Final Results

32Red Plc("32Red" or "the Group" or "the Company")

Final results for the year ended 31 December 2012

32Red, the award-winning online casino operator, today announces final results for the year ended 31 December 2012

Key Financials

Key highlights:

·; Third consecutive year of record revenues

·; Encouraging start to trading in Italian market

·; Increased investment in marketing results in 41,918 new casino players

·; Result of damages inquiry in relation to trade mark action against William Hill expected imminently

·; Evaluation of new regulated markets ongoing

·; Voted Casinomeister 'Casino operator of the Year' for an unprecedented tenth successive year

Key performance indicators

·; Active 32Red Casino players up 45% to 57,338

·; Casino player yield £500 (2011: £550)

·; New 32Red Casino players up 52% to 41,918

·; Casino player cost per acquisition: £147 (2011: £143)

Current trading

Trading in the first 11 weeks of the year has been robust with revenues up 13% on the corresponding period in 2012. The strategic increase in marketing investment continues to deliver strong recruitment of new players and market share gains. We are encouraged by the early indications from Italy, which is performing in line with management expectations. The Board is confident of continued progress towards its stated strategy of delivering an unrivalled casino proposition to its growing UK and International customer base.

Commenting on the results Ed Ware, Chief Executive Officer, said:

"The Company has enjoyed another year of considerable progress thanks to the focus and drive of the 32Red team. Not only have we delivered our third successive year of record results in 2012, but we have also successfully launched the 32Red brand in the newly regulated Italian market. Our strategy of increased investment in marketing is delivering strong levels of new player recruitment.

"This year has started strongly and we are confident of further progress in 2013, both financially and operationally, as we continue to grow the 32Red brand in regulated markets"

*Underlying EBITDA is Earnings before Interest, Tax, Depreciation and amortisation derived from the continuing 32Red business i.e. excluding results from its new Italian operations

** Adjusted EPS is Earnings Per Share before exceptional costs, amortisation of acquired intangibles and share option charges.

21 March 2013

Chairman's Statement

I am pleased to set out below my review of the Directors' Report and Consolidated Financial Statements of 32Red Plc for the year ended 31 December 2012.

Financial review

Further to our trading update issued on 23 January 2013, 32Red is delighted to report that revenues increased by 28% to a record £32.1m in 2012 (2011: £25.0m). This performance has resulted in a 23% increase in underlying EBITDA* to £3.4m (2011: £2.8m).

During the year, the Company also announced that it had commenced trading under its Italian Remote Gaming Licence and I am pleased to report that initial results are encouraging. The Company incurred a small loss, in-line with earlier guidance, of £0.3m in respect of its Italian operations during the year (2011: nil).

After accounting for the launch costs and associated investment in Italy, EBITDA for the year totalled £3.1m (2011: £2.8m) and Profit Before Taxation was £2.04m (2011: £2.12m). The Company had cash reserves of £4.4m at 31 December 2012 (2011: £3.4m) and has no borrowings.

The Board remains committed to delivering value to shareholders and is today pleased to declare a final dividend of 0.8p per share (2011: 0.7p) bringing the full dividend for the year ended 31 December 2012 to 1.4p (year ended 31 December 2011: 1.2p).

Key Financials:

Commencement of trading in Italy

The Company's strategy has always been to target regulated markets. The regulated market in Italy represents an excellent opportunity for 32Red to utilise its core skills and to apply its business philosophy there. On 6 March 2012, the Company announced that it had been successful in its application for a remote gaming licence in Italy and on 29 November 2012, the Company announced that it had commenced trading. Slot machine games were approved and launched on 3 December 2012 and 32Red looks forward to extending its reach into Italy during 2013 and growing revenues from there.

Damages update following High Court victory in trade mark dispute with William Hill 

Further to 32Red's success in its trade mark action against members of the William Hill group ("William Hill"), the William Hill owned 32Vegas business was held to have infringed two of 32Red's European community trade marks and the judge ordered an inquiry to assess monetary damages.

William Hill appealed this decision and a hearing took place in the Court of Appeal on 5th and 6th December 2011. The Court of Appeal described William Hill's case as a "full-scale, wide-ranging attack on the judge's analysis and conclusions on virtually every aspect of his judgment". In a judgment handed down in January 2012, the entire William Hill appeal was dismissed. Furthermore, the Appeal court found that William Hill also infringed 32Red's registered trade mark for "32" and in addition held that William Hill took unfair advantage of 32Red's well-known trade marks. The costs associated with the Appeal have been awarded to 32Red and a sum of £130,000 was paid to 32Red during the year.

The level of damages relating to this case and the liability for costs associated with the original hearing were considered in a 6 day damages hearing held before the High Court commencing on 26 February 2013. The result of this inquiry is expected to be handed down shortly and the Company will update shareholders accordingly.

Post balance sheet event

Further to an approach from the Club, the Company announces that it has reached agreement with Swansea City Association Football Club Limited to terminate its sponsorship agreement one year early. 32Red has agreed to forgo its fifth and final year as main club sponsor in order to allow Swansea City to engage with third parties who may be able to assist in the physical development of the stadium and support the club in its next phase of growth (see note 10 for further details). 

Dividend

The Board recommends a final dividend of 0.8p per share (2011: 0.7p) bringing the full dividend for the financial year ended 31 December 2012 to 1.4p (year ended 31 December 2011: 1.2p). If approved by shareholders, the final dividend will be paid on 3rd May 2013 to shareholders on the register on 5th April 2013.

Strategy

The Company will continue to invest in regulated markets where the Board feels that 32Red has commercially viable opportunities. The Board is committed to further marketing investment in the UK to continue the growth of the underlying business. This expenditure will be supplemented by a controlled investment in Italy. The regulatory landscape continues to evolve and we are encouraged by developments in potential new markets for 32Red both in Europe and the US.

Current Trading and OutlookTrading in 2013 to date has been strong across the Company's portfolio with revenues for the first 11 weeks of the year up 13% on the same period in 2012. Trading from Italy is growing steadily and the Board looks forward to updating shareholders on progress at the interim trading update in July 2013.David Fish QCChairman, 32Red Plc*Underlying EBITDA is Earnings before Interest, Tax, Depreciation and Amortisation derived from the continuing 32Red business i.e. excluding results from its new Italian operations. 

Chief Executive's Statement

In a year when the Company celebrated its tenth anniversary, the 2012 performance represents a third successive year of record revenues. Net gaming wins for the Group totalled £32.1m in 2012 (2011: £25.0m) and this impressive growth is once again driven by a significant rise in activity levels supported by an increased investment in targeted marketing.

Overall performance continues to be dominated by the sustained growth in the 32Red casino, which represents 89% of total Group revenues (2011: 87%). 

Key Performance Indicators

Customer acquisition

The increased investment in casino marketing during the year resulted in 41,918 new casino players recruited during the year, representing a 52% increase on 2011. These new players have been recruited at a similar cost per acquisition of £147 to that of 2011 (£143) and this reflects the continued effectiveness of our marketing.

Customer Relationship Management (CRM)

The building and maintenance of strong customer relationships is the bedrock of 32Red's business philosophy. We continue to strive to exceed our customers' expectations both in terms of the product offering and the level of customer service provided - we are delighted to have been recognised as Casinomeister 'Casino Operator of the Year' for an unprecedented tenth successive year.

During the second half of 2012, the Company made a significant investment in CRM as it looks to maximise the return from its marketing expenditure. This return can be measured by player yields which continue to be amongst the highest in the industry at £500 (2011: £550) despite naturally softening due to the strong recruitment of new players during the period.

We will continue to focus our attention on our customers ensuring we deliver a 'second to none' player experience. We will continue to capitalise on our marketing and customer recruitment campaigns. As a Gibraltar licencee, 32Red fulfils high standards of social and corporate responsibility, utilising world class fraud detection, player monitoring and CRM practices.

ItalyOn 29 November 2012, the Company announced that it had commenced trading under its Italian Remote Gaming Licence. Italian customers were initially able to play traditional casino table games but from 3 December 2012, 32Red's portfolio in Italy increased significantly with the introduction of government-approved slot machine games.

We have launched a 32Red casino television marketing campaign in Italy and this investment will be supplemented by further traditional online and offline marketing. We are encouraged by the initial response to the 32Red brand and plan further development of our games and platform offerings in 2013.

Other products

Poker operations continue to contribute revenues of £1.0m in an ever increasingly competitive market. The bingo and sports betting products continue to grow steadily benefitting from increased activity levels at the 32Red casino and from a modest increased investment in marketing.

Outlook

The trading momentum experienced over the last three years has continued into 2013 and we anticipate another strong year of growth in the underlying business. The Italian market offers new growth opportunities for regulated businesses such as 32Red but it also means an investment in marketing to establish 32Red as a recognised, trusted and respected brand in Italy. The success of the marketing in Italy will be monitored very closely and it is envisaged that the return on this investment will not be recognised until next year and beyond.

We aim to continue to increase marketing investment whilst also, at least, maintaining our levels of player support and service. We believe that this will deliver increased value to shareholders.

Edward Ware,

Chief Executive Officer, 32Red Plc

Notes:

The financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union and issued by the International Accounting Standards Board ('IASB'). These accounting policies comply with each IFRS that is mandatory for accounting periods commencing on or after 1 January 2012. The financial statements have been prepared under the historical cost convention and on a going concern basis.

Business segment

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

Non-current assets are used by all the business segments and a split has not been made by segment because management internally review the assets and liabilities in aggregate. Furthermore "social security and other taxes" relate to all business segments and cannot be split in a meaningful way.

During the year, 32red incurred further legal and other expenses in respect of the legal proceedings against three William Hill companies (''William Hill'') in respect of the online casino, 32Vegas.

Further to 32Red's success in its trade mark action against members of the William Hill, the William Hill-owned 32Vegas business was held to have infringed two of 32Red's European community trade marks and the judge ordered an inquiry to assess monetary damages.

William Hill appealed this decision and a hearing took place in the Court of Appeal on 5th and 6th December 2011. The Court of Appeal described William Hill's case as a "full-scale, wide-ranging attack on the judge's analysis and conclusions on virtually every aspect of his judgment". In a judgment handed down in January 2012, the entire William Hill appeal was dismissed. Furthermore, the Appeal court found that William Hill also infringed 32Red's registered trade mark for "32" and in addition held that William Hill took unfair advantage of 32Red's well-known trade marks. The costs associated with the Appeal have been awarded to 32Red and a sum of £130,000 was paid to 32Red during the year.

The level of damages relating to this case and the liability for costs associated with the original hearing were considered in a 6 day damages hearing held before the High Court commencing on 26 February 2013. The result of this inquiry is expected to be handed down shortly and the Company will update shareholders accordingly.

The following amounts have been included in the income statement for the reporting periods presented:

Basic earnings per share have been calculated by dividing the net results attributable to ordinary shareholders by the weighted average number of shares in issue during the relevant financial periods.

The weighted average number of shares used for basic earnings per share amounted to 70,445,616 shares (2011: 69,930,000).

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For share options, a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

In 2012, assessable income is taxed in Gibraltar at the mainstream corporate income tax rate of 10% (2011: 10%).

8 Intangible assets

9 Property, plant and equipment

10 Post Balance Sheet Event

Further to an approach from the Club, the Company announces that it has reached agreement with Swansea City Association Football Club Limited to terminate its sponsorship agreement one year early. The Company received an early termination compensation payment of £950,000 from Swansea on 18 March 2013 and will not be required to pay any further sums to Swansea in respect of the 2012/3 season. 

11 Publication of Non-Statutory Accounts

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined under Gibraltar company law.

The summarised consolidated statement of financial position at 31 December 2012 and the summarised consolidated statement of comprehensive income, summarised consolidated statement of changes in equity, summarised consolidated statement of cash flows and associated notes for the year then ended have been extracted from the Group's 2012 statutory financial statements upon which the auditor's opinion is unqualified and unmodified.

Those financial statements have not yet been delivered to the registrar of companies.