TIDMPAYS
RNS Number : 6793Y
Paysafe Group PLC
07 March 2017
Paysafe Group plc
Final results for year ended 31 December 2016
Paysafe delivers another strong performance in FY 2016,
reiterates positive outlook for 2017
LONDON (7 March 2017) - Paysafe Group plc (LSE: PAYS, "Paysafe"
or the "Group"), a leading global provider of payment solutions,
announces its audited preliminary results for the year ended 31
December 2016.
Financial highlights
$m 2016 2015
Revenue 1,000.3 613.4
Year-on-year revenue growth 63% 68%
Organic constant currency year--on--year revenue
growth(1) 21% 13%
Adjusted EBITDA(2) 300.8 152.6
Adjusted EBITDA margin 30.1% 24.9%
Operating profit 194.4 26.2
Operating profit margin 19.4% 4.3%
Adjusted pro t after tax(3) 213.0 108.7
Statutory pro t after tax 142.0 7.4
Adjusted fully diluted EPS ($)(3) 0.42 0.26
Statutory fully diluted EPS ($) 0.28 0.02
Adjusted cash conversion before payments working
capital(4) 101% 92%
Adjusted cash conversion after payments working
capital(4) 86% 60%
$m 31 Dec 16 31 Dec
15
Net debt(5) 279.8 431.3
Net debt to last 12 months adjusted pro-forma
EBITDA(6) 0.9x 2.1x
Financial highlights
- Group exceeds $1bn in revenue for the first time and delivers
adjusted EBITDA of $301m and statutory operating profit of
$194m.
- Exceptional year-on-year growth in revenue and adjusted EBITDA margin.
- Group continues to demonstrate impressive cash conversion and
balance sheet strength, with significant debt capacity at 31
December 2016.
- Elevation to the FTSE 250 alongside ensuring strong financial
management and appropriate governance framework, control
environment and enhanced reporting.
Operational highlights
- Completed Skrill integration five months ahead of schedule.
- MeritCard and Income Access acquired, adding diversification
of risk profile and additional product capability.
- Continued investment to maintain best-in-class KYC, risk
management and operational third-party technology.
- Commenced development of consolidated, comprehensive and
scalable payments platform with continued modular launches planned
for 2017.
- Launched developer self-service portal.
Governance update
- Jennifer Allerton and Karen Guerra appointed as Non-Executive
Directors today with immediate effect. An announcement regarding
these appointments is being separately released today.
- Following a comprehensive Audit Committee-led external audit
tender process, Deloitte has been appointed auditor from FY 2017
onwards.
Outlook
- Management expects to achieve low double-digit organic revenue
growth in FY 20177, while expecting to at least maintain a 30.1%
adjusted EBITDA margin. This outlook is supported by trading year
to date.
Commenting on the results, Paysafe Chairman Dennis Jones said:
"This is our first full year as Paysafe, and it's been a year of
continuing change, with growth, agility, and risk management at the
heart of our business. The management team has not only delivered
on the promise of our Skrill acquisition but continued to grow and
diversify our capabilities, while delivering an impressive
financial performance."
President and Chief Executive Officer Joel Leonoff said: "It has
been a great year for the Group and I'm pleased to report an
outstanding set of numbers. We have delivered strongly against our
financial and strategic targets, passing $1bn in revenue for the
first time and reporting adjusted EBITDA of $301m.
"We have big ambitions in a sector that is rapidly accelerating.
We will continue to invest strategically and have commenced
development of our consolidated, comprehensive and scalable
payments platform. I am confident in the Group's ability to retain
this positive momentum into 2017 and we are passionate about
delivering the products and services to support the changing
payment needs of consumers and merchants in an evolving digital
economy."
Investor and analyst conference call
The company will hold an investor call hosted by Paysafe
President and CEO Joel Leonoff and CFO Brian McArthur-Muscroft at
2:00pm GMT on Tuesday 7(th) March. Participants may join the call
either over the phone or via a live online webcast.
Dial-in number: +44(0) 800 953 1289 (UK) / +1 866 869 2321
(US)
Conference ID: 76567630
Audiocast link:
http://engage.vevent.com/rt/webcasting/index.jsp?seid=792
Chairs: Joel Leonoff (President and CEO), Brian
McArthur-Muscroft (CFO)
Participants will be asked to register their names and companies
when joining the call.
About Paysafe
Paysafe provides digital payments and transaction-related
solutions to businesses and consumers around the world. Paysafe is
redefining payments by enabling fast, convenient and secure ways to
pay before, pay now and pay later through its payment processing,
digital wallets, prepaid solutions and card issuing, and acquiring
products and services. We believe that every point of every payment
should be relevant, simple and secure. With two decades of
experience, Paysafe is trusted by businesses and consumers to move
and manage money through more than 100 payment types and 40
currencies. Paysafe offers multi-platform products with an emphasis
on emerging payment technologies including mobile. Paysafe's brand
portfolio includes NETELLER(R) and Skrill(R), MeritCard,
paysafecard(R), payolution(R), Income Access and FANS
Entertainment. Paysafe Group plc shares trade on the London Stock
Exchange under the symbol (PAYS.L). For more information, visit:
www.paysafe.com.
This announcement contains inside information as stipulated
under the Market Abuse Regulation (EU) No. 596/2014.
For further information, contact:
Paysafe Group plc
Michelle Singleton, VP Investor Relations
+44 (0) 20 3826 9800 / investorrelations@paysafe.com
Gavin Haycock, SVP Corporate Communications
+44 (0) 20 3826 9767 / gavin.haycock@paysafe.com
Brunswick Group LLP
Brian Buckley / Rowan Brown
+44 (0) 20 7404 5959 / paysafe@brunswickgroup.com
Certain statements in this announcement are forward-looking
statements, for example, statements including the words
"anticipate", "expects", "believe" or other similar words. These
forward-looking statements speak only as at the date of this
announcement. These statements concern, or may affect, future
matters and include matters that are opinions. Such statements are
based on current expectations and beliefs and, by their nature, are
subject to a number of known and unknown risks and uncertainties
that could cause actual results and outcomes to differ materially
from any expected future results or performance expressed or
implied by the forward-looking statements. You are cautioned not to
place undue reliance on these forward-looking statements. The
information and opinions expressed in this announcement are subject
to change without notice and, except as required by law, neither
Paysafe Group plc nor any other person assumes any responsibility
or obligation to update publicly or review any of the
forward-looking statements contained within this announcement,
regardless of whether those statements are affected as a result of
new information, future events or otherwise.
Please note that due to rounding, numbers presented throughout
this document may not add up precisely to the totals provided.
Percentage changes are calculated on unrounded figures.
[1] Unaudited organic constant currency year on year revenue
growth is an alternative performance measure that the Group uses to
communicate the underlying revenue performance of the Group
excluding the impact of acquisitions and currency movements. The
prior year represents pro-forma constant currency revenue growth.
Further information on our alternative performance measures,
including definitions, explanations and reconciliations, is
included at the end of this results release.
(2) Adjusted EBITDA is an alternative performance measure that
the Group uses to communicate the underlying operating profit
performance of the Group. Adjusted EBITDA is defined as results of
operating activities before depreciation and amortisation,
share-based payment expense, fair value gains and losses on share
consideration payable, foreign exchange gains and losses, and gains
and losses on disposals of assets. It is also adjusted for
exceptional or non-recurring items which are defined as items of
income and expense of such size, nature or incidence that, in the
view of management, are not reflective of the underlying
performance of the Group and should be disclosed to explain the
performance of the Group.
(3) Adjusted profit after tax is defined as reported profit
after tax excluding share-based payment expense, fair value gains
and losses on share consideration payable, foreign exchange gains
and losses, losses on disposals of assets and exceptional or
nonrecurring items as explained within the Adjusted EBITDA footnote
above. It also excludes amortisation of acquired intangibles, and
the tax effect of the adjustments set out above. No adjustments are
made to reported fully diluted weighted average number of shares to
calculate adjusted fully diluted earnings per share (EPS).
(4) Adjusted free cash conversion is an alternative performance
measure the Group has adopted to demonstrate our ability to convert
our EBIT growth into cash that can be reinvested in the business
through investment, returned to shareholders, or used to support
our strategic pillar of bold M&A.
(5) Reported net debt includes short and long-term debt
(excluding deferred finance costs), finance leases, deferred cash
consideration payable and contingent cash consideration payable
offset by cash and cash equivalents.
(6) Net debt and net debt / last 12 months adjusted EBITDA are
alternative performance measures which management uses to give
investors and stakeholders an indication of the debt capacity of
the Group.
(7) At current exchange rates.
Operating review
These results reflect our first full year as Paysafe and we have
delivered a performance which underscores how much our business has
developed over the period. We have executed against our five
strategic pillars and delivered another excellent financial
performance, while continuing to invest in improving our
capabilities, our culture and our relevance. We are particularly
pleased to have passed the $1 billion revenue milestone while
materially increasing our profitability.
We are successfully leveraging the enlarged payments offering we
provide, with the Skrill business having been integrated ahead of
schedule early in the second half of the year, following its
acquisition in August 2015. $48bn of total payment volume passed
through our processing, digital wallet and prepaid voucher
platforms, up 21% on the previous year.
In 2016 our focus has been on ensuring we have a strong
multi-year vision, based on our strategic pillars, as well as an
entrepreneurial culture to underpin those pillars. We've also
worked to ensure we are well positioned to adapt and benefit from
ongoing changes in our market and regulatory environments. In 2017,
our focus will be on driving our businesses to maximise their
potential through one centralised consolidated technology platform
- a project which has been underway since H1 2016.
Our market
Our success is consistent with the acceleration in the shift
from traditional payment formats to digital, technology-driven
platforms. Consumers and merchants are increasingly demanding
easier, faster, safer and more efficient ways to pay, transfer and
receive money, and we are building our platform with an eye on
becoming a natural home for them as their needs grow and
diversify.
The creation of Paysafe, with the acquisition of Skrill in 2015,
was in response to this rapidly changing and growing payments
landscape. Our success in addressing the market opportunity is
driven by an entrepreneurial management team focused on delivering
excellence across all of our products and services - from cash to
digital currency, "all-in-one" processing to multi-currency
consumer wallets and money transfer, and order-ahead mobile apps to
consumer credit solutions.
Operating in a highly-regulated environment means adapting to
changes and uncertainty in various legislative and industry
frameworks. Examples include the new EU Payment Services Directive
("PSD2"); changes to EU Anti-Money Laundering Directives; the UK's
referendum decision to leave the European Union leading to
volatility in exchange rates and uncertainty around licencing; and
the General Data Protection Regulations coming into force in the UK
in May 2018.
Our strategic planning process covers risks and uncertainty as
well as opportunities, and we view ongoing regulatory developments
as an opportunity for us to become more relevant to our merchants
wherever possible. For example, our strength in alternative payment
methods sets us up well for responding to PSD2. The investments we
have already made in compliance and risk management capabilities,
as well as the prudent assumptions in relation to additional costs
built into internal forecasts, gives us confidence that changes to
anti-money laundering regulation will not have a material effect on
our expectations for revenue growth and adjusted EBITDA margin in
2017. In addition, we have a diverse geographic spread of
merchants, consumers and operations, supported by a strong
compliance and monitoring team, which positions us well to respond
to ongoing change.
Strategic progress: five pillars for growth
At the time of our interim results in August, we set out five
strategic pillars supporting our growth and the way we do business.
These pillars embody our market approach and the key areas that we
are focusing on, and investing in, to ensure that we lead the way
in capturing the significant market shift in payments.
Our pillars are: delivering sustainable organic growth,
harnessing state-of-the-art technology, leveraging relevant,
niche-oriented payment solutions, fostering an entrepreneurial
culture and pursuing bold M&A.
We have renamed our organic growth strategic pillar to speak
more clearly to how our core capability of managing risk and
compliance enables us to deliver sustainable organic growth.
Sustainable organic growth
Our three divisions delivered strong revenue performances in FY
2016 as more fully outlined in each divisional financial
review.
Central to the Paysafe growth strategy is our ability to
generate significant cash flows from this growth, and we've
demonstrated that again in FY 2016. With our adjusted free cash
conversion before payments working capital for FY 2016 at 101% and
free cash flow as a percentage of operating profit at 104%, it
allows us to scope ambitious M&A opportunities, continue to
invest in core areas of compliance and technology, and provide
returns to shareholders.
We were also pleased to announce our inaugural buyback programme
of up to GBP100m in December 2016. Importantly, we were able to do
this without compromising our ability to continue to pursue bold
M&A.
For the longer term, we continue to invest in organic
opportunities where we see potential for future growth. For
example, during the year, we saw good growth in our remittance
business, our European acquiring business and our payolution
consumer credit business.
During the year, we invested significantly in our risk and
compliance functions across the Group. Our investment in people and
technology underpins our approach to sustainable growth, based on
quality systems, robust processes, policies and an employee culture
that values and prioritises intelligent risk management. We will
continue to invest in these areas, alongside information security
and data protection, throughout 2017.
State-of-the-art technology
Technology is the foundation of the Paysafe business, and a key
driver of our current and future success.
By completing the Skrill integration project five months ahead
of schedule in 2016, we made an early start on consolidating all of
our products and services to form a new comprehensive and scalable
payments platform. This includes easier onboarding and developer
tools, centralised data and analytics, detailed reconciliations, as
well as additional compliance and risk management tools. New
platform functionality will be delivered in a modular approach
throughout 2017, reflecting the developing needs of Paysafe and our
merchants.
Our consolidated platform will enable our merchants across the
Group to access all our products, and through those, the spending
power of our engaged consumer base. It will also enable us to
integrate new functionalities and capabilities across multiple
channels, including online and mobile through to smart point of
sale, more quickly and efficiently than before.
Supporting our proprietary development, during 2016 we have
integrated several additional technology providers within our risk
management functions to make automated know-your-customer ("KYC")
as frictionless as possible for our consumers and merchants. In
addition, we launched our new developer portal in December 2016, to
simplify onboarding and enable Paysafe to share its payments
expertise with a vibrant developer-centric community of users.
Relevant, niche-oriented solutions
We have a niche-oriented approach to the payments market, using
our evolving payments platform technology to create relevant,
differentiated offerings for businesses and consumers in areas
where we can see potential for growth and scale by delivering value
to those segments. We focus on industries where we have or can
build significant expertise, as well as consumer and merchant
segments with complex market needs and regulatory requirements that
are currently underserved.
One of our most significant niche verticals, largely within our
Digital Wallets and Prepaid divisions, is online gambling. We've
been disclosing our merchant revenue from online gambling since H2
2015, and in H2 2016 online gambling revenue grew around 23%
year-on-year on a pro-forma basis(8) . We continue to seek
opportunities in other verticals as part of our ongoing drive to
take advantage of growth opportunities outside of online gambling.
In addition, we saw strong growth in medium to higher risk
e-commerce processing within our Payments Processing division
during the year.
The soft launch of our GOLO mobile ordering and delivery product
during the year is another example of how we are addressing
merchant needs through innovation. With GOLO, we aim to help
merchants secure higher revenues, increase operational efficiency,
enhance loyalty and customer retention and gain better insights
into their customers' existing and future needs.
The relevance and excellence of our solutions was recognised
during the year with a number of awards, including:
-- Payments Awards 2016 - Best Merchant Acquirer/Processor
-- Pay Before 10(th) Anniversary Awards 2016 - Best Online or Mobile Commerce Solution
-- Payments & Fraud Company of the Year (paysafecard)
Entrepreneurial culture
We're building an entrepreneurial culture where our employees
are empowered, engaged and encouraged to take initiative and
develop their expertise. This involves empowering our divisional
CEOs and their teams so they can make decisions quickly in ways
that maximise success for their respective business lines, and for
the Group as a whole.
This approach embodies our Paysafe values of being courageous,
pioneering, open, and focused, and we've invested in the rollout of
these Paysafe values across the combined business during 2016.
In April 2016 we carried out our first Paysafe employee
engagement survey, based on the internationally recognised Gallup
Q12 survey. In this year of transition and integration, we scored
68%. While this is a strong starting point, compared to the average
engagement rates of the winners of the 2016 Gallup Great Workplace
Award at around 70%, we're looking to improve this metric,
underpinned by programmes aimed at developing and retaining our
talent. We were also pleased that voluntary employee attrition
during a year of transition to the new Paysafe business and brand
was only 11%.
Our Executive Leadership team continues to strengthen and post
year-end we announced Oscar Nieboer as Chief Marketing Officer.
Oscar brings extensive experience in strategic marketing across
e-commerce, payments and the gambling industries, and will support
our drive to promote the business and brand to a wider audience of
businesses and consumers.
In March 2017, we appointed Tim Thurman as Chief Digital Officer
to drive the development and deployment of our digital technology
capabilities. Tim brings more than 20 years of technology
experience, and is a proven leader in digital transformation
projects at scale.
In addition to sourcing external resources that embody our core
values, we strive to promote from within and create opportunistic
and exciting career paths that encourage leadership and growth.
Bold M&A
Paysafe is not a business that stands still. We have big
ambitions which are an integral part of our growth strategy. We
have a strong track record in identifying businesses that add value
to our Group, and integrating these businesses quickly and
effectively.
We have proven our significant capability in executing on
acquisitions during FY 2016. We completed the Skrill integration
five months ahead of schedule, at lower cost, and delivered
synergies of over $40m during FY 2016.
We acquired MeritCard in February 2016, broadening and deepening
our sales capabilities and partner relationships in US payment
processing, and balancing our risk profile to enable additional
merchant onboarding. We also acquired Income Access in August 2016,
a digital marketing and affiliate technology business, boosting our
relevance to the online gambling sector. Both transactions reflect
our drive to broaden Paysafe's payments offering across niche areas
of expertise and create multi-channel offerings.
We continue to review and research companies that we believe can
accelerate growth opportunities, diversify our merchant and product
base, and fortify our strong position in the payments space,
against our clearly defined criteria of accretion to shareholders
and advancing and accelerating the strategic initiatives of the
overall business.
Financial review
The Group reported revenue for the year of $1,000.3m (2015:
$613.4m), statutory profit after tax of $142.0m (2015: $7.4m) and
basic earnings per share of $0.29 (2015: $0.02).
Adjusted EBITDA grew 97% to $300.8m (2015: $152.6m), at a margin
of 30.1% (2015: 24.9%). Statutory operating profit grew 641% to
$194.4m (2015: $26.2m), at a margin of 19.4% (2015: 4.3%).
These results demonstrate the success of our focus on generating
controlled, sustainable and profitable growth as a FTSE 250 group.
We've delivered this growth while completing the Skrill integration
ahead of schedule and further investing in the core infrastructure
of our business.
With our high cash generation, we ended the year with a balance
sheet that is stronger than at any time in our recent history. This
is highlighted by the reduction in our net debt to LTM adjusted
EBITDA ratio to below 1 times, giving us significant capacity to
support future M&A opportunities, and is underpinned by the
reiteration of our stable outlook BB and Ba2 long-term corporate
credit ratings from S&P and Moody's respectively during FY
2016. In addition, following engagement with investors throughout
the year, we announced a share buyback programme of up to GBP100m
in December 2016.
In line with putting risk management at the heart of our
culture, we're ensuring we have strong financial management and the
appropriate governance framework, control environment and enhanced
reporting to support the scaling up of the Group. We've been
investing in our risk and compliance functions as well as
developing related policies, comprehensive processes and training
programmes. This foundation will serve us well as we continue to
execute on our strategic goals into 2017 and beyond.
We're committed to providing open and transparent disclosure.
We're building on previous disclosure enhancements and providing
more insight into the composition of each of our divisions.
Breakdowns of revenue for each division by region and vertical are
included in the divisional reviews below.
Group revenue and gross profit
Group reported revenue and margin - by division
$m 2016 2015
------------------- ------ ------
Revenue
Payment Processing 467.8 375.1
Digital Wallets 311.0 159.1
Prepaid 213.7 76.4
Investment income 7.7 2.8
------------------- ------ ------
Total 1000.3 613.4
$m 2016 2015
------------------- ------ ------
Gross profit
Payment Processing 189.9 138.5
Digital Wallets 232.9 116.0
Prepaid 112.3 39.2
Investment income 7.7 2.8
------------------- ------ ------
Total 542.9 296.5
$m 2016 2015
------------------- ------ ------
Gross margin
Payment Processing 40.6% 36.9%
Digital Wallets 74.9% 72.9%
Prepaid 52.6% 51.3%
Investment income 100.0% 100.0%
------------------- ------ ------
Total 54.3% 48.3%
Group fee revenue(9) - by geography
$m 2016 2015
-------------- ---- ----
Fee revenue
Europe 45% 33%
North America 29% 36%
Asia & ROW 27% 31%
-------------- ---- ----
Total 100% 100%
On an organic constant currency basis, FY 2016 revenue increased
21% year-on-year (2015: 13%). All divisions contributed to this
growth, with Prepaid's performance supporting exceptional
performance from Digital Wallets and Payment Processing.
This compares with our reported revenue growth of 63%
year-on-year (2015: 68%), reflecting the impact of the Skrill
acquisition in August 2015.
Online gambling remains the largest specialist vertical for the
Group, contributing 46% of FY 2016 fee revenues (H2 2015 pro-forma:
44%). 6% of our fee revenue is attributed to gaming (H2 2015
pro-forma: 10%) while e-commerce and consumer fees make up 48% of
FY 2016 revenue, up from 46% of pro-forma fee revenue in H2
2015.
The Group reports in US dollars. Approximately 40% of FY 2016
fee revenue was denominated in US dollars, with approximately 30%
denominated in Euros. FY 2016 reported fee revenue by geography
shows revenue from Asia and the rest of the world (outside of
Europe and North America) reducing to 27% from 31% in FY 2015.
Investment income revenue of $7.7m in 2016 (2015: $2.8m) was
derived from interest earned on cash held by the Group on behalf of
merchants and consumers, with the increase during the year
reflecting the inclusion of a full year of the Skrill Group's
results.
Reported gross profit for FY 2016 was $542.9m (2015: $296.5m),
with gross margin of 54.3% (2015: 48.3%). The increase in reported
gross margin largely reflects the inclusion of a full year of the
higher margin Skrill Group.
Group adjusted EBITDA
Adjusted EBITDA increased 97% to $300.8m (2015: $152.6m),
reflecting a full year of contribution from the Skrill Group.
Adjusted EBITDA margin increased to 30.1% (2015: 24.9%)
reflecting the change in gross margin mix following the Skrill
acquisition and the impact of synergies. This margin improvement
was achieved alongside significant investments in additional
compliance and KYC functions, to position us at the forefront of
regulatory developments in the payments sector.
This figure compares with our statutory operating profit, which
grew 641% to $194.4m (2015: $26.2m), at a margin of 19.4% (2015:
4.3%). A reconciliation of results from operating activities to
adjusted EBITDA is shown below:
$m 2016 2015
------------------------------------ ----- -----
Results from operating activities 194.4 26.2
Depreciation and amortisation 84.5 51.3
Share based payments 13.7 14.1
Acquisition costs 2.2 29.4
Restructuring costs 5.6 8.2
Foreign exchange loss 6.8 9.7
Net fair value (gain)/loss on share
consideration payable (7.2) 13.6
Other costs 0.8 0.1
------------------------------------ ----- -----
Adjusted EBITDA 300.8 152.6
------------------------------------ ----- -----
Operating expenses
Total operating expenses were $348.5m (2015: $270.2m), with the
increase reflecting a full year of contribution from the Skrill
Group following the acquisition. Information on components of
operating expenses are set out below.
Adjusted EBITDA operating expenses
Adjusted EBITDA operating expenses were 24% of sales, in
comparison to 23% of sales in FY 2015.
Salaries and employee expenses (excluding share-based payments)
as a percentage of revenue were 13% (2015: 12%). This increase
reflects the ongoing targeted investment in the business in areas
such as risk and compliance, and product, technology and
development, as well as the scaling up of the business. These
impacts were partially offset by synergy benefits. In total, the
business added 538 net new heads over 2016 (250 in H1 2016 and 288
in H2 2016).
Share-based payments
Share-based payment expense reduced to $13.7m in FY 2016 (2015:
$14.1m), representing 9% of total employee expenses (2015: 16%).
This expense related to the Group's LTIP and share options
allocated to employees and management, and has reduced since FY
2015, following the full vesting of one-off new LTIP awards to
support executive recruitment.
Foreign exchange
A foreign exchange loss of $6.8m was incurred (2015: $9.7m),
largely relating to currency fluctuations on the cash balances held
by the Group. As well as the Group's own cash and cash equivalents,
balances in a number of currencies are held on deposit for
consumers and merchants. These balances fluctuate and are not
always offset by liabilities in the same currency, due to consumers
and merchants not always choosing to deposit and withdraw funds in
the same source currency. Unrealised foreign exchange gains and
losses also arise on translation of cash held at reporting dates in
entities with different functional currencies.
Acquisition and restructuring expenses and fair value movements
on share consideration payable
Acquisition costs of $2.2m (2015: $29.4m) were incurred, largely
due to the acquisition of Income Access and the prior year
acquisition of the Skrill Group. Restructuring costs of $5.6m
(2015: $8.2m) were also incurred largely in relation to the
integration of Skrill. This includes personnel and consultancy
costs. $4.9m of these restructuring costs were incurred in H1
2016.
We also recognised an exceptional $7.2m non-cash net fair value
gain on share consideration payable in relation to the Meritus
acquisition (2015: $13.6m loss). This was largely due to the
reduction in the value of the pound sterling against the US dollar
over the period.
Depreciation and amortisation
Depreciation and amortisation was $84.5m (2015: $51.3m) which
included amortisation of acquired intangible assets of $51.9m
(2015: $31.9m). Amortisation of acquired intangible assets is
excluded from our adjusted profit figures. The rise in both figures
reflect a full year of contribution from the Skrill business, as
well as increased levels of capital spending for the combined Group
throughout FY 2016. Our adjusted depreciation and amortisation is
expected to continue to rise in FY 2017 and beyond as a result of
this increased capital spending.
Net finance costs
Net finance costs were $26.4m (2015: $14.4m). This included
$18.4m of interest on long-term debt, as well as $5.4m of
amortisation of deferred financing fees and $2.6m of net other
finance costs. The net other finance cost includes fees on unused
facilities, recognition of unrealised changes in the fair value of
the outstanding interest rate swap, and $1.0m of proceeds relating
to the sale of Visa Europe to Visa Inc. in H1 2016.
Tax
The tax charge for 2016 was $26.0m (2015: $4.4m), comprising a
current tax charge of $33.0m (2015: $6.8m) offset by the unwinding
of deferred tax liabilities of $7.0m (2015: $2.4m). On an adjusted
basis(10) , the tax charge was approximately $28.9m (2015: $10.0m),
with an adjusted tax rate of approximately 11.9% (2015: 8.5%). The
increase in adjusted tax charge reflects a full year of
contribution from the Skrill and paysafecard businesses based in
the U.K. and Austria, and the growth in profit before tax of the
Processing division in North America. These regions have higher
mainstream corporation tax rates than the Group's existing
underlying adjusted tax rate. The adjusted tax charge is expected
to continue to increase in FY 2017 and beyond, as the trend of
increasing proportions of profit before tax in those regions
continues.
Statutory profit after tax and other comprehensive income
Statutory profit after tax was $142.0m (2015: $7.4m), with the
comparative period affected by acquisition costs in relation to
Skrill. Adjusted profit after tax was $213.0m (2015: $108.7m).
A loss of $32.9m (2015: loss of $1.4m) was recognised through
other comprehensive income relating to translation differences on
the results, assets and liabilities of non-US dollar denominated
entities.
Earnings per share
Statutory basic earnings per share were $0.29 for 2016, compared
to $0.02 in 2015. On a fully diluted basis, statutory earnings per
share were $0.28 (2015: $0.02).
Adjusted fully diluted earnings per share were $0.42, 65% higher
than FY 2015. Adjusted basic earnings per share for FY 2015 were
affected by the completion of the rights issue in May 2015, prior
to the consolidation of the results of Skrill from 10 August
2015.
A reconciliation of Statutory profit after tax to adjusted fully
diluted earnings per share is shown in the table below.
$m 2016 2015
-------------------------------------- ----- -----
Statutory profit after tax 142.0 7.4
Tax 26.0 4.4
-------------------------------------- ----- -----
Statutory profit before tax 168.0 11.8
Share based payments 13.7 14.1
Amortisation of acquired intangibles 51.9 31.9
Acquisition costs 2.2 29.4
Restructuring costs 5.6 8.2
Foreign exchange loss 6.8 9.7
Net fair value (gain) / loss on share
consideration payable (7.2) 13.6
Other costs 0.8 0.1
-------------------------------------- ----- -----
Adj. profit before tax 241.9 118.7
Adjusted tax 28.9 10.0
-------------------------------------- ----- -----
Adj. profit after tax 213.0 108.7
-------------------------------------- ----- -----
Adj. fully diluted EPS ($) 0.42 0.26
-------------------------------------- ----- -----
Weighted average number of shares in
issue - diluted (million) 506.0 425.2
-------------------------------------- ----- -----
Cash flow and cash position
Group cash and cash equivalents were $231.2m at 31 December 2016
(31 December 2015: $117.9m).
Free cash flow(11) was $202.4m for FY 2016 (2015: $42.8m).
Excluding payments working capital cash flows, free cash flow was
$242.0m (2015: $84.7m). Adjusted cash conversion before payments
working capital as a percentage of adjusted EBIT was 101% in FY
2016, increasing from 92% in FY 2015. This largely reflected
improvements in operating working capital partially offset by
increased capital spending as a percentage of revenue, compared to
adjusted depreciation and amortisation.
Free cash flow as a percentage of operating profit was 104%
(2015: 163%).
A reconciliation outlining the components of the cash conversion
measure is as follows. A full reconciliation from free cash flow to
adjusted free cash flow can be found at the end of this results
release.
$m 2016 2015
----------------------------------------------- ------- -------
Adj. EBIT 268.3 133.2
Adj. depreciation & amortisation 32.5 19.4
----------------------------------------------- ------- -------
Adj. EBITDA 300.8 152.6
Working capital movement 22.9 (6.0)
Less restructuring cost not yet paid - (0.6)
Purchase of PP&E and intangible assets (53.7) (23.7)
----------------------------------------------- ------- -------
Adj. free cash flow before payments w/capital 270.0 122.2
Cash conversion before payments working
capital 101% 92%
----------------------------------------------- ------- -------
During FY 2016, we paid cash consideration of $37.5m in total in
relation to the acquisitions of MeritCard in February 2016 ($16.1m)
and Income Access in August 2016 ($21.4m). Contingent cash
consideration of $4.1m will become payable in relation to MeritCard
subject to achievement of financial targets, and approximately
$9.2m cash consideration is payable in relation to Income Access in
three equal instalments over 18 months.
Long-term debt
The Group's total long-term debt position on the statement of
financial position was $480.9m at 31 December 2016 (31 December
2015: $524.2m), including $0.3m of obligations under finance leases
(31 December 2015: $0.4m).
The debt facility includes a EUR280m Term A loan which is
repayable over five years. This loan bore interest of Euribor plus
3.0% until the end of May 2016 and Euribor plus 2.75% thereafter.
It also includes a EUR220m Term B loan, bearing interest at Euribor
plus 4.0% until the end of May 2016 and Euribor plus 3.75%
thereafter. The lower level of interest followed the submission of
compliance certificates, which showed that adjusted leverage at 31
December 2015 was below the 3.00:1 test set out under the
agreements. The Term B loan is repayable at the discretion of the
Group, without penalty, before the maturity date of 10 August
2022.
The reduction in the total long-term debt position reflects
repayments on the Term A credit facility of $31m in total (EUR14m
in February 2016 and EUR14m in August 2016), as well as a $17.1m
movement in foreign exchange rates, slightly offset by the
amortisation of deferred financing fees.
The Group also has a revolving credit facility available of
$85.0m. Letters of guarantee to the value of $8.7m (2015: $8.7m)
are secured against this facility as fully described in note
13.
Covenants on the long-term debt include a net debt/adjusted
EBITDA ratio and fixed charge cover. The Group was in full
compliance with its debt covenants at 31 December 2016.
Net debt
Reported net debt at 31 December 2016 was $279.8m (31 December
2015: $431.3m). Net debt for the purposes of covenants is
comparable to reported net debt. Reported net debt / pro-forma LTM
EBITDA was 0.9x times at 31 December 2016 (31 December 2015:
2.1x).
$m 31 Dec 16 31 Dec 15
-------------------------------------- --------- ---------
Current portion of long-term debt
& cap lease 29.7 30.9
Long-term debt and capital lease 451.2 493.3
Deferred financing fees 15.8 21.6
Deferred cash consideration payable 10.2 3.3
Contingent cash consideration payable 4.1 -
-------------------------------------- --------- ---------
Total debt 511.0 549.2
Cash & cash equivalents (231.2) (117.9)
-------------------------------------- --------- ---------
Net debt 279.8 431.3
Net debt / pro-forma adjusted LTM
EBITDA 0.9x 2.1x
-------------------------------------- --------- ---------
Goodwill
Goodwill was not recognised on the acquisition of MeritCard in
February 2016, with virtually the entire purchase price of $20.2m
allocated to finite-life intangible assets. Goodwill of $10.7m was
recognised on the acquisition of Income Access in August 2016. No
impairments were identified on these balances, nor on the
previously recognised goodwill largely relating to the acquisitions
of Meritus and GMA in July 2014, of Skrill in August 2015 and FANS
Entertainment Inc. in May 2015. The goodwill balance reduced by
$24.2m during the period due primarily to the impact of the
devaluation of the Euro against the U.S. dollar.
Intangible assets and property, plant and equipment
The net book value of intangible assets at 31 December 2016 was
$364.3m (31 December 2015: $369.9m). This balance largely relates
to intangible assets recognised on the acquisition of the Skrill
Group in 2015 and Meritus and GMA in 2014. During the year, $19.9m
of additions related to intangibles acquired with MeritCard, and
$18.7m related to intangible assets recognised on the acquisition
of Income Access.
The Group capitalised $27.5m of development costs throughout the
year (2015: $12.9m) excluding the impact of acquisitions.
Capitalisation as a percentage of sales increased to 2.7% (2015:
2.1%). This reflects the higher percentage of re-investment in the
combined Group, including the start of work on the new consolidated
platform, ahead of schedule.
We also capitalised a multi-year non-compete asset in relation
to changes in outsourcing arrangements with a strategic supplier.
$7.0m of this asset was settled during the period, with $3.0m of
deferred payments accrued as at 31 December 2016.
Property, plant and equipment spend was $12.9m, 1.3% of revenue
(2015: 0.9%), and included investment in the Group's office spaces
as part of a continued focus on attracting and retaining the best
talent.
Management has a rigorous impairment review process, and has
determined that no impairment is required in relation to acquired
intangibles, capitalised development costs, other intangibles and
property, plant and equipment.
Current assets
Prepaid expenses and deposits were $13.8m at 31 December 2016
(31 December 2015: $14.6m). Trade and other receivables were $43.1m
(2015: $31.2m), with the increase reflecting the growth in the
business, especially within the Payment Processing division.
Acquisition-related liabilities
Share consideration payable in relation to the acquisition of
Meritus reduced to $29.9m as at 31 December 2016 (31 December 2015:
$56.0m), largely due to the payment of the second of four equal
tranches in September 2016 and the impact of foreign exchange on
the year end fair value of the remaining liability. In addition,
the total year end share consideration payable balance of $32.3m
(31 December 2015: $62.4m) includes $2.4m payable in relation to
the FANS acquisition, following a $4.0m payment in 2016.
At 31 December 2016, contingent consideration payable was $6.1m,
up from $2.1m at 31 December 2015. This increase reflects
consideration payable in relation to the acquisition of MeritCard
in February 2016. In addition, deferred consideration payable
increased to $10.2m from $3.3m due primarily to the acquisition of
Income Access.
Payment working capital items
Cash held as reserves, settlement assets and restricted cash
balances have increased to $132.3m from $95.4m at 31 December 2015.
This is largely driven by increased funding and deposit
requirements associated with higher transaction volumes. Merchant
processing liabilities increased to $18.5m from $16.8m at 31
December 2015.
Other liabilities
Trade and other payables increased to $123.9m from $88.2m,
reflecting the growth of the business along with increases in
employee costs payable, accrued interest costs and non-compete
payments, and the acquisitions made during the year.
The income tax provision liability has increased during FY 2016
from $11.1m to $34.4m, largely due to the recognition of the
current tax charge. The opening and closing balances also include
approximately $3.9m provided for an ongoing investigation in
relation to Canadian withholding taxes, as more fully described in
note 15.
Net deferred tax liabilities of $35.9m (2015: net liability of
$42.9m) primarily reflect deferred tax liabilities associated with
intangible assets recognised on the acquisition of Skrill offset by
deferred tax assets as set out in note 15.
Equity
Share capital and share premium increased during the year due to
the issue of Ordinary shares in relation to deferred share-based
consideration paid on the Meritus and FANS acquisitions, and the
exercise of various share-based long-term employee incentive
options.
On 20 December 2016 the Group announced its inaugural share
buy-back programme of up to GBP100m. The Company's robust balance
sheet and cash generation provided the opportunity to take
advantage of prevailing market conditions to repurchase shares at
highly economic levels.
As part of this programme, as at 31 December 2016 the Group has
purchased 710,221 shares at a volume weighted average price paid
per share of 357.4p. All purchased shares were cancelled.
Off-balance sheet arrangements
Other than as disclosed in notes 13 and 24, as at 31 December
2016 the Group had no other off-balance sheet arrangements that
have, or are reasonably likely to have, a current or future
material effect on the consolidated financial condition, results of
operations, liquidity, capital expenditures or capital
resources.
Financial Review: Payment Processing
$m 2016 2015
--------------------------------------------------- ------- -------
Reported revenue 467.8 375.1
Organic constant currency year-on-year revenue
growth 21% 16%
Organic constant currency year-on-year revenue
growth excluding Major Merchant Asia Gateway(12) 20% 29%
Reported gross profit 189.9 138.5
Reported gross margin (%) 40.6% 36.9%
Non-financial KPIs:
--------------------------------------------------- ------- -------
Volume (2015: pro-forma) 22.4bn 17.2bn
Revenue/volume (2015: pro-forma) 2.1% 2.2%
--------------------------------------------------- ------- -------
The Payment Processing division's reported revenue was $467.8m
in FY 2016 from $375.1m in FY 2015. This represents 47% of the
Group's reported fee revenue (2015: 61%).
On an organic constant currency basis, revenue grew 21%
year-on-year (2015: 16%), reflecting an exceptionally strong first
half, balanced by a tougher 2015 comparative in the second half.
Excluding Major Merchant Asia Gateway revenue, Payment Processing
revenue grew 20% on an organic constant currency basis, compared to
29% in FY 2015. The Major Merchant Asia Gateway revenue included an
estimated $3-4m of revenue related to the 2016 UEFA European
Championship.
Reported revenue growth was 25% (2015: 37%), including a $13.5m
impact from the acquisition of MeritCard in February 2016.
Volume for Payment Processing in US dollar terms increased to
$22.4bn (2015: $17.2bn). Volume represents all transactions
including fee generating credits and chargebacks processed by the
division. It excludes volume processed for other Group
divisions.
Revenue represented 2.1% of volume (2015 pro-forma: 2.2%), the
decrease largely driven by the inclusion of MeritCard volumes with
a lower risk profile and pricing structure.
Reported gross margin for the Payment Processing division was
40.6% in FY 2016 (2015: 36.9%). This reflected growth in profitable
merchants as well as a 1.0% positive year-on-year effect of
re-presenting intersegment cost of sales, as set out in the Change
in Presentation section.
Reported bad debt as a percentage of revenue has increased from
1.3% in FY 2015 to 1.6% in FY 2016. This largely reflects the first
full-year contribution of the payolution business acquired as part
of the Skrill Group, which, as a consumer credit business, runs at
a higher bad debt percentage.
Payment Processing has continued to demonstrate strong organic
performance during 2016. This reflects our ability to grow with our
existing merchants as well as to add new merchants during the
period, especially within our US business. While merchant initiated
churn remains low, we continue to optimise our risk profile, for
example by restricting processing volumes or removing merchants
from time to time.
We've seen continued success with our direct sales strategies as
well as increased signups through our integrated payments
channel.
Our Payment Processing division includes our Acquiring business,
where we utilise our own acquiring licences in Europe to serve new
and existing clients. During this period, we launched our
multi-currency cross-border European acquiring capability. We've
seen encouraging levels of signups among existing North American
merchants, who are expanding their reach into Europe, as well as
our first new European client signups. Paysafe Acquiring volumes
remain a small part of total volumes, but this capability enables
us to offer faster onboarding and a more flexible and personal
service to our clients as we build out our European business.
Payment Processing also includes the results of payolution, our
nascent consumer credit business.
Pro-forma Reported Reported
H2 2015 H1 2016 H2 2016
---------------- ---------- --------- ---------
Gambling 28% 28% 30%
Gaming 4% 2% 2%
E-commerce and
other 68% 70% 68%
---------------- ---------- --------- ---------
Approximately 60% of Payment Processing's FY 2016 reported fee
revenue is derived from North America, with 13% from Europe and the
remaining 28% from Asia and the rest of the world. E-commerce is
Payment Processing's largest vertical, representing 69% of FY 2016
divisional fee revenue. Online gambling, largely driven by the
Major Merchant Asia Gateway, contributes another 29% to divisional
fee revenues, with the balance from gaming.
E-commerce encompasses a number of end verticals, such as direct
marketing, e-tail and professional services such as dentists,
doctors and insurance companies, and we've seen good growth across
these verticals throughout the period. We're focused on building
expertise in additional verticals over 2017.
Financial Review: Digital Wallets
$m 2016 2015
------------------------------------------------ ------- -------
Reported revenue 311.0 159.1
Organic constant currency year-on-year revenue
growth 30% 17%
Reported gross profit 232.9 116.0
Reported gross margin (%) 74.9% 72.9%
Non-financial KPIs:
------------------------------------------------ ------- -------
Volume (2015: pro-forma) 22.9bn 19.9bn
Revenue/volume (2015: pro-forma) 1.4% 1.2%
------------------------------------------------ ------- -------
The Digital Wallets division contributed $311.0m of reported
revenue in FY 2016 (2015: $159.1m), representing 31% (2015: 26%) of
the Group's reported fee revenue.
Year-on-year organic constant currency revenue growth was 30%,
compared to 17% in FY 2015. This exceptional growth within the
division includes an estimated $4m of positive impact from
increased activity driven by the UEFA European Championships.
Reported revenue growth was 95% in 2016 (2015: 78%). In 2015,
the results of the Skrill Group were incorporated for the
five-month period following its acquisition in August 2015, and in
2016 growth includes a revenue impact of $3.1m from Income Access,
which we acquired in August 2016.
Digital Wallets volume on a US dollar basis rose 15% to $22.9bn
(2015: $19.9bn pro-forma). Digital Wallets volume includes uploads
and withdrawals to and from wallets, and member-merchant and
member-member transactions.
Monetisation of our transaction volumes increased during the
period. Revenue divided by volume increased to 1.4% (2015: 1.2%
reported), reflecting the introduction of fees on money transfer as
well as the effect of rebasing fees across the two brands.
Reported gross margin for the Digital Wallet division was 74.9%,
compared to a gross margin of 72.9% in FY 2015. The increase was
partly due to changes in mix and reductions in processing fees,
partially offset by a negative 2.8% year-on-year effect of
re-presenting intersegment cost of sales, as set out in the Change
in Presentation section.
Reported bad debt as a % of revenue decreased to 2.8% from 3.3%
in FY 2015.
The Digital Wallets division has experienced exceptional growth
in FY 2016. This reflects stronger and more prosperous
relationships with existing merchants, the onboarding of new
merchants, and increases in users. We've enabled our merchants to
expand into new territories and take advantage of new payment
options, and we've also been able to monetise our existing products
more effectively.
Pro-forma Reported Reported
H2 2015 H1 2016 H2 2016
---------------------------- --------- ---------
Gambling 64% 62% 60%
Gaming 7% 6% 5%
E-commerce and other 30% 32% 35%
----------------------- ---- --------- ---------
Digital Wallets' largest regional market is Europe, which
accounted for 60% of the division's fee revenue in FY 2016. 40%
comes from the rest of the world, including 1% from North America.
Merchant fees from online gambling are the division's largest
revenue stream, contributing 61% of FY 2016 fee revenue. Merchant
revenues from online gaming were 5% of the division's total, with
the remainder coming from consumer fees and e-commerce merchant
fees.
The majority of e-commerce and other fees relate to consumer
fees, which have increased as a percentage of revenue, partially
due to the introduction of additional fees during H2 2015 for money
transfer within the NETELLER wallets.
During FY 2016, the Digital Wallets division has invested
further in risk and compliance in preparation for changes to
anti-money laundering legislation in Europe expected to take effect
in June 2017. We're well prepared in advance of these changes, and
are currently exploring options to leverage this expertise to
assist our merchants further.
Financial Review: Prepaid
$m 2016 2015
------------------------------------------------ ------ ------
Reported revenue 213.7 76.4
Organic constant currency year-on-year revenue
growth 10% 5%
Organic constant currency year-on-year revenue
growth excluding the impact of discontinued
Ukash territories and services(13) 14% 11%
Reported gross profit 112.3 39.2
Reported gross margin (%) 52.6% 51.3%
Non-financial KPIs:
------------------------------------------------ ------ ------
Volume (2015: pro-forma) 2.8bn 2.7bn
Revenue/volume (2015: pro-forma) 7.7% 7.5%
------------------------------------------------ ------ ------
The Prepaid division contributed $213.7m of reported revenue in
FY 2016 (FY15: $76.4m). This represents 22% of the Group's reported
fee revenue (2015: 13%).
Year-on-year organic constant currency revenue growth for
Prepaid was approximately 14%, compared to 11% in FY 2015. These
organic growth figures exclude the estimated impact of discontinued
revenue that was acquired as part of the Ukash acquisition by
Skrill in March 2015. Before adjusting for that impact, organic
constant currency growth was 10% in FY 2016, compared to 5% in FY
2015.
Reported revenue growth was 180% in FY 2016. For FY 2015,
results were incorporated for the five-month period following the
Skrill Group acquisition in August 2015.
Prepaid payments volume was $2.8bn (2015: $2.7bn pro-forma).
Volume represents merchant transactions paid for with a prepaid
voucher provided by the division. The relatively flat US dollar
volume partly reflects the inclusion of discontinued Ukash volumes
in the comparative figures, as well as the impact of currency
headwinds in H2 2016.
Prepaid revenue in 2016 was 7.7% of payment volume (2015: 7.5%
pro-forma). This increase largely reflects the impact of
maintenance fees applied to unredeemed voucher balances from the
Ukash business. Maintenance fees are standard charges applied to
vouchers that are not redeemed after a certain period of time. As
this unredeemed voucher balance decreases over time, the impact of
maintenance fees will reduce.
FY 2016 gross margin for the division was 52.6%, compared to
51.3% in 2015, with the increase largely reflecting the impact of
maintenance fees as outlined above.
paysafecard originated in Europe, and now operates in 43
territories. Growth in its core markets has been driven by the
signup of new merchants and the expansion of distribution networks,
as well as user number and usage growth with existing
merchants.
In addition, growth has been strong in a number of new
territories that have been entered over the last five years. We
continue to extend and expand into territories such as Latin
America and MENA, where we can increase our relevance with
merchants in cash-driven regions with low credit-card penetration
and large unbanked populations.
We have adapted well to the new environment in Greece, following
our decision to pause activity in the country in mid-2015 due to
the introduction of new capital controls. As at the end of the
year, we are experiencing volumes equivalent to pre-capital control
levels.
Our organic revenue growth is underpinned by growth in our
distribution network, which now has over 500,000 outlets across the
markets that paysafecard service. As an example of the depth of the
distribution network, as of November 2016 paysafecard vouchers are
even available from on-board ticket machines on buses in Warsaw,
Poland.
We are well prepared for upcoming changes to anti-money
laundering legislation in Europe. During 2016, we have integrated
additional KYC technology solutions and enhanced the my paysafecard
offering, enabling us to sign up our consumers more quickly and
efficiently.
Pro-forma Reported Reported
H2 2015 H1 2016 H2 2016
---------------------------- --------- ---------
Gambling 59% 61% 61%
Gaming 20% 18% 17%
E-commerce and other 21% 21% 22%
----------------------- ---- --------- ---------
Europe represents 93% of the division's total fee revenue.
Online gambling is the strongest vertical for the division,
accounting for 61% of FY 2016 fee revenue (H2 2015 pro-forma: 59%).
Gaming contributed 18% of FY 2016 fee revenue (H2 2015 pro-forma:
20%), with remaining 22% of fee revenue coming from e-commerce and
consumer fees.
E-commerce verticals include social and freelancer communities,
online dating, music, film and entertainment, internet services and
travel.
_______
(8) Non-constant currency.
(9) Fee revenue excludes investment income revenue.
(10) Adjusted tax is calculated based on adjusted profit before
tax which excludes items including restructuring costs,
amortisation of acquired intangibles and other one-off items, which
do not represent the underlying performance of the Group.
(11) Free cash flow is a non IFRS figure defined as operating
cash flow after working capital movements, interest, tax and
capital expenditure. Free cash flow before payments working capital
is a non IFRS figure defined as operating cash flow after operating
working capital movements, interest, tax and capital expenditure.
It excludes payments working capital, being cash flows that are not
revenue or costs to the Group, constituted by movements in
restricted cash balances, cash held as reserves, settlement assets
and merchant processing liabilities.
(12) This measure is calculated as organic year-on-year constant
currency growth, adjusted to exclude the revenue contribution from
the services we provide to our largest merchant through our Asia
Gateway.
(13) This measure is calculated as organic year-on-year constant
currency growth, adjusted to exclude an estimate of the effect of
discontinued Ukash territories and services
Change in presentation
Payment Processing provides services to the Digital Wallets
division for processing uploads, and the Prepaid division provides
services to the Digital Wallets division when Digital Wallets
consumers use paysafecard or my paysafecard. This results in
intersegment revenue.
During 2016, the Group has changed the presentation of
intersegment cost of sales to more appropriately allocate external
costs in relation to these services between divisions. The gross
margins re-presented for the divisions for H1 2016 and FY 2016 have
changed slightly as a result. There is no effect on Group gross
margin, and no change has been made to the divisional gross margins
reported for FY 2015.
This presentation change resulted in an increase in Payment
Processing's gross margin to 40.6% for FY 2016 compared to 39.6%
under the prior presentation. The impact on previously-reported H1
2016 gross margin is a 0.8% increase from 38.4% to 39.2%. The
previously-reported FY 2015 gross margin would have increased 1.1%
from 36.9% to 38.0%.
This presentation change resulted in a 1.1% decrease in Digital
Wallet's gross margin to 74.9% in FY 2016 compared to 76.0% under
the prior presentation. The impact on previously-reported H1 2016
gross margin is a 1.0% reduction from 76.9% to 75.9%. The
previously-reported FY 2015 gross margin would have reduced 2.8%
from 72.9% to 70.1%.
This presentation change resulted in a 0.5% decrease in
Prepaid's gross margin to 52.6% for FY 2016 compared to 53.1% under
the prior treatment. The impact on previously-reported H1 2016
gross margin is a 0.4% reduction from 52.7% to 52.3%. The
previously-reported FY 2015 gross margin would have increased 0.6%
from 51.3% to 51.9%.
Consolidated Statements of Financial Position
As at 31 December
(in thousands of U.S. dollars)
2016 2015
$ $
------------------------------------------------ --------- ---------
Assets
Non-current assets
Goodwill (Note 5) 1,154,119 1,178,341
Intangible assets (Note 6) 364,326 369,912
Property, plant and equipment (Note 7) 23,452 18,492
Deferred tax assets (Note 15) 10,429 2,524
------------------------------------------------ --------- ---------
Total non-current assets 1,552,326 1,569,269
------------------------------------------------ --------- ---------
Current assets
Prepaid expenses and other 13,781 14,561
Trade and other receivables (Note 8) 43,062 31,198
Cash held as reserves 35,873 14,473
Restricted cash (Note 9) 31,854 29,070
Settlement assets 64,586 51,868
Cash and cash equivalents (Note 10) 231,157 117,875
------------------------------------------------ --------- ---------
Total current assets 420,313 259,045
------------------------------------------------ --------- ---------
Total assets 1,972,639 1,828,314
------------------------------------------------ --------- ---------
Shareholders' equity and liabilities
Shareholders' equity
Share capital (Note 11) 96 95
Share premium 953,853 932,995
Capital redemption reserve 0 0
Equity reserve on share option issuance (Note
12) 55,126 41,400
Translation reserve (35,261) (2,322)
Retained earnings 244,420 102,399
------------------------------------------------ --------- ---------
Total shareholders' equity 1,218,234 1,074,567
------------------------------------------------ --------- ---------
Liabilities
Non-current liabilities
Long-term debt (Note 13) 451,195 493,306
Deferred tax liability (Note 15) 46,338 45,421
Share consideration payable (Note 14) 15,173 40,660
Contingent consideration (Note 25) 4,442 2,084
Deferred consideration payable (Note 25) 2,975 1,104
Derivative financial liability (Note 26) 1,665 229
------------------------------------------------ --------- ---------
Total non-current liabilities 521,788 582,804
------------------------------------------------ --------- ---------
Current liabilities
Current portion of long-term debt (Note 13) 29,696 30,907
Share consideration payable (Note 14) 17,110 21,726
Contingent consideration (Note 25) 1,693 -
Deferred consideration payable (Note 25) 7,217 2,208
Taxes payable (Note 15) 34,411 11,130
Trade and other payables (Note 16) 123,943 88,214
Merchant processing liabilities (Note 17) 18,547 16,758
------------------------------------------------ --------- ---------
Total current liabilities 232,617 170,943
------------------------------------------------ --------- ---------
Total shareholders' equity and liabilities 1,972,639 1,828,314
------------------------------------------------ --------- ---------
Accompanying notes form part of these consolidated financial
statements.
These financial statements were approved and authorised for
issue by the Board of Directors on 6 March 2017 and signed on its
behalf by;
Joel Leonoff Brian McArthur-Muscroft
President & Chief Executive Officer Chief Financial Officer
Consolidated Statements of Comprehensive Income
For the years ended 31 December 2016 2015
(in thousands of U.S. dollars, except per share
data) $ $
------------------------------------------------------ --------- -------
Revenue
Payment Processing fees 467,790 375,077
Digital Wallets fees 311,023 159,135
Prepaid fees 213,743 76,400
Investment income 7,726 2,780
------------------------------------------------------ --------- -------
1,000,282 613,392
------------------------------------------------------ --------- -------
Cost of sales
Payment Processing expenses 277,865 236,545
Digital Wallets expenses 78,144 43,137
Prepaid expenses 101,411 37,240
------------------------------------------------------ --------- -------
457,420 316,922
------------------------------------------------------ --------- -------
Gross profit (Note 18) 542,862 296,470
------------------------------------------------------ --------- -------
Non-fee expenses
Salaries and employee expenses 131,524 75,673
Share option expense (Note 21) 13,726 14,089
Other administrative expenses 110,513 68,234
Depreciation and amortisation (Notes 6 and 7) 84,474 51,262
Acquisition costs (Note 25) 2,171 29,434
Restructuring costs (Note 22) 5,641 8,238
Foreign exchange loss 6,810 9,653
Net fair value (gain)/loss on share consideration
payable (Note 14) (7,172) 13,598
Loss on disposal of assets 799 63
------------------------------------------------------ --------- -------
Results from operating activities 194,376 26,226
Net finance costs (Note 19) 26,383 14,418
------------------------------------------------------ --------- -------
Profit for the year before tax 167,993 11,808
Income tax expense (Note 15) 25,972 4,405
------------------------------------------------------ --------- -------
Profit for the year after tax attributable to
owners of the Group 142,021 7,403
------------------------------------------------------ --------- -------
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss
Foreign currency translation differences on foreign
operations, net of income tax (32,939) (1,354)
------------------------------------------------------ --------- -------
Total comprehensive income for the year attributable
to owners of the Group 109,082 6,049
------------------------------------------------------ --------- -------
Basic earnings per share (Note 20) $0.29 $0.02
------------------------------------------------------ --------- -------
Fully diluted earnings per share (Note 20) $0.28 $0.02
------------------------------------------------------ --------- -------
Accompanying notes form part of these consolidated financial
statements.
The Directors consider that all results derive from continuing
operations.
Consolidated Statements of Changes in Equity
For the years ended 31 December
(in thousands of U.S. dollars)
Equity
Share Share reserve Translation
capital capital on reserve
- - Total share on Capital
ordinary deferred share Share option foreign redemption Retained
shares shares capital premium issuance operations reserve earnings Total
$ $ $ $ $ $ $ $ $
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Balance as at 1
January
2016 77 18 95 932,995 41,400 (2,322) 0 102,399 1,074,567
Profit for the
year - - - - - - - 142,021 142,021
Other
comprehensive
income - - - - - (32,939) - - (32,939)
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Total
comprehensive
income - - - - - (32,939) - 142,021 109,082
Transactions
with owners
of the Company,
recognised
directly
in equity
Contributions
by and
distributions
to owners
of the Company
Share option
expense
(Note 21) - - - - 13,726 - - - 13,726
Issue of shares
(Note
11) 0 - 0 938 - - - - 938
Repurchase of
shares
(Note 11) (0) - 0 (3,123) - - - - (3,123)
Shares issued on
acquisitions
(Note 25) 1 - 1 23,043 - - - - 23,044
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Balance as at 31
December
2016 78 18 96 953,853 55,126 (35,261) 0 244,420 1,218,234
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Balance as at 1
January
2015 28 18 46 86,935 27,311 (968) 0 94,996 208,320
Profit for the
year - - - - - - - 7,403 7,403
Other
comprehensive
income - - - - - (1,354) - - (1,354)
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Total
comprehensive
income - - - - - (1,354) 0 7,403 6,049
Transactions
with owners
of the Company,
recognised
directly
in equity
Contributions
by and
distributions
to owners
of the Company
Share option
expense
(Note 21) - - - - 14,089 - - - 14,089
Issue of shares
(Note
11) 42 - 42 701,711 - - - - 701,753
Share issuance
costs
(Note 11) - - - (41,636) - - - - (41,636)
Shares issued on
acquisitions
(Note 25) 7 - 7 185,985 - - - - 185,992
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Balance as at 31
December
2015 77 18 95 932,995 41,400 (2,322) 0 102,399 1,074,567
----------------- --------- --------- -------- -------- --------- ----------- ----------- --------- ---------
Accompanying notes form part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
For the years ended 31 December 2016 2015
(in thousands of U.S. dollars) $ $
--------------------------------------------------------- -------- -----------
Operating activities
Profit for the year before tax 167,993 11,808
Adjustments for non-cash items:
Depreciation and amortisation (Notes 6 and 7) 84,474 51,319
Unrealised foreign exchange loss/(gain) 8,025 (4,766)
Acquisition costs (Note 25) 2,171 29,434
Net fair value (gain)/loss on share consideration
payable (Note 14) (7,172) 13,598
Share option expense (Note 21) 13,726 14,089
Interest expense 25,426 12,204
Loss on disposal of assets 799 63
--------------------------------------------------------- -------- -----------
Cash flows from operations before movements in
working capital 295,442 127,749
Increase in trade and other receivables (9,970) (4,249)
Decrease/(increase) in prepaid expenses and other 450 (1,020)
Increase/(decrease) in trade and other payables 32,435 (774)
--------------------------------------------------------- -------- -----------
Cash flows from operations before movements in
payments working capital 318,357 121,706
Increase in restricted cash (9,787) (16,496)
Increase in settlement assets (10,064) (9,524)
Increase in cash held as reserves (21,550) (2,009)
Increase/(decrease) in merchant processing liabilities 1,789 (13,833)
--------------------------------------------------------- -------- -----------
278,745 79,844
Taxes paid (10,186) (4,929)
--------------------------------------------------------- -------- -----------
Net cash flows from operating activities 268,559 74,915
--------------------------------------------------------- -------- -----------
Investing activities
Purchase of property, plant & equipment (12,946) (5,708)
Purchase of intangible assets (40,752) (18,013)
Proceeds from disposal of property, plant & equipment 886 177
Acquisition costs (5,081) (26,524)
Contingent consideration paid (Note 25) - (5,000)
Deferred consideration paid (2,122) -
Business acquisitions (Note 25) (37,510) (1,070,723)
--------------------------------------------------------- -------- -----------
Net cash flows used in investing activities (97,525) (1,125,791)
--------------------------------------------------------- -------- -----------
Financing activities
Equity issuance (Note 11) 938 660,116
Repurchase of shares (Note 11) (3,123) -
Proceeds from long-term debt (Note 13) - 524,835
Repayment of long-term debt (Note 13) (31,459) (127,000)
Repayment of obligations under finance lease (352) (746)
Interest paid (12,459) (8,403)
--------------------------------------------------------- -------- -----------
Net cash flows from financing activities (46,455) 1,048,802
--------------------------------------------------------- -------- -----------
Increase/(decrease) in cash and cash equivalents
during the year 124,579 (2,074)
Effect of foreign exchange rate changes (11,297) 10,057
Cash and cash equivalents, beginning of period 117,875 109,892
--------------------------------------------------------- -------- -----------
Cash and cash equivalents, end of period 231,157 117,875
--------------------------------------------------------- -------- -----------
Accompanying notes form part of these consolidated financial
statements.
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
(tabular amounts only are in thousands of U.S. dollars, except
per share data)
1. Reporting entities
NETELLER plc was a private company incorporated under the laws
of the Isle of Man ("IOM") on 31 October 2003 and was registered as
a public company on 1 April 2004. NETELLER plc changed its name to
NEOVIA Financial Plc on 17 November 2008. On 1 March 2011 NEOVIA
Financial Plc changed its name to Optimal Payments Plc. On 10
November 2015, Optimal Payments Plc changed its name to Paysafe
Group plc (the "Company"). The principal activities of the Company
and its subsidiaries (together referred to as "the Group") are
described in Note 2. The Group includes the Company and its
wholly-owned subsidiaries as set out under "Basis of consolidation"
in Note 4.
At 31 December 2016, the Group had 2,116 employees (31 December
2015: 1,578 employees).
2. Nature of operations
The Group provides services to businesses and individuals to
allow the online processing of direct debit, credit card and
alternative payments. Included within the Group's suite of products
and services are digital wallets which act as a store of value for
e-money, and prepaid vouchers. Paysafe Financial Services Limited
(FRN:900015), Skrill Limited (FRN:900001), and Prepaid Services
Company Limited (FRN:900021), all wholly-owned subsidiaries of
Paysafe Group plc, are authorised by the United Kingdom's Financial
Conduct Authority under the Electronic Money Regulations 2011 for
the issuing of electronic money and payment instruments. Skrill
International Payments Limited (FRN:536371), a wholly-owned
subsidiary, is regulated by the Financial Conduct Authority as a
payment institution. Paysafe Merchant Services Limited, a
wholly-owned subsidiary, is licensed by the Financial Services
Authority of the Isle of Man (Ref. 1357) to carry on money
transmission services, and Paysafecard.com Schweiz GmbH, a
wholly-owned subsidiary, is licensed by the Swiss Financial Market
Authority as a financial intermediary.
3. Basis of preparation
Statement of compliance
The financial statements have been prepared in accordance with
applicable IOM law and International Financial Reporting Standards
("IFRS") as adopted by the EU.
The consolidated financial statements were authorised for issue
by the Board of Directors on 6 March 2017.
Statement of going concern
These consolidated financial statements of the Group have been
prepared on the going concern basis, as the Board of Directors have
a reasonable expectation that the Group and parent have the
resources to continue in business for the foreseeable future. In
making this assessment, the Directors have considered a wide range
of information relating to present and future conditions, including
future projections of profitability, cash flows and capital
resources. The Directors have also considered the guidance issued
by the Financial Reporting Council ("FRC") to take a broader
longer-term view of the risks and uncertainties facing the Group's
business in assessing going concern.
The Group borrowed EUR500,000,000 ($548,200,000) in August 2015
to finance the acquisition of the Skrill Group ("Skrill"), one of
Europe's leading digital payments businesses. The acquisition has
enhanced earnings for the Group and expanded its international
market share, and the Directors have also considered this debt
requirement as part of the going concern assessment.
The Group's objectives, policies and processes for managing
credit, liquidity and market risk along with the Group's approach
to capital management and allocation are described in Note 26 of
the financial statements.
Use of estimates and judgements
The preparation of the Group's financial statements requires
management to make estimates and judgements that affect the
reported amounts of assets, liabilities, contingencies and the
accompanying disclosures at the date of the Group's consolidated
financial statements, and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimated. By their nature, these estimates and
judgements are subject to estimation uncertainty and the effect on
the Group's financial statements of changes in estimates in future
periods could be significant.
Significant estimates and judgements in the Group's financial
statements include impairment testing of long-lived assets,
share-based payments, and business combinations.
Impairment testing of long-lived assets requires an estimation
of the value in use of the cash-generating units to which the
assets have been allocated. The value in use calculation requires
management to estimate the future cash flows expected to arise from
the cash-generating unit and a suitable discount rate in order to
determine present value.
3. Basis of preparation (continued)
The fair value of share consideration payable is determined by
using valuation techniques that take into consideration market
inputs such as share price and volatility.
Business combinations require an estimation of the fair value of
the acquired assets and liabilities assumed. The fair value of
intangible assets is estimated using the future cash flows expected
to arise from the acquired business and a suitable discount rate in
order to determine present value.
Functional and presentation currency
These consolidated financial statements are presented in United
States (US) dollars, which is the functional currency of the
Group.
Basis of measurement
The consolidated financial statements have been prepared on the
historical cost basis except for certain financial assets and
financial liabilities, which have been measured at fair value as
described in Note 26.
Change in presentation
Presentation of certain items in the consolidated financial
statements has been changed in order to provide more reliable and
relevant information, and the prior period presentation has been
reclassified accordingly.
Share option expense previously presented as part of salaries
and employee expenses is now separately disclosed in the statement
of comprehensive income.
None of the changes detailed above had any impact on
comprehensive income, earnings per share or net assets.
4. Significant accounting policies
This section sets out the policies that relate to the financial
statements as a whole. Where an accounting policy is specific to
one note, the policy is described in the note to which it relates.
The accounting policies set out below and throughout the financial
statements have been applied consistently to all periods presented
in these consolidated financial statements, and have been applied
consistently by Group entities.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and enterprises controlled by the Company
(and its subsidiaries) as at the year end. Control is achieved
where the Company is exposed or has rights to variable returns from
its involvement with the enterprise and has the ability to affect
those returns through its power over the entity. The consolidated
financial statements include the accounts of the Company and its
principal wholly-owned subsidiaries. All inter-company transactions
and balances between Group enterprises are eliminated on
consolidation.
Foreign exchange
The individual financial statements of each Group entity are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the consolidated financial statements, the results and
financial position of each entity are expressed in US dollars,
which is the functional currency of Paysafe Group Plc, and the
presentation currency for the consolidated financial
statements.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary items denominated in foreign
currencies are retranslated at the rates prevailing on the balance
sheet date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates
prevailing on the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
the consolidated statement of comprehensive income for the period.
Exchange differences arising on the retranslation of non-monetary
items carried at fair value are included in the consolidated
statement of comprehensive income for the period, except for
differences arising on the retranslation of non-monetary items in
respect of which gains and losses are recognised in other
comprehensive income. For such non-monetary items, any exchange
component of that gain or loss is also recognised directly in other
comprehensive income.
4. Significant accounting policies (continued)
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations
(including comparatives) are expressed in US dollars using exchange
rates prevailing on the balance sheet date. Income and expense
items (including comparatives) are translated at the average
exchange rates for the period, unless exchange rates fluctuated
significantly during that period, in which case the exchange rates
at the dates of the transactions are used. Exchange differences
arising, if any, are classified as other comprehensive income and
transferred to the Group's translation reserve. Such translation
differences are recognised in the consolidated statement of
comprehensive income in the period in which the foreign operation
is disposed of.
Goodwill and fair value adjustments arising on the acquisition
of foreign operations are treated as assets and liabilities of the
foreign operation and translated at the closing rate.
Settlement assets
Settlement assets result from timing differences in the Group's
settlement process. These timing differences arise primarily as a
result of settlement amounts due from financial institutions and
other payment processors. These amounts are typically funded to the
Group within days of the transaction processing date.
Cash held as reserves
The Group has agreements with various financial institutions for
the settlement of payment transactions. Under the terms of these
agreements, the Group is required to maintain certain amounts as
reserves, which may be applied against any amounts for which the
financial institutions would be entitled for reimbursement.
Impairment
The carrying amounts of the Group's non-financial assets are
reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the
asset's recoverable amount is estimated. For goodwill and
intangible assets that have indefinite useful lives or that are not
yet available for use, the Group performs impairment tests at least
annually at 31 December or whenever events or changes in
circumstances indicate that the carrying values may not be
recoverable.
An impairment loss is recognised if the carrying amount of an
asset or its related cash-generating unit (CGU) exceeds its
estimated recoverable amounts.
The recoverable amount of an asset or CGU is the greater of its
value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset or CGU. For the purpose of impairment
testing, assets that cannot be tested individually are grouped
together into the smallest group of assets that generates cash
inflows from continuing use that are largely independent of the
cash inflows of other assets or CGU. Subject to an operating
segment ceiling test, for the purposes of goodwill impairment
testing, CGUs to which goodwill has been allocated are aggregated
so that the level at which impairment testing is performed reflects
the lowest level at which goodwill is monitored for internal
reporting purposes.
The Group's corporate assets do not generate separate cash
inflows and are utilised by more than one CGU. Corporate assets are
allocated to CGUs on a reasonable and consistent basis and tested
for impairment as part of the testing of the CGU to which the
corporate asset is allocated.
Impairment losses are recognised in the consolidated statement
of comprehensive income. Impairment losses recognised in respect of
CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to the CGU (group of CGUs), and then to reduce
the carrying amounts of the other assets in the CGU (group of CGUs)
on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
periods are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss
is reversed if there has been a change in estimates used to
determine the recoverable amount, but only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss has been recognised.
4. Significant accounting policies (continued)
Revenue recognition
The Group is involved in transaction processing services through
three main lines of business.
Payment processing services are offered through the Paysafe
payment processing and payolution products. Netbanx merchant
revenue is earned either as a fee calculated as a percentage of
funds processed or as a charge per transaction, pursuant to the
respective merchant agreements. The fee revenue is recognised at
the time the transactions are fulfilled. Payolution arranges the
provision of point-of-sale financing to customers of e-commerce
merchants offered as a white-label solution, and earns revenue by
charging fees to merchants that accept the service. The revenue is
recognised at the time the transactions are fulfilled.
Digital wallets services are offered through the NETELLER, Net+
and Skrill products. Member and merchant revenue is earned either
as a fee calculated as a percentage of funds processed or as a
charge per transaction, pursuant to the respective member and
merchant agreements, as well as fees from inter-currency
transactions. The fee revenue is recognised at the time the
transactions are fulfilled.
Prepaid services are offered through the paysafecard prepaid
payment vouchers and my paysafecard online payment accounts.
Prepaid revenue is earned from fees charged to merchants accepting
payments made using the paysafecard product as well as fees charged
to consumers. The fee revenue is recognised upon delivery or
transfer of risk to the customer, net of rebates and discounts.
Commissions are presented as part of cost sales.
Interest income is earned on the funds held on behalf of clients
and is accrued on a monthly basis, by reference to the principal
outstanding and at the effective interest rate applicable. Interest
income is presented in revenue since it is earned on funds that are
held as part of the Group's revenue generating activities.
Leases
(i) Leased assets
Assets held by the Group under leases which transfer to the
Group substantially all of the risks and rewards of ownership are
classified as finance leases. On initial recognition, the leased
asset is measured at an amount equal to the lower of its fair value
and the present value of the minimum lease payments. Subsequent to
initial recognition, the asset is accounted for in accordance with
the accounting policy applicable to that asset.
Assets held under other leases are classified as operating
leases and are not recognised in the consolidated statement of
financial position.
(ii) Lease payments
Payments made under operating leases are recognised in the
consolidated statement of comprehensive income on a straight-line
basis over the term of the lease.
Minimum lease payments made under finance leases are apportioned
between the finance expense and the reduction of the outstanding
liability. The finance expense is allocated to each period during
the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Research and development
Research expenditure is recorded in the consolidated statement
of comprehensive income in the period in which it is incurred.
Development expenditure is recorded in the same way unless
management is satisfied as to the technical, commercial and
financial viability of the individual projects generating future
economic benefits, and the Group intends to and has sufficient
resources to complete development and to use or sell the asset. In
this situation, the expenditure is capitalised at cost, less a
provision for any impairment in value, and is amortised on the
commencement of use over the period in which benefits are expected
to be received by the Group. The expenditure capitalised includes
the cost of materials, direct labour and overhead costs that are
directly attributable to preparing the asset for its intended
use.
4. Significant accounting policies (continued)
Offsetting
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and only
when, the Group has a legally enforceable right to set off the
amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Gross settlement is equivalent to net settlement if and only if
the gross settlement mechanism has features that eliminate or
result in insignificant credit and liquidity risk and processes
receivables and payables in a single settlement cycle.
The balances owing to the members and merchants and the related
cash balances segregated in the members and merchant's accounts are
presented net in the consolidated statement of financial position
as the Group considers these gross settlements as equivalent to net
settlements in accordance with IAS 32.
Income and expenses are presented on a net basis only when
permitted by the accounting standards, or for gains and losses
arising from a group of similar transactions such as in the Group's
trading activity.
Employee benefits
Short-term employee benefits are expensed as the related service
is provided. A liability is recognised for the amount expected to
be paid if the Group has a present legal or constructive obligation
to pay the amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Application of new and revised accounting policies
In the current period, the Group has applied a number of
amendments to IFRSs issued by the International Accounting
Standards Board ("IASB") that are mandatorily effective for an
accounting period that begins on or after 1 January 2016. The
application of these amendments has had no material impact on the
disclosures in the Group's consolidated financial statements.
Amendments to IAS 1 Presentation of Financial Statements
(Disclosure Initiative)
IAS 1 has been amended to further encourage companies to apply
professional judgment in determining what information to disclose
in their financial statements. Furthermore, the amendments clarify
that companies should use professional judgment in determining
where and in what order information is presented in the financial
disclosures.
Amendments to IFRS 11 Accounting for Acquisitions of Interests
in Joint Operations
IFRS 11 has been amended to provide guidance on how to account
for the acquisition of a joint operation that constitutes a
business as defined in IFRS 3 Business Combinations. Specifically,
the amendments state that the relevant principles on accounting for
business combinations in IFRS 3 and other standards (e.g. IAS 36
Impairment of Assets regarding impairment testing of a cash
generating unit to which goodwill on acquisition of a joint
operation has been allocated) should be applied. The same
requirements should be applied to the formation of a joint
operation if and only if an existing business is contributed to the
joint operation by one of the parties that participate in the joint
operation. A joint operator is also required to disclose the
relevant information required by IFRS 3 and other standards for
business combinations.
Amendments to IAS 16 Property, Plant and Equipment and IAS 38
Intangible Assets
The amendments to IAS 16 prohibit entities from using a
revenue-based depreciation method for items of property, plant
and equipment. The amendments to IAS 38 introduce a rebuttable
presumption that revenue is not an appropriate basis
for amortisation of an intangible asset. The amendments apply
prospectively for annual periods beginning on or after
1 January 2016. Currently, the Group uses the declining balance
method for depreciation for its property, plant and equipment, and
declining balance and straight line methods for amortisation for
its intangible assets. The Directors of the Group believe
that these methods are the most appropriate method to reflect
the consumption of economic benefits inherent in the
respective assets.
4. Significant accounting policies (continued)
Future changes to accounting standards
The Group has not applied the following new and revised IFRSs
that have been issued but are not yet effective:
IFRS 9 Financial Instruments
The IASB issued IFRS 9 in November 2009, introducing new
requirements for the classification and measurement of financial
assets. IFRS 9 was subsequently amended in October 2010 to include
requirements for the classification and measurement of financial
liabilities and for derecognition, and in November 2013 to include
the new requirements for general hedge accounting. Another revised
version of IFRS 9 was issued in July 2014 mainly to include a)
impairment requirements for financial assets and b) limited
amendments to the classification and measurement requirements by
introducing a 'fair value through other comprehensive income'
(FVTOCI) measurement category for certain simple debt instruments.
IFRS 9 is effective for annual periods beginning on or after 1
January 2018.
The Directors of the Group do not anticipate that the
application of IFRS 9 in the future will have a material impact on
the amounts reported in the Group's consolidated financial
statements.
IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single
comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. IFRS 15 will supersede the
current revenue recognition guidance including IAS 18 Revenue, IAS
11 Construction Contracts and the related Interpretations when it
becomes effective for annual periods beginning on or after 1
January 2018. The core principle of IFRS 15 is that an entity
should recognise revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in
exchange for those goods or services. Specifically, the Standard
introduces a 5-step approach to revenue recognition:
- Step 1: Identify the contract(s) with a customer
- Step 2: Identify the performance obligations in the
contract
- Step 3: Determine the transaction price
- Step 4: Allocate the transaction price to the performance
obligations in the contract
- Step 5: Recognise revenue when (or as) the entity satisfies a
performance obligation
Extensive disclosures are required by IFRS 15. The Directors of
the Group do not anticipate that the application of IFRS 15 in the
future will have a material impact on the amounts reported and
disclosures made in the Group's consolidated financial
statements.
IFRS 16 Leases
In January 2016, IFRS 16 was issued which will replace IAS 17 as
the standard for recognising, measuring, presenting and disclosing
leases. The standard provides a single lessee accounting model
requiring the recognition of assets and liabilities for all leases
unless the lease term is 12 months or less or if the underlying
asset has a low value. The standard will be effective for annual
periods beginning on or after 1 January 2019. It is not practicable
to provide a reasonable estimate of the effect of IFRS 16 until the
Group finalises its detailed review.
5. Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group's interest in the fair value of
the identifiable assets and liabilities of subsidiaries at the date
of acquisition. Goodwill is recognised as an asset and reviewed for
impairment at least annually and in the event of impairment
indicators arising. Any impairment is recognised immediately in the
consolidated statement of comprehensive income and is not
subsequently reversed. On disposal of a subsidiary, the
attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
5. Goodwill (continued)
Goodwill acquired through business combinations is allocated to
the CGU or group of CGUs that are expected to benefit from
synergies of the related business combination. The group of CGUs
that benefit from the synergies correspond to the Group's operating
segments.
The Group had the following balances by CGU:
Payment Digital
Processing Wallets Prepaid Group
$ $ $ $
------------------------------------ ----------- -------- -------- ---------
Cost
Balance at 1 January 2015 205,339 - - 205,339
------------------------------------ ----------- -------- -------- ---------
Additions during the year 3,375 598,820 375,936 978,131
Foreign exchange - (3,151) (1,978) (5,129)
------------------------------------ ----------- -------- -------- ---------
Balance at 31 December 2015 208,714 595,669 373,958 1,178,341
------------------------------------ ----------- -------- -------- ---------
Additions during the year (Note 25) - 10,701 - 10,701
Foreign exchange - (21,511) (13,412) (34,923)
------------------------------------ ----------- -------- -------- ---------
Balance at 31 December 2016 208,714 584,859 360,546 1,154,119
------------------------------------ ----------- -------- -------- ---------
Carrying amount
As at 31 December 2015 1,178,341
As at 31 December 2016 1,154,119
------------------------------------ ----------- -------- -------- ---------
The Group performs goodwill asset impairment tests at least
annually or whenever events or changes in circumstances indicate
that the carrying value of goodwill for a CGU might not be
recoverable. The recoverable amount is defined as the higher of
fair value less costs to sell and value in use.
Key assumptions used in the calculation of recoverable amounts
are discount rates and EBITDA growth rates. The values assigned to
the key assumptions represent management's assessment of future
trends in the e-commerce industry impacting the payment processing
business and are based on both external and internal sources
(historical data). The key assumptions were as follows:
As at December 31, As at December 31,
2016 2015
------------------------------ ------------------------------
Payment Digital Payment Digital
Processing Wallets Prepaid Processing Wallets Prepaid
----------------------- ----------- -------- ------- ----------- -------- -------
Discount rate 10.4% 12.5% 11.4% 16% 16% 16%
Terminal value growth
rate 1.35% 1.35% 1.35% 1.35% 1.35% 1.35%
Budgeted EBITDA growth
rate (5 years) 5% 5% 5% 5% 5% 5%
----------------------- ----------- -------- ------- ----------- -------- -------
The discount rate is an estimate based on past experience and
the expected average weighted average cost of capital.
Five years of cash flows were included in the discounted cash
flow model. A long-term growth rate into perpetuity was determined
based on management's estimate of the terminal value growth rate in
EBITDA, which management believed was consistent with the
assumption that a market participant would make. Budgeted EBITDA
was based on expectation of future outcomes taking into account
past experiences.
No impairment indicators were identified during the year ended
31 December 2016.
Management has identified that a reasonably possible change in
the key assumptions could cause the carrying amount to exceed the
recoverable amount. The following table shows the amount by which
these assumptions would need to change individually for the
estimated recoverable amount to be equal to the carrying
amount:
Payment Digital
Change in percent Processing Wallets Prepaid
-------------------------------------- ----------- -------- -------
As at December 31, 2016
Discount rate 27.9% 11.5% 5.8%
Budgeted EBITDA growth rate (5 years) (40)% (22)% (14)%
-------------------------------------- ----------- -------- -------
6. Intangible assets
Intellectual property is recorded at cost and is amortised on a
straight-line basis over its estimated useful life which is
assessed to be three to five years.
Website and platform development costs are recorded at cost and
amortised over their estimated useful life using the
declining-balance method at 20%.
Computer software is recorded at cost and is amortised on a
straight-line basis over its estimated useful life which is
assessed to be one to two years.
Other intangible assets, including customer relationships, trade
names and non-compete agreements that are acquired by the group and
have finite useful lives are recognised at fair value at the
acquisition date ("cost") and amortised using the straight-line
method over the expected life of the intangible asset, which is
three to fourteen years.
Intangible assets are subsequently measured at cost less
accumulated amortisation and any accumulated impairment losses.
The Group had the following balances:
Website
and
Intellectual platform Customer Trade Computer
property development relationships Non-compete name software Total
$ $ $ $ $ $ $
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
Cost
As at 1 January 2015 33,897 29,248 51,286 6,739 1,824 16,352 139,346
Additions - - - - - 5,118 5,118
Disposals - - - - - (96) (96)
Additions - internally
developed - 12,895 - - - - 12,895
Additions - business acquisition 7,700 31,008 266,074 - 12,056 3,913 320,751
Exchange difference - (134) (806) - (63) (1,860) (2,863)
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
As at 31 December 2015 41,597 73,017 316,554 6,739 13,817 23,427 475,151
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
Additions - - - 10,000 - 6,270 16,270
Disposals - (2,550) - - - (1,309) (3,859)
Additions - internally
developed - 27,482 - - - - 27,482
Additions - business acquisition
(Note 25) 17,089 - 21,153 - 305 97 38,644
Exchange difference (101) (1,975) (10,954) - (900) (954) (14,884)
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
As at 31 December 2016 58,585 95,974 326,753 16,739 13,222 27,531 538,804
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
Accumulated amortisation
As at 1 January 2015 25,630 15,830 4,494 739 160 13,109 59,962
Charge for the year 6,371 11,253 21,986 1,504 1,999 3,671 46,784
Disposal - - - - - (96) (96)
Exchange difference - (56) (134) - (17) (1,204) (1,411)
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
As at 31 December 2015 32,001 27,027 26,346 2,243 2,142 15,480 105,239
Charge for the year 3,854 19,672 42,363 2,785 2,943 5,978 77,595
Disposals - (1,873) - - - (1,247) (3,120)
Exchange difference (2) (1,015) (3,244) - (442) (533) (5,236)
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
As at 31 December 2016 35,853 43,811 65,465 5,028 4,643 19,678 174,478
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
Net book value
As at 31 December 2015 9,596 45,990 290,208 4,496 11,675 7,947 369,912
As at 31 December 2016 22,732 52,163 261,288 11,711 8,579 7,853 364,326
-------------------------------- ------------ ------------ -------------- ----------- ------ --------- --------
In the year ended 31 December 2016, $2,310,000 (2015: $944,000)
of research and development expenses were recorded in the
consolidated statement of comprehensive income. In the year ended
31 December 2015, $57,000 of investment tax credits (ITCs) received
were recorded against depreciation and amortisation expense since
the assets giving rise to the ITCs were fully amortised.
Impairment analysis
The Board has determined that there has not been any indication
of an impairment required in the current year.
7. Property, plant & equipment
Property, plant & equipment are recorded at cost and are
depreciated over their estimated useful lives, using the
declining-balance method, on the following basis:
Communication equipment 20%
Furniture and equipment 15%
Computer equipment 20%
-------------------------- ---
Other assets are depreciated over their estimated useful lives,
using the straight-line method, on the following basis:
Building & leasehold 4% and term of lease
improvements respectively
-------------------- --------------------
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in the
consolidated statement of comprehensive income.
The Group had the following balances:
Building
Communication Furniture Computer and leasehold
equipment and equipment equipment improvements Total
$ $ $ $ $
------------------------- ------------- -------------- ---------- -------------- -------
Cost
As at 1 January 2015 244 3,676 13,435 2,597 19,952
Additions 210 1,142 3,477 879 5,708
Disposals - (237) (4) - (241)
Acquisition (Note 25) 56 1,298 5,235 1,217 7,806
Exchange difference (12) (258) (703) (292) (1,265)
------------------------- ------------- -------------- ---------- -------------- -------
As at 31 December 2015 498 5,621 21,440 4,401 31,960
------------------------- ------------- -------------- ---------- -------------- -------
Additions 214 4,137 6,999 1,596 12,946
Disposals (56) (777) (3,145) (54) (4,032)
Acquisition (Note 25) - 25 157 30 212
Exchange difference (25) (264) (749) 23 (1,015)
------------------------- ------------- -------------- ---------- -------------- -------
As at 31 December 2016 631 8,742 24,702 5,996 40,071
------------------------- ------------- -------------- ---------- -------------- -------
Accumulated depreciation
As at 1 January 2015 119 2,339 6,355 1,025 9,838
Charge for the year 74 1,448 2,386 627 4,535
Disposals - - (2) - (2)
Exchange Difference (8) (131) (654) (110) (903)
------------------------- ------------- -------------- ---------- -------------- -------
As at 31 December 2015 185 3,656 8,085 1,542 13,468
------------------------- ------------- -------------- ---------- -------------- -------
Charge for the year 51 2,414 3,920 494 6,879
Disposals (51) (95) (2,888) (52) (3,086)
Exchange Difference (7) (97) (544) 6 (642)
------------------------- ------------- -------------- ---------- -------------- -------
As at 31 December 2016 178 5,878 8,573 1,990 16,619
------------------------- ------------- -------------- ---------- -------------- -------
Net book value
As at 31 December 2015 313 1,965 13,355 2,859 18,492
As at 31 December 2016 453 2,864 16,129 4,006 23,452
------------------------- ------------- -------------- ---------- -------------- -------
Property, plant and equipment include the following assets
acquired under finance leases:
Building
Communication Furniture Computer and leasehold
equipment and equipment equipment improvements Total
$ $ $ $ $
----------------------- ------------- -------------- ---------- -------------- -----
Net book value
As at 31 December 2015 - - 339 - 339
As at 31 December 2016 - - 207 - 207
----------------------- ------------- -------------- ---------- -------------- -----
8. Trade and other receivables
Trade and other receivables, including receivables from
merchants, are stated at their amortised cost less impairment
losses and doubtful accounts.
The Group had the following balances:
As at
As at 31 December
31 December
2016 2015
$ $
--------------------------------- ------------- -------------
Trade receivables 29,743 17,991
Other receivables(1) 7,846 8,689
Receivable from related party(2) 5,473 4,518
--------------------------------- ------------- -------------
43,062 31,198
--------------------------------- ------------- -------------
1. Other receivables are primarily composed of sales taxes
receivable.
2. This balance relates to a receivable from a former U.S.
subsidiary of Skrill Limited whose acquisition has not yet been
concluded (Note 25).
9. Restricted cash
The Group maintains bank accounts with the Group's principal
bankers which are segregated from operating funds and which contain
funds held on behalf of merchants, representing pooled merchant
funds. In addition, in compliance with the Financial Conduct
Authority (FCA) rules and regulations, the Group holds qualifying
liquid assets at least equal to the amounts owing to members. These
amounts are maintained in accounts which are segregated from
operating funds.
Balances in the segregated accounts are maintained at a
sufficient level to fully offset amounts owing to the Group's
merchants and members. As a legal right to offset exists between
the balances owing and the cash balances segregated in the member
and merchant accounts, only the net balance of surplus cash is
disclosed on the consolidated statement of financial position as
restricted cash.
The Group had the following balances:
As at
As at 31 December
31 December
2016 2015
$ $
------------------------------------------- ------------- -------------
Segregated account funds and liquid assets 1,154,818 1,055,368
Payables to members and merchants (1,122,964) (1,026,298)
------------------------------------------- ------------- -------------
31,854 29,070
------------------------------------------- ------------- -------------
10. Cash and cash equivalents
Cash equivalents are defined as short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in
value.
The Group had the following balances:
As at
As at 31 December
31 December
2016 2015
$ $
----------------- ------------- -------------
Cash 230,394 117,134
Cash equivalents 763 741
----------------- ------------- -------------
231,157 117,875
----------------- ------------- -------------
11. Share capital
As at As at
31 December 31 December
2016 2015
GBP GBP
--------------------------------------------------- ------------ ------------
Authorised:
600,000,000 ordinary shares of GBP0.0001 per share
(At 31 December 2015: 600,000,000 ordinary shares
of GBP0.0001 per share) 60 60
--------------------------------------------------- ------------ ------------
1,000,000 deferred shares of GBP0.01 per share
(At 31 December 2015: 1,000,000 deferred shares
GBP0.01 per share) 10 10
--------------------------------------------------- ------------ ------------
Issued and fully paid: $ $
--------------------------------------------------- ------------ ------------
489,795,281 ordinary shares of GBP0.0001 per share
(At 31 December 2015: 479,656,395 ordinary shares
of GBP0.0001 per share) 78 77
1,000,000 deferred shares of GBP0.01 per share
(At 31 December 2015: 1,000,000 deferred shares
of GBP0.01 per share) 18 18
--------------------------------------------------- ------------ ------------
Total share capital 96 95
--------------------------------------------------- ------------ ------------
Holders of the ordinary shares are entitled to receive dividends
and other distributions, to attend and vote at any general meeting,
and to participate in all returns of capital on winding up or
otherwise.
Holders of the deferred shares are not entitled to vote at any
annual general meeting of the Company and are only entitled to
receive the amount paid up on the shares after the holders of the
ordinary shares have received the sum of GBP1,000,000 for each
ordinary share held by them and shall have no other right to
participate in assets of the Company.
Ordinary Deferred
shares shares
Carrying Carrying
value value
Number $ Number $
--------------------------------- ----------- --------- --------- ---------
Outstanding at 1 January 2015 163,019,614 28 1,000,000 18
Issued for cash 272,495,506 42 - -
Exercise of share options - ESOS
(Note 21) 485,795 0 - -
Exercise of share options - LTIP
(Note 21) 2,340,364 0 - -
Issued in business combination 41,315,116 7 - -
--------------------------------- ----------- --------- --------- ---------
Outstanding at 31 December 2015 479,656,395 77 1,000,000 18
--------------------------------- ----------- --------- --------- ---------
Repurchased and cancelled (710,221) (0) - -
Exercise of share options - ESOS
(Note 21) 898,545 0 - -
Exercise of share options - LTIP
(Note 21) 5,669,200 0 - -
Issued in business combination 4,281,362 1 - -
--------------------------------- ----------- --------- --------- ---------
Outstanding at 31 December 2016 489,795,281 78 1,000,000 18
--------------------------------- ----------- --------- --------- ---------
11. Share capital (continued)
Issue of ordinary shares
During the year ended 31 December 2015, the Company raised total
gross proceeds of approximately GBP463,000,000 (approximately
GBP436,000,000 net of expenses of the Rights Issue) (approximately
$702,000,000 and $660,000,000 respectively) through the issue of
272,495,506 New Ordinary Shares by way of the Rights Issue and the
subsequent Rump Placing.
Pursuant to the Rights Issue, 263,685,643 New Ordinary Shares
were issued by way of rights to Qualifying Shareholders (other
than, subject to certain exceptions, to Excluded Shareholders) to
subscribe for New Ordinary Shares at an Offer Price of 166 pence
per New Ordinary Share payable in full on acceptance by no later
than 11.00 a.m. on 1 May 2015. The Offer Price represented:
- a 34 per cent discount to the theoretical ex-rights price of
an Existing Ordinary Share, when calculated by reference to the
volume weighted average price of 398 pence per Existing Ordinary
Share during the 5 day period between 16 March 2015 and 20 March
2015 (being the last practicable Business Day before the
announcement of the Rights Issue);
- a 36 per cent discount to the theoretical ex-rights price of
an Existing Ordinary Share, when calculated by reference to the
Closing Price of 419 pence per Existing Ordinary Share on 20 March
2015; and
- a 60 per cent discount to the Closing Price of 419 pence per
Existing Ordinary Share on 20 March 2015.
The Rights Issue was made on the basis of 5 New Ordinary Shares
at 166 pence per New Ordinary Share for every 3 Existing Ordinary
Shares held by and registered in the name of each Qualifying
Shareholder at 5.00 p.m. on the Record Date, and in proportion to
any other number of Existing Ordinary Shares each Qualifying
Shareholder then holds.
An additional 8,809,863 New Ordinary Shares were issued at a
price of 290 pence per New Ordinary Share by way of a Rump Placing
to subscribers for shares not validly taken up in the Rights
Issue.
Additionally, 6,567,745 ordinary shares were issued during the
year ended 31 December 2016 as a result of the exercise of vested
options under the ESOS and LTIP plans (see Note 21).
During the year ended 31 December 2016, 1,070,962, 3,210,400 and
nil ordinary shares were also issued as a result of the acquisition
of FANS Entertainment Inc., Meritus Payment Solutions and Skrill
Group, respectively (611,663, 3,210,400 and 37,493,053,
respectively, during the year ended 31 December 2015).
Repurchase of ordinary shares
On 20 December 2016, the Company's Board of Directors authorized
the purchase of up to 48,110,871 ordinary shares for cancellation
on the open market. The ordinary shares are available for purchase
over a duration of 12 months, subject to the buyback approval
resolution being approved at the Company's next Annual General
Meeting in respect of any purchases to be made after the date of
that meeting. During the year ended 31 December 2016, the Company
repurchased 710,221 ordinary shares under the current repurchase
plan for consideration of GBP2,539,000 ($ 3,123,000) and the excess
of the purchase price over the carrying value of approximately of
GBP2,539,000 ($ 3,123,000) was charged to share premium earnings.
As at 31 December 2016, all of the repurchased shares had been
cancelled.
12. Equity reserve on share option issuance
The equity reserve on share option issuance comprises the cost
to the Company related to the equity-settled share-based payments
transactions.
As at As at
31 December 31 December
2016 2015
$ $
------------------------------- ------------- -------------
Balance at beginning of year 41,400 27,311
Share option expense (Note 21) 13,726 14,089
------------------------------- ------------- -------------
Balance at end of year 55,126 41,400
------------------------------- ------------- -------------
The equity reserve on share option issuance comprises the cost
to the Company related to the equity-settled share-based payments
transactions.
13. Long-term debt
The Group had the following balances:
As at
As at 31 December
31 December
2016 2015
$ $
---------------------------------- ------------- -------------
Term A facility 256,306 293,459
Term B facility 224,332 230,355
Obligations under finance lease 253 399
---------------------------------- ------------- -------------
Total long-term debt 480,891 524,213
Current portion of long-term debt 29,696 30,907
---------------------------------- ------------- -------------
451,195 493,306
---------------------------------- ------------- -------------
The Group's credit facility provided by BMO Capital Markets,
Barclays Bank PLC and Deutsche Bank Luxembourg S.A. consists of a
EUR280,000,000 Term A and EUR220,000,000 Term B facility, as well
as an $85,000,000 revolving facility. The Term A facility bears
interest at a EURIBOR rate plus a margin varying from 2.75% to 3%,
and is repayable in bi-annual instalments starting in February 2016
up to the maturity date of 10 August 2020. The Term B facility
bears interest at a EURIBOR rate plus a margin varying from 3.75%
to 4%, and is repayable at the discretion of the group before the
maturity date of 10 August 2022. The revolving facility is interest
bearing at a LIBOR rate plus a margin varying from 1.75% to 2.75%
and has no specified terms of repayment. An arrangement fee of
$1,488,000 was paid for the revolving facility and a ticking fee of
35% of the applicable margin is applied to the unutilised revolver
amount on an ongoing basis. The Group has not drawn down on the
revolving facility since it was made available but has utilised
part of the facility to issue letters of credit in the ordinary
course of business. Amounts of EUR280,000,000 and EUR220,000,000
were drawn down from the Term A and Term B facilities respectively
on 10 August 2015, less financing fees of EUR11,931,000
($13,012,000) and EUR9,492,000 ($10,352,000) respectively, to fund
the Skrill acquisition (Note 25). For the year ended 31 December
2016, principal repayments amounted to EUR28,000,000 on the Term A
facility.
The credit facility is secured by virtually all of the assets of
the Group, with the exception of restricted cash (Note 9). The
security includes share pledges and guarantees from certain
subsidiaries within the Group.
The Group's prior credit facility of $150,000,000 provided by
Bank of Montreal was fully refinanced on 10 August 2015. Prior to
refinancing, the credit facility consisted of a $100,000,000 term
facility and a $50,000,000 revolving facility. The term facility
bore interest at US prime rate plus a premium varying from 0.25% to
1.50% or at a LIBO rate plus a premium varying from 1.75% to 3.00%,
and was repayable in quarterly instalments of $5,000,000 starting
in September 2014 up to the original maturity date of 23 July 2017.
The revolving facility had no specified terms of repayment and it
bore interest and matured on the same basis as the term facility.
For the year ended 31 December 2015, principal repayments amounted
to $90,000,000 and $37,000,000 on the term facility and revolving
facility, respectively.
As at 31 December 2016, the Group has approximately $8,744,000
outstanding in issued letters of guarantee in relation to various
performance bonds drawn from the revolving facility ($8,720,000 as
at 31 December 2015).
Under the terms of the loan agreement, the Group must satisfy
certain restrictive covenants including minimum financial ratios.
These restrictions are composed of ratios of funded debt to EBITDA
and fixed charge coverage ratio. EBITDA, a non-IFRS measure, is
defined in the credit facility on a consolidated basis, as total
comprehensive profit attributable to the owners of the Group before
interest expense, income taxes, depreciation, amortisation, gains
or losses from asset disposals, gains or losses from extraordinary
items and non-recurring transaction costs related to acquisitions,
and gains or losses relative to derivative instruments, plus (or
minus) the historical EBITDA of any businesses acquired (or sold)
during the reporting period. As at 31 December 2016, all debt
covenant requirements and exemptions have been respected.
Principal repayments on the credit facilities over the
forthcoming years, excluding financing fees of $15,806,000, are as
follows:
$
-------------------------------------- -------
Less than one year 29,443
Between one and two years 58,885
Between two and five years 176,781
Beyond five years 231,335
-------------------------------------- -------
Total principal payments on long-term
debt 496,444
-------------------------------------- -------
13. Long-term debt (continued)
Minimum finance lease payments are as follows:
Principal Interest Payments
$ $ $
------------------------------------- --------- -------- --------
Less than one year 163 8 171
Between one and two years 90 3 93
------------------------------------- --------- -------- --------
Total minimum finance lease payments 253 11 264
------------------------------------- --------- -------- --------
14. Share consideration payable
Meritus Fans Total
$ $ $
----------------------------------------------- -------- ------- --------
As at 1 January 2015 57,290 - 57,290
Fair value at acquisition date - 8,598 8,598
Consideration issued (14,868) (2,232) (17,100)
Net fair value loss 13,598 - 13,598
----------------------------------------------- -------- ------- --------
As at 31 December 2015 56,020 6,366 62,386
----------------------------------------------- -------- ------- --------
Current portion of share consideration payable 18,673 3,053 21,726
----------------------------------------------- -------- ------- --------
Non-current portion of share consideration
payable 37,347 3,313 40,660
Consideration issued (18,950) (3,981) (22,931)
Net fair value gain (7,172) - (7,172)
----------------------------------------------- -------- ------- --------
As at 31 December 2016 29,898 2,385 32,283
----------------------------------------------- -------- ------- --------
Current portion of share consideration payable 14,725 2,385 17,110
----------------------------------------------- -------- ------- --------
Non-current portion of share consideration
payable 15,173 - 15,173
----------------------------------------------- -------- ------- --------
15. Tax
Income tax expense comprises current and deferred tax. Current
tax and deferred tax are recognised in the consolidated statement
of comprehensive income except to the extent that they relate to a
business combination, or items recognised directly in equity or in
other comprehensive income.
The current tax charge is calculated on the basis of the tax
laws enacted or substantively enacted at the balance sheet date in
the countries where the Company and its subsidiaries operate and
generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
The Group uses the balance sheet liability method of accounting
for income taxes. Temporary differences arising from the difference
between the tax basis of an asset or liability and its carrying
amount on the balance sheet are used to calculate deferred tax
assets or liabilities. Deferred tax assets or liabilities are
calculated using tax rates anticipated to exist in the periods that
the temporary differences are expected to reverse, based on the
laws that have been enacted or substantively enacted by the
reporting date.
Deferred tax is recognised on temporary differences arising
between the tax bases of assets and liabilities and their carrying
amounts in the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial
recognition of goodwill; 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 tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the balance sheet
date and are expected to apply when the related deferred tax asset
is realised or the deferred tax liability is settled.
A deferred tax asset is recognised for unused tax losses, tax
credits and deductible temporary differences, to the extent that it
is probable that future taxable profits will be available against
which they can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Deferred tax liabilities are provided on taxable temporary
differences arising from investments in subsidiaries, associates
and joint arrangements, except for any deferred tax liability where
the timing of the reversal of the temporary difference is
controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
15. Tax (continued)
Deferred tax assets are recognised on deductible temporary
differences arising from investments in subsidiaries, associates
and joint arrangements only to the extent that it is probable the
temporary difference will reverse in the future and there is
sufficient taxable profit available against which the temporary
difference can be utilised.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities and there is an intention to settle the balances on a net
basis.
The Company is incorporated in the IOM and is subject to a tax
rate of zero percent. No provision for IOM taxation is therefore
required. Taxation for other jurisdictions is calculated at the
rates prevailing in the respective jurisdictions.
The Group charge for the year can be reconciled to the profit
shown per the consolidated statement of comprehensive income as
follows:
Year ended
Year ended 31 December
31 December 2015
2016 $
---------------------------------------------- ------------- -------------
Tax recognised in profit
Current tax
Current year 28,546 6,992
Adjustment for prior years 4,414 (172)
---------------------------------------------- ------------- -------------
32,960 6,820
---------------------------------------------- ------------- -------------
Deferred tax
Current year (10,452) (2,415)
Impact of change in tax rate 670 -
Adjustment for prior years 2,794 -
---------------------------------------------- ------------- -------------
(6,988) (2,415)
---------------------------------------------- ------------- -------------
Total tax expense 25,972 4,405
---------------------------------------------- ------------- -------------
Reconciliation of effective tax rate
Profit for the year before tax 167,993 11,808
Isle of Man corporate tax rate 0.0% 0.0%
Adjustment from prior years 4.3% 1.4%
Expenses not deductible for tax purposes 0.3% 58.4%
Effect of different tax rates of subsidiaries
operating in other jurisdictions 10.8% (22.5)%
Other 0.1% 0.0%
---------------------------------------------- ------------- -------------
Current year's tax expense as a % of profit
before tax 15.5% 37.3%
---------------------------------------------- ------------- -------------
The table above shows the reconciliation between the actual tax
charge and the tax charge that would result from applying the
standard IOM corporation tax rate to the Group's profit before
tax.
The Group's profits are taxed at different rates depending on
the country in which the profits arise. The key applicable tax
rates include the IOM (0%), UK (20%), USA (40%), Canada (27%),
Austria (25%), Bulgaria (10%) and Gibraltar (10%). The effective
tax rate for the year was 15.5% (2015: 37.3%). The effective tax
rate in 2015 was significantly higher than 2016 due to the impact
of exceptional costs incurred by the business relating to the
acquisition of Skrill which were either not tax deductible or arose
in the parent company in the IOM.
The effective tax rate of 15.5% (2015: 37.3%) on statutory
profit before tax is higher than the effective underlying tax rate
on adjusted profit before tax. The adjusted underlying tax rate for
the year is 11.9% (2015: 8.5%). The future underlying tax rate will
be influenced by the tax jurisdiction in which profits arise. In
line with the Group's transfer pricing policies, which we believe
are aligned with the OECD Base Erosion Profit Shifting agenda,
incremental profits of the Group are expected to arise primarily in
the UK, Austria, Canada and USA. Since these countries have higher
mainstream corporation tax rates than the Group's existing
underlying adjusted effective tax rate, we would expect a growth in
profitability in 2017 to be accompanied by a higher underlying
adjusted effective tax rate.
15. Tax (continued)
Accounting for taxes involves some estimation because the tax
law is uncertain and the application requires a degree of
judgement, which authorities may dispute. Liabilities are
recognised based on best estimates of the probable outcome, taking
into account external advice where appropriate. We do not expect
significant liabilities to arise in excess of the amounts
provided.
As per prior years, a total liability of approximately
$3,900,000 remains outstanding as at 31 December 2016 in relation
to an ongoing investigation by the Canadian Revenue Agency ("CRA")
regarding Canadian withholding taxes which are deemed to have
arisen on the relocation of assets to the IOM from Canada in the
2004 and 2005 taxation years. This liability represents
management's estimate of the maximum amount the Group is likely to
be required to pay in respect of such withholding taxes and
interest.
In addition, during 2016, a tax enquiry was undertaken by the
German tax authority in relation to the 2007 to 2013 taxation years
in respect of the Prepaid division, focusing mainly on transfer
pricing. The enquiry was concluded with an additional tax liability
of $504,000.
Separately in 2016, the Austrian tax authority conducted a
general audit of the Prepaid division's Austrian tax affairs,
covering the taxation years 2011 to 2013. The audit was concluded
before the year end, with an additional tax liability of
$120,000.
The table below shows the movement on deferred tax assets and
liabilities during the year.
As at 31 December 2016
---------------------------------------------------------------------------
Business
Net balance Acquisition
Recognised
as at in profit (Note Deferred Deferred
1 January or loss 25) Net Tax Asset Tax Liability
$ $ $ $ $ $
------------------------------ ----------- ---------- ------------ -------- ---------- --------------
Property, plant and equipment (788) 10,502 - 9,714 9,984 (270)
Intangible assets (43,039) (6,177) - (49,216) 12,310 (61,526)
Carry forward tax losses 804 1,055 - 1,859 1,859 -
Deferred stock options 126 499 - 625 625 -
Others - 1,109 - 1,109 1,109 -
------------------------------ ----------- ---------- ------------ -------- ---------- --------------
Deferred tax (42,897) 6,988 - (35,909) 25,887 (61,796)
------------------------------ ----------- ---------- ------------ -------- ---------- --------------
Of the $25,887,000 deferred tax assets, $15,458,000 arose in the
same taxable entities or consolidated tax groups as deferred tax
liabilities where there is a legally enforceable right to offset
current tax assets against current tax liabilities. The net
deferred tax liability of $35,909,000 is therefore presented on the
statement of financial position on a net basis with non-current
deferred tax assets of $10,429,000 and $46,338,000 non-current
deferred tax liabilities.
As at 31 December 2015
---------------------------------------------------------------------------
Business
Net balance Acquisition
Recognised
as at in profit (Note Deferred Deferred
1 January or loss 25) Net Tax Asset Tax Liability
$ $ $ $ $ $
------------------------------ ----------- ---------- ------------ -------- ---------- --------------
Property, plant and equipment (325) (5,315) 4,852 (788) 759 (1,547)
Intangible assets 885 7,033 (50,957) (43,039) 835 (43,874)
Carry forward tax losses 92 712 - 804 804 -
Deferred stock options 141 (15) - 126 126 -
------------------------------ ----------- ---------- ------------ -------- ---------- --------------
Deferred tax 793 2,415 (46,105) (42,897) 2,524 (45,421)
------------------------------ ----------- ---------- ------------ -------- ---------- --------------
Deferred tax assets for carry forward losses of $1,859,000
(2015: $804,000) include $1,073,000 relating to tax losses in
Paysafe Merchant Services Inc. Under Canadian tax rules losses can
be carried forward and offset against profits of the same company
for a period of 20 years. The losses first arose in 2015 and
therefore any unused amounts may begin to expire in 2035.
The deferred tax in Others of $1,109,000 relates primarily to
provisions made by the business, which under UK tax law will be
deductible when utilised. Recognition of this asset is based on
profit forecasts which indicate that it is likely that taxable
profits will arise in the periods in which the provisions are
utilised.
Deferred tax liabilities on intangible assets of $49,216,000 are
primarily represented by a $56,330,000 deferred tax liability on
goodwill and intangibles arising on consolidation of Skrill and a
deferred tax asset of $6,872,000 on intangibles arising on the
acquisition of paysafecard by the Skrill Group. The deferred tax
liability arising on the acquisition of the Skrill Group is a
non-cash item that will be released to the income statement as
intangibles and goodwill are amortised or impaired. However, the
deferred tax asset arising on the acquisition of paysafecard by the
Skrill Group will result in a cash tax saving of $6,872,000 as it
is utilised.
15. Tax (continued)
Deferred tax assets have not been recognised in respect of carry
forward tax losses amounting to approximately $7,805,000 (31
December 2015: $1,644,000) in certain companies within the Group
since it is considered unlikely that sufficient taxable profits
will arise in those entities in future periods. The losses are
principally represented by excess interest deductions which arose
on shareholder loans to the Skrill Group before it was acquired by
Paysafe in August 2015.
16. Trade and other payables
Digital Wallets Loyalty program
The Group launched the NETELLER Reward Points Program (the
"Program") in February 2012. The Program allows members to earn
points on their transactions in the NETELLER digital wallets
accounts. Members can redeem these points for merchandise, cash
exchange, and other NETELLER provided services.
When points are earned by members, the Group establishes a
liability for future redemptions by multiplying the number of
points issued by the estimated cost per point. The actual cost of
merchandise redemptions is applied against this liability. The
expense has been included in cost of sales.
The estimated cost per point is determined based on many
factors, primarily related to expected future redemption patterns
and associated costs. The Group monitors, on an ongoing basis,
trends in redemption rates and net cost per point redeemed.
Adjustments to the estimated cost per point are made based upon
expected future Program activities.
Any variance in the cost per point is recognised in cost of
sales in the Group's consolidated statement of comprehensive
income. The liability account is adjusted based on the outstanding
balance of points issued on a monthly basis. The Group continues to
evaluate and revise certain assumptions used to calculate the
Program liability, based on redemption experience and expected
future activities.
Provision for merchant losses
In certain cases, transactions may be charged back to merchants,
which means the transaction amount is refunded to the consumer and,
in certain instances, charged to the merchant. If the merchant has
insufficient funds, the Group must bear the credit risk for the
full amount of the transaction. Management evaluates the risk for
such transactions and estimates the loss for the disputed
transactions based primarily on historical experience and other
relevant factors. A provision is maintained for merchant losses in
order to absorb charge backs and other losses for merchant
transactions that have been previously processed and on which
revenue has been recorded. Management analyses and regularly
reviews the adequacy of its provision for merchant losses. The
provision for merchant losses comprises specifically identifiable
provisions for merchant transactions for which losses can be
estimated based on historical experience. The net charge for the
provision for merchant losses is included under the caption Payment
Processing expenses in the consolidated statement of comprehensive
income.
The Group had the following balances:
As at
As at 31 December
31 December
2016 2015
$ $
------------------------------------------ ------------- -------------
Accounts payable 27,186 18,783
Accrued liabilities 77,403 54,324
Payroll liabilities 14,578 11,035
Digital Wallets loyalty program liability 1,230 1,068
Provision for merchant losses 3,546 3,004
------------------------------------------ ------------- -------------
123,943 88,214
------------------------------------------ ------------- -------------
The net charge for the provision for merchant losses included in
the consolidated statement of comprehensive income can be
reconciled as follows:
$
----------------------- -----
Balance at 1 January
2015 1,183
Provisions made during
the year 2,584
Provisions used during
the year (763)
------------------------ -----
Balance at 31 December
2015 3,004
Provisions made during
the year 1,244
Provisions used during
the year (702)
------------------------ -----
Balance at 31 December
2016 3,546
------------------------ -----
17. Merchant processing liabilities
The merchant processing liabilities arise from the operations of
the Payment Processing division totaling $18,547,000 (31 December
2015: $16,758,000). In addition, an equivalent transient amount
relating to merchant transactions processed via the Payment
Processing operations is included in cash and cash equivalents and
settlement assets. The operations do not fall within the EU
definition of "e-money" nor does a legal right to offset exist
between this cash and the corresponding merchant processing
liabilities.
18. Operating segments
An operating segment is a component of the Group that engages in
business activities from which it may earn revenues and incur
expenses, including revenues and expenses that relate to
transactions with any of the Group's other components. All
operating segments' operating results are reviewed regularly by the
Group's CEO to make decisions about resources to be allocated to
the segment and assess its performance, and for which discrete
financial information is available.
The Group's operating segments are based on its main revenue
generating activities. For each of the segments, the Group's CEO
reviews internal management reports to a gross margin level on a
monthly basis. The following summary describes the operations in
each of the Group's reportable segments.
Payment Processing: fees are generated through the Paysafe and
Paysafe Asia straight-through processing platforms where customers
send money directly to Merchants, as well as payolution's online
payment services, and the FANS white label technology solutions and
consulting services.
Digital Wallets: fees are generated on transactions between
members and merchants using the NETELLER service and Net+ prepaid
cards, and the Skrill Wallet and Skrill prepaid cards.
Prepaid: fees are generated from merchants accepting payments
made using paysafecard prepaid vouchers and charges to
consumers.
Information regarding the results of each reportable segment is
included below;
Segmented reporting for the year ended 31 December 2016:
Payment Digital
Processing Wallets Prepaid Total
$ $ $ $
-------------------------- ----------- -------- ------- -------
Gross revenue 472,676 311,023 216,177 999,876
Intersegment revenue (4,886) - (2,434) (7,320)
-------------------------- ----------- -------- ------- -------
Revenue 467,790 311,023 213,743 992,556
Cost of sales
Variable costs 270,414 69,358 101,517 441,289
Bad debts 7,451 8,786 (106) 16,131
-------------------------- ----------- -------- ------- -------
Total cost of sales 277,865 78,144 101,411 457,420
-------------------------- ----------- -------- ------- -------
Gross margin 189,925 232,879 112,332 535,136
-------------------------- ----------- -------- ------- -------
Gross margin percentage 41% 75% 53% 54%
-------------------------- ----------- -------- ------- -------
Segmented reporting for the year ended 31 December 2015:
Payment Digital
Processing Wallets Prepaid Total
$ $ $ $
-------------------------- ----------- -------- ------- -------
Gross revenue 379,000 159,135 77,297 615,432
Intersegment revenue (3,923) - (897) (4,820)
-------------------------- ----------- -------- ------- -------
Revenue 375,077 159,135 76,400 610,612
Cost of sales
Variable costs 231,782 37,879 36,736 306,397
Bad debts 4,763 5,258 504 10,525
-------------------------- ----------- -------- ------- -------
Total cost of sales 236,545 43,137 37,240 316,922
-------------------------- ----------- -------- ------- -------
Gross margin 138,532 115,998 39,160 293,690
-------------------------- ----------- -------- ------- -------
Gross margin percentage 37% 73% 51% 48%
-------------------------- ----------- -------- ------- -------
18. Operating segments (continued)
Investment income of $7,726,000 (2015: $2,780,000) is excluded
from the measure of segment revenue and non-fee expenses of
$348,486,000 (2015: $270,244,000) and finance costs of $26,383,000
(2015: $14,418,000) are excluded from the measure of segment profit
as these are not considered by management when assessing the
performance of the segments.
Processing costs and bad debts are the only two costs which vary
directly with revenue, and accordingly have been shown separately.
For the year ended 31 December 2016, cost of sales for Payment
Processing, Digital Wallets and Prepaid were 59% (2015: 63%), 25%
(2015: 27%) and 47% (2015: 49%) of revenue, respectively.
Geographic information
Net assets have not been presented in the segmented information
since significant assets and resources throughout the Group are not
regularly reviewed by management at a segment level since they
serve all reporting segments.
The following table shows revenue information based on the
location of the transaction:
Year ended
Year ended 31 December
31 December
2016 2015
$ $
------------------ ------------- -------------
Europe 445,261 201,801
North America 284,083 217,213
Rest of the World 263,212 191,598
------------------ ------------- -------------
992,556 610,612
------------------ ------------- -------------
Major merchants
The Group has one merchant who represented 20% of total fee
revenue for the year ended 31 December 2016 (2015: 23%) across all
reportable segments and geographies. The majority of this revenue
comes from Asia.
19. Finance income and costs
Year ended
Year ended 31 December
31 December
2016 2015
$ $
-------------------------------------------------- ------------- -------------
Interest income on rights offering proceeds (Note
11) - (632)
Interest on long-term debt 18,426 10,051
Amortisation of financing fees 5,349 2,153
Other finance costs 2,608 2,846
-------------------------------------------------- ------------- -------------
Net finance costs 26,383 14,418
-------------------------------------------------- ------------- -------------
20. Earnings per share
The Group presents basic and diluted earnings per share (EPS)
data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted average number of ordinary shares
outstanding during the period, adjusted for own shares held.
Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding, adjusted for own shares held
and for the effects of all dilutive potential ordinary shares,
which comprise share consideration payable and share options
granted to employees.
20. Earnings per share (continued)
The calculation of the basic and diluted earnings per share is
based on the following data:
Year ended
Year ended 31 December
31 December
2016 2015
$ $
------------------------------------------------------- ------------- -------------
Profit
Profit attributable to equity shareholders of
the parent - basic 142,021 7,403
------------------------------------------------------- ------------- -------------
Profit attributable to equity shareholders of
the parent - diluted 142,021 7,403
------------------------------------------------------- ------------- -------------
Number of shares
Weighted average number of ordinary shares outstanding
- basic 483,594,597 399,782,165
Effect of dilutive potential ordinary shares due
to employee share options 11,845,319 11,801,172
Share consideration payable 10,608,192 13,653,725
------------------------------------------------------- ------------- -------------
Weighted average number of ordinary shares outstanding
- diluted 506,048,108 425,237,062
------------------------------------------------------- ------------- -------------
Earnings per share
Basic earnings per share $0.29 $0.02
------------------------------------------------------- ------------- -------------
Fully diluted earnings per share $0.28 $0.02
------------------------------------------------------- ------------- -------------
The average market value of the Company's shares for purposes of
calculating the dilutive effect of share options was based on
quoted market prices for the period during which the options were
outstanding.
21. Share-based payments
The Company issues share options to certain employees, including
Directors. Equity-settled share options are measured at fair value
at the date of grant. In valuing equity-settled share options, no
account is taken of any vesting conditions, other than conditions
linked to the price of the shares of the Company (market
conditions).
The fair value determined at the grant date of the share option
is expensed over the vesting period, which ends on the date on
which the relevant employees become fully entitled to the award
(the vesting date). The cumulative expense recognised for
equity-settled share options at each reporting date reflects the
extent to which the vesting period has expired and the Company's
best estimate of the number of equity instruments that will
ultimately vest (or in the case of a market condition, be treated
as vesting). The movement in cumulative expense since the previous
reporting date is recognised in the statement of comprehensive
income, with a corresponding entry in equity.
No expense is recognised for awards that do not ultimately vest,
except for awards where vesting is conditional upon a market
vesting condition or a non-vesting condition, which are treated as
vesting irrespective of whether or not the condition is satisfied,
provided that all other non-market vesting conditions are
satisfied.
Where the terms of an equity-settled award are modified, the
minimum expense recognised is the expense as if the terms had not
been modified. An additional expense is recognised over the
remainder of the new vesting period for the incremental fair value
of the modification, based on the difference between the fair value
of the original award and the fair value of the modified award,
both as measured on the date of the modification.
Where an equity-settled award is cancelled, it is treated as if
it had vested on the date of cancellation, and any cost not yet
recognised in the statement of comprehensive income for the award
is expensed immediately. Any compensation paid up to the fair value
of the award at the cancellation or settlement date is deducted
from equity, with any excess over fair value being treated as an
expense in the statement of comprehensive income.
Where shares of the Company have been provided as consideration
in business combinations, the fair value of the shares is
determined using appropriate valuation methods applicable to the
transaction.
21. Share-based payments (continued)
Share option plans
The Company adopted the unapproved equity-settled share option
plan ("ESOS") pursuant to a resolution passed on 7 April 2004 and
amended by the Board on 15 September 2008. The 2008 amendment
included the addition of a new 'approved' plan for UK-based
employees. Under the 'approved' and 'unapproved' plans, the Board
of Directors of the Company may grant share options to eligible
employees including Directors of Group companies to subscribe for
ordinary shares of the Company. The ESOS options granted vest on
the third anniversary of the date of grant and lapse a further six
months after vesting.
No consideration is payable on the grant of an option. Options
may generally be exercised to the extent that they have vested.
Options vest according to the relevant schedule over the grant
period following the date of grant. The exercise price is
determined by the Board of Directors of the Company, and shall not
be less than the average quoted market price of the Company shares
on the three days prior to the date of grant. Subject to the
discretion of the Board share options are forfeited if the employee
leaves the Group before the options vest.
The Company also adopted the Long Term Incentive Plan ("LTIP")
which took effect from 1 January 2010 to eligible employees
including Directors of Group companies to subscribe for ordinary
shares of the Company. These LTIP options vest in one tranche based
on future performance related to EBITDA targets determined each
year and subject to continued employment over the remaining vesting
period. Vested options lapse on the tenth anniversary of the date
of grant. On 9 July 2014, the Board granted 3,000,000 "special"
LTIP options which vest in three tranches based on future
performance related to share price targets.
No consideration is payable on the grant of an option. Options
may generally be exercised to the extent that they have vested.
Options vest according to the relevant schedule over the grant
period following the date of grant. The exercise price is
determined by the Board of Directors of the Company. Subject to the
discretion of the Board share options are forfeited if the employee
leaves the Group before the options vest.
During the year, the Company adopted the European and North
American Save As You Earn ("Sharesave") plans pursuant to a
resolution passed on 1 June 2016. Under the European Sharesave
plan, the Board of Directors of the Company may grant share options
to eligible employees including Directors of Group companies to
subscribe for ordinary shares of the Company. The European
Sharesave options normally vest on the third anniversary of the
date of grant and lapse a further six months after vesting. Under
the North American Sharesave plan, eligible employees including
Directors of Group companies can subscribe for ordinary shares in
the Company at their market value. For every four 'Partnership'
shares an eligible employee buys, the Company will grant one free
'Matching' share. The shares are held in a trust for 12 months
before vesting.
No consideration is payable on the grant of an option or
Matching share. The exercise price of the European Sharesave
options is determined by the Board of Directors of the Company, and
shall not be less than 80% of the average market price of the
Company shares prior to the invitation date. Subject to certain
good leaver circumstances, share options and Matching shares are
forfeited if the employee leaves the Group before the options or
Matching shares vest.
For the year ended 31 December 2016, the Group recognised total
expenses of $13,726,000 (2015: $14,089,000) related to share-based
payments transactions.
Changes in the number of ESOS, LTIP and Sharesave options
outstanding are detailed in the tables below:
Year ended 31 Year ended 31
December 2016 December 2015
-------------------- --------------------
Weighted Weighted
average average
exercise exercise
price price
ESOS GBP Options GBP Options
----------------------------------- --------- --------- --------- ---------
Outstanding at the beginning of
the year 2.18 2,095,238 1.73 1,456,750
Granted during the year - - 2.25 1,413,050
Forfeited during the year 2.89 (178,329) 2.40 (288,767)
Exercised during the year 1.35 (898,545) 1.50 (485,795)
----------------------------------- --------- --------- --------- ---------
Outstanding at the end of the year 2.72 1,018,364 2.18 2,095,238
----------------------------------- --------- --------- --------- ---------
Exercisable at the end of the year - - 0.57 108,624
----------------------------------- --------- --------- --------- ---------
The ESOS options outstanding at the end of the period had a
weighted average exercise price of GBP2.72 (31 December 2015:
GBP2.18) and a weighted average remaining contractual life of 1.25
years (31 December 2015: 1.63 years). The weighted average share
price of ESOS options exercised in the year based on the date of
exercise was GBP3.98 (31 December 2015: GBP3.81).
During the year ended 31 December 2015, 762,797 additional
options were granted to holders of ESOS options previously granted
as a result of the Rights Offering (Note 11).
21. Share-based payments (continued)
Year ended 31 Year ended 31
December 2016 December 2015
---------------------- ----------------------
Weighted Weighted
average average
exercise exercise
price price
LTIP GBP Options GBP Options
----------------------------------- --------- ----------- --------- -----------
Outstanding at the beginning of
the year 0.0001 12,169,162 0.0001 6,729,559
Granted during the year 0.0001 1,925,574 0.0001 8,046,625
Forfeited during the year 0.0001 (365,586) 0.0001 (266,658)
Exercised during the year 0.0001 (5,669,200) 0.0001 (2,340,364)
----------------------------------- --------- ----------- --------- -----------
Outstanding at the end of the year 0.0001 8,059,950 0.0001 12,169,162
----------------------------------- --------- ----------- --------- -----------
Exercisable at the end of the year 0.0001 4,051,330 0.0001 2,071,615
----------------------------------- --------- ----------- --------- -----------
The LTIP options outstanding at the end of the year had an
exercise price of GBP0.0001 and a weighted average remaining
contractual life of 7.93 years (31 December 2015: 8.04 years). The
weighted average share price of LTIP options exercised in the year
based on the date of exercise was GBP4.35 (31 December 2015:
GBP3.20).
During the year ended 31 December 2015, 4,737,050 additional
options were granted to holders of LTIP options previously granted
as a result of the Rights Offering (Note 11).
Year ended 31 Year ended 31
December 2016 December 2015
------------------ ------------------
Weighted Weighted
average average
exercise exercise
price price
Sharesave GBP Options GBP Options
----------------------------------- --------- ------- --------- -------
Outstanding at the beginning of - - - -
the year
Granted during the year 3.00 395,068 - -
----------------------------------- --------- ------- --------- -------
Outstanding at the end of the year 3.00 395,068 - -
----------------------------------- --------- ------- --------- -------
Exercisable at the end of the year - - - -
----------------------------------- --------- ------- --------- -------
The European Sharesave options outstanding at the end of the
year had an exercise price of GBP3.00 and a weighted average
remaining contractual life of 2.92 years. No European Sharesave
options were exercised in the year.
Assumptions used in ESOS, LTIP and Sharesave options pricing
model
The fair value of options granted under the ESOS was determined
using the Black-Scholes pricing model that takes into account
factors specific to this plan, such as the expected life and
vesting period. The following table shows the principal assumptions
used in the valuation:
Year ended Year ended
31 December 31 December
2016 2015
----------------------------------------------- ------------ ------------
Weighted average exercise price - GBP2.59
Expected volatility - 45.0%
Expected life - 3.25 years
Risk free interest rate - 0.97%
Dividend yield - 0%
Weighted average fair value per option granted - GBP1.02
----------------------------------------------- ------------ ------------
The fair value of the "special" options granted under the LTIP
was determined using a bespoke Monte Carlo pricing model that takes
into account the market-based performance conditions specific to
this plan.
The following table shows the principal assumptions used in the
valuation:
Year ended Year ended
31 December 31 December
2016 2015
----------------------------------------------- ------------ ------------
Weighted average exercise price GBP0.00 GBP0.00
Expected volatility 48.0% 45.0%
Expected life 2.85 years 2.72 years
Risk free interest rate 0.50 % 0.89%
Dividend yield 0% 0%
Weighted average fair value per option granted GBP2.88 GBP2.75
----------------------------------------------- ------------ ------------
Expected volatility was determined by calculating the historical
volatility of the Company's share price from the time of issue to
the date of grant.
21. Share-based payments (continued)
The fair value of options granted under the European Sharesave
was determined using the Black Scholes pricing model that takes
into account factors specific to this plan, such as the expected
life and vesting period. The following table shows the principal
assumptions used in the valuation:
Year ended
Year ended 31 December
31 December
2016 2015
$ $
----------------------------------------------- ------------- -------------
Weighted average exercise price GBP3.00 -
Expected volatility 44.0% -
Expected life 3.19 years -
Risk free interest rate 0.59 % -
Dividend yield 0% -
Weighted average fair value per option granted GBP1.56 -
----------------------------------------------- ------------- -------------
22. Restructuring costs
The Group incurred certain restructuring costs relating to the
reorganisation of its cost structure. Severance was paid to
employees as a result of operational changes to the Group's
business in order to streamline operations and remain competitive
in challenging markets. Additional restructuring costs were
incurred in the year for specific persons hired to reorganise the
business and various professional fees relating to the acquisitions
described in Note 25.
The Group incurred the following costs:
Year ended
Year ended 31 December
31 December
2016 2015
$ $
--------------------------------- ------------- -------------
Severance and retention payments 1,675 2,028
Professional fees 3,966 6,210
--------------------------------- ------------- -------------
5,641 8,238
--------------------------------- ------------- -------------
23. Adjusted EBITDA
Adjusted EBITDA is defined as results of operating activities
before depreciation and amortisation, finance costs, share-based
payment expense, foreign exchange gains and losses, gains and
losses on disposals of assets and fair value gains and losses on
share consideration payable. These adjustments generally relate to
non-cash items which by their nature are volatile, vary
significantly based on factors outside the Group's control
including foreign exchange rates. It is also adjusted for
exceptional or non-recurring items which are defined as items of
income and expense of such size, nature or incidence that, in the
view of management, are not reflective of the underlying
performance of the Group and should be disclosed to explain the
performance of the Group. In the current and prior year, these
exceptional, non-recurring items include acquisition and
restructuring costs, largely relating to the transformational
acquisition of the Skrill Group in August 2015 (Note 25).
Adjusted EBITDA is not a financial measure calculated in
accordance with IFRS as adopted by the EU. The presentation of
these financial measures may not be comparable to similarly titled
measures reported by other companies due to the differences in the
ways the measures are calculated.
Year ended
Year ended 31 December
31 December
2016 2015
$ $
---------------------------------------------------- ------------- -------------
Profit for the year before tax 167,993 11,808
Depreciation and amortisation 84,474 51,262
Finance costs (Note 19) 26,383 14,418
Share option expense (Note 21) 13,726 14,089
Foreign exchange loss 6,810 9,653
Loss on disposal of assets 799 63
Acquisition costs 2,171 29,434
Restructuring costs (Note 22) 5,641 8,238
Net fair value (gain)/loss on share consideration
payable (7,172) 13,598
---------------------------------------------------- ------------- -------------
Adjusted EBITDA 300,825 152,563
---------------------------------------------------- ------------- -------------
24. Commitments
At the balance sheet date, the Group had outstanding commitments
for future minimum operating lease payments, which fall due as
follows:
Year ended
Year ended 31 December
31 December
2016 2015
$ $
--------------------------- ------------- -------------
Within one year 4,300 4,883
Between two and five years 11,387 12,983
After five years 5,207 7,362
--------------------------- ------------- -------------
Operating lease payments represent rentals payable by the Group
for certain of its office properties. Current leases have a
remaining average life of 3.8 years. The lease payments recognised
in expense for the year are $4,847,000 (31 December 2015:
$2,490,000).
25. Business acquisition
i) Income Access
On 31 August 2016, subsidiaries of the Group purchased certain
assets of EcommAccess Inc. and IA Digital Marketing Inc. ('Income
Access') in exchange for aggregate cash consideration of CAD
$40,000,000 ($30,516,000). Income Access is a market-leading brand
providing innovative affiliate technology for businesses to manage
their performance marketing programmes. In addition, more than
25,000 affiliates use the company's multi-channel software for
their marketing campaigns. Income Access was founded in 2002 and is
based in Montreal with employees in Vancouver, London and
Brisbane.
The acquisition will help the Group expand its product
capabilities and continue to provide relevant payment solutions
that serve the evolving needs of its merchants.
The purchase price allocation shown below is preliminary and
based on management's best estimates. The final purchase price is
expected to be completed as soon as management has gathered all of
the significant information available and considered necessary in
order to finalise this allocation.
$
------------------------------------------------------ -------
Cash consideration 21,361
Cash consideration payable in three equal instalments
over 18 months 9,155
------------------------------------------------------ -------
Total estimated purchase price 30,516
------------------------------------------------------ -------
Trade and other receivables(1) 2,174
Settlement assets 211
Prepaid expenses and other 90
Property, plant and equipment (Note 7) 192
Trade and other payables (1,359)
Finite-life intangible assets (Note 6) 18,712
Obligations under finance lease (205)
------------------------------------------------------ -------
Fair value of net assets acquired 19,815
------------------------------------------------------ -------
Goodwill (Note 5) 10,701
------------------------------------------------------ -------
(1) Trade and other receivables includes trade receivables with
a fair value of $2,174,000 which approximates the gross amount due
under contracts with no impairment allowance.
Income Access revenues of $3,078,000 and net earnings of
$882,000 are included in the consolidated statement of
comprehensive income from the date of acquisition. The Group's
consolidated revenues and net income for the year ended 31 December
2016 would have included $8,817,000 and $2,526,000, respectively,
had the Income Access acquisition occurred on 1 January 2016.
The Group incurred acquisition-related costs of approximately
$1,275,000 during the year ended 31 December 2016 in respect of
this acquisition which were expensed in the period relating to this
transaction.
ii) MeritCard Solutions LP
On 16 February 2016, a subsidiary of the Group, Paysafe Services
(US) Corp, purchased certain assets of MeritCard Solutions LP
('MeritCard'), in exchange for cash consideration of $16,149,000
and an additional $4,050,000 cash consideration subject to the
25. Business acquisition (continued)
achievement of certain financial performance targets. MeritCard
is a Dallas-based payments business that specialises in building
relationships with small to medium-sized independent sales
organisations, sales and bank agents as well as third-party
vendors.
The deal is expected to help the Group continue to expand its
customer base while further diversifying its risk profile in the
Payment Processing division.
The purchase price allocation was determined using the
information available, evaluations obtained and fair value
assessments performed by the Group's management. The following
table summarises the consideration paid for Meritcard and the fair
value of the assets acquired and liabilities assumed at the
acquisition date.
$
--------------------------------------- ------
Cash consideration 16,149
Contingent consideration 4,050
--------------------------------------- ------
Total purchase price 20,199
--------------------------------------- ------
Prepaid expenses and other 50
Other working capital items 197
Property, plant and equipment 20
Finite-life intangible assets (Note 6) 19,932
--------------------------------------- ------
Fair value of net assets acquired 20,199
--------------------------------------- ------
Meritcard revenues of $13,490,000 and net earnings of $1,793,000
are included in the consolidated statement of comprehensive income
from the date of acquisition. The Group's consolidated revenues and
net income for the year ended 31 December 2016 would have included
$14,846,000 and $2,147,000, respectively, had the Meritcard
acquisition occurred on 1 January 2016.
The Group incurred acquisition-related costs of approximately
$212,000 during the year ended 31 December 2016 in respect of this
acquisition which were expensed in the period relating to this
transaction.
iii) Skrill Group
On 10 August 2015, the Group acquired all of the interest of the
Skrill Group ("Skrill") from Sentinel Group Holdings S.A.,
ultimately owned by funds managed and advised by subsidiaries of
CVC Capital Partners SICAV-FIS S.A., Investcorp Technology
Partners, and other shareholders. Skrill was one of Europe's
leading digital payments businesses providing digital wallet
solutions and online payment processing capabilities and one of the
largest pre-paid online voucher providers in Europe with its
paysafecard brand. A subsidiary of the Group, Netinvest Limited,
acquired the entire issued share capital of Skrill in exchange for
EUR720,000,000 ($799,823,000) cash and 37,493,053 New Ordinary
Shares. Following completion, Sentinel Group Holdings S.A. or its
shareholders owned approximately 7.9% of the enlarged Share Capital
of the enlarged Group. The cash consideration was financed through
a combination of available cash, new debt facilities (Note 13) and
a fully underwritten Rights Issue (Note 11). The value of the
equity consideration for Skrill was EUR153,570,000 ($168,374,000),
based on the fair value of the shares on their date of issuance,
which together with the cash consideration and the net debt of
Skrill of EUR307,839,000 ($337,515,000) gave an enterprise
valuation of Skrill of approximately EUR1.2 billion ($1.3
billion).
The Group incurred acquisition-related costs of approximately
$676,000 during the year ended 31 December 2016 which were expensed
in the period relating to this transaction.
iv) FANS Entertainment Inc.
On 22 May 2015, the Group acquired 100% of the shares of FANS
Entertainment Inc. ("FANS"), a Montreal-based mobile platform
developer founded in 2011, for a consideration of CAD$16,000,000
(approximately $13,000,000), payable to the vendors by issuing
shares in a subsidiary of Paysafe Group PLC (the "Consideration
Shares") which are exchangeable on a one-for-one basis into shares
of the Company over the next three years, a portion of which are
subject to the satisfaction of certain financial performance
criteria. The total number of Consideration Shares issued to the
vendors was 3,163,633, of which 790,098 are contingent upon the
satisfaction of certain financial performance criteria. The
estimated fair value of this deferred and contingent consideration
at the acquisition date was determined using liquidity discounts
reflecting the lack of marketability during the lockup period.
During the year ended 31 December 2016, 1,070,962 shares of the
deferred consideration were issued for a value of $3,981,000 (Note
14).
25. Business acquisition (continued)
v) Meritus and GMA
On 23 July 2014, Paysafe Group, through its subsidiaries,
Paysafe Services (US) Corp and Paysafe Services (US) LLC (formerly
NBX Services Corp and NetBX Services LLC respectively) acquired all
of the partnership interests of Paysafe Partners L.P. (formerly TK
Global Partners L.P., doing business as Meritus Payment Solutions
or "Meritus"), a California-based payment processing entity. The
total consideration agreed upon of $210,000,000 on the closing date
consisted of $150,000,000 in cash and $60,000,000 of Paysafe Group
plc shares and/or cash to be issued in equal tranches over four
years commencing on the first anniversary of the closing date,
subject to customary closing adjustments ("Share consideration
payable"). Concurrent with the execution of the Meritus purchase
agreement, Paysafe Services (US) Corp. ("the Buyer") bought all the
outstanding limited and general partnership interest of Meritus
("the Seller") in Global Merchant Advisors, Inc. ("GMA"), a
US-based online payments company.
At closing date, the number of Paysafe Group shares equal to
$60,000,000 was determined to be 8,954,621 shares, and the
estimated fair value of this share consideration payable determined
through single-factor Monte Carlo valuation model was
$76,090,000.
On the same date, Paysafe Services (US) LLC acquired the trade
and assets of GMA for $15,000,000 in cash, $10,000,000 of which was
paid at closing date and the balance of $5,000,000 to be paid based
on future performance of the business ("Contingent consideration").
As the minimum performance targets were met during the year ended
31 December 2015, the contingent consideration was paid for the
full amount of $5,000,000.
26. Financial instruments
The Group classifies its financial assets and liabilities at
fair value through profit or loss, or as loans and receivables and
other financial liabilities measured at amortised cost depending on
the purpose for which the financial assets and liabilities were
acquired or incurred. Management determines the classification of
its financial instruments at initial recognition.
All financial assets and liabilities designated as fair value
through profit or loss are measured at their fair values and gains
and losses related to periodic revaluations are recorded in the
consolidated statement of comprehensive income. All financial
assets designated as loans and receivables, as well as financial
liabilities designated as other financial liabilities, are
initially measured at their fair values and subsequently at their
amortised cost using the effective interest rate method.
Financial instruments consist of cash and cash equivalents,
settlement assets, restricted cash, cash held as reserves, trade
receivables, merchant processing liabilities, trade and other
payables, long-term debt, contingent consideration, deferred
consideration payable, share consideration payable and derivative
financial liabilities. All financial instruments are classified as
fair value through profit or loss except for trade receivables,
trade and other payables and long-term debt which are classified as
loans and receivables and other financial liabilities.
Long-term debt is recognised initially at fair value, net of
financing fees incurred which are comprised primarily of legal,
accounting and other costs directly attributable to the issuance of
the long-term debt. Borrowings are subsequently carried at
amortised cost. Any difference between the proceeds (net of
financing fees) and the redemption value is recognised in the
consolidated statement of comprehensive income over the term of the
long-term debt using the effective interest rate method. Finance
charges are accounted for on an accruals basis and charged to the
consolidated statement of comprehensive income using the effective
interest rate method.
Share consideration payable meets the definition of a financial
liability under IAS 32 and is therefore classified as such. The
fair value of share consideration payable is determined through
single-factor Monte Carlo valuation model at the reporting date.
Any fair value gains and losses at the reporting date are
recognised as a net fair value gain or loss on share consideration
payable in the consolidated statement of comprehensive income.
Trade and other payables and long-term debt are classified as
current liabilities if payment is due within one year or less. If
not, they are presented as non-current liabilities.
Financial assets will be derecognised if the contractual rights
to the cash flows from the financial asset expire or the asset is
transferred and the transfer qualifies for derecognition. The
transfer qualifies for derecognition if substantially all the risks
and rewards of ownership of the financial asset are
transferred.
26. Financial instruments (continued)
Fair value measurements are categorised in accordance with the
following levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1,
but that are observable for the asset or liability, either
directly
or indirectly; and
Level 3: inputs for the asset or liability that are not based on
observable market data.
i) Fair values
The Group estimates the fair value of its financial instruments
based on current interest rates, market value and pricing of
financial instruments with comparable terms.
The carrying values of cash and cash equivalents, settlement
assets, restricted cash, cash held as reserves, trade receivables,
contingent consideration, deferred consideration payable, merchant
processing liabilities, and trade and other payables approximate
their fair value due to the short-term nature of these instruments.
The carrying value of long-term debt also approximates its fair
value as there has been no significant movement in counterparty
credit risk and market interest rates for debts and leases with
similar maturity dates and terms.
The following table shows the carrying amounts and fair values
of financial instruments, including their levels in the fair value
hierarchy.
Fair value
Carrying value Fair value level
------------------------------ ---------- ----------
Other
financial
Held-for-trading liabilities
$ $ $
---------------------------------- ---------------- ------------ ---------- ----------
As at 31 December 2016
Financial instruments measured at
fair value
Level
Share consideration payable 32,284 - 32,284 2
Level
Derivative financial liabilities 1,665 - 1,665 2
---------------------------------- ---------------- ------------ ---------- ----------
33,949 - 33,949
---------------------------------- ---------------- ------------ ---------- ----------
Fair value
Carrying value Fair value level
------------------------------ ---------- ----------
Other
financial
Held-for-trading liabilities
$ $ $
---------------------------------- ---------------- ------------ ---------- ----------
As at 31 December 2015
Financial instruments measured at
fair value
Level
Share consideration payable 62,386 - 62,386 2
Level
Derivative financial liabilities 229 - 229 2
---------------------------------- ---------------- ------------ ---------- ----------
62,615 - 62,615
---------------------------------- ---------------- ------------ ---------- ----------
There have been no transfers between Level 1 and Level 2 for the
years ending December 31, 2016 and 2015.
ii) Credit risk and concentrations
Credit risk is the risk of financial loss to the Group if a
member or merchant counter party to a financial instrument fails to
meet its contractual obligations, and arises principally from the
Group's cash and cash equivalents, settlement assets, restricted
cash, cash held as reserves and trade receivables. The cash and
cash equivalents, settlement assets, restricted cash and cash held
as reserves are deposited with major financial institutions which
the Group's management believes to be financially sound and,
accordingly, minimal credit risks exist with respect to these
assets.
The Group is exposed to credit risk to the extent that its
members and merchants may charge back credit card purchases. The
Group manages the exposure to credit risk by employing various
online identification verification techniques, enacted transaction
limits and having a significant number of members and merchants. As
these members are geographically widespread and the merchants are
active in various industries, the exposure to credit risk and
concentration is mitigated.
26. Financial instruments (continued)
As at the reporting date, the maximum credit exposure of the
Group's financial assets exposed to credit risk amounted to the
following:
Neither Past due: Past due: Past due:
past due 1-30 31-90 more than
or impaired days days 90 days
$ $ $ $
-------------------------- ------------ --------- --------- ----------
As at 31 December 2016
Cash and cash equivalents 231,157 - - -
Settlement assets 64,586 - - -
Restricted cash 31,854 - - -
Cash held as reserves 35,873 - - -
Trade receivables 27,886 277 418 1,162
-------------------------- ------------ --------- --------- ----------
Total 391,356 277 418 1,162
-------------------------- ------------ --------- --------- ----------
Neither Past due: Past due: Past due:
past due 1-30 31-90 more than
or impaired days days 90 days
$ $ $ $
-------------------------- ------------ --------- --------- ----------
As at 31 December 2015
Cash and cash equivalents 117,875 - - -
Settlement assets 51,868 - - -
Restricted cash 29,070 - - -
Cash held as reserves 14,473 - - -
Trade receivables 15,299 1,859 450 383
-------------------------- ------------ --------- --------- ----------
Total 228,585 1,859 450 383
-------------------------- ------------ --------- --------- ----------
iii) Interest rate risk
The Group is exposed to interest rate risk to the extent that
investment revenue earned on cash and cash equivalents and
restricted cash, and interest expense incurred on long-term debt
are subject to fluctuations in interest rates. The Group's exposure
to interest rate risk is limited as investments are held in liquid
and short-term funds. In addition, an interest rate swap has been
entered into in order to mitigate the risk of interest rates rising
on the Term A facility, for which a loss of $1,652,000 (2015:
$299,000) was recorded during the year. The Group is also
investigating hedging strategies to further reduce the risk from
interest rate volatility in future years. A sensitivity analysis
has been performed wherein 1% increase in interest rates offered
would result in a $489,000 (31 December 2015: $1,344,000)
unfavourable impact on net earnings while a 1% decrease would
result in a $2,384,000 unfavourable (31 December 2015: $2,318,000
favourable) impact on net earnings related to the Group's
borrowings.
iv) Currency risk
The Group is exposed to currency risk due to financial assets
and liabilities denominated in a currency other than the functional
currency, primarily the Great Britain Pound ("GBP"), the Euro
("EUR"), the Canadian Dollar ("CAD"), and the Hong Kong Dollar
("HKD"). The Group manages the exposure to currency risk by
commercially transacting in US Dollars and by limiting the use of
other currencies for operating expenses, wherever possible, thereby
minimising the realised and unrealised foreign exchange
gain/(loss).
26. Financial instruments (continued)
The Group's exposure to foreign currency at the reporting date
was as follows:
GBP EUR CAD HKD
GBP EUR $ $
------------------------------------ -------- --------- ------- ---------
As at 31 December 2016
Cash and cash equivalents 45,935 64,794 21,823 17,656
Settlement assets 753 19,244 701 83,932
Segregated account funds and liquid
assets (Note 9) 71,385 218,938 2,355 7,597
Cash held as reserves - 9,615 50 -
Trade and other receivables 7,978 14,102 3,148 2,497
Trade and other payables (32,183) (14,599) (5) -
Merchant processing liabilities (5) 2 2,899 -
Payable to members and merchants
(Note 9) (72,664) (298,890) (5,432) (185,062)
Income taxes payable 407 (9,016) (7,987) -
Derivative financial liability - (1,583) - -
Long-term debt - (457,377) - -
------------------------------------ -------- --------- ------- ---------
Total 21,606 (454,770) 17,552 (73,380)
------------------------------------ -------- --------- ------- ---------
GBP EUR CAD HKD
GBP EUR $ $
------------------------------------ -------- --------- ------- ---------
As at 31 December 2015
Cash and cash equivalents 11,414 24,913 7,153 38,411
Settlement assets 1,018 10,274 (122) 76,745
Segregated account funds and liquid
assets (Note 9) 44,903 302,270 92 -
Cash held as reserves - 1,329 50 -
Trade and other receivables 6,409 21,771 (1,431) -
Trade and other payables (23,528) 1,899 (713) (6,525)
Merchant processing liabilities - 2 2,353 -
Payable to members and merchants
(Note 9) (7,792) (319,025) (706) (199,484)
Income taxes payable (159) 728 (8,016) -
Derivative financial liability - (210) - -
Long-term debt - (480,577) - -
------------------------------------ -------- --------- ------- ---------
Total 32,265 (436,626) (1,340) (90,853)
------------------------------------ -------- --------- ------- ---------
As at 31 December 2016, had the US dollar strengthened by 1% in
relation to all the other currencies, with all other variables held
constant, the net assets of the Group would have been decreased in
both profit and equity by US $4,480,000 (31 December 2015:
$4,413,000). A weakening of the US Dollar by 1% against the above
currencies would have had an equal and opposite effect.
v) Market segment risk
Market segment risk may arise due to adverse changes in
legislation relating to internet, payment processing or on-line
gambling. The Group is exposed to market segment risk to the extent
that legislation impacts operational presence and related revenue
streams, which may be significant. The Group manages this exposure
through geographical diversification and participation in non
gambling sources of revenue. The Group closely monitors local
legislation in key markets (new or existing) and does not have
economic reliance on any one country.
vi) Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet
its financial obligations as they fall due. Management controls and
monitors the Group's cash flow on a regular basis, including
forecasting future cash flows. The Group's objective to managing
liquidity is to ensure that, as far as possible, it will always
have sufficient liquidity to meet the liabilities when they become
due.
26. Financial instruments (continued)
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted payments
using the period end spot rate for all items denominated in a
foreign currency:
One to More than
Carrying Less than five five
Amount Total On demand one year years years
$ $ $ $ $ $
------------------------- -------- ------- --------- --------- ------- ---------
As at 31 December 2016
Long-term debt 496,697 568,404 - 46,530 285,089 236,785
Trade and other payables 123,943 123,943 123,943 - - -
Merchant processing
liabilities 18,547 18,547 18.547 - - -
Contingent consideration 6,135 6,135 - 4,442 1,693 -
Deferred consideration
payable 10,192 10,192 - 7,217 2,975 -
Interest rate swap 1,665 1,665 - - 1,665 -
------------------------- -------- ------- --------- --------- ------- ---------
Total 657,179 728,885 142,489 55,440 294,171 236,785
------------------------- -------- ------- --------- --------- ------- ---------
One to More than
Carrying Less than five five
Amount Total On demand one year years years
$ $ $ $ $ $
------------------------- -------- ------- --------- --------- ------- ---------
As at 31 December 2015
Long-term debt 545,844 638,622 - 49,451 333,850 255,321
Trade and other payables 88,214 88,214 88,214 - - -
Merchant processing
liabilities 16,758 16,758 16,758 - - -
Contingent consideration 2,084 2,084 - - 2,084 -
Deferred consideration
payable 3,312 3,312 - 2,208 1,104 -
Interest rate swap 229 229 - - 229 -
------------------------- -------- ------- --------- --------- ------- ---------
Total 656,441 749,219 104,972 51,659 337,267 255,321
------------------------- -------- ------- --------- --------- ------- ---------
The Group holds cash and cash equivalents and settlement assets
of $295,743,000 (2015: $169,743,000) as well as trade and other
receivable of $43,062,000 (2015: $31,198,000). The Group also has
available $85,000,000 from its revolving credit facility (2015:
$85,000,000). Given the Group's available liquid resources as
compared to the timing of the payments of liabilities, management
assesses the Group's liquidity risk to be low.
vii) Risk management assets and liabilities
Risks are identified, evaluated and mitigated through a
combination of a "top down" approach driven by both the Audit
Committee and Board of Directors. These are aggregated into an
Enterprise Risk Management framework where the risks are
prioritised and assigned to the executive for monitoring and risk
mitigation. The Group Internal Audit function undertakes regular
reviews of the controls that are in place to mitigate risk. The
Group enters into financial instruments through forward currency
contracts that fix the net asset or liability position for
significant currencies held on the statement of financial
position.
viii) Capital disclosure
The Group's capital structure is comprised of shareholders'
equity, deferred and contingent consideration as well as secured
credit facilities as required to fund business and asset
acquisitions. The Group's objective when managing its capital
structure is to finance internally generated growth and maintain
financial flexibility including access to capital markets. To
manage its capital structure the Group may adjust capital spending,
issue new shares, or acquire short-term financing.
ix) Capital risk management
The Group manages its capital to ensure that the entities in the
Group will be able to continue as a going concern, while maximising
the return to stakeholders through optimisation of the debt and
equity balance. The capital structure of the Group consists of
debt, which includes the borrowings as disclosed in Note 13, and
equity attributable to owners of the parent, comprising reserves
and retained earnings as disclosed. The Board reviews the capital
structure and as part of this review, considers the cost of capital
and the risks associated with each class of capital. In addition
the Board of Directors considers the liquidity and solvency of the
Group on an ongoing basis. The primary measure used by the Group to
monitor its financial leverage is its ratio of net debt to equity,
where net debt includes long-term debt and contingent consideration
reduced by cash and cash equivalents, settlement assets, restricted
cash and cash held as reserves, and equity includes the share
consideration payable in accordance with the terms of the Group's
credit facility (Note 13).
27. Related party transactions
Monetary related party transactions in the normal course of
operations are recorded at fair value, and transactions between
related parties, not in the normal course of operations, are
recorded at the carrying value as recorded by the transferor.
Compensation of key management personnel
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of the Group, directly or indirectly, including any
Director (whether executive or otherwise) of the Group. The
compensation expense for transactions with the Group's key
management personnel consists of the following:
Year ended Year ended
31 December 31 December
2016 2015
$ $
----------------------------- ------------- -------------
Short-term employee benefits 6,029 4,877
Post-employment benefits 127 125
Share-based payments 9,068 10,760
----------------------------- ------------- -------------
15,224 15,762
----------------------------- ------------- -------------
28. Contingent liabilities
From time to time the Group is subject to legal claims and
actions. The Group takes legal advice as to the likelihood of
success of the claims and actions and no provision or disclosure is
made where the Directors feel, based on that advice, the action is
unlikely to result in a material loss or a sufficiently reliable
estimate of the potential obligation cannot be made.
As at 31 December 2016, Paysafe Processing Limited, a
wholly-owned subsidiary, has net current liabilities. Paysafe Group
plc will continue to provide financial support to enable Paysafe
Processing Limited to meet its existing and future liabilities and
continue as a going concern.
29. Auditor remuneration
Remuneration of the auditors for audit, advisory and other
services has been recorded as follows:
Year ended
Year ended 31 December
31 December
2016 2015
$ $
------------------------ ------------- -------------
Audit services
Statutory audit 828 848
Non-audit services
Other advisory services 191 3,112
------------------------ ------------- -------------
Total 1,019 3,960
------------------------ ------------- -------------
Included in other advisory services for the year ended 31
December 2015 are costs of $2,879,000 related to the acquisition of
Skrill (Note 25).
Appendix: Alternative Performance Measures
Alternative Performance Measures
In the discussion of the Group's reported operating results,
alternative performance measures (APMs) are presented to provide
readers with additional financial information that is regularly
reviewed by management to assess the financial performance or
financial health of the Group, or is useful to investors and
stakeholders to assess the Group's performance and position.
However, this additional information presented is not uniformly
defined by all companies including those in the Group's industry.
Accordingly, it may not be comparable with similarly titled
measures and disclosures by other companies. Certain information
presented is derived from amounts calculated in accordance with
IFRS but is not itself an expressly permitted IFRS measure. Such
measures should not be viewed in isolation or as an alternative to
the equivalent IFRS measure. Below, we have outlined definitions
and explanations for the APMs used throughout our investor
communications, as well as reconciliations to the closest
equivalent IFRS measure where appropriate.
Growth and financial performance measures
Adjusted EBITDA
Definition
Adjusted EBITDA is defined as results of operating activities
before depreciation and amortisation, share-based payment expense,
fair value gains and losses on share consideration payable, foreign
exchange gains and losses, and gains and losses on disposals of
assets. These adjustments generally relate to non-cash items which
by their nature are volatile or vary significantly based on factors
outside the Group's control including foreign exchange rates.
It is also adjusted for exceptional or non-recurring items which
are defined as items of income and expense of such size, nature or
incidence that, in the view of management, are not reflective of
the underlying performance of the Group and should be disclosed to
explain the performance of the Group. In the current and prior
year, these exceptional, non-recurring items include acquisition
and restructuring costs, largely relating to the transformational
acquisition of the Skrill Group in August 2015.
Explanation of relevance
We use adjusted EBITDA, and adjusted EBITDA margin, in
conjunction with other IFRS and non-IFRS financial measures, to
assess the underlying operating performance of our Group, and as
such we believe that it is both useful and necessary to report
adjusted EBITDA as a performance measure for our investors and
stakeholders.
Reconciliation to closest equivalent IFRS measure
Please see table below.
Adjusted profit after tax and adjusted fully diluted earnings
per share
Definition
Adjusted profit after tax is defined as reported profit after
tax excluding share-based payment expense, fair value gains and
losses on share consideration payable, foreign exchange gains and
losses, losses on disposals of assets and exceptional or
non-recurring items as explained within the Adjusted EBITDA section
above. It also excludes amortisation of acquired intangibles, and
the tax effect of the adjustments set out above.
No adjustments are made to reported fully diluted weighted
average number of shares to calculate adjusted fully diluted
earnings per share (EPS).
Explanation of relevance
Adjusted profit after tax is used by management and investors to
assess underlying EPS performance excluding the effect of adjusting
items made to operating profit, and excluding the distorting effect
of non-cash amortisation charges on assets recognised on
consolidation in relation to acquisitions.
Reconciliation to closest equivalent IFRS measure
Year ended 31 December Year ended 31 December
2016 2015
$m $m
Adjusted Adjusted
profit profit
after after
Statutory Adjustments tax Statutory Adjustments tax
Gross profit 542.9 - 542.9 296.5 - 296.5
------------------------------ --------- ----------- -------- --------- ----------- -----------
Non-fee expenses
Salaries and employee
expenses 131.5 - 131.5 75.7 - 75.7
Share option expense 13.7 (13.7) - 14.1 (14.1) -
Other administrative expenses 110.5 - 110.5 68.2 - 68.2
Acquisition costs 2.2 (2.2) - 29.4 (29.4) -
Restructuring costs 5.6 (5.6) - 8.2 (8.2) -
Foreign exchange loss 6.8 (6.8) - 9.7 (9.7) -
Net fair value (gain)/loss
on share consideration
payable (7.2) 7.2 - 13.6 (13.6) -
Loss on disposal of assets 0.8 (0.8) - 0.1 (0.1) -
------------------------------ --------- ----------- -------- --------- ----------- -----------
Adjusted EBITDA N/A 300.8 N/A 152.6
Adjusted EBITDA margin N/A 30.1% N/A 24.9%
Depreciation and amortisation 84.5 (51.9)(*) 32.5 51.3 (31.9)(*) 19.4
------------------------------ --------- ----------- -------- --------- ----------- -----------
Results from operating
activities 194.4 N/A 26.2 N/A
Operating margin 19.4% N/A 4.3% N/A
Net finance costs 26.4 - 26.4 14.4 - 14.4
------------------------------ --------- ----------- -------- --------- ----------- -----------
Profit for the year before
tax 168.0 73.9 241.9 11.8 106.9 118.7
Income tax expense 26.0 2.9(**) 28.9 4.4 5.6(**) 10.0
------------------------------ --------- ----------- -------- --------- ----------- -----------
Profit for the year after
tax 142.0 71.0 213.0 7.4 101.3 108.7
Fully diluted earnings
per share 0.28 0.14 0.42 0.02 0.23 0.26-------
Weighted average number
of shares in issue - diluted
(m) 506.0 - 506.0 425.2 425.2
------------------------------ --------- ----------- -------- --------- ----------- -----------
(*) Amortisation of acquisition-related intangible assets
(**) Tax effect of the above adjustments
Group and divisional pro-forma revenue and organic constant
currency year-on-year revenue growth
Definition
Pro-forma revenue is an unaudited measure, relating to historic
periods only. In FY 2015, which included the material acquisition
of the Skrill Group, it was stated on an adjusted basis as if we
had owned all acquisitions throughout the FY 2015 period prior to
their acquisition and throughout all prior comparative periods
("pro-forma"). This included Skrill, Ukash, Meritus, GMA, and
FANS.
Pro-forma constant currency year-on-year revenue growth was then
calculated for prior periods by applying prior period foreign
exchange rates to current period pro-forma absolute revenue
("constant currency").
Acquisitions made in the current period have not been as
material as in FY 2015. From 1 January 2016 we have reverted to the
more usual definition of organic constant currency year-on-year
growth. This presents growth as if companies acquired on or after 1
January 2016 had been owned during the whole of FY 2016 and FY 2015
only, and uses the same foreign exchange adjustment.
We have not published pro-forma revenue for the current period,
and have not restated prior period absolute pro-forma revenue for
these new acquisitions. This means that all pre-2016 published
pro-forma growth rates remain the same.
Explanation of relevance
Organic constant currency year-on-year revenue growth presents
performance on a comparable basis in terms of merger and
acquisition activity and foreign exchange rates. While organic
constant currency growth is neither intended to be a substitute for
reported growth, nor is it superior to reported growth, we believe
that the measure provides useful and necessary information to
investors and stakeholders as it provides additional information on
underlying growth of the businesses which enables stakeholders to
better assess our underlying performance.
Reconciliation to closest equivalent IFRS measure
Year ended 31 December 2016:
Payment Digital
Processing Wallets Prepaid Group
----------------------------------------- ----------- -------- --------- -------
Reported revenue growth 25% 95% 180% 63%
----------------------------------------- ----------- -------- --------- -------
Impact of pre-acquisition revenues
(see definition above) (7)% (66)% (174)% (45)%
Impact of applying prior period exchange
rates 3% 2% 4% 3%
----------------------------------------- ----------- -------- --------- -------
Organic constant currency year-on-year
revenue growth 21% 30% 10% 21%
----------------------------------------- ----------- -------- --------- -------
Year ended 31 December 2015:
Payment Digital
Processing Wallets Prepaid Group
------------------------------------------------ -------- -------- ------
Reported revenue growth 37% 78% - 68%
------------------------------------------ ----- -------- -------- ------
Impact of pre-acquisition revenues
(see definition above) (24)% (73)% (12)% (64)%
Impact of applying prior period
exchange rates 3% 12% 17% 9%
------------------------------------------ ----- -------- -------- ------
Pro-forma constant currency year-on-year
revenue growth 16% 17% 5% 13%
------------------------------------------ ----- -------- -------- ------
Payment Processing Digital Wallets Prepaid Group
Year ended 31 December 2015: $m $m $m $m
----------------------------------- ------------------ --------------- -------- ------
Reported revenue 375.1 159.1 76.4 613.4
----------------------------------- ------------------ --------------- -------- ------
Pre-acquisition revenues from
all
acquisitions prior to 31 December
2015 7.6 79.8 125.0 216.8
----------------------------------- ------------------ --------------- -------- ------
Pro-forma revenue 382.7 238.9 201.4 830.2
----------------------------------- ------------------ --------------- -------- ------
Group and Payment Processing organic constant currency
year-on-year revenue growth excluding Major Merchant Asia
Gateway
Definition
This measure is calculated in the same way as described above,
but adjusted for the revenue contribution from the services we
provide to our largest merchant through our Asia Gateway.
Explanation of relevance
These services make up a significant proportion of the revenue
from the Payment Processing division and relate to the activities
of one single customer through a service that is operationally
different to the remainder of the Payment Processing division. We
present the underlying growth of the business and the Payment
Processing division excluding this customer to clarify the growth
profile of the rest of that division.
Reconciliation to closest equivalent IFRS measure
As the Major Merchant Asia Gateway relates to the activities of
one single customer, for reasons of commercial sensitivity we do
not provide a reconciliation of this measure.
Prepaid organic constant currency year-on-year revenue growth
excluding the impact of discontinued Ukash territories and
services
Definition
This measure is calculated in the same way as described above,
but adjusted to exclude an estimate of the effect of discontinued
Ukash territories and services.
Explanation of relevance
Ukash was acquired by Skrill in March 2015. As part of the
valuation of this business, the Group took into account its
expected withdrawal from certain territories and services that were
previously provided by Ukash. The Ukash business was fully and
successfully integrated in H2 2015, and the brand was retired.
However, for the purposes of presenting pro-forma revenue prior
to 31 December 2015, in the interests of transparency we included
all pre-acquisition Ukash revenues including those that related to
discontinued territories and services. As such, our measure of
pro-forma constant currency year-on-year revenue growth was a
negative growth figure for H2 2015. Following feedback from users
of the accounts, we have temporarily introduced this measure which
excludes the estimated effect of the discontinued Ukash territories
and services. This measure is an estimate only and is not intended
to be a substitute for reported growth.
Reconciliation to closest equivalent IFRS measure
This figure is an estimate and as it is only a temporary APM a
reconciliation has not been provided. The impact of the estimate
was to increase organic and pro-forma constant currency
year-on-year divisional growth by 4% and 6% in FY 2016 and FY 2015
respectively.
Group and divisional pro-forma gross margins
Definition
Pro-forma gross margin is an unaudited measure, relating to
historic periods only. In FY 2015, which included the material
acquisition of the Skrill Group, it was stated on an adjusted basis
as if we had owned all acquisitions throughout the FY 2015 period
prior to their acquisition and throughout all prior comparative
periods ("pro-forma"). This included Skrill, Ukash, Meritus, GMA,
and FANS. Divisional pro-forma gross margins for FY 2015 have not
been re-presented as a result of a change in presentation of
intersegment cost of sales in FY 2016, as fully described in the
Change in Presentation section.
Explanation of relevance
Pro-forma gross margins are disclosed by management as
additional information to provide comparability with FY 2016
reported margins, especially within the Prepaid division where
prior to the acquisition of the Skrill Group in August 2015 there
was no reported gross margin. While pro-forma gross margins are
neither intended to be a substitute for reported gross margins, nor
superior to reported gross margins, we believe that the measure
provided useful additional information for investors and
stakeholders in the period following the transformational
acquisition of Skrill Group. A reconciliation to reported gross
margin is not considered meaningful in this context.
Financial position and cash flow measures
Net debt and net debt / pro-forma last 12 months adjusted
EBITDA
Definition
Reported net debt includes short and long-term debt (excluding
deferred finance costs), finance leases, deferred cash
consideration payable and contingent cash consideration payable
offset by cash and cash equivalents.
Pro-forma last 12 months adjusted EBITDA is relevant to FY 2015
only. It is defined as for adjusted EBITDA above, and in line with
the definition of pro-forma revenue, includes the impact of
pre-acquisition adjusted EBITDA in relation to the acquisitions of
Skrill, Ukash, Meritus, GMA, and FANS in FY 2015.
For FY 2016, pro-forma last 12 months adjusted EBITDA is
equivalent to reported last 12 months adjusted EBITDA, and from FY
2017 onwards the title of this measure will revert to net debt /
last 12 months adjusted EBITDA.
Explanation of relevance
Reported net debt is a non-IFRS figure which sets out the net
indebtedness of the Group. Management believes that reporting net
debt / last 12 months adjusted EBITDA gives investors and
stakeholders an indication of the debt capacity of the Group at the
balance sheet date and as such is an important measure of the
Group's financial position. Reported net debt is comparable to net
debt for the purposes of covenants.
Reconciliation to closest equivalent IFRS measure
As at
As at 31 December
31 December
2016 2015
$m $m
-------------------------------------- ------------- -------------
Non-current portion of long-term debt 451.2 493.3
Current portion of long-term debt 29.7 30.9
Deferred financing fees 15.8 21.6
Deferred cash consideration payable 10.2 3.3
Contingent cash consideration payable 4.1 -
Cash and cash equivalents (231.2) (117.9)
-------------------------------------- ------------- -------------
Net debt 279.8 431.3
-------------------------------------- ------------- -------------
Year ended 31 December 2015:
Group
$m
Adjusted EBITDA (see reconciliation to nearest IFRS measure
above) 153
------------------------------------------------------------ -----
Impact of pre-acquisition adjusted EBITDA of acquisitions
prior to 31 December 2015 52
------------------------------------------------------------ -----
Pro-forma adjusted EBITDA 205
------------------------------------------------------------ -----
Free cash flow and free cash flow before payments working
capital
Definition
Free cash flow is a non IFRS figure defined as operating cash
flow after working capital movements, interest, tax and capital
expenditure.
Free cash flow before payments working capital is a non IFRS
figure defined as operating cash flow after operating working
capital movements, interest, tax and capital expenditure. It
excludes payments working capital, being cash flows that are not
revenue or costs to the Group, constituted by movements in
restricted cash balances, cash held as reserves, settlement assets
and merchant processing liabilities.
Explanation of relevance
Free cash flow is a measure provided by management to
demonstrate the cash flow available to the Group for reinvestment
or to reduce the net debt position of the Group.
Reconciliation to closest equivalent IFRS measure
2016 2015
$m $m
Net cash flows from operating activities 268.6 74.9
----------------------------------------------- ------ ------
Purchase of property, plant & equipment (12.9) (5.7)
Purchase of intangible assets (40.8) (18.0)
Interest paid (12.5) (8.4)
----------------------------------------------- ------ ------
Free cash flow 202.4 42.8
Payments working capital 39.6 41.9
----------------------------------------------- ------ ------
Free cash flow before payments working capital 242.0 84.7
----------------------------------------------- ------ ------
Adjusted free cash conversion before and after payments working
capital
Definition
Adjusted free cash conversion is measured as adjusted free cash
flow as a percentage of adjusted EBIT.
Adjusted free cash flow after payments working capital is
calculated as adjusted EBITDA, as defined above, less working
capital movements and capex as reported in the IFRS cash flow. An
adjustment is made to reported working capital movements to exclude
cost accrual movements associated with non-EBTIDA expenses from
reported working capital.
Adjusted free cash flow before payments working capital excludes
payments working capital movements as reported in the IFRS cash
flow.
Adjusted EBIT is defined as adjusted EBITDA less adjusted
depreciation and amortisation, as set out above for adjusted profit
after tax.
Explanation of relevance
Management believes that adjusted free cash conversion
demonstrates our ability to convert our EBIT growth into cash that
can be reinvested in the business through investment, returned to
shareholders, or used to support our strategic pillar of bold
M&A. Management discloses adjusted free cash conversion both
before and after payments working capital, due to the volatility of
payments working capital. Although payments working capital does
not relate to our income or expenses, net increases and decreases
in payments working capital represent use of shareholder funds and
affect the cash and cash equivalents held by the Group.
Reconciliation to closest equivalent IFRS measure
A reconciliation is provided to free cash flow, which is derived
entirely from IFRS cash flow line items. Please see above for a
reconciliation from reported operating cash flow to free cash
flow.
Reconciliation to closest equivalent IFRS measure
2016 2015
$m $m
Free cash flow (see above) 202.4 42.8
Operating cash finance costs 1.0 2.2
Interest expense (25.4) (12.2)
Finance cost within statement of comprehensive
income 26.4 14.4
Realised foreign exchange (gain)/loss (1.2) 14.4
Unrealised foreign exchange (gain)/loss (8.0) 4.8
Foreign exchange loss within statement of comprehensive
income 6.8 9.7
Tax paid 10.2 4.9
Finance costs paid 12.5 8.4
Restructuring costs 5.6 8.2
Less restructuring costs not yet paid - (0.6)
----------------------------------------------------------- ------ ------
Adjusted free cash flow after payments working
capital 230.4 80.4
Payments working capital 39.6 41.9
Increase in restricted cash 9.8 16.5
Increase in settlement assets 10.1 9.5
Increase in cash held as reserve 21.6 2.0
(Increase)/decrease in merchant processing liabilities (1.8) 13.8
----------------------------------------------------------- ------ ------
Adjusted free cash flow before payments working
capital 270.0 122.2
----------------------------------------------------------- ------ ------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR OKADKBBKBBNK
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