Annual Report • Mar 23, 2018
Annual Report
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ESTONIA GEORGIA LATVIA NETHERLANDS ROMANIA SWEDEN UK
Evolution Gaming Group AB (publ) ("Evolution") is a leading B2B provider of Live Casino solutions. The company's core portfolio consists of nine games, offering the operators' end users an interactive experience that feels like playing in a real casino.
Evolution has approximately 150 customers including the majority of Europe's largest gaming operators.
The Group has about 4,000 employees, most of whom are located in Latvia and Malta. Evolution's vision is to be the leading Live Casino provider in the world.
In Live Casino, a dealer runs the game from a casino table which is streamed in real time. End users, i.e. the players, make betting decisions on their devices (desktops, smartphones, tablets, etc.) and are able to communicate with the dealer using a text chat function.
| CONTENTS | ||||
|---|---|---|---|---|
| The year in brief | 02 |
|---|---|
| CEO comments | 04 |
| Business model, vision & strategy | 06 |
| Strategy for growth | 08 |
| Market and regulation | 10 |
| Operations | 12 |
| Case Study: Building new studios | 15 |
| Live Casino Portfolio | 16 |
| Customers | 20 |
| Sustainability report | 22 |
| A history of innovation and live experience | 28 |
| The Evolution share | 30 |
| Directors' report | 32 |
| Corporate governance report | 37 |
| Board of Directors | 45 |
| The Management Team | 46 |
| Financial reports | 48 |
| Notes | 56 |
| Declaration by the Board of Directors | 71 |
| Auditor's report | 72 |
| Glossary | 75 |
This is a translation of the original Swedish version. In the event of any discrepancies between the two versions, the original Swedish version shall take precedence.
Revenues amounted to €178.4 million and EBITDA was €80.6 million
The EBITDA margin was 45%
Earnings per share amounted to €1.73
The Board proposes a dividend of €0.90 per share
In February, Evolution launched its very first entry into a brand-new game category — Live Money Wheel. Dream Catcher is a visually stunning super-sized vertical wheel, where players simply bet on the number they think it will stop at. Hosted by a live dealer, it feels almost like a game show that end users can play along with at home.
In April, Evolution announced that it would build a new state-of-the-art Live Casino studio in the New Westminster area of British Columbia, its first outside Europe. Via the studio, Evolution provides Live Casino games for the British Columbia Lottery Corporation. The studio was launched on 31 January 2018.
In May, Evolution signed an agreement to provide Live Casino games for gaming giant Nederlandse Loterij, operator of the Dutch Lottery and numerous other gaming brands. The partnership marks yet another achievement for Evolution's first-to-market strategy in regulated and re-regulated markets across Europe.
2018
In June, Evolution was approved for listing on the main market of Nasdaq Stockholm. The move was another confirmation of the company's continued development since its IPO on First North Premier in 2015. Being listed on the main market is expected to further build Evolution's reputation and brand.
At the EGR B2B Awards in June, Evolution was named Live Casino Supplier of the Year for the eighth year in a row. The awards recognise the achievements of suppliers from all major egaming disciplines including betting and gaming software, networks, mobile, payments, recruitment, marketing, IT and infrastructure.
To meet the great demand for its products, Evolution decided to further expand its operations by building another production studio in Europe. The new studio, which will work as a hub that can provide Live Casino services for multiple markets, will be based in Tbilisi in Georgia. It is scheduled to launch during the first half of 2018.
During the year, Evolution installed Dual Play tables for several of the world's leading casino brands, including Genting and Grosvenor Casinos. Dual Play is a product developed for land-based casinos that aims to maximise their player base and strengthen their brands online, with Roulette and Baccarat tables available for both on-premise and online play at the same time.
Total Operating Revenues (EUR MILLION)
2017 was another record year for Evolution Gaming, as well as for the Live Casino market as a whole. The year was characterised by strong growth and we have put a large focus on meeting the high demand in both the short and long term.
I am proud of Evolution's development in 2017, which in every way was an exceptional year in the company's history. We have delivered on all areas within our growth strategy, with the aim to further increase the gap as the leading provider in the market. We have also prepared the company for continued growth through the decision to open new studios both in and outside of Europe.
Product innovation is a central building block for Evolution's successes, and we intensified our efforts in the area during the year. The most noticeable launch was the brand-new game category Live Money Wheel, which we have developed for end users who want to play live but don't play table games. By creating a product that reminds you of an entertainment show, in which you can participate no matter where you are, we have brought the entire live segment another step forward. It is particularly exciting that the game won the Digital Product of the Year award at the G2E exhibition in Las Vegas.
We have also been working hard behind the scenes during the year, which will be apparent in 2018 when more games than ever before are set to launch. Among the new titles are Lightning Roulette, which takes the traditional Roulette game to a whole new level and where we have made every effort to create a unique experience. We will also launch another brand-new game category which will be our first step in the RNG arena, where we believe our expertise in table games will come in handy. In addition, we have secured the exclusive content rights for several game titles, which consequently will make us the only provider to be able to offer these games in Live Casino version starting in 2018.
During the year, we have launched many new tables and environments and at year-end, we had around 400 tables live at our studios. Not that long ago, only the large operators opted for dedicated customised Live Casino experiences for their customers — today, this applies to an increasing amount of operators of various sizes who want their offerings to stand out from the crowd. To meet the high demand for games and tables, we made the decision to build a new studio in Georgia, which will be launched in 2018. This is an investment for the future, which will make sure that we have capacity to grow without hassle for the coming 2-3 years. We have also built a studio in Canada, our first outside Europe, with the aim to serve several of the provincial regulated gaming operations with Live Casino.
From the begining, Evolution has had a strategy to be the first Live Casino provider to establish itself in regulated markets. We have held on to this focus during the year and successfully closed agreements with Nederlandse Loterij, the largest operator in the Dutch market. We have also started to provide our services to National Lottery AD, Bulgaria's largest licenced game operator. Evolution's ambition is to increase the share of revenues from regulated markets, and our largest market already today is the regulated British market.
I am proud of Evolution's development in 2017, which in every way was an exceptional year in the company's history.
We talked about a big breakthrough for our offering to the land-based sector already in 2016, when several world-leading casinos launched our Dual Play product. During the past year, additional casinos have been added, which all see the benefits of taking advantage of their strong brands online. Grand Casino in Bucharest, Victoria Casino in London and Resorts World in Birmingham can now all show off tables with Dual Play Roulette to both on-premise and online customers. In 2018, we have launched our first Dual Play Baccarat table at the Victoria Casino in London.
At Evolution, we constantly strive to improve and continue to increase our leadership in Live Casino. 2017 was not an exception – but this does not mean that we will relax in any way. We continue to focus on growth and to deliver the best possible experience in live to both our customers and their end users. With the investments being made in the form of new studios and many game launches, I am convinced that the company has an exciting future in the works. I would like to take this opportunity to thank all our employees for their hard work, as well as our customers, their end users and of course our shareholders for your trust. We continue to work onwards and upwards with confidence.
With a scalable business model and a market-leading offering, Evolution is leading the way for the development of the Live Casino segment on a global basis.
The chart shows the distribution of created economic value to employees in the form of salaries, suppliers for purchases of products and services, shareholders in the form of dividends and society in general by taxes and fees.
the company's success — across Europe. Evolution also has close and long-term relations with its suppliers to ensure quality in the service offering.
The agreements between Evolution and its customers are based on a selected service level and number of tables. The most basic agreements normally include access to, and streaming from generic tables, while more complex agreements can include dedicated tables and environments, VIP services, native speaking dealers and other customisations to produce a Live Casino experience that is as unique as possible for the end user and helps the operator stand out from the crowd.
The majority of Evolution's revenues consist of commission fees and fixed fees for dedicated tables, which are paid monthly by operators. Commission is calculated as a percentage of the operators' winnings generated via the company's Live Casino offering. Through commission, Evolution gains beneficial exposure to the general growth of the Live Casino market.
Dedicated table fees are monthly service charges to operators who have opted to provide dedicated tables for their end users. Dedicated tables are reserved and used exclusively by the operator, and can be customised completely to the operator's requirements as regards studio environment, graphics, brand attributes and language. The fee varies from customer to customer depending on factors such as the type of game, number of tables and active hours.
In addition to commission and dedicated table fees, there are other smaller sources of income such as set-up fees, which are invoiced to new customers in conjunction with the launch of their Live Casino offering.
Evolution's largest cost items are personnel costs and costs relating to facilities and production studios. Personnel costs are primarily related to staff and recruitment within operations, as well as IT and product development.
The cost of adding an additional gaming operator to the company's Live Casino platform or expanding an existing customer's offering varies depending on the extent of the agreement. Set-up fees cover some of the cost for new studios and environments.
Product innovation and development also constitutes a material cost item, both directly in terms of operating expenses, and indirectly, through depreciation of capitalised development costs.
Evolution shall continue to strengthen its leading position in the European Live Casino market, and in the long term other geographic markets, with a clear focus on activities that promote the operations and the offering. The company notes that the growth derives partly from an increased share of the operators' total revenue from casino services that stem from Live Casino, as operators invest increasing resources in their live offering, as well as through the online casino market's share of the total casino market.
The company has three core areas that are considered particularly important to further widening the lead over other players in the market and laying a solid foundation for continued growth.
Evolution strives to continuously improve its offering while, at the same time, developing the entire Live Casino market by means of cutting-edge product innovation. Since its inception, the company has successfully launched innovative games and solutions that are attractive both to operators and their end users. An important part of the strategy is mobile development and all of Evolution's games are available on tablets and smartphones. During 2017, the company's work within the area was intensified, which will result in more game launches than ever before during 2018.
Through its existing portfolio of customers, Evolution enjoys considerable opportunities to further develop, expand and refine each operator's Live Casino solution. Given the strong growth of the Live Casino market, an increasing number of operators are choosing to broaden their offerings and invest in dedicated environments. Using the analysis of game data, Evolution optimises each individual environment to that specific customer's conditions and needs with the aim of strengthening the loyalty between the operator and the end user. With its technical expertise, Evolution also develops solutions that strengthen end user engagement through an optimal user experience supported by cross sales between different game segments.
Evolution's market-leading position is mainly based on the competitive advantage that derives from the company's operational excellence in offering Live Casino solutions since 2006. Live Casino is a highly complex product, and, to function, it requires effective collaboration between people and systems. Over its years in business, Evolution has been able to amass a collective body of experience that is unique among suppliers in Europe. The company has a sophisticated platform that simultaneously handles software, hardware, video, employees and user data. The platform provides scalability and allows Evolution to expand with new studios without having to replicate software locally.
Both the total online gaming market, as well as the market for Live Casino are constantly evolving. Evolution is continuously exploring new opportunities to grow and fulfil its vision to be the global leader in Live Casino. From a strategic perspective, the company has identified a number of focus areas that are considered particularly important to work with in the short-term.
2 3
As Live Casino has grown in popularity, more providers have launched live products. Evolution has a big lead and aims to keep its growth momentum and continue to expand its leading position in the Live Casino market. This is done by a clear collaboration between the company's different units, where product development, sales and marketing and the operational departments work closely together to offer the best possible product. According to Evolution's assessment, the company has strengthened its market share in 2017 and sees clear possibilities to continue to increase the gap in the coming years, supported by the launch of several new games and studios.
Several countries have regulated or re-regulated their gaming markets in recent years — a trend that is expected to continue. When a market is regulated, new end users explore different casino games and naturally tend to become aware of Live Casino, which is adapted to local markets, with dealers who communicate in users' own languages. Consequently, for gaming operators, Live Casino is an important product in new markets. Evolution's stated strategy is to be the first Live Casino provider in regulated markets and it has successfully entered countries including Italy, Denmark, Spain, Belgium and Romania. The company's strong performance demonstrates the positive impact, in terms of earnings and growth, that establishing operations early entails. Evolution will continue to prioritise new markets in Europe, and in 2018 the company also targetted its first non-European market with its new studio in Canada.
Traditional land-based casinos constitute a large part of the total casino market. These players often have strong brands and loyal customers, many of whom are high rollers. At the same time, growth for land-based casinos is low and an increasing number are seeking to migrate online to be able to grow their business. In cases like these, Live Casino can be seen as the natural bridge connecting land-based and online operations. Evolution aims to be the self-evident partner for land-based casinos seeking to expand online. Currently, the company has land-based casino customers in Italy, Spain, Belgium, Malta, UK and Romania. In Evolution's assessment, demand from land-based casinos will continue to increase over the coming years.
Live Casino continues its strong performance in the European online gaming market.
According to market estimates from H2GC, the total European gaming market had an estimated value of EUR 102 billion (99) in 2017, measured in gross gaming revenues. Roughly 79 percent (80) of this figure comprised land-based gaming, primarily via monopolised state-owned lottery operations and land-based casinos.
The market for online gaming has grown significantly faster than the total gaming market in recent years. For the past five years (2013-2017), online gaming achieved a compound annual growth rate of around 13 percent compared with just 4 percent for the market as a whole.
This strong growth has been fuelled by underlying factors, which mainly include various kinds of technical advances. An increasing number of Europeans now have constant access to the internet, both via desktop computers and mobile devices, while there has been a substantial increase in data capacity. This has paved the way for higher-quality gaming experiences, which have attracted more players. Improved payment solutions and increased regulation have also boosted confidence and led to more players feeling secure about playing online.
Online casino has been one of the fastest growing segments in the market for online gaming, with an annual growth rate of 14 percent between 2013 and 2017. Evolution operates within Live Casino, which in turn is the fastest growing segment within online casino, with an annual growth rate of 37 percent in the same period.
In 2017, the online gaming market grew by 11 percent (13) and the total gaming market by 3 percent (5).
According to H2GC, the European Live Casino market had an estimated value of EUR 1,917 million (1,394) at the end of 2017, representing growth of 38 percent (41) compared with the year before. Share of Live, i.e. Live Casino's share of the total online casino market, was 29 percent (23).
As for the overall online gaming market, technical progress and new distribution channels, but above all, strong demand from the gaming operators and their end users were behind this growth. Live Casino is today seen as a highly strategic important product for operators that want to differentiate themselves in the highly competitive marketplace. Since online gaming can be perceived as relatively generic between different operators, Live Casino offers considerable opportunities to completely customise both the backdrop and content, providing a unique experience for both operators and end users.
The growth of Live Casino is also underpinned by new regulated markets. Live Casino has proven to be a product that is well suited to recently regulated markets, where interaction with people who speak your own language builds trust among end users. The development among land-based casinos to expand their offering online also contributed to the strong growth for Live Casino. Evolution estimates its market share in Europe to be more than 50 percent and growing.
The Live Casino market in Europe is fragmented, but its strong trend over recent years has encouraged more systems providers to develop Live Casino solutions. The barriers to entry are relatively low, while the barriers to success are considerably higher. Live Casino is a highly complex product that, in addition to a technical solution, requires both a certain volume and outstanding operational excellence to be profitable and perform satisfactorily. Evolution's market positions and industry-leading platform therefore mean that the company primarily encounters competitors offering operators an entire portfolio of casino products, of which Live Casino is only part of the offering. To date, Evolution has not lost any customers to another niche provider of Live Casino.
The gaming industry in Europe and within the EU is regulated at national level, and there is yet no common European or international gaming legislation. This situation is not expected to change over the next few years. Many countries have regulations for land-based casinos that are not applied to online gaming. Some countries have a gaming monopoly, in which only one operator is permitted, while others have established systems in which several operators can be licensed to offer online games. In some cases, gaming operators that are licensed in one EU country offer games in other member states. An increasing number of European countries have therefore introduced national regulations. This means that gaming operators, and in some cases also providers, must apply forcountry-specific licences, pay local taxes and be subject to national monitoring. Regulation is an important growth factor for the Live Casino market, because it brings more potential end users and gives operators greater opportunities to promote the product. Since Evolution is a provider, new legislation tends to affect the company indirectly. The Dutch and Swedish markets are assessed to be closest in time to new regulation.
In addition, several US states are looking into regulation of online gaming products, which potentially will open up for Evolution to provide Live Casino services in the US in the coming years. Evolution already underwent the first stage for approval for a licence in New Jersey in 2013.
Evolution offers a market-leading Live Casino platform that simultaneously handles hardware, software, video, employees and user data, giving the operators a complete Live Casino offering and the end users a unique gaming experience.
Evolution continually invests in the technical platform that forms the basis of the company's operations. Investments relate to servers and adapted hardware such as video recording devices, card scanners and dealer computers. The company has a stable and reliable technical system that manages all data traffic and integration with the gaming operator's system. The technology is designed to be able to handle large amounts of data, while being scalable. Evolution has also built its own video coding solution with the aim of ensuring continuous video streaming in HD or the format that best fits the end users' capacity. In 2017, system availability was 99.84 percent, excluding scheduled maintenance.
Mission Control Room (MCR) is the heart of Evolution's operations. MCR is responsible for ensuring operational excellence, system availability, security and regulatory compliance. All active games at all studios run by the company are monitored and controlled 24 hours a day, in real time – often with thousands of simultaneous gamers. Key areas that are monitored include equipment, dealers and gaming patterns – all with the aim of optimising security and providing protection against fraud. MCR's central hub is based at the production studio in Latvia. Secondary MCRs are also available at other studios as part of the company's continuity planning. MCR ensures the scalability of Evolution's business, as all studios can be monitored from one place.
EVO Live Casino Experience
Evolution provides its services through Live Casino studios across Europe, and also from Canada starting from 2018. The company has two main production studios, which serve as hubs for a clear majority of the markets where Evolution's games are offered. One is located in Riga, Latvia, and a secondary studio in Luqa, Malta. Most of the operations are conducted in Riga, with primarily English-speaking dealers serving both generic and dedicated tables. In Malta, there are mainly international dealer teams serving regulated markets such as Denmark and Italy. Together they provide approximately 400 tables for Evolution's customers. In addition, during 2018, a third production studio will be launched in Tbilisi, Georgia, to meet the high demand for Evolution's products.
Besides the production studios, Evolution also operates satellite studios in Belgium, Romania and Spain. They have been built to meet the national gaming regulations requiring a land-based presence in each market. In Belgium, the studio is located at Casino de Spa and serves most of the country's operators with online casino licences. The dealers speak French and Flemish. In Spain, the studio has been built at Grand Casino Murcia with one generic Roulette table. Roulette is the only live game permitted in Spain. The studio in Romania was built at the Grand Casino in Bucharest in 2016.
Evolution also operates on-premise dedicated studios for customers in Italy and Belgium as well as Dual Play tables built at the premises of land-based casinos in United Kingdom, Malta and Romania.
The Live Casino product is a strategically important tool for operators that want to achieve brand differentiation and strengthen loyalty to their players. Evolution has many years of experience of offering completely dedicated tables and environments, where virtually everything can be customised to the preferences of the individual operator.
Evolution offers end users simple access to Live Casino games via all major platforms. Historically, desktop applications have been the most popular way of playing, but in 2017, 53 percent of gaming revenues generated via Evolution's platform stemmed from mobile devices. Mobile devices are expected to continue gaining in popularity. All mobile games are built in HTML5 to ensure smooth integration with the operator's mobile websites and apps.
Belgium Canada Georgia Italy Latvia Malta Romania Spain
Canada Estonia Georgia Latvia Malta Netherlands Romania Sweden United Kingdom
Dual Play Roulette The Ritz Club, London
Dual Play Roulette The Hippodrome Casino, London
Dual Play Roulette Grosvenor Casino The Victoria, London
Dual Play Roulette Genting International Casino, Resorts World Birmingham
Dual Play Roulette Grand Casino, Bucharest
Dual Play Roulette Dragonara Casino, Malta
In 2017, Evolution decided to expand its studio facilities with two more studios; one in Georgia and one in Canada, where the latter represents Evolution's first footprint outside Europe. Both studios will be launched during 2018.
As the result of an agreement to provide Live Casino games and services for British Columbia Lottery Corporation, Evolution started to build a state-of-the-art Live Casino studio in Canada during 2017. Located in New Westminster area of Vancouver, British Columbia, the studio will employ an estimated 170 people covering all essential operational functions as well as an on-premise MCR. Initially, games will be streamed via BCLC's PlayNow.com website. However, Evolution's vast studio has been built with the intention of supporting additional Canadian lottery corporations, with each jurisdiction able to offer both shared and dedicated tables.
Through the studio, Evolution will introduce a new industry of Live Casino solutions to Canada and British Columbia, and the expansion will further consolidate Evolution's position as global leader in the B2B Live Casino market.
To meet the high demand for Live Casino services in Europe, Evolution in 2017 decided to build a third central production studio in Tbilisi, Georgia with a planned launch in 2018. Designed to evolve into a fully independent studio operation, the Tbilisi site will have the capacity to manage the company's growth during the next 2-3 years. Operating as a major central studio serving multiple Evolution licensees, the new studio will add significantly to the capacity of Evolution's existing major central studios in Riga and Malta. The new studio will help Evolution to achieve its ambitious growth and development plans. It will also provide further solid career opportunities, both amongst the company's existing staff and new employees. Tbilisi is a fast-growing city with a population of over 1 million people, and offers strong development and investment opportunities.
Dream Catcher is the first exciting title in Evolution's brand-new Money Wheel live gaming category aimed to appeal to end users that don't play table games. The live dealer spins the wheel and interacts with players throughout, like in a game show. End users simply bet on the number they think the wheel will stop at: 1, 2, 5, 10, 20 or 40. If the end user bets on the correct number they win a corresponding payout. The 2x or 7x bonus spin multiplier segments offer the potential for super-sized payouts.
A classic that has been part of Evolution's offering since inception. A dealer throws a ball against the rotational direction of the wheel and the end user bets on a number, colour or combination of both. In addition to the original game, Evolution offers several derivatives, that is, variations on the core game, such as Immersive Roulette, Double Ball Roulette, Speed Roulette, American Roulette and Mini Live Roulette. Roulette is Evolution's biggest game in terms of revenues generated.
Another classic in which the end user tries to get a hand of cards that adds up closer to 21 than the dealer's hand. Blackjack is the only game in Evolution's selection that is not fully scalable in its original form, with a maximum of seven end users per table. Consequently, Evolution has launched Bet Behind, where additional end users can participate by betting on those sitting at the table. Blackjack is Evolution's second largest game in terms of revenues generated and is available in several derivative formats, including Blackjack Party and multiple VIP variants.
Baccarat is the most popular card game at land-based casinos in Asia and is rapidly gaining popularity in Europe as well. End users bet on whether their own or the dealer's hand comes closest to 9, or if the outcome is a tie. Evolution offers the market's most casino realistic Baccarat experience with bean-shaped tables, dark cards, roads and the squeeze — which can be controlled by the end users themselves. Variants include Standard, Squeeze, Control Squeeze, Speed Baccarat and No Commission Baccarat.
A fully scalable variant of the highly popular poker game Texas Hold'em, in which the end user plays against the dealer. The aim is to achieve the best possible five-card hand based on two of your own cards and five community cards. The game comes complete with the Jumbo 7 Progressive Jackpot, seeded €1,000,000 by Evolution at launch.
A variation on poker, where the end users play against the dealer with just three cards each. The game suits both novices and experts, owing to simple rules and an exciting pace. There are a number of side bets to the game, including the Six Card Bonus Bet, which gives end users the opportunity to win up to 1,000 to 1.
Developed in 2017 and with a wide launch at the beginning of 2018, Live Texas Hold'em Bonus Poker is the world's first and only Live Casino version of this poker game already well-established in the RNG and land-based casino worlds. The new game, available on desktop, tablet and smartphone, offers a double bonus for players in the form of two optional side bets; the Bonus Bet and First Five Progressive Jackpot. Both side bets offer separate extra chances to win alongside the main Texas Hold'em game, no matter what hand the dealer achieves. The optional Bonus Bet pays up to 1,000:1, while the First Five Progressive Jackpot side bet offers a progressively increasing top-level Jackpot prize for a Royal Flush. This same Jackpot side bet also gives players the chance to win lower fixed Jackpot prizes for a range of other poker hands.
Caribbean Stud Poker is a specialty table game that is very popular at land-based casinos worldwide and, among major providers, Evolution is alone in being able to offer the live version in Europe. End users play against the dealer and the highest five-card hand wins. The game comes complete with a Progressive Jackpot.
This is the only available Live Casino version of the world's most popular Texas Hold'em game where players play against the house. The goal is to get the best five-card hand based on two of your own cards and three of five community cards.
Check out our website for the latest games: www.evolutiongaming.com
Evolution's customer portfolio includes the majority of Europe's largest online operators and a growing number of land-based casinos. The main growth will derive from the existing customer portfolio, since operators generally extend the scale of their live offerings. Evolution can also follow existing customers into new markets as more countries become regulated.
Evolution's customer portfolio comprises online operators and land-based casinos. The online operators can be divided into sportsbook operators and online gaming operators. Sportsbook operators focus primarily on games and betting on various sports, but they also offer casino products, where the conversion between Live Casino and live betting is high. Sportsbook operators often run successful campaigns and specific activities within the framework of their live offerings in connection with major sports events, such as the FIFA World Cup which will take place in 2018.
Online gaming operators often provide a broad portfolio of RNG games, such as slots, as well as casino games with Live Casino comprising a crucial role to differentiate the offering from other operators.
The land-based casinos have begun to a greater extent to expand online and Evolution strives to be the natural partner in this transition. At the end of 2017, Evolution's customer portfolio included 9 (6) land-based casinos.
In addition to customers for whom Evolution provides direct integration, there are also several platform partnerships in which the company's Live Casino product forms part of a total solution with several product verticals. Evolution is included among platforms at Microgaming, EveryMatrix, BetConstruct and SBTech.
Evolution announces all new customers classified as Tier 1, i.e. customers of strategic, financial or other significance.
In 2017, agreements were signed with White Hat Gaming, Matchbook, mybet Group, Codere, British Columbia Lottery Corporation, Nederlandse Loterij and National Lottery AD, to name a few.
A key aspect of the company's strategy is to increase its 'share of live' among existing customers via new product launches, services and adaptations. Evolution also follows existing customers to new regulated markets. 2017 was yet another record-breaking year in terms of the number of dedicated tables and environments, and many customers chose to expand with more environments with different content and themes.
A majority of Evolution's largest customers have strengthened their focus on Live Casino in recent years, although the company has managed to retain roughly the same dependency towards its largest customers through add-on sales to other existing customers and new sales. Evolution's largest customer accounted for approximately 9 (10) percent of revenues in 2017, and the five largest customers accounted for roughly 38 (47) percent of revenues.
| Customer dependency (% of revenues) | ||||
|---|---|---|---|---|
| Year | 2015 | 2016 | 2017 | |
| Top 1-5 | 51% | 47% | 38% |
As a B2B provider, Evolution's revenues are generated via gaming operators and casinos. The company has stringent monitoring processes in place to detect attempts at fraud and money laundering, but it is the operators that handle all monetary transactions with their end users. Evolution therefore has a limited risk exposure to fraud and money laundering. To satisfy licence requirements and further minimise the risks, the company has established due diligence processes for when new agreements are signed and to continually evaluate existing customers. Evolution is always able to discontinue its services to operators that fail to comply with the relevant regulations, or that in some other way jeopardise Evolution's market position.
As a world leading provider of Live Casino solutions, Evolution is committed to responsibility and compliance throughout all aspects of the business. This means a commitment to responsible gaming, transparency in all the company's dealings and acting honestly and professionally with integrity. Evolution is also committed to creating environments where people want to work, challenge themselves, perform and develop a rewarding career.
For a description of the company's business model, please refer to page 6.
Evolution continuously engages in dialogues with the company's stakeholders, primarily through meetings with customers, suppliers and shareholders. Internally, a yearly employee survey is carried out to identify strengths and improvement areas.
| Business partners | ||||
|---|---|---|---|---|
| Stakeholder Type of dialogue Key topics 2017 |
||||
| • Current customers • Future customers • Suppliers |
• Individual meetings • Exhibitions |
• New products • Expansion with a new studio in Georgia • Due diligence and Code of Conduct |
| Capital markets | |||
|---|---|---|---|
| Stakeholder | Type of dialogue | Key topics 2017 | |
| • Shareholders • Investors • Analysts |
• Individual meetings • Quarterly presentations in connection with financial reports • Seminars and conferences • AGM |
• Strategy and growth areas • Code of Conduct implementation • Product development • Regulation • Diversity and employer responsibility |
| Employees | |||
|---|---|---|---|
| Stakeholder | Type of dialogue | Key topics 2017 | |
| • Current employees • Future employees |
• Intranet • Employee magazine • Employee survey • Performance meetings • Training • Interviews |
• Code of Conduct implementation • Recruitment for new studios in Georgia • and Canada • Work environment • Competence development |
During 2017, Evolution's Board of Directors implemented a group-wide Code of Conduct. The purpose of the Code of Conduct is to put the company's core values into action in everyday work situations and provide guidance on how the company and the employees are expected to act. The Code of Conduct is applicable to all employees of Evolution worldwide. Moreover, Evolution expects its customers, suppliers and business partners to adhere to standards similar to those reflected in the Code of Conduct in the conduct of their own businesses.
| Anti-bribery and anti-corruption | |
|---|---|
| The Code of Conduct includes guidance in the following areas: |
Competitors and community |
| Employer and employee responsibilities and expectations |
|
| Environment Responsible gaming |
|
| Responsibility to shareholders |
The company has also introduced a whistleblower function, "EVO Helpline", where employees can report any suspicions about potential breaches of the Code Code of Conduct.
| In addition to the |
|---|
| Code of Conduct, |
| Evolution has |
| group-wide |
| policies in the |
| following areas: |
Data protection policy Discrimination policy Diversity plan Diversity policy Gambling policy HR policy Insider policy Work environment policy
Evolution is committed to promoting responsible gaming practices as well as highlighting the awareness of gambling problems, and the company has extensive experience from working together with regulatory bodies when entering regulated markets, where the issue often is of high priority. Even though Evolution as a B2B provider does not have a direct business relationship with the end users, the company wants them to have a positive experience with the products, while being aware of the social and financial risks that can be associated with gambling-related problems. Evolution requires its licensees to adhere to responsible gaming practices through its agreements, and also provides training for all relevant categories of employees on how to detect high-risk behaviour and other issues related to responsible gaming. Evolution can also provide technical support to help the operator offer gaming limits, in which end users can restrict how much money they play for, or set a limit as to how much they can lose. Since 2015, Evolution has more than doubled the number of employees within the game integrity and risk department, which currently consists of more than 400 people. All tables, games, transactions, volumes and behaviour patterns are monitored in real time, 24 hours a day. With tens of thousands of concurrent players and millions of bets each day, heavy requirements are put on Evolution's internal systems and processes. One of the most important strategic objectives is to offer a safe gaming environment without compromising the in-play experience.
Evolution donates funds every year to the Responsible Gambling Trust in the UK, a support organisation to tackle gambling dependency. The company also wants to promote the responsible marketing of Live Casino games and supports the Code of Advertising Gaming and Gambling developed by the UK sector organisation CAP (Committee of Advertising Practice).
Evolution endeavours to be the most reliable and transparent Live Casino provider in the market and therefore holds all the licences and certifications Evolution considers to be necessary to maintain the highest international standards in terms of regulatory compliance and security.
Evolution holds a Class 4 Licence for B2B operations from the Malta Gaming Authority, as well as a Category 2 Certificate from the Alderney Gambling Control Commission. The company also holds a Remote Operating Licence and a Remote Gambling Software Licence issued by the UK Gambling Commission. Evolution is also certified in Belgium, Denmark, Italy, Romania and Spain, and has undergone the first stage for approval ("transactional waiver") for a licence in New Jersey, USA. The licensors perform regular reviews to ensure that Evolution complies with the licensing requirements.
In addition to licences and certifications with a direct impact on the company's capacity to offer its services, Evolution has, since 2015, also been part of the Latvian government's In-Depth Cooperation Programme. The programme is an initiative aimed at increasing cooperation between government and industry. To be included in the programme, a company must meet certain criteria on matters relating to financial position, number of employees, wage levels and tax payment history.
Through the Code of Conduct, Evolution has clear guidelines on how to prevent corruption, bribery and money laundering. All employees undergo mandatory training related to these issues. In addition, background checks are carried out on employees, customers and providers.
As Evolution doesn't manage any monetary flows from end users, the practical anti-money laundering work primarily lies with the operators. To prevent Evolution's products to be used for money laundering, the company monitors all game activities around the clock (as described in the section Responsible gaming). This proactive approach allows Evolution to identify potential problems immediately and inform the operators. This in turn allows operators to take immediate steps to prevent their service from being used for fraud or money laundering purposes.
Gaming security is of the utmost importance for Evolution to maintain confidence in the market. In 2017, Evolution renewed its ISO 27001 certification, the highest ISO standard for IT security. The audit process was carried out in Latvia, since most of the company's operations and its platform are based there, and is a confirmation that Evolution has successfully organised its processes in a way that safeguards confidentiality, integrity and availability of information and data.
It is Evolution's employees who control the end user's gaming experience and the operator's perception of the company's services. The company therefore has a strong corporate culture and shared set of values that encourage everyone to go the extra mile for the customer and end user, to make Evolution's services as realistic as possible.
ANNUAL REPORT EVOLUTION GAMING 2017
Evolution Academy is located in the production studios in Latvia and Malta and is responsible for the recruitment and initial and ongoing training of all gaming personnel — from dealers to card shufflers and customer service personnel.
The Academy is set up just like a real Live Casino studio, to provide training that is as realistic as possible. The normal training period for a new dealer is roughly 100 hours, after which a three-month trainee period begins.
Each newly recruited employee is assigned a mentor and continues to undergo training after the trainee period has come to an end, in order to further develop their skills and minimise the risk of gaming mistakes. Throughout their employment, all personnel continue to undergo training based on their results, but also in conjunction with the launch of new games or other new technical features. Training in gambling addiction awareness, legislation, money laundering and other areas of control form a key part of the training activities.
Through its digital nature, Evolution's operations have a relatively limited environmental impact and the company has therefore not implemented any specific environmental targets. However, the company is committed to minimising its environmental impact and contributing to a more sustainable community through optimisation of energy consumption, using videoconferencing instead of travel where possible and recycling of materials used in the business. Apart from energy consumption in the company's studios, business travel constitutes Evolution's largest footprint; however, only a limited group of employees (group management and sales team) travel on a regular basis as part of their work duties.
Building on the company's core values and the central premise that all employees play a strategic important role to the business, Evolution is committed to providing a working environment where people want to work, challenge themselves, perform and develop a rewarding career. Equality and diversity efforts are an integral part of day-to-day operations and throughout all aspects of employment. Evolution offers an inclusive workplace where every individual is valued and has similar access to working conditions, compensation and benefits as well as possibilities and career opportunities regardless of ethnical background, religion, nationality, gender, age or sexual orientation. The company also commits to provide a safe, clean and comfortable working environment to achieve well-being, personal integrity and proper work performance for all employees.
Evolution supports and respects the protection of human rights. Through appropriate due diligence checks, the company secures that it is not co-operating with parties that violate human rights. Evolution further commits to full compliance with labour laws and rights, laws on fees and taxes and occupational health and safety laws.
Evolution engages in various activities to the benefit of the community where it has its main studio activities and majority of employees. In 2017, Evolution's employees took part in blood donation days, clothes donations campaigns and activities for the Inspire Foundation and the Agency for the Welfare of Asylum Seekers.
Evolution's successes are largely dependent on the company's employees and the values that form the basis of its operations. A strong corporate culture, with the customer and end user at the core, guarantees a unique Live Casino experience.
Evolution's employees are based at the company's studios and offices in Latvia, Malta, Belgium, the Ubited Kingdom, Estonia, Romania, the Netherlands, Sweden, Spain, Canada and Georgia. Evolution's employees join an international environment with a wealth of career paths. The vast majority work within the operative gaming side of the business, with dealers, also referred to as game presenters, comprising the largest group. Many employees are part-time students, but when they have completed their studies they can opt to seek challenges as full-time employees within the company.
The company's IT units attract highly qualified experts who are keen to work in an innovative environment with advanced and modern technology. Since product innovation is a key element of Evolution's strategy, creativity and fresh approaches are highly valued, while expertise within areas such as development, infrastructure and quality assurance are of the greatest importance. Evolution strives to be an attractive employer offering competitive salaries, a challenging and social working environment and considerable development opportunities. The company cooperates with the largest universities in Latvia to strengthen its brand among potential employees. Digital campaigns are also carried out in every market to reach out broadly to the target group.
The company aims to achieve a dynamic and equal working environment, in which all employees feel they have equal opportunities and are contributing towards the company's success. Leadership is a central aspect of the company's employer strategy and managers are given support and tools to enable them to fulfil their roles successfully.
Evolution's operations are exposed to certain risks that are associated with the sustainability area, such as political decisions and dependence on skilled employees. For a description, please refer to page 34.
To the general meeting of the shareholders in Evolution Gaming Group AB, org. nr 556994-5792
It is the board of directors who is responsible for the statutory sustainability report for the year 2017 on pages 22-27 and that it has been prepared in accordance with the Annual Accounts Act.
Our examination has been conducted in accordance with FAR's auditing standard RevR 12 the auditor's opinion regarding the statutory sustainability report. This means that our examination of the statutory sustainability report is substantially different and less in scope than an audit conducted in accordance with
International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinion.
A statutory sustainability report has been prepared.
Stockholm, 23 March 2018
Öhrlings PricewaterhouseCoopers AB Niklas Renström
Authorised Public Accountant
From a small studio with only a handful of co-workers in Riga in April 2006, Evolution has grown into a leading provider with the majority of European tier 1 operators as customers, 400 tables in studios and environments in seven countries and with game experiences for all types of end users — from high rollers to mass market.
| Evolution's game launches | Evolution's expansion in regulated markets |
|---|---|
| 2006 Live Roulette |
2011 Italy |
| Live Blackjack | 2012 Denmark |
| Live Baccarat | 2013 Spain |
| 2012 Live Casino Hold'em |
2014 Malta |
| 2014 Live Three Card Poker |
2015 United Kingdom |
| 2015 Live Caribbean Stud Poker |
2015 Belgium |
| 2016 Live Ultimate Texas Hold'em |
|
| 2017 Live Dream Catcher |
2016 Romania |
| Live Casino Hold'em Progressive Jackpot | 2018 Canada |
| Live Caribbean Progressive Jackpot | 2018 Georgia |
To meet the great demand for the company's services, a decision is made to build a third European central studio in Georgia. In addition, Evolution starts the construction of a studio in Canada, its first outside Europe.
The company's shares are moved from First North to the Nasdaq Stockholm main market, immediately joining the large cap segment.
Evolution Gaming is listed on Nasdaq Stockholm in the large cap segment with the ticker EVO.
Evolution's shares commenced trading on the Nasdaq First North Premier exchange on 20 March 2015. The company was approved for listing on the main market of Nasdaq Stockholm in June 2017, with the first day of trading on 7 June.
On 31 December 2017, the share capital amounted to EUR 539,555.655, divided between a total 35,970,377 shares, each with a nominal value of EUR 0.015. All shares belong to the same class of shares, with equal voting rights and shares of the company's capital and profit.
The closing price on the last trading day of the year, 29 December 2017, was SEK 580.50, corresponding to a market capitalisation of about SEK 20.9 billion. A total 23,766,674 shares were traded during the year, corresponding to a value of SEK 11.0 billion. The average number of shares traded per trading day was 94,688. At the close of trading on the final trading day of the year, the share price had strengthened by SEK 321 since year-end, corresponding to a increase of 124 percent. Total return amounted to 125 percent based on EUR exchange rate of SEK 10.00.
At year-end 2017, analysts from Carnegie, Danske Bank, DnB, Handelsbanken, Nordea, Pareto and SEB had an active coverage of the Evolution share.
On 31 December 2017, Evolution had 14,310 known shareholders, compared with 9,189 at the end of 2016. The company's ten largest shareholders accounted for 58 percent of the share capital and votes. Richard Livingstone was the largest shareholder, with 16.5 percent of the shares. During the year, the company's co-founders Jens von Bahr and Fredrik Österberg transferred their shares to a jointly owned company (Österbahr Ventures AB), which at year-end was the second largest owner with 15.2 percent of the shares. Shareholders based in Sweden accounted for 52 percent of the capital.
The company's Board of Directors proposes that the 2018 Annual General Meeting approve a dividend of EUR 0.90 (0.45) per share for the 2017 financial year, representing a payout ratio of 52 percent (51). The company's dividend policy is to distribute at least 50 percent of the annual net profit over time.
Evolution's financial communication shall be characterised by correct, clear and relevant information that facilitates the understanding of the company's business model, strategy and financial development.
Evolution provides its shareholders and other stakeholders with identical information simultaneously in matters that may affect the valuation of the company's shares. The company publishes interim reports, annual reports and press releases that are available on www.evolutiongaming.com/investors. It is also possible to subscribe to news via the website.
2018 Annual General Meeting: 20 April Interim report January-March 2018: 19 April Interim report January-June 2018: 18 July Interim report January-September 2018: 24 October
| Shareholder | Number of shares | Capital and votes |
|---|---|---|
| Richard Livingstone | 5,950,032 | 16.5% |
| Österbahr Ventures AB | 5,451,292 | 15.2% |
| Swedbank Robur Fonder | 3,358,886 | 9.3% |
| Capital Group | 1,943,200 | 5.4% |
| Handelsbanken fonder | 1,630,889 | 4.5% |
| Avanza Pension | 661,098 | 1.8% |
| Henric Wiman | 494,569 | 1.4% |
| Richard Hadida | 493,843 | 1.4% |
| Danica Pension | 486,748 | 1.4% |
| Oberweis Funds | 408,300 | 1.1% |
| Total, 10 largest shareholders | 20,878,857 | 58% |
| Other shareholders | 15,091,520 | 42% |
| GRAND TOTAL | 35,970,377 | 100% |
Type of owners Ownership distribution by country
| Share data | 2017 | 2016 |
|---|---|---|
| Earnings per share (EUR) | 1.73 | 0.88 |
| Dividend (EUR per share) | 0.90 | 0.45 |
| Payout ratio | 52% | 51% |
| Shares outstanding at the end of the year |
35,970,377 | 35,970,377 |
| Average number of shares outstanding |
36,337,046 | 36,178,211 |
| Share price on the last closing day of the year |
580.5 | 259.5 |
| Dividend yield | 1.55% | 1.60% |
| Total return | 125.4% | -14.30% |
| Number of shares traded | 23,766,674 | 20,495,321 |
| Market capitalisation at year-end | 20,881 | 9,334 |
| Number of shareholders | 14,310 | 9,189 |
Source: Evolution Gaming and Monitor by Modular Finance AB. Compiled and processed data from various sources, including Euroclear, Morningstar and the Swedish Financial Supervisory Authority (Finansinspektionen).
The Board of Directors and the CEO of Evolution Gaming Group AB (publ) 556994-5792 ("Evolution") hereby present the annual accounts for the Group and the Parent Company for the 2017 financial year.
Evolution develops, produces, markets and licenses fully integrated Live Casino solutions to gaming operators. In Live Casino, a dealer runs the game from a casino gaming table that is followed in real time via a video stream. End users, i.e. the players, make betting decisions on their devices (computers, smartphones, tablets, etc.) and are able to communicate with the dealer using a text chat function.
Evolution is a B2B supplier and, at the end of 2017, the Company had approximately 150 customers, including a majority of the foremost online casino operators in Europe as well as a number of physical casinos. The operators market the products to the end users.
Evolution's Live Casino platform is unique in its kind and covers all aspects required by a gaming operator – from the recruitment and training of dealers and other staff to streaming, production, supervision, customer services and follow-up. Operators are offered a fully customised solution with a high degree of adaptability such as standard and VIP tables, control of how the environment looks and dedicated dealer teams. The Company's core games are Live Roulette, Live Blackjack, Live Baccarat, Live Casino Hold'em, Live Three Card Poker, Live Caribbean Stud Poker, Live Ultimate Texas Hold'em, Live Money Wheel and Live Texas Hold'em Bonus Poker. Various game derivatives are also available, i.e. variations of the core games with new technical solutions and new content.
Evolution has production studios in Riga, Latvia, and Luqa, Malta, where a majority of the operations are conducted. The Company also runs on-premise studios at land-based casinos in Belgium, Italy, Romania, the UK and Spain. The Parent Company of the Group is located in Stockholm, Sweden. Additional offices located in London, United Kingdom and in Tallinn, Estonia.
Evolution's revenues consist of fixed and variable consideration from the Company's customers. A majority of the revenue derives from commission, which is calculated as a percentage of the customer's profit generated by the Company's Live Casino platform. Through commission, Evolution gains beneficial exposure to the general growth of the European Live Casino market. In addition to commission, a considerable proportion of the Company's revenue derives from fees for dedicated tables. These are invoiced to customers who have chosen to offer their end users dedicated tables. Evolution is a pure operating and development company; consequently, it does not conduct any gaming operations of its own.
Evolution's business concept is to offer gaming operators on regulated markets an unparalleled, locally adapted Live Casino service for all digital platforms. In the medium to long term, the Company aims to grow faster than the total European Live Casino market with a maintained and sustainable EBITDA margin of at least 35 percent.
The European Live Casino market developed strongly in 2017 and, according to independent institute H2 Gambling Capital, it had an estimated value of EUR 1,971 million at year-end. Just like the total online gaming market, this development is underpinned by technological progress and new distribution channels, as well as strong demand from gaming operators and their end users. Live Casino has traditionally been an add-on product in operators' online casino interface, but it has now become an integrated and strategically important product since it provides opportunities for brand differentiation.
The growth of Live Casino is also underpinned by new regulated markets. As players in such markets are less used to online gaming, there is generally less confidence in games based on random number generators. Human dealers who speak the local language improve confidence. Live Casino has therefore turned out to be a good entry-level product when
gaming operators launch their brands in new markets. The tendency among land-based casinos to expand their offering online has contributed to the strong growth of Live Casino.
Evolution estimates that its market share among Live Casino operators in Europe is more than 50 percent and growing. The Company intends to continue strengthening its leading position in the market by having a clear focus on activities that promote the business and the offering. The Company envisages the greatest growth coming from an increased proportion of Live Casino revenue from the operators' total casino revenues. The three strategic core areas product innovation, customer optimisation and operational excellence — are considered to be of particular importance for a continued expansion of the advantage held compared to other players in the market and the creation of a stable foundation for continued growth.
In 2017, agreements were signed with, for example, White Hat Gaming, Matchbook, mybet Group, British Columbia Lottery Corporation, Nederlandse Loterij and National Lottery AD. Agreements were also concluded with a number of smaller operators and platforms, while many existing agreements were expanded to cover additional services and tables.
Evolution's total operating revenues amounted to EUR 178.4 million (115.5) in the financial year ending on 31 December 2017. The positive revenue development mainly derives from increased commission income from both new and existing customers.
Revenues from fees for dedicated tables also contributed to the increase as a result of additional customers demanding customised environments. In this connection, revenues from the start-up fees also increased in comparison with the previous year.
Total operating expenses amounted to EUR 111.5 million (80.6). The Company's personnel expenses rose to EUR 72.1 million (53.2), mainly driven by higher expenses for personnel in connection with the launch of new tables, as well as recruitments in IT and product development.
Depreciation, amortisation and impairments amounted to EUR 13.8 million (9.8), an increase explained primarily by the expansion and remodelling of the Company's existing studios. Other operating expenses rose to EUR 25.6 million (17.6), driven by expenses for premises, consumables and communications.
Operating profit for the year amounted to EUR 66.9 million (34.9) with an operating margin of 37.1 percent (30.2). Financial items only had marginal impact on the profit and amounted to EUR -0.2 million (-0.2).
The Group's effective tax rate for the year amounted to 6.8 percent (8.3). The effective tax rate is chiefly affected by the countries in which Evolution conducts operations and generates profit, which may vary between reporting periods. Profit for the year amounted to EUR 62.1 million (31.7).
The Group's investments in intangible assets amounted to EUR 10.6 million (10.2) in 2017. Investments in intangible assets refer to the development of new games for smartphones, tablets and computers and technical improvements of the platform, such as new functionality. Development projects during the year included the development of new games that will be launched in 2018.
Investments in property, plant and equipment amounted to EUR 10.2 million (8.3). Investments in property, plant and equipment primarily comprised new studio space, new gaming tables, servers and other computer equipment to meet new technical requirements and maintain capacity and performance in connection with new platform launches.
Investments in computer equipment were also made to meet needs in connection with the organisation's expansion, as well as in studio equipment in the Company's production studio.
Cash flow from operating activities amounted to EUR 62.5 million (40) over the year. The increase is primarily due to an improved profit. Cash flow from investing activities was negative in the amount of EUR 22.4 million (negative 31.4). A description of the investing activities is provided in the Investments section above. Cash flow from financing activities was negative in the amount of EUR 16.9 million (negative: 2.6) and primarily consisted of a transfer to the shareholders. Cash and cash equivalents amounted to EUR 49.3 million (26.2) at year-end.
As of 31 December 2017, Evolution employed 4,014 (3,402) people, corresponding to 3,085 (2,411) full-time equivalents. The average number of full-time equivalents for the full-year was 2,638 (1,860).
The Parent Company is a holding company that was formed in December 2014. Operating revenues for the 2017 full-year amounted to EUR 6.2 million (4.4) and expenses to EUR 6.1 million (4.2). Operating profit amounted to EUR 0.1 million (0.3). Profit for the period amounted to EUR 49.7 million (loss 3.4). The Parent Company's cash and cash equivalents amounted to EUR 1.0 million (0.4) at the end of the year and equity amounted to EUR 232.1 million (198.6). No significant investments were made in intangible or tangible assets.
During the year, the Company received dividends from the Maltese subsidiary amounting to EUR 50 million (-).
Evolution's operations are exposed to certain risks that could have a varying impact on earnings or financial position. These can be divided into industry, operational, and financial risks. When assessing the Company's future development, it is important to take into account the risk factors alongside any opportunities for profit growth. The risk factors are not set out in any particular order, importance or potential impact on the Group's revenue, profit or financial position.
Neither should these be seen as exhaustive, but rather as representing risks that are applicable to Evolution and that are monitored and evaluated by the executive management. In addition, the risks below are not the only risks to which the Group may be exposed. The Company may be unaware of certain risks. Financial risks are described in Note 23 Financial risk management.
Evolution generates a majority of its income through the licensing and supply of its software and technology to gaming operators. The Group's business is therefore strongly dependent on the laws and regulations relating to the supply of gaming services. These laws and regulations are complex and inconsistent across jurisdictions and are subject to change as various jurisdictions regulate, deregulate and/or re-regulate the gaming industry. Direct enforcement actions may be taken against a member of the Group or any of its officers or directors, particularly in instances where the provision of the Group's services to a gaming operator is critical to the underlying gaming transactions. Should any of these events occur, the impact could have a material adverse effect on Evolution's business, financial position and profit.
Although the gambling laws and regulations of many jurisdictions do not specifically apply to the supply of services by licensors of gaming software, certain jurisdictions have sought to regulate or prohibit the supply of such services. While Evolution currently holds all licences and certifications deemed necessary to carry out its business, national gambling laws are under review and changing in European countries. The Company may be subject to such laws, directly or indirectly, insofar as it supplies services to customers that are subject to such laws. Changes in the regulatory frameworks of different jurisdictions could impact the Group's business in that such changes may lead to an increase in the number of market participants and competitors, result in customers losing their licences and permits to operate in such jurisdictions or break up monopolistic gaming operators, which could impact the Group's underlying contractual relationships.
Further, many jurisdictions have not updated their laws to address the supply of remote gaming services from other countries, and courts may interpret older legislation unfavourably or determine that the activities of the Group and/or its customers are illegal. For example, a court or regulator may order that certain equipment be located in the jurisdiction in which products and services are offered, which could materially and adversely impact Evolution's operations and the business of its customers. Furthermore, several European countries have introduced, or are in the process of introducing, new online gaming regulations, which will require online gaming operators, and in some cases even providers, to hold, e.g., a country specific licence, pay gaming taxes, operate from a country domain
and report gaming statistics in order to bring operators (and end users) under supervision. Although Evolution monitors the regulatory environment, legislation could be interpreted in an unfavourable or unanticipated manner. If regulatory or enforcement actions are brought against any of Evolution's customers, the Group's revenue streams from such customers may be frozen or traced by authorities, even if no Group entity is made a party to any legal proceedings against such customers. As a result, end users may face problems transferring funds in and out of certain jurisdictions, which may impact payments to gaming operators and hence Evolution.
In addition to gaming laws and regulations, Evolution is subject to a wide variety of laws and regulatory requirements. For example, the Group must comply with anti-money laundering, data protection and privacy laws, and is required to share bet and other transactional data with local regulators in certain markets. Compliance with all such laws and regulations laws is complex and expensive. The Company's non-compliance or deemed non-compliance with any of these other laws and regulatory requirements could result in sanctions. Any failure by Evolution to comply with these other laws and regulatory requirements could have a material adverse effect on the Group's business, financial position and profit.
Evolution has obtained and is obliged, given the nature of the software, services and technology it supplies, to maintain its licences and certifications in a number of jurisdictions, and may in the future be required to obtain licences and/ or certifications in other jurisdictions. If any of these are withdrawn or are not renewed on equivalent terms (e.g. where there is change in view as to what equipment needs to be located locally), the Company may not be able to continue to operate and offer services in certain jurisdictions. Additionally, to the extent that Evolution is unable to obtain requisite licences and/ or certifications in jurisdictions, particularly with respect to jurisdictions that fall within or are comprised of newly regulated markets, the Company may not be able to follow customers into these jurisdictions and newly regulated markets. In such an event, customers may turn to competitors that are licensed and/or certified in the applicable jurisdiction, or that become licensed and/or certified before Evolution does. Any failure to renew or obtain any such licence or certification could have a material adverse effect on the Group's business, financial position and profit. Evolution's customers operate in a regulated industry, the laws and regulations of which are in a constant state of change. Various jurisdictions have implemented changes to their markets by introducing regulatory frameworks and licensing requirements. In addition to complying with local laws governing general business operations, the Company's customers may be required to adapt to new licensing regimes and conditions, such as the requirement to establish real-time data interfaces with the local regulator or pay retrospective taxes as a condition for the granting of a licence to operate in a particular jurisdiction. If the Company's customers refrain from entering newly regulated markets, or decide to exit markets in which they currently operate, due to changes in the local regulatory or licensing framework thereof, the Company's growth strategy and customer base could be adversely impacted.
Evolution's ability to provide its software to gaming operators depends upon the integrity, reliability and operational performance of its systems. The functioning of the IT systems within the Group's operations, or that of its providers or partners, could be disrupted for reasons beyond its control. Furthermore, there may be technological challenges in rolling out new products and services.
Any such disruption or event may lead to customer claims against the Group or otherwise negatively impact the Group's ability to sell products and services to its customers due to reduced confidence. Any interruption in the systems could have a negative effect on the quality of products and services offered by Evolution and, as a result, on demand from customers and their end users. The Group's success depends, in part, on providing secure products and services to customers for use by their end users. Attempts to penetrate security measures may come from various combinations of customers, end users, employees and others. The Group's IT systems are ISO-certified and the ability to monitor and ensure the quality and integrity of Evolution's products and services is continuously reviewed and evaluated.
Although Evolution does not provide its services directly to end users, people who play Live Casino games with an operator via the Company's platform could sue the Company in its capacity of a developer and facilitator of games. While such claims against Evolution are likely to be dismissed, they could give rise to expenses and reduce confidence in the Group or impact its customers.
The majority of Evolution's employees operate, organise and oversee operations at the gaming tables. Approximately 80 percent of the Group's full-time employees working on tables as hosts and dealers. These employees possess language, dealer and other trade skills that are essential to the day-to-day operations. Evolution aims to be an attractive employer and invests significantly in the training and development of its staff. In the ordinary course of operations, the Company experiences employee turnover with respect to employees working on tables, and such turnover can at times be significant. The loss of a significant number of its employees or any of its key employees, or any increased expenses that the Group may incur in order to retain any such employees or hire and train new employees, could have a material adverse effect on the Group's business, financial position and profit.
In addition, Evolution's business is dependent on a number of key individuals, senior executives and persons with specialist skills. These key individuals have established good relationships with market participants and have a thorough understanding of the complex environment in which the Group operates. Accordingly, these key individuals are central to the successful development of Evolution's business. If any of these individuals terminate their relationships with the Group, or materially change or reduce their roles within the Group, Evolution may not be able to replace them or their services on a timely basis with other professionals capable of making comparable contributions to operations.
In 2017, the top five customers (in terms of revenue generated) contributed 38 percent of Evolution's revenue. The Group's revenue stream from these sources may be adversely impacted by any deterioration or decline in the business of these five customers, or if one or more of these customers opted to use a competitor of the Company for its Live Casino solutions. The reduction in revenue generated from, or loss of, one or more of these five customers could have a material adverse effect on the Group's business, financial position and profit.
Evolution is subject to counterparty risks, primarily the risk of payment default by operators. Although the Group conducts credit checks for new customers and has historically experienced low levels of payment default by its customers, the rate of customer default may rise or increase in the future. In particular, such risk may increase if Evolution were to expand into new markets where customers are less financially stable. Any payment defaults by operators could have a material adverse effect on the Group's business, financial position and profit.
Evolution operates in a competitive industry. Competition is expected to continue to intensify as new Live Casino providers enter the market and existing providers improve and expand their product and service offerings. If Evolution fails to compete effectively, it may result in a loss of customers and an inability to attract new customers, which could have a material adverse effect on the Group's business, financial position and profit. The Company's objective is to strengthen its leading market position and retain existing and attract new customers by developing its successful Live Casino platform further while focusing on a number of areas considered to be of strategic importance for continued growth.
Evolution's ability to compete effectively depends, amongst other things, on its ability to protect, register and enforce its intellectual property rights. The Group also faces the risk that the use and exploitation of its intellectual property rights, including, in particular, rights relating to its software, may infringe the intellectual property rights of a third party. The expenses incurred in bringing or defending possible infringement actions may be substantial, regardless of the merits of the claim, and an unsuccessful outcome for the Company may result in royalties or damages being payable and/or the Company being required to cease using any infringing intellectual property or embodiments of any such intellectual property. The Group is also dependent on know-how and trade secrets, and it strives to protect such information by, for example, maintaining confidentiality agreements with employees, consultants and partners.
However, it is not possible to ensure total protection against unauthorised distribution of information and competitors, and others may gain access to such information, which may lead to the value of such information diminishing or competitors gaining an advantage, which in turn could have a material adverse effect on the Group's business, financial position and profit.
Evolution is exposed to the risk of money laundering and fraudulent activities by its customers, end users and third parties, as well as the potential collusion by operators and end users. The Group has implemented internal control systems and established a primary mission control centre in Latvia that monitors transactions, volumes and patterns, but these systems may not always succeed in protecting the Group from money laundering and fraud. To the extent that the systems are not successful in protecting the Group from money laundering or fraud, or if Evolution fails to comply with applicable regulations, the Group and its directors could be subject to criminal sanctions or administrative and civil fines and could directly suffer loss, the revocation of concessions and licences, operational bans, or lose the confidence of the customer base, all of which could have a material adverse effect on the Group's business, financial position and profit. In addition, effective internal controls are necessary for Evolution to provide reliable financial information and effectively prevent fraud. While the Group applies procedures and a system of internal control whereby internal risks are assessed, and the Group's Risk Committee meets on a quarterly basis to discuss and address potential risks, it is possible that the Group will not successfully manage internal risks or identify areas requiring improvement in the internal controls.
Evolution primarily conducts its business through subsidiaries that are active in the geographic markets in which it operates. The business, including intra-Group transactions, is conducted in accordance with the Company's interpretation of applicable laws, tax treaties and other regulations concerning taxes and the practice of tax authorities in the relevant countries.
Evolution has obtained advice from independent tax advisors in this respect, but there is a risk that tax authorities in relevant countries may make decisions that deviate from the Group's interpretations and the advice received from independent tax advisors. In addition, the Group's interpretation of applicable laws, tax treaties,
regulations and administrative practice may be incorrect and such rules may change, possibly with retroactive effect (in particular with regard to Maltese VAT legislation and the right of companies to deduct VAT). Furthermore, the Company has been advised that, to the extent that an individual ordinarily resident and domiciled in Malta acquires 5 percent or more of the Company, although the tax refunds in Malta should not be limited, certain Maltese withholding tax obligations may be imposed in respect of dividends attributable to such individuals. Regulatory or legislative changes, or decisions by tax authorities, may impair the
present, future or previous tax position of Evolution, which could have a material adverse effect on the Group's business, financial position and profit.
No significant events to be detailed have occurred following the balance sheet date.
The Board of Directors proposes that the 2018 Annual General Meeting approve the transfer to shareholders of EUR 32,373,339 (16,186,670) , corresponding to EUR 0.90 (0.45) per share.
General Meeting
| Statutory reserve | 181,859,094 |
|---|---|
| Profit for the year | 49,736,027 |
| Total | 231,595,121 |
| appropration | |
|---|---|
| Dividend to shareholders | |
| EUR 0.90 per share (35,970,377 x 0.45), totalling | 32,373,339 |
| To be retained | 199,221,781 |
| Total | 231,595,121 |
With reference to the above and to what has otherwise come to the Board of Directors' knowledge, the Board of Directors believes that a comprehensive assessment of the Parent Company and the consolidated financial position indicated that the dividend is justified taking into account the demands that scope and risks of the operations place on the scope of equity in the Parent Company and the Group and on the consolidation needs, liquidity and financial position in other regards of the Parent Company and the Group.
The Group's and the Parent Company's positions as at 31 December 2017 and the profit of the operations for the 2017 financial year are stated in the following income statements and balance sheets, cash flow statements, statements of changes in equity and notes to the financial statements.
Evolution Gaming Group AB (publ) ("Evolution") is a Swedish public limited company that was formed in December 2014 and that is listed on the Nasdaq Stockholm exchange. Evolution applies the Swedish Companies Act, the Swedish Code of Corporate Governance (the "Code") and the rules applicable to companies listed on the Nasdaq Stockholm exchange. The current Code is available at the Swedish Corporate Governance Board's website www.bolagsstyrning.se.
Board members Jens von Bahr and Fredrik Österberg, who were elected by the Annual General Meeting, were previously members of the company's management team, which represents a deviation from rule 4.3 of the Code. Since 1 November 2016, neither of them is active in the management of the company or the Group, although both remain employees of the company — Jens von Bahr as Executive Chairman and Fredrik Österberg as Group Chief Strategy Officer. Under the terms of his employment, Jens von Bahr shall, in addition to, and separately from, his duties as Chairman of the Board, focus on strategic issues and establish and implement the Group's future growth plans in cooperation with the management team, customers and shareholders. Under the terms of his employment, Fredrik Österberg will, in addition to, and separately from, his duties as Board Member, assist Group Management in developing, implementing and maintaining strategic initiatives. As founders of the Group, Jens von Bahr and Fredrik Österberg have special
insight into the operations and the Live Casino industry and the markets in which the Group operates or may operate in the future. They also have long-term and valuable relationships with customers and business partners. Consequently, having access to this experience at both the Board level and in the ongoing operations benefits both the company and its shareholders. As employees, the Executive Chairman and Group Chief Strategy Officer report to the company's CEO. The division of responsibilities between the President and the Executive Chairman is well regulated in the Board's rules of procedure and the company's instructions for the CEO. Neither Jens von Bahr nor Fredrik Österberg receive any remuneration for their duties as members of the company's Board of Directors. The fees paid to Jens von Bahr and Fredrik Österberg for their respective positions in the company were approved by an Extraordinary General Meeting on 24 January 2017.
At the end of 2017, the share capital in Evolution amounted to EUR 539,555.655, divided between a total 35,970,377 shares with a nominal value of EUR 0.015 each. All shares belong to the same class of shares, with equal voting rights (one vote per share) and shares of the company's capital and profit. On 31 December 2017, there were 14,310 shareholders. At the same point in time, the company's largest shareholders were Richard Livingstone with 16.5 percent of the share capital and votes, Jens von Bahr and Fredrik Österberg (through Österbahr Ventures AB) with 15.2 percent of the share capital and votes, and Swedbank Robur fonder with 9.3 percent of the share capital and votes. The ten largest shareholders represented 58.0 percent of the share capital and votes. Further information about the company's share and shareholders is presented under "The share" on page 30 and on the company's website.
The Annual General Meeting is Evolution's highest decisionmaking body, at which shareholders exercise their influence on the company. All shareholders registered in the company's CSD register who notify the company in time of their attendance are entitled to attend the General Meeting and vote for all of their shares. The company's Annual General Meeting is held in the spring. The date and venue are announced in connection with third interim report at the latest. Information on how shareholders can have a matter considered at the meeting, and when, at the latest, such a request must be received is detailed on the company's website in connection with the publication of the third interim report at the latest. Notice of the Annual General Meeting is published no later than four weeks prior to the meeting through an advertisement in Post– och Inrikes Tidningar (official Swedish gazette) and by posting the notice on the company's website. The company will place an advertisement in Swedish financial daily Dagens Industri that the notice has been issued.
The Annual General Meeting's mandatory duties include making decisions on:
At the Meeting, decisions are normally made by a simple majority of the votes cast. On certain decision matters, however, the Companies Act requires a proposal to be approved by a larger proportion of the votes cast. Extraordinary General Meetings may be held when necessary.
The 2017 Annual General Meeting was held on 21 April 2017 at Strandvägen 7A in Stockholm. At the meeting, 36.0 percent of all shares and votes were represented. A majority of the members of the Board, the auditor and the CEO attended the meeting. During the meeting, decisions were made on the customary matters. The minutes of the meeting, as well as other documentation from the meeting, are available on the company's website.
The 2018 Annual General Meeting will take place on 20 April 2018, at 2 p.m. at Strandvägen 7A in Stockholm. Notification of the Meeting will be issued on the company's website, where requisite documents, such as information providing the basis for decisions, will also be made available prior to the Meeting.
The Annual General Meeting determines how the Nomination Committee should be appointed. At the 2017 Annual General Meeting, it was decided that the Nomination Committee should consist of four members, including one representative for each of the three largest shareholders, as per the last trading day in August, wishing to participate in the Nomination Committee, and the Chairman of the Board of the company. In preparation for the Annual General Meeting, the Nomination Committee is tasked with presenting proposals regarding:
The proposals of the Nomination Committee are presented in the notice of the Annual General Meeting and on the company's website. The Nomination Committee's mandate period runs until a new Nomination Committee has been appointed under the decision establishing the new Nomination Committee at the 2018 Annual General Meeting.
| Member | Appointed by | Independent in relation to company management |
Share of votes as per 31 December 2017 |
|---|---|---|---|
| Ian Livingstone |
Richard Livingstone |
Yes | 16.5% |
| Peter Ihrfelt |
Österbahr Ventures AB |
Yes | 15.2% |
| Christian Brunlid |
Handelsbanken fonder |
Yes | 4.5% |
| Joel Citron |
Board of Directors of Evolution Gaming Group AB |
Yes | 1.0% |
The Board of Directors bears the overall responsibility for the organisation of the company and the management of its affairs and is to work in the interests of the company and all of its shareholders. The mandatory tasks of the Board of Directors include determining the company's overall targets and strategies, evaluating the CEO, ensuring that there are systems in place for monitoring and controlling the operations and the risks associated with them, ensuring that there is satisfactory control of the company's regulatory compliance and ensuring that the information issued by the company is characterised by openness and is accurate, relevant and reliable.
The Board of Directors annually reviews and adopts the following instructions and policies:
The Board of Directors is appointed by the shareholders at the Annual General Meeting for the period until the end of the next Annual General Meeting and, in accordance with the Articles of Association, shall consist of at least three and at most eight members with no deputies. The Annual General Meeting determines the precise number of members. At the 2017 Annual General Meeting, Jens von Bahr (Chairman), Joel Citron, Jonas Engwall, Cecilia Lager, Ian Livingstone and Fredrik Österberg were elected as members of the Board of Directors. For further details of each Board Member, see page 45.
In addition to being Board Members, both Jens von Bahr and Fredrik Österberg are also employees of the company. Jens von Bahr is employed as the Executive Chairman and Fredrik Österberg as Group Chief Strategy Officer. However, neither of them is a member of company management. In his position, Jens von Bahr shall, in addition to, and separately from, his duties as Chairman of the Board, focus on strategic issues and formulate and execute the Evolution Group's future growth plans in cooperation with the Evolution Group's management team, customers and shareholders. In his position, Fredrik Österberg will, in addition to, and separately from, his duties as Board Member, assist the management team in developing, implementing and maintaining strategic initiatives.
| Fees and salaries 1) | Attendance 2) | ||||||
|---|---|---|---|---|---|---|---|
| Member | Board fee | Committee fee | Salary | Independent 3) | Board meetings | Audit Committee |
Remuneration Committee |
| Jens von Bahr | SEK 4,200,000 | No/No | 11/12 | ||||
| Joel Citron | EUR 10,000 | Yes/Yes | 11/12 | 4/4 | 1/1 | ||
| Jonas Engwall | EUR 10,000 | Yes/Yes | 12/12 | 4/4 | 1/1 | ||
| Cecilia Lager | EUR 9,000 | EUR 19,000 | Yes/Yes | 11/12 | 4/4 | ||
| Ian Livingstone | EUR 10,000 | Yes/No | 12/12 | 1/1 | |||
| Fredrik Österberg | SEK 3,600,000 | No/No | 12/12 |
The number of Board members who are independent in relation to the company is four (67 percent) and the number of Board members who are independent in relation to major shareholders is three (50 percent). Ian Livingstone is not independent in relation to major shareholders as he is closely related to the company's largest shareholder. Jens von Bahr and Fredrik Österberg are not independent in relation to major shareholders or the company since they are among the company's major shareholders and are employees of the company.
One Board member may not take part in decisions where a conflict of interest may exist. This comprises decisions regarding agreements between a Board member and the company, agreements between the company and third parties in which the Board member has a material interest that could constitute a conflict of interest for the company, as well as agreements between the company and the legal entity that the Board member represents.
In addition to laws and recommendations, the work of the Board of Directors is governed by its rules of procedure. The rules of procedure have been adopted by the Board of Directors and include instructions concerning, among other things, Board meetings and their contents, the division of duties within the Board and information to the Board.
The Chairman of the Board is appointed by the Annual General Meeting. Jens von Bahr was elected Chairman of the Board by the 2017 Annual General Meeting for the period until the end of the next Annual General Meeting. Jens von Bahr is the Executive Chairman of the Board, meaning that he is employed by the company. See the Composition of the Board of Directors section for further details of what this employment entails.
The Chairman's role is to organise the work of the Board so that it is run efficiently and generates conditions for optimum performance of the Board's commitments.
The Board of Directors held 12 meetings in 2017, of which two were statutory meetings, four to approve interim reports and one to approve the year-end report. Cecilia Lager and Jens von Bahr were absent from one meeting each. The Board of Directors was in full attendance at all other meetings. All meetings followed an agenda that, on relevant points, was addressed with documentation provided to members prior to the meetings. As a rule, the meetings are also attended by the company's chief legal counsel as secretary, the CEO and CFO.
At each meeting, the CEO updates the other Board Members on the company's operational and financial development. In addition, various senior executives and the auditor participate if necessary, to present various factual matters. The principal points addressed by Board meetings in 2017 included matters regarding the change of list to Nasdaq Stockholm, decisions regarding the company's new studio in Georgia, as well as the approval of the business plan, budget, key policies, and annual, year-end and interim reports.
Principal points at Board meetings in 2017
• January
Statutory Board meeting following the Extraordinary General Meeting held on 24 January 2017
Approval of notice of the 2017 Annual General Meeting Adoption of proposed guidelines for remuneration to senior executives
• April
The company's auditor participated in part of the meeting without the presence of CEO or any other member of company management Adoption of interim report for the first quarter of 2017
The formal work plan adopted annually by the Board includes detailed instructions about which financial statements and what financial information is to be provided to the Board. The CEO is responsible for the Board receiving, in addition to the year-end report, interim reports and annual accounts, regular information about the company's financial performance including its financial position and liquidity. The Board of Directors also examines, primarily through its Audit Committee, the most significant accounting principles applied within the Group in respect of its financial reporting, as well as significant changes in the reporting principles. All Audit Committee meetings are recorded and the minutes kept available to all Board Members and the auditors.
Through a systematic and structured process, the Board shall annually assess its work and the division of labour between individual members. The Chairman of the Board informs the Nomination Committee of the outcome of the evaluation. The Board continuously evaluates the work of the CEO and Group management. This evaluation shall be discussed at least once a year at a meeting of the Board without the CEO or any other member of Group management being present.
Remuneration to the Board of Directors is proposed by the Nomination Committee, approved by the Annual General Meeting and paid to Board Members who are not employees of the company. At the 2017 Annual General Meeting, it was decided that a fee of EUR 10,000 should be paid to each Board Member not employed by the company. In addition, fees of EUR 20,000 are payable to the chairman of the Board's Audit Committee. No specific compensation is paid for other committee work.
Jens von Bahr and Fredrik Österberg are employed by the company and do not therefore receive any Board fees. Jens von Bahr receives an annual salary of SEK 4,200,000 from the company and Fredrik Österberg receives an annual salary of SEK 3,600,000 from the company (in both cases including applicable retirement benefits and without entitlement to variable compensation). The fees paid to Jens von Bahr and Fredrik Österberg for their respective positions in the company were approved by an Extraordinary General Meeting on 24 January 2017.
The company's Board of Directors has adopted a diversity policy applicable to its own composition. According to this policy, the Board of Directors shall, taking into account the company's operations, stage of development and circumstances, be appropriately composed and characterised by versatility and breadth in terms of the expertise, experience and background of the members elected by the Annual General Meeting. The objective is to seek an even gender distribution on the Board of Directors. Evolution considers diversity important in ensuring that Board Members' profiles provide the necessary range of perspectives, experience and skills required to achieve effective governance. In preparing its proposal for the composition of the Board of Directors, the Nomination Committee takes into account the Code and the Board's Diversity Policy, seeking to achieve diversity on the Board of Directors.
The Board of Directors has established a Remuneration Committee and an Audit Committee.
The Remuneration Committee consists of Joel Citron (chairman), Ian Livingstone and Jonas Engwall. The Remuneration Committee's duties include preparing the following matters for decision by the Board:
The Remuneration Committee shall also monitor and evaluate both current and completed variable remuneration programmes for the company's senior management. In addition, the Committee shall monitor and evaluate the application of guidelines for remuneration to senior executives, as well as current remuneration structures and levels in the company. During 2017, one meeting was held, at which all members attended.
The Audit Committee consists of Cecilia Lager (chairman), Joel Citron and Jonas Engwall. The Audit Committee's tasks include:
The Audit Committee shall also organise a selection process to prepare recommendations of auditors to the Nomination Committee when so required by applicable rules and assisting the Nomination Committee in preparing its proposals on auditors and compensation for auditing. During 2017, four meetings were held, at which all members attended.
The company has an Executive Chairman working mainly in the following areas: preparing long-term strategic issues beyond the CEO's strategic work within current business plans, ongoing evaluation of strategic partnerships and acquisitions, as well as assisting Group management in strategic projects and in connection with the recruitment of key competencies. The CEO's instructions clarify that the duties of the Executive Chairman as an employee should not interfere with the duties of the CEO and that the Executive Chairman may not perform any ongoing management tasks. The Board of Directors' rules of procedure state that the work performed by the Chairman of the Board as an employee is separate from, and in addition to, his work as Chairman of the Board. In addition to duties explicitly in line with his employment contract and the CEO's instruction, he may not perform any assignments for the company that go beyond the work of the Chairman of the Board, unless approved by the Board of Directors.
Auditors are elected by the Annual General Meeting and examine the company's accounts and administration on behalf of the Meeting. In accordance with the Articles of Association, Evolution shall have one or two auditors. The Auditors' term of office shall expire at the end of the Annual General Meeting held during the fourth financial year after the auditor was appointed. PwC was appointed as the company's auditors in connection with the company's formation in December 2014 and up until the Annual General Meeting held in 2018. The auditor in charge is Niklas Renström, who was born in 1974 and is an authorised accountant.
Evolution's Group Management has extensive experience and works to achieve long-term profitable growth in line with the company's strategy and vision. The CEO is appointed by, and receives instructions from, the Board of Directors. In turn, the CEO appoints the other members of Group Management and is responsible for the ongoing administration of the Group in accordance with the Board's guidelines and instructions. The CEO reports to the Board of Directors, ensuring that it receives the information needed to make informed decisions. The CEO shall also ensure that matters to be addressed by the Board in accordance with applicable legislation, the Articles of Association and internal policies and guidelines are presented to the Board of Directors. The CEO attends, and reports to, all Board meetings, except on those occasion when the CEO is evaluated by the Board, such as when the Board meets the company's auditor without management attending. Group Management embodies expertise covering all key areas of the company's business and strategy, including the CEO of Evolution's operating subsidiary Evolution Malta Limited. Evolution Malta Limited includes a management team that addresses matters related to the operational activities.
The Board of Directors has developed and adopted instructions covering the CEO's responsibilities and tasks, as well as entitlement to represent the company. Within the framework of applicable laws, the Articles of Association, the Board of Director's formal work plan, the CEO's instructions and other instructions issued by the Board, the CEO is responsible for overseeing the company's day-to-day operations. The CEO is also responsible for ensuring that the Board receives information regularly to be able to monitor the company's financial position, financial planning and development. Prior to each regular Board meeting, the CEO shall submit information as requested by the Board in assessing the company's financial situation, including reports, metrics, proposed business plan and budget, forecasts, interim reports, financial statements and annual reports.
The 2017 Annual General Meeting established guidelines for senior executives for the period up until the 2018 Annual General Meeting. Senior executives refers to the CEO and the management of Evolution and the Group of which the
company is a part. For information on the composition of Group Management, see page 46.
The purpose of the guidelines is to ensure that Evolution can attract, motivate and retain senior executives with the skills and experience required to achieve Evolution's operational goals. Remuneration shall be based on conditions that are competitive, while also in line with shareholders' interests. Remuneration to senior executives shall comprise fixed salary and, for certain senior executives, variable salary. These components are to form a well-balanced remuneration reflecting individual skills, responsibility and performance, in both the short and long term, as well as Evolution's overall performance.
Fixed salary shall be competitive and based on senior executives' individual competence, responsibility and performance. Fixed salary shall be evaluated annually for each calendar year.
Senior executives (other than Board Members employed by the company) may receive variable remuneration in addition to fixed salary.
Annual variable remuneration is cash based and determined by pre-established and measurable performance criteria for each senior executive, and aims to promote Evolution's longterm value generation. The performance criteria set out are to be established and documented annually. Annual variable remuneration may differ, depending on the level of performance, from no variable compensation up to 50 percent of basic annual salary. One senior executive, however, is entitled to variable compensation of up to 100 percent of basic annual salary under the existing employment contract.
Evolution offers other benefits to senior executives in accordance with local practices. These other benefits may include occupational healthcare. In certain instances, housing allowances, paid tuition of minors or travel allowances may also be granted.
The maximum period of notice for any senior executive is 12 months, during which salary will continue to be paid. Severance pay can be paid up to a maximum of 12 months' fixed salary.
The Board of Directors may waive these guidelines if this is justified by specific reasons in an individual case. In such case, the Board of Directors shall state the reason for the deviation at the subsequent Annual General Meeting.
The Annual General Meeting on 28 April 2016 resolved to issue a maximum of 547,000 warrants. Each warrant entitles the holder to subscribe for one new share in the company for SEK 354.20 during the period from the day after the publication of the interim report for the second quarter of 2019 until 30 September 2019.
The company's subsidiary, Evolution Malta Ltd. has subscribed for 547,000 warrants, and Evolution Malta Ltd has, in turn, transferred 366,668 of the warrants to a number of key individuals (including consultants) in the company's management and organisation. For warrants acquired at market value, the price (option premium) has been determined using the Black & Scholes valuation model, with the valuation being carried out by PwC.
Evolution's control system has been developed to ensure accurate, reliable financial reporting and accounting in accordance with applicable laws and rules, accounting standards and other requirements for listed companies. The foundation of the control environment is defined through policies, routines and manuals, and is upheld with the help of the company's organisational structure with clearly defined responsibilities.
The Board of Directors bears the ultimate responsibility for an effective system of internal control and risk management being in place. Critical accounting issues and issues related to financial reporting are addressed by the Board and in the Board's Audit Committee. To ensure a well-functioning control environment, the Board of Directors has established a number of policies relevant to corporate governance and financial reporting. These include the Board's rules of procedure, CEO instructions and reporting instructions for financial reporting. The company also has a financial handbook, which includes principles, guidelines and process descriptions for accounting and financial reporting. At the statutory Board meeting following the Annual General Meeting, a formal work plan is established for the Board and instructions for the work of the CEO are determined, in which responsibilities and powers are further defined.
The Board has appointed an Audit Committee, tasked with preparing the Board's work with regard to quality in the financial reporting and processes for managing the business risks of the company and the group, as well as monitoring the company's financial reporting and assisting the Board in assuring the effectiveness of the company's internal control, internal audit and risk management.
The group CFO regularly reports to the Audit Committee and works together with the company's finance function to develop and improve the internal control with regards to the group's financial reporting, both proactively with a focus on the internal control environment, and by reviewing the effectiveness of internal control.
Responsibility for the daily work of maintaining the control environment rests primarily with the company's CEO. The CEO reports regularly to the company's Board of Directors.
The Board of Directors in its entirety or any one Board Member together with the Chairman of the Board may sign on behalf of the company. In addition, the company's CFO and CLO together are entitled to sign on behalf of the company. In accordance with the Companies Act, the CEO may sign alone on behalf of the company with regard to matters of ongoing administration.
The Group has established a Risk Management Committee, in which representatives of various relevant parts of the organisation meet quarterly to assess, discuss and mitigate potential risks. The Group has also adopted procedures and established internal risk management control systems, including an annual risk analysis for all business areas within the Group, where the purpose is to identify, evaluate and manage risks threatening the Group's objectives and strategies. The risk analysis is divided into strategic, operational, compliance, legal and financial risks. To ensure a relevant level of control, each business area shall establish a number of control activities counteracting the most significant risks identified in the risk analysis. A self-assessment of these control activities is to be performed annually and reported to the Risk Management Committee, which compiles the results and reports to the Audit Committee and the Board of Directors.
As certain jurisdictions have laws that explicitly consider the offering of, and participation in, gaming services conditional on particular licences or a criminal offence, the Group continuously undertakes precautionary measures, including Know Your Customer (KYC) checks of licensees and requiring, in its agreements, that operators comply with the laws and regulations applicable to gaming services. These provisions in the agreements constitute a form of legal protection and prevent certain end users from accessing the Group's products and services. The Group's customers (i.e. operators) are responsible for the end users' access to their online gaming platforms at the local level and in accordance with local laws and regulations.
Monitoring of control activities is conducted continuously to ensure that risks have been satisfactorily observed and addressed. This includes tracking of results in relation to budget and plans, analyses and key figures. The Board of Directors continuously evaluates the information provided by company's management team. The process includes both reconciliation of monthly financial reports against budgets and goals and reporting at Board meetings. Through the Audit Committee, the Board of Directors reviews and assesses the internal control organisation and function. The company's policies and instructions are evaluated and updated annually at a minimum or when needed. The company's CFO presents the results of internal control work as a standing agenda item at Audit Committee meetings. The results of the Audit Committee's work in the form of observations, recommendations and proposals for decisions and measures are continuously reported to the Board of Directors.
The company has information and communication channels to promote the accuracy of the financial reporting and to facilitate reporting and feedback from the operations to the Board of Directors and the management team, for example by making governing documents such as internal policies, guidelines and instructions regarding the financial reporting available and known to the employees concerned.
The company's financial reporting complies with Swedish laws and regulations and the local rules in each country where operations are conducted. The company's information to shareholders and other stakeholders is provided through the interim reports, press releases and annual report according to the resolved Communications Policy.
The company has no separate review function (internal audit). The Board does not consider there to be special circumstances in operations or other conditions that would warrant such a function.
Born 1971. Elected 2015, Chairman since 1 November 2016.
Other assignments: Jens is a Board member in JOvB Investment AB and Österbahr Ventures AB.
Experience: Jens is co-founder of Evolution Gaming. Before founding the company, Jens was CEO of Oriflame Sri Lanka. He has also started several entrepreneurial companies. Jens holds a BSc in business from Stockholm University and an MBA from University of Western College.
Shareholding: 2,725,646 shares through Österbahr Ventures AB (jointly owned with Fredrik Österberg).
Born 1962. Elected 2015.
Other assignments: Joel is CEO of Tenth Avenue Holdings LLC and Chairman of Tenth Avenue Commerce LLC.
Experience: Joel has vast experience from various management positions in investment and operating companies in Europe and the US. He holds a B.Sc Business Administration and M.A. Economics from University of Southern California.
Shareholding: 375,471 shares Independent in relation to the company, the company's
management and major shareholders of the company.
Born 1970. Elected 2015.
Other assignments: Jonas is CEO of Knoxville AB. Among other assignments, he is Chairman of ExOpen Systems AB, Occasion AB, Takkei Trainingsystems AB and Telefonshoppen Norden AB, and Board member in E. Svenssons i Lammhult AB and Loccasion Property Development AB.
Experience: Jonas was previously Chairman of Risenta AB. He has also founded several entrepreneurial companies, such as Skruf Snus AB. He holds a Master of Business Administration from Stockholm School of Economics.
Aktieinnehav: 61,926 shares
Independent in relation to the company, the company's management and major shareholders of the company.
.
Born 1963. Elected 2017.
Other assignments: Cecilia is Chairman of Navigera AB and Board member in Elanders AB, Cinnober Financial Technology AB, Altor Fund Manager AB, Collector AB, Capacent Holding AB and Clemondo Group AB.
Experience: Cecilia has vast experience from various senior executive positions in the financial sector. Among previous positions she has been Marketing Director of Alecta and CEO of SEB Fonder. She has studied Business Administration at Lund University.
Independent in relation to the company, the company's management and major shareholders of the company.
Born 1962. Elected 2015.
is Executive Chairman of London+Regional Properties Limited. He also holds various Board assignments within the London+Regional Properties group.
Experience: Ian has vast experience from various senior positions in property development and retail.
Shareholding: 100,000 shares Ian is a close relative to the largest shareholder in the company and not independent in relation to the major shareholders of the company, but independent in relation to the company and the company's management.
Born 1970. Elected 2015.
Other assignments: Fredrik is a Board member in FROS Ventures AB and Österbahr Ventures AB.
Experience: Fredrik is cofounder of Evolution Gaming. Before founding the company, Fredrik was CEO of Sportal Nordic. He holds a BSc in Business Administration and Economics from Stockholm University.
Shareholding: 2,725,646 shares through Österbahr Ventures AB (jointly owned with Jens von Bahr).
Niklas Renström Authorised Public Accountant
Born 1970. Employed by the group since 2015. Shareholding: 30,000 shares through Carlesund Investment & Consulting AB. Warrants: 35,000
JESPER VON BAHR
Chief Legal and Risk Officer Born 1970. Employed by the group since 2011. Shareholding: 128,105 shares through wholly-owned Paper Street Soap Company AB and Bombinous Ltd. Warrants: 30,000
Other assignments: Martin is Chairman of Carlesund Investments & Consulting AB and Sandstjärna Holding.
Experience: Martin has been CEO of Highlight Media Group, Eniro Sverige, Eniro Finland and 3L System AB. He holds an MSc in finance together with courses in computer science, law and mathematics at University of Borås, Gothenburg School of Economics and Linköping University.
Other assignments: Jesper is a board member of Ventilation Holding Sweden AB, Fusilli HoldCo AB, and Paper Street Soap Company AB and a deputy board member in Swedish Hasbeens AB and OOF AB.
Experience: Jesper has been a lawyer at Advokatfirman Cederquist KB, lawyer/partner at Lofalk Advokatbyrå AB, General Counsel at Rebtel Networks and a management consultant at McKinsey & Co. He holds a LLB from Stockholm University and has studied at University of California.
Born 1974. Employed by the group since 2016. Shareholding: 1,128 shares Warrants: 19,000
Other assignments: David is a board member of Insicon AB, Hivemind AB, Craelius & Hansson AB and Försäkringsbolaget Avanza Pension.
Experience: David has been CTO of Klarna, Head of Banking at Avanza and CIO of Nordnet. He has studied at Royal Institute of Technology in Stockholm.
Games Operations Born 1978. Employed by the group since 2015. Shareholding: -
Warrants: 30,000
JOHANNISSON Chief Commercial Officer
Born 1978. Employed by the group since 2008. Shareholding: 271,490 shares through endowment insurance. Warrants: 45,000
Experience: Todd has been Vice President of Gaming Operations at MGM Resorts International, Global Director of Product Development at Shuffle Master and Vice President of Business Strategy at Bally Technologies. He holds a MBS from University of Nevada, Las Vegas.
Experience: Sebastian has been Head of Account Management at Evolution Gaming. He holds a Master of Business Administration from Uppsala University.
Born 1970. Employed by the group since 2016. Shareholding: 7,900 shares together with closely-related. Warrants: 30,000
Experience: Johan has held various leading positions in the EF group, including President Asia and European Director. He holds a BSc in Business Administration from Stockholm University.
Chief Financial Officer Born 1973. Employed by the group since 2016. Shareholding: 4,000 shares through pension insurance. Warrants: 30,000
Chief Human Resources Officer Born 1972. Employed by the group since 2016. Shareholding: – Warrants: -
Other assignments: Jacob is a deputy board member in Information & Registerservice i Sverige AB.
Experience: Jacob has been CFO of Nordnet AB (publ) and Vice President, Finance Director at Nasdaq OMX Transaction Services Nordics. He holds a MSc in Industrial Engineering and Business Management from the Royal Institute of Technology in Stockholm and a BSc in Business Administration from Stockholm University.
Other assignments: Founder and owner of Strong Brands Sweden AB. Experience: Louise has held several leading HR positions within Viacom/ MTV, Nike and Walt Disney. She has a degree in Social and Behavioural studies at Lund University.
Head of Operations Riga Born 1983.
Employed by the group since 2006. Shares: 3,923 shares Warrants: 5,000
Experience: Olesya joined Evolution Gaming as Game Presenter and has since then held several positions with managerial responsibilities at the Riga production studio. She holds an EMBA from the Stockholm School of Economics in Riga.
ANDRES RENGIFO
Born in 1982. Employed by the group since 2014. Shares: - Warrants: 12,500
Experience: Andres started his working career in The Ritz land-based casino. He has also held positions within Barclays Capital and William Hill.
| (EUR thousands) | NOTE | 2017 | 2016 |
|---|---|---|---|
| Revenues | 1 | 178,222 | 115,046 |
| Other revenues | 1 | 163 | 415 |
| Total operating revenues | 178,385 | 115,461 | |
| Personnel expenses | 3 | -72,122 | -53,218 |
| Depreciation, amortisation and impairment | 8, 9 | -13,754 | -9,760 |
| Other operating expenses | 17, 18 | -25,628 | -17,619 |
| Total expenses | -111,504 | -80,597 | |
| Operating profit | 66,882 | 34,864 | |
| Financial income | 4 | 6 | 10 |
| Financial expenses | 5 | -224 | -244 |
| Profit before tax | 66,664 | 34,630 | |
| Tax on profit for the period | 6 | -4,535 | -2,890 |
| Profit for the period | 62,129 | 31,740 | |
| Of which attributable to: | |||
| Shareholders of the Parent Company | 62,129 | 31,740 | |
| Average number of shares before dilution | 7 | 35,970,377 | 35,970,377 |
| Earnings per share before dilution (EUR) | 1,73 | 0,88 | |
| Average number of shares after dilution | 36,337,046 | 36,152,919 | |
| Earnings per share after dilution (EUR) | 1,71 | 0,88 |
| (EUR thousands) | 2017 | 2016 |
|---|---|---|
| Profit for the period | 62,129 | 31,740 |
| Other comprehensive income | ||
| Items that may be reclassified to profit | ||
| Exchange differences arising from the translation of foreign operations | -37 | -177 |
| Other comprehensive income, net after tax | -37 | -177 |
| Total comprehensive income for the period | 62,093 | 31,563 |
| (EUR thousands) | NOTE | 2017 | 2016 |
|---|---|---|---|
| Assets | |||
| Intangible assets | 8 | 16,567 | 14,453 |
| Land and buildings | 9 | 12,390 | 12,397 |
| Other property, plant and equipment | 9 | 17,073 | 11,943 |
| Other long-term receivables | 2,431 | 522 | |
| Deferred tax receivable | 6 | 78 | 550 |
| Total non-current assets | 48,540 | 39,865 | |
| Accounts receivable | 11 | 39,492 | 19,039 |
| Tax receivables | 6 | 26,581 | 15,760 |
| Other receivables | 13 | 1,247 | 1,103 |
| Prepaid expenses and accrued income | 12 | 2,206 | 1,363 |
| Cash and cash equivalents | 14 | 49,272 | 26,188 |
| Total current assets | 118,798 | 63,454 | |
| TOTAL ASSETS | 167,337 | 103,318 | |
| Equity and liabilities | |||
| Share capital | 540 | 540 | |
| Other capital contributed | 4,698 | 4,698 | |
| Reserves | -45 | -9 | |
| Retained earnings including profit for the period | 104,688 | 58,667 | |
| Total equity | 109,881 | 63,896 | |
| Deferred tax liability | 6 | 565 | 729 |
| Long-term debt to credit institutions | 20 | 6,693 | 7,441 |
| Total long-term liabilities | 7,259 | 8,170 | |
| Accounts payable | 15 | 3,951 | 2,169 |
| Current liabilities to credit institutions | 20 | 950 | 1,130 |
| Currrent tax liabilities | 6 | 31,898 | 18,695 |
| Other current liabilities | 15 | 8,094 | 5,709 |
| Accrued expenses and prepaid income | 16 | 5,305 | 3,549 |
| Total current liabilities | 50,198 | 31,251 | |
| TOTAL EQUITY AND LIABILITIES | 167,337 | 103,318 |
| 2017 (EUR thousands) |
Share Capital | Other capital contributed |
Reserves | Retained earnings including profit for the period |
Total equity |
|---|---|---|---|---|---|
| Opening equity 1 January 2017 | 540 | 4,698 | -8 | 58,667 | 63,896 |
| Comprehensive income | |||||
| Profit of the year | - | - | - | 62,129 | 62,129 |
| Other comprehensive income | |||||
| Exchange differences arising from the translation of foreign operations |
- | - | -37 | - | -37 |
| Total comprehensive income | - | - | -37 | 62,129 | 62,093 |
| Transactions with shareholders | |||||
| Dividend | - | - | - | -16,187 | -16,187 |
| Incentive programme, options | - | - | - | 79 | 79 |
| Closing equity 31 December 2017 | 540 | 4,698 | -45 | 104,688 | 109,881 |
| 2016 (EUR thousands) |
Share capital | Other capital contributed |
Reserves | Retained earnings including profit for the period |
Total equity |
|---|---|---|---|---|---|
| Opening equity 1 January 2016 | 540 | 4,698 | 169 | 38,406 | 43,812 |
| Comprehensive income | |||||
| Profit of the year | - | - | - | 31,740 | 31,740 |
| Other comprehensive income | |||||
| Exchange differences arising from the translation of foreign operations |
- | - | -177 | - | -177 |
| Total comprehensive income | - | - | -177 | 31,740 | 31,562 |
| Transactions with shareholders | |||||
| Dividend | - | - | - | -11,510 | -11,510 |
| Incentive programme, options | - | - | - | 32 | 32 |
| Closing equity 31 December 2016 | 540 | 4,698 | -8 | 58,667 | 63,896 |
| (EUR thousands) | NOTE | 2017 | 2016 |
|---|---|---|---|
| Operating profit | 66,882 | 34,864 | |
| Adjustment for items not included in cash flows: | |||
| Depreciation, amortisation and impairment | 8, 9 | 13,754 | 9,760 |
| Other | 79 | 32 | |
| Interest received | 4 | 6 | 10 |
| Interest paid | 5 | -224 | -244 |
| Tax paid | 6 | -2,974 | -560 |
| Cash flows from operating activities before changes in working capital |
77,524 | 43,862 | |
| Increase in accounts receivables | 11 | -20,453 | -6,952 |
| Increase / Decrease in accounts payables | 15 | 1,782 | -124 |
| Increase in other working capital | 3,632 | 3,241 | |
| Cash flows from operating activites | 62,484 | 40,027 | |
| Acquisition of intangible assets | 8 | -10,558 | -10,209 |
| Acquisition of property, plant and equipment | 9 | -10,191 | -8,353 |
| Acquisition of building | 9 | -200 | -12,620 |
| Increase in other long-term receivables | -1,438 | -202 | |
| Cash flows from investing activities | -22,387 | -31,384 | |
| New borrowing | 20 | - | 9,300 |
| Amortisation of loans | 20 | -748 | -729 |
| Options programme | - | 376 | |
| Dividends paid | -16,187 | -11,510 | |
| Cash flows from financing activities | -16,935 | -2,563 | |
| Cash flow for the period | 23,163 | 6,080 | |
| Cash and cash equivalents at start of period | 26,188 | 19,930 | |
| Cash flow for the period | 23,162 | 6,080 | |
| Exchange rate differences | -78 | 177 | |
| Cash and cash equivalents at end of period | 14 | 49,272 | 26,188 |
Footnote: The item Other under Adjustment for items not included in cash flows refers to the option programme adopted by the 2016 Annual General Meeting.
| (EUR thousands) | NOTE | 2017 | 2016 |
|---|---|---|---|
| Net sales | 6,194 | 4,443 | |
| Other external expenses | 17, 18 | -2,457 | -1,590 |
| Personnel expenses | 3 | -3,553 | -2,518 |
| Depreciation, amortisation and impairment of intangible fixed assets and property, plant and equipment |
8, 9 | -67 | -57 |
| Operating profit | 118 | 278 | |
| Other interest income and similar income | 4 | 50,092 | 61 |
| Interest expenses and similar expenses | 5 | -2 | -3 628 |
| Profit before tax | 50,208 | -3,288 | |
| Deferred tax | 6 | -472 | -67 |
| Profit for the period | 49,736 | -3 356 | |
Profit for the period agrees with total comprehensive income for the period.
| (EUR thousands) | NOTE | 2017 | 2016 |
|---|---|---|---|
| Assets | |||
| Non-current assets | |||
| Intangible assets | 8 | 66 | 43 |
| Total Intangible assets | 66 | 43 | |
| Property, plant and equipment | 9 | 90 | 124 |
| Total Property, plant and equipment | 90 | 124 | |
| Participating interest in Group companies | 10 | 206,000 | 206,000 |
| Deferred tax receivable | 6 | 78 | 550 |
| Deposits | 34 | 36 | |
| Total financial assets | 206,112 | 206,586 | |
| Total non-current assets | 206,268 | 206,753 | |
| Current assets | |||
| Receivables from Group companies | 25,222 | 9,290 | |
| Other current receivables | 13 | 272 | 149 |
| Prepaid expenses and accrued income | 12 | 145 | 92 |
| Total current assets | 25,639 | 9,531 | |
| Cash and cash balances | 14 | 951 | 381 |
| TOTAL ASSETS | 232,858 | 216,665 | |
| Equity and liabilities | |||
| Equity | |||
| Restricted equity | |||
| Share capital | 540 | 540 | |
| Non-restricted equity | |||
| Retained earnings and profit for the period | 231,595 | 198,047 | |
| Total equity | 232,135 | 198,587 | |
| Current liabilities | |||
| Accounts payable | 15 | 156 | 118 |
| Liabilities to Group companies | - | 17,303 | |
| Other current liabilities | 15 | 192 | 154 |
| Accrued expenses and prepaid revenues | 16 | 376 | 502 |
| Total current liabilities | 723 | 18,078 | |
| TOTAL EQUITY AND LIABILITIES | 232,858 | 216,655 |
| Restricted capital | Non-restricted equity | ||
|---|---|---|---|
| 2017 (EUR thousands) |
Share capital | Retained earnings including profit for the period |
Total equity |
| Opening equity 1 January 2017 | 540 | 198,047 | 198,586 |
| Comprehensive income | |||
| Profit of the year | - | 49,736 | 49,736 |
| Total comprehensive income | - | 49,736 | 49,736 |
| Transactions with shareholders | |||
| Dividend | - | -16,187 | -16,187 |
| Total transactions with shareholders | 0 | -16,187 | -16,187 |
| Closing equity 31 December 2017 | 540 | 231,595 | 232,135 |
| Restricted equity | Non-restricted equity | ||
|---|---|---|---|
| 2016 (EUR thousands) |
Share capital | Retained earnings including profit for the period |
Total equity |
| Opening equity 1 January 2016 | 540 | 212,913 | 213,453 |
| Total comprehensive income | |||
| Profit of the year | - | -3,356 | -3,356 |
| Total comprehensive income | - | -3,356 | -3,356 |
| Transactions with shareholders | |||
| Dividend | - | -11,510 | -11,510 |
| Total transactions with shareholders | 0 | -11,510 | -11,510 |
| Closing equity 31 December 2016 | 540 | 198,047 | 198,586 |
| (EUR thousands) | NOTE | 2017 | 2016 |
|---|---|---|---|
| Operating profit | 118 | 278 | |
| Adjustment for items not included in cash flows: | |||
| Depreciation, amortisation and impairment | 8, 9 | 67 | 57 |
| Interest received | 4 | 92 | 61 |
| Other | 5 | 50,092 | -3,628 |
| Tax paid | - | - | |
| Cash flows from operating activities before changes in working capital |
50,369 | -3,232 | |
| Increase in accounts payable | 38 | 76 | |
| Increase in intra-Group receivables and liabilities, net | -33,551 | 9,304 | |
| Increase in other working capital | -42 | 594 | |
| Cash flows from operating activites | 16,812 | 6,743 | |
| Acquisition of intangible assets | 8 | - | - |
| Acquisition of property, plant and equipment | 9 | -56 | -38 |
| Cash flows from investing activities | -56 | -38 | |
| Dividends paid | -16,187 | -11,510 | |
| Cash flows from financing activities | -16,187 | -11,510 | |
| Cash flow for the period | 570 | -4,805 | |
| Cash and cash equivalents at start of period | 381 | 5,186 | |
| Cash flow for the period | 570 | -4,805 | |
| Cash and cash equivalents at end of period | 951 | 381 |
Evolution Gaming Group AB (publ) (the "Parent Company", 556994-5792) and its Subsidiaries (collectively, the "Group" or the "Company") is a leading B2B provider of Live Casino systems. The Company develops, produces, markets and licenses fully integrated Live Casino solutions to gaming operators.
At the end of 2017, the Group had approximately 150 customers, including a majority of the foremost online casino operators in Europe as well as a number of land-based casinos. The operators market the products to the end users. Accordingly, Evolution is a pure operating and development company; it does not conduct any gaming operations of its own.
The Parent Company is a Swedish public limited company with registered office in Stockholm, Sweden and its head office at Hamngatan 11 in Stockholm. The Parent Company has been listed on Nasdaq Nordic Large Cap since 5 June 2017 using the ticker EVO.
On 22 March 2018, this Annual Report was approved for publication by the Board of Directors. The income statements and balance sheets are to be adopted by the Annual General Meeting on 20 April 2018.
These consolidated financial statements were prepared in accordance with the Annual Accounts Act, RFR 1 Supplementary Accounting Rules for Groups, and the International Financial Reporting Standards (IFRS) and interpretations of the IFRS Interpretations Committee (IFRS IC) as adopted by the EU. The consolidated accounts have been prepared in accordance with the cost method. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires the executive management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed under Accounting principles. The Parent Company's functional currency, as well as the Parent Company's and the Group's presentation currency, is the Euro. Accordingly, the statements were prepared in Euro. Amounts are expressed in thousands of Euro (EUR) unless otherwise indicated. Amounts or figures in parentheses are comparisons for the year-earlier period. Assets and liabilities are reported at historical cost. The most important principles on which the consolidated financial statements have been based are described below. These accounting principles have been applied consistently for all years presented, unless otherwise stated. The Parent Company uses the same accounting principles as the Group, with the addition of the Swedish Financial Reporting Board's recommendation RFR 2 "Accounting for Legal Entities." This gives rise to certain differences due to requirements in the Swedish Annual Accounts Act or the tax situation. The accounting principles of the Parent Company are described in the section "Parent Company's accounting principles" below.
No new or amended standards were applicable for Evolution Gaming Group in 2017.
New or revised standards that have been issued and that are applicable for Evolution Gaming Group after 2017 are presented below.
This standard addresses the classification, measurement and recognition of financial assets and liabilities. It replaces those parts of IAS 39 relating to the presentation and measurement of financial instruments. IFRS 9 retains a mixed-measurement model, although it has been simplified in some respects. There are three measurement categories for financial assets, amortised cost, fair value recognised in Other Comprehensive Income and fair value recognised in the Income Statement. The presentation of an instrument depends on the Company's business model and the characteristics of the instrument. Investments in equity instruments are recognised at fair value in the Income Statement but there is also an option to recognize the instrument at fair value in Other Comprehensive Income on first-time recognition. In such cases, no reclassification to the Income Statement will occur when the instrument is sold. For financial liabilities, presentation and measurement do not change except in those cases a liability is reported at fair value in the income statement based on the fair value option. The standard is effective for financial years beginning on or after 1 January 2018. Earlier application is permitted. The Group has assessed the impact of the standard and it will not affect consolidated profit.
The standard regulates revenue recognition. The principles on which IFRS 15 is based are intended to give users of financial reports more useful information about the Company's revenue. The expanded disclosure requirements mean that information relating to revenue class, date of settlement, uncertainty associated with revenue recognition and cash flow attributable to the Company's customer contracts must be presented. In accordance with IFRS 15, revenue shall be reported when the customer gains control of the goods or services sold and is able to use and benefit from those goods or services. IFRS 15 replaces IAS 18 "Revenue" and IAS 11 "Construction Contracts" and associated SIC and IFRIC. IFRS 15 became effective on 1 January 2017. Early adoption is permitted. The Group has assessed the impact of the standard and it will not affect consolidated profit.
In January 2016, IASB published a new leasing standard that will replace IAS 17 Leases and the associated interpretations IFRIC 4, SIC-15 and SIC-27. The standard requires that assets and liabilities attributable to all leases, with some exceptions,
be recognised in the balance sheet. This recognition is based on the view that the lessee has a right to use an asset during a specific period of time and also has an obligation to pay for this right. The recognition for the lessor will be essentially unchanged. The standard is applicable for a financial year beginning 1 January 2019 or later. Early adoption is permitted. The EU has not yet adopted the standard. The Group will assess the impact during the first half of 2018. The Group has operational leases that will be recorded in the balance sheet, see Note 18.
The International Financial Reporting Standards Committee (IFRIC) has not issued any new interpretations applicable to Evolution Gaming Group.
Subsidiaries are all companies over which the Group has a controlling influence. The Group has a controlling influence over a company when it is exposed to, or is entitled to, variable returns from its holding in that company and is able to influence the return through its influence in the Company. Subsidiaries are fully consolidated from the date on which controlling influence is transferred to the Group. They cease to be consolidated from the date on which that controlling influence ceases. The acquisition method of accounting is used to account for the acquisition of operations by the Group.
The cost of acquiring a subsidiary is measured as the fair value of the assets taken over, liabilities incurred by the previous owner of the acquired company, plus the shares issued by the Group. In the cost of an acquisition, fair value of all liabilities is also included as a result of an agreement of a conditioned purchase price. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each acquisition, i.e. acquisition by acquisition, the Group determines whether the minority interest in the acquired company is to be recognised at fair value or at the proportional share of the holding in the reported value of the acquired company's identified net assets.
Expenses attributable to acquisitions are recognised as they are incurred. Goodwill is initially valued as the amount by which the total purchase consideration, and the fair value of any non-controlling interests on the acquisition date, exceeds the fair value of identifiable acquired net assets. If the purchase consideration is lower than the fair value of the acquired company's net assets, the difference is reported directly in the income statement.
Intra-Group transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated, unless the loss corresponds to an impairment loss. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
If the Group ceases to have control, any remaining holdings are measured at fair value at the time when control ceases, which is recognised as a change in value in the income statement. Fair value is used initially and forms the basis for the continued accounting of the remaining holding as an associated company, a joint venture and/or a financial asset.
In addition, amounts are recognised for companies that were previously included in other comprehensive income, if the Group divested the related assets or liabilities directly. This may mean that amounts that were previously recognised in total comprehensive income have been reclassified to the income statement.
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated accounts are presented in Euro.
Foreign currency transactions are translated into the functional currency for each Group company, using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange differences resulting from such transactions and from the translation of exchange rates of monetary assets and liabilities denominated in foreign currencies on the balance sheet date are recognised in the income statement.
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the Group's presentation currency as follows:
(a) Assets and liabilities in all balance sheets are translated at the rate on the balance sheet date.
(b) Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions).
(c) All resulting exchange differences are recognised in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. All resulting exchange differences are recognised in other comprehensive income.
Acquired computer software licences are capitalised on the basis of the expenses incurred to acquire and bring to use the specific software. Expenses associated with maintaining computer software programmes are recognised as an expense as incurred. Development expenses that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met: than its estimated recoverable amount (Note 1.6).
It is technically feasible to complete the software product so that it will be available for use:
Directly attributable expenses that are capitalised as part of the software product primarily include software development employee expenses. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development expenses previously recognised as an expense are not recognised as an asset in a subsequent period. Computer software development expenses recognised as assets are amortised over an estimated useful life of three years.
The expense of developing Core Gaming Platform is amortised over an estimated useful life of three years. Licences recognised as assets are amortised over an estimated useful life of five years.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (Note 1.6).
All other property, plant and equipment are initially measured at cost and thereafter at cost less deductions for depreciation and impairment. The cost includes expenses that are directly related to the acquisition of the assets. Subsequent expenses are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised from the balance sheet. General repairs and maintenance expenses are charged to the income statement during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method to allocate expenses are allocated to their residual value over the estimated useful lives, according to the following percentages: Office equipment, computers and technical equipment 20–50% Property 2% Expenses for improvements to property owned by another are amortised based on the lease term or estimated
useful life, whichever is shorter. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount (Note 1.6).
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the income statement.
Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset's fair value less expenses to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that previously suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period. Intangible assets that are not yet ready for use are also tested for impairment when events or changed circumstances indicate that the recognised value may not be recoverable. As at 31 December 2017, intangible assets that were not yet available for use amounted to EUR 804 thousand (0).
The Group classifies its financial assets as loan assets or accounts receivable. The classification depends on the purpose for which the financial assets were acquired. The executive management determines the classification of its financial assets at initial recognition.
Loan assets and accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money or services directly to a debtor without the intention of selling an asset. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. In that case, they are classified as non-current assets. The Group's loan receivables and accounts receivable comprise "Accounts receivable" and "Other receivables" and "Cash and cash equivalents" in the balance sheet (see Notes 1.8 and 1.9).
The Group recognises financial assets in the balance sheet when it becomes a party to the instruments' contractual terms and conditions. Loan receivables and accounts receivable are initially recognised at fair value plus transaction expenses.
Loans and receivables are subsequently carried at amortised cost using the effective interest method. Amortised cost is the initial value after adjustments for differences between the amount reported initially and the amount due when using the effective
interest method.
Financial assets are derecognised from the balance sheet when the right to receive cash flows from them has expired or been transferred and the Group has transferred nearly all risk and benefits associated with the ownership or is no longer in control of the assets.
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more loss events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. First, the Group determines whether there is objective evidence of an impairment loss. The following criteria are applied in the assessment:
For financial assets carried at amortised cost, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate. The asset's carrying amount is reduced and the amount of the loss is recognised in the income statement under Other operating expenses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor's credit rating), the reversal of the previously recognised impairment loss is recognised in the income statement.
Accounts receivables are amounts due from customers for services performed in the ordinary course of business. If payment is expected in one year or less (or in the normal operating cycle of the business, if longer), they are classified as current assets. If not, they are presented as non-current assets. Accounts receivables and other receivables are initially recognised at fair value and subsequently measured at amortised cost, with application of the effective interest method and a deduction for doubtful receivables (Note 1.7.3). The recognised value of the asset is reduced by the use of an account for doubtful receivables, and the loss is recognised in the income statement under Other operating expenses. If a bad debt loss has been established, it is written off in the account for doubtful receivables. If a previously impaired receivable is collected, it will be credited in the income statement under Other operating expenses.
Cash and cash are recognised a nominal value in the balance sheet.
In the cash flow statement and balance sheet, cash and cash equivalents include cash and current accounts in banks.
Ordinary shares are classified as equity. Transaction expenses directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Capital contributions received in addition to the original share capital are interest-free and will only be repaid at the discretion of the Group. They are therefore regarded as capital and classified in equity.
The Group recognises financial liabilities in the balance sheet when it becomes a party to the instruments' contractual terms and conditions. The Group's financial liabilities are classified as "other financial liabilities". Financial liabilities initially measured at fair value, which is the fair value of the amount received less transaction expenses directly related to the acquisition or issue of the financial liability. Thereafter, such liabilities are recognised at amortised cost. A financial liability is removed from the balance sheet when the Group's obligations according to the agreement have been met, cancelled or expired.
Accounts payable are obligations to pay for services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Accounts payable and other liabilities are initially recognised at fair value and subsequently measured at amortised cost using the effective interest method.
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In such case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current tax charge is calculated on the basis of the tax laws enacted or announced at the reporting date in the countries where the Group operates and generates taxable income. The executive management regularly evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation. Where appropriate, it establishes provisions based on amounts expected to be paid to the tax authorities.
The Group's taxes are primarily affected by the allocation of profits between Malta and the other countries where the Group operates as well as the tax regulations in each country. Significant judgement is required in determining the provisions for income taxes. For many transactions and calculations in the current operations, the ultimate tax determination is uncertain when the transactions take place or calculations are made. To ensure that taxes are handled correctly, the Company made an assessment, assisted by legal experts, of how tax regulations may affect the business. This assessment also covers indirect taxes. The Company reports the tax amounts that it believes to be correct and pays these to the tax authorities. However, these amounts may turn out to be insufficient, if the tax authorities make an interpretation of the regulations that its more restrictive than the Company's interpretation, which the Company considers to be correct.
Deferred tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or announced at the end of the reporting period and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset and when the deferred tax assets and liabilities relate to the same tax authority, regardless of whether they relate to the same or different taxable entities, but where there is an intent to settle the balances on a net basis.
The Group's revenues derive from fees from gaming operators that use the Group's solutions for Live Casino and from other associated services. Revenue is reported excluding VAT and discounts and after the elimination of intra-Group sales. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met, as described below.
The Group receives gaming fees from its contracted partners. These include a percentage of the gaming operators' revenue from using the Group's solution for Live Casino. These gaming fees are calculated according to the terms and conditions of each agreement and reported in the period when the gaming transactions are conducted. Fees from other closely related services, such as start-up fees for integration of Live Casino solutions, are reported when the services have been provided.
Interest income arising from interest-bearing instruments is recognised in the income statement when they arise, distributed over the time they refer to using the effective interest method, unless they are considered to constitute doubtful receivables.
Leasing of assets in which a significant part of the risks and benefits of ownership in practice reside with the lessor is classified as operational leasing. Payments made in the period of the lease are charged to the income statement on a straight-line basis over the period of the lease.
Dividend distribution to the Group's shareholders is recognised as a liability in the Group's financial statements in the period in which the dividend was approved by the Parent Company's shareholders.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the CEO of the Group, who makes strategic decisions. The CEO of the Group considers the Group to consist of a single segment, i.e. the provision of solutions for Live Casino and associated services to gaming operators.
Cash flow is reported using the indirect method. The reported cash flow only covers transactions involving cash receipts and cash payments. This means that there may be deviations related to changes of individual items in the balance sheet.
Provisions are recognised in the balance sheet when the Group has a legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimation of the amount
can be made. When the discount effect is significant, provisions are determined by a present value computation of the expected value of future cash flows with a pre-tax discount rate that reflects the current market assessment of the time value of money and, in applicable cases, the risks specific to the obligation.
A provision for restructuring is made when the Group has adopted a detailed and formal restructuring plan, and the restructuring has either been started or published. No provisions are made for future operating expenses.
A contingent liability is recognised when there is a possible obligation arising from past events and the existence of which is substantiated only by one or more uncertain future events, or when there is an obligation that is not recognised as a liability or provision because it is not likely that an outflow of resources will be required.
A contingent obligation is recognised when there is a possible obligation arising from past events and the existence of which is substantiated only by one or more uncertain future events, or when there is an obligation that is not recognised as a liability or provision because it is not likely that an outflow of resources will be required.
The Group has different pension schemes in different countries. These are funded by payments by each Group company, and in some cases, by the employees. As all pension schemes are defined contribution schemes, the Group has no legal or constructive obligations aside from the payment of contributions. The Group's outgoing payments for defined contribution plans are carried as expenses in the period when the employees carried out the services to which the contributions are related.
The Group has no obligations towards the employees after they have retired or otherwise ended their employment with the Company.
Severance pay is paid when an employee is terminated by the Company before the time when the employment would normally cease or when an employee voluntarily leaves the Company in exchange for such benefits. The Group recognises severance pay as an expense when it demonstrably has an obligation to terminate employees according to a detailed, formal and definitive plan or to pay compensation for voluntary termination.
The Group recognises a liability and an expense for bonuses based on various qualitative and quantitative measures. The Group makes provision for bonuses earned where there is a legal or constructive obligation to do so based on past practices. Bonuses are paid to employees.
The Group has a warrant program which was decided upon at the 2016 Annual General Meeting. Fair value on the work that entitles employees to allocation of warrants is expensed. The total amount expensed is based on fair value on the warrants, excluding the potential impact that the employee remains in the service of the Company during a specified time period. The total amount expensed is reported evenly distributed over the period where all specified earnings conditions shall be met. The possible deviation from the original assessments that a re-assessment initiates is reported in the income statement and the corresponding adjustments are made in equity.
The Parent Company has prepared its financial statements in accordance with the Swedish Annual Accounts Act, the Swedish Financial Reporting Board's recommendation RFR 2 "Accounting for Legal Entities" and applicable statements by the Swedish Financial Reporting Board. According to RFR 2, the Parent Company shall in the annual report for the legal entity apply all EU-approved IFRS standards and statements as far as possible within the framework of the Annual Accounts Act, the Pension Obligations Vesting Act ( Swe: Tryggandelagen ) and taking into consideration the relationship between accounting and taxation. The recommendation states which exceptions and additions should be made in relation to IFRS.
The income statements and balance sheets follow the formats specified in the Annual Accounts Act. The statement of changes in equity also follows the Group's format but shall include the columns specified in the Annual Accounts Act. Furthermore this entails differences in terms, compared to the consolidated statements, primarily for financial income and expenses and equity.
Participating interests in Group companies are reported at cost after deduction for possible impairment. In the cost, expenses related to the acquisition and possible earn-out considerations are included. When there is an indication that the participating interests in Group companies have decreased, a calculation of recovery value is made. If this value is lower than the reported value, impairment is recognised. Impairments are reported in "Result from participating interests in Group companies".
IAS 39 is not applied in the Parent Company and financial instruments are valued at cost. Within the subsequent periods, financial assets acquired with the purpose to be retained on a short-term basis will be reported according to the lowest value principle at the lowest of cost and market value.
Estimates and assumptions are evaluated continually and are based on historic experience and other factors, including expectations for future events that are considered to be reasonable under current conditions. Except for the impairment testing of intangible assets described below, the executive management does not consider that the estimates and assessments made in the preparation of these financial reports have entailed any difficulties or that they are subjective or complicated enough to merit a description as critical in accordance with the requirements in IAS 1.
The Group has made considerable investments in the development of its gaming platform. Assets related to the development of the Group's gaming programme are recognised as intangible assets in the balance sheet and Note 8 and amounted to EUR 16,209 thousand (2016: 14,127).
Every year, these assets are tested for impairment in accordance with IAS 36, and it is determined whether there is objective evidence of an impairment loss. The Group has assessed the ability to generate revenue for each one of the projects that relate to the gaming software and no objective evidence of impairment has emerged.
The Group's revenues derive primarily from commissions on Live Casino solutions. These operations represent the Group's only operating segment. In 2017, revenue from non-customer transactions exceeded 10 percent of sales — for 2016, there was one customer with transactions exceeding 10 percent of the Group's total revenue, at a total of EUR 12,008 thousand.
| Geographical breakdown | Sweden | Malta | Latvia | Other | Eliminations | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 |
| Revenues | 6,194 | 4,443 | 217,548 | 125,298 | 73,681 | 60,161 | 35,225 | 19,103 | -154,263 | -93,544 | 178,385 | 115,461 |
| Non current assets | 268 | 753 | 19,729 | 17,182 | 24,343 | 20,783 | 4,200 | 1,147 | 0 | 0 | 48,540 | 39,865 |
Non current assets exclude participating interests in Group companies.
| Average number of employees | 2017 | 2016 | |||
|---|---|---|---|---|---|
| Average number of employees |
of which, women |
Average number of employees |
of which, women |
||
| Latvia | 2,870 | 1,419 | 1,433 | 759 | |
| Malta | 537 | 274 | 382 | 202 | |
| Romania | 197 | 72 | 12 | 8 | |
| Estonia | 20 | 3 | 8 | 1 | |
| Belgium | 12 | 5 | 11 | 1 | |
| Canada | 11 | 5 | – | – | |
| United Kingdom | 8 | 6 | 7 | 4 | |
| Netherlands | 8 | 1 | – | – | |
| Sweden | 9 | 3 | 7 | 3 | |
| Georgia | 4 | 3 | – | – | |
| Total Group | 3,676 | 1,791 | 1,860 | 979 |
| Remuneration and other benefits 2017 |
Basic salary/ |
Other | Pension | ||
|---|---|---|---|---|---|
| (EUR thousands) | Board fee | Bonus | benefits | costs | Total |
| Chairman of the Board: Jens von Bahr * |
464 | – | – | – | 464 |
| CEO: Martin Carlesund |
513 | – | – | – | 513 |
| Board member: Joel Citron |
10 | – | – | – | 10 |
| Board member: Fredrik Österberg * |
328 | – | – | 45 | 373 |
| Board member: Ian Livingstone |
10 | – | – | – | 10 |
| Board member: Jonas Engwall |
10 | – | – | – | 10 |
| Board member: Cecilia Lager |
28 | – | – | – | 28 |
| Other senior executives (total of 7 persons during the year) |
1,738 | 478 | 148 | 75 | 2,439 |
| Total | 3,100 | 478 | 148 | 120 | 3,846 |
| Compensation and other benefits 2016 (EUR thousands) |
Basic salary/ Board fee |
Bonus | Other benefits |
Pension costs |
Total |
| Chairman of the Board: Jens von Bahr * |
450 | – | 1 | – | 450 |
| CEO: Martin Carlesund |
72 | – | – | – | 72 |
| Chairman of the Board / Board Member: Joel Citron |
15 | – | – | – | 15 |
| Board member: Fredrik Österberg * |
339 | – | – | 48 | 388 |
| Board member: Ian Livingstone |
10 | – | – | – | 10 |
| Board member: Jonas Engwall |
10 | – | – | – | 10 |
| Other senior executives (total of 7 persons during the year) |
1,783 | 500 | 69 | 57 | 2,410 |
Total 2,680 500 70 105 3,355
| 2017 | 2016 | |||
|---|---|---|---|---|
| Salaries and other compensations and social security expenses (EUR thousands) |
Salaries and other compensation |
Social security expenses (of which, pension expenses) |
Salaries and other compensation |
Social security expenses (of which, pension expenses) |
| Board of Directors, CEO | ||||
| and other senior managers | 3,651 | 774 | 1,579 | 475 |
| (-34) | (-105) | |||
| Other employees Latvia | 40,878 | 9,647 | 30,692 | 7,388 |
| (-) | (-) | |||
| Other employees Malta | 15,675 | 1,017 | 13,382 | 828 |
| (-) | (-) | |||
| Other employees Sverige | 292 | 74 | 586 | 218 |
| (-11) | (-31) | |||
| Other employees, | ||||
| rest of markets | 3,987 | 1,199 | 1,555 | 317 |
| (-190) | (-) | |||
| Total Group | 64,482 | 12,711 | 47,794 | 9,227 |
| (-235) | (-136) |
In his employment contract, Martin Carlesund has a term of notice of six months and severance pay for an additional six months, in case of termination by the Company otherwise than for breach of contract.
| 2017 | 2016 | |||||
|---|---|---|---|---|---|---|
| Number and proportion of women in management positions at year-end |
Number of men |
Number of women |
Propor tion of women |
Number of men |
Number of women |
Propor tion of women |
| Board | 6 | 1 | 17% | 5 | 0 | 0% |
| Other senior managers | 8 | 1 | 13% | 6 | 0 | 0% |
| Martin Carlesund | CEO Evolution Gaming Group AB |
|---|---|
| Johan Nordström | CEO Evolution Malta Limited |
| Jacob Kaplan | Chief Financial Officer |
| David Craelius | Chief Technology Officer |
| Todd Haushalter | Chief Product Officer |
| Sebastian Johannisson | Chief Commercial Officer |
| Jesper von Bahr | Chief Legal and Risk Officer |
| Louise Wiwen-Nilsson | Chief Human Resources Officer |
*Jens von Bahr and Fredrik Österberg work operatively in the Company
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Interest income | 6 | 10 | 92 | 61 |
| Dividends from subsidiaries | – | – | 50,000 | – |
| Total | 6 | 10 | 50,092 | 61 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Interest expenses | 182 | 227 | 2 | – |
| Impairment of shares in subsidiaries |
– | – | – | 3,567 |
| Other | 41 | 17 | 118 | 61 |
| Total | 223 | 244 | 120 | 3,628 |
| Income tax | GROUP | PARENT COMPANY | |||
|---|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 | |
| Current tax | |||||
| Sweden | – | – | – | – | |
| Outside Sweden | 4,252 | 2,362 | – | – | |
| Total current tax | 4,252 | 2,362 | 0 | 0 | |
| Deferred tax | |||||
| Sweden | 472 | 67 | 472 | 67 | |
| Outside Sweden | -189 | 461 | – | – | |
| Total deferred tax | 283 | 528 | 472 | 67 | |
| Total tax expense | 4,535 | 2,890 | 472 | 67 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| The difference between the actual tax expense and tax expense based on current tax rate |
||||
| Profit before tax | 66,664 | 34,630 | 50,180 | -3,288 |
| Income tax calculated according to domestic tax rates on profits in each country |
21,172 | 9,952 | 11 040 | -723 |
| Tax effect of: | ||||
| Income not subject to tax | -19,797 | -11,173 | -10 813 | – |
| Expenses not deductible for tax purposes |
3,445 | 3,585 | 13 | 790 |
| Tax-loss carryforwards on accumulated losses |
-85 | -67 | 232 | -67 |
| Change in deferred tax | -283 | 448 | – | – |
| Other | 83 | 146 | – | – |
| Total tax expense | 4,535 | 2,890 | 472 | 0 |
The effective tax rate for the Group amounted to 6.8% for the year (2016:8.3%).
Deferred tax assets and deferred tax liabilities refer to temporary differences and tax-loss carryforwards. Temporary differences occur in cases where the reported and fiscal tax-loss carryforwards for assets of liabilities, or other tax deductions are recognised only to the extent that it is probable that the deduction can be offset against future taxable profits. The consolidated accumulated tax loss is fully capitalised and not limited in terms of time. Deferred tax assets and deferred tax liabilities refer to temporary differences and loss carry-forwards as follows:
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Deferred tax receivables | ||||
| Tax-loss carryforwards | 78 | 550 | 78 | 550 |
| Total deferred tax receivables | 78 | 550 | 78 | 550 |
| Deferred tax | ||||
| Property, plant and equipment | 565 | 729 | – | – |
| Total deferred tax | 565 | 729 | 0 | 0 |
| Deferred tax receivables and deferred tax liabilities, net |
-487 | -179 | 78 | 550 |
Over the year, the net amount of deferred tax receivables and deferred tax liabilities has changed in accordance with the following:
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Opening balance | -204 | 324 | 550 | 617 |
| Recognised in the income | ||||
| statement | -283 | -528 | -472 | -67 |
| Closing balance | -487 | -204 | 78 | 550 |
The amounts reported in the balance sheet include the following:
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Deferred tax receivable that can be used early after 12 months |
78 | 550 | 78 | 550 |
| Deferred tax liability receivable that can be used early after 12 |
||||
| months | -565 | -729 | – | – |
| GROUP | ||||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2015 | ||
| Profit after tax attributable to Parent Company shareholders (EUR thousands) |
62,129 | 31,740 | ||
| Average number of shares before dilution |
35,970 | 35,970 | ||
| Average number of shares after dilution |
36,337 | 35,970 | ||
| Earnings per share before dilution (EUR) |
1,73 | 0,88 | ||
| Earnings per share after dilution (EUR) |
1,71 | 0,88 |
The Group has dilution effects regarding subscription premiums, see Note 22.
| GROUP | |||
|---|---|---|---|
| (EUR thousands) | 2017 | 2015 | |
| Gaming programme | |||
| Opening cost | 27,074 | 17,138 | |
| Capitalisations for the year | 10,679 | 9,936 | |
| Closing accumulated cost | 37,753 | 27,074 | |
| Opening depreciation | 12,947 | 7,223 | |
| Depreciation during the year | 8,597 | 5,724 | |
| Closing accumulated depreciation |
21,544 | 12,947 | |
| Closing residual value according to plan |
16,209 | 14,127 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Licences and patents | ||||
| Opening cost | 653 | 446 | 64 | 64 |
| Acquisitions for the year | 126 | 273 | 45 | – |
| Disposals | -16 | -67 | – | – |
| Translation difference | 2 | 1 | – | – |
| Closing accumulated cost | 765 | 653 | 108 | 64 |
| Opening depreciation | 328 | 329 | 21 | – |
| Depreciation during the year | 94 | 83 | 21 | 21 |
| Disposals | -16 | -67 | – | – |
| Translation difference | 1 | -17 | – | – |
| Closing accumulated depreciatio |
407 | 328 | 42 | 21 |
| Closing residual value according to plan |
358 | 325 | 66 | 43 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | |
| Total closing accumulated cost | 38,518 | 27,728 | 108 | 64 |
| Total closing accumulated depreciation |
21,951 | 13,275 | 42 | – |
| Total closing residual value according to plan |
16,567 | 14,453 | 66 | 43 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Improvements to property owned by another |
||||
| Opening cost | 5,056 | 2,867 | 40 | 29 |
| Acquisitions for the year | 3,430 | 2,632 | – | 11 |
| Disposals | -158 | -443 | – | – |
| Closing accumulated cost | 8,328 | 5,056 | 40 | 40 |
| Opening depreciation | 1,729 | 1,197 | 12 | 1 |
| Depreciation during the year | 1,344 | 973 | 13 | 11 |
| Disposals | -156 | -441 | – | – |
| Closing accumulated depreciation |
2,917 | 1,729 | 26 | 12 |
| Closing residual value according to plan |
5,411 | 3,327 | 14 | 28 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Office, computer & technical equipment |
||||
| Opening cost | 14,502 | 9,815 | 124 | 97 |
| Acquisitions for the year | 7,070 | 5,721 | 11 | 27 |
| Disposals | -784 | -1,043 | – | – |
| Translation difference | -80 | 9 | – | – |
| Closing accumulated cost | 20,708 | 14,502 | 135 | 124 |
| Opening depreciation | 5,886 | 4,142 | 27 | 3 |
| Depreciation during the year | 3,496 | 2,625 | 32 | 24 |
| Impairment of tangible assets | – | 6 | – | – |
| Disposals | -409 | -881 | – | – |
| Translation difference | 74 | -7 | – | – |
| Closing accumulated | ||||
| depreciation | 9,047 | 5,886 | 59 | 27 |
| Closing residual value | ||||
| according to plan | 11,661 | 8,616 | 76 | 97 |
| GROUP | ||||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | ||
| Property | ||||
| Opening cost | 11,173 | – | ||
| Acquisitions for the year | – | 11,173 | ||
| Closing accumulated cost | 11,173 | 11,173 | ||
| Opening depreciation | 223 | – | ||
| Depreciation during the year | 223 | 223 | ||
| Closing accumulated | ||||
| depreciation | 446 | 223 | ||
| Closing residual value | ||||
| according to plan | 10,727 | 10,950 | ||
| GROUP | ||||
| (EUR thousands) | 2017 | 2016 | ||
| Land | ||||
| Opening cost | 1,447 | – | ||
| Acquisitions for the year | 217 | 1,447 | ||
| Closing accumulated cost | 1,664 | 1,447 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Total closing accumulated cost | 41,873 | 19,558 | 175 | 164 |
| Total closing accumulated depreciation |
12,410 | 7,615 | 85 | 4 |
| Total closing residual value according to plan |
29,463 | 11,943 | 90 | 122 |
| Name | Corporate ID number |
Main office | Ownership % | Number of shares |
Carrying value 2017 (EUR thousands) |
Carrying value 2016 (EUR thousands) |
|---|---|---|---|---|---|---|
| Direct ownership | ||||||
| Evolution Malta Holding Ltd | C 48665 | Portomaso, Malta | 100 | 2,752,353 | 206,000 | 206,000 |
| Indirect ownership | ||||||
| Evolution Malta Ltd | C 48666 | Portomaso, Malta | 100 | 1,200 | 1 | 1 |
| Evolution Gaming Malta Ltd | C 44213 | Portomaso, Malta | 100 | 40,000 | 3 | 3 |
| Evolution Malta Ops Ltd | C 50583 | Portomaso, Malta | 100 | 100,000 | 100 | 100 |
| SIA Evolution Latvia | 40003815611 | Riga, Latvia | 100 | 100 | 3,977 | 3,977 |
| Evolution Gaming Ltd | 05944946 | London, UK | 100 | 100 | 863 | 863 |
| Evolution New Jersey LLC | 5362945 | Delaware, USA | 100 | 0 | – | – |
| SIA Evolution Latvia Properties | 50103931761 | Riga, Latvia | 100 | 1 | 3 | 3 |
| Evolution Belgium SPRL | 0638.824.479 | Bryssel, Belgium | 100 | 18,550 | 19 | 19 |
| EvoGame Estonia OU | 14035717 | Tallinn, Estonia | 100 | 1 | 3 | 3 |
| Evolution Netherlands BV | 66682452 | Hilversum, Holland | 100 | 1 | 0 | 0 |
| Evo Gaming Studios RO S.R.L. | 36034853 | Bukarest, Romania | 100 | 1,000 | 1 | 1 |
| EG Overseas Services B.V. | 135218 | Curacao | 100 | 3,000 | – | – |
| Evolution Canada Gaming Inc | BC1114063 | Vancouver, Canada | 100 | 100 | 0 | – |
| Evolution Georgia LLC | 405209689 | Tbilisi, Georgia | 100 | 1 | 0 | – |
| Evolution Alderney Ltd | 1963 | Inchalla, Le Val, Alderney | 100 | 1 | 0 | – |
| GROUP | ||
|---|---|---|
| (EUR thousands) | 2017 | 2016 |
| Maturity analysis of past due but not impaired accounts receivable |
||
| 1-30 days | 10,669 | 4,142 |
| 31-90 days | 3,715 | 1,569 |
| 91-180 days | 2,230 | 350 |
| More than 181 days | 2,504 | 36 |
| Total | 19,118 | 6,097 |
| Provision for uncertain receivables | ||
| As at 1 January | 216 | 130 |
| Provision for bad debt | 33 | 215 |
| Reversal of bad debt | -154 | -129 |
| Customer losses in the income statement | -62 | – |
| Closing reserves | 33 | 216 |
Historically, the Group's customer losses have been low. The Group's customers operate in a growth market with strong balance sheets. Bad deb, amounting to EUR 0 thousand (215), is more than 181 days past-due.
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Accrued revenues | 35 | 2 | – | – |
| Prepaid licence fees, software and IT services |
1,295 | 746 | 32 | – |
| Prepaid rent | 165 | 69 | 33 | 34 |
| Prepaid marketing | 78 | 64 | 6 | – |
| Prepaid insurance | 59 | 44 | 51 | 41 |
| Prepaid maintenance expenses |
85 | 117 | – | – |
| Other prepaid expenses | 489 | 321 | 23 | 16 |
| Total | 2,206 | 1,364 | 145 | 92 |
| GROUP | PARENT COMPANY | ||||
|---|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 | |
| VAT | 568 | 326 | 229 | 102 | |
| Prepayments to providers |
530 | 722 | – | – | |
| Tax receivables | 26 581 | 15 760 | 43 | 46 | |
| Other | 149 | 55 | – | 1 | |
| Total | 27 828 | 16 864 | 272 | 149 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Cash and cash balances | 49,272 | 26,188 | 951 | 381 |
| Total | 49,272 | 26,188 | 951 | 381 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Employee-related liabilities | 6,731 | 5,331 | 192 | 154 |
| Other liabilities | 1,363 | 378 | – | – |
| Total | 8,094 | 5,709 | 192 | 154 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2016 | 2015 | 2016 | 2015 |
| Employee related expenses | 2,939 | 2,229 | 312 | 184 |
| Deferred income | 1,667 | 453 | – | – |
| Accrued Audit and consulting fees |
161 | 288 | 60 | 230 |
| Accrued Utilities | 168 | 72 | – | – |
| Other | 371 | 508 | 4 | 89 |
| Total | 5,305 | 3,549 | 376 | 502 |
| GROUP | PARENT COMPANY | |||
|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 |
| Expenses lease payments and rental charges |
2,759 | 1,506 | 140 | 140 |
| Total | 2,759 | 1,506 | 140 | 140 |
Future minimum lease payments under non-cancellable operating leases and rental agreements are estimated to fall due as follows:
| (EUR thousands) | Group | Parent company |
|---|---|---|
| Within 1 year | 3,961 | 140 |
| 2–5 years | 12,917 | – |
| After 5 years | 2,359 | – |
| Total | 19,237 | 140 |
The Group has only operating leases of premises and technical equipment.
| GROUP | PARENT COMPANY | ||||
|---|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 | |
| PWC | |||||
| Auditing assignments | 194 | 81 | 112 | 21 | |
| Audit-related services, in addition to auditing |
362 | 286 | 356 | 286 | |
| Tax advice | 42 | 77 | 33 | 51 | |
| Other services | – | 13 | – | 13 | |
| Total | 598 | 457 | 501 | 371 |
Of the Group's remuneration to auditors, SEK 501 thousand pertains to Öhrlings PricewaterhouseCoopers AB. Audit-related services mainly concern work in connection with the change of listing to the Nasdaq Stockholm in the large cap segment.
| GROUP | PARENT COMPANY | ||||
|---|---|---|---|---|---|
| (EUR thousands) | 2017 | 2016 | 2017 | 2016 | |
| Pledged assets | 12,391 | 12,397 | 12,391 | 12,397 | |
| Total | 12,391 | 12,397 | 12,391 | 12,397 |
Assets pledged by the Group and the Parent Company involve collateral in the Group's building in Riga, Latvia, for liabilities to credit institutions.
| (EUR thousands) | GROUP | ||||||
|---|---|---|---|---|---|---|---|
| 2017 | 2016 | ||||||
| Current | Long-term | Totalt | Current | Long-term | Total | ||
| Covered | |||||||
| Loan from credit institution | 950 | 6,693 | 7,643 | 1,130 | 7,441 | 8,571 | |
| Total | 950 | 6,693 | 7,643 | 1,130 | 7,441 | 8,571 |
The Group secured the loan to finance the acquisition of the building in Riga, Latvia. The maturity date for the loan is 12 November 2020, with amortisation amounting to EUR 130,000 per year up until the maturity date. The loan runs at a floating rate. The loan agreement contains covenants regarding, for example, the equity/assets ration, liabilities/EBITDA ratio for the past 12 months, as well as the debt/property value ratio. The Group did not violate these covenants during the year.
The calculations are made using consolidated values for the two Latvian companies in the Group. The fair value of the liability is not estimated to deviate from the carrying value and is included in level 2 of the fair value hierarchy.
All intra-Group transactions take place on general and commercial terms and at market price. No Board Member, senior officer or shareholder has (i) been a party to a transaction with the Company on unusual terms or that was of an unusual nature, or (ii) that is a of importance, or has been of importance, for the operations as a whole in the present or immediately preceding financial year, or in any previous financial year, and in any way may be considered outstanding in any way or incomplete. The Group has no transactions with related parties other than those reported in Note 3.
The assessed fair value at grant date of options granted during the year ended 31 December 2016, was EUR 1.82 per option. The fair value at grant date is independently determined using the Black & Scholes Model that considers the exercise price, the term of the option, the impact of dilution (where material), the share price at grant date and expected price volatility of the underlying share, the expected dividend yield, the risk free interest rate for the term of the option and the correlations and volatilities of the peer group companies.
The model inputs for options granted during the year ended 31 December 2016 included:
The recipients of the offer were 23 key employees throughout the Group, for a total of 365,084 warrants. Employees in Sweden paid the market value for the warrants in June 2016. Employees outside Sweden paid the market value for 1 warrant, while receiving 1 without payment for each that had been paid for. The value for the payment is included in the cash flow statement.
The Group's activities expose it to a variety of financial risks: market risk (including currency risk and cash flow interest risk), credit risk and liquidity risk. The risk management is coordinated at Group level for all companies that have Evolution Gaming Group AB (publ) as the ultimate Parent Company.
The Group has not used derivative instruments to hedge any risk exposure in present or previous periods.
The currency risk is related to future commercial transactions and recognised assets and liabilities reported in a different currency from each entity's functional currency. Currency fluctuations may
impact Evolution's financial performance.
The Group's accounts are maintained in EUR, while revenues from customer agreements are partially in different local currencies, including GBP and USD. Certain expenses are also denominated in local currencies. In 2017, 14.2 percent (16.9) of Evolution's total revenue was generated in GBP and 14.5 percent (16.7) in USD. Of the total expenses, 4.4 percent (6.5) were in GBP, 3.0 percent (-) in CAD and 2.8 percent (3.5) in USD. The exchange rates between the local currencies and EUR have fluctuated significantly and may in the future fluctuate significantly. While foreign exchange risk and exposure to currency fluctuations have not had a material impact on the Group's business, financial position or profit historically, the Company does not hedge its exposure to currency fluctuations. As a consequence, fluctuations in exchange rates and currencies could have a significant effect on the cash flows of the Company, which could impact the Group's financial results in ways unrelated to its operations and/or have a material adverse effect on its business, financial position and profit. The executive management does not consider the Group to have such a significant exposure to currency risk that it is necessary to carry out a sensitivity analysis showing how the profit/loss and equity would be affected if there were reasonably possible exchange rate fluctuations at the end of the reporting period.
In 2017, the Group reported a profit in the income statement for exchange rate differences of EUR 8 thousand (2016: 8).
Except for cash and cash balances, the Group does not have any material interest-bearing assets and liabilities. In the acquisition, of the premises where the operations in Riga, Latvia, it was partly financed by a Euro denominated loan from a credit institution. The interest rate for the loan is 6-month Euribor (but not less than 0) + 2,2 percent margin. During 2016, the Euribor interest rate have been negative during the majority of the year, therefore the interest rate has been 2,2 percent. A change of the interest rate +1 percent respectively +2 percent would give the additional interest expense of EUR 73 thousand respectively EUR 145 thousand, calculated after tax. The executive management therefore does not consider that profit/loss would have been materially affected by the occurrence of reasonable interest rate fluctuations at the end of the reporting period.
Credit risk is related to accounts receivables and other receivables and cash and cash equivalents. The Group's exposure to credit risk at the end of the reporting period is stated below:
| (EUR thousands) | 2017 | 2016 |
|---|---|---|
| Assets | ||
| Long-term receivables | 2,397 | 522 |
| Accounts receivables and other receivables | 69,526 | 37,266 |
| Cash and cash equivalents | 49,272 | 26,188 |
| Total | 121,195 | 63,976 |
The maximum exposure to credit risk related to the financial assets above at the end of the reporting period is the same as their carrying value, as stated in each note to the financial statements.
The Group has no collateral for these risks. The Group only uses financial institutions that have high quality standards or high ratings. The Group has suitable policies in place to ensure that services are only sold to customers with sufficient credit rating. The Group regularly monitors how these receivables perform in order to discover bad debt losses, with previous experience of the collection of current receivables as the starting point. The executive management considers the accounts receivables to be secure; the Group often conducts business with these counterparties, which are considered by the executive management to have good credit rating, as they have hitherto managed their payments without remarks. As per 31 December 2017, there were past-due accounts receivable for which provisions had not been made of EUR 19,118 thousand (2016: 6,097) (see Note 11).
The Group has past-due accounts receivable for which provisions have been made of EUR 33 thousand. These past due receivables include liabilities within the category more than 181 days, which refer to a number of independent customers that have not been in financial difficulties as of late. Even if a number of customers account for a certain proportion of the Group's past due receivables, the executive management does not believe the concentration of credit risk represents a material risk factor. The Group classifies past due receivables according to the applicable terms of credit and the credit arrangements that are de facto applied to manage the exposure to customers.
Due to the Group's operations and the market in which it operates, a limited number of customers account for a certain part of the Group's revenues. The executive management does not consider that any individual customer or group of interdependent customers constitute any material concentration of credit risk with regard to accounts receivables.
The Group's financial assets amount to EUR 2,397 thousand (2016: 522). Current receivables with a maturity of less than 12 months, consist primarily of accounts receivable. No financial assets or liabilities are reported at a value that deviates significantly from fair value.
The Group is exposed to liquidity risk as regards the meeting of future obligations regarding its financial liabilities, which mostly comprise accounts payable, other liabilities and loans (Notes 15 and 20). Prudent risk management means having sufficient liquidity and credit facilities to ensure that the Group has sufficient funding to meet is obligations.
The executive management monitors liquidity risk by reviewing expected cash flows and ensuring that no additional financing will be needed in the upcoming year.Undiscounted liabilities are shown in the table below with an annual analysis of the Group's liabilities.
| As per 31 December 2017 | Less than 3 months | Between 3 months and 1 year |
Between 1 and 2 years |
Between 2 and 5 | years More than 5 years |
|---|---|---|---|---|---|
| Long-term liabilities from credit institutions | 238 | 712 | 950 | 5,743 | – |
| Accounts payable | 3,951 | – | – | – | – |
| Other current liabilities | 5,709 | – | – | – | – |
| Total | 12,282 | 712 | 950 | 5,743 | 0 |
| As per 31 December 2016 | Less than 3 months | Between 3 months and 1 year |
Between 1 and 2 years |
Between 2 and 5 | years More than 5 years |
| Long-term liabilities from credit institutions | 289 | 866 | 1.155 | 6.450 | – |
| Accounts payable | 2,169 | – | – | – | – |
| Other current liabilities | 5,709 | – | – | – | – |
| Total | 8,167 | 866 | 1.155 | 6.450 | 0 |
Considering the inflow and outflow of cash that occur at the maturity of financial instruments, the Group's liquidity risk is not considered to be material. The value of the Group's assets and liabilities as measured at the end of the reporting period is analysed per category, based on the remaining time to agreed maturity, in the relevant notes to the financial statements.
The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Group's capital consists of equity, as stated in the balance sheet. The Group maintains a capital level adapted to the financial liabilities and obligations that the business gives rise to. The executive management considers the capital to be of a suitable size at the end of the reporting period, considering the nature of the Group's operations. Please see Note 20 for loans from credit institutions.
The amounts recognised as bank deposits and liabilities in the financial reports as at 31 December 2017 and 2016 are reasonable estimates of the fair values, with consideration for the nature of such instruments and the relatively short time period between their origination and expected realisation.
Fair value
| Loans and accounts | ||
|---|---|---|
| As per 31 December 2017 | receivable | Total |
| Assets in the balance sheet | ||
| Other long-term receivables | 2,510 | 2,510 |
| Accounts receivable | 39,492 | 39,492 |
| Other current receivables | 3,453 | 3,453 |
| Cash and cash equivalents | 49,272 | 49,272 |
| Total | 92,728 | 94,728 |
| As per 31 December 2017 | Other financial liabilities | Total |
| Liabilities in the balance sheet | ||
| Long-term liabilities to credit institutions | 6,693 | 6,693 |
| Accounts payable | 3,951 | 3,951 |
| Other current liabilities | 8,094 | 8,094 |
| Total | 18,738 | 18,738 |
| Loans and accounts | ||
| As per 31 December 2016 | receivable | Total |
| Assets in the balance sheet | ||
| Other long-term receivables | 522 | 522 |
| Accounts receivable | 19,039 | 19,039 |
| Other current receivables | 1,103 | 1,103 |
| Cash and cash equivalents | 26,188 | 26,188 |
| Total | 46,853 | 46,853 |
| As per 31 December 2016 | Other financial liabilities | Total |
| Liabilities in the balance sheet | ||
| Long-term liabilities to credit institutions | 7,441 | 7,441 |
| Accounts payable | 2,169 | 2,169 |
| Other current liabilities | 5,709 | 3,249 |
| Net debt | 2017 | 2016 |
|---|---|---|
| Cash and cash equivalents | 49,272 | 26,188 |
| Loan receivables – maturing within one year | -950 | -1,130 |
| Loan receivables – maturing after one year | -6,693 | -7,441 |
| Net debt | 41,629 | 17,617 |
| Other assets |
Liabilities attributable to financing activities |
|||
|---|---|---|---|---|
| Cash and cash equivalents |
Loan receivables – maturing within one year |
Loan receivables – maturing after one year |
||
| Net debt as per 1 January 2016 |
19,930 | |||
| Cash flow | -3,711 | -1,130 | -7,441 | |
| Exchange rate differences | 177 | – | – | |
| Other items not affecting cash flow |
9,792 | – | – | |
| As per 31 December 2016 | 26,188 | -1,130 | -7,441 | |
| Cash flow | 9,328 | 928 | – | |
| Exchange rate differences | -78 | – | – | |
| Other items not affecting cash flow |
13,834 | -748 | 748 | |
| Net debt as per 31 December 2016 |
42,272 | -950 | -6,693 |
The Board of Directors and the CEO certify that the annual accounts have been prepared in accordance with the Annual Accounts Act and RFR 2 "Accounting for Legal Entities" and give a true and fair view of the Company's financial position and earnings and that the Directors' Report gives a fair overview of the development of the Company's operations, position and earnings, and describes significant risks and uncertainties that the Company faces.
The Board of Directors and the CEO certify that the consolidated accounts, have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, and give a true and fair view of the Group's financial position and earnings, and that the Directors' Report for the Group gives a fair overview of the development of the Group's operations, position and earnings and describes significant risks and uncertainties that the companies included in the Group face.
Jens von Bahr Chairman of the Board
Joel Citron Board Member
Jonas Engwall Board Member
Cecilia Lager Board Member
Ian Livingstone Board Member
Fredrik Österberg Board Member
As stated above, the annual and consolidated accounts were approved for publication by the Board of Directors on 23 March 2018.
The consolidated income statement and balance sheet and the Parent Company's income statement and balance sheet are subject to approval by the Annual General Meeting on 20 April 2018.
Our audit report was issued on 23 March 2018.
Öhrlings PricewaterhouseCoopers AB
Niklas Renström Authorised Public Accountant
To the meeting of shareholders in Evolution Gaming Group AB, Corporate Identity Number 556994-5792
We have audited the annual accounts and consolidated accounts of Evolution Gaming Group AB (publ) for the financial year 2017 with the exception of the Corporate Governance Report on pages 37-47. The annual accounts and consolidated accounts of the company are included on pages 32-71 in this document.
In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of parent company as of 31 December 2017 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2017 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the Corporate Governance Report on pages 37-47. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group.
Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the supplementary report which have has been presented to the parent company's and group's Audit Committee in accordance with the Auditors Ordinance (537/2014), Article 11.
We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes, based on our best knowledge and conviction, the provision of no prohibited services as stipulated in the Auditors Ordinance (537/2014) Article 5.1 to the audited companies or, as applicable, to the
parent company or its controlled companies located within the EU.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
The focus and scope of the audit
We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where the Managing Director and Board of Directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of the Board of Directors' and Managing Director's override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which the group operates.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Key audit matters of the audit are those matters that, in our professional judgment, were most significant in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in our audit of, and in forming
our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.
| Key audit matter | How the key audit matter was addressed in our audit |
|---|---|
| Revenue Revenues total EURO 178 million and refer primarily to revenues from the provision of internally developed online live casino gaming. The company's customers pay both commission fees based on the gaming surplus the products generate on behalf of the customers, and a fixed monthly fees. The company's revenues are a significant item comprised of a large number of transactions and which is priced individually pages on customer-specific contracts. There is a risk that all transactions are not captured and that transactions are priced incorrectly. The accounting principles and a further description of the revenues are found in Note 1.16. |
Based on the number of transactions and the customer-specific contracts to which the revenues refer, in performing our audit we have primarily focused on the completeness and correctness of the reported revenues. The audit activities performed have implied that we have, amongst other things: • Obtained an understanding of the significant transaction flows and critical IT systems, and as regards these we have examined important controls in order to manage the risk of misstatements in the financial reporting. In our audit, we have also utilised the expertise of IT specialists. • Evaluated to determine if changes in the company's application of accounting principles and/or assessment has impacted the reporting of revenues. • For a selection of individual revenue transactions, verified that these have been priced according to the customer contracts in place and that the revenues are reported in the correct period. • We have undertaken a follow-up of payments of outstanding accounts receivable and have also discussed matured receivables to assess whether the provisions have been reported correctly based on the assessed risk of bad debts. |
This document also contains information other than the annual accounts and consolidated accounts and this information is found on pages 1-31. The other information includes the sustainability report and our auditor's statement regarding this report. It is the Board of Directors and the Managing Director who are responsible for this other information.
Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information. In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.
If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.
In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company's and the group's ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so.
The Audit Committee of the Board of Directors shall, without prejudice to the Board of Director's responsibilities and tasks in general, among other things oversee the company's financial reporting process.
Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.
A further description of our responsibility for the audit of the annual report and consolidated financial statements is available on the website of the Swedish Inspectorate of Auditors: www. revisorsinspektionen.se/revisornsansvar. This description constitutes a part of the auditor's report.
In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of Evolution Gaming Group AB (publ) for the financial year 2017 and the proposed appropriations of the company's profit or loss.
We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.
We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor's Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.
The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company's and the group's type of operations, size and risks place on the size of the parent company's and the group's equity, consolidation requirements, liquidity and position in general.
The Board of Directors is responsible for the company's organization and the administration of the company's affairs. This includes among other things continuous assessment of the company's and the group's financial situation and ensuring that the company's organization is designed so that the accounting, management of assets and the company's financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors' guidelines and instructions and among other matters take measures that are necessary to fulfil the company's accounting in accordance with law and handle the management of assets in a reassuring manner.
Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:
Our objective concerning the audit of the proposed appropriations of the company's profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company's profit or loss are not in accordance with the Companies Act.
A further description of our responsibility for the management audit is available on the website of the Swedish Inspectorate of Auditors: www.revisorsinspektionen.se/revisornsansvar. This description constitutes a part of the auditor's report.
The Board of Directors is responsible for that the corporate governance statement on pages 37-47 has been prepared in accordance with the Annual Accounts Act.
Our examination of the corporate governance statement is conducted in accordance with FAR's auditing standard RevU 16 The auditor's examination of the corporate governance statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.
A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2-6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act. Öhrlings PricewaterhouseCoopers AB were appointed as auditors of Evolution Gaming Group AB (publ) by the shareholders' meeting held on 14 November 2014 for a period of 4 years.
Stockholm, 23 March 2018 Öhrlings PricewaterhouseCoopers AB
Niklas Renström Authorised Public Accountant
| Return on shareholders' equity |
The period's earnings in relation to average equity in the past twelve months. |
|---|---|
| EBITDA | Operating profit before depreciation, amortisation and impairments. |
| EBITDA margin | EBITDA in relation to operating revenues. |
| EUR, EURm, EUR 000 | EUR, EUR million, EUR thousands |
| Average number of full-time employees |
The average number of full-time employees during the period. Full-time equivalents include part-time positions. |
| Average number of shares outstanding |
The average number of shares outstanding during the period. |
| Operating profit | Total operating revenues reduced by total operating expenses. |
| Operating margin | Operating profit in relation to operating revenues. |
| Equity/assets ratio | Equity at the end of period in relation to total assets at the end of period. |
| OPERATIONAL AND OTHER TERMS | |
|---|---|
| B2B | Refers to "Business-to-Business," i.e. business conducted between two companies with no private individuals involved. |
| B2G | Refers to "Business-to-Government," i.e. business conducted between a company and a government body with no private individuals involved. |
| Gross Gaming Revenue | Consists of the bet reduced by the winnings returned to the player. |
| Derivative/game derivative | Refers to further developments of Evolution's core games. They may be subject to special rules or have other characteristics that are not found in the original game. |
| Direct Game Launch | Refers to add-on functionality in Evolution's offering which allows the operator to place links that open a Live Casino game directly when the end user clicks on them. |
| H2GC | Refers to the independent market analysis firm H2 Gambling Capital. |
| HD | Refers to "High Definition", i.e. a high resolution image. |
| MCR | Refers to "Mission Control Room," the control room that controls Evolution Gaming's operations in all Live Casino studios. |
| RNG | Refers to "Random Number Generated," i.e. games based on random number generated data. |
| Share of live | Refers to the proportion of the revenue that stems from Live Casino in relation to the total gaming revenue. |
| Slots | A game about getting three symbols in a row on a row of rotating reels. |
| End users | Refers to the gaming operators' customers, i.e. gamers. |
| Streaming | Refers to the English term for playing audio and video files on the recipient's unit at the same time as they are transferred via a network, such as the Internet. |
| Tier 1 | Refers to customers of materially strategic and/or financial importance. Evolution communicates all new Tier 1 customers via press releases and/or interim statements. |
Evolution Gaming Group AB (publ) Hamngatan 11 SE-111 47 Stockholm, Sweden
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