Veltyco Group PLC Final Results (5717Q)

TIDMVLTY

RNS Number : 5717Q

Veltyco Group PLC

07 June 2018

7 June 2018

VELTYCO GROUP PLC

("Veltyco" or "the Group")

Final Results for the year ended 31 December 2017

Veltyco, the AIM quoted marketing company for the gaming sector, is pleased to announce its final results for the year ended 31 December 2017.

Financial highlights

   --        Revenue for the year increased 165% to EUR16.2 million (2016: EUR6.1 million) 
   --        Operating EBITDA for the year increased 260% to EUR8.1 million (2016: EUR2.2 million)(1) 

-- Raised EUR2.55 million before expenses during the period to fund the acquisitions of T4U Marketing Ltd ("T4U") and Bet90 in April 2017

-- Proposing to pay a maiden dividend for the year ended 31 December 2017 amounting to 0.25p per share

Operational highlights

-- Completed the acquisitions of 51% interests in each of T4U and Quasar Holdings Ltd (running the Bet90 operations)

-- Launched Bet90 in July 2017 and achieved significant growth in revenues; the Board expects Bet90 to be a key driver of further growth in 2018

   --        Achieved growth in all three major verticals the Group operates in 

Post year end

-- Acquired a 51% interest in Varkasso Limited, a software platform providing crypto wallet solutions based on blockchain technology

-- Completed acquisition of a database of active users in the online financial trading sector, ahead of the Group's intended launch of a regulated brand later in 2018

   --        Extended existing partnership with eSports.com 

Current trading

-- Momentum from 2017 has continued into 2018, with revenues of approximately EUR4.8 million in the first quarter of 2018 - growth of 60% year on year

-- As at 28 May 2018, the Company had cash of EUR1.6 million compared to EUR0.7 million as at 31 December 2017

Gilles Ohana, Chairman, commented: "We are delighted with the progress achieved at Veltyco throughout 2017, which has delivered a very strong trading performance and enabled us to propose a maiden dividend.

We have enjoyed a positive start to 2018 with revenues in the first quarter showing significant growth when compared to the corresponding period in 2017. Looking ahead, we see continued growth in 2018, both from our marketing activities, including the potential to expand our current sportsbook marketing activities into new territories, and our own brands, in particular Bet90, which is expected to be a key driver of this growth."

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

____________

(1) Operating EBITDA excludes the listing expenses which the Company incurred in respect of the reverse merger completed during 2016 and share based payment expense.

For further information please contact:

   Veltyco Group Plc                                                           [phone] 

Gilles Ohana, Chairman

Melissa Blau, CEO

Marcel Noordeloos, CFO

   Strand Hanson Limited (Nominated Adviser)        [phone] 

James Harris / Richard Tulloch / James Dance

   Whitman Howard Ltd (Broker)                                  [phone] 

Francis North / Nick Lovering

   IFC Advisory (Financial PR & IR)                                [phone] 

Graham Herring / Miles Nolan / Zach Cohen

About Veltyco

Veltyco is a group of companies focused on generating marketing leads and entering into marketing contracts for the activities of various partners in the gaming industry as well as operating its own brands. Veltyco focuses on complementary activities under one umbrella, leveraging its historical cash generative activities of marketing online casinos and sports betting.

Website: www.veltyco.com

STRATEGIC REPORT

I am pleased to present our Annual Report for the financial year ended 31 December 2017.

Financial and operational highlights

   Revenues:                                         +165% to EUR16.2 million (EUR6.1 million) 
   Operating EBITDA:                          +260% to EUR8.1 million (EUR2.2 million) 
   Operating profit:                             +361% to EUR7.5 million (EUR1.6 million) 
   Maiden dividend proposed:          0.25p per share (2016: nil) 

Operational review

The Board is delighted with the operational progress achieved during 2017 and the significant uplift in its operating results. The growth in 2017 has been delivered from both our core marketing and promotion activities for third parties but also from our own gaming brands.

During 2017, Veltyco Group plc (the "Group", the "Company" or "Veltyco") achieved significant growth in both revenues and profitability, through the Company's continued focus on the marketing and promotion for its partners in sports betting, casinos, poker games, lottery and online financial trading. Revenues increased 165% to EUR16.2 million (2016: EUR6.1 million), driven by the significant increase in the Group's commissions from its marketing activities, together with a full year's contribution from marketing activities for Zoomtraderglobal. In addition, the Company's own brands had a positive impact on revenues, in particular Bet90, the Company's own sportsbook which commenced operations in July 2017.

The majority of our revenue continues to be derived from online marketing activities but we are also seeking to increase the level of operational control we have by owning our own brands. Given the Company's expertise in marketing, the Board believes that the continued expansion of its own brand activities, following the acquisitions of 51% interests in each of Bet90 and T4U during 2017, and the recently announced intention to launch a new regulated brand active in the online trading sector later in 2018, will be a key driver for the Company's future growth.

As previously announced, the Company is in discussions regarding the potential acquisition of Ruleo Alpenland GmbH, a company that operates the BTTY branded sportsbook in Germany and Austria. Following completion of due diligence and recent developments regarding the German license program that could impact on BTTY going forward, the Board is currently considering its options regarding the acquisition and will update the market shortly.

Subsequent to the year end, the sportsbook operator, for whom the Group undertakes marketing activities, informed the Company that it would not be automatically extending its existing marketing agreement and that it would therefore end at the end of April 2018. The Company is pleased to confirm that following discussions between the parties, the Group and the sportsbook operator have agreed, subject to documentation, to further extend the existing agreement as well as to potentially expand the marketing relationship to include additional territories. In light of this and the upcoming FIFA World Cup in Russia starting in mid-June 2018, the Group continues to provide marketing activities to the sportsbook operator. The Directors believe that the proposed continuation of the existing marketing agreement and potential expansion into new territories, demonstrates the reach of the Group's marketing activities.

Another exciting venture which Veltyco has entered is that of eSports.com - the eSports market (multiplayer and team video game competitions) is a rapidly expanding market and is attracting increasing interest from many large companies and media brands. To leverage our client base and address this market we recently acquired a minority stake in Germany based www.esports.com, which is an online portal for the eSports industry providing news, scores and statistics. This is an exciting opportunity for Veltyco to ultimately provide betting odds on games, through Bet90, as the eSports market develops.

Innovative techniques are at the heart of the Company's operations and was the basis for the acquisition of a 51% interest in Varkasso in January 2018, a Company which has the exclusive rights to the use 8crypt, a crypto e-wallet service provider based on blockchain technology. The Board believes that the strategic investment will, in the future, allow Veltyco to provide a solution that enables customers to connect their own individual crypto wallets to traditional currencies as well as crypto currencies.

Financial review

2017 was a year of significant growth for Veltyco. After the successful completion of the reverse merger in June 2016, Veltyco has expanded and diversified its operations, both through the addition of marketing partners and acquisitions, in particular Bet90.

Revenues increased significantly to EUR16.2 million (2016: EUR6.1 million), driven by the strong performance across our core marketing and promotion activities for third parties together with a growing contribution from our own gaming brands as detailed above. The total profit for the year amounted to EUR6.8 million (2016: EUR20.6 thousand). The results for 2016 were significantly impacted by the expenses relating to the reverse merger and associated due diligence processes of in aggregate EUR1.5 million. The operating EBITDA for the year ended 31 December 2017 was EUR8.1 million (2016: EUR2.2 million pre any costs associated with the reverse merger).

Details of the operating EBITDA are as follows:

 
                                               2017        2016 
                                                EUR         EUR 
 
 Operating profit                         7,482,129   1,621,946 
 Depreciation and amortisation expense      380,173      87,169 
 Impairment charge                                -     275,011 
 Reverse merger listing expense                   -     123,850 
 Share based payment (included in 
  salary expense)                           239,084     140,940 
                                         ----------  ---------- 
 Operating EBITDA                         8,103,386   2,248,916 
                                         ----------  ---------- 
 

Further to the acquisition of 51% of the Bet90 operations via Quasar Holdings Ltd (for a total cash consideration of EUR2.0 million), the Company also acquired 51% of T4U Marketing Ltd (for a total cash consideration of EUR0.5 million), a company that operates the online sports-betting forum sites of the www.tippen4you.com, www.tippen4you.at and www.sportwettenforum.info domains. To fund these two acquisitions, the Company raised EUR2.55 million (before expenses) via a subscription with new and existing shareholders.

Both acquisitions are performing in line with Company's expectations and the Board believes that Bet90 will be a predominant driver of the Company's growth in revenues and profitability going forward.

Cash Flow

The Group operates in three major verticals (sports book and casinos, online lotteries and online financial trading) and has revenues and cost centres in numerous locations around the world. Significant growth was achieved across all verticals during 2017 and in particular, in respect of commissions due from the Group's marketing activities in online financial trading.

The Group has experienced some operational difficulties in receiving agreed marketing commissions within the online financial trading vertical due to internal processes applied by the Group's banks, however, the Directors have received written confirmation from the operators that the commissions are due and payable to the Group. The Directors started the process of restructuring the Group's banking relationships during 2017, in order to collect the receivables from all trading operators in different locations, without any restriction and the benefits are already being seen and are expected to increase in the coming months.

As a result of the above, the Group had a negative cash flow from operations of EUR1.1 million for the year ended 31 December 2017. Following completion of the restructuring of the Group's banking relationships, the Group does not expect to experience ongoing issues regarding the receipt of commissions due to it pursuant to its marketing agreements.

Board changes

During and post the year end, the Company made a number of changes to its Board and senior management to reflect the Company's evolution and growth.

In January 2017, the Group announced the appointment of Ilan Tzorya as Non-executive Director to support the Group's option marketing activities.

On 20 November 2017, the Group announced the appointment of Gilles Ohana as Non-executive Director and that David Mathewson would be stepping down as the Company's Non-Executive Chairman on 31 January 2018. Gilles Ohana was subsequently appointed as Non-Executive Chairman on 26 March 2018.

After the year end, in March 2018 the Company announced a number of further changes to its Board and senior management, as the Company sought to enhance the composition of its management team to allow it to capitalise on the significant opportunities that it believes are available to it. As part of the changes, Melissa Blau was appointed as Chief Executive Officer and Rainer Lauffs was appointed as Chief Operating Officer, while Uwe Lenhoff and Hans Dahlgren both stepped down from the Board, though they both remain fully committed to the Company as part of the Company's Senior Management team. Uwe Lenhoff is now the Company's Head of Business Development, allowing him to focus on his strength as an entrepreneur and new business generator whilst handing over the day to day operations of the business to Rainer Lauffs. Hans Dahlgren will continue as the Company's Chief Technical Officer. In addition, the Company announced the resignation of Ilan Tzorya as a Non-executive Director, to make way for the aforementioned changes to be implemented.

The Company is seeking a further independent Non-executive Director in line with the continuing growth of the Company and a further announcement will be made as appropriate.

Current trading and outlook

Following a very strong end to 2017, the momentum has continued into the first quarter of 2018 with revenues of approximately EUR4.8 million (Q1 2017: approximately EUR3 million), an increase of approximately 60% compared to the same period in 2017. The Board continues to believe that the Company is well positioned to achieve growth in 2018, with Bet90 being the main driver as it continues to grow and expand into new markets.

Dividend

The Directors are proposing to pay a maiden dividend for the year ended 31 December 2017, amounting to 0.25p per share and will include the final proposal in the notice of the Annual General Meeting. The Directors intend to establish a progressive dividend policy going forward, taking into account the growth strategy of the Group, both organically as well as its development and growth through acquisitions.

Approved by the Board of Directors and signed on behalf of the Board,

Gilles Ohana

Non-executive Chairman, Veltyco Group plc

6 June 2018

Directors' Report

The Directors present their report and consolidated financial statements for the year ended 31 December 2017.

Principal activities and review of the business

Veltyco is a company primarily focused on generating marketing leads and entering into marketing contracts for the activities of its partners in sports betting, casinos, poker games, lottery and online financial trading. Veltyco focuses on all of these three complementary industries under one umbrella, leveraging its historical cash generative activities of marketing online casinos and sports betting. Following the acquisitions of a 51% interest in Bet90 in April 2017 and the launch of its operations at the end of July 2017, the Group now has its own sportsbook, which is expected to be a significant contributor to the Group's growth in 2018.

Results and dividends

The Group's profit for the year, after taxation, amounted to EUR6.8 million (2016: profit of EUR20.6 thousand). The Group's 2016 profit was highly impacted by the reverse merger accounting and re-listing process. The operating EBITDA for the full year 2017 amounts to EUR8.1 million (2016: EUR2.2 million).

The Directors are proposing to pay a dividend for the year ended 31 December 2017, amounting to 0.25p per share and will include the final proposal in the notice of the Annual General Meeting.

Future developments

Future developments are discussed in the Strategic Report.

Financial Risk Management

The Board of Directors is responsible for setting the objectives and underlying principles of financial risk management for the Group. The Board of Directors 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 is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.

Currency risk

The Group is exposed to translation and transaction foreign exchange risk. As the majority of the Group's transactions are denominated in Euro, 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 2017 or 31 December 2016.

Credit risk

The Group's credit risk is primarily attributable to trade receivables, most of which are due from the Group's partners in the online financial trading vertical. The risk is that one of these partners would fail to discharge its obligation with regard to the balance owed to the Group. In addition, the Group has experienced some operational difficulties in receiving agreed marketing commissions from operators within the online financial trading sector due to internal processes applied by the Group's banks and the Group is in the process of restructuring its banking arrangements.

The Group seeks to reduce this credit risk by:

   --        monitoring balances with these partners on a regular basis. 

-- the current restructuring of its banking relationships in order to enable the Group to receive funds in different locations on a timely basis, which has not always been possible to date; and

   --        entering into agreements to receive funds directly from the partners payment processors. 

The Group considers that based on the factors above, on past experience and on current trading, the receivables are of good credit quality and there is a low level of potential bad debt as at year-end. In addition, the Directors believe that the systems being put in place will enable monies due to the Group to be received on a timely basis.

An additional credit risk the Group faces relates to customers in its own operations (such as Bet90) 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. When needed, the Group provides for these eventualities by way of an impairment provision based on analysis of past transactions. For the year-ended 31 December 2017, the Group has not made any provision for this.

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.

Going concern

After careful review of the Group's forecast for 2018, its medium-term plans, liquid resources and all relevant matters, the Directors are confident that the Group has adequate financial resources to continue in operational existence for the foreseeable future and for a period of at least 12 months from the date of this Annual Report. The Directors have therefore continued to adopt the going concern basis in preparing the Group's financial statements.

The Group operates in three major verticals (sports book and casinos, online lotteries and online financial trading) and has revenues and cost centres in numerous locations around the world. Significant growth was achieved across all verticals during 2017 and in particular in respect of commissions due from the Group's marketing activities in online financial trading.

The Group has experienced some operational difficulties in receiving agreed marketing commissions from operators within the online financial trading sector due to internal processes applied by the Group's banks, however, the Directors have received written confirmation from the operators that the commissions are due and payable to the Group. The Directors started the process of restructuring the Group's banking relationships during 2017, in order to collect the receivables from all trading operators in different locations, without any restriction.

As a result of the above, the receipt of agreed commissions due to the Group in respect of the online financial trading vertical has been slower than anticipated and together with the significant growth in commissions from its marketing activities, the Group's trade receivable balance as at 31 December 2017 was approximately EUR8.8 million, the majority of which related to the Group's online financial trading activities. Together with a non-current and current loan receivable balance totalling EUR2.6 million and accrued income (being revenue that has been generated but not yet invoiced) of EUR2.7 million, the Group's total receivables balance as at 31 December 2017 was, in aggregate, EUR14.1 million across all of its operations. Of the total receivables balance, approximately EUR10.7 million related to marketing activities for Altair Entertainment N.V. ("Altair") in the online financial trading vertical.

The restructuring process of the Group's banking operations has made good progress and the benefits are already being seen and are expected to increase in the coming months. Since the year end, the receivables position of the Group as at 31 December 2017 has decreased and the Directors believe that the operators will fully settle the outstanding balances during the coming months.

Since the year end, the Group's total receivable balance of EUR14.1 million as at 31 December 2017 has been reduced to EUR4.9 million, all of which relates to the online financial trading vertical (of which EUR3.4 million is due from Altair), as follows:

-- pursuant to the acquisition of Marsovia Holdings Ltd ("Marsovia") (regarding the database of users within online financial trading) from Altair, the EUR4.0 million consideration was offset against the full amount of the current loan receivable balance of EUR2.6 million and EUR1.4 million of trade receivables due from Altair, as announced on 25 May 2018 and disclosed in Note 15 of the accounts;

-- EUR2.5 million has been settled against a loan provided to the Group by Winslet Enterprises Ltd ("Winslet"), a related party (ultimately controlled by Uwe Lenhoff, a previous director of the Company who is also the Company's main shareholder) for a corresponding amount. The balance of the loan as at 31 December 2017 was EUR1.0 million (see Note 22);

-- EUR0.35 million has been offset against amounts due to a subsidiary of Altair, Payific Ltd; and

   --        EUR2.3 million has been received in cash by the Group from trading operators. 

The above settlements are against the oldest receivables and as a result of trading since the year end and the ongoing restructuring of the Group's banking relationships, the Group's trade receivable balance as at 28 May 2018 was approximately EUR8.4 million (of which EUR3.4 million is due from Altair and EUR2.7 million is due from Celestial Trading Ltd ("Celestial")). In addition to the current trade receivable balance, the Group also has accrued income in respect of April and May 2018. Since the beginning of 2018, Celestial Trading Ltd has been operating all of the online financial trading brands for which the Group undertakes marketing activities and as a result, the commission due from such activities in 2018 is now payable by Celestial.

The Group had a negative cash flow from operations of EUR1.1 million for the year ended 31 December 2017. As a result of the above, the Group's current cash position has improved since the year end to EUR1.6 million as at 28 May 2018 (31 December 2017: EUR0.7 million) and at the same date, its borrowings have decreased from EUR1.4 million at the year end to just EUR27 thousand.

The Directors believe they have taken sufficient measures and made appropriate arrangements with its trading providers to obtain additional comfort on the collectability of these receivables, and therefore believe this balance will be recovered in full. Furthermore, the Directors continue to work on diversifying the Group's banking relationships in order to continue to receive commission payments in a normal way within the online financial trading vertical.

The ability of the Group to settle its liabilities as they fall due is dependent on the ability of the customers to settle the trade receivable balances and the Group's ability to finalise the restructuring of its banking relationships during the course of 2018, or to obtain loans from third parties to fund the working capital requirements of the business in the ordinary course. The Directors believe that with the agreements and measures in place, the outstanding amounts will be fully recovered during the remainder of the year.

Post balance sheet events

On 11 January 2018, the Group announced that MWB Fairtrade Wertpapierhandelsbank AG, a German securities broker, had successfully applied for a secondary listing of Veltyco's ordinary shares of no par value ("Ordinary Shares") to start trading on the Quotation Board Segment of the Open Market of the Frankfurt Stock Exchange ("FSE"), also known as the Regulated Unofficial Market of the FSE, or Freiverkehr. Accordingly, the Ordinary Shares of Veltyco are now tradable on the FSE under the symbol 24GN. The entire issued ordinary share capital of the Company continues to trade on the AIM market of the London Stock Exchange under the symbol VLTY.

On 17 January 2018, the Board announced that it had entered into an agreement to acquire a 51% interest in Varkasso Limited ("Varkasso"), a company that has the exclusive rights to use 8Crypt, a software platform providing crypto wallet solutions based on blockchain technology. The Board believes that this acquisition is an important step towards optimising players experience across its partners' platforms, allowing customers to access each platform from one wallet that also has the ability to accept crypto currencies through the use of blockchain technology.

On 16 February 2018, David Mathewson, former Chairman of the Company, exercised his 250,000 options at an exercise price of GBP0.25 per share.

Furthermore, on 15 March 2018, the Company announced that it had entered into a further partnership with eSports.com, focusing on the roll out of a new eSports business: in essence, the Group has extended its partnership with eSports.com and has entered into a joint venture with eSports.com to join forces in a blockchain project.

On 25 May 2018, the Company announced it that it had entered into an agreement with Altair to acquire the entire issued share capital of Marsovia. This acquisition being the first step in the Group seeking to launch a new regulated brand, active in the online trading sector. Marsovia holds a database of approximately 43,500 customers, of which approximately 26,000 are considered to be active, in the online trading sector.

The total consideration for this transaction amounted to EUR4.0 million and was offset against the existing indebtedness of, in aggregate, approximately EUR2.6 million pursuant to certain loans provided by the Group to Altair and certain trade receivables of approximately EUR1.4 million relating to the existing marketing agreements with Altair, resulting in this acquisition being cash neutral for Veltyco.

At the same time, the Directors confirmed that the existing marketing agreements for various brands in the online trading sector would continue for at least a further three years.

On 3 May 2018, the Company entered into a set-off agreement with Winslet, a company controlled by Uwe Lenhoff, pursuant to which the balance of a loan amounting to EUR2.5 million was settled in full against a corresponding amount of trade receivables 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.

Directors and their interest

The following Directors held share options as at 31 December 2017:

 
                      Number of options       Exercise   Date of grant     Vesting 
                                           Price (GBP)                      period 
                     ------------------  -------------  --------------  ---------- 
 David Mathewson               250,000*           0.25    30 June 2016   1-2 years 
 Marcel Noordeloos              750,000           0.25    30 June 2016   1-4 years 
 Marcel Noordeloos              300,000           0.65     5 July 2017   1-4 years 
 Hans Dahlgren                  562,500           0.25    30 June 2016   1-4 years 
 Hans Dahlgren                  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 
 

* As David Mathewson left the Company on 31 January 2018, a total of 690,000 options were cancelled which are not included in this figure.

Directors who served during the year

 
                         Appointed            Resigned 
                    --------------    ---------------- 
 David Mathewson     24 April 2013     31 January 2018 
 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 
 Gilles Ohana          20 November                   - 
                              2017 
 

On 26 March 2018, Melissa Blau was appointed as director and Chief Executive Officer and on the same date Rainer Lauffs was appointed director and Chief Operating Officer.

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 6 June 2018.

Gilles Ohana

Non-executive Chairman

6 June 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 
                                                   Year ended     Year ended 
                                                  31 December    31 December 
                                        Notes            2017           2016 
                                                          EUR            EUR 
 
 
 Revenues                                          16,194,791      6,082,468 
 Cost of Sales                                      (976,763)              - 
                                                -------------  ------------- 
 Gross Margin                                      15,218,028      6,082,468 
 
 Salary expense                                   (1,087,235)      (608,825) 
 Marketing and selling expense                    (4,550,529)    (2,682,422) 
 General administrative expense                   (1,717,962)      (683,246) 
 Listing expenses                                           -      (123,850) 
 Depreciation, amortisation and 
  impairment expense                                (380,173)      (362,179) 
                                                -------------  ------------- 
 Total administrative expenses                    (7,735,899)    (4,460,522) 
                                                -------------  ------------- 
 Operating profit                                   7,482,129      1,621,946 
 
 Reverse asset acquisition expense                          -    (1,555,898) 
 Financial income/(expense)                            98,779        (9,286) 
 Profit before tax                                  7,580,908         56,762 
 Taxation                                           (801,116)       (36,144) 
 Total comprehensive income                         6,779,792         20,618 
                                                -------------  ------------- 
 
 Attributable to: 
 Equity holders of the Company                      7,333,280         20,618 
 Non-controlling interests                          (553,488)              - 
                                                    6,779,792         20,618 
                                                -------------  ------------- 
 
 
 Earnings per share attributable to equity holders of the Company 
 - Basic (in EUR)                          2           0.1017         0.0004 
 - Diluted (in EUR)                        2           0.0944         0.0004 
 
 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 
                                        31 December    31 December 
                                               2017           2016 
                                                EUR            EUR 
 Non-current assets 
 Goodwill                                 1,743,485              - 
 Other intangible assets                  3,985,347      2,740,792 
 Investments                                 25,000              - 
 Property, plant and equipment                2,530          4,158 
 Loans receivable                           997,476        916,197 
 Total non-current assets                 6,753,838      3,661,147 
                                      -------------  ------------- 
 
 Current assets 
 Loans receivable                         1,558,057      1,590,883 
 Trade and other receivables             11,881,469      2,602,338 
 Cash and cash equivalents                  700,192        144,125 
 Total current assets                    14,139,718      4,337,346 
                                      -------------  ------------- 
 Total assets                            20,893,556      7,998,493 
                                      -------------  ------------- 
 
 Equity and liabilities 
 Share capital                                    -              - 
 Additional paid-in capital              13,665,233     10,614,354 
 Reverse asset acquisition reserve      (6,046,908)    (6,046,908) 
 Retained earnings                        9,948,904      2,376,540 
 Equity attributable to owners 
  of the parent                          17,567,229      6,943,986 
                                      -------------  ------------- 
 Non-controlling interests                  182,967              - 
 Total shareholders' equity              17,750,196      6,943,986 
                                      -------------  ------------- 
 
 Non-current liabilities 
 Borrowings                               1,355,223         26,358 
 Total non-current liabilities            1,355,223         26,358 
                                      -------------  ------------- 
 
 Current Liabilities 
 Trade and other payables                 1,788,137      1,028,149 
 Total current liabilities                1,788,137      1,028,149 
                                      -------------  ------------- 
 Total equity and liabilities            20,893,556      7,998,493 
                                      -------------  ------------- 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 
                                                      Other 
                                                   reserves 
                                                          - 
                                  Additional        Reverse 
                        Share        paid in          asset     Retained                 Non-controlling         Total 
                                                acquisition 
                      capital        capital        reserve     earnings         Total          interest        Equity 
                          EUR            EUR            EUR          EUR           EUR               EUR           EUR 
 
 Balance as at 1 
  January 
  2016 (restated)             -     6,046,980    (6,046,908)    2,304,891     2,304,963                 -     2,304,963 
                     ----------  ------------  -------------  -----------  ------------  ----------------  ------------ 
 
 Profit for the 
  financial 
  period                      -             -              -       20,618        20,618                 -        20,618 
 Share based 
  acquisition                 -     2,801,592              -            -     2,801,592                 -     2,801,592 
 Share based 
  payments                    -        90,909              -       51,031       141,940                 -       141,940 
 Issue of share 
  capital                     -     1,674,873              -            -     1,674,873                 -     1,674,873 
 Balance as at 31 
  December 
  2016                        -    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 
  on acquisitions             -             -              -            -             -           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 
                     ----------  ------------  -------------  -----------  ------------  ----------------  ------------ 
 

CONSOLIDATED STATEMENT OF CASH FLOWS

 
                                                31 December    31 December 
                                                       2017           2016 
                                                        EUR            EUR 
 
 Cash flows from operating activities 
 Operating profit                                 7,482,129      1,621,946 
 Adjustments for: 
 Share based payments                               239,084         53,016 
 Depreciation                                         1,628            813 
 Amortisation of intangibles                        378,545         86,356 
 Impairment                                               -        275,011 
                                              -------------  ------------- 
 Cash flow from operations before 
  working capital changes                         8,101,386      2,037,142 
 
 (Increase) in trade and other receivables      (9,279,131)    (1,761,112) 
 Increase/(decrease) in trade and 
  other payables                                    146,894      (307,415) 
                                              -------------  ------------- 
 Cash outflow from operations                   (1,030,851)       (31,385) 
 
 Tax paid                                          (72,152)       (50,144) 
 Cash outflow from operating activities         (1,103,003)       (81,529) 
                                              -------------  ------------- 
 
 Cash flow from investing activities 
 Acquisition of subsidiaries                    (2,510,000)              - 
 Acquisitions of intangible assets                 (75,000)      (275,011) 
 Acquisition of investments                        (25,000)              - 
 Loans granted                                    (189,681)      (767,701) 
 Loans repayments received                          225,000        497,800 
 Interest received                                   15,007         80,388 
 Cash acquired on reverse asset acquisition               -          2,112 
 Net cash outflow from investing activities     (2,559,674)      (462,412) 
                                              -------------  ------------- 
 
 Cash flow from financing activities 
 Proceeds of issue of new shares                  2,889,879        646,278 
 Loans received                                   1,328,865              - 
 Net cash inflow from financing activities        4,218,744        646,278 
                                              -------------  ------------- 
 
 Net increase in cash and cash equivalents          556,067        102,337 
 Cash and cash equivalents at start 
  of period                                         144,125         41,788 
                                              -------------  ------------- 
 Cash and cash equivalents at end 
  of period                                         700,192        144,125 
                                              -------------  ------------- 
 

Notes

   1.       General Information 

The financial information set out in this announcement does not comprise the Group's statutory accounts for the year ended 31 December 2017 but is derived from those accounts.

The auditors have reported on those accounts and their report was unqualified and drew attention to a material uncertainty in relation to going concern with respect to recoverability of trade receivables.

The principal accounting policies as adopted by the Group in the preparation of its consolidated financial statements for the year ended 31 December 2017 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 2017. 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. 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

After careful review of the Group's forecast for 2018, its medium-term plans, liquid resources and all relevant matters, the Directors are confident that the Group has adequate financial resources to continue in operational existence for the foreseeable future and for a period of at least 12 months from the date of this Annual Report. The Directors have therefore continued to adopt the going concern basis in preparing the Group's financial statements.

The Group operates in three major verticals (sports book and casinos, online lotteries and online financial trading) and has revenues and cost centres in numerous locations around the world. Significant growth was achieved across all verticals during 2017 and in particular in respect of commissions due from the Group's marketing activities in online financial trading.

The Group has experienced some operational difficulties in receiving agreed marketing commissions from operators within the online financial trading sector due to internal processes applied by the Group's banks, however, the Directors have received written confirmation from the operators that the commissions are due and payable to the Group. The Directors started the process of restructuring the Group's banking relationships during 2017, in order to collect the receivables from all trading operators in different locations, without any restriction.

As a result of the above, the receipt of agreed commissions due to the Group in respect of the online financial trading vertical has been slower than anticipated and together with the significant growth in commissions from its marketing activities, the Group's trade receivable balance as at 31 December 2017 was approximately EUR8.8 million, the majority of which related to the Group's online financial trading activities. Together with a non-current and current loan receivable balance totalling EUR2.6 million and accrued income (being revenue that has been generated but not yet invoiced) of EUR2.7 million, the Group's total receivables balance as at 31 December 2017 was, in aggregate, EUR14.1 million across all of its operations. Of the total receivables balance, approximately EUR10.7 million related to marketing activities for Altair Entertainment N.V. ("Altair") in the online financial trading vertical.

The restructuring process of the Group's banking operations has made good progress and the benefits are already being seen and are expected to increase in the coming months. Since the year end, the receivables position of the Group as at 31 December 2017 has decreased and the Directors believe that the operators will fully settle the outstanding balances during the coming months.

Since the year end, the Group's total receivable balance of EUR14.1 million as at 31 December 2017 has been reduced to EUR4.9 million, all of which relates to the online financial trading vertical (of which EUR3.4 million is due from Altair), as follows:

-- pursuant to the acquisition of Marsovia Holdings Ltd ("Marsovia") (regarding the database of users within online financial trading) from Altair, the EUR4.0 million consideration was offset against the full amount of the current loan receivable balance of EUR2.6 million and EUR1.4 million of trade receivables due from Altair, as announced on 25 May 2018 and disclosed in Note 15 of the accounts;

-- EUR2.5 million has been settled against a loan provided to the Group by Winslet Enterprises Ltd ("Winslet"), a related party (ultimately controlled by Uwe Lenhoff, a previous director of the Company who is also the Company's main shareholder) for a corresponding amount. The balance of the loan as at 31 December 2017 was EUR1.0 million (see Note 22);

-- EUR0.35 million has been offset against amounts due to a subsidiary of Altair, Payific Ltd; and

   --        EUR2.3 million has been received in cash by the Group from trading operators. 

The above settlements are against the oldest receivables and as a result of trading since the year end and the ongoing restructuring of the Group's banking relationships, the Group's trade receivable balance as at 28 May 2018 was approximately EUR8.4 million (of which EUR3.4 million is due from Altair and EUR2.7 million is due from Celestial Trading Ltd ("Celestial")). In addition to the current trade receivable balance, the Group also has accrued income in respect of April and May 2018. Since the beginning of 2018, Celestial Trading Ltd has been operating all of the online financial trading brands for which the Group undertakes marketing activities and as a result, the commission due from such activities in 2018 is now payable by Celestial.

The Group had a negative cash flow from operations of EUR1.1 million for the year ended 31 December 2017. As a result of the above, the Group's current cash position has improved since the year end to EUR1.6 million as at 28 May 2018 (31 December 2017: EUR0.7 million) and at the same date, its borrowings have decreased from EUR1.4 million at the year end to just EUR27 thousand.

The Directors believe they have taken sufficient measures and made appropriate arrangements with its trading providers to obtain additional comfort on the collectability of these receivables, and therefore believe this balance will be recovered in full. Furthermore, the Directors continue to work on diversifying the Group's banking relationships in order to continue to receive commission payments in a normal way within the online financial trading vertical.

The ability of the Group to settle its liabilities as they fall due is dependent on the ability of the customers to settle the trade receivable balances and the Group's ability to finalise the restructuring of its banking relationships during the course of 2018, or to obtain loans from third parties to fund the working capital requirements of the business in the ordinary course. The Directors believe that with the agreements and measures in place, the outstanding amounts will be fully recovered during the remainder of the year.

   2.       Earnings per share (basic and diluted) 
 
                                             Year ended     Year ended 
                                            31 December    31 December 
                                                   2017           2016 
                                                    EUR            EUR 
 Earnings 
 Earnings for the purposes of basic 
  and diluted earnings per share, being 
  net profit after tax attributable to 
  equity shareholders                         7,333,280         20,618 
                                          -------------  ------------- 
 
 Number of shares 
 Weighted average number of ordinary 
  shares for the purposes of: 
  Basic earnings per share                   72,128,655     53,116,500 
 Diluted earnings per share                  77,648,727     55,788,510 
                                          -------------  ------------- 
 
 Basic earnings per share (in EUR)               0.1017         0.0004 
 Diluted earnings per share (in EUR)             0.0944         0.0004 
                                          -------------  ------------- 
 

The share options are not sufficiently dilutive to create a difference between basic and diluted earnings per share reported above.

   3.       Post balance sheet events 

Sportsbook partnership

Subsequent to the year end, the sportsbook operator, for whom the Group undertakes marketing activities, informed the Company that it would not be automatically extending its existing marketing agreement and that it would therefore end at the end of April 2018. The Company is pleased to confirm that following discussions between the parties, the Group and the sportsbook operator have agreed, subject to documentation, to further extend the existing agreement as well as to potentially expand the marketing relationship to include additional territories. In light of this and the upcoming FIFA World Cup in Russia starting in mid-June 2018, the Group continues to provide marketing activities to the sportsbook operator.

Varkasso Limited

On 17 January 2018 the Company announced that it had entered into an agreement to acquire 51% of the issued capital in Varkasso Limited ("Varkasso"), a company that has the exclusive rights to use 8Crypt, a software platform providing crypto wallet solutions based on blockchain technology.

8Crypt has been developed by the founder and shareholder of Varkasso, with the aim of providing end-users with a broad range of services in relation to their crypto assets from one location, from which they are able to manage, trade (buy, sell, exchange) and accept both traditional and crypto currencies. 8Crypt enables users to connect their crypto wallet directly to both traditional and crypto currencies, seamlessly providing and accepting payments from debit and credit cards and bank transfers for traditional currencies and well-known blockchain platforms such as Bitcoin, Ethereum and LiteCoin for crypto currencies.

Veltyco plans to incorporate 8Crypt's crypto wallet across each of the platforms of Veltyco's various partners, including Veltyco's own site Bet90.com, thereby allowing customers access to each platform from one wallet without having to make separate deposits on each of the individual platforms. Furthermore, once incorporated into its partners' platforms, the Board believes that is will enhance the Company's ability to cross-sell the different platforms to its customer base.

Veltyco agreed to acquire a 51% interest in Varkasso for a total consideration of EUR300,000 satisfied through the issue of 100,000 new Ordinary Shares and a cash consideration of EUR200,000.

The Board are currently awaiting the information required to assess the fair value of assets acquired and resultant goodwill for this acquisition. As such, disclosures required under IFRS 3 in respect of these items cannot be given at this stage and will be reported in the year ending 31 December 2018 accounts.

Exercise of stock options

On 16 February 2018, a total of 325,000 options were exercised. These options had an exercise price of GBP0.25 per share. After this exercise, a total of 74,768,659 Ordinary Shares are in issue.

eSports.com

On 15 March 2018, the Company announced that it had extended its partnership with eSports.com and entered into and a joint venture with eSports.com to join forces in a blockchain project.

The purpose of the project is to create an infrastructure to bring members and/or customers of communities (sports, gaming, playing) to a fully transparent technological platform. The platform will seek to transfer data such as know your client regulated information, but also historical data, in a decentralised manner and could, in the future, be combined with automated payments.

It is proposed that eSports.com AG, the parent company of eSports.com, and Veltyco will each have a 50% interest in the joint venture and will provide equal funding to the project.

Frankfurt secondary listing

On 11 January 2018, the Group announced that MWB Fairtrade Wertpapierhandelsbank AG, a German securities broker, had successfully applied for a secondary listing of Veltyco's Ordinary Shares to start trading on the Quotation Board Segment of the Open Market of the Frankfurt Stock Exchange ("FSE"), also known as the Regulated Unofficial Market of the FSE, or Freiverkehr. Accordingly, the Ordinary Shares of Veltyco are now also tradable on the FSE under the symbol 24GN. The entire issued ordinary share capital of the Company continues to trade on the AIM market of the London Stock Exchange under the symbol VLTY.

Acquisition of Marsovia Holdings Ltd (database)

On 25 May 2018, the Company announced it that it has entered into an agreement with Altair to acquire the entire issued share capital of Marsovia. This acquisition is the first step in the Group seeking to launch a new regulated brand, active in the online financial trading sector. Marsovia holds a database of approximately 43,500 customers, of which approximately 26,000 are considered to be active, in the online financial trading sector.

The total consideration for this transaction amounted to EUR4.0 million and was offset against the existing indebtedness of, in aggregate, approximately EUR2.6 million pursuant to certain loans provided by the Group to Altair and certain trade receivables of approximately EUR1.4 million resulting from the existing marketing agreements with Altair, resulting in this acquisition being cash neutral for Veltyco.

At the same time, the Directors confirmed that the existing marketing agreements for various brands in the online financial trading sector will continue for at least a further three years.

The Board are currently awaiting the information required to assess the fair value of assets acquired and resultant goodwill for this acquisition. As such, disclosures required under IFRS 3 in respect of these items cannot be given at this stage and will be reported in the year ending 31 December 2018 accounts.

Offset agreement

On 3 May 2018, the Group entered into the set-off agreement with Winslet, a company controlled by Uwe Lenhoff, pursuant to which the balance of the Winslet Loan, amounting to EUR2.5 million, was settled in full against a corresponding amount of trade receivables from operators for whom Veltyco undertakes marketing activities in the online financial trading sector. As a result, the trade receivables reduced by an equivalent amount, resulting in the set-off agreement being cash neutral to the Group.

   4.       Availability of Accounts and Annual General Meeting 

A copy of the audited annual report will shortly be available on the Company's website at www.veltyco.com.

A copy of the audited annual report and the notice for the Annual General Meeting for the year ended 31 December 2017 will be posted to shareholders in due course.

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 [e-mail] or visit www.rns.com.

END

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(END) Dow Jones Newswires

June 07, 2018 02:00 ET (06:00 GMT)