17th Jul 2015 12:00
Betfair Group plc17 July 2015
Betfair Group plc ("the Company")
Annual Report and Annual General Meeting
The Company announces that it has today circulated the Annual Report and Accounts for the year ended 30 April 2015 (the "2015 Annual Report and Accounts") and Notice of Annual General Meeting ("AGM") (the "AGM Notice") to shareholders. Copies of these documents are available on the Company's website: http://corporate.betfair.com/.
In compliance with LR 9.6.1 a copy of the AGM Notice and the 2015 Annual Report and Accounts have been uploaded to the UKLA National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.
The AGM will be held at the Company's offices at 2nd Floor, Waterfront, Hammersmith Embankment, Winslow Road, London W6 9HP, United Kingdom on 9 September 2015 at 11.00am.
A condensed set of the Company's financial statements and information on important events that have occurred during the financial year ended 30 April 2015 and their impact on the financial statements were included in the Company's preliminary results announcement released on 17 June 2015. That information, together with the information set out below in the Appendix, which is extracted from the 2015 Annual Report and Accounts, constitute the material required by Disclosure and Transparency Rule 6.3.5 to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full 2015 Annual Report and Accounts.
Page and note references in the text below refer to page numbers in the 2015 Annual Report and Accounts.
Appendix
OUR PRINCIPAL RISKS AND POTENTIAL KEY STRATEGIC IMPACTS (pages 23 to 26)
During the year a comprehensive bottom-up review of risks was undertaken throughout the Group, supported by facilitated risk workshops, to ensure that all potentially material risks have been identified, owners agreed and management/mitigation plans established accordingly. An Executive Management workshop reviewed the risks completing the top-down review.
We see successful risk management as an opportunity to set us apart from our competitors.
The principal risks and uncertainties which are considered to have a potentially material impact on the Group's long-term performance and achievement of strategy are set out on the following pages. External and internal risk factors are considered. This is not intended to be an exhaustive and extensive analysis of all risks which may affect the Group. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business. Further details of how our risk management framework and policies are embedded can be found on pages 47 to 52.
CHANGE IN POTENTIAL IMPACT. | WHY WE NEED TO MANAGE THIS | HOW WE MANAGE THIS |
Online gaming regulation and licensing | ||
Territories/countries introducing regulation. Potential for increased regulation of advertising. | New licensing regimes which make it commercially unviable for us to operate our products can restrict our ability to grow the business.
While opportunities exist, they are not without risks - such as commercial viability, delays in licensing of betting exchanges compared with other products, how our products are taxed and licensing one section of the online market, such as sports betting, but not another, such as casinos or poker.
Restrictions on advertising can reduce our ability to reach new customers and market new product offerings.
Consequently this could impact our strategic objectives to focus on sustainable revenues and to accelerate growth through international opportunities. | We work closely with regulators and governments throughout the EU and elsewhere to try to secure favourable regulation for our products. We obtained a UK licence during the year.
We have dedicated internal and external legal, tax, compliance and public affairs resources with responsibility for advising business units in these matters and through appropriate policies, processes and controls.
External third parties help us to substantiate evidence to support using a gross profits tax model. We monitor developments in advertising practice. |
Competition/our brand, products and customers | ||
Competition continues to grow, consolidation creates larger competitors and new entrants continue to enter the market and innovate. | Online gambling is a very competitive industry. Our competitors are constantly looking to gain advantage through aggressive marketing campaigns, pricing, promotional behaviour and new product features which could impact revenue or margins. Product and delivery to market is vital to gain competitive edge over other operators.
Our customers are at the heart of the business, reduced activity by major customers and/or a significant number of customers could have a material negative impact on our financial performance and growth.
Consequently this could impact all of our strategic objectives to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | Investment in brand and marketing tools and activity. Monitoring of competitors and their promotional offers.
Continuous development of product with emphasis on mobile products and innovative features and acquisition through marketing. We closely monitor the behaviour of our customers and have teams focused on their acquisition, management and retention.
We aim to ensure we provide a service and platform which grow value for both the customer and Betfair, and reduce the risk of customers leaving. |
Technology infrastructure, systems stability & availability | ||
Limited change from prior periods. Our technology and infrastructure remain capable of supporting our growth. External malicious threats to our products and networks will always exist, our ability to manage such threats has kept pace with changes in the threat landscape. | We rely on our customers being able to access markets via the internet and any extended loss of connectivity could have a material effect on revenues.
A major failure of the Group's and/or third party infrastructure could lead to significant costs and disruptions that could reduce revenue and harm our business reputation. Reduced availability of our products arising through software, infrastructure and systems issues could result in a poor customer experience and may impact customer loyalty.
Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | Continuous investment in a cost effective technology platform and infrastructure to ensure stability and availability, eliminate single points of failure and improve performance. Focus is on a secure and scalable offering across all products.
Robust development and change management processes help reduce the risk of unplanned outages. |
Taxation | ||
Impact largely unchanged from prior periods. | Changes in tax regimes can undermine existing tax planning creating unexpected liabilities. Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | Adherence to tax planning is monitored through regular reviews of governance structures.
Proactive involvement of tax specialist in key business decisions ensures tax planning remains effective.
We complied with the UK Point of Consumption Tax during the year. Revenue growth and operating leverage is helping to offset the tax. |
Reliance on third parties | ||
No significant change to prior periods. | We rely on third parties across our business. All of our products are dependent on third party suppliers for content/data. Operational functions also rely on third parties for software solutions and infrastructure.
Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | Where possible we limit reliance on a single supplier to reduce potential single points of failure.
We use formal contract and service level management processes supported by continuous communication to focus on quality and availability of services delivered by our key suppliers. We assess their resilience and review the potential options in the event of a need to change. |
IT disaster recovery and business continuity | ||
No significant change to prior periods. | Availability of our product is paramount. A significant outage or unavailability of any of our products can cause reductions in revenue and loss of customers. Delays in restoring services following an outage or incident could result in loss of customers and reputational damage. Consequently this could impact our strategic objective to focus on sustainable revenues. | We regularly review our Business Continuity Plans and our IT Disaster Recovery capability and have service level agreements in place with third parties. Where possible we have failover solutions available and seek to limit single points of failure. |
Recruitment and retention of key employees | ||
Risk has reduced in the current period - no significant issues with retention or recruitment of staff. | Continued success and growth is dependent on the performance of key directors, managers and staff.
Retention and recruitment of these individuals is a key component in securing our ability to grow and develop our business.
Our ability to continue to attract, retain and motivate passionate and highly skilled employees in an intensely competitive environment means that competitive packages and development opportunities must be available.
Consequently this could impair our operations, financial performance and ultimately impact all of our strategic objectives to focus on sustainable revenues, invest in product and brand and to accelerate growth through international opportunities. | The Board reviews key positions through the Remuneration and Nomination Committees.
Key senior staff and directors are part of long term incentive plans which reward high performance and loyalty.
All staff are offered regular salary reviews, a comprehensive benefit package and are able to join (subject to local jurisdictional requirements) share save schemes which give them a long term stake in our success.
Group HR actively manage succession planning and processes which are in place throughout the business to identify key roles, conduct regular appraisal, succession and talent reviews, and to provide competitive package and career development opportunities.
Our employees participate in engagement surveys which help us to link improvements to achieving our corporate goals while reducing employee turnover and improving productivity and wellbeing. |
Security of customer funds and reliance on financial institutions | ||
Risk remains the same as in prior periods. | Some jurisdictions continue to put pressure on banks to refuse to process transactions from online gaming companies. A reduced ability to transact with customers can impact our growth and expansion into new territories.
Actual or perceived mismanagement of customer funds could have severe reputational and/or financial impacts. There is the possibility of loss arising in the event of failure of counterparties.
Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, invest in product and brand and to accelerate growth through international opportunities. | We have strong relationships with key financial institutions and banking and payment suppliers. Wherever possible we avoid reliance on a single provider. We regularly assess their resilience and alternative options in the event of a need to change supplier.
Under the terms of a Trust Deed, approximately 95% of all customer funds is held on trust in separate bank accounts which are ringfenced from our corporate funds. The remaining sums are customer funds which certain regulators require Betfair to hold in separate non set-off bank accounts in the name of the licence holder.
Daily and monthly reconciliations of customer funds take place to ensure timely detection of potential fraud or error. All customer funds are subject to the Group Treasury policy which is reviewed annually by the Audit Committee on behalf of the Board. At 30 April 2015 the majority of the Group's customer and corporate funds were held with major systemically important counterparties or pooled AAA rated money market funds. Exposure to counterparties are regularly reviewed by the Chief Financial Officer and adjusted accordingly. |
Data management and security | ||
Limited change from prior periods. External malicious threats to our products and networks will always exist, our ability to manage such threats has kept pace with changes in the threat landscape. | Breach or loss of customer or other sensitive data and information could lead to significant costs and disruptions that could impact revenue and harm our business reputation.
Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | Specialist monitoring and detection solutions and teams used across development and live product. Access to customer and other sensitive data and information is restricted and monitored in a variety of ways. We have appropriate policies, process and controls and mandatory security awareness training.
We comply with the relevant data protection and privacy legislation.
An independent review of cyber threat has been undertaken and supports our approach to managing this threat. |
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT (page 76)
Each of the Directors, whose names and functions are listed on page 39 of this Annual Report, confirm that, to the best of each person's knowledge and belief:
· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the Management Report, which comprises the Strategic Report and the Directors' Report, includes a fair review of
· the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
RELATED PARTIES (Note 24, page 116)
Group
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Betfair Pty Limited
During the year, up to the date of disposal, the Group recharged the Australian joint venture, Betfair Pty Limited, the following costs:
• operational costs amounting to £2.3m (30 April 2014: £4.6m).
During the year the Australian joint venture recharged the Group the following costs:
• operational costs amounting to £1.1m (30 April 2014: £2.9m).
The outstanding balance of loans receivable from the Australian joint venture was fully repaid during the year (balance at 30 April 2014: £6.3m). The balance was not interest bearing.
In addition to the recharges detailed above, the Group collected revenue on behalf of the joint venture and to a lesser extent the Australian joint venture collected revenue on behalf of the Group.
As at 30 April 2014, the Group owed £2.1m to the former Australian joint venture.
Featurespace Limited
During the year the Group was charged £0.1m (30 April 2014: £0.1m) for consultancy services by Featurespace Limited in which the Group has a non-controlling interest.
LMAX Limited
In the year ended 30 April 2014, the Group utilised tax losses amounting to £1.1m that were transferred from LMAX limited, for consideration of £0.3m. This consideration was paid in the year ended 30 April 2015.
Transactions with key management personnel
Key management personnel compensation, including the Group's Directors and Non-Executive Directors, is shown in the table below:
2015 | 2014 | |
Short-term benefits | 5.7 | 5.4 |
Share-based payment expense | 5.4 | 4.6 |
Total | 11.1 | 10.0 |
Enquiries:
Paul Rushton
Commercial Finance Director
020 8834 8000
Related Shares:
BET.L