Final Results

RNS Number : 2656A
GVC Holdings PLC
23 March 2017
 

 

23 March 2017

GVC Holdings PLC

 ("GVC" or the "Company" or the "Group")

Final results for the year ended 31 December 2016

GVC Holdings PLC (LSE:GVC), the multinational sports betting and gaming group, is pleased to announce its audited results for the year ended 31 December 2016.

 

Pro forma

Actual

 

2016

2015

Change

Constant currency

2016

2015

 

€m

€m

 

 

€m

€m

Sports wagers

 4,553.6

 4,389.7

4%

7%

 4,331.3

 1,683.0

Sports margin %

9.6%

8.5%

 

 

9.6%

9.2%

NGR

 894.6

 822.2

9%

12%

 843.4

 247.7

Revenue

 873.2

 807.9

8%

11%

 823.3

 246.5

Clean EBITDA

 205.7

 163.2

26%

 

 193.5

 54.1

Adjusted PBT

 

 

 

 

93.8

46.4

 

Financial highlights

·      Pro forma1 Net Gaming Revenue up 9% to €894.6m (+12% in constant currency)

·      Pro forma Clean EBITDA2 up 26% to €205.7m

·      Adjusted Profit Before Tax3 €93.8m vs €46.4m in 2015

·      Second special dividend euro 15.1c, giving total euro 30c dividends declared for FY 2016

·      Net debt4 €131.5m just 0.6x Clean EBITDA

·      Long-term refinancing secured with oversubscribed institutional debt issue

Operational highlights

·      Successful integration of bwin.party

·      Improved platform stability and significantly improved product offering

·      Sports Labels pro forma NGR up 14% (+16% in constant currency)

·      Improved sports win margin to 9.6% (2015: 8.6%)

·      Pro forma gaming NGR from the acquired bwin sports labels up 26%, while value of first time deposits +37%

·      Games Labels pro forma NGR down 4% (flat in constant currency), H2 pro forma NGR up 4% in constant currency

·      On target to achieve €125m5 synergy run rate at end of 2017

·      95% of Group revenues derived/processed through our proprietary platform

Current trading6

·      Pro forma daily NGR up 15% (+16% constant currency) in Q1

·      Pro forma daily Sports Labels NGR +18% (+19% constant currency)

·      Pro forma daily Games Labels NGR + 6% (+8% constant currency)

 

 

Kenneth Alexander, CEO, said:

"The acquisition of bwin.party in February 2016 was our most ambitious transaction to date and through the hard work of our people we have once again demonstrated our ability to create significant shareholder value through selected acquisitions. Our strategy of pursuing international diversification and scale through leveraging our proprietary technology, is more appropriate today than at any time in our history. The organic growth opportunity is equally exciting and we are confident of delivering further growth in 2017."

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

- ends -

 

1 Pro forma shows combined Group as if GVC acquired bwin.party on 1 January
2 Clean EBITDA, operating profit adjusted for share based payments, exceptional items, depreciation, amortisation, impairment of available for sale assets and changes in the fair value of derivative financial instruments
3 Profit before exceptional items, amortisation associated with acquisition, dividends from previously sold businesses 
4 Gross debt less cash (excluding customer balances)
5 Based on combined group for the financial year 2014
6 For period up to 19 March 2017

 

Presentation and live webcast
 
A presentation for analysts and investors will be held today at 9:30 am in the offices of Investec, 2 Gresham Street, EC2V 7QP.
 
 
The presentation will be webcast live and available at:
 
 

The presentation will also be accessible via a live conference call.
 
 
Dial In Number:
020 3059 8125
 
 
Conference password:
GVC
 
 
There will also be a replay available for one week.
 
 
Dial in no:
+0121 260 4861
 
 
Conference reference number:
5549395#
 
An on demand replay will also be available on the GVC website following the presentation.
 
This announcement contains inside information

 

 

For further information:

GVC Holdings PLC

 

Kenneth Alexander, Chief Executive

Tel: +44 (0) 1624 652 559

Paul Miles, Group Finance Director

Tel: +44 (0) 20 7337 0100

Nick Batram, Head of Investor Relations & Corporate Strategy

Tel: +44 (0) 20 7337 0110

 

 

Media enquiries:

Bell Pottinger

 

David Rydell, Anna Legge, Laura Jaques

Tel: +44 (0) 20 3772 2500

 

 

About GVC Holdings PLC

GVC Holdings PLC is a leading e-gaming operator in both B2C and B2B markets.  GVC has four business segments with a number of brands; Sports Labels (including bwin, Sportingbet, gamebookers), Games Labels (including partypoker, partycasino, Foxy Bingo, Gioco Digitale, CasinoClub), B2B and non-core assets.  GVC acquired bwin.party digital entertainment plc on 1 February 2016.  The Group is headquartered in the Isle of Man, is a constituent of the FTSE 250 index and has licences in more than 18 countries.

 

For more information see the Group's website: www.gvc-plc.com 

 

 

Definition of terms

 

Acquisition

The purchase of bwin.party digital entertainment plc by the Company

bwin.party

bwin.party digital entertainment plc

Clean EBITDA

Earnings before interest, taxation, depreciation, amortisation, impairment charges, changes in the fair value of derivative financial instruments, share option charges and    exceptional items

Contribution      

Revenue less betting taxes, payment service provider fees, software royalties, affiliate commissions, revenue share and marketing costs

Contribution margin

Contribution as a percentage of NGR

Constant currency basis

Each month in the prior period re-translated at the current periods exchange rate

Enlarged Group 

GVC Holdings plc incorporating bwin.party

IFRS

International Financial Reporting Standards

KPIs

Key Performance Indicators

Net debt

Cash and cash equivalents (including amounts recorded as assets in disposal groups classified as held for sale), less customer liabilities less interest bearing loans and borrowings.

Net Gaming Revenue ("NGR")

Revenue before deducting VAT

Revenue

Net Gaming Revenue less VAT (imposed by certain EU jurisdictions on either sports or gaming revenue)

Sports Gross Margin

Sports wagers less payouts

Sports Gross Margin %

Sports Gross Margin divided by Sports wagers

Sports Net Gaming Revenue ('Sports NGR')

Sports Gross Margin less free bets and promotional bonuses

 

 

Dividend timetable

 

23 March

Dividend declared

30 March

Ex-dividend date

31 March

record date

12 May

payment

 

 

Future trading updates and financial calendar

w/c 24 April

Trading update

4 May

Posting of Annual Report and Accounts

12 May

Dividend payment

25 May

Capital Markets day

20 June

AGM

July

Trading update

September

Interim results

October

Trading update

 

Chairman's Statement

2016 was the most significant year in the Group's history. The acquisition of bwin.party was completed on 1 February 2016 and transformed GVC into one of the leading global businesses in the online gaming industry. Importantly, the purchase of bwin.party was consistent with our strategy; to deliver increased scale, further international diversity and enable us to leverage our proprietary technology and exceptional management team. In a competitive and rapidly evolving global regulatory environment, we believe this strategy leaves GVC well placed to continue to create shareholder value.

In August, just six months after completing the bwin.party transaction, the Group was admitted to the Premium Segment of the Official List. A month later GVC became a constituent of the FTSE 250 index, having grown from a market value of less than £100m four years ago to over £2bn today.

GVC is highly ambitious and focused on measurable delivery. Therefore, it is pleasing to report the Group achieved a strong operational and financial performance in 2016.

A year of significant progress… operationally

As a management team and a business we set ourselves a number of targets in 2016 and I'm pleased to be able to say that we not only achieved all of these targets but also in most cases exceeded them.

The integration of bwin.party was a key focus of 2016 and whilst all such large scale transactions present challenges, the assimilation of the business progressed positively and is ahead of our initial expectations. Our talented, hardworking team and the corporate culture we have fostered have been the key drivers of a smooth integration.

We employ c2,800 people across 15 offices and four continents. Creating a Group-wide identity and culture based on common values has been an important part of the integration process. Our core values of collaboration, dynamism, ownership, recognition and transparency, reflect the culture of our business and what we believe is required to succeed in a highly competitive and rapidly evolving industry.

It is a reflection of the progress made and the potential of GVC, that the Group has been able to attract a number of highly regarded professionals from across the gaming industry and beyond. This has enabled us to strengthen our business in a number of areas, the benefits of which have already begun to be experienced, but with much more to come.

…and financially

The Group's financial performance during the year exceeded our original expectations both in terms of Net Gaming Revenue (NGR) and Clean EBITDA.  Pro forma NGR increased 9% to €894.6m and by 12% in constant currency. Meanwhile, pro forma Clean EBITDA increased 26% to €205.7m, reflecting an increase in margin to 23% from 20%. Net debt as at 31 December 2016 was €131.5m, just 0.6x Clean EBITDA.

We remain on target to secure €125m of synergies by the end of 2017 with the full impact being derived in 2018 in line with the timetable we set out at the time of the bwin.party acquisition. In addition to this, annual capital expenditure is expected to be approximately €20m lower per annum than the combined Group spent in 2015.

The Group's progress is clearly reflected in the development of our financing structure. In October 2016, we secured a short term €250m loan facility from Nomura International plc (the "Nomura Loan"), which was used in part to fully retire the €400m loan provided by Cerberus Business Finance LLP. The Nomura Loan significantly lowered our finance costs.

In February 2017 we launched our inaugural syndicated debt offer to great success. A €250m Senior Secured six year term loan (the "Term Loan") was significantly oversubscribed. This was used to pay down the Nomura Loan in full. In addition, we also secured a €70m Revolving Credit Facility ("RCF"). The new financing gives us both significant financing visibility and also access to a broad number of debt investors. Given the ongoing industry consolidation and GVC's proven track record of adding shareholder value through mergers and acquisitions this is an important development for the Group.

The strong underlying performance of the business together with the favourable refinancing enabled the Group to declare a special dividend in November, which was subsequently increased by 49% in December to euro 14.9c per share. The dividend was settled in sterling at 12.5p per share and paid 14 February 2017. In addition, we have also declared a second special dividend of euro 15.1c, giving total declared dividends of euro 30c per share for the financial year ended 31 December 2016. For the 2017 financial year and beyond, we will pursue a progressive dividend policy, reflecting the growth in the business and aiming to return no less than 50% of free cash flow. In addition, the Board will also give consideration to returning future excess cash to shareholders. Excess cash will be determined by the capital requirements of the business, together with the trading outlook at the appropriate time.

I would also like to take this opportunity to thank Richard Cooper, who retired as Group Finance Director and from the Board in February 2017. Richard joined the Group in 2008 and has been a major part of the Company's success over the past eight years. We wish him all the success in the future. I would also like to welcome aboard Paul Miles who joined us as Chief Financial Officer in February.  

Finally, as announced separately today, Will Whitehorn has been appointed to the Board as Senior Independent Non-executive Director. Will is a highly experienced business professional and is a significant appointment for the Group. He is the Deputy Chairman and Senior Independent Director of Stagecoach Group plc and is an Independent Non-executive Director of Purplebricks Group plc. This builds upon the strengthening of the Board in 2016 when Stephen Morana, Peter Isola and Norbert Teufelberger joined the Group.

Through the combination of talented people, proprietary technology and strong brands, GVC is well placed to pursue the many opportunities and face the challenges presented by the dynamic industry in which we operate.

GVC will be posting its Annual Report to shareholders the week commencing 1 May 2017 and it will be uploaded on our website (www.gvc-plc.com) from that date. The AGM will be held in Gibraltar and is scheduled for 20 June 2017.

 

Lee Feldman
Non-Executive Chairman
23 March 2017

 

Report of the Chief Executive Officer

I am pleased to report that the Group delivered a strong financial performance in 2016. Pro forma numbers are provided as, in the Board's opinion, they give a more useful comparative of the underlying performance of the Group.

 

Pro forma

Actual

 

2016

2015

Change

Constant currency

2016

2015

 

€m

€m

 

 

€m

€m

Sports wagers

 4,553.6

 4,389.7

4%

7%

 4,331.3

 1,683.0

Sports margin %

9.6%

8.5%

 

 

9.6%

9.2%

NGR

 894.6

 822.2

9%

12%

 843.4

 247.7

Revenue

 873.2

 807.9

8%

11%

 823.3

 246.5

Contribution

 464.0

 442.8

5%

 

 437.5

 135.4

Contribution margin

52%

54%

 

 

52%

55%

Clean EBITDA

 205.7

 163.2

26%

 

 193.5

 54.1

Clean EBITDA margin

23%

20%

 

 

23%

22%

Adjusted PBT

 

 

 

 

93.8

46.4

Statutory profit/(loss) before tax

 

 

 

 

(138.6)

25.5

Adjusted fully diluted EPS cents

 

 

 

26

70

DPS cents

 

 

 

 

30

56
                 

 

Pro forma NGR for the year ended 31 December 2016 rose 9% to €894.6m, with the growth in constant currency registering 12%. Approximately 69% of NGR was derived from markets either regulated (including those in the process of regulating) and/or locally taxed. Clean EBITDA on a pro forma basis was €205.7m, an increase of 26% on the €163.2m achieved in 2015. This represented a strong improvement in the Clean EBITDA margin to 23% from 20%, with acquisition synergies and organic revenue growth helping to mitigate increased regulatory costs. A statutory loss before tax of €138.6m reflects one-off costs in the year of €117.8m, largely related to the acquisition of bwin.party, finance expense of €65.3m and depreciation and amortisation charges of €136.5m". Many of these costs relate to the acquisition ofbwin.party and are forecast to reduce in 2017 following the synergies attached to the acquisition and the attainment of a significantly cheaper financing arrangement entered into.

A key driver of the business in 2016 was the performance of the bwin sports label across its core European markets. Whilst sports results were generally positive, this was just one component part of bwin's success in 2016. During the year the value of first time deposits across the acquired bwin sports labels rose 37%, while improved product and more effective cross sell saw games revenues from sports customers increase 26% on pro forma 2015. However, it wasn't just about bwin, with all core sports labels delivering growth in 2016.

Also pleasing in 2016 was the performance of Games Labels. Although pro forma NGR from Games Labels for the full year declined to €203.5m from €211.8m (flat in constant currency), in the second half of 2016 we reversed this trend and returned it to growth. In H2 pro forma Games Labels NGR grew by 4% in constant currency.

Historically, partypoker and partycasino were some of the most challenged parts of bwin.party. Between 2010 and 2015, NGR from these brands declined by over 60%. In part this reflected the structural challenge presented by the poker market, however, it is fair to say that product development lagged key competitors, whilst the business suffered from a lack of focus. In 2016, NGR from partypoker increased 14% in constant currency. This much improved performance was the result of a change in management, increased investment and a more focused approach.

As mentioned in the Chairman's statement, we have today announced further dividend of euro 15.1c in respect of the financial year ended 31 December 2016. In total we have declared euro 30c of dividends for the 2016 financial year, returning some €88m to shareholders.    

Integration creating value

The Group has a strong track record of creating shareholder value through astute earnings-accretive acquisitions and efficient integration of the acquired operations and bwin.party has been no exception.

In bwin.party we saw a business with proven proprietary technology, established brands and some excellent people, but a business that had lost its way. Through a refocusing on core markets, improving the customer proposition, together with a number of key hires, our instincts have proven correct, reflected by the strong revenue and Clean EBITDA growth highlighted above.

It is now just over a year since we acquired bwin.party and we have been delighted with the way the integration has progressed. I'm pleased to say that most of the surprises have proved positive and we have been able to evolve our integration plans to reflect both this and the constantly changing industry backdrop in which we operate.

The preparatory work to migrate the Sportingbet and associated brands onto the bwin platform has largely been completed with three countries already switched over. Given the strong underlying performance of the business we have decided to further mitigate the risk of disruption by commencing the migration of the larger territories once the relevant football seasons have finished. Our synergy target of €125m (combined Group savings against 2014) exit run rate by the end of 2017 remains on schedule.

More to come

Our acquisition of bwin.party was not simply about cost synergies. We firmly believed we could return the business back to growth. Between 2011 and 2015, bwin.party NGR declined by over 30% (€816m to €574m), but in 2016 the business returned to top line growth.

Whilst the integration process is almost complete, we continue to look for improvement and enhancements across the business. Indeed, we feel the organic growth opportunity of the enlarged GVC is greater than originally expected and a key strategic theme in 2017 will be increased, but focused, investment in marketing to fully exploit this potential. However, it is important to note that in 2016 our marketing spend as a percentage of NGR was just 20%, considerably lower than many of our peers and the increased investment in 2017 will merely bring us closer into line with the market.

We are also excited about the cross-sell opportunity presented by the migration of Sportingbet and other associated brands to the bwin platform. The bwin platform has proven to be particularly effective in enabling the cross-sell of other products to sports customers and penetration rates are now double that achieved across the Sportingbet platform.

The importance of proprietary technology to our business cannot be overstated. In an increasingly competitive and regulated industry, control of our own technology gives the Group significant flexibility and operational leverage. In 2016, 95% of our revenues were derived/processed through our proprietary platform and we expect this to increase further in 2017 and beyond. During 2016, platform stability improved significantly, with availability exceeding 99.9%, while load times across key sites improved by over 30%. This is key, as with a robust and efficient platform we can process substantially more wagers at little additional fixed cost. Not only does this support the organic growth of the business but it also places the Group in a strong position to derive substantial synergies from any future M&A that we may pursue.

Operational overview

Following the acquisition of bwin.party the Group adopted a new reporting structure with the B2C operations split between Sports Labels and Games Labels, with our other divisions being B2B and Non-core. It is worth noting that revenues within Sports Labels are not limited purely to sports wagers but include revenues derived from other gaming activities conducted on any of our Sports Label brands. Similarly, though to a lesser extent, Games Labels include sports wagers made through any of our Games Label brands.

Sports Labels

GVC owns a number of sports betting brands including bwin, Sportingbet, Betboo and Gamebookers. bwin was a pioneer in online sports betting and remains one of the best known brands across Continental Europe. However, it is fair to say that the brand had lost market share in a number of core territories in recent years. Therefore, the performance of the business in 2016 was particularly encouraging. Not only did our existing customers spend more with us but also we were successful in adding new customers.

In €m

Pro forma

Actual

 

2016

2015

Change

Constant currency

2016

2015

Sports wagers

 4,488.3

 4,312.6

4%

 7%

 4,272.3

 1,683.0

Sports margin %

9.6%

8.6%

 

 

9.6%

9.2%

Sports NGR

 333.2

 304.5

9%

11% 

 315.9

 113.9

Gaming / other NGR

 320.8

 271.1

18%

21% 

 304.8

 101.2

NGR

 653.9

 575.7

14%

16% 

 620.7

 215.1

EU VAT

 (15.0)

 (11.0)

 

 

 (13.9)

 (0.5)

Revenue

 638.9

 564.7

13%

16% 

 606.8

 214.6

 

 

 

 

 

 

 

Contribution

 362.0

 318.9

14%

 

 342.5

 113.6

Contribution margin

55%

55%

 

 

55%

53%
               

 

Overall sports wagers grew 4% to €4,488m for the pro forma 12 months, whilst an improvement in the gross win margin to 9.6% (2015: 8.6%) helped to drive sports NGR 9% higher to €333.2m. In constant currency, wagers rose 7% and sports NGR by 11%. The higher gross win margin was largely due to the improvements we made at bwin, particularly in the area of risk management which led to a significant reduction in low margin turnover. The year also benefitted from the UEFA Euro 2016 tournament, during which we took €162m of wagers and achieved a gross win margin of 18.3%.

During the year we significantly expanded our gaming offer to our sports customers. Over 17 deals were signed with leading suppliers, including NetEnt, Evolution, MicroGaming, IGT, NYX and Edict Gaming to name but a few. In total, this gives us access to over 650 new games/products across mobile and desktop. Together with improved cross-sell at the acquired businesses, this helped pro forma gaming NGR rise 18% to €320.8m in 2016 (+21% in constant currency).

Total NGR from Sports Labels increased 14% (16% in constant currency) to €653.9m, with revenue 13% higher at €638.9m. Meanwhile, the pro forma contribution was €362.0m (2015: €318.9m), reflecting a maintained margin at 55%.

In 2016, marketing spend as a proportion of Sports Labels NGR was c17%, this is well below our peers where spend is typically 25-30% of NGR. It was a deliberate strategy in 2016 to curtail marketing spend in the acquired businesses that achieved either low returns on investment or returns that could not be accurately measured. Therefore, to deliver strong growth on relatively low marketing spend is both pleasing and a recognition of the strength of the brands we own. The current year will see marketing spend increase to more normalised levels, 23-25% of NGR, with the focus being on the larger core geographic markets.

Revenue from mobile grew strongly in 2016, and now represents 50% of divisional gross gaming revenue against 34% in 2015. This is still below many of our peers and represents an area of real opportunity for the Group.

In addition to increased marketing investment, 2017 will see us continue to expand the product offering as well as further improvements to the overall customer experience. CRM is key to generating positive returns from marketing and we have made a number of key senior appointments in this area.

Games Labels

GVC's key gaming brands include, partypoker, partycasino, Foxy Bingo, Gioco Digitale and CasinoClub.

Pro forma NGR was €203.5m in 2016 versus €211.8m in the previous year, with the change in constant currency being 0%. Momentum improved through the year with pro forma NGR in constant currency +4% in H2 over the previous year. Pro forma contribution from Games Labels declined to €89.0m from €109.6m in 2015. The decline reflected a number of factors including increased gaming taxes/VAT and investment in partypoker.

In €m

Pro forma

Actual

 

2016

2015

Change

Constant currency

2016

2015

Sports wagers

 65.2

 77.1

(15%)

(14%) 

 58.9

 -

Sports margin %

7.7%

5.0%

 

 

7.7%

0.0%

Sports NGR

 4.3

 3.2

32%

35% 

 3.8

 -

Gaming / other NGR

 199.2

 208.5

(5%)

0% 

 184.4

 32.6

NGR

 203.5

 211.8

(4%)

0% 

 188.3

 32.6

EU VAT

 (6.4)

 (3.2)

 

 

 (6.2)

 (0.7)

Revenue

 197.0

 208.6

(6%)

(1%) 

 182.1

 31.9

 

 

 

 

 

 

 

Contribution

 89.0

 109.6

(19%)

 

 82.9

 21.8

Contribution margin

44%

52%

 

 

44%

67%
               

 

Historically, the Games Labels within the bwin.party business had been the most challenged, in particular partypoker and partycasino. Our focus in 2016 was to improve management, increase investment, enhance the product and the customer experience.

It is therefore pleasing to report that despite continued structural challenges in the poker market, partypoker NGR in 2016 rose 14% in constant currency, with the growth in H2 over the previous year being 16% in constant currency. In December 2016 we reached a deal with one of Europe's leading poker rooms, Dusk Till Dawn, to launch a new live global poker tour, partypoker LIVE which will feature the headline tournament, the partypoker Million. 

We also took the decision to restructure partycasino and separate the brand from partypoker, repositioning the offering under a new management team. Taking inspiration from CasinoClub, there is greater emphasis on VIP management and reducing reliance on partypoker in terms of customer acquisition. Significant improvements were made to the product and customer services before relaunching the brand in H2 2016. This included the relaunch of the partycasino frontend, enhancements to our live casino experience, the introduction of new 'Pro Series' table games and a number of technical improvements, such as the dramatic reduction of game load times. As a result, along with increased investment, partycasino saw a significant acceleration in new player acquisition through H2, along with lower attrition and increased revenues per customer. December was particularly strong and this positive momentum has continued into 2017.

Foxy is one of the UK's best known online bingo brands but has had a challenging few years. In the second-half of 2016 we brought in a new Head of Bingo and significant work has already been undertaken to reinvigorate the brand and customer proposition. New creative and media agencies have been appointed and in March 2017 a new marketing campaign was launched with Hollywood actress Heather Graham promoting the rebranded Foxy Bingo and Foxy Casino.

CasinoClub celebrated its 15th anniversary in 2016 with a series of events across Europe. Through its heritage and bespoke club approach, CasinoClub has established a leading position in German speaking markets and benefits from a loyal customer base. Last year also saw the brand take control of its software platform, previously provided by a third party, while delivering a positive top line performance.

Gioco Digitale is the second largest bingo brand in Italy, a top ten casino brand and is very much aimed at the casual player looking for entertainment. There was some restructuring post acquisition, with improved marketing, promotions, CRM and product. As a consequence, NGR grew strongly, particularly in casino.

All of our gaming labels are also benefiting from the many new content deals signed over the past 12 months.

As with Sports Labels mobile revenue from Games Labels grew strongly in 2016, and now represents 29% of divisional gross gaming revenue against 20% in 2015. With further product enhancements and additional content we expect mobile revenues to continue to grow strongly.

Looking ahead, the focus will be on continued product improvement across all of the brands, along with improved customer service.

The improvement to product and customer experience across all of our games is ongoing and supported by more targeted marketing, we expect further progress in 2017 and beyond. Furthermore, in addition to the significant amount of new third party gaming content already secured, the Group is also accelerating the development of its own unique in-house products.

B2B

The Group provides B2B services to a number of well-known gaming businesses including Borgata (MGM), Danske Spil, Fortuna and PMU.

Pro forma divisional revenues in 2016 were €14.2m compared to €13.9m in the previous year, with the contribution being €14.0m versus €13.9m in the previous year.

In €m

Pro forma

Actual

Year ended December

2016

2015

Change

Constant currency

2016

2015

Revenue

 14.2

 14.2

0%

0%

 13.3

 -

Contribution

 14.0

 13.9

1%

1%

 13.1

 -

Contribution margin

99%

98%

 

 

98%

-
               

 

Proprietary technology presents the Group with the opportunity to provide B2B services to third parties, but this has to be balanced with the potential presented from our own B2C operations. We will pursue B2B opportunities that are meaningful but only where there is no significant distraction to our core B2C operations or those that do not compromise our long-term strategy. Consistent with this focus, the B2B agreement with Betfred was mutually terminated.

At the end of 2016, we were pleased to strengthen our B2B relationship with Borgata and the MGM Group. Under the new deal, GVC Group will provide an expanded offering beyond Borgata to additional MGM brands in New Jersey, with the potential for the partnership to be extended into other US states, as and when regulation permits.

The Group is committed to B2B and currently has an active pipeline of opportunities in line with our strategic focus.

Non-core

Other revenues comprise the financials business, InterTrader. The business undertook a restructuring in 2016, consolidating to a single brand and also bringing in-house a significant part of the operation that was previously outsourced. Whilst this created some disruption in Q3, InterTrader enjoyed its strongest trading period of the year in Q4, reflecting the benefits of the actions taken in the previous quarter.

In December 2016, we announced the disposal of payments processor Kalixa for a total cash consideration of €29m (plus potential adjustments up to a maximum €35.5m). The sale is expected to complete in H1 2017.

Regulatory update

The regulatory landscape is changing at a rapid pace, particularly across Continental Europe. Whilst we welcome sustainable legislation, the national regulatory regimes across the EU Member States differ significantly due to the lack of harmonised gaming rules at an EU level. Within the EU, we work with the industry and those committed to upholding the open market values of being part of the union.

In 2016, approximately 69% of our pro forma NGR was derived from territories where we currently pay gaming taxes/VAT or where a licensing structure is the process of being implemented. The Group is currently licenced in more than 18 territories.

In Germany, bwin was among the 20 successful applicants for a sports betting licence in 2014. However, this process was subsequently suspended after being challenged by operators who failed to secure licences and licenses were never granted. Nevertheless, all 35 operators (including bwin) that fulfilled the minimum criteria in the licensing procedure will receive temporary sports betting licenses on 1 January 2018. Further, the Second Amended State Treaty on Gambling is scheduled to enter into force on 1 January 2018. With the exception of the state of Schleswig-Holstein, licences for online casino/poker are still not available in Germany. However, it was announced in November 2016 that the German federal states agreed to evaluate a legal framework for the regulation of online casino and poker. This evaluation will most likely be concluded in the autumn of 2017. In this context, the state of Hesse has an extraordinary termination right to the German State Treaty on Gambling which is linked to the satisfactory solution of the online casino and poker situation until 30 June 2019. The Group pays betting tax/VAT on all of its German revenues.

In 2016, the Group received a permanent licence in Romania having previously operated under an interim licence. A licence application has also been made in the Czech Republic following new legislation that came into force on 1 January 2017. The Group will consider applying for a licence in Poland in light of amendments to their gaming legislation.

In August 2017, the UK government will commence levying the point of consumption tax on gross gaming revenue on all online gaming products (previously just betting) as opposed to net gaming revenue. If this had been in place at the start of 2016 the estimated incremental tax payable by the Group would have been approximately €7m. Also in the UK, the CMA (Competition and Markets Authority) is undertaking a review into the advertising of gaming and operators terms and conditions, particularly in the area of promotions to customers.

Brexit

Beyond the impact of currency movements there has been no visible impact on the business from the UK's decision to seek an exit from the EU. The Group has greater sterling costs than revenues and therefore the impact from the recent sterling weakness is a net positive. The detail of how the UK intends to exit the EU is yet to be decided, however, management believe GVC's global footprint gives it significant flexibility to face any challenges that may arise.

Outlook and current trading

Our strategy is to build further scale and international diversification through leveraging our proven proprietary technology, established brands and high quality personnel. In an increasingly competitive and regulated industry, we believe scale and diversification will enable us to continue to create shareholder value through capital and income growth. Whilst we are excited by the organic potential, we believe the online gaming industry will continue to consolidate. Historically, GVC has delivered significant shareholder value through M & A and this remains a core component of our strategy.

GVC enters 2017 with positive momentum and the integration of bwin.party largely complete. The industry faces many challenges, but the combination of our talent, proprietary technology and brand strength, gives us confidence that we can deliver another year of growth. Although there is no major football tournament in 2017, the trajectory in the business together with a return to more normalised levels of marketing means that we expect to achieve further growth in the coming year.

The positive momentum reported throughout 2016 has continued into the current year. Pro forma daily Group NGR is up 15% (+16% in constant currency) for the period up to 19 March 2017. This growth has been achieved despite some high profile customer friendly results in Europe during the last few weeks of February and early March. The strategy of exiting low margin sports turnover has continued and as a result we believe a normalised long-term gross win margin for the Group will be around 10%.

Sports Labels pro forma daily NGR YTD is up 18% (+19% in constant currency) whilst Games Labels daily NGR on the same basis is up 6% (+8% constant currency)

As we pass the first anniversary of the bwin.party acquisition, and with no major summer football tournament in 2017, year on year comparatives will inevitably get more challenging. Nevertheless, the business has made an excellent start to the year and with the benefits of significant product and customer experience improvements still to come through, as well as the full synergy savings to be realised in 2018, the future is extremely encouraging.

Kenneth Alexander

Chief Executive

23 March 2017

 

 

Report of the Group Financial Officer

Having joined GVC as CFO in February 2017, it is my pleasure to deliver such as strong set of results.

In line with the approach contained in the Report of the CEO, both "pro forma" results and "actual" results are provided. Pro forma results are presented for the period as if the acquisition of bwin.party (the "acquisition") completed on 1 January 2016 (as opposed to the actual date of 1 February 2016) and has been accounted for as a business combination under IFRS 3.

It is worth noting the distinction between NGR, a figure before VAT, and Revenue, the more "statutory" number, stated after VAT. While Clean EBITDA (earnings before interest, taxation, depreciation, amortisation, share based payments and exceptional items) is a non-GAAP measure, it is used by the Group's management to assess the underlying performance of the business.

A summary of revenue, contribution and expenditure by reporting segment is shown below.

 

Pro forma

 

Actual

 

2016

2015

 

2016

2015

 

€m

€m

 

€m

€m

Sports labels

 4,488.3

 4,312.6

 

 4,272.3

 1,683.0

Games labels

 65.2

 77.1

 

 58.9

 -

Sports wagers

 4,553.6

 4,389.7

 

 4,331.3

 1,683.0

Sports margin %

9.6%

8.5%

 

9.6%

9.2%

 

 

 

 

 

 

Sports labels

 653.9

 575.7

 

 620.7

 215.1

Games labels

 203.5

 211.8

 

 188.3

 32.6

B2B

 14.2

 14.2

 

 13.3

 -

Core

 871.6

 801.7

 

 822.3

 247.7

Non-core

 23.0

 20.5

 

 21.1

 -

NGR

 894.6

 822.2

 

 843.4

 247.7

EU VAT

 (21.4)

 (14.2)

 

 (20.1)

 (1.2)

Revenue

 873.2

 807.9

 

 823.3

 246.5

 

 

 

 

 

 

Sports labels

 362.0

 318.9

 

 342.5

 113.6

Games labels

 89.0

 109.6

 

 82.9

 21.8

B2B

 14.0

 13.9

 

 13.1

 -

Core

 465.0

 442.3

 

 438.5

 135.4

Non-core

 (1.0)

 0.5

 

 (1.0)

 -

Contribution

 464.0

 442.8

 

 437.5

 135.4

 

 

 

 

 

 

Sports labels

55%

55%

 

55%

53%

Games labels

44%

52%

 

44%

67%

B2B

99%

98%

 

98%

0%

Core

53%

55%

 

53%

55%

Non-core

(4%)

2%

 

(5%)

0%

Contribution margin

52%

54%

 

52%

55%

 

 

 

 

 

 

Core

 195.8

 195.0

 

 185.5

 62.5

Non-core

 17.6

 21.9

 

 16.3

 -

Corporate

 45.0

 62.7

 

 42.3

 18.7

Expenditure

 258.4

 279.6

 

 244.0

 81.3

 

 

 

 

 

 

Core

 269.3

 247.3

 

 253.0

 72.8

Non-core

 (18.6)

 (21.4)

 

 (17.2)

 -

Corporate

 (45.0)

 (62.7)

 

 (42.3)

 (18.7)

Clean EBITDA

 205.7

 163.2

 

 193.5

 54.1

             

 

Bridge between Actual and pro forma results

 

2016

 

2015

 

Actual

bwin.party pre-acquisition

Pro forma

 

Actual

bwin.party pre-acquisition

Pro forma

 

€m

€m

€m

 

€m

€m

€m

NGR

 843.4

 51.2

 894.6

 

 247.7

 574.4

 822.2

EU VAT

 (20.1)

 (1.3)

 (21.4)

 

 (1.2)

 (13.0)

 (14.2)

Revenue

 823.3

 49.9

 873.2

 

 246.5

 561.5

 807.9

Cost of sales

 (385.8)

 (23.3)

 (409.1)

 

 (111.1)

 (254.0)

 (365.1)

Contribution

 437.5

 26.6

 464.0

 

 135.4

 307.5

 442.8

Contribution margin

52%

52%

52%

 

55%

54%

54%

Expenditure

 (244.0)

 (14.4)

 (258.4)

 

 (81.3)

 (198.3)

 (279.6)

Clean EBITDA

 193.5

 12.2

 205.7

 

 54.1

 109.2

 163.2

                 

 

NGR

NGR grew 240% to €843.4m for the year to December 2016, while on a pro forma basis it grew by 9% to €894.6m. Growth was derived from a number of factors including, more focused management, stronger sports margins and more effective product cross-sell. The Group operates in a large number of markets and currency fluctuations have an impact on reported numbers. On a constant currency basis, pro forma NGR grew by 12% in the period.

Revenues

Revenues grew by 234% to €823.3m over the 12 months, whilst on a pro forma basis they increased by 8%. VAT has been imposed since January 2015 in a number of countries, the most significant of which is Germany. VAT at the rate of 21% has now also been introduced in Belgium, a market in which GVC operates through a locally licenced partner. The financial impact is not considered to be material to the Group.

Variable costs and contribution

The key components of variable costs remain: betting taxes and duties, payment processing costs, software royalties, affiliate commissions, partner shares and marketing costs.

Contribution in the period was €437.5m in actual terms, up from €135.4m the previous year. On a pro forma basis, Contribution increased 5% to €464.0m from €442.8m for 2015. The decline in the Contribution margin on a pro forma basis to 52% from 54% principally reflected an increase in betting taxes and duties as a percentage of revenues.

Expenditure

The prime components of expenditure are personnel (representing around 56% of the cost base) and technology (representing approximately 29% of the cost base). Other significant costs include real estate (with over 15 offices), travel and professional fees.

 

Pro forma basis

 

Actual basis

 

2016

2015

 

2016

2015

 

€m

€m

 

€m

€m

Personnel expenditure

 145.2

 173.1

 

 136.7

 48.5

Professional fees

 19.8

 20.8

 

 18.4

 4.7

Technology costs

 73.4

 62.8

 

 70.1

 23.7

Office, travel and other costs

 24.5

 25.0

 

 22.1

 3.5

Foreign exchange differences

 (4.6)

 (2.1)

 

 (3.3)

 1.0

 

 258.4

 279.6

 

 244.0

 81.3

             

 

Costs increased to €244.0m in the period from €81.3m in 2015, reflecting the acquisition of bwin.party. On a pro forma basis there was an 8% reduction in expenditure to €258.4m from €279.6m. The reduction in pro forma costs reflects the synergy benefits highlighted at the time of the bwin.party acquisition and thus far this has predominantly come from personnel.

Technology costs on a pro forma basis have increased to €73.4m from €62.8m following the purchase of the CasinoClub software platform and due to increases in data and streaming costs in the year. Cost savings are expected to be realised here in 2017 as the platform migrations continue and the size of the enlarged group means it is in a better position to negotiate improved contractual terms with suppliers.

Clean EBITDA

While Clean EBITDA is a non-GAAP measure, it is used by the Group's management to measure the performance of the business. Actual Clean EBITDA increased to €193.5m from €54.1m in the previous year, boosted by the 11 month contribution from the acquisition. On a pro forma basis, Clean EBITDA rose 26% to €205.7m.

Depreciation and Amortisation

Depreciation and amortisation for the year was €136.5m compared to €5.0m in 2015. Amortisation associated with intangible assets recognised on acquisition was €109.5m. These assets are being amortised over periods ranging from 3 to 12 years.

The amortisation of capitalised development expenditure amounted to €7.0m.

 

2016

2015

 

€m

€m

Depreciation

 20.0

 0.8

Amortisation

 

 

- intangible assets recognised on acquisition

 109.5

 -

- internally generated intangibles

 7.0

 4.2

 

136.5

5.0

 

 

 

Exceptional items

The bulk of the exceptional items have arisen on the acquisition of bwin.party itself and subsequent restructuring.

 

2016

2015

 

€m

€m

Exceptional items

 

 

Professional fees

 18.8

 13.5

Currency option

 10.8

 9.5

Bonuses and share options

 21.9

 -

Acquisition costs

 51.5

 23.0

Premium listing application costs

 4.4

 -

Reorganisation costs

 14.4

 -

Contract termination costs

 11.7

 -

Accelerated depreciation

 12.5

 -

Progressive jackpots

 7.6

 -

Release of contingent consideration

 8.1

 -

Foreign exchange on deposit

16.4

 -

Profit on disposal of joint venture

 (11.7)

 -

Other

 2.9

 1.5

 

 117.8

 24.5

 

A currency option was taken out in 2015 in order to meet the cash confirmation requirements for the offer for bwin.party by the Company. Under the terms of the contract the Group would sell €365.0m and buy £260.7m. The movement in exchange the sterling/euro rate between 31 December 2015 and 2 February 2016 created an additional €10.8m fair value loss on the option which has been recognised within exceptional items.

The 2014 LTIP was cash settled as part of the acquisition and the after tax proceeds were rolled into the related share placing, the cost of the settlement including employer's taxes of €18.4m was taken as an exceptional cost. In addition Transaction bonuses of approximately €3.0m were paid to the directors and the vast majority of the after tax proceeds were also rolled into the share placing and €0.5m was paid to other employees in the Group.

Both the legacy GVC business and the acquired bwin.party business have progressive prize pools on casino games. Following the acquisition GVC evaluated that a change in accounting judgement was required and recognised a charge of €7.6m as an exceptional item with the liability being recorded in the balance sheet.

The contract termination costs of €11.7m relate to a legacy affiliate agreement on non-commercial terms that the Group bought out following the acquisition of bwin.party.

Foreign exchange on deposit relates to foreign exchange movements on GBP funds raised through the share placing and held on deposit for the restructuring of bwin.party.

Operating profit

The Group reported an operating loss of €81.1m for the year, compared to a profit of €27.8m the previous year. Exceptional items and amortisation associated with the Acquisition were responsible for the reported loss in 2016. Excluding exceptional items and amortisation associated with the Acquisition, the Group's operating profit was €146.2m compared to €52.3m in 2015.

 

2016

2015

 

€m

€m

Clean EBITDA

 193.5

 54.1

Share based payments

 (31.1)

 (0.4)

Exceptional items

 (117.8)

 (24.5)

Depreciation and amortisation

 (136.5)

 (5.0)

Impairment of available for sale asset

 (4.2)

 (1.2)

Changes in the fair value of derivative financial instruments

 15.0

 4.8

Operating loss / (profit)

 (81.1)

 27.8

 

The share based payment charge of €31.1m comprises €25.1m for the Group's LTIP and MIP share option schemes and a €6.1m charge for share awards for employee incentive plans.

Financing charges

These comprise: interest on indebtedness (principally loans), an accounting charge for debt free amortisation, other debt administration fees and foreign exchange movements. Financial charges totalled €65.3m for the year compared to €2.3m for 2015.

 

2016

2015

 

€m

€m

Interest on Cerberus loan

 46.0

 1.2

Amortisation of loan fees and early repayment option

 19.0

 -

Finance lease interest

 0.1

 0.1

Unwinding of interest on non-interest bearing loan

 -

 0.2

Unwinding of discount on deferred consideration

 -

 0.1

Foreign exchange revaluation

 -

 0.7

Other interest

 0.2

 -

 

 65.3

 2.3

 

(Loss)/Profit Before Tax

The Group reported a loss before tax of €138.6m against a profit of €25.5m in 2015. As noted above, the loss was primarily due to the exceptional items and amortisation associated with the acquisition. Excluding exceptional items and amortisation associated with the acquisition, the Group achieved an adjusted Pre Tax Profit of €93.8m, a 102% increase against €46.4m for 2015.

 

2016

2015

 

€m

€m

(Loss)/profit before tax

 (138.6)

 25.5

Exceptional items

 117.8

 24.5

Impairment of available for sale asset

 4.2

 1.2

Changes in the fair value of derivative instruments

 (15.0)

 (4.8)

Amortisation of acquired intangibles

 109.5

 -

Dividend income

 (3.1)

 -

Amortisation of loan fees and early repayment option

 19.0

 -

Adjusted profit before tax

 93.8

 46.4

 

Taxation

The Group is currently headquartered in the Isle of Man, with key operating subsidiaries in Gibraltar (where the headline rate of corporation tax is 10%) and Malta (5%), as well as a number of jurisdictions with higher tax rates. For the year ended 31 December 2016 the tax charge/credit was €0.0m, the corporation tax charge was €11.8m and there was a deferred tax credit of €11.8m.

Earnings per share

Reported EPS for the period was a loss of 51 euro cents, compared to earnings of 40 euro cents profit for 2015, reflecting the amortisation and exceptional items associated with the acquisition, together with the increased number of shares in issue. Adjusted EPS (based on adjusted profit) was 26 euro cents compared to 73 euro cents for 2015.

 

2016

2015

 

€cent

€cent

Basic EPS

(51)

40

Basic, fully diluted EPS

(51)

38

 

 

 

Adjusted EPS

26

73

Adjusted fully diluted EPS

26

70

 

Dividends

As part of the terms of the Cerberus Loan taken out to part finance the Acquisition, the Group undertook a dividend holiday until 1 February 2017 (the first anniversary of the acquisition). In November 2016 the Group declared its intention to pay a special dividend of 10 euro cents per share. This was subsequently increased to 14.9 euro cents and settled in sterling at 12.5p and paid to shareholders on 14 February 2017.

The second special dividend declared of 15.1 euro cents per share will take the total dividend for the 2016 financial year to 30 euro cents per share.

REVIEW OF THE BALANCE SHEET

A summarised balance sheet is shown below:

 

2016

2015

 

€m

€m

Goodwill

1090.3

132.9

Intangible assets other than goodwill

519.1

22.2

Property, plant and equipment

19.7

1.4

Other non-current assets

8.6

2.6

Non-current assets

1637.7

159.1

 

 

 

Cash and cash equivalents

 354.8

 28.2

Balances with payment processors

 60.0

 21.7

Derivative financial assets

 26.2

 3.8

Assets and liabilities held for sale

 37.0

 -

Client liabilities

 (112.0)

 (14.8)

Progressive prize pools

 (22.8)

 -

Loans and borrowings

 (403.5)

 (3.0)

Net taxation payable

 (58.7)

 (3.3)

Other net current assets/(liabilities)

 (44.5)

 (41.0)

Current assets less current liabilities

 (163.5)

 (8.4)

 

 

 

Non-current liabilities

 (76.9)

 (22.6)

 

 

 

Net assets

 1,397.3

 128.1

 

Acquisition of bwin.party

The acquisition of bwin.party completed on 1 February 2016 and offer consideration was made up of  25p in cash plus 0.231 GVC shares in exchange for each bwin.party share, and accounted for at a currency rate of £1:€1.3205.

 

€m

Amount paid by GVC:

 

- value of stock issued

1,201.5

- value of cash component

278.5

- options settled post Acquisition

26.6

Value of offer

1,506.6

Assets at fair value

542.7

Goodwill recognised

963.9

 

Net debt and liquidity

 

2016

2015

 

€m

€m

Loans due <1 year

 (386.5)

 -

Loans due >1 year

 -

 (23.0)

Gross debt

 (386.5)

 (23.0)

Cash and cash equivalents

 367.0

 28.2

Less client liabilities

 (112.0)

 (14.8)

Net debt

 (131.5)

 (9.6)

Balances with payment processors

 60.0

 21.7

Net debt adjusted for payment processors

 (71.5)

 12.1

 

In October 2016, the Group secured a one year (with options to extend for an additional 6 or 12 months) €250m loan facility from Nomura International plc (the "Nomura Loan"), which was used (fully drawn down in January 2017) to repay part of the €400m loan provided by Cerberus Business Finance LLP (the "Cerberus Loan") associated with the acquisition of bwin.party digital entertainment plc. The Nomura Loan provided a short term facility at a significantly reduced overall cost from that associated with the Cerberus Loan.

In March 2017, the Group signed a €320m Senior Secured Term and Revolving Facility ("the Facility") comprising a six-year €250m term loan (the "Term Loan") and a five-year €70m revolving credit facility ("RCF"). The Term Loan was used to fully repay the Nomura Loan.

In the normal course of business the Group's long-term strategy is to maintain leverage (net debt to Clean EBITDA) below 2x.

Loan and borrowings

The year end loan balance of €403.5m comprised €386.5m of debt principal and €17.0m of fees and interest due to Cerberus.

Assets and liabilities held for sale

The group has classified its "Kalixa", its payments processing, as held for sale, the sale was announced in December 2016 for a total cash consideration of €29.0m with potential adjustments of up to €35.5m. It is expected to complete in Q3 2017. The balance sheet value comprises assets held for sale totalling €59.7m including €12.2m of cash, and liabilities held for sale of €22.7m.

Derivative financial assets

This consists of two main components, the WinUnited option (€3.7m) and the early repayment option associated with the Cerberus loan (€22.5m).

The Group entered into an agreement in 2015 with WinUnited to provide day-to-day back office operations for the WinUnited business and as part of this agreement obtained a call option to purchase the WinUnited assets. In the year the value of the option reduced from €3.8m to €3.7m.

As part of the financing agreement with Cerberus, the Group had the option of terminating the loan early by 1 February 2017. The option was initially recognised at €7.4m but during the year it became clear that the Group could re-finance at more advantageous rates. This led to the fair value of the option being increased to €22.5m. A credit has been taken to the income statement for this in the year.

Progressive prize pools

Both GVC and bwin.party have progressive prize pools on casino games. Following the acquisition GVC evaluated that a change in accounting judgement was required and recognised a charge of €7.6m as an exceptional item. The combined Group liability at the end of 2016 was €22.8m.

Deferred taxation

Deferred taxation has arisen on the intangible assets recognised on the acquisition of bwin.party. The liability recognised within non-current liabilities at 31 December was €65.6m.

 

CASHFLOW

The table below shows a simplified cashflow for the year.

 

2016

2015

 

€m

€m

Clean EBITDA

 193.5

 54.1

Capitalised software development and other intangibles

 (19.0)

 (5.0)

Property plant and equipment purchases

 (15.8)

 (1.2)

Interest paid including loan costs

 (47.6)

 (9.0)

Corporate taxes

 (7.9)

 (0.6)

Other working capital movements

 (31.9)

 6.7

Free cashflow

 71.3

 45.0

Exceptional items (cash)

 (86.4)

 (14.6)

Acquisition of bwin.party (net of cash acquired)

 (189.4)

 -

Proceeds of issued share capital net of costs

 193.8

 -

Proceeds from disposal of assets held for sale

 20.9

 -

Interest bearing loan drawdown

 380.0

 20.0

Repayment of loans

 (55.5)

 (3.2)

Dividends paid

 -

 (34.3)

Other cash movements

 4.8

 (2.4)

Net cash generated

 339.5

 10.5

Foreign exchange

 (0.7)

 (0.1)

Cash and equivalents at beginning of the year

 28.2

 17.8

Cash and cash equivalents at end of year

 367.0

 28.2

 

Cash has increased to €367.0m at 31 December 2016 from €28.2m following the acquisition of bwin.party.

To fund the acquisition the Group drew down a further €380.0m from the Cerberus loan facility and issued shares with proceeds net of costs of €193.8m. The cash cost of acquiring bwin.party was €189.4m and comprises €305.1m paid to share and option holders net of €116.2m of cash acquired.

During the year the group repaid €55.5m of loan balances. The repayments consisted of the final €3.0m instalment of the William Hill loan, a €13.5m repayment of the Cerberus loan and €39.0m of loan balances for bwin.party.

The principal items within other working capital movement relate to the settlement of 2015 employee remuneration arrangements across both GVC and bwin.party, and the settlement of trade creditors.

Paul Miles
Chief Financial Officer
23 March 2017

 

Directors' responsibility statement

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 December 2016. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

1.   The Group and Company financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and

2.   The business review, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties they face.

The Directors of GVC Holdings PLC are listed in the Group's Annual Report and Accounts for the year ended 31 December 2016. A list of current directors is maintained on the Company website www.gvc-plc.com.

Principal risks

There are a number of potential risks and uncertainties which could have a material impact on the Group's future performance. To mitigate against these risks, the Group conducts a continuous process of assessments that examine whether any risk has increased, decreased or become obsolete; identify new risks; and evaluate the likelihood of each risk occurring and the impact it would have on the Group.

Our principal risks fall into five broad categories which are set out below, along with how we seek to manage them. More detail on our approach to risk management can be found in the Audit Committee report of the Group's 2016 Annual Report:

Risk

Mitigating Factors

Technology

 

The Group's customer offer includes products operated using different labels and gaming licenses, the majority of which are now driven by the Group's proprietary technology obtained through the acquisition of bwin.party. 

 

In an industry where service reliability and integrity are key differentiating factors, our continual commitment to providing a reliable, safe, secure, compliant and continuous service has continued to be the Group's focus this year.

Subsequent to the acquisition of bwin.party, the Group initiated a significant technology platform migration which carries inherent project risk.

 

Other technology-related risks, such as our continuing operations in the event of a natural or man-made disaster, have been addressed with a substantial investment and both the Group's disaster recovery and business continuity solutions. 

 

With continuous shifts in how consumers choose and are able to access our services (via different devices and/or channels), the process of maintaining and improving our technology will become more complex.

 

In May 2016, the Internal Audit function performed a cyber security review over the key systems and interfaces that collectively form the gaming platform, over both the bwin.party and GVC infrastructures.  The resilience to cyber and denial of service threats have been carefully considered and improved upon following the recommendations arising from these reviews.

Furthermore, the Group has committed to maintain its ISO 27001 Information Security Management System certification, and is progressing with consolidating its ISO 27001 certification across the locations inherited through the bwin.party acquisition.  Part of this process involves an internal audit review from an information security perspective of all certified sites across a three year cycle, which form part of the of the internal audit annual calendar.

The technology platform migration has been executed in phases, by label and territory to minimise risk and customer impact.  The Group aims to complete the migration by [•] and subsequently decommission legacy systems.

 

 

Regulation

 

Focusing on nationally regulated and/or taxed markets safeguards our gaming revenues from potential national legislation threatening to prohibit or restrict one or more of the products that we offer, or online gaming entirely. There are potential risks for the Group from all markets where regulation is not clearly defined or adopted, especially in relation to EU law.

To manage this risk, the Group maintains a dialogue (either directly or indirectly) with national governments and regulators of to-be regulated markets.  The Group's compliance and regulatory affairs teams keep abreast of the regulatory landscape and report to the Board on any developments.  However, it should be noted that most of the risks in relation to the regulatory landscape are outside of the Group's direct control.

 

Operating in nationally regulated and/or taxed markets requires the Group to comply with the rules and protocols of the particular regimes.  Currently, the Group holds 31 licences each with their own unique regulatory requirements.  The need to sometimes develop bespoke technological, operational and promotional offers in each market requires significant investment.  The Group is committed to meeting its licence obligations and monitors its compliance with regulatory requirements by performing reviews of its licenced operations on a periodic basis, with the results reported to the Audit Committee.  The Group also submits the licenced entities to a series of external audits by regulators and industry specialists to ensure that policies and procedures are being followed as intended. 

 

Taxation

 

The Group has companies and employees spread over a number of jurisdictions which creates tax risk if actions and decisions are being made in the wrong jurisdictions by the wrong companies.  In addition, these companies contract with one another for services which are subject to scrutiny by local tax authorities.

 

The Group's strategic focus is to operate in nationally regulated and/or taxed markets.  Revenues earned from customers located in a particular jurisdiction may give rise to further taxes in that jurisdiction.  If such taxes are levied, either on the basis of existing law or the current practice of any tax authority, or by reason of a change in law or practice, then this may have a material adverse effect on the amount of tax payable by the Group.

 

On 1 January 2015, new VAT rules came into force across the EU impacting several areas of the digital economy. Gambling has typically been exempt from VAT but falls within the rules for VAT on electronically supplied services. Under EU law, Member States have the ability to apply VAT to gambling subject to certain limitations and conditions, and tax may be due depending on where customers are located and how Member States implement any exemption. Whilst substantial uncertainty remains, in light of the new rules the Group is now filing for, and paying VAT, in certain EU Member States. It is possible that VAT could be payable in other EU Member States.

Group companies operate only where they are incorporated, domiciled or registered across countries.  The multi-location set up of the Group gives rise to transfer pricing risk, mitigated by the fact that all intra-group transactions are documented and take place on an arm's length basis unless local legislation or other business conditions make an arm's length basis impossible or impractical.

 

Following the acquisition of bwin.party, the transfer pricing arrangements are in the process of being reviewed by the Group's Director of Tax, As well as holding workshops with senior management and business unit leaders, he also meets at least once a year with the Board to review tax strategy and management.

 

 

Country and currency risk

 

Whilst the continuing uncertainty in the global economic outlook inevitably increases the trading and balance sheet risks to which the Group is exposed, the diversified nature of the Group's business means that such risks are not disproportionately different from any other commercial enterprise of a similar scale and international reach. Conditions in the Eurozone remain challenging and reference has already been made in previous statements to the challenging economic backdrop in several European countries, reducing the spending power of customers particularly in Southern European countries, which the Group has attempted to reflect in its financial forecasts. The weaker European economies are also increasing the risk of currency volatility and the potential for significant currency devaluation and business disruption if one or more of these countries exit the euro currency. Accordingly, the Group's treasury processes and policies are designed with the aim of minimising the Group's exposure to the Eurozone economic risk and preserving our ability to operate if such events arise.

 

The functional currency of the Company and a majority of the Company's subsidiaries is the euro. Consequently, those GVC companies that have adopted the euro as their functional currency ensure their financial assets and liabilities in non-euro currencies are equal and that any residual balance is held in euros. With the so-called 'GIPSI' countries (Greece, Ireland, Portugal, Spain and Italy), if one or more of these countries exits the euro then the Group may be exposed to a currency devaluation of its financial assets to the extent that the financial assets located in the exiting jurisdiction exceed its financial liabilities.

 

The Internal Audit function facilitated a review of the enlarged Group's Treasury and Cash Management process in June 2016.  The Group adopted a Treasury policy, which dictates that all material transaction and currency liability exposures are hedged with financial derivatives or cash. 

 

The treasury policy also requires that wherever practical and subject to regulatory requirements, the financial assets located in each GIPSI country are limited so they do not exceed the financial liabilities associated with that jurisdiction.

 

Impact of Brexit

 

On 23 June 2016, a referendum was held to determine whether the United Kingdom remains in the European Union (EU).   In light of the decision to leave the EU, in addition to the increase in the volatility of both the global currency and financial markets, it may reduce the Group's ability to operate on an unfettered basis in certain EU markets that have tried to restrict competition in their domestic market from online gaming companies based overseas. The Group, along with other EU based online gaming operators, have previously relied on the ability to challenge such protectionist measures through the EU Court of Justice ("CJEU"). In the event that the UK, and by extension Gibraltar (being a UK protectorate), was to leave the EU, unless the Group was to re-domicile certain of its subsidiaries within the EU, it would no longer be able to rely on such protection. Such a re-domiciliation could give rise to higher taxes payable.

 

A Brexit task force has been formed, led by the Group Head of Legal, Compliance and Secretariat alongside members of senior executive management.  The purpose of the task force is to closely monitor the situation, propose various contingency plans and, subject to Board approval where appropriate, execute them as the UK navigates through the EU exit process, with minimal business interruption and customer impact. 

 

CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2016

 

 

 

 

2016

 

2015

 

 

Notes

 

€m

 

€m

 

 

 

 

 

 

 

  NGR

 

 

 

843.4

 

247.7

  EU VAT

 

 

 

(20.1)

 

(1.2)

 

 

 

 

 

 

 

Revenue

 

2

 

823.3

 

246.5

 

 

 

 

 

 

 

Cost of sales

 

 

 

(385.8)

 

(111.1)

 

 

 

 

 

 

 

Contribution

 

 

 

437.5

 

135.4

 

 

 

 

 

 

 

Administrative costs

 

3

 

(244.0)

 

(81.3)

 

 

 

 

 

 

 

Clean EBITDA *

 

 

 

193.5

 

54.1

 

 

 

 

 

 

 

Share based payments

 

3

 

(31.1)

 

(0.4)

Exceptional items

 

3

 

(117.8)

 

(24.5)

Depreciation and amortisation

 

3, 8, 9

 

(136.5)

 

(5.0)

Impairment of available for sale asset

 

10

 

(4.2)

 

(1.2)

Changes in the fair value of derivative financial instruments

 

3,12

 

15.0

 

4.8

 

 

 

 

 

 

 

Operating (loss) profit

 

 

 

(81.1)

 

27.8

Financial income

 

4

 

4.5

 

-

Financial expense

 

4

 

(65.3)

 

(2.3)

Dividend income

 

5

 

3.1

 

-

Share of profit of associates

 

 

 

0.2

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) profit before tax

 

 

 

(138.6)

 

25.5

Taxation credit (expense)

 

6

 

-

 

(0.8)

 

 

 

 

 

 

 

(Loss) profit after tax

 

 

 

(138.6)

 

24.7

 

 

 

 

 

 

 

(Loss) profit after tax attributable to:

 

 

 

 

 

 

Equity holders of the parent

 

 

 

(138.3)

 

24.7

Non-controlling interests

 

 

 

(0.3)

 

-

 

 

 

 

(138.6)

 

24.7

 

 

 

 

 

 

 

(Loss) earnings per share attributable to the ordinary equity holders of the parent:

 

 

 

€

 

€

Basic

 

7

 

(0.51)

 

0.40

 

 

 

 

 

 

 

Diluted

 

7

 

(0.51)

 

0.38
               

* Clean EBITDA is the Group's alternative non-GAAP performance measure and is considered to be a key performance measure by the Directors as it serves as an indicator of financial performance and ability to service debt. It is defined as operating profit adjusted for share based payments, exceptional items, depreciation, amortisation, impairment of available for sale assets and changes in the fair value of derivative financial instruments. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2016

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

(Loss) profit for the year

 

 

(138.6)

 

24.7

 

 

 

 

 

 

Other comprehensive expense

 

 

 

 

 

Items that will be reclassified subsequently to profit or loss:

 

 

 

 

 

Exchange differences on translation of foreign operations, net of tax

 

 

(2.3)

 

-

Total comprehensive (expense) income for the year

 

 

(140.9)

 

24.7

 

 

 

 

 

 

Total comprehensive (expense) income for the year attributable to:

 

 

 

 

 

Equity holders of the parent

 

 

(140.6)

 

24.7

Non-controlling interests

 

29

(0.3)

 

-

 

     

 

(140.9)

 

24.7

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

for the year ended 31 December 2016

 

 

 

 

2016

 

2015

 

 

Notes

 

€m

 

€m

Non-current assets

 

 

 

 

 

 

Intangible assets

 

8

 

1,609.4

 

 155.1

Property, plant and equipment

 

9

 

19.7

 

1.4

Investments and assets available for sale

 

10

 

3.7

 

2.6

Other receivables

 

11

 

4.9

 

-

Total non-current assets

 

 

 

1,637.7

 

 159.1

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Trade and other receivables

 

11

 

105.2

 

34.6

Derivative financial assets

 

12

 

26.2

 

3.8

Income and other taxes reclaimable

 

 

 

6.7

 

6.0

Short term investments

 

13

 

5.4

 

-

Cash and cash equivalents

 

14

 

354.8

 

28.2

Assets held for sale

 

15

 

59.7

 

-

Total current assets

 

 

 

558.0

 

72.6

 

 

 

 

 

 

 

Total assets

 

 

 

2,195.7

 

231.7

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

16

 

(93.9)

 

(43.3)

Derivative financial liabilities

 

 

 

-

 

(9.9)

Income taxes payable

 

 

 

(18.2)

 

(7.3)

Other taxation payable

 

18

 

(47.2)

 

(2.0)

Client liabilities

 

 

 

(112.0)

 

(14.8)

Progressive prize pools

 

 

 

(22.8)

 

-

Amounts due under finance leases

 

19

 

-

 

(0.7)

Loans and borrowings

 

17

 

(403.5)

 

(3.0)

Provisions

 

20

 

(1.2)

 

-

Liabilities held for sale

 

15

 

(22.7)

 

-

Total current liabilities

 

 

 

(721.5)

 

(81.0)

 

 

 

 

 

 

 

Current assets less current liabilities

 

 

 

(163.5)

 

(8.4)

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Trade and other payables

 

16

 

(4.4)

 

(2.1)

Derivative financial liabilities

 

12

 

-

 

(0.7)

Loans and borrowings

 

17

 

-

 

(19.8)

Provisions

 

20

 

(6.9)

 

-

Deferred tax

 

21

 

(65.6)

 

-

Total non-current liabilities

 

 

 

(76.9)

 

(22.6)

 

 

 

 

 

 

 

Total net assets

 

 

 

1,397.3

 

128.1

 

 

 

 

 

 

 

Capital and reserves

 

 

 

 

 

 

Issued share capital

 

22

 

2.9

 

0.6

Merger reserve

 

 

 

40.4

 

40.4

Share premium

 

 

 

1,478.4

 

85.4

Translation reserve

 

 

 

(2.0)

 

0.3

Retained earnings

 

 

 

(120.9)

 

1.4

Equity attributable to equity holders of the parent

 

 

 

1,398.8

 

128.1

Non-controlling interests

 

29

 

(1.5)

 

-

Total equity

 

 

 

1,397.3

 

128.1

 

The financial statements were approved and authorised for issue by the Board of Directors on 23 March 2017 and signed on their behalf by:

 

 

 

KJ Alexander

(Chief Executive Officer)

 

 

 

P Miles

(Chief Financial Officer)

 

 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2016

 

 

 

 

Share  Capital

Merger Reserve

Share

Premium

Translation Reserve

Retained Earnings

Total attributable to equity holders of parent

Non-controlling interests

 

Total

 

Notes

€m

€m

€m

€m

€m

€m

€m

€m

Balance at 1 January 2015

 

 0.6

 40.4

 85.4

0.3

22.7

 149.4

-

 149.4

 

 

 

 

 

 

 

 

 

 

Share option charges

 

-

-

-

-

0.5

0.5

-

0.5

Share options surrendered

 

-

-

-

-

(12.2)

(12.2)

-

(12.2)

Share options exercised

 

-

-

-

-

-

-

-

-

Dividend paid

 

-

-

-

-

(34.3)

(34.3)

-

(34.3)

Transactions with owners

 

-

-

-

-

(46.0)

(46.0)

-

(46.0)

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

-

-

-

-

24.7

24.7

-

24.7

Total comprehensive income for the year

 

-

-

-

-

24.7

24.7

-

24.7

Balance as at 31 December 2015

 

 0.6

 40.4

85.4

0.3

 1.4

128.1

-

128.1

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2016

 

0.6

 40.4

85.4

0.3

1.4

 128.1

-

128.1

 

 

 

 

 

 

 

 

 

 

Share option charges

24

-

-

-

-

24.0

24.0

-

24.0

Share options surrendered

24

-

-

-

-

(0.8)

(0.8)

-

(0.8)

Share options exercised

24

-

-

1.1

-

(7.2)

(6.1)

-

(6.1)

Issue of share capital for the acquisition of bwin.party

22

2.3

-

1,391.9

-

-

1,394.2

-

1,394.2

Arising from the acquisition of bwin.party

 

-

-

-

-

-

-

(1.2)

(1.2)

Transactions with owners

 

2.3

-

1,393.0

-

16.0

1,411.3

(1.2)

1,410.1

 

 

 

 

 

 

 

 

 

 

Loss for the year

 

-

-

-

-

(138.3)

(138.3)

-

(138.3)

Loss for the year attributable to non-controlling interest

 

29

-

-

-

-

-

-

 

(0.3)

(0.3)

Other comprehensive expense for the year

 

-

-

-

(2.3)

-

(2.3)

-

(2.3)

Total comprehensive expense for the year

 

-

-

-

(2.3)

(138.3)

(140.6)

(0.3)

(140.9)

Balance as at 31 December 2016

 

2.9

40.4

1,478.4

(2.0)

(120.9)

1,398.8

(1.5)

1,397.3

 

 

All reserves of the Company are distributable, as under the Isle of Man Companies Act 2006 distributions are not governed by reserves but by the Directors undertaking an assessment of the Company's solvency at the time of distribution (section 49, Companies Act Isle of Man 2006).

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2015

 

 

 

2016

 

2015

 

Notes

 

€m

 

€m

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Cash receipts from customers

 

 

806.7

 

248.2

Cash paid to suppliers and employees

 

 

(737.2)

 

(200.2)

Interest paid including loan costs and loan servicing

 

 

(47.6)

 

(9.0)

Corporate taxes paid

 

 

(7.9)

 

(0.6)

 

 

 

 

 

 

Net cash from operating activities

 

 

14.0

 

38.4

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Interest received

 

 

1.4

 

-

Dividends received

5

 

3.1

 

-

Acquisition earn-out payments

 

 

(1.6)

 

(2.4)

Acquisition of bwin.party (net of cash acquired)

 

 

(189.4)

 

-

Acquisition of property, plant and equipment

9

 

(15.8)

 

(1.2)

Proceeds from disposal of assets held for sale

15

 

20.9

 

-

Capitalised development cost and other intangibles

8

 

(19.0)

 

(5.0)

Sale of available for sale assets

10

 

1.9

 

-

Decrease in short-term investments

 

 

5.7

 

-

 

 

 

 

 

 

Net cash used in investing activities

 

 

(192.8)

 

(8.6)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from Cerberus interest bearing loan

17.1

 

380.0

 

20.0

Repayment of Cerberus interest bearing loan

17.1

 

(13.5)

 

-

Repayment of non-interest bearing loan

17.2

 

(3.0)

 

(3.2)

Proceeds from issue of share capital, net of costs

22

 

193.8

 

-

Repayment of borrowings

 

 

(39.0)

 

(1.8)

Dividend paid

23

 

-

 

(34.3)

 

 

 

 

 

 

Net cash generated (used) in financing activities

 

 

518.3

 

(19.3)

 

 

 

 

 

 

Net movement in cash and cash equivalents 

 

 

339.5

 

10.5

Exchange differences

 

 

(0.7)

 

(0.1)

Cash and cash equivalents at beginning of the year

14

 

28.2

 

17.8

Cash and cash equivalents at end of the year

14

 

367.0

 

28.2

 

The balance at the end of the period of €367.0m above consists of €354.8m cash and cash equivalents as shown on the face of the consolidated statement of financial position and €12.2m of cash and cash equivalents recognised within assets held for sale.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.         Significant accounting policies

2.         Segmental reporting

3.         Operating costs

4.         Financial income and expense

5.         Dividend income

6.         Taxation

7.         Earnings per share

8.         Intangible assets

9.         Property, plant and equipment    

10.       Investments and available for sale financial asset

11.       Receivables and prepayments

12.       Derivative financial instruments

13.       Short term investments

14.       Cash and cash equivalents

15.       Assets and liabilities classified as held for sale

16.       Trade and other payables

17.       Loans and borrowings

18.       Other taxation payable

19.       Commitments under operating and finance leases

20.       Provisions

21.       Deferred tax

22.       Share capital and reserves         

23.       Dividends

24.       Share option schemes

25.       Financial instruments and risk management

26.       Related parties

27.       Contingent liabilities

28.       Business combinations

29.       Non-controlling interests

30.       Subsequent events

 

 

1. SIGNIFICANT ACCOUNTING POLICIES

This note deals with both the significant accounting policies used in the preparation of these financial statements, together with a note identifying new accounting standards which will affect the Group. 

 

GVC Holdings PLC is a company registered in the Isle of Man and was incorporated on 5 January 2010. It is the successor company of Gaming VC Holdings S.A., a company which had been incorporated in Luxembourg, and took the assets of Gaming VC Holdings S.A. on 21 May 2010 after formal approval by shareholders. The consolidated financial statements of the Group for the year ended 31 December 2016 comprise the Company and its subsidiaries (together referred to as the 'Group').

                         

1.1 Statement of Compliance 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union.

 

The Directors have reviewed the accounting policies used by the Group and consider them to be the most appropriate. The accounting policies are consistent with the prior year with the exception of revisions and amendments to IFRS issued by the IASB, which are relevant to and effective for the annual period beginning 1 January 2016. There was no material effect on current, prior or future periods arising from the first-time application of these new requirements in respect of presentation, recognition and measurement are described more fully in note 1.25.

 

1.2 Basis of Preparation          

The financial statements, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash flows and related notes have been prepared under International Financial Reporting Standards as adopted by the European Union (IFRS) and those parts of the Isle of Man Companies Act 2006 applicable to companies reporting under IFRS.

 

The directors have assessed the financial risks facing the business, and compared this risk assessment to the net current assets position and dividend policy. The directors have also reviewed relationships with key suppliers and software providers and are satisfied that the appropriate contracts and contingency plans are in place. The directors have prepared income statement and cash flow forecasts to assess whether the Group has adequate resources for the foreseeable future and further details are disclosed in the viability statement. Although the Group is showing net current liabilities at 31 December 2016 this will reverse upon the re-financing of the Group's long-term debt which occurred subsequent to the reporting date (see note 30). The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the consolidated financial statements.

 

The financial statements are presented in Euro, rounded to the nearest €0.1 million, and are prepared on the historical cost basis with the exception of those assets and liabilities carried at fair value.  The financial statements are prepared on the going concern basis.

 

'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2, leasing transactions that are within the scope of IAS 17, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 or value in use in IAS 36.

 

The preparation of financial statements in conformity with IFRSs requires directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

 

The accounting policies have been applied consistently by Group entities.

 

1.2.1 Significant judgements

In the application of the accounting policies, which are detailed in this note, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and assumptions, which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

 

1.2.1.1 Intangible assets

For all acquisitions management has recognised separately identifiable intangible assets on the Consolidated Statement of Financial Position. These intangible assets have been valued based on expected future cash flow projections from existing customers. The calculations of the value and estimated future economic life of the assets involve, by the nature of the assets, significant judgement.

 

1.2.1.2 Impairment of Goodwill and Trademarks

Determining whether goodwill and trademarks with an indefinite useful life are impaired requires an estimation of the value-in-use of the cash-generating units. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and select a suitable discount rate in order to calculate present value. Note 8.2 provides information on the assumptions used in these consolidated financial statements.

 

The work to assess the existence of impairment indicators and, where applicable, to evaluate the impairment of goodwill and intangible assets was conducted internally by management.

 

1.2.1.3 Receivables

Management applies judgement in evaluating the recoverability of receivables including balances with payment processors. To the extent that the Board believes receivables are not recoverable they have been provided for in these consolidated financial statements.

 

1.2.1.4 Progressive Jackpots

Where a legal or constructive obligation exists, management's policy is to record a provision. In 2015, based on the history of jackpot pay outs management's judgement was that no constructive obligation existed. Following the acquisition of bwin.party management have re-assessed this judgement based on the history of the enlarged group indicating a constructive obligation exists hence a provision is required.

 

1.2.1.5 Share based payments

Accounting for share based payments requires a degree of judgement over such matters as dividend yield, timing of performance conditions being met, expected volatility and the method in which those liabilities will be settled. Further details on the assumptions made by management are disclosed in note 24.

 

1.2.1.6 Embedded derivatives

The drawn-down Cerberus loan contains embedded derivatives. The interest rate on the loan is EURIBOR, subject to a floor of 1%, plus a margin of 11.5%. Based on recent guidance issued by IFRIC, management assess this floor to be closely related to the host contract and therefore it has not been treated as an embedded derivative.

 

In addition, the loan has been repaid early (see note 30) within the first year of the loan.  The terms of the loan meant that if it was repaid in the first year, there would be an additional 'make-whole' premium payable. If it were to be repaid before the expiry date, the payment of the exit fees would be brought forward but additional fees at the 12 month and 18 month date could be avoided. These options for early repayment are considered to be non-closely related to the host contract and have been recognised separately. The options have been grouped for the purposes of evaluating the embedded derivative. They have been valued based on the projected cash flows and applying a probability weighting to the potential cash saving from lower effective interest rates.

 

1.2.1.7 Acquisition of bwin.party

The GVC Group has been identified as the acquirer of bwin.party as it is the entity financing the acquisition through equity interests and debt, paying a premium for the assets of bwin.party. In the combined entity, the Board is primarily composed of GVC management, with one director of bwin.party joining as a non-executive director, together with two other external appointments. On acquisition and post-acquisition, bwin.party does not have the ability to control the combined entity and so has been accounted as the acquired party under IFRS3 Business Combinations.

 

1.2.1.8 Assets/liabilities held for sale

Assets and liabilities held for sale are measured at the lower of carrying value and fair value less associated costs of sale. Management apply judgement in determining when assets meet the criteria to be recognised as held for sale and in evaluating the fair value less costs to sell.

 

1.2.1.9 Provisions

The recognition of provisions requires management to apply judgement in determining the likelihood of the outcome of legal proceedings as well as any other circumstances that may cause a liabilitity to fall due.

 

1.3 Basis of Consolidation

1.3.1 Subsidiaries    

The Group financial statements consolidate those of the parent company and all of its subsidiaries as of 31 December 2016. A list of principal subsidiaries is included within the parent company accounts.

 

Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.  The Group attributes total comprehensive income (or loss) of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

 

Where the company has control over an investee, it is classified as a subsidiary.  The company controls an investee if all three of the following elements are present:

·      Power over the investee

·      Exposure or rights to variable returns from the investee

·      The ability of the company to use its power to affect those variable returns.

 

Control is re-assessed whenever facts and circumstances indicate that there may be a change in any of the above elements of control.

 

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share of changes in equity since the date of the combination except where any non-controlling interests have been acquired by the Group. At this point any share of gains or losses are transferred to the Group's retained earnings. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

 

1.3.2 Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

 

The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the associate, less any impairment in the value of the investment. Losses of an associate in excess of the Group's interest in that associate are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

 

1.3.3 Investments in joint ventures

A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.

 

The Group reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group's share of the net assets of the joint venture, less any impairment in the value of the investment. Losses of a joint venture in excess of the Group's interest in that investment are not recognised. Additional losses are provided for, and a liability is recognised, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture.

 

1.3.4 Transactions eliminated on consolidation    

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.

 

1.3.5 Business Combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred.

 

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that:

 

  • Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
  • Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share Based Payments at the acquisition date; and

 

1.3  Basis of Consolidation

  • Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

 

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

 

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the "measurement period" (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

 

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates in accordance with IAS 39, as appropriate, with the corresponding gain or loss being recognised in profit or loss.

 

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the terms for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.

 

1.4 Foreign Currency

The functional currency of the Company, as well as the presentational currency of the Group, is the Euro.

 

1.4.1 Foreign Currency Transactions       

Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the Euro at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the Consolidated Income Statement within operating costs (note 3) and financial costs (note 4). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

 

Income and expense items are translated using the exchange rates at the start of the relevant month, unless exchange rates fluctuate significantly, in which case the spot rate for significant items is used.

 

Exchange differences arising due to the functional currency of operations differing from the presentational currency of the Group, if any, are recognised in other comprehensive income, classified as equity and transferred to the Group's translation reserve. Such translation differences are reclassified to profit or loss in the period in which the operation is disposed of.     

 

1.5 Property, Plant and Equipment     

1.5.1 Owned Assets 

Property, plant and equipment is stated at cost, less accumulated depreciation (see 1.5.2 below) and impairment losses (see accounting policy 1.7). Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.         

                              

1.5.2 Depreciation    

Depreciation is charged to the Income Statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows:

 

Leasehold property:    over the length of the lease

Fixtures and fittings:   years   

Plant and equipment:  3 years

 

The residual value, if significant, is reassessed annually.                          

 

1.6 Intangible Assets

1.6.1 Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

 

For the purposes of impairment testing, goodwill has been allocated to each of the Group's Cash-Generating Units ('CGU') that is expected to benefit from the synergies of the combination.

 

A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

 

On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 

1.6.2 Other Intangible Assets     

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see 1.6.4) and impairment losses (see accounting policy 1.7).

 

The cost of intangible assets acquired in a business combination is the fair value at acquisition date.  The valuation methodology used for each type of identifiable asset category is detailed below:

 

Asset category                                      Valuation methodology

Consulting and magazine                        Income (cost saving)

Software licence                                    Income (incremental value plus loss of profits)

Trademarks                                           Relief from royalty

Trade name                                           Relief from royalty

Non Contractual customer relationships   Excess earnings

 

Where, in the opinion of the Directors, the Group's expenditure in relation to development of internet activities results in future economic benefits, these costs are capitalised within software licences and amortised over the useful economic life of the asset.

 

Development costs are capitalised only when it is probable that future economic benefit will result from the project and the following criteria are met:

  • The technical feasibility of the product has been ascertained;
  • Adequate technical, financial and other resources are available to complete and sell or use the intangible asset;
  • The Group can demonstrate how the intangible asset will generate future economic benefits and the ability to use or sell the intangible asset can be demonstrated;
  • It is the intention of management to complete the intangible asset and use it or sell it; and
  • The development costs can be measured reliably.

 

1.6.3 Subsequent Expenditure   

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. This includes legal and similar expenditure incurred in registering brands and trade names, which is capitalised, all other expenditure is expensed as incurred.   

 

1.6.4 Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and trademarks with an indefinite useful life are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

 

Software licence agreements                              2-15 years

Capitalised development expenditure                   3-5 years

Trademarks and trade names                              12-15 years, or indefinite life

Non-contractual customer relationships                4 years

           

1.7 Impairment

At each reporting date, the Group assesses whether there is any indication that an asset may be impaired.  Where an indicator of impairment exists, the Group makes an estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount.  Recoverable amount is the higher of fair value less costs to sell and value in use and is determined for an individual asset.  If the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, the recoverable amount of the cash generating unit to which the asset belongs is determined.  Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation.  For goodwill and trademarks that have an indefinite useful life, the recoverable amount is estimated at each reporting date.

 

1.8 Dividends Paid to holders of share capital                        

Dividend distributions payable to equity shareholders are recognised through equity reserves on the date the dividend is paid.

 

1.9 Employee Benefits

1.9.1 Pension Costs

In some jurisdictions in which the Group has employees, there are government or private schemes into which the employing company or branch must make payments on a defined contribution basis, the contributions are shown in the profit or loss account in the year.

 

1.9.2 Share based payments

The Group has share based payment schemes which allow certain employees and contractors to acquire shares of the Company. The Group has accounted for these under IFRS2 Share Based Payments.

 

Share option schemes

The fair value of options granted under the LTIP and MIP schemes will be recognised as a share based payment expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted are measured using either a binomial or Monte Carlo valuation model. This valuation method takes into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest and market conditions if applicable.

 

Annual share bonus plan

The Group operates an annual share bonus plan and this gives the Company the option of rewarding employees and contractors in either cash or shares or a combination of both upon them achieving performance targets. The type of reward will be at the discretion of the remuneration committee, where a share award is granted the fair value of the award is recognised as a cash-settled share based payment expense in the period that the employee or contractor earned the reward, with a corresponding liability recognised in the statement of financial position.

 

Cash cancelled options

On occasion, at the Remuneration Committee's discretion, vested share options may be settled in cash, as opposed to issuing new shares. Payments made to repurchase or cancel vested awards are accounted for with the fair value of the options cancelled, measured at the date of cancellation being taken to retained earnings. Also on cancellation an accelerated charge would be recognised immediately.

 

Employers social security costs

Employers social security costs due on the cash cancellation of options and the employee gain on exercised options will be paid by the Company and shown within share based payments.

 

See note 24 for further details of the schemes.

 

1.10 Provisions

A provision is recognised when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

 

1.11 Revenue Recognition

Revenue is measured at the fair value of consideration received or receivable and comprises the following elements:

 

Casino:

net win in respect of bets placed on casino games that have concluded in the year, stated net of promotional bonuses and amounts accrued or progressive prize pools.

 

 

Sportsbook:

gains and losses in respect of bets placed on sporting events in the year, stated net of promotional bonuses. Open positions are carried at fair market value and gains and losses arising on this valuation are recognised in revenue, as well as gains and losses realised on positions that have closed.

 

 

Poker:

net win in respect of rake for poker games that have concluded in the year, stated net of promotional bonuses.

 

 

Bingo:

net win in respect of bets placed on bingo games that have concluded in the year, stated net of promotional bonuses.

 

Where promotional bonuses apply to customers playing a variety of products through the same wallet, bonuses are allocated pro-rata to the net win.  Revenue is also generated from foreign exchange commissions on customer deposits and withdrawals and account fees.

 

B2B income comprises the amounts receivable for services to other online gaming operators. Other revenue consists primarily of revenue from third-party payment services and financial markets. Revenue in respect of network service arrangements where the third-party owns the relationship with the customer is the net commission invoiced.   Income is recognised when a right to consideration has been obtained through performance and reflects contract activity during the year. 

 

1.12 Net Gaming Revenue ("NGR")

NGR is the Group's alternate revenue measure and is revenue before the deduction of VAT.

 

1.13 Clean EBITDA

Clean EBITDA is the Group's alternative performance measure and is considered to be a key performance measure by the Directors. It is defined as operating profit adjusted for share based payments, exceptional items, depreciation, amortisation, impairment of available for sale assets and changes in the fair value of derivative financial instruments.

 

1.14 Financial Expenses

Financial expenses comprise interest payable on borrowings, calculated using the effective interest rate method which discounts the expected cash flows over the life of the financial instrument, and foreign exchange differences arising on loans and finance leases.

 

1.15 Exceptional Items

Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.              

 

1.16 Financial Income

Financial income is interest income recognised in the income statement as it accrues, using the effective interest method.

 

1.17 Tax

The tax currently payable is based on taxable profit for the year.  Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. 

 

Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases, calculated using the liability method on temporary differences.  However, deferred tax is neither provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.  Deferred tax on temporary differences associated with investments in subsidiaries is not provided if reversal of these temporary differences can be controlled by the Group and it is probable that reversal will not occur in the foreseeable future.  In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.

 

Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income.  Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the reporting date.

 

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to other comprehensive income or equity in which case the related deferred tax is also charged or credited directly to other comprehensive income or equity as appropriate.

 

1.18 Segment Reporting

Following the acquisition of bwin.party the Board reviewed and confirmed the Group's reportable segments in line with the requirements of IFRS 8 'Operating Segments'. The segments disclosed below are aligned with the reports the Group's Chief Executive reviewed during the year to make strategic decisions.

 

 

Sports Labels:

bwin, Sportingbet, Gamebookers and Superbahis

Games Labels:

partypoker, partycasino, Gioco Digitale, Cashcade, CasinoClub and USA assets

B2B:

provision of the technology platforms to external customers

Total core:

The sum of sports labels, gaming labels and B2B together with non-allocated costs for technology, operations, customer service, professional fees and travel and office costs.

Non-core:

InterTrader and Kalixa

Corporate:

includes shared and corporate functions such as finance, legal and HR

 

Variable costs and costs above Clean EBITDA are either directly attributed or allocated to a segment. Costs below Clean EBITDA are not reviewed on a segment basis and accordingly the analysis by segment is from revenue to Clean EBITDA only. In addition, the Consolidated Statement of Financial Position is not reviewed on a segment basis.

 

1.19 Financial Instruments

Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instruments.  Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

 

1.19.1 Non-Derivative Financial Instruments

Non-derivative financial instruments comprise trade and other receivables including balances with payment processors, cash and cash equivalents, loans and borrowings, customer liabilities, progressive prize pools, trade and other payables and deferred consideration.  Subsequent to initial recognition, non-derivative financial instruments are measured at amortised cost using the effective interest method. Contingent consideration is measured at fair value. Provisions for impairment are made against financial assets if considered appropriate and any impairment is recognised in profit or loss.  The liability for inactive customer balances is derecognised when the obligation is extinguished with reference to player terms and conditions. Open positions on sports bets are carried within other payables.

 

1.19.2 Cash and Cash Equivalents

Cash and cash equivalents comprise cash balances and bank balances. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

 

1.19.3 Short term investments

Short term investments are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are initially recognised at fair value, plus transaction costs directly attributable to their acquisition or issue. They are subsequently carried at amortised cost using the effective interest rate method, less any provisions for impairment.           

 

1.19.4 Available for Sale Financial Assets ('AFS')

AFS financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets.

 

AFS financial assets are measured at fair value. Gains and losses are recognised in other comprehensive income and reported within the AFS reserve within equity, except for interest and dividend income, impairment losses and foreign exchange differences on monetary

assets, which are recognised in profit or loss.

 

When the asset is disposed of or is determined to be impaired, the cumulative gain or loss recognised in other comprehensive income is reclassified from the equity reserve to profit or loss. Interest calculated using the effective interest method and dividends are recognised in profit or loss within finance income.

 

For AFS equity investments impairment reversals are not recognised in profit and loss and any subsequent increase in fair value is recognised in other comprehensive income.

 

1.19.5 Assets held for sale

Non-current assets and disposal groups are classified as held for sale if the carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable, management is committed to a sale plan, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. These assets are measured at the lower of carrying value and fair value less associated costs of sale except where the assets were previously classified as available for sale, in which case they are carried at fair value.

 

1.19.6 Derivative Financial Instruments

Derivative financial instruments are accounted for at Fair Value Through Profit and Loss (FVTPL).  Any movements in fair value are taken to the consolidated income statement.

 

1.19.7 Impairment of Financial Assets

Financial assets are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

 

Objective evidence of impairment could include:

·      significant financial difficulty of the issuer or counterparty; or

·      breach of contract, such as a default or delinquency in interest or principal payments; or

·      it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or

·      the disappearance of an active market for that financial asset because of financial difficulties.

 

1.20 Equity

  • Equity comprises the following:
  • Share capital represents the nominal value of equity shares.
  • Share premium represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
  • Retained earnings represents retained profits.
  • Merger reserve arose on the re-domiciliation of the Group from Luxembourg to the Isle of Man in 2010. It consists of the pre-redomiciliation reserves of the Luxembourg company plus the difference in the issued share capital (31,135,762 share at €0.01 versus 31,135,762 shares at €1.24).
  • Translation reserve represents exchange differences on translation of foreign subsidiaries recognised in other comprehensive income.

 

1.21 Finance leases

Management applies judgment in considering the substance of a lease agreement and whether it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation to the economic life of the asset, the present value of the minimum lease payments in relation to the asset's fair value, and whether the Group obtains ownership of the asset at the end of the lease term.

 

The interest element of lease payments is charged to profit or loss, as finance costs over the period of the lease.

 

1.22 Operating leases

All other leases other than finance leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

 

1.23 Assets classified as held for sale

Non-current assets and disposal groups are classified as held for sale if the carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as being met only when the sale is highly probable, management is committed to a sale plan, the asset is available for immediate sale in its present condition and the sale is expected to be completed within one year from the date of classification. These assets are measured at the lower of carrying value and fair value less associated costs of sale except where the assets were previously classified as available for sale, in which case they are carried at fair value.

 

1.24 New and revised standards that are effective for annual periods beginning on or after 1 January 2016

1.24.1Amendments to IFRS 11 Joint Arrangements

These amendments provide guidance on the accounting for acquisitions of interests in joint operations constituting a business. The amendments require all such transactions to be accounted for using the principles on business combinations accounting in IFRS 3 'Business Combinations' and other IFRSs except where those principles conflict with IFRS 11. Acquisitions of interests in joint ventures are not impacted by this new guidance.

 

The amendments are effective for reporting periods beginning on or after 1 January 2016.  No impact arose from the adoption of these amendments to IFRS 11 on these consolidated financial statements.

 

1.25      Standards in issue, not yet effective                                                           

At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been published by the IASB that are not yet effective, and have not been adopted early by the Group. Information on those expected to be relevant to the Group's financial statements is provided below.

 

Management anticipates that all relevant pronouncements will be adopted in the Group's accounting policies for the first period beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or listed below are not expected to have a material impact on the Group's financial statements.

 

1.25.1 IFRS 9 'Financial Instruments' (2014)

The IASB has released IFRS 9 'Financial Instruments' (2014), representing the completion of its project to replace IAS 39 'Financial Instruments: Recognition and Measurement'. The new standard introduces extensive changes to IAS 39's guidance on the classification and measurement of financial assets and introduces a new 'expected credit loss' model for the impairment of financial assets together with new guidance on the application of hedge accounting.  The new standard is required to be applied for annual reporting periods beginning on or after 1 January 2018.  The Group's management are currently reviewing the various classifications of financial instruments used by the Group but do not believe that any material changes to the Group's results in future periods will arise as a result of any changes of classification.  The Group's treasury officials will consider the implications of this new standard when reviewing the hedging instruments it will utilise going forward.

 

1.25.2 IFRS 15 'Revenue from Contracts with Customers'

IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 'Revenue', IAS 11 'Construction Contracts', and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common complexities. IFRS 15 is effective for reporting periods beginning on or after 1 January 2018. The Group's management do not consider that there will be any material impact on the Group's policy of recognising revenue but will review the impact of the standard on the Group's 2017 results during that financial year.

 

1.25.3 IFRS 16 'Leases'

IFRS 16 presents new requirements for the recognition, measurement, presentation and disclosure of leases, replacing IAS 17 'Leases'.  The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases of over 12 months unless the underlying asset has a low value.  Lessors continue to classify leases as operating or finance leases, with minimal changes from IAS 17.  The new standard applies to annual reporting periods beginning on or after 1 January 2019.  The Group's management consider that the adoption of this statement will likely result in an increase in the non-current assets (representing 'right-of-use' assets) and a corresponding increase in liabilities, both current and non-current on the balance sheet of the Group to the approximate value of the assets contained within its operating lease disclosure in note 19 but will fully review the impact in the 2018 financial year.

 

2. SEGMENTAL REPORTING

Prior to the acquisition of bwin.party, management followed one business line with two operating segments, being Sports and Gaming.  Post the acquisition, and reflecting the label-focussed basis for bwin.party's segmental analysis, this approach has been revised.  There are now five operating segments, being Sports labels, Gaming labels, B2B, Non-core and Corporate. These operating segments are monitored and strategic decisions are made on the basis of overall operating results.  Although Corporate does not fulfil the definition of an operating segment per IFRS8, management have elected to separate the results of the corporate support function to aid the users of the financial statements. The segmental analysis below shows the prior year comparative on the new segmental basis of reporting in order to aid comparability.

 

Management also monitors revenue by geographic location of its customers.

 

2.1 Geographical Analysis

The Group's revenues and other income from external customers are divided into the following geographic areas

 

 

 

2016

2015

 

 

 

€m

€m

Germany

 

 

187.9

34.7

Turkey

 

 

100.3

92.9

UK

 

 

69.3

9.5

Other

 

 

465.8

109.4

Total

 

 

823.3

246.5

 

Revenues from external customers have been identified on the basis of the customer's geographical location.

 

1.4 Reporting by Segment

 

Year ended 31 December 2016

Sports

labels

Games

labels

B2B

Total

core

Non-core

Corporate

 

Total

 

€m

€m

€m

€m

€m

€m

€m

 

 

 

 

 

 

 

 

  NGR

620.7

188.3

13.3

822.3

21.1

-

843.4

  EU VAT

(13.9)

(6.2)

-

(20.1)

-

-

(20.1)

 

 

 

 

 

 

 

 

Revenue

606.8

182.1

13.3

802.2

21.1

-

823.3

Variable costs

(264.3)

(99.2)

(0.2)

(363.7)

(22.1)

-

(385.8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution

342.5

82.9

13.1

438.5

(1.0)

-

437.5

Contribution margin

55%

44%

98%

53%

(5%)

n/a

52%

Other operating  costs:

 

 

 

 

 

 

 

  Personnel expenditure

 

 

 

(104.6)

(11.4)

(20.6)

(136.6)

  Professional fees

 

 

 

(5.4)

(1.0)

(12.0)

(18.4)

  Technology costs

 

 

 

(68.0)

(1.7)

(0.3)

(70.0)

  Office, travel and other costs

 

 

 

(7.6)

(2.2)

(12.6)

(22.4)

  Foreign exchange differences

 

 

 

0.2

-

3.2

3.4

 

 

 

 

 

 

 

 

Clean EBITDA

 

 

 

253.1

(17.3)

(42.3)

193.5

 

Year ended 31 December 2015

Sports

labels

Games

labels

B2B

Total

core

Non-core

Corporate

 

Total

 

€m

€m

€m

€m

€m

€m

€m

 

 

 

 

 

 

 

 

  NGR

215.1

32.6

-

247.7

-

-

247.7

  EU VAT

(0.5)

(0.7)

-

(1.2)

-

-

(1.2)

 

 

 

 

 

 

 

 

Revenue

214.6

31.9

-

246.5

-

-

246.5

Variable costs

(101.0)

(10.1)

-

(111.1)

-

-

(111.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contribution

113.6

21.8

-

135.4

-

-

135.4

Contribution margin

53%

67%

n/a

55%

n/a

n/a

55%

Other operating  costs:

 

 

 

 

 

 

 

  Personnel expenditure

 

 

 

(34.7)

-

(13.8)

(48.5)

  Professional fees

 

 

 

(0.7)

-

(4.0)

(4.7)

  Technology costs

 

 

 

(23.6)

-

(0.1)

(23.7)

  Office, travel and other costs

 

 

 

(3.1)

-

(0.4)

(3.5)

  Foreign exchange differences

 

 

 

(0.4)

-

(0.5)

(0.9)

 

 

 

 

 

 

 

 

Clean EBITDA

 

 

 

72.9

-

(18.8)

54.1

Management do not review the performance of each segment below the level of Clean EBITDA.

 

3.   OPERATING COSTS

 

 

 

2016

2015

 

Notes

€m

€m

Wages and salaries, including Directors

 

105.9

40.5

Staff costs capitalised in respect of intangible asset additions

 

(10.7)

-

Outsourced consultants

 

21.8

3.3

Compulsory social security contributions

 

12.1

2.3

Pension contributions

 

0.9

0.7

Health and other benefits

 

4.4

0.9

Recruitment and training

 

2.3

0.8

Personnel expenditure (excluding share based payment charges)

 

136.7

48.5

 

 

 

 

Professional fees

 

18.4

4.7

Technology costs

 

70.1

23.7

Office, travel and other costs

 

22.1

3.4

Foreign exchange differences on operating activity

 

(3.3)

1.0

Administrative costs

 

244.0

81.3

 

 

 

 

Equity settled share based payments charges

24

24.0

0.5

Cash settled share based payments charges (credits)

24

7.1

(0.1)

Exceptional items

3.2

117.8

24.5

Impairment of available for sale asset

10

4.2

1.2

Movement in the fair value of derivative financial instruments

 

(15.0)

(4.8)

Depreciation

9

20.0

0.8

Amortisation

8

116.5

4.2

Total operating costs

 

518.6

107.6

 

3.1 Employees

The average monthly number of persons (including Directors) employed by the Group during the year was:

 

 

 

 

 

2016

 

2015

Average number of employees

 

 

 

 

 

 

With employment contracts or service contracts

 

 

 

2,211

 

527

Contractors

 

 

 

471

 

49

 

 

 

 

2,682

 

576

 

3.2        Exceptional items

 

 

 

2016

2015

 

 

€m

€m

Professional fees

 

18.8

13.5

Currency option, including fair value adjustment (see note 3.2.1)

 

10.8

9.5

Bonuses and share options (see note 3.2.2)

 

21.9

-

Acquisition costs

 

51.5

23.0

 

 

 

 

Premium listing application costs

 

4.4

-

Romanian back taxes and license fees

 

-

1.2

Reorganisation costs

 

14.4

-

Contract termination costs

 

11.7

-

Accelerated depreciation

 

12.5

-

Progressive jackpots

 

7.6

-

Release of contingent consideration

 

8.1

-

Foreign exchange on deposit

 

16.4

-

Profit on disposal of joint venture and available for sale investment

 

(11.7)

-

Other

 

2.9

0.3

Total exceptional items

 

117.8

24.5

 

3.2.1 Currency option

A currency option was taken out in 2015, in order to meet the cash confirmation requirements of the offer for bwin.party. Under the terms of the contract, the Group would sell €365.0 million and buy £260.7 million. Hedge accounting was not applied. The derivative, recognised as a current liability, was valued at 31 December 2015 at €9.9 million. The option was exercised on 2 February 2016. The movement in exchange rate between 31 December 2015 and 2 February 2016 created an additional fair value loss of €0.9m. The combined cost of the instrument of €10.8 million (being its fair value on the date of extinguishment) has been recognised as an exceptional item above, as this is related to the financing of the acquisition.

 

At 31 December 2016 there were no other forward exchange contracts taken out in the ordinary course of business. The cost of forward exchange options during the year is included within administrative costs and not treated as an exceptional cost.

 

3.2.2 Transaction bonuses and share options

 

 

 

2016

 

2015

 

 

 

€m

 

€m

2014 share option plan rolled into share placing *

 

 

18.4

 

-

Transaction bonuses rolled into share placing **

 

 

3.0

 

-

Other transaction bonuses

 

 

0.5

 

-

 

 

 

21.9

 

-

* Includes employer's National Insurance. See pages 322-325 of the prospectus.

** Includes employer's National Insurance. See page 349 of the prospectus.

 

3.3 Auditors' remuneration

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Group Auditors' remuneration

 

 

 

 

 

Audit services

 

 

0.7

 

0.5

Non-audit services

 

 

1.2

 

2.2

 

 

 

1.9

 

2.7

 

Non-audit services  include services relating to corporate finance transactions in respect of the bwin.party acquisition and step up to premium listing of €1,016,139, audit related assurance services of €95,493, taxation compliance services of €26,760, taxation advisory services of €21,425 and other non-audit services of €2,549.

 

Fees payable to other accounting firms

 

 

 

 

 

Audit services

 

 

1.5

 

-

Non-audit services

 

 

0.5

 

-

 

 

 

2.0

 

-

  

4. FINANCIAL INCOME AND EXPENSE

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Financial income

 

 

 

 

 

  Interest income

 

 

2.9

 

-

  Unwinding of discount on contingent consideration

 

 

0.5

 

-

  Other income

 

 

1.1

 

-

 

 

 

4.5

 

-

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Financial expense

 

 

 

 

 

  Unwinding of discount on non-interest bearing loan

 

 

-

 

0.2

  Finance lease interest

 

 

0.1

 

0.1

  Unwinding of discount on deferred consideration

 

 

-

 

0.1

  Foreign exchange revaluation

 

 

-

 

0.7

  Interest on Cerberus loan (see note 17.1)

 

 

46.0

 

1.2

  Amortisation of loan fees

 

 

23.3

 

-

  Unwinding of early repayment option

 

 

(4.3)

 

-

  Other interest

 

 

0.2

 

-

 

 

 

65.3

 

2.3

 

5. DIVIDEND INCOME

Dividends were received in the period from the Aldorino Trust in respect of the investment in Betbull.

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Dividend income

 

 

3.1

 

-

 

 

6. TAXATION

6.1 Analysis of tax charge       

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Current tax expense

 

 

 

 

 

  Current year

 

 

12.5

 

0.7

  Prior year

 

 

(0.7)

 

0.1

Current tax expense

 

 

11.8

 

0.8

Deferred tax credit

 

 

(11.8)

 

-

Tax (credit) expense

 

 

-

 

0.8

 

The effective tax rate for the year based on the associated tax expense is 0.0% (2015: tax rate of 3.1%).

 

The total (credit) expense for the year can be reconciled to accounting (loss) profit as follows:

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

(Loss) profit before tax

 

 

(138.6)

 

25.5

  Income tax using the UK corporation tax rate

 

 

(27.7)

 

5.2

  Effect of tax rates in foreign jurisdictions (rates decreased)

 

 

0.7

 

(4.8)

  Expenses / (income) not deductible for tax purposes

 

 

16.6

 

0.8

  Utilisation of tax losses not previously provided

 

 

(1.0)

 

(0.2)

  Group relief

 

 

(2.5)

 

-

  Tax losses for which no deferred tax assets have been recognised

 

 

15.2

 

0.6

  Capital allowances for the period in excess of depreciation

 

 

(0.6)

 

(0.9)

  Adjustments in respect of prior years

 

 

(0.7)

 

0.1

 

 

 

-

 

0.8

 

The expenses not allowed for tax purposes are primarily share-based payments, depreciation, amortisation and impairment of assets. The effect of non-taxable income primarily represents the release of the acquisition fair value tax liability and dividend income.

 

6.2 Factors affecting the tax charge for the year

The Group's policy is to manage, control and operate Group companies only in the countries in which they are registered. At the year end there were Group companies or branches registered in 30 countries. However, the rules and practice governing the taxation of eCommerce activity are evolving in many countries. It is possible that the amount of tax that will eventually become payable may differ from the amount provided in the financial statements.

 

6.3 Factors that may affect future tax charges

As the Group is involved in worldwide operations, future tax charges will be affected by the levels and mix of profitability in different jurisdictions. Future tax charges will be reduced by a deferred tax credit in respect of amortisation of certain acquired intangibles.

 

7. EARNINGS PER SHARE

7.1 Basic Earnings Per Share and Adjusted Earnings Per Share

Basic earnings per share has been calculated by taking the profit attributable to ordinary shareholders and dividing by the weighted average number of shares in issue.

 

 

2016

2015

(Loss) profit for the year attributable to ordinary shareholders (€m)

 

(138.3)

24.7

Weighted average number of shares (millions)

 

271.8

61.3

Basic (loss) earnings per share (€)

 

(0.51)

0.40

 

The performance measure of earnings per share used internally by management to manage the operations of the business and remove the impact of one-off and certain non-cash items is adjusted earnings per share. Management believes that this better reflects the underlying performance.

 

Adjusted earnings per share has been calculated by taking the (loss) profit before tax and adding back the following items in the year and dividing by the weighted average number of shares in issue.

 

 

2016

2015

(Loss) profit before tax attributable to ordinary shareholders (€m)

 

(138.3)

25.5

  Exceptional items

 

117.8

24.5

  Impairment of available for sale asset

 

4.2

1.2

  Changes in the fair value of derivative financial instruments

 

(15.0)

(4.8)

  Dividend income

 

(3.1)

-

  Amortisation on acquired intangible assets

 

109.5

2.8

   - Effect of tax thereon

 

(14.3)

-

  Amortisation of early repayment option on loan

 

(4.3)

-

  Amortisation of loan fees

 

23.4

-

  Taxation

 

(8.2)

-

Adjusted earnings

 

71.7

44.9

Weighted average number of shares (millions)

 

271.8

61.3

Adjusted earnings per share (€)

 

0.26

0.73

 

7.2 Diluted Earnings Per Share and Adjusted Earnings Per Share

Diluted earnings per share has been calculated by taking the profit attributable to ordinary shareholders and dividing by the weighted average number of shares in issue as diluted by share options.

 

Adjusted diluted earnings per share has been calculated by taking the adjusted earnings as above and dividing by the weighted average number of shares in issue, as diluted by share options.

 

 

 

2016

2015

(Loss) profit for the year attributable to ordinary shareholders (€m)

 

(138.3)

24.7

Weighted average number of shares (millions)

 

271.8

61.3

Effect of dilutive share options (millions)

 

7.5

3.1

Weighted average number of dilutive shares (millions)

 

279.3

64.4

Diluted earnings per share* (€)

 

(0.51)

0.38

Adjusted earnings (€m)

 

71.7

44.9

Adjusted diluted earnings per share* (€)

 

0.26

0.70

*A diluted EPS calculation may not increase a basic EPS calculation when the basic EPS is a loss.

 

Share options that could potentially dilute basic earnings per share but were not included because they are antidilutive for the year ending 31 December 2016 amounted to nil effective shares (2015: nil).

 

8. INTANGIBLE ASSETS

 

Software Licences

Goodwill

Trade-marks & Trade Name

Consulting & Magazine

Non-contractual Customer Relationships

Total

 

€m

€m

€m

€m

€m

€m

Cost

 

 

 

 

 

 

At 1 January 2015

 27.5

 166.2

 17.0

 4.9

 2.4

218.0

Additions

5.0

-

-

-

-

5.0

At 31 December 2015

32.5

166.2

17.0

4.9

2.4

223.0

Additions

19.0

-

-

-

-

19.0

Acquisition of subsidiaries

224.0

963.9

176.0

-

208.0

1,571.9

Reclassified as held for sale

(2.0)

(6.5)

-

-

(12.0)

(20.5)

Foreign exchange

(0.2)

-

-

-

-

(0.2)

At 31 December 2016

273.3

1,123.6

193.0

4.9

198.4

1,793.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortisation and Impairment

 

 

 

 

 

 

At 1 January 2015

21.9

 33.3

 1.3

 4.9

 2.3

 63.7

Amortisation

3.9

-

0.2

-

0.1

4.2

At 31 December 2015

25.8

33.3

1.5

4.9

2.4

67.9

Amortisation

62.1

-

13.6

-

40.8

116.5

Reclassified as held for sale

(0.1)

-

-

-

(0.5)

(0.6)

At 31 December 2016

87.8

33.3

15.1

4.9

42.7

183.8

 

 

 

 

 

 

 

Net Book Value

 

 

 

 

 

 

At 31 December 2015

6.7

132.9

15.5

-

-

155.1

At 31 December 2016

185.5

1,090.3

177.9

-

155.7

1,609.4

 

Certain intangible assets are deemed to have an indefinite useful life as there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.  The carrying amounts of such assets at 31 December 2016 was as follows:

 

 

 

 

 

2016

2015

 

 

 

 

€m

€m

Trademarks & Trade Names (related to CasinoClub)

 

 

 

15.1

 15.1

 

8.1 Amortisation 

The amortisation for the year is recognised in the following line items in the income statement. 

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Net operating expenses

 

 

116.5

 

4.2

 

8.2 Impairment Tests for Cash-Generating Units Containing Goodwill and Trademarks

An Impairment Review of the Group's goodwill was carried out for the year ended 31 December 2016. The goodwill relates to the Group's acquisitions of bwin, Betboo, CasinoClub and Sportingbet.  The carrying values of the assets were compared with the recoverable amounts, the recoverable amount was estimated based upon a value in use calculation, based upon management forecasts for the years ending 31 December 2017 and up to 31 December 2021. The assumptions detailed below have been determined based on past experience in this market which the Group's management believes is the best available input for forecasting this market.

 

Goodwill can be broken down into the following:

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

bwin

 

 

957.4

 

-

Betboo

 

 

8.3

 

8.3

CasinoClub

 

 

40.4

 

40.4

Sportingbet

 

 

84.2

 

84.2

Total Goodwill

 

 

1,090.3

 

132.9

 

bwin

The allocation of the bwin goodwill includes various CGUs, split along the Group's reporting segment and includes changes to the CGUs presented in the 2016 interim financial statements following a final review by management of the assumptions underlying the determination and allocation of goodwill and intangibles.  The carrying value of these, together with the assumptions used within those individual CGUs are shown in the tables below. 

 

The discount rates used have been considered based on the risks involved in each of the underlying business units and terminal growth rates reflect the expected growth in underlying EBITDA expected from these units.  These CGUs have been considered for impairment and sensitivities have been calculated around the terminal growth rates and discount factors used together with specific scenarios including the loss of revenue where those revenues might be considered to be at risk.  No indicators of impairment have arisen as a result as the impact of all sensitivities were judged to be within tolerable levels.

 

 

Goodwill in CGU

 

Discount rate

 

Terminal growth rates

 

€m

 

%

 

%

Sports labels

849.1

 

9.0%

 

2.0%

Games labels

108.3

 

11.8%

 

2.0%

Intertrader

-

 

16.8%

 

2.0%

Total Goodwill

957.4

 

 

 

 

 

The goodwill of €6.5m relating to the Kalixa business acquired as part of the bwin acquisition was transferred to assets held for sale as at 31 March 2016 and its value has been considered as part of the fair value of that disposal group (see note 15).

 

Betboo

A terminal growth rate of 2% was included to reflect the likely competitive pressures on this brand. A discount rate of 35% was used, based on the internal rate of return of the Betboo acquisition. It was concluded that the carrying value of the goodwill and other intangibles was not impaired.

 

CasinoClub

A terminal growth rate of 2% was used to reflect the increasing competitive pressures from large online gaming companies. A discount rate of 11.8% was used, based on risk profile. It was concluded that the carrying value of the goodwill and other intangibles was not impaired.

 

Sportingbet

A terminal growth rate of 2% was used to reflect the increasing competitive pressures from large online gaming companies. A discount rate range of 20% - 35% was applied to each of the underlying brands, based on the risk profile of those brands. It was concluded that the carrying value of the goodwill and other intangibles was not impaired.

 

Management has considered the sensitivities around its key assumptions used in the review of the carrying values of goodwill and other intangibles with an indefinite useful life.  These sensitivities have considered the terminal growth rates and discount rates together with specific scenarios around the loss of revenue from where those revenues might be considered to be at risk.

 

9. PROPERTY, PLANT AND EQUIPMENT

 

Land and buildings

Plant and Equipment

Fixtures and Fittings

Total

 

€m

€m

€m

€m

Cost

 

 

 

 

At 1 January 2015

-

 2.3

 1.4

 3.7

Additions

-

1.1

0.1

1.2

At 31 December 2015

-

3.4

1.5

4.9

Additions

0.1

0.4

15.3

15.8

Acquisition of subsidiaries

4.9

-

39.6

44.5

Disposals

(0.1)

-

(1.3)

(1.4)

Exchange movements

(0.2)

0.2

(0.9)

(0.9)

Reclassified as assets held for sale

-

-

(2.5)

(2.5)

At 31 December 2016

4.7

4.0

51.7

60.4

 

 

 

 

 

Depreciation

 

 

 

 

At 1 January 2015

-

1.5

1.1

2.6

Depreciation charge for the year

-

0.7

0.1

0.8

At 31 December 2015

-

2.2

1.2

3.4

Depreciation charge for the year

1.0

0.7

18.3

20.0

Disposals

-

-

(0.5)

(0.5)

Accelerated depreciation

-

-

18.1

18.1

Exchange movements

-

-

(0.1)

(0.1)

Reclassified as assets held for sale

-

-

(0.2)

(0.2)

At 31 December 2016

1.0

2.9

36.8

40.7

 

 

 

 

 

 

Net Book Value

 

 

 

 

At 31 December 2015

-

1.2

0.2

1.4

At 31 December 2016

3.7

1.1

14.9

19.7

 

The net book value of items held under finance leases was €nil at 31 December 2016 (31 December 2015: €0.5 million).

 

Accelerated depreciation of €18.1m has been charged in respect of certain software licences which were renegotiated following the bwin.party acquisition. An associated payable of €5.6m was also released to the income statement following this renegotiation.

 

9.1 Capital commitments

The Group has capital commitments contracted but not provided for at 31 December 2016 of €1.4 million (31 December 2015: €nil).

 

10. INVESTMENTS AND AVAILABLE FOR SALE (AFS) FINANCIAL ASSETS

 

Available-for-sale financial assets

Associates

 

Total

 

 

 €m

€m

€m

At 1 January 2015

3.8

-

3.8

Impairment

(1.2)

-

(1.2)

At 31 December 2015

2.6

-

2.6

Acquisition through business combination

3.5

1.0

4.5

Additions

2.2

-

2.2

Share of profit

-

0.1

0.1

Impairments

(4.2)

-

(4.2)

Disposals

(1.5)

-

(1.5)

At 31 December 2016

2.6

1.1

3.7

 

 

 

 
           

 

10.1 Available For Sale assets (AFS)

On 14 May 2014, the Group acquired a 15% stake in Betit Holdings Limited ('BHL') from Betit Securities Limited ('BSL').  The consideration was for €3.5 million, which was attributed to both the available for sale asset (€5.2m) and the option liability (€1.7m) taken on at acquisition. The asset held for sale consideration, together with professional fees incurred at the time, amounted to a total upfront cost of €5.4m which was impaired at 31 December 2015 to €2.6m. This asset was impaired by €0.7m prior to being sold during the year.  

 

The value of bwin.party's available for sale assets on acquisition was €3.5m.  The value of these has decreased by €3.1m during the period, principally as a result of the dividend declared by the Aldorino Trust of €3.1m which resulted in the full impairment of this investment.  Also as part of the bwin.party acquisition assets held for sale of €2.2m were recategorised as AFS after the acquisition date.

 

10.2 Associates

The value of bwin.party's associates on acquisition was €1.0m.  The value of this investment had increased by €0.1m by 31 December 2016 based on the share of underlying profit in the associate.  The Group holds 50% of the voting rights in relation to this entity and amounts related to this entity as at 31 December 2016 are presented in the table below:

 

 

 

 

 

 

€m

Non-current assets

 

 

 

 

0.1

Current assets

 

 

 

 

2.2

Current liabilities

 

 

 

 

0.5

Revenues

 

 

 

 

2.6

Profit

 

 

 

 

0.4

 

11. RECEIVABLES AND PREPAYMENTS

 

 

 

2016

 

2015

 

 

€m

 

€m

Balances with payment processors

 

 

60.0

 

21.7

Trade receivables

 

 

-

 

0.1

Other receivables

 

27.6

 

1.3

Loans and receivables

 

 

87.6

 

23.1

Prepayments

 

 

16.7

 

11.5

Deferred consideration

 

0.9

 

-

Current assets

 

105.2

 

34.6

 

 

 

 

 

 

Contingent consideration

 

 

4.0

 

-

Deferred consideration

 

0.9

 

-

Non current assets

 

 

4.9

 

-

 

Payment processor balances are funds held by third party collection agencies subject to collection after one month, or balances used to make refunds to players.

 

Prepayments include payments as at 31 December 2016 for goods or services which will be consumed after 1 January 2017.

 

Contingent consideration relates to amounts receivable for the sale of domain names following the acquisition of bwin and is measured at fair value.  The non-discounted book values for these amounts are €6.0m (2015: €nil) due later than one year but not later than five years. 

 

Deferred consideration relates to amounts receivable for the sale of Conspo which was previously classified as held for sale. The non-discounted book values for these amounts are €0.9m (2015: €nil) due within one year and €1.0m (2015: €nil) due later than one year but not later than five years.

 

12. DERIVATIVE FINANCIAL INSTRUMENTS

 

 

Winunited option

Early

repayment option

Betit

option

Total

 

€m

€m

€m

€m

Balance at 1 January 2015

-

-

(1.7)

(1.7)

  Movement in fair value

3.8

-

1.0

4.8

Balance at 31 December 2015

3.8

-

(0.7)

3.1

  Recognised on loan drawdown

-

7.4

-

7.4

  Disposal in the year

-

-

0.7

0.7

  Change in fair value of early repayment option

(0.1)

15.1

-

15.0

Balance at 31 December 2016

3.7

22.5

-

26.2

 

12.1 Winunited option

On 24 March 2015, GVC contracted with Winunited Limited for the day-to-day back office operations of the Winunited business, licensed in Malta.  Under the terms of the agreement, GVC obtained a call option to purchase the Winunited assets comprising goodwill, customers, licenses, brands and websites.  The exercise period for the option is in the three months prior to the five year anniversary of 24 March 2015.  No consideration was paid for the call option.

 

At 31 December 2016 the option was valued using a Monte Carlo valuation model and two methodologies: a discounted cash flow and a multiples based calculation.  A long-term growth rate of 2% (2015: 2%) was assumed, and a discount rate of 13% (2015: 15%) based on industry peers and observable inputs.  Based on this model, the value of the call option at 31 December 2016 was €3.7m (2015: €3.8m).  This decrease in the fair value of the option has been recognised in the income statement in accordance with IAS 39.

 

12.2 Cerberus loan early repayment option

On 2 February 2016 a further €380 million was drawn down under the Cerberus loan facility. The facility has a repayment date of 4 September 2017 but has been repaid earlier (see note 30). Early repayment will change the profile and size of the cash payments and this feature has been identified as an embedded derivative therefore separated from the host contract. Changes in the Group's credit rating will have an impact on the value of the option for early repayment. The option has been valued by a third party valuation specialist based on the contracted cash flows under the terms of the facility and  measuring the cost saving opportunities resulting from an early repayment and obtaining of new financing at a lower rate. Given the refinance agreement disclosed in note 30, there is considered to be minimal sensitivity of the inputs to the valuation. The value of the early repayment at 31 December 2016 was €22.5 million.

 

12.3 Betit option

On 14 May 2014, the Group acquired a 15% stake in Betit Holdings Limited ('BHL'). The Group had a call option to acquire the balance of the outstanding shares which could be exercised no earlier than 1 July 2017 and no later than 30 September 2017, and would be subject to further Maltese Gaming Authority clearance and the Stock Exchange Rules. The minimum call option price was €70 million, and the actual price would be determined by the mix of revenues between regulated and nonregulated markets and certain multiples attaching thereto.

 

In the year the Group disposed of its investment in BHL and its call option was also disposed of as part of this arrangement. The net loss on disposal of the investment and the option has been included within changes in value of available for sale assets.

 

13. SHORT TERM INVESTMENTS

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Restricted cash

 

 

5.4

 

-

 

 

 

5.4

 

-

Short term investments represent cash held as guarantees for regulated markets' licences. These funds cannot be freely accessed by the Group and so are not treated as cash or cash equivalents.

 

14.  CASH AND CASH EQUIVALENTS

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Total cash in hand and current accounts

 

 

367.0

 

28.2

Cash held within assets held for sale

 

 

(12.2)

 

-

Cash in hand and current accounts

 

 

354.8

 

28.2

 

15. ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE

The Group has classified its Kalixa business as held for sale.  This business, a fully integrated digital payments company, was transferred to held for sale as at 31 March 2016 after its acquisition as part of the bwin.party group.  Certain of the assets of the Kalixa business relating to a beneficial shareholding in Visa Europe were realised in the year on the sale of that business to Visa Inc.  Management have agreed a sale of the majority of the remaining operating Kalixa business and believe a disposal in the first quarter of 2017 will be achieved.  The remainder of the business is also being actively pursued for a disposal during 2017. 

 

During the year the Group disposed of its joint venture investment in Conspo which has also previously been classified as held for sale.  Proceeds of €16.4m including deferred consideration of €1.9m gave rise to a profit on disposal of €12.4m after professional costs.  All remaining assets and liabilities held for sale relate to the Kalixa business.

 

The movements in assets and liabilities held for sale are disclosed in the table below:  

 

 

Assets

held-for-sale

Liabilities

held-for-sale

Total

 

€m

€m

€m

 

 

 

 

 

 

 

 

As at 31 December 2015

-

-

-

Acquired in business combination

12.3

-

12.3

Reclassified as held-for-sale

55.7

(22.9)

32.8

Trading, working capital and revaluation movements

4.0

0.2

4.2

Disposal of Visa shares

(8.4)

-

(8.4)

Disposal of Conspo

(3.9)

-

(3.9)

As at 31 December 2016

59.7

(22.7)

37.0

 

 

 

 

 
               

 

16. TRADE AND OTHER PAYABLES

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Other trade payables

 

 

40.4

 

12.8

Accruals

 

 

46.4

 

19.2

Deferred consideration (note 16.1)

 

 

-

 

1.6

Share option liability

 

 

7.1

 

9.7

Current liabilities

 

 

93.9

 

43.3

 

 

 

 

 

 

Share option liability

 

 

-

 

2.1

Contingent consideration (note 16.2)

 

 

4.4

 

-

Non-current liabilities

 

 

4.4

 

2.1

 

16.1 Deferred consideration

Deferred consideration relates to amounts payable for the Group's 2009 acquisition of Betboo. The non-discounted book values of these amount to €nil (2015: €1.6m) due within one year.

 

16.2 Contingent consideration

Contingent consideration relates to amounts payable for previous acquisitions by bwin.party and is measured at fair value.  The non-discounted book values of these amount to €5.8m due after more than one year.

 

17. LOANS AND BORROWINGS

17.1  Interest bearing loan

On 4 September 2015, the Group entered into an agreement with Cerberus Business Finance LLC for a loan of up to €400m, in order to part-fund the acquisition of bwin.party.  Under the terms of the loan, a 'Hedging Loan' of up to €20m could be drawn down in advance of the acquisition, in order to fund a hedging arrangement for the conversion of the loan funds into GBP and to pay for initial costs including loan arrangement fees.  Accordingly, €20m was drawn down immediately on entering into the contract.  The balance of €380m was drawn down on 1 February 2016.  This loan was repaid in January 2017 and an alternate bridge financing facility of €250m provided by Nomura International plc was drawn down.  This loan itself was then replaced with a long term institutional loan in March 2017 (see note 30).

 

The acquisition of bwin.party included an institutional loan of €39.4m due to Royal Bank of Scotland Plc.  This loan was repaid after the acquisition date in February 2016.

 

 

 

Principal

Interest

and fees

Early

Repayment

option

Total

 

€m

€m

€m

€m

Loan balance at 1 January 2015

-

-

-

-

  Initial drawdown

20.0

-

-

20.0

  Initial costs and loan servicing fees paid

-

(0.8)

-

(0.8)

  Interest instalments

-

(0.6)

-

(0.6)

  Effective interest (note 4)

-

1.2

-

1.2

Loan balance at 31 December 2015

20.0

(0.2)

-

19.8

  Loan drawdown

380.0

-

-

380.0

  Arising on business combinations

39.4

-

-

39.4

  Revaluation of loan balances

(0.4)

-

-

(0.4)

  Loan repayment

(52.5)

-

-

(52.5)

  Arrangement fees and loan services fees paid in the prior year

-

(7.6)

-

(7.6)

  Arrangement fees and loan services fees paid in the current year

 

(7.9)

-

(7.9)

  Fair value of embedded derivatives

-

-

7.4

7.4

  Interest charged

-

46.0

-

46.0

  Interest instalments paid

-

(39.7)

-

(39.7)

  Amortisation of loan fees

-

23.3

-

23.3

  Unwinding of early repayment option

-

-

(4.3)

(4.3)

Loan balance at 31 December 2016

386.5

13.9

3.1

403.5

 

 

 

 

 

Split between the following as at 31 December 2015:

 

 

 

 

  Current liabilities

 

 

 

-

  Non-current liabilities

 

 

 

19.8

Split between the following as at 31 December 2016:

 

 

 

 

  Current liabilities

 

 

 

403.5

  Non-current liabilities

 

 

 

-

 

17.2 Non-interest bearing loan

As part of the Group's acquisition of Sportingbet PLC, a credit facility was made available to the Group by William Hill PLC.  This loan was fully repaid in February 2016 (31 December 2015: balance of €3.0m).

 

18. OTHER TAXATION PAYABLE

 

 

 

2016

 

2015

 

 

 

€m

 

€m

Betting taxes

 

 

42.1

 

1.2

VAT payable

 

 

4.3

 

-

Other taxes

 

 

0.8

 

0.8

 

 

 

47.2

 

2.0

 

 

19.        COMMITMENTS UNDER OPERATING AND FINANCE LEASES

19.1      Finance Leases

All finance leases were repaid in 2016 and the Group had no finance leases outstanding as at 31 December:

 

 

 

 

 

 

Within 1 year

1 to 5 years

Total

31 December 2016

 

 

 

 

€m

€m

€m

Lease payments

 

 

 

 

-

-

-

Finance charges

 

 

 

 

-

-

-

Net present values

 

 

 

 

-

-

-

 

 

 

 

 

 

Within 1 year

1 to 5 years

Total

31 December 2015

 

 

 

 

€m

€m

€m

Lease payments

 

 

 

 

0.7

-

0.7

Finance charges

 

 

 

 

-

-

-

Net present values

 

 

 

 

0.7

-

0.7

 

 

19.2 Operating Leases

The Group leases various offices under non-cancellable operating leases. The leases have varying terms, escalation clauses and renewal rights. The future minimum lease payments under non-cancellable leases are as follows:

 

 

 

 

2016

 

2015

 

 

 

€m

 

€m

No later than one year

 

 

5.9

 

1.2

Later than one year and no later than five years

 

 

16.5

 

0.6

More than five years

 

 

4.3

 

-

 

 

 

26.7

 

1.8

 

 

20. PROVISIONS

Provisions relate to onerous contracts and leases, where the future economic benefits are less than the costs to be incurred, and legal provisions recognised at fair value as part of the business combination. Further details on the largest legal provision are set out below in note 20.1.

 

 

 

Provisions for litigation

Other

provisions

Total

 

Current

 

€m

€m

€m

At 31 December 2015

 

-

-

-

Acquired through business combination

 

-

7.7

7.7

Utilised during the year

 

-

(7.1)

(7.1)

Transfer from non-current to current

 

-

0.6

0.6

At 31 December 2016

 

-

1.2

1.2

 

 

 

 

 

Non-current

 

 

 

 

At 31 December 2015

 

-

-

-

Acquired through business combination

 

3.7

3.8

7.5

Utilised during the year

 

-

-

-

Transfer from non-current to current

 

-

(0.6)

(0.6)

At 31 December 2016

 

3.7

3.4

6.9

 

 

 

 

 
               

 

20.1 Provisions for litigation

On 16 October 2014, the Portuguese Supreme Court confirmed a ruling of the Oporto Court of First Instance of September 2011 against Liga Portuguesa de Futebol Profissional ('Liga') and certain bwin.party entities. In June 2012, APC initiated enforcement proceedings against the Liga and bwin.party, requesting the payment of pecuniary sanctions in the total amount of €6.4 million for the alleged violation of the first instance court judgment during the period between 24 September 2011 and 31 January 2012. The Liga and bwin.party remain firmly of the view that such enforcement action is without merit. The legal process is still ongoing.

 

Due to the inherent uncertainty in legal proceedings, on acquisition of bwin.party in February 2016 the Group recognised a fair value provision for the legal case of €3.2 million on a fair value basis together with a further provision of €0.5m for other unrelated legal cases.

 

20.2 Other provisions

Other provisions include other uncertainties around potential infrastructure, marketing or taxation costs where the Directors feel that there is a material but uncertain risk of outflows to the business.  These have been measured based on the estimated probability of such outflows occurring in the near future.

 

 

21. DEFERRED TAX

 

 

 

Total

 

 

 

€m

 

 

 

 

 

 

 

 

As at 31 December 2015

 

 

-

Acquired in business combination

 

 

(79.6)

Deferred tax credit

 

 

11.8

Transfer to liabilities held for sale

 

 

3.8

Foreign exchange and other movements

 

 

(1.6)

As at 31 December 2016

 

 

(65.6)

 

 

 

 

 
               

Deferred tax liabilities relate primarily to temporary differences arising from fair value adjustments of acquired intangibles and also the repatriation of profits from foreign jurisdictions.

 

22. SHARE CAPITAL

At an Extraordinary General Meeting on 18 December 2015, the authorised share capital of the Company was increased to 350,000,000 ordinary shares.

 

On 1 February 2016 the Group acquired 100% of the share capital of bwin.party digital entertainment plc ("bwin.party"), an online gaming company traded on the Main Market of the London Stock Exchange and listed on the Official List (Premium Segment), for total consideration of €1,508.2m as set out in note 25. Under the terms of the Acquisition, each bwin.party shareholder received 25p plus 0.231 new GVC shares for each bwin.party share. The total bwin.party shareholding was 843.5 million shares; accordingly, the Group issued 194.8m new shares to bwin.party shareholders. Post the Acquisition, additional shares have been issued to bwin.party option-holders who had not exercised their options before the date of the Acquisition but do so subsequently and the value of these has been included in the total consideration.

 

On the same date as the Acquisition of bwin.party, the Group issued additional shares at a price of 422p. The additional share capital consisted of 28.0m Placing shares, including the subscription by Directors of shares under the terms of the LTIP, and 7.5m Subscription shares. The cash consideration for these shares was £150.0m, less costs incurred of £4.9m (€6.4m), which have been treated as a deduction from share premium.

 

The authorised and issued share capital is:

 

2016

2015

 

€m

€m

Authorised

 

 

Ordinary shares of €0.01 each

 

 

At 31 December - 350,000,000 shares (2015: 350,000,000 shares)

3.5

3.5

Issued, Called Up and Fully Paid

 

 

At 31 December - 293,268,229 shares (2015: 61,276,480 shares)

2.9

0.6

 

The issued share capital history is shown below:

 

 

 

 

2016

2015

Balance at 1 January

 

 

61,276,480

61,276,480

Issue of shares at acquisition

 

 

194,841,498

-

Issue of shares via placing

 

 

27,978,812

-

Issue of shares via subscription

 

 

7,566,212

-

Other share issues

 

 

1,605,227

-

Balance at 31 December

 

 

293,268,229

61,276,480

 

 

23. DIVIDENDS

The dividend history for 2015 is shown below.

 

Date declared

Per share €c

Per share £p

Shares in issue

Amount €

Amount £

12-Jan-15

12.50

9.6000

61,276,480

7,659,560

5,882,542

23-Mar-15

14.00

10.2900

61,276,480

8,578,707

6,305,350

23-Mar-15 (special)

1.50

1.1000

61,276,480

919,147

674,041

08-Jul-15

14.00

9.7575

61,276,480

8,578,707

5,979,053

08-Oct-15

14.00

10.3472

61,276,480

8,578,707

6,340,400

Total in 2015

56.0

41.0947

 

34,314,828

25,181,386

 

As a result of the acquisition of bwin.party and the combination of debt covenants and the intended restructuring of the Group, the Directors did not pay any dividends in 2016. 

 

24. SHARE OPTION SCHEMES

At 31 December 2016, the Group had the following share options schemes for which options remained outstanding at the year-end:

 

i.         

Options were granted to Directors and employees under the existing and already approved LTIP on 2 June 2014.  Under this scheme, 2,450,000 options held by Directors were cancelled under the arrangements for the acquisition of bwin.party during the year and as at 31 December 2016, 75,000 employee share options remained outstanding. 

ii.         

Options were granted to Directors under the terms of the 2015 LTIP, as set out in the 13 November 2015 prospectus pages 325-329.

iii.         

Options were granted under a Management Incentive Plan under the same terms of the 2015 LTIP.

 

Under the terms of the share option plan, the Group can allocate up to 10% of the issued share capital although it must take allowance of the shares issued or issuable, post the acquisition of bwin.party, as a consequence of rights to subscribe for shares under the 2015 LTIP or any other employees' share scheme.

 

The following options to purchase €0.01 ordinary shares in the Company were granted, exercised, forfeited or existing at the year-end:

 

 

Date of Grant

Exercise Price

Existing at 1 January 2016

Granted in the year

Cancelled in the year

 

Exercised in the year

Existing at 31 December 2016

Exercisable at 31 December 2016

Vesting criteria

28 Feb 2013

233.5p

 156,947

 -

-

(156,947)

-

-

Note a

02 Jun 2014

1p

3,325,000

-

(2,450,000)

(800,000)

75,000

75,000

Note b

02 Feb 2016

422p

-

13,197,111

(2,932,691)

-

10,264,420

-

Note c

02 Feb 2016

467p

-

4,399,037

(977,564)

-

3,421,473

-

Note d

02 Feb 2016

422p

-

200,000

-

-

200,000

-

Note e

16 Dec 2016

422p

-

8,825,000

-

(166,666)

8,658,334

1,794,445

Note f

Total all schemes

 

3,481,947

26,621,148

(6,360,255)

(1,123,613)

22,619,227

1,869,445

 

 

 

The existing share options at 31 December 2016 are held by the following employees and consultants:

Option price

 

 

 

1p

422p

467p

422p

 

Grant date

 

 

 

02-Jun-14

02-Feb-16

02-Feb-16

16-Dec-16

Total

Kenneth Alexander

 

 

 

-

6,842,947

-

-

6,842,947

Richard Cooper

 

 

 

-

3,421,473

-

-

3,421,473

Lee Feldman (note d)

 

 

 

-

-

3,421,473

-

3,421,473

Norbert Teufelberger (note e)

 

 

 

-

200,000

-

-

200,000

Employees

 

 

 

75,000

-

-

6,963,334

7,038,334

Consultants

 

 

 

-

-

-

1,695,000

1,695,000

 

 

 

 

75,000

10,464,420

3,421,473

8,658,334

22,619,227

 

 

Note a: These equity settled options were granted to third parties as part of the Sportingbet PLC acquisition following underwriting commitments made at the time. The awards vested on the grant date and the options have the exercise price reduced by the value of any dividends declared up to the point of exercise.  These options were fully exercised on 12 February 2016 at a weighted average price of £1.263.

 

Note b: These equity settled options were granted to certain Directors and employees.  The awards will vest in full (and become exercisable) on the share price being equal to or exceeding £6.00 per share for a continuous period of 90 calendar days at any time from the date of grant.  If there is a change of control, the awards will vest in full immediately unless the share price is less than £5.00 per share, in which case the Awards will lapse in full.  The awards have been treated as vesting over a 3 year period.  The directors' options under this scheme were cash cancelled during the year on the acquisition of bwin.party, and the after-tax proceeds of £5.4 million (£10.3 million gross) re-invested in new GVC shares.  The remaining fair value of these options was transferred to equity and the additional cost has been recognised as an exceptional item in the year, see note 3.2.2.

 

Note c: These equity-settled awards were issued on completion of the acquisition of bwin.party.  The options vest and become exercisable, subject to the satisfaction of a performance condition, over 30 months, with one ninth vesting six months after the date of grant and a further ninth vesting at each subsequent quarter.  The options lapse, if not exercised, on 2 February 2026.  The performance condition is comparator total shareholder return ("TSR") of the Group against the FTSE 250.  Each ninth of the shares will have its TSR condition reviewed from the date of grant until the relevant testing date.  To the extent the TSR is not met at that time, it is tested again the following quarter and, if necessary, at the end of the 30 month vesting period.  In order to vest, the TSR of the Group must rank at median or above against the FTSE 250. In the year two ninths of the options had vested. Having received the directors notice to exercise, the remuneration committee exercised its discretion to make a cash alternative payment to the directors in respect of that portion of shares. The cash alternative payment was calculated by deducting the option price from the market value of a share on the day prior to the date the company received the exercise note.

Note d: These awards were issued on the same basis as the awards in Note c but at a higher exercise price which represents the market value of the shares as at the date the scheme became effective.  In order to compensate Lee Feldman for the higher exercise price, the Company has agreed to pay him a cash bonus of £2.0 million over the 30 month vesting period of the option, but only upon option vesting and satisfaction of the performance condition described above, and he has to reinvest 50% of this in GVC shares. In the year two ninths of the options had vested. Having received the directors notice to exercise, the remuneration committee exercised its discretion to make a cash alternative payment to the directors in respect of that portion of shares. The cash alternative payment was calculated by deducting the option price from the market value of a share on the day prior to the date the company received the exercise note.

 

Note e: These awards were issued on completion of the acquisition of bwin.party.  The equity-settled options, which are not subject to a performance condition, vest and become exercisable over 24 months, with one seventh vesting six months after the date of grant and a further seventh vesting at each subsequent quarter.  The options lapse, if not exercised, on 2 February 2026. 

 

Note f:  These equity-settled awards were issued on the same basis as the awards in Note C and granted on 16 December 2016.

 

The charge to share-based payments within the consolidated income statement in respect of these options in 2016 was €31.1 million, with a further charge of €12.8 million within exceptional items relating to the cashing-out of the 2014 scheme.  Of the 2016 share-based payment charge, €24.0 million related to equity settled options (2015: €0.1 million) and €7.1 million to cash settled options (2015: €0.1 million credit).

 

24.1 Liability for cash-settled options

During 2015, options granted under a previous scheme were surrendered and in light of this surrender, a new retention plan was put in place.  The liability under this plan at 31 December 2015 was €11.7 million.  In addition there was a cash-settled option liability in respect of the 2014 scheme of €0.2 million.  As a result of the acquisition of bwin.party, these liabilities were settled in the period and the after-tax proceeds were re-invested in new GVC shares.  During the period a new liability was recognised for the cash-settled bonus scheme as set out in note (d) above. Under the annual share bonus plan, the Group has recognised a cash-settled option liability of €6.0 million.

 

The movements in cash-settled share option liabilities are set out in the table below:

 

 

 

€m

 

Balance at 1 January 2016

 

 

(11.8)

 

Charged under the 2 June 2014 scheme (note b above)

 

 

(0.2)

 

Settled on the acquisition of bwin.party

 

 

11.9

 

Charged under the 2 February 2016 scheme (note d above)

 

 

(1.0)

 

Charged under the annual bonus plan

 

 

(6.0)

 

Balance at 31 December 2016

 

 

(7.1)

 

 

 

24.2      Weighted Average Exercise Price of Options

The number and weighted average exercise prices of share options is as follows:

 

 

Weighted average exercise price 31 December 2016

 

Number of options 31 December 2016

Weighted average exercise price 31 December 2015

Number of options 31 December 2015

Outstanding at the beginning of the year

11p

3,481,947

94p

6,806,947

Granted during the year

422p

26,621,149

-

-

Exercised during the year

126p

(834,723)

-

-

Surrendered/bought out in the year

422p

(2,450,000)

184p

(3,200,000)

Forfeited in the year

-

-

1p

(125,000)

Outstanding at the end of the year

416p

26,818,373

11p

3,481,947

Exercisable at the end of the year

 

5,236,844

 

156,947

 

The options outstanding at 31 December 2016 have a weighted average contractual life of 9.1 years (31 December 2015: 8.4 years).

 

24.3 Valuation of Options

The fair value of services received in return for share options granted were measured by reference to the fair value of share options granted.  The Group engaged a third party valuation specialist to provide a fair value for the options.

 

The 2014 options were valued using a Monte Carlo model due to the performance conditions associated with the options.  The 2014 cash-settled options were revalued using a Monte Carlo model at 31 December 2015.  During the year, the 2014 cash-settled options and some of the 2014 equity-settled options were cashed out at an exercise price of 422p.   The excess of the cash settlement over the fair value of the options at the date of the settlement has been recognised in the Consolidated Income Statement as a cost of share-based payments within exceptional items.

 

Fair value of share options and assumptions:

 

Date of grant

Share price at date of grant*

(in £)

 

Exercise price

(in £)

Expected volatility

Exercise multiple

Expected dividend yield

Risk free rate%**

Fair value at measurement date (in £)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

02 Feb 16 - equity settled 30 months

4.67

 

4.22

22%-30%

n/a

n/a

n/a

0.32-0.47

02 Feb 16 - equity settled 30 months

4.67

 

4.67

22%-30%

n/a

n/a

n/a

0.22-0.28

02 Feb 16 - equity settled 24 months

4.67

 

4.22

n/a

n/a

n/a

n/a

0.32-0.47

16 Dec 16 - equity settled 30 months

6.48

 

4.22

30%-28%

n/a

n/a

n/a

1.43-1.94

* This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg.

** The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the expected term of the option.

 

For the 2016 LTIP scheme, the expected volatilities have been calculated using historical prices for companies that were constituents of the FTSE 250 at the grant date.  These options accrue dividend credits and the yield is assumed to be nil for 2016 and 10% thereafter.  As the schemes vest on a staggered basis over a period of up to 30 months, the volatilities have been calculated over each relevant time period.  The fair value of each phase of the options has been calculated separately, shown as a range in the table above, and the cost of each phase is allocated across the vesting period for that phase.

 

 

25. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Group's principal financial instruments as at 31 December 2016 comprise cash and cash equivalents together with loan borrowings.  The main purpose of these financial instruments is to finance the Group's operations and fund acquisitions and shareholder dividends.  The Group has other financial instruments which mainly comprise receivables and payables, which arise directly from its operations. The Group does not typically use derivative financial instruments, other than foreign exchange contracts, to hedge its exposure to foreign exchange or interest rate risks arising from operational, financing and investment activities.  During 2016, the Group did not hold or issue derivative financial instruments for trading purposes.

 

25.1 Market Risk

Market risk arises from the Group's use of interest-bearing, tradable and foreign currency financial instruments. It is the risk that the fair value of future cash flows on its long-term debt finance and cash investments through the use of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). Exposure to market risk arises in the normal course of the Group's business.

 

25.2 Foreign Exchange Risk

Foreign exchange risk arises from transactions, recognised assets and liabilities and net investments in foreign operations. The Group's general operating policy is that all material transaction and currency liability exposures are economically and fully hedged using foreign exchange contracts and/or by holding cash in the relevant currency. 

 

Following the drawdown of the Cerberus loan in February 2016, the Group held a large position in GBP to meet working capital requirements.  This resulted in a foreign exchange loss following the devaluation of sterling during 2016.  This amount has subsequently been used in 2017 to hedge against significant GBP liabilities which have arisen including the dividend paid in February 2017 and repay the Cerberus loan.  The Group uses foreign exchange contracts to hedge its currency risk but as at 31 December 2016 there were no open foreign exchange contracts.

 

The Group is exposed to currency movements in the euro, arising out of changes in the fair value of financial instruments which are held in non-euro currencies.

 

25.2.1 Foreign exchange risk sensitivity

 

A significant proportion of the Group's financial assets and liabilities are denominated in Euros and GBP.  Holding the former currency minimises the Group's exposure to currency translation risk.  However its significant holding of GBP net assets means that it is exposed to movements in the fluctuation of this currency.  If the value of GBP relative to EUR was to rise by 10% then the value of the Group's net assets would increase by €15.9m whilst a 10% fall in the value of GBP relative to EUR would result in in a fall in the Group's net assets of €15.9m.  This exposure was reduced after the year end as the Group utilised part of its GBP cash balances in refinancing its long term loan and also to pay the dividend declared in December.

 

Euro

GBP

Other

Total

 

€m

€m

€m

€m

Non-current assets

1,607.0

22.5

8.2

1,637.7

Receivables and prepayments

57.6

24.1

23.5

105.2

26.2

-

-

26.2

6.7

-

-

6.7

5.4

-

-

5.4

164.0

171.7

19.1

354.8

Assets held for sale

36.2

8.1

15.4

59.7

Total current assets

296.1

203.9

58.0

558.0

Trade and other payables

(37.6)

(42.2)

(14.1)

(93.9)

Balances with customers

(74.2)

(15.7)

(44.9)

(134.8)

Loans and borrowings

(403.5)

-

-

(403.5)

(0.7)

-

(0.5)

(1.2)

(15.5)

(0.6)

(2.1)

(18.2)

(45.2)

(2.0)

0.0

(47.2)

Liabilities held for sale

(7.9)

(6.5)

(8.3)

(22.7)

Total current liabilities

(584.6)

(67.0)

(69.9)

(721.5)

Net current (liabilities) assets

(288.5)

136.9

(11.9)

(163.5)

Trade and other payables

-

-

(4.4)

(4.4)

(6.3)

-

(0.6)

(6.9)

Deferred tax

(65.5)

(0.1)

-

(65.6)

Total non-current liabilities

(71.8)

(0.1)

(5.0)

(76.9)

Total assets less total liabilities

1,246.7

159.3

(8.7)

1,397.3

 

 

At 31 December 2015

Euro

GBP

Other

Total

 

€m

€m

€m

€m

Non-current assets

149.2

9.6

0.3

159.1

Receivables and prepayments

11.8

9.9

13.0

34.6

Derivative financial assets

3.8

-

-

3.8

Tax reclaimable

0.3

5.7

-

6.0

Cash and cash equivalents

18.6

6.6

2.9

28.1

Total current assets

34.5

22.2

15.9

72.6

Trade and other payables

(5.9)

(18.9)

(7.2)

(32.0)

Balances with customers

(6.7)

(5.4)

(2.7)

(14.8)

Loans and borrowings

-

(3.7)

-

(3.7)

Deferred consideration

(1.6)

-

-

(1.6)

Share option liability

-

(9.7)

-

(9.7)

Derivative financial assets

(9.9)

-

-

(9.9)

Taxation payable

(7.3)

-

-

(7.3)

Other taxation liabilities

(0.7)

(1.1)

(0.2)

(2.0)

Total current liabilities

(32.1)

(38.8)

(10.1)

(81.0)

Net current assets/(liabilities)

2.4

(16.6)

5.8

(8.4)

Derivative financial liabilities

-

(0.7)

-

(0.7)

Loans and borrowings

(19.9)

-

-

(19.9)

Share option liability

-

(2.0)

-

(2.0)

Total non-current liabilities

(19.9)

(2.7)

-

(22.6)

Total assets less total liabilities

131.7

(9.7)

6.1

128.1

 

 

25.3 Interest Rate Risk

The Group earns interest from bank deposits.  During the year, the Group held cash on deposits with a range of maturities of less than three months.  The Group had a non-interest bearing loan (see note 14.2) which did not carry any interest rate risk and which was repaid in 2016.  On 4 September 2015, the Group entered into an agreement with Cerberus Business Finance LLC for a loan of up to €400m, in order to part-fund the proposed acquisition of bwin.party.  At 31 December 2016, the Group had €386.5m (2015: €19.8m) of committed and drawn-down borrowing facilities under this loan arrangement, including €13.5m repaid during the year.  The interest on these loans was based on EURIBOR with a floor of 1%, plus a margin of 11.5%.  This facility was repaid on 31 January 2017.

 

Management do not consider the impact of possible interest rate movements based on current market conditions to be material to the net result for the year or the equity position at the year end for either the year ended 31 December 2015 or 31 December 2016.

 

25.4 Credit Risk

The Group seldom has any significant concentrations of credit risk, with exposure spread over a large number of customers.  The Group grants credit facilities to its customers and the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the Statement of Financial Position.

 

The Group has material exposure to credit risk through amounts owed by payment processors (third party collection agencies) of €60.0m (2015: €21.7m) and cash and cash equivalent balances held with banking institutions of €354.8m (2015: €28.2m). There is an inherent concentration of risk with PSPs, most of which are not investment grade banks, in that the majority derive most of their income from the online gaming sector. To this end, where practicable and economic, the Group seeks to substitute non-investment grade PSPs with investment grade, or, at least, better quality PSPs.  The Group considers the general credit risk associated with these balances to be low, having assessed the credit ratings and financial strength of the counter-parties involved. Nevertheless the Group maintains a general provision against the recovery of these processing entities.

 

For one particular processor the Group considered that a specific provision may be necessary due to concerns about the recoverability of that specific debt and accordingly a specific impairment of €4.2m was recorded in the year ended 31 December 2016.  No further significant receivable amounts were past due date at 31 December 2016 (2015: €nil).

 

25.5 Liquidity and capital Risk

Liquidity risk arises from the Group's management of its working capital as well as the finance charges and principal repayments on its debt instruments. In essence, it is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.  Management monitors liquidity to ensure that sufficient liquid resources are available to the Group. The Group's principal financial assets are cash, bank deposits, loans and trade and other receivables.

 

In common with many internet companies that have few physical assets, the Group has no policy as to the level of equity capital and reserves other than to address statutory requirements. The primary capital risk to the Group is the level of debt relative to the Group's net income.

 

At 31 December 2016, the Group had cash and cash equivalents and short term investments of €354.8m (2015: €28.2m). Whilst current assets are significantly lower than current liabilities, this predominantly relates to the Cerberus loan which was refinanced to a longer term facility in 2017.  Accordingly, the liquidity risk for the Group is judged to be low.

 

 

25.5.1 Maturity analysis

All financial liabilities within the Group's balance sheet are due within one year except for certain contingent consideration of €4.4m which falls due based on certain events.  Management's best estimates are that these will fall due after more than one year but before five years.

 

25.5.2 Net debt

 

2016

€m

2015

€m

Loans and borrowings

403.5

19.8

Client liabilities

112.0

14.8

Progressive prize pools

22.8

-

Gross debt

538.3

34.6

Cash and cash equivalents

354.8

28.2

Net debt

183.5

6.4

 

25.6      Fair Values

The carrying amounts of the financial assets and liabilities, including deferred consideration in the Statement of Financial Position at 31 December 2016 and 2015 for the Group and Company are a reasonable approximation of their fair values.

 

Financial assets and financial liabilities measured at fair value in the Statement of Financial Position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:

·      Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

·      Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

·      Level 3: unobservable inputs for the asset or liability.

 

The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 31 December 2016 and 31 December 2015:

 

At 31 December 2016

Level 1

Level 2

Level 3

Total

 

€m

€m

€m

€m

Financial assets

 

 

 

 

Available for sale financial assets

-

2.2

0.4

2.6

Deferred consideration

-

-

1.8

1.8

Contingent consideration

-

0.6

4.0

4.6

Derivative financial assets

-

-

26.2

26.2

 

-

2.8

32.4

35.2

Financial liabilities

 

 

 

 

Contingent consideration

-

-

(4.4)

(4.4)

 

-

-

(4.4)

(4.4)

 

At 31 December 2015

Level 1

Level 2

Level 3

Total

 

€m

€m

€m

€m

Financial assets

 

 

 

 

Available for sale financial assets

-

-

2.6

2.6

Derivative financial assets

-

-

3.8

3.8

 

-

-

6.4

6.4

Financial liabilities

 

 

 

 

Derivative financial liabilities

-

(9.9)

(0.7)

(10.6)

 

-

(9.9)

(0.7)

(10.6)

 

There were no transfers between levels in 2016 or 2015.

 

Measure of fair value of financial instruments:

The Group's finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information.

 

The valuation techniques for the derivative financial assets and liabilities are described in further detail in note 12 above.  The valuation technique for the available for sale asset and the contingent and deferred consideration assets and liabilities were discounted cash flow forecasts using the weighted average cost of capital and expected cash flows.

 

25.7 Summary of Financial Assets and Liabilities by Category

The carrying amounts of the Group's financial assets and liabilities recognised at the reporting date are categorised as follows:

 

 

 

2016

2015

 

 

€m

€m

Non-current assets:

 

 

 

Available for sale financial assets

 

2.6

2.6

Financial assets measured at fair value through profit or loss:

 

 

 

-        Deferred and contingent consideration

 

4.9

-

Non-current assets

 

7.5

2.6

Current assets:

 

 

 

Financial assets measured as loans and receivables:

 

 

 

-               Trade and other receivables

 

108.0

23.1

-               Short term investments

 

9.9

-

-               Cash and cash equivalents

 

367.0

28.2

Financial assets measured at fair value through profit or loss:

 

 

 

 -        Deferred and contingent consideration

 

1.5

-

-               Derivative financial assets

 

26.2

3.8

Current assets

 

512.6

55.1

Current liabilities:

 

 

 

Financial liabilities measured at amortised cost:

 

 

 

-               Trade and other payables

 

(114.0)

(26.7)

-               Non-interest bearing loans and borrowings

 

(403.5)

(3.0)

-               Deferred consideration

 

-

(1.6)

Financial liabilities measured at fair value through profit or loss:

 

 

 

-               Contingent consideration

 

-

-

-               Derivative financial liabilities

 

-

(9.9)

Current liabilities

 

(517.5)

(52.5)

Non-current liabilities:

 

 

 

Financial liabilities measured at amortised cost:

 

 

 

 -        Interest-bearing loans and borrowings

 

-

(19.9)

-               Share option liability

 

-

(2.0)

Financial liabilities measured at fair value through profit or loss:

 

 

 

-               Contingent consideration

 

(4.4)

-

-               Derivative financial liabilities

 

-

(0.7)

Non-current liabilities

 

(4.4)

(22.6)

 

 

26 RELATED PARTIES

26.1 Identity of Related Parties

The Group has a related party relationship with its subsidiaries and with its Directors and executive officers.

 

26.2 Transactions with Directors and Key Management Personnel

Karl Diacono is the Chief Executive Officer of Fenlex Corporate Services Limited, a corporate service provider incorporated in Malta. During the year ended 31 December 2016, Fenlex received €127,999 from the Group in relation to Company Secretarial and other matters arising in Malta (2015: €97,385).

 

Peter Isola is a partner at Isolas, a law firm in Gibraltar which charged legal expenses of €209,858 to the Group relating to the acquisition of bwin.party.

 

Richard Cooper received dividends during the year of €nil (2015: €934). The wife of Richard Cooper received dividends during the year of €nil (2015: €184,800) in respect of her interest in the ordinary share capital of the Group.

 

Lee Feldman received dividends during the year of €nil (2015: €79,265) in respect of his beneficial interest in the ordinary share capital of the Group. Lee Feldman is the Managing Partner of Twin Lakes Capital, a private equity firm based in New York. During the year ended 31 December 2016, Twin Lakes Capital received €61,715 (2015: €68,715) in relation to office services.

 

Kenneth Alexander received dividends during the year of €nil (2015: €69,264).  The wife of Kenneth Alexander received dividends during the year of €nil (2015: €175,466) in respect of her interest in the ordinary share capital of the Group.

 

On acquisition of bwin.party, Norbert Teufelberger became a director of the Group and at this date, he had a loan balance due to the Group of €3.1 million, including accrued interest. This liability was settled in full in the period.

 

The Group purchased certain customer services of €2.5m from an associate, with amounts owed at 31 December 2016 of €0.2m.

 

During 2016, the Group purchased certain rights to broadcast licensed media of €3.5m (2015: €nil) from Conspo, a previous joint venture company which was acquired with bwin.party.  Conspo was disposed of on 6 July 2016 and ceased to be a related party at that point.

 

26.3 Transactions with Directors and Key Management Personnel

Details of the remuneration of key management are detailed below:

 

 

 

2016

2015

 

 

€m

€m

Short term employee benefits (Directors)

 

7.3

8.9

Short term employee benefits (Key Management)

 

2.6

2.1

Termination benefits

 

-

0.8

Share based payments

 

25.5

0.5

 

 

35.4

12.3

 

 

27. CONTINGENT LIABILITIES

27.1 East Pioneer Corporation Guarantee

On 21 November 2011 the Group entered into a service agreement and guarantee relating to the acquisition by East Pioneer Corporation B.V. ('EPC') from Sportingbet PLC of Superbahis, a Turkish language website. The maximum contingent liability under this agreement at inception was €171 million. The Directors consider this has a fair value of €nil (2015: €nil).

 

The Group continues to provide back office and support services to EPC. Following the acquisition of Sportingbet PLC on 19 March 2013 the Group now receives all payments of amounts from EPC under the Business Purchase Agreement and other Transaction Documents and does not now offer any guarantee of payments to legal entities outside of the Group.

 

27.2 Indirect taxation

Group companies may be subject to VAT on transactions which have been treated as exempt supplies of gambling, or on supplies which have been exported outside the scope of VAT where legislation provides that the services are received or used and enjoyed in the country where the service provider is located. Where group companies have treated supplies of gambling as exempt based on exemptions available to comparable supplies in the place where the customer is located, the right to exemption may be restricted if the supplies do not have similar characteristics or meet the same needs as other exempt gambling from the customer's point of view. Where group companies have determined the taxable amount for supplies of gambling to be the amount of stakes received less amounts that have to be returned to players, the right to a deduction for amounts returned to players may be restricted to the extent that the obligation to make a payment is not enforceable in the place where the customer is located.

 

Revenues earned from customers located in any particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or on its financial position. Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where the likelihood of a liability arising is considered remote, or the possible contingency is not material to the financial position of the Group, the contingency is not recognised as a liability at the balance sheet date.

 

28. BUSINESS COMBINATIONS
 

28.1 Acquisition of bwin.party

It is part of the core strategy for the Group to improve the quality and mix of the Group's earnings through acquisitions, especially where these increase the markets in which the Group trades and where there are opportunities for high levels of cash generation through synergies.  On 1 February 2016, the Group acquired 100% of the share capital of bwin.party digital entertainment plc ("bwin.party"), an online gaming company traded on the Main Market of the London Stock Exchange and listed on the Official List (Premium Segment), for total consideration of €1,506.6 million as set out in the table below.  The acquisition resulted in GVC obtaining control of bwin.party from 1 February 2016, and this is being accounted for as a business combination in the current year.

 

The terms of the acquisition included an offer of 25p plus 0.231 new GVC shares for each bwin.party share.  At the date of the acquisition, there were 843m bwin.party shares and 14m of share options and the closing price for GVC Holdings PLC shares on the previous day was £4.67.  The total fair value of the consideration paid was €1,506.6 million as set out below:

 

 

No of shares

M

Value

£m

Exchange rate

Value

 €m

Total bwin.party shareholding

843.5

 

 

 

GVC shares issued (0.231 per bwin.party share, at a price of £4.67)

194.8

909.9

1.3205

1,201.5

Cash payment (£0.25 per bwin.party share)

 

210.9

1.3205

278.5

Cash settled options

 

20.1

1.3205

26.6

Total consideration

 

1,140.9

 

1,506.6

 

The fair value of the assets and liabilities recognised at the date of acquisition is set out in the table below:

 

Fair value

€m

Assets

 

Intangible assets

608.0

Property, plant and equipment

44.5

Trade and other receivables

107.8

Investments and available for sale assets

4.5

Assets held for sale

12.3

Short term investments

15.6

Cash

115.7

Total assets

908.4

Liabilities

 

Trade and other payables

(82.8)

Client liabilities and progressive prize pools

(118.0)

Provisions

(15.2)

Loans

(39.4)

Taxation (including gaming tax)

(31.9)

Deferred tax

(79.6)

Total liabilities

(366.9)

 

 

Non-controlling interest

1.2

 

 

Net assets

542.7

 

 

Fair value of consideration paid

1,506.6

Goodwill recognised

963.9

 

 

Business combination costs

54.7

 

The fair value of trade and other receivables was €108.3m and included trade receivables and payment processor balances with a fair value of €78.4m.  The gross contractual amount for trade receivables and payment processor balances due was €80.2m, of which €1.8m was deemed to be irrecoverable.

 

The goodwill consists of assembled workforce, future growth and business reputation.

 

All contingent liabilities have been provided for.

 

In the year ended 31 December 2015, bwin.party reported revenue of €576.4m and loss before tax of €40.2m. If the Acquisition had occurred at the beginning of the year, the revenue of the combined entity in the 12 months to 31 December 2016 would have been €873.5m and the loss after tax would have been €131.8m.

 

Following the acquisition, GVC has already achieved significant synergistic savings through integration and restructuring of operations and expects further benefits in 2017. 

 

 

29. NON-CONTROLLING INTERESTS

Non-controlling interests included a 10% holding in bwin.party entertainment (NJ) LLC, a company incorporated in the United States. The loss attributable to the non-controlling interest was €0.3m.

 

The balance of retained earnings attributable to non-controlling interests is disclosed in the table below:

 

 

 

 

Total

 

 

 

€m

 

 

 

 

 

 

 

 

As at 31 December 2015

 

 

-

Acquired through business combination

 

 

(1.2)

Loss attributable to non-controlling interests

 

 

(0.3)

As at 31 December 2016

 

 

(1.5)

 

 

 

 

 
               

 

30. SUBSEQUENT EVENTS

In October 2016, the Group secured a one year €250m loan facility from Nomura International plc, which was used in part to repay the outstanding loan provided by Cerberus Business Finance LLP associated with the acquisition of bwin.party. The Nomura Loan provided a short term facility at a reduced overall cost from that associated with the Cerberus Loan.

 

The Group has now successfully secured long-term and increased debt facilities comprising of a €320m Senior Secured Term and Revolving Facility, composed of a €250m term loan (maturity 6 years) and a €70m revolving credit facility (maturity 5 years).

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR EALDDASDXEEF

Companies

Entain (ENT)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today