FINANCIAL INFORMATION OF THE SKRILL GROUP FOR THE FINANCIAL YEAR
ENDED 31 DECEMBER 2014
Consolidated income statement
(all amounts in US$ thousands unless otherwise stated)
Note 6 months to 30 June 2015 6 months to 30 June 2014 12 months to 31 December 2014 Revenue 5 172,979 128,066 297,099 Cost of sales 6 (70,172) (51,627) (118,333) Gross profit 102,807 76,439 178,766
Sales and marketing expenses (24,946) (19,181) (41,365) Administrative expenses (71,263) (53,659) (130,724)
Operating profit 6,598 3,599 6,677
Finance income 11 25 5 40
Finance costs 12 (34,450) (42,221) (83,967) Loss before income tax (27,827) (38,617) (77,250)
Income tax expense 13 1,994 (2,251) 5,706
Loss for the period * (25,833) (40,868) (71,544)
Consolidated statement of comprehensive income (all amounts in US$ thousands unless otherwise stated)
Note 6 months to 30 June 2015 6 months to 30 June 2014 12months to 31 Dec 2014 Loss for the period (25,833) (40,868) (71,544) Other comprehensive income:
Items that will not be reclassified to profit or loss
Remeasurements of post-employment benefit
obligations 26 (21)
Items that may be subsequently reclassified to profit or loss
Change in value of available-for-sale financial
assets 18,26 (130) (8) (488)
Exchange differences on translation of foreign
operations 26 1,122 (12) 589
Cash flow hedge 710 (5,164) (4,557)
Other comprehensive expense for the period 1,702 (5,184) (4,477) Total comprehensive expense for the period * (24,131) (46,052) (76,021)
Consolidated balance sheet
(all amounts in US$ thousands unless otherwise stated)
Note As at 30 June 2015 As at 30 June 2014 As at 31 Dec 2014 Assets Non-current assets Goodwill 14 416,695 617,520 389,922
Other intangible assets 15 370,824 111,039 383,775 Property, plant and equipment 16 9,095 8,103 8,926
Investments 18 343 974 473
Deferred income tax asset 23 7,588 2,805 5,346 804,545 740,441 788,442 Current assets
Inventories 19 1,075 728 1,114
Trade and other receivables 20 105,816 137,136 135,409 Cash and cash equivalents 27 662,262 656,045 701,853 769,153 793,909 838,376 Total assets 1,573,698 1,534,350 1,626,818 Equity and liabilities
Non-current liabilities
Borrowings 22 712,684 806,246 747,686
Provisions 171 224 —
Derivative financial instruments 21 1,814 3,051 3,107 Deferred income tax liabilities 23 75,920 22,585 80,151 790,589 832,106 830,944 Current liabilities
Trade and other payables 24 702,112 714,570 755,801 Current income tax liabilities 8,954 11,569 6,285
Provisions 3,308 — —
Borrowings 22 230 278 252
Derivative financial instruments 21 2,070 2,080 2,116 716,674 728,497 764,454 Total liabilities 1,507,263 1,560,603 1,595,398 Equity attributable to owners of the parent
Share capital 25 24,961 24,961 24,961 Share premium — — — Share reserve (307) — — Merger reserve — — — Translation reserve 26 1,727 (10) 606 Other reserves 26 (653) (11) (524) Hedge reserve (3,984) (5,135) (4,694) Retained earnings (97,377) (40,868) (71,544) Retained earnings – FX difference 142,068 (5,190) 82,615
Total equity 66,435 (26,253) 31,420
Consolidated statement of changes in equity
(all amounts in US$ thousands unless otherwise stated) Share capital Share premium Share reserve Merger reserve Other reserves (note 26) Hedge reserve Retained earnings FX Total Balance as at 12 February 2014 — — — — — — — — —
Loss for the period — — — — — — (40,868) — (40,868)
Other comprehensive income
for the period — — — — (20) (5,164) — — (5,184)
Total comprehensive income — — — — (20) (5,164) (40,868) — (46,052)
Issue of shares 24,961 — — — — — — — 24,961
Total contributions by owners of the parent, recognised
directly in equity 24,961 — — — — — — — 24,961
Retained earnings – FX
difference (1) 29 — (5,190) (5,162)
Balance as at 30 June 2014 24,961 (21) (5,135) (40,868) (5,190) (26,253)
Balance as at 13 August 2013 — — — — — — — — —
Loss for the period — — — — — — (71,544) — (71,544)
Other comprehensive income
for the period — — — — 80 (4,557) — — (4,477)
Total comprehensive income 80 (4,557) (71,544) (76,021)
Issue of shares 24,961 — — — — — — — 24,961
Total contributions by owners of the parent, recognised
directly in equity 24,961 — — — — — — — 24,961
Foreign Exchange gains — — — — 2 (137) — 82,615 82,480
Balance as at 31 December
2014 * 24,961 — — — 82 (4,694) (71,544) 82,615 31,420
Balance as at 1 January 2015 24,961 — — — 82 (4,694) (71,544) 82,615 31,420
Profit for the period — — — — — — (25,833) — (25,833)
Other comprehensive income
for the period — — — — 992 710 — — 1,702
Total comprehensive income 992 710 (25,833) (24,131)
Other movement — — (305) — (305)
Total contributions by owners of the parent, recognised
directly in equity — — (305) (305)
Foreign Exchange gains — — (2) — — — — 59,453 59,451
Balance as at 30 June 2015 24,961 — (307) — 1,074 (3,984) (97,377) 142,068 66,435
Consolidated statement of cash flows
(all amounts in US$ thousands unless otherwise stated)
Note 6 months to 30 June 2015 6 months to 30 June 2014 12months to 31 Dec 2014 Net cash generated from operating activities * 27 12,946 24,073 146,977 Acquisition of subsidiary, net of cash ** 10,553 (539,607) 108,786 Purchases of property, plant and equipment (1,217) (1,413) (3,301) Purchase of intangible assets (9,089) (5,860) (14,995)
Finance lease payments (115) (115) (247)
Net cash generated from investing activities 132 (546,995) 90,243 Proceeds from borrowings 30,162 377,726 596,743 Transaction costs on bank loan — — (28,222) Repayments of borrowings (21,568) (150,276) (145,054) Payment of finance derivatives (1,248) — (2,799)
Proceeds from issue of shares — — 18,926
Proceeds from investors 334,307 100,549
Net cash generated from financing activities 7,346 561,757 540,143 Net increase in cash and cash equivalents 20,424 38,835 777,363 Cash and cash equivalents at the beginning of
the period 701,853 647,031 —
Net foreign exchange difference (60,015) (29,821) (75,510) Cash and cash equivalents at the end of the
period 27 662,262 656,045 701,853
* Net cash generated from operating activities includes an amount of $514,000 (for the period ended 20 June 2014: $46,773,000) which relates to increase in the e-money float balance.
** The amount of $108,786,000 includes $77,577,000 which relates to payment of the deferred and contingent consideration regarding the acquisition of paysafecard.
Reconciliation of total cash and cash equivalents to own cash is provided below: As at 30 June 2015 As at 30 June 2014 As at 31 Dec 2014 Cash and cash equivalents at the end of the period 662,262 656,045 701,853 Less: e-money float (note 24) (520,976) (533,960) (560,949) Less: amounts owed to merchants / web shops (69,614) (62,415) (71,465) Own cash at the end of the period 71,672 59,670 69,439
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
Sentinel Topco Limited (‘‘the Company’’) is a company incorporated and domiciled in Jersey. The address of the registered office is 22-24 Seale Street, St. Helier, Jersey, JE2 3QG.
The nature of the operations of Sentinel Topco Limited and its subsidiaries (together ‘‘the Group’’) are electronic money transfer services and online prepaid solutions. In addition the Group develops software for use in its principal activities.
2. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
Basis of preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS – EU) and IFRIC Interpretations. The consolidated financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial instruments that have been measured at fair value through profit or loss. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. All operations are continuing operations.
The preparation of financial information in conformity with IFRS – EU requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial information are disclosed in Note 4.
Going concern
The directors have adopted the going concern basis of accounting in preparing the consolidated financial information which is based on the assumption that the Group will continue to exist in the foreseeable future. For the period ended 30 June 2015 the Group realised a loss after tax amounting to $ 25,833,000 (period ended 30 June 2014: $40,868,000, period ended 31 December 2014: $71,544,000). These negative figures are mainly due to:
* interest on loans from related parties, which are not subject to elimination at that level of consolidation – $ 23,487,000 (period ended 30 June 2014: $24,367,000, period ended 31 December 2014: 54,630,000) (note 12);
* amortisation on the intangibles (most of which are the newly identified intangibles from the acquisition of Skrill Group) amounting to $21,576,000 (period ended 31 December 2014: $41,604,000 (note 15). This is not applicable for the period ended 30 June 2014 as the acquisition accounting is not finalised and not accounted for yet at that date, thus no effect on the amortisation;
* non-recurring costs – amounting to $10,366,000 (period ended 30 June 2014: $18,275,000, period ended 31 December 2014: $27,670,000) (note 7).
Excluding all these exceptional events the Group reported adjusted EBITDA amounting to $40,140,000 (period ended 30 June 2014: $30,888,000, period ended 31 December 2014: $78,939,000) (note 7).
Subsequent to the year end, on 10 August 2015, the transaction by Paysafe to acquire Sentinel Topco Limited completed. As a result subsequent to this date the Group is a subsidiary of Paysafe Group plc. This transaction resulted in the repayment of the debt structure relating to the Group. The consideration by Paysafe was funded by a combination of debt and equity proceeds. The Paysafe Group plc Board have prepared detailed forecast financial information in respect of the combined group, reflecting its trading profile and financing payment obligations (both interest and capital), and associated covenant requirements. This forecast financial information has also been subject to reasonably foreseeable sensitivity scenarios. Under both the normal and stressed trading conditions considered the Group is forecast to continue to have sufficient resources available to service its debt obligations and continue trading. As such the directors of Paysafe Group plc have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.
Business combinations
Under the requirements of IFRS 3 (Revised), Business combinations, all business combinations that are not business combinations involving entities under common control, are accounted for using the purchase method. The cost of a business combination is the aggregate of the fair values at the date of exchange, of assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control of the acquire.
Subsidiaries
Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control.
De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies, etc. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. On acquisition of a subsidiary, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair value at that date. Any excess of the cost of acquisition over the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the consolidated income statement in the financial year of acquisition. Acquisition-related costs are recognised in the income statement as incurred. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss.
The results of subsidiaries acquired during the period are included in the consolidated income statement from the effective date of acquisition. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Goodwill
Goodwill represents the excess of the cost of an acquisition over the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least annually, or more frequently when there is an indication of impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed.
For the purpose of impairment testing, Goodwill is allocated to the Group’s cash-generating units which are expected to benefit from the synergies of the combination. If the recoverable amount of the cash-generating units is less than the carrying amount, the impairment loss is allocated first to reduce the carrying amount of goodwill and then to the other assets pro-rata on the basis of the carrying amount of each asset in the cash generating units.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The functional currency of the Group is EUR. The consolidated financial information have been represented in US Dollars (USD) for the purpose of accompanying the prospectus. (b) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
All foreign exchange gains and losses are presented in the income statement within ‘administrative expenses’.
(c) Group companies
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(ii) Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(iii) All resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other comprehensive income.
(d) Representation in USD
The following exchange rates have been used for the USD representation as per point (a) above:
Exchange rates (source: Oanda.com) 6 months to 30 June 2015 6 months to 30 June 2014 12 months to 31 Dec 2014 Average EUR:USD 1.1171 1.3735* 1.3258** Closing EUR:USD 1.1094 1.3645 1.2155
Opening EUR:USD (12 February 2014) — — 1.3658
* 12 February 2014 – 30 June 2014 – trading period, since acquisition; ** 12 February 2014 – 31 Dec 2014 – trading period, since acquisition;
For the purpose of the translation the balance sheet line items have been classified as monetary and non-monetary, as follows:
Type Description
Monetary Trade and other receivables, Investments, Cash and cash equivalents, Borrowings, Provisions, Derivative financial instruments, Trade and other payables, Current income tax liabilities.
Non-monetary Goodwill, Other intangible assets, Property, plant and equipment, Investments, Deferred income tax asset, Inventories, Deferred income tax liabilities, Share capital, Share reserve, Translation reserve, Other reserves, Hedge reserve.
Monetary items – used the relevant closing exchange rate for each year. Non-monetary items:
(a) as at 31 December 2014 the balance sheet positions relating to non-monetary items are translated at the opening rate, assumed to be the EUR:USD exchange rate at 12 February 2014 for the purposes of this analysis). Simplifying assumption that since the largest changes in non-monetary items occurred on the acquisition date (acquisition of fixed assets, issue of shares etc.), this is the most appropriate rate to use;
(b) as at 30 June 2015 the balances relating to non-monetary items are not retranslated but remain at the historical rate (assumed to be the EUR:USD exchange rate at 12 February 2014 for the purposes of this analysis). Any change in a non-monetary item between 31 December 2014 and 30 June 2015 is translated at the average EUR:USD exchange rate for the period;
(c) as at 30 June 2014 the balances relating to non-monetary items are not retranslated but remain at the historical rate (for the year ended 31 December 2011, assumed to be the EUR:USD exchange rate at 1 January 2011 for the purposes of this analysis). Any change in a non-monetary item is translated at the average EUR:USD exchange rate for the period; Each income statement line item has been translated using the average EUR:USD exchange rate for the respective period.
Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items and the costs attributable to bringing the asset to its working condition for its intended use.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Depreciation is calculated using the straight-line method over their estimated useful lives, as follows:
Computer equipment 2 – 5 years
Fixtures, fittings and equipment 3 – 7 years
Other intangible assets
(a) Trade name
Acquired trade name assets are capitalised on the basis of the costs incurred to acquire them. They are amortised over their estimated useful life of four to five years;
(b) Client relationships – merchants and end users
Contractual customer relationships acquired in a business combination, including relationships with merchants and those with end users, are recognised at fair value at the acquisition date. The contractual customer relations have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship, which is six to fourteen years;
(c) Software and website development
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
An internally-generated intangible asset arising from the development of the Group’s IT platform is recognised only if all of the following conditions are met:
* an asset is created that can be identified;
* it is probable that the asset created will generate future economic benefits; and
* the development cost of the asset can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
Development costs directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met:
* it is technically feasible to complete the software product so that it will be available for use;
* management intends to complete the software product and use or sell it;
* there is an ability to use or sell the software product;
* it can be demonstrated how the software product will generate probable future economic
* adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and
* the expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs capitalised as part of the software product include the software development employee costs.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Computer software development costs recognised as assets are amortised over their estimated useful lives, which do not exceed five years. Expenditure on research activities is recognised as an expense in the period in which it is incurred.
Impairment of non-financial assets