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Annual Report & Accounts 2013 - REPORT OF THE GROUP FINANCE DIRECTOR
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ANNUAL REPORT 2013 10 REPORT OF THE GROUP FINANCE DIRECTOR continued REVENUES Sports wagers, incorporating Sportingbet from 19 March 2013, grew 125% to €1,169.5 million (2012: €518.9 million). Sportingbet wagers, consolidated from 19 March 2013 to 31 December 2013 averaged €2.3 million per day and rose to €3.9 million per day in Q4 (Q4-2012: €1.5 million). Sports margins differ widely across the multiple markets in which GVC operates as a consequence of the maturity of each market and the sports followed within them. A sports margin of 9.6% across the full year and 287 days since the acquisition of Sportingbet was achieved despite the industry-wide backdrop of punterfriendly results in Q4 2013, as previously reported by the Group on 4 December 2013. Sport NGR represents the gross margin less free bets and promotional bonuses. Customers have a variety of gaming opportunities ranging from Casino, through to Poker and, in certain markets, Bingo. Casino games are provided by over ten companies including such industry-leading suppliers such as Net-Entertainment, Evolution and Boss Media. Sports and gaming revenues are relatively equal now, and in H2-2013 sports NGR represented 52% of proforma revenue and gaming represented 48%. As trailed in the 2012 Report and Accounts, whilst the customer base of Superbahis, acquired in 2011, belongs to third-party provider, East Pioneer Corporation ("EPC"), as the bulk of the economic benefit resides with the now enlarged GVC, under accounting rules approved by the EU, the Group has to fully consolidate the results. This is shown as "proforma" revenue. NGR is proforma revenue less the revenues attributable to EPC for the period from 1 January 2013 to 19 March 2013. 2013 saw a 69% increase in proforma revenues over 2012. Table 2: Average revenues per day since 1 January 2013 €000's Q1-2013 Q2-2013 Q3-2013 Q4-2013 Q1-2014 Sports wagers per day 1,894 3,637 3,335 3,926 3,763 Sports margin % 12.5% 9.2% 9.8% 8.4% 10.1% PFR per day 394 542 518 523 556 Average sports wagers per day have risen by 99% to €3.8 million in Q1-2014 compared to Q1-2013 (€1.9 million). Proforma revenues per day have increased by 41% over the same period. CONTRIBUTION Contribution is GVC's measure of revenues less cost of sales, and costs with a high correlation to revenues, such as partner shares, affiliate commissions and other marketing expenditure. Cost of sales includes payment processing charges, software royalties and local betting taxes payable in jurisdictions where we have a local licence. The Group continues to encourage dialogue with its existing and potential regulators in the markets in which the Group operates, although it notes that in some markets there remains regulatory uncertainty. Contribution increased by 181% to €102.6 million and an aggregate contribution margin percentage of 57% was achieved based on PFR. The Group is making significant marketing investments ahead of the FIFA World Cup in the summer of 2014 and aims for an aggregate contribution margin of between 52% and 55%. CLEAN EBITDA Clean EBITDA is contribution, less expenditure incurred primarily; on staff costs, property, professional fees and other overheads. The Group aims to achieve a clean EBITDA margin of not less than 20%. Expenditure inevitably rose with the acquisition of Sportingbet, although the acquired cost base has already been trimmed by around 50%. The Group headcount in December 2013 was around 400 employees higher than in December 2012, although around 165 inherited staff left the Group in 2013. Within expenditure there are remuneration arrangements highly geared to performance and dividend payments. Indeed for 2014, the Board's bonuses are wholly linked to dividends and all staff can earn bonuses, although 50% of the potential is dependent on market expectations of dividend targets being met.