Final Results

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NetPlay TV plc

Final Results for year ended 31 December 2015

NetPlay TV plc (AIM: NPT), the interactive gaming company, is pleased to announce its final results for the year ended 31 December 2015. The full annual report and financial statements are available on the website www.netplaytv.com

Key performance indicators

· 17% increase in new depositing players to 88,551 (2014: 75,687)

· 14% increase in active depositing players to 115,874 (2014: 101,532)

· Net revenue of £26.3m (2014: £27.4m)

Financial highlights

· Adjusted EBITDA[*] of £2.7m (2014: £3.6m) which is at the top end of market expectation after incurring

betting and gaming duties of £3.8m (2014: £0.5m)

· Like-for-like ("LFL") adjusted EBITDA[†] increased by £1.8m to £2.5m (2014: £0.7m)

· Reported profit and total comprehensive income of £0.6m (2014: Loss of £0.1m)

· Adjusted profit before tax[‡] of £2.2m (2014: 3.2m) resulting in an adjusted earnings per share of 0.76 pence

per share (2014: 1.09 pence per share)

· Cash and cash equivalents at 31 December 2015 of £13.0m (2014: £14.2m) after paying £2.6m in respect of the digital marketing business acquired in the year and £1.6m dividend paid

Operational highlights

· Key broadcast relationships with Channel 5 / Viacom[§] and ITV (post period) extended for a further three years

· Effective and efficient marketing strategy delivering increased returns

· Increased average revenue per active depositing player (casino-only brands) of £328 (2014: £316)

· Acquisition contributing £1.1m net revenue and £0.2m towards adjusted EBITDA since the date of acquisition (11 August 2015)

Current trading

· Strong start to 2016 with 26% increase in new depositing players and 16% increase in active depositing players over the same period in 2015[**]

· 18% increase in total net revenue over the same period in 2015**

Dividend

· Increase in proposed final dividend to 0.34 pence per share (2014: 0.33 pence per share)

· Additional distribution of £2.0m to shareholders via a proposed special dividend of 0.68 pence per share

· These proposals together with the interim dividend (paid in October 2015) brings the total dividend for 2015 to 1.24 pence per share

Commenting on the results, Bjarke Larsen, CEO of NetPlay TV said:

"We have delivered significant strategic and operational progress in the year, resulting in adjusted EBITDA at the top end of market expectations. We successfully navigated the impact of the UK Point of Consumption duty ("POC") as a result of the initiatives implemented at the end of 2014 and positioned the company for future growth. Our synergistic acquisition of Otherside in August 2015 helped us to strengthen our capabilities and diversify the Group's revenues.

"The measures we took at the end of the 2014 have borne fruit as is evident with our core KPIs remaining strong and with adjusted EBITDA increasing by £1.8m on a like-for-like basis.

"NetPlay TV continues to have a very strong balance sheet and remains highly cash generative, giving the Board continued confidence that the Group is well positioned to pursue not just bolt on opportunities but also more transformational deals, taking advantage of the organic growth and M&A opportunities that lie ahead.

"NetPlay TV has successfully delivered against its strategy by reinforcing its USP. The business is in a strong position and well equipped to build on its past success to drive growth and deliver shareholder value. As a result I am pleased to announce that today we are proposing a special dividend alongside an increase in our final dividend"

Enquiries:

Edward Mansfield

Notes to Editors:

About NetPlay TV plc

NetPlay TV plc operates a number of online interactive gaming services under a UK remote operating license and Alderney gaming licence, these include SuperCasino.com, Jackpot247.com and Vernons.com. The Group is focused on the delivery of a converged interactive gaming experience allowing its players to interact with its games on a variety of platforms, TV, internet, mobile and tablet. Its TV services can be viewed every evening on ITV and Channel 5.

The Group also operates a specialist online digital marketing, product development and technology business. This provides a complementary and profitable revenue stream whilst adding to the Group's capability in driving traffic to NetPlay TV's brands.

The Company is admitted to trading on the AIM market of the London Stock Exchange (NPT).

CHAIRMAN'S STATMEMENT

Dear Shareholder,

This is the first full year of trading since Bjarke Larsen became Chief Executive Officer and I want to congratulate Bjarke on leading a highly experienced and capable management team through a rapidly changing market place. The initiatives implemented at the end of 2014 to navigate the UK Point of Consumption duty ("POC") have been effective; strategic TV broadcasting relationships have been renegotiated and digital marketing capabilities and revenue diversification have been successfully strengthened with the acquisition of the trade and assets from Otherside Inc.

The management team has delivered against our stated strategy by reinforcing our USP through the contract extensions with ITV[††] and Channel 5 / Viacom[‡‡], focusing on operational efficiencies and completing

synergistic acquisitions to both strengthen capabilities and diversify the Group's revenues. We are confident that the actions taken have created a solid foundation from which the core business can continue to operate successfully and drive further growth.

The UK gambling market has undergone significant regulatory change over the last 18 months. These changes have had a widespread impact on the industry that is evident from the recent mergers of some the UK's largest gaming and gambling operators. These results demonstrate how versatile and adaptive our business has been with like-for-like ("LFL") adjusted EBITDA[§§] growing by £1.8m, which shows how successful the strategy has

been to improve operational and marketing efficiencies.

Financial review

In line with the trading update issued in January 2016, I am pleased to report that the Group delivered net revenue of £26.3m and adjusted EBITDA of £2.7m, which is at the top-end of market expectations. The Group has no debt, is cash generative and holds a strong balance sheet with cash of £13.0m at year end, following the £2.6m cash paid in respect of the acquisition of the assets from Otherside Inc.

Dividend

The business has remained highly cash generative and maintains a robust balance sheet to support the future organic growth of the Group and any suitable M&A opportunities that arise.

Considering the strength of the Group's cash position, robust trading performance and positive outlook, the Board is proposing both an increase in the final dividend to 0.34 pence per share (2014: 0.33 pence per share) and also an additional distribution of £2.0m via a special dividend equivalent to 0.68 pence per share.

This proposed special dividend together with the final dividend and the interim dividend (paid in October 2015) brings the total dividend to 1.24 pence per share.

Employees

With their continued commitment and talent, our employees around the world remain pivotal to NetPlay TV's success. On behalf of the Board, I would like to thank every one of them for their hard work and dedication during this challenging year. 

Outlook for 2016

Trading in the first part of 2016 has been strong across both our B2C (core online gaming operations) and B2B (digital marketing operations) businesses. The Board remains confident that NetPlay TV is well positioned, with continued cash generation and a strong balance sheet, to take advantage of the organic growth and M&A opportunities which lie ahead. This should be particularly evident by the fact that the Group is pursuing not just bolt-on opportunities but also considering more transformational deals, such as the potential acquisition of The Football Pools, which it considered in December 2015[***] although ultimately chose not to pursue.

I am confident that our business is well equipped for the year ahead, allowing us to capitalise on the opportunities available and continuing to build on the success of the past year.

Charles Butler

Chairman

CHIEF EXECUTIVE'S REVIEW

Overview

It was another busy year for the Group which saw us achieve strong results despite all the regulatory changes. During the year we maintained our focus on controlling marketing and operating costs, resulting in a lower than industry average Cost per Acquisition ("CPA")[†††] on our core casino business whilst maintaining strong cash

generation.

To support our growth plans and diversify our revenue streams we acquired the trade and assets of Otherside Inc. ("Otherside"), details of which can be found below.

Marketing strategy

In September 2014, we outlined a revised marketing strategy which has delivered improved returns through increased cost efficiencies and a more targeted marketing spend. This strategy was largely focused on working closely with our TV partners to maximize the effectiveness of our TV airtime contracts. The result of which is a CPA reduction of 20% to £166 (2014: £208) and an increase in average revenue per active depositing player of 4% to £327 (2014: £316), on our casino-only brands.

TV continues to be the Group's USP and remains at the core of our strategy. Through the continuous evolution of the production, style and format of our shows we ensure that NetPlay TV remains at the forefront of interactive gaming. This combination of engagement through TV with the development of our mobile platforms is driving customer acquisition and retention.

Product development

2015 was focused on operational efficiencies and product development; standardising the Content Management System ("CMS") platform for all our casino brands and creating a fully responsive site experience for all our customers. In addition, we launched over 50 new titles across web and mobile significantly bolstering the Group's content offering.

To support the sportsbook web offering on the Vernons brand, we rolled out mobile sportsbook as well as a number of new features (including "cash-out"). In addition we launched virtual sports which we believe complements the sportsbook product. With our complete sports offering in place we will evaluate the performance and how it fits within the Group's wider product strategy. In addition to these sportsbook developments, we recently launched a rebranded and new fully responsive Vernons bingo website.

We have a strong pipeline of innovation for 2016, which will see us deliver a number of new products. This includes our fully responsive roulette betting interface, and an extensive range of new content, including new side games and enhanced bet features for our very own TV roulette product. Our customers will see an evolution of the product, style and show format as we look to take full advantage of our renewed commercial partner agreements.

Digital marketing business acquisition

The acquisition in August 2015 of the trade and assets of Otherside, a specialist online digital marketing, product development and technology company, has provided a complementary and profitable revenue stream whilst adding to our capability in driving traffic to NetPlay TV's brands. These assets included a proprietary media platform, which is best described as a Demand Side Platform ("DSP"). This DSP allows our media buyers to manage multiple ad and data exchanges, of which we have over 100, through a single interface. The DSP allows the team to build campaigns for our partners and efficiently manage bids and pricing for the media we are buying.

The B2B offering generates revenue on a CPA, revenue share or hybrid basis for a number of companies across a wide range of sectors.

The acquisition has proved a valuable addition to the Group and we are confident that this offering will go from strength to strength as we start to take advantage of a number of additional opportunities, including increasing contributions to our B2C business over time.

Results

We had fully expected our results to be impacted by the regulatory changes, however this impact has been significantly mitigated by our strategy set out at the end of 2014. This is reflected in our 2015 performance where we have once again shown the cash generating abilities of the business delivering adjusted EBITDA of £2.7m with a strong cash conversion to net underlying cashflow of 79%.

Current trading and Outlook

In 2016, we remain focused on our strategy to deliver growth, both organically and through acquisition, and the Board is pleased with the performance of both our B2C and B2B businesses for the start of the year. The Group has delivered an 18% increase in total net revenue, 26% increase in new depositing players and 16% increase in active depositing players over the same period in 2015[‡‡‡].

We continue to evaluate a number of M&A opportunities with a view to delivering ongoing growth for the Group, and I believe we remain well positioned for 2016 to deliver increased shareholder value in the short and long term. Considering the strength of the Group's cash position, robust trading performance and positive outlook we are confident that we have the right combination of team, products and marketing to exploit the opportunities available for our core business and we look forward to continuing to drive growth over the coming year.

Bjarke Larsen

Chief Executive Officer

FINANCIAL REVIEW

Overview

NetPlay TV delivered net revenue of £26.3m (2014: £27.4m) and adjusted EBITDA of £2.7m (2014: £3.6m).

The Group continues to be highly cash generative with net underlying cashflow of £2.1m (2014: £3.0m) after incurring a betting and gaming duty charge of £3.8m (2014: £0.5m). The Group's financial position remains strong with cash and cash equivalents at the year-end of £13.0m (2014: £14.2m) with no debt.

Adj 1: Reclassification of share based payments expense

Adj 2: Reclassification of depreciation and amortisation

Adj 3: Reclassification of acquisition related and other expenses

The table above reconciles the statutory format of the income statement to adjusted EBITDA and adjusted profit before tax which is used by management internally to evaluate the underlying performance of the business. In the opinion of the Board this format better reflects the operational performance of the Group. The discussion in this section below will focus on the adjusted information.

Following the acquisition of the trade and assets of the digital marketing business in August 2015 (described below), we have introduced a B2B operating segment alongside the core B2C operating segment. The results of each segment are shown in note 2 of this report. We are pleased with the contribution made from the B2B operating segment and the start it has made in 2016. The integration of this operation was undertaken successfully and we are pleased with the contribution this operation has made.

Income statement items

Net revenue for the year was £26.3m (2014: £27.4m) of which £25.2m (2014: £27.4m) was generated from the B2C and £1.1m from the B2B segment since the acquisition in August 2015.

Betting and gaming duties increased to £3.8m (2014: £0.5m) as a result of the introduction of POC which came into effect on 1 December 2014. The duty is currently set at 15% of gaming net revenue and 15% of sports betting gross win from UK customers.

Total marketing expenditure for the year was £9.4m (2014: £12.9m) with B2C Marketing expenses decreasing by £4.2m to £8.7m. This expenditure reflects the effect of the revised marketing programme which was launched in late-2014. These expenses include the cost of the revenue share agreements in respect of key broadcast agreements with ITV and Channel 5. We are pleased to see that the revised marketing strategy we adopted at the end of 2014 is working as we successfully reduced marketing expenditure by 32% with only an 8% fall in net revenue. Our CPA, on our casino-only brands, decreased by 20% from £208 in 2014 to £166 in 2015 as a result of increased efficiencies.

Operating expenses in total have decreased by £0.2m to £6.0m in 2015 (2014: £6.2m). These costs have remained at 23% of net revenue.

Administrative expenses have increased by £0.3m to £4.4m. This is due to the addition of the B2B operating segment with administrative expenses of £0.3m since the date of acquisition.

Acquisition related and other expenses of £0.2m (2014: £0.8m) were incurred in 2015 which represent costs associated with the acquisition of the assets from Otherside Inc. In 2014 these expenses were non-recurring costs associated with the consolidation of business locations and other one-off costs in respect of contracts. Full details are provided in note 3 of this report.

Like-for-like adjusted EBITDA

POC was introduced on 1 December 2014. In order to show the effect of this we have created a like-for-like ("LFL") adjusted EBITDA which reflects the relative impact of betting and gaming duties being in place throughout 2014.

When considering the 2014 contribution on a LFL basis, it is anticipated that the Group would have obtained various offsets in its key contracts (e.g. a reduction in software royalty rates) due to renegotiated favourable terms which the Group would have benefited from.

In addition 2015 has benefited from a contribution from its B2B operating segment which did not exist in 2014. This has been removed to provide a relative comparative. The table above shows that on a LFL basis adjusted EBITDA increase by £1.8m.

The effect of the Group's mitigation strategy against POC is also shown in the common-size table below for the B2C operating segment. The table shows expenditure and adjusted EBITDA as a percentage of net revenue.

The table above shows that the contribution margin for the B2C segment has decreased from 17.7% in 2014 to 15.8% in 2015. This is largely a function of increasing the efficiency of the Group's marketing expenditure resulting in a lower expenditure offset by an increase in the Group's betting and gaming duties.

Earnings per share

Reported earnings per share for the year was 0.21 pence per share (2014: loss of 0.03 pence per share). However, the Directors have additionally chosen to report an adjusted earnings per share as they believe it better reflects the underlying performance of the Group. This is calculated on the profit before taxation after adding back the amortisation of specifically identified intangible assets arising on business combination, impairment of intangible assets, share based payments and acquisition related and other expenses.

Adjusted profit for the year was £2.2m (2014: £3.2m) resulting in a basic adjusted earnings per share of 0.76 pence per share (2014: 1.09 pence per share).

Cash balance

The Group's cash balance at the end of 2015 was £13.0m which is equivalent to 4.4 pence per ordinary share in issue at 31 December 2015 (2014: 4.8 pence per ordinary share). £2.2m is in relation to balances which players have in their gaming account on deposit with NetPlay TV which leaves a corporate cash balance of £10.8m (2014: £12.1m) which is equivalent to 3.7 pence per ordinary share.

Cashflow

The table below separates the movements in player balances, working capital, share capital issued, finance income, acquisition related and other expenses paid, dividend paid and cash payments in respect of the business combination to show how adjusted EBITDA reconciles to the net underlying cashflow:

To support our platform for long term growth the Group has invested in capital expenditure associated with software development to better analyse and improve the customer experience as well as upgrading the broadcast equipment in its studios to enhance the viewers' experience.

Acquisition of digital marketing business

On 11 August 2015, the Group acquired the trade and assets of Otherside Inc. For clarity, the Group did not acquire the Otherside branding or website. This business generates revenue from companies operating across a range of sectors (e.g. binary options trading, online gaming and e-commerce) where it is paid for delivering leads or acquisitions on a CPA, revenue share or hybrid basis.

The Board reports this operation as a new Business-to-Business ("B2B") operating segment. This segment generated net revenue of £1.1m and a contribution of £0.2m to adjusted EBITDA between 11 August 2015 and 31 December 2015.

The total consideration in relation to this acquisition is £3.2m of which £2.6m was paid within the year and £0.5m payable in 2016. This transaction was financed from existing cash resources. The Group incurred £0.2m of acquisition related costs which have been separately disclosed in note 3 to this report.

Dividend

Given the Group's continued strong cash generation, the increase in LFL adjusted EBITDA, and the Board's continued confidence the Directors are proposing a return to shareholders of £2.0m via a special dividend of 0.68 pence per share. If approved at the AGM this dividend will be paid on 9 June 2016 to shareholders on the register of members at 27 May 2016.

In addition the Directors are proposing an increase in the final dividend to 0.34 pence per share (2014: 0.33 pence per share). If approved at the AGM this dividend will be paid on 9 June 2016 to shareholders on the register of members at 20 May 2016.

These dividend together with the interim dividend paid in October 2015, make the total dividend of 1.24 pence per share (2014: 0.55 pence per share).

The closing share price on 15 March 2016, being the last practicable date prior to the publication of this report, is 8.75 pence per share. This would mean that the proposed total dividend yield is 14.2%, or if the special dividend is excluded, the total ordinary dividend yield is 6.4%. When considering the total ordinary dividend for the year the dividend cover ratio (dividend per share as a ratio of adjusted earnings per share) is 1.36-times.

Corporation & Deferred Taxation

The Group has circa £7.4m (2014: £6.9m) of UK corporation tax losses carried forward which equates to a total deferred tax asset of £1.4m (2014: £1.5m). Of this, the deferred tax asset recognised on the balance sheet is £62,000 (2014: £38,000) as this amount of tax benefit is deemed to be probable and the remaining £1.4m of the potential deferred tax asset is unrecognised. The credit through the income statement of £21,000 in the year represents the movement in the deferred tax asset between 2014 and 2015 of £24,000 offset by tax expected to be payable. The Group works closely with its advisers to ensure that its tax position is optimal.

Akshay Kumar

Group Finance Director

NetPlay TV plc

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2015

NetPlay TV plc

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2015

Company registration number: 03954744

NetPlay TV plc

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2015

NetPlay TV plc

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2015

NOTES TO THE FINANCIAL STATEMENTS

1. Basis of preparation

The financial information set out in this document does not constitute the Company's statutory accounts for the year ended 31 December 2014 or 31 December 2015.

Statutory accounts for the year ended 31 December 2014 have been filed with the Registrar of Companies and those for the year ended 31 December 2015 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2014 and 31 December 2015 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

The financial information in this document has been prepared using the recognition and measurement principles of International Accounting Standards, International Financial Reporting Standard and Interpretations adopted for use in the European Union (collectively Adopted IFRSs). The principal accounting policies adopted have been consistently applied to all the years presented and are consistent with the policies adopted in the statutory accounts for the year ended 31 December 2014 and 31 December 2015.

2. Segmental information

The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Group has two reportable segments, being the Business-to-Customer ("B2C") and Business-to-Business ("B2B").

B2C consists of all online products and ancillary income. This segment was known as the Online Gaming segment in prior period. The brands operated in this division are Supercasino.com, Jackpot247.com and Vernons.com. These brands operate online gaming and betting products which management deem to have similar economic characteristics and customers, and therefore are aggregated into one reportable segment.

B2B relates to the online marketing, product development and technology business which was acquired during the year ended 31 December 2015.

The Board evaluates performance on the basis of segment contribution. This measurement basis excludes head office costs not derived from operations of any segment and are only disclosed in total.

B2C gross income of £33,871,000 (2014: £36,496,000) comprises of gross gaming income of £33,102,000 (2014: £35,721,000) and ancillary income of £769,000 (2014: £775,000). B2C net revenue of £25,177,000 (2014: 27,358,000) is the B2C gross income offset by customer incentives of £8,694,000 (2014: £9,138,000).

The Group does not report B2B revenue by geographical location of its customers as the necessary information is not readily available.

3. Acquisition and other related expenses

Acquisition related expenses comprise one-off costs associated with the business combination described in note 10.

Reorganisation expenses relate to one-time costs predominantly associated with the consolidation of business locations as the business prepared itself for POC. Provision and incurred expenditure for breach of contract related to an external marketing agency which the Group believed has failed to perform its obligation under its agreement. Onerous contracts related to marketing expenditure which the Group did not receive any value in 2014 and was not expected to drive any value in future periods. The final settlement of these items took place in 2015 and therefore the corresponding charge or credit to the income statement is presented in the table above.

The classification of these expenses in the Consolidated Statement of Comprehensive Income is as follows:

4. Income tax

Factors affecting the tax expense for the year

The tax assessed in the year differs from the standard rate of corporation tax in the UK of 20.3% (2014: 23.5%). The differences are explained below:

5. Earnings per share

Adjusted earnings per share

An adjusted earnings per share, based on the profit before taxation before the amortisation of intangible assets acquired through business combination, share based payments and acquisition related and other expenses has been presented below in order to highlight the performance of the Group.

6. Property, plant and equipment - Group

7. Goodwill

8. Intangible assets

£110,000 of the intangible assets acquired externally in 2015 remain unpaid at 31 December 2015.

9. Share capital & share premium

10. Business Combinations

On 11 August 2015 the Group acquired the trade and assets of Otherside Inc. Details of the provisional fair value of the identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:

Acquisition costs of £149,000 arose as a result of the transaction. These costs were recognised within administrative expenses in the statement of comprehensive income in the year ended 31 December 2015.

Of the £3,157,000 consideration, £2,645,000 was paid within the year and £512,000 is payable over 12 months from date of completion subject to the vendor completing certain deliverables.

Since the date of acquisition, this business has contributed £1,076,000 to net revenue, £161,000 to adjusted EBITDA and £22,000 to profit before taxation. If the business combination had occurred on 1 January 2015, total revenue derived from this business would be £2,674,000, adjusted EBITDA of £555,000 and net profit of £256,000.