Recommended transaction involving the entry into a services agreement and guarantee relating to the acquisition by East Pioneer Corporation B.V. of the Turkish language website business of Sportingbet plc
Proposed remuneration arrangements
Cancellation and Re-admission of the shares of GVC Holdings plc to trading on AIM
On 14 October 2011 East Pioneer Corporation B.V. (“EPC“) announced that it had conditionally agreed to acquire Sportingbet’s Turkish language website, www.superbahis.com and associated offshore assets (“Transferring Business“) from Longfrie Limited (“Longfrie“), a wholly-owned subsidiary of Sportingbet. On the same day GVC announced that: (i) GVC Sports had entered into a business-to-business agreement with EPC to provide EPC with support services to enable it to operate the Transferring Business (the “Services Agreement“); and (ii) GVC had agreed in favour of Longfrie to guarantee the performance of EPC’s obligations under certain Transaction Documents (the “Guarantee”).
The GVC directors believe that the Services Agreement will:
- provide a significant enhancement to GVC’s future earnings per share and future dividend paying capability1; and
- start to diversify GVC’s business into business-to-business services and away from its pure gaming operations.
In view of the significance of the Services Agreement and the Guarantee, the Company is seeking the approval of Shareholders in general meeting of the Services Agreement and the Guarantee. Together, the Services Agreement and the Guarantee are being treated as an acquisition solely in relation to Rule 14 of the AIM Rules and therefore a circular constituting an admission document under AIM Rule 14 is being sent to GVC Shareholders today.
1. This statement does not constitute a profit forecast and should not be interpreted to mean that the GVC Group’s earnings per share for the financial year ending 31 December 2011 or future years will necessarily exceed the GVC Group’s historical published earnings per share.
2 Transaction arrangements
This section 2 contains an overview of the Services Agreement and the Guarantee. In order to provide a full understanding of those commitments and, in particular, the value of the Services Agreement and the scope of the Guarantee, it is necessary to describe the terms of EPC’s acquisition of the Transferring Business under the Business Purchase Agreement and the related Transaction Documents. A detailed summary of the key terms of those documents is set out in the admission document.
Longfrie, a wholly-owned subsidiary of Sportingbet, has agreed to sell and EPC has agreed to purchase the Transferring Business (excluding the Business Intellectual Property Rights) pursuant to a business purchase agreement dated 13 October 2011 (“Business Purchase Agreement“). Sportingbet will, at Completion, grant to EPC an option to acquire the entire share capital of Brandco which will own the Business Intellectual Property Rights. The Acquisition is conditional upon the approval of Sportingbet’s shareholders and GVC’s shareholders and the Re-admission of GVC’s issued share capital to trading on AIM.
The consideration due from EPC to Longfrie under the terms of the Business Purchase Agreement will be payable in monthly instalments in arrears and calculated as follows:
- for each calendar month during the first three years following Completion until the Migration Completion Date, an amount equal to 75 per cent. and, following the Migration Completion Date, 67.5 per cent., of the combined net gaming revenue of the Transferring Business and the GVC Turkish Business, subject to certain adjustments (“Initial Profit Share“);
- for each calendar month during the fourth year following Completion, if the Initial Profit Share is less than €142.5 million (“Minimum Consideration“), the profit share will continue as outlined in (a) above capped at an amount equal to the sum of €28.5 million and the amount by which the Initial Profit Share is less than the Minimum Consideration. If the Initial Profit Share is greater than the Minimum Consideration, the profit share will continue as outlined in (a) above capped at €28.5 million (the “Second Profit Share“); and
- for each calendar month during the fifth and sixth years following Completion, if the aggregate of the Initial Profit Share and the Second Profit Share is less than the Minimum Consideration, the profit share will continue as outlined in (a) above capped at an amount equal to the amount by which the Initial Profit Share, together with the Second Profit Share, is less than the Minimum Consideration. If the aggregate of the Initial Profit Share and the Second Profit Share is more than or equal to the Minimum Consideration, no further Consideration is payable.
In order to accommodate EPC’s working capital requirements, the first instalment of the Consideration relating to the period from Completion of the Acquisition to 31 December 2011 is due on 29 February 2012; the second instalment relating to January 2012 is due on 2 April 2012; and each subsequent instalment is payable one month in arrears on or around the end of each month. Longfrie has also agreed to provide an interest free loan of £2,500,000 to GVC (or if GVC so directs, another member of the GVC Group or EPC) for the purposes of funding EPC’s working capital, which is repayable on 31 May 2012.
Certain intellectual property relating to the Transferring Business, including the “Superbahis” brand and its domain names, will be retained by BrandCo until the final instalment of the Consideration has been paid. At that point in time BrandCo itself will be transferred by Sportingbet to EPC pursuant to the terms of the Put and Call Option. Pending the transfer of BrandCo, it will licence the use of the “superbahis” brand and domain names to EPC.
GVC has entered into the Business Purchase Agreement for the purpose of guaranteeing to Longfrie the payment and performance by EPC of all amounts and obligations under the Business Purchase Agreement and certain other Transaction Documents. These obligations include the payment of the Consideration by EPC outlined above and certain undertakings as to how EPC is to conduct the Transferring Business following Completion (as more fully described in the Admission Document).
2.4 Transitional Services Agreement
Longfrie and another member of the Sportingbet Group, Sporting Odds Limited (“SPODDS”) have agreed to enter into a transitional services agreement (“Transitional Services Agreement“) with a wholly owned subsidiary of the Company, GVC Sports B.V. (“GVC Sports“), on Completion of the Acquisition. Under this agreement, Longfrie and SPODDS, will provide certain services to GVC Sports in connection with the Transferring Business for a period of up to three years. Those services will include the provision of certain back end functionality, web services such as website development and maintenance, payments reporting and Sportsbook trading.
A monthly fee of €500,000 is payable by GVC Sports to Longfrie under the Transitional Services Agreement. However, this shall be reduced to a sum equal to the monthly Consideration payment due to Longfrie under the Business Purchase Agreement if that is lower. In addition, any fees paid under the Transitional Services Agreement shall be deducted from the Consideration payable by EPC under the Business Purchase Agreement.
2.5 Services Agreement
Pursuant to the Services Agreement, GVC Sports will on-provide to EPC those services which it receives from the Sportingbet Group under the Transitional Services Agreement. It shall provide these services together with its own additional services, such as customer management services, to support EPC’s operation of the Transferring Business.
EPC will pay GVC Sports a monthly fee for the services to be provided to it under the Services Agreement. The fee will be payable on the same day as the monthly instalments of the Consideration are payable to Longfrie under the Business Purchase Agreement. The monthly fee shall equal the total of EPC’s cash reserves at the relevant month end after it has paid the instalment of the Consideration due to Longfrie under the Business Purchase Agreement for that month and adjusted for certain permitted costs. The monthly fee, when combined with the net gaming revenue of the GVC Turkish Business, is anticipated to represent 25 per cent. of the combined net gaming revenue of the Transferring Business and the GVC Turkish Business, subject to certain adjustments. That percentage will increase to 32.5 per cent. after the Migration Completion Date and to 100 per cent. after the final instalment of the Consideration has been paid by EPC under the Business Purchase Agreement.
In consideration for EPC agreeing to enter into the Services Agreement with GVC Sports, GVC agreed, in the Services Agreement, to enter into the Business Purchase Agreement as guarantor of EPC’s obligations thereunder.
2.6 Deed of Undertaking
Pursuant to the terms of a Deed of Undertaking dated 13 October 2011, EPC and its parent company, Sigma Corporate Management, have given various contractual assurances to GVC Sports including:
- warranties as to their respective corporate status and capacity and confirmation that EPC does not and will not carry on any business other than the Transferring Business;
- undertakings to comply with the Transaction Documents, not to dispose of or charge the assets of the Transferring Business and not to pay dividends without the prior written consent of GVC Sports; and
- an option to acquire (or nominate a third party to acquire) the share capital of EPC or its business and assets at any time from Completion for nominal consideration on the occurrence of certain events including the breach by EPC of its obligations under the Transaction Documents, the insolvency of EPC or a change of control of EPC.
3 Information on EPC
EPC is a newly incorporated, Curaçao (Dutch Caribbean) company. It is wholly owned by Sigma Corporate Management, a company established in 2009 under the laws of Panama and established in Panama City and controlled by HBM Group. HBM Group is one of the leading independent corporate service providers in Curaçao, Dutch Caribbean. HBM Group has a specialised business unit, e-Management N.V., which provides e-gaming corporate support in Curaçao and Malta and is the sole managing director of EPC. Sigma Corporate Management, HBM Group and EPC are not related parties to GVC.
4 Background to and reasons for the entry into the Services Agreement and the Guarantee
The Directors believe that the entry into the Services Agreement with EPC will provide a significant enhancement to GVC’s future earnings per share and dividend paying capability2. It will also diversify the GVC Group’s business into business-to-business services and away from its pure gaming operations.
It was a term of EPC’s entry into the Services Agreement that GVC guarantee EPC’s obligations in connection with the Acquisition. The Directors believe that it is in the best interests of the Company and the GVC Group as a whole to provide the Guarantee in order to secure the benefits of the Services Agreement and the fees payable thereunder.
The Directors believe that GVC’s exposure under the Guarantee to the risk of EPC defaulting on the payment of the Consideration is mitigated by the fact that no initial consideration is payable and the deferred consideration is only payable to the extent that the requisite net gaming revenue is generated by the Transferring Business and the GVC Turkish Business.
2 This statement does not constitute a profit forecast and should not be interpreted to mean that the GVC Group’s earnings per share for the financial year ending 31 December 2011 or future years will necessarily exceed the GVC Group’s historical published earnings per share.
In addition, GVC Sports has obtained the protections contained in the Deed of Undertaking as summarised in the Admission Document.
The Directors estimate that the GVC Group will incur one-off transaction costs of around €1.9 million. In the first year following Completion, costs, including the costs of the staff transferring, are expected to be €2.5 million. The Group anticipates that it will additionally incur some capital expenditure specific to this business associated with office fit-out costs and certain technology enhancements. The first year and capital expenditure costs may not be incurred evenly through the first year, and thus may impact both the profitability and cashflows of the GVC Group in the first half of 2012.
5 Information on the Transferring Business
The Transferring Business is carried on under the “superbahis” brand and comprises Sportingbet’s Turkish language website, www.superbahis.com, and associated offshore assets.
The Transferring Business has been operational since 1999 and has grown rapidly to become a well recognised brand in the Turkish-language gambling market through an organic growth strategy. The Directors understand that brand recognition of the Transferring Business is high due to its first-mover advantage in the sector and customer relationship management. Relationships between the Transferring Business and Turkish-speaking high net worth individuals are particularly strong and it has been a focus of the business for many years to grow market share.
The Transferring Business is strongly associated with sports betting and the majority of its revenues originate from this type of gambling. The Directors further understand that its focus on in-play betting (betting during the game) has been a strong factor in establishing this association with customers. Casino games, virtual games (such as backgammon and scratchcards) and poker comprise a smaller percentage of the Transferring Business’ revenue. Customers of the Transferring Business typically have high lifetime values and cross-product play metrics (where customers play not one, but multiple products) compared to customers of similar online businesses in other countries globally.
The Directors understand that:
- between 8,000-18,000 players were active customers of the Transferring Business each month during 2010-2011
sports customers typically placed between 130-160 bets each month with an average bet size of around £17 during the period
- active customer sports bets per month grew from 92 in August 2010 to 135 in July 2011
- the Directors understand that these increases can be traced to a number of factors, including product development and customer relationship management
- the Transferring Business uses third party suppliers’ products and services encompassing software provision, payment processing and marketing
- the number of employees required to provide the Services under the Services Agreement (and therefore enable EPC to run the Transferring Business in its current form) is anticipated to be around 40, operating from offices in Malta and the Republic of Ireland
- despite its relative maturity as an online gaming operation, the Transferring Business still has significant opportunities to grow revenues
5.2 Financial information
The table below summarises the performance of the Transferring Business for the three years ended 31 July 2011:
|Figures in €’000 save where stated otherwise||Year ended 31 July 2009||Year ended 31 July 2010||Year ended 31 July 2011|
|Net Gaming Revenue||27,559||45,153||60,005|
After underperforming in mid-late 2008 when various payment-related issues constrained performance, the Transferring Business has grown during the year ended 31 July 2010 and year ended 31 July 2011. Sportsbook revenue as a percentage of total revenue has grown marginally during the period as investment in sports trading took precedence over other forms of development. Operating profits recovered during the year ended 31 July 2010 and continued to show strong growth during the year ended 31 July 2011 with initiatives such as deposit charging contributing significant additional revenues.
Continued improvements in performance have been evident since 31 July 2010 as the Transferring Business has settled into a regular pattern of trading and delivery of NGR relative to marketing investment. More recently, there have been small interruptions in payment services, resulting in small revenue reductions relative to short-term trends. In addition, the lack of a major summer football tournament in 2011 impacted revenues significantly relative to the previous summer’s World Cup.
The financial information in this section has been extracted without material adjustment from the financial information contained in the Admission Document.
5.3 Management and Employees
The Transferring Business has 26 employees mainly consisting of inbound call service personnel. The Employees, who are based in either Dublin or London, will transfer to EPC with the Transferring Business and then to the GVC Group by virtue of the services it will provide under the Services Agreement.
6 Information on the GVC Group
GVC is the Isle of Man incorporated holding company of the GVC Group and was admitted to trading on AIM in May 2010. The Company was formed to assume the business and operations of GVC Holdings SA, the GVC Group’s previous Luxembourg incorporated holding company, as part of a redomiciliation of the GVC group of companies from Luxembourg to the Isle of Man in 2010. GVC Holdings SA’s shares had been quoted on AIM since 2004.
The GVC Group is primarily a Europeanonline gaming and sports betting group. Licensed in Malta and Curaçao, its principal brands are:
CasinoClub, a leading online casino website for German-speaking markets;
Betaland, a Sportsbook and gaming website focused on the Southern European market; and
Betboo, which was initially focused on the Latin American market but since January 2011 has expanded into other emerging markets and in particular Turkish speaking markets.
The GVC Group does not accept, and has never accepted, wagers from US customers.
The GVC Group operates from offices in Israel, which provide customer services, marketing and operational support for CasinoClub, and in Malta, which provide customer service and sports trading for Betaland as well as sports trading management for Betboo. Other operational support and customer services for Betboo are outsourced to third party providers in Latin America. The Maltese office also contains some central finance, IT and other support functions. In total, as at 30 June 2011, the GVC Group had 112 employees and contractors.
6.2 Segmental analysis
Set out below is a segmental analysis of Net Gaming Revenue, Contribution and Clean EBITDA by individual brand based on audited and unaudited published accounts for the relevant financial periods:
|Figures in €’000 save where stated otherwise¹||Year ended|
31 December 2008
31 December 2009
31 December 2010
|Six months ended 30 June 2010||Six months ended 30 June 2011|
|Net Gaming Revenue|
|Clean EBITDA margin|
- The above figures exclude figures for Winzingo, the GVC Group’s previous bingo site focused on the Spanish market, which was discontinued in April 2010.
- Revenues relating to the financial years ended 31 December 2008 and 2009 have been restated to reflect a reallocation of player bonuses and taxes against Net Gaming Revenue. These items had previously been recognised in Cost of Sales.
Originally launched in 2001, CasinoClub is a leading online casino website for German-speaking markets with around 20,000 Active Customers in 2010, including a significant legacy base of high-spending customers. The business was originally built on the established readership of a German language magazine for roulette enthusiasts coupled with extensive marketing.
As one of the first online gaming sites targeted at German speaking players, it swiftly established a significant, loyal and high-spending customer base in German-speaking markets, many of whom remain players today.
Development of the original CasinoClub games and software was outsourced to a third party, Boss Media Malta Casino Ltd (“Boss MediaMalta Casino“), which also provided operational support and electronic payment processing services. These arrangements were renegotiated in the summer of 2007 and again in early 2009. The GVC Group now licenses the games and related software from Boss Media Malta Casino in return for a royalty based on Net Gaming Revenue. It uses the electronic payment processing services of Webdollar Limited (“Webdollar“), in return for a commission based on the deposit value and pass-through of third party costs. All customer service activities for CasinoClub are now undertaken by the GVC Group in-house.
Over time, the CasinoClub customer base has matured and the number of Active Customers had started to fall in recent years leading to declining Net Gaming Revenues. In response, CasinoClub stepped up its marketing efforts in 2009 and 2010 and succeeded in stabilising and growing the number of Active Customers in 2010. However, Net Gaming Revenues continued to decline in 2010, albeit at a slower rate. The GVC Group made a further substantial investment in marketing in H1-2011 with the launch of a television advertising campaign. Whilst the campaign was successful in reactivating lapsed customers leading to a recovery in CasinoClub revenues to above those earned in H1-2010, its ability to generate active new players was more limited.
Contribution has been adversely affected both by the increased marketing costs and the increasing proportion of new business being sourced through affiliates (30 per cent. of the total revenue was generated from affiliates in the 6 months ended 30 June 2011 against 21 per cent. in the year ended 31 December 2010 and 15 per cent. in the year ended 31 December 2009). The Contribution margin declined from 72 per cent. in the year ended 31 December 2008 to 50 per cent. in the six months to 30 June 2011. The Directors believe that as the benefits of the marketing expenditure come through, margins will stabilise, but are unlikely to improve.
Marketing activities are aimed at retaining existing customers, reactivating lapsed customers, recruiting active new customers and supporting spend per customer. They include the operation of an intensive customer relationship management system with a dedicated department focused on higher-spending customers a television advertising campaign and continued publication of the original CasinoClub magazine among other activities.
CasinoClub operates out of the GVC Group’s Maltese subsidiary, Gaming VC Corporation Limited, under a Maltese licence.
CasinoClub offers progressive jackpots on slot machines. Unlike some operators, it does not participate in any progressive jackpot pooling scheme and bears its own jackpot losses, accounting for them in the period in which they fall. Total jackpot losses amounted to €3.1 million, €4.0 million and €2.8 million in the years to 31 December 2008, 2009 and 2010 respectively and the largest individual jackpot loss over this period was €0.3 million.
Despite the decline in its legacy customer base CasinoClub remains highly profitable, generating some 50 per cent. of GVC Group Net Gaming Revenue and over 90 per cent. of GVC Group Clean EBITDA before central costs in the year ended 31 December 2010.
Betaland is an online Sportsbook, casino and poker website focused on customers in Southern Europe. It was launched in September 2007 and operates under a licence from the Malta Lotteries and Gaming Authority. Net Gaming Revenues in the year ended 31 December 2010 were split approximately 38 per cent. sports and 62 per cent. gaming.
Betaland has adopted an affiliate marketing approach using a network of third-party agents to introduce customers to its sites. Net Gaming Revenues have grown rapidly since its launch and Betaland now has over 34,000 customer accounts.
Software for Betaland’s operations is licensed from various providers:
|Casino||Grinder, Net Entertainment International Ltd, Chartwell, Boss Media Malta Casino|
|Poker||Cake, Boss Media Malta Poker Ltd|
Payment processing for Betaland’s operations is provided by a number of payment providers.
The GVC Group employs a team of traders and odds compilers in Malta for its sports activities. GVC Group policy is not to hedge the outcome of sports fixtures.
Betaland offers progressive jackpots on slot machines. Unlike CasinoClub, however, it participates in a progressive jackpot pooling scheme under which it subscribes to a central fund and shares jackpot losses with other operators.
Sports wagers have grown from €46.8 million in the year ended 31 December 2008 to €55.9 million in the year ended 31 December 2010, benefiting in 2010 from the FIFA World Cup. Over the same period, the Sports margin ranged from 14 per cent. in 2008, to 17.7 per cent. in 2009 and 15.7 per cent. in 2010. Whilst the Directors do not expect this year’s performance to reach the same level as 2010, trading in H1-2011 has been encouraging. In H1-2011, Betaland achieved a sports gross margin of 17.3% (H1-2010: 16.1%) on wagers of €26.0 million (H1-2010: €31.1 million).
Betaland has grown its Net Gaming Revenues rapidly since launch and, after initially generating losses, generated positive Clean EBITDA during each of the years ended 31 December 2009 and 2010. However, the commissions payable to affiliates amount in total to some 60 per cent. of its Net Gaming Revenues, which results in a significantly lower Clean EBITDA margin than for CasinoClub, at less than 10 per cent.
Betboo was established in 2005 to provide online bingo, Sportsbook, casino and poker access to South American customers. It was acquired by the GVC Group in July 2009 and has since been launched into other emerging markets, principally targeting Turkish speaking customers.
The Betboo business in Latin America has no employees, but instead has service contracts with third party companies, which supply customer relationship management and IT support services. The business has its own software for bingo and Sportsbook and uses third party software for poker and casino. The Betboo business in other emerging markets, principally the Turkish speaking markets, has employees in Malta and the UK.
Net Gaming Revenues have grown strongly since its acquisition and the Directors believe that the markets in which it operates have considerable potential. The GVC Group has been investing heavily in the brand to expand the market and build market share. It commenced an aggressive marketing campaign in Latin America in Q2-2011, the aim of which is to achieve a step-change in the revenues ahead of the 2014 FIFA World Cup being held in Brazil. The GVC Group also successfully launched Betboo into Turkey during H1-2011 with better than expected initial results. As a result, Betboo has made a positive and increasing contribution but a small Clean EBITDA loss.
Deferred consideration remains payable for the Betboo acquisition. Following renegotiation the GVC Group announced on 23 February 2011 a change in the terms of the earn-out, the deferred consideration now comprises:
- four annual payments, to be made in January of each year from 2012 to 2015, equal to 25 per cent. of Betboo’s Net Gaming Revenues in the Latin American market for the preceding year to 31 December;
- an amount equal to 20 per cent. of the consolidated operating profit (less all taxes, duties, fees, excises and tariffs) of Betboo’s business outside of central and Latin America, from 1 January 2011 until 30 June 2012 and payable monthly; plus
- 36 monthly payments of US$157,000 from 1 July 2011 to 1 June 2014, together totalling US$5.7 million, conditional on the founders of Betboo remaining with the business.
The deferred consideration is payable in cash at a fixed exchange rate of €1 = US$1.4031 and is capped at a total of US$26 million.
GVC’s strategy comprises four principal elements:
- maximisation of profits and cashflow from the mature CasinoClub business;
- rapid expansion of the Betboo brand in Latin America to build market share ahead of the FIFA World Cup in Brazil in 2014;
- continued building of Betaland revenues while tightly controlling costs and sports margins; and
- expansion of its emerging markets business.
In recent years, GVC’s strategy has focused on expanding its business into attractive new emerging markets to capture the growth potential of such markets. The GVC Group acquired the Betboo brand in South America in July 2009 and has since invested heavily in the Betboo brand to support its expansion in the Latin American market.
In 2010 the GVC Group recruited Jon Salmon and Jim Humberstone to spearhead the GVC Group’s push into new European markets. Jon Salmon has overseen the running of Casino Club while Jim Humberstone has overseen the launch of the Betboo brand principally into Turkish speaking markets.
6.7 Summary financial information
Set out below is summarised financial information on the GVC Group for the three financial years ended 31 December 2010 and the six months ended 30 June 2011 and 30 June 2010 which has been extracted from the historical financial information on GVC and GVC Holdings SA referred to in the Admission Document:
|Figures in €’000 save where stated otherwise1||Year ended|
31 December 2008
31 December 2009
31 December 2010
|Six months ended|
30 June 2010
|Six months ended 30 June 2011|
|Net Gaming Revenue||48,907||52,148||54,907||28,057||30,282|
|Other operating costs||(7,947)||(8,516)||(11,165)||(5,089)||(6,613)|
|Share option charges||(557)||(213)||(482)||(189)||(225)|
|Depreciation and amortisation||(716)||(1,449)||(2,096)||(1,062)||(1,167)|
|Profit before tax from continuing operations||18,039||14,042||4,078||1,504||2,487|
|Earnings per share – diluted||€0.557||€0.431||€0.121||€0.042||€0.076|
|Earnings per share – diluted before exceptional items||€0.584||€0.480||€0.260||€0.143||€0.082|
|Dividends per share – declared|
|Total equity attributable to the Company’s shareholders||76,608||77,821||62,684||63,038||62,201|
|Net cash and cash equivalents||19,262||20,995||6,614||6,644||5,799|
- The above financial information excludes the results from Winzingo, the Group’s loss making Spanish-facing Bingo brand that was discontinued in April 2010.
- Revenues relating to the financial years ended 31 December 2008 and 2009 have been restated to reflect a reallocation of player bonuses and taxes against Net Gaming Revenue. These items had previously been recognised in Cost of Sales.
The GVC Group’s underlying performance over the three years ended 31 December 2010 reflects the offsetting impacts of the mature, declining but still highly profitable CasinoClub business; the younger, less profitable but rapidly growing Betaland business; and the investment in the Betboo brand to build market share, as described in paragraph 6.5 above.
6.8 Current trading and future prospects
In its interim results for the six months ended 30 June 2011 announced on 29 September 2011, Kenneth Alexander, CEO, said:
“The Group’s prospects are directly affected by the regulatory framework in the markets in which we operate and we continue to monitor regulatory developments closely. Trading remains encouraging against a backdrop of challenging economic conditions and we remain cautiously optimistic about our prospects for the rest of the year.”
Furthermore, in its interim results statement, the company gave a trading update for the 25 day period from 1 September 2011 to 25 September 2011. With the benefit of a full month of September and a period of 24 days to 24 October 2011, the company can provide a further trading update.
In Q3 2011, Group Net Gaming Revenue (“NGR”) increased by 17 per cent. to an average of €171k per day (Q3-2010: €146k), and in the first 24 days of October 2011 the average daily Group NGR increased by 49 per cent. to €205k (October 2010: €138k).
NGR from the Group’s Emerging markets business, Betboo, was €52k per day in the first 24 days of October 2011 (October 2010: €16k), and €43k for Q3-2011 (Q3-2010: €18k).
NGR from CasinoClub was €75k per day in the first 24 days of October 2011 (October 2010: €78k), and €81k for Q3-2011 (Q3-2010: €68k). October 2011 has been affected by a series of jackpot wins.
NGR from Betaland was €78k per day in the first 24 days of October 2011 (October 2010: €43k), and €47k for Q3-2011 (Q3-2010: €60k). Q3-2010 benefited from the FIFA World-Cup.
In Q3 2011 overall sports margins were 12.6 per cent. (Q3 2010: 22.9 per cent.).
The Directors are pleased with the performance of the Group’s businesses and, as set out in the interim results statement announced on 29 September 2011, remain cautiously optimistic about the Group’s prospects for the rest of the year.
7 Proposed Remuneration Arrangements
In the light of (1) the size and complexity of the Transaction and its potential to significantly enhance GVC’s future earnings per share and dividend paying capability3; and (2) the alignment of remuneration with Shareholder interests (in particular the payment of dividends), the Remuneration Committee of GVC has recommended the implementation of new incentive arrangements as set out below.
Shareholders holding a significant proportion of Shares have been consulted in relation to the remuneration arrangements described below and are supportive of them.
3 This statement does not constitute a profit forecast and should not be interpreted to mean that the GVC Group’s earnings per share for the financial year ending 31 December 2011 or future years will necessarily exceed the GVC Group’s historical published earnings per share.
Proposed grant of new share options
Subject to the passing of the relevant Resolution at the EGM of GVC, on the date which is 90 days after the publication of the admission document (“Award Date“), the Board proposes to grant new options over 1,600,000 Shares (in aggregate) under the LTIP to Lee Feldman, Kenneth Alexander and Richard Cooper (the “Proposed Option Grant“), representing approximately 5.1 per cent. of the Company’s issued share capital, subject to compliance with the Company’s share dealing code. The exercise price for these options will be 1.2 multiplied by the average mid-market closing price per Share during the period commencing from the time immediately prior to Re-admission and ending on the Award Date. Further details of the Proposed Option Grant are set out in the admission document.
Director bonus arrangements
It is proposed than a new annual bonus scheme for Directors be adopted from Re-admission (the “New Annual Bonus Scheme“). Under the New Annual Bonus Scheme, if, during any twelve month period, the Company declares and pays a dividend or dividends for a total amount which exceeds 25.99 euro (€) cents per Share, the Company will pay to Lee Feldman, Kenneth Alexander and Richard Cooper an aggregate bonus payment of an amount equal to ten per cent. of the aggregate dividends paid, which payment shall be divided between Lee Feldman, Kenneth Alexander and Richard Cooper as follows:
|Director||% entitlement to annual bonus|
Any such additional bonus payment will be paid in the month following the declaration of a dividend which brings the twelve month total to greater than 25.99 euro (€) cents per Share.
The Directors have agreed that 20 per cent. of these bonuses (after payment of personal taxes such as income tax and employees’ national insurance) must, subject to compliance with the Company’s share dealing code, be used to purchase Shares on the open market (or by the exercise of existing options held by him) within a three month period after the date of payment of the bonus.
In addition, within 30 days of Completion, Kenny Alexander, Richard Cooper and Lee Feldman will receive one-off success bonuses equal to 100 per cent. of their basic salaries or director fees (as applicable) (the “Success Bonuses“). After deducting personal income taxes and national insurance contributions from the gross amounts awarded under the Success Bonuses, the Directors are required to invest 25 per cent. of the net monies received by purchasing shares in the Company on the open market within 90 days of the payments being made, subject to compliance with the Company’s share dealing code.
Related party transaction
In view of their size, the New Annual Bonus Scheme, the Success Bonuses and the Proposed Option Grant (together, the “Remuneration Arrangements“) fall to be treated as related party transactions pursuant to the AIM Rules. Mr Diacono and Mr Blythe-Tinker (the “Independent Directors“) (being the Directors other than the Executive Directors and Mr Feldman, who are excluded from being independent directors by virtue of their interests in the Remuneration Arrangements) consider, having consulted with Daniel Stewart (the Company’s Nominated Adviser), that the terms of the Remuneration Arrangements are fair and reasonable insofar as Shareholders are concerned.
8 Dividend policy
The board of GVC will review the position of the Company at the time of publication of the Group’s final results, anticipated to be published in April 2012, and hopes to pay a final dividend. The amount of that dividend will depend on, among other things, the German regulatory position at that time and any adverse movements in working capital due to the commencement of servicing the Superbahis business4.
9 Admission to AIM and dealings
In response to press speculation, the Company announced on 16 August 2011 that it was in exclusive discussions with Sportingbet regarding a transaction relating to the Transferring Business. In accordance with the AIM Rules, the Shares were suspended with effect from 7.45 a.m. on that day pending publication of the admission document being sent to GVC shareholders today.
In view of the significance of the services to be provided by GVC Sports to EPC under the Services Agreement and GVC’s guarantee of EPC’s obligations under the Business Purchase Agreement, the Services Agreement and the Guarantee are, together, being treated as an acquisition solely in relation to AIM Rule 14. Accordingly, the Company has produced a circular which constitutes an AIM admission document pursuant to Rule 14 of the AIM Rules and is seeking shareholder approval of the Services Agreement and the Guarantee at the EGM.
This statement does not constitute a profit forecast and should not be interpreted to mean that the GVC Group’s earnings per share for the financial year ending 31 December 2011 or future years will necessarily exceed the GVC Group’s historical published earnings per share.
If Shareholders approve the Services Agreement and the Guarantee, the Company’s existing admission to trading on AIM will be cancelled. However, application will be made to the London Stock Exchange for the Shares to be re-admitted to trading on AIM. It is expected that Re-admission will become effective and that dealings in the Shares will re-commence at 8.00 a.m. on 17 November 2011. If all other conditions to Completion are fulfilled or waived before the relevant time as set out in the Business Purchase Agreement, the earliest date on which Completion will occur is 21 November 2011.
Set out in the Admission Document is a Notice convening an EGM of GVC to be held at the offices of the Company’s communications firm, Abchurch Communications, at 125 Old Broad Street, London EC2N 1AR at 10 a.m. on 16 November 2011 at which the Resolutions will be proposed.
11 Meeting for private shareholders
The Company recognises the importance of its private shareholders. The Company will be holding a Q&A session at 09.30 a.m. on Friday 11 November 2011 at the offices of Abchurch Communications, 125 Old Broad Street, London, EC2N 1AR to which all shareholders on the register on 31 October 2011 may attend. Shareholders holding shares in nominee accounts may also attend providing the nominee certifies that holding and provides a letter to the company by 10 a.m. Monday 7 November 2011. Further information can be found on the Company’s website www.gamingvc.com.
For further information:
|GVC Holdings PLC|
|Kenneth Alexander, Chief Executive Officer||Tel: +44 (0) 20 7398 7702|
|Richard Cooper, Group Finance Director||www.gamingvc.com|
|Daniel Stewart & Company||Tel: +44 (0) 20 7776 6550|
|Paul Shackleton / David Hart / Jamie Barklem||www.danielstewart.co.uk|
|Henry Harrison-Topham / Mark Dixon / Oliver Hibberd||Tel: +44 (0) 20 7398 7702|
The following definitions apply throughout this announcement unless the context otherwise requires:
|“2006 Act”||the Companies Act 2006 of the Isle of Man|
|“Acquisition”||the acquisition by EPC of the Transferring Business and the Transferring Assets pursuant to the Business Purchase Agreement|
|“Admission” or “Re-admission”||the re-admission of the issued ordinary share capital of GVC to trading on AIM becoming effective in accordance with the AIM Rules|
|“AIM”||AIM, a market operated by the London Stock Exchange|
|“AIM Rules”||the rules for AIM companies and their nominated advisers published by the London Stock Exchange from time to time|
|“Betaland”||a branded website used by the GVC Group|
|“Betboo”||a branded website used by the GVC Group|
|“Brand Licence”||the intellectual property licence agreement to be entered into on Completion between BrandCo, EPC and the Company under which BrandCo grants to EPC an exclusive licence to use the Business Intellectual Property Rights|
|“BrandCo”||Corvee Limited, a wholly-owned subsidiary of Sportingbet, incorporated and registered in Guernsey|
|“Business Intellectual Property Rights”||the intellectual property rights owned by BrandCo immediately prior to Completion, including the Business Name, internet domain names and trademarks and trade names used exclusively in the Transferring Business|
|“Business Name”||“Superbahis”, being the trading name of the Transferring Business|
|“Business Purchase Agreement”||the conditional agreement dated 13 October 2011 between Longfrie, EPC, Sportingbet and the Company setting out the terms and conditions upon which EPC proposes to acquire the Transferring Business|
|“Cancellation”||the cancellation of the Shares from trading on AIM in accordance with the AIM Rules|
|“Company” or “GVC”||GVC Holdings plc, a company incorporated and registered in the Isle of Man under the 2006 Act with registered number 4685V|
|“Completion”||the completion of the sale and purchase of the Transferring Business and the Transferring Assets pursuant to the Business Purchase Agreement|
|“Consideration”||the consideration payable by EPC to Longfrie for the Transferring Business pursuant to the Business Purchase Agreement|
|“Daniel Stewart” or “Nominated Adviser”||Daniel Stewart & Company Plc, a company incorporated in England and Wales with registered number 2354159, which is acting as nominated adviser and broker (as defined in the AIM Rules) to the Company|
|“Deed of Undertaking”||the deed of undertaking dated 13 October 2011 between GVC Sports, EPC and Sigma Corporate Management under which GVC Sports has been granted an option, exercisable at any time from Completion on the occurrence of certain events, to require the shares in (or the business and assets of) EPC to be transferred for €1 to GVC Sports or its nominee|
|“Directors” or “Board”||the directors of the Company at the date of this announcement and as they are expected to be on Re-admission|
|“EGM”||the Extraordinary General Meeting of the Shareholders to be held on 16 November 2011 (and any further Extraordinary General Meeting in case of adjournment of the meeting or reconvening of the said meeting) to consider and, if thought fit, pass the Resolutions|
|“Employees”||the employees of the Transferring Business immediately prior to Completion|
|“EPC”||East Pioneer Corporation B.V, a wholly-owned subsidiary of Sigma Corporate Management, a company incorporated and registered in Curaçao in the Dutch Caribbean under company number 124311|
|“ESOP”||the GVC Holdings plc Employee Share Option Plan|
|“Euro” or “€”||the monetary unit of the EU’s single currency|
|“Executive Directors”||the executive directors of the Company, being Kenneth Alexander and Richard Cooper|
|“FSA”||the UK Financial Services Authority of the United Kingdom|
|“FSMA”||the UK Financial Services Market Act 2000, as amended from time to time|
|“Gaming VC Holdings SA”||Gaming VC Holdings SA, a société anonyme (public limited liability company) that was incorporated under the laws of the Grand-Duchy of Luxembourg registered with the Luxembourg Register of Commerce and Companies under number B 104.348|
|“Guarantee“||the guarantee to be provided by the Company to Longfrie under the Business Purchase Agreement in respect of the obligations of EPC under certain of the Transaction Documents|
|“GVC Group”||GVC, any subsidiary undertaking of GVC, any parent undertaking of GVC and any subsidiary undertaking of any parent undertaking of GVC, in each case, from time to time|
|“GVC Sports”||GVC Sports B.V., a wholly-owned subsidiary of the Company, a company incorporated in Curaçao, the Dutch Caribbean, under company registration number 19454|
|“GVC Turkish Business”||the Turkish language online betting and gaming business carried on by the GVC Group|
|“IOE”||Internet Opportunity Entertainment (Sports) Limited, a wholly-owned subsidiary of Sportingbet, a company incorporated and registered in Antigua and Barbuda under company registration number 12628|
|“ISCI”||Interactive Sports (C.I.) Limited, a wholly-owned subsidiary of Sportingbet, a company incorporated and registered in Alderney|
|“London Stock Exchange”||London Stock Exchange plc|
|“Longfrie” or “Seller”||Longfrie Limited, a wholly-owned subsidiary of Sportingbet, incorporated and registered in Guernsey|
|“LTIP”||the GVC Holdings plc 2010 Long Term Incentive Plan|
|“Migration Completion Date”||the date on which all of the agreed services to be provided by Longfrie and SPODDS to GVC Sports under the terms of the Transitional Services Agreement have migrated across to GVC Sports|
|“Non-executive Directors”||the non-executive directors of the Company, being Lee Feldman, Karl Diacono and Nigel Blythe-Tinker|
|“Official List”||the Official List of the UK Listing Authority|
|“Put and Call Option”||the put and call option between Sportingbet and EPC to be entered into at Completion|
|“Remuneration Committee”||the remuneration committee of the Company, which at the date of this announcement comprises Lee Feldman, Karl Diacono and Nigel Blythe-Tinker|
|“Resolutions”||the resolutions to be proposed at the EGM|
|“Services”||means the services to be provided by GVC Sports to EPC under the Services Agreement|
|“Services Agreement”||the services agreement dated 13 October 2011 between GVC Sports, EPC and the Company|
|“Shareholder”||a holder of Shares|
|“Shares”||fully paid ordinary shares in registered form of €0.01 par value each in the capital of the Company|
|“Sigma Corporate Management”||Sigma Corporate Management Inc, a company incorporated and registered in Panama|
|“Software Licence Agreement”||the software licence agreement to be entered into between Longfrie, EPC and the Company on Completion under which Longfrie grants to EPC a non-exclusive sub-licence to use ISCI’s proprietary payment processing system that will be licensed by ISCI to Longfrie|
|“SPODDS”||Sporting Odds Limited, a wholly-owned subsidiary of Sportingbet, a company incorporated and registered in England and Wales under company registration number 3655231|
|“Sportingbet”||Sportingbet plc, a company incorporated and registered in England and Wales under company registration number 3534726|
|“Sportingbet Class 1 Resolution”||the resolution to be proposed at the Sportingbet General Meeting approving the sale of the Transferring Business to EPC|
|“Sportingbet General Meeting”||the General Meeting of Sportingbet to be held on 10 November 2011 (and any further General Meeting in case of adjournment of the meeting or reconvening of such meeting) to consider and, if thought fit, pass the Sportingbet Class 1 Resolution|
|“Sportingbet Group”||Sportingbet, any subsidiary undertaking of Sportingbet, any parent undertaking of Sportingbet and any subsidiary undertaking of any parent undertaking of Sportingbet, in each case from time to time|
|“Sterling” or “£”||the lawful currency of the UK|
|“Takeover Code”||the City Code on Takeovers and Mergers of the United Kingdom|
|“Transaction“||means the entry by members of the GVC Group into the Services Agreement and the Guarantee|
|“Transaction Documents“||means the Business Purchase Agreement, the Transitional Services Agreement, the Brand Licence, the Software Licence Agreement, the Put and Call Option, the Services Agreement, the Deed of Undertaking and certain other documents as set out in the definition of “Transaction Documents” contained in the Business Purchase Agreement|
|“Transferring Assets”||the assets of the Transferring Business owned by Longfrie immediately prior to Completion which will transfer to EPC under the Business Purchase Agreement|
|“Transferring Business”||Sportingbet’s Turkish language website, www.superbahis.com, and associated offshore assets|
|“Transitional Services Agreement”||the agreement to be entered into on Completion between Longfrie, SPODDS, GVC Sports, Sportingbet and the Company under which Longfrie and SPODDS agree to provide certain services to GVC Sports on a transitional basis after Completion|
|“United Kingdom” or “UK”||the United Kingdom of Great Britain and Northern Ireland|
|“UK Listing Authority” or “UKLA”||the FSA acting in its capacity as the competent authority for the purposes of Part VI of the FSMA|
|“US”||the United States of America|
References to the singular shall include references to the plural, where applicable and vice versa.
|“Active Customers”||customers who have either won or wagered more than €50 Net Gaming Revenue in CasinoClub|
|“Clean EBITDA”||earnings before interest, tax depreciation and amortisation and before exceptional items and share option charges|
|“Contribution”||gross profit after marketing and affiliate charges and before operating costs and exceptional items|
|“ITG”||the German Interstate Treaty on Gambling|
|“Net Gaming Revenue” or “NGR”||the fair value of consideration received or receivable. In sports betting, NGR is calculated as the gains and losses in respect of bets placed on sporting events which have taken place in the period, stated net of betting taxes and certain promotional bonuses. In casino and gaming, NGR represents the net win in respect of bets placed in games that have concluded in the period, stated net of certain promotional bonuses. In poker, NGR represents the rake or commission for games that have concluded in the period, net of certain promotional bonuses|
|“Sportsbook”||sports betting operation|
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
|Announcement of the Transaction||14 October 2011|
|Publication of the Admission Document||31 October 2011|
|Sportingbet General Meeting||10 November 2011|
|Latest time and date for lodging of Forms of Proxy for the EGM||10:00 a.m. on 14 November 2011|
|GVC EGM||10:00 a.m. on 16 November 2011|
|Date and time of Cancellation||8:00 a.m. on 17 November 2011|
|Re-admission effective and dealings in the Shares expected to commence on AIM||8:00 a.m. on 17 November 2011|
|Expected completion of the Transaction||11.59 p.m. on|
21 November 2011
About GVC Holdings PLC
GVC Holdings is a leading online gaming company. The Group is incorporated in the Isle of Man and is licensed in Malta, and the Netherlands Antilles.
In December 2004, the shares of Gaming VC Holdings S.A., GVC’s predecessor company, were admitted to the AIM market of the London Stock Exchange. The GVC Group has never transacted wagering activity by players in the US. Further information on the Group is available at www.gamingvc.com.
This announcement contains certain statements that are or may be “forward-looking statements”. These statements typically contain words such as “intends”, “expects”, “anticipates”, “estimates” and words of similar import. All the statements other than statements of historical facts included in this announcement including, without limitation, those regarding GVC’s financial position, business strategy, plans and objectives of management for future operations are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future and therefore undue reliance should not be placed on such forward-looking statements. There are a number of factors that could cause the actual results, performance or achievements of GVC to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding GVC’s present and future business strategies and the environment in which GVC will operate in the future and such assumptions may or may not prove to be correct. Forward-looking statements speak only as at the date they are made. Neither GVC, nor Daniel Stewart nor any other person undertakes any obligation to update publicly any of the information contained in this announcement, including any forward-looking statements, in the light of new information, change in circumstances or future events.