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Annual Report & Accounts 2016 - Performance of divisions
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17 SPORTS LABELS OPERATIONAL OVERVIEW Following the acquisition of bwin.party the Group adopted a new reporting structure with the B2C operations split between Sports Labels and Games Labels, with our other divisions being B2B and Non-core. It is worth noting that revenues within Sports Labels are not limited purely to sports wagers but include revenues derived from other gaming activities conducted on any of our Sports Label brands. Similarly, though to a lesser extent, Games Labels include sports wagers made through any of our Games Label brands. SPORTS LABELS Pro forma Change% Constant currency% Actual 2016 €m 2015 €m 2016 €m 2015 €m Sports wagers 4,488.3 4,312.6 4 7 4,272.3 1,683.0 Sports margin % 9.6 8.6 9.6 9.2 Sports NGR 333.2 304.5 9 11 315.9 113.9 Gaming/other NGR 320.8 271.1 18 21 304.8 101.2 NGR 653.9 575.7 14 16 620.7 215.1 EU VAT (15.0) (11.0) (13.9) (0.5) Revenue 638.9 564.7 13 16 606.8 214.6 Contribution 362.0 318.9 14 342.5 113.6 Contribution margin % 55 55 55 53 Betboo was established in 2005 to provide online bingo, sportsbook, casino and poker access to South American customers. It was acquired by the GVC Group in July 2009. Gamebookers is a full-service sportsbook which is particularly popular in east and central European markets. It offers up to 30,000 bets daily on more than 90 sports. Sportingbet is a leading provider of sports betting, casinos, games and poker online and on mobile. It was established over 15 years ago in 1998 and acquired by GVC in March 2013. bwin is one of Europe's leading online betting brands and is synonymous with sports. It has leading positions in several markets including Germany, Belgium, France, Italy and Spain. bwin also offers casino, poker as well as bingo on mobile and web, all through a single account. GVC owns a number of sports betting brands including bwin, Sportingbet, Betboo and Gamebookers. bwin was a pioneer in online sports betting and remains one of the best known brands across Continental Europe. However, it is fair to say that the brand had lost market share in a number of core territories in recent years. Therefore, the performance of the business in 2016 was particularly encouraging. Not only did our existing customers spend more with us but also we were successful in adding new customers. Overall sports wagers grew 4% to €4,488m for the pro forma 12 months, whilst an improvement in the gross win margin to 9.6% (2015: 8.6%) helped to drive sports NGR 9% higher to €333.2m. In constant currency, wagers rose 7% and sports NGR by 11%. The higher gross win margin was largely due to the improvements we made at bwin, particularly in the area of risk management which led to a significant reduction in low margin turnover. The year also benefited from the UEFA Euro 2016 tournament, during which we took €162m of wagers and achieved a gross win margin of 18.3%. During the year we significantly expanded our gaming offer to our sports customers. Over 17 deals were signed with leading suppliers, including NetEnt, Evolution, MicroGaming, IGT, NYX and Edict Gaming to name but a few. In total, this gives us access to over 650 new games/products across mobile and desktop. Together with improved cross-sell at the acquired businesses, this helped pro forma gaming NGR rise 18% to €320.8m in 2016 (+21% in constant currency). Total NGR from Sports Labels increased 14% (16% in constant currency) to €653.9m, with revenue 13% higher at €638.9m. Meanwhile, the pro forma contribution was €362.0m (2015: €318.9m), reflecting a maintained margin at 55%. In 2016, marketing spend as a proportion of Sports Labels NGR was c17%, this is well below our peers where spend is typically 25-30% of NGR. It was a deliberate strategy in 2016 to curtail marketing spend in the acquired businesses that achieved either low returns on investment or returns that could not be accurately measured. Therefore, to deliver strong growth on relatively low marketing spend is both pleasing and a recognition of the strength of the brands we own. The current year will see marketing spend increase to more normalised levels, 23-25% of NGR, with the focus being on the larger core geographic markets. Revenue from mobile grew strongly in 2016, and now represents 50% of divisional gross gaming revenue against 34% in 2015. This is still below many of our peers and represents an area of real opportunity for the Group. In addition to increased marketing investment, 2017 will see us continue to expand the product offering as well as further improvements to the overall customer experience. CRM is key to generating positive returns from marketing and we have made a number of key senior appointments in this area.