BETFAIR GROUP LTD
Betfair Group plc
11 July 2014
Betfair Group plc ("the Company")
Annual Report and Annual General Meeting
The Company announces that it has today circulated the Annual Report and Accounts for the year ended 30 April 2014 (the "2014 Annual Report and Accounts") and Notice of Annual General Meeting ("AGM") (the "AGM Notice") to shareholders. Copies of these documents are available on the Company's website:http://corporate.betfair.com/.
In compliance with LR 9.6.1 a copy of the AGM Notice and the 2014 Annual Report and Accounts have been uploaded to the UKLA National Storage Mechanism and will shortly be available for inspection athttp://www.morningstar.co.uk/uk/NSM.
The AGM will be held at the Company's offices at 2nd Floor, Waterfront, Hammersmith Embankment, Winslow Road, London W6 9HP, United Kingdom on 4 September 2014 at 11.00am.
A condensed set of the Company's financial statements and information on important events that have occurred during the financial year ended 30 April 2014 and their impact on the financial statements were included in the Company's preliminary results announcement released on 11 June 2014. That information, together with the information set out below in the Appendix, which is extracted from the 2014 Annual Report and Accounts, constitute the material required by Disclosure and Transparency Rule 6.3.5 to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full 2014 Annual Report and Accounts.
Page and note references in the text below refer to page numbers in the 2014 Annual Report and Accounts.
Appendix
PRINCIPAL RISKS AND UNCERTAINTIES (pages 25 to 27)
The Board is responsible for the Group's system of internal controls and risk management framework which is designed to identify, manage and mitigate risks and exploit opportunities. It is based on the 'three lines of defence' model below.
During the year a comprehensive review of risks has been undertaken throughout the Group, principally through facilitated risk workshops, to ensure that all potentially material risks have been identified, owners agreed and management/mitigation plans established accordingly. The material risks were reviewed at an Executive level workshop plus subsequent Executive meetings and at both Audit Committee and Corporate Risk Committee meetings.
Risk governance and responsibilities
The Board has overall responsibility for the framework and the Audit Committee for assessing the scope and effectiveness of the systems established by management to identify, assess, monitor, manage and mitigate the risks and exploit opportunities.
The Corporate Risk Committee is responsible for ensuring that the various levels of management and lines of defence are performing their roles in risk management, that the risk register is properly maintained, material risks are being properly addressed and emerging risks identified and monitored.
Executive Management are responsible for ensuring that risk management is an integral part of business as usual, that appropriate internal controls are in place and that all key risks are identified, assessed, monitored, managed and mitigated.
Operational Management as the first line of defence has primary responsibility to embed and manage internal controls and risk management on a day to day business as usual basis.
The second line oversight and assurance functions set appropriate policies, provide guidance, advice and direction on implementation of those policies and monitor the first line of defence.
The third line and external audit provide independent challenge and assurance on the above and advice on improvements. Regulators periodically check our compliance with legislation and licence requirements.
The principal risks and uncertainties which are considered to have a potentially material impact on the Group's long-term performance and achievement of strategy are set out on the following pages, in no particular order, but grouped by type of risk. External and internal risk factors are considered. This is not intended to be an exhaustive and extensive analysis of all risks which may affect the Group. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business. Further details of how our risk management framework and policies are embedded can be found on pages 46 to 49.
KEY RISK/UNCERTAINTY | DESCRIPTION AND IMPACT | HOW WE MANAGE/MITIGATE |
Online gambling regulation and licensing (EU/non-EU) - Strategic/External | ||
Many jurisdictions are in the process of regulating their online gambling market by introducing regulation and licensing. While opportunities exist, they are not without risks - such as commercial viability, delays in licensing of betting exchanges compared with other products, how our products are taxed and licensing one section of the online market, such as sports betting, but not another, such as casinos or poker. Our strategy is to focus on sustainable regulated jurisdictions. | Any new licensing regime, adverse regulatory decisions or tax base that makes it commercially unviable for Betfair to operate its Exchange, Sportsbook and Gaming products could restrict our ability to grow the business, gain access to new customers and, ultimately, increase revenues. Consequently this could impact our strategic objectives to focus on sustainable revenues and accelerate growth through international opportunities. | We work closely with regulators and governments involved in the regulation of online gambling throughout the EU and elsewhere to ensure that we secure favourable regulation for our products. External third parties help us to substantiate evidence to support using a gross profits tax model. We have dedicated internal and external legal, tax, compliance and public affairs resources with responsibility for advising business units in these matters. Overall taking into account these factors and the focus on regulated jurisdictions there has been a substantial reduction in the potential impact on our licensed operations during the year. |
Our products/competition - Strategic/External | ||
Online gambling is a very competitive industry. Our competitors are constantly looking to gain advantage through aggressive marketing campaigns, pricing, promotional behaviour and new product features which could impact revenue or margins. Product and delivery to market is vital to gain competitive edge over other operators. We rely on a number of third parties in particular to support our Sportsbook and some of our Gaming products. | Our product offering could become less attractive in relation to competitors' offers. Disproportionate growth in risk products such as multiples and fixed odds could result in a volatile earnings pattern. We could fail to maximise the revenues earned from products offered. We could have to find alternative suppliers in the event of their failure to provide the services contracted. Consequently this could impact our strategic objectives to focus on sustainable revenues and to invest in product and brand. | Our product delivery activity includes an approval process whereby appropriate products are assessed for suitability and priority to bring to market. Our experienced Trading Team and Sportsbook Risk Team constantly monitor client activity and betting patterns relating to those risk products. We monitor competitor promotional activities, pricing and products and continue to invest in brand, technology and product development. We have strong relationships with key suppliers and continue to assess their resilience and to review options in the event of a need for change. We have increased our investment in product, brand and marketing in regulated jurisdictions. Overall taking into account the above, although the risk is being addressed there has not been any material change in potential impact. |
Infrastructure and systems - Operational | ||
We rely on IT infrastructure and systems for our core operations and their overall management. Potential risks include: · site outages and/or loss of customer connectivity; · software error; · reliance on third parties; · unauthorised access to customer or other sensitive data by employees, third party providers or through cyber-attack; and · as we increase our reliance on third parties, the potential to maliciously access data and for data compromise could increase. | We rely on our customers being able to access markets via the internet and any extended loss of connectivity could have a material effect on revenues. Any failure of the Group's and/or third party infrastructure could lead to significant costs and disruptions that could reduce revenue and harm our business reputation. Breach or loss of customer or other sensitive data could lead to significant costs and disruptions that could impact revenue and harm our business reputation. Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | We regularly review our business continuity and IT disaster recovery plans and have service level agreements in place with third parties. Our Group Security Team regularly reviews and assesses our systems in terms of potential threat and vulnerability. We carry out targeted infrastructure testing and have implemented our own Secure Coding Standard for use within the business. We use a variety of systems and applications testing tools for critical customer facing applications. Overall taking into account these factors there has not been any material change in potential impact during the year |
Customers - Strategic/Operational | ||
Our customers are at the heart of the business. Macroeconomic factors such as licensing, regulatory, tax or other developments outside Betfair's control could deter a significant number of customers from using our products. | Reduced activity by a significant number of customers could have a material adverse effect on our operations, financial performance and prospects. Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | We closely monitor the behaviour of customers and have teams focused on their management and retention. We aim to ensure we provide a service and platform which grow value for both the customer and Betfair, and significantly reduce the risk of customers leaving. We have increased our investment in product, brand and marketing in regulated jurisdictions. Overall, taking into account the above, although the risk is being addressed there has not been any material change in potential impact |
Financial | ||
Certain jurisdictions have put pressure on banks to refuse to process transactions from online gaming companies. There are tax risks around the governance of tax planning structures which could result in unexpected liabilities. Due to the international nature of the business, the Group is exposed to the impact of foreign exchange fluctuations on deposits as well as cash flows. Whilst the future of some member countries of the Eurozone remains uncertain this could expose the Group to a wide range of issues such as currency payment methods and loss of business in certain jurisdictions. Under the terms of a Trust Deed, Betfair generally holds all customer monies in separately managed bank accounts which are safeguarded independently of Betfair's corporate funds. We hold the majority of Client and Corporate funds with separate counterparties. | Reduced ability to transact with customers. Various taxes could materialise. Adverse foreign exchange exposures could impact on Group revenues. A break-up of the Eurozone, or defaults within it, could have a wide range of negative impacts. Actual or perceived mismanagement of customer funds could have severe financial and reputational impacts. There is a possibility of loss arising in the event of failure of counterparties. Consequently this could impact all of our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | We have strong relationships with key suppliers and continue to assess both their resilience and to review options in the event of a need for change. We monitor our adherence to tax planning through regular reviews of the governance structures. We monitor exposure to foreign exchange risk and where appropriate use financial instruments to mitigate any associated risk. Incident management plans are in place to address the unpredictable nature of events which could lead to the potential default or break-up of the Eurozone. Daily and monthly reconciliations of the customer funds balance take place to ensure timely detection, in the event of fraud or error. Client and Corporate funds are subject to the group treasury policy which is reviewed annually by the Board. Funds are spread across a number of highly rated or systemically important counterparties in short-term liquid instruments. In certain jurisdictions we hold short-term operational balances with strong local banks. Exposures to counterparties are regularly reviewed by Chief Financial Officer and adjusted accordingly. At 30 April 2014 the majority of the Group's Client and Corporate funds were held with major systemically important counterparties or pooled AAA rated money market funds. Overall taking into account these factors there has not been any material change in potential impact during the year. |
People/key employees - Operational | ||
Our success and anticipated future growth is in part dependent on the continued services and performance of certain Directors, managers and key staff. Our ability to continue to attract, retain and motivate highly skilled employees in an intensely competitive environment means that competitive packages and development opportunities must be available. | If we are unable to remain competitive in our compensation packages and career development, this would reduce our ability to: · retain Executives, managers and key staff; · attract, retain and motivate highly skilled employees; and · engage staff with their jobs and the Group's objectives. Consequently this could impair our operations, financial performance and ultimately impact our strategic objectives, to focus on sustainable revenues, to invest in product and brand and to accelerate growth through international opportunities. | Group HR actively manage succession planning and processes which are in place throughout the business to identify key roles, conduct regular succession and talent reviews, and to provide competitive package and career development opportunities. Our employees participate in engagement surveys which help us to link improvements to achieving our corporate goals while reducing employee turnover and improving productivity and wellbeing. Overall taking into account these factors and completion of the group restructure, there has been a reduction in potential impact during the year |
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT (page 71)
Each of the Directors, whose names and functions are listed on page 37 of this Annual Report, confirm that, to the best of each person's knowledge and belief:
· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
· the Management Report, which comprises the Strategic Report and the Directors' Report, includes a fair review of
· the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
· the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy.
RELATED PARTIES (Note 25, page 113)
Group
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Betfair Pty Limited
During the year the Group recharged the Australian joint venture, Betfair Pty Limited, the following costs:
• operational costs amounting to £4.6m (2013: £1.5m).
During the year the Australian joint venture recharged the Group the following costs:
• salary and related costs amounting to £nil (2013: £0.3m); and
• operational costs amounting to £2.9m (2013: £2.7m).
The outstanding balance as at 30 April 2014 of loans receivable from the Australian joint venture is £6.3m (2013: £7.8m).
The balance is not interest bearing.
In addition to the recharges detailed above, the Group collects revenue on behalf of the joint venture and to a lesser extent the Australian joint venture collects revenue on behalf of the Group.
As at 30 April 2014, the Group owed £2.1m (2013: £3.2m) to the Australian joint venture.
Featurespace Limited
During the year the Group was charged £0.1m (2013: £0.2m) for consultancy services by Featurespace Limited in which the Group has a non-controlling interest.
LMAX Limited
The Group utilised tax losses amounting to £1.1m that were transferred from LMAX limited, for consideration of £0.3m (2013: the Group recharged LMAX Limited costs amounting to £0.4m and were recharged costs amounting to £0.2m prior to the disposal).
This consideration remained payable to LMAX Limited as at 30 April 2014 (2013: £nil) and is included within Other payables.
Transactions with key management personnel
Key management personnel compensation, including the Group's Directors and Non-Executive Directors, is shown in the table below:
2014 | 2013 | |
Short-term benefits | 5.4 | 6.1 |
Share-based payment expense | 4.6 | 5.6 |
Total | 10.0 | 11.7 |
Enquiries:
Fiona Russell
Company Secretary
020 8834 8000
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