GVC Holdings PLC (AIM:GVC), a leading online sports betting and gaming group, today announces its Preliminary Results for the year ended 31 December 2016.
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Webcast
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| Pro forma | Actual | |||||
| 2016 | 2015 | Change | Constant currency | 2016 | 2015 | |
| €m | €m | €m | €m | |||
| Sports wagers | 4,553.6 | 4,389.7 | 4% | 7% | 4,331.3 | 1,683.0 |
| Sports margin % | 9.6% | 8.5% | 9.6% | 9.2% | ||
| NGR | 894.6 | 822.2 | 9% | 12% | 843.4 | 247.7 |
| Revenue | 873.2 | 807.9 | 8% | 11% | 823.3 | 246.5 |
| Clean EBITDA | 205.7 | 163.2 | 26% | 193.5 | 54.1 | |
| Adjusted PBT | 93.8 | 46.4 | ||||
Financial highlights
- Pro forma1 Net Gaming Revenue up 9% to €894.6m (+12% in constant currency)
- Pro forma Clean EBITDA2 up 26% to €205.7m
- Adjusted Profit Before Tax3 €93.8m vs €46.4m in 2015
- Second special dividend euro 15.1c, giving total euro 30c dividends declared for FY 2016
- Net debt4 €131.5m just 0.6x Clean EBITDA
- Long-term refinancing secured with oversubscribed institutional debt issue
Operational highlights
- Successful integration of bwin.party
- Improved platform stability and significantly improved product offering
- Sports Labels pro forma NGR up 14% (+16% in constant currency)
- Improved sports win margin to 9.6% (2015: 8.6%)
- Pro forma gaming NGR from the acquired bwin sports labels up 26%, while value of first time deposits +37%
- Games Labels pro forma NGR down 4% (flat in constant currency), H2 pro forma NGR up 4% in constant currency
- On target to achieve €125m5 synergy run rate at end of 2017
- 95% of Group revenues derived/processed through our proprietary platform
Current trading6
- Pro forma daily NGR up 15% (+16% constant currency) in Q1
- Pro forma daily Sports Labels NGR +18% (+19% constant currency)
- Pro forma daily Games Labels NGR + 6% (+8% constant currency)
Kenneth Alexander, CEO, said:
“The acquisition of bwin.party in February 2016 was our most ambitious transaction to date and through the hard work of our people we have once again demonstrated our ability to create significant shareholder value through selected acquisitions. Our strategy of pursuing international diversification and scale through leveraging our proprietary technology, is more appropriate today than at any time in our history. The organic growth opportunity is equally exciting and we are confident of delivering further growth in 2017.”
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
1 Pro forma shows combined Group as if GVC acquired bwin.party on 1 January
2 Clean EBITDA, operating profit adjusted for share based payments, exceptional items, depreciation, amortisation, impairment of available for sale assets and changes in the fair value of derivative financial instruments
3 Profit before exceptional items, amortisation associated with acquisition, dividends from previously sold businesses
4 Gross debt less cash (excluding customer balances)
5 Based on combined group for the financial year 2014
6 For period up to 19 March 2017
Presentation and live webcast
A presentation for analysts and investors will be held today at 9:30 am in the offices of Investec, 2 Gresham Street, EC2V 7QP.
The presentation will be webcast live and available at:
http://www.investis-live.com/gvc-holdings/58c17e9175ca980f0032a439/gls5a8
The presentation will also be accessible via a live conference call.
Dial In Number: 020 3059 8125
Conference password: GVC
There will also be a replay available for one week.
Dial in no: +0121 260 4861
Conference reference number: 5549395#
An on demand replay will also be available on the GVC website following the presentation.
This announcement contains inside information
For further information:
| GVC Holdings PLC | |
| Kenneth Alexander, Chief Executive | Tel: +44 (0) 1624 652 559 |
| Paul Miles, Group Finance Director | Tel: +44 (0) 20 7337 0100 |
| Nick Batram, Head of Investor Relations & Corporate Strategy | Tel: +44 (0) 20 7337 0110 |
Media enquiries:
| Bell Pottinger | |
| David Rydell, Anna Legge, Laura Jaques | Tel: +44 (0) 20 3772 2500 |
About GVC Holdings PLC
GVC Holdings PLC is a leading e-gaming operator in both B2C and B2B markets. GVC has four business segments with a number of brands; Sports Labels (including bwin, Sportingbet, gamebookers), Games Labels (including partypoker, partycasino, Foxy Bingo, Gioco Digitale, CasinoClub), B2B and non-core assets. GVC acquired bwin.party digital entertainment plc on 1 February 2016. The Group is headquartered in the Isle of Man, is a constituent of the FTSE 250 index and has licences in more than 18 countries.
For more information see the Group’s website: www.gvc-plc.com
Definition of terms
| Acquisition | The purchase of bwin.party digital entertainment plc by the Company |
| bwin.party | bwin.party digital entertainment plc |
| Clean EBITDA | Earnings before interest, taxation, depreciation, amortisation, impairment charges, changes in the fair value of derivative financial instruments, share option charges and exceptional items |
| Contribution | Revenue less betting taxes, payment service provider fees, software royalties, affiliate commissions, revenue share and marketing costs |
| Contribution margin | Contribution as a percentage of NGR |
| Constant currency basis | Each month in the prior period re-translated at the current periods exchange rate |
| Enlarged Group | GVC Holdings plc incorporating bwin.party |
| IFRS | International Financial Reporting Standards |
| KPIs | Key Performance Indicators |
| Net debt | Cash and cash equivalents (including amounts recorded as assets in disposal groups classified as held for sale), less customer liabilities less interest bearing loans and borrowings. |
| Net Gaming Revenue (“NGR”) | Revenue before deducting VAT |
| Revenue | Net Gaming Revenue less VAT (imposed by certain EU jurisdictions on either sports or gaming revenue) |
| Sports Gross Margin | Sports wagers less payouts |
| Sports Gross Margin % | Sports Gross Margin divided by Sports wagers |
| Sports Net Gaming Revenue (‘Sports NGR’) | Sports Gross Margin less free bets and promotional bonuses |
Dividend timetable
| 23 March | Dividend declared |
| 30 March | Ex-dividend date |
| 31 March | record date |
| 12 May | payment |
Future trading updates and financial calendar
| w/c 24 April | Trading update |
| 4 May | Posting of Annual Report and Accounts |
| 12 May | Dividend payment |
| 25 May | Capital Markets day |
| 20 June | AGM |
| July | Trading update |
| September | Interim results |
| October | Trading update |
Chairman’s Statement
2016 was the most significant year in the Group’s history. The acquisition of bwin.party was completed on 1 February 2016 and transformed GVC into one of the leading global businesses in the online gaming industry. Importantly, the purchase of bwin.party was consistent with our strategy; to deliver increased scale, further international diversity and enable us to leverage our proprietary technology and exceptional management team. In a competitive and rapidly evolving global regulatory environment, we believe this strategy leaves GVC well placed to continue to create shareholder value.
In August, just six months after completing the bwin.party transaction, the Group was admitted to the Premium Segment of the Official List. A month later GVC became a constituent of the FTSE 250 index, having grown from a market value of less than £100m four years ago to over £2bn today.
GVC is highly ambitious and focused on measurable delivery. Therefore, it is pleasing to report the Group achieved a strong operational and financial performance in 2016.
A year of significant progress… operationally
As a management team and a business we set ourselves a number of targets in 2016 and I’m pleased to be able to say that we not only achieved all of these targets but also in most cases exceeded them.
The integration of bwin.party was a key focus of 2016 and whilst all such large scale transactions present challenges, the assimilation of the business progressed positively and is ahead of our initial expectations. Our talented, hardworking team and the corporate culture we have fostered have been the key drivers of a smooth integration.
We employ c2,800 people across 15 offices and four continents. Creating a Group-wide identity and culture based on common values has been an important part of the integration process. Our core values of collaboration, dynamism, ownership, recognition and transparency, reflect the culture of our business and what we believe is required to succeed in a highly competitive and rapidly evolving industry.
It is a reflection of the progress made and the potential of GVC, that the Group has been able to attract a number of highly regarded professionals from across the gaming industry and beyond. This has enabled us to strengthen our business in a number of areas, the benefits of which have already begun to be experienced, but with much more to come.
…and financially
The Group’s financial performance during the year exceeded our original expectations both in terms of Net Gaming Revenue (NGR) and Clean EBITDA. Pro forma NGR increased 9% to €894.6m and by 12% in constant currency. Meanwhile, pro forma Clean EBITDA increased 26% to €205.7m, reflecting an increase in margin to 23% from 20%. Net debt as at 31 December 2016 was €131.5m, just 0.6x Clean EBITDA.
We remain on target to secure €125m of synergies by the end of 2017 with the full impact being derived in 2018 in line with the timetable we set out at the time of the bwin.party acquisition. In addition to this, annual capital expenditure is expected to be approximately €20m lower per annum than the combined Group spent in 2015.
The Group’s progress is clearly reflected in the development of our financing structure. In October 2016, we secured a short term €250m loan facility from Nomura International plc (the “Nomura Loan”), which was used in part to fully retire the €400m loan provided by Cerberus Business Finance LLP. The Nomura Loan significantly lowered our finance costs.
In February 2017 we launched our inaugural syndicated debt offer to great success. A €250m Senior Secured six year term loan (the “Term Loan”) was significantly oversubscribed. This was used to pay down the Nomura Loan in full. In addition, we also secured a €70m Revolving Credit Facility (“RCF”). The new financing gives us both significant financing visibility and also access to a broad number of debt investors. Given the ongoing industry consolidation and GVC’s proven track record of adding shareholder value through mergers and acquisitions this is an important development for the Group.
The strong underlying performance of the business together with the favourable refinancing enabled the Group to declare a special dividend in November, which was subsequently increased by 49% in December to euro 14.9c per share. The dividend was settled in sterling at 12.5p per share and paid 14 February 2017. In addition, we have also declared a second special dividend of euro 15.1c, giving total declared dividends of euro 30c per share for the financial year ended 31 December 2016. For the 2017 financial year and beyond, we will pursue a progressive dividend policy, reflecting the growth in the business and aiming to return no less than 50% of free cash flow. In addition, the Board will also give consideration to returning future excess cash to shareholders. Excess cash will be determined by the capital requirements of the business, together with the trading outlook at the appropriate time.
I would also like to take this opportunity to thank Richard Cooper, who retired as Group Finance Director and from the Board in February 2017. Richard joined the Group in 2008 and has been a major part of the Company’s success over the past eight years. We wish him all the success in the future. I would also like to welcome aboard Paul Miles who joined us as Chief Financial Officer in February.
Finally, as announced separately today, Will Whitehorn has been appointed to the Board as Senior Independent Non-executive Director. Will is a highly experienced business professional and is a significant appointment for the Group. He is the Deputy Chairman and Senior Independent Director of Stagecoach Group plc and is an Independent Non-executive Director of Purplebricks Group plc. This builds upon the strengthening of the Board in 2016 when Stephen Morana, Peter Isola and Norbert Teufelberger joined the Group.
Through the combination of talented people, proprietary technology and strong brands, GVC is well placed to pursue the many opportunities and face the challenges presented by the dynamic industry in which we operate.
GVC will be posting its Annual Report to shareholders the week commencing 1 May 2017 and it will be uploaded on our website (www.gvc-plc.com) from that date. The AGM will be held in Gibraltar and is scheduled for 20 June 2017.
Lee Feldman
Non-Executive Chairman
23 March 2017
Report of the Chief Executive Officer
I am pleased to report that the Group delivered a strong financial performance in 2016. Pro forma numbers are provided as, in the Board’s opinion, they give a more useful comparative of the underlying performance of the Group.
| Pro forma | Actual | |||||||
| 2016 | 2015 | Change | Constant currency | 2016 | 2015 | |||
| €m | €m | €m | €m | |||||
| Sports wagers | 4,553.6 | 4,389.7 | 4% | 7% | 4,331.3 | 1,683.0 | ||
| Sports margin % | 9.6% | 8.5% | 9.6% | 9.2% | ||||
| NGR | 894.6 | 822.2 | 9% | 12% | 843.4 | 247.7 | ||
| Revenue | 873.2 | 807.9 | 8% | 11% | 823.3 | 246.5 | ||
| Contribution | 464.0 | 442.8 | 5% | 437.5 | 135.4 | |||
| Contribution margin | 52% | 54% | 52% | 55% | ||||
| Clean EBITDA | 205.7 | 163.2 | 26% | 193.5 | 54.1 | |||
| Clean EBITDA margin | 23% | 20% | 23% | 22% | ||||
| Adjusted PBT | 93.8 | 46.4 | ||||||
| Statutory profit/(loss) before tax | (138.6) | 25.5 | ||||||
| Adjusted fully diluted EPS cents | 26 | 70 | ||||||
| DPS cents | 30 | 56 | ||||||
Pro forma NGR for the year ended 31 December 2016 rose 9% to €894.6m, with the growth in constant currency registering 12%. Approximately 69% of NGR was derived from markets either regulated (including those in the process of regulating) and/or locally taxed. Clean EBITDA on a pro forma basis was €205.7m, an increase of 26% on the €163.2m achieved in 2015. This represented a strong improvement in the Clean EBITDA margin to 23% from 20%, with acquisition synergies and organic revenue growth helping to mitigate increased regulatory costs. A statutory loss before tax of €138.6m reflects one-off costs in the year of €117.8m, largely related to the acquisition of bwin.party, finance expense of €65.3m and depreciation and amortisation charges of €136.5m”. Many of these costs relate to the acquisition of bwin.party and are forecast to reduce in 2017 following the synergies attached to the acquisition and the attainment of a significantly cheaper financing arrangement entered into.
A key driver of the business in 2016 was the performance of the bwin sports label across its core European markets. Whilst sports results were generally positive, this was just one component part of bwin’s success in 2016. During the year the value of first time deposits across the acquired bwin sports labels rose 37%, while improved product and more effective cross sell saw games revenues from sports customers increase 26% on pro forma 2015. However, it wasn’t just about bwin, with all core sports labels delivering growth in 2016.
Also pleasing in 2016 was the performance of Games Labels. Although pro forma NGR from Games Labels for the full year declined to €203.5m from €211.8m (flat in constant currency), in the second half of 2016 we reversed this trend and returned it to growth. In H2 pro forma Games Labels NGR grew by 4% in constant currency.
Historically, partypoker and partycasino were some of the most challenged parts of bwin.party. Between 2010 and 2015, NGR from these brands declined by over 60%. In part this reflected the structural challenge presented by the poker market, however, it is fair to say that product development lagged key competitors, whilst the business suffered from a lack of focus. In 2016, NGR from partypoker increased 14% in constant currency. This much improved performance was the result of a change in management, increased investment and a more focused approach.
As mentioned in the Chairman’s statement, we have today announced further dividend of euro 15.1c in respect of the financial year ended 31 December 2016. In total we have declared euro 30c of dividends for the 2016 financial year, returning some €88m to shareholders.
Integration creating value
The Group has a strong track record of creating shareholder value through astute earnings-accretive acquisitions and efficient integration of the acquired operations and bwin.party has been no exception.
In bwin.party we saw a business with proven proprietary technology, established brands and some excellent people, but a business that had lost its way. Through a refocusing on core markets, improving the customer proposition, together with a number of key hires, our instincts have proven correct, reflected by the strong revenue and Clean EBITDA growth highlighted above.
It is now just over a year since we acquired bwin.party and we have been delighted with the way the integration has progressed. I’m pleased to say that most of the surprises have proved positive and we have been able to evolve our integration plans to reflect both this and the constantly changing industry backdrop in which we operate.
The preparatory work to migrate the Sportingbet and associated brands onto the bwin platform has largely been completed with three countries already switched over. Given the strong underlying performance of the business we have decided to further mitigate the risk of disruption by commencing the migration of the larger territories once the relevant football seasons have finished. Our synergy target of €125m (combined Group savings against 2014) exit run rate by the end of 2017 remains on schedule.
More to come
Our acquisition of bwin.party was not simply about cost synergies. We firmly believed we could return the business back to growth. Between 2011 and 2015, bwin.party NGR declined by over 30% (€816m to €574m), but in 2016 the business returned to top line growth.
Whilst the integration process is almost complete, we continue to look for improvement and enhancements across the business. Indeed, we feel the organic growth opportunity of the enlarged GVC is greater than originally expected and a key strategic theme in 2017 will be increased, but focused, investment in marketing to fully exploit this potential. However, it is important to note that in 2016 our marketing spend as a percentage of NGR was just 20%, considerably lower than many of our peers and the increased investment in 2017 will merely bring us closer into line with the market.
We are also excited about the cross-sell opportunity presented by the migration of Sportingbet and other associated brands to the bwin platform. The bwin platform has proven to be particularly effective in enabling the cross-sell of other products to sports customers and penetration rates are now double that achieved across the Sportingbet platform.
The importance of proprietary technology to our business cannot be overstated. In an increasingly competitive and regulated industry, control of our own technology gives the Group significant flexibility and operational leverage. In 2016, 95% of our revenues were derived/processed through our proprietary platform and we expect this to increase further in 2017 and beyond. During 2016, platform stability improved significantly, with availability exceeding 99.9%, while load times across key sites improved by over 30%. This is key, as with a robust and efficient platform we can process substantially more wagers at little additional fixed cost. Not only does this support the organic growth of the business but it also places the Group in a strong position to derive substantial synergies from any future M&A that we may pursue.
Operational overview
Following the acquisition of bwin.party the Group adopted a new reporting structure with the B2C operations split between Sports Labels and Games Labels, with our other divisions being B2B and Non-core. It is worth noting that revenues within Sports Labels are not limited purely to sports wagers but include revenues derived from other gaming activities conducted on any of our Sports Label brands. Similarly, though to a lesser extent, Games Labels include sports wagers made through any of our Games Label brands.
Sports Labels
GVC owns a number of sports betting brands including bwin, Sportingbet, Betboo and Gamebookers. bwin was a pioneer in online sports betting and remains one of the best known brands across Continental Europe. However, it is fair to say that the brand had lost market share in a number of core territories in recent years. Therefore, the performance of the business in 2016 was particularly encouraging. Not only did our existing customers spend more with us but also we were successful in adding new customers.
| In €m | Pro forma | Actual | |||||
| 2016 | 2015 | Change | Constant currency | 2016 | 2015 | ||
| Sports wagers | 4,488.3 | 4,312.6 | 4% | 7% | 4,272.3 | 1,683.0 | |
| Sports margin % | 9.6% | 8.6% | 9.6% | 9.2% | |||
| Sports NGR | 333.2 | 304.5 | 9% | 11% | 315.9 | 113.9 | |
| Gaming / other NGR | 320.8 | 271.1 | 18% | 21% | 304.8 | 101.2 | |
| NGR | 653.9 | 575.7 | 14% | 16% | 620.7 | 215.1 | |
| EU VAT | (15.0) | (11.0) | (13.9) | (0.5) | |||
| Revenue | 638.9 | 564.7 | 13% | 16% | 606.8 | 214.6 | |
| Contribution | 362.0 | 318.9 | 14% | 342.5 | 113.6 | ||
| Contribution margin | 55% | 55% | 55% | 53% | |||
Overall sports wagers grew 4% to €4,488m for the pro forma 12 months, whilst an improvement in the gross win margin to 9.6% (2015: 8.6%) helped to drive sports NGR 9% higher to €333.2m. In constant currency, wagers rose 7% and sports NGR by 11%. The higher gross win margin was largely due to the improvements we made at bwin, particularly in the area of risk management which led to a significant reduction in low margin turnover. The year also benefitted from the UEFA Euro 2016 tournament, during which we took €162m of wagers and achieved a gross win margin of 18.3%.
During the year we significantly expanded our gaming offer to our sports customers. Over 17 deals were signed with leading suppliers, including NetEnt, Evolution, MicroGaming, IGT, NYX and Edict Gaming to name but a few. In total, this gives us access to over 650 new games/products across mobile and desktop. Together with improved cross-sell at the acquired businesses, this helped pro forma gaming NGR rise 18% to €320.8m in 2016 (+21% in constant currency).
Total NGR from Sports Labels increased 14% (16% in constant currency) to €653.9m, with revenue 13% higher at €638.9m. Meanwhile, the pro forma contribution was €362.0m (2015: €318.9m), reflecting a maintained margin at 55%.
In 2016, marketing spend as a proportion of Sports Labels NGR was c17%, this is well below our peers where spend is typically 25-30% of NGR. It was a deliberate strategy in 2016 to curtail marketing spend in the acquired businesses that achieved either low returns on investment or returns that could not be accurately measured. Therefore, to deliver strong growth on relatively low marketing spend is both pleasing and a recognition of the strength of the brands we own. The current year will see marketing spend increase to more normalised levels, 23-25% of NGR, with the focus being on the larger core geographic markets.
Revenue from mobile grew strongly in 2016, and now represents 50% of divisional gross gaming revenue against 34% in 2015. This is still below many of our peers and represents an area of real opportunity for the Group.
In addition to increased marketing investment, 2017 will see us continue to expand the product offering as well as further improvements to the overall customer experience. CRM is key to generating positive returns from marketing and we have made a number of key senior appointments in this area.
Games Labels
GVC’s key gaming brands include, partypoker, partycasino, Foxy Bingo, Gioco Digitale and CasinoClub.
Pro forma NGR was €203.5m in 2016 versus €211.8m in the previous year, with the change in constant currency being 0%. Momentum improved through the year with pro forma NGR in constant currency +4% in H2 over the previous year. Pro forma contribution from Games Labels declined to €89.0m from €109.6m in 2015. The decline reflected a number of factors including increased gaming taxes/VAT and investment in partypoker.
| In €m | Pro forma | Actual | |||||
| 2016 | 2015 | Change | Constant currency | 2016 | 2015 | ||
| Sports wagers | 65.2 | 77.1 | (15%) | (14%) | 58.9 | – | |
| Sports margin % | 7.7% | 5.0% | 7.7% | 0.0% | |||
| Sports NGR | 4.3 | 3.2 | 32% | 35% | 3.8 | – | |
| Gaming / other NGR | 199.2 | 208.5 | (5%) | 0% | 184.4 | 32.6 | |
| NGR | 203.5 | 211.8 | (4%) | 0% | 188.3 | 32.6 | |
| EU VAT | (6.4) | (3.2) | (6.2) | (0.7) | |||
| Revenue | 197.0 | 208.6 | (6%) | (1%) | 182.1 | 31.9 | |
| Contribution | 89.0 | 109.6 | (19%) | 82.9 | 21.8 | ||
| Contribution margin | 44% | 52% | 44% | 67% | |||
Historically, the Games Labels within the bwin.party business had been the most challenged, in particular partypoker and partycasino. Our focus in 2016 was to improve management, increase investment, enhance the product and the customer experience.
It is therefore pleasing to report that despite continued structural challenges in the poker market, partypoker NGR in 2016 rose 14% in constant currency, with the growth in H2 over the previous year being 16% in constant currency. In December 2016 we reached a deal with one of Europe’s leading poker rooms, Dusk Till Dawn, to launch a new live global poker tour, partypoker LIVE which will feature the headline tournament, the partypoker Million.
We also took the decision to restructure partycasino and separate the brand from partypoker, repositioning the offering under a new management team. Taking inspiration from CasinoClub, there is greater emphasis on VIP management and reducing reliance on partypoker in terms of customer acquisition. Significant improvements were made to the product and customer services before relaunching the brand in H2 2016. This included the relaunch of the partycasino frontend, enhancements to our live casino experience, the introduction of new ‘Pro Series’ table games and a number of technical improvements, such as the dramatic reduction of game load times. As a result, along with increased investment, partycasino saw a significant acceleration in new player acquisition through H2, along with lower attrition and increased revenues per customer. December was particularly strong and this positive momentum has continued into 2017.
Foxy is one of the UK’s best known online bingo brands but has had a challenging few years. In the second-half of 2016 we brought in a new Head of Bingo and significant work has already been undertaken to reinvigorate the brand and customer proposition. New creative and media agencies have been appointed and in March 2017 a new marketing campaign was launched with Hollywood actress Heather Graham promoting the rebranded Foxy Bingo and Foxy Casino.
CasinoClub celebrated its 15th anniversary in 2016 with a series of events across Europe. Through its heritage and bespoke club approach, CasinoClub has established a leading position in German speaking markets and benefits from a loyal customer base. Last year also saw the brand take control of its software platform, previously provided by a third party, while delivering a positive top line performance.
Gioco Digitale is the second largest bingo brand in Italy, a top ten casino brand and is very much aimed at the casual player looking for entertainment. There was some restructuring post acquisition, with improved marketing, promotions, CRM and product. As a consequence, NGR grew strongly, particularly in casino.
All of our gaming labels are also benefiting from the many new content deals signed over the past 12 months.
As with Sports Labels mobile revenue from Games Labels grew strongly in 2016, and now represents 29% of divisional gross gaming revenue against 20% in 2015. With further product enhancements and additional content we expect mobile revenues to continue to grow strongly.
Looking ahead, the focus will be on continued product improvement across all of the brands, along with improved customer service.
The improvement to product and customer experience across all of our games is ongoing and supported by more targeted marketing, we expect further progress in 2017 and beyond. Furthermore, in addition to the significant amount of new third party gaming content already secured, the Group is also accelerating the development of its own unique in-house products.
B2B
The Group provides B2B services to a number of well-known gaming businesses including Borgata (MGM), Danske Spil, Fortuna and PMU.
Pro forma divisional revenues in 2016 were €14.2m compared to €13.9m in the previous year, with the contribution being €14.0m versus €13.9m in the previous year.
| In €m | Pro forma | Actual | |||||
| Year ended December | 2016 | 2015 | Change | Constant currency | 2016 | 2015 | |
| Revenue | 14.2 | 14.2 | 0% | 0% | 13.3 | – | |
| Contribution | 14.0 | 13.9 | 1% | 1% | 13.1 | – | |
| Contribution margin | 99% | 98% | 98% | – | |||
Proprietary technology presents the Group with the opportunity to provide B2B services to third parties, but this has to be balanced with the potential presented from our own B2C operations. We will pursue B2B opportunities that are meaningful but only where there is no significant distraction to our core B2C operations or those that do not compromise our long-term strategy. Consistent with this focus, the B2B agreement with Betfred was mutually terminated.
At the end of 2016, we were pleased to strengthen our B2B relationship with Borgata and the MGM Group. Under the new deal, GVC Group will provide an expanded offering beyond Borgata to additional MGM brands in New Jersey, with the potential for the partnership to be extended into other US states, as and when regulation permits.
The Group is committed to B2B and currently has an active pipeline of opportunities in line with our strategic focus.
Non-core
Other revenues comprise the financials business, InterTrader. The business undertook a restructuring in 2016, consolidating to a single brand and also bringing in-house a significant part of the operation that was previously outsourced. Whilst this created some disruption in Q3, InterTrader enjoyed its strongest trading period of the year in Q4, reflecting the benefits of the actions taken in the previous quarter.
In December 2016, we announced the disposal of payments processor Kalixa for a total cash consideration of €29m (plus potential adjustments up to a maximum €35.5m). The sale is expected to complete in H1 2017.
Regulatory update
The regulatory landscape is changing at a rapid pace, particularly across Continental Europe. Whilst we welcome sustainable legislation, the national regulatory regimes across the EU Member States differ significantly due to the lack of harmonised gaming rules at an EU level. Within the EU, we work with the industry and those committed to upholding the open market values of being part of the union.
In 2016, approximately 69% of our pro forma NGR was derived from territories where we currently pay gaming taxes/VAT or where a licensing structure is the process of being implemented. The Group is currently licenced in more than 18 territories.
In Germany, bwin was among the 20 successful applicants for a sports betting licence in 2014. However, this process was subsequently suspended after being challenged by operators who failed to secure licences and licenses were never granted. Nevertheless, all 35 operators (including bwin) that fulfilled the minimum criteria in the licensing procedure will receive temporary sports betting licenses on 1 January 2018. Further, the Second Amended State Treaty on Gambling is scheduled to enter into force on 1 January 2018. With the exception of the state of Schleswig-Holstein, licences for online casino/poker are still not available in Germany. However, it was announced in November 2016 that the German federal states agreed to evaluate a legal framework for the regulation of online casino and poker. This evaluation will most likely be concluded in the autumn of 2017. In this context, the state of Hesse has an extraordinary termination right to the German State Treaty on Gambling which is linked to the satisfactory solution of the online casino and poker situation until 30 June 2019. The Group pays betting tax/VAT on all of its German revenues.
In 2016, the Group received a permanent licence in Romania having previously operated under an interim licence. A licence application has also been made in the Czech Republic following new legislation that came into force on 1 January 2017. The Group will consider applying for a licence in Poland in light of amendments to their gaming legislation.
In August 2017, the UK government will commence levying the point of consumption tax on gross gaming revenue on all online gaming products (previously just betting) as opposed to net gaming revenue. If this had been in place at the start of 2016 the estimated incremental tax payable by the Group would have been approximately €7m. Also in the UK, the CMA (Competition and Markets Authority) is undertaking a review into the advertising of gaming and operators terms and conditions, particularly in the area of promotions to customers.
Brexit
Beyond the impact of currency movements there has been no visible impact on the business from the UK’s decision to seek an exit from the EU. The Group has greater sterling costs than revenues and therefore the impact from the recent sterling weakness is a net positive. The detail of how the UK intends to exit the EU is yet to be decided, however, management believe GVC’s global footprint gives it significant flexibility to face any challenges that may arise.
Outlook and current trading
Our strategy is to build further scale and international diversification through leveraging our proven proprietary technology, established brands and high quality personnel. In an increasingly competitive and regulated industry, we believe scale and diversification will enable us to continue to create shareholder value through capital and income growth. Whilst we are excited by the organic potential, we believe the online gaming industry will continue to consolidate. Historically, GVC has delivered significant shareholder value through M & A and this remains a core component of our strategy.
GVC enters 2017 with positive momentum and the integration of bwin.party largely complete. The industry faces many challenges, but the combination of our talent, proprietary technology and brand strength, gives us confidence that we can deliver another year of growth. Although there is no major football tournament in 2017, the trajectory in the business together with a return to more normalised levels of marketing means that we expect to achieve further growth in the coming year.
The positive momentum reported throughout 2016 has continued into the current year. Pro forma daily Group NGR is up 15% (+16% in constant currency) for the period up to 19 March 2017. This growth has been achieved despite some high profile customer friendly results in Europe during the last few weeks of February and early March. The strategy of exiting low margin sports turnover has continued and as a result we believe a normalised long-term gross win margin for the Group will be around 10%.
Sports Labels pro forma daily NGR YTD is up 18% (+19% in constant currency) whilst Games Labels daily NGR on the same basis is up 6% (+8% constant currency)
As we pass the first anniversary of the bwin.party acquisition, and with no major summer football tournament in 2017, year on year comparatives will inevitably get more challenging. Nevertheless, the business has made an excellent start to the year and with the benefits of significant product and customer experience improvements still to come through, as well as the full synergy savings to be realised in 2018, the future is extremely encouraging.
Kenneth Alexander
Chief Executive
23 March 2017
Report of the Group Finance Director
Having joined GVC as CFO in February 2017, it is my pleasure to deliver such as strong set of results.
In line with the approach contained in the Report of the CEO, both “pro forma” results and “actual” results are provided. Pro forma results are presented for the period as if the acquisition of bwin.party (the “acquisition”) completed on 1 January 2016 (as opposed to the actual date of 1 February 2016) and has been accounted for as a business combination under IFRS 3.
It is worth noting the distinction between NGR, a figure before VAT, and Revenue, the more “statutory” number, stated after VAT. While Clean EBITDA (earnings before interest, taxation, depreciation, amortisation, share based payments and exceptional items) is a non-GAAP measure, it is used by the Group’s management to assess the underlying performance of the business.
A summary of revenue, contribution and expenditure by reporting segment is shown below.
| Pro forma | Actual | ||||
| 2016 | 2015 | 2016 | 2015 | ||
| €m | €m | €m | €m | ||
| Sports labels | 4,488.3 | 4,312.6 | 4,272.3 | 1,683.0 | |
| Games labels | 65.2 | 77.1 | 58.9 | – | |
| Sports wagers | 4,553.6 | 4,389.7 | 4,331.3 | 1,683.0 | |
| Sports margin % | 9.6% | 8.5% | 9.6% | 9.2% | |
| Sports labels | 653.9 | 575.7 | 620.7 | 215.1 | |
| Games labels | 203.5 | 211.8 | 188.3 | 32.6 | |
| B2B | 14.2 | 14.2 | 13.3 | – | |
| Core | 871.6 | 801.7 | 822.3 | 247.7 | |
| Non-core | 23.0 | 20.5 | 21.1 | – | |
| NGR | 894.6 | 822.2 | 843.4 | 247.7 | |
| EU VAT | (21.4) | (14.2) | (20.1) | (1.2) | |
| Revenue | 873.2 | 807.9 | 823.3 | 246.5 | |
| Sports labels | 362.0 | 318.9 | 342.5 | 113.6 | |
| Games labels | 89.0 | 109.6 | 82.9 | 21.8 | |
| B2B | 14.0 | 13.9 | 13.1 | – | |
| Core | 465.0 | 442.3 | 438.5 | 135.4 | |
| Non-core | (1.0) | 0.5 | (1.0) | – | |
| Contribution | 464.0 | 442.8 | 437.5 | 135.4 | |
| Sports labels | 55% | 55% | 55% | 53% | |
| Games labels | 44% | 52% | 44% | 67% | |
| B2B | 99% | 98% | 98% | 0% | |
| Core | 53% | 55% | 53% | 55% | |
| Non-core | (4%) | 2% | (5%) | 0% | |
| Contribution margin | 52% | 54% | 52% | 55% | |
| Core | 195.8 | 195.0 | 185.5 | 62.5 | |
| Non-core | 17.6 | 21.9 | 16.3 | – | |
| Corporate | 45.0 | 62.7 | 42.3 | 18.7 | |
| Expenditure | 258.4 | 279.6 | 244.0 | 81.3 | |
| Core | 269.3 | 247.3 | 253.0 | 72.8 | |
| Non-core | (18.6) | (21.4) | (17.2) | – | |
| Corporate | (45.0) | (62.7) | (42.3) | (18.7) | |
| Clean EBITDA | 205.7 | 163.2 | 193.5 | 54.1 | |
Bridge between Actual and pro forma results
| 2016 | 2015 | |||||||
| Actual | bwin.party pre-acquisition | Pro forma | Actual | bwin.party pre-acquisition | Pro forma | |||
| €m | €m | €m | €m | €m | €m | |||
| NGR | 843.4 | 51.2 | 894.6 | 247.7 | 574.4 | 822.2 | ||
| EU VAT | (20.1) | (1.3) | (21.4) | (1.2) | (13.0) | (14.2) | ||
| Revenue | 823.3 | 49.9 | 873.2 | 246.5 | 561.5 | 807.9 | ||
| Cost of sales | (385.8) | (23.3) | (409.1) | (111.1) | (254.0) | (365.1) | ||
| Contribution | 437.5 | 26.6 | 464.0 | 135.4 | 307.5 | 442.8 | ||
| Contribution margin | 52% | 52% | 52% | 55% | 54% | 54% | ||
| Expenditure | (244.0) | (14.4) | (258.4) | (81.3) | (198.3) | (279.6) | ||
| Clean EBITDA | 193.5 | 12.2 | 205.7 | 54.1 | 109.2 | 163.2 | ||
NGR
NGR grew 240% to €843.4m for the year to December 2016, while on a pro forma basis it grew by 9% to €894.6m. Growth was derived from a number of factors including, more focused management, stronger sports margins and more effective product cross-sell. The Group operates in a large number of markets and currency fluctuations have an impact on reported numbers. On a constant currency basis, pro forma NGR grew by 12% in the period.
Revenues
Revenues grew by 234% to €823.3m over the 12 months, whilst on a pro forma basis they increased by 8%. VAT has been imposed since January 2015 in a number of countries, the most significant of which is Germany. VAT at the rate of 21% has now also been introduced in Belgium, a market in which GVC operates through a locally licenced partner. The financial impact is not considered to be material to the Group.
Variable costs and contribution
The key components of variable costs remain: betting taxes and duties, payment processing costs, software royalties, affiliate commissions, partner shares and marketing costs.
Contribution in the period was €437.5m in actual terms, up from €135.4m the previous year. On a pro forma basis, Contribution increased 5% to €464.0m from €442.8m for 2015. The decline in the Contribution margin on a pro forma basis to 52% from 54% principally reflected an increase in betting taxes and duties as a percentage of revenues.
Expenditure
The prime components of expenditure are personnel (representing around 56% of the cost base) and technology (representing approximately 29% of the cost base). Other significant costs include real estate (with over 15 offices), travel and professional fees.
| Pro forma basis | Actual basis | |||||
| 2016 | 2015 | 2016 | 2015 | |||
| €m | €m | €m | €m | |||
| Personnel expenditure | 145.2 | 173.1 | 136.7 | 48.5 | ||
| Professional fees | 19.8 | 20.8 | 18.4 | 4.7 | ||
| Technology costs | 73.4 | 62.8 | 70.1 | 23.7 | ||
| Office, travel and other costs | 24.5 | 25.0 | 22.1 | 3.5 | ||
| Foreign exchange differences | (4.6) | (2.1) | (3.3) | 1.0 | ||
| 258.4 | 279.6 | 244.0 | 81.3 | |||
Costs increased to €244.0m in the period from €81.3m in 2015, reflecting the acquisition of bwin.party. On a pro forma basis there was an 8% reduction in expenditure to €258.4m from €279.6m. The reduction in pro forma costs reflects the synergy benefits highlighted at the time of the bwin.party acquisition and thus far this has predominantly come from personnel.
Technology costs on a pro forma basis have increased to €73.4m from €62.8m following the purchase of the CasinoClub software platform and due to increases in data and streaming costs in the year. Cost savings are expected to be realised here in 2017 as the platform migrations continue and the size of the enlarged group means it is in a better position to negotiate improved contractual terms with suppliers.
Clean EBITDA
While Clean EBITDA is a non-GAAP measure, it is used by the Group’s management to measure the performance of the business. Actual Clean EBITDA increased to €193.5m from €54.1m in the previous year, boosted by the 11 month contribution from the acquisition. On a pro forma basis, Clean EBITDA rose 26% to €205.7m.
Depreciation and Amortisation
Depreciation and amortisation for the year was €136.5m compared to €5.0m in 2015. Amortisation associated with intangible assets recognised on acquisition was €109.5m. These assets are being amortised over periods ranging from 3 to 12 years.
The amortisation of capitalised development expenditure amounted to €7.0m.
| 2016 | 2015 | |
| €m | €m | |
| Depreciation | 20.0 | 0.8 |
| Amortisation | ||
| – intangible assets recognised on acquisition | 109.5 | – |
| – internally generated intangibles | 7.0 | 4.2 |
| 136.5 | 5.0 | |
Exceptional items
The bulk of the exceptional items have arisen on the acquisition of bwin.party itself and subsequent restructuring.
| 2016 | 2015 | |
| €m | €m | |
| Exceptional items | ||
| Professional fees | 18.8 | 13.5 |
| Currency option | 10.8 | 9.5 |
| Bonuses and share options | 21.9 | – |
| Acquisition costs | 51.5 | 23.0 |
| Premium listing application costs | 4.4 | – |
| Reorganisation costs | 14.4 | – |
| Contract termination costs | 11.7 | – |
| Accelerated depreciation | 12.5 | – |
| Progressive jackpots | 7.6 | – |
| Release of contingent consideration | 8.1 | – |
| Foreign exchange on deposit | 16.4 | – |
| Profit on disposal of joint venture | (11.7) | – |
| Other | 2.9 | 1.5 |
| 117.8 | 24.5 |
A currency option was taken out in 2015 in order to meet the cash confirmation requirements for the offer for bwin.party by the Company. Under the terms of the contract the Group would sell €365.0m and buy £260.7m. The movement in exchange the sterling/euro rate between 31 December 2015 and 2 February 2016 created an additional €10.8m fair value loss on the option which has been recognised within exceptional items.
The 2014 LTIP was cash settled as part of the acquisition and the after tax proceeds were rolled into the related share placing, the cost of the settlement including employer’s taxes of €18.4m was taken as an exceptional cost. In addition Transaction bonuses of approximately €3.0m were paid to the directors and the vast majority of the after tax proceeds were also rolled into the share placing and €0.5m was paid to other employees in the Group.
Both the legacy GVC business and the acquired bwin.party business have progressive prize pools on casino games. Following the acquisition GVC evaluated that a change in accounting judgement was required and recognised a charge of €7.6m as an exceptional item with the liability being recorded in the balance sheet.
The contract termination costs of €11.7m relate to a legacy affiliate agreement on non-commercial terms that the Group bought out following the acquisition of bwin.party.
Foreign exchange on deposit relates to foreign exchange movements on GBP funds raised through the share placing and held on deposit for the restructuring of bwin.party.
Operating profit
The Group reported an operating loss of €81.1m for the year, compared to a profit of €27.8m the previous year. Exceptional items and amortisation associated with the Acquisition were responsible for the reported loss in 2016. Excluding exceptional items and amortisation associated with the Acquisition, the Group’s operating profit was €146.2m compared to €52.3m in 2015.
| 2016 | 2015 | |
| €m | €m | |
| Clean EBITDA | 193.5 | 54.1 |
| Share based payments | (31.1) | (0.4) |
| Exceptional items | (117.8) | (24.5) |
| Depreciation and amortisation | (136.5) | (5.0) |
| Impairment of available for sale asset | (4.2) | (1.2) |
| Changes in the fair value of derivative financial instruments | 15.0 | 4.8 |
| Operating loss / (profit) | (81.1) | 27.8 |
The share based payment charge of €31.1m comprises €25.1m for the Group’s LTIP and MIP share option schemes and a €6.1m charge for share awards for employee incentive plans.
Financing charges
These comprise: interest on indebtedness (principally loans), an accounting charge for debt free amortisation, other debt administration fees and foreign exchange movements. Financial charges totalled €65.3m for the year compared to €2.3m for 2015.
| 2016 | 2015 | |
| €m | €m | |
| Interest on Cerberus loan | 46.0 | 1.2 |
| Amortisation of loan fees and early repayment option | 19.0 | – |
| Finance lease interest | 0.1 | 0.1 |
| Unwinding of interest on non-interest bearing loan | – | 0.2 |
| Unwinding of discount on deferred consideration | – | 0.1 |
| Foreign exchange revaluation | – | 0.7 |
| Other interest | 0.2 | – |
| 65.3 | 2.3 |
(Loss)/Profit Before Tax
The Group reported a loss before tax of €138.6m against a profit of €25.5m in 2015. As noted above, the loss was primarily due to the exceptional items and amortisation associated with the acquisition. Excluding exceptional items and amortisation associated with the acquisition, the Group achieved an adjusted Pre Tax Profit of €93.8m, a 102% increase against €46.4m for 2015.
| 2016 | 2015 | |
| €m | €m | |
| (Loss)/profit before tax | (138.6) | 25.5 |
| Exceptional items | 117.8 | 24.5 |
| Impairment of available for sale asset | 4.2 | 1.2 |
| Changes in the fair value of derivative instruments | (15.0) | (4.8) |
| Amortisation of acquired intangibles | 109.5 | – |
| Dividend income | (3.1) | – |
| Amortisation of loan fees and early repayment option | 19.0 | – |
| Adjusted profit before tax | 93.8 | 46.4 |
Taxation
The Group is currently headquartered in the Isle of Man, with key operating subsidiaries in Gibraltar (where the headline rate of corporation tax is 10%) and Malta (5%), as well as a number of jurisdictions with higher tax rates. For the year ended 31 December 2016 the tax charge/credit was €0.0m, the corporation tax charge was €11.8m and there was a deferred tax credit of €11.8m.
Earnings per share
Reported EPS for the period was a loss of 51 euro cents, compared to earnings of 40 euro cents profit for 2015, reflecting the amortisation and exceptional items associated with the acquisition, together with the increased number of shares in issue. Adjusted EPS (based on adjusted profit) was 26 euro cents compared to 73 euro cents for 2015.
| 2016 | 2015 | |
| €cent | €cent | |
| Basic EPS | (51) | 40 |
| Basic, fully diluted EPS | (51) | 38 |
| Adjusted EPS | 26 | 73 |
| Adjusted fully diluted EPS | 26 | 70 |
Dividends
As part of the terms of the Cerberus Loan taken out to part finance the Acquisition, the Group undertook a dividend holiday until 1 February 2017 (the first anniversary of the acquisition). In November 2016 the Group declared its intention to pay a special dividend of 10 euro cents per share. This was subsequently increased to 14.9 euro cents and settled in sterling at 12.5p and paid to shareholders on 14 February 2017.
The second special dividend declared of 15.1 euro cents per share will take the total dividend for the 2016 financial year to 30 euro cents per share.
REVIEW OF THE BALANCE SHEET
A summarised balance sheet is shown below:
| 2016 | 2015 | |
| €m | €m | |
| Goodwill | 1090.3 | 132.9 |
| Intangible assets other than goodwill | 519.1 | 22.2 |
| Property, plant and equipment | 19.7 | 1.4 |
| Other non-current assets | 8.6 | 2.6 |
| Non-current assets | 1637.7 | 159.1 |
| Cash and cash equivalents | 354.8 | 28.2 |
| Balances with payment processors | 60.0 | 21.7 |
| Derivative financial assets | 26.2 | 3.8 |
| Assets and liabilities held for sale | 37.0 | – |
| Client liabilities | (112.0) | (14.8) |
| Progressive prize pools | (22.8) | – |
| Loans and borrowings | (403.5) | (3.0) |
| Net taxation payable | (58.7) | (3.3) |
| Other net current assets/(liabilities) | (44.5) | (41.0) |
| Current assets less current liabilities | (163.5) | (8.4) |
| Non-current liabilities | (76.9) | (22.6) |
| Net assets | 1,397.3 | 128.1 |
Acquisition of bwin.party
The acquisition of bwin.party completed on 1 February 2016 and offer consideration was made up of 25p in cash plus 0.231 GVC shares in exchange for each bwin.party share, and accounted for at a currency rate of £1:€1.3205.
| €m | |
| Amount paid by GVC: | |
| – value of stock issued | 1,201.5 |
| – value of cash component | 278.5 |
| – options settled post Acquisition | 26.6 |
| Value of offer | 1,506.6 |
| Assets at fair value | 542.7 |
| Goodwill recognised | 963.9 |
Net debt and liquidity
| 2016 | 2015 | |
| €m | €m | |
| Loans due <1 year | (386.5) | – |
| Loans due >1 year | – | (23.0) |
| Gross debt | (386.5) | (23.0) |
| Cash and cash equivalents | 367.0 | 28.2 |
| Less client liabilities | (112.0) | (14.8) |
| Net debt | (131.5) | (9.6) |
| Balances with payment processors | 60.0 | 21.7 |
| Net debt adjusted for payment processors | (71.5) | 12.1 |
In October 2016, the Group secured a one year (with options to extend for an additional 6 or 12 months) €250m loan facility from Nomura International plc (the “Nomura Loan”), which was used (fully drawn down in January 2017) to repay part of the €400m loan provided by Cerberus Business Finance LLP (the “Cerberus Loan”) associated with the acquisition of bwin.party digital entertainment plc. The Nomura Loan provided a short term facility at a significantly reduced overall cost from that associated with the Cerberus Loan.
In March 2017, the Group signed a €320m Senior Secured Term and Revolving Facility (“the Facility”) comprising a six-year €250m term loan (the “Term Loan”) and a five-year €70m revolving credit facility (“RCF”). The Term Loan was used to fully repay the Nomura Loan.
In the normal course of business the Group’s long-term strategy is to maintain leverage (net debt to Clean EBITDA) below 2x.
Loan and borrowings
The year end loan balance of €403.5m comprised €386.5m of debt principal and €17.0m of fees and interest due to Cerberus.
Assets and liabilities held for sale
The group has classified its “Kalixa”, its payments processing, as held for sale, the sale was announced in December 2016 for a total cash consideration of €29.0m with potential adjustments of up to €35.5m. It is expected to complete in Q3 2017. The balance sheet value comprises assets held for sale totalling €59.7m including €12.2m of cash, and liabilities held for sale of €22.7m.
Derivative financial assets
This consists of two main components, the WinUnited option (€3.7m) and the early repayment option associated with the Cerberus loan (€22.5m).
The Group entered into an agreement in 2015 with WinUnited to provide day-to-day back office operations for the WinUnited business and as part of this agreement obtained a call option to purchase the WinUnited assets. In the year the value of the option reduced from €3.8m to €3.7m.
As part of the financing agreement with Cerberus, the Group had the option of terminating the loan early by 1 February 2017. The option was initially recognised at €7.4m but during the year it became clear that the Group could re-finance at more advantageous rates. This led to the fair value of the option being increased to €22.5m. A credit has been taken to the income statement for this in the year.
Progressive prize pools
Both GVC and bwin.party have progressive prize pools on casino games. Following the acquisition GVC evaluated that a change in accounting judgement was required and recognised a charge of €7.6m as an exceptional item. The combined Group liability at the end of 2016 was €22.8m.
Deferred taxation
Deferred taxation has arisen on the intangible assets recognised on the acquisition of bwin.party. The liability recognised within non-current liabilities at 31 December was €65.6m.
CASHFLOW
The table below shows a simplified cashflow for the year.
| 2016 | 2015 | |
| €m | €m | |
| Clean EBITDA | 193.5 | 54.1 |
| Capitalised software development and other intangibles | (19.0) | (5.0) |
| Property plant and equipment purchases | (15.8) | (1.2) |
| Interest paid including loan costs | (47.6) | (9.0) |
| Corporate taxes | (7.9) | (0.6) |
| Other working capital movements | (31.9) | 6.7 |
| Free cashflow | 71.3 | 45.0 |
| Exceptional items (cash) | (86.4) | (14.6) |
| Acquisition of bwin.party (net of cash acquired) | (189.4) | – |
| Proceeds of issued share capital net of costs | 193.8 | – |
| Proceeds from disposal of assets held for sale | 20.9 | – |
| Interest bearing loan drawdown | 380.0 | 20.0 |
| Repayment of loans | (55.5) | (3.2) |
| Dividends paid | – | (34.3) |
| Other cash movements | 4.8 | (2.4) |
| Net cash generated | 339.5 | 10.5 |
| Foreign exchange | (0.7) | (0.1) |
| Cash and equivalents at beginning of the year | 28.2 | 17.8 |
| Cash and cash equivalents at end of year | 367.0 | 28.2 |
Cash has increased to €367.0m at 31 December 2016 from €28.2m following the acquisition of bwin.party.
To fund the acquisition the Group drew down a further €380.0m from the Cerberus loan facility and issued shares with proceeds net of costs of €193.8m. The cash cost of acquiring bwin.party was €189.4m and comprises €305.1m paid to share and option holders net of €116.2m of cash acquired.
During the year the group repaid €55.5m of loan balances. The repayments consisted of the final €3.0m instalment of the William Hill loan, a €13.5m repayment of the Cerberus loan and €39.0m of loan balances for bwin.party.
The principal items within other working capital movement relate to the settlement of 2015 employee remuneration arrangements across both GVC and bwin.party, and the settlement of trade creditors.
Paul Miles
Chief Financial Officer
23 March 2017
Directors’ responsibility statement
The responsibility statement below has been prepared in connection with the company’s full annual report for the year ending 31 December 2016. Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
- The Group and Company financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and
- The business review, which is incorporated into the Directors’ report, includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties they face.
The Directors of GVC Holdings PLC are listed in the Group’s Annual Report and Accounts for the year ended 31 December 2016. A list of current directors is maintained on the Company website www.gvc-plc.com.
Principal risks
There are a number of potential risks and uncertainties which could have a material impact on the Group’s future performance. To mitigate against these risks, the Group conducts a continuous process of assessments that examine whether any risk has increased, decreased or become obsolete; identify new risks; and evaluate the likelihood of each risk occurring and the impact it would have on the Group.
Our principal risks fall into five broad categories which are set out below, along with how we seek to manage them. More detail on our approach to risk management can be found in the Audit Committee report of the Group’s 2016 Annual Report:
| Risk | Mitigating Factors |
| Technology | |
| The Group’s customer offer includes products operated using different labels and gaming licenses, the majority of which are now driven by the Group’s proprietary technology obtained through the acquisition of bwin.party.In an industry where service reliability and integrity are key differentiating factors, our continual commitment to providing a reliable, safe, secure, compliant and continuous service has continued to be the Group’s focus this year.
Subsequent to the acquisition of bwin.party, the Group initiated a significant technology platform migration which carries inherent project risk. Other technology-related risks, such as our continuing operations in the event of a natural or man-made disaster, have been addressed with a substantial investment and both the Group’s disaster recovery and business continuity solutions. With continuous shifts in how consumers choose and are able to access our services (via different devices and/or channels), the process of maintaining and improving our technology will become more complex. |
In May 2016, the Internal Audit function performed a cyber security review over the key systems and interfaces that collectively form the gaming platform, over both the bwin.party and GVC infrastructures. The resilience to cyber and denial of service threats have been carefully considered and improved upon following the recommendations arising from these reviews.Furthermore, the Group has committed to maintain its ISO 27001 Information Security Management System certification, and is progressing with consolidating its ISO 27001 certification across the locations inherited through the bwin.party acquisition. Part of this process involves an internal audit review from an information security perspective of all certified sites across a three year cycle, which form part of the of the internal audit annual calendar.
The technology platform migration has been executed in phases, by label and territory to minimise risk and customer impact. The Group aims to complete the migration by [•] and subsequently decommission legacy systems.
|
| Regulation | |
| Focusing on nationally regulated and/or taxed markets safeguards our gaming revenues from potential national legislation threatening to prohibit or restrict one or more of the products that we offer, or online gaming entirely. There are potential risks for the Group from all markets where regulation is not clearly defined or adopted, especially in relation to EU law. | To manage this risk, the Group maintains a dialogue (either directly or indirectly) with national governments and regulators of to-be regulated markets. The Group’s compliance and regulatory affairs teams keep abreast of the regulatory landscape and report to the Board on any developments. However, it should be noted that most of the risks in relation to the regulatory landscape are outside of the Group’s direct control.Operating in nationally regulated and/or taxed markets requires the Group to comply with the rules and protocols of the particular regimes. Currently, the Group holds 31 licences each with their own unique regulatory requirements. The need to sometimes develop bespoke technological, operational and promotional offers in each market requires significant investment. The Group is committed to meeting its licence obligations and monitors its compliance with regulatory requirements by performing reviews of its licenced operations on a periodic basis, with the results reported to the Audit Committee. The Group also submits the licenced entities to a series of external audits by regulators and industry specialists to ensure that policies and procedures are being followed as intended. |
| Taxation | |
| The Group has companies and employees spread over a number of jurisdictions which creates tax risk if actions and decisions are being made in the wrong jurisdictions by the wrong companies. In addition, these companies contract with one another for services which are subject to scrutiny by local tax authorities.The Group’s strategic focus is to operate in nationally regulated and/or taxed markets. Revenues earned from customers located in a particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of existing law or the current practice of any tax authority, or by reason of a change in law or practice, then this may have a material adverse effect on the amount of tax payable by the Group.
On 1 January 2015, new VAT rules came into force across the EU impacting several areas of the digital economy. Gambling has typically been exempt from VAT but falls within the rules for VAT on electronically supplied services. Under EU law, Member States have the ability to apply VAT to gambling subject to certain limitations and conditions, and tax may be due depending on where customers are located and how Member States implement any exemption. Whilst substantial uncertainty remains, in light of the new rules the Group is now filing for, and paying VAT, in certain EU Member States. It is possible that VAT could be payable in other EU Member States. |
Group companies operate only where they are incorporated, domiciled or registered across countries. The multi-location set up of the Group gives rise to transfer pricing risk, mitigated by the fact that all intra-group transactions are documented and take place on an arm’s length basis unless local legislation or other business conditions make an arm’s length basis impossible or impractical.Following the acquisition of bwin.party, the transfer pricing arrangements are in the process of being reviewed by the Group’s Director of Tax, As well as holding workshops with senior management and business unit leaders, he also meets at least once a year with the Board to review tax strategy and management.
|
| Country and currency risk | |
| Whilst the continuing uncertainty in the global economic outlook inevitably increases the trading and balance sheet risks to which the Group is exposed, the diversified nature of the Group’s business means that such risks are not disproportionately different from any other commercial enterprise of a similar scale and international reach. Conditions in the Eurozone remain challenging and reference has already been made in previous statements to the challenging economic backdrop in several European countries, reducing the spending power of customers particularly in Southern European countries, which the Group has attempted to reflect in its financial forecasts. The weaker European economies are also increasing the risk of currency volatility and the potential for significant currency devaluation and business disruption if one or more of these countries exit the euro currency. Accordingly, the Group’s treasury processes and policies are designed with the aim of minimising the Group’s exposure to the Eurozone economic risk and preserving our ability to operate if such events arise.The functional currency of the Company and a majority of the Company’s subsidiaries is the euro. Consequently, those GVC companies that have adopted the euro as their functional currency ensure their financial assets and liabilities in non-euro currencies are equal and that any residual balance is held in euros. With the so-called ‘GIPSI’ countries (Greece, Ireland, Portugal, Spain and Italy), if one or more of these countries exits the euro then the Group may be exposed to a currency devaluation of its financial assets to the extent that the financial assets located in the exiting jurisdiction exceed its financial liabilities. | The Internal Audit function facilitated a review of the enlarged Group’s Treasury and Cash Management process in June 2016. The Group adopted a Treasury policy, which dictates that all material transaction and currency liability exposures are hedged with financial derivatives or cash.The treasury policy also requires that wherever practical and subject to regulatory requirements, the financial assets located in each GIPSI country are limited so they do not exceed the financial liabilities associated with that jurisdiction. |
| Impact of Brexit | |
| On 23 June 2016, a referendum was held to determine whether the United Kingdom remains in the European Union (EU). In light of the decision to leave the EU, in addition to the increase in the volatility of both the global currency and financial markets, it may reduce the Group’s ability to operate on an unfettered basis in certain EU markets that have tried to restrict competition in their domestic market from online gaming companies based overseas. The Group, along with other EU based online gaming operators, have previously relied on the ability to challenge such protectionist measures through the EU Court of Justice (“CJEU”). In the event that the UK, and by extension Gibraltar (being a UK protectorate), was to leave the EU, unless the Group was to re-domicile certain of its subsidiaries within the EU, it would no longer be able to rely on such protection. Such a re-domiciliation could give rise to higher taxes payable. | A Brexit task force has been formed, led by the Group Head of Legal, Compliance and Secretariat alongside members of senior executive management. The purpose of the task force is to closely monitor the situation, propose various contingency plans and, subject to Board approval where appropriate, execute them as the UK navigates through the EU exit process, with minimal business interruption and customer impact. |
Consolidated Income Statement
For the year ended 31 December 2016
| 2016 | 2015 | ||
| Notes | €m | €m | |
| NGR | 843.4 | 247.7 | |
| EU VAT | (20.1) | (1.2) | |
| Revenue | 2 | 823.3 | 246.5 |
| Cost of sales | (385.8) | (111.1) | |
| Contribution | 437.5 | 135.4 | |
| Administrative costs | 3 | (244.0) | (81.3) |
| Clean EBITDA * | 193.5 | 54.1 | |
| Share based payments | 3 | (31.1) | (0.4) |
| Exceptional items | 3 | (117.8) | (24.5) |
| Depreciation and amortisation | 3, 8, 9 | (136.5) | (5.0) |
| Impairment of available for sale asset | 10 | (4.2) | (1.2) |
| Changes in the fair value of derivative financial instruments | 3,12 | 15.0 | 4.8 |
| Operating (loss) profit | (81.1) | 27.8 | |
| Financial income | 4 | 4.5 | – |
| Financial expense | 4 | (65.3) | (2.3) |
| Dividend income | 5 | 3.1 | – |
| Share of profit of associates | 0.2 | – | |
| (Loss) profit before tax | (138.6) | 25.5 | |
| Taxation credit (expense) | 6 | – | (0.8) |
| (Loss) profit after tax | (138.6) | 24.7 | |
| (Loss) profit after tax attributable to: | |||
| Equity holders of the parent | (138.3) | 24.7 | |
| Non-controlling interests | (0.3) | – | |
| (138.6) | 24.7 | ||
| (Loss) earnings per share attributable to the ordinary equity holders of the parent: | € | € | |
| Basic | 7 | (0.51) | 0.40 |
| Diluted | 7 | (0.51) | 0.38 |
* Clean EBITDA is the Group’s alternative non-GAAP performance measure and is considered to be a key performance measure by the Directors as it serves as an indicator of financial performance and ability to service debt. It is defined as operating profit adjusted for share based payments, exceptional items, depreciation, amortisation, impairment of available for sale assets and changes in the fair value of derivative financial instruments. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
| 2016 | 2015 | ||
| €m | €m | ||
| (Loss) profit for the year | (138.6) | 24.7 | |
| Other comprehensive expense | |||
| Items that will be reclassified subsequently to profit or loss: | |||
| Exchange differences on translation of foreign operations, net of tax | (2.3) | – | |
| Total comprehensive (expense) income for the year | (140.9) | 24.7 | |
| Total comprehensive (expense) income for the year attributable to: | |||
| Equity holders of the parent | (140.6) | 24.7 | |
| Non-controlling interests | 29 | (0.3) | – |
| (140.9) | 24.7 |
Consolidated Statement of Financial Position
at 31 December 2016
| 2016 | 2015 | ||
| Notes | €m | €m | |
| Non-current assets | |||
| Intangible assets | 8 | 1,609.4 | 155.1 |
| Property, plant and equipment | 9 | 19.7 | 1.4 |
| Investments and assets available for sale | 10 | 3.7 | 2.6 |
| Other receivables | 11 | 4.9 | – |
| Total non-current assets | 1,637.7 | 159.1 | |
| Current assets | |||
| Trade and other receivables | 11 | 105.2 | 34.6 |
| Derivative financial assets | 12 | 26.2 | 3.8 |
| Income and other taxes reclaimable | 6.7 | 6.0 | |
| Short term investments | 13 | 5.4 | – |
| Cash and cash equivalents | 14 | 354.8 | 28.2 |
| Assets held for sale | 15 | 59.7 | – |
| Total current assets | 558.0 | 72.6 | |
| Total assets | 2,195.7 | 231.7 | |
| Current liabilities | |||
| Trade and other payables | 16 | (93.9) | (43.3) |
| Derivative financial liabilities | – | (9.9) | |
| Income taxes payable | (18.2) | (7.3) | |
| Other taxation payable | 18 | (47.2) | (2.0) |
| Client liabilities | (112.0) | (14.8) | |
| Progressive prize pools | (22.8) | – | |
| Amounts due under finance leases | 19 | – | (0.7) |
| Loans and borrowings | 17 | (403.5) | (3.0) |
| Provisions | 20 | (1.2) | – |
| Liabilities held for sale | 15 | (22.7) | – |
| Total current liabilities | (721.5) | (81.0) | |
| Current assets less current liabilities | (163.5) | (8.4) | |
| Non-current liabilities | |||
| Trade and other payables | 16 | (4.4) | (2.1) |
| Derivative financial liabilities | 12 | – | (0.7) |
| Loans and borrowings | 17 | – | (19.8) |
| Provisions | 20 | (6.9) | – |
| Deferred tax | 21 | (65.6) | – |
| Total non-current liabilities | (76.9) | (22.6) | |
| Total net assets | 1,397.3 | 128.1 | |
| Capital and reserves | |||
| Issued share capital | 22 | 2.9 | 0.6 |
| Merger reserve | 40.4 | 40.4 | |
| Share premium | 1,478.4 | 85.4 | |
| Translation reserve | (2.0) | 0.3 | |
| Retained earnings | (120.9) | 1.4 | |
| Equity attributable to equity holders of the parent | 1,398.8 | 128.1 | |
| Non-controlling interests | 29 | (1.5) | – |
| Total equity | 1,397.3 | 128.1 |
The financial statements were approved and authorised for issue by the Board of Directors on 23 March 2017 and signed on their behalf by:
| KJ Alexander (Chief Executive Officer) |
P Miles (Chief Financial Officer) |
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
| Share Capital | Merger Reserve | Share Premium |
Translation Reserve | Retained Earnings | Total attributable to equity holders of parent | Non-controllinginterests | Total | ||
| Notes | €m | €m | €m | €m | €m | €m | €m | €m | |
| Balance at 1 January 2015 | 0.6 | 40.4 | 85.4 | 0.3 | 22.7 | 149.4 | – | 149.4 | |
| Share option charges | – | – | – | – | 0.5 | 0.5 | – | 0.5 | |
| Share options surrendered | – | – | – | – | (12.2) | (12.2) | – | (12.2) | |
| Share options exercised | – | – | – | – | – | – | – | – | |
| Dividend paid | – | – | – | – | (34.3) | (34.3) | – | (34.3) | |
| Transactions with owners | – | – | – | – | (46.0) | (46.0) | – | (46.0) | |
| Profit for the year | – | – | – | – | 24.7 | 24.7 | – | 24.7 | |
| Total comprehensive income for the year | – | – | – | – | 24.7 | 24.7 | – | 24.7 | |
| Balance as at 31 December 2015 | 0.6 | 40.4 | 85.4 | 0.3 | 1.4 | 128.1 | – | 128.1 | |
| Balance at 1 January 2016 | 0.6 | 40.4 | 85.4 | 0.3 | 1.4 | 128.1 | – | 128.1 | |
| Share option charges | 24 | – | – | – | – | 24.0 | 24.0 | – | 24.0 |
| Share options surrendered | 24 | – | – | – | – | (0.8) | (0.8) | – | (0.8) |
| Share options exercised | 24 | – | – | 1.1 | – | (7.2) | (6.1) | – | (6.1) |
| Issue of share capital for the acquisition of bwin.party | 22 | 2.3 | – | 1,391.9 | – | – | 1,394.2 | – | 1,394.2 |
| Arising from the acquisition of bwin.party | – | – | – | – | – | – | (1.2) | (1.2) | |
| Transactions with owners | 2.3 | – | 1,393.0 | – | 16.0 | 1,411.3 | (1.2) | 1,410.1 | |
| Loss for the year | – | – | – | – | (138.3) | (138.3) | – | (138.3) | |
| Loss for the year attributable to non-controlling interest | 29 | – | – | – | – | – | – | (0.3) | (0.3) |
| Other comprehensive expense for the year | – | – | – | (2.3) | – | (2.3) | – | (2.3) | |
| Total comprehensive expense for the year | – | – | – | (2.3) | (138.3) | (140.6) | (0.3) | (140.9) | |
| Balance as at 31 December 2016 | 2.9 | 40.4 | 1,478.4 | (2.0) | (120.9) | 1,398.8 | (1.5) | 1,397.3 |
All reserves of the Company are distributable, as under the Isle of Man Companies Act 2006 distributions are not governed by reserves but by the Directors undertaking an assessment of the Company’s solvency at the time of distribution (section 49, Companies Act Isle of Man 2006).
Consolidated Statement of Cashflows
For the year ended 31 December 2016
| CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2015 |
2016 | 2015 | |
| Notes | €m | €m | |
| Cash flows from operating activities | |||
| Cash receipts from customers | 806.7 | 248.2 | |
| Cash paid to suppliers and employees | (737.2) | (200.2) | |
| Interest paid including loan costs and loan servicing | (47.6) | (9.0) | |
| Corporate taxes paid | (7.9) | (0.6) | |
| Net cash from operating activities | 14.0 | 38.4 | |
| Cash flows from investing activities | |||
| Interest received | 1.4 | – | |
| Dividends received | 5 | 3.1 | – |
| Acquisition earn-out payments | (1.6) | (2.4) | |
| Acquisition of bwin.party (net of cash acquired) | (189.4) | – | |
| Acquisition of property, plant and equipment | 9 | (15.8) | (1.2) |
| Proceeds from disposal of assets held for sale | 15 | 20.9 | – |
| Capitalised development cost and other intangibles | 8 | (19.0) | (5.0) |
| Sale of available for sale assets | 10 | 1.9 | – |
| Decrease in short-term investments | 5.7 | – | |
| Net cash used in investing activities | (192.8) | (8.6) | |
| Cash flows from financing activities | |||
| Proceeds from Cerberus interest bearing loan | 17.1 | 380.0 | 20.0 |
| Repayment of Cerberus interest bearing loan | 17.1 | (13.5) | – |
| Repayment of non-interest bearing loan | 17.2 | (3.0) | (3.2) |
| Proceeds from issue of share capital, net of costs | 22 | 193.8 | – |
| Repayment of borrowings | (39.0) | (1.8) | |
| Dividend paid | 23 | – | (34.3) |
| Net cash generated (used) in financing activities | 518.3 | (19.3) | |
| Net movement in cash and cash equivalents | 339.5 | 10.5 | |
| Exchange differences | (0.7) | (0.1) | |
| Cash and cash equivalents at beginning of the year | 14 | 28.2 | 17.8 |
| Cash and cash equivalents at end of the year | 14 | 367.0 | 28.2 |
The balance at the end of the period of €367.0m above consists of €354.8m cash and cash equivalents as shown on the face of the consolidated statement of financial position and €12.2m of cash and cash equivalents recognised within assets held for sale.
Notes
The notes are available in the PDF download.