Annual report & accounts accounts & report Annual 2011 For more information Annual report visit us online at & accounts let the world www.bwinparty.com 2011 play for real Inside 02 Overview 66 Board of Directors 03 Pro forma financial highlights 70 Governance this report 04 Our product verticals 75 Audit Committee report 06 Our business environment 77 Ethics Committee report 08 Chairman’s statement 78 Integration Committee report 10 Co-CEO’s review 79 Nominations Committee report 18 Our business model 80 Directors’ Remuneration report 20 Strategy 97 Other governance and statutory disclosures 22 Regulated and to-be- 100 Annual General Meeting regulated markets 102 Statement of Directors’ 24 Invest in our core assets responsibilities 26 Strategic alliances 28 New areas of digital entertainment 103 Financial statements 30 Act responsibly 104 Auditors’ report 32 Review of 2011 105 Consolidated statement of comprehensive income 47 Markets and risks 106 Consolidated statement 48 Sports betting of financial position 50 Casino & games 107 Consolidated statement 52 Poker of changes in equity 54 Bingo 108 Consolidated statement 55 Key risks of cashflows 110 Notes to the consolidated 58 Responsibility and relationships financial statements 59 Corporate responsibility 150 Company statement 61 Customers and responsible gaming of financial position 63 Employees 151 Company statement 64 Suppliers of changes in equity 64 Shareholders and other providers 152 Company statement of capital of cashflows 65 Environment and community 153 Share information 158 Notice of Annual General Meeting 162 Glossary and definitions See our online report at www.bwinparty.com 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. 02 bwin.party Overview Annual report & accounts 2011 Integration update We completed the merger of bwin Interactive Entertainment and PartyGaming on 31 March 2011, 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 In 2011 our focus was very much on As more governments embrace integration and regulation. Delivering the regulation of online gaming • 2,700 employees with offices in the targeted €40m of synergies from markets, so the dynamics of our Europe, India and the United States the Merger in 2012 remains a top industry are shifting. Real money and • Headquartered in Gibraltar where priority, as well as ensuring that we social gaming, together with other we are licensed and regulated foster and protect the value of forms of digital entertainment are opportunities relating to newly converging. At the same time mobile • Also licensed in Alderney, Denmark, regulated and to-be-regulated markets. platforms are increasingly important France and Italy Balancing these two sometimes channels of distribution – each of • Listed on the London Stock Exchange competing objectives has been a these developments is being driven (ticker: BPTY) challenge, having been forced to by advances in technology, new reschedule certain of our integration regulations and changes in plans in order to meet strict schedules consumer demand. Operational highlights imposed by governments and regulators alike. • Reorganisation into four business verticals completed in Q4 2011 • On-track to deliver approximately €40m of synergies in 2012 and €65m in 2013 • 27% 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 03 bwin.party Overview 02 Annual report & accounts 2011 Strategy 20 Review of 2011 32 Markets and risks 47 Responsibility and relationships 58 Governance 70 Pro forma financial highlights1 Financial statements 103 Total revenue Performance €m Gaming segmentation 2011 2010 Change 2010 814.0 2010 ¤m ¤m % 2011 816.0 2011 Sports betting 260.6 258.6 1 2011 2011 816.0 2011 Casino & games 263.7 241.0 9 2010 814.0 2010 Poker 213.0 227.4 (6) €816.0m Bingo 64.6 72.4 (11) Unallocated corp0rate 14.1 14.6 (3) +0% Total 816.0 814.0 – Clean EBITDA Performance €m Gaming segmentation 2011 2010 Change 2010 193.2 2010 ¤m ¤m % 2011 199.3 2011 Sports betting 64.3 64.6 (0) 2011 2011 199.3 Casino & games 92.3 79.2 17 2010 2010 193.2 Poker 30.0 27.7 8 €199.3m Bingo 20.6 21.1 (2) Unallocated corporate (7.9) 0.6 n/a +3% Total 199.3 193.2 3 Clean EBITDA margin Net gaming revenue by country Germany 22% 24.4% Italy 10% UK 10% (2010: 23.7%) France 7% Americas 6% Greece 4% Clean EPS Spain 5% Denmark 2% Rest of EU 18% 18.5€c Rest of World 17% (2010: 19.0€c) 1 Continuing operations 04 bwin.party Our product Annual report & accounts 2011 verticals Sports betting Casino & games We offer bets on a pre-event and With traditional casino games live basis on all key sports in all and some of the largest jackpots of our markets in the industry, this is our largest vertical Key brands Amount wagered in 2011 Key brands Amount wagered in 2011 bwin ¤3.8bn PartyCasino ¤7.7bn Gioco Digitale bwin betoto GD Casino Gamebookers 2011 net gaming revenue 2011 Clean EBITDA1 2011 net gaming revenue 2011 Clean EBITDA1 ¤259.7m +0% €64.3m (0%) ¤262.7m +9% €92.3m +17% Daily average players in 2011 Net gaming revenue via mobile in 2011 Daily average players in 2011 Largest jackpot win in 2011 114,200 €20.5m +92% 28,200 US$4.5m 23 May 2011 1 Excludes unallocated corporate 05 bwin.party Annual report & accounts 2011 Poker Bingo The second largest poker With leading market positions in network in the world2, we have both the UK and Italian markets, thousands of players each day, we are looking to expand into covering all levels of stakes new territories Key brands Amount wagered in 2011 Key brands Amount wagered in 2011 PartyPoker ¤11.2bn Foxy Bingo ¤1.2bn bwin Cheeky Bingo GD Poker Gioco Digitale 2011 net gaming revenue 2011 Clean EBITDA1 2011 net gaming revenue 2011 Clean EBITDA1 ¤209.7m (7%) €30.0m +8% ¤63.7m (11%) €20.6m (2%) Daily average players in 2011 Market share Daily average players in 2011 Largest geographic market 100,500 10% in dotcom markets3 23,300 UK – 73% of total 15% in France4 bingo revenue 14% in Italy5 2 Source: PokerScout.com 4 Combined liquidity across all Group platforms based on company estimates 3 Source PokerScout.com, based on assumed combined liquidity for PartyPoker.com 5 Source: AAMS and bwin.com 06 bwin.party Overview Annual report & accounts 2011 Spotlight on: Key growth drivers 1. 2011 Broadband penetration and expected Our business environment growth to 20152 The global online gaming industry is a growing and valuable 100 segment of the digital economy with an increasing share of the global gaming market. Excluding the US, 2011 online Gross 80 Gaming Revenue or Yield (‘GGY’) for the four major product 60 segments, sports betting, poker, casino and bingo was estimated to be worth ¤18.8bn, up 7.4% versus the previous 40 year. This growth is forecast to continue, reaching ¤24.7bn by 20 2015, implying a compound annual growth rate (‘CAGR’) of 7.2%1. 2011 Broadband penetration % penetration Broadband 2011 0 5 10 15 1 Online gaming market size (excluding US) Estimated CAGR 2011–2015 (%) Estimated CAGR 2011 gross gaming revenue 2011 – 2015 China US Japan Germany UK France South Korea Italy Russia Spain Brazil Canada Netherlands Australia Denmark Sports betting €9.6bn 6.8% Casino €5.0bn 8.4% 2. Smartphone and tablet growth3 Global Unit Shipments of Desktop PCs + Notebook PCs vs. Smartphones + Tablets Poker €2.9bn 5.7% 2005–2013E Units (m) Bingo €1.3bn 8.5% 700 600 500 For further details on each of the key online gaming markets see pages 47 to 54. 400 Note: Notebook PCs include Netbooks. 300 Notebook PCs Smartphones Tablets Desktop PCs 2 200 2013 2012 2010 2006 2007 2005 2008 2009 Online gaming as a % of total gambling 2011 E E 1000 1000 E E ¤bn % 2005 2006 2007 2008 2009 2010 2011 2012 2013 400 10 200 Desktop PCs Notebook PCs Smartphones Tablets 300 Note: Notebook PCs include Netbooks. 300 9 400 but this proportion is forecast to increase. Online gaming currently makes up only a small percentage of total gambling, 500 200 6 4 600 Percentage interactive All gambling (land-based and interactive) 3. Propensity to play games online 700 2 2 2 2 2 2 0 0 0 0 0 2 2 2 2 0 0 0 0 100 0 3 11 12 13 14 15 Units (m) 10 0 0 0 0 9 8 7 6 E E E E E 0 0 Younger generation online 0 6 7 8 9 E E E E E 0 % of 9–16 year olds playing games online 0 0 0 0 10 11 12 13 14 15 3 100 0 0 0 0 0 2 2 2 2 2 20 20 20 20 20 Not playing All gambling (land-based and interactive) Percentage interactive 200 6 The Internet is one of the primary sources Online gaming currently makes up only a small percentage of total gambling, of entertainment for the next generation. but this proportion is forecast to increase.