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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Paysafe Gp | LSE:PAYS | London | Ordinary Share | GB0034264548 | ORD 0.01P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 590.00 | 589.00 | 590.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
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
Hot Features
Premium
$m 2016 2015
Revenue 1,000.3 613.4
Year-on-year revenue growth 63% 68%
Organic constant currency year--on--year revenue
growth(1) 21% 13%
Adjusted EBITDA(2) 300.8 152.6
Adjusted EBITDA margin 30.1% 24.9%
Operating profit 194.4 26.2
Operating profit margin 19.4% 4.3%
Adjusted pro t after tax(3) 213.0 108.7
Statutory pro t after tax 142.0 7.4
Adjusted fully diluted EPS ($)(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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