GVC Holdings PLC (AIM:GVC), a leading online sports betting and gaming group, today announces its Preliminary Results for the year ended 31 December 2015.
2016 Trading Update
Kenneth Alexander, Chief Executive of GVC, said:
"GVC has had a momentous year. Not only has the Company seen a fifth consecutive year of revenue and clean EBITDA growth but the completion of the bwin.party acquisition in early 2016 affords us an opportunity to take the Group to the next level.
GVC has never been in a stronger position going forward. The enlarged Group is already enjoying encouraging trading, resulting from our unique mix of diversified products and strong brands. There is much work to be done, nevertheless, with GVC brands and bwin.party brands (including PartyPoker), growing, together with synergy benefits, we look forward with confidence to another successful year."
*excluding exceptional items ** since acquisition ***cash less client liabilities less debt
For further information:
|GVC Holdings PLC|
|Kenneth Alexander, Chief Executive||Tel: +44 (0) 20 7398 7702|
|Richard Cooper, Group Finance Director||www.gvc-plc.com|
|Nicholas Batram, Head of IR & Corporate Strategy|
|Cenkos Securities plc (Nomad & Broker)||Tel: +44 (0) 20 7397 8900|
|Mark Connelly, Camilla Hume|
|Bell Pottinger||Tel: +44 (0) 20 3772 2500|
|David Rydell, James Newman, Anna Legge, Laura Jaques|
bwin.party: bwin.party digital entertainment plc
Enlarged Group: GVC Holdings plc incorporating bwin.party digital entertainment plc
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.
Total Net Gaming Revenue ('Total NGR'): Sports NGR + Net gaming stakes less payout winnings less customer bonuses + Other revenues.
Contribution: Total NGR less betting taxes, VAT (imposed by certain EU jurisdictions on either sports or gaming revenue), payment service provider fees, software royalties, commissions, revenue share and marketing costs.
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.
Clean Net Operating Cashflow ('CNOC'): Clean EBITDA less: capitalised development costs, net corporate taxes paid, capital expenditure, finance lease payments, net working capital movements and exceptional items of a cash nature.
2015 was a momentous year for the Group. Not only did the Group increase its revenues and Clean EBITDA by 10% in the face of adverse currency movements, but also shareholders voted overwhelmingly for the acquisition of bwin.party on 15 December 2015 which completed on 1 February 2016.
The acquisition was structured as a mixture of a share and cash offer to the bwin.party shareholders; and financed by an equity placing of £150 million and a senior debt facility of €400 million. The Group is thus well resourced to see through its restructuring plan and to derive the targeted cost synergies on the combined businesses.
The Group has augmented its board by the recruitment of three additional non-executive directors: Norbert Teufelberger, who joins us from bwin.party, Stephen Morana and Peter Isola. As a result, we have added significant expertise to the Board in the areas of accounting and finance, regulatory matters and business development. In addition the operating management has been significantly strengthened below the board level with senior appointments in operations, product, sales and marketing and investor relations.
The Group's performance across the year was excellent. Increased and effective marketing in all territories led to: growth in Net Gaming Revenue (NGR), up 10% on 2014 to €248 million; Clean EBITDA up 10% to a record €54.1 million (at the top end of market expectations) and Profit before tax, excluding exceptional items, increasing 21% to €50.0 million. Dividends paid in the year increased from 55.0 €cents to 56.0 €cents. I am pleased to be able to say that the Group has increased its revenues, its Clean EBITDA and its dividends for each of the last five years. As shareholders will be aware, however, one of the conditions of the debt financing in connection with the bwin.party acquisition is a dividend holiday in calendar 2016.
GVC has a proven ability of generating value through successful integration of significant acquisitions and management is confident this will continue. We anticipate generating significant synergistic savings through the integration and restructuring of operations, which we aim to complete over the next 12 months. Our target is to drive €125 million of synergies from the combined businesses, and we remain confident that this can be achieved. However, the opportunity for the enlarged Group goes beyond cost synergies and we are excited by the current growth trends and potential across the breadth of businesses.
The Company has a highly focused and entrepreneurial culture, supported by an employee cash bonus structure as well as its long term incentive plan with market-priced stock options together with a total shareholder return measure. Furthermore I, together with the executive directors, have acquired a highly meaningful personal financial stake which should assure shareholders that our financial interests are closely aligned. Returning cash to shareholders via dividends has been core to the Group's philosophy and this remains the case. As with the Sportingbet acquisition, we aim to return to paying dividends as quickly as our borrowing facilities allow and is prudent from a balance sheet and cash flow perspective.
GVC now has significant scale and capability, and has positioned itself to make further acquisitions if they are sufficiently accretive for shareholders. We operate in a challenging and competitive market but one that also presents significant opportunities. I believe the Group has never been better placed to face these challenges and pursue the many opportunities.
GVC will be posting its Annual Report to shareholders on Saturday 30 April 2016 and it will be uploaded on our website (www.gvc-plc.com) from that date. The AGM will be held in the Isle of Man on Tuesday 24 May 2016. Lastly, I can confirm that we are actively pursuing our stated aim of seeking admission of the enlarged Group to the Premium Segment of the Official List as soon as practicable following publication of the 2015 Annual Report and we will update shareholders accordingly.
Chairman and Non-Executive Director
22 April 2016
I am pleased to say the Group delivered on all its objectives in 2015, producing a record Clean EBITDA and culminating in the positive vote by shareholders in both GVC and bwin.party for the acquisition of bwin.party which completed on 1 February 2016.
GVC has a strong track record of integrating challenging acquisitions and driving through synergies. The acquisition of Sportingbet in 2013 led to Clean EBITDA in 2015 three times higher than the GVC result in 2012 and turned Sportingbet from being profoundly loss-making into a significant profit contributor to the Group. Dividends during this time more than doubled from 22 €cents per share to 56 €cents last year.
The culture of GVC is to create a dynamic and entrepreneurial working environment, within a professional infrastructure which is imperative given the markets we operate in. As a consequence, GVC has built a strong management team at all levels, alongside highly talented and motivated staff. It is relatively early days but I am delighted to say that bwin.party also has many managers and staff of exceptional calibre, and together we shall drive the enlarged group forward. Our philosophy is about rewarding success and not failure; staff rewards are currently aligned to growth in 2016 NGR compared to 2015, whilst the long term incentive plan for senior management is aligned with the price at which shares were issued in relation to the bwin acquisition, £4.22, and total shareholder return, so option holders can only prosper if shareholders do so too.
I have already evaluated the bwin, Party Gaming, Party Casino, Gioco Digitale and Foxy Bingo brands and am encouraged by what I see - we have in the combined group a great portfolio of assets. There is undoubtedly great potential, but there is also much to be done.
Our challenges for 2016 and beyond are to:
I am particularly excited by the growth potential of the enlarged Group, and remain confident that we can secure our target of €125 million synergies within a year, the full benefits of which will be seen in 2018. Although we have only owned bwin.party since the 1st February, I have visited all the key operations and am very encouraged by what I have seen. We have already made progress in increasing the breadth and depth of management and executed a number of product improvements. It is too soon for these developments to have had a material impact, which makes the positive performance of the business in the first quarter of 2016 (see below), even more pleasing. I feel the positive start to 2016 reflects the fact that we acquired, in bwin.party, a business that had stabilised and was capable of returning to growth after some challenging years. Nevertheless, as I commented above, there is still much to be done to derive the inherent value that we believe exists within the bwin businesses.
Looking back at 2015, GVC delivered excellent operational and organic growth across the broad spread of markets in which the Group operates. The Board is pleased to report a significant increase in Sports wagers driving an increase in Clean EBITDA. Due to the impact of €24.5m of exceptional items, of which €23.0m relate to the acquisition of bwin.party, operating profit is down year on year. This also impacts on Profit before tax and Earnings per share. Key financial metrics for GVC on a standalone basis are shown below:
|Sports wagers||15%||1.7 billion||1.5 billion|
|NGR||10%||248 million||225 million|
|Contribution||10%||135 million||123 million|
|Clean EBITDA||10%||54.1 million||49.2 million|
|Operating profit||(35%)||27.7 million||42.9 million|
|Profit before tax||(38%)||25.5 million||41.3 million|
|Basic EPS||40.2 €cents||66.4 €cents|
|Dividends declared||56.0 €cents||55.5 €cents|
Totals may not sum due to rounding and percentages have been calculated on the underlying rather than the summarised figures.
The Group has achieved a record level of Clean EBITDA for 2015 at €54.1 million which is 10% higher than the prior year, giving rise to Clean Net Operating Cashflows of €52.9 million.
The combination of GVC and bwin.party's continuing operations for 2015 (less those activities disposed of during the year) would have resulted in the following "aggregated" results:
|In €millions||Bwin||Less disposed activities and other adjustments||Restated Bwin||GVC||Aggregated
|Sports margin %||9.0%||-||9.0%||9.2%||9.1%|
|Clean EBITDA (after FX differences)||108.5||0.9||109.4||54.1||163.5|
Both GVC and bwin.party were impacted in 2015 by the full year of Point of Consumption tax on UK gaming revenues and by EU VAT imposed by certain jurisdictions on gaming revenues. The combined impact of that during 2015 when compared to 2014 was around €12.4 million.
Taxes are inevitable headwinds and it is through a balanced and well-diversified product and geographical profile of markets that GVC can best mitigate this exposure. A proforma revenue analysis for 2015 shows that no one market generates more than 25% of NGR and no one individual market which is not locally regulated generates more than 12% of NGR.
Q1-2016 AND CURRENT TRADING
GVC has traditionally focused on "revenue per day" and we shall continue to do so as an easy to understand metric across all its business units.
|Average daily KPIs expressed in €000s|
|Prior quarter history|
Year on year change
|Sports Margin %||8.8%||9.0%||8.7%||9.9%||9.0%|
|Total NGR per day||1,843||665||177%||671||667||712|
|Total NGR €m||167.7||60.0||180%|
* GVC for the three month period 1 January 2016 to 31 March 2016; bwin.party for the two month period from 1 February 2016 to 31 March 2016
** wagers less payouts before bonuses.
In Q1, Group daily total NGR increased by 177% on the previous year, boosted by the acquisition of bwin.party which was consolidated from 1 February 2016.
|Proforma NGR per day in constant currency
|Q1-2016*||Q1-2015*||Year on year change|
|Group constant currency||2,537||2,324||9%|
GVC daily NGR in constant currency rose 12% in Q1 year on year. Daily NGR at bwin, since it became part of the Group, increased 8% on the comparable period in 2015. For the Group as a whole daily NGR in constant currency rose 9%.
Quarter 2 has also started strongly. Group daily average NGR on a like for like currency basis is up 13% year to date (up to 20 April); GVC brands up 18% and bwin.party brands up 11% (since 1st February). Sports margins have improved within the bwin business, in part reflecting sports results but also improvements implemented since acquisition. We are also pleased with the performance of the gaming activities of bwin.party since acquisition.
At 17 April 2016, gross cash (and cash equivalents) were €327 million; customer liabilities were €120 million; and the principal amount of the Cerberus loan was €400 million, leading to net debt of €193 million. In addition, however, the Group had €52 million of cash in transit with payment processors.
I end my report on a very upbeat note - The Board believe the Group has never been in a stronger position than now, benefitting from robust trading; diversified products and markets; highly motivated staff; and technological opportunities which will allow the Group to prosper. We look forward to a successful year.
22 April 2016
My financial review is in two parts this year: Part One takes readers through the primary financial statements of the GVC group for 2015, whilst Part Two deals with the impact and financing of the bwin.party acquisition.
PART ONE - A REVIEW OF 2015
Despite the underlying complexities of the Group, the business of GVC as it existed in 2015 can be presented in a simple and transparent way as the table below illustrates:
|Year ended 31 December 2015|
|c = a x b||Gross margin||154,086|
|e = c + d||Sports NGR||113,852|
|f||Gaming NGR across all brands||133,878|
|g = e + f||TOTAL NGR||247,730||679|
|h||Variable cost %||45.4%|
|j = g x h||Variable costs||(112,369)|
|k = g + j||CONTRIBUTION||135,361|
|n = k + m||CLEAN EBITDA||54,077|
|p = n / g||CLEAN EBITDA %||21.8%|
|q||Exceptional items (non-deal related)||(1,475)|
|r||Capitalised development costs||(5,003)|
|s||Net corporate taxes paid||(657)|
|t||Working capital and other movements||8,916|
|u||Capex and lease payments||(2,924)|
|v = sum q-u||Total of additional operating cashflows||(1,143)|
|w = n + v||CLEAN NET OPERATING CASHFLOWS ('CNOC')||52,934|
|x = w / g||NOC %||21.4%|
|z = y / w||Dividends as a % of CNOC||65%|
Table 1: Summary of key financial measures (totals may not sum due to rounding and percentages have been calculated on the underlying rather than the summarised figures).
|In €millions||2015||2014||Change||% change|
|Contribution divided by Total NGR =||55%||55%|
|Depreciation and amortisation||(5.0)||(3.9)||(1.1)||(28%)|
|Share option charges||(0.5)||(0.8)||0.3||38%|
|Betit and Winunited revaluation||3.6||(1.6)||5.2||325%|
|Profit before Tax and exceptional items||50.0||41.3||8.7||21%|
|Profit after taxation||24.7||40.6||(15.9)||(39%)|
|Basic, non-dilutive EPS in €cents||40.2||66.4||(39%)|
|Basic pre-exceptional items, non-dilutive EPS in €cents||80.2||66.4||21%|
|Dividend paid in the year / share in €cents||56.0||55.0||2%|
|Dividends declared for the year / share in €cents||28.0||55.5||(50%)|
|Clean net operating cashflows||52.9||42.6||24%|
|Cash and cash in transit||49.9||40.0|
|- Cash and cash equivalents||28.2||17.8|
|- Balances with payment processors||21.7||22.2|
|Net current liabilities||(8.4)||(3.3)||(5.1)||>100%|
|- Interest bearing loans and borrowings||(19.8)||(0.4)|
|- Non-interest bearing loan and borrowings||-||(2.8)|
|- Share option liability||(2.1)||-|
|- Deferred consideration on Betboo||-||(1.6)|
|- Betit option liability||(0.7)||(1.7)|
|Number of shares in issue||61,276,480||61,276,480|
|Number of shares under option||3,481,947||6,806,947|
Sports wagers grew 15% to €1,683.0 million (2014: €1,463.5 million). They averaged €4.6 million per day and rose to over €4.9 million per day in Q4 (Q4-2014: €4.4 million).
Sports margins differ widely across the multiple markets in which GVC operates as a consequence of the maturity of each market and the sports followed within them. A sports margin of 9.2% (2014: 9.8%) was achieved.
Sports NGR represents the sports gross margin less free bets and promotional bonuses.
Customers have a variety of gaming opportunities ranging from Casino (table games and slots), through to Poker and, in certain markets, Bingo. Sports and gaming revenues are relatively equal now, and in 2015 Sports NGR represented 46% of revenue and Gaming NGR represented 54%. 2015 saw a 10% increase in revenue over 2014, most of which came from growth in Gaming NGR.
Table 2: Average revenues per day since 1 January 2015
|Sports wagers per day||10,626||4,558||4,544||4,371||4,968|
|Sports margin %||8.8%||9.0%||8.7%||9.9%||9.0%|
|Total NGR per day||1,843||665||671||667||712|
* including bwin.party since 1 February
Contribution is GVC's measure of revenues less cost of sales, and costs with a high correlation to revenues, such as partner shares, affiliate commissions and other marketing expenditure. Cost of sales includes payment processing charges, software royalties and local betting taxes, and value added taxes where the Group has a liability.
Contribution increased by 10% to €135.4 million, and a constant contribution margin percentage of 55% was achieved (2014: 55%).
In the context of a growing business, absolute costs have increased from €74.1 million to €81.3 million, with cost ratios as a percentage of Total NGR remaining flat at 60%. Staff cost ratios remained broadly level at 19.6% from 19.2%, with 34% of staff costs (2014: 32%) being performance related - chiefly based on Group dividend payments. This should be seen in the context of €34.3 million of dividends paid in 2015, an increase of 2% on the €33.6 million paid in 2014.
Table 3: The principal cash expenditures of the Group (excluding exceptional items) and their percentages
|2015||% of NGR||2014||% of NGR|
|Staff costs including performance pay||48.5||19.6%||43.1||19.2%|
|Technology and product content||23.7||9.6%||21.0||9.3%|
The Group aims to achieve a clean EBITDA margin of not less than 20%.
Clean EBITDA rose 10% to €54.1 million (2014: €49.2 million), and a 22% margin on NGR was achieved, in line with 2014.
NON-CASH ITEMS OF AN ACCOUNTING NATURE
Depreciation of Property, Plant and Equipment rose in the year to €0.9 million (2014: €0.7 million) on total acquisitions of €1.2 million.
Amortisation of Intangible Assets increased to €4.1 million (2014: €3.2 million) driven by the €5.0 million acquisition of additional software and software development costs to further strengthen our mobile and tablet offering.
Finance charges increased by €0.6m this year, driven by €1.2m effective interest on the €20.0 million loan drawn down in September 2015 from Cerberus. Other finance charges included an imputed cost (as per IAS 39) on the interest free loan from William Hill of €0.2 million (2014: €0.2m); €0.1 million (2014: €0.7 million) on the unwinding of the discount on the deferred consideration arising from the 2009 acquisition of Betboo; €0.6 million on the retranslation of the GBP denominated William Hill loan and leased software assets (2014: €0.6 million) and €0.1 million (2014: €0.1 million) in respect of finance charges on leased software assets.
Share option charges amounted to €0.5 million (2014: €0.8 million). The charge for 2015 represented the ongoing charges arising from the share options awarded and announced on 2 June 2014, net of adjustments for movements in the fair value of cash settled options and share options forfeited by an employee leaving. At the year end, the Group had 3.3 million share options granted to directors and officers (5.4% of the existing issued share capital although its permitted allocation was 16.8% of the issued share capital (page 354 of the January 2013 prospectus)). During the year, directors surrendered 3,200,000 fully vested share options and were awarded associated cash settlements of €12.2 million, which has been recognised as a deduction from equity. These cash payments were to be made over a two year period, but were subsequently put on hold pending the outcome of the bwin.party acquisition. These were fully settled on 1 February 2016, and re-invested into new shares as part of the placing of shares on completion of the bwin.party deal.
Betit and other revaluations: In accordance with IAS 39 'Financial Instruments: Recognition and Measurement', the Group recognises the option to acquire further shares in both Betit and Winunited (a B2B contract entered into in March 2015) at their fair value, and also revalues the investment in Betit which is recognised as an available-for-sale (AFS) asset. Betit underperformed against its previous forecast provided by the Betit management, which decreases the expected value of the asset but also decreases the expected cost of the options. The call/put options with Betit now have a net liability of €0.7 million (2014: €1.7 million), and the AFS asset has decreased in value by €1.2 million, from a value of €3.8 million in 2014. The movement on Betit is therefore a net cost of €0.2 million. The Winunited option was valued at €3.8 million, which represents a gain of €3.8 million. Overall, the revaluations result in a net credit to the Income Statement of €3.6 million.
During 2015, the Group incurred €24.5 million of exceptional costs. Of this, €23.0 million related to deal costs on the acquisition of bwin.party and consisted mainly of legal and professional fees and the cost of taking out a Euro/GBP hedge.
As part of the requirements for the acquisition of bwin.party, GVC had to "cash-confirm" that it had sufficient GBP funds to meet the obligations of the acquisition; namely 25p in cash per bwin.party share. As the loan facility from Cerberus was denominated in Euro, an American style call option was purchased for €5.3 million on 4 September 2015 to sell €365,000,000 and purchase £256,138,750 (a rate of £1:€1.4250). The counterparty to this trade was Nomura.
On 18 December 2015, it was decided to terminate this option and replace its cash-confirmation obligations with a "flexible-forward", a forward contract with option components. Entering into this transaction resulted in a refund of €5.6 million and a new sale of €365,000,000 and purchase of £260,719,500 (a rate of £1:€1.400).
By 31 December, foreign exchange rates had moved and the rate used by GVC for the translation of its GBP current assets and current liabilities was £1:€1.36249, whilst the effective rate behind the valuation of the GBP obligation under the flexible forward was €1.3621. This resulted in a revaluation charge of €9.9 million shown as a forward contract liability. This is shown in more detail in the tables below:
Table 4: forward contract movements
|Balance at 31.12.15
|Euro sale under flexible forward||€365,000,000|
|GBP purchase under flexible forward||£260,719,500|
|Implicit rate in valuation||€1.3621|
EARNINGS PER SHARE
Table 5: Earnings per share
|Basic EPS:||before exceptional items||80.2 €cents (2014: 66.4 €cents)|
|after exceptional items||40.2 €cents (2014: 66.4 €cents)|
|Diluted EPS:||before exceptional items||76.4 €cents (2014: 61.4 €cents)|
|after exceptional items||38.3 €cents (2014: 61.4 €cents)|
The diluted EPS is affected by two components: grants of share options granted to employees and directors, and warrants granted to third parties pursuant to underwriting arrangements entered into in contemplation of the Sportingbet acquisition which completed in March 2013.
Table 6: History of dividends paid and declared since 1 July 2014
|15 July 2014||12.5||-||-||-|
|22 September 2014||15.0||-||-||-|
|12 January 2015||12.5||-||12.5||-|
|20 March 2015||15.5||-||15.5||-|
|8 July 2015||-||14.0||14.0||-|
|8 October 2015||-||14.0||14.0||-|
Up until the announcement of its bid for bwin.party in November 2015, the Group was committed to paying dividends on a quarterly basis and paying a cash amount broadly equivalent to 75% of its Clean Net Operating Cashflows, taking into account an assessment of its working capital needs. The actual percentages were 65% in 2015 and 79% in 2014. Details of the Clean Net Operating Cashflow calculation are included in table 7 below.
On 4 September 2015, the Company announced a dividend holiday in the calendar year 2016 as a result of the impending acquisition of bwin.party and the consequential combination of debt covenants that will be applicable and the intended restructuring of the Group.
The Group's cashflow position for 2015 is summarised below:
Table 7: Summarised cashflow
|Exceptional items (non-acquisition related)||(1,475)||-|
|Capitalised software development||(5,003)||(3,343)|
|Net payment of corporate taxes||(657)||(508)|
|Asset lease repayments||(1,768)||(1,149)|
|Working capital and other movements||8,916||(742)|
|CLEAN NET OPERATING CASHFLOWS ('CNOC')||52,934||42,618|
|Dividends as a % of CNOC||65%||79%|
|- Betboo earn-outs||(2,401)||(4,339)|
|- Investment in Betit||-||(3,649)|
|- Proceeds from exercise of share options||-||854|
|- Settlement of share options||(509)||-|
|- Sportingbet: William Hill loan instalments||(3,245)||(2,856)|
|ACQUISITION CASHFLOWS: bwin.party|
|- Cerberus drawdown||20,000||-|
|- Cerberus financing costs||(7,025)||-|
|- Cerberus legal fees||(1,950)||-|
|- Other legal and professional fees||(13,490)||-|
|- Option payment||(5,329)||-|
|- Hedge receipts||5,675||-|
|Cash and cash equivalents at the beginning of the year||17,829||18,808|
|Cash and cash equivalents at the end of the year||28,170||17,829|
|Amount, in €cents per share||46.0||29.1|
SUMMARISED BALANCE SHEET AND LIQUIDITY
The net position is affected by the timing of the dividend payments, which totalled €34.3 million during 2015 (2014: €33.6 million). Such is the strategy of the Group towards its dividend payments that GVC aimed to keep its Net Current Assets relatively equal to its Net Current Liabilities, but ensuring at all times that its balances with customers are covered and meet regulatory requirements.
Table 8: Balance Sheet and Customer liquidity position as at 31 December 2015
|Balances with payment processors||21,708||21,708|
|Prepayments - deal related||7,651|
|Prepayments - other||3,888|
|Trade and other payables||(32,016)|
|Balances with customers||(14,808)||(14,808)|
|Loans and leases: current||(3,711)|
|Loans and leases: non-current - deal related||(19,821)|
|Forward contract - deal related||(9,877)|
|Share option liability: current||(9,740)|
|Share option liability: non-current||(2,036)|
|Option liability: non-current||(736)|
|Other net current assets||286|
* Restricted cash refers to balances at banks where the cash has to be ring-fenced for regulatory reasons.
These consist of three principal items: the initial loan draw down from Cerberus; share option liabilities due in 2017; and the Betit put option.
a.) Loan from Cerberus: initial draw down
On 4 September 2015, the Group drew down €20.0 million of its €400.0 million facility with Cerberus. The initial drawdown was utilised to pay for professional fees and upfront loan costs, including a foreign currency option for converting the loan receipts into GBP in order to settle the acquisition price for bwin.party and associated costs. The effective interest rate has been calculated based on anticipated costs including loan arrangement and drawdown fees, ongoing interest payments, and other amounts payable during the period of the loan. The loan is repayable in full by 4 September 2017.
b.) Share option liabilityDuring the year, directors surrendered 3,200,000 fully vested share options and were awarded associated cash settlements of €12.2 million, which has been recognised as a deduction from equity.
These cash payments were to be made over a two year period, but were subsequently put on hold pending the outcome of the bwin.party acquisition, and have been fully settled following completion of the acquisition. At the year end, one payment had been made, on an "on account" basis, and the liability, which is denominated in GBP, was restated in Euros. The balance at 31 December 2015 was €11.7 million, of which €9.7 million was a current liability and €2.0 million was non-current, based on the original payment schedules.
c.) Betit option liability
In accordance with the requirements of IAS 39, the options embedded in the Betit contract are required to be measured at fair value and recognised in the Statement of Financial Position. Based on the valuation at 31 December 2015, the net liability is now €0.7 million, reduced from €1.7 million at 31 December 2014. The options are potentially exercisable, subject to certain conditions, between 1 July 2017 and 30 September 2017.
SUMMARY OF MOVEMENTS IN THE STATEMENT OF FINANCIAL POSITION
A bridge between the 2014 and 2015 financial position is shown below in table 9:
Table 9: Statement of financial position bridge
|At 1 January 2015||149,458|
|Profit before tax||25,506|
|Share based payment charges on equity settled options||509|
|Share options surrendered||(12,183)|
|At 31 December 2015||128,124|
No share options were exercised during the year and no shares were issued.
During the year, the charge to Operating Costs within the Income Statement from realised and unrealised foreign exchange was €1.0 million. In addition the William Hill loan is denominated in Sterling (£4.6 million at 1 January 2015) and incurred an unrealised loss of €0.5 million included within Financial Expenses. Also included within Financial Expenses are the foreign exchange differences arising on the finance leases. Many non-Euro currencies are handled by the Group's payment processing intermediaries up-front.
Additionally, the Net Current Assets of the Group are revalued each month at month-end exchange rates and this also results in exchange gains and losses. The principal revaluations are for customer liabilities, although these are now largely currency matched to produce a natural hedge.
In anticipation of the bwin.party acquisition, the Group entered into a foreign currency option in order to enable the Euro-denominated Cerberus loan to be converted into GBP for the purchase of shares and the settlement of associated costs incurred in GBP. This instrument has been stated at fair value at 31 December 2015.
Key foreign exchange rates are shown in the table below:
Table 10: Currency rates against the Euro
|1 Jan 2014||30 Jun 2014||31 Dec 2014||30 Jun 2015||31 Dec 2015||Average 2014||Average 2015|
As the Group's operations result in a currency mis-match between income and costs (long Euro, short GBP), the Group is retaining a significant GBP bank balance which will of course be subject to foreign exchange revaluation at each balance sheet date.
CERBERUS LOAN FACILITY
The senior loan facility from Cerberus Business Finance LLC has a number of components other than simple interest and therefore there are significant differences between the cash profile of the payments and the accounting recognition. Firstly the deal and associated fees need to be allocated to each portion of the draw-down; secondly, they need to be expensed over the two year period of the loan facility. The simple interest on the loan is 11.5% above a 1% EURIBOR floor. This floor has been identified as an "embedded derivative", which is not material at 31 December 2015 in respect of the initial draw-down and will be evaluated again when the second tranche is drawn down in 2016. The tables below show each of the fee components, how they are allocated and in which year the charges would arise.
Table 11: Allocation of the fees to each draw-down
4 Sept 2015
2 Feb 2016
|18 month fee*||2.5%||500||9,500||10,000|
|Total arrangement fees||1,998||39,953||41,950|
* these items are required to be accounted for in 2015 whether or not the loan remains in place at 2 February 2017 or 2 August 2017
Table 12: Accounting allocation and cash profile (assuming the loan reaches maturity on 4 September 2017)
|18 month fee||2.5%||81||5,721||4,198||10,000|
|Total arrangement fees||325||24,007||17,618||41,950|
|Total anticipated finance charge||1,245||71,018||52,024||124,287|
Table 13: Loan components in 2015
in note 11
PART TWO - POST BALANCE SHEET EVENT: THE ACQUISITION OF BWIN.PARTY
The acquisition completed on 1 February 2016. The GVC share price used to account for the acquisition will be £4.67. The share price at which the related £150 million placing of new ordinary shares was effected and the strike price at which share options were issued pursuant to the 2015 LTIP was £4.22. The rate of exchange between sterling and the Euro used for the acquisition accounting will be £1 = €1.3205.
The number of bwin.party shares subject to the mix and match election was 843,469,689, and the number of shares placed by GVC was 35,545,024. The offer for bwin.party was 0.231 GVC shares and 25 pence for each bwin.party share. In addition, there was the cost of cashing out the cash-settled options of £21.4 million.
The gross acquisition value of bwin.party is therefore:
|Equity component||843,469,689 x 0.231 = 194,841,498 shares at £4.67 =||£909.9m|
|Cash component||843,469,689 x 0.25 =||£210.9m|
Our early work on the acquisition balance sheet suggests a purchase price allocation of €608 million for the brand, platform and customer relationships.
The acquisition, plus additional working capital, and funds to settle inherited debts and pay acquisition costs was financed through a combination of:
|Shares issued to bwin.party shareholders||£909.9m|
|Shares issued to placees||£150.0m|
|Total GBP components||£1,059.9m|
|Translated into Euro at 1.3205||€1,399.6m|
|Senior debt facility from Cerberus Business Finance LLC||€400.0m|
|Total finance raised||€1,799.6m|
|Share and cash offer to bwin.party share and option holder||(€1,508.2m)|
|Existing bwin.party debt discharged*||(€56.7m)|
|- Discharged before 31 December 2015||€4.2m||€13.5m|
|- Discharged since 1 January 2016||€8.8m||€16.9m|
|Other liabilities contractually discharged at or near deal close||(€3.2m)|
|FUNDS AVAILABLE FOR WORKING CAPITAL AND RESTRUCTURING||€188.1m|
* includes any and all amounts repaid since 31 December 2015 including any interest and break fees
I can now turn to the condensed aggregated balance sheet, income statement and cash flow statement of the combined entities as they would have looked for the year ended 31 December 2015, making adjustments for the businesses which bwin.party disposed of during 2015.
The aggregated statements do not reflect the accounting for the business combination, whereby assets and liabilities acquired will be fair valued, and goodwill will be recognised by the Group, nor the funding for the acquisition, with consequential impacts on the income statement. Please note that the aggregated balance sheet, income statement and cash flow statement have not been prepared on the same basis as the Unaudited Pro Forma Information of the Enlarged Group included in Part 7 of the Prospectus prepared by GVC in connection with the bwin.party acquisition.
The figures of GVC Group have been aggregated with the bwin.party figures which have been audited by their respective independent auditors.
A balance sheet prepared as an aggregation of the enlarged Group at 31 December 2015 is shown below:
|AGGREGATED BALANCE SHEET|
|As at 31 December 2015||Bwin||GVC||Aggregated|
|Property plant and equipment||48.6||1.4||50.0|
|Available for sale financial assets||3.7||2.6||6.3|
|Deferred consideration receivable||6.4||6.4|
|*Cash, cash equivalents and short-term investments||166.4||28.2||194.6|
|*Payment processor balances||30.9||21.7||52.6|
|Deferred consideration receivable||6.0||-||6.0|
|Assets held for sale||14.5||3.8||18.3|
|Income taxes receivable||-||6.0||6.0|
|Other receivables and prepayments||63.4||12.9||76.3|
|*Progressive prize pools||(8.6)||(8.6)|
|Accrued deal costs||-||-||-|
|Trade and other payables||(110.2)||(32.0)||(142.2)|
|Income and gaming taxes payable||(34.7)||(9.3)||(44.0)|
|Hedging instrument liability||-||(9.9)||(9.9)|
|Share option liability||-||(9.7)||(9.7)|
|*Loans and borrowings||(6.8)||(3.7)||(10.5)|
|Provision for onerous contracts||(8.1)||-||(8.1)|
|Contingent consideration payable||(0.8)||(1.6)||(2.4)|
|Contingent consideration payable and similar||(4.4)||(0.7)||(5.1)|
|*Loans and borrowings||(49.7)||(19.8)||(69.5)|
|Share option liability||-||(2.1)||(2.1)|
|Total net current assets||5.7||(8.4)||(2.7)|
|Total of net current assets less non-current liabilities||(74.5)||(31.0)||(105.5)|
|Total net assets||499.6||128.1||627.7|
|*Net cash/(net debt)||25.9||11.6||37.5|
There are a number of liabilities which are split between current and non-current. The table below summarises these:
|As at 31 December 2015||Bwin||GVC||Aggregated|
|Memorandum: total of deferred consideration payable||(5.2)||(2.3)||(7.5)|
|Memorandum: total of loans and indebtedness||(56.5)||(23.5)||(80.0)|
|Memorandum: share option liability discharged on acquisition||-||(11.8)||(11.8)|
An Income statement, aggregated as if bwin.party had been acquired on 1 January 2015, would appear as below:
|AGGREGATED INCOME STATEMENT|
|Year ended 31 December 2015
|Sports margin %||9.02%||9.02%||9.16%||9.07%|
|Deal costs and similar*||(25.3)||(25.3)||(23.3)||(48.6)|
|Other exceptional items*||(9.8)||(9.8)||-||(9.8)|
|Retrospective gaming taxes*||(8.9)||(8.9)||(1.2)||(10.1)|
|Net financial income/(expense)||1.4||-||(3.0)||(1.6)||(2.3)||(3.9)|
|Impairments and similar items||(7.9)||(7.9)||3.6||(4.3)|
|Share option charges||(33.2)||(33.2)||(0.4)||(33.6)|
|Profit before tax||(40.2)||(2.1)||-||(42.3)||25.5||(16.8)|
|Profit/(loss) for the year||(44.4)||(2.1)||-||(46.5)||24.7||(21.8)|
|Normalised profit for the year (* added back)||46.7|
A cash flow, aggregated as if bwin.party had been acquired on 1 January 2015, would appear as below:
|AGGREGATED CASH FLOW|
|Year ended 31 December 2015
|Bwin||Disposals||Reclassification||Bwin restated||GVC|| Aggregated
|Plant and equipment||(38.3)||(38.3)||(1.2)||(39.5)|
|Capitalised development costs||(19.4)||(19.4)||(5.0)||(24.4)|
|Exceptional items incurred in cash||-||-||(1.5)||(1.5)|
|Debt & Lease repayments||(3.6)||(3.6)||(5.0)||(8.6)|
|Investments made and similar||2.8||2.8||-||2.8|
|Cash settled share options||-||(0.5)||(0.5)|
|Loans drawn down (gross)||-||20.0||20.0|
|Draw down fees, interest and legal expenses||-||(9.0)||(9.0)|
|Other deal related professional fees||-||(13.5)||(13.5)|
|FX option premium paid, less return of premium received||-||0.3||0.3|
|Net finance expenses||(0.8)||(0.8)||(0.8)|
|Net payment of taxes||(8.2)||(8.2)||(8.2)|
|Net issue of shares||0.2||0.2||0.2|
|Working capital movements||(10.1)||(10.1)||8.4||(1.7)|
|Cash movement for the year before dividend||31.1||(2.1)||3.0||32.0||44.7||76.7|
|Cash movement for year||(12.1)||(2.1)||3.0||(11.2)||10.4||(0.8)|
|Cash at start of year||164.4||-||13.5||177.9||17.8||195.7|
|Cash at end of year||152.3||(2.1)||16.5||166.7||28.2||194.9|
|Clean net operating cash flow||31.7||-||-||31.7||52.9||84.6|
Future trading updates and financial calendar
It is anticipated that GVC will make further announcements on or around the following dates:
|W/c 25 April 2016||Publication of Report and Accounts on the Company's website, www.gvc-plc.com|
|30 April 2016||Posting of Report and Accounts and Notice of AGM|
|24 May 2016||AGM trading update, Result of AGM|
|July 2016||H1 trading update|
|September 2016||Interim results|
Group Finance Director
22 April 2016
PRINCIPAL RISKS AND UNCERTAINTIES
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.
The key risks and how we seek to manage them are set out below:
|Risks and uncertainties||Mitigation|
|The Group may be threatened by Denial of Service attacks or similar.||The Group has highly advanced preventative measures with world-class technology firms.|
|Natural or man-made disasters may affect continuity of operations, undermining player confidence.||Disaster recovery and business continuity solutions are in place and tested regularly.|
|With technological advances and continuous shifts in how consumers access our services, maintaining and improving technology may become more complex.||Focus on developing customer experience, for example through an expanded mobile offering.|
|Following the acquisition of bwin.party, the Group is undertaking a significant technology platform migration, which carries a project risk.||Close monitoring by management; reporting up to the Board regularly.|
|Conflict between jurisdictions in which the customer resides and where the service is provided; risk of enforcement action.||Strict adherence to the laws of the jurisdiction in which the service is provided and the rules and protocols in nationally regulated markets.|
|In some markets regulation is not clearly defined or adopted; there may be changes in regulation in all markets.||Close monitoring of regulatory developments and assessment of their longer term impact.
Maintenance of a diversified product portfolio.
|Imposition of additional gaming or other indirect taxes.||May not be possible to mitigate. However, payment of additional taxes may create opportunities to work with governments and gain market benefits.|
|Transfer pricing between group entities could be challenged by the tax authorities.||Intra-group transactions are documented and take place on commercial terms.
Regular review of all tax arrangements and update transfer pricing when required.
|Changes in VAT rules within the EU impacting the digital economy.||Monitor the situation, as significant uncertainty remains.|
|Conditions in the Eurozone remain challenging and this may erode customer base confidence and spending power.||Customer retention programmes.
Broader geographic spread of products.
|Foreign exchange movements; risk of certain countries exiting the Euro.||The Group tries to match its income and cost exposures to create a natural hedge.
Regular evaluation of low cost hedging opportunities.
Wherever practical, financial assets held within certain countries are limited so they do not exceed the financial liabilities in that jurisdiction.
|Brexit: if the outcome of the June referendum is that the UK leaves the EU, this may increase the volatility of global currency and financial markets. In addition, it may reduce the Group's ability to operate in certain EU markets without a change in domiciliation, which could carry a higher tax burden.||Monitor the situation. The Group has licences in a number of EU countries including: Malta, Denmark, Italy, France, Romania, Greece, Germany, as well as licences in the Brexit zone (UK, Gibraltar).|
|Increases in EURIBOR will increase the interest cost for the Group. The loan arrangements contain covenants which, if breached, would trigger early repayment of the facility.||Maintenance of cash headroom mitigates some interest rate risk and provides flexibility of early repayment. Covenants are monitored on a monthly basis.|
|The market place becomes more competitive via new entrants or more attractive products available from those or existing competitors.||Monitoring of the competitive landscape.
Working with software providers to enhance the product offering.
|Withdrawal of payment processing facilities.||Multiple payment processing methods used by the Group.|
|Reliance on third party payment and multi-currency processing systems.||Spreading of risk across payment processors with varying deposit and withdrawal methods.|
|Dependence on third party software.||Long-term contracts in place with key suppliers.|
|Dependence on key personnel.||There is a broad base of executives below Board level which has been strengthened with recent joiners.|
|Loss of major introducer of business.||Competitive revenue sharing models applied and monitored regularly. Key introducers are offered long-term revenue prospects with the Group to ensure alignment of financial interests.|
|Loss of major customer.||Highly diversified customer base with thousands of customers across all brands.|
|Poor sports results.||Sports represents c.50% of the Group's net gaming revenue and as a matter of policy they are not hedged as over the longer term sports results trend to the Group's expected margin percentage.|
|Abnormal jackpot wins.||Revenues from some business lines have a jackpot insurance policy; others do not, as a matter of policy.|
|Business integration process following the acquisition of bwin.party: risk of business disruption and the impact on staff; risk of unexpected costs or constraints on delivering expected synergies.||Regular monitoring by management.|
For and on behalf of the Board of GVC Holdings PLC.
Group Finance Director
Registered office: 32 Athol Street, Douglas, Isle of Man, IM1 1JB
|Net Gaming Revenue||2||247,730||224,801|
|Cost of sales||(112,369)||(101,513)|
|Share option charges||3||(449)||(736)|
|Depreciation and amortisation||3, 6||(4,985)||(3,912)|
|Impairment of available for sale asset||7||(1,216)||(1,593)|
|Changes in the fair value of derivative financial instruments||8||4,817||-|
|Profit before tax||25,506||41,291|
|Profit after tax||24,659||40,563|
|Earnings per share||€||€|
|Profit for the year||24,659||40,563|
|Total comprehensive income for the year||24,659||40,563|
The notes below form part of these financial statements.
|Property, plant and equipment||1,428||1,147|
|Available for sale financial asset||7||2,585||3,801|
|Total non-current assets||159,166||159,208|
|Trade and other receivables||34,618||27,605|
|Winunited option asset||8||3,808||-|
|Income taxes reclaimable||5,972||3,925|
|Other tax reclaimable||12||139|
|Cash and cash equivalents||28,170||17,829|
|Total current assets||72,580||49,498|
|Trade and other payables||(32,016)||(26,777)|
|Balances with customers||(14,808)||(13,036)|
|Amounts due under finance leases||(691)||(1,362)|
|Non-interest bearing loans and borrowings||9||(3,020)||(2,735)|
|Deferred consideration on Betboo||(1,606)||(2,347)|
|Share option liability||11||(9,740)||(184)|
|Forward contract liability||3||(9,877)||-|
|Income taxes payable||(7,251)||(5,014)|
|Other taxation payable||(2,020)||(1,338)|
|Total current liabilities||(81,029)||(52,793)|
|Current assets less current liabilities||(8,449)||(3,295)|
|Interest bearing loans and borrowings||9||(19,821)||(327)|
|Non-interest bearing loans and borrowings||9||-||(2,777)|
|Share option liability||11||(2,036)||-|
|Betit option liability||8||(736)||(1,745)|
|Deferred consideration on Betboo||-||(1,606)|
|Total non-current liabilities||(22,593)||(6,455)|
|Total net assets||128,124||149,458|
|Capital and reserves|
|Issued share capital||10||613||613|
|Total equity attributable to equity holders of the parent||128,124||149,458|
The financial statements were approved and authorised for issue by the Board of Directors on 22 April 2016 and signed on their behalf by:
(Chief Executive Officer)
(Group Finance Director)
The notes below form part of these financial statements.
Attributable to equity holders of the parent company:
|Share Capital||Merger Reserve||Share
|Translation Reserve||Retained Earnings*||Total|
|Balance at 1 January 2014||609||40,407||84,530||359||15,191||141,096|
|Share option charges**||-||-||-||-||552||552|
|Share options exercised||4||-||850||-||-||854|
|Transactions with owners||4||-||850||-||(33,055)||(32,201)|
|Profit for the year||-||-||-||-||40,563||40,563|
|Total comprehensive income for the year||-||-||-||-||40,563||40,563|
|Balance as at 31 December 2014||613||40,407||85,380||359||22,699||149,458|
|Balance at 1 January 2015||613||40,407||85,380||359||22,699||149,458|
|Share option charges**||11||-||-||-||-||509||509|
|Share options surrendered||11||-||-||-||-||(12,183)||(12,183)|
|Share options exercised||11||-||-||-||-||-||-|
|Transactions with owners||-||-||(45,993)||(45,993)|
|Profit for the year||-||-||-||-||24,659||24,659|
|Other comprehensive income for the year||-||-||-||-||-||-|
|Total comprehensive income for the year||-||-||-||-||24,659||24,659|
|Balance as at 31 December 2015||613||40,407||85,380||359||1,365||128,124|
*the share option reserve included within retained earnings at 31 December 2015 amounted to a debit balance of €6,955,345, largely due to the surrender of fully vested share options during 2015, now recognised as a liability.
**total share option charge per the Consolidated Income Statement amounted to €449,231, the difference being a net credit to the cash settled share option expense of €59,282 which is not taken directly to retained earnings.
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).
The notes below form part of these financial statements.
|Cash flows from operating activities|
|Cash receipts from customers||248,227||221,048|
|Cash paid to suppliers and employees||(208,600)||(172,581)|
|Corporate taxes recovered||-||1,256|
|Corporate taxes paid||(657)||(1,740)|
|Net cash from operating activities||38,970||47,983|
|Cash flows from investing activities|
|Acquisition earn-out payments (Betboo)||(2,401)||(4,339)|
|Investment in Betit||8||-||(3,649)|
|Acquisition of property, plant and equipment||(1,156)||(802)|
|Capitalised development costs||6||(5,003)||(3,343)|
|Net cash used in investing activities||(8,556)||(12,117)|
|Cash flows from financing activities|
|Proceeds from interest bearing loan (Cerberus)||9||19,375||-|
|Non-interest bearing loan (from William Hill)||9||(3,245)||(2,856)|
|Proceeds from issue of share capital||-||854|
|Repayment of borrowings||(1,768)||(1,149)|
|Net cash used in financing activities||(19,957)||(36,758)|
|Net increase/(decrease) in cash and cash equivalents||10,457||(892)|
|Cash and cash equivalents at beginning of the year||17,829||18,808|
|Cash and cash equivalents at end of the year||28,170||17,829|
The notes below form part of these financial statements.
The notes are available in the PDF download.