Final Results

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

Final results for the year ended 31 December 2013

32Red, the award-winning online casino operator, today announces final results for the year ended 31 December 2013

Marketing investment paying dividends

Key Financials

Key highlights:

· Fourth consecutive year of record revenues and underlying EBITDA

· Increased investment in CRM stimulating player activity levels

· Increased Q4 investment in marketing to drive new player recruitment

· Strengthening of the Executive Board

· Progress in Italy - c. 1% market share in growing regulated Italian online casino market

Key performance indicators

· Active 32Red Casino players up 24% to 71,266 (2012: 57,338)

· Casino player gross gaming yield £485 (2012: £500)

· 38,033 new 32Red casino players (2012: 41,918)

· Casino player cost per acquisition: £156 (2012: £147)

· Mobile revenues up 136% on 2012, representing 21% of total casino revenues (2012: 10%)

Current trading

Trading in the first nine weeks of the year has been good with both gross and net revenues up 5% against challenging prior year comparatives. We are encouraged by the initial response to the increased marketing investment in the UK and by recent regulatory clamp downs instigated by the Italian regulator, AAMS, which should ensure that the recent momentum in the business continues.

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

"This is our fourth consecutive year of delivering double digit growth in both sales and EBITDA underpinned by a step-up in marketing investment and our continued focus on providing a second to none customer service. With the momentum continuing into 2014 and our greater focus on driving returns from our increasing marketing spend I am confident in making further progress in the year ahead''.

* The Group has reviewed its revenue recognition policy in respect of the treatment of customer promotion schemes. The treatment of customer promotion schemes has developed over a number of years and the Group has revised its presentation of such items in line with current industry best practice for comparability purposes. The Group now recognises the costs of customer promotion schemes as deductions from revenue rather than as cost of sales, as the Group believes that this conveys the underlying nature of the transaction. The changes do not impact the Group's reported gross profit, the amounts reported in the Consolidated Statements of Changes in Equity, Financial Position or Cash Flows. As a result of this change, items within the Consolidated Statements of Comprehensive Income have been restated. Where adjustments have been made to comparative information in respect of the year ended 31 December 2012 the relevant financial statement or note is headed up as ''Restated''.

**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.

6 March 2013

Chairman's Statement

I am pleased to report another year of financial and operational improvement in my review of the Directors' Report and Consolidated Financial Statements of 32Red Plc for the year ended 31 December 2013.

Financial review

Further to our trading update issued on 16 January 2014, 32Red is delighted to confirm a strong trading performance in 2013 with Gross Gaming Revenues* increasing by 21% to a record £38.8m in 2013 (2012: £32.1m). After the deduction of customer bonuses and other incentives, Net Gaming Revenues* of £25.4m in 2013 are up 15% on 2012 and this performance has resulted in a 46% increase in underlying EBITDA** to £5.0m (2012: £3.4m).

During the year, the Group continued to invest in Italy, where it has traded under its Italian Remote Gaming Licence since December 2012. Gross Gaming Revenues derived from Italy totalled £1.3m in 2013 (2012: £0.0m), with Net Gaming Revenue* of £0.6m (2012: £nil). The Group estimates that this represents circa 1% of the licensed and regulated Italian remote casino market. The Group incurred a loss of £1.2m in respect of its Italian operations during the year (2012: £0.3m) and after accounting for this investment, EBITDA for the year totalled £3.8m, up 23% on 2012 and Profit Before Taxation was £2.3m, up 12% on 2012.

The Board remains committed to delivering value to shareholders and is today pleased to declare a final dividend of 1.0p per share (2012: 0.8p) bringing the full dividend payment for the year ended 31 December 2013 to 1.8p (year ended 31 December 2012: 1.4p). A special dividend of 2.5p per share was also paid during the year on 2 August 2013 (2012: £nil). The Group had cash reserves of £3.4m at 31 December 2013 (2012: £4.4m) and has no borrowings.

Further information of the underlying performance and of progress in Italy is detailed in the Chief Executive's Statement.

The 32Red Employee Benefit Trust (EBT)

On 30 May 2013, the Group announced that it had established the 32Red Employee Benefit Trust to acquire shares in 32Red Plc, to be used to satisfy employee share options and awards under the Group's long term incentive plan (LTIP). As at 31 December 2013, the EBT had acquired a total of 939,224 shares in 32Red Plc at an average cost of 58p per share. Of the shares acquired, a total of 929,167 shares have been issued to satisfy share options exercised by employees of the Group. The directors believe that the use of the EBT in this way has reduced dilution of existing shareholders interests by avoiding the need for the Group to issue new shares. 

Board appointment

The Group announced the appointment of Matthew Booth as Commercial Director on 4 November 2013. Previously Matt held senior marketing positions at Betfair, most recently as the Global Head of Brand. Matt's appointment is a reflection of our determination to focus on leveraging our growing marketing budget to best effect. His recent experience in brand building will enable 32Red to extend its reach in both the UK and internationally, while his commercial experience, strategic thinking and management skills will be vital in ensuring a coherent and disciplined approach to an expanded commercial function. Matt has an excellent understanding of global brand marketing as well as strong management skills and is a valuable addition to the Board.

Final dividend

The Board recommends a final dividend of 1.0p per share (2012: 0.8p) bringing the full ordinary dividend for the financial year ended 31 December 2013 to 1.8p (year ended 31 December 2012: 1.4p). If approved by shareholders, the final dividend will be paid on 2 May 2014 to shareholders on the register on 2 April 2014. Additionally, a special dividend of 2.5p per share (2012: £nil) was paid to shareholders in August 2013.

Current Trading and Outlook

Trading in 2014 to date has been robust across the Group's portfolio with both Gross and Net Gaming Revenues for the first 9 weeks of the year up 5% on the same period in 2013. The Group will continue to grow investment in marketing as well as in our people and systems in order to continue to deliver the highly rated service and support that 32Red is renowned for in the industry.

In respect of the UK Point of Consumption Tax and regulatory proposals, the Board continues to work with the Gibraltar Betting and Gaming Association (''GBGA'') to ensure that industry concerns are voiced and understood by the UK Government and other stakeholders. We believe that the current proposed regime risks disrupting a safe and regulated market to the detriment of the UK consumer.

The Board believes that 32Red has commercially viable opportunities around the world and as the regulatory landscape continues to evolve we are encouraged by developments in potential new markets, both in Europe and the US. The Board looks forward to updating shareholders on any progress at the interim trading update in July 2014.

David Fish QCChairman, 32Red Plc

Chief Executive's Statement

The 2013 performance represents a fourth successive year of record Gross Gaming Revenues* which totalled £38.8m in 2013 (2012: £32.1m). After the deduction of customer bonuses and other incentives, Net Gaming Revenues* of £25.4m in 2013 are up 15%. This impressive growth is once again driven by a significant rise in activity levels and 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 (2012: 89%). 

Key Performance Indicators

The 24% year-on-year growth in active players in 2013 reflects the improved focus on customer relationship management (CRM), supplemented by increased marketing expenditure and new player recruitment in the second half of the year. The 32Red mobile casino continues to flourish with revenues up 136% on 2012, representing 21% of total casino revenues (2012: 10%) and attracting approximately one third of all new players. We expect the trend towards tablets and mobile devices to continue and the Group maintains a focus on accelerating growth in these platforms.

Customer acquisition

The focus shifted from retention in the first half of the year to customer acquisition during the second half of the year. In particular:-

· On 27 September 2013, the Group announced a significant investment with Channel 4 to secure sponsorship of ''Late Night Film'' on Film4. The 12 month partnership sees 32Red's branding feature around both the 11pm and 1am film every night of the week. Film4 is the biggest dedicated film channel with a weekly reach of over 12 million individuals.

· On 11 October 2013, the Group announced that it had signed an agreement to be one of four main sponsors of the All-Weather Horse Racing Championships, which launched on 26 October 2013 and will culminate on 18 April 2014 - an historic day when UK horse racing in the United Kingdom takes place for the first time on Good Friday.

· On 4 November 2013, the Group announced a three year licence with ITV Brand Extensions to develop and promote an ''I'm a Celebrity...Get Me Out Of Here!'' slot machine game exclusively to 32Red customers. The game uses the popular I'm a Celebrity...Get Me Out Of Here! iconography, the theme tune and features to bring the excitement of the show to 32Red slots enthusiasts to enjoy. We are delighted with initial results and the game proved to be the second most popular slot in the casino in November and December 2013. We intend to build on this initial success and upgrade the slot machine in 2014.

· On 11 November 2013, the Group announced an agreement to sponsor The Paul O'Grady Show on ITV. The hour-long show was broadcast every weekday at 5pm for a six week period commencing on Monday 11 November 2013 and was sponsored by 32Red Bingo.

These marketing initiatives have increased brand awareness and stimulated new customer recruitment with 20,574 new depositing players recruited by the 32Red casino in the second half of the year alone. The "I'm a Celebrity…Get Me Out Of Here" activity also included increased TV advertising in support of the initiative. This recruitment contributed to the strong finish to 2013 and the return on this investment should continue to be realised in 2014.

ItalyGross Gaming Revenue generated from 32Red.it totalled £1.3m in 2013 (2012: £0.0m). The business from Italy continues to grow steadily with revenues of £0.8m in the second half of the year, up 84% on the first half of 2013 as customer awareness continues to grow. On 27 August 2013, we announced an exclusive partnership to become the official casino partner of Italian Serie A football team, Bologna FC, for the 2013-14 and 2014-15 seasons. The sponsorship deal includes both on and off-line co-branding activities, stadium branding and the launch of an affiliate programme to market the 32Red casino to Bologna fans via the club's website. Our previous associations with Swansea City AFC and Aston Villa FC helped establish 32Red as a trusted and leading casino brand in the UK and we see Bologna as an ideal partner to help promote the 32Red brand in Italy.

We have supported the Bologna sponsorship with traditional online and offline marketing and are encouraged by new customer cost per acquisition rates which remain in line with those experienced by the underlying business in the UK. As expected, the yield per active player is significantly less than the more established underlying business, but is expected to grow naturally as the market in Italy develops and new products are approved by the Italian regulator. We also hope to see a benefit from unregulated operators withdrawing from the market during the year.

Other products

Poker, Bingo and Sportsbetting operations continue to make steady contributions in highly competitive markets and we expect these products to benefit from increased activity levels at the 32Red casino and from an increased investment in marketing of the 32Red brand.

Outlook

We are excited about 2014 and look forward to building on the momentum and successful results experienced over the last four years. There are regulatory challenges as well as opportunities this year but we anticipate another strong year of growth in the core 32Red casino, supported by increased contributions from Italy, betting and other products. We remain committed to our strategy to increase investment in regulated markets, both in terms of marketing and personnel, to ensure that an unrivalled level of player support and service is maintained.

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 2013. The financial statements have been prepared under the historical cost convention and on a going concern basis.

The Group has reviewed its revenue recognition policy and the treatment of customer incentives. The Group now recognises customer incentives as deductions from revenue rather than as cost of sales. The treatment of customer incentives in such way has developed over a number of years in line with industry best practice. The change in accounting policy does not result in a change in the Group's reported profitability in current and/or prior years and amounts reported in the Consolidated Statements of Changes in Equity, Financial Position and Cash Flows are unaffected. As a result of the changes, while not affecting reported profitability there are items within the Consolidated Statement of Comprehensive Income in the prior period that have been restated. Where adjustments have been made to comparative information in respect of the year ended 31 December 2012 the relevant financial statement or note is titled "Restated".

Casino net gaming revenues represent gaming receipts from clients less payments to clients within the financial year, adjusted for movements in player balances, which represents money deposited by players that has not yet been used to play. Poker , Sportsbetting and Bingo Net Gaming Revenue represents the commission due to the Group, rebate and tournament entry fees where the player has concluded his participation in the tournament, plus Net Casino Gaming Revenue derived from Poker and Bingo players .

Net gaming revenue is measured by reference to the fair value of the consideration received from players less the fair value of amounts paid to players. In all instances, the fair value of the amounts received and paid out is the cash value at the date of the transaction.

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 successful proceedings against three William Hill companies ("William Hill") in respect of the online casino, 32Vegas. Following a six day trial in October 2010 in the High Court, judgment was handed down in January 2011 detailing 32Red's success in its trade mark action against William Hill. As a result of that successful action, the William Hill-owned 32Vegas business was held to have infringed two of 32Red's European Community trade marks. William Hill's counterclaim that the "32Red" and "32" trade marks should be invalidated, failed. Subsequently, the judge ordered that 32Red be granted an injunction against William Hill and ordered an inquiry to assess monetary damages.

On 12 April 2013, following a six day damages enquiry, a Judgment confirmed that 32Red had been awarded damages of £150,000 in respect of its trade mark action against members of the William Hill. This was confirmed by a formal order sealed on 3 July 2013, which also included an award of costs in 32Red's favour. No appeal was filed and the award is therefore final. The recovery of 32Red's legal costs was assessed in a subsequent hearing, held before the High Court on 10 June 2013 and a total of £1,127,227, awarded in 2012 and 2013, has now been received from William Hill in damages, costs and interest. The William Hill litigation process is now complete and in recognition of the exceptional nature of the work performed over the last four years, the Remuneration Committee approved an award of an exceptional bonus totalling £422,170 paid to five directors. All five directors decided to exercise long held vested share options with the bonus award with total consideration paid to the Company of £422,170.

During the year, legal costs of £160,100 (2012: £nil) were expensed in respect of industry lobbying and legal advice received in connection with the UK Government's proposed Point of Consumption Tax and regulation.

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

Other operating income of £950,000 (2012: £nil) represents an early termination compensation payment received from Swansea City AFC Limited during the year. 

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 71,444,360 shares (2012: 70,445,616).

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 2013, assessable income is taxed in Gibraltar at the mainstream corporate income tax rate of 10% (2012: 10%).

9 Intangible assets

10 Property, plant and equipment

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 2013 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 2013 statutory financial statements upon which the auditor's opinion is unqualified and unmodified. The full 2013 statutory financial statements are detailed on the Company's website www.32Redplc.com.

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