REG - Playtech PLC - Results for the year ended 31 December 2017 <Origin Href="QuoteRef">PTEC.L</Origin> - Part 3
22/02/2018 07:05
- Part 3: For the preceding part double click ID:nRSV6181Fb
business combinations completed prior to 1 January 2010, the
Group's interest in the fair value of identifiable assets, liabilities and
contingent liabilities acquired and, in the case of business combinations
completed on or after 1 January 2010, the total acquisition date fair value of
the identifiable assets, liabilities and contingent liabilities acquired.
For business combinations completed prior to 1 January 2010, cost comprised
the fair value of assets given, and liabilities assumed, plus any direct costs
of acquisition. Changes in the estimated value of contingent consideration
arising on business combinations completed by this date were treated as an
adjustment to cost and, in consequence, resulted in a change in the carrying
value of goodwill.
For business combinations completed on or after 1 January 2010, cost comprises
the fair value of assets given and liabilities assumed, plus the amount of any
non-controlling interests in the acquired business. Contingent consideration
is included in cost at its acquisition date fair value and, in the case of
contingent consideration classified as a financial liability, remeasured
subsequently through profit or loss. For combinations completed on or after 1
January 2010, direct costs of acquisition are recognised immediately as an
expense in the consolidated statement of comprehensive income, within
administrative costs.
Goodwill is capitalised as an intangible asset with any impairment in carrying
value being charged to the consolidated income statement. Goodwill is not
amortised and is reviewed for impairment, annually or more specifically if
events or changes in circumstances indicate that the carrying value may be
impaired.
Impairment of non-financial assets
Impairment tests on goodwill and other intangible assets with indefinite
useful economic lives are undertaken annually at the financial year end. Other
non-financial assets are subject to annual impairment tests whenever events or
changes in circumstances indicate that their carrying amount may not be
recoverable. Where the carrying value of an asset exceeds its recoverable
amount (i.e. the higher of value in use and fair value less costs to sell),
the asset is written down accordingly.
Where it is not possible to establish the recoverable amount of an individual
asset, the impairment test is carried out on the asset's cash generating unit
(i.e. the lowest group of assets in which the asset belongs for which there
are separately identifiable cash flows). Goodwill is allocated on initial
recognition to each of the group's cash generating units that are expected to
benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the administrative expenses line item in
the consolidated statement of comprehensive income, except to the extent they
reverse gains previously recognised in the consolidated statement of
comprehensive income. An impairment loss recognised for goodwill is not
reversed.
Associates and structured agreements
Where the Group has the power to participate in (but not control) the
financial and operating policy decisions of another entity, it is classified
as an associate or structured agreements, as appropriate. Associates are
initially recognised in the consolidated statement of financial position at
cost. Subsequently associates are accounted for using the equity method, where
the Group's share of post-acquisition profits and losses and other
comprehensive income is recognised in the consolidated statement of profit and
loss and other comprehensive income (except for losses in excess of the
Group's investment in the associate unless there is an obligation to make good
those losses).
Profits and losses arising on transactions between the Group and its
associates are recognised only to the extent of unrelated investors' interests
in the associate. The investor's share in the associate's profits and losses
resulting from these transactions is eliminated against the carrying value of
the associate.
Any premium paid for an associate above the fair value of the Group's share of
the identifiable assets, liabilities and contingent liabilities acquired is
capitalised and included in the carrying amount of the associate. Where there
is objective evidence that the investment in an associate has been impaired
the carrying amount of the investment is tested for impairment in the same way
as other non-financial assets.
Joint ventures
The group is a party to a joint arrangement when there is a contractual
arrangement that confers joint control over the relevant activities of the
arrangement to the Group and at least one other party. Joint control is
assessed under the same principles as control over subsidiaries.
The Group classifies its interests in joint arrangements as either:
Joint ventures - where the group has rights to only the net assets of the
joint arrangement; or
Joint operations - where the group has rights to both the assets and
obligations for the liabilities of the joint arrangement.
In assessing the classification of interests in joint arrangements, the Group
considers:
• The structure of the joint arrangement;
• The legal form of joint arrangements structured
through a separate vehicle;
• The contractual terms of the joint arrangement
agreement; and
• Any other facts and circumstances (including any other
contractual arrangements).
The Group accounts for its interests in joint ventures in the same manner as
investments in
Associates (i.e. using the equity method - refer above).
Any premium paid for an investment in a joint venture above the fair value of
the Group's share of the identifiable assets, liabilities and contingent
liabilities acquired is capitalised and included in the carrying amount of the
investment in joint venture. Where there is objective evidence that the
investment in a joint venture has been impaired the carrying amount of the
investment is tested for impairment in the same way as other non-financial
assets.
The Group accounts for its interests in joint operations by recognising its
share of assets, liabilities, revenues and expenses in accordance with its
contractually conferred rights and obligations.
Financial assets
The Group classifies its financial assets into one of the categories discussed
below, depending on the purpose for which the asset was acquired. The Group
has not classified any of its financial assets as held to maturity. The Group
does not hold any financial assets at fair value through profit and loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of services to customers (e.g. trade receivables), but
also incorporate other types of contractual monetary asset. They are initially
recognised at fair value plus transaction costs that are directly attributable
to their acquisition or issue and are subsequently carried at amortised cost
using the effective interest rate method, less provision for impairment.
The Group's receivables comprise trade and other receivables, cash and cash
equivalents, and loans to customers in the balance sheet.
Trade receivables which principally represent amounts due from licensees are
carried at original invoice value less an estimate made for bad and doubtful
debts based on a review of all outstanding amounts at the year-end. An
estimate for doubtful debts is made when there is objective evidence that the
Group will not be able to collect amounts due according to the original terms
of receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with
banks and other short term highly liquid investments with original maturities
of three months or less. Where cash is on deposit with maturity dates greater
than three months, it is disclosed within other receivables.
Loans to customers are in respect of formal loan agreements entered into
between the Group and its customers, which are carried at original advanced
value less provision for impairment (or fair value on inception, if
different). They are classified between current and non-current assets in
accordance with the contractual repayment terms of each loan agreement.
Available-for-sale financial assets
Non-derivative financial assets classified as available-for-sale comprise the
Group's strategic investments in entities not qualifying as subsidiaries,
associates or jointly controlled entities. They are carried at fair value with
changes in fair value generally recognised in other comprehensive income and
accumulated in the available for sale reserve. In accordance with IAS 39, a
significant or prolonged decline in the fair value of an available-for-sale
financial asset is recognised in the consolidated statement of comprehensive
income.
Purchases and sales of available-for-sale financial assets are recognised on
settlement date with any change in fair value between trade date and
settlement date being recognised in the available-for-sale reserve. On sale,
the amount held in the available-for-sale reserve associated with that asset
is removed from equity and recognised in the consolidated statement of
comprehensive income.
Financial liabilities
Trade payables and other short-term monetary liabilities are initially
recognised at fair value and subsequently carried at amortised cost using the
effective interest method.
Several of the Group's licensees participate in progressive jackpot games.
Each time a progressive jackpot game is played, a preset amount is added to a
cumulative jackpot for that specific game. The accrual for the jackpot at the
consolidated balance sheet date is included in progressive jackpot and other
operator's jackpot liabilities.
The Group's liability in connection with client funds includes customer
deposits offset by the fair value of open positions, the movement on which is
recognised through profit or loss. Such open positions are classified as
short term financial derivatives in the balance sheet. Where customer's
trading positions are hedged, or partly hedged, for risk management purposes,
the fair value of those open hedge positions are carried at fair market value
in trade receivables or trade payables (depending on whether the positions are
in or out of the money) and classified as short term financial derivatives in
the balance sheet.
Liability components of convertible loan notes are measured as described
further below.
Loans and bank borrowings are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the instrument. Such
interest bearing liabilities are subsequently measured at amortised cost using
the effective interest rate method, which ensures that any interest expense
over the period to repayment is at a constant rate on the balance of the
liability carried in the consolidated balance sheet. Interest expense in this
context includes initial transaction costs and premia payable on redemption,
as well as any interest or coupon payable while the liability is outstanding.
Fair value measurement hierarchy
IFRS 7 and IFRS 13 requires certain disclosure which require the
classification of financial assets and financial liabilities measured at fair
value using a fair value hierarchy that reflects the significance of the
inputs used in making the fair value measurement (see note 30). The fair value
hierarchy has the following levels:
a) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. - derived from prices) (Level 2); and
c) Inputs for the asset or liability that are not based on observable market
data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the financial asset or
financial liability is categorised is determined on the basis of the lowest
level input that is significant to the fair value measurement. Financial
assets and financial liabilities are classified in their entirety into only
one of the three levels. The Group measures its available-for-sale investments
at fair value - refer to Note 14 for more detailed information in respect of
the fair value measurement.
Share capital
Ordinary shares are classified as equity and are stated at the proceeds
received net of direct issue costs.
Employee Benefit Trust
Consideration paid/received for the purchase/sale of shares subsequently put
in the Employee Benefit Trust is recognised directly in equity. The cost of
treasury shares held is presented as a separate reserve (the "Employee Benefit
Trust reserve"). Any excess of the consideration received on the sale of
treasury shares over the weighted average cost of the shares sold is credited
to retained earnings.
Share buy back
The Group cannot hold treasury shares under the Group's memorandum and article
of association and therefore the shares are cancelled after the buy back.
Convertible bond
The proceeds received on issue of the Group's convertible bond are allocated
into their liability and equity components. The amount initially attributed to
the debt component equals the discounted cash flows using a market rate of
interest that would be payable on a similar debt instrument that does not
include an option to convert. Subsequently, the debt component is accounted
for as a financial liability measured at amortised cost until extinguished on
conversion or maturity of the bond, where the option meets the definition of
an equity instrument. The remainder of the proceeds is allocated to the
conversion option and is recognised in the "Convertible bond option reserve"
within shareholders' equity.
Long term liabilities
Long term liabilities are those liabilities that are due for repayment or
settlement in more than twelve months from balance sheet date.
Provisions
Provisions, which are liabilities of uncertain timing or amount, are
recognised when the Group has a present obligation as a result of past events,
if it is probable that an outflow of funds will be required to settle the
obligation and a reliable estimate of the amount of the obligation can be
made.
Leases
Where substantially all of the risks and rewards incidental to ownership are
not transferred to the Group (an "operating lease"), the total rentals payable
under the lease are charged to the consolidated statement of comprehensive
income on a straight-line basis over the lease term. The aggregate benefit
of lease incentives is recognised as a reduction of the rental expense over
the lease term on a straight-line basis.
Non-controlling interests
Non-controlling interest is recognised at the present ownership instruments'
proportionate share in the recognised amounts of the acquiree's identifiable
net assets. The total comprehensive income of non-wholly owned subsidiaries is
attributed to owners of the parent and to the non-controlling interests in
proportion to their relative ownership interests.
Adjusted results
The directors believe that in order to best represent the trading performance
and results of the Group, the reported numbers should exclude certain non-cash
and one-off items including the below.
Management regularly uses the adjusted financial measures internally to
understand, manage and evaluate the business and make operating decisions.
These adjusted measures are among the primary factors management uses in
planning for and forecasting future periods. Furthermore, compensation of the
executives is based in part on the performance of the business based on these
adjusted measures.
Accordingly, these are the key performance metrics used by the Board when
assessing the Group's financial performance. Such exclusions include:
• Material non-cash items, e.g. amortisation of intangibles on
acquisition, change in fair value of available-for-sale investments in the
income statement and Employee Share Option Plan expenses. Management regularly
monitors the operating cash conversion to adjusted EBITDA These items are
excluded to better analyse the underlying cash transactions of the business.
• Material one-off items, e.g. gain on sale of investment in
associates, professional services cost related to acquisitions and other
exceptional projects. In the last few years the Group has acquired new
businesses on a regular basis, however, the costs incurred due to these
acquisitions are not considered to be an ongoing trading cost and usually
cannot be changed or influenced by management .
Underlying adjusted results excludes the following items in order to present a
more accurate 'like for like' comparison over the comparable period:
• The impact of acquisitions made in the period or in the comparable
period; and
• Specific material agreements, adjustments to previous years or
currency fluctuations affecting the results in the period and the comparable
period.
As these are non-GAAP measures, they should not be considered as replacements
for IFRS measures. The Group's definition of these non-GAAP measures may not
be comparable to other similarly titled measures reported by other companies.
A full reconciliation of adjustments is included in note 5.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial information in conformity with generally accepted
accounting principles requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial information and
the reported amounts of revenues and expenses during the reporting period.
Although these estimates are based on management's best knowledge of current
events and actions, actual results ultimately may differ from those estimates.
The areas requiring the use of estimates and critical judgments that may
potentially have a significant impact on the Group's earnings and financial
position are detailed below.
Estimates and assumptions
Impairment of goodwill and other intangibles
The Group is required to test, on an annual basis, whether goodwill,
intangible assets not yet in use and indefinite life assets have suffered any
impairment. The Group is required to test other intangibles if events of
changes in circumstances indicated that their carrying amount may not be
recoverable. The recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of future cash
flows and the choice of a discount rate in order to calculate the present
value of the cash flows. Such estimates are based on management's experience
of the business, but actual outcomes may vary. More details including carrying
values are included in Note 12.
Amortisation of development costs and other intangible assets and the useful
life of property, plant and equipment
Intangible assets and property, plant and equipment are amortised or
depreciated over their useful lives. Useful lives are based on management's
estimates of the period that the assets will generate revenue, which are
periodically reviewed for continued appropriateness.
Changes to estimates can result in significant variations in the amounts
charged to the consolidated statement of comprehensive income in specific
periods. More details including carrying values are included in Notes 11 and
12.
Compliance risk - Legal, regulatory and taxation
Legal proceedings and contingent liabilities
Management regularly monitors the key risks affecting the Group, including the
regulatory environment in which the Group operates. A provision will be made
where there is a present obligation from a past event, a transfer of economic
benefits is probable and the amount of costs of the transfer can be estimated
reliably. In instances where the criteria are not met, a contingent liability
may be disclosed in the notes to the financial information. More details are
included in Note 31.
Income taxes
The Group is subject to income tax in jurisdictions in which its companies are
incorporated and registered and judgment is required in determining the
provision for income taxes. The Group is basing its tax provisions on current
(and enacted but not yet implemented) tax rules and practices, together with
advice received from professional advisers, and believes that its accruals for
tax liabilities are adequate for all open enquiry years based on its
assessment of many factors including past experience and interpretations of
tax law. The Group constantly monitors changes in legislation and update its
accruals accordingly. The principal risks relating to the Group's tax
liabilities, and the sustainability of the underlying effective tax rate,
arise from domestic and international tax laws and practices in the e-commerce
environment continuing to evolve, including the corporate tax rates in
jurisdictions where the Group has a significant asset or people presence.
More details are included in Note 8.
Regulatory
The Group's subsidiaries, Safecap investments Limited, Magansale Trading
Limited, CFH Clearing Limited and TradeTech Alpha Limited, are regulated by
either the Cyprus Securities and Exchange Commission or the Financial Conduct
Authority. The regulatory environment is regularly changing and imposes
significant demands of the resources of the subsidiaries. As the subsidiaries'
activities expand, offering new products and penetrating new markets, these
regulatory demands will inevitably increase. The increasing complexity of the
Group's operations require training and recruitment be tailored to meet these
regulatory demands and the costs of compliance are expected to increase.
In addition to the above, the regulated subsidiaries manage their capital
resources on the basis of capital adequacy requirements as prescribed by each
of the regulators, together with their own assessments of other business risks
and sensitivities which may impact the business. Capital adequacy
requirements are monitored on a real-time basis, including a 'buffer' which is
deemed sufficient by management to ensure that capital requirements are not
breached at any time.
Structured agreements
For all arrangements structured in separate vehicles the Group must assess the
substance of the arrangement in determining whether it meets the definition to
be classified as an associate or joint venture. Factors the group must
consider include:
• Structure
• Legal form
• Contractual agreement
• Other facts and circumstances.
Upon consideration of these factors, the Group has determined that all of its
arrangements structured through separate vehicles give it significant
influence but not joint control rights to the net assets and are therefore
classified as associates.
Share-based payments
The Group has a share-based remuneration scheme for employees. The fair value
of share options is estimated by using the Black-Scholes and Binomial models,
on the date of grant based on certain assumptions. Those assumptions are
described in Note 10 and include, among others, the dividend growth rate,
expected share price volatility, expected life of the options and number of
options expected to vest.
Determination of fair value of intangible assets acquired on business
combinations
The fair value of the intangible assets acquired is based on the discounted
cash flows expected to be derived from the use of the asset. Further
information in relation to the determination of fair value of intangible
assets acquired is given in Notes 26 and 27.
Determination of the fair value of contingent consideration and redemption
liability
The fair value of contingent consideration and redemption liability is based
on the probability of expected cash flow outcomes and the assessment of
present values using appropriate discount rates. Recognition of put/call
options over non-controlling interest is based on consideration of the
ownership risks and rewards of the shares relating to the option to determine
whether the equity is attributable to the non-controlling interest or the
parent. Further information in relation to the determination of the fair value
of contingent consideration is given in Notes 26 and 27.
Provision for loss from onerous contracts
Management considers the requirement for a creation of a provision from a
loss-making contract by forecasting the cash flow outcomes in the remain
period of the contract. The assessment of the cash flow outcomes includes the
probability of future changes in commercial terms and the steps taking to
mitigate the issues encountered with the contract.
NOTE 4 - SEGMENT INFORMATION
The Group's reportable segments are strategic business units that offer
different products and services.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision maker has been identified as the management team including the Chief
Executive Officer and the Chief Financial Officer.
The operating segments identified are:
§ Gaming B2B: including Casino, Services, Sport, Bingo, Poker and Other
§ Gaming B2C
§ Financial: including B2C and B2B CFD
The Group-wide profit measures are adjusted EBITDA and adjusted net profit
(see Note 5). Management believes the adjusted profit measures represent more
closely the underlying trading performance of the business. No other
differences exist between the basis of preparation of the performance measures
used by management and the figures in the Group financial information.
In 2017 following the growth in the business to customer ("B2C") segment and
due to the fundamental difference in its margin profiles, the Group has
changed the internal and external reporting and split out from the gaming
segment the B2C element.
There is no allocation of operating expenses, profit measures, assets and
liabilities to individual products within the gaming segment, as allocation
would be arbitrary.
Year ended 31 December 2017
Casino Services Sport Bingo Poker Other Total Gaming B2B Gaming B2C Total Gaming Total Consolidated
Financial
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Total revenue 411,327 94,259 85,733 24,758 9,426 26,401 651,904 70,286 722,190 84,930 807,120
adjusted EBITDA 321,686 (26,606) 295,080 27,016 322,096
adjusted net profit 234,772 (25,895) 208,877 22,572 231,449
Total assets 1,891,328 27,420 1,918,748 435,499 2,354,247
Total liabilities 645,266 59,142 704,408 291,387 995,795
Year ended 31 December 2016
Casino Services Sport Bingo Poker Other Total Gaming Gaming B2C Total Gaming Total Consolidated
B2B Financial
€'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000 €'000
Total revenue 371,660 115,950 55,916 17,958 8,956 17,802 588,242 54,724 642,966 65,592 708,558
adjusted EBITDA 292,631 (5,768) 286,863 15,370 302,233
adjusted net profit 193,370 (6,299) 187,071 15,819 202,890
Total assets 1,854,739 26,603 1,881,342 194,904 2,076,246
Total liabilities 764,953 32,634 797,588 178,939 976,527
As disclosed in the 2016 annual report and as further disclosed above, the
2016 revenues by product have been restated to combine 'land based' into the
other headings and also splits between the B2B element, which includes both
software and services revenues and the B2C element, which includes white-label
gaming operations in regulated markets.
In 2017, there were two licensees (2016: Two licensees) who individually
accounted for more than 10% of the total gaming revenue and the total revenue
of the Group. Aggregate revenue from these licensees totaled €280.6 million
(2016: €255.4 million).
Geographical analysis of revenues by jurisdiction of license
Analysis by geographical regions is made according to the jurisdiction of the
licensee. This does not reflect the region of the end users of the Group's
licensees whose locations are worldwide.
2017 2016*
€'000 €'000
Philippines 283,211 257,024
UK 238,144 196,829
Rest of World 110,274 93,656
Malta 30,492 25,773
Gibraltar 27,421 25,499
Italy 23,406 22,723
Spain 19,311 14,733
Mexico 17,264 8,578
Seychelles 10,383 4,063
Greece 10,052 10,344
Finland 8,052 6,182
Denmark 6,996 2,373
Norway 6,508 6,132
Germany 6,302 3,562
Ireland 6,166 2,196
Antigua 3,138 28,891
807,120 708,558
*2016 comparative numbers were adjusted to include the financials division
revenue
Geographical analysis of non-current assets
The Group's information about its non-current assets by location of the
domicile are detailed below:
2017 2016
€'000 €'000
Isle of Man 805,288 208,603
Austria 147,877 162,097
Luxemburg 117,366 51,352
UK 107,435 108,915
Cyprus 74,477 61,690
Sweden 76,452 76,670
British Virgin Islands 63,609 560,529
Denmark 43,004 51,583
Alderney 35,878 6,091
Gibraltar 25,295 32,322
Malta 20,537 1,668
Latvia 17,254 13,947
Netherlands - 19,159
Rest of World 35,331 29,067
1,569,803 1,383,693
The Group's information about its non-current assets by location of the assets
are detailed below:
2017 2016
€'000 €'000
Isle of Man 535,590 27,664
UK 505,258 349,190
Austria 147,877 162,097
Cyprus 69,260 51,605
Sweden 76,452 76,670
British Virgin Islands 53,294 552,766
Alderney 35,878 6,091
Malta 31,231 12,601
Denmark 30,233 37,261
Gibraltar 25,295 32,322
Latvia 17,254 13,947
Netherland - 15,959
Rest of World 42,181 45,520
1,569,803 1,383,693
NOTE 5 - ADJUSTED ITEMS
The following tables give a full reconciliation between adjusted and actual
results:
2017 2016
€'000 €'000
Revenue 807,120 708,558
Constant currency impact 30,217 -
Revenue on constant currency basis 837,337 708,558
Revenue related to acquisitions on a constant currency basis (138,100) (42,808)
Underlying revenue 699,237 665,750
Distribution costs before depreciation and amortisation 412,943 345,934
Employee stock option expenses (7,292) (5,144)
Adjusted distribution costs before depreciation and amortisation 405,651 340,790
Administrative expenses before depreciation and amortisation 101,009 70,772
Employee stock option expenses (7,802) (1,796)
Professional fees on acquisitions (2,387) (3,441)
One off employee related costs (5,001) -
Additional consideration payable for put/call options (5,345) -
Cost of business reorganization (1,101) -
Total adjusted items (21,636) (5,237)
Adjusted administrative expenses before depreciation and amortisation 79,373 65,535
Depreciation - distribution costs 19,129 17,887
Depreciation - administrative costs 7,415 2,205
Amortisation - distribution costs 86,987 75,173
Impairment 7,845 12,335
Total depreciation and amortization 121,376 107,600
Amortisation of intangibles on acquisitions - distribution costs (50,954) (44,318)
Impairment (7,845) (12,335)
Adjusted depreciation and amortisation 62,577 50,947
EBITDA 293,168 291,852
Employee stock option expenses 15,094 6,940
Professional expenses on acquisitions 2,387 3,441
One off employee related costs 5,001 -
Additional consideration payable for put/call options 5,345 -
Cost of business reorganization 1,101 -
Adjusted EBITDA 322,096 302,233
Constant currency impact 14,110 -
Adjusted EBITDA on constant currency basis 336,206 302,233
EBITDA related to acquisitions on constant currency basis (46,296) (12,887)
Underlying adjusted EBITDA 289,910 289,346
Profit for the year- attributable to owners of parent 248,140 193,030
Amortisation of intangibles on acquisitions 50,954 44,318
Impairments related to acquisitions 7,845 12,335
Profit/(loss) on disposal of investment in associate 725 (64,459)
Impairment of investment in associate and other non-current assets 14,887 -
Employee stock option expenses 15,094 6,940
Professional expenses on acquisitions 2,387 3,441
Additional consideration payable for put/call options 5,345 -
Cost of business reorganisation 1,101 -
Non-cash accrued bond interest 10,234 9,802
Decline in fair value of available for sale investments 467 -
One off employee related costs 5,241 -
Deferred tax on acquisition (4,592) (3,353)
Movement in deferred and contingent consideration (126,379) 832
Adjusted profit for the year - attributable to owners of the parent 231,449 202,886
Constant currency impact 35,701 44,696
Adjusted profit for the year - attributable to owners of the parent on 267,150 247,582
constant currency basis
Adjusted net profit related to acquisitions on constant currency basis (26,920) (10,075)
Underlying adjusted profit for the year - attributable to owners of the parent 240,230 237,507
NOTE 6 - EBITDA
EBITDA is stated after charging:
2017 2016
€'000 €'000
Directors compensation
Short-term benefits of directors 2,532 2,231
Share-based benefits of directors 1,436 297
Bonuses to executive directors 2,280 2,071
6,248 4,599
Auditor's remuneration
Group audit and parent company (BDO) 509 362
Audit of subsidiaries (BDO) 508 599
Audit of subsidiaries (non-BDO) 209 207
Total Audit fees 1,226 1,168
Non-audit services provided by parent company auditor and its international
member firms
Corporate finance services related to acquisitions 271 320
Other non-audit services 116 133
Tax advisory services 96 418
Total Non-audit fees 483 871
Development costs (net of capitalised development costs of €50.7 million 85,191 88,036
(2016: €35.5 million))
NOTE 7 - FINANCING INCOME AND COSTS
2017 2016
€'000 €'000
A. Finance income
Interest received 1,850 1,376
Return on available-for-sale investments 17,078 11,894
Finance income - movement in contingent consideration 126,379 -
145,307 13,270
B. Finance cost
Finance cost - movement in contingent consideration - (832)
Exchange differences (19,693) (44,696)
Notional interest expenses on convertible bonds (10,234) (9,802)
Nominal interest expenses on convertible bonds (1,485) (1,485)
Bank charges and interest paid (2,795) (4,304)
(34,207) (61,119)
Net financing income/(cost) 111,100 (47,849)
NOTE 8 - TAXATION
2017 2016
€'000 €'000
Current income tax
Income tax on profits of subsidiary operations 21,856 9,652
Deferred tax (Note 24) (4,592) (3,349)
Tax for prior years 241 -
Total tax charge 17,505 6,303
The tax charge for the year can be reconciled to accounting profit as follows:
2017 2016
€'000 €'000
Profit before taxation 266,615 200,315
Tax at effective rate in Isle of Man - -
Higher rates of current income tax in overseas jurisdictions 17,505 6,303
The Group is tax registered, managed and controlled from the Isle of Man and
the majority of the profits arise in the Isle of Man where the corporate tax
rate is set to zero. The Group's subsidiaries are located in different
jurisdictions. The subsidiaries are taxed on their residual profit.
The deferred tax is due to the reversal of temporary differences arising on
the identification of the intangible assets acquired in the current and prior
years.
NOTE 9 - EARNINGS PER SHARE
Earnings per share have been calculated using the weighted average number of
shares in issue during the relevant financial periods. The weighted average
number of equity shares in issue and the earnings, being profit after tax is
as follows:
2017 2016
Actual Adjusted Actual Adjusted
€'000 €'000 €'000 €'000
Profit for the year attributable to owners of the parent 248,140 231,449 193,030 202,890
Add interest on convertible bond 11,719 1,485 11,287 1,485
Earnings used in diluted EPS 259,859 232,934 204,317 204,375
Basic (cents) 78.9 73.6 61.4 64.6
Diluted (cents) 74.6 66.8 58.8 58.8
2017 2016
Actual Adjusted Actual Adjusted
Number Number Number Number
Denominator - basic
Weighted average number of equity shares 314,504,413 314,504,413 314,130,671 314,130,671
Denominator - diluted
Weighted average number of equity shares 314,504,413 314,504,413 314,130,671 314,130,671
Weighted average number of option shares 418,290 418,290 2,326,838 2,326,838
Weighted average number of convertible bonds 33,543,403 33,543,403 31,059,798 31,059,798
Weighted average number of shares 348,466,106 348,466,106 347,517,307 347,517,307
As at 31 December 2017, none (2016: none) of the outstanding share options were included in the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (i.e. they are out of the money) and therefore it would not be advantageous for the holders to exercise those options. The total number of options in issue is disclosed in Note 10.
NOTE 10 - EMPLOYEE BENEFITS
Total staff costs comprise the following:
2017 2016
€'000 €'000
Salaries and personnel-related costs 264,555 234,410
Employee stock option costs 15,094 6,940
279,649 241,350
Average number of personnel:
Distribution 4,586 4,782
General and administration 458 472
5,044 5,254
The Group has the following employee share option plans ("ESOP") for the
granting of non-transferable options to certain employees:
§ Playtech 2005 Share Option Plan ("the Plan") and Israeli plans, options
granted under the plans vest on the first day on which they become exercisable
which is typically between one to four years after grant date.
§ GTS 2010 Company Share Option Plan ("CSOP"), options granted under the plan
vest on the first day on which they become exercisable which is three years
after grant date.
§ Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards
or a forfeitable share award) granted under the plan vest on the first day on
which they become exercisable which is typically between eighteen to thirty
six months after grant date.
The overall term of the ESOP is five to ten years. These options are settled
in equity once exercised. Option prices are either denominated in USD or GBP,
depending on the option grant terms.
During 2012, the Group amended some of the rules of the equity based Plan.
The amendments allow the Group, at the employees consent, to settle fully
vested and exercisable options for cash instead of issuing shares.
The Group granted 1,615,579 and 1,500,529 nil cost awards in 2017 and 2016
respectively at fair value per share of between £9.625 and £10.06 in 2017
and between £7.955 and £7.895 in 2016.
At 31 December 2017, options under these schemes were outstanding over:
2017 2016
Number Number
Shares vested between 18 June 2008 and 18 June 2010 at an exercise price of - 3,750
£3.96 per share
Shares vested between 31 December 2008 and 31 December 2010 at an exercise - 5,000
price of £3.86 per share
Shares vested between 25 April 2009 and 25 April 2012 at an exercise price of - 10,000
£4.35 per share
Shares vested between 28 November 2009 and 28 November 2012 at an exercise 19,735 29,952
price of £3.20 per share
Shares vested on 22 May 2012 at an exercise price of £4.155 per share - 20,000
Shares vested between 18 April 2012 and 18 April 2013 at an exercise price of 18,000 23,200
£5.12 per share
Shares vested between 26 August 2012 and 26 August 2013 at an exercise price 30,500 35,811
of £4.16 per share
Shares vested on 10 March 2014 at an exercise price of £3.5225 per share 26,500 49,000
Shares will vest between 17 June 2016 and 17 June 2017 at nil cost - 28,713
Shares vested on 21 December 2016 at nil cost - 64,935
Shares will vest on 1 March 2018 at nil cost 146,919 146,919
Shares will vest between 1 September 2016 and 1 March 2018 at nil cost 276,825 383,071
Shares will vest on 1 March 2019 at nil cost 246,728 246,728
Shares will vest between 1 September 2017 and 1 March 2019 at nil cost 429,817 677,338
Shares will vest on 21 December 2019 at nil cost 110,183 111,720
Shares will vest between 1 October 2017 and 1 April 2019 at nil cost 324,494 -
Shares will vest on 1 March 2020 at nil cost 1,228,877 -
2,858,578 1,836,137
Total number of shares exercisable as of 31 December 2017 is 278,982 (2016:
376,213).
The following table illustrates the number and weighted average exercise
prices of shares options for the ESOP.
2017 2016 2017 2016
Number of options Number of options Weighted average exercise price Weighted average exercise price
Outstanding at the beginning of the year 1,836,137 607,300 £0.38 $6.99, £1.52
Granted 1,615,579 1,500,529 Nil nil
Forfeited (113,339) (13,215) Nil nil
Exercised (479,799) (258,477) £0.67 $6.99, £0.87
Outstanding at the end of the year 2,858,578 1,836,137 £0.13 £0.38
Included in the number options exercised during the year is 29,689 options
(2016: 14,061) where a cash alternative was received.
The weighted average share price at the date of exercise of options was
£8.601 (2016: £8.718).
Share options outstanding at the end of the year have the following exercise
prices:
Expiry date Exercise price 2017 2016
Number Number
Between 15 May 2017 and 31 December 2017 Between $7.19 and $7.79 and between £3.39 and £3.96 - 8,750
Between 25 April 2018 and 31 December 2018 $4.35 and between £3.17 and £5.31 19,735 39,952
Between 22 May 2019 and 6 November 2019 Between £3.70 and £4.16 - 20,000
Between 18 April 2020 and 26 August 2020 Between £4.16 and £5.12 48,500 59,011
Between 10 March 2021 and 16 December 2021 Between £2.30 and £3.52 26,500 49,000
17 December 2024 Nil - 93,648
21 December 2025 Nil 423,744 529,990
Between 21 December 2026 and 31 December 2026 Nil 786,728 1,035,786
Between 1 March 2027 and 28 June 2027 Nil 1,553,371 -
2,858,578 1,836,137
Markets ESOP
The Group has the following employee share option plans ("ESOP") for the
granting of non-transferable options to certain employees:
§ TradeFX 2009 Global Share Option Plan ("the First Plan"), options granted
under the first plan vest on the first day on which they become exercisable
which is typically between one to four years after grant date.
§ Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards
or forfeitable share award) granted under the plan vest on the first day on
which they become exercisable which is typically between eighteen to thirty
six months after grant date.
§ Tradetech Performance Share Plan 2017 ("the Second Plan"), options granted
under the second plan vest three years after grant date, according to
performance targets in the years 2017 and 2018.
The overall term of the ESOP is ten years. These options are settled in equity
once exercised. Option prices are either denominated in USD, depending on the
option grant terms.
Total number of share options exercisable as of 31 December 2017 is 100,416
(2015: 10,126 ; 2016: 55,734).
2017 2016
Number Number
Shares vested between 1 June 2011 and 31 December 2017 at an exercise price of 750 3,800
$4 per share
Shares vested between 1 November 2013 and 31 December 2017 at an exercise 4,475 4,338
price of $12 per share
Shares vested between 1 December 2016 and 31 December 2017 at an exercise 95,191 47,596
price of $70 per share
100,416 55,734
Shares vesting on 1 January 2017 at an exercise price of $12 per share - 612
Shares vesting between 1 January 2017 and 31 August 2020 at an exercise price 103,715
of $70 per share
53,495
Shares will vest between June 2020 November 2020 at nil cost 7,898 -
61,393 104,327
161,809 160,061
The following table illustrates the number and weighted average exercise
prices of shares options for the ESOP:
2017 2016 2017 2016
Number of options Number of options Weighted average exercise price Weighted average exercise price
Outstanding at the beginning of the year 160,061 168,899 $ 60.7 $ 60.7
Granted through the year 7,898 11,000 $ 70 $ 70
Forfeited (5,600) (12,410) $ 36.75 $ 36.75
Exercised (550) (7,428) $ 9.17 $ 9.17
Outstanding at the end of the year 161,809 160,061 $ 66.64 $ 66.64
Included in the number of options exercised during the year is 550 (2016:
1,049) where a cash alternative was received. The weighted average share price
at the date of exercise of options was $5.82.
Share options outstanding at the end of the year have the following exercise
prices:
2017 2016
Number Number
Share options to be expired between 1 June 2020 and 1 August 2022 at an 750 3,800
exercise price of $4 per share
Share options to be expired between 1 September 2022 and 1 November 2023 at an 4,475 4,950
exercise price of $12 per share
Share options to be expired between 1 December 2024 and 10 March 2025 at an 148,686 151,311
exercise price of $70 per share
Share options to be expired between June 2027 and November 2027 at nil cost 7,898 -
161,809 160,061
NOTE 11 - PROPERTY, PLANT AND EQUIPMENT
Computers Gaming machines Office furniture, equipment and motor vehicles Freehold and leasehold buildings and improvements Total
€'000 €'000 €'000 €'000 €'000
Cost
At 1 January 2016 67,191 - 8,973 26,598 102,762
Additions 14,754 3,062 2,844 5,564 26,224
Acquired through business 2,229 12,163 1,049 44 15,485
combinations
Disposals (243) (3) (218) (169) (633)
Foreign exchange Movements 51 2 24 1 78
At 31 December 2016 83,982 15,224 12,672 32,038 143,916
Accumulated depreciation
At 1 January 2016 43,411 - 3,467 4,547 51,425
Charge 12,630 2,789 2,058 2,615 20,092
Disposals (203) (3) (124) (199) (529)
Foreign exchange Movements 26 1 8 - 35
At 31 December 2016 55,864 2,787 5,409 6,963 71,023
Net Book Value
At 31 December 2016 28,118 12,437 7,263 25,075 72,893
At 31 December 2015 23,780 - 5,506 22,051 51,337
Computers Gaming machines Office furniture and equipment Buildings and leasehold buildings and improvements Total
€'000 €'000 €'000 €'000 €'000
Cost
At 1 January 2017 83,982 15,224 12,672 32,038 143,916
Additions 15,009 11,816 2,717 5,150 34,692
Acquired through business 101 1 44 - 146
combinations
Disposals (1,610)
- More to follow, for following part double click ID:nRSV6181Fd ts in joint operations by recognising its share of assets, liabilities, revenues and
expenses in accordance with its contractually conferred rights and obligations.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which
the asset was acquired. The Group has not classified any of its financial assets as held to maturity. The Group does not
hold any financial assets at fair value through profit and loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They arise principally through the provision of services to customers (e.g. trade receivables), but also
incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs
that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the
effective interest rate method, less provision for impairment.
The Group's receivables comprise trade and other receivables, cash and cash equivalents, and loans to customers in the
balance sheet.
Trade receivables which principally represent amounts due from licensees are carried at original invoice value less an
estimate made for bad and doubtful debts based on a review of all outstanding amounts at the year-end. An estimate for
doubtful debts is made when there is objective evidence that the Group will not be able to collect amounts due according to
the original terms of receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid
investments with original maturities of three months or less. Where cash is on deposit with maturity dates greater than
three months, it is disclosed within other receivables.
Loans to customers are in respect of formal loan agreements entered into between the Group and its customers, which are
carried at original advanced value less provision for impairment (or fair value on inception, if different). They are
classified between current and non-current assets in accordance with the contractual repayment terms of each loan
agreement.
Available-for-sale financial assets
Non-derivative financial assets classified as available-for-sale comprise the Group's strategic investments in entities not
qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair
value generally recognised in other comprehensive income and accumulated in the available for sale reserve. In accordance
with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in
the consolidated statement of comprehensive income.
Purchases and sales of available-for-sale financial assets are recognised on settlement date with any change in fair value
between trade date and settlement date being recognised in the available-for-sale reserve. On sale, the amount held in the
available-for-sale reserve associated with that asset is removed from equity and recognised in the consolidated statement
of comprehensive income.
Financial liabilities
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
Several of the Group's licensees participate in progressive jackpot games. Each time a progressive jackpot game is played,
a preset amount is added to a cumulative jackpot for that specific game. The accrual for the jackpot at the consolidated
balance sheet date is included in progressive jackpot and other operator's jackpot liabilities.
The Group's liability in connection with client funds includes customer deposits offset by the fair value of open
positions, the movement on which is recognised through profit or loss. Such open positions are classified as short term
financial derivatives in the balance sheet. Where customer's trading positions are hedged, or partly hedged, for risk
management purposes, the fair value of those open hedge positions are carried at fair market value in trade receivables or
trade payables (depending on whether the positions are in or out of the money) and classified as short term financial
derivatives in the balance sheet.
Liability components of convertible loan notes are measured as described further below.
Loans and bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the
issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective
interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the
balance of the liability carried in the consolidated balance sheet. Interest expense in this context includes initial
transaction costs and premia payable on redemption, as well as any interest or coupon payable while the liability is
outstanding.
Fair value measurement hierarchy
IFRS 7 and IFRS 13 requires certain disclosure which require the classification of financial assets and financial
liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making
the fair value measurement (see note 30). The fair value hierarchy has the following levels:
a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. - derived from prices) (Level 2); and
c) Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined
on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial
liabilities are classified in their entirety into only one of the three levels. The Group measures its available-for-sale
investments at fair value - refer to Note 14 for more detailed information in respect of the fair value measurement.
Share capital
Ordinary shares are classified as equity and are stated at the proceeds received net of direct issue costs.
Employee Benefit Trust
Consideration paid/received for the purchase/sale of shares subsequently put in the Employee Benefit Trust is recognised
directly in equity. The cost of treasury shares held is presented as a separate reserve (the "Employee Benefit Trust
reserve"). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the
shares sold is credited to retained earnings.
Share buy back
The Group cannot hold treasury shares under the Group's memorandum and article of association and therefore the shares are
cancelled after the buy back.
Convertible bond
The proceeds received on issue of the Group's convertible bond are allocated into their liability and equity components.
The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that
would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component
is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the
bond, where the option meets the definition of an equity instrument. The remainder of the proceeds is allocated to the
conversion option and is recognised in the "Convertible bond option reserve" within shareholders' equity.
Long term liabilities
Long term liabilities are those liabilities that are due for repayment or settlement in more than twelve months from
balance sheet date.
Provisions
Provisions, which are liabilities of uncertain timing or amount, are recognised when the Group has a present obligation as
a result of past events, if it is probable that an outflow of funds will be required to settle the obligation and a
reliable estimate of the amount of the obligation can be made.
Leases
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating
lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a
straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the
rental expense over the lease term on a straight-line basis.
Non-controlling interests
Non-controlling interest is recognised at the present ownership instruments' proportionate share in the recognised amounts
of the acquiree's identifiable net assets. The total comprehensive income of non-wholly owned subsidiaries is attributed to
owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.
Adjusted results
The directors believe that in order to best represent the trading performance and results of the Group, the reported
numbers should exclude certain non-cash and one-off items including the below.
Management regularly uses the adjusted financial measures internally to understand, manage and evaluate the business and
make operating decisions. These adjusted measures are among the primary factors management uses in planning for and
forecasting future periods. Furthermore, compensation of the executives is based in part on the performance of the business
based on these adjusted measures.
Accordingly, these are the key performance metrics used by the Board when assessing the Group's financial performance. Such
exclusions include:
• Material non-cash items, e.g. amortisation of intangibles on acquisition, change in fair value of available-for-sale
investments in the income statement and Employee Share Option Plan expenses. Management regularly monitors the operating
cash conversion to adjusted EBITDA These items are excluded to better analyse the underlying cash transactions of the
business.
• Material one-off items, e.g. gain on sale of investment in associates, professional services cost related to
acquisitions and other exceptional projects. In the last few years the Group has acquired new businesses on a regular
basis, however, the costs incurred due to these acquisitions are not considered to be an ongoing trading cost and usually
cannot be changed or influenced by management .
Underlying adjusted results excludes the following items in order to present a more accurate 'like for like' comparison
over the comparable period:
• The impact of acquisitions made in the period or in the comparable period; and
• Specific material agreements, adjustments to previous years or currency fluctuations affecting the results in the
period and the comparable period.
As these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Group's definition of
these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies. A full
reconciliation of adjustments is included in note 5.
NOTE 3 - CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
The preparation of financial information in conformity with generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual
results ultimately may differ from those estimates.
The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the
Group's earnings and financial position are detailed below.
Estimates and assumptions
Impairment of goodwill and other intangibles
The Group is required to test, on an annual basis, whether goodwill, intangible assets not yet in use and indefinite life
assets have suffered any impairment. The Group is required to test other intangibles if events of changes in circumstances
indicated that their carrying amount may not be recoverable. The recoverable amount is determined based on value in use
calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in
order to calculate the present value of the cash flows. Such estimates are based on management's experience of the
business, but actual outcomes may vary. More details including carrying values are included in Note 12.
Amortisation of development costs and other intangible assets and the useful life of property, plant and equipment
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are
based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for
continued appropriateness.
Changes to estimates can result in significant variations in the amounts charged to the consolidated statement of
comprehensive income in specific periods. More details including carrying values are included in Notes 11 and 12.
Compliance risk - Legal, regulatory and taxation
Legal proceedings and contingent liabilities
Management regularly monitors the key risks affecting the Group, including the regulatory environment in which the Group
operates. A provision will be made where there is a present obligation from a past event, a transfer of economic benefits
is probable and the amount of costs of the transfer can be estimated reliably. In instances where the criteria are not met,
a contingent liability may be disclosed in the notes to the financial information. More details are included in Note 31.
Income taxes
The Group is subject to income tax in jurisdictions in which its companies are incorporated and registered and judgment is
required in determining the provision for income taxes. The Group is basing its tax provisions on current (and enacted but
not yet implemented) tax rules and practices, together with advice received from professional advisers, and believes that
its accruals for tax liabilities are adequate for all open enquiry years based on its assessment of many factors including
past experience and interpretations of tax law. The Group constantly monitors changes in legislation and update its
accruals accordingly. The principal risks relating to the Group's tax liabilities, and the sustainability of the underlying
effective tax rate, arise from domestic and international tax laws and practices in the e-commerce environment continuing
to evolve, including the corporate tax rates in jurisdictions where the Group has a significant asset or people presence.
More details are included in Note 8.
Regulatory
The Group's subsidiaries, Safecap investments Limited, Magansale Trading Limited, CFH Clearing Limited and TradeTech Alpha
Limited, are regulated by either the Cyprus Securities and Exchange Commission or the Financial Conduct Authority. The
regulatory environment is regularly changing and imposes significant demands of the resources of the subsidiaries. As the
subsidiaries' activities expand, offering new products and penetrating new markets, these regulatory demands will
inevitably increase. The increasing complexity of the Group's operations require training and recruitment be tailored to
meet these regulatory demands and the costs of compliance are expected to increase.
In addition to the above, the regulated subsidiaries manage their capital resources on the basis of capital adequacy
requirements as prescribed by each of the regulators, together with their own assessments of other business risks and
sensitivities which may impact the business. Capital adequacy requirements are monitored on a real-time basis, including a
'buffer' which is deemed sufficient by management to ensure that capital requirements are not breached at any time.
Structured agreements
For all arrangements structured in separate vehicles the Group must assess the substance of the arrangement in determining
whether it meets the definition to be classified as an associate or joint venture. Factors the group must consider
include:
• Structure
• Legal form
• Contractual agreement
• Other facts and circumstances.
Upon consideration of these factors, the Group has determined that all of its arrangements structured through separate
vehicles give it significant influence but not joint control rights to the net assets and are therefore classified as
associates.
Share-based payments
The Group has a share-based remuneration scheme for employees. The fair value of share options is estimated by using the
Black-Scholes and Binomial models, on the date of grant based on certain assumptions. Those assumptions are described in
Note 10 and include, among others, the dividend growth rate, expected share price volatility, expected life of the options
and number of options expected to vest.
Determination of fair value of intangible assets acquired on business combinations
The fair value of the intangible assets acquired is based on the discounted cash flows expected to be derived from the use
of the asset. Further information in relation to the determination of fair value of intangible assets acquired is given in
Notes 26 and 27.
Determination of the fair value of contingent consideration and redemption liability
The fair value of contingent consideration and redemption liability is based on the probability of expected cash flow
outcomes and the assessment of present values using appropriate discount rates. Recognition of put/call options over
non-controlling interest is based on consideration of the ownership risks and rewards of the shares relating to the option
to determine whether the equity is attributable to the non-controlling interest or the parent. Further information in
relation to the determination of the fair value of contingent consideration is given in Notes 26 and 27.
Provision for loss from onerous contracts
Management considers the requirement for a creation of a provision from a loss-making contract by forecasting the cash flow
outcomes in the remain period of the contract. The assessment of the cash flow outcomes includes the probability of future
changes in commercial terms and the steps taking to mitigate the issues encountered with the contract.
NOTE 4 - SEGMENT INFORMATION
The Group's reportable segments are strategic business units that offer different products and services.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. The chief operating decision maker has been identified as the management team including the Chief Executive
Officer and the Chief Financial Officer.
The operating segments identified are:
§ Gaming B2B: including Casino, Services, Sport, Bingo, Poker and Other
§ Gaming B2C
§ Financial: including B2C and B2B CFD
The Group-wide profit measures are adjusted EBITDA and adjusted net profit (see Note 5). Management believes the adjusted
profit measures represent more closely the underlying trading performance of the business. No other differences exist
between the basis of preparation of the performance measures used by management and the figures in the Group financial
information.
In 2017 following the growth in the business to customer ("B2C") segment and due to the fundamental difference in its
margin profiles, the Group has changed the internal and external reporting and split out from the gaming segment theB2C
element.
There is no allocation of operating expenses, profit measures, assets and liabilities to individual products within the
gaming segment, as allocation would be arbitrary.
Year ended 31 December 2017
Casino Services Sport Bingo Poker Other Total Gaming B2B Gaming B2C Total Gaming Total Financial Consolidated
E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000
Total revenue 411,327 94,259 85,733 24,758 9,426 26,401 651,904 70,286 722,190 84,930 807,120
adjusted EBITDA 321,686 (26,606) 295,080 27,016 322,096
adjusted net profit 234,772 (25,895) 208,877 22,572 231,449
Total assets 1,891,328 27,420 1,918,748 435,499 2,354,247
Total liabilities 645,266 59,142 704,408 291,387 995,795
Year ended 31 December 2016
Casino Services Sport Bingo Poker Other Total GamingB2B Gaming B2C Total Gaming Total Financial Consolidated
E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000 E'000
Total revenue 371,660 115,950 55,916 17,958 8,956 17,802 588,242 54,724 642,966 65,592 708,558
adjusted EBITDA 292,631 (5,768) 286,863 15,370 302,233
adjusted net profit 193,370 (6,299) 187,071 15,819 202,890
Total assets 1,854,739 26,603 1,881,342 194,904 2,076,246
Total liabilities 764,953 32,634 797,588 178,939 976,527
As disclosed in the 2016 annual report and as further disclosed above, the 2016 revenues by product have been restated to
combine 'land based' into the other headings and alsosplits between the B2B element, which includes both software and
services revenues and the B2C element, which includes white-label gaming operations in regulated markets.
In 2017, there were two licensees (2016: Two licensees) who individually accounted for more than 10% of the total gaming
revenue and the total revenue of the Group. Aggregate revenue from these licensees totaled E280.6 million (2016: E255.4
million).
Geographical analysis of revenues by jurisdiction of license
Analysis by geographical regions is made according to the jurisdiction of the licensee. This does not reflect the region of
the end users of the Group's licensees whose locations are worldwide.
2017 2016*
E'000 E'000
Philippines 283,211 257,024
UK 238,144 196,829
Rest of World 110,274 93,656
Malta 30,492 25,773
Gibraltar 27,421 25,499
Italy 23,406 22,723
Spain 19,311 14,733
Mexico 17,264 8,578
Seychelles 10,383 4,063
Greece 10,052 10,344
Finland 8,052 6,182
Denmark 6,996 2,373
Norway 6,508 6,132
Germany 6,302 3,562
Ireland 6,166 2,196
Antigua 3,138 28,891
807,120 708,558
*2016 comparative numbers were adjusted to include the financials division revenue
Geographical analysis of non-current assets
The Group's information about its non-current assets by location of the domicile are detailed below:
2017 2016
E'000 E'000
Isle of Man 805,288 208,603
Austria 147,877 162,097
Luxemburg 117,366 51,352
UK 107,435 108,915
Cyprus 74,477 61,690
Sweden 76,452 76,670
British Virgin Islands 63,609 560,529
Denmark 43,004 51,583
Alderney 35,878 6,091
Gibraltar 25,295 32,322
Malta 20,537 1,668
Latvia 17,254 13,947
Netherlands - 19,159
Rest of World 35,331 29,067
1,569,803 1,383,693
The Group's information about its non-current assets by location of the assets are detailed below:
2017 2016
E'000 E'000
Isle of Man 535,590 27,664
UK 505,258 349,190
Austria 147,877 162,097
Cyprus 69,260 51,605
Sweden 76,452 76,670
British Virgin Islands 53,294 552,766
Alderney 35,878 6,091
Malta 31,231 12,601
Denmark 30,233 37,261
Gibraltar 25,295 32,322
Latvia 17,254 13,947
Netherland - 15,959
Rest of World 42,181 45,520
1,569,803 1,383,693
NOTE 5 - ADJUSTED ITEMS
The following tables give a full reconciliation between adjusted and actual results:
2017 2016
E'000 E'000
Revenue 807,120 708,558
Constant currency impact 30,217 -
Revenue on constant currency basis 837,337 708,558
Revenue related to acquisitions on a constant currency basis (138,100) (42,808)
Underlying revenue 699,237 665,750
Distribution costs before depreciation and amortisation 412,943 345,934
Employee stock option expenses (7,292) (5,144)
Adjusted distribution costs before depreciation and amortisation 405,651 340,790
Administrative expenses before depreciation and amortisation 101,009 70,772
Employee stock option expenses (7,802) (1,796)
Professional fees on acquisitions (2,387) (3,441)
One off employee related costs (5,001) -
Additional consideration payable for put/call options (5,345) -
Cost of business reorganization (1,101) -
Total adjusted items (21,636) (5,237)
Adjusted administrative expenses before depreciation and amortisation 79,373 65,535
Depreciation - distribution costs 19,129 17,887
Depreciation - administrative costs 7,415 2,205
Amortisation - distribution costs 86,987 75,173
Impairment 7,845 12,335
Total depreciation and amortization 121,376 107,600
Amortisation of intangibles on acquisitions - distribution costs (50,954) (44,318)
Impairment (7,845) (12,335)
Adjusted depreciation and amortisation 62,577 50,947
EBITDA 293,168 291,852
Employee stock option expenses 15,094 6,940
Professional expenses on acquisitions 2,387 3,441
One off employee related costs 5,001 -
Additional consideration payable for put/call options 5,345 -
Cost of business reorganization 1,101 -
Adjusted EBITDA 322,096 302,233
Constant currency impact 14,110 -
Adjusted EBITDA on constant currency basis 336,206 302,233
EBITDA related to acquisitions on constant currency basis (46,296) (12,887)
Underlying adjusted EBITDA 289,910 289,346
Profit for the year- attributable to owners of parent 248,140 193,030
Amortisation of intangibles on acquisitions 50,954 44,318
Impairments related to acquisitions 7,845 12,335
Profit/(loss) on disposal of investment in associate 725 (64,459)
Impairment of investment in associate and other non-current assets 14,887 -
Employee stock option expenses 15,094 6,940
Professional expenses on acquisitions 2,387 3,441
Additional consideration payable for put/call options 5,345 -
Cost of business reorganisation 1,101 -
Non-cash accrued bond interest 10,234 9,802
Decline in fair value of available for sale investments 467 -
One off employee related costs 5,241 -
Deferred tax on acquisition (4,592) (3,353)
Movement in deferred and contingent consideration (126,379) 832
Adjusted profit for the year - attributable to owners of the parent 231,449 202,886
Constant currency impact 35,701 44,696
Adjusted profit for the year - attributable to owners of the parent on constant currency basis 267,150 247,582
Adjusted net profit related to acquisitions on constant currency basis (26,920) (10,075)
Underlying adjusted profit for the year - attributable to owners of the parent 240,230 237,507
NOTE 6 - EBITDA
EBITDA is stated after charging:
2017 2016
E'000 E'000
Directors compensation
Short-term benefits of directors 2,532 2,231
Share-based benefits of directors 1,436 297
Bonuses to executive directors 2,280 2,071
6,248 4,599
Auditor's remuneration
Group audit and parent company (BDO) 509 362
Audit of subsidiaries (BDO) 508 599
Audit of subsidiaries (non-BDO) 209 207
Total Audit fees 1,226 1,168
Non-audit services provided by parent company auditor and its international member firms
Corporate finance services related to acquisitions 271 320
Other non-audit services 116 133
Tax advisory services 96 418
Total Non-audit fees 483 871
Development costs (net of capitalised development costs of E50.7 million (2016: E35.5 million)) 85,191 88,036
NOTE 7 - FINANCING INCOME AND COSTS
2017 2016
E'000 E'000
A. Finance income
Interest received 1,850 1,376
Return on available-for-sale investments 17,078 11,894
Finance income - movement in contingent consideration 126,379 -
145,307 13,270
B. Finance cost
Finance cost - movement in contingent consideration - (832)
Exchange differences (19,693) (44,696)
Notional interest expenses on convertible bonds (10,234) (9,802)
Nominal interest expenses on convertible bonds (1,485) (1,485)
Bank charges and interest paid (2,795) (4,304)
(34,207) (61,119)
Net financing income/(cost) 111,100 (47,849)
NOTE 8 - TAXATION
2017 2016
E'000 E'000
Current income tax
Income tax on profits of subsidiary operations 21,856 9,652
Deferred tax (Note 24) (4,592) (3,349)
Tax for prior years 241 -
Total tax charge 17,505 6,303
The tax charge for the year can be reconciled to accounting profit as follows:
2017 2016
E'000 E'000
Profit before taxation 266,615 200,315
Tax at effective rate in Isle of Man - -
Higher rates of current income tax in overseas jurisdictions 17,505 6,303
The Group is tax registered, managed and controlled from the Isle of Man and the majority of the profits arise in the Isle
of Man where the corporate tax rate is set to zero. The Group's subsidiaries are located in different jurisdictions. The
subsidiaries are taxed on their residual profit.
The deferred tax is due to the reversal of temporary differences arising on the identification of the intangible assets
acquired in the current and prior years.
NOTE 9 - EARNINGS PER SHARE
Earnings per share have been calculated using the weighted average number of shares in issue during the relevant financial
periods. The weighted average number of equity shares in issue and the earnings, being profit after tax is as follows:
2017 2016
Actual Adjusted Actual Adjusted
E'000 E'000 E'000 E'000
Profit for the year attributable to owners of the parent 248,140 231,449 193,030 202,890
Add interest on convertible bond 11,719 1,485 11,287 1,485
Earnings used in diluted EPS 259,859 232,934 204,317 204,375
Basic (cents) 78.9 73.6 61.4 64.6
Diluted (cents) 74.6 66.8 58.8 58.8
2017 2016
Actual Adjusted Actual Adjusted
Number Number Number Number
Denominator - basic
Weighted average number of equity shares 314,504,413 314,504,413 314,130,671 314,130,671
Denominator - diluted
Weighted average number of equity shares 314,504,413 314,504,413 314,130,671 314,130,671
Weighted average number of option shares 418,290 418,290 2,326,838 2,326,838
Weighted average number of convertible bonds 33,543,403 33,543,403 31,059,798 31,059,798
Weighted average number of shares 348,466,106 348,466,106 347,517,307 347,517,307
As at 31 December 2017, none (2016: none) of the outstanding share options were included in the calculation of diluted EPS
as their exercise price is greater than the weighted average share price during the year (i.e. they are out of the money)
and therefore it would not be advantageous for the holders to exercise those options. The total number of options in issue
is disclosed in Note 10.
NOTE 10 - EMPLOYEE BENEFITS
Total staff costs comprise the following:
2017 2016
E'000 E'000
Salaries and personnel-related costs 264,555 234,410
Employee stock option costs 15,094 6,940
279,649 241,350
Average number of personnel:
Distribution 4,586 4,782
General and administration 458 472
5,044 5,254
The Group has the following employee share option plans ("ESOP") for the granting of non-transferable options to certain
employees:
§ Playtech 2005 Share Option Plan ("the Plan") and Israeli plans, options granted under the plans vest on the first day on
which they become exercisable which is typically between one to four years after grant date.
§ GTS 2010 Company Share Option Plan ("CSOP"), options granted under the plan vest on the first day on which they become
exercisable which is three years after grant date.
§ Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards or a forfeitable share award) granted under
the plan vest on the first day on which they become exercisable which is typically between eighteen to thirty six months
after grant date.
The overall term of the ESOP is five to ten years. These options are settled in equity once exercised. Option prices are
either denominated in USD or GBP, depending on the option grant terms.
During 2012, the Group amended some of the rules of the equity based Plan. The amendments allow the Group, at the
employees consent, to settle fully vested and exercisable options for cash instead of issuing shares.
The Group granted 1,615,579 and 1,500,529 nil cost awards in 2017 and 2016 respectively at fair value per share of between
£9.625 and £10.06 in 2017 and between £7.955 and £7.895 in 2016.
At 31 December 2017, options under these schemes were outstanding over:
Shares vested between 18 June 2008 and 18 June 2010 at an exercise price of £3.96 per share - 3,750
Shares vested between 31 December 2008 and 31 December 2010 at an exercise price of £3.86 per share - 5,000
Shares vested between 25 April 2009 and 25 April 2012 at an exercise price of £4.35 per share - 10,000
Shares vested between 28 November 2009 and 28 November 2012 at an exercise price of £3.20 per share 19,735 29,952
Shares vested on 22 May 2012 at an exercise price of £4.155 per share - 20,000
Shares vested between 18 April 2012 and 18 April 2013 at an exercise price of £5.12 per share 18,000 23,200
Shares vested between 26 August 2012 and 26 August 2013 at an exercise price of £4.16 per share 30,500 35,811
Shares vested on 10 March 2014 at an exercise price of £3.5225 per share 26,500 49,000
Shares will vest between 17 June 2016 and 17 June 2017 at nil cost - 28,713
Shares vested on 21 December 2016 at nil cost - 64,935
Shares will vest on 1 March 2018 at nil cost 146,919 146,919
Shares will vest between 1 September 2016 and 1 March 2018 at nil cost 276,825 383,071
Shares will vest on 1 March 2019 at nil cost 246,728 246,728
Shares will vest between 1 September 2017 and 1 March 2019 at nil cost 429,817 677,338
Shares will vest on 21 December 2019 at nil cost 110,183 111,720
Shares will vest between 1 October 2017 and 1 April 2019 at nil cost 324,494 -
Shares will vest on 1 March 2020 at nil cost 1,228,877 -
2,858,578 1,836,137
Shares will vest on 1 March 2020 at nil cost
1,228,877
-
2,858,578
1,836,137
Total number of shares exercisable as of 31 December 2017 is 278,982 (2016: 376,213).
The following table illustrates the number and weighted average exercise prices of shares options for the ESOP.
2017 2016 2017 2016
Number of options Number of options Weighted average exercise price Weighted average exercise price
Outstanding at the beginning of the year 1,836,137 607,300 £0.38 $6.99, £1.52
Granted 1,615,579 1,500,529 Nil nil
Forfeited (113,339) (13,215) Nil nil
Exercised (479,799) (258,477) £0.67 $6.99, £0.87
Outstanding at the end of the year 2,858,578 1,836,137 £0.13 £0.38
Included in the number options exercised during the year is 29,689 options (2016: 14,061) where a cash alternative was
received.
The weighted average share price at the date of exercise of options was £8.601 (2016: £8.718).
Share options outstanding at the end of the year have the following exercise prices:
Between 15 May 2017 and 31 December 2017 Between $7.19 and $7.79 and between £3.39 and £3.96 - 8,750
Between 25 April 2018 and 31 December 2018 $4.35 and between £3.17 and £5.31 19,735 39,952
Between 22 May 2019 and 6 November 2019 Between £3.70 and £4.16 - 20,000
Between 18 April 2020 and 26 August 2020 Between £4.16 and £5.12 48,500 59,011
Between 10 March 2021 and 16 December 2021 Between £2.30 and £3.52 26,500 49,000
17 December 2024 Nil - 93,648
21 December 2025 Nil 423,744 529,990
Between 21 December 2026 and 31 December 2026 Nil 786,728 1,035,786
Between 1 March 2027 and 28 June 2027 Nil 1,553,371 -
2,858,578 1,836,137
Between 1 March 2027 and 28 June 2027
Nil
1,553,371
-
2,858,578
1,836,137
Markets ESOP
The Group has the following employee share option plans ("ESOP") for the granting of non-transferable options to certain
employees:
§ TradeFX 2009 Global Share Option Plan ("the First Plan"), options granted under the first plan vest on the first day on
which they become exercisable which is typically between one to four years after grant date.
§ Long Term Incentive Plan 2012 ("LTIP"), awards (options, conditional awards or forfeitable share award) granted under the
plan vest on the first day on which they become exercisable which is typically between eighteen to thirty six months after
grant date.
§ Tradetech Performance Share Plan 2017 ("the Second Plan"), options granted under the second plan vest three years after
grant date, according to performance targets in the years 2017 and 2018.
The overall term of the ESOP is ten years. These options are settled in equity once exercised. Option prices are either
denominated in USD, depending on the option grant terms.
Total number of share options exercisable as of 31 December 2017 is 100,416 (2015: 10,126 ; 2016: 55,734).
2017 2016
Number Number
Shares vested between 1 June 2011 and 31 December 2017 at an exercise price of $4 per share 750 3,800
Shares vested between 1 November 2013 and 31 December 2017 at an exercise price of $12 per share 4,475 4,338
Shares vested between 1 December 2016 and 31 December 2017 at an exercise price of $70 per share 95,191 47,596
100,416 55,734
Shares vesting on 1 January 2017 at an exercise price of $12 per share - 612
Shares vesting between 1 January 2017 and 31 August 2020 at an exercise price of $70 per share 53,495 103,715
Shares will vest between June 2020 November 2020 at nil cost 7,898 -
61,393 104,327
161,809 160,061
The following table illustrates the number and weighted average exercise prices of shares options for the ESOP:
2017 2016 2017 2016
Number of options Number of options Weighted average exercise price Weighted average exercise price
Outstanding at the beginning of the year 160,061 168,899 $ 60.7 $ 60.7
Granted through the year 7,898 11,000 $ 70 $ 70
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