REG - Playtech PLC - Results for the year ended 31 December 2017 <Origin Href="QuoteRef">PTEC.L</Origin> - Part 5
22/02/2018 07:05
- Part 5: For the preceding part double click ID:nRSV6181Fd
Videobet Interactive Sweden AB Sweden 100% Trading company for the Aristocrat Lotteries VLT's
V.B. Video (Italia) S.r.l. Italy 100% Trading company for the Aristocrat Lotteries VLT's
PT Entertainment Services LTD Antigua 100% Holding gaming license in the UK
Tradetech Markets Limited Isle of man 98.62% Owns the intellectual property rights and marketing and technology contracts
of the financial division
Safecap Limited Cyprus 98.62% Primary trading company of the Financial division. Licensed investment firm
and regulated by Cysec
TradeFXIL limited Israel 98.62% Financial division sales, client retention, R&D and marketing
ICCS BG Bulgaria 98.62% Financial division back office customer support
Magnasale Cyprus 98.62% Financial division. Licensed and regulated investment firm
Stronglogic Services Limited Cyprus 98.62% Maintains the financial division marketing function for EU operations
Yoyo Games Limited UK 100% Casual game development technology
Quickspin AB Sweden 75.86% Owns video slots intellectual property
Best Gaming Technology GmbH Austria 90% Owns sports betting intellectual property solutions and primary trading
company for sports betting
ECM Systems Holdings Ltd UK 90% Owns bingo software intellectual property and bingo hardware
Consolidated Financial Holdings AS Denmark 70% Owns the intellectual property which provides brokerage services, liquidity
and risk management tool
CFH Clearing Limited UK 70% Primary trading company of CFH Group
Eyecon Limited Alderney 100% Develops and provides online gaming slots
Tradetech Alpha Limited Isle of Man 100% Regulated FCA broker providing trading, risk management and liquidity
solutions
NOTE 30 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group is exposed to a variety of financial risks, which results from its
financing, operating and investing activities. The objective of financial risk
management is to contain, where appropriate, exposures in these financial
risks to limit any negative impact on the Group's financial performance and
position. The Group's financial instruments are its cash, available-for-sale
financial assets, trade receivables, loan receivables, bank borrowings,
accounts payable and accrued expenses. The main purpose of these financial
instruments is to raise finance for the Group's operation. The Group actively
measures, monitors and manages its financial risk exposures by various
functions pursuant to the segregation of duties and principals. The risks
arising from the Group's financial instruments are credit risk and market
price risk, which include interest rate risk, currency risk and equity price
risk. The risk management policies employed by the Group to manage these risks
are discussed below.
A. Market risk
Market risk changes in line with fluctuations in market prices, such as
foreign exchange rates, interest rates, equities and commodities prices. These
market prices affect the Group's income or the value of its holding in
financial instruments.
Exposure to market risk
In the financial trading division, the Group has exposure to market risk to
the extent that it has open positions. The Group's exposure to market risk at
any point in time depends primarily on short-term market conditions and client
activities during the trading day. The exposure at each reporting date is
therefore not considered representative of the market risk exposure faced by
the Group over the year.
The Group's exposure to market risk is mainly determined by the clients' open
position. The most significant market risk faced by the Group on the CFD
products it offers changes in line with market changes and the volume of
clients' transactions.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will
fluctuate due to changes in market interest rates. The Group's income and
operating cash flows are substantially independent of changes in market
interest changes. The management monitors interest rate fluctuations on a
continuous basis and acts accordingly.
Where the Group has generated a significant amount of cash, it will invest in
higher earning interest deposit accounts. These deposit accounts are short
term and the Group is not unduly exposed to market interest rate fluctuations.
During the year the group advanced loans to affiliates and associates for a
total amount of €8.5 million (2016: €5.5 million). The average interest on
the loans is 5%.
A 1% change in deposit interest rates would impact on the profit before tax by
€85 thousands.
B. Credit risk
Credit risk arises when a failure by counterparties to discharge their
obligations could reduce the amount of future cash inflows from financial
assets on hand at the balance sheet date.
The Group closely monitors the activities of its counterparties and controls
the access to its intellectual property which enables it to ensure the prompt
collection of customers' balances.
The Group's main financial assets are cash and cash equivalents as well as
trade and other receivables and represent the Group's maximum exposure to
credit risk in connection with its financial assets. Trade and other
receivables are carried on the balance sheet net of bad debt provisions
estimated by the Directors based on prior year experience and an evaluation of
prevailing economic circumstances.
Wherever possible and commercially practical the Group invests cash with major
financial institutions that have a rating of at least A- as defined by
Standard & Poors. While the majority of money is held in line with the
above policy, a small amount is held at various institutions with no rating.
The Group also holds small deposits in Cypriot and Spanish financial
institutions, as required by the respective gaming regulators that have a
rating below A-. The Group holds approximately 3% of its funds (2016: 4%) in
financial institutions below A- rate and 8% in payment methods with no rating
(2016:2%).
Total Financial institutions with A- and above rating Financial institutions below A- rating and no rating
€'000 €'000 €'000
At 31 December 2017 583,957 520,147 63,810
At 31 December 2016 544,843 476,904 67,939
The Group has no credit risk to clients since all accounts have an automatic
margin call, which relates to a guaranteed stop such that the client's maximum
loss is covered by the deposit. The Group has risk management and monitoring
processes for clients' accounts and this is achieved via margin calling and
close-out process.
The ageing of trade receivables that are past due but not impaired can be
analysed as follows:
Total Not past due 1-2 months overdue More than 2 months past due
€'000 €'000 €'000 €'000
At 31 December 2017 107,165 82,517 16,075 8,573
At 31 December 2016 73,744 55,928 5,325 12,491
The above balances relate to customers with no default history and management
estimate full recoverability given the provision below.
A provision for doubtful debtors is included within trade receivables that can
be reconciled as follows:
2017 2016
€'000 €'000
Provision at the beginning of the year 1,132 86
Charged to income statement 565 795
Provision acquired through business combination - 404
Utilised (267) (153)
Provision at end of year 1,430 1,132
Related party receivables included in Note 16 are not past due.
C. Currency risk
Currency risk is the risk that the value of financial instruments will
fluctuate due to changes in foreign exchange rates.
Foreign exchange risk arises because the Group has operations located in
various parts of the world. However, the functional currency of those
operations is the same as the Group's primary functional currency (Euro) and
the Group is not substantially exposed to fluctuations in exchange rates in
respect of assets held overseas.
Foreign exchange risk also arises when Group operations are entered into, and
when the Group holds cash balances, in currencies denominated in a currency
other than the functional currency.
The Group's policy is not to enter into any currency hedging transactions.
D. Equity price risk
The Group's balance sheet is exposed to market risk by way of holding some
investments in other companies on a short term basis (Note 14). Variations in
market value over the life of these investments have or will have an impact on
the balance sheet and the income statement.
The directors believe that the exposure to market price risk is acceptable in
the Group's circumstances.
The Group's balance sheet at 31 December 2017 includes available-for-sale
investments with a value of €381.3 million (2016: €230.3 million) which
are subject to fluctuations in the underlying share price.
A change of 1% in price will have an impact of €3.8 million on the
consolidated statement of comprehensive income and the fair value of the
available for sale investments will change by the same amount.
E. Capital disclosures
The Group seeks to maintain a capital structure which enables it to continue
as a going concern and which supports its business strategy. The Group's
capital is provided by equity and debt funding. The Group manages its
capital structure through cash flow from operations, returns to shareholders
primarily in the form of dividends and the raising or repayment of debt.
F. Liquidity risk
Liquidity risk arises from the Group's management of working capital and the
financial charges on its debt instruments.
Financial division liquidity risk
Positions can be closed at any time by clients and can also be closed by the
Group, in accordance with the Group's margining rules. If after closing a
position a client is in surplus, then the amount owing is repayable on demand
by the Group. When client positions are closed, any corresponding positions
relating to the hedged position (if applicable) are closed with brokers.
Liquidity risk arises if the Group encounters difficulty in meeting
obligations which arise following profitable positions being closed by
clients. This risk is managed through the Group holding client funds in
separately segregated accounts whereby cash is transferred to or from the
segregated accounts on a daily basis to ensure that no material mismatch
arises between the aggregate of client deposits and the fair value of open
positions, and segregated cash. Through this risk management process, the
Group considers liquidity risk to be low.
2017 2016
€'000 €'000
Client deposits 43,741 46,760
Open positions (6,667) (16,897)
Client funds 37,074 29,863
CFH trades on a matched principal basis and financial instruments are used to
hedge all client positions. The management of market risk in respect of
matching of derivatives is through automated tools, together with active
monitoring and management by senior personnel under the supervision of its
directors. CFH's liquidity obligations are monitored daily and it is
adequately capitalised with a steady revenue stream to meet its day to day
obligations. CFH client deposits balance as at 31 December 2017 was €71.6
million (2016: €76.2 million).
The following are the contractual maturities (representing undiscounted
contractual cash flows) of the Group's financial liabilities:
Total Within 1 year 1-2 years 2-5 years
€'000 €'000 €'000 €'000
2017
Trade payables 61,969 61,969 - -
Other accounts payable 63,798 63,798 - -
Loans and borrowings 200,000 200,000 - -
Progressive and other operators' jackpots 62,675 62,675 - -
Client deposits 71,628 71,628 - -
Client funds 37,074 37,074 - -
Contingent consideration and redemption liability 157,672 42,990 114,682 -
Other non-current liabilities 474 - - 474
2016
Trade payables 28,171 28,171 - -
Other accounts payable 58,436 58,436 - -
Loans and borrowings 200,000 - 200,000 -
Progressive and other operators' jackpots 46,759 46,759 - -
Client deposits 76,229 76,229 - -
Client funds 29,863 29,863 - -
Contingent consideration 209,127 4,577 204,550 -
Other non-current liabilities 1,627 - - 1,627
G. Total financial assets and liabilities
The fair value together with the carrying amount of the financial assets and
liabilities shown in the balance sheet are as follows:
2017 2017 2016 2016
€'000 €'000 €'000 €'000
Fair value Carrying Fair value Carrying
amount amount
Cash and cash equivalent 583,957 583,957 544,843 544,843
Available-for-sale investments 381,346 381,346 230,278 230,278
Other assets 198,848 198,848 174,571 174,571
Deferred and contingent consideration and redemption liability 157,672 157,672 209,127 209,127
Convertible bonds 342,000 276,638 341,300 266,230
Loans and borrowings 200,000 200,000 200,000 200,000
Other liabilities 164,369 164,369 148,319 148,319
Available for sale investments are measured at fair value using level 1. Refer
to Note 14 for further detail. These are the Group's only financial assets and
liabilities which are measured at fair value.
NOTE 31 - CONTINGENT LIABILITIES
As part of the Board's ongoing regulatory compliance process, the Board
continues to monitor legal and regulatory developments and their potential
impact on the Group.
Management is not aware of any contingencies that may have a significant
impact on the financial position of the Group.
NOTE 32 - OPERATING LEASE COMMITMENT
The Group has a variety of leased properties. The terms of property leases
vary from country to country, although they tend to be tenant repairing with
rent reviews every 2 to 5 years and many have break clauses. Total operating
lease cost before capitalization in the year was €17.9 million (2016:
€14.7 million).
The total future value of minimum lease payments is due as follows:
2017 2016
€'000 €'000
Not later than one year 15,564 15,257
Later than one year and not later than five years 38,606 38,470
Later than five years 9,185 1,249
63,355 54,976
This information is provided by RNS
The company news service from the London Stock Exchange
British Virgin Islands 100% Distributing lottery software
PokerStrategy Ltd. Gibraltar 100% Operates poker community business
Videobet Interactive Sweden AB Sweden 100% Trading company for the Aristocrat Lotteries VLT's
V.B. Video (Italia) S.r.l. Italy 100% Trading company for the Aristocrat Lotteries VLT's
PT Entertainment Services LTD Antigua 100% Holding gaming license in the UK
Tradetech Markets Limited Isle of man 98.62% Owns the intellectual property rights and marketing and technology contracts of the financial division
Safecap Limited Cyprus 98.62% Primary trading company of the Financial division. Licensed investment firm and regulated by Cysec
TradeFXIL limited Israel 98.62% Financial division sales, client retention, R&D and marketing
ICCS BG Bulgaria 98.62% Financial division back office customer support
Magnasale Cyprus 98.62% Financial division. Licensed and regulated investment firm
Stronglogic Services Limited Cyprus 98.62% Maintains the financial division marketing function for EU operations
Yoyo Games Limited UK 100% Casual game development technology
Quickspin AB Sweden 75.86% Owns video slots intellectual property
Best Gaming Technology GmbH Austria 90% Owns sports betting intellectual property solutions and primary trading company for sports betting
ECM Systems Holdings Ltd UK 90% Owns bingo software intellectual property and bingo hardware
Consolidated Financial Holdings AS Denmark 70% Owns the intellectual property which provides brokerage services, liquidity and risk management tool
CFH Clearing Limited UK 70% Primary trading company of CFH Group
Eyecon Limited Alderney 100% Develops and provides online gaming slots
Tradetech Alpha Limited Isle of Man 100% Regulated FCA broker providing trading, risk management and liquidity solutions
Tradetech Alpha Limited
Isle of Man
100%
Regulated FCA broker providing trading, risk management and liquidity solutions
NOTE 30 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Group is exposed to a variety of financial risks, which results from its financing, operating and investing activities.
The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit
any negative impact on the Group's financial performance and position. The Group's financial instruments are its cash,
available-for-sale financial assets, trade receivables, loan receivables, bank borrowings, accounts payable and accrued
expenses. The main purpose of these financial instruments is to raise finance for the Group's operation. The Group actively
measures, monitors and manages its financial risk exposures by various functions pursuant to the segregation of duties and
principals. The risks arising from the Group's financial instruments are credit risk and market price risk, which include
interest rate risk, currency risk and equity price risk. The risk management policies employed by the Group to manage these
risks are discussed below.
A. Market risk
Market risk changes in line with fluctuations in market prices, such as foreign exchange rates, interest rates, equities
and commodities prices. These market prices affect the Group's income or the value of its holding in financial
instruments.
Exposure to market risk
In the financial trading division, the Group has exposure to market risk to the extent that it has open positions. The
Group's exposure to market risk at any point in time depends primarily on short-term market conditions and client
activities during the trading day. The exposure at each reporting date is therefore not considered representative of the
market risk exposure faced by the Group over the year.
The Group's exposure to market risk is mainly determined by the clients' open position. The most significant market risk
faced by the Group on the CFD products it offers changes in line with market changes and the volume of clients'
transactions.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest
rates. The Group's income and operating cash flows are substantially independent of changes in market interest changes. The
management monitors interest rate fluctuations on a continuous basis and acts accordingly.
Where the Group has generated a significant amount of cash, it will invest in higher earning interest deposit accounts.
These deposit accounts are short term and the Group is not unduly exposed to market interest rate fluctuations.
During the year the group advanced loans to affiliates and associates for a total amount of E8.5 million (2016: E5.5
million). The average interest on the loans is 5%.
A 1% change in deposit interest rates would impact on the profit before tax by E85 thousands.
B. Credit risk
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash
inflows from financial assets on hand at the balance sheet date.
The Group closely monitors the activities of its counterparties and controls the access to its intellectual property which
enables it to ensure the prompt collection of customers' balances.
The Group's main financial assets are cash and cash equivalents as well as trade and other receivables and represent the
Group's maximum exposure to credit risk in connection with its financial assets. Trade and other receivables are carried on
the balance sheet net of bad debt provisions estimated by the Directors based on prior year experience and an evaluation of
prevailing economic circumstances.
Wherever possible and commercially practical the Group invests cash with major financial institutions that have a rating of
at least A- as defined by Standard & Poors. While the majority of money is held in line with the above policy, a small
amount is held at various institutions with no rating. The Group also holds small deposits in Cypriot and Spanish financial
institutions, as required by the respective gaming regulators that have a rating below A-. The Group holds approximately 3%
of its funds (2016: 4%) in financial institutions below A- rate and 8% in payment methods with no rating (2016:2%).
Total Financial institutions with A- and above rating Financial institutions below A- rating and no rating
E'000 E'000 E'000
At 31 December 2017 583,957 520,147 63,810
At 31 December 2016 544,843 476,904 67,939
The Group has no credit risk to clients since all accounts have an automatic margin call, which relates to a guaranteed
stop such that the client's maximum loss is covered by the deposit. The Group has risk management and monitoring processes
for clients' accounts and this is achieved via margin calling and close-out process.
The ageing of trade receivables that are past due but not impaired can be analysed as follows:
Total Not past due 1-2 months overdue More than 2 months past due
E'000 E'000 E'000 E'000
At 31 December 2017 107,165 82,517 16,075 8,573
At 31 December 2016 73,744 55,928 5,325 12,491
The above balances relate to customers with no default history and management estimate full recoverability given the
provision below.
A provision for doubtful debtors is included within trade receivables that can be reconciled as follows:
2017 2016
E'000 E'000
Provision at the beginning of the year 1,132 86
Charged to income statement 565 795
Provision acquired through business combination - 404
Utilised (267) (153)
Provision at end of year 1,430 1,132
Related party receivables included in Note 16 are not past due.
C. Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
Foreign exchange risk arises because the Group has operations located in various parts of the world. However, the
functional currency of those operations is the same as the Group's primary functional currency (Euro) and the Group is not
substantially exposed to fluctuations in exchange rates in respect of assets held overseas.
Foreign exchange risk also arises when Group operations are entered into, and when the Group holds cash balances, in
currencies denominated in a currency other than the functional currency.
The Group's policy is not to enter into any currency hedging transactions.
D. Equity price risk
The Group's balance sheet is exposed to market risk by way of holding some investments in other companies on a short term
basis (Note 14). Variations in market value over the life of these investments have or will have an impact on the balance
sheet and the income statement.
The directors believe that the exposure to market price risk is acceptable in the Group's circumstances.
The Group's balance sheet at 31 December 2017 includes available-for-sale investments with a value of E381.3 million (2016:
E230.3 million) which are subject to fluctuations in the underlying share price.
A change of 1% in price will have an impact of E3.8 million on the consolidated statement of comprehensive income and the
fair value of the available for sale investments will change by the same amount.
E. Capital disclosures
The Group seeks to maintain a capital structure which enables it to continue as a going concern and which supports its
business strategy. The Group's capital is provided by equity and debt funding. The Group manages its capital structure
through cash flow from operations, returns to shareholders primarily in the form of dividends and the raising or repayment
of debt.
F. Liquidity risk
Liquidity risk arises from the Group's management of working capital and the financial charges on its debt instruments.
Financial division liquidity risk
Positions can be closed at any time by clients and can also be closed by the Group, in accordance with the Group's
margining rules. If after closing a position a client is in surplus, then the amount owing is repayable on demand by the
Group. When client positions are closed, any corresponding positions relating to the hedged position (if applicable) are
closed with brokers.
Liquidity risk arises if the Group encounters difficulty in meeting obligations which arise following profitable positions
being closed by clients. This risk is managed through the Group holding client funds in separately segregated accounts
whereby cash is transferred to or from the segregated accounts on a daily basis to ensure that no material mismatch arises
between the aggregate of client deposits and the fair value of open positions, and segregated cash. Through this risk
management process, the Group considers liquidity risk to be low.
2017 2016
E'000 E'000
Client deposits 43,741 46,760
Open positions (6,667) (16,897)
Client funds 37,074 29,863
CFH trades on a matched principal basis and financial instruments are used to hedge all client positions. The management
of market risk in respect of matching of derivatives is through automated tools, together with active monitoring and
management by senior personnel under the supervision of its directors. CFH's liquidity obligations are monitored daily and
it is adequately capitalised with a steady revenue stream to meet its day to day obligations. CFH client deposits balance
as at 31 December 2017 was E71.6 million (2016: E76.2 million).
The following are the contractual maturities (representing undiscounted contractual cash flows) of the Group's financial
liabilities:
2017
Trade payables 61,969 61,969 - -
Other accounts payable 63,798 63,798 - -
Loans and borrowings 200,000 200,000 - -
Progressive and other operators' jackpots 62,675 62,675 - -
Client deposits 71,628 71,628 - -
Client funds 37,074 37,074 - -
Contingent consideration and redemption liability 157,672 42,990 114,682 -
Other non-current liabilities 474 - - 474
2016
Trade payables 28,171 28,171 - -
Other accounts payable 58,436 58,436 - -
Loans and borrowings 200,000 - 200,000 -
Progressive and other operators' jackpots 46,759 46,759 - -
Client deposits 76,229 76,229 - -
Client funds 29,863 29,863 - -
Contingent consideration 209,127 4,577 204,550 -
Other non-current liabilities 1,627 - - 1,627
Contingent consideration
209,127
4,577
204,550
-
Other non-current liabilities
1,627
-
-
1,627
G. Total financial assets and liabilities
The fair value together with the carrying amount of the financial assets and liabilities shown in the balance sheet are as
follows:
2017 2017 2016 2016
E'000 E'000 E'000 E'000
Fair value Carrying amount Fair value Carrying amount
Cash and cash equivalent 583,957 583,957 544,843 544,843
Available-for-sale investments 381,346 381,346 230,278 230,278
Other assets 198,848 198,848 174,571 174,571
Deferred and contingent consideration and redemption liability 157,672 157,672 209,127 209,127
Convertible bonds 342,000 276,638 341,300 266,230
Loans and borrowings 200,000 200,000 200,000 200,000
Other liabilities 164,369 164,369 148,319 148,319
Available for sale investments are measured at fair value using level 1. Refer to Note 14 for further detail. These are the
Group's only financial assets and liabilities which are measured at fair value.
NOTE 31 - CONTINGENT LIABILITIES
As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal and regulatory
developments and their potential impact on the Group.
Management is not aware of any contingencies that may have a significant impact on the financial position of the Group.
NOTE 32 - OPERATING LEASE COMMITMENT
The Group has a variety of leased properties. The terms of property leases vary from country to country, although they tend
to be tenant repairing with rent reviews every 2 to 5 years and many have break clauses. Total operating lease cost before
capitalization in the year was E17.9 million (2016: E14.7 million).
The total future value of minimum lease payments is due as follows:
2017 2016
E'000 E'000
Not later than one year 15,564 15,257
Later than one year and not later than five years 38,606 38,470
Later than five years 9,185 1,249
63,355 54,976
This information is provided by RNS
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