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Executives

Philip Yea - Chairman

Norbert Teufelberger - Group CEO

Martin Weigold - Group CFO

Analysts

Vaughan Lewis - Morgan Stanley

Richard Carter - Deutsche Bank

Simon Davies - Canaccord Genuity

Ivor Jones - Numis Securities

Ed Birkin - Credit Suisse

Bwin.party Digital Entertainment Plc (OTCPK:PYGMF) Q2 2014 Earnings Conference Call August 29, 2014 4:30 AM ET

Philip Yea

I am Philip Yea. I am the Chairman of bwin.party, and I will be making a few comments at the end. But we need to kick-off. You know Norbert. Martin and Norbert, I hand over to you to start the presentation.

Norbert Teufelberger

Morning everybody. As you know, the slides I will go through now will be downloadable from the Internet, from our corporate web site a little bit later today and immediately following the presentation, we will be available for questions.

I will kick-off by going through the highlights and some key points, hand over to Martin, who will take you through the numbers in detail. Then come back and talk about this fundamental transformation we are going through, right now, in terms of our operational approach. And then Phil will close out by giving you some impressions of what he has seen over the last few months, since he is with us.

So starting with the key points; as you all know, the strategy to focus on -- markets, was a quite painful one. We made some progress in H1 2014, with a solid performance in our focused areas, nationally regulated and taxed markets. We grew strongly our mobile and touch business, under 25% year-over-year. Cost savings are on track, and we made nice progress on disposing some of our non-core assets. One area obviously, we are still addressing and this is quite painfully that poker remained challenging over the year. That’s something we are sharing with most of our competitors, but that's still an area of concern.

So while we are making progress, we have intense discussions on the board that we need to expedite and accelerate that transformation, and this recovery. And we were thinking very hard, how can we do that, and how can we drive revenue growth throughout the organization? How can we improve the speed of decision making? How can we make our responsibilities and the accountability more transparent? And how can we believe in even further cost savings, and then be able to unlock value from our business units? And we will talk about it a bit later on.

The highlights and the numbers in summary, before I hand over to Martin, you have seen €317 million, revenue down 7% year-over-year. Again, solid performance in our sustainable core markets. We had to address the loss of almost €12 million of revenue coming from Greece; and as I said, we are facing a challenging poker market in Europe. That recited in lower revenue, but that lower revenue, in absence of domain sales, the operating losses in New Jersey, the frontloading of the World Cup, the marketing campaign, and still ongoing losses from our new business areas recited in EBITDA, €46.4 million, down 24% year-over-year.

We also took non-cash charge, impairment charge against the value of our poker assets, according to best practices [indiscernible] of €94.7 million and Martin will talk a bit more about that; and the board has declared an increase in our dividend to 1.89p per share, up 5%; because we still have very strong cash flow conversion, have a strong balance sheet, and as we have, we are getting some visibility on disposals of our non-core assets, we feel confident about our future here.

At that point, I would like to hand over to Martin, who will take you through the numbers in detail.

Martin Weigold

Thank you, Norbert. Good morning everyone. Total revenue was down by 7%, and this was driven by a shift of focus to a sustainable markets, as well as the loss of Greece, continued challenges in poker, and the exceptional level of domain sales that we had last year. A full period of tax revenue in Belgium, as well as New Jersey, contributed to a 7% increase in cost of sales, and consequently, gross profit was down 10% at €269.9 million.

The drop in revenue, coupled with €7.3 million of operating losses in New Jersey, and the phasing of marketing campaign around the FIFA World Cup, meant that clean EBITDA margins fell to 14.6% versus 17.7% last year. Depreciation and amortization charges fell by 7% and 16% respectively, while depreciation costs are likely to increase in the second half following new capital investment and a full period of PXP, that was acquired at the end of May; amortization of acquired intangibles will continue to decline, as they are progressively written down. A smaller than expected market in New Jersey further delays to the roll-out of regulation in the U.S., coupled with further declines in our international poker business, with the main drivers behind the non-cash write-down of intangible assets, totaling €94.7 million; and as a result, the Group delivered a loss after tax of €94 million.

Now turning to the split of revenue by products; as you can see; sports has increased in proportion on the back of the World Cup; poker has fallen on the back of both market declines and a loss of share in certain markets, and this has also had a knock-on impact to casino. Bingo was broadly flat, whereas other revenue fell primarily due to lower domain sales.

Now looking at net revenue by country; and note that this chart only includes B2C revenues. As you can see, there has been little change in terms of the country mix from last time. Although Germany and the U.K. have both increased slightly, while market declines in Italy in poker and bingo have reduced their share from Italy.

We also had a maiden contribution in the period from the U.S., that represented approximately 1% of net revenues, and a full period of Belgium, that was 2% of the total; and then finally, you won't see on the chart there of course, but we lost Greece, that was down to 3% of revenues for 2013, and that has all but disappeared now.

On to this revenue bridge; on the positive side, the three biggest movements were the growth in sports betting, which was driven partly by the FIFA World Cup; stronger cross sell from sports into casino, and then of course, we had the inclusion of New Jersey for the first time. On the downside, we have the impact of declines in poker, across several of our regulated markets, including Denmark, where the market was down 14% in H1, as the Spanish market was down 2% in Q1, that's the latest data we have there. France is down 9% in the first half, and Italy was down 25%.

Having said that, we also did lose some share in certain markets, and then we had the knock-on effect in our casino business, with lower cross-sell volumes, particularly partypoker.

Down to each of the verticals, starting with sports betting. So if we can just move to the slide on to sports betting. Thanks okay. Strong performance in sustainable markets together with the World Cup and mobile growth were partially offset by the loss of Greece and declines in non-core markets. As we look forward, and Norbert will come on to talk more about in a moment, the rest of 2014 will be driven by continued expansion of our mobile footprint, but now representing 33% of GGR in the first half and in Q2, it was up to 35%. The introduction of new features for both mobile and desktop, and also exploiting B2B opportunities, building on our relationship with Fortuna in Eastern Europe.

Prospects for financial regulation in the Netherlands, as well as Bulgaria and Russia are also on the horizon. Bulgaria was a market that was close, at the time of the merger, so that's an incremental opportunity for us when that market opens. This will be partly offset by the fact that there is no major football tournament next year.

Here are a few stats for you on the World Cup, before I move on to casino. These stats, just to note are for the whole World Cup, and not just the element that fell into the first half. We saw a remote uptick as we would expect in overall activity during the tournament. I think its fair to say that the initial first week certainly wasn't pleasant for us, and we understand a lot of the other bookmakers as well. But it did come good, and overall, we were pretty happy. We held 12.5%, with GGR of €19.3 million, and at the NGR level, we made just over €15 million.

So now moving on to casino; net revenue declined by 9%, primarily due to lower cross-sell from poker, the loss of Greece, and declines in other territories, as we focused on core markets. These declines were partially mitigated by an improvement in cross-sell from sports, growth in mobile, and also a contribution from New Jersey, albeit somewhat smaller than we had originally expected.

Looking forward, future developments include a much improved mobile offer, as well as the addition of a substantial number of new gains. We also expect that we will see the return in Spanish slots by the end of the year.

However, there is clearly also some uncertainty, of the possible impact that Amaya and Poker Stars may have on the wide casino market, if they launch their casino product; and if poker continues to decline as expected, there will be a knock-on impact for our casino business. However, the knock-on impact is diminishing over time, as sports increases in significance from a cross-sell perspective.

Now turning on to Poker; the international poker market remains challenging, with market declines, as I have mentioned, in several of our regulated and tax markets. We also saw a decline in size costs by loss of share, and declines in non-core markets, as we focused our spend on these sustainable markets. There was also a small impact from the World Cup, where the players were basically cannibalized by that -- watching the games. But partially offsetting those movements were growth from mobile and revenues from New Jersey.

Whilst we have made progress in expanding our mobile footprint and product to offer, we think that there is plenty of opportunity to increase a lot further in this area.

The decline in revenue and increased costs associated with the marketing in New Jersey, meant -- delivered a €1.4 million loss at the clean EBITDA level. As we look forward, we are examining a number of options to improve the performance of our poker business, but it should benefit from the launch of a series of new mobile products and the integration of our liquidity pools. In France next month and Italy, which will take place around the end of the year, just early next year.

Whilst we remain well positioned to take advantage of further regulation in the U.S., its our view that this is unlikely to be before the middle of 2015 at the earliest.

Moving on to Bingo; Bingo was broadly flat in revenue terms, with a 3% fall, driven by decline in the Italian bingo market, which was down 16% in terms of GGR in the first half, according to the official Italian statistics.

The launch of our new Foxy mobile app in the U.K. has seen a marked pickup in new plan signups, active users and revenues, and as Norbert will highlight later, approximately 21% of all Bingo GGR is now coming through mobile channel.

Spain remains a small market. Looking ahead, we will continue to develop our U.K. offer, and we also intend to consolidate our liquidity across labels. If the Point of Consumption tax is introduced in December, as announced by the government, then this will give rise to additional gaming features in 2015.

Now moving on to costs, starting with distribution expenses; clean EBITDA distribution expenses fell by 2% to €115.9 million, but increased relative to revenue reaching 36.5% versus 33.1% in the same period last year, and this primarily reflects an increase in customer acquisition and retention spend, that relates to the phasing of spend around the world cup, and of course, the launch in New Jersey. This increase was partially mitigated by a reduction in affiliate costs, having terminated or renegotiated a number of affiliate deals in periods. SO that benefit is now continuing to come through.

Customer bad debts as a percentage of revenue, reflecting an overall increase in the proportion of revenue coming from regulated markets, that tend to have lower rates of fraud, and last year's level if you recall was also higher than normal, driven by a change in mix of payment, and that is to have an offsetting benefit in transaction fees.

Third party content costs declined in absolute terms, driven by lower revenue, but increased margin to 4.4% of total revenue, due to the addition of a number of new games to our casino platform, from third party developers. Web hosting and technical services costs increased by 11%, due to new platforms having been built for New Jersey and Belgium.

Moving on to administration costs, overall clean EBITDA administration costs fell by 13% to just under €108 million, and also fell relative to revenue reaching 34% of revenue from 36.3% in the previous year. Transaction fees fell by 13% in absolute terms on the back of lower business volumes, but also added further synergies, as we refined our payment terms with external providers, in a [indiscernible] to increase further the proportion of our total payment volume that is executed in-house. 4.3% of total revenue, our transaction fees are already reaching an all time low.

Overall start costs fell by €14.1 million or 20%, as we look to continue to improve efficiency and take out costs wherever we can. You will recall that we set a target of €20 million in savings for this year, which we increased at €30 million at the pre-close update and as you can see, we are on track to get that number. Note, that the terms of setting this target is the full impact of the acquisition of PXP in May, that can be expected to increase across in the second half by a few million areas, although even the level of the impact will be broadly neutral.

Now looking at the clean EBITDA bridge; as you can see, the absence of domain sales, operating losses in New Jersey and the loss of Greece, coupled with the continued decline in Poker, were the main reasons behind the decline in EBITDA. But these were partially mitigated by around €14 million of incremental cost savings.

Moving on to cash flow, looking at the cash flow bridge, the Group's cash excluding client liabilities remain broadly flat, since the year end, with the cash generated in the period from operations being used to finance capital investment, dividends and the acquisition of PXP in May.

And then finally, on to current trading, overall average daily net revenue was down by 4% versus the same period last year. In sports, the benefit of the tail end of the World Cup was partially offset by late start to a number of European football leagues; although it was still up 8% versus the previous year. Poker was down 32% year-on-year, in line with the year-on-year drop seen in the first half. Casino and games was down by 3%, with the underlying growth being offset by the decline in poker, whereas Bingo was flat year-on-year.

In sustainable markets, our performance with [indiscernible] with sports up by 11% year-on-year and casino was up by 7%. However in poker, the challenges of [indiscernible] liquidity, meant that revenues were down by 29% year-on-year. Bingo is almost entirely nationally regulated, and so I am surprised that it was also broadly flat year-on-year.

Norbert, back to you.

Norbert Teufelberger

So as we are starting to see some green [indiscernible] in our sustainable business, the overalls clearly not acceptable, and it became clear to us that we need to do much more to accelerate the recovery of our business.

Our strategy we believe to focus on regulated and taxable markets is the right one however. The last three years have made it clear, that we need to increase our focus even further, execute better and faster; and by doing so, we will be able to increase growth in our core B2C businesses, that will itself be heavily influenced by key factors, such as leveraging of our brands, expanding our mobile footprint, continue to evolve our gaming products to improve digital marketing and CM capabilities. These efforts will also help us to sustain our B2C business in dotcom markets, as well as drive our relatively small, but expanding B2B franchise.

Finally, we want to be able to maximize value from non-core assets, as well as ensure that we are appropriately setup, so that we are in a position to capitalize in opportunities to create additional value, through alternative financing and corporate structures.

Now on the next slide, I take you a little bit back to what we set out to do, when we merged bwin and partygaming. Obviously at that time, we tried to create a supertanker, I think that's the best picture I can use here. A single operator, multiple brands across various geographies, all product verticals, basically all technologies being built in-house.

What we faced was, obviously a market which did not necessarily evolve the way we expected it to evolve, namely not substantial growth, actually declined in nationally regulated markets. The first markets which nationally regulated was Italy in 2006, and actually doubled in size, post regulation, so we expect that this may continue in other markets; then you look to Spain, then you look to France apparently for different business however, that just didn't materialize.

The U.S. opportunity didn't come as quickly as we hoped for it to come, we just started operating in New Jersey in November, and on top of the market, which we expected to be about $350 million a year, seems to be about a third of it right now.

On top of that, the poker market imploded, and that was again something we did not necessarily foresee at the time; and that -- those are all external factors and market constraints, but obviously, they also looked internally, could we do better to better compete again, and obviously what we have lost is to be a real great operator. Both organizations, bwin in its early days and partygaming were once the best operators in the market. Partygaming, partypoker dominating U.S. poker market, bwin growing extremely fast across territories in Europe, and which has lost that edge over the last three years. We are backed down with internal views, integrating the companies, trying to merge cultures, which was very-very difficult to achieve. So we do not foresee, how can we unlock the power again? How can we go back to business, which actually, when you look at the near term objectives, it sounds quite simple, but its not that easy to achieve, namely, to speed up, improve execution in order to drive revenue growth again. And by doing it, reducing our costs further, and we have announced today, that we have identified at least €50 million of additional costs to be brought down in 2015, by reorganizing ourselves.

When you go to the next page, you see the segments or the key disciplines, how we are going to organize ourselves going forward. On the left side, you see our B2C business, which we split into Europe and the United States, and in that area, we will decide what we deliver, with the focus on the customer experience, and we will organize ourselves along labels or brands, and not around -- across product verticals anymore.

So bwin, being the lead brand in Europe by our dedicated management team, being transparently and accountable for that business, making the calls on behalf of bwin, what kind of product needs to be developed there, what kind of customer promise will we give to the market, and obviously support it by a second stream of brands, managed by a different team, and they are exploiting the target brands, and in Bingo folks in Gioco Digitale.

On the U.S., you have a dedicated team, who actually will run the U.S. business. Obviously, the lead brands, partypoker and WPT.

When you then move to the B2B side, obviously you have again, a split Europe and U.S. In Europe, as you know, we have two strong partners in Denmark and France, PMU and Danske Spil. We have recently signed up six customers on the sports betting side, where we are basically just reselling the growth we are already producing in our studios, and in our sport studios, which is basically our roll-outs and our [indiscernible]. We have recently signed up Fortuna, which is a major player in the central European markets, and we are talking to six more companies in that field. So that's a growing area for the Group, and highly profitable. It doesn't -- actually, there is not cost against that products being sold currently.

The U.S. will be most likely in the near term or short term or even mid-term be predominantly B2B market. MGM, I believe, it is official they will most likely get the license in September from the New Jersey regulators, so we will be launching MGM in New Jersey relatively soon; and we have lined up a series of partners for other states, should become online in next years to come.

So that's the B2B side of it, and then lastly obviously in our core, we have Studios, or a technology and product organization, and they will decide how we deliver those products, and we will service the B2C and B2B partners. That is all vertical technology still, but obviously, building also a very slim and integration layer, enabling us to integrate third party content seamlessly, and the B2C organization will then be able to choose, will they want to buy our proprietary product, for example in casino, or will they want to use third party content, which we are currently integrating into our portfolio.

In the new business area, you have obviously Kalixa, which I will come back to a little bit later, our payment business and Win social business. Win is obviously not yet performing to our expectations, but they have some good news, which as yesterday [indiscernible] $10,000 a day limit for one of our application slots [indiscernible] not great, but we are making progress there as announced to you the last time. The goal is to generate about $1 million of revenue for Win, by the end of this year. That seems to be stretching, but we are making progress lately and we will see how we can utilize that asset going forward to the benefit of our shareholders.

Moving on, I am going to go into a bit more detail now, how we are going to try to do what we set out to do, on the B2C side, on the B2B side and our new business area. Obviously at the heart of it is, how can we grow our revenue base in the sustainable markets, and we go to the next slide, we have actually delivered some of that promise already in the last month. In sports, we have grown 14% from 78 million to 89 million half -- in the first year; and in casino, we have grown 7% in the sustainable markets. Bingo was broadly flat, and poker as you see, 25% down. So Poker is really the problem child. We are still putting a lot of effort there, we are improving our mobile offer tremendously, and are hopeful that we will be able to stabilize that business going forward.

The next slide is very interesting, the commissioned third party study, which serves 8,200 online players across several of our core territories, Belgium, France, Germany, Italy, Netherlands, Spain and the U.K. And we asked them, are you currently playing various products? And the outcome was very encouraging, with leading in sports betting, a good position in poker, and as you can see, casino being very crowded, but still quite satisfactory for bwin, 10%; partypoker 7%; and partycasino 6%. So that brand strength obviously has not been met yet with market share. so we believe obviously by closing the gap between the brand promise and our product delivery and customer experience, we should be able to drive revenue in those segments, and then you go specifically to sports betting, and look market by market.

Not surprisingly, we have a leading position in Germany, 43%. A leading position, which surprised us a bit in Spain, but 49%; because business-wise, we know that bet365 has about 40%, 50% more business in Spain than we have. In Italy, number three with 25%; in Belgium number two with 20%. So very good brand positionings in those markets, and what we are trying to do now is obviously to improve our product offer in those markets further.

And we go to the next slide, another lesson we have learnt, by looking at the number [indiscernible]. We have consistently improved the cross-sell from sports into casino on the bwin brands. On the left side, you see the slide which tells you that whilst in H1 2013, 40% of our sports customers also played in the casino. We have increased that now on the dotcom side, to about more than 50%. I mean, you look at Spain, we have 70%, it means that 70% of our casino customers come from sports in bwin.

On Poker, not as good, but still promising. Around 50%, when you see a sports customer was signed up in Spain, in sports; 50% of those customers also played in poker. So these cross-selling dynamics have also moved us to this different structure, where we are now not running our business by verticals more, but we are driving it by labor and by brand. So if our team, who manages bwin right now, sees that there is a cross-selling opportunity into casino or into Poker, they did now not have to talk to others, and harmonize with the verticalness. We just made these decisions very quickly, and implement their decisions expeditiously.

When you look at our mobile and touch development, you will remember, that is a core focus of all of our efforts, and the main one was in the new operational structure. We delivered nice growth rates, I think 125% year-over-year, it’s the highest in the industry, I don't remember that anybody else showed 125%. So we generated 67 million of mobile and touch revenue in half one 2014. We are now at about 33% in sports, 8% in casino, 5% in poker and 20% in bingo. So you see that we still -- overall in sports, with 33%, we are behind the leaders in the U.K. But I give you a few other datapoints in sports; in June of 2014 in Spain, we had already 51% mobile/touch revenue generation, and we had actually 84% revenue generation in the U.K. Small market for us. Is growing though, and it indicates to you what will happen in the next period. So this is where the battle will be lost upon ultimately.

The area where we are still behind the competition is casino. There is a big effort being made right now in the casino side, and we are improving our offer constantly, I think next one to two months, we will improved and by the end of this year, we should be at par with our competition there. You will see most likely then, the shots [indiscernible] from casino.

Going to the next slide, Peter; how will we drive that revenue growth, its mostly product evolution. As you remember, we have launched a web-based, browser-based sports betting application in Spain at the beginning of the year called MS2, and what we have decided to do, is instead of pushing this HTML5 application into all other markets that we are building, we are building upon the success of that application, but we are actually programming it in latest applications. So in mid-September, we will actually send to the app stores our application MS2 for our .com .be and .bs for approval. So by the end of September, we should have our native app offer in sports live across about 65%, 70%, 80% of our revenue base in sports.

We are doing the same for casino, and also you may have seen, we have recently rolled up our new poker apps, including tournament functionality, in addition to cash gains, and we are largely -- we are [indiscernible] an HTLM5 poker application currently. So on all fronts, led by sports, but also casino and poker, we are closing the gap, and not only do we close the gap, we actually believe that in a few weeks, our sports mobile will be superior to the ones of our competitors.

On the desktop side, this is not necessarily a focus right now, because our desktop products are fine, so all the efforts currently goes behind mobile and touch.

This is an area, where we have been definitely behind the competition for a long time. We worked very hard in the last six months to catch-up there. We have built the technical delivery capabilities for CRM on mobile, so we have those in place, so we are just in the final stages of building our teams, ramping our CRM activities across our mobile properties, and you will see a strong push and improvement by mid-September. So this is only two weeks away, and this is also something which we have been focusing on, as you know, one of our competitors, 888, we believe they are the best, maybe together with Paddy in sports. We have looked at how they are doing it. They have done a few things, we think, a bit differently now, and we will see this as an area of tremendous growth opportunity for our Group, because this was one area where we have been very weak in the past.

Next, Peter; now all those efforts, we are putting behind our B2C product push, will obviously also help our B2B business. We have now split it between Europe and U.S., so there is a dedicated team servicing the U.S. partners, and there is a dedicated team servicing the European partners, that focus was necessary to grow that business. It may be necessary in some parts of Europe, where we cannot get our own B2C license, to partner with certain organizations, that can be lottery organizations, but there could also be local players like Fortuna is a very good example, placed very well in the Central European markets. And obviously in the U.S., its quite evident that, especially when you look at the New Jersey market, 75% of the New Jersey market is now our casino market, and only 25% is poker, that is primarily for us, a B2B market forward.

On the new business update, a few words for Kalixa. Kalixa, as you saw, obviously we have integrated now the PXP acquisition -- we are on-track to integrate the PXP acquisition, and we are in advanced discussions for a strategic partnership to tremendously agree -- increase our reach into new markets, and drive new business on our technology delivery platform. We have decided to appoint advisors, to consider all strategic options for us, and with that asset, currently our view is that we are most likely targeting an IPO at the end of 2015, depending on when we reach the thresholds for third party business we are generating on Kalixa.

Other non-core assets; we have -- and this is quite technical, but yesterday there was an AGM, where the shareholders of Betbull decided to sell their assets to a third party. We are a 40% shareholder, so we will receive those proceeds over the next periods. So this was the first disposal, which is actually ongoing. Others are under negotiations currently, so we believe that by the end of the year, we will have some news to report here. In total, we think that we can generate about €30 million to €50 million from those disposals, and as we said, majority of those cash is being generated from those disposals. We will look to return those to shareholders, most likely by the way of share buybacks.

So in summary, when you look at the slides, it sounds like there is just business as usual, because the headlines didn't really change, the strategy didn't change; what has radically changed is the way we are running our business today. It only has one goal, to deliver the B2C growth we so badly need, to bring us back on track in our sustainable markets, and at the same time, retaining as much B2C revenue from our dotcom markets, and I just want to remind you that, obviously our footprint in dotcom market is a bit different from the one from our competitors. We are not taking bets from Turkey.

We are not taking bets from Asia, but we have still some dotcom markets, which are predominantly European markets, where we generate very nice cash flows from, where we have started to become much more effective in treating those customers well, and we have seen lately in the last one to two months, actually reduced churn rates coming from those markets.

Last but not least, obviously, we are looking to unlock value in those individual business units, as an opportunity presents itself, and we will be able to do so. I think I gave the example of the U.S., where we may look for additional partners there, to help us fund the roll-out of U.S. business, especially knowing that most likely, this year for sure, as we know next year, its [indiscernible] a new state will come online in the U.S.

All of those activities, as I said, enable us to at least generate another €50 million of cost savings in 2015. So as a management team, we are as confident as we could have been in the last -- over the last three years, that we will be ultimately able to deliver some value back to our shareholders.

At that point, I would like to hand over to Phil, I think who will summarize his impressions he has gained over the last few months working with us together. Thank you.

Philip Yea

Thank you, Norbert, and good morning again everybody. I don't think it would be my normal practice to appear every interims on the stage, but given this is my first opportunity to present my views on the company, I thought it’s a good opportunity at these interims to share that with you.

So the first of my two slides, is basically to take you through why I became Chairman. I accepted the role for most of the reasons on the left of the slide, the opportunities, and also, some of the reasons on the right hand of the slide, as I explain in a minute.

As for the opportunities, I think you already know them. From my private equity experience, I know the value that can be created in high EVA businesses, with strong positions and strong management teams. Bwin.party has a strong shareholder management team, created and assembled a very attractive set of brands, and has developed strategic partnerships with some key players in important markets. On top of that, we have the technology, and we have some jewels like Kalixa.

But lets spend a bit more time on the challenges, because that's what's top of mind, who are well known to you, but I will spend a little longer, because the uncertainties that these create, actually confirms the upside to our shareholders, if we address them correctly.

Obviously the progressive shift from dotcom market, the single dotcom market to country-based models, with multi-layered regulation and unfriendly taxation, has become a challenge for all online operators. And so, has the shift to mobile and tablets. Our merger, coincided with [indiscernible] in these trends, indeed it was part driven by them. But unfortunately, our product innovation, our customer service, and our technological leadership have all suffered, as we spent time managing our integration, just at a time, when these aspects were needed ever more than in the past to address the market challenges.

On top of that, we chose a management structure that had the effects, as it turned out, was an intention, but the effect as it turned out of slowing down decision making where we needed to get quicker.

And of course, last but not least, the competitive landscape is shifting very rapidly, not at least by the recent Amaya PokerStars transaction. Now with the exception of the PokerStars transaction, these challenges, many of them homegrown, were recognized by both the board and by the management team, before I joined. So I knew that the key task was to be, to support Norbert in implementing this fundamental set of changes required to turn the company around.

And so here on this next slide, is where I have been spending my time. First of all, I was able to meet with a high proportion of shareholders prior to the AGM, and get their input. In my view, the board itself has not been the problem, but it was also quite clear that the composition of the board clearly needed to evolve, if we were to regain the trust of our shareholders, and that was the reason for the changes announced in May. Now we are starting to meet with excellent candidates, but at this stage, we will not be making any announcements about new directors, until we selected the very best available directors, and created a board that we could be proud of.

Now shareholders have been very keen to understand the options available to the company, as well as to be reassured that we could deliver what we say we can. So with this as the starting agenda, as I said unfortunately, there has been a further shift in the external pressure since May, both on the competitive front, with the announced Amaya/PokerStars transaction, which is basically a game changer, and also on the regulatory front, where the U.S. is opening more slowly than many hoped.

So those are the external factors, what about the factors which are under our control? Our business has clearly been underperforming, as Norbert said, and so we are addressing this through the reorganization Norbert has described today, which has, as its clear authority, to creation of a quicker, more customer responsive business, with a significantly lower cost base. Now this program really is fundamental, as the full support of myself and the board, and was critical to fulfilling our potential.

Once fully implemented, this structure will also allow us to participate where it makes sense in the inevitable future changes in the industry structure. But key to delivery of shareholder value, whether standalone or with others, is the execution of these business plans, a simpler, devolved, bwin.party group is the key to all our options, and to the restoration of shareholder value.

So that's where I am on the business. You've heard from the management team. I would now like you to take the opportunity to ask questions. In the traditional fashion, if you'd like to say who you're, as you articulate the question, and we have the mike ready for that, when you're ready.

Question-and-Answer Session

Vaughan Lewis - Morgan Stanley

Hi. Vaughan Lewis from Morgan Stanley. Just following on from those comments on cost savings and innovation. How are you going to balance these out, to make sure that you're still able to create interesting and innovative new products while going through, what looks like another, quite aggressive cost saving exercise, and where are you putting it, and will it impact that productivity and the pipeline of new stuff coming through?

Second one, I mean, poker is losing money now, is it time for more radical -- maybe move to free rank or something like and from an acquisition pipeline, rather than products in the same right? Sounds like the outlook, you sort of confirmed about -- keeping to our consensus, that needs a massive improvement in H2 from €46 million to €64 million. Just give us a few other levers to help us get some confidence in that, obviously with poker still going backwards, and a few other headwinds, it looks quite a challenge? Thanks.

Norbert Teufelberger

I mean, I will take the first and the second, and you take the third, Martin. On the first one, it is actually quite funny in the past, you're right, we did cost cutting. But this is not the cost cutting program. This is really a program to simplify things, and what we are doing is, actually, we are enabling the doers [ph], and we are getting rid of unnecessary management layers and committees. By doing so, we were able to actually identify a substantial portion of costs, which comes mainly from the administrative side. So it sounds a bit strange, but actually we believe we can deliver faster and more, by paying less for it, in summary, that was there.

One other fact there is obviously, we did not get the productivity out of India, of our delivery capability out of India. We have now a new management in place in India, that has proven to be excellent. And suddenly actually, things which took us so incredibly long to get out, are starting to move. So the combination of India and Ukraine, West Ukraine unfortunately, is working much better now. So we are confident we will be able t live on our promise there.

The second question I think you're absolutely correct. Poker, we still at that time, we are trying to close the product there; because as long as your product is not up to edge, and this means mostly on the mobile side, its very hard to really see have we found the bottom. We still have to pull the liquidity pool in France and in Italy, France will be done very soon, and Italy I think is done in a few weeks, and then Italy is the last piece, that we will consolidate our liquidity pools, [indiscernible] platform. By that time, when Italy is done, we will have closed the product gap on mobile. We have a very talented management team in place currently in poker, which has our full trust. But as you rightly say, if it doesn't turnaround in next -- or if we find a bottom in the next three to six months, we may have to think more radically. The good news is, is maybe with the exception of one operator, everybody has just the same problem. So I believe there will be solutions, but I think it’s a bit early to do that. But if we don't see a stabilization there, we will obviously enter into conversation with several parties, who believes in the same thing as we do.

Martin Weigold

There was another -- basically EBITDA in the second half versus the first half. So basically a few levers in terms to get you there. We would, I think I mentioned in my presentation, that I put -- the marketing spend was front-loaded to some extent this year, because of the World Cup. Also was front-loaded, to some extent, on the back of the New Jersey launch, also we are not talking about marketing completely in New Jersey, but certainly, weighted more towards the H1 and it would dip into H2. You should also see a drop-back in cost of sales in H2, and again, as the World Cup impact wanes, and a lot of the gaming duties to sports based on turnover. So we have high turnover in the first half, which drove additional gaming duties. And then of course, we got the cost savings that we have mentioned, coming through in the second half as well, which will be primarily admin cost base as well, which [indiscernible]. And that will largely drive the increase that you see in H2 to H1.

I'd mention one last thing as well, on the revenue front, as we mentioned the poker decline. I think the poker decline is realistic to expect in H2. But on casino, Norbert mentioned a number of things we are doing in casino, particularly the launch of a lot of new games, new mobile products, and we are expecting some growth in the second half.

Richard Carter - Deutsche Bank

Hi, Rich Carter from Deutsche Bank. Can you talk a little bit about Germany, and where we are in terms of sports bidding licensing, and Martin, could you give us your view on what impact that would have, if it was to come in, in its current guise on your German sports revenue? And secondly, would it be possible to explain what you mean by -- you will consider alternative financing in corporate structures, in order to create value, I don't know what you're alluding to there.

And then, on poker EBITDA, you said it was a loss, but that was after investment in New Jersey, is that correct and would it not be loss for you in New Jersey, and do you have to also look at poker combined with casino, because a lot of revenue out of the casino. So [indiscernible] to include the casino part of the -- I am just going to let -- you are talking about obviously industry reshaping. Norbert, could you sort of give us your view on how you think the industry will look and sort of reshape in the next sort of 12 to 24 months and how you see bwin playing its part? Thanks.

Norbert Teufelberger

I will start with Germany. I don't know whether you know, but there was a meeting of the lender, the existing lender on Wednesday. We don't know the full outcome yet. Its driven by one [indiscernible] and as far as we know, they have entered [indiscernible] to issue 20 licenses right now, that was discussed for quite a long time. We don't know the outcome yet. We expect an announcement next week. That announcement could be either that no decision was made, or the decision was made to issue or to plan to issue those licenses. But what we do expect is whether you get the license or you don't get the license, it will be quite tumultuous, that means the people who will not get a license will not only sue the issuing body, but will sue all the ones who got the license. So we believe, this will actually stay in courts for quite a while. Its very hard to predict, but maybe one to two years. So unfortunately, whilst we would prefer a clear solution, most likely we will have a status quo in Germany for considerably more time.

And then the second question Rich is --

Richard Carter - Deutsche Bank

Sports betting, that scenario.

Norbert Teufelberger

On the business units; do you want to say something on the business units?

Philip Yea

Well I will try another articulation on it; but I think its simple as we are saying, which is, we have to run the business units, the way we set them up, because we think that will make them faster and better along the way. Being focused on business units will make it easier, if it makes sense to bring in new capital or new combinations in a period of change. Norbert in his presentation referred to the U.S., that's the most obvious one. Its not -- pride -- certainly not the primary reason for the reorganization, because the reorganization really is geared to getting the mojo back into the business and focusing on the customer; but we just highlight, we are open at business unit level, if it really does create value to alternative structures, because that's what we are paid to do, and its more likely in a period of change that that will happen, than in a period of feast [ph]. But there is no specific agenda, other than to have an open mind, and be shareholder minded, as we make those decisions.

Martin Weigold

As you would have seen in the results, poker made a small loss at the clean EBITDA level in the period. So specifically answering your question Richard, would it have been a lot major, if we stripped out New Jersey? The answer is no, it would have been positive. I would also mention as well, of course, that these clean EBITDA numbers include corporate allocations as well, so that's hopefully allocated into each of these verticals. You asked the question about what about if we include casino as well. So that would also benefit the poker EBITDA, if we were to do that; and obviously, when we are looking at decisions on acquiring customers, we are always looking at the overall player value that we generate, rather than just how much goes to a particular vertical, and that will be more exacerbated under the new label type structure as well.

Norbert Teufelberger

On the industry reshaping Richard, I give you my view, and that's obviously very subjective. I mean, first of all, I think we are front-running this whole transition to those national markets. When you look at most of our opportunities compared to this. And the first time that we really feel that pain, is if and when the POC tax is getting introduced in U.K. We had exactly the same situation remember two, three, four years ago, those taxes we introduced, we felt that we can offset some of it, which we were able to do, because it will cost up. You can never offset all of it. So there will be margin pressure on the people who are sitting here dominated market in the U.K., specially [indiscernible] who do not have this strong and big Asian business, which the public companies at that point don't usually have. So they will feel the pain or there will be pressure for consolidation here.

And I think its, as Phil said, at the end of the day, we have to face reality. You have the Amaya/PokerStars transaction which created a gorilla, so to say, and we will see how it will do operationally going forward, and in my view in two or three years, you will have fewer companies, and I think it will be very similar to the telecom industry. So there will be this consolidation that we have been talking about for a long time, will be accelerated. And obviously, our intent is to participate in this whole discussion on the position of strength, and this is why we are doing all the things we are doing here. That would be my summary.

Philip Yea

I'd just wanted to also note, I have been a number of consolidations elsewhere, and the key lessons are, make sure you're performing to your best, and that's what we are doing here, and do your homework and think things through. And so, if we are doing, what I think our shareholders would expect us to do to be, getting on the front foot on business. That's overdue, we know that, but we think we have got the plan to do it. And then, just keep our eye on it, and do your homework, and do your homework and only say something when you've got something to say; but I feel sure we will be doing that homework.

Simon Davies - Canaccord Genuity

Good morning. Simon Davies from Canaccord. Three for me please. Can you talk about how you see your market share evolving and in support, in your regulated markets. Are you growing your market share there? Secondly New Jersey, obviously fairly immaterial losses in the first half, and a pretty disappointing revenue performance for the overall market; how is your business plan evolving there, and when do you think you can get that business to breakeven?

And finally just to clarify on the €15 million of incremental savings for next year, is any of that coming from reduced marketing strength from efficiencies you see coming from this new brand structure?

Norbert Teufelberger

I start with the first question. I will just give you my -- its sometimes a bit hard to give you the exact market share, because data is not being published. We have lost a bit of market share in France for sure, because we are not spending a lot in France anymore; because France the taxation is right now blended between poker and sports by about 55%. Is not a very attractive market to invest in. But we are keeping our position in France, and hoping that at some point, the market will be -- we call it re-regulated. So I would call our market share, its up 20% in France right now.

In Spain, we know our market share pretty much, its in the range of 20%. So the leader in Spain in terms of market share is bet365. We are number two and William Hill at number three.

In Germany, I think our market share is roughly, and this is where you have to predict 35% plus online. Our biggest competitor in Germany is a company called Tipico, we had it up on the slide. Tipico in total, most likely, is bigger than we are today, because they had about 1,000 retail outlets. So between retail and online, they will be bigger than we are; and online, I think we still have the edge. Obviously keep in mind, that we haven't invested in Germany for quite a long time, and we intend to do so going forward.

In Italy, I think there is contradictory numbers of Paddy Power, I think they claim that they are a leader in Italy, I don't think this is true. We have had data coming through to us, that actually the first time ever, we are leading now in sports. So I don't know which data they are looking, as we look at a different set of data, but what we have in hands, show that we are number one in sports right now in Italy; and actually, this is the first time since we operate in Italy, and we are talking online here.

So our market share, Belgium, very hard to say, but I think Belgium will be in the region of maybe 20% now already, growing. Did I forget the market? Denmark, we are negligible, because we never launched even in Denmark, because of the merger pressures, so really Denmark for us is a B2B market, we are hovering [ph] down to two, in poker and casino. SO we are actually taking share there from poker, but we are actually negligible in terms of sports in Denmark at that point.

Simon Davies - Canaccord Genuity

And in Germany, Italy and Spain, you think you're holding share increasingly?

Norbert Teufelberger

We have gained market share in Italy. We slightly gained market share in Spain and we are holding share in Germany, lately growing it again. But when I say lately, this is maybe the last two or three months.

Simon Davies - Canaccord Genuity

And New Jersey?

Martin Weigold

Yeah. So New Jersey obviously has been a disappointment to us and others in the market, and the level of losses that we are incurring, while we obviously have trimmed back spend where we can. The fact that the market size is being roughly a third of what people expected, there is only so much that you can do. So we lost €7.3 million in the period, and if you saw 888s results issued a couple of days ago, you will see that they effectively lost this around if you allow for the fact that they have got 47% of their joint venture.

The U.S. business in New Jersey is effectively our base for rolling out elsewhere in the U.S. So whilst we will look to cut back costs where we can, what we don't want to do, is obviously sacrifice [indiscernible], because we do think the U.S. will open up, its more a question of when, rather than if. So for this year, I would say, the loss will be around €12 million to €13 million, and then as I say going forward into 2015, we will look to optimize it further, but obviously always with an eye on what is likely to happen with further state openings.

Getting to breakeven in New Jersey, I think will -- are you talking New Jersey only, or our U.S. overall? I think that's importantly kind of different. So New Jersey only, getting to breakeven, realistically, its not going to happen in 2015, its going to be 2016, if its New Jersey on its own.

Norbert Teufelberger

And certain areas of New Jersey change for the better, so that means payment obviously -- the good news is, that the division of gaming enforcement wants to assist the operators to be different in Europe sometimes. So they also try to generate actually more revenue for this lift-up [ph]. So there is effort underway, there is still optimization for us, and we are replacing the reality that is predominantly a single market, as you know, maybe know, but we only have a partypoker proposition out there, and [indiscernible], which is on partypoker called Casino. So we are generating 50% or 45% of our revenue B2C in New Jersey from -- others are doing 75%. So there is room for improvement there. MGM is launching, and don't forget the WPT, which is not New Jersey obviously, but when they look at the U.S., we look at it holistically, so we have the WPT, which is actually increasing its value proposition tremendously lately, so we have made a lot of progress there, and we bring that together with New Jersey, and potentially a premium model begun around in the U.S. So our U.S. proposition, we are currently looking at, and we look at this U.S. business as a whole.

So with MGM coming online, WPT doing better, New Jersey potentially improving, there is a chance. But I think I agree with Martin, it will not be in 2015 most likely.

Martin Weigold

You also asked a question, I think the savings, where are they coming from, are they coming from marketing in 2015. The answer is, there will be a small amount coming from marketing, but most of the savings are coming from administration expenses as with this year. So we will see reduction in staff costs, in outsourced services, transaction fees, overhead in domain. The reductions I am referring to in marketing, you will see a very small amount coming out of customer acquisition retention, which is simply again the fact that you've gone through the launch in New Jersey. You had the World Cup this year, but otherwise, the marketing will be flat or increased on underlying, and then you will get a bit of a further reduction in affiliate expenses, because we do expect poker will continue to be difficult, and poker is the vertical -- is the primary driver of the affiliate expenses. So at the end, mechanical savings there.

And then lastly, we expect a small reduction in web hosting and technical services fees as well, and that will be once the final integration is complete, I mentioned in my presentation that France was about fully completed, and that will just leave Italy remaining; and then once that's done, we can decommission certain platforms; and that has a knock-on impact on web hosting and technical services, as well as some of the stuff caused in outsourced services lines.

Norbert Teufelberger

Just one more addition to marketing. Obviously, what we do think on the marketing side is, we are sharply increasing our sales efforts. What we are taking back is brand related investments; because especially, that's why we did this last brand study again. Our brand values are so far up, but our market shares are not matching as the brand value, so we have to spend more fees, and not necessarily on sponsorship and brand activities. So we will see a shift there. So I would say, there is a sharp increase in sales activities, and there is a reduction of brand activities. So there is a shift in budget, overall, I think pretty much left.

Ivor Jones - Numis Securities

Thank you. Ivor Jones from Numis. Could you go back to CRM and just talk a bit more about what's wrong with it now, and what's going to be fixed under the new structure, because you didn't dwell on that in previous presentations?

Norbert Teufelberger

Well the biggest problem was we didn't have any mobile CM capabilities technologically, and we were not fast enough to building those out in our proprietary platforms. So what we did, is we looked outside, and we have integrated third party solutions now, and those are being integrated back into platform. So that has been done. So we are actually ready to live on that, and at the same time our CRM people -- organization was weak. So we had made some substantial changes there. So it’s a combination of technology deliveries, and also a team running to [indiscernible]; and this team running through your [indiscernible] will be run and managed by Sam [indiscernible]. So this will be mostly a mobile push, and [indiscernible] on desktop, but all of the new business comes from mobile, and if you don't have communication possibilities with your customers, push notifications, all of the things which actually the U.K. guys have done extremely well lately, and we didn't have those, that really hurt us. And we have caught up on that. We are ready in terms of technology. We are just finishing the building up of the teams, and the push that we will see actually second week of September. So we are really close to that.

Ivor Jones - Numis Securities

And the cost of that is internal and people, [indiscernible] massive external cost win you've branded up?

Norbert Teufelberger

There is a little bit of external technology, but in the end it is internal.

Ivor Jones - Numis Securities

And a similar question really about technology, because you talk about bwin.party studios, but you have the technology lying before and somebody running it, and you talked about it, so you had the technology department and you've called it for name, what's different?

Norbert Teufelberger

The big difference Ivor in anything we are doing right now is give people an identity. It’s a difference where I will -- and I will give you a start first; if I work for the sports vertical, why work for bingo? So you put the culture back, you put the motivation back, and we have seen that the last few weeks, there is a huge lift, and I guess, this is achievement; because you cannot identify yourself with the sports verticals, who runs Gamebookers, bwin, PartyBets and all those things is different than some of them running behind the flag of bwin. So when some people talk about the demerger, this is not a demerger, but is basically giving somebody a [indiscernible] entity, in the same accounts, for the product and technology organization.

So their only mission, and it was always a bit bloated [ph]. Who decides what is being delivered, who owns the backlog, who decides which technology is being used? It was all a bit confusing, and we made that very clear.

We are [indiscernible] in what we do, technology says how we do it. So putting that entity back and giving them this entity, and having clear SLAs between the operations and the technology delivery, this is where I think we make a lot of change. And we have seen lately in the last few weeks, is that suddenly we are getting things out much quicker, and that is actually what we are expecting to do. And then, further on, we have the possibility, if this works, and that's too early at that point, to obviously go even further. Different capital structure, because we could take investors into the B2B, into the technology, and product technology etcetera.

We know that we have very strong support there, and potentially there is somebody interested investing in trust -- that business unit. We were not able to do that before, because it was all interconnected with the operations, and therefore, we have finely split that along very clear lines right now.

Ivor Jones - Numis Securities

And you talked about the strategic deal for Kalixa. Could you just talk about more about what that's intended to deliver? You've said before, Kalixa has all the technology it needs, so what else does it need?

Norbert Teufelberger

Reach and volume, its very simple. New markets, where Kalixa is not present yet. So what people expect from the strategic partners to get into those new markets quickly, and have business volumes which would be immediately processed by Kalixa.

Ivor Jones - Numis Securities

So the partner already has volumes, that would transfer to Kalixa's platform?

Norbert Teufelberger

The partner has huge volumes, but obviously it needs work to bring them over to Kalixa.

Ivor Jones - Numis Securities

Okay. And last one, but it relates to a number of things. Presumably, you will bring reporting structure in line with the new business structure, and I wonder if you can already say what bwin, other technology would be making in terms of costs?

Martin Weigold

So that is something that we are still reviewing, but obviously the way we will report the market, we will have to be in line with how we change internal reporting, is like the [indiscernible] that we are going to change the basis of which we report. Having said that, it will be a case of who will get more information, rather than that; because I am assuming, you're still going to want to see, what revenue we are generating from each of the product vertical. So we will give that information as well, going forward.

I can't tell you what the results would be, from the reorganization going back, because the organization didn't exist at that point in time, and I will not be making various -- because right now, we are going through the process of putting people into the new units, and its not complete yet.

Ivor Jones - Numis Securities

But if you want somebody to invest in technology, you will have to give it enough revenue allocated, in order to make it look profitable?

Martin Weigold

Of course. And what we will be doing is, not obviously at the Group level, because the revenues will be eliminated, but from a segment reporting perspective, we would attribute an internal revenue charge, which would mean that the B2C units were effectively paying, what they would pay to a third party provider, if they were going outside for that surface.

Ivor Jones - Numis Securities

But that's not enough to make the technology development profitable?

Martin Weigold

Then we need to obviously take action to make it profitable, but not necessarily just checking up in internal [indiscernible].

Philip Yea

But we think Ivor is -- my impressions are we can slice and dice, and there is a lot of raise. We have a very good set of financial reporting, point one. Point two, obviously through accounting conventions, external reporting has to follow internal structure, all right? But we haven't waited to work that out before getting on and doing what's the right thing for the business.

Whether any of these bodes well [ph] or doesn't bring in external money, we will be down to numbers, but we would show that party in due course, as opposed to the public numbers anyhow. So I mean -- I don't think the accounting is getting in the way of doing the right thing, and we will be counting we will catch-up with the business at the right time.

Norbert Teufelberger

You get a bit of flavor of what Unibet did, -- Unibet and Kambi; and that has obviously created value for shareholders; because one [indiscernible] along. Kambi now I think, revenue is in the region of €20 million, something like this annualized. If you take our revenue base, and our internal provider charges is only 10%, there is a €65 million revenue right there, already on this B2B provider. I think [indiscernible] 400. But it’s a sizable B2B provider, especially if you put external volume on it. So its going to be the combination of being more effective, bringing costs down actually, and bringing product out quicker; and the goal will not be to sign up hundreds of small customers, but there are some big customers right now, who are looking for certain customers, and as I said, this is not our first priority, but if we get things right now in the first six months, we are implementing that this is an option going forward, and that's what we meant by creating this option already.

Philip Yea

There is one more question then, and we are moving on then. We are well over the hour now for meeting, so we should probably --

Unidentified Analyst

Hi, this is [indiscernible]. Three questions really; you mentioned that on the asset sales, you have about €30 million to €50 million that you will use for buybacks. On top of that, you have operational cash flow, that's again probably around £30 to £50 coming in the year. So is there any plan on that, or do you want to keep that to have firepower for acquisitions?

On Kalixa, I am assuming your partner will take some sort of equity share, and then benefit from the IPO, that's just not a question. And the third thing is, Philip, you said that obviously when you have nothing to say, don't want to say anything at all, is there a point which you have in mind where -- because you have said a lot of -- quite positive things, but without much detail, is there a point at which we should expect to come back, and give us more detail or more concrete actions?

Martin Weigold

So the first question in terms of asset sales and just generally about the cash flow. So -- I mean, as you would have seen, we have got that progressive dividend policy, we have increased that by 5% in the period; and we have also made reference to the fact that we will do share buybacks as and when we generate disposals of non-core assets.

To the extent that -- we are not looking to do buybacks above that level at the moment. What we'd like to do is, we think we have got a good bit [ph] of cash, given what may play out in the U.S., which is going to require capital, and also, there is still, as we discussed earlier, some uncertainty surrounding Germany. But €30 million to €50 million of potential disposal proceeds coming and we have a buyback, and potentially, in addition to that, the transaction with Kalixa, depending on whether the capital is invested into the business for a state with a presentable partner, or we dispose off a state, there could be additional proceeds there, if we were to do that; because I think that Norbert quoted -- excluded anything to do with Kalixa.

Norbert Teufelberger

So with Kalixa, I feel great. I have to be careful with what I am saying here. Obviously what we don't want to do, we don't want to dilute ourselves heavily right now in Kalixa. So there maybe appetite for those strategic shares, but hopefully, we will find a different structure, and accounts anymore; because we said we are in advanced negotiations, so we are in advanced negotiations there.

Philip Yea

I missed the last one, I think you will have to help me a bit. I mean, clearly Norbert and the team run the company. They have posted great detail today, the actions that are underway, and we do realize that this is -- this needs -- the belief ahead of deliberate. So if the market wants to believe now, that's a good thing. If the market wants to wait to deliver it, then that will have a delayed effect. But there is not a lot more I can do around that.

In terms of other actions, I think we have laid our store out very clearly. We are supporting the broad, this very fundamental set of changes that are going on. You've quizzed the team today very clearly on what we expect the benefits of those are, and we will be reporting against those.

As to why the changes either in the industry, or how we do with individual speedboats. We will bring those back and tell you something when this -- if and when there is something to say. But we won't front-run anything there, because that's not the way we do things.

So I hope there is only more behind your question, you still got the mike, so you're very welcome to do a follow-up.

Unidentified Analyst

Only because there is -- in terms of outside the operation, there is a lot of things that the Group could do, and I understand a lot depends on what the industry will do as well. So that's what I had in mind. Let's say nothing hampers the industry for a year; because a lot of times, you are in places where people think the consolidation will happen, and then it doesn't happen. So you're sitting here, and nothing is really moving the industry. But then there are other things you guys can do, and the question is, will we then come back with something?

Philip Yea

We used the word active in our description or our approach to do so. As I said in my presentation, that one of my lessons is to do your homework. In changes in industry, in my experience, you don't wait for the first person to knock on your door. You figure out, of all the possible solutions that are going on, which ones are in your interest, which ones that you could direct, which ones create most value. So its about having a game plan. Its about understanding the dynamics, as opposed to just falling into the first set of arms, just because someone is knocking your door.

This is an industry that's grown up over the last few years. There are clearly pressures that will build in other over time, to find new solutions. We, as Norbert said, have faced some of these challenges earlier than others. Our job is to have a view of the landscape, make sure our business is running properly, and proactive find where the value might sit, as opposed to be the victim of it, or indeed, as you put in your question, necessarily just waiting to see what happens.

Norbert Teufelberger

I think one sentence to add here is I think, and I look back for many years now, but I think the management team, and we personally have never been closely aligned with the Board and the Chairman. I think this is very [indiscernible] phase we are going in right now. So that -- we discussed it at length if we -- if we joined and shared, Martin, myself and Phil's thoughts, we are very aligned here. At the end of the day, as I said, we will not actively participate from a position of strength, and obviously currently, we are not in a position of strength. So everything we are doing -- to take us back there, and then from there on, we will see.

Philip Yea

Many chairmen have the problem of chief executives who are employees, we have a very shareholder minded senior team, who own a lot of stock in the company, that's worth a lot less than it was a few years ago. So in terms of a common mindset, it’s the importance of restoring value, its what binds us both in the board and in our day-to-day action.

Ed Birkin - Credit Suisse

Hi, its Ed Birkin from Credit Suisse. Just two quick ones please. First of all, just to clarify, you said you're going to start investing in Germany again. Is that a bit of a short term [indiscernible] for cash, or does it reflect an improved medium term outlook on the regulatory outlook for the business? And secondly, Kalixa, can you just confirm what percent of revenues of volume going through is generated internally? I believe it was about 85% I think you said previously, and is that materially changing with the PXP acquisition? Thank you.

Norbert Teufelberger

On the first question Ed, it’s the second. So we have taken -- it takes slowly, we are getting out and think that there is movement to properly regulate Germany, especially on the support side. As you know we pay already tax there. Seems we pay a tax there, and actually when you look at Germany and we have seen -- studied everything, get with Germany in terms of how many operators based in Germany are paying tax, and we think, 90%, 95% of actually people operating in Germany and [indiscernible] paying the tax there. So you could say, it's officially regulated already, and we assume that the government and the authorities in Germany, they do not want to necessarily tax [indiscernible].

So yes in that regard, we are taking a corrective view, and we are -- if you lived in Germany, you would see that actually you see increased activity, advertising activity now, especially around the typical, and we don't want to be lost out there. So we see -- as you saw, we started to increase actually Germany, again slightly, and not very high marketing spend. So we are starting to bring that back again. Obviously, in anticipation of a properly regulated market at some point. Unfortunately, we don't have clear visibility of when that will happen.

This is the first or the second, I don't have the answer.

Martin Weigold

Basically, people sort of base the proportion of internal revenue -- thank you, Norbert; PXP [indiscernible]. It was already falling, because of the external revenues increasing, so it dropped from about 80%, [indiscernible] obviously. PXP is going to significantly improve that ratio further, but unfortunate enough, the figures that I can follow-up later, and I can give you that.

Ed Birkin - Credit Suisse

Then just on Germany. Your improved outlook is based purely on your support, you are not expecting any change with you on regulating gaming?

Norbert Teufelberger

We believe that unfortunately, we will be still stuck in the courts for quite a while, then the old treaty will run out. This will run out in a year and a half from now, and then the big question is, will there be forces in Germany, proactive constructive forces who want openly regulated market, or not, and that is a very difficult answer, because there are people right now in Germany, are forward-looking [indiscernible], and not; why should they regulate the entire market? But it’s a bit too early to say.

So we have a positive view on sports, and we do not know -- what's going to happen with casino [indiscernible].

Philip Yea

There is a follow-up question, in front there.

Ivor Jones - Numis Securities

Yeah sorry, a very quick one, what was the EBITDA margin in regulated markets now please?

Martin Weigold

I will answer it in a slightly different way, in terms of the overall contribution from regulated markets, obviously was impacted by the losses in New Jersey, and that we had in the period. But last time I told, we are getting around 20% of our EBITDA from our kind of core markets, and its around the same level now, slightly less than 19% in the period.

Philip Yea

Okay. Well thank you everybody for your questions, and we look forward to following up with you. Thank you. Bye-bye.

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