TIDMGMR
RNS Number : 7375D
Gaming Realms PLC
28 June 2019
Gaming Realms Plc
("Gaming Realms", the "Company" or the "Group")
Annual Results 2018
Delivering on Licensing Strategy and Real Money Gaming
Divestment
Gaming Realms plc (AIM: GMR), the developer and licensor of
mobile focused gaming content, announces its annual results for the
year ended 31 December 2018 and Q1 highlights for 2019.
Due to the difficult UK regulatory environment the Board took
the decision to dispose of the Affiliate Marketing business in
March 2018, dispose of part of the B2C Real Money Gaming ("RMG")
business in July 2018 and, in February 2019, exchanged contracts to
sell the remaining B2C RMG business.
Upon completion of the sale of the remaining B2C RMG business
(which is expected very shortly having received the necessary
regulatory approvals), the remaining business will be focused on
development and licensing of games for third party real money and
social gaming operators. This is a part of the business that we
have grown organically and is showing significant growth with some
global market leading partners.
2018 Financial Highlights:
-- Total profit of GBP0.9m (2017: GBP8.2m loss)
-- Continuing revenue down by 19% to GBP6.2m (2017: GBP7.6m) for the year;
o Licensing revenue increased 167% to GBP2.2m (2017:
GBP0.8m)
o Social publishing revenue decreased by 43% to GBP3.9m (2017:
GBP6.9m), with 63% reduction in costs
-- Total Adjusted EBITDA loss GBP0.5m (2017: GBP0.8m profit)
-- Continuing Adjusted EBITDA loss GBP0.1m (2017: GBP2.8m loss);
o Licensing GBP1.0m Adjusted EBITDA profit (2017: GBP0.2m
loss)
o Social publishing GBP1.6m Adjusted EBITDA profit (2017:
GBP0.1m loss)
-- Net cash inflow GBP0.2m (2017: GBP1.3m outflow) with a
further GBP10m due post the completion of the sale of the remaining
B2C RMG business, which is expected shortly
2018 Operational Highlights:
Licensing
-- Launched with 13 new partners for "Slingo Originals" content
-- 19 new games launched in period
Other
-- Affiliate Marketing business sale completed in March 2018 for GBP2.4m
-- Sale of part of the B2C RMG business to River iGaming plc
("River") in August 2018 for minimum proceeds of GBP8.4m (of which
GBP4.2m was payable on completion and GBP4.2m deferred)
Q1 2019 Highlights:
-- Gross gaming revenue ("GGR"), measuring the total revenue
generated by Gaming Realms' partners from its licensed content,
increased by 37% quarter-on-quarter to GBP10.8m (Q4 2018:
GBP7.9m).
-- Slingo Originals content went live on 8 new sites during the
quarter, taking the total distribution to 34 gaming sites
globally
-- Announced proposed sale of remaining B2C RMG business to
River for total consideration of GBP11.5m (which includes
settlement of the GBP4.2m deferred consideration mentioned above,
and of which GBP1.5m is deferred until 2020)
Outlook:
-- We have recently received necessary regulatory approvals to
complete the sale of the remaining B2C RMG business. We are now
working through the closing documents and expect to complete
shortly
-- Having developed the Licensing business in 2017, and seen the
great growth we have been achieving, we are hugely excited about
the future
-- 42% of Licensing play is currently outside the UK, and this
should increase with recent deals signed:
o Scientific Games deal gives access to up to 200 new worldwide
customers
o Relax Gaming deal opens up the Nordics with access to 80
potential new customers
-- Business is targeting to be cashflow positive by Q1 2020 based on delivery of above deals
Commenting on the results, Patrick Southon, CEO, said: "We began
our licensing business in 2017 as part of the strategy to fully
capitalise on the strength of our games development operations. In
a period of 24 months we have developed, licensed and launched 34
games via major gaming partners such as GVC and 888 and captured
over 3.5% market share in New Jersey. As a result, and post the
imminent completion of the sale of the remaining B2C RMG business,
we are looking forward to focusing solely on increasing the cadence
of game development and licensing delivery as more B2B partners
come online.
"The success to date in licensing our Slingo content illustrates
a clear market opportunity to grow our revenue and profitability on
an international level. This view has been further reinforced by
the recent deal with Scientific Games to distribute of all our
Slingo games via its global platform, which we expect to start
contributing revenue in the latter part of 2019."
Enquiries:
Gaming Realms plc 0845 123 3773
Patrick Southon, CEO
Mark Segal, CFO
Peel Hunt LLP 020 7418 8900
George Sellar
Guy Pengelley
Yellow Jersey 07747 788 221
Charles Goodwin
Georgia Colkin
Abena Affum
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.
Chairman's Statement
During 2016 and 2017 it became increasingly difficult to operate
profitably within the UK online gaming market. This was due
initially to competition from the plethora of operators, coupled
with pressure on margins from the introduction of Point of
Consumption Tax.
Continued increases in costs to be borne by operators has only
increased with the passage of time;
-- Point of Consumption Tax has increased by 40% in April 2019
-- Changes in European data laws
-- Provisions to combat money laundering
-- Regulations relating to responsible gaming and gambling
All of these items encompassing new legislation and regulations,
have increased costs to the point where a smaller B2C gaming
company finds it difficult to operate at a profit in the UK, let
alone grow the business for the future.
Given the adverse changes in the B2C marketplace, your Board
decided towards the end of 2017 that the best course of action was
to sell the larger part of our B2C sites and concentrate on game
development and distribution to a worldwide audience. This resulted
in a deal with River which closed in August 2018, and was followed
by an announcement on 22nd February 2019 of a further sale to River
of all the remaining assets involved in operating B2C sites in the
UK online market, subject to a number of conditions, for an
aggregate consideration of GBP11.5m. We expect to complete this
disposal very shortly.
This introduction is intended to give shareholders an outline
and some background to the difficulties your Company has faced, and
which have led to the reorganisation which is nearing
completion.
Your Board is also considering its options to sell or
rationalise the Social Publishing division. This process, coupled
with the imminent sale of the B2C RMG assets, will lead to a
dramatic reduction in overall Company costs, with a decrease in
employees of over 60%.
The Group will then concentrate on game development and
international licensing using primarily its Slingo brand, and this
division which is experiencing heathy growth will become its main
focus. An increasing number of gaming companies are signing up to
distribute our content on their sites, both in the UK and overseas.
We are licensed as a game supplier in New Jersey, USA, where our
games account for approximately 3.5% of sales from slot products.
The Company is engaged in applying for a license in Pennsylvania
and will continue to pursue direct opportunities outside the UK to
distribute its games.
The Group delivered an Adjusted EBITDA loss for 2018 of GBP0.5m
(2017 GBP0.8m profit). These results mask the excellent progress
made by our Licensing division, where revenue increased by 167% to
GBP2.2m (2017: GBP0.8m) with an EBITDA surplus of GBP1.0m (2017:
GBP0.2m loss) before allocation of central costs. The Licensing
division went live with 17 new partners during the year, and our
library of proprietary games increased to 28 games from 9 games at
the start of the year under review. A number of new deals with game
distributors have been announced during 2019, which will further
increase worldwide exposure and income from our games once the
necessary integrations have been completed.
Further details on the 2018 results are contained in the
Statements from the Chief Executive and Finance Director which
follow.
Outlook for 2019
The operating plan for 2019 adopted by the Board, is to continue
the development and licence of mobile focused games using our
unique Slingo brand, with increased income from our game portfolio
through international distribution. Capitalising on our success in
New Jersey, we intend to enter any new states in America which
regulate online gaming.
With regard to the future, I am pleased to welcome Chris Ash to
the Board of Directors. Chis has a long and successful history in
online game development and distribution, and I am sure will make a
valuable contribution to this ongoing Company activity.
Once the sale of the remaining B2C RMG business is completed and
we conclude on the Social Publishing strategy, your Board believes
shareholders can look forward to a period of increasing stability.
This will show growth in Licensing income and a very significant
reduction in Group costs, and a trend towards Group
profitability.
In our 2019 Interim Results, we will report on the cash
availability post transaction, forecast working capital needs, and
the Board's intentions with regard to any surplus.
Michael Buckley
Chairman
Chief Executive's Review
Overview
In 2018, the Group's strategy continued to build its proprietary
"Slingo Originals" content and increase its distribution with new
partnerships. The Group also disposed of non-core assets as it
moved away from being a RMG operator in order to focus on content
licensing.
The Group's decision to dispose of its B2C RMG operations has
been driven by further regulatory headwinds and the recent increase
in Point of Consumption Tax effective from 1 April 2019. The first
phase of this asset disposal was completed in August 2018, with the
sale of four B2C RMG brands to River. We also streamlined our
Social Publishing business further, resulting in positive EBITDA of
GBP1.6m (2017: GBP0.1m loss). However, after capitalisation the net
cash inflow was GBP0.3m (2017: GBP1.3m outflow).
We have invested resources into new proprietary games and
introduced a further 19 games to the market, bringing the total
number of licensed games at the end of 2018 to 28 (2017: 9). At the
same time, we increased our content distribution and were live with
17 partners at the end of 2018 (2017: 4). Partners we have gone
live with during the year include GVC, 888, Rank as well as Golden
Nugget and Hard Rock Casino.
This increase in taking our Slingo Originals games to market, as
well as launching with new partners, has resulted in revenue
growing 167% to GBP2.2m (2017: GBP0.8m). Our Licensing business
also became profitable in the year, generating an Adjusted EBITDA
of GBP1.0m (2017: GBP0.2m loss) before the allocation of central
costs.
In 2019, to date, we have grown revenues in the online casino
market in New Jersey and now account for c.3.5% of the growing
market. We have also signed deals with several "tier 1 operators"
in Europe and are now live with William Hill and Gaming Innovation
Group. We are aiming to finalise our integration with NYX, which
will vastly increase our international footprint, by Q3 2019. Relax
Gaming will also give us reach into new markets, in particular with
the large tier 1 Scandinavian operators. Our games are also now
certified for the newly regulated Swedish market, as well as with
the Maltese regulator, and we are planning to obtain licences in
other regulated jurisdictions in 2019.
We are excited to announce that we are due to release our
Monopoly Slingo game to the international market in Q3 2019. We
expect this to deliver increased revenue and also greater exposure
on our partner sites. We are already creating a "Slingo" genre of
games and this very much complements our portfolio of unique IP and
a well-known gaming brand.
Market overview
The games market is a very crowded environment, in which most
operators have 700 plus games available on their sites. We are
seeing that Slingo can cut through this with its unique brand and
format. As such we are seeing enhanced placements on our partner
sites. With the increase in Point of Consumption Tax, together with
increased regulation in the UK, it is becoming more important to
grow our revenues outside the UK market. We have a good footprint
in the New Jersey market and have also gone live with Gaming
Innovation Group, as well as currently integrating into Relax
Gaming and NYX - both of whom allow access to a much larger market
for Slingo.
Key Goals for 2019
1. To complete the sale of the B2C RMG operations
2. Conclude on options to sell or rationalise the Social Publishing division
3. Continue the strategic investment in Slingo Originals
content, with a view to branded partnerships with other brand
owners
4. Increase new licensees for Slingo Original content
5. Further expansion of strategic brand licensing in adjacent markets
Patrick Southon
Chief Executive Officer
Financial Review
Overview
The operations of the Group have changed significantly in 2018
and into 2019 as the Group has continued with its strategy of
disposing of non-core assets and focusing its resources on
Licensing.
Gaming Realms delivered a profit after tax of GBP0.9m (2017:
GBP8.2m loss) due to the sale of B2C real money gaming and
Affiliate assets in year. We have treated the B2C real money gaming
and Affiliate marketing segments as discontinued operations in the
current year and the comparative period.
Adjusted EBITDA totalled GBP0.5m loss (2017: GBP0.8m profit) as
a result of declining revenues off the back of reduced marketing
spend.
Profit on disposal initially totalled GBP12.5m in real money
gaming for the disposal of four of our B2C brands in August 2018.
Regulatory pressures adversely impacted the performance of these
brands post sale, therefore at the year-end we impaired the
investment in associate by GBP2.8m and recognised a fair value loss
on contingent earn-out consideration of GBP1.9m This has resulted
in a net realised profit for the transaction of GBP7.8m.
The table below sets out the split of revenue and Adjusted
EBITDA on a continuing and discontinued basis:
2018
Discontinued Continuing
Real Affiliate Total Licensing Social Head Total Total
money marketing discontinued publishing office continuing 2018
gaming 2018 2018
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- --------- ----------- -------------- ----------- ------------ --------- ------------ ---------
Revenue 16,365 168 16,533 2,248 3,921 394 6,563* 23,096
Marketing
expense (4,319) (15) (4,334) - (414) (251) (665) (4,999)
Operating
expense (9,170) (16) (9,186) (200) (1,092) - (1,292) (10,478)
Administrative
expense (3,324) (116) (3,440) (1,055) (861) (2,738) (4,654) (8,094)
Share-based
payments - - - - - (68) (68) (68)
----------------- --------- ----------- -------------- ----------- ------------ --------- ------------ ---------
Adjusted EBITDA (448) 21 (427) 993 1,554 (2,663) (116) (543)
----------------- --------- ----------- -------------- ----------- ------------ --------- ------------ ---------
2017
Discontinued Continuing
Real Affiliate Total Licensing Social Head Total Total
money marketing discontinued publishing office continuing 2017
gaming 2017 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- --------- ----------- -------------- ----------- ------------ --------- ------------ ---------
Revenue 22,718 1,323 24,041 840 6,879 179 7,898* 31,939
Marketing
expense (8,022) (128) (8,150) - (2,171) (110) (2,281) (10,431)
Operating
expense (8,868) (76) (8,944) (25) (1,755) - (1,780) (10,724)
Administrative
expense (3,155) (226) (3,381) (1,036) (3,010) (2,721) (6,767) (10,148)
Share-based
payments - - - - - 150 150 150
----------------- --------- ----------- -------------- ----------- ------------ --------- ------------ ---------
Adjusted EBITDA 2,673 893 3,566 (221) (57) (2,502) (2,780) 786
----------------- --------- ----------- -------------- ----------- ------------ --------- ------------ ---------
* Licensing revenue includes GBP389,464 (2017: GBP291,506) of
inter-segment revenue. This is shown as an Operating Expense under
the Real Money Gaming segment and eliminates on consolidation.
EBITDA and Adjusted EBITDA are non-GAAP measures and exclude
exceptional items, interest, depreciation, tax and amortisation.
Exceptional items are items the Group considers to be non-recurring
or material in nature that may distort an understanding of
financial performance or impair comparability.
Continuing operations
Continuing operations generated Adjusted EBITDA loss of GBP0.1m
(2017: GBP2.8m loss).
EBITDA from continuing operations was a GBP0.6m loss (2017:
GBP3.7m loss) including restructuring costs of GBP0.2m.
Year-on-year revenue declined 19% to GBP6.2m (2017: GBP7.6m) due
to the declining performance in Social, partially offset by the
growth in Licensing.
Marketing for the year totalled GBP0.7m (2017: GBP2.3m) as the
Group restricted spend for the Social division.
Administrative expenses reduced to GBP4.9m (2017: GBP7.5m) as a
result of restructuring the Social business in 2017 including the
closure of our Seattle office.
Licensing
Licensing revenue increased 167% to GBP2.2m (2017: GBP0.8m) due
to the continued success of distributing our proprietary games via
our remote game server ("RGS") to key operators in Europe and New
Jersey.
During 2018 we went live with an additional 13 partners in
Europe and New Jersey bringing the total to 17 (2017: 4).
Social Publishing
Social Publishing achieved profitability in 2018, delivering
Adjusted EBITDA profit of GBP1.6m (2017: Adjusted EBITDA loss
GBP0.1m) as a result of reducing marketing spend by 81% and
administrative expenses by 71%. Despite the significant reduction
in marketing investment, Social Publishing revenue decreased at a
lower rate of 43% to GBP3.9m (2017: GBP6.9m).
During 2017, Gaming Realms closed its Seattle operations
resulting in significant cost savings for 2018 of GBP2.5m.
Impairment of Social goodwill of GBP1.7m was recognised in the
year as a result of revised forecasts based on the reduced
performance of this segment.
Discontinued operations
Discontinued operations relate to B2C real money gaming and
affiliates. Profit after tax from discontinued operations was
GBP6.6m (2017: GBP0.2m) including profit on disposal of GBP12.5m,
write down of contingent consideration of GBP1.9m, impairment of
associate of GBP2.8m, and loss for the year of GBP1.0m.
Real money gaming
Revenue fell by 28% to GBP16.4m (2017: GBP22.7m) due to ongoing
reductions in marketing of 46% to GBP4.4m as a result of regulatory
pressures (2017: GBP8.0m).
In August 2018 four of the Group's real money gaming brands were
sold to River generating an initial profit on disposal of GBP12.5m.
The Group continues to operate these brands via a white label
agreement until River obtains their own operating licence,
recognising revenue and costs with net profit passed back to River
after retaining a platform fee. As a result, additional operational
costs of GBP1.4m were incurred, being the profit share payable to
River.
Post year end the Group has entered into an agreement for the
sale of the remaining B2C real money gaming business to River for
GBP11.5m, which includes settlement of the remaining proceeds from
the 2018 disposal and the Group's associate interest in River UK
Casino. This sale is subject to regulatory approvals. As a result,
this segment has been disclosed as a discontinued operation.
Operating expenses include point of consumption tax, third party
royalties and transaction costs which have reduced due to declining
revenues. Operating costs in total have increased 3% to GBP9.2m
(2017: GBP8.9m) as a result of the additional GBP1.4m profit share
payable to River.
This segment became EBITDA loss making in 2018 due to declining
revenues, the new profit share to River coupled with fixed
administrative costs increasing 5% on prior year.
Affiliates
The Affiliate marketing business was sold in March 2018 for
GBP2.4m after generating revenues of GBP0.2m in 2018 (2017:
GBP1.3m). The loss on disposal was GBP0.1m.
Cashflow, Balance Sheet and Going Concern
Net cash increased by GBP0.2m in 2018 (2017: decreased by
GBP1.3m). The current year cash position was boosted by the sale of
the Affiliate business for GBP2.4m plus the sale of certain real
money gaming assets to River for GBP4.2m cash in 2018. The post
year end sale agreement with River will, subject to completion,
generate an additional GBP11.5m, of which GBP1.5m is deferred to
2020.
Net assets totalled GBP17.7m (2017: GBP16.4m).
Following the global high margin opportunities in game content
licensing and the 2019 sale of the remaining B2C real money gaming
segment the Directors believe the Group is in a strong position and
expects to continue to be cash generative for 2019. As a result,
the Directors consider that the Group has adequate resources to
continue its normal course of operations for the foreseeable
future.
Dividend
During the year, Gaming Realms did not pay an interim or final
dividend. The Board of Directors are not proposing a final dividend
for the current year.
Corporation and deferred taxation
The Group received GBP0.1m (2017: GBP0.4m) in research and
development credits in Canada and has recognised an unwind of
deferred tax of GBP0.3m (2017: GBP0.2m) which arose on prior year
business combinations.
Mark Segal
Chief Financial Officer
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
Continuing GBP GBP
------------------------------------------ --------------------------------- ----------------------------
Revenue 6,173,196 7,606,110
Marketing expenses (665,363) (2,280,855)
Operating expenses (901,807) (1,487,905)
Administrative expenses (4,870,226) (7,502,371)
Impairment of financial asset (228,451) -
Share-based payments (67,824) 4,810
------------------------------------------ --------------------------------- ----------------------------
Adjusted EBITDA* total (542,911) 786,402
Adjusted EBITDA - discontinued 427,242 (3,566,356)
------------------------------------------ --------------------------------- ----------------------------
Adjusted EBITDA - continuing (115,669) (2,779,954)
Impairment of financial asset (228,451) -
Restructuring costs (216,355) (880,257)
EBITDA* continuing (560,475) (3,660,211)
---------------------------------
Amortisation of intangible assets (3,535,972) (4,292,283)
Depreciation of property, plant
and equipment (145,269) (173,638)
Impairment of goodwill (1,650,000) -
Finance expense (576,107) (752,600)
Finance income 419,894 239,603
------------------------------------------ --------------------------------- ----------------------------
Loss before tax (6,047,929) (8,639,129)
Tax credit 412,987 612,903
------------------------------------------ --------------------------------- ----------------------------
Loss for the financial year -
continuing (5,634,942) (8,026,226)
Profit/(Loss) for the financial
year - discontinued 6,564,246 (201,441)
------------------------------------------ --------------------------------- ----------------------------
Profit/(Loss) for the financial
year - total 929,304 (8,227,667)
------------------------------------------ --------------------------------- ----------------------------
Other comprehensive income
Items that will or may be reclassified
to profit or loss:
Fair value gain on available
for sale assets (pre 31 Dec 2017) - 207,222
Exchange gain/(loss) arising
on translation of foreign operations 491,611 (1,022,056)
------------------------------------------ --------------------------------- ----------------------------
Total other comprehensive income 491,611 (814,834)
------------------------------------------ --------------------------------- ----------------------------
Total comprehensive income 1,420,915 (9,042,501)
------------------------------------------ --------------------------------- ----------------------------
Profit/(loss) attributable to:
Owners of the parent 946,804 (8,225,956)
Non-controlling interest (17,500) (1,711)
--------------------------------- ----------------------------
929,304 (8,227,667)
------------------------------------------ --------------------------------- ----------------------------
Total comprehensive income attributable
to:
Owners of the parent 1,443,741 (9,007,324)
Non-controlling interest (22,826) (35,177)
------------------------------------------ --------------------------------- ----------------------------
1,420,915 (9,042,501)
------------------------------------------ --------------------------------- ----------------------------
(Loss)/gain per share Pence Pence
Basic and diluted - continuing (1.98) (2.89)
Basic and diluted - discontinued 2.31 (0.07)
------------------------------------------ --------------------------------- ----------------------------
Basic and diluted - total 0.33 (2.96)
------------------------------------------ --------------------------------- ----------------------------
Consolidated Statement of Financial Position
As at 31 December 2018
31 December 31 December
2018 2017
GBP GBP
--------------------------------- ------------- -------------
Non-current assets
Intangible assets 12,848,623 20,464,170
Other investments 535,130 747,222
Property, plant and equipment 127,556 263,069
Other assets 132,577 163,865
--------------------------------- ------------- -------------
13,643,886 21,638,326
--------------------------------- ------------- -------------
Current assets
Trade and other receivables 2,681,500 3,759,434
Deferred consideration 665,690 -
Cash and cash equivalents 467,033 2,283,302
--------------------------------- ------------- -------------
3,814,223 6,042,736
Assets classified as held for
sale 11,392,013 2,292,881
--------------------------------- ------------- -------------
Total assets 28,850,122 29,973,943
--------------------------------- ------------- -------------
Current liabilities
Trade and other payables 2,484,592 9,269,732
Liabilities classified as held 4,830,076 -
for sale
--------------------------------- ------------- -------------
7,314,668 9,269,732
--------------------------------- ------------- -------------
Non-current liabilities
Deferred tax liability 607,943 881,512
Other Creditors 3,004,602 2,843,529
Derivative liabilities 200,000 600,000
--------------------------------- ------------- -------------
3,812,545 4,325,041
--------------------------------- ------------- -------------
Total liabilities 11,127,213 13,594,773
--------------------------------- ------------- -------------
Net assets 17,722,909 16,379,170
--------------------------------- ------------- -------------
Equity
Share capital 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
Foreign exchange reserve 1,911,453 1,419,842
Shares to be issued - 145,000
Retained earnings (32,308,495) (33,530,345)
--------------------------------- ------------- -------------
Total equity attributable to
owners of the parent 17,570,585 16,209,346
--------------------------------- ------------- -------------
Non-controlling interest 152,324 169,824
--------------------------------- ------------- -------------
Total equity 17,722,909 16,379,170
--------------------------------- ------------- -------------
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
GBP GBP
-------------------------------------------------- ------------- ------------
Cash flows from operating activities
Profit/(loss) for the period 929,304 (8,227,667)
Adjustments for:
Depreciation of property, plant and
equipment 145,269 173,638
Amortisation of intangible fixed assets 4,319,920 4,932,699
Impairment 4,479,026 3,127,381
Share of loss of associate 172,360 -
Finance income (679,160) (239,603)
Finance expense 576,107 792,891
Income Tax credit (412,987) (612,903)
Unrealised currency translation gains (11,076) (57,957)
Loss on disposal of property, plant
and equipment 41,646 11,670
Profit on disposal of assets (12,421,621) -
Fair value movement on contingent consideration 1,900,065 -
Cash settlement of director share-based (145,000) -
payment
Share-based payments (release)/expense 67,824 (4,810)
Increase in trade and other receivables (310,396) (411,839)
(Decrease)/increase in trade and other
payables (951,414) 1,166,029
-------------------------------------------------- ------------- ------------
Net cash flows from operating activities
before taxation (2,300,133) 649,529
-------------------------------------------------- ------------- ------------
Research and Development tax receipts
in the year 133,130 389,286
-------------------------------------------------- ------------- ------------
Net cash flows from operating activities (2,167,003) 1,038,815
-------------------------------------------------- ------------- ------------
Investing activities
Acquisition of associate (3,000) -
Purchases of property, plant and equipment (34,712) (91,447)
Purchase of intangibles (3,017,674) (3,197,971)
Proceeds from disposal of property,
plant and equipment - 382
Proceeds from disposal of assets, net 5,725,593 -
of disposal costs
Interest received 120 1,294
-------------------------------------------------- ------------- ------------
Net cash used in investing activities 2,670,327 (3,287,742)
-------------------------------------------------- ------------- ------------
Financing activities
Proceeds of Ordinary Share issue - 1,132,499
Proceeds from issue of convertible debt - 122,966
Cost relating to issue of convertible
debt (24,846) (96,763)
Interest paid (232,241) (173,192)
-------------------------------------------------- ------------- ------------
Net cash from financing activities (257,087) 985,510
-------------------------------------------------- ------------- ------------
Net (decrease)/increase in cash and
cash equivalents 246,237 (1,263,417)
Cash and cash equivalents at beginning
of period 1,319,098 2,597,465
Exchange (gain)/losses on cash and cash
equivalents (15,194) (14,950)
-------------------------------------------------- ------------- ------------
Cash and cash equivalents at end of
period 1,550,141 1,319,098
-------------------------------------------------- ------------- ------------
Consolidated Statement of Changes in Equity
For the year ended 31 December 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
year - - - - - - (8,225,956) (8,225,956) (1,711) (8,227,667)
Other
comprehensive
income - - - 207,222 (988,590) - - (781,368) (33,466) (814,834)
Total
comprehensive
income for
the year - - - 207,222 (988,590) - (8,225,956) (9,007,324) (35,177) (9,042,501)
---------------- ----------- ----------- ------------- ----------- ---------- ---------- ------------- ------------ ----------------- ------------
Contributions
by and
distributions
to owners
Shares issued
as part
of the
capital
raising 1,029,545 102,955 - - - - - 1,132,500 - 1,132,500
Share-based
payment
to Director - - - - - 145,000 - 145,000 - 145,000
Share-based
payment
on share
options - - - - - - (149,810) (149,810) - (149,810)
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
---------------- ----------- ----------- ------------- ----------- ---------- ---------- ------------- ------------ ----------------- ------------
Impact of
adoption
of IFRS 9 - - - (207,222) - - 207,222 - - -
---------------- ----------- ----------- ------------- ----------- ---------- ---------- ------------- ------------ ----------------- ------------
1 January 2018 28,442,874 87,198,410 (67,673,657) - 1,419,842 145,000 (33,323,123) 16,209,346 169,824 16,379,170
---------------- ----------- ----------- ------------- ----------- ---------- ---------- ------------- ------------ ----------------- ------------
Loss for the
year - - - - - - 946,804 946,804 (17,500) 929,304
Other
comprehensive
income - - - - 491,611 - - 491,611 - 491,611
Total
comprehensive
income/(loss)
for the
year - - - - 491,611 - 946,804 1,438,415 (17,500) 1,420,915
---------------- ----------- ----------- ------------- ----------- ---------- ---------- ------------- ------------ ----------------- ------------
Contributions
by and
distributions
to owners
Share-based
payment
to Director
settled
via cash - - - - - (145,000) - (145,000) - (145,000)
Share-based
payment
on share
options - - - - - - 67,824 67,824 - 67,824
31 December
2018 28,442,874 87,198,410 (67,673,657) - 1,911,453 - (32,308,495) 17,570,585 152,324 17,722,909
---------------- ----------- ----------- ------------- ----------- ---------- ---------- ------------- ------------ ----------------- ------------
Notes to the Preliminary Results
For the year ended 31 December 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, SE1
8QH.
Basis of preparation
The consolidated financial statements are presented in
sterling.
These financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRSs) as
adopted by the EU and on a basis consistent with those policies set
out in our audited financial statements for the year ended 31
December 2017.
The financial information set out in this document does not
constitute the Group's statutory accounts for the year ended 31
December 2017 or 31 December 2018.
Statutory accounts for the year ended 31 December 2017 have been
filed with the Registrar of Companies and those for the year ended
31 December 2018 will be delivered to the Registrar in due course;
both have been reported on by independent auditors. The independent
auditors' reports on the Annual Report and Accounts for the year
ended 31 December 2018 includes a material uncertainty in respect
of going concern.
The auditors draw attention to the disclosures made in note 1 to
the financial statements concerning the Group and the Company's
ability to continue as a going concern. The report states that that
the business is dependent on the receipt of the deferred
consideration due following the disposal of brands to River iGaming
Plc, or the completion of the proposed sale of the remainder of the
Group's real money gaming business to the same purchaser to enable
it to continue as a going concern. The matters referred to in note
1 to the financial statements indicate that a material uncertainty
exists that may cast significant doubt on the Group and Company's
ability to continue as a going concern. The auditor's opinion is
not modified in respect of this matter.
The independent auditors' reports on the Annual Report and
Accounts for the year ended 31 December 2018 and 31 December 2017
were unqualified and did not contain a statement under 498(2) or
498(3) of the Companies Act 2006.
Going concern
The Group meets its day-to-day working capital requirements from
the cash flows generated by its trading activities and its
available cash resources. These are supplemented when required by
the Group's bank overdraft facility, which is available until
August 2019.
Whilst there are a number of risks to the Group's trading
performance, as summarised in the full Annual Report, the Group is
confident of its ability to continue to access sources of funding
in the medium term. The Group's strategic forecasts, based on
reasonable assumptions, indicate that the Group should be able to
operate within the level of its currently available facilities.
After making enquiries and after consideration of the Group's
existing operations, cash flow forecasts and assessment of
business, regulatory and financing risks, the potential risks and
impacts of Brexit, the directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future.
As of the date of approval of these financial statements, the
proposed sale of the remaining B2C RMG business to River is yet to
complete. If this sale does not go through as planned, GBP4.2m is
still receivable under the original 2018 sale and is due in August
2019. The Group's facility with its banker expires in August 2019.
As such, if there is a material delay in either the completion of
the sale of the remaining B2C RMG business or the receipt of the
GBP4.2m deferred consideration, alternative funding arrangements
would be required in the interim which are not yet in place. This
therefore represents a material uncertainty which may cast
significant doubt over the Group's ability to continue as a going
concern.
Accordingly, they continue to adopt the going concern basis in
preparing the Annual Report and Accounts.
The preparation of financial statements in compliance with
adopted IFRSs requires the use of certain critical accounting
estimates. It also requires Group management to exercise judgement
in applying the Group's accounting policies.
Basis of consolidation
The Group financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(subsidiaries). Control is achieved when the Company is exposed, or
has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its
power over the investee.
The results of subsidiaries acquired or disposed of during the
period are included in the Consolidated Statement of Comprehensive
Income from the effective date of acquisition up to the effective
date of disposal. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring the accounting
policies used in line with those used by the Group.
All intra-Group transactions, balances, income and expenses are
eliminated on consolidation.
Business combinations
On acquisition, the assets, liabilities and contingent
liabilities of a subsidiary are measured at their fair values at
the date of acquisition. Any excess of the cost of acquisition over
the fair values of the identifiable net assets acquired, including
separately identifiable intangible assets, is recognised as
goodwill. Any discount on acquisition, i.e. where the cost of
acquisition is below the fair value of the identifiable net assets
acquired, is credited to the Statement of Comprehensive Income in
the period of acquisition.
Interests in associates
Where the Group has the power to participate in (but not
control) the financial and operating policy decisions of another
entity, it is classified as an associate. Associates are initially
recognised in the consolidated statement of financial position at
cost. Where the interest in the associate arises as a result of the
disposal of a subsidiary, the amount recognised as cost is the fair
value of the interest retained in the associate.
Subsequently associates are accounted for using the equity
method, where the Group's share of post-acquisition profits and
losses and other comprehensive income is recognised in the
consolidated statement of profit and loss and other comprehensive
income (except for losses in excess of the Group's investment in
the associate unless there is an obligation to make good those
losses).
Profits and losses arising on transactions between the Group and
its associates are recognised only to the extent of unrelated
investors' interests in the associate. The investor's share in the
associate's profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the
Group's share of the identifiable assets, liabilities and
contingent liabilities acquired is capitalised and included in the
carrying amount of the associate. Where there is an indicator that
the investment in an associate may have been impaired the carrying
amount of the investment is tested for impairment in the same way
as other non-financial assets.
2. Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP measures and exclude
exceptional items, depreciation, and amortisation. Exceptional
items are those items the Group considers to be non-recurring or
material in nature that may distort an understanding of financial
performance or impair comparability.
Adjusted EBITDA is stated before exceptional items as
follows:
2018 2017
GBP GBP
------------------------------------ ---------- ----------
Restructuring costs - share-based
payment - (145,000)
Restructuring costs (216,355) (735,257)
------------------------------------ ---------- ----------
Adjusting items (216,355) (880,257)
------------------------------------ ---------- ----------
Disposal of RMG assets to River
On 16th August 2018 the Group entered into an Asset Purchase
Agreement with River for the sale of 4 of the Group's Real Money
brands including customer lists, domain names and contractual
agreements. The resulting initial profit on disposal of GBP12.5m
has been classified as exceptional due to its one-off nature.
Disposal of Affiliate business
On 22 March 2018, the Group sold its Affiliate business to First
Leads Ltd. The resulting loss on disposal of GBP0.1m has been
classified as exceptional due to its one-off nature.
Restructuring costs
During 2018 restructuring costs of GBP0.2m were incurred
relating to redundancy and consulting costs.
During 2017 the Group closed the Seattle office. Restructuring
costs in the prior year related to the closure costs associated
with this including employee severance payments.
3. 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 2 continuing reportable operating segments:
-- Licensing - brand and content licensing to partners in the US and Europe
-- Social publishing - provides freemium games to the US and Europe
There were no customers who generated more than 10% of total
revenue. Management do not report segmental assets and liabilities
internally and as such an analysis is not reported.
Licensing Social Head Total
publishing Office 2018
GBP GBP GBP GBP
------------------------------- --------------------- --------------------- ------------ ------------
Revenue 2,248,003 3,920,619 394,038 6,562,660*
Marketing expense - (414,064) (251,298) (665,362)
Operating expense (199,412) (1,091,460) (400) (1,291,272)
Administrative expense (1,054,712) (861,253) (2,737,906) (4,653,871)
Share-based payments - - (67,824) (67,824)
------------------------------- --------------------- --------------------- ------------ ------------
Adjusted EBITDA 993,879 1,553,842 (2,663,390) (115,669)
------------------------------- --------------------- --------------------- ------------ ------------
Restructuring costs (216,355)
------------------------------- --------------------- --------------------- ------------ ------------
EBITDA - continuing (332,024)
------------------------------- --------------------- --------------------- ------------ ------------
Amortisation of Intangible
assets (3,535,972)
Depreciation of property,
plant and equipment (145,269)
Impairment (1,878,451)
Finance expense (576,107)
Finance income 419,894
------------------------------- --------------------- --------------------- ------------ ------------
Loss before tax - continuing (6,047,929)
------------------------------- --------------------- --------------------- ------------ ------------
Licensing Social Head Total
publishing Office 2017
GBP GBP GBP GBP
------------------------------- --------------------- --------------------- --------------------- ------------
Revenue 839,541 6,878,760 179,315 7,897,616*
Marketing expense - (2,171,341) (109,514) (2,280,855)
Operating expense (24,961) (1,754,450) - (1,779,411)
Administrative expense (1,036,352) (3,010,164) (2,720,598) (6,767,114)
Share-based payments - - 149,810 149,810
------------------------------- --------------------- --------------------- --------------------- ------------
Adjusted EBITDA (221,772) (57,195) (2,500,987) (2,779,954)
------------------------------- --------------------- --------------------- --------------------- ------------
Restructuring costs (735,257)
Restructuring costs -
share-based payment (145,000)
------------------------------- --------------------- --------------------- --------------------- ------------
EBITDA - continuing (3,660,211)
------------------------------- --------------------- --------------------- --------------------- ------------
Amortisation of Intangible
assets (4,292,283)
Depreciation of property,
plant and equipment (173,638)
Finance expense (752,600)
Finance income 239,603
------------------------------- --------------------- --------------------- --------------------- ------------
Loss before tax - continuing (8,639,129)
------------------------------- --------------------- --------------------- --------------------- ------------
* Segmental revenue includes GBP389,464 (2017: GBP291,506) of
inter-segment Licensing revenue. This is shown as an Operating
Expense under the real money gaming discontinued operations and
eliminates on consolidation.
4. finance income and expense
2018 2017
GBP GBP
--------------------------------------- ----- ------------------------------- -------------------------------
Finance income
Interest received 120 1,295
Unwind of interest on deferred
consideration receivable 20A 19,774 -
Fair value gain on derivative
liability 23 400,000 -
Foreign exchange movement on
deferred consideration - 238,309
--------------------------------------- ----- ------------------------------- -------------------------------
Total finance income 419,894 239,604
--------------------------------------- ----- ------------------------------- -------------------------------
Finance expense
Bank & loan interest paid 364,014 272,613
Unwind of interest on deferred
consideration payable - 479,987
Fair value loss on other investments 15 212,093 -
--------------------------------------- ----- ------------------------------- -------------------------------
Total finance expense 576,107 752,600
--------------------------------------- ----- ------------------------------- -------------------------------
The deferred consideration in relation to the acquisition from
RealNetworks Inc. was denominated in USD and the final payment of
$4.5m was settled on 15(th) December 2017.
The retranslation of this balance resulted in a GBP238,309 gain
in the prior year.
5. tax credit
2018 2017
GBP GBP
-------------------------------------- --------- --------
Current tax
Adjustment for current tax of prior
periods (11,078) (67)
R&D tax credit for the period 144,208 389,354
-------------------------------------- --------- --------
Total current tax credit 133,130 389,286
-------------------------------------- --------- --------
Deferred tax
(Decrease)/increase in deferred tax
liabilities 279,857 223,617
-------------------------------------- --------- --------
Total deferred tax credit 279,857 223,617
-------------------------------------- --------- --------
Total tax credit 412,987 612,903
-------------------------------------- --------- --------
The reasons for the difference between the actual tax credit for
the period and the standard rate of corporation tax in the UK
applied to profits for the year are as follows:
2018 2017
GBP GBP
------------------------------------------------ ------------ ------------
Loss for the period - continuing (6,047,930) (8,639,129)
Profit/(loss) for the period - discontinued 6,564,247 (201,441)
------------------------------------------------ ------------ ------------
Profit/(loss) for the period 516,317 (8,840,570)
Expected tax at effective rate of corporation
tax in the UK of 19% (2017: 19.3%) 98,100 (1,701,507)
Expenses not deductible for tax purposes 920,066 7,840
Income not chargeable for tax purposed (1,999,096) -
Effects of overseas taxation 290,594 179,516
Adjustment for over provision in prior
periods 11,078 67
Research and Development tax credit (144,208) (389,354)
Timing difference not recognised 115,285 -
Tax losses for which no deferred tax
assets have been recognised 295,194 1,290,535
------------------------------------------------ ------------ ------------
Total tax credit (412,987) (612,902)
------------------------------------------------ ------------ ------------
6. Loss per share
Basic profit/(loss) per share is calculated by dividing the
result attributable to ordinary shareholders by the weighted
average number of shares in issue during the year. For fully
diluted loss per share, the weighted average number of ordinary
shares in issue is adjusted to assume conversion of dilutive
potential ordinary shares. The Group's potentially dilutive
securities consist of share options, performance shares and a
convertible bond. As the continuing operations of the Group are
loss-making, none of the potentially dilutive securities are
currently dilutive.
2018 2017
GBP GBP
------------------------------------------------ ------------ ------------
Loss after tax - continuing (5,634,942) (8,026,226)
Profit/(loss) after tax - discontinued 6,564,246 (201,441)
------------------------------------------------ ------------ ------------
Profit/(loss) after tax - total 929,304 (8,227,667)
------------------------------------------------ ------------ ------------
Number Number
------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares
used in calculating basic loss per share 284,428,746 278,166,853
------------------------------------------------ ------------ ------------
Weighted average number of ordinary shares
used in calculating dilutive loss per share 284,428,746 278,166,853
------------------------------------------------ ------------ ------------
Pence Pence
------------------------------------------------ ------------ ------------
Basic and diluted loss per share - continuing (1.98) (2.89)
Basic and diluted profit/(loss) per share
- discontinued 2.31 (0.07)
------------------------------------------------ ------------ ------------
Basic and diluted profit/(loss) per share
- total 0.33 (2.96)
------------------------------------------------ ------------ ------------
7. Intangible assets
Goodwill Customer Software Development Domain Intellectual Total
database costs names Property
GBP GBP GBP GBP GBP GBP GBP
Cost
Balance at 1
January 2017 16,545,864 4,111,971 1,538,500 6,858,335 429,618 6,401,430 35,885,718
Additions - - - 3,197,971 - - 3,197,971
Disposals - - - - - - -
Reclassified
as held for sale (5,420,262) (2,343,632) - - - - (7,763,894)
FX Movement (480,045) (141,830) (134,559) (9,198) (35,287) (558,338) (1,359,257)
-------------------- ------------ ------------ ---------- ---------- -------------- ------------
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 - - - 3,017,674 - - 3,017,674
Disposals (2,191,809) (133,550) - - (364,986) - (2,690,345)
Reclassified
as held for sale (1,699,000) - - (3,374,902) - - (5,073,902)
FX Movement 302,020 89,231 84,659 18,257 73 351,280 845,520
At 31 December
2018 7,056,768 1,582,190 1,488,600 9,708,137 29,418 6,194,372 26,059,485
-------------------- ------------ ------------ ---------- ------------- ---------- -------------- ------------
Amortisation
Balance at 1
January 2017 - 2,841,672 642,988 2,438,105 198,932 1,102,184 7,223,881
Amortisation
charge - 916,459 490,691 2,627,075 135,287 763,187 4,932,699
Reclassified
as held for sale - (2,343,632) - - - - (2,343,632)
FX Movement - (86,841) (76,019) (3,918) (21,606) (128,196) (316,580)
At 31 December
2017 - 1,327,658 1,057,660 5,061,262 312,613 1,737,175 9,496,368
-------------------- ------------ ------------ ---------- ------------- ---------- -------------- ------------
Amortisation
charge - 300,949 277,088 2,946,864 52,470 742,549 4,319,920
Disposals - (133,550) - - (336,262) - (469,812)
Impairment 1,650,000 - - - - - 1,650,000
Reclassified
as held for sale - - - (2,108,114) - - (2,108,114)
FX Movement - 87,133 72,507 23,777 597 138,486 322,500
At 31 December
2018 1,650,000 1,582,190 1,407,255 5,923,789 29,418 2,618,210 13,210,862
-------------------- ------------ ------------ ---------- ------------- ---------- -------------- ------------
Net book value -
At 1 January
2017 16,545,864 1,270,299 895,512 4,420,230 230,686 5,299,246 28,661,837
At 31 December
2017 10,645,557 298,851 346,281 4,985,846 81,718 4,105,917 20,464,170
At 31 December
2018 5,406,768 - 81,345 3,784,348 - 3,576,162 12,848,623
-------------------- ------------ ------------ ---------- ------------- ---------- -------------- ------------
8. discontinued operations
During the year, the Group sold its affiliate CGU, disposed of
certain elements of the real money gaming CGU and was sufficiently
progressed with active discussions concerning the remainder of the
real money gaming CGU that this element has been classified as held
for sale as at 31 December 2018.
Analysis of profit for the financial year - discontinued
operations:
2018 2017
Real money gaming GBP GBP
------------------------------------ --- ------------ ----------
2018 Disposal
Profit on disposal A 12,492,369 -
(Loss)/profit for the financial
year C (977,362) 2,033,894
Real money gaming business
reclassified as held for sale
Share of loss of associate (172,360) -
Impairment in associate (2,829,026) -
Fair value movement on contingent
consideration (1,900,065)
----------------------------------------- ------------ ----------
6,613,556 2,033,894
---------------------------------------- ------------ ----------
Affiliate
---------------------------------- --- ---------- ------------
2018 Disposal
Loss on disposal B (70,748) -
(Loss)/profit for the financial
year C 21,438 892,046
Affiliate business reclassified - -
as held for sale
Impairment - (3,127,381)
--------------------------------------- ---------- ------------
(49,310) (2,235,335)
-------------------------------------- ---------- ------------
Profit/(loss) for the financial
year - discontinued 6,564,246 (201,441)
--------------------------------------- ---------- ------------
Real money gaming
Disposal in 2018
On 16th August 2018 the Group entered into an Asset Purchase
Agreement with River for the sale of 4 of the Group's real money
brands.
The disposed brands and associated activities were contributed
to a newly incorporated company in Malta, River UK Casino. As part
of the sale agreement, the Group received a 30% equity interest in
this company. In addition, a put and call option was entered into
giving River the right to purchase, and the Group the right to sell
to River, 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.
The minimum consideration receivable of GBP8.4m is structured as
follows; GBP4.2m received on completion plus a further GBP4.2m
payable 31 August 2019. Further consideration is achievable on an
earn-out basis, payable no later than 30 September 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.
Further to this, River UK Casino has entered into a five-year
B2B platform and content agreement with the Group.
Transfer to held for sale
The B2C RMG CGU has been classified as held for sale as at 31
December 2018. Management were actively seeking a sale for the
remainder of this business prior to the year end and heads of terms
had been signed with River. The sale is expected to complete very
shortly, following regulatory approvals.
A - RMG profit on disposal
GBP
--------------------------- ------ ------------
Cash consideration 4,200,000
Deferred consideration i 3,629,074
Contingent consideration ii 1,900,065
Fair value of put/call -
option iii
Investment in River UK
Casino iv 5,266,579
Less: Disposal costs (311,540)
Net proceeds 14,684,178
Less: Assets disposed
Intangible assets (2,191,809)
----------------------------------- ------------
Profit on disposal of
discontinued operation 12,492,369
----------------------------------- ------------
i A discount rate of 14.5% was used to calculate the present
value of GBP4.2m due 31 August 2019 at inception based
on the Group's Weighted Average Cost of Capital. The
deferred consideration is recognised in the respective
subsidiaries involved in the disposal. As a result of
the proposed disposal of Bear Group Limited and the
transfer of the company to held for sale, GBP3.6m of
deferred consideration is included in the disposal group,
and interest unwind of GBP0.3m included in discontinued
operations. The remaining deferred consideration of
GBP0.3m is included in continuing operations.
ii At inception the Group was expecting to achieve an additional
GBP2.2m earn-out. A discount rate of 14.5% was used
to calculate the fair value at inception based on the
Group's incremental borrowing rate.
iii The put/call option was considered to have nil value
at inception and as at 31 December 2018 on the basis
the 5.5x multiple is considered a market rate.
iv The initial carrying value of the Group's investment
in River UK Casino has been calculated as the expected
proceeds receivable upon exercise of the option to dispose
of the interest (see iii) in 2020. Based on management's
forecast at the date of the transaction, a further GBP7.1m
was expected to be received in August 2020. A discount
rate of 14.5% was used to calculate the present value
at inception based on the Group's Weighted Average Cost
of Capital.
Held
Continuing for sale Total
------------------------- --- ------------------- ---------------------- ----------------
Deferred consideration
for RMG A 260,916 3,368,159 3,629,074
Deferred consideration
for Affiliate B 385,000 - 385,000
Unwind of discount 19,774 255,266 275,040
------------------------------ ------------------- ---------------------- ----------------
665,690 3,623,425 4,289,115
----------------------------- ------------------- ---------------------- ----------------
Affiliate business
On 22 March 2018 the Group sold its Affiliate CGU for total
consideration of GBP2.4m to First Leads Ltd. First Leads paid
GBP2.0m on closing, and a further GBP0.4m was received in January
2019 based on the achievement of performance targets.
B - Loss on disposal of the Affiliate CGU
GBP
----------------------------------- --- ------------
Cash consideration 2,000,000
Deferred consideration i 385,000
Less: Disposal costs (162,867)
Net proceeds 2,222,133
Less: Assets disposed
Intangible assets (2,292,881)
---------------------------------------- ------------
Loss on disposal of discontinued
operation (70,748)
---------------------------------------- ------------
i The amount of deferred consideration was capped at GBP400,000
and reduced based on performance targets. The amount
receivable of GBP385,000 was confirmed with First Lead
Ltd as at 31 December 2018 and was received in January
2019.
C - Results of discontinued operations:
2018 2017
Real money gaming GBP GBP
----------------------------- ------------ ------------
Revenue 16,364,816 22,717,729
Marketing expenses (4,318,842) (8,022,410)
Operating expenses (9,169,594) (8,867,787)
Administrative expenses (3,325,060) (3,153,222)
------------------------------ ------------ ------------
EBITDA (448,680) 2,674,310
------------------------------ ------------ ------------
Amortisation of intangible
assets (783,948) (640,416)
Finance income 255,266 -
----------------------------- ------------ ------------
(977,362) 2,033,894
----------------------------- ------------ ------------
Affiliates
--------------------------------- ---------- ----------
Revenue 168,018 1,322,713
Marketing expenses (14,833) (128,316)
Operating expenses (15,809) (76,316)
Administrative expenses (115,938) (226,035)
---------------------------------- ---------- ----------
21,438 892,046
--------------------------------- ---------- ----------
Adjusted EBITDA - discontinued (427,242) 3,566,356
---------------------------------- ---------- ----------
The results of the discontinued RMG operations include the
results generated by the brands disposed to River UK Casino and
operated under the B2B platform and content agreement.
9. assets and liabilities classfified as held for sale
On 22 March 2018 the Group sold its Affiliate CGU, which was
classified as held for sale in the comparative balance sheet, for
total consideration of GBP2.4m to First Leads Ltd. During H2 2018
the Board concluded to pursue the sale of the remaining RMG
business and to accelerate the conclusion of the put/call option
over the Group's 30% interest in River UK Casino. Advisors were
appointed and offers invited, which were actively being discussed
during late 2018. The group has therefore reclassified this
business and the Group's interest in River UK Casino as held for
sale as at 31 December 2018.
No impairment has been recognised based on the recoverable
amount of goodwill attributable to this segment. Recoverable amount
has been calculated as fair value less the costs of disposal. Fair
value is measured at GBP11.5m based on active offers received
during late 2018.
Analysis of assets and liabilities classified as held for sale
in the year
The following major classes of assets and liabilities relating
to these operations have been classified as held for sale in the
consolidated statement of financial position on 31 December
2018:
31 December 31 December
2018 2017
GBP GBP
-------------------------------- ------------ ------------
Non-current assets
Intangible assets - goodwill 1,699,000 2,292,881
Intangible assets - platform 1,266,788 -
development costs
Investment in associate 2,268,192 -
Property, plant and equipment 12,789 -
Other assets 32,000 -
-------------------------------- ------------ ------------
5,278,769 2,292,881
-------------------------------- ------------ ------------
Current assets
Trade and other receivables 1,388,330 -
Deferred consideration 3,623,425 -
Cash and cash equivalents 1,101,489 -
--------------------------------
Assets held for sale 11,392,013 2,292,881
-------------------------------- ------------ ------------
Current liabilities
Trade and other payables 4,830,076 -
-------------------------------- ------------ ------------
Liabilities held for sale 4,830,076 -
-------------------------------- ------------ ------------
Associate investment in River UK Casino
The Group uses the equity method of accounting for associates.
The following table shows the aggregate movement in the Group's
interests in associates:
2018
GBP
----------------------- ------------
At 1 January 2018 -
Initial recognition
of associate 5,269,578
Share of associate's
loss (172,360)
Impairment (2,829,026)
----------------------- ------------
At 31 December
2018 2,268,192
----------------------- ------------
On 16 August Gaming Realms Plc acquired an investment of 30% of
the ordinary share capital of River UK Casino Limited, a newly
incorporated company in Malta, for consideration of GBP3,000. The
Group is able to exert significant influence over River UK Casino
by way of its 30% holding and its seat on the Board of
directors.
10. Arrangement with JackpotJoy group
In December 2017 the group entered into a complex transaction
with Jackpotjoy plc and group companies (together "Jackpotjoy
Group"). The transaction includes a GBP3.5m secured convertible
loan agreement alongside a 10-year framework services agreement for
the supply of various real money services.
The convertible loan principle of GBP3.5m was paid directly by
Jackpotjoy Group to RealNetworks to settle the outstanding $4.5m
(GBP3.4m) deferred consideration obligation, with the excess cash
of GBP0.1m transferred to the Group. Under the framework services
agreement the first GBP3.5m of services are provided free-of-charge
within the first 5 years.
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
with a cash payment equal to the aggregate value of the convertible
loan outstanding multiplied by the shortfall on nominal value
payable to Jackpotjoy Group. Under this arrangement, the maximum
dilution to Gaming Realms shareholders will be approximately 11%,
assuming the convertible loan is converted in full.
The option violates the fixed-for-fixed criteria for equity
classification as the number of shares is variable 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
initial fair value was GBP0.6m based on a probability assessment of
conversion and future share price. This is a level 3 valuation as
defined by IFRS 13. The fair value as at 31 December 2018 was
GBP0.2m (2017: GBP0.6m) based on revised probabilities of when and
if the option will be exercised. The key inputs into the valuation
model included timing of exercise by the counterparty (based on a
probability assessment) and the share price.
The initial fair value of the host debt was calculated as
GBP2.7m, being the present value of expected future cash outflows.
The rate used to discount future cashflows was 14.1%, being the
Group's incremental borrowing rate. This rate was calculated by
reference to the Group's cost of equity in the absence of reliable
alternative evidence of the Group's cost of borrowing given it is
predominantly equity funded. Expected cashflows are based on
directors' judgement that a change in control event would not
occur. Subsequently the loan is carried at amortised cost.
The residual GBP0.2m of proceeds were allocated to the
obligation to provide free services.
Fair Obligation Fair Total
value to provide value
of debt free services of derivative
host Liability
GBP GBP GBP
------------------------------- ---------- ---------------- ---------------- ----------
At 1 January 2018 2,630,469 213,000 600,000 3,443,469
Change in fair value - - (400,000) (400,000)
Cost relating to issue
of convertible debt (24,846) - - (24,846)
Utilisation of free services - (4,000) - (4,000)
Effective interest (14.4%) 360,475 - 360,475
Interest paid (170,495) - (170,495)
------------------------------- ---------- ---------------- ---------------- ----------
At 31 December 2018 2,795,603 209,000 200,000 3,204,603
------------------------------- ---------- ---------------- ---------------- ----------
11. Share capital
Ordinary shares
2018 2018 2017 2017
Number GBP Number GBP
---------------------
Ordinary shares of 284,428,747 28,442,874 284,428,747 28,442,874
------------ ----------- ------------ -----------
10 pence each
--------------------- ------------ ----------- ------------ -----------
On 11 August 2017 10,295,455 shares were issued at GBP0.11 per
share for a total consideration of GBP1,132,500.
12. Post balance sheet events
On 21 February 2019 Gaming Realms Plc entered into an agreement
("Transaction") with River to sell the remaining B2C real money
operations via the sale of Bear Group Ltd, a Company incorporated
in Alderney for total consideration of GBP11.5m, which includes
settlement of the deferred consideration, disposal of the associate
and settlement of the put/call option. The Company also has gaming
licences issued by the UK Gambling Commission and the Alderney
Gambling Commission. The Transaction also provides for the transfer
of the 30% shareholding Gaming Realms has in River UK Casino and
the acquisition of a sole perpetual licence for the use,
development and distribution of a gaming platform. River have now
received UK GC approval and expect to complete very shortly.
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
FR BCGDLRGDBGCR
(END) Dow Jones Newswires
June 28, 2019 02:01 ET (06:01 GMT)
Gaming Realms (LSE:GMR)
Historical Stock Chart
From Mar 2024 to Apr 2024
Gaming Realms (LSE:GMR)
Historical Stock Chart
From Apr 2023 to Apr 2024
