REG - GVC Holdings PLC - Final Results <Origin Href="QuoteRef">GVC.L</Origin> - Part 2
23/03/2017 07:07
- Part 2: For the preceding part double click ID:nRSW2656Aa
Adjusted EPS 26 73
Adjusted fully diluted EPS 26 70
Dividends
As part of the terms of the Cerberus Loan taken out to part finance the Acquisition, the Group undertook a dividend holiday
until 1 February 2017 (the first anniversary of the acquisition). In November 2016 the Group declared its intention to pay
a special dividend of 10 euro cents per share. This was subsequently increased to 14.9 euro cents and settled in sterling
at 12.5p and paid to shareholders on 14 February 2017.
The second special dividend declared of 15.1 euro cents per share will take the total dividend for the 2016 financial year
to 30 euro cents per share.
REVIEW OF THE BALANCE SHEET
A summarised balance sheet is shown below:
2016 2015
Em Em
Goodwill 1090.3 132.9
Intangible assets other than goodwill 519.1 22.2
Property, plant and equipment 19.7 1.4
Other non-current assets 8.6 2.6
Non-current assets 1637.7 159.1
Cash and cash equivalents 354.8 28.2
Balances with payment processors 60.0 21.7
Derivative financial assets 26.2 3.8
Assets and liabilities held for sale 37.0 -
Client liabilities (112.0) (14.8)
Progressive prize pools (22.8) -
Loans and borrowings (403.5) (3.0)
Net taxation payable (58.7) (3.3)
Other net current assets/(liabilities) (44.5) (41.0)
Current assets less current liabilities (163.5) (8.4)
Non-current liabilities (76.9) (22.6)
Net assets 1,397.3 128.1
Acquisition of bwin.party
The acquisition of bwin.party completed on 1 February 2016 and offer consideration was made up of 25p in cash plus 0.231
GVC shares in exchange for each bwin.party share, and accounted for at a currency rate of £1:E1.3205.
Em
Amount paid by GVC:
- value of stock issued 1,201.5
- value of cash component 278.5
- options settled post Acquisition 26.6
Value of offer 1,506.6
Assets at fair value 542.7
Goodwill recognised 963.9
Net debt and liquidity
2016 2015
Em Em
Loans due <1 year (386.5) -
Loans due >1 year - (23.0)
Gross debt (386.5) (23.0)
Cash and cash equivalents 367.0 28.2
Less client liabilities (112.0) (14.8)
Net debt (131.5) (9.6)
Balances with payment processors 60.0 21.7
Net debt adjusted for payment processors (71.5) 12.1
In October 2016, the Group secured a one year (with options to extend for an additional 6 or 12 months) E250m loan facility
from Nomura International plc (the "Nomura Loan"), which was used (fully drawn down in January 2017) to repay part of the
E400m loan provided by Cerberus Business Finance LLP (the "Cerberus Loan") associated with the acquisition of bwin.party
digital entertainment plc. The Nomura Loan provided a short term facility at a significantly reduced overall cost from that
associated with the Cerberus Loan.
In March 2017, the Group signed a E320m Senior Secured Term and Revolving Facility ("the Facility") comprising a six-year
E250m term loan (the "Term Loan") and a five-year E70m revolving credit facility ("RCF"). The Term Loan was used to fully
repay the Nomura Loan.
In the normal course of business the Group's long-term strategy is to maintain leverage (net debt to Clean EBITDA) below
2x.
Loan and borrowings
The year end loan balance of E403.5m comprised E386.5m of debt principal and E17.0m of fees and interest due to Cerberus.
Assets and liabilities held for sale
The group has classified its "Kalixa", its payments processing, as held for sale, the sale was announced in December 2016
for a total cash consideration of E29.0m with potential adjustments of up to E35.5m. It is expected to complete in Q3 2017.
The balance sheet value comprises assets held for sale totalling E59.7m including E12.2m of cash, and liabilities held for
sale of E22.7m.
Derivative financial assets
This consists of two main components, the WinUnited option (E3.7m) and the early repayment option associated with the
Cerberus loan (E22.5m).
The Group entered into an agreement in 2015 with WinUnited to provide day-to-day back office operations for the WinUnited
business and as part of this agreement obtained a call option to purchase the WinUnited assets. In the year the value of
the option reduced from E3.8m to E3.7m.
As part of the financing agreement with Cerberus, the Group had the option of terminating the loan early by 1 February
2017. The option was initially recognised at E7.4m but during the year it became clear that the Group could re-finance at
more advantageous rates. This led to the fair value of the option being increased to E22.5m. A credit has been taken to the
income statement for this in the year.
Progressive prize pools
Both GVC and bwin.party have progressive prize pools on casino games. Following the acquisition GVC evaluated that a change
in accounting judgement was required and recognised a charge of E7.6m as an exceptional item. The combined Group liability
at the end of 2016 was E22.8m.
Deferred taxation
Deferred taxation has arisen on the intangible assets recognised on the acquisition of bwin.party. The liability recognised
within non-current liabilities at 31 December was E65.6m.
CASHFLOW
The table below shows a simplified cashflow for the year.
2016 2015
Em Em
Clean EBITDA 193.5 54.1
Capitalised software development and other intangibles (19.0) (5.0)
Property plant and equipment purchases (15.8) (1.2)
Interest paid including loan costs (47.6) (9.0)
Corporate taxes (7.9) (0.6)
Other working capital movements (31.9) 6.7
Free cashflow 71.3 45.0
Exceptional items (cash) (86.4) (14.6)
Acquisition of bwin.party (net of cash acquired) (189.4) -
Proceeds of issued share capital net of costs 193.8 -
Proceeds from disposal of assets held for sale 20.9 -
Interest bearing loan drawdown 380.0 20.0
Repayment of loans (55.5) (3.2)
Dividends paid - (34.3)
Other cash movements 4.8 (2.4)
Net cash generated 339.5 10.5
Foreign exchange (0.7) (0.1)
Cash and equivalents at beginning of the year 28.2 17.8
Cash and cash equivalents at end of year 367.0 28.2
Cash has increased to E367.0m at 31 December 2016 from E28.2m following the acquisition of bwin.party.
To fund the acquisition the Group drew down a further E380.0m from the Cerberus loan facility and issued shares with
proceeds net of costs of E193.8m. The cash cost of acquiring bwin.party was E189.4m and comprises E305.1m paid to share and
option holders net of E116.2m of cash acquired.
During the year the group repaid E55.5m of loan balances. The repayments consisted of the final E3.0m instalment of the
William Hill loan, a E13.5m repayment of the Cerberus loan and E39.0m of loan balances for bwin.party.
The principal items within other working capital movement relate to the settlement of 2015 employee remuneration
arrangements across both GVC and bwin.party, and the settlement of trade creditors.
Paul Miles
Chief Financial Officer
23 March 2017
Directors' responsibility statement
The responsibility statement below has been prepared in connection with the company's full annual report for the year
ending 31 December 2016. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
1. The Group and Company financial statements, prepared in accordance with IFRS as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and
2. The business review, which is incorporated into the Directors' report, includes a fair review of the development and
performance of the business and the position of the Group and Company, together with a description of the principal risks
and uncertainties they face.
The Directors of GVC Holdings PLC are listed in the Group's Annual Report and Accounts for the year ended 31 December 2016.
A list of current directors is maintained on the Company website www.gvc-plc.com.
Principal risks
There are a number of potential risks and uncertainties which could have a material impact on the Group's future
performance. To mitigate against these risks, the Group conducts a continuous process of assessments that examine whether
any risk has increased, decreased or become obsolete; identify new risks; and evaluate the likelihood of each risk
occurring and the impact it would have on the Group.
Our principal risks fall into five broad categories which are set out below, along with how we seek to manage them. More
detail on our approach to risk management can be found in the Audit Committee report of the Group's 2016 Annual Report:
Risk Mitigating Factors
Technology
The Group's customer offer includes products operated using different labels and gaming licenses, the majority of which are now driven by the Group's proprietary technology obtained through the acquisition of bwin.party. In an industry where service In May 2016, the Internal Audit function performed a cyber security review over the key systems and interfaces that collectively form the gaming platform, over both the bwin.party and GVC infrastructures. The resilience to cyber and denial of service threats have been carefully considered and improved upon following the recommendations arising from these reviews. Furthermore, the Group has committed to maintain its ISO 27001 Information Security Management System certification, and is progressing with consolidating its ISO 27001 certification across the locations inherited through the bwin.party acquisition. Part of this process involves an internal audit review from an information security perspective of all certified sites across a three year cycle, which form part of the of the internal audit annual calendar.The technology platform migration has been executed in phases, by label and territory to minimise risk and customer impact. The Group aims to complete the migration by • and subsequently decommission legacy systems.
reliability and integrity are key differentiating factors, our continual commitment to providing a reliable, safe, secure, compliant and continuous service has continued to be the Group's focus this year.Subsequent to the acquisition of bwin.party, the
Group initiated a significant technology platform migration which carries inherent project risk. Other technology-related risks, such as our continuing operations in the event of a natural or man-made disaster, have been addressed with a substantial
investment and both the Group's disaster recovery and business continuity solutions. With continuous shifts in how consumers choose and are able to access our services (via different devices and/or channels), the process of maintaining and improving our
technology will become more complex.
Regulation
Focusing on nationally regulated and/or taxed markets safeguards our gaming revenues from potential national legislation threatening to prohibit or restrict one or more of the products that we offer, or online gaming entirely. There are potential risks for To manage this risk, the Group maintains a dialogue (either directly or indirectly) with national governments and regulators of to-be regulated markets. The Group's compliance and regulatory affairs teams keep abreast of the regulatory landscape and report to the Board on any developments. However, it should be noted that most of the risks in relation to the regulatory landscape are outside of the Group's direct control. Operating in nationally regulated and/or taxed markets requires the Group to comply with the rules and protocols of the particular regimes. Currently, the Group holds 31 licences each with their own unique regulatory requirements. The need to sometimes develop bespoke technological, operational and promotional offers in each market requires significant investment. The Group is committed to meeting its licence obligations and monitors its compliance with regulatory requirements by performing reviews of its licenced operations on a periodic basis, with the results reported to the Audit Committee. The Group also submits the licenced entities to a series of external audits by regulators and industry specialists to ensure that policies and procedures are being followed as intended.
the Group from all markets where regulation is not clearly defined or adopted, especially in relation to EU law.
Taxation
The Group has companies and employees spread over a number of jurisdictions which creates tax risk if actions and decisions are being made in the wrong jurisdictions by the wrong companies. In addition, these companies contract with one another for Group companies operate only where they are incorporated, domiciled or registered across countries. The multi-location set up of the Group gives rise to transfer pricing risk, mitigated by the fact that all intra-group transactions are documented and take place on an arm's length basis unless local legislation or other business conditions make an arm's length basis impossible or impractical. Following the acquisition of bwin.party, the transfer pricing arrangements are in the process of being reviewed by the Group's Director of Tax, As well as holding workshops with senior management and business unit leaders, he also meets at least once a year with the Board to review tax strategy and management.
services which are subject to scrutiny by local tax authorities. The Group's strategic focus is to operate in nationally regulated and/or taxed markets. Revenues earned from customers located in a particular jurisdiction may give rise to further taxes in
that jurisdiction. If such taxes are levied, either on the basis of existing law or the current practice of any tax authority, or by reason of a change in law or practice, then this may have a material adverse effect on the amount of tax payable by the
Group. On 1 January 2015, new VAT rules came into force across the EU impacting several areas of the digital economy. Gambling has typically been exempt from VAT but falls within the rules for VAT on electronically supplied services. Under EU law, Member
States have the ability to apply VAT to gambling subject to certain limitations and conditions, and tax may be due depending on where customers are located and how Member States implement any exemption. Whilst substantial uncertainty remains, in light of
the new rules the Group is now filing for, and paying VAT, in certain EU Member States. It is possible that VAT could be payable in other EU Member States.
Country and currency risk
Whilst the continuing uncertainty in the global economic outlook inevitably increases the trading and balance sheet risks to which the Group is exposed, the diversified nature of the Group's business means that such risks are not disproportionately The Internal Audit function facilitated a review of the enlarged Group's Treasury and Cash Management process in June 2016. The Group adopted a Treasury policy, which dictates that all material transaction and currency liability exposures are hedged with financial derivatives or cash. The treasury policy also requires that wherever practical and subject to regulatory requirements, the financial assets located in each GIPSI country are limited so they do not exceed the financial liabilities associated with that jurisdiction.
different from any other commercial enterprise of a similar scale and international reach. Conditions in the Eurozone remain challenging and reference has already been made in previous statements to the challenging economic backdrop in several European
countries, reducing the spending power of customers particularly in Southern European countries, which the Group has attempted to reflect in its financial forecasts. The weaker European economies are also increasing the risk of currency volatility and the
potential for significant currency devaluation and business disruption if one or more of these countries exit the euro currency. Accordingly, the Group's treasury processes and policies are designed with the aim of minimising the Group's exposure to the
Eurozone economic risk and preserving our ability to operate if such events arise. The functional currency of the Company and a majority of the Company's subsidiaries is the euro. Consequently, those GVC companies that have adopted the euro as their
functional currency ensure their financial assets and liabilities in non-euro currencies are equal and that any residual balance is held in euros. With the so-called 'GIPSI' countries (Greece, Ireland, Portugal, Spain and Italy), if one or more of these
countries exits the euro then the Group may be exposed to a currency devaluation of its financial assets to the extent that the financial assets located in the exiting jurisdiction exceed its financial liabilities.
Impact of Brexit
On 23 June 2016, a referendum was held to determine whether the United Kingdom remains in the European Union (EU). In light of the decision to leave the EU, in addition to the increase in the volatility of both the global currency and financial markets, A Brexit task force has been formed, led by the Group Head of Legal, Compliance and Secretariat alongside members of senior executive management. The purpose of the task force is to closely monitor the situation, propose various contingency plans and, subject to Board approval where appropriate, execute them as the UK navigates through the EU exit process, with minimal business interruption and customer impact.
it may reduce the Group's ability to operate on an unfettered basis in certain EU markets that have tried to restrict competition in their domestic market from online gaming companies based overseas. The Group, along with other EU based online gaming
operators, have previously relied on the ability to challenge such protectionist measures through the EU Court of Justice ("CJEU"). In the event that the UK, and by extension Gibraltar (being a UK protectorate), was to leave the EU, unless the Group was to
re-domicile certain of its subsidiaries within the EU, it would no longer be able to rely on such protection. Such a re-domiciliation could give rise to higher taxes payable.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2016
2016 2015
Notes Em Em
NGR 843.4 247.7
EU VAT (20.1) (1.2)
Revenue 2 823.3 246.5
Cost of sales (385.8) (111.1)
Contribution 437.5 135.4
Administrative costs 3 (244.0) (81.3)
Clean EBITDA * 193.5 54.1
Share based payments 3 (31.1) (0.4)
Exceptional items 3 (117.8) (24.5)
Depreciation and amortisation 3, 8, 9 (136.5) (5.0)
Impairment of available for sale asset 10 (4.2) (1.2)
Changes in the fair value of derivative financial instruments 3,12 15.0 4.8
Operating (loss) profit (81.1) 27.8
Financial income 4 4.5 -
Financial expense 4 (65.3) (2.3)
Dividend income 5 3.1 -
Share of profit of associates 0.2 -
(Loss) profit before tax (138.6) 25.5
Taxation credit (expense) 6 - (0.8)
(Loss) profit after tax (138.6) 24.7
(Loss) profit after tax attributable to:
Equity holders of the parent (138.3) 24.7
Non-controlling interests (0.3) -
(138.6) 24.7
(Loss) earnings per share attributable to the ordinary equity holders of the parent: E E
Basic 7 (0.51) 0.40
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