Annual Financial Report

3 March 2011

PartyGaming Plc

Audited results for the year ended 31 December 2010

● Total revenue up 15% to €357.3m (2009: €310.1m) with a softer performance in poker mitigated by strong growth in all other verticals

● Continuing Clean EBITDA* up 7% to €100.4m (2009: €93.8m), slightly ahead of market expectations

● Continuing Clean EPS* of 13.5 € cents (2009: 14.9 € cents); total Clean EPS of 13.4 € cents (2009: 14.8 € cents)

● Net cashflow from Continuing operations of €86.3m (2009: €86.3m) with net cash at the year end of €156.7m (2009: €114.5m)

● Transformational merger with bwin on track to complete and new shares in bwin.party digital entertainment plc to begin trading on 31 March 2011 under the ticker BPTY

● Current trading in-line with Board's expectations; gross revenue per day of €1,431,800 (Q410: €1,425,400)

● Good progress in newly regulated markets; more regulation in Italy and Denmark expected during 2011

* EBITDA/EPS before the provision for costs associated with the Group's Non-Prosecution Agreement, reorganisation costs, impairment losses, merger and acquisition costs and before non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit below).

 # Operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA.

Commenting on today's results announcement, Jim Ryan, Chief Executive Officer, said:

"During 2010 the Group delivered on a number of its strategic objectives, the most significant of which was the announcement of our transformational merger with bwin, the world's largest listed online sports betting business. We also completed the integration of both Cashcade and WPT whilst our French network has captured around 14% of the newly regulated French poker market[1]. In the US we believe there is growing political and commercial will to regulate online gaming and that we are well-positioned to exploit our strong franchise in that market should regulations allow.

"As our merger with bwin is set to complete on 31 March 2011, we are finalising our plans to integrate both businesses as quickly as possible and remain confident about delivering the cost and revenue synergies we have already identified in line with the previously announced timetable, with the full €55 million per annum being delivered by 2013. We plan to provide a further update on our progress at the time of the half year results in August 2011."

Regarding current trading he added:

"The Group has continued to perform in-line with the Board's expectations. In the two-month period ended 28 February 2011, average gross daily revenue was €1,431,800 (Q410: €1,425,400). New poker player sign-ups increased to an average of 1,905 per day (Q410: 1,853) and there were on average 52,400 active poker players per day (Q410: 50,400). Average gross daily revenue for poker was €452,600 (Q410: €440,200), for casino was €557,100 (Q410: €577,200), for bingo was €339,100 (Q410: €337,200) and for sports betting was €83,000 (Q410: €70,800)."

Contacts:

Interview with Jim Ryan and Martin Weigold

An interview with Jim Ryan, Chief Executive Officer, and Martin Weigold, Group Finance Director, in video/audio and text will be available from 7.00am GMT on 3 March 2011 at: http://www.partygaming.com.

Analyst meeting, webcast and dial-in details: Thursday 3 March 2011

There will be an analyst meeting for invited UK-based analysts at Deutsche Bank, 1 Great Winchester Street, London, EC2N 2DB starting at 9.30am GMT. There will be a simultaneous webcast and dial-in broadcast of the meeting. To register for the live webcast, please pre-register for access by visiting the Group website (www.partygaming.com). Details for the dial-in facility are given below. A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

Dial-in details to listen to the analyst presentation: Thursday 3 March 2011

A recording of the meeting will be available for a period of seven days from 3 March 2011. To access the recording please dial the following replay telephone number:

About PartyGaming Plc

PartyGaming Plc is the world's leading listed online gaming company. It is a constituent of the FTSE 250 share index with its shares listed on The London Stock Exchange under the ticker: PRTY. In the year to 31 December 2010, PartyGaming's Continuing operations generated revenues of €357.3m and Clean EBITDA of €100.4m. PartyGaming's principal brands are PartyPoker.com, one of the world's largest online poker rooms, EmpirePoker.com, PartyCasino.com, PartyBingo.com, PartyGammon.com, PartyBets.com, InterTrader.com, FoxyBingo.com, ThinkBingo.com, BingoScotland.com, CheekyBingo.com, GetMinted.com, WorldPokerTour.com and Gamebookers.com. None of the Group's sites accept real money customers located in the US.

PartyGaming Group companies are regulated and licensed by the Governments of Gibraltar, France and Italy and by the Alderney Gambling Control Commission. The Group is also certified as a responsible gaming operator by GamCare, the leading UK authority on the provision of advice, practical help, support and counselling in addressing the social impact of gambling. PartyGaming's shares are also a constituent member of the FTSE4Good Index Series, which enables investors to identify companies that meet globally recognised corporate responsibility standards.

On 29 July 2010 PartyGaming announced a proposed merger with bwin Interactive Entertainment AG. The merger has been approved by both companies' shareholders and is expected to complete on 31 March 2011 following which the Company's name will be changed to bwin.party digital entertainment plc and its ticker will also change to BPTY. For more information, please visit www.partygaming.com.

Business Review

Introduction

The Group delivered a solid performance during 2010 and made significant progress against the three-year plan that was introduced in September 2008. The strategic highlight during the year was the announcement of our proposed merger with bwin on 29 July 2010. Other key developments included the launch of our French poker network on 1 July 2010 that includes www.PartyPoker.fr and www.PMU.fr as well as recapturing the position of being the world's leading poker network, excluding those sites that continue to accept US players following the enactment of UIGEA.

As announced on 6 July 2010, the Group's financial results are now reported in Euros (€) rather than US dollars ($). This reflects the fact that the greatest proportion of the Group's customers now choose to fund their accounts in Euros and this is expected to grow further given the expected opening of a number of newly regulated regimes in the Eurozone. The functional currencies of the Group's gaming companies, where appropriate, have also been changed to Euros as of 1 January 2010. All comparative financial results for the year ended 31 December 2009 have been translated into Euros at a rate of €0.695/$1.

While full 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 non-US facing business only, unless expressly stated otherwise.

Results overview

Total revenue increased by 15% to €357.3m (2009: €310.1m) reflecting strong growth in casino and sports betting as well as a full year's contribution from Cashcade and WPT that were acquired in 2009, mitigated by a soft performance in poker. As expected, the transition to regulated markets in both Italy and France, where establishing a meaningful market share has required significant investment in marketing together with structurally lower margins due to gaming taxes, meant that Clean EBITDA margins were lower at 28.1% (2009: 30.2%), albeit at the top-end of our guidance. Clean EBITDA increased by 7% to €100.4m (2009: €93.8m).

The following table provides a reconciliation of the movements between Clean EBITDA and operating profit:

Reconciliation of Clean EBITDA to operating profit (loss)

The Group's performance in 2010 and during the first few weeks of 2011 have been driven by the effective implementation of our business strategy. During the year we have sought to capitalise on a series of strategic, operational and regulatory developments in pursuit of our overall objectives.

Strategic developments

bwin merger

Our merger with bwin was unanimously approved by both sets of shareholders on 28 January 2011 and represents a transformational step forward for the Group. As well as being an excellent commercial fit, the merger should result in the Group securing market-leading positions in each of our product verticals, including sports betting, that historically was the Group's smallest contributor to revenue and Clean EBITDA. With €55 million of annualised cost and revenue synergies to be realised we believe that the Combined Group will be well-placed to seize opportunities in what we expect to be an unprecedented period of regulatory change across a number of geographic markets, both in Europe and internationally. Merger and acquisition expenses of €4.9 million were incurred in 2010.

Elsewhere, we have continued to develop a series of meaningful business relationships both with B2B customers as well as potential joint venture partners in both regulated and to-be-regulated markets. Following the announcement of our proposed merger with bwin, we have continued to explore a number of potential business partnerships that may be formalised should the requisite legislation come into force.

Operational developments

Operationally, we launched our French poker network on 1 July 2010 and are pleased with its performance since then. Compared with the second half of 2009, we have grown our average daily poker revenues in France by over 220% before gaming taxes and by 77% after gaming taxes are taken into account. Our B2B business partners in France have proven to be major assets in our drive to build market share in that market and we look forward to further growth in 2011. On product, we added 30 new games to PartyCasino including Kung Food and Snow Business that were both developed in-house, are exclusive to PartyGaming and which are already among our most popular slot games. Elsewhere, having launched Gamebookers casino earlier in the year we also launched www.PartyBets.fr as well as a mobile betting application during the second half. In bingo we launched into Scandinavia and also launched rollover bingo in the UK. Further details on some of these developments are summarised below.

B2B

Our B2B business was transformed in 2010 with the opening of the French market and the launch of sites for three new partners there: PMU, AB Groupe and Aviation Club de France.

While hopes that a poker-only internet gaming bill might make it onto the statute books in the US proved to be optimistic in 2010, we continued to build strong relationships with a number of major groups based in the US and, regardless of whether there is legislation at the state or federal level, we believe that we are well-placed to take advantage of any opening of the US market.

French poker

Since going live on 1 July 2010, our French poker network has gone from strength to strength. With a market share in France of approximately 14%[2], our average daily revenue from poker in December 2010, after gaming taxes was already 155% higher than for the same period the previous year.

New casino games

Having added 10 new casino games during the first half we added a further 20 games in the second half, as well as launched our in-house no download casino for clients that prefer not to download and install the full casino software onto their PCs. This allowed us to replace similar products supplied by third parties. Our in-house games developers again played a major part in improving and extending our casino games portfolio that now comprises over 160 games. In December 2010, five out of our top ten slot games in terms of amounts wagered were developed in-house.

Regulatory developments

There follows a review of the key regulatory developments as we see them and how they may have a bearing on our business.

United States

During 2010 a number of legislative initiatives were introduced looking to regulate internet gaming in the United States. Bills were introduced at both federal and state levels with differing degrees of success.

At a federal level, while some progress was made with The Internet Gambling, Regulation Consumer Protection and Enforcement Act sponsored by Congressman Barney Frank, the focus of attention shifted towards the end of 2010 with the publication of a poker-only bill sponsored by Senator Harry Reid. Whilst this latest bill failed to get attached to any legislation before Congress ended in December 2010, the strong effort to do so may be a signal that a similar bill will be reintroduced at some point during the new Congress. Last month, California's Republican Congressman John Campbell announced his intention to publish a new federal bill later this month to regulate and license internet gambling in the United States. Congressman Barney Frank is expected to be the Democratic co-sponsor of the bill.

At a state level, several proposals to regulate and license intra-state online poker in California as well as in New Jersey, Florida and Iowa remain work in progress but have yet to reach any conclusion. While California, Florida and Iowa are at a relatively early stage, the proposals in New Jersey are more advanced. Having been passed in both the local Senate and Assembly, the New Jersey bill is now awaiting signature by the State Governor to enact it in law. However, a number of commentators have highlighted the fact that constitutional and other concerns within New Jersey may result in the Governor vetoing the bill. Were this to occur, whilst disappointing, it should not prevent any of the other state initiatives from being successful and we are continuing to monitor all of these developments closely.

As with any political process, the timing and prospects of any of these federal or state measures becoming law remains uncertain.

Europe

In Brussels, a green paper on online gaming is expected to be published shortly by the European Commission and this is expected to mark the beginning of a three-month public consultation that could serve as a precursor to any future community directive on online gaming. In the absence of legal harmonisation, disputes over the validity of legal enforcement against a number of online gaming companies have resulted in cases being taken to the Court of Justice of the European Union ('CJEU').

During 2010 a number of key judgements were issued although perhaps the most significant were the Markus Stoß et al (Joined Cases C‑316/07, C‑358/07 to 360/07, C‑409/07 and C‑410/07), Winner Wetten (Case C‑409/06) and Carmen Media (Case C‑46/08) cases regarding the validity of the German State Lottery Treaty that were handed down in September 2010. In summary, the CJEU ruled that the State Lottery Treaty was both "inconsistent" and "incoherent" and therefore could not be applied under EU law. We are now awaiting a revised proposal from the German authorities on what should replace the State Lottery Treaty although the 16 states or Länder have yet to agree on a way forward. The next meeting of the Minister Presidents is expected to take place on 10 March and will be followed by a further meeting in June 2011.

France opened its market for online sports betting in June 2010 and online poker on 1 July 2010. Italy has already created a regulatory framework for licensing online tournament poker and is expected to expand the regime to include cash game poker and certain casino table games in 2011.

The Danish government remains committed to opening its online gaming market in 2011 although it is currently defending a claim that the proposed tax rate under the new regime would be unduly favourable to online operators and that it is equivalent to State Aid which is being looked at by the European Commission. While Belgium has enacted a law for the regulation of online gambling there, the requirement to first have a land-based license is seen by many as being in breach of EU law although no action has yet been taken by the European Commission. Elsewhere, during the first two months of 2011, proposals have been published in Greece and Spain that seek to regulate online gaming activities. We expect to receive greater clarity on the likely path these proposals might take over the coming months.

The Directors continue to believe that regulation rather than prohibition of online gaming is the most sensible option for governments.

Directors

As mentioned in the 2009 Annual Report, Stephen Box, an independent Non-Executive Director and Chairman of the Audit committee, sadly passed away during the year following a prolonged period of illness.

Change of name

Following the Extraordinary General Meeting that took place on 28 January 2011 and subject to completion of the merger with bwin, the Company's name will be changed on 31 March 2011 to bwin.party digital entertainment plc.

Dividend

In accordance with the terms of the merger implementation agreement entered into with bwin on 29 July 2010, the Board has not recommended the payment of a final dividend in 2010. Assuming that the merger completes as planned on 31 March 2011, the Board of the Combined Group will determine the Combined Group's dividend policy in the light of its financial performance and the potential returns available from alternative uses of capital.

Key objectives for 2011

Our merger with bwin represents an exciting new chapter in the development of our company. It signals a transformation into a clear market leader across the four major product verticals of sports betting, poker, casino and bingo. With our merger expected to complete on 31 March 2011, we are focused on putting into action the detailed plans that we have prepared to extract the €55 million of financial synergies we have already identified and set in motion the business strategy for the Combined Group. While we have identified a number of individual strategies that we will be adopting, each of these can be classified under four broad headings:

Focus on regulated and to-be-regulated markets. Our industry is undergoing an unprecedented regulatory shift from unregulated towards regulated markets. As the world's largest listed online gaming company, we are going to focus our efforts on securing meaningful market shares in each of our four product verticals in all of the major regulated and to-be-regulated markets. This will be achieved through a combination of organic and acquisition-led growth. At the same time, we will continue to lobby governments for legislation that meets the needs and desires of the regulators whilst remaining commercially attractive, so that regulated companies are not at a significant disadvantage to unregulated companies.

Invest in the development of our technology and brands. Both bwin and PartyGaming's success has been borne out of an ability to innovate and a willingness to invest in developing the best products and brands. Our drive and determination to remain at the vanguard of the industry has seen both businesses expand into new areas and develop new and innovative products - this is at the very heart of our success and is part of our DNA. Despite being less than 15 years old, our respective brands and products are already some of the strongest in the industry - we want to make them stronger through delivery of the best customer experience, irrespective of product or channel.

Secure long-term strategic alliances - Both bwin and PartyGaming have a long history of recognising the value from long-term relationships with strategic partners. bwin's brand has become synonymous with sport through its sponsorship of some of the world's biggest names in sport such as Real Madrid and Bayern Munich. Both bwin and PartyGaming have strong alliances with a number of third parties such as those with PMU and Amaury in France. These are just some examples of how both companies have recognised the value that can be created from leveraging the assets of others.

Act responsibly - As a market leader, we are determined to lead by example. We are intent on opening new markets and promoting the merits of real money gaming around the world. Our reputation for fair play and responsible gaming is second to none and is driven by the fact that the trust of our customers is a pre-requisite for long-term success. bwin and PartyGaming have been pioneers in the areas of gambling research and innovation. Building on bwin's existing collaboration with Harvard Medical School and other initiatives, the combined group plans to increase its efforts to promote safe and secure gaming on the internet.

Current trading and outlook

The Group has continued to perform in-line with the Board's expectations. In the two-month period ended 28 February 2011, average gross daily revenue was €1,431,800 (Q410: €1,425,400). New poker player sign-ups increased to an average of 1,905 per day (Q410: 1,853) and there were on average 52,400 active poker players per day (Q410: 50,400). Average gross daily revenue for poker was €452,600 (Q410: €440,200), for casino was €557,100 (Q410: €577,200), for bingo was €339,100 (Q410: €337,200) and for sports betting was €83,000 (Q410: €70,800).

We are entering an unprecedented period of regulatory change and there are going to be challenges ahead as we make the transition to newly regulated markets. But we have a clearly defined plan and are focused on delivering the synergies already identified from our merger with bwin that should help to smooth this transition. We are confident about the outlook and the Group's prospects.

SUMMARY OF RESULTS

Total revenue increased by 15% versus the previous year, driven by a full year's contribution from Cashcade and a strong performance in casino and sports betting that helped to mitigate the impact of a challenging macroeconomic environment and an unlevel playing field in poker caused by the continued acceptance of US-based players by certain operators . Despite the impact of gaming taxes and investment in newly regulated markets, careful cost control and currency gains meant that the impact on Clean EBITDA margins was limited and Clean EBITDA increased by 7% to €100.4m (2009: €93.8m). Overall, Clean EBITDA margins fell to 28.1% (2009: 30.2%) reflecting increased marketing spend in Italy during the first half and the launch of www.PartyPoker.fr in July.

The underlying performance of each of our consolidated key performance indicators, which are based on net revenue, are highlighted below:

Consolidated Key Performance Indicators

New player sign-ups (000)

Active player days (m)

* Europe, Middle East and Africa

A full year's contribution from Cashcade together with the launch of our French poker network helped to drive active player days and daily average players that both increased by 16% in 2010, assisted by a 12% increase in new player sign-ups which increased across all regional segments. For both sign-ups and active player days, EMEA continues to be the Group's most significant region geographically. While player yields declined by 3% year-on-year to €11.1, continued declines in poker were mitigated by strong growth in casino and sports. The net effect was that average daily net revenue for the year as a whole, increased by 13% year-on-year to €954,400 (2009: €846,700).

There follows a more detailed review of the Continuing operations including each of the individual product segments. Full details of all of the Group's historic quarterly key performance indicators can be downloaded from the Group's website at www.partygaming.com/investor/documentation.html.

Poker

Gross poker revenues declined 4% versus the prior year primarily due to continued competitive pressures and a slowdown in consumer spending. Bonuses and other fair value adjustments to revenue were in line with our guidance at approximately 25% of gross revenue (2009: 22%). We continued to develop our product with the launch of a number of new features in the year including 'anonymous heads up', 'rabbit cam', 'fold and show' and 'double hold'em'.

The Group remains in third place in the global poker rankings, a position it has held for most of 2010. In the week ended 28 February 2011, it is estimated that the Group had approximately 6% of the global online poker market versus 6% in February 2010. In France, having launched on 1 July 2010 the Group's poker network, including PMU, has established an estimated market share of approximately 14%, putting the Group in joint-third place in terms of poker liquidity[3].

The operational gearing inherent within the Group's business model meant that the reduction in net revenue, together with the cost of marketing initiatives in France and Italy impacted Clean EBITDA margins that reduced to 15.3% (2009: 21.7%). As a result, poker Clean EBITDA declined to €19.3m (2009: €29.7m).

The table below shows the key performance indicators for poker versus the prior year:

Poker - Key Performance Indicators

Despite a 7% increase in new player sign-ups to 530,400 (2009: 496,100), player numbers remained flat reflecting intense competition in the global poker market.

The trends in poker player attrition have followed a similar pattern to that seen in recent years. Approximately 13% of all 2010 poker sign-ups remained active after six months versus 17% of all 2009 sign-ups this time last year. As at 31 December 2010, across all real money poker sign-ups, the proportion of players remaining active after six months was approximately 21% (2009: 23%), after 12 months it was 16% (2009: 17%) and after 18 months it was 14% (2009: 14%).

Yield per active player day fell to €6.7 (2009: €7.4) reflecting a change in the geographic mix of sign-ups, an increasing proportion of recreational players as well as higher levels of player bonuses.

Casino

Despite having had to close our French casino business at the end of the first half of 2010 following the introduction of the new regulatory regime in France, the Group's casino business delivered another strong performance in 2010. The total amount wagered on casino games decreased by 2% to €5.1 billion (2009: €5.2 billion) but gross revenue increased by 10% to €204.0m (2009: €185.6m) thanks to a higher hold percentage of 4.0% (2009: 3.6%). The recent trend of an improving customer and product mix continued during the period with a reduced reliance on poker customers as a source of player traffic. This helped to increase the proportion of total wagers being placed on higher hold games such as slots and jackpot slots that represented 51% of total casino wagers (2009: 47%). A small reduction in bonuses and other fair value adjustments from 26.6% to 25.8% of gross revenue meant that net revenue increased by 11% to €151.4m.

After a softer performance in the first half due to the timing of a number of marketing campaigns, Clean EBITDA margins recovered during the second half of 2010. However, the particularly strong performance in 2009 meant that year-on-year Clean EBITDA margins decreased to 34.8% (2009: 37.9%). As a result, while revenue grew by 11%, Clean EBITDA increased by 2%. Having added 30 new games to the casino portfolio during the year, including nine new slots developed in-house, we plan to add further new games during 2011 to ensure that PartyCasino remains the world's largest online casino. A summary of the key performance indicators for the casino business during 2010 is shown in the table below:

Casino - Key Performance Indicators

While we continued to focus on growing the volume of dedicated casino players, the closure of the French casino in the second half of 2010 impacted a number of the key performance indicators in the period. If France was excluded from the analysis, both active player days and daily average players would have increased by 1%. Whilst overall player activity is down 2%, player yields rose by 13%, reflecting the improving player mix and the shift towards higher yielding games. Taking all of these movements together, average daily net revenue increased by 11% to €414,800 (2009: €373,500).

Bingo

The year-on-year performance of our bingo business was transformed by the acquisition of Cashcade in July 2009. With the benefit of a full year's contribution from Cashcade, and a significant improvement in PartyBingo, gross revenue increased by 130% versus the previous year and net revenue increased by 125%. With the addition of €1.1m of other revenue from network services, bingo now represents approximately 15% of Group total revenue, up from 7% in 2009.

The reduction in Clean EBITDA margins from 39.9% to 29.0% reflects a more normalised phasing of marketing spend during the year that in 2009 had been particularly weighted towards the first half and was an increase over that achieved in the first half of 2010. The launch into Scandinavia also impacted on margins in the second half. A summary of the key performance indicators for bingo are shown below:

Bingo - Key Performance Indicators

All of the key performance indicators for bingo showed strong growth over the prior year due to the full year contribution from Cashcade. Adjusting for the mid-year impact of the acquisition, the underlying growth rate in daily bingo revenue was 11%. The return to more normalised Clean EBITDA margins meant that Clean EBITDA was €15.2m (2009: €9.3m).

Sports Betting

The Group's sports betting business delivered a very strong performance in 2010. Whilst the FIFA World Cup during the summer certainly helped to drive total stakes, operational improvements and a focus on increasing the volume of combination bets were also important factors. Live betting continued to drive betting volume and represented approximately 49% of total wagers in 2010 (2009: 47%). Having already introduced statistical models for both tennis and football, we also added basketball and volleyball during the second half of the year as part of our effort to increase gross win margins for live betting. Gross win margins in the second half continued to build on the momentum achieved during the first six months with pre-match betting margins for the full year of 9.8% and live betting margins of 3.9% resulting in a total gross win margin of 7.2% (2009: 5.5%). Our tighter control on bonuses, that fell from 1.7% of the amount wagered the previous year to 1.4%, meant we removed a number of unprofitable players and this helped to drive net revenue performance that increased by 58% year-on-year.

The increase in net revenue and the operational leverage of the business helped to boost Clean EBITDA margins to 43.3% (2009: 30.3%) and Clean EBITDA rose by 125% to €9.0m (2009: €4.0m).

Sports Betting - Key Performance Indicators

Total active player days and the daily average number of players both increased by 4%, primarily driven by the impact of the World Cup. The reduction in bonus costs was a contributory factor to a reduction in new player sign-ups that were down by 43% versus the prior year but with a consequent rise in player yield and improved gross win margin, average daily revenue increased by 57% to €56,900.

Other revenue

Other revenue was €8.9m in the period (2009: €1.0m) and reflects substantially increased contributions of €6.5m from WPT and €2.4m from our B2B network services customers. During the second half of 2010 WPT launched Season 9 including an expanded European presence, building on the successful events in London, Amnéville and Marrakech. WPT also entered into a multi-year TV deal with Fox Sports Net with enhanced promotional and broadcast time commitments throughout the year for the WPT series and for the ClubWPT online poker service. Our efforts to exploit new technologies continued in 2010 and WPT's Facebook application has become Facebook's fourth largest poker application. We also launched 'WPT Hold 'em III', the latest variant on our mobile poker application that has already accumulated 16 million downloads.

Cost of sales

Cost of sales, comprising gaming duties payable in regulated markets as well as the amortisation of TV production costs in respect of WPT, increased to €6.9m (2009: €0.3m) due to the launch of poker and sports betting services in France as well as a full year of WPT costs.

Distribution expenses

Customer acquisition and retention spend increased to 18.4% of total revenue, up from the 15-16% range that we have seen in recent years. This increase reflected a number for factors: first lower than expected returns on marketing spend associated with the delayed launch of cash game poker in Italy; second there is a full year impact of Cashcade that tends to spend more on customer acquisition than the other product verticals and third, there was the Group's launch into the French poker market with growth in revenues tending to lag marketing spend. Affiliate expenses decreased to 13.6% of total revenue (2009: 14.7%) reflecting our efforts to rationalise the number of affiliates and to secure more favourable terms from those that remain part of our network. Other customer bonuses and customer bad debts remained steady at 1.6% and 1.3% of total revenue respectively. A 35% increase in webhosting and technical service costs reflects the full year impact of Cashcade's gaming platforms being hosted by third parties, as well as increased royalty payments attributable to our third-party providers of slots and branded content on the back of higher slot revenues.

As a result, total distribution expenses increased to 44.4% of total revenue (2009: 41.8%) which was within the range of previous guidance given.

Administrative expenses

Administrative expenses generally comprise those costs that tend to be more fixed in nature. While transaction fees and other overheads fell as a percentage of total revenue, the full year impact of Cashcade and WPT resulted in a slight increase in staff costs as a percentage of total revenue and increases in share-based payments and amortisation. The net effect was that Clean EBITDA administrative expenses showed a modest decline to 27.3% as a percentage of total revenue whilst there was a modest increase in administrative expenses before share-based payments that reached 38.5% of total revenue in 2010 versus 37.7% in 2009.

Transaction fees continued to fall as a proportion of revenue with the benefit of renegotiated payment contracts beginning to feed through to the bottom line. The full year impact of both Cashcade and WPT meant that staff costs increased as a proportion of revenue to 16.1% of revenue having been 15.4% of revenue in 2009. Depreciation fell to 1.8% of revenue reflecting the fact that an increasing proportion of the Group's assets are now fully depreciated. However, following completion of the Proposed Merger with bwin and the relocation and associated fit-out of new office premises in Gibraltar and India, depreciation is expected to increase in 2011.

Share-based payments

Charges associated with share-based payments increased reflecting the addition of staff from Cashcade and WPT together with further grants of fair market value options as part of the Group's overall incentive scheme.

Taxation

The tax charge for the year is €3.6m (2009: €4.1m) reflecting an effective tax rate for Continuing operations of 8.2% (2009: 7.1%). The increase from the prior year is attributable to a full year's contribution of Cashcade, whose operations are subject to UK tax at 28.0%. As a percentage of Clean EBITDA from Continuing Operations, the effective tax rate fell from 4.4% to 3.6%. There is no tax associated with Discontinued operations and other comprehensive income.

Net cash (including amounts held by processors)

Cashflow

Net cashflow from Continuing operations was flat at €86.3m (2009: €86.3m) reflecting the increase in Clean EBITDA offset by costs associated with the merger with bwin. The net cashflow from Discontinued operations relates primarily to payments made to the US authorities in association with the Group's Non-Prosecution Agreement ('NPA'). The increase in 2010 reflects the first full year of payments associated with the NPA. Proceeds from bank borrowings in 2009 represented a loan of £35m from the Royal Bank Of Scotland plc that was drawn in late December 2009 and becomes repayable by the end of 2012, with capital repayments starting in 2011. Acquisitions comprise the initial cash purchase of both Cashcade and World Poker Tour; the deferred payment on acquisitions comprises further consideration payable to the vendors of these businesses based upon their financial performance. The increase in capital expenditure in 2010 relates to investment in computer equipment throughout the business.

Principal risks

The principal risks facing the Group are unchanged from those reported in the Group's Annual Report for the year ended 31 December 2009 and the Company's prospectus and circular published on 23 December 2010.

By order of the Board of Directors

Martin Weigold

Group Finance Director

3 March 2011

Audited Financial Information

Consolidated statement of comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in 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) for the year, 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. Under this method of accounting, the difference between the consideration for the controlling interest and the nominal value of the shares acquired is taken to other reserves on consolidation. As a result, the retained earnings reflect the cumulative profits as if the current Group structure had always been in place.

Currency reserve represents the gains/losses arising on retranslating the net assets of overseas operations into Euros.

Consolidated statement of cashflows

Notes to the consolidated financial information

1. Basis of preparation

Except as described below, the full year results are prepared on the basis of the accounting policies stated in the Group's Annual Report 2009 which is available on the Group's website at www.PartyGaming.com. The financial information has 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 financial information complies with the Gibraltar Companies (Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended).

The financial information does not constitute the Group's statutory accounts for the year ended 31 December 2010 or the year ended 31 December 2009, but is derived from those accounts.

Statutory accounts for the year ended 31 December 2010 will be filed with Companies House Gibraltar following the Company's Annual General Meeting. The auditors have reported on those accounts and their report was unqualified and did not contain statements under section 10(2) of the Gibraltar Companies (Accounts) Act 1999 or section 182(1) (a) of the Gibraltar Companies Act. Statutory accounts for the year ended 31 December 2009 have been delivered to the Registrar of Companies in Gibraltar together with a report under section 10 of the Gibraltar Companies (Accounts) Act 1999.

Since the Group has changed the reporting currency during the year from US dollars to Euros, under the requirements of IAS 1 - Presentation of Financial Statements the statements of financial position as at 31 December 2008 are also included and shown in Euros along with their accompanying notes.

New accounting standards and interpretations

The following relevant standards and interpretations, issued by the IASB or the International Financial Reporting Interpretations Committee ('IFRIC'), are effective for the first time in the current financial year and have been adopted by the Group with no significant impact on its consolidated results or financial position:

IFRS 2 (Amended) - Group Cash-settled Share-based Payment Transactions (effective for annual periods beginning on or after 1 January 2010).

IFRS 3 (Revised) - Business Combinations (effective for annual periods beginning on or after 1 July 2009).

The following relevant standards and interpretations, issued by the IASB or the IFRIC have been early adopted by the Group in line with best practice with no significant impact on its consolidated results or financial position:

IAS 32 (Amended) - Classification of Rights Issues (effective for annual periods beginning on or after 1 February 2010).

IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or after 1 July 2010).

IAS 24 (Revised) - Related Party Disclosures (effective for annual periods beginning on or after 1 January 2011).

The following relevant interpretations were issued by the IASB or the IFRIC before the year end but were not effective for the 2010 year end:

IFRS 7 (Amended) - Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011).

IAS 12 (Amended) - Deferred Tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012).

IFRS 9 - Financial Instruments (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.

Other operating income

Other operating income consists primarily of exchange gains and losses, reorganisation expenses and merger and acquisition expenses and are recognised on an accruals basis.1. Basis of preparation (continued)

Other operating expenses

Other operating expenses consist primarily of exchange losses and merger and acquisition expenses and are recognised on an accruals basis.

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 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 statement of comprehensive income.

Reporting and functional currency

The Group has changed the functional currency of certain of its gaming companies from US dollars to Euros reflecting the fact that the Eurozone has become the predominant economic environment in which the Group's gaming companies operate based on the currencies with which players fund their accounts, as well as the fact that it is expected that a number of other Eurozone markets will expand as a result of regulatory change over the next few years.

In line with IAS 21 the change took effect from the date the Group determined that the characteristics required to identify the functional currency had changed. The Group determined this occurred during 2010 and for accounting purposes, this is effective from 1 January 2010.

In addition, the Group has changed in 2010 the reporting currency used for the financial statements of the Group from US dollars to Euros, as the gaming companies referred to above represent a significant majority of the Group's revenue.

All financial data for prior periods has been converted using the exchange rate at 1 January 2010 of 1 US dollar = 0.695 Euros.

As the Company's only significant transactions are in US dollars, instalments of the Non-Prosecution Agreement are funded by surplus US dollars generated by the rest of the Group and the US dollar continues to be its functional currency. To be consistent with the Group in the 2010 Annual Report, the reporting currency of the Company is also in Euros.

2. Segment information

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

> poker (including backgammon),

> casino,

> bingo,

> sports betting and

> unallocated corporate (including World Poker Tour).

These segments are the basis upon which the Group 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.

2. Segment information (continued)