Betfair H1 FY13 Results

13 December 2012

Betfair Group plc

("Betfair")

Interim results for the six months ended 31 October 2012

Betfair (LSE:BET) today announces its unaudited results for the six months ended 31 October 2012.

Group summary

Strategic highlights

·; Plan to reinvigorate the business announced, with three key elements:

- Focus on regulated jurisdictions to increase sustainability of revenues

- Invest in product and brand to enhance our competitive position and drive growth

- Introduce greater accountability and become a leaner and more dynamic business; c.£20 million of savings identified to date

·; Exiting from investments in LMAX and Kabam

·; Dividend policy reviewed: medium term payout target increased to 40% of Group profit after tax, reflecting confidence in long term outlook and increased capital discipline

Financial highlights

·; Changed approach to reporting:

- focus is on Group numbers rather than Core

- share based payments are included in underlying financials

- applying a more conservative approach to the capitalisation of future development costs

·; Group revenue from continuing operations up 5% to £200.6 million, driven by a strong sports and mobile performance 2

·; Group underlying EBITDA from continuing operations down 2% to £42.3 million, as marketing investment offsets revenue growth 1, 2

·; Group underlying earnings per share down 25% to 17.4 pence due to a higher depreciation and amortisation charge following increased capital expenditure in the prior year 1

·; Interim dividend up 25% to 4.0 pence per share

·; Non-cash impairment of goodwill and other intangible assets of £80.6 million

·; Current underlying trading is in-line with expectations: revenue up 7% in Q3 to date after adjusting for regulatory impacts in Spain, Germany and Cyprus.

1 Underlying figures are stated after making a number of adjustments in order to aid comparability between periods. These adjustments involve the exclusion, where relevant, of separately disclosed items (restructuring costs and impairments) and the associated tax effect of these adjustments. A reconciliation of reported figures to underlying figures is set out in Appendix 2.

2 Continuing operations (excludes LMAX exchange)

Commenting on today's announcement, Breon Corcoran, Betfair's Chief Executive Officer, said:

"This is a solid set of results for the first six months of the year.

"We are now pursuing a new and more focused strategy to address the business' challenges and exploit its market opportunities.

"The review we have carried out over the past four months has demonstrated a number of strengths. Betfair has a unique product offering, strong brand affinity and scale in the UK. However, we have also identified a number of areas requiring change and fixing these will take time.

"Recent regulatory developments have been challenging and we are reducing our exposure to markets with an uncertain regulatory future. We will focus investment within regulated markets with sustainable revenues.

"Creating a simpler product that retains the key advantages of the exchange, combined with investment to return the brand to its previously strong position, will allow us to increase our audience and accelerate revenue growth.

"I'm excited to be leading Betfair through this change and proud of what we've achieved over the last four months".

For more information, please contact:

Analyst and investor results webcast

There will be a live webcast of the results presentation at 9.30 a.m. GMT. Please pre-register for access to the webcast by visiting the group website (http://corporate.betfair.com). A copy of the webcast and slide presentation given at the meeting will be available on the Group's website later today.

BUSINESS REVIEW

Strategy update

Betfair operates in a highly competitive industry in which winners will be those who achieve and benefit from scale, both in-country and internationally. Following a period of significant success, the business has lost ground in recent years to competitors and faced a number of setbacks in following its international strategy.

Breon Corcoran joined Betfair as CEO on 1 August and is today setting out a plan to reinvigorate the business. This has three key elements:

·; Focus the business on regulated jurisdictions to increase sustainability of revenues

·; Invest in product and brand to enhance our competitive position and drive growth

·; Introduce greater accountability and become a leaner and more dynamic business

If we deliver on these objectives, over time we will become an efficient and focused operator with the capacity to drive investment in a compelling and broad customer proposition that addresses a far greater part of the available market than we do today.

Focus on regulated jurisdictions

Betfair's international expansion, leveraged a centralised product to offer services to new geographies at low marginal cost. This approach was successful in growing international revenues to almost 50% of total Betfair revenues.

More recently, however, an increasing number of countries have, or are in the process of, introducing gaming regulation. This brings additional costs such as taxation and compliance costs, and in some cases results in risk to revenues if, for instance, product limitations are introduced. This risk has recently been illustrated in Germany, where we invested over a number of years to build a business with annual revenues of £13 million. Following changes in taxation laws in July 2012, which, if applicable, make our exchange model unviable, we have chosen to withdraw from the market. Other examples exist, including France, Greece and Cyprus.

We are addressing regulatory uncertainty by ceasing marketing and other investment in countries where we are not confident there is sufficient near-term regulatory visibility until such clarity is received. These countries contributed 24% of Group revenue in the first six months of the year and included 8% from Cyprus, Germany and Greece.

Stopping investment in these markets will allow greater focus on markets that are regulated or are in the process of regulating in the near term.

We anticipate that revenue from these jurisdictions will reduce over the next few years, reflecting our suspension of marketing and other local activity. While this will act as a drag on Group revenue growth for a period of time, we believe it better positions the company for the long-term and ensures that the quality of earnings is improved.

Investment in our products and brand to enhance our competitive position and drive growth

Our brand and unique products are our greatest assets. However, awareness of Betfair in the UK, our primary market, has suffered in recent years as competitor spend has increased and we have diverted marketing resources towards the pursuit of international growth. Also, our brand messaging has not always been inclusive and has sometimes limited the customer base we have addressed.

At the same time, while the exchange delivers high levels of customer satisfaction and retention due to its flexibility, value and uniqueness, some of its features can also make it appear complex to new customers. Unfamiliar terminology, such as 'back and lay', and concepts, such as 'market depth' and 'over-round percentage', can act as barriers to trial. Consequently, historically, this has also acted to limit the market we have addressed. In addition, liquidity gaps in certain markets can lead to situations where the betting proposition is sub-optimal, reducing Betfair's share of wallet.

In the UK, we intend to increase our marketing investment to help tackle market share losses and re-position our brand to increase its relevance with a wider audience.

While the exchange will continue to be central to Betfair's product portfolio, we are focused on developing a simpler, more intuitive customer interface for new customers, who can then be introduced to the benefits of the exchange as their relationship with Betfair develops.

We are responding to the issue of illiquid markets by taking bets on a risk basis. Betfair has already started in this direction through its fixed odds product, but we will now move faster towards a more competitive risk product.

Introduce greater accountability and cost discipline to become a leaner and more dynamic business

There are three main changes we are making to improve organisational effectiveness:

·; A new structure to deliver greater accountability

·; Increased investment focus

·; Improved organisational efficiency

Betfair is currently organised around the three pillars of Product, Technology and Commercial. The Product department designs products, the Technology department builds them and the Commercial department then sells them. This structure does not engender a culture of product ownership or P&L accountability.

We will now operate under a new organisational structure based on the Exchange, Sportsbook and Gaming business units. Each unit will control, and have responsibility for, the design, build and sale of their respective products. This will help to drive a culture of increased ownership, resulting in faster and more efficient delivery.

Betfair is a gambling company and we believe that the opportunities and challenges facing this business demand the focus of both management time and the company's resources.

Accordingly, we have taken the decision to dispose of stakes in two non-gambling companies. We have entered an agreement to sell a majority stake in the LMAX financial exchange to a combination of management, led by current CEO David Mercer, and other private investors including Betfair co-founder, Edward Wray, for £2.4 million. The transaction is subject to FSA approval. The Tradefair financial spread betting business, which was previously part of the LMAX segment, will be retained as it is a cross-sell product for our existing customer base.

In addition, we have sold our minority stake in social gaming company Kabam for $30 million.

There is also a need to reduce costs. The main driver of excess cost in the business is complexity and inefficiency. We have commenced a detailed review of the cost base and have identified a number of areas of expenditure that either do not create value or where efficacy of spend could be improved.

So far, we have identified opportunities to reduce costs by approximately £20 million on an annual run-rate basis. The one-off cost to achieve these efficiencies is expected to be not more than one times the annual saving.

These efficiencies will include how we source services from external suppliers as well as the number of people we employ. This will involve some difficult decisions, but we are confident that our employees see the need for the business to become leaner and will embrace being part of a more efficient organisation.

Management update

The most important factor in creating a high performing organisational culture is having the right people. We are pleased to have made some important changes to the leadership team:

·; Alex Gersh has been appointed as Chief Financial Officer and he brings important international, growth and software industry experience and a strong focus on investment returns.

·; Mark Ody is joining as Brand Director. Mark has a broad background of commercial and brand management, including at Diageo where he had regional responsibility for the Guinness, Malibu and Bombay Sapphire brands. More recently, he has run his own marketing consultancy business working with online brands.

·; John McElligot, is joining as Managing Director of our Exchange business. John has a background in digital retailing, most recently at eBay.

·; Paul LaFontaine, has been appointed Managing Director of Gaming. Paul was previously CEO of an international social networking and gaming business.

·; Mark Brooker, who has been Betfair's Corporate Development Director for the past 3 years, has been appointed Managing Director of Sports.

Operating review

Sports

Sports revenue was up 8% in the period, driven by a 15% increase in football revenue. This was boosted by the European Championships and an increase in the number of second tier fixtures offered. Racing revenue was up slightly year-on-year, despite a large number of UK fixture cancellations due to the poor weather in June and July. Cancellations in the period totalled 55, compared with just two in the prior year.

Customer activity on our exchange continues to be strong, with the total value of bets up 12% year-on-year in the first half, led by growth in in-play betting. Part of this increase has resulted from many customers being introduced to the concept of trading through our 'Cash Out' tool, which makes it simpler for customers to lock-in profits or limit losses during a sporting event. The tool is one of the ways that we are bringing the advantages of the exchange to a wider audience and it has been particularly popular with recently acquired customers. In September, Cash Out was enhanced and is now available on 80% of all exchange markets and all major mobile platforms. This, combined with a TV marketing campaign, has led to a doubling of the number of daily Cash Out transactions in recent weeks.

Risk volumes increased by 17% in the period, helped by the launch of our 'fixed odds' product. Risk revenue increased by 47% in the period, reflecting the higher volumes and an easy comparative in the first quarter of last year, when margins were weak following losses in our telephone betting channel. Margins in August and September were affected by adverse sporting results, but October and November have seen strong margins.

We have completed the first stage of integration of Openbet and Amelco platforms and are starting to use these to drive increased levels of automation in our risk business. This will expand the number of markets we are able to offer. We have also strengthened our risk management and trading teams and processes to manage the growth we expect to see in this area.

Games

Games revenue was down 2% in the first half, after being significantly affected by regulation. Adjusting for Tradefair, which is now reported in this segment, revenue was flat year-on-year and performance improved throughout the period (revenue up 8% in the second quarter).

In August, we launched a TV advertising campaign featuring Betfair Casino in the UK. This has successfully led to an increase in active users and has helped to drive the revenue progression seen in the last few months. In parallel, the efficiency of online promotional activity has been improved and is driving better returns on investment.

Product enhancements have also contributed to the improved performance, including a refresh of our Arcade site and the addition of 25 new games. In November we re-launched casino products in Italy after withdrawing the product from the market in July 2011 for regulatory reasons.

Poker

The poker market continues to be difficult and revenue in the half was down 11% and second quarter revenue fell by 18%.

During the period, we entered into an agreement with Playtech to provide access to its iPoker network. This gives Betfair flexibility to choose the best network for its customers on a country-by-country basis and is particularly valuable in markets with ring-fenced liquidity such as Spain and Italy.

Mobile

The mobile channel continues to exhibit strong growth. In the period, revenue was up 108% to £18.1 million and, in October, we saw our first £1 million mobile revenue week.

Approximately 50% of customers in the UK and Ireland placed a mobile bet in the period. The exchange continues to be the primary driver of mobile usage, but, increasingly customers are also using the channel to access fixed odds and gaming products. This allows us to improve the monetisation of the channel.

Fixed odds multiples are now available across all major mobile platforms as well as through our standalone 'Betfair Multiples' app. Customer uptake has been ahead of our expectations and a significant proportion of revenue from football multiples bets came from the channel in recent months.

Following improvements to our mobile gaming proposition, over 20% of casino customers now play through the mobile channel. Enhancements include improved customer navigation, push notification and the addition of arcade games.

Mobile is also becoming an important acquisition channel. In the UK, where TV campaigns have featured our iPhone app, the channel generated a quarter of new customer activations in recent weeks.

UK Horserace Betting

In the UK, we have demonstrated our commitment to British horseracing by entering into a five-year commercial agreement with the industry. We have agreed to make guaranteed minimum payments of over £40 million during the period. The Department for Culture, Media and Sport (DCMS) has indicated that it intends to consult on proposals to reform or replace the Levy, which could include options to require all betting operators licensed in Great Britain that take bets from British customers to enter into their own commercial deals with the industry. Betfair will support these efforts.

Separately, in July, the High Court issued its judgment in the case of William Hill against the Horserace Betting Levy Board. The Court ruled in favour of the position of the Levy Board and Betfair, confirming the outcome of the consultation the Board undertook in 2010-2011 that determined that customers of betting exchanges are not liable to pay the Levy. William Hill was granted leave to appeal this decision. This appeal is expected to be heard in early 2013 and we again intend to support the Levy Board's position.

European Regulation

In Italy, the decree that sets out the licensing framework for betting exchanges is continuing to progress through the parliamentary process. The timing of any granting of licences, however, remains uncertain.

In Spain, following the award of remote gaming licences in June, we have restricted access to our exchange by Spanish customers until exchange licences are issued. We are continuing to work with the regulator to bring the advantages of exchange betting back to Spanish customers.

In Cyprus, Greece and Germany, countries that we previously indicated to have high regulatory risk, developments over the last six months have been disappointing.

In Cyprus, gaming legislation was introduced in July that seeks to limit the products that operators can offer in the country, including restrictions on betting exchanges, casino and poker. We believe that the legislation contains serious flaws and, in certain significant areas, is inconsistent with European Union law.

In Germany and Greece, a combination of fiscal and legal uncertainty has led us to withdraw some or all of our products until further clarity is received.

We estimate that the impact on revenue from these regulatory changes was approximately £8 million in the first half and the ongoing revenue impact is expected to be around £3.5 million per month on a run-rate basis.

Betfair US

TVG continues to grow faster than the wider market. First half handle and revenue increased by 6% and 7% respectively in local currency. TVG's geographical reach has been widened and it now operates in 20 states, up from 17 in the prior year. The business is acting to address its cost base and this should help it to deliver a positive performance in the full year. However, the cash flows generated by TVG are now expected to be below the level needed to support the goodwill carrying value, resulting in an impairment of £13.5 million.

Betfair Australia

Betfair Australia delivered revenue growth of 17% (local currency) in the period. This was driven by domestic racing, where revenue benefited from an increase in commission rates during the period as the business sought to recover higher race fields fees. These fees, however, largely offset the revenue growth and place a high burden on the business. As more states adopt a turnover based approach to race field fees, there is increasing pressure on the joint venture's profitability.

Current trading and outlook

The UK business has continued to perform well in Q3 to date, but previously flagged regulatory impacts on international revenues have acted as a drag on the Group's growth. Adjusting for the regulatory impact in Spain, Germany and Cyprus, revenue in the period was up 7% year-on-year. Unadjusted revenue was up 2%.

The long term outlook for the business is dependent on us successfully growing revenues in lower risk jurisdictions through our investments in our products and brand. In the short term, our strategy of ceasing to invest in countries with insufficient regulatory visibility, along with the impact already announced in Greece, Germany and Cyprus, will moderate the Group's top-line growth rate. Consequently, in the current financial year ending 30 April 2013, we expect revenues to be lower than the previous year.

The strategic actions that we are announcing today, and taking account of the changes to our reporting approach to include share based payments in underlying financials and a more conservative approach to capitalisation of development spend, mean that we now expect Group revenues of between £370 million and £385 million and Group underlying EBITDA of between £65 million and £70 million in the current financial year.

As regulated markets contribute a greater proportion of total revenue over the coming years, this impact will diminish and we are confident that the business will be on a stronger footing and better positioned for sustainable growth.

FINANCIAL REVIEW

We intend to make a number of changes to our reporting in light of the strategic changes announced today:

·; Focus will be on Group performance, whereas previously our reporting has focused on Core Betfair. We intend, however, to continue to provide sufficient transparency on Group businesses to provide an understanding of the drivers of overall performance.

·; Share based payments will now be included within underlying EBITDA, recognising that these items are a real cost to equity holders.

·; We will apply a more conservative approach to the capitalisation of future development costs.

·; We will review our segmental reporting in light of the new organisational structure announced today.

Group Summary

·; Group revenue from continuing operations (excluding the LMAX exchange) was up 5% to £200.6 million (H1 FY12: £191.2 million),

·; Underlying Group EBITDA including share based payments was down 2% at £42.3 million (H1 FY12: £43.1 million)

·; Underlying basic EPS down 25% at 17.4 pence (H1 FY12: 23.2 pence).

Management believes that underlying results, which exclude separately disclosed items (restructuring and impairment costs), provide additional guidance to statutory measures to help understand the underlying performance of the business during the financial year.

For the six months ended 31 October 2012, the Group reported loss after tax from continuing operations was £59.7 million (H1 FY12: profit after tax of £24.8 million). This was primarily due to a review, and subsequent impairment, of the carrying value of certain intangible assets following the strategic review undertaken.

The Group, excluding discontinued operations, ended the period with a cash balance of £117.9 million (31 October 2011: £136.8 million) and no debt. In addition, customer funds held off balance sheet in separate ring fenced accounts were £291.2 million on the same date (31 October 2011: £282.0 million). 

1 Underlying figures are stated after making a number of adjustments in order to aid comparability between periods. These adjustments involve the exclusion, where relevant, of separately disclosed items and the associated tax effect of these adjustments. A reconciliation of reported figures to underlying figures is set out in Appendix 2

2 Core Betfair includes Tradefair

Core Betfair

·; Tradefair reported within Core Betfair in both periods following discontinuation of LMAX exchange

·; Revenue up 5% to £180.2 million (H1 FY12: 172.4 million), driven by sports.

·; Underlying EBITDA excluding share based payments down 2% at £45.6 million (H1 FY12: £46.4 million)

·; Underlying EBITDA including share based payments down 5% to £40.8 million (H1 FY12: 42.8 million)

Tradefair

Following the decision to exit from our investment in the LMAX exchange and the subsequent reclassification of these operations as discontinued, we have reclassified Tradefair from the LMAX segment to the Games segment of Core Betfair. Therefore, revenue from this business of £1.3 million (H1 FY12: £2.1 million) and EBITDA of £1.0 million (H1 FY12: £1.9 million) has been included in the Core Betfair financials presented throughout this report. In the last financial year, Tradefair generated revenue of £3.0 million and EBITDA of £1.6 million.

Revenues and KPIs

Overall revenue increased by 5% to £180.2 million (H1 FY12: £172.4 million).

The key growth driver was Sports, with revenue up 8% to £140.2 million (H1 FY12: £129.8 million), following strong first quarter growth. This period included the football European Championships, which generated revenue of £7.8 million, although some of this reflects substitution away from other sporting events.

The majority of the revenue increase was in Non-risk Sports, which is predominantly commission earned on the exchange, with revenue up 6% to £132.1 million (H1 FY12: £124.2 million). Revenue from Risk Sports was up 47% to £8.2 million (H1 FY12: £5.5 million) following exceptionally weak margins in the first quarter last year. Margins in the second quarter of the current financial year were below both the prior year and theoretical expectations due to adverse sporting results, particularly in August and September.

During the period, the number of active customers increased across all regions and in total was up 9% to 630,000 (H1 FY12: 576,000). Within this, there was a broadly even contribution from both new and existing customers. The key drivers of the increase were the Euro 2012 Championships and an increase in marketing investment in the period.

The average revenue per user ("ARPU") was down 4% to £285 (H1 FY12: £296) due to the mathematical dilution from adding new customers to the base as these customers tend to have lower ARPU. In part this is because, on average, they would not have been active for the whole period. ARPU from existing customers was marginally higher year-on-year.

The UK had a strong performance in the period, with revenue up 11%. In Europe, by contrast, revenue was down 8% due to the impact of regulation. Revenue from the Rest of the World had the highest growth rate at 30%, albeit from a relatively small base.

1 Games segment includes Tradefair in both periods. 2 Net gaming revenue

Gross margin

Core Betfair gross margin was £160.2 million (H1 FY12: £154.1 million), representing a gross margin percentage of 88.9% (H1 FY12: 89.4%). The decline in the gross margin percentage was a result of higher gaming tax and lower margins in Tradefair following reduced financial market volatility.

Administrative expenses

In line with our decision to include the costs incurred as a result of share based payments in underlying EBITDA, these costs have now been included in the breakdown of administrative expenses analysed below.

Note: In both periods Administrative expenses have been reclassified to include Tradefair and share based payments.

As expected, commercial and marketing spend in the first half was higher than the same period last year due to the football European Championships, as well as a higher number of TV marketing campaigns.

Technology and product costs were lower following the consolidation, from five to two, of data centres and increased use of near-shoring resources in Romania and Portugal. In the period, £10.3m of internal technology development expenditure has been capitalised (H1 FY12: £9.3m). We expect any future capitalisation of development costs to be substantially lower than this on a run-rate basis.

Operations costs were 16% higher in the period as we invested in trading and risk management teams in preparation for the anticipated growth in the risk sports business.

Core Betfair EBITDA

This table reconciles underlying EBITDA to reported EBITDA, including the impact of Tradefair and share based payments.

Revenue growth was offset by the higher first half marketing spend so, excluding Tradefair and share based payments, underlying EBITDA was flat. Including these items, underlying EBITDA was down 5% to £40.8m (H1 FY12: £42.8m).

Betfair US

TVG revenue was up 9% to £20.4 million (H1 FY12: £18.7 million). On a constant currency basis, revenue was up 7%.

Underlying EBITDA increased to £1.4 million (H1 FY12: £0.3 million) as a result of revenue growth, cost reductions and a reduction in investment in the exchange product following delays to the licensing process.

Separately disclosed items

In light of the strategic review announced today, the following charges have been incurred and treated as separately disclosed items.

Restructuring costs

Restructuring costs totalled £3.8 million (H1 FY12: £nil), primarily representing redundancy costs and other costs to deliver the strategic initiatives announced today. The majority of these costs, £3.4 million, were incurred by Core Betfair.

Impairment of goodwill

Following a review of our balance sheet at 31 October 2012, we have impaired goodwill totalling £34.6 million. In Core Betfair, the impairment includes goodwill arising on the acquisitions of Timeform in 2002, the PokerChamps platform in 2005 and Betfair TV, which owns technology that allows betting via internet connected TV sets, in 2008.

Betfair acquired TVG in 2009 as part of an entry strategy into the US gambling market. The goodwill arising on this acquisition was $53 million. After a strategic review of the business, we have impaired the carrying value of this goodwill by $21.7 million, or £13.5 million.

Impairment of other intangible assets

In Core Betfair, £30.4 million of own work capitalised has been written down. This includes costs incurred to develop our old website that has recently been replaced, social gaming applications that are no longer in use, development costs relating to jurisdictions where no licence has yet been received and legacy platforms. In addition, the carrying value of certain software licences has been written down by £5.1 million.

In Betfair US, uncertainty around the prospects for exchange based wagering in California has resulted in the impairment of the carrying value of US exchange technology. This impairment totalled £10.4 million.

Depreciation and amortisation

The increase in the depreciation and amortisation charge resulted from higher capital expenditure during FY12. Following the impairments of intangible assets described above, we now expect the full year depreciation and amortisation charge to be c. £36 million.

Finance income and expenses

Net interest income from corporate funds was £0.4 million (H1 FY12: £0.6 million). Finance income and expenses also includes net foreign exchange losses of £0.6 million (H1 FY12: gain of £0.5 million). This primarily relates to unrealised losses / gains resulting from the re-translation of intercompany trading balances.

Share of profit from equity accounted investments - Betfair Australia

Betfair's share of operating profit from Betfair Australia was £0.9 million (H1 FY12: £0.4 million). Within this, higher revenues were offset by increased race field fees following the introduction of turnover based charges on horserace betting in certain states in Q2.

Taxation

The Group had a tax credit of £4.3 million in the period (H1 FY12: charge of £3.4 million). The Group's effective underlying tax rate was 16.0% (H1 FY12: 16.4%). We continue to expect the long-term sustainable tax rate to remain around this level.

Dividend

The Directors intend to maintain a progressive and sustainable dividend policy with an appropriate level of dividend cover. This dividend policy reflects the strong cash flow characteristics and long-term earnings potential of the Betfair Group and will allow it to retain sufficient capital to fund ongoing operating requirements and continued investment for long term growth.

The Board considers the appropriate target payout ratio to be approximately 40% of profit after tax in the medium term, excluding any exceptional items. This represents a change from our previous policy, which targeted 20% of profit after tax, excluding losses from the 'other investments' segments.

The Board proposes the payment of an interim dividend of 4.0 pence per share. This will be paid on 25 January 2013 to holders of relevant shares on the register at 21 December 2012.

Capital expenditure

Cash and cash flow

Core Betfair cash flow was £8.9 million in the period (H1 FY12: £14.9 million). The reduction was primarily due the payment of taxes on historical revenues in Spain and other working capital changes.

Cash at 31 October 2012 in continuing operations was £117.9 million (31 October 2011: £136.8 million). The reduction was due to the share buyback in FY12, of which £31.8 million was carried out in the second half of the year.

We previously reported cash at 30 April 2012 of £135.4 million. This included cash within the discontinued LMAX exchange business of £17.1 million, including client funds of £9.3 million. Cash at 30 April 2012 from continuing operations was therefore £118.3 million.

1Continuing operations

Principal risks and uncertainties

The principal risks facing the Group are summarised in Appendix 3.

Responsibility Statement of the Directors in respect of the condensed consolidated interim financial statements

We confirm that to the best of our knowledge the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the board of Betfair Group plc

13 December 2012

Condensed Consolidated Income Statement

 From continuing and discontinued operations

* EBITDA is defined as Group operating profit before net finance income, tax, impairment, depreciation and amortisation. It excludes amounts in respect of the Group's equity accounted investments and is considered by the Directors to be a key measure of its financial performance. Underlying EBITDA has historically been presented as EBITDA excluding separately disclosed items and equity-settled share-based payments. For the 6 months ended 31 October 2012 charges relating to equity-settled share-based payments have been included within Underlying EBITDA and comparative periods have been amended accordingly.

** As any potential ordinary shares would have the effect of decreasing the loss per share, they have not been treated as dilutive; hence diluted earnings per share has not been disclosed.

Condensed Consolidated Statement of Comprehensive Income

Condensed Consolidated Balance Sheet

Condensed Consolidated Statement of Changes in Equity

For the six month period ended 31 October 2012

Attributable to equity holders of the Company

* The Group's Employee Benefit Trust is defined as EBT.

Condensed Consolidated Statement of Changes in Equity

For the six month period ended 31 October 2011

Attributable to equity holders of the Company

* The Group's Employee Benefit Trust is defined as EBT

Condensed Consolidated Statement of Changes in Equity

For the year ended 30 April 2012

Attributable to equity holders of the Company

* The Group's Employee Benefit Trust is defined as EBT.

Condensed Consolidated Cash Flow Statement