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Annual Report & Accounts 2014 - REPORT OF THE CHIEF EXECUTIVE
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sports margin percentages fluctuate daily depending on sports results, however gvc's combination of diversified geographies and the success of its in-play product mitigate this volatility. in 2014, the monthly gross margin ranged from a low of 8.3% to a high of 11.8% with an average of 9.8% (2013: 9.6%). i am pleased to report that momentum has continued in Q1-2015 with sports wagers growing 22% to €4.6 million per day (Q1-2014 €3.8 million) and ngr growing 18% to €661k per day (Q1-2014 €559k). gvc has also expanded its geographic diversification through its 15% stake in scandinavian-facing start-up Betit. this business has had a strong start and its stake in this entity does allow the group to acquire the balance in Q4-2017 for a minimum of €70 million providing that the profits of the entity are of sufficient scale to warrant the investment and would be immediately accretive to the group. the results of Betit are not consolidated in our financial statements however as its stake has been accounted for as an available for sale asset. the group now has over 700 co-workers. gvc is proud that the bonus structure for all staff has a highly material relationship to dividend declarations and that this correlation to shareholders' interests allows gvc to incentivise its staff in a transparent way, which facilitates the retention and recruitment of talented people. despite the underlying complexities of the group, the business can be presented in a simple and transparent way as the table below illustrates: Year ended 31 December 2014 Q1-2015* per day per day 'Formula' €000's €000's €000's €000's a wagers 1,463,523 4,010 4,601 b margin % 9.8% c = a x b Gross margin 143,544 d sports bonus (33,345) e = c + d Sports NGr 110,199 f Gaming NGr across all brands 114,602 g = e + f totaL NGr 224,801 616 661 h variable cost % 45.2% j = g x h variable costs (101,513) k = g + j coNtrIBUtIoN 123,288 m other expenditure (74,126) n = k + m cLEaN EBItDa 49,162 p = n / g cLEaN EBItDa % 21.9% q capitalised development costs (3,343) r net corporate taxes paid (508) s working capital and other movements (742) t capex and lease payments (1,951) u = sum q-t total of additional operating cashflows (6,544) v = n + u cLEaN NEt opEratING caShFLowS ('cNoc') 42,618 w = v / g Noc % 19.0% y Dividends (33,607) z = y / v Dividends as a % of cNoc 78.9% * to 18 March 2015. net non-operating cash out-flows in 2014 amounted to just under €10 million. these included: the investment cost in Betit (€3.6 million); earn-outs payable under the 2009 acquisition of Betboo (€4.3 million); the first of three tranches of the repayment of the loan from william hill (€2.8 million), offset by €0.8 million received on the exercise of options. gvc's presence in frontier markets provide first mover advantage and exposure to high growth revenues. in addition increased regulation should allow gvc to achieve better co-operation with governments and therefore promotion of its products to an increased audience, so these developments should be positive for gvc and the industry in the long-term. GVC HOLDINGS PLC ANNUAL REPORT 2014 7 BUSINESS rEvIEw