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Annual Report & Accounts 2016 - Chief Executive's review
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08 GVC Holdings PLC Annual Report 2016 As mentioned in the Chairman's statement, we have today announced a further dividend of euro 15.1c in respect of the financial year ended 31 December 2016. In total, we have declared euro 30c of dividends for the 2016 financial year, returning some €88m to shareholders. Integration creating value The Group has a strong track record of creating shareholder value through astute earnings-accretive acquisitions and efficient integration of the acquired operations and bwin.party has been no exception. In bwin.party we saw a business with proven proprietary technology, established brands and some excellent people, but a business that had lost its way. Through a refocusing on core markets, improving the customer proposition, together with a number of key hires, our instincts have proven correct, reflected by the strong revenue and Clean EBITDA growth highlighted above. It is now just over a year since we acquired bwin.party and we have been delighted with the way the integration has progressed. I'm pleased to say that most of the surprises have proved positive and we have been able to evolve our integration plans to reflect both this and the constantly changing industry backdrop in which we operate. The preparatory work to migrate the Sportingbet and associated brands onto the bwin platform has largely been completed with three countries already switched over. Given the strong underlying performance of the business we have decided to further mitigate the risk of disruption by commencing the migration of the larger territories once the relevant football seasons have finished. Our synergy target of €125m (combined Group savings against 2014) exit run rate by the end of 2017 remains on schedule. More to come Our acquisition of bwin.party was not simply about cost synergies. We firmly believed we could return the business back to growth. Between 2011 and 2015 bwin.party NGR declined by 30% (€816m to €574m), but in 2016 the business returned to top line growth. Whilst the integration process is almost complete, we continue to look for improvement and enhancements across the business. Indeed, we feel the organic growth opportunity of the enlarged GVC is greater than originally expected and a key strategic theme in 2017 will be increased, but focused, investment in marketing to fully exploit this potential. However, it is important to note that in 2016 our marketing spend as a percentage of NGR was just 20%, considerably lower than many of our peers and the increased investment in 2017 will merely bring us closer into line with the market. We are also excited about the cross-sell opportunity presented by the migration of Sportingbet and other associated brands to the bwin platform. The bwin platform has proven to be particularly effective in enabling the cross-sell of other products to sports customers and penetration rates are now double that achieved across the Sportingbet platform. The importance of proprietary technology to our business cannot be overstated. In an increasingly competitive and regulated industry, control of our own technology gives the Group significant flexibility and operational leverage. In 2016, 95% of our revenues were derived/processed through our proprietary platform and we expect this to increase further in 2017 and beyond. During 2016, platform stability improved significantly, with availability exceeding 99.9%, while load times across key sites improved by over 30%. This is key, as with a robust and efficient platform we can process substantially more wagers at little additional fixed cost. Not only does this support the organic growth of the business but it also places the Group in a strong position to derive substantial synergies from any future M&A that we may pursue. Outlook and current trading Our strategy is to build further scale and international diversification through leveraging our proven proprietary technology, established brands and high quality personnel. In an increasingly competitive and regulated industry, we believe scale and diversification will enable us to continue to create shareholder value through capital and income growth. Whilst we are excited by the organic potential, we believe the online gaming industry will continue to consolidate. Historically, GVC has delivered significant shareholder value through M&A and this remains a core component of our strategy. GVC enters 2017 with positive momentum and the integration of bwin.party largely complete. The industry faces many challenges, but the combination of our talent, proprietary technology and brand strength, gives us confidence that we can deliver another year of growth. Although there is no major football tournament in 2017, the trajectory in the business together with a return to more normalised levels of marketing means that we expect to achieve further growth in the coming year. The positive momentum reported throughout 2016 has continued into the current year. Pro forma daily Group NGR is up 15% (+16% in constant currency) for the period up to 19 March 2017. This growth has been achieved despite some high profile customer friendly results in Europe during the last few weeks of February and early March. The strategy of exiting low margin sports turnover has continued and as a result we believe a normalised long-term gross win margin for the Group will be around 10%. Sports Labels pro forma daily NGR YTD is up 18% (+19% in constant currency) whilst Games Labels daily NGR on the same basis is up 6% (+8% constant currency). As we pass the first anniversary of the bwin.party acquisition, and with no major summer football tournament in 2017, year on year comparatives will inevitably get more challenging. Nevertheless, the business has made an excellent start to the year and with the benefits of significant product and customer experience improvements still to come through, as well as the full synergy savings to be realised in 2018, the future is extremely encouraging. 9.6% +26% 23% Our pro forma sports margin has improved from 8.5% in 2015. Pro forma Clean EBITDA was up by €42.5m. Pro forma Clean EBITDA margin improved to 23% from 20% in 2015. Chief Executive's review continued