Regulatory Filings • Jun 28, 2012
Regulatory Filings
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THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the contents of this document or the action you should take, you should consult immediately a person authorised for the purposes of the Financial Services and Markets Act 2000 (as amended) ("FSMA") who specialises in advising on the acquisition of shares and other securities. The contents of this document are not to be construed as legal, business or tax advice. Each prospective investor should consult his, her or its own solicitor, independent financial adviser or tax adviser for legal, financial or tax advice. Prospective investors should rely only on the information in this document. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representations must not be relied on as having been authorised by the Company.
This document comprises a prospectus relating to Playtech Limited ("Playtech" or the "Company") and has been prepared in accordance with the Prospectus Rules made by the Financial Services Authority (the "Prospectus Rules") pursuant to section 73A of FSMA. This document has been approved as a prospectus by the Financial Services Authority and made available to the public as required by paragraph 3.2 of the Prospectus Rules.
The Ordinary Shares are currently admitted to trading on AIM. Application has been made to the Financial Services Authority and to the London Stock Exchange respectively for admission of all the Ordinary Shares to: (i) the Official List; and (ii) trading on the London Stock Exchange's Main Market for listed securities ("Admission"). It is expected that Admission will become effective and that dealings in the Ordinary Shares on the London Stock Exchange will commence at 8.00 a.m. on 2 July 2012. No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or dealt with on any other exchange.
Prospective investors should read the entire document and, in particular, the section headed "Risk Factors" when considering an investment in the Ordinary Shares. All statements regarding the Group's business, financial position and prospects should be viewed in light of such Risk Factors.
(incorporated in the Isle of Man with registered number 008505V)
Applications for listing on the Official List and admission to trading on the London Stock Exchange's Main Market for listed securities
Issued Shares on Admission
Number 289,287,628
Sponsor, financial adviser and broker Canaccord Genuity Limited
Canaccord Genuity Limited ("Canaccord Genuity"), which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as sponsor, financial adviser and broker to Playtech and for no-one else in connection with Admission and will not regard any other person (whether or not a recipient of this Prospectus) as a client of Canaccord Genuity and will not be responsible to anyone other than Playtech for providing the protections afforded to its clients, nor for providing advice in connection with Admission, the contents of this document or any other matter referred to herein.
Apart from the responsibilities and liabilities, if any, which may be imposed on Canaccord Genuity by FSMA, Canaccord Genuity accepts no responsibility whatsoever nor does it make any representation or warranty, express or implied, for or in respect of the contents of this document, including its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Ordinary Shares or Admission. Canaccord Genuity accordingly disclaim to the fullest extent permitted by law all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which Canaccord Genuity might otherwise have in respect of this document or any such statement.
Recipients of this document acknowledge that: (i) they have not relied on Canaccord Genuity or any of their affiliates in connection with any investigation of the accuracy of any information contained in or incorporated by reference into this document or their investment decision; and (ii) they have relied only on the information contained in this document and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Company or Canaccord Genuity.
Without prejudice to any obligation of the Company to publish a supplementary prospectus pursuant to section 87G of FSMA or paragraph 3.4 of the Prospectus Rules, the publication of this document does not, under any circumstances, create any implication that there has been no change in the affairs of the Group since, or that the information contained in this document is correct at any time subsequent to, the date of this document.
The possession or distribution of this document and the transfer of Ordinary Shares in or into jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions.
No action has been taken by Canaccord Genuity or any of its representatives that would permit possession or distribution of this document in any jurisdiction which may restrict possession or distribution.
This document does not constitute an offer to sell or an invitation to subscribe for, or the solicitation of an offer to buy or subscribe for, Ordinary Shares. The Ordinary Shares have not been, and will not be, registered under the US Securities Act or qualified for sale under the laws of any state of the United States or under the applicable laws of any other prohibited territory and, subject to certain exceptions, may not be offered for sale as subscription or sold or subscribed directly or indirectly within any Prohibited Territory for the account or benefit of any national, resident or citizen of any Prohibited Territory.
The distribution of this document in other jurisdictions may be restricted by law and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.
| Summary | 3 | |
|---|---|---|
| Risk Factors | 9 | |
| Expected Timetable of Principal Events | 32 | |
| Forward Looking Statements | 33 | |
| Directors, Company Secretary and Advisers | 34 | |
| Part 1 | Information on the Group | 35 |
| Part 2 | Remote Gambling Regulation | 51 |
| Part 3 | Operating and Financial Review | 59 |
| Part 4A | Accountant's Report on Historical Financial Information of the Playtech Group | 67 |
| Part 4B | Historical Financial Information of the Playtech Group | 69 |
| Part 4C | Accountant's Report on Historical Financial Information of the PTTS Group | 120 |
| Part 4D | Historical Financial Information of the PTTS Group | 122 |
| Part 4E | Accountant's Report on Historical Financial Information of the GTS Group | 145 |
| Part 4F | Historical Financial Information of the GTS Group | 147 |
| Part 5 | Capitalisation and Indebtedness | 168 |
| Part 6 | Additional Information | 170 |
| Definitions | 201 | |
| Glossary of Technical Terms | 206 |
The following summary should be read as an introduction to this Prospectus. Any decision to invest in the Company should be based on consideration of this Prospectus as a whole by the prospective investor. Following the implementation of the relevant provisions of the Prospectus Directive (Directive 2003/71/EC) in each member state of the European Economic Area ("EEA"), civil liability attaches to those persons responsible for the summary, including any translation of the summary, but only if the summary is misleading, inaccurate or inconsistent when read together with other parts of this Prospectus. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the EEA States, have to bear the costs of translating this document before legal proceedings are initiated.
The Group's business was founded in 1999 by entrepreneurs from the casino, software engineering and multi-media industries. Playtech, the holding company of the Group, was incorporated in the British Virgin Islands ("BVI") in 2002. On 21 June 2012, the Company's registration was re-domiciled to the Isle of Man.
The Group's principal business activities are the design, development and licensing of software, and the provision of complementary services, for the licensed gambling industry. Playtech also has a 29 per cent. stake in William Hill Online, a joint venture with the William Hill Group.
The Group's principal software products are online casino, poker, bingo and sportsbetting; live and TV casino; mobile casino, bingo and sportsbetting; and Videobet software for land-based terminals. All of the Group's software products can be incorporated onto its sophisticated player management system (known as the IMS), have multi-currency functionality and are available in a variety of languages. Playtech's shares have been admitted to trading on AIM since March 2006. Given the growth in the Company's business, the Board, as stated in the circular to shareholders dated 23 November 2011, believes that it is now appropriate to move to a Premium Listing on the London Stock Exchange.
The Directors believe that a Premium Listing and move to the Main Market will:
Furthermore, the Board considers the Main Market to be a more appropriate market for a company of Playtech's size and maturity, given Playtech's growth since its IPO.
Application has been made to the Financial Services Authority and to the London Stock Exchange respectively for admission of all the Ordinary Shares to: (i) the Official List; and (ii) trading on the Main Market. It is expected that Admission will become effective and that dealings in the Ordinary Shares on the Main Market will commence at 8.00 a.m. on 2 July 2012.
The Group's principal business activities are the design, development and licensing of software, and the provision of complementary services, for the licensed gambling industry. The Group generates revenue from licensing software products to Licensees and charging a royalty based on a percentage of a Licensee's net revenue. The Group also generates revenue from the provision of services which complement its software offering and this combination enables the Group to provide a turnkey solution to Licensees. Playtech also has a 29 per cent stake in William Hill Online, a joint venture with the William Hill Group.
The Group aims to derive revenues from a diverse customer base to minimise the impact to the overall business of any changes in the operating environment that occur in a particular market. The number of Licensees for the Group's software products has grown from 39 Licensees at the time of the IPO in 2006 to over 100 as at the date of this document, including a number of the leading names in the gambling industry. In 2011, the Group had approximately 30 Licensees contributing 11 million or more in revenues, with only two Licensees representing more than 10 per cent. of total revenues. Approximately half of the Group's total software revenues are derived from Licensees operating under licences in regulated markets in Europe.
The Group currently provides its complementary services to over 60 customers, all of which are existing Licensees of Playtech's software. A majority of these customers utilise a variety of services, principally hosting, network management and payment advisory services. A smaller number of these customers use the Group's premium marketing services and CRM capabilities.
The Group's strategy is to create a business with significant scale and a full product and service capability, underpinned by a pre-eminent technology platform. Through a combination of organic development and targeted acquisitions, the Company has sought to implement this strategy to maximise opportunities as the online gambling industry continues to undergo significant change and becomes increasingly sophisticated. In particular, the online gambling industry is seeing convergence between online and land-based channels and between social gaming and mainstream online gambling. The Directors believe that the Group has positioned itself to take advantage of the opportunities that these developments present.
The Group's goal is to become the supplier of choice to the gambling industry's well established operators attracted by the scale and breadth of its player networks, the size of its content library and the sophistication of the IMS platform allied with a broad range of complementary services.
The Group's software development focus is to enable its diverse Licensee base to optimise player revenues and loyalty by providing high quality player management tools that can be utilised across online and land-based platforms, and new gaming content.
The Group provides a cost effective and highly experienced service capability to reduce operating costs and deliver market leading expertise in non-core areas particularly for new entrants to regulating markets to ensure their market penetration is timely and successful. The Group's strategy will be to continue to seek further opportunities to provide a broad range of outsourced services to Licensees.
Following the acquisition of PTTS, the Group can now offer products and services as a single source supplier of gambling solutions, particularly to the number of new entrants targeting regulated markets, to whom it can offer affiliate marketing services and sophisticated CRM solutions, combined with advanced player management systems which allows operators to leverage their market-leading gaming content and cross-channel capabilities.
The Group's strategy is to establish long-term partnerships in appropriate markets such as the UK, Germany and South Africa, where the Group has been chosen as a joint venture partner by leading domestic land-based operators. These partners are looking to develop a market-leading offering, supported by experienced marketing and player management capabilities.
Consistent with the Group's overall strategic objective, Playtech is actively seeking to enter the relatively new and rapidly growing social gaming segment of the gambling industry. As an attractive and cost effective entry point into the social gaming arena, the Group recently licensed certain social gaming software from Skywind thereby giving it access to a full suite of products and a substantial development team with expertise in social gaming. Through the combination of this software, the Group's existing expertise in real money gaming and further investment of resources, Playtech intends to position itself as the leading full B2B social gaming supplier.
As a supplier of software and complementary services to the licensed gambling industry, the Group operates in a regulatory environment which is in a state of constant development. The relatively recent evolution of the remote gambling regulatory environment has seen the enactment and implementation of new or updated laws and regulations as a variety of jurisdictions seek to regulate and tax gambling transactions with their citizens. Other jurisdictions, however, have sought to strengthen monopolistic regimes or, in the alternative, prohibit gambling with their citizens altogether.
Since the IPO, the Group has continued to grow through a mixture of organic growth coupled with strategic acquisitions and investments. Organic growth has been driven by a focus on product innovation and development of cross-platform capabilities, and the ability of the Group to cross-sell a wider range of products across its more diverse Licensee base. The Group's strategic acquisitions and investments (including joint ventures) since the IPO have complemented this organic growth by expanding the Group's product and services range and its number of Licensees. The Group will continue to review strategic opportunities following Admission.
The financial information set out below has been extracted without material adjustment from the historical financial information of the Group for the three years ended 31 December 2011 as set out in Part 4B of this document. A summary of the results over that period is set out below. Investors should read the whole of this document and not rely solely on key or summarised information.
| Year ended 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Revenues | 114,775 | 142,294 | 207,485 |
| Income from associate | 22,534 5555 |
30,792 5555 |
36,073 5555 |
| Gross Income | 137,309 aaaa |
173,086 aaaa |
243,558 aaaa |
| Operating profit | 56,449 | 45,309 | 52,154 |
| Depreciation and Amortisation (excluding amortisation | |||
| of intangibles on associate) | 8,778 5555 |
17,090 5555 |
29,137 5555 |
| EBITDA | 65,227 | 62,399 | 81,291 |
| Income from associate | 22,534 | 30,792 | 36,073 |
| Employee stock option expenses | 5,150 | 5,855 | 4,678 |
| Decline in fair value of available-for-sale investments | 399 | 2,223 | 551 |
| One-off legal costs relating to the litigation with the | |||
| William Hill Group | – | – | 1,389 |
| Professional expenses on acquisitions | 360 5555 |
1,802 5555 |
1,488 5555 |
| Adjusted EBITDA | 93,670 aaaa |
103,071 aaaa |
125,470 aaaa |
Playtech has continued to perform strongly in 2012. PTTS has outperformed expectations and certain Licensees have launched in the Spanish market following the recent commencement of regulated activity. William Hill Online continues to perform strongly and demonstrates Playtech's ability to forge significant earnings enhancing partnerships with leading gambling businesses. The Directors believe that Playtech is well positioned for continued growth and remain confident of the Company's future prospects.
Applications have been made for the Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchange's main market for listed securities. Following Admission, the Company expects to be eligible for inclusion in the FTSE indices.
The Group's business, operating results and financial condition could be materially adversely affected by a number of risks relating to the Group and its business. The Directors consider that the risks include those set out below but investors should read the whole of this document including the "Risk Factors" section of this document and not rely solely on the summary information set out below.
l Global economic outlook
l Dividends may reduce
l Volatility
An investment in the Company involves a variety of risks. Accordingly prospective investors should consider carefully the specific risk factors set out below in addition to the other information contained in this document before investing in the Company. The Directors consider the following risks to be the most significant for potential investors, but these risks are not set out in any particular order or priority. In particular, the Company's performance may be materially and adversely affected by changes in the market and/or economic conditions and by changes in the laws and regulations (including any tax laws and regulation) relating to, or affecting, the Group or the interpretation of such laws and regulations.
If any of the following risks materialise, the business, financial condition, results or future operations of the Group could be materially and adversely affected. In such circumstances, the trading price of the Ordinary Shares could decline and investors could lose part or all of their investment in the Ordinary Shares. In addition, the risks below are not the only risks to which the Company may be subject. The Company may be unaware of certain risks or believe certain risks to be immaterial which later prove to be material.
There are a number of jurisdictions that consider this rationale to be unjustified. Indeed in some territories, laws have been passed to expressly criminalise the provision of (and sometimes the participation in) gambling, irrespective of where the operator is located and licensed. For the greater part these laws have not been tested.
Some jurisdictions seek to regulate gambling; others seek to prohibit it. Contrasts in culture and socio-economics have created inconsistencies in the way in which gambling is both perceived and the way in which it is regulated, sometimes creating seemingly artificial distinctions between different gambling products. There is a corresponding, continuing risk to any participant in the gambling industry (be they an operator, supplier or other service provider) that jurisdictions in which customers are located may seek to argue that such a participant was acting illegally in accepting or assisting in the acceptance of wagers from its citizens or in the manner in which it operates gaming networks. This could lead to actions being brought against Licensees which, in turn, could have a detrimental effect on the financial performance and the reputation of the Group. Similarly, where supply by the Group to the Licensee is critical to the gambling transaction, one cannot rule out the risk that direct enforcement action will be taken against a member of the Group or any of its Directors.
all of which would have a detrimental effect on the financial performance and the reputation of the Group. Furthermore, similar actions could be brought against Licensees with the consequence that revenue streams from such Licensees may be frozen or traced at the behest of authorities even if no Group entity is made a party to any legal proceedings against any such Licensee. Customers may face problems in legitimately moving monies in and out of certain jurisdictions which will impact upon payments to Licensees. Finally, there is also a risk that Directors or employees of the Group or individuals engaged by it (or directors, employees or individuals connected to any Licensee) may face extradition, arrest and/or detention in (or from) such territories even if they are only temporarily present.
For the year ended 31 December 2011, the Directors believe that approximately 3.6 per cent. of Gross Income was generated through Licensees transacting with the Chinese market.
Under Article 303 of the Chinese Criminal Law, gambling is defined as a crime which is prohibited, albeit some gambling activities, although still contrary to the Law of the People's Republic of China on Penalties for Administration of Public Security ("the Law on Penalties") (i.e. a form of administrative law), are not regarded as criminal. It is not precisely clear how these provisions cover distinct activities and/or overlap.
Both these laws pre-date the internet, but both the Criminal Law and the Law on Penalties have been augmented by opinions and notices issued by the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security in order to clarify what activities are deemed to cover online gambling.
The Criminal Law has also been extended since 2010, not just to cover the setting up of a website for gambling (which has been caught pursuant to court interpretation since 2005) but also other forms of activity which directly support online gambling, such as payment handling. In the case of the Law on Penalties, the provisions have also been extended to cover providing internet access; payment support in connection with gambling; participation in gambling outside China (by an end user in China); and the settling of debts within China in connection with gambling carried out by Chinese nationals outside China.
However, based on advice provided by local legal counsel, the Directors believe that such laws, regulations and interpretations will not be applicable to the Company given it does not conduct any activity within China. Therefore, the supply of online gambling software remotely will not be subject to the jurisdiction of China, and furthermore in circumstances where the supply is not made by Chinese nationals, Chinese authorities would need to seek international co-operation for cross-jurisdictional enforcement, which the Directors have been advised would be highly unlikely to occur in circumstances where the activities by the Group and the Licensees are licensed and/or are otherwise lawful in the jurisdictions in which they conduct business.
Enforcement action has been consistent with this legal differentiation in that the focus of such enforcement has only been targeted at Chinese players, agents and suppliers and reinforced by the shutting down of websites in China and the seizure of related funds. The Group has no physical presence in China through employees or assets and the Directors are advised that the risk of enforcement would also be remote for that reason.
Chinese Anti-Money Laundering Law, the Criminal Law as well as related legislation (The Regulations on Anti-Money Laundering by Financial Institutions, The Administrative Measures on Report of Large Amount Transactions and Suspicious Transactions by Financial Institutions and The Interpretation of the Supreme People's Court on Several Issues concerning the Specific Application of the Law in the Trial of Money Laundering and other Criminal Cases) categorises gambling as an organised crime. The facilitation of payments from the proceeds of crime is also an illegal activity and financial institutions and certain non-financial institutions must adhere to stringent reporting procedures in relation to any suspicious flow of funds. Likewise, there are strict currency controls in remitting monies from China which prohibit the unauthorised movement of money.
Although the Group is not directly involved in processing or facilitating any financial transactions, it does require its Licensees to ensure that they monitor carefully the lawfulness of the remittances made to and/or from China.
However, there remains a risk that the Licensees' business may be disrupted by attempts by Chinese enforcement authorities to prevent monies being remitted from and to China in connection with gambling. Such prevention would have a negative financial impact upon the Group.
Finally, although the Group attempts to ensure that its Licensees do not participate in any illegal activity from within China (e.g. internet café promotions), there is no guarantee that the relevant Licensee will at all times remain in full compliance with its contractual obligations. Consequently there is a risk that the business of the Licensee may be shut down in China and individuals associated with the Licensee arrested, which in turn will give rise to an economic as well as a reputational risk for the Group.
For the year ended 31 December 2011, the Directors believe that approximately 8.4 per cent. of Gross Income was generated through Licensees transacting with the Malaysian market.
Under the Common Gaming Houses Act 1953 ("CGHA"), the provision, participation or facilitation of gambling in a "common gaming house" is prohibited. Gambling in public, advertising and promoting a common gaming house and the promotion of a public lottery, along with the sale of lottery tickets, is also illegal. The Lotteries Act 1952 ("LA") also prohibits any lottery promoted or conducted without a permit. The definition of "lottery" under the LA is wide and includes any game whereby money or money's worth is allotted in any manner depending upon, or to be determined by, chance or lot.
The Directors have been advised that it is debatable whether the CGHA and LA applies to the provision of online gambling. A common gaming house can comprise a "place" or "spot" but the Directors understand that its application to virtual environments remains untested in Malaysia. Moreover, although the definition of lottery in the CGHA could overlap with gaming (and the provisions are expressly intended to cover and include lotteries taking place outside Malaysia) the Directors are advised that it is likely to apply only if the lottery tickets were actually being sold in Malaysia, due to enforcement being more probable where there is physical nexus with the jurisdiction. This view is augmented by the fact that the CGHA was passed in a pre-internet age and the legislature could not have anticipated any form of remote gambling that did not involve a physical presence of the operator or the physical distribution of tickets. Despite this, the Directors understand that local authorities have however indicated (orally) that they are of the view that online gambling does come within the purview of the existing laws.
Both the CGHA and LA have a wide definition of gaming machine and both Acts prohibit any dealings in respect of such gaming machines, including supplies in Malaysia. A gaming machine will include a computer program designed or adapted for playing a game of chance or mixed chance or skill on any machine or device. The Directors have been advised that the drafting of the Acts is sufficiently wide to catch any party in the supply chain particularly if the software is downloaded or installed in Malaysia (the Licensees may permit end users in Malaysia to do so) or if the Group's branding is visible on any of the games. However, local lawyers are not aware of this interpretation having been tested in any published case law and any potential impact on the Company is unclear particularly when it is considered that it is the Licensees and not the Company that make the supply into Malaysia and local counsel advise that the CGHA has no extra-territorial application. The Malaysian courts may consider that an offence has been committed in Malaysia if the supply is to customers in Malaysia, but local counsel are not aware that any published case law has considered this point.
The CGHA also contains prohibitions on those who care for and manage or in any manner assist in the care and management of illegal common gaming houses. The Directors have been advised that the provision of associated services such as advertising services, marketing affiliate services, hosting services, financial management services and customer services may fall within this prohibition. In addition, there are other wider aiding and abetting offences under section 116 of the Penal Code. However, the application of the law purports to be in respect of offences committed within the jurisdiction and it is unclear how it could apply to an entity such as the Company which is located outside Malaysia and where the supply is online. Although it is an offence for a lottery or gambling customer to participate in unauthorised gambling, it still may be argued that the law still ties the offence to the sale of lottery tickets or participation in gaming in a place or spot within the jurisdiction.
The Directors have been advised that in the absence of activities in physical premises, e.g. an internet café or similar, and based on a purely remote supply there would be a number of arguments which would have to be considered by the Malaysian Courts before they would be able to assert that the CGHA had been breached and/or for them to claim jurisdiction over any Licensees and likewise the Group. The Group by or via its contractual obligations of Licensees seeks to ensure that no illegal activity is conducted in any jurisdiction where the enforcement risk may impact upon the Group, but there is no guarantee that this will not occur insofar as the Malaysian market is targeted by the Licensees and this may lead to Licensees being prosecuted with the consequential financial and reputational risk for the Group.
Further, the Directors have also been advised that there is a risk that internet service providers ("ISPs"), at the direction of the relevant authorities, could be obliged to restrict or prevent access to online gambling websites operated by offshore operators. This clearly could also have a financial impact upon the revenue of Licensees and, therefore, the Group.
In addition, there are provisions under the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 ("AMLATFA") which impact upon the handling of any proceeds of crime and which purport to have an extra-territorial effect, albeit again there would need to be proof that any underlying activity was illegal which in the case of online gambling would be moot. There are also currency control restrictions and credit card guidelines which would preclude money transfers in connection with gambling.
Malaysia also has international treaties in place pursuant to the Mutual Assistance in Criminal Matters Act in 2002 ("MACMA"). Other signatories of MACMA, including the Philippines where some Licensees are based, permit the Malaysian authorities to assist in investigations in the recovery, forfeiture or confiscation of property in respect of any crime which could include gambling, providing the issues raised above are addressed. However, the Directors are advised that this is dependent on the underlying activity being considered illegal.
In summary, therefore, clearly if the premise that an online gaming operator is outside Malaysian law has nonetheless placed itself in breach of the CGHA or the LA, then Malaysia has the enforcement tools to make claims extra-territorially and seize assets which may not be confined to Malaysian-related gambling revenues. Where Licensees elect to make promotions, provide services or undertake activities within the jurisdiction there is an enhanced risk that an action will be brought against those Licensees and correspondingly the risk of action being brought against the Company may be increased, depending on the facts of the case and the offence in question. There is a risk that if a successful prosecution is brought against the Licensees in Malaysia further actions may be brought in Malaysia against the Company or the Group. In these circumstances the Company or the Group may consider it prudent to block business from Malaysia. Attempts by the authorities to recover extra-territorially in turn could result in a reputational and financial loss to the Group as well as embroiling it in protracted litigation.
The Directors have been advised that the Malaysian government has a stated policy of not encouraging gambling, and the Malaysian authorities continue to take a hard-line approach to the prohibition of gambling within Malaysia which is underpinned by social and religious considerations that may influence Malaysian courts interpretation of legislation. However, local lawyers are not aware of this having been translated into enforcement action being brought against operators located outside the jurisdiction. It is difficult to predict how far the Malaysian authorities would be prepared to go to take enforcement action against internet gambling operators and suppliers, despite legal arguments that may be put forth to support the exclusion of online gambling from the application of current laws.
Finally, there are proposed changes to the law in Malaysia which may specifically outlaw online gambling. Clearly, therefore, at that juncture there is a risk that the Licensees will need to shut their Malaysian markets and that will, in turn, negatively impact upon the Group's financial performance.
1.1.17 Germany
For the year ended 31 December 2011, the Directors believe that approximately 7.7 per cent. of Gross Income was generated through Licensees transacting with the German market.
The Germany Interstate Treaty on Gambling (the "Interstate Treaty"), maintained the monopolistic regime for gambling in Germany whilst outlawing all forms of online gambling. Arguments as to whether the Interstate Treaty's compliance with European law rendered it unenforceable had been made by opponents of the Interstate Treaty since its implementation, and their arguments were bolstered by the findings of the ECJ in the Carmen Media case, in which the ECJ expressed the view that elements of the German monopolistic betting rights were contrary to European law. The German press and academics widely espoused the view following that decision in September 2010 that the Interstate Treaty was unenforceable as a consequence. The Interstate Treaty's expiry in late 2011 caused the Federal States to consider a new (albeit very limited) licensing regime for sports betting operators which has been notified to the European Commission (the Interstate Treaty's expiry date has been extended to allow this to happen). However, Schleswig-Holstein, one of the Landers (or states) had openly criticised the limited regime proposed and has implemented its own regime (with a more liberal licensing base) which has been approved by the European Commission with the first licences now granted. However, due to a government reshuffle in Schleswig-Holstein in early May 2012, Schleswig-Holstein has confirmed its plans to conform to the 2012 Treaty, when implemented. This is subject, however, to legal advice in connection with its ability to repeal the legislation which permitted the licences to be granted, revoke the licences, and its exposure to damages claims that might result were it to take such action.
The European Commission has written to the German government and indicated that there may be instances of infringement insofar as the proposed state law is implemented without certain safeguards in place (for example, a limited number of licensees would only be acceptable for a finite period of time during which issues such as social harm can be assessed). Despite the concerns raised by the European Commission, the majority of the federal states have ratifed the 2012 Treaty in the form notified to the European Commission and the 2012 Treaty will most likely come into effect on 1 July 2012.
The uncertainty with the German regulatory position will remain until the 2012 Treaty's compliance with European law has been assessed by the relevant courts.
As a consequence a number of the Group's Licensees may need to close their offerings to the German market and the Group would need to consider whether it would require blocking by its Licensees of customers in Germany. Either way, it has the potential to impact upon the Group's financial position in the relatively short term given that the position is due to be resolved in the summer of 2012. Despite this, the Group is optimistic that its joint venture with Gauselmann in Germany will enable it to continue to derive material revenues from the territory.
1.2.1 Whilst from an enforcement perspective, operators that directly provide gambling services to their customers are generally perceived to be exposed to a greater degree of enforcement risk than their suppliers, in some jurisdictions laws extend to directly impact such gambling suppliers. Furthermore, a supplier's nexus with a particular jurisdiction may expose it to specific enforcement risks, irrespective of whether there has been an attempt to bring proceedings against any supported operator.
be justifiable to achieve the aim of safeguarding public interest. The ability for Member States to introduce or seek to maintain such restrictive legal systems or to introduce punitive tax or duty regimes alongside new regulation of online gambling, with respect to gambling activities, could impede the financial growth of Licensees and, by implication, the Group.
1.3.3 A number of Member States have recently introduced local licensing regimes, some as a result of pressure brought by the European Commission. However, the way in which national laws are evolving is unpredictable and in some instances laws have appeared to have been fully implemented by certain Member States in contravention of the jurisprudence of the European Court of Justice and in contravention of guidance given to Member States by the European Commission following review and comment on draft laws and regulations. As a result, the Group and its Licensees remain subject to on-going uncertainty and to the associated risks that such laws may, ultimately, be interpreted and implemented in a disadvantageous way.
the Group's revenue share arrangements with individual Licensees is calculated, such costs could impact the Group's revenues. Regulations can also be ill-considered, exposing Licensees to double taxation for the same transaction (in some jurisdictions the requirement to pay tax is determined where the customer is based and in others where critical equipment and functions are carried out). In addition, in some jurisdictions there is a requirement to register to pay taxes with retrospective effect, before an entity can qualify to apply for a licence. Even if this requirement is of questionable validity, it is a difficult one to challenge where an entity wishes to obtain a licence. Moreover, there is likewise no guarantee that the retrospective period currently required will not be extended.
Gambling operators use a variety of third party software products as the technical foundation of the services they supply. In certain territories, such suppliers are required themselves to obtain and maintain local licences. The Group is obliged, given the nature of the technology it supplies, to obtain such licences in a number of territories. Insofar as any of these licences are withdrawn or not renewed on equivalent terms (e.g. where there is change in view as to what equipment needs to be located locally) it could have a material adverse effect upon the viability of those business ventures and hence on the continuity of supply to Licensees. This in turn, would have a material adverse effect on the financial position of the Group.
non-US industry participants. Furthermore, any pre-UIGEA facilitation and any inadvertent post-UIGEA facilitation may preclude Licensees and/or the Group availing themselves of any such commercial opportunities which would have a clear detrimental effect on the financial growth potential of the Group. Moreover, although the Group has successfully satisfied the probity requirements in certain states, there is no guarantee that its association with the online gambling industry (and the fact its Licensees have taken business from jurisdictions where the taking of such business is not expressly permitted (the so-called "grey" market)), may prevent the Group from passing a suitability test in some states or from partnering with some third parties.
1.8.1 Legislation that aims to prohibit or restrict financial transactions with remote gambling operators will have a detrimental effect on the businesses of Licensees. Such prohibition or restrictions may be imposed as a result of concerns relating to fraud, unauthorised payment processing and money laundering or may follow the introduction of specific legislation aimed at preventing the supporting of financial transactions with gambling operators who do not possess the relevant jurisdictional licence. Not all such jurisdictions, however, will have implemented a licensing regime and yet may pressurise banks and other financial institutions to block wagering transactions as a crude and limited way of protecting incumbent monopolies or similar. Some Licensees may rely on improperly coded transactions in an attempt to circumvent such blocking and therefore may be exposed to monies being misappropriated by unreliable payment processors, which would reduce revenue. Furthermore, in some instances, the use of certain payment processing mechanisms may give rise to allegations that any related proceeds are tainted. Where payment processors adopt methods to circumvent blocking initiatives, this could give rise to tracing activity by enforcement agencies, which may lead to business disruption for any suppliers of an implicated operator. Where the Group is required, as such a supplier, to assist with such investigations this may have a detrimental effect on the reputation of the Group.
Through its operation of the iPoker network, the Group is responsible for undertaking cross-cage reconciliation as between the various Licensees participating in the iPoker network. In doing so, the Group will facilitate inter-Licensee settlement of accounts and to protect it, as a service provider, retain security deposits from Licensees. Through its operation of the iPoker network, the Group may inadvertently handle funds that have been the subject of fraudulent player behaviour (such as collusion or "chip-dumping"), which could lead to it becoming involved in criminal investigations even if no entity within the Group is made a party to any legal proceedings against any such player. This may involve the Group incurring cost, the diversion of management time and a disruption to some Licensees' businesses. In addition to the Group's own monitoring activities, Licensees are encouraged to use fraud monitoring tools made available by the Group and to employ sufficient staff to prevent problems occurring but there can be no guarantee these will not occur.
a five per cent. turnover tax in relation to bets which will come into effect once the respective law has been promulgated.
1.12.3 Furthermore, although in many jurisdictions gambling winnings are currently not subject to income tax or are taxed at low rates, this is not the case universally and future regulatory regimes may introduce such taxation and make participation in the Group's products, as supplied by Licensees, less attractive for players in those jurisdictions.
The Group has recently entered the social gaming space. Accordingly, it will continue to monitor the legal and taxation position in this segment of the market carefully. Issues such as the legal definition of "free" or "play for fun" and the wider social responsibility issues (including in connection with participation in the social media networks by minors) may vary from territory to territory. Gambling regulators in a number of jurisdictions (including the UK Gambling Commission) are actively considering whether elements of the social gaming model, such as subscription play, the purchase of tokens for use in games and the trade value of virtual currencies, will bring such social gaming activity within the definition of gambling within their territory. There is a risk that ultimately more prescriptive regulations (for example in relation to advertising) will be put in place to address these issues which may require certain social games to be licensed or which may otherwise restrict the growth of the market. In addition, specific social gaming taxes may be levied. The Directors believe that, notwithstanding these developments, social gaming would remain a powerful tool for legitimate player recruitment for gaming operators and, with the benefit of existing gambling compliance infrastructures in place, Licensees should be well positioned to operate effectively in accordance with any new regulatory requirements. It may also create additional opportunities for the Group which would look to license its social games to Licensees who wish to participate in this segment of the market. In this regard, it should be noted that the Group's rights and obligations under its software and services agreement with Skywind dated 11 June 2012 (pursuant to which the Group was granted, inter alia, licences for certain social gaming software) would be unaffected as a result of any specific regulation of social gaming. The Group has derived to date negligible earnings from the social gaming segment of the market albeit the Group's future prospects for this segment of the market cannot yet be determined given the uncertainty surrounding the future regulatory environment.
retention of customers. The Group undertakes such affiliate marketing activities for certain Licensees as an additional service to its licensing of software. In doing so, it relies on third party affiliates itself, who may provide corresponding services to a variety of gambling solution providers and operators. There is a risk that the Group may not be able to offer remuneration for affiliates that is as attractive as that offered by competitive affiliate networks or by Licensees' directly and consequently, the Group may make its marketing services less attractive to operators.
2.1.5 The on-going evolution of gambling regulation could lead to increased competition, over time, as large land-based operators, games companies and other online entertainment companies may seek to enter the remote gambling market. Such organisations, with long established and trusted brands, may buy or build capabilities to allow them to effectively compete with the Group and/or its Licensees. This could lead to a reduction in Licensees' revenue and profitability, which would in turn negatively impact upon the Group's financial performance.
The top 10 Licensees (in terms of revenue generated) for the year ended 31 December 2011 contributed 68 per cent. of the revenue of the Group. To the extent that the businesses of these Licensees deteriorate, or are adversely affected by any of the issues described in this section, the Group's revenue stream from these sources may also be adversely impacted. Furthermore, if any of these Licensees were to migrate to a competitor, this would have an adverse effect on the financial position of the Group.
2.6.1 The Group's ability to compete effectively depends, amongst other things, on its ability to protect, register and enforce, (as appropriate), its intellectual property rights, including, in particular, its intellectual property rights relating to its proprietary software and its patents and trade mark rights. The Group's inability to protect these rights could reduce the value of the Group.
The Group has a number of registered trade marks in the United Kingdom, the European Union and elsewhere. The Group may not be able to obtain trade mark registrations in other parts of the world, although it may have acquired common law rights in the Playtech name in the jurisdictions in which it operates through its use of the Playtech brand. The absence of a registered trade mark may make it more difficult for the Group to prevent others from using the same or a similar name.
2.8.1 The Group's business is dependent on the internet and on the continued growth and maintenance of the internet infrastructure. There can be no assurance that the internet infrastructure will continue to be able to support the demands placed on it by continued growth in the number of users of and amount of traffic on the internet. The success of Licensees' businesses depends upon the continued growth and maintenance of internet infrastructure together with the Group continuing to remain abreast of changes in technology in order to meet Licensees' and their customer's needs.
The Group and its Licensees all rely on hosting providers, marketing support services, communications carriers and other third parties for the day-to-day operation of their respective businesses. Any failure by one or more of these third parties may jeopardise the business and operations of the Group and/or its Licensees. In turn, this would affect the Licensees' customers' ability to access the products supplied by the Group and may have a material adverse impact on its financial performance.
In the Licensees' business, there is the possibility of customers seeking to reverse a losing stake by falsely claiming that they did not authorise the use of their credit card.
The risk of chargeback transactions is greater in certain markets. Although there are generally control procedures to limit chargebacks, these procedures may not be effective. If any Licensees' chargeback rates become excessive, credit card associations could levy additional costs or fines or even withdraw their service to that Licensee. Any such actions could reduce Licensees' net revenues and, consequently, the revenue of the Group.
2.13.2 A Licensees' ability to accept bets placed by their customers and transfer funds internationally is dependent on global payments and multi-currency processing systems. If a major Licensee's current arrangements for the provision of such systems were to be terminated there is no guarantee that multi-currency and international funds transfer capability could be sourced from other providers, or that the quality of the services would remain the same. Certain governments may also take the view that any use of its currency in any jurisdiction where there are doubts in relation to the legality of the underlying activity render such sums vulnerable to forfeiture (as has happened recently with the US attempts to control dollar usage).
2.13.3 In addition, if there is any deterioration in quality of the payment processing services, or any interruption to the services provided by third parties, or if such services are unable to cope with demands placed upon them, or if any increased processing charges for services are imposed, potential customers may be deterred from using the Licensees' products.
The online gambling industry may be vulnerable to attack by customers through collusion and fraud on Licensees' websites. Such attempts, if not detected and stopped, could result in a loss in confidence in the customer base of such websites. This could lead to customers leaving a Licensees' site in favour of a competitor. For example, as alluded to in paragraph 1.10 above, collusion can be effected between online poker players by their adoption of sophisticated computer programmes to play games automatically. The Group has implemented detection and prevention controls to minimise the opportunities for fraudulent play, but is aware of the need to continually monitor and develop such protections.
In addition, the Group is reliant on Licensees having effective internal controls to prevent fraud as it derives the majority of its revenue from royalty arrangements with its Licensees that would be adversely impacted by such activities. The Group cannot ensure that its Licensees financial processes and reporting systems provide reliable financial reports and effectively prevent fraud, however the Group does have its own systems in place and audit rights with Licensees, and also encourages its Licensees to enhance and develop their internal controls, including in the areas of access and security.
The Group's future success is dependent upon the Licensees' performance, maintenance and further building of their brands. Maintaining and enhancing these brands will require significant expense. As the market becomes more competitive, the value of these brands may not be maintained or enhanced.
2.17.1 As part of the Group's business strategy, it has made and may continue to make acquisitions or significant investments in complementary businesses and/or enter into joint venture partnerships in regulated markets or otherwise. Any such acquisitions, investments or joint ventures are and will be accompanied by risks, including the difficulty of integrating the operations and personnel of the acquired business, the inability to obtain a return from the investment or joint venture and the impairment of relationships with employees and Licensees as a result of poor integration of such businesses.
2.17.2 If the Group decides in the future to make further acquisitions or investments, to become an operator or to enter into new joint venture arrangements the Group may lose Licensees (or compromise its ability to attract new Licensees) if they consider the Group to be competing with them. Furthermore, in such circumstances, the Group will face similar risks to those outlined in this section as being faced by Licensees or other service providers.
The Group generates revenues predominantly in Euros and pounds sterling and prepares its financial statements in Euros. In addition, most of the Group's expenses are in Euros or currencies linked to the Euro. Nonetheless, the Group may be subject to foreign exchange risk which may arise because the Group has operations located in various parts of the world. However, the functional currency of these operations is the Euro and the Group is not substantially exposed to fluctuations in exchange rates in respect of assets held overseas. In addition, foreign exchange risk may also arise where Group revenues and expenses are paid in currencies other than Euros. Whilst the Group's policy is not to enter into any currency hedging transactions, the Directors believe that the Group maintains appropriate treasury policies to manage currency fluctuations.
3.1.1 Demand for the Group's products and services is influenced by general economic and consumer trends beyond the Group's control. There can be no assurance that its business and corresponding financial performance will not be adversely affected by general economic or consumer trends. In particular, the current difficult global economic conditions are unprecedented in the Group's operating history, and if such conditions continue or worsen, there can be no assurance that they will not have a material adverse effect on the Group's business, financial condition and results of operations.
The Company's largest Shareholder, Brickington, will own approximately 49.66 per cent. of the issued Ordinary Shares upon Admission. If Brickington (or any person acting in concert (as defined in the City Code) with it) acquires additional Ordinary Shares which increase its/their proportion of the voting rights, it will be required under Rule 9 of the City Code to make a general offer to all other Shareholders for the remaining Ordinary Shares. Whilst the City Code contains specific rules governing the offer terms following such an acquisition, including the level of the offer price and the fact that it must be in cash (or include a cash alternative), there can be no guarantee that any such offer would be made at a price at which other Shareholders would be prepared to accept or which includes a control premium. In addition, if following completion of such an offer, Brickington (together with persons acting in concert with it) controlled more than 50 per cent. of the Company, for so long as that interest remained above 50 per cent., it would be able to increase its shareholding thereafter without incurring any further obligation under Rule 9 of the City Code to make a general offer.
In accordance with the Listing Rules, Playtech has a continuing obligation to ensure that it controls the majority of its assets at all times. The current joint ventures are, and are expected to continue to be, subject to equity accounting and as a result will not count as controlled assets. Depending on the success of these joint ventures and any new joint ventures or investments entered into by Playtech, there is a risk that Playtech could be in a position where it does not control the majority of its assets and hence would no longer be eligible for a Premium Listing. However, Playtech acknowledges that it will need to discuss the structure of any proposed joint venture or investment with its advisers in the early stages of any negotiations to ensure that Playtech is able to meet its continuing obligations under the Listing Rules. As a result, there is a risk that Playtech may not be able to enter into a strategic transaction where it would mean that there was a risk that it would breach its continuing obligations.
On a return of capital on a winding-up, holders of Ordinary Shares will be entitled to be paid out of the assets of the Company available to members only after the claims of all creditors of the Company have been settled.
The market price of the Ordinary Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the Ordinary Shares or in response to various factors and events, including legal or regulatory changes affecting the Group's operations or interests, variations in the Group's operating results and any further downturn in the online gaming industry.
4.7 Future substantial sales of Ordinary Shares in the public market may depress the share price Sales of a substantial number of Ordinary Shares by holders of such shares in the public market could adversely depress the market price of the Ordinary Shares.
The Ordinary Shares may not be a suitable investment for all investors. In particular, investors should be aware of the fast-changing regulatory framework within which the Group operates and which, as is extensively discussed in this document, will significantly determine the Group's future direction. Before making a decision to invest, investors are advised to consult an appropriate independent adviser authorised under FSMA who specialises in advising on the acquisition of shares and other securities.
| Publication of Prospectus | 28 June 2012 |
|---|---|
| Last day of trading of Ordinary Shares on AIM | 29 June 2012 |
| Delisting of Ordinary Shares from AIM | 8.00 a.m. on 2 July 2012 |
| Admission of the Ordinary Shares to the Official List | 8.00 a.m. on 2 July 2012 |
| Commencement of dealings on the London Stock Exchange's main market for listed securities |
8.00 a.m. on 2 July 2012 |
Each of the times and dates in the above timetable is subject to change. All times are London times unless stated otherwise.
Some of the statements in this document include forward looking statements which reflect the Directors' current views with respect to financial performance, business strategy, and future plans both with respect to the Group and the sectors and industries in which the Group operates. Statements which include the words "expects", "intends", "plans", "believes", "projects", "anticipates", "will", "targets", "aims", "may", "would", "could" and similar statements are of a future or forward looking nature.
All forward looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the Group's actual results to differ materially from those indicated in these statements. These factors include but are not limited to those described in the "Risk Factors" section of this document, which should be read in conjunction with the other cautionary statements that are included in this document. Any forward looking statement in this document reflects the Group's current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Group's operations, results of operations and growth strategy.
These forward looking statements speak only as of the date of this document. Subject to any obligation under the Prospectus Rules, the Listing Rules or the Disclosure Rules, the Company undertakes no obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise. All subsequent written and oral forward looking statements attributable to the Group or individuals acting on behalf of the Group are expressly qualified in their entirety by this paragraph. Prospective investors should specifically consider the factors identified in this document which could cause actual results to differ before making an investment decision.
At various places in this Prospectus, reference is made to legal advice obtained by the Company in respect of several different matters. The Company does not waive privilege in any of that legal advice by referring to it in this document or otherwise.
Shareholders are not required to take any action upon receipt of this document. The Company is not issuing any new Ordinary Shares nor is it seeking to raise any new money in connection with Admission.
This document has been published solely to enable the Company to obtain admission of the Ordinary Shares to the Official List and to trading on the Main Market.
Certain figures in this Prospectus have been subject to rounding adjustments. Accordingly, any apparent discrepancies in tables between the totals and the sums of the relevant amounts are due to rounding.
| Directors | Roger Withers (Non-executive Chairman) Moran ("Mor") Weizer (Chief Executive Officer) David Mathewson (Chief Financial Officer) Alan Jackson (Non-executive Director) Andrew Thomas (Non-executive Director) |
|---|---|
| Company Secretary | Paul Wright |
| Registered Office, Principal Place of Business of the Company and Business Address of the Directors |
2nd Floor St George's Court Upper Church Street Douglas, Isle of Man IM1 1EE |
| Sponsor, financial adviser and broker |
Canaccord Genuity Limited 88 Wood Street London EC2V 7QR England |
| Auditors and reporting accountant |
BDO LLP 55 Baker Street London W1 7EU England |
| Solicitors to the Company | Berwin Leighton Paisner LLP Adelaide House London Bridge London EC4R 9HA England |
| DLA Piper UK LLP 3 Noble Street London EC2V 7EE England |
|
| Solicitors to the sponsor | Travers Smith LLP 10 Snow Hill London EC1A 2AL England |
| Registrars | Computershare Investor Services (IOM) Limited International House Castle Mill Victoria Road Douglas IM1 1EE Isle of Man |
| Registered Agents | Appleby Trust (Isle of Man) Limited 33-37 Athol Street Douglas, Isle of Man IM1 1LB |
The Group's business was founded in 1999 by entrepreneurs from the casino, software engineering and multi-media industries. Playtech, the holding company of the Group, was incorporated in the British Virgin Islands ("BVI") in 2002. On 21 June 2012, the Company's registration was re-domiciled to the Isle of Man.
The Group's principal business activities are the design, development and licensing of software, and the provision of complementary services, for the licensed gambling industry.
The Group's principal software products are online casino, poker, bingo and sportsbetting; live and TV casino; mobile casino, bingo and sportsbetting; and Videobet software for land-based terminals. All of the Group's software products can be incorporated onto its sophisticated player management system (known as the IMS), have multi-currency functionality and are available in a variety of languages.
The Group provides a range of complementary services to operators including marketing services, operational and support services, payment advisory services and network management services. The combination of these software products and services enables the Group to offer a turnkey solution to its Licensees. The vast majority of the Group's products and services are licensed to operators on a revenue share basis. The revenue share model ensures that the Group is aligned with the businesses of its Licensees, thereby developing a strong relationship focused on achieving common business objectives.
The Ordinary Shares have been admitted to trading on AIM since March 2006. Given the growth in the Group's business, the Board, as stated in the circular to shareholders dated 23 November 2011, believes that it is now appropriate to move to a Premium Listing on the Main Market of the London Stock Exchange.
The Group's business was first established in 1999 and, having expanded significantly, the Company's shares were admitted to trading on AIM in March 2006 giving the Company a market capitalisation of approximately £550 million. The IPO raised £265 million (before expenses) through a placing of Ordinary Shares on behalf of the Company and certain of its pre-IPO shareholders including Brickington Trading Limited (a wholly owned subsidiary of a trust, one of the ultimate beneficiaries of which is Mr. Teddy Sagi, one of the founders of the Group's business).
Since the IPO, the Group has continued to grow through a mixture of organic growth coupled with strategic acquisitions and investments. Organic growth has been driven by a focus on product innovation and development of cross-platform capabilities, and the ability of the Group to cross-sell a wider range of products across its more diverse Licensee base. The Group's strategic acquisitions and investments (including in joint ventures) since the IPO have complemented this organic growth by expanding the Group's product and services range as well as its number of Licensees.
In October 2006, the passage of the Unlawful Internet Gambling Enforcement Act ("UIGEA") in the US resulted in the closure of the lawful US online gambling market. The Group immediately required all its Licensees to cease taking business from the US market. Whilst this had a material effect on the Group's business, the Group was less exposed than some of its competitors and, due to the diversity of its Licensee base, its pro forma annualised revenues returned to pre-UIGEA levels within approximately 12 months. During this period, in January 2007, the Group acquired certain non-US poker assets from Tribeca Tables Europe Limited for a total cash consideration of US\$75 million. This acquisition immediately gave the Group access to additional Licensees and it enabled the Group's iPoker network to become one of the largest online poker networks.
In June 2008, Playtech raised £112 million through a placing of new Ordinary Shares, the net proceeds of which were ultimately utilised in December 2008 in connection with the Group's joint venture with the William Hill Group to form William Hill Online (or WHO). Under the arrangements for the establishment of WHO, the William Hill Group contributed its online operations to WHO and Playtech acquired (for US\$250 million) and then immediately injected certain affiliate marketing and other assets into WHO in return for a 29 per cent. stake in the venture. In addition the Group entered into an arms' length software licensing agreement with WHO. Further details of the WHO joint venture are set out in paragraph 13.10 of Part 6 of this document.
In December 2009, the Group acquired GTS, a UK based developer of an open software platform for delivery of its own and third party games to the games pages of operators. The total consideration paid was approximately 118.2 million.
In January 2010, the Group entered into certain strategic arrangements with Scientific Games for joint businesses including exclusive agreements for Videobet to develop gaming terminal software for Scientific Games and its subsidiary The Global Draw.
In February 2010, the Group acquired the business and assets of Virtue Fusion Limited, comprising a bingo software system and the businesses providing networked bingo games for its licensees including Mecca and William Hill Online, for a total consideration of £36 million.
In January 2011, the Group acquired IGS, a provider of software based casino management systems to land-based casinos, for a total consideration of up to £5.5 million, including an intial payment of £2.5 million.
In July 2011, the Group acquired PTTS, which carries out a wide range of complementary B2B services that provide support to Licensees. The acquisition has allowed the Group itself to provide a broad range of ancillary gambling related services to Licensees that enhances its commercial proposition and competitive position in the expanding online gambling marketplace. Initial consideration of 1121 million has been paid and further consideration up to 1140 million is payable dependent on the future performance of the PTTS businesses. Further details of the terms of this transaction are set out in paragraph 13.9 of Part 6 of this document.
In August 2011, the Group extended its capabilities to deliver mobile gambling when it acquired Mobenga, a Swedish based provider of a mobile sportsbetting platform. The acquisition brought well regarded technology to the Group in a segment which the Directors believe is a key contributor to future growth in online gambling. The total consideration payable is up to 123.8 million including an initial payment of 18 million. Further details of the terms of this transaction are set out in paragraph 13.8 of Part 6 of this document.
In November 2011, Playtech announced that it was raising, conditional on shareholder approval, £100 million through a placing of new Ordinary Shares to fund further acquisitions and joint ventures. The fundraising was completed in December 2011. Further details of the terms of this transaction are set out in paragraph 13.7 of Part 6 of this document.
In December 2011, Playtech acquired Ash Gaming, a leading developer of interactive gambling and betting games for the online gaming market. This acquisition expanded the range of games that the Group can offer to its Licensees for play on their "games tab". The total consideration payable is up to £23 million. Further details of the terms of this transaction are set out in paragraph 13.6 of Part 6 of this document.
In January 2012, Playtech announced the acquisition of Geneity, a UK based provider of online gambling software products focusing primarily on the sportsbook and lottery sectors. This acquisition should assist the Group in competing in the important and competitive sportsbetting segment. The total cash consideration payable is up to £15 million. Further details of the terms of this transaction are set out in paragraph 13.5 of Part 6 of this document.
At the same time as announcing the acquisition of Geneity, Playtech also announced that the Group had entered into joint ventures with Gauselmann, Germany's leading land-based gambling operator and owner of the Merkur gambling brand, and Peermont, one of South Africa's leading casino and resort operators, summary details of which are set out below:
Further details of these joint venture arrangements are set out respectively in paragraphs 13.3 and 13.4 of Part 6 of this document.
The Group's principal business activities are the design, development and licensing of software, and the provision of complementary services, for the licensed gambling industry. The Group generates revenue from licensing software products to Licensees and charging a royalty based on a percentage of a Licensee's net revenue. The Group also generates revenue from the provision of services which complement its software offering and this combination enables the Group to provide a turnkey solution to Licensees. These services generate revenue predominantly on a revenue share basis. The revenue share model ensures that the Group's business is aligned with the businesses of its Licensees, thereby developing a strong relationship focused on achieving common business objectives.
The Group has developed a sophisticated technology platform, known as the IMS, onto which all its software products can be incorporated. The IMS can enable each application to be accessed by players through a single user account using the same username-password combination for all products offered by that Licensee. This assists Licensees in managing their operations by way of a single management interface, allowing opportunities for cross-selling from one product to another and improving player loyalty and yield.
The IMS provides Licensees with a variety of features including customer relationship tools, affiliate and web tracking, transaction processing and system security, a suite of responsible gambling tools and extensive reporting capabilities. The IMS's modular architecture and scalability enable it to grow with a Licensee's business and accommodate future product diversification.
The Group's cross-platform capability is a fundamental element of its product offering and links various distribution channels for gambling content (online, live and TV, mobile and land-based channels) on the same operator platform. Players can transition between products and platforms, playing the same games at home, on the move or in a land-based venue, whilst enjoying a unified bonus and loyalty programme. The ability to maintain a consistent offering across all platforms allows Licensees to leverage their brands in new channels, increase retention across their entire business and deliver additional ways of playing.
In addition to the IMS's back end capabilities, the Group owns the proprietary EdGE™ open games platform, which allows the integration of a large number of games from different providers and technologies into a Licensee's games offering. The EdGE™ platform gives the Group a competitive advantage in offering its Licensees easy access to the latest games experiences and technologies.
The casino product is the Group's main software product line in terms of the Group's revenue. Licensees' players are offered, where permitted, all the main suite of casino games including classic table and card games such as roulette, blackjack and baccarat; multi-line and multi-spin slots; video poker and keno; progressive bonus-stage jackpot games; and other games that are continually refreshed with the launch of new products playable in multiple languages and currencies. Through the Group's platform, Licensees can choose from a wide range of games content to stimulate player activity.
Many of the Group's games feature well known fictional characters, such as the Incredible Hulk and Captain America, or are based on successful TV game formats, such as Deal or No Deal. These premium branded games have proven themselves to be an increasingly important part of the customer proposition and the Group continues to deliver new brands into its games portfolio.
The casino product is available through various formats and platforms including the traditional web-based online version, a standalone games tab and the Group's live dealer and TV offerings which consist of live videostreaming from centres designed as real land-based casinos or television studios. The live format attracts players who enjoy the interaction with the dealers and the enhanced community feel of the playing experience.
A variety of the casino games are available on the Group's mobile platform where automatic bonuses, loyalty points and VIP levels are configured and integrated on the IMS. The mobile platform enables Licensees to use tools such as push advertising and SMS messaging to improve their marketing and player acquisition. In addition, casino games are offered to Licensees as side games embedded into, and played concurrently with, the Group's poker and bingo offerings, giving Licensees the ability to optimise revenue streams in parallel to poker and bingo revenue streams.
The Group's poker product offers several different game types (including Texas Hold'em, Omaha and Omaha Hi-Lo), playable in multiple languages and currencies and enabling full-screen play, multi-table gameplay, detailed in-game statistics, hand strength display and a wide variety of embedded casino side games which can be played concurrently with the poker games, giving Licensees the ability to optimise revenue streams.
Licensees of the poker product have access to the Group's iPoker network which allows Licensees' players to play against each other, increasing the pool of players available at any particular time (referred to in the online gambling industry as player "liquidity"), a key marketing advantage for an online poker operator. Tournaments on the iPoker network include online satellites to land-based events and daily, weekly and monthly tournaments.
In addition, iPoker provides centralised table and tournament management, designed to provide Licensees with protection against the threat of player collusion and aims to ensure a fair and secure playing environment to support a successful and reputable poker gaming operation.
The Group provides its customers with a bingo software platform connected to one of the largest bingo networks in the online gambling industry. The UK network recently held events that involved over 12,000 concurrent players and generated over £1 million in ticket sales in a single evening. As bingo operates on a pari-mutuel basis with prizes derived from the game stakes, the participation of a large number of players in each game on the bingo networks allows sizeable prizes for low individual stakes.
The Group's bingo offering is available in multiple languages and currencies and, similar to poker, also includes a wide variety of embedded casino side games, which can be played concurrently with the bingo games, giving Licensees the opportunity to optimise revenue streams. Under licensing arrangements, the Group can offer bingo games based on popular television programmes such as Blockbusters and Britain's Got Talent.
As the community aspect is an extremely important element of bingo playing, the Group provides chat moderation services to certain Licensees. There are over 200 part-time chat moderators providing player interaction in a wide range of languages.
The Group offers a sportsbetting platform for both online and mobile devices. Sportsbetting is often the cornerstone of both an online and a land-based operator's business. The Group historically focused more on online gaming and had not developed its sportsbetting capabilities significantly, until recently. With the increasing focus on maximising cross-platform and cross product opportunities, the Directors recognised that sportsbetting had become an increasingly important channel for player acquisition. In addition, online sportsbetting has often been one of the first products to be regulated in a market. Recognising these dynamics, the Group acquired Geneity in January 2012.
The online sportsbetting platform acquired by the Group has a modular architecture which makes it flexible and easily customisable for both small and large operators. The product provides automated event setup and settlement tools to allow operators to manage large numbers of events and markets with little operational overheads. It has a live-betting console and content management features.
The Group's mobile solution, provided by Mobenga, delivers a sportsbetting offering onto handheld devices, including smart phones and tablets, across Apple iOS, Android and HTML. The mobile platform offers Licensees a range of features such as a touch user interface (TUI) and advanced functionality, including live video streaming which is integrated with its existing platform.
The Group provides server based technologies for land-based gaming machines providing a complete end-to-end solution for land-based operators. These range from completely standalone gaming machines to full server based video lottery and fixed odds betting terminals (FOBTs) integrated to a central monitoring system based on the IMS. The Videobet technology can manage full server-based configurations, whilst operating in a mixed environment of standalone gaming machines and integrate with other management information and third-party monitoring systems. Working with The Global Draw, the gaming machine distributor, the Group has rolled out the Videobet Technology to The Global Draw's UK bookmaker customers, including Ladbrokes and Coral. There are approximately 20,000 machines utilising the Videobet Technology.
The Group also provides software based casino management systems to land-based casinos, through IGS. These systems include client relationship management (CRM), loyalty and cash desk operations for table gaming, poker and slots.
The Group provides a range of complementary services alongside its software products offering. These operations are principally based in the Philippines and Bulgaria and comprise the following:
Marketing services comprise affiliate management, customer management, data mining and statistical analysis, advertising and marketing services, including search engine optimisation. These services are important for the successful and cost effective acquisition of new players. The Group has access to an extensive affiliate marketing network and affiliates are incentivised for driving players to Licensees' operations.
Operational and support services comprise 24 hour player support and co-location hosting services for Licensees' game servers and player databases. The support services are designed to support Licensees' retention of, and cross selling to, its players.
Payment advisory services comprise advice to Licensees in relation to payment processing providers and transactions monitoring, including reconciling transactions from data in their back-end systems.
Network management services comprise managing the day to day operation of the iPoker network including fraud and collusion prevention and a dedicated 24 hour online support team, to ensure the smooth operation of each poker room on the iPoker network.
The combination of the software and complementary services enables the Group to provide a turnkey solution to its Licensees. The Directors consider that the ability to provide a turnkey solution is particularly attractive to new entrants targeting regulating markets, where demand for turnkey solutions is expected to be high. The Directors believe that the Group is in a strong position to win business in such markets.
The Group receives significant income from its 29 per cent. shareholding in William Hill Online (WHO), which it acquired in December 2008. In the financial year ended 31 December 2011, Playtech received, in addition to royalties received through the licensing of software and the provision of services to WHO, 136.1 million as its share of the profit of WHO (2010: 122.5 million). WH Ltd (a subsidiary of William Hill PLC and the entity that holds the 71 per cent. shareholding in WHO) has an option to acquire the Group's shareholding in WHO (held by Genuity) in early 2013 or 2015 for fair market value with the consideration to be satisfied (at the Group's election) in cash or shares in William Hill PLC (or a combination of both). Further details of the arrangements relating to WHO are set out in paragraph 2 of this Part 1 and in paragraph 13.10 of Part 6 of this document.
The Group owns approximately 10 per cent. of AsianLogic Limited, which operates a number of online casinos in Asian markets using the Group's software. In the financial year ended 31 December 2011, the Group received dividends from AsianLogic Limited of 13.1 million (2010: 11.1 million).
The Group also owns approximately 10 per cent. of Sportech PLC, a leading UK pari-mutuel football gaming business, and owner of The New Football Pools, for a consideration of 111.3 million. Sportech PLC is also a Licensee of the Group. The Group has not received any dividends from Sportech PLC to date.
The Group has joint ventures with Gauselmann in Germany and Peermont in South Africa, further details of which can be found in paragraph 2 of this Part 1 and respectively paragraphs 13.3 and 13.4 of Part 6 of this document.
The Group aims to derive revenues from a diverse customer base to minimise the impact to the overall business of any changes in the operating environment that occur in a particular market. The number of Licensees for the Group's software products has grown from 39 Licensees at the time of the IPO in 2006 to over 100 as at the date of this document, including a number of the leading names in the gambling industry. In 2011, the Group had approximately 30 Licensees contributing 11 million or more in revenues each although the top 10 Licensees (in terms of revenue generated) contributed 68 per cent. of the total revenues of the Group. Approximately 40 per cent. of the Group's total software revenues are derived from Licensees in regulated markets in Europe.
The Group currently provides its complementary services to over 60 customers, all of which are existing Licensees of the Group's software. A majority of these customers utilise a variety of services, principally hosting, network management and payment advisory services. A smaller number of these customers use the Group's marketing services and CRM capabilities.
Historically, it has been the operators of online gambling websites who have had to obtain formal licences from regulators in various jurisdictions rather than their suppliers. However, a number of regulators do require that either software providers or individual games that are offered for play are subject to formal accreditation or licensing requirements.
The Group maintains various licences in Alderney (Category One, Category Two, Core Service Provider and Foreign Gambling Associate certificates). It maintains a Client Provider Authorisation in Kahnawake to allow it to support the iPoker network and a network licence in Antigua. It also holds licences to manufacture and supply gambling software in the UK. It is a recognised software supplier in Tasmania. It has a service provider licence in the Philippines. In addition, the Group has recently secured a licence in Spain in accordance with the recently enacted legislation to offer network management services to its Licensees in that market. The Group will seek to obtain any requisite licences in its targeted jurisdictions.
The online gambling market developed in the mid-1990s. By 2004 the market was estimated as having revenues of approximately 18 billion per annum, and it has since continued to grow substantially.
The market has benefitted from improved broadband penetration and speed, technological advances, a growing number of market participants, and greater acceptance of online gambling as a mainstream leisure pastime. Since the passage of UIGEA, which intended to close the US market in 2006, mainstream operators have focused on Europe and, in particular, on markets where legislation begins to allow various forms of online gambling on a locally regulated basis.
Gambling has existed for centuries and it is a major worldwide industry. Data compiled by gambling industry consultants H2 Gambling Capital suggests that the reported global gambling market from licensed jurisdictions grew from 1201 billion in 2004 to over 1285 billion in 2011, as defined by gross gambling yield to the operator.
The figure for 2011 comprises approximately 1187 billion from commercial operations such as casinos, betting shops, gaming machine arcades and regulated online "e-gaming", and approximately 198 billion from monopolies such as lotteries and horse race betting pari-mutuels.
In 2011, H2 Gambling Capital reported that the online segment was worth 124.6 billion in terms of gross gambling yield (not including the online activities of horse race betting, pari-mutuels or state lottery monopolies). Of this, casino represented 24 per cent.; poker represented 13 per cent.; bingo/other gaming represented 11 per cent. and commercial sportsbetting, including horse racing represented 25 per cent.. Of these, casino and bingo/other gaming had grown over the past 12 months at eight per cent. and 18 per cent. respectively, while poker had fallen back by 19 per cent. following the closure of the three largest sites that had continued to service the United States market until the Department of Justice indictments in April 2011.
The online gambling market has a wide range of participants and has become more specialised as it continues maturing as a substantial global industry. At the outset of the online gambling market, operators managed an end-to-end offering, from software and content development through to direct player marketing, but as more participants entered the online market, businesses evolved to outsourcing certain elements, principally software for back-end systems and games content. More recently, operators have increasingly outsourced a wide range of support and marketing services.
Industry participants have traditionally been defined within two categories:
B2C: the B2C sector includes all player-facing activities. Operators typically have a strong advertising and marketing-led business model and seek to attract players to their websites and encourage ongoing loyalty from their active players. These operators include dedicated online casino, poker and sportsbook sites, some of which have existed for over a decade. More recently, major land-based casino and betting businesses have sought to develop their own online businesses.
In addition to commercial operators, there has been a growing B2G segment, comprising state-owned or state-controlled entities such as lotteries and other organisations that have looked to enter the online gambling market as a B2C operator. It is anticipated that as new regulation in a country or territory is introduced that clarifies any legal uncertainty surrounding online gambling, the current monopoly providers in such jurisdictions will be well placed to take advantage of these opportunities and will become important players in that market.
B2B: supporting B2C and B2G operators are a number of technology providers offering software platforms, specialist products and marketing and other services, or content such as new casino side games. These businesses compete to offer the highest quality gambling products, services and technology systems that enable the operators to optimise player revenues.
Operators may choose to outsource a range of functions depending on their own in-house capabilities and any regulatory constraints. For example, a sportsbook operator may look for a complementary bingo, poker or casino product; server hosting services; or consider joining a poker or bingo network to benefit from enhanced player liquidity.
Historically, the Group has traditionally faced competition for B2B mandates from other software providers in the industry. More recently, some operators have entered newly regulated markets in partnership with substantial and well-recognised local businesses. This gives these operators access to a well-known local brand enabling them to benefit from combined and enhanced player liquidity. In return these operators typically provide a white label solution for their local partner. The desire of the Group to compete effectively with such operators by offering a turnkey solution was the main driver behind the acquisition of PTTS in July 2011.
Perhaps the most significant of industry trends is the growing convergence of the land-based and online market segments. Both the online and land-based segments adopt common techniques for player attraction and retention, such as VIP levels and loyalty schemes. Operators are becoming more aware of the importance of player retention and of incentivising the player on an individual basis, whether they are playing online, on a mobile or tablet, or in a land-based environment. The convergence is principally being driven by the fact that as countries such as France and Spain have introduced new legislation to regulate online gambling, established land-based operators seek to develop their online presence.
The explosion of social networking sites such as Facebook has given rise to a market for social gaming, which is almost exclusively play for fun or for virtual currency. The social gaming market has attracted a large number of players. The Directors believe that web based social media has been effective at driving players to real money online gambling leading to a convergence between the social gaming and online gambling markets. Most recently, the online gambling market has seen many established gambling companies pay significant sums to acquire capabilities in social gaming in anticipation that this will allow them to market online gambling products to players on social gaming networks. In response to this convergence, the Directors recognised that the Group needed to expand its product range to include social gaming and play for fun capabilities. Accordingly, the Company announced on 12 June 2012 that the Group has entered into licensing agreements with Skywind to give the Group access to various social gaming software including back-end capabilities, poker, casino, bingo and rummy software as well as providing the Group with access to a development team with experience in social gaming.
The Group's strategy is to create a business with significant scale and a full product and service capability, underpinned by a pre-eminent technology platform. Through a combination of organic development and targeted acquisitions, the Company has sought to implement this strategy to maximise opportunities as the online gambling industry continues to undergo significant change and become increasingly sophisticated. In particular, the online gambling industry is seeing convergence between online and land-based channels and between social gaming and mainstream online gambling. The Directors believe that the Group has positioned itself to take advantage of the opportunities that these developments present.
The Group's reach extends further than traditional online gambling and now includes other channels, such as mobile and tablet, live broadcast and TV, land-based gambling and social gaming, where the convergence of operator activity and management of the player experience is shaping the industry.
In addition, providing Licensees with a range of outsourced services, as well as a comprehensive technology solution has further expanded the market opportunity for the Group. This ability to offer a turnkey solution has also enabled the Group to extend its relationships with existing operators as well as new entrants to the online gambling industry, and also to form joint ventures with well-recognised local operators as their markets adopt regulation.
The Directors believe that the move to locally-regulated markets and the advent of social gaming has redefined the way in which operators and service providers address each market. Strategic alliances with other B2B providers, or as part of a consortium, have brought greater global reach and extended the Group's capabilities in market segments where a local presence or track record is critical.
The Group's strategy, supported by its strong balance sheet, now centres on developing its highly complementary business channels: products and services, turnkey solutions, joint ventures and social gaming. Through this multi-channel approach, the Directors believe that Playtech will be in a position to maximise the potential for growth and market share in newly-regulating markets in addition to strengthening the existing relationships with traditional operators.
The Group's goal is to become the supplier of choice to the gambling industry's well established and well recognised operators who would be attracted by the scale and breadth of its player networks, the size of its content library and the sophistication of the IMS platform allied with a broad range of complementary services.
The Group's software development focus is to enable its diverse Licensee base to optimise player revenues and loyalty by providing high quality player management tools that can be utilised across online and land-based platforms, and new gaming content. The Group intends to target operators in newly regulating markets with a full suite of gambling and social gaming products and services along with responsible gambling tools which comply fully with the evolving regulatory landscape.
New entrants to regulating markets are increasingly looking for a greater degree of expert support from their service providers. The Group's strategy will be to continue to seek further opportunities to provide a broad range of outsourced services to Licensees.
Following the acquisition of PTTS, the Group can now offer products and services as a single source supplier of gambling solutions, particularly to the growing number of new entrants targeting regulated markets. The Group can offer such new entrants affiliate marketing services and sophisticated CRM solutions, combined with advanced player management systems which allows operators to leverage its market-leading gaming content and cross-channel capabilities.
Providing Licensees with a range of outsourced services, as well as a comprehensive technology offering, has further expanded the market opportunity for the Group. Through its turnkey solution, the Group can deliver a cost effective offering for Licensees, either from a low-cost Playtech location or a local greenfield site, depending on the requirements of the operator or jurisdiction. The Directors believe this will enable the Group to extend its relationships with existing gambling operators, as well as new entrants to the online gambling industry, and to form joint ventures with well recognised local operators as their markets adopt regulation
The Group's strategy is to identify new partners with whom it can establish long-term partnerships in appropriate markets such as the UK, Germany and South Africa, where the Group has been chosen as a joint venture partner by leading domestic land-based operators. These partners are looking to develop a market-leading offering, supported by highly experienced marketing and player management capabilities. Such joint venture partners recognise the benefits of the Group's wide expertise as they compete in their markets against established international businesses transitioning from being offshore dot.com operators to local market participants.
The Group's strategy here is to provide its expertise with products and services whilst its local partners commit their gambling brands, and any online operations, customer lists and management to the new joint venture. Both parties' interests are aligned through the injection of working capital, as required under the joint venture arrangements, into the joint venture until the venture becomes self-financing. This model is designed to maximise both joint venture partners' potential financial returns whilst maintaining the Group's profile as a B2B provider. These partnerships also provide cornerstone liquidity pools for Playtech's networks in a ring-fenced market, benefitting all Licensees within the networks.
Consistent with the Group's strategic objective of being the supplier of choice to the gambling industry, Playtech has been closely monitoring developments in the social gaming arena and analysing a number of ways to penetrate this relatively new and rapidly growing segment of the market, as Licensees and brand owners seek to leverage their online gambling assets and skills into this segment. The Group has identified significant potential in both this newly presented segment of the market and a cross-platform model with traditional real money gaming. The Group recently licensed certain social gaming software from Skywind which comprises a platform with back-end capabilities, poker, casino, bingo and rummy, thereby providing Playtech will a full suite of social gaming products. The software licence also gives the Group access to a development team with experience in social gaming.
The Group's strategy is to combine this software with its wide distribution channels and transferable real money gambling expertise and marketing capabilities into the social gaming arena and is devoting resources in order to launch a full B2B social gaming offering which will appeal to existing Licensees and third parties. Playtech will seek to expand its social gaming offering both through additional development and appropriate acquisitions, as opportunities arise.
6. Background to, and reasons for, obtaining a Premium Listing and moving to the Main Market The Directors believe that a Premium Listing and move to the Main Market will:
invest in shares of companies admitted to the Official List and the higher profile of such companies; and
l benefit Shareholders due to the further development of Playtech's corporate governance, regulatory and reporting disciplines. Playtech already adopts many of the corporate governance, regulatory and reporting disciplines required of companies with a Premium Listing. In addition, as a result of the Company's re-domiciliation to the Isle of Man, the Company will be subject to the Takeover Code on Admission.
Furthermore, the Board considers the Main Market to be a more appropriate market for a company of Playtech's size and maturity, given Playtech's growth since its IPO.
Application has been made to the Financial Services Authority and to the London Stock Exchange respectively for admission of all the Ordinary Shares to: (i) the Official List; and (ii) trading on the Main Market. It is expected that Admission will become effective and that dealings in the Ordinary Shares on the Main Market will commence at 8.00 a.m. on 2 July 2012. No application has been made or is currently intended to be made for the Ordinary Shares to be admitted to listing or dealt with on any other exchange.
Following Admission, the Company expects to be eligible for inclusion in the FTSE Actuaries Share Indices. In order to qualify for inclusion in the FTSE All Share Index, the Company will need to meet certain liquidity requirements (measured by volumes of shares traded) and the total market value of the issued Ordinary Shares must exceed certain levels measured on the quarterly index review dates. On the basis of the current FTSE UK Index Series Rules and the market capitalisation of the Ordinary Shares as at 27 June 2012 (being the latest practicable date for this information prior to publication of this document), provided that trading in the Ordinary Shares meets the liquidity requirement, the Company expects to be eligible for inclusion in the FTSE 250 Index at the September 2012 review date.
The financial information set out below has been extracted without material adjustment from the historical financial information of the Group for the three years ended 31 December 2011 as set out in Part 4B of this document.
| Year ended 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Revenues | 114,775 | 142,294 | 207,485 |
| Income from associate | 22,534 5555 |
30,792 5555 |
36,073 5555 |
| Gross Income | 137,309 aaaa |
173,086 aaaa |
243,558 aaaa |
| Operating profit | 56,449 | 45,309 | 52,154 |
| Depreciation and Amortisation (excluding amortisation of intangibles on associate) |
8,778 5555 |
17,090 5555 |
29,137 5555 |
| EBITDA | 65,227 | 62,399 | 81,291 |
| Income from associate | 22,534 | 30,792 | 36,073 |
| Employee stock option expenses | 5,150 | 5,855 | 4,678 |
| Decline in fair value of available-for-sale investments | 399 | 2,223 | 551 |
| One-off legal costs relating to the litigation with the | |||
| William Hill Group | – | – | 1,389 |
| Professional expenses on acquisitions | 360 5555 |
1,802 5555 |
1,488 5555 |
| Adjusted EBITDA | 93,670 aaaa |
103,071 aaaa |
125,470 aaaa |
Playtech has continued to perform strongly in 2012. PTTS has outperformed expectations and certain Licensees have launched in the Spanish market following the recent commencement of regulated activity. William Hill Online continues to perform strongly and demonstrates Playtech's ability to forge significant earnings enhancing partnerships with leading gambling businesses. The Directors believe that Playtech is well positioned for continued growth and remain confident of the Company's future prospects.
The Board has adopted a policy of paying out up to 40 per cent. of adjusted net profit in any financial year by way of dividend which, it is intended, would be paid as to one-third as an interim dividend and two-thirds as a final dividend. The Directors will continue to monitor the level of cash retained within the business as well as investment opportunities available to the Group and, from time to time, review the continued appropriateness of such policy.
The amount of dividend per Ordinary Share paid in respect of each of the financial years ended 31 December 2009, 31 December 2010 and 31 December 2011 was as follows:
| Year Ended | Year Ended | Year Ended | |
|---|---|---|---|
| 31 December | 31 December | 31 December | |
| 2009 | 2010 | 2011 | |
| 2 | 2 | 2 | |
| Dividend per Ordinary Share | 0.180 | 0.190 | 0.165 |
Roger started his career with Booz, Allen & Hamilton as an international management consultant and, subsequently, has over 30 years' experience in the leisure and gaming industries. In 1973, Roger joined Ladbrokes where he held a number of senior positions in the bookmaking, casino, lottery and gaming machine divisions. In 1986, he joined Bass where his roles included Managing Director of BLMS and Coral Racing and Executive Chairman of Bass Leisure South Africa. He retired from Bass in 1998. Since then, he has held a number of other non-executive directorships, including chairman of Arena Leisure plc as well as with a number of substantial privately held companies in the property, technology, publishing and exhibitions sectors. He is also currently non-executive chairman of Sportech PLC, the pools and tote betting company.
Mor was appointed as the Group's Chief Executive Officer in May 2007. Prior to this he was the chief executive officer of one of the Group's subsidiaries, Techplay Marketing Ltd, which required him to oversee the Group's licensee relationship management, product management for new licensees and the Group's marketing activities. Prior to joining the Group, Mor worked for Oracle for over four years, initially as a development consultant and then as a product manager, which involved creating sales and consulting channels on behalf of Oracle Israel and Oracle Europe, the Middle East and Africa. Before this, he worked in a variety of roles, including as an auditor and financial consultant for PricewaterhouseCoopers and a systems analyst for Tadiran Electronic Systems Limited, an Israeli Company that designs electronic warfare systems.
David is a qualified chartered accountant and has significant banking and advisory experience having been a director of corporate finance at Noble Grossart Limited and non-executive director of Noble & Co Limited. He has been a director of many publicly listed companies including investment trusts over the past 20 years. Recent appointments have included non-executive director and then chairman of Sportech PLC, senior independent director of Edinburgh UK Tracker Trust plc and chairman of Asian Growth Properties Limited.
Alan has over 30 years' experience in the leisure industry. From 1973 to 1991, he occupied a number of positions at Whitbread, principally as managing director of Beefeater Steakhouse and also the Whitbread restaurant division where he was responsible for the creation and development of the Beefeater, Travel Inn and TGI Friday brands. In 1991, he founded his own business which became Inn Business Group plc in 1995 and was subsequently acquired by Punch Taverns plc in 1999. He has been chairman of The Restaurant Group plc since 2001. He is also deputy chairman and senior independent director at Redrow plc.
Andrew is a member of the Institute of Chartered Accountants in England and Wales and a member of the Institute of Taxation and has enjoyed a career as an accountant and businessman, much of which was gained in the leisure industries. Andrew is currently chairman of Randalls Limited, a family owned pub company, in Jersey, where he has his home and of The Greenalls Group Pension Trustees Limited. Andrew previously served as chairman of The Greenalls Group PLC and as a non-executive director of JJB Sports PLC and of The Restaurant Group PLC, as well of serving on the boards of a number other public and private companies. He is the founding partner in the Cheshire based accountancy firm, Moors Andrew Thomas & Co. LLP.
Rafi joined the Group as Chief Operating Officer in January 2006 and served as a Director of the Company, stepping down in January 2010. From 2001 until 2005, Rafi was vice president of project & products for SQLink Group, an Israeli company and provider of end-to-end IT services specialising in on-site software consulting and services. Prior to this, Rafi worked at Hapoalim Bank, the largest bank in Israel, as a systems analyst and developer.
Ron joined the Group in 2004 and spent the last eight years managing the financial department at Playtech assisting with the AIM IPO in 2006 and supporting the growth of the Group's business through its operations and financial planning and reporting. He previously held a senior managerial position at Ernst & Young in Israel.
Playtech is headquartered in the Isle of Man, and has a number of offices worldwide principally in Estonia (Tartu and Tallinn), Bulgaria (Sofia), the UK (London and Ipswich), Israel (Tel Aviv) and the Philippines (Manila).
In 2011, the Group employed an average of 1,737 people, an increase of approximately 56 per cent. from 2010. This increase was principally due to the acquisition of PTTS in July 2011 the bulk of whom are customer support agents based in Bulgaria and the Philippines. Additional operations of PTTS, mainly administration and finance, are located in Cyprus.
A small team of people are located at the Company's head office in Douglas, Isle of Man including the Chief Financial Officer, the Chief Operating Officer and the Company Secretary. The main Group accounting, legal, development, customer relations, IT and security teams are located in Tel Aviv, Israel.
The main development offices are located in Estonia in offices in Tartu and Tallinn. The Tartu office employs software developers engaged in the development and support of the Group's casino IMS and other products and the Tallinn operation focuses on the development of the Videobet Technology.
The UK offices are principally devoted to the development and support of the bingo and sportsbetting products, and new games development.
Other important operations for the software business are located in Bulgaria mainly focussing on the development and support of the Group's poker product.
| Location | |||||||
|---|---|---|---|---|---|---|---|
| Category of activity | Estonia | Philippines | Bulgaria | Israel | UK | Other | Total |
| Software Development & IT | 457 | 11 | 168 | 144 | 169 | 30 | 979 |
| Support & Marketing Services | – | 520 | 163 | 6 | – | 12 | 701 |
| Chat Moderators | – | – | – | – | – | 222 | 222 |
| Dealer & Shufflers | – | 131 | – | – | – | – | 131 |
| Customer Relations | 42 | 2 | – | 22 | 18 | 12 | 96 |
| Sales & Marketing | 5 | – | – | 7 | 3 | 10 | 25 |
| Finance & Administration and Legal | 19 | 14 | 23 | 24 | 7 | 20 | 107 |
| HR & Training | 6 | 13 | 11 | 4 | 3 | – | 37 |
| Other | – 55 |
108 55 |
61 55 |
7 55 |
1 55 |
9 55 |
186 55 |
| Total | 529 aa |
799 aa |
426 aa |
214 aa |
201 aa |
315 aa |
2,484 aa |
The table below shows the divisional breakdown of the Group's employees by their main activity and their geographical locations as at 31 December 2011.
The Company recognises the importance of the principles of good corporate governance. The Isle of Man (where the Company is now registered) does not have a formal corporate governance regime. However, following Admission, the Company will be required under the Listing Rules and the Disclosure and Transparency Rules to report its compliance or otherwise with the UK Corporate Governance Code in its annual financial statements for that year. The Board is of the opinion that, as at the date of this document, it is fully compliant with the UK Corporate Governance Code.
The Board is accountable to Shareholders for good corporate governance and the statement set out below describes how the Group applies the principles identified in the UK Corporate Governance Code.
The Company is controlled through the Board, which currently comprises two Executive Directors and three Non-executive Directors. The Chairman and the other two Non-executive Directors are all considered by the Board to be independent of management and free of any relationship which could materially interfere with the exercise of their independent judgment.
The principal role of the Board is the protection and advancement of Shareholders' interests. A formal schedule of matters reserved for consideration by the Board gives it responsibility for overall Group strategy, acquisition and investment policy, approval of major capital expenditure projects and consideration of significant financing matters. The Board also reviews the strategic direction of the Group, any codes of conduct, annual budgets, progress towards achievement of these budgets and any capital expenditure programmes.
The Audit Committee is comprised of two independent Non-executive Directors and is chaired by Andrew Thomas. The duties of the Audit Committee include monitoring the auditors performance and reviewing accounting policies and financial reporting procedures.
The Nomination Committee is comprised of three independent Non-executive Directors and is chaired by Roger Withers. The Nomination Committee is responsible for reviewing the size, structure and composition of the Board, succession planning and identifying and nominating candidates for all senior management and Board positions.
The Remuneration Committee is comprised of two independent Non-executive Directors and is chaired by Alan Jackson. The Remuneration Committee considers the terms and conditions of employment and overall remuneration of the Executive Directors, the Company Secretary and key members of executive management regarding share options, salaries, incentive payments and performance related pay. The Board determines the remuneration of Non-executive Directors. No Director is involved in any decisions as to his/her own remuneration.
The Company has established a Risk and Compliance Committee chaired by Alan Jackson, the Company's Senior Independent Non-executive Director. The other members consist of Andrew Thomas, the Company Secretary, the General Counsel of the Group and the Group's Head of Compliance. The Risk and Compliance Committee receives presentations from management on risk, compliance and regulatory issues and reviews the related internal systems.
The Company's largest shareholder is Brickington which owns approximately 49.66 per cent. of the Company's issued Ordinary Shares as at the date of this document. Brickington is a wholly owned subsidiary of a trust, one of the ultimate beneficiaries of which is Teddy Sagi, one of the Group's founders. At the time of the Company's IPO in March 2006, an agreement was entered into which included certain provisions regulating the relationship between Brickington and the Company. In connection with the Company's Premium Listing, the Company and Brickington have entered into the Relationship Agreement which replaces the arrangements entered into in March 2006. Pursuant to the terms of the Relationship Agreement, Brickington has agreed that: (i) it will vote its Ordinary Shares in such a manner so as to procure that each member of the Group is capable of carrying on its business independently of Brickington and its associates; and (ii) it will not exercise any of the voting rights attaching to its Ordinary Shares in such a manner so as to procure any amendment to the Articles which would be inconsistent with, undermine or breach any of the provisions of the Relationship Agreement. Brickington has also agreed that all transactions and relationships between it (or any of its associates) and the Company will be on arms' length terms. With effect from Admission, Brickington will, for so long as it holds at least 30 per cent. of the issued Ordinary Shares, have the right to appoint two non-executive directors to the Board. Brickington has also given certain non-compete undertakings to the Company including in relation to B2B real money software.
In connection with the Relationship Agreement, Mr. Sagi has entered into an agreement with the Company pursuant to which Mr. Sagi will, as and when requested to do so by the Company, provide advisory services to the Company for a nominal fee of 11 per annum until either Mr. Sagi ceases to be interested (whether legally or beneficially) in any Ordinary Shares or either party terminates the agreement following its fifth anniversary, whichever is the earlier.
Playtech is committed to integrating corporate social responsibility within its businesses, supporting the continued generation of sustainable value and enhancing the Group's ability to deliver on its strategic objectives. The Group's corporate and social responsibility initiatives are under the overall supervision of the Risk and Compliance Committee, under the chairmanship of Alan Jackson. The Board believes that the Group's true value is reflected not simply by its balance sheet but through its intangible assets such as goodwill, the Group's people and the Group's reputation.
In particular, as a leader in the online gambling industry, Playtech takes its responsibilities to operators and regulators seriously and is focused on co-operating with both on issues of responsible gambling. The IMS provides operators with the latest responsible gambling solutions: embedded systems and controls (such as self-exclusion tools and wagering limits) to facilitate responsible gambling for players and to help ensure a safe playing environment for all.
By embracing policies and behaviours governing social responsibility, the Company creates more valuable relationships with its stakeholders by demonstrating its focus on managing material non-financial risks in the business.
The policy of the Group will be to continue to manage and operate each member of the Group in a way that is intended to ensure that it has a taxable presence only in the jurisdiction in which it has a registered business presence and that it has no taxable permanent establishment or other taxable presence in any other jurisdiction. It is the intention of the Directors to continue to conduct the affairs of the Company so that the central management and control of the Company is exercised in the Isle of Man.
CREST is a paperless settlement procedure enabling ownership of securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument. The Articles permit the holding of Ordinary Shares in the CREST system. The Ordinary Shares are expected to be admitted to CREST on 2 July 2012 with ISIN number IM00B7S9G985, following the winding up of the Company's depository interest facility which is anticipated to occur at close of business on 29 June 2012.
Accordingly, settlement of transactions in Ordinary Shares following Admission may take place directly within CREST if any Shareholder so wishes. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so.
This section provides a description of the legal and regulatory environment as it applies to the supply of remote gambling services (and the associated supply of software and services to remote gambling operators).
As well as the following general descriptions, attention is drawn to the section headed "Risk Factors" which describes specific risks associated with the Group's operations.
The regulatory environment to which the remote gambling industry is subject is in a state of constant development. The relatively recent evolution of the remote gambling regulatory environment has seen the enactment and implementation of new or updated laws and regulations as a variety of jurisdictions seek to regulate and tax gambling transactions with their citizens. Other jurisdictions, however, have sought to strengthen monopolistic regimes or, in the alternative, prohibit gambling with their citizens altogether.
The Group generates the majority of its income through licensing its proprietary software to operators who, themselves, then supply to end users located in a variety of jurisdictions. Historically, operators have sought to justify their activities by relying on the legality of their operations in their country of origin, and reducing any associated risks of jurisdictions in which their end users are based forming a contrary view, by limiting or omitting their physical presence in such jurisdictions, where any such activities were not clearly legal. The Group does not locate tangible assets or maintain a physical presence in any jurisdictions where it has been made aware of any material legal or regulatory risk associated with such location or presence. The Group contractually obliges its Licensees to block access to its products by customers located in certain jurisdictions. The Group takes the additional precautionary step of ensuring that its Licensees also block wagers from such jurisdictions, as well as from jurisdictions where there is no scope for a Licensee to argue that its activities are not illegal. The Group currently adopts such a stance in relation to the United States, Israel, Bulgaria, Cyprus, Hong Kong, the Philippines and, unless the Licensee holds a valid licence, in Estonia, France and Spain. Furthermore, Licensees are obliged to block certain products to certain other jurisdictions, including Turkey.
As regulation continues to evolve, so too does the Group's on-going compliance. Whilst in many jurisdictions, laws and regulations may not specifically apply to supplies by gambling software licensors and service providers (as distinct from operators' supplies to end users), this is not universally the case and, indeed, a number of jurisdictions have sought to regulate such supply explicitly. The Group may also be obliged, given the nature of the technology it supplies, to obtain licences in a number of territories as regulation may require.
The Group currently holds a number of licences relating to the supply of gambling software and related services. Group companies hold such licences or authorisations in Alderney, Antigua, Kahnawake, the Philippines, Spain, Tasmania and the UK. The Group will seek to obtain any requisite licences in its targeted jurisdictions.
As legislation is introduced to regulate remote gambling, so related legislation will be enacted to effect taxation of such regulated gambling activities. The financial dynamics of the remote gambling industry are rapidly changing. As the regulatory environment has developed, particularly in the European market, the favourable taxation environments to which the Group's Licensees have previously been subject may be replaced by less favourable environments, as jurisdictions seek to impose their taxation on what was, traditionally, an offshore activity. Specifically, the Group's major market, the UK, may become subject to less favourable tax burdens in the short-to-medium term following the UK Government's announcement in July 2011 of its intention to introduce a regulatory regime by which any operator transacting with UK citizens would need to hold a licence from the UK's Gambling Commission and would become subject to a point-of-consumption tax regime which would result in a number of Licensees facing significantly higher rates of duty. In addition some regimes do not acknowledge that it may result in the operator being taxed twice for the same transaction (at the location of the operator and at the location of the customer).
The Treaty on the Functioning of the European Union ("TFEU") embodies the principle that, within the European Union, each Member State and their constituent citizens, can freely trade with other Member States and their constituent citizens. It arguably follows that restrictions on supply and movement of goods, services, people and capital are not permitted unless certain justifications are evident. Accordingly, if a gambling operator is prohibited from freely operating in Europe by an EU Member State's domestic law, such an approach may be unlawful under EU law (which is supreme over a Member State's domestic law). However, Member States are permitted to derogate from such principles and to legislate and impose discriminatory restrictions where to do so would be justifiable to achieve the aim of safeguarding public interest. The ability for Member States to introduce or seek to maintain restrictive legal systems forms the basis of the evolution of the remote gambling regulatory environment. The application of European laws designed to enshrine EU-wide trade freedoms is the subject of on-going and developing jurisprudence.
A number of Member States have recently introduced local licensing regimes, notably France and Spain (following Italy's staggered licensing development over the past few years). Yet, the way in which national laws are evolving is unpredictable, and in some instances laws appear to have been fully implemented by certain Member States in contravention of the jurisprudence of the ECJ, and also in contravention of guidance given to Member States by the European Commission following review and comment on draft laws and regulations.
A myriad of local regulations are having a substantial effect on the remote gambling industry as operators and suppliers alike count the cost of multi-jurisdictional regulation and compliance. Technical requirements and operational constraints, such as the requirement to ring-fence player liquidity, as has happened as a consequence of developments in the Italian and French licensing regimes, can impact the commercial appeal of operators and, it follows that it may also impact financially upon their suppliers. Co-operation between Member States and their gambling regulators is in its infancy and, if such co-operation does develop towards harmonisation of sorts, be it in respect of uniform technical standards or common approaches towards player protection, it remains to be seen how beneficial this will ultimately be to the industry and its component parts.
Until the implementation of the Unlawful Internet Gambling Enforcement Act ("UIGEA") in the US in October 2006 the Group supplied software to Licensees taking wagers from the US. Following the passage of UIGEA, the Group has required all Licensees to block all such wagers.
Although there are strong indicators that the US state and federal authorities may yet regulate some forms of online gambling (and this has already occurred in a small number of states), it is unclear as to the extent to which there are viable commercial opportunities for non-US industry players. Furthermore, any pre-UIGEA facilitation and any inadvertent post-UIGEA facilitation may preclude Licensees and/or the Group availing themselves of any such commercial opportunities which would have a clear detrimental effect on the financial growth potential of the Group. That said, the Group has successfully satisfied the probity requirements for suppliers to certain US state operators, although there is no guarantee it would be successful in securing such approvals in any additional US states.
It is unclear as yet whether the Department of Justice ("DoJ"), at a federal level, or state prosecutors, at a state level look to make recovery for transgressions of relevants law prior to the implementation of UIGEA. Some operators have brokered settlements with the DoJ but these may not provide complete immunity from prosecution.
The following sections provide a summary of the legal and regulatory issues arising from the Group's material markets. For the purpose of this document, the Group's material markets are considered to be those jurisdictions from where, through the Group's Licensees' activities, the Directors believe that three per cent. or more of Gross Income is (or, in the next two years might be) ultimately derived. The following summaries are in alphabetical order and, at the end of each section, the relevant proportion of Gross Income for the year ended 31 December 2011 is specified.
For the purpose of this section, "gambling" is deemed to encompass all forms of wagering, whilst "gaming" encompasses casino, poker and bingo.
The Canadian Criminal Code generally prohibits the conduct of gambling activity within Canada save that provincial governments are permitted to provide gambling services, and to license registered charities to provide certain kinds of gambling services within their respective jurisdictions.
Canada has proved to be an important territory for a number of gambling operators for a number of years. Yet, unlike other key jurisdictions where the purported legal uncertainty has been a key component of an associated risk rationale, there have been precedents in Canada set by prosecutions where the application of its laws to the supply into the jurisdiction of offshore remote gambling services has been confirmed.
Whenever a company chooses to supply gambling software to operators who are located offshore and yet who take Canadian customers, they assume a risk in doing so, as they could be construed as aiding and abetting an offence and/or committing a direct offence (that is, leasing and/or possessing a device for gambling). Managing that risk, therefore, becomes a matter of location and the ability of an enforcement agency to actually commence proceedings. It is clear that Canadian law enforcement authorities are required to serve the accused in Canada in order to pursue such proceedings. However, there are a number of hurdles in bringing a successful prosecution in Canada and it is likely that the relevant prosecuting bodies would be more inclined to pursue an operator as opposed to a supplier where both are located offshore. In addition, absent the service of indictments effected locally or reliance on extradition (none of which has occurred as yet for online gambling) the Canadian courts could not assert jurisdiction.
The Group has been advised that any operator of remote gambling services and any of their key suppliers such as software suppliers should ensure that they do not locate any of their operations, assets or personnel in Canada as doing so would potentially render them at risk to enforcement actionalbeit that there are significant hurdles in bringing a successful prosecution, not least because there have been no real precedents set as yet for such prosecution. The Directors have been advised too that the Canadian authorities have also been wary of bringing any challenge in relation to the sovereignty of Kahnawake where a number of the Licensees are licensed and locate equipment. In the case of the Group it does not locate equipment or employees there.
For the year ended 31 December 2011, approximately 3.2 per cent. of Gross Income was generated through Licensees transacting with the Canadian market.
There is a general prohibition of gambling in China whether offered online or through land-based channels, pursuant to Article 303 of the Criminal Law. Gambling is also subject to administrative penalties under the Law on Penalties for Administration of Public Security ("the Law on Penalties"). Whilst the laws themselves are silent on their applicability to online gambling, notices regarding gambling have been published by the Ministry of Public Security that indicate the views of the authorities. A 2005 interpretive notice extended the definition of "gambling" to encompass online gambling.
The Group has been advised by local counsel that the jurisdictional reach of the Chinese authorities to assert both the Criminal Law and the Law on Penalties is restricted. The authority to assert jurisdiction in relation to online gambling follows the local legal principle that the illegal activity should be handled by authorities where the defendants are domiciled. In the context of online gambling therefore, that location is identified by the establishment of servers of the gambling websites, the place where internet access is provided, places where the owners or management of the gambling website are domiciled, and the places where the agents of the gambling sites are located or where players are located.
Chinese authorities can prosecute Chinese nationals undertaking gambling activities wherever the illegal activity takes place. For foreign nationals, China could only assert authority if the crime or result of the crime occurs within China. The same is true in terms of servers or assets located outside of China. Thus for offshore operators or software suppliers with no local presence in China or non-Chinese employees, local counsel have advised that China does not have jurisdiction and such activities currently will not attract risk of enforcement.
Furthermore, due to the laws on the illegality of any form of gambling in China, it would not be prudent to pursue any civil legal action through the local court system and/or arbitration as the circumstances will be found in clear contradiction of the established laws. It would also not be effective to pursue international litigation and/or arbitration in an effort to gain a reprieve in China, as any foreign judgments and award would not be enforceable locally for the same reasons.
In 2010, the Ministry of Public Security issued an opinion stating that anyone providing software development services to a gambling operator was committing a crime. However, this is also subject to a limited territorial application.
For the year ended 31 December 2011, approximately 3.6 per cent. of Gross Income was generated through Licensees transacting with the Chinese market.
The gambling regulatory framework in Germany is fragmented. An interstate treaty, established in 2008 (the "Interstate Treaty"), enforced a state monopoly on gambling and prohibited online gambling. In preparation for the expiry of the Interstate Treaty on 31 December 2011 a new draft interstate treaty ("2012 Treaty") was agreed in principle by 15 of Germany's 16 states.
The aim of the 2012 Treaty is to partially liberalise the gambling market by introducing a regulatory regime for sportsbetting, with 20 licences to be made available to private operators. Online gaming (including poker) would continue to be prohibited. The 2012 Treaty has been notified to the European Commission and the European Commission raised concerns as regards the conformity of the 2012 Treaty with European laws. The European Commission indicated that there may be instances of infringement insofar as the proposed 2012 Treaty is implemented without certain safeguards in place (for example, a limited number of licensees would only be acceptable for a finite period of time, during which issues such as social harm could be assessed). Despite these concerns, the majority of the parliaments of the federal states have ratified the 2012 Treaty in the form notified to the European Commission and the 2012 Treaty will most likely come into force on 1 July 2012. Except for a small number of licensed sports betting operators which may offer online betting under certain strict requirements, the supply of remote gaming services to individuals located on German territory (with the possible exception of Schleswig-Holstein), remains prohibited.
Schleswig-Holstein, the only German state not to sign the 2012 Treaty, implemented its own gambling regime which came into effect on 1 January 2012, it has now awarded its first licences. However, due to a government reshuffle in Schleswig-Holstein in early May 2012, Schleswig-Holstein has confirmed its plans to conform to the 2012 Treaty, when implemented. This is subject, however, to legal advice in connection with its ability to repeal the legislation (which permitted the licences to be granted), revoke the licences, and its exposure to damages claims, that might result were it to take such action.
The future of online gambling in Germany is therefore uncertain. Many operators have continued to take German business, using the criticism handed down by the ECJ in the Carmen Media case (ECJ C-46/08) to argue that the Interstate Treaty was, in effect, unenforceable. However, subsequent decisions by the German Federal Administrative Court of Justice and the German Federal Court held that at least with respect to the prohibition of remote gambling, the Interstate Treaty is in line with German constitutional and European laws.
A provider of software and associated services to the online gambling industry is likely to be held to be acting in contravention of German law, as it currently stands, if it supplies operators who take German business, in particular by aiding and abetting. Due to the concerns raised in relation to the conformity of both the Interstate Treaty and 2012 Treaty with European laws, legal opinion is divided over the level of risk associated with operators continuing to take such business. The uncertainty with the German regulatory position will remain until the 2012 Treaty's compliance with European laws has been assessed by the relevant courts.
For the year ended 31 December 2011, approximately 7.7 per cent. of Gross Income was generated through Licensees transacting with the German market.
Italy has gradually evolved as a regulated market following the implementation of the Bersani Decree in 2006. It represents one of the first major European territories to embrace the regulation of online gambling albeit that regulations have evolved in a very piecemeal fashion, on a product by product basis. This has resulted in there not being a wholly consistent approach to the market and a number of dot com sites continue to target Italian customers without the benefit of a licence. This is partly due to the perception that there has hitherto been a relatively low enforcement risk, but whether this remains true for operators is unclear. Nonetheless, the Directors have been advised that the risk for suppliers to operators remains low, irrespective of whether the latter are licensed. However, the Risk and Compliance Committee will carefully monitor the position. This having been emphasised, the Directors have been advised that AAMS is of the view that it has requisite authority to recover Italian taxes (plus penalties) against non-Italian licensed operators offering games to Italian players. This may lead to a more co-ordinated enforcement approach against parties that have profited from the unlicensed Italian market.
Article 4 of Law 13 December 1989 No. 401 ("Law 13") prohibits the remote organisation, management and offering of games regulated by the Italian gambling authority, the Amministrazione Autonoma dei Monopoli di Stato ("AAMS"), without the required licence. Operating licences are issued by AAMS. Most forms of gambling, that have developed in today's market, are licensable.
For the year ended 31 December 2011, approximately 10.7 per cent. of Gross Income was generated through Licensees transacting with the Italian market.
The Common Gaming Houses Act 1953 ("CGHA") makes it an offence for a place to be kept or used as a "common gaming house". A common gaming house includes "any place kept or used for gaming to which the public or any class of the public may have access". Depending on the interpretation of a "place", the CGHA may cover the remote gambling environment. The participation, provision or facilitation of gaming is also illegal under the CGHA, as is gaming in a public place and the promotion of a public lottery. The CGHA criminalises unauthorised gambling for both players and operators.
The Lottery Act 1952 ("LA") also regulates gambling but more specifically, as the name suggests, lotteries. Construed widely, the definition of "lottery" under the LA may include bingo.
Although the CGHA does not specifically allude to the remote gambling environment, it does contain provisions relating to the prohibition of gaming machines. A "gaming machine" is defined as "any mechanical, electrical or electronic machine or device (including any computer program used in such machine or device)…designed…for the purpose of playing a game of chance…". Any type of dealing with a "gaming machine" including importing, manufacture, supply or operation is captured under the prohibition in the CGHA. Local counsel are of the view software used in the supply of remote gambling could fall into the definition of "gaming machine", but to the best of local counsel's knowledge the interpretation is untested in the Malaysian courts.
In the event the remote gambling operator's services are viewed as illegal under the CGHA or LA, a supplier's provision of services to such operators may be construed as an abetment of an offence and therefore a criminal offence under the Penal Code. This is predicated on the underlying offence being committed under the CGHA or LA.
As there is no specific legislation that governs remote gambling in Malaysia, it is a question of interpretation for Malaysian authorities as to whether any such online gambling activity would fall under the ambit of the local laws.
The applicability of the CGHA or the LA to remote gambling operators and therefore to the suppliers of support services (both based outside Malaysia) appear to be untested and there is no published case law on the matter. If the CGHA provisions are wide enough to encompass a supplier's activities as a dealer in gaming machines or a party who plays a role in the operation of a common gaming house (if it was determined that definition applied to online gambling websites), any sanction or penalty against such a supplier would be difficult to enforce, given the supplier had no assets or infrastructure located within Malaysia.
Based on the provisions which state that the CGHA and LA only apply "throughout Malaysia", local counsel advise it would appear that the CGHA has no extraterritorial application. Therefore, if an operator's server is based in Malaysia, there would be obvious potential criminal liability for such operator. If, however, an offshore operator bases its servers outside Malaysia, the Malaysian authorities would have difficulty successfully enforcing any sanctions or penalties against the offshore operator (or their suppliers), assuming that such operator (or supplier) has no assets or physical presence in Malaysia. There is a risk that the Malaysian authorities may seek to direct ISPs to prevent or restrict access to online gambling websites. However, to local counsel's knowledge the authorities have never taken such action in respect of gambling websites (although such action may not always be made public).
Money laundering in Malaysia is legislated for by the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 ("AMLATFA") and makes it an offence for a person to engage, directly or indirectly, in a transaction that involved the proceeds of any unlawful activity. "Unlawful activity" includes any activity that is related directly or indirectly to any serious offence or any foreign serious offence. This would include money generated from remote gambling contrary to the CGHA or LA and therefore such a breach may have corresponding consequences under the AMLATFA. Those involved in online gambling activities and the removal of funds from Malaysia will be engaging in money laundering activities under Malaysian law. The AMLATFA purports to have extra territorial effect insofar as an offshore operator acting in contravention of the CGHA or LA is committing a money-laundering offence by facilitating the remittance of funds to and from players in Malaysia. Additionally, obligations are placed upon reporting institutions such as banks and financial institutions to identify large or suspicious transactions.
Certain officers at the Ministry of Finance in Malaysia have indicated that online gambling legislation is being considered, such statements are not binding on the Ministry and it is unclear whether such laws will come to fruition. It is anticipated however that such legislation would impose an absolute prohibition for both the provision and participation of online gambling activities and may remove the ambiguity over the application of the laws to the operation of a gambling website from outside the jurisdiction.
Until that happens, a supplier of software to remote gambling operators targeting Malaysia from outside the territory is potentially contravening the CGHA and the LA, although the application of such laws to activities occurring outside Malaysia remains debatable and the enforcement risk and enforcement may be difficult for that reason.
For the year ended 31 December 2011, approximately 8.4 per cent. of Gross Income was generated through Licensees transacting with the Malaysian market.
Gambling in Russia is primarily governed by the Federal Law No. 244-FZ "On the State Regulation of Activities Associated with the Organisation and Conduction of Gambling and on Amending Specific Legislative Acts of the Russian Federation" of 29 December 2006 ("Gaming Law"). Under Article 5(3) of the Gaming Law provision of internet gambling is expressly prohibited.
Offshore supply of online gambling services is not an area that Russian courts or legislation have directly addressed and no clear or reliable practice or approach has developed with regard to Russian jurisdiction over offshore online gambling services. From various commentaries, it is suggested that factors including the technical location of servers that should be used to determine if Russian authorities have the ability to assert jurisdiction, coupled with the use of .ru and .su domain names.
Although it cannot be said with any certainty what preventative measures Russian authorities will or are likely to take against the provision of gambling facilities remotely, there has been a developing trend in enforcement actions to block access to websites involving online gambling as well as political and religious extremist groups which may provide some indication of the way in which the Russian courts might address online gambling, e.g. court orders for website blocking. This trend does indicate that Russian prosecutors are likely to use such website blocking cases as their primary enforcement tool against access to online gambling.
The historical lack of enforcement appetite and the lack of clear rules for asserting jurisdiction render the supply of online gambling opportunities into Russia for the near term at a modest risk of direct prosecution (under criminal or administrative law) against operators of offshore gambling services in the absence of an operator's or supplier's physical presence in Russia, or the location of assets in Russia. There is a medium, but growing, risk that payments or access to websites providing gambling services to the Russian market may be blocked or otherwise hindered at the local, regional or national level. It is important to note that the rules and practice for enforcement in this context are not well developed in Russia and a new presidential administration has recently come to power, so changes in the rules, interpretation or enforcement practices may adversely affect the risk profile for offshore gambling operations.
For the year ended 31 December 2011, approximately 3.6 per cent. of Gross Income was generated through Licensees transacting with the Russian market.
Online gambling in Spain is regulated by the recently enacted Act no. 13/2011, dated 27 May 2011, entitled the Regulation of Gambling Activities ("RGA"). Article 9 of the RGA requires operators to obtain the requisite licences in order to offer "gambling" activities in Spain. "Gambling" under the RGA includes casino games and betting whereas an "operator" is an entity that has its revenue connected with the exploitation of gambling in Spain and the gambling activities offered to Spanish residents are operated or commercialised by that entity. Regulation of slots is expected to be implemented in 2012.
Royal Decree 1614/2011 developed the RGA further and extended the definition of "gambling" to include gambling networks. Article 3.3 states that operators "managing gambling networks to which other gambling operators are members of or are adhered to and that allow their respective users betting amounts in common" will be considered as gambling operators. It is therefore only operators and network providers that require a licence in order to operate remote gambling websites or networks in Spain. Although no provisions are in place for the supply of software into the jurisdiction, supplying to unlicensed operators may be construed as aiding and abetting and accordingly attract its own sanctions.
Spain's move to a regulated environment criminalises the offering of unlicensed gambling activities for both operators and network providers meaning that operators of a poker network will need to obtain a licence in order to take business from Spain legally. The Group has recently secured a network licence in Spain. The Group also now blocks wagers from Spain unless the relevant Licensee has a local licence.
For the year ended 31 December 2011, approximately 2.6 per cent. of Gross Income was generated through Licensees transacting with the Spanish market.
The Gambling Act 2005 ("Gambling Act") is the primary legislation in relation to both land-based and online gambling in the UK. The Gambling Act is relatively sophisticated with different levels of regulation for different product types. There is no restriction on the number of private operators who can apply for licences, save the National Lottery which is reserved to the operator of the National Lottery, currently Camelot.
Section 41 of the Gambling Act requires that gambling software suppliers hold a gambling software licence from the Gambling Commission for the "manufacture, supply, installation or adaptation" of gambling software in the UK. Whether based in the UK or overseas, software licensors that supply to companies that conduct business in the UK are required to adhere to the remote gambling and software standards which set out the technical, security and testing requirements of the software. However, such technical requirements do not apply to software licensees wanting to supply only to overseas operators. Software can therefore be supplied outside the UK but would have to meet the requirements of whichever jurisdiction the gambling operation is based in.
The advertising and marketing into the UK by EEA licensed operators or operators located in the so-called White Listed jurisdictions (Alderney, Antigua, Isle of Man and Tasmania) is permitted even without the benefit of a local licence (operators are only obliged to obtain a licence if certain key equipment is located in the UK) subject to the restrictions on the promotion of lottery products.
Changes are however mooted (and referenced in this year's Budget) which will see gambling regulated on a point of consumption basis making it necessary for all operators who do not currently possess a UK gambling licence and who wish to transact with players or advertise into the jurisdiction to pay tax in the UK. The proposed changes may or may not also require such operators to obtain a licence in the UK. However, a change in primary legislation is required, and whilst the UK government had intended to implement the required changes to the Gambling Act in 2013, the timetable is by no means certain. Also, there may yet be points of challenge under EU law, given that the proposals are more about revenue generation than consumer protection.
For the year ended 31 December 2011, approximately 29.7 per cent. of Gross Income was generated through Licensees transacting with the UK market.
The following operating and financial review should be read in conjunction with the historical financial information relating to the Group which is included in Part 4B of this document and with the information relating to the business of the Group included elsewhere in the Prospectus. This review contains certain forward-looking statements that reflect the current view of the Group's management and involve risks and uncertainties. The actual future results of the Group may differ materially from those discussed herein. Factors that could cause or contribute to such differences include, without limitation those discussed in the "Risk Factors" section and elsewhere in this document.
The selected financial information discussed in this Part 3 has been extracted without material adjustment from the historical financial information on the Group as at, and for the financial years ended, 31 December 2009, 31 December 2010 and 31 December 2011, set out in Part 4B of this document except as otherwise noted.
| Year ended 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Revenues | 114,775 | 142,294 | 207,485 |
| Income from associate | 22,534 5555 |
30,792 5555 |
36,073 5555 |
| Gross Income | 137,309 aaaa |
173,086 aaaa |
243,558 aaaa |
| Operating profit Depreciation and Amortisation (excluding amortisation |
56,449 | 45,309 | 52,154 |
| of intangibles on associate) | 8,778 5555 |
17,090 5555 |
29,137 5555 |
| EBITDA | 65,227 | 62,399 | 81,291 |
| Income from associate | 22,534 | 30,792 | 36,073 |
| Employee stock option expenses | 5,150 | 5,855 | 4,678 |
| Decline in fair value of available-for-sale investments One-off legal costs relating to the litigation with the |
399 | 2,223 | 551 |
| William Hill Group | – | – | 1,389 |
| Professional expenses on acquisitions | 360 5555 |
1,802 5555 |
1,488 5555 |
| Adjusted EBITDA | 93,670 aaaa |
103,071 aaaa |
125,470 aaaa |
| Net profit attributable to owners of the parent | 69,511 | 64,670 | 77,696 |
| Amortisation on acquisitions and intangibles of associate One-off legal costs relating to the litigation with the |
13,795 | 15,782 | 21,567 |
| William Hill Group | – | – | 1,389 |
| Decline in fair value of available-for-sale investments | 399 | 2,223 | 551 |
| Employee stock option expenses | 5,150 | 5,855 | 4,678 |
| Professional expenses on acquisitions | 360 | 1,802 | 1,488 |
| Financial cost on deferred consideration | |||
| (including exchange differences) | 186 | 1,936 | 6,049 |
| Previous year taxes | – 5555 |
939 5555 |
(571) 5555 |
| Adjusted Net Profit | 89,401 aaaa |
93,207 aaaa |
112,847 aaaa |
| Adjusted basic EPS (in Euro cents) | 37.3 | 38.5 | 46.2 |
| Adjusted diluted EPS (in Euro cents) | 36.0 | 37.1 | 45.7 |
| Other measures | 2 million |
2 million |
2 million |
|---|---|---|---|
| Total Assets | 327.2 | 384.1 | 771.0 |
| Net cash and cash equivalents | 58.7 | 68.5 | 137.3 |
| Cash generated from operating activities and dividend | |||
| from associates: | |||
| Net cash provided by operating activities | 70.7 | 71.0 | 74.4 |
| Dividend from associate | 18.5 5555 |
32.3 5555 |
35.1 5555 |
| Total | 89.2 aaaa |
103.3 aaaa |
109.5 aaaa |
Gross Income is a key measure adopted by management to assess the performance of its business comprising total revenues from Licensees including fees charged for services rendered, plus profits generated from the Group's shareholding in WHO.
EBITDA represents earnings before interest, taxation, depreciation and amortisation computed as operating profit for an accounting period plus depreciation and amortisation, excluding amortisation of intangibles on associate and acquisitions.
Adjusted EBITDA is EBITDA plus income from associate and before charging employee stock option expenses, decline in fair value of available for sale investments, one-off legal costs relating to the litigation with the William Hill Group and professional expenses on acquisitions.
The Group's growth in trading performance over the last three years is principally attributable to its ability to continue to attract new Licensee business whilst supporting and growing revenues from existing Licensees, the strong results of WHO and the Group's complementary acquisitions and product enhancements.
The Group has focused on the continued development of the IMS, its technology platform, new games and products in response to demand from its Licensees, and new opportunities particularly in newly regulating markets. This continual development process supports revenue growth across a wide range of products and geographic markets.
The Group has a diverse Licensee base, with approximately 30 of its Licensees each generating over 11 million of revenue in 2011, and benefits from substantial economies of scale which support significant software development capability. With a high proportion of fixed costs, being principally employee-related, the revenue share model delivers the potential for substantial operational gearing.
In December 2008, the Group entered into an agreement with the William Hill Group to facilitate the integration of the online businesses of the William Hill Group and the businesses and contracts, (comprising an affiliate marketing business, customer services operation and gaming brands and websites) which were purchased by the Group immediately prior to the creation of WHO. The transaction resulted in the Group receiving a 29 per cent. share of WHO, which comprises the enlarged combined casino and poker operations, together with WHO's existing online sportsbook. In accordance with accounting standards, Playtech records 100 per cent. of the licence fees received from WHO as revenue, with its profit share being shown separately in the statement of comprehensive income as "income from associate". On that basis, Gross Income (total revenues and income from associate before amortisation of intangibles) became the benchmark for the Group's trading performance.
In December 2009, the Group acquired GTS, a UK-based developer of an open software platform for delivery of its own and third party games to the games pages of operators. The total consideration paid was approximately 118.2 million.
In January 2010, the Group entered into certain strategic arrangements with Scientific Games for joint businesses including exclusive agreements for Videobet to develop gaming terminal software for Scientific Games and its subsidiary The Global Draw.
In February 2010, the Group acquired the business and assets of Virtue Fusion Limited, comprising a bingo software system and the businesses providing networked bingo games for its licensees including Mecca and William Hill Online, for a total consideration of £36 million.
In January 2011, the Group acquired IGS, a provider of software based casino management systems to land-based casinos, for a total consideration of up to £5.5 million, including an intial payment of £2.5 million.
In July 2011, the Group acquired PTTS, which carries out a wide range of complementary B2B services that provide support to Licensees. The acquisition has allowed the Group itself to provide a broad range of ancillary gambling related services to Licensees that enhances its commercial proposition and competitive position in the expanding online gambling marketplace. Initial consideration (following a working capital adjustment) of 1121 million has been paid and further consideration up to 1140 million is payable dependent on the future performance of the PTTS businesses. As a result of the stong performance of the PTTS Group in the current financial year, the Board believes there is an increased likelihood of accelerated payment of the full amount of this further consideration. Further details of the terms of this transaction (including the payment terms of the further consideration) are set out in paragraph 13.9 of Part 6 of this document.
In August 2011, the Group extended its capabilities to deliver mobile gambling when it acquired Mobenga, a Swedish based provider of a mobile sportsbetting platform. The acquisition brought well regarded technology to the Group in a segment which the Directors believe is a key contributor to future growth in online gambling. The total consideration payable is up to 123.8 million including an initial payment of 18 million. Further details of the terms of this transaction are set out in paragraph 13.8 of Part 6 of this document.
In November 2011, Playtech announced that it was raising, conditional on shareholder approval, £100 million through a placing of new Ordinary Shares to fund further acquisitions and joint ventures. The fundraising was completed in December 2011. Further details of the terms of this transaction are set out in paragraph 13.7 of Part 6 of this document.
In December 2011, Playtech acquired Ash Gaming, a leading developer of interactive gambling and betting games for the online gaming market. This acquisition expanded the range of games that the Group can offer to its Licensees for play on their "games tab". The total consideration payable is up to £23 million. Further details of the terms of this transaction are set out in paragraph 13.6 of Part 6 of this document.
Revenues are generated mainly through royalty income receivable from Licensees which comprises a percentage of the Licensees' revenue generated from the use of the Group's products or services and is recognised in the accounting periods in which the gaming activity occurs.
| Year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| Casino revenue | 76,757 | 96,710 | 114,385 | |
| Poker revenue | 33,813 | 27,406 | 21,793 | |
| Bingo revenue | 235 | 10,853 | 15,064 | |
| Services revenue | 827 | 1,079 | 43,012 | |
| Videobet revenue | 1,363 | 2,026 | 7,769 | |
| Other revenues | 1,780 5555 |
4,220 5555 |
5,462 5555 |
|
| Total revenue | 114,775 aaaa |
142,294 aaaa |
207,485 aaaa |
Total revenue for the year ended 31 December 2011 increased 46 per cent. to 1207.5 million while in the year ended 31 December 2010, revenues increased 24 per cent. to 1142.3 million; this was in part offset by the impact of the closure of the French offshore market in June 2010, which had been a significant continental European market for the Group. After excluding the impact from acquisitions in the year and the closure of the offshore market in France, the Group achieved 12 per cent. growth in revenues in 2010, and 21 per cent. in 2011.
In 2011, casino revenues increased 18 per cent. to 1114.4 million (2010: 196.7 million, up 26 per cent.) in part due to the further development of the branded games portfolio. Poker revenues decreased by 20 per cent. to 121.8 million (2010: 127.4 million, down 19 per cent.) reflecting the trends shown in the market. Bingo revenues increased by 39 per cent. in 2011 to 115.1 million; in 2010, bingo revenues totalled 110.9 million presenting a greatly enhanced bingo capability through the acquisition of Virtue Fusion in February of that year.
As a result of the acquisition of PTTS on 1 July 2011, Playtech for the first time earned significant services revenues of 143 million. Services to customers comprise marketing services, operational support services, payment advisory services and network management services.
Revenue from Videobet totalled 17.8 million (2010: 12.0 million), an increase of 283 per cent., as a result of the completion of the roll out of gaming machines by The Global Draw utilising Videobet's software in the second quarter of 2011. There are now approximately 20,000 gaming machines utilising Videobet software.
When the French licensing regime was introduced in 2010, this had a material bearing on revenue streams given the majority of Licensees elected not to get a licence and, as a consequence, to exit the market.
The same is a likely consequence in Germany where only a limited number of licences are available, and for sportsbetting only, particularly given that there may no longer be an option of licensing in Schleswig-Holstein.
In Spain, whilst numerous licences were granted on 1 June 2012, it is still not clear what in total all those operators will pay by way of retrospective taxes, which in certain circumstances will impact on the Group's commercial relationship with some of its Licensees. It is also not clear if challenge under EU law (of the Spanish authorities' right to retrospectively tax) will be made and what financial benefit will flow back through to the Group, if such a challenge is successful.
In the UK, if the proposed regime to license all operators who take business from the UK is implemented (which the UK government has committed to do with effect from the end of 2013 albeit it is far from clear that there is sufficient parliamentary time to permit this to happen) this, too, will have a material impact on revenues, unless the proposals can be successfully challenged. There is some doubt whether protection of the consumers is in reality secondary to fiscal opportunism and this would be the source of a challenge under EU law.
Social gaming may also have a significant impact on future revenues depending on whether the Group is able to monetise the social gaming software it has recently licensed from Skywind. Revenues in the social gaming sector continue to remain high, but the appeal of the games is sometimes difficult to predict and they are becoming more costly to produce. In addition, the underlying costs of using the interface of the larger social network sites to promote any games, are continuing to increase. Also greater market penetration will ultimately mean the increased threat of regulation given there is no universal definition of play for fun in all jurisdictions, and this too will impact upon revenues.
Any opening of the US market for online poker will also create significant revenues for certain of the Group's Licensees and joint venture partners, albeit only Nevada has fully implemented the enabling legislation thus far.
The Group's growth in revenues stems from the continuing development of the Company's existing products and platforms, as well as the acquisition of and investment in new products. Such investments and acquisitions allow the Group to improve its overall product offering, penetrate new markets, facilitate future organic growth and increase the portfolio of Licensees, thereby gaining additional market share and growth in revenues. The Group's principal operating costs are its employees and revenue-based fees payable to third parties.
| Year ended 31 December | ||||||
|---|---|---|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
||||
| Operating expenses | 58,326 | 96,985 | 155,331 | |||
| Depreciation and Amortisation | (8,778) | (17,090) | (29,137) | |||
| Employee stock option expenses | (5,150) | (5,855) | (4,678) | |||
| Decline in fair value of available-for-sale investments | (399) | (2,223) | (551) | |||
| Professional expenses on acquisitions | (360) | (1,802) | (1,488) | |||
| One-off legal costs relating to litigation with the William Hill Group |
– 5555 |
– 5555 |
(1,389) 5555 |
|||
| Adjusted Operating Expenses | 43,639 | 70,015 | 118,088 | |||
| Revenue driven costs | (4,100) 5555 |
(12,574) 5555 |
(25,091) 5555 |
|||
| Adjusted operating expenses excluding revenue driven costs |
39,539 aaaa |
57,441 aaaa |
92,995 aaaa |
|||
| Employee related costs(1) | 25,363 64% | 39,594 69% | 64,309 69% | |||
| Administration and office costs(1) | 5,748 15% | 8,852 16% | 11,872 13% | |||
| Travel, exhibition and marketing costs(1) | 4,421 11% | 4,608 8% | 4,730 5% | |||
| Cost of service(1) | – | – | 831 1% | 4,266 5% | ||
| Other operational costs(1) | 4,007 10% 5555 |
3,556 6% 5555 |
7,818 8% 5555 |
|||
| 39,539 aaaa |
57,441 aaaa |
92,995 aaaa |
||||
(1) These figures have been extracted from the Group's annual reports for the years ended 31 December 2010 and 31 December 2011; and in the case of the year ended 31 December 2009, the figures have been extracted from the Group's underlying accounting records.
Adjusted operating expenses for the year ended 31 December 2011 increased by 69 per cent. to 1118.1 million (2010: 170.0 million). After excluding the effects of acquisitions made during the year, adjusted operating expenses increased by 23 per cent., mainly due to higher employee-related costs and an increase in revenue driven costs linked to the overall increase in revenues. These two items made up 76 per cent. of Group's adjusted operating expenses.
Employee costs for the year ended 31 December 2011 totalled 164.3 million (excluding 17.8 million of development costs capitalised) an increase of 62 per cent. on the prior year. The increase is mainly attributable to the full year impact of the acquisitions made in 2010 as well as the acquisitions made in 2011. As a percentage of adjusted non-revenue related costs, employee costs have remained steady at just below 70 per cent. since the start of 2010.
Excluding the effects of acquisitions made in 2011, employee related costs increased by 20 per cent. in 2011 mainly due to the increase in headcount in the year, reflecting the Group's continued investment in additional sales and support teams required in regulated or soon to be regulating markets and in preparation for key projects.
Revenue driven costs comprise mainly fees paid to sales agents and license fees paid to third parties for branded content, which are typically calculated as a share of the revenues generated from a particular game. These costs have continued to increase as branded games, such as Pink Panther, Rocky, Iron Man 2 and The Punisher, increase in popularity. Furthermore, a substantial proportion of the increase has been driven by the acquisition of PTTS in July 2011 which accounts for 37 per cent. of the total revenue driven costs for 2011.
Playtech has also focused on managing cost inflation across the business, and other costs including office, travel, cost of service and other operating costs have remained relatively steady year-on-year.
Total adjusted operating expenses for the year ended 31 December 2010 were 170.0 million an increase of 60 per cent. over 2009. The increase, which was in line with budget, was mainly due to anticipated increases in employee-related costs, together with the increase in revenue-based fees payable to third parties. These two items made up 75 per cent. of Group's adjusted operating expenses in the year to 31 December 2010.
Cost of service is mainly comprised of hosting costs. The increase in 2011 is mainly due to the acquisitions made during the year, of which PTTS was the largest.
Amortisation and depreciation costs of 129.1 million in 2011 (2010: 117.1 million) include depreciation of 15.4 million (2010: 13.4 million) and amortisation of 115.8 million (2010: 17.5 million) relating to acquisitions and exclude amortisation relating to the investment in WHO. Of the remaining 17.9 million, 15.8 million was due to amortisation of internally generated development costs (2010: 14.7 million) and 12.1 million related to other intangibles (2010: 11.5 million).
Cash is principally held in short-term deposits, which generate interest income. Interest received in the year 2011 totalled 10.5 million (2010: 10.5 million, 2009: 10.5 million). Financial income also included 13.1 million received as dividends from the investment in AsianLogic Limited (2010: 11.1 million, 2009: 11.7 million), but was offset by the discounting of deferred consideration of 16.1 million, mainly relating to the recent acquisitions of PTTS (in 2010, 11.9 million related to the acquisitions of GTS and the business and assets of Virtue Fusion Limited and exchange rate differences on deferred consideration in respect of the investment in WHO).
The Group is tax registered, managed and controlled from the Isle of Man, where the corporate tax rate is set at zero. The Group's subsidiaries are located in different jurisdictions and are taxed on their residual profits.
The tax charge in 2011 of 10.9 million is post a credit correction to the previous year tax of 10.6 million (2010: 12.3 million, including a one-off prior year tax charge of 10.9 million; 2009: 10.8 million). The effective rate excluding this correction was 1.9 per cent. (2010: 2.1 per cent., excluding the one-off charge; 2009: 1.2 per cent.).
The Group is a highly cash generative business and, in addition to the dividends received from WHO, the placing of new Ordinary Shares at the end of 2011 further increased the cash balances of the Company. The main uses of funds relate to the consideration payable for acquisitions and investments. During 2011, Playtech has drawndown 127.5 million from its available banking facilities for financing the acquisition of Ash Gaming, the net cash and cash equivalents as at 31 December 2011 amounted to 1137.3 million (2010: 168.5 million, 2009: 158.7 million), representing 18 per cent. (2010: 18 per cent., 2009: 18 per cent.) of the Group's total assets.
In the year ended 31 December 2011, the Group generated 174.4 million from its operating activities (2010: 171.0 million, 2009: 170.7 million), and in addition received 135.1 million of dividend payments from associates, which are presented as cash generated from investing activities (2010: 132.3 million, 2009: 118.5 million). This together represents a cash conversion rate of 87 per cent. from adjusted EBITDA (2010: over 100 per cent.; 2009: 95 per cent.).
In 2011, the Group's cash usage from investing activities was 1100.0 million (2010: 121.7 million, 2009: 17.4 million), 181.7 million of which was consideration for acquisitions made in 2011, the balance being represented by the final payments for the consideration of GTS and the business and assets of Virtue Fusion Limited, and the settlement of final payment for the assets acquired in connection with the creation of WHO (altogether totalling 130.5 million), and netted-off by the dividend received from the investment in WHO.
Cash generated from financing activities in 2011 was 1122.0 million, consisting of the net proceeds of the placing of new Ordinary Shares of 1117.5 million, the funds drawndown under the credit facility of 127.5 million (plus interest payable), netted off by the payment of the final dividend for the year ended 31 December 2010 of 123.4 million (2010: cash used in financing activities of 139.5 million; 2009: cash used in financing activities of 136.1 million, both being the payments of dividends to shareholders).
Net cash and cash equivalents as at 31 December 2011 were 1137.3 million (2010: 168.5 million; 2009: 158.7 million).
The majority of the trade receivables balance represents amounts payable by Licensees for the month of December, as these are typically paid one month in arrears.
Intangible assets as at 31 December 2011 totalled 1365.2 million (2010: 1100.4 million, 2009: 165.5 million), the majority of which is comprised of intangible assets acquired from PTTS, Tribeca, Ash Gaming, Mobenga, GTS and the business and assets of Virtue Fusion Limited; goodwill that arose from those acquisitions; patent and intellectual property rights and development costs of new games and products.
As at 31 December 2011, available for sale investments totalled 112.4 million (2010: 110.9 million, 2009: 15.5 million) and comprise the investments in Sportech PLC and AsianLogic Limited. An investment in CY Foundation was sold in the first half of 2010.
Investments in equity-accounted associates of 1163.0 million mainly relate to the investment in WHO, but also includes the investment in the ITL partnership and Sciplay (2010: 1162.6; 2009: 1170.4 million).
As at 31 December 2011, long and short term deferred consideration balances of 175.3 million are due in respect of the PTTS acquisition and represent the present value of instalments payable on the balance of the initial consideration. As at 31 December 2010, the deferred consideration balance was 115.0 million representing the present value of the consideration payable to a third party for assets acquired and then injected into WHO. That balance was paid in full by the end of 2011.
Long and short term contingent consideration of 1111.9 million represents the present value of the contingent consideration to be paid for the acquisition of PTTS and the acquisition of Mobenga and IGS (2010: 116.5 million for the investment in GTS and the acquisition of the business and assets of Virtue Fusion Limited; 2009: 16.9 million for the investment in GTS).
The Group finances its activities and operations by a combination of operating revenues (and consequent cash generation thereon), equity share issues and debt facilities.
The table below shows the Group's cash and cash equivalents.
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2000 | 2000 | 2000 | |
| Cash at bank | 29,880 | 29,550 | 111,492 |
| Deposits | 28,820 5555 |
38,969 5555 |
53,340 5555 |
| 58,700 aaaa |
68,519 aaaa |
164,832 aaaa |
The Group's cash and cash equivalents are mainly held in Euros and pounds sterling.
The table below shows the Group's indebtedness.
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2000 | 2000 | 2000 | ||
| Current bank borrowings | – | – | 13,787 | |
| Non-current bank borrowings | – 5555 |
– 5555 |
13,746 5555 |
|
| – aaaa |
– aaaa |
27,533 aaaa |
The Group's borrowings are denominated in Euros and the financial risk management is described in note 28 of the historical financial information set out at Part 4B of this document.
The rate at which the liabilities are payable is 2.25 per cent. above Euro LIBOR. The loan is payable in eight quarterly instalments starting in March 2012.
As at 31 December 2011, the Group had undrawn committed borrowing facilities available of 182.6 million with three banks as summarised below.
| Committed at | Utilised at | Undrawn at | |
|---|---|---|---|
| 31 December | 31 December | 31 December | |
| 2011 | 2010 | 2011 | |
| 2000 | 2000 | 2000 | |
| Bank Hapoalim B.M. | 50,000 | – | 50,000 |
| Bank Leumi (UK) plc | 30,000 | 27,400 | 2,600 |
| Israel Discount Bank Limited | 30,000 5555 |
– 5555 |
30,000 5555 |
| 110,000 aaaa |
27,400 aaaa |
82,600 aaaa |
|
The Group repaid the entire loan balance outstanding at 31 December 2011 of 127.5 million in February 2012 out of existing cash resources, restoring undrawn committed borrowing facilities to 1110 million. Subsequently, the Group drew down 175 million of borrowing facilities from Bank Hapoalim B.M. (150 million) and Bank Leumi (UK) plc (125 million) in order to fund the accelerated payment of PTTS initial consideration, in April 2012, on similar terms to those set out above, other than the loan from Bank Hapoalim B.M. is repayable in two annual installments, commencing in April 2013.
The Group's cash flows are discussed in paragraph 7 of this Part 3 of this document.
The Group's funding and treasury policies and objectives in respect of related matters are described in note 28 of the historical financial information set out at Part 4B of this document.
The Board has adopted a policy of paying out up to 40 per cent. of adjusted net profits in any financial year by way of dividend which, it is intended, would be paid as to one-third as an interim dividend and two-thirds as a final dividend. The Company paid a combined interim and final dividend for the 2011 financial year. Accordingly, the Board determined to pay a dividend in May 2012 for the 2011 financial year of 16.5 1 cents per share. This represents a total payment for the year ended 31 December 2011 of 147.7 million (2010: 146.1 million).
The Directors Playtech Limited 2nd Floor St George's Court Upper Church Street Douglas Isle of Man IM1 1EE
BDO LLP 55 Baker Street London W1U 7EU
28 June 2012
Canaccord Genuity Limited 88 Wood Street London EC2V 7QR
Dear Sirs
Playtech Limited (the "Company") and its subsidiary undertakings (together, the "Playtech Group")
We report on the financial information set out in Part 4B. This financial information has been prepared for inclusion in the prospectus dated 28 June 2012 of Playtech Limited (the "Prospectus") on the basis of the accounting policies set out in note 2 to the financial information. This report is required by item 20.1 of annex I of the Commission Regulation (EC) No. 809/2004 (the "PD Regulation") and is given for the purpose of complying with that item and for no other purpose.
The directors of the Company are responsible for preparing the financial information in accordance with International Financial Reporting Standards as adopted by the European Union.
It is our responsibility to form an opinion on the financial information and to report our opinion to you.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of annex I of the PD Regulation consenting to its inclusion in the Prospectus.
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions outside the United Kingdom and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair view of the state of affairs of the Playtech Group as at 31 December 2009, 2010 and 2011 and of its profits, changes in equity and cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of annex I of the PD Regulation.
Yours faithfully
BDO LLP Chartered Accountants
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
| 2009 2010 2011 2'000 2'000 2'000 Note Revenues 4 114,775 142,294 207,485 Distribution costs (45,453) (72,867) (129,140) Administrative expenses (12,873) (24,118) (26,191) 5555 5555 5555 Total operating costs (58,326) (96,985) (155,331) 5555 5555 5555 Operating profit before the following items: 68,764 68,863 82,644 Professional expenses on acquisition (360) (1,802) (1,488) Employee stock option expenses 9 (5,150) (5,855) (4,678) Amortisation of intangible assets 11 (6,406) (13,674) (23,773) Decline in fair value of available-for-sale investments 14 (399) (2,223) (551) 5555 5555 5555 Total (12,315) (23,554) (30,490) 5555 5555 5555 Operating profit 5 56,449 45,309 52,154 Financing income – other 2,148 1,690 3,972 Exchange rate differences – on deferred consideration 12 232 – – 5555 5555 5555 Financing income 6 2,380 1,690 3,972 5555 5555 5555 Financing cost – movement in deferred and contingent consideration (418) (736) (6,075) Financing cost – other (93) (424) (1,186) Exchange rate differences – on deferred consideration 12 – (1,200) – 5555 5555 5555 Total financing cost 6 (511) (2,360) (7,261) 5555 5555 5555 Income from associate 12 22,534 30,792 36,073 Amortisation of intangibles in associate 12 (10,513) (8,266) (5,729) Share of profit of associate 12,021 22,526 30,344 Share of loss in joint venture 12 – (152) (546) 5555 5555 5555 Profit before taxation 70,339 67,013 78,663 Tax expense 7 (828) (2,343) (957) 5555 5555 5555 Profit for the year 69,511 64,670 77,706 Other comprehensive income for the year: Transfer to profit and loss on sale – (1,025) – Adjustments for change in fair value of available-for-sale equity instruments 1,025 – 1,995 5555 5555 5555 Total comprehensive income for the year 70,536 63,645 79,701 aaaa aaaa aaaa |
For the year ended 31 December | ||
|---|---|---|---|
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | 2'000 | 2'000 | 2'000 | |
| Profit for the year attributable to: | ||||
| Owners of the parent | 69,511 | 64,670 | 77,696 | |
| Non-controlling interest | – 5555 |
– 5555 |
10 5555 |
|
| 69,511 aaaa |
64,670 aaaa |
77,706 aaaa |
||
| Total comprehensive income attributable to: | ||||
| Owners of the parent | 70,536 | 63,645 | 79,691 | |
| Non-controlling interest | – 5555 |
– 5555 |
10 5555 |
|
| 70,536 aaaa |
63,645 aaaa |
79,701 aaaa |
||
| Earnings per share for profit attributable to the | ||||
| owners of the parent during the year | 8 | |||
| Basic (cents) | 29.0 | 26.7 | 31.8 | |
| Diluted (cents) | 28.0 | 25.7 | 31.4 |
| Total attributable |
||||||
|---|---|---|---|---|---|---|
| Additional paid in capital 2'000 |
Available- for-sale reserve 2'000 |
Retained earnings 2'000 |
to equity holders of the parent 2'000 |
Non controlling interest 2'000 |
Total equity 2'000 |
|
| Balance at 1 January 2009 | 180,097 | – | 50,109 | 230,206 | – | 230,206 |
| Total comprehensive income | ||||||
| for the year | – | 1,025 | 69,511 | 70,536 | – | 70,536 |
| Dividends paid | – | – | (39,562) | (39,562) | – | (39,562) |
| Exercise of options | 3,466 | – | – | 3,466 | – | 3,466 |
| Employee stock option scheme | 555 – |
555 – |
555 5,270 |
555 5,270 |
555 – |
555 5,270 |
| Balance at 31 December 2009 | 555 183,563 |
555 1,025 |
555 85,328 |
555 269,916 |
555 – |
555 269,916 |
| Total comprehensive income | ||||||
| for the year | – | (1,025) | 64,670 | 63,645 | – | 63,645 |
| Dividends paid | – | – | (45,593) | (45,593) | – | (45,593) |
| Exercise of options | 6,127 | – | – | 6,127 | – | 6,127 |
| Employee stock option scheme | 555 – |
555 – |
555 5,855 |
555 5,855 |
555 – |
555 5,855 |
| Balance at 31 December 2010 | 189,690 555 | 555 – |
555 110,260 |
555 299,950 |
555 – |
555 299,950 |
| Total comprehensive income | ||||||
| for the year | – | 1,995 | 77,696 | 79,691 | 10 | 79,701 |
| Dividends paid | – | – | (23,377) | (23,377) | – | (23,377) |
| Issue of share capital (net of | ||||||
| issue costs) | 117,549 | – | – | 117,549 | – | 117,549 |
| Exercise of options | 614 | – | – | 614 | – | 614 |
| Acquisition of non-controlling | ||||||
| interest | – | – | – | – | (59) | (59) |
| Purchase of treasury shares | – | – | (366) | (366) | – | (366) |
| Employee stock option scheme | 555 – |
555 – |
555 4,678 |
555 4,678 |
555 – |
555 4,678 |
| Balance at 31 December 2011 | aaa 307,853 |
aaa 1,995 |
aaa 168,891 |
aaa 478,739 |
aaa (49) |
aaa 478,690 |
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | 2'000 | 2'000 | 2'000 | |
| Non-current assets | ||||
| Property, plant and equipment | 10 | 8,395 | 12,876 | 21,548 |
| Intangible assets | 11 | 65,459 | 100,384 | 365,201 |
| Investments in equity-accounted associates | ||||
| and joint ventures | 12 | 170,366 | 162,583 | 162,997 |
| Available-for-sale investments | 14 | 5,513 | 10,932 | 12,376 |
| Other non-current assets | 15 | 2,309 5555 |
6,070 5555 |
2,820 5555 |
| Current assets | 252,042 | 292,845 | 564,942 | |
| Trade receivables | 16 | 6,324 | 13,385 | 21,007 |
| Other receivables | 17 | 10,119 | 9,364 | 20,228 |
| Cash and cash equivalents | 18 | 58,700 | 68,519 | 164,832 |
| 5555 | 5555 | 5555 | ||
| 75,143 5555 |
91,268 5555 |
206,067 5555 |
||
| Total assets | 327,185 aaaa |
384,113 aaaa |
771,009 aaaa |
|
| Equity | ||||
| Additional paid-in capital | 183,563 | 189,690 | 307,853 | |
| Available-for-sale reserve | 14 | 1,025 | – | 1,995 |
| Retained earnings | 85,328 5555 |
110,260 5555 |
168,891 5555 |
|
| Equity attributable to equity holders of parent | 19 | 269,916 | 299,950 | 478,739 |
| Non-controlling interest | – 5555 |
– 5555 |
(49) 5555 |
|
| Total equity | 269,916 aaaa |
299,950 aaaa |
478,690 aaaa |
|
| Non-current liabilities | ||||
| Loans and borrowings | 21 | – | – | 13,746 |
| Other non-current liabilities | 20 | 1,168 | 953 | 1,423 |
| Deferred revenues | 14 | 14,745 | 11,469 | 8,919 |
| Deferred tax liability | 23 | 2,231 | 1,950 | 5,287 |
| Deferred consideration | 13 | – | – | 41,752 |
| Contingent consideration | 13 | 6,983 5555 |
5,474 5555 |
110,985 5555 |
| 25,127 5555 |
19,846 5555 |
182,112 5555 |
||
| Current liabilities | ||||
| Loans and borrowings | 21 | – | – | 13,787 |
| Trade payables | 22 | 8,823 | 13,013 | 17,678 |
| Progressive and other operators' jackpots | 1,068 | 12,847 | 20,491 | |
| Tax liabilities | 1,087 | 1,499 | 1,837 | |
| Deferred revenues | 14 | 3,441 | 3,644 | 4,986 |
| Deferred consideration | 13 | 13,554 | 15,001 | 33,591 |
| Contingent consideration | 13 | – | 11,059 | 929 |
| Other payables | 24 | 4,169 5555 |
7,254 5555 |
16,908 5555 |
| 32,142 5555 |
64,317 5555 |
110,207 5555 |
||
| Total equity and liabilities | 327,185 aaaa |
384,113 aaaa |
771,009 aaaa |
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | 2'000 | 2'000 | 2'000 | |
| Cash flows from operating activities Profit after tax Adjustments to reconcile net income to net cash provided by operating activities |
69,511 | 64,670 | 77,706 | |
| (see below) | 2,017 | 8,924 | (1,525) | |
| Income taxes paid | (841) 5555 |
(2,591) 5555 |
(1,821) 5555 |
|
| Net cash provided by operating activities | 70,687 5555 |
71,003 5555 |
74,360 5555 |
|
| Cash flows from investing activities | ||||
| Long-term deposits | 172 | (238) | 33 | |
| Long-term loan Dividend received from equity-accounted |
(1,141) | (1,003) | 2,560 | |
| associates | 18,528 | 32,269 | 35,087 | |
| Acquisition of property, plant and equipment | (5,886) | (7,176) | (12,562) | |
| Investment in available-for-sale investments Proceeds from sales of available-for-sale |
14 | – | (11,332) | – |
| investments | – | 2,665 | – | |
| Investments in joint ventures | 12 | – | (2,920) | (4,445) |
| Acquisition of intangible assets Acquisition of subsidiary, net of cash |
(2,309) | (111) | (79) | |
| acquired | (11,310) | (26,136) | (97,189) | |
| Capitalised development costs | (5,503) | (7,793) | (9,542) | |
| Investment in equity-accounted associates Proceeds from sale of property, plant |
12 | – | – | (15,001) |
| and equipment | – 5555 |
57 5555 |
1,138 5555 |
|
| Net cash used in investing activities | (7,449) 5555 |
(21,718) 5555 |
(100,000) 5555 |
|
| Cash flows from financing activities Dividends paid to the holders of the parent Issue of share capital, net of issue costs Purchase of treasury shares |
(39,562) – – |
(45,593) – – |
(23,377) 117,549 (366) |
|
| Proceeds from bank borrowings | – | – | 27,533 | |
| Exercise of options | 3,466 5555 |
6,127 5555 |
614 5555 |
|
| Net cash (used in)/from financing activities | (36,096) 5555 |
(39,466) 5555 |
121,953 5555 |
|
| Increase in cash and cash equivalents Cash and cash equivalents at beginning |
27,142 | 9,819 | 96,313 | |
| of year | 31,558 5555 |
58,700 5555 |
68,519 5555 |
|
| Cash and cash equivalents at end of year | 58,700 aaaa |
68,519 aaaa |
164,832 aaaa |
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Income and expenses not affecting operating cash flows | |||
| Depreciation | 2,372 | 3,416 | 5,364 |
| Amortisation | 6,406 5555 |
13,674 5555 |
23,773 5555 |
| 8,778 | 17,090 | 29,137 | |
| Income from associate | (22,534) | (30,792) | (36,073) |
| Amortisation of intangibles in associate | 10,513 | 8,266 | 5,729 |
| Share of loss in joint venture | – | 152 | 547 |
| Decline in fair value of available-for-sale investment | 399 | 2,223 | 551 |
| Employee stock option plan expenses | 5,150 | 5,855 | 4,678 |
| Income tax expense | 828 | 2,343 | 957 |
| Others | 122 | 16 | 105 |
| Changes in operating assets and liabilities | |||
| Decrease/(increase) in trade receivables | 4,156 | (2,791) | (4,250) |
| Increase in other receivables | (3,076) | (176) | (5,461) |
| Increase in trade payables | 2,788 | 1,933 | (17,359) |
| (Decrease)/increase in progressive and other | |||
| operators' jackpot | (361) | 3,483 | 7,644 |
| (Decrease)/increase in other payables | (1,444) | 4,395 | 14,201 |
| Decrease in deferred revenues | (3,302) 5555 |
(3,073) 5555 |
(1,931) 5555 |
| 2,017 aaaa |
8,924 aaaa |
(1,525) aaaa |
| 2009 | 2010 | 2011 | |
|---|---|---|---|
| Note | 2'000 | 2'000 | 2'000 |
| 25 | 11,310 | – | 7,399 |
| 25 | – | 26,136 | 8,122 |
| 25 | – | – | 2,836 |
| 25 | – | – | 44,314 |
| 25 | – | – | 7,830 |
| 25 | – | – | 27,027 |
| 25 | – | – | (339) 5555 |
| 11,310 | 26,136 | 97,189 aaaa |
|
| 5555 aaaa |
For the year ended 31 December 5555 aaaa |
The financial information provided is for the Playtech Group's three financial years ended 31 December 2009, 2010 and 2011. The entities included in the Playtech Group for each year is set out at note 27.
The financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs"). In the current year the Playtech Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for accounting periods beginning on 1 January 2011.
The following new standards, interpretations and amendments, which have not been applied to these financial statements, will or may have an effect on the Playtech Group's future financial statements:
IFRS 7 (Amended) – Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011);
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (effective for annual periods beginning on or after 1 July 2012).
The following new standards, interpretations and amendments, which have not yet been endorsed by the EU, are effective for annual periods beginning on or after 1 January 2013:
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements;
IFRS 13 Fair Value Measurement;
IAS 28 Investments in Associates and Joint Ventures;
Disclosures – Offsetting Financial Assets and Liabilities (Amendments to IFRS 7);
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective for annual periods beginning on or after 1 January 2014);
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2015).
The Playtech Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results.
None of the other new standards, interpretations and amendments, which are effective for periods beginning after 1 January 2011 and which have not been adopted early, are expected to have a material effect on the Playtech Group's future financial statements.
The financial information of the Company and its subsidiaries is prepared in Euro (the functional currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Playtech Group. Transactions and balances in foreign currencies are converted into Euro in accordance with the principles set forth by International Accounting Standard (IAS) 21 ("The Effects of Changes in Foreign Exchange Rates"). Accordingly, transactions and balances have been converted as follows:
Monetary assets and liabilities – at the rate of exchange applicable at the balance sheet date; Income and expense items – at exchange rates applicable as of the date of recognition of those items. Non-monetary items are converted at the rate of exchange used to convert the related balance sheet items i.e. at the time of the transaction. Exchange gains and losses from the aforementioned conversion are recognised in the consolidated statement of comprehensive income.
Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial information presents the results of the Company and its subsidiaries (the "Playtech Group") as if they formed a single entity. Intercompany transactions and balances between Playtech Group companies are therefore eliminated in full.
Income receivable from contracting parties comprises a percentage of the revenue generated by the contracting party from use of the Playtech Group's intellectual property in online gaming activities and land based gaming operations, and from fees charged for services rendered. Income is recognised in the accounting periods in which the gaming transactions occur or the services are rendered. Royalty and other income receivable under fixed-term arrangements are recognised over the term of the agreement on a straight line basis.
Distribution costs represent the direct costs of the function of providing services to customers, costs of the development function and advertising costs.
Certain employees participate in the Playtech Group's share option plans which commenced with effect from 1 December 2005. The fair value of the options granted is charged to the consolidated statement of comprehensive income on a straight line basis over the vesting period and the credit is taken to equity, based on the Playtech Group's estimate of shares that will eventually vest. Fair value is determined by the Black-Scholes and Binomial valuation model. The share options plan does not have any performance conditions other than continued service.
Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the balance sheet date in the countries in which the Playtech Group companies have been incorporated.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated balance sheet differs from its tax base, except for differences arising on:
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the Playtech Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Final dividends are recorded in the Playtech Group's financial information in the period in which they are approved by the Playtech Group's shareholders. Interim dividends are recognised when paid.
Property, plant and equipment comprise computers, leasehold improvements, office furniture and equipment, and motor vehicles and are stated at cost less accumulated depreciation. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Depreciation is calculated to write off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are:
| % | |
|---|---|
| Computers and gaming machines | 33.33 |
| Office furniture and equipment | 7.00–20.00 |
| Building and leasehold improvements | 10.00–20.00, or over the length of the lease |
| Motor vehicles | 15 |
Subsequent expenditures are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Playtech Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statement of comprehensive income.
The consolidated financial information incorporates the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.
Intangible assets comprise externally acquired patents, domains, and customer lists. Intangible assets also include internally generated capitalised software development costs. All such intangible assets are stated at cost less accumulated amortisation. Where intangible assets are acquired as part of a business combination they are recorded initially at their fair value. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount.
Amortisation is calculated using the straight-line method at annual rates estimated to write off the costs of the assets over their expected useful lives and is charged to operating expenses from the point the asset is brought into use. The principal annual rates used for this purpose are:
| % | |
|---|---|
| Domain names | Nil |
| Internally generated capitalised development costs | 33.33 |
| Technology IP | 20–33.33 |
| Customer list | 7–12.50 |
| Affiliate contracts | 5–12.50 |
| Patents | Over the expected useful lives 10–33 |
Intangible assets identified under the investment in equity accounted associates
| % | |
|---|---|
| Software | 10 |
| Customer relationships | 71 |
| Affiliate contracts | 52 |
| WHO Brands | 7 |
| Purchase assets brands | 10 |
| Covenant not to compete | 20 |
Management believes that the useful life of the domain names is indefinite. Domain names are reviewed for impairment annually.
Expenditure incurred on development activities including the Playtech Group's software development is capitalised only where the expenditure will lead to new or substantially improved products, the products are technically and commercially feasible and the Playtech Group has sufficient resources to complete development.
Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. All other expenditure, including that incurred in order to maintain an intangible assets current level of performance, is expensed as incurred.
Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, the Playtech Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.
For business combinations completed prior to 1 January 2011, cost comprised the fair value of assets given, and liabilities assumed, plus any direct costs of acquisition. Changes in the estimated value of contingent consideration arising on business combinations completed by this date were treated as an adjustment to cost and, in consequent, resulted in a change in the carrying value of goodwill.
For business combinations completed on or after 1 January 2011, cost comprises the fair value of assets given and liabilities assumed, plus the amount of any non-controlling interests in the acquiree. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. For combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense in the consolidated statement of comprehensive income, within administrative costs.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Goodwill is not amortised and is reviewed for impairment, annually or more specifically if events or changes in circumstances indicate that the carrying value may be impaired.
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to annual impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. – the higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to establish the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. – the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the group's cash generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the administrative expenses line item in the consolidated statement of comprehensive income, except to the extent they reverse gains previously recognised in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.
Where the Playtech Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated balance sheet at their fair value. The Playtech Group's share of postacquisition profits and losses is recognised in the consolidated statement of comprehensive income except that losses in excess of the Playtech Group's investment in the associate are not recognised unless there is an obligation to make good those losses.
Profits and losses arising on transactions between the Playtech Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the Playtech Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised as goodwill and included in the carrying amount of the associate. The carrying amount of investment in associate is subject to impairment in the same way as goodwill arising on a business combination described above.
The Playtech Group's investment in a jointly controlled entity is included in the financial statements under the equity method of accounting. The group includes the assets it controls, its share of any income and the liabilities and expenses of jointly controlled operations and jointly controlled assets in accordance with the terms of the underlying contractual arrangement.
The Playtech Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Playtech Group has not classified any of its financial assets as held to maturity. The Playtech Group does not hold any financial assets at fair value through profit and loss.
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
The Playtech Group's receivables comprise trade and other receivables, cash and cash equivalents, and loans to customers in the balance sheet
Trade receivables which principally represent amounts due from licensees are carried at original invoice value less an estimate made for bad and doubtful debts based on a review of all outstanding amounts at the year-end. An estimate for doubtful debts is made when there is objective evidence that the Playtech Group will not be able to collect amounts due according to the original terms of receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less. Where cash is on deposit with maturity dates greater than three months, it is disclosed within other receivables.
Loans to customers are in respect of formal loan agreements entered into between the Playtech Group and its customer, which are carried at original advanced value less a provision for impairment. They are classified between current and non-current assets in accordance with the contractual repayment terms of each loan agreement.
Non-derivative financial assets classified as available-for-sale comprise the Playtech Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value generally recognised in other comprehensive income and accumulated in the available for sale reserve. In accordance with IAS 39, a significant or prolonged decline in the fair value of an available-for-sale financial asset is recognised in the consolidated statement of comprehensive income
Purchases and sales of available for sale financial assets are recognised on settlement date with any change in fair value between trade date and settlement date being recognised in the available for sale reserve. On sale, the amount held in the available for sale reserve associated with that asset is removed from equity and recognised in the consolidated statement of comprehensive income.
Ordinary shares are classified as equity and are stated at the proceeds received net of direct issue costs.
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Several of the Playtech Group's licensees participate in progressive jackpot games. Each time a progressive jackpot game is played, a preset amount is added to a cumulative jackpot for that specific game. The accrual for the jackpot at the consolidated balance sheet date is included in progressive jackpot and other operator's jackpot liabilities.
Loans and bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
IFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement (see note 28). The fair value hierarchy has the following levels:
The level in the fair value hierarchy within which the financial asset or financial liability is categorised is determined on the basis of the lowest-level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels.
Long-term liabilities are those liabilities that are due for repayment or settlement in more than 12 months from the balance sheet date.
Provisions, which are liabilities of uncertain timing or amount, are recognised when the Playtech Group has a present obligation as a result of past events, if it is probable that an outflow of funds will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Non-controlling interest is recognised at the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.
Consideration paid/received for the purchase/sale of treasury shares is recognised directly in equity. The cost of treasury shares held is presented as a separate reserve (the "treasury share reserve"). Any excess of the consideration received on the sale of treasury shares over the weighted average cost of the shares sold is credited to retained earnings.
The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the Playtech Group's earnings and financial position are impairment of goodwill, the recognition and amortisation of development costs and the useful life of property, plant and equipment, the fair value of available for sale investments, share based payments, legal proceedings and contingent liabilities, determination of fair values of intangible assets acquired in business combinations, income tax, and determination of fair value of contingent consideration.
The Playtech Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Such estimates are based on management's experience of the business, but actual outcomes may vary. More details including carrying values are included in note 11.
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness.
Changes to estimates can result in significant variations in the amounts charged to the consolidated statement of comprehensive income in specific periods. More details including carrying values are included in notes 10 and 11.
The Playtech Group determines the fair value of available for sale investments that are not quoted using valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates for future cash flows. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realised immediately.
The methods and assumptions applied, and the valuation techniques used, are disclosed in note 28.
The Playtech Group has a share based remuneration scheme for employees. The fair value of share options is estimated by using the Black-Scholes and Binomial models, on the date of grant based on certain assumptions. Those assumptions are described in note 9 and include, among others, the dividend growth rate, expected share price volatility, expected life of the options and number of options expected to vest.
Management regularly monitors the key risks affecting the Playtech Group, including the regulatory environment in which the Playtech Group operates. A provision will be made where there is a present obligation from a past event, a transfer of economic benefits is probable and the amount of costs of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to the financial information. More details are included in note 30.
The fair value of the intangible assets acquired is based on the discounted cash flows expected to be derived from the use of the asset. Further information in relation to the determination of fair value of intangible assets acquired is given in notes 12 and 25.
The Playtech Group is subject to income tax in jurisdictions in which it is registered and judgment is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Playtech Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. The Playtech Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. More details are included in note 7.
The fair value of contingent consideration is based on the probability of expected cash flow outcomes and the assessment of present values using appropriate discount rates. Further information in relation to the determination of the fair value of contingent consideration is given in note 25.
The preparation of financial information in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates.
Management considers that the Playtech Group's activity as a single source supplier of online gaming solutions constitutes one operating and reporting segment, as defined under IFRS 8.
Management review the performance of the Playtech Group by reference to group-wide profit measures and the revenues derived from six main product groupings:
The group-wide profit measures are adjusted net profit (see note 8) and adjusted EBITDA. Management believes the adjusted profit measures represent more closely the underlying trading performance of the business. No other differences exist between the basis of preparation of the performance measures used by management and the figures in the group financial statements.
There is no allocation of operating expenses, profit measures, assets and liabilities to individual product groupings. Accordingly the disclosures below are provided on an entity-wide basis.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2011 | ||
| 2'000 | 2'000 | 2'000 | |
| Casino | 76,757 | 96,710 | 114,385 |
| Poker | 33,813 | 27,406 | 21,793 |
| Bingo | 235 | 10,853 | 15,064 |
| Videobet | 1,363 | 2,026 | 7,769 |
| Services | 827 | 1,079 | 43,012 |
| Other | 1,780 5555 |
4,220 5555 |
5,462 5555 |
| Total revenues | 114,775 aaaa |
142,294 aaaa |
207,485 aaaa |
There were two licensees who individually accounted for more than 10 per cent. of the total revenue of the group during the years ended 31 December 2009, 2010 and 2011. Revenue from these licensees, respectively, totalled 144.8 million, 144.3 million and 177.6 million in each respective year.
Analysis by geographical regions is made according to the jurisdiction of the gaming licence of the licensee. This does not reflect the region of the end users of the Playtech Group's licensees whose locations are worldwide.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Gibraltar | 12,340 | 44,149 | 54,813 |
| Canada | 47,849 | 42,809 | 65,185 |
| Curacao | 33,925 | 14,752 | 11,755 |
| Philippines | 4,703 | 9,855 | 20,941 |
| Rest of world | 15,958 5555 |
30,729 5555 |
54,791 5555 |
| 114,775 aaaa |
142,294 aaaa |
207,485 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| British Virgin Islands | 225,462 | 220,399 | 439,033 |
| Isle of Man | 20,719 | 58,313 | 75,802 |
| Sweden | – | – | 19,167 |
| Cyprus | 1,993 | 7,438 | 14,418 |
| Estonia | 1,970 | 4,222 | 7,020 |
| UK | 295 | 378 | 5,698 |
| Rest of world | 1,603 5555 |
2,095 5555 |
3,804 5555 |
| 252,042 aaaa |
292,845 aaaa |
564,942 aaaa |
Operating profit is stated after charging:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Directors' compensation | |||
| Short-term benefits of directors | 1,233 | 1,471 | 1,603 |
| Share-based benefits of directors | 980 | 898 | 748 |
| Bonuses to executive directors | 488 5555 |
528 5555 |
438 5555 |
| 2,701 aaaa |
2,897 aaaa |
2,789 aaaa |
|
| For the year ended 31 December | |||
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Auditors' remuneration | |||
| Audit services | |||
| Parent company and Playtech Group audit | 160 | 144 | 204 |
| Audit of overseas subsidiaries | 40 | 125 | 138 |
| Non-audit services | |||
| Other acquisitions and assurance services | 117 | 355 | 379 |
| Taxation compliance | – 5555 |
46 5555 |
86 5555 |
| 317 aaaa |
670 aaaa |
807 aaaa |
|
| For the year ended 31 December | |||
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Development costs (including capitalised | |||
| development costs) | 7,431 aaaa |
16,972 aaaa |
22,844 aaaa |
| 6. Financing income and costs |
|||
| For the year ended 31 December | |||
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Finance income | |||
| Interest received | 508 | 492 | 475 |
| Dividend received from available-for-sale investments | 1,729 | 1,074 | 3,075 |
| Exchange rate differences – on deferred consideration | 143 | – | – |
| Exchange differences | – 5555 |
124 5555 |
422 5555 |
| 2,380 aaaa |
1,690 aaaa |
3,972 aaaa |
|
| Finance cost | |||
| Finance cost-movement in deferred and contingent | |||
| consideration | (418) | (736) | (6,075) |
| Exchange differences – on deferred consideration | – | (1,200) | – |
| Bank charges | (93) 5555 |
(424) 5555 |
(1,186) 5555 |
| (511) 5555 |
(2,360) 5555 |
(7,261) 5555 |
|
| Net financing income/(expense) | 1,869 aaaa |
(670) aaaa |
(3,289) aaaa |
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 2010 |
2011 | ||
| 2'000 | 2'000 | 2'000 | |
| Current income tax | |||
| Income tax on profits of subsidiary operations | 1,345 | 1,685 | 1,866 |
| Previous year taxes | – | 939 | (571) |
| Deferred tax (note 23) | (517) 5555 |
(281) 5555 |
(338) 5555 |
| 828 aaaa |
2,343 aaaa |
957 aaaa |
The tax charge for the year can be reconciled to accounting profit as follows:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Profit before tax | 70,339 | 67,013 | 77,706 |
| Tax at effective rate in Isle of Man | – | – | – |
| Higher rates of current income tax in overseas | |||
| jurisdictions | 1,345 | 1,685 | 1,866 |
| Adjustments in respect of previous periods | – | 939 | (571) |
| Effect of deferred tax originating in overseas | |||
| jurisdictions | (517) 5555 |
(281) 5555 |
(338) 5555 |
| Total tax charge | 828 aaaa |
2,343 aaaa |
957 aaaa |
The group is tax registered, managed and controlled from the Isle of Man where the corporate tax rate is set to zero. The majority of profits arise in the British Virgin Islands. No tax is assessed in the British Virgin Islands, the Company's country of incorporation. The Playtech Group's subsidiaries are located in different jurisdictions. The subsidiaries are taxed on their residual profit.
The previous year's taxes in 2010 of 10.9 million were due to the finalisation of tax assessments relating to 2006. The tax credit in 2011 of 10.6 million relates to the creation of deferred tax asset in one of the group's subsidiaries.
The deferred tax is due to the reversal of temporary differences arising on the acquisition of certain businesses in the current and prior year.
Earnings per share have been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue and the earnings, being profit after tax, is as follows:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Euro cents | Euro cents | Euro cents | |
| Basic | 29.0 | 26.7 | 31.8 |
| Diluted | 28.0 aaaa |
25.7 aaaa |
31.4 aaaa |
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Profit for the year | 69,511 aaaa |
64,670 aaaa |
77,696 aaaa |
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Denominator – basic | |||
| Weighted average number of equity shares | 239,476,501 aaaaa |
242,011,308 aaaaa |
244,113,262 aaaaa |
| Denominator – diluted | |||
| Weighted average number of equity shares | 239,476,501 | 242,011,308 | 244,113,262 |
| Weighted average number of share options | 8,562,031 55555 |
9,173,326 55555 |
3,066,593 55555 |
| Weighted average number of shares | 248,038,532 aaaaa |
251,184,634 aaaaa |
247,179,855 aaaaa |
The adjusted earnings per share presents the profit for the year before charging professional costs on acquisitions, legal costs related to the litigation with the William Hill Group, previous year taxes and expenses related to the investment in joint venture and after various non-cash charges relating to acquisitions and investments together with the employee stock option plan. The directors believe that the adjusted profit represents more closely the underlying trading performance of the business.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Euro cents | Euro cents | Euro cents | |
| Basic – adjusted | 37.3 | 38.5 | 46.2 |
| Diluted – adjusted | 36.0 aaaa |
37.1 aaaa |
45.7 aaaa |
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Profit for the year | 69,511 | 64,670 | 77,696 |
| Decline in fair value of available-for-sale investments | 399 | 2,223 | 551 |
| Amortisation on acquisitions | 3,282 | 7,516 | 15,838 |
| Amortisation of intangibles in associate | 10,513 | 8,266 | 5,729 |
| 13,795 | 15,782 | 21,567 | |
| Movement in deferred and contingent consideration | 418 | 736 | 6,075 |
| Employee stock option expense | 5,150 | 5,855 | 4,678 |
| Professional expenses on acquisitions | 360 | 1,802 | 1,488 |
| One-off legal costs relating to the litigation with the William Hill Group |
– | – | 1,389 |
| Previous year taxes | – | 939 | (571) |
| Exchange differences – on deferred consideration | (232) 5555 |
1,200 5555 |
(26) 5555 |
| Adjusted profit for the year | 89,401 aaaa |
93,207 aaaa |
112,847 aaaa |
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Denominator – basic | |||
| Weighted average number of equity shares | 239,476,501 aaaaa |
242,011,308 aaaaa |
244,113,262 aaaaa |
| Denominator – diluted | |||
| Weighted average number of equity shares | 239,476,501 | 242,011,308 | 244,113,262 |
| Weighted average number of share options | 8,562,031 55555 |
9,173,326 55555 |
3,066,593 55555 |
| Weighted average number of shares | 248,038,532 aaaaa |
251,184,634 aaaaa |
247,179,855 aaaaa |
Out of the entire share options outstanding, 2,952,991, 2,089,468 and 9,716,729, at 31 December 2009, 2010 and 2011 respectively, have been excluded from the calculation of diluted EPS as their exercise price is greater than the weighted average share price during the year (i.e. they are out of the money) and therefore it would not be advantageous for the holders to exercise those options. The total number of options in issue is disclosed in note 9.
Total staff costs comprise the following:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Salaries and related costs | 29,628 | 47,732 | 66,901 |
| Employee stock options | 5,270 5555 |
5,855 5555 |
4,678 5555 |
| 34,898 aaaa |
53,587 aaaa |
71,759 aaaa |
|
| For the year ended 31 December | |||
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Average number of employees | |||
| Distribution | 743 | 1,041 | 1,627 |
| General and administration | 74 5555 |
81 5555 |
110 5555 |
| 817 aaaa |
1,122 aaaa |
1,737 aaaa |
|
The Playtech Group has the following employee share option plans ("ESOP") for the granting of non-transferable options to certain employees:
The overall term of the ESOP is five to ten years. These options are settled in equity once exercised. Option prices are either denominated in USD or GBP, depending on the option grant terms.
On 19 March 2009, the directors approved a repricing plan to convert options previously granted in USD to an equivalent GBP price. The impact of the modification was to recognise an incremental fair value charge of 12.7 million and 10.2 million during the years ended 31 December 2009 and 2010 respectively.
On 1 July 2010, the directors approved an amendment to the Plan, to extend the time during which options can be exercised from five years to ten years. The impact of the modification was to recognise an incremental fair value charge of 12.3 million and 11.7 million during the years ended 31 December 2010 and 2011.
At 31 December 2011, options under this scheme were outstanding over:
| As of 31 December | ||
|---|---|---|
| 2009 | 2011 | |
| Number | Number | Number |
| 213,679 | 141,067 | 141,067 |
| 851,020 | 489,979 | 410,250 |
| 133,334 | 133,334 | 133,334 |
| 333,334 | – | – |
| 521,379 | 325,046 | 282,046 |
| 611,666 | 611,666 | 610,000 |
| 200,000 | 200,000 | 200,000 |
| 2010 |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Shares vesting between 28 March 2007 and 28 March 2009 at an exercise price of £2.57 per share |
200,000 | 200,000 | 200,000 |
| Shares vesting between 21 June 2007 and 21 June 2009 at an exercise price of \$5.75 per share |
64,603 | 11,000 | 11,000 |
| Shares vesting between 21 June 2007 and 21 June 2009 at an exercise price of £3.16 per share |
71,978 | 60,334 | 60,334 |
| Shares vesting between 11 October 2007 and 11 October | |||
| 2009 at an exercise price of £1.72 per share Shares vesting between 11 December 2007 and 11 December |
833,334 | 208,334 | 208,334 |
| 2009 at an exercise price of \$4.35 per share Shares vesting between 11 December 2007 and 11 December |
520,902 | 65,000 | 65,000 |
| 2009 at an exercise price of £2.21 per share Shares vesting between 31 December 2007 and 31 October |
285,270 | 276,669 | 254,669 |
| 2010 at an exercise price of £3.79 per share Shares vesting between 31 December 2007 and 31 October |
250,000 | 250,000 | – |
| 2010 at an exercise price of \$7.48 per share Shares vesting between 16 May 2008 and 16 May 2010 |
75,000 | 75,000 | 75,000 |
| at an exercise price of \$7.50 per share Shares vesting between 16 May 2008 and 16 May 2010 |
40,000 | 20,000 | 20,000 |
| at an exercise price of £3.79 per share Shares vesting between 18 June 2008 and 18 June 2010 |
1,163,000 | 1,143,000 | 1,143,000 |
| at an exercise price of \$7.79 per share | 9,468 | 9,468 | 9,468 |
| Shares vesting between 18 June 2008 and 18 June 2010 at an exercise price of £3.96 per share |
143,920 | 121,808 | 110,252 |
| Shares vesting between 18 June 2008 and 18 June 2010 at an exercise price of £3.30 per share |
10,000 | 10,000 | 10,000 |
| Shares vesting between 3 October 2008 and 3 October 2011 at an exercise price of \$6.90 per share |
300,000 | – | – |
| Shares vesting between 10 October 2008 and 10 October 2011 at an exercise price of £3.51 per share |
150,000 | 112,500 | 112,500 |
| Shares vesting between 20 November 2008 and 20 November 2011 at an exercise price of \$7.19 per share |
30,000 | 30,000 | 30,000 |
| Shares vesting between 20 November 2008 and 20 November 2011 at an exercise price of £3.51 per share |
94,000 | 55,500 | 55,500 |
| Shares vesting between 31 December 2008 and 31 December 2010 at an exercise price of \$7.68 per share |
28,500 | 18,000 | 18,000 |
| Shares vesting between 31 December 2008 and 31 December 2010 at an exercise price of £3.86 per share |
55,000 | 49,500 | 41,000 |
| Shares vesting between 25 April 2009 and 25 April 2012 at | |||
| an exercise price of \$8.61 per share Shares vesting between 25 April 2009 and 25 April 2012 at |
40,000 | – | – |
| an exercise price of £4.35 per share Shares vesting between 21 May 2009 and 21 May 2012 at |
666,500 | 569,667 | 522,167 |
| an exercise price of £5.31 per share Shares vesting between 28 November 2009 and 28 November |
500,000 | 500,000 | 500,000 |
| 2012 at an exercise price of £3.20 per share Shares vesting between 31 December 2008 and 31 December |
1,832,353 | 1,674,210 | 1,502,725 |
| 2011 at an exercise price of £3.1725 per share Shares fully vesting on 22 May 2012 at an exercise price |
200,000 | 200,000 | 200,000 |
| of £4.155 per share Shares fully vesting on 22 May 2012 at an exercise price |
805,000 | 765,000 | 765,000 |
| of £4.05 per share Shares fully vesting on 6 November 2012 at an exercise |
75,000 | 75,000 | 75,000 |
| price of £3.70 per share Shares vesting between 18 April 2012 and 18 April 2013 |
1,386,000 | 1,260,000 | 1,130,000 |
| at an exercise price of £5.12 per share | – | 1,098,000 | 1,063,000 |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Shares vesting between 3 June 2012 and 3 June 2013 at | |||
| an exercise price of £4.84 per share | – | 328,000 | 220,000 |
| Shares vesting between 26 August 2012 and 26 August | |||
| 2013 at an exercise price of £4.16 per share | – | 288,670 | 264,725 |
| Shares fully vesting on 26 August 2013 at an exercise | |||
| price of £4.16 per share | – | 216,330 | 180,275 |
| Shares fully vesting on 10 March 2014 at an exercise | |||
| price of £3.5225 per share | – | – | 1,999,950 |
| Shares fully vesting on 25 August 2014 at an exercise | |||
| price of £3.0325 per share | – | – | 100,000 |
| Shares fully vesting on 16 December 2014 at an exercise | |||
| price of £2.30 per share | – 5555 |
– 5555 |
120,000 5555 |
| 12,694,240 aaaa |
11,592,082 aaaa |
12,843,596 aaaa |
|
The total number of shares exercisable as of 31 December 2009, 2010 and 2011 was 6,908,693, 5,971,186 and 6,220,707 respectively.
The fair value of the options that were granted in respect of equity-settled schemes was 15.3 million, 15.9 million and 14.1 million for 2009, 2010 and 2011 respectively. 15.2 million, 13.8 million and 11.0 million was recognised as an expense in the consolidate statement of comprehensive income and 10.1 million had been capitalised as part of development costs during the year ended 31 December 2009.
The following table illustrates the number and weighted average exercise prices of shares options for the ESOP.
| As of 31 December | As of 31 December | |||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | 2011 | 2009 | 2010 | 2011 | |
| Number of options |
Number of options |
Number of options |
Weighted average exercise price |
Weighted average exercise price |
Weighted average exercise price |
|
| Outstanding at beginning of | ||||||
| the year | 13,665,204 | 12,694,240 | 11,592,082 | \$5.56, £3.15 | \$5.12, £3.20 | \$4.57, £3.62 |
| Granted during the year | 2,266,000 | 1,958,000 | 2,331,650 | £3.87 | £4.82 | £3.4386 |
| Forfeited | (1,517,208) | (665,718) | (876,434) | \$7.47, £3.43 | \$6.61, £3.71 | £3.8744 |
| Exercised | 5555 (1,719,756) |
5555 (2,394,440) |
5555 (203,702) |
5555 \$3.00, £1.70 |
5555 \$4.38, £1.92 |
5555 \$4.50, £2.22 |
| Outstanding at the end of | ||||||
| the year | 12,694,240 aaaa |
11,592,082 aaaa |
12,843,596 aaaa |
\$5.12, £3.20 aaaa |
\$4.57, £3.62 aaaa |
\$4.58, £3.59 aaaa |
The weighted average share price at the date of exercise of options was £4.48, £5.08 and £3.47 in 2009, 2010 and 2011 respectively. The weighted average fair value of options granted during the year at the date of grant was £1.47, £1.67 and £1.78 in 2009, 2010 and 2011 respectively.
Share options outstanding at the end of the year have the following exercise prices:
| As of 31 December | ||||
|---|---|---|---|---|
| Expiry date | Exercise price | 2009 Number |
2010 Number |
2011 Number |
| 1 December 2010 | Between £1.45 and £2.55 | 2,129,970 | – | – |
| Between 6 February 2011 and 11 December 2011 |
Between \$4.35 and \$5.75 and between £1.72 and £3.16 |
3,010,528 | 473,666 | – |
| Between 15 May 2012 and 31 December 2012 |
Between £3.30 and £3.96 | 2,048,889 | 1,164,333 | 310,333 |
| Between 25 April 2013 and 31 December 2013 |
\$4.35 and £3.20 | 3,238,853 | 1,490,830 | 1,323,002 |
| Between 22 May 2014 and 6 November 2014 |
Between £3.70 and £4.155 | 2,266,000 | 790,000 | 740,000 |
| 1 December 2012 | \$2.50 and between £1.45 and £2.32 |
– | 764,380 | 684,651 |
| Between 6 February 2016 and 11 December 2016 |
Between \$4.50 and \$5.75 and between £1.72 and £3.16 |
– | 1,484,383 | 1,891,383 |
| Between 15 May 2017 and 31 December 2017 |
Between \$7.19 and \$7.79 and between £3.79 and £3.96 |
– | 730,443 | 1,314,387 |
| Between 25 April 2018 and 31 December 2018 |
\$4.35 and between £3.1725 and £5.31 |
– | 1,453,047 | 1,401,890 |
| Between 22 May 2019 and 6 November 2019 |
Between £3.70 and £4.155 | – | 1,310,000 | 1,230,000 |
| Between 18 April 2020 and 26 August 2020 |
Between £4.16 and £5.12 | – | 1,931,000 | 1,728,000 |
| Between 10 March 2021 and 16 December 2021 |
Between £2.30 and £3.5225 | – 5555 |
– 5555 |
2,219,950 5555 |
| 12,694,240 aaaa |
11,592,082 aaaa |
12,843,596 aaaa |
The fair value of the options granted under the ESOP is estimated as at the date of grant using the Black-Scholes model. The following table gives the assumptions made during the years ended 31 December 2009, 2010 and 2011:
For options granted on 22 May 2009, 6 November 2009 and 24 November 2009:
| Dividend yield (%) | 2%–3.06% |
|---|---|
| Expected volatility (%) | 56.1%–56.29% |
| Risk free interest rate (%) | 2.06%–2.61% |
| Expected life of options (years) | 3–4.5 |
| Weighted average exercise price | £3.87 |
| For options modified as a result of the repricing on 19 March 2009: | |
| Dividend yield (%) | 2% |
| Expected volatility (%) | 39.7%–56.4% |
| Risk free interest rate (%) | 1.24%–2.02% |
| Expected life of options (years) | 1–4 |
| Weighted average exercise price | £3.32 |
| For options granted on 18 April 2010, 3 June 2010 and 24 August 2010: | |
| Dividend yield (%) | 2.8%–2.85% |
| Expected volatility (%) | 42.1%–53.0% |
| Risk free interest rate (%) | 1.30%–2.63% |
| Expected life of options (years) | 3.61–4.61 |
| Weighted average exercise price | £4.82 |
The fair value of the amendment to Plan was estimated as at the date of grant using the Binomial model.
For options modified as a result of the amendment to Plan on 1 July 2010:
| Dividend yield (%) | 2.76% |
|---|---|
| Expected volatility (%) | 52.9% |
| Risk free interest rate (%) | 2.35% |
| Expected life of options (years) | 5.42 |
| Weighted average exercise price | £3.32 |
| For options granted on 11 March 2011, 26 August 2011 and 16 December 2011: | |
| Dividend yield (%) | 2.76%–2.81% |
|---|---|
| Expected volatility (%) | 49.8%–50.5% |
| Risk free interest rate (%) | 2.15% to 3.78% |
| Weighted average exercise price | £3.44 |
The volatility assumption, measured at the standard deviation of expected share price return, is based on a statistical analysis of daily share price over a period starting from the initial date of flotation through to the grant date.
| Computers and gaming machines 2'000 |
Office furniture and equipment 2'000 |
Motor vehicles 2'000 |
Leasehold improvement 2'000 |
Total 2'000 |
|
|---|---|---|---|---|---|
| Cost | |||||
| At 1 January 2009 | 6,974 | 767 | 72 | 496 | 8,309 |
| Additions | 5,431 | 181 | 57 | 217 | 5,886 |
| Acquired through business combinations | 75 | 43 | – | 48 | 166 |
| Disposals | (412) 555 |
(14) 555 |
– 555 |
(32) 555 |
(458) 555 |
| At 31 December 2009 | 12,068 | 977 | 129 | 729 | 13,903 |
| Additions | 4,553 | 178 | 37 | 2,408 | 7,176 |
| Acquired through business combinations | 847 | 39 | – | – | 886 |
| Disposals | (412) 555 |
(63) 555 |
(12) 555 |
(97) 555 |
(584) 555 |
| At 31 December 2010 | 17,056 | 1,131 | 154 | 3,040 | 21,381 |
| Additions | 8,855 | 403 | 64 | 3,240 | 12,562 |
| Acquired through business combinations | 2,066 | 219 | 110 | 322 | 2,717 |
| Disposals | (1,410) 555 |
(165) 555 |
– 555 |
– 555 |
(1,575) 555 |
| At 31 December 2011 | 26,567 aaa |
1,588 aaa |
328 aaa |
6,602 aaa |
35,085 aaa |
| Computers | Office | ||||
|---|---|---|---|---|---|
| and gaming | furniture and | Motor | Leasehold | ||
| machines | equipment | vehicles | improvement | Total | |
| 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | |
| Accumulated depreciation | |||||
| At 1 January 2009 | 3,237 | 138 | 26 | 85 | 3,486 |
| Charge | 2,087 | 208 | 16 | 61 | 2,372 |
| Disposals | (342) 555 |
(3) 555 |
– 555 |
(5) 555 |
(350) 555 |
| At 31 December 2009 | 4,982 | 343 | 42 | 141 | 5,508 |
| Charge | 3,045 | 176 | 30 | 165 | 3,416 |
| Disposals | (289) 555 |
(24) 555 |
(9) 555 |
(97) 555 |
(419) 555 |
| At 31 December 2010 | 7,738 | 495 | 63 | 209 | 8,505 |
| Charge | 4,457 | 176 | 56 | 675 | 5,364 |
| Disposals | (262) 555 |
(70) 555 |
– 555 |
– 555 |
(332) 555 |
| At 31 December 2011 | 11,933 aaa |
601 aaa |
119 aaa |
884 aaa |
13,537 aaa |
| Net book value | |||||
| As of 31 December 2009 | 7,086 aaa |
634 aaa |
87 aaa |
588 aaa |
8,395 aaa |
| As of 31 December 2010 | 9,318 aaa |
636 aaa |
91 aaa |
2,831 aaa |
12,876 aaa |
| As of 31 December 2011 | 14,634 aaa |
987 aaa |
209 aaa |
5,718 aaa |
21,548 aaa |
| Patents and | Customer | |||||
|---|---|---|---|---|---|---|
| domain | Technology | Development | list and | |||
| names | IP | costs | Affiliates | Goodwill | Total | |
| 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | |
| Cost | ||||||
| At 1 January 2009 | 3,142 | 1,185 | 10,670 | 25,554 | 10,801 | 51,352 |
| Additions | 620 | 1,689 | 5,623 | – | – | 7,932 |
| Acquired on business | ||||||
| combinations | 134 555 |
1,783 555 |
– 555 |
8,032 555 |
10,902 555 |
20,851 555 |
| At 31 December 2009 | 3,896 | 4,657 | 16,293 | 33,586 | 21,703 | 80,135 |
| Additions | 101 | 10 | 7,793 | – | – | 7,904 |
| Acquired on previous year business combinations Acquired on business |
– | – | – | – | 1,182 | 1,182 |
| combinations | 3,900 555 |
3,035 555 |
– 555 |
18,828 555 |
13,750 555 |
39,513 555 |
| At 31 December 2010 | 7,897 | 7,702 | 24,086 | 52,414 | 36,635 | 128,734 |
| Additions | 79 | – | 9,542 | 287 | – | 9,908 |
| Acquired on previous year business combinations Acquired through business |
– | – | – | – | (1,200) | (1,200) |
| combinations | 965 555 |
4,721 555 |
655 555 |
144,256 555 |
129,285 555 |
279,882 555 |
| At 31 December 2011 | 8,941 aaa |
12,423 aaa |
34,283 aaa |
196,957 aaa |
164,720 aaa |
417,324 aaa |
| Patents and | Customer | |||||
|---|---|---|---|---|---|---|
| domain | Technology | Development | list and | |||
| names | IP | costs | Affiliates | Goodwill | Total | |
| 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | |
| Accumulated amortisation | ||||||
| At 1 January 2009 | 618 | 63 | 1,733 | 5,856 | – | 8,270 |
| Provision | 394 555 |
93 555 |
2,660 555 |
3,259 555 |
– 555 |
6,406 555 |
| At 31 December 2009 | 1,012 | 156 | 4,393 | 9,115 | – | 14,676 |
| Provision | 845 555 |
1,830 555 |
4,720 555 |
6,279 555 |
– 555 |
13,674 555 |
| At 31 December 2010 | 1,857 | 1,986 | 9,113 | 15,394 | – | 28,350 |
| Provision | 836 555 |
2,570 555 |
5,805 555 |
14,562 555 |
– 555 |
23,773 555 |
| At 31 December 2011 | 2,693 555 |
4,556 555 |
14,918 555 |
29,956 555 |
– 555 |
52,123 555 |
| Net book value | ||||||
| As of 31 December 2009 | 2,884 aaa |
4,501 aaa |
11,900 aaa |
24,471 aaa |
21,703 aaa |
65,459 aaa |
| As of 31 December 2010 | 6,040 aaa |
5,716 aaa |
14,973 aaa |
37,020 aaa |
36,635 aaa |
100,384 aaa |
| As of 31 December 2011 | 6,248 aaa |
7,867 aaa |
19,365 aaa |
167,001 aaa |
164,720 aaa |
365,201 aaa |
Included in technology IP – assets acquired under business combinations – during the year ended 31 December 2011 are in-process R&D costs of 12.4 million in respect of the Ash Gaming acquisition (see note 25).
Management believes that domain names are stated at fair value and have an indefinite life due to their nature.
Amortisation of intangible assets is included in distribution costs. Included in the additions to development costs is 10.1 million in respect of share-based payments for the year ended 31 December 2009.
Assets acquired on previous year's business combinations during the year ended 31 December 2011 of 11.2 million relates to adjustments made to the GTS goodwill as a result of the finalisation of the contingent consideration during that year.
In accordance with IAS 36, the Playtech Group regularly monitors the carrying value of its intangible assets, including goodwill. Goodwill is allocated to six (2009 and 2010 – three) cash generating units ("CGU"), and the carrying values are below. In the years ended 31 December 2009 and 2010, management identified Tribeca as a CGU. Tribeca was an asset purchase in 2007 and management are now of the opinion that the underlying cash flows associated with this previous CGU can no longer be separately identified, and are now consumed within the Playtech Group's poker product.
At 31 December 2011 the recoverable amount of the CGUs has been determined from value-in-use calculations based on cash flow projections from the formally approved budget for 2012 and detailed projections covering the periods as noted below.
Key assumptions are as follows:
risks related to the goodwill. Annual growth rate of 226% for 2012, 34% for 2013, 43% for 2014, 20% for 2015-2016 and 2% for the following years, based on the average forecast GDP growth rate for the UK.
The results of the review indicated that there was no impairment of goodwill at 31 December 2011. Management has also reviewed the key assumptions and forecasts for the customer lists and affiliates, applying the above same key assumptions. The results of the reviews indicated that there was no impairment of the intangible assets at 31 December 2011.
| As of 31 December | |||||
|---|---|---|---|---|---|
| 2009 2010 |
2011 | ||||
| 2'000 | 2'000 | 2'000 | |||
| Investments in equity-accounted associates and | |||||
| joint ventures comprise: | |||||
| Investment in William Hill Online (associate) | 170,366 | 162,245 | 156,618 | ||
| Investment in Sciplay (joint venture) | – | 338 | 332 | ||
| Investment in International Terminal Leasing | – 5555 |
– 5555 |
6,047 5555 |
||
| 170,366 aaaa |
162,583 aaaa |
162,997 aaaa |
The investment in WH Online has been accounted for using the equity method in the consolidated financial statements and has been recognised initially at cost being the Playtech Group's 29% share of the fair value of the total net assets of the associate together with the goodwill on acquisition. In accordance with IAS 28, profits distributed to the Playtech Group in proportion of their respective shareholding have been recognised as share of profits of associates. Software license royalty fees charged to WH Online have been recognised as revenues in the Playtech Group accounts.
WH has an option to acquire the Playtech Group's interest in WH Online on an independent fair value basis, exercisable after four or six years from 31 December 2008 (the "Option"). Upon exercise of the Option, the Playtech Group has the right to receive a portion of the proceeds in WH shares, not exceeding 10% of WH's outstanding share capital at the time of issue.
WH has entered into a contract with the Playtech Group for a minimum term of five years from 31 December 2008 for the provision of online gaming software for poker and casino.
Movements in the carrying value of the investment are as follows:
| 2'000 | |
|---|---|
| Investment in equity-accounted associates at 1 January 2009 | 181,072 |
| Adjustment to expenses | (172) |
| Income from associate | 22,534 |
| Amortisation of intangibles in associate | (10,513) |
| Dividend | (22,555) 5555 |
| Investment in equity-accounted associates at 31 December 2009 | 170,366 |
| Income from associate | 30,792 |
| Amortisation of intangibles in associate | (8,266) |
| Dividend | (30,647) 5555 |
| Investment in equity-accounted associates at 31 December 2010 | 162,245 |
| Income from associate | 36,073 |
| Amortisation of intangibles in associate | (5,729) |
| Dividend | (35,971) 5555 |
| Investment in equity-accounted associates at 31 December 2011 | 156,618 aaaa |
The deferred consideration as of 31 December 2009 and 2010 of 115.0 million was payable in the beginning of 2011 due to an extension of payment terms granted by the vendor of the original purchased assets that were subsequently injected into William Hill Online at the time of the acquisition in 2008. The deferred consideration for the acquisition of the Purchased Assets was payable in US dollars. This caused an exchange rate income/(expense) in the amount of 10.2 million, (11.2 million) and 126,000 that was reflected in the consolidated statement of comprehensive income for 2009, 2010 and 2011 respectively.
Management has reviewed the key assumptions and forecasts for the above mentioned assets and the result of the review indicated that there was no impairment of the Playtech Group's investment in WH Online at 31 December 2011.
Aggregated amounts relating to associates are as follows:
| 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| Total assets | 98,385 | 116,584 | 167,337 | |
| Total liabilities | 62,937 | 84,740 | 113,388 | |
| Revenues | 229,470 | 295,200 | 369,945 | |
| Profit | 74,450 aaaa |
105,519 aaaa |
122,970 aaaa |
On 21 January 2010, the Playtech Group formed a strategic partnership with Scientific Games Corporation to jointly develop and market nextgeneration internet and land-based gaming products and services to regulated gaming operators in the US and other countries.
Exclusive joint ventures focused on the B2G online gaming market on a global basis, called Sciplay International Sarl and Sciplay (Luxembourg) Sarl (hereinafter "Sciplay"), will utilise Playtech's technology capabilities together with Scientific Games' global infrastructure and experience.
On 30 April 2010 each of the parties purchased 50% of the share capital issued of Sciplay for a total consideration of 113,000. In addition each of the parties contributed 1100,000 share premium to Sciplay International Sarl and \$150,000 to Sciplay (Luxembourg) Sarl by contribution in kind of intangible assets. The Playtech Group contributed an exclusive licence to copyrighted software for interactive gaming activities and Scientific Games contributed the right to use the patented MAPS database, the implied utilisation of the "Scientific Games" trademark in interaction with customers and in the development of the "SciPlay" trademark, and general expertise in the lottery business.
On 28 September 2010 each of the parties paid additional paid-in capital of 1477,000 (1227,000 to Sciplay International Sarl and 1250,000 to Sciplay (Luxembourg) Sarl).
In January 2011 each of the parties paid additional paid in capital of 1524,000 (1251,000 to Sciplay International Sarl and 1273,000 to Sciplay (Luxembourg) Sarl) and in July 2011 each of the parties paid additional paid in capital of 188,000 to Sciplay (Luxembourg) Sarl.
The Playtech Group's share in the Sciplay loss for the period amounted to 10.4 million and 10.6 million in 2010 and 2011 respectively, which has been recognised in the consolidated statement of comprehensive income.
| 2'000 | |
|---|---|
| Cash consideration | 13 |
| Additional paid-in capital | 477 |
| Contribution in kind | 216 |
| Share of loss in Sciplay | 5555(368) |
| Investment in Sciplay as at 31 December 2010 | 338 |
| Additional paid-in capital | 612 |
| Share of loss in Sciplay | 5555(618) |
| Investment in Sciplay as at 31 December 2011 | aaaa332 |
Aggregated amounts relating to the Sciplay joint venture are as follows:
| 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| Total assets | – | 1,094 | 1,225 | |
| Total liabilities | – | 426 | 416 | |
| Revenues | – | – | – | |
| Loss | – aaaa |
(736) aaaa |
(1,236) aaaa |
|
The investment in Sciplay was sold to Scientific Games on 23 January 2012 for 1nil consideration.
On 8 March 2011, the Playtech Group entered into an agreement with Scientific Games to form a partnership called International Terminal Leasing (hereinafter "ITL") which relates to the strategic partnership with Scientific Games Corporation.
Prior to the formation of the above joint venture, in 2010 the Playtech Group paid a total amount of 12.4 million as contribution towards the purchase of gaming machines on behalf of the partnership. This was accounted for as a loan to ITL within non-current assets, as at 31 December 2010. Upon formation of the joint venture referred to above, the loan of 12.4 million was converted into capital contributions, and accordingly form part of the group's investment as a general partner of ITL.
The group's future profit share from this joint venture varies depending on the commercial arrangements in which ITL and its partners enter into with third parties. However, the group's share of profit is expected to be between 20%-50%.
Additional contributions of 15.2 million for the purchase of gaming machines were made in the year. In addition the Playtech Group received a return on initial investments of 11.7 million during the year.
Movements in the carrying value of the investment during the year are as follows:
| 2'000 | |
|---|---|
| Reclassification of non-current asset as at 8 March 2011 | 2,430 |
| Additional contributions payable | 5,209 |
| Share of profit in joint venture | 71 |
| Return of initial investment | (1,663) 5555 |
| Investment in joint venture at 31 December 2011 | aaaa6,047 |
Aggregate amounts relating to the ITL joint venture are as follows:
| 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| Total assets | – | – | 28,764 | |
| Total liabilities | – | – | 226 | |
| Revenues | – | – | 2,881 | |
| Profit | – aaaa |
– aaaa |
400 aaaa |
|
| As of 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Non-current deferred consideration consists of: Acquisition of PT Turnkey Services Limited (note 25) |
– aaaa |
– aaaa |
41,752 aaaa |
| Current deferred consideration consists of: | |||
| Investment in William Hill Online (note 12) Acquisition of PT Turnkey Services Limited (note 25) |
13,554 – 5555 |
15,001 – 5555 |
– 33,591 5555 |
| 13,554 aaaa |
15,001 aaaa |
33,591 aaaa |
|
| As of 31 December | |||
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Non-current contingent consideration consists of: Acquisition of GTS Limited (note 25) Acquisition of Intelligent Gaming Systems Limited |
6,983 | 5,474 | – |
| (note 25) | – | – | 709 |
| Acquisition of PT Turnkey Services Limited (note 25) Acquisition of Mobenga AB Limited (note 25) |
– – 5555 |
– – 5555 |
98,643 11,633 5555 |
| 6,983 aaaa |
5,474 aaaa |
110,985 aaaa |
|
| Current contingent consideration consists of: Acquisition of GTS Limited (note 25) Acquisition of Intelligent Gaming Systems Limited |
– | 2,937 | – |
| (note 25) | – | – | 929 |
| Acquisition of Virtue Fusion (note 25) | – 5555 |
8,122 5555 |
– 5555 |
| – aaaa |
11,059 aaaa |
929 aaaa |
|
| 14. Available for sale investments |
|||
| As of 31 December | |||
| 2009 | 2010 | 2011 |
| 2'000 | 2'000 | 2'000 | |
|---|---|---|---|
| Available-for-sale investments comprise: | |||
| Investment in Foundation Group Limited | 3,459 | – | – |
| Investment in AsianLogic | 2,054 | 2,054 | 2,054 |
| Investment in Sportech plc | – 5555 |
8,878 5555 |
10,322 5555 |
| 5,513 aaaa |
10,932 aaaa |
12,376 aaaa |
| 2009 | 2010 | 2011 |
|---|---|---|
| 2'000 | 2'000 | 2'000 |
| (1,025) | 231 | – |
| 399 | – | – |
| – | (2,454) | 1,444 5555 |
| (626) aaaa |
(2,223) aaaa |
1,444 aaaa |
| 5555 | 5555 |
The fair value of quoted investments is based on published market prices. The fair value of unquoted investments is based on the most recently available market price, less any provision for impairment.
The maximum exposure to credit risk at the reporting date is the carrying value of the financial assets classified as available-for-sale.
During the year ended 31 December 2010, the Playtech Group sold all of its shares in Foundation Group Limited. Prior to the sale of shares, the carrying value declined by 10.8 million which was recognised in the consolidated statement of comprehensive income as an impairment. On disposal of the shares, the available for sale reserve at 31 December 2009 of 11.025 million was reclassified to profit and loss, resulting in a net credit of 10.2 million in the consolidated statement of comprehensive income for the year ended 31 December 2010.
As at 3 July 2009, AsianLogic shares were delisted from AIM. At that date, the share price was £0.245. The Directors do not consider there to have been any further impairment in the investment since 3 July 2009.
During 2009, 2010 and 2011 the Playtech Group received dividends of 11.7 million, 11.1 million and 13.1 million that have been reflected in the consolidated statement of comprehensive income as finance income
On 27 January 2010, the Playtech Group acquired a 9.99% stake in Sportech PLC, a UK's leading pari-mutuel football gaming business, and owner of The New Football Pools, for a total consideration of 111.3 million. As at 31 December 2010 and 2011 the market value of this investment was 18.9 million and 110.3 million respectively. An impairment charge of 12.5 million (2010: 10.6 million) has been recognised in the consolidated statement of comprehensive income during the six months ended 30 June 2011. However following an increase in the market value during the second half of 2011, an amount of 12.0 million (2010: 1nil) has been recognised directly in equity, within the available for sale reserve.
Foundation Group Limited and AsianLogic entered into software licence agreement as part of the shares acquisition in 2007. The directors considered that the fair value of the consideration received by way of discount to the market value represented deferred income of the software licence agreement. The revenues are being recognised over the remaining lifetime of the software licence agreement, and as at 31 December 2009, 2010 and 2011, the following amounts are included in deferred revenues:
| 2010 | 2011 |
|---|---|
| 2'000 | 2'000 |
| 8,264 | |
| – | |
| – | 655 5555 |
| 11,469 | 8,919 aaaa |
| As of 31 December 10,207 1,262 5555 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Deferred revenues – current | |||
| Foundation Group Limited | 1,943 | 1,943 | 1,943 |
| AsianLogic | 1,334 | 1,334 | 1,262 |
| Others | 164 5555 |
367 5555 |
1,781 5555 |
| 3,441 aaaa |
3,644 aaaa |
4,986 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Loan to customer | 1,833 | 2,679 | 221 |
| Loan to affiliate | – | 157 | 1,845 |
| Advance for partnership (note 12) | – | 2,430 | – |
| Rent and car lease deposits | 476 | 793 | 743 |
| Other | – 5555 |
11 5555 |
11 5555 |
| 2,309 aaaa |
6,070 aaaa |
2,820 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Customers | 3,828 | 10,974 | 16,599 |
| Related parties (note 26) | 2,496 5555 |
2,411 5555 |
4,408 5555 |
| 6,324 aaaa |
13,385 aaaa |
21,007 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Prepaid expenses | 2,139 | 2,584 | 4,871 |
| VAT and other taxes | 1,191 | 1,197 | 3,643 |
| Short-term investment | 42 | 47 | 2,106 |
| Advance to suppliers | 70 | 17 | 152 |
| Related party receivable (note 26) | 5,136 | 2,459 | 2,871 |
| Loan to customer | 713 | 1,116 | 530 |
| Loan to affiliate | – | 1,013 | 4,700 |
| Other receivables | 828 5555 |
931 5555 |
1,355 5555 |
| 10,119 aaaa |
9,364 aaaa |
20,228 aaaa |
Included in prepaid expenses at 31 December 2011 is 1887,000 in respect of the Ash Gaming acquisition (note 25).
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Cash at bank | 29,880 | 29,550 | 111,492 |
| Deposits | 28,820 5555 |
38,969 5555 |
53,340 5555 |
| 58,700 aaaa |
68,519 aaaa |
164,832 aaaa |
The Playtech Group held cash balances which include monies held on behalf of operators in respect of operators' jackpot games and poker operation. The balances held at the year-end are set out below and the liability is included in trade payables:
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Funds attributable to jackpots | 1,068 | 12,847 | 20,491 |
| Poker security deposits | 670 | 1,447 | 15,562 |
| Other | – | 438 | 272 |
| 5555 | 5555 | 5555 | |
| 1,738 | 14,732 | 36,325 | |
| aaaa | aaaa | aaaa |
Share capital is comprised of no par value shares as follows:
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | |||
| Number | Number | Number | ||
| Authorised | N/A(1) | N/A(1) | N/A(1) | |
| Issued and paid up | 240,204,579 aaaaa |
242,599,019 aaaaa |
289,314,348 aaaaa |
(1) The group has no authorised share capital but is authorised under its memorandum and article of association to issue up to 1,000,000,000 shares of no par value.
During the year ended 31 December 2011, the Playtech Group issued 46,511,627 shares for a total consideration of 1119.5 million. Share issue costs of 11.9 million have been deducted from the gross proceeds.
A reconciliation of the movement in issued shares is below:
Number of shares in issue:
| At 1 January 2009, 31 December 2009 and 31 December 2010 | 242,599,019 |
|---|---|
| Share placing | 46,511,627 |
| Exercise of share options | 203,702 55555 |
| At 31 December 2011 | 289,314,348 aaaaa |
In June 2011, the Company purchased 100,000 ordinary shares of no par value to be held as treasury shares. The weighted average cost of own shares held in treasury is £3.2849 per share.
During the years ended 31 December 2009, 2010 and 2011, 1,719,756, 2,394,440 and 203,702 share options were respectively exercised.
In May 2009, the Playtech Group distributed 118,194,198 as a final dividend for 2008.
In October 2009, the Playtech Group distributed 121,368,175 as an interim dividend for 2009.
In May 2010, the Playtech Group distributed 122,913,530 as a final dividend for 2009.
In October 2010, the Playtech Group distributed 122,679,613 as an interim dividend for 2010.
In May 2011, the Playtech Group distributed 123,377,446 as a final dividend for 2010.
The following describes the nature and purpose of each reserve within owner's equity:
| Reserve | Description and purpose |
|---|---|
| Additional paid-in capital | Share premium (i.e. amount subscribed for share capital in excess of nominal value) |
| Available-for-sale reserve | Changes in fair value of available-for-sale investments (note 14) |
| Retained earnings | Cumulative net gains and losses recognised in the consolidated statement of comprehensive income |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Long-term trade payables | 1,038 | 767 | 756 |
| Severance pay | 130 5555 |
186 5555 |
667 5555 |
| 1,168 aaaa |
953 aaaa |
1,423 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Current bank borrowings | – | – | 13,787 |
| Non-current bank borrowings | – | – | 13,746 |
| 5555 | 5555 | 5555 | |
| – | – | 27,533 | |
| aaaa | aaaa | aaaa |
The rate at which the liabilities are payable is 2.25% above Euro LIBOR. The loan is payable in eight quarterly instalments starting in March 2012. The Playtech Group repaid the entire balance in February 2012.
The Playtech Group has undrawn committed borrowing facilities available at 31 December 2011 of 182.6 million.
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Suppliers | 3,901 | 3,986 | 8,577 |
| Customer liabilities | 529 | 7,971 | 7,915 |
| Related parties (note 26) | 4,269 | 443 | 75 |
| Other | 124 5555 |
613 5555 |
1,111 5555 |
| 8,823 aaaa |
13,013 aaaa |
17,678 aaaa |
The deferred tax liability is due to temporary differences on the acquisition of certain businesses. The movement on the deferred tax liability is as shown below:
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| At beginning of the year | – | 2,231 | 1,950 |
| Arising on acquisitions during the year | 2,748 | – | 3,675 |
| Reversal of temporary differences, recognised in the | (517) | (281) | (338) |
| consolidated statement of comprehensive income | 5555 | 5555 | 5555 |
| 2,231 | 1,950 | 5,287 | |
| aaaa | aaaa | aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Payroll and related expenses | 3,308 | 5,999 | 10,262 |
| Accrued expenses | 841 | 1,218 | 5,112 |
| Related parties (note 26) | – | – | 599 |
| Other payables | 20 5555 |
37 5555 |
935 5555 |
| 4,169 aaaa |
7,254 aaaa |
16,908 aaaa |
On 8 December 2009 the Playtech Group acquired 100% of the shares of Gaming Technology Solutions Limited, which owns 100% of the shares of VS Technology Limited and VS Gaming Limited (hereinafter GTS Group). The GTS Group's principal activity is to provide cutting-edge software to operators in the gaming industry, and through the GTS Enhanced Gaming Engine (EdGE) platform, provide clients with access to soft and casino games (hereinafter GTS business).
An initial consideration of 110.85 million was paid in cash and additional contingent consideration of up to 110.8 million is payable in respect of the adjusted EBIT performance in 2010 and 2011 in the first quarters of 2011 and 2012 respectively.
| Book value | |||
|---|---|---|---|
| prior to | Fair value | ||
| acquisition | Adjustments | on acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 166 | – | 166 |
| Intangible assets | 134 | 9,815 | 9,949 |
| Trade receivables | 398 | – | 398 |
| Other receivables | 214 | – | 214 |
| Cash and cash equivalents | 169 | – | 169 |
| Trade payables | (426) | – | (426) |
| Tax liabilities | (103) | – | (103) |
| Other payable | (73) | – | (73) |
| Deferred tax liability | – 5555 |
(2,748) 5555 |
(2,748) 5555 |
| Net identified assets | 479 5555 |
7,067 5555 |
7,546 |
| Goodwill | 10,902 5555 |
||
| Present value of consideration | 18,448 aaaa |
||
| 2'000 | |||
| Cash consideration | 10,851 | ||
| Contingent consideration | 7,346 | ||
| Expenses paid in cash | 628 | ||
| Finance cost arising on discounting of contingent consideration | 5555(377) | ||
| Present value of consideration | 18,448 | ||
| Cash purchased | 5555(169) | ||
| Net cash paid | 18,279 aaaa |
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
The contingent consideration of 17.0 million (net of discount of 10.4 million) is dependent on profits generated by the GTS business over a period of two years following the date of acquisition. The amount initially included above represents the Directors' current best estimate of the amount payable, which they consider is likely to be paid, as at 31 December 2009. During the year ended 31 December 2010, Management re-assessed the fair value of the expected consideration to be paid in the future. Based on this review, the amount of contingent consideration was increased from 17.0 million (net of discount of 10.4 million) to 18.4 million (net of discount of 10.2 million) as at 31 December 2010. As this was an acquisition in 2009 and accounted for under the old IFRS 3 rules, the adjustment was recognised in goodwill in the financial information for the year ended 31 December 2010.
Adjustments to fair value include the following:
| Amount | Amortisation | |
|---|---|---|
| 2'000 | % | |
| IP Technology | 1,783 | 20.0 |
| Customer list | 8,032 5555 |
12.5 5555 |
| Total intangible fixed assets | aaaa9,815 |
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the Playtech Group's position in comparison to its competitors in the market. In accordance with IAS36, the Playtech Group will regularly monitor the carrying value of its interest in GTS Group.
The key assumptions used by management to determine the value in use of the IP Technology and customer relationships within GTS Group are as follows:
Management have not disclosed GTS's contribution to Playtech Group profit since the acquisition date nor have they disclosed the impact the acquisition would have had on the Playtech Group's revenue and profits if it had occurred on 1 January 2009, because the amounts are not material.
On 12 February 2010 the Playtech Group entered into an assets purchase agreement with Virtue Fusion Limited, the leading developer and licensor of online bingo products. The Playtech Group purchased the IP Technology, customer list, brand, plant and equipment, other assets and 100% of the shares of Virtue Fusion Limited subsidiaries: Virtue Fusion CM Limited, Virtue Fusion (Alderney) Limited and Virtue Fusion NV (hereinafter VF business).
The group paid an initial consideration, including working capital adjustments, of 137.7 million (£33.2 million) in cash and additional contingent consideration of 18.1 million (£7.0 million) was paid in March 2011 based on adjusted EBIT performance in 2010. No further contingent consideration is payable in respect of this acquisition.
Details of the fair value of identifiable assets and liabilities acquired from subsidiaries, purchase consideration and goodwill are as follows:
| Book value | |||
|---|---|---|---|
| prior to | Fair value | ||
| acquisition | Adjustments | on acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 886 | – | 886 |
| Intangible assets | – | 25,763 | 25,763 |
| Trade receivables | 3,600 | – | 3,600 |
| Other receivables | 702 | – | 702 |
| Cash and cash equivalents | 11,610 | – | 11,610 |
| Trade payables | (1,587) | – | (1,587) |
| Progressive and other operators' jackpot | (8,296) | – | (8,296) |
| Other payable | (702) 5555 |
– 5555 |
(702) 5555 |
| Net identified assets | 6,213 5555 |
25,763 5555 |
31,976 |
| Goodwill | 13,750 5555 |
||
| Present value of consideration | 45,726 aaaa |
||
| 2'000 | |||
| Cash consideration | 37,746 | ||
| Contingent consideration | 8,122 | ||
| Finance cost arising on discounting of contingent consideration | 5555(142) | ||
| Present value of consideration | 45,726 | ||
| Cash purchased | (11,610) 5555 |
||
| Net cash payable (of which 126.2 million was paid in 2010) | 34,116 aaaa |
Adjustments to fair value include the following:
| Amount | Amortisation | |
|---|---|---|
| 2'000 | % | |
| Customer list | 18,828 | 12.5 |
| IP Technology | 3,035 | 10.0 |
| Brand | 3,900 5555 |
10.0 5555 |
| Total intangible fixed assets | 25,763 aaaa |
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the Playtech Group's position in comparison to its competitors in the market. In accordance with IAS 36, the Playtech Group will regularly monitor the carrying value of its interest in the VF business.
The key assumptions used by management to determine the value in use of the IP Technology, customer relationships and Brands within VF business are as follows:
The contingent consideration for the acquisition of the purchased assets was payable in GBP. This caused an exchange rate income in the amount of 10.3 million that was reflected in the income statement for 2010.
Following the acquisition date, VF contributed 118.0 million and 15.5 million to group revenues and profits respectively in the year ended 31 December 2010. The Playtech Group has not disclosed the results of the Combined Group as if the VF acquisition had occurred on 1 January 2010 as they consider the amounts involved to be immaterial.
On 26 January 2011, the Playtech Group acquired 100% of the shares of Intelligent Gaming Systems Limited (hereinafter "IGS"). IGS is a provider of software based casino management systems to land-based casinos.
The group paid an initial consideration of 12.9 million (£2.5 million) in cash and additional contingent consideration of up to 13.5 million (£3.0 million) is payable in respect of the adjusted PBT performance in 2011-2013 in the beginning of each following year.
Details of the fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
| Book value prior to acquisition |
Adjustments | Fair value on acquisition |
|
|---|---|---|---|
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 27 | – | 27 |
| Intangible assets | – | 973 | 973 |
| Trade receivables | 110 | – | 110 |
| Cash and cash equivalents | 79 | – | 79 |
| Deferred tax liability | – | (273) | (273) |
| Trade payables | (134) 5555 |
– 5555 |
(134) 5555 |
| Net identified assets | 82 5555 |
700 5555 |
782 |
| Goodwill | 55553,691 | ||
| Fair value of consideration | aaaa4,473 | ||
| 2'000 | |||
| Cash consideration | 2,914 | ||
| Non-current contingent consideration | 748 | ||
| Current contingent consideration | 894 | ||
| Finance cost arising on discounting of contingent consideration | 5555(83) | ||
| Fair value of consideration | 4,473 | ||
| Cash purchased | 5555(79) | ||
| Net cash payable (of which 12.9 million was paid in 2011) | aaaa4,394 |
The contingent consideration is dependent on profits generated by the IGS business in 2011-2013. The amount included above represents the fair value of contingent consideration as at the acquisition date. Management has determined the fair value of contingent consideration using valuation techniques taking into account the probability of expected outcomes and appropriate discount rates. The computed fair value at acquisition is presented in the table above, and the undiscounted range of possible payments is between 1nil and 13.5 million. The movement in contingent consideration since acquisition, which relates solely to the time value of money, is included in note 6 to the financial information.
Adjustments to fair value include the following:
| Amount | Amortisation | |
|---|---|---|
| 2'000 | % | |
| Customer list | 90 | 12.5 |
| IP Technology | 883 5555 |
12.5 5555 |
| Total intangible fixed assets | aaaa973 |
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the Playtech Group's position in comparison to its competitors in the market. In accordance with IAS 36, the Playtech Group will regularly monitor the carrying value of its interest in the IGS business.
The key assumptions used by management to determine the value in use of the IP Technology and customer relationships within the IGS business are as follows:
l The royalty rate was based on a third party market participant assumption for use of the IP Technology, considering market competition, quality, absolute and relative profitability.
l The discount rate assumed is equivalent to the WACC for the IP Technology and the customer relationships.
Management have not disclosed IGS's contribution to the Playtech Group profit since the acquisition date nor have they disclosed the impact the acquisition would have and on the Playtech Group's revenue and profits if it had occurred on 1 January 2011, because the amounts are not material.
On 10 March 2011 the Playtech Group entered into an agreement to purchase 100% of the issued share capital of PT Turnkey Services Limited (hereinafter "PTTS") from Worldwide Online Enterprises Limited (hereinafter "WOE"). On completion, 1 July 2011, PTTS, a newly incorporated holding company established in connection with the acquisition, owned a group of new companies (together the PTTS Group) which owned the assets carrying out a range of complementary B2B online gaming service operations that provide support to the Playtech Group's licensees.
WOE is related to Playtech by virtue of a significant common shareholder.
The PTTS Group provides marketing and ancillary services to operators of online gaming businesses. These comprise four separate service offerings - marketing, operations, payment advisory and network management.
In consideration, the Playtech Group will pay an initial amount of 1140 million, reduced by estimated working capital adjustment of 114.8 million, to be spread over instalments during the next two years, plus up to 1140 million contingent consideration depending on adjusted EBITDA performance in 2014, to be spread over instalments during the following 18 months. The right to receive the contingent consideration will be accelerated in certain limited circumstances including, subject to certain conditions, where PTTS Group's total EBITDA for any two consecutive quarters prior to 30 June 2012 achieves a run rate which represents on an annualised basis, the payment of the maximum consideration provided the EBITDA for the first relevant quarter is at least 18 million and the second quarter is greater than the first.
Management has determined the fair value of contingent consideration using valuation techniques taking into account the probability of expected outcomes and appropriate discount rates. The computed fair value at acquisition is presented in the table below, and the undiscounted range of possible payments is between 1nil and 1140 million. The movement in contingent consideration since acquisition, which relates solely to the time value of money, is included in note 6 to the financial information.
Details of the provisional fair value of identifiable assets and liabilities acquired from subsidiaries, purchase consideration and goodwill are as follows:
| Book value | Provisional | |
|---|---|---|
| prior to | fair value | |
| acquisition | Adjustments | on acquisition |
| 2'000 | ||
| 1,910 | – | 1,910 |
| 132,758 | – | 132,758 |
| 1,610 | – | 1,610 |
| 969 | – | 969 |
| 3,319 | – | 3,319 |
| 687 | – | 687 |
| (21,266) | – | (21,266) |
| (124) | – | (124) 5555 |
| 119,863 | – | 119,863 |
| 93,374 5555 |
||
| 213,237 aaaa |
||
| 2'000 5555 5555 |
2'000 5555 5555 |
| 2'000 | |
|---|---|
| Cash consideration | 45,000 |
| Non-current deferred consideration | 35,195 |
| Current deferred consideration | 45,000 |
| Contingent consideration | 140,000 |
| Finance cost arising on discounting of deferred and | |
| contingent consideration | (51,958) 5555 |
| Fair value of consideration | 213,237 |
| Cash purchased | 5555(687) |
| Net cash payable (of which 145 million was paid in 2011) | 212,550 aaaa |
The book value and fair value of intangibles on acquisition include the following:
| Amount 2'000 |
Amortisation | |
|---|---|---|
| Customer list Affiliate programme |
66,994 64,554 5555 |
12.5 years 12.5 years 5555 |
| Total intangible fixed assets | 131,548 aaaa |
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the Playtech Group's position in comparison to its competitors in the market. In accordance with IAS 36, the Playtech Group will regularly monitor the carrying value of its interest in the PTTS business.
The key assumptions used by management to determine the value in use of the customer relationships and Affiliates program within PTTS business are as follows:
Since the acquisition date, PTTS has contributed 141.2 million to group revenues, 12.1 million to group profits, 111 million to Playtech Group adjusted EBITDA and 19.8 million to Playtech Group adjusted net profit respectively. The Combined Group revenues as if the PTTS acquisition had occurred on 1 January 2011 would have been higher by 139.2 million, the Combined Group profits by 11.4 million, the Combined Group adjusted EBITDA and adjusted net profit (excluding the impact of financing costs on deferred and contingent consideration) would have been higher by 110.6 million and 19.0 million respectively.
On 31 August 2011 (hereinafter "Completion") the Playtech Group acquired 100% of the shares of Mobenga AB (hereinafter "Mobenga"), the leading mobile sportsbook betting platform provider.
An initial consideration, including working capital adjustments, of 18.2 million was paid in cash and additional contingent consideration of 18.7 million is payable in the first quarter of 2014 based on the net profit before tax in 2013. Immediately prior to Completion, the Playtech Group acquired the Intellectual property and Technology (hereinafter "IP Technology") of Mobenga AB for cash consideration of 11 million.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
| Book value | Provsional | ||
|---|---|---|---|
| prior to | fair value | ||
| acquisition | Adjustments | on acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 17 | – | 17 |
| Intangible assets (Customer list) | 1,000 | 3,563 | 4,563 |
| Trade and other receivables | 406 | – | 406 |
| Cash and cash equivalents | 169 | – | 169 |
| Trade and other payables | (374) | – | (374) |
| Deferred tax liability | – 5555 |
(937) 5555 |
(937) 5555 |
| Net identified assets | 1,218 5555 |
2,626 5555 |
3,844 |
| Provisional goodwill | 15,672 5555 |
||
| Fair value of consideration | 19,516 aaaa |
||
| 2'000 | |||
| Cash consideration | 8,000 | ||
| Contingent consideration | 12,384 | ||
| Finance cost arising on discounting of contingent consideration | 5555(868) | ||
| Fair value of consideration | 19,516 | ||
| Cash purchased | 5555(169) | ||
| Net cash payable (of which 18 million was paid in 2011) | 19,347 aaaa |
Fair value adjustments on acquisition relate solely to the customer list, which is being amortised at a rate of 12.5% per annum.
The contingent consideration is dependent on profits generated by the Mobenga business in 2013. The amount included above represents the fair value of contingent consideration as at the acquisition date. Management has determined the fair value of contingent consideration using valuation techniques taking into account the probability of expected outcomes and appropriate discount rates. The computed fair value at acquisition is presented in the table above, and the undiscounted range of possible payments is between 1nil and 115.8 million. The movement in contingent consideration since acquisition, which relates solely to the time value of money, is included in note 6 to the financial information.
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the Playtech Group's position in comparison to its competitors in the market. In accordance with IAS 36, the Playtech Group will regularly monitor the carrying value of its interest in the Mobenga business.
The key assumptions used by management to determine the value in use of the IP Technology and customer relationships within Mobenga business are as follows:
Management have not disclosed Mobenga's contribution to the Playtech Group profit since the acquisition date nor have they disclosed the impact the acquisition would have and on the Playtech Group's revenue and profits if it had occurred on 1 January 2011, because the amounts are not material.
On 15 December 2011 the Playtech Group acquired 100% of the shares of Ash Gaming Limited (hereinafter "Ash Gaming"), the leading developers of interactive gambling and betting games.
The total consideration of 127.4 million (£23 million) was paid in cash, of which 18.9 million (£7.5 million) was paid into an Escrow account to be held and released to the venders over the next three years, depending upon the successful completion of certain conditions and indemnities. If such conditions are not satisfied, some of the funds held in Escrow may be repaid back to the Playtech Group. As at the acquisition and balance sheet date, the fair value of consideration assumes that there will be 10.9 million of repayments.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
| Book value | Provisional | ||
|---|---|---|---|
| prior to | fair value | ||
| acquisition | Adjustments | on acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 123 | – | 123 |
| Intangible assets | 2,439 | 9,860 | 12,299 |
| Trade receivables | 1,694 | – | 1,694 |
| Other receivables | 243 | – | 243 |
| Cash and cash equivalents | 327 | – | 327 |
| Trade payables | (173) | – | (173) |
| Other payables | (1,331) | – | (1,331) |
| Deferred revenue | (454) | – | (454) |
| Deferred tax liability | (10) 5555 |
(2,465) 5555 |
(2,475) 5555 |
| Net identified assets | 2,858 5555 |
7,395 5555 |
10,253 |
| Provisional goodwill | 16,214 5555 |
||
| Fair value of consideration | 26,467 | ||
| Cash purchased | 5555(327) | ||
| Net cash paid | 26,140 aaaa |
Adjustments to fair value include the following:
| Amount | Amortisation | |
|---|---|---|
| 2'000 | % | |
| Customer list | 8,999 | 8 |
| Brand | 861 5555 |
16.67 5555 |
| Total intangible fixed assets | aaaa9,860 |
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the Playtech Group's position in comparison to its competitors in the market. In accordance with IAS 36, the Playtech Group will regularly monitor the carrying value of its interest in the Ash Gaming business.
The key assumptions used by management to determine the value in use of the IP Technology, brand and customer relationships within Ash Gaming business are as follows:
l The income approach, in particular, the relief of royalty approach was applied for the valuation, considering projected revenues derived from the business.
Management have not disclosed Ash Gaming's contribution to the Playtech Group profit since the acquisition date nor have they disclosed the impact the acquisition would have on the Playtech Group's revenue and profits if it had occurred on 1 January 2011, because the amounts are not material.
On 24 November 2011 the Playtech Group acquired 85% of the shares of S-Tech Limited (hereinafter "S-Tech"), a live games provider in Asia. As of the purchase date S-Tech had net liabilities and therefore the consideration paid was the \$1 par value of 85 shares.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
| Book value | Provisional | ||
|---|---|---|---|
| prior to | fair value | ||
| acquisition | Adjustments | on acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 654 | – | 654 |
| Trade and other receivables | 411 | – | 411 |
| Cash and cash equivalents | 338 | – | 338 |
| Trade and other payables | (346) | – | (346) |
| Other payables | (1,455) 5555 |
– 5555 |
(1,455) 5555 |
| Net identified assets | (398) 5555 |
– 5555 |
(398) |
| Provisional goodwill | 339 | ||
| Non-controlling interest | 555559 | ||
| Total consideration | aaaa– |
During the year ended 31 December 2011, the group recognised a non-controlling interest of 110,000 owing to ESL, the 15% shareholder.
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party's making of financial or operational decisions, or if both parties are controlled by the same third party.
Gamepark Trading Ltd, Tech Corporation and 800pay Ltd were previously related by virtue of a common significant shareholder, however, on 1 July 2011, they sold their assets to PTTS subsidiary companies immediately prior to the acquisition by Playtech (as referred to in note 25). Oriental Support Services, Netplay TV PLC and Sceptre Leisure Plc are related by virtue of a common significant shareholder. The former chief executive officer of Emphasis Services Limited ("ESL"), AsianLogic Limited ("ALL") and S-Tech Limited was a director of the Playtech Group until 10 March 2010. S-Tech Limited became a subsidiary of the Playtech Group during the year ended 31 December 2011.
Sportech PLC is related by virtue of a common non-executive Director. WH Online and Sciplay are associates of the Playtech Group.
The following transactions arose with related parties:
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| Revenue including income from associate | ||||
| ESL | 4,507 | 7,764 | 4,514 | |
| S-tech Ltd | 259 | 51 | – | |
| Sceptre Leisure plc | 504 | 364 | – | |
| Sportech | – | – | 167 | |
| Netplay TV plc | 29 | 1,399 | 2,226 | |
| WH Online | 33,795 aaaa |
46,398 aaaa |
58,497 aaaa |
|
| As of 31 December | ||||
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| Share of profit/(loss) in joint venture | ||||
| ITL | – | – | 72 | |
| Sciplay | – | (368) | (618) | |
| Operating expenses | ||||
| Gamepark Trading Limited | 267 | 211 | 95 | |
| S-tech Ltd | 249 | 15 | – | |
| Tech Corporation | 99 | 146 | 136 | |
| 800pay Ltd | 56 | 69 | 63 | |
| ESL | 1,285 aaaa |
288 aaaa |
167 aaaa |
The following are year-end balances:
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
||
| Gamepark Trading Limited | 4,185 | 117 | – | |
| Tech Corporation | 75 | 319 | 43 | |
| 800pay Ltd | 9 | 7 | 32 | |
| ESL | – 5555 |
– 5555 |
599 5555 |
|
| Total related party creditors | 4,269 aaaa |
443 aaaa |
674 aaaa |
|
| Netplay TV plc | 29 | 306 | 270 | |
| Sportech | – | – | 73 | |
| Sceptre Leisure plc | 1,337 | – | – | |
| WH Online | 5,784 | 4,512 | 6,897 | |
| Sciplay | – 5555 |
52 5555 |
39 5555 |
|
| Total related party debtors | 7,150 aaaa |
4,870 aaaa |
7,279 aaaa |
|
| Sportech plc (note 14) | – | 8,878 | 10,322 | |
| ALL (note 14) | 2,054 5555 |
– 5555 |
– 5555 |
|
| Total investment in related parties | 2,054 aaaa |
8,878 aaaa |
10,322 aaaa |
|
The details of key management compensation (being the remuneration of the directors) are set out in note 5.
Details of the Playtech Group's subsidiaries as at 31 December 2009, 2010 and 2011 are set out below:
| Proportion | |||
|---|---|---|---|
| of voting | |||
| rights and ordinary |
|||
| Country of | share capital | ||
| Name | incorporation | held | Nature of business |
| Subsidiaries at 31 December 2009 | |||
| Playtech Software Ltd | British Virgin Islands | 100% | Main trading company of the Playtech Group, owns the intellectual property rights and licenses the software to customers |
| OU Playtech (Estonia) | Estonia | 100% | Designs, develops and manufactures online software |
| Techplay Marketing Ltd | Israel | 100% | Marketing and advertising |
| Video B Holding Ltd | British Virgin Islands | 100% | Trading company for the Videobet software, owns the intellectual property rights of Videobet and licenses it to customers |
| OU Videobet | Estonia | 100% | Develops software for fixed odds betting terminals and casino machines (as opposed to online software) |
| Playtech Bulgaria | Bulgaria | 100% | Designs, develops and manufactures online software |
| PTVB Management Ltd | Isle of Man | 100% | Management |
| Playtech (Cyprus) Ltd | Cyprus | 100% | Dormant |
| Playtech Live Ltd | British Virgin Islands | 100% | Dormant |
| Networkland Ltd | British Virgin Islands | 100% | Dormant |
| Playtech Bingames Ltd | British Virgin Islands | 100% | Technical support |
| Evermore Trading Ltd | British Virgin Islands | 100% | Holder of convertible notes in Foundation |
| Playtech Software India Ltd | India | 100% | Designs, develops and manufactures online software India Ltd |
| Genuity Services Ltd | British Virgin Islands | 100% | Holder of investment in WH Online |
| Playtech Services (Cyprus) Ltd | Cyprus | 100% | Activates the Italian iPoker network |
| VB (Video) Cyprus Ltd | Cyprus | 100% | Trading company for the Videobet product to Romanian companies |
| Guideview Trading Limited | Cyprus | 100% | Licenses software to companies |
| Playtech Sports Limited | British Virgin Islands | 100% | Holds sports betting IP |
| Regisol Holdings Limited | Cyprus | 100% | Dormant |
| Playtech Software Bulgaria EOOD | Bulgaria | 100% | Dormant |
| Makemoreprofit Investments Ltd | British Virgin Islands | 100% | Holder of Guideview Trading Limited |
| Techplay S.A. Software LTD | Israel | 100% | Develops online software |
| Technology Trading IOM Limited | Isle of Man | 100% | Owns the intellectual property rights of the GTS, VF and Ash Gaming businesses |
| The GTS Group | |||
| Gaming Technology Solutions Limited |
UK | 100% | Holds VS Gaming and VS Technology |
| VS Gaming Limited | UK | 100% | Develops soft and casino games |
| VS Technology Limited | UK | 100% | Develops EdGE platform |
| Additional subsidiaries at 31 December 2010 | |||
| Bandwick Investments Ltd | Cyprus | 100% | Holding Company of Bandwick Investments OU |
| Bandwick Investments OU | Estonia | 100% | Owns a building |
| Virtue Fusion (Alderney) Limited | Alderney | 100% | Shareholder of Bingo Networks (Alderney) Limited |
| VF Interactive Gaming Limited | Malta | 100% | Dormant |
| Proportion of voting rights and ordinary |
|||
|---|---|---|---|
| Country of | share capital | ||
| Name Virtue Fusion CM Limited |
incorporation UK |
held 100% |
Nature of business Chat moderation services provider to end users of VF licenses |
| Playtech Services Romania S.R.L | Romania | 100% | Providing customer support |
| VB CMS OU | Estonia | 100% | Develops software for fixed odds betting terminals and casino machines |
| Playtech Software (Alderney) Ltd | Alderney | 100% | To hold the company's Alderney gaming license |
| Playtech Gaming SAS | France | 100% | Dormant |
| Additional subsidiaries at 31 December 2011 | |||
| Intelligent Gaming Systems Limited | UK | 100% | Casino management systems to land based businesses |
| VF 2011 Limited | Alderney | 100% | Holds license in Alderney for online gaming |
| The PTTS Group | |||
| PT Turnkey Services Limited | British Virgin Islands | 100% | Holding company of the Turnkey Services group |
| PT Turnkey EU Services Limited | Cyprus | 100% | Turnkey services for EU online gaming operators |
| PT Entretenimiento Online EAD | Bulgaria | 100% | Poker & bingo network for Spain |
| PT Marketing Services Limited | British Virgin Islands | 100% | Marketing services to online gaming operators |
| PT Domains Limited | British Virgin Islands | 100% | Domains & hosting services to online gaming operators |
| Fullaccess Trading Limited | Cyprus | 100% | Domains & hosting services for EU |
| Ciera Trading Limited | Cyprus | 100% | Marketing services to parent company |
| KarminaTrading Limited | British Virgin Islands | 100% | Marketing services to parent company |
| PT Operational Services Limited | British Virgin Islands | 100% | Operational & hosting services to online gaming operators |
| Tech Hosting Limited | Alderney | 100% | Alderney hosting services |
| PT Antigua Limited | Antigua | 100% | Operational services |
| PT Entertainment Services | Antigua | 100% | Holder of Antiguan licence for iPoker network & online gaming operator |
| Paragon International Customer Care Limited |
British Virgin Island and branch office in the Philippines |
100% | English customer support, chat, fraud, finance, dedicated employees services to parent company |
| Starting Point Consultants Limited | Cyprus | 100% | Operational & administration services to parent company |
| CSMS Limited | Bulgaria | 100% | Consulting and online technical support, data mining processing and advertising services to parent company |
| TCSP Limited | Serbia | 100% | Operational services for Serbia |
| Xwise marketing (Israel) Limited | Israel | 100% | Marketing services to parent company |
| Xwise Research & Development (Israel) Limited |
Israel | 100% | Maintenance to affiliate program of parent company |
| S-Tech Limited | British Virgin Islands and branch office in the Philippines |
85% | Live games services to Asia |
| PT Advisory Services Limited | British Virgin Islands | 100% | Holds PT processing Advisory Ltd |
| PT Processing Advisory Limited | British Virgin Islands | 100% | Advisory services for processing & cashier to online gaming operators |
| PT Processing EU Advisory Limited |
Cyprus | 100% | Advisory services for processing & cashier for EU online gaming operators |
| PT Network Management Limited | British Virgin Islands | 100% | Manages the iPoker network |
| Gamepark Investments Limited | British Virgin Islands | 100% | Subsidiary of PT Network Management |
| Proportion | |||
|---|---|---|---|
| of voting | |||
| rights and | |||
| ordinary | |||
| Country of | share capital | ||
| Name | incorporation | held | Nature of business |
| Playtech Mobile (Cyprus) Limited | Cyprus | 100% | Holds the IP of Mobenga AB |
| Playtech Holding Sweden AB | Sweden | 100% | Holding company of Mobenga AB |
| Mobenga AB | Sweden | 100% | Mobile sportsbook betting platform developer |
| Ash Gaming Limited | UK | 100% | Develops interactive gambling and betting |
| games |
The Playtech Group is exposed to a variety of financial risks, which result from its financing, operating and investing activities. The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit any negative impact on the Playtech Group's financial performance and position. The Playtech Group's financial instruments are its cash, available-for-sale financial assets, trade receivables, loan receivables, accounts payable and accrued expenses. The main purpose of these financial instruments is to raise finance for the Playtech Group's operation. The Playtech Group actively measures, monitors and manages its financial risk exposures by various functions pursuant to the segregation of duties and principals. The risks arising from the Playtech Group's financial instruments are credit risks and market price risks, which include interest rate risk, currency risk and equity price risk. The risk management policies employed by the Playtech Group to manage these risks are discussed below.
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Playtech Group's income and operating cash flows are substantially independent of changes in market interest changes. The management monitors interest rate fluctuations on a continuous basis and acts accordingly.
Where the Playtech Group has generated a significant amount of cash, it will invest in higher earning interest deposit accounts. These deposit accounts are short term and the Playtech Group is not unduly exposed to market interest rate fluctuations.
The Playtech Group advanced loans to affiliates and customers for a total amount of 12.0 million, 11.0 million and 15.0 million during the years ended 31 December 2009, 2010 and 2011 respectively. Interest on the loans for the years ended 31 December 2009, 2010 and 2011 was charged at rates of 5.5% to 7%, 5.5% and 5% respectively.
The loans are repayable in monthly instalments.
A 1% change in deposit interest rates would impact on the profit before tax by 1100,000 to 1150,000, 140,000 and 150,000 in the years ended 31 December 2009, 2010 and 2011 respectively.
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.
The Playtech Group closely monitors the activities of its counterparties and controls the access to its intellectual property which enables it to ensure the prompt collection of customers' balances.
The Playtech Group's main financial assets are cash and cash equivalents as well as trade and other receivables and represent the Playtech Group's maximum exposure to credit risk in connection with its financial assets. Trade and other receivables are carried on the balance sheet net of bad debt provisions estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Wherever possible and commercially practical the Playtech Group invests cash with major financial institutions that have a rating of A– as defined by Standard & Poors. The Playtech Group maintains monthly operational balances with banks that do not meet this credit rating in Israel and in the Philippines to meet local salaries and expenses. These balances are kept to a minimum and typically do not exceed 11 million at any time during the monthly payment cycle. During 2009, 2010 and 2011 the Playtech Group held approximately 50%, 26% and 14% of its funds respectively in financial institutions below A– rate.
| Financial | Financial | ||
|---|---|---|---|
| institutes with | institutes | ||
| A– and above | below A– | ||
| Total | rating | rating | |
| 2'000 | 2'000 | 2'000 | |
| As at 31 December 2009 | 58,700 | 28,420 | 30,280 |
| As at 31 December 2010 | 68,519 | 49,714 | 18,805 |
| As at 31 December 2011 | 164,832 aaaa |
141,463 aaaa |
23,369 aaaa |
The ageing of trade receivables that are past due but not impaired can be analysed as follows:
| More than | ||||
|---|---|---|---|---|
| 1-2 months | 2 months | |||
| Total | Not past due | overdue | past due | |
| 2'000 | 2'000 | 2'000 | 2'000 | |
| As at 31 December 2009 | 6,470 | 5,498 | 714 | 258 |
| As at 31 December 2010 | 13,506 | 8,807 | 3,885 | 814 |
| As at 31 December 2011 | 21,007 aaaa |
13,607 aaaa |
5,380 aaaa |
2,020 aaaa |
The above balances relate to customers with no default history.
A provision for doubtful debtors is included within trade receivables that can be reconciled as follows:
| 2009 | 2010 | 2011 | |
|---|---|---|---|
| 2'000 | 2'000 | 2'000 | |
| Provision at the beginning of the year | 93 | 146 | 121 |
| Charged to income statement | 154 | 64 | 2,019 |
| Utilised | (101) | (89) | (311) |
| 5555 | 5555 | 5555 | |
| Provision at end of the year | 146 | 121 | 1,829 |
| aaaa | aaaa | aaaa |
Related party receivables of 12.3 million, 12.4 million and 12.9 million were not past due at 31 December 2009, 2010 and 2011 respectively.
As at 31 December 2009, 2010 and 2011 the Playtech Group held undrawn credit facilities of 1nil, 150 million and 182.6 million respectively.
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
Foreign exchange risk arises because the Playtech Group has operations located in various parts of the world. However, the functional currency of those operations is the same as the Playtech Group's primary functional currency (Euro) and the Playtech Group is not substantially exposed to fluctuations in exchange rates in respect of assets held overseas.
Foreign exchange risk also arises when Playtech Group operations are entered into in currencies denominated in a currency other than the functional currency.
The Playtech Group's policy is not to enter into any currency hedging transactions.
The Playtech Group's balance sheet is exposed to market risk by way of holding some investments in other companies on a short term basis (note 14). Variations in market value over the life of these investments have or will have an impact on the balance sheet and the income statement.
The directors believe that the exposure to market price risk is acceptable in the Playtech Group's circumstances.
The Playtech Group's balance sheet includes available-for-sale investments with a value of 13.5 million, 18.9 million and 110.3 million at 31 December 2009, 2010 and 2011 respectively, which are subject to fluctuations in the underlying share price.
A change of 1% in shares price will have an impact of 10.1 million on the consolidated statement of comprehensive income and the fair value of the available for sale investments will change by the same amount.
Given the repayment of the loan in the beginning of 2012 and the Playtech Group's significant retained earnings, capital risk is not considered significant.
Liquidity risk arises from the Playtech Group's management of working capital and the financial charges on its debt instruments.
The Playtech Group's policy is to ensure that it will have sufficient cash to allow it to meet its liabilities when they become due.
The following are the contractual maturities (representing undiscounted contractual cash flows) of the Playtech Group's financial liabilities:
| Total | Within 1 year | 1-2 years | 2-5 years |
|---|---|---|---|
| 2'000 | 2'000 | 2'000 | 2'000 |
| 8,823 | 8,823 | – | – |
| 4,169 | 4,169 | – | – |
| 1,068 | 1,068 | – | – |
| 13,955 | 13,955 | – | – |
| 7,346 | – | 7,346 | – |
| 130 aaaa |
|||
| Total 2'000 |
Within 1 year 2'000 |
1-2 years 2'000 |
2-5 years 2'000 |
| – | |||
| – | |||
| – | |||
| 15,001 | 15,001 | – | – |
| 16,795 | 11,059 | 5,736 | – |
| 953 aaaa |
– aaaa |
767 aaaa |
186 aaaa |
| 1,168 aaaa 13,013 7,254 12,847 |
– aaaa 13,013 7,254 12,847 |
1,038 aaaa – – – |
| Total 2'000 |
Within 1 year 2'000 |
1-2 years 2'000 |
2-5 years 2'000 |
|
|---|---|---|---|---|
| Trade payables | 17,678 | 17,678 | – | – |
| Loans and borrowings | 27,533 | 13,787 | 13,746 | – |
| Other accounts payable | 16,908 | 16,908 | – | – |
| Progressive and other operators' jackpots | 20,491 | 20,491 | – | – |
| Deferred consideration | 80,194 | 35,195 | 45,000 | – |
| Contingent consideration | 131,331 | 929 | 768 | 129,634 |
| Other non-current liabilities | 1,423 aaaa |
– aaaa |
756 aaaa |
667 aaaa |
The fair value together with the carrying amount of the financial assets and liabilities shown in the balance sheet are as follows:
| 2009 | 2010 | 2011 | |||||
|---|---|---|---|---|---|---|---|
| Fair value 2'000 |
Carrying amount 2'000 |
Fair value 2'000 |
Carrying amount 2'000 |
Fair value 2'000 |
Carrying amount 2'000 |
||
| Cash and cash equivalents | 58,700 | 58,700 | 68,519 | 68,519 | 164,832 | 164,832 | |
| Available-for-sale investments | 5,513 | 5,513 | 10,932 | 10,932 | 12,376 | 12,376 | |
| Other assets | 18,752 | 18,752 | 28,819 | 28,819 | 44,055 | 44,055 | |
| Deferred consideration | 13,955 | 13,955 | 15,001 | 15,001 | 75,343 | 75,343 | |
| Contingent consideration | 6,983 | 6,983 | 16,533 | 16,533 | 111,914 | 111,914 | |
| Loans and borrowings | – | – | – | – | 27,533 | 27,533 | |
| Other liabilities | aaa 15,228 |
aaa 15,228 |
aaa 34,067 |
aaa 34,067 |
aaa 56,500 |
aaa 56,500 |
Included in available-for-sale investments at 31 December 2009, 2010 and 2011 is 13.5 million and 12.0 million, 18.9 million and 12.0 million, and 110.3 million and 12.0 measured at fair value using level 1 and level 2 respectively. These are the Playtech Group's only financial assets which are measured at fair value.
On 24 January 2012, the Playtech Group acquired 100% of the issued share capital of Geneity Limited ("Geneity") shares, a UK based provider of e-gaming software products, focused primarily on the sportsbook and lottery sectors, for an initial cash consideration of £11 million (subject to a working capital adjustment), of which £4 million will be held in escrow for 30 months. A further £4 million in cash will be payable subject to certain agreed deliverables to be provided by Geneity.
As of the approval date of the financial statements by the board the Playtech Group had not completed the valuation of the fair value of the intangible assets and liabilities acquired, and accordingly these disclosures are not provided in the financial statement.
In January 2012, the Playtech Group entered into an agreement with Merkur Interactive GmbH, the online division of the Gauselmann Group. The agreement provides for the joint development of an online gaming operation focused on new opportunities as the German online markets regulate, together with a related software licensing agreement.
Pursuant to the acquisition of PTTS, which was announced on 10 March 2011, the Company agreed to pay Worldwide Online Enterprises Limited ("WOE") an initial cash consideration of 1140 million (less a working capital adjustment of 114.8 million) in broadly equal, non-interest bearing half-yearly instalments over the 30 months following completion of the acquisition in July 2011.
On 17 April 2012, Playtech announced that it had agreed with WOE to aggregate the outstanding 180.2 million balance of the initial consideration into one payment of 176 million, (the "Discounted Outstanding Initial Consideration") which reflected a discount to the net present value of that outstanding balance and produced a revised initial consideration of 1121 million. Playtech financed substantially all of the payment of the Discounted Outstanding Initial Consideration from its available banking facilities.
This Discounted Outstanding Initial Consideration will not affect any amounts which may become payable under the earn-out provisions agreed at the time of the acquisition of PTTS (defined as the Additional Consideration in the announcement of 10 March 2011).
The Playtech Group is not a gaming operator and does not provide gaming services to players. As part of the Board's ongoing regulatory compliance process, the Board continues to monitor legal and regulatory developments and their potential impact on the Playtech Group.
Management is not aware of any contingencies that may have a significant impact on the financial position of the Playtech Group.
The Directors Playtech Limited 2nd Floor St George's Court Upper Church Street Douglas Isle of Man IM1 1EE
BDO LLP 55 Baker Street London W1U 7EU
28 June 2012
Canaccord Genuity Limited 88 Wood Street London EC2V 7QR
Dear Sirs
PT Turnkey Services Limited ("PTTS") and its subsidiary undertakings (together, the "PTTS Group")
We report on the financial information set out in Part 4D. This financial information has been prepared for inclusion in the prospectus dated 28 June 2012 of Playtech Limited (the "Prospectus") on the basis of the accounting policies set out in note 2 to the financial information. This report is required by item 20.1 of annex I of the Commission Regulation (EC) No. 809/2004 (the "PD Regulation") and is given for the purpose of complying with that item and for no other purpose.
The directors of Playtech Limited are responsible for preparing the financial information on the basis of preparation set out in note 1 to the financial information.
It is our responsibility to form an opinion on the financial information and to report our opinion to you.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of annex I of the PD Regulation consenting to its inclusion in the Prospectus.
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions outside the United Kingdom and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair view of the state of affairs of the PTTS Group as at 31 December 2009, 2010 and 2011 and of its profits, changes in equity, and cash flows for the years then ended in accordance with the basis of preparation set out in note 1 to the financial information.
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of annex I of the PD Regulation.
Yours faithfully
Chartered Accountants
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | 2'000 | 2'000 | 2'000 | |
| Revenues | 4 | 102,988 | 91,762 | 81,418 |
| Distribution costs | (76,654) | (65,443) | (53,536) | |
| Administrative expenses | (8,463) 5555 |
(8,943) 5555 |
(17,222) 5555 |
|
| Total operating costs | (85,117) 5555 |
(74,386) 5555 |
(70,758) 5555 |
|
| Operating profit before the following items: | 18,410 | 18,017 | 19,258 | |
| Amortisation of intangible assets | 10 | (539) 5555 |
(641) 5555 |
(8,598) 5555 |
| Total | (539) 5555 |
(641) 5555 |
(8,598) 5555 |
|
| Operating profit | 5 | 17,871 | 17,376 | 10,660 |
| Financing income | 6 | 756 | 1,881 | 675 |
| Financing cost | 6 | ( 5555 491) |
(353) 5555 |
(758) 5555 |
| Profit before taxation | 18,136 | 18,904 | 10,577 | |
| Tax expense | 7 | ( 5555 64) |
(90) 5555 |
(82) 5555 |
| Profit and total comprehensive income for the year | 18,072 aaaa |
18,814 aaaa |
10,495 aaaa |
|
| Profit and total comprehensive income for the year attributable to: |
||||
| Owners of the parent | 18,072 | 18,814 | 10,485 | |
| Non-controlling interest | – 5555 |
– 5555 |
10 5555 |
|
| 18,072 aaaa |
18,814 aaaa |
10,495 aaaa |
||
| equity holders Non-controlling of the parent interest |
capital |
|---|---|
| 2'000 2'000 |
2'000 |
| Balance at 1 January 2009 37,229 |
– 37,229 |
| Total comprehensive income for the year 18,072 |
– 18,072 |
| Net capital distributed (36,353) 5555 5555 |
– (36,353) 5555 |
| Balance at 31 December 2009 18,948 |
– 18,948 |
| Total comprehensive income for the year 18,814 |
– 18,814 |
| Net capital distributed (21,284) 5555 5555 |
– (21,284) 5555 |
| Balance at 31 December 2010 16,478 |
– 16,478 |
| Total comprehensive income for the year 10,485 10 |
10,495 |
| Acquisition of non-controlling interest – (59) |
(59) |
| Net capital invested 111,594 5555 5555 |
– 111,594 5555 |
| Balance at 31 December 2011 138,557 (49) aaaa aaaa |
138,508 aaaa |
| As of 31 December | |||
|---|---|---|---|
| Note | 2009 2'000 |
2010 2'000 |
2011 2'000 |
| 9 | 3,740 | 2,442 | 2,925 |
| 10 | 1,197 | 1,660 | 148,404 |
| 11 | 1,274 5555 |
1,896 5555 |
1,848 5555 |
| 6,211 | 5,998 | 153,177 5555 |
|
| 8,825 | |||
| 13 | 1,712 | 993 | 8,424 |
| 14 | 22,163 5555 |
16,371 5555 |
9,654 5555 |
| 41,240 | 33,617 | 26,903 5555 |
|
| 47,451 aaaa |
39,615 aaaa |
180,080 aaaa |
|
| 15 | – | 10 | 445 5555 |
| – | 10 | 445 5555 |
|
| 16 | 21,126 | 19,438 | 18,631 |
| 2,005 | 994 | 1,434 | |
| 74 | 11 | 49 | |
| 17 | 5,298 5555 |
2,684 5555 |
21,013 5555 |
| 28,503 | 23,127 | 41,127 5555 |
|
| 28,503 | 23,137 | 41,572 aaaa |
|
| 18,948 | 16,478 | 138,508 aaaa |
|
| – | – | 138,557 (49) 5555 |
|
| 18,948 | 16,478 | 138,508 aaaa |
|
| 12 | 5555 17,365 5555 5555 5555 5555 aaaa aaaa 18,948 5555 aaaa |
5555 16,253 5555 5555 5555 5555 aaaa aaaa 16,478 5555 aaaa |
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | 2'000 | 2'000 | 2'000 | |
| Cash flows from operating activities | ||||
| Profit after tax | 18,072 | 18,814 | 10,495 | |
| Adjustments to reconcile net income to net cash provided by operating activities |
||||
| (see below) | 10,170 | (657) | 28,771 | |
| Income taxes paid | (9) 5555 |
(153) 5555 |
(59) 5555 |
|
| Net cash provided by operating activities | 28,233 5555 |
18,004 5555 |
39,207 5555 |
|
| Cash flows from investing activities | ||||
| Long term loans | – | (622) | 48 | |
| Acquisition of property, plant and equipment | 9 | (2,349) | (961) | (1,689) |
| Acquisition of intangible assets | 10 | (1,444) | (1,104) | (12) |
| Proceeds from sale of property, plant | ||||
| and equipment | 129 | 175 | 163 | |
| Proceeds from sale of intangible assets | – 5555 |
– 5555 |
4 5555 |
|
| Net cash used in investing activities | (3,664) 5555 |
(2,512) 5555 |
(1,486) 5555 |
|
| Cash flows from financing activities Acquisition of subsidiary, net of |
||||
| cash acquired | 18 | – | – | 338 |
| Net cash movements in capital distributed | (36,353) 5555 |
(21,284) 5555 |
(44,776) 5555 |
|
| Net cash used in financing activities | (36,353) 5555 |
(21,284) 5555 |
(44,438) 5555 |
|
| Decrease in cash and cash equivalents Cash and cash equivalents at beginning |
(11,784) | (5,792) | (6,717) | |
| of year | 33,947 5555 |
22,163 5555 |
16,371 5555 |
|
| Cash and cash equivalents at end of year | 22,163 aaaa |
16,371 aaaa |
9,654 aaaa |
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Income and expenses not affecting operating cash flows | |||
| Depreciation | 2,867 | 2,084 | 1,697 |
| Amortisation | 539 5555 |
641 5555 |
8,598 5555 |
| 3,406 | 2,725 | 10,295 | |
| Income tax expense | 64 | 90 | 82 |
| Changes in operating assets and liabilities | |||
| Decrease in trade receivables | 2,672 | 1,112 | 7,428 |
| (Increase)/decrease in other receivables | (668) | 719 | (7,431) |
| Increase/(decrease) in trade payables | 1,891 | (1,688) | (807) |
| (Decrease)/increase in progressive and other | |||
| operators' jackpot | (1) | (1,011) | 440 |
| Increase/(decrease) in other payables | 2,806 | (2,614) | 18,329 |
| Increase in non-current liabilities | – 5555 |
10 5555 |
435 5555 |
| 10,170 aaaa |
(657) aaaa |
28,771 aaaa |
The financial information provided is for PT Turnkey Services Limited ("PTTS") and its subsidiary undertakings (together the "PTTS Group") in respect of the three financial years ended 31 December 2009, 2010 and 2011.
PTTS was a new holding company established by the former shareholder in connection with the acquisition of PTTS which, immediately prior to acquisition of PTTS by Playtech, acquired assets in respect of B2B online gaming service operations (the "Operations") that provide support to Playtech's licensees.
The financial information relating to the PTTS Group has been derived from the aggregation of results, cash flows and balance sheets of a number of businesses housed within various corporate entities, owned either by PTTS or the former shareholder of PTTS, which jointly comprise the Operations. Under the terms of the acquisition by Playtech, the sale and purchase of the Operations was completed on the basis that excess working capital over and above that required to meet certain liabilities was 1Nil. Accordingly, due to the terms of the acquisition and the consequences of an aggregation, certain cash flows and balance sheet items which were not acquired by PTTS are inherently included within the financial information, although transactions and appropriations with the former shareholder of PTTS that are not related to the underlying trading of the Operations have been excluded.
The presentational format adopted for the financial information (which has been prepared solely for the purposes of this document) reflects the acquisition of various corporate entities, together with other trade and assets from other corporate entities, by PTTS, as if it was an asset acquisition. Accordingly, the financial information is drawn up on the basis of excluding issued share capital, accumulated reserves and certain shareholder loans and appropriations (in aggregate referred to as invested capital) not acquired.
Other than as described below, the financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB). In the current year the PTTS Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 January 2011.
In preparing the financial information certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements of historical financial information) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from IFRSs as adopted by the EU. In other respects IFRSs as adopted by the EU have been applied.
The entities comprising the PTTS Group do not include a single overall holding company for the three years ended 31 December 2011 and therefore, prior to 1 July 2011, did not form a legal group. However, their results and net assets have been combined and, where applicable, consolidation adjustments have been included to show this combination of businesses as a group. In particular all transactions, balances and unrealised gains on transactions between the aggregated entities have been eliminated.
It has not been possible to calculate the earnings per share in accordance with IAS 33 as the PTTS Group did not have a single parent company throughout the three years ended 31 December 2011. Illustrative earnings per share information has not been provided on the basis that PTTS is now owned by Playtech Limited and any future earnings per share will be based on the results and number of shares of the group headed by Playtech Limited and not the group headed by PTTS.
The following new standards, interpretations and amendments, which have not been applied to these financial statements, will or may have an effect on the PTTS Group's future financial statements:
IFRS 7 (Amended) – Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011);
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (effective for annual periods beginning on or after 1 July 2012).
The following new standards, interpretations and amendments, which have not yet been endorsed by the EU, are effective for annual periods beginning on or after 1 January 2013:
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements;
IFRS 13 Fair Value Measurement;
IAS 28 Investments in Associates and Joint Ventures;
Disclosures – Offsetting Financial Assets and Liabilities (Amendments to IFRS 7);
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective for annual periods beginning on or after 1 January 2014);
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2015).
The PTTS Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results.
None of the other new standards, interpretations and amendments, which are effective for periods beginning after 1 January 2011 and which have not been adopted early, are expected to have a material effect on the PTTS Group's future financial statement.
The financial information of PTTS and its subsidiaries is prepared in Euro (the functional currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the PTTS Group. Transactions and balances in foreign currencies are converted into Euro in accordance with the principles set forth by International Accounting Standard (IAS) 21 ("The Effects of Changes in Foreign Exchange Rates"). Accordingly, transactions and balances have been converted as follows:
Monetary assets and liabilities – at the rate of exchange applicable at the balance sheet date; Income and expense items – at exchange rates applicable as of the date of recognition of those items. Non-monetary items are converted at the rate of exchange used to convert the related balance sheet items i.e. at the time of the transaction. Exchange gains and losses from the aforementioned conversion are recognised in the consolidated statement of comprehensive income.
Where PTTS has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial information presents the results of PTTS and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.
Income receivable from contracting parties comprises a percentage of the revenue generated by the contracting party from use of the PTTS Group's intellectual property in B2B services provided to the online gaming activities, and from fees charged for services rendered. Income is recognised in the accounting periods in which the gaming transactions occur or the services are rendered. Royalty and other income receivable under fixed-term arrangements are recognised over the term of the agreement on a straight line basis.
Distribution costs represent the direct costs of the function of providing services to customers, costs of the development function and advertising costs.
Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the balance sheet date in the countries in which the PTTS Group companies have been incorporated.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated balance sheet differs from its tax base, except for differences arising on:
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the PTTS Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
Property, plant and equipment comprise computers, leasehold improvements, office furniture and equipment, and motor vehicles and are stated at cost less accumulated depreciation. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Depreciation is calculated to write off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are:
| % | |
|---|---|
| Computers and gaming machines | 33.33 |
| Office furniture and equipment | 7.00–20.00 |
| Building and leasehold improvements | 10.00–20.00, or over the length of the lease |
| Motor vehicles | 15 |
Subsequent expenditures are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the PTTS Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statement of comprehensive income.
Intangible assets comprise externally acquired patents, domains, and customer lists. Intangible assets also include internally generated capitalised software development costs. All such intangible assets are stated at cost less accumulated amortisation. Where intangible assets are acquired as part of a business combination they are recorded initially at their fair value. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable.
Amortisation is calculated using the straight-line method at annual rates estimated to write off the costs of the assets over their expected useful lives and is charged to operating expenses from the point the asset is brought into use. The principal annual rates used for this purpose are:
| % | |
|---|---|
| Domain names | Nil |
| Internally generated capitalised development costs | 33.33 |
| Technology IP | 20–33.33 |
| Customer list | 7–12.50 |
| Affiliate contracts | 5–12.50 |
| Patents | Over the expected useful lives 10–33 |
Management believes that the useful life of the domain names is indefinite. Domain names are reviewed for impairment annually.
Expenditure incurred on development activities including the PTTS Group's software development is capitalised only where the expenditure will lead to new or substantially improved products, the products are technically and commercially feasible and the PTTS Group has sufficient resources to complete development.
Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. All other expenditure, including that incurred in order to maintain an intangible assets current level of performance, is expensed as incurred.
Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.
Cost comprises the fair value of assets given and liabilities assumed, plus the amount of any noncontrolling interests in the acquire. Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as a financial liability, remeasured subsequently through profit or loss. For combinations completed on or after 1 January 2010, direct costs of acquisition are recognised immediately as an expense in the consolidated statement of comprehensive income, within administrative costs.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Goodwill is not amortised and is reviewed for impairment, annually or more specifically if events or changes in circumstances indicate that the carrying value may be impaired.
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to annual impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. – the higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to establish the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. – the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the PTTS Group's cash generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the administrative expenses line item in the consolidated statement of comprehensive income, except to the extent they reverse gains previously recognised in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.
The PTTS Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The PTTS Group has not classified any of its financial assets as held to maturity. The PTTS Group does not hold any financial assets at fair value through profit and loss.
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
The PTTS Group's receivables comprise trade and other receivables, cash and cash equivalents, and loans to customers in the balance sheet
Trade receivables which principally represent amounts due from licensees are carried at original invoice value less an estimate made for bad and doubtful debts based on a review of all outstanding amounts at the year-end. An estimate for doubtful debts is made when there is objective evidence that the PTTS Group will not be able to collect amounts due according to the original terms of receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less. Where cash is on deposit with maturity dates greater than three months, it is disclosed within other receivables.
Loans to customers are in respect of formal loan agreements entered into between the PTTS Group and its customer, which are carried at original advanced value less a provision for impairment. They are classified between current and non-current assets in accordance with the contractual repayment terms of each loan agreement.
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Several of the PTTS Group's licensees participate in progressive jackpot games. Each time a progressive jackpot game is played, a preset amount is added to a cumulative jackpot for that specific game. The accrual for the jackpot at the consolidated balance sheet date is included in progressive jackpot and other operator's jackpot liabilities.
Loans and bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Long-term liabilities are those liabilities that are due for repayment or settlement in more than twelve months from the balance sheet date.
Provisions, which are liabilities of uncertain timing or amount, are recognised when the PTTS Group has a present obligation as a result of past events, if it is probable that an outflow of funds will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Non-controlling interest is recognised at the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. The total comprehensive income of non-wholly owned subsidiaries is attributed to owners of the parent and to the non-controlling interests in proportion to their relative ownership interests.
The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the PTTS Group's earnings and financial position are impairment of goodwill, the recognition and amortisation of development costs and the useful life of property, plant and equipment, the fair value of available for sale investments, share based payments, legal proceedings and contingent liabilities, determination of fair values of intangible assets acquired in business combinations, income tax, and determination of fair value of contingent consideration.
The PTTS Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Such estimates are based on management's experience of the business, but actual outcomes may vary. More details including carrying values are included in note 11.
Intangible assets and property, plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness.
Changes to estimates can result in significant variations in the amounts charged to the consolidated statement of comprehensive income in specific periods. More details including carrying values are included in notes 10 and 11.
Management regularly monitors the key risks affecting the PTTS Group, including the regulatory environment in which the PTTS Group operates. A provision will be made where there is a present obligation from a past event, a transfer of economic benefits is probable and the amount of costs of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to the financial information. More details are included in note 22.
The fair value of the intangible assets acquired is based on the discounted cash flows expected to be derived from the use of the asset. Further information in relation to the determination of fair value of intangible assets acquired is given in note 11.
The PTTS Group is subject to income tax in jurisdictions in which it is registered and judgment is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the PTTS Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. The PTTS Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. More details are included in note 7.
The preparation of financial information in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates.
Management considers that the PTTS Group's activity as a single source supplier of online gaming solutions constitutes one operating and reporting segment, as defined under IFRS 8.
Management review the performance of the PTTS Group by reference to group-wide profit measures of adjusted net profit (see below) and adjusted EBITDA. Management believes the adjusted profit measures represent more closely the underlying trading performance of the business. No other material differences exist between the basis of preparation of the performance measures used by management and the figures in the PTTS Group financial statements.
The adjusted net profit represents the profit for the year before charging amortisation relating to acquisitions.
Analysis by geographical regions is made according to the jurisdiction of the gaming licence of the licensee. This does not reflect the region of the end users of the PTTS Group's licensees whose locations are worldwide.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 2'000 |
2010 2'000 |
2011 2'000 |
|
| Gibraltar | 7,171 | 8,944 | 8,636 |
| Canada | 89,178 | 71,686 | 62,540 |
| Curacao | 1,415 | 2,341 | 2,123 |
| Philippines | 154 | 186 | 462 |
| Rest of world | 5,070 5555 |
8,605 5555 |
7,657 5555 |
| 102,988 aaaa |
91,762 aaaa |
81,418 aaaa |
There was one licensee who individually accounted for more than 10% of the total revenue of the PTTS Group during the years ended 31 December 2009, 2010 and 2011. Revenue from this licensee amounted to 188.8 million, 170.5 million and 160.8 million in each respective year.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Profit for the year | 18,072 | 18,814 | 10,495 |
| Amortisation of acquisitions | – 5555 |
– 5555 |
7,683 5555 |
| Adjusted profit for the year | 18,072 aaaa |
18,814 aaaa |
18,178 aaaa |
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| 2'000 | 2'000 | 2'000 | ||
| British Virgin Islands | 5,136 | 5,068 | 151,289 | |
| Cyprus | 29 | 22 | 29 | |
| Philippines | 775 | 675 | 1,576 | |
| Rest of world | 271 5555 |
233 5555 |
283 5555 |
|
| 6,211 aaaa |
5,998 aaaa |
153,177 aaaa |
Operating profit is stated after charging:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Directors' compensation | |||
| Short-term benefits of directors | 26 | 26 | 31 |
| Bonuses to directors | – 5555 |
– 5555 |
– 5555 |
| 26 aaaa |
26 aaaa |
31 aaaa |
Following its acquisition by Playtech Limited on 1 July 2011, the PTTS Group is managed by the board of the ultimate parent company. The compensation received by the directors of the ultimate parent company is set out in the financial information of Playtech Limited in Part 4B of this document.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Finance income | |||
| Interest received | 756 | 1,881 | 675 |
| Finance cost | |||
| Bank charges and other finance costs | (491) 5555 |
(353) 5555 |
(758) 5555 |
| Net financing income/(expense) | 265 aaaa |
1,528 aaaa |
(83) aaaa |
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Current income tax | |||
| Income tax on profits of subsidiary operations | 64 aaaa |
90 aaaa |
82 aaaa |
The tax charge for the year can be reconciled to accounting profit as follows:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Profit before tax | 18,136 | 18,904 | 10,577 |
| Tax at effective rate in British Virgin Islands | – | – | – |
| Higher rates of current income tax in overseas jurisdictions | 64 5555 |
90 5555 |
82 5555 |
| Total tax charge | 64 aaaa |
90 aaaa |
82 aaaa |
The majority of profits arise in the British Virgin Islands. No tax is assessed in the British Virgin Islands, the Company's country of incorporation. The PTTS Group's subsidiaries are located in different jurisdictions. The subsidiaries are taxed on their residual profit.
Total staff costs comprise the following:
| For the year ended 31 December | |||||
|---|---|---|---|---|---|
| 2009 | 2010 | 2011 | |||
| 2'000 | 2'000 | 2'000 | |||
| Salaries and related costs | 10,446 aaaa |
13,568 aaaa |
13,936 aaaa |
||
| For the year ended 31 December | |||||
| 2009 | 2010 | 2011 | |||
| Number | Number | Number | |||
| Average number of employees | |||||
| Distribution | 728 | 801 | 843 | ||
| General and administration | 77 5555 |
91 5555 |
99 5555 |
||
| 805 aaaa |
892 aaaa |
942 aaaa |
|||
| Computers and related equipment |
Office furniture and equipment |
Motor vehicles |
Leasehold improvement |
Total | |
|---|---|---|---|---|---|
| 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | |
| Cost | |||||
| At 1 January 2009 | 7,934 | 331 | 87 | 761 | 9,113 |
| Additions | 2,174 | 19 | 82 | 74 | 2,349 |
| Disposals | 555 (157) |
555 (21) |
555 (54) |
555 – |
555 (232) |
| At 31 December 2009 | 9,951 | 329 | 115 | 835 | 11,230 |
| Additions | 805 | 42 | 64 | 50 | 961 |
| Disposals | 555 (252) |
555 – |
555 – |
555 – |
555 (252) |
| At 31 December 2010 | 10,504 | 371 | 179 | 885 | 11,939 |
| Additions | 1,486 | 97 | 30 | 76 | 1,689 |
| Acquired on business combinations | 468 | 72 | – | 114 | 654 |
| Disposals | 555 (103) |
555 (76) |
555 (21) |
555 (125) |
555 (325) |
| At 31 December 2011 | aaa 12,355 |
aaa 464 |
aaa 188 |
aaa 950 |
aaa 13,957 |
| Accumulated deprecation | |||||
| At 1 January 2009 | 4,275 | 124 | 18 | 309 | 4,726 |
| Charge | 2,630 | 54 | 30 | 153 | 2,867 |
| Disposals | 555 (84) |
555 (3) |
555 (16) |
555 – |
555 (103) |
| At 31 December 2009 | 6,821 | 175 | 32 | 462 | 7,490 |
| Charge | 1,837 | 48 | 29 | 170 | 2,084 |
| Disposals | 555 (77) |
555 – |
555 – |
555 – |
555 (77) |
| At 31 December 2010 | 8,581 | 223 | 61 | 632 | 9,497 |
| Charge | 1,411 | 54 | 39 | 193 | 1,697 |
| Disposals | 555 (85) |
555 (5) |
555 (13) |
555 (59) |
555 (162) |
| At 31 December 2011 | aaa 9,907 |
aaa 272 |
aaa 87 |
aaa 766 |
aaa 11,032 |
| Net book value | |||||
| As of 31 December 2009 | aaa 3,130 |
aaa 154 |
aaa 83 |
aaa 373 |
aaa 3,740 |
| As of 31 December 2010 | aaa 1,923 |
aaa 148 |
aaa 118 |
aaa 253 |
aaa 2,442 |
| As of 31 December 2011 | aaa 2,448 |
aaa 192 |
aaa 101 |
aaa 184 |
aaa 2,925 |
| Patents and | Customer list | |||
|---|---|---|---|---|
| domain | Development | and affiliate | ||
| names | costs | contracts | Goodwill | Total |
| 2'000 | ||||
| 77 | 215 | – | – | 292 |
| 9 555 |
1,435 555 |
– 555 |
– 555 |
1,444 555 |
| 1,736 | ||||
| 1,104 555 |
||||
| 96 | 2,744 | – | – | 2,840 |
| 12 | – | – | – | 12 |
| – | – | 131,547 | 23,787 | 155,334 |
| (4) 555 |
– 555 |
– 555 |
– 555 |
(4) 555 |
| 104 | 2,744 | 131,547 | 23,787 | 158,182 aaa |
| – | – | – | – | – |
| – 555 |
539 555 |
– 555 |
– 555 |
539 555 |
| 539 | ||||
| – | 641 | – | – | 641 555 |
| 1,180 | ||||
| – | 915 | 7,683 | – | 8,598 555 |
| – | 2,095 | 7,683 | – | 9,778 aaa |
| 86 | 1,111 | – | – | 1,197 aaa |
| 96 | 1,564 | – | – | 1,660 aaa |
| 104 | 649 | 123,864 | 23,787 | 148,404 aaa |
| 2'000 86 10 555 aaa – 555 – 555 aaa aaa aaa aaa |
2'000 1,650 1,094 555 aaa 539 555 1,180 555 aaa aaa aaa aaa |
2'000 – – 555 aaa – 555 – 555 aaa aaa aaa aaa |
2'000 – – 555 aaa – 555 – 555 aaa aaa aaa aaa |
Management believes that domain names are stated at fair value and have an indefinite life due to their nature.
In accordance with IAS 36, PTTS regularly monitors the carrying value of its intangible assets, including goodwill. Goodwill is allocated to one cash generating unit ("CGU"), and the carrying value is below.
At 31 December 2011 the recoverable amount of the CGU has been determined from value-in-use calculations based on cash flow projections from the formally approved budget for 2012 and detailed projections covering the periods as noted below.
Key assumptions for intangible assets, with carrying value of 1148 million, are as follows:
The results of the review indicated that there was no impairment of goodwill at 31 December 2011. Management has also reviewed the key assumptions and forecasts for the customer lists and affiliates, applying the above same key assumptions. The results of the reviews indicated that there was no impairment of the intangible assets at 31 December 2011.
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Loan to affiliate | 974 | 1,703 | 1,600 |
| Other | 300 5555 |
193 5555 |
248 5555 |
| 1,274 aaaa |
1,896 aaaa |
1,848 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Customers | 14,575 | 14,583 | 6,851 |
| Related parties (note 19) | 2,790 5555 |
1,670 5555 |
1,974 5555 |
| 17,365 aaaa |
16,253 aaaa |
8,825 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| VAT and other taxes | 219 | 96 | 103 |
| Short-term investment | 11 | 68 | 2,085 |
| Advance to suppliers | 204 | 35 | 150 |
| Loan to affiliate | – | – | 4,700 |
| Other receivables | 1,278 5555 |
794 5555 |
1,386 5555 |
| 1,712 aaaa |
993 aaaa |
8,424 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Cash at bank | 8,942 | 14,795 | 9,633 |
| Deposits | 13,221 5555 |
1,576 5555 |
21 5555 |
| 22,163 aaaa |
16,371 aaaa |
9,654 aaaa |
The PTTS Group held cash balances which include monies held on behalf of operators in respect of operators' jackpot games and poker operation. The balances held at the year-end are set out below and the liability is included in trade payables:
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Funds attributable to jackpots | 2,005 | 994 | 1,434 |
| Poker security deposits | 17,457 5555 |
12,415 5555 |
13,257 5555 |
| 19,462 aaaa |
13,409 aaaa |
14,691 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Long-term trade payables | – aaaa |
10 aaaa |
445 aaaa |
| 16. Trade payables |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Suppliers | 2,673 | 5,398 | 4,987 |
| Customer liabilities | 15,179 | 12,072 | 12,254 |
| Related parties (note 19) | 3,109 | 1,948 | 1,387 |
| Other | 165 5555 |
20 5555 |
3 5555 |
| 21,126 aaaa |
19,438 aaaa |
18,631 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Payroll and related expenses | 781 | 910 | 1,941 |
| Related parties (note 19) | – | – | 17,371 |
| Other payables | 4,517 5555 |
1,774 5555 |
1,701 5555 |
| 5,298 aaaa |
2,684 aaaa |
21,013 aaaa |
Formation of PTTS and restructure of corporate entities by way of capital contribution
On 1 July 2011, immediately prior to it being acquired by Playtech Limited, PTTS (being a newly incorporated holding company established in connection with the subsequent acquisition by Playtech) received trade, assets and liabilities (by way of capital contribution) from its then shareholder, Worldwide Online Enterprises Limited ("WOE").
Following the capital contribution from WOE, PTTS owned assets which perform a range of complementary B2B online gaming service operations providing marketing and ancillary services to operators of online gaming businesses. These comprise four separate service offerings: marketing; operations; payment advisory; and network management.
Details of the provisional fair value of additional identifiable assets and liabilities acquired (via capital contribution) and goodwill which are not already recognised within the aggregation of financial information are as follows:
| Book value | Provisional | ||
|---|---|---|---|
| prior to | fair value on | ||
| acquisition | Adjustments | acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Intangible assets | – 5555 |
131,547 5555 |
131,547 5555 |
| Net additional identified assets not previously aggregated | – 5555 |
131,547 5555 |
131,547 |
| Provisional goodwill | 23,449 5555 |
||
| Fair value of shareholder's capital contribution | 154,996 aaaa |
Adjustments to fair value include the following:
| Amount 2'000 |
Amortisation | |
|---|---|---|
| Customer list Affiliate programme |
66,994 64,553 5555 |
12.5 years 12.5 years 5555 |
| Total intangible fixed assets | 131,547 aaaa |
The main factors leading to the recognition of goodwill are the synergistic growth and revenues expected to be created by the combined highly complementary business activities and the strengthening of the PTTS Group's position in comparison to its competitors in the market. In accordance with IAS 36, the PTTS Group will regularly monitor the carrying value of its interest in the PTTS business.
The key assumptions used by management to determine the value in use of the customer relationships and affiliates program within PTTS business are as follows:
On 24 November 2011 the PTTS Group acquired 85% of the shares of S-Tech Limited (hereinafter "S-Tech"), a live games provider in Asia. As of the purchase date S-Tech had net liabilities and therefore the consideration paid was the US\$1 par value of 85 shares.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill are as follows:
| Book value | Provisional | ||
|---|---|---|---|
| prior to | fair value on | ||
| acquisition | Adjustments | acquisition | |
| 2'000 | 2'000 | 2'000 | |
| Property, plant and equipment | 654 | – | 654 |
| Trade and other receivables | 411 | – | 411 |
| Cash and cash equivalents | 338 | – | 338 |
| Trade and other payables | (346) | – | (346) |
| Other payables | (1,455) 5555 |
– 5555 |
(1,455) 5555 |
| Net identified assets | (398) 5555 |
– 5555 |
(398) |
| Provisional goodwill | 339 | ||
| Non-controlling interest | 555559 | ||
| Total consideration | aaaa– |
During the year ended 31 December 2011, the PTTS Group recognised a non-controlling interest of 110,000 owing to Emphasis Services Limited, the 15% shareholder.
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party's making of financial or operational decisions, or if both parties are controlled by the same third party.
MONEYCOAST TRADING LTD, Roundcube Trading Limited, Safecharge International Ltd, Smartalk Services, Easydock Investments Ltd, Netplay TV plc and Basic Idea are related by virtue of a common significant shareholder.
Playtech Limited and subsidiary companies thereof, is related by virtue of it being the ultimate parent undertaking of PTTS.
William Hill Online, a customer of the PTTS Group, is related by virtue of Playtech Limited's interest in that company.
The following transactions arose with related parties:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Revenue | |||
| Easydock Investments Ltd | 276 | 1,464 | 520 |
| Emphasis Services Limited | 154 | 186 | 447 |
| MONEYCOAST TRADING LTD | – | 58 | 228 |
| Netplay TV plc | – | 525 | 375 |
| Playtech Services (Cyprus) Ltd | – | 4 | 14 |
| Playtech Software Limited | 198 | 522 | 757 |
| Safecharge International Ltd | 396 | 344 | 94 |
| Sportech Alderney Ltd | – | – | 36 |
| Video B Holdings Limited | 60 | 60 | 60 |
| VF 2011 Limited | – | – | 47 |
| William Hill Online | 3,940 aaaa |
4,763 aaaa |
5,525 aaaa |
| Operating expenses | |||
| Basic Idea | 1 | 9 | – |
| Playtech Software Limited | – | – | 56 |
| Roundcube Trading Limited | 92 | 299 | – |
| Smartalk Services | – aaaa |
18 aaaa |
– aaaa |
The following are year-end balances:
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Related party creditors | |||
| Basic Idea | – | 9 | – |
| Easydock Investments Ltd | 57 | – | – |
| Emphasis Services Limited | 126 | 126 | 640 |
| Playtech Services (Cyprus) Ltd | – | 61 | – |
| Playtech Limited | – | – | 6,850 |
| Playtech Software Limited | – | 725 | 10,186 |
| Roundcube Trading Limited | – | 5 | – |
| Smartalk Services | – | 11 | 2 |
| Sportech Alderney Ltd | – | – | 80 |
| William Hill Online | 2,926 5555 |
1,011 5555 |
1,000 5555 |
| 3,109 aaaa |
1,948 aaaa |
18,758 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| 2'000 | 2'000 | 2'000 | |
| Related party debtors | |||
| Easydock Investments Ltd | – | 90 | – |
| Emphasis Services Limited | – | – | 106 |
| MONEYCOAST TRADING LTD | – | 12 | – |
| Netplay TV plc | – | 38 | 31 |
| Playtech Services (Cyprus) Ltd | – | 75 | 251 |
| Playtech Software Limited | 1,892 | 922 | 1,871 |
| Roundcube Trading Limited | 13 | – | – |
| Safecharge International Ltd | 31 | 52 | – |
| Smartalk Services | 4 | – | – |
| Sportech Alderney Ltd | – | – | 29 |
| Video B Holdings Limited | 10 | 5 | 5 |
| VF 2011 Limited | – | – | 31 |
| William Hill Online | 840 5555 |
476 5555 |
(350) 5555 |
| 2,790 aaaa |
1,670 aaaa |
1,974 aaaa |
The details of key management compensation (being the remuneration of the directors) are set out in note 5.
Details of the PTTS Group's subsidiaries as at the end of the year are set out below:
| Proportion of voting rights and ordinary |
|||
|---|---|---|---|
| Name | Country of incorporation |
share capital held |
Nature of business |
| PT Turnkey EU Services Limited | Cyprus | 100% | Turnkey services for EU online gaming operators |
| PT Entretenimiento Online EAD | Bulgaria | 100% | Poker & Bingo network for Spain |
| PT Marketing Services Limited | British Virgin Islands | 100% | Marketing services to online gaming operators |
| PT Domains Limited | British Virgin Islands | 100% | Domains & hosting services to online gaming operators |
| Fullaccess Trading Limited | Cyprus | 100% | Domains & hosting services for EU |
| Ciera Trading Limited | Cyprus | 100% | Marketing services to parent company |
| KarminaTrading Limited | British Virgin Islands | 100% | Marketing services to parent company |
| PT Operational Services Limited | British Virgin Islands | 100% | Operational & hosting services to online gaming operators |
| Tech Hosting Limited | Alderney | 100% | Alderney Hosting services |
| PT Antigua Limited | |||
| Antigua | 100% | Operational services | |
| PT Entertainment Services Limited | Antigua | 100% | Holder of Antiguan licence for iPoker network & online gaming operator |
| Paragon International Customer Care Limited |
British Virgin Island and branch office in the Philippines |
100% | English customer support, chat, fraud, finance, dedicated employees services to parent company |
| Starting Point Consultants Limited | Cyprus | 100% | Operational & administration services to parent company |
| CSMS Limited | Bulgaria | 100% | Consulting and online technical support, data mining processing and advertising services to parent company |
| TCSP Limited | Serbia | 100% | Operational services for Serbia |
| Proportion | |||
|---|---|---|---|
| of voting | |||
| rights and | |||
| ordinary | |||
| Country of | share capital | ||
| Name | incorporation | held | Nature of business |
| Xwise marketing (Israel) Limited | Israel | 100% | Marketing services to parent company |
| Xwise Research & Development (Israel) Limited |
Israel | 100% | Maintenance to affiliate program of parent company |
| S-Tech Limited | British Virgin Islands and branch office in the Philippines |
85% | Live games services to Asia |
| PT Advisory Services Limited | British Virgin Islands | 100% | Holds PT Processing Advisory Ltd |
| PT Processing Advisory Limited | British Virgin Islands | 100% | Advisory services for payment processing & cashier to online gaming operators |
| PT Processing EU Advisory Limited | Cyprus | 100% | Advisory services for processing & cashier for EU online gaming operators |
| PT Network Management Limited | British Virgin Islands | 100% | Manages the iPoker network |
| Gamepark Investments Limited | British Virgin Islands | 100% | Subsidiary of PT Network Management Ltd |
The PTTS Group is exposed to a variety of financial risks, which result from its financing, operating and investing activities. The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit any negative impact on the PTTS Group's financial performance and position. The PTTS Group's financial instruments are its cash, trade receivables, loan receivables, accounts payable and accrued expenses. The main purpose of these financial instruments is to raise finance for the PTTS Group's operation. The PTTS Group actively measures, monitors and manages its financial risk exposures by various functions pursuant to the segregation of duties and principals. The risks arising from the PTTS Group's financial instruments are credit risks and market price risks, which include interest rate risk, currency risk and equity price risk. The risk management policies employed by the PTTS Group to manage these risks are discussed below.
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The PTTS Group's income and operating cash flows are substantially independent of changes in market interest changes. The management monitors interest rate fluctuations on a continuous basis and acts accordingly.
Where the PTTS Group has generated a significant amount of cash, it will invest in higher earning interest deposit accounts. These deposit accounts are short term and the PTTS Group is not unduly exposed to market interest rate fluctuations.
The PTTS Group advanced loans to affiliates and customers for a total amount of 1974,000, 11.7 million and 16.3 million during the years ended 31 December 2009, 2010 and 2011 respectively. The average interest on the loans is 3%, 3% and 4.5% respectively.
The loans are repayable in monthly instalments.
A 1% change in deposit interest rates would not have a material impact on the profit before tax for the years ended 31 December 2009, 2010 and 2011.
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.
The PTTS Group closely monitors the activities of its counterparties and controls the access to its intellectual property which enables it to ensure the prompt collection of customers' balances.
The PTTS Group's main financial assets are cash and cash equivalents as well as trade and other receivables and represent the PTTS Group's maximum exposure to credit risk in connection with its financial assets. Trade and other receivables are carried on the balance sheet net of bad debt provisions estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Wherever possible and commercially practical the PTTS Group invests cash with major financial institutions that have a rating of A– as defined by Standard & Poors. The PTTS Group maintains monthly operational balances with banks that do not meet this credit rating in Israel and in the Philippines to meet local salaries and expenses. These balances are kept to a minimum and typically do not exceed 11 million at any time during the monthly payment cycle. During 2009, 2010 and 2011 the PTTS Group held approximately 99%, 99% and 74% of its funds respectively in financial institutions below A– rate.
| Financial | Financial | ||
|---|---|---|---|
| institutes | institutes | ||
| with A– and | below | ||
| Total | above rating | A– rating | |
| 2'000 | 2'000 | 2'000 | |
| As at 31 December 2009 | 22,163 | 134 | 22,029 |
| As at 31 December 2010 | 16,371 | 74 | 16,297 |
| As at 31 December 2011 | 9,654 aaaa |
3,066 aaaa |
6,588 aaaa |
The ageing of trade receivables that are past due but not impaired can be analysed as follows:
| More than | ||||
|---|---|---|---|---|
| 1-2 months | 2 months | |||
| Total | Not past due | overdue | past due | |
| 2'000 | 2'000 | 2'000 | 2'000 | |
| As at 31 December 2009 | 17,365 | 17,196 | 132 | 37 |
| As at 31 December 2010 | 16,253 | 15,409 | 831 | 13 |
| As at 31 December 2011 | 8,825 aaaa |
8,557 aaaa |
244 aaaa |
24 aaaa |
The above balances relate to customers with no default history.
A provision for doubtful debtors is included within trade receivables that can be reconciled as follows:
| 2009 | 2010 | 2011 | |
|---|---|---|---|
| 2'000 | 2'000 | 2'000 | |
| Provision at the beginning of the year | – | – | – |
| Charged to income statement | – | – | 12 |
| Acquired on business combinations | – | – | 52 |
| Utilised | – 5555 |
– 5555 |
– 5555 |
| Provision at end of the year | _ aaaa |
– aaaa |
64 aaaa |
Related party receivables of 12.8 million, 11.7 million and 12 million were not past due at 31 December 2009, 2010 and 2011 respectively.
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
Foreign exchange risk arises because the PTTS Group has operations located in various parts of the world. However, the functional currency of those operations is the same as the PTTS Group's primary functional currency (Euro) and the PTTS Group is not substantially exposed to fluctuations in exchange rates in respect of assets held overseas.
Foreign exchange risk also arises when PTTS Group operations are entered into in currencies denominated in a currency other than the functional currency.
The PTTS Group's policy is not to enter into any currency hedging transactions.
Liquidity risk arises from the PTTS Group's management of working capital and the financial charges on its debt instruments.
The PTTS Group's policy is to ensure that it will have sufficient cash to allow it to meet its liabilities when they become due.
The following are the contractual maturities (representing undiscounted contractual cash flows) of the PTTS Group's financial liabilities:
| Within | More than | |||
|---|---|---|---|---|
| Total 2'000 |
1 year 2'000 |
1-2 years 2'000 |
2 years 2'000 |
|
| Trade payables | 21,126 | 21,076 | 48 | 2 |
| Other accounts payable | 5,298 | 5,283 | 6 | 9 |
| Progressive and other operators' jackpots | 2,005 aaaa |
2,005 aaaa |
– aaaa |
– aaaa |
| Year ended 31 December 2010 | ||||
| Within | More than | |||
| Total | 1 year | 1-2 years | 2 years | |
| 2'000 | 2'000 | 2'000 | 2'000 | |
| Trade payables | 19,438 | 19,338 | 51 | 49 |
| Other accounts payable | 2,684 | 2,624 | 50 | 10 |
| Progressive and other operators' jackpots | 994 | 994 | – | – |
| Other non-current liabilities | 10 aaaa |
– aaaa |
– aaaa |
10 aaaa |
| Within | More than | |||
|---|---|---|---|---|
| Total | 1 year | 1-2 years | 2 years | |
| 2'000 | 2'000 | 2'000 | 2'000 | |
| Trade payables | 18,631 | 18,631 | – | – |
| Other accounts payable | 21,013 | 20,858 | 106 | 49 |
| Progressive and other operators' jackpots | 1,434 | 1,434 | – | – |
| Other non-current liabilities | 445 aaaa |
296 aaaa |
9 aaaa |
140 aaaa |
The fair value together with the carrying amount of the financial assets and liabilities shown in the balance sheet are as follows:
| 2009 | 2010 | 2011 | ||||
|---|---|---|---|---|---|---|
| Fair | Carrying | Fair | Carrying | Fair | Carrying | |
| value | amount | value | amount | value | amount | |
| 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | 2'000 | |
| Cash and cash equivalents | 22,163 | 22,163 | 16,371 | 16,371 | 9,654 | 9,654 |
| Other assets | 19,077 | 19,077 | 17,246 | 17,246 | 17,249 | 17,249 |
| Other liabilities | 28,429 aaa |
28,429 aaa |
23,116 aaa |
23,116 aaa |
41,078 aaa |
41,078 aaa |
The PTTS Group is not a gaming operator and does not provide gaming services to players. However, as part of the ultimate parent company's ongoing regulatory compliance process, Management continues to monitor legal and regulatory developments and their potential impact on the PTTS Group.
Management is not aware of any contingencies that may have a significant impact on the financial position of the PTTS Group.
The Directors Playtech Limited 2nd Floor St George's Court Upper Church Street Douglas Isle of Man IM1 1EE
BDO LLP 55 Baker Street London W1U 7EU
28 June 2012
Canaccord Genuity Limited 88 Wood Street London EC2V 7QR
Dear Sirs
We report on the financial information set out in Part 4F. This financial information has been prepared for inclusion in the prospectus dated 28 June 2012 of Playtech Limited (the "Prospectus") on the basis of the accounting policies set out in note 2 to the financial information. This report is required by item 20.1 of annex I of the Commission Regulation (EC) No. 809/2004 (the "PD Regulation") and is given for the purpose of complying with that item and for no other purpose.
The directors of Playtech Limited are responsible for preparing the financial information in accordance with International Financial Reporting Standards as adopted by the European Union.
It is our responsibility to form an opinion on the financial information and to report our opinion to you.
Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by the law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with item 23.1 of annex I of the PD Regulation consenting to its inclusion in the Prospectus.
We conducted our work in accordance with Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence relevant to the amounts and disclosures in the financial information. It also included an assessment of significant estimates and judgements made by those responsible for the preparation of the financial information and whether the accounting policies are appropriate to the entity's circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial information is free from material misstatement whether caused by fraud or other irregularity or error.
Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions outside the United Kingdom and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.
In our opinion, the financial information gives, for the purposes of the Prospectus, a true and fair view of the state of affairs of the GTS Group as at 31 December 2009, 2010 and 2011 and of its profits, changes in equity and cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the European Union.
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the Prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the Prospectus in compliance with item 1.2 of annex I of the PD Regulation.
Yours faithfully
Chartered Accountants
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
| For the year ended 31 December | ||||
|---|---|---|---|---|
| Note | 2009 £'000 |
2010 £'000 |
2011 £'000 |
|
| Revenues | 4 | 3,110 | 11,564 | 14,784 |
| Distribution costs | (531) | (2,182) | (2,778) | |
| Administrative expenses | (2,399) | (7,040) | (9,863) | |
| Other operating income | 5 | 1,610 5555 |
– 5555 |
– 5555 |
| Net operating costs | (1,320) 5555 |
(9,222) 5555 |
(12,641) 5555 |
|
| Operating profit before the following items: | 205 | 2,471 | 2,416 | |
| Profit on disposal of Intellectual property rights | 1,611 | – | – | |
| Employee stock option expenses | 8 | – | (93) | (237) |
| Amortisation of intangible assets | 10 | (26) 5555 |
(36) 5555 |
(33) 5555 |
| Total | 1,585 5555 |
(129) 5555 |
(270) 5555 |
|
| Operating profit | 5 | 1,790 | 2,342 | 2,143 |
| Financing cost | (1) 5555 |
(1) 5555 |
– 5555 |
|
| Profit before taxation | 1,789 | 2,341 | 2,143 | |
| Tax expense | 6 | (508) 5555 |
(728) 5555 |
(677) 5555 |
| Profit for the period attributable to the equity holders of the parent and total comprehensive income for the year |
1,281 aaaa |
1,613 aaaa |
1,466 aaaa |
|
| Earnings per share for profit attributable to the owners of the parent during the year Basic (pence) |
7 | 2.85 | 3.58 | 3.26 |
| Called up share capital £'000 |
Share premium account £'000 |
Capital contribution reserve £'000 |
Retained earnings £'000 |
Total equity £'000 |
|
|---|---|---|---|---|---|
| Balance at 1 January 2009 | 2,250 | 130 | – | (2,057) | 323 |
| Total comprehensive income for the year |
– 5555 |
– 5555 |
– 5555 |
1,281 5555 |
1,281 5555 |
| Balance at 31 December 2009 Total comprehensive income |
2,250 | 130 | – | (776) | 1,604 |
| for the year | – | – | – | 1,615 | 1,615 |
| Employee stock option scheme | – 5555 |
– 5555 |
93 5555 |
– 5555 |
93 5555 |
| Balance at 31 December 2010 Total comprehensive income |
2,250 | 130 | 93 | 839 | 3,312 |
| for the year | – | – | – | 1,466 | 1,466 |
| Employee stock option scheme | – 5555 |
– 5555 |
237 5555 |
– 5555 |
237 5555 |
| Balance at 31 December 2011 | 2,250 aaaa |
130 aaaa |
330 aaaa |
2,305 aaaa |
5,015 aaaa |
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | £'000 | £'000 | £'000 | |
| Non-current assets | ||||
| Property, plant and equipment | 9 | 152 | 219 | 425 |
| Intangible assets | 10 | 115 5555 |
80 5555 |
47 5555 |
| 267 | 299 | 472 | ||
| Current assets | ||||
| Trade receivables | 11 | 419 | 4,357 | 3,693 |
| Other receivables | 12 | 1,823 | 1,858 | 1,479 |
| Cash and cash equivalents | 13 | 128 5555 |
1,735 5555 |
2,057 5555 |
| 2,370 5555 |
7,950 5555 |
7,229 5555 |
||
| Total assets | 2,637 aaaa |
8,249 aaaa |
7,701 aaaa |
|
| Equity | ||||
| Called up share capital | 14 | 2,250 | 2,250 | 2,250 |
| Share premium account | 14 | 130 | 130 | 130 |
| Capital contribution reserve | – | 93 | 330 | |
| Retained earnings | 14 | (776) 5555 |
839 5555 |
2,305 5555 |
| Total equity | 1,604 aaaa |
3,312 aaaa |
5,015 aaaa |
|
| Current liabilities | ||||
| Trade payables | 15 | 222 | 3,105 | 792 |
| Tax liabilities | 548 | 728 | 358 | |
| Other payables | 16 | 263 5555 |
1,104 5555 |
1,536 5555 |
| 1,033 5555 |
4,937 5555 |
2,686 5555 |
||
| Total equity and liabilities | 2,637 aaaa |
8,249 aaaa |
7,701 aaaa |
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Note | £'000 | £'000 | £'000 | |
| Cash flows from operating activities | ||||
| Profit after tax | 1,281 | 1,615 | 1,466 | |
| Adjustments to reconcile net income to | ||||
| net cash provided by operating activities | ||||
| (see below) | (1,104) | 840 | 266 | |
| Income taxes paid | (2) 5555 |
(548) 5555 |
(1,047) 5555 |
|
| Net cash provided by operating activities | 175 5555 |
1,907 5555 |
685 5555 |
|
| Cash flows from investing activities | ||||
| Acquisition of property, plant and equipment | 9 | (68) | (297) | (363) |
| Acquisition of intangible assets | 10 | (55) | – | – |
| Finance costs | (1) 5555 |
(1) 5555 |
– 5555 |
|
| Net cash used in investing activities | (124) 5555 |
(298) 5555 |
(363) 5555 |
|
| Cash flows from financing activities Capital payments under finance lease |
||||
| arrangements | (13) 5555 |
(2) 5555 |
– 5555 |
|
| Net cash (used in)/from financing activities | (13) 5555 |
(2) 5555 |
– 5555 |
|
| Increase in cash and cash equivalents | 38 | 1,607 | 322 | |
| Cash and cash equivalents at beginning of year | 90 5555 |
128 5555 |
1,735 5555 |
|
| Cash and cash equivalents at end of year | 128 aaaa |
1,735 aaaa |
2,057 aaaa |
Adjustment to reconcile net income to net cash provided by operating activities
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Income and expenses not affecting operating cash flows | |||
| Depreciation | 60 | 230 | 157 |
| Amortisation | 26 5555 |
36 5555 |
33 5555 |
| 86 | 266 | 190 | |
| Employee stock option plan expenses | – | 93 | 237 |
| Income tax expense | 508 | 728 | 677 |
| Others | 1 | 1 | – |
| Changes in operating assets and liabilities | |||
| (Increase)/decrease in trade receivables | (63) | (3,938) | 664 |
| (Increase)/decrease in other receivables | (100) | (35) | 379 |
| Increase/(decrease) in trade payables | 67 | 2,883 | (2,313) |
| (Decrease)/increase in other payables | (1,603) 5555 |
842 5555 |
433 5555 |
| (1,104) aaaa |
840 aaaa |
267 aaaa |
The financial information provided is for Gaming Technology Solutions Limited and its subsidiary undertakings (together the "GTS Group") in respect of the three financial years ended 31 December 2009, 2010 and 2011.
The financial information has been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations (collectively IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs"). In the current year the Group has adopted all of the new and revised standards and interpretations issued by the IASB and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB, as they have been adopted by the European Union, that are relevant to its operations and effective for accounting periods beginning on 1 January 2011.
The following new standards, interpretations and amendments, which have not been applied to these financial statements, will or may have an effect on the GTS Group's future financial statements:
IFRS 7 (Amended) – Transfers of Financial Assets (effective for annual periods beginning on or after 1 July 2011);
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) (effective for annual periods beginning on or after 1 July 2012).
The following new standards, interpretations and amendments, which have not yet been endorsed by the EU, are effective for annual periods beginning on or after 1 January 2013:
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements;
IFRS 13 Fair Value Measurement;
IAS 28 Investments in Associates and Joint Ventures;
Disclosures – Offsetting Financial Assets and Liabilities (Amendments to IFRS 7);
Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective for annual periods beginning on or after 1 January 2014);
IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2015).
The GTS Group is currently assessing the impact, if any, that these standards will have on the presentation of its consolidated results.
None of the other new standards, interpretations and amendments, which are effective for periods beginning after 1 January 2011 and which have not been adopted early, are expected to have a material effect on the GTS Group's future financial statement.
The financial information of GTS and its subsidiaries is prepared in Sterling (the functional currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the GTS Group. Transactions and balances in foreign currencies are converted into Sterling in accordance with the principles set forth by International Accounting Standard (IAS) 21 ("The Effects of Changes in Foreign Exchange Rates"). Accordingly, transactions and balances have been converted as follows:
Monetary assets and liabilities – at the rate of exchange applicable at the balance sheet date; Income and expense items – at exchange rates applicable as of the date of recognition of those items. Non-monetary items are converted at the rate of exchange used to convert the related balance sheet items i.e. at the time of the transaction. Exchange gains and losses from the aforementioned conversion are recognised in the consolidated statement of comprehensive income.
Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial information presents the results of the Company and its subsidiaries (the "GTS Group") as if they formed a single entity. Intercompany transactions and balances between GTS Group companies are therefore eliminated in full.
Income receivable from contracting parties comprises a percentage of the revenue generated by the contracting party from use of the GTS Group's intellectual property in online gaming activities and land based gaming operations, and from fees charged for services rendered. Income is recognised in the accounting periods in which the gaming transactions occur or the services are rendered. Royalty and other income receivable under fixed-term arrangements are recognised over the term of the agreement on a straight line basis.
Distribution costs represent the direct costs of the function of providing services to customers, costs of the development function and advertising costs.
Certain employees participate in the ultimate parent company's share option plan. The fair value of the options granted is charged to the consolidated statement of comprehensive income on a straight line basis over the vesting period and the credit is taken to equity, based on the GTS Group's estimate of shares that will eventually vest. Fair value is determined by the Black-Scholes and Binomial valuation model. The share options plan does not have any performance conditions other than continued service.
Provision for income taxes is calculated in accordance with the tax legislations and applicable tax rates in force at the balance sheet date in the countries in which the GTS Group companies have been incorporated.
Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated balance sheet differs from its tax base, except for differences arising on:
The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax assets and liabilities are offset when the GTS Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:
which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.
Property, plant and equipment comprise computers, leasehold improvements, office furniture and equipment and are stated at cost less accumulated depreciation. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
Depreciation is calculated to write off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are:
| % | |
|---|---|
| Computers and related equipment | 33.33 |
| Office furniture and equipment | 7.00–20.00 |
| Building and leasehold improvements | 10.00–20.00, or over the length of the lease |
Subsequent expenditures are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the GTS Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the consolidated statement of comprehensive income.
The consolidated financial information incorporates the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained.
Intangible assets comprise externally acquired trademarks and intellectual property rights. All such intangible assets are stated at cost less accumulated amortisation. Where intangible assets are acquired as part of a business combination they are recorded initially at their fair value. Carrying amounts are reviewed on each balance sheet date for impairment. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable.
Amortisation is calculated using the straight-line method at annual rates estimated to write off the costs of the assets over their expected useful lives and is charged to operating expenses from the point the asset is brought into use. The principal annual rates used for this purpose are:
| % | |
|---|---|
| Trademarks | Nil |
| Technology IP | 20–33.33 |
Management believes that the useful life of the trademarks is indefinite. Domain names are reviewed for impairment annually.
Subsequent expenditure on capitalised intangible assets is capitalised only where it clearly increases the economic benefits to be derived from the asset to which it relates. All other expenditure, including that incurred in order to maintain an intangible assets current level of performance, is expensed as incurred.
Goodwill represents the excess of the cost of a business combination over, in the case of business combinations completed prior to 1 January 2010, the GTS Group's interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired and, in the case of business combinations completed on or after 1 January 2010, the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired.
For business combinations completed prior to 1 January 2011, cost comprised the fair value of assets given, and liabilities assumed, plus any direct costs of acquisition.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the consolidated income statement. Goodwill is not amortised and is reviewed for impairment, annually or more specifically if events or changes in circumstances indicate that the carrying value may be impaired.
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to annual impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. – the higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to establish the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. – the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows). Goodwill is allocated on initial recognition to each of the group's cash generating units that are expected to benefit from the synergies of the combination giving rise to the goodwill.
Impairment charges are included in the administrative expenses line item in the consolidated statement of comprehensive income, except to the extent they reverse gains previously recognised in the consolidated statement of comprehensive income. An impairment loss recognised for goodwill is not reversed.
The GTS Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The GTS Group has not classified any of its financial assets as held to maturity. The GTS Group does not hold any financial assets at fair value through profit and loss.
The GTS Group's receivables comprise trade and other receivables, cash and cash equivalents, and loans to customers in the balance sheet.
Trade receivables which principally represent amounts due from licensees are carried at original invoice value less an estimate made for bad and doubtful debts based on a review of all outstanding amounts at the year-end. An estimate for doubtful debts is made when there is objective evidence that the GTS Group will not be able to collect amounts due according to the original terms of receivables. Bad debts are written off when identified.
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short term highly liquid investments with original maturities of three months or less. Where cash is on deposit with maturity dates greater than three months, it is disclosed within other receivables.
Ordinary shares are classified as equity and are stated at the proceeds received net of direct issue costs.
Trade payables and other short-term monetary liabilities are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.
Loans and bank borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated balance sheet. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Provisions, which are liabilities of uncertain timing or amount, are recognised when the GTS Group has a present obligation as a result of past events, if it is probable that an outflow of funds will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
The areas requiring the use of estimates and critical judgments that may potentially have a significant impact on the GTS Group's earnings and financial position are impairment of goodwill, the recognition and amortisation of development costs and the useful life of property, plant and equipment, share based payments, legal proceedings and contingent liabilities, determination of fair values of intangible assets acquired in business combinations, and income tax.
The GTS Group is required to test, on an annual basis, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a discount rate in order to calculate the present value of the cash flows. Such estimates are based on management's experience of the business, but actual outcomes may vary. More details including carrying values are included in note 9.
Property, plant and equipment are depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness.
Changes to estimates can result in significant variations in the amounts charged to the consolidated statement of comprehensive income in specific periods. More details including carrying values are included in note 10.
The GTS Group has a share based remuneration scheme for employees in respect of options over shares in the ultimate parent company. The fair value of share options is estimated by using the Black-Scholes and Binomial models, on the date of grant based on certain assumptions. Those assumptions are described in note 8 and include, among others, the dividend growth rate, expected share price volatility, expected life of the options and number of options expected to vest.
Management regularly monitors the key risks affecting the GTS Group, including the regulatory environment in which the GTS Group operates. A provision will be made where there is a present obligation from a past event, a transfer of economic benefits is probable and the amount of costs of the transfer can be estimated reliably. In instances where the criteria are not met, a contingent liability may be disclosed in the notes to the financial information. More details are included in note 20.
The GTS Group is subject to income tax in jurisdictions in which it is registered and judgment is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the GTS Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. The GTS Group believes that its accruals for tax liabilities are adequate for all open audit years based on its assessment of many factors including past experience and interpretations of tax law. More details are included in note 6.
The preparation of financial information in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial information and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates.
Management considers that the GTS Group's activity as a single source supplier of online gaming solutions constitutes one operating and reporting segment, as defined under IFRS 8. Similarly, Management review the performance of the GTS Group by reference to group-wide profit measures and the revenues derived from a single product, being services provided to the gaming industry.
The group-wide profit measures are adjusted net profit (see note 7) and adjusted EBITDA. Management believes the adjusted profit measures represent more closely the underlying trading performance of the business. No other differences exist between the basis of preparation of the performance measures used by management and the figures in the group financial statements.
Analysis by geographical regions is made according to the jurisdiction of the gaming licence of the customer. This does not reflect the region of the end users of the Group's licensees whose locations are worldwide.
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 2010 |
2011 | ||
| £'000 | £'000 | £'000 | |
| Gibraltar | 1,367 | 2,903 | 2,726 |
| Channel Islands | 122 | 3,726 | 5,445 |
| United Kingdom | – | 2,855 | 3,757 |
| Malta | 877 | 1,518 | 2,438 |
| Italy | 475 | 429 | 187 |
| Rest of world | 269 5555 |
133 5555 |
231 5555 |
| 3,110 aaaa |
11,564 aaaa |
14,784 aaaa |
There were three customers who individually accounted for more than 10% of the total revenue of the GTS Group during the years ended 31 December 2009 and 2010, and two customers who individually accounted for more than 10% of the total revenue of the GTS Group during the year ended 31 December 2011. Revenue from these customers, respectively, totalled £2,028,000, £7,376,000 and £8,586,000 in each respective year.
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| £'000 | £'000 | £'000 | ||
| UK | 267 aaaa |
299 aaaa |
472 aaaa |
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| £'000 | £'000 | £'000 | ||
| Directors' compensation | ||||
| Short-term benefits of directors | 196 | 26 | 157 | |
| Bonuses to directors | – 5555 |
– 5555 |
– 5555 |
|
| 196 aaaa |
26 aaaa |
157 aaaa |
||
| For the year ended 31 December | ||||
| 2009 | 2010 | 2011 | ||
| £'000 | £'000 | £'000 | ||
| Auditors' remuneration Audit services |
||||
| Parent company and Group audit | 16 | 26 | 26 | |
| Non-audit services | ||||
| Taxation compliance | 5 5555 |
8 5555 |
8 5555 |
|
| 21 aaaa |
34 aaaa |
34 aaaa |
||
| For the year ended 31 December | ||||
| 2009 | 2010 | 2011 | ||
| £'000 | £'000 | £'000 | ||
| Development costs (including capitalised | ||||
| development costs) | 1,046 aaaa |
1,128 aaaa |
1,585 aaaa |
During the year ended 31 December 2009, the GTS Group sold its Intellectual Property rights to a related party for £1,611,000, generating a profit on disposal of the same amount.
| For the year ended 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| £'000 | £'000 | £'000 | ||
| Current income tax | ||||
| UK corporation tax | 508 aaaa |
728 aaaa |
677 aaaa |
The tax charge for the year can be reconciled to accounting profit as follows:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 £'000 |
2010 £'000 |
2011 £'000 |
|
| Profit before tax | 1,789 | 2,341 | 2,143 |
| Tax at effective rate in the UK | 501 | 656 | 556 |
| Non deductible expenses | 7 | 53 | 76 |
| Depreciation in excess of capital allowances | – | 30 | 7 |
| Tax losses utilised | – | (4) | – |
| Other timing differences | – 5555 |
(7) 5555 |
38 5555 |
| Total tax charge | 508 aaaa |
728 aaaa |
677 aaaa |
Earnings per share have been calculated using the weighted average number of shares in issue during the relevant financial periods. The weighted average number of equity shares in issue and the earnings, being profit after tax, is as follows:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| pence | pence | pence | |
| Basic | 2.85 aaaa |
3.58 aaaa |
3.26 aaaa |
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Profit for the year | 1,282 aaaa |
1,613 aaaa |
1,466 aaaa |
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Denominator – basic | |||
| Weighted average number of equity shares | 45,000,100 aaaa |
45,000,100 aaaa |
45,000,100 aaaa |
The adjusted earnings per share presents the profit for the year after various non-cash charges relating to the employee stock option plan and profits on disposal of Intellectual Property rights. The directors believe that the adjusted profit represents more closely the underlying trading performance of the business.
| 2009 | 2010 | 2011 |
|---|---|---|
| pence | pence | pence |
| (0.73) aaaa |
3.79 aaaa |
3.78 aaaa |
| 2009 £'000 |
2010 £'000 |
2011 £'000 |
| 1,466 | ||
| (1,611) | – | – |
| – 5555 |
93 5555 |
237 5555 |
| (330) aaaa |
1,706 aaaa |
1,703 aaaa |
| 2009 | 2010 | 2011 |
| Number | Number | Number |
| 45,000,100 aaaa |
45,000,100 aaaa |
45,000,100 aaaa |
| 1,281 | For the year ended 31 December 1,613 |
Total staff costs comprise the following:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 £'000 |
2010 £'000 |
2011 £'000 |
|
| Salaries and related costs Share based payments |
1,162 – 5555 |
5,631 93 5555 |
7921 237 5555 |
| 1,162 aaaa |
5,724 aaaa |
8,158 aaaa |
|
| For the year ended 31 December | |||
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Average number of employees | |||
| Distribution | 30 | 94 | 110 |
| General and administration | 1 5555 |
16 5555 |
16 5555 |
| 31 aaaa |
110 aaaa |
126 aaaa |
On 12 February 2010, the ultimate parent company transferred certain employees to the GTS Group from an acquired business. Accordingly, the average number of employees and related costs thereof, increased significantly during the years ended 31 December 2010 and 2011. The services undertaken by the employees transferred to the GTS Group are charged to a fellow subsidiary undertaking, on a cost-plus basis, and recognised as revenue in the financial information.
The ultimate parent company introduced a Company Share Option Plan ("CSOP") for certain employees of the GTS Group during the year ended 31 December 2010. Options granted, in the ultimate parent company, under the CSOP vest on the first day on which they become exercisable which is three years after grant date. Further details on the terms of this scheme are discussed in more detail in the financial information of Playtech Limited set out in Part 4B.
At 31 December 2011, options under this scheme were outstanding over:
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Number | Number | Number | |
| Shares vesting on 27 August 2012 at an exercise | |||
| price of £4.14 per share | – | 242,500 | 212,500 |
| Shares vesting on 27 August 2013 at an exercise | |||
| price of £4.16 per share | – | 242,500 | 212,500 |
| Shares vesting on 10 March 2014 at an exercise | |||
| price of £3.52 per share | – 5555 |
– 5555 |
50,000 5555 |
| – aaaa |
485,000 aaaa |
475,000 aaaa |
There were no shares exercisable as of 31 December 2010 and 2011.
The fair value of the options that were granted in respect of equity-settled schemes was £700,000 and £76,500 for 2010 and 2011 respectively. £93,000 and £237,000 was recognised as an expense in the consolidated statement of comprehensive income during the years ended 31 December 2010 and 2011 respectively.
The following table illustrates the number and weighted average exercise prices of shares options for the ESOP.
| As of 31 December | As of 31 December | |||||
|---|---|---|---|---|---|---|
| 2009 | 2010 | 2011 | 2009 | 2010 | 2011 | |
| Weighted | Weighted | Weighted | ||||
| Number | Number | Number | average | average | average | |
| of options | of options | of options | exercise price | exercise price | exercise price | |
| Outstanding at beginning of the year | – | – | 485,000 | – | – | £4.16 |
| Granted during the year | – | 485,000 | 50,000 | – | £4.16 | £3.52 |
| Forfeited | 555 – |
555 – |
555 (60,000) |
– | – | £4.16 |
| Outstanding at the end of the year | – aaa |
485,000 aaa |
475,000 aaa |
– | £4.16 | £4.09 |
Share options outstanding at the end of the year have the following exercise prices:
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| Expiry date | Exercise price | Number | Number | Number |
| 27 August 2012 | £4.16 | – | 485,000 | 425,000 |
| 11 March 2012 | £4.16 | – 5555 |
– 5555 |
50,000 5555 |
| – aaaa |
485,000 aaaa |
475,000 aaaa |
The fair value of the options granted under the CSOP is estimated as at the date of grant using the Black-Scholes model. The following table gives the assumptions made during the years ended 31 December 2010 and 2011:
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| Dividend yield (%) | – | 2.9% | 2.8% |
| Expected volatility (%) | – | 42.1% | 50.5% |
| Risk free interest rate (%) | – | 1.3% | 3.8% |
| Expected life of options (years) | – | 3 | 3 |
| Weighted average exercise price | – aaaa |
£4.16 aaaa |
£3.52 aaaa |
The volatility assumption, measured at the standard deviation of expected share price return, is based on a statistical analysis of daily share price over a period starting from the initial date of flotation through to the grant date.
| Office furniture and equipment |
Computer equipment |
Leasehold improvement |
Total | |
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| Cost | ||||
| At 1 January 2009 | 51 | 131 | 59 | 241 |
| Additions | 7 5555 |
61 5555 |
– 5555 |
68 5555 |
| At 31 December 2009 | 58 | 192 | 59 | 309 |
| Additions | 21 | 105 | 12 | 138 |
| Transferred from fellow subsidiary | ||||
| undertaking | 30 5555 |
129 5555 |
– 5555 |
159 5555 |
| At 31 December 2010 | 109 | 426 | 71 | 606 |
| Additions | 138 5555 |
224 5555 |
1 5555 |
363 5555 |
| At 31 December 2011 | 247 aaaa |
650 aaaa |
72 aaaa |
969 aaaa |
| Accumulated depreciation | ||||
| At 1 January 2009 | 9 | 84 | 4 | 97 |
| Charge | 11 5555 |
37 5555 |
12 5555 |
60 5555 |
| At 31 December 2009 | 20 | 121 | 16 | 157 |
| Charge | 34 5555 |
183 5555 |
13 5555 |
230 5555 |
| At 31 December 2010 | 54 | 304 | 29 | 387 |
| Charge | 28 5555 |
113 5555 |
16 5555 |
157 5555 |
| At 31 December 2011 | 82 aaaa |
417 aaaa |
45 aaaa |
544 aaaa |
| Net book value | ||||
| As of 31 December 2009 | 38 aaaa |
71 aaaa |
43 aaaa |
152 aaaa |
| As of 31 December 2010 | 55 aaaa |
123 aaaa |
41 aaaa |
219 aaaa |
| As of 31 December 2011 | 165 aaaa |
233 aaaa |
27 aaaa |
425 aaaa |
On 12 February 2010, the ultimate parent company transferred certain assets to the GTS Group from an acquired business, at the net book value of those assets.
| Intellectual | ||||
|---|---|---|---|---|
| property | ||||
| Trademarks | rights | Goodwill | Total | |
| £'000 | £'000 | £'000 | £'000 | |
| Cost | ||||
| At 1 January 2009 | – | 122 | 2,548 | 2,670 |
| Additions | 13 5555 |
43 5555 |
– 5555 |
56 5555 |
| At 31 December 2009, 2010 and 2011 | 13 aaaa |
165 aaaa |
2,548 aaaa |
2,726 aaaa |
| Accumulated amortisation | ||||
| At 1 January 2009 | – | 37 | 2,548 | 2,585 |
| Provision | – 5555 |
26 5555 |
– 5555 |
26 5555 |
| At 31 December 2009 | – | 63 | 2,548 | 2,611 |
| Provision | – 5555 |
36 5555 |
– 5555 |
36 5555 |
| At 31 December 2010 | – | 98 | 2,548 | 2,646 |
| Provision | – 5555 |
33 5555 |
– 5555 |
33 5555 |
| At 31 December 2011 | – aaaa |
131 aaaa |
2,548 aaaa |
2,679 aaaa |
| Net book value | ||||
| As of 31 December 2009 | 13 aaaa |
102 aaaa |
– aaaa |
115 aaaa |
| As of 31 December 2010 | 13 aaaa |
67 aaaa |
– aaaa |
80 aaaa |
| As of 31 December 2011 | 13 aaaa |
34 aaaa |
– aaaa |
47 aaaa |
Management believes that trademarks are stated at fair value and have an indefinite life due to their nature.
In accordance with IAS 36, the Group regularly monitors the carrying value of its intangible assets, including goodwill.
Key assumptions for intangible assets, with carrying value of £47,000, are as follows:
The results of the reviews indicated that there was no impairment of the intangible assets at 31 December 2011.
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Customers | 419 | 904 | 1,255 |
| Related parties (note 17) | – 5555 |
3,453 5555 |
2,438 5555 |
| 419 aaaa |
4,357 aaaa |
3,693 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Prepaid expenses | 176 | 234 | 236 |
| Related parties (note 17) | 1,611 | 1,447 | 1,028 |
| Other receivables | 36 | 177 | 215 |
| 5555 | 5555 | 5555 | |
| 1,823 | 1,858 | 1,479 | |
| aaaa | aaaa | aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Cash at bank | 128 aaaa |
1,735 aaaa |
2,057 aaaa |
Share capital
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Allotted, called up and fully paid | |||
| 45,000,100 Ordinary shares of 5p each: | 2,250 aaaa |
2,250 aaaa |
2,250 aaaa |
The following describes the nature and purpose of each reserve within owner's equity:
| Reserve | Description and purpose |
|---|---|
| Share premium account | Amount subscribed for share capital in excess of nominal value |
| Capital contribution reserve | Cumulative share based payment charge recognised in the consolidated statement of comprehensive income in respect of share options granted to employees of the GTS Group over shares in the ultimate parent company. |
| Retained earnings | Cumulative net gains and losses recognised in the consolidated statement of comprehensive income. |
| As of 31 December | ||||
|---|---|---|---|---|
| 2009 | 2010 | 2011 | ||
| £'000 | £'000 | £'000 | ||
| Suppliers | 222 | 464 | 271 | |
| Related parties (note 17) | – 5555 |
2,641 5555 |
521 5555 |
|
| 222 aaaa |
3,105 aaaa |
792 aaaa |
| As of 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Payroll and related expenses | 49 | 553 | – |
| Accrued expenses | 205 | 342 | 836 |
| Related parties (note 17) | – | 176 | – |
| Other payables | 9 5555 |
33 5555 |
700 5555 |
| 263 aaaa |
1,104 aaaa |
1,536 aaaa |
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party's making of financial or operational decisions, or if both parties are controlled by the same third party.
Playtech Limited, and subsidiary companies thereof, are related by virtue of them being the ultimate parent undertaking of the GTS Group.
The following transactions arose with related parties:
| For the year ended 31 December | |||
|---|---|---|---|
| 2009 | 2010 | 2011 | |
| £'000 | £'000 | £'000 | |
| Revenue | |||
| Playtech Services (Cyprus) Limited | – | 392 | 488 |
| Technology Trading (IOM) Limited | – | 2,461 | 3,267 |
| Virtue Fusion (Alderney) Limited | – aaaa |
3,269 aaaa |
4,831 aaaa |
| Operating expenses | |||
| Playtech Services (Cyprus) Limited | – aaaa |
655 aaaa |
869 aaaa |
| Profit on disposal of intellectual property rights | |||
| Technology Trading (IOM) Limited | 1,611 aaaa |
– aaaa |
– aaaa |
The following are year-end balances:
| 2009 | 2010 | 2011 |
|---|---|---|
| £'000 | £'000 | £'000 |
| – | 2,379 | 521 |
| – | 262 | – |
| – | 176 | – 5555 |
| – aaaa |
2,817 aaaa |
521 aaaa |
| 2,962 | ||
| 18 | ||
| 369 | ||
| – | – | 13 |
| – | – | 104 5555 |
| 1,611 | 4,900 | 3,466 aaaa |
| 5555 1,611 – – 5555 aaaa |
As of 31 December 5555 4,900 – – 5555 aaaa |
The details of directors' compensation (being the remuneration of the directors) are set out in note 5.
Details of the GTS Group's subsidiaries as at 31 December 2011 are set out below:
| Proportion of voting rights and ordinary |
|||
|---|---|---|---|
| Name | Country of incorporation |
share capital held |
Nature of business |
| VS Gaming Limited VS Technology Limited |
UK UK |
100% 100% |
Develops soft and casino games Develops EdGE platform |
The GTS Group is exposed to a variety of financial risks, which result from its financing, operating and investing activities. The objective of financial risk management is to contain, where appropriate, exposures in these financial risks to limit any negative impact on the GTS Group's financial performance and position. The GTS Group's financial instruments are its cash, trade receivables, accounts payable and accrued expenses. The main purpose of these financial instruments is to raise finance for the GTS Group's operation. The GTS Group actively measures, monitors and manages its financial risk exposures by various functions pursuant to the segregation of duties and principals. The risks arising from the GTS Group's financial instruments are credit risks and market price risks, which include interest rate risk and currency risk. The risk management policies employed by the GTS Group to manage these risks are discussed below.
Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The GTS Group's income and operating cash flows are substantially independent of changes in market interest changes. The management monitors interest rate fluctuations on a continuous basis and acts accordingly.
Where the GTS Group has generated a significant amount of cash, it will invest in higher earning interest deposit accounts. These deposit accounts are short term and the GTS Group is not unduly exposed to market interest rate fluctuations.
Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date.
The GTS Group closely monitors the activities of its counterparties and controls the access to its intellectual property which enables it to ensure the prompt collection of customers' balances.
The GTS Group's main financial assets are cash and cash equivalents as well as trade and other receivables and represent the GTS Group's maximum exposure to credit risk in connection with its financial assets. Trade and other receivables are carried on the balance sheet net of bad debt provisions estimated by the Directors based on prior year experience and an evaluation of prevailing economic circumstances.
Wherever possible and commercially practical the GTS Group invests cash with major financial institutions that have a rating of above A– as defined by Standard & Poors.
The ageing of trade receivables that are past due but not impaired can be analysed as follows:
| 1-2 months | More than 2 months past due |
||||
|---|---|---|---|---|---|
| Total | Not past due | overdue | |||
| £'000 | £'000 | £'000 | £'000 | ||
| As at 31 December 2009 | 419 | 302 | 89 | 28 | |
| As at 31 December 2010 | 4,357 | 4,006 | 305 | 46 | |
| As at 31 December 2011 | 3,693 aaaa |
3,040 aaaa |
637 aaaa |
285 aaaa |
The above balances relate to customers with no default history.
Related party receivables of £3,453,000 and £2,438,000 were not past due at 31 December 2010 and 2011 respectively.
Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates.
Foreign exchange risk arises when GTS Group operations are entered into in currencies denominated in a currency other than the functional currency.
The GTS Group's policy is not to enter into any currency hedging transactions.
The Board is of the opinion that, on the basis that the GTS Group has no borrowings, Capital risk is not significant.
Liquidity risk arises from the GTS Group's management of working capital and the financial charges on its debt instruments.
The GTS Group's policy is to ensure that it will have sufficient cash to allow it to meet its liabilities when they become due.
The following are the contractual maturities (representing undiscounted contractual cash flows) of the GTS Group's financial liabilities:
| Total | Within 1 year | 1-2 years | 2-5 years | |
|---|---|---|---|---|
| £'000 | £'000 | £'000 | £'000 | |
| Trade payables | 419 | 419 | – | – |
| Other accounts payable | 1,611 aaaa |
1,611 aaaa |
– aaaa |
– aaaa |
| Year ended 31 December 2010 | ||||
| Total | Within 1 year | 1-2 years | 2-5 years | |
| £'000 | £'000 | £'000 | £'000 | |
| Trade payables | 4,357 | 4,357 | – | – |
| Other accounts payable | 1,858 aaaa |
1,858 aaaa |
– aaaa |
– aaaa |
| Year ended 31 December 2011 | ||||
| Total | Within 1 year | 1-2 years | 2-5 years | |
| £'000 | £'000 | £'000 | £'000 | |
| Trade payables | 3,693 | 3,693 | – | – |
| Other accounts payable | 1,479 aaaa |
1,479 aaaa |
– aaaa |
– aaaa |
The fair value together with the carrying amount of the financial assets and liabilities shown in the balance sheet are as follows:
| 2009 | 2010 | 2011 | |||||
|---|---|---|---|---|---|---|---|
| Fair value £'000 |
Carrying amount £'000 |
Fair value £'000 |
Carrying amount £'000 |
Fair value £'000 |
Carrying amount £'000 |
||
| Cash and cash equivalents | 128 | 128 | 1,735 | 1,735 | 2,057 | 2,057 | |
| Other assets | 2,242 | 2,242 | 7,950 | 7,950 | 7,229 | 7,229 | |
| Other liabilities | 436 aaa |
436 aaa |
3,656 aaa |
3,656 aaa |
1,951 aaa |
1,951 aaa |
The GTS Group is not a gaming operator and does not provide gaming services to players. As part of the ultimate parent company's ongoing regulatory compliance process, Management continues to monitor legal and regulatory developments and their potential impact on the GTS Group.
Management is not aware of any contingencies that may have a significant impact on the financial position of the GTS Group.
The table below sets out the Group's total equity attributable to shareholders at 31 December 2011. The information has been extracted without material adjustment from, and should be read together with, the historical financial information of the Playtech Group set out in Part 4B of this document.
As at 31 December
2011 2'000
| Shareholders' equity (excluding retained earnings | |
|---|---|
| and available-for-sale reserve) | |
| Additional paid in capital | 307,853 aaaa |
Other than the exercise of options during the period from 1 January 2012 to 31 May 2012, amounting to an increase in additional paid in capital of 170,000, there has been no material change to the capitalisation of the Group since 31 December 2011.
The table below sets out the Group's total indebtedness as at 31 March 2012. The figures have been extracted from the underlying accounting records of the Group.
| As at | |
|---|---|
| 31 March | |
| 2012 | |
| 2'000 | |
| (unaudited) | |
| Short term borrowings and obligations | |
| Guaranteed | – |
| Secured | – |
| Unguaranteed/unsecured | – |
| Long term borrowings and obligations | |
| Guaranteed | – |
| Secured | – |
| Unguaranteed/unsecured | 5555– |
| aaaa– |
At 31 March 2012, the Group had no borrowings. In April 2012, the Group drew down 175 million of borrowing facilities in order to finance the accelerated payment of PTTS initial consideration.
168
The table below sets out the Group's net indebtedness as at 31 March 2012. The figures have been extracted from the underlying accounting records of the Group.
All Group commitments can be funded from existing cash resources and operating cash flows.
| As at | |
|---|---|
| 31 March | |
| 2012 | |
| 2'000 | |
| (unaudited) | |
| Cash and cash equivalents | |
| Cash at bank | 86,104 |
| Deposits | 64,134 5555 |
| 150,238 5555 |
|
| Current financial indebtedness | |
| Current bank debt | – |
| Current portion of non-current debt | – |
| Other current financial debt | 5555– |
| 5555– | |
| Net current financial indebtedness | 5555 150,238 5555 |
| Non-current financial indebtedness | |
| Non-current bank debt | – |
| Other non-current financial debt | 5555– |
| 5555– | |
| 5555 | |
| Net financial indebtedness | 150,238 aaaa |
Of the total gross cash and cash equivalents, 135.3 million is held on behalf of operators in respect of operators' jackpot games and poker operation.
As at 31 March 2012 the Group had no material indirect or contingent indebtedness.
Other than the draw down of 175 million of borrowing facilities referred to in paragraph 2 of this Part 5, there has been no material change in the indebtedness of the Group since 31 March 2012.
The Directors whose names are set out in paragraph 10 of Part 1 of this document and the Company accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors and the Company (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.
100,000 Ordinary Shares were purchased in the market, as described in paragraph 3.2 above.
For the purposes of this resolution "rights issue" means an offer of equity securities to holders of Ordinary Shares in the capital of the Company on the register on a record date fixed by the directors in proportion (as nearly as may be practicable) to the respective numbers of Ordinary Shares held by them, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient to deal with any treasury shares, fractional entitlements or legal or practical issues arising under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory or any other matter.
subsidiaries) in the three years immediately preceding the date of this document and (other than on the exercise of the options to be issued under the Share Option Schemes, as referred to in paragraph 6 below) no such issues are proposed.
The Company's memorandum of association provides that the Company has unlimited capacity to carry on or to undertake any business or activity, to do, or to be subject to, any act or to enter into any transaction.
The Articles contain provisions, inter alia, to the following effect:
Subject to any special rights or restrictions as to voting attached to any shares by or in accordance with the Articles, on a show of hands every member who is present in person or by proxy and entitled to vote has one vote and on a poll every member who is present in person or by proxy and entitled to vote has one vote for every share of which he is the holder.
No member shall, unless the Board otherwise determines, be entitled to vote at a general meeting or at any separate meeting of the holders of any class of shares, either in person or by proxy, in respect of any share held by him or to exercise any right as a member unless all calls or other sums presently payable by him in respect of that share have been paid to the Company. In addition, any member who having been served with a notice by the Company requiring such member to disclose to the Board in writing within such reasonable period as may be specified in such notice, details of any past or present beneficial interest of any third party in the shares or any other interest of any kind whatsover which a third party may have in the shares and the idenitity of the third party having or having had any such interest, fails to do so may be disenfranchised by service of a notice by the Board.
Subject to the provisions of the Articles and the Law, and to the rights of persons entitled to shares with special rights as to dividend, the Company may, by a resolution of the Directors, declare and pay a dividend to members at such times and of such amounts as the Directors think fit. The Board may by resolution, and subject to the Law, declare and pay such interim dividends (including any dividend payable at a fixed rate) at such time and in such amount as the Directors think fit.
Unless otherwise provided by the rights attached to the share, no dividend or other moneys payable by the Company or in respect of a share shall bear interest as against the Company. All dividends unclaimed for a period of six years after having become due for payment shall (if the Board so resolves) be forfeited and shall revert to the Company.
The Board may with the prior authority of an ordinary resolution of the Company and subject to such conditions as the Board may determine, provided that the Company has a sufficient number of shares authorised for allotment to give effect to it, offer to any holders of shares the right to elect to receive shares of the same class credited as fully paid, in whole or in part instead of cash in respect of the whole or some part (to be determined by the Board) of any dividend declared.
If the Company is wound up, the surplus assets remaining after payment of all creditors are to be divided among the members in proportion to the capital which at the commencement of the winding up is paid up on the shares held by them respectively and, if such surplus assets are insufficient to repay the whole of the paid up capital, they are to be distributed so that as nearly as may be the losses are borne by the members in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. This is subject to the rights attached to any shares which may be issued on special terms or conditions.
Subject to the provisions of the Law, if at any time the share capital of the Company is divided into shares of different classes, any of the rights for the time being attached to any share or class of shares in the Company (and notwithstanding that the Company may be, or be about to be, in liquidation) may (unless otherwise provided by the terms of issue of the shares of that class) be varied or abrogated in such manner (if any) as may be provided by such rights or, in the absence of any such provision, either with the consent in writing of the holders of shares representing not less than 75 per cent. of the voting rights attached to the issued shares of the class or with the sanction of a special resolution passed at a separate general meeting of the holders of shares of the class duly convened and held as provided in the Articles (but not otherwise).
Subject to the terms on which any shares may be issued, the rights or privileges attached to any class of shares shall be deemed to be varied or abrogated by the reduction of the capital paid up on such shares or by the allotment of further shares ranking in priority for the payment of a dividend or in respect of capital or howsoever or which confer on the holders voting rights more favourable than those conferred by such first mentioned shares.
All transfers of shares, in the case of certificated shares, shall be effected by an instrument of transfer in writing in any usual form or, in the case of uncertificated shares, without a written instrument in accordance with the Uncertificated Regulations. The Board may refuse to register any transfer of a certificated share unless:
such refusal does not prevent dealings in shares of the relevant class in the Company from taking place on an open and proper basis.
The Company in general meeting may from time to time by ordinary resolution:
Whenever, as a result of any consolidation, division or subdivision of shares any member would become entitled to fractions of a share, the Board may deal with the fractions as it thinks fit.
Subject to the provisions of the Law, and the Articles and to any rights being attached to any shares, the Company may purchase or otherwise acquire its own shares for any consideration provided that the Company continues to have at least one member at all times. The Company may purchase or acquire shares issued by the Company:
The Company shall not make any offer pursuant to the methods set out in (ii) (iii) or (iv) above unless the Directors have passed a resolution stating that in their opinion the offer transaction benefits the remaining members and the terms of the offer are fair and reasonable to the Company and the remaining members. The directors are also required under the Law to pass a resolution confirming that the Company will immediately after the repurchase of the shares be able to satisfy the solvency test referred to in section 49 of the Law, which the Company satisfies if it is able to pay its debts as they become due in the normal course of the Company's business and the value of its assets exceeds the value of its liabilities.
Each member of the Company is required to comply with the notification obligations to the Company contained in Chapter 5 of the Disclosure and Transparency Rules of the UK Financial Services Authority as if the Company was a UK issuer. The Board may at any time serve an Information Notice (such term as defined in the Articles) upon a member or on any person appearing to be interested in shares held by that member and if they fail to comply which such notice various sanctions as specified in the Articles will apply to that member such that a member must notify the Company of the percentage of its voting rights held as a shareholder or held or is deemed to hold through its direct or indirect holding of financial instruments (falling within the meaning of DTR 5.3.1R(1)), or a combination of such holdings) if the percentage thresholds of those voting rights reaches, exceeds or falls below 3 per cent., 4 per cent., 5 per cent., 6 per cent., 7 per cent., 8 per cent., 9 per cent., 10 per cent. and each 1 per cent. threshold thereafter up to 100 per cent.. The Board may at any time serve an Information Notice upon a member or on any person appearing to be interested in shares held by that member and if they fail to comply which such notice various sanctions, including restrictions on voting, transfer and dividend payments in respect of the relevant shares in the Articles will apply to that member. DTR 5 provides that disclosure by a Shareholder to the Company must be made within two trading days of the event giving rise to the notification requirement.
Subject to the provisions of the Law, annual general meetings shall be held at such time and place as the Board may determine, however at least one annual general meeting shall be held in each calendar year and not more than 15 months shall pass from one annual general meeting to the next.
The Board may convene a general meeting, other than an annual general meeting, whenever it thinks fit.
The Board may, for the purpose of facilitating shareholder attendance at a general meeting, or controlling the level of attendance and ensuring the safety of those attending at any place specified for the holding of a general meeting, from time to time make such arrangements as the Board shall in its absolute discretion consider to be appropriate and may from time to time vary any such arrangements in place or make new arrangements thereof. The entitlement of any member or proxy to attend a general meeting at such place shall be subject to any such arrangements as may be for the time being approved by the Board.
An annual general meeting shall be convened by not less than 21 clear days' notice in writing. A general meeting other than an annual general meeting shall be convened by not less than 14 clear days' notice in writing.
No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business but the absence of a quorum shall not preclude the choice or appointment of a Chairman, which shall not be treated as part of the business of the meeting. Two persons entitled to attend and to vote on the business to be transacted, each being a member present in person or a proxy for a member or a duly authorised representative of a corporation which is a member, shall be a quorum.
If, within 15 minutes (or such longer interval not exceeding one hour as the chairman of the meeting in his absolute discretion thinks fit) from the time appointed for the holding of a general meeting, a quorum is not present or if, during a meeting, such a quorum ceases to be present, the meeting, if convened on the requisition of members, shall be dissolved. In any other case, the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other day and at such time and place as the Chairman (or, in default, the Board) may determine not being more than 28 days after the date that the original general meeting was convened.
Unless and until otherwise determined by the Company by ordinary resolution, the number of Directors (other than any alternate Directors) shall not be less than two and there shall be no maximum number of Directors.
Subject to the Articles, the Company may by ordinary resolution appoint a person who is willing to act to be a Director, either to fill a vacancy, or as an addition to the existing Board, and may also determine the rotation in which any Directors are to retire. Without prejudice to the power of the Company to appoint any person to be a Director pursuant to the Articles, the Board shall have power at any time to appoint any person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board, but the total number of Directors shall not exceed any maximum number fixed in accordance with the Articles. Any Director so appointed shall hold office only until the next annual general meeting of the Company following such appointment and shall then be eligible for re-election but shall not be taken into account in determining the number of Directors who are to retire by rotation at that meeting.
The Directors (other than alternate Directors) shall be entitled to receive by way of fees for their services as Directors (in addition to fees paid for employment or executive services) such sum as the Board may from time to time determine, provided that such amount shall not exceed in aggregate £1,000,000 (one million pounds) per annum or such greater sum as the Company in general meeting shall from time to time determine by ordinary resolution. Any fees payable shall be distinct from any salary, remuneration or other amounts payable to a Director.
Any Director who is not required to retire by rotation but who has been in office for three years or more since his appointment or his last re-appointment or who would have held office at not less than three consecutive annual general meetings of the Company without retiring shall retire from office.
At each annual general meeting one-third of the Directors (excluding any Director who has been appointed by the Board since the previous annual general meeting) or, if their number is not an integral multiple of three, the number nearest to one-third but not exceeding one-third shall retire from office (but so that if there are fewer than three Directors who are subject to retirement by rotation under this Article one shall retire).
The Company may by ordinary resolution passed at a meeting called for such purpose or by written resolution consented to by members holding at least 75 per cent. of the voting rights in relation thereto, remove any Director before the expiration of his period of office notwithstanding anything in the Articles or in any agreement between the Company and such Director and, without prejudice to any claim for damages which he may have for breach of any contract of service between him and the Company, may (subject to the Articles) by ordinary resolution, appoint another person who is willing to act as a Director in his place.
A Director may also be removed from office by the service on him of a notice to that effect signed by all the other Directors.
Without prejudice to any provisions for retirement contained in the Articles the office of a Director shall be vacated if:
The Board may from time to time appoint and delegate or entrust to and confer on any Director holding executive office (including a Chief Executive or Managing Director) such of its powers, authorities and discretions (with power to sub delegate) for such time, on such terms and subject to such conditions as it thinks fit, and the Board may from time to time revoke, withdraw, alter or vary all or any of such powers.
Each Director (other than an alternate Director) may by notice in writing under his hand delivered to the Registered Agent at the registered office or, if in electronic form, received by the Registered Agent, or at a meeting of the Directors or in any other manner approved by the Board appoint any other Director or any person approved for that purpose by the Board and willing to act to be his alternate and may in like manner remove from office an alternate Director so appointed by him.
A Director who to his knowledge is in any way (directly or indirectly) interested in any contract arrangement, transaction or proposal with the Company shall, forthwith after becoming aware of the fact, disclose the interest to the Board.
Save as provided in the Articles, a Director shall not vote on or be counted in the quorum in relation to any resolution of the Board or of a committee of the Board concerning any contract, arrangement, transaction or any proposal whatsoever to which the Company is, or is to be, a party and in which he has (directly or indirectly) an interest which is material (other than by virtue of his interests in shares or debentures or other securities of, or otherwise in or through, the Company) or a duty which conflicts with the interests of the Company unless his duty or interest arises only because the resolution relates to one of the matters set out in the following sub-paragraphs in which case he shall be entitled to vote and be counted in the quorum:
The Board may exercise all the powers of the Company to provide pensions or other retirement or superannuation benefits and to provide death or disability benefits or other allowances or gratuities (whether by insurance or otherwise) for or to institute and maintain any institution, association, society, club, trust, fund, other establishment or profit sharing, share incentive, share purchase or employees' share scheme calculated to advance the interests of the Company or to benefit any person who is or has at any time been a Director of the Company or any company which is a subsidiary company of or allied to or associated with the Company or any such subsidiary or any predecessor in business of the Company or of any such subsidiary and for any member of his family (including a spouse or former spouse) and any person who is or was dependent on him.
Subject to the provisions of the Law, the Articles and to any directions given by special resolution, the business of the Company shall be managed by the Board, which may exercise all the powers of the Company whether relating to the central management and control of the business, and/or the effective management of the Company, or not.
Subject to the Articles, the Board may exercise all the powers of the Company to borrow money and mortgage or charge all or part of the undertaking, property and assets (present or future) and uncalled capital of the Company and, subject to the Law, to create and issue debentures and other securities, whether outright or as collateral security for a debt, liability or obligation of the Company or of a third party. The Board shall restrict the borrowings of the Company and shall exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiaries so as to ensure (as regards subsidiaries, to the extent possible by such exercise) that the aggregate principal amount outstanding in respect of Monies Borrowed (such term as defined in the Articles) by the Group does not at any time, without the previous sanction of an ordinary resolution, exceed: (i) four times the Adjusted Capital and Reserves (as defined in the Articles); or (ii) any higher limit fixed by ordinary resolution which is applicable at the relevant time.
The Articles provide that subject to the provisions of the Law and certain restrictions as set out in the Articles, that without prejudice to any indemnity to which he may be otherwise entitled, every Director, alternate Director or officer of the Company (other than an auditor) shall be entitled to be indemnified out of the assets of the Company against all costs, charges, losses, damages and liabilities incurred by him in the actual or purported execution or discharge of his duties or exercise of his powers or otherwise in relation to them including (without prejudice to the generality of the foregoing) any liability incurred defending any proceedings (whether civil or criminal) which relate to anything done or omitted or alleged to have been done or omitted by him as an officer or employee of the Company.
The Directors may entrust to and confer upon any Director holding any executive office or employment any of the powers exercisable by them as Directors with power to sub-delegate upon such terms and conditions and with such restrictions as they think fit and either collaterally with or to the exclusion of their own powers, authorities and discretions, and may from time to time revoke, withdraw, alter or vary all or any of such powers but no person dealing in good faith and without notice of the revocation or variation shall be affected by it. Any Director with such delegated powers shall be required to update the Board at meetings of the Board as to any developments arising in connection with the delegation of such powers.
The Board may delegate any of its powers, authorities and discretions (with power to sub-delegate) for such time on such terms and subject to such conditions as it thinks fit to any committee consisting of one or more persons (whether members of the Board or not) provided that any such committee shall only meet and exercise its powers, authorities and discretions from outside the United Kingdom and Israel. Any committee so formed may exercise its power to sub-delegate by sub-delegating to any other committee, subject to the aforementioned restrictions on location on such committees or to any Director (whether or not a member or members of the committee).
CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument. The Ordinary Shares are expected to be admitted to, and accordingly enabled for settlement in, CREST on 2 July 2012 following the winding up of the Company's depository interest facility which is anticipated to occur at close of business on 29 June 2012.
The Company adopted the 2005 Share Option Plan ("ESOP") in 2005 in order to provide an incentive to retain employees and to attract new employees, directors, consultants and service providers. The ESOP is governed by the laws of England and Wales. The ESOP is administered by the remuneration committee of the Board (the "Committee").
The Committee has the power to grant options, to determine the number of and the terms on which options will be granted and when the options may be exercised. The Committee determines the number of authorised but unissued shares reserved for the ESOP. Subject to certain ESOP requirements, the options granted will vest as set out in each individual option agreement. Most options vest over three years. A summary of the ESOP's key terms are set out below.
The exercise price per share is determined by the Committee subject to any applicable law.
Each option expires on the date specified by the Committee in the option agreement or if earlier, upon a merger, reconstruction or consolidation if they are not rolled over into the new successor company. In addition, options lapse on termination of the relevant person's employment or appointment for cause. On termination of the relevant person's employment or appointment, otherwise than for cause, vested options may only be exercised for a limited period following termination. Subject to the terms of the option agreement, options do not vest on a change of control. The ESOP provides that options may instead be rolled over or substituted for shares in the new successor company into which the Company has merged or by which it is acquired. The Committee may, at its discretion, allow options to be exercised early.
If there is a variation in share capital, the exercise price and number of shares subject to options may be adjusted by the Committee. The Committee may terminate or amend the ESOP in any respect at any time, subject to the rules of any relevant stock exchange or, if required under applicable law, shareholder approval.
The ESOP originally provided that it would terminate five years after its adoption, or earlier in certain circumstances. Following a change in the rules of the ESOP (approved by the Committee in 2010) the unexercised options expire ten years after the date of grant, unless the relevant employee leaves the Group's employment, in which case the unvested options lapse and any vested options lapse three months after the date the employment ends.
On 19 March 2009, the Directors approved a repricing plan to convert options previously granted in US Dollars to an equivalent pounds sterling price, subject to agreement by the individual optionholders. In certain cases, optionholders did not agree to such repricing.
On 4 April 2012, the Directors approved an amendment to the ESOP with the effect that the Committee may, on exercise of an option, require participants to take Ordinary Shares with a market value equal to the growth in value of the Ordinary Shares under the option between the day of grant and settlement of the option. In addition, the Committee may agree with a participant that he should receive cash equal to the market value of the Ordinary Shares under option less the exercise price payable.
As at 27 June 2012 (being the latest practicable date prior to the date of this document), 11,855,657 Ordinary Shares are subject to outstanding options granted under the ESOP. A total of 7,915,306 Ordinary Shares have been issued on the exercise of options granted under the ESOP and options over a total of 4,690,516 Ordinary Shares have expired or been cancelled. A table showing those options that have been granted and remain outstanding is set out below.
| Exercise Price per | ||
|---|---|---|
| Vesting date | Ordinary Share | Number |
| Shares vested on 30 November 2008 | US\$2.50 | 139,267 |
| Shares vested on 30 November 2008 | £1.45 | 317,048 |
| Shares vested on 30 November 2008 | £2.32 | 133,334 |
| Shares vested between 1 December 2006 and | ||
| 6 February 2009 | US\$4.50 | 257,046 |
| Shares vested between 1 December 2006 and | ||
| 6 February 2009 | £2.55 | 610,000 |
| Shares vested between 1 December 2006 and | ||
| 1 December 2009 | £2.29 | 200,000 |
| Shares vested between 21 June 2007 and 21 June 2009 | US\$5.75 | 11,000 |
| Shares vested between 21 June 2007 and 21 June 2009 | £3.16 | 60,334 |
| Exercise Price per | ||
|---|---|---|
| Vesting date | Ordinary Share | Number |
| Shares vested between 11 October 2007 and | ||
| 11 October 2009 | £1.72 | 208,334 |
| Shares vested between 11 December 2007 and | ||
| 11 December 2009 | US\$4.35 | 65,000 |
| Shares vested between 11 December 2007 and | ||
| 11 December 2009 | £2.21 | 228,002 |
| Shares vested between 16 May 2008 and 16 May 2010 | US\$7.50 | 20,000 |
| Shares vested between 16 May 2008 and 16 May 2010 | £3.79 | 1,056,334 |
| Shares vested between 18 June 2008 and 18 June 2010 | US\$7.79 | 9,468 |
| Shares vested between 18 June 2008 and 18 June 2010 | £3.96 | 92,784 |
| Shares vested between 18 June 2008 and 18 June 2010 | £3.30 | 10,000 |
| Shares vested between 10 October 2008 and | ||
| 10 October 2011 | £3.51 | 112,500 |
| Shares vested between 20 November 2008 and | ||
| 20 November 2011 | US\$7.19 | 30,000 |
| Shares vested between 20 November 2008 and | ||
| 20 November 2011 | £3.51 | 55,500 |
| Shares vested between 31 December 2008 and | ||
| 31 December 2010 | US\$7.68 | 18,000 |
| Shares vesting between 31 December 2008 and | ||
| 31 December 2010 | £3.86 | 41,000 |
| Shares vested between 25 April 2009 and 25 April 2012 | £4.35 | 510,167 |
| Shares vested between 21 May 2009 and 21 May 2012 | £5.31 | 500,000 |
| Shares vesting between 28 November 2009 and | ||
| 28 November 2012 | £3.20 | 1,429,091 |
| Shares vesting between 31 December 2008 and | ||
| 31 December 2011 | £3.1725 | 200,000 |
| Shares fully vested on 22 May 2012 | £4.155 | 740,000 |
| Shares fully vested on 22 May 2012 | £4.05 | 75,000 |
| Shares fully vesting on 6 November 2012 | £3.70 | 950,000 |
| Shares vesting between 18 April 2012 and 18 April 2013 | £5.12 | 941,000 |
| Shares vesting between 3 June 2012 and 3 June 2013 | £4.84 | 220,000 |
| Shares vesting between 26 August 2012 and | ||
| 26 August 2013 | £4.16 | 258,130 |
| Shares fully vesting on 10 March 2014 | £3.5225 | 1,720,650 |
| Shares fully vesting on 25 August 2014 | £3.0325 | 100,000 |
| Shares fully vesting on 16 December 2014 | £2.30 | 120,000 |
| Shares fully vesting on 22 June 2015 | £3.4775 | 276,000 |
Following the acquisitions of GTS and of the business and assets of Virtue Fusion Limited, in February 2010, it was decided to establish an incentive plan to retain and incentivise key employees in the acquired businesses. As part of these arrangements, the Board approved the establishment of a HM Revenue & Customs ("HMRC") approved Company Share Option Plan under which options may be granted to UK-based employees which are, assuming full compliance with the rules of the CSOP, subject only to capital gains tax on any growth in value. Under the rules of the CSOP, options may not be exercised until the third anniversary of grant. Except in certain limited circumstances, such as death or disability, such options will lapse if the employee leaves the employment of the Group. The rules of the CSOP were approved by HMRC in August 2010. As at 27 June 2012 (being the latest practicable date prior to the date of this document) 320,469 Ordinary Shares are subject to outstanding options granted under the CSOP, which vest if the option holder remains in employment after a three year period. No options to purchase Ordinary Shares have yet been exercised. A table showing those outstanding options that have been granted is set out below:
| Number of | Exercise price | |||
|---|---|---|---|---|
| Ordinary Shares | per Ordinary | Start of | End of | |
| under option | Date of grant | Share | exercise period | exercise period |
| 176,469 | 27 August 2010 | £4.16 | 27 August 2013 | 26 August 2020 |
| 144,000 | 22 June 2012 | £3.4775 | 22 June 2015 | 21 June 2022 |
6.3 The 2012 Playtech Long Term Incentive Plan ("New Plan")
Any employee (including an executive director) of the Company and its subsidiaries will be eligible to participate in the New Plan at the discretion of the Committee.
The Committee may grant awards over Ordinary Shares within six weeks following the Company's announcement of its results for any period. The Committee may also grant awards within six weeks of adoption of the New Plan or at any other time when the Committee considers there are exceptional circumstances which justify the granting of awards.
The Committee may grant awards as: (i) conditional awards of Ordinary Shares; (ii) nil (or nominal) cost options; (iii) forfeitable Ordinary Shares; (iv) "market value" options with an exercise price equal to the prevailing share price at or around the time awards are granted; or (v) share appreciation rights. The Committee may also decide to grant cash-based awards of an equivalent value to share-based awards or to satisfy share-based awards in cash, although it does not currently intend to do so.
An award may not be granted more than 10 years after the adoption of the New Plan.
No payment is required for the grant of an award. Awards are not transferable, except on death. Awards are not pensionable.
Where awards are granted in the form of "market value" options, the price per Ordinary Share payable upon exercise of an option will not be less than the middle-market price for an Ordinary Share on the London Stock Exchange on the dealing day immediately before the date of grant (or on such other dealing day(s) as the Committee may decide).
Awards normally vest three years after grant (or on such other date or dates that the Committee determines prior to the grant of awards) to the extent that any applicable performance conditions have been satisfied and provided that the participant is still employed in the Group. Options are then exercisable from the date of vesting up until the tenth anniversary of grant (or for such other period as determined by the Committee at the time of grant) unless they lapse earlier.
The Committee may decide that participants will receive a payment (in cash and/or Ordinary Shares) of an amount equivalent to the dividends that would have been paid on the Ordinary Shares in respect of which their awards vest between the time when the awards were granted and the time when they vest or are settled (as the Committee determines appropriate). This amount may assume the reinvestment of dividends.
As a general rule, an award will lapse upon a participant ceasing to hold employment or being a director in the Group. However, if a participant ceases to be an employee or a director because of his ill health, injury, disability, retirement, redundancy or his employing company or the business for which he works being sold out of the Group or in other circumstances at the discretion of the Committee, then his award will vest on the date when it would have vested if he had not ceased such employment or office. The extent to which an award will vest in these situations will depend upon two factors: (i) the extent to which any applicable performance conditions have been satisfied; and (ii) the pro-rating of the award to reflect the period of time between the grant of the award and the individual's cessation of employment relative to the original vesting period, although the Committee can decide not to pro-rate an award if it regards it as inappropriate to do so in the particular circumstances.
In the event of a takeover or winding up of the Company (which is not an internal corporate reorganisation) all awards will vest early subject to: (i) the extent that any performance conditions have been satisfied at that time; and (ii) the pro-rating of the awards to reflect the reduced period of time between their grant and vesting, although the Committee can decide not to pro-rate an award if it regards it as inappropriate to do so in the particular circumstances. Awards structured as options then remain exercisable for a limited period.
If a demerger, special dividend or other similar event is proposed which, in the opinion of the Committee, would affect the market price of Ordinary Shares to a material extent, then the Committee may decide that awards will vest on the basis which would apply in the case of a takeover as described above.
Conditional awards of Ordinary Shares, share appreciation rights and options will not confer any shareholder rights until the conditional awards of Ordinary Shares have vested or the share appreciation rights or options have been exercised and the participants have received their Ordinary Shares. Holders of awards of forfeitable Ordinary Shares will have shareholder rights from when the awards are made except they may be required, at the Committee's discretion, to waive their rights to vote and receive dividends.
Any Ordinary Shares allotted when an award vests or is exercised will rank equally with Ordinary Shares then in issue (except for rights arising by reference to a record date prior to their allotment).
In the event of any variation of the Company's share capital or in the event of a demerger, payment of a special dividend or similar event which materially affects the market price of the Ordinary Shares, the Committee may make such adjustment as it considers appropriate to the number of Ordinary Shares subject to an award and/or the exercise price payable (if any).
The Committee may, on exercise of an option, require participants to take Ordinary Shares with a market value equal to the growth in value of the Ordinary Shares under the option between the day of grant and settlement of the option. In addition, the Committee may agree with a participant that he should receive cash equal to the market value of the Ordinary Shares under option less the exercise price payable.
In any ten calendar year period, the Company may not issue (or grant rights to issue) more than 10 per cent. of the issued Ordinary Shares of the Company under the New Share Plan and any other employee share plan adopted by the Company. Treasury Shares will count as new issue Ordinary Shares for the purposes of these limits unless institutional investors decide that they need not count. Ordinary Shares issued or to be issued under awards or options granted under the 2005 Share Option Plan before on the AIM IPO will not count towards these limits.
The Committee may, at any time, amend the New Plan in any respect, provided that participant approval is obtained for any amendments that are to the disadvantage of participants (other than any amendments to any performance conditions applicable to awards).
The Committee may, within three years of an award vesting, decide that a participant will be subject to clawback where there has been a misstatement of the Company's financial results or accounts or if the participant's employment is terminated because of his misconduct. The Committee may require the satisfaction of the clawback by way of a reduction in the vesting, or size of, any other award and/or a requirement to make a cash payment.
In addition to the plans set out above, in December 2009, the Board approved the establishment of a phantom share plan for the senior executives of Videobet, in order to retain and incentivise the management team. The overall size of the plan is limited in amount to an amount of shares equal to 2.5 per cent. of the share capital of Videobet and will vest once the Company has received in cash an amount equal to its total investment in Videobet plus an amount equal to base rate plus 10 per cent. on such invested amount compounded annually. Participants will be able to exercise their awards on a share sale or listing of Videobet or such earlier date as is agreed between the participant and the Company, acting through the Committee.
7.1 As at 27 June 2012 (being the latest practicable date prior to the date of this document) and on Admission, the interests (all of which are beneficial) of the Directors and the members of Senior Management and their immediate families (including any interest known to that Director or which could with reasonable diligence be ascertained by him or any person connected with a Director within the meaning of section 252 to 255 of the Act) in the issued shares of the Company are or are expected to be as follows:
| Percentage of issued |
Number of Ordinary |
||
|---|---|---|---|
| Director/Senior | Number of | Ordinary | Shares |
| Management | Ordinary Shares | Shares | under option |
| Directors | |||
| Roger Withers | 19,333 | 0.0 | – |
| Mor Weizer | – | – | 1,200,000 |
| David Mathewson | – | – | 100,000 |
| Alan Jackson | 5,000 | 0.0 | – |
| Andrew Thomas | – | – | – |
| Senior Management | |||
| Rafi Ashkenazi | – | – | 191,668 |
| Ron Hoffman | – | – | 105,000 |
7.2 As at 27 June 2012 (being the latest practicable date prior to the date of this document) and on Admission the Company is aware of the following existing Shareholders (other than any Director or member of Senior Management) who by virtue of the notifications made to it pursuant to the Articles and/or the Disclosure and Transparency Rules, are or will be, or are expected to be, immediately following Admission interested, directly or indirectly, in 3 per cent. or more of the issued shares of the Company:
| Following Admission |
||
|---|---|---|
| Name | Number of Ordinary Shares |
Percentage of voting rights |
| Brickington Trading Limited | 143,645,782 | 49.66 |
| BlackRock Advisors (Institutional Group) | 19,876,519 | 6.87 |
| Capital Research & Management | 14,311,675 | 4.95 |
| Greenlight Capital | 11,029,476 | 3.81 |
| Interexpo Trading Limited | 8,774,200 | 3.03 |
| Name of Director/ Senior Management |
Current directorships and partnerships |
Past directorships and partnerships |
|---|---|---|
| Roger Withers | Sportech PLC | |
| Mor Weizer | Sportech PLC | None |
| David Mathewson | None | Edinburgh UK Tracker Trust plc Asian Growth Properties Limited AMZ Holdings Plc GFED Games Limited GFED International Ltd. Ifafa Tech Inc. Silverstate Capital Advisers Talk 107 Edinburgh plc Murray VCT plc Robertson Homes Limited Robertson Group Limited Corsie Group plc |
| Alan Jackson | The Restaurant Group plc Woodrow Farm Limited Redrow plc The Kimblewick Hunt Limited |
Charles Wells Limited Living Ventures Limited Strobe 2 Luminar Group Holdings plc Randalls Vantier (Jersey) Limited |
| Andrew Thomas | The Greenalls Group Pension Trustees Limited Betterlease Limited (non-trading) Gerald Brunt Productions Limited Randalls Limited Livock & Edwards Limited Jumil Investments Limited Summerseat Holdings Limited Savernake Holdings (D) Limited Savernake Holdings No 2 (Jersey) Limited Lansdowne Investments Limited Moors Andrew Thomas (PC) Limited Moors Andrew Thomas & Co LLP |
The Restaurant Group PLC Thomas Brunt & Associates Limited Roadcraft (Crane & Plant Hire) Limited JJB Sports PLC Pearlalpha Limited Castlebronze Limited |
| Rafi Ashkenazi | None | None |
| Ron Hoffman | Synergia Band | None |
The business address of all the Directors and the members of Senior Management is 2nd Floor, St George's Court, Upper Church Street, Douglas, Isle of Man IM1 1EE.
8.1 Each of the Executive Directors and members of Senior Management has entered into a service contract. Their respective salaries are as follows:
| Date employment | Annual |
|---|---|
| commenced | Salary |
| 02/05/2007 | 1525,315 |
| 10/06/2010 | 1325,621 |
| 21/03/2006 | US\$372,000 |
| 31/08/2004 | NIS720,000 |
Each of the Executive Directors and members of Senior Management have been appointed on terms which can be terminated by either party on six months notice.
| Name | Annual fee (£) |
|---|---|
| Roger Withers | 352,868 |
| Alan Jackson | 150,000 |
| Andrew Thomas | 80,000 |
Each of the non-executive Directors have been appointed on terms which can be terminated by either party on 90 days' notice save in the case of Andrew Thomas where the period is six months.
8.5 The aggregate remuneration paid (including pension fund contributions and benefits in kind) to the Directors and members of Senior Management by members of the Group in the year ended 31 December 2011 was as follows:
| Total | ||||||
|---|---|---|---|---|---|---|
| (excluding | ||||||
| option | Option | Total | ||||
| Salary/Fee | Bonus | Benefits | charges) | charges emoluments | ||
| (2) | (2) | (2) | (2) | (2) | (2) | |
| Roger Withers | 389,180 | nil | nil | 389,180 | nil | 389,180 |
| Mor Weizer | 525,315 | 270,302 | 12,401 | 808,018 | 696,448 | 1,504,466 |
| David Mathewson | 325,621 | 119,356 | 38,708 | 483,685 | 17,150 | 500,835 |
| Alan Jackson | 114,882 | nil | nil | 114,882 | nil | 114,882 |
| Andrew Thomas | N/A | N/A | N/A | N/A | N/A | N/A |
| Rafi Ashkenazi | 216,000 | 100,000 | 38,000 | 353,000 | nil | 353,000 |
| Ron Hoffman | 120,032 | 260,505 | 48,401 | 428,938 | 60,122 | 489,060 |
The Company is the holding company of the Group and has the following principal Subsidiaries:
| Country of | Percentage of issued share |
|||
|---|---|---|---|---|
| registration or | Registered | Principal | capital held by | |
| Name | incorporation | Office | activity | the Company |
| Playtech Software Limited |
British Virgin Islands | Trident Chambers P.O. Box 146, Road Town, Tortola, British Virgin Islands |
Main trading company of the Group, owns the IP rights and licences of the software |
100 |
| Video B Holdings Limited |
BVI | As above | Trading company for Videobet software, owns IP rights of Videobet and licences it to customers |
100 |
| Genuity Services Limited |
BVI | As above | Holder of investment in WHO |
100 |
| PT Turnkey Services Limited |
BVI | As above | Holding company | 100 |
| PT Marketing Services Limited |
BVI | As above | Provider of marketing services |
100 |
| PT Domains Limited |
BVI | As above | Holder of various domain names for marketing purposes |
100 |
| PT Operational Services Limited |
BVI | As above | Provision of support services |
100 |
| PT Advisory Services Limited |
BVI | As above | Provision of reconciliation series on payments |
100 |
| PT Network Management Limited |
BVI | As above | Provision of iPoker network and other networked games |
100 |
| Name | Country of registration or incorporation |
Registered Office |
Principal activity |
Percentage of issued share capital held by the Company |
|---|---|---|---|---|
| Playtech Services (Cyprus) Limited |
Cyprus | 3 Athinodorou Street, Dasoulpoles, Strovlos 2085, Nicosea, Cyprus |
Trading company for EU customers and holds IP |
100 |
| Technology Trading IOM Limited |
Isle of Man | 2nd Floor, St. George's Court, Upper Church Street, Douglas, Isle of Man |
Holding company | 100 |
| Gaming Technology Solutions Limited |
England & Wales | 55 Baker Street, London W1 7EU |
Holding company and provides software development services |
100 |
| Virtue Fusion (Alderney) Limited |
Alderney | Inchalla, Le Val, Alderney, Channel Islands |
Licensor of online bingo software |
100 |
| Mobenga A.B. | Sweden | Box 5220 200 72 Malmö Skane County Sweden |
Development of mobile sportsbetting |
100 |
| Ash Gaming Limited |
England & Wales | 61 Southwark Street, London |
Development and licensing of online games |
100 |
The principal establishments of the Group are as follows:
| Company | Location | Approx area | Tenure | Current rent (per annum excl VAT) |
Terms of lease |
|---|---|---|---|---|---|
| Bandwick Investments Ou |
Vanemuise Street, Tartu, Estonia |
2,550 sq metres | Freehold | Nil | Nil |
| Gaming Technology Services Limited |
10 Jamestown Road, London NW1 |
10,000 sq feet | Leasehold | £320,000 | 10 years expiring June 2022 |
| Ash Gaming Limited |
Front 5th Floor, 61 Southwark Street, London SE1 |
4,544 sq feet | Leasehold | £89,040 | 5 years expiring 29 January 2015 (subject to a break clause in January 2013) |
| Paragon International Customer Care Limited |
4th Floor and part 9th and 14th Floor, Yuchengo Tower 1 RCBC Plaza 6819 Ayala Ave, Makati City, Philippines |
2,200 sq metres | Leasehold | Philippine Peso 17,901,528 |
3 years expiring 31 December 2013 (provided that Paragon may terminate on 6 months notice at any time after 30 June 2012) |
| Techplay Marketing Limited |
5 Floor, 2 Shoam Street, Ramat Gan, Tel Aviv 52510 |
1,499 sq metres | Leasehold | New Israeli Shekels 1,980,636 |
8.5 years terminating on 1 July 2020 (subject to break exercisable on 7 months notice between 27th and 48th month of the term) |
| Company | Location | Approx area | Tenure | Current rent (per annum excl VAT) |
Terms of lease |
|---|---|---|---|---|---|
| Techplay S.A. Software Limited |
5 Floor, 2 Shoam Street, Ramat Gan, Tel Aviv 52510 |
2,031 sq metres | Leasehold | New Israeli Shekels 1,416,780 |
8.5 years terminating on 1 July 2020 (subject to break exercisable on 7 months notice between 27th and 48th month of the term) |
| OU VideoBet | Paldiski mnt 27/29, 10612 Tallinn, Estonia |
236 sq metres | Leasehold | 1189,840 | 10 years terminating on 30 September 2015 (subject to a right to terminate on 12 months notice) |
| Playtech Bulgaria |
Office Building C 115 L Mladost District, Tsarigardsko Shore Blvd, Sofia, Bulgaria |
1,718 sq metres | Leasehold | 1177,552 | 5 years from 1 January 2011 (subject to a right to terminate on 6 months notice between the 34th and 46th month of the term) |
| PTVB Management Limited |
2nd Floor, St George's Court Upper Church Street, Douglas, Isle of Man |
2,200 sq feet | Leasehold | £48,500 | 3 years from 1 June 2010 |
The City Code applies to all takeover and merger transactions in relation to the Company, and operates principally to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment. The City Code provides an orderly framework within which takeovers are conducted and the Panel on Takeovers and Mergers has now been placed on a statutory footing.
The City Code is based upon a number of General Principles which are essentially statements of standards of commercial behaviour. General Principle One states that all holders of securities of an offeree company of the same class must be afforded equivalent treatment and if a person acquires control of a company, the other holders of securities must be protected. This is reinforced by Rule 9 of the City Code which requires a person, together with persons acting in concert with him, who acquires shares carrying voting rights which amount to 30 per cent. or more of the voting rights to make a general offer. "Voting rights" for these purposes means all the voting rights attributable to the share capital of a company which are currently exercisable at a general meeting. A general offer will also be required where a person who, together with persons acting in concert with him, holds not less than 30 per cent. but not more than 50 per cent. of the voting rights, acquires additional shares which increase his percentage of the voting rights. Unless the Panel consents, the offer must be made to all other shareholders, be in cash (or have a cash alternative) and cannot be conditional on anything other than the securing of acceptances which will result in the offeror and persons acting in concert with him holding shares carrying more than 50 per cent. of the voting rights.
There are not in existence any current mandatory takeover bids in relation to the Company.
Section 160 of the Law provides that if, within certain time limits, an offer is made for the issued shares of the Company, the offeror is entitled to acquire compulsorily any remaining shares if it has, by virtue of acceptances of the offer, acquired or unconditionally contracted to acquire not less than 90 per cent. in value of the shares to which the offer relates and in a case where the shares to which the offer relates are voting shares, not less than 90 per cent., of the voting rights carried by those shares. The offeror would effect the compulsory acquisition by sending a notice to outstanding shareholders telling them that it will compulsorily acquire their shares and then, the offerer shall, unless on an application made to the court by a dissenting shareholder within one month from the date on which the notice was given the court thinks fit to order otherwise, pay the consideration for the shares to the Company to hold on trust for the outstanding shareholders. The consideration offered to shareholders whose shares are compulsorily acquired under the Law must, in general, be the same as the consideration available under the takeover offer.
The following section is a summary guide only to certain aspects of tax in the UK and the Isle of Man, based on current law and published practice, both of which may change at any time (possibly with retrospective effect). This is not a complete analysis of all the potential effects of acquiring, holding and disposing of Ordinary Shares, nor will it relate to the specific tax position of all Shareholders in all jurisdictions. If you are in any doubt as to your tax position, or if you are subject to tax in a jurisdiction other than those discussed below, you should consult your own professional advisers.
The policy of the Group will be to continue to manage and operate each of the Group companies in a way that is intended to ensure that it has a taxable presence only in the jurisdiction in which it has a registered business presence and that it has no taxable permanent establishments or other taxable presence in any other jurisdiction. It is the intention of the Directors to continue to conduct the affairs of the Company such that the central management and control of the Company is exercised in the Isle of Man.
Shareholders who are resident in the United Kingdom for tax purposes may, depending on their circumstances, be liable to UK income tax or corporation tax in respect of dividends paid by the Company in relation to Ordinary Shares whether directly or by way of reinvestment of income.
For Shareholders who are individuals and who are not taxable on the remittance basis, income tax will generally be charged at the rate of 10 per cent. or 32.5 per cent. or 42.5 per cent. (the 32.5 per cent. tax rate applies if the individual is a higher rate tax payer and the 42.5 per cent. tax rate applies to the extent that the individual has taxable income in excess of £150,000 per annum).
Where a taxpayer has other taxable income of less than £150,000, the receipt of a dividend may result in his total taxable income exceeding the £150,000 threshold. In that event, the dividend will be taxed partly at 32.5 per cent. (up to the £150,000 income threshold) and partly at 42.5 per cent. (on the excess above the £150,000 threshold). Any dividend on Ordinary Shares will ordinarily carry a tax credit equal to one ninth of the dividend, provided that the individual's interest in the Ordinary Shares is less than 10 per cent. For Shareholders who are higher rate taxpayers (taxed at 32.5 per cent.) entitled to a tax credit this gives an effective tax rate of 25 per cent. of the net cash dividend. For Shareholders with taxable income in excess of £150,000 per annum (taxed at 42.5 per cent.) entitled to a tax credit this gives an effective tax rate of approximately 36.1 per cent. of the net cash dividend.
Individuals who are taxable on the remittance basis should seek their own advice in relation to the tax treatment of dividends paid by the Company.
For corporate Shareholders, the tax treatment of dividends paid by the Company in respect of Ordinary Shares will depend upon the size of the recipient company. Any corporate Shareholder which is not small will generally be exempt from corporation tax on the dividend.
Certain small companies will be taxable at their marginal rate of corporation tax on all dividends received from the Company. A tax credit should also be given for any underlying tax (that is, tax paid on the profits out of which the dividend was paid), provided the relevant corporate Shareholder controls at least 10 per cent. of the voting rights in the Company and certain detailed conditions are satisfied. Corporate Shareholders should seek their own separate advice as to whether they are a small company for these purposes.
In the case of those Shareholders who are individuals or otherwise not within the charge to corporation tax, capital gains tax may be payable on any chargeable gain arising upon a disposal of Ordinary Shares. Any such gain may be subject to tax at a rate of 28 per cent. for individuals with taxable income in excess of £35,000 (and, therefore, liable to income tax at the higher or additional rate) subject to the availability of relevant reliefs and exemptions. Individual Shareholders are not subject to tax on chargeable gains up to the annual exempt amount. For the 2012/2013 tax year this is £10,600.
Shareholders within the charge to UK corporation tax may be subject to corporation tax on chargeable gains in respect of any gain arising on a disposal of Ordinary Shares. Indexation allowance may apply to reduce any chargeable gain arising on a disposal of the Ordinary Shares but will not create or increase an allowable loss.
Shareholders who are resident or ordinarily resident for tax purposes in the United Kingdom who hold more than 10 per cent. of the Company (either alone or taking into account the interests of persons connected with them), should seek their own separate advice on the basis that in certain circumstances (i.e. if the Company is or becomes a close company for UK tax purposes) a proportion of gains made by the Company could be attributable to them under section 13 of the Taxation of the Chargeable Gains Act 1992.
On the basis of the assumption in paragraph 12.1.2 below, the Ordinary Shares will be assets situated outside the United Kingdom for the purposes of United Kingdom inheritance tax. Ordinary Shares owned by a UK domiciled individual may (subject to certain exemptions and reliefs) be subject to UK inheritance tax on the death of the individual or, in certain circumstances, if the Ordinary Shares are the subject of a gift or other transfer of value by the individual. For inheritance tax purposes, a transfer of assets at less than full market value may be treated as a gift and particular rules apply to gifts where the donor reserves or retains some benefit. UK inheritance tax is not generally chargeable on gifts to individuals made more than seven years before the death of the donor. Holders should consult an appropriate professional adviser if they make a gift or transfer of value of any kind to, or intend to hold Ordinary Shares through, trust arrangements. Holders should also seek professional advice in a situation where there is a potential for a double charge to UK inheritance tax and an equivalent tax in another jurisdiction.
The following comments are intended as a guide to the general UK Stamp Duty and Stamp Duty Reserve Tax ("SDRT") position and do not relate to persons such as market makers, brokers, dealers, intermediaries and persons connected with depository arrangements or clearance services to whom special rules apply. UK Stamp Duty (at the rate of 0.5 per cent., rounded up where necessary to the next £5, of the amount of the value of the consideration for the transfer) is payable on any instrument of transfer of Ordinary Shares executed within, or that relates to any matter or thing to be done in the United Kingdom. In practice, as the register of members of the Company is maintained outside the UK, no duty is ordinarily payable.
An exemption from stamp duty is available where the amount or value of the consideration is £1,000 or less, provided that it is certified on the instrument of transfer that the transaction does not form part of a larger transaction or series of transactions for which the aggregate consideration exceeds £1,000.
The Isle of Man Government levies both indirect and direct taxes, including:
The Isle of Man does not operate any capital gains tax, stamp duty, stamp duty land tax or inheritance taxes.
Following its redomiciliation process, the Company is resident for taxation purposes in the Isle of Man by virtue of its incorporation. With effect from 6 April 2006, the Isle of Man introduced a zero rate of tax for all companies except those which derive their income from banking business and land and property in the Isle of Man, or who elect to pay income tax at a rate of 10 per cent. (the "zero/10 regime").
The Company and other Isle of Man resident Subsidiaries do not undertake any activities which fall within the 10 per cent. tax rate nor have (or will) any of these entities elected to pay tax at the 10 per cent. rate and therefore pay tax at zero per cent.
In order to prevent Isle of Man companies owned by Isle of Man resident individuals rolling up profits at the zero per cent. rate, the Isle of Man introduced the Distributable Profits Charge ("DPC") at the same time as the zero/10 regime. The DPC was replaced by the Attribution Regime for Individuals ("ARI") for accounting periods commencing on or after 6 April 2008. However, the ARI has been abolished with effect for accounting periods commencing after 6 April 2012.
Holders of Ordinary Shares resident in the Isle of Man will, depending on their particular circumstances, be liable to Isle of Man income tax on dividends received from the Company.
An Isle of Man company has no requirement to make any deduction or withholding of tax on dividends paid to Shareholders resident outside of the Isle of Man. Any dividends paid from income subject to tax at 10 per cent. will carry a 10 per cent. tax credit for Isle of Man income tax purposes. This tax credit will not be refundable where the recipient is not an Isle of Man resident. Therefore, UK-resident Shareholders will not incur any liability to Isle of Man non-resident income tax in relation to dividends paid on Ordinary Shares held by them and the Company will not become liable to make any withholding on payments made to a non-resident of the Isle of Man.
The following are the only contracts (not being contracts entered into in the ordinary course of business) which have been entered into by members of the Group in the two years immediately preceding the date of this document and which are material or which have been entered into at any time by any member of the Group and which contain any provision under which any member of the Group has any obligation or entitlement which is, or may be, material to the Group as at the date of this document:
In connection with the Gauselmann SSA, Playtech Software agreed to provide certain software and services to the Gauselmann JVCo under a separate arms' length licensing agreement, and Gauselmann has granted the Gauselmann JVCo a perpetual royalty free licence to exclusively use certain Gauselmann and Merkur brands for the purposes of online gambling in return for the payment of certain licence fees. The licence can be terminated in certain circumstances following Gauselmann or its associates ceasing to be a shareholder in the Gauselmann JVCo.
Under the terms of the Gauselmann SSA, following receipt of the relevant regulatory licences in Germany, PT Services will inject into the Gauselmann JVCo certain marketing knowhow and personnel and Gauselmann will inject certain infrastructure and business relationships.
The overall management and control of the Gauselmann JVCo is vested in its board of directors. The business of the Gauselmann JVCo is to be operated in accordance with an operating budget agreed from time to time by its board of directors. Each shareholder is entitled to appoint one director to the board for every 17 per cent. of the shares held by it, so that the initial board of directors consists of four persons, two each from PT Services and Gauselmann. Save in certain limited circumstances, all actions and resolutions at general meetings of the Gauselmann JVCo require the approval of persons holding 66.66 per cent. of the issued shares in the Gauselmann JVCo, and all actions and resolutions at board meetings of the Gauselmann JVCo shall be passed by a majority vote of the board of the Gauselmann JVCo.
Under the Gauselmann SSA, PT Services and Gauselmann have agreed to provide up to 110.7 million each by way of shareholder loans during the 18 month period following receipt of the relevant regulatory licences although the parties have agreed subsequently, in principle, to increase this commitment to 120 million each subject to an assessment of the overall requirement of the JVCo at the relevant time. All shareholder loans bear interest at the rate of 3-month EURIBOR plus 3 per cent. per annum. The Gauselmann JVCo is intended to be self-financing after this 18 month period.
The Gauselmann SSA contains a prohibition on the transfer of shares in the Gauselmann JVCo prior to the seventh anniversary of receipt of relevant regulatory licences save in the event of a sale of the entire issued share capital of the Gauselmann JVCo or a listing. Any proposed transfer thereafter shall be subject to customary pre-emption provisions on transfer which allow one shareholder the opportunity to acquire the shares of the other shareholder ("proposed seller") in the event that the proposed seller wishes to dispose of its interests to a bona fide third party, as well as tag along rights requiring that it be entitled to sell shares as part of the proposed transfer. The Agreement also contains customary drag along rights in the event that holder(s) of more than 75 per cent. of the share capital wish to sell their shares in the Gauselmann JVCo to a third party.
Furthermore, in the event that: (i) following the seventh anniversary of receipt of relevant regulatory licences, a shareholder deadlock situation arises; or (ii) a competitor of PT Services or Gauselmann becomes the beneficial controlling shareholder of the other, the Gauselmann SSA contains a "shoot out" mechanism whereby (on the occurrence of (i) above) either shareholder or (on the occurrence of (ii) above) the shareholder which has not been subject to a beneficial change of control (the "initiating shareholder") shall become entitled to serve a notice ("shoot out notice") stating a price at which it is willing to buy-out the shares and shareholder loans (if any) of, or have its shares and shareholder loans (if any) bought out by, the other shareholder (the "receiving shareholder"). On receipt of a shoot out notice, the receiving shareholder is entitled to institute a fair market valuation procedure to the extent it wishes to challenge the price set out in the shoot out notice. Within a prescribed period following receipt of a shoot out notice or, where relevant, completion of the fair market value process, the receiving shareholder must elect to either buy-out the initiating shareholder or be bought out by the initiating shareholder at the price set out in the shoot out notice (as adjusted (where relevant) pursuant to the fair market valuation procedure and to take account of their relative percentage shareholdings held in the Company).
In the event of certain material events of default by PT Services or Gauselmann, the non-defaulting shareholder may initiate the shoot procedure above but on terms whereby a 20 per cent. discount applies where the defaulting shareholder is bought-out and a 20 per cent. premium applies where the non-defaulting shareholder is bought out.
The Gauselmann SSA contains restrictive covenants from PT Services and Gauselmann to protect the interests of the Gauselmann JVCo.
13.4 a subscription and shareholders agreement (the "Peermont SSA"), pursuant to which Playtech Services (Cyprus) Limited, a wholly owned indirect subsidiary of the Company, and Peermont Global (Proprietary) Limited ("Peermont") agreed to each subscribe for 50 per cent. of the shares in a new company incorporated under the laws of the Republic of South Africa with the name Vengatrim (Proprietary) Limited (the "Peermont JVCo") in order to establish and operate an online bookmaker's business and once online casinos are legalised by the relevant South African licensing authorities, an online casino business.
Under the Peermont SSA, Playtech has agreed to grant the Peermont JVCo a licence to use its online casino software and to render a package of turnkey services, including affiliate network management, online media buying, player acquisition and retention, customer service, date mining, fraud detection and prevention and player value optimisation, in return for agreed fees. Peermont has agreed to provide financial, legal, IT, HR, compliance, marketing and other services in return for agreed fees.
The overall management and control of the Peermont JVCo is vested in its board of directors. The business of the Peermont JVCo shall be operated in accordance with an operating budget agreed from time to time by its board of directors. Each shareholder is entitled to appoint one director to the board for every 20 per cent. of the shares held by it, so that the initial board of directors consists of four persons, two each from Playtech and Peermont. The chair of the Peermont JVCo board rotates between the shareholders on an annual basis and has no second or casting vote.
The Peermont JVCo is intended to be self-financing, however Playtech and Peermont have agreed that should the Peermont JVCo require additional funding this will be provided by them in proportion to their shareholding by way of shareholder loans. It has been agreed in principle/it is anticipated, that each of Playtech and Peermont will provide up to 15 million by way of such loans. If either Playtech or Peermont fails to provide the necessary financing, the other party shall be entitled, but not obligated, to cover the shortfall (a "Shortfall Loan"). All shareholder loans will bear interest at the prime rate of First National Bank in South Africa and any Shortfall Loans will attract interest at five per cent. above such prime rate. Shortfall Loans shall at the election of the majority provider of such loans be captialised in accordance with a prescribed formula.
The Peermont SSA contains customary pre-emption provisions on transfer of shares which allow one shareholder the opportunity to acquire the shares and outstanding shareholder loans (if any) of the other shareholder ("proposed seller") in the event that the proposed seller wishes to dispose of its interests to a bona fide third party or to the remaining shareholders, as well as drag-along rights in the event that shareholder(s) holding more than 75 per cent. of the share capital wish to sell their shares in the Peermont JVCo to a third party. The Peermont SSA also contains provisions requiring the shareholders to dispose of shares (if required) to comply with South African legislative requirements relating to the holding of equity by 'black people' (as defined in such legislation) or deeming a sale in the event that either of Playtech or Peermont enters into any insolvency proceeding or is found unsuitable to hold a direct or indirect interest in the Company.
connection with its obligations under the placing agreement. The placing agreement contained customary representations and warranties and indemnities given by the Company to Canaccord Genuity;
Pursuant to the Framework Agreement, the share capital of the WHOCos was allotted such that WH Ltd owned 71 per cent. and Genuity owned 29 per cent. of the issued share capital of the WHOCos.
In consideration for the allotment of these shareholdings, Genuity agreed to contribute certain online gaming businesses, comprising an affiliate marketing business, customer services operations and related gaming brands, websites, assets and contracts together providing vertically integrated services to the European online gaming marketplace, which it had acquired immediately prior to such contribution from third parties including companies ultimately owned by trusts in which Teddy Sagi was beneficially interested for a total consideration of up to US\$250 million in cash and WH Ltd contributed (or agreed subsequently following an integration strategy to contribute) assets relating to its remote gambling business and services in connection therewith.
As is customary in an arrangement of this nature and to provide governance rights to reflect the parties shareholdings in the WHOCos, the parties agreed certain operational provisions, including, among other things:
WH Ltd and Genuity agreed that dividends of WHO would be declared and paid (subject to certain exceptions) on a regular quarterly basis and would be split such that each of WH Ltd and Genuity would receive the profits of WHO in proportion to their shareholdings in the WHOCos.
Genuity agreed to allow the William Hill Group's sportsbook business and its online arcade business to remain outside of WHO for a specified period following completion. If the businesses were not transferred to WHO during this period, Genuity's shareholding in the WHOCos would be increased (up to a maximum of 32 per cent.) to compensate it for the non-transfer. Both businesses were transferred into WHO during the specified period. However, if at any time following the transfer of the businesses set out above to WHO, WH Ltd requires the transfer of the businesses to a UK incorporated company of WHO then Genuity's shareholding in the WHOCos would be increased (up to a maximum of 32 per cent.) to compensate it for such transfer.
Pursuant to the Framework Agreement, Genuity granted WH Ltd a call option such that it may (at its discretion) in either 2013 or 2015 acquire Genuity's shares in the WHOCos and the trademarks and domain names licensed to the WHOCos by Genuity for fair market value. The fair market value is determined following a prescribed procedure involving the appointment of valuers by each of Genuity and WH Ltd and an independent valuer appointed jointly by Genuity and WH Ltd. Genuity may elect to receive a proportion of its consideration in shares in William Hill PLC in substitution for cash (subject to certain exceptions) provided that any such shares to be issued to Genuity shall not exceed 9.99 per cent. of William Hill PLC's issued share capital immediately following such issue, and provided further that the receipt of such shares does not result in Genuity or it associates owning more than 20 per cent. of the then issued share capital of William Hill PLC. If WH Ltd does not elect to exercise its option in either 2013 or 2015, Genuity has been granted an "unwind right" which permits Genuity to transfer its shareholdings in the WHOCos to a third party provided that before it does so WH Ltd has a matching right in respect of such sale which, if exercised, compels Genuity to transfer its shares to WH Ltd.
Genuity and WH Ltd also provided to each other and to the WHOCos, title, trading and financial warranty and indemnity protection customary with an arms' length sale or transfer of shares and assets in connection with the shares and assets that each party contributed to WHO. These warranties were subject to customary limitations.
Genuity and WH Ltd also agreed to provide non-compete protections broadly customary in a transaction of this type to the other to ensure that the interests of either party in WHO were not materially prejudiced by the actions of the other shareholder.
Playtech Software undertook to indemnify and guarantee the performance of Genuity under the provisions of the Framework Agreement.
Pursuant to the terms of the Framework Agreement, Genuity consented to the transfer in January 2011 of the William Hill Group's telephone betting business to WHO on terms whereby the profits/losses of the telephone business are ringfenced in a separate division for the sole account of WH Ltd, with the exception of an annual support fee of £1 million per annum payable to Playtech Software.
The real money gaming software (excluding mobile) and comprising a platform, rummy and poker is being licensed on a perpetual basis (the "Perpetual Software") and the remainder of the software, principally social gaming and real money mobile software, is being licensed for an initial three year term (the "Non-Perpetual Software").
The overall licence fee paid by the Group will be 16 million per annum plus a royalty fee of 20 per cent. of revenue generated through the use of the licensed software in social gaming activity during the term of the licence of the Non-Perpetual Software. No royalties are to be paid based on revenues generated from the use of the real money software. The licence of the real money software is exclusive on a forward looking basis for B2B for so long as the Non-Perpetual Software is licensed by Playtech. Furthermore, the Supplier has agreed not to license the social gaming software to B2B competitors of the Company during any period where the Group is licensing such software.
The agreement contains a mechanism for the extension of the licence of the Non-Perpetual Software for up to a further three years following the expiry of the initial three year period at no additional cost and on terms whereby exclusivity is preserved. The obligations of Skywind under the software licence agreement are guaranteed by Brickington (which, as is the case for Skywind, is a company owned by a trust, one of the ultimate beneficiaries of which is Teddy Sagi). Under the software licence, Playtech Software has granted Skywind the right to use the Group's games content from its games library in Skywind's B2C social gaming business on a royalty free basis (subject to consent, where relevant, of third party brand owners and the payment of certain charges in respect of branded content). The provision of such games content shall cease at the same time as the licence for the Non-Perpetual Software expires. Playtech Software has further committed, subject to entry into definitive legal documentation, to licence to Skywind its gaming software for use in any future B2C real money operation of Skywind on arms' length terms consistent with those generally offered to the Group's licensees.
The Company is of the opinion that, taking into account the financing facilities available, the working capital available to the Group is sufficient for its present requirements, that is, for at least the period of twelve months from the date of publication of this document.
There are no and have not, in the twelve months prior to the date of this document, been any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware) which may have, or have had in the recent past, significant effects on the Group's financial position or profitability. Annex I
17.1 Save as set out in this paragraph 17.1, there have been no significant changes in the financial or trading position of the Group since 31 December 2011, the date to which the last audited accounts of the Group were prepared. Annex I 20.4.1
On 24 January 2012, the Playtech Group acquired the entire issued share capital of Geneity for an initial cash consideration of £11 million (subject to a working capital adjustment), of which £4 million will be held in escrow for 30 months. A further £4 million in cash will be payable subject to certain agreed deliverables to be provided by Geneity. Further details of this acquisition are set out in paragraph 13.5 of this Part 6.
On 17 April 2012, Playtech announced that it had agreed with Worldwide Online Enterprises Limited ("WOE") to aggregate the outstanding balance of the initial consideration payable to WOE for the acquisition of PTTS into one payment of 176 million (the "Discounted Outstanding Initial Consideration") which reflected a discount to the net present value of that outstanding balance. Playtech financed substantially all of the payment of the Discounted Outstanding Initial Consideration from its available banking facilities, as described below. This Discounted Outstanding Initial Consideration will not affect any amounts which may become payable under the earn-out provisions agreed at the time of the acquisition of PTTS. Further details of this acquisition are set out in paragraph 13.9 of this Part 6.
In February 2012 the Group repaid its entire outstanding loan balance of 127.5 million as at 31 December 2011, out of existing cash resources, restoring undrawn committed borrowing facilities to 1110 million. Subsequently, the Group drew down 175 million of borrowing facilities in order to fund the Discounted Outstanding Initial Consideration.
17.2 BDO LLP, chartered accountants of 55 Baker Street, London W1U 7EU have been the auditors of the Company for the three financial years ended 31 December 2011 and have given unqualified audit reports on the statutory accounts of the Company for those financial years.
Annex III Para 10.1
Para 3.1 LR 6.1.16
Annex I Para 20.8
Annex III
Para 20.9
Paras 2.1,
Annex I Para 23.1 Annex III Para 10.3
Copies of the following documents will be available for inspection during normal business hours on any day (except Saturdays, Sundays, bank and public holidays) free of charge to the public at the offices of the Company and at the offices of Berwin Leighton Paisner LLP, Adelaide House, London Bridge, London EC4R 9HA from the date of this document to the date one month from the date of Admission:
28 June 2012
In this document the following expressions have the following meanings, unless the context requires otherwise:
| "AAMS" | the Italian Amministrazione Autonoma dei Monopoli di State; |
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| "Act" | the UK Companies Act 2006 (as amended); |
| "Adjusted EBITDA" | EBITDA plus income from associate and before charging employee stock option expenses, decline in fair value of available for sale investments, one-off legal costs relating to the litigation with the William Hill Group and professional expenses on acquisitions; |
| "Adjusted Operating expenses" |
represent operating expenses before charging depreciation and amortisation, employee stock options, decline in fair value of available-for-sale investments, one-off legal costs relating to the litigation with the William Hill Group and professional expenses on acquisitions; |
| "Admission" | admission of the Ordinary Shares to the premium listing segment of the official list of the UKLA and to trading on the Main Market; |
| "AIM" | AIM, a market operated by the London Stock Exchange; |
| "AIM IPO" | admission of the Company's then issued Ordinary Shares to trading on AIM on 28 March 2006; |
| "AMLATFA" | the Malaysian Anti-Money Laundering and Anti-Terrorism Financing Act 2001; |
| "Articles" | the articles of association of the Company as at the date of this document; |
| "Ash Gaming" | Ash Gaming Limited, a subsidiary of the Company; |
| "BDO" | BDO LLP, auditors and reporting accountant to the Company; |
| "Board" or "Directors" | the board of directors of the Company from time to time which, as at Admission, will comprise the Executive Directors and the Non-executive Directors; |
| "Brickington" | Brickington Trading Limited, a company incorporated in the BVI and a wholly owned subsidiary of a trust, one of the ultimate beneficiaries of which is Teddy Sagi, one of the Group's founders; |
| "BVI" | the British Virgin Islands; |
| "BVI Registry" | the Registry of Corporate Affairs in the BVI; |
| "Canaccord Genuity" | Canaccord Genuity Limited of 88 Wood Street, London EC2V 7QR; |
| "CGHA" | the Malaysian Common Gaming Houses Act 1953; |
| "City Code" | the City Code on Takeovers and Mergers issued by the Panel on Takeovers and Mergers in the United Kingdom and, from time to time, any successor or replacement body thereof; |
| "Company" or "Playtech" | Playtech Limited (registered in the Isle of Man under company number 008505V) whose registered office address is at 2nd Floor, St George's Court, Upper Church Street, Douglas, Isle of Man IM1 1EE; |
| "Company Share Option Plan" or "CSOP" |
the Group's HMRC approved share option plan which was approved by HMRC in August 2010, a summary of the principal terms of which is set out in paragraph 6.2 of Part 6 of this document; |
| "CREST" | the computerised system for the paperless settlement of trades and the holding of shares in uncertificated form, operated by CRESTCo Limited; |
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| "CREST Regulations" | the Uncertificated Securities Regulations 2001 (SI 2001/3755); | |||
| "DBGA" | the Dutch Betting and Gaming Act 1964; | |||
| "DCC" | the Dutch Criminal Code; | |||
| "DOJ" | US Department of Justice; | |||
| "DTR's" or "Disclosure and Transparency Rules" |
the rules relating to the disclosure of information made in accordance with Section 73A(3) of FSMA; |
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| "EBITDA" | earnings before interest, taxation, depreciation and amortisation computed as operating profit for an accounting period plus depreciation and amortisation, excluding amortisation of intangibles on associate and acquisitions; |
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| "ECJ" | The European Court of Justice; | |||
| "EdGE™" | the enhanced gaming engine being the GTS open-platform software; | |||
| "EU" | European Union; | |||
| "Euro" or "3" | means the currency of the member states of the EU that have adopted the single currency in accordance with the Treaty establishing the European Community (signed in Rome in 1957), as amended; |
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| "Euroclear" | Euroclear UK & Ireland Limited, the operator of CREST; | |||
| "Euro Zone" | means the member states that have adopted the Euro as their common currency and sole legal tender; |
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| "Executive Directors" | the executive directors of the Company, namely, Mor Weizer and David Mathewson; |
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| or "FSA" | "Financial Services Authority" the Financial Services Authority of the United Kingdom; | |||
| "FSMA" | the UK Financial Services and Markets Act 2000, as amended; | |||
| "Gambling Act" | the UK Gambling Act 2005; | |||
| "Gaming Law" | the Russian Federal Law No. 244-FZ "On the State Regulation of Activities Associated with the Organisation and Conduction of Gambling and on Amending Specific Legislative Acts of the Russian Federation" of 29 December 2006; |
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| "Gauselmann" | Merkur Interactive Gmbh (together with, where the context requires, its group companies); |
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| "GlüStV" | the Glücksspeilstaatsvertrag, Germany's Interstate Treaty on Gambling; |
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| "GTS" or "Gaming Technology Solutions" |
Gaming Technology Solutions Limited, a subsidiary of the Company; |
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| "GTS Group" | GTS and its subsidiaries; | |||
| "Geneity" | Geneity Limited, a subsidiary of the Company; | |||
| "Genuity" | Genuity Services Limited, a subsidiary of the Company, which holds the 29 per cent. shareholding in WHO; |
| "Gross Income" | total revenues from Licensees including fees charged for services rendered, plus share of profits from the Group's shareholding in WHO, a key measure adopted by the Group to assess the performance of its business; |
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| "Group" or "Playtech Group" |
the Company and its subsidiaries; | |||
| "IFRS" | International Financial Reporting Standards (including International Accounting Standards); |
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| "IGS" | Intelligent Gaming Systems Limited, a subsidiary of the Company; | |||
| "IMS" | the Playtech software platform information management system; | |||
| "Interstate Treaty" | Germany Interstate Treaty, established in 2008; | |||
| "IPO" | the admission of the Company's Ordinary Shares to trading on AIM which became effective on 28 March 2006; |
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| "Isle of Man CREST Regulations" |
Uncertificated Securities Regulations 2006; | |||
| "LA" | the Malaysian Lottery Act 1952; | |||
| "Law" | the Isle of Man Companies Act 2006 (as amended from time to time); |
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| "Law on Penalties" | the Law on Penalties for Administration of Public Security in China; | |||
| "Law 13" | Article 4 of Italy Law 13 December 1989 No. 401; | |||
| "Licensees" | the companies and other entities to which the Group may from time to time license its software products and/or complementary services; |
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| "Listing Rules" | the listing rules made by the UKLA under section 73A of FSMA; | |||
| "London Stock Exchange" | London Stock Exchange plc; | |||
| "MACMA" | the Malaysian Mutual Assistance in Criminal Matters Act in 2002; | |||
| "Main Market" | the London Stock Exchange's main market for listed securities; | |||
| "Member State" | member state of the EU; | |||
| "Mobenga" | Mobenga A.B., a subsidiary of the Company; | |||
| "New Share Option Company the Plan" or "NSOP" |
2012 Playtech Long Term Incentive Plan adopted by the Company on 13 March 2012, a summary of the principal terms of which is set out in paragraph 6.4 of Part 6 of this document of the Company; |
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| "NIS" | New Israeli Shekels, the lawful currency of Israel; | |||
| "Non-executive Directors" | Roger Withers, Alan Jackson and Andrew Thomas, non-executive directors of Company as at the date of this document; |
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| "Official List" | the official list of the UKLA; | |||
| "Ordinary Shares" | the ordinary shares of no par value of the Company; | |||
| "Part VI Rules" | the rules contained in Part VI of FSMA; | |||
| "Peermont" | Peermont Global (Proprietary) Limited (together with, where the context requires, its group companies); |
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| "Playtech Software" | Playtech Software Limited, a subsidiary of the Company; | |||
| "Premium Listing" | the premium listing segment of the Official List; | |||
| "Prospectus" | this document, which constitutes a prospectus relating to the Company in accordance with the Prospectus Rules; |
| "Prospectus Rules" | the rules made for the purposes of Part VI of FSMA in relation to offers of securities to the public and admission of securities to trading on a regulated market; |
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|---|---|---|---|
| "PT Turnkey Services" or "PTTS" |
PT Turnkey Services Limited, a subsidiary of the Company; | ||
| "PTTS Group" | PTTS and its subsidiaries; | ||
| "PTVB" | PTVB Management Limited, a subsidiary of the Company; | ||
| "Re-domiciliation" | the re-domiciliation of the Company from the BVI to the Isle of Man which took effect on 21 June 2012; |
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| "Registered Agent" | a person, licensed under the Isle of Man Fiduciary Services Acts 2008, required by the Law to be the Company's agent for the purposes of the Law; |
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| "Registrar" | Computershare Investor Services plc; | ||
| "RGA" | Spanish Act no. 13/2011, dated 27th May 2011, entitled the Regulation of Gambling Activities; |
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| "Senior Management" | Rafi Ashkenazi and Ron Hoffman; | ||
| "Shareholder" | a holder of Ordinary Shares; | ||
| "Share Option Plans" | the ESOP, the CSOP and the NSOP; | ||
| "Skywind" | Skywind Holdings Limited, a company incorporated in the BVI and a wholly owned subsidiary of a trust, one of the ultimate beneficiaries of which is Teddy Sagi, one of the Group's founders; |
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| "Subsidiary" or "Subsidiaries" as defined in section 1159 of the Act; | |||
| "Technology Trading" or "TTIOM" |
Technology Trading IOM Limited, a subsidiary of the Company; | ||
| "Tribeca" | Tribeca Tables Europe Limited, a subsidiary of the Company; | ||
| "UIGEA" | the US Unlawful Internet Gambling Enforcement Act, which came into force on Friday 13 October 2006; |
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| "UK" or "United Kingdom" | the United Kingdom of Great Britain and Northern Ireland; | ||
| "UKLA" | the United Kingdom Listing Authority, being the FSA acting in its capacity as the competent authority for the purposes of Part VI of FSMA; |
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| "UK Corporate Governance Code" |
the UK Corporate Governance Code published in June 2010 by the Financial Reporting Council; |
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| "uncertificated" or "in uncertificated form" |
recorded on the register of members of the Company as being held in uncertificated form in CREST and title to which, by virtue of the Isle of Man CREST Regulations, may be transferred by means of CREST; |
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| "US" or "United States" | the United States of America, its territories and possessions, any state of the United States of America and the district of Columbia; |
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| "US Securities Act" | the US Securities Act of 1933, as amended; | ||
| "US\$" or "US dollar" | the lawful currency of the United States; | ||
| "VAT" | value added tax; | ||
| "VFA" | Virtue Fusion (Alderney) Limited, a subsidiary of the Company; | ||
| "Videobet" | Video B Holdings Limited, a subsidiary of the Company; |
| "Videobet Technology" | gambling software developed for use in land-based gambling terminals; |
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| "WH Ltd" | William Hill Organization Limited, a member of the William Hill Group; |
| "WHO" or "William Hill Online" |
means WHG Trading Limited, WHG (International) Limited and their respective subsidiaries; |
| "William Hill Group" | William Hill PLC and its subsidiaries (other than WHO); |
| "2005 Share Option Plan" or "ESOP" |
the Playtech Limited 2005 Global Share Option Plan adopted by the Company on 1 November 2005, a summary of the principal terms of which is set out in paragraph 6.1 of Part 6 of this document; |
| "2012 Treaty" | a new draft of Germany Interstate Treaty agreed in principle by 15 of Germany's 16 states on 31 December 2011; and |
| "£" or "pounds sterling" and "p" |
respectively pounds and pence sterling, the lawful currency of the United Kingdom. |
| "B2B" | business to business; |
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| "B2C" | business to customer; |
| "B2G" | business to government; |
| "betting" | making or accepting a bet on: (i) the outcome of a race, competition or other event or process; (ii) the likelihood of anything occurring or not occurring; or (iii) whether anything is true or not; |
| "CRM" | client relationship management; |
| "DDOS attack" | Distributed Denial of Service attack, an attempt to make a network resource unavailable to its intended users; |
| "FOBTs" | fixed odds betting terminals; |
| "gambling" | both betting and gaming; |
| "gaming" | playing a game of chance for a prize (and a game of chance shall also include: (i) a game that involves an element of chance and an element of skill; (ii) a game that involves an element of chance that can be eliminated by superlative skill; and (iii) a game that is presented as involving an element of chance but does not include a sport; |
| "gross gambling yield" | the total value of bets or stakes placed less winnings paid to end users; |
| "iPoker network" | the poker platform hubs hosted by the Group on an inter and intra jurisdiction basis for and on behalf of Licensees; |
| "ISP" | internet service providers; |
| "online" or "remote" | in this document, the terms "online" and "remote" are used interchangeably and, unless the context otherwise requires, shall include communications using the internet, mobile or tablet; |
| "operator" | an entity which operates a B2C gambling business which interacts and/or contracts with players, unless the context otherwise requires; |
| "white label solution" | services comprising end to end gambling support for third party brand owners which hold the requisite gambling licence(s); and |
| "white listed" | a non EEA jurisdiction which has been approved by the Secretary of State in the UK pursuant to s331(4) of the Gambling Act 2005, so that operators licensed in that jurisdiction may advertise to customers based in the UK. |
Linkway Financial Printers Typeset & Printed in London (UK) 16085
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