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Annual Report & Accounts 2016 - Chief Financial Officer's review
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27 Bridge between actual and pro forma results 2016 2015 Actual €m bwin.party preacquisition €m Pro forma €m Actual €m bwin.party preacquisition €m Pro forma €m NGR 843.4 51.2 894.6 247.7 574.4 822.2 EU VAT (20.1) (1.3) (21.4) (1.2) (13.0) (14.2) Revenue 823.3 49.9 873.2 246.5 561.5 807.9 Cost of sales (385.8) (23.3) (409.1) (111.1) (254.0) (365.1) Contribution 437.5 26.6 464.0 135.4 307.5 442.8 Contribution margin 52% 52% 52% 55% 54% 54% Expenditure (244.0) (14.4) (258.4) (81.3) (198.3) (279.6) Clean EBITDA 193.5 12.2 205.7 54.1 109.2 163.2 NGR NGR grew 240% to €843.4m for the year to December 2016, while on a pro forma basis it grew by 9% to €894.6m. Growth was derived from a number of factors including, more focused management, stronger sports margins and more effective product cross-sell. The Group operates in a large number of markets and currency fluctuations have an impact on reported numbers. On a constant currency basis, pro forma NGR grew by 12% in the period. Revenues Revenues grew by 234% to €823.3m over the 12 months, whilst on a pro forma basis they increased by 8%. VAT has been imposed since January 2015 in a number of countries, the most significant of which is Germany. VAT at the rate of 21% has now also been introduced in Belgium, a market in which GVC operates through a locally licensed partner. The financial impact is not considered to be material to the Group. Variable costs and contribution The key components of variable costs remain: betting taxes and duties, payment processing costs, software royalties, affiliate commissions, partner shares and marketing costs. Contribution in the period was €437.5m in actual terms, up from €135.4m the previous year. On a pro forma basis, Contribution increased 5% to €464.0m from €442.8m for 2015. The decline in the Contribution margin on a pro forma basis to 52% from 54% principally reflected an increase in betting taxes and duties as a percentage of revenues. Expenditure The prime components of expenditure are personnel (representing around 56% of the cost base and technology (representing approximately 29% of the cost base). Other significant costs include real estate (with over 15 offices), travel and professional fees. Year ended 31 December Pro forma basis Actual 2016 €m 2015 €m 2016 €m 2015 €m Personnel expenditure 145.2 173.1 136.6 48.5 Professional fees 19.8 20.8 18.4 4.7 Technology costs 73.4 62.8 70.0 23.7 Office, travel and other costs 24.5 25.0 22.4 3.5 Foreign exchange differences (4.6) (2.1) (3.4) 0.9 258.4 279.6 244.0 81.3 Costs increased to €244.0m in the period from €81.3m in 2015, reflecting the Acquisition of bwin.party. On a pro forma basis there was an 8% reduction in expenditure to €258.4m from €279.6m. The reduction in pro forma costs reflects the synergy benefits highlighted at the time of the bwin.party acquisition and thus far this has predominantly come from personnel. Technology costs on a pro forma basis have increased to €73.4m from €62.8m following the purchase of the CasinoClub software platform and due to increases in data and streaming costs in the year. Cost savings are expected to be realised here in 2017 as the platform migrations continue and the size of the enlarged group means it is in a better position to negotiate improved contractual terms with suppliers. Clean EBITDA While Clean EBITDA is a non-GAAP measure, it is used by the Group's management to measure the performance of the business. Actual Clean EBITDA increased to €193.5m from €54.1m in the previous year, boosted by the 11 month contribution from the Acquisition. On a pro forma basis, Clean EBITDA rose 26% to €205.7m. Depreciation and Amortisation Depreciation and amortisation for the year was €136.5m compared to €5.0m in 2015. Amortisation associated with intangible assets recognised on Acquisition was €109.5m. These assets are being amortised over periods ranging from three to 12 years. The amortisation of capitalised development expenditure amounted to €7.0m. 2016 €m 2015 €m Depreciation 20.0 0.8 Amortisation - intangible assets recognised on Acquisition 109.5 - - internally generated intangibles 7.0 4.2 136.5 5.0