TIDMGMR

RNS Number : 0842C

Gaming Realms PLC

27 September 2018

Gaming Realms plc

(the "Company" or the "Group")

Interim results for the six months ended 30 June 2018

Positive Adjusted EBITDA for H1 2018 of GBP0.4m, up GBP1.5m from H1 2017 loss of GBP1.1m

Gaming Realms plc (GMR.L), the developer, publisher and licensor of mobile real money and social games, today announces its interim results for the six months to 30 June 2018.

Financial highlights:

 
  Like-for-like ongoing business*     H1 2018   H1 2017    Movement 
                                         GBPm      GBPm           % 
  Revenue - Real Money & Licensing        4.8       3.7         28% 
  Revenue - Social                        2.1       4.0       (48%) 
                                     --------  --------  ---------- 
  Total                                   6.8       7.7       (11%) 
 
  Marketing spend - Real Money 
   & Licensing                            1.9       2.7       (31%) 
  Marketing spend - Social                0.2       1.6       (88%) 
                                     --------  --------  ---------- 
  Total                                   2.1       4.4       (53%) 
-----------------------------------  --------  --------  ---------- 
 

* excludes UK B2C brands sold post-period end

 
  UK B2C brands sold post period    H1 2018   H1 2017    Movement 
   end 
                                       GBPm      GBPm           % 
  Revenue - Real Money                  4.1       7.2       (43%) 
  Marketing spend - Real Money          0.7       2.0       (65%) 
---------------------------------  --------  --------  ---------- 
 

-- Real Money revenue excluding UK B2C brands sold to River UK Casino post-period end increased by 18% to GBP4.1m (H1/17: GBP3.5m)

   --      Licensing revenue increased by 175% to GBP0.6m (H1/17: GBP0.2m) 

Social publishing revenue decreased by 48% to GBP2.1m (H1/17: GBP4.0m) with a reduction in marketing spend of 88% to GBP0.2m (H1/17: GBP1.7m)

 
  Group                                H1 2018   H1 2017    Movement 
                                          GBPm      GBPm           % 
  Total revenue excluding disposals 
   **                                     11.0      15.0       (27%) 
  Adjusted EBITDA before Share 
   Based Payments                          0.4     (1.1)         n/a 
------------------------------------  --------  --------  ---------- 
 

** excludes GBP0.2m in respect of affiliate business disposed May 2018 (H1/17 GBP0.7m)

-- Adjusted EBITDA before share-based payments increased by GBP1.5m to GBP0.4m (H1/17: loss of GBP1.1m)

   --      Decrease in Group revenue driven by Social 

-- Cash at bank at 30 June 2018 was GBP0.4m before the receipt of the GBP4.2m cash payment from River UK Casino for the sale of the UK B2C brands

-- Capitalised development costs were GBP1.5m in the period (H1/17: GBP1.7m) as there was further investment in content and platform development

Operational highlights:

-- 6 new contracts signed to license the Company's 'Slingo Originals' portfolio of games in New Jersey and Europe (H1 2017: 4 licenses signed)

   --      Launch of new 'white label' real money gambling sites for Health Lottery 
   --      Sale of Affiliate Business for GBP2.4m 

Post-period end trading:

-- Disposal of 70% of UK B2C brands to River UK Casino for up to GBP23.1m, with GBP4.2m received in August 2018. Of the remaining GBP18.9m, GBP4.2m will be received upon the completion of the June 2019 audit and up to GBP14.7m will be subject to the earn out for the same period

   --      Licensing revenue increased 88% in the 9 weeks post period end 

-- Real Money Gaming revenue, excluding UK B2C brands sold, increased 10% in the 9 weeks post period end

-- Successful launch, on time and on budget, of a new faster mobile optimized gambling platform

-- Launch of 'Slingo Originals' games on GVC and Rank, also on time and budget, which have both been very well received

Outlook for FY 2018:

Following the sale of the UK B2C brands the business will be focussed on executing the following growth strategy to create value for shareholders:

-- Expand existing market-leading 'Slingo Originals' library with additional internally developed content

-- Sign further licensing deals for proprietary 'Slingo Originals' content, which will deliver higher margin returns

-- Grow Partnership base in the Real Money B2B business. This will diversify customer concentration, provide a higher quality of income, increase revenues and allow the sharing of marketing spend. The business has a market leading proprietary platform for gaming products which needs to be built upon

   --      Maximise the earn out from the B2C sale to River UK Casino 

The Board expects the Company to continue to incur capital expenditure on game and platform development, of approximately GBP2.5m per annum. However, given the sale of the assets to River UK Casino, the Board believes that the Group will have sufficient cash resources to cover these costs until such time as the Group is cash generative after all capitalised costs.

Alongside building on this strategy, Gaming Realms will continue to evaluate strategic opportunities for our non-core activities such as the social publishing business.

Patrick Southon, Chief Executive, said:

"Our strategy moving forward is to leverage our real money gaming platform and our market leading 'Slingo Originals' games library into the UK and international gaming markets. We believe that licensing our platform and content to leading brands and gaming operators will deliver high margin revenues, and we have been very pleased with the results of our efforts over the first half of 2018. We look forward to delivering news about more developments on our strategy during the second half of the year."

For more information contact

 
 Gaming Realms plc 
  Patrick Southon, CEO 
  Mark Segal, CFO                    0845 123 3773 
 Peel Hunt LLP, Nomad and Broker 
  Dan Webster, George Sellar        020 7418 8900 
 Yellow Jersey                      020 7457 2020 
 Charles Goodwin                    07747 788 221 
 Georgia Colkin                     08725 916 715 
 
 

About Gaming Realms

Gaming Realms creates and publishes innovative real money and social games for mobile, with operations in the UK, U.S and Canada. Through its market-leading mobile platform and unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats. The Gaming Realms management team includes accomplished entrepreneurs and experienced executives from a wide range of leading gaming and media companies.

Business review

Overview

The Board is pleased to report that the Group has generated positive Adjusted EBITDA before Share Based Payments of GBP0.4m during the first half of the year (H1/17: GBP1.1m loss). This improvement was primarily due to the Group's cost synergy execution and focused marketing strategy in the period, which included a reduction in marketing spend of GBP3.6m to GBP2.8m (H1/17: GBP6.4m).

Gaming Realms has undergone a number of changes in recent months as part of the Group's strategy to focus on international licensing and content development. Whilst this transition is ongoing, the Board believes that Gaming Realms is now in a stronger position to capitalise on its skill set of creating entertaining, immersive gaming content which plays to a licensing-focused model, led by its popular Slingo gaming format.

Real money gaming

The Group's real money division has undergone significant change with the disposal of the affiliate marketing business and, since the period end, the sale of a 70% stake in most of its UK online casino B2C business to River UK Casino Limited. Excluding disposals to River UK Casino, real money revenues grew by 18% despite a significant reduction in marketing spend, illustrating the quality of our real money games portfolio and player loyalty. Whilst the Group now holds a minority stake, it will be working closely with River UK Casino to improve the platform, with revenue generated becoming a significant source of income for the Group's B2B platform.

Licensing

The Group has made significant progress with its licensing business with a number of high-profile agreements for Slingo Originals content signed in the period, which includes those with 888 Holdings, GVC, Sony Pictures Television and Golden Nugget Casino, one of New Jersey's largest casino operators. Licensing revenue has increased 175% to GBP0.6m (H1/17: GBP0.2m) during the period as the Slingo format went live on 6 new licensee platforms. The Group is already experiencing the benefits of the stable, higher margin revenues this brings and expects this to continue as licensees grow player numbers and new agreements are signed.

Social publishing

Social Publishing continues to generate a profit each month following the closure of Seattle operations in H2 2017 and minimal investment in marketing.

The Group continues to review its allocation of resources and investment.

Consolidated statement of comprehensive income

for the 6 months ended 30 June 2018

 
                                             Note     6M 30 Jun     6M 30 Jun 
                                                             18            17 
                                                      Unaudited     Unaudited 
  Continuing                                                GBP           GBP 
------------------------------------------  -----  ------------  ------------ 
  Revenue                                     2      10,965,299    14,979,111 
  Marketing expenses                                (2,778,560)   (6,443,240) 
  Operating expenses                                (4,138,132)   (4,748,425) 
  Administrative expenses                           (3,799,441)   (5,465,868) 
  Share-based payments                                (154,986)     (373,049) 
------------------------------------------  -----  ------------  ------------ 
 
  Adjusted EBITDA total                                 195,462   (1,474,541) 
  Adjusted EBITDA - discontinued                       (48,084)     (516,241) 
  Profit/(Loss) on disposal                            (53,198)             - 
  Exceptional items                                           -      (60,689) 
                                                                 ------------ 
  EBITDA continuing                                      94,180   (2,051,471) 
                                            -----  ------------  ------------ 
 
  Amortisation of intangible assets           7     (2,462,140)   (2,487,333) 
  Depreciation of property, plant 
   and equipment                                       (75,093)      (84,122) 
  Finance expense                             4       (511,774)     (125,992) 
  Finance income                              4          88,012       170,824 
------------------------------------------  -----  ------------  ------------ 
  Loss before tax                                   (2,866,815)   (4,578,094) 
  Tax credit                                  5         194,557       305,405 
------------------------------------------  -----  ------------  ------------ 
  Loss for the period - continuing                  (2,672,258)   (4,272,689) 
  Profit for the period - discontinued                   48,084       516,241 
------------------------------------------  -----  ------------  ------------ 
  Loss for the period - total                       (2,624,174)   (3,756,448) 
------------------------------------------  -----  ------------  ------------ 
 
  Other comprehensive income 
  Exchange gain/(loss) arising 
   on translation of foreign operations                 195,066     (456,058) 
------------------------------------------  -----  ------------  ------------ 
  Total other comprehensive income                      195,066     (456,058) 
------------------------------------------  -----  ------------  ------------ 
  Total comprehensive income                        (2,429,108)   (4,212,506) 
------------------------------------------  -----  ------------  ------------ 
 
  Loss attributable to: 
  Owners of the parent                              (2,618,121)   (3,738,614) 
  Non-controlling interest                              (6,053)      (17,835) 
                                                   ------------  ------------ 
                                                    (2,624,174)   (3,756,449) 
------------------------------------------  -----  ------------  ------------ 
  Total comprehensive income attributable 
   to: 
  Owners of the parent                              (2,423,055)   (4,167,966) 
  Non-controlling interest                              (6,053)      (44,541) 
------------------------------------------  -----  ------------  ------------ 
                                                    (2,429,108)   (4,212,507) 
------------------------------------------  -----  ------------  ------------ 
 
  (Loss)/gain per share                                   Pence         Pence 
  Basic and diluted - continuing                         (0.94)        (1.56) 
  Basic and diluted - discontinued                         0.02          0.19 
------------------------------------------  -----  ------------  ------------ 
  Basic and diluted - total                   6          (0.92)        (1.37) 
------------------------------------------  -----  ------------  ------------ 
 

Consolidated statement of financial position

as at 30 June 2018

 
                                   Note   30 June 2018    31 December 
                                                                 2017 
                                             Unaudited        Audited 
                                                   GBP            GBP 
--------------------------------  -----  -------------  ------------- 
  Non-current assets 
  Intangible assets                 7       19,631,075     20,464,170 
  Equity investments                8          776,981        747,222 
  Property, plant and equipment                204,365        263,069 
  Other assets                      9          164,136        163,865 
--------------------------------  -----  -------------  ------------- 
                                            20,776,557     21,638,326 
--------------------------------  -----  -------------  ------------- 
  Current assets 
  Trade and other receivables       10       3,485,466      3,759,434 
  Cash and cash equivalents         11       1,086,280      2,283,302 
--------------------------------  -----  ------------- 
                                             4,571,746      6,042,736 
--------------------------------  -----  -------------  ------------- 
  Assets classified as held 
   for sale                                          -      2,292,881 
--------------------------------  -----  -------------  ------------- 
  Total assets                              25,348,303     29,973,943 
--------------------------------  -----  -------------  ------------- 
  Current liabilities 
  Trade and other payables          12       6,761,874      9,269,732 
--------------------------------  -----  -------------  ------------- 
                                             6,761,874      9,269,732 
--------------------------------  -----  -------------  ------------- 
  Non-current liabilities 
  Deferred tax liability                       659,560        881,512 
  Other Creditors                   13       3,221,821      2,843,529 
  Derivative liabilities            13         600,000        600,000 
--------------------------------  -----  -------------  ------------- 
                                             4,481,381      4,325,041 
--------------------------------  -----  -------------  ------------- 
  Total liabilities                         11,243,255     13,594,773 
--------------------------------  -----  -------------  ------------- 
  Net assets                                14,105,048     16,379,170 
--------------------------------  -----  -------------  ------------- 
  Equity 
  Share capital                     14      28,442,874     28,442,874 
  Share premium                             87,198,410     87,198,410 
  Merger reserve                          (67,673,657)   (67,673,657) 
  Available for sale reserve                   207,222        207,222 
  Foreign exchange reserve                   1,614,909      1,419,842 
  Shares to be issued                          145,000        145,000 
  Retained earnings                       (35,993,481)   (33,530,345) 
--------------------------------  -----  -------------  ------------- 
  Total equity attributable 
   to owners of the parent                  13,941,277     16,209,346 
--------------------------------  -----  -------------  ------------- 
  Non-controlling interest                     163,771        169,824 
--------------------------------  -----  ------------- 
  Total equity                              14,105,048     16,379,170 
--------------------------------  -----  -------------  ------------- 
 

Consolidated statement of cash flows

for the 6 months ended 30 June 2018

 
                                            Note     6M 30 Jun                6M 30 Jun 
                                                            18                       17 
                                                     Unaudited                Unaudited 
                                                           GBP                      GBP 
----------------------------------------  ------  ------------  ----------------------- 
  Cash flows from operating activities 
  Loss for the period                              (2,624,174)              (3,756,449) 
  Adjustments for: 
  Depreciation of property, plant 
   and equipment                                        75,093                   84,122 
  Amortisation of intangible fixed 
   assets                                    7       2,462,140                2,487,333 
  Finance income                             4        (88,012)                  (1,513) 
  Finance expense                            4         511,774                   40,482 
  Movement in deferred consideration                         -                 (83,800) 
  Unwind of deferred tax recognised 
   on business acquisitions                          (205,623)                (305,223) 
  Unrealised currency translation 
   gains                                                49,338                  126,441 
  Loss on disposal of property, 
   plant and equipment                                (11,734)                      115 
  Loss on disposal of assets                            43,748                        - 
  Share-based payments expense                         154,986                  373,049 
  Decrease/(increase) in trade 
   and other receivables                               673,969                 (41,263) 
  (Decrease)/Increase in trade 
   and other payables                              (2,202,200)                1,374,712 
----------------------------------------  ------  ------------  ----------------------- 
  Net cash flows from/(used in) 
   operating activities                            (1,160,695)                  298,006 
----------------------------------------  ------  ------------  ----------------------- 
 
  Investing activities 
  Purchases of property, plant 
   and equipment                                      (23,503)                 (49,971) 
  Purchase of intangibles                    7     (1,464,628)              (1,739,245) 
  Proceeds from disposal of assets                   1,849,133                        - 
  Interest received                          4          58,253                    1,513 
----------------------------------------  ------  ------------  ----------------------- 
  Net cash from/(used in) investing 
   activities                                          419,255              (1,787,703) 
----------------------------------------  ------  ------------  ----------------------- 
 
  Financing activities 
  Cost relating to issue of convertible 
   debt                                      13       (24,846)                        - 
  Interest paid                              4       (107,831)                 (40,482) 
----------------------------------------  ------  ------------  ----------------------- 
  Net cash used in financing activities              (132,677)                 (40,482) 
----------------------------------------  ------  ------------  ----------------------- 
  Net (decrease)/increase in cash 
   and cash equivalents                              (874,117)              (1,530,179) 
  Cash and cash equivalents at 
   beginning of period                               1,319,098                2,597,465 
----------------------------------------  ------  ------------  ----------------------- 
  Exchange (loss)/gain on cash 
   and cash equivalents                               (16,440)                   17,385 
----------------------------------------  ------  ------------  ----------------------- 
  Cash and cash equivalents at 
   end of period                            11         428,541                1,084,671 
----------------------------------------  ------  ------------  ----------------------- 
 

Consolidated statement of changes in equity

for the 6 months ended 30 June 2018

 
                          Share        Share         Merger    Available     Foreign    Shares       Retained         Total    Non-controlling         Total 
                        capital      premium        reserve     for sale    Exchange     to be       earnings     to equity           interest        equity 
                                                                 reserve     Reserve    issued                      holders 
                                                                                                                 of parents 
                            GBP          GBP            GBP          GBP         GBP       GBP            GBP           GBP                GBP           GBP 
  1 January 2017     27,413,329   87,095,455   (67,673,657)            -   2,408,432         -   (25,154,580)    24,088,979            205,001    24,293,980 
------------------  -----------  -----------  -------------  -----------  ----------  --------  -------------  ------------  -----------------  ------------ 
  Loss for the 
   period                     -            -              -            -           -         -    (3,738,614)   (3,738,614)           (17,835)   (3,756,449) 
  Other 
   comprehensive 
   income                     -            -              -            -   (429,352)         -              -     (429,352)           (26,706)     (456,058) 
  Total 
   comprehensive 
   income for the 
   period                     -            -              -            -   (429,352)         -    (3,738,614)   (4,167,966)           (44,541)   (4,212,507) 
------------------  -----------  -----------  -------------  -----------  ----------  --------  -------------  ------------  -----------------  ------------ 
  Contributions by 
  and 
  distributions to 
  owners 
  Share-based 
   payment 
   on share 
   options (Note 
   26)                        -            -              -            -           -         -        373,049       373,049                  -       373,049 
  Non-controlling             -            -              -            -           -         -              -             -                  -             - 
  interests 
  on acquisition 
  of subsidiary 
  30 June 2017 
   (unaudited)       27,413,329   87,095,455   (67,673,657)            -   1,979,080         -   (28,520,145)    20,294,062            160,460    20,454,522 
------------------  -----------  -----------  -------------  -----------  ----------  --------  -------------  ------------  -----------------  ------------ 
  31 December 2017   28,442,874   87,198,410   (67,673,657)      207,222   1,419,842   145,000   (33,530,345)    16,209,345            169,824    16,379,169 
------------------  -----------  -----------  -------------  -----------  ----------  --------  -------------  ------------  -----------------  ------------ 
  Loss for the 
   period                     -            -              -            -           -         -    (2,618,121)   (2,618,121)            (6,053)   (2,624,174) 
  Other 
   comprehensive 
   income                     -            -              -            -     195,067         -              -       195,067                  -       195,067 
  Total 
   comprehensive 
   income/(loss) 
   for the 
   period                     -            -              -            -     195,067         -    (2,618,121)   (2,423,054)            (6,053)   (2,429,107) 
------------------  -----------  -----------  -------------  -----------  ----------  --------  -------------  ------------  -----------------  ------------ 
  Contributions by 
  and 
  distributions to 
  owners 
  Share-based 
   payment 
   on share 
   options (Note 
   26)                        -            -              -            -           -         -        154,986       154,986                  -       154,986 
  30 June 2018 
   (unaudited)       28,442,874   87,198,410   (67,673,657)      207,222   1,614,909   145,000   (35,993,480)    13,941,277            163,771    14,105,048 
------------------  -----------  -----------  -------------  -----------  ----------  --------  -------------  ------------  -----------------  ------------ 
 

Notes forming part of the consolidated financial statements

For the 6 months ended 30 June 2018

1. Accounting policies

General Information

Gaming Realms plc ("the Company") and its subsidiaries (together "the Group").

The Company is admitted to trading on AIM of the London Stock Exchange. It is incorporated and domiciled in the UK. The address of its registered office is One Valentine Place, London, SE18QH.

The results for the six months ended 30 June 2018 and 30 June 2017 are unaudited.

Basis of preparation

The financial information for the year ended 31 December 2017 does not constitute the full statutory accounts for that year. The Annual Report and Financial Statements for 2017 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statement for 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

This interim report, which has neither been audited nor reviewed by independent auditors, was approved by the board of directors on 12 September 2018. The financial information in this interim report has been prepared in accordance with the recognition and measurement requirements of International Financial Reporting Standards as adopted for use in the EU (IFRSs). The accounting policies applied by the Group in this financial information are the same as those applied by the Group in its financial statements for the year ended 31 December 2017 and which will form the basis of the 2018 financial statements.

There are no new standards, interpretations or amendments which became effective in the period which have had a material effect on the Group's financial information.

As a result of IFRS 9, management have reclassified available for sale investments as equity investments with fair value movements taken to the income statement. Management have established that the adoption of the expected credit loss impairment model did not have a material impact on reported results.

Management have considered the impact of IFRS 15 on the business by product. Management consider the recognition basis will remain unchanged for RMG, Affiliate and Social publishing revenues, which generate the majority of the Groups revenues. Management continue to review revenue recognition under IFRS 15 for the licensing revenues, where terms differ by contract, but do not anticipate a material impact on the financial statements.

When considering IFRS 16, the Group operates from leased offices in 4 countries. Management are undertaking a review to calculate the initial recognition of right of use assets and the related liabilities.

The consolidated financial statements are presented in sterling.

Adjusted EBITDA

EBITDA is a non-GAAP company specific measure defined as loss before tax adjusted for finance income and expense, depreciation and amortisation.

Adjusted EBITDA excludes non-recurring material items which are outside the normal scope of the Group's ordinary activities. Adjusted EBITDA is considered to be a key performance measure by the Directors as it serves as an indicator of financial performance. The adjusting items are separately disclosed in order to enhance the reader's understanding of the Group's profitability and cash flow generation. Adjusting items include EBITDA from discontinued operations, costs arising from a fundamental restructuring of the Group's operations, acquisition costs, and revaluation of balances denominated in non-presentational currency. Management have observed the FRC's guidance published in November 2017 regarding the treatment of share-based payments and have now included this charge in Adjusted EBITDA.

2. Segment information

The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Group has three reportable segments. The social publishing provides freemium games to the US and Europe. Licensing includes IP brand and content licensing to partners in the US and Europe. The real money gaming products and marketing services operates our brands and provides other digital marketing services to both gaming and non-gaming clients in the UK.

Revenue by product

 
                                         6M 30 Jun    6M 30 Jun 
                                                18           17 
                                               GBP          GBP 
-------------------------------------  -----------  ----------- 
  Real money gaming                      8,262,230   10,727,949 
  Social publishing                      2,074,853    3,989,943 
  Licensing                                628,215      228,639 
  Other                                    194,142       32,580 
-------------------------------------  -----------  ----------- 
  Total - continuing                    11,159,440   14,979,111 
  Affiliate marketing - discontinued       170,384      713,311 
-------------------------------------  -----------  ----------- 
  Total                                 11,329,824   15,692,422 
-------------------------------------  -----------  ----------- 
 

Geographical information

The Group considers that its primary geographic regions are the UK, including Channel Islands, USA and the rest of the world. No revenue is derived from real money gaming in the US. All non-current assets are based in the UK.

 
                                         External         External 
                                       revenue by       revenue by 
                                         location         location 
                                     of customers     of customers 
                                        6M 30 Jun        6M 30 Jun 
                                               18               17 
                                              GBP              GBP 
--------------------------------  ---------------  --------------- 
  UK, including Channel Islands         8,296,799       11,427,248 
  US                                    2,462,436        2,782,952 
  Rest of the World                       570,589        1,482,222 
--------------------------------  ---------------  --------------- 
                                       11,329,824       15,692,422 
--------------------------------  ---------------  --------------- 
 

Adjusted EBITDA

 
                                                                                              Total 
                                                                                          6M 30 Jun 
                             RMG    Affiliates      Social    Licensing         Other            18 
                             GBP           GBP         GBP          GBP           GBP           GBP 
------------------  ------------  ------------  ----------  -----------  ------------  ------------ 
  Revenue              8,262,231       170,384   2,074,853      628,215             -    11,135,682 
  Marketing 
   expense           (2,583,698)      (20,834)   (202,542)            -         7,680   (2,799,394) 
  Operating 
   expense           (3,479,517)      (15,809)   (569,536)     (88,679)         (400)   (4,153,941) 
  Administrative 
   expense           (1,610,505)      (84,944)   (285,438)    (456,890)   (1,394,123)   (3,831,901) 
  Share-based 
   payments                    -             -           -            -     (154,986)     (154,986) 
  Adjusted EBITDA        588,511        48,797   1,017,337       82,646   (1,541,829)       195,460 
------------------  ------------  ------------  ----------  -----------  ------------  ------------ 
 

3. Disposal of Affiliate business

In March 2018 the Group sold its Affiliate CGU for total consideration of GBP2.4 million to First Leads Ltd. First Leads has paid GBP2.0m on closing, and a further GBP0.4m will be payable on 31 December 2018, based on the achievement of performance targets.

4. Finance income and expense

 
                                                               6M 30 Jun                     6M 30 
                                                                      18                    Jun 17 
                                                                     GBP                       GBP 
                                          ------------------------------  ------------------------ 
  Finance income 
  Interest received                                               58,253                     1,513 
  Fair value changes                                              29,759                         - 
  Foreign exchange movement on deferred 
   consideration                                                       -                   169,311 
                                          ------------------------------  ------------------------ 
  Total finance income                                            88,012                   170,824 
                                          ------------------------------  ------------------------ 
 
  Finance expense 
  Bank interest expense paid                                      52,439                    40,482 
  Deferred consideration movement                                      -                    85,511 
  Effective interest on Other Creditor                           459,335                         - 
                                          ------------------------------  ------------------------ 
  Total finance expense                                          511,774                   125,993 
                                          ------------------------------  ------------------------ 
 

5. Tax credit

 
                                            6M 30 Jun      6M 30 
                                                   18     Jun 17 
                                                  GBP        GBP 
                                          -----------  --------- 
  Current tax credit 
  Adjustment for over provision in           (11,066)          - 
   prior periods 
  Current tax credit for the period                 -    175,000 
                                          -----------  --------- 
  Total current tax                          (11,066)    175,000 
                                          -----------  --------- 
  Deferred tax expense 
  Origination and reversal of temporary 
   differences                                205,623    130,405 
                                          -----------  --------- 
  Total deferred tax                          205,623    130,405 
                                          -----------  --------- 
  Total tax credit                            194,557    305,405 
                                          -----------  --------- 
 

The reasons for the difference between the actual tax charge for the period and the standard rate of corporation tax in the UK applied to profits for the period are as follows:

 
                                                6M 30 Jun         6M 30 
                                                       18        Jun 17 
                                                      GBP           GBP 
                                             ------------  ------------ 
  Loss for the period                         (2,818,731)   (4,061,853) 
  Expected tax at effective rate of 
   corporation tax in the UK of 19% (2017: 
   20%)                                         (535,559)     (812,371) 
  Expenses not deductible for tax purposes         58,881        63,466 
  Depreciation in excess of capital 
   allowances                                           -        16,824 
  Effects of overseas taxation                     64,732        39,316 
  Adjustment for over provision in               (11,066)             - 
   prior periods 
  Unwind of deferred tax recognised 
   on business acquisition                      (205,623)     (130,405) 
  Research and Development tax credit                   -     (175,000) 
  Tax losses for which no deferred 
   tax assets have been recognised                823,193       692,765 
  Total tax credit                                194,557     (305,405) 
                                             ------------  ------------ 
 

6. Loss per share

 
                                              6M 30 Jun         6M 30 
                                                     18        Jun 17 
                                                    GBP           GBP 
                                           ------------  ------------ 
  Loss after tax - continuing               (2,672,258)   (4,272,689) 
  (Loss)/profit after tax - discontinued         48,084       516,241 
                                           ------------  ------------ 
  Loss after tax - total                    (2,624,174)   (3,756,448) 
                                           ------------  ------------ 
 
                                                 Number        Number 
                                           ------------  ------------ 
  Weighted average number of ordinary 
   shares used in calculating basic loss 
   per share                                284,428,746   274,133,291 
                                           ------------  ------------ 
  Weighted average number of ordinary 
   shares used in calculating dilutive 
   loss per share                           284,428,746   274,133,291 
                                           ------------  ------------ 
 
                                                  Pence         Pence 
                                           ------------  ------------ 
  Basic and diluted loss per share 
   - continuing                                  (0.94)        (1.56) 
  Basic and diluted (loss)/profit per 
   share - discontinued                            0.02          0.19 
                                           ------------  ------------ 
  Basic and diluted loss per share 
   - total                                       (0.92)        (1.37) 
                                           ------------  ------------ 
 

7. Intangible assets

 
                           Goodwill     Customer    Software    Development      Domain    Intellectual        Total 
                                        database                      costs       names        Property 
                                GBP          GBP         GBP            GBP         GBP             GBP          GBP 
----------------------  -----------  -----------  ----------  -------------  ----------  --------------  ----------- 
  Cost 
  Balance at 31 
   December 2017         10,645,557    1,626,509   1,403,941     10,047,108     394,331       5,843,092   29,960,538 
  Additions                       -            -           -      1,464,628           -               -    1,464,628 
  Disposals                       -            -           -              -   (319,646)               -    (319,646) 
  Reclassified as                                          -              -           -               -            - 
   held for sale 
  FX Movement               114,926       33,956      32,215          6,587    (47,941)         133,671      273,414 
  At 30 June 2018        10,760,483    1,660,465   1,436,156     11,518,323      26,744       5,976,763   31,378,934 
----------------------  -----------  -----------  ----------  -------------  ----------  --------------  ----------- 
  Amortisation                                                                                                     - 
  Balance at 31 
   December 2017                  -    1,327,658   1,057,660      5,061,262     312,613       1,737,175    9,496,368 
  Amortisation charge             -      244,890     231,514      1,576,696      48,780         360,260    2,462,140 
  Disposed                        -            -           -              -   (338,605)               -    (338,605) 
  Reclassified as                 -            -           -              -           -               -            - 
   held for sale 
  FX Movement                     -       36,661      33,215          3,695         266          54,119      127,956 
  At 30 June 2018                 -    1,609,209   1,322,389      6,641,653      23,054       2,151,554   11,747,859 
----------------------  -----------  -----------  ----------  -------------  ----------  --------------  ----------- 
  Net book value                                                                                                   - 
  At 31 December 
   2017                  10,645,557      298,851     346,281      4,985,846      81,718       4,105,917   20,464,170 
  At 30 June 2018        10,760,483       51,256     113,767      4,876,670       3,690       3,825,209   19,631,075 
----------------------  -----------  -----------  ----------  -------------  ----------  --------------  ----------- 
 

8. Equity investments

 
                                   Equity Investments 
                                                  GBP 
                                 -------------------- 
  At 31 December 2017                         747,222 
  Change in Fair Value through 
   profit & loss                               29,759 
                                 -------------------- 
  At 30 June 2018                             776,981 
                                 -------------------- 
 

9. Other assets

 
                   30 Jun 18    31 Dec 
                                    17 
                         GBP       GBP 
                 -----------  -------- 
  Other Assets       163,865   152,000 
                 -----------  -------- 
 

Other assets represent the rental deposits on operating leases.

10. Trade and other receivables

 
                                     30 Jun 18      31 Dec 
                                                        17 
                                           GBP         GBP 
                                   -----------  ---------- 
  Trade and other receivables        2,364,537   2,461,523 
  Prepayments and accrued income     1,120,930   1,447,824 
                                   -----------  ---------- 
                                     3,485,466   3,909,347 
                                   -----------  ---------- 
 

All amounts shown fall due for payment within one year

11. Cash and cash equivalents

 
                                    30 Jun 18      31 Dec 
                                                       17 
                                          GBP         GBP 
                                  -----------  ---------- 
  Cash and cash equivalents         1,086,280   2,283,302 
  Restricted cash                    (18,702)    (18,702) 
  Overdraft                         (639,038)   (945,501) 
                                  -----------  ---------- 
  Cash and cash equivalents for 
   Statement of Cash Flows            428,539   1,319,098 
                                  -----------  ---------- 
 

Restricted cash relates to funds held in Swiss subsidiaries which are currently undergoing liquidation. The funds are restricted and are not included in the consolidated statement of cash flows.

Included within cash and cash equivalents is the Group's overdraft facility. The total facility is GBP1,000,000.

12. Trade and other payables

 
                                              30 Jun 18      31 Dec 
                                                                 17 
                                                    GBP         GBP 
                             --------------------------  ---------- 
  Trade and other payables                    4,744,004   5,655,862 
  Bank Overdraft                                639,038     945,501 
  Accruals                                      929,566   2,270,675 
  Player liabilities                            449,266     397,693 
                                              6,761,874   9,269,732 
                             --------------------------  ---------- 
 

The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value.

13. Arrangement with JackpotJoy

In December 2017 the group entered into a GBP3.5m secured convertible loan agreement with Jackpotjoy plc and group companies (together "Jackpotjoy Group") alongside a 10-year framework services agreement for the supply of various real money services.

Under the framework services agreement the first GBP3.5m of services are provided free-of-charge within the first 5 years. This will be recognised as revenue as it is utilised.

The convertible loan has a duration of 5 years and carries interest at 3-month LIBOR plus 5.5%. It is secured over the Group's Slingo assets and business. At any time after the first year, Jackpotjoy Group may elect to convert all or part of the principal amount into ordinary shares of Gaming Realms Plc at a discount of 20% to the share price prevailing at the time of conversion. To the extent that the price per share at conversion is lower than 10p (nominal value), then the shares can be converted at nominal value and the difference paid in cash. Under this arrangement, the maximum dilution to Gaming Realms shareholders will be approximately 12%, assuming the convertible loan is converted in full.

The number of shares is variable. The option therefore violates the fixed-for-fixed criteria for equity classification and as a result is classified as a liability. The fair value of the conversion feature is determined at each reporting date with changes recognised in profit or loss. The fair value as at 30 June 2018 was GBP0.6m based on a probability assessment of conversion and future share price. This is a level 2 valuation as defined by IFRS 13.

The remaining GBP2.9m of proceeds plus an estimate for free-of-charge services is accounted for as an interest-bearing loan. The interest rate used to discount the loan was calculated as 30.8%.

 
                                            Other Creditors    Derivative       Total 
                                                                Liability 
                                                        GBP           GBP         GBP 
----------------------------------------  -----------------  ------------  ---------- 
  At 1 January 2018                               2,843,529       600,000   3,443,469 
  Cost relating to issue of convertible 
   debt                                            (24,846)             -    (24,846) 
  Interest paid                                    (61,773)             -    (61,773) 
  Effective interest (30.8%)                        464,911             -     464,911 
----------------------------------------  -----------------  ------------  ---------- 
  At 30 June 2018                                 3,221,821       600,000   3,821,821 
----------------------------------------  -----------------  ------------  ---------- 
 

The proceeds are first allocated to the fair value of the derivative liability. The key assumptions used to estimate the derivative liability are as follows:

   --               Future share price 
   --               Probability assessment of expected conversion 
   --               Timing and proportion converted to shares by JackpotJoy Group 

The proceeds are then allocated between the use of the free services and the interest-bearing loan. The key assumptions used to estimate this split are:

   --               Timing and amount of usage of the free services 
   --               Future 3-month LIBOR rates 

Key sensitivities in the calculation of the above values include:

-- For every GBP0.5m reduction in the estimate of free services, there will be an equal reduction in the interest expense over the term

-- Each 1% increase in 3-month LIBOR would result in an additional GBP35k interest payable per annum, or GBP140k in total assuming no capital is repaid or converted to shares

-- If the share price does not exceed 12p there will be no value in the conversion element meaning the carrying value of the loan will increase by GBP0.6m and interest expense will decrease by GBP0.6m

14. Share capital

Ordinary Shares

 
                             30 Jun       30 Jun        31 Dec       31 Dec 
                                 18           18            17           17 
                             Number          GBP        Number          GBP 
  Ordinary shares of    284,428,747   28,442,874   284,428,747   28,442,875 
                       ------------  -----------  ------------  ----------- 
  10 pence each 
                       ------------  -----------  ------------  ----------- 
 

Movements in share capital

 
                                  Number          GBP 
                            ------------  ----------- 
  At 30 June 2017            274,133,292   27,413,329 
  Ordinary shares issued 
   for cash consideration     10,295,455    1,029,545 
  At 31 December 2017        284,428,747   28,442,874 
                            ------------  ----------- 
  At 30 June 2018            284,428,747   28,442,874 
                            ------------  ----------- 
 

15. Events after reporting date

On 16th August 2018 the Group entered into an Asset Purchase Agreement with River iGaming Plc (River iGaming) for the sale of 4 of the Group's Real Money brands for minimum consideration of GBP8.4m.

Further consideration is achievable on an earn-out basis, payable no later than 31 August 2019 based on 5.5 times River UK Casino's EBIT for the 12 months to 30 June 2019 to a maximum of GBP14.7m.

Following the completion of the transaction, River iGaming will hold 70% of the issued share capital of a newly created UK subsidiary (River UK Casino), with Gaming Realms holding the remaining 30%.

There is a Put and Call option for River iGaming to purchase Gaming Realms' 30% share of River UK Casino at the end of the earn out period based on an Enterprise value of 5.5 times River UK Casino's EBIT.

River UK Casino has entered into a five-year B2B platform and content agreement with the Group on normal commercial terms. River iGaming and Gaming Realms will jointly provide a working capital loan facility of GBP3m to River UK Casino (GBP2.1m from River iGaming and GBP0.9m from Gaming Realms).

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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September 27, 2018 02:01 ET (06:01 GMT)

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