Annual Report & Accounts 2016 - Principal risks/Viability statement
Whilst the continuing uncertainty in the global
economic outlook inevitably increases the trading and
balance sheet risks to which the Group is exposed, the
diversified nature of the Group's business means that
such risks are not disproportionately different from
any other commercial enterprise of a similar scale and
international reach. Conditions in the Eurozone remain
challenging and reference has already been made
in previous statements to the challenging economic
backdrop in several European countries, reducing the
spending power of customers particularly in Southern
European countries, which the Group has attempted
to reflect in its financial forecasts. The weaker
European economies are also increasing the risk of
currency volatility and the potential for significant
currency devaluation and business disruption if one
or more of these countries exit the euro currency.
Accordingly, the Group's treasury processes and
policies are designed with the aim of minimising the
Group's exposure to the Eurozone economic risk and
preserving our ability to operate if such events arise.
The functional currency of the Company and a
majority of the Company's subsidiaries is the euro.
Consequently, those GVC companies that have
adopted the euro as their functional currency ensure
their financial assets and liabilities in non-euro
currencies are equal and that any residual balance
is held in euros. With the so-called "GIPSI" countries
(Greece, Ireland, Portugal, Spain and Italy), if one
or more of these countries exits the euro then the
Group may be exposed to a currency devaluation
of its financial assets to the extent that the financial
assets located in the exiting jurisdiction exceed its
The Internal Audit function facilitated a review of the
enlarged Group's Treasury and Cash Management
process in June 2016. The Group adopted a Treasury
policy, which dictates that all material transaction and
currency liability exposures are hedged with financial
derivatives or cash.
The Treasury policy also requires that wherever
practical and subject to regulatory requirements, the
financial assets located in each GIPSI country are
limited so they do not exceed the financial liabilities
associated with that jurisdiction.
IMPACT OF BREXIT
On 23 June 2016, a referendum was held to
determine whether the United Kingdom remains in
the European Union (EU). In light of the decision to
leave the EU, in addition to the increase in the volatility
of both the global currency and financial markets,
it may reduce the Group's ability to operate on an
unfettered basis in certain EU markets that have tried
to restrict competition in their domestic market from
online gaming companies based overseas. The Group,
along with other EU based online gaming operators,
have previously relied on the ability to challenge such
protectionist measures through the EU Court of Justice
("CJEU"). In the event that the UK, and by extension
Gibraltar (being a UK protectorate), was to leave the
EU, unless the Group was to re-domicile certain of its
subsidiaries within the EU, it would no longer be able to
rely on such protection. Such a re-domiciliation could
give rise to higher taxes payable.
A Brexit task force has been formed, led by the
Group Head of Legal, Compliance and Secretariat
alongside members of senior executive management.
The purpose of the task force is to closely monitor
the situation, propose various contingency plans
and, subject to Board approval where appropriate,
execute them as the UK navigates through the EU
exit process, with minimal business interruption and
In accordance with the obligations of the UK
Corporate Governance Code, the Board of GVC
is required to provide its assessment within the
Annual Report and Accounts of the viability of
the Group over an appropriate period of time.
Accordingly, the Directors have assessed the
viability of the Group over a three year period to
December 2019, taking account of the Group's
current position and the potential impact of the
principal risks as outlined on pages 32 to 33
of this Annual Report.
A three-year period was deemed appropriate for
this assessment as it best reflects the strategic
planning and budgeting process required for the
implementation of Group's strategy. The Board
has completed a thorough review of threats with
the potential to compromise the Group's business
model, future performance, solvency, liquidity and
its resilience to those risks.
Key factors the Board considered within this
• Progress of the integration the bwin.party
business acquired in February 2016 including
the migration of customers on to a single
• The delivery of the €125m by 2017 annualised
synergies resulting from the acquisition by the
end of 2017.
• The secured nature of the Group's long-term
debt facility comprising a €250m term loan and
a €70m revolving credit facility.
• The diverse nature of the Group's revenue base
across both geographical markets and online
gaming product segments.
• The Group's ability to adapt to regulatory change
in regard to online gaming and increase in
taxation that may result from such change.
Having completed this review, the Board has
full confidence that the Company will be able
to continue operating and be will be able to
meet its liabilities over the three year period to