THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE
ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own
financial advice immediately from an independent financial adviser, who is authorised under the Financial Services
and Markets Act 2000 (‘‘FSMA’’) if you are in the United Kingdom, or from another appropriately authorised
independent financial adviser if you are in a territory outside the United Kingdom.
This document, which comprises (i) a circular prepared for the purposes of convening the General Meeting pursuant to the
notice of General Meeting set out at the end of this document; (ii) an admission document for the purposes of AIM Rule 14;
and (iii) a prospectus relating to the Ordinary Shares prepared in accordance with the Prospectus Rules of the Financial
Conduct Authority (the ‘‘FCA’’) made under section 73A of FSMA, has been approved by the FCA in accordance with
section 87A of FSMA and made available to the public in accordance with Rule 3.2 of the Prospectus Rules. You should
read the whole of this document. In particular, your attention is drawn to the factors described in the ‘‘Risk Factors’’ on
pages 15 to 42 of this document and the letter from your Chairman which is set out in Part I (Letter from the Chairman of
Optimal Payments plc) of this document and which contains a recommendation from your Board that you vote in favour of
the Resolutions to be proposed at the General Meeting.
This document constitutes a prospectus for the purposes of the Companies Act 1931 (the ‘‘Act’’) of the Isle of Man. A copy
of this document has been delivered to the Registrar of Companies in the Isle of Man as required by section 38 of the Act
with attached consents to the issue of this document as referred to in paragraph 18 of Part XVI (Additional Information) of
this document.
If you sell or have sold or otherwise transferred all of your Existing Ordinary Shares prior to 8.00 a.m. on 17 April 2015 (the
‘‘ex-rights date’’) please send this document, the Form of Proxy and, for Qualifying Non-CREST Shareholders, the
Provisional Allotment Letter (duly renounced) to the purchaser or transferee or to the bank, stockbroker or other agent
through whom the sale or transfer was effected for onward delivery to the purchaser or the transferee. This document and/
or the Provisional Allotment Letter should not, however, be distributed, forwarded to or transmitted in or into any jurisdiction
where to do so might constitute a violation of local securities laws or regulations, including, but not limited to (subject to
certain exceptions), the United States and any of the other Excluded Territories. If you sell or have sold or otherwise
transferred all of your Ordinary Shares held (other than ex-rights) in certificated form before 8.00 a.m. on 17 April 2015,
please forward this document and any Provisional Allotment Letter, if and when received, at once to the purchaser or
transferee or the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the
purchaser or transferee, except that such documents should not be sent to any jurisdiction where to do so might constitute
a violation of local securities laws or regulations, including, but not limited to (subject to certain exceptions), the United
States and the Excluded Territories. If you sell or have sold or otherwise transferred only part of your Ordinary Shares
(other than ex-rights) held in certificated form before the ex-rights date, please see paragraph 4.8 of Part IV (Terms and
Conditions of the Rights Issue) of this document respectively and the Provisional Allotment Letter. If you sell or have sold or
otherwise transferred all or some of your Ordinary Shares (other than ex-rights) held in uncertificated form before the exrights date, a claim transaction will automatically be generated by Euroclear which, on settlement, will transfer the
appropriate number of Nil Paid Rights to the purchaser or transferee.
The Company and the Directors whose names appear on page 49, accept responsibility for the information contained in this
document. To the best of the knowledge and belief of the Company and the Directors (each of whom has taken all
reasonable care to ensure that such is the case), the information contained in this document is in accordance with the facts
and contains no omission likely to affect the import of such information.
The latest time and date for application and payment in full for the New Ordinary Shares under the Rights Issue is
11.00 a.m. on 1 May 2015. The procedures for application and payment are set out in Part IV (Terms and Conditions
of the Rights Issue) of this document and, for Qualifying Non-CREST Shareholders, the Provisional Allotment
Letter.
OPTIMAL PAYMENTS PLC
(incorporated and registered in the Isle of Man with registered number 109535C)
Proposed Acquisition of Sentinel Topco Limited
and
Proposed 5 for 3 Rights Issue of 271,921,802 New Ordinary Shares at 166 pence
per New Ordinary Share
and
Notice of General Meeting
Canaccord Genuity Limited
Nominated Adviser, Joint Bookrunner and Broker
Deutsche Bank AG, London Branch
Joint Bookrunner
BMO Capital Markets Limited
Co-Lead Manager
Lazard & Co., Limited
Financial Adviser
AIM is a market designed primarily for emerging or smaller companies to which a higher investment risk tends to
be attached than to larger or more established companies. AIM securities are not admitted to the official list of the
United Kingdom Listing Authority. A prospective investor should be aware of the risks of investing in such
companies and should make the decision to invest only after careful consideration and, if appropriate, consultation
with an independent financial adviser. Each AIM company is required pursuant to the AIM Rules for Companies to
have a nominated adviser. The nominated adviser is required to make a declaration to the London Stock Exchange
on admission in the form set out in Schedule Two to the AIM Rules for Nominated Advisers. The London Stock
Exchange has not itself examined or approved the contents of this document.
It is emphasised that no application is being made for admission of the Existing Ordinary Shares, the Skrill Consideration
Shares or the New Ordinary Shares to the Official List of the FCA.
The Existing Ordinary Shares are currently admitted to trading on AIM. Applications will be made to the London Stock
Exchange for the New Ordinary Shares (nil and fully paid) to be admitted to trading on AIM. It is expected that Rights Issue
Admission will become effective, and dealings in the New Ordinary Shares, nil paid, will commence, at 8.00 a.m. on 17 April
2015. The New Ordinary Shares will not be admitted to trading on any other investment exchange. The New Ordinary
Shares, fully paid, will, on their admission, rank pari passu in all respects with the Existing Ordinary Shares and will rank in
full for all dividends and other distributions thereafter declared, made or paid on the ordinary share capital of the Company.
As the Acquisition is classified as a reverse takeover under the AIM Rules for Companies, upon Completion the listing on
AIM of all of the Pre-Completion Existing Ordinary Shares will be cancelled, and application will be made for the immediate
readmission of those Pre-Completion Existing Ordinary Shares and the admission of the Skrill Consideration Shares to
trading on AIM. It is expected that Completion Admission will become effective and dealings in the Pre-Completion Existing
Ordinary Shares will commence at 8.00 a.m. on Completion.
Neither this document, the Provisional Allotment Letter nor any other offering or public material relating to the Rights Issue
and/or the Provisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares
should be forwarded to or transmitted in or into any jurisdiction where to do so may constitute a violation of local securities
laws or regulations, including, but not limited to, subject to certain exceptions, the Excluded Territories or their respective
territories or possessions. Please refer to paragraph 7 of Part IV (Terms and Conditions of the Rights Issue) of this
document if you propose to send this document and/or the Provisional Allotment Letter outside the United Kingdom or the
Isle of Man. Persons outside the United Kingdom into whose possession this document comes should inform themselves
about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the
securities laws of the relevant jurisdiction. In particular, subject to certain exceptions, this document, the Provisional
Allotment Letter and any other such documents should not be distributed, forwarded to or transmitted in or into any
Excluded Territory or any other jurisdiction where the extension or availability of the Rights Issue would breach any
applicable law.
Notice of the General Meeting of the Company to be held at 11.00 a.m. on 16 April 2015 at The Forum, 17-18 Mount
Havelock, Douglas, Isle of Man, IM1 2QG is set out at the end of this document. You will find enclosed with this document
a Form of Proxy for use at the meeting. Whether or not you intend to attend the General Meeting in person, you are asked
to complete, sign and return the enclosed Form of Proxy in accordance with the instructions printed on it so as to be
received by the Company’s Registrar, Capita Asset Services at PXS 1, 34 Beckenham Road, Beckenham, Kent, BR3 4ZF,
as soon as possible and in any event no later than 11.00 a.m. on 14 April 2015 (or, in the case of an adjournment, not later
than two Business Days before the time fixed for the holding of the adjourned meeting). You may also submit your proxy
electronically at www.optimalpaymentsplc-shares.com using your investor code on the Form of Proxy. If you hold your
Ordinary Shares in uncertificated form (i.e. in CREST), you may appoint a proxy by completing and transmitting a CREST
Proxy Instruction in accordance with the procedures set out in the CREST Manual so that it is received by the Company’s
Registrar (under CREST participant RA10) by no later than 11.00 a.m. on 14 April 2015 (or, in the case of an adjournment,
not later than two Business Days before the time fixed for the holding of the adjourned meeting). The completion and return
of a Form of Proxy, or the electronic appointment of a proxy or CREST Proxy Instruction, will not preclude you from
attending and voting at the General Meeting or any adjournment thereof, if you wish to do so.
Subject to the passing of the Resolutions at the General Meeting, it is expected that Qualifying Non-CREST Shareholders
(other than Excluded Shareholders) will be sent Provisional Allotment Letters on 16 April 2015 and that Qualifying CREST
Shareholders (other than Excluded Shareholders) will receive a credit to the appropriate stock accounts in CREST in respect
of the Nil Paid Rights to which they are entitled as soon as practicable after 8.00 a.m. on 17 April 2015. The Nil Paid Rights
so credited are expected to be enabled for settlement by Euroclear as soon as practicable after Rights Issue Admission.
Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsors regarding the
action to be taken in connection with this document and the Rights Issue.
The Rights Issue closes at 11.00 a.m. on 1 May 2015 and payment is required in full by this time. If you are a Qualifying
Non-CREST Shareholder (other than, subject to certain exceptions, Qualifying Non-CREST Shareholders with a registered
address in any of the Excluded Territories) and wish to apply or subscribe for New Ordinary Shares under the Rights Issue,
you should return the accompanying Provisional Allotment Letter with your remittance in accordance with the instructions set
out in paragraph 4 of Part IV (Terms and Conditions of the Rights Issue) of this document and in the Provisional Allotment
Letter. If you are a Qualifying CREST Shareholder (other than, subject to certain exceptions, Qualifying CREST
Shareholders with a registered address in any of the Excluded Territories) the relevant CREST instructions must have
settled as explained in this document by no later than 11.00 a.m. on 1 May 2015.
No person has been authorised to give any information or make any representations other than those contained in this
document and any such information or representations must not be relied upon as having been so authorised by the
Company, the Directors, Canaccord Genuity Limited (‘‘Canaccord’’), Deutsche Bank AG, London Branch (‘‘Deutsche
Bank’’), BMO Capital Markets Limited, Lazard & Co., Limited (‘‘Lazard’’) or any other person. Optimal Payments will comply
with its obligation to publish supplementary prospectuses containing further updated information required by law or by any
regulatory authority but assumes no further obligation to publish additional information.
Each of Canaccord, BMO Capital Markets Limited and Lazard, which are authorised and regulated by the FCA in the United
Kingdom, and Deutsche Bank AG, which is authorised under German Banking law (competent authority: BaFin-Federal
Financial Supervisory Authority) and subject to limited regulation by the FCA and PRA in the United Kingdom acting through
its London branch, are acting exclusively for the Company and no-one else in connection with the contents of this
document, the Rights Issue and Rights Issue Admission and will not regard any other person (whether or not a recipient of
this document) as a client in relation to the Rights Issue or Rights Issue Admission and will not be responsible to anyone
other than the Company for providing the protections afforded to respective clients of Canaccord, Deutsche Bank, BMO
Capital Markets Limited or Lazard, respectively, nor for giving advice in relation to the contents of this document, the Rights
Issue, or Rights Issue Admission or any arrangement referred to, or information contained in, this document. Lazard and
Canaccord are acting exclusively for the Company and no-one else in connection with the Acquisition and Completion
Admission and will not regard any other person (whether or not a recipient of this document) as a client in relation to the
Acquisition or Completion Admission and will not be responsible to anyone other than the Company for providing the
protections afforded to respective clients of Lazard or Canaccord, respectively, nor for giving advice in relation to the
Acquisition or Completion Admission.
ii
Apart from the responsibilities and liabilities, if any, which may be imposed on Canaccord, Deutsche Bank, BMO Capital
Markets Limited or Lazard, respectively, under FSMA or the regulatory regime established thereunder, neither Canaccord,
Deutsche Bank, BMO Capital Markets Limited nor Lazard accepts any responsibility whatsoever nor makes any
representation or warranty, express or implied, concerning the contents of this document including its accuracy,
completeness or verification or concerning any other statement made or purported to be made by Optimal Payments, or on
Optimal Payments’ behalf, or by Canaccord, or on Canaccord’s behalf or by Deutsche Bank, or on Deutsche Bank’s behalf,
or by BMO Capital Markets Limited, or on BMO Capital Markets Limited’s behalf or by Lazard, or on Lazard’s behalf in
connection with the Company, the Acquisition, the Rights Issue, Skrill Consideration Shares or Admission and nothing in this
document is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. Subject
to applicable law, each of Canaccord, Deutsche Bank, BMO Capital Markets Limited and Lazard disclaims, to the fullest
extent permitted by applicable law, all and any duty, liability or responsibility whatsoever (whether direct or indirect, whether
in contract, in tort, under statute or otherwise) which it might otherwise have in respect of this document and the matters
referred to herein.
The Underwriters may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to
the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares and/or related instruments for their own respective
accounts for the purpose of hedging their respective underwriting exposure or otherwise. Except as required by applicable
law or regulation, the Underwriters do not propose to make any public disclosure in relation to such transactions.
Subject to FSMA, the Prospectus Rules and the AIM Rules for Companies, neither the delivery of this document nor any
subscription or sale made hereunder shall, under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date of this document or that the information in this document is correct as at any
time after this date.
NOTICE TO OVERSEAS SHAREHOLDERS
EXCEPT AS OTHERWISE SET OUT HEREIN, THE RIGHTS ISSUE DESCRIBED IN THIS DOCUMENT IS NOT BEING
MADE TO SHAREHOLDERS OR INVESTORS IN ANY EXCLUDED TERRITORIES. NONE OF THE SECURITIES
REFERRED TO IN THIS DOCUMENT SHALL BE SOLD, ISSUED OR TRANSFERRED IN ANY JURISDICTION IN
CONTRAVENTION OF APPLICABLE LAW.
The distribution of this document and/or the Provisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully Paid
Rights and/or the New Ordinary Shares into jurisdictions other than the United Kingdom and the Isle of Man may be
restricted by law. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such
jurisdictions.
The New Ordinary Shares have not been, and will not be, registered under the applicable securities laws of Australia,
Canada, Japan, Switzerland or the Republic of South Africa. Accordingly, subject to certain exceptions, the New Ordinary
Shares may not be offered or sold in Australia, Canada, Japan, Switzerland or the Republic of South Africa or to, or for the
account or benefit of, any resident of Australia, Canada, Japan, Switzerland or the Republic of South Africa.
All Excluded Shareholders and any person (including, without limitation, a nominee or trustee) who has a contractual or legal
obligation to forward this document or any Provisional Allotment Letter, if received, or other document to a jurisdiction
outside the United Kingdom and the Isle of Man should read Part IV (Terms and Conditions of the Rights Issue) of this
document.
NOTICE TO US PERSONS
Subject to certain exceptions, this document, including the Provisional Allotment Letter, does not constitute an offer of the Nil
Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Provisional Allotment Letter to any person with a
registered address in, or who is resident in, the United States or any US Person. The Nil Paid Rights, the Fully Paid Rights
and New Ordinary Shares have not been and will not be registered under the United States Securities Act of 1933, as
amended (the ‘‘US Securities Act’’), the securities or ‘‘blue sky’’ laws of any state or other jurisdiction of the United States
of America (‘‘United States’’ or ‘‘US’’), or with any regulatory authority or under the applicable securities laws of any state or
other jurisdiction of the United States and may not be offered, sold, pledged, or otherwise transferred directly or indirectly to
(or for the account or benefit of) any US Person, or in or into the United States, except pursuant to an exemption from, or
in a transaction not subject to, the registration requirements of the US Securities Act and applicable state or local securities
law. The Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares and the Provisional Allotment Letters are being
offered and sold (a) in the United States to persons reasonably believed to be qualified institutional buyers (each, a ‘‘QIB’’)
as defined in, and in reliance upon, Rule 144A under the Securities Act (‘‘Rule 144A’’) and (b) outside the United States to
non-US persons in reliance upon Regulation S under the Securities Act (‘‘Regulation S’’). This document does not
constitute an offer of Nil Paid Rights, Fully Paid Rights or New Ordinary Shares or an offer to sell or a solicitation of an
offer to buy Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in any jurisdiction in which such offer or solicitation is
unlawful. There will be no public offer of the Nil Paid Rights, the Fully Paid Rights or New Ordinary Shares in the United
States.
Subject to certain exceptions, Provisional Allotment Letters are not being sent to, and Nil Paid Rights, Fully Paid Rights or
New Ordinary Shares are not being credited to a stock account in CREST of, any Shareholder with a registered address in
the United States. Subject to certain exceptions, any application for Nil Paid Rights, Fully Paid Rights or New Ordinary
Shares under the Rights Issue will be treated as invalid if it appears to have been executed or effected in, postmarked or
otherwise despatched in or from the United States, or if it provides an address in the United States for the registration or
issue of New Ordinary Shares in uncertificated form or for the delivery of New Ordinary Shares in certificated form, or if it
appears to have been sent by a person who cannot make the representations and warranties set out in the Provisional
Allotment Letter, QIB Representation Letter or in this document.
Subject to certain exceptions, neither this document nor any accompanying documents (including the Provisional Allotment
Letter) will be posted to any person with a registered address in the United States or in any of the Excluded Territories. In
the United States this document is only being provided on a confidential basis to a limited number of QIBs (whether or not
Shareholders) for informational use solely in connection with the consideration of the purchase of the Nil Paid Paid Rights,
the Fully Paid Rights and/or the New Ordinary Shares. This document and any accompanying documents may not be
copied or reproduced in whole or in part nor may it be distributed or transmitted or any of its contents disclosed to anyone
iii
other than the persons to whom it is originally submitted. All Overseas Shareholders and any person (including, without
limitation, a nominee, custodian or trustee) who has a contractual or legal obligation to forward this document or any
Provisional Allotment Letter, if and when received, or any other document to a jurisdiction outside the United Kingdom
should read paragraph 7 of Part IV (Terms and Conditions of the Rights Issue) of this document.
The Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares have not been approved or disapproved by the
SEC, any state securities commission in the United States or any other US regulatory authority, nor have any of the
foregoing authorities passed upon, or endorsed the merits of, the offering of the Nil Paid Rights, the Fully Paid Rights or the
New Ordinary Shares or the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence
in the United States.
The Company is not subject to the periodic reporting requirements of the Exchange Act. In order to permit compliance with
Rule 144A under the US Securities Act in connection with resales of the New Ordinary Shares, the Company agrees to
furnish upon the request of a Shareholder or a prospective purchaser from any Shareholder the information required to be
delivered under Rule 144A(d)(4) of the US Securities Act if at the time of such request it is not a reporting company under
section 13 or section 15(d) of the Exchange Act and is not exempt from reporting pursuant to Rule 12g3-2(b) thereunder.
In addition, until the date which is 40 days after Rights Issue Admission, an offer, sale or transfer of the New Ordinary
Shares, the Nil Paid Rights, the Fully Paid Rights or the Provisional Allotment Letter within the United States by a dealer
(whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED
UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE
NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF
NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT
NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS
OF, OR RECOMMENDED OR GIVEN APPROVAL TO ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL
TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS SECTION.
For a description of the restrictions on offers, sales and transfers of the Nil Paid Rights, the Fully Paid Rights and the New
Ordinary Shares and the distribution of this document and the Provisional Allotment Letter, see Part IV (Terms and
Conditions of the Rights Issue) of this document.
Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents or use of any
information for any purposes other than in considering an investment in Optimal Payments or the acquisition of New
Ordinary Shares is prohibited, except to the extent such information is otherwise publicly available. By accepting delivery of,
or accessing, this document, each offeree of the New Ordinary Shares agrees to the foregoing.
The contents of this document should not be construed as legal, business or tax advice. Each prospective investor should
consult his, her or its legal adviser, financial adviser or tax adviser for advice. Neither the Company, the Underwriters nor
any of their respective directors, employees or representatives is making any representation to any offeree or purchaser or
acquirer of the New Ordinary Shares regarding the legality of an investment in the New Ordinary Shares by such offeree or
purchaser or acquirer under the laws applicable to such offeree or purchaser or acquirer.
23 March 2015
iv
CONTENTS
SUMMARY
1
RISK FACTORS
15
PART A – RISKS RELATING TO THE OPTIMAL PAYMENTS GROUP AND
THE ENLARGED GROUP
15
PART B – RISKS RELATING TO THE ACQUISITION
35
PART C – RISKS RELATING TO THE RIGHTS ISSUE AND THE
ORDINARY SHARES
39
IMPORTANT INFORMATION
43
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
47
RIGHTS ISSUE AND ACQUISITION STATISTICS
48
DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS
49
WHERE TO FIND HELP
51
PART I
LETTER FROM THE CHAIRMAN OF OPTIMAL PAYMENTS PLC
52
PART II
DETAILS OF THE ACQUISITION
74
PART III
QUESTIONS AND ANSWERS ON THE RIGHTS ISSUE
78
PART IV
TERMS AND CONDITIONS OF THE RIGHTS ISSUE
87
PART V
INFORMATION ON THE OPTIMAL PAYMENTS GROUP
118
PART VI
ONLINE GAMBLING REGULATION
138
PART VII
INFORMATION ON THE SKRILL GROUP
151
PART VIII
OPERATING AND FINANCIAL REVIEW OF THE OPTIMAL PAYMENTS
GROUP
160
PART IX
FINANCIAL INFORMATION OF THE OPTIMAL PAYMENTS GROUP
177
PART X
OPERATING AND FINANCIAL REVIEW OF THE SKRILL OPERATING
GROUP
218
PART XI
FINANCIAL INFORMATION OF THE SKRILL OPERATING GROUP
218
PART XII
UNAUDITED PRO FORMA FINANCIAL INFORMATION
452
SECTION A: UNAUDITED PRO FORMA FINANCIAL INFORMATION
452
SECTION B: ACCOUNTANT’S REPORT ON THE UNAUDITED PRO
FORMA FINANCIAL INFORMATION
457
CAPITALISATION AND INDEBTEDNESS
459
SECTION A: OPTIMAL PAYMENTS
459
SECTION B: SKRILL
460
DIRECTORS, SENIOR MANAGEMENT, CORPORATE GOVERNANCE
AND EMPLOYEES
461
PART XV
TAXATION
470
PART XVI
ADDITIONAL INFORMATION
481
PART XVII
DEFINITIONS
518
PART XIII
PART XIV
NOTICE OF EXTRAORDINARY GENERAL MEETING
v
526
SUMMARY
Summaries are made up of disclosure requirements known as ‘‘Elements’’. These Elements are
numbered in Sections A-E (A.1-E.7).
This summary contains all the Elements required to be included in a summary for this type of security
and issuer. Because some Elements are not required to be addressed there may be gaps in the
numbering sequence of the Elements.
Even though an Element may be required to be inserted into the summary because of the type of
security and issuer, it is possible that no relevant information can be given regarding the Element. In this
case a short description of the Element is included in the summary with the mention of ‘‘not applicable’’.
Section A: Introductions and Warnings
A.1
Introduction and Warning
This summary should be read as an introduction to this document.
Any decision to invest in the securities should be based on consideration of this document as a whole
by the investor.
Where a claim relating to the information contained in this prospectus is brought before a court, the
plaintiff investor might, under the national legislation of a member state of the European Union, have
to bear the costs of translating this document before the legal proceedings are initiated.
Civil liability attaches only to those persons who have tabled the summary including any translation
thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the
other parts of this document or it does not provide, when read together with the other parts of this
document, key information in order to aid investors when considering whether to invest in such
securities.
A.2
Subsequent resale of securities or final placement of securities through financial
intermediaries
Not applicable. No consent has been given by the Company or any person responsible for drawing up
this document to use this document for any subsequent resale or final placement of securities by
financial intermediaries.
Section B: Issuer and any guarantor
B.1
Legal and commercial name
Optimal Payments plc
B.2
Domicile, legal form, legislation, country of incorporation
The Company is a public limited company, incorporated on 31 October 2003 in the Isle of Man under
the Isle of Man Companies Act 1931 to 1993 with its registered office situated in the Isle of Man.
B.3
Current operations and principal activities and markets
The Optimal Payments Group is a global provider of online and mobile payment processing services.
As at the Latest Practicable Date it provided its services to over 21,300 active merchants and over
900,000 active customers and in FY2014 processed more than $20 billion in transactions. The
Optimal Payments Group operates offices and data centres in Europe, Canada, the Isle of Man and
the United States.
B.4a Significant recent trends affecting the Optimal Payments Group and the Enlarged Group and
their industry
The Directors believe the Enlarged Group (the combination of the Skrill Group and the Optimal
Payments Group) will be a leading player in the provision of digital wallets to merchants and
customers. The Acquisition would combine the complex payment processing networks of the Optimal
Payments Group and the Skrill Group to provide improved penetration and reach into new and
existing markets, as well as accelerate the on-boarding of new merchants.
1
B.5
Description of the Optimal Payments Group and the Enlarged Group
The Company is the parent company of the Optimal Payments Group and will be the parent company
of the Enlarged Group. Following Completion, Skrill will become an indirect wholly owned subsidiary
of Optimal Payments.
The table below contains a list of the principal subsidiaries, joint ventures and associates of the
Company (each of which is considered by the Optimal Payments Group to be likely to have a
significant effect on the assessment of the assets, liabilities, financial position and/or profits and
losses of the Optimal Payments Group):
Proportion
of direct or
indirect
ownership
interest
Proportion
of direct or
indirect
voting
power held
and Wales
and Wales
and Wales
and Wales
Bulgaria
Canada
Canada
Canada
Canada
Canada
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Isle of Man
Isle of Man
Isle of Man
United States
United States
United States
United States
United States
United States
United States
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of
Incorporation
Name
The Optimal Payments Group
Optimal Payments Limited
Netbanx Limited
Netinvest Limited
Optimal Payments (UK) Limited
Optimal Payments (Bulgaria) EOOD
NT Services Limited
1155259 Alberta Limited
NetBX Services Inc
NetBX Technologies Inc
NBX Merchant Services Inc
Optimal Payments Merchant Services
Limited (formerly NETELLER Operations
Limited)
Net Group Holdings Limited
OP Finance Limited
NBX Merchant Services Corp
Optimal Payments Services Inc.
TK Global Partners, LP
OPL Payment Services LLC
Netbx Services LLC
NBX Holdings Corp
NBX Services Corp
England
England
England
England
In addition to the subsidiaries listed above, the table below contains a list of the principal subsidiaries,
joint ventures and associates of the Enlarged Group (each of which is considered by the Optimal
Payments Group to be likely to have a significant effect on the assessment of the assets, liabilities,
the financial position and/or the profits and losses of the Enlarged Group):
Proportion
Country of of ownership
Incorporation
interest
Name
Sentinel Topco Limited
Sentinel Holdco 2 Limited
Sentinel Midco Limited
Sentinel Bidco Limited
Skrill Group Limited
MB Acquisitions Limited
Skrill Holdings Limited
Skrill Limited
Payolution GmbH
Skrill International Payments Limited
Sabemul Beteiligungsverwaltungs GmbH
Skrill USA, Inc.
Jersey
England and Wales
England and Wales
England and Wales
Jersey
England and Wales
England and Wales
England and Wales
Austria
England and Wales
Austria
United States
2
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Proportion
of voting
power held
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Proportion
Country of of ownership
Incorporation
interest
Name
Skrill Services GmbH
Skrill Bulgaria EOOD
Paysafecard.com Wertkarten Vertriebs
GmbH
cpt Dienstleistungen GmbH
Paysafecard.com USA, Inc.
MAC Limited
Paysafecard.com Schweiz GmbH
paysafard.com ön ödeme servicleri limited
şirketi
paysafecard.com México S.A. de C.V.
paysafecard.com Argentina S.R.L.
paysafecard.com D.O.O.
Digital Payments Europe Limited
Digital Payments Solutions New Zealand Ltd
Digital Payments Solutions Australia Pty
Limited
Skrill Canada Inc.
Skrill Hong Kong Limited
Skrill Singapore Ptc. Limited
paysafecard.com Wertkarten GmbH
Prepaid Services Company Limited
B.6
Proportion
of voting
power held
Germany
Bulgaria
100%
100%
100%
100%
Austria
Germany
United States
Gibraltar
Switzerland
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Turkey
Mexico
Argentina
Croatia
England and Wales
New Zealand
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Australia
Canada
Hong Kong
Singapore
Austria
England and Wales
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Notifiable interests, different voting rights and controlling interests
As at the Latest Practicable Date, the interests of the Directors and their families (as defined in the
AIM Rules for Companies) as notified to the Company in accordance with the Articles are as follows,
and, following completion of the Rights Issue, will be as follows:
Director
Joel Leonoff
Brian McArthur-Muscroft
Dennis Jones
Andrew Dark
Ian Francis
Brahm Gelfand
Ian Jenks
Stephen Shaper
(1)
Number of
Ordinary
Shares as at Percentage of
Latest
existing
Practicable
ordinary
Date share capital
4,133,843(1)
—
—
—
—
4,500
—
19,000
2.53
—
—
—
—
0.002
—
0.01
Number of Percentage of
Ordinary
Enlarged
Shares Share Capital
following the following the
Rights Issue Rights Issue
6,497,830
—
—
—
—
12,000
—
50,667
1.49
—
—
—
—
0.00
—
0.01
This includes the 1,500,000 shares pledged by Mr Leonoff in favour of Equities First Holdings, LLC.
Each of Brahm Gelfand and Stephen Shaper intends to take up their Rights in full. Joel Leonoff
intends to sell 2,025,751 of his Nil Paid Rights during the nil paid dealing period to partially meet the
costs of taking up the balance of his entitlements to New Ordinary Shares (being 2,363,987 New
Ordinary Shares).
All Shareholders holding the Pre-Completion Existing Ordinary Shares will be diluted upon
Completion by approximately 7.9 per cent. following the issue of the Skrill Consideration Shares.
3
As at the Latest Practicable Date, in addition to those persons described above, the Company had
been notified of the following persons who are directly or indirectly interested in 3 per cent. or more of
the existing issued ordinary share capital of the Company:
Name
Old Mutual Global Investors
Franklin Templeton Institutional LLC
Wellington Management Company
Thornburg Investment Management
Fidelity Management & Research
Threadneedle Investments
Number of Existing
Ordinary Shares
Percentage of existing
ordinary share capital
20,748,631
11,486,772
9,685,573
8,233,781
8,165,501
5,935,910
12.72
7.04
5.94
5.05
5.0
3.64
The Shareholders set out above do not have different voting rights.
So far as is known to the Company, the following persons shall be directly or indirectly interested in
3 per cent. or more of the Company’s issued share capital or voting rights immediately following
completion of the Rights Issue (assuming full acceptance of the Rights Issue):
Old Mutual Global Investors
Franklin Templeton Institutional LLC
Wellington Management Company
Thornburg Investment Management
Fidelity Management & Research
Threadneedle Investments
Number of Ordinary
Shares
Percentage interest of
Enlarged Share
Capital following the
Rights Issue
55,329,683
30,631,392
25,828,195
21,956,749
21,774,669
15,829,093
12.72
7.04
5.94
5.05
5.0
3.64
All Shareholders holding the Pre-Completion Existing Ordinary Shares will be diluted upon
Completion by approximately 7.9 per cent. following the issue of the Skrill Consideration Shares.
As at the Latest Practicable Date (prior to the publication of this document), the Company was not
aware of any person or persons who, directly or indirectly, jointly or severally, exercise or could
exercise control over the Company.
4
B.7
Selected historical key financial information
The selected historical financial information relating to the Company set out below has been
extracted without material adjustment from the audited financial information:
Year ended 31 December
2014
2013
2012
(Audited)
(US$ million)
Revenue
NETBANX STP fees
NETELLER Stored Value fees
Investment income
274.7
89.6
0.7
193.0
59.8
0.5
138.9
38.8
1.4
365.0
253.4
179.1
162.2
13.6
112.0
9.5
81.0
8.4
175.8
121.5
89.4
189.1
131.9
89.6
Gross margin STP (%)
41%
42%
42%
Gross margin stored value (%)
85%
84%
78%
Gross margin total (%)
52%
52%
50%
54.8
20.5
11.1
5.1
15.2
3.9
0.7
—
21.0
11.6
—
3.0
—
41.1
18.4
9.0
4.3
8.0
2.7
0.7
—
13.5
—
0.8
(0.9)
0.5
36.1
13.0
7.6
2.9
3.8
2.2
0.4
—
11.8
—
0.7
(0.7)
6.4
Cost of sales
STP expenses
Stored Value expenses
Gross profit
Non fee expenses
Salaries and employee expenses
Technology and software
Premises and office costs
Professional fees
Marketing and promotions
Travel and entertainment
Bank charges
Impairment charge
Depreciation and amortisation
Acquisition costs
Restructuring costs
Foreign exchange gain
Other expenses
Net fair value gain on share consideration
payable
(18.8)
—
—
128.1
98.1
84.2
Results from operating activities
Finance costs
61.0
2.0
33.7
1.0
5.4
1.8
Profit before tax
59.0
32.7
3.6
1.3
1.2
2.5
57.7
31.5
1.2
0.9
(0.9)
(0.1)
58.6
30.6
1.1
Basic profit per share
$0.36
$0.22
$0.01
Fully diluted profit per share
$0.32
$0.20
$0.01
Income tax expense
Profit for the year after tax attributable to the owners of the
Optimal Payments Group
Other comprehensive income
Foreign currency translation differences for foreign operations,
net of income tax
Total comprehensive income for year attributable to the
owners of the Optimal Payments Group
5
There has been no significant change in the trading or financial position of the Optimal Payments
Group during the financial years ended 31 December 2012, 2013 and 2014, the end of the last
financial period of the Optimal Payments Group for which financial information was prepared.
The selected historical financial information relating to the Skrill Operating Group set out below has
been extracted without material adjustment from the audited financial information and the reviewed
information:
Nine month period
ended
30 September
2014
Year ended 31 December
2013
2013
(Unaudited)
2012
2011
(Audited)
(US$ million)
Revenue
Merchant revenue
Consumer revenue
Financial revenue
182.2
35.4
29.3
150.1
25.6
28.2
212.8
36.4
38.0
83.7
11.5
34.8
73.4
10.9
30.7
Cost of sales
248.9
(100.6)
203.8
(82.5)
286.4
(116.0)
129.9
(38.8)
114.9
(28.8)
Gross profit
148.3
121.3
170.4
91.1
86.1
Sales and marketing expenses
Administrative expenses
(35.6)
(76.2)
(22.5)
(62.9)
(38.5)
(87.9)
(14.4)
(47.4)
(11.3)
(44.2)
Operating profit
Finance income
Finance costs
36.6
0.1
(20.8)
35.9
—
(7.3)
44.0
0.1
(12.1)
29.3
0.4
(7.4)
30.6
0.4
(0.8)
Profit for the year before tax
15.9
28.6
32.1
22.3
30.1
Income tax expense
(1.6)
(5.7)
(6.0)
(6.8)
(9.1)
Profit for the year
14.3
22.9
26.1
15.5
21.0
Profit attributable to:
Owners of the parent
Non-controlling interests
14.3
—
22.9
—
26.1
—
15.4
0.1
20.9
0.1
0.1
(0.4)
(0.5)
—
—
0.3
0.8
(0.1)
0.7
(0.2)
0.8
(0.2)
(1.5)
0.1
—
15.5
23.1
26.2
13.8
21.1
—
—
—
(0.1)
(0.1)
Other comprehensive income
Change in value of available for
sale financial assets
Exchange differences on
translation of foreign operations
Cash flow hedge
Total comprehensive income for
year attributable to the owners of
the Skrill Operating Group
Attributable to non-controlling
interests
There has been no significant change in the trading or financial position of the Skrill Group during the
financial years ended 31 December 2011, 2012 and 2013, the nine month period ended
30 September 2014 or the period subsequent to 30 September 2014, the end of the last financial
period of the Skrill Group for which financial information was prepared.
6
B.8
Selected key pro forma financial information
The following unaudited pro forma statement of net assets and pro forma income statement (the ‘‘Pro
Forma Financial Information’’) has been prepared to show the effect on the consolidated net assets
of the Optimal Payments Group as if the Acquisition and the Rights Issue had occurred on 1 January
2014.
The Pro Forma Financial Information has been prepared for illustrative purposes only and in
accordance with Annex II of the Prospectus Directive Regulation, and should be read in conjunction
with the notes set out below. Due to its nature, the Pro Forma Financial Information addresses a
hypothetical situation and, therefore, does not represent the Optimal Payments Group’s actual
financial position and results.
Unaudited pro forma consolidated net assets
ASSETS
Current assets
Non-current
assets
Total assets
LIABILITIES
Current liabilities
Non-current
liabilities
Net assets
Transaction Adjustments
Debt, Skrill
Consideration
Shares and
equity raise
Acquisition
proceeds
US$’000
US$’000
Note 3
Note 3 (a)
Optimal
Payments
31 Dec 2014
US$’000
Note 1
Skrill
Operating
Group 30 Sept
2014
US$’000
Note 2
Sentinel
Topco debt
structure
adjustments
US$’000
Note 2(a)
177,274
793,118
(15,417)
294,838
330,368
404,439
592,125
472,112
1,123,486
389,022
592,125
1,519,000
2,304
—
—
(113,618)
(744,766)
34,776
(150,173)
(198,443)
(592,119)
768,147
208,321
180,277
(168,321)
1,362,576
Consideration
cash payment,
debt
repayment,
and expenses
US$’000
Note 3 (b)
1,519,000
(615,000)
904,000
Consolidation
adjustments
US$’000
(1,519,000)
(1,519,000)
—
Total
US$’000
Note 4
954,975
(11,956)
1,609,814
(11,956)
2,564,789
20,000
—
(801,304)
107,000
—
(680,588)
(1,392,000)
(11,956)
1,082,897
Unaudited pro forma consolidated income statement
Optimal
Payments
Skrill
31 Dec 2014 30 Sept 2014
US$’000
US$’000
Note 1
Note 2
Total
US$’000
Note 4
Revenue
364,954
331,223
696,177
Cost of Sales
175,831
134,125
309,956
Gross profit
Results from operating activities
Net finance costs
189,124
61,002
(2,024)
197,098
44,084
(25,382)
386,222
105,086
(27,406)
Profit for the year before tax
Income tax expense
58,979
(1,303)
18,702
(1,204)
77,681
(2,507)
Profit after tax for the year attributable to the
owners of the Group
58,558
17,498
75,174
Notes:
1.
The Optimal Payments Group’s consolidated net assets at 31 December 2014 and consolidated comprehensive income
for the year ended 31 December 2014 have been extracted without adjustment from the financial information presented in
Part IX (Financial Information of the Optimal Payments Group) of this document to 31 December 2014. No account has
been taken of the results of the Optimal Payments Group since this date. The results of Meritus and GMA have been
included from the date of acquisition, being 23 July 2014, and have not been adjusted for the purposes of the pro forma
financial information.
2.
The Skrill Operating Group’s consolidated net assets as at 30 September 2014 and consolidated comprehensive income
for the rolling 12 month period ended 30 September 2014 have been extracted without adjustment from the financial
information presented in Part XI (Financial Information of the Skrill Operating Group). No account has been taken of
7
results of the Skrill Operating Group since this date. The financial information has been calculated by adding the income
of the Skrill Operating Group for the nine month period ended 30 September 2014 to the income of the Skrill Operating
Group for the financial year to 31 December 2013 and subtracting the income of the Skrill Operating Group for the nine
month period ended 30 September 2013. No account has been taken of results of the Skrill Group since this date. The
results of paysafecard have been included from the date of the paysafecard acquisition, being 8 February 2013 and
therefore are wholly reflected within the trading period. The results of Ukash are not included within the pro forma results
of Skrill due to the timing of the acquisition being outside of the period reflected by the Skrill Operating Group’s financial
information.
2(a) As set out in paragraph 6 of Part VII (Operating and Financial Review of the Skrill Operating Group) of this document, as
part of the structuring of the acquisition of the Skrill Group by CVC Funds, a holding company structure was put in place.
This structuring holds the debt funding for the acquisition by CVC Funds. The Skrill Group’s debt, as at 31 December
2014, is a combination of external bank debt of $334 million (e275 million), shareholder loan notes amounting to
$275 million (e217 million) and preference shares amounting to $127 million (e100 million) and accrued interest
(shareholder loan notes, preference shares and accrued interest in aggregate totalling $435 million).
3.
Pursuant to the Acquisition, the Optimal Payments Group will acquire 100 per cent. of the issued share capital of Skrill
(comprising the ordinary shares and the preference shares and accrued return) and will procure that the shareholder loan
notes and accrued interest are redeemed at Completion. The total consideration in respect of these instruments payable
by the Optimal Payments Group is e855 million, payable at Completion.
Optimal Payments will also assume the Skrill Group’s net debt as part of the Acquisition. As such total debt instruments of
$769 million, being shareholder loan notes, preference shares and accrued interest totalling $435 million and external
bank debt of $334 million, will be repaid or acquired on Acquisition. The residual consideration will acquire the ordinary
shares of Skrill. The Skrill Group’s net debt (including external bank debt) will be refinanced as part of the Acquisition. The
Skrill Group’s net debt for refinancing at Completion is estimated to be in the region of $324 million (e266 million),
primarily comprising external bank debt of $334 million (e275 million), own cash of $68 million (e56 million) and Ukash
consideration due of £37 million ($57 million; e47 million). Optimal Payments expects that the Skrill Operating Group will
gain the benefit of the free net cash held by Ukash upon completion of the Ukash Acquisition and has therefore reduced
the Skrill Group’s net debt by the amount of such free net cash. As at 31 December 2014, Ukash had free net cash of
e11 million ($12 million). This amount was extracted without modification from consolidated management accounts of
Ukash as of and for the year ended 31 December 2014 which were not audited or reviewed by independent accountants.
The consideration for the Acquisition will be settled by way of e720 million ($875 million) cash and the issue of Ordinary
Shares worth e135 million ($164 million) (the Skrill Consideration Shares). The Optimal Payments Group will also
assume the Skrill Group’s net debt of e266 million ($324 million). Optimal Payments’ existing net debt (after taking into
account peak cash at processors) of e77 million ($83 million) will also be financed as part of the transaction. The
aggregate expenses payable by the Company associated with the proposed Rights Issue and Acquisition are estimated
to be approximately e62 million ($68 million). Of these fees the majority is estimated to be in relation to debt and equity
issuances and as such will be capitalised by the Company in accordance with International Financial Reporting
Standards, the remaining fees will be expensed in the income statement of the Optimal Payments Group for the year
ended 31 December 2015.
Euro to USD conversions above are as at 31 December 2014 at 1.2155 for balance sheet settlement components.
3(a) Debt, equity raise proceeds and Skrill Consideration Shares
EUR m
Equity issued to market
New debt raised
Skrill Consideration Shares
609
505
135
Total
1,250
3(b) Consideration cash payment, Skrill Consideration Shares, net debt financing and expenses
EUR m
Cash to Skrill shareholders
Skrill Consideration Shares
Existing Skrill Group’s net debt financed
Estimated Ukash cash on completion of the Ukash Acquisition
Existing Optimal Payments Group’s net debt refinanced (after accounting for peak cash at processors)
Expenses estimate
Total
4.
5.
B.9
720
135
266
(11)
77
62
1,250
The Enlarged Group’s aggregate unaudited pro forma consolidated net assets as at 31 December 2014 and consolidated
comprehensive income for the year ended 31 December 2014 following Completion and Completion Admission.
No effect of additional interest costs to be incurred on the proposed debt financing has been reflected in the pro-forma
consolidated comprehensive income.
Profit forecast or profit estimate
Not applicable; neither the Company nor Sentinel Topco Limited has made a profit forecast or
estimate.
8
B.10 Audit report on the historical financial information – qualifications
Not applicable; the audit reports on the historical financial information contained in this document are
not qualified.
B.11 Insufficient working capital
Not applicable; the Company is of the opinion that after taking into account its available bank facilities
under the Existing Credit Facilities, the working capital available to the Optimal Payments Group is
sufficient for its present requirements, that is, for at least 12 months following the date of publication
of this document.
The Company is of the opinion that, after Completion and after taking into account the available bank
facilities under the New Credit Facilities and the net proceeds of the Rights Issue, the working capital
available to the Enlarged Group is sufficient for its present requirements, that is, for at least 12
months following the date of publication of this document.
Section C: Securities
C.1
Type and class of securities being admitted to trading
Optimal Payments will issue 271,921,802 New Ordinary Shares of £0.0001 each in the capital of
Optimal Payments pursuant to the Rights Issue. The ISIN for the New Ordinary Shares is
GB0034264548. The ISIN for the Nil Paid Rights is IM00BWDP7590. The ISIN for the Fully Paid
Rights is IM00BWDP7483.
C.2
Currency of the securities issue
The Existing Ordinary Shares are priced in pence, and the New Ordinary Shares will be quoted and
traded in pence.
C.3
Number of issued and fully paid securities and par value
As at the Latest Practicable Date the Company had in issue 163,153,081 fully paid ordinary shares of
£0.0001 each and 1,000,000 fully paid deferred shares of one pence each.
C.4
Rights attached to the securities
The New Ordinary Shares will be issued and credited as fully paid and will rank pari passu in all
respects with the Ordinary Shares in issue at the time the New Ordinary Shares are delivered.
Subject to any special voting rights, restrictions or prohibitions on voting for the time being attached to
Ordinary Shares (for example, in the case of joint holders of a share, the only vote which will count is
of the person whose name is entered first in the register). Shareholders shall have the right to receive
notice of, and to attend and vote at, general meetings of the Company.
Subject to the provisions of the Act, the Company may from time to time declare dividends and make
other distributions on the Ordinary Shares.
C.5
Restrictions on transfer
Not applicable; there are no restrictions on the free transferability of the Ordinary Shares set out in
the constitutional documents of the Company.
C.6
Application for admission to trading on regulated market
Not applicable; the Existing Ordinary Shares are traded on AIM and AIM is not a regulated market.
C.7
Dividend policy
The Directors believe that Shareholders are best served by reinvesting cash to generate growth
opportunities rather than declaring a dividend. The Enlarged Group intends to continue to pursue
both organic and inorganic growth opportunities and therefore the Directors believe that it is
appropriate not to declare dividends at this time. This policy remains under regular review.
9
Section D: Risks
D.1
Key information on key risks relating to the company or its industry
Risks relating to the Optimal Payments Group and the Enlarged Group
*
The Optimal Payments Group, the Enlarged Group and their merchants and customers are
subject to various laws and regulations in relation to online gambling. Such laws and regulations
are constantly evolving and are often subject to conflicting interpretations and the legality of
online gambling and the provision of services to online gambling merchants and customers is
subject to uncertainties arising from differing approaches by legislatures, regulators and
enforcement agents. This uncertainty creates a risk for the Optimal Payments Group and the
Enlarged Group that courts may interpret legislation in an unfavourable way and determine the
Optimal Payments Group and the Enlarged Group’s activities to be illegal, which could lead to
actions (criminal or civil) being brought against the Optimal Payments Group and the Enlarged
Group or any of its Directors or the Optimal Payments Group or the Enlarged Group (or their
merchants and customers) being forced to cease doing business in a particular jurisdiction, all or
any of which may, individually or collectively, have a detrimental effect on the financial
performance and the reputation of the Optimal Payments Group or the Enlarged Group. The
Optimal Payments Group and the Enlarged Group do not operate an online gambling company;
however, it cannot be excluded that the Optimal Payments Group or the Enlarged Group could be
held legally responsible in some way for processing online gambling payments. The Optimal
Payments Group or Enlarged Group may also be joined to proceedings brought against a
merchant or third parties for tracing claims resulting in the seizure of funds. There is no current
and the Directors are not aware of any pending enforcement action against the Optimal
Payments Group or the Skrill Group’s activities which would be likely to determine that such
activities are illegal.
*
The Optimal Payments Group and the Enlarged Group relies on the continued supply of its
services to merchants within the online gambling industry. The Optimal Payments Group’s
NETELLERâ business (which is the part of the Optimal Payments Group’s business which
primarily provides services to the online gambling sector) represented approximately 25 per cent.
of the revenue of the Optimal Payments Group for the nine month period ended 30 September
2014 and approximately 25 per cent. of revenue of the Optimal Payments Group for FY2014. In
addition, the Optimal Payments Group’s largest merchant, from which the Optimal Payments
Group derived approximately 41 per cent. of its revenue during the nine month period ended
30 September 2014 and approximately 36.7 per cent. of revenue of the Optimal Payments Group
for FY2014, provides online gambling services. The Skrill Group derived approximately 53 per
cent. of its revenue from the online gambling sector for the nine month period ended
30 September 2014. Changes in the regulation of online gambling in the markets where the
Optimal Payments Group and the Enlarged Group derives more than three per cent. of its
revenue, such markets being considered to be material markets for the Optimal Payments Group
and the Enlarged Group, may have a negative impact on the Optimal Payments Group’s and the
Enlarged Group’s business and financial performance if such operators are subject to heavier
taxes, compliance costs, levies and licence fees or are forced to cease operating in a jurisdiction
as a result of prohibitive legislation which may result in reduced demand for the services of the
Optimal Payments Group and the Enlarged Group within the online gambling industry.
*
The Optimal Payments Group has an indirect material revenue dependency on the Chinese
online gambling market. For FY2014, the Optimal Payments Group derived approximately 33 per
cent. of its revenue from the activities of its largest merchant (which is licensed and located in
Europe) in China. In order to provide services to its largest merchant, the Optimal Payments
Group is reliant on the services provided by an outsourced service provider. If the service
provider ceases to provide services to the Optimal Payments Group for any reason, the Optimal
Payments Group and the Enlarged Group would be adversely affected as the Directors believe
that there are currently no other service providers which are capable of replicating the services
which the Optimal Payments Group receives, and in the absence of a replacement, the Optimal
Payments Group would not be able to provide services to its largest merchant for its activities in
China. The Optimal Payments Group is pursuing a strategy aimed to reduce its dependency on
its largest merchant. Following the completion of the US Acquisitions on 23 July 2014, the
revenue derived from the activities of the largest merchant reduced to approximately 27 per cent.
10
for the period of 1 August 2014 to 31 December 2014. For illustrative purposes only, on a
combined basis, assuming that the Acquisition had taken place on 1 January 2014 and based on
revenues generated by the Optimal Payments Group in the twelve months to 31 December 2014
(including revenues from GMA and Meritus from 1 January 2014) and by the Skrill Operating
Group in the rolling twelve months to 30 September 2014, the revenue of the Enlarged Group
derived primarily from activities in China of this merchant would have further reduced to
approximately 16 per cent.
*
The nature of the Optimal Payments Group’s and the Enlarged Group’s business requires it to
enter into numerous commercial and contractual relationships with banks, card schemes, issuers
and financial institutions. The Optimal Payments Group and the Enlarged Group depend on these
relationships to operate on a day-to-day basis. These relationships are subject to a number of
risks, including the risk that the Optimal Payments Group or the Enlarged Group may be deemed
to be non-compliant with certain laws or regulations (either in relation to the regulation of e-money
or the provision of services to online gambling operators) by a bank or financial institution or
banks, payment card schemes, issuers and financial institutions may see the Optimal Payments
Group or the Enlarged Group as being a competitor to their own business and may cease doing
business with the Optimal Payments Group or the Enlarged Group. If, for any reason, any banks,
payment card schemes, issuers or financial institutions ceased to supply the Optimal Payments
Group or the Enlarged Group with the services it requires to conduct its business, or the terms on
which such services are provided were to become less favourable or be cancelled, it could impact
the Optimal Payments Group’s or the Enlarged Group’s ability to provide its digital payment
services, or the basis on which it is able to provide such services.
*
The Optimal Payments Group’s NETELLERâ business is regarded as a money transmission
business in the US and money transmitting businesses are subject to numerous regulations in
the US at the federal and state levels. The Optimal Payments Group has obtained money
transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho. Following
Completion, the Optimal Payments Group intends to acquire Skrill USA Inc. in order to expand its
offering in the United States. If the Optimal Payments Group does not acquire Skrill USA Inc. it
intends to apply for money transmitter licences in the remaining states in which they are required.
Currently, the Optimal Payments Group’s NETELLERâ business in the US is sponsored by
Sutton Bank with Sutton Bank carrying out the regulated money transmitting service on behalf of
the Optimal Payments Group. The Directors are not aware of any circumstances that may result
in the Optimal Payments Group or the Enlarged Group being in breach of the terms of its money
transmitter licences which would be likely to lead to a withdrawal of such licences or a material
restriction on such licences. However, if the Optimal Payments Group or the Enlarged Group
were to violate laws or regulations governing money transmitters or electronic fund transfers,
including as a result of any failure by employees of the Optimal Payments Group and the
Enlarged Group to correctly apply KYC procedures, this could result in a requirement for future
compliance, fines, other forms of liability and/or force the Optimal Payments Group and the
Enlarged Group to change business practices or to cease operations in the US altogether.
Risks relating to the Acquisition completing
*
The Directors believe that the Acquisition will provide strategic and financial benefits for the
Enlarged Group. However, there is a risk that the anticipated benefits will fail to materialise, or
that they will be less significant than anticipated, and this may have a significant impact on the
profitability of the Enlarged Group in the future.
*
The Enlarged Group will be required to devote significant management attention and resources to
integrating the Skrill Group’s business practices and operations. There is a risk that the
challenges associated with managing the Enlarged Group will result in management distraction
or overstretch and that consequently the underlying businesses will not perform in line with
management or shareholder expectations.
*
To partially finance the Acquisition, the Optimal Payments Group is entering into the New Credit
Facilities, the effect of which is to increase the Enlarged Group’s aggregate net indebtedness to
$615,000,000. The Optimal Payments Group’s New Credit Facilities contain financial and other
restrictive covenants, which will impose operating and financial restrictions on the Enlarged
Group, including restrictions on its ability to, among other things, incur additional debt, make
certain investments or upstream funds to Optimal Payments. As a result, the Optimal Payments
Group and the Enlarged Group may be limited in the manner in which it conducts its business. A
11
failure to comply with these covenants could result in an event of default, which, if not cured or
waived, could have a material adverse effect on the business, financial condition and results of
operations of the Optimal Payments Group and the Enlarged Group.
Risks relating to the Acquisition not completing
D.3
*
Completion of the Acquisition is subject to a number of conditions. The key conditions are the
passing of the Resolutions, the Underwriting Agreement not being terminated prior to Rights
Issue Admission, the approval of the FCA and the completion of the transfer of Skrill USA Inc.
outside of the Skrill Group.
*
The Company has incurred significant costs in planning the Acquisition and the Rights Issue.
These mainly include legal and other professional costs. Whilst some of these are contingent on
the Acquisition proceeding, approximately £6,000,000 of estimated costs would be incurred if the
Acquisition or the Rights Issue are aborted following the publication of this document. To the
extent that the Acquisition or the Rights Issue do not proceed and these costs are incurred they
would need to be borne by the Company. If Completion does not occur for any reason other than
as a result of Sentinel Group Holdings S.A. not complying with its obligations under the
Acquisition Agreement, the Company will also be required to make a costs reimbursement
payment of up to e5,000,000 to Sentinel Group Holdings S.A.
Key information on key risks relating to the securities
*
The Ordinary Shares will be traded on AIM and will not be admitted to the Official List or admitted
to trading on the London Stock Exchange’s main market for listed securities. The rules of AIM are
less demanding than those of the Official List and an investment in Ordinary Shares traded on
AIM may carry a higher risk than an investment in shares admitted to the Official List. In addition,
the market in Ordinary Shares on AIM may have limited liquidity, making it more difficult for an
investor to realise its investment, and therefore the market price of the Ordinary Shares may be
more volatile than the market prices of shares quoted on the London Stock Exchange’s main
market for listed securities.
*
Publicly traded securities from time to time experience significant price and volume fluctuations
that may be unrelated to the operating performance of the companies that have issued them. In
addition, the market price of the Ordinary Shares may prove to be highly volatile. The market
price of the Ordinary Shares may fluctuate significantly in response to a number of factors, many
of which are beyond the Optimal Payments Group’s control, including: (i) changes in financial
estimates by securities analysts; (ii) changes in market valuation of similar companies; (iii)
announcements by the Optimal Payments Group of significant contracts, acquisitions, strategic
alliances, joint ventures or capital commitments; (iv) additions or departures of key personnel; (v)
any shortfall in revenues or net income or any increase in losses or decrease in profits from levels
expected by securities analysts; (vi) future issues or sales of Ordinary Shares; and (vii) stock
market price and volume fluctuations. Any of these events could result in a material decline in the
price of the Ordinary Shares.
*
There is no assurance that the public trading market price of the Ordinary Shares will not decline
below the Offer Price. Should that occur, relevant Shareholders who sell their New Ordinary
Shares will suffer an immediate loss as a result. Moreover, there can be no assurance that,
following Shareholders’ acquisition of New Ordinary Shares, Shareholders will be able to sell their
New Ordinary Shares at a price equal to or greater than the acquisition price for those New
Ordinary Shares.
Section E: Offer
E.1
Total net proceeds and estimated total expenses
The Company is proposing to raise net proceeds of approximately £433 million after the deduction of
estimated costs and expenses of approximately £18.4 million pursuant to the Rights Issue and £26.7
million pursuant to the Acquisition.
E.2a Reasons for the offer, use of, estimated net amount of the proceeds
The Company proposes to conduct the Rights Issue in order to finance in part the Acquisition. The
Directors believe that, taking into account the business and prospects of the Enlarged Group, the
12
Acquisition will enhance adjusted earnings per share by the end of FY2016 (the first full year of
ownership of the Skrill Group). This statement is not intended to be a profit forecast, and should not
be interpreted to mean that the earnings per share of Optimal Payments following Completion will
necessarily be above or below the historical published earnings per share.
The Company anticipates that the Rights Issue will raise total proceeds of approximately £433
million, net of estimated costs and expenses of the Rights Issue and the Acquisition.
If Completion does not occur, the Directors intend to consider how best to return the net proceeds of
the Rights Issue. Such a return could result in certain costs and complexities such that any return of
capital may be less than the amount subscribed for in the Rights Issue.
E.3
Terms and conditions of the offer
The Company proposes to raise gross proceeds of approximately £451 million through the Rights
Issue at a price of 166 pence per New Ordinary Share. The New Ordinary Shares are being offered
by way of rights to all Qualifying Shareholders (other than, subject to certain exceptions, Excluded
Shareholders) on the basis of 5 New Ordinary Shares for every 3 Existing Ordinary Shares held and
registered in their name at the close of the offer.
The Offer Price of 166 pence per New Ordinary Share represents a 34 per cent. discount to the
theoretical ex-rights price of an Existing Ordinary Share when calculated by reference to the volume
weighted average price of approximately 398 pence per Existing Ordinary Share during the five day
period between 16 March 2015 and 20 March 2015 (being the Latest Practicable Date before
announcement of the Rights Issue), a 60 per cent. discount to the Closing Price of an Existing
Ordinary Share of 419 pence on 20 March 2015 and a 36 per cent. discount to the theoretical exrights price based on that Closing Price.
The New Ordinary Shares will, when issued and fully paid, rank for all dividends declared, made or
paid after the date of allotment and issue of the New Ordinary Shares and otherwise pari passu with
the Existing Ordinary Shares.
Fractions of New Ordinary Shares will not be allotted to any Qualifying Shareholders, but will be
aggregated and sold in the market ultimately for the benefit of the Company. The issue or offer of Nil
Paid Rights, Fully Paid Rights and/or New Ordinary Shares to persons resident in, or who are citizens
of, or who have a registered address in countries other than the United Kingdom may be affected by
the laws of the relevant jurisdiction. Those persons should consult their professional advisers as to
whether they require any governmental or other consents or need to observe any other formalities to
enable them to take up their rights. Subject to certain exceptions, the Rights Issue is not being made
in the United States or the other Excluded Territories.
The Company has arranged for the Rights Issue to be underwritten in full to provide certainty as to
the amount of capital to be raised on, and subject to, the terms of the Underwriting Agreement. The
Underwriting Agreement is not subject to any right of termination after Rights Issue Admission
(including in respect of any statutory withdrawal rights).
The Rights Issue is conditional upon, among other things: (i) Rights Issue Admission becoming
effective by not later than 8.00 a.m. on 17 April 2015 (or such later time and/or date as the Company
and the Joint Bookrunners may agree, not being later than 8.00 a.m. on 21 April 2015); (ii) the
Underwriting Agreement becoming unconditional in all respects (save for the condition relating to
Rights Issue Admission) and not having been terminated in accordance with its terms prior to Rights
Issue Admission; and (iii) the passing of the Resolutions (without material amendment) at the
General Meeting and not (without the prior written consent of the Joint Bookrunners) at any
adjournment of such meeting.
E.4
Material interests
Not applicable; there are no interests that are material to, or are in conflict with, the Rights Issue.
E.5
Selling shareholders
No Shareholders are selling any Ordinary Shares pursuant to an offer to the public.
The Company, the Underwriters, Sentinel Group Holdings S.A. and any person to whom Skrill
Consideration Shares are issued will enter into an agreement on Completion (the ‘‘Lock-Up
Agreement’’) pursuant to which the holders of Skrill Consideration Shares will undertake to the
13
Company and the Underwriters that they will not, for a period of 180 days from the date of Completion
Admission without the consent of the Underwriters, directly or indirectly, offer, issue, lend, mortgage,
assign, charge, pledge, sell or contract to sell, issue options in respect of, or otherwise dispose of,
directly or indirectly, or announce an offering or issue of, any Ordinary Shares (or any interest therein
or in respect of such Ordinary Shares) or any other securities exchangeable for or convertible into, or
substantially similar to, Ordinary Shares or enter into any transaction with the same economic effect
as, or agree to do, any of the foregoing subject to certain limited exceptions set out in the Lock-Up
Agreement, including, inter alia, the right to transfer Ordinary Shares to any persons connected to
Sentinel Group Holdings S.A., the right to accept a general offer made in accordance with the
Takeover Code and the right to take up any rights granted in respect of a rights issue or other preemptive share offering by the Company. During the 180 day lock-up period Sentinel Group Holdings
S.A. (and any shareholder who subsequently holds shares in accordance with the Lock-Up
Agreement) can transfer the Ordinary Shares to connected persons (as defined in the Corporation
Tax Act 2010, including certain CVC Funds entities), provided the transferee enters into a deed of
adherence agreeing to be bound by the terms of the Lock-Up Agreement.
During the six month period following the end of the 180 day lock-up period Sentinel Group Holdings
S.A. is required to give notice prior to disposing of shares and must carry out any disposal through an
agreed list of brokers, so as to ensure an orderly market in the Ordinary Shares. In respect of a
proposed disposal to a strategic investor, Sentinel Group Holdings S.A. must give at least five
Business Days prior notice to the Underwriters and the Company and in respect of all other disposals,
Sentinel Group Holdings S.A. must give notice to at least one of the Underwriters and the Company
not later than 12.00 p.m. on the day prior to the disposal, in each case giving details of the identity of
the proposed purchaser. The notice requirements in respect of disposals (other than disposals to
strategic investors) will not apply in the event that the disposal is of less than 3 per cent. of the total
Ordinary Shares or Sentinel Group Holdings S.A. (and the CVC Funds entities it is permitted to
transfer shares to) hold in aggregate less than 3 per cent. of the total Ordinary Shares. The same
provisions apply, as relevant, to any person to whom Skrill Consideration Shares are issued.
E.6
Dilution
Upon completion of the Rights Issue, the New Ordinary Shares will represent approximately 166.7
per cent. of the existing issued ordinary share capital of the Company and will comprise
approximately 62.5 per cent. of the Enlarged Share Capital of the Company immediately following
completion of the Rights Issue.
If a Qualifying Shareholder does not, or is not permitted to, take up New Ordinary Shares under the
Rights Issue, such Qualifying Shareholder’s shareholding in the Company will be diluted by 62.5 per
cent. as a result of the Rights Issue.
All Shareholders holding the Pre-Completion Existing Ordinary Shares will be diluted upon
Completion by approximately 7.9 per cent. (assuming no further issue of Ordinary Shares) as a
result of the issue of the Skrill Consideration Shares.
For these purposes, any dilution which may result from the vesting or exercise of any awards under
the Optimal Payments Employee Share Plans between the Latest Practicable Date and Completion
has been disregarded.
E.7
Estimated expenses charged to investor
Not applicable. No expenses will be directly charged to the investor by the Company.
14
RISK FACTORS
An investment in the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares or
proceeding with the Acquisition involves certain risks. Shareholders and prospective
investors should carefully consider the risks set out below and all of the information set
out in this document prior to making any decision on the proposed Resolutions (in the
case of Shareholders entitled to vote at the General Meeting) or any investment decision
with respect to the New Ordinary Shares. The risks described below could have a material
adverse effect on the Optimal Payments Group’s and the Enlarged Group’s business,
financial condition, results of operations, future prospects and the price of the Ordinary
Shares and it is possible that Shareholders could lose all or part of their investment in the
Ordinary Shares. In addition, the risks below are not the only risks to which the Optimal
Payments Group and the Enlarged Group may be subject. The order in which risks are
presented is not necessarily an indication of the likelihood of the risks actually
materialising, of the potential significance of the risks or of the scope of any potential harm
to the Optimal Payments Group’s and the Enlarged Group’s business, results of operations
and financial condition. The Company may be unaware of certain risks or believe certain
risks to be immaterial which later prove to be material. Shareholders and prospective
investors should carefully consider whether an investment in the Nil Paid Rights, Fully Paid
Rights or New Ordinary Shares is suitable for them in the light of the information in this
document and their personal circumstances.
PART A – RISKS RELATING TO THE OPTIMAL PAYMENTS GROUP AND THE ENLARGED
GROUP
Online gambling legislation or regulation may be interpreted in such a way as to criminalise
certain activities of the Optimal Payments Group and the Enlarged Group
The Optimal Payments Group and the Enlarged Group generate a significant portion of their
revenue by processing online payments for merchants and customers engaged in the online
gambling sector. The Optimal Payments Group, the Enlarged Group and their merchants and
customers are subject to various laws and regulations in relation to online gambling as set out in
Part VI (Online Gambling Regulation) of this document. Such laws and regulations are constantly
evolving and are often subject to conflicting interpretations. Many jurisdictions have not updated
their laws to address the supply of online gambling, which by its nature is a multi-jurisdictional
activity. Other jurisdictions have updated legislation to pass laws to regulate online gambling but
only to permit licence holders to supply in that jurisdiction, some of which laws purport to have an
extra territorial effect and which specifically preclude payment support of any gambling transactions,
with powers to request the co-operation of banks and card issuers, or to criminalise the support
they provide. Moreover, the legality of online gambling and the provision of services to online
gambling merchants and customers is subject to uncertainties arising from differing approaches by
legislatures, regulators and enforcement agents including in relation to determining in which
jurisdiction the game or the bet takes place and therefore which law applies and where the
transaction should be taxed. This uncertainty creates a risk for the Optimal Payments Group and
the Enlarged Group that even in instances where older laws have not been updated to address
new technology, courts may interpret older legislation in an unfavourable way and determine the
Optimal Payments Group and the Enlarged Group’s activities to be illegal. This could lead to
actions (criminal or civil) being brought against customers, merchants, the Optimal Payments
Group and the Enlarged Group or any of its Directors or the Optimal Payments Group or the
Enlarged Group (or their merchants or customers) being forced to cease doing business in a
particular jurisdiction, all or any of which may, individually or collectively, have a detrimental effect
on the financial performance and the reputation of the Optimal Payments Group or the Enlarged
Group.
The Optimal Payments Group and the Enlarged Group do not operate an online gambling
company; however, it cannot be excluded that the Optimal Payments Group or the Enlarged Group
could be held legally responsible in some way for processing online gambling payments. If the
Optimal Payments Group or the Enlarged Group is found to be acting unlawfully in providing its
services to online gambling merchants or customers in any jurisdiction this could have a negative
effect on its reputation, operations and financial performance. There may also be additional civil,
criminal or regulatory proceedings brought against the Optimal Payments Group or the Enlarged
Group and/or the Directors, Senior Managers and employees as a result. The Optimal Payments
15
Group or the Enlarged Group may also be joined to proceedings brought against a merchant or
third parties for tracing claims resulting in the seizure of funds. Any such proceedings would
potentially have cost, resource and reputational implications, and could have a material adverse
effect on the results of operations, financial performance and future prospects of the Optimal
Payments Group and the Enlarged Group and on the ability of the Optimal Payments Group or the
Enlarged Group to retain, renew or expand its portfolio of licences. Moreover, even if successfully
defended, the process may result in the Optimal Payments Group or the Enlarged Group incurring
considerable costs and require significant management resource and time.
There is no current and the Directors are not aware of any pending, enforcement action against
the Optimal Payments Group or the Skrill Group’s activities which would be likely to determine that
such activities are illegal. However, the Optimal Payments Group and the Enlarged Group will
continue to monitor the regulatory landscape. Currently, the Optimal Payments Group and the Skrill
Group monitor legal and regulatory developments in all of their material and target markets closely
and generally seek to keep abreast of legal and regulatory developments affecting the gambling
industry as a whole. The Optimal Payments Group and the Skrill Group adapt their regulatory
policies and, therefore, the scope of their ongoing monitoring on the basis that an individual
market’s materiality to the Optimal Payments Group or the Skrill Group, respectively, may change.
The Skrill Group reviews its top 25 online gambling revenue producing countries and refreshes
local law advice and reviews the overall environment for online gambling activities in those
countries and then considers whether any changes are required to the extent of Skrill Group’s
business activities in those countries. The Optimal Payments Group has adopted a market
presence policy which assesses a number of factors, including the legislative regime applicable to
the relevant country, whether the Optimal Payments Group has a presence in such country and
the overall environment for online gambling activities in that country and, like the Skrill Group, then
considers whether any changes are required to the extent of the Optimal Payments Group’s
business activities in those countries. The policy extends to a consideration as to whether even a
temporary presence presents undue risk in certain jurisdictions.
However, the Optimal Payments Group and the Skrill Group do not necessarily monitor, on a
continuous basis, the laws and regulations in every jurisdiction where it facilitates payments for
merchants or customers.
The Optimal Payments Group and the Enlarged Group is reliant on the revenue derived from
processing online payments for merchants and customers engaged in the online gambling
industry
The Optimal Payments Group and the Enlarged Group relies on the continued supply of its
services to merchants within the online gambling industry. The Optimal Payments Group’s
NETELLERâ business (which is the part of the Optimal Payments Group’s business which
primarily provides services to the online gambling industry) represented approximately 25 per cent.
of the revenue of the Optimal Payments Group for the nine month period ended 30 September
2014 and approximately 25 per cent. of the revenue of the Optimal Payments Group for FY2014.
In addition, the Optimal Payments Group’s largest merchant, from which the Optimal Payments
Group derived approximately 41 per cent. of its revenue during the nine month period ended
30 September 2014 and approximately 36.7 per cent. of the revenue of the Optimal Payments
Group for FY2014, provides online gambling services. The Skrill Group derived approximately
53 per cent. of its revenue from the online gambling sector for the nine month period ended
30 September 2014. Changes in the regulation of online gambling in the markets where the
Optimal Payments Group and the Enlarged Group derives more than three per cent. of its revenue,
such markets being considered to be material markets for the Optimal Payments Group and the
Enlarged Group, may have a negative impact on the Optimal Payments Group’s and the Enlarged
Group’s business and financial performance if such operators are subject to heavier taxes,
compliance costs, levies and licence fees or are forced to cease operating in a jurisdiction as a
result of prohibitive legislation which may result in reduced demand for the services of the Optimal
Payments Group and the Enlarged Group within the online gambling industry.
The Optimal Payments Group and the Enlarged Group is reliant on the services of third parties
to enable the Optimal Payments Group and the Enlarged Group to provide services to its
customers in the online gambling industry
The Optimal Payments Group and the Enlarged Group rely on payment processing services from
various service providers in order to allow the Optimal Payments Group and the Enlarged Group to
16
process payments for merchants and end users engaged in the online gambling and other sectors
and to properly code such transactions. If a service provider chooses to terminate their relationship
with the Optimal Payments Group or the Enlarged Group (or elects to cease to provide certain
payment support) as part of a policy decision (or for any other reason) or otherwise to refuse to
process payments within the online gambling sector or any other sector in which the Optimal
Payments Group or the Enlarged Group provides its services and therefore ceases to transact with
the Optimal Payments Group or the Enlarged Group or if the Optimal Payments Group or the
Enlarged Group needs to replace third party payment processers due to their unreliability,
interrupted settlement periods or low acceptance levels, this could have a material adverse effect
on the ability of the Optimal Payments Group and the Enlarged Group to process payments for
merchants and end users until such arrangements are replaced. The Directors are not aware of
any current circumstances which would result in the Optimal Payments Group or the Enlarged
Group not being able to contract with an alternative payment processor if such termination
occurred. For example, TK Global Partners, LP, an Optimal Payments subsidiary, has received
notice that a third party card payment processor is intending to terminate its relationship with it on
30 April 2015. The monthly revenue derived from the contract with the third party card payment
processor averaged approximately US$3 million prior to receiving notice. TK Global Partners, LP is
in negotiations with card payment processors with a view to entering into a new agreement and
migrating the vast majority of its merchant accounts to the new payment processor prior to 30 April
2015. However, if other third party payment processors choose to terminate their contracts with the
Optimal Payments Group or the Enlarged Group and the Optimal Payments Group or the Enlarged
Group is unable to find an alternative service provider or is unable to enter into an agreement on
commercially reasonable terms, this could have a material adverse effect on the Optimal Payments
Group and the Enlarged Group and if the Optimal Payments Group and the Enlarged Group was
unable to find any alternative service provider willing to contract with the Optimal Payments Group
and the Enlarged Group, the Optimal Payments Group and the Enlarged Group would need to
withdraw from the relevant sector, which may have a material adverse effect on the financial
condition, results of operations and future prospects of the Optimal Payments Group and the
Enlarged Group.
The Optimal Payments Group and, following Completion, the Enlarged Group will have an
indirect material revenue dependency on the Chinese online gambling market in circumstances
that may give rise to criminal and/or civil liability
The Optimal Payments Group’s largest merchant (located and licensed in Europe) provides online
gambling services to customers based in a number of countries including China and the majority of
the fees which the Optimal Payments Group derives from this merchant relate to the merchant’s
provision of online gambling services in China. The Optimal Payments Group therefore has an
indirect material revenue dependency on the Chinese online gambling market. During FY2014, the
Optimal Payments Group derived approximately 33 per cent. of its revenue from the activities in
China of this merchant.
In order to provide services to this merchant, the Optimal Payments Group is reliant on the
services provided by a third party provider of outsourced services based in Hong Kong and Macau.
This service provider was set up by former employees of the Optimal Payments Group and started
providing services previously provided by the relevant Optimal Payments Group’s division in 2010.
The Optimal Payments Group does not therefore directly contract with customers, nor does it have
a presence in China, Hong Kong or Macau. If the outsourced service provider ceases to provide
services to the Optimal Payments Group (for any reason including the outsourced service provider
voluntarily ceasing its business or becoming subject to enforcement proceedings by the Chinese
authorities in China, Hong Kong or Macau), the Optimal Payments Group and, following
Completion, the Enlarged Group would be adversely affected as the Directors believe that there
are currently no other service providers which are capable of replicating the services which the
Optimal Payments Group receives, and in the absence of a replacement, it is unlikely that the
Optimal Payments Group would provide those services directly. The Directors are not aware of any
current or pending enforcement action being taken directly against the outsourced service provider
which Optimal Payments uses which would be likely to result in the outsourced service provider
ceasing to provide services to Optimal Payments or circumstances where its merchant may cease
to supply its services to its customers located in China. The outsourced service provider uses a
network of payment processors within China. To the extent that there is enforcement action within
China against any of the payment processors that the outsourced service provider uses (which has
17
occurred in the past), the outsourced service provider will attempt to substitute other payment
processors but, to the extent that the outsourced service provider is unable to replace a payment
processor, this may materially adversely affect the service which the outsourced service provider
provides to the Optimal Payments Group which will then, in turn, affect the service provided to the
relevant merchant. In addition, it cannot be ruled out that civil claims may be brought directly
against the Optimal Payments Group, the Enlarged Group or the outsourced service provider.
Furthermore, criminal claims may be brought against any or all of the Directors for soliciting
breaches of China’s Criminal Law and Law on Penalties (prior to the statute of limitations under
Article 87 of the Criminal Law expiring) or equally against the executives of the outsourced service
provider (or for running an enterprise in common with the Optimal Payments Group given the
outsourced service provider’s financial dependence on the business of the Optimal Payments
Group). Criminal claims may also be brought against the Directors under anti-money laundering
legislation in China, Hong Kong and Macau, as well as infringements of currency control
restrictions. Such events could also lead to large scale multi-jurisdictional tracing claims across
corporate accounts which would have a negative financial impact upon the Optimal Payments
Group and, following Completion, the Enlarged Group. The Optimal Payments Group is pursuing a
strategy aimed to reduce its dependency on this merchant. Following the completion of the US
Acquisitions on 23 July 2014, the revenue derived from the activities of this merchant (which
include revenues relating to the provision of online gambling services in a number of countries,
including but not limited to China) reduced to approximately 27 per cent. of the Optimal Payments
Group’s revenue for the period of 1 August to 31 December 2014. For illustrative purposes only,
on a combined basis assuming that the Acquisition had taken place on 1 January 2014 and based
on revenues generated by the Optimal Payments Group in the twelve months to 31 December
2014 (including revenues from GMA and Meritus from 1 January 2014) and by the Skrill Operating
Group in the rolling twelve months to 30 September 2014, the revenue derived primarily in China
from the activities of this merchant would have reduced further to approximately 16 per cent. of the
Enlarged Group’s revenue.
The Optimal Payments Group and the Enlarged Group is subject to financial services regulatory
risks
In the UK, e-money issuers, such as Optimal Payments Limited, Skrill Limited and Prepaid
Services Company Limited, are currently required to be authorised by the FCA under the Electronic
Money Regulations 2011 to perform the regulated activity of issuing e-money (which has the
meaning specified in the Second Electronic Money Directive). E-money means electronically
(including magnetically) stored monetary value as represented by a claim on the electronic money
issuer which (a) is issued on receipt of funds for the purpose of making payment transactions; (b)
is accepted by a person other than the electronic money issuer; and (c) is not excluded by
regulation. An e-money issuer is someone who issues and redeems electronic money and provides
payment services in accordance with the Second Electronic Money Directive. Optimal Payments
Limited, Skrill Limited and Prepaid Services Company Limited have the appropriate licences and
permissions to act as an e-money issuer in the UK. An entity that is authorised as an e-money
issuer in one Member State can obtain a passport under the Second Electronic Money Directive to
provide services in other EEA states by following a formal notification procedure. Each of Optimal
Payments Limited, Skrill Limited and Prepaid Services Company Limited has obtained a passport
to carry out activities relating to its permissions to act as an e-money issuer in the UK in various
EEA states, including Austria, France, Germany, Spain and Sweden. However, the Optimal
Payments Group and the Skrill Group both issue e-money in over 200 countries and territories and
no member of the Optimal Payments Group is licensed as an e-money issuer in any jurisdiction
other than the UK. paysafecard.com Schweiz GmbH is licenced in Switzerland, Skrill Canada Inc.
is registered as a money services business in Canada and Prepaid Services Company Limited
operates in Argentina and Mexico, on the basis that it does not require a licence to do so and in
Turkey on the basis of a limited exemption. In jurisdictions where the Optimal Payments Group or
the Enlarged Group issues e-money without a passport or without a licence, the Directors believe
that the likelihood of any enforcement action by a regulator is low due to factors such as the
operation of the services through the internet on a cross-border basis from a country in which the
relevant entity holds a licence, the limited extent of the Optimal Payments Group’s or the Enlarged
Group’s activities in the respective jurisdictions, the lack of enforcement action against similar
payment processors, the lack of a physical presence in the respective jurisdictions and the
effective management of the Optimal Payments Group’s and the Enlarged Group’s relationships
with its customers. The Directors are not aware of any historic, current or pending financial, civil or
18
criminal proceedings taken against the Optimal Payments Group or the Enlarged Group in
connection with a failure to hold a licence in the relevant jurisdiction (other than historic
proceedings brought by the USAO against the Company regarding its historic US business
activities, prosecution for which was deferred for two years under the terms of a deferred
prosecution agreement with all charges being subsequently withdrawn. Information on the deferred
prosecution agreement is set out in more detail in Part VI (Online Gambling Regulation) of this
document). However, due to ongoing developments in e-money regulation, the Optimal Payments
Group and the Enlarged Group obtain advice from local counsel as required in order to assess the
risk arising and, where necessary, will limit the extent of its operations in a particular jurisdiction or
will consider whether to obtain a licence.
However, if the Optimal Payments Group or the Enlarged Group were found to be in violation of
any current or future regulations, or to have previously been in breach of any regulation, in any
countries from which it accepts merchants or customers, or were to lose any authorisation from the
FCA, it may be required to seek additional licences and to comply with local regulations, which
could lead to increased compliance costs. In addition, the Optimal Payments Group, its Directors,
Senior Managers or employees or the Enlarged Group may also be exposed to a financial liability,
civil or criminal liability, forced to change business practices or forced to cease doing business with
merchants or customers in one or more of those countries or have funds held on behalf of a
particular merchant or customer seized, which may have a material adverse effect on the Optimal
Payments Group’s and the Enlarged Group’s results of operations, financial condition and future
prospects. In addition, if the Optimal Payments Group or the Enlarged Group decided to expand
internationally, as it is currently in the process of doing in the US, it may incur additional costs of
obtaining licences in those jurisdictions in which it chooses to have a presence. Such costs could
have a material adverse effect on the Optimal Payments Group’s or the Enlarged Group’s results
of operations and financial condition.
Proceeds of crime laws or related anti-money laundering legislation may have an adverse impact
on the business of the Optimal Payments Group and the Enlarged Group
The definition of what comprises a criminal act and the consequent crime of handling of criminal
property can vary from jurisdiction to jurisdiction. By processing online payments for merchants and
customers engaged in the online gambling sector, the Optimal Payments Group and the Enlarged
Group may be deemed to be handling proceeds of crime in the jurisdiction where its merchants
and customers are located. Likewise, the ability for customers to withdraw and deposit funds within
various accounts and the potential for customer fraud in connection with certain gambling activities
heightens the risks of money laundering and the unwitting receipt of criminal proceeds by the
Optimal Payments Group or the Enlarged Group.
There is therefore a risk that funds could be traced or seized in the course of a cross jurisdictional
investigation or enforcement action as well as charges being directed against the Directors of the
Optimal Payments Group and the Enlarged Group for continuing to process such payments where
there was knowledge or suspicion of criminal activity.
The Optimal Payments Group and the Enlarged Group are reliant on transaction processing
systems and services within and outside of the Optimal Payments Group and the Enlarged
Group
The Optimal Payments Group and the Enlarged Group’s business relies on the ongoing availability
and uninterrupted operation of transaction processing systems and services within and outside of
the Optimal Payments Group and the Enlarged Group, respectively. All operational systems are
vulnerable to damage or interruption from targeted denial of service attacks, viruses, natural or
man-made disasters and human or technological failures under a variety of scenarios. A system
outage or data loss could have a material adverse effect on the Optimal Payments Group and the
Enlarged Group’s business, financial condition and results of operations. Events that could cause
system interruptions include fire, earthquake, terrorist attacks, natural disasters, attacks from
malicious third parties, computer viruses, unauthorised entry, telecommunications failure and power
loss.
As the Optimal Payments Group’s and the Enlarged Group’s customers may use the Optimal
Payments Group’s or the Enlarged Group’s products, as applicable, for critical transactions, any
errors, defects or other infrastructure problems could result in damage to such customers’
businesses. These customers could seek significant compensation from the Optimal Payments
Group and the Enlarged Group for their losses and whilst insurance cover is in place any relevant
19
policy may be insufficient to cover a claim. Even if unsuccessful, this type of claim is likely to be
time consuming and costly for the Optimal Payments Group or the Enlarged Group to address.
In respect of its straight through processing business, the Optimal Payments Group is not presently
able to switch instantly to another back-up site in the event of failure of the main server site. This
means that an outage at one facility could result in the Optimal Payments Group’s systems being
unavailable for at least several hours. Merchants using the Optimal Payments Group’s straight
through processing service would also be adversely affected as such merchants will usually only
enter into one agreement with a payment gateway provider. Therefore a major failure of the
Optimal Payments Group’s systems will also result in the majority of the Optimal Payments
Group’s merchants being prevented from operating their payment gateways. This downtime could
result in increased costs and lost revenues which would be detrimental to the business and could
lead to merchant attrition, particularly in relation to the Optimal Payments Group’s straight through
processing business.
In the event of a major failure of the Optimal Payments Group’s stored value systems, in
accordance with its disaster recovery plan, the Optimal Payments Group’s stored value service
may be limited to confirming the balances of its customers and returning funds to such customers
using a manual process which the Directors expect could take up to one week to complete,
depending on the location of the customers. The Optimal Payments Group has purchased IT
infrastructure and is currently in the process of enhancing its stored value disaster recovery plan.
The Optimal Payments Group has entered into negotiations with a data centre service provider in
Ireland to deliver a Warm-Standby centre, being a back-up system which is data mirrored at
regular intervals, in respect of its stored value systems that are currently operating using the
Optimal Payments Group’s servers in the Isle of Man. The Directors expect the additional data
centre to be operational during the first half of 2015. The Optimal Payments Group is augmenting
its disaster recovery capabilities by establishing an active/active processing centre for Optimal
Payments’ straight through processing business which will have the ability to reroute internet traffic
with little or no disruption to the back-up facility in the event of the failure of the Optimal Payments
Group’s straight through processing systems. The Optimal Payments Group’s production servers
which underpin Optimal Payments’ merchant and customer services are currently located in the
Isle of Man, United States and Canada. The Optimal Payments Group also has IT infrastructure
supporting global corporate services in Canada and the United Kingdom. IT teams in Los Angeles,
Calgary, Montreal and Cambridge assist with the provision of servicing. Once the Optimal
Payments Group’s business continuity plan has been implemented, the Directors believe that the
varied location of its servers and the individuals that operate the transaction processing systems
and services means that the probability of a single event resulting in the complete outage of the
Optimal Payments Group’s straight through processing and stored value systems is extremely low.
The Skrill Group’s Hot-Standby data centre in Frankfurt is operational and the Skrill Group’s
primary data centre in Vienna is fully operational and serves as the secondary data centre for
paysafecard. The secondary data centre for paysafecard will be transferred to the Skrill Group’s
data centre in Frankfurt during 2015. Traffic between the data centres can be switched almost
immediately. The worst case scenario of a corruption of data bases affecting both data centres
would result in full functionality not being available for a period of approximately two to four hours.
Such procedures may not, however, be sufficient to ensure that the Optimal Payments Group or
the Enlarged Group is able to carry on its business in the ordinary course if they fail or are
disrupted, such that the Optimal Payments Group and the Enlarged Group may not be able to
anticipate, prevent or mitigate any material adverse effect of any failure on its operations or
financial performance.
The Optimal Payments Group is and the Enlarged Group will be reliant on a single major
merchant
During the nine month period ended 30 September 2014, the Optimal Payments Group derived
approximately 41 per cent. of its revenue from the activities of its largest merchant. Following the
completion of the US Acquisitions on 23 July 2014, this has reduced to approximately 27 per cent.
for the period of 1 August 2014 to 31 December 2014. The Skrill Group derived nine per cent. of
its revenue for the nine month period ended 30 September 2014 from the same merchant as the
Optimal Payments Group’s largest merchant. After Completion, the Directors expect that the
Enlarged Group will continue to derive a substantial, but decreased, proportion of its revenue from
the largest merchant of the Optimal Payments Group and the Skrill Group. For illustrative purposes
only, on a combined basis assuming that the Acquisition had taken place on 1 January 2014 and
20
based on revenues generated by the Optimal Payments Group in the twelve months to 31
December 2014 (including revenues from GMA and Meritus from 1 January 2014) and by the Skrill
Operating Group in the rolling twelve months to 30 September 2014, the revenue derived from all
of the activities of the largest merchant of the Optimal Payments Group and the Skrill Group would
have reduced to approximately 22 per cent. of the Enlarged Group’s revenue. Further, Optimal
Payments’ largest merchant can terminate its relationship with the Optimal Payments Group by
providing not less than seven days’ notice to the Optimal Payments Group. The loss of, or
decrease in revenues arising from this merchant due to the merchant terminating its arrangements
with the Optimal Payments Group, the Skrill Group or the Enlarged Group or any adverse impact
on the volume of the merchant’s underlying business or for any other reason could result in a
material loss of revenue and may affect the Optimal Payments Group’s and the Enlarged Group’s
business, financial condition, operating results and cash flow.
The IT environments of the Optimal Payments Group and the Enlarged Group and the Optimal
Payments Group’s and the Enlarged Group’s customers may be subject to hacking, data theft or
other cyber security threats, which may harm customer relationships and the market perception
of the effectiveness and resilience of the Optimal Payments Group’s and the Enlarged Group’s
products and services
The IT security systems, software and networks of the Optimal Payments Group and the Enlarged
Group or the customers and third parties with whom the Optimal Payments Group and the
Enlarged Group interacts may be vulnerable to unauthorised access (from within the Optimal
Payments Group and the Enlarged Group or by third parties), computer viruses or other malicious
code and cyber threats, which could result in the loss, theft or disclosure of confidential information
relating to customers and employees, loss of unique pin codes and/or the loss of funds stored in
e-Wallets and pre-paid cards. Certain of the Enlarged Group’s products are identified by unique pin
codes assigned to it at the point of sale when a customer uses the voucher on a merchant
website. These active voucher pins will be stored on the Enlarged Group’s servers. Due to the
anonymous nature of these pins, a theft and subsequent fraudulent utilisation of pins from a server
(either due to hacking or by internal fraud by an employee) could result in the original voucher
holder’s inability to use their vouchers. Whilst customer verification and fraud management
procedures are in place to mitigate this risk, the Enlarged Group would honour the payment by the
original voucher holder from its own funds and therefore incur a loss. Significant losses would have
a material adverse effect on the Enlarged Group’s results of operation and depending on the
nature of such fraudulent attacks, the Enlarged Group may be required to notify the relevant
regulator and, depending on the nature of the fraud, other authorities such as the police of such
fraudulent activities. Any adverse publicity as a result of such theft and fraudulent utilisation could
adversely affect the Enlarged Group’s reputation and therefore the demand for the Enlarged
Group’s products.
In addition, if third parties with whom the Optimal Payments Group and the Enlarged Group
interacts violate applicable laws or the Optimal Payments Group’s and the Enlarged Group’s data
protection policies, such violations could result in legal claims or proceedings, which may subject
the Optimal Payments Group and the Enlarged Group to liability.
Furthermore, the Optimal Payments Group’s or the Enlarged Group’s current systems may be
unable to support an increase in online traffic if it is subject to ‘‘spam’’ attacks. The Optimal
Payments Group has been the subject of multiple ‘‘EDoS’’ spam attacks which bombarded the
Optimal Payments Group’s systems with excessive amounts of data, resulting in increased network
traffic and a reduction in service. The Optimal Payments Group and the Skrill Group have also
been victims of periodic security breaches which resulted in accounts being compromised, however
neither the Optimal Payments Group nor the Skrill Group has suffered a loss of customer funds as
a result of a security breach and neither the Optimal Payments Group nor the Skrill Group have
been subject to any regulatory investigations as a result of such security breaches.
Regardless of whether an actual or perceived breach is attributable to the Optimal Payments
Group’s or the Enlarged Group’s products, such a breach may cause contractual disputes and
negatively affect the market perception of the effectiveness of the Optimal Payments Group’s and
the Enlarged Group’s products and reputation. Alleviating any of these problems could adversely
affect the business, financial condition, operating results and cash flow of the Optimal Payments
Group and the Enlarged Group by: (i) requiring significant expenditures of capital and diversion of
resources from development efforts; (ii) resulting in the Optimal Payments Group and the Enlarged
21
Group losing existing or potential customers; and/or (iii) resulting in the Optimal Payments Group
and the Enlarged Group being subject to legal action by customers or government authorities.
The Optimal Payments Group’s and the Enlarged Group’s business and products are dependent
on the availability, integrity and security of its IT systems
The Optimal Payments Group’s and the Enlarged Group’s IT systems and related software
applications are integral to its business and the Optimal Payments Group and the Enlarged Group
relies on controls and systems to ensure data integrity of critical business information and proper
operation of the Optimal Payments Group’s and the Enlarged Group’s systems and networks. Lack
of data integrity could create inaccuracies and hinder the Optimal Payments Group’s and the
Enlarged Group’s ability to perform meaningful business analysis and make informed business
decisions. Despite network security, disaster recovery and systems management measures in
place, the Optimal Payments Group and the Enlarged Group may encounter unexpected general
systems outages or failures that may affect its ability to conduct research and development,
provide maintenance and support of its products, manage the Optimal Payments Group’s and the
Enlarged Group’s contractual arrangements, accurately and efficiently maintain the Optimal
Payments Group’s and the Enlarged Group’s books and records, record its transactions, provide
critical information to its management and prepare its financial statements. Additionally, these
unexpected systems outages or failures as a result of events such as fire, earthquake, terrorist
attacks, natural disasters, attacks from malicious third parties, computer viruses, unauthorised
entry, telecommunications failure and the loss of power may require additional personnel and
financial resources, disrupt its business and its ability to generate revenue or cause delays in the
reporting of its financial results.
The Optimal Payments Group and the Enlarged Group may also be required to modify, enhance,
upgrade or implement new systems, procedures and controls to reflect changes in its business or
technological advancements and, as a result, its IT and information management systems may fail
to operate properly (for example, by capturing customer data erroneously) or become disabled as a
result of events that are beyond the Optimal Payments Group’s or the Enlarged Group’s control,
such as increased transaction volume. The Optimal Payments Group and the Enlarged Group
upgrades its IT and information management systems to adapt to its evolving business needs,
advances in technology and changing industry trends. These upgrades can create risks associated
with implementing new systems and integrating them with existing ones. The Optimal Payments
Group and the Enlarged Group may also be required to incur additional costs in relation to any
new systems, procedures and controls and additional management attention will be required in
order to ensure an efficient integration, placing burdens on the Optimal Payments Group’s and the
Enlarged Group’s internal resources.
Any failure of the Optimal Payments Group’s or the Enlarged Group’s IT and information
management systems could adversely affect the Optimal Payments Group’s and the Enlarged
Group’s ability to effect transactions and service customers and merchants, disrupt the Optimal
Payments Group’s and the Enlarged Group’s business or result in the misuse of customer data,
financial loss or liability to the Optimal Payments Group and the Enlarged Group or its customers,
the loss of a supplier or regulatory intervention or reputational damage. Any of the foregoing could
have a material adverse effect on the Optimal Payments Group’s and the Enlarged Group’s results
of operations and financial condition.
The Optimal Payments Group and the Enlarged Group are subject to data protection laws and
regulations
The Optimal Payments Group and the Enlarged Group process personal data, some of which may
be sensitive, as part of its business and is subject to various consumer and data protection laws in
the jurisdictions in which it operates. If the Optimal Payments Group or the Enlarged Group fail to
adhere to the terms of its privacy policy, customer expectations or the law, the Optimal Payments
Group and the Enlarged Group may be subject to investigative or enforcement action by the
Information Commissioner’s Office in the UK or similar regulatory authorities in the Optimal
Payments Group’s or the Enlarged Group’s other countries of operation, legal claims and
reputational damage. In addition, there can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or developments will not
result in a compromise or breach of Optimal Payments Group’s or the Enlarged Group’s privacy
policies or the processes used by the Optimal Payments Group or the Enlarged Group to protect
customer transaction data. If data were to be obtained by third parties without the consent of the
22
customer this would have a potentially significant risk for the Optimal Payments Group and the
Enlarged Group from both a regulatory and reputational perspective. The EU Data Protection
Regulation when implemented across the EEA (expected to be implemented in 2015) will
significantly enhance the relevant obligations in relation to data protection including significant
levels of fines
The Optimal Payments Group is and the Enlarged Group will be reliant on third party suppliers
to provide certain services
The Optimal Payments Group relies and the Enlarged Group will rely on certain outsourced service
providers in the provision of various services to some of their customers. Such service providers
supply services such as credit reference checks, anti-money laundering checks and, in the case of
the Skrill Group, card issuance by Wirecard Solutions Limited and Bancorp and, in the case of the
Optimal Payments Group, card issuance and money transmission services in the US by Sutton
Bank. This reliance exposes the Optimal Payments Group and the Enlarged Group, to the service
provider and if the service provider fails to adequately perform the outsourcing services in a timely
manner to the expected standard and in compliance with its contractual obligations with the
Optimal Payments Group or the Enlarged Group and in accordance with applicable laws and
regulations this could have a material adverse effect on the Optimal Payments Group’s and the
Enlarged Group’s business and financial performance.
If agreements with those outsourced service providers were terminated or if agreements were
concluded on unfavourable terms, the Optimal Payments Group and the Enlarged Group may not
immediately be able to offer all of the services that are currently being offered which would have a
material adverse effect on the Optimal Payments Group’s and the Enlarged Group’s business and
financial performance whilst the Optimal Payments Group and the Enlarged Group sought to make
alternative arrangements.
Some third party service providers are, or may become, owned by competitors of the Optimal
Payments Group or the Enlarged Group, as the case may be. If the Optimal Payments Group and
the Enlarged Group could not obtain services from these sources or elsewhere, the business of the
Optimal Payments Group and the Enlarged Group could suffer materially. Increased reliance on
third party service providers could therefore have a material adverse effect on the Optimal
Payments Group’s and the Enlarged Group’s business and financial performance. In addition, some
third party suppliers on which the Optimal Payments Group and the Enlarged Group may rely, may
be smaller or less well established due to the nature of the sectors and wide ranging geographies
the Optimal Payments Group and the Enlarged Group operate, and may therefore be more
susceptible to ceasing or limiting their business operations, which may have a material adverse
effect on the Optimal Payments Group’s and the Enlarged Group’s business and financial
performance until such time as the Optimal Payments Group and the Enlarged Group replaced
such supplier.
The Optimal Payments Group and the Enlarged Group is dependent on certain outsourcing
arrangements
The Optimal Payments Group outsources certain IT-related functions to third parties that are
responsible for maintaining their own network security, disaster recovery and systems management
procedures. The Optimal Payments Group also relies on intra-group outsourcing relationships
relating to the Optimal Payments Group’s approach to risk with its employees based in Calgary,
Canada and Sofia, Bulgaria. Similarly, the Skrill Group relies on intra-group outsourcing
relationships with its centre based in Sofia, Bulgaria.
If the Optimal Payments Group’s or the Enlarged Group’s third party IT vendors fail to manage
their IT systems and related software applications effectively or if the Optimal Payments Group or
the Enlarged Group does not establish robust review processes or internal audit processes, there
is a risk that disruption caused by an inadequate or a slow response to material risks facing the
Optimal Payments Group or the Enlarged Group may materially and adversely affect the Optimal
Payments Group’s and the Enlarged Group’s ability to sell products or services to customers and
merchants and therefore materially and adversely affect the Optimal Payments Group’s or the
Enlarged Group’s reputation, performance or financial condition.
23
The Skrill Group and, following Completion, the Enlarged Group is reliant on third party retail
outlets to distribute some of its products
paysafecard vouchers and Ukash codes are sold through distributors in non-Skrill Group owned
points of sale (such as convenience stores and petrol stations) by way of third party manufactured
and managed issuance terminals. Failures or unavailability of the terminals or an unexpected
closure of points of sale will result in loss of sales for the Skrill Group and following Completion
the Enlarged Group. Furthermore, although a customer will receive a valid paysafecard voucher or
a Ukash code at the point of purchase, the Skrill Group will, in some cases, only receive funds
associated to the vouchers sold from the distributors or at the points of sale at a later date, a nonpayment by the retail store does not invalidate the vouchers it sold, and therefore the Skrill Group
could be subject to financial losses if it is unable to recover outstanding amounts from the point of
sales due to a distributor’s default or for any other reason. The Skrill Group has introduced a pin
on demand system in respect of paysafecard vouchers to which the majority of the volume of its
transactions is routed in order to mitigate this risk. The Skrill Group will continue to migrate its
transaction volumes to this system throughout FY2015.
The success of the Optimal Payments Group and the Enlarged Group depends on its
relationships with banks, payment card schemes, issuers and financial institutions
The nature of the Optimal Payments Group’s and the Enlarged Group’s business requires it to
enter into numerous commercial and contractual relationships with banks, card schemes, issuers
and financial institutions. The Optimal Payments Group and the Enlarged Group depend on these
relationships to operate on a day-to-day basis. These relationships are subject to a number of
risks, including the following:
*
loss of banking relationships: the Optimal Payments Group and the Enlarged Group relies
on the use of numerous bank accounts in the jurisdictions in which it operates for the efficient
delivery of its services. A loss of any important banking relationship could have a material
effect on the Optimal Payments Group’s and the Enlarged Group’s business and financial
performance. As at the date of this document, the Directors are not aware of any facts or
circumstances which may lead to a loss of any important banking relationship;
*
failure of banks and financial institutions: the Optimal Payments Group and the Enlarged
Group each holds its own and merchants’ and customers’ funds on deposit at various banks
and financial institutions. The Optimal Payments Group receives funds from its merchants and
customers into a number of bank accounts operated by various banks in the jurisdictions in
which the Optimal Payments Group operates. The Optimal Payments Group then transfers
funds, from the various banks in the jurisdictions in which it operates, to two European A
rated banks such that amounts equivalent to all merchant and customer funds are held in
segregated accounts with the two banks a day after receipt from merchants and customers in
accordance with applicable regulatory requirements. The Skrill Group receives and holds
funds from its merchants and customers in a number of bank accounts operated by various
banks (which are not all A rated) in the jurisdictions in which the Skrill Group operates, each
of which account is a segregated account. Whilst there can be no guarantee that the banks in
which funds are held will not suffer any kind of financial difficulty or commence any
insolvency or bankruptcy proceedings, or any moratorium, composition, arrangement or
enforcement action or any other kind of analogous event in any jurisdiction which may result
in the permanent loss of some or all of the Optimal Payments Group’s or the Enlarged
Group’s own funds or the funds of merchants or customers, the Directors believe that the risk
of such an event occurring, where such event would result in the Optimal Payments Group or
the Enlarged Group being unable to reimburse merchants or customers is low due to, the use
by the Optimal Payments Group of only A rated banks to hold segregated funds and, the
Skrill Group’s diversification of risk by holding merchant and customer funds spread over
numerous banks. Following Completion, the Directors intend to review the policies applicable
to the Skrill Group to determine whether the Skrill Group should adopt the same policy as the
Optimal Payments Group or continue with its current policy. However, if such an event did
occur, Optimal Payments would have an obligation to settle funds in respect of its
NETELLERâ business and in respect of any merchant acquiring services which the Optimal
Payments Group undertakes in respect of its NETBANXâ business, with such services
currently representing an immaterial part of the NETBANXâ business, and the Skrill Group
would have an obligation to settle funds for its business other than in respect of the Skrill
Group’s PSP business. Loss of funds would not be covered by insurance held by either the
24
Optimal Payments Group or the Enlarged Group, and therefore, if the failure of one or more
financial institutions resulted in the loss of merchants’ or customers’ funds which were not
reimbursed by any regulatory or government scheme, there would be a material adverse
effect on the Optimal Payments Group’s and the Enlarged Group’s business and financial
performance;
*
conflicting terms and conditions: the Optimal Payments Group’s and the Enlarged Group’s
characterisation of its products and services under applicable terms and conditions of banks
and financial institutions, and the rules of payment card schemes, may differ from that of the
banks, financial institutions and payment card schemes with which the Optimal Payments
Group or the Enlarged Group transacts payments. Resolving differing interpretations may
cause the Optimal Payments Group and the Enlarged Group to incur significant costs, and
further costs may arise in connection with any resulting dispute or termination, limitation or
modification of the Optimal Payments Group’s or the Enlarged Group’s relationships with
banks, financial institutions or payment card schemes. These may lead to the loss of
merchants or customers and in the Optimal Payments Group and the Enlarged Group being
required to withdraw or limit the availability of its products or services;
*
personal and financial data: certain of the Optimal Payments Group’s and the Enlarged
Group’s products and services require customers to provide the Optimal Payments Group and
the Enlarged Group with personal bank account information and other financial data, the
provision of which may constitute a breach by customers and/or the Optimal Payments Group
and/or the Enlarged Group of the terms and conditions applicable to the relevant account or
data. As a result, banks, financial institutions or card payment schemes may refuse to permit
their customers to utilise the Optimal Payments Group’s and the Enlarged Group’s products
and services, which could cause the Optimal Payments Group and the Enlarged Group to
lose merchants or customers and to be required to withdraw or limit the availability of any of
its products and services;
*
short-term contracts: the Optimal Payments Group’s and the Enlarged Group’s contracts
with banks, payment card schemes, issuers and financial institutions tend to be of a shortterm duration and may not be renewed or may be cancelled with immediate effect if the
Optimal Payments Group’s or the Enlarged Group’s relationship with such providers were to
deteriorate;
*
delayed settlement: certain of the Optimal Payments Group’s and the Enlarged Group’s
payment service providers only settle with the Optimal Payments Group and the Enlarged
Group on a delayed settlement basis. Settlement periods range between 48 hours (in the
case of Visa and MasterCard) to 30 days (in the case of Ukash). In the event that any of
those providers were to fail and the Optimal Payments Group and the Enlarged Group
continued to settle underlying transactions (because they did not become aware of the failure
of the payment service provider), or had outstanding transactions which had not yet been
settled by the payment service provider it could have a material adverse effect on the Optimal
Payments Group and the Enlarged Group. The Enlarged Group will no longer have exposure
to settlement failure by Ukash following Completion, assuming that the Skrill Group completes
the acquisition of Ukash prior to Completion (which the Directors expect to be the case).
Once the Optimal Payments Group or the Enlarged Group became aware that a payment
service provider had failed (which the Directors believe would be apparent within a very short
period of time), the Optimal Payments Group and the Enlarged Group would stop making the
service provider available as a payment method, thereby stopping any new transactions from
being processed. In respect of transactions which had not yet been settled by the payment
service provider, the Optimal Payments Group and the Enlarged Group would have a claim
against the payment service provider and would seek to recover the funds from such payment
service providers, which may be material in the context of the Optimal Payments Group and
the Enlarged Group’s business. However, the Directors believe that the diversification
amongst the payment service providers and the identity of the payment service providers
used by the Optimal Payments Group and the Enlarged Group is such that the risk to the
Optimal Payments Group and the Enlarged Group is mitigated;
*
Visa and MasterCard operating rules: the Optimal Payments Group and the Enlarged
Group are subject to the operating rules and regulations of Visa and MasterCard and
changes to those operating rules and regulations could have a material adverse effect on the
Optimal Payments Group and the Enlarged Group;
25
*
fines and assessments: the payment card schemes and their processing service providers
may pass on fines and assessments in respect of fraud or chargebacks related to the Optimal
Payments Group’s, or the Enlarged Group’s merchants or disqualify the Optimal Payments
Group and the Enlarged Group from processing transactions if satisfactory controls are not
maintained;
*
risk management policies: banks and financial institutions which supply the Optimal
Payments Group or the Enlarged Group with services which enable it to operate the online
payments platform could regard the Optimal Payments Group or the Enlarged Group as being
non-compliant with certain laws or regulations (either in relation to the regulation of e-money
or the provision of services to online gambling operators) which are applicable to the bank in
its home state or may regard the customers of the Optimal Payments Group, or the Enlarged
Group as being non-compliant, may choose to withdraw from certain markets as a result of
their internal risk management policies and may, in compliance with their regulatory
obligations or internal risk and compliance policies, freeze the funds of the Optimal Payments
Group’s or the Enlarged Group’s merchants. The Directors are not aware of any instances
where the Optimal Payments Group’s own funds have been frozen and, in the case of a
merchant’s funds being frozen, the Optimal Payments Group and the Enlarged Group would
initially seek to facilitate the release of the merchant’s funds to the extent that they are able
to do so. If further information is required by the financial institution before any funds may be
released, the Optimal Payments Group and the Enlarged Group would refer the merchant to
the financial institution directly. The funds of a merchant of the Optimal Payments Group have
only been frozen approximately three times in the last three years and all instances were in
connection with the Asia Gateway service. Based on the historical experience of the Optimal
Payments Group, the Directors believe that the risk of a merchant’s funds being frozen who is
not using the Asia Gateway service is not material to the business of the Optimal Payments
Group or the Enlarged Group. The terms and conditions of the Asia Gateway service provide
that the merchant bears the risk of its funds being frozen by a bank or financial institution,
however, there is a risk that merchants may choose to cease transacting with the Optimal
Payments Group or the Enlarged Group if their funds are frozen. Banks and financial
institutions may also cease to transact, or reduce the level of, business with the Optimal
Payments Group or the Enlarged Group as a result of the Optimal Payments Group and the
Enlarged Group providing services to the online gambling sector. For example, historically, a
small number of banks have terminated their relationships with the Optimal Payments Group
although no relationships have been terminated within the last 12 months. Two banks have
made a policy decision to terminate their relationship with the Skrill Group within the last 12
months;
*
potential competitors: banks, payment card schemes, issuers and financial institutions may
see the Optimal Payments Group, or the Enlarged Group as being a competitor to their own
business and may cease doing business with the Optimal Payments Group, or the Enlarged
Group as a result. For example, the Optimal Payments Group recently obtained Principal
Membership with Visa and MasterCard and therefore some financial institutions in the future
may see the Optimal Payments Group as a competitor.
If, for any reason, any banks, payment card schemes, issuers or financial institutions ceased to
supply the Optimal Payments Group or the Enlarged Group with the services it requires to conduct
its business, or the terms on which such services are provided were to become less favourable or
be cancelled, or a contractual claim made against the Enlarged Group, it could impact the
Enlarged Group’s ability to provide its online payment services, or the basis on which it is able to
provide such services. This, and any of the factors set forth above, could result in a loss for the
Optimal Payments Group or the Enlarged Group which could have a material adverse effect on the
Optimal Payments Group’s or the Enlarged Group’s results of operations, financial condition and
future prospects.
The Optimal Payments Group and the Enlarged Group may not be able to protect its intellectual
property rights
The Optimal Payments Group and the Enlarged Group’s success and ability to compete in markets
depends, in part, upon proprietary technology. The Optimal Payments Group and the Enlarged
Group relies on copyright, trade secret and trademark laws to protect technology, including the
source code for proprietary software, and other proprietary information. The Optimal Payments
Group has not applied for any patents in respect of its electronic payment processing systems and
26
cannot give assurances that any patent applications will be made by the Optimal Payments Group
or the Enlarged Group or that, if they are made, they will be granted.
A third party might try to reverse engineer or otherwise obtain and use the Optimal Payments
Group’s or the Enlarged Group’s technology without permission, allowing competitors to duplicate
products. In addition, the laws of some countries in which the Optimal Payments Group sells and
the Enlarged Group will sell products may not protect software and intellectual property rights to
the same extent, for example, as the laws of the United Kingdom and the United States.
Proposed expansion through merger and acquisition activity and/or joint ventures may not go
as planned and could have a detrimental effect on the Optimal Payments Group’s and the
Enlarged Group’s financial performance
The Optimal Payments Group and the Enlarged Group may seek to expand through mergers and
acquisitions. Other than in relation to the Skrill Group, the Optimal Payments Group has not
entered into any binding agreements in order to facilitate a potential acquisition as at the date of
this document, however, the Company signed a non-binding letter of intent in respect of a small
potential acquisition in February 2015. The proposed acquisition target specialises in mobile
technology development and offers consultancy services. The consideration for the proposed
acquisition, if it proceeds, is intended to be satisfied by the issue of Ordinary Shares. The Optimal
Payments Group’s and the Enlarged Group’s ability to access funding is important to retain
sufficient flexibility in the Optimal Payments Group’s and the Enlarged Group’s strategic
development. If the Optimal Payments Group and the Enlarged Group is unavailable to access
funding or is provided funding on unfavourable terms, this may have a material effect on the
Optimal Payments Group’s and the Enlarged Group’s business and financial performance.
In identifying potential merger and acquisition targets, the Optimal Payments Group and the
Enlarged Group would endeavour to ensure appropriate due diligence is carried out, but
acquisitions would necessarily leave the Optimal Payments Group and the Enlarged Group
exposed, at least to some degree, to any operational failings of the target company or business
and potentially to overpaying for any such target company. Any payment for such target company
or business with Ordinary Shares could dilute the interests of the Shareholders.
Merger and acquisition activity, including the difficulties involved in integrating companies,
businesses, assets or brands, may divert financial and management resources from the Optimal
Payments Group’s and the Enlarged Group’s core business, which could have a material adverse
effect on the Optimal Payments Group’s and the Enlarged Group’s culture, reputation, business
and financial performance. In addition, there can be no assurance that any mergers or acquisitions
will successfully achieve their aims.
In addition, the Optimal Payments Group and the Enlarged Group may expand through joint
ventures and other collaborative activities with third parties. Participation in joint projects carries an
inherent risk in their management and it can be difficult to guarantee the achievement of joint
goals. Similarly, cooperating in this way with third parties may require the Optimal Payments Group
and the Enlarged Group to rely on its partners to help achieve its aims and maintain the Optimal
Payments Group’s and the Enlarged Group’s reputation. Joint ventures, including the difficulties
involved in integrating companies, businesses or assets, may divert financial and management
resources from the Optimal Payments Group’s and the Enlarged Group’s core business, which
could have a material adverse effect on the Optimal Payments Group’s and the Enlarged Group’s
business and financial performance.
The Optimal Payments Group and the Enlarged Group may fail to hold, safeguard or account
accurately for merchant or customer funds
The Optimal Payments Group and the Enlarged Group employs a high level of internal controls
and compliance procedures to hold, safeguard and account accurately for account holders’ funds.
In order to safeguard funds, account holders’ funds must either be held in secure, liquid low-risk
assets that are held by a custodian or placed in a segregated account of an authorised credit
institution or the firm may hold an insurance policy or bank guarantee to safeguard the funds. As
the Optimal Payments Group’s and the Enlarged Group’s business continues to grow, it must
continue to strengthen its internal controls. The Optimal Payments Group’s and the Enlarged
Group’s success relies on public confidence in its ability to handle large and growing transaction
volumes and merchants’ or customers’ funds. In addition, the Electronic Money Regulations require
e-money providers to safeguard their customer funds from receipt until the e-money for which
27
those funds have been exchanged is spent or redeemed and for a period of six years following
termination of the e-money contract.
Any failure to maintain necessary controls, to effectively safeguard the funds of the Optimal
Payments Group’s or the Enlarged Group’s merchants or customers or to manage merchants’ or
customers’ funds accurately, whether as a result of a failure of the Optimal Payments Group’s or
the Enlarged Group’s internal controls, failure to put in place adequate arrangements with banks or
payment processors, human error, erroneous interpretation of the relevant regulatory requirements
or otherwise, could severely diminish merchant or customer use of the Optimal Payments Group’s
or the Enlarged Group’s services and could have a material adverse effect on the Optimal
Payments Group’s and the Enlarged Group’s results of operations, financial condition and future
prospects. Further, a failure to adequately safeguard the funds of its customers could result in the
Optimal Payments Group or the Enlarged Group being subject to enforcement action by the
relevant regulator which could result in fines or other penalties being levied against the Optimal
Payments Group or the Enlarged Group.
The Optimal Payments Group and the Enlarged Group are vulnerable to the effects of
chargebacks and merchant insolvency
As part of its offering, the Optimal Payments Group through its NETELLERâ service and the Skrill
Group offer its merchants a ‘‘no chargeback policy’’. A chargeback is the return of funds to a
customer and in this context relates to a reversal of unauthorised charges to a customer’s credit
card, for example, as a result of fraud or identity theft. Under the ‘‘no chargeback policy’’ the
Optimal Payments Group and the Skrill Group agree to allow merchants who qualify under the
Optimal Payments Group’s and the Skrill Group’s vetting policy to retain all monies received from
NETELLERâ and Skrill Group’s account holders respectively and undertake not to request
reimbursement from such merchants in respect of chargebacks incurred. In such cases, the full
amount of the disputed transaction is charged back to the Optimal Payments Group and the Skrill
Group and the Optimal Payments Group’s and the Skrill Group’s credit card processor may levy
additional fees against the Optimal Payments Group or the Skrill Group unless the Optimal
Payments Group or the Skrill Group can successfully challenge the chargeback. The Directors
believe that the ‘‘no chargeback policy’’ offered by the Optimal Payments Group and the Skrill
Group is a key factor in a merchant’s decision to use the Optimal Payments Group’s or the Skrill
Group’s services.
The Optimal Payments Group is also exposed to the effect of chargebacks in the provision of its
NETBANXâ bureau service. Under that service, the Optimal Payments Group is liable to various
acquiring banks for chargebacks incurred by the Optimal Payments Group’s merchants where the
merchants are unable to meet liabilities arising as a result of those chargebacks.
Chargebacks may arise as individual claims or as multiple claims relating to the same facts or
circumstances. For example, the insolvency or cessation of a merchant doing business could
cause numerous individual customers to bring claims at once which, either singly or in aggregate,
could have a material adverse effect on the Optimal Payments Group’s or the Enlarged Group’s
results of operations, financial condition and future prospects.
Economic conditions and current economic weakness
The Optimal Payments Group operates and the Enlarged Group will operate in global markets with
customers in over 200 countries and territories, and has a physical presence in a number of
countries around the world. The Optimal Payments Group and the Enlarged Group run a number
of different operating platforms supporting core payment processing services. Any economic
downturn either globally or locally in any area in which the Optimal Payments Group or the
Enlarged Group operates may have an adverse effect on the demand for the Optimal Payments
Group’s or the Enlarged Group’s products and services. In particular, the recessionary economic
environment in the EU is continuing and economic growth in China is slowing down, however the
US economy is showing signs of strengthening and the position in Canada is in flux. A more
prolonged economic downturn may lead to an overall decline in the volume of the Optimal
Payments Group’s and the Enlarged Group’s sales, restricting the Optimal Payments Group’s and
the Enlarged Group’s ability to realise a profit. The markets in which the Optimal Payments Group
and the Enlarged Group offers its products and services are directly affected by many national and
international factors that are beyond the Enlarged Group’s control.
28
The Optimal Payments Group and the Enlarged Group must continue to innovate in order to
remain competitive
The Optimal Payments Group and the Enlarged Group must continue to enhance and improve the
responsiveness, functionality and features of its products and services and the underlying network
infrastructure. The internet and e-commerce industries are characterised by rapid technological
change, changes in user requirements and preferences, frequent new product and service
introductions embodying new technologies, and the emergence of new industry standards and
practices that could lead to the Optimal Payments Group’s and the Enlarged Group’s technology
and systems being considered to be outdated or deficient.
The Optimal Payments Group’s and the Enlarged Group’s ability to compete in the market and its
financial position would suffer were it unable to respond to technological advances, emerging
industry standards or customer and merchant preferences in a timely and cost-effective manner.
Further, the inability to respond to changing demands or online customer behaviours could have a
material effect on the Optimal Payments Group’s and the Enlarged Group’s business and financial
performance. Furthermore, as a greater number of customers are increasingly connecting to the
internet using devices other than personal computers (such as mobile phones and tablets), the
Optimal Payments Group and the Enlarged Group must ensure that it can develop multi-channel
technology which allows it to remain competitive within these rapidly evolving environments.
The Optimal Payments Group and the Enlarged Group must invest significant resources in
research and development in order to enhance its technology, product and service offering. The
Directors intend to continue to invest in innovation of products and services in order to maintain
the competitive position of the Optimal Payments Group and the Enlarged Group.
Competition may affect the Optimal Payments Group and the Enlarged Group’s financial
condition
The Optimal Payments Group and the Enlarged Group operate in rapidly evolving payments
markets, where service provision is intensely competitive and subject to rapid technological change.
The Optimal Payments Group and the Enlarged Group face competition from non-traditional
participants as well as established payment processors. Certain competitors have longer operating
histories, significantly greater financial, technical, marketing, member service and other resources,
greater name recognition and/or a larger base of members in affiliated businesses. The Optimal
Payments Group and the Enlarged Group may also face increased competition from new entrants,
such as Apple Pay and AliPay that may have substantially greater financial, marketing, technical or
other resources. The Optimal Payments Group’s and the Enlarged Group’s competitors may also
merge or form strategic partnerships.
Further, the Optimal Payments Group’s and the Enlarged Group’s competitors may respond to new
or emerging technologies and changes in merchant and customer requirements faster and more
effectively than the Optimal Payments Group and the Enlarged Group. If these competitors were to
acquire significant market share, this could result in the Optimal Payments Group and the Enlarged
Group losing market share, which would have a material adverse effect on the Optimal Payments
Group’s and the Enlarged Group’s business and financial performance. If the Optimal Payments
Group and the Enlarged Group cannot compete effectively, the demand for the Optimal Payments
Group’s and the Enlarged Group’s services may decline which would adversely impact the
competitive position and adversely affect the business and financial performance of the Optimal
Payments Group and the Enlarged Group.
The Directors believe that pursuing a strategy of product diversification mitigates the risk of the
business of the Optimal Payments Group and the Enlarged Group being adversely affected by
increased competition. The Directors pursue relationships with merchants operating in ‘‘niche’’
markets such as online gambling, online dating, travel and in particular sectors such as
e-commerce and mobile commerce, which the Directors expect will assist the Optimal Payments
Group and the Enlarged Group to maintain its competitive position. The Directors also intend to
continue to review opportunities for strategic acquisitions, such as the US Acquisitions, in order to
further diversify the business of the Optimal Payments Group and the Enlarged Group.
29
The Optimal Payments Group and the Enlarged Group are subject to a variety of local laws and
regulations, which are continuously evolving and are required to obtain various licenses in
order to operate its business
The regulatory framework in which the Optimal Payments Group and the Enlarged Group operate
comprises many different local and regional legal frameworks, each with differing approaches to the
regulation of payment processing and e-money. The regulatory framework governing the online
gambling industry, one of the principal markets affecting the Optimal Payments Group’s and the
Enlarged Group’s business, is dynamic and complex and many countries have introduced licensing
regimes, leading to greater regulatory oversight and scrutiny for many of the Optimal Payments
Group’s and the Enlarged Group’s customers. In some instances, a lack of clarity in the regulations
or conflicting legislative and regulatory developments mean that the Optimal Payments Group’s and
the Enlarged Group’s customers may risk failing to obtain an appropriate license or authorisation,
having existing licenses or authorisations adversely affected, or be subject to other regulatory
sanctions which could have a material adverse effect on the Optimal Payments Group’s and the
Enlarged Group’s business and financial performance. Any changes in the applicable regulatory
regime or the way in which a regime is enforced in an important jurisdiction could also have a
material adverse effect on the Optimal Payments Group’s and the Enlarged Group’s business and
financial performance in that jurisdiction.
The Optimal Payments Group and the Enlarged Group must comply with the terms of its
permissions and licences in order to continue to operate as a money transmitter in the US
The Optimal Payments Group’s NETELLERâ business is regarded as a money transmission
business in the US. Money transmitting businesses are subject to numerous regulations in the US
at the federal and state levels. Currently, the Optimal Payments Group’s NETELLERâ business in
the US is sponsored by Sutton Bank with Sutton Bank carrying out the regulated money
transmitting service on behalf of the Optimal Payments Group. The Skrill Group, through Skrill USA
Inc., operates in all US states, the District of Columbia and its territories on the basis of money
transmitter licences in all US states where a licence is required.
The Optimal Payments Group intends to acquire Skrill USA Inc. following Completion in order to
expand its offering in the United States. Prior to Completion, Skrill Holdings Limited will provide
Skrill USA Inc. with an inter-company funding loan for working capital purposes and the Skrill
Group will undertake a restructuring to transfer Skrill USA Inc. outside the Skrill Group. Completion
of the Acquisition will be conditional on Skrill USA Inc. being transferred outside the Skrill Group.
The consideration for the transfer of Skrill USA Inc. outside the Skrill Group will be left outstanding
as an inter-company loan between Skrill Holdings Limited and Sentinel Group Holdings S.A. Once
the transfer of Skrill USA Inc. outside the Skrill Group has completed, the Optimal Payments
Group will have a period of six months following Completion to obtain the required approvals in
connection with Skrill USA Inc.’s money transmitter licences from the relevant US states or
territories in order for Skrill USA Inc. to be transferred to the Optimal Payments Group. If Optimal
Payments has not obtained the relevant consents to enable Skrill USA Inc. to be transferred to the
Optimal Payments Group within the six month period following Completion, Sentinel Group
Holdings S.A will be permitted to sell Skrill USA Inc. to a third party. In the event Skrill USA Inc. is
sold to a third party, Sentinel Group Holdings S.A. will use reasonable endeavours to sell Skrill
USA Inc. for the best possible purchase price, and the proceeds of that sale shall be used to
repay the inter-company loans put in place between Skrill Holdings Limited and both Sentinel
Group Holdings S.A. and Skrill USA Inc., and any excess inter-company loan amount that remains
outstanding (whether relating to the working capital loan or the consideration for the transfer of
Skrill USA Inc.) shall be waived by Skrill Holdings Limited. The Optimal Payments Group has
obtained money transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho and,
following Completion, if the Optimal Payments Group does not acquire Skrill USA Inc., it intends to
commence applying for its own money transmitter licences in the remaining states in which they
are required.
The Directors are not aware of any circumstances that may result in the Optimal Payments Group
or the Enlarged Group being in breach of the terms of its money transmitter licences which would
be likely to lead to a withdrawal of such licences or a material restriction on such licences.
However, if the Optimal Payments Group or the Enlarged Group were to violate laws or regulations
governing money transmitters or electronic fund transfers, either in the UK, the US or elsewhere,
including as a result of any failure by employees of the Optimal Payments Group and the Enlarged
Group to apply correctly the Optimal Payments Group’s or the Enlarged Group’s KYC procedures,
30
this could result in a requirement for future compliance, fines, other forms of liability and/or force
the Optimal Payments Group and the Enlarged Group to change business practices or to cease
operations altogether.
The Optimal Payments Group and the Enlarged Group must comply with money laundering
regulation in the UK, the Isle of Man, the US and elsewhere and any failure to do so could result
in severe financial and legal penalties
The Optimal Payments Group and the Enlarged Group operate in an industry subject to money
laundering regulations. These regulations prohibit, amongst other things, the Optimal Payments
Group’s and the Enlarged Group’s involvement in transferring the proceeds of criminal activities.
Applicable money laundering regulations require firms to put preventative measures in place and to
‘’know their customers’’ including conducting customer identification and verification and undertaking
ongoing monitoring. In addition, regulations require companies to keep records of identity and to
train their staff on the requirements of the relevant money laundering regulations. At present, in the
UK a senior member of staff needs to be appointed and approved by the FCA to oversee
appropriate policies and procedures.
In the US and the Isle of Man, the Optimal Payments Group is also subject to money laundering
laws and regulations. Any variation or addition to these regulations (including the situation where
the Optimal Payments Group or the Enlarged Group becomes subject to regulations in other EU
jurisdictions after passporting its regulatory licence into that jurisdiction) could impose significant
compliance costs on the Optimal Payments Group or the Enlarged Group respectively or make it
more difficult for new merchants or customers to make use of the Optimal Payments Group’s and
the Enlarged Group’s services and products as a result of more complex provisions or restrictions.
The Optimal Payments Group and the Enlarged Group could be required to learn more about its
merchants or customers before opening NETELLERâ accounts, or to monitor its merchants or
customers more closely, which could significantly raise the Optimal Payments Group’s and the
Enlarged Group’s costs or reduce the attractiveness of the Enlarged Group’s product and services.
Both the Optimal Payments Group and the Skrill Group monitor developments in this regard and
the Directors are not aware of any imminent changes.
The Optimal Payments Group complies with anti-money laundering regulation in the UK and the
Isle of Man and in any other jurisdiction where a member of the Optimal Payments Group is
established and performing activities which would require that member of the Optimal Payments
Group to apply anti-money laundering regulation. The Optimal Payments Group applies the antimoney laundering regulation of the UK and the Isle of Man in respect of the NETELLERâ service.
The Skrill Group complies with anti-money laundering regulations in the UK, unless the regulatory
framework in countries where a Skrill Group company is regulated requires adherence to local
regulations. For example, Skrill Canada Inc. complies with compliance and anti-money laundering
regulation of Canada, Skrill USA Inc. complies with US anti-money laundering regulations and, in
relation to paysafecard, the Skrill Group adheres to the best practice guidelines of the Federal
Financial Supervisory Authority in Germany and the anti-money laundering regulation in
Switzerland. Skrill USA Inc. has previously been subject to three cease and desist orders in the
US (in Ohio, West Virginia and Kentucky) in respect of its anti-money laundering compliance
matters. The implementation of each of the orders was suspended pursuant to consent orders
under which Skrill USA Inc. untertook to improve its anti-money laundering compliance functions.
Skrill USA Inc. has received notifications from the regulators in each of Ohio, West Virginia and
Kentucky terminating the cease and desist orders. Therefore, the Directors believe that the Optimal
Payments Group and the Enlarged Group has the appropriate processes in place to comply with
the anti-money laundering laws and regulations to which it is subject.
The Directors believe that those processes are of the requisite standard, although there can be no
guarantee that they meet all the requirements of other jurisdictions. However, if the Optimal
Payments Group or the Enlarged Group were to violate laws or regulations governing money
transmitters or electronic fund transfers, either in the UK, the Isle of Man, the US or elsewhere,
including as a result of any failure by employees of the Optimal Payments Group or the Enlarged
Group to apply correctly the Optimal Payments Group’s or the Enlarged Group’s KYC procedures,
this could result in a requirement for future compliance, fines, other forms of liability and/or force
the Optimal Payments Group or the Enlarged Group to change business practices or to cease
operations altogether. Even if the Optimal Payments Group or the Enlarged Group complies with
money laundering laws and regulations, law enforcement agencies could seize merchants’ or
customers’ funds that are the proceeds of unlawful activity and the Optimal Payments Group or the
31
Enlarged Group, its Directors, Senior Managers or other employees could be subject to civil or
criminal sanctions, including fines or penalties. Any such action could result in adverse publicity for
the Optimal Payments Group or the Enlarged Group and a number of such seizures could have a
material adverse effect on the Optimal Payments Group’s or the Enlarged Group’s results of
operations, financial condition and future prospects.
The Optimal Payments Group and the Enlarged Group are also subject to rules and regulations
imposed by, amongst others, HM Treasury and the US Department of the Treasury’s Office of
Foreign Assets Control, regarding watch lists published by such bodies restricting the transfer of
funds to certain specifically designated countries. While the Directors believe that the Optimal
Payments Group and the Enlarged Group has in place appropriate systems and procedures to
ensure that transfers to merchants or customers in countries on watch lists are not executed there
can be no guarantee that such controls are, or will continue to be, effective and any sanctions
imposed by any regulatory body on the Optimal Payments Group or the Enlarged Group for
executing a transfer to a country on a watch list could have a material adverse effect on the
Optimal Payments Group’s or the Enlarged Group’s results of operations, financial condition and
future prospects.
As a result of the low value of paysafecard e-vouchers (a Skrill Group product) and Ukash
vouchers, KYC checks are not required to be carried out on customers and, therefore, customers
remain anonymous, therefore exposing it to added money laundering risks. Paysafecard have put
procedures in place to mitigate this risk and these include (i) imposing KYC procedures on a
customer if the aggregate value of the vouchers the customer acquires surpasses certain pre-set
limits (in accordance with the relevant regulations in Europe, the UK and the US), (ii) prohibiting
vouchers issued in one country from being used in another one, and (iii) limiting the frequency of
voucher issuance in respect of a single customer. ‘‘my paysafecard’’ conducts standard KYC
checks on its customers when new accounts are opened in order to verify the identity of its
customers. Additional due diligence and verification is carried out when high risk or suspicious
activity is detected. In Germany, the online verification is provided by Deutsche Post AG, which
offers the PostIdent online verification solution or by Cybits Holdings AG, which offers verify-U, an
electronic ID verification platform. Ukash also has similar procedures to mitigate risks and these
include carrying out customer due diligence where (i) it identifies suspicious activity and (ii) a
customer seeks to redeem the voucher for cash. However, it cannot be guaranteed that these
measures mitigate all of the added KYC and anti-money laundering risks.
The Optimal Payments Group and the Enlarged Group may become an unwitting party to fraud
being committed by customers
The Optimal Payments Group and the Enlarged Group is focused on providing trusted services to
customers and merchants and ensuring that data and confidential information is transmitted and
stored securely. Combatting money laundering and fraud is a significant challenge in the online
payment services industry because transactions are conducted between parties who are not
physically present, which in turn creates opportunities for misrepresentation and abuse. Online
payment companies are especially vulnerable because of the convenience, immediacy and
anonymity of transferring funds from one account to another and subsequently withdrawing them.
Facilitating financial transactions over the internet creates a risk of fraud and ensuring customer
data security, privacy, and ongoing compliance with applicable regulations requires significant
capital expenditure.
A high percentage of fraudulent transactions come in from a relatively small number of countries.
In respect of the Optimal Payments Group, these countries are Brazil, Australia, Italy, United Arab
Emirates, UK, Germany and Mexico and in respect of the Skrill Group, these countries are
Australia, Austria, Germany, Italy, the Netherlands, Spain, Sweden, France, Vietnam and the UK.
The Optimal Payments Group reserves the right to refuse to accept accounts or transactions from
many high-risk countries, internet Protocol addresses and e-mail domains and continually updates
these screens. The Skrill Group’s transaction monitoring system identifies various criteria, including
the country of origination, in order to detect and monitor fraud and will reject any purported
transactions if they appear to be fraudulent. Notwithstanding its ability to locate where a transaction
is being made, the Optimal Payments Group and the Enlarged Group faces significant risks of loss
due to money laundering, fraud and disputes between senders and recipients, and if the Optimal
Payments Group or the Enlarged Group is unable to deal effectively with losses from fraudulent
transactions the business would be harmed.
32
The Optimal Payments Group and the Enlarged Group are subject to counterparty credit risk
The Optimal Payments Group and the Enlarged Group provides its products and services to a
variety of contractual counterparties and is therefore subject to the risk of non-payment for
products provided and services rendered or non-reimbursement of costs incurred. The contracts
which the Optimal Payments Group and the Enlarged Group enters into may require significant
expenditure prior to receipt of relevant payments from the customer and may expose the Optimal
Payments Group or the Enlarged Group to potential credit risk or may require the Optimal
Payments Group and the Enlarged Group to use its available bank facilities in order to meet
payment obligations.
Payolution, a Skrill Group product, arranges the provision of point-of-sale financing by a bank to
customers of e-commerce merchants, whereby the bank purchases the receivables from the
merchant on behalf of the customer and subsequently recovers payment from the customers.
Payolution manages the receivables on behalf of the bank and, as a result of this business model,
it is exposed to the risk that the customer does not pay back the amounts owed to the bank, and
therefore there is a risk of incurring losses for the Skrill Group as the Skrill Group’s contractual
arrangements with the bank exposes the Skrill Group to all of the credit risk of default.
Failure by any customers of e-commerce merchants to pay for services or products provided or to
reimburse costs incurred by the Optimal Payments Group or the Enlarged Group could have a
material adverse effect on the Optimal Payments Group’s and the Enlarged Group’s cash flows
and on the profitability of the relevant contract and, as a result, the financial condition, results of
operations and prospects of the Optimal Payments Group or the Enlarged Group may be adversely
affected.
The Optimal Payments Group and the Enlarged Group depends on the continued growth of
online commerce
The business of selling goods over the internet is dynamic and continuously evolving. Concerns
about fraud, privacy or other matters may discourage customers from continuing to use, or
adopting, the internet as a medium of commerce. In countries where the Optimal Payments Group
and the Enlarged Group’s services and online commerce generally have been available for some
time, acquiring new customers for the Optimal Payments Group’s and the Enlarged Group’s
services may be more difficult and costly than it has been in the past. In order to expand its
customer base, the Optimal Payments Group and the Enlarged Group must appeal to, and acquire,
customers who historically have used traditional means of commerce or alternative methods to
purchase goods and who may be resistant to the concept of e-money or an e-Wallet.
If these customers prove to be less active than the Optimal Payments Group’s and the Enlarged
Group’s existing customers, and the Optimal Payments Group and the Enlarged Group is unable to
gain efficiencies in its operating costs, including the Optimal Payments Group’s and the Enlarged
Group’s cost of acquiring new customers, this could have a material adverse effect on the Optimal
Payments Group’s and the Enlarged Group’s results of operations, financial condition and future
prospects.
Changes in tax law, changes in the Optimal Payments Group’s and the Enlarged Group’s
effective tax rate or exposure to additional tax liabilities could affect the Optimal Payments
Group’s and the Enlarged Group’s profitability and financial condition
The Optimal Payments Group and the Enlarged Group carries out its business operations through
entities in multiple foreign jurisdictions. As such, the Optimal Payments Group and the Enlarged
Group is required to file corporate income tax returns that are subject to foreign tax laws. The
foreign tax liabilities are determined, in part, by the amount of operating profit generated in these
different taxing jurisdictions. The Optimal Payments Group’s and the Enlarged Group’s effective tax
rate, earnings and operating cash flows could be adversely affected by changes in the mix of
operating profits generated in countries with higher statutory tax rates as well as by the positioning
of the Optimal Payments Group’s and the Enlarged Group’s cash balances globally. If statutory tax
rates or tax bases were to increase or if changes in tax laws, regulations or interpretations were
made that impact the Optimal Payments Group or the Enlarged Group directly, its effective tax
rate, earnings and operating cash flows could be adversely impacted.
Any such adverse changes in the applicability of tax to the Optimal Payments Group or the
Enlarged Group could increase the levels of taxation payable by the Optimal Payments Group and
the Enlarged Group which would have an adverse effect on the Optimal Payments Group and the
33
Enlarged Group’s business, financial condition, results of operations and prospects. In addition to
the possibility of a substantial tax burden being imposed on the Optimal Payments Group or the
Enlarged Group, the risk that the Optimal Payments Group or the Enlarged Group may become
subject to an increased level of taxation may result in the Optimal Payments Group and the
Enlarged Group needing to change its corporate or operational structure, which could have a
material adverse effect on the Optimal Payments Group’s and the Enlarged Group’s business,
financial condition, results of operations and prospects.
Furthermore, any changes in other jurisdictions to the political and social perception of running a
business out of a tax-friendly jurisdiction (such as the Isle of Man) or any action by HMRC or any
other tax authority to investigate the Optimal Payments Group’s or the Enlarged Group’s tax
arrangements could result in adverse publicity and reputational damage for the Optimal Payments
Group or the Enlarged Group, which could have an adverse effect on the Optimal Payments
Group’s and the Enlarged Group’s business, financial condition, results of operations and
prospects. Further, if HMRC or any other tax authority is successful in challenging the Optimal
Payments Group’s or the Enlarged Group’s tax arrangements, the Optimal Payments Group or the
Enlarged Group may be liable for additional tax and penalties and interest related thereto, which
may have a significant impact on the Optimal Payments Group and the Enlarged Group’s business,
financial condition, results of operations and prospects.
The Optimal Payments Group and the Enlarged Group may be affected by sections 1471-74 of
the United States Internal Revenue Code of 1986, as amended (‘‘FATCA’’) and other cross border
automatic exchange of information provisions
In light of FATCA, certain non-US financial institutions (‘‘foreign financial institutions’’ or ‘‘FFIs’’)
are required to register with the IRS to obtain a Global Intermediary Identification Number (‘‘GIIN’’)
and comply with the terms of FATCA, including any applicable intergovernmental agreement
(‘‘IGA’’) and any local laws implementing such agreement or FATCA. Based on the current
operations and business activities of the Optimal Payments Group and the Enlarged Group,
including the e-Wallet business, the Optimal Payments Group and/or the Enlarged Group (and/or
certain specific entities within the Optimal Payments Group and the Enlarged Group) may be
considered to be FFIs, required to register with the IRS to obtain a GIIN, and required to comply
with the terms of any applicable IGA. Failure to comply with FATCA (including as the same may
be implemented under the terms of any applicable IGA) could subject certain payments of US
source fixed, determinable, annual, or periodical income made to the Optimal Payments Group and
the Enlarged Group to 30 per cent. FATCA withholding tax. Further, as FFIs, the Optimal
Payments Group and/or the Enlarged Group (and/or certain specific entities within the Optimal
Payments Group and the Enlarged Group) would need to perform diligence on their existing and
new customers, provided that their account balances reached certain thresholds, including obtaining
self-certifications regarding the account holder’s citizenship or tax residence in the United States.
They would then be required to report certain information about their US accountholders to either
the IRS or their local tax authorities (which will in turn provide such information to the IRS). This
reporting requirement could potentially dissuade customers from doing business with the Optimal
Payments Group and the Enlarged Group.
The UK has also entered into agreements with its Crown Dependencies and Overseas Territories
to improve international compliance (which are or will be implemented under local law) (‘‘UK
FATCA’’). UK FATCA imposes a similar reporting regime to that imposed under FATCA, requiring
affected banks and financial institutions to report certain information to their local tax authorities in
respect of account holders from the UK, the Crown Dependencies and Gibraltar (which information
will in turn be provided to the relevant tax authorities). Unlike FATCA, UK FATCA does not impose
any withholding obligation. The requirement under UK FATCA for banks and financial institutions to
report certain information in relation to their account holders could, however, also potentially
dissuade customers from doing business with the Optimal Payments Group and the Enlarged
Group.
The Optimal Payments Group and the Enlarged Group may be affected by the Common
Reporting Standard for Automatic Exchange of Financial Account Information
The United Kingdom, the Isle of Man and a number of other jurisdictions have announced that they
propose to enter into multilateral arrangements modelled on the Common Reporting Standard for
Automatic Exchange of Financial Account Information published by the Organisation for Economic
Co-operation and Development (the ‘‘OECD CRS’’). If implemented, these arrangements would
34
require affected banks and financial institutions to report certain information to their local tax
authorities about account holders from the jurisdictions which are party to such arrangements
(which information will in turn be provided to the relevant tax authorities). In particular, if
implemented in the jurisdictions in which the Optimal Payments Group and the Enlarged Group are
established, the OECD CRS would require the Optimal Payments Group and the Enlarged Group
to provide certain information to their local tax authorities about their merchants and customers
from the jurisdictions which are party to such arrangements (which information will in turn be
provided to the relevant tax authorities). If the Optimal Payments Group’s or the Enlarged Group’s
customers, particularly its NETELLERâ customers, do not wish to disclose their tax residency and/
or status to the Optimal Payments Group or the Enlarged Group, the customers may cease to
utilise the services of the Optimal Payments Group or the Enlarged Group which could have a
material adverse effect on the Optimal Payments Group and the Enlarged Group’s business,
financial condition, results of operations and prospects.
The Optimal Payments Group and the Enlarged Group is reliant on key personnel and
employees
The Optimal Payments Group and the Enlarged Group depends upon the continued services and
performance of its Directors and key senior management. The Directors and key senior
management, amongst other things, play a key role in maintaining the Optimal Payments Group’s
and the Enlarged Group’s culture and in setting the Optimal Payments Group’s and the Enlarged
Group’s strategic direction. The unexpected departure or loss of one of the Optimal Payments
Group’s Directors or key senior management team could have a material adverse effect on the
Optimal Payments Group’s and the Enlarged Group’s business and financial performance, and
there can be no assurance that the Enlarged Group will be able to attract or retain suitable
replacements for such Directors and/or key management in a timely manner, or at all. The
Enlarged Group also may incur significant additional costs in recruiting and retaining suitable
replacements and avoiding disruption in integrating them into the Optimal Payments Group’s and
the Enlarged Group’s businesses.
In addition, the Optimal Payments Group’s and the Enlarged Group’s operations and execution of
its business plan depend on the ability of the Optimal Payments Group and the Enlarged Group to
attract, train and retain suitably skilled or qualified personnel with relevant industry and operational
experience and to ensure that the Optimal Payments Group and the Enlarged Group have a robust
succession planning system in place. In order for the Enlarged Group to expand its operations in
the future it will need to recruit and retain further personnel with suitable experience, qualifications
and skill sets capable of advancing the Optimal Payments Group’s and the Enlarged Group’s
business. There is substantial competition for suitably skilled or qualified personnel with relevant
industry and operational experience and there can be no assurance that the Optimal Payments
Group and the Enlarged Group will be able to attract or retain its personnel on similar terms to
those on which it currently engages its employees, or at all. If the Optimal Payments Group and
the Enlarged Group is unable to attract or retain suitably skilled or qualified personnel then this
could have a material adverse effect on the Enlarged Group’s business and financial performance.
PART B – RISKS RELATING TO THE ACQUISITION
Risks relating to the Acquisition completing
The Enlarged Group may fail to realise the expected benefits of the Acquisition
The Directors believe that the Acquisition will provide strategic and financial benefits for the
Enlarged Group. However, there is a risk that the anticipated benefits will fail to materialise, or that
they will be less significant than anticipated, and this may have a significant impact on the
Enlarged Group’s financial condition, results of operations and prospects and/or the price of the
Ordinary Shares and the Enlarged Group’s ability to pay dividends.
As a result of the Acquisition the Enlarged Group may fail to retain key management or other
personnel
The calibre and performance of the Enlarged Group’s senior management and other key
employees, taken together, is critical to the success of the Enlarged Group and, while incentive
plans are put in place for key personnel, there can be no assurance that the Acquisition will not
result in the departure of personnel from the Enlarged Group, including from the Skrill Group. Such
attrition may take place either before the Acquisition is completed or during the Enlarged Group’s
integration process following the Acquisition. Failure of the Enlarged Group to put in place new
35
long term incentive plans/arrangements and otherwise remunerate employees appropriately could
result in loss of key personnel. The loss of a significant number of management or key employees
could adversely affect both the Enlarged Group’s ability to conduct its businesses (through an
inability to execute business operations and strategies effectively) and the value of those
businesses.
Management distraction or overstretch in connection with the Acquisition could have an
adverse effect on the business of the Enlarged Group
The Directors anticipate benefits and operational efficiencies as a result of the Acquisition.
However, the Enlarged Group will be required to devote significant management attention and
resources to integrating the Skrill Group’s business practices and operations. Furthermore, the
Enlarged Group will operate businesses across multiple time zones and, although regulatory and
operational decision-making will often be undertaken by each of the businesses locally,
co-ordinating its decision-making across all the businesses in the Enlarged Group will present
challenges to the Enlarged Group’s management team.
There is a risk that the challenges associated with managing the Enlarged Group will result in
management distraction or overstretch and that consequently the underlying businesses will not
perform in line with management or shareholder expectations.
The value of the Skrill Group may be less than the consideration paid by Optimal Payments
In the event that there is an adverse event affecting the value of the Skrill Group or the value of
the business operated by the Skrill Group declines prior to Completion, the value of Sentinel Topco
Limited may be less than the consideration agreed to be paid by Optimal Payments and,
accordingly, the net assets of the Enlarged Group could be reduced.
There can be no assurance that Optimal Payments would be able to renegotiate the consideration
paid for Sentinel Topco Limited in such circumstances and Optimal Payments may therefore pay
an amount in excess to market value for Sentinel Topco Limited, which could have an adverse
effect on the business and financial condition of the Enlarged Group.
The Acquisition will materially increase the net indebtedness of the Enlarged Group
In order to partially finance the Acquisition, the Optimal Payments Group is entering into the New
Credit Facilities, the effect of which is to increase the Enlarged Group’s aggregate net
indebtedness to $615,000,000. The Optimal Payments Group’s New Credit Facilities contain
financial and other restrictive covenants, which will impose operating and financial restrictions on
the Enlarged Group, including restrictions on its ability to, among other things, incur or guarantee
additional debt, make certain investments or upstream funds to Optimal Payments. As a result of
these covenants, the Enlarged Group may be limited in the manner in which it conducts its
business. Furthermore, a failure to comply with these covenants could result in an event of default,
which, if not cured or waived, could have a material adverse effect on the business, financial
condition and results of operations of the Optimal Payments Group and the Enlarged Group.
However, the Directors believe that the Enlarged Group will be able to comply with such covenants
and therefore operate effectively as the Enlarged Group will have a sufficient amount of cash
reserves after the completion of the Rights Issue and Completion. However, in the longer term
such restrictions could affect the Enlarged Group’s ability to operate its business and may limit its
ability to react to market conditions or take advantage of potential business opportunities as they
arise in the future.
In addition, if in the longer term the Enlarged Group becomes unable to generate sufficient cash
flow to satisfy its debt obligations, or to refinance its obligations on commercially reasonable terms,
this could have a material adverse effect on the Enlarged Group’s business, financial condition and
results of operations. Furthermore, in the longer term, the Enlarged Group’s indebtedness may
result in the Enlarged Group being required to dedicate a substantial portion of its cash flow to
payments on the indebtedness, which would reduce the amount of funds available to fund
unexpected capital expenditures, research and product development and may limit the Enlarged
Group’s ability to respond to business opportunities, including growing its business through
strategic acquisitions.
36
The Skrill Group may fail to obtain approvals and consents from its key customers and suppliers
regarding the Skrill Group’s change of control pursuant to the Acquisition
The Skrill Group is a party to contracts which require it to obtain consent from the relevant
counterparty to a change of control of the Skrill Group and, in some instances, may allow the
relevant counterparty to terminate their contracts with the Skrill Group. In anticipation of the
Acquisition, key customers or suppliers of the Skrill Group may seek to terminate or renegotiate
their contracts with the Skrill Group. Whilst the Directors are not aware of any specific reason why
such approvals or consents will not be forthcoming, if Completion occurs prior to the Skrill Group
obtaining the relevant consents from its key customers or suppliers there can be no assurance that
such consents will be obtained or, if contracts are re-negotiated, that such terms will be favourable
to the Enlarged Group. Any material problems or delays in the Enlarged Group’s business and
operations, or the loss of any key contracts, could have a material adverse effect on the Enlarged
Group’s business, financial conditions, results of operations and prospects.
Risks relating to the Acquisition not completing
Completion of the Acquisition is subject to a number of conditions which may not be satisfied or
waived
Completion is subject to the satisfaction (or waiver, where applicable) of a number of conditions,
including:
*
approval of the Resolutions by Existing Shareholders at the General Meeting;
*
the Underwriting Agreement not being terminated by the Underwriters prior to Rights Issue
Admission;
*
the transfer of Skrill USA Inc. outside of the Skrill Group;
*
Rights Issue Admission occurring; and
*
approval from the FCA (including approval of Optimal Payments’ acquisition of control over
Ukash assuming that the Ukash Acquisition has completed).
Approval from the FCA in respect of change of control applications for electronic money
institutions, such as Skrill Limited and Prepaid Services Company Limited can take up to 60 working
days beginning with the date on which the FCA acknowledges receipt of the application for
approval. However, the FCA is permitted to interrupt the assessment period once for a maximum
of 30 working days to request that the acquirer provide any further information necessary to
complete its assessment. This could extend the FCA’s assessment period to a maximum of
90 working days beginning with the date on which the FCA acknowledges receipt of the
application. This assessment period applies separately in respect of each application that Optimal
Payments will is required to make to acquire control over an electronic money institution.
The FCA must also be notified of a change of control in relation to an authorised payment
institution, such as Skrill International Payments Limited, at least 28 days before the change takes
effect.
Sentinel Group Holdings S.A. will make a formal application to the US regulatory authorities in the
US states where Skrill USA Inc. is authorised as a money transmitter in order to obtain consent to
transfer Skrill USA Inc. to Sentinel Group Holdings S.A. or to confirm that no consent is required.
The transfer of Skrill USA Inc. outside of the Skrill Group must be carried out in a ‘‘compliant’’
manner in each state or territory where Skrill USA Inc. is regulated. The transfer will be
‘‘compliant’’ in a particular state or territory if (i) the relevant regulator (whether in writing, by email
or verbally to Paul Hastings LLP (acting as legal counsel to both Sentinel Group Holdings S.A. and
Optimal Payments as to US law in respect of the transfer of Skrill USA Inc.)) confirms that no
approval is required or grants its approval or issues an appropriate ‘‘no-action’’ letter or grants a
waiver, (ii) Paul Hastings LLP advise that no approval is needed, or (iii) Paul Hastings LLP advise
that they believe it is unlikely enforcement action would be taken by a regulator which would be
materially detrimental to Skrill USA Inc. if the Acquisition Agreement were to complete.
The Directors are not aware of any reason why the FCA should not approve the Acquisition nor
any reason why the US regulatory authorities will not consent to the transfer of Skrill USA Inc.
outside of the Skrill Group or confirm that consent is not required.
There is no guarantee that the conditions to the Acquisition will be satisfied (or waived, if
applicable), in which case the Acquisition will not be completed. The conditions are set out in more
detail in Part II (Details of the Acquisition) of this document.
37
If Completion does not occur, the Optimal Payments Group will experience a delay in the
achievement of its strategic objectives.
There can be no assurance that governmental agencies or other third parties will not seek to
impose new or more stringent conditions on the Enlarged Group in connection with granting
approvals
Governmental agencies or other third parties may impose conditions on Completion or require
changes to the terms of the Acquisition and could injunct the Acquisition if the terms and
conditions are not complied with. The terms and conditions of approvals that are granted may
impose additional requirements, limitations or costs on the business of the Enlarged Group. There
can be no assurance that these conditions or undertakings will not materially limit the revenues of
the Enlarged Group, increase the costs of the Enlarged Group, reduce the ability of the Enlarged
Group to achieve cost synergies or lead to the abandonment of the Acquisition.
The Optimal Payments Group will be subject to significant abort costs in the event the
Acquisition or the Rights Issue do not proceed
The Company has incurred significant costs in planning the Acquisition and the Rights Issue.
These mainly include legal and other professional costs. Whilst some of these are contingent on
the Acquisition proceeding, approximately £6,000,000 of estimated costs would be incurred if the
Acquisition or the Rights Issue are aborted following the publication of this document. To the extent
that the Acquisition or the Rights Issue do not proceed and these costs are incurred they would
need to be borne by the Company.
In addition, if Completion does not occur for any reason other than as a result of Sentinel Group
Holdings S.A. not complying with its obligations under the Acquisition Agreement, the Company will
be required to make a costs reimbursement payment of up to e5,000,000 to Sentinel Group
Holdings S.A. in respect of the third party costs, fees and expenses properly incurred by Sentinel
Group Holdings S.A and the Skrill Group in connection with the Acquisition. Information regarding
the costs reimbursement payment is set out in more detail in Part II (Details of the Acquisition) of
this document.
The Optimal Payments Group will be exposed to foreign exchange risks related to the purchase
price for the Acquisition if the Acquisition does not complete
The Optimal Payments Group is acquiring the shares in Sentinel Topco Limited which are priced in
Euro but proceeds of the Rights Issue will be denominated in Pounds Sterling. The Optimal
Payments Group intends to hedge its exposure to movements in the foreign exchange rate using
derivative instruments that will deliver an appropriate amount of euro towards completion of the
Acquisition. The completion of the Rights Issue is not conditional upon Completion. The Acquisition
may fail to complete after Rights Issue Admission and in such circumstances the Optimal
Payments Group would seek to return the proceeds of the Rights Issue to investors. Such a return
could result in certain costs and complexities such that any return of capital may be less than the
amount subscribed for in the Rights Issue. Therefore, if the Acquisition does not complete, the
Optimal Payments Group may be exposed to any mark to market movements in the value of the
hedging arrangements that could have a material adverse effect on the financial condition and
operating results of the Optimal Payments Group.
Shareholders will be exposed to a drag on earnings per share if the Acquisition does not
complete
In the event that the Rights Issue completes and Rights Issue Admission occurs but the Acquisition
does not complete, the Company will have an increased number of its shares in issue but without
any associated increase in earnings from the Acquisition. In such circumstances, Shareholders may
be exposed to lower earnings per share until such time as the Optimal Payments Group returns
the proceeds of the Rights Issue to Shareholders. If Completion does not occur, the Directors will
consider how best to return the net proceeds of the Rights Issue. Such a return could result in
certain costs and complexities such that any return of capital may be less than the amount
subscribed for in the Rights Issue.
38
PART C – RISKS RELATING TO THE RIGHTS ISSUE AND THE ORDINARY SHARES
The share prices of publicly traded companies can be highly volatile
Publicly traded securities from time to time experience significant price and volume fluctuations that
may be unrelated to the operating performance of the companies that have issued them. In
addition, the market price of the Ordinary Shares may prove to be highly volatile. The market price
of the Ordinary Shares may fluctuate significantly in response to a number of factors, many of
which are beyond the Optimal Payments Group’s control, including:
*
changes in financial estimates by securities analysts;
*
changes in market valuation of similar companies;
*
announcements by the Optimal Payments Group of significant contracts, acquisitions, strategic
alliances, joint ventures or capital commitments;
*
additions or departures of key personnel;
*
any shortfall in revenues or net income or any increase in losses or decrease in profits from
levels expected by securities analysts;
*
future issues or sales of Ordinary Shares; and
*
stock market price and volume fluctuations.
Any of these events could result in a material decline in the price of the Ordinary Shares.
Future sales of Ordinary Shares could depress the market price of the Ordinary Shares
The Optimal Payments Group is unable to predict whether substantial numbers of Ordinary Shares
will be sold in the open market. Any sales of substantial numbers of Ordinary Shares in the public
market, or the perception that such sales might occur, could result in a material adverse effect on
the market price of the Ordinary Shares and could impair the Optimal Payments Group’s ability to
raise capital through the sale of additional equity securities.
The expiry of the terms of the Lock-Up Agreement may result in the sudden availability of the
Skrill Consideration Shares, resulting in the reduction of the market price of the Ordinary Shares
At Completion, the Company will issue the Skrill Consideration Shares to Sentinel Group Holdings
S.A., which will represent approximately 7.9 per cent. of the Enlarged Share Capital immediately
following Completion (assuming no further issue of Ordinary Shares). Following Completion
Admission under the Lock-Up Agreement, Sentinel Group Holdings S.A. will be restricted from
selling, pledging or otherwise disposing of the Skrill Consideration Shares for a period of 180 days
without the prior written consent of the Underwriters. Following the expiry of the lock-up period,
Sentinel Group Holdings S.A. may wish to monetise its Ordinary Shares immediately and, upon the
expiry of the lock-up period, Sentinel Group Holdings S.A. will only be subject to restrictions
designed to ensure an orderly market for the Ordinary Shares is maintained.
The Company is unable to predict whether substantial amounts of the Skrill Consideration Shares
will become available for sale immediately after the expiry of the lock-up period under the Lock-Up
Agreement. Any sales of substantial amounts of Skrill Consideration Shares in the public market,
or the perception that such sales might occur, could materially and adversely affect the market
price of the Ordinary Shares.
Details of the Lock-Up Agreement are set out in paragraph 14.1 of Part XVI (Additional
Information) of this document.
The market price for Ordinary Shares may decline below the Offer Price
There is no assurance that the public trading market price of the Ordinary Shares will not decline
below the Offer Price. Should that occur, relevant Shareholders who sell their Ordinary Shares will
suffer an immediate loss as a result. Moreover, there can be no assurance that, following
Shareholders’ acquisition of New Ordinary Shares, Shareholders will be able to sell their New
Ordinary Shares at a price equal to or greater than the acquisition price for those New Ordinary
Shares.
39
Existing Shareholders may experience dilution in their ownership of the Company as a result of
the Rights Issue and will experience dilution as a result of the Acquisition
Upon completion of the Rights Issue, the New Ordinary Shares will represent approximately
62.5 per cent. of the Enlarged Share Capital of the Company immediately following completion of
the Rights Issue.
If, during the subscription period for the Rights Issue, Qualifying Shareholders do not (or are not
permitted to) take up their entitlements under the Rights Issue, their proportionate ownership and
voting interests in the Company will be reduced by 62.5 per cent. and the percentage that their
Ordinary Shares represents in the Enlarged Share Capital of the Company following the Rights
Issue will be reduced accordingly. There can be no assurance that a sale by a Qualifying
Shareholder of any of their unexercised Nil Paid Rights (or a sale on their behalf of such rights)
will result in receipt of consideration sufficient to compensate such Shareholder fully for the dilution
of his or her percentage ownership of the Company’s share capital that may be caused as a result
of the Rights Issue.
All Shareholders holding the Pre-Completion Existing Ordinary Shares will be diluted upon
Completion by approximately 7.9 per cent. as a result of the issue of the Skrill Consideration
Shares (assuming no further issues of Ordinary Shares).
For these purposes, any dilution which may result from the vesting or exercise of any awards
under the Optimal Payments Employee Share Plans between the Latest Practicable Date and
Completion has been disregarded.
Any future issue of Ordinary Shares will further dilute the holdings of Shareholders and could
adversely affect the market price of Ordinary Shares
The Company has no current plans for an offering or other issue of Ordinary Shares other than: (i)
pursuant to the Rights Issue, (ii) the issue of the Skrill Consideration Shares, (iii) in connection with
the Optimal Payments Employee Share Plans, or (iv) in connection with the small potential
acquisition pursuant to which the Company signed a non-binding letter of intent in February 2015.
The proposed acquisition target specialises in mobile technology development and offers
consultancy services and the consideration for the proposed acquisition, if it proceeds, is to be
satisfied by the issue of Ordinary Shares.
However, it is possible that the Company may decide to offer additional Ordinary Shares in the
future either to raise capital or for other purposes. If Shareholders did not take up such offer of
Ordinary Shares or were not eligible to participate in such offering, their proportionate ownership
and voting interests in the Company would be reduced and the percentage that their Ordinary
Shares would represent of the total issued share capital of the Company would be reduced
accordingly. An additional offering, or significant sales of shares by major shareholders, could have
a material adverse effect on the market price of Ordinary Shares as a whole.
Overseas Shareholders may be subject to exchange rate risks
The Ordinary Shares are priced in pence, and will be quoted and traded in pence. In addition, any
dividends the Company may pay will be declared and paid in Pounds Sterling. Accordingly, holders
of Ordinary Shares resident outside the UK are subject to risks arising from adverse movements in
the value of their local currencies against Pounds Sterling, which may reduce the value of the New
Ordinary Shares, as well as that of any dividends paid.
Admission of the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares may not
occur when expected
Application for Rights Issue Admission of the Nil Paid Rights, the Fully Paid Rights and the New
Ordinary Shares is subject to the approval (subject to satisfaction of any conditions which such
approval is expressed) of the London Stock Exchange. Rights Issue Admission will only become
effective once a dealing notice has been issued by the London Stock Exchange and AIM has
acknowledged that the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares,
respectively, will be admitted to trading. There can be no guarantee that the conditions for Rights
Issue Admission will be met or that the London Stock Exchange will issue a dealing notice. See
the ‘‘Expected Timetable of Principal Events’’ on page 47 of this document for further
information on the expected dates of these events.
40
The Ordinary Shares will not be admitted to the Official List
Ordinary Shares will be traded on AIM and will not be admitted to the Official List or admitted to
trading on the London Stock Exchange’s main market for listed securities. The rules of AIM are
less demanding than those of the Official List and an investment in Ordinary Shares traded on AIM
may carry a higher risk than an investment in shares admitted to the Official List. In addition, the
market in Ordinary Shares on AIM may have limited liquidity, making it more difficult for an investor
to realise its investment than might be the case in respect of an investment in shares which are
quoted on the London Stock Exchange’s main market for listed securities. Investors should
therefore be aware that the market price of the Ordinary Shares may be more volatile than the
market prices of shares quoted on the London Stock Exchange’s main market for listed securities
and may not reflect the underlying value of the net assets of the Enlarged Group. For these and
other reasons, investors may not be able to sell at a price which permits them to recover their
original investment.
Disclosure and Transparency Rules
Optimal Payments is not subject to the regime on disclosure of significant shareholders in Chapter
5 of the Disclosure and Transparency Rules. In order to comply with Rule 17 of the AIM Rules for
Companies, provisions have been included in the Articles of Association to mirror the requirement,
under Chapter 5 of the Disclosure and Transparency Rules, for significant shareholders to notify
Optimal Payments of changes to their interests in the Ordinary Shares. However, the imposition of
a major shareholder disclosure regime through the Articles of Association is different to the
imposition of a statutory regime and therefore the provisions in the Articles of Association may not
always ensure compliance with the requirements of Rule 17 of the AIM Rules for Companies.
Payment of dividends
There can be no assurance that Optimal Payments will declare dividends or as to the level of any
dividends. The approval of the declaration and amount of any dividends of Optimal Payments is
subject to the discretion of the directors of Optimal Payments (and, in the case of any final
dividend, the discretion of the Shareholders) at the relevant time and will depend upon, among
other things, the Enlarged Group’s earnings, financial position, cash requirements and availability of
distributable profits, as well as the provisions of relevant laws and/or generally accepted accounting
principles from time to time.
Overseas Shareholders may only have limited ability to bring actions or enforce judgments
against the Company or its Directors
The ability of an Overseas Shareholder to bring an action against the Company may be limited
under law. The Company is a public limited company incorporated in the Isle of Man and the rights
of the Company’s Shareholders are governed by Manx law and the Company’s Articles of
Association. These rights differ from the rights of shareholders in typical US corporations and some
other non-Isle of Man or non-UK corporations. It may not be possible for an Overseas Shareholder
to enforce any judgments in civil or commercial matters or any judgments in securities laws of
countries other than the Isle of Man against some or all or the Directors or executive officers of
the Company who are resident in the Isle of Man or countries other than those in which judgment
is made.
The proposed financial transactions tax (‘‘FTT’’)
On 14 February 2013, the Commission published a proposal (the ‘‘Commission’s Proposal’’) for a
Directive for a common financial transaction tax in Belgium, Germany, Estonia, Greece, Spain,
France, Italy, Austria, Portugal, Slovenia and Slovakia (the ‘‘participating Member States’’).
The Commission’s Proposal has very broad scope and could, if introduced, apply to certain
dealings in the New Ordinary Shares or rights to acquire the New Ordinary Shares (including
secondary market transactions) in certain circumstances. Under the Commission’s Proposal, FTT
could apply in certain circumstances to persons both within and outside of the participating Member
States. Generally, it would apply to financial transactions where at least one party is a financial
institution, and (a) one party is established in a participating Member State or (b) the financial
instrument which is subject to the transaction is issued in a participating Member State. A financial
institution may be, or be deemed to be, ‘‘established’’ in a participating Member State in a broad
range of circumstances, including by merely transacting with a person established in a participating
Member State.
41
In relation to many secondary market transactions in bonds and shares, the FTT would be charged
at a minimum rate of 0.1 per cent. on each financial institution which is party to the transaction.
The issuance and subscription of the New Ordinary Shares should, however, be exempt. There are
no broad exemptions for financial intermediaries or market makers. Therefore, the effective
cumulative rate applicable to some dealings in bonds or shares (for instance, cleared transactions)
could be in excess of 0.1 per cent.
A person transacting with a financial institution which fails to account for FTT would be jointly and
severally liable for that tax.
A joint statement issued in May 2014 by ten of the eleven participating Member States indicated
an intention to implement the FTT progressively, such that it would initially apply to shares and
certain derivatives, with this initial implementation occurring by 1 January 2016. However, full
details are not available. Therefore it is not known to what extent the elements of the
Commission’s Proposal outlined in the preceding paragraphs will be followed in relation to the
taxation of shares.
The FTT proposal remains subject to negotiation between the participating Member States. It may
therefore be altered prior to any implementation. Additional Member States may decide to
participate. Prospective holders of the New Ordinary Shares are strongly advised to seek their own
professional advice in relation to the FTT.
FATCA withholding may be imposed in certain circumstances on payments made in respect of
the Ordinary Shares
After 31 December 2016, the Optimal Payments Group or the Enlarged Group may be required to
withhold tax at a rate of 30 per cent. on some portion or all of the payments it makes to
Shareholders in respect of the New Ordinary Shares to the extent that they are considered ‘‘foreign
passthru payments’’ and the New Ordinary Shares are held in an account at a financial institution
that is not itself FATCA compliant. If Optimal Payments is required to withhold amounts under or in
connection with FATCA from any payments in respect of the New Ordinary Shares, Shareholders
and beneficial owners of the New Ordinary Shares will not be entitled to receive any gross up or
other additional amounts to compensate them for such withholding.
Optimal Payments may be considered a passive foreign investment company (‘‘PFIC’’) for U.S.
federal income tax purposes
Although Optimal Payments carries large cash balances in connection with its operations, Optimal
Payments does not believe that it is a PFIC based on the present nature of its activities, including
the e-Wallet and payment processing businesses, and the present composition of its assets
(including goodwill associated with the e-Wallet and payments processing businesses), and does
not expect to become a PFIC in the future. However, PFIC status is factual in nature, may depend
in part on fluctuations in the market price of the New Ordinary Shares, is determined annually, and
generally cannot be determined until the close of the taxable year. No assurances can be provided
that Optimal Payments will not be considered a PFIC with respect to any taxable year. If Optimal
Payments is classified as a PFIC, for any taxable year, materially adverse tax consequences are
likely to arise for certain US Shareholders, in terms of tax liability and return filing requirements,
and Optimal Payments does not expect to furnish the information necessary for US Investors to
make ‘‘qualified electing fund’’ elections.
42
IMPORTANT INFORMATION
Notice to investors
Prospective investors should rely only on the information in this Prospectus. No person has been
authorised to give any information or make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not be relied upon as
having been authorised by the Company or the Underwriters. Without prejudice to any legal or
regulatory obligation on the Company to publish a supplementary prospectus pursuant to section
87G of FSMA and Rule 3.4 of the Prospectus Rules, neither the publication or delivery of this
Prospectus nor any subscription or sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company and/or the Enlarged
Group since the date of this Prospectus or that the information in this Prospectus is correct as at
any time subsequent to its date.
Subject to certain exemptions, neither this document nor the Provisional Allotment Letter
constitutes, or will constitute, or forms part of any offer or invitation to sell or issue, or any
solicitation of any offer to subscribe for, purchase or acquire the Nil Paid Rights, Fully Paid Rights,
Provisional Allotment Letters or the New Ordinary Shares to any Shareholder with a registered
address in or located in the United States or any US Person. The Nil Paid Rights, Fully Paid
Rights, Provisional Allotment Letters and the New Ordinary Shares have not been and will not be
registered under the US Securities Act, or with any regulatory authority or under the applicable
securities laws of any state or other jurisdiction of the United States, and may not be offered, sold,
pledged, or otherwise transferred directly or indirectly to (or for the account or benefit of) any US
Person, or in or into the United States (as defined in Regulation S), except pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the US
Securities Act and applicable state or local securities law.
Shareholders in the United States, subject to certain exemptions, may not exercise their Nil Paid
Rights or Fully Paid Rights or subscribe for or acquire any New Ordinary Shares in connection with
the Rights Issue.
Canaccord Genuity and Deutsche Bank have been appointed as Joint Bookrunners and, together
with BMO Capital Markets, Underwriters in connection with the Rights Issue. The investors
acknowledge that: (i) they have not relied on the Underwriters or any person affiliated with the
Underwriters in connection with any investigation of the accuracy of any information contained in
this document or their investment decision; and (ii) they have relied only on the information
contained in this document, and that no person has been authorised to give any information or to
make any representation concerning the Company or its subsidiaries or the New Ordinary Shares
(other than as contained in this document) and, if given or made, any such other information or
representation should not be relied upon as having been authorised by the Company or the
Underwriters.
In connection with the Rights Issue, the Underwriters and any of their respective affiliates acting as
investors for their own accounts may subscribe for or purchase Nil Paid Rights, Fully Paid Rights
and/or New Ordinary Shares and, in that capacity, may retain, purchase, sell, offer to sell or
otherwise deal for their own accounts in the Nil Paid Rights, Fully Paid Rights and/or New Ordinary
Shares, any other securities of the Company or other related investments in connection with the
Rights Issue or otherwise.
Accordingly, references in this document to the Nil Paid Rights, Fully Paid Rights and/or New
Ordinary Shares being issued, subscribed, sold, purchased or otherwise dealt with should be read
as including any issue, offer or sale to, or subscription, purchase or dealing by, the Underwriters or
any of them and any of their affiliates acting as an investor for its or their own account(s). The
Underwriters do not intend to disclose the extent of any such investment or transactions otherwise
than in accordance with any legal or regulatory obligation to do so.
Overseas Shareholders
Qualifying Shareholders who have registered addresses in or who are resident in, or who are
citizens of, all countries other than the Isle of Man and the UK should refer to paragraph 7 of Part
IV (Terms and Conditions of the Rights Issue).
43
Forward looking statements
This document contains forward looking statements which are based on the beliefs, expectations
and assumptions of the Directors about the Optimal Payments Group’s, the Skrill Group’s and the
Enlarged Group’s businesses, the Acquisition and the Rights Issue. All statements other than
statements of historical fact included in this document may be forward looking statements.
Generally, words such as ‘‘will’’, ‘‘may’’, ‘‘should’’, ‘‘could’’, ‘‘estimates’’, ‘‘continue’’, ‘‘believes’’,
‘‘expects’’, ‘‘aims, ‘‘targets’’, ‘‘projects’’, ‘‘intends’’, ‘‘anticipates’’, ‘‘plans’’, ‘‘prepares’’, ‘‘seeks’’ or, in
each case, their negative or other variations or similar or comparable expressions identify forwardlooking statements.
These forward looking statements are not guarantees of future performance, and there can be no
assurance that the expectations reflected in such forward looking statements will prove to have
been correct. Rather, they are based on the current beliefs, expectations and assumptions and
involve known and unknown risks, uncertainties and other factors, many of which are outside the
control of the Company and are difficult to predict, that may cause actual results, performance,
plans, objectives, achievements or events to differ materially from those express or implied in such
forward looking statements. Undue reliance should, therefore, not be placed on such forward
looking statements. Any forward looking statements contained in this document are subject to
(among other things) the risk factors described in the ‘‘Risk Factors’’ section of this document.
New factors will emerge in the future, and it is not possible to predict which factors they will be. In
addition, the impact of each factor on the Optimal Payments Group’s, Skrill Group’s or the
Enlarged Group’s business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those described in any forward looking statement or
statements cannot be assessed, and no assurance can, therefore be provided that assumptions
will prove correct or that expectations and beliefs will be achieved.
Any forward looking statement contained in this document based on past or current trends and/or
activities of the Optimal Payments Group, Skrill Group or Enlarged Group should not be taken as a
representation that such trends or activities will continue in the future. No statement in this
document is intended to be a profit forecast or to imply that the earnings of the Optimal Payments
Group, Skrill Group or Enlarged Group for the current year or future years will match or exceed
historical or published earnings of the Optimal Payments Group, Skrill Group or Enlarged Group.
Forward looking statements contained in this document do not in any way seek to qualify the
working capital statement contained in paragraph 16 of Part XVI (Additional Information).
Each forward looking statement speaks only as at the date of this document and is not intended to
give any assurance as to future results. The Company and/or its Directors expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any forward looking
statements contained herein as a result of new information, future events or other information,
except to the extent required by the AIM Rules for Companies, the Disclosure and Transparency
Rules, the Prospectus Rules, the rules of the London Stock Exchange or by applicable law.
Presentation of Financial Information
Unless otherwise stated:
*
financial information relating to the Optimal Payments Group has been extracted without
material adjustment from the audited financial statements and unaudited historical financial
information for the period from 1 January 2012 to 31 December 2014 set out in Part IX
(Financial Information of the Optimal Payments Group) of this document; and
*
financial information relating to the Skrill Operating Group has been extracted from the
audited and unaudited financial statements and unaudited historical financial information for
the period from 1 January 2011 to 30 September 2014 set out in Part XI (Financial
Information of the Skrill Operating Group) of this document and converted to US dollars for
comparability. The underlying financial information stated in Euro has been translated into US
dollars as follows:
*
monetary items: translated at closing rates applicable at the appropriate period end;
*
non-monetary items: translated at historic rates and average rates for movements during
the period; and
*
income statement items: translated at average rates during the applicable period.
44
Unless otherwise stated, financial information in this document relating to the Optimal Payments
Group and the Skrill Operating Group has been prepared in accordance with IFRS.
Pro Forma Financial Information
In this document, any reference to ‘‘pro forma’’ financial information is to information which has
been extracted without material adjustments from the unaudited pro forma financial information
contained in Part XII (Unaudited Pro Forma Financial Information). The unaudited pro forma
statement information contained in Part XII (Unaudited Pro Forma Financial Information) is based
on the historical financial information of the Optimal Payments Group and the Skrill Operating
Group contained in Part IX (Financial Information of the Optimal Payments Group) and Part XI
(Financial information of the Skrill Operating Group), respectively.
The unaudited pro forma statement of net assets has been prepared to illustrate the effect on the
net assets of Optimal Payments as if the Acquisition and the Rights Issue had taken place on
1 January 2014 for the financial year ended and as at 31 December 2014 adjusted to reflect the
net assets of the Skrill Operating Group as at 30 September 2014.
The unaudited pro forma income statement has been prepared to illustrate the effect on the profit
and loss of Optimal Payments as if the Acquisition and the Rights Issue had taken place on
1 January 2014 based on the income statement of the Optimal Payments Group for the financial
year to 31 December 2014, adjusted to reflect the net income of the Skrill Group for the rolling
twelve months to 30 September 2014 (being the consolidated comprehensive income for the nine
month period ended 30 September 2014 extracted without adjustment from the financial information
presented in Part XI (Financial Information of the Skrill Operating Group) added to the consolidated
comprehensive income of the Skrill Operating Group for the financial year to 31 December 2013
extracted without adjustment from the financial information presented in Part XI (Financial
Information of the Skrill Operating Group) less the consolidated comprehensive income of the Skrill
Operating Group for the nine month period ended 30 September 2013) presented in Part XI
(Financial Information of the Skrill Operating Group).
The unaudited pro forma net assets statement and the unaudited pro forma income statement
have been prepared for illustrative purposes only and because of its nature, addresses a
hypothetical situation and do not, therefore, represent the Optimal Payments Group’s or the
Enlarged Group’s actual financial position or results. The pro forma financial information has been
prepared under IFRS as adopted by the EU and on the basis set out in Part XII (Unaudited Pro
Forma Financial Information) and in accordance with Annex II to the PD Regulation. The pro forma
financial information is stated on the basis of the accounting policies of Optimal Payments.
Non-GAAP financial measures
The document includes non-GAAP measures and ratios, including EBITDA, which are not
measures of financial performance under IFRS. EBITDA, as calculated by the Optimal Payments
Group for the years ended 31 December 2012, 2013 and 2014 is calculated by the Optimal
Payments Group as set out in paragraph 3.2 of Part VIII (Operating and Financial Review of the
Optimal Payments Group) and by the Skrill Operating Group in paragraph 3.2 of Part X (Operating
and Financial Review of the Skrill Operating Group).
EBITDA and other non-GAAP measures should not be considered in isolation or as an alternative
to profit from operations, cash flow from operating activities or other financial measures of the
Optimal Payments Group’s results of operations or liquidity derived in accordance with IFRS. See
Part VIII (Operating and Financial Review of the Optimal Payments Group) and Part X (Operating
and Financial Review of the Skrill Operating Group) for a reconciliation of EBITDA to profit/(loss)
before tax. The Optimal Payments Group includes EBITDA and other non-GAAP measures in this
document, because it believes that they are useful measures of the Optimal Payments Group’s or
the Skrill Operating Group’s performance and liquidity. Other companies, including those in the
Optimal Payments Group’s and the Skrill Operating Group’s industry, may calculate similarly titled
financial measures in a manner different to that of the Optimal Payments Group or the Skrill
Operating Group. Because all companies do not calculate these financial measures in the same
manner, the Optimal Payments Group’s and the Skrill Operating Group’s presentation of such
financial measures may not be comparable to other similarly titled measures of other companies.
EBITDA is not audited.
45
Currencies
In this document, references to ‘‘£’’, ‘‘pence’’, ‘‘sterling’’, ‘‘Pounds Sterling’’ or ‘‘GBP’’ are to the
lawful currency of the United Kingdom and references to ‘‘US dollars’’, ‘‘US$’’, ‘‘$US’’, ‘‘US¢’’ or
‘‘cents’’ are to the lawful currency of the United States. The abbreviation ‘‘e’’ represents the euro,
the European single currency and the abbreviation ‘‘C$’’ represents the Canadian dollar.
No Profit Forecast
No statement in this document is intended as a profit forecast and no statement in this document
should be interpreted to mean that earnings per Ordinary Share for the current or future financial
years would necessarily match or exceed the historical published earnings per Ordinary Share.
Rounding
Percentages and certain amounts included in this document have been rounded for ease of
presentation. Accordingly, figures shown as totals in certain tables may not be the precise sum of
the figures that precede them.
Percentages and amounts reflecting changes over time periods relating to financial and other data
set out in Part V (Information on the Optimal Payments Group) and Part VII (Information on the
Skrill Operating Group) are calculated using the numerical data in the financial information set out
in Part IX (Financial Information of the Optimal Payments Group) and in Part XI (Financial
Information of the Skrill Operating Group), respectively, or the tabular presentation of other data
(subject to rounding) contained in this document, as applicable, and not using the numerical data in
the narrative description thereof. Accordingly, in certain instances the sum of the numbers in a
column or a row in tables contained in this document may not conform exactly to the total figure
given for that column or row. Some percentages in tables in this document have also been
rounded and accordingly the totals in these tables may not add up to 100 per cent..
Third party information
Where third party information has been used in this document, the source of such information has
been identified. The Company confirms that such information has been accurately reproduced and,
so far as it is aware and has been able to ascertain from information published by such third
parties, no facts have been omitted which would render the reproduced information inaccurate or
misleading.
Time
Any reference to a time in this document is, unless otherwise stated, a reference to a time in
London, England.
Website
The contents of the Optimal Payments Group’s website or the Skrill Group’s website or of any
website accessible via hyperlinks from the Optimal Payments Group’s or the Skrill Group’s website
are not incorporated into, and do not form part of, this document.
Available Information
THE COMPANY HAS AGREED THAT, FOR SO LONG AS THE NIL PAID RIGHTS, FULLY PAID
RIGHTS, PROVISIONAL ALLOTMENT LETTERS AND THE NEW ORDINARY SHARES ARE
‘‘RESTRICTED SECURITIES’’ WITHIN THE MEANING OF RULE 144(a)(3) UNDER THE
SECURITIES ACT, IT WILL, DURING ANY PERIOD IN WHICH IT IS NEITHER SUBJECT TO
AND IN COMPLIANCE WITH SECTION 13 OR 15(D) OF THE EXCHANGE ACT, NOR EXEMPT
FROM REPORTING PURSUANT TO RULE 12g3-2(b) THEREUNDER, FURNISH UPON
REQUEST TO ANY HOLDER OR BENEFICIAL OWNER OF NIL PAID RIGHTS, FULLY PAID
RIGHTS, PROVISIONAL ALLOTMENT LETTERS OR NEW ORDINARY SHARES, OR ANY
PROSPECTIVE PURCHASER DESIGNATED BY ANY SUCH HOLDER OR BENEFICIAL OWNER,
THE INFORMATION SPECIFIED IN, AND MEETING THE REQUIREMENTS OF, RULE 144A(d)(4)
UNDER THE SECURITIES ACT.
46
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Each of the times and dates in the table below is indicative only and may be subject to change.
Please read the notes to this timetable set out below.
2015
Announcement of the Acquisition and the Rights Issue
23 March
Prospectus and Forms of Proxy despatched
23 March
Excluded Shareholder Circular and Forms of Proxy despatched
23 March
Latest time and date for receipt of Forms of Proxy or electronic proxy
appointments
Record Date for entitlements under the Rights Issue
General Meeting
11.00 a.m. on 14 April
5.00 p.m. on 14 April
11.00 a.m. on 16 April
Despatch of Provisional Allotment Letters (to Qualifying Non-CREST
Shareholders only)
Existing Ordinary Shares marked ‘ex-rights’ by AIM
Rights Issue Admission of New Ordinary Shares, nil paid and
dealings in New Ordinary Shares, nil paid, commence on AIM
16 April
8.00 a.m. on 17 April
8.00 a.m. on 17 April
Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST
Shareholders only)
as soon as practicable
after 8.00 a.m. on 17 April
Nil Paid Rights and Fully Paid Rights enabled in CREST
as soon as practicable
after 8.00 a.m. on 17 April
Recommended latest time for requesting withdrawal of Nil Paid Rights or
Fully Paid Rights from CREST (i.e. if your Nil Paid Rights or Fully Paid
Rights are in CREST and you wish to convert them to certificated form)
4.30 p.m. on 27 April
Recommended latest time and date for depositing renounced Provisional
Allotment Letters, nil paid or fully paid into CREST or for dematerialising
Nil Paid Rights or Fully Paid Rights into a CREST stock account (i.e. if
your Nil Paid Rights or Fully Paid Rights are represented by a Provisional
Allotment Letter and you wish to convert them to uncertificated form)
3.00 p.m. on 28 April
Latest time and date for splitting Provisional Allotment Letters, nil paid or
fully paid
3.00 p.m. on 29 April
Latest time and date for acceptance, payment in full and registration
of renounced Provisional Allotment Letters
11.00 a.m. on 1 May
Announcement of results of Rights Issue
by 8.00 a.m. on 5 May
Dealings in New Ordinary Shares, fully paid, commence on the
London Stock Exchange and New Ordinary Shares credited to
CREST stock accounts (uncertificated holders only)
Expected despatch of definitive share certificates for the New Ordinary
Shares in certificated form
8.00 a.m. on 5 May
by not later than 12 May
Notes:
(1) The times and dates set out in the expected timetable of principal events above and mentioned in this document, the
Provisional Allotment Letter and in any other document issued in connection with the Rights Issue and the Acquisition are
subject to change by the Company, in which event details of the new times and dates will be notified to the UK Listing Authority,
the London Stock Exchange and, where appropriate, to Shareholders.
(2) Any reference to a time in this document is to the time in London, England, unless otherwise specified.
(3) The ability to participate in the Rights Issue is subject to certain restrictions relating to Shareholders with registered addresses
or located or resident in countries outside the UK, details of which are set out in Part IV (Terms and Conditions of the Rights
Issue) of this document.
47
RIGHTS ISSUE AND ACQUISITION STATISTICS
Offer Price per New Ordinary Share
166 pence
Basis of Rights Issue
5 New Ordinary Shares for
every 3 Existing Ordinary
Shares
Number of Existing Ordinary Shares in issue(1)
163,153,081
Number of New Ordinary Shares to be issued pursuant to the Rights Issue
271,921,802
Aggregate number of Ordinary Shares, admitted to trading on AIM upon
Rights Issue Admission(2)
435,074,883
New Ordinary Shares as a percentage of the Enlarged Share Capital of
the Company following completion of the Rights Issue
62.5 per cent.
Estimated gross proceeds of the Rights Issue
£451 million
Estimated expenses of the Rights Issue and the Acquisition
(2)
£45 million
Estimated net proceeds receivable by the Company after deduction of the
expenses of the Rights Issue and the Acquisition
£406 million
Number of Skrill Consideration Shares to be issued pursuant to the
Acquisition
37,493,053
Aggregate number of Ordinary Shares to be re-admitted to trading on AIM
upon Completion(2)
472,567,936
Notes:
(1) As at the Latest Practicable Date.
(2) Assuming no Ordinary Shares are issued under the Optimal Payments Employee Share Plans.
(3) Total estimated expenses split as follows: Rights Issue: £18.4 million and Acquisition: £26.7 million.
48
DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS
Directors
Dennis Jones (Non-Executive Director (Chairman))
Joel Leonoff (President and Chief Executive Officer)
Brian McArthur-Muscroft (Chief Financial Officer)
Andrew Dark (Non-Executive Director)
Ian Francis (Non-Executive Director)
Brahm Gelfand (Non-Executive Director)
Ian Jenks (Non-Executive Director)
Stephen Shaper (Non-Executive Director)
Company Secretary
Matthew Jones
Registered and Head Office Address
Audax House
6 Finch Road
Douglas
IM1 2PT
Isle of Man
Nominated Adviser, Joint Bookrunner and
Broker
Canaccord Genuity Limited
88 Wood Street
London
EC2V 7QR
United Kingdom
Joint Bookrunner
Deutsche Bank AG, London Branch
1 Great Winchester St
London
EC2N 2DB
United Kingdom
Co-Lead Manager
BMO Capital Markets Limited
95 Queen Victoria Street
London
EC4V 4HG
United Kingdom
Financial Adviser
Lazard & Co., Limited
50 Stratton Street
London
W1J 8LL
United Kingdom
Legal advisers to Optimal Payments as to
English law and US law
Hogan Lovells International LLP
Atlantic House
Holborn Viaduct
London
EC1A 2FG
United Kingdom
Legal advisers to Optimal Payments as to
Canadian law
Stikeman Elliott LLP
1155 René-Lévesque
Blvd. West,
40th Floor,
Montréal, QC
Canada
49
Legal advisers to Optimal Payments as to
Isle of Man law
Cains Advocates Limited
Fort Anne
Douglas
IM1 5PD
Isle of Man
Legal advisers to the Underwriters as to
English law and US law
DLA Piper UK LLP
3 Noble Street
London
EC2V 7EE
United Kingdom
Legal advisers to Sentinel Group Holdings
S.A. as to English law
Clifford Chance LLP
10 Upper Bank Street
London
E14 5JJ
United Kingdom
Auditors and Reporting Accountants
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
IM99 1HN
Isle of Man
Registrar
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom
Receiving Agent
Capita Asset Services
Corporate Actions
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
United Kingdom
50
WHERE TO FIND HELP
If you have any questions relating to the Rights Issue, please telephone the Shareholder Helpline
on the numbers set out below. The Shareholder Helpline is available from 9.00 a.m. to 5.30 p.m.
Monday to Friday and will remain open until 26 May 2015.
Shareholder Helpline telephone numbers:
0871 664 0321 (from inside the UK) or +44 20 8639 3399 (from outside the UK)
Calls to the 0871 664 0321 number from inside the UK are charged at 10 pence per minute
(including VAT) plus network extras. Calls to the +44 20 8639 3399 number from outside the UK
are charged at applicable international rates. Different charges may apply to calls made from
mobile telephones and calls may be randomly monitored for security and training purposes.
Please note that, for legal reasons, the Shareholder Helpline will only be able to provide
information contained in this document and information relating to the Company’s register of
members and will be unable to give advice on the merits of the Rights Issue or to provide
financial, tax or investment advice.
51
PART I
LETTER FROM THE CHAIRMAN OF OPTIMAL PAYMENTS PLC
(incorporated and registered in Isle of Man with registered number 109535C)
Directors
Dennis Jones (Non-Executive Director (Chairman))
Joel Leonoff (President and Chief Executive Officer)
Brian McArthur-Muscroft (Chief Financial Officer)
Andrew Dark (Non-Executive Director)
Ian Francis (Non-Executive Director)
Brahm Gelfand (Non-Executive Director)
Ian Jenks (Non-Executive Director)
Stephen Shaper (Non-Executive Director)
Registered Office
Audax House
6 Finch Road
Douglas
IM1 2PT
Isle of Man
23 March 2015
Dear Shareholder
Proposed Acquisition of Sentinel Topco Limited
and
Proposed 5 for 3 Rights Issue at 166 pence per New Ordinary Share
and
Notice of General Meeting
1.
INTRODUCTION
On 23 March 2015, the Company announced that it and its subsidiary, Netinvest Limited, have
entered into a conditional agreement with Sentinel Group Holdings S.A. to acquire Sentinel Topco
Limited, ultimately owned by CVC Funds, Investcorp Technology Partners and other shareholders,
(the ‘‘Acquisition Agreement’’). Completion is subject to the satisfaction of a number of
conditions, including, amongst other things, applicable regulatory approvals having been obtained
and the Resolutions being passed at the General Meeting.
In its announcement on 23 March 2015, the Company also announced a Rights Issue which is
expected to raise gross proceeds of approximately £451 million. The Rights Issue is expected to
commence following the Resolutions being passed at the General Meeting. The Rights Issue is
being made on the basis of 5 New Ordinary Shares at 166 pence per share for each 3 Existing
Ordinary Shares. The Offer Price represents:
*
a 34 per cent. discount to the theoretical ex-rights price of an Existing Ordinary Share when
calculated by reference to the volume weighted average price of 398 pence per Existing
Ordinary Share during the five day period between 16 March 2015 and 20 March 2015 (being
the Latest Practicable Date before the announcement of the Rights Issue);
*
a 36 per cent. discount to the theoretical ex-rights price of an Existing Ordinary Share, when
calculated by reference to the Closing Price of 419 pence per Existing Ordinary Share on
20 March 2015; and
*
a 60 per cent. discount to the Closing Price of 419 pence per Existing Ordinary Share on
20 March 2015.
The Rights Issue has been fully underwritten by Canaccord, Deutsche Bank and BMO Capital
Markets on, and subject to, the terms of the Underwriting Agreement. The principal terms of the
Underwriting Agreement are summarised in paragraph 14.1 of Part XVI (Additional Information) of
this document. The Rights Issue is conditional upon, amongst other things, Rights Issue Admission
becoming effective and the Underwriting Agreement becoming unconditional in all aspects and not
having been terminated in accordance with its terms.
The net proceeds of the Rights Issue, together with existing cash and additional debt made
available to the Optimal Payments Group under the New Bank Facilities, will be used to satisfy the
cash consideration of e720 million payable under the terms of the Acquisition.
52
The purpose of this document is to explain the background to, and provide you with information
on, the Acquisition and the Rights Issue and to issue a notice for the General Meeting to be held
to consider, and if thought appropriate, pass the Resolutions needed to approve the Acquisition
and the Rights Issue.
The Acquisition, if completed, would be of sufficient size to constitute a reverse takeover under the
AIM Rules for Companies, and therefore is subject to the approval of Shareholders at the General
Meeting. Further details of the General Meeting are set out in paragraph 18 of this Part I. Further
details of the terms and conditions of the Acquisition are set out in paragraph 8 of this Part I.
This document also explains why the Directors believe the Acquisition and the Rights Issue to be
in the best interests of the Shareholders taken as a whole. The Board recommends that you vote
in favour of the Resolutions.
Shareholders should read the whole of this document and not just rely on the summarised
information set out in this letter.
2.
Background to and reasons for the Acquisition
The Skrill Group is a privately held global provider of digital payment and electronic money
solutions, founded and headquartered in London, UK, with key offices in Vienna, New York and
Sofia. The Skrill Group is one of Europe’s leading digital payments providers providing digital wallet
solutions and online payment processing capabilities and is one of the largest pre-paid online
voucher providers in Europe with its paysafecard brand. The Skrill Operating Group’s consolidated
revenues for the financial year ended 31 December 2013 were e215.7 million ($286.4 million) and
adjusted EBITDA was e57.8 million ($76.8 million) for the same period.
The Directors consider that the businesses of the Optimal Payments Group and the Skrill Group
share a number of key attributes:
*
both the Optimal Payments Group and the Skrill Group are established providers of payment
processing and digital wallet solutions to merchants and customers operating at a global scale
with a presence in multiple international markets;
*
both the Optimal Payments Group and the Skrill Operating Group are characterised by high
underlying gross profit margins (Optimal Payments 52 per cent., Skrill 59 per cent., each for
the financial year ended 31 December 2013) and scalable business models;
*
both the Optimal Payments Group and the Skrill Group provide stored value digital wallet
solutions to the online gambling industry; and
*
both the Optimal Payments Group and the Skrill Group generate revenue streams from
merchant and customer fees relating to fund movements on their digital wallet platforms.
Optimal Payments’ management team has, over the three years ended 31 December 2014, proven
adept at increasing revenues, EBITDA, profitability margins (since 2012) and cash generation
significantly year-on-year, through delivering strong organic growth from new and existing
merchants and expansion into key strategic markets, coupled with tight financial discipline.
The Board has for some time recognised the potential for a combination of the two businesses.
The Directors believe that the Acquisition is transformational for both the Optimal Payments Group
and the Skrill Group in that it creates a combined entity with significant international scale and
reach that is positioned to capitalise on the substantial and growing payment processing and digital
wallet markets, in particular within the rapidly expanding online gambling sector. The combination
of the Optimal Payments Group and the Skrill Group would leverage the existing strengths and
complementarities of both businesses and is expected to bolster the market share and reach of the
Enlarged Group’s combined product offering, broaden its geographic presence, diversify customer
concentration and ultimately establish a highly scalable, leading global payment provider.
Additionally, the Enlarged Group will be well-positioned in markets and sectors that display high
barriers to entry, owing to a complex network of participants and a requirement for robust
technological infrastructure as well as regulatory licences and approvals, all of which are difficult to
replicate. Therefore, the Directors believe that there is a compelling strategic rationale underpinning
the Acquisition which sees the joining together of two highly complementary businesses, well
positioned for long term organic growth as discussed in further detail below.
53
Highly Complementary Businesses and Product Diversification
The Directors believe that there is considerable mutual benefit in combining the product portfolios
of the Optimal Payments Group and the Skrill Group businesses as each of the Optimal Payments
Group’s and the Skrill Group’s primary offerings, in terms of revenue generation, is the other’s
secondary line of business.
The Skrill Group comprises Skrill, paysafecard and payolution. Skrill’s principal product is the eWallet, an internet-based stored value account, established by merchants and customers,
maintained by Skrill and enabling account holders to send and receive money instantly and
securely, using a wide selection of payment options at a low cost and to pay for goods and
services online. The e-Wallet product has represented (adjusted for the paysafecard acquisition)
49 per cent. of FY2012 and, 49 per cent. of FY2013 and 44 per cent. of the revenue for the nine
month period ended 30 September 2014 of the Skrill Group. Skrill also provides payment-related
services through its Payment Service Provider (‘‘PSP’’) Gateway, Direct Payment Gateway and
Prepaid MasterCardâ offering, although these together comprise a smaller part of the overall Skrill
business. Paysafecard contributed more than half of the Skrill Group revenues in FY2013 and the
nine month period ended 30 September 2014 (53 per cent. and 55 per cent. respectively).
Payolution offers a white label payment upon invoice solution to merchants and contributed less
than one per cent. of FY2013 revenue and less than one per cent. of revenue for the nine month
period ended 30 September 2014.
Conversely, the Optimal Payments Group’s principal product is the provision of straight through
processing (‘‘STP’’) to merchants which includes the Asia Gateway service. Other than the Asia
Gateway service, the majority of merchants using the services offered by the STP business are
non-gambling merchants transacting online although the Optimal Payments Group’s largest STP
merchant is an online gambling merchant. The STP business represented 78 per cent. of Optimal
Payments’ FY2012 revenue, 76 per cent. of Optimal Payments’ FY2013 revenue and 75 per cent.
of Optimal Payments’ FY2014 revenue. Furthermore, the Directors believe that the acquisitions of
Meritus Payment Solutions and Global Merchant Advisors, Inc. which operate in the US and which
completed on 23 July 2014 will contribute materially to Optimal Payments Group’s STP revenue.
The other parts of Optimal Payments’ business are the NETELLERâ Stored Value segment, which
also includes the Net+ Prepaid MasterCardâ product and the Optimal Payments Group’s prepaid
card issuing services and white label offering. The stored value proposition, in the same way as
Skrill’s e-Wallet, is used by customers to pay for goods and services online or for the remittance of
money to other account holders.
Therefore, the Directors believe the Enlarged Group would enjoy a balanced segmentation of
revenues between the two distinct divisions of stored value and payment processing. Additionally,
the Acquisition provides the Optimal Payments Group with an incremental revenue stream in the
form of pre-paid online voucher issuance through paysafecard.
Skrill completed the acquisition of paysafecard on 8 February 2013. The table below illustrates
comparable selected financial information for the Skrill Operating Group’s products (Skrill,
paysafecard and payolution) for the periods shown below and extracts without adjustment (save
for conversion into US dollars for compatibility), the selected financial information in the columns
headed Year ended 31 December 2012 and 2013 for paysafecard from the paysafecard audited
historical financial statements for the years ended 31 December 2012 and 2013 which are set out
in Part XI (Financial Information of the Skrill Operating Group), for Skrill from the financial
statements of the Skrill Operating Group for the years ended 31 December 2012 and 31 December
2013 which are set out in Part XI (Financial Information of the Skrill Operating Group) and from
Skrill management information and for payolution from the Skrill Operating Group’s management
accounts. The table below does not represent the Skrill Operating Group’s actual financial position
or results. The actual financial position and results of the Skrill Operating Group (including
paysafecard results from the date of its acquisition on 8 February 2013) are set out in Part X
(Operating and Financial Review of the Skrill Operating Group) and Part XI (Financial Information
of the Skrill Operating Group).
54
(US$)m(1)
Year ended 31 December
2012
Revenue split
Skrill
paysafecard
payolution
Total Revenue
Cost of Sales(2)
Skrill margin
paysafecard margin
payolution margin
Total Margin
EBITDA (pre-exceptional)(3)
Cash balance(4)
Debt
129.5
135.8
0.4
265.7
(107.1)(2)
91.0
67.5
0.0
158.6
68.7
122.7
97.4
12 month
period
ended
September
2013
139.0
158.2
2.1
299.3
(122.8)(2)
97.7
78.2
0.6
176.5
78.6
65.4
143.5
2014
145.5
180.8
5.2
331.5
(134.4)
104.4
91.3
2.0
197.1
88.9
43.6
176.8
Sources: paysafecard audited historical statements for the years ended 31 December 2012 and 2013, financial statements of the
Skrill Operating Group for the years ended 31 December 2012 and 31 December 2013 and Skrill management information,
unaudited financial information of the Skrill Operating Group for the nine months ended 30 September 2014 and Skrill Operating
Group’s management accounts. The financial information of the Skrill Operating Group for the rolling 12 months ended 30
September 2014 has been calculated by adding the income of the Skrill Operating Group for the nine month period ended 30
September 2014 to the income of the Skrill Operating Group for the financial year to 31 December 2013 and subtracting the income
of the Skrill Operating Group for the nine month period ended 30 September 2013.
(1) Converted from Euro to US dollars at the following exchange rates: 1.286 (2012), 1.328 (2013), 1.317 (nine months to
September 2013), 1.356 (nine months to September 2014).
(2) Cost of sales is calculated by aggregating the cost of sales for paysafecard, Skrill and payolution from the paysafecard audited
historical financial statements for the years ended 31 December 2012 and 2013, financial statements of the Skrill Operating
Group for the years ended 31 December 2012 and 31 December 2013 and Skrill Operating Group’s management accounts.
(3) Rolling 12 months ended 30 September 2014 stated after non-recurring costs of $16.8 million. 2013 stated after non-recurring
costs of $13.2 million and 2012 $5.0 million respectively.
(4) Excludes e-money float.
The table below sets out selected financial information relating to the Optimal Payments Group’s
products for the financial years 2012, 2013 and 2014. See Part VIII (Operating and Financial
Review of the Optimal Payments Group) and Part IX (Financial Information of the Optimal
Payments Group).
(US$)m
Year ended 31 December
Revenue split
NETBANX
NETELLER
Other(2)
Total Revenue
Cost of sales
NETBANX margin
NETELLER margin
Other(2)
Total Margin
EBITDA (pre-exceptional)
Cash balance
Debt
2012
2013
138.9
38.8
1.4
179.1
(89.4)
57.9
30.4
1.3
89.6
27.6
82.2
—
193.0
59.8
0.5
253.4
(121.5)
81.1
50.3
0.5
131.9
52.2
164.4
—
2014(1)
274.7
89.6
0.7
365.0
(175.8)
112.5
76.0
0.6
189.1
86.1
142.3
127.8
Sources: Optimal Payments audited historical statements for the year ended 31 December 2012, 31 December 2013 and
31 December 2014
(1) Includes Meritus and GMA from the date of their acquisition
(2) Other includes investment income
55
For illustrative purposes only, the table below sets out (i) the revenue of the Enlarged Group for
FY2014 on a combined basis (assuming that the Acquisition had taken place on 1 January 2014,
and based on revenue generated by the Optimal Payments Group in the twelve months to 31
December 2014 and by the Skrill Operating Group in the rolling twelve months to 30 September
2014); (ii) the aggregated revenue for FY2012 and FY2013 of the Optimal Payments Group, Skrill
Operating Group (excluding paysafecard) and paysafecard (in each case extracted without
adjustment from the relevant actual historical financial statements and management accounts save
for conversion into US dollars for comparability); and (iii) EBITDA for the periods shown below
calculated on the basis of the respective revenue numbers.
(US$m)(1)
Year ended 31 December
Total Revenue(3)
EBITDA (pre-exceptional)
FY2012
FY2013
FY2014(2)
444
96
552
131
697
175
Sources: Optimal Payments’ audited historical statements for the year ended 31 December 2012, 31 December 2013 and
31 December 2014, paysafecard audited historical statements for the years ended 31 December 2012 and 2013, financial
statements of the Skrill Operating Group for the years ended 31 December 2012, and 31 December 2013, unaudited financial
information of the Skrill Operating Group for the nine months ended 30 September 2014 and Skrill management accounts. The
financial information of the Skrill Operating Group for the rolling 12 months ended 30 September 2014 has been calculated by
adding the income of the Skrill Operating Group for the nine month period ended 30 September 2014 to the income of the Skrill
Operating Group for the financial year to 31 December 2013 and subtracting the income of the Skrill Operating Group for the nine
month period ended 30 September 2013.
(1) Converted from Euro to US dollars at the following exchange rates: 1.286 (2012), 1.328 (2013), 1.317 (nine months to
September 2013), 1.356 (nine months to September 2014).
(2) Includes Meritus and GMA from the date of their acquisition.
(3) Includes investment income of the Optimal Payments Group.
Increased Digital Wallet Presence
Aside from adding scale to the smaller respective parts of Optimal Payments’ and the Skrill
Group’s businesses, the Directors believe that the Acquisition will assist the Enlarged Group to
bolster market share and penetration within directly competing facets of both businesses, such as
the stored value segment. Skrill’s e-Wallet and Optimal Payments’ NETELLERâ product are both
focused on the online gambling sector albeit with some exposure to different geographies and as
such, the Optimal Payments Group and the Skrill Group will naturally have a number of existing
stored value merchants in common. The Directors expect the Enlarged Group to leverage the
increased merchant penetration, thereby reducing the need for direct sales activities and
additionally enhance existing relationships through a strengthened offering. Within online gambling,
both Optimal Payments and Skrill are focused on important end customers transacting high
volumes through their respective NETELLERâ and e-Wallet platforms (‘‘VIP Customers’’). The
Skrill Group introduced its VIP Customer scheme in 2006 as a means to create customer loyalty,
premised on retention of VIP Customers. Over the last five years, the Skrill Group’s VIP Customer
base has grown from approximately 5,400 in 2009 to 23,796 in 2014. Similarly, Optimal Payments’
NETELLERâ product has a VIP Customer focus, with over 13,000 VIP Customers, and Optimal
Payments operates an enhanced loyalty cash back programme and a dedicated VIP Customer
support team. The Directors believe that Optimal Payments’ and Skrill’s respective stored value
offerings have a number of existing VIP Customers in common. As a result of the critical mass
that the Enlarged Group would enjoy in this business vertical, the Directors believe that there
would be natural scale benefits, reductions in marketing spend and associated network effect
benefits, which will create a more efficient VIP Customer marketing strategy and which will also
result in the Enlarged Group being able to effectively monetise the expanded base of VIP
Customers.
Market Scale
The Enlarged Group would leverage the extensive platforms of the Optimal Payments Group and
the Skrill Group, with the following combined capabilities:
*
100+ payment types in 22+ languages and 41 currencies offered by the Enlarged Group.
56
*
Combined revenues of US$235.1 million from stored value digital wallet solutions
(US$89.6 million from NETELLERâ for the twelve month period ended 31 December 2014
and US$145.5 million from Skrill’s e-Wallet1) with 27 million registered customer accounts
(8 million from NETELLERâ as at 31 December 2014 and approximately 19 million from Skrill
as at 30 September 2014) and approximately 2,200 active merchants (approximately 1,200
from NETELLERâ as at 31 December 2014 and 1,000 from Skrill as at 30 September 2014),
with approximately $7 billion transaction value processed in FY2014 by NETELLERâ2 and
approximately e3.6 billion transaction value processed in the twelve month period ended
30 September 2014 across the Skrill payment processing platform.
*
Revenues of US$274.7 million from Optimal Payments Group’s STP payment gateways for
the twelve month period ended 31 December 2014, with over 56,500 active merchants
(approximately 16,600 from Optimal Payments Group as at 31 December 2014 and over
40,000 from Skrill as at 30 September 2014) and 20+ global acquiring relationships.
*
Revenues of US$180.8 million from paysafecard in the twelve month period ended
30 September 2014 with more than 442,000 points of sales worldwide as at 30 September
2014 and with payments being able to be made to approximately 5,700 online stores, with
approximately e1.6 billion transaction value processed in the twelve month period ended
30 September 2014.
On a historical basis (as at 30 September 2014 assuming the Acquisition had taken place at that
time), the Enlarged Group would be a leading provider of stored value accounts in the global
online gaming sector, STP payment gateway services in the global online gaming sector and a
leading provider of e-Wallet (or stored value account) services.
Customer Diversification
Historically Optimal Payments has derived a substantial proportion of its revenue from a single
merchant, representing 34 per cent. of FY2012, 41 per cent. of FY2013 and 36.7 per cent. of
FY2014 revenue. The Skrill Group derived 6 per cent. of FY2012 and 7 per cent. of FY2013
revenue from the same merchant. Whilst the acquisitions of Meritus Payment Solutions and Global
Merchant Advisors, Inc. by Optimal Payments in July 2014 decreased the proportion of its revenue
derived from the single merchant to approximately 27 per cent. for the period of 1 August 2014 to
31 December 2014, the Acquisition is a further major step forward in reducing Optimal Payments’
customer concentration and mitigating principal customer exposure and risk, whilst establishing a
well-rounded and broad customer base diversified across individual merchants, geographic regions
and business verticals. In respect to presence in business verticals, the Skrill Group has a
presence in the digital media segment that would be directly additive to the Optimal Payments
Group’s more focused customer base. The combination of customer bases specifically addresses
the Optimal Payments Group’s existing customer risk management strategy of developing a
diversified customer portfolio.
Geographic diversification
There is a complementarity in the Optimal Payments Group’s and the Skrill Group’s geographic
areas of operation and revenue generation, stemming from a low overlap of competing presence in
multiple regions and individual footholds in specific geographies. The Skrill Group is a European
leader in the digital wallet offering, generating (adjusted for the paysafecard acquisition), 74 per cent.
of FY2012 and 74 per cent. of FY2013 revenue from this geography. Within Europe, Germany
contributed 21.2 per cent. of FY2012 and 20.2 per cent. of FY2013 revenue. Optimal Payments, on
the other hand, whilst having a significant presence in the European market, also services
organisations that have customers in Asia, catering to online gambling merchants and generating
40 per cent. of FY2012 and 46 per cent. of FY2013 revenue from this region. Optimal Payments is
also well placed to capitalise on expected growth in the North American regulated online gambling
market, having launched its NETELLERâ and Net+ products in the US in March 2014. Strong
adoption by online gambling merchants has been evidenced in the three states in the US which
have regulated online gambling. The Acquisition will therefore fortify an already significant presence
in the European market, whilst providing a more geographically diversified revenue base, alleviating
political and jurisdictional risk, in particular those pertaining to the more regulated vertical of online
1
2.
All revenue from the Skrill Group, with the exception of prepaid revenue from paysafecard, is attributed to e-Wallet (including
payment gateway revenue).
A transaction for these purposes is an upload by a member, a withdrawal by a member, a payment from a member to a
merchant, a payment from a merchant to a member or a money transfer between members.
57
gambling. The Acquisition also offers the opportunity to enter new geographies for both the Optimal
Payments Group’s and the Skrill Group’s combined product offering, leading to a wider opportunity
for revenue generation.
As an illustration of this, the Optimal Payments Group derived approximately 21 per cent. of its
revenue from Europe, 27 per cent. of its revenue from North America (including Canada) and the
remaining 52 per cent. of revenue from the rest of the world in the twelve month period ended
31 December 2014.
The Skrill Operating Group derived approximately 92 per cent. of its revenue from Europe, 2 per
cent. of its revenue from North America and the remaining 6 per cent. of its revenue from the rest
of the world in the rolling twelve month period ended 30 September 2014 (based on the unaudited
pro forma financial information for such rolling twelve month period contained in Part XII (Unaudited
Pro Forma Financial Information) of this document and excluding non-attributable revenue of
$57.3 million which includes, among other things, FX spread income and rebates).
On the basis of these figures, the Enlarged Group, on a pro forma basis, would have derived
approximately 52 per cent. of its revenue from Europe, 16 per cent. of its revenue from North
America (including Canada) and the remaining 32 per cent. of revenue from the rest of the world.
Profit Margin Expansion and Increased Scaleability
The Optimal Payments Group and the Skrill Operating Group enjoyed high gross margins of
52.0 per cent. and 59.5 per cent. of FY2013 revenues respectively, reflecting the high inherent
level of operating leverage afforded by their business models. Payment processing exhibits higher
variable processing costs than the stored value division, and as such the Skrill Operating Group
has a higher overall gross margin as the stored value segment constitutes the majority of its
revenue. The Skrill Operating Group’s FY2013 gross margin trends higher towards the 70 per cent.
level when viewed on an isolated basis, after removing paysafecard and Payolution. Therefore, the
Directors believe that the Acquisition would offer Optimal Payments immediate margin expansion
as a result of the Enlarged Group’s business mix.
The Optimal Payments Group and the Skrill Group operate highly scalable business models, where
revenue streams are generated via merchant and customer fees relating to fund movements on the
digital wallet platforms and via transactional processing. The stored value segment is characterised
by low variable costs, which, given the established merchant relationships and customer reach and
penetration, will enable the Enlarged Group to increase its scale considerably. The gross margin of
Optimal Payments’ stored value segment was 78 per cent. of FY2012 revenues, 84 per cent. of
FY2013 revenues and 85 per cent. of revenues for FY2014. The gross margin of Optimal
Payments’ STP business was 42 per cent. of FY2012 revenues, 42 per cent. of FY2013 revenues
and 41 per cent. of revenues for FY2014.
The Skrill Operating Group generates recurring revenue streams, once funds are uploaded via the
digital wallet onto the Skrill platform, by charging customers and merchants fees for fund
movements, whilst only incurring a cost when funds leave or enter its digital payments network.
Fund transfers made to and from a digital wallet are platform-based and therefore have a negligible
associated cost. The Skrill Operating Group also generates transactional revenue streams from its
PSP and paysafecard products as well as applying spread margins to its multi-currency
transactions through its foreign exchange capabilities.
Integration Benefits
The Company has a strong team of Executive Directors who have a track record of integrating
acquisitions. The Directors believe that the principal integration benefits of the Acquisition will arise
mainly from the delivery, over the medium term, of operational efficiencies across the Enlarged
Group. On the basis of conservative assumptions targeting clear cost savings opportunities, the
Company is targeting on-going cost savings from synergies of approximately US$40 million per
annum by the end of FY2016, with expected one off costs to achieve these synergies of
approximately US$26 million by end of FY2016. The Company’s synergies estimate has been
reviewed by one of the ‘‘Big Four’’ accounting firms. In addition to this, the Directors believe there
is potential to generate additional revenue from the cross-selling of products to merchants and
customers after Completion. Given the scale of the Enlarged Group, the Directors believe that the
operational efficiencies will be achieved primarily through reducing duplicated central costs and
combining corporate support functions where appropriate. An integration team is ready to execute
on identified synergy opportunities immediately following Completion. Furthermore, due to the
58
businesses’ digital payment platforms relying on technology software applications and hardware, in
the medium term operational efficiencies can also be achieved through the consolidation of Skrill’s
PSP and the migration onto a single consolidated IT infrastructure platform (in particular, the
migration of merchants from the Skrill Group’s PSP to the Optimal Payments Group’s NETBANXâ
platform) and, in the long term, operational efficiencies can be achieved by running Skrill’s e-Wallet
from the consolidated IT infrastructure platform and consolidating technology stacks and modules
such as KYC, AML and risk management functions. Whilst it is currently assumed by the Directors
that the Optimal Payments and Skrill brands will remain separate following the Acquisition, it is
expected that consolidation and rationalisation of the respective brands will be considered in the
long term and this may lead to further operational and IT related synergies. Finally, the Directors
believe that the Enlarged Group will benefit from a reduced requirement to conduct sales and
marketing initiatives and cash back and promotional programmes in the stored value division, due
to the natural customer acquisition and retention improvements that arise out of the Acquisition.
The Directors believe that, taking into account the business and prospects of the Enlarged Group,
the Acquisition will be accretive to adjusted earnings per share by the end of FY2016, (the first full
fiscal year following Completion). This statement is not intended to be a profit forecast, and should
not be interpreted to mean that the earnings per share of Optimal Payments following Completion
will necessarily be above or below the historical published earnings per share.
However, whilst the opportunity for operational efficiencies are an integration focus for Optimal
Payments’ management, the key focus is to ensure that the Acquisition is effected without undue
disruption to the product development, sales, support and administrative functions of the Enlarged
Group. As at the Latest Practicable Date, an outline integration and alignment plan has been
developed. A more detailed alignment plan to be prepared prior to Completion will set out the
scope of the wider and longer term alignment process, quantifiable objectives and the proposed
organisation structure of the Enlarged Group. The Enlarged Group’s headquarters will continue to
be located in the Isle of Man.
Capturing expected growth in the North American gambling market
The opening of the US regulated online gambling market presents a significant opportunity for
Optimal Payments to grow its operations which provide payment processing and risk management
solutions to regulated online gambling merchants. The Optimal Payments Group already serves
some licensed US online gambling operators but it currently derives an immaterial proportion of its
revenue from the US regulated online gambling industry. As and when new markets are formed
from further state-by-state deregulation, the Optimal Payments Group will seek to capture market
share in these new markets. The Directors believe that Optimal Payments is well positioned to take
advantage of expected growth in the North American regulated online gambling market, having
launched its NETELLERâ and Net+ products in the US in March 2014.
Intention to seek application for admission to the premium listing segment of the Official List and to
trading on the London Stock Exchange’s main market for listed securities following Completion
As soon as possible after Completion, the Directors intend to seek admission to listing of its
Ordinary Shares on the premium segment of the Official List of the UK Listing Authority (the
‘‘Official List’’) and admission to trading on London Stock Exchange’s main market for listed
securities. In the longer term, the Directors believe that the Official List is the most appropriate
platform for the continued growth of the Enlarged Group by increasing the Enlarged Group’s
profile, assisting in the liquidity of the Company’s shares and providing a greater range of potential
investors for the Company. In view of the expected market capitalisation of the Enlarged Group, it
is expected that upon the listing of the Company’s Ordinary Shares on the premium segment of
the Official List and admission to trading on London Stock Exchange’s main market for listed
securities the Company’s Ordinary Shares would be eligible for inclusion in the FTSE250 Index of
the London Stock Exchange.
3.
INFORMATION ON THE SKRILL GROUP
The Skrill Group is a global digital payments company operating an extensive digital payments
network for local and cross-border transactions and money transfers. The Skrill Group offers a
broad range of products, with its core product being the e-Wallet, which also offers a Prepaid
MasterCardâ. In addition, the Skrill Group offers paysafecard which provides prepaid payment
vouchers, an online digital wallet and a prepaid MasterCardâ and payolution which arranges the
provision of point-of-sale financing to merchants giving merchants the ability to extend credit to
59
customers to pay later via invoice once the goods have been received. The position of the Skrill
Group will be further enhanced by the proposed acquisition of Smart Voucher Limited (‘‘Ukash’’), a
leading online e-money payment provider that allows users to exchange their cash for a secure
code to make payments online. The Skrill Group announced the acquisition of Ukash in November
2014 and the Ukash Acquisition is expected to complete in the first half of 2015.
The Skrill Group’s agreements and relationships with over 80 banks and payment providers serve
as the building blocks for its complex and comprehensive network. As at 31 December 2014, the
Skrill Group’s platform can process payments in 16 languages and, as at 30 September 2014,
across more than 200 countries and territories and support over 100 payment options in 41
currencies. In addition with over 442,000 points of sales, the Skrill Group appeals to customers
who are reluctant to use their credit and debit cards online, those who prefer anonymity and to
parents who wish to restrict the amount that their children are able to spend online.
The Skrill Group was the UK’s first regulated e-money issuer having received its e-money licence
in 2002 following its authorisation by the FCA. The e-money licences and authorisation as a
payment institution in the UK enables Skrill to passport its services across the EEA. The Skrill
Group, through Skrill USA Inc., operates in all US states, the District of Columbia and its territories
on the basis of money transmitter licences in all US states where it is required. The Skrill Group
has been granted a waiver from the requirement to obtain a money transmitter licence in Indiana,
Rhode Island and Wisconsin and money transmitter licences are not required in Montana and
South Carolina.
As at the Latest Practicable Date, the Skrill Group has approximately 778 employees. The
Company is headquartered in London with key offices in Vienna, New York and Sofia.
The Skrill Group offers the following key services and products:
Skrill
e-Wallet
A digital stored value account which enables customers to move funds to and from online
merchants offering online gambling, digital media and e-commerce services as well as to other
individuals via online remittance.
Quick Check Out
Quick Check Out enables customers to speed up the payment process by using Skrill’s services to
make a payment without having to register for a Skrill e-Wallet. The Skrill Quick Checkout also
accepts card payments as well as the majority of Skrill alternative payment options, such as
prepaid cards and vouchers.
Direct Payment Gateway
Skrill’s direct payment gateway enables merchants to offer the acceptance of more than 100
payment options through one contract and single API integration into the merchant’s website.
Furthermore the direct payment gateway offers access to Skrill e-Wallet and paysafecard users.
Skrill 1-Tap
Skrill’s 1-Tap enables mobile access to Skrill’s digital wallet that brings quick and easy mobile
payments to merchants and customers. By implementing Skrill 1-Tap, merchants can offer
customers the opportunity to pay for goods via ‘one tap’ on any device, rather than having to reenter login details or credit card information for reauthorisation every time.
Skrill also provides payment services through Skrill Direct and Peer-to-Peer (‘‘P2P’’) Remittance,
foreign exchange services and is a payment service provider (‘‘PSP’’). Additional optional features
offered by Skrill include a chargeback guarantee offering and risk management tools.
paysafecard
paysafecard is a prepaid cash voucher solution which allows customers to load funds onto a
paysafecard by paying with cash in any of more than 442,000 points of sales worldwide as at
30 September 2014 and then use these balances to make payments at any one of approximately
5,700 websites.
In November 2014, the Skrill Group announced the acquisition of Ukash, a leading online e-money
payment provider that allows users to exchange their cash for a secure code to make payments
online. The Ukash Acquisition is expected to complete in the first half of 2015. Following
60
completion of the Ukash Acquisition, the Directors intend to merge the platforms through which
paysafecard and Ukash operate, with the aim of further strengthening the global presence of the
Skrill Group’s paysafecard, allowing the Skrill Group to expand its digital payments offering across
both established and emerging markets.
Payolution (Invoice and Instalments)
Payolution arranges the provision of point-of-sale financing to customers of e-commerce merchants
in order to ensure that the merchants are put in funds within an agreed timeframe (which is within
29 days after merchants are provided with a statement of its transactions) and is offered as a
white-label solution. Payolution provides merchants with the ability to extend credit to customers to
pay later via invoice once the goods have been received, enabling merchants to offer their
customers an alternative payment solution to credit cards or other payment methods.
Selected financial information of the Skrill Operating Group
The table below sets out selected historical consolidated financial information relating to the Skrill
Operating Group, which has been extracted without material adjustment from (i) the audited
historical financial information prepared under IFRS in respect of the three financial years ended
31 December 2013; and (ii) the unaudited financial information of the Skrill Operating Group
prepared under IFRS to 30 September 2014; and (iii) the paysafecard audited historical financial
information for the two years ended 31 December 2012. The Adjusted EBITDA of the Skrill
Operating Group decreased by 25.9 per cent. and the profit before tax of the Skrill Operating
Group decreased by 26.2 per cent. for the period between the financial year ended 31 December
2011 and the financial year ended 31 December 2012. This decrease was primarily attributable to
(i) an increase in the cost of sales (an increase of $10.0 million or 34.7 per cent. over FY2011)
reflecting increased use by consumers of credit cards to upload e-wallet funds which carried higher
transaction (merchant acquirer and PSP) processing fees, due mainly to Skrill’s ongoing growth in
e-commerce verticals; (ii) an increase in sales and marketing expenses (an increase of $3.1 million
or 27.4 per cent. over FY2011), reflecting investment by the Skrill Operating Group in the sales
and marketing functions to facilitate future growth; and (iii) an increase in administrative expenses
of $3.2 million or 7.2 per cent. over FY2011.
Nine month
period ended
30 September
2014
(Unaudited)
Total revenue
Adjusted EBITDA(2)
Profit before tax
Net profit
248.9
62.4
15.9
14.3
Year ended
Year ended
31December 31December
2013(1)
2012
(Audited)
(Audited)
US$ millions
286.4
76.8
32.1
26.1
Year ended
31December
2011
(Audited)
129.9
43.0
22.3
114.9
46.5
30.1
15.5
21.0
(1) 2013 includes 11 months of paysafecard results (from the date of acquisition)
(2) 2013, 2012 and 2011 stated after non-recurring costs of $13.2 million, $5.0 million and ($7.1m) million, respectively. The nine
month period ended 30 September 2014 is stated after non-recurring costs of $8.2 million.
Financial information of the Skrill Operating Group is set out in Part XI (Financial Information of the
Skrill Operating Group) of this document.
4.
SUMMARY FINANCIAL INFORMATION ON OPTIMAL PAYMENTS GROUP AND SKRILL
GROUP
The tables below set out summary historical consolidated financial information relating to the
Optimal Payments Group and the Skrill Group, (i) which has been extracted from the audited
financial statements of the Skrill Operating Group prepared under IFRS in respect of the financial
year ended 31 December 2013, and converted to US dollars for comparability; (ii) which has been
extracted without material adjustment from the audited financial statements and historical financial
information of the Optimal Payments Group prepared under IFRS in respect of the financial year
61
ended 31 December 2014; and (iii) with regard to the net debt figures below, the audited financial
statements as at 31 December 2014 for the Optimal Payments Group and the unaudited
accounting records as at 31 December 2014 for the Skrill Group, and converted to US dollars for
comparability.
Optimal
Skrill
Payments
Operating
Group
Group
Total revenue
Adjusted EBITDA
Profit before tax
Net profit
Indebtedness
(US$ millions
for year
ended
31 December
2014)
365.0
86.1
59.0
(US$ millions
for year
ended
31 December
2013)
286.4
76.8
32.1
57.7
26.1
Optimal
Payments
Group
Skrill Group
(US$ millions (US$ millions
as at
as at
31 December
31 December
2014)
2014)
151.0(1)
68.4
127.8
770.0
Cash and cash equivalents
Total borrowings
Net debt
23.2
(701.6)
(1) Includes $8.8 million in restricted merchant cash balances.
5.
FINANCING OF THE ACQUISITION
The existing indebtedness of both the Optimal Payments Group and the Skrill Group will be
refinanced as part of the Acquisition. As set out in paragraph 4 of this Part I above and in Part XIII
(Capitalisation and Indebtedness) of this document, as at 31 December 2014, the Optimal
Payments Group had total indebtedness of $132.8 million and cash balances of $151.0 million and
as at 31 December 2014, the Skrill Group had total indebtedness of US$770 million and own cash
balances of US$68.4 million (including inter-company indebtedness of US$435 million consisting of
loan notes and preference shares. The loan notes will be redeemed as part of Completion and the
preference shares will be acquired by Optimal Payments as part of the Acquisition). Taking into
account total estimated transaction costs of the Optimal Payments Group and the Skrill Group and
a redemption of approximately £22 million of loan notes issued by Sentinel Holdco 2 Limited to
Sentinel Group Holdings S.A. that took place prior to the date of the Acquisition Agreement, the
aggregate net indebtedness of the Enlarged Group following Completion is estimated at
approximately US$615 million (EUR 505 million at a 31 December 2014 FX rate of EUR 1.2155).
The cash consideration payable by the Optimal Payments Group in relation to the Acquisition will
be funded through a combination of available cash and additional debt provided by Barclays Bank
PLC, Bank of Montreal and Deutsche Bank Luxembourg S.A. together with the net proceeds of the
Rights Issue which is fully underwritten on, and subject to, the terms and conditions of the
Underwriting Agreement. Details of the New Credit Facilities and the Underwriting Agreement are
contained in paragraph 14.1 of Part XVI (Additional Information) of this document. Optimal
Payments proposes to pass a resolution at the General Meeting to approve the New Credit
Facilities notwithstanding the borrowing limits placed on Optimal Payments pursuant to Article 93 in
the Articles of Association. Please see paragraph 18 of this Part I for further information about the
General Meeting.
62
As the proceeds of the Rights Issue will be in Pounds Sterling but the cash consideration payable
by the Optimal Payments Group in relation to the Acquisition will be paid in Euros, the Company
will implement a strategy to manage its FX exposures.
6.
FINANCIAL EFFECTS OF THE ACQUISITION
Impact on Earnings
The Directors believe that, taking into account the business and prospects of the Enlarged Group,
the Acquisition will be accretive to adjusted earnings per share from the first full fiscal year
following Completion. This statement is not intended to be a profit forecast, and should not be
interpreted to mean that the earnings per share of Optimal Payments following Completion will
necessarily be above or below the historical published earnings per share.
Hedging
The gross proceeds of the Rights Issue are expected to be approximately £451 million, which
equates to e609 million at a Pounds Sterling to Euro exchange rate of 1.350. As the Company will
receive the proceeds of the Rights Issue in Pounds Sterling prior to Completion and the
Company’s subsidiary, Netinvest Limited, has agreed to pay the cash consideration for Sentinel
Topco Limited in Euro, the Company has agreed indicative terms for hedging contracts to manage
the foreign exchange exposure that arises between the date of the Acquisition Agreement and
Completion. Based on the market rate on the Latest Practicable Date, the Company expects that
the Pounds Sterling to Euro exchange rate arising from those hedging contracts will be in the
region of 1.350, depending on the date of Completion.
Impact on Leverage Ratios
Including the estimated transaction costs, the aggregate net indebtedness of the Enlarged Group
following Completion is expected to be approximately US$615 million, as set out in the unaudited
pro forma net asset statement contained in Part XII (Unaudited Pro Forma Financial Information) of
this document. The Directors expect the leverage ratio of the Enlarged Group immediately following
Completion will be 3.1x combined EBITDA (based on the Company’s EBITDA for the twelve
months to 31 December 2014 and the Skrill Operating Group’s EBITDA for the 12 months to
30 September 2014)1, and accordingly intends that the strong operating cashflows of the Enlarged
Group should reduce net debt and result in a rapid deleveraging in the medium term with a target
leverage to 2.0x – 2.5x.
Assuming full drawdown of funds available under the New Credit Facilities, the interest cost of the
New Credit Facilities for the 12 months following Completion is estimated at US$22.4 million. This
is covered approximately 10x by the Enlarged Group’s pro forma EBITDA, which the Directors
consider to be a comfortable level of interest cover.
7.
FUTURE STRATEGY OF THE ENLARGED GROUP
Creation of a leading payments provider across a wide addressable market
The Directors expect that the Enlarged Group will be a more diversified, vertically integrated
payments provider with the capability to facilitate payments across a wide addressable market. The
Enlarged Group will be a provider of global payment solutions at key points in the funding chain,
specifically with respect to pre-funding, immediate funding and future funding transactions or to
customers who prefer not to use credit or debit cards for online transactions. Prepaid funding is
made possible via paysafecard and Ukash, allowing customers to pre-fund their digital wallets by
purchasing vouchers from retail outlets. This prepaid solution appeals to consumers who prefer not
to use credit or debit cards for online transactions. This provides additional ‘‘money-in’’
opportunities for customers. The Enlarged Group’s ability to provide immediate funding solutions is
expanded due to the combination of Optimal Payments’ and Skrill’s digital wallet and payment
processing solutions, the latter of which would benefit from Optimal Payments’ principal acquirer
status, which allows the Optimal Payments Group to directly acquire merchant accounts without the
need for an acquiring bank, and to process Visa and MasterCard payment transactions in the UK
and the EU for merchants of the Optimal Payments Group. The combined stored value division will
provide a broader and more international solution to customers, ensuring customers have a range
of payment options each of which allow customers to make immediate payments using their digital
wallets. Payolution provides the Enlarged Group with a future funding solution by enabling
1
The combined financials are not a projection of how the Enlarged Group will trade.
63
merchants to extend credit to customers to pay later via invoice once the goods have been
received. The provision of point-of-sale financing to customers of e-commerce merchants would
broaden the type of payment transactions the Enlarged Group could target, thereby expanding
strategic growth opportunities.
Stored Value
The Directors believe the Enlarged Group will be one of the leading players in the provision of
digital wallets to merchants and customers. Exposure to business verticals is broadened and
diversified away from reliance on online gambling to also cover digital media and e-commerce. The
Enlarged Group will also seek to focus on the online gambling opportunity, particularly in the North
America region.
Payment Processing
The Acquisition would combine the Optimal Payments Group’s and the Skrill Group’s complex
payment processing networks to provide improved penetration and reach into new and existing
markets, as well as accelerate the on-boarding of new merchants through network effects. The
combined processing solution would boast over 57,000 active merchants, 20+ global acquiring
relationships, 100+ payment types, 41 currencies, over 200 countries and territories served (as at
30 September 2014, assuming that the Acquisition had taken place at that time). The Enlarged
Group’s strategy would be to effectively monetise the increased scale of the processing offering,
leveraging its critical mass and diversification to attract new merchants. Furthermore, the Enlarged
Group would seek to implement its existing acquiring relationships across as many new and, where
possible, existing transactions as possible to drive gross margin expansion.
Expected growth in North American online gambling markets
Since the 2011 ruling from the US Department of Justice that the Wire Act only applies to online
sports gambling, certain US states have sought to introduce regulations for online gambling, with
Nevada, Delaware and New Jersey leading in this area and New York, California and Pennsylvania
expected to follow suit. The opening of the US regulated online gambling market presents a
significant opportunity for Optimal Payments and the Enlarged Group to grow its operations which
provide payment processing and risk management solutions to regulated online gambling
merchants. The Optimal Payments Group’s offering brings together a suite of products
encompassing operators’ requirements, from compliance to payment processing and fraud
management. The end-to-end customer solutions for traditional operators are well positioned to
capitalise on potential online markets. Optimal Payments currently processes online gambling
payments in Nevada, New Jersey and Delaware, with Sutton Bank carrying out the regulated
money transmitting service on behalf of the Optimal Payments Group. Optimal Payments is
registered as a vendor by the Division of Gaming Enforcement in New Jersey and the Optimal
Payments Group also provides services to Lotto Quebec and the Ontario Lottery Group in Canada
and is registered as a non-gaming related supplier by the Alcohol and Gaming Commission of
Ontario. The Optimal Payments Group currently derives an immaterial proportion of its revenue
from the US regulated online gambling industry but it would seek to capture immediate market
share in new markets formed from further state-by-state deregulation.
Skrill USA Inc. operates in all US states, the District of Columbia and its territories on the basis of
money transmitter licences in all US states where it is required. Prior to Completion, the Skrill
Group will undertake a restructuring to transfer Skrill USA Inc. outside the Skrill Group. Completion
of the Acquisition will be conditional on Skrill USA Inc. being transferred outside the Skrill Group.
The consideration for the transfer of Skrill USA Inc. outside the Skrill Group will be left outstanding
as an inter-company loan between Skrill Holdings Limited and Sentinel Group Holdings S.A.. In
addition, Skrill Holdings Limited will provide Skrill USA Inc. with an inter-company funding loan for
working capital purposes. Once the transfer of Skrill USA Inc. outside the Skrill Group has
completed, the Optimal Payments Group will have a period of six months following Completion to
obtain the required approvals in connection with Skrill USA Inc.’s money transmitter licences from
the relevant US states or territories in order for Skrill USA Inc. to be transferred to Skrill Holdings
Limited. In the event that Skrill Holdings Limited repurchases Skrill USA Inc. after Completion, the
consideration for that transfer will be the release of Sentinel Group Holdings S.A.’s obligation to
repay the inter-company loan. If Skrill Holdings Limited has not obtained the relevant consents to
enable Skrill USA Inc. to be transferred to Skrill Holdings Limited within the six month period
following Completion, Sentinel Group Holdings S.A will be permitted to sell Skrill USA Inc. to a
third party. In the event Skrill USA Inc. is sold to a third party, Sentinel Group Holdings S.A. will
64
use reasonable endeavours to sell Skrill USA Inc. for the best possible purchase price, and the
proceeds of that sale shall be used to repay the inter-company loans put in place between Skrill
Holdings Limited and both Sentinel Group Holdings S.A. and Skrill USA Inc., and any excess intercompany loan amount that remains outstanding (whether relating to the working capital loan or the
consideration for the transfer of Skrill USA Inc.) shall be waived by Skrill Holdings Limited. If Skrill
USA Inc. is sold to a third party, the Optimal Payments Group intends to commence applying for
its own money transmitter licences in the US in order to enable it to process payments in the US
by itself rather than through Sutton Bank. The Optimal Payments Group has already obtained
money transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho.
Seeking opportunities for inorganic growth and diversification
As part of its ongoing growth strategy, the Enlarged Group will continue to monitor the market in
order to identify strategic acquisition and investment targets. In particular, the Enlarged Group may
participate in the ongoing consolidation of the digital payments industry by considering the
acquisition of payment-related companies and/or complementary technologies, which may expand
the geographical reach and customer base of the Enlarged Group and/or increase the technical
capabilities or products of the Enlarged Group. In February 2015, Optimal Payments signed a nonbinding letter of intent in respect of a small potential acquisition in furtherance of this strategy. The
proposed acquisition target specialises in mobile technology development and offers consultancy
services. The consideration for the proposed acquisition, if it proceeds, is to be satisfied by the
issue of Ordinary Shares.
8.
FURTHER DETAILS ON THE TERMS AND CONDITIONS OF THE ACQUISITION
The total consideration payable by Netinvest Limited in respect of the Acquisition is e855 million
(less certain deductions). e720 million of the total consideration is to be paid to Sentinel Group
Holdings S.A. in cash on Completion and in addition Optimal Payments will also allot and issue the
Skrill Consideration Shares to Sentinel Group Holdings S.A., (or to such Skrill Shareholder or Skrill
Shareholders as Sentinel Group Holdings S.A. may direct) which will represent approximately
7.9 per cent. of the Enlarged Share Capital immediately following Completion (assuming no further
issue of Ordinary Shares) and have a value of e135 million based upon the theoretical ex-rights
price of the Rights Issue. In addition, the Skrill Group’s net debt (expected to be approximately
e266 million) will be refinanced at Completion, amounting, together with consideration paid, to an
expected approximate enterprise value of e1.1 billion.
The Acquisition values Skrill at a multiple of 9.3x EBITDA for the twelve months to 30 September
2014, adjusted for the net present value of targeted cost saving synergies net of integration costs
of $375 million1. Based on the Optimal Payments Closing Price of 419 pence per Existing Ordinary
Share on 20 March 2015, Optimal Payments is valued at a multiple of 14.1x EBITDA for the
twelve months to 31 December 20142. The Acquisition values Skrill at a multiple of 13.5x EBITDA
for the twelve months to September 2014 excluding the impact of the targeted cost synergies.
Owing to its size, the Acquisition constitutes a reverse takeover for the purposes of the AIM Rules
for Companies. The Acquisition requires approval from Shareholders, and accordingly a General
Meeting has been convened for 16 April 2015 (see paragraph 18 of this Part I (Letter from the
Chairman)).
Completion is conditional upon, amongst other things, the passing of the Resolutions at the
General Meeting, the receipt of change of controller approvals from the FCA, the completion of the
transfer of Skrill USA Inc. to Sentinel Group Holdings S.A., Rights Issue Admission, and the
approval for the issue of Skrill Consideration Shares to Sentinel Group Holdings S.A. from the
relevant Delaware regulatory authority that has granted a subsidiary of the Company a US money
transmission licence, as well as on those other matters set out in Part II (Details of the Acquisition)
of this document. The Directors expect Completion to occur in the third quarter of 2015.
A more detailed summary of the key terms of the Acquisition Agreement is set out in Part II
(Details of the Acquisition) of this document.
1
2
Calculated to end of FY2018 using discounted cash flows.
The multiple is calculated based on an enterprise value for Optimal Payments of $1.2 billion, based on a share price of 419
pence, fully diluted share capital of 180.7 million and net debt as at 31 December 2014 of $83 million; and Optimal Payments
EBITDA for the twelve months to December 2014 of $86 million.
65
9.
FUTURE STRATEGY OF THE OPTIMAL PAYMENTS GROUP IF THE ACQUISITION DOES
NOT PROCEED
In the event that the Acquisition does not proceed, the Optimal Payments Group’s corporate
strategy would be to continue driving organic growth whilst evaluating further value-enhancing and
strategically compelling M&A opportunities. The key areas of the organic growth focus would be
based on increasing momentum in the core business divisions, developing multi-channel solutions
and successfully capitalising on the US online gambling opportunity.
Core business divisions
The Optimal Payments Group would target growth in each of the core business lines of stored
value and straight through processing. The Optimal Payments Group announced in January 2014
that it had secured Principal Membership with Visa Europe and MasterCard Europe. Principal
Membership allows Optimal Payments to offer acquiring services to merchants in the European
Union. Those services commenced in the fourth quarter of 2014. Going forward, this would
increase the addressable market for the Optimal Payments Group’s straight through processing
offering and enable the Optimal Payments Group to compete with those merchant acquirers that
also benefit from interchange pricing from Visa and MasterCard. The Optimal Payments Group’s
strategy is to be more competitive in the lower risk processing markets and develop a more
balanced mix of merchants.
Within the stored value division, the Optimal Payments Group intends to continue to grow its
presence in online gambling, in particular aiming to capitalise on the expected de-regulation in
certain US states and anticipated rapid growth of the North American market. The Optimal
Payments Group intends to also pursue its stored value focus on attracting, maintaining and
retaining a VIP Customer base by providing cash back, loyalty and promotional programmes.
Multi-channel solutions
The Optimal Payments Group would continue to develop multi-channel solutions, including offering
options to customers to pay across multiple devices, allowing merchants to manage payment
channels through one central hub and tracking across multiple channels. This would facilitate
customer information gathering and enable the refinement of targeted marketing campaigns. The
Optimal Payments Group would also explore new methods of payments through its partners.
US gambling opportunity
The opening of the US regulated online gambling market presents a significant opportunity for
Optimal Payments to grow its operations which provide payment processing and risk management
solutions to regulated online gambling merchants. The Optimal Payments Group’s offering brings
together a suite of products encompassing operators’ requirements, from compliance to payment
processing and fraud management. The end-to-end customer solutions for traditional operators are
well positioned to capitalise on potential online markets. Optimal Payments currently processes
online gambling payments in Nevada, New Jersey and Delaware, with Sutton Bank carrying out the
regulated money transmitting services on behalf of the Optimal Payments Group. The Optimal
Payments Group currently derives an immaterial proportion of its revenue from the US regulated
online gambling industry but it would seek to capture immediate market share in new markets
formed from expected further state-by-state deregulation. The Optimal Payments Group has
obtained money transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho. In
the event that the Acquisition did not complete, the Optimal Payments Group would commence
applying for its own money transmitter licences, in the remaining states in which they are required,
in the US in order to enable it to process payments in the US.
Inorganic growth
The Directors of the Optimal Payments Group would consider deploying capital in alternative M&A
opportunities, underpinned by compelling strategic and economic rationale. The Optimal Payments
Group currently benefits from a strong balance sheet providing more flexibility to pursue potentially
value enhancing deals. Expansion into under-served geographies and complementary product
areas would remain a key goal and Optimal Payments has signed a non-binding letter of intent in
respect of a small potential acquisition in furtherance of this goal.
66
Return of proceeds
If Completion does not occur, the Directors will consider how best to return the net proceeds of the
Rights Issue. Such a return could result in certain costs and complexities such that any return of
capital may be less than the amount subscribed for in the Rights Issue.
10.
CURRENT TRADING AND FUTURE PROSPECTS OF THE ENLARGED GROUP
Optimal Payments Group
For the financial year ended 31 December 2014, Optimal Payments delivered strong performance
on the comparative prior year period with growth across all business divisions. Revenue and
EBITDA grew by 44 per cent. and 65 per cent., respectively and the blended gross margin held
constant at 52 per cent. (2013: 52 per cent.).
Growth in revenue was derived from growth in both the Stored Value and STP segments, which
grew 50 per cent. and 42 per cent., respectively. This was underpinned by consequential growth in
profitability, both at a gross margin and EBITDA level. Gross profit grew 43 per cent., reflecting
consistent processing and bad debt costs on the prior period, with Optimal Payments maintaining a
gross profit margin of 52 per cent. Growth in EBITDA was higher than in gross profit, due to
Optimal Payments’ underlying operating leverage, posting a 65 per cent. increase. Additionally,
Optimal Payments enjoyed EBITDA margin expansion of approximately 3 per cent. The Optimal
Payments Group’s net debt position at 31 December 2014 was US$23.2 million (31 December
2013: US$82.9 million), demonstrating good operational cash generation during the period, offset
by new debt of $141 million which was incurred in July 2014 to finance the US Acquisitions.
Since 31 December 2014, the Optimal Payments Group’s overall trading performance has been in
line with the Directors’ expectations.
The Directors believe that by continuing to execute the current business strategy and financial
model, Optimal Payments is well positioned to deliver continued growth for shareholders.
Skrill Operating Group
For the financial year ended 31 December 2013, the Skrill Operating Group’s revenue and EBITDA
grew by $156.5 million (120.4 per cent.) and $33.8 million (78.6 per cent.), respectively on the
comparative prior year period. This primarily reflected the acquisition of paysafecard, for which
formal closing of the transaction occurred on 8 February 2013, as well as underlying growth in
customers and merchants.
For the nine months ended 30 September 2014, the Skrill Operating Group’s revenues totalled
$248.9 million, up 22.1 per cent. on the comparative period, and the gross margin remained flat at
59.5 per cent.
In the period since 30 September 2014, the Skrill Operating Group has continued to trade in line
with management’s expectations.
In November 2014, the Skrill Group announced the acquisition of Ukash, which forms part of its
strategy to further strengthen the global presence of paysafecard, allowing the Skrill Group to
expand its digital payments offering across both established and emerging markets. The Ukash
Acquisition is expected to complete in the first half of 2015.
11. ONGOING RELATIONSHIP WITH SENTINEL GROUP HOLDINGS S.A.
As a result of the issue of the Skrill Consideration Shares, Sentinel Group Holdings S.A. (together
with any Skrill Shareholders whom are issued Skrill Consideration Shares at Sentinel Group
Holdings S.A.’s direction) will hold approximately 7.9 per cent. of the Enlarged Share Capital
immediately following Completion which will have a value of e135 million based upon the
theoretical ex-rights price of the Rights Issue.
The Company, the Underwriters, Sentinel Group Holdings S.A. and any person to whom Skrill
Consideration Shares are issued will enter into an agreement on Completion (the ‘‘Lock-Up
Agreement’’) pursuant to which the holders of Skrill Consideration Shares will undertake to the
Company and the Underwriters that they will not without the consent of the Underwriters, for a
period of 180 days from the date of Completion Admission, directly or indirectly, offer, issue, lend,
mortgage, assign, charge, pledge, sell or contract to sell, issue options in respect of, or otherwise
dispose of, directly or indirectly, or announce an offering or issue of, any Ordinary Shares (or any
interest therein or in respect of such Ordinary Shares) or any other securities exchangeable for or
67
convertible into, or substantially similar to, Ordinary Shares or enter into any transaction with the
same economic effect as, or agree to do, any of the foregoing subject to certain limited exceptions
set out in the Lock-Up Agreement, including, inter alia, the right to transfer Ordinary Shares to any
connected persons, the right to accept a general offer made in accordance with the Takeover
Code and the right to take up any rights granted in respect of a rights issue or other pre-emptive
share offering by the Company. During the 180 day lock-up period, holders of Skrill Consideration
Shares (including certain CVC Funds entities) (and any shareholder who subsequently holds
shares in accordance with the Lock-Up Agreement) can transfer the Ordinary Shares to connected
persons (as defined in the Corporation Tax Act 2010) (including certain CVC Funds entities),
provided the transferee enters into a deed of adherence agreeing to be bound by the terms of the
Lock-Up Agreement.
During the six month period following the end of the 180 day lock-up period Sentinel Group
Holdings S.A. is required to give notice prior to disposing of shares and must carry out any
disposal through an agreed list of brokers, so as to ensure an orderly market in the Ordinary
Shares. In respect of a proposed disposal to a strategic investor, Sentinel Group Holdings S.A.
must give at least five Business Days prior notice to the Underwriters and the Company and in
respect of all other disposals, Sentinel Group Holdings S.A. must give notice to at least one of the
Underwriters and the Company not later than 12.00 p.m. on the day prior to the disposal, in each
case giving details of the identity of the proposed purchaser. The notice requirements in respect of
disposals (other than disposals to strategic investors) will not apply in the event that the disposal is
of less than 3 per cent. of the total Ordinary Shares or Sentinel Group Holdings S.A. (and the
CVC Funds entities it is permitted to transfer shares to) hold in aggregate less than 3 per cent. of
the total Ordinary Shares. The same provisions apply, as relevant, to any person to whom Skrill
Consideration Shares are issued.
Further details of the Lock-Up Agreement are summarised in paragraph 14.1 of Part XVI
(Additional Information) of this document.
12. PRINCIPAL TERMS OF THE RIGHTS ISSUE
The Company intends to raise total gross proceeds of approximately £451 million (approximately
£432 million net of estimated expenses of the Rights Issue) through the issue of 271,921,802 New
Ordinary Shares by way of the Rights Issue.
Pursuant to the Rights Issue, it is proposed that 271,921,802 New Ordinary Shares be issued by
way of rights to Qualifying Shareholders (other than, subject to certain exceptions, to Excluded
Shareholders) to subscribe for New Ordinary Shares at an Offer Price of 166 pence per New
Ordinary Share payable in full on acceptance by no later than 11.00 a.m. on 1 May 2015. The
Offer Price represents:
*
a 34 per cent. discount to the theoretical ex-rights price of an Existing Ordinary Share when
calculated by reference to the volume weighted average price of 398 pence per Existing
Ordinary Share during the five day period between 16 March 2015 and 20 March 2015 (being
the Latest Practicable Date before the announcement of the Rights Issue);
*
a 36 per cent. discount to the theoretical ex-rights price of an Existing Ordinary Share, when
calculated by reference to the Closing Price of 419 pence per Existing Ordinary Share on
20 March 2015; and
*
a 60 per cent. discount to the Closing Price of 419 pence per Existing Ordinary Share on
20 March 2015.
The Rights Issue will be made on the basis of:
5 New Ordinary Shares at 166 pence per New Ordinary Share
for every 3 Existing Ordinary Shares
held by and registered in the name of each Qualifying Shareholder at 5.00 p.m. on the Record
Date, and in proportion to any other number of Existing Ordinary Shares each Qualifying
Shareholder then holds.
Entitlements to New Ordinary Shares will be rounded down to the nearest whole number and
fractional entitlements will not be allotted to Qualifying Shareholders but will be aggregated and
sold in the market for the benefit of the Company. Holdings of Existing Ordinary Shares in
certificated and uncertificated form and holdings under different designations will be treated as
separate holdings for the purpose of calculating entitlements under the Rights Issue.
68
Qualifying Shareholders who take up their pro rata entitlements to New Ordinary Shares in full will
suffer no dilution of their shareholdings in the Company as a result of the Rights Issue. However, if
a Qualifying Shareholder does not take up the offer of New Ordinary Shares in full, his/her
proportionate shareholding will be diluted by up to approximately 62.5 per cent. The New Ordinary
Shares, fully paid, will rank for all dividends declared, made or paid after the date of allotment and
issue of the New Ordinary Shares and otherwise pari passu with the Existing Ordinary Shares. All
Shareholders holding the Pre-Completion Existing Ordinary Shares will be further diluted upon
Completion by approximately 7.9 per cent. (assuming no further issue of Ordinary Shares) as a
result of the issue of the Skrill Consideration Shares.
The Rights Issue has been fully underwritten by Canaccord, Deutsche Bank and BMO Capital
Markets on, and subject to, the terms of the Underwriting Agreement. The principal terms of the
Underwriting Agreement are summarised in paragraph 14.1 of Part XVI (Additional Information) of
this document.
The Company’s largest shareholder, Old Mutual Global Investors, has indicated that it is likely to
sub-underwrite the issue of a certain number of New Ordinary Shares pursuant to the Rights Issue.
Old Mutual Global Investors would receive the same commission in respect of such number of
New Ordinary Shares for which it subscribes pursuant to the sub-underwriting arrangement as
other sub-underwriters.
Given Old Mutual Global Investors’ shareholding in the Company and also given that Old Mutual
Global Investors’ participation through sub-underwriting is likely to represent more than five per
cent. of the market capitalisation of the Company as at the date of this Prospectus, such
participation by Old Mutual Global Investors in the sub-underwriting of the Rights Issue would
constitute a related party transaction under Rule 13 of the AIM Rules once terms have been
agreed. The Company will make an announcement under Rule 13 of the AIM Rules for Companies
once terms are agreed with Old Mutual Global Investors.
The Rights Issue will result in 271,921,802 New Ordinary Shares being issued (representing
approximately 167 per cent. of the existing issued share capital and 62.5 per cent. of the Enlarged
Share Capital immediately following completion of the Rights Issue).
The Record Date for entitlements under the Rights Issue for Qualifying Shareholders is 5.00 p.m.
on 14 April 2015. Provisional Allotment Letters for Qualifying Non-CREST Shareholders are
expected to be posted to Qualifying Non-CREST Shareholders on 16 April 2015 and Nil Paid
Rights are expected to be credited to stock accounts of Qualifying CREST Shareholders (other
than, subject to certain exceptions, Excluded Shareholders) in CREST as soon as practicable after
8.00 a.m. on 17 April 2015. The latest time and date for receipt of completed Provisional Allotment
Letters and payment in full under the Rights Issue and settlement of relevant CREST instructions
(as appropriate) is 11.00 a.m. on 1 May 2015 with dealings in New Ordinary Shares, fully paid,
expected to commence at 8.00 a.m. on 5 May 2015.
The Rights Issue is conditional, amongst other things, upon:
*
the Underwriting Agreement having become unconditional in all respects save for the
condition relating to Rights Issue Admission and not having been terminated in accordance
with its terms;
*
Rights Issue Admission becoming effective by not later than 8.00 a.m. on 17 April 2015 (or
such later time and/or date as the Company and the Joint Bookrunners may agree, not being
later than 8.00 a.m. on 21 April 2015); and
*
the passing of the Resolutions (without material amendment) at the General Meeting and not,
(without the prior written consent of the Joint Bookrunners, at any adjournment of such
meeting).
Details of further terms and conditions of the Rights Issue, including the procedure for acceptance
and payment and the procedure in respect of rights not taken up, are set out in Part IV (Terms
and Conditions of the Rights Issue) of this document and, where relevant, for Qualifying NonCREST Shareholders, will also be set out in the Provisional Allotment Letter.
13. CONDITIONALITY
The Rights Issue is fully underwritten by the Underwriters on, and subject to, the terms of the
Underwriting Agreement. The principal terms of the Underwriting Agreement which was entered into
on 23 March 2015, including insofar as it relates to the conditionality of the Rights Issue, are
69
summarised in paragraph 14.1 of Part XVI (Additional Information) of this document. If the Rights
Issue does not proceed then the Acquisition will not proceed. However, the Rights Issue is not
conditional upon Completion. If Completion does not occur, the Directors will consider how best to
return the net proceeds of the Rights Issue to Shareholders. Such a return could result in certain
costs and complexities such that any return of capital may be less than the amount subscribed for
in the Rights Issue.
14. RIGHTS ISSUE ADMISSION AND COMPLETION ADMISSION
The New Ordinary Shares will, when issued and fully paid, rank equally in all respects with the
Existing Ordinary Shares, including the right to receive all dividends or other distributions made,
paid or declared, if any, by reference to a record date after the date of their issue.
Application will be made to the London Stock Exchange for the New Ordinary Shares to be
admitted to trading on AIM. It is expected that Rights Issue Admission will become effective and
that dealings in the New Ordinary Shares, nil paid, will commence on AIM at 8.00 a.m. on 17 April
2015.
The Skrill Consideration Shares will, when issued and fully paid, rank equally in all respects with
the Pre-Completion Existing Ordinary Shares, including the right to receive all dividends or other
distributions made, paid or declared, if any, by reference to a record date after the date of their
issue. As the Acquisition is classified as a reverse takeover under the AIM Rules for Companies,
upon Completion the listing on AIM of all of the Pre-Completion Existing Ordinary Shares will be
cancelled, and application will be made for the immediate re-admission of those Pre-Completion
Existing Ordinary Shares and the admission of the Skrill Consideration Shares to trading on AIM. It
is expected that Completion Admission will become effective and dealings in the Pre-Completion
Existing Ordinary Shares will commence at 8.00 a.m. on Completion.
15. RISK FACTORS
For a discussion of the risks and uncertainties which you should take into account when
considering whether to vote in favour of the Resolutions and/or invest in the New Ordinary Shares,
please refer to the Risk Factors on pages 15 to 42 of this document.
16. DIVIDEND POLICY
The Directors believe that Shareholders are best served by reinvesting cash to generate growth
opportunities rather than declaring a dividend. The Enlarged Group intends to continue to pursue
both organic and inorganic growth opportunities and therefore the Directors believe that it is
appropriate not to declare dividends at this time. This policy remains under regular review.
17. DIRECTORS’ PARTICIPATION IN THE RIGHTS ISSUE
The Directors are fully supportive of the Rights Issue. Each of Brahm Gelfand and Stephen Shaper
intends to take up their Rights in full. Joel Leonoff intends to sell 2,025,751 of his Nil Paid Rights
during the nil paid dealing period to partially meet the costs of taking up the balance of his
entitlements to New Ordinary Shares (being 2,363,987 New Ordinary Shares).
Director
Joel Leonoff
Brian McArthur-Muscroft
Dennis Jones
Andrew Dark
Ian Francis
Brahm Gelfand
Ian Jenks
Stephen Shaper
Number of
Ordinary
Shares as at
Latest
Practicable
Date
4,133,843(1)
—
—
—
—
4,500
—
19,000
Percentage
of existing
ordinary
share
capital
Number of
Ordinary
Shares
following
the Rights
Issue
Percentage
of Enlarged
Share
Capital
following
the Rights
Issue
2.53
—
—
—
—
0.002
—
0.01
6,497,830
—
—
—
—
12,000
—
50,667
1.49
—
—
—
—
0.00
—
0.01
(1) This includes the 1,500,000 shares pledged by Mr Leonoff in favour of Equities First Holdings, LLC.
70
All Directors holding Pre-Completion Existing Ordinary Shares will be further diluted upon
Completion by approximately 7.9 per cent. (assuming no further issue of Ordinary Shares) following
the issue of the Skrill Consideration Shares.
18. GENERAL MEETING
At the end of this document, you will find a notice convening a General Meeting of the Company,
which is to be held at The Forum, 17-18 Mount Havelock, Douglas, Isle of Man, IM1 2QG on
16 April 2015 at 11.00 a.m.. A summary of the action you should take is set out in paragraph 19
of this letter and in the Form of Proxy that accompanies this document.
The purpose of the General Meeting is to consider and, if thought fit, pass the Resolutions, in each
case as set out in full in the Notice of General Meeting. Resolutions 1 to 5 are proposed as
ordinary resolutions.
Your attention is drawn to the fact that the Acquisition and the Rights Issue are conditional
and dependent upon the Resolutions being passed (and there are also additional conditions
which must be satisfied before the Acquisition and Rights Issue can be completed).
Resolution 1
The Acquisition is classified under the AIM Rules for Companies as a reverse takeover and its
implementation therefore requires the approval of Shareholders.
Resolution 1 proposes that (subject to and conditional upon the passing of Resolutions 2, 3, 4 and
5), the Acquisition be approved, including for the purposes of rule 14 of the AIM Rules for
Companies, and that the Directors be authorised to take all steps and enter into all agreements
and arrangements necessary or desirable to implement the Acquisition.
Resolution 2
Resolution 2 proposes that (subject to and conditional upon the passing of Resolutions 1, 3, 4 and
5), sanction be given to the Board to approve the New Credit Facilities and related inter-creditor
agreement, fee letters, hedging agreements, security documents and all other documents required
to be entered into by the Company and/or its subsidiary undertakings in connection with the New
Facility Agreement notwithstanding that borrowings to the Optimal Payments Group under the New
Credit Facilities may cause the aggregate principal amount outstanding in respect of all borrowings
by the Optimal Payments Group to exceed the limit set out in Article 93 of the Articles of
Association.
Resolution 3
Resolution 3 proposes that the authorised share capital of the Company be increased to £70,000
by the creation of 400,000,000 Ordinary Shares of £0.0001 each.
Resolution 4
Resolution 4 proposes that (subject to and conditional upon the passing of Resolutions 1, 3, and
5), the Directors be authorised to allot and issue up to 37,493,053 New Ordinary Shares to
Sentinel Group Holdings S.A. (or such Skrill Shareholder or Skrill Shareholders as Sentinel Group
Holdings S.A. may direct) in connection with the Acquisition and up to 271,921,802 New Ordinary
Shares in connection with the Rights Issue.
Resolution 5
Resolution 5 proposes that (subject to and conditional upon the passing of Resolutions 3 and 4)
the Directors be authorised to allot and issue up to 37,493,053 New Ordinary Shares to Sentinel
Group Holdings S.A. (or such Skrill Shareholder or Skrill Shareholders as Sentinel Group Holdings
S.A. may direct) in connection with the Acquisition Agreement as if pre-emption rights did not apply
to such allotment and to allot and issue up to 271,921,802 New Ordinary Shares in connection
with the Rights Issue as if pre-emption rights did not apply to such allotment.
The Rights Issue and the Acquisition will not proceed unless each of Resolutions 1 through to 5
are passed.
For further information in relation to all of the Resolutions to be proposed at the General Meeting,
see the Notice of General Meeting.
71
19. ACTION TO BE TAKEN IN RESPECT OF THE GENERAL MEETING
You will find enclosed with this document a Form of Proxy for use in connection with the General
Meeting.
It is important to us that Shareholders have the opportunity to vote, even if they are unable to
come to the General Meeting. If you are unable to come to the General Meeting, you can use the
enclosed Form of Proxy to nominate someone else to come to the meeting and vote for you (this
person is called a proxy).
To appoint a proxy, you need to return the Form of Proxy. You are requested to complete and
sign the Form of Proxy whether or not you propose to attend the General Meeting in person in
accordance with the instructions printed on it and return it as soon as possible, but in any event so
as to be received by no later than 11.00 a.m. on 14 April 2015 (or, in the case of an adjournment,
not later than 48 hours before the time fixed for the holding of the adjourned meeting), to Capita
Asset Services, the Company’s Registrar, at PXS 1, 34 Beckenham Road, Beckenham, Kent, BR3
42F.
If you hold your Ordinary Shares in uncertificated form (i.e., in CREST) you may appoint a proxy
by completing and transmitting a CREST Proxy Instruction in accordance with the procedures set
out in the CREST Manual so that it is received by the Company’s Registrar (under CREST
participant RA10), in each case by no later than 11.00 a.m. on 14 April 2015 (or, in the case of an
adjournment, not later than 48 hours before the time fixed for the holding of the adjourned
meeting).
The Form of Proxy may also be submitted online through the website of the Registrars at
www.optimalpaymentsplc-shares.com by following the instructions provided.
Unless the Form of Proxy (or the electronic appointment of a proxy) or CREST Proxy Instruction is
received by the relevant date and time specified above, it will be invalid.
The completion and posting of the Form of Proxy (or the electronic appointment of a proxy) or
completing and transmitting a CREST Proxy Instruction will not preclude you from attending and
voting in person at the General Meeting if you wish to do so.
20. ACTION TO BE TAKEN IN RESPECT OF THE RIGHTS ISSUE
If you are a Qualifying Non-CREST Shareholder, other than, subject to certain exceptions,
Excluded Shareholders, you will be sent a Provisional Allotment Letter giving you details of your Nil
Paid Rights by post on or about 16 April 2015. If you are a Qualifying CREST Shareholder, you
will not be sent a Provisional Allotment Letter. Instead, Qualifying CREST Shareholders (other
than, subject to certain exceptions, those with registered addresses in the United States or one of
the other Excluded Territories) will receive a credit to their appropriate stock accounts in CREST in
respect of the Nil Paid Rights as soon as practicable after 8.00 a.m. on 17 April 2015.
If you sell or have sold or otherwise transferred all of your Ordinary Shares held (other than exrights) in certificated form before 8.00 a.m. on 17 April 2015, please forward this document and
any Provisional Allotment Letter, if and when received, at once to the purchaser or transferee or
the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to
the purchaser or transferee, except that such documents should not be sent to any jurisdiction
where to do so might constitute a violation of local securities laws or regulations, including, but not
limited to, the United States and the Excluded Territories.
If you sell or have sold or otherwise transferred all or some of your Ordinary Shares (other than
ex-rights) held in uncertificated form before the ex-rights date, a claim transaction will automatically
be generated by Euroclear which, on settlement, will transfer the appropriate number of Nil Paid
Rights to the purchaser or transferee.
If you sell or have sold or otherwise transferred only part of your holding of Ordinary Shares (other
than ex-rights) held in certificated form before the ex-rights date, you should refer to the instruction
regarding split applications in Part IV (Terms and Conditions of the Rights Issue) of this document
and in the Provisional Allotment Letter.
The latest time and date for acceptance and payment in full in respect of the Rights Issue is
expected to be 11.00 a.m. on 1 May 2015, unless otherwise announced by the Company. The
procedure for acceptance and payment is set out in Part IV (Terms and Conditions of the Rights
Issue) of this document and, in respect of Qualifying Non-CREST Shareholders other than, subject
to certain exceptions, Excluded Shareholders, in the Provisional Allotment Letter.
72
For Qualifying Non-CREST Shareholders who take up some or all of their Rights in the Rights
Issue, the New Ordinary Shares will be issued in certificated form and will be represented by
definitive share certificates, which are expected to be despatched by no later than 12 May 2015 to
the registered address of the Qualifying Non-CREST Shareholder.
For Qualifying CREST Shareholders who take up some or all of their Rights in the Rights Issue,
the Registrars will instruct CREST to credit the stock accounts of Qualifying CREST Shareholders
with their entitlements to New Ordinary Shares. It is expected that this will take place by 8.00 a.m.
on 5 May 2015.
Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST
sponsor regarding the action to be taken in connection with this document and the Rights Issue.
Please refer to paragraph 3 of Part IV (Terms and Conditions of the Rights Issue) for further
details of the action to be taken in respect of the Rights Issue. If you are in any doubt as to the
action you should take, you should immediately seek your own financial advice from your
stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised
under the FSMA or, if you are outside the United Kingdom, from another appropriately authorised
independent financial adviser.
21. FURTHER INFORMATION
Your attention is drawn to the section entitled ‘‘Risk Factors’’ of this document on pages 15 to 42
and to Part XVI (Additional Information) of this document. You should read all of the information
contained in this document before deciding the action to take in respect of the General Meeting.
The results of the votes cast at the General Meeting will be announced as soon as possible once
known through a Regulatory Information Service and on the Company’s website
(www.optimalpayments.com). It is expected that this will be on 16 April 2015.
22. IRREVOCABLE UNDERTAKINGS
The Company has consulted with its largest shareholders, which in aggregate own over 50 per
cent. of the Existing Ordinary Shares, and has received very significant support for the Acquisition.
The Company’s largest shareholder, Old Mutual Global Investors has signed an irrevocable
undertaking to vote in favour of the Acquisition in respect of 18,422,092 Existing Ordinary Shares
representing 11.3 per cent. of Optimal Payments’ Existing Ordinary Shares. Thornburg Investment
Management has also signed an irrevocable undertaking to vote in favour of the Acquisition in
respect of 8,233,781 Existing Ordinary Shares representing five per cent. of Optimal Payments’
Existing Ordinary Shares. In aggregate, irrevocable undertakings from institutional shareholders to
vote in favour of the Acquisition have therefore been received over 26,655,873 Existing Ordinary
Shares, representing 16.3 per cent. of total Existing Ordinary Shares.
23. RECOMMENDATION
The Board considers the terms of the Acquisition and the Rights Issue to be in the best interests
of the Shareholders taken as a whole. Accordingly, the Board unanimously recommends that
Shareholders vote in favour of the Resolutions, as the Directors intend to do in respect of their
own beneficial holdings and those of their family members, which amount in aggregate to
4,157,343 Ordinary Shares and represent approximately 2.55 per cent. of the Company’s issued
ordinary share capital as at the Latest Practicable Date.
Yours faithfully
Dennis Jones
Chairman
73
PART II
DETAILS OF THE ACQUISITION
1.
PRINCIPAL TERMS OF THE ACQUISITION AGREEMENT AND THE WARRANTY DEED
1.1
Overview
The Acquisition Agreement was entered into on 23 March 2015 between Sentinel Group
Holdings S.A, the Company and Netinvest Limited. Pursuant to the terms of the Acquisition
Agreement, Sentinel Group Holdings S.A. has conditionally agreed to sell all of the shares in
Sentinel Topco Limited to Netinvest Limited, subject to the terms and conditions of the
Acquisition Agreement. The Company has agreed to irrevocably and unconditionally guarantee
the obligations of Netinvest Limited under the terms of the Acquisition Agreement.
1.2
Consideration
Pursuant to the Acquisition Agreement, the consideration payable for the acquisition of the
shares in Sentinel Topco Limited is equal to e855 million (payable in cash and shares). The
cash consideration shall be settled by way of a direct payment to Sentinel Group Holdings
S.A. and the redemption of loan notes held by Sentinel Group Holdings S.A. The cash
payment shall be equal to e720 million less:
*
the aggregate fees of Sentinel Group Holdings S.A. and the Skrill Group (and the other
direct and indirect shareholders) incurred in respect of the transaction and 50 per cent.
of the fees incurred in respect of the transfer of Skrill USA Inc.; and
*
an amount equal to the principal outstanding amount of loan notes issued by Sentinel
Holdco 2 Limited (Sentinel Topco Limited immediate subsidiary) to Sentinel Group
Holdings S.A., which is expected to be approximately e298,000,000 (the ‘‘Redemption
Amount’’),
(‘‘Cash Consideration’’).
At Completion, Netinvest Limited will have to pay to Sentinel Group Holdings S.A. the Cash
Consideration and the Redemption Amount, and procure repayment of the Skrill Group’s net
debt (which is expected to be e266 million including all amounts outstanding under the Skrill
Group Senior Facilities Agreement). The enterprise value at Completion is expected to be
approximately e1.1 billion.
In addition, the Company shall issue the Skrill Consideration Shares which amount to
approximately 7.9 per cent. of the Enlarged Share Capital of the Company following
Completion and which together have a value of e135 million based upon the theoretical exrights price of the Rights Issue.
The Acquisition will take place on a ‘‘locked-box’’ basis such that only certain categories of
leakage from the Skrill Group is permitted to take place from 30 September 2014, which
includes no dividends or other distributions of profit or assets or other return of capital to
direct or indirect shareholders (other than a redemption of approximately e22 million of loan
notes issued by Sentinel Holdco 2 Limited to Sentinel Group Holdings S.A. that took place
shortly before signing of the Acquisition Agreement, which is included as ‘‘permitted leakage’’).
Any known leakage will be deducted from the Cash Consideration.
1.3
Conditions to Completion
Completion of the Acquisition Agreement is conditional upon satisfaction or waiver of the
following conditions:
*
approval of the Resolutions at the General Meeting;
*
the Underwriting Agreement not being terminated by the Underwriters prior to Rights
Issue Admission;
*
completion of the transfer of Skrill USA Inc. to Sentinel Group Holdings S.A. in
accordance with the Acquisition Agreement and approval for the issue of Skrill
Consideration Shares to Sentinel Group Holdings S.A. from the relevant Delaware
regulatory authority that has granted a subsidiary of the Company a US money
transmission licence;
74
*
written confirmation from the FCA that it will not object to the change of control over
Skrill International Payments Limited;
*
Rights Issue Admission occurring; and
*
approval from the FCA (including approval of the Company’s acquisition of control over
Ukash assuming that the Ukash Acquisition has completed).
Approval from the FCA in respect of change of control applications for electronic money
institutions, such as Skrill Limited and Prepaid Services Company Limited can take up to 60
working days beginning with the date on which the FCA acknowledges receipt of the
application for approval. However, the FCA is permitted to interrupt the assessment period
once for a maximum of 30 working days to request that the acquirer provide any further
information necessary to complete its assessment. This could extend the FCA’s assessment
period to a maximum of 90 working days beginning with the date on which the FCA
acknowledges receipt of the application. This assessment period applies separately in respect
of each application that the Company is required to make to acquire control over an
electronic money institution.
The FCA must also be notified of a change of control in relation to an authorised payment
institution, such as Skrill International Payments Limited at least 28 days before the change
takes effect.
Sentinel Group Holdings S.A. has commenced making formal applications to the US
regulatory authorities in the US states where Skrill USA Inc. is authorised as a money
transmitter in order to obtain consent to transfer Skrill USA Inc. to Sentinel Group Holdings
S.A. or to confirm that no consent is required. In addition, Sentinel Group Holdings S.A. will
make the formal application to the relevant Delaware regulatory authority in respect of the
issue to it of the Skrill Consideration Shares.
If the conditions have not been satisfied (or, where relevant, waived) by the date that is six
months after the date of the Acquisition Agreement, the Acquisition Agreement will
automatically terminate.
1.4
Costs Reimbursement
If Completion does not occur for any reason other than as a result of Sentinel Group
Holdings S.A. not complying with its obligations under the Acquisition Agreement, the
Company will be required to make a costs reimbursement payment of up to e5,000,000 to
Sentinel Group Holdings S.A. in respect of the third party costs, fees and expenses properly
incurred by Sentinel Group Holdings S.A. and the Skrill Group in connection with the
Acquisition. If paid, the costs reimbursement payment will be Sentinel Group Holdings S.A.’s
sole and exclusive remedy against the Company and Netinvest Limited in connection with the
transactions contemplated by the Acquisition Agreement, save where Completion does not
occur as a result of the breach of the Acquisition Agreement by Netinvest Limited or the
Company.
1.5
Skrill USA Inc.
Prior to Completion, the Skrill Group will undertake a restructuring to transfer Skrill USA Inc.
outside the Skrill Group. Completion of the Acquisition will be conditional on Skrill USA Inc.
being transferred outside the Skrill Group. The consideration for the transfer of Skrill USA Inc.
outside the Skrill Group will be left outstanding as an inter-company loan between Skrill
Holdings Limited and Sentinel Group Holdings S.A. In addition, Skrill Holdings Limited will
provide Skrill USA Inc. with an inter-company funding loan for working capital purposes. Once
the transfer of Skrill USA Inc. outside the Skrill Group has completed, the Optimal Payments
Group will have a period of six months following Completion to obtain the required approvals
in connection with Skrill USA Inc.’s money transmitter licences from the relevant US states or
territories in order for Skrill USA Inc. to be transferred to Skrill Holdings Limited. In the event
that Skrill Holdings Limited repurchases Skrill USA Inc. after Completion, the consideration for
that transfer will be the release of Sentinel Group Holdings S.A.’s obligation to repay the
inter-company loan. If Skrill Holdings Limited has not obtained the relevant consents to enable
Skrill USA Inc. to be transferred to Skrill Holdings Limited within the six month period
following Completion, Sentinel Group Holdings S.A will be permitted to sell Skrill USA Inc. to
a third party. In the event Skrill USA Inc. is sold to a third party, Sentinel Group Holdings
75
S.A. will use reasonable endeavours to sell Skrill USA Inc. for the best possible purchase
price, and the proceeds of that sale shall be used to repay the inter-company loans put in
place between Skrill Holdings Limited and both Sentinel Group Holdings S.A. and Skrill USA
Inc., and Netinvest Limited will procure the waiver of any excess inter-company loan amount
that remains outstanding (whether relating to the working capital loan or the consideration for
the transfer of Skrill USA Inc.) by Skrill Holdings Limited.
1.6
Representations and Warranties
Sentinel Group Holdings S.A has provided limited warranties in connection with the
Acquisition to Netinvest Limited. These warranties are, among others, as to the capacity of
Sentinel Group Holdings S.A to enter into the Acquisition Agreement, that Sentinel Group
Holdings S.A is not insolvent and that it is the sole beneficial owner of the shares in Skrill
that it will sell to Netinvest Limited pursuant to the Acquisition Agreement. These warranties
will be repeated at Completion. Any warranty claim by Netinvest Limited for breach of the
warranties given by Sentinel Group Holdings S.A. is to be notified by the first anniversary of
the Acquisition Agreement. The liability of Sentinel Group Holdings S.A. to Netinvest Limited
under the Acquisition Agreement, save in relation to leakage where recovery is on a e for e
basis, shall not exceed the consideration received by Sentinel Group Holdings S.A under the
Acquisition Agreement.
The Company and Netinvest Limited have provided warranties in connection with the
Acquisition to Sentinel Group Holdings S.A. These warranties relate principally to compliance
with laws in certain key jurisdictions and the information in this document being true and
accurate in all material respects, and are subject to the same limitations (including aggregate
cap on liability) as the limitations in the Warranty Deed.
Certain members of the Skrill Group’s senior management (the ‘‘Warrantors’’) have entered
into the Warranty Deed under which the Warrantors have severally given the Company
certain warranties in relation to the business and affairs of the Skrill Group and in relation to
the accuracy of the information in this document relating to the Skrill Group and its subsidiary
undertakings. The liability of the Warrantors under the Warranty Deed is several and is limited
to 30 per cent. of the cash consideration received by the Warrantors in connection with the
sale of Sentinel Topco Limited under the Acquisition Agreement which is approximately e3.6
million. The warranties were given by each Warrantor on the date that the Warranty Deed
was signed and certain limited warranties will be repeated at Completion.
1.7
Covenants and other obligations
Sentinel Group Holdings S.A. has undertaken that, as between the date of the Acquisition
Agreement and Completion it shall use reasonable endeavours to ensure that the Skrill Group
complies with customary pre-Completion actions and restrictions. Sentinel Group Holdings
S.A. has passed a shareholder resolution directing the management of Skrill to conduct its
business and that the Skrill Group in accordance with these pre-Completion actions and
restrictions from the date of the Acquisition Agreement up to Completion.
Following Completion, Sentinel Group Holdings, S.A. will be permitted to distribute the Cash
Consideration. If Sentinel Group Holdings S.A. is permitted to sell some or all of the Skrill
Consideration Shares pursuant to the Lock-Up Agreement prior to the date falling six months
after the Completion Date, Sentinel Group Holdings S.A. shall ensure that until such date, the
aggregate amount of cash and the value of the Skrill Consideration Shares held by Sentinel
Group Holdings S.A. together with the value of a guarantee from CVC Funds and / or a bank
letter of credit (both in a form agreed) is not less than e35 million (minus any amounts paid
by Sentinel Group Holdings S.A. to Netinvest Limited in respect of a breach of the Acquisition
Agreement).
1.8
Termination
If the conditions precedent to Completion have not been satisfied (or, where relevant, waived)
by the date that is six months after the date of the Acquisition Agreement, the Acquisition
Agreement will automatically terminate. The Acquisition Agreement may also be terminated by
Sentinel Group Holdings S.A. or Netinvest Limited if the other party if the counter-party fails
to comply with its completion obligations on Completion. Save as described in this paragraph
the Acquisition Agreement may not be terminated by any party.
76
1.9
Governing law and jurisdiction
The Acquisition Agreement is governed by English law. The parties have submitted to the
exclusive jurisdiction of the courts of England in relation to any action or proceeding (including
in relation to any non-contractual obligations) arising out of the Acquisition Agreement.
77
PART III
QUESTIONS AND ANSWERS ON THE RIGHTS ISSUE
The questions and answers set out in this Part III (Questions and Answers on the Rights Issue) of
this document are intended to be in general terms only and, as such, you should read Part IV
(Terms and Conditions of the Rights Issue) of this document for full details of what action you
should take. If you are in any doubt as to what action you should take, you are recommended to
seek your own financial advice immediately from an independent financial adviser, who is
authorised under FSMA if you are resident in the United Kingdom, or from another appropriately
authorised independent financial adviser if you are in a territory outside the United Kingdom.
This Part III (Questions and Answers on the Rights Issue) deals with general questions relating to
the Rights Issue and more specific questions relating principally to Existing Ordinary Shares held
by persons resident in the United Kingdom who hold their Existing Ordinary Shares in certificated
form only. If you are an Overseas Shareholder, you should read paragraph 7 of Part IV (Terms
and Conditions of the Rights Issue) of this document and you should take professional advice as
to whether you are eligible and/or you need to observe any formalities to enable you to take up
your rights. If you hold your Existing Ordinary Shares in uncertificated form (that is, through
CREST) you should read paragraph 5 of Part IV (Terms and Conditions of the Rights Issue) of this
document for full details of what action you should take. If you are a CREST sponsored member,
you should also consult your CREST sponsor.
The contents of this document should not be construed as legal, business, financial, tax,
investment or other professional advice. Each prospective investor should consult his, her or its
own appropriate professional advisers for advice.
The Company’s Ordinary Shares can be held in certificated form (that is, represented by a share
certificate) or in uncertificated form (that is, held through CREST). Accordingly, these questions and
answers are split into four sections:
*
Section 1 (‘‘General’’) answers general questions on the Rights Issue.
*
Section 2 (‘‘Ordinary Shares in certificated form’’) answers questions you may have in
respect of the procedures for Qualifying Shareholders who hold their Ordinary Shares in
certificated form. You should note that Sections 1 and 4 may still apply to you.
*
Section 3 (‘‘Ordinary Shares in CREST’’) answers questions you may have in respect of the
equivalent procedures for Qualifying Shareholders who hold their Ordinary Shares in CREST.
If you are a CREST sponsored member, you should also consult your CREST sponsor. You
should note that Sections 1 and 4 may still apply to you.
*
Section 4 (‘‘Further procedures for Ordinary Shares whether in certificated form or in
CREST’’) answers some detailed questions about your Rights and the actions you may need
to take and is applicable to Ordinary Shares whether held in certificated form or in CREST.
If you have any questions relating to the Rights Issue, please telephone the Shareholder Helpline
on 0871 664 0321 (from inside the UK) or +44 20 8639 3399 (from outside the UK). The
Shareholder Helpline is available from 9.00 a.m. to 5.30 p.m. Monday to Friday and will remain
open until 26 May 2015. Calls to the 0871 664 0321 number from inside the UK are charged at 10
pence per minute (including VAT) plus network extras. Calls to the +44 20 8639 3399 number from
outside the UK are charged at applicable international rates. Different charges may apply to calls
made from mobile telephones and calls may be randomly monitored for security and training
purposes. Please note that, for legal reasons, the Shareholder Helpline will only be able to provide
information contained in this document and information relating to the Company’s register of
members and will be unable to give advice on the merits of the Rights Issue or to provide
financial, tax or investment advice.
1.
1.1
GENERAL
What is a rights issue?
Rights issues are one way for companies to raise money. Companies do this by issuing
shares for cash and giving their existing shareholders (other than, subject to certain
exemptions, those shareholders with a registered address in, or who are otherwise located or
resident in, the United States or any other Excluded Territory) a right of first refusal to buy
these shares in proportion to their existing shareholdings. For example, a 1 for 4 rights issue
78
generally means that a shareholder is entitled to buy one new share for every four currently
held. This Rights Issue is 5 for 3; that is, an offer of 5 New Ordinary Shares for every 3
Existing Ordinary Shares held by Qualifying Shareholders at 5.00 p.m. on 14 April 2015 (the
Record Date for the Rights Issue).
New ordinary shares are typically offered in a rights issue at a discount to the current share
price. As a result of this discount and while the market value of the ordinary shares exceeds
the offer price, the right to buy the new ordinary shares is potentially valuable. In this Rights
Issue, the Offer Price represents a 60 per cent. discount to the closing middle-market price of
419 pence per Existing Ordinary Share on 20 March 2015 (being the Latest Practicable Date
prior to the announcement of the Rights Issue).
If you do not want to buy the New Ordinary Shares to which you are entitled, you can
instead sell your Nil Paid Rights to those shares and receive the net proceeds, if any, of the
sale in cash. This is referred to as dealing ‘‘nil paid’’.
1.2
What happens next?
The Directors need authority to allot the New Ordinary Shares before the Rights Issue can
proceed. This needs Shareholder approval. Accordingly, the Company has called a General
Meeting of Shareholders to be held at The Forum, 17-18 Mount Havelock, Douglas, Isle of
Man, IM1 2QG on 16 April 2015 at 11.00 a.m.. The Notice of the General Meeting is set out
at the end of this document.
You will find enclosed with this document a Form of Proxy for use in relation to the General
Meeting. Whether or not you intend to be present in person at the General Meeting, you are
invited to complete, sign and return the Form of Proxy by post or by hand to Capita Asset
Services as soon as possible but, in any event, so as to arrive by not later than 11.00 a.m.
on 14 April 2015. Completion and return of the Form of Proxy will not preclude you from
attending the meeting and voting in person should you wish.
2.
ORDINARY SHARES IN CERTIFICATED FORM
If you receive a Provisional Allotment Letter and, subject to certain exceptions, are not a holder
with a registered address in the US or in any of the Excluded Territories, then you should be
eligible to participate in the Rights Issue (as long as you have not sold all of your Existing Shares
before 8.00 a.m. on 17 April 2015 (the ex-rights date)).
2.1
What are my options and what should I do with the Provisional Allotment Letter when I
receive it?
You should retain this document pending receipt of a Provisional Allotment Letter. The
Provisional Allotment Letter is expected to be sent to you after the General Meeting on
16 April 2015 if the Resolutions are approved. The Provisional Allotment Letter will show:
In Box 1: how many Ordinary Shares you held at 5.00 p.m. on the Record Date;
In Box 2: how many New Ordinary Shares you are entitled to buy pursuant to the Rights
Issue; and
In Box 3: how much you need to pay if you want to take up your right to buy all the New
Ordinary Shares provisionally allotted to you in full.
2.2
If you want to take up your Rights in full
If you want to take up in full your Rights to subscribe for the New Ordinary Shares to which
you are entitled, all you need to do is send the Provisional Allotment Letter, together with
your cheque or banker’s draft drawn on a UK bank for the full amount shown in Box 3,
payable to ‘‘Capita Registrars Limited re Optimal Payments plc Rights Issue A/C’’, to the
address shown on the front of the Provisional Allotment Letter to arrive before 11.00 a.m. on
1 May 2015. If you are within the United Kingdom, you can use the reply-paid envelope
which will be provided with the Provisional Allotment Letter or return it by hand (during normal
business hours only) to Capita Asset Services by no later than 11.00 a.m. on 1 May 2015. If
you are outside of the United Kingdom (but, subject to certain exceptions, not within an
Excluded Territory), you can still use the reply-paid envelope which will be provided with the
Provisional Allotment Letter, although you will need to affix a stamp to the envelope to cover
the postage charge. Please allow sufficient time for delivery. Part IV (Terms and Conditions of
79
the Rights Issue) of this document has full instructions on how to accept and pay for your
New Ordinary Shares. Instructions will also be set out in the Provisional Allotment Letter. You
will be required to pay in full for all the Rights you take up. Please note that third party
cheques will not be accepted except for building society cheques or banker’s drafts where the
building society or bank has confirmed the name of the account holder by stamping or
endorsing the building society cheque/banker’s draft to such effect. The account name should
be the same as that shown in the Provisional Allotment Letter. A definitive share certificate
will be sent to you for the New Ordinary Shares you acquire and it is expected that such
certificate(s) will be despatched by 12 May 2015.
You will only need your Provisional Allotment Letter to be returned to you if you want
to deal in your Fully Paid Rights. Your Provisional Allotment Letter will not be returned
to you unless you tick Box 4 on page 4 of the Provisional Allotment Letter.
2.3
If you do not want to take up your Rights at all
If you do not want to take up any of your Rights to subscribe for the New Ordinary Shares to
which you are entitled, you do not need to do anything and your Rights will lapse. If you do
not return your Provisional Allotment Letter by 11.00 a.m. on 1 May 2015 (the ‘‘Closing
Date’’), we have made arrangements under which the Underwriters will try to find investors to
take up your Rights and the Rights of others who have not taken up their Rights by 3.00 p.m.
on the second business day following the latest date for acceptance of the provisional
allotment under the Rights Issue in accordance with the procedures set out in Part IV (Terms
and Conditions of the Rights Issue) of this document. If the Underwriters find investors and
are able to achieve a premium over the Offer Price and the related expenses of procuring
those investors (including applicable brokerage and commissions and amounts in respect of
any value added tax), you will be sent a cheque for your share of the amount of that
aggregate premium, so long as the amount is at least £5. Cheques are expected to be
despatched during the week commencing 18 May 2015, and will be sent to your address as it
appears on the Company’s register of members (or to the first named holder if you hold
Existing Ordinary Shares jointly). If the Underwriters are unable to find investors who agree to
pay a premium over the aggregate of the Offer Price and any related fees and expenses
such that your entitlement would be £5 or more, you will not receive any payment and any
amounts of less than £5 will be aggregated and accrue for the benefit of the Company.
2.4
If you want to take up some but not all of your Rights
If you want to take up some but not all of your Rights and wish to sell some or all of those
you do not want to take up, you should first apply for split Provisional Allotment Letters by
completing Form X on page 4 of the Provisional Allotment Letter, and returning it by post or
by hand (during normal business hours) to Capita Asset Services to be received by 3.00 p.m.
on 29 April 2015, the last time and date for splitting Provisional Allotment Letters, nil paid,
together with a covering letter stating the number of split Provisional Allotment Letters
required and the number of Nil Paid Rights or Fully Paid Rights to be comprised in each split
Provisional Allotment Letter. You should then deliver the split Provisional Allotment Letter
representing the Rights to New Ordinary Shares you wish to accept, together with your
cheque or banker’s draft, to Capita Asset Services to be received by 11.00 a.m. on 1 May
2015, the last date and time for acceptance and payment in full.
Alternatively, if you want only to take up some of your Rights (and do not wish to sell some
or all of those you do not want to take up), you should complete Form X on page 4 of the
Provisional Allotment Letter and return it by post or by hand to Capita Asset Services,
together with a covering letter confirming the number of New Ordinary Shares you wish to
take up, together with a cheque or banker’s draft to pay for the appropriate number of
shares. In this case the Provisional Allotment Letter and cheque or banker’s draft must be
received by Capita Asset Services by 3.00 p.m. on 29 April 2015, the last time and date for
splitting Provisional Allotment Letters, nil paid.
80
2.5
If you want to sell your Rights
If you want to sell your Rights you should complete and sign Form X on page 4 of the
Provisional Allotment Letter (if it is not already marked ‘‘Original Duly Renounced’’) and pass
the entire letter to your stockbroker, bank manager or other appropriate financial adviser or to
the transferee (provided they are not in the United States or any of the Excluded Territories).
Please note that your ability to sell your Rights is dependent on the demand for such Rights
and that the price for the Nil Paid Rights may fluctuate. Please ensure that you allow enough
time so as to enable the person acquiring your Rights to take all necessary steps in
connection with taking up the entitlement prior to 11.00 a.m. on 1 May 2015.
2.6
How do I transfer my Rights into the CREST system?
If you are a Qualifying non-CREST Shareholder, but are a CREST member and want your
New Ordinary Shares to be in uncertificated form, you should complete Form X and the
CREST Deposit Form (both on page 4 of the Provisional Allotment Letter), and ensure they
are delivered to the CREST Courier and Sorting Service (‘‘CCSS’’) to be received by 3.00
p.m. on 28 April 2015 at the latest. CREST sponsored members should arrange for their
CREST sponsors to do this.
If you have transferred your Rights into the CREST system, you should refer to paragraph 5
of Part IV (Terms and Conditions of the Rights Issue) of this document for details on how to
pay for the New Ordinary Shares.
2.7
How do I know if I am eligible to participate in the Rights Issue?
If you receive a Provisional Allotment Letter following the General Meeting, then you should
be eligible to participate in the Rights Issue (as long as you have not sold all of your Ordinary
Shares before 8.00 a.m. on 17 April 2015 (the ex-rights date)).
However, if you receive a Provisional Allotment Letter and you have a registered address in,
or are a resident, citizen or national of, a country other than the United Kingdom you must
satisfy yourself as to the full observance of the applicable laws of such territory including
obtaining any requisite governmental or other consents, observing any other requisite
formalities and paying any issue, transfer or other taxes due in such territories. Receipt of this
document or a Provisional Allotment Letter does not constitute an offer in those jurisdictions
in which it would be illegal to make an offer. Excluded Shareholders are not permitted to
participate in the Rights Issue, subject to certain exceptions.
If you do not receive a Provisional Allotment Letter and you do not hold your shares in
CREST, this probably means you are not eligible to acquire any New Ordinary Shares.
However, see question 2.8 below.
2.8
What if I have not received a Provisional Allotment Letter?
If you do not receive a Provisional Allotment Letter, and you do not hold your Ordinary
Shares in CREST, this probably means that you are not eligible to participate in the Rights
Issue. Subject to certain exceptions, this will apply to Qualifying Shareholders with a
registered address or located or resident in the United States or any other Excluded Territory.
Some Qualifying Shareholders, however, will not receive a Provisional Allotment Letter but
may still be able to participate in the Rights Issue, namely:
*
Qualifying CREST Shareholders (please see paragraph 3 below);
*
Qualifying non-CREST Shareholders who bought Ordinary Shares before 8.00 a.m. on
17 April 2015 but were not registered as the holders of those Ordinary Shares at the
close of business on 14 April 2015 (see question 2.9 below); and
*
certain Overseas Shareholders who can demonstrate to the satisfaction of the Company
after consulting the Underwriters that the offer under the Rights Issue can lawfully be
made to them without contravention of any relevant legal or regulatory requirements (see
question 4.9 below).
If you do not receive a Provisional Allotment Letter on or about 16 April 2015 but think that
you should have received one, then please call Capita Asset Services on 0871 664 0321
(from within the UK) or on +44 20 8639 3399 (if calling from outside the UK). Calls to the
0871 664 0321 number are charged at 10 pence per minute (from a BT landline, other
81
network providers costs may vary. Lines are open from 9.00 a.m. to 5.30 p.m. (London time)
Monday to Friday. Calls to Capita Asset Services from outside the UK will be charged at the
applicable international rate. Different charges may apply to calls from mobile telephones and
calls may be recorded and randomly monitored for security and training purposes. Please
note that Capita Asset Services operators cannot provide advice on the merits of the
Acquisition or Rights Issue or give financial, tax, investment or legal advice.
2.9
If I buy Ordinary Shares before 8.00 a.m. on 17 April 2015 (the date the Ordinary Shares start
trading ex-rights, referred to as the ex-rights date) will I be eligible to participate in the
Rights Issue?
If you buy or have bought Ordinary Shares before 8.00 a.m. on 17 April 2015 (the ex-rights
date) but were not registered as the holder of those Ordinary Shares at the Record Date for
the Rights Issue (5.00 p.m. on 14 April 2015), you may still be eligible to participate in the
Rights Issue. If you are in any doubt, please consult your stockbroker, bank or other
appropriate financial adviser, or whoever arranged your share purchase, to ensure you claim
your entitlement.
You will not be entitled to Nil Paid Rights in respect of any Ordinary Shares acquired on or
after 17 April 2015.
2.10 What should I do if I sell or have sold or transferred all or some of the Ordinary Shares
shown in Box 1 of the Provisional Allotment Letter before 8.00 a.m. on 17 April 2015? (the
ex-rights date)
If you sell or have sold or transferred all of your Ordinary Shares before 8.00 a.m. on 17 April
2015, you should complete Form X on page 4 of the Provisional Allotment Letter and send
the entire Provisional Allotment Letter together with this document and, if applicable, the
accompanying Form of Proxy to the stockbroker, bank or other appropriate financial adviser
through whom you made the sale or transfer. However, you should not forward or transmit
this document or the Provisional Allotment Letter into the United States or any other Excluded
Territory.
If you sell or have sold or transfer or have transferred only some of your holding of Ordinary
Shares before 8.00 a.m. on 17 April 2015, you will need to complete Form X on page 4 of
the Provisional Allotment Letter and consult the stockbroker, bank or other appropriate
financial adviser through whom you made the sale or transfer, before taking any action, with
regard to the balance of Rights due to you.
2.11 How many New Ordinary Shares am I entitled to acquire?
Box 2 on page 1 of the Provisional Allotment Letter shows the number of New Ordinary
Shares you are entitled to buy if you are a Qualifying non-CREST Shareholder. You are
entitled to 5 New Ordinary Share for every 3 Existing Ordinary Shares held at 5.00 p.m. on
14 April 2015, the Record Date (rounding down any fractions). All Qualifying non-CREST
Shareholders (except Excluded Shareholders) will be sent a Provisional Allotment Letter on
16 April 2015.
2.12 What should I do if I think my holding of Ordinary Shares (as shown in Box 1 on page 1 of
the Provisional Allotment Letter) is incorrect?
If you buy or sell Ordinary Shares between the date of this document and 8.00 a.m. on
17 April 2015, your transaction may not be entered on the register of members before the
Record Date for the Rights Issue. See questions 2.9 and 2.10 above for what you should do
in this case.
Otherwise, if you are concerned about the figure in Box 1, please call Capita Asset Services
on 0871 664 0321 (from within the UK) or on +44 20 8639 3399 (if calling from outside the
UK). Calls to the 0871 664 0321 number are charged at 10 pence per minute (from a BT
landline, other network providers costs may vary. Lines are open from 9.00 a.m. to 5.30 p.m.
(London time) Monday to Friday. Calls to Capita Asset Services from outside the UK will be
charged at the applicable international rate. Different charges may apply to calls from mobile
telephones and calls may be recorded and randomly monitored for security and training
purposes. Please note that Capita Asset Services operators cannot provide advice on the
merits of the Acquisition or Rights Issue or give financial, tax, investment or legal advice.
82
2.13 If I take up my Rights, when will I receive my new share certificate?
If you take up your Rights under the Rights Issue, share certificates for the New Ordinary
Shares are expected to be posted by 12 May 2015.
3.
ORDINARY SHARES IN CREST
3.1
How do I know if am eligible to participate in the Rights Issue?
If you are a Qualifying CREST Shareholder (save as mentioned below) and on the
assumption that the Rights Issue proceeds as planned, your CREST stock account(s) will be
credited with your entitlement to Nil Paid Rights as soon as practicable after 8.00 a.m. on
17 April 2015. The stock account(s) to be credited will be the account(s) under the participant
ID and member account ID that apply to your Ordinary Shares on the Record Date. The Nil
Paid Rights and Fully Paid Rights are expected to be enabled in CREST as soon as
practicable after 8.00 a.m. on 17 April 2015. If you are a CREST sponsored member, you
should consult your CREST sponsor if you wish to check that your account has been credited
with your entitlement to Nil Paid Rights. The CREST stock accounts of Qualifying
Shareholders with a registered address or located or resident in Excluded Territories, will,
subject to certain exceptions, not be credited with Nil Paid Rights. Overseas Shareholders
should refer to paragraph 7 of Part IV (Terms and Conditions of the Rights Issue) of this
document.
3.2
How do I take up my Rights using the CREST system?
If you are a Qualifying CREST Shareholder you should refer to paragraph 5 of Part IV
(Terms and Conditions of the Rights Issue) of this document for details on how to take up
and pay for your Rights.
If you are a CREST member and wish to take up your Rights you should ensure that an
MTM Instruction has been input and has settled by 11.00 a.m. on 1 May 2015 in order to
make a valid acceptance. If your Ordinary Shares are held by a nominee or you are a
CREST sponsored member you should speak directly to the stockholder who looks after your
stock or your CREST sponsor (as appropriate) who will be able to help you.
3.3
If I buy or have bought Ordinary Shares before 17 April 2015 (the date that the Ordinary
Shares start trading ex-rights), will I be eligible to participate in the Rights Issue?
If you buy Ordinary Shares before 17 April 2015, but are not registered as the holder of
those Ordinary Shares at the Record Date for the Rights Issue (5.00 p.m. on 14 April 2015),
you may still be eligible to participate in the Rights Issue. Euroclear will raise claims in the
normal manner in respect of your purchase and your Nil Paid Rights will be credited to your
stock account(s) on settlement of those claims.
You will not be entitled to Nil Paid Rights in respect of any Ordinary Shares acquired on or
after 8.00 a.m. on 17 April 2015, the ex-rights date.
3.4
What should I do if I sell or transfer all or some of my Ordinary Shares before 8.00 a.m. on
17 April 2015?
You do not have to take any action except, where you sell or transfer all of your Ordinary
Shares before 8.00 a.m. on 17 April 2015, to send this document and the accompanying
forms to the purchaser or transferee or to the stockbroker, bank or other financial adviser
through whom you made the sale or transfer. However, you should not forward or transmit
this document into the United States or any other Excluded Territory. A claim transaction in
respect of that sale or transfer will automatically be generated by Euroclear which, on
settlement, will transfer the appropriate number of Nil Paid Rights to the purchaser or
transferee.
3.5
How many New Ordinary Shares am I entitled to acquire?
Your stock account will be credited with Nil Paid Rights in respect of the number of New
Ordinary Shares to which you are entitled based on the number of Existing Ordinary Shares
you hold on the Record Date. You can also view the claim transactions in respect of
purchases/sales effected after this date, but before the ex-rights date. If you are a CREST
83
sponsored member, you should consult your CREST sponsor. You are entitled to 5 New
Ordinary Share for every 3 Existing Ordinary Shares held at 5.00 p.m. on 14 April 2015, the
Record Date (rounding down any fractions).
3.6
What should I do if I think my holding of Ordinary Shares is incorrect?
If you buy or sell Ordinary Shares between the date of this document and 8.00 a.m. on
17 April 2015, your transaction may not be entered on the register of members before the
Record Date for the Rights Issue.
If you are concerned about the number of Nil Paid Rights with which your stock account has
been credited, please telephone the Shareholder Helpline on 0871 664 0321 (from inside the
UK) or +44 20 8639 3399 (from outside the UK). The Shareholder Helpline is available from
9.00 a.m. to 5.30 p.m. Monday to Friday and will remain open until 16 May 2015. Calls to the
0871 664 0321 number from inside the UK are charged at 10 pence per minute (including
VAT) plus network extras. Calls to the +44 20 8639 3399 number from outside the UK are
charged at applicable international rates. Different charges may apply to calls made from
mobile telephones and calls may be randomly monitored for security and training purposes.
Please note that, for legal reasons, the Shareholder Helpline will only be able to provide
information contained in this document and information relating to the Company’s register of
members and will be unable to give advice on the merits of the Rights Issue or to provide
financial, tax or investment advice.
3.7
If I take up my Rights, when will New Ordinary Shares be credited to my CREST stock
account(s)?
If you validly take up your Rights under the Rights Issue, it is expected that New Ordinary
Shares will be credited to the CREST stock account(s) in which you hold your Fully Paid
Rights by 8.00 a.m. on 5 May 2015.
4.
FURTHER PROCEDURES FOR ORDINARY SHARES WHETHER IN CERTIFICATED FORM
OR IN CREST
4.1
What happens if the number of Ordinary Shares I hold is not exactly divisible? Am I entitled
to fractions of the New Ordinary Shares?
Your entitlement to New Ordinary Shares is calculated by dividing your holding of Ordinary
Shares as at the Record Date by 0.6. If the result is not a whole number, your entitlement
will be rounded down to the nearest whole number of New Ordinary Shares, meaning that
you will not be provisionally allotted a new Ordinary Share in respect of the fractional
entitlement. The New Ordinary Shares representing the aggregated fractions that would
otherwise be allotted to Qualifying Shareholders will be issued in the market, nil paid, and the
proceeds shall accrue for the benefit of the Company.
4.2
Will I be taxed if I take up or sell my Rights or if my Rights are sold on my behalf?
If you are resident in the United Kingdom for tax purposes, you should not have to pay UK
tax when you take up your Rights to subscribe for New Ordinary Shares, although the Rights
Issue will affect the amount of UK tax you may pay when you subsequently sell your
Ordinary Shares. However, you may be subject to capital gains tax on any proceeds you
receive from the sale of your Rights.
Further information for certain Qualifying Shareholders is contained in Part XV (Taxation) of
this document. Qualifying Shareholders who are in any doubt as to their tax position, or who
are subject to tax in any jurisdiction other than the United Kingdom, the Isle of Man or the
US, should consult their professional advisers as soon as possible. Please note that the
Shareholder Helpline is unable to advise on any taxation issues.
4.3
I understand that there is a period when there is trading in the Nil Paid Rights. What does
this mean?
If you are a Qualifying Shareholder you do not want to buy the New Ordinary Shares being
offered to you under the Rights Issue, you can instead sell or transfer your Nil Paid Rights to
those New Ordinary Shares and receive the net proceeds of the sale or transfer in cash. This
is referred to as dealing ‘‘nil paid’’. This means that, between 8.00 a.m. on 17 April 2015 and
84
11.00 a.m. on 1 May 2015 (both inclusive), you can either purchase Ordinary Shares (which
will not carry any entitlement to participate in the Rights Issue (sometimes referred to as
trading ‘‘ex’’)) and/or you can trade in the Nil Paid Rights.
If you wish to sell or transfer all or some of your Nil Paid Rights and you hold your Ordinary
Shares in certificated form, you will need to complete Form X, the form of renunciation, on
page 4 of the Provisional Allotment Letter and send it to the stockbroker, bank or other agent,
through or by whom the sale or transfer was effected, to be forwarded to the purchaser or
transferee, except that Provisional Allotment Letters should not be forwarded or transmitted
into the United States or any of the other Excluded Territories.
If you buy Nil Paid Rights, you are buying an entitlement to take up the New Ordinary Shares
in respect of such Nil Paid Rights, subject to you paying for them in accordance with the
terms of the Rights Issue. Any seller of Nil Paid Rights who holds its Ordinary Shares in
certificated form will need to forward to you its Provisional Allotment Letter (with Form X
completed) for you to complete and return, with your cheque, by 11.00 a.m. on 1 May 2015,
in accordance with the instructions in the Provisional Allotment Letter. If you are a CREST
member or CREST sponsored member and have received a Provisional Allotment Letter and
you wish to hold your Nil Paid Rights in uncertificated form in CREST then you should send
the Provisional Allotment Letter with Form X and the CREST Deposit Form on page 4 of the
Provisional Allotment Letter completed (in the case of a CREST member) to the CCSS or (in
the case of a CREST sponsored member) to your CREST sponsor by 3.00 p.m. on 28 April
2015 at the latest.
Qualifying CREST Shareholders and, subject to dematerialisation of their Nil Paid Rights as
set out in the Provisional Allotment Letter, Qualifying non-CREST Shareholders who are
CREST members or CREST sponsored members, can transfer Nil Paid Rights, in whole or in
part, by means of CREST in the same manner as any other security that is admitted to
CREST. Please consult your CREST sponsor or stockbroker, bank or other appropriate
financial adviser, or whoever arranged your share purchase, for details.
4.4
What if I want to sell the New Ordinary Shares I have paid for?
If you are a Qualifying non-CREST Shareholder, provided the New Ordinary Shares have
been paid for and you have requested the return of the receipted Provisional Allotment Letter
(by ticking Box 4 on page 4 of the Provisional Allotment Letter), you can transfer the Fully
Paid Rights by completing Form X, the form of renunciation, on the back of the receipted
Provisional Allotment Letter in accordance with the instructions set out on page 4 of the
Provisional Allotment Letter until 11.00 a.m. on 1 May 2015. See paragraph 4 of Part IV
(Terms and Conditions of the Rights Issue) of this document for more details.
After that date, you will be able to sell your New Ordinary Shares in the normal way.
However, the share certificate relating to your New Ordinary Shares is expected to be
despatched to you by 12 May 2015. Pending despatch of share certificates, instruments of
transfer may be certified by Capita Asset Services against the register.
If you hold your New Ordinary Shares and/or Rights in CREST, you may transfer the Fully
Paid Rights in the same manner as any other security that is admitted to CREST. See
paragraph 5 of Part IV (Terms and Conditions of the Rights Issue) of this document for more
details. Please consult your stockbroker, bank or other appropriate financial adviser, or
whoever arranged your share purchase, for details.
4.5
What if I do nothing?
If you do not want to take up any of your Rights, you do not need to do anything. If you do
not take up your Rights, the number of Ordinary Shares you hold in the Company will stay
the same, but, following completion of the Rights Issue, the proportion of the total number of
Ordinary Shares that you will hold relative to the total issued share capital of the Company
will be lower than that held currently. If you are a Qualifying non-CREST Shareholder and do
not return your Provisional Allotment Letter and payment for the New Ordinary Shares to
which you are entitled, by 11.00 a.m. on 1 May 2015, the Company has made arrangements
under which the Underwriters will try to find investors to take up your Rights and those of
other Qualifying Shareholders who have not taken up their Rights by 3.00 p.m. on the second
Business Day after the last date for acceptance of the Rights. If the Underwriters find
85
investors and are able to achieve a premium over the Offer Price and the related expenses of
procuring those investors (including any applicable brokerage and commissions and amounts
in respect of VAT which are not recoverable), you will be sent a cheque for the amount of
that aggregate premium above the Offer Price less related expenses (including any applicable
brokerage commissions and amounts in respect of VAT which are not recoverable), so long
as the amount in question is at least £5. Cheques are expected to be despatched during the
week commencing 18 May 2015 and will be sent to your address as it appears on the
Company’s register of members (or to the first named holder if you hold Existing Ordinary
Shares jointly). If the Underwriters cannot find investors who agree to pay a premium above
the aggregate of the Offer Price and related expenses such that your entitlement would be £5
or more, you will not receive any payment, and any amounts of less than £5 will be
aggregated and accrue for the benefit of the Company.
4.6
Do I need to comply with the Money Laundering Regulations (as set out in paragraph 4.5 of
Part IV (Terms and Conditions of the Rights Issue) of this document)?
If you are a Qualifying non-CREST Shareholder, you do not need to follow these procedures
if the value of the New Ordinary Shares you are subscribing for is less than the sterling
equivalent of e15,000 or if you pay for them by a cheque drawn on an account in your own
name and that account is one which is held with an EU or UK-regulated bank or building
society. If you are a Qualifying CREST Shareholder, you will not generally need to comply
with the Money Laundering Regulations 2007, as amended from time to time unless you
apply to take up all or some of your entitlement to Nil Paid Rights as agent for one or more
persons and you are not an EU or UK-regulated financial institution.
Qualifying non-CREST Shareholders and Qualifying CREST Shareholders should refer to
paragraph 4.5 of Part IV (Terms and Conditions of the Rights Issue) of this document for a
fuller description of the requirements of the Money Laundering Regulations.
4.7
What if I hold options and awards under the Optimal Payments Employee Share Plans?
The Company may adjust options and awards under the Optimal Payments Employee Share
Plans in accordance with the rules of those plans to take account of the New Ordinary
Shares issued pursuant to the Rights Issue. Any adjustments to options granted under the
Approved Plan may require the approval of HMRC. Shareholder approval is not required for
any adjustments. Participants will be contacted separately with further information if
adjustments are made.
4.8
What should I do if I live outside the United Kingdom?
Your ability to take up Rights to New Ordinary Shares may be affected by the laws of the
country in which you live and you should take professional advice as to whether you require
any governmental or other consents or about any formalities you need to observe to enable
you to take up your Rights. Shareholders resident outside the United Kingdom and the Isle of
Man should refer to paragraph 7 of Part IV (Terms and Conditions of the Rights Issue) of this
document.
4.9
What do I do if I have any further queries about the Rights Issue or the action I should take?
Please telephone the Shareholder Helpline on 0871 664 0321 (from inside the UK) or +44 20
8639 3399 (from outside the UK). The Shareholder Helpline is available from 9.00 a.m. to
5.30 p.m. Monday to Friday and will remain open until 26 May 2015. Calls to the 0871 664
0321 number from inside the UK are charged at 10 pence per minute (including VAT) plus
network extras. Calls to the +44 20 8639 3399 number from outside the UK are charged at
applicable international rates. Different charges may apply to calls made from mobile
telephones and calls may be randomly monitored for security and training purposes. Please
note that, for legal reasons, the Shareholder Helpline will only be able to provide information
contained in this document and information relating to the Company’s register of members
and will be unable to give advice on the merits of the Rights Issue or to provide financial, tax
or investment advice.
Your attention is drawn to the further terms and conditions of the Rights Issue in Part
IV (Terms and Conditions of the Rights Issue) of this document and (in the case of
Qualifying non-CREST Shareholders) in the Provisional Allotment Letter.
86
PART IV
TERMS AND CONDITIONS OF THE RIGHTS ISSUE
1.
SUMMARY OF THE RIGHTS ISSUE
The Company proposes to raise approximately £451 million (approximately £406 million net of
expenses) by way of a rights issue of 271,921,802 New Ordinary Shares. The Offer Price of 166
pence per New Ordinary Share represents:
*
a 34 per cent. discount to the theoretical ex-rights price of an Existing Ordinary Share when
calculated by reference to the volume weighted average price of 397 pence per Existing
Ordinary Share during the five day period between 16 March 2015 and 20 March 2015 (being
the Latest Practicable Date before the announcement of the Rights Issue);
*
a 36 per cent. discount to the theoretical ex-rights price of an Existing Ordinary Share, when
calculated by reference to the Closing Price of 419 pence per Existing Ordinary Share on
20 March 2015; and
*
a 60 per cent. discount to the Closing Price of 419 pence per Existing Ordinary Share on
20 March 2015.
2.
TERMS AND CONDITIONS OF THE RIGHTS ISSUE
Subject to the terms and conditions set out below (and, in the case of Qualifying Non-CREST
Shareholders who are not Excluded Shareholders, the terms and conditions of the Provisional
Allotment Letter), the New Ordinary Shares will be offered for subscription by way of a rights issue
to Qualifying Shareholders (other than, subject to certain exceptions, Excluded Shareholders) on
the following basis:
5 New Ordinary Shares at 166 pence per New Ordinary Share
for every 3 Existing Ordinary Shares
held and registered in the name of each Qualifying Shareholder at 5.00 p.m. on the Record Date
and so in proportion for any other number of Ordinary Shares then held.
Entitlements to New Ordinary Shares will be rounded down to the nearest whole number and
fractions of New Ordinary Shares will not be allotted to Qualifying Shareholders but will be
aggregated and, if possible, sold as soon as practicable after the commencement of dealings in
the Nil Paid Rights. The net proceeds of such sales (after deduction of expenses) will be
aggregated and will ultimately accrue for the benefit of the Company. Holdings of Existing Ordinary
Shares in certificated and uncertificated form will be treated as separate holdings for the purpose
of calculating entitlements under the Rights Issue.
The Nil Paid Rights (also described as New Ordinary Shares, nil paid) are entitlements to buy New
Ordinary Shares at the Offer Price. The Fully Paid Rights are entitlements to receive New Ordinary
Shares for which subscription and payment has already been made.
The attention of all Qualifying Shareholders and any other person (including, without
limitation, custodians, nominees and trustees) who has a contractual or legal obligation to
forward this document into a jurisdiction other than the UK and the Isle of Man is drawn to
paragraph 7 of this Part IV below. New Ordinary Shares will be provisionally allotted (nil
paid) to all Qualifying Shareholders on the Register at the Record Date, including Excluded
Shareholders. However, subject to certain exceptions, Qualifying Shareholders who have a
registered address in the Excluded Territories or who are otherwise located in the Excluded
Territories have not been and will not be sent Provisional Allotment Letters and have not
and will not have their CREST accounts credited with Nil Paid Rights.
Qualifying Shareholders who do not, or are not able or permitted to, take up their Nil Paid Rights
in full will have their proportionate shareholdings in the Company diluted by approximately 62.5 per
cent. as a result of the Rights Issue. Those Qualifying Shareholders who take up their Nil Paid
Rights in full will, following completion of the Rights Issue, as nearly as practicable have the same
proportionate voting rights and entitlement to dividends and distributions as they had on the Record
Date.
Applications will be made to the London Stock Exchange for the New Ordinary Shares (nil paid
and fully paid) to be admitted to trading on AIM. It is expected that Rights Issue Admission will
87
become effective on 17 April 2015 and that dealings in the New Ordinary Shares, nil paid, will
commence at 8.00 a.m. on the same day.
The New Ordinary Shares and the Existing Ordinary Shares are in registered form and can be
held in certificated and uncertificated form via CREST. The Existing Ordinary Shares are already
admitted to CREST. No further application for admission to CREST is required for the New
Ordinary Shares. All such New Ordinary Shares, when issued and fully paid, may be held and
transferred by means of CREST.
The New Ordinary Shares will be issued pursuant to the authority to be granted under the
Resolutions being proposed at the General Meeting.
The ISIN for the New Ordinary Shares will be the same as the ISIN for the Existing Ordinary
Shares, being GB0034264548 and the SEDOL will be BWDP748. The ISIN for the Nil Paid Rights
will be IM00BWDP7590 and the SEDOL will be BWDP759. The ISIN for the Fully Paid Rights will
be IM00BWDP7483 and the SEDOL will be BWDP748.
None of the New Ordinary Shares are being made available to the public other than pursuant to
the Rights Issue on the terms and subject to the conditions set out in this document and, in the
case of Qualifying Non-CREST Shareholders holding certificated shares, any relevant Provisional
Allotment Letter.
The Rights Issue has been fully underwritten by the Underwriters in accordance with the terms of
the Underwriting Agreement and is conditional on, inter alia:
(a)
the Company complying with its obligations under the Underwriting Agreement to the extent
they fall to be performed before Rights Issue Admission;
(b)
the publication of a press release relating to the Rights Issue and the publication of a press
release relating to the Acquisition in the approved terms through a Regulatory Information
Service by not later than 7.30 a.m. on the date of the Underwriting Agreement;
(c)
the passing of the Resolutions (without material amendment) at the General Meeting and not,
(without the prior written consent of the Joint Bookrunners), at any adjournment of such
meeting;
(d)
no supplementary prospectus being published by or on behalf of the Company prior to
Admission;
(e)
the Acquisition Agreement not having been terminated or rescinded prior to Rights Issue
Admission;
(f)
the New Facility Agreement not having been terminated or rescinded prior to Rights Issue
Admission;
(g)
Rights Issue Admission becoming effective by not later than 8.00 a.m. on 17 April 2015 (or
such later date as the Company and the Joint Bookrunners may determine, not being later
than 8.00 a.m. on 21 April 2015); and
(h)
each condition to enable the Nil Paid Rights, the Fully Paid Rights and the New Ordinary
Shares to be admitted as participating securities in CREST (other than Rights Issue
Admission) being satisfied on or before the date of the General Meeting and no notification
having been received from Euroclear on or before Rights Issue Admission that such
admission has been or is to be refused.
In the event that the Rights Issue does not proceed then the Acquisition will not proceed. If the
Rights Issue completes, the net proceeds of the Rights Issue will be used to fund part of the
consideration payable under the Acquisition Agreement for the Acquisition. While the Rights Issue
will not proceed if the Acquisition Agreement has been terminated before Rights Issue Admission,
the Rights Issue is not conditional upon completion of the Acquisition. If Completion does not
occur, the Directors will consider how best to return the net proceeds of the Rights Issue. Such a
return could result in certain costs and complexities such that any return of capital may be less
than the amount subscribed for in the Rights Issue.
The Underwriting Agreement may be terminated by the Joint Bookrunners prior to Rights Issue
Admission upon the occurrence of certain specified events, in which case the Rights Issue will not
proceed. The Underwriters may arrange sub-underwriting for some, or none, of the New Ordinary
Shares. The Underwriting Agreement is not capable of termination following Rights Issue
88
Admission. A summary of the principal terms of the Underwriting Agreement is set out in
paragraph 14.1 of Part XVI (Additional Information) of this document.
The Underwriters and any of their respective affiliates may, in accordance with the applicable legal
and regulatory provisions, engage in transactions in relation to the Nil Paid Rights, the Fully Paid
Rights or the New Ordinary Shares and/or related instruments for their own account for the
purpose of hedging its underwriting exposure or otherwise. Except as required by applicable law or
regulation, the Underwriters do not propose to make any public disclosure in relation to such
transactions.
In connection with the Rights Issue, the Underwriters and their affiliates, acting as investors for
their own account, may take up New Ordinary Shares in the Rights Issue and in that capacity may
retain, purchase or sell for their own account such securities and any New Ordinary Shares or
related investments and may offer to sell such New Ordinary Shares or other investments
otherwise than in connection with a Rights Issue. Accordingly, references in this document to New
Ordinary Shares being offered or placed should be read as including any offering or placement of
New Ordinary Shares to the Underwriters or any of their affiliates acting in such capacity. Neither
the Underwriters or their affiliates intend to disclose the extent of any such investment or
transactions otherwise than in accordance with any legal or regulatory obligation to do so. In
addition, the Underwriters or their affiliates may enter into financing arrangements (including swaps
or contract for differences) with investors in connection with which the Underwriters may from time
to time acquire, hold or dispose of Ordinary Shares.
Applications will be made for the Nil Paid Rights and the Fully Paid Rights to be admitted to
CREST. Euroclear requires the Company to confirm to it that certain conditions are satisfied before
Euroclear will admit any security to CREST. As soon as practicable after Rights Issue Admission,
the Company will confirm this to Euroclear. It is expected that these conditions will be satisfied on
Rights Issue Admission. In addition, the Company reserves the right to decide not to proceed with
the Rights Issue if the Underwriting Agreement is terminated at any time prior to Rights Issue
Admission and commencement of dealings in the Nil Paid Rights.
Subject, inter alia, to the conditions referred to in paragraphs (a) to (h) above being satisfied (other
than the condition relating to Rights Issue Admission) and save as provided in paragraph 7 of this
Part IV, it is intended that:
(a)
Provisional Allotment Letters (which constitute temporary documents of title) in respect of Nil
Paid Rights will be despatched to Qualifying Non-CREST Shareholders (other than, subject to
certain exceptions, Qualifying Shareholders with a registered address in the Excluded
Territories, or who are otherwise located in any Excluded Territory, or any agent or
intermediary of those Qualifying Shareholders, except where the Company is satisfied that
such action would not result in the contravention of any registration or other legal requirement
in any jurisdiction) following the General Meeting on 16 April 2015;
(b)
Rights Issue Admission of the New Ordinary Shares, nil paid, will become effective at 8.00
a.m. on 17 April 2015;
(c)
the Receiving Agent will instruct Euroclear UK & Ireland to credit the appropriate stock
accounts of Qualifying CREST Shareholders (other than Qualifying CREST Shareholders with
a registered address in the Excluded Territories or who are otherwise located in any Excluded
Territory, or any agent or intermediary of those Qualifying CREST Shareholders, except
where the Company is satisfied that such action would not result in the contravention of any
registration or other legal requirement in any jurisdiction) with their entitlements to Nil Paid
Rights with effect from 8.00 a.m. on 17 April 2015;
(d)
the Nil Paid Rights and Fully Paid Rights will be enabled for settlement by Euroclear UK &
Ireland on 17 April 2015, as soon as practicable after the Company has confirmed to
Euroclear UK & Ireland that all the conditions for admission of the Nil Paid Rights and the
Fully Paid Rights to CREST have been satisfied;
(e)
the New Ordinary Shares will be credited to the appropriate CREST accounts of the relevant
Qualifying CREST Shareholders (or relevant renouncees) who validly take up their Nil Paid
Rights as soon as practicable after 8.00 a.m. on 17 April 2015; and
(f)
share certificates in respect of New Ordinary Shares taken up are expected to be posted to
the relevant Qualifying Non-CREST Shareholders (or relevant renouncees) on or around
12 May 2015 at their own risk.
89
This document constitutes the offer of New Ordinary Shares to all Qualifying CREST Shareholders
(other than, subject to certain exceptions, Qualifying CREST Shareholders with a registered
address in the Excluded Territories or who are otherwise located in any Excluded Territory, or any
agent or intermediary of those Qualifying Shareholders, except where the Company and the
Underwriters are satisfied that such action would not result in the contravention of any registration
or other legal requirement in any jurisdiction) by way of enablement of the Nil Paid Rights and the
Fully Paid Rights (as set out in paragraph (c) above); and to Qualifying Non-CREST Shareholders
(other than Qualifying Non-CREST Shareholders with a registered address in the Excluded
Territories or who are otherwise located in any Excluded Territory; or any agent or intermediary of
those Qualifying Non-CREST Shareholders, except where the Company is satisfied that such
action would not result in the contravention of any registration or other legal requirement in any
jurisdiction) by way of a Provisional Allotment Letter (as set out in paragraph (a) above).
All documents, including Provisional Allotment Letters (which constitute temporary documents of
title), cheques and certificates posted to or by or from Qualifying Shareholders and/or their
respective transferees or renouncees (or their agents, as appropriate) will be posted at their own
risk.
Any person accepting and/or renouncing a Provisional Allotment Letter or requesting registration of
the New Ordinary Shares comprised therein and any CREST member or CREST sponsored
member who makes a valid acceptance in accordance with the procedures set out in paragraphs
4.2 and 5.2 of this Part IV of this document is deemed to have made the representations and
warranties set out in paragraphs 5.2(d) and 7.6 of this Part IV of this document, unless such
requirement is waived by the Company and the Underwriters.
If for any reason it becomes necessary to adjust the expected timetable as set out in this
document, the Company will make an appropriate announcement to a Regulatory Information
Service giving details of the revised dates.
The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the
Existing Ordinary Shares, including the right to receive all dividends or other distributions made,
paid or declared after the date of issue of the New Ordinary Shares. There will be no restrictions
on the free transferability of the New Ordinary Shares save as provided in the Articles. The rights
attaching to the New Ordinary Shares are governed by the Articles of Association, a summary of
which is set out in paragraph 4 of Part XVI (Additional Information) of this document.
3.
ACTION TO BE TAKEN
The action to be taken in respect of New Ordinary Shares depends on whether, at the
relevant time, the Nil Paid Rights or Fully Paid Rights in respect of which action is to be
taken are in certificated form (that is, are represented by Provisional Allotment Letters) or in
uncertificated form (that is, are in CREST).
If you are a Qualifying Non-CREST Shareholder and (subject to certain exceptions, as set out in
paragraph 7 of this Part IV) do not have a registered address in, or are not located or resident in,
the Excluded Territories, please refer to paragraphs 4 and 6 to 14 (inclusive) of this Part IV.
If you are a Qualifying CREST Shareholder and (subject to certain exceptions, as set out in
paragraph 7 of this Part IV) do not have a registered address in, or are not located or resident in,
the Excluded Territories, please refer to paragraphs 5 to 14 (inclusive) of this Part IV and to the
CREST Manual for further information on the CREST procedures referred to below.
If you are a Qualifying CREST Shareholder or a Qualifying Non-CREST Shareholder, either (i) with
a registered address in an Excluded Territory, or (ii) holding Shares on behalf of, or for the
account or benefit of any person on a non-discretionary basis who has a registered address in, or
is located or resident in, an Excluded Territory, please refer to paragraph 7 below.
CREST sponsored members should refer to their CREST sponsors, as only their CREST sponsors
will be able to take the necessary actions specified below to take up the entitlements or otherwise
to deal with the Nil Paid Rights or Fully Paid Rights of CREST sponsored members.
If you have any questions relating to the Provisional Allotment Letter, please telephone the
Shareholder Helpline on 0871 664 0321 (from inside the UK) or +44 20 8639 3399 (from outside
the UK). The Shareholder Helpline is available from 9.00 a.m. to 5.30 p.m. Monday to Friday and
will remain open until 16 May 2015. Calls to the 0871 664 0321 number from inside the UK are
charged at 10 pence per minute (including VAT) plus network extras. Calls to the +44 20 8639 3399
90
number from outside the UK are charged at applicable international rates. Different charges may
apply to calls made from mobile telephones and calls may be randomly monitored for security and
training purposes. Please note that, for legal reasons, the Shareholder Helpline will only be able to
provide information contained in this document and information relating to the Company’s register
of members and will be unable to give advice on the merits of the Rights Issue or to provide
financial, tax or investment advice.
4.
ACTION TO BE TAKEN BY QUALIFYING NON-CREST SHAREHOLDERS IN RELATION TO
NIL PAID RIGHTS REPRESENTED BY PROVISIONAL ALLOTMENT LETTERS
4.1
General
The Company expects that the Provisional Allotment Letters will be despatched to Qualifying
Non-CREST Shareholders (other than, subject to certain limited exceptions, as set out in
paragraph 7 of this Part IV, Qualifying Non-CREST Shareholders with registered addresses in
the Excluded Territories) following the General Meeting on 16 April 2015.
Each personalised Provisional Allotment Letter will set out:
(a)
the holding at the close of business on the Record Date of Existing Ordinary Shares in
certificated form on which a Qualifying Non-CREST Shareholder’s entitlement to New
Ordinary Shares has been based;
(b)
the aggregate number of New Ordinary Shares which have been provisionally allotted in
certificated form to such Qualifying Non-CREST Shareholder with respect to the Existing
Ordinary Shares referred to in (a) above;
(c)
the amount payable by a Qualifying Non-CREST shareholder at the Offer Price to take
up his entitlement in full;
(d)
the procedures to be followed if a Qualifying Non-CREST Shareholder wishes to dispose
of all or part of his entitlement or to convert all or part of his entitlement into
uncertificated form; and
(e)
instructions regarding acceptance and payment, consolidation, splitting and registration of
renunciation.
If you sell or have sold or otherwise transferred all of your Existing Ordinary Shares (other
than ex-rights) in certificated form before the ex-rights date, please send any Provisional
Allotment Letter, if and when received, at once to the purchaser or transferee or to the bank,
stockbroker or other agent through whom the sale or transfer was effected for delivery to the
purchaser or transferee except that no Provisional Allotment Letter should be distributed,
forwarded to or transmitted in or into any jurisdiction where to do so might constitute a
violation of local securities laws or regulations, including but not limited to the United States
or any of the other Excluded Territories.
If you sell or transfer or have sold or otherwise transferred only part of your holding of
Existing Ordinary Shares (other than ex-rights) held in certificated form before the ex-rights
date, you should refer to the instruction regarding split applications in paragraph 4.8 of this
Part IV.
If you do not receive a Provisional Allotment letter or you think that the holding of Existing
Ordinary Shares in certificated form on which your entitlement to New Ordinary Shares in the
Provisional Allotment Letter has been based does not reflect your holding of Existing Ordinary
Shares in certificated form on the Record Date, please telephone the Shareholder Helpline on
the numbers set out on page 51 of this document.
If the Rights Issue is delayed so that Provisional Allotment Letters cannot be despatched on
16 April 2015, the expected timetable as set out at the front of this document will be adjusted
accordingly and the revised dates will be set out in the Provisional Allotment Letters and
announced through a Regulatory Information Service. References to dates and times in this
document should be read as subject to any such adjustment.
On the basis that Provisional Allotment Letters are posted on 16 April 2015 and that
dealings commence at 8.00 a.m. on 17 April 2015, the latest time and date for
acceptance and payment in full for the New Ordinary Shares will be 11.00 a.m. on
1 May 2015.
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4.2
Procedure for acceptance and payment
(a) Qualifying Non-CREST Shareholders who wish to accept in full
Holders of Provisional Allotment Letters who wish to take up all of their Nil Paid Rights
must return the Provisional Allotment Letter in accordance with the instructions thereon,
together with a cheque or banker’s draft in pounds sterling, made payable to ‘‘Capita
Registrars Limited re: Optimal Payments plc Rights Issue A/C’’ for the full amount
payable on acceptance, in accordance with the instructions printed on the Provisional
Allotment Letter, by post or by hand (during normal business hours only) to Capita Asset
Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3
4TU so as to be received as soon as possible and, in any event, not later than 11.00
a.m. on 1 May 2015. A reply-paid envelope is enclosed for use within the United
Kingdom only. If you post your Provisional Allotment Letter, it is recommended that you
allow sufficient time for delivery. Please note that payments via CHAPS, BACS or
electronic transfer will not be accepted. Once your Provisional Allotment Letter duly
completed and payment have been received by the Receiving Agent in accordance with
the above, you will have accepted the offer to subscribe for the number of New Ordinary
Shares specified on your Provisional Allotment Letter.
(b)
Qualifying Non-CREST Shareholders who do not wish to take up their rights at all
Holders of Provisional Allotment Letters who do not wish to take up their rights at all do
not need to do anything. If Qualifying Non-CREST Shareholders do not return the
Provisional Allotment Letter by 11.00 a.m. on 1 May 2015, the Company has made
arrangements under which the Underwriters will try to find investors to take up such
rights. If they do find investors and are able to achieve a premium over the Offer Price
and the related expenses of procuring those investors (including any applicable
brokerage and commissions and amounts in respect of VAT which are not recoverable),
Qualifying Non-CREST Shareholders so entitled will be sent a cheque for the amount of
that aggregate premium above the Offer Price less related expenses (including any
applicable brokerage and commissions and amounts in respect of VAT which are not
recoverable), so long as the amount in question is at least £5.
(c)
Qualifying Non-CREST Shareholders who wish to accept in part
Holders of Provisional Allotment Letters who wish to take up some but not all of their
rights should refer to section 4.8 of this Part IV.
4.3
Discretion as to validity of acceptances
If payment is not received in full by 11.00 a.m. on 1 May 2015, the provisional allotment will
(unless the Company has exercised its right to treat as valid an acceptance, as set out
below) be deemed to have been declined and will lapse. However, the Company in its
discretion after consulting with the Underwriters may elect, but shall not be obliged, to treat
as valid: (a) Provisional Allotment Letters and accompanying remittances that are received
through the post not later than 11.00 a.m. on the Business Day after 1 May 2015 (the cover
bearing a legible postmark not later than 11.00 a.m. on 1 May 2015); and (b) acceptances in
respect of which a remittance is received prior to 11.00 a.m. on 1 May 2015 from an
authorised person (as defined in section 31(2) of FSMA) specifying the number of New
Ordinary Shares to be acquired and undertaking to lodge the relevant Provisional Allotment
Letter, duly completed, in due course.
The Company may also (having first consulted with the Underwriters) treat a Provisional
Allotment Letter as valid and binding on the person(s) by whom or on whose behalf it is
lodged even if it is not completed in accordance with the relevant instructions or is not
accompanied by a valid power of attorney where required.
The Company, having first consulted with the Underwriters, reserves the right to treat as
invalid any acceptance or purported acceptance of the New Ordinary Shares that appears to
the Company to have been executed in, despatched from or that provides an address for
delivery of share certificates for New Ordinary Shares in the United States or any other
Excluded Territory unless the Company and the Underwriters are satisfied that such action
would not result in the contravention of any registration or other legal requirement in any
jurisdiction.
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The provisions of this paragraph 4.3 and any other terms of the Rights Issue relating to
Qualifying Non-CREST Shareholders may be waived, varied or modified as regards specific
Qualifying Non-CREST Shareholder(s) or on a general basis by the Company with the
agreement of the Underwriters.
A Qualifying Non-CREST Shareholder who makes a valid acceptance and payment in
accordance with this paragraph 4.3 is deemed to request that the New Ordinary Shares to
which they will become entitled be issued to them on the terms set out in this document and
subject to the Articles of the Company.
4.4
Payments
All payments made by Qualifying Non-CREST Shareholders must be made in pounds sterling
by cheque or banker’s draft made payable to ‘‘Capita Registrars Limited re Optimal Payments
plc Rights Issue A/C’’. Third-party cheques may not be accepted. Cheques or banker’s drafts
must be drawn on the personal account to which the Qualifying Non-CREST Shareholder (or
their nominees) has sole or joint title to the funds. Such payments will be held by the
Receiving Agent to the order of the Company. Cheques or banker’s drafts must be drawn on
an account at a branch (which must be an EU or UK regulated bank or building society) of a
bank or building society which is either a settlement member of the Cheque and Credit
Clearing Company Limited or the CHAPS Clearing Company Limited or which has arranged
for its cheques and banker’s drafts to be cleared through facilities provided by either of these
companies. Such cheques and banker’s drafts must bear the appropriate sort code number in
the top right-hand corner. Neither post-dated cheques nor payments via CHAPS, BACS or
electronic transfer will be accepted.
Cheques and banker’s drafts will be presented for payment on receipt. It is a term of the
Rights Issue that cheques shall be honoured on first presentation, and the Company may
elect to treat as invalid any acceptances in respect of which cheques are not so honoured.
Return of the Provisional Allotment Letter with a cheque will constitute a warranty that the
cheque will be honoured on first presentation. The Company reserves the right to instruct the
Receiving Agent to seek special clearance of cheques or banker’s drafts to allow value to be
obtained for remittances at the earliest opportunity. No interest will be paid on payments
made. All documents, cheques, and banker’s drafts sent through the post will be sent at the
risk of the sender. If New Ordinary Shares have already been issued to Qualifying NonCREST Shareholders prior to any payment not being so honoured or such Qualifying NonCREST Shareholders’ acceptances being treated as invalid, the Company may (in its absolute
discretion as to manner, timing and terms) make arrangements for the sale of such New
Ordinary Shares on behalf of those Qualifying Non-CREST Shareholders and hold the
proceeds of sale (net of the Company’s reasonable estimate of any loss that they have
suffered as a result of the payment not being honoured or the acceptance being treated as
invalid and of the expenses of sale, including without limitation any stamp duty or SDRT
payable on the transfer of such sale and of all amounts payable by such Qualifying NonCREST Shareholders pursuant to the provisions of this Part IV in respect of the acquisition of
such New Ordinary Shares) on behalf of such Qualifying Non-CREST Shareholders. None of
the Company, the Underwriters or any other person shall be responsible for, or have any
liability for, any loss, expenses or damage suffered by Qualifying Non-CREST Shareholders
as a result.
4.5
Money Laundering Regulations
It is a term of the Rights Issue that, to ensure compliance with the Money Laundering
Regulations, the Receiving Agent may require, at its absolute discretion, verification of the
identity of the person by whom or on whose behalf the Provisional Allotment Letter is lodged
with payment (which requirements are referred to below as the ‘‘verification of identity
requirements’’). If the Provisional Allotment Letter is submitted by a UK regulated broker or
intermediary acting as agent and which is itself subject to the Money Laundering Regulations,
any verification of identity requirements are the responsibility of such broker or intermediary
and not of the Receiving Agent. In such case, the lodging agent’s stamp should be inserted
on the Provisional Allotment Letter.
93
The person lodging the Provisional Allotment Letter with payment and in accordance with the
other terms as described above (the ‘‘acceptor’’), accepts, directly or indirectly, the allotment
of such number of New Ordinary Shares as referred to therein (the ‘‘relevant shares’’) being
the provisional allottee or, in the case of renunciation, the person named in such Provisional
Allotment Letter, including any person who appears to the Receiving Agent to be acting on
behalf of some other person), shall thereby be deemed to agree to provide the Receiving
Agent and/or the Company promptly with such information and other evidence as any of them
may require to satisfy the verification of identity requirements and agree that the Receiving
Agent may undertake electronic searches, including using a credit reference agency, for the
purposes of verifying identity where deemed necessary. To do so, the Receiving Agent may
verify the details against the applicant’s identity, but also may request further proof of identity.
A record of the search will be retained.
If the Receiving Agent determines that the verification of identity requirements apply to any
acceptor or application, the relevant New Ordinary Shares (notwithstanding any other term of
the Rights Issue) will not be issued to the relevant acceptor unless and until the verification of
identity requirements have been satisfied in respect of that acceptor or application. The
Receiving Agent is entitled, in its absolute discretion, to determine whether the verification of
identity requirements apply to any acceptor or application and whether such requirements
have been satisfied, and neither the Receiving Agent, the Underwriters, nor the Company will
be liable to any person for any loss or damage suffered or incurred (or alleged), directly or
indirectly, as a result of the exercise of such discretion.
If the verification of identity requirements apply, failure to provide the necessary evidence of
identity within a reasonable time may result in delays and potential rejection of an application.
If, within a reasonable period of time following a request for verification of identity (and in any
event by not later than 11.00 a.m. on 1 May 2015) the Receiving Agent has not received
evidence satisfactory to it as aforesaid, the Company shall, in its absolute discretion, (i) be
entitled to treat the acceptance as invalid, in which event the application money will be
returned (at the acceptor’s risk) without interest to the account of the bank or the building
society on which the relevant cheque or bankers’ draft was drawn, or (ii) if the acceptance is
not treated as invalid the Company shall be entitled to confirm the allotment of the relevant
shares to the acceptor, but (notwithstanding any other term of the Rights Issue) such shares
will not be issued to the acceptor or registered in his or her name until the verification of
identity requirements are satisfied within such period, being not less than seven days after a
request for evidence of identity is despatched to the acceptor, as the Company may in its
absolute discretion allow, following which the Company will be entitled to make arrangements
(in its absolute discretion as to manner, timing and terms) to sell the relevant shares (and for
that purpose the Company will be expressly authorised to act as agent of the acceptor). Any
proceeds of sale (net of expenses) of the relevant shares which shall be issued to and
registered in the name of the purchaser(s) or an amount equivalent to the original payment,
whichever is the lower, will be held by the Company on trust for the acceptor, subject to the
requirements of the Money Laundering Regulations. Neither the Company, the Underwriters
nor the Receiving Agent will be liable to any person for any loss suffered or incurred as a
result of the exercise of any such discretion or as a result of any sale of relevant shares.
Submission of a Provisional Allotment Letter with the appropriate remittance will
constitute a warranty to each of the Company, the Receiving Agent and the
Underwriters from the acceptor that the Money Laundering Regulations will not be
breached by acceptance of such remittance and an undertaking to provide promptly to
the Receiving Agent such information as may be specified by the Receiving Agent as
being required for the purpose of the Money Laundering Regulations. If the verification
of identity requirements apply, failure to provide the necessary evidence of identity
may result in your acceptance being treated as invalid or in delays in the despatch of
a receipted fully paid Provisional Allotment Letter, share certificate or other documents
relating to the Rights Issue (as applicable).
The verification of identity requirements will not usually apply for the UK purposes if:
(a)
the acceptor is an organisation required to comply with the Money Laundering Directive
(the Council Directive on prevention of the use of the financial system for the purpose of
money laundering (no.91/308/EEC)) as amended;
94
(b)
the acceptor is a regulated United Kingdom broker or intermediary acting as agent and
is itself subject to the Money Laundering Regulations;
(c)
the acceptor is a company whose securities are listed on a regulated market subject to
specified disclosure obligations;
(d)
the acceptor (not being an acceptor who delivers his/her application in person) makes
payment through an account in the name of such acceptor with a credit institution which
is subject to the Money Laundering Regulations or with a credit institution situated in a
non-EEA State which imposes requirements equivalent to those laid down in that
directive; or
(e)
the aggregate subscription price for the New Ordinary Shares is less than EUR15,000
(or its pounds sterling equivalent).
Where the verification of identity requirements apply, please note the following guidance as
this will assist in satisfying the verification of identity requirements and may reduce the
likelihood of difficulties or delays and potential rejection of an application (but does not limit
the right of the Receiving Agent to require verification of identity as stated above). Satisfaction
of these requirements may be facilitated in the following ways:
(f)
payment must be made by cheque or banker’s draft in pounds sterling drawn on a
branch in the United Kingdom of a bank or building society which bears a UK bank sort
code number in the top right-hand corner. Cheques, which must be drawn on the
personal account of the individual investor where they have sole or joint title to the
funds, should be payable to ‘‘Capita Registrars Limited re Optimal Payments plc Rights
Issue A/C’’ in respect of an application by a Qualifying Non-CREST Shareholder. Third
party cheques may not be accepted with the exception of building society cheques or
banker’s drafts where the building society or bank has confirmed the name of the
account holder by stamping or endorsing the cheque/banker’s draft to such effect. The
account name should be the same as that shown on the Provisional Allotment Letter; or
(g)
if the Provisional Allotment Letter is lodged with payment by an agent which is an
organisation of the kind referred to in sub-paragraph (a) above or which is subject to
anti-money laundering regulation in a country which is a member of the Financial Action
Task Force (the non-European Union members of which are Argentina, Australia, Brazil,
Canada, Gibraltar, Hong Kong, Iceland, India, Japan, the Republic of Korea, Mexico,
New Zealand, Norway, the People’s Republic of China, Russian Federation, Singapore,
South Africa, Switzerland, Turkey, UK Crown Dependencies and the United States and,
by virtue of their membership of the Gulf Co-operation Council, Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia and the United Arab Emirates), the agent should provide with the
Provisional Allotment Letter written confirmation that it has that status and a written
assurance that it has obtained and recorded evidence of the identity of the person for
whom it acts and that it will on demand make such evidence available to the Receiving
Agent and/or any relevant regulatory or investigatory authority, or if the agent is not such
an organisation, it should contact the Receiving Agent at the address set out on page 49
of this document; or
(h)
if a Provisional Allotment Letter is lodged by hand by the acceptor in person, he or she
should ensure that he has with him evidence of identity bearing his photograph (for
example, his or her passport) and evidence of his or her address (for example, a recent
bank statement).
Please telephone the Shareholder Helpline on 0871 664 0321 (from inside the UK) or +44 20
8639 3399 (from outside the UK). The Shareholder Helpline is available from 9.00 a.m. to
5.30 p.m. Monday to Friday and will remain open until 26 May 2015. Calls to the 0871 664
0321 number from inside the UK are charged at 10 pence per minute (including VAT) plus
network extras. Calls to the +44 20 8639 3399 number from outside the UK are charged at
applicable international rates. Different charges may apply to calls made from mobile
telephones and calls may be randomly monitored for security and training purposes. Please
note that, for legal reasons, the Shareholder Helpline will only be able to provide information
contained in this document and information relating to the Company’s register of members
and will be unable to give advice on the merits of the Rights Issue or to provide financial, tax
or investment advice.
95
4.6
Dealings in Nil Paid Rights
Subject to the fulfilment of the conditions set out in paragraph 2 of this Part IV, dealings on
the London Stock Exchange in the Nil Paid Rights are expected to commence at 8.00 a.m.
on 17 April 2015. A transfer of Nil Paid Rights can be made by renunciation of the
Provisional Allotment Letter in accordance with the instructions printed on it and delivery of
the Provisional Allotment Letter to the transferee or to a stockbroker, bank or other
appropriate financial adviser up to the latest time for acceptance and payment in full stated in
the Provisional Allotment Letters is expected to be 11.00 a.m. on 1 May 2015. Further details
on renunciation of Provisional Allotment Letters is set out in paragraph 4.8 of this Part IV.
4.7
Dealings in Fully Paid Rights
After acceptance of the provisional allotment and payment in full in accordance with the
provisions set out in this document and in the Provisional Allotment Letter, the Fully Paid
Rights may be transferred by renunciation of the relevant Provisional Allotment Letter and
lodging of the same, by post or by hand (during normal business hours only) to Capita Asset
Services, Corporate Actions, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU,
so as to be received not later than 11.00 a.m. on 1 May 2015. To do this, Qualifying NonCREST Shareholders will need to have their fully paid Provisional Allotment Letter returned to
them after their acceptance has been effected by the Receiving Agent. However, fully paid
Provisional Allotment Letters will not be returned to Qualifying Non-CREST Shareholders
unless their return is requested by ticking the appropriate box on the Provisional Allotment
Letter. Thereafter, the New Ordinary Shares will be registered and transferable in the usual
common form or, if they have been issued in or converted into uncertificated form, in
electronic form under the CREST system.
4.8
Renunciation and splitting of Provisional Allotment Letters
The Provisional Allotment Letters are fully renounceable (save as required by the laws of
certain overseas jurisdictions) and may be split prior to 3.00 p.m. on 29 April 2015 nil paid
and fully paid.
Qualifying Non-CREST Shareholders who wish to transfer all of their Nil Paid Rights or, after
acceptance of the provisional allotment and payment in full, Fully Paid Rights comprised in a
Provisional Allotment Letter may (save as required by the laws of certain overseas
jurisdictions) renounce such allotment by completing and signing Form X on page 4 of the
Provisional Allotment Letter (if it is not already marked ‘‘Original Duly Renounced’’) and
passing the entire Provisional Allotment Letter to their stockbroker or bank or other
appropriate financial adviser or to the transferee. Once a Provisional Allotment Letter has
been so renounced, it will become a negotiable instrument in bearer form and the Nil Paid
Rights or Fully Paid Rights (as appropriate) comprised in such letter may be transferred by
delivery of such letter to the transferee, provided that a transferee must not have a registered
address in, or be resident or located in, the United States or any other Excluded Territory.
The latest time and date for registration of renunciation of Provisional Allotment Letters is
11.00 a.m. on 1 May 2015 and after such date the New Ordinary Shares will be in registered
form, transferable by written instrument of transfer in the usual common form or, if they have
been issued in or converted into uncertificated form, in electronic form under the CREST
system. Qualifying Non-CREST Shareholders should note that fully paid Provisional Allotment
Letters will not be returned to Qualifying Non-CREST Shareholders unless their return is
requested.
If a holder of a Provisional Allotment Letter wishes to have some but not all of the New
Ordinary Shares registered in his name and to transfer the remainder, or wishes to sell or
transfer all the Nil Paid Rights, or (if appropriate) Fully Paid Rights but to different persons,
he or his agent may have the Provisional Allotment Letter split, for which purpose he must
sign and date Form X on page 4 of the Provisional Allotment Letter. The Provisional
Allotment Letter must then be delivered by post or by hand (during normal business hours
only) to the appropriate address as set out in paragraph 4.2 of this Part IV by no later than
3.00 p.m. on 29 April 2015, to be cancelled and exchanged for the split Provisional Allotment
Letters required. The number of split Provisional Allotment Letters required and the number of
Nil Paid Rights or (as appropriate) Fully Paid Rights to be comprised in each split Provisional
Allotment Letter should be stated in an accompanying letter. Form X on page 4 of split
96
Provisional Allotment Letters will be marked ‘‘Original Duly Renounced’’ before issue. The
aggregate number of Nil Paid Rights or (as applicable) Fully Paid Rights comprised in the
split Provisional Allotment Letter must equal the number of New Ordinary Shares set out in
the original Provisional Allotment Letter (less the number of New Ordinary Shares
representing rights that the holder wishes to take up if taking up his entitlement in part). The
split Provisional Allotment Letter(s) representing the New Ordinary Shares the relevant
Qualifying Non-CREST Shareholder does not wish to take up will be required in order to sell
those rights not being taken up. The holder of the split Provisional Allotment Letters should
then follow the instructions in the preceding paragraph in relation to transferring the Nil Paid
Rights or (if appropriate) Fully Paid Rights represented by each of the Provisional Allotment
Letters.
Alternatively, Qualifying Non-CREST Shareholders who wish to take up some of their rights,
without transferring the remainder, should complete Form X on page 4 of the original
Provisional Allotment Letter and return it by post or by hand (during normal business hours
only) to the Receiving Agent at the appropriate address as set out in paragraph 4.7 of this
Part IV, together with a covering letter confirming the number of New Ordinary Shares to be
taken up and a cheque or banker’s draft in pounds sterling for the appropriate amount made
payable to ‘‘Capita Registrars Limited re: Optimal Payments plc Rights Issue A/C’’ and
crossed ‘‘A/C payee only’’ detailing the allotment number (which is on page 1 of the
Provisional Allotment Letter) written on the reverse of the cheque or banker’s draft to pay for
this number of shares. In this case, the Provisional Allotment Letter and the cheque or
banker’s draft must be received by the Receiving Agent by 11.00 a.m. on 1 May 2015, being
the last date and time for acceptance.
The Company reserves the right to refuse to register any renunciation in favour of any person
in respect of which the Company believes such renunciation may violate applicable legal or
regulatory requirements including (without limitation) any renunciation in the name of any
person with an address outside the United Kingdom.
4.9
Registration in the names of Qualifying Non-CREST Shareholders
A Qualifying Non-CREST Shareholder who wishes to have all his entitlement to New Ordinary
Shares registered in his name must accept and make payment for such allotment prior to the
latest time for acceptance and payment in full, which is 11.00 a.m. on 1 May 2015, in
accordance with the provisions set out in the Provisional Allotment Letter and this document,
but need take no further action. A share certificate shall be sent to such Shareholder by post
not later than 12 May 2015.
4.10 Registration in the names of persons other than Qualifying Non-CREST Shareholders
originally entitled
In order to register Fully Paid Rights in certificated form in the name of someone other than
the Qualifying Non-CREST Shareholders originally entitled, the renouncee or his agent(s)
must complete Form Y after Form X being signed by the original Qualifying Non-CREST
Shareholder on page 4 of the Provisional Allotment Letter (unless the renouncee is a CREST
member who wishes to hold such shares in uncertificated form, in which case Form X (signed
by the original Qualifying Non-CREST Shareholder) and the CREST Deposit Form must be
completed – as set out in paragraph 4.11 of this Part IV) and lodge the entire letter when
fully paid by post or by hand (during normal business hours only) with the Receiving Agent at
the appropriate address as set out in paragraph 4.7 of this Part IV not later than the latest
time for registration of renunciation which is 11.00 a.m. on 1 May 2015. Registration cannot
be effected unless and until the New Ordinary Shares comprised in a Provisional Allotment
Letter are fully paid.
The New Ordinary Shares comprised in two or more Provisional Allotment Letters (duly
renounced where applicable) may be registered in the name of one holder (or joint holder) if
Form Y is completed on page 4 of one of the Provisional Allotment Letters (the ‘‘Principal
Letter’’) and all other relevant Provisional Allotment Letters are delivered in one batch. Details
of each relevant Provisional Allotment Letter (including the Principal Letter) the number of
New Ordinary Shares represented by each Provisional Allotment Letter, the total number of
Provisional Allotment Letters to be consolidated and the total number of New Ordinary Shares
97
represented by all the Provisional Allotment Letters to be consolidated should be listed in an
attached letter and the allotment number of the Principal Letter should be entered into the
space provided on each of the other Provisional Allotment Letters.
4.11 Deposit of Nil Paid Rights or Fully Paid Rights into CREST
The Nil Paid Rights or Fully Paid Rights represented by a Provisional Allotment Letter may be
converted into uncertificated form, that is deposited into CREST (whether such conversion
arises as a result of a renunciation of those rights or otherwise). Similarly, Nil Paid Rights or
Fully Paid Rights held in CREST may be converted into certificated form, that is withdrawn
from CREST. Subject as provided in the next paragraph or in the Provisional Allotment Letter,
normal CREST procedures and timings apply in relation to any such conversion. You are
recommended to refer to the CREST Manual for details of such procedures.
The procedure for depositing the Nil Paid Rights or Fully Paid Rights represented by a
Provisional Allotment Letter into CREST, whether such rights are to be converted into
uncertificated form in the name(s) of the person(s) whose name(s) and address(es) appear on
page 1 of the Provisional Allotment Letter or in the name of a person or persons to whom the
Provisional Allotment Letter has been renounced, is as follows: Form X and the CREST
Deposit Form (both set out on page 4 of the Provisional Allotment Letter) will need to be
completed and the Provisional Allotment Letter deposited with the CCSS (as such term is
defined in the CREST manual); in addition, the normal CREST stock deposit procedures will
need to be carried out, except that: (a) it will not be necessary to complete and lodge a
separate CREST Transfer Form (prescribed under the Stock Transfer Act 1963) with the
CCSS; and (b) only the whole of the Nil Paid Rights or Fully Paid Rights represented by the
Provisional Allotment Letter may be deposited into CREST. If you wish to deposit only some
of the Nil Paid Rights or Fully Paid Rights represented by the Provisional Allotment Letter into
CREST, you must first apply for split Provisional Allotment Letters. If the rights represented
by more than one Provisional Allotment Letter are to be deposited, the CREST Deposit Form
on each Provisional Allotment Letter must be completed and deposited. A Consolidation
Listing Form (as defined in the CREST Regulations) must not be used.
A holder of Nil Paid Rights or Fully Paid Rights represented by a Provisional Allotment Letter
who is proposing to convert those rights into uncertificated form (whether following a
renunciation of such rights or otherwise) is recommended to ensure that the conversion
procedures are implemented in sufficient time to enable the person holding or acquiring the
Nil Paid Rights or, if appropriate, Fully Paid Rights in CREST following the conversion to take
all necessary steps in connection with taking up the entitlement prior to 11.00 a.m. on 1 May
2015. In particular, having regard to processing times in CREST and on the part of the
Receiving Agent, the latest recommended time for depositing a renounced Provisional
Allotment Letter (with Form X and the CREST Deposit Form on page 4 of the
Provisional Allotment Letter duly completed) with the CCSS (to enable the person
acquiring the Nil Paid Rights or Fully Paid Rights in CREST as a result of the
conversion to take all necessary steps in connection with taking up the entitlement
prior to 11.00 a.m. on 1 May 2015) is 3.00 p.m. on 28 April 2015.
When Form X and the CREST Deposit Form (both set out on page 4 of the Provisional
Allotment Letter) have been completed, the title to the Nil Paid Rights or the Fully Paid Rights
represented by the relevant Provisional Allotment Letter will cease forthwith to be
renounceable or transferable by delivery and, for the avoidance of doubt, any entries in Form
Y on page 4 of such Provisional Allotment Letter will not be recognised or acted upon by the
Receiving Agent. All renunciations or transfers of the Nil Paid Rights or Fully Paid Rights
must be effected through the means of the CREST system once such rights have been
deposited into CREST.
CREST sponsored members should contact their CREST sponsor as only their CREST
sponsor will be able to take the necessary action to take up their entitlement or otherwise to
deal with the Nil Paid Rights or Fully Paid Rights of the CREST sponsored member.
4.12 Issue of New Ordinary Shares in definitive form
Definitive share certificates in respect of the New Ordinary Shares to be held in certificated
form are expected to be despatched by post by no later than 12 May 2015 at the risk of the
person(s) entitled to them, to accepting Qualifying Non-CREST Shareholders and renouncees
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or their agents or, in the case of joint holdings, to the first-named Shareholder at their
registered address (unless lodging agent details have been completed in box 5 on page 4 of
the Provisional Allotment Letter). After despatch of definitive share certificates, Provisional
Allotment Letters will cease to be valid for any purpose whatsoever. Pending despatch of
definitive share certificates and the inscription of the member in the Company’s register of
members, instruments of transfer of the New Ordinary Shares will be certified by the
Receiving Agent against the lodgement of fully paid Provisional Allotment Letters and/or, in
the case of renunciations, against the Provisional Allotment Letters held by the Receiving
Agent.
5.
ACTION TO BE TAKEN BY QUALIFYING CREST SHAREHOLDERS IN RELATION TO NIL
PAID RIGHTS IN CREST
5.1
General
Subject as provided in paragraph 7 of this Part IV in relation to certain Overseas
Shareholders, each Qualifying CREST Shareholder is expected to receive a credit to his
CREST stock account of his entitlement to Nil Paid Rights as soon as practicable after 8.00
a.m. on 17 April 2015. For such Qualifying CREST Shareholders, the CREST stock account
to be credited will be an account under the participant ID and member account ID that apply
to the Existing Ordinary Shares in uncertificated form held on the Record Date by the
Qualifying CREST Shareholder in respect of which the Nil Paid Rights are provisionally
allotted.
The maximum number of New Ordinary Shares that a Qualifying CREST Shareholder may
take up is that which has been provisionally allotted to that Qualifying CREST Shareholder
and for which he receives a credit of entitlement into his stock account in CREST. The
minimum number of New Ordinary Shares a Qualifying CREST Shareholder may take up is
one.
The Nil Paid Rights will constitute a separate security and can accordingly be transferred, in
whole or in part, by means of CREST in the same manner as any other security that is
admitted to CREST.
If, for any reason, it is impracticable to credit the stock accounts of such Qualifying CREST
Shareholders or to enable the Nil Paid Rights by 8.00 a.m. on 17 April 2015, Provisional
Allotment Letters shall, unless the Company decides otherwise, be sent out in substitution for
the Nil Paid Rights which have not been so credited or enabled and the expected timetable
as set out in this document may be adjusted as appropriate. References to dates and times
in this document should be read as subject to any such adjustment. The Company will make
an appropriate announcement to a Regulatory Information Service giving details of the revised
dates but Qualifying CREST Shareholders may not receive any further written communication.
CREST members who wish to take up all or part of, or otherwise to transfer all or part of,
their entitlements in respect of or otherwise to transfer Nil Paid Rights or Fully Paid Rights
held by them in CREST (including effecting a cashless take-up of Nil Paid Rights), should
refer to the CREST Manual for further information on the CREST procedures referred to
below. If you are a CREST sponsored member, you should consult your CREST sponsor if
you wish to take up your entitlement as only your CREST sponsor will be able to take the
necessary action to take up your entitlements or otherwise deal with your Nil Paid Rights or
Fully Paid Rights.
5.2
Procedure for acceptance and payment
(a)
MTM Instructions
CREST members who wish to take up all or part of their entitlement in respect of Nil
Paid Rights in CREST must send (or, if they are CREST sponsored members, procure
that their CREST sponsor sends) an MTM Instruction to Euroclear which, on its
settlement, will have the following effect:
(i)
the crediting of a stock account of the Receiving Agent under the participant ID
and member account ID specified below, with the number of Nil Paid Rights to be
taken up;
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(b)
(ii)
the creation of a settlement bank payment obligation (as this term is defined in the
CREST Manual), in accordance with the RTGS payment mechanism (as this term
is defined in the CREST Manual), in favour of the RTGS settlement bank (as this
term is defined in the CREST Manual) of the Receiving Agent in pounds sterling, in
respect of the full amount payable on acceptance in respect of the Nil Paid Rights
referred to in sub-paragraph (i) above; and
(iii)
the crediting of a stock account of the accepting CREST member (being an
account under the same participant ID and member account ID as the account
from which the Nil Paid Rights are to be debited on settlement of the MTM
Instruction) of the corresponding number of Fully Paid Rights to which the CREST
member is entitled on taking up his Nil Paid Rights referred to in sub-paragraph (i)
above.
Contents of MTM Instructions
The MTM Instruction must be properly authenticated in accordance with Euroclear’s
specifications and must contain, in addition to the other information that is required for
settlement in CREST, the following details:
(i)
the number of Nil Paid Rights to which the acceptance relates;
(ii)
the participant ID of the accepting CREST member;
(iii)
the member account ID of the accepting CREST member from which the Nil Paid
Rights are to be debited;
(iv)
the participant ID of the Receiving Agent, in its capacity as a CREST receiving
agent. This is 7RA33;
(v)
the member account ID of the Receiving Agent, in its capacity as a CREST
receiving agent. This is 28446OPT;
(vi)
the number of Fully Paid Rights that the CREST member is expecting to receive
on settlement of the MTM Instruction. This must be the same as the number of Nil
Paid Rights to which the acceptance relates;
(vii) the amount payable by means of the CREST assured payment arrangements on
settlement of the MTM Instruction. This must be the full amount payable on
acceptance in respect of the number of Nil Paid Rights to which the acceptance
relates (referred to in paragraph (i) above);
(viii) the intended settlement date (which must be on or before 11.00 a.m. on 1 May
2015);
(ix)
the Nil Paid Rights ISIN. This is IM00BWDP7590;
(x)
the Fully Paid Rights ISIN. This is IM00BWDP7483;
(xi)
the Corporate Action Number (as this term is defined in the CREST Manual) to the
Rights Issue. This will be available by viewing the relevant corporate action details
in CREST; and
(xii) contact name and telephone numbers in the shared notes field; and
(xiii) a priority of at least 80.
(c)
Valid acceptance
An MTM Instruction complying with each of the requirements as to authentication and
contents set out in sub-paragraph (b) of this paragraph 5.2 will constitute a valid
acceptance where either:
(i)
the MTM Instruction settles by not later than 11.00 a.m. on 1 May 2015; or
(ii)
at the discretion of the Company: (A) the MTM Instruction is received by Euroclear
by not later than 11.00 a.m. on 1 May 2015; and (B) the number of Nil Paid Rights
inserted in the MTM Instruction is credited to the CREST stock member account of
the accepting CREST member specified in the MTM Instruction at 11.00 a.m. on
1 May 2015; and (C) the relevant MTM Instruction settles by 2.00 p.m. on 1 May
2015 (or such later date as the Company and the Underwriters have determined).
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An MTM Instruction will be treated as having been received by Euroclear for these
purposes at the time at which the instruction is processed by the Network Provider’s
Communications Host (as this term is defined in the CREST Manual) at Euroclear of the
network provider used by the CREST member (or by the CREST sponsored member’s
CREST sponsor). This will be conclusively determined by the input time stamp applied
to the MTM Instruction by the Network Provider’s Communications Host.
The provisions of this paragraph 5.2 and any other terms of the Rights Issue relating to
Qualifying CREST Shareholders may be waived, varied or modified as regards specific
Qualifying CREST Shareholder(s) or on a general basis by the Company and the
Underwriters.
(d)
Representations, warranties and undertakings of CREST members
A CREST member, or CREST sponsored member who makes a valid acceptance in
accordance with this paragraph 5.2, represents, warrants and undertakes to the
Company and the Underwriters that it has taken (or procured to be taken), and will take
(or will procure to be taken), whatever action is required to be taken by it or by its
CREST sponsor (as appropriate) to ensure that the MTM Instruction concerned is
capable of settlement at 11.00 a.m. on 1 May 2015 and remains capable of settlement
at all times after that until 2.00 p.m. on 1 May 2015 (or until such later time and date as
the Company and the Underwriters may determine). In particular, the CREST member or
CREST sponsored member represents, warrants and undertakes that at 11.00 a.m. on
1 May 2015 and at all times thereafter until 2.00 p.m. on 1 May 2015 (or until such later
time and date as the Company and the Underwriters may determine) there will be
sufficient Headroom within the Cap (as those terms are defined in the CREST Manual)
in respect of the cash memorandum account to be debited with the amount payable on
acceptance to permit the MTM Instruction to settle. CREST sponsored members should
contact their CREST sponsor if they are in any doubt.
If there is insufficient Headroom within the Cap in respect of the cash memorandum
account of a CREST member or CREST sponsored member for such amount to be
debited or the CREST member’s or CREST sponsored member’s acceptance is
otherwise treated as invalid and New Ordinary Shares have already been allotted to
such CREST member or CREST sponsored member, the Company may (in its absolute
discretion as to manner, timing and terms) make arrangements for the sale of such
shares on behalf of that CREST member or CREST sponsored member and hold the
proceeds of sale (net of the Company’s reasonable estimate of any loss that it has
suffered as a result of the acceptance being treated as invalid and of the expenses of
sale, including, without limitation, any stamp duty or SDRT payable on the transfer of
such New Ordinary Shares, and of all amounts payable by the CREST member or
CREST sponsored member pursuant to the provisions of this Part IV in respect of the
acquisition of such shares) on behalf of such CREST member or CREST sponsored
member. None of the Company or the Underwriters or any other person shall be
responsible for, or have any liability for, any loss, expenses or damage suffered by such
CREST member or CREST sponsored member as a result.
Such CREST member or CREST sponsored member taking up entitlements must make
the representations and warranties set out in paragraph 5.2(d) of this Part IV and the
agreement and acknowledgement set out in paragraphs 5.3 and 7.6 of this Part IV.
(e)
CREST procedures and timings
CREST members and CREST sponsors (on behalf of CREST sponsored members)
should note that Euroclear does not make available special procedures in CREST for
any particular corporate action. Normal system timings and limitations will therefore apply
in relation to the input of an MTM Instruction and its settlement in connection with the
Rights Issue. It is the responsibility of the CREST member concerned to take (or, if a
CREST sponsored member, to procure that their CREST sponsor takes) the action
necessary to ensure that a valid acceptance is received as stated above by 11.00 a.m.
on 1 May 2015. In this connection, CREST members and (where applicable) CREST
sponsors are referred in particular to those sections of the CREST Manual concerning
the practical limitations of the CREST system and timings.
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(f)
CREST member’s undertaking to pay
A CREST member or CREST sponsored member who makes a valid acceptance in
accordance with the procedures set out in this paragraph 5.2 undertakes to pay to the
Receiving Agent, or to procure the payment to the Receiving Agent of, the amount
payable in pounds sterling on acceptance in accordance with the above procedures or in
such other manner as the Company may require (it being acknowledged that, where
payment is made by means of the RTGS payment mechanism (as defined in the
CREST Manual), the creation of a RTGS settlement bank (as this term is defined in the
CREST Manual) payment obligation in pounds sterling in favour of the Receiving Agent’s
RTGS settlement bank, in accordance with the RTGS payment mechanism, shall, to the
extent of the obligation so created, discharge in full the obligation of the CREST
member (or CREST sponsored member) to pay the amount payable on acceptance);
and requests that the Fully Paid Rights and/or New Ordinary Shares to which they will
become entitled be issued to it on the terms set out in this document and subject to the
Company’s Articles. If the payment obligations of the relevant CREST member in
relation to such New Ordinary Shares are not discharged in full and such New Ordinary
Shares have already been issued to the CREST member or CREST sponsored member,
the Company may (in its absolute discretion as to the manner, timing and terms) make
arrangements for the sale of such shares on behalf of that CREST member or CREST
sponsored member and hold the proceeds of sale (net of expenses, and all amounts
payable by the CREST member or CREST sponsored member pursuant to the
provisions of this Part IV in respect of the acquisition of such shares) or an amount
equal to the original payment of the CREST member or CREST sponsored member
(whichever is lower) on trust for such CREST member or CREST sponsored member. In
these circumstances, none of the Underwriters or the Company or any other person
shall be responsible for, or have any liability for, any losses, expenses or damages
suffered by the CREST member or CREST sponsor member as a result.
(g)
Discretion as to rejection and validity of acceptances
The Company may in its absolute discretion (after first consulting with the Underwriters):
(i)
reject any acceptance constituted by an MTM Instruction, which is otherwise valid,
in the event of breach of any of the representations, warranties and undertakings
set out or referred to in this Part IV. Where an acceptance is made as described in
this paragraph 5.2(g) which is otherwise valid, and the MTM Instruction concerned
fails to settle by 2.00 p.m. on 1 May 2015 (or by such later time and date as the
Company and the Underwriters may determine), the Company shall be entitled to
assume, for the purposes of its right to reject an acceptance as described in this
paragraph 5.2(g), that there has been a breach of the representations, warranties
and undertakings set out or referred to in this paragraph 5.2(g) unless the
Company is aware of any reason outside the control of the CREST member or
CREST sponsor (as appropriate) concerned for the failure of the MTM Instruction
to settle;
(ii)
treat as valid (and binding on the CREST member or CREST sponsored member
concerned) an acceptance which does not comply in all respects with the
requirements as to validity set out or referred to in this paragraph 5.2;
(iii)
accept an alternative properly authenticated dematerialised instruction from a
CREST member or (where applicable) a CREST sponsor as constituting a valid
acceptance in substitution for, or in addition to, an MTM Instruction and subject to
such further terms and conditions as the Company and the Underwriters may
determine;
(iv)
treat a properly authenticated dematerialised instruction (the ‘‘first instruction’’) as
not constituting a valid acceptance if, at the time at which the Receiving Agent
receives a properly authenticated dematerialised instruction giving details of the first
instruction, either the Company or the Receiving Agent has received actual notice
from Euroclear of any of the matters specified in Regulation 18(4)(a) of the
Uncertificated Securities Regulations 2006 of the Isle of Man in relation to the first
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instruction. These matters include notice that any information contained in the first
instruction was incorrect or notice of lack of authority to send the first instruction;
and
(v)
5.3
accept an alternative instruction or notification from a CREST member or CREST
sponsored member or (where applicable) a CREST sponsor, or extend the time for
acceptance and/or settlement of an MTM Instruction or any alternative instruction or
notification, if, for reasons or due to circumstances outside the control of any
CREST member or CREST sponsored member or (where applicable) CREST
sponsor, the CREST member or CREST sponsored member is unable validly to
take up all or part of his/her Nil Paid Rights by means of the above procedures. In
normal circumstances, this discretion is only likely to be exercised in the event of
any interruption, failure or breakdown of CREST (or of any part of CREST) or on
the part of facilities and/or systems operated by the Receiving Agent in connection
with CREST.
Money Laundering Regulations
If you hold your Nil Paid Rights in CREST and apply to take up all or part of your entitlement
as agent for one or more persons and you are not a UK or EU regulated person or institution
(e.g. a bank, a broker or another UK financial institution), then, irrespective of the value of the
application, the Receiving Agent is required to take reasonable measures to establish the
identity of the person or persons (or the ultimate controller of such persons) on whose behalf
you are making the application and any submission of an MTM Instruction constitutes
agreement for the Receiving Agent to make a search via a credit reference agency where
deemed necessary. A record of search results will be retained. Such Qualifying CREST
Shareholders must therefore contact the Receiving Agent before sending any MTM Instruction
or other instruction so that appropriate measures may be taken.
Submission of an MTM Instruction which constitutes, or which may on its settlement
constitute, a valid acceptance as described above constitutes a warranty and undertaking by
the applicant to provide promptly to the Receiving Agent any information the Receiving Agent
may specify as being required for the purposes of the verification of identity requirements in
the Money Laundering Regulations or FSMA. Pending the provision of evidence satisfactory to
the Receiving Agent as to identity, the Receiving Agent, having consulted with the Company,
may take, or omit to take, such action as it may determine to prevent or delay settlement of
the MTM Instruction. If such information or other satisfactory evidence of identity has not
been provided within a reasonable time, the Receiving Agent will not permit the MTM
Instruction concerned to proceed to settlement; but without prejudice to the right of the
Company and the Underwriters to take proceedings to recover any loss suffered by it/them as
a result of failure by the applicant to provide satisfactory evidence.
5.4
Dealings in Nil Paid Rights in CREST
Subject to the fulfillment of the conditions under the Underwriting Agreement (summarised in
paragraph 2 of this Part IV), dealings in the Nil Paid Rights on the London Stock Exchange
are expected to commence at 8.00 a.m. on 17 April 2015. Dealings in Nil Paid Rights can be
made by means of CREST in the same manner as any other security that is admitted to
CREST. The Nil Paid Rights are expected to be disabled in CREST after the close of CREST
business on 1 May 2015.
5.5
Dealings in Fully Paid Rights in CREST
After acceptance of the provisional allotment and payment in full in accordance with the
provisions set out in this document, the Fully Paid Rights may be transferred (in whole or in
part) by means of CREST in the same manner as any other security that is admitted to
CREST. The last time for settlement of any transfer of Fully Paid Rights in CREST is
expected to be 11.00 a.m on 1 May 2015. The Fully Paid Rights are expected to be disabled
in CREST after the close of CREST business on 1 May 2015.
From 5 May 2015, the New Ordinary Shares will be registered in the name(s) of the
person(s) entitled to them in the Company’s register of members and will be transferable in
the usual way.
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5.6
Withdrawal of Nil Paid Rights or Fully Paid Rights from CREST
Nil Paid Rights or Fully Paid Rights held in CREST may be converted into certificated form,
that is withdrawn from CREST. Normal CREST procedures (including timings) apply in relation
to any such conversion.
The recommended latest time for receipt by Euroclear of a properly authenticated
dematerialised instruction requesting withdrawal of Nil Paid Rights or, if appropriate, Fully Paid
Rights from CREST is 4.30 p.m. on 27 April 2015, so as to enable the person acquiring or
(as appropriate) holding the Nil Paid Rights or, if applicable, Fully Paid Rights, following the
conversion to take all necessary steps in connection with taking up the entitlement prior to
11.00 a.m. on 1 May 2015. You are recommended to refer to the CREST Manual or your
CREST sponsor (as applicable) for details of such procedures.
5.7
Issue of New Ordinary Shares in CREST
Fully Paid Rights in CREST are expected to be disabled in CREST after the close of CREST
business on 1 May 2015 (the latest date for settlement of transfers of Fully Paid Rights in
CREST). New Ordinary Shares (in definitive form) will be issued in uncertificated form to
those persons registered as holding Fully Paid Rights in CREST at the close of business on
the date on which the Fully Paid Rights are disabled. The Receiving Agent will instruct
Euroclear to credit the appropriate stock accounts of those persons (under the same
participant ID and member account ID that applied to the Fully Paid Rights held by those
persons) with their entitlements to New Ordinary Shares with effect from the next Business
Day (expected to be 5 May 2015).
5.8
Right to allot/issue in certificated form
Despite any other provision of this document, the Company reserves the right to allot and to
issue any Nil Paid Rights, Fully Paid Rights or New Ordinary Shares in certificated form. In
normal circumstances, this right is only likely to be exercised in the event of an interruption,
failure or breakdown of CREST (or of any part of CREST) or of a part of the facilities and/or
systems operated by the Receiving Agent in connection with CREST.
6.
PROCEDURE IN RESPECT OF NEW ORDINARY SHARES NOT TAKEN UP (WHETHER
CERTIFICATED OR IN CREST)
If an entitlement to New Ordinary Shares is not validly taken up in accordance with the procedure
laid down for acceptance and payment, then that provisional allotment will be deemed to have
been declined and will lapse. The Underwriters acting severally (and not jointly nor jointly and
severally) will use reasonable endeavours to procure, by not later than 3.00 p.m. on the second
dealing day after the last date for acceptance of the Rights Issue, subscribers for all (or at the
discretion of the Underwriters as many as possible) of those New Ordinary Shares not taken up at
a price per New Ordinary Share which is at least equal to the aggregate of the Offer Price and the
expenses of procuring such subscribers (including any applicable brokerage and commissions and
amounts in respect of VAT which is not, in the reasonable opinion of the Underwriters,
recoverable).
Notwithstanding the above, the Underwriters may cease to endeavour to procure any such
subscribers if, in the opinion of the Underwriters, it is unlikely that any such subscribers can be so
procured at such a price by such time. If and to the extent that subscribers cannot be procured on
the basis outlined above, the relevant New Ordinary Shares will be subscribed for by the
Underwriters acting severally (and not jointly nor jointly and severally) as principals pursuant to the
Underwriting Agreement or by the sub-underwriters (if any) procured by the Underwriters, in each
case, at the Offer Price on the terms and subject to the conditions of the Underwriting Agreement.
Any premium over the aggregate of the Offer Price and the expenses of procuring subscribers
(including any applicable brokerage and commissions and amounts in respect of VAT which are
not recoverable) shall be paid (subject as provided in this paragraph 6):
(a)
where the Nil Paid Rights were, at the time they lapsed, represented by a Provisional
Allotment Letter, to the person whose name and address appeared on page 1 of the
Provisional Allotment Letter;
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(b)
where the Nil Paid Rights were, at the time they lapsed, in uncertificated form, to the person
registered as the holder of those Nil Paid Rights at the time of their disablement in CREST;
and
(c)
to the extent not provided above, where an entitlement to New Ordinary Shares was not
taken up by an Overseas Shareholder, to that Overseas Shareholder,
New Ordinary Shares for which subscribers are procured on this basis will be re-allotted to such
subscribers and the aggregate of any premiums (being the amount paid by such subscribers after
deducting the price at which the New Ordinary Shares are offered pursuant to the Rights Issue
and the expenses of procuring such subscribers including any applicable brokerage and
commissions and amounts in respect of VAT which are not recoverable), if any, will be paid
(without interest) to those persons entitled (as referred to above) pro rata to the entitlements not
taken up, save that no payment will be made of amounts of less than £5 per holding, which
amounts will be aggregated and ultimately accrue for the benefit of the Company. Cheques for the
amounts due (if any) will be sent in pounds sterling, by post, at the risk of the person(s) entitled,
to their registered addresses (the registered address of the first named in the case of joint
holders), provided that where any entitlement concerned was held in CREST, the amount due will,
unless the Company (in its absolute discretion) otherwise determines, be satisfied by the Company
procuring the creation of an assured payment obligation in favour of the relevant CREST member’s
(or CREST sponsored member’s) RTGS settlement bank in respect of the cash amount concerned
in accordance with the RTGS payment mechanism.
Any transactions undertaken pursuant to this paragraph 6 shall be deemed to have been
undertaken at the request of the persons who did not take up their entitlements and none of the
Company, the Underwriters nor any other person procuring subscribers shall be responsible for any
loss or damage (whether actual or alleged) arising from the terms of or timing of any such
acquisition, any decision not to endeavour to procure subscribers or the failure to procure
subscribers on the basis described above. the Underwriters will be entitled to retain any brokerage,
fees, commissions or other benefits received in connection with these arrangements.
It is a term of the Rights Issue that all New Ordinary Shares validly taken up by subscribers under
the Rights Issue may be allotted to such subscribers in the event that not all of the New Ordinary
Shares offered for subscription under the Rights Issue are taken up.
7.
OVERSEAS SHAREHOLDERS AND SELLING AND TRANSFER RESTRICTIONS
7.1
General
Whilst Shareholders in each EEA State will be able to participate in the Rights Issue, the
offer of Nil Paid Rights, Fully Paid Rights, Provisional Allotment Letters and/or New Ordinary
Shares pursuant to the Rights Issue and the distribution of this document or any other
document relating to the Rights Issue (including the Provisional Allotment Letter) to persons
located or resident in, or who are citizens of, or who have a registered address in a
jurisdiction other than, the United Kingdom or which are corporations, partnerships or other
entities organized under the laws of countries other than the United Kingdom, or to persons
who are nominees of or custodians, trustees or guardians for any such persons or entities
may be affected by the laws of the relevant jurisdiction. Those persons should consult their
professional advisers as to whether they require any governmental or other consents or need
to observe any other formalities to enable them to take up their rights under the Rights Issue.
It is the responsibility of all persons outside the United Kingdom (including, without limitation,
custodians, nominees and trustees) receiving this document and/or a Provisional Allotment
Letter and/or a credit of Nil Paid Rights to a stock account in CREST and wishing to accept
the offer of New Ordinary Shares to satisfy themselves as to full observance of the laws of
the relevant territory, including obtaining all necessary governmental or other consents which
may be required, observing all other requisite formalities needing to be observed and paying
any issue, transfer or other taxes due in such territory.
The comments set out in this paragraph 7 are intended as a general guide only. Any
Overseas Shareholder who is in doubt as to his position should consult his own independent
professional adviser without delay. It sets out certain restrictions applicable to Qualifying
Shareholders who have registered addresses outside the United Kingdom, who are citizens or
residents of countries other than the United Kingdom, or who are persons (including, without
limitation, custodians, nominees and trustees) who have a contractual or legal obligation to
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forward this document to a jurisdiction outside the United Kingdom or who hold Existing
Ordinary Shares for the account or benefit of any such person. The restrictions set out in this
paragraph 7 will also apply to any investors who acquire New Ordinary Shares in connection
with the placement of New Ordinary Shares not subscribed for in the Rights Issue.
Having considered the circumstances, the Directors have formed the view that, subject to
certain exceptions, it is necessary or expedient to restrict the ability of persons with a
registered address or located or resident in the Excluded Territories to take up rights to the
New Ordinary Shares or otherwise participate in the Rights Issue due to the time and costs
involved in the registration of this document and/or compliance with the relevant local, legal or
regulatory requirements in those jurisdictions.
Receipt of this document and/or a Provisional Allotment Letter or the crediting of Nil Paid
Rights to a stock account in CREST will not constitute an offer of securities for subscription,
sale or purchase in those jurisdictions in which it would be illegal to make such an invitation
or offer and, in those circumstances, this document and/or a Provisional Allotment Letter must
be treated as sent for information only and should not be copied or redistributed. New
Ordinary Shares will be provisionally allotted (nil paid) to all Shareholders on the register at
the Record Date, including Excluded Shareholders. However, a Provisional Allotment Letter
will not be sent to, and Nil Paid Rights will not be credited to CREST accounts of, persons
with registered addresses in the United States or any other Excluded Territory or their agent
or intermediary, except where the Company and the Underwriters are satisfied that such
action would not result in the contravention of any registration or other legal or regulatory
requirement in any jurisdiction.
No person receiving a copy of this document and/or a Provisional Allotment Letter and/or
receiving a credit of Nil Paid Rights to a stock account in CREST in any territory other than
the United Kingdom may treat the same as constituting an invitation or offer to him nor
should he in any event use the Provisional Allotment Letter or deal with Nil Paid Rights or
Fully Paid Rights in CREST unless, in the relevant territory, such an invitation or offer could
lawfully be made to him or the Provisional Allotment Letter or Nil Paid Rights or Fully Paid
Rights in CREST could lawfully be used or dealt with without contravention of any registration
or other legal or regulatory requirements. In such circumstances, this document and the
Provisional Allotment Letter are to be treated as sent for information only and should not be
copied or redistributed.
Accordingly, persons (including, without limitation, custodians, nominees and trustees)
receiving a copy of this document and/or a Provisional Allotment Letter or whose stock
account in CREST is credited with Nil Paid Rights or Fully Paid Rights should not, in
connection with the Rights Issue, distribute or send the same in or into, or transfer Nil Paid
Rights or Fully Paid Rights to any person in or into, the United States or any other Excluded
Territory. If a Provisional Allotment Letter or credit of Nil Paid Rights or Fully Paid Rights in
CREST is received by any person in any Excluded Territory, or by their agent or nominee in
any such territory, he must not seek to take up the rights referred to in the Provisional
Allotment Letter or in this document or renounce the Provisional Allotment Letter or transfer
the Nil Paid Rights or Fully Paid Rights in CREST unless the Company determines that such
actions would not violate applicable legal or regulatory requirements. Any person (including,
without limitation, custodians, nominees and trustees) who does forward this document or a
Provisional Allotment Letter or transfers Nil Paid Rights or Fully Paid Rights into any such
territories (whether under contractual or legal obligation or otherwise) should draw the
recipient’s attention to the contents of this paragraph 7.1.
Subject to this paragraph 7.1, any person (including, without limitation, nominees, agents and
trustees) outside the United Kingdom wishing to take up his rights under the Rights Issue (or
to do so on behalf of someone else) must satisfy himself as to full observance of the
applicable laws of any relevant territory including obtaining any requisite governmental or
other consents, observing any other requisite formalities and paying any issue, transfer or
other taxes due in such territories.
106
None of the Company, the Underwriters, nor any of their respective representatives, is making
any representation to any offeree or purchaser of the Nil Paid Rights or Fully Paid Rights or
New Ordinary Shares regarding the legality of an investment in the Nil Paid Rights or Fully
Paid Rights or New Ordinary Shares by such offeree or purchaser under the laws applicable
to such offeree or purchaser.
The Company reserves the right to treat as invalid and will not be bound to allot or issue any
New Ordinary Shares in respect of any acceptance or instruction or purported acceptance or
instruction of the offer of New Ordinary Shares which:
(a)
appears to the Company or its agents to have been executed, effected or dispatched
from the United States or any other Excluded Territory unless the Company is satisfied
that such action would not result in the contravention of any registration or other legal
requirement; or
(b)
in the case of a Provisional Allotment Letter, provides an address for delivery of the
share certificates or other statements of entitlement or advice in the United States or
any other Excluded Territory or any other jurisdiction outside the UK in which it would be
unlawful to deliver such certificates, statements or advice or if the Company or its
agents believe that the same may violate applicable legal or regulatory requirements; or
(c)
in the case of a credit of New Ordinary Shares in CREST, to a CREST member or
CREST sponsored member whose registered address would be in the United States or
any other Excluded Territory or any other jurisdiction outside the UK in which it would be
unlawful to make such a credit or if the Company or its agents believe that the same
may violate applicable legal or regulatory requirements.
The attention of Overseas Shareholders with registered addresses in the United States or any
of the other Excluded Territories is drawn to paragraphs 7.2 to 7.6 below.
The provisions of paragraph 6 above will apply to Overseas Shareholders who do not take up
New Ordinary Shares provisionally allotted to them or are unable to take up New Ordinary
Shares provisionally allotted to them because such action would result in a contravention of
applicable law or regulatory requirements. Accordingly, such Shareholders will be treated as
Shareholders that have not taken up their entitlement for the purposes of paragraph 6 above
and the Underwriters will use reasonable endeavours to procure subscribers for the relevant
Ordinary Shares. The net proceeds of such sales (after deduction of expenses) will be paid to
the relevant Shareholders pro-rata to their holdings of Existing Ordinary Shares at 5.00 p.m.
on the Record Date as soon as practicable after receipt, save that no payment will be made
of amounts of less than £5 per holding or for amounts in respect of fractions, which amounts
will be aggregated and ultimately accrue for the benefit of the Company. Holdings of Existing
Ordinary Shares in certificated and uncertificated form will be treated as separate holdings for
these purposes. Any sales of Nil Paid Rights that were not taken up shall be deemed to have
been undertaken at the request of the persons who did not take up rights and none of the
Company, the Underwriters or any other person shall be responsible or have any liability
whatsoever for any loss or damage (actual or alleged) arising from the terms or the timing of
the sale or the procuring of subscribers or any failure to procure subscribers.
Notwithstanding any other provision of this document or the Provisional Allotment Letter, the
Company reserves the right to permit any Qualifying Shareholder to take up rights, if in its
sole and absolute discretion, it is satisfied that the transaction in question is exempt from, or
not subject to, the legislation or regulations giving rise to the restrictions in question. If the
Company is so satisfied, the Company will arrange for the relevant Qualifying Shareholder to
be sent a Provisional Allotment Letter if he is a Qualifying Non-CREST Shareholder or, if he
is a Qualifying CREST Shareholder, arrange for Nil Paid Rights to be credited to the relevant
CREST stock account.
Those Qualifying Shareholders who wish, and are permitted, to take up their entitlement
should note that payments must be made as described in paragraph 4.4 in relation to
Qualifying Non-CREST Shareholders and paragraph 5.2 in relation to Qualifying CREST
Shareholders of this Part IV.
107
The provisions of paragraph 6 of this Part IV will apply generally to Qualifying Shareholders
with registered addresses or located or resident in the United States or any of the Excluded
Territories who do not or are unable to take up New Ordinary Shares provisionally allotted to
them.
7.2
Offering restrictions relating to the United States
The New Ordinary Shares, the Nil Paid Rights, the Fully Paid Rights and the Provisional
Allotment Letters have not been and will not be registered under the US Securities Act or
under any relevant securities laws of any state or other jurisdiction of the United States and
may not be offered, sold, pledged, taken up, exercised, resold, renounced, transferred or
delivered, directly or indirectly, within the United States absent registration or pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the US
Securities Act and in compliance with any applicable securities laws of any state or other
jurisdiction of the United States. The New Ordinary Shares, the Nil Paid Rights, the Fully Paid
Rights and the Provisional Allotment Letters have not been approved or disapproved by the
SEC, any state securities commission in the United States or any other US regulatory
authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the
offering of the New Ordinary Shares, the Nil Paid Rights, the Fully Paid Rights and the
Provisional Allotment Letters or the accuracy or adequacy of this document. Any
representation to the contrary is a criminal offence in the United States.
Prospective investors are hereby notified that sellers of the Nil Paid Rights, the Fully Paid
Rights or the New Ordinary Shares may be relying on the exemption from registration
provisions under section 5 of the Securities Act provided by Rule 144A thereunder.
Accordingly, subject to certain exceptions, the Rights Issue is not being made in the United
States and neither this document nor the Provisional Allotment Letters constitute or will
constitute an offer, or an invitation to apply for, or an offer or an invitation to subscribe for or
acquire any New Ordinary Shares, Nil Paid Rights or Fully Paid Rights in the United States.
Subject to certain exceptions, Provisional Allotment Letters have not been, and will not be,
sent to, and Nil Paid Rights have not been, and will not be, credited to the CREST account
of, any Qualifying Shareholder with a registered address in or that is located or resident in
the United States.
Subject to certain exceptions, envelopes containing Provisional Allotment Letters should not
be postmarked in the United States or otherwise despatched from the United States, and all
persons subscribing for or acquiring New Ordinary Shares and wishing to hold such shares in
certificated form must provide an address for registration of the New Ordinary Shares issued
upon exercise thereof outside the United States.
Subject to certain exceptions, any person who subscribes for or acquires New Ordinary
Shares, Nil Paid Rights or Fully Paid Rights will be deemed to have declared, warranted and
agreed, by accessing or accepting delivery of this document or accepting delivery of the
Provisional Allotment Letter and delivery of the New Ordinary Shares, Nil Paid Rights or Fully
Paid Rights, that it is not, and that at the time of subscribing for or acquiring the New
Ordinary Shares, Nil Paid Rights or Fully Paid Rights it will not have a registered address or
be located or resident, in the United States or acting on behalf of, or for the account or
benefit of, a person with a registered address or located or resident, in the United States on
a non-discretionary basis.
The Company and the Underwriters reserve the right to treat as invalid any Provisional
Allotment Letter (or any renunciation thereof): (i) that appears to the Company, the
Underwriters or their respective agents to have been executed in or despatched from the
United States or that provides an address in the United States for acceptance or renunciation
of the Rights Issue, (ii) that does not include the relevant warranty set out in the Provisional
Allotment Letter headed ‘‘Overseas Shareholders’’ to the effect that the person accepting and/
or renouncing the Provisional Allotment Letter does not have a registered address and is not
located in the United States and is not subscribing for or acquiring Nil Paid Rights, Fully Paid
Rights or New Ordinary Shares with a view to the offer, sale, resale, transfer, delivery or
distribution, directly or indirectly, of any such Nil Paid Rights, Fully Paid Rights or New
Ordinary Shares in the United States, or (iii) where the Company and the Underwriters
believe acceptance of such Provisional Allotment Letter may infringe applicable legal or
regulatory requirements, and the Company and the Underwriters shall not be bound to allot
108
(on a non-provisional basis) or issue any New Ordinary Shares, Nil Paid Rights or Fully Paid
Rights in respect of any such Provisional Allotment Letter. In addition, the Company and the
Underwriters reserve the right to reject any MTM Instruction in respect of Nil Paid Rights sent
by or on behalf of any CREST member with a registered address in or located in the United
States.
Notwithstanding the foregoing, the Nil Paid Rights may be offered and delivered to, and the
Fully Paid Rights and the New Ordinary Shares may be offered to and acquired by, a limited
number of persons in the United States reasonably believed to be QIBs in offerings exempt
from registration under the US Securities Act in reliance on Rule 144A. Any such person will
be required to execute a QIB Representation Letter in the form provided by the Company and
deliver it to the Company, with a copy to the Underwriters. The QIB Representation Letter
will contain written representations, agreements and acknowledgements substantially in the
form described under ‘‘US transfer restrictions’’ in paragraph 7.3 of this Part IV. Such persons
may also be required to make certain certifications in the Provisional Allotment Letters for the
Nil Paid Rights and the Fully Paid Rights.
Any person in the United States who obtains a copy of this document and/or a Provisional
Allotment Letter and who is not a QIB is required to disregard them.
Until 40 days after the commencement of the Rights Issue or the procurement of subscribers
for the New Ordinary Shares not taken up in the Rights Issue, any offer, sale or transfer of
the New Ordinary Shares, Nil Paid Rights or Fully Paid Rights within the United States by a
dealer (whether or not participating in the Rights Issue) may violate the registration
requirements of the US Securities Act.
7.3
US transfer restrictions
Any person within the United States that acquires Nil Paid Rights, Fully Paid Rights,
Provisional Allotment Letters or subscribes for any New Ordinary Shares will be deemed to
have represented, acknowledged and agreed that it has received a copy of this document
and such other information as it deems necessary to make an investment decision and will be
required to execute and deliver to the Company and/or one or more of its designees a QIB
Representation Letter in the appropriate form setting out certain restrictions and procedures
regarding the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the
New Ordinary Shares, which will substantially cover the following representations (terms
defined in Rule 144A or Regulation S shall have the same meaning in this paragraph):
(A)
it is, and at the time of the acquisition of the securities will be, a QIB and, if it is
subscribing for or acquiring the Provisional Allotment Letters, the Nil Paid Rights, the
Fully Paid Rights and the New Ordinary Shares as a fiduciary or agent for one or more
investor accounts, (i) each such account is, and at the time of the acquisition of the
securities will be, a QIB, (ii) it has investment discretion with respect to each such
account, and (iii) it has full power and authority to make the representations, warranties,
agreements and acknowledgements in this document on behalf of each such account;
(B)
it will base its investment decision on this document, including the information
incorporated by reference herein. It acknowledges that none of the Company, any of its
affiliates or any other person (including any of the Underwriters or any of their respective
affiliates) has made any representations, express or implied, to it with respect to the
Company, the Rights Issue, the Provisional Allotment Letters, the Nil Paid Rights, the
Fully Paid Rights and the New Ordinary Shares or the accuracy, completeness or
adequacy of any financial or other information concerning the Company, the Rights
Issue, the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and or
the New Ordinary Shares, other than (in the case of the Company only) the information
contained or incorporated by reference in this document. It understands that this
document has been prepared in accordance with the Prospectus Rules of the UK Listing
Authority and the AIM Rules for Companies, which differ from US disclosure
requirements. In particular, but without limitation, the financial information contained in or
incorporated by reference into this document has been prepared in accordance with
IFRS as adopted in the EU, and thus may not be comparable with financial statements
of US companies prepared in accordance with US GAAP as adopted by the Public
Company Accounting Oversight Board. it agrees that it will not distribute, forward,
transfer or otherwise transmit this document, or any other presentational or other
109
materials concerning the offering (including electronic copies thereof) to any person
within the United States (other than a QIB on behalf of which it acts). It acknowledges
that it has read and agreed to the matters set forth under paragraph 7.2 of this Part IV;
(C)
it is aware and each beneficial owner of such Provisional Allotment Letters, Nil Paid
Rights, Fully Paid Rights and New Ordinary Shares has been advised that the sale of
the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New
Ordinary Shares to them is being made in reliance on an exemption from, or in a
transaction not subject to, the registration requirements of the US Securities Act;
(D)
it acknowledges that its purchase of any Provisional Allotment Letters, Nil Paid Rights,
Fully Paid Rights and New Ordinary Shares is subject to and based upon all the terms,
conditions, representations, warranties, acknowledgements, agreements and undertakings
and other information contained in this document. It agrees that it (i) has no need for
liquidity with respect to its investment in the Provisional Allotment Letters, the Nil Paid
Rights, the Fully Paid Rights and the New Ordinary Shares and (ii) has no reason to
anticipate any change in its circumstances, financial or otherwise, which may cause or
require any sale or distribution by it of all or any part of the Provisional Allotment
Letters, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares;
(E)
it is an institution which (i) invests in or purchases securities similar to the Provisional
Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary
Shares in the normal course of its business, (ii) has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and risks of its
investment in the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights
and the New Ordinary Shares, and (iii) is, and any accounts for which it is acting are,
able to bear the economic risk, and able to sustain a complete loss, of such investment
in the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the
New Ordinary Shares;
(F)
it has made its own independent investigation and appraisal of the business, results,
financial condition, prospects, creditworthiness, status and affairs of the Company, and it
has made its own investment decision to subscribe for or acquire the Provisional
Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary
Shares. It understands that there may be certain consequences under US and other tax
laws resulting from an investment in the Provisional Allotment Letters, the Nil Paid
Rights, the Fully Paid Rights and the New Ordinary Shares, including that it must bear
the economic risk of an investment in the Provisional Allotment Letters, the Nil Paid
Rights, the Fully Paid Rights and the New Ordinary Shares for an indefinite period of
time, and it will make such investigation and consult such tax, legal, currency and other
advisers with respect thereto as it deems appropriate, and that it possesses such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of its investment in the Provisional Allotment Letters, the
Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares;
(G) any Provisional Allotment Letters, Nil Paid Rights, Fully Paid Rights and New Ordinary
Shares that it subscribes for or acquires will be for its own account (or for the account
of a QIB as to which it exercises sole investment discretion and has authority to make
these statements) for investment purposes, and not with a view to resale or distribution
within the meaning of the US securities laws;
(H)
it acknowledges and agrees that it is not subscribing for or acquiring the Provisional
Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary
Shares as a result of any general solicitation or general advertising (as those terms are
defined in Regulation D under the US Securities Act) or directed selling efforts (as that
term is defined in Regulation 5);
(I)
it acknowledges that the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid
Rights and the New Ordinary Shares will be ‘‘restricted securities’’ within the meaning of
Rule 144A(3) under the US Securities Act and that, for so long as such securities are
‘‘restricted securities’’ (as so defined), the securities may not be deposited into any
unrestricted depositary receipt facility in respect of Provisional Allotment Letters, Nil Paid
Rights, Fully Paid Rights and New Ordinary Shares established or maintained by any
depositary bank;
110
(J)
it understands that the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid
Rights and the New Ordinary Shares are being offered in a transaction not involving any
public offering in the United States within the meaning of the US Securities Act and that
the New Ordinary Shares have not been and will not be registered under the US
Securities Act or with any securities regulatory authority of any state or other jurisdiction
of the United States and may not be offered, sold, pledged or otherwise transferred, and
that it agrees that it will not, directly or indirectly, offer, sell, pledge or otherwise transfer
the Provisional Allotment Letters, the Nil Paid Rights, the Fully Paid Rights and the New
Ordinary Shares except (i) to a person that it and any person acting on its behalf
reasonably believes is a QIB purchasing for its own account or for the account of a QIB
in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction in
accordance with Rule 903 or Rule 904 of Regulation S (and not in a pre-arranged
transaction resulting in the resale of such Provisional Allotment Letters, Nil Paid Rights,
Fully Paid Rights and New Ordinary Shares into the United States), (iii) pursuant to an
exemption from registration provided by Rule 144 under the US Securities Act (if
available), or (iv) pursuant to another exemption from, or in a transaction not subject to,
the registration requirements of the US Securities Act, subject to delivery to the
Company of an opinion of counsel (and of such other evidence that the Company may
reasonably require) that such transfer or sale is in compliance with the US Securities
Act, in each case in accordance with any applicable securities laws of any state or other
jurisdiction of the United States. It understands that no representation has been made as
to the availability of Rule 144 of the US Securities Act or any other exemption under the
US Securities Act or any state securities laws for the offer, resale, pledge or transfer of
the Securities;
(K)
it acknowledges that to the extent New Ordinary Shares are delivered in certificated
form, the certificate(s) delivered in respect of the New Ordinary Shares will bear a
legend substantially to the following effect unless otherwise determined by the Company
in accordance with applicable law:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE ‘‘US SECURITIES ACT’’), OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT (1) TO A PERSON WHOM THE SELLER AND ANY
PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE US
SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING
WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE US SECURITIES
ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE US SECURITIES ACT (IF AVAILABLE), OR (4) PURSUANT
TO ANOTHER EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE US SECURITIES ACT, SUBJECT TO
DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL (AND OF SUCH
OTHER EVIDENCE THAT THE COMPANY MAY REASONABLY REQUIRE) THAT
SUCH TRANSFER OR SALE IS IN COMPLIANCE WITH THE US SECURITIES ACT,
IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. NO
REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 UNDER THE US SECURITIES ACT FOR RESALE OF THE
SECURITIES REPRESENTED HEREBY. NOTWITHSTANDING ANYTHING TO THE
CONTRARY IN THE FOREGOING, THE SECURITIES REPRESENTED HEREBY ARE
‘‘RESTRICTED SECURITIES’’ WITHIN THE MEANING OF RULE 144(a)(3) UNDER
THE US SECURITIES ACT AND FOR SO LONG AS SUCH SECURITIES ARE
‘‘RESTRICTED SECURITIES’’ (AS SO DEFINED) THE SECURITIES MAY NOT BE
DEPOSITED INTO ANY UNRESTRICTED DEPOSITARY RECEIPT FACILITY IN
RESPECT OF THE ORDINARY SHARES ESTABLISHED OR MAINTAINED BY A
111
DEPOSITARY BANK. EACH HOLDER, BY ITS ACCEPTANCE OF THIS SECURITY,
REPRESENTS THAT IT UNDERSTANDS AND AGREES TO THE FOREGOING
RESTRICTIONS.
(L)
it acknowledges and agrees that any offer, resale, pledge or other transfer made other
than in compliance with the restrictions in paragraph (J) above will not be recognised by
the Company in respect of the Provisional Allotment Letters, the Nil Paid Rights, the
Fully Paid Rights and the New Ordinary Shares;
(M) it confirms that, to the extent it is purchasing the Provisional Allotment Letters, the Nil
Paid Rights, the Fully Paid Rights and New Ordinary Shares for the account of one or
more persons, (i) it has been duly authorised to make on their behalf the confirmations,
representations, warranties, acknowledgements and agreements set forth herein and (ii)
these provisions constitute legal, valid and binding obligations of it and any other
persons for whose account it is acting;
(N)
it acknowledges and agrees that the Company, its affiliates, the Underwriters, their
respective affiliates, the Receiving Agent and others will rely upon the truth and
accuracy of the foregoing acknowledgements, representations and agreements. It agrees
that if any of the representations, warranties, agreements or acknowledgements deemed
to be made cease to be accurate, it shall promptly notify the Company and the
Underwriters;
(O) it hereby represents and warrants that all necessary actions have been taken to
authorise the purchase by it of the Provisional Allotment Letters, the Nil Paid Rights, the
Fully Paid Rights and the New Ordinary Shares; and
(P)
it understands that the foregoing acknowledgements, representations and agreements
are required in connection with US securities laws and that the Company, the
Underwriters and their affiliates will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements, and it irrevocably authorises the
Company and the Underwriters to produce the QIB Representation Letter, the
Provisional Allotment Letter and this document to any interested party in any
administrative or legal proceedings or official inquiry with respect to the matters covered
herein.
Prospective purchasers are hereby notified that sellers of the New Ordinary Shares may be
relying on the exemption from the registration requirements of the US Securities Act.
7.4
Procedures for the exercise of the Nil Paid Rights and application for Fully Paid Rights by
QIBs
Shareholders in the United States must complete and return to the Company a QIB
Representation Letter in the appropriate form as described in paragraph 7.3 of this Part IV,
with a copy to the Underwriters. If such a person holds his Ordinary Shares through a bank,
a broker or another financial intermediary, his financial intermediary should submit his QIB
Representation Letter on his behalf.
QIBs may exercise the Nil Paid Rights and apply for the Fully Paid Rights by delivering a
properly completed Provisional Allotment Letter to the Receiving Agent in accordance with the
procedures set out in this paragraph 7 of this Part IV.
If such a person holds his Ordinary Shares through a bank, a broker or another financial
intermediary, his financial intermediary should submit the Provisional Allotment Letter on his
behalf.
The Company and the Receiving Agent have the discretion to refuse to accept any
Provisional Allotment Letter that is incomplete, unexecuted or not accompanied by an
executed QIB Representation Letter or any other required additional documentation.
The Company and the Receiving Agent have the discretion to refuse to accept any orders for
Fully Paid Rights or New Ordinary Shares that are not accompanied by an executed QIB
Representation Letter or any other required additional documentation.
112
7.5
Other overseas territories
Provisional Allotment Letters will be posted to Qualifying Non-CREST Shareholders (other
than to, subject to certain limited exceptions, Qualifying Shareholders with registered
addresses in the Excluded Territories) and Nil Paid Rights will be credited to the CREST
stock accounts of Qualifying CREST Shareholders with registered addresses in any country
other than the United States or any other Excluded Territory. No offer of or invitation to
subscribe for New Ordinary Shares is being made by virtue of this document or the
Provisional Allotment Letters into any of the Excluded Territories. Qualifying Shareholders in
jurisdictions other than the Excluded Territories may, subject to the laws of their relevant
jurisdiction, accept their rights under the Rights Issue in accordance with the instructions set
out in this document and, in the case of Qualifying Non-CREST Shareholders only, the
Provisional Allotment Letters.
Qualifying Shareholders who have registered addresses in or who are resident in, or who are
citizens of, countries other than the United Kingdom should consult their appropriate
professional advisers as to whether they require any governmental or other consents or need
to observe any other formalities to enable them to take up their Nil Paid Rights or to acquire
Fully Paid Rights or New Ordinary Shares. If you are in any doubt as to your eligibility to
accept the offer of New Ordinary Shares or to deal with Nil Paid Rights or Fully Paid Rights,
you should contact your appropriate professional adviser immediately.
(a)
EEA States
In relation to the EEA States that have implemented the Prospectus Directive (each, a
‘‘Relevant Member State’’), with effect from and including the date on which the
Prospectus Directive was implemented in that relevant member state (the ‘‘Relevant
Implementation Date’’), no Nil Paid Rights or Fully Paid Rights have been offered or
will be offered pursuant to the Rights Issue to the public in that relevant member state
prior to the publication of a prospectus in relation to the Nil Paid Rights and Fully Paid
Rights which has been approved by the competent authority in that relevant member
state or, where appropriate, approved in another relevant member state and notified to
the competent authority in the relevant member state, all in accordance with the
Prospectus Directive, except that with effect from and including the relevant
implementation date, offers of Nil Paid Rights or Fully Paid Rights may be made to the
public in that relevant member state at any time under the following exemptions under
the Prospectus Directive, if they are implemented in that relevant member state:
(i)
to any legal entity which is a qualified investor, as defined in the Prospectus
Directive;
(ii)
to fewer than 100, or if the relevant member state has implemented the relevant
provisions of the PD Amending Directive, 150 natural or legal persons (other than
qualified investors as defined in the Prospectus Directive) in such relevant member
states; or
(iii)
in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Nil Paid Rights or Fully Paid Rights shall result in a
requirement for the publication by the Company of a prospectus pursuant to Article
3 of the Prospectus Directive.
For this purpose, the expression ‘‘an offer of any Nil Paid Rights or Fully Paid Rights to
the public’’ in relation to any Nil Paid Rights and Fully Paid Rights in any relevant
member state means the communication in any form and by any means of sufficient
information on the terms of the Rights Issue and any Nil Paid Rights and Fully Paid
Rights to be offered so as to enable an investor to decide to acquire any Nil Paid Rights
or Fully Paid Rights, as the same may be varied in that relevant member state by any
measure implementing the Prospectus Directive in that relevant member state.
In the case of the New Ordinary Shares, the Nil Paid Rights or Fully Paid Rights being
offered to a financial intermediary, as that term is used in Article 3(2) of the Prospectus
Directive, such financial intermediary will also be deemed to have represented,
acknowledged and agreed that the New Ordinary Shares, the Nil Paid Rights or the
Fully Paid Rights acquired by it have not been acquired on a non-discretionary basis on
behalf of, nor have they been acquired with a view to their offer or resale to, or persons
in circumstances which may give rise to an offer of any New Ordinary Shares, the Nil
113
Paid Rights or Fully Paid Rights to the public other than their offer or resale in a
relevant member state to ‘‘qualified investors’’ within the meaning of Article 2(1)(e) of the
Prospectus Directive. The Company, the Underwriters and their respective affiliates will
rely upon the truth and accuracy of the foregoing representation, acknowledgement and
agreement.
(b)
Switzerland
This document is neither an issue prospectus pursuant to article 652a or article 1156 of
the Swiss Code of Obligations nor a listing prospectus pursuant to article 27 et seq. of
the Listing Rules of SIX Swiss Exchange (‘‘SIX’’). Accordingly, it has been prepared
without regard to the disclosure standards thereunder.
Neither the Nil Paid Shares, the Fully Paid Share nor the New Ordinary Shares will be
listed on SIX or on any other stock exchange or regulated trading facility in Switzerland.
Neither this document nor any other offering or marketing material relating to the Rights
Issue, Optimal Payments, the Nil Paid Rights, the Fully Paid Rights or the New Ordinary
Shares have been or will be filed with or approved by any Swiss regulatory authority. In
particular, this document will not be filed with, and the offer of Nil Paid Rights, Fully
Paid Rights or New Ordinary Shares will not be supervised by, the Swiss Financial
Market Supervisory Authority (‘‘FINMA’’), and the offer of Nil Paid Rights, Fully Paid
Rights or New Ordinary Shares has not been and will not be authorised under the Swiss
Federal Act on Collective Investment Schemes (‘‘CISA’’). Accordingly, the investor
protection afforded to acquirers of interests in collective investment schemes under the
CISA does not extend to acquirers of Nil Paid Rights, Fully Paid Rights or New Ordinary
Shares.
The Nil Paid Rights, Fully Paid Rights or New Ordinary Shares will not be listed on the
SIX or on any other stock exchange or regulated trading facility in Switzerland and may
not be publicly offered in or distributed to the public in or from Switzerland, but only to a
limited circle of ‘‘Qualified Investors’’ as defined under the CISA, who do not subscribe
to the Nil Paid Rights, the Fully Paid Rights or the New Ordinary Shares with a view to
distribution.
This document is personal and confidential to each recipient and does not constitute an
invitation to any other person. It may only be used by those persons to whom it has
been distributed in connection with the Rights Issue and may neither be copied or
directly nor indirectly be distributed or made available to other persons without the
express consent of Optimal Payments and the Underwriters.
7.6
Representations and warranties relating to Shareholders
(a)
Qualifying Non-CREST Shareholders
Any person accepting and/or renouncing a Provisional Allotment Letter or requesting
registration of the New Ordinary Shares comprised therein represents and warrants to
the Company and each of the Underwriters that, except where proof has been provided
to the Company’s satisfaction that such person’s use of the Provisional Allotment Letter
or the effecting of the instruction will not result in the contravention of any applicable
legal or regulatory requirements in any jurisdiction:
(i)
such person is not accepting and/or renouncing the Provisional Allotment Letter,
requesting registration of the relevant New Ordinary Share or giving such
instruction, from a registered address, nor is it located or resident, in the United
States or any of the other Excluded Territories;
(ii)
such person does not
territory in which it is
Ordinary Shares or to
such person has used
(iii)
such person is not acting on a non-discretionary basis for, or on behalf of, or for
the account or benefit of, a person who holds a registered address or is located or
resident within the United States or any other Excluded Territory (except as agreed
with the Company) or any territory referred to in (ii) above at the time the
instruction to accept or renounce was given; and
hold a registered address, nor is located or resident in any
unlawful to make or accept an offer to subscribe for New
use the Provisional Allotment Letter in any manner in which
or will use it or to give such instructions;
114
(iv)
such person is not subscribing for or acquiring any Nil Paid Rights, Fully Paid
Rights or New Ordinary Shares with a view to the offer, sale, pledge, resale,
transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights,
Fully Paid Rights, New Ordinary Shares into the United States or any other
Excluded Territory.
The Company may treat as invalid any acceptance or purported acceptance of the
allotment of New Ordinary Shares comprised in, or renunciation or purported
renunciation of, a Provisional Allotment Letter if it:
(v)
appears to the Company to have been executed in or despatched from the United
States or any other Excluded Territory or otherwise in a manner which may involve
a breach of the laws of any jurisdiction or if they believe the same may violate any
applicable legal or regulatory requirement;
(vi)
provides an address in the United States or any other Excluded Territory for
delivery of definitive share certificates for New Ordinary Shares (or any jurisdiction
outside the United Kingdom in which it would be unlawful to deliver such
certificates); or
(vii) purports to exclude the warranty required by this paragraph.
(b)
Qualifying CREST Shareholders
A Qualifying CREST member or CREST sponsored member who makes a valid
acceptance in accordance with paragraph 5.2 of this Part IV represents and warrants to
the Company and each of the Underwriters that, except where proof has been provided
to the Company’s satisfaction that such person’s acceptance will not result in the
contravention of any applicable legal or regulatory requirement in any jurisdiction:
(i)
such person does not hold a registered address, nor is located or resident, the
United States or any other of the Excluded Territories;
(ii)
such person does not hold a registered address, nor is located or resident in any
territory in which it is unlawful to make or accept an offer to acquire or subscribe
for Nil Paid Rights, Fully Paid Rights or New Ordinary Shares;
(iii)
such person is not acting on a non-discretionary basis for, or on behalf of, or for
the account or benefit of, a person who holds a registered address or is located or
resident within the United States or any other Excluded Territory (except as agreed
with the Company) or any territory referred to in (ii) above at any time the
instruction to accept was given; and
(iv)
such person is not subscribing for or acquiring any Nil Paid Rights, Fully Paid
Rights or New Ordinary Shares with a view to the offer, sale, pledge, resale,
transfer, delivery or distribution, directly or indirectly, of any such Nil Paid Rights,
Fully Paid Rights or New Ordinary Shares into the United States or any other
Excluded Territory.
The Company may, having first consulted with the Underwriters, treat as invalid any
MTM Instruction which: (a) appears to the Company to have been despatched from the
United States or an Excluded Territory or otherwise in a manner which may involve a
breach of the laws of any jurisdiction or they or their agents believe may violate any
applicable legal or regulatory requirement; or (b) purports to exclude the warranty
required by this paragraph.
All Qualifying Shareholders will also be deemed to have agreed and acknowledged that:
(a)
each of the Underwriters: (i) are acting exclusively
connection with the Rights Issue; and (ii) will not
the Company for providing the protections afforded
connection with the Rights Issue or the contents of
(b)
apart from the responsibilities and liabilities, if any, which may be imposed on the
Underwriters by FSMA, the regulatory regime established thereunder or otherwise under
law: (i) each of the Underwriters does not have any responsibility or liability for the
contents of this document; (ii) each of the Underwriters make no representation or
warranty, express or implied, as to the contents of this document (including as to its
accuracy, completeness or verification) or for any other statement made or purported to
115
for the Company and no one else in
be responsible to anyone other than
to their clients for providing advice in
this document;
be made by or on behalf of any of them, by the Company or on its behalf or by any
other person in connection with the Company, the New Ordinary Shares or the Rights
Issue, and nothing in this document shall be relied upon as a promise or representation
in this respect (whether as to the past or the future); and (iii) each of the Underwriters
shall not have any liability whatsoever to such Qualifying Shareholders, whether arising
in tort, contract or otherwise (save as referred to above) in respect of this document or
any such statement;
(c)
such Qualifying Shareholder has not relied on the Underwriters or any person affiliated
with them in connection with any investigation as to the accuracy of any information
contained in this document or their investment decision; and
(d)
such Qualifying Shareholder has relied only on the information contained in this
document, and that no person has been authorised to give any information or to make
any representation concerning the Group or the Nil Paid Rights, the Fully Paid Rights or
the New Ordinary Shares (other than as contained in this document) and, if given or
made, any such other information or representation should not be relied upon as having
been authorised by the Company or the Underwriters.
7.7
Waiver
The provisions of this paragraph 7 and of any other terms of the Rights Issue relating to all
Qualifying Shareholders with registered addresses or, who are located or resident in the
United States or in any other of the Excluded Territories may be waived, varied or modified
as regards specific Qualifying Shareholders or on a general basis by the Company in its
absolute discretion after consulting the Underwriters. Subject to this, the provisions of this
paragraph 7 supersede any terms of the Rights Issue inconsistent herewith. References in
this paragraph 7 to Qualifying Shareholders shall include references to the person or persons
executing a Provisional Allotment Letter and, in the event of more than one person executing
a Provisional Allotment Letter, the provisions of this paragraph 7 shall apply to them jointly
and to each of them.
7.8
Payment
All payments must be made in the manner set out in paragraphs 4.4 and 5.2 of this Part IV
(as applicable).
8.
WITHDRAWAL RIGHTS
Persons who have the right to withdraw their acceptances under Section 87Q(4) of the FSMA after
a supplementary prospectus (if any) supplementing this document has been published and who
wish to exercise such right of withdrawal must do so by lodging a written notice of withdrawal
(which shall not include a notice sent by facsimile), which must include the full name and address
of the person wishing to exercise such statutory withdrawal rights and, if such person is a CREST
member, the participant ID and the member account ID of such CREST member, with the
Company’s Receiving Agent, Capita Asset Services Corporate Actions, The Registry, 34
Beckenham Road, Beckenham, Kent, BR3 4TU or by email to [email protected] so as to be
received no later than two Business Days after the date on which the supplementary prospectus
was published, withdrawal being effective upon receipt of the written notice of withdrawal. Notice of
withdrawal given by any other means or which is deposited with or received by the Receiving
Agent after the expiry of such period will not constitute a valid withdrawal. The Company shall treat
as valid any notice of withdrawal received through the post which bears a legible postmark on its
envelope dated not later than the date falling two Business Days after the date on which such
supplementary prospectus was published. Furthermore, the Company will not permit the exercise of
withdrawal rights after payment by the relevant person for New Ordinary Shares of its subscription
amount in full and the allotment of the New Ordinary Shares to such Shareholder becoming
unconditional, save as required by statute. In such circumstances, Shareholders are advised to
consult their professional advisers.
Provisional allotments of entitlements to New Ordinary Shares which are the subject of a valid
withdrawal notice will be deemed to be declined. Following the valid exercise of statutory
withdrawal rights, application monies will be returned by post to relevant Qualifying Shareholders at
their own risk and without interest to the address set out in the Provisional Allotment Letter and/or
the Receiving Agent will refund the amount paid by a Qualifying CREST Shareholder by way of a
116
CREST payment, without interest, as applicable within 14 days of such exercise of statutory
withdrawal rights. Interest earned on such monies will be retained for the benefit of the Company.
The provisions of this paragraph 8 are without prejudice to the statutory rights of Qualifying
Shareholders. In such event Shareholders are advised to seek independent legal advice. Such
entitlements to New Ordinary Shares will be subject to the provisions of paragraph 6 above as if
the entitlement had not been validly taken up.
9.
TIMES AND DATES
The Company shall, at its discretion and after consultation with its financial and legal advisers, be
entitled to amend the dates that Provisional Allotment Letters are despatched or dealings in Nil
Paid Rights commence and amend or extend the latest date for acceptance under the Rights Issue
and all related dates set out in this document and in such circumstances shall announce any such
amendments, via a Regulatory Information Service. Qualifying Shareholders may not receive any
further written communication.
If a supplementary prospectus is issued by the Company two or fewer Business Days prior to the
latest time and date for acceptance and payment in full under the Rights Issue specified in this
document (or such later date as may be agreed between the Company and the Underwriters), the
latest date for acceptance under the Rights Issue shall be extended to a date that is not less than
three Business Days after the date of issue of the supplementary prospectus (and the dates and
times of principal events due to take place following such date shall be extended accordingly).
10. TAXATION
The information contained in Part XV (Taxation) is intended as a general guide only to the current
tax position in respect of the Rights Issue in the United Kingdom, the Isle of Man and the United
States.
Shareholders who are in any doubt as to their tax position in relation to taking up their entitlements
under the Rights Issue, or who are subject to tax in any jurisdiction other than the United Kingdom
should immediately consult a suitable professional adviser.
11. THE OPTIMAL PAYMENTS EMPLOYEE SHARE PLANS
The Company may adjust the options or awards under the Optimal Payments Employee Share
Plans, in accordance with the rules of those Plans. Any adjustments to options granted under the
Approved Plan may require the approval of HMRC. Participants in the Optimal Payments Employee
Share Plans will be contacted separately with further information if adjustments are made.
12. GOVERNING LAW AND JURISDICTION
This document (including the terms and conditions of the Rights Issue), the Provisional Allotment
Letters and any non-contractual obligation related thereto shall be governed by, and construed in
accordance with, the laws of England and Wales. The New Ordinary Shares will be created and
issued pursuant to the Company’s Articles and the Isle of Man Companies Acts 1931-2004. The
courts of England and Wales are to have exclusive jurisdiction to settle any dispute which may
arise out of or in connection with the Rights Issue, this document or the Provisional Allotment
Letter including, without limitation, disputes relating to any non-contractual obligations arising out of
or in connection with the Rights Issue, this document or the Provisional Allotment Letter. By taking
up New Ordinary Shares under the Rights Issue in accordance with the instructions set out in this
document and, in the case of Qualifying Non-CREST Shareholders only, the Provisional Allotment
Letter, Qualifying Shareholders irrevocably submit to the jurisdiction of the courts of England and
Wales and waive any objection to proceedings in any such court on the ground of venue or on the
ground that proceedings have been brought in an inconvenient forum.
13. FURTHER INFORMATION
Your attention is drawn to the further information set out in this document and also, in the case of
Qualifying Non-CREST Shareholders and any other Qualifying Shareholders to whom the Company
has sent Provisional Allotment Letters, to the terms, conditions and other information printed on the
accompanying Provisional Allotment Letter.
117
PART V
INFORMATION ON THE OPTIMAL PAYMENTS GROUP
1.
1.1
INTRODUCTION
The Optimal Payments Group is a global provider of online and mobile payment processing
services. As at the Latest Practicable Date, the Optimal Payments Group provided its
services to over 21,300 active merchants and over 900,000 active customers and in FY2014
processed more than $20 billion in transactions.1 As at the Latest Practicable Date, the
Optimal Payments Group employed approximately 700 employees and operated offices and
data centres in Europe, Canada, the Isle of Man and the United States.
1.2
Optimal Payments’ vision is to become a leading global payments provider that facilitates
transactions from customers to businesses, customers to customers and businesses to
businesses. To achieve this vision, Optimal Payments has defined a set of four strategic
initiatives, which are set out at paragraph 6.4 of this Part V (Information on the Optimal
Payments Group), to strengthen its services offering and expand its market share.
1.3
The Optimal Payments Group derives its revenue from two key segments, being the
NETELLERâ (Stored Value) and the NETBANXâ (Straight Through Processing) segments.
NETELLERâ is an online stored value account which allows customers to make instant and
secure guaranteed payments over the internet. Within its NETELLERâ segment, Optimal
Payments Group is also developing its new payment card services division which offers
merchants with a range of card issuing programmes. NETBANXâ provides a payment
gateway service for transactions where the customer is ‘‘not present’’. As part of the
NETBANXâ segment, the Optimal Payments Group also provides the Asia Gateway service.
Please see paragraph 5 of this Part V for a detailed overview of the Optimal Payments
Group’s business operations.
2.
2.1
MARKET OVERVIEW
The Optimal Payments Group operates in the fast growing digital payments industry, which
provides services enabling customers and merchants to make, receive and accept payments
over the internet. The digital payments market continues to grow and innovate, driven by
changes including the ongoing increase in internet penetration, the rapid adoption of
smartphone and tablet devices, the increase in e-commerce spending and the emergence of
segments such as micropayments, Voice over internet Protocol (‘‘VoIP’’), internet-based
gambling and online gaming. The overall use of digital payments has increased, as traditional
‘‘bricks-and-mortar’’ companies look to expand their online presence to supplement their
offline businesses and internet companies continue to increase their share of the overall
transaction volume.
2.2
The Optimal Payments Group targets several end markets which strongly benefit from trends
towards online transactions and in which the Directors believe that the Optimal Payments
Group has a competitive advantage given its diversified product portfolio and establishment of
a global network of partners, merchants and customers, that it has built over time. These high
growth end markets can be summarised in three different verticals:
2.3
1
2
(a)
online gambling, which includes gambling and sports betting activities;
(b)
e-commerce, which includes online retail purchases of physical and digital goods; and
(c)
online remittance which includes both domestic and cross-border money transfers.
The transaction value of the global e-commerce market is estimated to grow from a total of
US$879 billion in 2013 to US$2,000 billion in 2018 (CAGR of 19 per cent.)2 and the global
online gross gambling yield is estimated to grow from US$40 billion in 2013 to US$49 billion
in 2017 (CAGR of 5 per cent.)3.
A transaction for these purposes in relation to the NETELLERâ business is an upload by a member, a withdrawal by a
member, a payment from a member to a merchant, a payment from a merchant to a member or a money transfer between
members.
Sources: GBGC, as at July 2014, Ericsson Mobility Report June 2014, Worldpay cited by Payments cards and Mobile,
February 2014, Your global guide to alternative payments, second edition, Mckinsey & Company; The keys to driving broad
consumer adoption of e-Wallets and mobile payments, January 2014
118
2.4
While the digital payments industry is fast growing, it is largely dominated by a few large
global operators, with a number of smaller companies offering niche or specialist digital
payment solutions. Due to the breadth and depth of the Optimal Payments Group’s product
offerings, the Optimal Payments Group competes against a broad range of digital payment
players, including payment service providers, alternative online / mobile payment vendors and
traditional payment companies (being banks, merchant acquirers and money transfer
operators). The Directors believe that the Optimal Payments Group’s diversified product
portfolio combined with its large, complex and growing network of banks, payment providers,
customers and merchants, provides the Optimal Payments Group with a platform to expand
its market share. With its wide portfolio of products and services, recently complemented by
the US Acquisitions, the Directors believe the Optimal Payments Group is well positioned to
become a digital payments provider of choice for customers and merchants seeking
instantaneous payment methods.
2.5
Moreover, internet access is becoming ubiquitous in both developed and emerging markets,
mainly driven by 3G and 4G services and the proliferation of smartphones and tablet devices.
The combination of the digital wallet and the prepaid card is set to capitalise on this trend,
unlocking substantial opportunities for the Optimal Payments Group to increase its market
share and consolidate its position as a leader and an innovator in the digital payments
industry.
3.
3.1
OPTIMAL PAYMENTS GROUP CORPORATE HISTORY
The Optimal Payments Group and its predecessor businesses have been involved in the
payments sector since 1996. In September 1997, NETBANXâ was founded as an ecommerce payment gateway. In June 1999, Stephen Lawrence, the founder and major
shareholder of the NETeller Group, conceived the idea of an ‘‘e-Wallet’’ that could be used to
fund internet based transactions without the security risk of processing each transaction at
each separate merchant site. In August 1999, John Lefebvre teamed up with Stephen
Lawrence to develop the concept and to assist with raising capital.
3.2
At the time, the NETeller Group believed that the most receptive market segment to its ‘‘eWallet’’ concept was the online gambling market, as merchants appeared to be demanding
payment processing innovation. The NETeller Group was established to develop a money
transfer system combining the pervasiveness of the internet with the existing financial
infrastructure of the international banking system.
3.3
The website and database for www.neteller.com was developed during the first half of 2000.
NETeller Inc. was incorporated in May 2000 and the NETeller Group began processing
transactions in July 2000. Uptake of the NETELLERâ system gathered momentum and then
grew rapidly as customers and merchants endorsed the ease of use. The growth was
supported by the increasing number of methods by which customers could fund their
NETELLERâ accounts.
3.4
The Company was incorporated as a private company, NETeller Limited, under the laws of
the Isle of Man on 31 October 2003 and was registered as a public company on 1 April
2004. With effect from 31 December 2003, NETeller Inc., the former holding company of the
NETeller Group, and up to that date the principal operating company in the NETeller Group,
transferred the business and undertaking of the NETeller Group to the Company and its
subsidiary, NT Services.
3.5
On 17 November 2008, the Company changed its name from NETeller plc to Neovia
Financial plc as part of a wider rebranding strategy and to differentiate the holding company
of the Optimal Payments Group from the Optimal Payments Group’s operating brands of
NETELLERâ, NETBANXâ and Net+.
3.6
In February 2011, Neovia Financial plc acquired substantially all of the assets of 7012985
Canada Inc. and its affiliated companies and changed its name to Optimal Payments plc on
1 March 2011. The acquisition diversified the Company’s merchant base and provided the
Company with a strong presence in North America. The Company is the Optimal Payments
Group’s ultimate holding company.
3
Sources: GBGC, as at July 2014, Ericsson Mobility Report June 2014, Worldpay cited by Payments cards and Mobile,
February 2014, Your global guide to alternative payments, second edition, Mckinsey & Company; The keys to driving broad
consumer adoption of e-Wallets and mobile payments, January 2014
119
3.7
On 23 July 2014, Optimal Payments completed the acquisition of TK Global Partners LP
(‘‘Meritus Payment Solutions’’), a payment processer based in California (the ‘‘Meritus
Acquisition’’) and the trade and assets of Global Merchant Advisors, Inc. (‘‘GMA’’), a US
based online payments company (the ‘‘GMA Acquisition’’ and together with the Meritus
Acquisition, the ‘‘US Acquisitions’’). These acquisitions strengthened the Optimal Payments
Group’s position in the United States and the Directors believe that it will provide
opportunities for continued growth in the United States.
3.8
On 15 October 2014, Optimal Payments completed the acquisition of the entire issued share
capital of Petal Payments Limited (now known as Optimal Payments Merchant Services
(Mauritius) Limited) (the ‘‘Mauritius Acquisition’’).
4.
4.1
OPTIMAL PAYMENTS GROUP STRUCTURE
The Company is the Optimal Payments Group’s ultimate holding company and is incorporated
in the Isle of Man. The Company has ten wholly owned subsidiaries: Optimal Payments (UK)
Limited, Optimal Payments Limited, Optimal Payments Services Limited, Netpro Limited and
Netinvest Limited, each of which is incorporated in England and Wales, NT Services Building
Corporation, 1155259 Alberta Limited and Cardload Incorporated, each of which is
incorporated in Canada and Net Group Holdings Limited and OP Finance Limited, each of
which is incorporated in the Isle of Man. Optimal Payments also directly holds 90 per cent. of
the shares in NT Services Limited, a company incorporated in Canada, with 1155259 Alberta
Limited, a wholly owned subsidiary of Optimal Payments, holding the remaining 10 per cent.
of NT Services Limited.
4.2
Netinvest Limited has one wholly owned subsidiary, Netbanx Limited which is incorporated in
England and Wales. Netbanx Limited has seven wholly owned subsidiaries: NETBANXâ B.V.
Limited, which is incorporated in the Netherlands, NBX Checkout Incorporated, NETBX
Services Incorporated, NETBX Technologies Incorporated and NBX Merchant Services
Incorporated, each of which is incorporated in Canada, NBX Merchant Services (Australia) Pty
Limited which is incorporated in Australia and NBX Holdings Corporation, which is
incorporated in Delaware. NBX Holdings Corporation has two wholly owned subsidiaries, NBX
Services Corporation and NBX Merchant Services Corporation, each of which is incorporated
in Delaware. NBX Services Corporation holds 98 per cent. of the partnership interests in TK
Global Partners LP and Netbx Services LLC, which is incorporated in Delaware and is a
wholly owned subsidiary of NBX Services Corporation, holds the remaining 2 per cent. of the
partnership interests in TK Global Partners LP.
4.3
Net Group Holdings Limited has four wholly owned subsidiaries, Net ID Limited, Netadmin
Limited, NETB Limited and Optimal Payments Merchant Services Limited, each of which is
incorporated in the Isle of Man. Optimal Payments Merchant Services Limited has one wholly
owned subsidiary, Optimal Payments Merchant Services (Mauritius) Limited, which is
incorporated in Mauritius.
4.4
Optimal Payments (UK) Limited has one wholly owned subsidiary, Optimal Payments
(Bulgaria) EOOD, which is incorporated in Bulgaria and Optimal Payments Limited has one
wholly owned subsidiary, Optimal Payments Services Incorporated, which is incorporated in
Delaware. Optimal Payments Services Incorporated also has a wholly owned subsidiary
incorporated in Delaware, OPL Payment Services LLC.
5.
5.1
BUSINESS OVERVIEW
The Optimal Payments Group operates two key business lines:
5.2
(a)
Stored Value which encompasses the Optimal Payments Group’s NETELLERâ, Net+
prepaid card stored value service and the card services division which encompasses the
Optimal Payments Group’s prepaid card issuing services; and
(b)
Straight Through Processing (‘‘STP’’) which encompasses the Optimal Payments Group’s
NETBANXâ brand and payment gateway, bureau services and Asia Gateway service.
Optimal Payments’ stored value business provides the NETELLERâ service in over 200
countries and territories with coverage in 23 currencies and 15 languages, Its Net+ prepaid
MasterCard enables physical cash withdrawals and PoS and online transactions using the
funds in the stored value account. The STP business processes payments for ‘cardholder not
present’ transactions and currently services over 20,000 active merchants in a range of
120
sectors. The Asia Gateway service, which is part of the STP business, uses an outsourced
service provider to provide payment processing services to a number of European and
Australasian based merchants in respect of their activities in Asia, including China. In FY2013
and in FY2014, the NETELLERâ business generated revenue of US$59.8 million and
US$89.6 million, with a gross margin of US$50.3 million and US$76million respectively, and
for the same periods, the STP business generated revenue of US$193 million and
US$274.7 million with a gross margin of US$81.1 million and US$112.5 million respectively.
5.3
5.4
5.5
NETELLERâ generates the majority of its revenues (approximately 61 per cent. in FY2013
and 64 per cent. in FY2014) from the fees it charges the merchants who accept NETELLERâ
payments, with the remaining revenue generated from customers, foreign exchange fees in
relation to multi-currency transactions and Net+ MasterCard branded prepaid cards. STP
business generates all of its revenues from the fees it charges to merchants.
Stored Value business
The Optimal Payments Group’s NETELLERâ stored value business (currently comprising the
NETELLERâ, Net+ services and the card services division) is an online stored value account
which was first launched in 1999. The Optimal Payments Group provides its NETELLERâ
services to merchants and customers. NETELLERâ and Net+ service allows customers to
make instant and secure guaranteed payments over the internet in a variety of sectors
including entertainment, online gambling, retail, financial services and digital content and
transfer money to family and friends. As at the Latest Practicable Date, the NETELLERâ
service had over 900,000 active customers and of this number, approximately 50,000 active
customers use the Net+ service (during an average month) in more than 200 countries and
territories, with coverage in 23 national currencies and 15 languages.
When a customer opens a NETELLERâ Account, they are given access to the:
(a)
Net+ Prepaid MasterCard which allows customers to make payments safely online and
in person at millions of MasterCard point-of-sale locations and also serves as a cash
card, allowing instant access to stored funds at ATMs worldwide; and
(b)
NETELLERâ Money Transfer service which is a peer-to-peer payment service.
5.6
The NETELLERâ and Net+ service is operated by Optimal Payments, which is authorised by
the FCA as an e-money issuer. Optimal Payments has passported its e-money services into
the European Economic Area using this authorisation. Various merchants offer NETELLERâ
as a payment method on their website to encourage their customers to make purchases from
their website rather than only browsing. In addition, on a purchase by a customer
NETELLERâ provides merchants with access to guaranteed funds. Merchants also benefit
from reduced customer identification procedures as their customers will have been vetted and
approved by NETELLERâ. Customers benefit from a large variety of local and alternative
payment methods that can be used to deposit funds into the NETELLERâ account.
5.7
In order to use the NETELLERâ Account, a customer transfers (free of charge) the funds
from its bank to the NETELLERâ Account or loads funds using alternative payments methods
such as debit or credit card (for a fee of between 1.9 and 4.95 per cent. of the value
transferred), Ukash or paysafecard (for a fee of between 3.0 and 9.9 per cent. of the value
transferred).
5.8
Customers are then able to use the NETELLERâ Account to pay for online products or
services anywhere that NETELLERâ is accepted. The NETELLERâ Account has traditionally
been used for online gambling, as it allows the customer to make payments on multiple
gambling sites without having to enter their payment details each time. Further, the
NETELLERâ Account maintains the customer’s anonymity, enables fast receipt of winnings,
and has multicurrency functionality. This means that a customer who has placed a successful
bet on one gambling site can quickly use those winnings to place bets on other gambling
sites, without having to wait for proceeds to clear a bank account or be credited to a payment
card.
5.9
To withdraw money from the NETELLERâ Account, customers can request a bank transfer, a
cheque or a banker’s draft for a transaction fee of at least e7.50. Funds in the NETELLERâ
Account are also available to spend on the Net+ MasterCard-branded pre-paid card which
can be used for online purchases or to withdraw cash at ATMs.
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5.10 Optimal Payments has been a pre-paid MasterCard issuer since 2012 and, as at the Latest
Practicable Date, had issued over 500,000 cards, of which approximately 50,000 are in use
during an average month. In FY2013, the Company processed over 2.4 million Net+
transactions.
5.11 The Optimal Payments Group launched the NETELLERâ Reward Points Programme (the
‘‘Programme’’) in February 2012, which allows members to earn points on their transactions
in the NETELLERâ stored value accounts. Members can redeem these points for
merchandise, cash exchange, and other NETELLERâ provided services.
5.12 NETELLERâ generates the majority of its revenues from the fees it charges the merchants
who accept NETELLERâ payments. A merchant will be charged a fee (typically between 2 to
4 per cent.) for every transfer it receives from or makes into a NETELLERâ Account.
NETELLERâ also earns fees from foreign exchange and transactions on Net+ pre-paid cards,
with the remaining revenues generated from fees on customer deposits and withdrawals,
dormant account fees and the retention of funds that have not been reclaimed by customers
upon the expiry of accounts.
5.13 In November 2014, Optimal Payments announced the introduction of a new check-out
process known as ‘‘NETELLERGO!2’’. NETELLERGO!2 is a flexible and easy-to-use online
checkout page, which allows merchants to easily offer customers without a NETELLERâ
stored value account the flexibility to use multiple payment methods when making payments
online. Merchants also have the opportunity to offer the NETELLERâ stored value service as
a global payment method on their checkout page.
5.14 In providing NETELLERGO!2, Optimal Payments bears the risk of all technical integration and
enters into contracts with various payment method providers in order to ensure that various
payment methods can be offered through NETELLERGO!2. Merchants benefit from the use
of a consolidated and integrated system and are not required to engage in complex
contractual negotiations with multiple payment providers in order to provide their customers
with payment flexibility. Further, the NETELLERGO!2 system obtains and consolidates all
payments due to merchants and deposit the payments in one account, removing the
requirement for merchants to open bank accounts in various jurisdictions. NETELLERGO!2
launched on 9 December 2014.
5.15 In the US, Optimal Payments offers its NETELLERâ stored value account service and Net+
prepaid cards to merchants and customers. The Optimal Payments Group’s NETELLERâ
business is regarded as a money transmission business in the US. Money transmitting
businesses are subject to numerous regulations in the US at the federal and state levels. The
Optimal Payments Group has obtained money transmitter licences in New Jersey, Delaware,
Iowa, North Dakota and Idaho and, following Completion, if the Optimal Payments Group
does not acquire Skrill USA Inc., will obtain money transmitter licences in the remaining
states in which they are required. Currently, the Optimal Payments Group’s NETELLERâ
business in the US is sponsored by Sutton Bank with Sutton Bank carrying out the regulated
money transmitting service on behalf of the Optimal Payments Group. The Optimal Payments
Group also intends to acquire Skrill USA Inc. following Completion in order to expand its
offering in the United States. Prior to Completion, the Skrill Group will undertake a
restructuring to transfer Skrill USA Inc. outside the Skrill Group. Completion of the Acquisition
will be conditional on Skrill USA Inc. being transferred outside the Skrill Group. The
consideration for the transfer of Skrill USA Inc. outside the Skrill Group will be left outstanding
as an inter-company loan between Skrill Holdings Limited and Sentinel Group Holdings S.A.
In addition, Skrill Holdings Limited will provide Skrill USA Inc. with an inter-company funding
loan for working capital purposes. Once the transfer of Skrill USA Inc. outside the Skrill Group
has completed, the Optimal Payments Group will have a period of six months following
Completion to obtain the required approvals in connection with Skrill USA Inc.’s money
transmitter licences from the relevant US states or territories in order for Skrill USA Inc. to be
transferred to Skrill Holdings Limited. In the event that Skrill Holdings Limited repurchases
Skrill USA Inc. after Completion, the consideration for that transfer will be the release of
Sentinel Group Holdings S.A.’s obligation to repay the inter-company loan. If Skrill Holdings
Limited has not obtained the relevant consents to enable Skrill USA Inc. to be transferred to
Skrill Holdings Limited within the six month period following Completion, Sentinel Group
Holdings S.A will be permitted to sell Skrill USA Inc. to a third party. In the event Skrill USA
Inc. is sold to a third party, Sentinel Group Holdings S.A. will use reasonable endeavours to
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sell Skrill USA Inc. for the best possible purchase price, and the proceeds of that sale shall
be used to repay the inter-company debt put in place between Skrill Holdings Limited and
both Sentinel Group Holdings S.A. and Skrill USA Inc., and any excess inter-company loan
amount that remains outstanding shall be waived by Skrill Holdings Limited. If Skrill USA Inc.
is sold to a third party, the Optimal Payments Group intends to commence applying for its
own money transmitter licences in the US in order to enable it to process payments in the
US. The Optimal Payments Group has already obtained money transmitter licences in New
Jersey, Delaware, Iowa, North Dakota and Idaho.
5.16 The Optimal Payments Group also operates a card issuing business, issuing customers with
pre-paid cards, virtual cards or private label cards on behalf of merchants. Optimal Payments
is authorised by the FCA to issue e-money and payment instruments, pursuant to a licence
from MasterCard International Inc. Through its card issuing division, the Optimal Payments
Group is able to support a variety of different programmes and provide merchants with a
range of card programmes, from a white label card programme to fully customised, multichannel solutions. The Optimal Payments Group also assists with the set-up and
management of merchants’ card programmes, using various approved programme
management suppliers. Further, as an issuing bank, the Optimal Payments Group is in a
position to provide BIN sponsorship to organisations that are not financial institutions but wish
to offer prepaid card programmes. As at the Latest Practicable Date, the Optimal Payments
Group had over 530,000 Net+â physical cards in issue and over 590,000 Net+â virtual cards
in issue.
STP business
5.17 The Optimal Payments Group acts as a payment service provider, using its NETBANXâ
brand and provides money transmission services to a number of European and Australasian
based merchants that have customers in Asia (the ‘‘Asia Gateway service’’). NETBANXâ
provides a payment gateway for transactions where the customer is ‘‘not present’’, that is not
physically present. This payment gateway allows customers to pay for goods and services on
merchant websites or by mail order and/or telephone order, using various payment methods,
including credit and debit cards, direct-from-bank and alternative and local payments. As a
payment service provider, the Optimal Payments Group provides merchants with a ‘‘turn-key’’
solution whereby it manages all connections to the card processing networks, the acquiring
banks in multiple territories, and the merchant’s online shopping basket software using one
integration platform. The Optimal Payments Group provides its NETBANXâ and Asia Gateway
service to merchants only.
5.18 NETBANXâ offers three services:
Direct service
NETBANXâ acts as a payment gateway for merchants who already have an internet
merchant account with an acquiring bank. The NETBANXâ service effectively acts as an
interface between the Optimal Payments Group’s merchants and customers and the Optimal
Payments Group’s merchants and acquirers. NETBANXâ receives a fee for each transaction
processed, typically for a fixed amount or, in the alternative, a percentage of the transaction
value. Due to the nature of the service, NETBANXâ does not bear the risk of merchant
failure.
Bureau service
NETBANXâ provides the acquiring bank relationship for the merchant and therefore takes on
the risk of merchant failure. By assuming a higher level of risk in relation to such
transactions, NETBANXâ is usually able to charge additional fees for the provision of its
services. Merchants generally pay NETBANXâ a fixed transaction fee, a percentage of the
transaction value and a monthly account fee. In addition, NETBANXâ levies chargeback fees
if customers make chargebacks due to incorrect billing or the merchant fails to deliver its
products or services. As at the Latest Practicable Date, NETBANXâ had ongoing
relationships with 20 acquiring banks located in multiple jurisdictions to provide the bureau
service. Optimal Payments’ ongoing relationships with a large number of acquiring banks
allow the Optimal Payments Group to satisfy merchant demand for its services. Further,
Optimal Payments is in a position to satisfy the compliance requirements of the card schemes
of the acquiring banks by carrying out suitable Know Your Customer identity verification
checks on merchants before granting merchants access to the Bureau NETBANXâ business.
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Asia Gateway service
The Asia Gateway service is provided by NETBANX to a number of European and
Australasian based merchants that have customers in Asia and comprises the outsourcing of
the provision of a gateway supporting real-time domestic electronic payments in local currency
as well as money transmission services comprising the settlement of funds to merchant bank
accounts in their preferred currencies. The outsourced gateway services are provided by a
third party provider operating in Asia who has its own proprietary technology and a network of
local payment processors.
The Asia Gateway service is facilitated by a third party outsourced service provider operating
in Asia who has its own proprietary technology and a network of local payment processors.
Using the Asia Gateway service, customers are able to initiate deposit transactions on the
websites of merchants and are directed to a payment platform to select their issuing bank
from a list of local banks. Customers are then directed to the e-payment website of their local
issuing bank and the transaction is completed as soon as the customers have entered their
account credentials. Upon completion of the transaction, the funds from the customers’
issuing banks are processed by the local payment processors and remitted to Optimal
Payments in the merchant’s preferred currencies. Optimal Payments uses these funds to
credit the accounts of the relevant merchants.
5.19 As at the Latest Practicable Date, the Optimal Payments Group’s STP business had over
20,000 active merchants covering a variety of end markets including retail, digital download,
travel, fantasy sports, subscription, online dating, the ‘‘not for profit’’ market and online
gambling. In October 2012, Optimal Payments entered into an agreement with Caesars
Interactive Entertainment, Inc. (‘‘CIE’’) (a subsidiary of Caesars Entertainment Corporation);
pursuant to which it has agreed to provide gateway payment processing as well as fraud
management and related services for CIE. This was Optimal Payments’ first contract to
supply payment processing services to the regulated US online gambling market. Optimal
Payments has also entered into agreements with 888 Holdings Inc., Marina District
Development Company, LLC d/b/a Borgata Hotel Casino & Spa, Bally Technologies Inc. and
Pala Interactive, LLC for its NETBANXâ and NETELLERâ payment solutions. Optimal
Payments currently provides payment services in all three states which have regulated online
gambling; New Jersey, Nevada and Delaware, and also provides payment services to a state
lottery. Other than the Asia Gateway service, the majority of Optimal Payments’ merchants in
the STP business are non-gambling merchants transacting online although Optimal Payments’
largest STP merchant is an online gambling merchant. During FY2014, the Optimal Payments
Group processed more than 130 million transactions worth more than US$13 billion using its
straight-through processing offering (the Optimal Payments Group considers a transaction for
these purposes to be a ‘settlement’, meaning the merchant receiving money from the issuing
bank).
5.20 The Optimal Payments Group’s aim is to enable the NETBANXâ brand to expand to
accommodate an increasing range of payment types. The Optimal Payments Group recently
obtained Principal Membership from MasterCard Europe and Visa Europe to offer merchant
acquiring services to merchants in the European Union. This will have an effect on the
NETBANXâ bureau business, as Optimal Payments was previously required to work with an
acquiring bank in order to engage in an acquiring relationship with a merchant. However, with
the Principal Membership of Visa and MasterCard, Optimal Payments is able to act as the
acquiring bank itself and therefore it will be able to retain a larger percentage of the
processing fee for European transactions than it currently does. The Optimal Payments Group
only started operating as an acquirer in the third quarter of 2014 and the Directors believe
that the impact on the NETBANXâ business is not likely to be material until FY2016.
Payment Platform
5.21 The Optimal Payments Group’s services are delivered using the secure Optimal Payments
Payment Platform (the ‘‘Payment Platform’’). The Payment Platform is designed to facilitate
all payment processing activities across multiple sales channels including e-commerce,
‘‘cardholder not present’’, and mobile, and is securely stored and easily accessible. The
Payment Platform is designed to enable the growth of the businesses of merchants and
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developers in new markets and channels, with the Optimal Payments Group assuming
responsibility for facilitating the processing of payments in order to help facilitate scale,
security, performance, and innovation.
5.22 Optimal Payments’ Payment Platform infrastructure operates within a number of
interconnected global data centres, providing secure and resilient services (relating to storage,
computing, networking, security and management); which allow Optimal Payments’ payment
processing services to be provided to merchants and customers by way of virtual technology.
Each of the Stored Value and STP business lines are supported by separate Payment
Platform infrastructures, each comprising different capabilities. Both of these platforms have
been developed by the Optimal Payments Group in-house and are based on proprietary
intellectual property. Platform capabilities are made available to merchants and service
providers via modern interfaces and software development kits, enabling rapid, multi-channel
integration. The technology platforms supporting the product suites run on a clustered,
scalable architecture underpinned by enterprise grade technology from providers such as
Oracle and Microsoft, amongst others.
5.23 The Directors intend to pursue a merger of its Payment Platform infrastructure in order to
migrate towards a single consolidated Payment Platform which is capable of supporting most
of the Optimal Payments Group’s business lines. The consolidation of Optimal Payments’
Payment Platform infrastructure will reduce the number of data centres and underpinning
technologies required by the Optimal Payments Group.
5.24 Optimal Payments’ Payment Platform offering is annually assessed and certified to the
Payment Card Industry Data Security Standards (‘‘PCI DSS’’). The PCI DSS is a worldwide
standard which was set up in order to help businesses process card payments securely,
reduce card fraud and protect sensitive cardholder data. In contrast to many of its merchants,
Optimal Payments is in a position to ensure continued investment in the Payment Platform in
order to ensure that the data of the Optimal Payments Group’s merchants and customers
remains secure in the face of existing and emerging threats.
Risk management
5.25 The Optimal Payments Group’s Risk Management Committee is responsible for assessing
and managing risk for the Optimal Payments Group. The Risk Management Committee
presents the minutes of its meetings along with its findings and risk analyses to the Audit
Committee and the Audit Committee periodically reviews the minutes of the meetings of the
Risk Management Committee. The Audit Committee has appointed Raymond Chabot Grant
Thornton (‘‘RCGT’’) as internal auditor of the Group. An internal audit plan has been agreed
with RCGT for FY2015 to FY2018 and their audits commenced in the first quarter of 2015.
The results of the internal audits will be presented to the Audit Committee at the quarterly
meetings. The Audit Committee will review each internal audit report and corresponding
management response to ensure that the key risks within the business have been identified
and are being managed appropriately.
5.26 Optimal Payments conducted a risk assessment of the Optimal Payments Group in 2014 and
developed an enterprise risk management framework for the Optimal Payments Group. During
the risk assessment, 16 key risks were identified and the likelihood of these risks occurring
were assessed. Additional risk assessments were also performed in 2014 for the UK and Isle
of Man regulated companies in the Optimal Payments Group. During those risk assessments,
12 and 11 key risks were identified for the UK and Isle of Man companies respectively and
the likelihood of these risks occurring were assessed. Using the risk management framework,
the Optimal Payments Group has a strategy in place for the UK and Isle of Man regulated
companies to monitor identified risks and to develop risk mitigation strategies.
5.27 The Optimal Payments Group’s platforms provide extensive real-time risk monitoring and
decision-making, using a mix of proprietary rules-based engine technology and third party
services. Optimal Payments’ risk management team is responsible for monitoring and
adjusting risk rules and thresholds and for managing events. The risk platforms are
autonomous and highly automated through proprietary IP overlaid on enterprise management
frameworks. Both the STP and stored value business divisions leverage proprietary risk
management and anti-fraud technologies, customised separately around transaction specifics,
volumes and the nature of processes experienced on each divisional platform.
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Straight Through Processing
5.28 The Optimal Payments Group’s STP division is run on the award-winning NETBANXâ
gateway, which was constructed with risk management in mind and is a full feature platform
enabling both merchants and internal users to manage and mitigate risks on a granular, realtime basis. The overall risk approach is to provide merchants with the necessary tools to
prevent fraud and to work with these merchants to create and customise rules and systems,
based on the Optimal Payments Group’s technology, which enhance their risk management
capabilities. NETBANXâ operates its bureau business by using a variety of risk management
tools. The Optimal Payments Group vets merchants before approval to use the bureau
business is granted and the transaction fees levied for processing payments using its bureau
business are reflective of the higher level of risk being undertaken by the Optimal Payments
Group. Upon accepting a new merchant, the NETBANXâ system actively monitors trading
patterns in order to prevent and detect fraudulent transactions and activity. This risk based
approach allows the Optimal Payments Group to offer its services to customers that may
otherwise be rejected by banks as a result of being deemed to be high risk. In this context,
‘‘high risk’’ customers would include companies operating in industries perceived to be high
risk, such as online dating, travel services or subscription-based services. Furthermore, this
service offers the Optimal Payments Group an internal risk-based system that assesses and
monitors the individual risk profiles of merchants to maintain risk exposure at an acceptable
level. Key to the NETBANXâ gateway is the ability to filter transactions on any data element
provided by the merchant, customer, or other participant in the transaction, such as the issuer
or acquirer. The platform allows merchants to easily filter out transactions that do not meet
specified criteria, or allow the merchants to suspend and out sort transactions which appear
to be fraudulent. Rules can be created allowing merchants or internal staff to monitor the
velocity of transactions on multiple data points and take actions when thresholds are
exceeded. Back office accounting systems allow the Optimal Payments Group to suspend
individual transactions without holding entire batches, limiting the inconvenience to merchants,
should an investigation need to be carried out. The Optimal Payments Group’s merchant riskmonitoring platform leverages all transaction elements from the NETBANXâ gateway and
allows staff to quickly and efficiently identify merchants whose transactions or other activity
raise questions or suspicion of fraud. Daily exception and monitoring reports are reviewed by
staff and acted on before any funding is settled to merchants. The NETBANXâ service is PCI
DSS level 1 compliant, which means that customers can outsource the holding of private
customer data to NETBANXâ.
Stored Value
5.29 Within the stored value division, NETELLERâ uses the Enterprise Risk and Transaction
Monitoring System (‘‘ERTMS’’) to provide real-time monitoring and decisions related to
NETELLERâ member and merchant activity. ERTMS is a fraud mitigation engine that is built
upon an industry leading platform supplied by a third party provider, who is a supplier of
financial crime, risk, and compliance solutions. The platform is enterprise grade, fault tolerant
and has been implemented with active/passive failover redundancy. The platform provides a
rules-based transaction monitoring engine, a case management system and a suite of
reporting tools. In addition, a rules engine is also built into the core of the NETELLERâ
system allowing effective layering of anti-money laundering, KYC, and risk-based rules to be
triggered and partitioned at the appropriate time based on customer activity. ERTMS enables
real-time fraud and anti-money laundering rules to be created based on events such as new
account signups, logins, transactions, or a combination thereof, and can be based on a
plethora of attributes, including customer account country, bank identification number (‘‘BIN’’)
country, IP country, transaction value, transaction frequency, device ID and deposit or
withdrawal type. Rules can be set to trigger alerts on transactions, decline a transaction,
close an account, challenge a member with a personal verification question, or delay a
transaction.
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5.30 Neural modelling and member profiling are utilised within ERTMS to create adaptive rules
based on historical fraud data. Personal Verification Questions rules can be configured to
prompt customers with a personal verification question in real-time upon account sign-in or
when a transaction is being initiated in order to validate their identity and prevent fraudulent
activities.
5.31 In order to significantly enhance fraud mitigation, the Optimal Payments Group has also fully
integrated a real-time device profiling capability into the ERTMS platform. This enables the
Optimal Payments Group to perform, in real-time, a series of security checks to validate the
device being used by the customer. These checks include reviewing the IP address against a
database of high risk IP addresses and known proxies, as well as establishing a unique
fingerprint of the device. The device fingerprint is generated using more than 200 unique
device parameters which are used to determine a fraud risk score. Rules can then be written
to either alert or take action based on the risk score or based on any one or combination of
the device’s attributes.
5.32 The ERTMS fraud engine also uses IP Geo Location tools to validate the geographic location
of devices being used to execute an event or transaction. IP Geo Location information is
gathered and factored into the ERTMS fraud related rules. The ERTMS system provides case
management functionality that enables risk agents to create unique cases for each account or
event. Within the ERTMS case management system, case content cannot be changed and
viewing is secured on a need to know least permissions basis. Cases are assigned to agents
as needed and investigated until resolved. The Optimal Payments Group is able to manage
queues and prioritise high risk events to the appropriate skillsets.
Information Security
The Optimal Payments Group’s global information security policy follows industry best
practices in layered security across all computing environments and is assessed by multiple
external security providers. The Optimal Payments Group is a participating member of the
Payment Cards Industry (‘‘PCI’’) Standards Council, and provides thought leadership in the
payments security space with an advisory seat on the tokenization working group, an external
working group which aims to find tokenization solutions for companies. Tokenization is the
process by which credit and debit card numbers are shortened and replaced with a randomly
generated series of numbers and letters called ‘‘tokens’’ which cannot be used to make
fraudulent transactions. The use of such tokens serve to enhance the security of cardholder
data storage and properly implemented tokenization solutions may remove or reduce the
requirement for a merchant to retain a customers’s full card details after an initial transaction
has been processed. All platforms are conformant with, and annually assessed and certified
to, the PCI DSS. The Optimal Payments Group has a global data centre presence, connected
via an MPLS network and operating production facilities in Montreal, Canada; Gatineau,
Canada; Douglas, Isle of Man; and Dublin, Ireland.
Legal Risk
5.33 Optimal Payments’ Risk Management Committee identifies and evaluates legal risk as part of
its responsibility for assessing and managing risk for the Optimal Payment Group. The key
legal risks identified as being critical to the business of the Optimal Payments Group are
changing regulatory and authorisation requirements and the legal and regulatory environment
as it applies to the supply of online gambling services. Please see Part VI (Online Gambling
Regulation) of this document for a description of the specific risks relating to the operations of
the Optimal Payments Group within the online gambling industry.
Business continuity
5.34 The Optimal Payments Group has a disaster recovery plan in place in respect of its stored
value systems. In the event of a major failure, the Optimal Payments Group’s stored value
service will be limited to confirming the balances of its customer and returning funds to such
customers using a manual process which the Directors expect could take up to one week to
complete, depending on the location of the customers. The Optimal Payments Group’s
production servers which underpin Optimal Payments’ merchant and customer services are
currently located in the Isle of Man and the Optimal Payments Group also has IT
infrastructure and a team in Calgary, Canada that assists with the provision of servicing.
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5.35 In respect of its straight through processing business, the Optimal Payments Group is not
presently able to switch instantly to another back-up site in the event of failure of the main
server site, and such a process could take up to three hours. However, the Optimal
Payments Group is currently putting a business continuity plan for the Optimal Payments
Group in place and is in the process of augmenting its disaster recovery capabilities
establishing an active/active processing centre for Optimal Payments’ straight through
processing business which will have the ability to reroute internet traffic with little or no
disruption of service to the back-up facility in the event of the failure of the Optimal Payments
Group’s straight through processing systems. The Optimal Payments Group has purchased IT
infrastructure and is in negotiations to enter into an agreement with a data centre service
provider in Ireland to deliver a Warm-Standby centre, being a back-up system which is data
mirrored at regular intervals, in respect of its stored value systems that are currently operating
using the Optimal Payments Group’s servers in the Isle of Man. The Directors expect the
Optimal Payments Group’s business continuity plan to be in place during 2015.
Sales and marketing
Stored Value
5.36 The Optimal Payments Group’s core stored value business is pursuing a marketing strategy
targeting high end customers transacting high volumes through the Optimal Payments Group’s
stored value platform (‘‘VIP Customers’’). In February 2012, the Optimal Payments Group
launched the NETELLERâ Reward Points Programme (the ‘‘Programme’’), an enhanced
loyalty cash-back programme which allows VIP Customers to earn points on their transactions
in the NETELLERâ e-Wallet accounts. Members of the Programme can then redeem these
points for merchandise, cash exchange, and other NETELLERâ provided services. The
Programme has allowed the Optimal Payments Group to attract and retain VIP Customers
and as at the Latest Practicable Date, the Optimal Payments Group’s VIP Customer base
was 9,366. The Optimal Payments Group also has a customer support team which is
dedicated to VIP Customers and is based in Sofia, Bulgaria. The VIP Customer service team
handles queries and communications from VIP Customers through a range of methods
including telephone, email and skype at the Optimal Payments Group’s interactive support
centre, with dedicated relationship managers for many VIP Customers.
5.37 The Optimal Payments Group’s business-to-customer marketing strategy includes incentivising
customers to make payments to merchants who promote NETELLERâ on their websites, to
upload funds into their e-Wallets and to request Net+ pre-paid cards. The business-tobusiness marketing strategy of the Optimal Payments Group involves promoting merchants
through email campaigns in specific markets, via monthly member and VIP newsletters and
through the Optimal Payments Group’s social media.
5.38 The Optimal Payments Group’s sales strategy in the gaming and foreign exchange sectors
includes integrating new key operators (such as in Italy, Greece, France, Australia and the
USA), and increasing its market shares with existing operators and affiliates by sharing costs
for co-branded marketing initiatives and improving placement and exposure on their websites.
The sales strategy also includes increasing the number of affiliates themselves, by offering a
life time revenue share model and offering affiliates exposure through the Optimal Payments
Group’s user base.
STP
5.39 For marketing its STP business, the Optimal Payments Group uses direct marketing and
selling, direct response, online services, online retail and online gaming to attract individual
clients. The Optimal Payments Group also focuses on strategic alliances in order to partner
and offer large groups of clients STP payment services, for example with banks, software
providers and ecommerce platforms.
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6.
THE ENLARGED GROUP’S KEY STRENGTHS AND STRATEGY
Key strengths
6.1
The Directors believe that the Enlarged Group would have a number of key strengths,
including the following:
Market Scale
As at 30 September 2014 (assuming that the Acquisition had taken place at that time), the
Enlarged Group would have operated an established payments platform with over 26 million
registered customer accounts, of which over 7 million are held by active customers, and over
57,000 active merchants. The Directors believe that this developed network is mutually
beneficial for both the Enlarged Group and its customers as it provides an efficient way for
merchants to gain access to a valuable and growing customer base, whilst also driving the
increasing usefulness and attractiveness of the digital wallet to customers as they can use it
in transactions with a wider selection of merchants, thus resulting in compelling network
effects.
The Enlarged Group would operate one of Europe’s leading digital payments companies
providing an independent digital wallet platform with significant international scale and reach.
The Enlarged Group would also demonstrate a strong position within the online gambling
vertical, including in North America, through its payments processing and stored value
businesses. The Enlarged Group would offer its comprehensive digital payments product
portfolio in over 200 countries and territories leveraging partnerships with over 20 banks and
payment providers (as at 30 September 2014, assuming that the Acquisition had taken place
at that time). The Enlarged Group’s digital payments platform would be used by customers
and merchants in all major European Union countries and other key geographies such as
Asia and North America.
The Enlarged Group will benefit from a proprietary digital payments technology platform and
intellectual property suite, representing significant development investment from the Optimal
Payments Group and the Skrill Group. The digital payments technology platform is connected
to a broad network of banks and payment processors across multiple countries and regulatory
environments, all of which can be easily integrated within a merchant’s existing technology
offering using a PCI DSS certified global payment integration solution. The technology
platform and infrastructure reflects the significant time, effort, resources and level of process
engineering invested to provide such broad coverage and reach.
The Enlarged Group’s breadth of offering in terms of choice of payment types (for example,
credit cards, debit cards and bank transfers), multi-currency options and languages offer an
attractive selling proposition to merchants.
Customer Diversification
Historically Optimal Payments has derived a substantial proportion of its revenue from a
single merchant providing services into a single geographic area (China), representing 34 per
cent. of FY2012, 41 per cent. of FY2013 revenue and 36.7 per cent. of FY2014 revenue. The
Skrill Group derived 6 per cent. of FY2012 and 7 per cent. of FY2013 revenue from the same
merchant. Whilst the acquisitions of Meritus Payment Solutions and Global Merchant
Advisors, Inc. by Optimal Payments in July 2014 decreased the proportion of its revenue
derived from the single merchant to approximately 27 per cent. for the period of 1 August
2014 to 31 December 2014, the Acquisition is a further major step forward in reducing the
Optimal Payments Group’s customer concentration and mitigating principal customer exposure
and risk, whilst establishing a well-rounded and broad customer base diversified across
individual merchants, geographic regions and business verticals. In respect to presence in
business verticals, the Skrill Group has a presence in the digital media segment that would
be directly additive to the Optimal Payments Group’s more focused customer base. The
combination of customer bases specifically addresses the Optimal Payments Group’s existing
customer risk management strategy of developing a diversified customer portfolio.
Geographic Diversification
There is a complementarity in the Optimal Payments Group’s and the Skrill Group’s
geographic areas of operation and revenue generation, stemming from a low overlap of
competing presence in multiple regions and individual footholds in specific geographies. The
Skrill Group is a European leader in the digital wallet offering, generating (adjusted for the
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paysafecard acquisition), 74 per cent. of FY2012 and 74 per cent. of FY2013 revenue from
this geography. Within Europe, Germany contributed 21.2 per cent. of FY2012 and 20.2 per
cent. of FY2013 revenue. The Optimal Payments Group, on the other hand, whilst having a
significant presence in the European market, also services organisations that have customers
in Asia, catering to online gambling merchants and generating 40 per cent. of FY2012 and
46 per cent. of FY2013 revenue from this region. Optimal Payments is also well placed to
capitalise on expected growth in the North American regulated online gambling market, having
launched its NETELLERâ and Net+ products in the US in March 2014. Strong adoption by
online gambling merchants has been evidenced in the three states in the US which have
regulated online gambling. The Acquisition will, therefore, fortify an already significant
presence in the European market, whilst providing a more geographically diversified revenue
base, alleviating political and jurisdictional risk, in particular those pertaining to the more
regulated vertical of online gambling. The Acquisition also offers the opportunity to enter new
geographies for the Optimal Payments Group’s and the Skrill Group’s combined product
offering, leading to a wider opportunity for revenue generation.
As an illustration of this, the Optimal Payments Group derived approximately 21 per cent. of
its revenue from Europe, 27 per cent. of its revenue from North America (including Canada)
and the remaining 52 per cent. of revenue from the rest of the world in the twelve month
period ended 31 December 2014.
The Skrill Operating Group derived approximately 92 per cent. of its revenue from Europe,
2 per cent. of its revenue from North America and the remaining 6 per cent. of its revenue
from the rest of the world in the rolling twelve month period ended 30 September 2014
(based on the unaudited pro forma financial information for such rolling twelve month period
contained in Part XII (Unaudited Pro Forma Financial Information) of this document and
excluding non-attributable revenue of $57.3 million which includes among other things FX
spread income and rebates).
On the basis of these figures, the Enlarged Group, on a pro forma basis, would have derived
approximately 52 per cent. of its revenue from Europe, 16 per cent. of its revenue from North
America (including Canada) and the remaining 32 per cent. of revenue form the rest of the
world.
Profit Margin Expansion and Increased Scaleability
The Optimal Payments Group and the Skrill Group enjoy high gross margins of 52.0 per cent.
and 59.5 per cent. of FY2013 revenues respectively, reflecting the high inherent level of
operating leverage afforded by their business models. Payment processing exhibits higher
variable processing costs than the stored value division, and as such the Skrill Group has a
higher overall gross margin as the stored value segment constitutes the majority of its
revenue. The Skrill Group’s FY2013 gross margin trends higher towards the 70 per cent. level
when viewed on an isolated basis, after removing paysafecard and Payolution. Therefore, the
Directors believe that the Acquisition would offer the Optimal Payments Group immediate
margin expansion as a result of the Enlarged Group’s business mix.
The Optimal Payments Group and the Skrill Group operate highly scalable business models,
where revenue streams are generated via merchant and customer fees relating to fund
movements on the digital wallet platforms and via transactional processing. The stored value
segment is characterised by low variable costs, which, given the established merchant
relationships and customer reach and penetration, enables the Enlarged Group to increase its
scale considerably. The gross margin of the Optimal Payments Group’s stored value segment
was 78 per cent. of FY2012 revenues, 84 per cent. of FY2013 revenues and 85 per cent. of
revenues for FY2014. The gross margin of the Optimal Payments Group’s STP business was
42 per cent. of FY2012 revenues, 42 per cent. of FY2013 revenues and 41 per cent. of
revenues for FY2014.
Integration Benefits
The Company has a strong team of Executive Directors who have a track record of
integrating acquisitions. The Directors believe that the principal integration benefits of the
Acquisition will arise mainly from the delivery, over the medium term, of operational
efficiencies across the Enlarged Group. On the basis of conservative assumptions targeting
clear cost savings opportunities, the Company is targeting on-going cost savings synergies of
approximately US$40 million per annum by the end of FY2016, with expected one off costs of
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approximately US$26 million by end of FY2016 to achieve these synergies. The Company’s
synergies estimate has been reviewed by one of the ‘‘Big Four’’ accounting firms. In addition
to this, the Directors believe there is potential to generate additional revenue from the crossselling of products to merchants and customers after completion. Given the scale of the
Enlarged Group, the Directors believe that the operational efficiencies will be achieved
primarily through reducing duplicated central costs and combining corporate support functions
where appropriate. An integration team is ready to execute on identified synergy opportunities
immediately following completion of the Acquisition. Furthermore, due to the businesses’
digital payment platforms relying on technology software applications and hardware, in the
medium term operational efficiencies can also be achieved through the consolidation of Skrill’s
PSP and the migration onto a single consolidated IT infrastructure platform (in particular, the
migration of merchants from the Skrill Group’s PSP to the Optimal Payments Group’s
NETBANXâ platform) and, in the long term, operational efficiencies can be achieved by
running Skrill’s e-Wallet from the consolidated IT infrastructure platform and consolidating
technology stacks and modules such as KYC, AML and risk management functions. Whilst it
is currently assumed by the Directors that the Optimal Payments and Skrill brands will remain
separate following the Acquisition, it is expected that consolidation and rationalisation of the
respective brands will be considered in the long term and this may lead to further operational
and IT related synergies. Finally, the Directors believe that the Enlarged Group will benefit
from a reduced requirement to conduct sales and marketing initiatives and cash back and
promotional programmes in the stored value division, due to the natural customer acquisition
and retention improvements that arise out of the Acquisition.
The Directors believe that, taking into account the business and prospects of the Enlarged
Group, the Acquisition will be accretive to adjusted earnings per share from the first full fiscal
year following Completion. This statement is not intended to be a profit forecast, and should
not be interpreted to mean that the earnings per share of Optimal Payments following
Completion will necessarily be above or below the historical published earnings per share.
However, whilst the opportunity for operational efficiencies are an integration focus for Optimal
Payments’ management, the key focus is to ensure that the Acquisition is effected without
undue disruption to the product development, sales, support and administrative functions of
the Enlarged Group.
6.2
Strategy
Future strategy of the Enlarged Group
Creation of a leading payments provider across a wide addressable market
The Directors expect that the Enlarged Group will be a more diversified, vertically integrated
payments provider with the capability to facilitate payments across a wide addressable
market. The Enlarged Group will be a provider of global payment solutions at key points in
the funding chain, specifically with respect to pre-funding, immediate funding and future
funding transactions. Prepaid funding is made possible via paysafecard and Ukash, allowing
customers to pre-fund their digital wallets by purchasing vouchers from retail outlets. This
prepaid solution particularly appeals to customers who prefer not to use their credit or debit
cards for online transactions. This provides additional ‘‘money-in’’ opportunities for customers.
The Enlarged Group’s ability to provide immediate funding solutions is expanded due to the
combination of Optimal Payments and Skrill’s digital wallet and payment processing solutions,
the latter of which would benefit from Optimal Payments’ principal acquirer status, which
allows the Optimal Payments Group to directly acquire merchant accounts without the need
for an acquiring bank, and to process Visa and MasterCard payment transactions in the UK
and the EU for merchants of the Optimal Payments Group. The combined stored value
division will provide a broader and more international solution to customers, ensuring
customers have a range of payment options each of which allow customers to make
immediate payments using their digital wallets. Payolution provides the Enlarged Group with a
future funding solution by enabling merchants to extend credit to customers to pay later via
invoice once the goods have been received. The provision of point-of-sale financing to
customers of e-commerce merchants would broaden the type of payment transactions the
Enlarged Group could target, thereby expanding strategic growth opportunities.
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Stored Value
The Directors believe the Enlarged Group will be a leading player in the provision of digital
wallets to merchants and customers. Exposure to business verticals is broadened and
diversified away from reliance on online gambling to also cover digital media and ecommerce. The Enlarged Group will also seek to focus on the online gambling opportunity,
particularly in the North America region.
Payment Processing
The combination of the Optimal Payments Group’s and the Skrill Group’s complex payment
processing networks will provide the Enlarged Group with improved penetration and reach into
new and existing markets, in addition to accelerating the on-boarding of new merchants
through network effects. The Enlarged Group’s strategy will be to monetise the increased
scale of the Enlarged Group’s processing offering, leveraging its critical mass and
diversification to attract new merchants. Furthermore, the Enlarged Group will seek to
implement its existing acquiring relationships across as many new and, where possible,
existing transactions as possible to drive gross margin expansion.
Expected growth in North American online gambling markets
Since the 2011 ruling from the US Department of Justice that the Wire Act only applies to
online sports gambling, certain US states have sought to introduce regulations for online
gambling, with Nevada, Delaware and New Jersey leading in this area and New York,
California and Pennsylvania expected to follow suit. The opening of the US regulated online
gambling market presents a significant opportunity for Optimal Payments and the Enlarged
Group to grow its operations which provide payment processing and risk management
solutions to regulated online gambling merchants. The Optimal Payments Group’s offering
brings together a suite of products encompassing operators’ requirements, from compliance to
payment processing and fraud management. The end-to-end customer solutions for traditional
operators are well positioned to capitalise on potential online markets. The Optimal Payments
Group currently processes online gambling payments in Nevada, New Jersey and Delaware,
with Sutton Bank carrying out the regulated money transmitting service on behalf of the
Optimal Payments Group. The Optimal Payments Group is registered as a vendor by the
Division of Gaming Enforcement in New Jersey and the Optimal Payments Group also
provides services to Lotto Quebec and the Ontario Lottery Group in Canada and is registered
as a non-gaming related supplier by the Alcohol and Gaming Commission of Ontario. The
Optimal Payments Group currently derives an immaterial proportion of its revenue from the
US regulated online gambling industry but it would seek to capture immediate market share in
new markets formed from further state-by-state deregulation.
The Optimal Payments Group also intends to acquire Skrill USA Inc. following Completion in
order to expand its offering in the United States. Prior to Completion, the Skrill Group will
undertake a restructuring to transfer Skrill USA Inc. outside the Skrill Group. Completion of
the Acquisition will be conditional on Skrill USA Inc. being transferred outside the Skrill Group.
The consideration for the transfer of Skrill USA Inc. outside the Skrill Group will be left
outstanding as an inter-company loan between Skrill Holdings Limited and Sentinel Group
Holdings S.A. In addition, Skrill Holdings Limited will provide Skrill USA Inc. with an intercompany funding loan for working capital purposes. Once the transfer of Skrill USA Inc.
outside the Skrill Group has completed, the Optimal Payments Group will have a period of six
months following Completion to obtain the required approvals in connection with Skrill USA
Inc.’s money transmitter licences from the relevant US states or territories in order for Skrill
USA Inc. to be transferred to Skrill Holdings Limited. In the event that Skrill Holdings Limited
repurchases Skrill USA Inc. after Completion, the consideration for that transfer will be the
release of Sentinel Group Holdings S.A.’s obligation to repay the inter-company loan. If Skrill
Holdings Limited has not obtained the relevant consents to enable Skrill USA Inc. to be
transferred to Skrill Holdings Limited within the six month period following Completion,
Sentinel Group Holdings S.A will be permitted to sell Skrill USA Inc. to a third party. In the
event Skrill USA Inc. is sold to a third party, Sentinel Group Holdings S.A. will use reasonable
endeavours to sell Skrill USA Inc. for the best possible purchase price, and the proceeds of
that sale shall be used to repay the inter-company loans put in place between Skrill Holdings
Limited and both Sentinel Group Holdings S.A. and Skrill USA Inc., and any excess intercompany loan amount that remains outstanding (whether relating to the working capital loan
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or the consideration for the transfer of Skrill USA Inc.) shall be waived by Skrill Holdings
Limited. If Skrill USA Inc. is sold to a third party, the Optimal Payments Group intends to
commence applying for its own money transmitter licences in the US in order to enable it to
process payments in the US. The Optimal Payments Group has already obtained money
transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho.
Seeking opportunities for inorganic growth
The Directors believe the Enlarged Group will be in a position to establish itself as a natural
market consolidator. Following Completion and integration of the Acquisition, the Directors
may seek to identify strategic acquisition and investment targets with a view to further
consolidating the digital payments industry by considering the acquisition of payment-related
companies and/or complementary technologies, which may expand the geographical reach
and customer base of the Enlarged Group and/or increase the technical capabilities or
products of the Enlarged Group. In February 2015, Optimal Payments signed a non-binding
letter of intent in respect of a small potential acquisition in furtherance of this strategy. The
proposed acquisition target specialises in mobile technology development and offers
consultancy services. The consideration for the proposed acquisition, if it proceeds, is
intended to be satisfied by the issue of Ordinary Shares.
6.3
6.4
Future strategy of the Optimal Payments Group if the Acquisition does not proceed
In the event that the Acquisition does not proceed, the Optimal Payments Group intends to
continue implementing its strategic initiatives in order to ensure continued growth across its
business lines. The Directors believe that the continued implementation of these initiatives in
the medium to long term will lead to increased growth and assist in helping the Optimal
Payments Group to achieve its vision of becoming a leading provider of payment processing
services.
There are four key elements which underpin the Optimal Payments Group’s strategic initiative:
(a)
increased growth in core business lines;
(b)
the development of multi-channel solutions;
(c)
seeking a strong presence in the US gambling market; and
(d)
seeking opportunities for inorganic growth and diversification.
Increased growth in core business lines
The Optimal Payments Group intends to focus on developing customer relationships and
increasing the volume of business from its existing customers. The Optimal Payments Group
intends to increase revenues from its existing customer base by continuing to improve the
quality and range of payment services and features it offers to its customers, including
offering different local payment options to merchants, which vary according to the customer’s
home country. The Optimal Payments Group proposes to strengthen its relationship with
merchants by marketing to them the Optimal Payments Group’s payment products which are
not being offered on the merchants’ websites.
The Optimal Payments Group uses a variety of methods to win new customers: targeting
niche trade shows such as retail, digital download, travel, subscription, online dating, online
gambling and the ‘‘not for profit’’ market; targeting banks directly for channel deals; and
actively seeking and responding to requests for proposals.
One of Optimal Payments’ objectives is to strengthen its presence in the US market in order
to support North American growth. The completion of the US Acquisitions in July 2014 formed
part of this strategy and has further strengthened the Optimal Payments Group’s capabilities
in North America, in furtherance of achieving this objective.
Multi-channel solutions
Optimal Payments is focused on further developing and providing mobile functionality for its
NETELLERâ and Net+ service in order to mirror the increasing number of transactions being
made from mobile devices and tablets. In FY2013, approximately 30 per cent. of NETBANXâ
e-commerce transactions were initiated on a mobile or smart device. The accelerating
adoption of smartphone technology means that merchants must be equipped to provide a
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multi-channel approach to e-commerce. During FY2013 and FY2014, the Optimal Payments
Group dedicated a significant amount of money and resources in order to assist with the
development of a multi-channel payment solution.
Seeking a strong presence in the US gambling market
Since the 2011 ruling from the US Department of Justice that the Wire Act only applies to
online sports gambling, certain US states have sought to introduce regulations for online
gambling, with Nevada, Delaware and New Jersey leading in this area and New York,
California and Pennsylvania expected to follow suit.
Optimal Payments currently processes online gambling payments in Nevada, New Jersey and
Delaware, with Sutton Bank carrying out the regulated money transmitting services on behalf
of the Optimal Payments Group. The Optimal Payments Group currently derives an immaterial
proportion of its revenue from the US regulated online gambling industry but it would seek to
capture immediate market share in new markets formed from further state-by-state
deregulation. In the event that the Acquisition did not complete, the Optimal Payments Group
would commence applying for its own money transmitter licences in the US in order to enable
it to process payments in the US. The Optimal Payments Group has already obtained money
transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho.
Seeking opportunities for inorganic growth and diversification
As part of its ongoing growth strategy, the Optimal Payments Group will continue to monitor
the market in order to identify strategic acquisition and investment targets. In particular, the
Optimal Payments Group may participate in the ongoing consolidation of the digital payments
industry by considering the acquisition of payment-related companies and/or complementary
technologies, which may expand the geographical reach and customer base of the Optimal
Payments Group and/or increase the technical capabilities or products of the Optimal
Payments Group.
7.
7.1
PRINCIPAL MARKETS
The Optimal Payments Group has operations in Europe and North America and derives
revenue from more than 200 countries and territories around the world. The Optimal
Payments Group’s core stored value business is operated from offices within Canada and
Europe and the core STP business is operated from offices within Europe, Canada and the
US.
7.2
Geographical expansion forms a key part of the Optimal Payments Group’s growth strategy.
The Optimal Payments Group currently operates principally in Europe, Canada and the US,
which accounts for the significant majority of the Optimal Payments Group’s revenues. The
Optimal Payments Group’s principal operating subsidiaries are located in the UK, the Isle of
Man, Canada and the US.
7.3
In FY2014, the Optimal Payments Group derived 21 per cent. of its revenue from Europe,
27 per cent. of its revenue from North America (including Canada) and the remaining revenue
from the rest of the world. The Optimal Payments Group’s revenues derived from its largest
merchant (which offers its services in China) are accounted for in its European revenues due
to the merchant being located in Europe (US$133.8 million, US$104.9 million and US$59.7
million for each of the years ended 31 December 2014, 31 December 2013, and 31 December
2012 respectively). The Optimal Payments Group does not operate directly in China and
relies on the services of an outsourced service provider to allow the Optimal Payments Group
to continue to provide services to its largest merchant. The Optimal Payments Group plans to
expand its product and service offerings to further penetrate its core European market and to
expand internationally, including in the US.
7.4
The Optimal Payments Group operates in a sector characterised by the dominance of a few
key global operators, such as Paypal, Worldpay and Wirecard, with a number of smaller
companies offering niche or specialist digital payment solutions to specific local geographies
or business verticals or through narrower, more targeted payment product offerings, such as
Yandex, Dineromail and Frontstream.
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7.5
Stored Value
The Optimal Payments Group has positioned itself as a truly global digital wallet provider with
a merchant offering that demonstrates international reach and direct relationships with
customers. As such, the Optimal Payments Group principally competes with other global
digital wallet providers, most notably Skrill and PayPal, although PayPal is a significant player
in the e-commerce vertical. The stored value market displays fragmentation on a geographic
basis with a host of local digital wallet providers in various regions, including Alipay in China,
DineroMail in Latin America and Yandex in Russia. These localised stored value providers are
direct competitors to the Optimal Payments Group in specific geographies but are not
considered to be material competitors by virtue of their narrower focus.
7.6
In terms of sector presence, the Optimal Payments Group’s digital wallet offering derives a
significant proportion of its revenues from online gambling and foreign exchange solutions,
where it principally competes with Skrill, partly due to their similar user demographics. This
can be encapsulated as 25 to 35 year old males with a relatively high risk appetite for trading
foreign exchange and online gambling and a focused approach on VIP Customers. The
Optimal Payments Group also operates its digital wallet proposition within the global digital
goods vertical, although this exhibits a multitude of e-commerce payment providers as there is
a distinct lack of interference points, supporting a fragmented stored value ecosystem catering
to specialist audiences or geographies.
7.7
Additionally, the Optimal Payments Group faces competition from alternative payment
providers providing local payment options on a global scale, namely payment aggregators
including Worldpay, Adyen and Global Collect. Although these payment aggregators do not
offer a directly competing digital wallet product, with the key difference being that their
solution is not offered on a pre-funded basis, their payment solutions are alternatives to digital
wallets and therefore could compete with the Optimal Payments Group’s products and
ultimately win market share.
7.8
The Optimal Payments Group is seeking to capitalise on the evolving regulated online
gambling market in the United States as well as expanding its digital wallet presence into
areas such as retail, online gambling, digital download, travel, fantasy sports, subscription,
online dating and the ‘‘not for profit’’ market. The Directors believe that the Optimal Payments
Group is currently well-positioned to benefit from these future growth initiatives, particularly
following the completion of the US Acquisitions, bolstering its United States scale and
payment capabilities.
7.9
The Optimal Payments Group’s Card Services division is based in the UK but the Optimal
Payments Group is licensed to issue prepaid solutions throughout the Single European
Payment Area (‘‘SEPA’’). The Optimal Payments Group faces competition from other prepaid
card issuers operating within the SEPA such as MasterCard, Wirecard and Euronet. The
Optimal Payments Group is in a position to respond positively to increasing competition as it
offers prepaid cards in multiple currencies and is in a position to offer customised physical
and virtual prepaid cards, thereby improving customer engagement and providing opportunities
for merchants to provide their online customers with special offers and promotions.
Straight Through Processing
7.10 The Optimal Payments Group’s primary market in its STP division is the ‘‘cardholder not
present’’ segment, where it faces competition from other global payment service providers
such as Worldpay, Wirecard and Digital River. The Optimal Payments Group benefits from
the ability to provide access to acquiring banks and risk mechanisms in multiple countries and
territories, establishing a portfolio of higher and lower risk merchants creating a diversified risk
profile for both the acquiring banks and the Optimal Payments Group itself. Specifically, Skrill
is not seen as a competitor within this market, as its offering and presence is currently
minimal. Given the Optimal Payments Group’s Principal Membership with Visa Europe and
MasterCard Europe, allowing it to offer acquiring services to merchants in the European
Union, the competitive landscape may in the future include acquiring banks, such as Barclays,
AIB and Deutsche Bank once the Optimal Payments Group grows its acquiring services
business. The Optimal Payments Group’s provision of STP includes the Asia Gateway
service. Other than the Asia Gateway service, the majority of Optimal Payments’ merchants in
the STP business are non-gambling merchants transacting online although Optimal Payments’
largest STP merchant is an online gambling merchant. The remainder of Optimal Payments
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Group’s STP merchants operate in a range of verticals including retail, digital download,
travel, subscription, online dating, online gambling and the ‘‘not for profit’’ market, where
FrontStream is a key competitor.
7.11 The Optimal Payments Group’s Asia Gateway service is provided through an outsourced
service provider to merchants which in turn provide services within China. The Optimal
Payments Group does not maintain any direct relationships in China and therefore does not
directly compete within this market. The Optimal Payments Group’s largest merchant uses the
Asia Gateway service and operates within the online gambling market. The Asia Gateway
service is provided to a number of European and Australasian based merchants.
8.
PRINCIPAL INVESTMENTS
In the period between 1 January 2012 and the Latest Practicable Date, Optimal Payments
acquired the following investments:
(a)
Optimal Payments acquired Meritus Payment Solutions, a payment processing entity
based in California on 23 July 2014 for a sum of US$210 million, with US$150 million
payable in cash and US$60 million of shares in Optimal Payments to be issued to the
sellers over a four year period beginning on the first anniversary of the completion date
under the sale agreement (the ‘‘Meritus Acquisition’’);
(b)
Optimal Payments also acquired the trade and assets of GMA, a US based online
payments company, on 23 July 2014 for up to US$15 million in cash, US$10 million of
which was payable on completion of the acquisition and the balance based on future
performance of the business (the ‘‘GMA Acquisition’’ and together with the Meritus
Acquisition, the ‘‘US Acquisitions’’); and
(c)
Optimal Payments completed the acquisition of Petal Payments Limited (now known as
Optimal Payments Merchant Services (Mauritius) Limited) for a sum of £750,000 in cash
(the ‘‘Mauritius Acquisition’’), payable to the seller on completion of the acquisition.
The Mauritius Acquisition completed on 15 October 2014.
Further details of the Meritus Acquisition, the GMA Acquisition and the Mauritius Acquisition
are contained in paragraph 14 of Part XVI (Additional Information) of this document.
9.
9.1
THE OPTIMAL PAYMENTS GROUP’S DEBT FACILITIES
The existing indebtedness of both the Optimal Payments Group and the Skrill Group will be
refinanced as part of the Acquisition. As set out in paragraph 4 of Part I (Letter from the
Chairman of Optimal Payments plc) and in Part XIII (Capitalisation and Indebtedness) of this
document, as at 31 December 2014, the Optimal Payments Group had total indebtedness of
$132.8 million and cash balances of $151.1 million and as at 31 December 2014, the Skrill
Group had total indebtedness of $770 million and cash balances of $68.4 million (including
shareholder indebtedness of US$435 million consisting of loan notes and preference shares.
The loan notes will be redeemed as part of Completion and the preference shares will be
acquired by Optimal Payments as part of the Acquisition). Taking into account total estimated
transaction costs of the Optimal Payments Group and the Skrill Group and a redemption of
approximately e22 million of loan notes issued by Sentinel Holdco 2 Limited to Sentinel Group
Holdings S.A. that took place prior to the date of the Acquisition Agreement, the aggregate
net indebtedness of the Enlarged Group following Completion is estimated to be
approximately US$615 million.
9.2
Details of the Existing Credit Facilities and the New Credit Facilities are contained in
paragraph 14.1 of Part XVI (Additional Information) of this document.
10. CORPORATE AND SOCIAL RESPONSIBILITY
10.1 Optimal Payments is committed to integrating corporate social responsibility within its
businesses, supporting the continued generation of sustainable value and enhancing the
Optimal Payments Group’s ability to deliver on its strategic objectives. The Directors believe
that the Optimal Payments Group’s true value is reflected not simply by its balance sheet but
through its intangible assets such as goodwill, the Optimal Payments Group’s people and the
Optimal Payments Group’s reputation.
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10.2 Although Optimal Payments is a low impact company due to the online nature of its services,
it is committed to minimising its environmental impact by, for example, deploying high
efficiency servers, ensuring computer and electrical equipment is switched off when not in
use, recycling bottles and cans, discontinuing the use of paper cups at employee coffee
stations and using environmentally-friendly cleaning products.
10.3 As an employer with several offices around the world, Optimal Payments seeks to support the
communities where Optimal Payments has operations by supporting local charities in these
regions and aim to match charitable fundraising by individual employees. During FY2013, the
Optimal Payments Group directly contributed US$90,620 to directly support 30 charitable
causes and continued to encourage employees to participate in charitable endeavours.
Optimal Payments has also initiated micro-lending sponsorships to entrepreneurs through Kiva
Microfunds in order to provide individuals with opportunities to become economically
independent, improve their standard of living and alleviate poverty. Optimal Payments has
advanced over 413 loans totalling over US$40,000 to individuals in more than 50 countries.
10.4 By embracing policies and behaviours governing social responsibility, Optimal Payments
creates more valuable relationships with its stakeholders by demonstrating its focus on
managing material non-financial risks in its business.
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PART VI
ONLINE GAMBLING REGULATION
This section provides a description of the legal and regulatory environment as it applies to the
supply of online gambling services. As well as the following general descriptions, attention is drawn
to the section headed ‘‘Risk Factors’’ on page 15 of this document which describes specific risks
associated with the operations of the Optimal Payments Group, the Skrill Group and the Enlarged
Group and in particular, the risk factor contained on page 16. Note in this section the reference to
gambling indicates betting and casino gaming, poker, slots, bingo and lottery.
1.
1.1
OVERVIEW
Online gambling is the newest and fastest growing part of the world gambling industry and
the regulatory environment to which the online gambling industry is subject is in a state of
constant development. The regulation and legality of online gambling varies significantly from
jurisdiction to jurisdiction as a variety of jurisdictions seek to regulate and tax gambling
transactions and such laws and regulations are often subject to conflicting interpretations.
Some jurisdictions have sought to prohibit certain types of online gambling or online
gambling in its entirety.
1.2
Neither the Optimal Payments Group nor the Skrill Group operates a gambling company and
as a result in most jurisdictions does not require any gambling licences or associated
regulatory permissions. However, the Optimal Payments Group’s NETELLERâ business
offers an online alternative to traditional payment methods and NETELLERâ’s customers
(being both the end users and operators or merchants) are primarily engaged in the online
gambling industry. In addition, on 3 March 2014, the Optimal Payments Group launched a
NET+ prepaid card stored value product in the US market aimed in part at the licenced US
online gambling market. Similarly, a material number of the transactions facilitated by the
Skrill Group’s e-Wallet platform relate to online gambling and the Skrill Group’s paysafecard
is a prepaid cash voucher product which can be used for online gambling. In FY2014 and
the nine month period ended 30 September 2014, the Optimal Payments Group and the
Skrill Operating Group derived approximately 55 per cent. and 53 per cent., respectively, of
their revenue directly or indirectly from processing transactions for merchants and customers
in the online gambling sector.
1.3
The global online gambling market is characterised by regulatory inconsistencies across
many jurisdictions and frequent changes in the laws and regulations governing online
gambling. Given the importance of the online gambling sector to the business of the
Enlarged Group, both the Optimal Payments Group and the Skrill Group expend significant
time and resources to ensure that they have an in-depth understanding of the regulatory
environment in the main territories in which their gambling industry merchants operate and
customers reside, monitoring closely the developing regulatory regimes in those territories
and adapting their own business acceptance policies where necessary. It is intended that a
refreshed review of the Enlarged Group will be undertaken as soon as practicable to ensure
consistency across the merged entities.
2.
2.1
RISK ASSESSMENT PROCESS: SKRILL GROUP
The Skrill Group has systems in place to identify the geographic locations of its customers,
identify the regulatory system to which such customers are subject and then determine
whether such customers should be permitted to transact payments for online gambling
through the Skrill Group’s system. The Skrill Group is able to use its technology platform to
ensure that where it has taken a decision, for legal and/or policy reasons, not to accept
gambling transactions from customers in particular territories, it can implement those
decisions rigorously.
2.2
Before the Skrill Group accepts business from merchants or customers for gambling
activities, the Skrill Group is careful to assess the risk for the Skrill Group of accepting such
business. The Skrill Group’s determination as to whether or not to permit online gambling
customers in a given jurisdiction to access the Skrill Group’s services is based on a number
of factors. These factors, among others, include the Skrill Group’s understanding of:
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2.3
2.4
(a)
what licences are held by the merchants and the strength of their legal position that the
licences permit their activities or that no licence is required;
(b)
the laws and regulations of the jurisdiction where the merchants and customers are
located, interpreted in accordance with applicable law;
(c)
the approach to the application or enforcement of such laws and regulations by
regulatory and other authorities, including the approach of such authorities to the
extraterritorial application and enforcement of such laws;
(d)
the willingness of online gambling merchants and other e-money and/or payment
processing businesses to offer their services for gambling purposes in a particular
jurisdiction;
(e)
the willingness of financial institutions in the Skrill Group’s network (principally banks
and card payment companies) and the Skrill Group’s competitors to process funds in
relation to online gambling by customers in a particular jurisdiction;
(f)
the cultural and religious characteristics of the jurisdiction in question which may
determine or influence whether or not gambling is accepted; and
(g)
the potential for a challenge of a local licensing regime based on the Treaty of the
Functioning of the European Union (‘‘TFEU’’).
When the legal position is unclear, the Skrill Group will consider the above factors and make
a decision whether to do business based on a review and weighting of the above factors.
The Skrill Group re-evaluates its assessment of individual jurisdictions as required and the
categorisation applied and may change its view. For example, the Skrill Group considers
planned changes to legislation or court judgments which may affect its categorisation of any
jurisdiction, and its willingness to transact gambling payments for customers located there.
Such reviews take place as soon as practicable after becoming aware of them and when a
review can meaningfully be undertaken. These reviews comprise the solicitation of legal
advice (and updated advice) as well as the assessment of market intelligence which are then
assessed by the Skrill Group’s Business Conduct and Risk Committee and recommendations
made to the board of directors of Sentinel Bidco Limited. Other gambling operators,
regulators and other payments businesses and financial institutions may however take a
different view of the legal environment in any particular jurisdiction. In this regard, the Skrill
Group has created and uses the following three categories of classification:
Prohibited markets and operators
The Skrill Group regards more than 60 countries as ‘‘prohibited’’ as a result of the strict
regulation of online gambling in that country or other legal or cultural risk issues with offering
its services in that country. Where the Skrill Group classifies a market as prohibited, such as
Canada, China, Malaysia, the U.A.E., Israel, Iraq, Iran, North Korea or Turkey, the Skrill
Group may, depending on the market, either decline any customers in that market
(irrespective of whether the end user intends to use the products and services for gambling)
or decline to accept any illegal gambling related transactions from customers in prohibited
markets. The Skrill Group’s technology includes functionality which identifies the source of
originating transactions and is able to block any gambling related business from any markets
classified as prohibited.
2.5
In some jurisdictions, the Skrill Group has agreed not to support certain black-listed
operators after discussion with the relevant regulator overseeing the local licensing regime
and (in most cases) tasked with enforcing the licensing regime.
2.6
The Skrill Group has a policy in place to screen its customers upon customer account
registration against the Specially Designated Nationals list published by the Office of Foreign
Assets Control of the US Department of the Treasury and the HM Treasury sanctions list.
Decisions to add or remove countries from the Skrill Group’s prohibited list are taken on a
country-by-country basis and the Skrill Group adopts a risk based approach when making
such decisions and, amongst other things, will conduct an assessment of the legal
environment and assess the activities of operators, banks and other payment processors
within the market.
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2.7
2.8
2.9
The Skrill Group is currently conducting a review of its top 25 countries, by revenue, within
the online gambling sector, in order to determine whether the Skrill Group’s merchants and
customers activities are regulated and, if so, whether the Skrill Group can continue to
provide them with payment processing services.
Regulated markets and operators
A number of countries have introduced regulations that welcome online gambling companies,
provided they are licensed by the regulator in that country (as in Italy, the UK and Spain).
The Skrill Group accepts online gambling business in these types of countries provided the
merchant is licensed and treats the countries as a prohibited market if the merchant is
unlicensed. The Skrill Group’s approach to such operators will be dependent on its
discussions with the regulator in a specific market to ensure that such merchant is whitelisted (that is, known to the regulator as being licensed or not requiring a licence in order to
operate its business). The number of jurisdictions which fall within this category is increasing.
Several additional EU Member States are expected to be regulated in the next couple of
years.
Accepted markets
2.10 Where the market is not classified as either definitively regulated or prohibited, the Skrill
Group categorises it as accepted and as a result supports business processing payments in
relation to online gambling from such jurisdictions. An example of a market not being
definitely regulated is a market is which an online gambling licencing regime has been
implemented where the Skrill Group believes that the regime could be subject to challenge
under EU law, for example where only a limited number of operators have been granted
licences or impediments exist in the application process for which there is no obvious market
justification. The Skrill Group closely monitors the regulatory position in the major markets
which the Skrill Group has categorised as accepted markets to ensure that the level of risk
to itself, its merchants and customers is acceptable. To implement this monitoring process,
the Skrill Group has created an experienced team with in-depth industry knowledge, who
take a number of measures in order to ensure that they are well placed to make decisions
to accept or decline business in particular jurisdictions and to deploy the Skrill Group’s
technology platform in order best to apply these decisions. These measures include taking
specific legal advice, attending conferences and industry meetings, market studies on what
banks and other payment processors do, exploring the regulatory position with others in the
sector (including competitors and their own merchant base) and continually developing the
Skrill Group’s technology platform in order best to implement the Skrill Group’s business
acceptance policies. It augments this review with risk mitigation in ensuring that its
operations, people and assets are not located in jurisdictions (even temporarily) where it is
not clear that online gambling is legal.
2.11 In making the assessment for each relevant country, the Skrill Group will assess the risk in
the market, the approach of the Skrill Group’s competitors and the likelihood of enforcement
action being taken. The Skrill Group regularly reviews its categorisation of jurisdictions of
existing gambling merchants and customers as the regulatory environment within countries
changes over time which may, along with a potential change in the Skrill Group’s attitude
towards risk, result in the Skrill Group reconsidering its approach. It is also possible that,
while the Skrill Group’s assessment of a jurisdiction may not change, enforcement action
could still be taken against the Enlarged Group and/or its senior managers or directors,
depending upon the local laws in the relative jurisdiction.
3.
3.1
RISK ASSESSMENT: OPTIMAL PAYMENTS GROUP
The Optimal Payments Group also reviews legal risk in relation to its activities. It considers
the law (including its scope and applicability), any localised licensing regime, and
enforcement activity. It also reviews the business practices and credibility of its merchants’
business models.
3.2
Currently, the Optimal Payments Group categorises more than 40 countries and territories as
‘‘banned’’ or ‘‘non-serviced’’ in which customers cannot open NETELLERâ accounts as a
result of the legal or cultural risk issues arising from offering its services in that country (for
example, Iraq, Iran, Israel, Libya, North Korea, Syria and Zimbabwe) and a further five
countries in which it declines to accept any illegal gambling related business from its
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NETELLERâ customers as a result of the strict regulation of online gambling in that country
(for example, Singapore, Turkey, Canada, and prohibited US jurisdictions (all states except
Delaware, Nevada and New Jersey)). The Optimal Payments Group deploys BIN blocks and
geo location software to ensure compliance. The Optimal Payments Group also seeks to
manage its risk in other ways. For example, the Optimal Payments Group does not have any
direct relationships with any merchants or customers located in China and does not provide
services directly in China. As such, Optimal Payments treats China as a ‘‘non-serviced’’
country for its NETELLERâ business. In relation to the Optimal Payments’ NETBANXâ
business, and the Asia Payments Gateway, the Optimal Payments Group contracts with a
third party outsourced service provider who uses a network of local processors to process
the transactions for the merchants’ Chinese customers obviating the need for the Optimal
Payments Group to transact directly with those customers in China. Finally, it manages the
fiscal exposure of payments being blocked by contractually requiring some merchants to
absorb the risks of end user monies being frozen or declined in the banking system.
3.3
Optimal Payments periodically reviews its list of prohibited countries. Decisions to add or
remove countries from Optimal Payments’ prohibited list are taken on a country-by-country
basis and a risk based approach is taken when deciding whether to withdraw its services
from a particular country. Where appropriate, the Optimal Payments Group will also conduct
an assessment of the legal environment and assess the activities of operators, banks and
other payment processors within the market when taking such decisions.
3.4
After Completion, the Directors intend to conduct a new review of each of the countries in
which the Enlarged Group operates in order to determine whether any additional countries
should be considered to be prohibited countries due to the volume of the activity or the
extent of the operations carried out by the Enlarged Group within the relevant country. As
part of this review, the Directors will also consider the implementation of policies aimed at
reducing the risk of the Enlarged Group or any of its Directors becoming subject to any
investigations or enforcement proceedings.
4.
4.1
REGULATORY CHANGE: TRENDS AND OUTLOOK
Although the general trend in gambling regulation over the last ten years has been to seek
to restrict the activities of online-based operators, in the EU this has generally resulted in a
move towards controlled regulation, rather than absolute prohibition. For example, the
regimes in Italy and France have both moved away from state-run monopoly-based markets
to controlled regulation. In addition, online licensing regimes have been implemented in
Belgium, Bulgaria, Cyprus, Estonia, Latvia, Romania and Spain. Germany, Greece and
Poland have online licensing regimes but these have been the subject to EU legal challenge.
It should be noted not all regimes license all types of gambling products.
4.2
Changes in the regulation of online gambling in the markets described above and elsewhere
may impact the Optimal Payments Group and the Enlarged Group both positively (where the
markets are liberalised or become regulated) and negatively (where markets are restricted or
become prohibited). The Directors remain cautiously optimistic that future developments in
the regulation of online gambling around the world will likely provide enhanced growth
opportunities in the medium to long term. However, the Directors anticipate that in the short
to medium term, in certain territories, revenue will decrease during periods of uncertainty,
disruption or change while regulation is implemented and operators go through the process
of applying for and obtaining licences. Likewise, operators who fail to obtain licences may
elect to block the jurisdiction and additionally in circumstances where challenges against the
regime, invoking European law, have failed. In addition, the heavier taxes, compliance costs,
levies and licence fees which merchants are obliged to absorb will also cause businesses to
close, or reduce their ability to pay for the Optimal Payments Group’s and the Enlarged
Group’s products and services. The risk is mitigated by the high levels of geographic
diversification in the Optimal Payments Group and the Enlarged Group.
5.
COUNTRY SPECIFIC REGULATORY OVERVIEW
The following sections provide a summary of the legal and regulatory issues arising from the
material markets in which the Optimal Payments Group and the Skrill Group operates. For
the purpose of this document, the Enlarged Group’s material markets are considered to be
those jurisdictions from where the Directors believe that three per cent. or more of the
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Optimal Payments Group’s and the Enlarged Group’s revenue is (as at 30 September 2014,
assuming that, in respect of the Enlarged Group, the Acquisition had completed as at that
date) or, in the next two years may be ultimately derived. Following an overview of EU
gambling regulation and the relevant countries within the EU, the following summaries have
been set out in alphabetical order.
6.
6.1
EU GAMBLING REGULATION
The approach to the regulation of online gambling in Member States is inconsistent and
gambling is expressly excluded from directives which address other forms of pan-European
digital sales. There have been several attempts by regulatory authorities in Member States,
and by state licensees and monopoly operators, to apply domestic criminal, administrative
and unfair competition laws to prevent online operators licensed in other Member States from
operating in or providing services to customers within their territory. These attempts have
been contested by operators that have argued that the freedom of establishment and the
freedom to provide services under articles 49 and 56 of the TFEU allow them to supply their
services under licence from the authorities in one Member State to customers in another
Member State, and prevent them from being excluded from domestic licensing regimes on
grounds of nationality or otherwise.
6.2
Consequently, a large volume of litigation has been generated before the domestic courts of
many Member States. However, rulings have gone both ways (in favour of governments or
those making the challenge) and the only consistent findings in relation to gambling are first,
that there is no obligation upon Member States to mutually recognise the validity of nondomestic licences, and second, that there is a wide margin of discretion afforded to Member
States to determine its own laws and approach to online gambling unlike other products and
services. The Commission (the executive arm of the European Union) despite extensive
lobbying by the online industry has declined to recommend a directive to permit passporting
of online gambling in the same way as is permitted for certain financial services. Instead it
has elected to make a Recommendation to Member States (which does not have the force
of a Directive) that they find ways in which to find common standards for customer
protection. Again, despite the fact that the Commission has taken action against certain
Member States for non-compliance with the TFEU it has not resulted (in every case) with
revised laws, policies and regulations. However, such actions have tended to reinforce the
bases for operators who continue to justify a supply to the jurisdiction.
6.3
A number of Member States are introducing or have introduced specific provisions in their
national gambling laws concerning the blocking of payments between players and gambling
operators not authorised to offer their services in the relevant Member State. However, these
tend to be in the minority.
6.4
There are some Member States that have taken a relatively liberal approach to the
regulation of online gambling, such as Denmark, Italy, Spain and the United Kingdom. In
some Member States, such as Cyprus, online sports betting is regulated but other online
games such as online casino games are prohibited. However, the regulatory environment is
constantly evolving and some Member States such as Sweden and the Netherlands, are
considering a move towards a more liberal regime under which some types of online
gambling services are permissible. Online gambling operators must be licensed in order to
operate in these jurisdictions. There is therefore a risk that, by facilitating payments involving
merchants not licensed in that jurisdiction and their customers, the Enlarged Group may face
(accessorial) liability in relation to unlawful online gambling.
6.5
Other Member States, such as Finland, Norway and Portugal, take a much more restrictive
approach to the regulation of online gambling. Regulatory authorities in such jurisdictions
have sometimes taken a passive approach to enforcement of the prohibitions, in particular in
relation to operators established outside of the jurisdiction; others are more rigorous in their
approach. To date, such actions (if any) have largely targeted gambling operators or entities
with a local presence such as media companies and banks. However, processing payments
in connection with any online gambling in these jurisdictions may expose the Enlarged Group
to the risk of (accessorial) liability. It is possible that the restrictive regulations may be
challenged as being incompatible with the TFEU, however, it is uncertain whether such a
challenge would be successful, or that it would form a valid defence to a criminal
prosecution.
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6.6
Outside Europe there are no trade freedoms that support cross border activity as the
majority of territories exclude gambling from their obligations as members of the World Trade
Organisation under the General Agreement on Trade in Services.
7.
7.1
GERMANY
The Optimal Payments Group and the Skrill Group provide payment processing services to
customers engaged in online gambling activities in Germany. In Germany, there has been a
shift from a state monopoly system with an absolute ban on all online gambling services
towards a more liberal regime under which at least some types of online gambling services
are permissible. The CJEU rulings in the Carmen Media case (joint Cases C-317/07 et al,
C-46/08), in which the court raised doubts concerning the compatibility of the German state
monopoly on sports betting with EU law, increased the need for a change in the German
regulatory system of the 16 federal states.
7.2
Under the Gambling Act of Schleswig-Holstein (Gesetz zur Neuordnung des Glücksspiels),
which was valid between 1 January 2012 and 8 February 2013, 25 online sports betting
licences and 23 licences for online poker and casino games without a banker (casino games
with a banker are reserved for land-based casino licences) were awarded to domestic and
European operators for the state of Schleswig-Holstein. However, a new Interstate Treaty on
Gambling (Glücksspieländerungsstaatsvertrag, (‘‘Interstate Treaty on Gambling 2012’’) was
introduced on 1 July 2012, and Schleswig-Holstein became party to the Interstate Treaty on
Gambling 2012 on 8 February 2013. As such, as of 8 February 2013, the Interstate Treaty
on Gambling 2012 is applicable in all 16 federal states. The licences granted under the
Gambling Act of Schleswig-Holstein, however, remain valid for their duration (six years).
7.3
Pursuant to the Interstate Treaty on Gambling 2012, online casino games and poker are
prohibited. However, lotteries (subject to a state monopoly), horse race betting and sports
betting can be permitted on the internet (under certain restrictions, such as limits on stakes).
7.4
Furthermore, according to the Interstate Treaty on Gambling 2012, the state monopoly on
sports betting is suspended for an experimentation phase (initially until 30 June 2019). The
Interstate Treaty on Gambling 2012 provides that up to 20 concessions may be awarded to
(state and/or private) operators for the duration of the experimentation phase following a
tender. In notification proceedings under Directive 98/34/EC, the Commission raised concerns
about the compatibility of the online gambling regime of the Interstate Treaty on Gambling
2012 with European law. The tender process for the sports betting concessions was initiated
in August 2012 and after several delays, the competent authority (Ministry of the Interior and
Sport in Hesse) announced in September 2014 the 20 applicants to which they intend to
award the concessions. Most of the applicants not considered in the decision of the authority
filed for injunctive relief which was finally granted to at least one applicant by the
Administrative court of Wiesbaden (Verwaltungsgericht Wiesbaden) on 17 September 2014.
The court decided that the authority will need to refrain from awarding any concessions until
the court made its decision on the injunctive relief motion. The decision of the Administrative
court of Wiesbaden was upheld on appeal by the Higher Administrative Court Hesse
(Verwaltungsgerichtshof Hessen) in its decision of 7 October 2014.
7.5
According to the amendments to the German Horse Race Betting and Lotteries Act, which
also entered into force on 1 July 2012, online sports betting targeting German customers is
subject to a five per cent. tax on stakes, irrespective of whether the respective organiser
holds a licence.
7.6
Many operators licensed in other EU jurisdictions have continued to take German business,
relying upon the argument that the restrictions imposed by the Interstate Treaty on Gambling
2012 are in breach of European market freedoms and therefore unenforceable and that the
tender process for the sports betting concessions fail to meet fairness and transparency
principles enacted under European laws. There is still no definitive German case law on the
Interstate Treaty on Gambling 2012’s compliance with European laws, and the courts of
lower instance take different views. In its decision of 7 May 2014, the district court Sonthofen
(Amtsgericht Sonthofen) referred questions on the legality of the tender process for the
sports betting concessions to the CJEU (the case is pending under file number C-336/14).
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7.7
The offering of public games of chance without a (German) licence is subject to
administrative fines and may qualify as a criminal offence under German laws. The offering
of public games of chance without a licence qualifies as a predicated offence under money
laundering rules, and the acceptance or handling of respective proceeds may trigger the
criminal offence of money laundering under German law.
7.8
The Interstate Treaty on Gambling 2012 further provides that payment service providers may
be requested by the competent authority to cease handling proceeds resulting from illegal
gambling activities.
8.
8.1
GREECE
The Optimal Payments Group and the Skrill Group provide payment processing services to
customers engaged in online gambling activities in Greece. Under the new Greek Gaming
Law (4002/2011, as amended by Laws 4038/2012, 4141/2013 and 4261/2014), online
gambling operators require a licence by the Hellenic Gaming Commission (the ‘‘HGC’’). Until
the issuance of the relevant licences, operators with a licence from another EU or EEA
member state may continue providing their services within Greece under the condition of
becoming subject to a specific tax regime. Only 24 interim licences have been awarded, but
in practice many more companies offer services through partnerships with the licence
holders.
8.2
In its decision Stanleybet (joint cases C-186/11 and 209/11) on the Greek monopoly on
sports betting and lottery games, the CJEU confirmed its previous case law on the
justification requirements for establishing monopolies. In the event that the monopoly was
considered to be incompatible with EU law by the competent national court and the case
was referred back to the CJEU, the CJEU also stressed that the Greek authorities could still
take the view that a reform of the existing monopoly would be the better measure for
ensuring the regulatory objectives pursued than a liberalisation. Despite this, the Greek
government submitted a new draft law to the European Commission to withdraw the licences
(lodged in March 2014). This has also been the subject of challenge. In the meantime in the
Stanleybet and William Hill case, the Greek Council of State (the country’s top administrative
court) rendered its ruling and has now rejected the joint petition of two operators further
entrenching the Greek monopolistic regime. The State Council has thus adopted the view
that the establishment of a gaming monopoly in Greece is required to ensure a high level of
customer protection and that the current legislative framework aims to reduce illegal gaming
opportunities, by reference also to the changes implemented to the Greek gaming framework
over the course of the last three years (Law 4002/2011, set up of HGC as the Regulating
Body).
8.3
In late 2012, the HGC also announced its decision to elaborate a blacklist of ‘‘unauthorised
websites’’ on the basis of which internet service providers and payment service providers
shall block websites and payments. Service providers which do not comply with such an
order face administrative or criminal sanctions. This change was notified to the European
Commission and the relevant standstill period has now expired. The black listing when
published prompted a number of operators to block the territory as only those holding an
interim licence were not included on the list.
8.4
To date, the Directors are not aware of any sanctions imposed on payment service providers
on the basis of law 4002/2011 or the decision that was notified under Directive 98/34/EC
(no. 2012/710/GR), apart from the interruption of the transmission and visibility of
‘‘unauthorised websites’’, as well as related bank transactions.
9.
9.1
UNITED KINGDOM
The Optimal Payments Group and the Skrill Group provide payment processing services to
customers engaged in online gambling activities in the UK. The Gambling Act 2005
(‘‘Gambling Act’’) is the primary legislation in relation to both land-based and online
gambling in the UK. The Gambling Act covers two main activities: the provision of facilities
for gambling and the use of premises for gambling, but does not apply to the National
Lottery which is regulated under separate legislation and has a single appointed operator,
currently Camelot. The Gambling Act is relatively sophisticated with different levels of
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regulation for different gaming activities (for example, casinos, betting and remote gaming
activities). There is no restriction on the number of private operators who can apply for
operating licences under the Gambling Act.
9.2
On 1 November 2014 the Gambling (Licensing and Advertising) Act came into force which
requires any operator (regardless of where they are located) who allows customers to access
gambling facilities provided by them whilst in England, Wales or Scotland to obtain a UK
operating licence. Licensees are required to pay operating fees and comply with the licensing
conditions and codes of practice attached to their licence. In most cases operators must also
identify individuals within the organisation to hold Personal Management or Personal
Functional Licences The licence status of operators is available on the regulator’s (the
Gambling Commission) website.
9.3
The Enlarged Group may be exposed to a risk of liability for processing payments from
unlicensed online gambling operators as it might arguably be knowingly providing facilities for
or promoting unlicensed gambling, albeit there is no specific reference to payment processing
in the Gambling Act.
9.4
On 1 December 2014 a new tax regime came into force which levies a 15 per cent. duty on
the profits made by remote gambling providers from betting and gaming activities carried out
with any UK resident (which means that the tests for determining whether a licence is
needed or tax is payable are different). The duty also applies regardless of where the
business providing those gambling facilities is located, or where the UK resident is located at
the time when the facilities are accessed. This is a change to the previous system whereby
gaming activities were only taxable if they were supplied by the operator through the use of
remote equipment within the UK, albeit there were complex provisions for determining where
a sportsbook operator was deemed to be located. The new regime is currently subject to a
legal challenge by the Gibraltar Betting and Gaming Association by way of judicial review on
the grounds that the tax breaches EU law and will lead to customer detriment but this
challenge has yet to be heard and has not prevented the tax provisions from being
implemented. Most gambling operators with a material UK customer base will face significant
tax increases as a consequence. In addition, sportsbook operators, unlike gaming operators,
will face the added challenge of not being able to deduct the marketing costs of free bets
and other promotional offers from the calculation of net betting receipts which will in effect
increase their costs of marketing. Also the horseracing levy is in the course of being
reviewed, which is likely to require non-UK based operators to also pay it in circumstances
where they take bets on UK horse racing events. This too could have an impact on the
operating margins of sportsbook operators, as it is likely to apply, irrespective of where the
customer is based.
9.5
Merchants as part of their gambling licensing obligations also have to adhere to anti money
laundering requirements but the Proceeds of Crime Act 2002 (‘‘POCA’’) applies to a wide
range of activities in the UK, irrespective of whether a person is in a regulated sector or
licensed offshore. In cases where the activity giving rise to the criminal property takes place
in another jurisdiction POCA was amended to allow a defence in circumstances where there
was a reasonable belief that the activity in that jurisdiction was lawful. In the case of online
gambling it is moot where the activity actually takes place, given it could be argued that it
simultaneously takes place both where the customer and merchant are located, and it may
be unlawful for the customer to gamble even if the merchant holds a licence for the activity
where it is based. In addition if the underlying activity is not deemed to be gambling but
money laundering that would be unlawful in most jurisdictions.
10. CHINA
10.1 The Optimal Payments Group does not provide services directly in China and instead relies
on the services of a third party outsourced service provider in order to provide services to a
European based merchant that provides online gambling services in several countries
including China. That merchant is licenced in Europe and, to the best of the knowledge and
belief of Optimal Payments, has maintained its licence in good standing with the relevant
regulators. The Skrill Group does not operate within the online gambling sector in China and
China is considered to be a prohibited market for the Skrill Group. There are two primary
laws regarding gambling in China. These are the Criminal Law and the Law on Penalties,
the latter addressing ‘‘administrative’’ offences.
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10.2 The Criminal Law focuses mainly on restricting the activities of gambling operators (and their
agents) in China (although it also restricts the activities of individuals that gamble nonrecreationally). Under the Criminal Law, China can assert authority over any Chinese national
who commits a crime wherever it takes place, or over foreign nationals if their crime or the
result of the crime occurs in China. The Law on Penalties extends the regulatory provisions
relating to gambling activities from operators to a wider group of participants and other
individuals who ‘‘provide conditions for gambling’’. There is no clear distinction in either the
definitions or the scope of the Criminal Law or Law of Penalties regarding what is ‘‘criminal’’
versus ‘‘illegal’’ gambling activities, although the latter is regarded as a less serious violation.
10.3 Although the Criminal Law and Law on Penalties do not specifically address remote gambling
activities, the associated regulations and published interpretations extend to remote gambling
as well as the services provided to support remote gambling. Pursuant to the Gambling Case
Interpretation, setting up a gambling website on the internet will be considered as gambling
crime and includes any entity who accepts wagers on behalf of an operator.
10.4 However, there is no legislation that expressly deals with the supply of remote gambling by
offshore operators into China. The Directors believe it is highly unlikely that Chinese laws
should be interpreted to apply and are capable of being enforced extra-territorially.
10.5 China has also put in place a comprehensive set of currency control measures. Under this
foreign currency control regime, foreign currency transactions are divided into two categories:
current account or capital account. According to relevant rules and regulations, Renminbi
(‘‘RMB’’) can be converted into foreign currency and remitted offshore if it falls into current
account, provided that required documents can be produced to the remitting bank and tax
authority. Capital account transactions can be processed subject to the supervision of State
Administration of Foreign Exchange. However, gambling payments are classified as neither
current account transactions nor capital account transactions as set out in paragraphs 10.2
and 10.3 above.
10.6 Moreover, in 2009, the Interpretation of the Supreme People’s Court on Several Issues
concerning the Specific Application of Law in the Trial of Money Laundering and Other
Criminal Cases, included the ‘‘assisting in the conversion of the crime-related income or
proceeds therefrom into gambling income by means of gambling’’ as a means of money
laundering. It does not however specifically target gambling funds.
10.7 The Anti-Money Laundering Law requires financial and some specific non-financial institutions
incorporated in China to be responsible for establishing identifying and reporting systems to
counter money laundering. Chinese regulations on money laundering also stipulate that the
facilitation of proceeds of crime payments is an offence and the published official
interpretations make it clear that financial institutions might be considered accomplices of
gambling or money laundering if services are provided to online gambling websites. Again, it
is unclear whether those interpretations are intended to encompass, and whether the
relevant statutes and regulations would be judicially construed to encompass, financial
institutions located outside of China with no direct contractual relationships to the relevant
Chinese persons.
10.8 It therefore appears that the money laundering legislation in China does not address the
operation of foreign gambling websites in a direct way, nor the processing of payments
involving such websites. However, the monitoring system required by the Anti-Money
Laundering Law may help Chinese authorities to track specific websites, which may then
lead to such attempts at enforcement such as website blocking but it is unlikely to extend to
tracing funds associated with gambling.
11. JAPAN
11.1 The Optimal Payments Group and the Skrill Group provide payment processing services to
customers engaged in online gambling activities in Japan. Gambling is generally prohibited
under the Japanese Penal Code, with some exceptions, regardless of whether it is
undertaken remotely or based on land. ‘‘Gambling’’ is defined as ‘‘a contest for wins or
losses with the results determined by chance and where money or items are at stake’’. At
least two persons must participate for the contest to meet the statutory definition of
‘‘gambling’’.
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11.2 Given gambling is generally prohibited in Japan there is no licensing regime for online
gambling and only certain government running/sanctioned land-based gambling is licensed
(there are no land-based licences available for casino, bingo or poker). Gambling is
considered as a crime under the Penal Code.
11.3 While the Japanese Penal Code generally prohibits gambling, Japanese law
expressly address or prohibit offshore internet gambling. As such internet
companies offering their websites in Japanese to Japanese citizens living in or
Japan and Japanese citizens accessing such sites may, in theory, be violating
criminal law.
does not
gambling
outside of
Japanese
11.4 However, the Penal Code’s prohibitions on gambling do not provide for extra-territorial
enforcement, thus enforcement and prosecution against operating online offshore casino and
using such gambling websites is not possible under the Japanese law and practice. Since
the laws do not allow for enforcement against offshore operators and online gambling is not
expressly prohibited, offshore internet gambling falls into a legal grey zone. Therefore as
long as the internet gambling website is truly ‘‘offshore’’ it will not be punishable under the
Japanese law and ‘‘offshore’’ means entities with no people, presence or assets in Japan.
11.5 On the other hand, if there is a local Japanese affiliate assisting an offshore operator by
offering gambling services or collecting payments on behalf of the operator, depending on
the operational scheme or function of the local affiliates in Japan, such local affiliates (for
example, local establishments, agents or software suppliers) might be committing a primary
offence of violating the prohibition. Assuming the local marketing affiliates refer customers to
the Company’s websites and are paid a percentage of the revenue earned from referred
customers, the local affiliates would be deemed as aiding and abetting the primary offence of
gambling by the offshore operator irrespective of whether the offshore operator has any
presence in Japan.
11.6 As long as the offshore online gambling website is lawful in the country in which the
company and its servers are based, the revenue related to such offshore online gambling
website does not fall under the definition of ‘‘criminal proceeds’’ under the Act on Prevention
of Transfer of Criminal Proceeds (the primary Japanese anti-money laundering statute).
Therefore the remittance of payments between end users and the offshore online gambling
operator will not be prohibited under Japanese law as long as the offshore gambling operator
is in compliance with laws of its home jurisdiction.
11.7 It is possible the business operator (for example, the credit card issuing bank or credit card
company) will report payments to the relevant authority (i.e. Financial Services Agency (for
banks) or the Ministry of Economy, Trade and Industry (for credit companies)) if they believe
the transactions constitute a ‘‘suspicious transaction’’ and the authorities could order the
banks or credit card companies to stop processing the transactions.
11.8 Both the Financial Services Agency and the Ministry of Economy, Trade and Industry have
confirmed there are no regulations prohibiting the banks/credit card companies from
processing such transactions.
11.9 Despite this, in practice certain banks and credit card companies may refuse to process
transactions for offshore gambling websites. While there is no clear legal rationale for
refusing to process the transactions the banks and credit card companies may have their
own internal rules against processing transactions related to gambling.
12.
US GAMBLING REGULATION
As set out in Part I (Letter from the Chairman of Optimal Payments plc) and Part V
(Information on the Optimal Payments Group), the Optimal Payments Group and the
Enlarged Group are intending to pursue a strategy aimed at strengthening their presence in
the US gambling market and, therefore, whilst the level of revenue currently derived from the
US online gambling market is small, an overview of the US online gambling regime is
included in this Part VI.
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Optimal Payments Group’s US Business Prior to 2007
12.1 Prior to 2007, the Optimal Payments Group processed payments in connection with online
gambling in the USA. However, the Optimal Payments Group terminated all US-facing online
gambling-related activities as a result of the introduction of the Unlawful Internet Gambling
Enforcement Act (‘‘UIGEA’’) in the US in 2006, which banned processing of payments
related to illegal online gambling.
12.2 The Optimal Payments Group’s historic US business consisted of the following:
Neovia
12.3 The Neovia business was founded in 1999 as NETeller Inc. in Calgary, Canada. With effect
from 31 December 2003, NETeller Inc. transferred its business and undertaking to Optimal
Payments (at the time known as NETeller plc).
12.4 Neovia’s processing almost exclusively involved the use of the ‘‘NETELLERâ’’ stored-value
e-Wallet. E-Wallets allowed customers to maintain funds in the ‘‘wallet’’ and then direct that
they be deposited with participating merchants. Similarly, customers could withdraw funds
from a merchant back to the e-wallet and, if desired, back to their individual bank accounts.
Methods of funding included credit card, ACH and wire-transfer, among others. Within days
of enactment of the UIGEA in October 2006, Optimal Payments publicly announced its
intention to withdraw from the US market. Optimal Payments communicated its intention to
terminate its US-facing activity within 270 days of the statute’s enactment. It chose that
timeframe in light of the expectation, set out in the UIGEA itself, that regulations
implementing the law would be issued by that date.
12.5 However, events rapidly overtook the Optimal Payments business. On 15 January 2007, the
Office of the United States Attorney for the Southern District of New York (‘‘USAO’’) arrested
two former senior executives and founding shareholders of NETeller Inc. and seized
approximately $60 million in funds belonging to Optimal Payments’ US customers that were
in transit at Optimal Payments’ US processing partners. At the same time, the US
Government obtained orders that prohibited Optimal Payments from engaging in any further
transactions with US banks, effectively preventing US customers from withdrawing their
funds.
12.6 The two former founders of NETeller Inc., neither of whom was an employee of Optimal
Payments at the time of their arrests, were charged with intent to promote unlawful gambling
activity in violation of federal and state laws. Neither the two founders nor any member of
the Optimal Payments Group were charged with fraud or any similar offence. The USAO’s
allegations centred exclusively on gambling and unlicensed money transmitting violations.
12.7 As a result of the US government actions, Optimal Payments, on 18 January 2007,
suspended all US gambling- related processing and negotiated a plan to facilitate the
complete return of funds to its US customers. Ultimately, both former founders pled guilty to
a single count of conspiracy to violate US gambling and money-transmitting laws and agreed
to a combined forfeiture of $100 million. Shortly thereafter, on 17 July 2007, Optimal
Payments entered into a deferred prosecution agreement (‘‘DPA’’) with the USAO, resolving
its past US-facing activity. The DPA provided for forfeiture of $136 million, completion of the
return of funds to US customers and the appointment of a forensic accounting firm to
monitor Optimal Payments’ activities in order to ensure that it continued to comply with the
bar on US-facing gambling-related transactions. The DPA also imposed an on-going
obligation to cooperate with any further USAO inquiries. In return, the USAO agreed to defer
any prosecution for (non-tax) violations for two years. All customers subsequently had their
monies returned, and the USAO obtained dismissal of the complaint and terminated the DPA
in August 2009.
Optimal Payments
12.8 On 20 January 2011, Optimal Payments acquired the online payments business and
substantially all of the assets of 7012985 Canada Inc., which included Optimal Payments Inc.
(‘‘OPI’’). OPI, directly or through its subsidiaries, had offered two alternatives for processing
transactions which was used for the US online gambling market – ‘‘straight-through’’
processing (pursuant to which the customer deposited funds directly with the merchant) and
‘‘stored-value’’ e-wallet services, branded under the name ‘‘FirePay’’ Both the ‘‘straightthrough’’ and ‘‘e-Wallet’’ options allowed for credit-card or ACH methods of funding. Upon
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enactment of the UIGEA on 13 October 2006, OPI immediately ceased all US gamblingrelated deposits and arranged the return of all funds that it was holding on behalf of US
customers.
12.9 In October 2009, Optimal Payments Group Inc. (‘‘OGI’’) (the parent of OPI throughout the
relevant period) negotiated a non-prosecution agreement (‘‘NPA’’) with the USAO. OGI
agreed to a forfeiture of $19,182,418.18 and to cooperate with any further requests for
information or assistance that the USAO may make. To the Directors’ knowledge, none has
been forthcoming. OGI also agreed to refrain from providing payment processing services for
gambling merchants in connection with US customers ‘‘in violation of the law of the United
States or the law of any jurisdiction within the United States.’’
12.10 OGI sold the assets of the payment businesses and rights to use of the Optimal Payments
name in 2008 to 7012985 Canada Inc. Because the transaction was an asset purchase, all
obligations under the NPA remain with OGI. Nonetheless, Optimal Payments (and, before it,
Optimal Payments Inc., the entity that acquired the OGI payments assets and right to use
the Optimal Payments name) has continued to abide by the restriction on US gamblingrelated processing activities.
Optimal Payments Group’s Current US Business
12.11 Some States (New Jersey, Delaware and Nevada) in the US have recently introduced
regulations permitting processing of payments related to regulated online gambling.
12.12 None of those jurisdictions requires licensing of payment processors that perform the
services Optimal Payments provides. In New Jersey, Optimal Payments is required to
register as a vendor with the New Jersey Division of Gaming Enforcement (the ‘‘Division’’).
It has done so and been determined suitable by that Division. The Delaware Lottery
Commission required Optimal Payments to submit a licensing application (which is still
pending) but has not interpreted its regulations to require licensing of Optimal Payments. No
licensing or registration is required in Nevada. Optimal Payments has corresponded with the
Nevada Gaming Control Board (the ‘‘NGCB’’) and confirmed that position. The NGCB has
not objected to Optimal Payments’ provision of services in that state.
12.13 In the US, the Optimal Payments Group processes NETBANXâ transactions for a number of
US gambling operators in regulated States including 888, Bally’s and Caesars. In 2014,
Optimal Payments launched a NET+ prepaid card stored value product for the US market
which can be used for online gambling. Optimal Payments has obtained money transmission
licences in New Jersey, Delaware, Idaho, North Dakota and Iowa; however, for purposes of
the NET+ prepaid card product it has contracted with a reputable third party such that no
licence is currently needed. The Optimal Payments Group also intends to acquire Skrill USA
Inc. in order to expand its offering in the United States. Prior to Completion, the Skrill Group
will undertake a restructuring to transfer Skrill USA Inc. outside the Skrill Group. Completion
of the Acquisition will be conditional on Skrill USA Inc. being transferred outside the Skrill
Group. The consideration for the transfer of Skrill USA Inc. outside the Skrill Group will be
left outstanding as an inter-company loan between Skrill Holdings Limited and Sentinel Group
Holdings S.A. In addition, Skrill Holdings Limited will provide Skrill USA Inc. with an intercompany funding loan for working capital purposes. Once the transfer of Skrill USA Inc.
outside the Skrill Group has completed, the Optimal Payments Group will have a period of
six months following Completion to obtain the required approvals in connection with Skrill
USA Inc.’s money transmitter licences from the relevant US states or territories in order for
Skrill USA Inc. to be transferred to Skrill Holdings Limited. In the event that Skrill Holdings
Limited repurchases Skrill USA Inc. after Completion, the consideration for that transfer will
be the release of Sentinel Group Holdings S.A.’s obligation to repay the inter-company loan.
If Skrill Holdings Limited has not obtained the relevant consents to enable Skrill USA Inc. to
be transferred to Skrill Holdings Limited within the six month period following Completion,
Sentinel Group Holdings S.A will be permitted to sell Skrill USA Inc. to a third party. In the
event Skrill USA Inc. is sold to a third party, Sentinel Group Holdings S.A. will use
reasonable endeavours to sell Skrill USA Inc. for the best possible purchase price, and the
proceeds of that sale shall be used to repay the inter-company loans put in place between
Skrill Holdings Limited and both Sentinel Group Holdings S.A. and Skrill USA Inc., and any
excess inter-company loan amount that remains outstanding (whether relating to the working
capital loan or the consideration for the transfer of Skrill USA Inc.) shall be waived by Skrill
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Holdings Limited. If Skrill USA Inc. is sold to a third party, the Optimal Payments Group
intends to commence applying for its own money transmitter licences in the US in order to
enable it to process payments in the US. The Optimal Payments Group has already obtained
money transmitter licences in New Jersey, Delaware, Iowa, North Dakota and Idaho.
12.14 There are some US States that are considering licensing online gambling. Until and unless
those states authorise online gambling (or a federal law is enacted permitting such activity),
Optimal Payments Group will not process online gambling related transactions in those
jurisdictions.
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PART VII
INFORMATION ON THE SKRILL GROUP
1.
1.1
INTRODUCTION
The Skrill Group is a global digital payments company operating an extensive digital
payments network for local and cross-border transactions and money transfers. As at the
Latest Practicable Date, the Skrill Group provided its services to 41,000 active merchants
and over 6.4 million active customers and in the twelve months to 30 September 2014
processed e5 billion in transactions. As at the Latest Practicable Date, the Skrill Group had
approximately 778 employees and is headquartered in London with key offices in Vienna,
New York and Sofia.
1.2
The Skrill Group offers a broad range of products, with its core product being the e-Wallet,
which also offers a Prepaid MasterCardâ. In addition, the Skrill Group offers paysafecard
which provides prepaid payment vouchers, an online digital wallet and a prepaid
MasterCardâ. The Skrill Group also offers Payolution which, through its relationships with
financial institutions, arranges the provision of point-of-sale financing to merchants giving
merchants the ability to extend credit to customers to pay later via invoice once the goods
have been received. The Skrill Group also acts as a payment service provider, allowing
merchants to process card transactions directly without the use of an e-Wallet, provides an
instant and low cost bank transfer service and also offers a peer-to-peer (‘‘P2P’’) remittance
service which allows customers to send money domestically and internationally using their
digital wallets. From 31 December 2011 to 31 December 2013, the Skrill Operating Group’s
revenues grew from $239.1 million to $298.7 million (both adjusted for the paysafecard
acquisition), a CAGR of 15 per cent.
1.3
In November 2014, the Skrill Group entered into an agreement to acquire Ukash and
expects to complete the acquisition in the first half of 2015. Ukash is similar to paysafecard
in that it is an online e-money payment provider that allows users to exchange their cash for
a secure code to make payments online on a range of websites from shopping, online
gambling and entertainment to e-Wallets, prepaid cards and money transfers.
2.
2.1
MARKET OVERVIEW
The Skrill Group operates in the same market to the Optimal Payments Group, that is, the
fast growing digital payments industry, which provides services enabling customers and
merchants to make and accept payments over the internet. As at the Latest Practicable
Date, the Skrill Group had established agreements and relationships with over 80 banks and
payment providers which serve as the building blocks for its complex network.
2.2
The Skrill Group targets several end markets which strongly benefit from trends towards
online transactions, and in which the Directors believe that the Skrill Group has a competitive
advantage given its comprehensive product portfolio and established global network of
partners, merchants and customers, that it has built over time. These end markets fall into
four different verticals:
3.
3.1
(a)
online gambling and sports betting activities;
(b)
online games and digital media which includes the consumption of digital content and
services;
(c)
e-commerce which includes online retail purchases of physical goods; and
(d)
remittance which includes both domestic and cross-border money transfers.
SKRILL GROUP CORPORATE HISTORY
The Skrill Group business was founded in July 2001 under the name Moneybookers Limited.
In April 2002, the Skrill Group launched www.moneybookers.com, its electronic money
transfer website, enabling users to send and receive multi-currency payments using the
internet. In February 2003, Moneybookers Limited became Europe’s first e-money issuer
regulated by the FCA following the introduction of the Electronic Money Directive in October
2000. The Electronic Money Directive allowed non-banks to become regulated as so-called
‘‘e-money issuers’’, enabling Moneybookers to offer regulated electronic payment services.
The business of the Skrill Group conducted a phased rebranding exercise in October 2010
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involving the change of the Skrill Group’s brand and name from Moneybookers to Skrill. The
Skrill Group continues to operate under the compliance, regulatory standards and e-money
requirements of the Electronic Money Regulations and the Payment Services Regulations.
3.2
In February 2013, the Skrill Group completed the acquisition of paysafecard.com Wertkarten
AG (now paysafecard.com Wertkarten GmbH), one of the leading providers of e-vouchers in
Europe, to extend its service to cash users as well as to gain access to new distribution
channels and merchants.
3.3
In February 2014, CVC Funds completed the acquisition of a controlling interest in Sentinel
Topco Limited. As part of the structuring of the acquisition by the CVC Funds, Sentinel
Topco Limited, which is being acquired in the Acquisition, became the parent company of the
Skrill Group.
3.4
In November 2014, the Skrill Group announced the acquisition of Ukash, which forms part of
its strategy to further strengthen the global presence of the paysafecard offering, allowing the
Skrill Group to expand its digital payments offering across both established and emerging
markets. The Ukash Acquisition is expected to complete in the first half of 2015.
4.
4.1
SKRILL GROUP STRUCTURE
Sentinel Topco Limited, which is the parent company of the Skrill Group, is incorporated in
Jersey. Sentinel Topco Limited has a wholly owned subsidiary, Sentinel Holdco 2 Limited,
which is incorporated in England and Wales and which in turn has a wholly owned
subsidiary, Sentinel Midco Limited, which is incorporated in England and Wales. Sentinel
Midco Limited has a wholly owned subsidiary, Sentinel Bidco Limited which is incorporated in
England and Wales and which has a wholly owned subsidiary, Skrill Group Limited which is
a parent company of the Skrill Group and is incorporated in Jersey. Skrill Group Limited has
six wholly owned subsidiaries, namely Skrill Capital UK Limited, Digital Payments Europe
Limited and MB Acquisitions Limited, which are incorporated in England and Wales, Skrill
Capital Limited, which is incorporated in Jersey, Digital Payment Solutions New Zealand
Limited, which is incorporated in New Zealand and Digital Payment Solutions Australia Pty
Limited, which is incorporated in Australia. Skrill Capital UK Limited is a parent company of
payolution GmbH, which is incorporated in Austria and payolution GmbH is the parent
company of payolution Schweiz GmbH, which is incorporated in Switzerland.
4.2
MB Acquisitions Limited is the parent company of Skrill Holdings Limited, which is
incorporated in England and Wales, and this entity holds the majority of the subsidiary
companies within the Skrill Group, which includes the paysafecard Austrian, Dutch, Swiss,
Turkish, Gibraltan, US and South American business lines. MB Acquisitions Limited’s other
direct subsidiary is MB Employees Nominees Limited, which is established in England and
Wales. Skrill Holdings Limited’s direct subsidiaries consist of (i) Skrill Limited, which is
incorporated in England and Wales, (ii) Skrill International Payments Limited, which is
incorporated in England and Wales, (iii) Sabemul Beteiligungsverwaltungs GmbH, which is
incorporated in Austria, (iv) Skrill USA, Inc., which is incorporated in Delaware, (v) Skrill
Services GmbH, which is incorporated in Germany, (vi) Skrill Canada Inc., which is
incorporated in Canada (vii) Skrill Hong Kong Limited, which is incorporated in Hong Kong,
(viii) Skrill Singapore Pte. Limited, which is incorporated in Singapore and (ix) Skrill Bulgaria
EOOD, which is incorporated in Bulgaria. The subsidiary of Sabemul Beteiligungsverwaltungs
GmbH, paysafecard.com Wertkarten GmbH, which is incorporated in Austria, holds the
entities which make up the paysafecard group.
4.3
paysafecard.com Wertkarten GmbH’s subsidiaries consist of (a) Prepaid Services Company
Limited, which is incorporated in England and Wales, (b) paysafecard.com Wertkarten
Vertriebs GmbH, which is incorporated in Austria, (c) cpt Dienstleistungen GmbH, which is
incorporated in Germany, (d) paysafecard.com USA Inc., which is incorporated in Delaware,
(e) WH International Payment Services B.V., which is incorporated in the Netherlands, (f)
MAC Limited which is incorporated in Gibraltar, (g) paysafecard.com Schweiz GmbH, which
is incorporated in Switzerland, (h) paysafecard.com ön ödeme servicleri limited şirketi, which
is incorporated in Turkey and in which paysafecard.com Wertkarten Vertriebs GmbH holds a
minority interest, (i) paysafecard.com México S.A. de C.V., which is incorporated in Mexico
and in which paysafecard.com Wertkarten Vertriebs GmbH holds a minority interest, (j)
paysafecard.com Argentina S.R.L, which is incorporated in Argentina and in which
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paysafecard.com Wertkarten Vertriebs GmbH holds a minority interest, and (k)
paysafecard.com Croatia D.O.O., which is incorporated in Croatia. The Skrill Group also
holds minority interests in Cybits Holding AG and Live Gamer Inc.
4.4
Prior to Completion, the Skrill Group will undertake a restructuring to transfer Skrill USA Inc.
outside the Skrill Group to Sentinel Group Holdings S.A. Once the transfer of Skrill USA Inc.
outside the Skrill Group has been carried out in accordance with the Acquisition Agreement,
Optimal Payments intends to commence the process for obtaining the required approvals in
connection with Skrill USA Inc.’s money transmitter licences from the relevant US states or
territories in order for the Optimal Payments Group to be able to acquire Skrill USA Inc. after
Completion. Completion of the Acquisition will be conditional on Skrill USA Inc. being
transferred outside the Skrill Group. The consideration for the transfer of Skrill USA Inc.
outside the Skrill Group will be left outstanding as an inter-company loan between Skrill
Holdings Limited Sentinel Group Holdings S.A.. In addition, Skrill Holding Limited will provide
Skrill USA Inc. with an inter-company funding loan for working capital purposes. In the event
that Skrill Holdings Limited repurchases Skrill USA Inc., the consideration for that transfer will
be the release of Sentinel Group Holdings S.A.’s obligation to repay the inter-company loan.
4.5
Sentinel Group Holdings S.A has agreed that it will not sell Skrill USA Inc. to a third party
for a period of six months after Completion. Provided that Skrill Holdings Limited obtains the
US change of control approvals in connection with Skrill USA Inc.’s money transmitter
licences within six months after Completion, Skrill USA Inc. will be transferred to Skrill
Holdings Limited. If Optimal Payments has not obtained the relevant consents to enable
Skrill USA Inc. to be transferred to Skrill Holdings Limited within the six month period
following Completion, Sentinel Group Holdings S.A shall be permitted to sell Skrill USA Inc.
to a third party. In the event Skrill USA Inc. is sold to a third party, Sentinel Group Holdings
S.A. will use reasonable endeavours to sell Skrill USA Inc. for the best possible purchase
price, and the proceeds of that sale shall be used to repay the inter-company loans put in
place between Skrill Holdings Limited and both Sentinel Group Holdings S.A. and Skrill USA
Inc., and any excess inter-company loan amount that remains outstanding (whether relating
to the working capital loan or the consideration for the transfer of Skrill USA Inc.) shall be
waived by Skrill Holdings Limited.
5.
5.1
BUSINESS OVERVIEW
The Skrill Group comprises Skrill, paysafecard, Payolution and, following completion of the
Ukash Acquisition, Ukash. Skrill offers a digital wallet, payment gateway services by way of
Skrill Quick Checkout, Direct Payment Gateway and Skrill 1-Tap, payment services through
Skrill Direct and Peer-to-Peer (‘‘P2P’’) Remittance, foreign exchange services and is a
payment service provider (‘‘PSP’’). paysafecard offers a prepaid solution in the form of
prepaid vouchers and prepaid cards offered through paysafecard and, following the
completion of the Ukash Acquisition, Ukash. Payolution offers invoice and instalment
solutions to merchants.
5.2
In FY2013 and the nine month period ended 30 September 2014, the Skrill Group derived
the majority of its revenue from Skrill (46.53 per cent. and 43.94 per cent. respectively) and
paysafecard (52.77 per cent. and 54.34 per cent. respectively) and derived 92 per cent. of
its FY2013 revenue (excluding FX fees and interest) and 92 per cent. of its revenue for the
nine month period ended 30 September 2014 (excluding FX fees and interest) from its
operations in Europe and North America.(1)
5.3
The Skrill Group offers the following products:
5.4
Skrill
As at 31 December 2013, Skrill had over 39 million registered customer accounts, and over
169,000 registered merchants, with 6.6 million customer accounts and 54,067 merchant
accounts actively making and receiving payments during FY2013. As at 31 December 2013,
61 per cent. of the Skrill Group’s active customers by number were located in Europe, 28 per
cent. in the Americas and 11 per cent. in the rest of the world. As at 30 September 2014,
3 per cent. of Skrill’s merchants were primarily in online gambling, 30 per cent. were in the
digital media business (which includes online services and social games) and 67 per cent.
(1) The FY2013 geographical revenue percentage is not a pro forma figure and only includes paysafecard revenue from February
2013.
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were in the e-commerce business (which includes shop systems, retail goods and services
and professional sellers on, for example, auction platforms). Skrill processed approximately
e5 billion in transactions across the e-Wallet and payment processing platform in the twelve
month period ending 30 September 2014.
5.5
Digital Wallet
Skrill’s e-Wallet is an internet-based account established by merchants and customers and
maintained by the Skrill Group, enabling account holders to send and receive funds instantly,
conveniently and securely using a wide selection of payment options at a low cost and to
pay for goods and services online without divulging personal financial data to merchants.
Skrill also offers the Skrill Prepaid MasterCardâ, which can be used to withdraw cash at
2.1 million ATMs worldwide and to pay for goods and services at over 35 million online and
sales outlets worldwide. The Skrill Prepaid MasterCardâ is linked to a customer’s e-Wallet
balance and is issued by Wirecard Solutions Limited. When using the e-Wallet, customers
may be charged a fee (depending on the method used to upload funds) when uploading
funds into their e-Wallet accounts. Additional charges apply when customers transfer funds
out of their e-Wallets. Customers are also charged foreign exchange fees and an additional
service fee when funds are transferred in a currency other than the source currency of the
e-Wallet.
5.6
Skrill’s e-Wallet also allows customers to receive money from merchants, such as winnings
from an internet-based gambling website or payments from an auction website. The Skrill
Group’s e-Wallet platform is well-suited to micropayments and customer feedback indicates
that customers are attracted by the convenience and security of the e-Wallet as they are
required to provide personal financial data to Skrill only, rather than to each online merchant
separately, and are able to send and receive money transfers cost-effectively.
5.7
Merchants are charged a fixed percentage fee when accepting payments made using the
e-Wallet. The fee is agreed in advance with each merchant and depends on the merchant’s
transaction volume, its industry and whether or not the merchant is eligible for and opts for
the Skrill Group’s no chargeback policy. Merchants are also charged foreign exchange fees
and an additional service fee when funds are transferred in a currency other than the source
currency of the e-Wallet.
5.8
By establishing a direct link between the merchant and customer through their respective
e-Wallets, Skrill is able to significantly simplify the complexity of the traditional payments
infrastructure as characterised by card-based payments. Once a deposit is made into Skrill’s
e-Wallet system, all transfers between customers or customers and merchants (as the case
may be) take place instantly as internal transactions with no money actually moving between
bank accounts or payments systems. The transaction therefore involves only the customer’s
and the merchant’s e-Wallet accounts, which is in contrast to the traditional card payments
system which requires an issuer, an acquiring bank and a payment service provider in
addition to the accounts of the merchant and customer.
5.9
In addition to the security and ease of use of the Skrill e-Wallet, it is accepted by a large
number of merchants, which further increases the usefulness and attractiveness of the Skrill
e-Wallet as a means of paying for transactions online. A large number of commercial
relationships with banks and card payment processing companies underpin Skrill’s business
offering which would be difficult to replicate quickly or easily.
Payment Gateway Services
Skrill Quick Checkout
5.10 In July 2014, Skrill launched a new version of its direct payment gateway service known as
the Skrill ‘‘Quick Checkout’’ which is aimed at customers that do not have Skrill e-Wallets.
The Skrill Quick Checkout became fully functional at the end of October 2014 and Skrill had
migrated the majority of its European merchant volume by the end of December 2014.
Skrill’s Quick Checkout speeds up the payment process by enabling customers who are
making their first transaction using Skrill’s services to make a payment without having to
register for a Skrill e-Wallet. The Skrill Quick Checkout also accepts card payments as well
as the majority of Skrill alternative payment options, such as prepaid cards and vouchers.
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5.11 In order to use the Skrill Quick Checkout, merchants are required to integrate an HTML
based payment gateway to their e-commerce check-out pages. For customers in Europe and
USA, the Skrill Quick Checkout acts as a normal payment gateway, however non-European
and non-US customers are required to use a process which incorporates digital wallet
functionality when accepting a payment using the Skrill Quick Checkout.
Direct Payment Gateway
5.12 Skrills Direct Payment Gateway, which was launched in 2009, is based on the e-Wallet
platform and also allows the direct processing by the merchant of payment card transactions
and payments from any of Skrill’s 100-plus local payment options, as well as payments from
e-Wallet accounts. Skrill’s Direct Payment Gateway is primarily used by merchants offering
online gambling services.
5.13 To make a payment to a merchant that has integrated the Direct Payment Gateway into its
website, a customer selects an item for purchase on the merchant’s website and is then
redirected to the Direct Payment Gateway at the checkout. At this point existing customers
are prompted to enter their email address, password or payment details and confirm the
payment. New customers enter their details and confirm their payment in one step. As a
result, Skrill establishes a direct relationship with the customer by requiring them to accept
terms and conditions and as a result registering them for an e-Wallet when they make the
payment on the merchant’s website. Skrill debits money from the customer’s existing
e-Wallet balance, or the customer funds the e-Wallet in real-time by credit card, debit card or
bank transfer funding and, for certain payment options (excluding bank transfer funding),
instantly credits it to the merchant’s e-Wallet account.
Skrill 1-Tap
5.14 Skrill 1-Tap provides access to Skrill’s e-Wallet bringing quick and easy mobile payments to
merchants and customers. By integrating Skrill 1-Tap onto the merchant’s website,
merchants can offer customers the opportunity to pay for goods via ‘one tap’, rather than
having to re-enter login details or credit card information for reauthorisation every time. First
time customers need to activate their account for future use, after which they can make
payments with only one-tap on their devices. The funds are then processed instantly through
the merchant’s account. Skrill 1-Tap can be used on computers and laptops as well as
mobile devices such as smartphones and tablets.
5.15 Skrill 1-Tap is attractive to the online gambling and the gaming sectors as once Skrill 1-Tap
is integrated onto a merchant’s website, customers can make payments without being
required to exit an application, thereby offering simplicity and convenience and maximising
the online gambling or gaming experience for customers.
Payment Services
Skrill Direct
5.16 Skrill offers a 24/7 instant and low cost online bank transfer service, Skrill Direct, currently
available in the UK, Germany, Austria, Italy, France, Spain and Hungary. With Skrill Direct,
customers are able to use another funding and payment option linking their online bank
accounts with their e-Wallets. Customers can securely transfer funds from their bank
accounts into their e-Wallets or into merchant accounts in order to pay for goods and
services. Merchants benefit from a lower risk, given customers need to authorise payments
using their existing online banking login details. Both parties receive immediate confirmation
of payment.
P2P Remittance
5.17 Skrill’s P2P solution allows customers to send money domestically and internationally, using
the same currency or multiple currencies, through Skrill’s e-Wallet platform. Customers can
load their digital wallets using their preferred local payment methods and execute payments
based on Skrill’s local banking deposit and withdrawal functionality. The P2P send money fee
is 1 per cent. of total funds transferred, capped at e10 per transfer plus a flat rate foreign
exchange fee which is dependent on the currencies involved in the transfers. For VIP
Customers, the fee is capped at e1.
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Foreign Exchange Services
5.18 Skrill provides foreign exchange services to its merchants and customers whenever funds
move from one e-Wallet to another e-Wallet denominated in a different currency. Currently,
multi-currency operations between 41 currencies can be executed throughout the Skrill
platform. Multi-currency transactions, for example could involve a customer in the UK with a
Sterling e-Wallet transacting with a merchant in France with a Euro e-Wallet, or a business
in the US with a US Dollar e-Wallet remitting funds to a contractor in Poland with a Zloty
e-Wallet.
5.19 Skrill charges a FX fee of up to 5.49 per cent. (based on Reuters mid-market rates) of the
transaction volume. The FX fees will vary depending on the currency involved, for example,
US dollars, pounds sterling and Euro will attract lower fees than Polish Zloty. In traditional
transactions, a business would need to buy currency every time a multi-currency transaction
is generated. However, because Skrill’s customers upload funds in multiple currencies, the
receiving currency will typically be available for withdrawal by the receiver – in the example
above, Polish customers will be uploading Zloty to the e-Wallet, which can then be used to
fulfil the withdrawal request of the contractor receiving funds from the US business.
Therefore, Skrill only buys and sells currency on an aggregate basis, depending on long or
short positions, rather than for every transaction on the Skrill system and as such, to the
extent that transactions can be funded without Skrill needing to buy or sell foreign currency,
Skrill earns a funding cost-free margin.
Payment Service Provider (‘‘PSP’’)
5.20 The Skrill Group offers a PSP product targeted at large and medium-sized merchants. The
PSP product enables merchants to process card transactions directly without requiring the
merchant or customer to have an e-Wallet. Unlike the Direct Payment Gateway, the PSP
product does not result in the customer registering for an e-Wallet and does not require the
customer to accept the Skrill Group’s terms and conditions as the transaction is undertaken
with the acquiring bank. The PSP product broadens the Skrill Group’s target market beyond
that already covered by its e-Wallet and Direct Payment Gateway.
paysafecard
5.21 paysafecard is an e-voucher (‘‘paysafecard’’) and an online digital wallet (‘‘my
paysafecard’’) issued and operated through a UK e-money licence and local licenses or
approvals outside the EEA. paysafecard is available as a PIN code printed on a physical
card or as an e-voucher which can be purchased from, as at the Latest Practicable Date,
over 442,000 points of sales and one online shop and can be used to purchase goods and
services at approximately 5,700 websites. Customers can then make payments to, as at the
Latest Practicable Date, one of the approximately 1,300 online merchants that accept
paysafecard by entering their PIN code and through an additional approximately 851
merchants that are connected through PSP. paysafecard processed approximately e1.4 billion
in transactions in FY2013 and approximately e1.6 billion in transactions in the twelve months
to 30 September 2014. Sale and distribution of paysafecard is carried out in 35 countries
through a network of third party distributors and through paysafecard’s online shop. ‘‘my
paysafecard’’ is an online account which allows customers to upload funds, using the
paysafecard e-voucher, and make online purchases. ‘‘my paysafecard’’ is offered in 28
countries and, as at the Latest Practicable Date, there were approximately 769,000
registered ‘‘my paysafecard’’ accounts. In addition, paysafecard offers a Prepaid Mastercardâ
under the license of MasterCard International Incorporated. The Skrill Group adopts a risk
based approach when deciding whether to offer paysafecard or ‘‘my paysafecard’’ within a
particular jurisdiction and such decisions are made by the paysafecard management team on
a country-by-country basis.
5.22 The large distribution network of over 442,000 points of sales at which customers can use
cash to obtain e-vouchers or prepaid cards that can be used for online transactions, gives
paysafecard access to a broad range of customers. paysafecard appeals to customers who
are reluctant to use their credit and debit cards online, those who prefer anonymity and to
parents who wish to restrict the amount that their children are able to spend online.
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5.23 paysafecard derives its revenues from fees charged to merchants accepting payments made
using the paysafecard product. A portion of the fees paid by merchants is used by
paysafecard to pay commissions to sales outlets that stock and sell paysafecard e-vouchers,
with the balance being retained by paysafecard. Due to the commission costs, paysafecard
has a naturally lower margin than other Skrill products.
5.24 ‘‘my paysafecard’’ conducts standard KYC checks on its customers when new accounts are
opened in order to verify the identity of its customers and operates a policy of applying
simplified due diligence for certain jurisdictions. Additional due diligence and verification is
carried out when high risk or suspicious activity is detected. In Germany, the online
verification is provided by Deutsche Post AG, which offers the PostIdent online verification
solution or by Cybits Holdings AG, which offers verify-U, an electronic ID verification
platform. The partnership with Cybits allows Skrill to provide customised solutions within the
German market. In the other jurisdictions in which ‘‘my paysafecard’’ is offered, users are
required to provide a copy of their passport and a utility bill for KYC purposes. Where ‘‘my
paysafecard’’ does not have a third party solution for the purposes of conducting KYC
checks, the verification process is outsourced to a service centre in Bulgaria, with
paysafecard supervising the verification process.
Ukash
5.25 The Skrill Group entered into an agreement to purchase the entire issued share capital of
Ukash on 26 November 2014. Ukash is an online e-money payment provider that allows
customers to exchange their cash for a secure code to make payments online without the
use of a credit or debit card. Ukash codes are available as PIN codes which can be
purchased from over 410,000 shops, petrol stations, ATMs and kiosks using cash or a credit
or debit card or online using a credit or debit card. The customers are provided with a
voucher with a secure 19 digit Ukash code or, if the Ukash code is purchased online, are
sent a Ukash code via email. Customers can then make payments to merchants that accept
Ukash codes as payment by entering their Ukash code online. In the UK, customers also
have the option to convert their unused Ukash codes into cash at participating sales outlets
and can opt to receive payments in the form of Ukash codes. Ukash also offers the Ukash
Prepaid MasterCardâ and Ukash Travel Money Prepaid MasterCardâ. As at the Latest
Practicable Date, Ukash is offered in over 50 countries and is authorised and regulated in
the UK by the FCA as an e-money issuer. The Ukash Acquisition is expected to complete in
the first half of 2015.
Payolution (Invoice and Instalments)
5.26 Payolution arranges the provision of point-of-sale financing to customers of e-commerce
merchants in order to ensure that the merchants are put in funds within an agreed timeframe
(which is within 29 days after merchants are provided with a statement of its transactions)
and is offered as a white-label solution. Payolution provides merchants with the ability to
extend credit to customers to pay later via invoice once the goods have been received,
enabling merchants to offer their customers an alternative payment solution to credit cards or
other payment methods. Merchants benefit from Payolution’s technology, which can be
integrated with the various local credit scoring agencies while also offering merchants a
highly automated claims management and reconciliation system.
5.27 Payolution is based in Austria and the provider of finance is a privately owned German bank.
Payolution enters into a tripartite agreement with the customer and the provider of finance,
pursuant to which the customer commits to making repayments. The service can be enabled
as one-off payment or as a payment in instalments over time for higher value goods. The
merchant assumes no credit risk, in the event that an instalment is not paid by the customer,
as the merchant receives funds at the point of sale from the provider of finance. Payolution
undertakes to reimburse the provider of finance in the event that a customer fails to meet its
payment obligations. Payolution derives its revenue by charging fees to merchants that
accept the service.
Payment Platform
5.28 As at the Latest Practicable Date, the Skrill Group’s payments platform processed internet
payments through a network of over 80 banks and payment providers with whom the Skrill
Group has a business relationship, offering over 100 local payment options in more than 200
countries and territories, across 41 currencies and 16 languages.
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5.29 The Skrill Group’s platforms enable merchants to accept a variety of local payment methods,
including credit card and bank-based payments, direct debits, bank transfers and other online
bank transfers, from one platform. The Skrill Group’s platforms are integrated with the
merchants’ websites with the Skrill Group managing the technical connections, relationships
with external networks and bank account connections necessary for payments to be made
and received. Merchants and customers also benefit from the Skrill Group’s risk and antifraud management features, including real-time monitoring of online transactions to mitigate
and reduce fraud for merchants, which enables the Skrill Group to offer some of its
qualifying merchants a no chargeback policy. When determining whether to offer nochargeback protection to merchants, the Skrill Group conducts a risk based analysis focused
on the transactions carried out by each merchant. This is attractive for a large range of
merchants who conduct their business over the internet and who may not have the capability
or resources to develop their own sophisticated payment and fraud management systems.
5.30 The Skrill Group’s business model requires close commercial relationships with banks and
payment processing companies, as all funds that are uploaded or withdrawn by customers or
merchants are cleared through these institutions. The Skrill Group maintains commercial
relationships with financial institutions such as retail banks, payment processors and PSPs,
treasury service providers, technical service providers and twelve major credit card acquirers
and issuing banks within Europe. These relationships cannot be immediately replicated,
having been carefully developed over a number of years and maintained by a relationship
team, which is also tasked with broadening the portfolio of banks and payment providers with
which the Skrill Group transacts.
Risk policies
5.31 The Skrill Group adheres to the compliance and regulatory standards relevant to its
business. The Skrill Group has developed internal and external control processes featuring
regular audits, comprehensive customer verification procedures and sophisticated risk
assessment measures. The Skrill Group adheres to a strict acceptable usage policy and
assesses its clients both at the on-boarding stage and on an ongoing basis. The Skrill Group
does not provide any of its product offerings to, amongst others, unlicensed distributors of
pharmaceutical products, distributors of weapons (without limitation, knives, guns, firearms or
ammunition) or distributors of drugs and drug paraphernalia. The Skrill Group’s client due
diligence policies and anti-money laundering procedures are carried out internally, using a
combination of external providers, for example, in relation to ‘‘mypaysafecard’’, Deutsche
Post AG, which offers the PostIdent online verification solution or by Cybits Holdings AG,
which offers verify-U, an electronic ID verification platform, supported by a combination of inhouse anti-money laundering systems and controls and external information sources such as
the Specially Designated Nationals list published by OFAC and the UK HM Treasury
sanctions list (see Part VI (Online Gambling Regulation) of this document for a description of
the Skrill Group’s risk assessment procedures). Where an external KYC solution is not
available, paysafecard outsources its KYC procedures to a service centre in Bulgaria, with
paysafecard supervising the verification process.
5.32 New Skrill Group customers are subject to regulatory transaction limits until their account has
been successfully verified. Once a customer is successfully verified, they are given full
payment privileges up to the standard transaction limits. The Skrill Group reports fraudulent
transactions to the relevant regulatory and law-enforcement agencies to protect merchants
and customers against fraudulent activity through the Skrill payment system.
Customer service
5.33 The Skrill Group provides a seven day a week customer telephone support service for
English speaking customers and offers 11 other languages during UK business hours, along
with 24 hour, 365 day online customer support. The Skrill Group provides a merchant
support service and technical support team, which addresses any potential issues for
merchants, including helping merchants to integrate the Skrill platforms (for payment
gateway, PSP, or paysafecard) with their front end and back office related technology and
are provided with training aimed to optimise the use of the Skrill Group products in order to
improve merchant conversion.
5.34 The Skrill Group has a dedicated customer service hotline for the reporting of lost or stolen
Prepaid MasterCardsâ.
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6.
6.1
PRINCIPAL MARKETS
The Skrill Group derived 91 per cent. of its revenue from Europe, 4 per cent. of its revenue
from the US and the remaining revenue from the rest of the world in FY2013 and 92 per
cent. of its revenue from Europe, 2 per cent. of its revenue from the US and the remaining
revenue from the rest of the world for the nine month period ended 30 September 2014. The
competitive landscape in which the Skrill Group operates is continually evolving and is
characterised by new product launches by other participants in the payments sector and
recent notable mergers and acquisitions.
6.2
Skrill competes with other e-Wallet providers which have a direct relationship with customers
such as PayPal (acquired in 2002 by eBay Inc.), Optimal Payments, Click+Buy, Amazon and
Google Checkout (owned by Google). In addition, other online businesses may develop
competing payments systems or virtual currencies to enable their customers to make
purchases on their platforms, such as Facebook Credits on the Facebook social network
platform, which enable Facebook’s users to pay for games, other media and applications on
the Facebook platform.
6.3
paysafecard competes with other providers of prepaid cards and vouchers such as Ukash
(prior to the completion of the Ukash Acquisition), Prepaid Visa and Prepaid MasterCardâ
products and 360Money provided by PrePay Technologies Ltd.
6.4
Skrill also competes with PSPs which provide merchants operating on the internet with a
back-end payments platform, primarily in the form of a payments gateway. Notable PSPs
include: GlobalCollect, Wirecard and Worldpay. Many large issuing banks and enterprise
software providers also offer a PSP platform, including JPMorgan (through Chase
Paymentech) and EVO Payments International GmbH. However, the majority of PSPs do not
have an e-Wallet product and therefore do not have a customer relationship.
6.5
A number of the other e-Wallet providers, PSPs and prepaid voucher providers with which
the Skrill Group competes are significantly larger than the Skrill Group and have been in
existence for longer, however Skrill has a focus on smaller merchants with more complex
payment needs (for example, higher fraud risk, multi-national / currency requirements,
complex payment consolidation and flow).
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PART VIII
OPERATING AND FINANCIAL REVIEW OF THE OPTIMAL PAYMENTS GROUP
The following is a discussion of the Optimal Payments Group’s financial condition and results of
operations for the periods under review. This discussion should be read in conjunction with Part IX
(Financial Information of the Optimal Payments Group) of this document. The consolidated financial
statements and the related notes for the Optimal Payments Group for the years ended and as at
31 December 2014, 2013 and 2012 have been prepared in accordance with IFRS as adopted for
use in the EU.
The following discussion and elsewhere in this document includes forward-looking statements that
reflect the Optimal Payments Group’s plans, estimates and beliefs, and involve risks and
uncertainties. Actual results and the timing of events could differ materially from those expressed
or implied by such forward looking statements as a result of various factors, particularly those
discussed in the section entitled ‘‘Risk Factors’’ and the paragraph relating to forward-looking
statements in the section entitled ‘‘Important Information’’.
1.
OVERVIEW
The Optimal Payments Group is a global provider of online and mobile payment processing
services. As at the Latest Practicable Date it provided its services to over 21,300 active merchants
and over 900,000 active customers. The Optimal Payments Group operates offices and data
centres in Europe, Canada, the Isle of Man, the United States and Mauritius.
The Optimal Payments Group derives the majority of its revenue from two key segments, being the
NETELLERâ (Stored Value) and the NETBANXâ (Straight Through Processing) segments. The
NETELLERâ segment includes a newly developed card issuing business, and the NETBANXâ
segment includes its Asia Gateway service. For FY2014, approximately 25 per cent. of the Optimal
Payments Group’s revenue was derived from the NETELLERâ segment and approximately 75 per
cent. from the NETBANXâ segment.
Historically, Optimal Payments has devised a substantial portion of its revenue from a single
merchant, representing 34 per cent. of FY2012 revenue and 41 per cent. of FY2013 revenue,
reducing to 36.7 per cent. of FY2014 revenue. Please see paragraph 5 of Part V (Information on
the Optimal Payments Group) for a detailed overview of the Optimal Payments Group’s business
operations.
NETELLERâ (Stored Value)
The Optimal Payments Group’s NETELLERâ stored value business (comprising the NETELLERâ,
Net+ service and the card services division) is an online stored value account which was launched
in 1999. The Optimal Payments Group provides its NETELLERâ services to merchants and
customers. The NETELLERâ and Net+ service allows customers to make instant and secure
guaranteed payments over the internet in a variety of sectors including entertainment, social
gaming, retail, financial services, travel and digital content and transfer money to family and
friends. As at the Latest Practicable Date, the NETELLERâ service has over 900,000 active
customers and of this number, approximately 50,000 active customers use the Net+ service (during
an average month) in more than 200 countries and territories, with coverage in 23 national
currencies and 15 languages.
The NETELLERâ segment also includes a card issuing business, issuing customers with pre-paid
cards, virtual cards or private label cards on behalf of merchants. Through its card issuing division,
the Optimal Payments Group is able to support a variety of different programmes and provide
merchants with a range of card programmes, from a white label card programme to fully
customised, multi-channel solutions. As at the Latest Practicable Date, the Optimal Payments
Group has over 530,000 Net+ physical cards in issue and over 590,000 Net+ virtual cards in issue.
NETBANXâ (STP)
The Optimal Payments Group acts as a payment service provider, using its NETBANXâ brand and
through its Asia Gateway service provides money transmission services to a number of European
and Australasian based merchants that have customers in Asia. NETBANXâ provides a payment
gateway for transactions where the customer is ‘‘not present’’. This payment gateway allows
customers to pay for goods and services on merchant websites or by mail order and/or telephone
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order, using various payment methods, including credit and debit cards, direct-from-bank and
alternative and local payments. As a payment service provider, the Optimal Payments Group
manages all connections to the card processing networks, the acquiring banks in multiple
territories, and the merchant’s online shopping basket software using one integration platform. The
Optimal Payments Group provides its NETBANXâ services to merchants only.
As at the Latest Practicable Date, the Optimal Payments Group’s STP business has more than
20,000 customers covering a variety of end markets including retail, online gaming, digital
download, travel, fantasy sports, subscription online dating and the ‘‘not for profit’’ market. During
FY2014, the Optimal Payments Group processed more than 130 million transactions worth more
than US$13 billion using its straight-through processing offering (the Optimal Payments Group
considers a transaction for these purposes to be a ‘settlement’, meaning the merchant receiving
money from the issuing bank).
NETBANXâ offers three services: (i) a direct service where NETBANXâ acts as a payment
gateway for merchants who already have an internet merchant account with an acquiring bank and
whereby NETBANXâ will receive a fee for each transaction processed, typically for a fixed amount
or, in the alternative, a percentage of the transaction value; (ii) a bureau service where
NETBANXâ provides the acquiring bank relationship for the merchant and therefore takes on the
risk of merchant failure; and (iii) an Asia Gateway service where NETBANXâ acts as a payment
gateway and provides money transmission services to a number of European and Australasian
based merchants that have customers in Asia, which is facilitated by a third party outsourced
service provider operating within Asia.
2.
PRINCIPAL FACTORS AFFECTING RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Optimal Payments Group’s results of operations have been affected by a number of factors
including the factors discussed below. The factors discussed below have materially influenced the
Optimal Payments Group’s results of operations in the periods under review and/or will likely
continue to affect its business and industry.
2.1
Organic growth in existing markets
NETBANXâ
The NETBANXâ business has enjoyed strong growth over the historical period as a result of
a continued increase in its merchants’ processing volumes. Through its global bank acquiring
relationships, NETBANXâ has the ability to service online global merchants in a multitude of
geographies through one single integration and one point of contact. This provides the
Optimal Payments Group with a unique opportunity to continue providing its NETBANXâ
products to its merchants as their businesses expand both in size and geographically, since
its solution is not constrained by a limited number of territories.
The Optimal Payments Group’s merchants rely on the NETBANXâ products to make
relevant payment methods available to their customers. Like other payment providers, the
Optimal Payments Group has the ability to accept all of the major card brands, including
Visa, MasterCard and American Express. However, a differentiator for the Optimal Payments
Group over the past two years has been its integration to alternative payment service
providers allowing global merchants to accept popular local payment brands such as
Giropay, Direct Debit, Ideal and Paypal.
NETELLERâ
NETELLERâ has grown consistently since 2012 due to multiple drivers. The customer
proposition was significantly enhanced in 2012 by the introduction of a bespoke VIP
programme, dedicated VIP relationship managers and a new NETELLERâ loyalty
programme. Customer service resources were increased and better organised, resulting in a
substantial decrease in contact centre queues and wait times and consequent improvement
in first time yield and customer satisfaction.
A revision of the pricing strategy was implemented, which resulted in certain fees being
removed altogether while other fees were increased, in some cases very significantly on
transactions with low customer price elasticity.
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Sales and merchant account management teams were strengthened and more productive
merchant relationships developed, resulting in greater prominence of the NETELLERâ
service on the merchants’ payment pages which powered greater referral sign-ups and
conversions.
The NETELLERâ affiliate marketing team was also strengthened and an aggressive affiliate
acquisition and marketing initiative launched, which has proven to be very successful with
revenue through this channel posting in excess of 250 per cent. year on year growth.
There has been consistent improvement in NETELLERâ’s range of core products, with at
least seven product/platform releases each year since 2012, with ten product/platforms being
released during FY2014, successively enhancing customer utility or geographic reach.
Significant elements of the NETELLERâ business have been reviewed and improved over
the last three years, through process change, proposition enhancement, increased numbers
and quality of employees, better marketing and sales and more effective pricing.
2.2
US Acquisitions
On 23 July 2014, the Optimal Payments Group acquired all of the partnership interests of
California based payment processing entity TK Global Partners LP (‘‘Meritus’’) (doing
business as ‘Meritus Payment Solutions’) for consideration of $210 million consisting of $150
million in cash and $60 million of Optimal Payments shares (issued in equal tranches over
four years commencing on the first anniversary of the closing date) (the ‘‘Meritus
Acquisition’’).
On the same date, the Optimal Payments Group also acquired the trade and assets of
Global Merchant Advisors, Inc. (‘‘GMA’’), a US based online payments company, for up to
$15 million in cash, $5 million of which is contingent upon future performance of the
business (the ‘‘GMA Acquisition’’, together with the Meritus Acquisition, the ‘‘US
Acquisitions’’).
The Acquisitions provided the Optimal Payments Group with an enhanced US merchant
portfolio, an established multi-channel US sales force and additional established US acquiring
bank relationships with US bank partners. In addition to this strategic fit, the Acquisitions add
further scale to the NETBANXâ business from a financial perspective as Meritus and GMA
are profitable, fast growing cash generative business that are expected to enhance earnings
of the Optimal Payments Group. For the year ended 31 December 2014, Meritus and GMA
generated revenues of $100.6 million and $21.7 million, respectively.
2.3
NETELLERâ AND Net+ launch in the US
In March 2014 the Optimal Payments Group launched the US version of its NETELLERâ
Stored Value solution for the recently regulated online US gambling market.
In 2006, NETELLERâ was the primary deposit method used for online gambling sites in the
US, generating annual revenues of over $200 million. In October 2006 the UIGEA made
online gambling illegal in the US and in January 2007 NETELLERâ withdrew from that
market. Three states have now legalised and regulated online gambling: Nevada, Delaware
and New Jersey. NETELLERâ went through an extensive approval process in New Jersey
which resulted in it being found suitable to provide payment services to online gambling
operators in that state. NETELLERâ has now been adopted by most of the online gambling
companies operating in those states as credit and debit card rejection rates remain high and
NETELLERâ provides an alternative solution.
To date, the online gambling revenues and associated payments revenues have been
modest as the population of the states which have regulated online gambling is small,
however the Optimal Payments Group expects that larger states such as California and
Pennsylvania will move towards legalising online gaming in 2015, which would increase the
size of the market and liquidity in those markets.
2.4
Principal Membership granted in the EU
In January 2014, the Optimal Payments Group announced that it had secured principal
membership with Visa Europe and MasterCard Europe (‘‘Principal Membership’’), enabling
it to offer competitive acquiring services to merchants in the European Union commencing in
the fourth quarter of 2014. This was a significant achievement for the Optimal Payments
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Group as it increases the addressable market for the NETBANXâ offering, enabling
NETBANXâ to compete on a level playing field with banks that also benefit from interchange
pricing from Visa and MasterCard. Following the securing of Principal Membership, some set
up costs were incurred in 2014 and the Optimal Payments Group does not expect to realise
material benefits from Principal Membership until FY2016.
2.5
Seasonality
The Optimal Payments Group has a small element of seasonality in its revenues.
NETBANXâ STP revenues normally increase between October and January from an
increase in travel and purchases at retail merchants due to the holiday season.
NETELLERâ Stored Value fees’ seasonality relates to sportsbook betting and follows the
European football season, primarily UK Premier League football. As a result NETELLERâ
Stored Value revenue generally decreases from when the Premier League season ends in
late May and resumes again in mid-August. Casino and poker related revenues are generally
not seasonal.
2.6
Growth of the digital payments industry
The Optimal Payments Group operates in the high growth digital payments industry. The
core market comprises the provision of services which enable merchants and customers to
make and accept payments over the internet. The results of operations are therefore
dependent on the rate of growth of the adoption of the digital payments model by merchants
and customers. The digital payments industry has demonstrated significant growth across
geographies during the period under review and is expected to continue to do so, while
increasing internet penetration is a key driver behind the industry’s growth.
This includes an increasing number of ‘‘bricks-and-mortar’’ merchants shifting their sales
channels to focus on the internet, given the inherent cost and distribution advantages of
selling goods and services this way. Other industry drivers include the growth of online
gaming, VoIP communications, micropayments, internet-based remittances, virtual goods and
the emergence of mobile internet-enabled devices.
Going forward, the growth of the Optimal Payments Group’s business in the medium to long
term will depend, in part, on continued industry growth and its ability to remain competitive in
this evolving industry.
2.7
Legal and regulatory developments
Online gambling is the newest and fastest growing part of the world gambling industry and
the regulatory environment to which the online gambling industry is subject is in a state of
constant development. The regulation and legality of online gambling varies significantly from
jurisdiction to jurisdiction as a variety of jurisdictions seek to regulate and tax gambling
transactions and such laws and regulations are often subject to conflicting interpretations.
Some jurisdictions have sought to prohibit online gambling in its entirety.
The Optimal Payments Group does not operate a gambling company itself and as a result
does not require any gambling licences or associated regulatory permissions. However, the
Optimal Payments Group’s NETELLERâ business offers an online alternative to traditional
payment methods and NETELLERâ’s customers are primarily using the service to pay for
online gambling services. In addition, in March 2014, the Optimal Payments Group launched
a NET+ prepaid card stored value product for the US regulated online gambling market. In
FY2013 and FY2014, the Optimal Payments Group derived approximately 61 per cent. and
55 per cent., respectively, of its revenue directly or indirectly from processing transactions for
merchants and customers in the online gambling sector.
Given the importance of the online gambling sector to the business of the Optimal Payments
Group, it expends significant time and resource to ensure that it has an in-depth
understanding of the regulatory environment in the main territories in which its gambling
industry merchants and customers operate, monitoring closely the developing regulatory
regimes in those territories and adapting its own business acceptance policies where
necessary. See Part VI (Online Gambling Regulation) for further information across the
163
principal jurisdictions in which the Optimal Payments Group operates and ‘‘Risk Factors –
The Optimal Payments Group and the Enlarged Group is subject to certain regulatory risks’’
for information relating to certain regulatory risks affecting the Optimal Payments Group.
3.
KEY PERFORMANCE METRICS
In evaluating the Optimal Payments Group’s results of operations, the Optimal Payments Group’s
management refer to a number of key financial measures including those from the Optimal
Payments Group’s IFRS results of operations discussed in paragraph 5 of this Part VIII, as well as
EBITDA, a non-IFRS measure used to evaluate the Optimal Payments Group’s performance.
3.1
Revenue by key business lines
(a)
NETBANXâ STP fees
NETBANXâ STP fees are generated through NETBANXâ and the Asia Gateway
service via straight-through processing platforms where customers send money directly
to merchants. Merchants are charged a fee or rate, which is based upon the
merchant’s monthly charge volume and risk profile, and this fee is calculated as a
percentage of the dollar amount of each transaction. Other payment service revenues
are derived from a variety of fixed transaction or service fees, including fees for
monthly minimum charge volume requirements, statement fees, annual fees and fees
for other miscellaneous services, such as handling chargebacks.
Unlike its direct NETBANXâ service, NETBANX’sâ bureau service takes on the risk of
merchant failure and, as a result, NETBANXâ is usually able to charge additional fees.
These generally include a fixed transaction fee, a percentage of the transaction value, a
monthly account fee and chargeback fees if customers make chargebacks.
(b)
NETELLERâ and Net+ Stored Value fees
NETELLERâ Stored Value fees are generated on transactions between Members and
Merchants using the NETELLERâ service and Net+ prepaid cards. Members are
charged fees for various deposit and withdrawal methods. Merchants are charged a fee
calculated as a percentage of funds processed or as a charge per payment made to or
from the Merchant website by a NETELLERâ Member. NETELLERâ Stored Value fees
are therefore driven by the level of funds deposited by Members which then churn
between such Members’ accounts and the Merchant accounts.
NETELLERâ generates the majority of its revenues (approximately 61 per cent. in
FY2013 and 64 per cent. in FY2014) from the fees it charges the merchants who
accept NETELLERâ payments. A merchant will be charged a fee (typically between 2
to 4 per cent.) for every transfer from or into a NETELLERâ Account. NETELLERâ
also earns fees from foreign exchange and Net+ pre-paid cards, with the remaining
revenues generated from customer deposits and withdrawals, dormant account fees and
the retention of funds that have not been reclaimed customers upon the expiry of
accounts. In order to use the NETELLERâ Account, a customer will effect a fee free
bank transfer of funds to the NETELLERâ Account or will load funds using alternative
payments methods such as debit or credit card (for a fee of between 1.9 and 4.95 per
cent. of the value transferred).
For both the NETBANXâ and NETELLERâ segments, fee levels generally correspond
to numbers of customers and merchants and volume of transactions, as with limited
exceptions the Optimal Payments Group has been able to maintain its price levels
charged to customers and merchants.
3.2
EBITDA
EBITDA is a non-IFRS measure and may not be comparable to similarly titled measures
presented by other companies in the Optimal Payments Group’s industry or otherwise.
Nevertheless, the Optimal Payments Group’s management believe that this measure is
important to understand the Optimal Payments Group’s performance and liquidity from period
to period and to assist with the Optimal Payments Group’s evaluation of growth trends and
preparation of budgets. EBITDA should not be considered in isolation or as an alternative to
gross profit, cash flow or other financial measures that are derived in accordance with IFRS.
EBITDA is not audited.
164
Year ended 31 December
2014
2013
2012
Revenue
365.0
(US$ million)
253.4
179.1
EBITDA
86.1
52.2
27.6
(21.0)
(5.1)
(0.1)
(0.2)
(6.7)
(3.0)
(5.9)
—
(8.3)
(2.0)
—
—
(3.0)
(11.6)
(13.5)
(4.1)
(0.1)
—
(6.1)
(3.2)
—
—
(4.5)
(1.0)
(0.8)
(0.6)
0.9
—
(11.8)
(2.9)
(0.1)
—
(5.6)
(3.2)
—
(5.6)
(3.9)
(1.8)
(0.8)
(0.8)
0.7
—
Depreciation and amortisation
Depreciation (internal)
Depreciation (Optimal Acquisition)
Depreciation (GMA/Meritus)
Amortisation (internal)
Amortisation (Optimal Acquisition)
Amortisation (GMA/Meritus)
Supplementary management bonus
Share option expense
Finance costs
Restructuring costs
Loss on disposal of assets
Foreign exchange (loss) / gain
Acquisition costs
Net fair value gain on share consideration
payable
Profit / (loss) before tax
3.3
18.8
—
—
59.0
32.7
3.6
Cost of sales by key business lines
(a) NETBANXâ STP cost of sales
NETBANXâ STP cost of sales includes processing costs and bad debts only.
Processing costs are primarily fees paid to acquiring banks. Bad debts occur where a
merchant goes bankrupt and chargebacks fall on NETBANXâ. NETBANXâ mitigates
this risk by taking a combination of reserves, rolling reserves and in some cases
insurance against bad debts. Bad debts as a proportion of volume processed and
associated NETBANXâ STP fees have been immaterial since 2011.
(b)
NETELLERâ Stored Value cost of sales
NETELLERâ Stored Value cost of sales include processing costs and bad debts only.
Processing costs are primarily costs incurred when funds are loaded into NETELLERâ
by a Member and are related to that funding method (e.g. credit cards, debit cards,
banks wire products and voucher systems). These costs are passed on to the Member
in the form of deposit fees and are generally charged at a small mark-up to costs and
included within the NETELLERâ Stored Value fee line.
Costs relating to loyalty programme costs and affiliate and agent commission payments
for VIP Customers and payments to affiliates who introduce Members or Merchants to
NETELLERâ are not included in cost of sales as they only attach to a small subsection
of the fees generated. Instead these costs are included in the Marketing and
Promotions non-fee expenses line item. The loyalty programme was introduced in first
quarter of 2012.
165
3.4
Gross margin by key business lines
(a)
NETBANXâ STP gross margin
Year ended 31 December
2014
2013
2012
(US$ million)
NETBANX STP revenue
Variable costs:
Processing costs
Bad debts / (recoveries)
274.7
193.0
138.9
161.7
0.5
111.7
0.2
80.6
0.3
Total variable costs
162.2
111.9
81.0
NETBANX STP gross margin
112.5
81.1
57.9
41%
42%
42%
NETBANX STP gross margin percentage
(b)
NETELLERâ Stored Value gross margin
Year ended 31 December
2014
2013
2012
NETELLER Stored Value revenue
Variable costs:
Processing costs
Bad debts
89.6
(US$ million)
59.8
38.8
11.9
1.7
8.8
0.7
7.4
1.0
Total variable costs
13.6
9.5
8.4
NETELLER Stored Value gross margin
76.0
50.3
30.4
NETELLER Stored Value gross margin
percentage
85%
84%
78%
Gross margin is equal to revenue less processing costs and bad debts as detailed above.
For NETELLERâ, these costs primarily relate to the methods of deposit into the
NETELLERâ wallet system. Once in the system, the variable cost of moving cash to and
from merchants is negligible. Accordingly, NETELLERâ Stored Value gross margin has
increased since FY2012 as the Optimal Payments Group has lowered the cost of its deposit
methods, while increasing deposit method pricing. Also higher margin merchant fees have
increased as a proportion of total NETELLERâ Stored Value fees as members move their
funds more often. As a result NETELLERâ’s gross margin percentage increased from 78 per
cent. for FY2012 to 84 per cent. in FY2013 and 85 per cent. in FY2014.
3.5
Low Marginal Non-Fee Expenses
The Optimal Payments Group’s profitability has been positively affected by the Optimal
Payments Group’s low marginal non-fee expenses. To a large extent, the Optimal Payments
Group’s non-fee expenses do not vary in proportion to revenues. As a result, the Optimal
Payments Group’s two business lines operate as geared platforms that can accommodate
substantial increases in the numbers of merchants and volume processes with minimal
increases in non-fee expenses. Non-fee expenses did not materially change for the years
2012, 2013 and 2014 even though the Optimal Payments Group’s revenues increased
substantially during these periods, from $179.1 million in 2012 to $253.4 million in 2013 and
to $365.0 million in 2014. Principal components of non-fee expenses include salaries and
employee expenses, technology and software and marketing and promotions (including
loyalty programme costs, affiliate and agent commissions and payments to affiliates who
introduce members to NETELLERâ). Non-fee expenses are charged on a general group
basis and not by particular business lines.
166
4.
CURRENT TRADING / RECENT DEVELOPMENTS
In the period since 31 December 2014, the Optimal Payments Group has continued to trade in line
with management expectations.
5.
RESULTS OF OPERATIONS
The following table shows the Optimal Payments Group’s consolidated statement of comprehensive
income for the years ended 31 December 2014, 2013 and 2012.
Year ended 31 December
2014
2013
2012
(Audited)
(US$ million)
Revenue
NETBANX STP fees
NETELLER Stored Value fees
Investment income
274.7
89.6
0.7
193.0
59.8
0.5
138.9
38.8
1.4
365.0
253.4
179.1
162.2
13.6
112.0
9.5
81.0
8.4
175.8
121.5
89.4
189.1
131.9
89.6
41%
85%
52%
42%
84%
52%
42%
78%
50%
54.8
20.5
11.1
5.1
15.2
3.9
0.7
—
21.0
11.6
—
3.0
—
(18.8)
41.1
18.4
9.0
4.3
8.0
2.7
0.7
—
13.5
—
0.8
(0.9)
0.5
—
36.1
13.0
7.6
2.9
3.8
2.2
0.4
—
11.8
—
0.7
(0.7)
6.4
—
128.1
98.1
84.2
Results from operating activities
Finance costs
61.0
2.0
33.7
1.0
5.4
1.8
Profit before tax
59.0
32.7
3.6
1.3
1.2
2.5
57.7
31.5
1.2
0.9
(0.9)
(0.1)
58.6
30.6
1.1
Basic profit per share
$0.36
$0.22
$0.01
Fully diluted profit per share
$0.32
$0.20
$0.01
Cost of sales
STP expenses
Stored Value expenses
Gross profit
Gross margin STP (%)
Gross margin Stored Value (%)
Gross margin Total (%)
Non fee expenses
Salaries and employee expenses
Technology and software
Premises and office costs
Professional fees
Marketing and promotions
Travel and entertainment
Bank charges
Impairment charge
Depreciation and amortisation
Acquisition costs
Restructuring costs
Foreign exchange gain
Other expenses
Net fair value gain on share consideration payable
Income tax expense
Profit for the year after tax attributable to the owners of
the Optimal Payments Group
Other comprehensive income
Foreign currency translation differences for foreign
operations, net of income tax
Total comprehensive income for year attributable to the
owners of the Optimal Payments Group
167
5.1
Year ended 31 December 2014 compared to year ended 31 December 2013
(a)
Revenue
NETBANXâ STP fees
The Optimal Payments Group’s revenue from NETBANXâ STP fees increased
$81.7 million, or 42 per cent., to $274.7 million for the year ended 31 December 2014
from $193.0 million for the year ended 31 December 2013. This increase was primarily
attributable to strong organic growth, particularly in the Asia Gateway Service, as well
as an additional $18.8 million contributed from the acquired businesses of Meritus and
GMA since 23 July 2014.
NETELLERâ Stored Value fees
The Optimal Payments Group’s revenue from NETELLERâ Stored Value fees increased
$29.8 million, or 50 per cent., to $89.6 million for the year ended 31 December 2014
from $59.8 million for the year ended 31 December 2013. This increase was primarily
attributable to continued improvements in member signups, conversions and average
spend per user in addition to an uplift due to the FIFA Football World Cup in the
months of June and July 2014.
Investment income
The Optimal Payments Group’s investment income increased $0.2 million, or 40 per
cent., to $0.7 million for the year ended 31 December 2014 from $0.5 million for the
year ended 31 December 2013. This increase was primarily attributable to an increase
in the amount of member and merchant cash held in segregated accounts throughout
the period, while interest rates remained fairly consistent.
(b)
Cost of sales
NETBANXâ STP cost of sales
The Optimal Payments Group’s STP cost of sales increased $50.3 million, or 45 per
cent., to $162.3 million for the year ended 31 December 2014 from $112.0 million for
the year ended 31 December 2013. This increase was primarily attributable to the
increase in NETBANXâ STP fees earned over the same period, as STP expenses vary
directly in line with processing volumes, which drive both the fees and cost of sales.
NETELLERâ Stored Value cost of sales
The Optimal Payments Group’s Stored Value cost of sales increased $4.1 million, or
43 per cent., to $13.6 million for the year ended 31 December 2014 from $9.5 million
for the year ended 31 December 2013. This increase was primarily attributable to
increased volumes processed within NETELLERâ as a result of member and merchant
activity, as evidenced in the increase in NETELLERâ Stored Value fees earned in this
period, although the cost of sales increase was less than the growth in NETELLERâ
revenue due to the negligible variable costs of moving additional cash to and from
merchants.
(c)
Gross profit
The Optimal Payments Group’s gross profit increased $57.2 million, or 43 per cent., to
$189.1 million for the year ended 31 December 2014 from $131.9 million for the year
ended 31 December 2013. This increase was primarily attributable to increased fees
from both business lines.
(d)
Non-fee expenses
The Optimal Payments Group’s total non-fee expenses increased $30.0 million, or
31 per cent., to $128.1 million for the year ended 31 December 2014 from $98.1 million
for the year ended 31 December 2013. This increase was primarily attributable to
several factors, most notably the following:
Salaries and employee expenses
The Optimal Payments Group’s salaries and employee expenses increased $13.7 million,
or 33 per cent., to $54.8 million for the year ended 31 December 2014 from
$41.1 million for the year ended 31 December 2013. This increase was due to hiring
over 100 full-time employees in the period, as well as adding an additional
168
100 employees in July 2014 through the acquisition of Meritus and GMA. The total
number of employees at 31 December 2014 was 712, compared with 516 at
31 December 2013.
Marketing and promotions
The Optimal Payments Group’s marketing and promotions expenses increased
$7.2 million, or 90 per cent., to $15.2 million for the year ended 31 December 2014
from $8.0 million for the year ended 31 December 2013. This increase was primarily
attributable to the costs of the NETELLERâ loyalty programme and affiliate and agent
commissions incurred in order to support the increase in NETELLERâ Stored Value
fees earned in this period. Additionally, NETELLERâ became the official shirt and
ground sponsor of Crystal Palace Football Club.
Depreciation and amortisation
The Optimal Payments Group’s depreciation and amortisation increased $7.5 million, or
56 per cent., to $21.0 million for the year ended 31 December 2014 from $13.5 million
for the year ended 31 December 2013. This increase was due to an increase in various
intangible assets acquired from Meritus and GMA, including intellectual property,
merchant and supplier contracts and customer lists.
Acquisition costs
The Optimal Payments Group’s acquisition costs amounted to $11.6 million in FY2014
due to the US Acquisitions, representing various professional fees incurred in
connection with the due diligence and financing process.
Net fair value gain on share consideration payable
The Optimal Payments Group experienced a gain of $18.8 million in FY2014
attributable to the net fair valuation of the deferred share consideration payable for the
Meritus acquisition.
5.2
(e)
Profit before tax
The Optimal Payments Group’s profit before tax increased $26.3 million, or 80 per
cent., to $59.0 million for the year ended 31 December 2014 from $32.7 million for the
year ended 31 December 2013. This increase was primarily attributable to factors
described above including the increase in gross profit offset by a moderate increase in
non-fee expenses.
(f)
Profit for the period after tax
The Optimal Payments Group’s profit for the period after tax increased $26.2 million, or
83 per cent., to $57.7 million for the year ended 31 December 2014 from $31.5 million
in for the year ended 31 December 2013. This increase was primarily attributable to
factors described above.
(g)
Total comprehensive profit
The Optimal Payments Group’s total comprehensive profit increased $28 million, or
92 per cent., to $58.6 million for the year ended 31 December 2014 from $30.6 million
for the year ended 31 December 2013. This increase was primarily attributable to
factors described above and due to an increase in the foreign translation reserves
resulting from translation differences arising upon consolidation of subsidiaries reporting
in currencies other than US dollars, being primarily Canadian dollars and GBP.
Year ended 31 December 2013 compared to year ended 31 December 2012
(a)
Revenue
NETBANXâ STP fees
The Optimal Payments Group’s revenue from NETBANXâ STP fees increased
$54.1 million, or 39 per cent., to $193.0 million for the year ended 31 December 2013
from $138.9 million for the year ended 31 December 2012. This increase was primarily
attributable to strong organic growth from existing gambling and non-gambling
merchants, particularly in relation to their services in Asia and Europe, as well as from
new merchants launched during the year.
169
NETELLERâ Stored Value fees
The Optimal Payments Group’s revenue from NETELLERâ Stored Value fees increased
$21.0 million, or 54 per cent., to $59.8 million for the year ended 31 December 2013
from $38.8 million for the year ended 31 December 2012. This increase was primarily
attributable to initiatives commenced in 2012 including intensive marketing, VIP-focused
promotions, geographic expansion and improved merchant relationship management, all
of which helped increase NETELLERâ member sign-ups significantly.
Investment income
The Optimal Payments Group’s investment income decreased $0.9 million, or 64 per
cent., to $0.5 million for the year ended 31 December 2013 from $1.4 million for the
year ended 31 December 2012. This decrease was a result of lower available deposit
rates.
(b)
Cost of sales
NETBANXâ STP cost of sales
The Optimal Payments Group’s STP cost of sales increased $31 million, or 38 per
cent., to $112.0 million for the year ended 31 December 2013 from $81.0 million for the
year ended 31 December 2012. This increase was primarily attributable to the increase
in NETBANXâ STP fees earned in 2013 as costs vary directly with the processing
volumes, which drive both the fees and cost of sales.
NETELLERâ Stored Value costs of sales
The Optimal Payments Group’s Stored Value cost of sales increased $1.1 million, or
13 per cent., to $9.5 million for the year ended 31 December 2013 from $8.4 million for
the year ended 31 December 2012. This increase was primarily attributable to
increased volumes processed within NETELLERâ as a result of member and merchant
activity, as evidenced in the increase in NETELLERâ Stored Value fees earned in
2013, although the cost of sales increase was less than the growth in NETELLERâ
revenue due to the negligible variable costs of moving additional cash to and from
merchants.
(c)
Gross profit
The Optimal Payments Group’s gross profit increased $42.3 million, or 47 per cent., to
$131.9 million for the year ended 31 December 2013 from $89.6 million for the year
ended 31 December 2012. This increase was primarily attributable to increased fees
from both business lines.
(d)
Non-fee expenses
The Optimal Payments Group’s total non-fee expenses increased $13.9 million, or
17 per cent., to $98.1 million for the year ended 31 December 2013 from $84.2 million
for the year ended 31 December 2012. This increase was primarily attributable to
several factors, most notably the following:
Salaries and employee expenses
The Optimal Payments Group’s salaries and employee expenses increased $5.0 million,
or 14 per cent., to $41.1 million in the year ended 31 December 2013 from $36.1 million
in the year ended 31 December 2012. This increase was primarily attributable to the
hiring of over 100 full-time employees during the year. The total number of employees
at 31 December 2013 was 516, as compared with 387 at 31 December 2012.
Technology and software
The Optimal Payments Group’s technology and software expenses increased
$5.4 million, or 42 per cent., to $18.4 million in the year ended 31 December 2013 from
$13.0 million in the year ended 31 December 2012. This increase was due to continued
investment in the NETELLERâ and NETBANXâ platforms.
170
Marketing and promotions
The Optimal Payments Group’s marketing and promotions
$4.2 million, or 111 per cent., to $8.0 million in the year ended 31
$3.8 million in the year ended 31 December 2012. This increase
the NETELLERâ loyalty programme, which was introduced in
affiliate and agent commissions incurred as a direct result
NETELLERâ Stored Value fees earned in the year.
expenses increased
December 2013 from
was primarily due to
February 2012, and
of the increase in
(e)
Profit before tax
The Optimal Payments Group’s profit before tax increased $29.1 million, to $32.7 million
for the year ended 31 December 2013 from $3.6 million for the year ended
31 December 2012. This increase was primarily attributable to substantial increases in
fees in the two business lines, particularly in the higher margin NETELLERâ business.
(f)
Profit for the year after tax
The Optimal Payments Group’s profit for the year after tax increased $30.3 million, to
$31.5 million for the year ended 31 December 2013 from $1.2 million for the year
ended 31 December 2012. This increase was primarily attributable to factors described
above while income tax provisions remained relatively stable despite an increase in
Optimal Payments Group profits.
(g)
Total comprehensive profit
The Optimal Payments Group’s total comprehensive profit increased $29.5 million to
$30.6 million for the year ended 31 December 2013 from $1.1 million for the year
ended 31 December 2012. This increase was primarily attributable to factors described
above and due to an increase in the foreign translation reserves resulting from
translation differences arising upon consolidation of subsidiaries reporting in currencies
other than US dollars, being primarily Canadian dollars and GBP.
6.
LIQUIDITY AND CAPITAL RESOURCES
6.1
General
The Optimal Payments Group’s liquidity requirements arise principally from its working capital
requirements and capital expenditure. The Company’s obligations for these requirements are
met by the cash generated from operations and the Company typically benefits from very low
levels of indebtedness.
The Optimal Payments Group, and following the Acquisition the Enlarged Group, intends to
continue to finance its working capital and capital expenditures and any future acquisitions
with a combination of cash flows from operations and debt facilities. As at 31 December
2014, the Optimal Payments Group had current financial debt of $25.6 million, non-current
financial debt of $107.2 million and total cash of $151.1 million of which $44.6 million relates
to merchant transient cash, resulting in net financial funds of $23.3 million. As at
31 December 2014, the Optimal Payments Group had a committed term credit facility of
$100 million and a committed revolving credit facility of $50 million, of which as of that date
$90 million was drawn under the term facility and $37 million was drawn under the revolving
facility. The term facility is repayable in quarterly instalments of $5 million each, and both the
term and revolving facilities are repayable on maturity in July 2017. The Optimal Payments
Group’s borrowings generally are not seasonal.
The Optimal Payments Group’s total gross cash was $170.6 million at 31 December 2013
($95.4 million at 31 December 2012) and $151.1 million at 31 December 2014. This included
cash and cash equivalents, plus restricted merchant cash balances and restricted member
cash balances (the excess of qualifying liquid assets held in respect of e-money issued to
members over member balances payable).
The cash and cash equivalents balance at 31 December 2013 of $164.4 million ($82.2 million
at 31 December 2012), and $142.3 million at 31 December 2014 represents the cash of the
Optimal Payments Group. Included in cash and cash equivalents is a transient cash balance
(totalling $76.8 million at 31 December 2013 and $44.6 million at 31 December 2014) that
relates to merchant transactions processed via the NETBANX gateway operations and
171
security deposits held from the Optimal Payments Group’s bureau merchants. Excluding cash
at processors and certain security deposits of $41.9 million at 31 December 2014, free cash
available to the Optimal Payments Group at 31 December 2014 was $44 million.
6.2
Cash flows
The following table sets out summary cash flow information of the Company for the periods
indicated:
Year ended 31 December
2014
2013
2012
(Audited)
(US$ millions)
Net cash generated by operating activities
Net cash generated by (consumed in) investing
activities
Net cash generated by (consumed in) financing
activities
Net increase/(decrease) in cash and cash
equivalents
Cash and cash equivalents at the beginning of
the financial year
Effect of movement in foreign exchange on cash
and cash equivalents held
Translation of foreign operations
Cash and cash equivalents at the end of the
financial year
(a)
47.4
100.3
29.4
(180.3)
(13.1)
(6.5)
124.9
(6.1)
(0.8)
81.0
22.1
164.4
82.2
58.0
(15.4)
1.3
0.0
1.2
2.4
(0.3)
(8.0)
142.3
164.4
82.1
Year ended 31 December 2014 compared to year ended 31 December 2013
Net cash generated by operating activities was $47.4 million for the year ended
31 December 2014, a decrease of $52.9 million from the net cash generated by
operating activities of $100.3 million for the year ended 31 December 2013. The lower
net cash generated by operating activities was a result of a reduction in the amount of
funds owed to merchants included in trade accounts payable.
Net cash consumed in investing activities was $180.3 million for the the year ended
31 December 2014, an increase of $167.2 million from the net cash generated by
investing activities of $13.1 million for the year ended 31 December 2013. The higher
net cash consumed in investing activities was a result of the acquisitions of Meritus and
GMA.
Net cash generated by financing activities was $124.9 million for the year ended
31 December 2014, an increase of $131 million from the net cash generated by
financing activities of $13.1 million for the year ended 31 December 2014. The increase
in cash generation was primarily attributable to the borrowing of $141.0 million for the
purpose acquiring Meritus and GMA.
(b)
Year ended 31 December 2013 compared to year ended 31 December 2012
Net cash generated by operating activities was $100.3 million for the year ended
31 December 2013, an increase of $70.9 million from the net cash generated by
operating activities of $29.4 million for the year ended 31 December 2012. The higher
net cash generated by operating activities was a result of increased net profits, while
maintaining relatively consistent working capital requirements.
Net cash consumed in investing activities was $13.1 million for the year ended
31 December 2013, an increase of $6.6 million from the net cash consumed in
investing activities of $6.5 million for the year ended 31 December 2012. The higher net
172
cash consumed investing activities was as a result increased investment in the Optimal
Payments Group’s technology as evidenced by the additions to property, plant and
equipment and platform development during the year.
Net cash consumed in financing activities was $6.1 million for the year ended
31 December 2013 an increase of $5.3 million from the net cash consumed in financing
activities of $0.8 million for the year ended 31 December 2012. The higher net cash
consumed in financing activities is mainly attributable to the repayment of the contingent
consideration payable to the vendors of the Optimal Payments business acquisition of
2011.
(c)
Year ended 31 December 2012 compared to year ended 31 December 2011
Net cash generated by operating activities was $29.4 million for the year ended
31 December 2012, a decrease of $5.3 million from the net cash generated by
operating activities of $36.7 million for the year ended 31 December 2011. The lower
net cash generated by operating activities was a result of increased working capital
requirements of the business, including significant increases in prepaid expenses and
deposits.
Net cash consumed in investing activities was $8.5 million for the year ended
31 December 2012, a decrease of $29.2 million from the net cash consumed in
investing activities of $37.7 million for the year ended 31 December 2011. The lower
net cash consumed in investing activities was due to the fact that a business was
acquired in 2011, resulting in a significant additions to property, plant and equipment
and goodwill and intangible assets in 2011, as compared to 2012.
Net cash consumed in financing activities was $0.8 million for the year ended
31 December 2012 an increase of $13.9 million from the net cash generated by
financing activities of $13.1 million for the year ended 31 December 2011. The higher
net cash consumed in financing activities is attributable to the repayment of various
debt in 2012 relating to the acquisition of the Optimal Payments business in 2011.
6.3
Capitalisation and financial indebtedness
(a) Capitalisation
The following table sets out the capitalisation and financial indebtedness of Optimal
Payments at 31 December 2014. There has been no material change in the
capitalisation and financial indebtedness of Optimal Payments since 31 December 2014:
As at
31December
2014
Share capital
Share premium
Capital redemption reserve
Equity reserve on share option issuance
Translation reserve
Retained earnings
Total Equity
(US$
million)
0.04
86.9
—
27.3
(0.9)
95.0
208.3
173
(b)
Financial Indebtedness and Net Indebtedness
The following table sets out the gross financial indebtedness of the Optimal Payments
Group as at 31 December 2014.
As at
31 December
2014
(audited)
(US$ million)
Total current debt
Guaranteed
Secured
Unguaranteed/Unsecured
—
20.6
5.0
25.6
Total non-current debt
Guaranteed
Secured
Unguaranteed/Unsecured
—
107.2
—
107.2
Total gross indebtedness
132.8
The following table sets out the net financial indebtedness as at 31 December 2014
As at
31 December
2014
(audited)
(US$ million)
Cash and cash equivalents
142.3
Restricted NETELLER cash (net)
8.8
Current bank debt
Other current financial debt
(20.0)
(0.6)
Current financial indebtedness
(20.6)
Net current financial funds
Non-current bank debt
Other non-current financial debt
130.5
(107.0)
(0.2)
Non-current financial indebtedness
(107.2)
Net financial funds
(c)
23.3
Credit Facilities
The Optimal Payments Group’s credit facilities consist of a $100 million term loan
facility and a $50 million revolving loan facility, each maturing in July 2017, being the
third anniversary following the US Acquisitions. The term loan facility is repayable in
quarterly instalments of $5 million with the balance due upon maturity. As at the Latest
Practicable Date, outstanding borrowings were $90 million under the term loan facility
and $37 million under the revolving loan facility. Additional borrowings under these
174
facilities will be available to the Optimal Payments Group to support its funding needs
in the event that the Acquisition is not completed and the New Facilities Agreement
therefore is not utilised.
Each of the Optimal Payments Group’s material subsidiaries have guaranteed the credit
facilities although the guarantees from each of Optimal Payments Limited and Optimal
Payments Merchant Services Limited are limited in nature. The borrowers and the unlimited
guarantors have granted a lien on substantially all of their assets as security for the credit
facilities. The Optimal Payments Group is required to respect certain financial covenants
which are tested quarterly on a consolidated basis.
The Optimal Payments Group has entered into a New Facilities Agreement in connection
with the Acquisition. The proceeds borrowed under the New Facilities Agreement also will be
used to repay the existing loan facilities described above. See paragraph 14.1 of Part XVI
(Additional Information) for a description of the New Facilities Agreement.
6.4
Capital expenditures
The Optimal Payments Group’s business is not capital intensive. For the periods under
review, Optimal Payments’ capital expenditure has ranged from 3 per cent. to 5 per cent. of
its total revenue. However, the Optimal Payments Group continuously plans capital
expenditure for the development of its business, principally in respect of (i) capitalised
development costs relating to product innovation, including capitalised software and
development costs and the purchase of software licences and (ii) information technology and
hardware.
The following table sets out the Optimal Payments Group’s capital expenditures for the
periods shown:
Year ended 31 December
2014
2013
2012
(Audited)
(US$ millions)
Purchase of intangible assets
Purchase of property, plant and equipment
Total capital expenditure
5.4
5.7
4.2
8.8
3.9
3.7
11.1
13.0
7.6
The increase in purchases of property, plant and equipment in the year ended 31 December
2013 was primarily attributed to the expansion of various existing and new office facilities in
Canada, the United Kingdom, and Bulgaria during the year. The increase in purchases of
intangible assets and property, plant and equipment in the year ended 31 December 2014
was primarily attributed to the Optimal Payments Group’s acquisitions of Meritus and GMA
during the period.
The Optimal Payments Group expects to fund future capital expenditure from its current cash
and cash flows from operating activities and from financing offered from suppliers when
terms are favourable.
175
6.5
Contractual commitments and off-balance sheet arrangements
(a) Contractual commitments
The following table summarises Optimal Payments’ contractual obligations, commercial
commitments and principal payments scheduled as at 31 December 2014:
Payments due by period (unaudited)
(US$ millions)
Contractual commitment
Total
Less than
1 year
1-5 years
More than
5 years
Debt obligations(1)
Operating lease payments
127.8
5
20.6
1.6
107.2
2.2
—
1.2
132
22.2
109.4
1.2
Total
(1)
(b)
7.
Does not include contingent consideration of $5 million payable to the vendors of GMA assets, and such
payments are due in less than 1 year and are contingent on the occurrence of certain events.
Off-balance sheet arrangements
As at 31 December 2014, the Optimal Payments Group had no off-balance sheet
arrangements, as defined in accordance with IFRS.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make significant estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses as well as the related disclosure, including contingent assets and liabilities. Critical
accounting policies and estimates are those policies or estimates which are particularly
significant in presenting the Group’s results of operations and include those that involve
complex and subjective judgments and the use of assumptions, some of which may be
inherently uncertain or susceptible to change. The effect of these judgments and the
assumptions we make could potentially result in materially different results from that which
would otherwise occur using different judgments and assumptions.
For a detailed discussion of the application of these and other accounting policies as well as
related estimates and judgments, see note 1 and note 4 to the Optimal Payments Group’s
audited consolidated financial statements for the year ended 31 December 2014 included in
Part IX (Financial Information of the Optimal Payments Group) of this document.
8.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to note 24 to the Optimal Payments Group’s audited consolidated financial
statements for the year ended 31 December 2014 included in Part IX (Financial Information
of the Optimal Payments Group) of this document for a discussion of the Group’s risk
management, market segment risk, currency risks, capital risk, interest rate risk and liquidity
risk.
176
PART IX
FINANCIAL INFORMATION OF THE OPTIMAL PAYMENTS GROUP
CONTENTS:
PART A: ACCOUNTANTS’ REPORT ON THE FINANCIAL INFORMATION OF THE OPTIMAL
PAYMENTS GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2014
PART B: FINANCIAL INFORMATION OF THE OPTIMAL PAYMENTS GROUP FOR THE THREE
YEARS ENDED 31 DECEMBER 2014
PART A: ACCOUNTANTS REPORT ON THE FINANCIAL INFORMATION OF THE OPTIMAL
PAYMENTS GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2014
ABCD
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Telephone
Fax
Internet
+44 (0)1624 681010
+44 (0)1624 681098
www.kpmg.co.im
The Directors
Optimal Payments plc (‘‘Optimal Payments’’)
Audax House
6 Finch Road
Douglas
Isle of Man
23 March 2015
Dear Sirs
Optimal Payments plc – Historical financial information for 3 years ended 31 December 2014
We report on the financial information set out on pages 179 to 217 for the three years ended
31 December 2014. This financial information has been prepared for inclusion in the Admission
Document dated 23 March 2015 of the Optimal Payments Group on the basis of the accounting
policies set out in note 4. This report is required by Paragraph 20.1 of Annex 1 of the Prospectus
Directive Regulation and is given for the purpose of complying with that paragraph and for no other
purpose.
Responsibilities
The Directors of Optimal Payments plc are responsible for preparing the financial information on
the basis of preparation set out in note 3 and in accordance with International Financial Reporting
Standards as adopted by the European Union.
It is our responsibility to form an opinion on the financial information and to report our opinion to
you.
Save for any responsibility arising under Prospectus Rules 5.5.3R(2)(f) to any person as and to the
extent there provided, to the fullest extent permitted by law we do not assume any responsibility to
any other person and will not accept any liability to any other person for any loss suffered by any
such other person as a result of, arising out of, or in connection with this report or our statement,
required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the
Prospectus Directive Regulation, consenting to its inclusion in the AIM Admission Document.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence
relevant to the amounts and disclosures in the financial information. It also included an assessment
of the significant estimates and judgments made by those responsible for the preparation of the
177
financial information and whether the accounting policies are appropriate to the entity’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance
that the financial information is free from material misstatement whether caused by fraud or other
irregularity or error.
Opinion on financial information
In our opinion, the financial information gives, for the purposes of the Admission Document dated
23 March 2015, a true and fair view of the state of affairs of Optimal Payments as at the three
years ended 31 December 2014 and of its profits/losses, cash flows and changes in equity for the
years then ended in accordance with the basis of preparation set out in note 3 and in accordance
with International Financial Reporting Standards as adopted by the European Union as described in
note 3.
Declaration
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are
Admission Document and declare that we have taken
information contained in this report is, to the best of our
and contains no omission likely to affect its import. This
Document in compliance with paragraph 1.2 of Annex I of
Yours faithfully
KPMG Audit LLC
178
responsible for this report as part of the
all reasonable care to ensure that the
knowledge, in accordance with the facts
declaration is included in the Admission
the Prospectus Directive Regulation.
PART B: FINANCIAL INFORMATION OF THE OPTIMAL PAYMENTS GROUP FOR THE THREE
YEARS ENDED 31 DECEMBER 2014
Consolidated Statement of Financial Position
31 Dec
31 Dec
31 Dec
2012
2013
2014
US$’000
US$’000
US$’000
ASSETS
Current assets
Cash and cash equivalents
Restricted NETELLER merchant cash (Note 5)
Restricted NETELLER Member cash (Note 6)
Trade and other receivables
Prepaid expenses and deposits
Non-current assets
Property, plant & equipment (Note 7)
Intangible assets (Note 8)
Goodwill (Note 9)
LIABILITIES
Current liabilities
Trade and other payables (Note 10)
NETELLER loyalty program liability (Note 11)
Taxes payable (Note 13)
Shareholder loans (Note 32)
Contingent consideration (Notes 31 and 35)
Provision for losses on NETBANX merchant
accounts (Note 12)
Obligations under finance lease
Current portion of long-term debt (Note 36)
Share consideration payable (Note 35)
Non-current liabilities
Shareholder loans (Note 32)
Long-term debt (Note 36)
Obligations under finance lease
Share consideration payable (Note 35)
SHAREHOLDERS’ EQUITY
Share capital (Note 14)
Share premium
Equity reserve on share option issuance (Note 15)
Translation reserve (Note 16)
Retained earnings
The notes form an integral part of this financial information.
179
82,174
5,423
7,844
6,003
7,476
164,379
1,636
4,562
4,760
9,152
142,325
2,233
6,544
14,711
11,460
108,920
184,489
177,273
8,867
28,034
30,492
12,320
22,739
30,492
13,358
76,141
205,339
176,313
250,040
472,111
58,764
949
4,262
—
16,871
100,763
1,722
4,306
9,526
—
67,328
1,160
4,045
—
5,000
793
217
—
—
733
584
—
—
1,183
579
20,000
14,323
81,856
117,634
113,618
8,972
—
423
—
—
—
801
—
—
107,000
204
42,968
91,251
118,435
263,790
42
65,612
14,525
(960)
5,843
45
77,054
19,037
(1,852)
37,321
47
86,935
27,311
(968)
94,996
85,062
131,605
208,321
176,313
250,040
472,111
Consolidated Statement of Comprehensive Income
Revenue
NETBANX Straight Through Processing fees
NETELLER Stored Value fees
Investment income
Cost of Sales
Straight Through Processing expenses
Stored Value expenses
Gross profit (Note 17)
Non Fee Expenses
Salaries and employee expenses
Technology and software
Premises and office costs
Professional fees
Marketing and promotions (Note 18)
Travel and entertainment
Bank charges
Impairment charge
Depreciation and amortisation (Note 19)
Interest on loans
Acquisition cost
Restructuring costs (Note 20)
Net fair value gain on share consideration payable
(Note 35)
Foreign exchange gain
Other expenses (Note 34)
31 Dec
2012
US$’000
31 Dec
2013
US$’000
31 Dec
2014
US$’000
138,873
38,824
1,376
193,033
59,793
541
274,713
89,572
669
179,073
253,367
364,954
80,983
8,441
111,976
9,508
162,256
13,574
89,424
121,484
175,830
89,649
131,883
189,124
36,142
12,975
7,643
2,920
3,752
2,150
436
—
11,776
—
—
731
41,051
18,412
9,048
4,339
7,950
2,703
679
—
13,518
—
—
832
54,786
20,531
11,097
5,186
15,194
3,889
653
—
20,987
—
11,568
—
—
(712)
6,391
—
(893)
536
(18,800)
3,019
12
Results from operating activities
Finance costs
5,445
1,800
33,708
995
61,002
2,023
Profit for the year before tax
Income tax expense (Note 13)
3,645
2,461
32,713
1,235
58,979
1,303
Profit for the year after tax attributable to the
owners of the Optimal Payments Group
1,184
31,478
57,676
Other comprehensive income
Foreign currency translation differences for foreign
operations, net of income tax
(119)
(891)
882
Total comprehensive income for the year
attributable to the owners of the Optimal
Payments Group
1,065
30,587
58,558
Basic profit per share (Note 21)
$0.01
$0.22
$0.36
Fully diluted profit per share (Note 21)
$0.01
$0.20
$0.32
The notes form an integral part of this financial information.
The Directors consider that all results derive from continuing activities.
180
Consolidated Statement of Changes in Equity
Balance as at
1 January 2012
Profit for the year
Foreign currency translation
differences
Share
Capital –
Ordinary
Shares
(Note 14)
US$’000
Share
Capital –
Deferred
Shares
US$’000
Total
Share
Capital
US$’000
23
—
18
—
41
—
55,665
—
10,594
—
—
—
—
—
Equity
Reserve on
Share Share Option
Premium
Issuance
US$’000
US$’000
Capital
Redemption
Reserve
US$’000
Retained
Earnings
US$’000
Total
US$’000
(841)
—
—
—
4,659
1,184
70,118
1,184
—
(119)
—
—
(119)
—
1,184
1,065
—
—
—
—
3,931
9,948
—
5,843
85,062
Total comprehensive income
Transactions with owners of
the Optimal Payments Group,
recognised directly in equity
Contributions by and
distributions to owners of
the Optimal Payments
Group
Share option expense
(Note 23)
Issue of shares (Note 14)
—
—
—
—
—
—
1
—
—
—
1
—
9,947
3,931
—
Balance as at 31 December
2012
24
18
42
65,612
14,525
The notes form an integral part of this financial information.
181
Translaton
Reserve on
Foreign
Operations
US$’000
—
—
(960)
(119)
Consolidated Statement of Changes in Equity
Balance as at
1 January 2013
Profit for the year
Foreign currency
translation differences
Share
Capital –
Ordinary
Shares
(Note 14)
US$’000
Share
Capital –
Deferred
Shares
US$’000
Total
Share
Capital
US$’000
24
—
18
—
42
—
65,612
—
14,525
—
—
—
—
—
Equity
Reserve on
Share Share Option
Premium
Issuance
US$’000
US$’000
Translaton
Reserve on
Foreign
Operations
US$’000
Capital
Redemption
Reserve
US$’000
Retained
Earnings
US$’000
Total
US$’000
(960)
—
—
—
5,843
31,478
85,062
31,478
—
(891)
—
—
(891)
—
31,478
30,587
(891)
Total comprehensive
income
Transactions with owners
of the Optimal Payments
Group, recognised directly
in equity
Contributions by and
distributions to owners
of the Optimal Payments
Group
Share option expense
(Note 23)
Issue of shares (Note 14)
—
—
—
—
—
—
3
—
—
—
3
—
11,442
4,512
—
—
—
—
—
—
—
4,512
11,445
Balance as at 31 December
2013
27
18
45
77,054
19,037
(1,852)
—
37,321
131,605
Share
Capital –
Ordinary
Shares
(Note 14)
US$’000
Share
Capital –
Deferred
Shares
US$’000
Total
Share
Capital
US$’000
Equity
Reserve on
Share Share Option
Premium
Issuance
US$’000
US$’000
Translaton
Reserve on
Foreign
Operations
US$’000
Capital
Redemption
Reserve
US$’000
Retained
Earnings
US$’000
Total
US$’000
27
—
18
—
45
—
77,054
—
19,037
—
(1,852)
—
—
—
37,321
57,676
131,605
57,676
—
—
—
—
—
882
—
—
882
—
—
—
—
—
882
—
57,676
58,558
—
—
—
—
8,274
—
—
—
8,274
2
—
2
9,881
—
—
—
—
9,883
29
18
47
86,935
27,311
—
94,997
208,321
Balance as at
1 January 2014
Profit for the year
Foreign currency
translation differences
Total comprehensive
income
Transactions with owners
of the Optimal Payments
Group, recognised directly
in equity
Contributions by and
distributions to owners
of the Optimal Payments
Group
Share option expense
(Note 23)
Issue of shares (Note 14)
Balance as at 31 December
2014
The notes form an integral part of this financial information.
182
(969)
Consolidated Statement of Cash Flows
OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and amortisation (Note 19)
Unrealised foreign exchange loss/(gain)
Share option expense (Note 23)
Accrued interest
Acquisition costs
Net fair value gain on share consideration payable
Impairment loss
Asset disposal (Note 7 & 8)
Operating cash flows before movements in working capital
(Increase) / decrease in restricted NETELLER merchant
cash
(Increase) / decrease in restricted NETELLER member
cash
(Increase)/decrease in prepaid expenses and deposits
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase in NETELLER loyalty program liability
(Decrease) / increase in Provision for losses on
NETBANX merchant accounts
31 Dec
2012
US$’000
31 Dec
2013
US$’000
31 Dec
2014
US$’000
3,645
32,713
58,979
12,272
(2,586)
3,931
1,800
—
—
—
778
13,518
2,045
4,512
837
—
—
—
552
21,085
5,762
8,274
1,996
11,569
(18,800)
—
12
19,840
54,177
88,877
(2,590)
3,787
507
(5,132)
(2,486)
18,892
949
3,282
(1,676)
1,243
39,929
773
308
(60)
(597)
(1,982)
(2,053)
(6,590)
(28,582)
(562)
450
Cash generated by operations
Taxes paid
30,288
(930)
101,453
(1,190)
48,961
(1,564)
Net cash generated by operating activities
29,358
100,263
47,397
INVESTING ACTIVITIES
Purchase of property, plant & equipment, goodwill and
intangible assets
Acquisition costs
Business acquisition costs
Proceeds from disposal of property, plant & equipment
(6,467)
—
—
—
(13,567)
—
—
443
(11,095)
(11,512)
(157,680)
—
Net cash consumed by investing activities
(6,467)
(13,124)
(180,287)
FINANCING ACTIVITIES
Equity issuance
Interest paid on long-term debt
Proceeds from long-term debt
Repayment of principal
Repayment of contingent consideration (Note 31)
Holdback on acquisition paid
Repayment of obligations under finance lease
1,185
—
—
—
—
(1,667)
(301)
14
—
—
—
(5,724)
—
(397)
366
(1,873)
141,000
(14,000)
—
—
(601)
(783)
(6,107)
124,892
Net cash consumed by financing activities
INCREASE IN CASH AND CASH EQUIVALENTS
DURING THE YEAR
EFFECT OF MOVEMENT IN FOREIGN EXCHANGE ON
CASH AND CASH EQUIVALENTS HELD
TRANSLATION OF FOREIGN OPERATIONS
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
The notes form an integral part of this financial information.
183
22,109
81,031
(7,999)
25
1,149
(15,389)
1,334
57,956
82,174
164,379
82,174
164,379
142,325
2,412
(303)
Notes to the Consolidated Financial Information
1.
GENERAL INFORMATION
NETeller plc was a private company incorporated under the laws of the Isle of Man (‘‘IOM’’) on
31 October 2003 and was registered as a public company on 1 April 2004. NETeller plc changed
its name to Neovia Financial plc on 17 November 2008. On 1 March 2011 NEOVIA Financial Plc
changed its name to Optimal Payments plc (the ‘‘Company’’). The principal activities of the
Company and the Optimal Payments Group are described in Note 2. The Optimal Payments Group
includes the Company and its wholly owned subsidiaries as set out under ‘‘Basis of consolidation’’
in note 4 and ‘‘Investment in subsidiaries’’ in note 25.
At 30 September 2014, the Optimal Payments Group had 691 employees. At 31 December 2014,
the Optimal Payments Group had 712 employees (2013: 516 employees: 2012: 387 employees.
2.
NATURE OF OPERATIONS
The Optimal Payments Group provides services to businesses and individuals to allow the
processing of direct debit, electronic cheque and credit card payments. The Optimal Payments
Group processes direct debit, electronic cheque and credit card payments, principally for internet
Merchants. Optimal Payments Limited (formerly NETELLER (UK) Ltd), a wholly-owned subsidiary
of Optimal Payments plc, is authorised by the United Kingdom’s Financial Conduct Authority under
the Electronic Money Regulations 2011 (FRN:900015) for the issuing of electronic money and
payment instruments. Optimal Payments Merchant Services Ltd. (formerly NETELLER Operations
Limited) is licensed by the Financial Supervision Commission of the Isle of Man (Ref. 1357) to
carry on money transmission services.
3.
BASIS OF PREPARATION
Statement of compliance
The financial information have been prepared in accordance with applicable IOM law and
International Financial Reporting Standards (‘‘IFRS’’) as adopted by the EU and the AIM Rules for
Companies.
The consolidated financial information was authorised for issue by the Board of Directors.
Basis of measurement
The consolidated financial information has been prepared on the historical cost basis except for the
following material items in the statement of financial position:
*
Share-based payments are measured at fair value
Statement of going concern
The consolidated financial statements are prepared on a going concern basis, as the Board of
Directors are satisfied that the Group and parent company have the resources to continue in
business for the foreseeable future. In making this assessment, the Board have considered a wide
range of information relating to present and future conditions, including future projections of
profitability, cash flows and capital resources. The Group borrowed $141 million in July 2014 to
finance the acquisition of California-based payment processing business Meritus Payment Solutions
and Global Merchant Advisors, Inc. The acquisition of these profitable, fast growing and cash
generative businesses is expected to enhance earnings, and the Group has demonstrated it has
sufficient financial resources in place to meet its new debt requirements.
A financial summary, including a review of the consolidated income statement and consolidated
balance sheet, is provided in the Financial Review section. The Group’s objectives, policies and
processes for managing credit, liquidity and market risk along with the Group’s approach to capital
management and allocation are described in the Notes of the financial information.
Use of estimates and judgements
The preparation of the Optimal Payments Group’s financial information requires management to
make estimates and assumptions that affect the reported amounts of assets, liabilities and
contingencies at the date of the Optimal Payments Group’s financial information, and revenue and
expenses during the reporting period. Actual results could differ from those estimated. Significant
estimates in the Optimal Payments Group’s financial information include depreciation and
amortisation, impairment testing of long-lived assets, share based payments and income taxes. By
184
their nature, these estimates and assumptions are subject to estimation uncertainty and the effect
on the Optimal Payments Group’s financial information of changes in estimates in future periods
could be significant.
Functional and presentation currency
These consolidated financial information are presented in US dollars, which is the functional
currency of the Company.
4.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in
these consolidated financial information, and have been applied consistently by Optimal Payments
Group entities. The following principal accounting policies have been applied:
Basis of consolidation
The consolidated financial information incorporate the financial information of the Company and
enterprises controlled by the Company (and its subsidiaries) as at the year end. Control is
achieved where the Company has the power to govern the financial and operating policies of an
investee enterprise so as to obtain benefits from its activities. The consolidated financial
information include the accounts of the Company and its principal wholly owned subsidiaries as
identified in note 25. All inter-company transactions and balances between Optimal Payments
Group enterprises are eliminated on consolidation.
In the financial information of the Company, investments in subsidiaries are stated at cost.
Cash and cash equivalents
Cash equivalents are defined as short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
Intangible assets
Intellectual property is recorded at cost and is amortised on a straight-line basis over its estimated
useful life which is assessed to be three to five years.
Website and platform development costs are recorded at cost and amortised over their estimated
useful life using the declining-balance method at 30%.
Property, plant & equipment
Land is not depreciated. Property, plant & equipment are recorded at cost and is depreciated over
their estimated useful lives, using the declining-balance method, on the following basis:
Communication equipment
Furniture and equipment
Computer equipment
20%
20%
30%
Other assets are depreciated over their estimated useful lives, using the straight-line method, on
the following basis:
Computer software
Building & Leasehold Improvements
2 years
4% and 10 years respectively
The gain or loss arising on the disposal or retirement of an asset is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in income.
Impairment
The carrying amounts of the Optimal Payments Group’s non-financial assets are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that
have indefinite useful lives or that are not yet available for use, the recoverable amount is
estimated each year at the same time. An impairment loss is recognised if the carrying amount of
an asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amounts.
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value
less costs to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the
185
time value of money and the risks specific to the asset or CGU. For the purpose of impairment
testing, assets that cannot be tested individually are Optimal Payments Grouped together into the
smallest Optimal Payments Group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or CGU. Subject to an operating
segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has
been allocated are aggregated so that the level at which impairment testing is performed reflects
the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in
a business combination is allocated to Optimal Payments Groups of CGUs that are expected to
benefit from synergies of the combination.
The Optimal Payments Group’s corporate assets do not generate separate cash inflows and are
utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and
consistent basis and tested for impairment as part of the testing of the CGU to which the corporate
asset is allocated.
Impairment losses are recognised in the Statement of Comprehensive Income. Impairment losses
recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill
allocated to the CGU (Optimal Payments Group of CGUs), and then to reduce the carrying
amounts of the other assets in the CGU (Optimal Payments Group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment
losses recognised in prior periods are assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is reversed if there has been a change
in estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss has been recognised.
The Optimal Payments Group performs impairment tests at least annually or whenever events or
changes in circumstances indicate that the goodwill and intangible assets that have indefinite useful
lives or are not yet in use carrying values for a business unit may not be recoverable.
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Optimal
Payments Group’s interest in the fair value of the identifiable assets and liabilities of subsidiaries at
the date of acquisition.
Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment
is recognised immediately in the Statement of Comprehensive Income and is not subsequently
reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of
the profit or loss on disposal.
Trade and other receivables
Trade and other receivables, including receivables from Merchants, are stated at their amortised
cost less impairment losses and doubtful accounts.
Financial liabilities
The Group classifies its financial liabilities at fair value through profit or loss, and as other financial
liabilities measured at amortised cost depending on the purpose for which the financial liabilities
were acquired or incurred. Management determines the classification of its financial liabilities at the
initial recognition.
Share consideration payable meets the definition of a financial liability under IAS 32 and therefore
classified as such. The fair value of share consideration is determined through single-factor Monte
Carlo valuation model at reporting date. Movements in fair value at any one reporting date are
measured through profit and loss.
The Group’s other financial liabilities measured at amortised cost comprise ‘trade and other
payables’ and ‘Long term-debt’ in the balance sheet.
Trade and other payables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method.
Long-term debt are recognised initially at fair value, net of transaction costs incurred. Borrowings
are subsequently carried at amortised cost. Any difference between the proceeds (net of
186
transaction costs) and the redemption value is recognised in the statement of comprehensive
income over the period of the Long-term debt using the effective interest method. Finance charges
are accounted for on an accruals basis and charged to the statement of comprehensive income
using the effective interest rate method.
Trade and other payables and Long-term debt are classified as current liabilities if payment is due
within one year or less. If not, they are presented as non-current liabilities.
Income tax
Income tax expense comprises current and deferred tax. Current tax and deferred tax are
recognised in the Statement of Comprehensive Income except to the extent that it relates to a
business combination, or items recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year,
using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax
payable in respect of previous years.
The Optimal Payments Group uses the balance sheet liability method of accounting for income
taxes. Temporary differences arising from the difference between the tax basis of an asset or
liability and its carrying amount on the balance sheet are used to calculate deferred tax assets or
liabilities. Deferred tax assets or liabilities are calculated using tax rates anticipated to exist in the
periods that the temporary differences are expected to reverse, based on the laws that have been
enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset
if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to
income taxes levied by the same tax authority on the same taxable entity, or on different tax
entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realised simultaneously.
A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary
differences, to the extent that it is probable that future taxable profits will be available against
which they can be utilised. Deferred tax assets are reviewed at each reporting date and are
reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Segment reporting
An operating segment is a component of the Optimal Payments Group that engages in business
activities from which it may earn revenues and incur expenses, including revenues and expenses
that relate to transactions with any of the Optimal Payments Group’s other components. All
operating segments’ operating results are reviewed regularly by the Optimal Payments Group’s
CEO to make decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available.
Revenue recognition
The Optimal Payments Group is involved in transaction processing services. Revenues from
transaction processing services are recognised at the time services are rendered. Member revenue
is recognised either as a fee calculated as a percentage of funds processed or as a charge per
transaction, pursuant to the respective Member agreements. Merchant revenue is recognised as a
fee calculated as a percentage of funds processed or as a charge per transaction on behalf of
Merchants.
Interest income is accrued on a monthly basis, by reference to the principal outstanding and at the
effective interest rate applicable.
The Company renders services to various subsidiaries within the Optimal Payments Group
including Franchise Rights and Platform Service Fees. Revenue from rendering of services is
recognised in profit or loss at the time the services are rendered.
Leases
(a) Leased assets
Assets held by the Optimal Payments Group under leases which transfer to the Optimal Payments
Group substantially all of the risks and rewards of ownership are classified as finance leases. On
initial recognition, the leased asset is measured at an amount equal to the lower of its fair value
and the present value of the minimum lease payments. Subsequent to initial recognition, the asset
is accounted for in accordance with the accounting policy applicable to that asset.
187
Assets held under other leases are classified as operating leases and are not recognised in the
Optimal Payments Group’s statement of financial position.
(b) Lease payments
Payments made under operating leases are recognised in the Statement of Comprehensive Income
on a straight-line basis over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance
expense and the reduction of the outstanding liability. The finance expense is allocated to each
period during the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability.
Foreign exchange
The individual financial information of each Optimal Payments Group entity are presented in the
currency of the primary economic environment in which the entity operates (its functional currency).
For the purpose of the consolidated financial information, the results and financial position of each
entity are expressed in US dollars, which is the functional currency of Optimal Payments plc, and
the presentation currency for the consolidated financial information.
In preparing the financial information of the individual entities, transactions in currencies other than
the entity’s functional currency (foreign currencies) are recorded at the rates of exchange prevailing
on the dates of the transactions. At each balance sheet date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary
items carried at fair value that are denominated in foreign currencies are retranslated at the rates
prevailing on the date when the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of
monetary items, are included in profit or loss for the period. Exchange differences arising on the
retranslation of non-monetary items carried at fair value are included in the Statement of
Comprehensive Income for the period, except for differences arising on the retranslation of nonmonetary items in respect of which gains and losses are recognised directly in equity. For such
non-monetary items, any exchange component of that gain or loss is also recognised directly in
equity.
For the purpose of presenting consolidated financial information, the assets and liabilities of the
Optimal Payments Group’s foreign operations (including comparatives) are expressed in United
States dollars using exchange rates prevailing on the balance sheet date. Income and expense
items (including comparatives) are translated at the average exchange rates for the period, unless
exchange rates fluctuated significantly during that period, in which case the exchange rates at the
dates of the transactions are used. Exchange differences arising, if any, are classified as equity
and transferred to the Optimal Payments Group’s translation reserve. Such translation differences
are recognised in profit or loss in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of foreign operations are treated as
assets and liabilities of the foreign operation and translated at the closing rate.
Related party transactions
Monetary related party transactions in the normal course of operations are recorded at fair value,
and transactions between related parties, not in the normal course of operations, are recorded at
the carrying value as recorded by the transferor.
Foreign exchange contracts
The Optimal Payments Group uses foreign exchange contracts to reduce its exposure to adverse
fluctuations in foreign exchange rates. These financial instruments are presented in the
accompanying consolidated financial information at fair value. Fair values are based on market
quotes, current foreign exchange rates or management estimates, as appropriate, and gains and
losses on the foreign exchange contracts are reflected in the consolidated income statement. The
increase or decrease in the fair value of the contracts has been taken to income.
Research and development
Research expenditure is written off to the income statement in the period in which it is incurred.
188
Development expenditure is written off in the same way unless management is satisfied as to the
technical, commercial and financial viability of the individual projects generating future economic
benefits, and the Optimal Payments Group intends to and has sufficient resources to complete
development and to use or sell the asset. In this situation, the expenditure is capitalised at cost,
less a provision for any impairment in value, and is amortised on the commencement of use over
the period in which benefits are expected to be received by the Optimal Payments Group. The
expenditure capitalised includes the cost of materials, direct labour and overhead costs that are
directly attributable to preparing the asset for its intended use.
Share-based payments
The Company issues share options to certain employees, including Directors. Equity-settled share
options are measured at fair value at the date of grant. In valuing equity-settled share options, no
account is taken of any vesting conditions, other than conditions linked to the price of the shares
of the Company (market conditions).
The fair value determined at the grant date of the share option is expensed over the vesting
period, which ends on the date on which the relevant employees become fully entitled to the award
(the vesting date). The cumulative expense recognised for equity-settled share options at each
reporting date reflects the extent to which the vesting period has expired and the Company’s best
estimate of the number of equity instruments that will ultimately vest (or in the case of a market
condition, be treated as vesting). The movement in cumulative expense since the previous
reporting date is recognised in the income statement, with a corresponding entry in equity.
No expense is recognised for awards that do not ultimately vest, except for awards where vesting
is conditional upon a market vesting condition or a non-vesting condition, which are treated as
vesting irrespective of whether or not the condition is satisfied, provided that all other non-market
vesting conditions are satisfied.
Where the terms of an equity-settled award are modified, the minimum expense recognised is the
expense as if the terms had not been modified. An additional expense is recognised over the
remainder of the new vesting period for the incremental fair value of the modification, based on the
difference between the fair value of the original award and the fair value of the modified award,
both as measured on the date of the modification.
Where an equity-settled award is cancelled, it is treated
cancellation, and any cost not yet recognised in the income
immediately. Any compensation paid up to the fair value
settlement date is deducted from equity, with any excess
expense in the income statement.
as if it had vested on the date of
statement for the award is expensed
of the award at the cancellation or
over fair value being treated as an
Offsetting
Financial assets and liabilities are set off and the net amount presented in the Statement of
Financial Position when, and only when, the Optimal Payments Group has a legal enforceable right
to set off the amounts and intends either to settle on a net basis or to realise the asset and settle
the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting
standards, or for gains and losses arising from a Optimal Payments Group of similar transactions
such as in the Optimal Payments Group’s trading activity.
Earnings per share
The Optimal Payments Group presents basic and diluted earnings per share (EPS) data for its
ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary
shareholders of the Company by the weighted average number of ordinary shares outstanding
during the period, adjusted for own shares held. Diluted EPS is determined by adjusting the profit
or loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding, adjusted for own shares held and for the effects of all dilutive potential ordinary
shares, which comprise convertible notes and share options granted to employees.
Change in Accounting Policies
Except for the changes below, the Optimal Payments Group has consistently applied the
accounting policies set out in Note 4 to all periods presented in these consolidated financial
information.
189
The Optimal Payments Group has adopted the following new standards and amendments to
standards, including any consequential amendments to other standards, with a date of initial
application of 1 January 2014.
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
The amendments to IFRS 10 define an investment entity and require a reporting entity that meets
the definition of an investment entity not to consolidate its subsidiaries but instead to measure its
subsidiaries at fair value through profit or loss in its consolidated and separate financial statements.
Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure
requirements for investment entities. As the Company is not an investment entity (assessed based
on the criteria set out in IFRS 10 as at 1 January 2014), the application of the amendments has
had no impact on the disclosures or the amounts recognised in the Group’s consolidated financial
statements.
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial
Liabilities for the first time in the current year. The amendments to IAS 32 clarify the requirements
relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify
the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation
and settlement’. The Group has assessed whether certain of its financial assets and financial
liabilities qualify for offset based on the criteria set out in the amendments and concluded that the
application of the amendments has had no impact on the amounts recognised in the Group’s
consolidated financial statements other than consistency of accounting policy application for
restricted members cash and amounts owing to members as disclosed in the notes.
Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
The Group has applied the amendments to IAS 36 Recoverable Amount Disclosures for NonFinancial Assets for the first time in the current year. The amendments to IAS 36 remove the
requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill
or other intangible assets with indefinite useful lives had been allocated when there has been no
impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce
additional disclosure requirements applicable to when the recoverable amount of an asset or a
CGU is measured at fair value less costs of disposal. These new disclosures include the fair value
hierarchy, key assumptions and valuation techniques used which are in line with the disclosure
required by IFRS 13 Fair Value Measurements.
The application of these amendments has had no material impact on the disclosures in the
Group’s consolidated financial statements
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
The amendments to IAS 39 provide relief from the requirement to discontinue hedge accounting
when a derivative designated as a hedging instrument is novated under certain circumstances. The
amendments also clarify that any change to the fair value of the derivative designated as a
hedging instrument arising from the novation should be included in the assessment and
measurement of hedge effectiveness. As the Group does not have any derivatives that are subject
to novation, the application of these amendments has had no impact on the disclosures or on the
amounts recognised in the Group’s consolidated financial statements.
Future changes to accounting standards
The Group has not applied the following new and revised IFRSs that have been issued but are not
yet effective:
IFRS 9 Financial Instruments
The IASB issued IFRS 9 in November 2009, introducing new requirements for the classification
and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to
include requirements for the classification and measurement of financial liabilities and for
derecognition, and in November 2013 to include the new requirements for general hedge
accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a)
impairment requirements for financial assets and b) limited amendments to the classification and
measurement requirements by introducing a ‘fair value through other comprehensive income’
190
(FVTOCI) measurement category for certain simple debt instruments. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018.
It is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Group
undertakes a detailed review.
IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to
use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the
current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts
and the related Interpretations when it becomes effective for annual periods beginning on or after 1
January 2017. The core principle of IFRS 15 is that an entity should recognise revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services.
Specifically, the Standard introduces a 5-step approach to revenue recognition:
*
Step 1: Identify the contract(s) with a customer
*
Step 2: Identify the performance obligations in the contract
*
Step 3: Determine the transaction price
*
Step 4: Allocate the transaction price to the performance obligations in the contract
*
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Extensive disclosures are required by IFRS 15. The directors of the Group do not anticipate that
the application of IFRS 15 in the future will have a material impact on the amounts reported and
disclosures made in the Group’s consolidated financial statements. However, it is not practicable to
provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review.
Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations
The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint
operation that constitutes a business as defined in IFRS 3 Business Combinations. Specifically, the
amendments state that the relevant principles on accounting for business combinations in IFRS 3
and other standards (e.g. IAS 36 Impairment of Assets regarding impairment testing of a cash
generating unit to which goodwill on acquisition of a joint operation has been allocated) should be
applied. The same requirements should be applied to the formation of a joint operation if and only
if an existing business is contributed to the joint operation by one of the parties that participate in
the joint operation.
A joint operator is also required to disclose the relevant information required by IFRS 3 and other
standards for business combinations.
The amendments to IFRS 11 apply prospectively for annual periods beginning on or after 1
January 2016. The directors of the Group do not anticipate that the application of these
amendments to IFRS 11 will have a material impact on the Group’s consolidated financial
statements.
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for
items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable
presumption that revenue is not an appropriate basis for amortisation of an intangible asset. The
amendments apply prospectively for annual periods beginning on or after 1 January 2016.
Currently, the Group uses the declining balance method for depreciation for its property, plant and
equipment, and declining balance and straight line methods for amortisation for its intangible
assets. The directors of the Group believe that these methods are the most appropriate method to
reflect the consumption of economic benefits inherent in the respective assets and accordingly, the
directors of the Group do not anticipate that the application of these amendments to IAS 16 and
IAS 38 will have a material impact on the Group’s consolidated financial statements.
5.
RESTRICTED NETELLER MERCHANT CASH
The Optimal Payments Group maintains bank accounts with the Optimal Payments Group’s
principal bankers which are segregated from operating funds and which contain funds held on
behalf of Merchants, representing pooled Merchant funds. Balances in the segregated accounts are
191
maintained at a sufficient level to fully offset amounts owing to the Optimal Payments Group’s
Merchants. A legal right of offset exists between the balances owing to the Merchants and the
cash balances segregated in the client accounts. As such, only the net balance of surplus cash is
disclosed on the Statement of Financial Position as Restricted NETELLER Merchant Cash.
The Optimal Payments Group had the following balances:
As at
31December
2012
US$’000
Segregated account funds
Payable to NETELLER Merchants
Restricted NETELLER Merchant Cash
As at
31December
2013
US$’000
73,158
(67,735)
81,807
(80,171)
5,423
1,636
As at
31December
2014
US$’000
102,070
(99,837)
2,233
6.
RESTRICTED NETELLER MEMBER CASH
In compliance with the Financial Conduct Authority (FCA) rules and regulations, the Optimal
Payments Group holds Qualifying Liquid Assets at least equal to the amounts owing to Members.
These amounts are maintained in accounts which are segregated from operating funds. As a legal
right of offset exists between the balances owing to the Members and the cash balances
segregated in the member accounts only the net balance of surplus cash is disclosed on the
Consolidated Statement of Financial Position as Restricted NETELLER Member cash.
All Qualifying Liquid assets are held in Optimal Payments Limited, which is an FCA regulated
entity.
The Optimal Payments Group had the following balances:
As at 31
December
2012
US$’000
Qualifying Liquid Assets held for NETELLER Members
Payable to NETELLER Members
Restricted NETELLER Member Cash
118,092
(110,248)
7,844
192
As at 31
December
2013
US$’000
127,974
(123,412)
4,562
As at 31
December
2014
US$’000
143,640
(137,096)
6,544
7.
PROPERTY, PLANT & EQUIPMENT
The Optimal Payments Group had the following balances:
Communication
Equipment
US$’000
Furniture and
Equipment
US$’000
Computer
Equipment
US$’000
Building and
Computer
Leasehold
Software Improvements
US$’000
US$’000
Total
US$’000
Cost
As at 31 December 2011
Additions
Disposals
Exchange difference
1,763
—
(1,652)
75
2,754
8
(1,076)
79
10,927
1,617
(1,313)
245
18,347
2,088
—
556
978
17
—
22
34,768
3,730
(4,041)
976
As at 31 December 2012
Additions
Disposals
Exchange difference
186
92
(74)
(2)
1,765
1,373
(663)
(72)
11,475
2,606
(2,372)
(285)
20,991
2,443
(7,602)
(808)
1,016
2,236
(673)
(79)
35,433
8,750
(11,386)
(1,245)
As at 31 December 2013
Additions
Disposals
Acquisitions
Exchange difference
202
132
(84)
—
(6)
2,403
876
(1)
567
(169)
11,424
2,101
—
239
(378)
15,024
2,431
(836)
347
(614)
2,500
156
—
88
(148)
31,553
5,697
(920)
1,290
(1,316)
As at 31 December 2014
244
3,676
13,434
16,352
2,597
36,304
1,119
120
(1,162)
56
1,740
304
(858)
53
6,410
1,293
(1,240)
179
15,833
1,794
—
497
330
89
—
9
25,432
3,600
(3,260)
794
As at 31 December 2012
Charge for the year
Disposals
Exchange Difference
133
16
(54)
(2)
1,239
552
(515)
(53)
6,642
1,222
(2,112)
(181)
18,124
2,036
(7,557)
(745)
428
366
(299)
(7)
26,566
4,192
(10,537)
(988)
As at 31 December 2013
Charge for the year
Disposals
Exchange difference
93
105
(77)
(3)
1,223
1,183
(1)
(65)
5,571
1,041
—
(256)
11,858
2,607
(831)
(527)
488
571
—
(35)
19,233
5,507
(909)
(886)
As at 31 December 2014
118
2,339
6,355
13,108
1,025
22,946
Net book value
As at 31 December 2012
53
526
4,833
2,867
588
8,867
As at 31 December 2013
109
1,180
5,853
3,166
2,012
12,320
As at 31 December 2014
126
1,337
7,080
3,244
1,571
13,358
Accumulated depreciation
As at 31 December 2011
Charge for the year
Disposals
Exchange Difference
193
8.
INTANGIBLE ASSETS
The Optimal Payments Group had the following balances:
Intellectual Property
US$’000
Website and
Platform
Development
US$’000
TOTAL
US$’000
30,079
16,236
46,315
62
—
3,800
—
3,862
—
Cost
As at 1 January 2012
Additions
Exchange difference
As at 31 December 2012
Additions
Disposals
Exchange difference
30,141
—
—
—
20,036
4,178
(360)
—
50,177
4,178
(360)
—
As at 31 December 2013
Additions
Disposals
Acquisition
Exchange difference
30,141
2
—
63,603
(1)
23,854
5,395
—
—
—
53,995
5,397
—
63,603
(1)
As at 31 December 2014
93,745
29,248
122,994
As at 1 January 2012
Charge for the year
11,049
4,807
2,421
3,866
13,470
8,673
As at 31 December 2012
Charge for the year
Disposals
Exchange difference
15,856
4,805
—
—
6,287
4,520
(212)
—
22,143
9,325
(212)
—
As at 31 December 2013
Charge for the year
Disposals
Exchange difference
20,661
10,342
—
20
10,595
5,236
—
—
31,256
15,578
—
20
As at 31 December 2014
31,023
15,830
46,853
Net book value
As at 31 December 2012
14,285
13,749
28,034
As at 31 December 2013
9,480
13,259
22,739
As at 31 December 2014
62,722
13,418
76,141
Accumulated amortisation
Impairment Analysis
The Board have determined that there has not been any indication of an impairment required in
the current year.
194
9.
GOODWILL
The Optimal Payments Group and Company had the following balances
Optimal
Payments
Group
US$’000
Company
US$’000
Cost
Balance at 1 January 2012
Additions during the year
30,492
—
10,625
—
Balance at 31 December 2012
Additions during the year
30,492
—
10,625
—
Balance at 31 December 2013
30,492
10,625
Additions during the year
174,847
—
Balance at 31 December 2014
205,339
10,625
Carrying amount
As at 31 December 2012
30,492
10,625
As at 31 December 2013
30,492
10,625
As at 31 December 2014
205,339
10,625
The Optimal Payments Group performs goodwill asset impairment tests at least annually or
whenever events or changes in circumstances indicate that the goodwill carrying value for a
business unit might not be recoverable. The recoverable amount is defined as the higher of fair
value less costs to sell and value in use.
Key assumptions used in the calculation of recoverable amounts are discount rates and EBITDA
growth rate. The values assigned to the key assumptions represented management’s assessment
of future trends in the e-commerce industry impacting the NETBANXâ straight-through processing
business and were based on both external and internal sources (historical data). The key
assumptions were as follows, and reflect a weighted average of this CGU comprising the
respective operating divisions:
Year ended
31December
2012
Weighted average (in per cent.)
Discount rate
Terminal value growth rate
Budgeted EBITDA growth rate (average 5 years)
8%
1.35%
5%
Year ended
31December
2013
8%
1.35%
5%
Year ended
31December
2014
8%
1.35%
5%
The discount rate is an estimate based on past experience and the expected average weighted
average cost of capital.
Five years of cash flows were included in the discounted cash flow model. A long-term growth rate
into perpetuity was determined based on management’s estimate of the terminal value growth rate
in EBITDA, which management believed was consistent with the assumption that a market
participant would make. Budgeted EBITDA was based on expectation of future outcomes taking
into account past experiences.
195
10. TRADE AND OTHER PAYABLES
The Optimal Payments Group had the following balances:
NETBANXâ Merchant processing liabilities
Accounts payable
Accrued liabilities
Payroll liabilities
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
37,491
5,572
14,089
1,612
76,792
5,711
16,436
1,824
44,591
7,694
12,080
2,963
58,764
100,763
67,328
NETBANXâ Merchant processing liabilities arise from the operations of the NETBANXâ division
totaling 31 December 2014: $44,591,159 (31 Dec 2013: $76,792,100; 31 Dec 2012: $37,491,317).
In addition, included in cash and cash equivalents is an equivalent transient cash balance that
relates to Merchant transactions processed via the straight-through processing operations. The
operations do not fall within the EU definition of ‘‘e-money’’ nor does a legal right of offset exist
between this cash and the corresponding NETBANXâ Merchant liabilities.
11. LOYALTY PROGRAM
The Optimal Payments Group launched the NETELLER Reward Points Programme (the
‘‘Programme’’) in February 2012. The Programme allows members to earn points on their
transactions in the NETELLER e-Wallet accounts. Members can redeem these points for
merchandise, cash exchange, and other NETELLER provided services.
When points are earned by Members, the Optimal Payments Group establishes a liability for future
redemptions by multiplying the number of points issued by the estimated cost per point. The actual
cost of merchandise redemptions is applied against this liability. The expense has been included in
Marketing and promotions.
The estimated cost per point is determined based on many factors, primarily related to expected
future redemption patterns and associated costs. The Optimal Payments Group monitors, on an
ongoing basis, trends in redemption rates and net cost per point redeemed. Adjustments to the
estimated cost per point are made based upon expected future Programme activities.
Any variance in the cost per point is recognised in marketing and promotions expenses in the
Optimal Payments Group’s consolidated Statement of Comprehensive Income. The liability account
is adjusted based on the outstanding balance of points issued on a monthly basis. The Company
continues to evaluate and revise certain assumptions used to calculate the Programme liability,
based on redemption experience and expected future activities.
12. PROVISION FOR LOSSES ON NETBANXâ MERCHANT ACCOUNTS
In certain cases, transactions may be charged back to merchants, which mean the transaction
amount is refunded to the consumer and, in certain instances, charged to the merchant. If the
merchant has insufficient funds, the Optimal Payments Group must bear the credit risk for the full
amount of the transaction. Management evaluates the risk for such transactions and estimates the
loss for the disputed transactions based primarily on historical experience and other relevant
factors. A provision is maintained for merchant losses in order to absorb charge backs and other
losses for merchant transactions that have been previously processed and on which revenue has
been recorded. Management analyses and regularly reviews the adequacy of its provision for
merchant losses. The provision for merchant losses comprises specifically identifiable provisions for
merchant transactions for which losses can be estimated based on historical experience.
196
The net charge for the provision for merchant losses is included under the caption Straight
Through Processing expenses in the statement of comprehensive income and can be reconciled as
follows:
US$’000
Balance at 1 January 2012
Provisions made during the year
485
308
Balance at 31 December 2012
Provisions made during the year
Provisions used during the year
793
45
(105)
Balance at 31 December 2013
733
Provisions made during the year
Provisions used during the year
450
—
Balance at 31 December 2014
1,183
13. TAX
The Company is incorporated in the Isle of Man and is subject to a tax rate of zero per cent. No
provision for Isle of Man taxation is therefore required. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
The Optimal Payments Group charge for the year can be reconciled to the profit shown per the
Statement of Comprehensive Income as follows:
Year ended
31December
2012
US$’000
Tax recognised in profit
Current tax
Current year
Adjustment for prior years
Deferred tax
Current year
Adjustment for prior years
Total tax expense
Year ended
31December
2013
US$’000
284
2,798
1,562
(221)
1,986
(710)
3,082
1,341
1,276
(504)
(117)
(86)
(20)
(23)
50
(621)
(106)
27
2,461
Reconciliation of effective tax rate
Current year’s expense as a % of profit before tax
Adjustment from prior years
Effect of different tax rates
of subsidiaries operating in other jurisdictions
Isle of Man corporate tax rate
Year ended
31December
2014
US$’000
33%
(36%)
3%
0%
1,235
4%
1%
(5%)
0%
1,303
3%
2%
(5%)
0%
At 31 December 2014, foreign taxes of $4,045 (31 December 2013: $4,306; 31 December 2012:
$4,262) were outstanding.
A provision for taxation of approximately $2,800 was made in 2012 in relation to Canadian
withholding taxes which are deemed to have arisen on the relocation of assets to the Isle of Man
from Canada in the 2004 and 2005 taxation years. Following a seven year investigation, the
Canadian Revenue Agency (CRA) claimed that additional withholding taxes are payable by the
197
Optimal Payments Group. A total liability of approximately $4,800 remains recognised in the
accounts as at 31 December 2014 which management estimates to be the maximum amount the
Optimal Payments Group is likely to be required to pay in respect of such withholding taxes and
interest. No additional provision for taxation with respect to this matter has been made in the
current year as there has been no further development or change in circumstances.
Movement in deferred tax balances:
As at 31 December 2012
Net balance
as at
1 January
US$’000
Property, plant and equipment
Intangible assets
Carry forward tax losses
Deferred tax assets
Recognised
in profit or
loss
US$’000
Net
US$’000
Deferred
Tax Asset
US$’000
(180)
273
—
(203)
313
511
(383)
586
511
(383)
586
511
93
621
714
714
As at 31 December 2013
Net balance
as at
1 January
US$’000
Property, plant and equipment
Intangible assets
Carry forward tax losses
Deferred tax assets
Recognised
in profit or
loss
US$’000
Net
US$’000
Deferred
Tax Asset
US$’000
(383)
586
511
12
312
(218)
(371)
898
293
(371)
898
293
714
106
820
820
As at 31 December 2014
Net balance
as at
1 January
US$’000
Property, plant and equipment
Intangible assets
Carry forward tax losses
Deferred stock options
Deferred tax assets
Recognised
in profit or
loss
US$’000
Net
US$’000
Deferred
Tax Asset
US$’000
(371)
898
293
—
46
(13)
(201)
141
(325)
885
92
141
(325)
885
92
141
820
(27)
792
792
The deferred tax assets as noted above amounting to 31 December 2014 $792 (31 Dec 2013:
$820; 31 Dec 2012: $714) have been presented with taxes payable on the Statement of Financial
Position.
Deferred tax assets have not been recognised in respect of carryforward tax losses at 31 December
2014 in certain companies within the Optimal Payments Group since it is not probable that future
taxable profit will be available against which the Optimal Payments Group can use the benefits
therefrom.
198
14.
SHARE CAPITAL
Year ended
31December
2012
£
Year ended
31December
2013
£
Year ended
31December
2014
£
Authorised:
200,000,000 ordinary shares of £0.0001 per share
20
20
20
1,000,000 deferred shares of £0.01 per share
10
10
10
US$’000
US$’000
US$’000
163,057,414 ordinary shares of £0.0001 per share
(At 31 December 2012: 136,278,701 ordinary shares
of £0.0001 per shares; at 31 December 2013:
151,104,164 ordinary shares of £0.0001 per share)
1,000,000 deferred shares of £0.01 per share
24
18
27
18
29
18
Total share capital
42
45
47
Issued and fully paid
During the year ended 31 December 2014 the Optimal Payments Group issued 11,953,250
ordinary shares for a total value of $2 (31 December 2013, the Optimal Payments Group issued
14,825,463 ordinary shares for a total value of $2; 2012: 9,966,325 ordinary shares – $2). See
note 35 for further information regarding additional ordinary shares issued subsequent to the end of
the fiscal years.
Holders of the ordinary shares are entitled to receive dividends and other distributions, to attend
and vote at any general meeting, and to participate in all returns of capital on winding up or
otherwise.
Holders of the deferred shares are not entitled to vote at any annual general meeting of the
Company and are only entitled to receive the amount paid up on the shares after the holders of
the ordinary shares have received the sum of £1,000 for each ordinary share held by them and
shall have no other right to participate in assets of the Company.
15.
EQUITY RESERVE ON SHARE OPTION ISSUANCE
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
Balance at beginning of year
Share option expense (Note 23)
10,594
3,931
14,525
4,512
19,037
8,274
Balance at end of year
14,525
19,037
27,311
The equity reserve on share option issuance comprises the cost to the Company related to the
equity-settled share-based payments transactions.
199
16.
TRANSLATION RESERVE
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
Balance at beginning of year
Arising on translation of foreign operations
(841)
(119)
(960)
(892)
(1,852)
884
Balance at end of year
(960)
(1,852)
(968)
Exchange differences relating to the translation from the functional currencies of the Optimal
Payments Group’s foreign subsidiaries into US dollars are brought to account by entries made
directly to the foreign currency translation reserve.
17. OPERATING SEGMENTS
The Optimal Payments Group has two operating segments as disclosed below. For each of the
segments, the Optimal Payments Group’s CEO reviews internal management reports on at least a
quarterly basis. The following summary describes the operations in each of the Optimal Payments
Group’s reportable segments.
NETELLER: fees are generated on transactions between Members and Merchants using the
NETELLER service and Net+ prepaid cards.
NETBANXâ: fees are generated through the NETBANXâ and NETBANXâ Asia straight-through
processing platforms where customers send money directly to Merchants.
Information regarding the results of each reportable segment is included below.
Segmented reporting for the year ended 31 December 2012:
NETELLER
US$’000
NETBANXâ
US$’000
TOTAL
US$’000
Revenue
Variable costs
Processing costs
Bad debt
38,824
138,873
177,697
7,385
1,056
80,647
335
88,033
1,391
Total variable costs
8,441
80,982
89,424
30,383
57,891
88,273
Variable margin
Variable margin percentage
78%
42%
50%
Segmented reporting for the year ended 31 December 2013:
NETELLER
US$’000
NETBANXâ
US$’000
TOTAL
US$’000
Revenue
Variable costs
Processing costs
Bad debt
59,793
193,033
252,826
8,748
760
111,743
233
120,491
993
Total variable costs
9,508
111,976
121,484
50,285
81,057
131,342
Variable margin
Variable margin percentage
84%
200
42%
52%
Segmented reporting for the year ended 31 December 2014:
NETELLER
US$’000
NETBANXâ
US$’000
TOTAL
US$’000
Revenue
Variable costs
Processing costs
Bad debt
89,572
274,713
364,285
11,862
1,712
161,788
468
173,650
2,180
Total variable costs
13,574
162,256
175,830
Variable margin
75,998
112,457
188,455
Variable margin percentage
85%
41%
52%
Processing costs and bad debt are the only two costs which vary directly with revenue, and
accordingly have been shown separately as variable costs. For 2014, variable costs for NETELLER
and NETBANXâ were 15% (2013: 16%; 2012: 22%) and 59% (2013: 58%; 2012: 58%) of revenue
respectively.
Net assets have not been presented in the segmented information since significant assets and
resources throughout the Optimal Payments Group serve both reporting segments and would not
reasonably be allocable between the two.
The amounts reported are based on the financial information used to produce the consolidated
financial information.
Major Merchants
The Optimal Payments Group has one Merchant who represents at 31 December 2014: 36.7% (31
Dec 2013: 41.4%; 31 Dec 2012: 33.6%) of total fee revenue across all reportable segments and
geographies. The majority of this revenue comes from Asia.
18. MARKETING AND PROMOTIONS
Total marketing and promotions including advertising costs for the year were 31 December 2014:
$15,194 (31 Dec 2013: $7,950; 31 Dec 2012: $3,752). These consisted of targeted NETELLER
Loyalty Programme costs, VIP rebates, fee rebates to Merchants, advertising and tradeshows.
19.
DEPRECIATION AND AMORTISATION
OPTIMAL PAYMENTS GROUP
Depreciation of tangible assets (Note 7)
Amortisation of intangible assets (Note 8)
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
3,599
8,673
4,193
9,325
5,409
15,578
12,272
13,518
20,987
In 31 Dec 2012 $496 of Investment Tax Credits (ITCs) received were recorded against
depreciation and amortisation expense since the assets giving rise to the ITCs were fully
amortised.
201
20. RESTRUCTURING COSTS
The Optimal Payments Group incurred restructuring costs relating the reorganisation of its cost
structure. Severance was paid to employees as a result of operational changes to the Optimal
Payments Group’s business in order to streamline operations and remain competitive in challenging
markets.
The Optimal Payments Group incurred the following costs:
Severance and retention payments
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
731
832
—
21. EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share is based on the following data:
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
1,184
31,478
57,676
128,659
146,396
161,224
7,450
—
—
8,566
—
—
8,842
455
7,991
136,109
154,962
178,512
Earnings per share
Basic earnings per share
$0.01
$0.22
$0.36
Fully diluted earnings per share
$0.01
$0.20
$0.32
Profit
Profit for the purposes of basic and diluted earnings
per share being net profit attributable to equity share
holders of the parent
Number of shares
Weighted average number of ordinary shares for the
purpose of basic earnings per share
Effect of dilutive potential ordinary shares due to
employee share options
Convertible shareholder loan
Share consideration payable
Weighted average number of ordinary shares for the
purpose of diluted earnings per share
The average market value of the Company’s shares for purposes of calculating the dilutive effect
of share options was based on quoted market prices for the period during which the options were
outstanding.
22. COMMITMENTS
At the balance sheet date, the Optimal Payments Group had outstanding commitments for future
minimum lease payments, which fall due as follows:
Within one year
In the second to fifth years inclusive
After five years
202
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
1,352
2,890
217
1,455
3,266
1,550
1,556
2,197
1,153
Operating lease payments represent rentals payable by the Optimal Payments Group for certain of
its office properties. Current leases have a remaining average life of 2.4 years.
23. SHARE BASED PAYMENTS
The Company adopted the unapproved share option plan pursuant to a resolution passed on 7 April
2004 and amended by the Board on 15 September 2008. The 2008 amendment included the
addition of a new ‘approved’ plan for UK based employees. Under the ‘approved’ and ‘unapproved’
plans (‘‘ESOS’’), the Board of Directors of the Company may grant share options to eligible
employees including directors of Optimal Payments Group companies to subscribe for ordinary
shares of the Company.
No consideration is payable on the grant of an option. Options may generally be exercised to the
extent that they have vested. Options vest according to the relevant schedule over the grant period
following the date of grant. The exercise price is determined by the Board of Directors of the
Company, and shall not be less than the average quoted market price of the Company shares on
the three days prior to the date of grant. Subject to the discretion of the Board, share options are
forfeited if the employee leaves the Optimal Payments Group before the options vest. The ESOS
options granted in December 2011 vest on the third anniversary of the date of grant and lapse a
further six months after vesting.
Changes in the number of ESOS options outstanding are detailed in the table below:
Equity-settled share option plan
31December
2012
Weighted
Average
Exercise
Price
£
Year ended
31December
2012
Options
(000’s)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
0.53
0.57
0.56
0.53
1,449
1,173
(109)
(1,440)
Outstanding at the end of the year
0.57
1,073
Exercisable at the end of the year
—
—
31December
2013
Weighted
Average
Exercise
Price
£
Year ended
31December
2013
Options
(000’s)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
0.57
1.21
0.68
—
1,073
721
(230)
—
Outstanding at the end of the year
0.85
1,564
Exercisable at the end of the year
—
—
203
31December
2014
Weighted
Average
Exercise
Price
£
Year ended
31December
2014
Options
(000’s)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
0.85
3.35
1.15
0.57
1,564
496
(213)
(390)
Outstanding at the end of the year
1.73
1,457
Exercisable at the end of the year
0.57
390
The ESOS options outstanding at the end of the period had a weighted average exercise price of
£1.73 and a weighted average remaining contractual life of 31 December 2014: 1.66 years
(31 December 2013: 2.31 years; 31 December 2012: 2.44 years).
The options granted under the 2011 ESOS were valued using a Black Scholes model. The
following inputs were assumed for options outstanding:
Year ended
31December
2012
Weighted average exercise price
Expected volatility
Expected life
Risk free interest rate
Expected dividends
Employee exit rate
£0.57
42.9%
3.25 years
0.55%
—
7%
Year ended
31December
2013
£1.21
36.5%
3.25 years
0.63%
—
7%
Year ended
31December
2014
£3.35
40.0%
3.25 years
0.92%
—
7%
Expected volatility was determined by calculating the historical volatility of the Company’s share
price over a period commensurate with the expected term of the options ending on the date of
grant.
Long Term Incentive Plan
The Company adopted the Long Term Incentive Plan (‘‘LTIP’’) which took effect from 1 January
2010. On 18 January 2013, certain executives of the Optimal Payments Group were granted
2,267,800 LTIP options to acquire ordinary shares in the Company with an exercise price of
£0.0001 per share. A further 10,000 supplementary options were granted later in the period. These
LTIP options vest in one tranche based on future performance related to EBITDA targets for the
financial year ending on 31 December 2014 and subject to continued employment over the
remaining vesting period. Vested options lapse on the tenth anniversary of the date of grant.
204
Changes in the number of LTIP options outstanding are detailed in the table below:
31December
2012
Weighted
Average
Exercise
Price
£
Year ended
31December
2012
Options
(000’s)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
0.0001
0.0001
0.0001
0.0001
3,565
3,449
(95)
(38)
Outstanding at the end of the year
0.0001
6,881
Exercisable at the end of the year
0.0001
55
31December
2013
Weighted
Average
Exercise
Price
£
Year ended
31December
2013
Options
(000’s)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
0.0001
0.0001
0.0001
0.0001
6,881
2,278
(213)
(3,417)
Outstanding at the end of the year
0.0001
5,529
Exercisable at the end of the year
0.0001
185
31December
2014
Weighted
Average
Exercise
Price
£
Year ended
31December
2014
Options
(000’s)
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
0.0001
0.0001
0.0001
0.0001
5,529
4,067
(20)
(2,846)
Outstanding at the end of the year
0.0001
6,730
Exercisable at the end of the year
0.0001
675
The LTIP options outstanding at the end of the period had an exercise price of £0.0001 and a
weighted average remaining contractual life of 31 December 2014: 8.8 years (31 December 2013:
8.5 years, 31 December 2012: 8.7 years).
The weighted average share price of LTIP options exercised in 2013 based on the date of exercise
was 31 December 2014: £4.33 (31 December 2013: £2.35, 31 December 2012: £0.67).
205
Due to the nominal exercise price of the LTIP options and that option holders are entitled to
receive a benefit by reference to the value of dividends that would have been paid on vested
shares during the vesting period, the options granted under the 2013 LTIPs were valued based on
the share price at the date of grant 31 December 2014 £3.58 per share (31 Dec 2013: £1.19 per
share, 31 Dec 2012: £0.62 per share).
The Company recognised total expenses of 31 December 2014 $8,274 (31 Dec 2013: $4,511; 31
Dec 2012: $3,931) related to the equity-settled share-based payments transactions.
24. FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, restricted NETELLER Merchant cash,
qualifying liquid assets held for NETELLER Members, trade and other receivables, payable to
NETELLER Members, and trade and other payables. All financial instruments are classified as held
for trading except for accounts receivable and accounts payable which are classified as loans and
receivables.
i)
Fair values
The Optimal Payments Group estimates the fair value of its financial instruments based on current
interest rates, market value and pricing of financial instruments with comparable terms.
The fair values of cash and cash equivalents, restricted NETELLER Merchant cash, Qualifying
Liquid Assets held for NETELLER Members, trade and other receivables, payable to NETELLER
Members and trade and other payables approximate the carrying values due to the short-term
nature of these instruments.
The fair value of the obligations under finance lease as at 31 December 2014 has been
established by discounting the future cash flows using interest rates corresponding to those which
the Optimal Payments Group would currently be able to obtain for leases with similar maturity
dates and terms.
The fair value of the shareholder loans has not been prepared as fair value cannot be measured
reliably as there is no market for such instruments.
ii)
Credit risk and concentrations
Credit risk is the risk of financial loss to the Optimal Payments Group if a member or merchant
counter party to a financial instrument fails to meet its contractual obligations, and arises principally
from the Optimal Payments Group’s cash and cash equivalents, restricted NETELLER merchant
cash, qualifying liquid assets held for NETELLER Members, and trade and other receivables. The
cash and cash equivalents, restricted NETELLER merchant cash and the qualified liquid assets
held for NETELLER Members are deposited with major financial institutions which the Optimal
Payments Group’s management believes to be financially sound and, accordingly, minimal credit
risks exist with respect to these assets.
The Optimal Payments Group is exposed to credit risk to the extent that its members and
merchants may charge back credit card purchases. The Optimal Payments Group manages the
exposure to credit risk by employing various online identification verification techniques, enacted
transaction limits and having a significant number of members and merchants. As these members
are geographically widespread and the merchants are active in various industries, the exposure to
credit risk and concentration is mitigated.
206
As at the reporting date, the maximum credit exposure of the Optimal Payments Group’s financial
assets exposed to credit risk amounted to the following:
As at 31 December 2012
Neither past
due or
impaired
US$’000
Past due:
1-30 days
US$’000
Past due:
31-90 days
US$’000
Past due:
more than
90 days
US$’000
Cash and cash equivalents
Restricted NETELLER merchant cash
Qualifying liquid assets held for
NETELLER Members
Trade and other receivables
82,174
5,423
—
—
—
—
—
—
118,091
5,802
—
43
—
61
—
97
Total
211,490
43
61
97
Neither past
due or
impaired
US$’000
Past due:
1-30 days
US$’000
Past due:
31-90 days
US$’000
Past due:
more than
90 days
US$’000
Cash and cash equivalents
Restricted NETELLER merchant cash
Qualifying liquid assets held for
NETELLER Members
Trade and other receivables
164,379
1,636
—
—
—
—
—
—
127,974
4,361
—
77
—
236
—
88
Total
298,350
77
236
88
Neither past
due or
impaired
US$’000
Past due:
1-30 days
US$’000
Past due:
31-90 days
US$’000
Past due:
more than
90 days
US$’000
Cash and cash equivalents
Restricted NETELLER merchant cash
Qualifying liquid assets held for
NETELLER Members
Trade and other receivables
142,352
2,233
—
—
—
6,544
13,290
—
388
—
343
—
691
Total
164,419
388
343
691
As at 31 December 2013
As at 31 December 2014
iii) Interest rate risk
The Optimal Payments Group is exposed to interest rate risk to the extent that investment revenue
earned on cash and cash equivalents, client account funds, and Qualifying Liquid Assets held for
NETELLER Members is subject to fluctuations in interest rates. The Optimal Payments Group’s
exposure to interest rate risk is limited as investments are held in liquid and short-term funds. A
sensitivity analysis has been performed wherein 1% increase in interest rates offered would result
in an increase of $3,309,654 of interest income while a 1% decrease would result in a reduction to
interest income in the amount of $540,811.
iv) Currency risk
The Optimal Payments Group is exposed to currency risk due to financial assets and liabilities
denominated in a currency other than the functional currency, primarily the Great Britain Pound
(‘‘GBP’’), the EURO (‘‘EUR’’), the Canadian dollar (‘‘CAD’’), and the Hong Kong Dollar (‘‘HKD’’).
The Optimal Payments Group manages the exposure to currency risk by commercially transacting
in US dollars and by limiting the use of other currencies for operating expenses, wherever possible,
thereby minimising the realised and unrealised foreign exchange gain/(loss). Where limited
207
exposures exist, these are managed through entering into forward foreign exchange contracts as
appropriate (Note 4).
The Optimal Payments Group’s exposure as at the reporting date was as follows:
GBP
£’000
EUR
e’000
CAD
$’000
HKD
$’000
3,638
6,320
10,289
22,519
5,186
—
194,912
—
5,173
607
(9,261)
34,513
135
(281)
1
1,174
(9,127)
—
—
(151,614)
(6,049)
(21,231)
(401)
(742)
(4,676)
—
(33,372)
—
(55)
(636)
(338)
—
(4,248)
12,572
(3,858)
42,218
GBP
£’000
EUR
e’000
CAD
$’000
HKD
$’000
5,963
7,423
15,959
23,894
4,215
—
401,702
—
6,339
584
(7,721)
39,201
43
(313)
1
348
(9,258)
—
—
(230,145)
(8,110)
(24,154)
(384)
(766)
(5,910)
—
(38,169)
—
(85)
(1,020)
—
—
(1,432)
16,461
(6,183)
170,791
GBP
£’000
EUR
e’000
CAD
$’000
HKD
$’000
Cash and cash equivalents
Segregated account funds (note 5)
Qualifying liquid assets held for
NETELLER Members (note 6)
Trade and other receivables
Trade and other payables
Payable to NETELLER Merchants
(note 5)
Payable to NETELLER Members
(note 6)
Obligations under finance lease
27,556
8,138
19,324
28,245
5,473
—
225,850
—
7,438
1,014
(9,589)
49,561
164
23
2
1,524
953
—
—
(240,180)
(8,582)
(27,543)
(410)
—
(7,151)
—
(49,341)
—
(152)
655
—
—
Total
18,824
20,433
As at 31 December 2012
Cash and cash equivalents
Segregated account funds (note 5)
Qualifying liquid assets held for
NETELLER Members (note 6)
Trade and other receivables
Trade and other payables
Payable to NETELLER Merchants
(note 5)
Payable to NETELLER Members
(note 6)
Obligations under finance lease
Total
As at 31 December 2013
Cash and cash equivalents
Segregated account funds (note 5)
Qualifying liquid assets held for
NETELLER Members (note 6)
Trade and other receivables
Trade and other payables
Payable to NETELLER Merchants
(note 5)
Payable to NETELLER Members
(note 6)
Obligations under finance lease
Total
As at 31 December 2014
208
8,045
(14,330)
v)
Market segment risk
Market segment risk may arise due to adverse changes in legislation relating to internet, payment
processing or on-line gambling. The Optimal Payments Group is exposed to market segment risk
to the extent that legislation impacts operational presence and related revenue streams, which may
be significant. The Optimal Payments Group manages this exposure through geographical
diversification and participation in non gambling sources of revenue. The Optimal Payments Group
closely monitors local legislation in key markets (new or existing) and does not have economic
reliance on any one country.
v)
Liquidity risk
Liquidity risk is the risk that the Optimal Payments Group will be unable to meet its financial
obligations as they fall due. Management controls and monitors the Optimal Payments Group’s
cash flow on a regular basis, including forecasting future cash flows. The Optimal Payments
Group’s objective to managing liquidity is to ensure that, as far as possible, that it will always have
sufficient liquidity to meet the liabilities when they become due.
The table below summarises the maturity profile of the Optimal Payments Group’s financial
liabilities based on contractual undiscounted payments:
On demand
US$’000
Less than
3 months
US$’000
3 to 12
months
US$’000
1 to 5
years
US$’000
Trade and other payables
NETELLER loyalty program
Shareholder loans (note 32)
Obligations under finance lease
38,588
949
—
—
14,495
—
—
54
5,681
—
8,972
163
—
—
423
Total
39,537
14,549
5,844
9,395
On demand
US$’000
Less than
3 months
US$’000
3 to 12
months
US$’000
1 to 5
years
US$’000
Trade and other payables
NETELLER loyalty program
Shareholder loans (note 32)
Obligations under finance lease
52,465
1,722
—
—
39,207
—
9,526
145
9,092
—
—
438
—
—
—
801
Total
54,187
48,878
9,530
801
On demand
US$’000
Less than
3 months
US$’000
3 to 12
months
US$’000
1 to 5
years
US$’000
Trade and other payables
NETELLER loyalty program
Obligations under finance lease
48,783
1,160
—
12,693
—
145
5,458
—
434
395
—
205
Total
49,943
12,838
5,892
600
As at 31 December 2012
As at 31 December 2013
As at 31 December 2014
Amounts payable to NETELLER members are fully supported by qualifying liquid assets held for
NETELLER members (see note 6 for further details).
vii) Risk management assets and liabilities
Risks are identified, evaluated and mitigated through a combination of a ‘‘top down’’ approach
driven by both the Audit Committee and Board of Directors. These are aggregated into a Risk
Management framework where the risks are prioritised and assigned to the executive for monitoring
and risk mitigation. The Optimal Payments Group Internal Audit function undertakes regular reviews
209
of the controls that are in place to mitigate risk. The Optimal Payments Group enters into financial
instruments through forward currency contracts that fix the net asset or liability position for
significant currencies held on the Statement of Financial Position.
viii) Capital disclosure
The Optimal Payments Group’s capital structure is comprised of shareholders’ equity plus
shareholder loans and contingent consideration as required to fund the asset acquisition. The
Optimal Payments Group’s objective when managing its capital structure is to finance internally
generated growth and maintain financial flexibility including access to capital markets. To manage
its capital structure the Optimal Payments Group may adjust capital spending, issue new shares, or
acquire short-term financing.
ix) Capital risk management
The Optimal Payments Group manages its capital to ensure that the entities in the Optimal
Payments Group will be able to continue as a going concern, while maximising the return to
stakeholders through optimisation of the debt and equity balance. The capital structure of the
Optimal Payments Group consists of debt, which includes the borrowings as disclosed in notes 31
and 32, and equity attributable to owners of the parent, comprising reserves and retained earnings
as disclosed. The board reviews the capital structure and as part of this review, considers the cost
of capital and the risks associated with each class of capital. In addition the board of directors
considers the liquidity and solvency of the Optimal Payments Group on an ongoing basis. The
Optimal Payments Group’s capital structure remains unchanged since 2012. There have been no
change to how the Optimal Payments Group manages capital maintenance from 2012.
25. INVESTMENT IN SUBSIDIARIES
Details of the Company’s principal subsidiaries are as follows:
Name of Subsidiary
Optimal Payments
Netbanx
Optimal Payments
Netinvest Limited
Netpro Limited
Optimal Payments
Optimal Payments
Limited
Services Limited
(UK) Limited
(Bulgaria) EOOD
NT Services Limited
NT Services Building Corporation
1155259 Alberta Limited
Cardload Incorporated
NBX Checkout Inc.
NetBX Services Inc.
NetBX Technologies Inc.
NBX Merchant Services Inc.
NBX Merchant Services (Australia) PTY
Limited
NBX Merchant Services Corp
Optimal Payments Services Inc.
OPL Payment Services LLC
Optimal Payments Merchant Services Limited
(formerly NETELLER Operations Limited)
Net Optimal Payments Group Holdings Limited
NetAdmin Limited
Net ID Limited
NetB Limited
Netbanx BV Limited
Place of
Incorporation
and Operation
United
United
United
United
United
United
Proportion Proportion
of Voting
of
Ownership Power Held
Interest
Principal Activity
Kingdom
Kingdom
Kingdom
Kingdom
Kingdom
Kingdom
Bulgaria
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Authorised e-money issuer
Full service payment processing
Dormant
Holding company
Dormant
Sales and administration services
NETELLERâ call centre and customer
support
Employment and administration
Property leasing company
Financing
Dormant
Canadian sales company
Canadian support company
Canadian technology/development
company
Canadian sales company
Australian sales company
Canada
Canada
Canada
Canada
Canada
Canada
Canada
91%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Canada
Australia
100%
100%
100%
100%
United States
United States
100%
100%
United States
Isle of Man
100%
100%
Isle of Man
Isle of Man
Isle of Man
Isle of Man
Netherlands
100%
100%
100%
100%
100%
100%
US sales company
100% US-based money transmission services
(applicable licenses pending)
100%
US sales company
100%
Licensed to carry on money
transmission services
100%
Holding company
100%
Employment & administration
100%
Identification verification
100%
Dormant
100%
Holding company
Charter Access Limited, a subsidiary incorporated in Hong Kong, was wound-up in January 2013.
210
26. INTERCOMPANY BALANCES
Details of the Company’s intercompany balances are as follows:
Receivable from subsidiaries
Receivable from Optimal Payments.
Receivable from Netbanx Limited
Receivable from 1155259 Alberta Limited
Receivable from NetAdmin Limited
Receivable from Net ID Limited
Receivable from Optimal Payments (UK) Ltd.
Receivable from NBX Merchant Services Inc.
Receivable from NBX Merchant Services Corp.
Receivable from NBX Checkout Inc.
Receivable from NetBX Services Inc.
Receivable from NetBX Technologies Inc.
Receivable from Optimal Payments Services Inc.
Receivable from OPL Payment Services LLC
Investment in subsidiaries
Investment in Optimal Payments.
Investment in Netbanx Limited
Investment in 1155259 Alberta Limited
Due to subsidiaries
Due to NT Services Limited
Due to Optimal Payments Merchant Services Ltd.
(formerly NETELLER Operations Ltd.)
Due to NetBX Technologies Inc.
Due to NetBX Services Inc.
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
23,237
10,283
165
35
321
4,409
11,029
5,016
10
1,012
276
—
—
24,471
33,056
165
36
230
5,216
—
5,924
15
1,864
—
88
88
4,107
43,660
165
33
325
4,622
2,399
5,924
17
3,624
43
—
25,000
55,793
71,153
89,919
29,295
8,436
67
29,295
8,436
67
44,295
8,436
67
37,798
37,798
52,798
24,949
9,218
21,539
50,807
6,950
—
34,098
4,924
2,029
1,428
10,831
—
82,706
50,269
33,798
27. INTERCOMPANY TRANSACTIONS
Details of the Company’s intercompany transactions are as follows:
The franchise and platform rights fees are earned from subsidiary companies. All revenues are
transferred to the Company in exchange for transaction processing services and the right to
operate the platforms owned by the Company.
The administrative and platform service fees as noted in the Company financial information are
paid entirely to subsidiaries of the Company.
The intercompany transactions are recorded on an arm’s length basis and deemed to be at fair
value. All intercompany balances and transactions have been eliminated upon consolidation.
211
28.
i)
RELATED PARTIES
During the year, the Optimal Payments Group and Company entered into the following
transactions with related parties who are not members of the Optimal Payments Group or
Company:
December
Purchase of
Amounts Purchase of
Amounts Purchase of
Amounts
goods and
owed to goods and
owed to goods and
owed to
services in
related services in
related services in
related
2012 parties 2012
2013 parties 2013
2014 parties 2014
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
9185-2780
Quebec Inc.
—
1,800
—
—
—
—
On 1 April 2011, 9185-2780 Quebec Inc which was owned by a related party, Martin Leroux, a
shareholder of the Optimal Payments Group sold certain merchant contracts to the Company at fair
market value. The balance was included in Contingent Consideration (note 31).
ii)
Key management personnel compensation comprised the following:
Short-term employee benefits
Supplementary management bonus (note 34)
Post-employment benefits
Share-based payments
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
2,279
1,814
21
1,712
2,555
—
13
1,823
2,530
—
40
4,763
5,826
4,391
7,333
Key management personnel are those persons having authority and responsibility for planning,
directing and controlling the activities of the Optimal Payments Group, directly or indirectly,
including any director (whether executive or otherwise) of the Optimal Payments Group.
Compensation of the Optimal Payments Group’s key management personnel includes all employee
benefits (as defined in IAS 19 Employee Benefits) including employee benefits to which IFRS 2
Share-based Payment applies. Employee benefits are all forms of consideration paid, payable or
provided by the Optimal Payments Group, or on behalf of the Optimal Payments Group, in
exchange for services rendered to the Optimal Payments Group.
Compensation includes:
(a)
short-term employee benefits, such as wages, salaries and social security contributions, paid
annual leave and paid sick leave, profit-sharing and bonuses (if payable within twelve months
of the end of the period) and non-monetary benefits (such as medical care, housing, cars and
free or subsidised goods or services) for current employees;
(b)
post-employment benefits such as pensions, other retirement benefits, post-employment life
insurance and post-employment medical care;
(c)
other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or
other long-service benefits, long-term disability benefits and, if they are not payable wholly
within twelve months after the end of the period, profit-sharing, bonuses and deferred
compensation;
(d)
termination benefits; and
(e)
share-based payment
212
29. CONTINGENT LIABILITIES
From time to time the Optimal Payments Group is subject to legal claims and actions. The Optimal
Payments Group takes legal advice as to the likelihood of success of the claims and actions and
no provision or disclosure is made where the Directors feel, based on that advice, the action is
unlikely to result in a material loss or a sufficiently reliable estimate of the potential obligation
cannot be made.
As at 31 December 2014, Netbanx Limited, a wholly owned subsidiary, has net current liabilities.
Optimal Payments plc will continue to provide financial support to enable Netbanx Limited to meet
its existing and future liabilities and continue as a going concern.
30.
EBITDA
EBITDA is defined as results of operating activities before depreciation and amortisation and
exceptional non-recurring items which are defined as items of income and expense of such size,
nature or incidence, that in the view of management their disclosure is relevant to explain the
performance of the Optimal Payments Group for the period.
EBITDA is not a financial measure calculated in accordance with IFRS as adopted by the EU. The
presentation on these financial measures may not be comparable to similarly titled measures
reported by other companies due to the differences in the ways the measures are calculated.
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
Income before provision for income taxes
Depreciation and amortisation (note 19)
Supplementary management bonus (note 34)
Share option expense (note 23)
Finance costs
Restructuring costs (note 20)
Loss on disposal of assets (note 7 and 8)
Foreign exchange gain
Legal costs relating to US exit
Net fair value gain on consideration payable
Acquisition costs
3,645
11,776
5,620
3,931
1,800
731
778
(712)
(6)
—
—
32,713
13,518
—
4,512
995
832
552
(893)
(17)
—
—
58,979
20,987
—
8,274
2,023
—
12
3,019
—
(18,800)
11,568
EBITDA
27,563
52,212
86,063
31. CONTINGENT CONSIDERATION
During 2013, the financial conditions relating to the Optimal Payments Group’s contingent
consideration payable to the Vendors of Optimal Payments business were satisfied and the liability
extinguished in full. The details of the extinguishment of the debt are as follows:
A)
On completion of the 2011 asset acquisition of the Optimal Payments business, the Optimal
Payments Group entered into a loan agreement with the selling shareholders (‘‘Vendors’’) for
$20.0 million in cash plus accrued interest which was payable on or about April 2013, subject
to any deductions for price adjustments or indemnity claims under the acquisition agreement
(the ‘‘Loan’’).
On completion, the Optimal Payments Group also entered into a warrant agreement with the
Vendors pursuant to which the Vendors had the right to convert the Loan into ordinary shares
during prescribed exercise periods which ended on or around April 2013 at a premium of 6%
to the issue price of the consideration shares of 59.15 pence up to a total subscription price
of US$ 10.0 million plus interest, and at a premium of 12% to the issue price of the
consideration shares of 59.15 pence up to a total subscription price of a further US$ 10.0
million plus interest. The rights under the warrant agreement were only able to be exercised,
213
however, to the extent that the amount of the applicable subscription price had not been
reduced due to the failure to meet certain performance conditions or due to indemnity claims
or other adjustments under the acquisition agreement.
On 28 February 2013, one of the Vendors, 897032 Alberta Inc., representing 33.78% of the
Loan, gave notice to the Optimal Payments Group that it wished to convert its portion of the
Loan (amounting to $7,711 including accrued interest) into Ordinary Shares pursuant to the
warrant agreement. As a result, on February 28, 2013 the Company issued 5,585,793
Ordinary Shares to 897032 Alberta Inc. representing 75% of its respective interest in the
Loan. In addition, $1,928 in cash plus accrued interest was paid to satisfy the total Loan
owing to 897032 Alberta Inc.
On 25 April 2013, certain of the Vendors, 7761309 Canada Inc. and 9212-2670 Quebec Inc.,
representing 9.97% and 12.5% of the Loan respectively, gave notice to the Optimal Payments
Group that they wished to convert their portion of the Loan (amounting to $5,138 including
accrued interest) into Ordinary Shares pursuant to the warrant agreement. As a result, on
25 April 2013 the Company issued 1,743,584 Ordinary Shares to 7761309 Canada Inc. and
2,186,038 Ordinary Shares to 9212-2670 Quebec Inc., totalling 3,929,622 Ordinary Shares,
representing 75% of their respective interests in the Loan.
Following the conversion on 25 April 2013, $3,797 in cash plus accrued interest was paid on
25 April 2013 to satisfy the remaining Loan owing to the remainder of the Vendors.
B)
On 27 March 2013, the balance of $1,800 payable relating to the acquisition of certain
merchant contracts from 9185-2780 Quebec Inc., a company owned by a related party, Martin
Leroux, a shareholder of the Optimal Payments Group, was settled via the issuance of
1,893,207 shares based on an exercise price of £0.626990 per share. The amount payable
had been included in Contingent Consideration.
32. SHAREHOLDER LOANS
Two shareholders, Aurum Nominees Ltd and IIU Nominees Ltd, loaned the Company a total of
$8,000 to help finance the purchase of assets from Optimal Payments Inc. The loans have a 6%
interest rate, are unsecured and due for repayment on 31 January 2014. For 2013 $553; 2012 –
$532; of interest has been accrued. The loans are convertible, in part or in full, at a price of
£0.66248 at any point prior to the repayment date.
The loans were converted into ordinary shares subsequent to the 2013 fiscal year end.
33. AUDITOR REMUNERATION
Remuneration of the auditors for audit, advisory and other services has been recorded as follows:
Audit services
Statutory audit
Non-audit services
Tax and other advisory services
Total
214
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
470
536
758
—
—
311
470
536
861
34. OTHER EXPENSES
Management includes certain balances in other as identified below:
Year ended
31December
2012
US$’000
Year ended
31December
2013
US$’000
Year ended
31December
2014
US$’000
Supplementary management bonus
Gain on wind-up of subsidiary
Loss on disposal of assets (note 7 and 8)
Recoveries of legal costs relating to US exit
5,618
—
778
(5)
—
—
552
(16)
—
—
12
—
Other Expenses
6,391
536
12
Supplementary management bonus
The Optimal Payments Group had implemented a Supplementary Bonus scheme, for the senior
management of the acquired Optimal Payments to incentivise and reward them for delivering
performance in excess of the Contingent Consideration thresholds. The scheme was based on
EBITDA performance of the acquired business and applied to the 2011 and 2012 fiscal years. The
bonus was paid in full with no further provisions required in the current year.
35. BUSINESS ACQUISITIONS
On 23 July 2014, Optimal Payments plc, through its subsidiaries, NBX Services Corp and NetBX
Services LLC acquired all of the partnership interests of TK Global Partners L.P. (doing business
as Meritus Payment Solutions or ‘‘Meritus’’), a California based payment processing entity. The
total consideration agreed upon of $210 million on the closing date consists of $150 million in cash
and $60 million of Optimal Payment shares and/or cash to be issued in equal tranches over four
years commencing on the first anniversary of the closing date, subject to customary closing
adjustments (‘‘Deferred consideration’’). Concurrent with the execution of the Meritus purchase
agreement, NBX Services Corp. (‘‘the Buyer’’) bought all the outstanding limited and general
partnership interest of Meritus (‘‘the Seller’’) in Global Merchant Advisors, Inc (‘‘GMA’’), a US
based online payments company.
On the same date, NETBX Services LLC acquired the trade and assets of GMA for $15 million in
cash, $8.875 million of which was paid at closing date, $1.125 million will be paid in cash on the
anniversary of the closing date and the balance to be paid based on future performance of the
business (‘‘Contingent consideration’’).
Acquisition of these profitable, fast growing and cash generative businesses is expected to
enhance earnings by significantly accelerating Optimal Payments’ expansion into the rapidly
expanding US ecommerce market by providing it with a diversified merchant client base; a highly
agile multi-channel sales force operating in complimentary and new vertical markets; and
partnerships with leading US acquiring banks.
The acquisitions will also allow Optimal Payments to offer Meritus’ and GMA clients access to its
global network and the ability to more easily sell products and services online virtually anywhere in
the world. Similarly, Optimal Payments’ international clients will gain greater access to the US
market.
215
Consideration
The purchase price allocation was determined using the information available, evaluations obtained
and fair value assessments performed by the Company’s management. The following table
summarises the consideration paid for Meritus and GMA and the fair value of the assets acquired
and liabilities assumed recognised at the acquisition date.
Meritus
US $000
GMA
US $000
Cash consideration
Fair value of Deferred consideration at acquisition datea
Fair value of Contingent consideration at acquisition dateb
150,000
76,090
—
10,000
—
5,000
Total estimated purchase price
226,090
15,000
Trade and other receivables
Cash and cash equivalents
Prepaid expenses and deposits
Property, plant & equipment (Note 7)
Trade and other payables
Finite-life intangible assets (Note 8)
2,826
3,281
226
1,278
(4,295)
54,910
500
—
—
12
—
8,693
Fair value of net assets acquired
58,226
9,205
167,864
5,795
Goodwillc
a
b
c
At closing date, the fair value of the share consideration payable is $57,290. The Optimal Payments Group recognized a gain
of $18,800 relating to the change in fair value of this deferred share consideration.
On 23 July 2015, the Buyer shall make a cash payment to the Seller in an aggregate amount equal to $5,000 should GMA
meet certain performance targets as prescribed in the Purchase Agreement.
The goodwill recognised is expected to be deductible for income tax purposes
Meritus and GMA revenues of $45 million and net earnings incurred of $8.9 million are included in
the consolidated income statement from the date of acquisition. The Optimal Payments Group’s
consolidated revenues and net earnings for the year ended 31 December 2014 would have
included $100.6 million and $21.7 million, respectively, had the Meritus and GMA acquisitions
occurred on 1 January 2014.
The Optimal Payments Group incurred acquisition related costs of $7,600 up to 31 December 2014
which were expensed in the period relating to these transactions.
36
LONG TERM DEBT
Term facility
Revolving facility
Current portion
As at 31
December
2014
US $000
As at 31
December
2013
US $000
As at 31
December
2012
US $000
90,000
37,000
—
—
—
—
127,000
20,000
—
—
—
—
107,000
—
—
On 23 July 2014, the Optimal Payments Group amended its $9 million credit facility which
consisted of letters of guarantee to a $150 million credit facility consisting of a $100 million term
facility and a $50 million revolving facility. The term facility bears interest at US prime rate plus a
premium varying from 0.25 per cent. to 1.50 per cent. or at a LIBOR rate plus a premium varying
from 1.75 per cent. to 3.00 per cent., matures on 23 July 2017, and is repayable in quarterly
216
instalments of $5 million starting in September 2014 up to the maturity date. The revolving facility
can be used for the financing of a portion of the permitted acquisitions in a maximum amount of
$41 million and general corporate purposes including the issuance of letters of credit. Amounts of
$100 million and $41 million were drawn down from the term facility and revolving facility,
respectively, on 23 July 2014 in order to fund the Meritus and GMA acquisitions (see Note 16).
Principal repayments have amounted to $10 million and $4 million on the term facility and revolving
facility, respectively, as at 31 December 2014.
As at 31 December 2014, the Optimal Payments Group has approximately $9 million outstanding
in issued letters of guarantee in relation to various performance bonds drawn from the revolving
facility.
Under the terms of the loan agreement, the Optimal Payments Group must satisfy certain
restrictive covenants including minimum financial ratios. These restrictions are composed of ratios
of funded debt to EBITDA, funded debt to capitalization and fixed charge coverage ratio. EBITDA,
a non IFRS measure, is defined in the Credit Facility on a consolidated basis, as total
comprehensive profit attributable to the owners of the Optimal Payments Group before interest
expense, income taxes, depreciation, amortization, gains or losses from asset dispositions, gains or
losses from extraordinary items and non-recurring transaction costs related to the acquisition of
Meritus and GMA, non-cash share option expenses and gains or losses relative to foreign
exchange or derivative instruments, plus (or minus) the historical EBITDA of any businesses
acquired (or sold) during the reporting period. As at 31 December 2014, all debt covenant
requirements and exemptions have been respected.
217
PART X
OPERATING AND FINANCIAL REVIEW OF THE SKRILL OPERATING GROUP
The following is a discussion of the Skrill Operating Group’s financial condition and results of
operations for the periods under review. This discussion should be read in conjunction with Part XI
(Financial Information of the Skrill Operating Group). The consolidated financial statements and the
related notes for the Skrill Operating Group for the years ended and as at 31 December 2013,
2012 and 2011 and its unaudited consolidated financial statements for the nine months ended
30 September 2014 and 2013 have been prepared in accordance with IFRS as adopted for use in
the EU.
The following discussion and elsewhere in this document includes forward-looking statements that
reflect the Skrill Operating Group’s plans, estimates and beliefs, and involve risks and
uncertainties. Actual results and the timing of events could differ materially from those expressed
or implied by such forward looking statements as a result of various factors, particularly those
discussed in the section entitled ‘‘Risk Factors’’ and the paragraph relating to forward-looking
statements in the section entitled ‘‘Important Information’’.
1.
OVERVIEW
The Skrill Operating Group is a leading worldwide provider of electronic money transfer services,
online prepaid solutions and software development, allowing customers and merchants to exchange
funds in real time across a broad and innovative product set. The Skrill Operating Group comprises
Skrill, paysafecard, Payolution and, following completion of the Ukash Acquisition, Ukash. The Skrill
Operating Group processes internet payments through a network of over 80 banks and payment
providers with whom the Skrill Operating Group has a business relationship, offering over 100 local
payment options in more than 200 countries and territories, across 41 currencies and 16
languages.
The Skrill Operating Group offers the following products:
1.1
Skrill
Skrill’s principal product is the e-Wallet, an internet-based account established by merchants
and customers and maintained by the Skrill Operating Group. In order to use the e-Wallet,
customers may be charged a fee when uploading funds into their e-Wallet accounts.
Additional charges apply when customers transfer funds out of their e-Wallets. Customers are
also charged foreign exchange fees and an additional service fee when funds are transferred
in a different currency from the source currency of the e-Wallet.
Skrill’s e-Wallet also allows customers to receive money from merchants, such as winnings
from an internet-based gambling website or payments from an auction website. Merchants are
charged a fixed percentage fee when accepting payments made using the e-Wallet. The fee
is agreed in advance with each merchant and is dependent on the merchant’s transaction
volume, its industry and whether or not the merchant is eligible for and opts for the Skrill
Operating Group’s no chargeback policy. Merchants are also charged foreign exchange fees
and an additional service fee when funds are transferred in a different currency from the
source currency of the e-Wallet.
As at 31 December 2013, Skrill had over 39 million customer accounts, and over 169,000
registered merchants, with 6.6 million customer accounts and 54,067 merchant accounts
actively making and receiving payments during FY2013. As at 31 December 2013, 61 per
cent. of the Skrill Operating Group’s active customers by number were located in Europe,
28 per cent. in the Americas and 11 per cent. in the rest of the world.
The Skrill Operating Group offers a digital wallet, payment gateway services by way of Skrill
Quick Checkout, Direct Payment Gateway and Skrill 1-Tap, payment services through Skrill
Direct and Peer-to-Peer (‘‘P2P’’) Remittance, foreign exchange services and is a payment
service provider (‘‘PSP’’).
218
1.2
paysafecard
paysafecard is a prepaid payment voucher (‘‘paysafecard’’) and an online digital wallet (‘‘my
paysafecard’’) issued and operated through a UK e-money licence and local licenses or
approvals outside the EEA. paysafecard processed approximately e1.4 billion in transactions
in FY2013. In addition, paysafecard offers a Prepaid Mastercardâ under the license of
MasterCard International Incorporated. paysafecard derives its revenues from fees charged to
merchants accepting payments made using the paysafecard product. A portion of the fees
paid by merchants is used by paysafecard to pay commissions to sales outlets that stock and
sell paysafecard vouchers, with the balance being retained by paysafecard. Due to the
commission costs, paysafecard has a naturally lower margin than other products within the
Skrill Operating Group portfolio.
The Skrill Operating Group entered into an agreement to purchase the entire issued share
capital of Ukash on 26 November 2014. Ukash is an online e-money payment provider that
allows customers to exchange their cash for a secure code to make payments online without
the use of a credit or debit card. Ukash also offers the Ukash Prepaid MasterCardâ and
Ukash Travel Money Prepaid MasterCardâ. The Ukash Acquisition is expected to complete in
the first half of 2015.
1.3
Payolution
Payolution arranges the provision of point-of-sale financing to customers of e-commerce
merchants in order to ensure that the merchants are put in funds within an agreed timeframe
(which is within 29 days after merchants are provided with a statement of its transactions)
and is offered as a white-label solution.
2.
PRINCIPAL FACTORS AFFECTING RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Skrill Operating Group’s results of operations have been affected by a number of factors
including the factors discussed below, which have influenced the Skrill Operating Group’s results of
operations in the periods under review and/or will likely continue to affect its business and industry.
2.1
Ukash Acquisition
On 26 November 2014, the Skrill Operating Group entered into an agreement to acquire 100
per cent. of the issued share capital of Smart Voucher Limited (‘‘Ukash’’). Completion of the
Ukash Acquisition is subject to a number of conditions, including the receipt of approval from
the FCA. The Ukash Acquisition is expected to complete in the first half of 2015.
2.2
Acquisition of paysafecard
On 28 June 2012, the Skrill Operating Group entered into an agreement to acquire 100 per
cent. of the issued share capital of paysafecard.com Wertkarten AG (‘‘paysafecard’’), an
Austrian prepaid payments business. Formal closing of the transaction occurred on 8 February
2013, once clearance was received from the FCA as well as the relevant merger control
authorities. The nine months 2014 and full year 2013 results therefore include paysafecard
group results since the date of acquisition (revenues of $146 million and profit after tax of
$21 million in 2013).
2.3
Approval in New Jersey, USA to offer e-Wallet
In November 2013, Skrill USA, Inc. was approved by the New Jersey Division of Gaming
Enforcement (‘‘DGE’’) to offer an e-Wallet for regulated gambling in the state of New Jersey.
Skrill operates in all US states, the District of Columbia and its territories on the basis of
money transmitter licences in all US states where it is required. The Skrill Operating Group
has been granted a waiver from the requirement to obtain a money transmitter licence in
Indiana, Rhode Island and Wisconsin and money transmitter licences are not required in
Montana and South Carolina.
219
2.4
Growth of the digital payments industry
The Skrill Operating Group operates in the high growth digital payments industry. The core
market comprises the provision of services which enable merchants and customers to make
and accept payments over the internet. The results of operations are therefore dependent on
the adoption of the digital payments model by merchants and customers.
The digital payments industry has demonstrated significant growth across geographies during
the period under review and is expected to continue to do so, while increasing internet
penetration is a key driver behind the industry’s growth.
This includes an increasing number of ‘‘bricks-and-mortar’’ merchants shifting their sales
channels to focus on the internet, given the inherent cost and distribution advantages of
selling goods and services this way. Other industry drivers include the growth of online
gaming, VoIP communications, micropayments, internet-based remittances, virtual goods and
the emergence of mobile internet-enabled devices.
Going forward, the growth of the Skrill Operating Group’s business in the medium to long
term will depend, in part, on continued industry growth and its ability to remain competitive in
this evolving industry.
2.5
Seasonality and sports schedules
The Skrill Operating Group derives a portion of its gambling related revenue from online
sports betting. Revenue, therefore, is generally subject to the same seasonal factors which
affect the amounts and numbers of bets placed with sports betting merchants, including the
scheduling of sporting events and, in particular, the scheduling of football events. Seasons for
the premier European football leagues run from mid-August to mid-May. During June and
July, the Skrill Operating Group’s revenue typically decreases in line with the break between
football seasons.
Similarly, revenue is affected by the scheduling of significant football events during the offseason, including the FIFA Football World Cup and the UEFA European Football
Championship. The FIFA Football World Cup held in June and July 2014 had a positive
impact on revenue for the nine months ended 30 September 2014.
In addition to sports schedules, revenue can also be impacted by the seasonality of retail ecommerce trends, for example, increased online shopping activity during the Christmas
holiday season. During the period under review, the seasonality of retail e-commerce trends
did not significantly impact the Skrill Operating Group’s revenue. However, going forward, if
the Skrill Operating Group continues to diversify its revenue and grow its e-commerce
presence, the impact of such seasonal trends on the Skrill Operating Group’s results may
increase.
2.6
Legal and regulatory developments
Online gambling is the newest and fastest growing part of the world gambling industry and
the regulatory environment to which the online gambling industry is subject is in a state of
constant development. The regulation and legality of online gambling varies significantly from
jurisdiction to jurisdiction as a variety of jurisdictions seek to regulate and tax gambling
transactions and such laws and regulations are often subject to conflicting interpretations.
Some jurisdictions have sought to prohibit online gambling in its entirety.
The global online gambling market is characterised by regulatory inconsistency across many
jurisdictions and frequent changes in the regulations governing online gambling. Given the
importance of the online gambling sector to the business of the Skrill Operating Group, it
expends significant time and resource to ensure that it has an in-depth understanding of the
regulatory environment in the main territories in which their gambling industry merchants and
customers operate, monitoring closely the developing regulatory regimes in those territories
and adapting their own business acceptance policies where necessary. See Part VI (Online
Gambling Regulation) for further information across the jurisdictions in which the Skrill
Operating Group operates
3.
KEY PERFORMANCE METRICS
In evaluating the Skrill Operating Group’s results of operations, the Skrill Directors refer to a
number of key financial measures, including those from the Skrill Operating Group’s IFRS results
220
of operations discussed in paragraph 5 of this Part X (Operating and Financial Review of the Skrill
Operating Group), as well as EBITDA, a non-IFRS measure used to evaluate the Skrill Operating
Group’s performance. The most important are revenue, gross margin and earnings before interest,
tax, depreciation, amortisation and non-recurring costs (‘‘Adjusted EBITDA’’).
Nine-month period ended
30 September
2014
2013
Year ended 31 December
2013(1)
(Unaudited)
Revenue
Gross profit
Gross profit margin
EBITDA
Adjusted
EBITDA(2)(3)
248.9
148.3
60%
2012
2011
(Audited)
(US$ million)
203.8
286.4
121.3
170.4
60%
59%
130.0
91.1
70%
114.9
86.1
75%
54.2
45.7
63.6
38.0
39.3
62.4
50.2
76.8
43.0
46.5
(1) 2013 includes 11 months of paysafecard results (from the date of acquisition)
(2) 2013, 2012 and 2011 stated after non-recurring costs of $13.2 million, $5.0 million and $7.1 million, respectively. The nine
months ended 30 September 2014 and the nine months ended 30 September 2013 are stated after non-recurring costs of
$8.2 million and $4.5 million, respectively.
(3) Please see paragraph 7 of Part A and paragraph 7 of Part C of Part XI (Financial Information of the Skrill Operating Group) of
this document for more information on calculation of EBITDA and Adjusted EBITDA.
The following operational metrics are also part of the Skrill Operating Group’s key performance
indicators:
30 September
Number of merchants
(thousands)
Number of customers
(thousands)
31 December
2014
2013
2013*
2012
2011
168.6
167.5
162.9
145.0
117.7
43.3
37.8
39.5
32.2
23.3
Number of merchants
The number of merchants is a count of merchants registered with the Skrill Operating Group,
whereby the customer has been deemed to be a merchant and has completed the appropriate
validation checks by the date of the relevant period end. Where a merchant has more than one
account for a given merchant identity, the merchant is counted only once. Once opened, an
account is never closed (unless requested by a merchant). The merchant numbers at 31 December
2013 included 1,445 relating to paysafecard.
Number of customers
The number of customers is a cumulative count of all customers that have ever registered with
Skrill Operating Group as at the date of the relevant period end. These relate primarily to the Skrill
e-Wallet business.
3.1
Revenue by key business lines
(a) Merchant revenue
Revenue from merchants is primarily comprised of receive money fees, per transaction fees,
upload fees (where the Skrill Operating Group incurs a charge for the upload), send money
fees and redemption fees.
(b) Consumer revenue
Revenue from customers is primarily comprised of upload fees, send money fees, redemption
fees, service fees and Prepaid MasterCard fees.
221
(c) Financial revenue
Financial revenue includes foreign exchange spread income and interest income from own
funds and funds held on behalf of customers.
3.2
EBITDA
EBITDA is a non-IFRS measure and may not be comparable to similarly titled measures
presented by other companies in the industry or otherwise. Nevertheless, the Skrill Operating
Group’s management believe that this measure is important to understand performance from
period to period and to assist with the evaluation of growth trend and preparation of budgets.
3.3
Cost of sales
The components of cost of sales varies among the Skrill Operating Group’s major products.
For e-Wallet, cost of sales mainly comprise variable transaction processing fees, promotions,
referral bonuses and bad debt expenses. Paysafecard cost of sales mainly comprise volume
based commissions paid to distribution partners (such as retailers, convenience stores and
petrol stations) and cost of materials relating to prepaid vouchers. For Payolution, cost of
sales mainly comprise transaction processing fees and bad debt expenses.
Transaction processing fees are primarily in respect of third-party charges (primarily acquiring
bank, credit card, PSP and retail bank charges) for uploading and withdrawal of funds,
including e-Wallet uploads using credit cards.
Bad debt expenses arise from charge backs payable for those merchants with a chargeback
policy and reflect unauthorised credit card and bank account usage, unauthorised payments
and the non-performance of merchants, as well as any specifically identified bad debts.
3.4
Sales and marketing expenses
Sales and marketing expenses primarily comprise salaries in respect of sales and marketing
staff and external marketing costs, including traditional and online advertising.
3.5
Administrative expenses
Administrative expenses primarily comprise general overhead and IT costs and related salary
and property expenses, as well as foreign currency gains and losses. Administrative expenses
also include depreciation and amortisation.
3.6
Gross profit margin
Gross profit is calculated as revenue less cost of sales. Gross profit margin is calculated as
gross profit divided by revenue.
4.
CURRENT TRADING / RECENT DEVELOPMENTS
In the period since 30 September 2014, the Skrill Operating Group has continued to trade in line
with management expectations.
222
5.
RESULTS OF OPERATIONS
The following table shows the Skrill Operating Group’s consolidated statement of comprehensive
income for the nine-month periods ended 30 September 2014 and 2013 and the years ended
31 December 2013, 2012 and 2011.
Nine-month period
ended
30 September
2014
2013
Year ended 31 December
2013
(Unaudited)
2012
2011
(Audited)
(US$ million)
Revenue
Merchant revenue
Consumer revenue
Financial revenue
184.2
35.4
29.3
150.1
25.6
28.2
212.2
36.4
38.0
83.7
11.5
34.8
73.4
10.9
30.7
Cost of sales
248.9
(100.6)
203.8
(82.5)
286.4
(116.0)
129.9
(38.8)
114.9
(28.8)
Gross profit
148.3
121.3
170.4
91.1
86.1
Sales and marketing expenses
Administrative expenses
(35.6)
(76.2)
(22.5)
(62.9)
(38.5)
(87.9)
(14.4)
(47.4)
(11.3)
(44.2)
Operating profit
Finance income
Finance costs
36.6
0.1
(20.8)
35.9
0.0
(7.3)
44.0
0.1
(12.1)
29.3
0.4
(7.4)
30.6
0.4
(0.8)
Profit for the year before tax
15.9
28.7
32.1
22.3
30.1
Income tax expense
(1.6)
(5.7)
(6.0)
(6.8)
(9.1)
Profit for the year
14.3
23.0
26.1
15.5
21.0
Profit attributable to:
Owners of the parent
Non-controlling interests
14.3
—
23.0
—
26.1
—
15.4
0.1
20.9
0.1
0.1
(0.4)
(0.5)
—
—
0.3
0.8
(0.1)
0.7
(0.2)
0.8
(0.2)
(1.5)
0.1
—
15.5
23.1
26.2
13.8
21.1
—
—
—
(0.1)
(0.1)
Other comprehensive income
Change in value of available for
sale financial assets
Exchange differences on
translation of foreign operations
Cash flow hedge
Total comprehensive income for
year attributable to the owners
of the Skrill Operating Group
Attributable to non-controlling
interests
Nine months ended 30 September 2014 compared to nine months ended 30 September 2013
(a) Revenue
The Skrill Operating Group’s revenue in the nine month period ended 30 September 2014 was
$248.9 million, an increase of $45.1 million or 22.1 per cent. over revenue of $203.8 million in the
nine month period ended 30 September 2013.
223
This primarily reflected increased contributions from paysafecard of $20 million, Skrill of $7 million
and Payolution of $3 million as well as a FX benefit of $5 million, partly offset by lower interest
income due to lower yields on cash balances.
(b) Cost of sales
Cost of sales in the nine month period ended 30 September 2014 were $100.6 million, an increase
of $18.1 million or 21.9 per cent. over the nine month period ended 30 September 2013.
Cost of sales remained at 40.5 per cent. of revenue in the nine month period ended 30 September
2014 and the nine month period ended 30 September 2013.
Bad debt expenses in the nine month period ended 30 September 2014 were $6.2 million, an
increase of $3.0 million over the nine month period ended 30 September 2013. This reflected
increased volumes, adjustments to risk model parameters for the purpose of reducing ‘‘false
positives’’ and to increase conversions at merchant checkout, and certain one-off items.
(c) Sales and marketing expenses
Sales and marketing expenses in the nine month period ended 30 September 2014 were
$35.6 million, an increase of $13.1 million or 58.2 per cent. over the nine month period ended
30 September 2013. This increase was primarily attributable to increased investment in sales and
marketing resources, higher advertising and promotions in connection with the FIFA World Cup and
sponsorship of a German football club.
(d) Administrative expenses
Administrative expenses in the nine month period ended 30 September 2014 were $76.2 million,
an increase of $13.3 million or 21.2 per cent. over $62.9 million in the nine month period ended
30 September 2013. This primarily reflected investment in senior management at Group level.
(e) Operating profit
Operating profit in the nine month period ended 30 September 2014 was $36.6 million, an increase
of $0.7 million or 1.9 per cent. over $35.9 million in the nine month period ended 30 September
2013.
The operating margin was 14.7 per cent. of revenue in the nine month period ended 30 September
2014, a decrease of 2.9 percentage points from 17.6 per cent. in the nine month period ended
30 September 2013, primarily reflecting increased investment in sales & marketing and
administrative expenses discussed above.
The operating margin in the nine month period ended 30 September 2014 was adversely affected
by non-recurring costs of $8.2 million, mainly related to acquisition costs related to CVC’s
acquisition of Skrill. This compared to non-recurring costs of $4.5 million in the nine month period
ended 30 September 2013.
(f) Finance income
Finance income in the nine month period ended 30 September 2014 was $0.1 million, an increase
of $0.1 million over the nine month period ended 30 September 2013. Finance income relates to
finance income on bank deposits and hence varies depending on the Directors’ decision on the
allocation of liquid funds.
(g) Finance costs
Finance costs in the nine month period ended 30 September 2014 were $20.8 million, an increase
of $13.5 million over $7.3 million in the nine month period ended 30 September 2013. This was
attributable to an increase in the underlying debt arising from CVC’s acquisition of Skrill plus the
write off of issue costs of $7.1 million.
Financial indebtedness is discussed later below.
(h) Income tax expense
Income tax expense in the nine month period ended 30 September 2014 was $1.6 million, a
decrease of $4.1 million over the nine month period ended 30 September 2013 of $5.7 million.
This primarily reflected the decrease in profit for the year before tax from $28.7 million in the nine
224
month period ended 30 September 2013 to $15.9 million in the nine month period ended
30 September 2014, together with a lower effective rate of corporation tax discussed below.
The main rate of corporation tax in the UK reduced from 23 per cent. to 21 per cent. with effect
from 1 April 2014. Accordingly, profits for the financial year 2013 were taxed at an effective rate of
21.7 per cent.
(i) Profit for the year after tax
Profit for the year after tax (without adjusting for non-recurring costs) for the nine month period
ended 30 September 2014 was $14.3 million, a decrease of $8.7 million or 37.5 per cent. over
$23.0 million in the nine month period ended 30 September 2013, as a result of the factors
discussed above.
(j) Total comprehensive income
Total comprehensive income for the nine month period ended 30 September 2014 was
$15.5 million, a decrease of $7.6 million or 32.9 per cent. over $23.1 million in the nine month
period ended 30 September 2013.
Other comprehensive income for the nine month period ended 30 September 2014 included a
$0.8 million profit on a cash flow hedge relating to the interest rate swap described below.
Year ended 31 December 2013 compared to year ended 31 December 2012
(a) Revenue
The Skrill Operating Group’s revenue in the 2013 financial year was $286.4 million, an increase of
$156.5 million or 120 per cent. over the 2012 financial year revenue of $129.9 million.
This primarily reflected the acquisition of paysafecard, for which formal closing of the transaction
occurred on 8 February 2013. The 2013 financial year includes $146 million of paysafecard
revenues.
As a result of the acquisition, whilst revenue from each territory grew between financial year 2012
and financial year 2013, the overall geographical mix of revenues (excluding financial revenue)
within the Skrill Operating Group’s key reported segments (UK, Europe, Americas and Rest of
World) shifted significantly to Europe (69.9 per cent. in financial year 2012, 85.3 per cent. in
financial year 2013) where paysafecard is most active.
Beyond the paysafecard acquisition, revenue growth reflected an increase in both the number of
customers (from 32.2 million at 31 December 2012 to 39.5 million at 31 December 2013, an
increase of 22.8 per cent.) and merchants (from 145,000 to 162,900 during the same period, an
increase of 12.4 per cent.), which drove higher transaction volumes.
Financial revenue in the 2013 financial year was $38.0 million, an increase of $3.2 million or 9.1 per
cent. over the financial revenue of $34.8 million in the 2012 financial year, primarily driven by an
increase in interest rates towards the middle of 2012. The rate increases related primarily to fees
received from non-VIPs. In November 2013 the Skrill Operating Group again increased its fees
charged to non-VIPs.
(b) Cost of sales
Cost of sales in the 2013 financial year was $116.0 million, an increase of $77.2 million or 199 per
cent. over financial year 2012.
Cost of sales represented 40.5 per cent. of the 2013 financial year revenue, an increase of 10.6
percentage points over the 2012 financial year (29.9 per cent.). The increase directly relates to
paysafecard which has a higher cost of sales than the Skrill e-Wallet platform due to volume based
commissions paid to distribution partners (such as retailers, convenience stores and petrol stations)
and costs of materials relating to prepaid vouchers. The increase represented $73.4 million of the
$77.2 million increase in cost of sales).
Despite the increase in transaction volumes and number of customers and merchants, bad debt
expenses remained unchanged at $4.1 million between the 2012 financial year and the 2013
financial year. This reflected an ongoing focus on anti-fraud management and merchant acceptance
procedures.
225
(c) Sales and marketing expenses
Sales and marketing expenses in the 2013 financial year were $38.5 million, an increase of $24.1
million or 167 per cent. over the 2012 financial year.
This primarily reflected the acquisition of paysafecard, together with continuing investment by the
Skrill Operating Group in the growth of its business through increased headcount of sales and
marketing staff, including senior account managers hired to promote business development.
(d) Administrative expenses
Administrative expenses in the 2013 financial year were $87.9 million, an increase of $40.5 million
or 85.4 per cent. over $47.4 million in the 2012 financial year.
Administrative expenses represented 30.7 per cent. of revenue in the 2013 financial year, a
decrease of 5.8 percentage points from 36.5 per cent. in the 2012 financial year. Beyond the
acquisition of paysafecard, this primarily reflected scale benefits within the Skrill Operating Group
as revenue increased in excess of the cost base.
(e) Operating profit
Operating profit for the 2013 financial year was $44.0 million, an increase of $14.7 million or
50.2 per cent. over $29.3 million in the 2012 financial year.
The operating margin was 15.4 per cent. of revenue in the 2013 financial year, a decrease of 7.2
percentage points from 22.5 per cent. in the 2012 financial year, primarily reflecting the impact of
paysafecard’s higher cost of sales base discussed above.
However, the operating margin in the 2013 financial year was adversely affected by non-recurring
costs of $13.2 million, mainly related to integration costs as a result of the acquisition of
paysafecard and severance costs due to restructuring. This compared to non-recurring costs of
$5.0 million in the 2012 financial year.
(f) Finance income
Finance income in the 2013 financial year was $0.1 million, a decrease of $0.3 million over the
2012 financial year of $0.4 million. Finance income relates to finance income on bank deposits and
hence varies depending on the Directors’ decision on the allocation of liquid funds.
(g) Finance costs
Finance costs in the 2013 financial year were $12.1 million, an increase of $4.7 million over the
2012 financial year of $7.4 million. This reflected a $2.6 million (45.9 per cent.) increase in interest
on bank borrowings to $8.4 in the 2013 financial year over $5.8 million in the 2012 financial year
as total bank borrowings increased to $144.4 million from $97.4 million.
Financial indebtedness is discussed later below.
(h) Income tax expense
Income tax expense in the 2013 financial year was $6.0 million, a decrease of $0.9 million over
the 2012 financial year of $6.8 million.
This primarily reflected the impact of a tax credit in respect of prior years of $1.6 million.
The main rate of corporation tax in the UK reduced from 24 per cent. to 23 per cent. with effect
from 1 April 2013. Accordingly, profits for the financial year 2013 were taxed at an effective rate of
23.25 per cent.
(i) Profit for the year after tax
Profit for the year after tax (without adjusting for non-recurring costs) for the 2013 financial year
was $26.1 million, an increase of $10.6 million or 68.4 per cent. over $15.5 million in the 2012
financial year, as a result of the factors discussed above.
(j) Total comprehensive income
Total comprehensive income for the 2013 financial year was $26.2 million, an increase of
$12.4 million or 90 per cent. over $13.8 million in the 2012 financial year.
226
Other comprehensive income in the 2013 financial year included a loss on available for sale
financial assets (relating to minority investments) of $0.5 million. The Skrill Operating Group’s cash
flow hedge relates to an interest rate swap. In the 2013 financial year and the 2012 financial year,
the variable interest rate was based on 3 month EURIBOR and varied from 0.2930 to 0.1320
during 2013, and from 0.9340% to 0.2690% during 2012.
Year ended 31 December 2012 compared to year ended 31 December 2011
(a) Revenue
The Skrill Operating Group’s revenue in the 2012 financial year was $129.9 million, an increase of
$15.0 million or 13.1 per cent. over the 2011 financial year of $114.9 million.
This primarily reflected growth in the number of e-Wallet customers (23.3 million at 31 December
2011 to 32.2 million at 31 December 2012, an increase of 38.3 per cent.) and merchants (from
117,700 to 145,000, an increase of 23.2 per cent.), driving an increase in transaction volume.
Financial revenue increased from $30.7 million in the financial year 2011 to $34.8 million in the
financial year 2012 (13.4 per cent.), primarily reflecting an increase of interest earned on the
customer e-Wallet float as the value of that float increased in line with revenue growth and
customer fund uploads.
Between the financial year 2011 and financial year 2012, the overall geographical mix of revenues
(excluding Financial revenue) remained broadly consistent, with the highest absolute growth in
revenue being within Europe ($60.5 million of revenue in the financial year 2011 (70.2 per cent. of
total revenue, excluding Financial revenue) and $69.9 million in the financial year 2012 (69.9 per
cent.).
(b) Cost of sales
Cost of sales in the 2012 financial year was $38.8 million, an increase of $10.1 million or 35.1 per
cent. over financial year 2011.
Cost of sales represented 29.9 per cent. of the 2012 financial year revenue, an increase of 4.9
percentage points over the 2011 financial year (25.0 per cent.). This primarily reflected increased
use by customers of credit cards to upload e-Wallet funds which carried higher transaction
(merchant acquirer and PSP) processing fees ($19.7 million in the financial year 2011, $24.7 million
in the financial year 2012), due mainly to the Skrill Operating Group’s ongoing growth in ecommerce verticals.
(c) Sales and marketing expenses
Sales and marketing expenses in the 2012 financial year were $14.4 million, an increase of
$3.1 million or 27.6 per cent. over the 2011 financial year.
This reflected investment by the Skrill Operating Group in the sales and marketing functions to
facilitate future growth, including additional experienced hires.
(d) Administrative expenses
Administrative expenses in the 2012 financial year were $47.4 million, an increase of $3.2 million
or 7.1 per cent. over $44.2 million in the 2011 financial year.
Administrative expenses represented 36.5 per cent. of revenue in the 2012 financial year, a
decrease of 2.0 percentage points from 38.5 per cent. in the 2011 financial year. This reflected the
impact of increased scale, outweighing the incremental cost of the hiring of additional senior staff
in London and expansion of the Skrill Operating Group’s operations in Bulgaria.
(e) Operating profit
Operating profit for the 2012 financial year was $29.3 million, a decrease of $1.3 million or 4.3 per
cent. over $30.6 million in the 2011 financial year.
The operating margin was 22.5 per cent. of revenue in the 2012 financial year, a decrease of 4.1
percentage points from 26.6 per cent. in the 2011 financial year, primarily due to the increased
marginal cost of sales discussed above. The 2012 financial year incurred non-recurring costs of
$5.0 million compared to non-recurring costs of $7.1 million in the 2011 financial year.
227
(f) Finance income
Finance income in the 2012 financial year was flat at $0.4 million compared to the 2011 financial
year.
(g) Finance costs
Finance costs in the 2012 financial year were $7.4 million, an increase of $6.5 million over the
2011 financial year of $0.8 million. This reflected a $5.1 million (756.3 per cent.) increase in
interest on bank borrowings to $5.8 million in the 2012 financial year over $0.7 million in the 2011
financial year as the Group entered into a new loan agreement in December 2011.
Financial indebtedness is discussed later below.
(h) Income tax expense
Income tax expense in the 2012 financial year was $6.8 million, a decrease of $2.3 million over
the 2012 financial year of $9.1 million.
This primarily reflected a reduction in the main rate of corporation tax in the UK to 24 per cent. in
the 2012 financial year, from 26.5% in the 2011 financial year.
(i) Profit for the year after tax
Profit for the year after tax (without adjusting for non-recurring costs) for the 2012 financial year
was $15.5 million, a decrease of $5.5 million or 26.3 per cent. over $21.0 million in the 2011
financial year, as a result of the factors discussed above (primarily being the $5.1 million (pre-tax)
of additional Finance cost in the 2012 financial year).
(j) Total comprehensive income
Total comprehensive income for the 2012 financial year was $13.8 million, a decrease of
$7.3 million or 34.7 per cent. over $21.1 million in the 2011 financial year.
Other comprehensive income in the 2012 financial year included a $1.5 million loss on a cash flow
hedge relating to the interest rate swap described above.
6.
LIQUIDITY AND CAPITAL RESOURCES
General
The Skrill Operating Group’s liquidity requirements arise principally from operating activities, its
working capital requirements (including safeguarding merchant and consumer monies in line with its
regulatory obligations) and capital expenditure. The Skrill Operating Group’s obligations for these
requirements are mainly met by the cash generated from operations.
As at 30 September 2014, the Skrill Operating Group held a number of financing facilities (see
below). There has been no material change to the Skrill Operating Group’s available finance
facilities or drawdown or indebtedness since 30 September 2014.
228
Cash flows
The following table sets out summary cash flow information of the Skrill Operating Group for the
periods indicated:
Nine month period
ended 30 September
2014
2013
Year ended 31 December
2013
(Unaudited)
2012
2011
(Audited)
(US$ millions)
Net cash generated by operating
activities
Net cash generated by (consumed
in) investing activities
Net cash generated by (consumed
in) financing activities
Net increase/(decrease) in cash
and cash equivalents
Cash and cash equivalents at the
beginning of the financial year
Effect of movement in foreign
exchange on cash and cash
equivalents held
Cash and cash equivalents at
the end of the financial year
6.1
28.6
16.0
66.2
102.5
105.1
(13.4)
16.3
8.5
19.5
(30.4)
27.8
46.8
33.2
(5.5)
58.7
42.8
79.1
107.9
116.5
133.5
647.0
514.5
514.5
388.9
267.2
3.8
24.6
9.1
597.4
647.0
514.5
(55.1)
634.8
(11.7)
388.9
Nine months period ended 30 September 2014 compared to nine month period ended
30 September 2013
Net cash generated by operating activities was $28.6 million in the nine month period ended
30 September 2014, an increase of $12.6 million from the net cash generated by operating
activities of $16.0 million in the nine month period ended 30 September 2013. This primarily
reflected higher amortisation of intangibles following the acquisition of paysafecard and an
increase in e-money creditor which is a function of general growth in the business.
Net cash consumed by investing activities was $13.5 million in the nine month period ended
30 September 2014, a decrease of $29.8 million from the net cash generated by investing
activities of $16.3 million in the nine month period ended 30 September 2013, the latter
primarily reflecting the cash balance that was acquired as part of the acquisition of
paysafecard in February 2013.
Net cash generated from financing activities was $27.8 million in the nine month period ended
30 September 2014, a decrease of $19.0 million from the net cash generated by financing
activities of $46.8 million in the nine month period ended 30 September 2013, primarily
reflecting the repayment of borrowings.
6.2
Year ended 31 December 2013 compared to year ended 31 December 2012
Net cash generated by operating activities was $66.2 million for the 2013 financial year, a
decrease of $36.3 million from the net cash generated by operating activities of $102.5 million
for the 2012 financial year. Despite higher operating profits in the 2013 financial year, the
decrease in net cash generated by operating activities was a result of a net $45.7 million
increase in e-money and merchant liability balances arising from the paysafecard operations,
which were acquired in February, 2013.
Net cash generated by investing activities was $8.5 million for the 2013 financial year, a
decrease of $11.0 million from the net cash generated by investing activities of $19.5 million
for the 2012 financial year. The decrease in part reflected a $26.1 million cash flow gain in
the 2012 financial year relating to maturity/disposal of investments which did not reoccur in
the 2013 financial year.
229
Net cash generated from financing activities was $33.2 million for the 2013 financial year, an
increase of $38.7 million over the 2012 financial year, primarily reflecting $55.8 million in
respect of the proceeds from borrowing (see below).
6.3
Year ended 31 December 2012 compared to year ended 31 December 2011
Net cash generated by operating activities was $102.5 million for the 2012 financial year, a
decrease of $2.7 million from the net cash generated by operating activities of $105.1 million
for the 2011 financial year. The broadly consistent figure was in line with operating profits
between periods, which were also broadly consistent.
Net cash generated by investing activities was $19.5 million for the 2012 financial year, an
increase of $49.9 million from the net cash generated by investing activities for the 2011
financial year. This mainly reflected a $26.1 million investment disposal in the 2012 financial
year, together with a $34.8 million outflow in the 2011 financial year relating to the purchase
of investments.
Net cash consumed by financing activities was $5.5 million for the 2012 financial year, a
decrease of $64.2 million over the 2011 financial year of $58.7 million, primarily reflecting a
$4.6 million repayment of borrowing in the 2012 financial year following a $105.2 million
drawdown of new bank borrowings in the 2011 financial year.
6.4
Capitalisation and financial indebtedness
The following capitalisation and financial indebtedness tables in respect of the Skrill Operating
Group and Sentinel Topco Limited are correct as at 31 December 2014 and have been
prepared using the unaudited accounting records of the of Skrill Operating Group and Sentinel
Topco Limited as at 31 December 2014. Please see Part XIII (Capitalisation and
Indebtedness) of this document for further information on the capitalisation and indebtedness
position of Sentinel Topco Limited.
Skrill Operating Group capitalisation and financial indebtedness
Capitalisation
The following table sets out the capitalisation of Skrill Operating Group at 31 December 2014.
There has been no material change to the capitalisation of Skrill Operating Group since
31 December 2014.
As at
31December
2014
(unaudited)
(US$
millions)
0.9
2.2
1.1
96.5
(0.8)
—
78.9
Share capital
Share premium reserve
Share reserve
Merger reserve
Other reserves
Hedge reserve
Retained earnings
Total equity
178.8
Financial Indebtedness
The following table sets out the financial indebtedness of Skrill Operating Group at
31 December 2014 and has been prepared using the unaudited accounting records as at
31 December 2014. Save for the additional drawdown of e27 million on the existing credit
facility relating to the Ukash Acquisition, there has been no material change to the financial
indebtedness of Skrill Operating Group since 31 December 2014. As at the Latest Practicable
Date, Skrill Operating Group’s financial indebtedness primarily related to intercompany loans
from Sentinel Bidco Limited (a subsidiary of Sentinel Topco Limited outside Skrill Operating
Group). Under such shareholder loans Sentinel Bidco Limited on-lent the proceeds of the
230
Skrill Senior Facilities Agreement to Skrill Operating Group. As at the Latest Practicable Date,
$131.4 million was outstanding under such shareholder loans. See ‘‘—Sentinel Topco Limited
Indebtedness’’ below for further details. Additional borrowings under the Skrill Senior Facilities
Agreement will be available to the Skrill Operating Group to support its funding needs in the
event that the Acquisition is not completed and the New Facilities Agreement therefore is not
utilised. For a description of the Skrill Senior Facilities Agreement, see paragraph 14.2 of Part
XVI (Additional Information) of this document.
As at
31December
2014
(unaudited)
(US$
millions)
—
151
—
Bank borrowings
Shareholder loan
Finance lease liabilities
151
Current
Bank borrowings
Shareholder loan
Finance lease liabilities
—
—
—
—
Non-current
Bank borrowings
Shareholder loan
Finance lease liabilities
—
151
—
151
The following table sets out the net consolidated financial indebtedness of Skrill Operating
Group as at 31 December 2014.
As at
31December
2014
(unaudited)
(US$
millions)
44
—
Cash and cash equivalents
Trading securities
Liquidity
44
Current bank debt
Other current financial debt
—
(151)
Current financial debt
(151)
Net current financial debt
Non current financial indebtedness
(107)
—
Net debt
(107)
Net debt comprises:
Net own funds
Shareholder loans
44
(151)
Net debt
(107)
231
Sentinel Topco Limited Indebtedness
The following table sets out the consolidated financial indebtedness of Sentinel Topco Limited
as at 31 December 2014. Sentinel Topco Limited is the parent company of the Skrill
Operating Group and is being acquired by Optimal Payments pursuant to the Acquisition. As
at 31 December 2014, Sentinel Topco Limited’s debt was a combination of external bank debt
of $334 million (EUR 275 million) (being the Skrill Senior Facilities Agreement), shareholder
loan notes amounting to $275 million (EUR 217 million), preference shares amounting to
$127 million (EUR 100 million) and accrued interest (shareholder loan notes, preference
shares and accrued interest in aggregate totalling $435 million). As at the Latest Practicable
Date, the amount outstanding under the Skrill Senior Facilities Agreement was $334 million
(EUR 275 million). On Completion, the New Credit Facilities will be used to repay the
amounts outstanding under the Skrill Senior Facilities Agreement in full. For a description of
the Skrill Senior Facilities Agreement, see paragraph 14.2 of Part XVI (Additional Information)
of this document.
as at
31December
2014
(unaudited)
(US$ millions)
334
435
—
Bank borrowing(1)
Shareholder loan(2)
Finance lease liabilities
Total
769
Bank borrowing(1)
Shareholder loan(2)
Finance lease liabilities
—
—
—
Total
—
Bank borrowing(1)
Shareholder loan(2)
Finance lease liabilities
334
435
—
Total
769
Notes:
(1) Excludes issue costs.
(2) Shareholder loan notes and preference shares includes interest but excludes issue costs.
6.5
Capital expenditure
The Skrill Operating Group’s business is not capital intensive. However, the Skrill Operating
Group continuously plans capital expenditure for the development of its business, principally in
respect of (i) capitalised development costs relating to product innovation, including capitalised
software and development costs and the purchase of software licences and (ii) information
technology and hardware.
232
The following table sets out the Skrill Operating Group’s capital expenses for the period:
Nine month period ended
30 September
2014
2013
Year ended 31 December
2013
(Unaudited)
2012
2011
(Audited)
(US$ millions)
Purchase of
intangible
assets
Purchase of
property, plant
and equipment
Total capital
expenditure
10.6
6.9
13.8
8.3
3.4
2.8
2.1
8.2
1.5
3.3
13.4
9.0
22.0
9.8
6.7
The significant increase in intangible assets during the historical period was primarily
attributable to the Skrill Operating Group’s acquisition of paysafecard, while expenditure on
property, plant and equipment was mainly attributable to increased IT investment, reflecting
the growth of the business during this period.
The Skrill Operating Group expects to fund future capital expenditure from its current cash
and cash flows from operating activities.
6.6
Contractual commitments, reconciliation of financial information and off-balance sheet
arrangements
Contractual commitments
The following table summarises the Skrill Operating Group’s contractual obligations,
commercial commitments and principal payments scheduled as at 30 September 2014.
Payments due by period (Unaudited)
Contractual commitments
Total
Debt obligations
Operating lease payments
189.6
7.8
Total
197.5
Less than
1 year
1 – 5 years
(US$ million)
0.3
1.8
2.1
More than
5 years
0.5
6.0
188.9
—
6.5
188.9
In addition, the Skrill Operating Group has agreed to pay £37.0 million, subject to adjustment,
as consideration for the acquisition of Ukash. See paragraph 14.2 of Part XVI (Additional
Information) of this document for description of the Ukash Acquisition.
Optimal Payments expects that the Skrill Operating Group will gain the benefit of the free net
cash held by Ukash upon completion of the Ukash Acquisition. As at 31 December 2014,
Ukash had free net cash of $13 million (EUR 12 million). This amount was extracted without
modification from consolidated management accounts of Ukash as of and for the year ended
31 December 2014, which were not audited or reviewed by independent accountants. No
assurance can be given as to whether or when the Ukash Acquisition will be completed or
the amount of free net cash that may be held by Ukash upon completion of the Ukash
Acquisition.
233
6.7
Sentinel Topco Limited financial information and reconciliation
Sentinel Topco Limited was incorporated on 13 August 2013, as part of the structuring of the
acquisition of the Skrill Group by CVC Funds, and is a holding company with a limited
amount of historical financial information. Each of Sentinel Holdco 2 Limited, Sentinel Midco
Limited, Sentinel Bidco Limited are also holding companies, with Sentinel Bidco Limited being
the borrower under the Skrill Senior Facilities Agreement. Skrill Group Limited, a wholly
owned subsidiary of Sentinel Bidco Limited, and its subsidiaries are the Skrill Group’s
operating companies and Skrill Group Limited is the company for which historical financial
information has been included in Part XI (Financial Information on the Skrill Operating Group).
A diagram of the structure of the Skrill Group’s holding company structure is set out below.
Sentinel Topco Limited
(Company to be acquired pursuant to
the Acquisition Agreement)
Sentinel Holdco 2 Limited
Sentinel Midco Limited
Sentinel Bidco Limited
(Borrower under the Skrill Senior
Facilities Agreement)
Skrill Group Limited
(Operating company and company for
which historical financial information
is included in Part XI (Financial
Information of the Skrill Operating
Group) of this document)
Skrill Group subsidiaries
On Completion, the New Credit Facilities will be used to repay the amounts outstanding under
the Skrill Senior Facilities Agreement in full and each of the guarantees will be released.
Each of Sentinel Topco Limited, Sentinel Holdco 2 Limited, Sentinel Midco Limited, Sentinel
Bidco Limited and any other Skrill Group companies considered to be material to the Skrill
Group will accede to the New Credit Facilities, as guarantors, after Completion. As at the
date of this document, it is not intended that any of Sentinel Topco Limited, Sentinel Holdco 2
Limited, Sentinel Midco Limited or Sentinel Bidco Limited will carry out any activity other than
being holding companies for Skrill Group Limited.
The tables below set out the reconciliation between the consolidated unaudited income
statements and balance sheets of the Sentinel Topco Limited and selected line items of Skrill
Operating Group as at 30 September 2014.
234
(a) Income Statement Reconciliation
The income statement reconciliation reflects the consolidated income statement for the Skrill
Operating Group for the nine month period ending 30 September 2014, as adjusted for the
additional expenses of Sentinel Topco Limited for the period from 12 February 2014 (the date
on which Sentinel Topco Limited acquired the Skrill Operating Group) to 30 September 2014.
Sentinel Topco Limited acts as a holding company for the Skrill Group and therefore does not
generate income. Expenses attributable to Sentinel Topco Limited (as shown in the second
column below) relate to administrative costs and interest expenses relating to indebtedness
incurred by Sentinel Topco Limited in the acquisition of the Skrill Operating Group.
Substantially all of the administrative costs of Sentinel Topco Limited are non-recurring costs
relating to the acquisition of the Skrill Operating Group by CVC Funds.
Sentinel
Skrill Group
Topco
$ millions
Limited
Limited(1)
Total
Revenue
Cost of sales
248.9
(100.6)
—
—
248.9
(100.6)
Gross profit
Sales and marketing costs
Administrative costs
148.3
(35.6)
(76.2)
—
—
(19.0)
148.3
(35.6)
(95.2)
Operating profit
Net interest
36.6
(20.7)
(19.0)
(44.8)
17.6
(65.5)
Profit before tax
Taxation
15.9
(1.6)
(61.3)
—
(45.4)
(1.6)
Profit after tax
14.3
(63.8)
(49.5)
Notes:
(1) Consolidated for Sentinel Topco Limited and subsidiaries but excluding the Skrill Operating Group.
235
(b) Balance Sheet Reconciliation
The balance sheet reconciliation reflects the consolidated net assets of the Skrill Operating
Group as at 30 September 2014 as adjusted for the additional consolidated net liabilities of
Sentinel Topco Limited as set forth below.
Skrill
Operating
Group
$ millions
Assets
Non-current assets
Goodwill and other intangible assets(2)
Other non current assets
Sentinel
Topco
Limited(1)
Total
(as at 30 September 2014)
Current assets
Cash(3)
Other current assets(4)
Total assets
318.2
12.1
404.2
0.2
772.4
12.4
330.4
404.4
734.8
634.8
158.3
25.9
(41.3)
660.7
117.0
793.1
(15.4)
777.7
1,123.5
Liabilities
Non current liabilities
Borrowings(4)(5)
Derivative financial instruments(6)
Other non current liabilities
Current liabilities
Other current liabilities(4)
Derivative financial instruments(6)
Borrowings
Total Liabilities
Net Assets
389.0
1,512.5
(177.1)
—
(21.3)
(587.6)
(3.4)
(1.1)
(764.7)
(3.4)
(22.4)
(198.4)
(592.1)
(790.6)
(744.5)
—
(0.3)
37.1
(2.3)
(0)
(707.4)
(2.3)
(0.3)
(744.8)
34.8
(710.0)
(943.2)
(557.3)
180.3
(168.3)
(1,500.5)
12.0
Notes:
(1) Consolidated for Sentinel Topco Limited and subsidiaries but excluding the Skrill Operating Group.
(2) Goodwill and intangible assets recognised on the acquisition of the Skrill Group by CVC Funds.
(3) Net intercompany assets and liabilities eliminated on consolidation: On acquisition of the Skrill Group by CVC Funds, various
intercompany balances have arisen between Skrill Operating Group and its holding companies, being Sentinel Topco Limited,
Sentinel Holdco 2 Limited, Sentinel Midco Limited and Sentinel Bidco Limited, as certain intercompany loans and debt raised
have been provided to the Skrill Operating Group by way of intercompany loans in order to fund debt repayments at Skrill
Operating Group.
(4) Cash: Additional cash held by the holding companies of the Skrill Operating Group, being Sentinel Topco Limited, Sentinel
Holdco 2 Limited, Sentinel Midco Limited and Sentinel Bidco Limited.
(5) Debt external to Sentinel Topco Limited: Skrill Senior Facilities Agreement (e275 million), loan notes issued by Sentinel Holdco
2 Limited to Sentinel Group Holdings S.A. (e217 million) and preference shares (e100 million), and also accounting of accrued
interest on these instruments and transaction costs that have been capitalised and are being amortised over the life of the debt.
(6) Derivative financial instrument: an interest rate swap was taken out in respect of the debt taken at acquisition by CVC Funds.
236
6.8
Off-balance sheet arrangements
Save as disclosed in note 6.6 of Part XI (Financial Information of the Skrill Operating Group)
of this document, the Directors believe that the Skrill Operating Group does not have any offbalance sheet arrangements that have or are reasonably likely to have a current or future
effect on the Skrill Operating Group’s financial condition, revenue or expenses, results of
operations, liquidity, capital expenditure or capital resources that is material to investors.
7.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make significant estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well
as the related disclosure, including contingent assets and liabilities. Critical accounting policies and
estimates are those policies or estimates which are particularly significant in presenting the Skrill
Operating Group’s results of operations and include those that involve complex and subjective
judgments and the use of assumptions, some of which may be inherently uncertain or susceptible
to change. The effect of these judgments and the assumptions we make could potentially result in
materially different results from that which would otherwise occur using different judgments and
assumptions.
For a detailed discussion of the application of these and other accounting policies as well as
related estimates and judgments, see note 2 to the Skrill Operating Group’s audited consolidated
financial statements for the year ended 31 December 2013 included in Part XI (Financial
Information of the Skrill Operating Group) of this document.
8.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Please refer to note 30 to the Skrill Operating Group’s audited consolidated financial statements for
the year ended 31 December 2013 included in Part XI (Financial Information of the Skrill Operating
Group) of this document for a discussion of the Skrill Operating Group’s risk management,
currency risks, capital risk, interest rate risk and liquidity risk.
237
PART XI
FINANCIAL INFORMATION OF THE SKRILL OPERATING GROUP
CONTENTS
PART A: ACCOUNTANTS REPORT ON THE FINANCIAL INFORMATION OF THE SKRILL
OPERATING GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2013
PART B: FINANCIAL INFORMATION OF THE SKRILL OPERATING GROUP FOR THE
THREE YEARS ENDED 31 DECEMBER 2013
PART C: UNAUDITED FINANCIAL INFORMATION OF THE SKRILL OPERATING GROUP FOR
THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2014
PART D: PAYSAFECARD AUDITED HISTORICAL FINANCIAL INFORMATION FOR THE YEAR
ENDED 31 DECEMBER 2013
PART E: PAYSAFECARD AUDITED HISTORICAL FINANCIAL INFORMATION FOR THE YEAR
ENDED 31 DECEMBER 2012
PART F: PAYSAFECARD AUDITED HISTORICAL FINANCIAL INFORMATION FOR THE YEAR
ENDED 31 DECEMBER 2011
PART A: ACCOUNTANTS REPORT ON THE FINANCIAL INFORMATION OF THE SKRILL
OPERATING GROUP FOR THE THREE YEARS ENDED 31 DECEMBER 2013
ABCD
KPMG Audit LLC
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
Telephone
Fax
Internet
+44 (0)1624 681010
+44 (0)1624 681098
www.kpmg.co.im
The Directors
Optimal Payments plc (‘‘Optimal Payments’’)
Audax House
6 Finch Road
Douglas
Isle of Man
23 March 2015
Dear Sirs
Skrill Operating Group
We report on the financial information set out on pages 240 to 451 for the three years ended
31 December 2013. This financial information has been prepared for inclusion in the Admission
Document dated 23 March 2015 of Optimal Payments on the basis of the accounting policies set
out in note 2. This report is required by Paragraph 20.1 of Annex 1 of the Prospectus Directive
Regulation and is given for the purpose of complying with that paragraph and for no other purpose.
Responsibilities
The Directors of Optimal Payments are responsible for preparing the financial information on the
basis of preparation set out in note 2 and in accordance with International Financial Reporting
Standards as adopted by the European Union.
It is our responsibility to form an opinion on the financial information and to report our opinion to
you.
Save for any responsibility arising under Prospectus Rules 5.5.3R(2)(f) to any person as and to the
extent there provided, to the fullest extent permitted by law we do not assume any responsibility to
any other person and will not accept any liability to any other person for any loss suffered by any
238
such other person as a result of, arising out of, or in connection with this report or our statement,
required by and given solely for the purposes of complying with paragraph 23.1 of Annex I of the
Prospectus Directive Regulation, consenting to its inclusion in the Admission Document.
Basis of opinion
We conducted our work in accordance with Standards for Investment Reporting issued by the
Auditing Practices Board in the United Kingdom. Our work included an assessment of evidence
relevant to the amounts and disclosures in the financial information. It also included an assessment
of the significant estimates and judgments made by those responsible for the preparation of the
financial information and whether the accounting policies are appropriate to the entity’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our work so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance
that the financial information is free from material misstatement whether caused by fraud or other
irregularity or error.
Opinion on financial information
In our opinion, the financial information gives, for the purposes of the Admission Document dated
23 March 2015, a true and fair view of the state of affairs of Skrill Operating Group as at the three
years ended 31 December 2013 and of its profits/losses, cash flows and changes in equity for the
years then ended in accordance with the basis of preparation set out in note 2 and in accordance
with International Financial Reporting Standards as adopted by the European Union as described in
note 2.
Declaration
For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the
Prospectus and declare that we have taken all reasonable care to ensure that the information
contained in this report is, to the best of our knowledge, in accordance with the facts and contains
no omission likely to affect its import. This declaration is included in the Admission Document in
compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.
Yours faithfully
KPMG Audit LLC
239
PART B: FINANCIAL INFORMATION OF THE SKRILL OPERATING GROUP FOR THE
THREE YEARS ENDED 31 DECEMBER 2013
Consolidated Income Statement
Year ended 31 December
Note
2011
US$’000
2012
US$’000
2013
US$’000
114,895
(28,760)
129,933
(38,848)
286,430
(116,041)
86,135
91,085
170,389
(11,295)
(44,236)
(14,418)
(47,387)
(38,452)
(87,891)
30,604
29,280
44,046
424
(7,389)
105
(12,087)
30,131
22,315
32,064
(9,088)
(6,813)
(5,957)
Profit for the year
21,043
15,502
26,107
Profit attributable to:
Owners of the parent
Non-controlling interests
20,927
116
15,422
80
26,107
—
21,043
15,502
26,107
Revenue
Cost of sales
5
6
Gross profit
Sales and marketing expenses
Administrative expenses
Operating profit
Finance income
Finance costs
11
12
Profit before income tax
Income tax expense
13
369
(842)
The notes form an integral part of the consolidated financial information
240
Consolidated Statement of Comprehensive Income
Year ended 31 December
Note
Profit for the year
Other comprehensive income:
Items that may be subsequently
reclassified to profit or loss
Change in value of available-for-sale
financial assets
Exchange differences on translation
of foreign operations
Cash flow hedge
18
2011
US$’000
2012
US$’000
2013
US$’000
21,043
15,502
26,107
—
—
(509)
81
—
(226)
(1,481)
(179)
792
Other comprehensive income for
the year
81
(1,707)
104
Total comprehensive income for
the year
21,124
13,795
26,211
Total comprehensive income
attributable to:
Owners of the parent
Non-controlling interests
21,008
116
13,715
80
26,211
—
Total comprehensive income for
the year
21,124
13,795
26,211
The notes form an integral part of the consolidated financial information
241
Consolidated Balance Sheet
As at 31 December
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments
Deferred income tax asset
Current assets
Inventories
Trade and other receivables
Investments
Cash and cash equivalents
Note
2011
US$’000
2012
US$’000
2013
US$’000
14
15
16
18
23
108,515
22,658
5,508
1,196
124
108,515
23,917
5,384
1,359
856
208,000
114,671
8,229
981
2,807
138,001
140,031
334,688
3
28,639
26,250
388,900
28
35,355
—
514,508
1,564
133,387
—
647,031
443,792
549,891
781,981
581,793
689,922
1,116,670
93,992
—
—
4,739
91,051
—
755
3,072
132,633
33,175
65
24,111
98,731
94,878
189,984
355,533
1,816
—
4,662
—
453,664
4,808
—
6,343
768
715,105
8,722
36,506
11,731
701
362,011
465,584
772,765
460,742
560,459
962,749
19
20
27
Total assets
Equity and liabilities
Non-current liabilities
Borrowings
Provisions
Derivative financial instruments
Deferred income tax liabilities
Current liabilities
Trade and other payables
Current income tax liabilities
Provisions
Borrowings
Derivative financial instruments
22
28
21
23
24
28
22
21
Total liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Share reserve
Merger reserve
Other reserves
Hedge reserve
Translation reserve
Non-controlling interest
Retained earnings
25
21
554
—
672
102,574
77
—
368
111
16,695
892
—
1,064
96,495
(550)
(1,481)
845
—
32,197
892
2,199
1,064
96,495
(1,238)
(690)
(3,105)
—
58,304
Total equity
121,051
129,461
153,921
Total equity and liabilities
581,793
689,922
1,116,670
The notes form an integral part of this consolidated financial information
242
243
—
892
892
—
—
—
—
—
—
—
892
Balance as at 31 December 2012
Balance as at 1 January 2013
Profit for the year
Other comprehensive income for the year
Total comprehensive income
Issue of shares
Share options – value of employee services
Total contributions by and distributions to owners of the parent,
recognised directly in equity
Retained earnings – FX difference
Balance as at 31 December 2013
2,199
—
2,199
—
2,199
—
—
—
—
—
—
—
392
—
—
—
392
—
—
The notes form an integral part of these consolidated financial information
—
Total transaction with owners of the parent, recognised directly in equity
Retained earnings – FX difference
338
—
Total contributions by and distributions to owners of the parent,
recognised directly in equity
Acquisition of non-controlling interest
—
—
—
338
—
—
—
554
Total comprehensive income
Transfer of treasury shares
Issue of shares
Share options – value of employee services
Share buyback
—
554
Balance as at 31 December 2011
Balance as at 1 January 2012
Profit for the period
Other comprehensive income for the year
—
—
—
—
—
—
—
—
—
—
—
—
(351)
—
—
—
—
—
—
—
—
Share
premium
US$’000
—
904
Share
capital
US$’000
Balance as at 1 January 2011
Issue of shares on incorporation
Shares issued on acquisition of MB Acquisitions Limited
Merger reserve created in acquisition of MB Acquisitions Limited
Profit for the period
Adjustment to remove pre-acquisition profits of MB Acquisitions Limited
Share buyback
Share option surrendered
Shares to be issued
Other comprehensive income for the year
Non-controlling interest
Retained earnings – FX difference
Consolidated Statement of changes in Equity
1,064
—
—
—
—
—
1,064
—
—
1,064
—
—
(6,079)
—
—
(338)
—
—
(5,741)
—
672
672
—
—
—
—
—
672
—
—
—
—
—
Share
reserve
US$’000
96,495
—
—
—
—
—
96,495
—
—
96,495
—
—
—
—
—
—
—
—
—
—
102,574
102,574
138,740
—
—
(34,832)
(1,334)
—
—
—
—
—
—
Merger
reserve
US$’000
(1,238)
—
—
(688)
—
—
(550)
—
(688)
(550)
—
(403)
—
(403)
(225)
—
—
—
—
(225)
77
77
—
—
—
—
—
—
77
—
—
—
—
Other
reserves
US$’000
(690)
—
—
791
—
—
(1,481)
—
791
(1,481)
—
—
667
—
(1,481)
—
—
—
—
(1,481)
—
—
—
—
—
—
—
—
—
—
—
—
—
Hedge
reserve
US$’000
58,304
(502)
502
26,107
—
502
32,197
26,107
—
32,197
(588)
—
—
—
15,422
—
—
667
—
16,695
15,422
—
16,695
—
20,131
(3,436)
—
—
—
—
—
—
—
—
Retained
earnings
US$’000
—
—
—
—
—
—
—
—
—
—
(4)
(186)
—
(186)
80
—
—
—
—
111
80
—
111
—
—
—
—
—
—
—
111
—
—
—
Noncontrolling
interest
US$’000
(3,105)
(3,950)
—
—
—
—
845
—
—
845
477
—
—
—
—
—
—
—
—
368
—
—
368
—
—
—
—
—
—
—
—
368
—
—
Forex
Differences
US$’000
153,921
(4,452)
2,701
26,211
2,199
502
129,461
26,107
104
129,461
(115)
(589)
(4,682)
(589)
13,795
—
392
667
(5,741)
121,051
15,502
(1,706)
121,051
138,740
20,131
(3,436)
(35,183)
(1,334)
672
77
111
368
—
904
Total equity
US$’000
Consolidated Statement of Cash Flows
Year ended 31 December
Note
2011
US$’000
2012
US$’000
2013
US$’000
27
105,119
102,454
66,184
28
—
(3,469)
(3,568)
(34,818)
(280)
(1,732)
(3,371)
(1,267)
11,477
26,134
—
Net cash generated from investing
activities
(30,378)
19,484
8,500
Proceeds from borrowings
Transaction costs on bank loan
Purchase of own shares
Repayments of borrowings
Proceeds from issue of shares
Payment of the surrender of options
Payment of finance derivatives
105,249
—
(36,776)
(8,366)
—
(1,394)
—
19
—
(849)
(4,629)
—
—
—
55,807
(8,535)
—
(15,389)
2,199
—
(862)
Net cash generated /(used in) from
financing activities
58,713
(5,458)
33,220
Net cash generated from operating
activities *
Acquisition of subsidiary, net of cash
Purchases of property, plant and equipment
Purchase of intangible assets
Purchase of investments
Proceeds on maturity/disposal of
investments
18
26,832
(3,701)
(14,498)
(133)
Net increase in cash and cash equivalents
133,454
116,480
107,904
Cash and cash equivalents at the beginning
of the year
Net foreign exchange difference
267,172
(11,726)
388,900
9,128
514,508
24,619
388,900
514,508
647,031
Cash and cash equivalents at the end of
the year
*
27
Net cash from operating activities includes an amount of US$86,386 (2012: US$88,198), which relates to the increase in the emoney float balance. The e-money float balance acquired with paysafecard was US$35m.
Reconciliation of total cash and cash equivalents to own cash and investments provided below:
Year ended 31 December
Cash and cash equivalents at the end of the year
Less: e-money float (note 24)
Less: amounts owed to merchants / web shops
Plus: current investment
Own cash and investments
2011
US$’000
2012
US$’000
2013
US$’000
388,900
(339,727)
—
26,250
514,508
(427,925)
—
—
647,031
(514,312)
(67,328)
—
75,423
86,583
65,391
The notes form an integral part of this consolidated financial information
244
Notes to the Consolidated Financial Information
1.
General information
Skrill Group Limited (‘‘the Company’’) is a company incorporated and domiciled in Jersey, Channel
Islands. The address of the registered office is Queensway House, Hilgrove Street, St. Helier,
Jersey, JE1 1ES, Channel Islands.
The nature of the operations of Skrill Group Limited and its subsidiaries (together ‘‘the Group’’) are
electronic money transfer services, software development and online prepaid solutions.
2.
Significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial
information are set out below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
Basis of preparation
The consolidated financial information have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union (IFRS – EU) and IFRIC
Interpretations. The consolidated financial information 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.
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.
245
The results of subsidiaries acquired during the year 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 unit
which is expected to benefit from the synergies of the combination. If the recoverable amount of
the cash-generating unit 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 unit.
Foreign currency translation
(a) Functional and presentation currency
Items included in the financial information 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 Euro (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 year-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.
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
246
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
Fixtures, fittings and equipment
2 – 5 years
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 year 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
benefits;
*
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 year in which it is incurred.
247
Impairment of non-financial assets
Assets that have an indefinite useful life – for example, goodwill – are not subject to amortisation
and are tested annually for impairment. At each balance sheet date, the management of the Group
reviews the carrying amounts of all other non-financial assets that are subject to amortisation to
determine whether there is any indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cashgenerating unit) is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is recognised immediately in the income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the
first in, first out (FIFO) method in regard to the security tokens, which are expensed when issued
to the end users and weighted average – for all other type of inventories.
Financial assets
Classification
The Group classifies its financial assets in the following categories: at fair value through profit or
loss, and loans and receivables. The classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of its financial assets at initial
recognition.
a)
Financial assets at fair value through profit or loss
A financial asset is classified in this category if acquired principally for the purpose of selling in the
short term. Assets in this category are classified as current assets if expected to be settled within
12 months; otherwise, they are classified as non-current. The Group’s financial assets at fair value
through profit or loss comprise investments on the balance sheet (note 18);
b)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are included in current assets, except for maturities
greater than 12 months after the end of the reporting period. These are classified as non-current
assets. The Group’s loans and receivables comprise ‘trade and other receivables’ (note 20) and
‘cash and cash equivalents’ (note 27) on the balance sheet.
c)
Available for sale
Available-for-sale financial assets are non-derivatives that are either designated in this category or
not classified in any of the other categories. They are included in non-current assets unless the
investment matures or management intends to dispose of it within 12 months of the end of the
reporting period.
Recognition and measurement
Financial assets are recognised on the trade-date being the date on which the Group commits to
purchase or sell the asset. Financial assets are initially recognised at fair value. Financial assets
carried at fair value through profit or loss was initially recognised at fair value, and transaction
costs are expensed in the income statement. Financial assets are derecognised when the rights to
248
receive cash flows from the investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Loans and receivables are
subsequently carried at amortised cost using the effective interest method. Other gains or losses
arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’
category are presented in the income statement within ‘Administrative expenses’ in the year in
which they arise.
Impairment of financial assets
a)
Assets carried at amortised cost
The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or group of financial assets is impaired. A financial asset or a group of financial
assets is impaired and impairment losses are incurred only if there is objective evidence of
impairment as a result of one or more events that occurred after the initial recognition of the asset
(a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of
the financial asset or group of financial assets that can be reliably estimated.
For loans and receivables category, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows discounted at the
financial asset’s original effective interest rate. The carrying amount of the asset is reduced and
the amount of the loss is recognised in the income statement.
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and
are subsequently re-measured at their fair value. The method of recognising the resulting gain or
loss depends on whether the derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged.
The Group recognises a cash flow hedge in the balance sheet as at 31 December 2013 and 2012.
The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions. The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
Movements on the hedging reserve in other comprehensive income are shown in the consolidated
statement of changes in equity. The full fair value of a hedging derivative is classified as a noncurrent asset or liability when the remaining life of the hedged item is more than 12 months and as
a current asset or liability when the remaining maturity of the hedged item is less than 12 months.
The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the
ineffective portion is recognised immediately in the income statement within ‘administrative
expenses’ (no such gains and losses occurred during the presented periods).
Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged
item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps
hedging variable rate borrowings is recognised in the income statement within ‘finance income/
cost’. However, when the forecast transaction that is hedged results in the recognition of a nonfinancial asset (for example, inventory or fixed assets), the gains and losses previously deferred in
equity are transferred from equity and included in the initial measurement of the cost of the asset.
The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory or in
depreciation in the case of fixed assets.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and
is recognised when the forecast transaction is ultimately recognised in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to the income statement within ‘administrative expenses’.
Trade receivables
Trade receivables are amounts due from payment service providers who process transactions on
behalf of the Group and distribution partners who receive cash for the prepaid cards bought. If
249
collection is expected in one year or less (or in the normal operating cycle of the business if
longer), they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held at call with banks. Included
within cash are amounts relating to restricted cash balances as per agreements with specific
providers. Skrill Limited and Prepaid Services Company Limited, FCA regulated entities, are
required at all times to have qualifying liquid assets (comprising of cash and cash equivalents and
investments) in excess of its e-money float (see note 31).
E – money float
The E-money float represents amounts received into customer e-wallet accounts and unused
prepaid card balances and are recorded within trade and other payables.
These amounts are reflected in the consolidated balance sheet on the approval of the initiated
transactions and unused card balances and are measured at fair value. The e-money float received
forms part of the Group’s cash and cash equivalents and investment balances.
Financial liabilities
Classification
The Group classifies its financial liabilities in the following categories: at fair value through profit or
loss, and as other financial liabilities measured at amortised cost. The classification depends on the
purpose for which the financial liabilities were acquired or incurred. Management determines the
classification of its financial liabilities at the initial recognition. The Group’s other financial liabilities
measured at amortised cost comprise ‘trade and other payables’ and ‘borrowings’ in the balance
sheet.
Recognition and measurement
a)
Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the
ordinary course of business from suppliers or vendors. Accounts payable are classified as current
liabilities if payment is due within one year or less. If not, they are presented as non-current
liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost
using the effective interest method.
b)
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortised cost. Any difference between the proceeds (net of transaction
costs) and the redemption value is recognised in the income statement over the period of the
borrowings using the effective interest method. Finance charges are accounted for on an accruals
basis and charged to the income statement using the effective interest rate method. Borrowings
are classified as current liabilities if payment is due within one year or less. If not, they are
presented as non-current liabilities.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangement.
Equity instruments
*
An equity instrument is any contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Equity instruments issued by the Group are
recognised at the proceeds received, net of direct issue costs.
250
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are
discharged, cancelled or they expire.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating segments, has been identified as
the Chief Executive Officer.
Current and deferred income tax
The tax expense for the year comprises current and deferred tax. Tax is recognised in the income
statement. The current income tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date in the countries where the Company’s subsidiaries
operate and generate taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
Deferred income tax is recognised, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated
financial information. However, the deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business combination that at the
time of the transaction affects neither accounting nor taxable profit or loss.
Deferred income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income taxes assets
and liabilities relate to income taxes levied by the same taxation authority on either the taxable
entity or different taxable entities where there is an intention to settle the balances on a net basis.
Share-based payments
The Group operates equity-settled share-based compensation plans. The Group’s accounting policy
in respect of equity-settled share-based compensation plans is set out below:
Equity-settled share-based payments
The Group operates equity-settled share-based compensation plans under which the entity receives
services from employees as consideration for equity instruments (options) of the Group. The fair
value of the employee services received in exchange for the grant of the options is recognised as
an expense.
The total amount to be expensed is determined by reference to the fair value of the options
granted.
Non-market vesting conditions are included in assumptions about the number of options that are
expected to vest. The total expense is recognised over the vesting period, which is the financial
year over which all of the specified vesting conditions are to be satisfied. At the end of each
reporting period, the entity revises its estimates of the number of options that are expected to vest
based on the non-market vesting conditions. It recognises the impact of the revision to original
estimates, if any, in the income statement, with a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds received net of
any directly attributable transaction costs are credited to share capital and share premium when
the options are exercised.
Where options are granted as consideration as part of a business combination, these options are
included at fair value as part of the total consideration of the business combination in accordance
with IFRS 3 (Revised).
251
Revenue recognition
Skrill revenue from transaction processing services includes merchant and end user fees as well as
FX spread income (fees from inter-currency transactions) which are generated from online
activities.
Revenues from transaction processing services are recognised at the time the customer
transactions are fulfilled. End user fees are calculated as a percentage of funds processed and/or
as a charge per transaction. Merchant fees are calculated as a percentage of funds processed
plus a fixed charge per transaction on behalf of merchants.
Included within revenues is interest income which is derived from the investment of the e-money
float held. Revenue is net of rebates. Rebates are recognised based on the specific terms outlined
in customer contracts.
paysafecard revenue is recognised upon delivery or transfer of risk to the customer, net of rebates
and discounts. Fees are earned from webshops (merchants) as a percentage of card credits used
by them.
Finance income
Finance income (interest income) is recognised when it is probable that the economic benefits will
flow to the Group and the amount of income can be measured reliably. Finance income is accrued
on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset’s net carrying amount on initial recognition.
Leasing
Leases in which a significant portion of the risks and rewards of ownership are retained by the
lessor are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income statement on a straight-line basis
over the period of the lease.
The group leases certain property, plant and equipment. Leases of PPE where the Group has
substantially transferred all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the
leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges. The corresponding
rental obligations, net of finance charges, are included in other long-term payables. The interest
element of the finance cost is charged to the income statement over the lease period so as to
produce a constant periodic rate of interest on the remaining balance of the liability for each
period. The property, plant and equipment acquired under finance leases are depreciated over the
shorter of the useful life of the asset and the lease term.
Dividend policy
Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s
financial information in the financial year in which the dividends are approved by the Company’s
shareholders.
Non-recurring costs and income
Non-recurring costs and income are those items that are individually or in aggregate one-off in
nature, non-recurring and material. The separate reporting of non-recurring costs helps provide an
indication of the Group’s underlying business performance.
3.
Effect of the new standards, amendments and interpretations adopted by the EU
Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities
The amendments to IFRS 10 define an investment entity and require a reporting entity that meets
the definition of an investment entity not to consolidate its subsidiaries but instead to measure its
subsidiaries at fair value through profit or loss in its consolidated and separate financial statements.
Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure
requirements for investment entities. As the Company is not an investment entity (assessed based
on the criteria set out in IFRS 10 as at 1 January 2014), the application of the amendments has
252
had no impact on the disclosures or the amounts recognised in the Group’s consolidated financial
statements.
Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
The Group has applied the amendments to IAS 32 Offsetting Financial Assets and Financial
Liabilities for the first time in the current year. The amendments to IAS 32 clarify the requirements
relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify
the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation
and settlement’. The Group has assessed whether certain of its financial assets and financial
liabilities qualify for offset based on the criteria set out in the amendments and concluded that the
application of the amendments has had no impact on the amounts recognised in the Group’s
consolidated financial statements other than consistency of accounting policy application for
restricted members cash and amounts owing to members as disclosed in the notes.
Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
The Group has applied the amendments to IAS 36 Recoverable Amount Disclosures for NonFinancial Assets for the first time in the current year. The amendments to IAS 36 remove the
requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill
or other intangible assets with indefinite useful lives had been allocated when there has been no
impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce
additional disclosure requirements applicable to when the recoverable amount of an asset or a
CGU is measured at fair value less costs of disposal. These new disclosures include the fair value
hierarchy, key assumptions and valuation techniques used which are in line with the disclosure
required by IFRS 13 Fair Value Measurements.
The application of these amendments has had no material impact on the disclosures in the
Group’s consolidated financial statements
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
The amendments to IAS 39 provide relief from the requirement to discontinue hedge accounting
when a derivative designated as a hedging instrument is novated under certain circumstances. The
amendments also clarify that any change to the fair value of the derivative designated as a
hedging instrument arising from the novation should be included in the assessment and
measurement of hedge effectiveness. As the Group does not have any derivatives that are subject
to novation, the application of these amendments has had no impact on the disclosures or on the
amounts recognised in the Group’s consolidated financial statements.
Future changes to accounting standards
The Group has not applied the following new and revised IFRSs that have been issued but are not
yet effective:
IFRS 9 Financial Instruments
The IASB issued IFRS 9 in November 2009, introducing new requirements for the classification
and measurement of financial assets. IFRS 9 was subsequently amended in October 2010 to
include requirements for the classification and measurement of financial liabilities and for
derecognition, and in November 2013 to include the new requirements for general hedge
accounting. Another revised version of IFRS 9 was issued in July 2014 mainly to include a)
impairment requirements for financial assets and b) limited amendments to the classification and
measurement requirements by introducing a ‘fair value through other comprehensive income’
(FVTOCI) measurement category for certain simple debt instruments. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018.
It is not practicable to provide a reasonable estimate of the effect of IFRS 9 until the Group
undertakes a detailed review.
IFRS 15 Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued which establishes a single comprehensive model for entities to
use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the
current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts
and the related Interpretations when it becomes effective for annual periods beginning on or after 1
January 2017. The core principle of IFRS 15 is that an entity should recognise revenue to depict
253
the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services.
Specifically, the Standard introduces a 5-step approach to revenue recognition:
*
Step 1: Identify the contract(s) with a customer
*
Step 2: Identify the performance obligations in the contract
*
Step 3: Determine the transaction price
*
Step 4: Allocate the transaction price to the performance obligations in the contract
*
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Extensive disclosures are required by IFRS 15. The directors of the Group do not anticipate that
the application of IFRS 15 in the future will have a material impact on the amounts reported and
disclosures made in the Group’s consolidated financial statements. However, it is not practicable to
provide a reasonable estimate of the effect of IFRS 15 until the Group performs a detailed review.
Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations
The amendments to IFRS 11 provide guidance on how to account for the acquisition of a joint
operation that constitutes a business as defined in IFRS 3 Business Combinations. Specifically, the
amendments state that the relevant principles on accounting for business combinations in IFRS 3
and other standards (e.g. IAS 36 Impairment of Assets regarding impairment testing of a cash
generating unit to which goodwill on acquisition of a joint operation has been allocated) should be
applied. The same requirements should be applied to the formation of a joint operation if and only
if an existing business is contributed to the joint operation by one of the parties that participate in
the joint operation.
A joint operator is also required to disclose the relevant information required by IFRS 3 and other
standards for business combinations.
The amendments to IFRS 11 apply prospectively for annual periods beginning on or after 1
January 2016. The directors of the Group do not anticipate that the application of these
amendments to IFRS 11 will have a material impact on the Group’s consolidated financial
statements.
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for
items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable
presumption that revenue is not an appropriate basis for amortisation of an intangible asset. The
amendments apply prospectively for annual periods beginning on or after 1 January 2016.
Currently, the Group uses the declining balance method for depreciation for its property, plant and
equipment, and declining balance and straight line methods for amortisation for its intangible
assets. The directors of the Group believe that these methods are the most appropriate method to
reflect the consumption of economic benefits inherent in the respective assets and accordingly, the
directors of the Group do not anticipate that the application of these amendments to IAS 16 and
IAS 38 will have a material impact on the Group’s consolidated financial statements.
4.
Critical accounting judgements and estimates
The preparation of the consolidated financial information in conformity with IFRS – EU requires the
management of the Company to make judgements, estimates and assumptions that may affect the
use of accounting and valuation methods and the amounts of assets and liabilities, revenues and
expenses recognised. Such estimates and the resulting assumptions are based on historical
experience and various other factors that are believed to be reasonable under the given
circumstances, and they form the basis for measuring the carrying amounts of assets and liabilities
that are not readily available from other sources. The actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
estimates are recognised in the period in which the estimate is revised if the revision affects only
that period or in the period of the revision and future periods if the revision affects both current
and future periods.
The most important assessments made by management of the Company with respect to the
application of IFRS – EU that may have a significant effect on the consolidated financial
254
information, and estimates entailing a risk that the assets and liabilities reported may have to be
significantly adjusted within the next financial year are described below:
(a) Revenue recognition
Revenues from transaction processing services are recognised at the time the customer
transactions are fulfilled. This requires the Group to assess at the point of service delivery whether
these criteria have been met. When the Group determines that such criteria have been met,
revenue is recognised. In making its judgements, management considers the detailed criteria for
the recognition of revenue from the sale of services set out in IAS 18 Revenue and, in particular,
whether the Group has transferred to the buyer the significant risks and rewards relating to the
transactions. The Group records estimated reductions to revenue for pricing agreements.
(b) Business combinations
The Group uses judgement, estimates and involves external specialists in determining the fair
value of identifiable assets and liabilities acquired in a business combination, as well as calculating
the fair value of the purchase consideration on acquisition. The fair value of assets acquired is
determined either by applying the cost that would be associated with the asset in an active market
or by discounting estimated future cash flows generated by the asset, assuming no active market
exists.
Purchase price allocation affects the results of the Group as goodwill is not amortised and finite life
intangible assets are amortised. This could lead to significantly different amortisation costs
recognised depending on the allocation between assets acquired.
(c) Estimated impairment of goodwill
Determining whether goodwill is impaired requires an estimation of the value in use of the cashgenerating units to which goodwill has been allocated. The value in use calculation requires the
entity to estimate the future cash flows expected to arise from the cash-generating unit and a
suitable discount rate in order to calculate present value.
The Group assesses the carrying value of identifiable intangible assets, long-lived assets and
goodwill annually, or more frequently if events or changes in circumstances indicate that such
carrying value may not be recoverable. Factors considered important, which could trigger an
impairment review, include the following:
*
significant under-performance relative to historical or projected future results;
*
significant changes in the manner of use of the acquired assets or the strategy for the overall
business; and
*
significantly negative industry or economic trends.
This assessment is based upon projections of anticipated discounted future cash flows. The most
significant variables in determining cash flows are discount rates, terminal values, the number of
years on which to base the cash flow projections, as well as the assumptions and estimates used
to determine the cash inflows and outflows.
The Group determines discount rates to be based on the risk inherent in the related activity’s
current business model and industry comparisons. Terminal values are based on the expected life
of products and forecasted life cycle and forecasted cash flows over that period. While the Group
believes that its assumptions are appropriate, such amounts estimated could differ materially from
what will actually occur in the future. In assessing goodwill, these non-discounted cash flows are
prepared at a cash-generating unit level.
(c) Income taxes
The Group is subject to the income tax laws of the various tax jurisdictions. These laws are
complex and subject to different interpretations by taxpayers and tax authorities.
Significant judgement is required in determining provisions for income taxes and deferred taxation.
There are many transactions and calculations for which the ultimate tax determination is uncertain
during the ordinary course of business. The Group recognises the liabilities for anticipated tax audit
issues based on estimates of whether additional taxes will be due. Any reduction in the corporation
tax liability as a result of business activities undertaken in a tax efficient manner, is fully provided
for and released in accordance with the techniques identified by IAS 12, Income taxes. Where
255
significant progress has been made towards agreement with the relevant tax authority, the
measurement basis agreed with the tax authorities is utilised.
In recognising deferred tax assets, the deferred tax is calculated on temporary differences between
the carrying amounts and the tax values of assets and liabilities. There is one primary area where
assumptions and assessments affect recognised deferred tax. This relates to the assumptions and
assessments used to determine the carrying amounts of the different assets and liabilities.
Although the deferred tax assets which have been recognised are considered realisable, actual
amounts could be reduced if future taxable income is lower than expected. This can affect the
Group’s reported profit and financial position. Deferred tax assets have been recognised where
management believes there are sufficient taxable temporary differences or convincing other
evidence that sufficient taxable profit will be available in future to realise deferred tax assets.
5.
Business and geographical segments
Background
The Group has adopted IFRS 8, Operating segments. IFRS 8 requires operating segments to be
identified on the basis of internal reports about components of the Group that are regularly
reviewed by the Chief Operating Decision Maker (‘‘CODM’’) to allocate resources to the segments
and to assess their performance. Within the Group, this function has been identified as being held
by the Group’s Chief Executive Officer, who is responsible for and manages the day-to-day
management function of the Group in accordance with the Board’s guidelines.
The Group’s operations are based on a single platform which allows the provision of services to
diversified customer markets within the electronic money transfer sector. Performance in each of
the markets the Group serves is dependent on resource allocation to this single platform, as well
as client service and marketing.
As such the Group’s Chief Executive Officer allocates resources and assesses performance on the
basis of one operating segment. The Group has therefore determined that it has a single
reportable segment for the purpose of segmental disclosures. The accounting policies of this
reportable segment are the same as the Group’s accounting policies. The results shown on a
consolidated basis in the balance sheet, income statement and statement of comprehensive
income with their associated note disclosures are therefore the same as the results for the single
reportable segment and have not been repeated in this note.
Revenues from major products and services
The Group’s revenues from its major products and services, all of which are continuing operations,
were as follows:
Merchant revenue
End user revenue
Financial revenue
2011
US$’000
2012
US$’000
2013
US$’000
73,289
10,913
30,693
83,656
11,456
34,821
212,088
36,367
37,975
114,895
129,933
286,430
Financial revenue includes FX spread income and interest income from e-money float.
256
Geographical information
The Group’s revenues from external customers by geographical location are detailed below:
UK
Europe
Americas
Rest of the World
FX spread income
Other, including interest from e-money float,
maintenance fees and Voucher fees
Rebates
2011
US$’000
2012
US$’000
2013
US$’000
9,695
60,461
8,012
7,922
25,815
12,062
69,928
8,651
9,436
27,394
13,113
197,681
10,165
10,848
29,624
4,872
(1,882)
7,507
(5,045)
114,895
129,933
32,569
(7,570)
286,430
Information about major customers
The Group did not have any single customer or distributor contributing more than 10 percent of
total revenues during any of the three years ended 31 December 2013, 31 December 2012 and
31 December 2011.
6.
Operating profit
Operating profit has been arrived at after charging:
Depreciation of property, plant and equipment
(note 16)
Rentals (operating leases) (note 29)
Amortisation of intangible assets (note 15)
Foreign exchange losses
Staff costs (note 9)
Non-recurring costs and income (note 7)
2011
US$’000
2012
US$’000
2013
US$’000
1,191
1,470
7,166
2,637
21,376
7,117
1,647
1,517
7,028
276
26,495
5,003
2,940
2,586
16,581
1,171
47,143
13,182
2011
US$’000
2012
US$’000
2013
US$’000
19,669
3,334
2,927
2,830
—
24,716
4,018
3,735
6,379
—
23,757
4,089
5,972
8,814
73,409
28,760
38,848
116,041
Cost of sales can be broken down as follows:
Transaction processing fees
Bad debt expenses
Referral bonus
Promotions
Purchased services and cost of materials
257
7.
EBITDA reconciliation
EBITDA and Adjusted EBITDA are calculated as follows:
2011
US$’000
2012
US$’000
2013
US$’000
Operating profit for the year
Add back:
Depreciation (note 16)
Amortisation (note 15)
30,603
29,280
44,047
1,245
7,490
1,647
7,028
2,940
16,581
EBITDA
39,338
37,955
63,568
Non-recurring costs
7,117
5,004
13,182
Adjusted EBITDA
46,455
42,959
76,750
The items below highlight one off items which are in the income statement because separate
disclosure is considered relevant in understanding the underlying performance of the business.
These items are considered exceptional and are presented within the line items to which they best
relate. An analysis of the amount presented as exceptional items in these financial information is
given below.
2011
US$’000
2012
US$’000
Cash
Noncash
Total
Cash
Noncash
Total
Share option charge (note 9)
Impairment of investment (note 18)
Integration related costs
Acquisition and sale related costs
Other
264
785
—
5,121
947
—
—
—
—
—
264
785
—
5,121
947
667
1,152
—
2,707
477
—
—
—
—
—
667
1,152
—
2,707
477
Charge to operating profit
7,117
—
7,117
5,003
—
5,003
2013
US$’000
Share option charge (note 9)
Impairment of investment (note 18)
Integration related costs
Acquisition and sale related costs
Other
Charge to operating profit
Cash
Noncash
Total
502
—
4,716
7,167
797
—
—
—
—
—
502
—
4,716
7,167
797
13,182
—
13,182
Integration related costs include certain one off costs incurred as Skrill integrates the paysafecard
business and align around a clear set of shared goals. Also included are severance costs relating
to restructure of senior management and support functions following these acquisitions.
Acquisition and sale related costs include costs associated with the acquisition of paysafecard and
the sale of a controlling stake in the company to CVC Capital Partners, as well as other M&A
related activities.
258
8.
Auditors’ remuneration
The analysis of auditors’ remuneration is as follows:
2011
US$’000
2012
US$’000
2013
US$’000
Fees payable to the auditors for the audit of Skrill
Group Limited’s annual financial statements
Fees payable to the auditors and their associates for
Skrill Group Limited’s subsidiaries
14
40
90
188
298
441
Total audit fees
202
338
531
Tax services
Transaction services
Other
106
630
—
82
507
—
77
1,389
46
Total non-audit fees
736
589
1,512
2011
US$’000
2012
US$’000
2013
US$’000
21,040
2,538
24,573
3,326
44,003
6,605
—
(2,202)
667
(2,071)
502
(3,968)
21,376
26,495
47,142
2011
US$’000
2012
US$’000
2013
US$’000
1,102
8
607
72
622
6
1,110
679
628
689
607
622
9.
Employee information
Employee aggregate remuneration comprised:
Wages and salaries
Social security costs
Share option charge – value of employee services
(note 7)
Less: capitalised costs
Presentation of Directors’ remuneration disclosures
As at the year end the Company had three Directors
Summary of Directors’ remuneration
Directors’ emoluments consist of:
Remuneration and other short-term employee benefits
Directors’ fees
Emoluments of highest paid Director
10. Dividends
There were no dividends declared by the Group in the years ended 31 December 2013, 2012 and
2011.
259
11.
Finance income
Finance income on bank deposits
12.
2012
US$’000
2013
US$’000
369
424
105
369
424
105
2011
US$’000
2012
US$’000
2013
US$’000
673
169
5,767
1,623
8,412
3,676
842
7,389
12,087
2011
US$’000
2012
US$’000
2013
US$’000
10,314
396
9,098
115
10,012
(1,617)
10,710
9,213
8,395
(1,622)
(2,399)
(2,438)
(1,622)
(2,399)
(2,438)
9,088
6,813
5,957
Finance costs
Interest on bank borrowings
Amortisation of loan arrangement fee and issue costs
13.
2011
US$’000
Income tax expense
Current tax
Current tax on profits for the year
Adjustments in respect of prior periods
Deferred tax
Credit to the income statement
Income tax expense
UK corporation tax is calculated at 23.25% (2012: 24.5%, 2011: 25.5%) of the estimated taxable
profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the
respective jurisdictions. The tax on the Group’s profit before tax differs from the theoretical amount
that would arise using the weighted average tax rate applicable to profits of the consolidated
entities as follows:
2011
US$’000
2012
US$’000
2013
US$’000
30,131
22,315
32,064
Tax calculated at UK corporation tax rate
Tax effect of expenses/income that are not deductible/
taxable
Effect of different tax rates in foreign subsidiaries
Other tax adjustments
Adjustments in respect of prior periods
7,985
5,467
7,455
1,284
—
(577)
396
1,223
(1,488)
1,497
114
1,463
(1,434)
89
(1,616)
Income tax expense
9,088
6,813
5,957
Profit before income tax
Factors affecting current and future tax charges
The main rate of corporation tax in the UK reduced from 24% to 23% with effect from 1 April
2013. Accordingly, profits for the accounting period to 31 December 2013 were taxed at an
260
effective rate of 23.25%. Further rate reductions to 21% effective from 1 April 2014 and to 20%
effective from 1 April 2015 were substantively enacted on 2 July 2013 and therefore any relevant
deferred tax balances have been measured at this rate.
14.
Goodwill
2011
US$’000
2012
US$’000
2013
US$’000
At 1 January
Additions (note 28)
105,285
3,230
108,515
—
108,515
99,485
At 31 December
108,515
108,515
208,000
Goodwill acquired is allocated to the Group’s single cash generating unit (CGU). The Group tests
goodwill annually for impairment or more frequently if there are indications that goodwill might be
impaired. No impairment of goodwill was required during the years ended 31 December 2013,
2012 and 2011. During the fourth quarter of 2013 an impairment test was carried which resulted in
no impairment of goodwill.
For the cash generating unit the Group prepares cash flow forecasts derived from the most recent
financial budget approved by management. The cash flows are prepared for the next three years.
These cash flows are then extrapolated for periods beyond the budget period at an estimated
growth rate of 1.5%, which is determined from the Eurostat. The pre-tax discount rate used to
discount the cash flows is 15.03%.
Changes in selling prices and direct costs are based on historical information and expectations of
future changes in the market.
261
15.
Other intangible assets
Software and
Client
Client Trade name
website relationships relationships and domain
development – merchants – end users
name
US$’000
US$’000
US$’000
US$’000
Total
US$’000
Cost
At 1 January 2011
Additions
11,349
3,139
29,613
—
5,602
—
2,337
277
48,901
3,415
At 31 December 2011
Additions
Reclassification
14,487
8,189
247
29,613
—
—
5,602
—
—
2,614
98
—
52,314
8,287
247
At 31 December 2012
Identified intangible assets
(note 28)
Additions
Disposals
22,924
29,613
5,602
2,711
60,850
4,648
13,696
(94)
85,523
—
—
—
—
—
3,453
52
—
93,624
13,747
(94)
At 31 December 2013
41,173
115,136
5,602
6,216
168,125
6,111
2,763
11,155
2,961
3,517
934
1,709
508
22,492
7,166
At 31 December 2011
Charge for the period
(note 7)
Reclassifications
8,873
14,117
4,451
2,217
29,658
3,043
247
2,854
—
900
—
230
—
7,028
247
At 31 December 2012
12,163
16,971
5,351
2,447
36,933
9,503
—
216
—
946
—
Accumulated amortisation
At 1 January 2011
Charge for the period
(note 7)
Reclassifications
Charge for the year (note 7)
Disposals
5,916
(60)
16,581
(60)
At 31 December 2013
18,020
26,474
5,568
3,393
53,455
Net book amount
At 31 December 2011
At 31 December 2012
At 31 December 2013
5,614
10,760
23,153
15,496
12,641
88,661
1,151
251
35
397
264
2,823
22,658
23,917
114,671
During the year ended 31 December 2013, internally generated intangible assets included within
additions to the cost of software and website development were US$3,986 (2012: US$ 2,071,
2011: US$ 2,202).
As at the year ended 31 December 2013, internally generated intangible assets included within
cost of software and website development is US$14,312 (2012: US$8,445, 2011: US$6,913).
As at the year ended 31 December 2013, internally generated intangible assets included within
carrying amount of software and website development is US$6,482 (2012: US$3,360, 2011:
US$3,660).
262
Software and website development includes the following amounts where the Group is a lessee
under a finance lease:
2011
US$’000
2012
US$’000
2013
US$’000
Cost
Accumulated amortisation
—
—
—
—
750
(94)
Net book amount
—
—
656
The duration of the lease contract is until February 2017 and ownership of the assets lies within
the Group.
16.
Property, plant and equipment
Computer
equipment
US$’000
Fixtures,
fittings and
equipment
US$’000
Total
US$’000
Cost
At 1 January 2011
Additions
3,509
2,693
1,326
626
4,834
3,319
At 31 December 2011
Additions
Reclassification
6,201
1,398
458
1,951
126
(327)
8,153
1,524
131
At 31 December 2012
Acquisition of subsidiary (note 28)
Additions
Disposals
8,057
3,732
1,671
(744)
1,751
1,199
1,623
(546)
9,808
4,931
3,293
(1,289)
12,715
4,027
16,742
Accumulated depreciation
At 1 January 2011
Charge for the period (note 7)
1,242
904
212
287
1,454
1,191
At 31 December 2011
Charge for the period (note 7)
Reclassification
2,146
1,256
131
499
391
—
2,645
1,647
131
At 31 December 2012
Acquisition of subsidiary (note 28)
Charge for the year (note 7)
Disposals
3,534
1,829
2,413
(740)
890
497
527
(436)
4,423
2,325
2,940
(1,175)
At 31 December 2013
7,036
1,478
8,514
Net book amount
At 31 December 2011
At 31 December 2012
At 31 December 2013
4,055
4,523
5,680
1,453
861
2,549
5,508
5,384
8,229
At 31 December 2013
263
Computer equipment includes the following amounts where the Group is a lessee under a finance
lease:
2011
US$’000
2012
US$’000
2013
US$’000
Cost
Accumulated depreciation
—
—
—
—
344
(42)
Net book amount
—
—
302
The duration of the lease contract is until February 2017 and ownership of the assets lies within
the Group.
17. Subsidiaries
All subsidiary undertakings are included in the consolidation. The proportion of the voting rights in
the subsidiary undertakings held directly by the parent company does not differ from the proportion
of the ordinary shares. The entities directly held by the Company are MB Acquisitions Limited,
Skrill Capital Limited and Skrill Capital UK Limited (formerly Skrill Limited).
The Group’s investments in the ordinary share capital of subsidiary companies at the balance
sheet date include the following:
Proportion
of interest
in ordinary
shares
%
Proportion
of voting
power held
%
Name
Place of
incorporation
(or registration)
Operations
Skrill Capital Limited
Jersey
Non trading company
100%
100%
MB Acquisitions Limited
England and
Wales
Holding and consultancy
services company
100%
100%
Skrill Holdings Limited
England and
Wales
Holding and consultancy
services company
100%
100%
MB Employee Nominees Limited
England and
Wales
Non trading company
100%
100%
Skrill Limited (formerly
Moneybookers Limited)
England and
Wales
Electronic money transfer
services
100%
100%
Skrill Bulgaria EOOD (formerly MB
Bulgaria EOOD)
Bulgaria
Consultancy, development
and implementation of
software
100%
100%
Skrill USA, Inc.
United States of
America
Online Payment service
provider and electronic money
transfer services
100%
100%
Skrill International Payments
Limited (formerly Next Generation
Payments Limited)
England and
Wales
Technical service provider
developing internet payment
products
100%
100%
Skrill Capital UK Limited (formerly
Skrill Limited)
England and
Wales
Non trading company
100%
100%
Payolution GmbH
Austria
Payment facilitator enabling
online merchants to offer their
customers payments solutions
100%
100%
Skrill Services GmbH
Germany
Non trading company
100%
100%
Sabemul Beteiligungsverwaltungs
GmbH
Austria
Holding company
100%
100%
paysafecard.com Wertkarten AG
Austria
Holding, development and
consultancy services
company
100%
100%
paysafecard.com Wertkarten
Vertriebs GmbH
Austria
Distribution and merchant
services
100%
100%
264
Proportion
of interest
in ordinary
shares
%
Proportion
of voting
power held
%
Name
Place of
incorporation
(or registration)
Operations
cpt Dienstleistungen GmbH
Germany
Distribution services
100%
100%
Prepaid Services Company Limited
England and
Wales
Issuing of electronic money,
distribution and merchant
services
100%
100%
paysafecard.com Schweiz GmbH
Switzerland
Issuing and distribution
services
100%
100%
MAC Limited
Gibraltar
Merchant services
100%
100%
paysafecard.com Argentina S.R.L.
Argentina
Issuing, distribution and
merchant services
100%
100%
paysafecard.com México SA de CV
Mexico
Issuing, distribution and
merchant services
100%
100%
paysafecard.com USA Inc.
United States of
America
distribution and merchant
services
100%
100%
WH International Payment Services
B.V.
The Netherlands
Holding company
100%
100%
paysafecard Ön Ödeme Servisleri
Limited Sirketi
Turkey
Issuing, distribution and
merchant services
100%
100%
paysafecard.com d.o.o.
Croatia
Issuing, distribution and
merchant services
100%
100%
Wallie Spain S.L. (in liquidation)
Spain
—
100%
100%
Wallie Limited (in liquidation)
England and
Wales
—
100%
100%
18.
Investments
Non-current investments
Non-trading investment carried at fair value
Available for sale investments
Convertible bonds
Net foreign exchange difference
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
1,196
—
—
1,195
—
164
1,357
133
(509)
1,196
1,359
981
2011
US$’000
2012
US$’000
2013
US$’000
Balance as at 1 January
Purchase of investment during the period
Investment in convertible bonds
Impairment charge to profit and loss
Change in the value of available for sale financial asset
—
1,946
—
(750)
—
1,196
1,315
—
(1,152)
—
1,359
—
133
—
(509)
Balance as at 31 December
1,196
1,359
983
During 2011 Skrill Holdings Limited, purchased an investment of Series 2 Preferred Stock of
US$200 in Live Gamer, Inc., a company incorporated in Delaware. The carrying amount of the
investment has been reduced to nil through recognition of a provision of diminution in value in
2012 of US$1,152 (2011: US$750).
265
On 21 December 2012, Skrill Holdings Limited, invested US$1,267 (excluding related costs) in
Cybits Holding AG. As part of the agreement Skrill had an option to purchase convertible bonds
issued by Cybits AG (fully owned subsidiary of Cybits Holding). The period when the option could
be exercised was between 1 January 2013 and July 2013. As a result convertible bonds amounting
to US$133 were purchased during the year.
19.
Inventories
Cards
Vouchers
Security tokens
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
—
—
3
—
—
28
194
1,363
7
3
28
1,564
Cost of inventories amounting to US$62 was impaired and recognised as an expense in 2013 (no
impairment during 2012 and 2011). The carrying amount of impaired inventories amounts to US$
nil as at 31 December 2013.
20.
Trade and other receivables
Trade receivables
Other debtors
Prepayments and accrued income
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
19,435
6,125
3,079
27,671
251
7,433
118,664
8,067
6,656
28,639
35,355
133,387
The trade receivables above primarily relate to amounts due from payment service providers and
distribution partners. There are no trade receivables considered to be impaired.
Provisions amounting to US$1,894 are included in receivables to cover the payment default risk of
distribution partners, to the extent it is not covered by insurance.
The directors consider that the carrying amount of trade receivables is approximately equal to their
fair value.
21.
Derivative financial instruments
Interest rate swaps – cash flow hedge
Current
Non-current
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
—
1,523
766
—
1,523
766
—
—
768
755
701
65
—
1,523
766
The full fair value of a hedging derivative is classified as a non-current liability if the remaining
maturity of the hedged item is more than 12 months and, as a current liability, if the maturity of the
hedged item is less than 12 months.
266
In 2013, 2012 and 2011, the variable interest rate is based on 3 month EURIBOR and varies from
0.2930 to 0.1320 (during 2013); and from 0.9340% to 0.2690% (during 2012). Gains and losses
recognised in the hedging reserve in equity on interest rate swap contracts as of 31 December
2013 will be continuously released to the income statement within finance cost until the repayment
of the bank borrowings (note 22).
22.
Borrowings
Bank borrowings
Finance lease liabilities
Current
Bank borrowings
Finance lease liabilities
Non-current
Bank borrowings
Finance lease liabilities
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
98,654
—
97,394
—
143,459
905
98,654
97,394
144,364
4,662
—
6,343
—
11,452
279
4,662
6,343
11,731
93,992
—
91,051
—
132,007
626
93,992
91,051
132,633
On 1 December 2011, the Group entered into a new Senior Facilities Agreement with Lloyds TSB
Plc, NIBC Financing N.V and The Royal Bank of Scotland Plc. This loan agreement was amended
and restated on 22 June 2012.
The Senior Facilities Agreement is for a total principal amount of US$103,592,000,000 segregated
into Facility A1 of US$31,078,000 and Facility B1 of US$72,514,000 which is repayable over 5
years and 6 years term respectively. As part of the amendment and restatement a further
US$55,064,000 was drawn down on 6 February 2013 which is repayable over the same term. The
new facilities are respectively: A2 – amounting to US$20,649,000 and B2 – amounting to
US$34,415,000.
The loan has been shown net of amortised issue costs of US$7,213,000 (2012: US$3,621,000,
2011: US$4,939,000). The issue costs are amortised over the duration of the loan.
As part of the loan agreement, the principal amount for Facility A is due in agreed quarterly
payments whereas Facility B is due in agreed yearly payments with one final balloon payment
towards the end of the term.
The security against the loan is as per the debenture agreement between the lender, MB
Acquisitions Limited, Skrill Holdings Limited, Skrill International Payments Limited (formerly Next
Generation Payments Limited), Skrill Bulgaria EOOD (formerly MB Bulgaria EOOD), Skrill Limited
(formerly Moneybookers Limited), Payolution GmbH and Sabemul Beteiligungsverwaltungs GmbH.
The security mainly relates to the following:
a)
Each chargor, being MB Acquisitions Limited, Skrill Holdings Limited, Skrill International
Payments Limited, Skrill Bulgaria EOOD, Skrill Limited, Payolution GmbH and Sabemul
Beteiligungsverwaltungs GmbH charges by way of first legal mortgage the properties, all other
interests, estates in freehold, leasehold or commonhold property and all premises and fixtures
on such properties;
b)
Each chargor assigns the relevant agreements to which it is a party or in which it has an
interest, and relevant policies to which it is a party or in which it has an interest etc;
267
c)
Each chargor charges by first fixed charge all interests and estates in any freehold, leasehold
or commonhold property; proceeds of sale of its secured property and all licences to enter on
or use any secured property; all plant, machinery, vehicles, computers, office and other
equipment, all furniture, furnishings, equipment and tools and any removals or replacements
of them, (together with Chattels) present and future and the benefit of all contracts, licenses,
warranties, maintenance contracts relating to them and any renewals and replacements of
them;
d)
The subsidiary shares together with all related rights; investments together with all related
rights; all monies from time to time standing to the credit of each blocked account; all its
intellectual property; all its goodwill and uncalled capital; the benefit of all authorisation held or
utilised in connection with its business or the use of any assets and the rights to recover and
receive compensation payable in respect of any of them;
e)
Each chargor charges by way of first floating charge all its assets and undertaking wherever
located both present and future other than any assets effectively charged by way of first legal
mortgage, fixed charge or assigned under various clauses indicated in (a) to (d) above.
On 28 February 2013 an Account Pledge agreement and Receivables Pledge agreement was
signed between Payolution GmbH (the pledger) and Lloyds TSB Bank Plc (the security trustee).
On 28 February 2013 an Account Pledge agreement, Receivables Pledge agreement and Share
Pledge agreement was signed between Sabemul Beteilgungsverwaltungs GmbH (the pledger) and
Lloyds TSB Bank Plc (the security trustee).
On 28 February 2013 a Share Pledge agreement was signed between Skrill Holdings Limited (the
pledger) and Lloyds TSB Bank Plc (the security trustee).
After the acquisition of paysafecard in February 2013 the following entities were added to the list of
obligors: paysafecard Vertriebs GmbH, cpt Dienstleistungen GmbH, Prepaid Services Company
Limited, paysafecard Schweiz Gmbh, MAC Limited (Gibraltar) and paysafecard Wertkarten AG
(Austria).
The Lloyds Facility had financial covenants in respect of (i) cash flow cover, (ii) interest cover, (iii)
debt cover, and (iv) capital expenditure as summarised below.
Cash flow cover: on a quarterly basis, commencing on 30 June 2012, cash flow cover (ratio of
cash flow to debt service) shall not be less than a ratio of 1:1.
Interest cover: on a quarterly basis, commencing on 30 June 2012, interest cover (ratio of EBITDA
to net finance charges) shall not be less than 4.64:1.00 (31 March 2013), 4.77:1.00 (30 June
2013), 5.12:1.00 (30 September 2013) and 5.29:1.00 (31 December 2013).
Debt cover: on a quarterly basis, commencing on 30 June 2012, debt cover (ratio of total net debt
to adjusted EBITDA) shall not exceed 2.27:1.00 (31 March 2013), 2.05:1.00 (30 June 2013),
2.00:1:00 (30 September 2013), 2.00:1.00 (31 December 2013).
Capital Expenditure: the aggregate Capital Expenditure of the Group shall not exceed
US$10,500,000 for Financial Year ending 2013.
On 12th February 2014, the loan with Lloyds TSB Plc, NIBC Financing N.V and The Royal Bank of
Scotland Plc. was fully repaid (note 35).
There is another loan in place between Payolution GmbH and Austrian Research Promotion
Agency for the amount of US$66 (as at 31 December 2012: US$53; as at 31 December 2011:
US$nil). The annual interest rate is 2% and is paid annually. The total amount of the principal is
due on 31 March 2018.
The borrowing of paysafecard.com Wertkarten AG relates to the financing of the acquisition of the
shares in WH International Payment Services B.V.; the respective loan agreement is in place with
‘‘BAWAG P.S.K. Bank für Arbeit und Wirtschaft und Österreichische Postsparkasse
Aktiengesellschaft’’. The agreed interest rate is 3-month EURIBOR plus spread. The carrying
amount of the loan as at 31 December 2013 is US$2,141 separated as current – US$714 and
non-current – US$1,426 (as at 31 December 2012 and 31 December 2011 the entity is not part of
the Group).
The finance lease is held by paysafecard.com Wertkarten AG from Raiffeisen-Leasing Österreich
GmbH, Vienna for the duration of 48 months until February 2017. The interest rate is 3 month
Euribor plus spread.
268
On 12th February 2014, the loan with Lloyds TSB Plc, NIBC Financing N.V and The Royal Bank of
Scotland Plc. was fully repaid (note 35).
23. Deferred tax assets and liabilities
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred tax assets:
Recoverable after more than 12 months
Recoverable within 12 months
Deferred tax liabilities
Recoverable after more than 12 months
Recoverable within 12 months
Deferred tax assets
Deferred tax liabilities (net)
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
124
—
706
150
2,161
646
124
856
2,807
(1,427)
(3,312)
(2,248)
(824)
(20,545)
(3,566)
(4,739)
(3,072)
(24,111)
(124)
(856)
(2,807)
(4,615)
(2,216)
(21,304)
Deferred tax assets are recognised for the tax losses carried forward to the extent that the
realisation of the related tax benefit through future taxable profits is probable.
24.
Trade and other payables
Trade payables
E-money float
Other payables
Accruals
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
1,676
339,727
1,793
12,337
3,926
427,925
1,758
20,055
166,582
514,312
15,188
19,023
355,533
453,664
715,105
Trade payables and accruals principally comprise amounts outstanding for trade purchases and
ongoing costs as well as liabilities to webshops (merchants). The Group has financial risk
management policies in place to ensure that all payables are paid within the pre-agreed credit
terms.
The Skrill e-money float represents monies that have been deposited by both end customers and
merchants whereas the paysafecard e-money relates to unused balances held on the cards. The
e-money balance acquired with paysafecard amounted to US$48 (note 28).
The directors consider that the carrying amount of trade payables approximates to their fair value.
269
25. Share capital
During 2013, 7,401 ‘C I’ shares were issued to employees and their holding vehicles. These shares
were issued based on certain conditions being met.
During 2013, 1,189 ‘C II’ shares were issued to employees and their holding vehicles as
consideration for the Payolution acquisition.
At 31 December 2013, the authorised shares were:
Authorised
Number
Class
15,500
329,732
2,000
55,279
2,221
37,723
23,579,506
7,938
A Ordinary
B I Ordinary
B II Ordinary
C I Ordinary
C II Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
Nominal
value
31 December
2013
US$000
US$0.01
US$0.01
US$0.01
US$0.01
US$0.01
US$10.00
US$0.01
US$10.00
—
4
—
1
—
501
313
105
925
At 31 December 2013, the allotted, issued and fully paid share capital was:
Allotted, issued and fully paid
Number
Class
15,500
328,350
2,000
47,664
2,221
35,929
23,579,506
7,938
A Ordinary
B I Ordinary
BII Ordinary
C I Ordinary
C II Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
Nominal
value
31 December
2013
US$000
US$0.01
US$0.01
US$0.01
US$0.01
US$0.01
US$10.00
US$0.01
US$10.00
—
4
—
1
—
489
313
105
892
On 25 September 2012, the authorised share capital was increased from US$696 by the creation
of 3,257 new B Ordinary shares of US$0.01 each and 15,000 new C Ordinary Shares of US$0.01
each
270
At 31 December 2012, the authorised shares were:
Authorised
Number
Class
15,500
328,350
3,382
56,468
1,032
37,723
23,579,506
7,938
A Ordinary
B I Ordinary
B II Ordinary
C I Ordinary
C II Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
Nominal
value
31 December
2012
US$000
US$0.01
US$0.01
US$0.01
US$0.01
US$0.01
US$10.00
US$0.01
US$10.00
—
4
—
1
—
485
303
105
895
On 31 December 2012, the allotted, issued, and fully paid share capital was:
Allotted, issued and fully paid
Number
Class
15,500
328,350
40,263
1,032
35,929
23,579,506
7,938
A Ordinary
B I Ordinary
C I Ordinary
C II Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
Nominal
value
31 December
2012
US$000
US$0.01
US$0.01
US$0.01
US$0.01
US$10.00
US$0.01
US$10.00
—
4
1
—
469
313
105
892
At 31 December 2011, the authorised shares were:
Authorised
Number
Class
15,500
328,350
3,382
56,468
1,032
37,723
23,579,506
7,938
A Ordinary
B I Ordinary
B II Ordinary
C I Ordinary
C II Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
Nominal
value
31 December
2011
US$000
US$0.01
US$0.01
US$0.01
US$0.01
US$0.01
US$10.00
US$0.01
US$10.00
—
5
—
1
—
526
329
111
972
271
On 31 December 2011, the allotted, issued, and fully paid share capital was:
Allotted, issued and fully paid
Number
Class
15,500
328,350
40,263
1,032
35,929
23,579,506
7,938
A Ordinary
B I Ordinary
C I Ordinary
C II Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
Nominal
value
31 December
2011
US$000
US$0.01
US$0.01
US$0.01
US$0.01
US$10.00
US$0.01
US$10.00
—
4
1
—
322
226
1
554
As at 31 December 2013, the Company had the following shares held as treasury shares following
repurchase of its own shares, including the buy-backs. These shares may be cancelled and reissued at a later date.
31 December
Nominal
2013
Number
Class
value
US$000
1,674
11,282
7,400,000
7,938
A Ordinary
A Specified Capital Ordinary
B Specified Capital Ordinary
Priority Specified Capital Ordinary
US$0.01
US$10.00
US$0.01
US$10.00
—
150
98
105
353
Each of the Priority Specified Capital Ordinary Shares, the A Specified Capital Ordinary Shares,
the B Specified Capital Ordinary Shares, the A Ordinary Shares, the B Ordinary Shares and the C
Ordinary Shares constitute separate classes of Shares. The A Specified Capital Ordinary Shares
and the B Specified Capital Ordinary Shares shall rank equally for all purposes unless otherwise
stated in these Articles. The A Ordinary Shares, B Ordinary Shares and C Ordinary Shares shall
rank equally for all purposes unless otherwise stated in these Articles.
As regards the B Ordinary Shares:
a)
the Board shall in its absolute discretion designate any B Ordinary Share proposed to be
issued by the Company as either a Category I B Ordinary Share or a Category II B Ordinary
Share at the time of issue of any such share and shall notify the subscriber of any such
share in writing accordingly (a ‘‘Designation Notice’’);
(b)
in the event that no such Designation Notice is issued by the Board within 30 days from the
date of issue of any B Ordinary Shares, then the relevant B Ordinary Shares shall be
designated Category II B Ordinary Shares:
(c)
once issued and designated by the Board as Category I B Ordinary Shares or Category II B
Ordinary Shares as the case may be the designation of such shares shall not be changed,
save that the Company may with the prior approval of a special resolution of the Company
duly passed re-designate any B Ordinary Share: and
(d)
the B Ordinary Shares shall have the rights and be subject to the restrictions set out in these
Articles, shall constitute a single class of shares and shall rank equally for all purposes save
as expressly stated in these Articles.
As regards the C Ordinary Shares:
(b) the Board shall in its absolute discretion designate any C Ordinary Share proposed to be
issued by the Company as either a Category I C Ordinary Share or a Category II C Ordinary
Share at the time of issue of any such share and shall notify the subscriber of any such
share in writing accordingly (a ‘‘Designation Notice’’);
272
(b)
in the event that no such Designation Notice is issued by the Board within 30 days from the
date of issue of any C Ordinary Shares, then the relevant C Ordinary Shares shall be
designated Category I C Ordinary Shares;
(c)
any C ordinary shares of US$0.01 each in the capital of the Company in issue on or prior to
the First Amendment Date shall be designated as Category I C Ordinary Shares;
(d)
once issued and designated by the Board as Category I C Ordinary Shares or Category II C
Ordinary Shares as the case may be the designation of such shares shall not be changed,
save that:
(e)
(i)
either the Board or the board of directors of MB Employee Nominees Limited (registered
in England & Wales, company number 06410116) (‘‘MBENL’’) may by resolution passed
at any time re-designate any C Ordinary Share registered in the name of MBENL and
not held by MBENL as nominee, trustee or agent for any Employee pursuant to any
Employee Share Scheme; and
(ii)
the Company may with the prior approval of a special resolution of the Company duly
passed re-designate any C Ordinary Share, in each case either as a Category I C
Ordinary Share or a Category II C Ordinary Share as the case may be; and
save as expressly stated in these Articles, the C Ordinary Shares shall have the rights and
be subject to the restrictions set out in these Articles, shall constitute a single class of shares
and shall rank equally for all purposes.
Each Category I B Ordinary Share shall entitle its holder to receive notice of, attend and vote at
any general meeting of the Company. Each A Ordinary Share and each Category II B Ordinary
Share shall entitle its holder to receive notice of and attend any general meeting of the Company
but shall not entitle the holder to vote upon any resolution other than:
(a)
a resolution for winding up the Company or reducing its share capital; or
(b)
a resolution directly or adversely varying or abrogating any of the special rights attached to
the A Ordinary Shares or the Category II B Ordinary Shares, as the case may be.
The Specified Capital Ordinary Shares and the C Ordinary Shares shall not be entitled to receive
notice of or attend or vote at any general meeting of the Company.
Subject to Article 1.1, votes attaching to Category I B Ordinary Shares may be exercised:
(c)
on a show of hands by every Shareholder who, being an individual, is present in person or,
being a corporation, is present by a representative or a Proxy not being himself a
Shareholder, in which case each Shareholder holding Shares with votes shall have one vote;
and
(d)
on a poll by every Shareholder who, being an individual, is present in person or by proxy or,
being a corporation, is present by a representative or by a proxy, in which case each
Shareholder holding Shares with votes shall have one vote for each Share held.
26. Share-based payment transactions
Equity-settled share-based payments – Executive Share Ownership Plan
In 2013, Skrill Group Limited had in issue the following number of ‘C I’ and ‘C II’ Ordinary shares
of US$0.01 at par. The ‘C I’ shares were held by MB Employee Nominees Limited, a related
subsidiary company and ‘C II’ shares were issued to employees and their holding vehicles as
consideration for an acquisition that was completed. The shares are held in trust for a number of
employees of the Skrill Group, under an Executive Share Ownership Plan.
The employees paid for these shares directly and beneficially own the shares and they are held in
trust by the subsidiary until the occurrence of an exit event. The proceeds then would be
transferred to each employee as appropriate. An employee is required to return the ‘C’ shares for
the consideration paid, if they become a leaver before a defined exit event. These shares had no
intrinsic value at the date of grant.
273
27.
Notes to the cash flow statement
Year ended 31 December
2011
US$’000
2012
US$’000
2013
US$’000
Operating profit
30,603
29,280
44,047
Adjustments for:
Changes in the fair value of trading investments
Depreciation and amortisation (note 15 and 16)
Impairment of investment (note 18)
(1,482)
8,735
785
Operating cash flows before movements in
working capital
38,642
39,050
63,569
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase in trade and other payables
80
(9,849)
88,312
(26)
(11,131)
86,606
145
(24,812)
40,918
114,498
79,819
(58)
8,675
1,152
—
19,522
—
Cash generated by operations
117,185
Taxation
Interest paid
Interest received
(12,225)
(211)
369
Net cash generated from operating activities
105,119
102,454
66,184
31December
2011
US$’000
31December
2012
US$’000
31December
2013
US$’000
388,900
514,508
647,031
(6,356)
(6,113)
424
(7,516)
(7,297)
1,177
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalents comprise cash. The carrying amount of these assets is approximately
equal to their fair value.
In accordance with an agreement with a specific provider certain cash is restricted and is based
upon the highest of 4 days authorised or settlement liability in any period. Such sums are
calculated by the provider. At 31 December 2013 the cash balances include an amount of
US$3,656 relating to restricted cash (2012: US$9,144; 2011: US$4,342).
Skrill Limited and Prepaid Services Company Limited, FCA regulated entities, are required at all
times to have qualifying liquid assets (comprising cash and cash equivalents and investments) in
excess of the e-money float (see note 31).
274
28. Business combinations
On 8 February 2013, the Group acquired 100% of the issued share capital of paysafecard.com
Wertkarten AG (‘‘paysafecard’’), the Austrian prepaid payments business.
paysafecard’s prepaid products allow end users to transact online at more than 4,000 online stores
without using a credit card or bank account. paysafecard’s products can be purchased at over
470,000 sales outlets in 37 countries across Europe, North America and South America.
The following table summarises the consideration paid for paysafecard, the fair value of assets
acquired and liabilities assumed at the acquisition date.
US$’000
Cash
Contingent consideration
Deferred consideration
107,952
69,494
7,152
Total Consideration
184,598
Recognised amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents
Trade and other receivables
Inventory
Fixed assets (note 16)
Deferred tax assets (note 23)
Trade and other payables
E-money float
Income tax liabilities
Financial liabilities
Total identifiable net assets
135,217
69,008
1,702
2,648
1,909
(145,380)
(47,627)
(1,837)
(3,479)
12,161
Identified Intangible Assets (note 15)
Deferred tax liability on Identified Intangible Assets at 25% (note 23)
Goodwill as at 31 December 2013 (note 14)
93,624
(20,672)
99,485
Acquisition-related costs of US$932 (2012: US$3,025 have been charged to administrative
expenses in the consolidated income statement for the year ended 31 December 2013.
Contingent consideration in the amount of US$70,895 is outstanding at the end of the year and is
classified as current provision: US$36,506 and non-current provision: US$34,389).
Deferred consideration is presented within ‘‘other payables’’ in note 24 Trade and other payables.
Contingent and Deferred considerations were repaid in February 2014, ahead of the originally
agreed timeline, as a result of the transfer of the ownership of the Group (note 35).
The revenue included in the consolidated statement of comprehensive income contributed by
paysafecard was US$146,052. Paysafecard also contributed profit after tax of US$20,802 over the
same period.
Had paysafecard been consolidated from 1 January 2013, the consolidated statement of income
would show pro-forma revenue of US$298,869 and profit after tax of US$27,816.
275
29. Operating lease
a) Operating lease expenses during the year
Minimum lease payments under operating leases
recognised as an expense in the year
2011
US$’000
2012
US$’000
2013
US$’000
1,470
1,517
2,586
1,470
1,517
2,586
b) Operating lease commitments – the Group as lessee
At the balance sheet date, the Group had outstanding commitments for future minimum lease
payments under non-cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
2011
US$’000
2012
US$’000
2013
US$’000
1,326
1,651
836
2,615
1,559
4,489
2,977
3,451
6,048
Operating lease payments represent rentals payable by the Group for certain of its office
properties. Leases are negotiated for an average term of 10 years and rentals are fixed for an
average of 5 years with an option to extend for a further 5 years at the then prevailing market
rate.
30. Financial instruments
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk,
fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The
Group’s overall risk management programme focuses on the unpredictability of financial markets
and seeks to minimise potential adverse effects on the Group’s financial performance.
Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency
exchange rates and interest rates (see below).
The Group operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the US dollar and the British Pound. Foreign
exchange risk arises from future commercial transactions, recognised assets and liabilities and net
investments in foreign operations. Foreign exchange risk arises when future commercial
transactions or recognised assets or liabilities are denominated in a currency that is not the entity’s
functional currency.
276
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary
liabilities at the reporting dates are as follows:
Foreign currency risk management
Liabilities
United Kingdom (GBP)
USA/(USD)
Other
2011
US$’000
2012
US$’000
2013
US$’000
32,695
108,595
30,477
27,108
130,137
46,868
45,089
153,806
81,492
Assets
United Kingdom (GBP)
USA/(USD)
Other
2011
US$’000
2012
US$’000
2013
US$’000
33,717
102,721
55,616
40,704
140,470
37,017
46,201
164,047
57,439
Foreign currency sensitivity
The Group is mainly exposed to the currency of the United Kingdom (GBP) and the currency of
the United States of America (USD).
Interest rate risk management
The Group has policies and procedures that set out the specific guidelines that must be followed to
manage the interest rate risk. The Group manages any exposure to interest rate fluctuations by
predominantly investing funds in financial instruments with short-term maturities in line with
applicable FCA rules and regulations.
The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in
the liquidity risk management section of this note.
Based on the various scenarios, the Group manages its cash flow interest rate risk by using
floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of
converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term
borrowings at floating rates and swaps them into fixed rates that are lower than those available if
the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with
other parties to exchange, at specified intervals (quarterly), the difference between fixed contract
rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.
These swaps are designated to hedge underlying debt obligations. The Group hedges 67% of its
borrowings (2012: 67%).
Credit risk
Credit risk refers to the risk that a counter party will default on its contractual obligations resulting
in financial loss to the Group. The Group has adopted a policy of only dealing with counterparties
rated by external independent agencies as creditworthy and obtaining sufficient collateral where
appropriate, as a means of mitigating the risk of financial loss from defaults. This information is
supplied by independent rating agencies where available, and if not available, the Group uses
other publicly available financial information and its own trading records to rate its major customers.
The Group’s exposure and the credit ratings of its counterparties are continuously monitored.
Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk
management committee annually.
277
Trade receivables consist of a large number of customers, spread across diverse industries and
geographical areas. Ongoing credit evaluation is performed on the financial condition of accounts
receivable and, where appropriate, credit guarantee insurance cover is purchased.
The Group does not have any significant credit risk exposure to any single customer or any Group
of customers having similar characteristics. The Group considers customers as having similar
characteristics if they are related entities.
The credit risk on liquid funds is limited because the counterparties are banks with high creditratings assigned by international credit-rating agencies as shown below.
Accounts are opened in order to accommodate merchants and end users in countries where a
local bank is required to facilitate deposits and/or withdrawals. In order to mitigate the risk of
default, the balances are continuously monitored by the treasury functions and reviewed on a
continuous basis by the risk management committee.
The carrying amount of financial assets recorded in the financial information, which is net of
impairment losses, represents the Group’s maximum exposure to credit risk as no collateral or
other credit enhancements are held.
Liquidity risk management
Liquidity risk refers to the risk that an entity will not have sufficient funds available at any given
time to meet its obligations on time. As part of established management mechanisms, rolling
financial planning is monitored at management level.
paysafecard.com Wertkarten AG is obliged to provide for permanent coverage of the balances kept
with the partner banks. These balances include incoming payments from distribution partners and
outgoing payments to merchants. A permanent liquidity is guaranteed by a deliberate system of
setting payment dates and paysafecard.com Wertkarten AG normally does not have to advance
funds for the purpose of securing liquidity.
A liquidity risk results from potential late payments by distribution partners. To minimise the liquidity
risk, incoming payments are checked daily and in case of delayed payments adequate measures
(reminder, delivery stop etc.) are taken immediately.
The Group has significant net cash balances as at the balance sheet date. Liquidity risk is
monitored on a daily basis and is kept within the FCA requirements for e-money issuers.
Management closely monitors the cash position of the Group on a continuous basis to ensure
sufficient liquidity exists for business needs. The Group has positive cash flows from operating
activities, and the cash balances are adequate to finance the ongoing working capital and capital
investment requirements of the Group’s operations. The Group balances the flexible use of funding
by way of loans to / from Group companies.
278
The following tables detail the Group’s remaining contractual maturity for its non-derivative financial
liabilities with agreed repayment periods. The tables have been drawn up based on the contractual
undiscounted cash flows of financial liabilities based on the earliest date on which the Group can
be required to pay.
31 December 2013
Trade payables (note 24)
E-money float (note 24)
Other payables (note 24)
Derivatives (note 21)
Bank Borrowings (note 22)
Finance lease (note 22)
31 December 2012
Trade payables (note 24)
E-money float (note 24)
Other payables (note 24)
Derivatives (note 21)
Borrowings (note 22)
31 December 2011
Trade payables (note 24)
E-money float (note 24)
Other payables (note 24)
Derivatives (note 21)
Borrowings (note 22)
Less than
1 year
US$’000
Between
1 and
2 years
US$’000
Between
2 and
5 years
US$’000
Over
5 years
US$’000
Total
US$’000
166,582
514,312
34,211
701
11,452
279
—
—
—
65
11,451
285
—
—
—
—
127,769
341
—
—
—
—
—
—
166,582
514,312
34,211
765
150,672
906
727,537
11,800
128,111
—
867,448
3,926
427,925
21,813
768
6,343
—
—
—
755
6,343
—
—
—
—
14,272
—
—
—
—
74,057
3,926
427,925
21,813
1,522
101,015
460,775
7,098
14,272
74,057
556,202
1,676
339,727
14,130
—
4,662
—
—
—
—
6,216
—
—
—
—
35,739
—
—
—
—
56,976
1,676
339,727
14,130
—
103,592
360,195
6,216
35,739
56,976
459,125
Maturity of financial assets
The Group’s financial assets consist of loans and receivables (cash and cash equivalents and
trade and other receivables) which have a maturity of less than 3 months and assets held at fair
value through profit and loss. At 31 December 2013, there are no investments that have a maturity
date within 3 months (2012: Nil).
Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a
going concern while maximising the return to stakeholders through the optimisation of the debt and
equity balance.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in note
22 and equity attributable to equity holders of Skrill Group Limited, comprising issued capital,
reserves and retained earnings.
Fair value of financial instruments
Fair value of financial instrument carried at amortised cost
The Directors consider that the carrying amounts of financial assets and financial liabilities recorded
at amortised cost in the financial information approximate their fair values. All fair value
measurements are those derived from quoted prices (unadjusted) in active markets for identical
assets or liabilities.
279
Valuation techniques and assumptions applied for the purposes of measuring fair value
The fair values of financial assets and financial liabilities are determined with standard terms and
conditions, are traded on active liquid markets and are determined with reference to quoted market
prices (includes listed bonds).
The following table presents the Group’s assets and liabilities that are measured at fair value at
31 December 2013, 2012 and 2011.
Financial instruments by category
2011
US$’000
2012
US$’000
2013
US$’000
Assets as per balance sheet
Available for sale investment (note 18)
Convertible bonds (note 18)
Loans and receivables
– Trade and other receivables (note 20)
– Cash and cash equivalents (note 27)
1,160
—
1,352
—
881
138
25,460
388,900
27,922
514,508
126,731
647,031
TOTAL FINANCIAL ASSETS
415,620
543,781
774,781
Liabilities as per balance sheet
Financial liabilities at amortised cost
Trade and other payables (note 24)
Bank borrowings (note 22)
Finance lease liabilities(note 22)
Derivative financial instruments
Cash flow hedge (note 21)
355,533
98,653
—
453,664
97,395
—
715,105
143,458
906
—
1,522
765
TOTAL FINANCIAL LIABILITIES
454,186
552,581
860,235
The available for sales investment and the convertible bonds are classified as financial assets at
Level 1 (quoted prices in active markets for identical assets or liabilities). The Derivative financial
instrument is classified at Level 2 (inputs other than quoted prices).
31. FCA regulatory capital requirements
The Group has three entities that are registered with the FCA, Skrill Limited, Skrill International
Payments Limited and Prepaid Services Company Limited.
Skrill Limited:
A minimum amount of capital, of Skrill Limited, is required by the FCA. The FCA’s regulatory
requirement is, at any time, for Skrill Limited to have initial capital in excess of US$482,000
(EUR 350,000) and hold regulatory own funds which are 2% of the average daily outstanding emoney amount at the end of each calendar day over the preceding 6 month period.
The FCA regulatory capital requirements and Skrill Limited’s regulatory own funds at the year ends
are as follows:
2011
US$’000
2012
US$’000
2013
US$’000
FCA regulatory capital requirements
—
7,770
8,593
Regulatory own funds
—
115,327
159,933
Skrill Limited, an FCA regulated entity, is required at all times to have qualifying liquid assets in
excess of the e-money float. The balances are as per the table below. Qualifying liquid assets of
Skrill Limited are made up of cash and cash equivalent. Skrill Limited was in compliance with the
requirement for the years ended 31 December 2013 and 31 December 2012.
280
Skrill Limited
2011
US$’000
2012
US$’000
2013
US$’000
Qualifying liquid assets
—
439,193
457,293
E-money float
—
421,821
444,339
Skrill International Payments Limited (formerly Next Generation Payments Limited)
During 2011, Next Generation Payments Limited was registered as an Authorised Payment
Institution in the UK and is regulated by the FCA under the Payment Services Regulations 2009
(‘‘PSRs’’). No revenues were earned through the provision of this service during 2013, 2012 and
2011.
Skrill International Payments Limited
2011
US$’000
2012
US$’000
2013
US$’000
FCA regulatory initial capital requirements
—
66
69
Regulatory own funds
—
652
1,021
Prepaid Services Company Limited
Prepaid Services Company Limited (‘‘PSC Limited’’) is required by The Electronic Money
Regulations 2011 (‘‘EMRs’’) and by the implementing rules specified by the Financial Conduct
Authority (‘‘FCA’’) to maintain a specified minimum amount of own funds (capital). The FCA
requires that, as an authorised electronic money institution (‘‘AEMI’’), PSC Limited must hold, at all
times, capital equal to or in excess of either US$350,000 or 2% of the average daily outstanding emoney amount at the end of each calendar day over the preceding 6-month period, whichever is
higher. Furthermore, PSC Limited is engaged in unrelated payment services, and thus is subject to
an additional ongoing capital requirement with respect to this part of its business. PSC Limited
calculates the additional capital requirement for unrelated payment services by applying the fixed
overheads method (Method A): that is, 10% of fixed overheads for the preceding year.
The total regulatory capital requirement for PSC Limited and the actual total of qualifying capital
resources held by PSC Limited at year end are as follows:
2013
US$’000
Total regulatory capital requirement
1,108
Total of qualifying capital resources
2,205
281
As an AEMI, PSC Limited is required at all times to appropriately safeguard funds equal to the
total of outstanding e-money issued by PSC Limited, in the form of qualifying assets of types
approved by the FCA as secure, low-risk and liquid. (Safeguarded funds held in the form of
qualifying assets may, of course, exceed the total of outstanding e-money.) The balances are as
per the table below. Safeguarded qualifying assets of PSC Limited are made up of cash and cash
equivalents. PSC Limited was in compliance with safeguarding and own funds requirements for the
years ended 31 December 2013, 31 December 2012 and 31 December 2011.
2013
US$’000
Safeguarded qualifying assets
120,759
Outstanding e-money
43,271
32. Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties,
have been eliminated on consolidation and are not disclosed in this note.
Remuneration of key management personnel
The remuneration of key management personnel of the Group is set out below. Key management
personnel is defined as those persons having authority and responsibility for planning, directing and
controlling the activities of the entity, directly or indirectly, being any member of the executive
management team, including directors as discussed in note 9.
Short-term employee benefits
Termination benefits
Post-employment benefits
2011
US$’000
2012
US$’000
2012
US$’000
2,080
—
11
1,678
—
32
2,863
161
94
Full disclosure of the remuneration and other incentive arrangement of the directors are provided in
note 9.
33. Contingent liabilities
Up to the repayment of the loan in February 2014 (note 35), the Company was a participant in a
Group banking arrangement for bank facilities advanced to Group companies. The Company was a
guarantor in respect of bank borrowings by a subsidiary company, MB Acquisitions Limited.
On 7 December 2011, Skrill Limited
with Lloyds TSB bank to provide a
letters of credit opened by the bank
credit that may be outstanding at any
(formerly Moneybookers Limited) entered into an agreement
documentary credit facility of $5,000 to cover documentary
on behalf of the company. The total value of the letters of
one time may not exceed the limit of US$5,000.
This facility was drawn down by Skrill USA, Inc (formerly Moneybookers USA, Inc). As at
31 December 2013 and 31 December 2012, letters of credit to the value of US$2,515 and
US$4,708 were already issued. Standby letters of credit were also issued to Skrill Limited to the
value of US$4,130. The letters of credit issued to the Skrill USA, Inc and Skrill Limited remain in
place until their expiry during 2014.
34. Ultimate controlling party
As at 31 December 2013 the ultimate holding company is MB Holdings II, a company registered in
The Cayman Islands. The directors regard Investcorp Technology Ventures II LP, a company
registered in The Cayman Islands as the ultimate controlling party. Following the events disclosed
in note 35 the ultimate holding company and controlling party is CVC Capital Partners SICAV-FIS
S.A., a company registered in Luxembourg.
282
35. Subsequent events
On 12 February 2014, CVC Capital Partners completed the acquisition of a controlling stake in
Skrill Group Limited pursuant to a share purchase agreement dated 16 August 2013.
On the same date, in relation to the ownership transfer, Senior Facilities Agreement with Lloyds
TSB Plc, NIBC Financing N.V and The Royal Bank of Scotland Plc has been fully repaid.
A Senior Finance Agreement was signed dated 16 August 2013 and amended and restated by an
amendment and restatement agreement dated 29 January 2014 between Sentinel Midco Limited,
Sentinel Bidco Limited, Credit Suisse AG, London Branch, Jefferies Finance LLC and The Royal
Bank of Scotland Plc. Sentinel Bidco is the holding company of Skrill Group Limited, itself a
subsidiary of Sentinel Midco Limited.
As part of the Senior Finance Agreement a facility B loan of EUR 275 million and a revolving
facility loan of EUR 30 million was agreed. The EUR 275 million loan was drawn down in February
2014 and was used to pay the existing loan facility (note 22). The rate of interest on each Loan for
each Interest Period is the percentage rate per annum which is the aggregate of the applicable:
(a)
Margin; and
(b)
EURIBOR or LIBOR as the case may be.
On 15 April 2014, the Company acceded to the Facilities Agreement dated 29 January 2014, as
an additional guarantor and an additional borrower and to be bound by the terms of the Facilities
agreement.
283
PART C: UNAUDITED FINANCIAL INFORMATION OF THE SKRILL OPERATING GROUP FOR
THE NINE MONTH PERIOD ENDED 30 SEPTEMBER 2014
Consolidated Income Statement
9 month period ended
30 September
Note
Revenue
Cost of sales
5
6
Gross profit
Sales and marketing expenses
Administrative expenses
2013
US$’000
2014
US$’000
203,797
(82,489)
248,911
(100,573)
121,308
148,338
(22,517)
(62,867)
(35,595)
(75,165)
Operating profit
Finance income
Finance costs
11
12
35,924
14
(7,256)
36,578
115
(20,774)
Profit before income tax
Income tax expense
13
28,682
(5,730)
15,919
(1,577)
Profit for the year
22,952
14,342
Profit attributable to:
Owners of the parent
Non-controlling interests
22,952
—
14,342
—
22,952
14,342
The notes form an integral part of the consolidated financial information
284
Consolidated statement of comprehensive income
9 month period ended
30 September
Note
Profit for the year
Other comprehensive income:
Items that may be subsequently reclassified to
profit or loss
Change in value of available-for-sale financial assets
Exchange differences on translation of foreign
operations
Cash flow hedge
18
2013
US$’000
2014
US$’000
22,952
14,342
(426)
85
(132)
688
350
754
Other comprehensive income for the year
130
1,189
Total comprehensive income for the year
23,082
15,531
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
23,082
—
15,531
—
Total comprehensive income for the year
23,082
15,531
The notes form an integral part of the consolidated financial information
285
Consolidated Balance Sheet
As at 30 September
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments
Deferred income tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Note
2013
US$’000
2014
US$’000
14
15
16
18
23
184,222
35,211
8,001
1,064
3,027
208,000
110,249
8,220
1,068
2,830
231,525
330,367
1,457
107,036
597,413
1,038
157,291
634,788
705,907
793,117
937,432
1,123,484
19
20
27
Total assets
Equity and liabilities
Non-current liabilities
Borrowings
Provisions
Derivative financial instruments
Deferred income tax liabilities
22
21
23
Current liabilities
Trade and other payables
Current income tax liabilities
Provisions
Borrowings
Derivative financial instruments
24
22
21
Total liabilities
Equity attributable to owners of the parent
Share capital
Share premium
Share reserve
Merger reserve
Other reserves
Hedge reserve
Translation reserve
Retained earnings
25
21
130,798
237
73
4,612
177,142
(561)
—
21,862
135,721
198,443
631,125
10,047
1,979
12,886
778
732,461
10,303
1,745
257
—
656,816
744,766
792,536
943,209
914
—
1,065
98,653
(1,030)
(793)
(9,061)
55,148
892
2,199
1,065
96,494
(816)
64
7,732
72,646
Total equity
144,896
180,275
Total equity and liabilities
937,432
1,123,484
The notes form an integral part of the consolidated financial information
286
287
—
Total contributions by and distributions to owners of the parent, recognised directly in
equity
The notes form an integral part of the consolidated financial information
892
—
—
—
Issue of shares
Share options – value of employee services
Foreign exchange gain / (loss)
Balance as at 30 September 2014
—
892
—
—
Balance as at 1 January 2014
Profit for the period
Other comprehensive income for the year
Total comprehensive income
914
Balance as at 30 September 2013
22
Total contributions by and distributions to owners of the parent, recognised directly in
equity
2,199
—
—
—
—
—
2,199
—
—
—
—
—
—
—
—
—
—
—
22
—
—
—
—
Total comprehensive income
—
—
—
Share
premium
US$’000
892
—
—
Share
capital
US$’000
Issue of shares
Share options – value of employee services
Payment of dividend to Ex-PSC owners
Amendment to retained earnings posting
Foreign exchange gain / (loss)
Balance as at 1 January 2013
Profit for the period
Other comprehensive income for the year
Consolidated Statement of Changes in Equity
1,065
—
—
—
—
—
1,065
—
—
1,065
1
—
—
—
—
1
—
1,064
—
—
Share
reserve
US$’000
96,494
(1)
—
—
(1)
—
96,495
—
—
98,653
2,158
2,158
—
—
—
—
—
96,495
—
—
Merger
reserve
US$’000
(816)
(12)
—
—
(12)
434
(1,238)
—
434
(1,030)
78
—
—
—
82
(4)
(558)
(550)
—
(558)
Other
reserves
US$’000
64
(1)
—
—
(1)
754
(690)
—
754
(793)
—
—
—
—
—
—
688
688
(1,481)
Hedge
reserve
US$’000
72,646
—
—
—
—
14,342
58,304
14,342
—
55,148
—
—
—
(8,032)
186
7,846
22,952
32,197
22,952
—
Retained
earnings
US$’000
7,732
10,837
—
—
10,837
—
(3,105)
—
—
(9,061)
(9,096)
—
—
—
—
(9,906)
—
845
—
—
Translation
reserve
US$’000
180,275
10,823
—
—
10,823
15,531
153,921
14,342
1,189
144,896
(7,648)
2,180
—
(8,032)
268
(2,064)
23,082
129,461
22,952
130
Total
equity
US$’000
Consolidated Statement of Cash Flows
9 month period ended
30 September
Note
2013
US$’000
2014
US$’000
35,924
36,577
—
9,770
777
(5,995)
380
—
—
17,624
1,189
(4,856)
576
—
40,857
51,110
237
1,442
(16,532)
(5,057)
492
(32,822)
(43,213)
55,464
Cash generated by operations
20,947
31,031
Taxation
Interest paid
Interest received
(6,292)
(5,324)
6,634
(5,481)
(1,183)
4,204
Operating profit
Adjustments for:
Changes in the fair value of trading investments
Depreciation and amortisation
Movement in the bad debt allowance
Deposit income
General revaluation
Impairment of investment
Operating cash flows before movements in
working capital
Decrease/(increase) in inventories
Increase in trade and other receivables
Increase in trade and other payables
Increase/(decrease) in E-money
Net cash generated from operating activities *
27
15,965
28,570
Acquisition of subsidiary, net of cash
Purchases of property, plant and equipment
Purchase of intangible assets
Purchase of investments
Finance lease payments
28
26,606
(2,681)
(7,486)
(132)
—
—
(2,631)
(10,699)
—
(206)
16,308
(13,356)
55,325
—
—
(10,669)
2,181
—
—
—
—
177,039
(148,353)
—
—
(880)
46,837
27,806
79,109
42,841
514,508
3,796
647,031
(55,084)
597,413
634,788
18
Net cash generated from investing activities
Proceeds from borrowings
Transaction costs on bank loan
Proceeds from investors
Repayments of borrowings
Proceeds from issue of shares
Payment of dividends
Payment of finance derivatives
Net cash generated /(used in) from financing
activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the
period
Net foreign exchange difference
Cash and cash equivalents at the end of the period
27
The notes form an integral part of this consolidated financial information.
*
The e-money float balance acquired with paysafecard was US$35m.
288
Reconciliation of total cash and cash equivalents to own cash and investments provided below:
Period ended
30 September
Cash and cash equivalents at the end of the year
Less: e-money float (note 24)
Less: amounts owed to merchants / web shops
Own cash and investments
The notes form an integral part of the consolidated financial information
289
2013
US$’000
2014
US$’000
597,413
(479,997)
(54,384)
634,788
(529,388)
(61,849)
63,032
43,551
Notes to the Consolidated Financial Information
1.
General information
Skrill Group Limited (‘‘the Company’’) is a company incorporated and domiciled in Jersey, Channel
Islands. The address of the registered office is Queensway House, Hilgrove Street, St. Helier,
Jersey, JE1 1ES, Channel Islands.
The nature of the operations of Skrill Group Limited and its subsidiaries (together ‘‘the Group’’) are
electronic money transfer services, software development and online prepaid solutions.
2.
Significant accounting policies
The principal accounting policies applied in the preparation of the consolidated financial information
are set out below. These policies have been consistently applied to all the periods presented,
unless otherwise stated.
Basis of preparation
The consolidated financial information has been prepa