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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Veltyco Group Plc | LSE:VLTY | London | Ordinary Share | IM00BYT32K14 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 8.40 | 8.00 | 8.80 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMVLTY
RNS Number : 9166D
Veltyco Group PLC
28 June 2019
28 June 2019
VELTYCO GROUP PLC
("Veltyco" or "the Group")
Final Results for the year ended 31 December 2018
Veltyco, the AIM quoted company active in marketing and operating in the gaming sector, announces its final results for the year ended 31 December 2018.
Financial highlights
-- Revenues from continuing operations increased 18% to EUR4.7 million (2017: EUR4.0 million)(1) -- Revenues from discontinued operations of EUR6.9 million (2017: EUR12.2 million)(2) -- Total Revenues reported of EUR11.7 million (2017: EUR16.2 million)
-- Operating result amounts to EUR17.3 million loss (2017: EUR7.5 million) impacted by EUR10.7 million impairment charge
Notes:
(1) Revenue derived from the Group's marketing activities in the sportsbook and casino vertical and from Bet90.
(2) Revenue derived from the Group's marketing activities in the online financial trading and lottery verticals, which the Group ceased during 2018
Operational highlights
-- Restructured Group operations, terminating marketing agreements in the online financial trading and lottery verticals
-- Renewed agreement with Betsson AB to market its Betsafe brand in Germany until May 2021 -- Growth in continuing operations driven by sportsbook and casino vertical
-- Board restructuring undertaken to help streamline Group activities and create a renewed focus
Post year end & Current Trading
-- Raised EUR855,000 in equity and EUR500,000 as a loan from certain Directors for working capital purposes
-- Combined sportsbook and casino revenues marginally ahead of the same period last year however, due to a change in the mix, revenues in the first five months of 2019 are below management expectations
Paul Duffen, Chairman, commented: "This has been a very challenging period for Veltyco, with a number of operational issues to address and a changing dynamic in the markets in which we operate. We have worked hard to restructure our operating costs to match our current operations and believe we now have a more streamlined business.
"We have taken what we believe is a prudent view to provide for the full amount of monies still owed to the Group which has led to the significant loss in 2018
"Current trading has been impacted by a higher proportion of lower margin revenues activities but we remain confident that we can continue to seek attractive opportunities in our chosen markets."
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.
The Annual Report and Accounts for the year ended 31 December 2018 will shortly be available on the Company's website.
For further information please contact:
Veltyco Group Plc +44 (0)1624 605 764
Paul Duffen, Chairman
Marcel Noordeloos, Chief Financial Officer
Strand Hanson Limited (Nominated Adviser) +44 (0)20 7409 3494
James Harris / Richard Tulloch / James Dance
Whitman Howard Ltd (Broker) +44 (0)20 7659 1234
Nick Lovering / Christopher Furness
IFC Advisory (Financial PR & IR) +44 (0)20 3934 6630
Graham Herring / Miles Nolan / Zach Cohen
About Veltyco
Veltyco is a group of companies focused on the operation of its own online Sportsbook and Casino product as well as marketing activities for other online gaming companies.
Website: www.veltyco.com
Strategic Report
I hereby present our Annual Report for the financial year ended 31 December 2018.
Financial and operational highlights
Revenues from continuing operations: EUR4.7 million (compared to EUR4.0 million in 2017)(1)
Revenues from discontinued operations: EUR6.9 million (compared to EUR12.2 million in 2017)(2)
Total Revenues reported: EUR11.6 million (compared to EUR16.2 million in 2017)
Operating result: EUR17.3 million loss (EUR7.5 million profit in 2017)
Notes:
(3) Revenue derived from the Group's marketing activities in the sportsbook and casino vertical and from Bet90.
(4) Revenue derived from the Group's marketing activities in the online financial trading and lottery verticals, which the Group ceased during 2018.
Operational review
As previously disclosed, the Group faced significant operational challenges during 2018, around the collection of receivables in respect of the Group's online financial trading and lottery marketing activities. Despite reaching agreements on the payment of these receivables, such payments ceased during October 2018. As a consequence of the diminished cash receipts, the Group reduced these marketing activities, with the Board deciding to terminate all marketing activities in the financial trading and lottery verticals in November 2018.
The Group continues to seek to recover the outstanding debts and is progressing various proceedings in this regard, which, as of the date of this report, have not produced any additional receipts. Consequently, whilst all efforts to recover outstanding monies will continue, the Board considers it prudent to provide for the full amount of the outstanding balance in respect of its marketing activities in the online financial trading and lottery verticals, resulting in an impairment charge of EUR10.7 million.
Due to the termination of marketing activities in the online financial trading and lottery verticals, the Company has impaired all intangible assets relating to this activity. This mainly concerned the book value of the intangible assets relating to the Zoomtraderglobal brand (which was acquired in 2016 for consideration comprising issuance of new ordinary shares) as well as the online financial trading customer database acquired in May 2018. The latter, because we currently do not propose to launch our own financial trading brand, which means it is not certain whether we will be able to use the acquired database to its full potential, as the last update of the database was made in September 2018. The Directors continue to consider other options to utilise the database.
Termination of the marketing activities relating to online financial trading brands, as well as termination of lottery related marketing, led to a significant decrease in revenues during the second half of 2018. Revenues for the second half of 2018, which related predominately to revenues from the Group's marketing activities in the sportsbook and casino vertical and from Bet90, amounted to, in aggregate, EUR2.7 million compared to EUR8.9 million in the first half of 2018, which included revenues from the terminated marketing activities for the online financial trading and lottery verticals. As a consequence the full year revenues decreased to EUR11.6 million in 2018 from EUR16.2 million in 2017. The Group's revenues from its ongoing marketing activities in the sportsbook and casino vertical and from Bet90 increased in 2018 to EUR4.7 million (2017: EUR4.0 million).
During 2018, the Company entered into a renewed agreement with Betsson AB group to market Betsson's Betsafe brand in Germany until May 2021, an agreement which was broadly on similar terms as the previous agreement.
Overall, the majority of the 2018 revenues were derived from the Group's online marketing activities, though this moved, during the last quarter of 2018, more towards revenues from the Group's own brand, Bet90, and marketing activities in the sportsbook and casino vertical, which continues to be the focus for the Group's future growth, following the termination of activities in the online financial trading and lottery verticals.
As a result of the above, the Group's cashflow has been significantly impacted by the inability to collect outstanding receivables, requiring the Company to raise additional funds subsequent to the year end, as announced on 22 November 2018, 30 January 2019, 1 April 2019 and 30 May 2019.
On 30 January 2019, the Company announced it had raised GBP500,000 (or EUR555,500) by issuing 3,333,333 new ordinary shares. On 1 April 2019, the Company announced that it had entered into separate loan agreements with three of its Directors, raising a total of EUR500,000 for working capital and on 30 May 2019, the Company announced that it had raised EUR300,000 by issuing 4,000,000 new ordinary shares.
Financial review
2018 was a year of significant challenges for Veltyco. As previously communicated, the Group faced significant difficulties in collecting its trade receivables from its market activities in the online financial trading and lottery verticals. This led to the decision towards the end of 2018 to completely cease these marketing activities and fully focus on the existing marketing agreement with Betsafe, as well as its owned operations of the Bet90 sportsbook and casino brand.
Due to this significant reduction of marketing spend during the second half of 2018, and ultimately completely ceasing all operations, revenues for the full year decreased to EUR11.6 million (2017: EUR16.2 million). This is mainly due to the lower revenues recorded during the second half of 2018. Revenues in the second half of 2018 amounted to EUR2.7 million, whereas the revenues for the first six months amounted to EUR8.9 million. In the first half year, an amount of EUR6.8 million related to revenues recorded for its marketing activities in the online financial trading and lottery verticals. Excluding revenues from these marketing activities, the Group's revenues from its ongoing marketing activities in the sportsbook and casino vertical and from Bet90 increased 18% in 2018 to EUR4.7 million (2017: EUR4.0 million).
The net result for the year amounted to a loss of EUR16.7 million (2017: EUR6.8 million profit). The results for 2018 were significantly impacted by the impairment of receivables from the online financial trading and lottery business of, in aggregate, EUR10.7 million, combined with the impairment of the relating intangible assets of EUR6.1 million. Furthermore, the Group recorded impairment charges of EUR0.4 million on its investments in T4U Marketing Ltd (in which the Group holds 51% and operates an affiliate forum website in Germany), as the results for 2017 and 2018 were lower than expected at time of acquisition. The results were also impacted by the start-up costs of the Bet90 operations, which started in the second half of 2017 and had its first year of full operations in 2018. In order to gain market share and create brand recognition, the Group spent almost EUR3 million in marketing of the Bet90 brand. Furthermore, revenues generated in the sportsbook and casino vertical, which is the revenue recorded in the second half of 2018, are of lower margins than revenues generated in the online financial trading vertical.
The operating EBITDA for the year ended 31 December 2018 was EUR0.5 million (2017: EUR8.1 million).
Details of the operating EBITDA are as follows:
Hot Features
Premium
2018 2017
EUR EUR
Operating (loss)/profit (17,297,953) 7,482,129
Depreciation and amortisation expense 404,514 380,173
Impairment of intangibles 6,482,758 -
Impairment of uncollectable receivables 10,712,715 -
Share based payment (included in
salary expense) 176,744 239,084
------------- ----------
Operating EBITDA 478,778 8,103,386
------------- ----------
Cash Flow
The Group used to be active in three major verticals (sportsbook and casinos, online lotteries and online financial trading) and had revenues and cost centres in numerous locations in Europe. The Group experienced operational difficulties in receiving agreed marketing commissions within the online financial trading and lottery verticals as previously announced, which ultimately led to an impairment of these receivables of EUR10.7 million. There was only limited cash flow from the Group's remaining activities and as a result of the collectability issues, the Group had a negative cash flow from operations of EUR0.1 million for the year ended 31 December 2018.
Post the period end, the Group raised GBP500,000 (EUR555,000) through a subscription with certain existing shareholders in January 2019, entered into a loan agreement with some of the Directors in April 2019 for a further EUR500,000 (GBP440,000)and raised EUR300,000 (GBP264,000) through a subscription with an existing shareholder in May 2019, to provide further working capital to the Group.
Board changes
During and post the year end, the Company made a number of changes to its Board and senior management to reflect the changes in the Group's operations during the year.
In March 2018, the Group announced the appointment of Melissa Blau as the Group's new CEO. At the same time, Uwe Lenhoff and Hans Dahlgren resigned as Executive Directors and Ilan Tzorya resigned as a Non-executive Director. On 12 October 2018, the Group announced that Melissa Blau had resigned from the Board.
Subsequent to the year end, on 30 January 2019 the Company announced the appointment of Paul Duffen as the new Chairman of the Group, replacing Gilles Ohana, who stepped down from the Board at the same time. Paul was subsequently appointed as the Group's Executive Chairman on 7 March 2019.
The Company continues to seek a new CEO and a further independent Non-executive Director in line with the developments of the Company and a further announcement will be made as appropriate.
Principle risks and uncertainties
The Main operational Risk factors are included on page 12 of this report.
Current trading and outlook
The Group's revenue in the current year to 31 May 2019 for the combined sportsbook and casino operations, is marginally ahead of the same period in 2018. However, as the result of a change in the revenue mix, with a larger share of the revenues being generated from lower margin activities and a number of large customer wins across its operations (which are a risk given the nature of the Group's activities), revenue for the first five months of 2019 is below management expectations.
Although the Directors have sought to restructure the operating costs to match the current operations, as a result of the above, the Directors believe that the results for the six months ending 30 June 2019 will show a loss.
In light of the above, the Directors continue to manage the Group's cash resources carefully, and whilst they believe that the Group will be able to continue to manage its creditors, should trading not be in line with expectations going forward and/or the Group is not able to manage its creditors, the Group's ability to meet such liabilities may be impacted. Accordingly, the Directors continue to explore appropriate additional sources of capital.
Dividend
Whereas the Directors paid a maiden dividend for the year ended 31 December 2017, amounting to 0.25p per share in July 2018, the Directors are not proposing a dividend for the year ended 31 December 2018.
Approved by the Board of Directors and signed on behalf of the Board.
Paul J Duffen
Executive Chairman, Veltyco Group plc
28 June 2019
Directors' Report
The Directors present their report and consolidated financial statements for the year ended 31 December 2018.
Principal activities and review of the business
Veltyco is a company focused on generating marketing leads and entering into marketing contracts for the activities of its sportsbook partner in sports betting and casinos games as well as operating its own Bet90 sportsbook and casino games, in which it has a 51% interest. During the fourth quarter of 2018, the Group ceased its marketing activities relating to lottery and online financial trading verticals.
Results and dividends
The Group's result for the year, after taxation, amounted to a loss of EUR16.7 million (2017: profit of EUR6.8 million). The Group's 2018 result is highly impacted by the impairment of receivables and intangible assets relating to the Group's marketing activities and operations across its three verticals. The operating EBITDA (after adjustments for impairments, amortisation and depreciation) for the full year 2018 amounted to EUR0.5 million (2017: EUR8.1 million).
As a result of the above, the Directors are proposing not to pay a dividend for the year ended 31 December 2018.
Future developments
Future developments are discussed in the Strategic Report.
Financial Risk Management
The Board is responsible for setting the objectives and underlying principles of financial risk management for the Group. The Board establishes the detailed policies such as authority levels, oversight responsibilities, risk identification and measurement and exposure limits.
Capital risk management
The Company's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders.
Liquidity risk
Liquidity risk exists where the Group might encounter difficulties in meeting its financial obligations as they become due. The Group monitors its liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its obligations.
Large wins by customers
Inherent to the business is that there is a risk that a few players and customers might win significant amounts of money during the same period thus reducing the earnings of the Group, in particular in regard to its sportsbook partner which has a higher concentration of VIP players. In respect of its marketing activities for its sportsbook partner, negative or highly impacted net revenues in any period are also carried forward and netted off against net revenues in future periods on which commission might otherwise be payable to the Group. Whilst the Group would not have to cover any gaming or gambling losses in the existing marketing agreements, the percentage of earnings retained by the Group might be greatly reduced as a result of this. Any gaming or gambling losses within the Group's own Bet90 operations would though need to be covered by the Group as and when they occur.
Currency risk
The Group is exposed to translation and transaction foreign exchange risk. As the majority of the Group's transactions are denominated in Euros, the Directors deem the Group's exposure to exchange rate fluctuations to be minimal.
Interest rate risk
The Group's exposure to upside interest rate risk is limited. The loans on the balance sheet have a fixed interest rate. The Directors do not consider the impact of possible interest rate changes based on current market conditions to be material to the net result for the year or the equity position at the year-end for either the year ended 31 December 2018 or 31 December 2017.
Credit risk
The Group's credit risk is primarily attributable to trade receivables. Trade receivables consist of:
-- Customers running the land based operations of Bet90, via Bet90 branded terminals; and
-- Payment service providers (PSPs). PSPs are third-party companies that facilitate deposits and withdrawals of funds to and from customers' virtual wallets with the Group. These are mainly intermediaries that transact on behalf of credit card companies.
The risk is that a customer or a PSP would fail to discharge its obligation with regard to the balance owed to the Group.
The Group reduces this credit risk by:
-- Monitoring balances with customers on a regular basis; -- Monitoring balances with PSPs on a regular basis; and -- Arranging for the shortest possible cash settlement intervals in all cases.
The Group considers that based on the factors above and on past experience, the customers and PSP receivables used in the current businesses are of good credit quality and there is a low level of potential bad debt as at year-end.
A large credit risk that the Group historically faced related to its marketing activities for partners in the online financial trading and the lottery verticals. As a result of the Company not being able to collect such receivables, the Board has decided to provide for these in full, amounting to, in aggregate, EUR10.7 million.
An additional credit risk the Group faces relates to customers in its own operations disputing charges made to their credit cards ("chargebacks") or any other funding method they have used in respect of the services provided by the Group. Customers may fail to fulfil their obligation to pay, which will result in funds not being collected. These chargebacks and uncollected deposits, when occurring, will be deducted at source by the payment service providers from any amount due to the Group. The Group monitors the need for impairment provisions by considering all reasonable and supportable information, including that which is forward-looking. For the year ended 31 December 2018, the Group has not made any provision for this, as any provision would be immaterial.
Going concern
The Group experienced significant operational difficulties during 2018 in respect to receiving agreed marketing commissions from operators within the online financial trading and lottery verticals and as a result, the Group terminated these activities in H2 2018 and they have been fully impaired in 2018. As a result, the Company has commenced procedures to seek to recover these receivables through a legal process, though this has not resulted in further receipts of cash to date.
Following the termination of the Group's marketing activities for the online financial trading and the lottery verticals, the Group is currently focusing its activities on operating in the sports book and casinos vertical and has revenues and cost centres in a number of locations throughout Europe.
As a result of the above, the Group achieved a net loss of EUR16.7 million for the year ended 31 December 2018. Furthermore, the Group had a negative cash flow from operations of EUR0.1 million for the year ended 31 December 2018 and the Directors expect the Group to be loss making for the six months ending 30 June 2019.
The Group has therefore sought to reduce its operating costs to match the current operations and the Directors continue to manage the Group's cash resources carefully. However, whilst they believe that the Group will be able to continue to manage its creditors, which are meaningfully in excess of the Group's current cash resources, should trading not be in line with expectations going forward and/or the Group is not able to manage its creditors, the Group's ability to meet such liabilities may be impacted, in which case the Group will need to raise further funding. In any event the Directors consider that further funding is likely to be required and continue to explore further appropriate sources of capital. Whilst they are confident of being able to raise such funding if required, there is no certainty that such funding will be available and/or the terms of such funding. However, these conditions are necessarily considered to represent a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern.
Whilst acknowledging this material uncertainty, the Directors remain confident of being able raise additional funding as required and therefore the Directors consider it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include the adjustments that would result if the Group and Company was unable to continue as a going concern.
Post balance sheet events
On 30 January 2019, the Company announced that it had raised EUR555,500 (GBP500,000) through the subscription of 3,333,333 new Ordinary Shares with certain existing investors, at a price of GBP0.15 per share. On the same day, the Board resolved to issue 200,000 new Ordinary Shares to an adviser in lieu of certain fees.
On 15 February 2019, the Company announced that, on 14 February 2019, it granted options over, in aggregate, 2,420,000 Ordinary Shares to the Directors and certain employees of the Company, pursuant to the Company's Long-Term Incentive Plan - May 2016 (as amended).
These options have an exercise price of GBP0.15 per share. Pursuant to the terms of the 2016 Plan, the options will vest in equal instalments over the four years following the first anniversary of the date of grant and any of the options that remain unexercised on the fifth anniversary of the date of grant will lapse. In light of these new options being granted, Mark Rosman and Marcel Noordeloos agreed with the Company to cancel 300,000 options granted to each of them on 5 July 2017. In addition, 109,846 existing warrants that were granted by the Company on 5 October 2017, have had the terms amended, such that they will now be exercisable at a price of GBP0.15 per share.
On 1 April 2019, the Company announced that it had entered into separate loan agreements with three of its Directors, being Paul Duffen, Marcel Noordeloos and Mark Rosman, pursuant to which each Director provided a loan of EUR166,667 (GBP146,667) to the Company, totalling EUR500,000 (GBP440,000) (the "Loans"). The Loans, which are unsecured, are for a term of three years and will accrue interest at 5% per annum over the term of the Loans. The Loans can be repaid on or before 31 March 2022 at the Company's election.
On 30 May 2019, the Company announced that it had raised a further EUR300,000 (GBP264,000) through the subscription of 4,000,000 new Ordinary Shares with a certain existing investor, at a price of GBP0.066 per share.
Directors and their interest
The following Directors held share options as at 31 December 2018:
Number of options Exercise Date of grant Vesting
Price (GBP) period
------------------ ------------- -------------- ----------
Marcel Noordeloos 750,000 0.25 30 June 2016 1-4 years
Marcel Noordeloos 300,000 0.65* 5 July 2017 1-4 years
Mark Rosman 400,000 0.25 30 June 2016 1-4 years
Mark Rosman 300,000 0.65* 5 July 2017 1-4 years
Gilles Ohana 800,000 0.25 22 May 2017 1-4 years
* The options granted on 5 July 2017 have been cancelled as announced on 30 January 2019.
Directors who served during the year
Appointed Resigned
-------------- ----------------
Gilles Ohana 20 November 30 January 2019
2017
Mark Rosman 19 March 2014 -
Uwe Lenhoff 30 June 2016 26 March 2018
Marcel Noordeloos 30 June 2016 -
Hans Dahlgren 30 June 2016 26 March 2018
Ilan Tzorya 16 January 26 March 2018
2017
Melissa Blau 26 March 2018 12 October 2018
On 30 January 2019, Paul Duffen was appointed as Chairman, replacing Gilles Ohana and was appointed Executive Chairman on 7 March 2019.
Directors' responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to keep reliable accounting records which allow financial statements to be prepared. In addition, the Directors have elected to prepare group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and applicable law. The financial statements are required to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that year. In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgments and accounting estimates that are reasonable and prudent;
-- state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and prepare financial statements. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for ensuring that they meet their responsibilities under the AIM Rules.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
In so far as each of the Directors is aware:
-- there is no relevant audit information of which the Company's auditors are unaware; and
-- the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditor is aware of that information.
Auditors
The auditors of the Group are Nexia Smith & Williamson, Chartered Accountants.
This report was authorised for issue by the Board on 28 June 2019.
Paul J Duffen
Executive Chairman, Veltyco Group plc
28 June 2019
Risk factors
The Board evaluates the operational risks facing the Group on an ongoing basis to monitor for changes in risks and risk impact and to set guidelines for risk mitigation. The most significant risks identified by the Board are listed below.
Gambling laws and regulations are constantly evolving and increasing
The regulatory framework of online gaming is dynamic and complex. Change in the regulatory regime in a specific jurisdiction can have a material adverse effect on business volume and financial performance in that jurisdiction. In addition, a number of jurisdictions have regulated online gaming, and in several of those jurisdictions the Group, or its operating partner, either holds a licence or is planning to obtain one, if the market is considered interesting. However, in some cases, lack of clarity in the regulations, or conflicting legislative and regulatory developments, mean that the Group may risk failing to obtain an appropriate licence, having existing licences adversely affected, or being subject to other regulatory sanctions, including internet service providers blocking, blocking options to make deposits, black-listing and fines.
The Group is managing this risk by consulting with legal advisers in various jurisdictions where its services are marketed or which generate significant revenue for the Group. Furthermore, the Group obtains regular updates regarding changes in the law that may be applicable to its operations, working with local counsel to assess the impact of any changes on its operations. Furthermore, the Group's owned operations Bet90, blocks players from certain "blocked jurisdictions" using multiple technological methods as appropriate.
Reliance on VIP players
A large percentage of the commission based revenue from the Group's marketing activities in the sportsbook and casino vertical is generated by a small group of high net worth players, described as "VIP Players". These are loyal players that regularly deposit high amounts on the websites. The Group knows these players and makes them feel valued. A VIP player (or also a non-VIP player) can have large winnings, in either the sportsbook or the casino, in a certain period, which can significantly impact the revenues on a monthly basis. A loss of any of the VIP Players could significantly adversely affect the Group's business, financial condition, results or future operations.
In respect of its own sportsbook and casino brand, Bet90, any large wins by VIP players could potentially lead to recording a loss in such cases.
Corporate Governance Report
As an AIM-quoted company, Veltyco and its subsidiaries (together, the "Group") is required to apply a recognised corporate governance code, demonstrating how the Group complies with such corporate governance code and where it departs from it.
The Board of Directors of the Company ("Directors" or "Board") have adopted the QCA Corporate Governance Code (the "QCA Code"). The Board recognises the principles of the QCA Code, which focus on the creation of medium to long-term value for shareholders, without stifling the entrepreneurial spirit in which small to medium sized companies, such as Veltyco, have been created.
Application of the QCA Code
In the spirit of the QCA Code it is the Board's job to ensure that the Group is managed for the long-term benefit of all shareholders and other stakeholders with effective and efficient decision-making. Corporate governance is an important part of that job, reducing risk and adding value to the Group. The Board will continue to monitor the governance framework of the Group as it grows.
Veltyco is an online marketing and operating company that seeks to grow shareholder value through organic growth and acquisitions. Veltyco's aim is to build a portfolio of gaming brands through a combination of strong organic growth as well as strategic acquisitions that complement the current business.
The Board aims to achieve these objectives through the adoption of best working practices and by leveraging its industry knowledge and expertise. We believe that the senior management team as well as the Board, together with their industry leading partners and networks, have the necessary capabilities to achieve organic and external growth in the future, as demonstrated, for example, by the acquisition in 2017 of the 51% interest in online sportsbook and casino gaming company, Bet90.
In accordance with the AIM Rules, Veltyco applies (and in some cases departs from) the QCA Code in the following way:
Principle 1 - Establish a strategy and business model which promote long-term value for shareholders
Veltyco is an online company and its strategy is to create value for its customers and own brand by using state of the art technology and practices to ensure full customer satisfaction both on a B to B as well as on B to C level.
Principle 2 - Seek to understand and meet shareholder needs and expectations.
Veltyco has engaged in active dialogue with shareholders through regular communication including investor events, participation in conferences, and the Company's Annual General Meeting that were held throughout the year and one-on-one discussions. Our Corporate Brokers, Whitman Howard, have also taken an important role in discussions with equity investors throughout the year, as well as offering investor roadshows with the Group's management. New information is released via the regulatory news service (RNS) before anywhere else and the website is update accordingly.
Principle 3 - Take into account wider stakeholder and social responsibilities and their implications for long-term success
The Board recognises the importance of its wider stakeholders - employees, contractors, suppliers, customers, regulators and advisors - to its long-term success. The Board has established expectations that these key resources and relationships are valued and monitored. In particular, the Company's business model of outsourcing some its key activities requires reliable dialogue with contractors to ensure the successful pursuit of its long-term strategic objectives. Furthermore, the Board intends to actively seek to engage regularly with our corporate advisers to ensure proactive communication regarding the Company's activities. In doing so, the Company is able to take any feedback into account and adjust its actions accordingly to ensure it stays focused on long-term performance. The Board recognises that the Company operates within a competitive and fast changing industry and strives to remain alert to developments in a wider industry/society context.
Principle 4 - Embed effective risk management, considering both opportunities and threats, throughout the organisation
Veltyco operates within a complex business environment and an industry that is fundamentally driven by regulatory processes. The Board has set out its understanding of the principal risks and uncertainties in its Annual Report and regularly reviews its strategies for minimising any adverse impact to the Company or its investors.
The Directors acknowledge their responsibility for the Group's system of internal control, which is designed to ensure adherence to the Group's policies whilst safeguarding the assets of the Group, in addition to ensuring the completeness and accuracy of the accounting records. Responsibility for implementing a system of internal financial control is delegated to the CFO.
The essential elements of the Group's internal financial control procedures involve:
-- Strategic business planning
The Board regularly reviews and discusses the Group's performance and strategic objectives.
-- Performance review
The Directors monitor the Group's performance through the preparation and consideration of monthly management accounts and daily through KPIs and regular reviews of its expenditure and projections. In addition, detailed financial projections for each financial year are prepared and are subject to formal and regular review against actual trading by the Board.
Principle 5 - Maintain the Board as a well-functioning, balanced team led by the Chairman
The Board comprises four Directors of which three are Executives and one is a Non-executive, reflecting a blend of different experience and backgrounds. The Board considers Mark Rosman to be an independent Non-executive Director in terms of the QCA guidelines. Accordingly, the composition of the Board does currently not satisfy the QCA recommendation that there are at least two independent Non-executive Directors on the Board.
The Board meets throughout the year and all major decisions are taken by the Board as a whole. The Group's day-to-day operations are managed by the Executive Directors. All Directors have access to the Company information and any Director needing independent professional advice in the furtherance of his/her duties may obtain this advice at the expense of the Group.
Although the Board is satisfied that it has a suitable balance between independence on the one hand, and knowledge of the Group on the other, to enable it to discharge its duties and responsibilities effectively, and that all Directors have adequate time to fill their roles, the Group intends to appoint an additional independent Non-Executive Director in due course. In addition, the Board has commenced discussions with potential CEO candidates to join the Board. This process has the highest priority for the Board and we will make further announcements in due course as and when appropriate.
The role of the Chairman is to provide leadership of the Board and ensure its effectiveness on all aspects of its remit to maintain control of the Group. In addition, the Chairman is responsible for the implementation and practice of sound corporate governance.
Non-executive directors are expected to devote as much time as is necessary for the proper performance of their duties. Executive directors are full-time employees or services providers and expected to devote as much time as is necessary for the proper performance of their duties.
During 2018 the Board held eight (8) meetings either in person or by call, all of which were attended by all Directors. The Board also passed sixteen (16) unanimous written resolutions.
Principle 6 - Ensure that between them the directors have the necessary up to-date experience, skills and capabilities
The Board considers its current composition to be appropriate and suitable with the adequate and up-to-date experience, skills and capabilities to make informed decisions. Each member of the Board brings a different set of skills, expertise and experience, making the Board a diverse unit equipped with the necessary set of skills required to create maximum value for the Company.
The Board is fully committed to ensuring its members have the right skills. Members of the Board must be re-elected by the shareholders of the Company if they have not been re-elected at the previous two annual general meetings in accordance with the Company's Articles of Association, thereby providing shareholders the ability to decide on the election of the Company's Board.
The biographical details of the Directors are:
Paul J Duffen, Executive Chairman, aged 60, brings 35 years in management experience in various industries and being an entrepreneur. Paul was co-founder and Chief Executive Officer (until 2006) of Catalyst Media Group plc, which specialised in the sports, media and entertainment sectors, including motor racing in the USA and Horse Racing in the UK. He subsequently served as Executive Chairman of Hull City Football Club, securing their first promotion to the Premier League in 2008 and Chairman of Newsdesk Media Ltd, an international publishing Group. He currently serves as a non-executive Director of Animus Associates Ltd, a business intelligence consultancy, and has recently joined the Board of eSports.com Group Ltd.
Marcel Noordeloos, Chief Financial Officer, aged 50, was Group Finance Director at Playlogic International NV between 2006 and 2009 and Chief Financial Officer at Playlogic Entertainment Inc from March 2009 until September 2010 prior to becoming Chief Financial Officer at Velox3 plc (renamed to Veltyco Group plc at time of re-admission on 30 June 2016). Marcel has held several management positions with among others Nike EMEA (2002-2006) and PwC (1992-2001). Marcel holds an RA Degree (Registered Accountant) from the University of Amsterdam.
Rainer Lauffs, Chief Operating Officer, aged 46, is a business graduate from Philipps University of Marburg (Germany) and has been working in the online gaming world since 2006. Among other projects, he was significantly involved in building up PartyGaming's business in German and Dutch territories.
Mark Rosman, Non-Executive Director, aged 52, has 15 years of experience advising on private equity investments and managing private equity portfolios. Mark worked for Galladio Capital Management B.V. for eleven years and held the role of chief operating officer from 2006 until his departure in 2010. Since leaving Galladio, Mark has served as chief executive officer of The Nestegg B.V., a private equity management and advisory firm that advises high net worth individuals on the structuring and management of investments. Mark is a law graduate from VU University Amsterdam and has an MBA from Rotterdam School of Management.
The Board also consults with external advisers, such as it Nominated Adviser and the Company's lawyers, and with executives of the Company on various matters as deemed necessary and appropriate by the Board.
Principle 7 - Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement
Veltyco's Board is small and extremely focussed on implementing the Group's strategy. However, given the size and nature of the Group, the Board does not consider it appropriate to have a formal performance evaluation procedure in place, as described and recommended in Principle 7 of the QCA Code. The Board will closely monitor the situation as it grows.
Principle 8 - Promote a corporate culture that is based on ethical values and behaviours
We are committed to acting ethically and with integrity. We expect all employees, officers, directors and other persons associated with us to conduct their day-to-day business activities in a fair, honest and ethical manner.
For that purpose, we have adopted a Code of Business Conduct and Ethics ("Code") which applies to all our workforce personnel. Pursuant to the Code, employees, directors and other relevant stakeholders are required to comply with all laws, rules and regulations applicable to us. These include, without limitation, laws covering anti-bribery, copyrights, trademarks and trade secrets, data privacy, insider trading, illegal political contributions, antitrust prohibitions, rules regarding the offering or receiving of gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety, false or misleading financial information or misuse of corporate assets. The Code also includes provisions for disclosing, identifying and resolving conflicts of interest of the employees and Board members.
The Code includes provisions requiring all employees to report any known or suspected violation and ensures that all reports of violations of the Code will be handled sensitively and with discretion. We also recognise the benefits of a diverse workforce and are committed to providing a working environment that is free from discrimination.
We have also adopted a share dealing code, regulating trading and confidentiality of inside information by persons discharging managerial responsibility and persons closely associated with them ("PDMRs").
We take all reasonable steps to ensure compliance by PDMRs and any relevant employees with the terms of the Dealing Code.
Principle 9 - Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board
Corporate Governance Committees
The Board has established two committees, of which the composition is as follows:
Audit committee
Mark Rosman (Chairman)
Paul J Duffen
Remuneration committee
Mark Rosman (Chairman)
Paul J Duffen
The Audit Committee
The Audit Committee meets twice during the year to review the published financial information, the effectiveness of external audit and internal financial controls including the specific matters set out below.
The terms of reference of the Audit Committee are to assist all the Directors in discharging their individual and collective legal responsibilities and during the meetings to ensure that:
-- The Group's financial and accounting systems provide accurate and up-to-date information on its current financial position, including all significant issues and going concern;
-- The integrity of the Group's financial statements and any formal announcements relating to the Group's financial performance and reviewing significant financial reporting judgments contained therein are monitored;
-- The Group's published financial statements represent a true and fair reflection of this position; and taken as a whole are balanced and understandable, providing the information necessary for shareholders to assess the Group's performance, business model and strategy;
-- The external audit is conducted in an independent, objective, thorough, efficient and effective manner, through discussions with management and the external auditor; and
-- A recommendation is made to the Board for it to put to shareholders at a general meeting, in relation to the reappointment, appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor.
The Audit Committee does not consider there is a need for an internal audit function given the size and nature of the Group.
Significant issues considered by the Audit Committee during the year have been the Principal Risks and Uncertainties (which are set out in the this annual report) and their effect on the financial statements. The Audit Committee tracked the Principal Risks and Uncertainties through the year and kept in contact with the Group's Management, External Service Providers and Advisers and received regular updates. The Audit Committee is satisfied that there has been appropriate focus and challenge on the high-risk areas.
Nexia Smith & Williamson, our external auditors, have been in office since 2013.
The external auditors are invited to attend the Audit Committee meeting to present their findings and this provides them with a direct line of communication to the Non-executive Directors.
The Remuneration Committee
The terms of reference of the Remuneration Committee are to:
-- recommend to the Board a framework for rewarding senior management, including Executive Directors, bearing in mind the need to attract and retain individuals of the highest calibre and with the appropriate experience to make a significant contribution to the Group; and
-- ensure that the elements of the remuneration package are competitive and help in underpinning the performance-driven culture of the Group.
Principle 10 - Communicate how the company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders
The Board is committed to maintaining good communication with its shareholders and in promoting effective dialogue regarding the Group's strategic objectives and performance. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback via meetings with the Company. The Annual General Meeting and any other General Meetings that are held throughout the year are for shareholders to attend and question the Directors on the Company's performance. Regular progress reports are also made via RNS announcements and the point of contacts are Paul J. Duffen, Executive Chairman and Marcel Noordeloos, CFO.
Our Audit Committee Report is included on pages 19-20 of this Annual Report. Our Remuneration Committee Report is included on page 21 of this Annual Report.
Audit Committee Report
General and Composition of the Audit Committee
The Audit Committee is a sub-committee of the Board. The Audit Committee chairman reports formally to the Board on all matters within the Committee's duties and responsibilities and on how the Audit Committee discharges its responsibilities. The Audit Committee members are Mark Rosman (Chairman) and Paul Duffen.
The Audit Committee consists of two members, Mark Rosman (Chairman) and Paul Duffen. Mark Rosman is considered to be independent.
The biographies of the Audit Committee members are on pages 15-16 under principle six, as well as on the Company's website at www.veltycogroupplc.com/corporate-info .
The Audit Committee meets at twice a year at appropriate times in the reporting and audit cycle and otherwise as required. The Audit Committee also meets regularly with the Company's external auditors.
Purpose and Responsibilities of Audit Committee
The purpose of the Audit Committee is to assist the Board to carry out the following functions more efficiently and fully:
-- Oversight of the integrity of the Group's formal reports, statements and announcements relating to the Group's financial performance; and
-- Reviewing compliance with internal guidelines, policies and procedures and other prescribed internal standards of behaviour.
To achieve such purposes, the Audit Committee has been assigned with the following responsibilities:
-- Reviewing the half-year and full-year financial statements with management and with the external auditors as necessary prior to their approval by the Board;
-- Reviewing financial results announcements of the Group and any other formal announcements relating to the Group's financial performance and recommending them to the Board for approval;
-- Reviewing recommendations from the CFO and the external auditors on the key financial and accounting principles to be adopted by the Group in the preparation of the financial statements;
-- Reviewing the Group's systems for internal financial control;
-- Considering and making recommendations to the Board, to put to shareholders for approval at the AGM, the appointment, re-appointment and removal of the Company's external auditors and oversee the relationship with the external auditors;
-- Reviewing and approving the external audit plan and regularly monitoring the progress of implementation of the plan; -- Determining and monitoring the effectiveness and independence of the external auditors.
Main Activities in 2018
On 6 June 2018 the Audit Committee reviewed the financial statements for FY2017.
On 27 September 2018 the Audit Committee reviewed the financial results of the Company for H1 2018.
External Auditors
The external auditors of the Company are Nexia Smith & Williamson ("NS&W"). The appointment of NS&W as auditors by the Audit Committee was based on their performance during past years. The Audit Committee review of the external auditors confirmed the appropriateness of their reappointment and included assessment of their independence, qualification, expertise and resources, and effectiveness of their audit process.
Both the Board and the external auditors have safeguards in place to avoid the possibility that the auditors' objectivity and independence could be compromised. The services provided by the external auditors include the Audit-related services. In recognition of public concern over the effect of consulting services on auditors' independence, the external auditors are not invited to general consulting work which can affect their independence as external auditors.
The total remuneration of the external auditors for 2018 and for 2017 was as listed in the table below:
Auditor's remuneration 2018 2017
Audit services EUR65,000 EUR130,000
Acquisition and assurance - -
services
Taxation compliance - -
The Audit Committee and the auditors found that the external audit plan for 2018, the work of the external auditors for 2018 and the remuneration of the external auditors for 2018 did not undermine the independence of the external auditors.
Financial Reporting
The Group's trading performance is monitored on an ongoing basis. An annual budget is prepared, and specific objectives and targets are set. The budget is reviewed and approved by the Board. The key trading aspects of the business are monitored daily and internal management and financial accounts are prepared monthly. The results are compared to budget and prior year performance.
The Audit Committee has taken and will continue to take further steps to ensure the Group's control environment is working effectively and efficiently.
--------------------------------
Mark Rosman
Chairman of the Audit Committee
Remuneration Committee Report
GENERAL
The Remuneration Committee is responsible for determining and recommending to the Board the framework for the remuneration of the Board chairman, executive directors and other designated senior executives and, within the terms of the agreed framework, determining the total individual remuneration packages of such persons including, where appropriate, bonuses, incentive payments and share options or other share awards.
The Remuneration Committee consists of two members, Mark Rosman (Chairman) and Paul Duffen. Mark Rosman is considered independent. The Remuneration Committee meets at least once a year and otherwise as required.
Key elements in Remuneration
As an AIM-quoted company, the Company is not required to comply with the remuneration reporting requirements applicable to fully listed companies in the UK. However, set out below are certain disclosures relating to directors' remuneration:
-- The remuneration of executive directors and certain other senior executives is set by comparison to market rates at levels aimed to attract, retain and motivate the best staff, recognising that they are key to the ongoing success of the business.
-- The remuneration of non-executive directors is a matter for the Chairman and the executive directors to determine.
-- No Director is involved in any decision as to his or her own remuneration.
-- The remuneration of senior management includes equity-based payments (stock options) vested over time to retain their employment.
Responsibilities of the Remuneration Committee
The responsibilities of the Remuneration Committee include the below and other responsibilities as set forth in the Charter of the Committee:
-- Setting the remuneration policy for all executive directors. Paul Duffen is not involved in setting his own remuneration, this is determined by Mark Rosman only;
-- Recommending and monitoring the level and structure of remuneration for senior management personnel;
-- Reviewing the design of all share incentive plans for approval by the Board and shareholders.
Share option scheme
On 17 May 2016, the Company adopted a "long term incentive senior management and Directors' stock option plan" ("the Plan"). Options granted under the Plan will entitle the participant to acquire Ordinary Shares at a price determined in accordance with the rules of the Plan.
The Directors' interests in the Company's share options for the year ended 31 December 2018 are shown on page 10.
The Committee remains committed to a fair and responsible approach to executive pay whilst ensuring it remains in line with best practice and appropriately incentivises executive directors over the longer term to deliver the Group's strategy.
---------------------------------
Mark Rosman, Chairman of the Remuneration Committee
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF Veltyco Group PLC
Opinion
We have audited the consolidated financial statements of Veltyco Group PLC (the 'Parent Company') and its subsidiaries (the 'Group') for the year ended 31 December 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, and the notes to the consolidated financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the Group's affairs as at 31 December 2018 and of its profit for the year then ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 1 in the financial statements, which indicates that at 31 December 2018 the Group is only able to continue as a going concern if it receives sufficient positive cash flows from its existing operations as projected by the Directors. This is contingent on future marketing activity being successful, players not having large wins, receivables being collected as they fall due and the continued support of creditors. If projected revenues are not achieved in quantum or timing, then the Group will need to raise equity or debt in order to meet its liabilities as they fall due.
The Group has made a loss for the year of EUR16.7m, has net current liabilities of EUR1.2m as at 31 December 2018, has cash outflow of EUR0.1m in 2018 and has made losses to date in the current year.
In any event that the Directors consider that further funding is likely to be required for working capital purposes and whilst they are confident of being able to raise such funding if required, there is no certainty that such funding will be available and/or the terms of such funding. In this instance the other intangible assets held by the Group at EUR1,431,925 and the goodwill held at EUR1,410,931 may be impaired, additional liabilities may arise and assets and liabilities currently classified as non-current may become current.
These conditions represent a material uncertainty that may cast significant doubt on the Group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Key audit matters
In addition to the matter around going concern described above, we identified the key audit matters described below as those that were of most significance in the audit of the financial statements of the current period. Key audit matters include the most significant assessed risks of material misstatement, including those risks that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team.
In addressing these matters, we have performed the procedures below which were designed to address the matters in the context of the financial statements as a whole and in forming our opinion thereon. Consequently, we do not provide a separate opinion on these individual matters.
How the matter was addressed
Key audit in the audit and key observations
matter Description of risk arising with respect to
that risk
Revenue recognition Revenue is a key performance The Group's revenue recognition
indicator of the Group. policies are stated in
Due to the significant note 3.
difficulty in collecting
revenues from the We evaluated the design
online financial trading and implementation of relevant
and lottery verticals, internal controls that
these activities were the Group uses to ensure
ceased during the the completeness, accuracy
year, leaving the and timing of revenue recognised.
Group reliant on revenues
from its remaining In testing revenue recognition
business with Betsson, we have:
the Bet90 sports and * Reviewed the Group's material contracts with
casino activity and customers.
T4U. Revenue expectations
may place pressure
on the Directors to * Performed detailed testing on a sample of revenue
distort revenue recognition. transactions, including agreement to third party
This may result in reports.
overstatement or deferral
of revenues to assist
in meeting current * Where cash has been received it has been agreed to
or future targets bank statements and remittance advice.
or expectations.
* Agreed that revenue is being recognised correctly in
line with IFRS 15.
Where the above are the
subject of the work of
component auditors we have
reviewed their working
papers in respect of these
items.
We were unable to agree
online financial trading
revenue to the gaming platform
operator's back office
system as we had in previous
years.
We performed alternative
procedures to satisfy ourselves
that it was appropriate
to recognise online financial
trading revenue until the
Directors considered it
no longer probable that
consideration would be
collected.
----------------------------- -----------------------------------------------------------------
Carrying As at 31 December We challenged the assumptions
amount and 2018 the Group holds used in the impairment
impairment other intangible assets model for intangible assets,
of other with a net book value described in note 10.
intangible of EUR1.4m. Of this As part of our procedures
assets balance, EUR1.1m relates we:
to the brand and domain * considered the impact of ceasing to trade in the
name of Bet90 Sports online financial trading and lottery verticals;
Limited and EUR300k
to the domain name
for T4U Marketing * considered the impact of the Group's deferral of
Limited. launching its own regulated online financial trading
brand;
The Group has impaired
EUR6.2m of intangible
assets in the year. * considered historical trading performance by
comparing both revenue and operating profit of the
The Group's assessment Group's remaining business with Betsson, the Bet90
of the carrying amount sports and casino activity and T4U with projected
requires significant revenues and operating profits;
judgement, in particular
regarding cash flows,
growth rates, discount * assessed the appropriateness of the assumptions
rates and sensitivity concerning growth rates and inputs to the discount
assumptions. rate against latest market expectations;
* considered the Directors' assertions about the
Group's future utilisation of assets by cash
generating unit; and
* considered sensitivity analysis of key variables
included within the value in use calculations.
In performing our procedures,
we used our internal valuation
specialists and third party
evidence to assess the
appropriateness of the
discount rate applied.
The Directors have impaired
EUR4m in respect of the
player database held by
Marsovia Holding Limited
('Marsovia'), EUR2.1m in
respect of the domain names
for the online financial
trading activity and EUR7k
of the brand and domain
name in T4U Marketing Limited.
Based on our procedures
we concluded that these
impairments were appropriate.
The Directors have determined
that no impairment on the
domain name for Bet 90
Sports Limited was necessary.
Based on our procedures
we concluded that no impairment
was required.
----------------------------- -----------------------------------------------------------------
Carrying As at 31 December We challenged the assumptions
amount and 2018 the Group holds used in the impairment
impairment goodwill with a net model for goodwill, described
of goodwill book value of EUR1.4m. in note 10.
EUR1.4m of this balance As part of our procedures
relates to the acquisition we:
of Bet90 Sports Limited. * considered historical trading performance of both
revenue and operating profit in respect of the Bet 90
The Group has impaired sports and casino activity and T4U with projected
EUR333k of goodwill revenue and operating profits;
in the year relating
to the acquisition
of T4U Marketing Limited. * assessed the appropriateness of the assumptions
concerning growth rates and inputs to the discount
The Group's assessment rate against latest market expectations;
of carrying amount
requires significant
judgement, in particular * considered the Directors' assertions about the
regarding cash flows, Group's future utilisation of assets by cash
growth rates, discount generating unit; and
rates and sensitivity
assumptions.
* considered sensitivity analysis of key variables
included within the value in use calculations.
In performing our procedures,
we used our internal valuation
specialists and third party
evidence to assess the
appropriateness of the
discount rate applied.
The Directors have impaired
the full goodwill balance
in T4U Marketing Limited
and have determined that
no impairment on the goodwill
balance for Bet 90 Sports
Limited was necessary.
Based on our procedures
we concluded that this
was appropriate.
----------------------------- -----------------------------------------------------------------
Completeness During the 2017 audit We inquired of the Directors
of related process a material how their controls over
party transaction related party transaction related party relationships
disclosures was identified that and transactions have been
in note 30 had not been disclosed amended so as to identify
in the draft financial any such transactions.
statements indicating
that the Group's controls We requested that the Directors
for identifying related circulate related party
party transactions declarations to all members
were not operating of Key Management Personnel
as intended. As such so that they may be brought
there is a risk that up to date immediately.
transactions have
taken place with We reviewed these related
unidentified party declarations to ensure
related parties. that all relevant transactions
had been disclosed within
the financial statements.
For related parties that
had been noted but with
whom there were no transactions
we considered whether we
were aware of any transactions
with that individual or
entity.
Where possible we have
reviewed publicly available
information, however due
to the countries that the
Group, its customers and
suppliers operate in there
is relatively little information
available in this respect.
We reviewed the minutes
of Board meetings for any
potential related party
transactions.
We made specific enquires
of the Directors in respect
of material contracts with
customers.
We have not identified
any additional related
party transactions as a
result of the above procedures.
----------------------------- -----------------------------------------------------------------
Recoverability As at 31 December We have reviewed the Sale
of trade 2017 the Group had and Purchase Agreement
receivables a trade receivable for Marsovia; verified
as described balance of EUR8.8m the existence of the database
in note 15 and accrued income and of a sample of customers
of EUR2.7m. on the database; reviewed
the valuation of the database
Of the EUR11.5m trade based on third party customer
receivable and accrued acquisition cost data and
income balance, EUR10.8m considered the impact of
related to the Group's the Group's subsequent
marketing activities decision to defer the development
in respect of online of their own regulated
financial trading online financial trading
operators. EUR8.1m brand.
of this EUR10.8m is
due from a single We have reviewed the tri-partite
party, Altair Entertainment set-off agreements in respect
N.V. ("Altair"). of the related party loan
Part of this balance payable and amount due
was settled through to a subsidiary of Altair.
the acquisition of
a player database All amounts due from Altair
in Marsovia and through have been impaired and
a tri partite set there has been no cash
off agreement leaving recovered to date.
a balance of EUR4.9m
due. We have discussed the relationship
between the Group and Altair
During the year the with the Directors and
Group impaired the they have confirmed that
receivables from the Altair is not a related
online financial trading party of the Group.
and lottery business
with a value of EUR10.7
million (including
the balance from 2017
of EUR4.9m).
The above factors
represent a material
risk in relation to
the valuation of trade
receivables.
----------------------------- -----------------------------------------------------------------
Materiality
The materiality for the financial statements as a whole was set at EUR220,000. This has been determined with reference to the benchmark of the Group's trading expenses, excluding impairment and amortisation charges. Revenue or profit were not deemed appropriate this year due to the impairment of online financial trading receivables.
An overview of the scope of our audit
Of the Group's 14 reporting components, we subjected ten to audit for Group reporting purposes and four to specific audit procedures where the extent of our audit work was based on our assessment of the risk of material misstatement and of the materiality of the Group. The latter have no audit requirements in their countries of incorporation but were still material to the Group.
The components within the scope of our work covered: 100% of the Group's revenue, loss before tax and net assets.
The Group audit team visited two component locations in the Netherlands and Cyprus. The component auditors in Malta sent their working papers electronically to the Group audit team. Telephone conference meetings were held with the component auditors in Cyprus and Malta. At these visits and meetings, the Group audit team discussed the component auditors' risk assessments and planned audit approach. Once the audit work was completed, the findings reported to the Group audit team were discussed in more detail, and any further work required by the Group audit team was then performed by the component auditors. In addition to these planned visits and meetings, the Group audit team sent detailed instructions to the component audit teams and reviewed their audit working papers.
Other information
The other information comprises the information included in the Annual Report and Accounts, other than the financial statements and our auditor's report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement set out on page 10, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body, in accordance with our engagement letter dated 19 February 2018. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Nexia Smith & Williamson 25 Moorgate
Statutory Auditor London
Chartered Accountants EC2R 6AY
28 June 2019
Consolidated statement of comprehensive income
Year ended Year ended
31 December 31 December
Notes 2018 2017
EUR EUR
Revenues 4 11,634,173 16,194,791
Cost of Sales (1,337,518) (976,763)
-------------- -------------
Gross Margin 10,296,655 15,218,028
Salary expense (1,402,887) (1,087,235)
Marketing and selling expense (5,381,050) (4,550,529)
General administrative expense (3,210,684) (1,717,962)
Impairment of receivables 15 (10,712,715) -
Depreciation, amortisation and 10, 11,
impairment expense 13 (6,887,272) (380,173)
-------------- -------------
Total administrative expenses (27,594,608) (7,735,899)
-------------- -------------
Operating (loss)/profit (17,297,953) 7,482,129
Financial income 38,851 98,779
(Loss)/profit before tax 6 (17,259,102) 7,580,908
Taxation 7 555,800 (801,116)
Total comprehensive (loss)/profit (16,703,302) 6,779,792
-------------- -------------
Attributable to:
Equity holders of the Company (15,177,112) 7,333,280
Non-controlling interests (1,526,190) (553,488)
(16,703,302) 6,779,792
-------------- -------------
(Loss)/earnings per share attributable to
equity holders of the Company
- Basic (in EUR) 8 (0.2029) 0.1017
- Diluted (in EUR) 8 (0.2029) 0.0944
The Notes on pages 33 to 60 form part of these financial statements
Consolidated statement of financial position
31 December 31 December
Note 2018 2017
EUR EUR
Non-current assets
Goodwill 10 1,410,931 1,743,485
Other intangible assets 11 1,431,925 3,985,347
Investments 12 - 25,000
Property, plant and equipment 13 1,238 2,530
Loans receivable 14 - 997,476
Total non-current assets 2,844,094 6,753,838
------------------------------- ----------------------------
Current assets
Loans receivable 14 - 1,558,057
Trade and other receivables 15 854,215 11,881,469
Cash and cash equivalents 16 1,031,071 700,192
Total current assets 1,885,286 14,139,718
------------------------------- ----------------------------
Total assets 4,729,380 20,893,556
------------------------------- ----------------------------
Equity and liabilities
Share capital 17 - -
Additional paid-in capital 18 14,344,702 13,665,233
Reverse asset acquisition reserve 19 (6,046,908) (6,046,908)
Retained earnings 20 (5,262,376) 9,948,904
Equity attributable to owners
of the parent 3,035,418 17,567,229
------------------------------- ----------------------------
Non-controlling interests (1,411,578) 182,967
Total shareholders' equity 1,623,840 17,750,196
------------------------------- ----------------------------
Non-current liabilities
Borrowings 22 27,858 1,355,223
Total non-current liabilities 27,858 1,355,223
------------------------------- ----------------------------
Current liabilities
Trade and other payables 23 3,077,682 1,788,137
Total current liabilities 3,077,682 1,788,137
------------------------------- ----------------------------
Total equity and liabilities 4,729,380 20,893,556
------------------------------- ----------------------------
Approved by the board on 28 June 2019 and signed on its behalf by:
Paul Duffen
Chairman
The Notes on pages 33 to 60 form part of these financial statements
Consolidated statement of changes in equity
Other
reserves
-
Reverse
asset
Additional
Share paid in acquisition Retained Non-controlling Total
capital capital reserve earnings Total interest Equity
EUR EUR EUR EUR EUR EUR EUR
Balance as at 1
January
2017 - 10,614,354 (6,046,908) 2,376,540 6,943,986 - 6,943,986
-------------------- ------------------ ------------- ------------- -------------- ---------------- -------------
Profit for the
financial
period - - - 7,333,280 7,333,280 (553,488) 6,779,792
Share based
payments - 161,000 - 239,084 400,084 - 400,084
Exercise of stock
options
and warrants - 333,416 - - 333,416 - 333,416
Non-controlling
interests
acquired - - - - - 736,455 736,455
Issue of share
capital - 2,556,463 - - 2,556,463 - 2,556,463
Balance as at 31
December
2017 - 13,665,233 (6,046,908) 9,948,904 17,567,229 182,967 17,750,196
-------------------- ------------------ ------------- ------------- -------------- ---------------- -------------
Loss for the
financial
period - - - (15,177,112) (15,177,112) (1,526,190) (16,703,302)
Dividend paid - - - (210,912) (210,912) (68,355) (279,267)
Share based
payments - - - 176,744 176,744 - 176,744
Shares to be
issued - 555,500 - - 555,500 - 555,500
Issue of share
capital - 123,969 - - 123,969 - 123,969
Balance as at 31
December
2018 - 14,344,702 (6,046,908) (5,262,376) 3,035,418 (1,411,578) 1,623,840
-------------------- ------------------ ------------- ------------- -------------- ---------------- -------------
The Notes on pages 33-60 form part of these financial statements
Consolidated statement of cash flows
31 December 31 December
2018 2017
EUR EUR
Cash flows from operating activities
Operating (loss)/profit (17,297,953) 7,482,129
Adjustments for:
Share based payments 176,744 239,084
Depreciation 1,292 1,628
Amortisation of intangibles 403,222 378,545
Impairment of intangibles 6,482,752 -
Impairment of receivables 10,737,715 -
---------------------------------- ---------------------------------
Cash flow from operations before
working capital changes 503,772 8,101,386
(Increase) in trade and other receivables (1,058,697) (9,279,131)
(Decrease)/increase in trade and
other payables 533,580 146,894
---------------------------------- ---------------------------------
Cash flow from operations (21,345) (1,030,851)
Tax paid (86,823) (72,152)
Cash flow from operating activities (108,168) (1,103,003)
---------------------------------- ---------------------------------
Cash flow from investing activities
Acquisitions of subsidiaries - (2,510,000)
Acquisitions of intangible assets - (75,000)
Acquisitions of investments - (25,000)
Loans granted - (189,681)
Loans repayments received - 225,000
Interest received 38,851 15,007
Net cash inflow/(outflow) from
investing activities 38,851 (2,559,674)
---------------------------------- ---------------------------------
Cash flow from financing activities
Proceeds of issue of new shares 679,469 2,889,879
Dividends paid (279,273) -
Loans repaid - 1,328,865
Net cash inflow from financing
activities 400,196 4,218,744
---------------------------------- ---------------------------------
Net increase in cash and cash equivalents 330,879 556,067
Cash and cash equivalents at start
of period 700,192 144,125
---------------------------------- ---------------------------------
Cash and cash equivalents at end
of period 1,031,071 700,192
---------------------------------- ---------------------------------
The Notes on page 33-60 form part of these financial statements
Notes to the Consolidated Financial Statements
For the year ended 31 December 2018
Note 1: General Information
The principal accounting policies as adopted by the Group in the preparation of its consolidated financial statements for the year ended 31 December 2018 are set out below. The accounting policies have been consistently applied, unless otherwise stated.
Basis of preparation
The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and issued by the International Accounting Standards Board ("IASB"). These accounting policies comply with each IFRS that is mandatory for accounting periods ending on or after 31 December 2018. The Consolidated Financial Statements have been prepared under the historical cost convention and on a going concern basis.
The Directors have reviewed the accounting policies used by the Group and consider them to be appropriate. With the exception of any changes relating to the effects of the implementation of IFRS9 ("Financial instruments") and IFRS 15 ("Revenue from contracts with customers"),as mentioned in paragraph 3,the accounting policies are consistent with the prior years.
Basis of consolidation
The Consolidated Financial Statements incorporate the results of Veltyco Group plc (the "Company") and entities controlled by the Company (its subsidiaries) (collectively the "Group"). Control is achieved where the Company has the power to govern the financial and operating policies of an entity.
The results of subsidiaries disposed of are included in the consolidated statement of comprehensive income to the effective date of loss of control and those acquired from the date on which control is transferred to the Group.
Going concern
The Group experienced significant operational difficulties during 2018 in respect to receiving agreed marketing commissions from operators within the online financial trading and lottery verticals and as a result, the Group terminated these activities in H2 2018 and they have been fully impaired in 2018. As a result, the Company has commenced procedures to seek to recover these receivables through a legal process, though this has not resulted in further receipts of cash to date.
Following the termination of the Group's marketing activities for the online financial trading and the lottery verticals, the Group is currently focusing its activities on operating in the sports book and casinos vertical and has revenues and cost centres in a number of locations throughout Europe.
As a result of the above, the Group achieved a net loss of EUR16.7 million for the year ended 31 December 2018. Furthermore, the Group had a negative cash flow from operations of EUR0.1 million for the year ended 31 December 2018 and the Directors expect the Group to be loss making for the six months ending 30 June 2019.
The Group has therefore sought to reduce its operating costs to match the current operations and the Directors continue to manage the Group's cash resources carefully. However, whilst they believe that the Group will be able to continue to manage its creditors, which are meaningfully in excess of the Group's current cash resources, should trading not be in line with expectations going forward and/or the Group is not able to manage its creditors, the Group's ability to meet such liabilities may be impacted, in which case the Group will need to raise further funding. In any event the Directors consider that further funding is likely to be required and continue to explore further appropriate sources of capital. Whilst they are confident of being able to raise such funding if required, there is no certainty that such funding will be available and/or the terms of such funding. However, these conditions are necessarily considered to represent a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern.
Whilst acknowledging this material uncertainty, the Directors remain confident of being able raise additional funding as required and therefore the Directors consider it appropriate to prepare the financial statements on a going concern basis. The financial statements do not include the adjustments that would result if the Group and Company was unable to continue as a going concern.
Note 2: Critical accounting policies, estimates and judgements
The preparation of the Consolidated Financial Statements requires the Directors to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Areas of estimation
Impairment of Goodwill and other intangible fixed assets
Determining whether goodwill and other intangible fixed assets with a definite or indefinite useful life are impaired requires an estimation of the value-in-use of the cash-generating units. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and select a suitable discount rate in order to calculate present value together with an assessment as to whether future cash flows are subject to any degree of uncertainty. The work to assess the existence of impairment indicators and, where applicable, to evaluate the impairment of goodwill and intangible assets was conducted internally by the Directors. Further details are provided in Notes 10 and 11 of this report. However, there is a risk of a further impairment next year. There is a risk that there are insufficient future cash flows to support the value in use of these assets.
Standards in issue but not yet effective
The new standards apply to annual reporting periods beginning on or after 1 January 2019. The Group has not early adopted IFRS 16.
IFRS 16 Leases - IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 Leases requires lessees to recognise right-of-use assets and lease liabilities for most leases. A contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Right-of-use assets are initially measured at cost and depreciated by the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The cost of right-of-use assets comprises of initial measurement of the lease liability, any lease payments made before or at the commencement date and initial direct costs. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date and subsequently measured at amortised cost with the interest expense recognised within finance income (expense) in the consolidated statement of income.
In accordance with the transition provisions in IFRS 16, the Group is entitled to choose to apply the modified retrospective approach. Under this approach, a lessee does not restate comparative information and recognise the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings at the date of initial application.
During 2018, the Group has performed a detailed impact assessment of IFRS 16. Due to the limited number and the expiration of existing leases the impact on the financial statements will be immaterial.
The following relevant interpretations and amendments to existing standards issued by the IASB, have not been adopted by the Group as they were either not effective for the year or not yet endorsed for use in the EU. The Group is currently assessing the impact of these interpretations and amendments will have on the presentation of, and recognition in, parent company or consolidated results or financial position in future periods:
-- Amendments to IAS28 - Long-term Interests in Associates and Joint Ventures (effective for accounting periods beginning on or after 1 January 2019).
-- Annual Improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017) (effective for accounting periods beginning on or after 1 January 2019).
-- IFRIC Interpretation 23 - Uncertainty over Income Tax Treatments (effective for accounting periods beginning on or after 1 January 2019).
-- Amendments to IAS19: Plan Amendment, Curtailment or Settlement (effective for accounting periods beginning on or after 1 January 2019).
-- Amendments to IFRS 9: Prepayment Features with Negative Compensation (effective for accounting periods beginning on or after 1 January 2019).
Changes in accounting policies
Initial adoption of new financial reporting and accounting standards and amendments to existing financial reporting and accounting standards:
Initial adoption of IFRS 15, "Revenue from Contracts with Customers":
The IASB issued IFRS 15, "Revenue from Contracts with Customers" ("the new Standard") in May 2014. The new Standard replaces IAS 18, "Revenue", IAS 11, "Construction Contracts", IFRIC 13, "Customer Loyalty Programs", IFRIC 15, "Agreements for the Construction of Real Estate", IFRIC 18, "Transfers of Assets from Customers" and SIC-31, "Revenue - Barter Transactions Involving Advertising Services".
The new Standard has been applied for the first time in these consolidated financial statements. The Company elected to adopt the provisions of the new Standard using the modified retrospective approach with the application of certain practical expedients and without restatement of comparative data.
The adoption of IFRS 15 as of 1 January 2018 did not have a material effect on the consolidated financial statements.
Initial adoption of IFRS 9, "Financial Instruments":
In July 2014, the IASB issued the final and complete version of IFRS 9, "Financial Instruments" ("IFRS 9"), which replaces IAS 39, "Financial Instruments: Recognition and Measurement". IFRS 9 mainly focuses on the classification and measurement of financial assets and it applies to all assets within the scope of IAS 39.
IFRS 9 has been applied for the first time in these consolidated financial statements retrospectively without restatement of comparative data. The adoption of IFRS 9 as of 1 January 2018 did not have a material effect on the consolidated financial statements.
Note 3: Significant accounting policies
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out below. The policies have been consistently applied to all years presented, unless otherwise stated.
Revenue
As detailed in the initial adoption of IFRS 15, "Revenue from Contracts with Customers" ("the Standard"), the Company elected to adopt the provisions of the Standard using the modified retrospective method with the application of certain practical expedients and without restatement of comparative data.
The accounting policy for revenue recognition applied commencing from 1 January 2018 is as follows:
Revenue from contracts with customers is recognised when the control over the services is transferred to the customer. The transaction price is the amount of the consideration that is expected to be received based on the contract terms.
In determining the amount of revenue from contracts with customers, the Group evaluates whether it is a principal or an agent in the arrangement. The Group is principal when the Group controls the promised services before transferring them to the customer. In these circumstances, the Group recognises revenue for the gross amount of the consideration. When the Group is an agent, it recognises revenue for the net amount of the consideration, after deducting the amount due to the principal.
Marketing commission revenue
Revenue from marketing contracts with customers is recognised when the reports are received from the customers on which the Company is basing the amounts to be invoiced. The transaction price is the commission amount of the consideration that is expected to be received based on the contract terms. The performance obligation of a revenue contract is satisfied at the point a player's losses are incurred. Operators typically pay a month in arrears. This gives rise to contract assets on a short term basis.
Sportsbook and casino revenue
Revenue is recognised provided that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is recognised in the accounting periods in which the transactions occurred and after adding the fees and charges applied to customer accounts, and is measured at the fair value of the consideration received or receivable.
Revenue consists of income from activities and income generated on customer deposit and withdrawals and account fees.
Revenue from these activities comprises:
Sportsbook
Sport online gaming revenue comprises bets placed less pay-outs to customers, adjusted for the fair value of open betting positions, adjusted for the fair value of certain promotional bonuses granted to customers.
Casino
Casino and Bingo online gaming revenue is represented by the difference between the amounts of bets placed by customers less amounts won, adjusted for the fair value of certain promotional bonuses granted to customers.
Administrative expenses
Administrative expenses consist primarily of staff costs (including contractors), corporate professional expenses, and depreciation and amortisation. All expenses are recognised on an accruals' basis.
Foreign currencies
Transactions in foreign currency are recorded at the rates of exchange prevailing on the dates of the transactions. At each statement of financial position date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the statement of financial position date. Any gains or losses arising on translation are taken to the profit and loss.
Retirement benefit costs and pensions
The Group does not operate any defined benefit pension schemes for employees or Directors. The Group has no payment obligations relating to retirement and pension plans.
Taxation
Current tax
Current tax for each taxable entity in the Group is based on the local taxable income at the local statutory tax rate enacted or substantively enacted at the statement of financial position date and includes adjustments to tax payable or recoverable in respect of previous periods.
Deferred tax
Deferred taxation is calculated using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, if the deferred tax arises from the 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, it is not accounted for. Deferred tax is determined using tax rates and laws that have been enacted (or substantively enacted) by the date of the statement of financial position and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax liabilities are provided in full.
Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the profit and loss, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
Intangible fixed assets
Acquired intangible assets
Intangible assets acquired separately consist of domain names and customer lists and are capitalised at cost. Those acquired as part of a business combination are recognised separately from goodwill if the fair value can be measured reliably. These intangible assets are amortised over the useful life of the assets, which for domain names is ten years. The useful life of customer lists is 1 to 8 years.
The cost of intangible assets acquired in a business combination is the fair value at acquisition date. The valuation methodology used for each type of identifiable asset category is detailed below:
Asset category Valuation methodology ---------------------- ---------------------- Customer relationship Excess earnings Domain names Relief from royalty Licenses Cost approach
Goodwill
Goodwill represents the excess of the fair value of the consideration in a business combination over the Group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities acquired. Consideration comprises the fair value of any assets transferred, liabilities assumed and equity instruments issued.
Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the profit and loss and not subsequently reversed. Where the fair values of identifiable assets, liabilities and contingent liabilities exceed the fair value of consideration paid, the excess is credited in full to the profit and loss on the acquisition. Changes in the fair value of the contingent consideration are charged or credited to the profit and loss. In addition, the direct costs of acquisition are charged immediately to the profit and loss.
Non-controlling interests
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder's share of changes in equity since the date of the combination except where any non-controlling interests have been acquired by the Group. At this point any share of gains or losses are transferred to the Group's retained earnings. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Impairment of non-financial assets
Impairment tests on goodwill are undertaken annually and where applicable an impairment loss is recognised immediately in the profit and loss. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (being the higher of value in use and fair value less costs to sell), the asset is written down accordingly through the profit and loss.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset's cash generating unit (i.e. the smallest group of assets to which the asset belongs for which there are separately identifiable and largely independent cash inflows).
Investments
The Group reports its investments in entities at fair value with movements in fair value being taken directly to equity. The fair value of investments in unquoted equity securities cannot be reliably measured and they are therefore held at cost.
Equity
Equity comprises the following:
-- "Share capital" represents amounts subscribed for shares at nominal value.
-- "Additional paid in capital" represents amounts subscribed for share capital in excess of nominal value.
-- The "Reverse asset acquisition reserve" represents the difference in carrying value between the Additional paid in capital of Veltyco and the Share capital of Sheltyco on the acquisition date.
-- "Retained earnings" represents the accumulated profits and losses attributable to equity shareholders.
Financial instruments
Trade and other receivables
Trade receivables are held in order to collect the contractual cash flows and are initially measured at the transaction price as defined in IFRS 15, as the contracts of the Group do not contain significant financing components. Impairment losses are recognised based on lifetime expected credit losses in profit or loss.
Other receivables are held in order to collect the contractual cash flows and accordingly are measured at initial recognition at fair value, which ordinarily equates to cost and are subsequently measured at cost less impairment due to their short term nature. A provision for impairment is established based on 12-month expected credit losses unless there has been a significant increase in credit risk when lifetime expected credit losses are recognised. The amount of any provision is recognised in profit or loss.
Cash and cash equivalents, and finance income
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less and bank overdrafts. Finance income is recognised on bank balances as and when it is receivable.
Trade payables
Trade payables, including customer balances, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Financial liabilities
Financial liabilities are classified as financial liabilities measured at amortised cost. The Group determines the classification of its financial liabilities at initial recognition. The measurement of financial liabilities is initially recognised at fair value and subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses arising on the repurchase, settlement or cancellation of liabilities are recognised respectively in interest and other revenues and finance costs.
Borrowings and finance costs
Borrowings are initially recognised at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the date of the Statement of Financial Position.
Note 4: Segment reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief operating decision maker to allocate resources to the segments and to assess their performance. In accordance with IFRS 8, the chief operating decision maker has been identified as the Board. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board considers that the business comprises a single activity, being the marketing and promotion of gaming websites, lottery and online financial trading. Therefore, the Group is organised into one operating segment and there is one primary reporting segment. The segment information is the same as that set out in the Consolidated Statements of Comprehensive Income, Consolidated Statements of Financial Position, Consolidated Statements of Changes in Equity and Consolidated Statements of Cash Flows.
Revenue originates from:
2018 2017
EUR EUR
British Virgin Islands 3,661,574 5,176,399
EU Countries 7,972,599 936,289
Other Non - EU Countries - 10,082,103
----------- -----------
Total 11,634,173 16,194,791
----------- -----------
The Board evaluates the operations based on the revenues metric. Revenues consist of invoiced commissions for the marketing and player acquisition services provided as well as revenues generated from own operations. Veltyco operates an integrated business model and, therefore, does not allocate operating expenses, assets and liabilities to any of the originating countries.
The Group has three major customers that contribute over 10% of the Group's revenue for 2018. These customers contribute EUR5,632,105 (2017: EUR9,824,543), EUR2,346,429 (2017: EUR3,023,709) and EUR1,315,145 (2017: EUR2,084,569) respectively. The largest customer in 2018 related to the marketing commissions from the online financial trading business, which were discontinued in H2 208 and will not continue in 2019.
As previously communicated, the Group has terminated the marketing agreements relating to the online financial trading and lottery verticals. The revenues recorded were as follows:
2018 2017
EUR EUR
Discontinued operations 6,947,250 12,174,793
Continuing operations 4,686,923 4,019,998
Total 11,634,173 16,194,791
----------- -----------
Note 5: Key management remuneration
Key management remuneration for each period was as follows:
Share Total Total
Cash based based Remuneration Remuneration
salary payments 2018 2017
EUR EUR EUR EUR
Melissa Blau (Appointed
26 March 2018 and resigned
12 October 2018) 220,000 - 220,000 -
Uwe Lenhoff (Resigned 26
March 2018) 180,000 - 180,000 180,000
David Mathewson (Resigned
31 January 2018) 2,500 - 2,500 128,839
Marcel Noordeloos 133,500 31,094 164,594 162,661
Hans Dahlgren (Resigned
26 March 2018) 7,500 31,094 38,594 59,161
Mark Rosman 120,000 28,021 148,021 53,852
Ilan Tzorya (Resigned 26
March 2018) 2,500 - 2,500 30,000
Gilles Ohana (Resigned 30
January 2019) 150,000 32,151 182,151 57,511
Rainer Lauffs (Appointed
26 March 2018) 156,000 6,585 162,585 -
Total 972,000 128,945 1,100,945 672,024
----------- ---------- -------------- --------------
Note 6: Profit for the year
Profit before taxation is stated after charging/(crediting):
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Depreciation of property, plant
and equipment 1,292 1,628
Amortisation of intangibles 403,222 378,545
Impairment of intangibles 6,482,758 -
Impairment of receivables 10,712,715 -
Operating lease expenses 56,760 44,598
Share based payment charge 176,744 239,084
Foreign exchange (gains) (11,113) (10,988)
Note 7: Taxation
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Profit/(loss) before tax (17,259,102) 7,580,908
------------- -------------
Profit before tax multiplied by the
standard rate of corporation tax in
Isle of Man of 0% - -
Adjustments to tax charge in respect
of previous periods (608,733) -
Effect of different tax rates in other
countries 52,933 801,116
Tax (credit)/charge (555,800) 801,116
------------- -------------
Note 8: Earnings per share (basic and diluted)
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Earnings
Earnings for the purposes of basic
and diluted earnings per share, being
net profit after tax attributable to
equity shareholders (15,177,112) 7,333,280
------------- -------------
Number of shares
Weighted average number of ordinary
shares for the purposes of:
Basic earnings per share 74,819,180 72,128,655
Diluted earnings per share 74,819,180 77,648,727
------------- -------------
Basic earnings (in EUR) (0.2029) 0.1017
Diluted earnings (in EUR) (0.2029) 0.0944
------------- -------------
The Group has granted share options in respect of equity shares to be issued, the details of which are disclosed in Note 21.
Note 9: Business combinations
Acquisition of Marsovia Holdings Ltd
In May 2018, the Company completed the acquisition of 100% in Marsovia Holding Ltd, a company that holds a database of approximately 43,500 customers from the online trading industry. The consideration of EUR4.0 million was offset against existing indebtedness and receivables due to the Group by Altair, therefore cash neutral. The Company believed that the acquisition would enable the Group to expand its own new regulated trading operations. However, as the launch of the new regulated financial trading brand has been postponed and the short-term focus of the Group's strategy is on sportsbook and casino activities, a full impairment of the value was recorded during the year.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed are set out in the table below:
EUR
Net assets 4,000,000
Total identifiable assets 4,000,000
Total Consideration 4,000,000
---------
Satisfied by:
Settlement of loans and receivables 4,000,000
Equity instruments -
---------
Total consideration transferred 4,000,000
---------
Net cash outflow arising on acquisition:
Cash consideration -
Less: cash and cash equivalent balances -
acquired
---------
-
---------
Note 10: Goodwill
Goodwill
EUR
Cost
At 1 January 2017 -
Additions 1,743,485
Disposals -
At 31 December 2017 1,743,485
----------
Additions -
Impairments (332,554)
----------
At 31 December 2018 (332,554)
----------
Net Book Value
At 1 January 2017 -
----------
At 31 December 2017 1,743,485
----------
At 31 December 2018 1,410,931
----------
Goodwill
Goodwill arose following the acquisition of 51% in T4U Marketing Ltd and 51% in Quasar Holdings Ltd in 2017.
Key assumptions and inputs used
Cash flow projections have been prepared for a five-year period, following which a long-term growth rate has been assumed. Underlying growth rates have been applied to revenue and are based on past experience, including the results in 2017 and 2018. Key assumptions in preparing these cash flow projections include moderate growth in revenue, a stable level of costs per customer acquisition and the expectation that the Group will continue to operate in the countries currently being covered.
The Directors have performed an impairment review at the end of the year. This is done based on the discounted cash flow methodology, using the 2017 and 2018 results as the basis for the review, for which a weighted average cost of capital ("WACC") rate was used of 26% and no growth rate for the T4U Marketing Ltd acquisition. For the acquisition of Quasar Holdings Ltd the same WACC of 24% was used and a 2.5% long term growth rate after 5 years was used. This impairment review resulted in an impairment to goodwill of EUR332,554 for the year 2018 on the goodwill paid following the acquisition of T4U Marketing Ltd.
In assessing for impairment, the recoverable amount has been based on value in use.
Note 11: Other intangible assets
Customer Brand and Other Total
database domain
names
EUR EUR EUR EUR
Cost
At 1 January 2017 37,142 3,076,603 - 3,113,745
Additions(1) 24,600 1,493,500 105,000 1,623,100
Disposals - - - -
------------ ------------ --------- ------------
At 31 December 2017 61,742 4,570,103 105,000 4,736,845
Addition 4,000,000 - - 4,000,000
At 31 December 2018 4,061,742 4,570,103 105,000 8,736,845
------------ ------------ --------- ------------
Amortisation
At 1 January 2017 (16,229) (356,724) - (372,953)
Charge for the period (18,623) (329,610) (30,312) (378,545)
Disposals - - - -
At 31 December 2017 (34,852) (686,334) (30,312) (751,498)
Charge for the period (7,717) (360,505) (35,000) (403,222)
Impairment (4,000,000) (2,150,201) - (6,150,201)
------------ --------- ------------
At 31 December 2018 (4,042,569) (3,197,039) (65,312) (7,304,920)
------------ ------------ --------- ------------
Net Book Value
At 1 January 2017 20,913 2,719,879 - 2,740,792
------------ ------------ --------- ------------
At 31 December 2017 26,890 3,883,769 74,688 3,985,347
------------ ------------ --------- ------------
At 31 December 2018 19,173 1,373,064 39,688 1,431,925
------------ ------------ --------- ------------
At year-end, the domain names relating to the online financial trading vertical have been impaired. The book value of these domains amounted to EUR2,143,218. Furthermore, a EUR6,983 impairment charge for the Tippen4you.com domain has been recorded. The remaining book value of the brand and domain names relate to the acquisition of Quasar Holdings Ltd and T4U Marketing ltd in 2017.
(1) Material additions during 2017 and 2018 were:
-- In April 2017, the Company completed the acquisition of 51% in the share capital of T4U Marketing Ltd for a cash consideration of EUR510,000. The domain was valued at EUR328,000 and will be amortised over a period of 20 years. The amortisation charge for the year amounts to EUR16,400 and the remaining book value amounts to EUR304,617. The remaining life is 18.5 years; and
-- In June 2017, the Company completed the acquisition of 51% in the share capital of Quasar Holdings Ltd for a cash consideration of EUR2,000,000. The Bet90 domain was valued at EUR1,165,500 and will be amortised over a period of 20 years. The amortisation charge for the year amounts to EUR55,774 and the remaining book value amounts to EUR1,068,447. The remaining life is 18.5 years.
-- In May 2018, the Company completed the acquisition of 100% in Marsovia Holding Ltd, a company that holds a database of approximately 43,500 customers from the online trading industry. The consideration of EUR4.0 million was offset against existing indebtedness and receivables due to the Group by Altair, therefore cash neutral. The Company believed that the acquisition would enable the Group to expand its own new regulated trading operations, and planned the database to be amortised over the use of the database, or a term of 2 years. However, as the launch of the new regulated financial trading brand has been postponed and the short-term focus of the Group's strategy is on sportsbook and casino activities, a full impairment of the value was recorded during the year.
Further details of the Marsovia acquisition are provided in Note 9.
Note 12: Investments
Financial assets
held at fair
value through
profit or loss
Cost EUR
At 1 January 2017 -
Additions 25,000
Disposals -
-----------------
At 31 December 2017 25,000
-----------------
Additions -
Disposals -
Impairment (25,000)
-----------------
At 31 December 2018 -
-----------------
On 10 October 2017, the Group acquired a minority stake in eSports Radar Ltd.
On transition to IFRS 9, this asset was reclassified from available for sale to fair value through profit or loss. As the company has ceased operations in early 2019, the investment has been impaired.
Note 13: Property, plant & equipment
Furniture
& equipment Computers Total
EUR EUR EUR
Cost
At 1 January 2017 4,500 1,005 5,505
Additions - - -
Disposals - - -
------------- ------------ --------
At 31 December 2017 4,500 1,005 5,505
Additions - - -
Disposals - - -
------------- ------------ --------
At 31 December 2018 4,500 1,005 5,505
------------- ------------ --------
Depreciation
At 1 January 2017 (1,012) (335) (1,347)
Charge for the period (1,125) (503) (1,628)
Disposals - - -
------------- ------------ --------
At 31 December 2017 (2,137) (838) (2,975)
Charge for the period (1,125) (167) (1,292)
Disposals - - -
------------- ------------ --------
At 31 December 2018 (3,262) (1,005) (4,267)
------------- ------------ --------
Net Book Value
At 1 January 2017 3,488 670 4,158
------------- ------------ --------
At 31 December 2017 2,363 167 2,530
------------- ------------ --------
At 31 December 2018 1,238 - 1,238
------------- ------------ --------
Note 14: Loan receivable
31 December 31 December
2018 2017
EUR EUR
Balance at 1 January 2,555,533 2,507,080
New loans granted - 189,681
Repayments * (2,581,868) (225,000)
Interest charged 26,335 83,772
------------ ------------
Balance at 31 December - 2,555,533
------------ ------------
*repayment of the loan balance was done by offsetting the purchase price of the shares in Marsovia Holdings Ltd (see Note 11).
The loans are repayable as follows:
31 December 31 December
2018 2017
EUR EUR
Within one year - 1,558,057
Between one and five years - 997,476
Balance at 31 December - 2,555,533
-------------- ------------
The loan receivable had an interest of 3% per annum.
On 25 May 2018, the Group entered into an agreement with Altair to acquire the entire issued share capital of Marsovia, which was the first step in the Group seeking to launch a new regulated brand, active in the online trading vertical. Marsovia holds a database of approximately 43,500 customers, of which approximately 26,000 are considered to be active, in the online trading vertical.
The total consideration for this transaction amounted to EUR4.0 million and was offset against the above existing indebtedness of, in aggregate, EUR2.6 million owed by Altair pursuant to certain loans provided by the Group and certain trade receivables of approximately EUR1.4 million owed by Altair to the Group pursuant to the Group's market activities, resulting in this acquisition being cash neutral for Veltyco. However, as the launch on the new regulated financial trading brand has been postponed and the short-term focus of the Group's strategy is on sportsbook and casino activities, a full impairment of the value was recorded during the year.
Note 15: Trade and other receivables
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Trade receivables 132,544 8,801,189
VAT receivables 117,163 37,714
Other receivables and prepayments 350,700 299,998
Accrued income 253,808 2,742,568
Total 854,215 11,881,469
------------- -------------
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the reporting date. The Group has policies in place to ensure that provision of services is made to customers with an appropriate credit history and monitors on a continuous basis the ageing profile of its receivables.
Trade and other receivables
The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the factors that may influence the credit risk of its customer base, including the default risk of the industry and country in which customers operate. Due to the nature of the Group's operations the Group only has a few customers.
Impairment
A provision for impairment of trade receivables is established using an expected loss model. Expected loss is calculated from a provision matrix based on the expected lifetime default rates and estimates of loss on default. During the year ended 31 December 2018, the Company recorded an impairment charge for potential recoverability problems on the receivables, amounting to EUR10,712,715 (2017: EUR302,431).
As at 31 December 2017 and 2018, the ageing of trade and other receivables that were not impaired are as follows:
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Not due 58,270 277,070
Past due 1-30 days 41,167 910,072
Past due 31-120 days 24,117 3,078,926
Past due more than 120 days 8,990 4,535,121
Total 132,544 8,801,189
------------- -------------
Management believes that the unimpaired amounts that are past due are collectible in full.
Note 16: Cash and cash equivalents
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Cash held in current accounts 1,031,071 660,192
Restricted cash - 40,000
Total 1,031,071 700,192
------------- -------------
The restricted cash related to a regulatory amount to cover liabilities to players at year-end.
Note 17: Share capital
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Allotted, called up and fully paid
74,956,159 (2017: 74,418,659) - -
------------- -------------
Ordinary shares
Par value of the shares nil nil
------------- -------------
During the year a total of 437,500 new Ordinary Shares have been issued on exercising the same number of outstanding and vested options and warrants. 100,000 new Ordinary Shares were issued as part of settlement of consideration to be paid.
Note 18: Additional paid in capital
Additional paid in capital represents amounts subscribed for share capital in excess of nominal value.
Note 19: Reverse asset acquisition reserve
The reverse acquisition completed on 30 June 2016 has been accounted for as a share-based payment transaction which should be accounted for in accordance with IFRS 2. On the basis of the guidance in paragraph 13A of IFRS 2, the difference in the fair value of the consideration shares and the fair value of the identifiable net assets should be considered to be payment for the services to transition to a public company. The excess consideration over fair value of net assets acquired has been recognised in the Statement of Comprehensive Income for 2016.
Note 20: Retained earnings
Retained earnings represents the cumulative net gains and losses recognised in the consolidated statement of comprehensive income and other transactions with equity holders.
Note 21: Share based payments
Equity-settled share option scheme
On 17 May 2016, the Company adopted a "long term incentive senior management and Directors' stock option plan" ("the Plan"). Options granted under the Plan will entitle the participant to acquire Ordinary Shares at a price determined in accordance with the rules of the Plan.
As at 31 December 2018, the following options have been granted under the Plan.
On 21 February 2014, David Mathewson was appointed Executive Chairman of the Board and was granted 240,000 options on Ordinary Shares, with an exercise price of GBP0.75 per share for all of the options. The Board renewed and repriced these options on 30 June 2016 to a new exercise price of GBP0.25 per share. These options vest over 3 equal yearly instalments starting 1 year after the grant date provided that the participant remains a Director or employee of the company during this period. These options expire on 30 June 2019.
A total of 4,150,000 share options have a grant date of 30 June 2016, with an exercise price of GBP0.25 for all of the options. These options expire on its 5(th) anniversary on 30 June 2021. Further to this, 800,000 options have a grant date of 22 May 2017, with an exercise price of GBP0.25 for all of the options. These 800,000 options expire on its 5(th) anniversary on 22 May 2022. These options vest over 4 equal yearly instalments starting 1 year after grant date provided that the participant remains a Director or employee of the Company during this period.
At the time of the AGM in 2017, on 5 July 2017, the Board granted a further 1,200,000 options to certain Directors with an exercise price of GBP0.65 for all of the options. These options expire on its 5(th) anniversary on 5 July 2022. All options vest over 4 equal yearly instalments starting 1 year after the grant date provided that the participant remains a Director or employee of the company during this period.
During 2017, a total of 262,500 of these options were exercised, all with an exercise price of GBP0.25 per share, for which the Company issued new Ordinary Shares. As a result of David Mathewson's resignation per 31 January 2018, a total of 390,000 options with an exercise price of GBP0.25 and 300,000 options with an exercise price of GBP0.65 were cancelled during the year. Mathewson's remaining 250,000 options with an exercise price of GBP0.25 were exercised in February 2018.
Furthermore, during 2018, a total of 437,500 options have been exercised, all with an exercise price of GBP0.25 per share, for which the Company issued new Ordinary Shares.
As a result of the above the total of 5,000,000 options are outstanding at 31 December 2018.
Warrants
On 30 June 2016, the Company issued new Ordinary Shares in relation to funds raised and loans converted as part of the reverse merger and re-admission of the Group. As part of this fundraise and conversion, the Company issued 1 warrant for every 5 new Ordinary Share allotted pursuant to the conversion and subscription agreements, exercisable at GBP0.31 per warrant at any time during the period from the date of issue until the 5(th) anniversary of issue.
As a result of this a total of 758,221 warrants were issued on 30 June 2016. On 2 September 2016, the Company issued a further 175,798 warrants at the same conditions as part of completion of the subscription agreements in relation to the reverse merger.
Furthermore, on 30 June 2016, 500,000 existing warrants were converted into 20,000 warrants as part of the 25 to 1 consolidation of shares. These warrants have an exercise price of GBP0.75. These warrants could be exercised until 17 February 2019 (which did not occur subsequent to year-end, before 17 February 2019, and therefore these warrants have now expired).
On 4 October 2017, the Company issued 109,846 warrants to Strand Hanson Limited, on their appointment of being Nominated Adviser for the Company on 4 October 2017. These warrants have an exercise price of GBP0.895 per warrant and can be exercised during the period from the date of issue until the 5(th) anniversary. Subsequent to year-end, the Company agreed to reprice these options to an exercise price of GBP0.15 per warrant. The other conditions have not changed.
During 2017, a total of 733,521 warrants with an exercise price of GBP0.31 per share were exercised, for which the Company issued new Ordinary Shares.
No warrants have been exercised during 2018.
As a result of the above a total of 330,344 warrants are outstanding at 31 December 2018.
Details of the share options and warrants outstanding during the period are as follows:
Weighted average
Number of share exercise price
options and warrants(1) (GBP)
Outstanding as at 1 January
2016 263,120 0.850
Exercisable as at 1 January
2016 82,080 1.075
------------------------- -----------------
Forfeited during 2016 (243,120) 9.625
Renewed on 30 June 2016 240,000 0.250
Options granted on 30 June
2016 4,150,000 0.250
Warrants granted on 30 June
2016 758,221 0.310
Warrants granted on 2 September
2016 175,798 0.310
------------------------- -----------------
Outstanding as at 31 December
2016 5,344,019 0.262
Exercisable as at 31 December
2016 954,019 0.319
Forfeited during 2017 (690,000) 0.424
Options granted on 22 May
2017 800,000 0.250
Options granted on 5 July
2017 1,200,000 0.650
Warrants granted on 5 October
2017 109,846 0.895
Warrants exercised on 21 July
2017 (733,521) 0.310
Options exercised on 18 September
2017 (262,500) 0.250
------------------------- -----------------
Outstanding as at 31 December
2017 5,767,844 0.314
Exercisable as at 31 December
2017 957,999 0.264
Options exercised on 16 February
2018 (250,000) 0.250
Options exercised on 19 July
2018 (187,500) 0.250
------------------------- -----------------
Outstanding as at 31 December
2018 5,330,344 0.335
Exercisable as at 31 December
2018 1,850,000 0.326
(1) The warrants, options and prices in this table have been adjusted to reflect the 25:1 consolidation of shares as executed on 30 June 2016.
The options outstanding as at 31 December 2018 had a weighted average remaining contractual life of 2.9 years. The value of the options has been derived by using a Black Scholes pricing model for the options granted on 22 May 2017 and granted on 5 July 2017. The inputs into the pricing models were as follows:
Warrants Warrants Options Options Options
granted granted on granted granted granted
on 30 June 2 September on 30 June on on
2016 2016 2016 22 May 2017 5 July
2017
Share price at GBP0.20 GBP0.24 GBP0.20 GBP0.52 GBP0.62
grant date
Exercise price GBP0.31 GBP0.31 GBP0.25 GBP0.25 GBP0.65
Volatility 26.3% 26.3% 26.3% 34.3% 34.3%
Expected life 5 years 5 years 5 years 5 years 5 years
Risk free rate 1.1% 1.1% 1.1% 2.51% 2.51%
Expected dividend
yield 0% 0% 0% 0% 0%
As the Company has only been trading since 30 June 2016, the expected volatility for all options was determined by taking the average the Company's share price and the historical volatility of a peer group over a 5-year period.
The total value of the warrants granted on 30 June 2016 as calculated above is EUR20,219. Of this amount, nothing has been charged in the financial statements for the year ended 31 December 2018 (2017: EURnil).
The total value of the warrants granted on 2 September 2016 as calculated above is EUR8,097. Of this amount, nothing has been charged in the financial statements for the year ended 31 December 2018 (2017: EURnil).
The total value of the options granted on 30 June 2016 is EUR173,129. Of this amount, EUR32,923 has been charged in the financial statements for the year ended 31 December 2018 (2017: EUR68,214). The remaining balance of EUR21,400 will be charged in the financial statements of the years ending 31 December 2019 and 2020.
The total value of the options renewed on 30 June 2016 is EUR8,000. Of this amount, EURnil has been charged in the financial statements for the year ended 31 December 2018 (2017: EUR4,207). These options were cancelled during 2017 and therefore there is no remaining balance.
The total value of the options granted on 22 May 2017 is EUR287,272. Of this amount, EUR70,492 has been charged in the financial statements for the year ended 31 December 2018 (2017: EUR45,011). The remaining balance of EUR171,769 will be charged in the financial statements of the years ending 31 December 2019, 2020 and 2021.
The total value of the options granted on 5 July 2017 is EUR276,712. Of this amount, EUR73,528 has been charged in the financial statements for the year ended 31 December 2018 (2017: EUR121,653). The remaining balance of EUR81,531 will be charged in the financial statements of the years ending 31 December 2019, 2020 and 2021.
Note 22: Borrowings
31 December 31 December
2018 2017
EUR EUR
Other loans - 350,000
Loan from a shareholder 27,858 27,108
Loan from a related party - 978,115
27,858 1,355,223
------------ ------------
The other loans are unsecured and bear an interest rate of 3% per annum. During the first months of 2018, the Company has settled the other loans in full.
The loan from a shareholder is a long-term loan provided by the Company's main shareholder, Lensing Management Services Ltd ("Lensing"), a related party, indirectly owned and controlled by Uwe Lenhoff, one of the Company's largest shareholders, amounting to EUR27,858 (2017: EUR27,108). This loan bears interest at 3% per annum and remains outstanding.
The loan from related parties in 2017 was a loan to Bet90 Sports Ltd, in which the Group has a 51% interest, provided by Winslet Enterprises Ltd (the "Winslet Loan"), a company controlled by Uwe Lenhoff. The Winslet Loan was for an initial sum of up to EUR1.5 million and was made to the Group to accelerate the launch of www.Bet90.com, the Group's sports book which went live at the end of July 2017. The Winslet Loan was non-interest bearing, unsecured and for a term of two years. The quantum of the Winslet Loan subsequently increased to EUR2,466,806 and on 3 May 2018, the Group entered into a set-off agreement with Winslet (the "Set-off Agreement") pursuant to which the balance of the Winslet Loan was settled in full against a corresponding amount of trade receivables due from operators for whom Veltyco undertakes marketing activities in the online financial trading vertical. As a result, the trade receivables reduced by an equivalent amount, resulting in the Set-off Agreement being cash neutral to the Group.
Note 23: Trade and other payables
31 December 31 December
2018 2017
EUR EUR
Trade payables 1,626,884 558,111
Accrued expenses 107,077 239,630
Liabilities to customers 201,709 62,337
Corporation tax payable 96,846 739,470
Other creditors 1,045,166 188,589
3,077,682 1,788,137
------------ ------------
Note 24: Capital commitments
At 31 December 2018 and 31 December 2017 there were no capital commitments.
Note 25: Contingent liabilities
There were no contingent liabilities at 31 December 2018 or 31 December 2017.
Note 26: Operating Lease Commitments
The future aggregate minimum lease payments under non-cancellable operating leases as at 31 December 2018 and 31 December 2017 are as follows:
31 December 31 December
2018 2017
EUR EUR
No later than 1 year 34,400 55,350
Later than 1 year and no later 5
years 3,733 84,108
Total 38,133 139,458
------------ ------------
Subsequent to year-end the Group terminated one of the lease agreements, which now expires June 2019. The table has been adjusted accordingly.
Note 27: Financial instruments - Fair Value and Risk Management
The Group is exposed through its operations to risks that arise from use of its financial instruments. The Board approves specific policies and procedures in order to mitigate these risks.
The main financial instruments used by the Group, on which financial risk arises, are as follows:
-- Cash and cash equivalents; -- Trade and other receivables; -- Trade and other payables; and -- Customer deposits in case of the Bet90 operations.
Detailed analysis of these financial instruments is as follows:
2018 2017
Financial assets EUR EUR
Loans receivable (Note 14) - 2,555,533
Trade and other receivables (Note
15) 854,215 11,881,469
Cash and cash equivalents (Note 16) 1,031,071 700,191
--------- ----------
Total 1,885,286 15,137,193
--------- ----------
On transition to IFRS 9 all financial assets were reclassified from loans and receivables to amortised cost, except for investments which are now classified as fair value through profit or loss as noted above in note 12.
2018 2017
Financial liabilities EUR EUR
Trade and other payables(1) (Note
23) 2,873,760 809,037
Accrued liabilities 107,077 239,630
Borrowings (Note 22) 27,858 1,355,223
--------- ---------
Total 3,008,695 2,403,890
--------- ---------
(1) Excludes taxes payable.
In accordance with IFRS 9, all financial liabilities are held at amortised cost.
Capital
The capital employed by the Group is composed of equity attributable to shareholders. The primary objective of the Group is maximising shareholders' value, which, from the capital perspective, is achieved by maintaining the capital structure most suited to the Group's size, strategy, and underlying business risk. There are no demands or restrictions on the Group's capital.
The main financial risk areas are as follows:
Credit risk
Trade receivables
The Group's credit risk is primarily attributable to trade receivables, most of which are due from the Group's partners for which it operates the marketing activities and player acquisitions. These are third party companies that operate the websites. As the Group operates a limited number of brands the trade receivables are with a limited number of partners.
The risk is that a partner would fail to discharge its obligation with regard to the balance owed to the Group. The Group reduces this credit risk by monitoring the activity for these operations and arranging for the shortest possible cash settlement intervals. As the Group has ongoing relationships with its partners, the Directors have visibility on the activity in its partners' operations.
The Group considers that based on the factors above, recent developments with respect to these partners, to provide for the collectability risk. Due to this, the Company has recorded a charge of EUR10,712,715 in the 2018 accounts.
For the Group's own operations in Bet90, an additional credit risk relates to customers disputing charges made to their credit cards ("chargebacks") or any other funding method they have used in respect of the services provided by the Group. Customers may fail to fulfil their obligation to pay, which will result in funds not being collected. These chargebacks and uncollected deposits, when occurring, will be deducted at source by the payment service providers from any amount due to the Group. The risk for the year 2018 has been assessed by the Board to being immaterial.
Trade receivables are considered in default and subject to additional credit control procedures when they are more than 60 days past due in line with industry practice. Trade receivables are only written off when there is no reasonable expectation of recovery due to insolvency of the debtor.
12 month and lifetime expected credit losses are estimated based on historical loss rates for the relevant country, adjusted where evidence is available that different rates are likely to apply in the future. This is based on changes to the expected insolvency rates in the relevant countries.
Financial assets which are past due but not impaired
2018
Up to 3 Up to 12
Not yet months months Over 1 year
due over due over due over due Total
EUR EUR EUR EUR EUR
Loans receivable - - - - -
Trade receivables 68,597 41,167 22,780 - 132,544
Accrued income 253,808 - - - 253,808
Other receivables 267,863 - 200,000 - 467,863
Total 590,268 41,167 222,780 - 854,215
--------- --------- --------- ------------ ----------
For further information, refer to the going concern disclosure in Note 1.
2017
Up to 3 Up to 12
Not yet months months Over 1 year
due over due over due over due Total
EUR EUR EUR EUR EUR
Loans receivable 1,864,336 - - 691,197 2,555,533
Trade receivables 277,070 3,988,997 4,400,122 135,000 8,801,189
Accrued income 2,742,568 - - - 2,742,568
Other receivables 337,712 - - - 337,712
Total 5,221,686 3,988,997 4,400,122 826,197 14,437,002
----------- ----------- --------- ------------ ------------
Liquidity risk
Liquidity risk exists where the Group might encounter difficulties in meeting its financial obligations as they become due. The Group monitors its liquidity in order to ensure that sufficient liquid resources are available to allow it to meet its obligations.
The following table details the contractual maturity analysis of the Group's financial liabilities:
2018
Between
3
months More than
On demand In 3 months and 1 year 1 year Total
EUR EUR EUR EUR EUR
Trade and other
payables(1) 2,873,760 - - - 2,873,760
Accrued liabilities 107,077 - - - 107,077
Borrowings - - - 27,858 27,858
----------- ----------- ----------- ---------- -----------
Total 2,980,837 - - 27,858 3,008,695
----------- ----------- ----------- ---------- -----------
(1) Excludes taxes payable.
2017
Between
3
months More than
On demand In 3 months and 1 year 1 year Total
EUR EUR EUR EUR EUR
Trade and other
payables(1) 809,037 - - - 809,037
Accrued liabilities 239,630 - - - 239,630
Borrowings - - - 1,355,223 1,355,223
----------- ----------- ----------- ---------- -----------
Total 1,048,667 - - 1,355,223 2,403,890
----------- ----------- ----------- ---------- -----------
(1) Excludes taxes payable.
Note 28: List of subsidiaries
The Company held the issued shares of the following subsidiary undertakings as at 31 December 2018:
Proportion
of ownership
and voting
Name of subsidiary Place of Incorporation power Ownership
--------------------- ----------------------- -------------- ---------------------------
Veltyco Ventures Isle of Man 100% Direct
Ltd
Veltyco Services The Netherlands 100% Direct
BV
Sheltyco Enterprises British Virgin 100% Direct
Group Ltd Islands
Sheltyco Enterprises Cyprus 100% Indirect, through Sheltyco
Ltd Enterprises Group Ltd
Sheltyco Enterprises Cyprus 100% Indirect, through Sheltyco
Marketing Ltd Enterprises Group Ltd
Silkline Marketing Cyprus 100% Indirect, through Sheltyco
Ltd Enterprises Group Ltd
Tunegames Marketing Cyprus 100% Indirect, through Sheltyco
Ltd Enterprises Group Ltd
Tunegames Holding Cyprus 100% Indirect, through Sheltyco
Ltd Enterprises Group Ltd
T4U Marketing Ltd Cyprus 51% Indirect, through Sheltyco
Enterprises Group Ltd
Marsovia Holding Cyprus 100% Indirect, through Sheltyco
ltd Enterprises Group Ltd
Quasar Holdings Malta 51% Indirect, through Veltyco
Ltd Ventures Ltd
Bet90 Sports Ltd Malta 51% Indirect, through Quasar
Holdings Ltd
Velty Bulgaria Bulgaria 100% Indirect, through Veltyco
Ltd Ventures Ltd
Veltyco Licensing Malta 100% Indirect, through Veltyco
Ltd Ventures Ltd
Note 29: Reconciliation of debt
The Group had the following movement in the borrowings:
At 1 January Cash Other settlements At 31 December
2018 2018
EUR EUR EUR
Borrowings 1,355,223 - (1,327,365) 27,858
------------- ----- ------------------ ---------------
1,355,223 - (1,327,365) 27,858
------------- ----- ------------------ ---------------
At 1 January Cash Other At 31 December
2017 2017
EUR EUR EUR
Borrowings 26,358 1,328,865 - 1,355,223
------------- ---------- ------ ---------------
26,358 1,328,865 - 1,355,223
------------- ---------- ------ ---------------
Note 30: Related party transactions
Remuneration of Directors and key employees
Remuneration of Directors and key employees is disclosed in Note 5.
Other related party transactions
The Group has recorded expenses totalling EUR152,039 (2017: EUR241,929) to Softlot Software Services Ltd ("Softlot"), a company controlled by Uwe Lenhoff, one of the main shareholders. Softlot provides B2B services for lottery operations and following the cessation of marketing activities in this vertical, Softlot is currently providing no services to the Group and as 31 December 2018, no amounts were outstanding to be paid to Softlot (2017: EUR755).
Furthermore, the Group has a loan payable to the Company's main shareholder, Lensing, a company indirectly owned and controlled by Uwe Lenhoff, amounting to EUR27,858 (2016: EUR27,108). This loan bears an interest of 3% per annum.
The Group also entered into the Winslet Loan as detailed in Note 22.
Included within other debtors, the Group has a current account balance with certain Directors and Senior
Management, amounting to EURnil at 31 December 2018 (2017: EUR166,590 receivable from Directors). This current account is interest free and has no specific repayment date. The current account existed to advance funds to the Directors for company expenses.
Payables to related parties
The Group had the following amounts payable to related parties:
Year ended Year ended
31 December 31 December
2018 2017
EUR EUR
Softlot - 755
Loan from Lensing (Note 22) 27,858 27,108
Loan from Winslet (Note 22) - 978,115
Total 27,858 1,005,978
------------- -------------
Intra group transactions
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation of the Consolidated Financial Statements.
Note 31: Ultimate controlling party
As at 31 December 2018 the Directors do not believe there to be any single controlling party.
Note 32: Post balance sheet events
On 30 January 2019, the Company announced that it had raised EUR555,500 (GBP500,000) through the subscription of 3,333,333 new Ordinary Shares with certain existing investors, at a price of GBP0.15 per share. On the same day, the Board resolved to issue 200,000 new Ordinary Shares to an adviser in lieu of certain fees
On 15 February 2019, the Company announced that on 14 February 2019, it granted options over, in aggregate, 2,420,000 Ordinary Shares to the Directors and certain employees of the Company, pursuant to the Company's Long-Term Incentive Plan - May 2016 (as amended).
These options have an exercise price of GBP0.15 per share. Pursuant to the terms of the 2016 Plan, the options will vest in equal instalments over the four years following the first anniversary of the date of grant and any of the options that remain unexercised on the fifth anniversary of the date of grant will lapse. In light of these new options being granted, Mark Rosman and Marcel Noordeloos agreed with the Company to cancel 300,000 options granted to each of them on 5 July 2017. In addition, 109,846 existing warrants that were granted by the Company on 5 October 2017, have had the terms amended, such that they will now be exercisable at a price of GBP0.15 per share.
On 1 April 2019, the Company announced that it had entered into separate loan agreements with three of its Directors, being Paul Duffen, Marcel Noordeloos and Mark Rosman, pursuant to which each Director provided a loan of EUR166,667 (GBP146,667) to the Company, totalling EUR500,000 (GBP440,000) (the "Loans"). The Loans, which are unsecured, are for a term of three years and will accrue interest at 5% per annum over the term of the Loans. The Loans can be repaid on or before 31 March 2022 at the Company's election.
On 30 May 2019, the Company announced that it had raised a further EUR300,000 (GBP264,000) through the subscription of 4,000,000 new Ordinary Shares with a certain existing investor, at a price of GBP0.066 per share.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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(END) Dow Jones Newswires
June 28, 2019 12:34 ET (16:34 GMT)
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