let the world play for real Annual report & accounts 2011

Transcription

1 Annual report & accounts let the world play for real

2 Inside this report 02 Overview 03 Pro forma financial highlights 04 Our product verticals 06 Our business environment 08 Chairman s statement 10 Co-CEO s review 18 Our business model 20 Strategy 22 Regulated and to-beregulated markets 24 Invest in our core assets 26 Strategic alliances 28 New areas of digital entertainment 30 Act responsibly 32 Review of 47 Markets and risks 48 Sports betting 50 Casino & games 52 Poker 54 Bingo 55 Key risks 58 Responsibility and relationships 59 Corporate responsibility 61 Customers and responsible gaming 63 Employees 64 Suppliers 64 Shareholders and other providers of capital 65 Environment and community 66 Board of Directors 70 Governance 75 Audit Committee report 77 Ethics Committee report 78 Integration Committee report 79 Nominations Committee report 80 Directors Remuneration report 97 Other governance and statutory disclosures 100 Annual General Meeting 102 Statement of Directors responsibilities 103 Financial statements 104 Auditors report 105 Consolidated statement of comprehensive income 106 Consolidated statement of financial position 107 Consolidated statement of changes in equity 108 Consolidated statement of cashflows 110 Notes to the consolidated financial statements 150 Company statement of financial position 151 Company statement of changes in equity 152 Company statement of cashflows 153 Share information 158 Notice of Annual General Meeting 162 Glossary and definitions See our online report at

3 Welcome Our strategy and vision stretches far beyond real money gaming on the internet: our aim is to let the world play for real by extending our reach into new areas of digital entertainment on a global scale. Technology, consumer tastes and government regulations are changing fast. This makes for a challenging business environment but, given the underlying growth prospects for our sector, we are embracing change to secure long-term outperformance.

4 Overview 02 Integration update We completed the merger of bwin Interactive Entertainment and PartyGaming on 31 March, creating the world s largest listed online gaming company. It also marked the start of our operations as one company and the implementation of our detailed integration plans. Key facts 2,700 employees with offices in Europe, India and the United States Headquartered in Gibraltar where we are licensed and regulated Also licensed in Alderney, Denmark, France and Italy Listed on the London Stock Exchange (ticker: BPTY) Operational highlights Reorganisation into four business verticals completed in Q4 On-track to deliver approximately 40m of synergies in 2012 and 65m in % of revenue from newly regulated markets (France, Italy and UK) Strategic alliances with MGM, Boyd Gaming and Danske Licens Spil Launched new products into Italy and prepared for launch into Denmark and Spain In our focus was very much on integration and regulation. Delivering the targeted 40m of synergies from the Merger in 2012 remains a top priority, as well as ensuring that we foster and protect the value of opportunities relating to newly regulated and to-be-regulated markets. Balancing these two sometimes competing objectives has been a challenge, having been forced to reschedule certain of our integration plans in order to meet strict schedules imposed by governments and regulators alike. As more governments embrace the regulation of online gaming markets, so the dynamics of our industry are shifting. Real money and social gaming, together with other forms of digital entertainment are converging. At the same time mobile platforms are increasingly important channels of distribution each of these developments is being driven by advances in technology, new regulations and changes in consumer demand.

5 Pro forma financial highlights 1 03 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Total revenue Performance m Gaming segmentation m +0% m 2010 m Change % Sports betting Casino & games Poker (6) Bingo (11) Unallocated corp0rate (3) Total Clean EBITDA Performance m Gaming segmentation m 2010 m Change % m +3% Sports betting (0) Casino & games Poker Bingo (2) Unallocated corporate (7.9) 0.6 n/a Total Clean EBITDA margin 24.4% (2010: 23.7%) Clean EPS 18.5 c (2010: 19.0 c) Net gaming revenue by country Germany 22% Italy 10% UK 10% France 7% Americas 6% Greece 4% Spain 5% Denmark 2% Rest of EU 18% Rest of World 17% 1 Continuing operations

6 Our product verticals 04 Sports betting Casino & games We offer bets on a pre-event and live basis on all key sports in all of our markets With traditional casino games and some of the largest jackpots in the industry, this is our largest vertical Key brands bwin Gioco Digitale betoto Gamebookers Amount wagered in 3.8bn Key brands PartyCasino bwin GD Casino Amount wagered in 7.7bn net gaming revenue 259.7m +0% Clean EBITDA m (0%) net gaming revenue 262.7m +9% Clean EBITDA m +17% Daily average players in 114,200 Net gaming revenue via mobile in 20.5m +92% Daily average players in 28,200 Largest jackpot win in US$4.5m 23 May 1 Excludes unallocated corporate

7 05 Poker The second largest poker network in the world 2, we have thousands of players each day, covering all levels of stakes Bingo With leading market positions in both the UK and Italian markets, we are looking to expand into new territories Key brands PartyPoker bwin GD Poker Amount wagered in 11.2bn Key brands Foxy Bingo Cheeky Bingo Gioco Digitale Amount wagered in 1.2bn net gaming revenue 209.7m (7%) Clean EBITDA m +8% net gaming revenue 63.7m (11%) Clean EBITDA m (2%) Daily average players in 100,500 Market share 10% in dotcom markets 3 15% in France 4 14% in Italy 5 Daily average players in 23,300 Largest geographic market UK 73% of total bingo revenue 2 Source: PokerScout.com 3 Source PokerScout.com, based on assumed combined liquidity for PartyPoker.com and bwin.com 4 Combined liquidity across all Group platforms based on company estimates 5 Source: AAMS

8 Online gaming currently makes up only a small percentage of total gambling, but this proportion is forecast to increase E 2012E 2013E 2014E 2015E 2012E 2013E Overview 06 Spotlight on: Our business environment The global online gaming industry is a growing and valuable segment of the digital economy with an increasing share of the global gaming market. Excluding the US, online Gross Gaming Revenue or Yield ( GGY ) for the four major product segments, sports betting, poker, casino and bingo was estimated to be worth 18.8bn, up 7.4% versus the previous year. This growth is forecast to continue, reaching 24.7bn by 2015, implying a compound annual growth rate ( CAGR ) of 7.2% 1. Online gaming market size (excluding US) 1 gross gaming revenue Estimated CAGR 2015 Sports betting 9.6bn 6.8% Casino 5.0bn 8.4% Poker 2.9bn 5.7% Bingo 1.3bn 8.5% For further details on each of the key online gaming markets see pages 47 to 54. Online gaming as a % of total gambling 2 bn % Key growth drivers 1. Broadband penetration and expected growth to Broadband penetration % 2. Smartphone and tablet growth 3 Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones + Tablets E Units (m) Note: PCs Notebook Netbooks. include 300 PCs Notebook PCs Smartphones Tablets Desktop Desktop PCs Note: Notebook PCs include Netbooks Estimated CAGR 2015 (%) China France Brazil 2005 US South Korea Canada Japan Italy Netherlands Germany Russia Australia UK Spain Denmark 2012E 2013E Notebook PCs Smartphones Tablets Propensity to play games online All gambling (land-based and interactive) Percentage interactive Younger generation online Units (m) All gambling (land-based and interactive) 200 Online gaming currently makes up only a small percentage of total gambling, but this proportion is forecast to increase E 2012E 2013E 2014E Percentage interactive 2015E % of 9 16 year olds playing games online Not playing The Internet is one of the primary sources of entertainment for the next generation. As they reach adulthood, this is likely to act as a further driver for real money gaming online Source: H2 Gambling Capital, February Source: PricewaterhouseCoopers, Global entertainment and media outlook 2015 bn % 3 Source: Morgan Stanley research 4 Source: Risks and safety on the Internet the perspective of European Children London School of Economics, co-funded by the European Union, January * Based on a survey of 25,000 children across the EU * Based on a survey of 25,000 children across the EU gaming online.

9 07 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements The changing regulatory landscape Europe Several countries in Europe have introduced or are planning to introduce online gaming regulations. 1 UK Products S, P, C, B Tax rate 5 15% onshore 0% offshore Ring-fenced No Market size 6 2.2bn 2 France Products S, P Tax rate 9.3% S turnover 2% P turnover Ring-fenced Yes Market size 2 1.1bn 3 Spain Products S, P, C, B Tax rate 5 25% Ring-fenced Yes Market size 6 0.4bn 4 Austria Products S, P, C, B Tax rate 5 2% S turnover 40% P, C, B Ring-fenced No Market size 6 0.2bn Germany 7 Products S, P, C (slots only) Tax rate 5 20% Ring-fenced No Market size bn 6 Denmark Products S, P, C Tax rate 5 20% Ring-fenced No Market size 6 0.2bn 7 Italy Products S, P, C, B Tax rate 5 20% S, P, C, B Ring-fenced Yes Market size 6 1.1bn 8 Greece Products S, P, C Tax rate 5 30% Ring-fenced Not known Market size bn USA An opinion issued by the Department of Justice on 23 December prompted several states to initiate proposals that would seek to implement online gambling regulations. With a number of draft bills in both the Senate and House of Representatives, there is speculation that the federal government may also seek to introduce a nationwide regulatory framework. Below is a summary of some of the initiatives that have been seen in individual states to date. 1 California* Products P Tax rate 5 10% Ring-fenced Yes Population m 2 Nevada Products P Tax rate % Ring-fenced Yes Population 8 2.1m 3 Hawaii* Products P, C Tax rate All proceeds to state Ring-fenced Yes Population 8 1.0m New Jersey* Products P, C Tax rate % Ring-fenced Yes Population 8 6.9m 6 Mississippi* Products P, C Tax rate 5 5% Ring-fenced Yes Population 8 2.3m 7 Florida* Products P Tax rate 5 10% Ring-fenced Yes Population m 4 Iowa* Products P Tax rate 5 24% Ring-fenced Yes Population 8 2.4m 5 As a % of gross gambling revenue 6 Source: H2 Gambling Capital, February 2012, all products 7 Regime in Schleswig Holstein, Germany s most northern state 8 Population over 21 years old Source: US census bureau Key S = Sports betting P = Poker C = Casino & games B = Bingo * Proposed, not enacted

10 Chairman s statement 08 Twelve months into the merger of bwin and PartyGaming, the combined enterprise is ahead of schedule in integrating the businesses and delivering the synergies expected and is on track to extend its reach into new areas of digital entertainment. Simon Duffy Chairman Completion of Merger on 31 March On-track with integration delivering synergies Ready to enter new markets including US Extending our reach into digital entertainment Final dividend of 1.56p per share Over 31 million shares repurchased Integration and regulation The rapid evolution of the online gaming industry is continuing, driven by advances in technology and changes to the regulatory landscape, resulting in a business environment that is both challenging and full of opportunity. In such an environment, where the competitive landscape is usually settled within a short space of time, late entry into any newly-regulated market is not an option. The enlarged enterprise of provides a unique platform from which to launch into new markets with the requisite scale to take full advantage of the freedom to advertise, often for the first time. As part of our goal of participating in all major newlyregulated markets, we were among the first wave of operators to launch on the opening of the Danish market at the beginning of 2012, as we will be when Spain opens later this year. Our agreements with MGM and Boyd mean that we are well-placed to be in the first wave when regulations allow entry into the United States, either on a federal or state-by-state basis. The early performance and the potential of are encouraging, as detailed in the Co CEOs Review on pages 10 to 17, where they expand upon the Group s progress and business strategy. In addition to reaping the rewards from our investment in technology, brands and people, we will extend our reach into new areas of digital entertainment, such as social gaming, by capitalising on the Group s existing resources to create new revenue streams.

11 09 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Governance As we navigate this critical phase in the Company s development, the Board s approach to corporate governance has to be mindful of both the need to avoid disrupting the integration of two businesses with different governance backgrounds and the detailed negotiations that led up to the Merger. During those negotiations bwin and PartyGaming agreed a balanced Board would be in the best interests of the combined Group, a decision that is supported by the success of the integration to-date. However, this resulted in a Board structure that was not in compliance with the Code on Corporate Governance in terms of the balance between independent and nonindependent Directors. Despite this imbalance, the Board is satisfied that it has maintained a sufficient degree of independence for the following reasons: On the majority of business items considered by the Board, a nonindependent Non-Executive Director is independent because the interests of the relevant founder shareholders and the Company do not conflict; On issues when the interests of the Company and interests of a founder shareholder may conflict, mechanisms in the relationship agreement and/or letters of appointment for the nonindependent Non-Executive Director allow the independent Directors to exclude them from the decisionmaking process; The independent Directors have not been and will not be in a minority to the Executive Directors; The Chairman of the Board was independent on appointment; and The Board had the appropriate balance of skills and experience to manage the imbalance appropriately. This matter, together with details about how the Board oversees the interests of through its operating and management structure, is explored in more depth in the Governance Review on pages 70 to 101 of this Annual report. The Board has considered Lord Davies of Abersoch s review, Women on Boards, which requested FTSE 350 companies to set out aims for having women serve on boards. Gender diversity is an important factor that we will take into account when considering any new candidates to join the Board. However, gender is only one of many issues that have to be considered alongside a candidate s experience, knowledge and skills. Our aim is to appoint at least one woman to the Board by the end of 2013 and to have at least two women serving on the Board by Directors Further to the additions to the Board that became effective on completion of the Merger, Geoff Baldwin replaced Rami Lerner as a Non-Executive Director of the Company on 15 July. Mr Baldwin s appointment was made following a nomination under the terms of a relationship agreement entered into by amongst others, digital entertainment plc, Emerald Bay Limited and Stinson Ridge Limited that was approved by shareholders on 28 January. All Directors will be standing for re-election at the forthcoming AGM. Dividend The Board is recommending a final dividend of 1.56p per share which, together with the interim dividend of 1.56p per share, makes a total dividend of 3.12p per share for the year ended 31 December (2010: nil). The final dividend, if approved at the Annual General Meeting will be payable to shareholders on the register of shareholder interests on 11 May It is expected that dividends will be paid on 12 June Shareholders wishing to receive dividends in Euros rather than pounds sterling will need to file a currency election and return it to the Group s registrars on or before 25 May Further details are contained in Share information on pages 154 to 156. Share buyback Since launching our 75m buyback programme in September, the Group had purchased 15.7 million shares at a total purchase price of 19.9m by 31 December. As at 22 March 2012, we had purchased a further 15.5 million shares. All purchased shares have been cancelled. Outlook Current trading has been robust and in-line with our expectations. The enlarged Group is in a strong position to capture a greater share of the expanding digital entertainment market.

12 Norbert Teufelberger Co-CEO Jim Ryan Co-CEO Co-CEO s review Integration and regulation

13 Co CEO s review 11 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 We have provided a detailed review of the operational performance in and our progress on integrating bwin and PartyGaming. In addition, we have set out our business strategy, achievements against that strategy to-date and our objectives for Spotlight on: 1 Revenue slightly ahead to 816.0m. Clean EBITDA up 3% to 199.3m Clean EPS of 18.5 cents DPS of 3.12p 2 Alliances with MGM, Boyd Gaming and Danske Licens Spil Sale of Ongame for up to 29.5m Synergies of 23.3m realised in, ahead of plan On-track to deliver 40m of synergies in 2012 and 65m in 2013 as planned Current trading robust 1 Pro forma, Continuing operations 2 Including recommended final dividend of 1.56p per share We made excellent progress in. The swift execution of a number of integration plans for our technology, people, products and brands has been rewarded with financial synergies coming through more quickly than expected, offsetting increased gaming duties payable as markets regulate. We remain on-track to deliver approximately 40m of synergies this year and 65m in results The Group s robust operating performance in is confirmation of our progress. Despite the operational challenges of integrating two businesses in such a dynamic business environment, the Group delivered total pro forma revenue from Continuing operations of 816.0m (2010: 814.0m) and pro forma Clean EBITDA from Continuing operations of 199.3m (2010: 193.2m). However, the financial numbers do not tell the whole story: a simple comparison of the year-on-year financial performance appears to show modest growth on both metrics, but, as explained in our Review of, this belies the transformation of our business, an increasing proportion of which is now licensed, regulated and taxed. As more governments embrace the regulation of online gaming markets, so the dynamics of our industry are shifting. Real money and social gaming together with other forms of digital entertainment are converging. At the same time mobile platforms are increasingly important channels of distribution each of these developments is being driven by advances in technology, new regulations and changes in consumer demand.

14 Co CEO s review 12 We expect to move to a single e-gaming platform by the end of 2012 Chip leader PartyPoker is our global poker brand Integration The integration process touched upon each of our core assets in : our people, technology, products and brands. People Following completion, our first step was to appoint the members of the senior management team, each with responsibility for leading the integration of their respective disciplines and designing and implementing an organisation structure to deliver the business strategy and synergies already identified. We reorganised the business into four product verticals so that all personnel, so far as practicable, are allocated to one of the verticals. This structure should help us maintain our leadership position in each vertical which is now able to allocate its own development and financial resources to execute its plans. Following some initial adjustments, the target organisation structure was completed in the fourth quarter of. Aligning business processes and controls is an ongoing task but just 12 months after completion, the majority of our internal procedures are already up and running. With employees located on three continents, differences of language and culture posed additional challenges as we executed the integration plan and continued to drive the business forward. Thanks to the direction and diligence of our dedicated Integration Management Office and the enormous efforts of our management and employees, we are delivering on our plans. Technology One advantage of the long lead-time between the merger announcement on 29 July 2010 and completion on 31 March was that we had several months to plan the integration, including the assessment of our technology needs. Having two of everything it was clear that choosing one technology platform for each task would release resources and generate value. This was challenging for the senior team given the implications for our staff and key locations. Drafting the technology roadmap was relatively straightforward compared with the complexity of moving from two systems to a unified back-office platform, as well as having a single gaming platform for each of the product verticals. This was complicated further by the introduction of new regulated markets such as Denmark and Spain, that each have different technology requirements. Although these interruptions delayed the integration of our technology platforms, we expect to move to a single e-gaming platform by the end of 2012 and deliver the 40m of synergies as previously announced. A further 25m of synergies are expected in 2013.

15 13 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Products and brands Choosing bwin as our lead brand for sports betting was obvious given its leading presence across Europe. Choosing PartyPoker as our lead poker brand was also straightforward given its brand strength not just in existing markets across Europe, but also potential new markets, such as the United States. Notwithstanding this, we will also continue to offer bwinpoker across all key markets and intend to continue to make full use of the World Poker Tour ( WPT ). In Italy we will continue to use GD Poker. In casino, as a large proportion of our customers continue to come from poker and sports betting, we will continue to offer games through both bwin and PartyPoker, as well as the industryleading PartyCasino brand. We believe that the quality of the product offering in casino is key and so have continued to add new games to our suite using our in-house development team as well as through selective licensing deals with third parties. Bingo remains a localised product and Foxy Bingo and Cheeky Bingo will remain our core brands in the UK and Gioco Digitale in Italy. As we move into new markets we will launch additional bingo brands that will be tailored for local tastes. Market environment We believe that the underlying drivers of revenue growth in the online gaming sector remain strong: the increasing prevalence of broadband; growth in smartphone and tablet technology; an expanding population of online consumers with an increasing propensity to socialise, transact and play games online; and a growing acceptance that gaming online is a mainstream activity, one that can and should be regulated (see Spotlight on: our business environment on pages 6 to 7). While these long term drivers remain, shifts in the regulatory, competitive as well as technological landscapes can and already have had a significant impact on the online gaming market in the short-term. Regulation A number of national developments took place in, most of which represented a further positive step in the transition from an embryonic unregulated activity just a few years ago into one that is increasingly becoming fully licensed and regulated. While this transition brings additional compliance costs and gaming taxes, it is also likely to prompt industry consolidation as consumers gravitate to the larger operators and brands. Germany (22% of pro forma net gaming revenue in ) 3 In April, 15 out of the 16 German states or Länder, put forward a proposal for a new regulatory framework. While it proposed to regulate, license and tax online sports betting for the first time, it proposed to do so in a very restrictive way that was not compliant with EU law. Following criticism from the European Commission, the draft was amended in December but remains highly restrictive. Limited to sports betting only it includes a de facto ban on live betting, limits on the stakes wagered in any month and a maximum of 20 licensees. We believe this revised proposal also fails to meet the requirements of EU law. Having been asked by the Länder for a green light to proceed with the proposals, the European Commission issued a response on 20 March 2012 stating that the Länder needed to provide detailed evidence in order for the Commission to assess whether or not the restrictions embodied within the draft State Treaty comply with EU law. The Commission was also unable to assess the consistency and coherence of the proposals due to a lack of notification of federal legislation amending the rules for slot machines and horse race betting. In the absence of such notifications and evidence, the Commission did not give the Länder the green light they required to proceed. Meanwhile, Schleswig-Holstein, Germany s most northern Land has adopted its own licensing regime for online sports betting, poker and casino 4 with a 20% tax on gross gaming revenue and which has been approved by the European Commission. along with many other reputable operators has applied for a licence in Schleswig-Holstein and intends to operate under that licence across Germany. While the position of the other 15 Länder remains unclear, we remain committed to securing a commercially viable regulatory regime, one that complies with EU law and meets the needs and desires of consumers, operators and regulators. Italy (10% of pro forma net gaming revenue in ) 3 Italy expanded its online gaming regime to include cash game poker and certain casino table games in July. The Group launched both products under its main brands including bwin, PartyPoker and Gioco Digitale and now has a strong market share in all products. 3 Share of pro forma net gaming revenue in Continuing operations 4 Excludes blackjack, baccarat and roulette

16 Co-CEO s review 14 Tower block France is expected to review its restrictive gaming regulations after the Presidential election in May 2012 United Kingdom (10% of pro forma net gaming revenue in ) 5 The UK Government has announced that it intends to amend the existing Gambling Act and extend its licensing regime to include offshore online operators. It is unclear when the legislation to effect such a change will be considered. Meanwhile, the UK Treasury has announced a consultation on changing the taxation regime in line with the Department for Culture, Media and Sport s proposals and taxing operators on the basis of customer location. The potential outcome of its conclusions remain unclear. The industry argued strongly that any changes to the basis of taxation should only be introduced if and when the requisite amendments to the UK Gambling Act have already been effected, if at all. Such proposals, if introduced, may be subject to legal challenge by online gaming operators. France (7% of pro forma net gaming revenue in ) 5 Despite the calls for changes to the French regulatory model put forward by Monsieur Villotte, president of the French regulator, ARJEL, who argues that the regime is not working effectively, no change has yet been made. Other senior figures such as Senator Trucy and Jean-Francois Lamour MP have also expressed concerns that the regime is preventing regulated operators from making an economic return as they cannot compete with black market operators evidenced by the decline in the French regulated sports betting market in the fourth quarter. There has been speculation in the media that some changes might be effected before the end of 2012 although any such changes are unlikely to take place until after the Presidential election in May Whether or not this will include any reduction in taxation or an expansion in the number of regulated products is unclear. Greece (4% of pro forma net gaming revenue in ) 5 Greece has pressed ahead with its proposals for a new gaming law that was enacted in August despite the receipt of a detailed opinion from the European Commission that raised a number of concerns. The requirement to have a legal presence in Greece together with a proposal to impose taxes on operators retrospectively from 1 January 2010 are just two aspects that we believe are in breach of EU law and which are the subject of a formal complaint submitted by the Remote Gambling Association. In the absence of any clarity we continue to keep the situation under review. Spain (5% of pro forma net gaming revenue in ) 5 It has been reported that over 290 licence applications have been filed with the Spanish regulator by 59 companies, including ahead of the country s new regulatory framework coming into force. Whilst the exact date upon which licences will be issued remains unclear, we expect that this will take place during the second quarter of The regulations cover all forms of online gaming, including live betting and bingo but excludes online slot games, with a 25% tax on gross gaming revenue. In accordance with the regulations we have been paying taxes on all Spanish revenue generated since 29 May. 5 Share of pro forma net gaming revenue in continuing operations

17 15 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Denmark (2% of pro forma net gaming revenue in ) 5 The new regulatory framework that covers sports betting, casino and poker went live on 1 January We launched services in each licensed product category as well as on behalf of our local B2B customer, Danske Licens Spil, the leading Danish landbased gaming operator. Gaming duty is payable at 20% of gross gaming revenue. While several other countries are in the throes of discussing, drafting as well as legislating new laws to regulate, the trend is clear: online gaming is becoming increasingly recognised as a legitimate activity in most EU countries and is a branch of ecommerce that can and should be regulated. Following the adoption of a report by the European Parliament 6 in, there is also an acceptance that agreeing a common approach to the regulation of online gaming is in the interests of European stakeholders and consumers. United States (Nil share of pro forma net gaming revenue in ) 5 An opinion from the US Department of Justice on 23 December made clear that regulated intra-state online games of chance did not breach any federal laws. This prompted several initiatives in a number of states seeking to regulate license and tax online gaming activities including California, Iowa, Hawaii, New Jersey and Mississippi. The state of Nevada has already enacted the requisite legislation to allow intra-state online poker. With the prospect of a patchwork quilt of regulation, compliance and tax rules, the federal government may yet decide that it needs to regulate this activity at a national level. Estimated to have been worth approximately $1.6 billion of gross gaming revenue ( GGR ) in 2006, assuming a federal bill was introduced the US online poker market could be worth up to $4.2 billion in GGR 7 in the first full year after regulation. Through our joint venture agreements with MGM Resorts International and Boyd Gaming Corporation that were concluded during the year, we believe that we are well-placed to capitalise on any such opportunities as and when they arise. Competition The competitive landscape is also continuing to evolve rapidly, partly as a result of some of the regulatory changes outlined above and partly due to other factors. The indictment of the founders of PokerStars, Full Tilt Poker and Absolute Poker/Ultimate Bet on 15 April represented the start of what we believe will prove to be a fundamental shift in the shape and structure of the global online poker market. With the exception of PokerStars, all of these sites have now closed. PokerStars relative size meant that it was able to capture the lion s share of Full Tilt s non-us players, consolidating its position as market leader in most territories. This makes for a challenging operating environment for our poker business but we believe that we can remain one of the largest networks in each market. Our position should be further enhanced when we pool our player liquidity across our poker brands in the dotcom as well as the ring-fenced markets in Italy and France later this year. Separately, the past 18 months have seen the emergence of a new gaming phenomenon on the internet: social gaming. Zynga, Playdom, Playfish and other social gaming platforms have all experienced spectacular growth with their virtual currency and virtual goodsdriven business models that have attracted millions of customers across the globe. Zynga s CEO, Mark Pincus was quoted recently saying that online gambling is a natural fit with virtual goods and social games. We believe it is only a matter of time before the worlds of real money gaming and social gaming converge. This represents a major opportunity for and we have a number of initiatives already underway in this area that we expect to drive value for shareholders in the medium to long term. 6 Source: Online Gambling in the Internal Market own initiative report by the Committee on the Internal Market and Consumer Protection, adopted in Plenary Session of the European Parliament on 15 November 7 Source: H2 Gambling Capital

18 Co-CEO s review 16 Technology developments The continued evolution of smartphone, tablet and other mobile technology has driven strong growth in the consumption of gaming products through the mobile channel. Customers no longer have to be in front of their PC or laptop to enjoy playing online games. We expect this trend to continue as new devices emerge but also as network infrastructure continues to improve and as payment processing and personal identification technologies evolve. In its recent filing with the Securities and Exchange Commission, Facebook stated that 425 million or 50.2% of users accessed its services via a mobile device. The penetration of smartphones is continuing to expand and is already greater than PCs or laptops. In its recent fourth quarter results for, Apple Inc. announced that it had sold 37 million iphones and over 15 million ipad s, a 128% and 11% increase respectively over the previous year. Whilst transactional-based gambling such as sports betting is already flourishing over existing networks, the next generation of networks are emerging and can be expected to revolutionise the gaming experience on mobile platforms. With transmission speeds of up to 10 Mbps (Megabits per second) these networks will be over five times the speed of existing 3G networks, significantly improving the mobile gaming experience, particularly for games such as poker, casino and bingo that typically require greater volumes of data traffic. The other dynamic that is driving the accessibility of online games is the increasing prevalence of Wi-Fi that is available in public locations and that most mobile devices are now able to use. In its March 2012 budget the UK Government announced funding for ultrafast broadband and Wi-Fi in ten of the UK s biggest cities, with additional funding for smaller cities too. Against this backdrop, our business is continuing to perform well and we remain on-track. Summary, current trading and outlook Since 31 December, the Group has performed in-line with the Board s expectations with growth in all verticals versus the previous quarter. A summary of the current trading performance relative to the fourth quarter of is shown below: Pro forma and Actual Gross average daily revenue ( ) Period ended 24 March 2012 Q4 11 Change Sports betting 932, ,200 4% Casino & games 923, ,700 2% Poker 747, ,200 0% Bingo 324, ,000 2% Total 2,927,800 2,869,100 2% The pace of regulatory, technological and competitive change is showing no sign of slowing down. But, the scale and breadth of our revenue base, coupled with our significant resources all mean that we are in a strong position to capture a bigger share of the expanding digital entertainment market. Current trading has been robust with gross average daily revenue in the 12 weeks to 24 March 2012 up 2% versus the fourth quarter of to 2,927,800 (Q4 11: 2,869,100). While the current macroeconomic environment appears to be impacting performance in parts of southern Europe, this is being offset by stronger performances elsewhere. Active player days increased in all verticals versus the previous quarter and amounts wagered in both sports and casino were up strongly although

19 17 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 there was a small drop in gross win margin to 7.9% in sports (Q4 11: 8.5%) and 3.9% in casino (Q4 11: 4.1%). Should the proposed regulatory framework in Schleswig-Holstein become effective and we are awarded a licence, we propose to offer sports betting, casino and poker products across Germany and pay the proposed tax of 20% of gross gaming revenue on all products. While this will impact Clean EBITDA in 2012, we have identified 10m 15m of savings in 2012 and 2013 that will partially mitigate the impact on our financial performance. While regulatory uncertainties continue, the prospect of the Euro 2012 championship later this year, the opening of the regulated Spanish market and our delivery of additional synergies mean that we remain confident about the Group s prospects. was the year of integration and regulation will be the year of integration, regulation and innovation we have made an excellent start. Even in such a challenging business environment we continue to deliver positive cashflow thanks to the strength of our business model. Key players (Left to right) Jim Ryan, Joachim Baca, Norbert Teufelberger and Martin Weigold head the Group s executive management team

20 Our business model 18 Spotlight on: Our business model We are focused on delivering long term profitable growth through growing revenue and managing our cost base. As a consumer-facing business we need to be consistent in the delivery of great content in a safe and secure environment, at a price that represents good value for money and in a way that is easy to use. Revenue Whilst the dynamics vary by product, our revenue model applies to each of our four verticals: how many players do we have on a daily basis and how much do they spend each time they visit? Multiply one by the other and we have gross gaming revenue. Other revenue comes from our business-to-business ( B2B ) customers (such as PMU in France and Danske Licens Spil in Denmark) and non gaming activities such as WPT, InterTrader (our financial spread betting site) and payment services supplied to third parties. Revenue Number of active players Multiply Average yield per active player day Player retention New player sign-ups Existing active players Mix of games Frequency of play Player mix Key Performance Indicators Each of our KPIs lies behind one of our core revenue drivers, affecting either the number of active players or average player yield. We provide quarterly, data on each of these metrics on our website. Other factors influencing revenue include player retention and the number of existing players that leave the site through churn ; the mix of games played (as different games/bets have different revenue characteristics); how often people play and the mix of players i.e. are they experienced high value players or novice low value players? Each of our product KPIs are detailed in the Review of on pages 37 to 42. To find out more, visit www. bwinparty.com.

21 2010 Clean EBITDA administrative expenses as a % of total revenue 1 19 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Cost base We categorise costs as follows: distribution or marketing-related costs that tend to be more variable in nature, rising and falling with revenue; and administrative expenses that tend to include those items that are more fixed in nature and therefore provide a source of operational leverage. We maintain a tight control on costs and have identified 65m in annual synergies from the Merger, three quarters of which are cost savings such as rationalisation of surplus systems and technology, greater purchasing power from our increased scale and reduced reliance on third-party suppliers. The balance is expected to come from revenue synergies such as cross-selling and improved yield management. Balance sheet We generate net cash and have no net debt. We paid a 15m half year dividend in October and are recommending a final dividend of approximately 15m. Since September we have also repurchased 31.2 million ordinary shares for a total consideration of approximately 44.9m. Our policy is to continue to manage our balance sheet whilst retaining the flexibility to seize opportunities should they arise. Strategy Our strategy to deliver long-term revenue growth includes five key elements: focus on regulated and to-be-regulated markets; invest in our core assets; secure long-term strategic partnerships; extend our reach into new areas of digital entertainment; and act responsibly Organisation and business structure We are organised into four product verticals: sports betting, casino & games, poker and bingo. This provides greater control over resources for each product and greater flexibility to manage the particular challenges and different dynamics faced by each. This also reflects the way in which the business is being structured technically with each of the gaming verticals plugged into a common technical platform that hosts all of the back-office functions such as loyalty, payments, data warehouse and customer service. Target business structure Distribution costs as a % of total revenue 1 35% m 300 1% acquisition and 3% Customer retention 250 4% Affiliates 200 content Third-party and technical services Webhosting 150 bad debts Customer % % 100 Customer bad debts 150 9% Third-party content 200 m fees Transaction costs 200 3% Staff services Outsourced 150 Other 16% overheads Other overheads 16% 150 Staff costs 200 3% 9% Transaction fees m 33% 9% 5% % Outsourced services % 250 Customer acquisition and retention 300 m Affiliates 9% 2010 Webhosting and technical services 1% 3% 36% 1% 2% 4% 8% 21% 21% 8% 4% 1% 2% 35% 36% Clean EBITDA Distribution costs as administrative a expenses % of total revenue as a % of total revenue % 11% 3% 16% 5% 5% 16% 3% 11% bwin PartyPoker Casino & games Bingo 33% 35% S P C G B P S C G B C G B C G B New common platform (loyalty, player management, customer support, data warehouse and payments) S Sports betting P Poker C Casino G Games B Bingo 1 Pro forma Continuing operations

22 Strategy Extending into a new digital landscape Our top priority remains completing the Merger integration as planned and delivering the annual synergies already identified. The shifting business environment has meant that our business strategy has continued to evolve and now comprises the following five elements: 1 Focus on regulated and to-be-regulated markets read more p22 2 Invest in our core assets technology, product, brands and people read more p24

23 3 Secure long-term strategic alliances 4 Extend into new areas of digital entertainment 5 Act responsibly read more p26 read more p28 read more p30

24 PokerStars Winamax 1 Everest/Betclic Chilipoker/ipoker BarrièrePoker Partouche pkr Strategy 22 1 Focus on regulated and to-be-regulated markets The transition to regulated markets is continuing to gather momentum. Several countries in Europe are moving towards the implementation of a regulated framework for online gaming. The US is also moving in a similar direction. This transition is a major opportunity for although it comes at the cost of greater gaming duties. achievements Following the expansion of permitted games, we launched cash game poker and casino games into Italy in July and have already secured meaningful market share in each segment. In France, we sustained our market share in poker and increased it in sports betting despite the country s challenging fiscal and regulatory regime. We continue to lobby for change to the current regime and are encouraged by the recent comments by Monsieur Villotte, the French regulator, who has called for an analysis of the fiscal constraints and economic model. Elsewhere, much of the second half of was spent preparing our systems and offerings for the newly regulated markets of Denmark and Spain. While our poker, casino and sports betting offering launched successfully in Denmark on 1 January 2012 as planned, a change of government meant that the opening of the Spanish market was delayed until later this year. French poker market share % PokerStars Winamax 1 Everest/Betclic BarrièrePoker Chilipoker/ipoker Partouche pkr 30 Source: Company estimates based on player numbers 1 Combined liquidity across all group networks 40 % French poker market share

25 23 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Measures of success Pro forma NGR regulated v non-regulated Launched casino and cash game poker into Italy in July 2012 Launched poker, casino and sports betting in Denmark in January % 39% 31% Increased share of the online poker market in France 27% of net gaming revenue came from regulated markets (France, Italy and UK) 73% Regulated To-be-regulated Unregulated 30% Introduced a new sports software framework, increasing delivery speeds and flexibility that is vital for newly regulated markets Regulated To-be-regulated Unregulated 73% Regulated markets in : UK, Italy France Regulated markets in 2012: UK, France, Italy, Denmark To-be-regulated markets in 2012*: Spain, Greece, Germany *(Based on NGR in ) 39% 30% 31% 27% 2012 Pro forma NGR regulated v non-regulated Plans for 2012 The transition to regulated markets will continue with the opening of the Spanish market where we plan to launch sports betting, poker, casino and bingo. Should we be successful in securing a licence in Schleswig-Holstein, we plan to launch all products except bingo in Germany under this regime. The exact timing of when markets will open is always a challenge for operators as are additional amendments to legislative requirements by regulators. However, through an active programme of engagement with regulators and governments around the world, we aim to stay fully informed and are ready to mobilise our launch teams quickly. Our objective is always to launch as soon as regulations allow. Land of opportunity The Group is well-positioned to enter the US, should the requisite legislation be enacted

26 Strategy 24 2 Invest in our core assets technology, product, brands and people To attract and retain real money players we have to provide the very best online gaming experience, which is why we continue to invest in our technology, products and brands as well as the people that make it all happen. Through targeted allocation of our capital we enhance our reputation for trust and quality, driving revenue and cashflow. If you can stand the heat... Satsumo is one of the characters from Enter the Kitchen, one of our 28 new games that will launch in 2012 achievements Our live betting offer has improved significantly with a new interface and increased coverage by our live-betting traders through greater automation, allowing us to redeploy bookmakers to cover additional events. In casino we launched into Italy and added 21 new casino games of which 14 were developed in-house. We also launched our own no-download casino product onto the existing bwin technology platform in October and the early results have been very encouraging. In poker, we changed to a weighted contribution rake calculation that benefited more recreational players and helped us secure the clear number two position behind PokerStars in the dotcom liquidity pool, a position that has been sustained into In bingo we consolidated our UK bingo networks into a single liquidity pool with bigger prizes and higher jackpots thereby making our offering more attractive and this is beginning to feed through into our financial performance. The challenge of merging two working cultures across multiple locations has been met through the implementation of several people-related initiatives including a new Leadership Development Programme spanning all levels of our management structure as well as the introduction of a unified approach to training across the Group. We have also put in place a new identity and market positioning for IVY Comptech, our subsidiary that provides software development and IT-enabled business process outsourcing. IVY has also relocated to a brand new, state-ofthe-art facility and has put in place an improved incentive scheme to attract and retain the very best talent in Hyderabad, India. 2 Source: PokerScout.com

27 25 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Measures of success Improved live betting margins on all labels with 9% more live events on bwin and 57% more on PartyBets and Gamebookers Launched 21 new casino games in Poker Operator of the Year International Gaming Awards First ever spread betting app for the ipad launched by InterTrader.com Spread Betting Operator of the Year EGR Awards Innovation in Payment Solutions EGR B2B Awards Launch of MegaGames on bwin.com Sports betting Amount wagered and gross win margin m % Bet amount m Gross margin % win Bet amount m Gross win margin % Q Q Q Q Q Q3 Q1 Q Q4 Q1 Q3 Q2 Q2 Q3 Q4 Q4 m % Sports betting Amount wagered and gross win margin Plans for 2012 As mentioned above, while completing the integration of our products and platforms is a key priority we will also continue to deliver a number of operational and product developments in These will include expanding the number of live events covered in our sports offer, repositioning the PartyPoker product and brand and completing the sale of Ongame. In casino we will launch a download casino for bwin.com and add 28 new casino games developed by our in house production team. The opening of the Spanish market will see us launch sports betting, poker, casino 3 as well as a brand new Spanish bingo brand, all of which will be running on the new integrated back-office platform. To improve our appeal as an employer we are launching a new total rewards package and flexible benefits scheme for staff in our key locations. Market on the move InterTrader s spread betting ipad app was an industry first 3 Excluding slots

28 Strategy 26 3 Secure long-term strategic alliances We continue to leverage our own assets and the assets of others through a series of long term strategic relationships that include B2B relationships, sports sponsorships and industry affiliations. Our bwin brand is synonymous with sports, supported by our long-term marketing relationships with some of the world s most recognised brands such as Real Madrid and MotoGP. Our sports sponsorship strategy remains focused on European football, motorcycle racing and basketball where we sponsor Euroleague Basketball and the industry association, FIBA. achievements Preparing for the launch of our B2B service for Danske Licens Spil in Denmark on 1 January 2012 was a major project in. Similar to our deals with PMU and ACF in France, the agreement, which covers poker and casino games, is designed to augment our B2C offering as well as generate additional revenue. We also announced similar arrangements with MGM and Boyd Gaming two of the largest and most respected casino operators in the US, in anticipation of either state or federal legislation, the objective again being to support our planned B2C franchise should regulations allow. During the year we extended our sponsorship with FIBA and Euroleague Basketball until 2014, MotoGP until 2013 and also began a multi-year sponsorship of the Pro Padel Tour. Competitive edge We again sponsored the famous Hahnenkamm downhill ski race in Austria in

29 27 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Measures of success Strategic agreements with MGM and Boyd Successful launch of poker and casino for Danske Licens Spil in Denmark Improved B2B integration technology makes it easier to launch services for our customers Consolidation of position in French poker with strong growth by PMU Plans for 2012 We are focused on delivering excellent service and product to our existing B2B customers. We also continue to explore regulated and to-be regulated markets for meaningful partners that can make a difference to our performance and/or deliver a strategic benefit that we cannot achieve alone. Playing partners We have secured strategic relationships with some of the world s leading gaming companies

30 Strategy 28 4 Extend into new areas of digital entertainment At the time of the Merger we recognised the opportunity to extend our assets and skills into new areas of digital entertainment, in particular social gaming. We also identified a major opportunity to exploit our existing products and brands through mobile, touch and video. Poker + We launched our Aces Hangout game on Google+ in March 2012 As a result, the Board has added a new element to the strategy, one that is focused on extending our reach into these new and exciting markets. Social gaming Social gaming is a rapidly growing market and shares many characteristics with our core business including the need to develop high quality online games, manage large numbers of simultaneous players with the support of fully-integrated business intelligence and analytics, provide a payments platform as well as sophisticated online marketing through a range of channels. However, we recognise that it is also very different in terms of what drives customer behaviour and how revenue is generated. Having researched the business case thoroughly and balanced this against other opportunities, the Board has formally adopted this addition to the strategy and we have established a stand-alone and dedicated vehicle to pursue social gaming opportunities that sits outside our core real money gaming activities. Recognising the different skills required we have recruited a knowledgeable and experienced management team that will be supported by its own software development resource that will develop a range of social games for launch in Mobile The mobile channel is not new to having launched our first mobile sports betting in However, the advent of smartphone and tablet technology in conjunction with increasing connection speeds has revolutionised the mobile gaming proposition. A fast-growing part of our business, mobile gross gaming revenue increased by 104% year-on-year to 25.3m (2010: 12.4m) and we expect further strong growth in achievements We established a dedicated resource within the Group to manage all of our development and investment in each of the mobile platforms. Called Mobile, Touch, Video, we continued to expand our mobile offer with the launch of multiple apps on both Android and ios platforms our products are now available in app stores in 18 countries and there were over 31,000 downloads of our bwin sports betting iphone app in January On the social gaming front we launched a beta version of a new poker concept called Aces Hangout on Google+ that has a social webcam platform connecting each of the participating players.

31 29 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Measures of success Total mobile GGR Established a dedicated internal resource for Mobile, Touch and Video m 25 Strong growth in gross gaming revenue derived from mobile up 104% Our gaming apps are now available in 18 countries Launch of Android app for bwinpoker in France Launch of Aces Hangout, a social online poker game Established a dedicated vehicle to execute our social gaming strategy m Total mobile GGR Plans for 2012 During 2012 we will establish a proprietary social game technology platform and launch online and smartphone applications in several of the Group s core product verticals, as well as an independent social game destination website. The first social gaming product to launch will be a poker-based product followed by a casino and sportsbook application by the end of In Mobile, we will launch a new PartyPoker mobile app and plan to launch HTML5 mobile versions of our key gaming sites. As we complete elements of our integration plans in 2012, we will be able to redeploy even more resources into extending our business into these exciting new business areas. In mobile we trust We will launch a dedicated coaching app in support of our sponsorship of Euroleague Basketball

32 Strategy 30 5 Act responsibly Being responsible is a prerequisite for success. However, to sustain our business model we choose to go beyond the requirements prescribed by regulation and statute with the objective of providing the world s safest and most innovative gaming platform founded upon operational excellence and scientific research. Good Citizen FTSE4Good again recognised the Group as a responsible company Since 2005 we have been working with the Division on Addiction ( DOA ), Cambridge Health Alliance, a Harvard Medical School teaching affiliate in order to both expand our knowledge of gambling-related problems and also to help us develop a multi-layered responsible gaming tool that can be tailored to an individual s requirements. However, our approach to responsibility extends beyond our core gaming business and includes all of our core stakeholders including the communities where we have a physical presence. For more details regarding our approach to stakeholder management please see the Sustainability section of our corporate website: achievements We continued our pioneering collaboration with the DOA that published three more peer-reviewed academic papers into gambling-related issues in. As well as being widely acclaimed in the academic world, our collaboration with the DOA was commended as part of the independent assessment of our working practices by GoodCorporation (see page 60). In Europe, we helped to establish a Europewide agreement on responsible remote gambling measures. The European Committee of Standardisation ( CEN ) adopted the agreement in February, outlining 134 practical measures aimed at safeguarding a high level of consumer protection and ensuring that remote gambling operators behave responsibly in the European Union. In, together with some of the world s largest corporations including Google and Vodafone, became a founding member of the ICT Coalition for a Safer Internet for Children and Young People details of the coalition were published in January As well as these corporate initiatives, our employees have also been playing their part in acting responsibly by participating in pro bono activities for worthy causes in local communities. In recognition of our efforts during the year we were again entered into the FTSE4Good Index Series. 4

33 & Society 31 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Measures of success Received certification from CEN 5 for our responsible gambling measures Re-accredited as a member of the FTSE4Good Index Series Re-certificated by GamCare as a responsible operator Voted Socially Responsible Operator of the Year, at egaming Awards In our staff participated in 120 separate pro bono projects A further three papers published by the Division on Addiction Setting EU standards We passed our audit of 134 CEN standards in Plans for 2012 We will continue to build on our research programme with the DOA as we seek to improve our knowledge and understanding and work towards a model of consumer protection tools that can be tailored to individual customers. Our investment in research is not limited to the DOA, we are also committed to supporting the GREaT Foundation in the UK and other responsible gaming charities around the world. We will support local communities through our pro bono scheme that we intend to expand across former bwin offices, as well as through charitable donations. Our approach The graphic below summarises our approach to responsible and sustainable business practice Health & Safety Community Engagement Consumer Protection Associations Employees Society Stakeholders Business Responsible Compliance Gaming Applied Research Gaming Real Money Healthcare Network Knowledge & Innovation Network Dialogue Scientifiic & Employees Transparency Project Environment Authorities Regulatory Associations Sports Integrity Future of Gaming Entertainment Digital Governance 5 European Committee for Standardisation

34 32 Review of The year in play

35 Review of 33 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 The Merger was completed on 31 March. For accounting purposes PartyGaming is treated as the acquirer of bwin and as a result the Group s statutory results for the year ended 31 December include a full period from PartyGaming while bwin is included from 1 April only. Spotlight on: key highlights Clean EBITDA ahead of market expectations due to faster than expected synergies Pro forma # total revenue slightly ahead at 816.0m despite closure of French casino and World Cup in Actual total revenue up 93% to 691.1m primarily due to the Merger* Pro forma Clean EBITDA from Continuing operations up 3% to 199.3m primarily due to synergies coming through more quickly than expected, offsetting increased gaming duties from regulated markets. Actual Clean EBITDA from Continuing operations up 79% to 168.3m primarily due to the Merger Synergies realised in of 23.3m (including 5.0m related to Discontinued operations), ahead of target. Integration plans ontrack to deliver 40m of synergies in 2012 and 65m in 2013 Continuing pro forma Clean EPS of 18.5 cents per share (2010: 19.0 cents); actual Clean EPS of 17.9 cents per share (2010: 17.8 cents) Non-cash impairment of intangible assets of 408.7m (2010: nil) following the introduction of proposed changes to the European regulatory and fiscal landscape in Recommended final dividend of 1.56p per share (2010: nil) making a total FY11 dividend of 3.12p per share (2010: nil) Current trading robust with average gross daily revenue up 2% versus the previous quarter to 2.93m (Q4 11: 2.87m) * On 31 March PartyGaming Plc merged with bwin Interactive Entertainment AG ( the Merger ) # The actual results include PartyGaming s results throughout and the results of bwin with effect from the Merger on 31 March. Pro forma results set out the financial performance of the Group as if the Merger had always been in place Introduction In preparing these full year results for, we have provided a detailed review of the operational performance of the combined business and our progress on integrating bwin Interactive Entertainment AG ( bwin ) and PartyGaming Plc ( PartyGaming ). In addition, we have included a detailed review of our business strategy, achievements against that strategy to-date and objectives for To assist analysts and investors in assessing the performance of the Group, we have also produced pro forma results that set out the financial performance of the Group as if the combined operations had always been in place. While further details of the consolidated performance of Continuing and Discontinued operations are contained in the financial information and the accompanying notes, all references to financial performance or key performance indicators throughout this document refer to the Continuing operations on a pro forma basis only, unless expressly stated otherwise. We made excellent progress in. We remain on-track to deliver approximately 40m of synergies this year and 65m in Jim Ryan and Norbert Teufelberger Co-CEOs

36 Review of 34 Financial summary Audited results for the year ended 31 December Pro forma # Actual # Year ended 31 December Revenue Sports betting Casino & games Poker Bingo Net revenue Other revenue Total revenue Clean EBITDA ~ from Continuing operations Clean EBITDA ~ from Discontinued operations^ (17.5) (25.8) (13.1) (0.2) Total Clean EBITDA ~ (Loss) profit after tax Continuing operations (401.2) 85.7 (414.7) 40.2 (Loss) profit after tax (422.3) 50.4 (431.0) 38.9 Earnings per share cents 2010 cents cents 2010 cents Basic EPS (loss per ordinary share) Continuing operations Standard (47.1) 10.4 (56.0) 9.8 Clean ~ Basic EPS (loss per ordinary share) Total operations Standard (49.6) 6.2 (58.2) 9.5 Clean ~ * On 31 March PartyGaming Plc merged with bwin Interactive Entertainment AG ( the Merger ) # The actual results include PartyGaming s results throughout and the results of bwin with effect from the Merger on 31 March. Pro forma results set out the financial performance of the Group as if the Merger had always been in place ~ Before the provision for costs associated with the Group s Non-Prosecution Agreement, amortisation and impairment of acquired intangibles, reorganisation expenses, merger and acquisition expenses, exchange differences and before non-cash charges relating to share-based payments (see reconciliation of Clean EBITDA to operating profit (loss) on the next page) ^ Discontinued operations refers to Ongame s B2B business as well as operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA ~ EPS before the provision for costs associated with the Group s Non-Prosecution Agreement, amortisation and impairment of acquired intangibles, reorganisation expenses, merger and acquisition expenses, share-based payments and foreign exchange differences (see reconciliation of Clean EPS to Basic EPS in note 9 to the financial statements) Results overview Total revenue was slightly ahead at 816.0m (2010: 814.0m) with a strong casino performance offset by a soft first half in poker, the loss of French casino revenues in the second half of 2010 and the absence of the FIFA World Cup that flattered our overall performance in However, with merger synergies coming through more quickly than previously expected, pro forma Clean EBITDA increased to 199.3m (2010: 193.2m). This was despite a 27.8m increase in gaming duties versus On a like-for-like basis, excluding the impact of increased gaming duties, the closure of our French casino and the 2010 FIFA World Cup, pro forma Clean EBITDA would have increased by 27% to 225.3m (2010: 177.1m). Actual total revenue for the period was up 93% to 691.1m (2010: 357.3m) primarily due to the Merger. Each of the product verticals benefited from the Merger reflecting the inclusion of bwin s business activities for the first time. Actual Clean EBITDA from Continuing operations also increased primarily as a result of the Merger by 79% to 168.3m (2010: 94.2m). Although the Merger was effectively a merger of equals with all consideration satisfied in shares, IFRS requires the Merger to be accounted for as if PartyGaming had acquired bwin. The accounting for this resulted in the recognition of goodwill at the time of the Merger measured as the difference in the fair value of the consideration and the fair value of the separately identified assets and liabilities of bwin. Proposed regulatory changes in Germany that were announced one week later resulted in a substantial reduction in the Company s share price. As a result, the financial statements include a non-cash impairment of the goodwill of 391.7m. Had the Merger completed one week later, no such impairment would have been required. These items together with one-off deal and restructuring costs associated with the Merger of 23.8m (2010: 12.6m) meant that on a pro forma basis the Group s Continuing operations reported a pro forma loss before tax of 407.8m (2010: profit before tax of 85.8m). On an actual basis, the Group s Continuing operations reported a loss before tax of 422.9m (2010: profit before tax of 43.8m).

37 35 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Discontinued operations relate to the Ongame B2B business that is in the process of being sold to Shuffle Master and ongoing costs associated with the Company s Non-Prosecution Agreement ( NPA ) that was reached with the United States Attorney s Office for the Southern District of New York (the USAO ) on 6 April The total loss after tax after taking Discontinued operations into account was 422.3m (2010: profit after tax of 50.4m). On an actual basis, the total loss after tax was 431.0m (2010: profit after tax of 38.9m). Clean EPS from Continuing operations was down 3% at 18.5 cents (2010: 19.0 cents), and on an actual basis Clean EPS from Continuing operations increased by 1% to 17.9 cents (2010: 17.8 cents). The increased amortisation and impairment of acquired intangibles during meant that on an actual basis the basic loss per ordinary share from Continuing operations was 56.0 cents (2010: EPS 9.8 cents). Taking into account Discontinued operations, Clean EPS was up 8% to 16.0 cents (2010: 14.8 cents) whilst on an actual basis was 15.8 cents (2010: 17.7 cents). The following table provides a reconciliation of the movements between Clean EBITDA and operating (loss) profit: Reconciliation of Clean EBITDA to operating (loss) profit Year ended 31 December Pro forma 2010 Actual 2010 Continuing operations Clean EBITDA Exchange differences (4.7) 3.7 (4.5) 6.1 Depreciation (20.9) (15.0) (18.9) (6.4) Amortisation (132.5) (61.0) (125.6) (32.8) Share-based payments (12.5) (17.0) (12.0) (9.1) Acquisition expenses (17.4) (11.9) (12.0) (4.9) Impairment losses (408.7) (0.1) (408.7) (0.1) Reorganisation expenses (6.4) (0.7) (6.3) (0.7) (Loss) profit from operating activities Continuing operations (403.8) 91.2 (419.7) 46.3 Discontinued operations Clean EBITDA (17.5) (25.8) (13.1) (0.2) Exchange differences 1.7 (0.9) 0.4 Depreciation (1.4) (2.7) (0.7) Amortisation (2.3) (5.0) (1.3) Share-based payments (0.2) (0.9) (0.1) Acquisition expenses (0.3) (0.3) Loss from operating activities Discontinued operations (20.0) (35.3) (15.1) (0.2) Key developments In our focus was very much on integration and regulation. Delivering the targeted 40m of synergies from the Merger in 2012 remains a top priority, as well as ensuring that we foster and protect the value of opportunities relating to newly regulated and to-be-regulated markets. Balancing these two sometimes competing objectives has been a challenge, having been forced to reschedule certain of our integration plans in order to meet strict schedules imposed by governments and regulators alike. Summary of Results Total revenue Pro forma Actual Year ended 31 December Sports betting Casino & games Poker Bingo Unallocated corporate Continuing operations Discontinued operations Total Clean EBITDA Pro forma Actual Year ended 31 December Sports betting Casino & games Poker Bingo Unallocated corporate (7.9) 0.6 (6.8) (2.0) Continuing operations Discontinued operations (17.5) (25.8) (13.1) (0.2) Total The actual results include PartyGaming s results throughout the entire period and the results of bwin Interactive Entertainment AG with effect from the completion of the Merger on 31 March. The pro forma results set out the financial performance of the Group as if the Merger had always been in place.

38 Review of 36 Reconciliation of Clean EBITDA to Clean earnings used to calculate Clean EPS Pro forma 2010 Continuing Discontinued Total Continuing Discontinued Total Clean EBITDA (17.5) (25.8) Depreciation (20.9) (1.4) (22.3) (15.0) (2.7) (17.7) Amortisation (132.5) (2.3) (134.8) (61.0) (5.0) (66.0) Amortisation on acquired intangible assets Finance income Finance expense (9.2) (0.6) (9.8) (3.6) (1.3) (4.9) Unwinding of discount associated with the Group s NPA Share of loss of associates (1.3) (1.3) (3.2) (3.2) Tax per accounts 6.6 (0.5) 6.1 (0.1) (0.2) (0.3) Tax on amortisation on acquired intangible assets (15.1) (15.1) (4.7) (4.7) Tax on impairments on acquired intangible assets and goodwill (4.5) (4.5) Non-controlling interests Clean earnings (22.3) (33.7) Pro forma results Total revenue increased slightly to 816.0m (2010: 814.0m) driven by a strong and consistent performance throughout the period from casino & games and other revenue that more than offset year-on-year declines in poker and bingo. Casino & games grew by 9%, despite the closure of our French casino business that generated revenue of 7.5m in Sports betting was broadly flat in the period which implied underlying growth as 2010 was flattered by the FIFA World Cup. Poker declined year-on-year due to continued pressure from US facing sites in the first half. However, following the closure of Full Tilt and the launch of cash games in Italy, poker was stable in the second half of the year. Bingo continued to suffer from the intense competition in both the UK and Italy. Other revenue, that includes B2B revenue, WPT, payment processing fees and InterTrader, grew by 20%. Faster than expected realisation of financial synergies from the Merger meant that pro forma Clean EBITDA increased to 199.3m (2010: 193.2m) and with it the Clean EBITDA margin also increased to 24.4% (2010: 23.7%), slightly above the top end of our target range for of 22% to 24%. This has been achieved despite the increase in gaming taxes that reached 65.7m (2010: 37.9m) together with the financial impact of marketing campaigns in newly regulated markets. Actual results The year-on-year comparison of the actual results, while also affected by the absence of the FIFA World Cup and the closure of French casino, were driven by the inclusion of bwin from 1 April as well as a strong performance from the casino & games vertical. Total revenue increased by 93% to 691.1m (2010: 357.3m) and actual Clean EBITDA increased by 79% to 168.3m (2010: 94.2m). Both pro forma and actual Discontinued operations represent primarily the Ongame B2B business along with costs associated with US customers that were no longer accepted following the enactment of the UIGEA. The underlying performance of each of our consolidated key performance indicators, which are based on net revenue, are highlighted below.

39 37 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Consolidated Key Performance Indicators Sports betting Pro forma Actual Pro forma Actual Year ended 31 December 2010 Change 2010 Change Active player days (million) (8%) % Daily average players (000s) (8%) % Yield per active player day ( ) % (14%) New player sign-ups (000s) 1, ,968.8 (12%) 1, % Average daily net revenue ( 000) 2, ,184.1 (0%) 1, % On a pro forma basis, active player days declined by 8% reflecting the absence of the FIFA World Cup and a shift in our poker marketing strategy where we have continued to reduce our reliance on affiliates, a number of which were successfully generating large numbers of player acquisitions but that were only marginally profitable. This change in mix also fed through into the movement in new player sign-ups and the daily average number of players that were down 12% and 8% respectively. However, there was also a corresponding positive impact on yield per active player day that increased by 8%, effectively offsetting the reduced volume of players. The net impact was that pro forma average daily net revenue remained stable at 2,180,300 (2010: 2,184,100). On an actual basis, most of our consolidated key performance indicators trended positively, reflecting the inclusion of bwin for the first time. The one exception was yield per active player day that declined due to the shift in the revenue mix. The net effect was that actual average daily net revenue for the period increased by 94% year-on-year to 1,847,900 (2010: 954,400). There follows a more detailed review of the Continuing operations including each of the individual product segments showing both actual and pro forma results. Full details of all of the Group s historic quarterly key performance indicators (on pro forma basis) can be downloaded from the Group s website at: Year ended 31 December 2010 Change 2010 Change Total stakes 3, ,873.5 (3%) 2, % Gross win margin 7.7% 7.5% 7.6% 7.2% Gross revenue (0%) % Bonuses and other fair value adjustments to revenue (31.4) (32.8) 4% (24.8) (5.0) (396%) Net revenue % % Other revenue 0.9 n/a 0.8 n/a Total revenue % % Clean EBITDA (0%) % Clean EBITDA margin 24.7% 25.0% 23.7% 43.5% Pro forma results Lower player volumes impacted the amounts wagered which were down 3% year-on-year to 3,759.5m (2010: 3,873.5m) primarily due to the FIFA World Cup in The impact on gross revenue was offset by an increase in gross win margin to 7.7% (2010: 7.5%) after a particularly strong second half that benefited from operational improvements in our live betting product and an increase across the former PartyGaming sports betting brands (PartyBets and Gamebookers), both of which are now benefiting from being part of a larger sports book operation. A small decrease in bonus costs meant that overall net revenue increased to 259.7m (2010: 258.6m). Clean EBITDA was stable at 64.4m (2010: 64.6m) as increased gaming duty was offset by cost savings elsewhere. Actual results The scale of the bwin sports business meant that all key metrics increased substantially on an actual basis. Total amount wagered increased by 711% driving both gross and net revenue. The increase in gross win margins to 7.6% (2010: 7.2%) reflects the factors outlined above, as does the increase in bonus costs, although as a percentage of the amount wagered these have fallen to 0.9% (2010: 1.4%) due to the greater strength of the bwin brand and product offering. The net impact was to increase yield per active player day to 6.2 (2010: 5.6) and average net daily revenue to 531,200 (2010: 56,900). The substantial increase in net revenue fed through to Clean EBITDA that increased substantially to 46.1m (2010: 9.0m).

40 Review of 38 A summary of the key performance indicators for sports betting during both on a pro forma and actual basis is shown in the table below: Sports betting Key Performance Indicators Pro forma Actual Year ended 31 December 2010 Change 2010 Change Active player days (million) (6%) % Daily average players (000s) (6%) % Yield per active player day ( ) % % New player sign-ups (000s) (19%) % Average daily net revenue ( 000) % % The absence of the FIFA World Cup can clearly be seen from the year-on-year movement in player activity. Active player days were down 6% while new player sign-ups fell 19%. However, the impact on average daily revenue was mitigated through a 7% increase in yield per active player day as a result of higher gross win margins. As part of the preparation to integrate our existing sports betting platforms into a single sports betting platform by the end of 2012, we made some important changes to our sports software in that is now much more flexible and allows us to deliver any requisite changes for newly regulated markets much more easily and faster than before. We introduced new semi-automatic trading models for more sports, resulting in a marked improvement in all aspects of performance and in live betting, that represented 72.9% of the total amount wagered in (2010: 72.4%), we increased the number of events covered with a 9% increase on bwin and a 57% increase on PartyBets/Gamebookers. Our live gross win margin increased across all sports betting labels and for the Group as a whole in it was 5.5% (2010: 5.2%). Our mobile offer continued to grow strongly in. Sports net gaming revenue through the mobile channel increased by 92% to 20.5m in (2010: 10.7m) and in some of our larger markets, represented between 20 35% of our active sports betting users (the average across all countries is 16%). WAP remained the largest platform and the iphone our fastest growing mobile channel with our ios apps now available in 19 countries. Mobile is a core element of our strategy in sports betting and we will be continuing to drive it further in We have applied for a licence in Schleswig-Holstein and, assuming we are successful, we expect to offer online sports betting across Germany under this licence. We also expect to launch our new regulated Spanish sports offer as soon as the new regulations become effective later this year. Increasingly mobile 16% of our active sports betting customers used the mobile channel in

41 39 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Casino & games Year ended 31 December 2010 Pro forma Change 2010 Actual Change Total stakes 7, ,196.2 (6%) 7, , % Gross win margin 4.0% 3.7% 4.0% 4.0% Gross revenue % % Bonuses and other fair value adjustments to revenue (46.7) (60.3) 23% (45.8) (51.9) 12% Net revenue % % Other revenue 1.0 n/a 0.9 n/a Total revenue % % Clean EBITDA % % Clean EBITDA margin 35.1% 32.9% 35.0% 34.6% The casino & games vertical now includes backgammon, (previously included in poker) and certain other games (previously included in sports). These changes are not material and prior year comparatives have been restated accordingly. Pro forma results The Group s casino & games business delivered another strong performance in with strong growth in revenue and Clean EBITDA. While the amount wagered was down on the previous year, this was due to the closure of the French casino business at the end of June 2010 and lower poker volumes that remain a major source of casino customers. The total amount wagered fell 6% year-on-year to 7.7bn (2010: 8.2bn). However, the trend seen in the first half continued during the second half with lower bonus costs and an improvement in the gross win margin that for the year as a whole was 4.0% (2010: 3.7%). This increase is as a direct result of the drive to improve the games mix as we continue to increase the proportion of player activity on higher hold games such as slots and jackpot slots. The launch of casino games (excluding slots) in Italy in July was also a positive factor helping to increase revenue in the second half. Overall net revenue increased to 262.7m (2010: 241.0m). Clean EBITDA increased by 17% to 92.5m (2010: 79.2m) reflecting the growth in net revenue and faster than expected synergies from the launch of the no-download casino for bwin customers, partially mitigated by the increased gaming taxes payable. Actual results The amount wagered increased by 38% to 7.1bn (2010: 5.1bn) reflecting the addition of the bwin casino business that increased gross revenue by a similar percentage to 283.3m (2010: 204.0m). As bwin had a much more casual player base with significantly lower average yields, bonus costs were also significantly lower and this fed through into net revenue that increased by 56% to 237.5m (2010: 152.1m). Clean EBITDA margins increased to 35.0% (2010: 34.6%) driven by the inclusion of bwin casino which generated additional scale economies. During, we added 21 new games to our portfolio of which 14 were developed in-house. This remains a core element of our casino strategy and a key differentiator from many of our competitors. Our own proprietary slot games remain some of our most popular representing approximately 50% of the amount wagered on casino slots in December. We continued to innovate with the launch of the first ever raffle jackpot slot and new jackpot slots that are now contributing towards our industry leading Big One jackpot that currently stands at over $5m. For the current year we have increased our production capacity and expect to launch 28 new games in 2012.

42 Review of 40 A summary of the key performance indicators for the casino & games business during both on a pro forma and actual basis is shown in the table below: Casino & games Key Performance Indicators Pro forma Actual Year ended 31 December 2010 Change 2010 Change Active player days (million) % % Daily average players (000s) % % Yield per active player day ( ) % (30%) New player sign-ups (000s) (3%) % Average daily net revenue ( 000) % % Active player days increased by 4% buoyed by the opening of the Italian casino market in July as well as the launch of our own no-download casino on bwin.com in November. Player yields continued to benefit from our efforts to both improve the mix of games being played as well as increase yields from bwin casino customers. Since we launched the PartyCasino no download version on the bwin platform we have already started to see a marked improvement but yields still remain below that on PartyCasino which is why there was a decline on an actual basis. The net result was that average daily revenue in the period was up 9% on a pro forma basis, despite these factors, and up 57% on an actual basis. Poker Year ended 31 December 2010 Pro forma Change 2010 Actual Change Gross revenue (10%) % Bonuses and other fair value adjustments to revenue (54.1) (67.8) 20% (49.5) (42.5) (16%) Net revenue (7%) % Other revenue % % Total revenue (6%) % Clean EBITDA % % Clean EBITDA margin 13.8% 12.2% 13.6% 15.4% There has been a small adjustment to 2010 numbers to reflect the fact that backgammon is now included within the casino & games vertical. Prior year comparatives have been adjusted accordingly. Pro forma results On a combined basis, the Group s poker networks continue to hold a significant share of the three major liquidity pools: dotcom, Italy and France although trading remains tough given the competitive nature of all markets. In the aftermath of the legal actions launched by the US authorities on 15 April, Full Tilt Poker was forced to close at the end of June which helped the revenue performance in the second half. The Group is now a clear number two player ahead of ipoker in the dotcom market, while in France and Italy, where player liquidity is ring-fenced, we continue to hold market shares of 15% and 14% respectively 1. While net revenue declined by 7% year-on-year, the second half was stable versus the first half of, reflecting the benefit from Full Tilt s demise as well as the launch of cash game poker in Italy in July. An increased focus on more casual players allowed us to reduce bonus costs to 20.5% of gross gaming revenue (2010: 23.1%) while other revenue benefited from another strong performance from our B2B partners in the period. The net impact was that total revenue fell by 6%. The impact of lower marketing spend in regulated markets meant that Clean EBITDA margins increased to 13.8% (2010: 12.2%) and Clean EBITDA increased by 6% to 29.4m (2010: 27.7m). 1 Source: Company estimates and AAMS based on combined share across all platforms

43 41 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Actual results The impact of the Merger, together with the launch of cash game poker in Italy resulted in a significant increase in gross revenue. The impact of lower bonus rates that fell to 21.1% of gross gaming revenue (2010: 25.5%) helped to drive net revenue to 184.6m, a 49% increase over the prior year (2010: 124.2m). Clean EBITDA increased by 32% to 25.5m (2010: 19.3m) due to the increased revenues arising from the Merger. However, margins fell from 15.4% to 13.6% due to the lower margin on the bwin poker business and increased gaming taxes payable on poker revenues in France and Austria. A summary of the key performance indicators for poker during both on an actual and pro forma basis is shown in the table below: Poker Key Performance Indicators Pro forma Actual Year ended 31 December 2010 Change 2010 Change Active player days (million) (11%) % Daily average players (000s) (11%) % Yield per active player day ( ) % (12%) New player sign-ups (000s) (1%) % Average daily net revenue ( 000) (7%) % While overall player activity was down year-on-year with an 11% reduction in active player days and daily average players, this reflects our focus on overall player value management and in particular a shift in the ecology of our poker rooms. Our shift to a weighted contributed rake calculation for player points has helped us to rebalance the way that player rewards are distributed, making it better for the more casual player and reducing significantly our bonus costs. While this impacted player activity as a number of high volume players sought more generous offers elsewhere, the impact upon player yields has been positive, increasing by 4%. These steps, together with the closure of Full Tilt and the launch of Italian cash games meant that poker remained stable in the second half of. Liquid assets PartyPoker is the second largest pool of player liquidity in dotcom poker 2 2 Source: PokerScout.com

44 Review of 42 Bingo Year ended 31 December 2010 Pro forma Change 2010 Actual Change Gross revenue (9%) % Bonuses and other fair value adjustments to revenue (66.7) (72.6) 8% (66.4) (70.5) 6% Net revenue (11%) % Other revenue (18%) (18%) Total revenue (11%) % Clean EBITDA (2%) % Clean EBITDA margin 31.9% 29.1% 33.3% 29.0% Pro forma results The performance of our bingo business was somewhat disappointing with a softer performance in both Italy and to a lesser extent the UK. Gross gaming revenue declined by 9% to 130.4m (2010: 143.9m) reflecting a more intense competitive environment in both countries but particularly in Italy, where a number of operators have entered the market and Gioco Digitale s first mover advantage has been eroded. In the UK a number of our competitors launched aggressive marketing campaigns in the second half that held back our financial performance. In an effort to defend our market position in both countries we increased bonuses as a percentage of gross revenue to 51.2% (2010: 50.5%) and while successful in maintaining a strong market position in both Italy (30% market share 3 ) as well as the UK (estimated 29% market share 4 ), it also meant that net revenue was impacted. Clean EBITDA reduced marginally year on year to 20.6m (2010: 21.1m) as the reduction in revenue was almost fully offset by a reduction in costs. Actual results The addition of Gioco Digitale in Italy via the Merger was the primary driver behind the increase in both gross and net revenue in the period. Similarly, the 30% increase in Clean EBITDA to 19.8m (2010: 15.2m) was also primarily due to the Merger. We expect to launch a brand new bingo brand for Spain when the market opens later this year. A summary of the key performance indicators for bingo during both on an actual and pro forma basis is shown in the table below: Bingo Key Performance Indicators Pro forma Actual Year ended 31 December 2010 Change 2010 Change Active player days (million) (8%) % Daily average players (000s) (8%) % Yield per active player day ( ) (4%) % New player sign-ups (000s) (31%) (25%) Average daily net revenue ( 000) (11%) % While actual player activity levels benefitted from the inclusion of Gioco Digitale, underlying player activity was down by 8% due to competitive pressures in each of our major markets. Player yields also fell on a pro forma basis reflecting increased bonus rates in an effort to hold market share coupled with a challenging economic climate. On an actual basis, the yield per active player day increased by 6% to 7.3 reflecting the higher yields enjoyed by the Italian bingo business. While average daily net revenue increased by 14% on an actual basis it fell by 11% on a pro forma basis, reflecting the challenges faced in our two largest markets. 3 Source: Italy AAMS 4 Source: UK Company estimates based on H2 Gambling Capital data

45 43 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Other revenue Other revenue, that includes revenue from network services, payment services to third parties, domain sales, WPT and InterTrader was up 20% to 20.2m on a pro forma basis (2010: 16.8m) and up 87% to 16.6m on an actual basis (2010: 8.9m). Cost of sales The largest element within cost of sales is gaming duties payable in newly regulated and in some cases to-be-regulated markets. The full year impact of gaming duties in France and Austria together with just over seven months duties in Spain saw total cost of sales increase to 69.4m on a pro forma basis (2010: 41.9m) and to 55.7m on an actual basis (2010: 6.9m). Other items within cost of sales include television production costs in respect of WPT. As more markets regulate, cost of sales and in particular gaming duties as a proportion of total revenue can be expected to increase. Other operating expenses These are primarily merger and acquisition-related expenses totalling 17.4m (2010: 11.9m) on a pro forma basis and 12.0m (2010: 4.9m) on an actual basis. We still expect that the total amount of pro forma merger-related and restructuring-related costs, will be within the 50m estimate that we gave when the Merger was announced. To-date a total of 29.2m of merger and acquisition related expenses and 7.8m of reorganisation costs have been incurred. Share buyback programme Having commenced our share buyback programme on 6 September, by 31 December the Company had bought back 15,710,401 shares for cancellation at a total cost, including commission of 19,915,861. Since the year end and up to 22 March 2012, the Company had purchased for cancellation a further 15,501,381 shares. The total number of shares in issue as at 22 March 2012 is 821,882,694 and the total number of voting rights in issue is 819,161,516 (total number of shares in issue minus 2,721,178 shares held by the employee benefit trust in respect of which the voting rights have been waived). Distribution expenses Year ended 31 December 2010 Pro forma Change 2010 Actual Change Customer acquisition and retention % (74%) Affiliates (8%) (32%) Customer bad debts (29%) (74%) Third-party content (5%) (68%) Webhosting and technical services (11%) (21%) Distribution expenses % (55%) Distribution expenses as a % of total revenue 34.5% 36.2% 35.6% 44.4% Pro forma results Overall distribution expenses, that represent the majority of the Group s variable and marketing-related expenses, fell to 34.5% of total revenue (2010: 36.2%). The absence of the FIFA World Cup together with a more focused approach on marketing our core brands meant that customer acquisition and retention expenses fell year-on-year both in absolute terms as well as a percentage of total revenue, representing 18.2% of total revenue in (2010: 21.1%). The scale of the reduction was flattered by the fact that in 2010 we conducted a major marketing push into the newly regulated French market in order to secure a meaningful market position that was not repeated in. Affiliate costs increased to reach 8.5% of total revenue (2010: 7.9%) due to increased affiliate activity around the closure of Full Tilt and Absolute Poker on 29 June. Third party content costs such as software and brand licensing fees increased slightly to 4.1% (2010: 3.9%) of total revenue due to the strong growth in casino and games revenue relative to the other product verticals. Webhosting and technical services costs increased to 2.7% of total revenue (2010: 2.4%) reflecting our expansion into newly regulated markets.

46 Review of 44 Actual results All distribution expenses increased in the year as a result of the Merger. However, as a percentage of total revenue actual distribution expenses fell to 35.6% of total revenue (2010: 44.4%). Administrative expenses Year ended 31 December 2010 Pro forma Change 2010 Actual Change Transaction fees (1%) (96%) Staff costs % (93%) Outsourced services % 13.6 n/a Other overheads % (183%) Clean EBITDA administrative expenses % (127%) Depreciation (39%) (195%) Amortisation (117%) (283%) Impairment losses other intangibles n/a n/a Reorganisation expenses (814%) (800%) Administrative expenses before sharebased payments (131%) (468%) Share-based payments % (30%) Administrative expenses (124%) (440%) Clean EBITDA administrative expenses as a % of total revenue 32.7% 34.9% 32.0% 27.3% Network effect A strong performance from our B2B customers, such as PMU, helped grow other pro forma revenue by 20% in Pro forma results Transaction fees increased by 1%, in-line with the increase in revenue and remained stable at 5.3% of total revenue (2010: 5.2%). Staff costs remained flat in absolute terms as inflationary pressures were fully mitigated by synergy benefits. Outsourced services fell by 10% to 20.4m (2010: 22.6m) due to a reduction in the number and the off-shoring of certain technical contract staff. Other overheads have continued to fall throughout reflecting lower expenses incurred ahead of the launch into regulated markets in 2010 and Merger-related synergies. The net effect was that Clean EBITDA administrative expenses fell to 32.7% of total revenue (2010: 34.9%). Investment in additional infrastructure as part of the integration meant that depreciation increased to 2.6% of total revenue (2010: 1.8%). As expected, the nature of the assets acquired under the terms of the Merger meant that there was a large movement year-on-year related to the amortisation charge that totalled 124.3m or 15.2% of total revenue (2010: 6.3%). The impairment losses on intangible assets relate to proposed changes to the regulatory and fiscal landscape in a number of European countries, including Germany that remains the Group s largest market as well as software acquired as part of the Merger, 15.3m of which was accounted for in the first half of. Reorganisation costs increased slightly in the second half versus the first six months of the year reflecting the completion of the organisation blueprint. As mentioned above, total Mergerrelated transaction and reorganisation costs are still expected to be within than the 50m originally announced. Actual results All administrative expenses increased due to the Merger. The largest absolute movement year-on-year relates to the amortisation and impairment of acquired intangibles associated with the Merger (see note 10 to the financial statements on page 127). The underlying year-on-year movements are more easily explained using the pro forma figures above.

47 45 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Taxation The tax credit for the period is 8.2m (2010: charge of 3.6m) reflecting an effective tax rate for Continuing operations of 2.0% (2010: 8.2%). The tax credit is caused by deferred tax arising from increased amortisation that is partially mitigated by an increase in the tax rate in Gibraltar. Net cash As at 31 December Actual As at 30 June Cash and cash equivalents Short-term investments Loans and borrowings (33.2) (40.0) Net cash Payment service providers (less chargeback provision) Net cash including amounts held by processors Less: Client liabilities and progressive prize pools (156.2) (93.1) Net cash including amounts held by processors less client liabilities Cashflow Actual 2010 Year ended 31 December Continuing Discontinued Total Continuing Discontinued Total Clean EBITDA (13.1) (0.2) 94.0 Exchange differences (4.5) 0.4 (4.1) Movement in inventory (0.1) (0.1) Movement in trade and other receivables (23.0) 2.1 (20.9) (12.3) (12.3) Movement in trade and other payables (24.8) (19.9) (44.7) 8.2 (22.4) (14.2) Movement in provisions (7.3) (7.3) (0.1) (0.1) Income taxes paid (3.9) (3.9) (4.2) (4.2) Other Net cash inflow (outflow) from operating activities premerger related costs (30.5) (22.6) 69.3 Merger-related costs (12.0) (0.3) (12.3) (4.9) (4.9) Reorganisation costs (6.3) (6.3) (0.7) (0.7) Net cash inflow (outflow) from operating activities 87.3 (30.8) (22.6) 63.7 Issue of ordinary shares Purchase of own shares (27.5) (27.5) Dividends paid (15.0) (15.0) Repayment of bank borrowings (8.6) (8.6) Net cash acquired Acquisitions deferred payment (6.4) (6.4) (9.2) (9.2) Capital expenditure (28.8) (1.8) (30.6) (8.0) (8.0) Purchases of intangible assets (9.6) (1.4) (11.0) (3.8) (3.8) Purchase of investments (14.6) (14.6) (1.7) (1.7) Other Net cashflow (31.6) (22.6) 48.6

48 Review of 46 Continuing operations Underlying cashflow from operations remained strong. Adjusting for merger-related expenses and reorganisation costs that both increased versus the prior year, net cashflow from operating activities increased to 105.3m. Working capital movements were negative in the period primarily reflecting $30.0m of payments due under the NPA and the settlement of expenses associated with the Merger. The Group s share buyback programme began in September and by the year end 23.2m had been spent out of the total cap of 75m to be achieved by the end of June The Group declared a half year dividend of 15.0m that was paid in October while investment in integration related activities and regulated markets as well additional infrastructure costs meant that capital expenditure increased to 28.8m. The purchase of investments relates primarily to investments in the Conspo joint venture and NewGame Capital. The effect of all these movements was that net cashflow from Continuing operations increased to 134.6m (2010: 71.2m). Discontinued operations The decrease in trade and other payables is largely due to the ongoing semi-annual payments relating to the Non-Prosecution Agreement, netted against an increase in creditors in Ongame s B2B business. Principal risks The principal risks facing the Group are set out on pages 55 to 57 and are unchanged from those reported in the Group s Annual report for the year ended 31 December 2010 and the Company s prospectus and circular published on 23 December By order of the Board of Directors Martin Weigold Chief Financial Officer 29 March 2012 Pro forma income statement 2010 Continuing operations Sports betting Casino & games Poker Bingo Net revenue Other revenue Total revenue Cost of sales (69.4) (41.9) Gross profit Other operating income Transaction fees (43.1) (42.5) Staff costs (130.2) (130.8) Outsourced services (20.4) (22.6) Other overheads (72.9) (88.5) Clean EBITDA administrative expenses (266.6) (284.4) Customer acquisition and retention (148.3) (172.1) Affiliates (69.7) (64.7) Customer bad debts (8.4) (6.5) Third-party content (33.3) (31.8) Webhosting and technical services (21.7) (19.6) Clean EBITDA distribution expenses (281.4) (294.7) Clean EBITDA Other operating expenses exchange gains (losses) (4.7) 3.7 Other operating expenses merger and acquisition costs (17.4) (11.9) Administrative expenses amortisation (132.5) (61.0) Administrative expenses depreciation (20.9) (15.0) Administrative expenses impairment losses (408.7) (0.1) Administrative expenses share-based payments (12.5) (17.0) Administrative expenses reorganisation costs (6.4) (0.7) Profit (loss) from operating activities (403.8) 91.2 Net finance expenses (2.7) (2.2) Share of profit losses of associate (1.3) (3.2) Profit (loss) before tax (407.8) 85.8 Tax 6.6 (0.1) Profit (loss) after tax from Continuing operations (401.2) 85.7 Profit (loss) after tax from Discontinued operations (21.1) (35.3) Profit (loss) for the year (422.3) 50.4 Equity holders of the parent (419.5) 52.8 Non-controlling interests (2.8) (2.4) Profit (loss) for the year (422.3) 50.4

49 Markets and risks Balanced approach

50 Markets and risks Our markets, products and brands 48 Spotlight on: Sports betting Key brand: bwin Other brands: Gioco Digitale betoto Gamebookers Bet type: Against the house or bookmaker Key offer: Odds on a broad range of sports both pre-event and live or in-running where punters can place a bet after the game or event has already started Variations: Single bets as well as combination or accumulator bets on multiple results and special bets on individual elements such as first goal scored How we make money: Gross revenue is total amount wagered less winnings. By offering odds that are attractive to customers, bookmakers seek to balance the portfolio of bets taken on a particular event so that they achieve a targeted return or gross win margin based on the expected outcome. By predicting the correct result more often than not, a bookmaker can achieve an average gross win margin of 6 8% of the total amount wagered, depending upon the mix of live and pre-event betting that tend to generate different returns as summarised below Example revenue model Live Pre-event Total Amount wagered ,000 Typical Gross win margin 5% 15% 8% Gross revenue Less bonus costs 10% 10% 10% Net gaming revenue Market snapshot The global sports betting market is highly fragmented, with a large number of privately owned companies in addition to a few large publicly-listed operators. Excluding the US, the global online sports betting market was estimated to be worth 9.6bn in GGY in, an increase of 6.9% on the prior year. This growth is forecast to continue, with the market worth an estimated 12.5bn by 2015, a CAGR of 6.8% 1. Success factors Offering odds on a wide variety of sporting events is clearly important but so too is scale. By having a broadly-based pool of bets, a sports book operator is better able to manage its portfolio of risk. Punters bet against the house and so it is possible for the operator to lose money if it fails to set odds correctly. But, across a wide variety of bets and events, an operator should be able to make a positive return, or gross win margin. The increasing popularity of live betting means that operators also need to be able to offer an extensive range of live bets in order to remain competitive. Our offer Sports betting is our second largest product vertical, generating total revenue of 260.6m (2010: 258.6m) or 32% of the total and Clean EBITDA of 64.3m (2010: 64.6m) 31% of the total 2. The Group s offer is led by the bwin brand, a pioneer in online sports betting, which today offers odds on more than 90 different sports in 22 different languages with up to 30,000 bets being placed simultaneously. We also operate a number of smaller brands including Gamebookers and PartyBets, which are focused on regional markets. More than 100 bookmakers are responsible for managing our sports offer and work around the clock to manage odds on sports including all popular ball-related sports, US Sports and motorsport such as Formula 1 and MotoGP. By far our most popular sport is European football, where we offer odds on more than 500 leagues in over 100 different countries. As well as pre-event betting, we revolutionised the industry in 2002 with the creation of the first live bet on bwin.com, enabling customers to bet on sports events while they were taking place. We now offer live multi-bets and integrate realtime streaming of audio and video coverage including all games in the German Football Bundesliga, games from the Spanish Liga BBVA (Primera Division), as well as the qualifiers for the Champions League, the Europa League and the European Championships. 1 Source: H2 Gambling Capital, February Pro forma Continuing operations excluding unallocated corporate

51 49 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Mobile Having launched our first mobile product in 2001, we have continued to innovate with the addition of dedicated mobile apps on a range of different platforms. In we launched an updated sports app for both of the major smartphone platforms, Apple s ios and Android, bringing together both live and pre-event betting for the first time. We also launched a prototype browser-based product that is optimised for tablet devices. These developments contributed to a 92% year-on-year increase in net sports betting revenue generated from our mobile channel. In 2012 our offer in sports betting will be further enhanced with the launch of a new touchbased mobile portal and further optimisations to our existing apps portfolio. Mobile Sports GGR m Sponsorship Sponsorship has always been a key aspect of the Group s sports marketing programme and reflects our close connection with the world of sport. Our focus is on European football where bwin is the shirt sponsor for Real Madrid; is a premium partner to FC Bayern Munich; and is also the title sponsor of Italy s second-tier football league, Serie B. Away from football, bwin sponsors MotoGP, the International Basketball Federation ( FIBA ) European and World Championships, Euroleague Basketball and Pro Padel m GGR Sports Mobile Each of our sponsorships is subject to a continuous process of evaluation including the impact on brand awareness and the media value obtained. Both Real Madrid and MotoGP have delivered outstanding media performance and brand awareness in Spain and Italy as well as across Europe. The total TV audience viewing figures for Real Madrid games exceeded five billion across European markets in 2010/ meaning that the bwin logo was on screen for more than 200 hours. International reach We extended our sponsorship of FIBA as well as Euroleague Basketball in

52 Markets and risks Our markets, products and brands 50 Spotlight on: Casino & games Key brands: PartyCasino bwin GD Casino Bet type: Against the house that extracts a statistical margin or edge being a fixed percentage of the amount wagered. The edge varies depending upon which game is being played Key offer: A variety of slot games, jackpot slots and traditional table casino games such as blackjack and roulette Variations: Casino tournaments, raffle jackpot slots, virtual racing, video poker How we make money: Gross revenue is total stakes less prizes paid out. Games pay out randomly and therefore over short periods, revenues can be volatile but over time will gravitate to the pre-determined rate of return or edge. Prizes for progressive or jackpot slots are accrued out of gross revenue Example revenue model Total Amount wagered 1,000 Typical Gross win margin 3% Gross revenue 30 Less bonus costs 15% Net gaming revenue 25 Market snapshot Online casinos were some of the first online gaming sites to emerge in the mid-1990s and have been one of the best performing segments of the online gaming sector. Excluding the US, the global online casino market was estimated to be worth 5.0bn of GGY in, up 10.2% versus It is forecast to reach 6.9bn by 2015, implying a compound annual growth rate of 8.4% 3. Success factors As players play against the house, player liquidity is not as important as in poker. However, scale does mean that an operator is able to offer larger jackpot prizes and this can act as a major draw for customers. Reputation is also important as players need to be confident that games are fair and that if they win a major prize, the operator will pay them. Having a broad range of popular games that is continually being refreshed with new content is another important success factor, ensuring that players can always find a game they want to play. Our offer Our online casino business has a global footprint and is a market leader. In, Casino & games generated total revenue of 263.7m (2010: 241.0m) or 32% of the total and Clean EBITDA of 92.3m (2010: 79.2m), 45% of the total 4. These represent an increase of 9% and 17% over the previous year respectively. In addition to our dotcom offer, our casino products are also now licenced in Italy (since July ) where we operate under the local Gioco Digitale brand and also in Denmark (since January 2012) under the PartyCasino brand. Table-based casino games are set to launch in Spain when the market regulates during PartyCasino is our largest brand and is the world s largest online casino. In casino, content is king and the Group has developed a unique portfolio of games including those produced by our in-house production team such as Loot em Khamun, Aztec Gold and Kung Food. To supplement our own branded content, we partnered with several Hollywood studios and other companies to build an exclusive range of unique slot games including The Godfather Part I, Rambo, Terminator, Sin City, Gone With The Wind and Resident Evil. Developing our own games is a key point of differentiation from other operators that rely on third-party suppliers for their content. While this differentiation is a key attraction for customers, we also offer many well-established online slot games licensed from third-parties such as Monopoly, Midas Millions and Cleopatra. 3 Source: H2 Gambling Capital, February Pro forma Continuing operations excluding unallocated corporate

53 51 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 As well as creating our own versions of existing games, we continue to develop new concepts such as Circus, the first role-playing slot game, and Raffle Jackpot which, instead of paying out on a certain outcome, is instead guaranteed to pay-out at a pre-determined time and date, just like a raffle. Our mega jackpots are some of the largest and most popular in the industry: our biggest jackpot winners include $4.5m that was paid out on our in-house produced Melon Madness slot. The chart opposite shows how our own games are an increasingly important driver of our casino revenues. The Group s casino products are offered in both download and instant play variants, the latter, which is the most popular of the two options, does not require the installation of any software onto the customer s computer. VIP Just as in the land-based casino environment, high value players are an important feature of any online casino. As a result, we work hard to provide excellent customer support for our VIP players and seek to ensure that they are well looked after and have access to a variety of benefits including a concierge service and dedicated customer support. Mobile Similar to sports betting, the mobile channel represents an exciting channel for future growth in our casino segment. In we enhanced our web-based mobile casino with the introduction of new games and through the expansion of the number of handsets supported on the Android platform. In 2012 we will add further titles from the PartyCasino offer and enter new regulated markets. The chart opposite shows the growth of revenue from our mobile casino product since Importance of proprietary content Trends in total amounts wagered on PartyCasino (scale removed) % in-house games (RH scale) In-house games 20 from % content Third-party Jan Mar Feb Apr May Jun Aug Jul total wagered on PartyCasino (scale removed) % Trends in amounts content Importance of proprietary In-house games Third-party content % from in-house games (RH scale) Mobile casino GGR m Jan Feb Mar Apr May Jun Sep Oct Nov Dec Jul Aug Sep Oct Nov Dec 10 3 m casino GGR Circus Circus Mobile Our Circus slot was the first ever role-play slot

54 Markets and risks Our markets, products and brands 52 Spotlight on: Poker Key brand: PartyPoker Other brands: bwin GD Poker Bet type: Peer-to-peer Key offer: Texas Hold em is the most popular variant, played in both cash game and tournament formats. In cash games, players directly bet their own money against each other while in tournament play, chips are used as a virtual currency, with a knockout format adopted where the winner is the player who ultimately wins all of the allotted chips Variations: Other formats include Omaha and 7 Card Stud in both standard and Hi/Lo versions How we make money: The Group does not act as principal but acts as the facilitator of games and in cash games takes a small commission on the amount wagered on each hand referred to as rake. In tournaments the operator charges an entry fee Example revenue model Total Amount wagered 1,000 Typical Gross win margin 2% Gross revenue 20 Less bonus costs 18% Net gaming revenue 16 Market snapshot Online poker is the third largest segment of the online gaming market. Excluding the US, the global online casino market was estimated to be worth 2.9bn of GGY in, up 1.9% on It is forecast to reach 3.6bn by 2015, implying a compound annual growth rate of 5.7% 5. The online poker market has experienced two major shocks over the past decade. The first was when the US enacted the UIGEA that prompted many of the world s largest poker operators to withdraw from the US market. The second was in April when the founders of three online operators (PokerStars, Full Tilt and Absolute Poker/Ultimate Bet), were indicted by the US Department of Justice and their dotcom domains seized by the Federal Bureau of Investigation. Whilst the legal proceedings against these individuals as well as related civil actions against the companies concerned have not yet run their course, the short-term impact prompted the collapse of Full Tilt and Absolute Poker/Ultimate Bet that had insufficient funds to repay their players. While our flagship brand, PartyPoker was able to pick up approximately 15% of Full Tilt s active non-us player base, by far the greatest beneficiary was PokerStars that has consolidated its position as the world s largest poker operator in the dotcom market. PartyPoker remains the second largest poker network 6. The regulation of certain markets has resulted in the fragmentation of the global poker player liquidity pool. In addition to the large dotcom liquidity pool, there is also a pool of ring-fenced player liquidity in France and a separate pool in Italy (i.e. Players in France cannot play against players in other countries). Denmark is a recent exception to this trend, its players being allowed to play against international players in the dotcom liquidity pool. While the total online poker market is expected to grow over the next few years, given PokerStars size and player liquidity, they will remain a very strong competitor. However, an opening of the US online poker market could alter that course as it is not expected that PokerStars or other companies that continued to operate in the US post-uigea would be eligible to participate. Success factors In addition to excellent software and safe and secure payments, having sufficient player liquidity is a prerequisite for success in online poker. It means that players can quickly find a table to play at the stakes they want. Being able to offer attractive tournaments and promotions are also important for success. 5 Source: H2 Gambling Capital, February Source: PokerScout.com

55 Snai 53 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Our offer Following the shutdown of Full Tilt in, the Group is now the clear number two operator in the dotcom marketplace in terms of average daily player numbers, through our PartyPoker brand 4 (see chart opposite). This position will be bolstered further in 2012, when we complete the migration of bwin Poker customers onto the PartyPoker network. In our poker segment generated total revenue of 213.0m (2010: 227.4m) or 26% of the total and Clean EBITDA of 30.0m (2010: 27.7m), 14% of the total 7. While PartyPoker is our global poker brand, we will continue to operate bwinpoker due to both the strength of the bwin brand and also the importance of cross-selling poker to bwin s sports betting customers. In France and Italy we operate dot.national PartyPoker sites. In France a large part of our liquidity is driven through our strategic alliance with PMU, the French horseracing giant. In Italy our largest brand is GDPoker, part of the Gioco Digitale brand acquired by bwin in The Group s combined market share across all platforms in Italy is shown in the table opposite. World Poker Tour The World Poker Tour or WPT, while not included in our poker segment from a financial reporting perspective, is an important part of our overall poker offer. WPT was a major force behind the explosive growth in the early years of online poker, breaking new ground by televising high stakes tournaments that proved to be a hugely popular format. Televised coverage of poker games has soared since the WPT enabled viewers to see each player s cards during a game, enhancing the broadcasting appeal of the game. Since its acquisition by the Group in late 2009, WPT has expanded its reach outside the US, hosting 22 main tour casino events in (2010: 17) in addition to ten new smaller events in the US (2010: 2). Now into its tenth season, WPT programming is broadcast in over 150 countries and the number of entrants who played in a WPT Main Tour event increased by 33% from 2010 to. Mobile From a relatively low base, our mobile poker offer grew significantly in the past year, gross gaming revenue was up by 410% following the successful introduction of dedicated iphone and Android apps. Whilst our mobile poker offer is mainly on bwinpoker, we plan to launch apps under the PartyPoker brand in 2012 as well as develop an HTML5-based product that works across multiple devices, channels and brands. Additionally our poker app is currently being optimised for tablet devices and a product launch is expected in the first half of Pro forma Continuing operations excluding unallocated corporate Poker liquidity dotcom market Average daily players 8,000 6,000 4,000 2, ipoker FullTilt (RH scale) PartyPoker Source: PokerScout.com Based on turnover 25% 20% 15% 10% 0 5% 5% 0 10% PokerStars 15% Source: AAMS 20% Jan 11 Italian market share PokerStars 25% on turnover Based Apr 11 Lottomatica Lottomatica market share Italian Raising the stakes We have approximately 15% of the French poker market across all networks Jul 11 Ongame PokerStars (RH scale) Snai Oct 11 Sisal Sisal Jan 12 Eurobet Eurobet 40,000 30,000 20,000 10,000

56 2,000 m E 2013E 2014E 2015E Markets and risks Our markets, products and brands 54 m 2,000 Spotlight on: Bingo Key brands: Foxy Bingo (UK) Cheeky Bingo (UK) Gioco Digitale (Italy) Bet type: Bingo players buy draw tickets to win an accumulated jackpot from which the house takes a rake Key offer: 75 and 90-ball bingo, with guaranteed and progressive jackpots Variations: Side games include tournament bingo, team bingo and casino games, especially slots How we make money: The Group takes a percentage of each virtual bingo card sold, with the majority making up the prize fund. Revenue on side games and casino games is statistical gross win margin Example revenue model Growth in Global Bingo GGR (excluding US) Total Amount wagered 1,000 Typical Gross win margin 35% Gross revenue 350 Less bonus costs 50% Net gaming revenue 175 Market snapshot Bingo, our smallest product vertical, is a highly disparate and dynamic market. Excluding the US, the global online bingo market was estimated at 1.3bn of GGY in, up 13.4% on. It is forecast by H2GC to reach 1.8bn by 2015, implying a compound annual growth rate of 8.5%. The UK is the world s largest single bingo market, estimated to be worth 358.8m in (2010: 330.5m), our primary brand is Foxy Bingo, the UK s number one bingo site supplemented by a number of secondary brands including Cheeky Bingo, which targets a younger demographic. Gioco Digitale is our leading brand in the Italian market. Success factors Like poker, player liquidity in bingo is important for long-term success. As a pari mutual game, the more players there are then the bigger the potential prizes on offer to customers that itself acts as a draw for customers. The online bingo experience has sought to replicate many of the offline bingo characteristics including the ability for players to socialise through online chat rooms. Another important success factor and business driver for online bingo operators are side games that are played while the main bingo game is taking place. Our offer Our online bingo business generated total revenue of 64.6m (2010: 72.4m) or 8% of the total and Clean EBITDA of 20.6m (2010: 21.1m), 10% of the total 8. Our primary markets for bingo are currently the UK and Italy where we have built leading market positions through the historical acquisitions of Cashcade and Gioco Digitale respectively. Currently our Cashcade brands remain hosted on a third party platform until at least Gioco Digitale operates on its own bespoke platform. As we move to an integrated back-office, we will look to add bingo to our common platform. 1,500 1, E 2013E 2014E 2015E 1,000 Source: H2 Gambling Capital, February ,500 8 Pro forma Continuing operations excluding unallocated corporate

57 Markets and risks Key risks 55 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 The Merger has resulted in some changes to our key risks but our management of risk has not changed and reflects the previous approach adopted by both bwin and PartyGaming of asking: What if? Change in risk versus 2010 Technology Increased Regulation and compliance Increased Taxation Increased Spotlight on: Our key risks Integration of bwin and PartyGaming No change Unlevel playing field in poker Reduced Rationale for change Impact of the Merger and changing systems Increased number of regulatory regimes and added complexity mitigated by greater experience from operating in regulated markets Increased number of tax-paying jurisdictions Following action by the US authorities, the large US-facing sites are no longer active in that market. However, PokerStars remains a large competitor Assessing key risks We conduct a continuous process of Group-wide assessments that examine whether any risk has increased, decreased or become obsolete; identify any new risks, especially from recent key business events; and the likelihood of a risk occurring and what level of impact it would have on the Group. Following the completion of the Merger, we held eight risk workshops across key business areas as well as for the executive team, that included the Co-CEOs, Jim Ryan and Norbert Teufelberger, the Chief Financial Officer, Martin Weigold, and the Chief Operating Officer, Joachim Baca. In addition, the Group Risk Committee, chaired by Martin Weigold, has met twice since the Merger completed to ensure that all strategic risks were identified and to reach a consensus on the significant risks identified by the eight functional workshops. These risks are then reported to the Audit Committee for review. The workshops also serve to impress the importance of risk management throughout all business functions. Facilitated by the Internal Audit & Risk Management team, the workshops involve key people from each of the Group s prime functions including Technology, Marketing, each of the product verticals, Human Resources, Operations, Finance, Regulatory Affairs, Legal and Company Secretarial. Many of the threats and challenges faced by online gaming companies are similar to those faced by other leisure and entertainment industries. They include competition, changes to consumer tastes, maintaining healthy financial ratios in compliance with banking covenants and loss of key personnel.

58 Markets and risks Key risks 56 There are also certain risks that are more specific to and to the online gaming industry that deserve particular mention. Our five main risk groups are: Technology Regulation and compliance Taxation Integration Unlevel playing field in poker Technology Technology is at the core of our business. Improving our gaming platform and products is a never-ending and vital process that maintains our competitive edge, keeps us abreast of evolving consumer tastes and upholds our valuable reputation for offering responsible, safe and secure gaming products. Most of our gaming technology is proprietary, which means that we are better placed to manage risks associated with technological and regulatory change than competitors that rely on third-party software and systems. However, we share the industry s general risks that arise from sourcing broadband and communications, data management and storage services as well as a raft of other services from external suppliers. We seek to offset these risks by not becoming overly reliant on any single supplier as well as having in place disaster recovery centres and business continuity plans across the Group. The Merger has prompted an increase in technology risk as we migrate from separate platforms and systems to a single centralised operating system, one that supports four gaming verticals across multiple brands and territories. Other backoffice functions are also being harmonised and while less important from a revenue perspective, this also increases operational risk for the business. To mitigate this risk we have planned extensively and will run appropriate tests before switching to any new systems. Regulation and compliance Regulation is probably the most complex of our key risks and managing it effectively is a critical process for the Group, especially given the number of countries that are introducing regulatory regimes each of which have different requirements. Our compliance obligations range from administration of our gaming licences in Gibraltar, Alderney, Denmark, France and Italy to assessing what impact country-specific and pan regional rules and regulations might have on our business and the wider industry. Whilst political and cultural attitudes towards online gaming continue to evolve, there is always a risk that certain territories may seek to prohibit or restrict one or more of the products that we offer or online gaming entirely. We have a dedicated regulatory and compliance function that reports directly to the Co-CEOs and is closely supported by our legal and country management teams. We undergo a series of external audits as required under our gaming licences and also perform our own compliance assessment process, ensuring that policies and procedures are being followed and are working effectively. We advocate that the best way to protect consumers is to license and regulate online gaming with a commercially viable framework, one in which there is a greater incentive to be within the regulatory net than outside it. To do otherwise serves the interests of black-market operators that are only too happy to accept wagers from unsuspecting consumers focused on the best returns. Through our efforts, this is a concept that is now being grasped by several countries around the world and particularly so in Europe where a number of countries are actively considering developing their own regulatory regimes. Taxation Taxation is the third category of risk which we believe is material. Group companies operate for tax purposes only where they are incorporated, domiciled or registered. Revenues earned from customers located in a particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of existing law or the current practice of any tax authority, or by reason of a change in law or practice, then this may have a material adverse effect on the amount of tax payable by the Group. We manage these risks by considering tax as part of our overall business planning.

59 57 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Integration The process of integrating bwin and PartyGaming is extremely complex, requiring substantial management attention and other resources. While there can be no guarantee that all elements of the integration will be successful, the significant investment in planning and preparation ahead of the Merger has proved worthwhile. The main risks in this category are achieving financial synergies; the loss of key personnel; and the eventual migration of players to a single e-gaming platform. To ensure we remain on target, a dedicated Integration Management Office was established to, inter alia, drive and monitor progress across each of the synergy streams as well as identify constraints and inter-dependencies. The Board has put in place a series of incentive plans, the details of which can be found in the Remuneration Report, in order to ensure that key personnel are retained. There remains a risk associated with the migration of players to a single technology platform, however we have put together a detailed plan to ensure a smooth transition that will take place during the second half of 2012 and have already assumed a 15% player loss into our financial synergy targets disclosed at the time of the Merger. Unlevel playing field in poker This risk arose principally from US-facing poker sites that up until 15 April had enjoyed a significant competitive advantage from the fact that they continued to accept wagers from US-based customers, providing superior player liquidity and cashflow that could be reinvested in European markets. However, following the steps taken on 15 April by US authorities that resulted in the closure of the US-facing activities of PokerStars, Full Tilt and Absolute Poker/Ultimate Bet, this risk has now changed. While PokerStars remains the largest operator in most markets and a very strong competitor, the risk level has been reduced to one of strong competition. Full Tilt Poker has been closed since losing its gaming licence on 29 June and Absolute Poker/Ultimate Bet has also ceased trading. On the ball Eight risk workshops were held across key business areas following completion of the Merger

60 58 Responsibility and relationships Playing by the rules

61 Responsibility and relationships Our approach to corporate responsibility 59 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Our focus is on the long-term returns that can be obtained from committed investment in responsible and sustainable business practices, particularly in relation to our core business and our key stakeholders including the communities where we have a physical presence. A core objective is to embed acting responsibility into our business. As an industry leader, we aim to provide the world s safest and most innovative gaming platform, one that is based upon customer trust, a desire for operational excellence and supported by evidencebased scientific research. There is no set definition for corporate responsibility, but it is without question a complex area comprising many different components. We draw upon both internal and external expertise and procedures to uphold high standards. We have invested large amounts of human and financial capital in building the requisite trust and confidence in our products and brands: attributes that are valuable for our franchise and that we seek to protect. As well as ensuring that we have a high level and independent oversight of our corporate and responsible gaming practices, our approach also covers wider corporate responsibility initiatives, including our contribution to society through charitable donations and a pro bono scheme that enables employees to take time out from work to support local community projects. Martin Weigold, Chief Financial Officer, has executive responsibility for our corporate responsibility matters, a role he has held since The overall process is overseen by the Ethics Committee of the Board chaired by Tim Bristow, an Independent Non-Executive Director. The Committee has three other Non-Executive Board members, Per Afrell, Helmut Kern and Lord Moonie who meet regularly to review ethical and social matters relating to all of our activities. There is no formal requirement to have an ethics committee, but the Board agrees that corporate responsibility is important for the Group s long-term success. The Ethics Committee has a broad remit, including reviewing the adequacy of our corporate responsibility-related policies; proposals and procedures, which in turn include responsible gaming, compliance with our gaming licences, anti-money laundering, fairness and integrity of gaming systems; and our impact on the environment and communities where we have offices. The remainder of this section of the Annual report provides insight into our overall approach to each of our key stakeholder groups.

62 Responsibility and relationships 60 GoodCorporation As part of our commitment to responsible and sustainable business practice, towards the end of we commissioned GoodCorporation to undertake an independent assessment of our management processes and policies regarding key stakeholders. GoodCorporation is recognised globally as a leading organisation working in the field of corporate responsibility and business ethics. Assessment of 55 business practices impacting five stakeholder groups were conducted at six of our offices. The five stakeholder groups were employees, customers, shareholders, community, and management. Almost 150 managers and employees were interviewed, equal to around 5% of the total workforce as well as a number of our key external stakeholders. For each of the stakeholder groups, the general scope of GoodCorporation s independent assessment involved asking: Does a policy exist? Is there a system to implement the policy? Do records show that the system works in practice? Do stakeholders agree that it works and is fair? Given that the assessment was conducted just nine months after the completion of our merger, during an intense period of integration activity and regulatory change, we were satisfied with GoodCorporation s findings. We anticipated that the review would identify matters that needed to be addressed and areas where we could improve. Whilst we were aware of most of the items identified, there were also some additional issues raised and we plan to address these in Not surprisingly, many of the observations made by GoodCorporation related to unfinished integration work. For instance, there remained some inconsistencies across locations regarding employee contracts, policies and procedures. Many of these have already been rectified or are in the process of being updated. A number of issues will be and are being resolved through improvements in both internal communications and training. At the positive end of the assessment spectrum, we were commended for our approach to corporate responsibility with GoodCorporation citing that: The study on addiction and plans to use this to prevent problem gambling is industryleading. As GoodCorporation noted, our challenge now is to convert the study on addiction into a workable model. This will take time, but we intend to make it happen. Our engagement with shareholders was also commended for setting the standards for the sector. The responsibility to rectify areas of weakness and also improve what is already working well falls upon our senior management team that has an action plan to implement during the course of 2012.

63 Customers and responsible gaming 61 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Millions of customers around the world place their trust in our promise to provide them with great entertainment in a safe and secure gaming environment. Trust is more than a fundamental customer need: it is essential for our long term success. We seek to engrain our approach to act responsibility into everything we do. Our commitment to responsible gaming is underpinned by pioneering scientific research undertaken through our close collaboration with the Division on Addiction, Cambridge Health Alliance, a Harvard Medical School teaching Affiliate ( DOA ). Responsible gaming at is built around three pillars: Game fairness Independent organisations closely monitor the fairness and random nature of our gaming products. We design our marketing communications to try and ensure that they are clear and not misleading and that they present a fair gaming offer. In addition, our in-house investigations teams and our experienced bookmakers work together to ensure customers are protected against fraud and manipulation. This protective shield is reinforced by our close cooperation with the European Sports and Security Association ( ESSA ), an international non-profit organisation dedicated to promoting integrity in sports betting through the monitoring of bookmaker odds to identify suspicious betting patterns and report them within the framework of an early warning system to the relevant governing sporting body. Keeping crime and corruption out of sports helps to ensure a level playing field for betting. The industry has developed a co-operation programme with the European Elite Athletes Association representing member associations from 15 countries with over 25,000 professional athletes. The result has been a joint code of conduct to provide general advice to all athletes throughout Europe about the issues surrounding the integrity of sport and betting. In, the code of conduct was accompanied by a comprehensive educational campaign carried out by top athletes in the locker room. Hearing about the dangers of corruption in sport and betting from fellow athletes has proven to be a powerful channel of communication and the programme has already reached more than 8,500 athletes. Protection of minors and vulnerable people The vast majority of online gamblers play in a moderate way, purely as a means of entertainment a claim that we can substantiate through analysis of our own players. However, gambling problems can arise for a small percentage of players a number of national prevalence studies have shown that typically between 0.5% and 2% of populations are estimated to gamble excessively, possibly indicating pathological gambling. Our aim has been to understand our customers behaviour and to be able to develop player protection tools based upon a solid body of scientific evidence. It was this objective that prompted our close collaboration with the DOA to answer some fundamentally important questions: How do gamers play on the internet? How can we make online gambling safe? Is it possible to create an algorithm to help identify online players who may be at risk? Since it began in 2005, this collaboration has resulted in the world s largest body of scientific evidence for online gambling based upon actual behaviour of tens of thousands of our customers. The DOA has recognised the possibilities that the internet offers, utilising precise data about each individual gaming transaction to launch a stream of research documenting actual online gaming behaviour and creating new opportunities to develop safer online gaming environments. Our gaming sites use several different verification mechanisms to prevent underage gambling and our policies are scientifically evaluated to protect players effectively. Our approach to responsibility also led to the creation of our Transparency Project that makes available all of the research data and studies online at: To date, the collaboration with the DOA has resulted in 16 scientific papers being published three of them in. All research is published only after a strict peer-review process in recognised international scientific journals.

64 Responsibility and relationships 62 We have continued to develop an international healthcare network to facilitate a valuable exchange of best practise and foster scientific-based co operation for the prevention of problem gambling. Two more members joined the network in the Federación Española de Jugadores de Azar Rehabilitados (Spain) and the Research Clinic on Gambling Disorders of Aarhus University Hospital (Denmark). A prime benefit of the network, which now spans seven EU Member States, is that customers can quickly access contact details for counselling services in several different languages. Other player protection mechanisms on our sites include deposit limits, self-exclusion and tools to help them assess whether they are at risk of developing a gambling problem. Soon after the end of, we became a founding member of the ICT Coalition for a Safer Internet for Children and Young People ( ICT ). Twenty-five of the world s leading companies from across the information and communications technology sector are signatories to the ICT s principles, which aim to ensure that children and young people obtain the greatest benefit from new technologies while avoiding the challenges and risks which are of concern to people worldwide. As well as, other ICT members include Facebook, RIM, Nokia, Vodafone, France Telecom-Orange, LG Electronics and Google. (See: Principles.pdf) Player security Security is a key priority. The protection of our players, especially their confidential data, is based upon the requirements of our gaming licenses and also the robust industry framework for self-regulation stipulated by the European Gaming and Betting Association ( EGBA ). Protecting players also includes our compliance with the EU Money Laundering Directive and the reporting of any suspicious activity to the relevant authority. Following our engagement in 2010/11 with the European Committee for Standardisation to develop an evidencebased standard for high level player protection on the internet, has achieved certification for the 134 control measures contained in the resulting CWA 16259: standard. Our efforts to take player protection standards to a higher level also involved working together with leading European non-profit organisations that included ecogra, which provides an international framework for best operational practice, and GamCare, the UK s leading provider of information, advice, support and free counselling for the prevention and treatment of problem gambling. For our employees, we enhanced our online responsible gaming training programme in. The training is called EMERGE (Executive, Management, Employee Responsible Gaming Education) and was developed by the DOA. Our efforts were rewarded in by being voted Socially Responsible Operator of the Year at the egaming industry awards. Further information about all the aspects of our approach to corporate sustainability can be accessed at: High standards At the egaming Review awards we received the award for Socially Responsible Operator of the year in

65 Employees 63 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 One of the unfortunate but inevitable consequences from a merger of equals is the need to remove duplicate roles across a number of disciplines. This is never an easy process. Having determined the right organisation structure, we then had to select the right people for the right jobs in the right locations. During, 122 employees were made redundant with a further 81 due to leave during We put in place an Employee Assistance Programme, which includes utilising outplacement services where practicable, to help employees whose role was being removed to find a new job outside the Group. Delivering the new organisation structure was of paramount importance: it marked the beginning of our future as one company. This was only the beginning of the process as we still had to meld different cultures, working practices, policies, reward schemes, training programmes and much more besides. We made great progress during, but there are still things to do including: Unifying our approach to performance management, especially learning and development and the setting of measurable personal objectives; Ensuring that employees learn and benefit from bringing together different cultures; Introducing a universal flexible approach to remuneration and benefits; Creating a new employer brand to articulate to current and future employees what it is like to work for ; Developing new employee values that enhance our business performance; and Rolling out a specially-developed leadership training programme for managers. We believe that the investment we make in supporting employees with their continuing career development helps to create a sustainable approach to meet our current and future skill requirements. It also underpins our commitment to create a working environment that facilitates and enhances the career development and training of all employees. We provide employees with the time to develop skills and learn new ones to fulfil their personal potential. Improving our internal communications remains a key focus. We know that a well-motivated and engaged workforce will understand and commit to our business strategy. We make extensive use of our intranet, strategy road shows, Town Hall meetings, and other information channels channels that are not just for managers to disseminate corporate messages, but also for employees to feedback to management, recognising the merits of open dialogue that flows throughout the organisation. What s it like to work for us? Find out at: Clear benefits In March 2012 we launched Just.rewards, a flexible benefits scheme, in London and Gibraltar that we plan to extend to all employees

66 Responsibility and relationships 64 Suppliers Shareholders and other providers of capital Just a few months after the completion of the Merger, our procurement systems became fully integrated using a single Enterprise Resource Planning system to govern each stage of the supply chain. Our procurement team in Gibraltar oversees the entire Group s supply chain, adhering to policies and procedures that have been put in place to reduce risk, develop mutually beneficial long-term business relationships, and deliver best value from our suppliers on a long-term basis. We have a large and diverse supplier base. Our affiliate network, which markets our online gaming brands, contains more than 11,200 unique active suppliers. In we used 2,500 other suppliers for a diverse range of goods and services including; broadband and telephony services, advertising and marketing, computer hardware and software and media buyers. We conducted 10.5m of trade with our largest supplier and there were 33 other companies that were paid over 1.5m in. Our procurement policy includes a Supplier Acknowledgement and Self-Certification Checklist, which requests information relating to: Financial strength, to ensure long-term reliability; Ability to deliver enduring quality and value; Commitment to innovation and their ability to help us develop new products, processes and ways of working that will give the Group a commercial advantage; and Commitment to a wider corporate responsibility agenda relating to the environment, labour/employment standards, equal opportunities and employee rights. In return, we seek to operate to the highest professional standards and treat our suppliers in a fair and reasonable manner and aim to settle invoices promptly. Our approach to investor relations is to be as transparent as possible through a regular programme of investor relations activities supported by transparent financial reporting. The Merger combined two shareholder registers with different balances of institutional, retail and founder investors. Following completion there was some readjustment of the enlarged shareholder register, in part because a number of EU-based institutions were unable to hold sterling-denominated investments. We aim to build and maintain strong and long-term relationships with our investors and providers of capital through direct access to our senior management, a high level of financial and operational transparency, and regular investor road shows led by Jim Ryan and Norbert Teufelberger, Co-CEOs of, supported by Martin Weigold, CFO and Peter Reynolds, Director of Communications. We raised the bar further with regards to our disclosure in, largely reflecting the demands to compare and contrast historic data and also to provide greater insight into our business strategy as a new company. Keeping analysts and investors informed about our trading performance and operational developments is also supplemented by a comprehensive investor section on the Group s website where investors can access the latest consensus of analysts forecasts as prepared by an independent third-party, presentations and webcasts, share price tools and regulatory news announcements. We know there is always room for improvement and we will aim to progress this year through the continued development of our corporate website For further information about our significant shareholders see page 98.

67 Environment and community 65 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 As an online business we believe that we are a low-impact company from an environmental perspective, but we are not complacent. While we are a relatively small company in terms of numbers of employees versus many other corporations and produce little in the way of corporate waste, we do consume electricity and other basic utilities. As an international business we also spend money on travel and recognise that we can continue to try and reduce our environmental impact. We aim to minimise energy and resource usage; support the reduction and recycling of materials; and ensure the legal disposal of all waste arising from the activities of the business throughout the Group. Wherever possible, product and materials purchased will be from sustainable sources with an emphasis on using recycled materials. Measures undertaken in our offices to reduce electricity consumption include switching off air-conditioning outside of normal office hours, using energy efficient light sources and ensuring computer and electrical equipment is switched off when not in use. We maintain tight control on employee travel. All flights by employees have to be approved by executive management. Greater use of video conferencing facilities between offices benefits the environment, our finances and also productivity by reducing travel time. We do not have a company car scheme and staff use public transport whenever possible. As referenced above, we assess our suppliers commitment to a wider corporate responsibility agenda relating to the environment this alignment of interests means that we can try and make a bigger difference with regards to our impact on the environment. Our approach to reducing our environmental impact is not a new one it was a common denominator for both bwin and PartyGaming. However, both companies differed in their approach to community engagement, with bwin heavily focused on advancing research in responsible gaming and tackling gambling addiction and PartyGaming s bias towards greater community engagement through pro bono schemes and charitable donations to responsible gaming organisations and other worthy causes. After assessing the merits of these differences, we decided to carry on with all of them. Why not? We have made some refinements, but we now house all of the elements under a single corporate responsibility roof. As highlighted in the Customers and responsible gaming section on pages 61 and 62, our industry-leading research into gambling addiction will continue. So too will our philanthropy and community engagement we plan that a greater allocation of our contribution to charities and good causes will be made available to the pro bono scheme that we plan to roll-out to former bwin offices in In aggregate we target approximately 0.2% to 0.25% of the prior year s Clean EBITDA to be allocated for charitable and responsible gaming causes. At least 60% of which is earmarked for gambling-related charities such as the Gambling Research Education and Treatment Foundation in the UK and the establishment of the international healthcare network referred to above. The pro bono scheme enables employees to spend 4-8 hours of Company time on charitable, community or environmental projects so that they can enhance their personal development whilst returning something to our local communities. Whilst only former PartyGaming employees participated in pro bono initiatives in, we are proud to say that a third of them took time out from work to provide help and support for the less fortunate in their local communities. We plan to extend the pro bono scheme to all of our main offices by the end of 2012.

68 Board of Directors Simon Duffy Non-Executive Chairman Passionate about: Cricket 2. Norbert Teufelberger Co-Chief Executive Officer Passionate about: Tennis 3. Jim Ryan Co-Chief Executive Officer Passionate about: Poker 4. Joachim Baca Chief Operating Officer Passionate about: Skiing 5. Martin Weigold Chief Financial Officer Passionate about: Motorsport 6. Rod Perry Deputy Chairman and Senior Independent Non-Executive Director Passionate about: Rugby

69 67 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Per Afrell Independent Non-Executive Director Passionate about: Mountain biking 10. Tim Bristow Independent Non-Executive Director Passionate about: Chess 8. Geoff Baldwin Non-Executive Director Passionate about: Pool 11. Helmut Kern Independent Non-Executive Director Passionate about: Golf 9. Manfred Bodner Non-Executive Chairman of the Integration Committee Passionate about: Kite-surfing 12. Lord Moonie Independent Non-Executive Director Passionate about: Shooting 13. Georg Riedl Non-Executive Director Passionate about: Motorsport

70 Board of Directors 68 1 Simon Duffy (62) Non-Executive Chairman Appointed: 31 March Last re-elected: 30 June Background and other roles: Simon also serves as a non executive director of Oger Telecom Limited and Modern Times Group AB and as a non executive Chairman of Cell C (Pty) Limited and mblox Inc. Previous non executive directorships include Imperial Tobacco Group plc, GWR Group plc, HMV Media Group Plc and Gartmore Plc. From 2007 until 2008 he was Executive Chairman of Tradus plc (formerly QXL Ricardo plc). Prior to Tradus, he was Executive Vice Chairman of ntl:telewest Inc. (now Virgin Media Group) having previously been President, Chief Executive Officer and Chief Operating Officer of ntl Inc., the major component of Virgin Media Group. Prior to ntl, Simon was Chief Financial Officer of Orange SA and before that Chief Executive Officer of Denmark based wireless data company, End2End AS. He joined End2End from internet service provider WorldOnline International BV, where he was Chief Executive Officer and Deputy Chairman. Previously he had spent eight years at EMI Group plc, where he was Group Finance Director and Deputy Chairman, and six years at Guinness plc, including three as Operations Director of United Distillers. 2 Norbert Teufelberger (46) Co-Chief Executive Officer Appointed: 31 March Last re-elected: 30 June Background and other roles: Norbert was the Co-CEO of bwin Interactive Entertainment AG from June 2001, having joined that company in September 1999 and was instrumental in drawing up the initial business plan of bwin and the subsequent structuring and preparation for the public listing of bwin Interactive Entertainment AG. Norbert has been involved in the national and international casino and betting business since He occupied key positions with Casinos Austria, was a consultant to the Novomatic Group of companies and co-founded a land based casino company currently listed on the Nasdaq Capital Market and on the Prime Market of the Vienna Stock Exchange. Norbert is chairman of the Supervisory Board of the European Gaming and Betting Association ( EGBA ) and held the post of non-executive director with betbull Holding SE until he resigned at the beginning of He holds a Masters in Business Administration from the University of Economics and Business Administration in Vienna. 3 Jim Ryan (50) 6 Rod Perry (66) Co-Chief Executive Officer Appointed: 30 June 2008 Last re-elected: 7 May 2009 Background and other roles: Jim joined PartyGaming in June 2008 as CEO. Prior to joining, he was CEO of St. Minver Limited and he has also held senior posts at three publicly listed companies as President and Chief Executive Officer of Excapsa Software Inc and as Chief Financial Officer of CryptoLogic Inc. and Chief Financial Officer of SXC Health Solutions Corp. Educated at Brock University in Ontario, Canada, where he obtained a business degree with first class honours, Jim obtained professional qualifications as a Chartered Accountant from the Canadian Institute of Chartered Accountants. 4 Joachim Baca (40) Chief Operating Officer Appointed: 31 March Last re-elected: 30 June Background and other roles: Prior to joining the Board, Joachim Baca was Chief Operations Officer for bwin Interactive Entertainment AG from 2006, steering that business through a period of rapid growth, as it transitioned from being a start-up to an industry leader. He was instrumental in consolidating operations and leading product development, as well as overseeing key business functions such as products and services, technology, organisational development and human resources. Before joining bwin in 2004 Joachim Baca had been engaged in e-commerce business, leading various projects for Red Bull GmbH and Marchfifteen AG. 5 Martin Weigold (46) Chief Financial Officer Appointed: April 2005 Last re-elected: 30 June Background and other roles: Martin joined the Company in January 2005 and was appointed to the Board in April Prior to joining, he was the Chief Financial Officer of Jetix Europe NV, formerly Fox Kids Europe NV, for five years from its listing on Euronext in Before holding this position, he was the Vice President of Finance of Walt Disney Television International for four years and previously was an Assistant Director of Guinness Mahon Development Capital for six years following a three-year period as a management consultant with Arthur Andersen. He holds a joint honours degree in economics and accounting from Bristol University and is a member of the Institute of Chartered Accountants of England and Wales. Deputy Chairman and Senior Independent Non-Executive Director Appointed: 31 May 2005 Last re-elected: 30 June Background and other roles: Rod originally joined the Company in April 2005 and became a Non Executive Director in May 2005, serving as Chairman of the Board from 29 August 2008 to 31 March. He is Chairman of the Remuneration Committee and a member of the Audit, Nominations and Integration Committees. Until 2009, Rod was a non executive Director at Gulf of Guinea Energy (a private Cayman company with operations in Nigeria) and Indago Petroleum, an AIM listed oil and gas exploration company incorporated in Guernsey and operating in Oman. He is also an advisor, director and member of the investment committee at Ithmar Capital, which is a $250 million private equity fund focused on the GCC region from its base in Dubai. More recently he has become a Partner in Life Africa Emerging Markets Capital. This is a new fund which is acquiring cellular phone operations across sub Saharan Africa. The first company (Madamobil) has just become operational in Madagascar. Rod had previously been an executive director at 3i Group plc, latterly responsible for venture capital investment activities worldwide. He joined 3i in 1985 as an industrial adviser and was appointed to the executive committee in He retired from the 3i board in July Per Afrell (54) Independent Non-Executive Director Appointed: 31 March Last re-elected: 30 June Background and other roles: Per was a member of bwin Interactive Entertainment AG s supervisory board from 2007 and chairman of Ongame e solutions AB before it was acquired by bwin in He is a founding partner in the real estate investment group Profi Management AB and is chairman of Profi s two investment vehicles, Profi I AB and Profi II AB. Per has been a member of the Stockholm Stock Exchange Listing Committee, the Board of the Swedish Accounting Standards Committee and has held various management positions in the financial industry.

71 69 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Geoff Baldwin (47) Non-Executive Director Appointed: 15 July Background and other roles: Geoff is an investment banking professional with more than 24 years experience, including serving as a M&A generalist in New York for five years and a technology M&A specialist for the last 19 years, primarily in Silicon Valley, California. He is a founder of GCA Savvian, a global investment bank that is publicly listed on the Tokyo Stock Exchange with dual headquarters in Tokyo and San Francisco. In the United States, GCA Savvian specialises in technology investment banking and is recognised as having a leading franchise in digital media, including social and mobile gaming, internet advertising and ecommerce. He currently serves on the board of directors of GCA Savvian s listed parent company (GCA Savvian Group Corp.) and its European subsidiary, is a member of the firm s global executive committee and is head of the firm s M&A advisory practice in the United States. Prior to founding GCA Savvian, Geoff was a Managing Director in Morgan Stanley s mergers and acquisitions group. 9 Manfred Bodner (49) Non-Executive Chairman of the Integration Committee Appointed: 31 March Last re-elected: 30 June Background and other roles: Manfred was the Co-CEO of bwin Interactive Entertainment AG from June 2001, having joined that company in May 1999, where he started operations from scratch and was responsible for marketing/sales and technology throughout his term of service. Manfred has occupied various management positions since From 1989 to 1995 he was CEO of Trend Versand AG which operated a mail order business in the emerging markets of Eastern Europe. He was one of the two founding partners of the company, and he built and ran its technology and the marketing sales department. The company was founded in Hungary in 1989 and quickly expanded into Poland, the Czech Republic and Slovakia. In 1995 he moved to the executive board of the Eastern European holding company of Neckermann Handels AG based in Vienna, and he remained in this position until In 1998 he co-founded Eastern Press AG a publishing house providing subscription services in Hungary, Poland and the Czech Republic. In 1997 Manfred started the gastronomy group Bar Italia GmbH. 10 Tim Bristow (56) Independent Non-Executive Director Appointed: 4 May 2007 Last re-elected: 29 April 2010 Background and other roles: Tim became an Independent Non-Executive Director of PartyGaming in May 2007 and is Chairman of the Ethics Committee. He is the Chief Executive Officer of Gibtelecom, Gibraltar s primary telecommunications provider. His other directorships have included subsidiaries of the Northumbrian Water Group, Verizon Communications and British Telecom, and he is currently on the Board of Tradewise Insurance. Tim was a former Financial and Development Secretary of Gibraltar and before that a director at the National Audit Office in London, where he trained as an accountant after graduating and was the Private Secretary to the UK Comptroller and Auditor General. 11 Helmut Kern (46) Independent Non-Executive Director Appointed: 31 March Last re-elected: 30 June Background and other roles: Prior to his appointment Helmut had served on bwin s supervisory board since Helmut is owner and CEO of Beyond Consulting GmbH and Beyond Holding GmbH and until October he was also Head of Consulting Austria with PricewaterhouseCoopers. Previously, he also acted as Global Partner of Deloitte Consulting and was CEO of an Austrian Private Foundation (DFGJ Privatstiftung) and interim director of Wellcon Gesellschaft für Prävention und Arbeitsmedizin GmbH. Helmut Kern holds a Master in Business Administration ( Magister ) from the University of Economics and Business Administration in Vienna and has completed an Executive Leadership Development Program at Columbia University, N.Y. 12 Lord Moonie (65) Independent Non-Executive Director Appointed: 13 December 2007 Last re-elected: 29 April 2010 Background and other roles: Lewis joined PartyGaming in December 2007 and served as the Senior Independent Director between August 2008 and March. He has previously chaired the Remuneration Committee and the Audit Committee. Before being made a Life Peer he was the UK Member of Parliament for Kirkcaldy between 1987 and He held the position of Under Secretary for State at the Ministry of Defence between January 2000 and June Before becoming an MP, Lewis studied medicine and was a consultant in public health medicine, a senior medical adviser and clinical pharmacologist in the pharmaceutical industry. 13 Georg Riedl (52) Non-Executive Director Appointed: 31 March Last re-elected: 30 June Background and other roles: Georg served as a member of bwin s supervisory board from He is a lawyer with the Riedl law firm in Vienna. He has sat on the boards of Österreichische Salinen AG and group companies, AT&S Austria Technologie & System technik AG, paysafecard.com Wertkarten AG and Wiesenthal & Co AG and bwin Services AG (now services (Austria) GmbH). Georg is also a director of Androsh Privatstifung, a large shareholder. Key to Committees Audit Committee member Integration Committee member Nominations Committee member Remuneration Committee member Ethics Committee member

72 Governance 70 Good corporate governance has become a necessary condition for sustainable success in business. The purpose of this section of the Annual report is to demonstrate how the Board oversees the interests of the Company through its operating structure and to review s compliance with the UK Corporate Governance Code (the Code ). This chapter comprises the following sections: A. Leadership Board structure The digital entertainment plc Board Audit Committee A Leadership B How the Board functions C Effectiveness D Relations with shareholders E Audit Committee Report F Ethics Committee Report G Integration Committee Report H Nominations Committee Report I Remuneration Report J Other Governance & Statutory Disclosures and the 2012 AGM While being strongly committed to good governance, the Company has undergone considerable change in the recent past and consequently did not comply with the Code in all respects during the reporting period. In particular, it did not comply in the following areas: 1 Less than half the Board are determined to be independent. This matter is addressed below on page The membership of the Audit Committee. However this was rectified on 31 March with the completion of the merger with bwin (see page 75). 3 The membership of the Remuneration Committee. However this was rectified on 31 March with the completion of the merger with bwin (see page 81). 4 In relation to various legacy share plans: a) the performance-related elements of certain Executive Directors remuneration (see page 91); b) executive share options being offered at a discount (see page 91); and c) certain Non-Executive Directors holding share options (see page 91) The explanations for these deviations and the actions that have already been taken or will be taken in an appropriate timeframe to remedy them are set out in this section. Simon Duffy Chairman 29 March 2012 Executive Directors Senior Management Team The composition of the Board during and to date is set out on page 71. Biographies of the current Directors are set out on pages 68 and 69. Changes during During the following changes to the Board occurred: On completion of the merger with bwin on 31 March, Simon Duffy, Norbert Teufelberger, Joachim Baca, Per Afrell, Manfred Bodner, Helmut Kern and Georg Riedl were appointed Directors on 31 March. Rami Lerner stepped down as a Director and was replaced by Geoff Baldwin on 15 July. Simon Duffy succeeded Rod Perry as Chairman on 31 March and Rod Perry became the Deputy Chairman and Senior Independent Director, having been independent when originally appointed to the Board. Having served on the Board for six years, following a review of his independence by the Nominations Committee, Rod Perry was re elected as a Director at the AGM. The Chairman, Co-CEOs and Senior Independent Director The responsibilities of the Chairman and the Co-CEOs are clearly defined and are summarised below: Chairman Ethics Committee Integration Committee Nominations Committee Remuneration Committee Overseeing the effective running of the Board Ensuring that the Board as a whole plays a full and constructive part in the development and determination of the Company s strategy and overall commercial objectives Acting as the guardian of the Board s decision-making process Promoting the highest standards of integrity, probity and corporate governance throughout the Company and particularly at Board level

73 71 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Co-CEOs Running the Company s business Proposing and developing the Company s strategy and overall commercial objectives, which they do in close consultation with the Chairman and the Board Responsible, with the executive team, for implementing the decisions of the Board and its Committees Promoting, and conducting the affairs of the Company with, the highest standards of integrity, probity and corporate governance Senior Independent Director As well as performing the normal duties expected of a Non-Executive Director, the Senior Independent Director is required to: Be available to shareholders if they have concerns which contact through the Chairman, Co-CEOs or CFO has failed to resolve or for which contact is inappropriate; Lead the Non-Executive Directors in evaluating the performance of the Chairman, taking into account the views of the Executive Directors; Maintain sufficient contact with shareholders to understand their issues and concerns; and Perform such other roles and responsibilities as the Senior Independent Director as may be contemplated by the Code or best practice guidelines in place from time to time. Board independence The Code recommends that at least half the members of a Board (excluding the Chairman) should be Non-Executive Directors who are independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement. During the Company has not complied with this recommendation. Prior to the completion of the merger with bwin on 31 March, the Board was served by two independent Non-Executive Directors (Lewis Moonie and Tim Bristow), three non-independent Directors (Jim Ryan, Martin Weigold and Rami Lerner) and the Chairman of the of the Board (Rod Perry). A project to increase the number of independent Directors was instigated in 2010, but following the announcement of the proposed merger with bwin this recruitment exercise was suspended. Currently, excluding the Chairman, the Board is composed of five independent Non-Executive Directors (Rod Perry, Per Afrell, Tim Bristow, Helmut Kern and Lewis Moonie) and seven non-independent Directors (Joachim Baca, Geoff Baldwin, Manfred Bodner, Georg Riedl, Jim Ryan, Norbert Teufelberger and Martin Weigold). As part of the merger negotiations, both the bwin and PartyGaming boards agreed a balanced management structure was in the best interests of the combined Group, drawing upon the considerable management strength and experience of both organisations. The combined experience and knowledge of the Board, coupled with continuity of leadership, have been critical to the initial stages of integrating the bwin and PartyGaming online gaming businesses, whilst also guiding the Group to focus on new business opportunities. Despite the technical imbalance of independent and non-independent Directors, the Board is satisfied that it has maintained a sufficient degree of independence for the following reasons: On the majority of business items considered by the Board, a nonindependent Non-Executive Director is independent, because the interests of the relevant founder shareholders and the Company do not conflict On issues when the interests of the Company and interests of a founder shareholder may conflict, mechanisms in the relationship agreement and/or letters of appointment for the non-independent Non-Executive Director allow the independent Directors to exclude them from the decision-making process The independent Directors have not been and will not be in a minority to the Executive Directors The Chairman of the Board was independent on appointment The Board had the appropriate balance of skills and experience to manage the imbalance appropriately The Company stated in the Merger prospectus and circular that if the composition of the Board remained non-compliant with the Code s independence recommendation on 31 December, the composition of the Board would be changed by the appointment of two additional independent Directors to ensure compliance. For the reasons given above, the Board and in particular the independent Directors believe for the time-being sufficient independence exists to ensure the Board can operate effectively and in the best interests of shareholders as a whole. Furthermore, with 13 members the Board is already larger than the boards of most comparable companies. Therefore, rather than choosing to increase the size of the Board to comply with the Code s independence criteria, which would have resulted in an unwieldy board of 15, the Board is going through a thorough Board performance evaluation using a third-party (see page 74) with the aim of reviewing how well the Board and its committees are operating and what improvements could be made to ensure it has the right experience and knowledge to lead the Company once the merger integration is complete. A statement regarding changes to the composition of the Board will be made later in The Board has also considered the review of Lord Davies of Abersoch entitled Women on Boards, published in, which requested FTSE 350 companies to set out aims for percentages of women serving on boards. Gender diversity on the Board will be an important factor the Nominations Committee will take into account when considering any new candidates to join the Board. However, gender is only one of a number of issues that the Nominations Committee must consider and the Directors will always regard a candidate s experience, knowledge and skills as critical selection drivers. will aim to appoint at least one woman to the Board by the end of 2013, with at least two women serving on the Board by Over that period the Board will also be reduced in size so that the percentage of women on the Board will be greater than it would be if it remained at its present size.

74 Governance 72 B. How the Board functions In accordance with the Code, the Company is headed by an effective Board, which is collectively responsible for the success of the Company. The Board provides entrepreneurial leadership of the Company whilst ensuring that a framework of prudent and effective controls exists in order to assess and manage risk. Meetings The Board and its committees met in Gibraltar throughout and details of the number of meetings and attendance records are set out in the table overleaf. The agenda of Board meetings usually cover the following: Strategy, covering both the existing real-money gaming business (poker, sports, casino and bingo) as well as adjacent businesses such as social gaming, monetised digital gaming and payment systems Geographical expansion Operational and business performance updates Financial updates Regulatory and licensing developments Industry consolidation opportunities In order to ensure that the Board has an appropriate level of knowledge about the operations of the business and to enable it to assess the calibre of management below Executive Director level, members of the senior management team are regularly invited to attend meetings to present on and take part in discussions on particular items of business. Following the independent assessment of the functioning of the Board, the Chairman will meet with the Non-Executive Directors individually to review governance issues. The Senior Independent Director has met with the Non-Executive Directors as part of the process of reviewing the performance of the Chairman and has communicated the results of that meeting to him. He will take account of the feedback in his future management of the Board and of governance issues. Responsibility and delegation The Directors have adopted a formal schedule of matters reserved to the Board, setting out which issues must be referred to the Board for decision. These can be categorised into a number of key areas including but not limited to: Long-term business plan, strategy, budgets and forecasts; Restructuring or reorganisation of the Group and material acquisitions and disposals; The Group s finance, banking and capital structure arrangements; Approval of capital expenditure and financial guarantees above certain levels; Financial reporting (interim and annual financial results and interim management statements); Dividend policy; Shareholder circulars, convening shareholder meetings and stock exchange announcements; Approval of the Group s remuneration policy (following recommendations from the Remuneration Committee); Approval of the Group s risk management and control framework and the appointment/re-appointment of the external auditors (following recommendations from the Audit Committee); and Approval of the Group s policies in relation to corporate and social responsibility, health and safety and the environment

75 73 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 In addition, the Board has adopted a formal delegation of authority memorandum which sets out the level of authority for employees of the business below Board level. The Board has delegated certain responsibilities to the following committees of Directors: Audit Committee Ethics Committee Integration Committee Nominations Committee Remuneration Committee Helmut Kern (C) Tim Bristow Rod Perry Tim Bristow (C) Per Afrell Helmut Kern Lewis Moonie Manfred Bodner (C) Simon Duffy Rod Perry Jim Ryan Norbert Teufelberger Simon Duffy (C) Per Afrell Rod Perry Rod Perry (C) Per Afrell Helmut Kern Lewis Moonie (C) denotes Chairman of the committee Each committee reports separately on its work on the following pages. During the year the Board and its committees met in Gibraltar and details of the number of meetings and attendance records are set out in the table below: Total number of meetings held during the year ended 31 December and the number of meetings attended of the maximum number that each Director was entitled to attend Board Audit Committee Ethics Committee Integration Committee Nominations Committee Remuneration Committee Total held in year Per Afrell 5/5 2/2 1/1 4/4 Joachim Baca 5/5 Geoff Baldwin 3/3 Manfred Bodner 4/5 (i) 4/4 1/1 2/2 Tim Bristow 7/7 5/5 3/3 2/2 Simon Duffy 5/5 4/4 1/1 Helmut Kern 4/5(ii) 4/4 2/2 1/1 4/4 Rami Lerner 4/4 1/1 4/4 1/1 Lewis Moonie 5/7(iii) 1/1 3/3 2/2 6/6 Rod Perry 7/7 4/4 1/1 4/4 2/2 6/6 Georg Riedl 5/5 1/1 Jim Ryan 7/7 4/4 2/2 Norbert Teufelberger 5/5 4/4 1/1 Martin Weigold 7/7 (i) Manfred Bodner was absent from a meeting whilst on business in the United States representing the Company s interests (ii) Helmut Kern was absent from one meeting through illness (iii) Lewis Moonie was absent in person from two meetings, because one meeting was convened in Gibraltar at short notice and in respect of the other meeting he had to remain in the United Kingdom to attend an important vote in the House of Lords. For both meetings he attended by telephone, however, the Company s articles of association provide that any Director present by telephone from the United Kingdom cannot be regarded as present for the purposes of ascertaining a quorum

76 Governance 74 Internal controls In accordance with the Code, the Board has reviewed, with assistance from the Audit Committee, the effectiveness of the Company s risk management and internal control systems put in place to manage the risks attaching to the business in pursuing its strategic objectives. This review covers all material controls, including financial, operational and compliance controls. The Board is satisfied that the Company maintains an ongoing sound system for identifying, evaluating and managing risk. For more information on this subject please see the Audit Committee report on page 76. Tenure The Company s articles of association require every new Director to stand for re-election by shareholders at the next AGM immediately following their appointment. Thereafter each Director is required to seek re-election by shareholders at an AGM at least once every three years. The Code, however, recommends that Directors stand for re election annually and in accordance with this recommendation, all the Directors are seeking re-appointment at the 2012 AGM. The tenure of the current Board is as follows: Number of Directors Period of service 8 Less than 12 months years years years Succession The Nominations Committee keeps under review the succession plans for Directors and senior managers. In doing so, the Nominations Committee focuses on whether the Board is appropriately diverse with a range of generalist and specialist knowledge and skills. For further information please refer to the Nominations Committee report. Insurance and indemnity maintains an insurance policy for its Directors and officers and the Company has also entered into deeds of indemnity with its Directors. C. Effectiveness Information flow to the Directors The Chairman oversees, with the assistance of the Company Secretary, the process of ensuring that all Directors receive timely and accurate information in order to enable them to perform their duties. Management provides detailed information ahead of each Board or Committee meeting and additional information or updates between meetings when deemed necessary. Each Executive Director is readily available to the Non-Executive Directors if the latter should need clarification or amplification on any information provided. All the Directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring Board procedures are complied with and advising the Board through the Chairman, on all governance matters. Independent legal advice The Board has adopted a procedure for Directors to seek independent professional advice at the expense of the Company if they judge it necessary to discharge their responsibilities as Directors. Each Committee of the Board also has authority under its terms of reference to obtain outside legal or other independent professional advice if the Committee considers it necessary in order to perform its duties. Induction and ongoing training Each new Director receives a full induction on joining the Board and major Shareholders are offered the opportunity to meet new Non Executive Directors. The Chairman ensures that all Directors continually update their skills, knowledge and familiarity with the Company to fulfil their roles on the Board and Board Committees via reports and information collated by management, the Company Secretary and the Company s advisers. Performance evaluation Each year the Directors undertake a formal evaluation of the performance of the Board, its Committees and of individual Directors during the prior year. The evaluation of 2010 s performance (carried out in early ) resulted in a review of the content and format of management s reports to the Board and a decision to increase the frequency of presentations by senior managers to Board meetings. Each year the Board has utilised the services of a third-party corporate governance consultancy to assist in the evaluation process. Even though the Board has existed in its present form for less than a year, for the review of s performance, carried out in early 2012, the Board decided to use the services of Lintstock Limited, a third-party corporate governance adviser, to carry out a full questionnaire and interview process. More information on the performance evaluation process is set out in the Nominations Committee s report on page 79. D. Relations with Shareholders The Directors recognise the importance of maintaining effective communications with shareholders. This is serviced in the following ways: Throughout the year the Co-CEOs, Chairman and Director of Communications meet with existing and potential institutional investors All Directors attend the Annual General Meeting and shareholders are invited to attend and ask questions either during or after the meeting. Notice of the AGM is set out on page 158 of this document and details of the meeting are set out on pages 100 and 101. In accordance with the Code, the AGM notice has been dispatched to shareholders more than 20 working days before the AGM The corporate website contains useful information for all shareholders on the Company s strategy, financial results, share price and announcements

77 Governance Audit Committee Report 75 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Founder shareholders of both bwin and PartyGaming (holding in aggregate 22% of s share capital) have Board representatives which facilitates a productive dialogue with these investors Maintaining good communications with the investment analyst community so that there exists a portfolio of research on the business. This also allows the Company to understand how it is being perceived by the investor community generally E. Audit Committee Report Purpose The Board is required by the Code to establish formal and transparent arrangements for considering how it should apply the required financial reporting and internal control principles and for maintaining an appropriate relationship with the Company s joint auditors, BDO LLP and BDO Limited. Membership The Board has done this by appointing an Audit Committee. The members of the Audit Committee are: Helmut Kern (Chairman) Tim Bristow Rod Perry Helmut Kern has recent and relevant financial experience and was appointed to the Audit Committee with effect from 31 March. From 1 January to 31 March Lewis Moonie chaired the Audit Committee and Tim Bristow was regarded as the member with relevant financial experience. The Code recommends that a minimum of three independent directors should serve on the Audit Committee. From 1 January to 31 March the Company was not compliant with this recommendation, because there were only two independent Directors serving on the Board. Since 31 March the Audit Committee has complied with the Code in having three independent Directors. Responsibilities The Audit Committee has adopted terms of reference, approved by the Board that are available on the Company s website: bwinparty.com/aboutus/corporategovernance/auditcommittee.aspx. In summary the main responsibilities of the Audit Committee are to: Consider and make recommendations to the Board as regards the appointment of the head of the internal audit function and also the external auditors as well as the re-appointment of the latter; Recommend the audit fee to the Board and develop and recommend to the Board s policy in relation to the provision of nonaudit services by the external auditor; Monitor the integrity of the financial statements of and any formal announcements relating to the Company s financial performance and to review, and challenge where necessary, the actions and judgements of management in relation to the half-year and annual financial statements before submission to the Board; Meet with the external auditors post-audit at the reporting stage to discuss the audit, including problems and reservations arising from the audit, and any matters the auditor may wish to discuss (in the absence of management, where appropriate); Make recommendations to the Board concerning any proposed, new or amended accounting policy; Monitor and review the internal audit programme and its effectiveness; Ensure co-ordination between the officers responsible for internal audit and the external auditors, and that the internal audit function is adequately resourced and has appropriate standing within ; Consider any major audit recommendations and the major findings of internal investigations and management s response (in the absence of management, where appropriate); Monitor and review s systems for internal control, financial reporting and risk management; and Reviewing the individual internal audit reports covering various areas and activities of the business Business during the year During the year to 31 December, the Audit Committee met five times to review and consider the following items of business: February: 2010 Annual report The external auditors report and the required letter of representation from the Company The non-audit services provided by the external auditors The re-appointment of the external auditors at the AGM The internal audit status report April: The external audit process post-merger The internal audit and risk management functions post-merger June: External auditors management letters The external auditors planning report and engagement letter The level of non-audit services provided by the external auditors Latest internal audit status report Internal audit charter Risk management status report August: External auditors half year review relating to the half year results and the required letter of representation from Review of the half year results The Company s functional currency The level of non-audit services provided by the external auditors Latest internal audit status report Five-year internal audit plan and universe Update for treasury management policy and currency risk review

78 Governance Audit Committee Report 76 December: Group risk register Latest internal audit status report and ongoing projects Follow-up in respect of the management letter arising from the last audit Updated code of conduct and whistle-blowing policy Updated report from the external auditors on their plans for auditing the annual financial results The level of non-audit services provided by the external auditors Company balance sheet restructuring At these meetings, members met with management and with the internal and external auditors. The Audit Committee members also met privately with the external auditors and separately with the internal audit function, without management representatives present. Through these meetings and review process the Audit Committee has satisfied itself that proper and satisfactory internal control systems remain in place to identify and contain business risks and that the integrity of the Company s financial reporting is sound. In doing so the Audit Committee continues to exercise its authority to seek any information it requires from any employee of the Company. In 2012, the Audit Committee has met once to review and recommend the approval of the full year results and the Annual Report. Risk management and effective internal controls The section, Key risks on pages 55 to 57 of the Annual report sets out the main risks impacting the Group s business. maintains a robust system of internal control for the purpose of safeguarding the investment of shareholders in the Company and the Group s assets. At least annually the Board conducts a review of the effectiveness of the Group s system of internal controls, covering all material controls, including financial, operational and compliance controls and risk management systems. s system of internal control reduces the probability that business risks might impede the Company in achieving its objectives, but it cannot eliminate these risks and can therefore provide only reasonable, not absolute, assurance against material misstatement or loss. The Group has an internal audit department, which also carries out the Company s risk management monitoring. During the year, management identified the risks attaching to the business and, on an ongoing basis, efforts are being taken to mitigate these risks. Throughout the year s internal auditors performed internal audits of offices and departments within the business to assess whether adequate internal controls are in place to protect the Group, its employees and shareholders. The internal audit reports are presented to the Audit Committee and the Head of Internal Audit meets regularly with the Audit Committee as well as Chairman of the Audit Committee, to whom he has direct access. In accordance with the guidance contained in the Turnbull Report, the Board, with the assistance of the Audit Committee, has completed its annual review of the effectiveness of the internal system of control, and is satisfied that it is in accordance with that guidance. The Group continues to adopt and publicise a formal whistleblowing procedure by which employees can, in confidence, raise concerns about possible improprieties in financial or other matters. This procedure is set out in the Group s employee handbooks and has been reviewed by the Audit Committee. The Audit Committee is satisfied that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. External Auditors During the year ended 31 December, BDO LLP was appointed under an engagement letter to act as auditors to enable the Company to meet its obligations to prepare financial statements in accordance with the Listing Rules. For the purposes of filing the Company s financial statements in Gibraltar, BDO LLP and BDO Limited have been appointed to act as joint auditors to allow an audit report to be issued under section 10 of the Gibraltar Companies (Accounts) Act In accordance with its duties, the Audit Committee made recommendations to the Board on the appointment of the external auditors, approved their remuneration (both subject to Shareholder approval) and also approved their terms of engagement. The Audit Committee has also established a policy regarding the appointment of auditors to perform non-audit services for the Group and will keep this under continual review. This policy dictates that in the Company s financial year, the total fees for non-audit services provided by the external auditors, excluding non-audit fees for due diligence for acquisitions and other specific matters noted below, should not exceed the total fees for audit services they provide. In the year ended 31 December, the proportion of total non-audit fees to total audit fees paid to the external auditors was 0.09:1.0. In addition to their statutory duties, BDO LLP is also employed where, as a result of their position as auditors or for their specific expertise, they either must, or the Audit Committee accepts they are best placed to, perform the work in question. This is primarily work in relation to matters such as shareholder circulars, Group borrowings, regulatory filings and certain business acquisitions and disposals. In such circumstances the Audit Committee will separately review the specific service requirements and consider any impact on objectivity and independence of the auditors and any appropriate safeguards to this. As such the Audit Committee believes it appropriate for these non-audit services to be excluded from the 1:1 ratio set out above. In the year ended 31 December the total fees paid to the external auditors in respect of due diligence for acquisitions was 0.17 million. Helmut Kern Chairman of the Audit Committee 29 March 2012

79 Governance Ethics Committee Report 77 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 F. Ethics Committee Report Purpose The Board believes that the way in which the Group behaves and interacts with its stakeholders is key to the Group s long-term success and development. Reflecting the importance the Group places on corporate and social responsibility ( CSR ), the Board has appointed an Ethics Committee, despite there being no requirement to do so under the Code. Membership The members of the Ethics Committee are: Tim Bristow (Chairman) Per Afrell Helmut Kern Lewis Moonie Rami Lerner and Rod Perry were members until 31 March. Responsibilities The Ethics Committee has adopted terms of reference, approved by the Board that are available on the Company s website: bwinparty.com/aboutus/corporategovernance/ethicscommittee.aspx. In summary, the main responsibilities of the Ethics Committee are to ensure that the Group has policies and effective controls regarding the following: Responsible gaming including the prevention of underage or problem gambling; Compliance with the gaming licenses held by the Company or any of its subsidiaries; Gambling licence probity matters; Anti-money laundering; The fairness and integrity of the Company s gaming systems and the process for managing any challenges to the fairness and/or integrity of these systems; Privacy and data protection; Employment matters relating to codes of conduct and health and safety; Charitable donations and investment in the local community; The Company s suppliers and service providers; and The Company s impact on the environment From a day-to-day management perspective, the Chief Financial Officer has executive responsibility for CSR matters and he is invited to attend Ethics Committee meetings. The Co CEOs attend meetings from time to time. Business during the year During the Ethics Committee met three times to review and consider the following business items: February: CSR disclosures in the 2010 annual report Update reports from the Head of Regulatory Compliance and the Anti Money Laundering Officer ecogra audit results Charitable donations made by the Group in 2010 and proposed for The Committee s work in 2010 and its terms of reference June: proposed charitable donations following the Merger Structure of regulatory affairs department Reports from the Head of Regulatory Compliance and the Anti-Money Laundering Officer CSR review and proposed strategy for the Group post-merger UK Bribery Act and updates to the anti-bribery policy and procedures 2010 charitable donations December: Updated probity policy Reports from the Head of Regulatory Compliance and the Anti-Money Laundering Officer CSR report Sports betting integrity and regulation 2012 CSR budget and proposed charitable donations GoodCorporation review In 2012 the Ethics Committee has met once to consider the CSR disclosures in the annual report and receive reports from the Head of Regulatory Compliance, the Anti-Money Laundering Officer, GoodCorporation and to approve the proposed charitable donations for The Group s approach to CSR and related issues is included in the section of the Annual report on Responsibility and relationships on pages 58 to 65. Tim Bristow Chairman of the Ethics Committee 29 March 2012

80 Governance Integration Committee Report 78 G. Integration Committee Report Purpose As many corporate mergers experience significant challenges in achieving their objectives, the Board wanted to ensure sufficient oversight was given to bringing about the delivery of economic synergies and effective exploitation of the combined PartyGaming and bwin assets. The purpose of the Integration Committee is to oversee s Merger integration plan and ensure it is implemented effectively in a timely manner. Membership The Integration Committee was established on 31 March and its members are: Manfred Bodner (Chairman) Simon Duffy Rod Perry Jim Ryan Norbert Teufelberger The Chief Financial Officer and Chief Operating Officer have also been invited to attend and participate in Integration Committee meetings. Responsibilities The Integration Committee has adopted terms of reference, approved by the Board that are available on the Company s website: bwinparty.com/aboutus/corporategovernance/integrationcommittee. aspx. In summary, the main responsibilities of the Integration Committee are to ensure that the Group has effective controls and policies regarding the following: Oversight of the preparations and implementation in a timely manner of an effective plan across the Group to integrate the businesses of bwin and PartyGaming; Ensuring that the integration plan complements and supports the Group s rolling business strategy; Resolving any management disputes over any element of the integration process; Reviewing and making recommendations to the Board regarding any material investment management proposes making in order to facilitate the integration plan; In consultation with the Company s Audit Committee, overseeing that at all times the Group has in place the necessary management structure and staffing resource across all functions to continue to effectively manage the risks attaching to the Group s business relating to integration matters; Making recommendations to the Board regarding the sale of any of the Group s material assets or businesses regarded by management as redundant following the Merger; Making recommendations to the Board regarding any decisions about the gaming platforms to be used by the Group or the software rationalisation process, including any decisions relating to the disposal of platforms and software; Ensuring that any product branding, cultural or employee morale issues arising from the Merger are effectively addressed and resolved by management; and Monitoring communication of the progress of the integration process to employees, shareholders, governments, regulators and any other stakeholders and making recommendations to the Board accordingly Business during the year During the Integration Committee met four times to review and consider the following business items: April: Integration plan and timetable Management structure and headcount Sale of surplus assets Integration budget and synergies June: Update on integration process and tracking Sale of surplus assets Employee headcount Updated synergy forecasts August: Update on integration process Technology and software resources and location Impact of new gaming licenses on the integration process Sale of surplus assets December: Status of integration projects Synergy status update Integration project resource and capacity Remaining projects Sale of surplus assets In 2012 the Integration Committee has met once to review the status of the integration projects and the latest forecast synergies. Manfred Bodner Chairman of the Integration Committee 29 March 2012

81 Governance Nominations Committee Report 79 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 H. Nominations Committee Report Purpose The Board has adopted a formal, rigorous and transparent procedure for the appointment of new Directors to the Board by appointing a Nominations Committee to lead the process of appointment and make recommendations to the Board. The Nominations Committee also advises the Board on its structure, size, composition and matters of Director and senior management succession. Membership The members of the Nominations Committee are or have been: Simon Duffy (Chairman) (appointed 31 March ) Per Afrell (appointed 31 March ) Rod Perry Manfred Bodner (from 31 March to 15 March 2012) Tim Bristow (until 15 March 2012) Helmut Kern (from 31 March to 15 March 2012) Lewis Moonie (until 15 March 2012) Georg Riedl (from 31 March to 15 March 2012) Jim Ryan (until 15 March 2012) Norbert Teufelberger (from 31 March to 15 March 2012) From 1 January to 31 March, Rod Perry chaired the Nominations Committee and Rami Lerner was a member. Responsibilities The Nominations Committee has adopted terms of reference, approved by the Board that are available on the Company s website: NominationsCommittee.aspx. In summary, the main responsibilities of the Nominations Committee are to: Regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any adjustments that are deemed necessary; Give full consideration to succession planning for Directors and other senior management in the course of its work, taking into account the challenges and opportunities facing the Company, and what skills and expertise are needed on the Board in the future; Be responsible for identifying and nominating candidates for the approval of the Board, to fill Board vacancies as and when they arise; and Make recommendations to the Board concerning the re appointment by shareholders of any Director. Business during the year During the Nominations Committee met twice to deal with the following business: February: Agree the recommendation for the re-appointment of certain Directors at the AGM Review the Committee s work and its terms of reference December: Review the Board s composition, size, independence and diversity The composition and size of the Board changed significantly in March following the completion of the Merger. The Board has functioned well and effectively in overseeing the Merger integration process as demonstrated by the fact that is now forecasting larger synergy savings than forecast when the Merger was originally proposed. The Nominations Committee, however, is mindful of both the Board s size and the independence issue, as well as of the need to ensure it has an appropriate balance of skills and experience. Consequently, as disclosed on page 74, in 2012 the Board has undergone a detailed performance evaluation with Lintstock Limited, an experienced third party corporate governance adviser. The aim of this exercise has been to review how well the Board and its committees are operating and what improvements can be made to ensure the experience and knowledge of the Board are appropriate to lead beyond the Merger integration stage. This process required each Director to answer a series of questions on the performance of the Board, the Chairman, individuals and committees and was followed up by each Director being interviewed by Lintstock s consultants. The results will be presented to the Nominations Committee and the Board once the Chairman has discussed the conclusions of the review with each Director individually. Thereafter the Nominations Committee will agree what recommendations to make regarding the Board s composition. Terms of appointment The letters of appointment for each of the Non-Executive Directors do not specify a fixed term of appointment. The Board has resolved, however, that if any Non-Executive Director remains in office for a period of six years, having satisfied annual performance evaluations and been re appointed by shareholders at an AGM at least twice, then that Non-Executive Director s re-appointment will be subject to a review by the Nominations Committee and Board, both bodies taking into account the need to maintain an active and progressive Board. The Board does not expect that any Non-Executive Director will serve for a period of greater than nine years. The Code recommends that notice or contract periods for Directors should be set at one year or less. As disclosed in the Remuneration Report on pages 93 and 94, the notice periods for all the Directors comply with this recommendation. The letters of appointment for the Non-Executive Directors and the service agreements for the Executive Directors will be available for inspection 30 minutes prior to and during the AGM. Simon Duffy Chairman of the Nominations Committee 29 March 2012

82 Governance Directors Remuneration Report 80 I. Directors Remuneration Report Introduction continues to operate in a dynamic and challenging environment and it remains a core objective of the Group s remuneration policy to provide competitive remuneration packages that support the business and its strategic goals, by recruiting and retaining high calibre individuals. It is essential that these individuals have the necessary skills and entrepreneurial drive to grow this fast moving business and ensure continues to be a leader in digital entertainment. The Merger has been a time of significant change for employees and has raised retention challenges for the business. Simultaneously, the United States looks increasingly likely to introduce regulated online poker which, while a welcome business growth opportunity for, creates additional employee retention issues, as US and other operators seek to build up their online gaming teams and look to as a valuable source of knowledgeable and experienced staff. Despite these challenges, the remuneration policy, based on the new equity plans introduced in, continues to attract, incentivise and retain the experienced online gaming experts and entrepreneurs who are key to s success. The Remuneration Committee regularly reviews the Company s risk policy against the operation of the Company s incentive plans to ensure that their operation is consistent with this policy. The Committee believes that the opportunities within the incentive arrangements are warranted by the challenges set out above and that these arrangements encourage the sustainable long-term value of the Company. This report has been prepared on behalf of the Board in accordance with Schedule 8 of the Large and Medium sized Companies and Groups (Accounts and Reports) Regulations 2008 (the Regulations ). The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the principles and complied with the provisions of the UK Corporate Governance Code relating to Directors remuneration. An advisory resolution to approve the report will be proposed at the Company s Annual General Meeting on 7 June The auditors are required to report on the auditable part of this report and to state whether, in their opinion, that part of the report has been properly prepared in accordance with the Directors Remuneration Report Regulations BDO LLP and BDO Limited have audited the sections headed Summary of the long-term incentive plans and Total emoluments overview to the extent they are required to do so by the Regulations. Rod Perry Chairman of the Remuneration Committee 29 March 2012 Unaudited Purpose of the Committee The Board has appointed the Remuneration Committee to oversee the remuneration policy and practices adopted by the Group. The Committee s terms of reference are available on s website, RemunerationCommittee.aspx. The key objectives of the remuneration policy are to: Establish competitive remuneration terms that allow the Group to recruit, retain and incentivise the most talented managers; Promote the achievement of s rolling three-year business strategy through the provision of appropriate targets that stretch and motivate employees to deliver on the strategic objectives; Ensure effective risk management and sustainable performance is encouraged through reward; and Ensure senior executive remuneration is aligned with the interests of s shareholders and other stakeholders The Committee s main responsibilities are: Agree the remuneration policy for the Chairman of the Board, Executive Directors, Company Secretary and senior executives (together the Senior Officers ) and review regularly the ongoing appropriateness and relevance of the remuneration policy; Ensure the remuneration policy provides for individuals to receive appropriate remuneration and incentives to encourage enhanced performance and to be rewarded, in a fair and responsible manner, for their individual contributions to the success of the Group; Review annually the total individual remuneration package of the Senior Officers; Liaise with the Nominations Committee to ensure that the remuneration of any newly appointed Senior Officer is within the Company s overall remuneration policy; Set and monitor performance criteria for any bonus arrangements for the Senior Officers and the framework of the bonus structure for staff generally; Approve the length and terms of all service contracts and the appointment letter for the Board Chairman and Executive Directors; Review and approve the introduction of new share option and share award schemes, set or recommend the performance criteria for awards, determine each year whether awards will be made and the overall amount of the awards and approve any awards proposed for Senior Officers; and Approve the terms of termination of the Chairman of the Board or any Executive Director and ensure such terms are fair and reasonable and not excessive, that failure is not rewarded and that the duty to mitigate loss is fully recognised

83 81 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Membership The members of the Remuneration Committee are all independent Non Executive Directors: Rod Perry (Chairman from 31 March ) Tim Bristow (until 31 March ) Per Afrell (appointed 31 March ) Helmut Kern (appointed 31 March ) Lewis Moonie (Chairman until 31 March ) Advisers PricewaterhouseCoopers LLP ( PwC ) in London provides guidance to the Remuneration Committee on remuneration trends, short and long term incentives and general market remuneration developments. PwC was appointed by the Committee following a tender process in mid-2010 in which a number of potential advisers participated. A separate department of PwC provided an internal audit review of s marketing function during, however this work was completely unrelated to and segregated from the work performed by PwC s remuneration consultancy and in the Remuneration Committee s view did not undermine their independence. Whilst Helmut Kern was a management consultant partner with PwC in Austria until October, he was not a Director when PwC were appointed and took no part in any decision regarding their continued appointment. His function with PwC Austria was completely independent of and segregated from the work performed by PwC s remuneration team in London. The Company Secretary is the secretary to the Remuneration Committee. In performing its duties during the year, the Remuneration Committee consulted with the Chairman of the Board, the Group Human Resources Director, the Co-CEOs and the CFO. The Remuneration Committee ensured, however, that no individual was involved in any decisions about their own remuneration. Business during the year During the Remuneration Committee met six times to review and consider the following items of business: February: Approve the 2010 senior management bonuses Set the performance formula for the Bonus Banking Plan Set the performance formula for the Bonus & Shares Plan Determine the extent outstanding awards under the Executive Share Option Plan and Performance Share Plan have met their performance objectives Review the proposed Directors Remuneration Report for the year ended 31 December 2010 April: Set the financial and individual objectives for the Bonus Banking Plan Considered setting the initial price of the Value Creation Plan and allocation of the participation rights in any Value Creation Plan pool of value Set the financial objectives for the Bonus & Shares Plan. Agreed an amendment to the terms of the share awards granted to key Cashcade employees June: Further review of the personal objectives set for the Co-CEOs to ensure in practice they were complimentary and remained appropriate Reviewed shareholder feedback from the setting of the initial price for the Value Creation Plan August: Agreed the remuneration of the new Group Director of Poker Agreed the remuneration of the new Group Director of Bingo December: Advised by PwC on current market remuneration trends Reviewed the Group s remuneration policy Met with PwC without management representatives present Reviewed the remuneration consultants

84 Governance Directors Remuneration Report 82 Remuneration policy The Group s remuneration policy continues to be to provide marketcompetitive total remuneration packages enabling the business to recruit and retain high calibre entrepreneurs required to drive the future growth and performance of its business. The online gaming sector continues to be a highly competitive and dynamic environment and the following key factors are taken into account: The nature of the market in which the Group operates and, in particular, the fact that the regulation and legality of online gaming varies from jurisdiction to jurisdiction, is subject to uncertainties and may be impacted by adverse changes to regulation of online gaming or the interpretation of regulation by regulators; The need for incentive arrangements to incorporate suitable risk adjustment provisions to ensure executives do not receive unjustified windfalls; The need to attract and retain key talent and drive high performance; Increasing regulation impacting the Group s margins due to additional cost of compliance and taxation; The requirement for the Executive Directors and certain senior executives to relocate and discharge all of their responsibilities from Gibraltar; The opening of the US online gambling market under a federal or state licensing regime, together with the timing of such a development, may have a substantial impact on the Group s financial and share price performance. The remuneration policy has to be flexible and durable enough to accommodate these changes without becoming compromised; and The need to reconcile UK corporate governance guidance with market remuneration practices in all jurisdictions where the Group has employees In this context particular focus is placed on providing a share-based remuneration package appealing to entrepreneurial and innovative executives. The current share-based awards were designed in 2010 and introduced in following the completion of the Merger and aim to take account of the risks associated with the online gaming business and seek to address the following: Long-term incentives with standard three-year performance periods are difficult to use to motivate and retain senior executives due to the fast moving nature of the market; Comparative total shareholder return targets are inappropriate as even direct industry comparators have a different focus on the various gaming verticals and different risk exposure; Incentives need to be flexible enough to deal with the changing regulatory environment in which the Group operates; and The remuneration challenge for the Group is to have remuneration arrangements in place where part of the reward provided to senior executives is linked to shareholder return and is not completely undermined by the risk factors impacting the sector and the Group As a result of the above considerations, the Group has adopted a highly leveraged incentive policy to ensure that the profile of the remuneration on offer is supportive of the Group s business strategy and the effect of legislative changes. In conjunction with this approach, the policy adopts comparatively modest elements for the fixed elements of the total remuneration package, with generally lower to median quartile salaries, minimal benefits and no pension provision. Comparator groups The Remuneration Committee has adopted a combination of the following comparator groups to benchmark its remuneration: (i) Companies in the FTSE 250 Index; (ii) Companies in the FTSE ; (iii) A bespoke comparator group of the following international companies: 888 Holdings ASOS Betsson AB Boyd Gaming Corporation Concur Techs Cybersource Digital River E*Trade Financial Expedia Fortinet IAC/Interactivecorp International Game Technology Ladbrokes Las Vegas Sands MGM Resorts Intl. Moneysupermarket.Com Grp Monster Worldwide NCR Net Entertainment Ne AB Opentable Paddy Power Playtech Rank Group Rightmove Sportingbet Unibet Verisign William Hill WMS Industries Yell Group

85 83 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 The following table summarises the Remuneration Committee s policy for each element of the remuneration package against the previous comparators: Base salary Bonus Pension Benefits in kind Potential total short-term remuneration available Potential annual share awards Potential total compensation value Lower Quartile to Median Upper Quartile None Lower Quartile Median to Upper Quartile This supports the performance based culture of the Company. Fixed costs are minimised and total short term remuneration will only reach and exceed the median if the performance-based bonus is earned for the relevant financial year. In certain circumstances, the Remuneration Committee will, at its discretion, set base salary outside of policy in order to secure the recruitment and retention of the appropriate individual for the role. In such cases the Committee will take into account factors such as the individual s skills and level of experience. Upper Quartile Median to Upper Quartile The policy in respect of long-term incentives and potential compensation value is an extension of the policy on total short term remuneration. Executive Directors will only receive a market competitive package if the annual bonus and longterm incentives are earned. The charts on page 84 show the on target and maximum compensation for each of the Executive Directors based on the following assumptions for 2012: Assumption On Target Maximum Salary Salary Salary Benefits Benefits Benefits Bonus 50% of Maximum Contribution 100% of Maximum Contribution Fair Value of VCP Award at Grant 50% of the Fair Value 100% of the Fair Value The Committee also considers corporate performance on environmental, social and governance ( ESG ) issues when setting the remuneration of Executive Directors and senior managers, ensuring these good practice objectives are appropriately addressed in each individual s objectives. The Remuneration Committee also reviews whether incentive structures may raise ESG risks by inadvertently motivating irresponsible behaviour and is of the view that this is not the case with the current incentive structures.

86 Governance Directors Remuneration Report 84 Jim Ryan (Co-CEO) Target Jim Ryan (Co-CEO) Maximum Salary Benefits Bonus Banking Plan VCP (Fair Value) Salary Benefits Bonus Banking Plan VCP (Fair Value) Norbert Teufelberger (Co-CEO) Target Norbert Teufelberger (Co-CEO) Maximum Salary Benefits Bonus Banking Plan VCP (Fair Value) Salary Benefits Bonus Banking Plan VCP (Fair Value) Joachim Baca (COO) Target Joachim Baca (COO) Maximum Salary Benefits Bonus Banking Plan VCP (Fair Value) Salary Benefits Bonus Banking Plan VCP (Fair Value) Martin Weigold (CFO) Target Martin Weigold (CFO) Maximum Salary Benefits Bonus Banking Plan VCP (Fair Value) Salary Benefits Bonus Banking Plan VCP (Fair Value)

87 85 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Remuneration components a. Salaries Policy Lower Quartile to Median of Comparator Groups Name & Role Basic Salary 2012 Basic Salary Percentage Increase Jim Ryan Co-CEO 500, , Norbert Teufelberger Co-CEO 500, , Joachim Baca COO 428, , Martin Weigold CFO 428, , When determining the base salary of the Executive Directors the Committee takes into consideration: The levels of base salary for similar positions with comparable status, responsibility and skills in organisations of broadly similar size and complexity; The performance of the individual Executive Director; The individual Executive Director s experience and responsibilities; and Pay and conditions throughout the Company. The Committee has access to pay and conditions of other employees within the Group when determining remuneration for the Executive Directors and also considered the relationship between general changes to pay and conditions within the Group as a whole. The general increase in salaries across the Group was 3 to 4% The Committee uses comparisons with caution to avoid increasing remuneration levels without a corresponding improvement in performance. b. Benefits Policy Lower Quartile of Comparator Groups Benefits only include private medical insurance, permanent health insurance and life assurance. In line with the remuneration policy the level of fixed costs incurred as part of the executive remuneration package has been set at the minimum level. Details of the monetary values attributable to these benefits for are set out in the emoluments table on page 95. c. Pensions Policy No pension provision During there was no company pension scheme in Gibraltar. In April 2012 the Group is introducing a flexible benefits programme and this will provide the option for employees to contribute to a company provided pension, with a modest contribution by the employing entity of 1% of salary if the employee contributes at least 3% of their salary. d. Incentives (Bonus and long-term incentives) Policy Upper Quartile of Comparator Groups The incentive plans remain a core element of the remuneration policy in incentivising and retaining executives and aligning their interests with those of s shareholders. During the Executive Directors participated in the Bonus Banking Plan and Value Creation Plan, which were both introduced in in conjunction with the Merger and following extensive shareholder consultation and a binding vote at the extraordinary general meeting of the Company s shareholders on 28 January. (i) Bonus Banking Plan ( BBP ) The key features of the BBP are: In, at the beginning of the plan period of three financial years, participants were given a plan account to which contributions will be made No contribution is be made to a participant s plan account unless the performance criteria are met Each participant has a maximum annual contribution as a percentage of salary, set out in the table overleaf, which provides the following total cash opportunities for the Executive Directors

88 Governance Directors Remuneration Report 86 Name / Role Maximum annual contribution as a % of basic salary Company Total Cash (including value of deferred share element under the BBP) 000 s Jim Ryan Co-CEO 300 1,500 Norbert Teufelberger Co-CEO 300 1,500 Joachim Baca COO 250 1,071 Martin Weigold CFO 250 1,071 Top tier senior managers * Total Cash is base salary plus targeted levels of bonus. It should be noted that under the BBP 50% of the element earned is deferred in shares. The Remuneration Committee sets the performance criteria for each plan year. The performance criteria are as follows: a minimum threshold level of Clean EBITDA for each financial year is required for there to be any payment under the BBP; assuming the threshold is met a percentage of Clean EBITDA is used to create the bonus pool; a participant s annual payment from the bonus pool is also subject to the satisfaction of additional individual performance objectives; where the forfeit threshold Clean EBITDA is not achieved 50% of the deferred balance in a participant s plan account will be forfeited; and Participants are entitled to an annual payment of 50% of their plan account at the end of each plan year. All balances are deferred into shares. On the fourth anniversary of the start of the plan period (1 January 2014) the remainder of the balance of participants plan accounts will be paid The Remuneration Committee believes that the BBP is appropriate and supports the remuneration policy for the following reasons: (i) the BBP provides flexibility for the Remuneration Committee to set annual targets mitigating against some of the risks of the sector; (ii) the use of strategic key performance indicators as additional conditions for payments to be made under the BBP allows a more holistic, flexible and durable approach rather than focusing purely on a relatively narrow set of financial metrics; (iii) it ensures that any objectives based on integration and synergy savings from the Merger are underpinned by profit performance before any bonus is earned; (iv) the minimum performance thresholds ensure that key executives are encouraged to focus on sustainable long term performance; and (v) the deferral in shares and the real risk of forfeiture through claw back ensure a balance between the interests of shareholders and key executives

89 87 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Outcomes The following table sets out the Clean EBITDA targets for and their level of satisfaction: Clean EBITDA Threshold Clean EBITDA on Target Clean EBITDA Maximum EBITDA 161.9m 202.4m 242.9m % of EBITDA credited 2.4% 3.8% 3.2% to the Bonus Pool Outcomes Clean EBITDA %age of Clean EBITDA credited to the Bonus Pool Value of Contribution to the Bonus Pool 199.3m 3.8% 7.67m m EBITDA Clean EBITDA Maximum Clean EBITDA on Target Clean EBITDA Threshold In addition, the Remuneration Committee has reviewed the performance of the Executive Directors and senior executives against their personal objectives set for. The objectives for the COO, CFO and senior executives were set by the Co-CEOs, whilst the objectives for the Co-CEOs were set by the Chairman. All the personal objectives were reviewed and approved by the Remuneration Committee at the beginning of before being rolled out. The objectives included: Co-CEOs COO CFO Oversee the delivery of the integration plan and forecast synergies Implement strategic plans to exploit new or related business channels Embed innovation into the Group s strategy Identify and enter into new strategic partnerships Implement the tactical plan to re-enter the US online poker market when it becomes regulated Implement tactical plans relating to new markets and Group culture Manage the process of capturing the forecast synergies Manage the form and delivery of the Group s products and services Oversee the optimisation of software development and IT operations Align the bwin and PartyGaming processes Enable quick and effective entry into newly regulated markets Enhance the Group s payment processing operation Improve the customer experience Oversee the combined Group s profit and loss account and budget and financial tracking and control Integrate the bwin financial systems with those of PartyGaming Conduct a budgeting exercise for the combined Group Track and oversee the realisation of the Merger synergies Support the strategic decision making process

90 Governance Directors Remuneration Report 88 As a result of this review process, the Remuneration Committee has determined that the Executive Directors are entitled to the following contributions in respect of : Name/Role Cash payment Deferred shares/ Value Total value % of Basic salary Jim Ryan Co-CEO 453, , ,125 Norbert Teufelberger Co-CEO 453, , ,125 Joachim Baca COO 319, , ,813 Martin Weigold CFO 320, , , , , , , * Number of shares calculated using the average share price for the 30-day measurement period to 31 December, which was pence. The following chart shows the actual Company contribution to the plan accounts for the Executive Directors for compared to their maximum annual contribution: % Jim Ryan (Co-CEO) Norbert Teufelberger (Co-CEO) Joachim Baca (COO) Martin Weigold (CFO) Maximum Contribution (% of Salary) Actual Bonus Contribution (% of Salary) maximum annual contribution and performance targets The Company 2012 maximum annual contribution for Executive Directors participating in the BBP is the same as the levels set for. For 2012 the Remuneration Committee has again set the minimum threshold for a payment under the BBP. This is not disclosed in this report because the information is commercially sensitive, but will be disclosed in the 2012 Directors Remuneration Report (using the format set out above). The personal objectives for the Executive Directors and senior executives have also been set and agreed by the Remuneration Committee.

91 89 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 (ii) Value Creation Plan ( VCP ) The key features of the VCP are: Under the VCP, participants have been allocated a number of VCP points from a total pot and the Executive Directors have received the following: Name Number of VCP Points % of VCP Pool Jim Ryan 1,000, Norbert Teufelberger 1,000, Joachim Baca 1,000, Martin Weigold 1,000, Top-tier senior manager 200, , These VCP points have no value on grant but give the participants the opportunity, during the three year performance period, to share in 4% of the total value created for shareholders in excess of an annual hurdle of 10% share price growth from the initial share price at annual measurement points The value to each participant will be set by reference to the number of VCP points held in proportion to the total VCP points allocated and will be delivered in shares The size of the VCP Pool is not capped At each measurement date participants will bank shares (in the form of a nil-cost option) with a value equivalent to the excess value created using the prevailing share price. 50% of any banked shares will become exercisable at the end of year 3 (2013), with the remainder at the end of year 4 (2014) The level of value created for shareholders will be determined by reference to the appreciation in the Company s share price, the amount of dividends paid and any share buybacks (absolute total shareholder return) The shareholder value created at each measurement date will be calculated using the average share price over the 30 day period prior to the relevant measurement date The annual hurdle will be the higher of: 10% compounded annually from the initial price; and the average share price at the start of the relevant year (or previous measurement date if this is higher than at the start of the relevant year); and The initial price for determining the level of value required to be generated in was pence The VCP fits with the Group s remuneration policy because: it incentivises participants to focus on building shareholder value; key executives will only benefit from material increases in absolute total shareholder return ensuring a direct alignment between the benefits received and value to shareholders; and the annual banking of shares under the VCP results in an immediate shareholding which because of the restrictions on disposal provides an ongoing exposure to the share price of the Company, encourages decisions maintaining and enhancing shareholder value The average share price for the 30-day period to 31 December was pence. With an initial price of pence the share price had to reach a minimum of pence before a VCP pool was created and therefore there are no awards to be granted under the VCP in respect of. Share price on measurement date is pence 10% p.a. Year 1 Threshold Price pence 10% p.a. Year 2 Threshold Price pence Depends on the outcome at the end of Year 2; however minimum Threshold Price would be pence The price at which a VCP pool will begin to be created in respect of 2012 is if the average share price for the 30-day period to 31 December 2012 is pence. Year 1 () Year 2 (2012) Year 3 (2013)

92 Governance Directors Remuneration Report 90 Total remuneration Policy median to upper quartile of comparator groups The Remuneration Committee s policy is to set the potential total remuneration at the median to upper quartile of the comparator groups. The level of total remuneration actually received will be dependent on the level of bonus earned under the BBP and the shares awarded under the VCP. The table below shows for each of the Executive Directors the following information: the total remuneration payable under the Company s remuneration policy against the comparators. Total remuneration consists of: base salary on target bonus fair value of long-term incentives pension contributions the actual total remuneration provided by the Company for Average of Comparators Name Company Policy Level 000 s Median 000 s Upper Quartile 000 s Company Actual 000 s Jim Ryan Co-CEO Norbert Teufelberger Co-CEO Joachim Baca COO Martin Weigold CFO 2,101 1,980 2,831 1,406 2,101 1,980 2,831 1,406 1,772 1,037 1, ,772 1,077 1, Other share plans In addition to the above plans, the Company also operates the following plans some of which the Directors do or may participate in: Global Share Plan (Current Plan) (All employees including Executive Directors) Under the Global Share Plan launched in following the Merger participants are able to purchase a maximum of 1,500 shares annually. Subject to retaining these purchased shares for three years and continued employment, the Company can provide a matching share for each employee share purchased. Participants, excluding the Executive Directors, may also be awarded a nil-cost option (no cost on grant and no strike price) or restricted stock up to a value of 25,000 per annum (Executive Directors can only be granted an award up to 3,000 in value per annum). These discretionary free share awards generally do not have any performance conditions and vest over a three-year period. New shares are used to satisfy free share awards, whilst shares are purchased in the market in respect of the purchased share and matching share programme. Bonus & Shares Plan (Current Plan) ( mid to senior management excluding those in the VCP and BBP) The Bonus & Shares Plan, launched in after the completion of the Merger duplicates in many respects the BBP. It uses the same Clean EBITDA target set for the BBP and in determining a participant s contribution performance against individual objectives set at the beginning of the year are considered. As with the BBP, bonuses are paid in the form of a cash payment and deferred shares (awarded as nil-cost share options or restricted stock), but unlike the BBP there is no clawback mechanism for underperformance in future years. Deferred shares vest over a three year period. The maximum annual contribution that can be earned under this plan is 150% of basic salary. The deferred shares are funded through the allotment of new shares.

93 91 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 PartyGaming Plc Share Option Plan (legacy pre-merger plan) (Jim Ryan, Martin Weigold and former PartyGaming employees and consultants only) Under this plan launched in 2005, option awards have been awarded with no cost on grant or exercise and generally without any performance conditions. The shares used to fund exercised awards under this plan come solely from the employee benefit trust, no new shares are allotted to satisfy awards and the shares were largely donated to the employee benefit trust by the founder shareholders of PartyGaming in 2005 and Whilst the Remuneration Committee at the time these options were granted recognised the recommendation in the Combined Code on Corporate Governance (predecessor to the UK Corporate Governance Code) not to award Executive Directors long term incentive awards without performance conditions or to award options at a discount, the Remuneration Committee deemed it necessary at the time to make these awards in order to attract and retain the services of the recipients. The awards generally vest over a period of five years. Other employees of the Group have participated in this plan and the majority of awards were made in the period 2005 to No awards have been made under this plan since 2010 and no awards will be granted in the future. PartyGaming Plc Performance Share Plan (legacy pre-merger plan) (Jim Ryan, Martin Weigold and former PartyGaming senior management team only) Under this plan launched in 2007, awards of restricted stock were made and vested subject to the Company s total shareholder return performance over a three year period versus that of a peer group. Only the Executive Directors of PartyGaming and the senior management team participated in this plan. Details of how this legacy plan operated were set out in the 2010 Remuneration Report and all outstanding awards had their performance measured to 28 January, when shareholders approved the Merger. The vesting schedule for all outstanding awards did not change. As a result, the Remuneration Committee determined as follows: April 2009 awards: TSR performance outperformance of 11.2% so 100% of each award will vest on 31 March As a result Jim Ryan will receive 125,000 shares and Martin Weigold will receive 337,500 shares September 2009 awards: TSR performance of 4.4% determining that 57.8% of each award will vest on 30 September None of the Executive Directors received an award April 2010 awards: The TSR threshold was not met and therefore these awards have lapsed in their entirety. Jim Ryan and Martin Weigold had 250,000 and 200,000 shares respectively under these grants No awards have been made under this plan since 2010 and no awards will be granted in the future. New shares will be issued to satisfy vested awards. Rollover Option plan (legacy pre-merger plan) (Norbert Teufelberger, Joachim Baca, former bwin non-executive directors and former bwin employees only) The Company introduced the Rollover Option Plan ( ROP ) at the time of the Merger. The purpose of this plan was to effect the grant of rollover options over shares to replace unexercised options granted under the two bwin fair market value option plans, some of which were subject to performance conditions. On the day the Merger took effect the bwin options over bwin shares were rolled over into equivalent options under the ROP over shares on terms which reflected the same exchange ratio as applied to bwin shareholders shares for each bwin share. The shares continue to vest on the same vesting timetable as the original bwin options. New shares will be issued to satisfy exercised ROP awards, however, as explained in the Merger prospectus and circular, these bwin. party shares will not count towards the Company s 10% dilution limit. Details of the awards under the ROP granted to Norbert Teufelberger, Joachim Baca, Per Afrell, Manfred Bodner, Helmut Kern and Georg Riedl are contained in the table in the section below. Whilst the UK Corporate Governance Code recommends against granting options to Non- Executive Directors, Per Afrell, Manfred Bodner, Helmut Kern and Georg Riedl received their original bwin options under a different corporate governance regime (Austrian) and the ROP awards simply convert the value of these original awards into shares. No further share awards will be made under the ROP. PartyGaming Plc Executive Share Option Plan (legacy pre-merger plan) (Jim Ryan, Martin Weigold and former PartyGaming senior management team only) Under this plan launched in 2007, Executive Directors and senior managers were awarded fair market options vesting after three years subject to the satisfaction of a Clean EPS growth target. All awards made under this plan have lapsed. No future awards will be granted under this plan. PartyGaming All-Employee Option Plan (legacy pre-merger plan) (All former PartyGaming employees except Executive Directors) Under this plan launched in 2007, all employees excluding the Executive Directors were eligible to receive fair market options. These awards vested over three years and were not subject to any performance conditions. These awards, when exercised are satisfied by the issuance of new shares. No new awards have been granted since 2010 and no future awards will be granted under this plan.

94 Governance Directors Remuneration Report 92 Summary of the long-term incentive plans Director Award Number of shares over which awards granted at 1 January Number of shares over which awards granted during the year ended 31 December Exercise price of award granted (pence) Vesting Date Vested number of shares Exercise Date Exercised number of shares Lapsed Number of shares over which awards remain unvested or unexercised at 31 December Expiry date Jim Ryan* Co-CEO Norbert Teufelberger Co-CEO Joachim Baca COO Martin Weigold CFO Per Afrell NED Manfred Bodner NED Helmut Kern NED Georg Riedl NED Executive Share Option Plan Performance Share Plan Share Option Plan Rollover Option Plan Rollover Option Plan Executive Share Option Plan Performance Share Plan Share Option Plan Rollover Option Plan Rollover Option Plan Rollover Option Plan Rollover Option Plan 1,020,000 Nil Nil Nil 1,020,000 Nil ,020,100 Nil , , , , ,000 Nil ,500 87,500 75,000 75, ,500 87,500 75,000 75,000 Nil 450, Nil 2,503, ,503,958 Nil Nil 2,503, ,503, ,503,958 Nil Nil 2,503, ,503, ,503,971 Nil Nil 2,503, Nil 244, ,600 Nil Nil 244, ,262 Nil Nil Nil 797,262 Nil ,902 Nil , , , ,554 Nil , ,554 Nil 100,000 Nil 163, ,075 Nil Nil 163, Nil 163, ,063 Nil Nil 163, Nil 2,503, ,503,958 Nil Nil 2,503, Nil 2,503, ,503,958 Nil Nil 2,503, Nil 2,503, ,503,971 Nil Nil 2,503, Nil 163, ,075 Nil Nil 163, Nil 163, ,063 Nil Nil 163, Nil 163, ,075 Nil Nil 163, Nil 163, ,063 Nil Nil 163, * In addition to the above awards, part of Jim Ryan s 2010 annual bonus was deferred into shares. The total number of deferred shares he was awarded was 272,278, vesting in four tranches of 68,182 shares on 30 June, 30 September, 31 December and 31 March The information contained in this table has been audited by BDO LLP and BDO Limited.

95 93 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Dilution summary Issued share capital as at 19 March ,901,408 10% of issued share capital 82,290,140 5% of issued share capital 41,145,070 New issue limits No more than 10% of issued share capital can be committed to the Global Share Plan, BBP, VCP, Bonus & Shares Plan, PartyGaming Plc All Employee Option Plan and PartyGaming Plc Performance Share Plan. Within the above limit, no more than 5% of the issued share capital can be committed to BBP, VCP, Bonus & Shares Plan and PartyGaming Plc Performance Share Plan. Total Number of free shares committed to the Global Share Plan 1,514,920 Total number of shares committed to the PartyGaming Plc All-Employee Option Plan 18,351,601 Total number of shares committed to PartyGaming Plc Performance Share Plan 958,837 Total Share commitments as at 19 March ,825,358 To date no share awards have been made under the BBP, VCP or Bonus & Shares Plan. As described above, shares allotted in respect of the Rollover Option Plan (32,105,881 shares), which addresses the legacy options awarded prior to the Merger, do not count towards the Company s 10% dilution limit. Service agreements Notice Periods Name Date of appointment Nature of contract From From Director Compensation provisions for early termination Joachim Baca Rolling 12 months 12 months None Jim Ryan Rolling 12 months 12 months None Norbert Teufelberger Rolling See below See below See below Martin Weigold Rolling 12 months 12 months None If Norbert Teufelberger s employment is terminated prior to 31 March 2014 by the Company or by Norbert Teufelberger in certain prescribed circumstances under the Regulatory Process Agreement or on a change of control, in each case where there are no grounds for summary termination by the Company, the Company will offer to engage him as a consultant until 31 March 2014 on terms which are in respect of remuneration (including incentive arrangements) no less favourable when taken as a whole than the terms of his employment arrangements would have been had they continued until 31 March No compensation will be payable upon expiry of the term on the third anniversary of his appointment date unless the period of the consultancy agreement is less than 12 months, in which case Norbert Teufelberger will receive an additional payment on the expiry of the consultancy agreement equal to the amount (if any) by which the aggregate of any termination payments under the service agreement and payments under the consultancy agreement is less than the payment in lieu of notice which Norbert Teufelberger would have received under the service agreement if the Company had chosen to exercise its right to terminate the service agreement by making a payment in lieu of notice. If Norbert Teufelberger accepts the Company s offer, he will have no right to claim compensation in respect of the termination of his contract of employment under the provisions described above. If a change of control of the Company (as defined in each service agreement) takes place, each of the Executive Directors may, in the 12 months following the change of control, terminate his employment if the Company makes a material adverse change to his title, responsibilities or status or changes his principal place of work to a place other than Gibraltar by giving three months notice to the Company in writing. The Company will then be required to pay the relevant Executive Director a payment equal to the amount he would have received had his employment been terminated in accordance with the payment in lieu provision in his service agreement. The service agreements are governed by English law and contain non compete provisions which apply during employment and for 12 months following termination.

96 Governance Directors Remuneration Report 94 Non-Executive Directors The fees paid to the Non-Executive Directors, excluding the Chairman of the Board, are determined by the Board on recommendation from the Executive Directors. The Chairman s fee is determined by the Remuneration Committee. Fees are determined by reference to market information and the particular risks attaching to online gaming. Position Annual Fee Chairman of the Board* 350,000 Deputy Chairman & Senior Independent Director** 250,000 Chairman of the Integration Committee 465,000 Independent Non-Executive Director 130,000 Non-Executive Director 100,000 Additional fee for chairing the Audit Committee 20,000 Additional fee for chairing the Ethics Committee 20,000 * This fee includes chairing the Nominations Committee ** This fee includes chairing the Remuneration Committee The Chairman of the Integration Committee is a temporary appointment for a three-year period to 31 March 2014 and is a position held by Manfred Bodner. The role is important in overseeing that management implements an effective integration of the bwin and PartyGaming businesses and recognises many merging businesses fail to deliver the synergy savings and other benefits from a consolidation. In recognition of the importance and special duties of the role, the Chairman of the Integration Committee receives a higher fee than a Non-Executive Director performing normal duties. As part of the Chairman of the Integration Committee s remuneration package, he also participates in the Value Creation Plan and Bonus Banking Plan. Under the Value Creation Plan, Manfred Bodner has been awarded 1,000,000 VCP points, representing an entitlement to 10% of any available VCP pool. As disclosed earlier in this report, no value was created under the Value Creation Plan in respect of. Under the Bonus Banking Plan, Manfred Bodner is entitled to a maximum annual contribution of 300% of his annual fee (equivalent 1,395,000). The mechanics of the Bonus Banking Plan have been described earlier in this report and Manfred Bodner is subject to the same Clean EBITDA target and his personal objectives relate to the achievement of synergy cost realisations. The Board resolved that in respect of his performance in he would receive a total contribution of 697,500 (equivalent to 150% of his annual fee), payable 348,750 in cash and in 251,750 deferred shares (this number calculated using the average share price for the 30-day measurement period to 31 December, which was pence and has a value on the date of calculation of 348,750). With the exception of the Chairman of the Integration Committee, the Non-Executive Directors cannot participate in the Value Creation Plan and Bonus Banking Plan or any other incentive arrangements operated by the Company. Each of the Non-Executive Directors has been appointed under a letter of appointment. With the exception of the Chairman of Integration Committee, these agreements do not provide for a fixed term of service, but each Director stands for re-appointment by shareholders each year and the Nominations Committee and Board reviews matters of independence, commitment and performance before recommending a Director for re-appointment. Name Notice Periods Dates of letters of appointment Nature of contract From From Director Compensation provisions for early termination Simon Duffy Rolling 6 months 6 months None Per Afrell Rolling 3 months 3 months None Geoff Baldwin Rolling 3 months 3 months None Manfred Bodner Rolling See below See below See below Tim Bristow Rolling 3 months 3 months None Helmut Kern Rolling 3 months 3 months None Lewis Moonie Rolling 3 months 3 months None Rod Perry Rolling 3 months 3 months None Georg Riedl Rolling 3 months 3 months None

97 95 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 If the appointment of Manfred Bodner is terminated prior to 31 March 2014 by the Company, by him not being re-elected by the shareholders in a general meeting, or by Manfred Bodner in certain prescribed circumstances under the Regulatory Process Agreement or on a change of control, in each case where there are no grounds for summary termination of the appointment by the Company, the Company will offer to engage him as a consultant until 31 March 2014 on terms which are no less favourable in terms of fees (including incentive arrangements) than the terms of his letter of appointment would have been had it continued until the third anniversary of his original appointment date. No compensation will be payable upon expiry of the term on 31 March 2014 unless the period of the consultancy agreement is less than 12 months, in which case Manfred Bodner will receive an additional payment on the expiry of the consultancy agreement equal to the amount (if any) by which the aggregate of any termination payments under the appointment letter and payments under the consultancy agreement is less than the payment in lieu of notice which Manfred Bodner would have received under the appointment letter if the Company had chosen to exercise its right to terminate the appointment letter by making a payment in lieu of notice. If Manfred Bodner accepts the Company s offer, he will have no right to claim compensation in respect of the termination of his appointment under the provisions described above. Upon termination of the appointment of Manfred Bodner (except where terminated summarily or where the appointment is terminated in circumstances where the Company is required to offer him a consultancy agreement as described above), the Company will offer him a new appointment letter on its standard terms then applicable to Non-Executive Directors. If a change of control of the Company takes place, Manfred Bodner may, in the 12 months following the change of control, terminate his appointment if the Company makes a material adverse change to his title, responsibilities or status or changes his principal place of work to a place other than Gibraltar by giving three months notice to the Company in writing. The Company will then be required to pay him a payment equal to the amount he would have received had his appointment been terminated in accordance with the payment in lieu provision in his letter of appointment. External appointments Executive Directors are required to seek the consent of the Board before accepting external appointments as non-executive directors of other companies. None of the Executive Directors is a director of a company outside the Group for which they or the Company receives or received a fee during the year to 31 December. Total emoluments overview The information contained in this table has been audited by BDO LLP and BDO Limited. Name Basic fee/salary Bonus Banking Plan (Cash element only) Allowances/ benefits Total emoluments Net proceeds from exercise of options total 2010 total Chairman Simon Duffy 300, , ,825 Executive Directors Joachim Baca 409, ,506 6, , ,423 Jim Ryan 573, ,281 15,933 1,108,214 1,108,214 1,724,562 Norbert Teufelberger 429, ,281 7, , ,273 Martin Weigold 491, ,277 8, ,277 1,072,830 1,940, ,206 NEDs Per Afrell 111, , ,735 Geoff Baldwin* 52,599 52,599 52,599 Manfred Bodner 399, ,656 3, , ,776 Tim Bristow 171, , , ,791 Helmut Kern 134, , ,655 Rami Lerner* 61,921 61,921 61, ,527 Lewis Moonie 160, , , ,096 Rod Perry** 313, , , ,018 Georg Riedl 85,950 85,950 85,950 * Rami Lerner resigned as a Director with effect from 15 July and was succeeded by Geoff Baldwin ** Rod Perry was the Chairman of the Board (annual fee 345,000/ 395,370) until 31 March, when he became the Deputy Chairman and Senior Independent Director (annual fee 250,000/ 286,500)

98 Governance Directors Remuneration Report 96 Directors interests in shares Shares Shares held under share plans Director 1 January 31 December 1 January 31 December Total at 31 December Per Afrell 0 40, , ,252 Joachim Baca , ,600 Geoff Baldwin 0 100, ,000 Manfred Bodner 0 12,298, ,511,887 19,810,314 Tim Bristow 8,000 8, ,000 Simon Duffy 0 22, ,192 Helmut Kern , ,138 Lewis Moonie 15,940 16, ,152 Rod Perry 5,086 5, ,086 Georg Riedl 0 856, ,138 1,182,238 Jim Ryan 725,000 1,469,394 2,815, ,364* 2,255,758 Norbert Teufelberger 0 12,298, ,511,887 19,810,314 Martin Weigold 68, ,400 2,435, , ,900 * Includes 68,182 shares awarded in respect of the 2010 annual bonus deferred into shares Performance graph Value of 100 since December 2006 To assist shareholders in reviewing the appropriateness of s remuneration policies and practices, the Company is required by regulation to set out a graph in this report showing the total shareholder return ( TSR ) of s shares against the TSR performance of a suitable index over a five-year period. The Remuneration Committee have chosen to use the FTSE250 Index as the comparator, because the Company has been a constituent of this index for the last five years. The following graph plots the value of 100 in s shares and in the FTSE250 Index from 31 December 2006 to 31 December. The change in value of the holdings in the FTSE250 Index reflects any changes in the constituent companies over the period. The value of dividend income is treated as reinvested in the period Dec Dec Dec Dec Dec Dec FTSE 250

99 Governance Other Governance and Statutory Disclosures 97 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 J. Other Governance and Statutory Disclosures and the 2012 AGM Share capital (i) Authorised share capital: 225,000 dividend into 1,500,000,000 ordinary shares of pence each. (ii) Share allotment history: Event Shares allotted/(purchased) Total shares in issue 28 February (2010 annual results released) 413,065, March (completion of the bwin merger) 439,209, ,271,026 Shares allotted for share plans during 638, ,909,271 Shares bought back for cancellation in (15,710,401) 837,198,870 Shares allotted for share plans in 2012 (to 19 March 2012) 185, ,384,075 Shares bought back for cancellation in 2012 (to 19 March 2012) (14,482,667) 822,901,408 maintains a primary listing on the London Stock Exchange. As securities issued by non-uk companies cannot be held or transferred through the CREST paperless settlement system, the Company has put in place arrangements for a depositary to hold shares and issue dematerialised depositary interests representing the underlying shares which are held on trust for the holders of the depositary interests. The rights attaching to the ordinary shares and depositary interests are contained in the articles of association and deed poll respectively. Both these documents are available on the corporate website, Further information regarding s shares and depositary interests are set out in the Shareholder Information section on pages 153 to 157 of the Annual report. (iii) Allotment authority On 28 January shareholders authorised the Directors to allot up to 450 million new shares to bwin shareholders to effect the Merger. This authority was used to allot million shares and lapsed at the AGM on 30 June. At the AGM the Directors were authorised to allot new shares up to an initial aggregate nominal amount of 42,643 (284 million shares), with a further authority to allot further new shares up to an aggregate of 42,643 to be used only for a fully pre-emptive rights issue. This AGM authority expires at the Company s 2012 AGM (or, if earlier, at close of business on 30 September 2012). The Directors were also empowered at the AGM, pursuant to the articles, to allot shares for cash, pursuant to the above AGM authority, as if pre-emption rights did not apply to the allotment, provided that such authority be limited to (i) the allotment of shares in connection with a rights issue, open offer or any other pre-emptive offer in favour of shareholders, but subject to such exclusions as may be necessary to deal with the fractional entitlements, or legal or practical problems under any laws, or requirements of any regulatory body in any jurisdiction; and (ii) the allotment (otherwise pursuant to (i) above) of shares for cash up to an aggregate nominal amount of 6,396 (42 million shares). This authority also expires at the Company s 2012 AGM (or, if earlier, at close of business on 30 September ). The AGM authorities have not been utilised to date. The Directors do, however, believe it is in the Company s best interests to have the flexibility to issue new shares within these parameters and are seeking a renewal of these authorities at the 2012 AGM. (iv) Share buyback authority At the AGM shareholders granted the Board authority to purchase on behalf of the Company 85,286,000 shares, representing at the time 10% of the Company s issued share capital. announced on 30 June a distribution policy which included a commitment to buyback up to 75 million of the Company s issued share capital over the following twelve months. Information about the number of shares purchased is set out in the table above and is available on the corporate website ( As there is no facility to hold shares in treasury under Gibraltar company law, all purchased shares have been cancelled. The Board will review in June 2012 s distribution policy and in particular future share buybacks. The Directors believe it is in the Company s best interests to have the power to purchase a proportion of its share capital and therefore the Board is seeking a renewal of this authority at the 2012 AGM.

100 Governance Other Governance and Statutory Disclosures 98 Non-voting shares (vi) Significant shareholders (v) Employee Benefit Trust As at 19 March 2012, of the 822,901,408 shares in issue, 2,721,178 shares were held in the Company s employee benefit trust, the Shares Trust (the Employee Trust ). The trustee of the Employee Trust has waived all dividend and voting rights in respect of Shares held by the Employee Trust to satisfy the future exercise of share options under all the share plans except the Global Share Plan. This waiver only subsists while the shares are held in the Employee Trust. The shares are transferred out of the Employee Trust upon exercise of share options under certain share plans. Set out below is a list of shareholding notifications disclosed to the Company in accordance with the Disclosure and Transparency Rules, the Company s articles and deed poll and Gibraltar Disclosure of Interests in Shares Act 1998: Shareholder Shares held as at 19 March 2012 % of total issued shares % of total voting rights Janus Capital Management LLC 68,240, Emerald Bay Limited (1) 58,498, Stinson Ridge Limited (2) 58,498, SRS Investment Management LLC 42,851, Androsch Foundation 38,650, New Media Gaming & Holding Limited (3) 24,596, (1) Emerald Bay limited is a company wholly-owned by Ruth Parasol. Ruth Parasol and Russell DeLeon (see note below) are married (2) Stinson Ridge Limited is a company wholly-owned by Russell DeLeon. Russell DeLeon and Ruth Parasol (see note above) are married (3) New Media Gaming & Holding Limited is wholly-owned jointly by Manfred Bodner and Norbert Teufelberger The disclosures in the table above are based on the last notifications received and have not been changed to take account of changes to the total voting rights or issued share capital. The interests of the Directors in the Company s issued share capital are set out in the Directors Remuneration Report on page 96. Emerald Bay Limited and Stinson Ridge Limited entered into a relationship agreement with the Company when it floated on the London Stock Exchange in 2005, governing their combined rights to nominate a representative for appointment to the Board and governing the process for them selling their shares. This agreement was superceded by a new relationship agreement which took effect on 29 January. Under this new relationship agreement Emerald Bay Limited and Stinson Ridge Limited have the right whilst they both hold in aggregate 5% or more of the Company s issued share capital, to nominate a suitable individual for appointment to the Board. Geoff Baldwin is their current nominee. This nomination right may be transferred to another party where Emerald Bay Limited and Stinson Ridge Limited transfer 6% or more of the Company s share capital to that other party. Emerald Bay Limited and Stinson Ridge Limited are also required to give the Company not less than four days notice of any proposed sale. Emerald Bay Limited and Stinson Ridge Limited are subject to the Company s share dealing code whilst they maintain a representative on the Board. The relationship agreement also contains restrictions limiting Emerald Bay Limited and Stinson Ridge Limited and their associates from investing in other online gaming businesses. Androsch Foundation and New Media Gaming and Holding Limited, founder shareholders of bwin Interactive Entertainment AG, have also entered into a relationship agreement with the Company on the same terms as detailed above. This relationship agreement came into effect on 31 March. Their representative on the Board is Manfred Bodner.

101 99 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Dividend During the year ended 31 December paid an interim dividend of 1.56 pence per share which was paid on 7 October. The Board is recommending a final dividend of 1.56 pence per share payable on 12 June 2012, with a record date of 11 May Customer and creditor payment policy The Group is committed to prompt payment of customer cashout requests and maintains adequate cash reserves to cover customer withdrawals and balances. Normally payments will be made to customers within seven days of receiving a customer instruction. In the case of other creditors, it is the Group s policy to agree terms at the outset of a transaction and ensure compliance with such agreed terms. In the event that an invoice is contested then the Group informs the supplier without delay and seeks to settle the dispute quickly. Going concern The Group s business activities, together with the factors likely to affect its future development, performance and position are set out in the Overview, Strategy and Review of sections of the Annual report. The financial position of the Group, its cashflow, liquidity position and borrowings are set out in the aforementioned section. In addition, note 28 to the financial statements on pages 142 to 146 includes the Group s objectives, policies and processes for managing its capital; its financial risk management objectives; details of financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group has considerable financial resources together with a large number of players and long-term contracts with a number of corporate customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe the Group is well placed to manage its business risks successfully despite the current challenging economic outlook. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report. Audit The Directors who held office at the date of approval of the annual report and financial statements for the year ended 31 December, confirm that, so far as they are each aware, there is no relevant audit information of which s auditor is unaware; and each Director has taken all steps that they reasonably ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company s auditor is aware of that information. As recommended by the Audit Committee, a resolution for the re-appointment of BDO LLP and BDO Limited as joint auditors to is being proposed at the 2012 AGM.

102 Governance 2012 Annual General Meeting Annual General Meeting The Annual General Meeting will be held on Thursday 7 June 2012 at p.m. at The Caleta Hotel, Catalan Bay, Gibraltar. The AGM notice is set out on pages 158 to 161 of this document. The following is a summary of resolutions to be considered: Resolution 1: To receive and consider the Company s Annual report and accounts together with the Reports of the Directors and Auditor for the year ended 31 December. The Directors present to the meeting s audited annual accounts for the year ended 31 December together with the Directors Report and Auditors Report. Resolution 2: To approve the Directors Remuneration Report for the year ended 31 December. The Directors Remuneration Report is set out on pages 80 to 96 of this document. The vote will have an advisory status only and will be in respect of the remuneration policy and overall remuneration packages generally and will not be specific to individual levels of remuneration. Resolution 3: To re-appoint BDO LLP and BDO Limited as auditors of the Company with BDO Limited acting as auditor for the purposes of section 10 of the Gibraltar Companies (Accounts) Act In accordance with section 180 of the Companies Act 1930 (as amended) the Company at each annual general meeting has to appoint an auditor to hold office until the next annual general meeting and BDO LLP and BDO Limited have expressed their willingness to be re-appointed as auditors. The Audit Committee recommends and the Board agrees with the re-appointment of BDO LLP and BDO Limited as auditors. Resolution 4: To authorise the Directors to set the auditors remuneration The resolution authorises the Directors to set the remuneration payable to the auditors, in accordance with best practice. The Audit Committee is tasked with reviewing the auditors remuneration and making a recommendation to the Board. Resolution 5: To declare a final dividend The Board is proposing a final dividend in respect of the year ended 31 December of 1.56 pence per ordinary share. This is in line with s distribution policy announced on 30 June, under which the Board proposed a progressive dividend policy. If approved by shareholders this final dividend will be payable on 12 June 2012 to those shareholders on the register of members on 11 May Resolutions 6 to 18: Director re-appointments The Company s articles of association require any Director appointed by the Board to seek re-appointment at the following AGM. Geoff Baldwin was appointed a Director on 15 July and is therefore standing for re appointment at the 2012 AGM. The articles also require one-third of all the other Directors to see re-appointment. However, in accordance with the recommendation of the Code, all the Directors are standing for re-appointment at the 2012 AGM. The biographies for each Director are set out on pages 68 to 69. The Nominations Committee has reviewed these re-appointments and on the basis of experience, performance, skills and commitment demonstrated, has recommended to the Board that each Director be re-appointed. The Board has considered and agrees with this recommendation and is therefore advising shareholders to support the re-appointments of all the Directors. Resolution 6 to re-appoint Per Afrell Resolution 7 to re-appoint Joachim Baca Resolution 8 to re-appoint Manfred Bodner Resolution 9 to re-appoint Tim Bristow. Resolution 10 to re-appoint Simon Duffy Resolution 11 to re-appoint Helmut Kern Resolution 12 to re-appoint Lewis Moonie Resolution 13 to re-appoint Rod Perry Resolution 14 to re-appoint Georg Riedl Resolution 15 to re-appoint Jim Ryan Resolution 16 to re-appoint Norbert Teufelberger Resolution 17 to re-appoint Martin Weigold Resolution 18 to re-appoint Geoff Baldwin Resolution 19: Share allotment authority The Board is proposing to update the Company s authority to issue new share capital in accordance with UK corporate governance guidelines, specifically those of the Association of British Insurers. The Company is seeking authority to issue new shares up to an amount equal to one-third of the existing issued share capital. If these shares are issued and paid-up wholly or partly otherwise than for cash (for example, in connection with an acquisition by the Company using its shares for consideration), then pursuant to the provisions of the Articles, no pre-emption rights will apply to such an issue of shares. In addition, the Company is seeking authority to issue further new shares in an amount up to a further one-third of the existing issued share capital. This further additional authority will only be used for a full-pre-emptive rights issue. This authority if granted will expire at the 2013 AGM or, if earlier, 7 September 2013.

103 101 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Resolution 20: Disapplication of pre-emption rights The Articles require any new shares to normally be offered to the current shareholders in proportion to their existing holdings to prevent their shareholdings being significantly diluted by the Company acting unilaterally. To give the Company a degree of flexibility in managing its share capital and raising new funds, the Board is seeking shareholder authority to issue up to 5% of the Company s issued share capital for cash without pre-emption rights applying to such an allotment. It is normal practice for UK-listed companies to have this limited authority, which accords with UK corporate governance best practice guidelines. In accordance with the latter, the Board confirms its intention that no more than 7.5% of the issued share capital will be issued for cash on a non pre-emptive basis during any rolling three-year period. Resolution 20 is subject to resolution 19 being passed. Resolution 21: Share buyback authority In certain circumstances, it may be advantageous for the Company to purchase its own shares and Resolution 21 seeks authority from the shareholders to do so. The resolution specifies the maximum number of shares that may be acquired (10% of the Company s issued shares) and the maximum and minimum prices at which they may be bought. Any shares purchased in this way will be cancelled and the number of shares in issue will be reduced accordingly. The Directors will only purchase such shares after taking into account the effects on earnings per share and the benefit for shareholders. As disclosed previously, bwin. party announced on 30 June, as part of its distribution policy that for the following 12 months the Company would acquire up to 75 million of its shares and so the current purchase authority has been utilised. The current authority will lapse at the 2012 AGM. The proposed new authority will expire at the conclusion of the 2013 annual general meeting or, if earlier, 7 September Directors report Together with the Overview, Strategy and Review of sections of the Annual report, this governance section constitutes the Directors report for the year ended 31 December. By order of the Board Robert Hoskin Company Secretary 29 March 2012

104 Governance Statement of Directors responsibilities 102 Statement of Directors responsibilities in respect of the Annual report and financial statements The Directors are responsible for preparing the Annual report and consolidated financial statements in accordance with the Gibraltar Companies (Consolidated Accounts) Act 1999, the Gibraltar Companies (Accounts) Act 1999, the Gibraltar Companies Act 1930 (as amended), International Financial Reporting Standards as adopted by the European Union ( IFRS ) and Article 4 of the IAS Regulation, and the FSA s Disclosure and Transparency Rules and Listing Rules. The Directors are also responsible for preparing the Company s financial statements in accordance with the Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended). The Directors have also chosen to prepare the Company s financial statements in accordance with IFRS. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of a Directors Report which complies with the Gibraltar Companies (Consolidated Accounts) Act 1999, the Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended), and a Directors Remuneration Report which complies with the requirements of the UK s Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008, Schedule 8. Financial statements are published on the Group s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Group s website is the responsibility of the Directors. The Directors responsibility also extends to the ongoing integrity of the financial statements contained therein. In accordance with International Accounting Standard 1 the Directors are required to prepare financial statements for each financial year that present fairly the financial position of the Group and the Company and the financial performance and cashflows of the Group and the Company for that period. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board s Framework for the Preparation and Presentation of Financial Statements. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. In preparing the financial statements the Directors are required to: (i) Select suitable accounting policies and then apply them consistently (ii) Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information (iii) Provide additional disclosure when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group s financial position and financial performance In accordance with DTR of the FSA s Disclosure and Transparency Rules, the Directors confirm to the best of their knowledge: a) the Group s financial statements have been prepared in accordance with IFRS and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the Group; and b) the Annual report includes a fair review of the development and performance of the business and the financial position of the Group and the Company, together with a description of the principal risks and uncertainties that they face By order of the Board of Directors Robert Hoskin Company Secretary 29 March 2012

105 Financial statements the numbers

106 Financials Independent auditors report 104 Independent auditors report We have audited the financial statements (the financial statements ) of digital entertainment plc for the year ended 31 December which comprise the Group statement of comprehensive income, the Group and Company statements of financial position, the Group and Company statements of changes in equity, the Group and Company statements of cashflows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ( IFRSs ) as adopted by the European Union. This report is made solely to the Company s members, as a body, in accordance with our engagement letter. Our audit work has been undertaken so that we might state to the Company s members those matters that we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Statement of Directors responsibilities, the Directors are responsible for preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements and in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s ( APB s ) Ethical Standards for Auditors. digital entertainment plc has complied with the requirements of rules and of the Listing Rules of the UK Financial Services Authority and in accordance with section 421 of the UK Companies Act 2006 in preparing its Annual report, as if it was incorporated in the United Kingdom. As auditors, we have agreed that our responsibilities in relation to the Annual report will be those as set out below. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Gibraltar Companies (Consolidated Accounts) Act 1999, the Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended), and the part of the Remuneration report to be audited has been properly prepared in accordance with section 421 of the UK Companies Act We also report to you whether in our opinion, the information disclosed in the Directors report is consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by the Listing Rules and Gibraltar legislation regarding Directors remuneration and other transactions is not disclosed. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB s website at cfm. Opinion on financial statements In our opinion: The financial statements give a true and fair view of the state of the Group s and the Company s affairs as at 31 December and of the Group s loss for the year then ended; The Group and Company s financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; The financial statements have been properly prepared in accordance with the Gibraltar Companies (Consolidated Accounts) Act 1999, the Gibraltar Companies (Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended); and The part of the Remuneration report described as having been audited has been properly prepared in accordance with section 421 of the UK Companies Act 2006 Opinion on other matters prescribed by legal and regulatory requirements In our opinion information given in the Directors report for the year ended 31 December for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under Gibraltar legal and regulatory requirements we are required to report to you if, in our opinion: The Company has not kept proper accounting records; If we have not received all the information and explanations we require for our audit; or If information specified by law regarding Directors remuneration and other transactions is not disclosed. Under the Listing Rules we are required to review: The Directors statement in relation to going concern; The part of the corporate governance statement relating to the Company s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and Certain elements of the Remuneration report. BDO LLP Chartered Accountants 55 Baker Street London W1U 7EU United Kingdom 29 March 2012 Christian Summerfield (Statutory Auditor) For and on behalf of BDO Limited Registered Auditors Regal House PO Box 1200 Gibraltar 29 March 2012 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). BDO Limited, a Gibraltar limited company, is registered in Gibraltar with company number

107 Financials Consolidated statement of comprehensive income 105 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Year ended 31 December Notes 2010 Continuing operations Net revenue Other revenue Total revenue Cost of sales (55.7) (6.9) Gross profit Other operating income Other operating expense 3 (16.5) (4.9) Administrative expenses (792.9) (146.7) Distribution expenses (246.2) (158.7) Clean EBITDA Exchange (losses) gains (4.5) 6.1 Merger and acquisition costs (12.0) (4.9) Amortisation (125.6) (32.8) Depreciation (18.9) (6.4) Impairment losses (408.7) (0.1) Share-based payments (12.0) (9.1) Reorganisation costs (6.3) (0.7) (Loss) profit from operating activities 4 (419.7) 46.3 Finance income Finance expense 6 (9.1) (3.4) Share of loss of associates and joint ventures (0.5) (Loss) profit before tax (422.9) 43.8 Tax credit (expense) (3.6) (Loss) profit after tax from Continuing operations (414.7) 40.2 Loss after tax from Discontinued operations 8 (16.3) (1.3) (Loss) profit for the year (431.0) 38.9 Other comprehensive (expense) income: Exchange differences on translation of foreign operations, net of tax (7.5) 3.7 Total comprehensive (expense) income for the year (438.5) 42.6 (Loss) profit for the year attributable to: Equity holders of the parent (428.9) 38.9 Non-controlling interests (2.1) (431.0) 38.9 Total comprehensive (expense) income for the year attributable to: Equity holders of the parent (436.4) 42.6 Non-controlling interests (2.1) (438.5) 42.6 (Loss) earnings per share ( cents) Basic 9 (58.2) 9.5 Diluted 9 (58.2) 9.0 Continuing (loss) earnings per share ( cents) Basic 9 (56.0) 9.8 Diluted 9 (56.0) 9.3

108 Financials Consolidated statement of financial position 106 Notes As at 31 December As at 31 December 2010 Non-current assets Intangible assets Property, plant and equipment Investments Current assets Assets held for sale Inventories 0.6 Trade and other receivables Short-term investments Cash and cash equivalents Total assets 1, Current liabilities Trade and other payables 17 (112.7) (60.9) Income taxes payable (28.7) (8.2) Client liabilities and progressive prize pools 18 (156.2) (93.1) Provisions 19 (10.8) Loans and borrowings 20 (33.2) (9.9) Liabilities held for sale (27.7) (369.3) (172.1) Non-current liabilities Trade and other payables 17 (5.2) (27.7) Provisions 19 (77.7) Loans and borrowings (30.1) Deferred tax 21 (59.1) (7.4) (142.0) (65.2) Total liabilities (511.3) (237.3) Total net assets Equity Share capital Share premium account 1, Own shares 24 (7.1) (2.8) Capital contribution reserve Retained earnings Other reserve (573.7) (573.7) Currency reserve (5.2) 2.3 Non-controlling interests (3.8) Equity attributable to equity holders of the parent These consolidated financial statements were approved by a duly appointed and authorised committee of the Board on 29 March 2012 and were signed on its behalf by Simon Duffy and Tim Bristow, Directors.

109 Financials Consolidated statement of changes in equity 107 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Year ended 31 December As at 1 January Acquisition of subsidiaries and businesses Other issue of shares Dividends paid Purchase of shares Total comprehensive expense for the period Other share-based payments As at 31 December Share capital Share premium account ,018.4 Own shares (2.8) (4.3) (7.1) Capital contribution reserve Retained earnings (15.0) (23.2) (428.9) Other reserve (573.7) (573.7) Currency reserve 2.3 (7.5) (5.2) Total attributable to equity holders of parent , (15.0) (27.5) (436.4) Non-controlling interests (1.7) (2.1) (3.8) Total equity , (15.0) (27.5) (438.5) As at 1 January 2010 Acquisition of subsidiaries and businesses Other issue of shares Dividends paid Purchase of shares Total comprehensive income for the period Other share-based payments As at 31 December 2010 Year ended 31 December 2010 Share capital Share premium account Own shares (2.8) (2.8) Capital contribution reserve Retained earnings Other reserve (573.7) (573.7) Currency reserve (1.4) Total equity Share premium is the amount subscribed for share capital in excess of nominal value. Capital contribution reserve is the amount arising from share-based payments made by parties associated with the original Principal Shareholders and cash held by the Employee Trust. Retained earnings represent cumulative profit / (loss), share-based payments and any other items of other comprehensive income not disclosed as separate reserves in the table above. The other reserve of million is the amount arising from the application of accounting which is similar to the pooling of interests method, as set out in the Group s accounting policies. Currency reserve represents the gains/losses arising on retranslating the net assets of overseas operations into euros. Non-controlling interests relate to the interests of other shareholders in certain subsidiaries.

110 Financials Consolidated statement of cashflows 108 Year ended 31 December 2010 (Loss) profit for the year (431.0) 38.9 Adjustments for: Depreciation of property, plant and equipment Amortisation of intangibles Impairment of goodwill Impairment of acquired intangible assets 15.3 Impairment of investments 1.7 Impairment of assets held for sale 0.1 Share of loss of associates and joint ventures 0.5 Interest expense Interest income (6.4) (0.9) Increase in reserves due to share-based payments (Profit) on sale of intangible assets (0.3) Loss (profit) on sale of property, plant and equipment 1.2 (0.1) Income tax (credit) expense (7.6) 3.6 Operating cashflows before movements in working capital and provisions Increase in inventory (0.1) Increase in trade and other receivables (20.9) (12.3) Decrease in trade and other payables (44.7) (14.2) Decrease in provisions (7.3) (0.1) Cash generated from operations Income taxes paid (3.9) (4.2) Net cash inflow from operating activities Investing activities Net cash acquired on acquisition of subsidiaries and businesses Acquisition of subsidiaries and businesses, net of cash acquired deferred payment (6.4) (9.2) Purchases of intangible assets (11.0) (3.8) Sale of intangible assets 0.3 Purchases of property, plant and equipment (30.6) (8.0) Sale of property, plant and equipment Purchase of investments (14.6) (1.7) Sale of assets held for sale 1.8 Interest received Decrease in short-term investments (5.9) 4.9 Net cash generated (used) by investing activities 97.6 (14.9)

111 109 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Year ended 31 December Financing activities Issue of ordinary shares Purchase of own shares (27.5) Dividends paid (15.0) Repayment of bank borrowings (8.6) Interest paid (1.0) (2.0) Net cash used in financing activities (51.1) (0.2) Net increase in cash and cash equivalents Exchange differences (7.6) (0.1) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Segregated cash Included within cash and cash equivalents is 22.7m (2010: 3.9m) related to cash held in segregated accounts in certain regulated markets. Major non-cash transactions Details of the Merger with bwin, which was an equity-based transaction, are contained in note 26.

112 Financials Notes to the consolidated financial statements Accounting policies Basis of preparation The Group and parent financial statements have been prepared in accordance with those International Financial Reporting Standards including International Accounting Standards (IASs) and interpretations, (collectively IFRS ), published by the International Accounting Standards Board ( IASB ) which have been adopted by the European Commission and endorsed for use in the EU for the purposes of the Group s full year financial statements. The consolidated and company financial statements comply with the Gibraltar Companies (Accounts) Act 1999, the Gibraltar Companies (Consolidated Accounts) Act 1999 and the Gibraltar Companies Act 1930 (as amended). Statutory accounts for the year ended 31 December will be filed with Companies House Gibraltar following the Company s Annual General Meeting. Due to the Merger (which was treated as an acquisition by PartyGaming for accounting purposes), certain accounting policies that were not previously relevant for the Group, but relevant for bwin, have been adopted in these consolidated financial statements pages. All other material accounting policies and presentations of bwin have been aligned to those of the enlarged Group. Functional currency of the parent company Reflecting the fact that the Company has hedged its remaining US dollar exposure, the effect of the Merger, and that going forward most transactions will be in pound sterling but funded by excess euros generated by the rest of the Group, the Company has changed its functional currency from US dollars to euros. In line with IAS 21 the change took effect from the date the Company determined that the characteristics required to identify the functional currency had changed. The Company determined this occurred during and for accounting purposes this is effective from 1 January. All financial data for the Company for prior periods has been converted using the exchange rate at 1 January of 1 euro = US dollar Adoption of new and revised Standards and Interpretations The following new and revised Standards and Interpretations issued by the International Accounting Standards Board ( IASB ), are effective for the first time in the current financial year and have been adopted by the Group with no effect on its consolidated results or financial position: IFRIC 14 (Amended) and IAS 19 (Amended) Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods beginning on or after 1 January ). The following relevant standards and interpretations were issued by the IASB or the IFRIC before the period end but are as yet not effective for the year end: IAS 1 (Amended) Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012) IAS 12 (Amended) Deferred tax: Recovery of Underlying Assets (effective for annual periods beginning on or after 1 January 2012) IAS 19 (Amended) Employee Benefits (effective for annual periods beginning on or after 1 January 2013) IAS 27 (Amended) Separate Financial Statements (effective for annual periods beginning on or after 1 January 2013) IAS 28 (Amended) Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2013) IAS 32 (Amended) Offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2014) IFRS 7 (Amended) Disclosures Transfers of Financial Assets (effective for annual periods beginning on or after 1 July ) IFRS 7 (Amended) Disclosures Offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2013) IFRS 7 (Amended) Disclosures Initial application of IFRS 9 (effective for annual periods beginning on or after 1 January 2015) IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2015). IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013) IFRS 11 Joint arrangements (effective for annual periods beginning on or after 1 January 2013) IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2013) IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013) The Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results.

113 111 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Accounting policies (continued) Basis of accounting The consolidated and company financial statements have been prepared under the historical cost convention other than for the valuation of certain financial instruments. Critical accounting policies, estimates and judgements The preparation of financial statements under IFRS requires the Group to make estimates and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Included in this note are accounting policies which cover areas that the Directors consider require estimates, judgements and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. These policies, together with references to the related notes to the financial statements, can be found as follows: Functional currency note 1 Revenue recognition note 2 Intangible assets and impairment of goodwill note 10 Regulatory compliance, litigation and contingent liabilities note 23 Acquisition accounting and value of acquired assets and liabilities note 26 Provisions note 19 Tax including deferred tax note 7 Held for sale disposal groups note 8 Share-based payments note 29 Basis of consolidation Under section 10(2) of the Gibraltar Companies (Consolidated Accounts) Act 1999, the Company is exempt from the requirement to present its own statement of comprehensive income. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Accounting for the Company s acquisition of the controlling interest in PartyGaming Holdings Limited The Company s controlling interest in its directly held, wholly-owned subsidiary, PartyGaming Holdings Limited (formerly Headwall Ventures Limited), was acquired through a transaction under common control, using a form of accounting that is similar to pooling of interests. Accounting for subsidiaries A subsidiary is an entity controlled directly or indirectly by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. On the date of acquisition the assets and liabilities of the relevant subsidiaries are measured at their fair values. The non-controlling interest is stated at the non-controlling interest s proportion of the fair values of the assets and liabilities recognised. The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder s share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. Investments in subsidiaries held by the Company are carried at cost less any impairment in value.

114 Financials Notes to the consolidated financial statements Accounting policies (continued) Business combinations Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the income statement as incurred. The acquiree s identifiable assets and liabilities are recognised at their fair values at the acquisition date. The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value or at the non-controlling shareholders proportion of the net fair value of the identifiable assets acquired, liabilities and contingent liabilities assumed. The choice of measurement basis is made on an acquisition-by-acquisition basis. Investments Investments include investments in associates, joint ventures and available for sale investments. Available for sale investments Non-derivative financial assets classified as available-for-sale comprise the Group s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the consolidated statement of comprehensive income. Investments in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post acquisition changes in the Group s share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Group s interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Investments in joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control. The Group reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post acquisition changes in the Group s share of the net assets of the joint venture, less any impairment in the value of the investment. Losses of a joint venture in excess of the Group s interest in that investment are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

115 113 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Accounting policies (continued) Intangible assets Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributed to the asset will flow to the Group and the cost of the asset can be reliably measured. Goodwill Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the Group s previously held equity interest in the acquiree, if any, over the net amounts of identifiable assets acquired in the subsidiary, associate or jointly controlled entity and liabilities assumed at the acquisition date. For acquisitions where the agreement date is on or after 31 March 2004, goodwill is not amortised and is reviewed for impairment at least annually. Any impairment is recognised immediately in the consolidated statement of comprehensive income and is not subsequently reversed. Goodwill arising on earlier acquisitions was being amortised over its estimated useful life of 20 years. In accordance with the transitional provisions of IFRS 3 Business Combinations, the unamortised balance of goodwill at 31 December 2004 was frozen and reviewed for impairment and will be reviewed for impairment at least annually. Externally acquired intangible assets Intangible assets are recognised on business combinations if they are separate from the acquired entity or give rise to other contractual or legal rights. Identifiable assets are recognised at their fair value at the acquisition date. The identified intangibles are amortised over the useful economic life of the assets. Internally generated intangible assets research and development expenditure Expenditure incurred on development activities, including the Group s software development, is capitalised only where the expenditure will lead to new or substantially improved products or processes, the products or processes are technically and commercially feasible and the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, labour and an appropriate proportion of overheads. All other development expenditure is expensed as incurred. Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. All other expenditure, including that incurred in order to maintain the related intangible asset s current level of performance, is expensed as incurred. Amortisation of intangible assets Amortisation is provided to write-off the cost of all intangible assets, with the exception of goodwill, over the periods the Group expects to benefit from their use, and varies between: Brand and domain names Broadcast libraries Capitalised development expenditure Contractual relationships Customer lists and contracts Intellectual property and gaming licences Software 5% to 20% per annum 50% per annum 20% to 33% per annum over the length of the contract 5% to 50% per annum over the length of the licence 20% to 33% per annum

116 Financials Notes to the consolidated financial statements Accounting policies (continued) Impairment of goodwill, other intangibles and property, plant and equipment At the end of each reporting year, the Group reviews the carrying amounts of its goodwill, other intangibles and property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cashflows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cashflows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase. Impairments related to goodwill are not reversed. Property, plant and equipment All property, plant and equipment are stated at cost, less accumulated depreciation, with the exception of freehold land and buildings which are stated at cost and are not depreciated due to immateriality. Assets in the course of construction are carried at cost, less any recognised impairment loss. Cost includes directly attributable costs incurred in bringing the assets to working condition for their intended use, including professional fees. Depreciation commences when the assets are ready for their intended use. Depreciation is provided to write-off the cost, less estimated residual values, of all property, plant and equipment with the exception of freehold land and buildings, evenly over their expected useful lives. It is calculated at the following rates: Leasehold improvements over length of lease Plant, machinery, computer equipment 33% per annum Fixtures, fittings, tools and equipment, vehicles 20% per annum Where an item of property, plant or equipment comprises major components having different useful lives, they are accounted for as separate items of property, plant and equipment. Subsequent expenditure is capitalised where it is incurred to replace a component of an item of plant, property or equipment where that item is accounted for separately including major inspection and overhaul. All other subsequent expenditure is expensed as incurred, unless it increases the future economic benefits to be derived from that item of plant, property and equipment.

117 115 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Accounting policies (continued) Segment information An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses. Each segment s operating results are regularly reviewed by the Group to make decisions about resources to be allocated to the segment and assess its performance. The method for determining what information to report is based on the way management organises the operating segments within the Group for decision-making purposes and for the assessment of financial performance. The Group reviews financial statements presented by product type which are supplemented by some information about geographic regions for the purposes of making operating decisions and assessing financial performance. Therefore, the Group has determined that it is appropriate to report according to product segment. Revenue Revenue from online gaming, comprising sports betting, casino and games, poker, bingo, and network services (third-party entities that use the Group s platform and certain services), as well as fees from broadcasting, hosting and subscriptions, is recognised in the accounting periods in which the gaming transactions occur. Revenue is measured at the fair value of the consideration received or receivable and is net of certain promotional bonuses and the value of loyalty points accrued. Net revenue consists of net gaming revenue and revenue generated from foreign exchange commissions on customer deposits and withdrawals and account fees. Poker net revenue represents the commission charged or tournament entry fees where the player has concluded his or her participation in the tournament. Casino, bingo and sports betting net revenue represents net house win adjusted for the fair market value of gains and losses on open betting positions. Revenue generated from foreign exchange commissions on customer deposits and withdrawals and account fees is allocated to each reporting segment. Other revenue consists primarily of revenue from network services, third-party payment services, sale of domain names, financial markets and fees from broadcasting, hosting and subscriptions. Revenue in respect of network service arrangements where the third-party owns the relationship with the customer is the net commission invoiced. Interest income is recognised on an accruals basis. Cost of sales Cost of sales consists primarily of betting and gaming taxes and broadcasting costs. Broadcasting costs are expensed over the applicable life cycle of each programme based upon the ratio of the current year s revenue to the estimated remaining total revenues. Other operating income Other operating income consists primarily of exchange gains. Other operating expenses Other operating expenses consist primarily of exchange losses and merger and acquisition expenses and are recognised on an accruals basis.

118 Financials Notes to the consolidated financial statements Accounting policies (continued) Foreign currency Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their functional currency ) are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of the reporting year. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the consolidated statement of comprehensive income, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation, in which case exchange differences are recognised in a separate component of equity. On consolidation, the results of overseas operations are translated into euros at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the end of the reporting year. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised directly in equity (the currency reserve ). Exchange differences recognised in the statement of comprehensive income of Group entities separate financial statements on the translation of long-term monetary items forming part of the Group s net investment in the overseas operation concerned are reclassified to the currency reserve on consolidation. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the profit or loss on disposal. The financial statements were translated into euros at the following rates: 31-Dec-11 Average 31-Dec-10 Average 2010 Argentinian pesos (ARG) n/a* n/a* British pound (GBP) Bulgarian Lev (BGN) Chinese yuan (CNY) n/a* n/a* Indian rupees (INR) Israeli shekel (ILS) Mexican pesos (MEX) n/a* n/a* South African Rand (ZAR) n/a* n/a* Swedish Kronor (SEK) n/a* n/a* US dollar (USD) * n/a as relates to currencies used by bwin entities that were not part of the Group in Taxation Income tax expense represents the sum of the Directors best estimate of taxation exposures and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using rates that have been enacted or substantively enacted by the end of the reporting year.

119 117 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Accounting policies (continued) Deferred tax Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences other than where IAS 12 Income Taxes contains specific exemptions. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Assets held for sale Non-current assets and disposal groups are classified as held for sale if the carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable, management is committed to a sale plan, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. These assets are measured at the lower of carrying value and fair value less associated costs of sale. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. The Group issues equity settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period and based, for those share options which contain only non-market vesting conditions, on the Group s estimate of the shares that will eventually vest. Fair value is measured by use of a suitable option pricing model. The expected life used in the model has been adjusted, based on management s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. For cash-settled share-based payment transactions, the goods or services received and the liability incurred are measured at the fair value of the liability. Up to the point at which the liability is settled, the fair value of the liability is re-measured at each reporting date and at the date of settlement, with changes being recorded in consolidated statement of comprehensive income. The Group records the expense based on the fair value of the share-based payments on a straight-line basis over the vesting period. For cash payments made by parties related to Principal Shareholders, the charge is recorded when there is a commitment to make the payment. Where equity instruments of the parent company or a subsidiary are transferred, or cash payments based on the Company s (or a subsidiary s) share price are made, by shareholder(s) or entities that are effectively controlled by one or more shareholder(s), the transaction is accounted for as a share-based payment, unless the transfer or payment is clearly for a purpose other than payment for goods or services supplied to the Group. Where equity instruments are transferred by one or more shareholder(s), the amount recorded in reserves is included in the share-based payment reserve. Where a cash payment is made, this is recorded as a capital contribution.

120 Financials Notes to the consolidated financial statements Accounting policies (continued) Treasury shares Treasury shares relate to shares gifted to the Employee Trust by the Company and to shares repurchased as part of the share buyback programme. The cost of treasury shares creates an own share reserve. When options issued by the Employee Trust are exercised the own share reserve is reduced and a gain or loss is recognised in reserves based on proceeds less weighted-average cost of shares exercised. Own shares repurchased for the share buyback programme are carried at cost. Provisions and contingent liabilities The Group recognises a provision in the consolidated statement of financial position when it has a legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the Group has a possible obligation as a result of a past event that may, but probably will not, result in an outflow of economic benefits, no provision is made. Disclosures are made of the contingent liability including, where practicable, an estimate of the financial effect, uncertainties relating to the amount or timing of outflow of resources, and the possibility of any reimbursement. Where time value is material, the amount of the related provision is calculated by discounting the cashflows at a pre-tax rate that reflects market assessments of the time value of money and any risks specific to the liability. Leased assets Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the consolidated statement of comprehensive income. Rentals payable under operating leases are charged directly to the consolidated statement of comprehensive income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Derivative financial instruments The Group uses derivative financial instruments to manage currency cashflows and to hedge foreign exchange risk on non-us dollar denominated financial assets and liabilities. The derivative instruments used by the Group consist mainly of spot and forward foreign exchange contracts. Derivative financial instruments are recognised in the statement of financial position at fair value calculated using either discounted cashflow techniques or by reference to market prices supplied by banks. Changes in the fair value of derivative financial instruments are recognised in the Consolidated statement of comprehensive income.

121 119 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Accounting policies (continued) Financial assets The Group s financial assets which are financial instruments are categorised as loans, receivables and available-for-sale financial assets. These include restricted cash and unrestricted bank deposits with maturities of more than three months. Amounts held as security deposits are considered to be restricted cash. There are no financial assets that are classified as held to maturity. A category for in the money derivative financial instruments was not required since there were no derivative financial instruments held as at 31 December or 31 December Non-derivative financial assets classified as available-for-sale comprise the Group s strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value recognised directly in equity. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income. Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the available-for-sale reserve associated with that asset is removed from equity and recognised in the Consolidated statement of comprehensive income. Short-term investments are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are initially recognised at fair value, plus transaction costs directly attributable to their acquisition or issue. They are subsequently carried at amortised cost using the effective interest rate method, less any provisions for impairment. Trade and other receivables represent short-term monetary assets which are recognised at fair value less impairment and other related provisions, which are recognised when there is objective evidence (primarily default or significant delay in payment) that the Group will be unable to collect all of the amounts due. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cashflows associated with the impaired receivable. Cash comprises cash in hand and balances with financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash. They include unrestricted short-term bank deposits originally purchased with maturities of three months or less. Financial liabilities The Group s financial liabilities are all categorised as financial liabilities measured at amortised cost. Financial liabilities include the following items: Client liabilities, including amounts due to progressive prize pools. Trade payables and other short-term monetary liabilities which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest rate method, which ensures that interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the Consolidated statement of financial position. Loans and borrowings, comprising bank borrowings and overdrafts, which are initially recognised at fair value, net of any transaction costs directly attributable to the issue of the instrument. Such interest-bearing liabilities are subsequently valued at amortised cost using the effective interest rate method. Interest expense in this context includes initial transaction costs, as well as any interest or coupon payable while the liability is outstanding. A category for out of the money derivative financial instruments was not required since there were no derivative financial instruments as at 31 December or 31 December Share capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Group s ordinary shares are classified as equity instruments. Dividends Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by the Directors. In the case of final dividends, this is when approved by the Shareholders at the Annual General Meeting.

122 Financials Notes to the consolidated financial statements Segment information For management purposes and transacting with customers, the Group s operations can be segmented into the following reporting segments: sports betting, casino & games, poker, bingo and unallocated corporate (including World Poker Tour, InterTrader.com and the payment services business). These segments are the basis upon which the Group currently reports its segment information. Unallocated corporate expenses, assets and liabilities relate to the Group as a whole and are not allocated to individual segments. The measure of reporting segment performance is Clean EBITDA and the basis for arriving at this is the same as the Group accounts. Following the acquisition of bwin a review is currently being undertaken of the need to change the Group s reporting of results to the Chief Operating Decision Makers ( CODMs ) which could have a consequential effect on the reporting of segmental information under IFRS 8. Any such changes would be reflected in the future once this exercise has been completed. Year ended 31 December Sports betting Casino & games Poker Bingo Unallocated corporate Consolidated Continuing operations Net revenue Other revenue Total revenue Clean EBITDA (6.8) Profit (loss) before tax (158.4) (110.2) (120.8) 3.4 (36.9) (422.9) Discontinued operations Net revenue Other revenue Total revenue Clean EBITDA (13.1) (13.1) Loss before tax (15.7) (15.7) Total operations Net revenue Other revenue Total revenue Clean EBITDA (6.8) Profit (loss) before tax (158.4) (110.2) (136.5) 3.4 (36.9) (438.6)

123 121 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Segment information (continued) Year ended 31 December 2010 Sports betting Casino & games Poker Bingo Unallocated corporate Consolidated Continuing operations Net revenue Other revenue Total revenue Clean EBITDA (1.9) 94.3 Profit (loss) before tax (23.8) 43.8 Discontinued operations Net revenue Other revenue Total revenue Clean EBITDA (0.2) (0.2) Loss before tax (1.3) (1.3) Total operations Net revenue Other revenue Total revenue Clean EBITDA (2.1) 94.1 Profit (loss) before tax (25.1) 42.5 In the consolidated financial statements for the year ended 31 December 2010 backgammon was classified as part of the poker segment and certain casino games on the sports platform as part of the sports betting segment. Both are now classified as part of the casino & games segment. Also, exchange differences were reported as part of Clean EBITDA whereas now they are not. As a result, the following increases (decreases) have been made to the previously reported results for both continuing and total operations for the year ended 31 December 2010: Sports betting Casino & games Poker Bingo Unallocated corporate Consolidated Net revenue (0.1) 0.7 (0.6) Total revenue (0.1) 0.7 (0.6) Clean EBITDA (0.1) 0.7 (0.6) (6.1) (6.1) Profit (loss) before tax (0.1) 0.7 (0.6) Geographical analysis of total revenue The following table provides an analysis of the Group s total revenue by geographical segment: Year ended 31 December 2010 Germany United Kingdom Other Total revenue

124 Financials Notes to the consolidated financial statements Other operating expenses Year ended 31 December 2010 Merger and acquisition expenses Exchange losses Merger and acquisition expenses incurred during the year relate to the completed merger with bwin. 4. (Loss) profit from operating activities Year ended 31 December 2010 This has been arrived at after charging (crediting): Directors emoluments Amortisation of intangibles Depreciation on property, plant and equipment Product development (including staff cost) Loss (profit) on disposal of fixed assets 1.2 (0.1) Exchange loss (gain) 4.5 (6.1) Reorganisation expenses Impairment losses trade receivables (bad debts) Impairment losses assets held for sale 0.1 Impairment losses goodwill Impairment losses associates 1.7 Impairment losses other intangibles 15.3 Auditors remuneration audit services Merger and acquisition expenses Of which: Auditors remuneration merger and acquisition expenses Staff costs Year ended 31 December 2010 Aggregate remuneration including Directors comprised: Wages and salaries Share-based payments Employer social insurance contribution Other benefits Details of Directors emoluments are set out in the Remuneration report. Year ended 31 December 2010 Average number of employees Directors 11 6 Administration Customer service Others 1, ,481 1,364

125 123 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Finance income and expense Year ended 31 December Interest income Finance income Interest expense 2010 (1.6) (1.9) Unwinding of discount on current and non-current liabilities (7.5) (1.5) Finance expense Net finance expense 7. Tax Analysis of tax charge (9.1) (3.4) (2.7) (2.5) 2010 Year ended 31 December Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Current tax expense for the period Deferred tax (credit) expense for the period (20.0) (20.0) (3.8) (3.8) Tax (credit) expense (8.2) 0.6 (7.6) The effective tax rate for the year based on the associated tax expense is 2.0% (2010: 8.2%). The total (credit) expense for the period can be reconciled to accounting (loss) profit as follows: Year ended 31 December 2010 (Loss) profit before tax from Continuing operations (422.9) 43.8 Loss before tax from Discontinued operations (15.7) (1.3) (Loss) profit before tax (438.6) 42.5 Tax rate in Gibraltar of 10% (2010: 0%) (43.9) Effect of expenses not allowed for tax purposes 2.8 Effect of deferred tax (20.0) (3.8) Effect of tax in other jurisdictions Effect of impairment not allowed for tax purposes 40.9 Total income tax (credit) expense for the period (7.5) 3.6 The expenses not allowed for tax purposes are primarily amortisation and impairment of intangible assets. Factors affecting the tax charge for the period The Group s policy is to manage, control and operate Group companies only in the countries in which they are registered. At the period end there were Group companies registered in 24 countries including Gibraltar. However, the rules and practice governing the taxation of ecommerce activity are evolving in many countries. It is possible that the amount of tax that will eventually become payable may differ from the amount provided in the financial information. Factors that may affect future tax charges As the Group is involved in worldwide operations, future tax charges will be affected by the levels and mix of profitability in different jurisdictions. Future tax charges will be reduced by a deferred tax credit in respect of amortisation of certain acquired intangibles.

126 Financials Notes to the consolidated financial statements Discontinued operations Consolidated statement of comprehensive income Year ended 31 December 2010 Other revenue 10.1 Total revenue 10.1 Gross profit 10.1 Other operating income (0.5) Administrative expenses (22.2) (0.2) Distribution expenses (2.5) Loss from operating activities (15.1) (0.2) Finance expense (0.6) (1.1) Loss before tax (15.7) (1.3) Tax (0.6) Loss for the period attributable to the equity holders of the parent (16.3) (1.3) Loss per share ( cents) Basic and diluted Consolidated statement of cashflows Year ended 31 December 2010 Loss for the period (16.3) (1.3) Adjustments for: Depreciation of property, plant and equipment 0.7 Amortisation of intangibles 1.3 Interest expense Increase in reserves due to share-based payments 0.1 Income tax expense 0.6 Operating cashflows before movements in working capital and provisions (13.0) (0.2) Increase in trade and other receivables 2.1 Increase (decrease) in trade and other payables (19.9) (22.4) Net cash outflow from operating activities (30.8) (22.6) Investing activities Net cash acquired on acquisition of subsidiaries and businesses 2.4 Purchases of intangible assets (1.4) Purchases of property, plant and equipment (1.8) Net cash used in investing activities (0.8) Net decrease in cash and cash equivalents (31.6) (22.6) Exchange differences 4.5 (31.6) (18.1)

127 125 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Discontinued operations (continued) Ongame B2B On 30 June the Board announced its intention to sell the Ongame B2B business it acquired during the period as part of the Merger. On 6 March 2012 the Company announced that it had agreed to sell Ongame, its business-to-business ( B2B ) online poker network, to Shuffle Master, Inc ( Shuffle Master ) for a total cash consideration of up to 29.5 million. See note 30 for further details. US US refers to those operations located physically outside of the US but which relate to US customers that were no longer accepted following the enactment of the UIGEA. 9. Earnings per Share ( EPS ) 2010 Year ended 31 December Continuing operations cents Discontinued operations cents Total cents Continuing operations cents Discontinued operations cents Total cents Basic EPS (56.0) (2.2) (58.2) 9.8 (0.3) 9.5 Diluted EPS (56.0) (2.2) (58.2) 9.3 (0.3) 9.0 Basic Clean EPS 17.9 (2.1) (0.1) 17.7 Diluted Clean EPS 17.5 (2.1) (0.1) 16.8 * A diluted EPS calculation may not increase a basic EPS calculation when the basic EPS is a loss. Basic earnings per share Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period, excluding those held as treasury shares. Year ended 31 December Total 2010 Total Basic EPS Basic (loss) earnings () (428.9) 38.9 Weighted average number of ordinary shares (million) Basic earnings (loss) per ordinary share ( cents) (58.2) 9.5 Basic Clean EPS Adjusted earnings () Weighted average number of ordinary shares (million) Adjusted earnings per ordinary share ( cents) Clean earnings per share In previous periods the performance measure of EPS used internally by management to manage the operations of the business and remove the impact of one-off and certain non-cash items was Clean EPS, which was calculated before the provision for costs associated with the Group s Non-Prosecution Agreement, reorganisation expenses, merger and acquisition expenses and share-based payments. Following the Merger, management have amended their performance measure to also add back exchange differences and amortisation and impairments on acquisitions, which they believe better reflects the underlying performance of the business and assists in providing a clearer view of the fundamental performance of the Group.

128 Financials Notes to the consolidated financial statements Earnings per Share ( EPS ) (continued) Clean net earnings excluding amortisation and impairments on acquisitions attributable to equity shareholders is derived as follows: 2010 Year ended 31 December Continuing operations Discontinued operations Total Continuing operations Discontinued operations Total Earnings (loss) for the purposes of basic and diluted earnings per share being profit attributable to equity holders of the parent (412.6) (16.3) (428.9) 40.2 (1.3) 38.9 Unwinding of discount associated with the Group s Non Prosecution Agreement Reorganisation expenses Merger and acquisition expenses Exchange losses (gains) 4.5 (0.4) 4.1 (6.2) (6.2) Share-based payments Amortisation on acquired intangible assets Tax thereon (15.1) (15.1) (3.8) (3.8) Impairments on acquired intangible assets and goodwill Tax thereon (4.5) (4.5) Clean net earnings (15.7) (0.2) 72.5 Year ended 31 December Number million 2010 Number million Weighted average number of shares Number of shares in issue as at 1 January Number of shares in issue as at 1 January held by the Employee Trust (4.0) (4.6) Weighted average number of shares issued during the period Weighted average number of shares purchased during the period (4.3) Effect of vested share options Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of potential dilutive unvested share options and contingently issuable shares Weighted average number of ordinary shares for the purposes of diluted earnings per share In accordance with IAS 33, the weighted average number of shares for diluted earnings per share takes into account all potentially dilutive equity instruments granted which are not included in the number of shares for basic earnings per share above. Although the unvested, potentially dilutive equity instruments are contingently issuable, in accordance with IAS 33, the period end is treated as the end of the performance period. Those option holders who were employees at that date are deemed to have satisfied the performance requirements and their related potentially dilutive equity instruments have been included for the purpose of diluted EPS.

129 127 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Intangible assets Goodwill Acquired intangibles Other intangibles Cost or valuation As at 1 January Adjustment to consideration of prior business combinations (3.7) (3.7) Additions Exchange movements As at 31 December Acquired through business combinations (see note 26) ,082.0 Additions Exchange movements Disposals (5.9) (5.9) Reclassified as assets held for sale (37.8) (1.2) (39.0) As at 31 December ,469.7 Amortisation As at 1 January Charge for the period Exchange movements As at 31 December Charge for the period Exchange movements Impairment Disposals (5.9) (5.9) Reclassified as assets held for sale (0.9) (0.9) As at 31 December Carrying amounts As at 31 December As at 31 December Total

130 Financials Notes to the consolidated financial statements Intangible assets (continued) Acquired intangible assets are those intangible assets purchased as part of an acquisition and primarily include customer lists, brands, software and broadcast libraries. The value of acquired intangibles is based on cashflow projections at the time of acquisition. Customer lists from existing customers take into account the expected impact of player attrition. Other intangibles primarily include development expenditure, long-term gaming and intellectual property licences and purchased domain names. Development expenditure represents software infrastructure assets that have been developed and generated internally. Licences are amortised over the life of the licences and other intangibles are being amortised over their estimated useful economic lives of between three and five years. During 2010, both contingent consideration, and consequently goodwill, were subsequently revised down by 3.7m based on Cashcade s profit performance in 2010 which was in the middle of the target range for the earnout. The 15.3m impairment of acquired intangibles in relates to software acquired as part of the Merger that will not be used for its normal economic life. Goodwill Goodwill is allocated to the following cash generating units (CGUs): As at 31 December 2010 PartyPoker Gamebookers EOL/IOG Cashcade bwin 81.1 At end of year Impairment In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 31 December to assess whether the carrying value of assets was supported by the net present value of future cashflows derived from those assets. PartyPoker and Cashcade In respect of the PartyPoker and Cashcade CGUs, the Directors have concluded that there are no reasonably possible changes in key assumptions which would cause the carrying value of goodwill and other intangibles to exceed their value in use. EOL/IOG The recoverable amount of EOL/IOG has been determined with reference to the contribution the CGU makes towards the overall casino vertical. The Directors have concluded therefore that there are no reasons which would cause the carrying value of goodwill and other intangibles to exceed their value in use. Gamebookers The recoverable amount of Gamebookers has been determined from value in use calculations based on cashflow projections covering the following ten year period. The Group believes that going beyond five years cashflows in the value in use calculations is appropriate given the Group is an established business and is a leader in a growth industry. The projections include the formally approved budget for 2012 and a detailed forecast for 2013.

131 129 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Intangible assets (continued) Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount rates are based on the Group s weighted average cost of capital, adjusted to reflect management s assessment of specific risks related to the CGU. Excess of the recoverable amounts over the carrying value Key assumptions used in the projections Break-even analysis with other key assumptions remaining the same Discount Operating Growth Discount Operating Growth Gamebookers rate margin rate rate margin rate As at 31 December % 41.2% 3.6% 15.5% 35.9% (1.4%) As at 31 December % 23.0% 2.4% 12.2% 17.6% (2.6%) bwin Although the Merger was effectively a merger of equals with all consideration satisfied in shares, IFRS requires the Merger to be accounted for as if PartyGaming had acquired bwin. The accounting for this resulted in the recognition of goodwill at the time of the Merger measured as the difference in value between the consideration and the fair value of the separately identified assets and liabilities of bwin. The consideration was measured using the PartyGaming share price at the time of the Merger and before proposed regulatory changes were announced one week later, which resulted in a substantial reduction in the Company s share price. Had the merger completed one week later, no such impairment would have been required. The uncertainty created by the proposed regulatory changes in Europe, particularly those in Germany, have resulted in the Directors applying probability weighted forecasts to determine the cashflow projections for this CGU. This has had an adverse effect on the projected value in use of this operation and consequently resulted in an impairment to goodwill of 391.7m. The recoverable amount of bwin has been determined from value in use calculations based on cashflow projections covering the following ten year period. The Group believes that going beyond five years cashflows in the value in use calculations is appropriate given the Group is an established business and is a leader in a growth industry. Operating margins have been based on past experience and future expectations in light of anticipated economic and market conditions. Discount rates are based on the Group s weighted average cost of capital, adjusted to reflect management s assessment of specific risks related to the CGU. The table below shows the effect of changes in the key assumptions would have on the impairment amount. Key assumptions used in the projections bwin Discount rate Operating margin Growth rate Key assumptions used in the projections 10.3% 18.1% 2.5% Effect of 1% increase in assumption on impairment 59.4m ( 44.7m) ( 32.2m) Effect of 1% decrease in assumption on impairment ( 74.0m) 44.3m 30.1m

132 Financials Notes to the consolidated financial statements Property, plant and equipment Land and buildings Plant, machinery and vehicles Fixtures, fittings, tools and equipment Cost or valuation As at 1 January Additions Disposals (0.8) (0.2) (2.4) (3.4) Exchange movements As at 31 December Acquired through business combinations (see note 26) Additions Disposals (2.9) (0.9) (5.2) (9.0) Exchange movements 0.1 (0.3) Reclassified as assets held for sale (0.4) (7.8) (8.2) As at 31 December Depreciation As at 1 January Charge for the year Disposals (0.8) (0.1) (2.4) (3.3) Exchange movements As at 31 December Charge for the year Disposals (2.6) (0.6) (4.4) (7.6) Exchange movements 0.1 (0.2) Reclassified as assets held for sale (0.1) (2.9) (3.0) As at 31 December Carrying amounts As at 31 December As at 31 December Commitments for capital expenditure 2010 As at 31 December Contracted but not provided for Total

133 131 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Investments Associates Joint ventures Available-for-sale financial assets As at 1 January 2010 Additions As at 31 December Acquired through business combinations (see note 26) Additions Share of (loss) profit (1.0) 0.5 (0.5) Impairments Total (1.7) (1.7) As at 31 December Investment in associates The following entities meet the definition of an associate and have been equity accounted in the consolidated financial statements: Proportion of voting rights held at 31 December Name Country of incorporation 2010 Betbull Holding SE Austria 40% bwin e.k. Germany 50% Restaurante Coimbra II SL Spain 50% Aggregated amounts relating to associates are as follows: 2010 Total assets 32.5 Total liabilities 4.7 Revenues 14.7 Profit 0.3 There is no unrecognised share of losses arising during the year. The carrying value at the reporting period related to the investment in associate Betbull Holdings SE is reviewed for impairment by comparing it to the share of the market value of Betbull Holdings (based on the closing share price), which is listed on the Austrian Stock Exchange. Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment. As a result of the Merger the group held a 45% holding in Sajoo S.A.S, a company incorporated in France. The assets and liabilities of Sajoo S.A.S were acquired by the Group on 30 September in a transaction that generated goodwill of 1.2m. The operation of Sajoo S.A.S was merged into BES S.A.S at that date. Following the restructuring, the Group s share of BES S.A.S decreased from 75% to 71%.

134 Financials Notes to the consolidated financial statements Investments (continued) Investment in joint ventures The following entities meet the definition of a joint venture and have been equity accounted in the consolidated financial statements: Proportion of voting rights held at 31 December Name Country of incorporation 2010 Conspo Sportcontent GmbH Germany 50% Aggregated amounts relating to joint ventures are as follows: As at 31 December 2010 Total assets 18.9 Total liabilities 17.9 Revenues 21.7 Profit 0.9 There is no unrecognised share of losses arising during the year. Available-for-sale investments Available for sale investments primarily relate to the investment by the Group into an early stage digital entertainment investment fund called NewGame Capital LP ( NGC ) and a payment processing company called Wave Crest Holdings Limited. The Directors consider that their carrying amount approximates to their fair values, which is based on estimates of the present value of expected future cashflows. 14. Trade and other receivables As at 31 December Payment service providers Less: chargeback provision (2.9) (1.4) Payment service providers net Prepayments Other receivables Due from Group companies Group As at 31 December 2010 As at 31 December The Directors consider that the carrying amount of trade and other receivables approximates to their fair values, which is based on estimates of amounts recoverable. The recoverable amount is determined by calculating the present value of expected future cashflows. Company As at 31 December 2010 Provisions are expected to be settled within the next year and relate to chargebacks which are recognised at the Directors best estimate of the provision based on past experience of such expenses applied to the level of activity. Movements on the provision are as follows: As at 1 January Charged to consolidated statement of comprehensive income 2.9 Credited to consolidated statement of comprehensive income (3.0) As at 31 December Acquired through business combinations 1.5 Charged to Consolidated statement of comprehensive income 9.6 Credited to Consolidated statement of comprehensive income (9.6) As at 31 December 2.9

135 133 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Short-term investments As at 31 December Restricted cash Other short-term investments Restricted cash represents cash held as guarantees for regulated markets licenses and significant marketing contracts together with client funds held for payment service provider transactions. 16. Cash and cash equivalents Group Company As at 31 December Cash in hand and current accounts Trade and other payables As at 31 December Amounts due under Non-Prosecution Agreement Deferred and contingent consideration Other payables Due to Group companies Current liabilities Amounts due under Non-Prosecution Agreement Deferred and contingent consideration Later than one year but not later than five years Deferred and contingent consideration More than five years Non-current liabilities Group As at 31 December 2010 As at 31 December Company As at 31 December 2010 On 6 April 2009, the Group entered into a Non-Prosecution Agreement with the USAO. Under the terms of the agreement the Group agreed to pay US$105m, payable in semi-annual instalments over a period ending on 30 September Deferred and contingent consideration relates to amounts payable for the acquisitions of Cashcade and WPT. Other payables comprise amounts outstanding for trade purchases and other ongoing costs. The carrying amount of other payables approximates to their fair value which is based on the net present value of expected future cashflows. The amount due under the Non-Prosecution Agreement is recognised at fair value and carried at amortised cost using an effective interest rate of 2%. The amount due for deferred and contingent consideration is recognised at fair value and carried at amortised cost using an effective interest rate of 15%.

136 Financials Notes to the consolidated financial statements Trade and other payables (continued) The non-discounted book values for these amounts are as follows: Amounts due under Non Prosecution Agreement As at 31 December As at 31 December 2010 As at 31 December Deferred and contingent consideration As at 31 December 2010 Within one year Later than one year but not later than five years More than five years Client liabilities and progressive prize pools As at 31 December As at 31 December 2010 Client liabilities Progressive prize pools Client liabilities and progressive prize pools represent amounts due to customers including net deposits received, undrawn winnings, progressive jackpots and tournament prize pools and certain promotional bonuses. The carrying amount of client liabilities and progressive prize pools approximates to their fair value which is based on the net present value of expected future cashflows. 19. Provisions Litigation Onerous contracts Total As at 1 January Acquired through business combinations Unwinding of discount Reclassification due to date of maturity Credited to consolidated statement of comprehensive income (7.3) (7.3) Current liabilities as at 31 December As at 1 January Acquired through business combinations Unwinding of discount Reclassification due to date of maturity (2.0) (6.0) (8.0) Later than one year but not later than five years Non-current liabilities at 31 December Litigation refers to provisions made in respect of certain outstanding legal and regulatory disputes and are an estimate of what the Directors believe to be the fair value based on probability-weighted expected values. In the light of the uncertainty associated with legal and regulatory disputes, there can be no guarantee that the assumptions used to estimate the provision will be an accurate prediction of the actual costs that may or may not be incurred. No further details have been provided as the Directors consider that this would be prejudicial to the interests of the Group. Onerous contracts relate to provisions made against the future costs of contracts where subsequent changes in legislation in certain countries have meant that the future economic benefits received by the Group are less than the costs involved with fulfilling the remaining terms and conditions of the contracts and is recognised at the Directors best estimate based on their knowledge of the markets of the countries involved. The amounts due for provisions are recognised at fair value based on the above and carried at amortised cost using an effective interest rate of 8.7%.

137 135 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Provisions (continued) The non-discounted book values for these amounts are as follows: As at 31 December Litigation As at 31 December 2010 As at 31 December Onerous contracts As at 31 December 2010 Within one year Later than one year but not later than five years Loans and borrowings Book value Fair value As at 31 December Secured bank loan Current liabilities Secured bank loan Later than one year but not later than five years Non-current liabilities Bank borrowings are recognised at fair value and subsequently carried at amortised cost based on their internal rates of return. The discount rate applied was 5.44%. Principal terms and the debt repayment schedule of loans and borrowings before amortisation at both 31 December 2010 and are as follows: Amount Nominal rate Year of maturity Security The Royal Bank of Scotland plc 35 million 6 months LIBOR plus 3.25% 2012 Floating charge over the assets of Cashcade Limited and its subsidiary undertakings The maturity analysis of loans and borrowings, including interest and fees, is as follows: As at 31 December 2010 Within one year Later than one year and not later than five years Deferred tax As at 1 January Exchange differences 0.3 Credited to consolidated statement of comprehensive income (3.8) As at 31 December Acquired through business combinations (see note 26) 71.2 Exchange differences 0.6 Credited to consolidated statement of comprehensive income (20.1) As at 31 December 59.1 Deferred tax relates primarily to temporary differences arising from fair value adjustments of acquired intangibles.

138 Financials Notes to the consolidated financial statements Operating lease commitments The total future minimum lease payments due under non-cancellable operating lease payments are analysed below: As at 31 December 2010 Within one year Later than one year but not later than five years More than five years All operating lease commitments relate to land and buildings. Rental costs under operating leases are charged to the income statement in equal annual amounts over the period of the leases. 23. Contingent liabilities From time to time the Group is subject to legal claims and actions against it. The Group takes legal advice as to the likelihood of success of such claims and actions. As part of the Board s ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the business and takes appropriate advice in respect of these developments. Litigation As a consequence of the as yet non-harmonised regulatory environment for online gaming in Europe, a number of civil and administrative proceedings are pending against the Group and/or its board members in several countries (including but not limited to Germany, Portugal, Slovenia and Spain) aimed at preventing from offering its services in these countries. Further, there are criminal investigations pending against certain board members of the Group for the alleged violation of local gaming laws (such as in France and Austria). In 2010, a former bwin subsidiary has been assessed by Austrian tax authorities to have value-added tax arrears of 6.4m for the years 2002 to The Company has appealed the assessments. Applying the same assessments to periods subsequent to 2004, although some circumstances have changed, the value of the worst case scenario amounts to 170.4m. In 2006, the Portuguese monopoly operator Santa Casa de Misericórdia da Lisboa and the Portuguese Casino Association, in addition to a request for a cease and desist order, filed a suit for damages in the amount of approximately 27m for the alleged loss of profits due to s Portuguese online gaming offer. In September, the Court of First Instance, amongst others, (i) declared the (already terminated) sponsorship agreement between the former bwin and the Portuguese Soccer League (LPFP) as well as bwin s gaming offer and advertising measures as illegal in Portugal, and (ii) prohibited the offer of mutual bets and lottery games on bwin.com and future advertising activities for bwin. filed an appeal against the Court s decision. The Court did not yet decide on Santa Casa s request for damages but reserved this for the further proceedings. In 2010, the Justice and Public Safety Cabinet of the Commonwealth of Kentucky filed a civil suit against the Company and other defendants in Franklin Circuit Court, a state court in Kentucky in the US. The suit seeks a claim for damages of US$47m along with interest and costs in relation to the Company s activities from 5 August 2005 until the Company s termination of US-facing activities on 13 October In, Ante5 filed a complaint and a request for arbitration with Judicial Arbitration and Mediation Service Inc. against the Company for the alleged breach of its obligations under the Asset Purchase Agreement for the purchase of the World Poker Tour. Under the Asset Purchase Agreement Ante5 is entitled to a 5% share of WPT s revenues since the acquisition in Ante5 claims that the Company has not invested sufficient effort to market the WPT assets and has thus suffered loss in its revenue share. Ante5 seeks recovery of the revenue that it believes it would have received were the Company to have acted diligently in the promotion of the WPT assets. Ante 5 believes the sums due to it to be US$240m. The Directors believe these suits to be without merit and intend to defend these matters vigorously and accordingly no provision has been made in the accounts other than that set out in note 19. In respect of the above matters relating to former bwin companies, IFRS 3 requires that a probability-weighted estimate is used for fair-valuing acquired contingent liabilities and a provision made accordingly, even though had the same contingent liability arisen in a former PartyGaming company no provision would be made under IAS 37. Details of amounts provided for litigation and regulatory disputes can be found in note 19. No further details have been provided as the Directors consider that this would be prejudicial to the interests of the Group.

139 137 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Share capital Ordinary shares Issued and fully paid Number million As at 1 January , Employee share options exercised during the period As at 31 December , Issued as consideration for the Merger (see note 26) 75, Employee share options exercised during the period Redeemed as part of share buyback scheme (2,757) (15.7) As at 31 December 150, The Company has changed its functional currency from US dollars to euros with effect from 1 January. Prior to that date shares issued were converted into US dollars at the exchange rate prevailing on the date of issue. These amounts have subsequently been converted into euros using the exchange rate at 1 January of 1 euro = US dollar The issued and fully paid share capital of the Group amounts to 150, and is split into 837,198,870 ordinary shares. The share capital in UK sterling is 125, and translates at an average exchange rate of euros to 1 sterling. Authorised share capital and significant terms and conditions On 28 January the Company s authorised share capital was increased from 105,000 divided into 700 million ordinary shares with a par value of pence each to 225,000 divided into 1,500 million ordinary shares of pence each. All issued shares are fully paid. The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at meetings of the Company. The Trustee of the Employee Trust has waived all voting and dividend rights in respect of shares held by the Employee Trust. Treasury shares Own shares reserve Number million As at 1 January 2010 (2.8) 4.6 Purchase of own shares for the Employee Trust Employee share options exercised during the period (0.6) As at 31 December 2010 (2.8) 4.0 Purchase of own shares for the Employee Trust (4.3) 3.0 Employee share options exercised during the period (3.1) As at 31 December (7.1) 3.9 As at 31 December 3,929,502 (2010: 4,000,045) ordinary shares were held as treasury shares by the Employee Trust. During the Company donated 3.5 million to the Employee Trust, which the Employee Trust then used to purchase 3,010,977 ordinary shares in the market. 25. Related parties (i) Group Transactions between Group companies have been eliminated on consolidation and are not disclosed in this note. Principal Shareholders During the period the Principal Shareholders, and corporate entities controlled by the Principal Shareholders, did not receive any remuneration in the form of salary, bonuses or consulting fees (2010: nil). A former Principal Shareholder and certain other Principal Shareholders have also given certain indemnities to the Group.

140 Financials Notes to the consolidated financial statements Related parties (continued) Directors and key management Key management are those individuals who the Directors believe have significant authority and responsibility for planning, directing and controlling the activities of the Group. The aggregate short-term and long-term benefits, as well as share-based payments of the Directors and key management of the Group are set out below: Year ended 31 December 2010 Short-term benefits Share-based payments Certain Directors and certain key management were granted share options under service contracts which were granted under a Group share option plan. At 31 December an aggregate balance of 3.9m (2010: 3m) was due to Directors and key management. The Group purchased certain telecommunication services and equipment of 2.1m (2010: 2.1m) from a company on an arm s length basis for whom a Board member is a director, with amounts owed at 31 December of less than 0.3m (2010: nil). The Group purchased certain payment services of 8.6m (2010: nil) from a company on an arm s length basis for whom a Board member is a director, with amounts owed at 31 December of less than 0.1m (2010: nil). The Group purchased certain consultancy services of 0.6m (2010: nil) from a partnership on an arm s length basis for whom a Board member was a partner during the period, with amounts owed at 31 December of less than 0.1m (2010: nil). The Group purchased certain consultancy services of 0.2m (2010: nil) from a company on an arm s length basis for whom a Board member was a director during the period with amounts owed at 31 December of 0.1m (2010: nil). Two Directors each have a loan with the Group of 3.0m (2010: nil) with an interest rate on an arm s length basis. The Group holds certain guarantees against these loans and believes the amounts to be fully recoverable. In furnished property was leased to a member of key management at an annual lease rental of 45,000 which the Directors believe is the fair value rental of the property. There were no amounts owed at 31 December (2010: nil). Associates and joint ventures The Group purchased on an arm s length basis certain advertising services of 2.3m (2010: nil) from a company that has a non-controlling interest in a Group subsidiary and from whom the assets and liabilities of an associate company were purchased during the year. The Group purchased on an arm s length basis certain customer services of 3.7m (2010: nil) from an associate, with amounts owed at 31 December of 0.9m (2010: nil). The Group provided on an arm s length basis certain rights to broadcast licensed media of 0.8m (2010: nil) to a joint venture partner, with amounts owed at 31 December of 0.8m (2010: nil). (ii) Company Where the cash obligations of PartyGaming Plc (the Company ) for operating expenditure are discharged by its operating subsidiaries, amounts paid by the subsidiaries are accounted for through an adjustment to the related intercompany balances. During the year, 20.1m of costs (2010: 6.0m) were incurred by subsidiaries on behalf of the Company. The Company also has an agreement with iglobalmedia Marketing (UK) Limited, a whollyowned subsidiary, for the provision of investor relations and public relations services to it at a cost of 1.4m (2010: 1.2m). In the Company received dividends from subsidiaries of 100.0m (2010: nil), and declared a dividend to shareholders of 15.0m (2010: nil). At year end, the Company did not have any other borrowing facilities. The Directors and certain key management of the Company were remunerated through cash payments made by other entities within the Group of 6.2m (2010: 3.0m) and share options issued by the Company with a share-based payment expense of 2.0m (2010: 3.5m). Additionally, the Company has granted options over its shares to employees of certain subsidiaries. The share-based payment expense for the year in respect of these share options of 10.0m (2010: 5.6m) has been added to the Company s cost of investment in those subsidiaries. Disclosures relating to share-based payments are included in note 29. Details of amounts owed to and from subsidiaries are included in notes 14 and 17.

141 139 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Acquisitions during the period On 31 March, the Group acquired 100% of the voting equity instruments of bwin Interactive Entertainment AG, an exclusively non-us facing business whose principal activities are the provision of online gaming, providing online sporting content such as live video streams, live scores, statistics and SMS services to its customers and a payment service provider. The main drivers for the Merger were the potential synergies that could be achieved. There was no cash consideration as the acquisition was made on the basis of issuing PartyGaming Plc shares for each bwin share together with an equivalent multiple of PartyGaming options for unexercised bwin options at that date. Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows: Non-current assets Intangible assets other than goodwill Property, plant and equipment 19.3 Investments Current assets Inventories 0.5 Trade and other receivables 72.7 Short-term investments 30.6 Cash and cash equivalents Current liabilities Trade and other payables (85.1) Income taxes payable (12.3) Client liabilities and progressive prize pools (83.5) Provisions (9.3) (190.2) Non-current liabilities Provisions (80.9) Deferred tax (71.2) (152.1) Net assets acquired Less: non-controlling interests Goodwill Consideration 1,030.1 Issue of 439,209,325 ordinary shares at Issue of 34,772,933 share options 62.1 Consideration 1,030.1

142 Financials Notes to the consolidated financial statements Acquisitions during the period (continued) The fair value adjustments included in the above relate primarily to the attribution of fair values to brands, customer lists and software acquired as part of the acquisition, and the effect of deferred tax thereon. These intangible assets are being amortised over their estimated useful economic lives of up to 20 years. The amount included in provisions represents the Directors current best estimate of amounts payable based on probability weighted expected values after the effects of discounting as required under IFRS 3. The main factors leading to the recognition of goodwill (none of which is deductible for tax purposes) are the growth and revenue synergies created by combining business activities, cost savings of the merged operations and expertise of the workforce. Merger and acquisition costs in the period in respect of this can be found in note 4. Had the Merger taken place at the beginning of the period, total revenue would have been 830.1m (of which 14.1m relates to discontinued operations) and loss after tax would have been 422.3m (of which 21.1m relates to discontinued operations). 27. Investments in subsidiaries As at 1 January ,203.5 Options issued to employees of subsidiary undertakings 5.6 Impairment (220.5) As at 31 December Acquisitions in the year 1,030.1 Options issued to employees of subsidiary undertakings 10.0 Impairment (391.7) As at 31 December 1,637.0 Investments in subsidiaries carried by the Company are carried at cost less any impairment in value. The impairments that were recognised for the years ending 31 December 2010 and of 220.5m and 391.7m respectively are measured as the difference between the market capitalisation of the Company and the carrying value of the Company s investments in subsidiaries as at the respective year ends. During the year ended 31 December the Company issued share options with a fair value of 10.0m (2009: 5.6m) in respect of employees of subsidiary undertakings.

143 141 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Investments in subsidiaries (continued) The Company is the holding company of the Group. The following table shows details of the Company s principal subsidiary undertakings. Each of these companies is wholly-owned by a member of the Group, the issued share capital of each is fully paid and each are included in the consolidated accounts of the Group: Name of subsidiary undertaking Country of incorporation Principal business Management (Gibraltar) Limited Gibraltar Management and IT services Cashcade Limited United Kingdom Marketing services ElectraGames Limited Gibraltar IT services ElectraWorks (Alderney) Limited Channel Islands IT services ElectraWorks Limited Gibraltar Online gaming EZE International Limited Gibraltar Transaction services GB Services EooD Bulgaria IT and customer support services iglobalmedia Entertainment Limited Gibraltar Online gaming Marketing (Gibraltar) Limited Gibraltar Marketing services Marketing (Israel) Limited Israel Marketing support services Marketing (UK) Limited United Kingdom Marketing support services IVY Comptech Private Limited India IT and customer support services PartyGaming IA Limited Bermuda Intangible asset management Paytech International Limited Gibraltar Transaction services PB (Italia) S.r.l Italy Online gaming PGB Limited Gibraltar Customer services PKR Services Limited Gibraltar Transaction services WPT Enterprises Inc US Land-based poker events ElectraWorks (France) Ltd Malta Online gaming Kaiane Services SAS France IT services services (Austria) GmbH Austria IT, customer support and marketing support services bwin Italia S.r.l. Italy Online gaming BES SAS France Online gaming bwin Games AB Sweden IT and customer support services Ongame Services AB Sweden IT and customer support services Ongame Network Limited Gibraltar IT services CQR Payment Solutions GmbH Austria Transaction support services CQR UK Payment Solutions Limited United Kingdom Transaction services Vincento Payment Solutions Limited United Kingdom Transaction services services (Gibraltar) Ltd Gibraltar Management and IT services Winners Apuestas S.A. Spain Land based betting Websports Entertainment Marketing Services GmbH Austria Marketing support services bwin Argentina SA Argentina Online gaming

144 Financials Notes to the consolidated financial statements Financial instruments and risk management In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group s objectives, policies and processes for managing these risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group s exposure to financial instrument risks, its objectives, policies and processes for managing these risks or the methods used to measure them from previous periods, unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows: investments; short-term investments; trade and other receivables; cash and cash equivalents; loans and borrowings; trade and other payables; client liabilities and progressive prize pools; and foreign exchange contracts Foreign exchange contracts are regularly used in the normal course of business but none were outstanding as at 31 December or at the prior year end. The Group operates a sports betting business and always has open bets. As at 31 December and at the prior year end the fair market value of open bets was not material. Other financial derivative instruments are permitted to be used by the Group, but none were used in the period ended 31 December or in the prior year. Management controls and procedures The Board has overall responsibility for the determination of the Group s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating the required processes that ensure the effective implementation of the objectives and policies to the Group s treasury department under the auspices of the Group Treasury Committee (see below). As such, the Group s funding, liquidity and exposure to interest rate and foreign exchange rate risks are managed by the Group s treasury department. The treasury department is mandated to execute conventional forward foreign exchange contracts and swaps in order to manage these underlying risks. No other derivatives may be executed without written authority from the Board at which point an explanation of the accounting implications would also be given. Treasury operations are conducted within a framework of policies and guidelines reviewed and approved by the Board on an annual basis which are recommended and subsequently monitored by the Group Treasury Committee. The Group Treasury Committee is chaired by the Group Finance Director. These polices include benchmark exposures and hedge cover levels for key areas of treasury risk. The Group risk management policies would also be reviewed by the Board following, for example, significant changes to the Group s business. Exposures are monitored and reported to management on a monthly basis, together with required actions when tolerance limits are exceeded. The internal control procedures and risk management processes of the treasury department are also reviewed periodically by the internal audit function. The last internal control review was undertaken during and the procedures and processes were deemed satisfactory. The overall objective of the Board is to set policies that seek to reduce risk as far as possible, without unduly affecting the Group s competitiveness and flexibility. Further details regarding these policies are set out below:

145 143 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Financial instruments and risk management (continued) Liquidity risk Liquidity risk arises from the Group s management of its working capital as well as the finance charges and principal repayments on its debt instruments. In essence, it is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. The Group s treasury department ensures that the Group s cash and cash equivalents, and amounts due from payment service providers ( PSPs ) exceed its combined client liabilities at all times. This excess is defined as the Client Liability Cover. Client liabilities principally represent customer deposits and progressive prize pools. The Group Treasury Committee is advised of cash balances, investments, foreign currency exposures, interest income, interest expense, amounts due from PSPs, Client Liability Cover and counterparty exposures on a monthly basis, or more frequently if required. The Group imposes a maximum debt limit of 300m that may mature in any one year to ensure that there is no significant concentration of refinancing risk. Management monitors liquidity to ensure that sufficient liquid resources are available to the Group. The Group s principal financial assets are cash, bank deposits and trade and other receivables. During 2009 the Group entered into 35m term loan as a means of managing liquidity risk. 33.2m was outstanding on the term loan at the end of December and it is fully repayable in December Capital risk In common with many internet companies that have few physical assets, the Group has no policy as to the level of equity capital and reserves other than to address statutory requirements. The primary capital risk to the Group is the level of debt relative to the Group s net income. Accordingly, the Group s policy is that gross debt should not exceed 500m and that the leverage ratio of gross debt/clean EBITDA should be less than 1.5x. An analysis of gross debt is as follows: As at 31 December 2010 Gross debt () Clean EBITDA () Headroom () Ratio Details of the Group s dividend policy is disclosed in the Chairman s statement and also on pages 154 to 156 of this Annual report. Credit risk Operational: The Group s operational credit risk is primarily attributable to receivables from PSPs and from customers who dispute their deposits made after playing on the Group s websites. Prior to accepting new PSPs and wherever practicable, credit checks are performed using a reputable external source. Senior management monitors PSP balances on a weekly basis and promptly takes corrective action if pre-agreed limits are exceeded. For PSPs that do not have a formal credit rating, an internal rating system is used, based on such factors as industry knowledge, their statement of financial position, profitability, customer diversification, geographic diversification, long-term stability, management credibility, potential regulatory risk and historic payment track record. These internal ratings are monitored and reviewed on a quarterly basis. An internal rating of one is assessed as very strong whilst a rating of five is assessed as weak. As at 31 December (Very Strong) (Strong) (Good) (Satisfactory) PSPs amounts due Management consider the maximum credit exposure on amounts due from PSPs to be the carrying amount.

146 Financials Notes to the consolidated financial statements Financial instruments and risk management (continued) As at 31 December and 31 December 2010, there were no overdue amounts due from PSPs which had not been impaired, nor were there any partially impaired amounts. There is an inherent concentration of risk with PSPs, which are not investment grade banks, in that the majority derive most of their income from the online gaming sector. To this end, where practicable and economic, the Group seeks to substitute non-investment grade PSPs with investment grade, or, at least, better quality PSPs. The table below sets out the movement in the impairment of amounts due from PSPs. As at 31 December 2010 Impairments Total impairment expense Note 14 details the movement and level of provisions for PSPs. Cash investments: As a result of the deteriorating European financial situation, in October the Group decided to only invest cash with banks on an overnight basis with a small number of very strong German and British financial institutions. The Group also invests cash in instant access pooled money market funds with a minimum long-term credit rating of AAA on the principal, as defined by Moody s rating agency. The Group can also purchase commercial paper provided the issuer is not a financial institution and has a one year credit default swap, as quoted by Bloomberg, of no more than 1%. Investments are allowed only in highly liquid securities. The Group maintains monthly operational balances with strong local banks in Israel, Bulgaria, Austria, USA and India to meet local salaries, expenses and legal requirements. In Austria, cash balances are also maintained to process and receive customer and affiliate payments. In Italy and France the Group maintains domestic segregated player funds accounts as required by the respective regulatory authorities. Cash is also held as security in Austria, Italy and UK primarily to support bank guarantees and as reserves for credit and debit card chargebacks. Other than this, non-central cash balances are kept to a minimum. Cash and cash equivalents Short-term investments As at 31 December AAA money market funds Cash with banks Commercial paper The treasury department may only make the following cash investments, without prior written authority by the Board: overnight cash deposits; pooled money market funds; certificates of deposit; and commercial paper The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of financial position. Market risk Market risk arises from the Group s use of interest-bearing, tradable and foreign currency financial instruments. It is the risk that the fair value of future cashflows on its long-term debt finance and cash investments through the use of a financial instrument will fluctuate because of changes in interest rates, foreign exchange rates or other market factors. Interest rate risk The Group s current net cash position is maintained primarily on a floating basis. In the event of a strategic change in the debt position of the Group, the interest rate management policy would be reviewed.

147 145 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Financial instruments and risk management (continued) Currency risk Transaction and currency liability exposures: The Group s policy is that all material transaction and currency liability exposures are economically and fully hedged using foreign exchange contracts and/or by holding cash in the relevant currency. Additionally, the Group has discretion to hedge some or all of its forecast sterling operational costs in Gibraltar and the UK for up to 12 months. No other forecast cashflows are hedged. The Group may also economically hedge material committed exposures such as capital expenditure unless the period between commitment and payment is short (less than one month). Currency exposures are monitored by the Group Treasury Committee on a monthly basis. A 5m currency tolerance limit between euros and any other currency is permitted in order to avoid executing low value and uneconomic foreign exchange contracts. Net investment exposures: The Group has the flexibility to hold debt in currencies other than euros in order to hedge non-euro investments up to 50% of the net investment value. In managing the mix of ongoing debt exposure the Group takes into account prevailing interest rates in particular currencies and the potential impact on Group earnings ratios. Sensitivity analysis to currency and interest rate risk The Group has adopted a sensitivity analysis that measures the change to the fair value of the Group s financial instruments and any resultant impact on the Group s earnings of either: an instantaneous increase or decrease of 1% in market interest rates (including the annualised interest income impact of variable rate interest bearing financial instruments), or a 10% strengthening or weakening in the reporting currency against all other currencies from the rates applicable at 31 December The Group is exposed to interest rate movements since it holds significant amounts of cash at floating rates as well as cash equivalents to meet client liability obligations that are non-interest bearing. The Group is exposed to currency movements in the euro, arising out of changes in the fair value of financial instruments which are held in non-euro currencies. This analysis is for illustrative purposes only, as in practice, market rates rarely change in isolation. The amounts generated from the sensitivity analysis are estimates of the possible impact of market risk, assuming that specified changes occur. Actual results in the future may differ materially from these results due to other developments in financial markets that may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the following table, which therefore should not be considered as a projection of likely future events and losses. Prior to the current year both the reporting currency of the Group and functional currency of the majority of subsidiaries was US dollars and currency risk was managed on that basis. The sensitivity analysis below reflects that management. (Decrease) increase in fair value of financial instruments Impact on earnings gain (loss) As at 31 December % decrease in interest rates (0.6) 0.5 1% increase in interest rates % weakening in the reporting currency 1.3 (0.8) (0.2) % strengthening in the reporting currency (1.2) (3.1) Insurance The Group purchases insurance for commercial or, where required, for legal or contractual reasons. The Group also retains certain insurable risk where external insurance is not considered an economic means of mitigating these risks.

148 Financials Notes to the consolidated financial statements Financial instruments and risk management (continued) Total financial assets and liabilities and effective interest rate and re-pricing analysis In respect of income-earning financial assets and interest-bearing financial liabilities, the following tables indicate their effective interest rates at the end of the reporting years and the periods in which they re-price, as well as setting out the Group s accounting classification of each class of financial assets and liabilities and their fair values at 31 December and 31 December Of which interest bearing As at 31 December Carrying value Fair value Total Effective interest rate 6 months or less 6 12 months 1 5 years Investments Assets held for sale Trade and other receivables % 6.0 Short-term investments % 25.4 Cash and cash equivalents % Financial assets % Trade and other payables Client liabilities and progressive prize pools Loans and borrowings % Financial liabilities at amortised cost % Of which interest bearing As at 31 December 2010 Carrying value Fair value Total Effective interest rate 6 months or less 6 12 months 1 5 years Investments Assets held for sale Trade and other receivables Short-term investments % 3.1 Cash and cash equivalents % Financial assets % Trade and other payables (94.7) (88.6) Client liabilities and progressive prize pools (93.1) (93.1) Loans and borrowings (40.7) (40.0) (40.0) 5.44% (5.0) (4.9) (30.1) Financial liabilities at amortised cost (228.5) (221.7) (40.0) 5.44% (5.0) (4.9) (30.1) The fair values of borrowings and other financial instruments are estimated at 31 December each year by discounting the future contractual cashflows to the net present values using appropriate yield curves. 29. Share-based payments Year ended 31 December 2010 Total Shareholder Return based Clean EBITDA / Clean EBITDA growth based Other Total charge The Group has adopted and granted awards as a reward and retention incentive for employees of the Group, including the Executive Directors. The Group has used the Black-Scholes option pricing model to value these options unless the Monte Carlo option pricing model is deemed more appropriate. An appropriate discount has been applied to reflect the fact that dividends are not paid on options that have not vested or have vested and have not been exercised.

149 147 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Share-based payments (continued) Total shareholder return based PSP Plan Year end 31 December 2010 Outstanding at beginning of year Shares over which options granted during the year 1.3 Shares in respect of options lapsed during the year (1.6) (0.2) Exercised during the year Number million Number million (0.4) Outstanding at end of year Exercisable at the end of year Shares over which options granted during the period (number) 1,300,000 Percentage of total issued share capital n/a 0.31% Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) PSP Plan These options were to vest subject to the achievement of a total shareholder return ( TSR ) performance target over the three-year period commencing on 1 January or 1 July of each year from 2007 compared to the median TSR of a comparator group. The threshold for vesting at which 25% will vest, would have been TSR equalling the median of the comparator group, rising on a straight-line basis to 100% vesting if the Company s TSR exceeded the median by 10% per annum calculated over the three-year period. It is estimated that outperformance of the median by 10% per annum over that period is performance in excess of the upper quartile. As part of the Merger, the Remuneration Committee measured the TSR performance condition up to the date of the EGM and determined the number of shares capable of vesting. Vesting will still occur on the original vesting dates subject to continued employment. No new awards are to be granted under this plan. Value creation plan( VCP ) Participants are granted VCP points, being a right to receive shares (in the form of a nil cost option or a conditional share award) with a value equal to their allocated percentage of the VCP pool. The size of the VCP pool will be linked to the value created for Shareholders, taking into account the increase in share price, dividends paid and share buy backs, over three one year performance periods, in excess of a hurdle amount (10% annual growth). The VCP pool will be calculated as being equal to 4% of the increase in the Company s share price during the relevant year. After each year end the VCP pool will be converted into awards over a specific number of shares using the market value of a share at the relevant measurement date and in accordance with the participant s allocated share of the VCP pool. The awards will be structured as nil-cost share options, with half of the shares under each option vesting at the end of the third performance period and the remaining half vesting one year later. As nil cost options, they will remain exercisable for ten years from the date of grant. As at 31 December the liability associated with the VCP was nil (2010: nil). Clean EBITDA / Clean EBITDA growth based Executive FMV Plan Number million Number million Year end 31 December 2010 Outstanding at beginning of year Shares over which options granted during the year 0.5 Shares in respect of options lapsed during the year (1.8) (0.1) Exercised during the year Outstanding at end of year 1.8 Exercisable at the end of year 0.9 Shares over which options granted during the period (number) 450,000 Percentage of total issued share capital n/a 0.11% Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) 2,971

150 Financials Notes to the consolidated financial statements Share-based payments (continued) Executive FMV Plan These options vested subject to the growth in the Company s Clean Earnings per share equalling or exceeding 15% per annum in the three-year period from 1 January of each year from The performance period for these options was shortened to the date of the Merger but the performance conditions were not satisfied as at that date and so all unexercised awards lapsed. No new awards are to be granted under this plan. Bonus Banking Plan ( BBP ) The BBP plan covers a three-year period with annual performance targets set at the beginning of each year. Depending on the extent to which the performance targets have been met in any year, an amount may be credited (or debited) to the participant s bonus account on the measurement date. 50% will be credited in the form of shares (through a nil-cost option) and 50% in cash. Shortly after each measurement date an amount equal to half of the balance of the bonus account will be paid in cash to the participant. After the initial three years half the nil-cost option vests, with the balance vesting in year four, together with the balance of any cash. If the performance in any year does not satisfy the performance target then a participant s bonus account is debited 50% of its current value. As at 31 December the liability associated with the share-based element of the BBP was 1.7m (2010: nil). Bonus and Share Plan ( BSP ) This plan has the same conditions as the BBP, except where the performance conditions are not met in a particular year then there is no deduction made to a participant s bonus account. As at 31 December the liability associated with the share-based element of the BSP was 2.6m (2010: nil). Other Year end 31 December Rollover Plan Number million GSP Plan Number million FMV Plan Number million Nil-cost Plan Number million Outstanding at beginning of year Shares over which options granted during the year Shares in respect of options lapsed during the year (1.3) (3.4) (0.5) Exercised during the year (0.3) (0.1) (0.3) (1.6) Outstanding at end of year Exercisable at the end of year Shares over which options granted during the period (number) 34,722,933 1,835,009 Percentage of total issued share capital 4.17% 0.22% n/a n/a Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) 2,023 3,563 2,480 2,637 Year end 31 December 2010 Rollover Plan Number million GSP Plan Number million FMV Plan Number million Nil-Cost Plan Number million Outstanding at beginning of year Shares over which options granted during the year Shares in respect of options lapsed during the year (1.9) Exercised during the year (0.8) (0.5) Outstanding at end of year Exercisable at the end of year Shares over which options granted during the period (number) 6,110,000 1,042,600 Percentage of total issued share capital 1.48% 0.25% Weighted average remaining contractual life of options outstanding upon satisfaction of performance conditions where relevant (days) 2,860 2,779

151 149 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Share-based payments (continued) Rollover Plan These options were granted as a result of the Merger to replace the existing bwin options at the time using the same exchange ratio as for Shares. They are subject to the original vesting conditions and have no performance conditions. No new awards are to be granted under this plan. Global Share Plan ( GSP ) Awards of free Shares worth up to a maximum of 25,000 (or equivalent) may be made to each eligible employee each year. The award may be subject to performance conditions. There is flexibility to grant different types of free share award including nil-cost options, conditional awards of Shares and restricted shares where the employee is the owner of the Shares from the date of award. At 31 December, all Shares under this scheme are nil-cost options with no performance conditions. Additionally, where employees buy Shares up to a maximum of 1,500 each, they may be awarded additional free shares on a matching basis, up to a maximum of two matching Shares for each purchased share. Purchased Shares must be held for a minimum of three years for the matching Shares to vest. Directors are not eligible to receive any awards under this plan. FMV Plan Options granted under this plan during the period generally vest in instalments over a three year period. There are no performance conditions attached to options issued by the Group under the terms of the FMV Plan. Directors are not eligible to receive any awards under this plan. No new awards are to be granted under this plan. Nil-cost Plan These options are not generally subject to performance conditions as this is regarded as detracting from their attraction and retention capabilities and instead usually vest on a phased basis over a four- to five-year period. The main exception to this general policy is the award made to key employees in the bingo segment, which will only vest subject to the satisfaction of a stretching EBITDA target for that business unit for No new awards are to be granted under this plan. Outstanding share options issued that are not nil-cost have been granted at exercise prices between 10.0p and 489.0p (2010: between 155.0p and 457.5p). The weighted average share price (at the date of exercise) of options exercised during the year was 151.5p (2010: 288.0p). 30. Events after the reporting period On 6 March 2012 the Company announced that it had agreed to sell Ongame, its business-to-business ( B2B ) online poker network, to Shuffle Master, Inc ( Shuffle Master ) for a total cash consideration of up to 29.5m. The agreement is consistent with the Group s stated strategy and follows its announced intention to sell Ongame on 30 June. Contingent consideration will become payable by Shuffle Master in the event that online poker becomes regulated in the United States within five years of completion. The amount payable in these circumstances will depend upon the timing of the commencement of legalised online gaming in the US. The transaction is subject to the normal terms and conditions for a transaction of this type as well as certain regulatory approvals and is expected to complete during the summer of 2012 with a back-stop date of December The management of Ongame will transfer with the business and the net sale proceeds will be used for general corporate purposes. Since the year end the Company had purchased for cancellation a further 15,501,381 Shares at a total cost, including commission of 25,096, Dividend The Board is recommending a final dividend of 1.56p per share which together with the interim dividend of 1.56 pence per share makes a total dividend of 3.12p per share for the year ended 31 December (2010: nil). The final dividend, if approved at the Annual General Meeting will be payable to Shareholders on the register of shareholder interests on 11 May 2012 (the Record Date ). It is expected that dividends will be paid on 12 June Shareholders wishing to receive dividends in euros rather than pound sterling will need to file a currency election and return it to the Group s registrars on or before 25 May A separate announcement regarding the dividend payment has been issued today. 32. Proposed capital reduction In order to ensure sufficient financial flexibility in future the Company intends to restructure its balance sheet by carrying out a reduction of share capital through the cancellation of the share premium account and then allocating the same amount to a distributable reserve in the Company s accounts. The Company intends to do this at an Extraordinary General Meeting of Shareholders to be held immediately after the forthcoming Annual General Meeting of Shareholders. A further announcement will made in due course.

152 Financials Company statement of financial position 150 Year ended 31 December Notes 2010 Non-current assets Investment in subsidiaries 27 1, , Current assets Trade and other receivables Cash and cash equivalents Total assets 1, ,114.1 Current liabilities Trade and other payables 17 (59.3) (57.4) (59.3) (57.4) Non-current liabilities Trade and other payables 17 (21.7) (21.7) Total liabilities (59.3) (79.1) Total net assets 1, ,035.0 Equity Share capital Share premium account 1, Own shares 24 (7.1) (2.8) Retained earnings Capital reserve Currency reserve 2.5 Equity attributable to equity holders of the parent 1, ,035.0

153 Financials Company statement of changes in equity 151 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Year ended 31 December As at 1 January Acquisition of subsidiaries and businesses Other issue of shares Dividends paid Purchase of shares Total comprehensive expense for the period Transfer of reserves Other share-based payments As at 31 December Share capital Share premium account ,018.4 Own shares (2.8) (4.3) (7.1) Retained earnings (15.0) (23.2) (318.3) Capital reserve (829.9) Currency reserve 2.5 (2.5) Total equity 1, , (15.0) (27.5) (318.3) ,717.4 Year ended 31 December 2010 Acquisition of As at subsidiaries and 1 January businesses Other issue of shares Dividends paid Purchase of shares Total comprehensive income (expense) for the period Transfer of reserves Other share-based payments As at 31 December Share capital Share premium account Own shares (2.8) (2.8) Retained earnings (16.1) Capital reserve 1,050.4 (220.5) Currency reserve Total equity 1, (234.1) 9.2 1,035.0

154 Financials Company statement of cashflows 152 Year ended 31 December 2010 Loss for the year (318.3) (16.1) Adjustments for: Impairment of investments Increase in reserves due to share-based payments Dividend income (100.0) Net interest expense (income) 0.6 (1.1) Operating cashflows before movements in working capital and provisions (23.9) (13.6) Decrease in trade and other receivables Decrease in trade and other payables (20.4) (32.8) Net cash inflow from operating activities Financing activities Issue of ordinary shares Purchase of own shares (27.5) Dividends paid (15.0) Net cash generated by financing activities (41.5) 1.8 Net increase in cash and cash equivalents (19.3) 46.3 Exchange differences (1.5) Cash and cash equivalents at beginning of period 44.8 Cash and cash equivalents at end of period

155 Share information 153 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 The Company has only one class of share in issue, ordinary shares of 0.015p each. As at Shares in issue No. of voting rights No. of Shares in free float 31 December 837,198, ,269, ,188, March ,882, ,357, ,602,525 The Company s shares have been admitted to trading on the London Stock Exchange since 30 June TDL: BPTY ISIN Number: GI000A0MV757 SEDOL Number: B53TNH6 Share price (all prices mid-market per share at the close of business) Price at IPO (June 2005) p opening price (4 January ) p Price on completion of the merger with bwin (31 March ) p High during the period to 31 December p Low during the period to 31 December 98.50p 31 December p Decrease over the year 24.2% FTSE 250 Index decrease over the period 12.6% Share price information is available on the Company s website, and the London Stock Exchange website, In the UK, information can also be found in the Financial Times and The Times share price listings. Directors share interests and major shareholders The interests of the Directors in the Company s share capital is set out in the Directors remuneration report on page 96. A table of those parties with a material interest in 3% or more of the Company s share capital or, in the case of other interests in 10% or more of the share capital, as notified to the Company in accordance with the Gibraltar Disclosure of Interests in Shares Act 1998, the Articles and Deed Poll, is set out in the Governance section on page 98. Market capitalisation The market capitalisation of as at 31 December was 1.37bn. The Company is currently ranked within the FTSE 250 Index of companies.

156 Share information 154 Depositary interests has entered into depositary interest arrangements to enable investors to settle and pay for interests in the Company s shares through the CREST system. CREST is a paperless settlement system allowing securities to be transferred from one person s CREST account to another without the need to use share certificates or written instruments of transfer. Securities issued by non-uk companies, such as, cannot be held or transferred in the CREST system. Under arrangements put in place by the Company, a depositary holds the shares and has issued dematerialised depositary interests representing the underlying shares which are held on trust for the holders of the depositary interests. Capita IRG Trustees Limited (the Depositary ), is part of the same group of companies as s registrars, Capita Registrars (Jersey) Limited (the Registrar ), and has issued the dematerialised depositary interests. The depositary interests are independent securities constituted under English law which may be held and transferred through the CREST system. The depositary interests have been created pursuant to and issued on the terms of a deed poll executed by the Depositary in favour of the holders of the depositary interests from time to time (the Deed Poll ). As at 31 December, 719,068,913 Shares were held by the Depositary in respect of a total 719,068,913 depositary interests. There were 1,001 depositary interest holders on the depositary interest register as at that date. Each depositary interest is treated as one share. The Depositary will pass on to holders of depositary interests any stock or cash benefits received by it as the holder of shares on trust. Depositary interest holders will also be able to receive notices of shareholder meetings and other documents issued by to shareholders. The Depositary must pass on to depositary interest holders and, so far as they are reasonably able, exercise on behalf of depositary interest holders all rights and entitlements received, or to which they are entitled in respect of the underlying shares which are capable of being passed on or exercised. Rights and entitlements to cash distributions, to information, to make choices and elections and to call for, attend and vote at meetings shall, subject to the Deed Poll, be passed on in the form in which they are received together with amendments and additional documentation necessary to effect such passing-on, or, as the case may be, exercised in accordance with the Deed Poll. The depositary interests have the same ISIN and SEDOL numbers as the underlying shares and do not have a separate listing on the Official List. Registrar UK Transfer Agents Depositary Capita Registrars (Jersey) Limited 12 Castle Street St. Helier Jersey JE2 3RT Channel Islands [email protected] Telephone: +44 (0) Fax: +44 (0) * Calls cost 10p per minute plus network extras Dividends Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom Website: [email protected] Telephone: * (from UK) + 44 (0) (from overseas) Fax: + 44 (0) Capita IRG Trustees Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom [email protected] Telephone: * (from UK) + 44 (0) (from overseas) Fax: + 44 (0) Following the announcement on 30 June in respect of the Company s distribution policy and the disclosure in the Company s half year results, the Board declared an interim dividend for the year ended 31 December for an amount of 15m which was distributed to shareholders on 7 October. The Company intends paying a final dividend of 15m, subject to shareholder approval at the AGM on 7 June The final dividend of 1.56p per share will be paid to Shareholders and depositary interest holders on 12 June The record date for the final dividend is 11 May 2012 and the Shares start trading ex-dividend on 9 May In order to assist shareholders and depositary interest holders, the cash dividend may be paid either in Pounds Sterling or Euros and should you wish to receive the dividend, and all future dividends, in Euros you can elect to do so by following the instructions below. Dividends paid in Euros will be paid at the Euro to Pounds Sterling exchange rate prevailing shortly prior to payment, subject to receipt of a currency election card or electronic notification via CREST. If you make no election you will continue to receive your dividend in Pounds Sterling.

157 155 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 (i) Procedure for depositary interest holders If you hold your Shares in depositary interest form in CREST and will continue to do so at 5.00 p.m. on the dividend record date and whether or not you have validly elected to receive your dividends in CREST, you may elect to receive your dividend in Euros by means of the CREST procedures to effect such an election referred to below. If you are a CREST Personal Member, or other CREST Sponsored Member, you should consult your CREST sponsor, who will be able to take the appropriate action on your behalf. The CREST procedures require the use of the Dividend Election Input Message in accordance with the CREST manual. The message includes the following fields which, for a valid election to be made, must be correctly input as indicated below by close of business on the Euro election deadline: (i) (ii) (iii) (iv) (v) (vi) Dividend Election Reference you must indicate here a reference for the dividend election which is unique to your CREST participant I.D.; Account I.D. If you have more than one member account, you must indicate the member account I.D. to which the election relates: the relevant account must be enabled (a) at the time your Dividend Election Input Message is entered into CREST, and (b) on the relevant dividend payment date: ISIN This is GI000A0MV757 Evergreen This field must be entered with its flag set to yes. This requests the Company to apply your election to the current dividend and to all future dividends in respect of your entire depositary interest holding in CREST at each relevant record date until (a) you delete your Dividend Election Input Message and that deletion is accepted in accordance with the CREST procedures on behalf of the Company, (b) you transfer your depositary interest holding in CREST, or (c) the facility is withdrawn by the Directors; Corporate Action Number This is not to be input; Distribution type You must enter currency here; (vii) Currency code This is GBP; (viii) Number of shares This field should be left blank. If this field is completed, the message will be rejected; (ix) Contact details this field is optional, although you are asked to include details of whom to contact in the event of a query relating to your election. A valid election made by means of Dividend Election Input Message will, to the extent it relates to shares held in depositary interests at the relevant record date, supersede all previous written elections made in respect of holdings in the same member account. You may only revoke an election which has been made by Dividend Election Input Message by utilising the CREST procedures for deletions described in the CREST manual. The deletion will be valid in relation to the then current dividend only if the deletion is accepted, in accordance with the CREST procedures, by or on behalf of the Company prior to close of business on the Euro election deadline (25 May 2012 for the final dividend payable on 12 June 2012). With respect to subsequent dividend payments, the valid revocation must be received by the record date for the relevant dividend payment. It is recommended that you input any deletion message 48 hours in advance of this deadline (25 May 2012) to give the Company or its agent sufficient time to accept the deletion. There is no facility to amend an election which has been made by Dividend Election Input Message. If you wish to change your election details, you must first delete the existing election as described above and then input a Dividend Election Input Message with the required new details. Any attempts to send a new Dividend Election Input Message, where an existing Dividend Election Message is present and has not been deleted, will be rejected. Dividend payments will be paid electronically into CREST accounts where possible. Otherwise where not paid electronically into CREST they will be paid by cheque, if dividend payments are being paid in Pounds Sterling the enclosed bank mandate form will need to be completed. If you have any problems making an election through CREST then file a currency election card and send it back to Capita Registrars, to be received no later than 25 May These documents are also posted on s corporate website,

158 Share information 156 (ii) Procedure for registered shareholders Shareholders wishing to make a Euro election should complete and submit a currency election card to the Registrar no later than 25 May (iii) General notes Shareholders or depositary interest holders who submit their currency elections after the deadline (25 May 2012) for submission will receive their dividends in Pounds Sterling. Incorrectly completed currency election cards will be rejected. Elections may not be split in respect of one share or depositary interest holding and elections are enduring for future dividends unless a subsequent election is submitted to the Registrar or Depositary. Depositary interest holders who hold their depositary interests through CREST will receive their dividend payments through CREST irrespective of whether they elect to have the dividend paid in Euros. Shareholders receiving the dividend in Pounds Sterling are advised to complete a BACS instruction so that their dividend can be paid electronically directly into their bank account. For the final dividend payable on 12 June 2012 a BACS instruction form should be submitted to the Registrar no later than 15 May If a BACS instruction is not validly submitted then dividends will be paid by cheque. (iv) Final Dividend calendar Final Dividend Ex-dividend date 9 May 2012 Record date 11 May 2012 Euro election deadline 25 May 2012 / foreign exchange 29 May 2012 Payable 12 June 2012 Annual General Meeting Date and time: Thursday, 7 June 2012 at p.m. (Central European Time). Venue: The Caleta Hotel, Catalan Bay, Gibraltar. The Notice of AGM is contained within the Annual report, setting out the resolutions to be considered at the meeting. Corporate calendar 31 December Year-end 29 March 2012 Announcement of annual results 3 May 2012 Annual report posted/available on the website 4 June 2012 Deadline for submitting AGM forms of direction or submitting voting instructions via CREST (Depositary interest holders only) 5 June 2012 Deadline for submitting AGM proxy forms (shareholders only) 7 June 2012 Annual General Meeting 30 June 2012 Half year-end 31 December 2012 Year-end

159 157 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Receiving Company documents electronically All shareholder documents can be found on the Company s website, together with previous announcements to the London Stock Exchange, share price information and general information about and its business. s articles of association allow the Company to provide all shareholder and depositary interest holder documents via its website, except where shareholders and depositary interest holders have requested to receive a hard copy of such documents. This allows to limit the environmental impact of our business and to manage our costs more effectively. If you are currently receiving hard copies of s documents through the post and would like to be kinder to the environment and help reduce s costs, you are encouraged to register to receive Company documents via the Company s website. You can do this by going to the registrar s website, and registering for electronic communications. You will be notified that Company documents are on the corporate website by written notification which will be mailed to you unless when registering to receive documents electronically you request to be notified by rather than post. Company announcements Copies of announcements made by the Company are available on the Company s website, Taxation The following statements are intended to apply only as a general guide to current tax law for an individual shareholder who holds shares as an investment and who is the beneficial owner of the shares. Shareholders should consult their own tax advisers in connection with their potential liability to pay tax in the country of their nationality or the country where they live on disposal, gift or bequest of their shares or on the receipt of dividends. (i) Taxation of capital gains There is no capital gains tax in Gibraltar on a disposal of shares, but shareholders may be liable to pay tax in the country of their nationality or the country where they live. (ii) Stamp duty No stamp duty is chargeable in Gibraltar on the transfer of shares and there is no stamp duty reserve tax in Gibraltar. Provided that s shares are not registered in any register kept in the UK by or on behalf of the Company, an agreement to transfer the shares would not be expected to be subject to UK stamp duty or stamp duty reserve tax. The share register is not kept in the UK and it is not intended that any such register will be kept in the UK. A transfer on sale of shares would not be expected to be subject to UK stamp duty or stamp duty reserve tax provided that the instrument of transfer is not executed in the UK and does not relate to any property situated or to any matter or thing to be done in the UK. No UK stamp duty or stamp duty reserve tax is expected to be payable on an agreement to transfer depositary interests within CREST provided that relevant conditions are met including in particular that (a) no register of shares is kept in the UK by or on behalf of the Company; and (b) the central management and control of the Company is not exercised in the UK. It is intended that these conditions will be met. It is not expected that an instrument subject to UK stamp duty or stamp duty reserve tax would be created in respect of such a transfer.

160 Notice of 2012 Annual General Meeting 158 Notice is hereby given that the 2012 Annual General Meeting of digital entertainment plc (the Company ) will be held at The Caleta Hotel, Catalan Bay, Gibraltar on Thursday, 7 June 2012 at p.m., to consider the following business (with the exception of Resolutions 20 and 21 which are special resolutions, all resolutions are proposed as ordinary resolutions, and all resolutions will be decided on a poll). 1. To receive the Company s Annual report and accounts together with the Reports of the Directors and Auditor for the year ended 31 December. 2. To approve the Directors Remuneration Report for the year ended 31 December. 3. To re-appoint BDO LLP and BDO Limited as auditors of the Company with BDO Limited acting as auditor for the purposes of section 10 of the Gibraltar Companies (Accounts) Act To authorise the Directors to set the auditors remuneration. 5. To declare a final dividend of 1.56 pence per ordinary share payable on 12 June 2012 to those shareholders on the register of members on 11 May To re-appoint Per Afrell as a Director of the Company. 7. To re-appoint Joachim Baca as a Director of the Company. 8. To re-appoint Manfred Bodner as a Director of the Company. 9. To re-appoint Tim Bristow as a Director of the Company. 10. To re-appoint Simon Duffy as a Director of the Company. 11. To re-appoint Helmut Kern as a Director of the Company. 12. To re-appoint Lewis Moonie as a Director of the Company. 13. To re-appoint Rod Perry as a Director of the Company. 14. To re-appoint Georg Riedl as a Director of the Company. 15. To re-appoint Jim Ryan as a Director of the Company. 16. To re-appoint Norbert Teufelberger as a Director of the Company. 17. To re-appoint Martin Weigold as a Director of the Company. 18. To re-appoint Geoff Baldwin as a Director of the Company. 19. That in place of any existing authority; (i) (ii) the Board of Directors be and it is hereby generally and unconditionally authorised for the purposes of section 66 of the Companies Act 1930 (as amended) to exercise all the powers of the Company to allot Relevant Securities (as defined in article 6 of the Company s Articles of Association (the Articles )) up to an aggregate nominal amount of 41,094 and further, the Board of Directors be and it is hereby generally and unconditionally authorised for the purposes of section 66 of the Companies Act 1930 (as amended) to exercise all powers of the Company to allot Relevant Securities comprising Equity Securities ( as defined by article 20 of the Articles) up to a nominal amount of 82,188 (including within such limit any Relevant Securities allotted under sub-paragraph (i) above) in connection with an offer by way of a rights issue: (A) (B) to ordinary shareholders in proportion (as nearly as practicable) to their existing holdings; and to people who are holders of other Equity Securities if this is required by the rights of those securities or, if the Board of Directors considers it necessary, as permitted by the rights of those securities, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter, provided that these authorities shall expire at the end of the Company s Annual General Meeting in the year 2013 or, if earlier, at close of business on 7 September 2013, save that the Company may before such expiry make an offer or enter into an agreement which would or might require Relevant Securities to be allotted after such expiry and the Board of Directors may allot Relevant Securities in pursuance of such an offer or agreement as if the authorities conferred hereby had not expired.

161 159 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements That subject to the passing of the previous resolution and in place of the existing authority, the Board of Directors be and it is hereby empowered pursuant to Articles 22 to 25 of the Articles to allot Equity Securities (as defined by article 20 of the Articles) for cash pursuant to the authority conferred by the previous resolution as though Articles 14 to 21 of the Articles did not apply to any such allotment provided that this power shall be limited: (i) To the allotment of Equity Securities in connection with an offer of Equity Securities (but in the case of the authority granted under Resolution 19(ii) by way of a rights issue only): (A) (B) to ordinary shareholders in proportion (as nearly as practicable ) to their existing holdings; and to people who are holders of other Equity Securities if this is required by the rights of those securities or, if the Board of Directors considers it necessary, as permitted by the rights of those securities, and so that the Board may impose any limits or restrictions and make any arrangements which it considers necessary or appropriate to deal with fractional entitlements, record dates, legal, regulatory or practical problems in, or under the laws of, any territory or any other matter; and (ii) In the case of the authority granted under Resolution 19(i), to the allotment (otherwise than under sub-paragraph (i) above) of Equity Securities up to an aggregate nominal value of 6,164, and shall expire at the end of the Company s Annual General Meeting in 2013 or, if earlier, at close of business on 7 September 2013, save that the Company may before such an expiry make an offer or enter into an agreement which would or might require Equity Securities to be allotted after such expiry and the Board of Directors may allot Equity Securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. 21. That the Company be generally and unconditionally authorised to make market purchases within the meaning of section 79 of the Gibraltar Companies Act 1930 (as amended) of ordinary shares of each of the Company ( Shares ) provided that: (i) The maximum number of Shares hereby authorised to be acquired is 82,188,269; (ii) (iii) (iv) The minimum price that may be paid for any Share is , being the nominal value of a Share; The maximum price that may be paid for any Share is an amount equal to 105% of the average of the middle market quotations for a share as derived from the Official List for the five business days immediately preceding the day on which the Share is contracted to be purchased; and The authority hereby conferred shall expire on the date of the Annual General Meeting of the Company in the year 2013 or, if earlier, at close of business on 7 September 2013; but a contract for purchase may be made before such expiry, that will or may be completed wholly or partly thereafter, and a purchase of shares may be made in pursuance of any such contract. By order of the Board of Directors Robert Hoskin Company Secretary digital entertainment plc 711 Europort Gibraltar 20 April 2012

162 Notice of 2012 Annual General Meeting General Notes 160 Notes: 1. General The Notice of AGM is an important document. If there is anything you do not understand then you should consult with the appropriate professional adviser. If you have any questions regarding how to attend and/or vote at the AGM then please contact Capita Registrars. Capita provides registrar, UK transfer agent services and depositary services to the Company. Capita s contact information appears below: Registrar UK Transfer Agent Depositary Capita Registrars (Jersey) Limited 12 Castle Street St. Helier Jersey JE2 3RT Channel Islands [email protected] Telephone: +44 (0) Fax: +44 (0) *Calls cost 10p per minute plus network extras. Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom Website: [email protected] Telephone: * (from UK) +44 (0) (from outside UK) Fax: +44 (0) Capita IRG Trustees Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU [email protected] Telephone: * (from UK) +44 (0) (from outside UK) Fax: +44 (0) If you have recently sold all of your shares and/or depositary interests then please send this document and the enclosed forms to the person who sold the shares/depositary interests for you. They can then send them to the new owner of the shares/depositary Interests. References to times in the AGM notice are to the time in Gibraltar (Central European Time), which is one hour ahead of British Summer Time ( BST ). The business of the meeting is set out in the Notice of AGM and a summary of and rationale for each resolution is set out on pages 100 to 101. Biographies of the Directors recommended for re-appointment are set out on pages 68 and Right of attendance 2.1 Shareholders To have the right to come and vote at the AGM, you must be a shareholder of digital entertainment plc, holding shares entered on the Company s register of members by 6.00 p.m. (5.00 p.m. BST) on 5 June Depositary interest holders To have the right to come and vote at the AGM, you must be entered on digital entertainment plc s register of depositary interests by 6.00 p.m. (5.00 p.m. BST) on 5 June 2012 and bring to the AGM a letter of corporate representation validly executed on behalf of the Depositary (the letter of corporate representation can be obtained from the Depositary). 3. Voting 3.1 Shareholders Shareholders may attend the AGM in person and vote on a show of hands or on a poll. A shareholder entitled to attend and vote at the AGM may also appoint a proxy to attend and, on a poll, vote in his/her place. A proxy need not be a shareholder. A proxy may demand or join in demanding a poll and has the right to speak at the meeting. A proxy form may be submitted in hard copy form by post or courier or electronically via the website. Hard copy proxy forms must be completed by or on behalf of the Shareholder. If the Shareholder is a corporation then the proxy form must be executed by a duly authorised person or under its common seal or in a manner authorised by its constitution. A proxy form is enclosed with this Notice of AGM. To be valid, completed proxy forms must be returned to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU to be received no later than p.m. (11.30 a.m. BST) on 5 June Shareholders wishing to submit proxy forms electronically should visit the website and select the Annual General Meeting tab on the left hand side of the page. To be valid, electronic proxy instructions must be received by the Registrar no later than p.m. (11.30 a.m. BST) on 5 June A corporation which is a shareholder may, by resolution of its directors (or other relevant governing body), authorise a person or persons to act as its representative or representatives at the AGM. The representative or representatives should produce to the registrar and/or s Company Secretary a certified copy of the resolution of authorisation when attending the AGM.

163 161 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements Depositary interest holders Depositary interest holders may attend in person and vote on a show of hands or on a poll if the Depositary has appointed them a corporate representative (see section 2.2 above). Depositary interest holders not wishing to attend the AGM but wishing to vote in respect of the resolutions to be considered at the AGM can do so by instructing the Depositary. This may be done in one of two ways: (i) (ii) (iii) Depositary interest holders who are CREST members may give such an instruction utilising the CREST electronic voting service in accordance with the procedures described in the CREST Manual. CREST personal depositary interest holders or other CREST sponsored members, and those CREST members who have appointed a voting service provider, should refer to their CREST sponsor or voting service provider, who will be able to take the appropriate action on their behalf. In order for an instruction made by CREST to be valid, the appropriate CREST message ( a CREST proxy instruction ) must be properly authenticated in accordance with CRESTCo s requirements and must contain information required for such instructions, as described in the CREST Manual. The message, in order to be valid, must be transmitted so as to be received by the Depositary s agent, ID RA10 by p.m. (11.30 a.m. BST) on 4 June The time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST applications host) from which the Depositary s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. The Depositary may treat as invalid a CREST voting instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations CREST members and, where applicable, their CREST sponsors or voting service providers, should note that CRESTCo does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST proxy instructions. It is the responsibility of the CREST member concerned to take (or to procure that his or her CREST sponsor or voting service provider takes) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. Please refer to the CREST Manual for further guidance. Depositary interest holders who cannot give voting instructions via CREST should complete the enclosed form of direction and submit it to the depositary. If the depositary interest holder is a corporation then the form of direction must be executed by a duly authorised person or under its common seal or in a manner authorised by its constitution. To be valid, forms of direction must be received by the Depositary no later than p.m. (11.30 a.m. BST) on 4 June Depositary interest holders who cannot give voting instructions via CREST can also submit a form of direction electronically by visiting website and selecting the Annual General Meeting tab on the left hand side of the page. To be valid, the electronic form of direction must be received by the Depositary no later than p.m. (11.30 a.m. BST) on 4 June. 4. employees employees who have exercised their share awards and have retained all/some of the resultant Shares and hold these Shares through the nominee account service, Capita IRG Trustees (Nominees) Limited and wish to attend the AGM, should request Capita IRG Trustees (Nominees) Limited to appoint them as a corporate representative. This is done by completing the nominee account instruction form enclosed with this AGM notice. Irrespective of whether an eligible employee wishes to attend the AGM or not, they are recommended to complete the nominee account instruction form and send it to Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU, United Kingdom, to be received no later than p.m. (11.30 a.m. BST) on 4 June Documents for inspection Copies of the following documents are available for inspection during normal business hours at the Company s registered office at 711 Europort, Gibraltar. These documents will also be available for inspection at the The Caleta Hotel, Catalan Bay, Gibraltar on the day of the meeting from noon until the conclusion of the AGM: Memorandum and Articles of Association; Executive Directors Service Agreements; Non-Executive Directors Letters of Appointment; The Company s signed Annual report for the year ended 31 December ; Register of Members; and Register of Depositary Interest Holders.

164 Glossary and definitions 162 AAMS Active player days active player L Amministrazione autonoma dei monopoli di Stato, the Italian gaming regulator aggregate number of days in the given period in which active players have contributed to rake and/or placed a wager. This can be calculated by multiplying average active players by the number of days in the period in relation to the Group s products, a player who has contributed to rake and/or placed a wager Annual report the Company s financial statements and accompanying reports for the year ended 31 December ARJEL average active players or Daily average players B2B B2C betoto Board or Directors bwin Cashcade Clean EBITDA and Clean EPS Company or PartyGaming or Depositary Discontinued operations EBITDA Employee Trust Executive Directors Foxy Bingo FTSE4Good Index Series Gamebookers Gioco Digitale gross win margin gross win Group or Group IAS IASB IFRS InterTrader KPIs L Autorité de régulation des jeux en ligne, the French gaming regulator the daily average number of players who contributed to rake and/or placed a wager in the given period. This can be calculated by dividing active player days in the given period, by the number of days in that period business-to-business business-to-consumer one of the Group s sports betting websites the Executive Directors and the Non-Executive Directors of the Company bwin Interactive Entertainment AG, its subsidiaries and its associated companies and/or bwin.com, one of the Group s principal sports betting websites, as the context requires digital entertainment plc, the name of the Group formed by the Merger of PartyGaming Plc and bwin Interactive Entertainment AG Cashcade Limited and its subsidiaries EBITDA/EPS before the provision for costs associated with the Group s Non-Prosecution Agreement, amortisation and impairment of acquired intangibles, reorganisation expenses, merger and acquisition expenses, exchange differences, and before non-cash charges relating to share-based payments PartyGaming Plc prior to completion of the Merger and digital entertainment plc ( ) after the Merger Capita IRG Trustees Limited Ongame s B2B business as well as operations located physically outside of the US but which relate to customers in the US and were terminated following the enactment of the UIGEA on 13 October 2006 earnings before interest, tax, depreciation and amortisation the PartyGaming Plc Shares Trust, a discretionary share ownership trust established by the Company in which the potential beneficiaries include all of the current and former employees and self-employed consultants of the Group the Executive Directors of the Company listed in the Board of Directors section of the Annual report one of Europe s largest active bingo sites that was acquired as part of the purchase of Cashcade a benchmark of tradeable indices for responsible investors. The index is derived from the globally recognised FTSE Global Equity Index Series one of the Group s sports betting websites one of the Group s principal bingo websites gross win as a percentage of the amount wagered customer stakes less customer winnings the Company and its consolidated subsidiaries and subsidiary undertakings International Accounting Standards International Accounting Standards Board International Financial Reporting Standards Our financial markets service, formerly known as PartyMarkets.com Key Performance Indicators such as active player days and yield per active player day

165 163 Overview 02 Strategy 20 Review of 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Financial statements 103 Merger new player sign-ups Non-Executive Directors NPA PartyBets PartyCasino PartyGammon PartyPoker the merger of bwin Interactive Entertainment AG and PartyGaming Plc that was completed on 31 March, accounted for under IFRS 3 as an acquisition of bwin new players who register on the Group s real money sites the Non-Executive Directors of the Company listed in the Board of Directors section of the Annual report the Non-Prosecution Agreement entered into by the Group and the US Attorney s Office for the Southern District of New York (the USAO ) on 6 April Under the terms of the agreement, the USAO will not prosecute the Group for providing internet gambling services to customers in the US prior to the enactment of the UIGEA one of the Group s sports betting websites the Group s principal casino website the Group s backgammon website the Group s principal poker website player or unique active player rake Registrar Regulatory Process Agreement sports betting Customers who placed a wager in the period the money charged by PartyGaming for each qualifying poker hand played on its websites in accordance with the prevailing and applicable rake structure Capita Registrars (Jersey) Limited, the registrars of the Company The Regulatory Process Agreement dated 29 July 2010, as amended, the primary purpose of which is to facilitate the exploitation of certain new business opportunities for placing bets on sporting events UIGEA the Unlawful Internet Gambling Enforcement Act that was enacted in the US on 13 October 2006 USAO wager United States Attorney s Office for the Southern District of New York a bet on a game or sporting event WPT the business and substantially all of the assets of The World Poker Tour acquired by the Group on 9 November 2009 yield per active player day net revenue in the period divided by the number of active player days in that period

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