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Executives

Norbert Teufelberger - Chief Executive Officer

Martin Weigold - Chief Financial Officer

Analysts

Bwin.party Digital Entertainment Plc (OTCPK:PYGMF) Q4 2013 Results Earnings Conference Call March 13, 2014 10:30 AM ET

Operator

Welcome to the Bwin.party U.S. Full Year Results Conference Call. My name is Sara, and I'll be your coordinator for today's conference. For the duration of the call, you'll be on listen-only. However, at the end of the call, you'll have the opportunity to ask questions. (Operator Instructions)

I will now hand the call over to your host, Norbert Teufelberger to begin. Thank you.

Norbert Teufelberger

Good morning. And welcome to Bwin.party's results conference call for the full year to the 31 December, 2013. I’m Norbert Teufelberger, CEO; and with me is Martin Weigold, our Chief Financial Officer.

We had come through a challenging year during which we took all but necessary actions to reposition our business to return to growth in 2014. As expected, our revenue was down on last year as we started to optimize the shape and size of our business through our tactical shift from volume to value.

As we set out at the time of the half year results, the decline was greater than we had initially expected due to regulatory and competitive challenges in a number of markets that made for difficult backdrop.

We were also affected by some operational issues with our dotcom migration in December 2012 and it took longer than we had hoped to launch new product and mobile expansions.

The headline numbers show a fall in total revenue from €801.6 million to €652.4 million and a consequential decrease in clean EBITDA from continuing operations from €164.9 million to €108 million.

This was a disappointing performance and was below our expectations due to ISP blocking in Greece, market declines in some of our regulated markets and the negative impact arising from the migration of players to our new technology platform just before the start of the year.

However, our increased focus on regulated and taxed markets recited in significant savings totaling €97 million, well above our previous target of €70 million. Unfortunately, these savings are not enough to offset the decline in revenue a full year of gaming taxes in Germany, our payment of taxes in Belgium for the first time and increased compliance costs.

However, we made progress on several key objectives. We increased the proportion of our business in regulated and our taxed markets, having launched into Belgium and New Jersey, where we have secured a leadership position with our partner.

We began the transformation of our software delivery process with our shift to an HL working methodology, launched a new poker product and we introduced our new mobile product for sports betting in Spain.

2013 was challenging but it also marked the turning point, reflecting the big operation decisions we took to reposition our business for the long-term, by focusing our attention firmly on regulated and to be regulated market, on improving the way we develop and launch our products and on further reducing our cost base.

We made good progress in all three of these areas. Nationally regulated and our taxed markets represented 53% of our total revenue in 2013, up from 43% in the previous year and our new market in Belgium and U.S. should help to drive this further in 2014.

The transformation of our technology infrastructure assisted by the introduction of the HL working methodology has benefited our development and production pipeline and €97 million of cost savings were achieved in 2013 with further €20 million targeted for both this year and in 2015.

We continue our effort to remove complexity and reduce costs, and we’ll also seek to monetize and/or divest certain non-core and surplus assets over the coming months. The shift from volume to value involve stopping acquisition marketing and accepting new customers in 18 countries because we did not expect these countries to launch commercially via the nationally regulated frameworks any time soon. Player values were falling while the cost of acquiring those players have not, significantly impacting the short-term return on investment.

We’ve been able to cut fixed cost relating to those markets and it reduced our exposure to political uncertainty as evidenced by the subsequent ISP blocking by the Greek government in clear contravention of EU law.

To help put this change into context, our results for 2013 are starting to show benefits from the shift of volume to value, with increases produced in the yield per active player day for our two largest product verticals, sports betting and casino and games.

As we had expected, Q3 2013 appears to have represented the low point in terms of revenue performance and we delivered sequential growth into quarter four 2013 and also now into quarter one 2014.

Current trading for the first 10 weeks of 2014 has been in line with our expectations, with average daily net revenue up 6% versus the previous quarter and with nationally regulated and/or taxes market representing 56% of net revenue.

As we look ahead to the rest of 2014 and 2015, we have five key drivers of our core real money gaming business. First, geographic expansion into newly regulated markets as we did in the U.S. and Belgium last year, we expect that other markets will follow the path already taken in several countries in Europe.

We’re already at 53% of total revenue coming from regulated and/or tax markets and whilst there can be no certainty on the exact timing or shape of new regulations, we believe that this will reach 75% by the end of 2016.

Second, growth in mobile and touch, having been held back somewhat by our merger integration, we are now getting back to where we need to be in terms of product and channels. With mobile/touch already over 30% in some markets, we are well underway to reaching 50% of gross gaming revenue through this channel by the end of 2015.

Third, improving our digital marketing capabilities will be a key benefit for us. The traditional models have evolved and in the new world data and its dynamic analysis is key. With the millions of customers who have already engaged with us through one or more of our products over the past years, we are well-placed to exploit the transition to customer centric event driven marketing techniques through multiple channels.

Fourth is of course the World Cup in Brazil. This World Cup will be the biggest ever. Our business has seen four previous events but this one is expected to put the others in the shade.

Not only is it in Brazil which some would argue it is the home of football but it’s set to attract the biggest ever global audience. With all of the major European teams competing and giving our footprint across Europe, we’re well-positioned to drive betting volumes over the summer month.

Finally, the continued transformation of the technology assisted by the deployment of HL working practices will improve our platform stability. It grew our productivity and they reduce our speed to market. These are all key drivers for a great customer experience and ultimately revenue and clean EBITDA.

To conclude this call the Board remains confident in the Group’s prospect and is recommending a final dividend of 1.80 pence per share, the 5% increase over the year -- prior year and making a total of 3.60 pence per share for the full year, a 5% increase over 2012.

We’re now in a better strategic position from which we can begin to move forward and we’re confident that we can deliver year-on-year revenue and clean EBITDA growth in 2014.

Thanks for listening and we’ll now open the call to your questions by handing over to the Operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) We currently have no questions. (Operator Instructions) We have no further questions at this time. So I'll hand the call back over to your host for any concluding comments. Thank you.

Norbert Teufelberger

Well, you know that our webcast and I think the presentation is given to analyst this morning is already online or will soon be online and for any questions you may have please contact Peter Reynolds, who will then answer those as quickly as possible. And I think we will see some of you anyhow when we go around next week and the week thereafter to the U.S. and we look forward to engaging with you and explaining our strategy further. Thank you.

Operator

Thank you. Ladies and gentlemen, thank you for attending today's conference. You may now replace your handset.

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