REG - Veltyco Group PLC - Final Results
7 June 2018
VELTYCO GROUP PLC
("Veltyco" or "the Group")
Final Results for the year ended 31 December 2017
Veltyco, the AIM quoted marketing company for the gaming sector, is pleased to announce its final results for the year ended 31 December 2017.
Financial highlights
· Revenue for the year increased 165% to €16.2 million (2016: €6.1 million)
· Operating EBITDA for the year increased 260% to €8.1 million (2016: €2.2 million)1
· Raised €2.55 million before expenses during the period to fund the acquisitions of T4U Marketing Ltd ("T4U") and Bet90 in April 2017
· Proposing to pay a maiden dividend for the year ended 31 December 2017 amounting to 0.25p per share
Operational highlights
· Completed the acquisitions of 51% interests in each of T4U and Quasar Holdings Ltd (running the Bet90 operations)
· Launched Bet90 in July 2017 and achieved significant growth in revenues; the Board expects Bet90 to be a key driver of further growth in 2018
· Achieved growth in all three major verticals the Group operates in
Post year end
· Acquired a 51% interest in Varkasso Limited, a software platform providing crypto wallet solutions based on blockchain technology
· Completed acquisition of a database of active users in the online financial trading sector, ahead of the Group's intended launch of a regulated brand later in 2018
· Extended existing partnership with eSports.com
Current trading
· Momentum from 2017 has continued into 2018, with revenues of approximately €4.8 million in the first quarter of 2018 - growth of 60% year on year
· As at 28 May 2018, the Company had cash of €1.6 million compared to €0.7 million as at 31 December 2017
Gilles Ohana, Chairman, commented: "We are delighted with the progress achieved at Veltyco throughout 2017, which has delivered a very strong trading performance and enabled us to propose a maiden dividend.
We have enjoyed a positive start to 2018 with revenues in the first quarter showing significant growth when compared to the corresponding period in 2017. Looking ahead, we see continued growth in 2018, both from our marketing activities, including the potential to expand our current sportsbook marketing activities into new territories, and our own brands, in particular Bet90, which is expected to be a key driver of this growth."
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.
____________
1 Operating EBITDA excludes the listing expenses which the Company incurred in respect of the reverse merger completed during 2016 and share based payment expense.
For further information please contact:
Veltyco Group Plc +44 (0)1624 605 764
Gilles Ohana, Chairman
Melissa Blau, CEO
Marcel Noordeloos, CFO
Strand Hanson Limited (Nominated Adviser) +44 (0)20 7409 3494
James Harris / Richard Tulloch / James Dance
Whitman Howard Ltd (Broker) +44 (0)20 7659 1234
Francis North / Nick Lovering
IFC Advisory (Financial PR & IR) +44 (0)20 3934 6630
Graham Herring / Miles Nolan / Zach Cohen
About Veltyco
Veltyco is a group of companies focused on generating marketing leads and entering into marketing contracts for the activities of various partners in the gaming industry as well as operating its own brands. Veltyco focuses on complementary activities under one umbrella, leveraging its historical cash generative activities of marketing online casinos and sports betting.
Website: www.veltyco.com
STRATEGIC REPORT
I am pleased to present our Annual Report for the financial year ended 31 December 2017.
Financial and operational highlights
Revenues: +165% to €16.2 million (€6.1 million)
Operating EBITDA: +260% to €8.1 million (€2.2 million)
Operating profit: +361% to €7.5 million (€1.6 million)
Maiden dividend proposed: 0.25p per share (2016: nil)
Operational review
The Board is delighted with the operational progress achieved during 2017 and the significant uplift in its operating results. The growth in 2017 has been delivered from both our core marketing and promotion activities for third parties but also from our own gaming brands.
During 2017, Veltyco Group plc (the "Group", the "Company" or "Veltyco") achieved significant growth in both revenues and profitability, through the Company's continued focus on the marketing and promotion for its partners in sports betting, casinos, poker games, lottery and online financial trading. Revenues increased 165% to €16.2 million (2016: €6.1 million), driven by the significant increase in the Group's commissions from its marketing activities, together with a full year's contribution from marketing activities for Zoomtraderglobal. In addition, the Company's own brands had a positive impact on revenues, in particular Bet90, the Company's own sportsbook which commenced operations in July 2017.
The majority of our revenue continues to be derived from online marketing activities but we are also seeking to increase the level of operational control we have by owning our own brands. Given the Company's expertise in marketing, the Board believes that the continued expansion of its own brand activities, following the acquisitions of 51% interests in each of Bet90 and T4U during 2017, and the recently announced intention to launch a new regulated brand active in the online trading sector later in 2018, will be a key driver for the Company's future growth.
As previously announced, the Company is in discussions regarding the potential acquisition of Ruleo Alpenland GmbH, a company that operates the BTTY branded sportsbook in Germany and Austria. Following completion of due diligence and recent developments regarding the German license program that could impact on BTTY going forward, the Board is currently considering its options regarding the acquisition and will update the market shortly.
Subsequent to the year end, the sportsbook operator, for whom the Group undertakes marketing activities, informed the Company that it would not be automatically extending its existing marketing agreement and that it would therefore end at the end of April 2018. The Company is pleased to confirm that following discussions between the parties, the Group and the sportsbook operator have agreed, subject to documentation, to further extend the existing agreement as well as to potentially expand the marketing relationship to include additional territories. In light of this and the upcoming FIFA World Cup in Russia starting in mid-June 2018, the Group continues to provide marketing activities to the sportsbook operator. The Directors believe that the proposed continuation of the existing marketing agreement and potential expansion into new territories, demonstrates the reach of the Group's marketing activities.
Another exciting venture which Veltyco has entered is that of eSports.com - the eSports market (multiplayer and team video game competitions) is a rapidly expanding market and is attracting increasing interest from many large companies and media brands. To leverage our client base and address this market we recently acquired a minority stake in Germany based www.esports.com, which is an online portal for the eSports industry providing news, scores and statistics. This is an exciting opportunity for Veltyco to ultimately provide betting odds on games, through Bet90, as the eSports market develops.
Innovative techniques are at the heart of the Company's operations and was the basis for the acquisition of a 51% interest in Varkasso in January 2018, a Company which has the exclusive rights to the use 8crypt, a crypto e-wallet service provider based on blockchain technology. The Board believes that the strategic investment will, in the future, allow Veltyco to provide a solution that enables customers to connect their own individual crypto wallets to traditional currencies as well as crypto currencies.
Financial review
2017 was a year of significant growth for Veltyco. After the successful completion of the reverse merger in June 2016, Veltyco has expanded and diversified its operations, both through the addition of marketing partners and acquisitions, in particular Bet90.
Revenues increased significantly to €16.2 million (2016: €6.1 million), driven by the strong performance across our core marketing and promotion activities for third parties together with a growing contribution from our own gaming brands as detailed above. The total profit for the year amounted to €6.8 million (2016: €20.6 thousand). The results for 2016 were significantly impacted by the expenses relating to the reverse merger and associated due diligence processes of in aggregate €1.5 million. The operating EBITDA for the year ended 31 December 2017 was €8.1 million (2016: €2.2 million pre any costs associated with the reverse merger).
Details of the operating EBITDA are as follows:
2017
2016
€
€
Operating profit
7,482,129
1,621,946
Depreciation and amortisation expense
380,173
87,169
Impairment charge
-
275,011
Reverse merger listing expense
-
123,850
Share based payment (included in salary expense)
239,084
140,940
Operating EBITDA
8,103,386
2,248,916
Further to the acquisition of 51% of the Bet90 operations via Quasar Holdings Ltd (for a total cash consideration of €2.0 million), the Company also acquired 51% of T4U Marketing Ltd (for a total cash consideration of €0.5 million), a company that operates the online sports-betting forum sites of the www.tippen4you.com, www.tippen4you.at and www.sportwettenforum.info domains. To fund these two acquisitions, the Company raised €2.55 million (before expenses) via a subscription with new and existing shareholders.
Both acquisitions are performing in line with Company's expectations and the Board believes that Bet90 will be a predominant driver of the Company's growth in revenues and profitability going forward.
Cash Flow
The Group operates in three major verticals (sports book and casinos, online lotteries and online financial trading) and has revenues and cost centres in numerous locations around the world. Significant growth was achieved across all verticals during 2017 and in particular, in respect of commissions due from the Group's marketing activities in online financial trading.
The Group has experienced some operational difficulties in receiving agreed marketing commissions within the online financial trading vertical due to internal processes applied by the Group's banks, however, the Directors have received written confirmation from the operators that the commissions are due and payable to the Group. The Directors started the process of restructuring the Group's banking relationships during 2017, in order to collect the receivables from all trading operators in different locations, without any restriction and the benefits are already being seen and are expected to increase in the coming months.
As a result of the above, the Group had a negative cash flow from operations of €1.1 million for the year ended 31 December 2017. Following completion of the restructuring of the Group's banking relationships, the Group does not expect to experience ongoing issues regarding the receipt of commissions due to it pursuant to its marketing agreements.
Board changes
During and post the year end, the Company made a number of changes to its Board and senior management to reflect the Company's evolution and growth.
In January 2017, the Group announced the appointment of Ilan Tzorya as Non-executive Director to support the Group's option marketing activities.
On 20 November 2017, the Group announced the appointment of Gilles Ohana as Non-executive Director and that David Mathewson would be stepping down as the Company's Non-Executive Chairman on 31 January 2018. Gilles Ohana was subsequently appointed as Non-Executive Chairman on 26 March 2018.
After the year end, in March 2018 the Company announced a number of further changes to its Board and senior management, as the Company sought to enhance the composition of its management team to allow it to capitalise on the significant opportunities that it believes are available to it. As part of the changes, Melissa Blau was appointed as Chief Executive Officer and Rainer Lauffs was appointed as Chief Operating Officer, while Uwe Lenhoff and Hans Dahlgren both stepped down from the Board, though they both remain fully committed to the Company as part of the Company's Senior Management team. Uwe Lenhoff is now the Company's Head of Business Development, allowing him to focus on his strength as an entrepreneur and new business generator whilst handing over the day to day operations of the business to Rainer Lauffs. Hans Dahlgren will continue as the Company's Chief Technical Officer. In addition, the Company announced the resignation of Ilan Tzorya as a Non-executive Director, to make way for the aforementioned changes to be implemented.
The Company is seeking a further independent Non-executive Director in line with the continuing growth of the Company and a further announcement will be made as appropriate.
Current trading and outlook
Following a very strong end to 2017, the momentum has continued into the first quarter of 2018 with revenues of approximately €4.8 million (Q1 2017: approximately €3 million), an increase of approximately 60% compared to the same period in 2017. The Board continues to believe that the Company is well positioned to achieve growth in 2018, with Bet90 being the main driver as it continues to grow and expand into new markets.
Dividend
The Directors are proposing to pay a maiden dividend for the year ended 31 December 2017, amounting to 0.25p per share and will include the final proposal in the notice of the Annual General Meeting. The Directors intend to establish a progressive dividend policy going forward, taking into account the growth strategy of the Group, both organically as well as its development and growth through acquisitions.
Approved by the Board of Directors and signed on behalf of the Board,
Gilles Ohana
Non-executive Chairman, Veltyco Group plc
6 June 2018
Directors' Report
The Directors present their report and consolidated financial statements for the year ended 31 December 2017.
Principal activities and review of the business
Veltyco is a company primarily focused on generating marketing leads and entering into marketing contracts for the activities of its partners in sports betting, casinos, poker games, lottery and online financial trading. Veltyco focuses on all of these three complementary industries under one umbrella, leveraging its historical cash generative activities of marketing online casinos and sports betting. Following the acquisitions of a 51% interest in Bet90 in April 2017 and the launch of its operations at the end of July 2017, the Group now has its own sportsbook, which is expected to be a significant contributor to the Group's growth in 2018.
Results and dividends
The Group's profit for the year, after taxation, amounted to €6.8 million (2016: profit of €20.6 thousand). The Group's 2016 profit was highly impacted by the reverse merger accounting and re-listing process. The operating EBITDA for the full year 2017 amounts to €8.1 million (2016: €2.2 million).
The Directors are proposing to pay a dividend for the year ended 31 December 2017, amounting to 0.25p per share and will include the final proposal in the notice of the Annual General Meeting.
Future developments
Future developments are discussed in the Strategic Report.
Financial Risk Management
The Board of Directors is responsible for setting the objectives and underlying principles of financial risk management for the Group. The Board of Directors establishes the detailed policies such as authority levels, oversight responsibilities, risk identification and measurement and exposure limits.
Capital risk management
The Company's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders.
Liquidity risk
Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.
Currency risk
The Group is exposed to translation and transaction foreign exchange risk. As the majority of the Group's transactions are denominated in Euro, the Directors deem the Group's exposure to exchange rate fluctuations to be minimal.
Interest rate risk
The Group's exposure to upside interest rate risk is limited. The loans on the balance sheet have a fixed interest rate. The Directors do not consider the impact of possible interest rate changes 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 2017 or 31 December 2016.
Credit risk
The Group's credit risk is primarily attributable to trade receivables, most of which are due from the Group's partners in the online financial trading vertical. The risk is that one of these partners would fail to discharge its obligation with regard to the balance owed to the Group. In addition, the Group has experienced some operational difficulties in receiving agreed marketing commissions from operators within the online financial trading sector due to internal processes applied by the Group's banks and the Group is in the process of restructuring its banking arrangements.
The Group seeks to reduce this credit risk by:
· monitoring balances with these partners on a regular basis.
· the current restructuring of its banking relationships in order to enable the Group to receive funds in different locations on a timely basis, which has not always been possible to date; and
· entering into agreements to receive funds directly from the partners payment processors.
The Group considers that based on the factors above, on past experience and on current trading, the receivables are of good credit quality and there is a low level of potential bad debt as at year-end. In addition, the Directors believe that the systems being put in place will enable monies due to the Group to be received on a timely basis.
An additional credit risk the Group faces relates to customers in its own operations (such as Bet90) disputing charges made to their credit cards ("chargebacks") or any other funding method they have used in respect of the services provided by the Group. Customers may fail to fulfil their obligation to pay, which will result in funds not being collected. These chargebacks and uncollected deposits, when occurring, will be deducted at source by the payment service providers from any amount due to the Group. When needed, the Group provides for these eventualities by way of an impairment provision based on analysis of past transactions. For the year-ended 31 December 2017, the Group has not made any provision for this.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
Going concern
After careful review of the Group's forecast for 2018, its medium-term plans, liquid resources and all relevant matters, the Directors are confident that the Group has adequate financial resources to continue in operational existence for the foreseeable future and for a period of at least 12 months from the date of this Annual Report. The Directors have therefore continued to adopt the going concern basis in preparing the Group's financial statements.
The Group operates in three major verticals (sports book and casinos, online lotteries and online financial trading) and has revenues and cost centres in numerous locations around the world. Significant growth was achieved across all verticals during 2017 and in particular in respect of commissions due from the Group's marketing activities in online financial trading.
The Group has experienced some operational difficulties in receiving agreed marketing commissions from operators within the online financial trading sector due to internal processes applied by the Group's banks, however, the Directors have received written confirmation from the operators that the commissions are due and payable to the Group. The Directors started the process of restructuring the Group's banking relationships during 2017, in order to collect the receivables from all trading operators in different locations, without any restriction.
As a result of the above, the receipt of agreed commissions due to the Group in respect of the online financial trading vertical has been slower than anticipated and together with the significant growth in commissions from its marketing activities, the Group's trade receivable balance as at 31 December 2017 was approximately €8.8 million, the majority of which related to the Group's online financial trading activities. Together with a non-current and current loan receivable balance totalling €2.6 million and accrued income (being revenue that has been generated but not yet invoiced) of €2.7 million, the Group's total receivables balance as at 31 December 2017 was, in aggregate, €14.1 million across all of its operations. Of the total receivables balance, approximately €10.7 million related to marketing activities for Altair Entertainment N.V. ("Altair") in the online financial trading vertical.
The restructuring process of the Group's banking operations has made good progress and the benefits are already being seen and are expected to increase in the coming months. Since the year end, the receivables position of the Group as at 31 December 2017 has decreased and the Directors believe that the operators will fully settle the outstanding balances during the coming months.
Since the year end, the Group's total receivable balance of €14.1 million as at 31 December 2017 has been reduced to €4.9 million, all of which relates to the online financial trading vertical (of which €3.4 million is due from Altair), as follows:
· pursuant to the acquisition of Marsovia Holdings Ltd ("Marsovia") (regarding the database of users within online financial trading) from Altair, the €4.0 million consideration was offset against the full amount of the current loan receivable balance of €2.6 million and €1.4 million of trade receivables due from Altair, as announced on 25 May 2018 and disclosed in Note 15 of the accounts;
· €2.5 million has been settled against a loan provided to the Group by Winslet Enterprises Ltd ("Winslet"), a related party (ultimately controlled by Uwe Lenhoff, a previous director of the Company who is also the Company's main shareholder) for a corresponding amount. The balance of the loan as at 31 December 2017 was €1.0 million (see Note 22);
· €0.35 million has been offset against amounts due to a subsidiary of Altair, Payific Ltd; and
· €2.3 million has been received in cash by the Group from trading operators.
The above settlements are against the oldest receivables and as a result of trading since the year end and the ongoing restructuring of the Group's banking relationships, the Group's trade receivable balance as at 28 May 2018 was approximately €8.4 million (of which €3.4 million is due from Altair and €2.7 million is due from Celestial Trading Ltd ("Celestial")). In addition to the current trade receivable balance, the Group also has accrued income in respect of April and May 2018. Since the beginning of 2018, Celestial Trading Ltd has been operating all of the online financial trading brands for which the Group undertakes marketing activities and as a result, the commission due from such activities in 2018 is now payable by Celestial.
The Group had a negative cash flow from operations of €1.1 million for the year ended 31 December 2017. As a result of the above, the Group's current cash position has improved since the year end to €1.6 million as at 28 May 2018 (31 December 2017: €0.7 million) and at the same date, its borrowings have decreased from €1.4 million at the year end to just €27 thousand.
The Directors believe they have taken sufficient measures and made appropriate arrangements with its trading providers to obtain additional comfort on the collectability of these receivables, and therefore believe this balance will be recovered in full. Furthermore, the Directors continue to work on diversifying the Group's banking relationships in order to continue to receive commission payments in a normal way within the online financial trading vertical.
The ability of the Group to settle its liabilities as they fall due is dependent on the ability of the customers to settle the trade receivable balances and the Group's ability to finalise the restructuring of its banking relationships during the course of 2018, or to obtain loans from third parties to fund the working capital requirements of the business in the ordinary course. The Directors believe that with the agreements and measures in place, the outstanding amounts will be fully recovered during the remainder of the year.
Post balance sheet events
On 11 January 2018, the Group announced that MWB Fairtrade Wertpapierhandelsbank AG, a German securities broker, had successfully applied for a secondary listing of Veltyco's ordinary shares of no par value ("Ordinary Shares") to start trading on the Quotation Board Segment of the Open Market of the Frankfurt Stock Exchange ("FSE"), also known as the Regulated Unofficial Market of the FSE, or Freiverkehr. Accordingly, the Ordinary Shares of Veltyco are now tradable on the FSE under the symbol 24GN. The entire issued ordinary share capital of the Company continues to trade on the AIM market of the London Stock Exchange under the symbol VLTY.
On 17 January 2018, the Board announced that it had entered into an agreement to acquire a 51% interest in Varkasso Limited ("Varkasso"), a company that has the exclusive rights to use 8Crypt, a software platform providing crypto wallet solutions based on blockchain technology. The Board believes that this acquisition is an important step towards optimising players experience across its partners' platforms, allowing customers to access each platform from one wallet that also has the ability to accept crypto currencies through the use of blockchain technology.
On 16 February 2018, David Mathewson, former Chairman of the Company, exercised his 250,000 options at an exercise price of £0.25 per share.
Furthermore, on 15 March 2018, the Company announced that it had entered into a further partnership with eSports.com, focusing on the roll out of a new eSports business: in essence, the Group has extended its partnership with eSports.com and has entered into a joint venture with eSports.com to join forces in a blockchain project.
On 25 May 2018, the Company announced it that it had entered into an agreement with Altair to acquire the entire issued share capital of Marsovia. This acquisition being the first step in the Group seeking to launch a new regulated brand, active in the online trading sector. Marsovia holds a database of approximately 43,500 customers, of which approximately 26,000 are considered to be active, in the online trading sector.
The total consideration for this transaction amounted to €4.0 million and was offset against the existing indebtedness of, in aggregate, approximately €2.6 million pursuant to certain loans provided by the Group to Altair and certain trade receivables of approximately €1.4 million relating to the existing marketing agreements with Altair, resulting in this acquisition being cash neutral for Veltyco.
At the same time, the Directors confirmed that the existing marketing agreements for various brands in the online trading sector would continue for at least a further three years.
On 3 May 2018, the Company entered into a set-off agreement with Winslet, a company controlled by Uwe Lenhoff, pursuant to which the balance of a loan amounting to €2.5 million was settled in full against a corresponding amount of trade receivables from operators for whom Veltyco undertakes marketing activities in the online financial trading vertical. As a result, the trade receivables reduced by an equivalent amount, resulting in the set-off agreement being cash neutral to the Group.
Directors and their interest
The following Directors held share options as at 31 December 2017:
Number of options
Exercise
Price (£)
Date of grant
Vesting period
David Mathewson
250,000*
0.25
30 June 2016
1-2 years
Marcel Noordeloos
750,000
0.25
30 June 2016
1-4 years
Marcel Noordeloos
300,000
0.65
5 July 2017
1-4 years
Hans Dahlgren
562,500
0.25
30 June 2016
1-4 years
Hans Dahlgren
300,000
0.65
5 July 2017
1-4 years
Mark Rosman
400,000
0.25
30 June 2016
1-4 years
Mark Rosman
300,000
0.65
5 July 2017
1-4 years
Gilles Ohana
800,000
0.25
22 May 2017
1-4 years
* As David Mathewson left the Company on 31 January 2018, a total of 690,000 options were cancelled which are not included in this figure.
Directors who served during the year
Appointed
Resigned
David Mathewson
24 April 2013
31 January 2018
Mark Rosman
19 March 2014
-
Uwe Lenhoff
30 June 2016
26 March 2018
Marcel Noordeloos
30 June 2016
-
Hans Dahlgren
30 June 2016
26 March 2018
Ilan Tzorya
16 January 2017
26 March 2018
Gilles Ohana
20 November 2017
-
On 26 March 2018, Melissa Blau was appointed as director and Chief Executive Officer and on the same date Rainer Lauffs was appointed director and Chief Operating Officer.
Directors' responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to keep reliable accounting records which allow financial statements to be prepared. In addition, the Directors have elected to prepare group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and applicable law. The financial statements are required to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that year. In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgments and accounting estimates that are reasonable and prudent;
· state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and prepare financial statements. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for ensuring that they meet their responsibilities under the AIM Rules.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
In so far as each of the Directors is aware:
· there is no relevant audit information of which the Company's auditors are unaware; and
· the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.
Auditors
The auditors of the Group are Nexia Smith & Williamson, Chartered Accountants.
This report was authorised for issue by the Board on 6 June 2018.
Gilles Ohana
Non-executive Chairman
6 June 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended
Year ended
31 December
31 December
Notes
2017
2016
€
€
Revenues
16,194,791
6,082,468
Cost of Sales
(976,763)
-
Gross Margin
15,218,028
6,082,468
Salary expense
(1,087,235)
(608,825)
Marketing and selling expense
(4,550,529)
(2,682,422)
General administrative expense
(1,717,962)
(683,246)
Listing expenses
-
(123,850)
Depreciation, amortisation and impairment expense
(380,173)
(362,179)
Total administrative expenses
(7,735,899)
(4,460,522)
Operating profit
7,482,129
1,621,946
Reverse asset acquisition expense
-
(1,555,898)
Financial income/(expense)
98,779
(9,286)
Profit before tax
7,580,908
56,762
Taxation
(801,116)
(36,144)
Total comprehensive income
6,779,792
20,618
Attributable to:
Equity holders of the Company
7,333,280
20,618
Non-controlling interests
(553,488)
-
6,779,792
20,618
Earnings per share attributable to equity holders of the Company
- Basic (in €)
2
0.1017
0.0004
- Diluted (in €)
2
0.0944
0.0004
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December
31 December
2017
2016
€
€
Non-current assets
Goodwill
1,743,485
-
Other intangible assets
3,985,347
2,740,792
Investments
25,000
-
Property, plant and equipment
2,530
4,158
Loans receivable
997,476
916,197
Total non-current assets
6,753,838
3,661,147
Current assets
Loans receivable
1,558,057
1,590,883
Trade and other receivables
11,881,469
2,602,338
Cash and cash equivalents
700,192
144,125
Total current assets
14,139,718
4,337,346
Total assets
20,893,556
7,998,493
Equity and liabilities
Share capital
-
-
Additional paid-in capital
13,665,233
10,614,354
Reverse asset acquisition reserve
(6,046,908)
(6,046,908)
Retained earnings
9,948,904
2,376,540
Equity attributable to owners of the parent
17,567,229
6,943,986
Non-controlling interests
182,967
-
Total shareholders' equity
17,750,196
6,943,986
Non-current liabilities
Borrowings
1,355,223
26,358
Total non-current liabilities
1,355,223
26,358
Current Liabilities
Trade and other payables
1,788,137
1,028,149
Total current liabilities
1,788,137
1,028,149
Total equity and liabilities
20,893,556
7,998,493
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
Additional
paid in
Other reserves -
Reverse asset
Retained
Non-controlling
Total
capital
capital
acquisition reserve
earnings
Total
interest
Equity
€
€
€
€
€
€
€
Balance as at 1 January 2016 (restated)
-
6,046,980
(6,046,908)
2,304,891
2,304,963
-
2,304,963
Profit for the financial period
-
-
-
20,618
20,618
-
20,618
Share based acquisition
-
2,801,592
-
-
2,801,592
-
2,801,592
Share based payments
-
90,909
-
51,031
141,940
-
141,940
Issue of share capital
-
1,674,873
-
-
1,674,873
-
1,674,873
Balance as at 31 December 2016
-
10,614,354
(6,046,908)
2,376,540
6,943,986
-
6,943,986
Profit for the financial period
-
-
-
7,333,280
7,333,280
(553,488)
6,779,792
Share based payments
-
161,000
-
239,084
400,084
-
400,084
Exercise of stock options and warrants
-
333,416
-
-
333,416
-
333,416
Non-controlling interests on acquisitions
-
-
-
-
-
736,455
736,455
Issue of share capital
-
2,556,463
-
-
2,556,463
-
2,556,463
Balance as at 31 December 2017
-
13,665,233
(6,046,908)
9,948,904
17,567,229
182,967
17,750,196
CONSOLIDATED STATEMENT OF CASH FLOWS
31 December
31 December
2017
2016
€
€
Cash flows from operating activities
Operating profit
7,482,129
1,621,946
Adjustments for:
Share based payments
239,084
53,016
Depreciation
1,628
813
Amortisation of intangibles
378,545
86,356
Impairment
-
275,011
Cash flow from operations before working capital changes
8,101,386
2,037,142
(Increase) in trade and other receivables
(9,279,131)
(1,761,112)
Increase/(decrease) in trade and other payables
146,894
(307,415)
Cash outflow from operations
(1,030,851)
(31,385)
Tax paid
(72,152)
(50,144)
Cash outflow from operating activities
(1,103,003)
(81,529)
Cash flow from investing activities
Acquisition of subsidiaries
(2,510,000)
-
Acquisitions of intangible assets
(75,000)
(275,011)
Acquisition of investments
(25,000)
-
Loans granted
(189,681)
(767,701)
Loans repayments received
225,000
497,800
Interest received
15,007
80,388
Cash acquired on reverse asset acquisition
-
2,112
Net cash outflow from investing activities
(2,559,674)
(462,412)
Cash flow from financing activities
Proceeds of issue of new shares
2,889,879
646,278
Loans received
1,328,865
-
Net cash inflow from financing activities
4,218,744
646,278
Net increase in cash and cash equivalents
556,067
102,337
Cash and cash equivalents at start of period
144,125
41,788
Cash and cash equivalents at end of period
700,192
144,125
Notes
1. General Information
The financial information set out in this announcement does not comprise the Group's statutory accounts for the year ended 31 December 2017 but is derived from those accounts.
The auditors have reported on those accounts and their report was unqualified and drew attention to a material uncertainty in relation to going concern with respect to recoverability of trade receivables.
The principal accounting policies as adopted by the Group in the preparation of its consolidated financial statements for the year ended 31 December 2017 are set out below. The accounting policies have been consistently applied, unless otherwise stated.
Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (''IFRS'') as adopted by the European Union and issued by the International Accounting Standards Board (''IASB''). These accounting policies comply with each IFRS that is mandatory for accounting periods ending on or after 31 December 2017. The Consolidated Financial Statements have been prepared under the historical cost convention and on a going concern basis.
The Directors have reviewed the accounting policies used by the Group and consider them to be appropriate. The accounting policies are consistent with the prior years.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of Veltyco Group plc (the "Company") and entities controlled by the Company (its subsidiaries) (collectively the "Group"). Control is achieved where the Company has the power to govern the financial and operating policies of an entity.
The results of subsidiaries disposed of are included in the consolidated statement of comprehensive income to the effective date of loss of control and those acquired from the date on which control is transferred to the Group.
Going concern
After careful review of the Group's forecast for 2018, its medium-term plans, liquid resources and all relevant matters, the Directors are confident that the Group has adequate financial resources to continue in operational existence for the foreseeable future and for a period of at least 12 months from the date of this Annual Report. The Directors have therefore continued to adopt the going concern basis in preparing the Group's financial statements.
The Group operates in three major verticals (sports book and casinos, online lotteries and online financial trading) and has revenues and cost centres in numerous locations around the world. Significant growth was achieved across all verticals during 2017 and in particular in respect of commissions due from the Group's marketing activities in online financial trading.
The Group has experienced some operational difficulties in receiving agreed marketing commissions from operators within the online financial trading sector due to internal processes applied by the Group's banks, however, the Directors have received written confirmation from the operators that the commissions are due and payable to the Group. The Directors started the process of restructuring the Group's banking relationships during 2017, in order to collect the receivables from all trading operators in different locations, without any restriction.
As a result of the above, the receipt of agreed commissions due to the Group in respect of the online financial trading vertical has been slower than anticipated and together with the significant growth in commissions from its marketing activities, the Group's trade receivable balance as at 31 December 2017 was approximately €8.8 million, the majority of which related to the Group's online financial trading activities. Together with a non-current and current loan receivable balance totalling €2.6 million and accrued income (being revenue that has been generated but not yet invoiced) of €2.7 million, the Group's total receivables balance as at 31 December 2017 was, in aggregate, €14.1 million across all of its operations. Of the total receivables balance, approximately €10.7 million related to marketing activities for Altair Entertainment N.V. ("Altair") in the online financial trading vertical.
The restructuring process of the Group's banking operations has made good progress and the benefits are already being seen and are expected to increase in the coming months. Since the year end, the receivables position of the Group as at 31 December 2017 has decreased and the Directors believe that the operators will fully settle the outstanding balances during the coming months.
Since the year end, the Group's total receivable balance of €14.1 million as at 31 December 2017 has been reduced to €4.9 million, all of which relates to the online financial trading vertical (of which €3.4 million is due from Altair), as follows:
· pursuant to the acquisition of Marsovia Holdings Ltd ("Marsovia") (regarding the database of users within online financial trading) from Altair, the €4.0 million consideration was offset against the full amount of the current loan receivable balance of €2.6 million and €1.4 million of trade receivables due from Altair, as announced on 25 May 2018 and disclosed in Note 15 of the accounts;
· €2.5 million has been settled against a loan provided to the Group by Winslet Enterprises Ltd ("Winslet"), a related party (ultimately controlled by Uwe Lenhoff, a previous director of the Company who is also the Company's main shareholder) for a corresponding amount. The balance of the loan as at 31 December 2017 was €1.0 million (see Note 22);
· €0.35 million has been offset against amounts due to a subsidiary of Altair, Payific Ltd; and
· €2.3 million has been received in cash by the Group from trading operators.
The above settlements are against the oldest receivables and as a result of trading since the year end and the ongoing restructuring of the Group's banking relationships, the Group's trade receivable balance as at 28 May 2018 was approximately €8.4 million (of which €3.4 million is due from Altair and €2.7 million is due from Celestial Trading Ltd ("Celestial")). In addition to the current trade receivable balance, the Group also has accrued income in respect of April and May 2018. Since the beginning of 2018, Celestial Trading Ltd has been operating all of the online financial trading brands for which the Group undertakes marketing activities and as a result, the commission due from such activities in 2018 is now payable by Celestial.
The Group had a negative cash flow from operations of €1.1 million for the year ended 31 December 2017. As a result of the above, the Group's current cash position has improved since the year end to €1.6 million as at 28 May 2018 (31 December 2017: €0.7 million) and at the same date, its borrowings have decreased from €1.4 million at the year end to just €27 thousand.
The Directors believe they have taken sufficient measures and made appropriate arrangements with its trading providers to obtain additional comfort on the collectability of these receivables, and therefore believe this balance will be recovered in full. Furthermore, the Directors continue to work on diversifying the Group's banking relationships in order to continue to receive commission payments in a normal way within the online financial trading vertical.
The ability of the Group to settle its liabilities as they fall due is dependent on the ability of the customers to settle the trade receivable balances and the Group's ability to finalise the restructuring of its banking relationships during the course of 2018, or to obtain loans from third parties to fund the working capital requirements of the business in the ordinary course. The Directors believe that with the agreements and measures in place, the outstanding amounts will be fully recovered during the remainder of the year.
2. Earnings per share (basic and diluted)
Year ended
31 December 2017
Year ended
31 December 2016
€
€
Earnings
Earnings for the purposes of basic and diluted earnings per share, being net profit after tax attributable to equity shareholders
7,333,280
20,618
Number of shares
Weighted average number of ordinary shares for the purposes of:
Basic earnings per share
72,128,655
53,116,500
Diluted earnings per share
77,648,727
55,788,510
Basic earnings per share (in €)
0.1017
0.0004
Diluted earnings per share (in €)
0.0944
0.0004
The share options are not sufficiently dilutive to create a difference between basic and diluted earnings per share reported above.
3. Post balance sheet events
Sportsbook partnership
Subsequent to the year end, the sportsbook operator, for whom the Group undertakes marketing activities, informed the Company that it would not be automatically extending its existing marketing agreement and that it would therefore end at the end of April 2018. The Company is pleased to confirm that following discussions between the parties, the Group and the sportsbook operator have agreed, subject to documentation, to further extend the existing agreement as well as to potentially expand the marketing relationship to include additional territories. In light of this and the upcoming FIFA World Cup in Russia starting in mid-June 2018, the Group continues to provide marketing activities to the sportsbook operator.
Varkasso Limited
On 17 January 2018 the Company announced that it had entered into an agreement to acquire 51% of the issued capital in Varkasso Limited ("Varkasso"), a company that has the exclusive rights to use 8Crypt, a software platform providing crypto wallet solutions based on blockchain technology.
8Crypt has been developed by the founder and shareholder of Varkasso, with the aim of providing end-users with a broad range of services in relation to their crypto assets from one location, from which they are able to manage, trade (buy, sell, exchange) and accept both traditional and crypto currencies. 8Crypt enables users to connect their crypto wallet directly to both traditional and crypto currencies, seamlessly providing and accepting payments from debit and credit cards and bank transfers for traditional currencies and well-known blockchain platforms such as Bitcoin, Ethereum and LiteCoin for crypto currencies.
Veltyco plans to incorporate 8Crypt's crypto wallet across each of the platforms of Veltyco's various partners, including Veltyco's own site Bet90.com, thereby allowing customers access to each platform from one wallet without having to make separate deposits on each of the individual platforms. Furthermore, once incorporated into its partners' platforms, the Board believes that is will enhance the Company's ability to cross-sell the different platforms to its customer base.
Veltyco agreed to acquire a 51% interest in Varkasso for a total consideration of €300,000 satisfied through the issue of 100,000 new Ordinary Shares and a cash consideration of €200,000.
The Board are currently awaiting the information required to assess the fair value of assets acquired and resultant goodwill for this acquisition. As such, disclosures required under IFRS 3 in respect of these items cannot be given at this stage and will be reported in the year ending 31 December 2018 accounts.
Exercise of stock options
On 16 February 2018, a total of 325,000 options were exercised. These options had an exercise price of £0.25 per share. After this exercise, a total of 74,768,659 Ordinary Shares are in issue.
eSports.com
On 15 March 2018, the Company announced that it had extended its partnership with eSports.com and entered into and a joint venture with eSports.com to join forces in a blockchain project.
The purpose of the project is to create an infrastructure to bring members and/or customers of communities (sports, gaming, playing) to a fully transparent technological platform. The platform will seek to transfer data such as know your client regulated information, but also historical data, in a decentralised manner and could, in the future, be combined with automated payments.
It is proposed that eSports.com AG, the parent company of eSports.com, and Veltyco will each have a 50% interest in the joint venture and will provide equal funding to the project.
Frankfurt secondary listing
On 11 January 2018, the Group announced that MWB Fairtrade Wertpapierhandelsbank AG, a German securities broker, had successfully applied for a secondary listing of Veltyco's Ordinary Shares to start trading on the Quotation Board Segment of the Open Market of the Frankfurt Stock Exchange ("FSE"), also known as the Regulated Unofficial Market of the FSE, or Freiverkehr. Accordingly, the Ordinary Shares of Veltyco are now also tradable on the FSE under the symbol 24GN. The entire issued ordinary share capital of the Company continues to trade on the AIM market of the London Stock Exchange under the symbol VLTY.
Acquisition of Marsovia Holdings Ltd (database)
On 25 May 2018, the Company announced it that it has entered into an agreement with Altair to acquire the entire issued share capital of Marsovia. This acquisition is the first step in the Group seeking to launch a new regulated brand, active in the online financial trading sector. Marsovia holds a database of approximately 43,500 customers, of which approximately 26,000 are considered to be active, in the online financial trading sector.
The total consideration for this transaction amounted to €4.0 million and was offset against the existing indebtedness of, in aggregate, approximately €2.6 million pursuant to certain loans provided by the Group to Altair and certain trade receivables of approximately €1.4 million resulting from the existing marketing agreements with Altair, resulting in this acquisition being cash neutral for Veltyco.
At the same time, the Directors confirmed that the existing marketing agreements for various brands in the online financial trading sector will continue for at least a further three years.
The Board are currently awaiting the information required to assess the fair value of assets acquired and resultant goodwill for this acquisition. As such, disclosures required under IFRS 3 in respect of these items cannot be given at this stage and will be reported in the year ending 31 December 2018 accounts.
Offset agreement
On 3 May 2018, the Group entered into the set-off agreement with Winslet, a company controlled by Uwe Lenhoff, pursuant to which the balance of the Winslet Loan, amounting to €2.5 million, was settled in full against a corresponding amount of trade receivables from operators for whom Veltyco undertakes marketing activities in the online financial trading sector. As a result, the trade receivables reduced by an equivalent amount, resulting in the set-off agreement being cash neutral to the Group.
4. Availability of Accounts and Annual General Meeting
A copy of the audited annual report will shortly be available on the Company's website at www.veltyco.com.
A copy of the audited annual report and the notice for the Annual General Meeting for the year ended 31 December 2017 will be posted to shareholders in due course.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR FFMPTMBBMBPP
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