TIDMGYS
RNS Number : 1905T
Gamesys Group PLC
13 November 2019
Gamesys Group plc
Results for the Three and Nine Months Ended 30 September
2019
Q3 Reported revenues increase 23% and 20% pro-forma
International drives the top line and JPJ UK returns to growth,
confident in 2019 outlook
LONDON, 13 November 2019 - Gamesys Group plc (LSE: GYS) (the
'Group', 'Gamesys') (formerly JPJ Group plc), the parent company of
the online gaming group that provides online bingo and casino games
to a global consumer base, announces its results for the three and
nine months ended 30 September 2019.
Financial summary[1](,[2])
Nine months Nine months
Reported ended ended Reported
30 September 30 September
change 2019 2018 change
Three Three
months months
ended ended
30 September 30 September
2019 (GBPm) 2018 (GBPm) (%) (GBPm) (GBPm) (%)
------------------------------ -------------- -------------- --------- -------------- -------------- ---------
Gaming revenue 92.4 75.2 23 262.0 224.2 17
Net income from
continuing operations
(as reported
under IFRS) 3.4 7.6 (55) 8.5 7.4 15
Adjusted EBITDA[3] 25.5 27.6 (8) 79.5 80.6 (1)
Adjusted net
income(3) 17.7 22.1 (20) 58.5 63.8 (8)
Diluted net income
per share from
continuing operations[4] 0.04 0.10 (60) 0.11 0.10 10
Diluted adjusted
net income per
share from continuing
operations(3)
(,) (4) 0.23 0.30 (23) 0.78 0.85 (8)
Pro-forma financial summary[5]
Nine months Nine months
Reported ended ended Reported
30 September 30 September
change 2019 2018 change
Three
months Three months
ended ended 30
30 September September
2019 (GBPm) 2018 (GBPm) (%) (GBPm) (GBPm) (%)
----------------------- -------------- ------------- ------------ -------------- -------------- ---------
Gaming revenue 144.3 119.8 20 410.0 358.1 14
Adjusted EBITDA(3) 38.6 40.2 (4) 118.6 123.8 (4)
Financial highlights for Q3 2019
-- Strong reported financial performance
o Gaming revenue rose 23% year-on-year (20% excluding the
Gamesys Acquisition results), mainly as a consequence of high
organic growth[6] in markets outside the UK and after including
four days of trading from the acquired Gamesys brands (contributing
GBP2.3 million)
o Adjusted EBITDA(3) decreased 8% year-on-year principally due
to the impact from higher UK gaming taxes introduced in the
period
o Adjusted net income(3) decreased by 20% reflecting the
reduction in EBITDA
-- Pro-forma financial performance(5) in Q3 2019 reflects
accelerating growth in the acquired Gamesys brands of Virgin Games,
Virgin Casino, Heart Bingo and Monopoly Casino
o Group gaming revenue rose 20% year-on-year
o Acquired Gamesys brands grew revenues 22% year-on-year, driven
by strong organic growth(6) at Virgin Games, Virgin Casino, Heart
Bingo and Monopoly Casino
o Adjusted EBITDA(3) decreased 4% year-on-year further
reflecting the impact of higher UK gaming taxes
-- Completion of acquisition of Gamesys (Holdings) Limited on 26 September 2019
o Extended existing debt facilities by GBP173.6 million to
part-fund the cash component of the acquisition of Gamesys
(Holdings) Limited of GBP237.3 million (net of gains from
hedging)
o Adjusted net debt[7] of GBP484.7 million
o Consequently, adjusted net leverage ratio[8] of 3.02x
increased from 2.47x at 30 June 2019
-- Following another strong quarter, the Board remains confident
on the outlook for the remainder of the year
Operational highlights for Q3 2019
-- Successful completion of the Gamesys Acquisition
-- Continued high growth of international revenues at Vera&John
-- A return to revenue growth at Jackpotjoy UK as the impact of
enhanced responsible gambling measures annualises
-- Ongoing improvement in core KPIs[9](,[10],[11]) year-on-year:
o Average Active Customers per Month(9) (,) (10) (,) (11) grew
to 248,945 in the twelve months to 30 September 2019, an increase
of 7% year-on-year
o Average Real Money Gaming Revenue per Month(9) (,) (10) (,)
(11) grew to GBP27.5 million, an increase of 13% year-on-year
o Monthly Real Money Gaming Revenue per Average Active
Customer(9) (,) (10) (,) (11) of GBP110, an increase of 6%
year-on-year
Business segments highlights for Q3 2019 (reported)
-- Jackpotjoy(10) (56% of Group revenue) - increase in gaming
revenue of 5% year-on-year due to a return to growth at Jackpotjoy
UK and double digit growth from Botemania in Spain as well as the
inclusion of four days of revenue generated by the brands purchased
as part of the Gamesys Acquisition. On a like-for-like basis,
revenues in the segment were broadly flat; the decline in adjusted
EBITDA(3) reflects the impact of higher gaming taxes in the UK,
increased marketing spend as well as recent regulatory changes in
Sweden.
-- Vera&John (44% of Group revenue) - high growth in
international markets reflected in an increase in gaming revenue of
57% (or 55% on a constant currency basis[12]) which translates into
an adjusted EBITDA(3) increase of 22%.
Outlook
Strong trading in the third quarter supports management's
confidence in the full-year outturn. Our expectation that
Jackpotjoy UK would return to growth in H2 2019 has been confirmed
in these numbers and our major international markets and the
acquired Gamesys brands are delivering high growth.
Neil Goulden, Executive Chairman, Gamesys Group plc
commented:
"I am pleased to report that the Group has delivered another
stand-out quarter of revenue growth alongside the expected EBITDA
impact from higher gaming taxes. Pro-forma revenues(5) were up 20%
in Q3 2019, principally due to the exceptional performance of
Vera&John in its international footprint and the high growth in
the acquired Gamesys brands, as well as a return to revenue growth
in Jackpotjoy UK.
During the quarter, the Group successfully completed the Gamesys
Acquisition, creating a leading UK and international operator and
offering customers an even greater choice of major brands and
different games. It is also worth noting that from 2020 our Q1 and
Q3 updates will be shorter form trading updates in line with
general UK practice. This reflects the fact that the Group's
reporting requirements in Canada will no longer oblige us to report
consolidated financial statements for the respective three and nine
month periods."
Lee Fenton, Chief Executive Officer, Gamesys Group plc,
commented:
"It is a very exciting time for all involved at Gamesys Group
plc. The successful combination of two leading and complementary
businesses with a unique technology offering, a strong pool of
talent and an enhanced portfolio of brands, ensures the Group is in
a strong position to take advantage of future growth possibilities
and we are already reaping the benefits in terms of operating
performance. Q3 has seen excellent growth across the acquired
Gamesys brands, an outstanding performance at Vera&John and a
return to growth at Jackpotjoy UK which helps underpin our
confidence in the outlook."
Conference call
A conference call for analysts and investors will be held today
at 1.00pm GMT / 8.00am ET. To participate, interested parties are
asked to dial +44 (0) 20 3003 2666 (UK shareholders); +1 866 378-
3566 (Canada); or +1 866 966-5335 (US), 10 minutes prior to the
scheduled start of the call using the reference "Gamesys"'. A
replay of the conference call will be available for 30 days by
dialling +44 (0) 20 8196 1998 or + 1 866 595 5357 and using
reference 2081546#. A transcript will also be made available on
Gamesys Group plc's website at www.gamesysgroup.com/investors
Enquiries
Gamesys Group plc jason.holden@gamesysgroup.com
Jason Holden +44 (0) 207 478 8150
Director of Investor Relations +44 (0) 7812 142118
Finsbury gamesysgroup-LON@finsbury.com
+44 (0) 207 251 3801
James Leviton, Andy Parnis
Note regarding non-IFRS financial measures
The following non-IFRS definitions are used in this release
because management believes that they provide additional useful
information regarding ongoing operating and financial performance.
Readers are cautioned that the definitions are not recognised
measures under IFRS, do not have standardised meanings prescribed
by IFRS, and should not be considered in isolation or construed to
be alternatives to revenues and net income/(loss) and comprehensive
income/(loss) for the period determined in accordance with IFRS or
as indicators of performance, liquidity or cash flows. Our method
of calculating these measures may differ from the method used by
other entities. Accordingly, our measures may not be comparable to
similarly titled measures used by other entities or in other
jurisdictions.
Adjusted EBITDA, as defined by the Group, is income from
continuing operations before interest expense including accretion
(net of interest income), income taxes, amortisation and
depreciation, share-based compensation, severance costs, fair value
adjustments on contingent consideration, transaction related costs
and foreign exchange (gain)/loss. Management believes that Adjusted
EBITDA is an important indicator of the issuer's ability to
generate liquidity to service outstanding debt and uses this metric
for such purpose. The exclusion of share-based compensation
eliminates non-cash items and the exclusion of fair value
adjustments on contingent consideration, severance costs,
transaction related costs and foreign exchange (gain)/loss
eliminates items which management believes are either
non-operational and/or non-routine.
Adjusted Net Income, as defined by the Group, means net income
from continuing operations plus or minus items of note that
management may reasonably quantify and believes will provide the
reader with a better understanding of the Group's underlying
business performance. Adjusted Net Income is calculated by
adjusting net income for accretion on financial liabilities,
amortisation of acquisition related purchase price intangibles
(including non-compete clauses), share-based compensation,
severance costs, fair value adjustments on contingent
consideration, transaction related costs and foreign exchange
(gain)/loss. The exclusion of accretion on financial liabilities
and share-based compensation eliminates the non-cash items and the
exclusion of amortisation of acquisition related purchase price
intangibles (including non-compete clauses), fair value adjustments
on contingent consideration, severance costs, transaction related
costs and foreign exchange (gain)/loss eliminates items which
management believes are non-operational and/or non-routine.
Adjusted Net Income is considered by some investors and analysts
for the purpose of assisting in valuing a company.
Diluted Adjusted Net Income per share from continuing
operations, as defined by the Group, means Adjusted Net Income
divided by the diluted weighted average number of shares
outstanding, calculated using the IFRS treasury method, for the
applicable period. Management believes that Diluted Adjusted Net
Income per share from continuing operations assists with the
Group's ability to analyse Adjusted Net Income on a diluted
weighted average per share basis.
Cautionary Note Regarding Forward Looking Information
This release contains certain information and statements that
may constitute 'forward-looking information' (including
future-oriented financial information and financial outlooks)
within the meaning of applicable laws, including Canadian
securities laws. Often, but not always, forward-looking information
can be identified by the use of words such as 'plans', 'expects',
'estimates', 'projects', 'predicts', 'targets', 'seeks', 'intends',
'anticipates', 'believes', or 'is confident of' or the negative of
such words or other variations of or synonyms for such words, or
state that certain actions, events or results 'may', 'could',
'would', 'should', 'might' or 'will' be taken, occur or be
achieved. Forward-looking information involves known and unknown
risks, uncertainties and other factors which may cause actual
results, performance, achievements or developments to be materially
different from those anticipated by the Group and expressed or
implied by the forward-looking statements. Forward-looking
information contained in this release includes, but is not limited
to, statements with respect to the Group's future financial
performance, the future prospects of the Group's business and
operations, the Group's growth opportunities and the execution of
its growth strategies, the future performance of the Jackpotjoy
segment, the possibility of the Group drawing on the RCF, and the
statements made under the heading 'Outlook' of this release.
Certain of these statements may constitute a financial outlook
within the meaning of Canadian securities laws. These statements
reflect the Group's current expectations related to future events
or its future results, performance, achievements or developments,
and future trends affecting the Group. All such statements, other
than statements of historical fact, are forward-looking
information. Such forward-looking information is based on a number
of assumptions which may prove to be incorrect, including, but not
limited to, the ability of the Group to secure, maintain and comply
with all required licences, permits and certifications to carry out
business in the jurisdictions in which it currently operates or
intends to operate; governmental and regulatory actions, including
the introduction of new laws or changes in laws (or the
interpretation thereof) related to online gaming; general business,
economic and market conditions (including market growth rates and
the withdrawal of the UK from the European Union); the Group
operating in foreign jurisdictions; the competitive environment;
the expected growth of the online gaming market and potential new
market opportunities; anticipated and unanticipated costs; the
protection of the Group's intellectual property rights; the Group's
ability to successfully integrate and realise the benefits of its
completed acquisitions; the Group's relationship with third
parties; the ability of the Group to service its debt obligations;
and the ability of the Group to obtain additional financing, if, as
and when required. Such statements could also be materially
affected by risks relating to the lack of available and qualified
personnel or management; stock market volatility; taxation
policies; competition; foreign operations; the Group's limited
operating history and the Group's ability to access sufficient
capital from internal or external sources. However, whether actual
results and developments will conform with the expectations and
predictions contained in the forward-looking information is subject
to a number of risks and uncertainties, many of which are beyond
the Group's control, and the effects of which can be difficult to
predict, including that the assumptions outlined above may not be
accurate. For a description of additional risk factors, see
Schedule 'A' attached to Gamesys Group plc's most recently filed
annual information form. Although the Group has attempted to
identify important factors that could cause actual results,
performance, achievements or developments to differ materially from
those described in forward-looking statements, there may be other
factors that cause actual results, performance, achievements or
developments not to be as anticipated, estimated or intended. There
can be no assurance that forward-looking statements will prove to
be accurate, as actual results, performance, achievement or
developments are likely to differ, and may differ materially, from
those expressed in or implied by the forward-looking information
contained in this release. Accordingly, readers should not place
undue reliance on forward-looking information. While subsequent
events and developments may cause the Group's expectations,
estimates and views to change, the Group does not undertake or
assume any obligation to update or revise any forward-looking
information, except as required by applicable securities laws. The
forward-looking information contained in this release should not be
relied upon as representing the Group's expectations, estimates and
views as of any date subsequent to the date of this release. The
forward-looking information contained in this release is expressly
qualified by this cautionary statement. Investors should not place
undue reliance on forward-looking statements as the plans,
intentions or expectations upon which they are based might not
occur.
Any future-oriented financial information or financial outlooks
in this release (including any such information or outlooks under
the heading 'Outlook' on page 3 of this release) are based on
certain assumptions regarding expected growth, results of
operations, performance, and business prospects and opportunities.
While the Group considers these assumptions to be reasonable, based
on information currently available, they may prove to be incorrect.
These risks, uncertainties and other factors include, but are not
limited to: credit, market, currency, operational, liquidity and
funding risks, including changes in economic conditions, and
interest rates or tax rates.
Financial Review(2)
Gaming revenue (reported)
The Group's gaming revenue during the three months ended 30
September 2019 consisted of:
-- GBP52.2 million in revenue earned from Jackpotjoy's(10) operational activities.
-- GBP40.2 million in revenue earned from Vera&John's operational activities.
The Group's gaming revenue during the three months ended 30
September 2018 consisted of:
-- GBP49.5 million in revenue earned from Jackpotjoy's(10) operational activities.
-- GBP25.7 million in revenue earned from Vera&John's operational activities.
The increase in gaming revenue for the three months ended 30
September 2019 in comparison with the three months ended 30
September 2018 relates to organic growth(6) of the Jackpotjoy(10)
and Vera&John segments, where gaming revenue increased by 1%
and 57%, respectively.
The Group's gaming revenue during the nine months ended 30
September 2019 consisted of:
-- GBP150.0 million in revenue earned from Jackpotjoy's(10) operational activities.
-- GBP112.0 million in revenue earned from Vera&John's operational activities.
The Group's gaming revenue during the nine months ended 30
September 2018 consisted of:
-- GBP153.1 million in revenue earned from Jackpotjoy's(10) operational activities.
-- GBP71.0 million in revenue earned from Vera&John's operational activities.
The increase in gaming revenue for the nine months ended 30
September 2019 in comparison with the nine months ended 30
September 2018 relates to organic growth(6) of the Vera&John
segment, where gaming revenue increased by 58%.
Costs and expenses
Three month Three month period Nine month period Nine month period
period ended ended ended ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
--------------------- ---------------------- ---------------------- ----------------------
Distribution costs 50,673 36,418 138,585 111,145
Administrative costs 28,970 25,221 81,745 74,229
Severance costs - 400 - 850
Transaction related
costs 3,039 275 15,240 1,340
82,682 62,314 235,570 187,564
--------------------- ---------------------- ---------------------- ----------------------
Distribution costs
Three month Three month period Nine month period Nine month period
period ended ended ended ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
--------------------- ---------------------- ---------------------- ----------------------
Selling and marketing 18,948 12,528 49,928 39,139
Licensing fees 12,392 10,293 35,817 30,117
Gaming taxes 12,431 8,946 34,721 28,927
Processing fees 6,902 4,651 18,119 12,962
--------------------- ---------------------- ---------------------- ----------------------
50,673 36,418 138,585 111,145
--------------------- ---------------------- ---------------------- ----------------------
Selling and marketing expenses consist of payments made to
affiliates and general marketing expenses related to each brand.
Licensing fees consist of the fees for the Jackpotjoy(10) segment
to operate on its platforms and game suppliers' fees paid by both
the Vera&John and Jackpotjoy(10) segments. Gaming taxes largely
consist of point of consumption taxes, payable in the regulated
jurisdictions that the Group operates in. Variance in gaming taxes
from prior periods relates to an increase in remote gaming duty
from 15% to 21%, which came into effect in the UK in Q2 2019.
Processing fees consist of costs associated with using payment
providers and include payment service provider transaction and
handling costs, as well as deposit and withdrawal fees. With the
exception of selling and marketing expenses, distribution costs
tend to be variable in relation to revenue.
The increase in distribution costs for the three and nine months
ended 30 September 2019 compared to the same periods in 2018 is
mainly due to increased revenue and marketing spend in the
Jackpotjoy(10) and Vera&John segments.
Administrative costs
Three month Three month Nine month Nine month
period ended period ended period ended period ended
30 September 30 September 30 September 30 September
2019 2018 2019 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------------------ -------------- ------------------------------ --------------
Compensation and
benefits 11,755 7,993 31,409 22,572
Professional fees 1,292 797 3,650 2,846
General and
administrative 3,331 2,534 9,096 7,460
Amortisation and
depreciation 12,592 13,897 37,590 41,351
------------------------------ -------------- ------------------------------ --------------
28,970 25,221 81,745 74,229
------------------------------ -------------- ------------------------------ --------------
Compensation and benefits costs consist of salaries, wages,
bonuses, directors' fees, benefits and share-based compensation
expense. The increase in these expenses for the three and nine
months ended 30 September 2019 compared to the same periods in 2018
is primarily due to additional staff hired as well as higher bonus
accruals as the business continues to grow.
Professional fees consist mainly of legal, accounting and audit
fees. The increase in professional fees for the three and nine
months ended 30 September 2019 compared to the same periods in 2018
can be attributed to services obtained in relation to some of the
Group's operational and corporate initiatives.
General and administrative expenses consist of items, such as
travel and accommodation, insurance, listing authority fees,
technology and development costs, and other office overhead
charges. The increase in these costs for the three and nine months
ended 30 September 2019 compared to the same periods in 2018 can be
attributed to higher office overhead costs.
Amortisation and depreciation expenses consist of amortisation
of the Group's intangible assets and depreciation of the Group's
tangible assets over their useful lives. The decrease in
amortisation and depreciation in the three and nine months ended 30
September 2019 is due to the fact that amortisation expense related
to purchase price intangibles recognised in prior periods decreases
with each passing period of their useful lives as a result of the
amortisation method used. It further relates to the fact that the
Group's non-compete clauses were fully amortised during the three
months ended 31 March 2019. The decrease is marginally offset by
additional depreciation recognised as a result of adoption of IFRS
16.
Transaction related costs
Transaction related costs consist of legal, professional, due
diligence, other direct costs/fees associated with transactions and
acquisitions or disposals contemplated or completed by the Group.
The increase in transaction related costs in the three and nine
months ended 30 September 2019 compared to the same periods in 2018
relates to the Gamesys Acquisition.
Business unit results
Jackpotjoy(10)
Q3 2019 Q3 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ --------------- ------------ -----------
Gaming revenue 52,214 49,516 2,698 5%
------------ --------------- ------------ -----------
Distribution costs 29,485 23,647 5,838 25%
Administrative costs 4,537 4,120 417 10%
------------ --------------- ------------ -----------
Adjusted EBITDA(3) 18,192 21,749 (3,557) (16%)
------------ --------------- ------------ -----------
YTD 2019 YTD 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ ------------ ------------ -----------
Gaming revenue 149,955 153,127 (3,172) (2%)
------------ ------------ ------------ -----------
Distribution costs 84,704 73,854 10,850 15%
Administrative costs 12,949 11,582 1,367 12%
------------ ------------ ------------ -----------
Adjusted EBITDA(3) 52,302 67,691 (15,389) (23%)
------------ ------------ ------------ -----------
Gaming revenue for the Jackpotjoy(10) segment for the three
months ended 30 September 2019 was 5% higher than in the same
period in 2018 primarily as a result of additional revenue of
GBP2.3 million generated by the brands purchased as part of the
Gamesys Acquisition as well as increases in the Jackpotjoy UK,
Starspins and Botemania brands, offset by a decline in the
Jackpotjoy Sweden brand. The growth in the Jackpotjoy UK brand,
which accounted for 64% (three months ended 30 September 2018 -
67%) of the segment's revenue is due to the fact that the enhanced
responsible gambling measures introduced in the UK have started to
annualise. The increase is further driven by growth in the
Botemania brand, which accounted for 17% (three months ended 30
September 2018 - 15%) of the segment's revenue. The decline in
Jackpotjoy's Swedish brand, which accounted for 2% (three months
ended 30 September 2018 - 5%) of the segment's revenue is due to
recent regulatory changes in Sweden.
Gaming revenue for the Jackpotjoy(10) segment for the nine
months ended 30 September 2019 was 2% lower than in the same period
in 2018 primarily due to a decline in the Jackpotjoy UK brand,
which accounted for 65% (nine months ended 30 September 2018 - 67%)
of the segment's revenue, as well as a decline in the Jackpotjoy
Sweden brand, which accounted for 3% (nine months ended 30
September 2018 - 5%) of the segment's revenue. The decline in both
Jackpotjoy UK and Jackpotjoy Sweden brands is due to enhanced
responsible gambling measures introduced in the UK and recent
regulatory changes in Sweden. The decrease was partially offset by
an increase in the Botemania brand, which accounted for 17% (nine
months ended 30 September 2018 - 15%) of this segment's
revenue.
The increase in distribution costs for the three and nine months
ended 30 September 2019 compared to the same periods in 2018 was
primarily driven by an increase in marketing spend in the UK as
well as an increase in gaming taxes as a result of an increase in
the UK tax rates, which came into effect in Q2 2019 and the
introduction of gaming taxes in Sweden.
The increase in administrative costs for the three and nine
months ended 30 September 2019 compared to the same periods in 2018
was mainly driven by increases in compensation.
Vera&John
Q3 2019 Q3 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ ---------------- ------------ -----------
Gaming revenue 40,233 25,685 14,548 57%
------------ ---------------- ------------ -----------
Distribution costs 21,188 12,750 8,438 66%
Administrative costs 8,834 4,582 4,252 93%
------------ ---------------- ------------ -----------
Adjusted EBITDA(3) 10,211 8,353 1,858 22%
------------ ---------------- ------------ -----------
YTD 2019 YTD 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ --------------- ------------ -----------
Gaming revenue 112,018 71,035 40,983 58%
------------ --------------- ------------ -----------
Distribution costs 53,856 37,245 16,611 45%
Administrative costs 22,187 13,086 9,101 70%
------------ --------------- ------------ -----------
Adjusted EBITDA(3) 35,975 20,704 15,271 74%
------------ --------------- ------------ -----------
Gaming revenue for the Vera&John segment for the three and
nine months ended 30 September 2019 increased by 57% and 58%,
respectively, compared to the same periods in 2018 due to organic
growth(6) . On a constant currency basis(12) , revenue increased by
55% and 58% for the three and nine months ended 30 September 2019
compared to the same periods in 2018.
Distribution costs increased by 66% and 45%, respectively, for
the three and nine months ended 30 September 2019 compared to the
same periods in 2018 as a result of higher marketing spend and
higher revenues achieved.
The increase in administrative costs for the three and nine
months ended 30 September 2019 compared to the same periods in 2018
was mainly driven by increases in personnel costs, professional
fees and administrative overhead costs as the segment continues to
grow.
Unallocated Corporate Costs
Adjusted EBITDA(3) on Unallocated Corporate Costs decreased from
(GBP2.5) million to (GBP2.9) million in the three months ended 30
September 2019 compared to the same period in 2018. The variance
mainly relates to a GBP0.2 million increase in compensation and a
GBP0.3 million increase in professional fees offset by a GBP0.1
million decrease in general administrative costs.
Adjusted EBITDA(3) on Unallocated Corporate Costs decreased from
(GBP7.8) million to (GBP8.8) million in the nine months ended 30
September 2019 compared to the same period in 2018. The variance
mainly relates to a GBP1.1 million increase in compensation and a
GBP0.3 million increase in professional fees, offset by a GBP0.4
million decrease in general administrative costs.
Net loss on Unallocated Corporate Costs increased from GBP8.4
million to GBP12.0 million for the three months ended 30 September
2019 compared to the same period in 2018. This increase is
primarily driven by higher transaction related costs incurred as a
result of the Gamesys Acquisition.
Net loss on Unallocated Corporate Costs increased from GBP38.6
million to GBP41.3 million for the nine months ended 30 September
2019 compared to the same period in 2018. This increase is driven
by higher transaction related costs incurred as a result of the
Gamesys Acquisition. This movement is partially offset by lower
fair value adjustments on contingent consideration due to the fact
that the final earn-out period ended in Q1 2018, leaving only the
fair value adjustment on the remaining milestone payment to be
recognised in the current period.
Key performance indicators
Average Active Customers is a key performance indicator used by
management to assess real money customer acquisition and real money
customer retention efforts of each of the Group's brands. The Group
defines Average Active Customers ('Average Active Customers') as
being real money customers who have placed at least one bet in a
given month. 'Average Active Customers per Month' is the Average
Active Customers per month, averaged over a twelve-month period.
While this measure is not recognised by IFRS, management believes
that it is a meaningful indicator of the Group's ability to acquire
and retain customers.
Total Real Money Gaming Revenue and Average Real Money Gaming
Revenue per Month are key performance indicators used by management
to assess revenue earned from real money gaming operations of the
business. The Group defines Total Real Money Gaming Revenue ('Total
Real Money Gaming Revenue') as revenue less revenue earned from B2B
websites and revenue earned from 27 September 2019 to 30 September
2019 from brands purchased as part of the Gamesys Acquisition. The
Group defines Average Real Money Gaming Revenue per Month ('Average
Real Money Gaming Revenue per Month') as Real Money Gaming Revenue
per month, averaged over a twelve-month period. While these
measures are not recognised by IFRS, management believes that they
are meaningful indicators of the Group's real money gaming
operational results.
Monthly Real Money Gaming Revenue per Average Active Customer is
a key performance indicator used by management to assess the
Group's ability to generate Real Money Gaming Revenue on a per
customer basis. The Group defines Monthly Real Money Gaming Revenue
per Average Active Customer ('Monthly Real Money Gaming Revenue per
Average Active Customer') as being Average Real Money Gaming
Revenue per Month divided by Average Active Customers per Month.
While this measure is not recognised by IFRS, management believes
that it is a meaningful indicator of the Group's ability to
generate Total Real Money Gaming Revenue.
Twelve months ended Twelve months ended Variance Variance %
30 September 2019 30 September 2018
----------------------- ----------------------- --------- -----------
Average Active Customers per Month (#) 248,945 233,139 15,806 7%
Total Real Money Gaming Revenue (GBP000's)
(1) 329,673 291,677 37,996 13%
Average Real Money Gaming Revenue per Month
(GBP000's) 27,473 24,306 3,167 13%
----------------------- ----------------------- --------- -----------
Monthly Real Money Gaming Revenue per
Average
Active Customer (GBP) 110 104 6 6%
----------------------- ----------------------- --------- -----------
(1) Total Real Money Gaming Revenue for the twelve months ended
30 September 2019 consists of total revenue less revenue earned
from B2B activity of GBP14.0 million (30 September 2018 - GBP7.1
million) and GBP2.3 million revenue earned from 27 September 2019
to 30 September 2019 from the brands purchased as part of the
Gamesys Acquisition (30 September 2018 - GBPnil).
Monthly Real Money Gaming Revenue per Average Active Customer
increased by 6% period-over-period which is in line with the
Group's overall customer acquisition and retention strategy.
INDEPENT REVIEW REPORT TO GAMESYS GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the interim financial report for the
three and nine months ended 30 September 2019 which comprises the
Interim Condensed Consolidated Statements of Comprehensive Income,
the Interim Condensed Consolidated Balance Sheets, the Interim
Condensed Consolidated Statements of Changes in Equity, the Interim
Condensed Consolidated Statements of Cash Flows and the related
notes.
We have read the other information contained in the interim
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of and has
been approved by the directors.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards (IFRSs) as issued by the International
Accounting Standards Board and IFRSs as adopted by the European
Union. The condensed set of financial statements included in this
interim financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as issued by the International Accounting Standards
Board and International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the interim financial
report based on our review.
Our report has been prepared in accordance with the terms of our
engagement and for no other purpose. No person is entitled to rely
on this report unless such a person is a person entitled to rely
upon this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we
hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Financial Reporting Council for use
in the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the interim financial report for the three and nine months ended
30 September 2019 is not prepared, in all material respects, with
International Accounting Standard 34 as issued by the International
Accounting Standards Board and International Accounting Standard
34, as adopted by the European Union.
BDO LLP
Chartered Accountants
London
13 November 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
Three months ended Three months Nine months Nine months
30 September 2019 ended ended ended
30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Gaming revenue(5) 92,447 75,201 261,973 224,162
------------------- ------------------- ------------------- -------------------
Costs and expenses
Distribution costs(5,6) 50,673 36,418 138,585 111,145
Administrative costs(6) 28,970 25,221 81,745 74,229
Severance costs(5) - 400 - 850
Transaction related costs(5) 3,039 275 15,240 1,340
Foreign exchange loss/(gain)(5) 874 (13) 597 130
------------------- ------------------- ------------------- -------------------
Total costs and expenses 83,556 62,301 236,167 187,694
------------------- ------------------- ------------------- -------------------
Fair value adjustments on
contingent consideration(17) - - 460 11,450
Interest income(8) (114) (83) (333) (253)
Interest expense(8) 4,998 4,916 14,828 14,805
Accretion on financial
liabilities(8) 377 578 1,028 2,604
------------------- ------------------- ------------------- -------------------
Financing expenses 5,261 5,411 15,983 28,606
------------------- ------------------- ------------------- -------------------
Net income for the period before
taxes from continuing operations 3,630 7,489 9,823 7,862
------------------- ------------------- ------------------- -------------------
Current tax provision 358 37 1,570 736
Deferred tax recovery (94) (99) (276) (296)
------------------- ------------------- ------------------- -------------------
Net income for the period
after taxes from continuing
operations 3,366 7,551 8,529 7,422
------------------- ------------------- ------------------- -------------------
Net loss from discontinued
operations(7) - (4,055) (660) (4,362)
Net income for the period
attributable to owners of the
parent 3,366 3,496 7,869 3,060
Other comprehensive
income/(loss): Items that will or
may be reclassified to profit or
loss
in subsequent periods
Foreign currency translation
gain/(loss) on retranslation of
overseas subsidiaries 117 (132) 277 66
Unrealised loss on cross currency
swap(13) (4,384) - (4,384) -
Unrealised gain on foreign
exchange forward(13) 2,376 - 2,717 -
Reclassification of gain on
foreign exchange forward(13) (2,717) - (2,717) -
Unrealised (loss)/gain on
interest rate swap(13) (744) 316 (1,828) (658)
------------------- ------------------- ------------------- -------------------
Total comprehensive (loss)/income
for the period attributable to
owners of the parent (1,986) 3,680 1,934 2,468
=================== =================== =================== ===================
Net income for the period per
share
Basic(9) GBP0.04 GBP0.05 GBP0.11 GBP0.04
Diluted(9) GBP0.04 GBP0.05 GBP0.10 GBP0.04
=================== =================== =================== ===================
Net income for the period per
share - continuing operations
Basic GBP0.04 GBP0.10 GBP0.11 GBP0.10
Diluted GBP0.04 GBP0.10 GBP0.11 GBP0.10
=================== =================== =================== ===================
See accompanying notes
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at As at
30 September 2019 31 December 2018
ASSETS (GBP000's) (GBP000's)
------------------- ------------------
Current assets
Cash(10,17) 97,896 84,383
Restricted cash(10,17) 16,577 6,161
Customer deposits(10,17) 15,022 9,032
Trade and other receivables(11,17) 30,294 17,070
Taxes receivable 14,485 7,313
------------------- ------------------
Total current assets 174,274 123,959
------------------- ------------------
Non-current assets
Tangible assets 9,790 2,232
Intangible assets and goodwill(3,14) 968,632 514,679
Right-of-use assets(4) 17,050 -
Other long-term receivables(12,17) 5,252 5,036
------------------- ------------------
Total non-current assets 1,000,724 521,947
------------------- ------------------
Total assets 1,174,998 645,906
=================== ==================
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities(17) 77,740 20,606
Other short-term payables(15,17,18) 30,489 9,612
Short-term cross currency and interest rate swap payable(13) 2,669 97
Short-term lease liabilities(4) 4,579 -
Interest payable(17) 434 264
Payable to customers(17) 15,022 9,032
Current portion of contingent consideration(17) - 4,540
Provision for taxes 9,233 8,169
------------------- ------------------
Total current liabilities 140,166 52,320
------------------- ------------------
Non-current liabilities
Other long-term payables(13,17,18) 13,583 1,817
Lease liabilities(4) 12,710 -
Deferred tax liability 877 1,196
Long-term debt(16,17) 541,843 371,450
------------------- ------------------
Total non-current liabilities 569,013 374,463
------------------- ------------------
Total liabilities 709,179 426,783
=================== ==================
Equity
Retained earnings 189,971 182,435
Share capital(19) 10,843 7,434
Share premium 3,439 2,068
Other reserves 261,566 27,186
------------------- ------------------
Total equity 465,819 219,123
------------------- ------------------
Total liabilities and equity 1,174,998 645,906
=================== ==================
See accompanying notes
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN EQUITY
Share-Based
Share Share Merger Payment Translation Hedge Retained
Capital Premium Reserve Reserve Reserve Reserve Earnings Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Balance at 1
January
2018 7,407 1,342 (6,111) 9,971 23,649 - 167,799 204,057
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Comprehensive
income/(loss)
for the period:
Net income for the
period (continued
and discontinued
operations) - - - - - - 3,060 3,060
Other
comprehensive
income/(loss) - - - - 66 (658) - (592)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
comprehensive
income/(loss) for
the period: - - - - 66 (658) 3,060 2,468
Contributions by
and distributions
to shareholders:
Conversion of
debentures 6 186 - - - - - 192
Exercise of options 21 540 - (159) - - 159 561
Share-based
compensation - - - 468 - - - 468
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
contributions
by and
distributions
to shareholders: 27 726 - 309 - - 159 1,221
Balance at 30
September
2018 7,434 2,068 (6,111) 10,280 23,715 (658) 171,018 207,746
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Balance at 1
January
2019 7,434 2,068 (6,111) 10,395 24,043 (1,141) 182,435 219,123
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Comprehensive
income/(loss)
for the period:
Net income for the
period (continued
and discontinued
operations) - - - - - - 7,869 7,869
Other
comprehensive
income/(loss)(13) - - - - 277 (6,212) - (5,935)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
comprehensive
income/(loss) for
the period: - - - - 277 (6,212) 7,869 1,934
Contributions by
and distributions
to shareholders:
Issuance of common
shares, net of
costs(19) 3,365 - 240,625 - - - (1,355) 242,635
Exercise of
options(19) 44 1,371 - (552) - - 552 1,415
Issuance of
ordinary
share warrants - - - - - - 470 470
Share-based
compensation(19) - - - 242 - - - 242
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
contributions
by and
distributions
to shareholders: 3,409 1,371 240,625 (310) - - (333) 244,762
Balance at 30
September
2019 10,843 3,439 234,514 10,085 24,320 (7,353) 189,971 465,819
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
See accompanying notes
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Operating activities
Net income for the period 3,366 3,496 7,869 3,060
Add (deduct) items not
involving cash
Amortisation and depreciation 12,592 15,437 38,678 46,635
Share-based compensation
expense(19) 76 142 242 468
Issuance of ordinary share
warrants 470 - 470 -
Current tax provision 358 37 1,570 736
Deferred tax recovery (94) (99) (276) (296)
Interest expense, net(8) 5,261 5,411 15,523 17,156
Fair value adjustments on
contingent consideration(17) - - 460 11,450
Foreign exchange loss/(gain)(5) 874 (32) 597 93
Loss on sale of discontinued
operation, net of tax(7) - 4,047 26 4,477
------------------- ------------------- ------------------- -------------------
22,903 28,439 65,159 83,779
Restriction of cash balances (2,097) - (9,270) (75)
(Increase)/reduction in trade
and other receivables (1,845) 126 (6,478) 1,947
(Increase)/reduction in other
long-term receivables (19) 43 (36) 551
Increase/(reduction) in
accounts payable and accrued
liabilities 2,726 2,632 3,439 (690)
(Reduction)/increase in other
short-term payables (3,385) (259) 5,812 (2,589)
------------------- ------------------- ------------------- -------------------
Cash generated from operations 18,283 30,981 58,626 82,923
------------------- ------------------- ------------------- -------------------
Income taxes paid - (29) (4,194) (3,265)
Income taxes received - 2,082 - 2,484
------------------- ------------------- ------------------- -------------------
Total cash provided by
operating activities 18,283 33,034 54,432 82,142
------------------- ------------------- ------------------- -------------------
Financing activities
Proceeds from exercise of
options 477 168 1,414 561
Proceeds from long-term
debt(3,16) 173,578 - 173,578 -
Debt issuance costs(16) (2,617) - (2,617) -
Debenture settlement - - - (62)
Lease payments (811) - (1,437) -
Repayment of non-compete
liability (2,000) (2,000) (6,000) (6,000)
Interest repayment (4,981) (5,355) (14,561) (15,609)
Payment of contingent
consideration(17) - - - (63,455)
------------------- ------------------- ------------------- -------------------
Total cash provided by/(used
in) financing activities 163,646 (7,187) 150,377 (84,565)
------------------- ------------------- ------------------- -------------------
Investing activities
Purchase of tangible assets (366) (425) (3,012) (588)
Purchase of intangible assets (4,885) (1,163) (7,579) (3,620)
Proceeds from sale of
intangible assets - - - 1,450
Disposal of discontinued
operation(7) 6,000 17,881 18,000 17,678
Business acquisitions, net of
cash acquired(3) (199,726) - (199,726) -
------------------- ------------------- ------------------- -------------------
Total cash (used in)/provided
by investing activities (198,977) 16,293 (192,317) 14,920
------------------- ------------------- ------------------- -------------------
Net (decrease)/increase in cash
during the period (17,048) 42,140 12,492 12,497
Cash, beginning of period 114,121 29,462 84,383 59,033
Exchange gain/(loss) on cash
and cash equivalents 823 (146) 1,021 (74)
------------------- ------------------- ------------------- -------------------
Cash, end of period 97,896 71,456 97,896 71,456
=================== =================== =================== ===================
See accompanying notes
SUPPLEMENTARY NOTES FOR THREE AND NINE MONTHSED 30 SEPTEMBER
2019
1. Corporate information
Gamesys Group plc, formerly JPJ Group plc, is an online gaming
holding company that was incorporated under the Companies Act 2006
(England and Wales) on 29 July 2016. On 26 September 2019,
following the completion of the Gamesys Acquisition (as defined
below), JPJ Group plc changed its name to Gamesys Group plc.
Gamesys Group plc's registered office is located at 35 Great St.
Helen's, London, United Kingdom. Unless the context requires
otherwise, use of 'Group' in these accompanying notes means Gamesys
Group plc and its subsidiaries, as applicable.
The Group currently offers bingo, casino and other games to its
customers using the Jackpotjoy, Starspins, Botemania, Virgin Games,
Heart Bingo, Virgin Casino, Monopoly Casino, Vera&John,
InterCasino, Solid Gaming and other brands. All brands operate off
proprietary software owned by the Group.
On 13 June 2019, the Group entered into a conditional agreement
to acquire the business of Gamesys (Holdings) Limited, excluding
sports brands and games, for a mixture of cash and new Group shares
(the 'Gamesys Acquisition'). The Gamesys Acquisition was completed
on 26 September 2019. The total consideration amounted to
approximately GBP491.3 million, comprising of: (i) GBP237.3 million
in cash (net of gains from hedging), of which GBP173.6 million was
funded by an add-on to the Group's existing Term Facility, (ii)
GBP10.0 million in deferred consideration and (iii) 33.7 million in
newly issued shares, representing approximately GBP244.0
million.
These Unaudited Interim Condensed Consolidated Financial
Statements were authorised for issue by the Board of Directors of
Gamesys Group plc on 13 November 2019.
2. Basis of preparation
Basis of presentation
These Unaudited Interim Condensed Consolidated Financial
Statements have been prepared by management on a going concern
basis, are presented in compliance with International Accounting
Standard ('IAS') 34 - Interim Financial Reporting, and have been
prepared on a basis consistent with the accounting policies and
methods used and disclosed in Gamesys Group plc's consolidated
financial statements for the year ended 31 December 2018 (the
'Annual Financial Statements'), except as described below. Certain
information and disclosures normally included in the Annual
Financial Statements prepared in accordance with International
Financial Reporting Standards ('IFRS') as adopted by the European
Union, and in accordance with IFRS as issued by the International
Accounting Standards Board, have been omitted or condensed.
These Unaudited Interim Condensed Consolidated Financial
Statements should be read in conjunction with the Annual Financial
Statements. All defined terms used herein are consistent with those
terms as defined in the Annual Financial Statements.
These Unaudited Interim Condensed Consolidated Financial
Statements have been prepared under the historical cost convention,
other than for the measurement at fair value of the Group's
Interest Rate Swap, Currency Swap, FX Forward, contingent
consideration, certain hedged loan instruments, and certain loans
receivable.
The comparative financial information for the year ended 31
December 2018 in these Unaudited Interim Condensed Consolidated
Financial Statements does not constitute statutory accounts for
that year. The auditors' report on the statutory accounts for the
year ended 31 December 2018 was unqualified, did not draw attention
to any matters by way of emphasis, and did not contain a statement
under sections 498(2) or 498(3) of the Companies Act 2006.
3. Business combinations
On 26 September 2019, the Group completed the Gamesys
Acquisition, which includes the Virgin Games, Heart Bingo, Virgin
Casino and Monopoly Casino brands and related assets. The purchase
was completed for GBP237.3 million in cash (net of gains from
hedging), of which GBP173.6 million was funded by an add-on to the
Group's existing Term Facility, GBP10.0 million in deferred
consideration and 33,653,846 newly issued ordinary shares of the
parent company, which at the prevailing share price of GBP7.25 on
26 September 2019 amounted to GBP244.0 million. The Gamesys
Acquisition has been accounted for as a business combination. The
purchase price allocation set forth below represents the
preliminary allocation of the purchase price and the fair value of
assets acquired and is subject to change.
Effect of acquisition on the financial position of the Group
26 September 2019
(GBP000's)
---------------------
Assets acquired
Current assets acquired 76,511
Non-current assets acquired 14,872
Unallocated purchase price intangible assets and goodwill 498,828
590,211
---------------------
Liabilities assumed
Current liabilities assumed 89,833
Non-current liabilities assumed 9,105
98,938
---------------------
Net assets acquired 491,273
---------------------
Consideration
Cash* 237,283
Deferred consideration 10,000
Shares issued 243,990
491,273
---------------------
*This balance is net of gains from hedging the foreign exchange
rate movements on the purchase price.
The excess purchase consideration over the net fair value of
financial and other tangible and intangible assets and liabilities
acquired will be allocated to goodwill. The goodwill recognised is
primarily attributed to the expected synergies and other benefits
from combining the assets and activities of Gamesys (Holdings)
Limited with those of the Group.
None of the goodwill is expected to be deductible for income tax
purposes. The fair value of the assets acquired and liabilities
assumed will be subject to adjustments pending the completion of
final purchase price allocations and post-closing adjustments,
including recognition of deferred taxation balances.
Since the date of acquisition, this business combination has
contributed GBP2.3 million in revenue and GBP0.2 million in net
income to the Group. The results of this business combination are
included in the Group's Jackpotjoy business segment. The Group has
used a significant amount of judgement and simplifying assumptions
in estimating the net income and operating profits before income
taxes had the business combination occurred at the beginning of the
year. Had the business combination occurred at the beginning of the
year, it would have contributed GBP150.3 million in revenue and
GBP40.1 million in operating profits before income taxes. Operating
profits before income taxes takes into account income earned from
the software licence fee and other income earned by the acquired
business from the reporting entity during the period before the
Gamesys Acquisition. As a result of the judgement and simplifying
assumptions used to generate these estimates, the amounts should
not be used as an indicator of past or future performance of the
Group or its acquired subsidiaries.
4. Summary of significant accounting policies
For a description of the Group's significant accounting
policies, critical accounting estimates and assumptions, and
related information see notes 3 and 4 to the Annual Financial
Statements. Other than what is described below, there have been no
changes to the Group's significant accounting policies or critical
accounting estimates and assumptions during the nine months ended
30 September 2019.
Leases
Effective from 1 January 2019, the Group adopted IFRS 16 -
Leases ('IFRS 16'), which replaces IAS 17 - Leases and related
interpretations.
The Group elected to apply the modified retrospective approach
which does not require restatement of comparative periods. As a
result, lease liabilities were recognised in the opening
consolidated balance sheet as at 1 January 2019 at an amount equal
to the Group's remaining lease payments discounted using the
Group's incremental borrowing rate. Additionally, the Group elected
to measure right-of-use assets by reference to the measurement of
the lease liabilities on the same date. As a result, net assets
were not impacted. There was also no impact on the Group's equity
at 1 January 2019.
On 1 January 2019, the Group recognised right-of-use assets and
lease liabilities of GBP3.2 million related to its existing leases.
Furthermore, the Group assumed that leases obtained as part of the
Gamesys Acquisition were also subject to IFRS 16 starting on 1
January 2019 and recognised additional right-of-use assets and
lease liabilities of GBP9.9 million as a result.
Under IFRS 16, the Group amortises its right-of-use assets and
accretes interest on its lease liabilities. As at 30 September
2019, the carrying value of the right-of-use assets amounted to
GBP17.1 million and the carrying value of lease liabilities
amounted to GBP17.3 million, with GBP4.6 million of this balance
shown as short-term lease liabilities and the remaining portion of
GBP12.7 million reflected under non-current liabilities.
Hedge accounting
The Group elected to use hedge accounting for the purposes of
recognising realised and unrealised gains and losses associated
with the Interest Rate Swap and the Currency Swap (as defined in
note 13).
IFRS 9 - Financial Instruments ('IFRS 9') permits hedge
accounting under certain circumstances provided that the hedging
relationship is:
-- formally designated and documented, including the entity's
risk management objective and strategy for undertaking the hedge,
identification of the hedging instrument, the hedged item, the
nature of the risk being hedged, and how the entity will assess the
hedging instrument's effectiveness;
-- expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk
as designated and documented, and effectiveness can be reliably
measured; and
-- assessed on an ongoing basis and determined to be highly effective.
Based on the Group's analysis of the requirements outlined
above, it was concluded that the Interest Rate Swap and the
Currency Swap meet all the necessary criteria and qualify for use
of hedge accounting. Both were designated as cash flow hedges.
5. Segment information
As discussed in note 7, the Group sold its Mandalay business in
the period ended 31 March 2019 and it sold its social gaming
business in the period ended 30 September 2018. All current period
and 2018 comparative segment figures have been restated
accordingly. The Mandalay and social gaming businesses were
previously reported as part of the Jackpotjoy segment. The results
of the Gamesys Acquisition for the period from 27 September 2019 to
30 September 2019 are included in the Jackpotjoy segment.
The following tables present selected financial results for each
segment and the Unallocated Corporate Costs:
Three months ended 30 September 2019:
Unallocated
Corporate
Jackpotjoy* Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 52,214 40,233 - 92,447
------------ ------------ ------------ ------------
Distribution costs 29,485 21,188 - 50,673
Amortisation and depreciation 8,208 4,107 277 12,592
Compensation, professional, and general and administrative
expenses 4,537 8,834 3,007 16,378
Transaction related costs - 163 2,876 3,039
Foreign exchange loss 92 33 749 874
Financing, net 152 69 5,040 5,261
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 9,740 5,839 (11,949) 3,630
------------ ------------ ------------ ------------
Taxes 42 142 80 264
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 9,698 5,697 (12,029) 3,366
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 9,698 5,697 (12,029) 3,366
Interest expense, net 152 69 4,663 4,884
Accretion on financial liabilities - - 377 377
Taxes 42 142 80 264
Amortisation and depreciation 8,208 4,107 277 12,592
------------ ------------ ------------ ------------
EBITDA 18,100 10,015 (6,632) 21,483
------------ ------------ ------------ ------------
Share-based compensation - - 76 76
Transaction related costs - 163 2,876 3,039
Foreign exchange loss 92 33 749 874
------------ ------------ ------------ ------------
Adjusted EBITDA 18,192 10,211 (2,931) 25,472
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 9,698 5,697 (12,029) 3,366
Share-based compensation - - 76 76
Transaction related costs - 163 2,876 3,039
Foreign exchange loss 92 33 749 874
Amortisation of acquisition related purchase price
intangibles 8,085 1,892 - 9,977
Accretion on financial liabilities - - 377 377
------------ ------------ ------------ ------------
Adjusted net income/(loss) 17,875 7,785 (7,951) 17,709
------------ ------------ ------------ ------------
*Includes Gamesys Acquisition results from 27 September 2019 to
30 September 2019.
Nine months ended 30 September 2019:
Unallocated
Corporate
Jackpotjoy* Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 149,955 112,018 - 261,973
------------ ------------ ------------ ------------
Distribution costs 84,704 53,856 25 138,585
Amortisation and depreciation 27,034 9,788 768 37,590
Compensation, professional, and general and administrative
expenses 12,949 22,187 9,019 44,155
Transaction related costs - 196 15,044 15,240
Foreign exchange (gain)/loss (83) 168 512 597
Financing, net 169 76 15,738 15,983
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 25,182 25,747 (41,106) 9,823
------------ ------------ ------------ ------------
Taxes 42 1,016 236 1,294
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 25,140 24,731 (41,342) 8,529
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 25,140 24,731 (41,342) 8,529
Interest expense, net 169 76 14,250 14,495
Accretion on financial liabilities - - 1,028 1,028
Taxes 42 1,016 236 1,294
Amortisation and depreciation 27,034 9,788 768 37,590
------------ ------------ ------------ ------------
EBITDA 52,385 35,611 (25,060) 62,936
------------ ------------ ------------ ------------
Share-based compensation - - 242 242
Fair value adjustments on contingent consideration - - 460 460
Transaction related costs - 196 15,044 15,240
Foreign exchange (gain)/loss (83) 168 512 597
------------ ------------ ------------ ------------
Adjusted EBITDA 52,302 35,975 (8,802) 79,475
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 25,140 24,731 (41,342) 8,529
Share-based compensation - - 242 242
Fair value adjustments on contingent consideration - - 460 460
Transaction related costs - 196 15,044 15,240
Foreign exchange (gain)/loss (83) 168 512 597
Amortisation of acquisition related purchase price
intangibles 26,833 5,553 - 32,386
Accretion on financial liabilities - - 1,028 1,028
------------ ------------ ------------ ------------
Adjusted net income/(loss) 51,890 30,648 (24,056) 58,482
------------ ------------ ------------ ------------
*Includes Gamesys Acquisition results from 27 September 2019 to
30 September 2019.
Three months ended 30 September 2018:
Unallocated
Corporate
Jackpotjoy Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 49,516 25,685 - 75,201
------------ ------------ ------------ ------------
Distribution costs 23,647 12,750 21 36,418
Amortisation and depreciation 11,205 2,593 99 13,897
Compensation, professional, and general and
administrative expenses 4,120 4,582 2,622 11,324
Severance costs - 400 - 400
Transaction related costs - - 275 275
Foreign exchange (gain)/loss (22) 27 (18) (13)
Financing, net 2 (28) 5,437 5,411
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 10,564 5,361 (8,436) 7,489
------------ ------------ ------------ ------------
Taxes - (62) - (62)
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 10,564 5,423 (8,436) 7,551
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 10,564 5,423 (8,436) 7,551
Interest expense/(income), net 2 (28) 4,859 4,833
Accretion on financial liabilities - - 578 578
Taxes - (62) - (62)
Amortisation and depreciation 11,205 2,593 99 13,897
------------ ------------ ------------ ------------
EBITDA 21,771 7,926 (2,900) 26,797
------------ ------------ ------------ ------------
Share-based compensation - - 142 142
Severance costs - 400 - 400
Transaction related costs - - 275 275
Foreign exchange (gain)/loss (22) 27 (18) (13)
------------ ------------ ------------ ------------
Adjusted EBITDA 21,749 8,353 (2,501) 27,601
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 10,564 5,423 (8,436) 7,551
Share-based compensation - - 142 142
Severance costs - 400 - 400
Transaction related costs - - 275 275
Foreign exchange (gain)/loss (22) 27 (18) (13)
Amortisation of acquisition related purchase price
intangibles 11,202 2,005 - 13,207
Accretion on financial liabilities - - 578 578
------------ ------------ ------------ ------------
Adjusted net income/(loss) 21,744 7,855 (7,459) 22,140
------------ ------------ ------------ ------------
Nine months ended 30 September 2018:
Unallocated
Corporate
Jackpotjoy Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 153,127 71,035 - 224,162
------------ ------------ ------------ ------------
Distribution costs 73,854 37,245 46 111,145
Amortisation and depreciation 33,608 7,455 288 41,351
Compensation, professional, and general and
administrative expenses 11,582 13,086 8,210 32,878
Severance costs - 850 - 850
Transaction related costs - - 1,340 1,340
Foreign exchange loss/(gain) 209 (43) (36) 130
Financing, net 5 (94) 28,695 28,606
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 33,869 12,536 (38,543) 7,862
------------ ------------ ------------ ------------
Taxes - 426 14 440
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 33,869 12,110 (38,557) 7,422
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 33,869 12,110 (38,557) 7,422
Interest expense/(income), net 5 (94) 14,641 14,552
Accretion on financial liabilities - - 2,604 2,604
Taxes - 426 14 440
Amortisation and depreciation 33,608 7,455 288 41,351
------------ ------------ ------------ ------------
EBITDA 67,482 19,897 (21,010) 66,369
------------ ------------ ------------ ------------
Share-based compensation - - 468 468
Severance costs - 850 - 850
Fair value adjustments on contingent consideration - - 11,450 11,450
Transaction related costs - - 1,340 1,340
Foreign exchange loss/(gain) 209 (43) (36) 130
------------ ------------ ------------ ------------
Adjusted EBITDA 67,691 20,704 (7,788) 80,607
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 33,869 12,110 (38,557) 7,422
Share-based compensation - - 468 468
Severance costs - 850 - 850
Fair value adjustments on contingent consideration - - 11,450 11,450
Transaction related costs - - 1,340 1,340
Foreign exchange loss/(gain) 209 (43) (36) 130
Amortisation of acquisition related purchase price
intangibles 33,608 5,950 - 39,558
Accretion on financial liabilities - - 2,604 2,604
------------ ------------ ------------ ------------
Adjusted net income/(loss) 67,686 18,867 (22,731) 63,822
------------ ------------ ------------ ------------
The following table presents net assets per segment and
Unallocated Corporate Costs as at
30 September 2019:
Jackpotjoy* Vera&John Unallocated Corporate Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ---------------------------- ------------
Current assets 72,692 72,594 28,988 174,274
Intangible assets and goodwill 884,949 82,608 1,075 968,632
Other non-current assets 15,567 12,191 4,334 32,092
Total assets 973,208 167,393 34,397 1,174,998
Current liabilities 89,420 39,513 11,233 140,166
Non-current liabilities 7,994 5,361 555,658 569,013
------------ ------------ ---------------------------- ------------
Total liabilities 97,414 44,874 566,891 709,179
Net assets 875,794 122,519 (532,494) 465,819
------------ ------------ ---------------------------- ------------
*Includes Gamesys Acquisition balance sheet items.
The following table presents net assets per segment and
Unallocated Corporate Costs as at
31 December 2018:
Jackpotjoy Vera&John Unallocated Corporate Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ---------------------------- ------------
Current assets 18,055 54,394 51,510 123,959
Intangible assets and goodwill 431,895 81,678 1,106 514,679
Other non-current assets 69 3,507 3,692 7,268
Total assets 450,019 139,579 56,308 645,906
Current liabilities 19,758 25,788 6,774 52,320
Non-current liabilities - 1,196 373,267 374,463
------------ ------------ ---------------------------- ------------
Total liabilities 19,758 26,984 380,041 426,783
Net assets 430,261 112,595 (323,733) 219,123
============ ============ ============================ ============
During the nine months ended 30 September 2019 and 2018, revenue
was earned from customers situated in the following locations:
United Kingdom - 47% (nine months ended 30 September 2018 - 57%),
Japan - 28% (nine months ended 30 September 2018 - 12%), Spain -
10% (nine months ended 30 September 2018 - 10%), Sweden - 4% (nine
months ended 30 September 2018 - 9%), rest of Europe - 6% (nine
months ended 30 September 2018 - 8%), rest of world - 5% (nine
months ended 30 September 2018 - 4%).
During the nine months ended 30 September 2019, the Group's B2B
Revenue, Affiliate Revenue and Game Aggregation Revenue comprised
4% (nine months ended 30 September 2018 - 3%) of total Group
revenues, with the remaining portion being revenues earned from Net
Gaming Revenue operations.
Non-current assets by geographical location as at 30 September
2019 were as follows: Europe GBP94.8 million (31 December 2018 -
GBP85.2 million), Americas GBP392.2 million (31 December 2018 -
GBP436.8 million) and United Kingdom GBP513.7 million (31 December
2018 - GBPnil).
6. Costs and expenses
As discussed in note 7, the Group sold its Mandalay business in
the period ended 31 March 2019 and its social gaming business in
the period ended 30 September 2018. All current period and 2018
comparative figures have been restated accordingly. The results of
the Gamesys Acquisition for the period from 27 September 2019 to 30
September 2019 are included in the tables below.
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Distribution costs:
Selling and marketing 18,948 12,528 49,928 39,139
Licensing fees 12,392 10,293 35,817 30,117
Gaming taxes 12,431 8,946 34,721 28,927
Processing fees 6,902 4,651 18,119 12,962
------------------- ------------------- ------------------- -------------------
50,673 36,418 138,585 111,145
------------------- ------------------- ------------------- -------------------
Administrative costs:
Compensation and benefits 11,755 7,993 31,409 22,572
Professional fees 1,292 797 3,650 2,846
General and administrative 3,331 2,534 9,096 7,460
Tangible asset depreciation 1,249 144 2,204 375
Intangible asset amortisation 11,343 13,753 35,386 40,976
------------------- ------------------- ------------------- -------------------
28,970 25,221 81,745 74,229
------------------- ------------------- ------------------- -------------------
7. Discontinued operations
On 12 March 2019, the Group completed the sale of its Mandalay
business for cash consideration of GBP18.0 million. The Mandalay
business was not previously classified as held-for-sale. As
discussed in note 7 of the Annual Financial Statements, the Group
disposed of its social gaming business in the period ended 30
September 2018. The comparative unaudited interim condensed
consolidated statements of comprehensive income are presented below
to show the Mandalay and social gaming business discontinued
operations separately from continuing operations. The results of
the Mandalay and social gaming businesses have been excluded from
notes 5 and 6 above.
Results of discontinued operations
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
-------------------- ------------------- ------------------- -------------------
Gaming revenue - 2,552 1,595 9,034
Social gaming revenue - 1,800 - 7,495
Expenses - 4,360 2,229 16,414
-------------------- ------------------- ------------------- -------------------
Results from operating
activities - (8) (634) 115
-------------------- ------------------- ------------------- -------------------
Income tax - - - -
-------------------- ------------------- ------------------- -------------------
(Loss)/income for the period - (8) (634) 115
-------------------- ------------------- ------------------- -------------------
Loss on disposal of discontinued
operations - (4,047) (26) (4,477)
Income tax on loss on disposal - - - -
of discontinued operations
-------------------- ------------------- ------------------- -------------------
Loss from discontinued
operations, net of tax - (4,055) (660) (4,362)
-------------------- ------------------- ------------------- -------------------
Basic loss per share from - GBP(0.05) GBP(0.01) GBP(0.06)
discontinued operations
Diluted loss per share from - GBP(0.05) GBP(0.01) GBP(0.06)
discontinued operations
Cash flows from discontinued operations
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Net cash provided by operating
activities - 1,086 525 5,266
Net cash provided by investing
activities 6,000 17,881 18,000 17,678
Net cash from financing - - - -
activities
------------------- ------------------- ------------------- -------------------
Net cash flows for the period 6,000 18,967 18,525 22,944
------------------- ------------------- ------------------- -------------------
Effect of disposal on the financial position of the Group
30 September 2019
(GBP000's)
------------------
Non-current assets 3,753
Goodwill 14,273
------------------
Net assets 18,026
------------------
Consideration received, satisfied in cash 18,000
Loss on disposal of discontinued operations (26)
------------------
Goodwill disposed of was allocated to the Mandalay business on
the basis of earnings before interest, taxes, depreciation and
amortisation, relative to that of the overall segment.
8. Interest income/expense
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Total interest income 114 83 333 253
------------------- ------------------- ------------------- -------------------
Interest paid and accrued on
long-term debt 4,992 4,916 14,711 14,799
Fair value adjustment on secured
convertible loan (248) - (248) -
Interest paid and accrued on
lease liabilities 254 - 365 -
Interest paid and accrued on
convertible debentures - - - 6
------------------- ------------------- ------------------- -------------------
Total interest expense 4,998 4,916 14,828 14,805
------------------- ------------------- ------------------- -------------------
Accretion of discount recognised
on contingent
consideration - 151 - 1,206
Interest accretion recognised on
convertible debentures - - - 8
Debt issue costs and accretion
recognised on long-term
debt 162 147 460 429
Interest accretion recognised
on other long-term
liabilities 215 280 568 961
------------------- ------------------- ------------------- -------------------
Total accretion on financial
liabilities 377 578 1,028 2,604
------------------- ------------------- ------------------- -------------------
9. Earnings per share
The following table presents the calculation of basic and
diluted earnings per share:
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Numerator:
Net income - basic 3,366 3,496 7,869 3,060
Net income - diluted 3,366 3,496 7,869 3,060
------------------- ------------------- ------------------- -------------------
Denominator:
Weighted average number of shares
outstanding - basic 75,589 74,279 74,802 74,211
Weighted average effect of
dilutive share options 288 695 301 700
Weighted average number of shares
outstanding - diluted 75,877 74,974 75,103 74,911
------------------- ------------------- ------------------- -------------------
Net income per share(1,2)
------------------- ------------------- ------------------- -------------------
Basic GBP0.04 GBP0.05 GBP0.11 GBP0.04
Diluted GBP0.04 GBP0.05 GBP0.10 GBP0.04
------------------- ------------------- ------------------- -------------------
(1) Basic income per share is calculated by dividing the net
income attributable to owners of the parent by the
weighted average number of shares outstanding during the
period.
(2) Diluted income per share is calculated by dividing the net
income attributable to owners of the parent by the weighted average
number of shares outstanding during the period and adjusted for the
number of potentially dilutive share options and contingently
issuable instruments.
10. Cash, restricted cash and customer deposits
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Cash 97,896 84,383
Restricted and cash(1) 16,577 6,161
------------------ -----------------
114,473 90,544
------------------ -----------------
Customer deposits - restricted cash(2) 15,022 3,853
Customer deposits - other(3) - 5,179
------------------ -----------------
15,022 9,032
------------------ -----------------
(1) Increase in balance from 31 December 2018 primarily relates
to reserves held with payment service providers.
(2) Customer deposits - restricted cash consists of cash held by
the Group in relation to amounts payable to customers where the
Group acts as operator. In this regard, the Group has elected to
split customer deposits into sub-categories and present GBP3.9
million of its 31 December 2018 balance as customer deposits -
restricted cash, rather than customer deposits, to improve
comparability with the balances at the current reporting date.
(3) Customer deposits - other includes balances held by third
party operators on behalf of the Group in relation to amounts
payable to customers.
11. Trade and other receivables
Trade and other receivables consist of the following items:
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Due from the Gamesys group - 8,764
Due from the 888 group - 1,665
B2B and affiliate revenue receivable 7,118 2,722
Sales tax refund receivable 2,707 1,461
Prepaid expenses 15,304 2,925
Other 6,165 533
Less: expected credit loss provision for trade and other receivables (1,000) (1,000)
30,294 17,070
------------------ -----------------
The following table summarises the Group's expected credit loss
on its trade receivables and loan receivables:
0-30 days 31-60 days 61-90 days 90 days + Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- ------------------- ------------
Trade and other
receivables 1 109 80 460 650
Other long-term
receivables - - - 350 350
1 109 80 810 1,000
------------------- ------------------- ------------------- ------------------- ------------
12. Other long-term receivables
In connection with the Gaming Realms Transaction, the Group
recognised a long-term receivable of GBP3.8 million (31 December
2018 - GBP3.6 million) for the secured convertible loan, in
accordance with IFRS 9, based on the calculation of fair value at
30 September 2019, as explained in note 17.
As at 30 September 2019, the remaining balance of GBP1.4 million
(31 December 2018 - GBP1.5 million) relates to a long-term loan
receivable by the Group.
13. Interest rate swap, currency swap and foreign exchange
forward
Foreign exchange forward
On 26 June 2019, Gamesys Group plc entered into a foreign
exchange forward agreement (the 'FX Forward') in order to minimise
the Group's exposure to foreign exchange rate fluctuations between
GBP and EUR as the Group added EUR196.0 million to its EUR Term
Facility in relation to the Gamesys Acquisition. Under the FX
Forward, the Group was able to convert EUR193.0 million to GBP173.7
million at an exchange rate of 0.89970 on 26 September 2019, giving
rise to a GBP2.7 million realised gain on settlement of the foreign
exchange forward.
Prior to being utilised, the FX Forward was designated as a cash
flow hedge. As a result, upon utilising the FX Forward, the entire
gain in the amount of GBP0.3 million previously shown in other
comprehensive income was reclassified, in accordance with IFRS 9,
and formed part of the realised gain on foreign exchange forward
discussed above.
Currency swap
On 1 August 2019, the Group entered into a cross currency swap
agreement (the 'Currency Swap') in order to minimise the Group's
increased exposure to exchange rate fluctuations between GBP and
EUR as cash generated from operations is largely in GBP, while a
portion of the Group's Term Facilities is in EUR. The Currency Swap
has an effective date of 30 September 2019 and a maturity date of
30 September 2022.
As at 30 September 2019, the fair value of the Currency Swap was
a GBP4.4 million payable (31 December 2018 - GBPnil). The Group has
included GBP1.7 million of this amount in current liabilities with
the remaining balance included in other long-term payables, as
discussed in note 18. An unrealised loss of GBP4.4 million for the
three and nine months ended 30 September 2019 related to the
Currency Swap was recognised in other comprehensive income (three
and nine months ended 30 September 2018 - GBPnil).
Interest rate swap
On 5 August 2019, Gamesys Group plc amended the terms of its
existing Interest Rate Swap to further minimise its exposure to
interest rate fluctuations. Under the new terms, the Group will pay
a fixed 6.08% rate of interest in place of floating GBP interest
payments of GBP LIBOR plus 5.00%. On 15 August 2019, the starting
Notional Amount went back to being 60% of the GBP Term Facility
(GBP150.0 million) and will decrease to GBP69.0 million by 15 June
2021.
As at 30 September 2019, the fair value of the Interest Rate
Swap was a GBP1.9 million payable (31 December 2018 - GBP0.5
million). The Group has included GBP0.9 million of this payable in
current liabilities (31 December 2018 - GBP0.1 million), with the
value of the remaining balance included in other long-term
payables, as discussed in note 18. For the three and nine months
ended 30 September 2019, the Group recognised an unrealised loss of
GBP0.7 million and GBP1.8 million, respectively, in other
comprehensive income (three and nine months ended 30 September 2018
- a gain of GBP0.3 million and a loss of GBP0.7 million,
respectively).
14. Intangible assets and goodwill
As at 30 September 2019
Additions
to
intangible
assets
arising
Gaming Customer Partnership Non-compete on business
licences relationships Software Brand agreements clauses combination Goodwill Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Cost
Balance, 1 January
2019 91 320,060 30,955 70,326 12,900 20,434 - 309,121 763,887
Additions* - - 4,986 - 4,828 - 498,828 - 508,642
Disposals (note
7) - (27,200) (350) (1,610) - - - (14,273) (43,433)
Translation 3 (145) (251) 48 (80) - - 787 362
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Balance, 30
September 2019 94 292,715 35,340 68,764 17,648 20,434 498,828 295,635 1,229,458
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Accumulated
amortisation/impairment
Balance, 1 January
2019 56 172,574 18,280 13,577 6,080 17,875 - 20,766 249,208
Amortisation 36 24,651 4,766 2,588 1,873 2,559 - - 36,473
Disposals (note
7) - (24,700) (329) (378) - - - - (25,407)
Translation (41) (95) (122) 23 (7) - - 794 552
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Balance, 30
September 2019 51 172,430 22,595 15,810 7,946 20,434 - 21,560 260,826
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Carrying value
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Balance, 30
September 2019 43 120,285 12,745 52,954 9,702 - 498,828 274,075 968,632
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
*On 17 April 2019, the Group entered into a five-year service
agreement with a third-party operator, which is reflected as an
addition to partnership agreements in the schedule above. Under the
terms of the service agreement, the Group will make certain
software, content and services available for use by the operator in
return for a share of the revenue generated by the operator from
certain software, content and services made available to it by the
Group.
As at 31 December 2018
Gaming Customer Partnership Non-compete
licences relationships Software Brand agreements clauses Goodwill Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Cost
Balance, 1 January
2018 93 337,655 25,211 70,019 12,900 20,434 316,386 782,698
Additions - - 5,318 - - - - 5,318
Disposals (note
7) - (18,000) - - - - (9,638) (27,638)
Translation (2) 405 426 307 - - 2,373 3,509
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Balance, 31 December
2018 91 320,060 30,955 70,326 12,900 20,434 309,121 763,887
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Accumulated
amortisation/impairment
Balance, 1 January
2018 81 139,333 12,551 10,005 4,458 7,661 19,605 193,694
Amortisation 44 40,496 5,518 3,502 1,622 10,214 - 61,396
Disposals (note
7) - (7,635) - - - - - (7,635)
Translation (69) 380 211 70 - - 1,161 1,753
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Balance, 31 December
2018 56 172,574 18,280 13,577 6,080 17,875 20,766 249,208
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Carrying value
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Balance, 31 December
2018 35 147,486 12,675 56,749 6,820 2,559 288,355 514,679
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
15. Other short-term payables
Other short-term payables consist of:
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Transaction related payables 6,328 516
Other short-term payables assumed through the Gamesys Acquisition 24,161 -
Current portion on non-compete clauses payable - 8,667
Working capital adjustment payable - 429
------------------ -----------------
30,489 9,612
------------------ -----------------
16. Credit facilities
EUR Term Facility GBP Term Facility Total
(GBP000's) (GBP000's) (GBP000's)
------------------ ------------------ ---------------
Balance, 1 January 2018 122,903 246,584 369,487
Accretion* 172 404 576
Foreign exchange translation 1,387 - 1,387
------------------ ------------------ ---------------
Balance, 31 December 2018 124,462 246,988 371,450
------------------ ------------------ ---------------
Add-on Debt 173,578 - 173,578
Debt financing costs (2,617) - (2,617)
Accretion* 141 319 460
Foreign exchange translation (1,028) - (1,028)
------------------ ------------------ ---------------
Balance, 30 September 2019 294,536 247,307 541,843
------------------ ------------------ ---------------
Current portion - - -
------------------ ------------------ ---------------
Non-current portion 294,536 247,307 541,843
------------------ ------------------ ---------------
(*) Effective interest rates are as follows: EUR Term Facility -
4.26% (2018 - 4.44%), GBP Term Facility - 5.97% (2018 - 6.01%).
On 1 July 2019, the Group completed the syndication of a
EUR196.0 million additional term loan facility (the 'Add-on Debt')
to support the Gamesys Acquisition. The Group's new incremental
term loan facility is fungible with the Group's existing EUR Term
Facility and the syndication came into effect on 26 September
2019.
17. Financial instruments
The principal financial instruments used by the Group are
summarised below:
Financial assets
Financial assets as subsequently measured at
amortised cost
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------------ ---------------------
Cash restricted cash 114,473 90,544
Trade and other receivables 30,294 17,070
Other long-term receivables 1,427 1,462
Customer deposits 15,022 9,032
------------------------ ---------------------
161,216 118,108
------------------------ ---------------------
Financial liabilities
Financial liabilities as subsequently measured at
amortised cost
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
-------------------------- ------------------------
Accounts payable and accrued liabilities 77,740 20,606
Other short-term payables 30,489 9,612
Other long-term payables 10,000 1,429
Interest payable 434 264
Payable to customers 15,022 9,032
Long-term debt 541,843 371,450
-------------------------- ------------------------
675,528 412,393
-------------------------- ------------------------
The carrying values of the financial instruments noted above
approximate their fair values.
Other financial instruments
Financial instruments at fair value through profit or loss - assets/(liabilities)
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------------------------------- ---------------------------------------
Interest Rate Swap (1,868) (485)
Currency Swap (4,384) -
Contingent consideration - (4,540)
Other long-term receivables 3,825 3,574
------------------------------------------- ---------------------------------------
(2,427) (1,451)
------------------------------------------- ---------------------------------------
Fair value hierarchy
The hierarchy of the Group's financial instruments carried at
fair value is as follows:
Level 2 Level 3
30 September 2019 31 December 2018 30 September 2019 31 December 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------ ------------------ ------------------ ------------------
Interest Rate Swap (1,868) (485) - -
Currency Swap (4,384) - - -
Other long-term receivables 3,825 3,574 - -
Contingent consideration - - - (4,540)
------------------ ------------------ ------------------ ------------------
The Interest Rate Swap and Currency Swap balances represent the
fair values of expected cash flows under the Interest Rate Swap and
Currency Swap agreements.
Other long-term receivables represent the fair value of the loan
receivable from Gaming Realms. The key inputs into the fair value
estimation of this balance include the share price of Gaming Realms
on the date of cash transfer, a 3.2-year risk-free interest rate of
0.6019%, and an estimated share price return volatility rate of
Gaming Realms of 47.8%.
Following completion of the Gamesys Acquisition, the Group will
be able to set off the remaining milestone payment for the
Jackpotjoy segment against a corresponding receivable included in
current assets assumed, as outlined in note 3, through a working
capital adjustment. As a result, at 30 September 2019 the remaining
milestone payment is considered settled.
The movement in Level 3 financial instruments is detailed
below:
(GBP000's)
---------------
Contingent consideration, 1 January 2018 59,583
Fair value adjustments 7,208
Payments (63,455)
Accretion of discount 1,204
---------------
Contingent consideration, 31 December 2018 4,540
---------------
Fair value adjustments 460
Set-off against acquired assets (5,000)
---------------
Contingent consideration, 30 September 2019 -
---------------
18. Other long-term payables
Other long-term payables consist of:
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Deferred consideration payable (note 3) 10,000 -
Interest Rate Swap (note 13) 934 388
Currency Swap (note 13) 2,649 -
Non-compete clauses payable - 1,429
------------------ -----------------
13,583 1,817
------------------ -----------------
19. Share capital
As at 30 September 2019, Gamesys Group plc's issued share
capital consisted of 108,424,806 ordinary shares, each with a
nominal value of GBP0.10.
Ordinary shares of
GBP0.10
-------------------------
(GBP000's) #
----------- ------------
Balance, 1 January 2018 7,407 74,064,931
Conversion of convertible debentures, net of costs 6 56,499
Exercise of options 21 207,500
----------- ------------
Balance, 31 December 2018 7,434 74,328,930
----------- ------------
Issuance, net of costs 3,365 33,653,846
Exercise of options 44 442,030
----------- ------------
Balance, 30 September 2019 10,843 108,424,806
----------- ------------
Ordinary shares
During the nine months ended 30 September 2019, Gamesys Group
plc issued 33,653,846 additional ordinary shares as part of the
consideration paid for the Gamesys Acquisition.
Share options
During the nine months ended 30 September 2019, nil share
options were granted, 442,030 share options were exercised, 121,166
share options were forfeited, and nil share options expired.
Long-term incentive plan
On 30 September 2019, Gamesys Group plc granted additional
equity-settled awards over ordinary shares of Gamesys Group plc
under the Group's long-term incentive plan ('LTIP3') for key
management personnel. The awards will (i) vest on the date on which
the remuneration committee determines the extent to which the
performance conditions (as described below) have been met and (ii)
are subject to a holding period of two years beginning on the
vesting date. At 30 September 2019, the number of ordinary shares
that may be allotted under the Group's 2019 LTIP3 awards is
778,100.
The performance condition as it applies to 25% of each LTIP3
award is based on the Group's total shareholder return compared
with the total shareholder return of the companies constituting the
Financial Times Stock Exchange 250 index (excluding investment
trusts and financial services companies) over three years
commencing on 1 January 2019. The performance condition as it
applies to another 25% of the award is based on the Group's total
shareholder return compared with the total shareholder return of
certain companies in a peer group over three years commencing on 1
January 2019. The performance condition as it applies to the
remaining 50% of the award is based on the compound annual growth
rate ('CAGR') of the Group's earnings per share over a three year
period commencing on 1 January 2019 ('EPS CAGR Tranche') and vests
as to 25% if the EPS CAGR equals 5.0%, between 25% and 100% (on a
straight-line basis) if final year EPS CAGR is more than 5.0% but
less than 14.0%, and 100% if final year EPS CAGR is 14.0% or
more.
During the three and nine months ended 30 September 2019, the
Group recorded GBP0.1 million and GBP0.2 million, respectively
(three and nine months ended 30 September 2018 - GBP0.1 million and
GBP0.2 million, respectively) in share-based compensation expense
relating to its long-term incentive plans with a corresponding
increase in share-based payment reserve.
20. Contingent liabilities
Indirect taxation
Gamesys Group plc subsidiaries may be subject to indirect
taxation on transactions that have been treated as exempt supplies
of gambling, or on supplies that have been zero rated where
legislation provides that the services are received or used and
enjoyed in the country where the service provider is located.
Revenue earned from customers located in any particular
jurisdiction may give rise to further taxes in that jurisdiction.
If such taxes are levied, either on the basis of current law or the
current practice of any tax authority, or by reason of a change in
the law or practice, then this may have a material adverse effect
on the amount of tax payable by the Group or on its financial
position.
Where it is considered probable that a previously identified
contingent liability will give rise to an actual outflow of funds,
then a provision is made in respect of the relevant jurisdiction
and period impacted. Where the likelihood of a liability arising is
considered remote, or the possible contingency is not material to
the financial position of the Group, the contingency is not
recognised as a liability at the balance sheet date. As at 30
September 2019, the Group had recognised GBPnil (31 December 2018 -
GBPnil) related to potential contingent indirect taxation
liabilities.
[1] All figures in the financial summary, except operating cash
flows, exclude Mandalay results. For more information on the sale
of the Mandalay assets, please refer to Note 7 - 'Discontinued
operations' of the consolidated financial statements on pages 24
and 25 of this release.
[2] All figures in the financial summary and financial review
sections of this release include results of the Gamesys Acquisition
for the period from 27 September 2019 to 30 September 2019. For
more information on the Gamesys Acquisition, please refer to Note 3
- 'Business combinations' of the consolidated financial statements
on page 17 of this release.
[3] This release contains non-IFRS financial measures, which are
noted where used. For additional details, including with respect to
the reconciliations from these non-IFRS financial measures, please
refer to the information under the heading 'Note regarding non-IFRS
measures' on page 4 of this release and Note 5 - 'Segment
information' of the consolidated financial statements on pages 18
through 23 of this release.
[4] Per share figures are calculated on a diluted weighted
average basis using the IFRS treasury method.
[5] All figures in the pro-forma financial summary and related
discussions present Group results as though the acquired Gamesys
brands have been a part of the Group for the entire current year
and comparative periods.
[6] Organic growth is growth achieved without accounting for
acquisitions or disposals.
[7] Adjusted net debt consists of existing term loans, deferred
consideration, fair value of interest rate swap and cross currency
swap, less non-restricted cash and cash required to pay for
one-time transactional liabilities.
[8] Adjusted net leverage ratio consists of existing term loans,
deferred consideration, fair value of interest rate swap and cross
currency swap, less non-restricted cash and cash required to pay
for one-time transactional liabilities divided by LTM to 30
September 2019 pro-forma adjusted EBITDA of GBP160.5 million.
[9] For additional details, please refer to the information
under the heading 'Key performance indicators' on page 10 of this
release.
[10] Figures exclude results from the Group's Mandalay and
social gaming businesses, where applicable.
[11] Figures exclude results from the Gamesys Acquisition.
[12] Constant currency amounts are calculated by applying the
same EUR to GBP average exchange rates to both current and prior
year comparative figures.
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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