Bwin.party digital entertainment plc
2012 Full year results

Interview with Norbert Teufelberger, CEO

15 March 2013 Results

Q: Although in line with expectations, you must be disappointed with these results, with pro forma revenue down by 2% and Clean EBITDA down by 17%.

A: Well, at first sight, I would tend to agree with you. And if you look at it from the outside, I would also agree with you. But if you consider the circumstances of 2012, when we still had to go through a lot of integration work where we were adapting to the new world of nationally regulated markets – we entered three new nationally regulated markets and had to pay substantially higher taxes in those markets as well – plus increased complexity and increased compliance costs which we have today, actually the results are quite okay.

Q: Now, current trading has clearly been tough for you and you say that you expect revenues to be down in 2013. When do you expect to turn the corner?

A: It is really not so much about turning the corner. It is just the fact that we are adjusting our business model right now. We plotted a clear strategy when we merged PartyGaming with Bwin two years ago, but we are now adjusting tactics. And this is just reflecting what is happening around us.

We have done a very detailed analysis on how are markets and our customers are reacting to our customer acquisition spend. We started the analysis in 2012 and we are now seeing the effects of it. We have drastically reduced our marketing spend in dot.com markets. So we are going for value instead of volume, therefore revenues may come down a bit, or will come down a bit. But we also expect that adjusted EBITDA margin will come up.

Q: You have increased the dividend by 10%. Is that just to keep shareholders happy or is it a real sign of confidence?

A: Well, first of all, we try to keep our shareholders happy with everything we are doing. However, it is a sign of confidence. It is actually just continuing to do what we had announced in June 2011 when we announced the dividend policy, that we strive to progressively increase the dividend, and that is what we are doing this year.

Change of approach

Q: You say it is not a change of strategy, but you now intend to spend less time on the dot.com market and focus more on the regulated and to-be-regulated markets. What is the thinking behind this?

A: In the past, we have done a little bit too much all at the same time. So, this is really reflecting the focus which we are putting into the business right now. On the one hand, we are reducing the number of markets we are putting a focus on but we are increasing the spend in those markets. This investment will go solely into regulated and to be regulated markets.

But we are still very active in our dot-com markets, and what we are now doing there is focussing more on value and less on volume.

Q: So, has all the time and money that you have spent on integrating the dot.com platform been a waste?

A: Not really. We are not really integrating a dot.com platform, we are integrating one platform. We are now actually moving all of our customers on a single integrated platform which will yield substantial benefits in the future. That really has nothing to do with how we conduct our business in those markets. In the past we have built a strong brand in many, many markets. We have built relevant market positions in those markets. However, what’s happened is that, just in the last 12 – 18 months, we’ve seen the customer returns and customer yields have declined significantly.

Q: What has brought about this shift away from volume to value? Why do you believe it will be successful?

A: We believe it will be successful because it will give us focus. [In the past] we have just done too many things at the same time and we have done them all mediocrely. So, what we’re trying to do now is fewer things, but to do them really, really well.

Q: How does this sit with the existing focus on encouraging more casual players in both Poker and Casino & Games?

A: Casual doesn’t necessarily mean non-value. What we are trying to do is address and service our valuable, loyal customers better, actually putting more focus on them instead of trying to address and get more and more players in, which may not yield the returns we are seeking.

Q: Now, you have said that this change of approach started in January, which was the same time as Jim Ryan’s departure. Are the two linked?

A: We launched the plan in January, but, as you know, launching a plan does not mean that you do it overnight. It was very well planned before and actually has nothing to do with Jim’s departure.

We are, on an ongoing basis, reviewing our current environment. We are reviewing returns from our customers and we are looking at our operating efficiencies. Towards the end of 2012 we reached a point where we said, “We need to do something. We need to optimise and we need to adjust our tactics.” That is when we actually started to define the plan and design the plan which we launched in January 2013.

Q: Are you happy with the progress you are making with your social gaming initiative?

A: Yes. When we launched it about a year ago, we developed a very detailed plan and we’re executing against that plan. We just recently, in February, launched our first proprietarily developed slots, Slots Craze, on Facebook and IRS. Yesterday, we launched our first bingo application, Cheeky Bingo, on Facebook, and we are making very good progress in launching our first sports app. in partnership with Nordeus, one of the leading social sports developers, on Facebook and on mobile.

So, in summary, yes we are making good progress. We have come a bit late to the game, but I am quite confident that we will hit all our targets for this year.

Q: You are also looking at new revenue opportunities, such as from Kalyxa, your re-branded CQR payments business. Is the intention to sell this off once you have finished developing it?

A: No, we do not have any intention as yet. It would be too early. It is still not big enough to sell yet. It is just extremely promising. It is a new business field which we are pursuing. We have made some changes there. We have completed the management team. We have a clear growth strategy now designed for our payment arm, which as you say, will be re-branded very shortly to Kalyxa. What we do in two or three years from now remains open, but at this point we do not have any plan to sell it.

Markets

Q: The opportunity in the US seems much more real now, and you are saying that the team working there has been “ring-fenced”. What in reality does this mean?

A: Well, as you know, we have been preparing for the re-entry to the US for seven years. We have always said that it is just a question of when, and not if, and that has become reality now.

So, what we are doing right now is operationalising all our efforts in the United States. We believe that will need a ring-fenced approach. That means that resources are solely dedicated to making the US optionality a success. Again, that really needs a very focussed approach, and we have identified the resources who will be doing that.

Q: Can you update us on the situation in Germany and can you tell us where you think it is going?

A: Germany is still a very complex situation but it has improved for us as a Group. As you know, we now have licences for Sports, Casino and Poker in Schleswig-Holstein, one of the 16 provinces in Germany. Simultaneously, in January 2013, we have applied for a so-called E15 licence.

The process is not clear yet, but we would expect to get a hearing on the E15 licencing process shortly. There are rumours in the market that licences could be granted in the beginning of May or beginning of June, but there is no certainty about it yet. We will certainly apply for a licence there.

Then, we will continue working with the regulators in Germany to ultimately find a commercially sound solution, both for the regulators and for us, but especially for the consumer in Germany.

Q: You have settled your problems in Belgium. How big do you think the market is there?

A: Belgium was a fairly small market for us, but an important market. And closing a market down never helps your numbers. You’ve seen that our revenue didn’t grow last year and that’s one of the reasons – we had to close down in Belgium.

We have now found a commercial solution in Belgium. We now have a partner in Belgium and we will be launching in Belgium in the next two weeks.

Q: And the UK? What developments are happening regarding regulation and taxation?

A: We have a sizeable bingo business here in the UK. We are following that discussion very closely, but this is one country where we are not in the driver’s seat. There is obviously the big incumbents here in the UK who drive this discussion. I would expect that regulation could be in place, and this is current anticipation, by the end of 2014. We do not know the tax rate yet and we do not know specifics yet.

Q: Are Spain, Italy, France and Denmark performing as you would like?

A: They could always perform better, but we are making real progress in those markets. This renewed focus on regulated markets which we talked about in the beginning, will help us to do even better in those markets.

They are different from market to market. It also depends on what products are allowed in the market and how they are taxed. So, the margin that we are generating from those markets is different market by market. However, the good news is that we are actually profitable in all of them.

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