed on its behalf by Simon Duffy and Tim Bristow, Directors.
Financials
bwin.party
107
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
As at
1 January 2011
Acquisition
of subsidiaries
and businesses
Other issue
of shares
Dividends
paid
Purchase
of shares
Total
comprehensive
expense for
the period
Other
share-based
payments
As at
31 December
2011
€million
€million
€million
€million
€million
€million
€million
€million
0.1
0.1
–
–
–
–
–
0.2
49.5
967.9
1.0
–
–
–
–
1,018.4
Own shares
(2.8)
–
–
–
(4.3)
–
–
(7.1)
24.1
–
–
–
–
–
–
24.1
Year ended 31 December 2011
Share capital
733.5
62.1
–
(15.0)
(23.2)
(428.9)
12.1
340.6
(573.7)
–
–
–
–
–
–
(573.7)
2.3
–
–
–
–
(7.5)
–
(5.2)
233.0
1,030.1
1.0
(15.0)
(27.5)
(436.4)
12.1
797.3
–
(1.7)
–
–
–
(2.1)
–
(3.8)
233.0
1,028.4
1.0
(15.0)
(27.5)
(438.5)
12.1
793.5
As at
1 January 2010
Acquisition of
subsidiaries
and businesses
Other
issue of shares
Dividends
paid
Purchase
of shares
Total
comprehensive
income for
the period
Other
share-based
payments
As at
31 December 2010
€million
€million
€million
€million
€million
€million
€million
€million
0.1
–
–
–
–
–
–
0.1
47.7
–
1.8
–
–
–
–
49.5
Own shares
(2.8)
–
–
–
–
–
–
(2.8)
24.1
–
–
–
–
–
–
24.1
Retained earnings
Other reserve
Currency reserve
Total attributable to equity
holders of parent
Total equity
Share capital
Retained earnings
685.4
–
–
–
–
38.9
9.2
733.5
Other reserve
(573.7)
–
–
–
–
–
–
(573.7)
(1.4)
–
–
–
–
3.7
–
2.3
179.4
–
1.8
–
–
42.6
9.2
233.0
Currency reserve
Total equity
Share premium is the amount subscribed for share capital in excess of nominal value.
Capital contribution reserve is the amount arising from share-based payments made by parties associated with the original Principal Shareholders
and cash held by the Employee Trust.
Retained earnings represent cumulative profit / (loss), share-based payments and any other items of other comprehensive income not disclosed
as separate reserves in the table above.
The other reserve of €573.7 million is the amount arising from the application of accounting which is similar to the pooling of interests method,
as set out in the Group’s accounting policies.
Currency reserve represents the gains/losses arising on retranslating the net assets of overseas operations into euros.
Non-controlling interests relate to the interests of other shareholders in certain subsidiaries.
Financials
of cashflows
108
bwin.party
(Loss) profit for the year
2011
2010
€million
€million
(431.0)
38.9
Adjustments for:
19.6
6.4
Amortisation of intangibles
126.9
32.8
Impairment of goodwill
391.7
–
15.3
–
Depreciation of property, plant and equipment
Impairment of acquired intangible assets
Impairment of investments
Impairment of assets held for sale
1.7
–
–
0.1
Share of loss of associates and joint ventures
0.5
–
Interest expense
9.7
4.5
Interest income
(6.4)
(0.9)
Increase in reserves due to share-based payments
12.1
9.2
(Profit) on sale of intangible assets
(0.3)
–
1.2
(0.1)
Loss (profit) on sale of property, plant and equipment
Income tax (credit) expense
Operating cashflows before movements in working capital and provisions
(7.6)
3.6
133.4
94.5
(0.1)
–
Increase in trade and other receivables
(20.9)
(12.3)
Decrease in trade and other payables
Increase in inventory
(44.7)
(14.2)
Decrease in provisions
(7.3)
(0.1)
Cash generated from operations
60.4
67.9
Income taxes paid
(3.9)
(4.2)
Net cash inflow from operating activities
56.5
63.7
Investing activities
Net cash acquired on acquisition of subsidiaries and businesses
Acquisition of subsidiaries and businesses, net of cash acquired – deferred payment
Purchases of intangible assets
Sale of intangible assets
Purchases of property, plant and equipment
Sale of property, plant and equipment
Purchase of investments
Sale of assets held for sale
159.2
–
(6.4)
(9.2)
(11.0)
(3.8)
0.3
–
(30.6)
(8.0)
0.2
0.2
(14.6)
(1.7)
–
1.8
6.4
0.9
Decrease in short-term investments
(5.9)
4.9
Net cash generated (used) by investing activities
97.6
(14.9)
Interest received
109
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
2011
2010
€million
€million
Issue of ordinary shares
1.0
1.8
Purchase of own shares
(27.5)
–
Dividends paid
(15.0)
–
Financing activities
Repayment of bank borrowings
(8.6)
–
Interest paid
(1.0)
(2.0)
Net cash used in financing activities
(51.1)
(0.2)
Net increase in cash and cash equivalents
103.0
48.6
(7.6)
(0.1)
Cash and cash equivalents at beginning of period
193.6
145.1
Cash and cash equivalents at end of period
289.0
193.6
Segregated cash
Included within cash and cash equivalents is €22.7m (2010: €3.9m) related to cash held in segregated accounts in certain regulated markets.
Major non-cash transactions
Details of the Merger with bwin, which was an equity-based transaction, are contained in note 26.
Financials
Notes to the consolidated
110
bwin.party
1. Accounting policies
Basis of preparation
The Group and parent financial statements have been prepared in accordance with those International Financial Reporting Standards including
International Accounting Standards (IASs) and interpretations, (collectively ‘IFRS’), published by the International Accounting Standards Board (‘IASB’)
which have been adopted by the European Commission and endorsed for use in the EU for the purposes of the Group’s full year financial statements.
The consolidated and company financial statements comply with the Gibraltar Companies (Accounts) Act 1999, the Gibraltar Companies
(Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended).
Statutory accounts for the year ended 31 December 2011 will be filed with Companies House Gibraltar following the Company’s Annual General Meeting.
Due to the Merger (which was treated as an acquisition by PartyGaming for accounting purposes), certain accounting policies that were not
previously relevant for the Group, but relevant for bwin, have been adopted in these consolidated financial statements pages. All other material
accounting policies and presentations of bwin have been aligned to those of the enlarged Group.
Functional currency of the parent company
Reflecting the fact that the Company has hedged its remaining US dollar exposure, the effect of the Merger, and that going forward most
transactions will be in pound sterling but funded by excess euros generated by the rest of the Group, the Company has changed its functional
currency from US dollars to euros.
In line with IAS 21 the change took effect from the date the Company determined that the characteristics required to identify the functional
currency had changed. The Company determined this occurred during 2011 and for accounting purposes this is effective from 1 January 2011.
All financial data for the Company for prior periods has been converted using the exchange rate at 1 January 2011 of 1 euro = US dollar 1.3416.
Adoption of new and revised Standards and Interpretations
The following new and revised Standards and Interpretations issued by the International Accounting Standards Board (‘IASB’), are effective for
the first time in the current financial year and have been adopted by the Group with no effect on its consolidated results or financial position:
IFRIC 14 (Amended) and Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods
IAS 19 (Amended)
beginning on or after 1 January 2011).
The following relevant standards and interpretations were issued by the IASB or the IFRIC before the period end but are as yet not effective for
the 2011 year end:
IAS 1 (Amended)
Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012)
IAS 12 (Amended)
Deferred tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012)
IAS 19 (Amended)
Employee Benefits (effective for annual periods beginning on or after 1 January 2013)
IAS 27 (Amended)
Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013)
IAS 28 (Amended)
Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2013)
IAS 32 (Amended)
Offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2014)
IFRS 7 (Amended)
Disclosures – Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011)
IFRS 7 (Amended)
Disclosures – Offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after
1 January 2013)
IFRS 7 (Amended)
Disclosures – Initial application of IFRS 9 (effective for annual periods beginning on or after 1 January 2015)
IFRS 9
Financial Instruments (effective for annual periods beginning on or after 1 January 2015).
IFRS 10
Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013)
IFRS 11
Joint arrangements (effective for annual periods beginning on or after 1 January 2013)
IFRS 12
Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2013)
IFRS 13
Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013)
The Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results.
111
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
1. Accounting policies (continued)
Basis of accounting
The consolidated and company financial statements have been prepared under the historical cost convention other than for the valuation of certain
financial instruments.
Critical accounting policies, estimates and judgements
The preparation of financial statements under IFRS requires the Group to make estimates and judgements that affect the application of policies
and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including
expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
Included in this note are accounting policies which cover areas that the Directors consider require estimates, judgements and assumptions which
have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These policies,
together with references to the related notes to the financial statements, can be found as follows:
Functional currency
note 1
Revenue recognition
note 2
Intangible assets and impairment of goodwill
note 10
Regulatory compliance, litigation and contingent liabilities
note 23
Acquisition accounting and value of acquired assets and liabilities
note 26
Provisions
note 19
Tax including deferred tax
note 7
Held for sale disposal groups
note 8
note 29
Basis of consolidation
Under section 10(2) of the Gibraltar Companies (Consolidated Accounts) Act 1999, the Company is exempt from the requirement to present its own
statement of comprehensive income.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Accounting for the Company’s acquisition of the controlling interest in PartyGaming Holdings Limited
The Company’s controlling interest in its directly held, wholly-owned subsidiary, PartyGaming Holdings Limited (formerly Headwall Ventures
Limited), was acquired through a transaction under common control, using a form of accounting that is similar to pooling of interests.
Accounting for subsidiaries
A subsidiary is an entity controlled directly or indirectly by the Company. Control is achieved where the Company has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities.
On the date of acquisition the assets and liabilities of the relevant subsidiaries are measured at their fair values. The non-controlling interest is stated
at the non-controlling interest’s proportion of the fair values of the assets and liabilities recognised.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of acquisition or up
to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with those used by the Group.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling
interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder’s share
of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results
in the non-controlling interests having a deficit balance.
Investments in subsidiaries held by the Company are carried at cost less any impairment in value.
Financials
112
bwin.party
Business combinations
Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control
of the acquiree. Acquisition-related costs are recognised in the income statement as incurred. The acquiree’s identifiable assets and liabilities are
recognised at their fair values at the acquisition date.
The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value or at the non-controlling shareholders’
proportion of the net fair value of the identifiable assets acquired, liabilities and contingent liabilities assumed. The choice of measurement basis
is made on an acquisition-by-acquisition basis.
Investments
Investments include investments in associates, joint ventures and available‑for‑sale investments.
Available‑for‑sale investments
Non-derivative financial assets classified as available-for-sale comprise the Group’s strategic investments in entities not qualifying as subsidiaries,
associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. In accordance with
IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of
comprehensive income.
Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and
settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that
asset is removed from equity and recognised in the consolidated statement of comprehensive income.
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant
influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting.
Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for
post‑acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the investment. Losses of
an associate in excess of the Group’s interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised,
only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
Investments in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that
is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.
The Group reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in joint
ventures are carried in the consolidated statement of financial position at cost as adjusted for post‑acquisition changes in the Group’s share of the
net assets of the joint venture, less any impairment in the value of the investment. Losses of a joint venture in excess of the Group’s interest in that
investment are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal
or constructive obligations or made payments on behalf of the joint venture.
113
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Intangible assets
Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributed to the asset
will flow to the Group and the cost of the asset can be reliably measured.
Goodwill
Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the
acquiree and the fair value of the Group’s previously held equity interest in the acquiree, if any, over the net amounts of identifiable assets acquired
in the subsidiary, associate or jointly controlled entity and liabilities assumed at the acquisition date.
For acquisitions where the agreement date is on or after 31 March 2004, goodwill is not amortised and is reviewed for impairment at least annually.
Any impairment is recognised immediately in the consolidated statement of comprehensive income and is not subsequently reversed. Goodwill
arising on earlier acquisitions was being amortised over its estimated useful life of 20 years. In accordance with the transitional provisions of IFRS 3
Business Combinations, the unamortised balance of goodwill at 31 December 2004 was frozen and reviewed for impairment and will be reviewed for
impairment at least annually.
Externally acquired intangible assets
Intangible assets are recognised on business combinations if they are separate from the acquired entity or give rise to other contractual or legal
rights. Identifiable assets are recognised at their fair value at the acquisition date. The identified intangibles are amortised over the useful economic
life of the assets.
Internally generated intangible assets – research and development expenditure
Expenditure incurred on development activities, including the Group’s software development, is capitalised only where the expenditure will lead
to new or substantially improved products or processes, the products or processes are technically and commercially feasible and the Group has
sufficient resources to complete development. The expenditure capitalised includes the cost of materials, labour and an appropriate proportion
of overheads. All other development expenditure is expensed as incurred.
Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the
asset to which it relates. All other expenditure, including that incurred in order to maintain the related intangible asset’s current level of performance,
is expensed as incurred.
Amortisation of intangible assets
Amortisation is provided to write-off the cost of all intangible assets, with the exception of goodwill, over the periods the Group expects to benefit
from their use, and varies between:
Brand and domain names
– 5% to 20% per annum
Broadcast libraries
– 50% per annum
Capitalised development expenditure
Contractual relationships
– over the length of the contract
Customer lists and contracts
Intellectual property and gaming licences
– over the length of the licence
Software
Financials
114
bwin.party
Impairment of goodwill, other intangibles and property, plant and equipment
At the end of each reporting year, the Group reviews the carrying amounts of its goodwill, other intangibles and property, plant and equipment to
determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cashflows that are
independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible
asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cashflows are
discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cashflows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset
is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had
no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income
immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation
increase. Impairments related to goodwill are not reversed.
All property, plant and equipment are stated at cost, less accumulated depreciation, with the exception of freehold land and buildings which are
stated at cost and are not depreciated due to immateriality.
Assets in the course of construction are carried at cost, less any recognised impairment loss. Cost includes directly attributable costs incurred in
bringing the assets to working condition for their intended use, including professional fees. Depreciation commences when the assets are ready
for their intended use.
Depreciation is provided to write-off the cost, less estimated residual values, of all property, plant and equipment with the exception of freehold
land and buildings, evenly over their expected useful lives. It is calculated at the following rates:
Leasehold improvements
– over length of lease
Plant, machinery, computer equipment
– 33% per annum
Fixtures, fittings, tools and equipment, vehicles
– 20% per annum
Where an item of property, plant or equipment comprises major components having different useful lives, they are accounted for as separate items
of property, plant and equipment.
Subsequent expenditure is capitalised where it is incurred to replace a component of an item of plant, property or equipment where that item
is accounted for separately including major inspection and overhaul. All other subsequent expenditure is expensed as incurred, unless it increases
the future economic benefits to be derived from that item of plant, property and equipment.
115
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Segment information
An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses.
Each segment’s operating results are regularly reviewed by the Group to make decisions about resources to be allocated to the segment and
assess its performance. The method for determining what information to report is based on the way management organises the operating
segments within the Group for decision-making purposes and for the assessment of financial performance. The Group reviews financial statements
presented by product type which are supplemented by some information about geographic regions for the purposes of making operating decisions
and assessing financial performance. Therefore, the Group has determined that it is appropriate to report according to product segment.
Revenue
Revenue from online gaming, comprising sports betting, casino and games, poker, bingo, and network services (third-party entities that use the
Group’s platform and certain services), as well as fees from broadcasting, hosting and subscriptions, is recognised in the accounting periods in which
the gaming transactions occur.
Revenue is measured at the fair value of the consideration received or receivable and is net of certain promotional bonuses and the value of loyalty
points accrued.
Net revenue consists of net gaming revenue and revenue generated from foreign exchange commissions on customer deposits and withdrawals
and account fees. Poker net revenue represents the commission charged or tournament entry fees where the player has concluded his or her
participation in the tournament. Casino, bingo and sports betting net revenue represents net house win adjusted for the fair market value of gains
and losses on open betting positions. Revenue generated from foreign exchange commissions on customer deposits and withdrawals and account
fees is allocated to each reporting segment.
Other revenue consists primarily of revenue from network services, third-party payment services, sale of domain names, financial markets and fees
from broadcasting, hosting and subscriptions. Revenue in respect of network service arrangements where the third-party owns the relationship
with the customer is the net commission invoiced.
Interest income is recognised on an accruals basis.
Cost of sales
Cost of sales consists primarily of betting and gaming taxes and broadcasting costs.
Broadcasting costs are expensed over the applicable life cycle of each programme based upon the ratio of the current year’s revenue to the
estimated remaining total revenues.
Other operating income consists primarily of exchange gains.
Other operating expenses
Other operating expenses consist primarily of exchange losses and merger and acquisition expenses and are recognised on an accruals basis.
Financials
116
bwin.party
Foreign currency
Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their
‘functional currency’) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated
at the rates ruling at the end of the reporting year. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities
are recognised immediately in the consolidated statement of comprehensive income, except for foreign currency borrowings qualifying as a hedge
of a net investment in a foreign operation, in which case exchange differences are recognised in a separate component of equity.
On consolidation, the results of overseas operations are translated into euros at rates approximating to those ruling when the transactions took
place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate
ruling at the end of the reporting year. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas
operations at actual rate are recognised directly in equity (the ‘currency reserve’).
Exchange differences recognised in the statement of comprehensive income of Group entities’ separate financial statements on the translation of
long-term monetary items forming part of the Group’s net investment in the overseas operation concerned are reclassified to the currency reserve
on consolidation.
On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation
up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal.
The financial statements were translated into euros at the following rates:
Argentinian pesos (ARG)
31-Dec-11
Average 2011
0.1794
0.1735
31-Dec-10
n/a*
Average 2010
n/a*
1.1460
1.1647
1.1653
0.5113
0.5113
0.5111
British pound (GBP)
1.1979
Bulgarian Lev (BGN)
0.5114
Chinese yuan (CNY)
0.1226
0.1104
Indian rupees (INR)
0.0145
0.0155
0.0167
0.0164
Israeli shekel (ILS)
0.2020
0.2002
0.2109
0.2011
Mexican pesos (MEX)
0.0553
0.0580
n/a*
n/a*
South African Rand (ZAR)
0.0955
0.1002
n/a*
n/a*
Swedish Kronor (SEK)
0.1118
0.1108
US dollar (USD)
0.7717
0.7126
n/a*
n/a*
0.7462
n/a*
n/a*
0.7533
* n/a as relates to currencies used by bwin entities that were not part of the Group in 2010.
Taxation
Income tax expense represents the sum of the Directors’ best estimate of taxation exposures and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of
comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group’s liability for current tax is calculated using rates that have been enacted or substantively enacted
by the end of the reporting year.
117
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences other than where IAS 12 Income Taxes contains specific exemptions.
Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint
ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting year and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is
charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt
with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current assets against current tax liabilities and when
they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Non-current assets and disposal groups are classified as held for sale if the carrying amount will be recovered through a sale transaction rather than
through continuing use. This condition is regarded as being met only when the sale is highly probable, management is committed to a sale plan, the
asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification.
These assets are measured at the lower of carrying value and fair value less associated costs of sale.
The Group has applied the requirements of IFRS 2 Share-based Payments. The Group issues equity‑settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting period and based, for those share options which contain only non-market
vesting conditions, on the Group’s estimate of the shares that will eventually vest. Fair value is measured by use of a suitable option pricing model.
The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise
restrictions, and behavioural considerations.
For cash-settled share-based payment transactions, the goods or services received and the liability incurred are measured at the fair value of
the liability. Up to the point at which the liability is settled, the fair value of the liability is re-measured at each reporting date and at the date of
settlement, with changes being recorded in consolidated statement of comprehensive income. The Group records the expense based on the fair value
of the share-based payments on a straight-line basis over the vesting period. For cash payments made by parties related to Principal Shareholders,
the charge is recorded when there is a commitment to make the payment.
Where equity instruments of the parent company or a subsidiary are transferred, or cash payments based on the Company’s (or a subsidiary’s) share
price are made, by shareholder(s) or entities that are effectively controlled by one or more shareholder(s), the transaction is accounted for as a
share-based payment, unless the transfer or payment is clearly for a purpose other than payment for goods or services supplied to the Group.
Where equity instruments are transferred by one or more shareholder(s), the amount recorded in reserves is included in the share-based payment
reserve. Where a cash payment is made, this is recorded as a capital contribution.
Financials
118
bwin.party
Treasury shares
Treasury shares relate to shares gifted to the Employee Trust by the Company and to shares repurchased as part of the share buyback programme.
The cost of treasury shares creates an own share reserve.
When options issued by the Employee Trust are exercised the own share reserve is reduced and a gain or loss is recognised in reserves based
on proceeds less weighted-average cost of shares exercised.
Own shares repurchased for the share buyback programme are carried at cost.
Provisions and contingent liabilities
The Group recognises a provision in the consolidated statement of financial position when it has a legal or constructive obligation as a result
of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation.
Where the Group has a possible obligation as a result of a past event that may, but probably will not, result in an outflow of economic benefits,
no provision is made. Disclosures are made of the contingent liability including, where practicable, an estimate of the financial effect, uncertainties
relating to the amount or timing of outflow of resources, and the possibility of any reimbursement.
Where time value is material, the amount of the related provision is calculated by discounting the cashflows at a pre-tax rate that reflects market
assessments of the time value of money and any risks specific to the liability.
Leased assets
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease
payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of
financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the consolidated
statement of comprehensive income.
Rentals payable under operating leases are charged directly to the consolidated statement of comprehensive income on a straight-line basis over
the term of the relevant lease.
Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.
Derivative financial instruments
The Group uses derivative financial instruments to manage currency cashflows and to hedge foreign exchange risk on non-US dollar denominated
financial assets and liabilities. The derivative instruments used by the Group consist mainly of spot and forward foreign exchange contracts.
Derivative financial instruments are recognised in the statement of financial position at fair value calculated using either discounted cashflow
techniques or by reference to market prices supplied by banks. Changes in the fair value of derivative financial instruments are recognised in the
Consolidated statement of comprehensive income.
119
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Financial assets
The Group’s financial assets which are financial instruments are categorised as loans, receivables and available-for-sale financial assets.
These include restricted cash and unrestricted bank deposits with maturities of more than three months. Amounts held as security deposits are
considered to be restricted cash. There are no financial assets that are classified as ‘held to maturity’. A category for ‘in the money’ derivative
financial instruments was not required since there were no derivative financial instruments held as at 31 December 2011 or 31 December 2010.
Non-derivative financial assets classified as available-for-sale comprise the Group’s strategic investments in entities not qualifying as subsidiaries,
associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. In accordance with
IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of
comprehensive income.
Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and
settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that
asset is removed from equity and recognised in the Consolidated statement of comprehensive income.
Short-term investments are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are
initially recognised at fair value, plus transaction costs directly attributable to their acquisition or issue. They are subsequently carried at amortised
cost using the effective interest rate method, less any provisions for impairment.
Trade and other receivables represent short-term monetary assets which are recognised at fair value less impairment and other related provisions,
which are recognised when there is objective evidence (primarily default or significant delay in payment) that the Group will be unable to collect all
of the amounts due. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected
cashflows associated with the impaired receivable.
Cash comprises cash in hand and balances with financial institutions. Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash. They include unrestricted short-term bank deposits originally purchased with maturities of three months
or less.
Financial liabilities
The Group’s financial liabilities are all categorised as financial liabilities measured at amortised cost. Financial liabilities include the following items:
• Client liabilities, including amounts due to progressive prize pools.
• Trade payables and other short-term monetary liabilities which are initially recognised at fair value and subsequently carried at amortised cost
using the effective interest rate method, which ensures that interest expense over the period to repayment is at a constant rate on the balance
of the liability carried in the Consolidated statement of financial position.
• Loans and borrowings, comprising bank borrowings and overdrafts, which are initially recognised at fair value, net of any transaction costs
directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently valued at amortised cost using the effective
interest rate method. Interest expense in this context includes initial transaction costs, as well as any interest or coupon payable while the liability
is outstanding.
• A category for ‘out of the money’ derivative financial instruments was not required since there were no derivative financial instruments
as at 31 December 2011 or 31 December 2010.
Share capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability.
The Group’s ordinary shares are classified as equity instruments.
Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared
by the Directors. In the case of final dividends, this is when approved by the Shareholders at the Annual General Meeting.
Financials
120
bwin.party
2. Segment information
For management purposes and transacting with customers, the Group’s operations can be segmented into the following reporting segments:
• sports betting,
• casino & games,
• poker,
• bingo and
• unallocated corporate (including World Poker Tour, InterTrader.com and the payment services business).
These segments are the basis upon which the Group currently reports its segment information. Unallocated corporate expenses, assets and
liabilities relate to the Group as a whole and are not allocated to individual segments. The measure of reporting segment performance is Clean
EBITDA and the basis for arriving at this is the same as the Group accounts.
Following the acquisition of bwin a review is currently being undertaken of the need to change the Group’s reporting of results to the Chief Operating
Decision Makers (‘CODMs’) which could have a consequential effect on the reporting of segmental information under IFRS 8. Any such changes would
be reflected in the future once this exercise has been completed.
Sports
betting
Casino &
games
Poker
Bingo
Unallocated
corporate
Consolidated
€million
€million
€million
€million
€million
€million
193.9
237.5
184.6
58.5
–
674.5
0.8
0.9
2.9
0.9
11.1
16.6
194.7
238.4
187.5
59.4
11.1
691.1
Net revenue
Other revenue
Total revenue
46.0
83.2
26.1
19.8
(6.8)
168.3
(158.4)
(110.2)
(120.8)
3.4
(36.9)
(422.9)
Net revenue
–
–
–
–
–
–
Other revenue
–
–
10.1
–
–
10.1
Total revenue
–
–
10.1
–
–
10.1
Clean EBITDA
–
–
(13.1)
–
–
(13.1)
Loss before tax
–
–
(15.7)
–
–
(15.7)
193.9
237.5
184.6
58.5
–
674.5
0.8
0.9
13.0
0.9
11.1
26.7
194.7
238.4
197.6
59.4
11.1
701.2
Clean EBITDA
Total operations
Net revenue
Other revenue
Total revenue
Clean EBITDA
46.0
83.2
13.0
19.8
(6.8)
155.2
(158.4)
(110.2)
(136.5)
3.4
(36.9)
(438.6)
121
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
2. Segment information (continued)
Sports
betting
Casino &
games
Poker
Bingo
Unallocated
corporate
Consolidated
€million
€million
€million
€million
€million
€million
20.7
152.1
124.2
51.4
–
348.4
Net revenue
–
–
1.1
1.1
6.7
8.9
Total revenue
20.7
152.1
125.3
52.5
6.7
357.3
Clean EBITDA
8.9
53.4
18.7
15.2
(1.9)
94.3
3.3
48.3
15.7
0.3
(23.8)
43.8
Net revenue
–
–
–
–
–
–
Other revenue
–
–
–
–
–
–
Total revenue
–
–
–
–
–
–
Clean EBITDA
–
–
–
–
(0.2)
(0.2)
Loss before tax
–
–
–
–
(1.3)
(1.3)
20.7
152.1
124.2
51.4
–
348.4
Other revenue
Total operations
Net revenue
–
–
1.1
1.1
6.7
8.9
Total revenue
20.7
152.1
125.3
52.5
6.7
357.3
Clean EBITDA
8.9
53.4
18.7
15.2
(2.1)
94.1
3.3
48.3
15.7
0.3
(25.1)
42.5
Other revenue
In the consolidated financial statements for the year ended 31 December 2010 backgammon was classified as part of the poker segment and
certain casino games on the sports platform as part of the sports betting segment. Both are now classified as part of the casino & games segment.
Also, exchange differences were reported as part of Clean EBITDA whereas now they are not. As a result, the following increases (decreases) have
been made to the previously reported results for both continuing and total operations for the year ended 31 December 2010:
Sports
betting
Casino &
games
Poker
Bingo
Unallocated
corporate
Consolidated
€million
€million
€million
€million
€million
€million
Net revenue
(0.1)
0.7
(0.6)
–
–
–
Total revenue
(0.1)
0.7
(0.6)
–
–
–
Clean EBITDA
(0.1)
0.7
(0.6)
–
(6.1)
(6.1)
(0.1)
0.7
(0.6)
–
–
–
Geographical analysis of total revenue
The following table provides an analysis of the Group’s total revenue by geographical segment:
2011
2010
€million
€million
142.1
48.3
81.3
79.3
Other
467.7
229.7
Total revenue
691.1
357.3
Germany
United Kingdom
Financials
122
bwin.party
3. Other operating expenses
Merger and acquisition expenses
Exchange losses
2011
2010
€million
€million
12.0
4.9
4.5
–
16.5
4.9
Merger and acquisition expenses incurred during the year relate to the completed merger with bwin.
4. (Loss) profit from operating activities
2011
2010
€million
€million
This has been arrived at after charging (crediting):
7.0
7.0
126.9
32.8
Depreciation on property, plant and equipment
19.6
6.4
Product development (including staff cost)
Directors’ emoluments
11.0
3.3
Loss (profit) on disposal of fixed assets
1.2
(0.1)
Exchange loss (gain)
4.5
(6.1)
6.3
0.7
Impairment losses – trade receivables (bad debts)
9.6
2.9
–
0.1
391.7
–
1.7
–
Impairment losses – assets held for sale
Impairment losses – goodwill
Impairment losses – associates
Impairment losses – other intangibles
Auditors’ remuneration – audit services
Of which: Auditors’ remuneration – merger and acquisition expenses
15.3
–
0.5
0.5
12.0
4.9
0.2
0.9
5. Staff costs
2011
2010
€million
€million
Wages and salaries
89.6
53.3
12.0
9.2
Employer social insurance contribution
13.0
2.8
Aggregate remuneration including Directors comprised:
Other benefits
8.3
2.0
122.9
67.3
Details of Directors’ emoluments are set out in the Remuneration report.
2011
2010
€million
€million
11
6
Administration
213
134
Customer service
524
356
Average number of employees
Directors
Others
1,733
868
2,481
1,364
123
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
6. Finance income and expense
2011
2010
€million
€million
Interest income
6.4
0.9
Finance income
6.4
0.9
Interest expense
(1.6)
(1.9)
Unwinding of discount on current and non-current liabilities
(7.5)
(1.5)
Finance expense
(9.1)
(3.4)
Net finance expense
(2.7)
(2.5)
7. Tax
Analysis of tax charge
2011
Current tax expense for the period
Deferred tax (credit) expense for the period
Tax (credit) expense
Continuing
operations
Discontinued
operations
€million
€million
2010
Total
Continuing
operations
Discontinued
operations
Total
€million
€million
€million
€million
11.8
0.6
12.4
7.4
–
7.4
(20.0)
–
(20.0)
(3.8)
–
(3.8)
(8.2)
0.6
(7.6)
3.6
–
3.6
The effective tax rate for the year based on the associated tax expense is 2.0% (2010: 8.2%).
The total (credit) expense for the period can be reconciled to accounting (loss) profit as follows:
(Loss) profit before tax from Continuing operations
Loss before tax from Discontinued operations
(Loss) profit before tax
Tax rate in Gibraltar of 10% (2010: 0%)
2011
2010
€million
€million
(422.9)
43.8
(15.7)
(1.3)
(438.6)
42.5
(43.9)
–
2.8
–
(20.0)
(3.8)
Effect of tax in other jurisdictions
12.7
7.4
Effect of impairment not allowed for tax purposes
40.9
–
Total income tax (credit) expense for the period
(7.5)
3.6
Effect of expenses not allowed for tax purposes
Effect of deferred tax
The expenses not allowed for tax purposes are primarily amortisation and impairment of intangible assets.
Factors affecting the tax charge for the period
The Group’s policy is to manage, control and operate Group companies only in the countries in which they are registered. At the period end there
were Group companies registered in 24 countries including Gibraltar. However, the rules and practice governing the taxation of eCommerce activity
are evolving in many countries. It is possible that the amount of tax that will eventually become payable may differ from the amount provided in the
financial information.
Factors that may affect future tax charges
As the Group is involved in worldwide operations, future tax charges will be affected by the levels and mix of profitability in different jurisdictions.
Future tax charges will be reduced by a deferred tax credit in respect of amortisation of certain acquired intangibles.
Financials
124
bwin.party
8. Discontinued operations
Consolidated statement of comprehensive income
2011
2010
€million
€million
Other revenue
10.1
–
Total revenue
10.1
–
Gross profit
10.1
–
(0.5)
–
(22.2)
(0.2)
(2.5)
–
(15.1)
(0.2)
Finance expense
(0.6)
(1.1)
Loss before tax
(15.7)
(1.3)
Loss from operating activities
Tax
Loss for the period attributable to the equity holders of the parent
(0.6)
–
(16.3)
(1.3)
2.2
0.3
Loss per share (€ cents)
Basic and diluted
Consolidated statement of cashflows
2011
2010
€million
€million
(16.3)
(1.3)
Depreciation of property, plant and equipment
0.7
–
1.3
–
Interest expense
0.6
1.1
0.1
–
Loss for the period
Adjustments for:
Income tax expense
0.6
–
(13.0)
(0.2)
2.1
–
Increase (decrease) in trade and other payables
(19.9)
(22.4)
Net cash outflow from operating activities
(30.8)
(22.6)
Increase in trade and other receivables
Investing activities
2.4
–
Purchases of intangible assets
(1.4)
–
Purchases of property, plant and equipment
(1.8)
–
Net cash used in investing activities
(0.8)
–
(31.6)
(22.6)
–
4.5
(31.6)
(18.1)
Net cash acquired on acquisition of subsidiaries and businesses
Net decrease in cash and cash equivalents
125
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
8. Discontinued operations (continued)
Ongame B2B
On 30 June 2011 the Board announced its intention to sell the Ongame B2B business it acquired during the period as part of the Merger. On 6 March 2012
the Company announced that it had agreed to sell Ongame, its business-to-business (‘B2B’) online poker network, to Shuffle Master, Inc (‘Shuffle
Master’) for a total cash consideration of up to €29.5 million. See note 30 for further details.
US
US refers to those operations located physically outside of the US but which relate to US customers that were no longer accepted following the
enactment of the UIGEA.
9. Earnings per Share (‘EPS’)
2011
Continuing
operations
Discontinued
operations
€ cents
€ cents
Basic EPS
(56.0)
Diluted EPS
(56.0)
Basic Clean EPS
Diluted Clean EPS
2010
Total
Continuing
operations
Discontinued
operations
Total
€ cents
€ cents
€ cents
€ cents
(2.2)
(58.2)
9.8
(0.3)
9.5
(2.2)
(58.2)
9.3
(0.3)
9.0
17.9
(2.1)
15.8
17.8
(0.1)
17.7
17.5
(2.1)
15.4
16.8
(0.1)
16.8
* A diluted EPS calculation may not increase a basic EPS calculation when the basic EPS is a loss.
Basic earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the period, excluding those held as treasury shares.
2011
2010
Total
Total
(428.9)
38.9
Weighted average number of ordinary shares (million)
737.2
408.5
Basic earnings (loss) per ordinary share (€ cents)
(58.2)
9.5
Adjusted earnings (€million)
116.6
72.5
Weighted average number of ordinary shares (million)
737.2
408.5
15.8
17.7
Basic EPS
Basic (loss) earnings (€million)
Basic Clean EPS
Adjusted earnings per ordinary share (€ cents)
Clean earnings per share
In previous periods the performance measure of EPS used internally by management to manage the operations of the business and remove the
impact of one-off and certain non-cash items was Clean EPS, which was calculated before the provision for costs associated with the Group’s
Non-Prosecution Agreement, reorganisation expenses, merger and acquisition expenses and share-based payments. Following the Merger,
management have amended their performance measure to also add back exchange differences and amortisation and impairments on acquisitions,
which they believe better reflects the underlying performance of the business and assists in providing a clearer view of the fundamental
performance of the Group.
Financials
126
bwin.party
9. Earnings per Share (‘EPS’) (continued)
Clean net earnings excluding amortisation and impairments on acquisitions attributable to equity shareholders is derived as follows:
2011
Earnings (loss) for the purposes of basic and diluted earnings
per share being profit attributable to equity holders of the parent
Unwinding of discount associated with the Group’s
Non‑Prosecution Agreement
Continuing
operations
Discontinued
operations
€million
€million
(412.6)
2010
Total
Continuing
operations
Discontinued
operations
Total
€million
€million
€million
€million
(16.3)
(428.9)
40.2
(1.3)
38.9
–
0.6
0.6
–
1.1
1.1
6.3
–
6.3
0.7
–
0.7
12.0
0.3
12.3
4.9
–
4.9
Exchange losses (gains)
4.5
(0.4)
4.1
(6.2)
–
(6.2)
12.0
0.1
12.1
9.2
–
9.2
Amortisation on acquired intangible assets
121.0
–
121.0
27.7
–
27.7
– Tax thereon
(15.1)
–
(15.1)
(3.8)
–
(3.8)
Impairments on acquired intangible assets and goodwill
408.7
–
408.7
–
–
–
(4.5)
–
(4.5)
–
–
–
132.3
(15.7)
116.6
72.7
(0.2)
72.5
– Tax thereon
Clean net earnings
2011
2010
Number
million
Number
million
413.1
412.4
(4.0)
(4.6)
331.4
0.4
Weighted average number of shares
Number of shares in issue as at 1 January
Number of shares in issue as at 1 January held by the Employee Trust
Weighted average number of shares issued during the period
Weighted average number of shares purchased during the period
Effect of vested share options
Weighted average number of ordinary shares for the purposes of basic earnings per share
Effect of potential dilutive unvested share options and contingently issuable shares
Weighted average number of ordinary shares for the purposes of diluted earnings per share
(4.3)
–
1.0
0.3
737.2
408.5
19.3
23.2
756.5
431.7
In accordance with IAS 33, the weighted average number of shares for diluted earnings per share takes into account all potentially dilutive equity
instruments granted which are not included in the number of shares for basic earnings per share above. Although the unvested, potentially dilutive
equity instruments are contingently issuable, in accordance with IAS 33, the period end is treated as the end of the performance period. Those option
holders who were employees at that date are deemed to have satisfied the performance requirements and their related potentially dilutive equity
instruments have been included for the purpose of diluted EPS.
127
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
10. Intangible assets
Goodwill
Acquired
intangibles
Other
intangibles
Total
€million
€million
€million
€million
211.1
166.7
9.4
387.2
(3.7)
–
–
(3.7)
–
–
3.8
3.8
10.9
8.8
2.8
22.5
Cost or valuation
As at 1 January 2010
Adjustment to consideration of prior business combinations
Additions
Exchange movements
As at 31 December 2010
218.3
175.5
16.0
409.8
Acquired through business combinations (see note 26)
473.3
608.7
–
1,082.0
–
–
11.0
11.0
11.8
Additions
6.3
5.0
0.5
Disposals
–
–
(5.9)
(5.9)
Reclassified as assets held for sale
–
(37.8)
(1.2)
(39.0)
697.9
751.4
20.4
1,469.7
52.9
97.2
4.2
154.3
32.8
Exchange movements
Amortisation
–
27.7
5.1
Exchange movements
3.9
6.1
0.8
10.8
56.8
131.0
10.1
197.9
126.9
Charge for the period
Charge for the period
Exchange movements
Impairment
–
121.0
5.9
1.9
3.9
0.3
6.1
391.7
15.3
–
407.0
(5.9)
Disposals
–
–
(5.9)
–
(0.9)
–
(0.9)
450.4
270.3
10.4
731.1
Carrying amounts
161.5
44.5
5.9
211.9
247.5
481.1
10.0
738.6
Financials
128
bwin.party
10. Intangible assets (continued)
Acquired intangible assets are those intangible assets purchased as part of an acquisition and primarily include customer lists, brands, software
and broadcast libraries. The value of acquired intangibles is based on cashflow projections at the time of acquisition. Customer lists from existing
customers take into account the expected impact of player attrition.
Other intangibles primarily include development expenditure, long-term gaming and intellectual property licences and purchased domain names.
Development expenditure represents software infrastructure assets that have been developed and generated internally. Licences are amortised
over the life of the licences and other intangibles are being amortised over their estimated useful economic lives of between three and five years.
During 2010, both contingent consideration, and consequently goodwill, were subsequently revised down by €3.7m based on Cashcade’s profit
performance in 2010 which was in the middle of the target range for the earnout.
The €15.3m impairment of acquired intangibles in 2011 relates to software acquired as part of the Merger that will not be used for its normal
economic life.
Goodwill
Goodwill is allocated to the following cash‑generating units (CGUs):
As at 31 December
2011
2010
€million
€million
7.0
6.4
Gamebookers
66.7
64.5
EOL/IOG
26.1
26.1
Cashcade
66.6
64.5
bwin
81.1
–
247.5
161.5
PartyPoker
At end of year
Impairment
In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 31 December
2011 to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets.
PartyPoker and Cashcade
In respect of the PartyPoker and Cashcade CGUs, the Directors have concluded that there are no reasonably possible changes in key assumptions
which would cause the carrying value of goodwill and other intangibles to exceed their value in use.
EOL/IOG
The recoverable amount of EOL/IOG has been determined with reference to the contribution the CGU makes towards the overall casino vertical.
The Directors have concluded therefore that there are no reasons which would cause the carrying value of goodwill and other intangibles to exceed
their value in use.
Gamebookers
The recoverable amount of Gamebookers has been determined from value in use calculations based on cashflow projections covering the following
ten year period. The Group believes that going beyond five years’ cashflows in the value in use calculations is appropriate given the Group is an
established business and is a leader in a growth industry. The projections include the formally approved budget for 2012 and a detailed forecast
for 2013.
129
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
10. Intangible assets (continued)
Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount
rates are based on the Group’s weighted average cost of capital, adjusted to reflect management’s assessment of specific risks related to the CGU.
Excess of the
recoverable
amounts over the
carrying value
Break-even analysis with other key
assumptions remaining the same
Key assumptions used in the projections
€million
Discount
rate
10.0
12.1%
41.2%
3.6%
15.5%
35.9%
(1.4%)
20.3
9.5%
23.0%
2.4%
12.2%
17.6%
(2.6%)
Gamebookers
Operating
margin
Growth
rate
Discount
rate
Operating
margin
Growth
rate
bwin
Although the Merger was effectively a merger of equals with all consideration satisfied in shares, IFRS requires the Merger to be accounted for as if
PartyGaming had acquired bwin. The accounting for this resulted in the recognition of goodwill at the time of the Merger measured as the difference
in value between the consideration and the fair value of the separately identified assets and liabilities of bwin. The consideration was measured
using the PartyGaming share price at the time of the Merger and before proposed regulatory changes were announced one week later, which resulted
in a substantial reduction in the Company’s share price. Had the merger completed one week later, no such impairment would have been required.
The uncertainty created by the proposed regulatory changes in Europe, particularly those in Germany, have resulted in the Directors applying
probability weighted forecasts to determine the cashflow projections for this CGU. This has had an adverse effect on the projected value in use
of this operation and consequently resulted in an impairment to goodwill of €391.7m.
The recoverable amount of bwin has been determined from value in use calculations based on cashflow projections covering the following ten year
period. The Group believes that going beyond five years’ cashflows in the value in use calculations is appropriate given the Group is an established
business and is a leader in a growth industry.
Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount
rates are based on the Group’s weighted average cost of capital, adjusted to reflect management’s assessment of specific risks related to the CGU.
The table below shows the effect of changes in the key assumptions would have on the impairment amount.
Discount
rate
Operating
margin
Growth
rate
10.3%
18.1%
2.5%
Effect of 1% increase in assumption on impairment
€59.4m
(€44.7m)
(€32.2m)
Effect of 1% decrease in assumption on impairment
(€74.0m)
€44.3m
€30.1m
bwin
Financials
130
bwin.party
11. Property, plant and equipment
Land and
buildings
Plant,
machinery and
vehicles
Fixtures,
fittings,
tools and
equipment
Total
€million
€million
€million
€million
4.4
4.4
62.8
71.6
Additions
0.1
0.5
7.4
8.0
Disposals
(0.8)
(0.2)
(2.4)
(3.4)
Exchange movements
0.3
0.4
3.1
3.8
4.0
5.1
70.9
80.0
2.6
1.4
15.3
19.3
Additions
9.6
2.4
18.6
30.6
Disposals
(2.9)
(0.9)
(5.2)
(9.0)
0.1
(0.3)
0.7
0.5
–
(0.4)
(7.8)
(8.2)
13.4
7.3
92.5
113.2
3.5
3.5
56.1
63.1
Charge for the year
0.7
0.6
5.1
6.4
Disposals
(0.8)
(0.1)
(2.4)
(3.3)
Exchange movements
0.1
0.2
4.0
4.3
3.5
4.2
62.8
70.5
1.4
1.2
17.0
19.6
(2.6)
(0.6)
(4.4)
(7.6)
Cost or valuation
Exchange movements
Depreciation
Charge for the year
Disposals
0.1
(0.2)
1.0
0.9
–
(0.1)
(2.9)
(3.0)
2.4
4.5
73.5
80.4
0.5
0.9
8.1
9.5
11.0
2.8
19.0
32.8
Exchange movements
Carrying amounts
12. Commitments for capital expenditure
As at 31 December
Contracted but not provided for
2011
2010
€million
€million
4.9
1.5
131
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
13. Investments
Associates
Joint Available-for-sale
ventures
financial assets
Total
€million
€million
–
–
–
–
Additions
–
–
1.7
1.7
€million
€million
–
–
1.7
1.7
9.0
–
–
9.0
1.3
10.0
3.3
14.6
Share of (loss) profit
(1.0)
0.5
–
(0.5)
Impairments
(1.7)
–
–
(1.7)
7.6
10.5
5.0
23.1
Additions
Investment in associates
The following entities meet the definition of an associate and have been equity accounted in the consolidated financial statements:
Proportion of voting rights
held at 31 December
Name
Country of incorporation
2011
2010
Betbull Holding SE
Austria
40%
–
bwin e.k.
Germany
50%
–
Restaurante Coimbra II SL
Spain
50%
–
Aggregated amounts relating to associates are as follows:
Total assets
Total liabilities
Revenues
Profit
2011
2010
€million
€million
32.5
–
4.7
–
14.7
–
0.3
–
There is no unrecognised share of losses arising during the year.
The carrying value at the reporting period related to the investment in associate Betbull Holdings SE is reviewed for impairment by comparing
it to the share of the market value of Betbull Holdings (based on the closing share price), which is listed on the Austrian Stock Exchange.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the
associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment.
As a result of the Merger the group held a 45% holding in Sajoo S.A.S, a company incorporated in France. The assets and liabilities of Sajoo S.A.S were
acquired by the Group on 30 September 2011 in a transaction that generated goodwill of €1.2m. The operation of Sajoo S.A.S was merged into BES
S.A.S at that date. Following the restructuring, the Group’s share of BES S.A.S decreased from 75% to 71%.
Financials
132
bwin.party
13. Investments (continued)
Investment in joint ventures
The following entities meet the definition of a joint venture and have been equity accounted in the consolidated financial statements:
Proportion of voting rights held
at 31 December
Name
2011
2010
Conspo Sportcontent GmbH
Germany
50%
–
Aggregated amounts relating to joint ventures are as follows:
2011
2010
€million
€million
Total assets
18.9
–
Total liabilities
17.9
–
Revenues
21.7
–
0.9
–
As at 31 December
Profit
There is no unrecognised share of losses arising during the year.
Available-for-sale investments
Available‑for‑sale investments primarily relate to the investment by the Group into an early stage digital entertainment investment fund called
NewGame Capital LP (‘NGC’) and a payment processing company called Wave Crest Holdings Limited. The Directors consider that their carrying
amount approximates to their fair values, which is based on estimates of the present value of expected future cashflows.
14. Trade and other receivables
Group
Company
As at
As at
As at
As at
31 December 2011 31 December 2010 31 December 2011 31 December 2010
€million
€million
€million
Payment service providers
62.2
23.6
–
–
Less: chargeback provision
(2.9)
(1.4)
–
–
Payment service providers – net
59.3
22.2
–
–
Prepayments
33.0
15.8
0.8
0.3
Other receivables
37.4
10.3
–
–
–
–
113.4
80.4
129.7
48.3
114.2
80.7
Due from Group companies
€million
The Directors consider that the carrying amount of trade and other receivables approximates to their fair values, which is based on estimates
of amounts recoverable. The recoverable amount is determined by calculating the present value of expected future cashflows.
Provisions are expected to be settled within the next year and relate to chargebacks which are recognised at the Directors’ best estimate of the
provision based on past experience of such expenses applied to the level of activity.
Movements on the provision are as follows:
€million
1.5
Charged to consolidated statement of comprehensive income
2.9
Credited to consolidated statement of comprehensive income
(3.0)
1.4
Acquired through business combinations
1.5
Charged to Consolidated statement of comprehensive income
9.6
Credited to Consolidated statement of comprehensive income
(9.6)
2.9
133
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
15. Short-term investments
2011
2010
As at 31 December
€million
€million
Restricted cash
38.6
3.1
Other short-term investments
1.1
–
39.7
3.1
Restricted cash represents cash held as guarantees for regulated markets licenses and significant marketing contracts together with client funds
held for payment service provider transactions.
16. Cash and cash equivalents
Group
As at 31 December
Cash in hand and current accounts
Company
2011
2010
2011
2010
€million
€million
€million
€million
289.0
193.6
25.5
44.8
17. Trade and other payables
Group
Company
As at
As at
As at
As at
Amounts due under Non-Prosecution Agreement
Deferred and contingent consideration
Other payables
Due to Group companies
Current liabilities
Amounts due under Non-Prosecution Agreement
€million
€million
€million
€million
22.9
22.2
22.9
22.2
1.6
6.7
–
–
88.2
32.0
2.2
2.2
–
–
34.2
33.0
112.7
60.9
59.3
57.4
–
21.7
–
21.7
2.1
1.8
–
–
Later than one year but not later than five years
2.1
23.5
–
21.7
3.1
4.2
–
–
More than five years
3.1
4.2
–
–
5.2
27.7
–
21.7
On 6 April 2009, the Group entered into a Non-Prosecution Agreement with the USAO. Under the terms of the agreement the Group agreed to pay
US$105m, payable in semi-annual instalments over a period ending on 30 September 2012.
Deferred and contingent consideration relates to amounts payable for the acquisitions of Cashcade and WPT.
Other payables comprise amounts outstanding for trade purchases and other ongoing costs. The carrying amount of other payables approximates
to their fair value which is based on the net present value of expected future cashflows.
The amount due under the Non-Prosecution Agreement is recognised at fair value and carried at amortised cost using an effective interest rate
of 2%. The amount due for deferred and contingent consideration is recognised at fair value and carried at amortised cost using an effective interest
rate of 15%.
Financials
134
bwin.party
17. Trade and other payables (continued)
The non-discounted book values for these amounts are as follows:
Amounts due under
Non‑Prosecution Agreement
Deferred and
contingent consideration
As at
As at
As at
As at
Within one year
€million
€million
€million
23.1
22.4
1.8
6.8
–
22.4
3.1
2.4
–
–
10.2
8.7
23.1
44.8
15.1
17.9
€million
18. Client liabilities and progressive prize pools
As at
As at
31 December 2011 31 December 2010
Client liabilities
Progressive prize pools
€million
€million
141.4
85.6
14.8
7.5
156.2
93.1
Client liabilities and progressive prize pools represent amounts due to customers including net deposits received, undrawn winnings, progressive
jackpots and tournament prize pools and certain promotional bonuses. The carrying amount of client liabilities and progressive prize pools
approximates to their fair value which is based on the net present value of expected future cashflows.
19. Provisions
Litigation
Onerous
contracts
Total
€million
€million
€million
–
–
–
–
9.3
9.3
Unwinding of discount
0.1
0.7
0.8
Reclassification due to date of maturity
2.0
6.0
8.0
–
(7.3)
(7.3)
2.1
8.7
10.8
–
–
–
80.8
Current liabilities as at 31 December 2011
71.4
9.4
Unwinding of discount
4.5
0.4
4.9
Reclassification due to date of maturity
(2.0)
(6.0)
(8.0)
73.9
3.8
77.7
Non-current liabilities at 31 December 2011
73.9
3.8
77.7
Litigation refers to provisions made in respect of certain outstanding legal and regulatory disputes and are an estimate of what the Directors believe
to be the fair value based on probability-weighted expected values. In the light of the uncertainty associated with legal and regulatory disputes,
there can be no guarantee that the assumptions used to estimate the provision will be an accurate prediction of the actual costs that may or may
not be incurred. No further details have been provided as the Directors consider that this would be prejudicial to the interests of the Group.
Onerous contracts relate to provisions made against the future costs of contracts where subsequent changes in legislation in certain countries
have meant that the future economic benefits received by the Group are less than the costs involved with fulfilling the remaining terms and
conditions of the contracts and is recognised at the Directors’ best estimate based on their knowledge of the markets of the countries involved.
The amounts due for provisions are recognised at fair value based on the above and carried at amortised cost using an effective interest rate of 8.7%.
135
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
19. Provisions (continued)
The non-discounted book values for these amounts are as follows:
Litigation
Onerous contracts
As at
As at
As at
As at
Within one year
€million
€million
€million
€million
2.2
–
9.0
–
94.8
–
4.2
–
97.0
–
13.2
–
20. Loans and borrowings
Book value
Fair value
2011
2010
2011
2010
€million
€million
€million
€million
Secured bank loan
32.9
8.7
33.2
9.9
Current liabilities
32.9
8.7
33.2
9.9
Secured bank loan
–
32.0
–
30.1
–
32.0
–
30.1
–
32.0
–
30.1
As at 31 December
Bank borrowings are recognised at fair value and subsequently carried at amortised cost based on their internal rates of return. The discount rate
applied was 5.44%.
Principal terms and the debt repayment schedule of loans and borrowings before amortisation at both 31 December 2010 and 2011 are as follows:
The Royal Bank of Scotland plc
Amount
Nominal rate
Year of maturity
Security
£35 million
6 months LIBOR plus 3.25%
2012
Floating charge over the assets of Cashcade
Limited and its subsidiary undertakings
The maturity analysis of loans and borrowings, including interest and fees, is as follows:
2011
2010
As at 31 December
€million
€million
Within one year
34.2
10.2
–
33.1
34.2
43.3
Later than one year and not later than five years
21. Deferred tax
€million
10.9
0.3
(3.8)
Deferred tax relates primarily to temporary differences arising from fair value adjustments of acquired intangibles.
7.4
71.2
0.6
(20.1)
59.1
Financials
136
bwin.party
22. Operating lease commitments
The total future minimum lease payments due under non-cancellable operating lease payments are analysed below:
2011
2010
As at 31 December
€million
€million
Within one year
8.8
2.4
15.3
6.1
6.6
5.2
30.7
13.7
All operating lease commitments relate to land and buildings. Rental costs under operating leases are charged to the income statement in equal
annual amounts over the period of the leases.
23. Contingent liabilities
From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of success of such
claims and actions.
As part of the Board’s ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential
impact on the business and takes appropriate advice in respect of these developments.
Litigation
As a consequence of the as yet non-harmonised regulatory environment for online gaming in Europe, a number of civil and administrative
proceedings are pending against the Group and/or its board members in several countries (including but not limited to Germany, Portugal, Slovenia
and Spain) aimed at preventing bwin.party from offering its services in these countries. Further, there are criminal investigations pending against
certain board members of the Group for the alleged violation of local gaming laws (such as in France and Austria).
In 2010, a former bwin subsidiary has been assessed by Austrian tax authorities to have value-added tax arrears of €6.4m for the years 2002 to 2004.
The Company has appealed the assessments. Applying the same assessments to periods subsequent to 2004, although some circumstances have
changed, the value of the worst case scenario amounts to €170.4m.
In 2006, the Portuguese monopoly operator Santa Casa de Misericórdia da Lisboa and the Portuguese Casino Association, in addition to a request
for a cease and desist order, filed a suit for damages in the amount of approximately €27m for the alleged loss of profits due to bwin.party’s
Portuguese online gaming offer. In September 2011, the Court of First Instance, amongst others, (i) declared the (already terminated) sponsorship
agreement between the former bwin and the Portuguese Soccer League (LPFP) as well as bwin’s gaming offer and advertising measures as illegal
in Portugal, and (ii) prohibited the offer of mutual bets and lottery games on bwin.com and future advertising activities for bwin. bwin.party filed an
appeal against the Court’s decision. The Court did not yet decide on Santa Casa’s request for damages but reserved this for the further proceedings.
In 2010, the Justice and Public Safety Cabinet of the Commonwealth of Kentucky filed a civil suit against the Company and other defendants in
Franklin Circuit Court, a state court in Kentucky in the US. The suit seeks a claim for damages of US$47m along with interest and costs in relation
to the Company’s activities from 5 August 2005 until the Company’s termination of US-facing activities on 13 October 2006.
In 2011, Ante5 filed a complaint and a request for arbitration with Judicial Arbitration and Mediation Service Inc. against the Company for the alleged
breach of its obligations under the Asset Purchase Agreement for the purchase of the World Poker Tour. Under the Asset Purchase Agreement Ante5
is entitled to a 5% share of WPT’s revenues since the acquisition in 2009. Ante5 claims that the Company has not invested sufficient effort to market
the WPT assets and has thus suffered loss in its revenue share. Ante5 seeks recovery of the revenue that it believes it would have received were the
Company to have acted diligently in the promotion of the WPT assets. Ante 5 believes the sums due to it to be US$240m.
The Directors believe these suits to be without merit and intend to defend these matters vigorously and accordingly no provision has been made
in the accounts other than that set out in note 19.
In respect of the above matters relating to former bwin companies, IFRS 3 requires that a probability-weighted estimate is used for fair-valuing
acquired contingent liabilities and a provision made accordingly, even though had the same contingent liability arisen in a former PartyGaming
company no provision would be made under IAS 37. Details of amounts provided for litigation and regulatory disputes can be found in note 19.
No further details have been provided as the Directors consider that this would be prejudicial to the interests of the Group.
137
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
24. Share capital
Ordinary shares
Employee share options exercised during the period
Issued and
fully paid
Number
€
million
77,563
412.4
124
0.7
77,687
413.1
Issued as consideration for the Merger (see note 26)
75,070
439.2
Redeemed as part of share buyback scheme
114
0.6
(2,757)
(15.7)
150,114
837.2
The Company has changed its functional currency from US dollars to euros with effect from 1 January 2011. Prior to that date shares issued were
converted into US dollars at the exchange rate prevailing on the date of issue. These amounts have subsequently been converted into euros using
the exchange rate at 1 January 2011 of 1 euro = US dollar 1.3416.
The issued and fully paid share capital of the Group amounts to €150,114.19 and is split into 837,198,870 ordinary shares. The share capital in UK
sterling is £125,579.83 and translates at an average exchange rate of 1.1954 euros to £1 sterling.
Authorised share capital and significant terms and conditions
On 28 January 2011 the Company’s authorised share capital was increased from £105,000 divided into 700 million ordinary shares with a par value
of 0.015 pence each to £225,000 divided into 1,500 million ordinary shares of 0.015 pence each. All issued shares are fully paid. The holders of ordinary
shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company. The Trustee of the
Employee Trust has waived all voting and dividend rights in respect of shares held by the Employee Trust.
Treasury shares
Own shares
reserve
Number
€million
million
(2.8)
4.6
Purchase of own shares for the Employee Trust
–
–
–
(0.6)
(2.8)
4.0
Purchase of own shares for the Employee Trust
(4.3)
3.0
–
(3.1)
(7.1)
3.9
As at 31 December 2011 3,929,502 (2010: 4,000,045) ordinary shares were held as treasury shares by the Employee Trust. During 2011 the Company
donated £3.5 million to the Employee Trust, which the Employee Trust then used to purchase 3,010,977 ordinary shares in the market.
25. Related parties
(i) Group
Transactions between Group companies have been eliminated on consolidation and are not disclosed in this note.
Principal Shareholders
During the period the Principal Shareholders, and corporate entities controlled by the Principal Shareholders, did not receive any remuneration
in the form of salary, bonuses or consulting fees (2010: €nil).
A former Principal Shareholder and certain other Principal Shareholders have also given certain indemnities to the Group.
Financials
138
bwin.party
25. Related parties (continued)
Directors and key management
Key management are those individuals who the Directors believe have significant authority and responsibility for planning, directing and controlling
the activities of the Group. The aggregate short-term and long-term benefits, as well as share-based payments of the Directors and key management
of the Group are set out below:
Short-term benefits
2011
2010
€million
€million
12.1
7.6
5.4
6.5
17.5
14.1
Certain Directors and certain key management were granted share options under service contracts which were granted under a Group share
option plan.
At 31 December 2011 an aggregate balance of €3.9m (2010: €3m) was due to Directors and key management.
The Group purchased certain telecommunication services and equipment of €2.1m (2010: €2.1m) from a company on an arm’s length basis for whom
a Board member is a director, with amounts owed at 31 December 2011 of less than €0.3m (2010: €nil).
The Group purchased certain payment services of €8.6m (2010: €nil) from a company on an arm’s length basis for whom a Board member is a director,
with amounts owed at 31 December 2011 of less than €0.1m (2010: €nil).
The Group purchased certain consultancy services of €0.6m (2010: €nil) from a partnership on an arm’s length basis for whom a Board member was
a partner during the period, with amounts owed at 31 December 2011 of less than €0.1m (2010: €nil).
The Group purchased certain consultancy services of €0.2m (2010: €nil) from a company on an arm’s length basis for whom a Board member
was a director during the period with amounts owed at 31 December 2011 of €0.1m (2010: €nil).
Two Directors each have a loan with the Group of €3.0m (2010: €nil) with an interest rate on an arm’s length basis. The Group holds certain guarantees
against these loans and believes the amounts to be fully recoverable.
In 2011 furnished property was leased to a member of key management at an annual lease rental of €45,000 which the Directors believe is the
fair value rental of the property. There were no amounts owed at 31 December 2011 (2010: €nil).
Associates and joint ventures
The Group purchased on an arm’s length basis certain advertising services of €2.3m (2010: €nil) from a company that has a non-controlling
interest in a Group subsidiary and from whom the assets and liabilities of an associate company were purchased during the year.
The Group purchased on an arm’s length basis certain customer services of €3.7m (2010: €nil) from an associate, with amounts owed at
31 December 2011 of €0.9m (2010: €nil).
The Group provided on an arm’s length basis certain rights to broadcast licensed media of €0.8m (2010: €nil) to a joint venture partner, with
amounts owed at 31 December 2011 of €0.8m (2010: €nil).
(ii) Company
Where the cash obligations of PartyGaming Plc (the ‘Company’) for operating expenditure are discharged by its operating subsidiaries, amounts
paid by the subsidiaries are accounted for through an adjustment to the related intercompany balances. During the year, €20.1m of costs (2010: €6.0m)
were incurred by subsidiaries on behalf of the Company. The Company also has an agreement with iGlobalMedia Marketing (UK) Limited, a whollyowned subsidiary, for the provision of investor relations and public relations services to it at a cost of €1.4m (2010: €1.2m).
In 2011 the Company received dividends from subsidiaries of €100.0m (2010: €nil), and declared a dividend to shareholders of €15.0m (2010: €nil).
At year end, the Company did not have any other borrowing facilities.
The Directors and certain key management of the Company were remunerated through cash payments made by other entities within the Group
of €6.2m (2010: €3.0m) and share options issued by the Company with a share-based payment expense of €2.0m (2010: €3.5m). Additionally, the
Company has granted options over its shares to employees of certain subsidiaries. The share-based payment expense for the year in respect of these
share options of €10.0m (2010: €5.6m) has been added to the Company’s cost of investment in those subsidiaries. Disclosures relating to share-based
payments are included in note 29.
Details of amounts owed to and from subsidiaries are included in notes 14 and 17.
139
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
26. Acquisitions during the period
On 31 March 2011, the Group acquired 100% of the voting equity instruments of bwin Interactive Entertainment AG, an exclusively non-US facing
business whose principal activities are the provision of online gaming, providing online sporting content such as live video streams, live scores,
statistics and SMS services to its customers and a payment service provider. The main drivers for the Merger were the potential synergies that could
be achieved. There was no cash consideration as the acquisition was made on the basis of issuing 12.23 PartyGaming Plc shares for each bwin share
together with an equivalent multiple of PartyGaming options for unexercised bwin options at that date.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
€million
Non-current assets
Intangible assets other than goodwill
Investments
608.7
19.3
9.0
637.0
Current assets
Inventories
0.5
72.7
30.6
157.9
261.7
Current liabilities
(85.1)
Income taxes payable
(12.3)
(83.5)
Provisions
(9.3)
(190.2)
Provisions
Deferred tax
(80.9)
(71.2)
(152.1)
Net assets acquired
Less: non-controlling interests
556.4
1.6
558.0
Goodwill
Consideration
Issue of 439,209,325 ordinary shares at £1.934
Issue of 34,772,933 share options
Consideration
472.1
1,030.1
968.0
62.1
1,030.1
Financials
140
bwin.party
26. Acquisitions during the period (continued)
The fair value adjustments included in the above relate primarily to the attribution of fair values to brands, customer lists and software acquired
as part of the acquisition, and the effect of deferred tax thereon. These intangible assets are being amortised over their estimated useful economic
lives of up to 20 years. The amount included in provisions represents the Directors’ current best estimate of amounts payable based on
probability‑weighted expected values after the effects of discounting as required under IFRS 3.
The main factors leading to the recognition of goodwill (none of which is deductible for tax purposes) are the growth and revenue synergies created
by combining business activities, cost savings of the merged operations and expertise of the workforce.
Merger and acquisition costs in the period in respect of this can be found in note 4.
Had the Merger taken place at the beginning of the period, total revenue would have been €830.1m (of which €14.1m relates to discontinued
operations) and loss after tax would have been €422.3m (of which €21.1m relates to discontinued operations).
27. Investments in subsidiaries
€million
Options issued to employees of subsidiary undertakings
Impairment
1,203.5
5.6
(220.5)
988.6
Acquisitions in the year
1,030.1
Options issued to employees of subsidiary undertakings
Impairment
10.0
(391.7)
1,637.0
Investments in subsidiaries carried by the Company are carried at cost less any impairment in value. The impairments that were recognised for the
years ending 31 December 2010 and 2011 of €220.5m and €391.7m respectively are measured as the difference between the market capitalisation
of the Company and the carrying value of the Company’s investments in subsidiaries as at the respective year ends.
During the year ended 31 December 2011 the Company issued share options with a fair value of €10.0m (2009: €5.6m) in respect of employees
of subsidiary undertakings.
141
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
27. Investments in subsidiaries (continued)
The Company is the holding company of the Group. The following table shows details of the Company’s principal subsidiary undertakings.
Each of these companies is wholly-owned by a member of the Group, the issued share capital of each is fully paid and each are included in the
consolidated accounts of the Group:
Name of subsidiary undertaking
Principal business
bwin.party Management (Gibraltar) Limited
Gibraltar
Management and IT services
Cashcade Limited
United Kingdom
Marketing services
ElectraGames Limited
Gibraltar
IT services
ElectraWorks (Alderney) Limited
Channel Islands
IT services
ElectraWorks Limited
Gibraltar
Online gaming
EZE International Limited
Gibraltar
Transaction services
GB Services EooD
Bulgaria
IT and customer support services
iGlobalMedia Entertainment Limited
Gibraltar
Online gaming
bwin.party Marketing (Gibraltar) Limited
Gibraltar
Marketing services
bwin.party Marketing (Israel) Limited
Israel
Marketing support services
bwin.party Marketing (UK) Limited
United Kingdom
IVY Comptech Private Limited
India
PartyGaming IA Limited
Bermuda
Intangible asset management
Paytech International Limited
Gibraltar
PB (Italia) S.r.l
Italy
Online gaming
PGB Limited
Gibraltar
Customer services
PKR Services Limited
Gibraltar
WPT Enterprises Inc
US
Land-based poker events
ElectraWorks (France) Ltd
Malta
Online gaming
Kaiane Services SAS
France
IT services
bwin.party services (Austria) GmbH
Austria
IT, customer support and marketing support services
bwin Italia S.r.l.
Italy
Online gaming
BES SAS
France
Online gaming
bwin Games AB
Sweden
Ongame Services AB
Sweden
Ongame Network Limited
Gibraltar
IT services
CQR Payment Solutions GmbH
Austria
Transaction support services
CQR UK Payment Solutions Limited
United Kingdom
Vincento Payment Solutions Limited
United Kingdom
bwin.party services (Gibraltar) Ltd
Gibraltar
Management and IT services
Winners Apuestas S.A.
Spain
Land based betting
Websports Entertainment Marketing Services GmbH
Austria
bwin Argentina SA
Argentina
Online gaming
70
103
Financials
142
bwin.party
28. Financial instruments and risk management
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s
objectives, policies and processes for managing these risks and the methods used to measure them. Further quantitative information in respect
of these risks is presented throughout these financial statements.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for managing
these risks or the methods used to measure them from previous periods, unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
• investments;
• short-term investments;
• trade and other receivables;
• cash and cash equivalents;
• loans and borrowings;
• trade and other payables;
• client liabilities and progressive prize pools; and
• foreign exchange contracts
Foreign exchange contracts are regularly used in the normal course of business but none were outstanding as at 31 December 2011 or at the prior
year end. The Group operates a sports betting business and always has open bets. As at 31 December 2011 and at the prior year end the fair market
value of open bets was not material. Other financial derivative instruments are permitted to be used by the Group, but none were used in the
period ended 31 December 2011 or in the prior year.
Management controls and procedures
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and, whilst retaining
ultimate responsibility for them, it has delegated the authority for designing and operating the required processes that ensure the effective
implementation of the objectives and policies to the Group’s treasury department under the auspices of the Group Treasury Committee (see below).
As such, the Group’s funding, liquidity and exposure to interest rate and foreign exchange rate risks are managed by the Group’s treasury
department. The treasury department is mandated to execute conventional forward foreign exchange contracts and swaps in order to manage
these underlying risks. No other derivatives may be executed without written authority from the Board at which point an explanation of the
accounting implications would also be given.
Treasury operations are conducted within a framework of policies and guidelines reviewed and approved by the Board on an annual basis which
are recommended and subsequently monitored by the Group Treasury Committee. The Group Treasury Committee is chaired by the Group Finance
Director. These polices include benchmark exposures and hedge cover levels for key areas of treasury risk. The Group risk management policies
would also be reviewed by the Board following, for example, significant changes to the Group’s business. Exposures are monitored and reported
to management on a monthly basis, together with required actions when tolerance limits are exceeded. The internal control procedures and risk
management processes of the treasury department are also reviewed periodically by the internal audit function. The last internal control review
was undertaken during 2011 and the procedures and processes were deemed satisfactory.
The overall objective of the Board is to set policies that seek to reduce risk as far as possible, without unduly affecting the Group’s competitiveness
and flexibility. Further details regarding these policies are set out below:
143
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
28. Financial instruments and risk management (continued)
Liquidity risk
Liquidity risk arises from the Group’s management of its working capital as well as the finance charges and principal repayments on its debt
instruments. In essence, it is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Group’s treasury department ensures that the Group’s cash and cash equivalents, and amounts due from payment service providers (‘PSPs’)
exceed its combined client liabilities at all times. This excess is defined as the Client Liability Cover. Client liabilities principally represent customer
deposits and progressive prize pools.
The Group Treasury Committee is advised of cash balances, investments, foreign currency exposures, interest income, interest expense, amounts
due from PSPs, Client Liability Cover and counterparty exposures on a monthly basis, or more frequently if required.
The Group imposes a maximum debt limit of €300m that may mature in any one year to ensure that there is no significant concentration
of refinancing risk.
Management monitors liquidity to ensure that sufficient liquid resources are available to the Group. The Group’s principal financial assets are cash,
bank deposits and trade and other receivables.
During 2009 the Group entered into £35m term loan as a means of managing liquidity risk. £33.2m was outstanding on the term loan at the end
of December 2011 and it is fully repayable in December 2012.
Capital risk
In common with many internet companies that have few physical assets, the Group has no policy as to the level of equity capital and reserves other
than to address statutory requirements. The primary capital risk to the Group is the level of debt relative to the Group’s net income. Accordingly,
the Group’s policy is that gross debt should not exceed €500m and that the leverage ratio of gross debt/clean EBITDA should be less than 1.5x.
An analysis of gross debt is as follows:
As at 31 December
2011
2010
€million
€million
33.2
40.0
Clean EBITDA (€million)
155.2
94.0
Headroom (€million)
232.8
141.0
0.1
0.3
Gross debt (€million)
Ratio
Details of the Group’s dividend policy is disclosed in the Chairman’s statement and also on pages 154 to 156 of this Annual report.
Credit risk
Operational: The Group’s operational credit risk is primarily attributable to receivables from PSPs and from customers who dispute their deposits
made after playing on the Group’s websites. Prior to accepting new PSPs and wherever practicable, credit checks are performed using a reputable
external source. Senior management monitors PSP balances on a weekly basis and promptly takes corrective action if pre-agreed limits are
exceeded. For PSPs that do not have a formal credit rating, an internal rating system is used, based on such factors as industry knowledge, their
statement of financial position, profitability, customer diversification, geographic diversification, long-term stability, management credibility,
potential regulatory risk and historic payment track record.
These internal ratings are monitored and reviewed on a quarterly basis. An internal rating of one is assessed as very strong whilst a rating of five
is assessed as weak.
As at 31 December
2011
2010
€million
€million
1 (Very Strong)
42.5
3.7
2 (Strong)
12.3
11.8
3 (Good)
4.7
8.1
4 (Satisfactory)
2.7
0.0
62.2
23.6
PSPs amounts due
Management consider the maximum credit exposure on amounts due from PSPs to be the carrying amount.
Financials
144
bwin.party
As at 31 December 2011 and 31 December 2010, there were no overdue amounts due from PSPs which had not been impaired, nor were there any
partially impaired amounts. There is an inherent concentration of risk with PSPs, which are not investment grade banks, in that the majority derive
most of their income from the online gaming sector. To this end, where practicable and economic, the Group seeks to substitute non-investment
grade PSPs with investment grade, or, at least, better quality PSPs.
The table below sets out the movement in the impairment of amounts due from PSPs.
2011
2010
€million
€million
Impairments
0.0
0.1
Total impairment expense
0.0
0.1
As at 31 December
Note 14 details the movement and level of provisions for PSPs.
Cash investments: As a result of the deteriorating European financial situation, in October 2011 the Group decided to only invest cash with banks
on an overnight basis with a small number of very strong German and British financial institutions. The Group also invests cash in instant access
pooled money market funds with a minimum long-term credit rating of AAA on the principal, as defined by Moody’s rating agency. The Group can
also purchase commercial paper provided the issuer is not a financial institution and has a one year credit default swap, as quoted by Bloomberg,
of no more than 1%.
Investments are allowed only in highly liquid securities. The Group maintains monthly operational balances with strong local banks in Israel,
Bulgaria, Austria, USA and India to meet local salaries, expenses and legal requirements. In Austria, cash balances are also maintained to process
and receive customer and affiliate payments. In Italy and France the Group maintains domestic segregated player funds accounts as required by
the respective regulatory authorities. Cash is also held as security in Austria, Italy and UK primarily to support bank guarantees and as reserves
for credit and debit card chargebacks. Other than this, non-central cash balances are kept to a minimum.
As at 31 December
AAA money market funds
Cash with banks
Commercial paper
2011
2010
2011
2010
€million
€million
€million
€million
84.7
144.3
0.0
0.0
165.6
49.3
39.7
3.1
38.7
0.0
0.0
0.0
289.0
193.6
39.7
3.1
The treasury department may only make the following cash investments, without prior written authority by the Board:
• overnight cash deposits;
• pooled money market funds;
• certificates of deposit; and
• commercial paper
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position.
Market risk
Market risk arises from the Group’s use of interest-bearing, tradable and foreign currency financial instruments. It is the risk that the fair value of
future cashflows on its long-term debt finance and cash investments through the use of a financial instrument will fluctuate because of changes
in interest rates, foreign exchange rates or other market factors.
Interest rate risk
The Group’s current net cash position is maintained primarily on a floating basis. In the event of a strategic change in the debt position of the Group,
the interest rate management policy would be reviewed.
145
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Currency risk
Transaction and currency liability exposures: The Group’s policy is that all material transaction and currency liability exposures are economically
and fully hedged using foreign exchange contracts and/or by holding cash in the relevant currency. Additionally, the Group has discretion to hedge
some or all of its forecast sterling operational costs in Gibraltar and the UK for up to 12 months. No other forecast cashflows are hedged. The Group
may also economically hedge material committed exposures such as capital expenditure unless the period between commitment and payment is
short (less than one month). Currency exposures are monitored by the Group Treasury Committee on a monthly basis. A €5m currency tolerance limit
between euros and any other currency is permitted in order to avoid executing low value and uneconomic foreign exchange contracts.
Net investment exposures: The Group has the flexibility to hold debt in currencies other than euros in order to hedge non-euro investments up to
50% of the net investment value. In managing the mix of ongoing debt exposure the Group takes into account prevailing interest rates in particular
currencies and the potential impact on Group earnings ratios.
Sensitivity analysis to currency and interest rate risk
The Group has adopted a sensitivity analysis that measures the change to the fair value of the Group’s financial instruments and any resultant
impact on the Group’s earnings of either:
• an instantaneous increase or decrease of 1% in market interest rates (including the annualised interest income impact of variable rate
interest‑bearing financial instruments), or
• a 10% strengthening or weakening in the reporting currency against all other currencies from the rates applicable at 31 December
The Group is exposed to interest rate movements since it holds significant amounts of cash at floating rates as well as cash equivalents to meet
client liability obligations that are non-interest‑bearing. The Group is exposed to currency movements in the euro, arising out of changes in the
fair value of financial instruments which are held in non-euro currencies. This analysis is for illustrative purposes only, as in practice, market rates
rarely change in isolation.
The amounts generated from the sensitivity analysis are estimates of the possible impact of market risk, assuming that specified changes occur.
Actual results in the future may differ materially from these results due to other developments in financial markets that may cause fluctuations
in interest and exchange rates to vary from the hypothetical amounts disclosed in the following table, which therefore should not be considered
as a projection of likely future events and losses.
Prior to the current year both the reporting currency of the Group and functional currency of the majority of subsidiaries was US dollars and
currency risk was managed on that basis. The sensitivity analysis below reflects that management.
(Decrease) increase in
fair value of financial instruments
Impact on earnings gain (loss)
2011
2010
2011
2010
€million
€million
€million
€million
1% decrease in interest rates
0.0
0.0
(0.6)
0.5
1% increase in interest rates
0.0
0.0
2.9
1.4
10% weakening in the reporting currency
1.3
(0.8)
(0.2)
3.1
(1.2)
0.8
0.7
(3.1)
As at 31 December
10% strengthening in the reporting currency
Insurance
The Group purchases insurance for commercial or, where required, for legal or contractual reasons. The Group also retains certain insurable risk
where external insurance is not considered an economic means of mitigating these risks.
Financials
bwin.party
146
Total financial assets and liabilities and effective interest rate and re-pricing analysis
In respect of income-earning financial assets and interest-bearing financial liabilities, the following tables indicate their effective interest rates at the
end of the reporting years and the periods in which they re-price, as well as setting out the Group’s accounting classification of each class of financial
assets and liabilities and their fair values at 31 December 2011 and 31 December 2010.
Of which interest‑bearing
Carrying value
Fair value
Total
6 months or less
6–12 months
1–5 years
€million
Effective
interest rate
€million
€million
€million
€million
Investments
23.1
€million
23.1
–
–
–
–
–
23.6
23.6
–
–
–
–
–
99.7
99.7
6.0
1.38%
6.0
–
–
39.7
39.7
25.4
0.75%
25.4
–
–
289.0
289.0
254.1
0.71%
254.1
–
–
Financial assets
475.1
475.1
285.5
0.72%
285.5
–
–
126.4
117.9
–
–
–
–
–
156.2
156.2
–
–
–
–
–
32.9
33.2
33.2
4.34%
4.5
28.7
–
315.5
307.3
33.2
4.34%
4.5
28.7
–
Carrying value
Fair value
Total
6–12 months
1–5 years
€million
€million
€million
Effective
interest rate
6 months or less
€million
€million
€million
1.7
1.7
–
–
–
–
–
Financial liabilities at amortised cost
Of which interest‑bearing
Investments
2.2
2.2
–
–
–
–
–
32.5
32.5
–
–
–
–
–
3.1
3.1
3.1
0.40%
–
3.1
–
193.6
193.6
182.3
0.62%
182.3
–
–
Financial assets
233.1
233.1
185.4
0.62%
182.3
3.1
–
(94.7)
(88.6)
–
–
–
–
–
(93.1)
(93.1)
–
–
–
–
–
(40.7)
(40.0)
(40.0)
5.44%
(5.0)
(4.9)
(30.1)
(228.5)
(221.7)
(40.0)
5.44%
(5.0)
(4.9)
(30.1)
Financial liabilities at amortised cost
The fair values of borrowings and other financial instruments are estimated at 31 December each year by discounting the future contractual
cashflows to the net present values using appropriate yield curves.
29. Share-based payments
2011
2010
€million
€million
Total Shareholder Return based
4.2
2.4
Clean EBITDA / Clean EBITDA growth based
0.6
1.0
Other
7.2
5.8
12.0
9.2
Total charge
The Group has adopted and granted awards as a reward and retention incentive for employees of the Group, including the Executive Directors.
The Group has used the Black-Scholes option pricing model to value these options unless the Monte Carlo option pricing model is deemed more
appropriate. An appropriate discount has been applied to reflect the fact that dividends are not paid on options that have not vested or have vested
and have not been exercised.
147
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
29. Share-based payments (continued)
Total shareholder return based
PSP Plan
Year end 31 December
Outstanding at beginning of year
Number
million
Number
million
2011
2010
3.4
2.3
Shares over which options granted during the year
–
1.3
Shares in respect of options lapsed during the year
(1.6)
(0.2)
Exercised during the year
(0.4)
–
Outstanding at end of year
1.4
3.4
Exercisable at the end of year
1.3
0.4
–
1,300,000
n/a
0.31%
3
176
Shares over which options granted during the period (number)
Percentage of total issued share capital
Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days)
PSP Plan
These options were to vest subject to the achievement of a total shareholder return (‘TSR’) performance target over the three-year period
commencing on 1 January or 1 July of each year from 2007 compared to the median TSR of a comparator group. The threshold for vesting
at which 25% will vest, would have been TSR equalling the median of the comparator group, rising on a straight-line basis to 100% vesting
if the Company’s TSR exceeded the median by 10% per annum calculated over the three-year period. It is estimated that outperformance
of the median by 10% per annum over that period is performance in excess of the upper quartile.
As part of the Merger, the Remuneration Committee measured the TSR performance condition up to the date of the EGM and determined the
number of shares capable of vesting. Vesting will still occur on the original vesting dates subject to continued employment. No new awards
are to be granted under this plan.
Value creation plan(‘VCP’)
Participants are granted VCP points, being a right to receive shares (in the form of a nil‑cost option or a conditional share award) with a value equal
to their allocated percentage of the VCP pool. The size of the VCP pool will be linked to the value created for Shareholders, taking into account the
increase in share price, dividends paid and share buy‑backs, over three one year performance periods, in excess of a hurdle amount (10% annual
growth). The VCP pool will be calculated as being equal to 4% of the increase in the Company’s share price during the relevant year. After each year
end the VCP pool will be converted into awards over a specific number of shares using the market value of a share at the relevant measurement
date and in accordance with the participant’s allocated share of the VCP pool. The awards will be structured as nil-cost share options, with half of
the shares under each option vesting at the end of the third performance period and the remaining half vesting one year later. As nil‑cost options,
they will remain exercisable for ten years from the date of grant.
As at 31 December 2011 the liability associated with the VCP was €nil (2010: €nil).
Clean EBITDA / Clean EBITDA growth based
Executive FMV Plan
Year end 31 December
Number
million
Number
million
2011
2010
1.8
1.4
–
0.5
(1.8)
(0.1)
–
–
–
1.8
–
0.9
–
450,000
n/a
0.11%
–
2,971
Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days)
Financials
148
bwin.party
Executive FMV Plan
These options vested subject to the growth in the Company’s Clean Earnings per share equalling or exceeding 15% per annum in the three-year
period from 1 January of each year from 2007. The performance period for these options was shortened to the date of the Merger but the
performance conditions were not satisfied as at that date and so all unexercised awards lapsed. No new awards are to be granted under this plan.
Bonus Banking Plan (‘BBP’)
The BBP plan covers a three-year period with annual performance targets set at the beginning of each year. Depending on the extent to which the
performance targets have been met in any year, an amount may be credited (or debited) to the participant’s bonus account on the measurement
date. 50% will be credited in the form of shares (through a nil-cost option) and 50% in cash. Shortly after each measurement date an amount equal
to half of the balance of the bonus account will be paid in cash to the participant. After the initial three years half the nil-cost option vests, with the
balance vesting in year four, together with the balance of any cash. If the performance in any year does not satisfy the performance target then
a participant’s bonus account is debited 50% of its current value.
As at 31 December 2011 the liability associated with the share-based element of the BBP was €1.7m (2010: €nil).
Bonus and Share Plan (‘BSP’)
This plan has the same conditions as the BBP, except where the performance conditions are not met in a particular year then there is no deduction
made to a participant’s bonus account.
As at 31 December 2011 the liability associated with the share-based element of the BSP was €2.6m (2010: €nil).
Other
bwin.party
Rollover Plan
GSP Plan
FMV Plan
Nil-cost Plan
Number
million
Number
million
Number
million
Number
million
–
–
22.6
4.8
34.7
1.8
–
–
(1.3)
–
(3.4)
(0.5)
(0.3)
(0.1)
(0.3)
(1.6)
33.1
1.7
18.9
2.7
1.3
0.1
12.7
1.3
34,722,933
1,835,009
–
–
4.17%
0.22%
n/a
n/a
2,023
3,563
2,480
2,637
bwin.party
Rollover Plan
GSP Plan
FMV Plan
Nil-Cost Plan
Number
million
Number
million
Number
million
Number
million
–
–
19.2
4.3
–
–
6.1
1.0
–
–
(1.9)
–
–
–
(0.8)
(0.5)
–
–
22.6
4.8
–
–
8.9
1.9
–
–
6,110,000
1,042,600
–
–
1.48%
0.25%
Weighted average remaining contractual life of options outstanding
upon satisfaction of performance conditions where relevant (days)
–
–
2,860
2,779
Year end 31 December 2011
Weighted average remaining contractual life of options outstanding
upon satisfaction of performance conditions where relevant (days)
Year end 31 December 2010
149
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
bwin.party Rollover Plan
These options were granted as a result of the Merger to replace the existing bwin options at the time using the same exchange ratio as for Shares.
They are subject to the original vesting conditions and have no performance conditions. No new awards are to be granted under this plan.
Global Share Plan (‘GSP’)
Awards of free Shares worth up to a maximum of £25,000 (or equivalent) may be made to each eligible employee each year. The award may be
subject to performance conditions. There is flexibility to grant different types of free share award including nil-cost options, conditional awards
of Shares and restricted shares where the employee is the owner of the Shares from the date of award. At 31 December 2011, all Shares under this
scheme are nil-cost options with no performance conditions.
Additionally, where employees buy Shares up to a maximum of £1,500 each, they may be awarded additional free shares on a matching basis, up
to a maximum of two matching Shares for each purchased share. Purchased Shares must be held for a minimum of three years for the matching
Shares to vest.
Directors are not eligible to receive any awards under this plan.
FMV Plan
Options granted under this plan during the period generally vest in instalments over a three year period. There are no performance conditions
attached to options issued by the Group under the terms of the FMV Plan. Directors are not eligible to receive any awards under this plan.
No new awards are to be granted under this plan.
Nil-cost Plan
These options are not generally subject to performance conditions as this is regarded as detracting from their attraction and retention
capabilities and instead usually vest on a phased basis over a four- to five-year period. The main exception to this general policy is the award made
to key employees in the bingo segment, which will only vest subject to the satisfaction of a stretching EBITDA target for that business unit for 2012.
No new awards are to be granted under this plan.
Outstanding share options issued that are not nil-cost have been granted at exercise prices between 10.0p and 489.0p (2010: between 155.0p
and 457.5p).
The weighted average share price (at the date of exercise) of options exercised during the year was 151.5p (2010: 288.0p).
30. Events after the reporting period
On 6 March 2012 the Company announced that it had agreed to sell Ongame, its business-to-business (‘B2B’) online poker network,
to Shuffle Master, Inc (‘Shuffle Master’) for a total cash consideration of up to €29.5m. The agreement is consistent with the Group’s stated strategy
and follows its announced intention to sell Ongame on 30 June 2011.
Contingent consideration will become payable by Shuffle Master in the event that online poker becomes regulated in the United States within five
years of completion. The amount payable in these circumstances will depend upon the timing of the commencement of legalised online gaming
in the US. The transaction is subject to the normal terms and conditions for a transaction of this type as well as certain regulatory approvals and
is expected to complete during the summer of 2012 with a back-stop date of December 2012. The management of Ongame will transfer with the
business and the net sale proceeds will be used for general corporate purposes.
Since the year end the Company had purchased for cancellation a further 15,501,381 Shares at a total cost, including commission of £25,096,824.56.
31. Dividend
The Board is recommending a final dividend of 1.56p per share which together with the interim dividend of 1.56 pence per share makes a total
dividend of 3.12p per share for the year ended 31 December 2011 (2010: nil). The final dividend, if approved at the Annual General Meeting will be
payable to Shareholders on the register of shareholder interests on 11 May 2012 (the ‘Record Date’). It is expected that dividends will be paid on
12 June 2012. Shareholders wishing to receive dividends in euros rather than pound sterling will need to file a currency election and return it
to the Group’s registrars on or before 25 May 2012. A separate announcement regarding the dividend payment has been issued today.
32. Proposed capital reduction
In order to ensure sufficient financial flexibility in future the Company intends to restructure its balance sheet by carrying out a reduction of share
capital through the cancellation of the share premium account and then allocating the same amount to a distributable reserve in the Company’s
accounts. The Company intends to do this at an Extraordinary General Meeting of Shareholders to be held immediately after the forthcoming Annual
General Meeting of Shareholders. A further announcement will made in due course.
Financials
Company statement
150
bwin.party
2011
2010
Notes
€million
€million
27
1,637.0
988.6
1,637.0
988.6
80.7
Non-current assets
Investment in subsidiaries
Current assets
14
114.2
16
25.5
44.8
139.7
125.5
1,776.7
1,114.1
(59.3)
(57.4)
(59.3)
(57.4)
–
(21.7)
–
(21.7)
Total assets
Current liabilities
17
17
Total liabilities
Total net assets
(59.3)
(79.1)
1,717.4
1,035.0
Equity
Share capital
24
Own shares
Retained earnings
Capital reserve
Currency reserve
Equity attributable to equity holders of the parent
24
0.2
0.1
1,018.4
49.5
(7.1)
(2.8)
705.9
155.8
–
829.9
–
2.5
1,717.4
1,035.0
Financials
Company statement
151
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
Acquisition of
As at
subsidiaries
1 January and businesses
Share capital
103
Other issue
of shares
Dividends
paid
Purchase
of shares
Total
comprehensive
expense for
the period
Transfer
of reserves
Other
share-based
payments
As at
31 December
€million
€million
€million
€million
€million
€million
€million
€million
€million
0.1
0.1
–
–
–
–
–
–
0.2
49.5
967.9
1.0
–
–
–
–
–
1,018.4
(2.8)
–
–
–
(4.3)
–
–
–
(7.1)
Retained earnings
155.8
62.1
–
(15.0)
(23.2)
(318.3)
832.4
12.1
705.9
Capital reserve
829.9
–
–
–
–
–
(829.9)
–
–
2.5
–
–
–
–
–
(2.5)
–
–
1,035.0
1,030.1
1.0
(15.0)
(27.5)
(318.3)
–
12.1
1,717.4
Total
comprehensive
income
Purchase
(expense) for
of shares
the period
Transfer of
reserves
Other
share-based
payments
As at
31 December
€million
Own shares
Currency reserve
Total equity
Acquisition of
As at subsidiaries and
1 January
businesses
Share capital
Own shares
Retained earnings
Capital reserve
Currency reserve
Total equity
Other issue
of shares
Dividends
paid
€million
€million
€million
€million
€million
€million
€million
€million
0.1
–
–
–
–
–
–
–
0.1
47.7
–
1.8
–
–
–
–
–
49.5
(2.8)
–
–
–
–
–
–
–
(2.8)
162.7
–
–
–
–
(16.1)
–
9.2
155.8
1,050.4
–
–
–
–
(220.5)
–
–
829.9
–
–
–
–
–
2.5
–
–
2.5
1,258.1
–
1.8
–
–
(234.1)
–
9.2
1,035.0
Financials
Company statement
of cashflows
152
bwin.party
Loss for the year
2011
2010
€million
€million
(318.3)
(16.1)
Adjustments for:
Impairment of investments
391.7
–
2.1
3.6
(100.0)
–
0.6
(1.1)
(23.9)
(13.6)
66.5
90.9
(20.4)
(32.8)
22.2
44.5
Issue of ordinary shares
1.0
1.8
Purchase of own shares
(27.5)
–
Dividends paid
(15.0)
–
Net cash generated by financing activities
(41.5)
1.8
Net increase in cash and cash equivalents
(19.3)
46.3
–
(1.5)
Dividend income
Net interest expense (income)
Decrease in trade and other receivables
Decrease in trade and other payables
Net cash inflow from operating activities
Financing activities
Cash and cash equivalents at beginning of period
44.8
–
Cash and cash equivalents at end of period
25.5
44.8
Share information
153
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
The Company has only one class of share in issue, ordinary shares of 0.015p each.
As at
Shares in issue
No. of
voting rights
No. of Shares in
free float
31 December 2011
837,198,870
833,269,368
650,188,152
28 March 2012
821,882,694
819,357,605
635,602,525
The Company’s shares have been admitted to trading on the London Stock Exchange since 30 June 2005.
TDL: BPTY
ISIN Number: GI000A0MV757
SEDOL Number: B53TNH6
Share price
(all prices mid-market per share at the close of business)
Price at IPO (June 2005)
1160.00p
2011 opening price (4 January 2011)
206.60p
Price on completion of the merger with bwin (31 March 2011)
200.00p
High during the period to 31 December 2011
216.40p
Low during the period to 31 December 2011
98.50p
31 December 2011
164.00p
Decrease over the year
24.2%
FTSE 250 Index decrease over the period
12.6%
Share price information is available on the Company’s website, www.bwinparty.com and the London Stock Exchange website,
www.londonstockexchange.co.uk. In the UK, information can also be found in the Financial Times and The Times share price listings.
Directors’ share interests and major shareholders
The interests of the Directors in the Company’s share capital is set out in the Directors’ remuneration report on page 96.
A table of those parties with a material interest in 3% or more of the Company’s share capital or, in the case of other interests in 10% or more of the
share capital, as notified to the Company in accordance with the Gibraltar Disclosure of Interests in Shares Act 1998, the Articles and Deed Poll, is set
out in the ‘Governance’ section on page 98.
Market capitalisation
The market capitalisation of bwin.party as at 31 December 2011 was £1.37bn. The Company is currently ranked within the FTSE 250 Index
of companies.
Share information
154
bwin.party
Depositary interests
bwin.party has entered into depositary interest arrangements to enable investors to settle and pay for interests in the Company’s shares through
the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person’s CREST account to another without
the need to use share certificates or written instruments of transfer. Securities issued by non-UK companies, such as bwin.party, cannot be held or
transferred in the CREST system. Under arrangements put in place by the Company, a depositary holds the shares and has issued dematerialised
depositary interests representing the underlying shares which are held on trust for the holders of the depositary interests.
Capita IRG Trustees Limited (the ‘Depositary’), is part of the same group of companies as bwin.party’s registrars, Capita Registrars (Jersey) Limited
(the ‘Registrar’), and has issued the dematerialised depositary interests. The depositary interests are independent securities constituted under
English law which may be held and transferred through the CREST system.
The depositary interests have been created pursuant to and issued on the terms of a deed poll executed by the Depositary in favour of the holders
of the depositary interests from time to time (the ‘Deed Poll’).
As at 31 December 2011, 719,068,913 Shares were held by the Depositary in respect of a total 719,068,913 depositary interests. There were 1,001
depositary interest holders on the depositary interest register as at that date.
Each depositary interest is treated as one share. The Depositary will pass on to holders of depositary interests any stock or cash benefits received
by it as the holder of shares on trust. Depositary interest holders will also be able to receive notices of shareholder meetings and other documents
issued by bwin.party to shareholders.
The Depositary must pass on to depositary interest holders and, so far as they are reasonably able, exercise on behalf of depositary interest
holders all rights and entitlements received, or to which they are entitled in respect of the underlying shares which are capable of being passed
on or exercised. Rights and entitlements to cash distributions, to information, to make choices and elections and to call for, attend and vote
at meetings shall, subject to the Deed Poll, be passed on in the form in which they are received together with amendments and additional
documentation necessary to effect such passing-on, or, as the case may be, exercised in accordance with the Deed Poll. The depositary
interests have the same ISIN and SEDOL numbers as the underlying shares and do not have a separate listing on the Official List.
Registrar
UK Transfer Agents
Depositary
Capita Registrars (Jersey) Limited
12 Castle Street
St. Helier
Jersey JE2 3RT
Channel Islands
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Capita IRG Trustees Limited
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Email: ssd@capitaregistrars.com
Telephone: +44 (0)1534 847000
Fax: +44 (0)1534 847001
Website: www.capitaregistrars.com
Telephone: 0871 664 0300* (from UK)
+ 44 (0)208 639 3399 (from overseas)
Fax: + 44 (0)208 639 2342
+ 44 (0)208 639 3399 (from overseas)
Fax: + 44 (0)208 639 2342
* Calls cost 10p per minute plus network extras
Dividends
Following the announcement on 30 June 2011 in respect of the Company’s distribution policy and the disclosure in the Company’s half‑year results,
the Board declared an interim dividend for the year ended 31 December 2011 for an amount of €15m which was distributed to shareholders on
7 October 2011. The Company intends paying a final dividend of €15m, subject to shareholder approval at the AGM on 7 June 2012. The final dividend
of 1.56p per share will be paid to Shareholders and depositary interest holders on 12 June 2012. The record date for the final dividend is 11 May 2012
and the Shares start trading ex-dividend on 9 May 2012.
In order to assist shareholders and depositary interest holders, the cash dividend may be paid either in Pounds Sterling or Euros and should you wish
to receive the dividend, and all future dividends, in Euros you can elect to do so by following the instructions below. Dividends paid in Euros will be
paid at the Euro to Pounds Sterling exchange rate prevailing shortly prior to payment, subject to receipt of a currency election card or electronic
notification via CREST. If you make no election you will continue to receive your dividend in Pounds Sterling.
155
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
(i)
70
103
Procedure for depositary interest holders
If you hold your Shares in depositary interest form in CREST and will continue to do so at 5.00 p.m. on the dividend record date and whether or not you
have validly elected to receive your dividends in CREST, you may elect to receive your dividend in Euros by means of the CREST procedures to effect
such an election referred to below. If you are a CREST Personal Member, or other CREST Sponsored Member, you should consult your CREST sponsor,
who will be able to take the appropriate action on your behalf.
The CREST procedures require the use of the Dividend Election Input Message in accordance with the CREST manual. The message includes the
following fields which, for a valid election to be made, must be correctly input as indicated below by close of business on the Euro election deadline:
(i)
Dividend Election Reference – you must indicate here a reference for the dividend election which is unique to your CREST participant I.D.;
(ii) Account I.D. – If you have more than one member account, you must indicate the member account I.D. to which the election relates: the relevant
account must be enabled (a) at the time your Dividend Election Input Message is entered into CREST, and (b) on the relevant dividend payment
date:
(iii) ISIN – This is GI000A0MV757
(iv) Evergreen – This field must be entered with its flag set to ‘yes’. This requests the Company to apply your election to the current dividend and to
all future dividends in respect of your entire depositary interest holding in CREST at each relevant record date until (a) you delete your Dividend
Election Input Message and that deletion is accepted in accordance with the CREST procedures on behalf of the Company, (b) you transfer your
depositary interest holding in CREST, or (c) the facility is withdrawn by the Directors;
(v) Corporate Action Number – This is not to be input;
(vi) Distribution type – You must enter ‘currency’ here;
(vii) Currency code – This is GBP;
(viii) Number of shares – This field should be left blank. If this field is completed, the message will be rejected;
(ix) Contact details – this field is optional, although you are asked to include details of whom to contact in the event of a query relating to your election.
A valid election made by means of Dividend Election Input Message will, to the extent it relates to shares held in depositary interests at the relevant
record date, supersede all previous written elections made in respect of holdings in the same member account.
You may only revoke an election which has been made by Dividend Election Input Message by utilising the CREST procedures for deletions described
in the CREST manual. The deletion will be valid in relation to the then current dividend only if the deletion is accepted, in accordance with the CREST
procedures, by or on behalf of the Company prior to close of business on the Euro election deadline (25 May 2012 for the final dividend payable on
12 June 2012). With respect to subsequent dividend payments, the valid revocation must be received by the record date for the relevant dividend
payment. It is recommended that you input any deletion message 48 hours in advance of this deadline (25 May 2012) to give the Company or its
agent sufficient time to accept the deletion.
There is no facility to amend an election which has been made by Dividend Election Input Message. If you wish to change your election details,
you must first delete the existing election as described above and then input a Dividend Election Input Message with the required new details.
Any attempts to send a new Dividend Election Input Message, where an existing Dividend Election Message is present and has not been deleted,
will be rejected.
Dividend payments will be paid electronically into CREST accounts where possible. Otherwise where not paid electronically into CREST they
will be paid by cheque, if dividend payments are being paid in Pounds Sterling the enclosed bank mandate form will need to be completed.
If you have any problems making an election through CREST then file a bwin.party currency election card and send it back to Capita Registrars,
to be received no later than 25 May 2012.
These documents are also posted on bwin.party’s corporate website, www.bwinparty.com.
Share information
156
bwin.party
(ii) Procedure for registered shareholders
Shareholders wishing to make a Euro election should complete and submit a currency election card to the Registrar no later than 25 May 2012.
(iii) General notes
Shareholders or depositary interest holders who submit their currency elections after the deadline (25 May 2012) for submission will receive their
dividends in Pounds Sterling.
Incorrectly completed currency election cards will be rejected.
Elections may not be split in respect of one share or depositary interest holding and elections are enduring for future dividends unless a subsequent
election is submitted to the Registrar or Depositary.
Depositary interest holders who hold their depositary interests through CREST will receive their dividend payments through CREST irrespective
of whether they elect to have the dividend paid in Euros.
Shareholders receiving the dividend in Pounds Sterling are advised to complete a BACS instruction so that their dividend can be paid electronically
directly into their bank account. For the final dividend payable on 12 June 2012 a BACS instruction form should be submitted to the Registrar no later
than 15 May 2012. If a BACS instruction is not validly submitted then dividends will be paid by cheque.
(iv) Final Dividend calendar
Final Dividend
Ex-dividend date
9 May 2012
Record date
11 May 2012
Euro election deadline
25 May 2012
£/€ foreign exchange
29 May 2012
Payable
12 June 2012
Annual General Meeting
Date and time: Thursday, 7 June 2012 at 12.30 p.m. (Central European Time).
Venue: The Caleta Hotel, Catalan Bay, Gibraltar.
The Notice of AGM is contained within the Annual report, setting out the resolutions to be considered at the meeting.
Corporate calendar
31 December 2011
Year-end
29 March 2012
Announcement of 2011 annual results
3 May 2012
Annual report posted/available on the www.bwin.party.com website
4 June 2012
Deadline for submitting AGM forms of direction or submitting voting instructions via CREST
(Depositary interest holders only)
5 June 2012
Deadline for submitting AGM proxy forms (shareholders only)
7 June 2012
30 June 2012
Half year-end
31 December 2012
Year-end
157
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
Receiving Company documents electronically
All shareholder documents can be found on the Company’s website, www.bwinparty.com, together with previous announcements to the London
Stock Exchange, share price information and general information about bwin.party and its business.
bwin.party’s articles of association allow the Company to provide all shareholder and depositary interest holder documents via its website, except
where shareholders and depositary interest holders have requested to receive a hard copy of such documents. This allows bwin.party to limit the
environmental impact of our business and to manage our costs more effectively.
If you are currently receiving hard copies of bwin.party’s documents through the post and would like to be kinder to the environment and help
reduce bwin.party’s costs, you are encouraged to register to receive Company documents via the Company’s website. You can do this by going
to the registrar’s website, www.capitaregistrars.com and registering for electronic communications. You will be notified that Company documents
are on the corporate website by written notification which will be mailed to you unless when registering to receive documents electronically you
request to be notified by email rather than post.
Company announcements
Copies of announcements made by the Company are available on the Company’s website, www.bwinparty.com.
Taxation
The following statements are intended to apply only as a general guide to current tax law for an individual shareholder who holds shares as an
investment and who is the beneficial owner of the shares. Shareholders should consult their own tax advisers in connection with their potential
liability to pay tax in the country of their nationality or the country where they live on disposal, gift or bequest of their shares or on the receipt
of dividends.
(i) Taxation of capital gains
There is no capital gains tax in Gibraltar on a disposal of shares, but shareholders may be liable to pay tax in the country of their nationality or the
country where they live.
(ii) Stamp duty
No stamp duty is chargeable in Gibraltar on the transfer of shares and there is no stamp duty reserve tax in Gibraltar.
Provided that bwin.party’s shares are not registered in any register kept in the UK by or on behalf of the Company, an agreement to transfer the
shares would not be expected to be subject to UK stamp duty or stamp duty reserve tax. The bwin.party share register is not kept in the UK and it
is not intended that any such register will be kept in the UK. A transfer on sale of bwin.party shares would not be expected to be subject to UK stamp
duty or stamp duty reserve tax provided that the instrument of transfer is not executed in the UK and does not relate to any property situated or
to any matter or thing to be done in the UK.
No UK stamp duty or stamp duty reserve tax is expected to be payable on an agreement to transfer bwin.party depositary interests within CREST
provided that relevant conditions are met including in particular that (a) no register of shares is kept in the UK by or on behalf of the Company; and
(b) the central management and control of the Company is not exercised in the UK. It is intended that these conditions will be met. It is not expected
that an instrument subject to UK stamp duty or stamp duty reserve tax would be created in respect of such a transfer.
Notice of 2012
158
bwin.party
Notice is hereby given that the 2012 Annual General Meeting of bwin.party digital entertainment plc (the ‘Company’) will be held at The Caleta Hotel,
Catalan Bay, Gibraltar on Thursday, 7 June 2012 at 12.30 p.m., to consider the following business (with the exception of Resolutions 20 and 21 which
are special resolutions, all resolutions are proposed as ordinary resolutions, and all resolutions will be decided on a poll).
1.
To receive the Company’s Annual report and accounts together with the Reports of the Directors and Auditor for the year ended
31 December 2011.
2.
To approve the Directors’ Remuneration Report for the year ended 31 December 2011.
3.
To re-appoint BDO LLP and BDO Limited as auditors of the Company with BDO Limited acting as auditor for the purposes of section 10
of the Gibraltar Companies (Accounts) Act 1999.
4.
To authorise the Directors to set the auditors’ remuneration.
5.
To declare a final dividend of 1.56 pence per ordinary share payable on 12 June 2012 to those shareholders on the register of members
on 11 May 2012.
6.
To re-appoint Per Afrell as a Director of the Company.
7.
To re-appoint Joachim Baca as a Director of the Company.
8.
To re-appoint Manfred Bodner as a Director of the Company.
9.
To re-appoint Tim Bristow as a Director of the Company.
10. To re-appoint Simon Duffy as a Director of the Company.
11. To re-appoint Helmut Kern as a Director of the Company.
12. To re-appoint Lewis Moonie as a Director of the Company.
13. To re-appoint Rod Perry as a Director of the Company.
14. To re-appoint Georg Riedl as a Director of the Company.
15. To re-appoint Jim Ryan as a Director of the Company.
16. To re-appoint Norbert Teufelberger as a Director of the Company.
17. To re-appoint Martin Weigold as a Director of the Company.
18. To re-appoint Geoff Baldwin as a Director of the Company.
19. That in place of any existing authority;
(i)
the Board of Directors be and it is hereby generally and unconditionally authorised for the purposes of section 66 of the Companies Act
1930 (as amended) to exercise all the powers of the Company to allot Relevant Securities (as defined in article 6 of the Company’s Articles
of Association (the ‘Articles’)) up to an aggregate nominal amount of £41,094 and further,
(ii) the Board of Directors be and it is hereby generally and unconditionally authorised for the purposes of section 66 of the Companies Act
1930 (as amended) to exercise all powers of the Company to allot Relevant Securities comprising Equity Securities ( as defined by article 20
of the Articles) up to a nominal amount of £82,188 (including within such limit any Relevant Securities allotted under sub-paragraph (i)
above) in connection with an offer by way of a rights issue:
(A) to ordinary shareholders in proportion (as nearly as practicable) to their existing holdings; and
(B) to people who are holders of other Equity Securities if this is required by the rights of those securities or, if the Board of Directors
considers it necessary, as permitted by the rights of those securities,
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal
with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter,
provided that these authorities shall expire at the end of the Company’s Annual General Meeting in the year 2013 or, if earlier, at close of business
on 7 September 2013, save that the Company may before such expiry make an offer or enter into an agreement which would or might require
Relevant Securities to be allotted after such expiry and the Board of Directors may allot Relevant Securities in pursuance of such an offer or
agreement as if the authorities conferred hereby had not expired.
159
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
20. That subject to the passing of the previous resolution and in place of the existing authority, the Board of Directors be and it is hereby
empowered pursuant to Articles 22 to 25 of the Articles to allot Equity Securities (as defined by article 20 of the Articles) for cash pursuant
to the authority conferred by the previous resolution as though Articles 14 to 21 of the Articles did not apply to any such allotment provided
that this power shall be limited:
(i)
To the allotment of Equity Securities in connection with an offer of Equity Securities (but in the case of the authority granted under
Resolution 19(ii) by way of a rights issue only):
(A) to ordinary shareholders in proportion (as nearly as practicable ) to their existing holdings; and
(B) to people who are holders of other Equity Securities if this is required by the rights of those securities or, if the Board of Directors
considers it necessary, as permitted by the rights of those securities,
and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal
with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and
(ii) In the case of the authority granted under Resolution 19(i), to the allotment (otherwise than under sub-paragraph (i) above) of Equity
Securities up to an aggregate nominal value of £6,164,
and shall expire at the end of the Company’s Annual General Meeting in 2013 or, if earlier, at close of business on 7 September 2013, save that
the Company may before such an expiry make an offer or enter into an agreement which would or might require Equity Securities to be allotted
after such expiry and the Board of Directors may allot Equity Securities in pursuance of such an offer or agreement as if the power conferred
hereby had not expired.
21. That the Company be generally and unconditionally authorised to make market purchases within the meaning of section 79 of the Gibraltar
Companies Act 1930 (as amended) of ordinary shares of £0.00015 each of the Company (‘Shares’) provided that:
(i)
The maximum number of Shares hereby authorised to be acquired is 82,188,269;
(ii) The minimum price that may be paid for any Share is £0.00015, being the nominal value of a Share;
(iii) The maximum price that may be paid for any Share is an amount equal to 105% of the average of the middle market quotations for a share
as derived from the Official List for the five business days immediately preceding the day on which the Share is contracted to be purchased;
and
(iv) The authority hereby conferred shall expire on the date of the Annual General Meeting of the Company in the year 2013 or, if earlier,
at close of business on 7 September 2013; but a contract for purchase may be made before such expiry, that will or may be completed
wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract.
Robert Hoskin
Company Secretary
bwin.party digital entertainment plc
711 Europort
Gibraltar
20 April 2012
Notice of 2012
General Notes
160
bwin.party
Notes:
1. General
The Notice of AGM is an important document. If there is anything you do not understand then you should consult with the appropriate professional
adviser. If you have any questions regarding how to attend and/or vote at the AGM then please contact Capita Registrars. Capita provides registrar,
UK transfer agent services and depositary services to the Company. Capita’s contact information appears below:
Registrar
UK Transfer Agent
Depositary
Capita Registrars (Jersey) Limited
12 Castle Street
St. Helier
Jersey JE2 3RT
Channel Islands
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone: +44 (0)1534 847000
Fax: +44 (0)1534 847001
Website: www.capitaregistrars.com
+44 (0)208 639 3399 (from outside UK)
Fax: +44 (0)208 639 2342
+44 (0)208 639 3399 (from outside UK)
Fax: +44 (0)208 639 2342
*Calls cost 10p per minute plus network extras.
If you have recently sold all of your bwin.party shares and/or depositary interests then please send this document and the enclosed forms
to the person who sold the shares/depositary interests for you. They can then send them to the new owner of the shares/depositary Interests.
References to times in the AGM notice are to the time in Gibraltar (Central European Time), which is one hour ahead of British Summer Time (‘BST’).
The business of the meeting is set out in the Notice of AGM and a summary of and rationale for each resolution is set out on pages 100 to 101.
Biographies of the Directors recommended for re-appointment are set out on pages 68 and 69.
2. Right of attendance
2.1 Shareholders
To have the right to come and vote at the AGM, you must be a shareholder of bwin.party digital entertainment plc, holding shares entered
on the Company’s register of members by 6.00 p.m. (5.00 p.m. BST) on 5 June 2012.
2.2 Depositary interest holders
To have the right to come and vote at the AGM, you must be entered on bwin.party digital entertainment plc’s register of depositary interests
by 6.00 p.m. (5.00 p.m. BST) on 5 June 2012 and bring to the AGM a letter of corporate representation validly executed on behalf of the Depositary
(the letter of corporate representation can be obtained from the Depositary).
3. Voting
3.1 Shareholders
Shareholders may attend the AGM in person and vote on a show of hands or on a poll. A shareholder entitled to attend and vote at the AGM may also
appoint a proxy to attend and, on a poll, vote in his/her place. A proxy need not be a shareholder. A proxy may demand or join in demanding a poll
and has the right to speak at the meeting.
A proxy form may be submitted in hard copy form by post or courier or electronically via the www.bwinparty-registrar.com website.
Hard copy proxy forms must be completed by or on behalf of the Shareholder. If the Shareholder is a corporation then the proxy form must be
executed by a duly authorised person or under its common seal or in a manner authorised by its constitution. A proxy form is enclosed with this
Notice of AGM. To be valid, completed proxy forms must be returned to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU
to be received no later than 12.30 p.m. (11.30 a.m. BST) on 5 June 2012.
Shareholders wishing to submit proxy forms electronically should visit the www.bwinparty-registrar.com website and select the Annual General
Meeting tab on the left hand side of the page. To be valid, electronic proxy instructions must be received by the Registrar no later than 12.30 p.m.
(11.30 a.m. BST) on 5 June 2012.
A corporation which is a shareholder may, by resolution of its directors (or other relevant governing body), authorise a person or persons to act as
its representative or representatives at the AGM. The representative or representatives should produce to the registrar and/or bwin.party’s Company
Secretary a certified copy of the resolution of authorisation when attending the AGM.
161
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
70
103
3.2 Depositary interest holders
Depositary interest holders may attend in person and vote on a show of hands or on a poll if the Depositary has appointed them a corporate
representative (see section 2.2 above). Depositary interest holders not wishing to attend the AGM but wishing to vote in respect of the resolutions
to be considered at the AGM can do so by instructing the Depositary. This may be done in one of two ways:
(i)
Depositary interest holders who are CREST members may give such an instruction utilising the CREST electronic voting service in accordance
with the procedures described in the CREST Manual. CREST personal depositary interest holders or other CREST sponsored members, and those
CREST members who have appointed a voting service provider, should refer to their CREST sponsor or voting service provider, who will be able
to take the appropriate action on their behalf.
In order for an instruction made by CREST to be valid, the appropriate CREST message (‘a CREST proxy instruction’) must be properly
authenticated in accordance with CRESTCo’s requirements and must contain information required for such instructions, as described in
the CREST Manual. The message, in order to be valid, must be transmitted so as to be received by the Depositary’s agent, ID RA10 by 12.30 p.m.
(11.30 a.m. BST) on 4 June 2012. The time of receipt will be taken to be the time (as determined by the timestamp applied to the message by
the CREST applications host) from which the Depositary’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed
by CREST. The Depositary may treat as invalid a CREST voting instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated
Securities Regulations 2001.
CREST members and, where applicable, their CREST sponsors or voting service providers, should note that CRESTCo does not make available
special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input
of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or to procure that his or her CREST sponsor or
voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by
any particular time. Please refer to the CREST Manual for further guidance.
(ii) Depositary interest holders who cannot give voting instructions via CREST should complete the enclosed form of direction and submit it to the
depositary. If the depositary interest holder is a corporation then the form of direction must be executed by a duly authorised person or under
its common seal or in a manner authorised by its constitution. To be valid, forms of direction must be received by the Depositary no later than
12.30 p.m. (11.30 a.m. BST) on 4 June 2012.
(iii) Depositary interest holders who cannot give voting instructions via CREST can also submit a form of direction electronically by visiting
www.bwinparty-registrar.com website and selecting the Annual General Meeting tab on the left hand side of the page. To be valid, the
electronic form of direction must be received by the Depositary no later than 12.30 p.m. (11.30 a.m. BST) on 4 June 2011.
4. bwin.party employees
bwin.party employees who have exercised their bwin.party share awards and have retained all/some of the resultant bwin.party Shares and hold
these Shares through the bwin.party nominee account service, Capita IRG Trustees (Nominees) Limited and wish to attend the AGM, should request
Capita IRG Trustees (Nominees) Limited to appoint them as a corporate representative. This is done by completing the nominee account instruction
form enclosed with this AGM notice. Irrespective of whether an eligible employee wishes to attend the AGM or not, they are recommended to
complete the nominee account instruction form and send it to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU,
United Kingdom, to be received no later than 12.30 p.m. (11.30 a.m. BST) on 4 June 2012.
5. Documents for inspection
Copies of the following documents are available for inspection during normal business hours at the Company’s registered office at 711 Europort,
Gibraltar. These documents will also be available for inspection at the The Caleta Hotel, Catalan Bay, Gibraltar on the day of the meeting from
12.00 noon until the conclusion of the AGM:
• Memorandum and Articles of Association;
• Executive Directors’ Service Agreements;
• Non-Executive Directors’ Letters of Appointment;
• The Company’s signed Annual report for the year ended 31 December 2011;
• Register of Members; and
• Register of Depositary Interest Holders.
Glossary and definitions
162
bwin.party
‘AAMS’
L’Amministrazione autonoma dei monopoli di Stato, the Italian gaming regulator
‘Active player days’ aggregate number of days in the given period in which active players have contributed to rake and/or placed a wager.
This can be calculated by multiplying average active players by the number of days in the period
‘active player’
in relation to the Group’s products, a player who has contributed to rake and/or placed a wager
‘Annual report’ the Company’s financial statements and accompanying reports for the year ended 31 December 2011
‘ARJEL’
L’Autorité de régulation des jeux en ligne, the French gaming regulator
‘average active players’
or ‘Daily average players’
the daily average number of players who contributed to rake and/or placed a wager in the given period.
This can be calculated by dividing active player days in the given period, by the number of days in that period
‘B2B’
business-to-business
‘B2C’
business-to-consumer
‘betoto’ www.betoto.com, one of the Group’s sports betting websites
‘Board’ or ‘Directors’ the Executive Directors and the Non-Executive Directors of the Company
‘bwin’
bwin Interactive Entertainment AG, its subsidiaries and its associated companies and/or bwin.com, one of the Group’s
principal sports betting websites, as the context requires
‘bwin.party’ bwin.party digital entertainment plc, the name of the Group formed by the Merger of PartyGaming Plc and bwin Interactive
Entertainment AG
‘Cashcade’
Cashcade Limited and its subsidiaries
‘Clean EBITDA’ and ‘Clean EPS’
EBITDA/EPS before the provision for costs associated with the Group’s Non-Prosecution Agreement, amortisation and
impairment of acquired intangibles, reorganisation expenses, merger and acquisition expenses, exchange differences,
and before non-cash charges relating to share-based payments
‘Company’ or ‘PartyGaming’
or ‘bwin.party’
PartyGaming Plc prior to completion of the Merger and bwin.party digital entertainment plc (‘bwin.party’) after the Merger
‘Depositary’
‘Discontinued operations’ Ongame’s B2B business as well as operations located physically outside of the US but which relate to customers in the US
and were terminated following the enactment of the UIGEA on 13 October 2006
‘EBITDA’
earnings before interest, tax, depreciation and amortisation
‘Employee Trust’
the PartyGaming Plc Shares Trust, a discretionary share ownership trust established by the Company in which the potential
beneficiaries include all of the current and former employees and self-employed consultants of the Group
‘Executive Directors’ the Executive Directors of the Company listed in the ‘Board of Directors’ section of the Annual report
‘Foxy Bingo’ www.foxybingo.com, one of Europe’s largest active bingo sites that was acquired as part of the purchase of Cashcade
‘FTSE4Good Index Series’
a benchmark of tradeable indices for responsible investors. The index is derived from the globally recognised FTSE Global
Equity Index Series
‘Gamebookers’ www.gamebookers.com, one of the Group’s sports betting websites
‘Gioco Digitale’
www.giocodigitale.it, one of the Group’s principal bingo websites
‘gross win margin’ gross win as a percentage of the amount wagered
‘gross win’ customer stakes less customer winnings
‘Group’ or ‘bwin.party Group’ the Company and its consolidated subsidiaries and subsidiary undertakings
‘IAS’
International Accounting Standards
‘IASB’
International Accounting Standards Board
‘IFRS’ International Financial Reporting Standards
‘InterTrader’ Our financial markets service, formerly known as PartyMarkets.com
‘KPIs’
Key Performance Indicators such as active player days and yield per active player day
163
bwin.party
Overview
02
Strategy
20
Review of 2011
32
Markets and risks
47
58
Governance
‘Merger’
the merger of bwin Interactive Entertainment AG and PartyGaming Plc that was completed on 31 March 2011, accounted
for under IFRS 3 as an acquisition of bwin
‘new player sign-ups’
new players who register on the Group’s real money sites
70
103
‘Non-Executive Directors’ the Non-Executive Directors of the Company listed in the ‘Board of Directors’ section of the Annual report
‘NPA’
the Non-Prosecution Agreement entered into by the Group and the US Attorney’s Office for the Southern District of New York
(the ‘USAO’) on 6 April 2009. Under the terms of the agreement, the USAO will not prosecute the Group for providing internet
gambling services to customers in the US prior to the enactment of the UIGEA
‘PartyBets’ www.partybets.com, one of the Group’s sports betting websites
‘PartyCasino’ www.partycasino.com, the Group’s principal casino website
‘PartyGammon’ www.partygammon.com, the Group’s backgammon website
‘PartyPoker’ www.partypoker.com, the Group’s principal poker website
‘player’ or ‘unique active player’
Customers who placed a wager in the period
‘rake’
the money charged by PartyGaming for each qualifying poker hand played on its websites in accordance with the prevailing
and applicable rake structure
‘Registrar’ Capita Registrars (Jersey) Limited, the registrars of the Company
‘Regulatory Process Agreement’
The Regulatory Process Agreement dated 29 July 2010, as amended, the primary purpose of which is to facilitate the
exploitation of certain new business opportunities for bwin.party
‘sports betting’ placing bets on sporting events
‘UIGEA’ the Unlawful Internet Gambling Enforcement Act that was enacted in the US on 13 October 2006
‘USAO’ United States Attorney’s Office for the Southern District of New York
‘wager’ a bet on a game or sporting event
‘WPT’ the business and substantially all of the assets of The World Poker Tour acquired by the Group on 9 November 2009
‘yield per active player day’ net revenue in the period divided by the number of active player days in that period
Design and production
by Radley Yeldar www.ry.com
Photography by Michael Harvey
Printed by Boss Print
Inside
this report
02 Overview
66 Board of Directors
03
04
06
08
10
18
70 Governance
Pro forma financial highlights
Our product verticals
Chairman’s statement
Co-CEO’s review
Our business model
20 Strategy
22 Regulated and to-beregulated markets
24 Invest in our core assets
26 Strategic alliances
28 New areas of digital entertainment
30 Act responsibly
32 Review of 2011
47 Markets and risks
48
50
52
54
55
Sports betting
Casino & games
Poker
Bingo
Key risks
58 Responsibility and relationships
59
61
63
64
64
Corporate responsibility
Employees
Suppliers
Shareholders and other providers
of capital
65 Environment and community
75
77
78
79
80
97
Audit Committee report
Ethics Committee report
Integration Committee report
Nominations Committee report
Directors’ Remuneration report
Other governance and
statutory disclosures
102 Statement of Directors’
responsibilities
103Financial statements
104 Auditors’ report
of cashflows
110 Notes to the consolidated
of cashflows
153Share information
158Notice of Annual General
Meeting
162Glossary and definitions
See our online report at
www.bwinparty.com
For more information
visit us online at
www.bwinparty.com
Annual report
& accounts
2011
let the world
play for real

let the world play for real

Transcription

Similar documents

Ahead of legalized online poker, casino and

Instructions for selling paysafecard in PreCash locations

Sutura, Inc.

Julien Descurieux

Adayana GameWare Learning Solutions

lien / unlien stocks

Best of Times - Neil Sedaka.pub