Annual Results 2019
Gaming Realms Plc
("Gaming Realms", the "Company" or the "Group")
Annual Results 2019
Delivering on Licensing Strategy and Real Money Gaming Divestment
Gaming Realms plc (AIM: GMR), the developer and licensor of mobile focused gaming content, announces its annual results for the year ended 31 December 2019 and Q1 highlights for 2020.
2019 was a transformational year for the Company, having sold the B2C Real Money Gaming ("RMG") business. The Group is now an innovation-led, technology rich, developer and licensor of mobile focussed gaming content.
2019 Financial Highlights:
· Continuing revenue increased by 11.5% to £6.9m ( 2018 : 6.2m) for the year;
o Licensing revenue increased 84% to £4.1m ( 2018 : £2.2 m)
o Social Publishing revenue decreased by 30% to £2.8m ( 2018 : £3.9m), with 16% reduction in costs as per our strategy
· Continuing Adjusted EBITDA loss £0.3m (2018 : £0.1m loss), which unadjusted gives an EBITDA loss of £0.8m (2018: £0.6m loss);
o Licensing £1.4m Adjusted EBITDA profit (2018: £1.0m)
o Social Publishing £0.8m Adjusted EBITDA profit ( 2018 : £1.6m)
· Net Cash Flow £1.0m (2018 : £0.2m) with £2.6m cash at the year end
· Loss for the year from continuing activities reduced to £4.6m (2018: £5.6m)
2019 Operational Highlights:
· Sale of the B2C RMG business to River iGaming plc ("River") completed in July 2019 for £11.5m on a cash free, debt free basis. After settlement of liabilities in connection with the disposed assets and termination of the £4.2m deferred consideration due from the sale completed in 2018, the Company received an initial cash sum of £7.0m, with a deferred consideration of £1.5m due on 31 December 2020.
· Game library growth to 36 proprietary games on the Group's remote game server ("RGS") ( 2018 : 28)
· Signed international distribution deal with Scientific Games
· Launched Slingo Originals content with 14 new partners including William Hill, Kindred, and Betsson
· Extended our licensing of the Slingo brand to Zynga for Social casino
Q1 2020 Highlights:
· Licensing revenue increased 90% in Q1 2020 to £1.3m (Q1 2019: £0.7m)
· Launched games with six new partners in the period, including Sky Betting and Gaming in the UK, Draftkings in New Jersey USA and Caliente in Mexico
Outlook:
The Group has many contracts agreed with new distribution partners scheduled for integration into our RGS throughout this year and beyond. Two new Slingo games have already launched this year, and our intention is to roll-out additional proprietary content as the year progresses.
Our dependence on the UK marketplace will lessen as we go live with more international operators. In this regard, we have applied for a licence in Pennsylvania, USA, to distribute our games in that State and we hope this license will be granted by the year end. We are already operating in New Jersey, and will make further license applications in the USA as more states decide to regulate online casinos.
Gaming Realms now has a clear long-term strategy which leverages its key competitive advantage, being the development and licensed distribution of games using its proprietary Slingo IP. The Board is delighted that the business is starting to establish a track record of achieving its strategic plans and financial expectations. Whilst it is still early in the current year, the strong progress and Q1 20 trading performance, which was ahead of expectations, gives the Board confidence in its ability to deliver upon its full year aspirations.
Commenting on the results, Michael Buckley, Executive Chairman, said : " In 2019 we disposed of the B2C business to allow the Group to concentrate solely on the development and licensing of our Slingo online gaming content. During the year we increased our games portfolio, secured key partnerships with industry leaders, and broadened our international reach and audience. I am delighted to report that this progress has continued into the current year.
" With reference to current trading, I am pleased to inform shareholders that our licensing revenues for the first quarter of 2020 were 90% ahead of the same period of 2019, and we are operating ahead of the Board's forecast. These operating results, together with new deals already announced and the pipeline of additional distribution partners to come, gives the Board confidence in the strategy being pursued, and our expectations for this year and beyond.
" In light of the Covid-19 pandemic, I would like to reassure all our investors and stakeholders that the Group has taken every precaution to ensure the safety of our staff and those we work with. While it is impossible to predict the duration of this situation, we continue to experience a high level of demand for our products which supports the Board's confidence in the future prospects of the business."
Enquiries:
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Gaming Realms plc |
0845 123 3773 |
|
Michael Buckley, Executive Chairman Mark Segal, CFO |
|
|
Peel Hunt LLP - NOMAD and broker |
020 7418 8900 |
|
George Sellar Andrew Clark Will Bell |
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Yellow Jersey |
07747 788 221
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|
Charles Goodwin Georgia Colkin Annabel Atkins |
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About Gaming Realms
Gaming Realms is a developer, publisher and licensor of mobile games, building an international portfolio of highly popular gaming content and brands.
Through its unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats. The Gaming Realms management team includes accomplished entrepreneurs and experienced executives from a wide range of leading gaming and media companies.
Executive Chairman's Statement
The UK B2C real money online gaming market deteriorated throughout 2017, particularly for smaller companies. The increasing levels of regulation on many fronts, coupled with increased taxation, significantly increased costs and reduced margins to unsustainable levels.
In light of these poor market conditions, the Board took the difficult decision to sell a number of our B2C sites, completing that sale in 2018. By this time, it was apparent that conditions in this sector of the gaming market were still under pressure, and we withdrew completely from direct involvement in the UK B2C online casino market with the sale of the rest of these assets in July of the year under review.
These sales were accompanied by management's decision to invest in the creation and development of a Gaming Content and Distribution Division.
These asset disposals have transformed the Company, which is now concentrated on the development and international distribution of mobile focussed gaming content and brand licensing, using our unique Slingo IP.
The Group has been able to reduce staff and operational costs, and now has a healthy cash balance to fund itself until it becomes cash generative which we hope will be before the end of the current year.
I am pleased to say that the Group delivered an Adjusted EBITDA loss on continuing activities for 2019 of £0.3m (2018 £0.1m loss), which was better than expected.
The Group made excellent progress this year, with the Licensing division increasing revenues by 84% to £4.1m (2018: £2.2m). More importantly for the longer-term profitability of the Company, we saw an increasing demand for our products and recognition of the value of the Slingo IP. This can be seen from the following facts for 2019:
● We increased our library of proprietary games by 8 to 36 games at year end.
● We went live with 14 new partners during the year, all of whom have licensed our Slingo Originals content.
● We signed games distribution deals with Relax Gaming and Scientific Games, who together have over 200 operators that they supply with content.
● We are relying less on the UK marketplace as our games are distributed internationally. In Scandinavia, our games are carried by Kindred, Bettson, and Leo Vegas.
● We are licensed as a game supplier in New Jersey, USA, where our games have maintained in excess of a 3.5% share of sales from online slot products throughout the year. During 2019, the New Jersey online casino market grew by 66.3% with Gaming Realms maintaining its percentage share.
As reported to shareholders during the year, we rationalised the Social division reducing costs and our exposure. Whilst this resulted in a decline in revenues of 30% to £2.8m (2018: £3.9m), the business is now making a positive cash contribution to Group results, and this appears to be sustainable. We will keep it under review, to ensure it is aligned with the best interests of shareholders at all times.
Further details on the 2019 results are contained in the Statement from the Finance Director which follows.
Market overview
The market for casino games is very crowded, with most operators having hundreds of games on their sites. It is apparent that Slingo games are able to get to the forefront of players attention, using its unique brand and format.
This is resulting in many partner sites giving our content enhanced placement, thus increasing awareness of Slingo games.
We are increasing our efforts to grow revenues outside the UK market, given the increase in Point of Consumption Tax and ever increasing UK regulation. We have a good footprint in the New Jersey, USA, market, and as mentioned above we are live on a number of other overseas sites. We have certified our games for the regulated market of Sweden and are currently undergoing testing for the regulated Italian market. Over time we expect to see an increasing percentage of our revenues generated from outside the UK.
Outlook for 2020
Our main focus for this year will be:
● To develop more proprietary Slingo games to add to our portfolio
● To continue expansion of the partners to whom our games are licensed, with particular emphasis on the international market
● To maintain control over Group costs where we have achieved a significant reduction, as we move towards Group profitability
This year has started well, and we have gone live on Sky Betting and Gaming in the UK, Draftkings in New Jersey, USA and Caliente in Mexico. We have submitted an application for a new license in Pennsylvania, USA which we hope will be granted by year end, and a number of operators in Pennsylvania have already agreed to take our games once they are licensed and approved. We will continue to expand in the USA as further States decide to regulate online casino gaming.
As regards current trading, I am pleased to inform shareholders that our Licensing revenues for the first quarter of this year were 90% ahead of the same period of 2019, and we are operating ahead of management's forecast. Whilst early in the year, these results, coupled with the new deals already announced and the pipeline of additional partners to come, gives the Board every confidence in the strategy being pursued and expectations for this year and beyond.
Board update
Early in February, the CEO Patrick Southon left the Company. On his departure, I became Executive Chairman and we announced we would be seeking a replacement. The successful division of duties between the Finance Director and myself, coupled with the performance of the Group in recent months, has led the Board to decide that we will not replace this position for the time being, which will also save costs. The Board believes the skill set and experience of the two Executives and four Non-Executives is appropriate for the size and strategy of the Company going forward, and provides the appropriate level of governance.
COVID-19
In light of the COVID-19 pandemic, I would like to reassure all our investors and stakeholders that the Group has taken every precaution to ensure the safety of our staff and those we work with. While it is impossible to predict the duration of this situation, we continue to experience a high level of demand for our products which supports the Board's confidence in the future prospects of the business .
Michael Buckley
Executive Chairman
Financial Review
Overview
During 2019, the Group has continued implementing its core strategy of focusing its resources to grow the Licensing business.
2019 saw the Group complete its disposal of the real money B2C assets, following the initial disposal of four real money B2C brands in 2018.
Gaming Realms delivered a loss after tax of £5.4m (2018: £0.9m profit), including a £0.8m loss on discontinued operations and disposals (2018: £6.6m profit). Excluding the impact of discontinued operations and disposals, the Group reduced its loss after tax by £1.1m to £4.6m (2018: £5.6m). We have continued to present the B2C RMG and Affiliate Marketing segments as discontinued operations in the current and comparative period.
The Group realised a £0.8m profit on disposal of the real money B2C assets in the year (2018: £12.5m).
The Group adopted IFRS 16 on 1 January 2019, which resulted in an increase in 2019 EBITDA of £0.1m due to the presentation of lease interest and depreciation in the income statement compared with the previous standard. See note 1 for more detail on the adoption of this standard.
The table below sets out the split of revenue and Adjusted EBITDA on a continuing and discontinued operations basis:
| Discontinued operations |
| Continuing operations |
|
| |||||
| Real money gaming | Affiliate Marketing | Total discontinued |
| Licensing | Social Publishing | Head office | Total continuing |
| Total |
2019 | £000's | £000's | £000's |
| £000's | £000's | £000's | £000's |
| £000's |
Revenue | 6,002 | - | 6,002 |
| 4,147 | 2,758 | 106 | 7,011 |
| 13,013 |
Marketing expense | (706) | - | (706) |
| - | (130) | (82) | (212) |
| (918) |
Operating expense | (4,908) | - | (4,908) |
| (773) | (855) | 1 | (1,627) |
| (6,535) |
Administrative expense | (1,965) | - | (1,965) |
| (1,970) | (1,001) | (2,446) | (5,417) |
| (7,382) |
Share-based payments | - | - | - |
| - | - | (10) | (10) |
| (10) |
Adjusted EBITDA | (1,577) | - | (1,577) |
| 1,404 | 772 | (2,431) | (255) |
| (1,832) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Discontinued operations |
| Continuing operations |
|
| |||||
| Real money gaming | Affiliate Marketing | Total discontinued |
| Licensing | Social Publishing | Head office | Total continuing |
| Total |
2018 | £000's | £000's | £000's |
| £000's | £000's | £000's | £000's |
| £000's |
Revenue | 16,365 | 168 | 16,533 |
| 2,248 | 3,921 | 394 | 6,563 |
| 23,096 |
Marketing expense | (4,319) | (15) | (4,334) |
| - | (414) | (251) | (665) |
| (4,999) |
Operating expense | (9,170) | (16) | (9,186) |
| (200) | (1,092) | - | (1,292) |
| (10,478) |
Administrative expense | (3,324) | (116) | (3,440) |
| (1,055) | (861) | (2,738) | (4,654) |
| (8,094) |
Share-based payments | - | - | - |
| - | - | (68) | (68) |
| (68) |
Adjusted EBITDA | (448) | 21 | (427) |
| 993 | 1,554 | (2,663) | (116) |
| (543) |
Continuing operations
Continuing operations generated an Adjusted EBITDA loss of £0.3m (2018: £0.1m loss). 2019 continuing Adjusted EBITDA would have been a loss of £0.1m prior to the adoption of IFRS 16.
EBITDA from continuing operations was a £0.8m loss (2018: £0.6m loss) including restructuring costs of £0.3m (2018: £0.2m) and impairment of assets of £0.2m (2018: £0.2m). 2019 EBITDA from continuing operations would have been a loss of £0.9m prior to the impact of IFRS 16 adoption (see note 1).
Year-on-year revenue increased 11% to £6.9m (£2018: £6.2m) due to the strong growth in Licensing, partially offset by the declining performance in Social Publishing.
Operating expenses for the year increased to £1.5m (2018: £0.9m) principally as a result of increased costs associated with the growth in the Licensing segment, offset by reduced operating costs in Social Publishing.
Administrative expenses increased to £5.7m (2018: £4.9m) due to increased investment in infrastructure to support the planned long-term expansion of the Licensing segment, while cost savings of £0.1m were achieved in the Social Publishing segment compared to 2018.
Licensing
Licensing revenue increased 84% to £4.1m (2018: £2.2m) due to the successful implementation of the Group's strategy of growing both the games content and distribution to an increased number of operators in Europe and the US.
During 2019, the Group went live with an additional 10 partners in Europe, New Jersey and Latin America, bringing the total to 27 (2018: 17). After the year-end, the Group went live with a further 6 new operators, including tier 1 operator Sky Betting & Gaming in the UK and DraftKings in New Jersey, USA.
Social Publishing
Social Publishing continued to achieve profitability in 2019, delivering Adjusted EBITDA profit of £0.8m (2018: £1.6m).
Social Publishing revenues reduced 30% to £2.8m (2018: £3.9m) as a result of tighter cost control during the year which saw marketing and operating expenses reduce by 68% and 22% respectively.
Discontinued operations
Discontinued operations relate to B2C RMG and Affiliate Marketing. The Group recorded a loss after tax from discontinued operations of £0.8m (2018: £6.6m profit), comprising £0.7m profit on disposal of assets, £0.2m share of loss of associate prior to disposal, and incurred trading losses until disposal of £1.3m.
Real money gaming
In July 2019 the Group concluded the transaction with River, which finalised the Group's strategy of withdrawing from the UK real money B2C market to focus on game development and licensing activities. The Group recorded a profit on disposal of these assets of £0.8m.
The Group received cash consideration on disposal of £7.0m and the transaction included settlement of the £4.2m deferred consideration due from the sale completed in 2018. The Group is due £1.5m deferred consideration on 31 December 2020.
This followed the 2018 transaction also with River, where the Group sold four of its B2C real money brands.
Regulatory pressures adversely impacted the performance of the discontinued RMG segment prior to its disposal in July 2019. Prior to disposal, the RMG segment generated an EBITDA loss of £1.6m (2018: £0.5m EBITDA loss).
Affiliate Marketing
The Affiliate Marketing business was sold in March 2018 for £2.4m after generating revenues of £0.2m in 2018. The loss on disposal recognized in the prior year was £0.1m.
Cashflow, Balance Sheet and Going Concern
Net cash increased by £1.0m in 2019 (2018: increased by £0.2m) to £2.6m at 31 December 2019 (2018: £1.6m). The current year increase in net cash was largely driven through the £5.4m cash inflow on disposals, net of cash disposed of and disposal costs, offset by £1.5m cash used in operating activities (2018: £2.2m) and £2.7m of development costs capitalised in the year (2018: £3.0m)
The Group is due £1.5m deferred consideration on 31 December 2020 on the 2019 disposal of the real money B2C assets.
Net assets totaled £12.1m (2018: £17.7m).
Following completion of the Group's exit from the real money B2C market during 2019 and the strong growth seen and forecast for the core Licensing business, the Directors believe the Group is in a strong position to take advantage of the significant opportunities in the Licensing and Social Publishing segments.
Following the COVID-19 outbreak and the uncertainty this has brought to global markets and economies, the Directors have performed qualitative and quantitative assessments of the associated risks facing the business and its ability to meet its short and medium-term forecasts. The forecasts were subject to stress testing to analyse the reduction in forecast revenues required to bring about insolvency of the Company unless capital was raised. In such cases it is anticipated that mitigation actions such as reduction in overheads could be implemented to stall such an outcome.
The Directors confirm their view that they have carried out a robust assessment of the emerging and principal risks facing the business. As a result of the assessment performed, the Directors consider that the Group has adequate resources to continue its normal course of operations for the foreseeable future.
Dividend
During the year, Gaming Realms did not pay an interim or final dividend. The Board of Directors are not proposing a final dividend for the current year.
Corporation and deferred taxation
The Group received £0.1m (2018: £0.1m) in research and development credits in Canada and a £0.1m tax charge in respect of previous periods. The Group also recognized an unwind of deferred tax of £0.1m (2018: £0.3m) which arose on prior year business combinations.
Mark Segal
Chief Financial Officer
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
|
| 2019 | 2018 |
Continuing |
|
|
|
Revenue |
| 6,882,741 | 6,173,196 |
Marketing expenses |
| (212,473) | (665,363) |
Operating expenses |
| (1,498,294) | (901,807) |
Administrative expenses |
| (5,743,747) | (4,870,226) |
Impairment of financial asset |
| (200,000) | (228,451) |
Share-based payments |
| (9,972) | (67,824) |
|
|
|
|
Adjusted EBITDA - continuing |
| (255,116) | (115,669) |
Impairment of financial asset |
| (200,000) | (228,451) |
Restructuring expenses |
| (326,629) | (216,355) |
EBITDA - continuing |
| (781,745) | (560,475) |
|
|
|
|
Amortisation of intangible assets |
| (2,982,845) | (3,535,972) |
Depreciation of property, plant and equipment |
| (204,714) | (145,269) |
Impairment of goodwill |
| - | (1,650,000) |
Finance expense |
| (842,518) | (576,107) |
Finance income |
| 146,661 | 419,894 |
Loss before tax |
| (4,665,161) | (6,047,929) |
Tax credit |
| 31,335 | 412,987 |
Loss for the financial year - continuing |
| (4,633,826) | (5,634,942) |
(Loss) / profit for the financial year - discontinued |
| (783,451) | 6,564,246 |
(Loss) / profit for the financial year - total |
| (5,417,277) | 929,304 |
Other comprehensive income |
|
|
|
Items that will or may be reclassified to profit or loss: |
|
|
|
Exchange (loss) / gain arising on translation of foreign operations |
| (305,671) | 491,611 |
Total other comprehensive income |
| (305,671) | 491,611 |
Total comprehensive income |
| (5,722,948) | 1,420,915 |
(Loss) / profit attributable to: |
|
|
|
Owners of the parent |
| (5,341,669) | 946,804 |
Non-controlling interest |
| (75,608) | (17,500) |
|
| (5,417,277) | 929,304 |
Total comprehensive income attributable to: |
|
|
|
Owners of the parent |
| (5,647,340) | 1,443,741 |
Non-controlling interest |
| (75,608) | (22,826) |
|
| (5,722,948) | 1,420,915 |
|
|
|
|
(Loss)/gain per share |
| Pence | Pence |
Basic and diluted - continuing |
| (1.60) | (1.97) |
Basic and diluted - discontinued |
| (0.28) | 2.31 |
Basic and diluted - total |
| (1.88) | 0.34 |
Consolidated Statement of Financial Position
As at 31 December 2019
|
| 31 December | 31 December |
|
|
|
|
Non-current assets |
|
|
|
Intangible assets |
| 11,702,553 | 12,848,623 |
Other investments |
| 289,511 | 535,130 |
Property, plant and equipment |
| 760,763 | 127,556 |
Finance lease asset |
| 157,166 | - |
Other assets |
| 150,885 | 132,577 |
|
| 13,060,878 | 13,643,886 |
Current assets |
|
|
|
Trade and other receivables |
| 1,850,863 | 2,681,500 |
Deferred consideration |
| 1,298,663 | 665,690 |
Finance lease asset |
| 126,354 | - |
Cash and cash equivalents |
| 2,626,837 | 467,033 |
|
| 5,902,717 | 3,814,223 |
Assets classified as held for sale |
| - | 11,392,013 |
Total assets |
| 18,963,595 | 28,850,122 |
Current liabilities |
|
|
|
Trade and other payables |
| 2,125,257 | 2,484,592 |
Lease liabilities |
| 256,527 | - |
Liabilities classified as held for sale |
| - | 4,830,076 |
|
| 2,381,784 | 7,314,668 |
Non-current liabilities |
|
|
|
Deferred tax liability |
| 457,492 | 607,943 |
Other Creditors |
| 3,126,673 | 3,004,602 |
Derivative liabilities |
| 272,000 | 200,000 |
Lease liabilities |
| 646,122 | - |
|
| 4,502,287 | 3,812,545 |
Total liabilities |
| 6,884,071 | 11,127,213 |
Net assets |
| 12,079,524 | 17,722,909 |
Equity |
|
|
|
Share capital |
| 28,442,874 | 28,442,874 |
Share premium |
| 87,198,410 | 87,198,410 |
Merger reserve |
| (67,673,657) | (67,673,657) |
Foreign exchange reserve |
| 1,605,782 | 1,911,453 |
Retained earnings |
| (37,570,601) | (32,308,495) |
Total equity attributable to owners of the parent |
| 12,002,808 | 17,570,585 |
Non-controlling interest |
| 76,716 | 152,324 |
Total equity |
| 12,079,524 | 17,722,909 |
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
|
| 2019 | 2018 |
|
| £ |
|
Cash flows from operating activities |
|
|
|
(Loss) / profit for the financial year |
| (5,417,277) | 929,304 |
Adjustments for: |
|
|
|
Depreciation of property, plant and equipment |
| 211,055 | 145,269 |
Amortisation of intangible fixed assets |
| 2,982,845 | 4,319,920 |
Impairment |
| 200,000 | 4,479,026 |
Finance income |
| (420,512) | (679,160) |
Finance expense |
| 842,518 | 576,107 |
Income tax credit |
| (31,335) | (412,987) |
Exchange differences |
| 41,336 | (11,076) |
Loss on disposal of property, plant and equipment |
| 28,081 | 41,646 |
Profit on disposal of assets |
| (683,323) | (12,421,621) |
Fair value movement on contingent consideration |
| - | 1,900,065 |
Cash settlement of director share-based payment |
| - | (145,000) |
Share of loss of associate |
| 157,307 | 172,360 |
Share based payments expense |
| 9,972 | 67,824 |
Decrease / (increase) in trade and other receivables |
| 1,330,674 | (310,396) |
Decrease in trade and other payables |
| (803,124) | (951,414) |
Increase in other assets |
| (18,308) | - |
Net cash flows used in operating activities before taxation |
| (1,570,091) | (2,300,133) |
Tax credit received in the year |
| 73,424 | 133,130 |
Net cash flows used in operating activities |
| (1,496,667) | (2,167,003) |
|
|
|
|
Investing activities |
|
|
|
Acquisition of associate |
| - | (3,000) |
Acquisition of property, plant and equipment |
| (106,583) | (34,712) |
Capitalised development costs |
| (2,680,289) | (3,017,674) |
Proceeds from disposal of assets, net of cash disposed of |
| 6,135,529 | 6,037,133 |
Costs related to asset disposal |
| (765,867) | (311,540) |
Interest received |
| 3,705 | 120 |
Finance lease asset - sublease receipts |
| 120,507 | - |
Net cash from investing activities |
| 2,707,002 | 2,670,327 |
|
|
|
|
Financing activities |
|
|
|
Cost relating to issue of convertible debt |
| - | (24,846) |
Receipt of deferred consideration |
| 385,000 | - |
IFRS 16 lease payments |
| (252,376) | - |
Interest paid |
| (322,772) | (232,241) |
Net cash used in financing activities |
| (190,148) | (257,087) |
Net increase in cash and cash equivalents |
| 1,020,187 | 246,237 |
Cash and cash equivalents at beginning of year |
| 1,550,141 | 1,319,098 |
Exchange gain / (losses) on cash and cash equivalents |
| 38,127 | (15,194) |
Cash and cash equivalents at end of year |
| 2,608,455 | 1,550,141 |
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
|
|
Share capital |
Share premium |
Merger reserve |
Foreign Exchange Reserve |
Shares to be issued |
Retained earnings |
Total to equity holders of parents |
Non-controlling interest |
Total equity |
|
|
|
|
|
|
|
|
|
|
|
|
1 January 2018 |
28,442,874 |
87,198,410 |
(67,673,657) |
1,419,842 |
145,000 |
(33,323,123) |
16,209,346 |
169,824 |
16,379,170 |
|
Profit for the year |
- |
- |
- |
- |
- |
946,804 |
946,804 |
(17,500) |
929,304 |
|
Other comprehensive income |
- |
- |
- |
491,611 |
- |
- |
491,611 |
- |
491,611 |
|
Total comprehensive income for the year |
- |
- |
- |
491,611 |
- |
946,804 |
1,438,415 |
(17,500) |
1,420,915 |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
|
Share-based payment to Director settled via cash |
- |
- |
- |
- |
(145,000) |
- |
(145,000) |
- |
(145,000) |
|
Share-based payment on share options |
- |
- |
- |
- |
- |
67,824 |
67,824 |
- |
67,824 |
|
31 December 2018 |
28,442,874 |
87,198,410 |
(67,673,657) |
1,911,453 |
- |
(32,308,495) |
17,570,585 |
152,324 |
17,722,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 January 2019 |
28,442,874 |
87,198,410 |
(67,673,657) |
1,911,453 |
- |
(32,308,495) |
17,570,585 |
152,324 |
17,722,909 |
|
Adjustment on the initial application of IFRS 16 |
- |
- |
- |
- |
- |
69,591 |
69,591 |
- |
69,591 |
|
Adjusted balance at 1 January 2019 |
28,442,874 |
87,198,410 |
(67,673,657) |
1,911,453 |
- |
(32,238,904) |
17,640,176 |
152,324 |
17,792,500 |
|
Loss for the year |
- |
- |
- |
- |
- |
(5,341,669) |
(5,341,669) |
(75,608) |
(5,417,277) |
|
Other comprehensive income |
- |
- |
- |
(305,671) |
- |
- |
(305,671) |
- |
(305,671) |
|
Total comprehensive income for the year |
- |
- |
- |
(305,671) |
- |
(5,341,669) |
(5,647,340) |
(75,608) |
(5,722,948) |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
|
Share-based payment on share options |
- |
- |
- |
- |
- |
9,972 |
9,972 |
- |
9,972 |
|
31 December 2019 |
28,442,874 |
87,198,410 |
(67,673,657) |
1,605,782 |
- |
(37,570,601) |
12,002,808 |
76,716 |
12,079,524 |
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
1. Accounting policies
General information
Gaming Realms Plc (the "Company") and its subsidiaries (together the "Group").
The Company is admitted to trading on the Alternative Investment Market (AIM) of the London Stock Exchange. It is incorporated and domiciled in the UK. The address of its registered office is Two Valentine Place, London, SE1 8QH.
The consolidated financial statements are presented in British Pounds Sterling.
Basis of preparation
These financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations (collectively IFRSs) as adopted by the EU and on a basis consistent with those policies set out in our audited financial statements for the year ended 31 December 2018.
The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2019 or 31 December 2018.
Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies and those for the year ended 31 December 2019 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditors' report for the year ended 31 December 2019 is unmodified.
The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2019 and 31 December 2018 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Going concern
The Group meets its day-to-day working capital requirements from the cash flows generated by its trading activities and its available cash resources.
The Group prepares cash flow forecasts and re-forecasts regularly as part of the business planning process. The Directors have reviewed forecast cash flows for the forthcoming 12 months for the Group from the date of the approval of the financial statements and consider that the Group will have sufficient cash resources available to meet its liabilities as they fall due. These cash flow forecasts have been analysed in light of the COVID-19 outbreak and subject to stress testing, scenario modelling and sensitivity analysis, which the Directors consider sufficiently robust. The Group is currently seeing evidence of an increase in customer activity on its games content, however the sensitivity analysis has assessed the impact of various degrees of downturn in medium term revenues generated. The Directors note that in an extreme scenario the Group also has the option to rationalise its cost base including cuts to discretionary capital, marketing and overhead expenditure. The Directors consider that the required level of change to the Group's forecast cash flows to give rise to a material risk over going concern are sufficiently remote.
Accordingly, these financial statements have been prepared on the basis of accounting principles applicable to going concern which assumes that the Group and the Company will realise its assets and discharge its liabilities in the normal course of business. Management has carried out an assessment of the going concern assumption and has concluded that the Group and the Company will generate sufficient cash and cash equivalents to continue operating for the next twelve months.
Basis of consolidation
The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
The results of subsidiaries acquired or disposed during the period are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition up to the effective date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Adoption of new and revised standards
In preparing the Group financial statements for the current year, the Group has adopted a number of new IFRSs, amendments to IFRSs and IFRS Interpretations Committee (IFRIC) interpretations described below. IFRS 16 'Leases' is the only new or revised standard to materially impact the Group. Other new amended standards or interpretations issued by IASB did not impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.
IFRS 16 "Leases"
IFRS 16 'Leases' has replaced IAS 17 in its entirety. The distinction between operating leases and finance leases for lessees is removed and it results in most leases being recognised on the Statement of Financial Position as a right-of-use (ROU) asset and a lease liability. For leases previously classified as operating leases, the lease cost has changed from an in-period operating lease expense to recognition of depreciation of the right-of-use asset and interest expense on the lease liability.
The Group has leasehold property used in its own operations previously treated as operating leases, and one leasehold property which is sublet to external tenants which is treated as a finance lease under IFRS 16.
The Group has applied IFRS 16 using the modified retrospective approach. A lease liability has been recognised equal to the present value of the remaining lease payments discounted using an incremental borrowing rate. A ROU asset has been recognised equal to the lease liability adjusted for prepaid and accrued lease payments.
The Group has applied the below practical expedients permitted under the modified retrospective approach;
· Exclude leases for measurement and recognition for leases where the term ends within 12 months from the date of initial application and account for these leases as short-term leases;
· Applied portfolio level accounting for leases with similar characteristics;
· Excluded initial direct costs from measuring the right of use asset at the date of initial application; and
· Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.
The table below presents the cumulative effects of the items affected by the initial application on the statement of financial position as at 1 January 2019:
|
|
1 January 2019 (as previously reported) |
IFRS 16 adoption |
1 January |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
127,556 |
115,094 |
242,650 |
|
Finance lease asset |
- |
295,118 |
295,118 |
|
Current assets |
|
|
|
|
Finance lease asset |
- |
89,988 |
89,988 |
|
Total assets |
28,850,122 |
500,200 |
29,350,322 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Lease liabilities |
- |
(136,431) |
(136,431) |
|
Other payables |
(986,349) |
67,506 |
(918,843) |
|
Non-current liabilities |
|
|
|
|
Lease liabilities |
- |
(361,684) |
(361,684) |
|
Total liabilities |
(11,127,213) |
(430,609) |
(11,557,822) |
|
|
|
|
|
|
Equity |
|
|
|
|
Retained earnings |
32,308,495 |
(69,591) |
32,238,904 |
|
Total equity and liabilities |
(28,850,122) |
(500,200) |
(29,350,322) |
In measurement of the lease liability and finance lease asset, the Group discounted future lease payments using the nominal incremental borrowing rate at 1 January 2019, being 8.75%.
The lease liability at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:
|
|
|
|
|
Minimum lease payments under operating leases at 31 December 2018 |
380,900 |
|
|
Short term leases not recognised as liabilities |
|
(109,026) |
|
Sub-lease to recognise as liability under IFRS 16 |
|
302,608 |
|
Gross lease liabilities as at 1 January 2019 |
|
574,482 |
|
Effect of discounting at incremental borrowing rate |
|
(76,367) |
|
Present value of lease liabilities at 1 January 2019 |
|
498,115 |
The impact on EBITDA as a result of the implementation of IFRS 16 is an increase of £116,715 during the year ended 31 December 2019, and a decrease of £41,393 in the Group's net profit.
|
|
2019 |
2018 |
|
|
|
|
|
EBITDA reported - continuing |
(781,745) |
(560,475) |
|
Impact of IFRS 16 |
(116,715) |
- |
|
EBITDA reported - continuing - prior to impact of IFRS 16 |
(898,460) |
(560,475) |
Set out below, are the carrying amount of the Group's right-of-use asset, finance lease asset and lease liability and the movement during the period:
|
|
Right of use asset |
Finance lease asset |
Lease liability |
|
|
|
|
|
|
As at 1 January 2019 |
115,094 |
385,106 |
498,115 |
|
|
|
|
|
|
Leases entered into during the period |
644,281 |
- |
594,281 |
|
Amortisation of ROU asset |
(116,713) |
- |
- |
|
Interest income |
- |
30,625 |
- |
|
Interest expense |
- |
- |
72,056 |
|
Exchange differences |
1,500 |
(11,704) |
(9,427) |
|
Lease payments |
- |
(120,507) |
(252,376) |
|
|
|
|
|
|
As at 31 December 2019 |
644,162 |
283,520 |
902,649 |
As a lessor
The Group has one leased property which is also sublet. For the sublet property, the Group has recognised a lease receivable equal to the net investment in the sublease. This is based on the present value of future lease payments due from the tenant. The lease liability is not impacted. Payments by the tenant reduce the lease receivable and finance income is recognised on the unwind of the lease receivable.
The sublease covers the total lease commitment entered into by the Group. There are no variable lease payments.
Comparatives
The Group adopted IFRS 16 using the modified retrospective approach. The comparative figures in these financial statements were therefore accounted for in accordance with IAS 17. Under this standard, where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an "operating lease"), the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.
IFRIC 23 uncertainty over income tax treatments ("IFRIC 23")
IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. The interpretation requires:
· The Group to determine whether uncertain tax treatments should be considered separately, or together as a group, based on which approach provides better predictions of the resolution;
· The Group to determine if it is probable that the tax authorities will accept the uncertain tax treatment; and
· If it is not probable that the uncertain tax treatment will be accepted, measure the tax uncertainty based on the most likely amount or expected value, depending on whichever method better predicts the resolution of the uncertainty. This measurement is required to be based on the assumption that each of the tax authorities will examine amounts they have a right to examine and have full knowledge of all related information when making those examinations.
The Group made no adjustments on adoption or during the year as a result of adopting IFRIC 23.
Business combinations
On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired, including separately identifiable intangible assets, is recognised as goodwill. Any discount on acquisition, i.e. where the cost of acquisition is below the fair value of the identifiable net assets acquired, is credited to the Statement of Comprehensive Income in the period of acquisition.
2. Adjusted EBITDA
EBITDA and Adjusted EBITDA are non-GAAP measures and exclude exceptional items, depreciation, and amortisation. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.
Adjusted EBITDA is stated before exceptional items as follows:
|
|
|
2019 |
2018 |
|
|
|
|
|
|
Impairment of financial asset |
|
(200,000) |
(228,451) |
|
Restructuring costs |
|
(326,629) |
(216,355) |
|
Adjusting items |
|
(526,629) |
(444,806) |
Restructuring costs
Restructuring costs of £0.3m (2018: £0.2m) were incurred relating to redundancy, consulting and relocation costs.
Impairment of financial asset
In accordance with IFRS 9, management have performed an expected credit loss review over its trade and other receivable balances. As a result of this review, an impairment provision of £200,000 has been recorded in the income statement. The balance owed by Gamerail Entertainment LLC as at 31 December 2017 of £228,451 ($253,454) was fully provided for in 2018.
3. Segment information
The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance.
The Group has 2 continuing reportable operating segments:
· Licensing - brand and content licensing to partners in Europe and the US
· Social Publishing - providing freemium games to the US and Europe
There were no customers who generated more than 10% of total revenue. Management do not report segmental assets and liabilities internally and as such an analysis is not reported.
|
|
Licensing |
Social publishing |
Head Office |
Total |
|
2019 |
|
|
|
|
|
Revenue |
4,146,857 |
2,758,475 |
106,164 |
7,011,496 |
|
Marketing expense |
- |
(130,505) |
(81,968) |
(212,473) |
|
Operating expense |
(772,827) |
(854,984) |
762 |
(1,627,049) |
|
Administrative expense |
(1,970,455) |
(1,001,103) |
(2,445,560) |
(5,417,118) |
|
Share-based payments |
- |
- |
(9,972) |
(9,972) |
|
Adjusted EBITDA - continuing |
1,403,575 |
771,883 |
(2,430,574) |
(255,116) |
|
Impairment of financial asset |
|
|
|
(200,000) |
|
Restructuring expenses |
|
|
|
(326,629) |
|
EBITDA - continuing |
|
|
|
(781,745) |
|
Amortisation of intangible assets |
|
|
|
(2,982,845) |
|
Depreciation of property, plant and equipment |
|
|
|
(204,714) |
|
Finance expense |
|
|
|
(842,518) |
|
Finance income |
|
|
|
146,661 |
|
Loss before tax - continuing |
|
|
|
(4,665,161) |
|
|
Licensing |
Social |
Head Office |
Total |
|
2018 |
|
|
|
|
|
Revenue |
2,248,003 |
3,920,619 |
394,038 |
6,562,660 |
|
Marketing expense |
- |
(414,064) |
(251,299) |
(665,363) |
|
Operating expense |
(199,412) |
(1,091,460) |
(399) |
(1,291,271) |
|
Administrative expense |
(1,054,712) |
(861,253) |
(2,737,906) |
(4,653,871) |
|
Share-based payments |
- |
- |
(67,824) |
(67,824) |
|
Adjusted EBITDA - continuing |
993,879 |
1,553,842 |
(2,663,390) |
(115,669) |
|
Impairment of financial asset |
|
|
|
(228,451) |
|
Restructuring expenses |
|
|
|
(216,355) |
|
EBITDA - continuing |
|
|
|
(560,475) |
|
Amortisation of intangible assets |
|
|
|
(3,535,972) |
|
Depreciation of property, plant and equipment |
|
|
|
(145,269) |
|
Impairment |
|
|
|
(1,650,000) |
|
Finance expense |
|
|
|
(576,107) |
|
Finance income |
|
|
|
419,894 |
|
Loss before tax - continuing |
|
|
|
(6,047,929) |
Segmental revenue includes £128,755 (2018 : £389,464) of inter-segment Licensing revenue. This is shown as an Operating Expense under the real money gaming discontinued operations and eliminates on consolidation.
4. finance income and expense
|
|
|
2019 |
2018 |
|
|
|
|
|
|
Finance income |
|
|
|
|
Interest received |
|
3,705 |
120 |
|
Interest income on unwind of finance lease asset |
|
30,625 |
- |
|
Interest income on unwind of deferred consideration receivable |
|
112,331 |
19,774 |
|
Fair value movement on derivative liability |
|
- |
400,000 |
|
Total finance income |
|
146,661 |
419,894 |
|
|
|
|
|
|
Finance expense |
|
|
|
|
Bank interest paid |
|
45,931 |
3,540 |
|
Fair value loss on other investments |
|
245,619 |
212,092 |
|
Fair value movement on derivative liability |
|
72,000 |
- |
|
Effective interest on other creditor |
|
406,912 |
360,475 |
|
Interest expense on lease liability |
|
72,056 |
- |
|
Total finance expense |
|
842,518 |
576,107 |
5. tax credit
|
|
2019 |
2018 |
|
|
|
|
|
Current tax |
|
|
|
Adjustment for current tax of prior periods |
(134,631) |
(11,078) |
|
R&D tax credit for the year |
97,007 |
144,208 |
|
Current tax expense |
(62,784) |
- |
|
Total current tax credit |
(100,408) |
133,130 |
|
Deferred tax |
|
|
|
Unwind of deferred tax |
131,743 |
279,857 |
|
Total deferred tax credit |
131,743 |
279,857 |
|
Total tax credit |
31,335 |
412,987 |
The reasons for the difference between the actual tax credit for the period and the standard rate of corporation tax in the UK applied to profits for the year are as follows:
|
|
2019 |
2018 |
|
|
|
|
|
Loss before tax for the year - continuing |
(4,665,161) |
(6,047,929) |
|
(Loss) / profit before tax for the year - discontinued |
(783,451) |
6,564,246 |
|
(Loss) / profit before tax for the year |
(5,448,612) |
516,317 |
|
Expected tax at effective rate of corporation tax in the UK of 19.0% (2018: 19.0%) |
(1,035,236) |
98,100 |
|
Expenses not deductible for tax purposes |
36,755 |
920,066 |
|
Income not chargeable for tax purposes |
(129,831) |
(1,999,096) |
|
Effects of overseas taxation |
62,785 |
290,594 |
|
Adjustment for under-provision in prior years |
134,631 |
11,078 |
|
Research and development tax credit |
(97,007) |
(144,208) |
|
Timing difference not recognised |
29,959 |
115,285 |
|
Tax losses for which no deferred tax assets have been recognised |
966,609 |
295,194 |
|
|
(31,335) |
(412,987) |
6. Profit/(Loss) per share
Basic profit/(loss) per share is calculated by dividing the result attributable to ordinary shareholders by the weighted average number of shares in issue during the year. For fully diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares. The Group's potentially dilutive securities consist of share options, performance shares and a convertible bond. As the continuing operations of the Group are loss-making, none of the potentially dilutive securities are currently dilutive.
|
|
|
2019 |
2018 |
|
|
|
|
|
|
Loss after tax - continuing |
|
(4,558,218) |
(5,617,442) |
|
(Loss) / profit after tax - discontinued |
|
(783,451) |
6,564,246 |
|
(Loss) / profit after tax - total |
|
(5,341,669) |
946,804 |
|
|
|
|
|
|
|
|
Number |
Number |
|
Weighted average number of ordinary shares used in calculating basic loss per share |
|
284,428,747 |
284,428,747 |
|
Weighted average number of ordinary shares used in calculating dilutive loss per share |
|
284,428,747 |
284,428,747 |
|
|
|
|
|
|
|
|
Pence |
Pence |
|
Basic and diluted loss per share - continuing |
|
(1.60) |
(1.97) |
|
Basic and diluted (loss) / profit per share - discontinued |
|
(0.28) |
2.31 |
|
Basic and diluted (loss) / profit per share - total |
|
(1.88) |
0.34 |
7. Intangible assets
|
|
Goodwill |
Customer database |
Software |
Development costs |
Domain names |
Intellectual Property |
Total |
|
|
|
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
|
At 1 January 2018 |
10,645,557 |
1,626,509 |
1,403,941 |
10,047,108 |
394,331 |
5,843,092 |
29,960,538 |
|
Additions |
- |
- |
- |
3,017,674 |
- |
- |
3,017,674 |
|
Disposals |
(2,191,809) |
(133,550) |
- |
- |
(364,986) |
- |
(2,690,345) |
|
Reclassified as held for sale |
(1,699,000) |
- |
- |
(3,374,902) |
- |
- |
(5,073,902) |
|
Exchange differences |
302,020 |
89,231 |
84,659 |
18,257 |
73 |
351,280 |
845,520 |
|
At 31 December 2018 |
7,056,768 |
1,582,190 |
1,488,600 |
9,708,137 |
29,418 |
6,194,372 |
26,059,485 |
|
Additions |
- |
- |
- |
2,680,289 |
- |
- |
2,680,289 |
|
Disposals |
- |
- |
- |
(144,766) |
(20,000) |
- |
(164,766) |
|
Reclassified as held for sale |
- |
- |
- |
(437,023) |
- |
- |
(437,023) |
|
Exchange differences |
(207,720) |
(61,681) |
(68,226) |
(8,264) |
(365) |
(231,600) |
(577,856) |
|
At 31 December 2019 |
6,849,048 |
1,520,509 |
1,420,374 |
11,798,373 |
9,053 |
5,962,772 |
27,560,129 |
|
|
|
|
|
|
|
|
|
|
Accumulated amortisation and impairment |
|
|
|
|
|
||
|
At 1 January 2018 |
- |
1,327,658 |
1,057,660 |
5,061,262 |
312,613 |
1,737,175 |
9,496,368 |
|
Amortisation charge |
- |
300,949 |
277,088 |
2,946,864 |
52,470 |
742,549 |
4,319,920 |
|
Disposals |
- |
(133,550) |
- |
- |
(336,262) |
- |
(469,812) |
|
Impairment |
1,650,000 |
- |
- |
- |
- |
- |
1,650,000 |
|
Reclassified as held for sale |
- |
- |
- |
(2,108,114) |
- |
- |
(2,108,114) |
|
Exchange differences |
- |
87,133 |
72,507 |
23,777 |
597 |
138,486 |
322,500 |
|
At 31 December 2018 |
1,650,000 |
1,582,190 |
1,407,255 |
5,923,789 |
29,418 |
2,618,210 |
13,210,862 |
|
Amortisation charge |
- |
- |
79,731 |
2,128,156 |
- |
774,958 |
2,982,845 |
|
Disposals |
- |
- |
- |
(60,389) |
(20,000) |
- |
(80,389) |
|
Reclassified as held for sale |
- |
- |
- |
- |
- |
- |
- |
|
Exchange differences |
- |
(61,681) |
(66,612) |
(5,521) |
(365) |
(121,563) |
(255,742) |
|
At 31 December 2019 |
1,650,000 |
1,520,509 |
1,420,374 |
7,986,035 |
9,053 |
3,271,605 |
15,857,576 |
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
|
|
|
|
|
At 31 December 2018 |
5,406,768 |
- |
81,345 |
3,784,348 |
- |
3,576,162 |
12,848,623 |
|
At 31 December 2019 |
5,199,048 |
- |
- |
3,812,338 |
- |
2,691,167 |
11,702,553 |
8. discontinued operations
During the year, the Group disposed of the remaining elements of its real money gaming B2C CGU that was classified as held for sale within the 2018 balance sheet date. During the year the Group also disposed of one of its subsidiaries, Blastmedia LLC, a software development Company.
During the prior year, the Group sold its Affiliate Marketing CGU, disposed of certain elements of the real money gaming CGU and was sufficiently progressed with active discussions concerning the remainder of the B2C RMG CGU that this element was reclassified as held for sale as at 31 December 2018, and subsequently disposed of during 2019.
Analysis of profit for the financial year - discontinued operations:
|
|
|
2019 |
2018 |
|
|
|
|
|
|
B2C RMG - 2019 and 2018 disposals |
|
|
|
|
Profit on disposal |
A |
791,488 |
12,492,369 |
|
Loss for the financial year |
E |
(1,309,467) |
(977,362) |
|
B2C RMG business reclassified as held for sale |
|
|
|
|
Share of loss of associate |
B |
(157,307) |
(172,360) |
|
Impairment in associate |
|
- |
(2,829,026) |
|
Fair value movement on contingent consideration |
|
- |
(1,900,065) |
|
(Loss) / profit on disposal of B2C RMG |
|
(675,286) |
6,613,556 |
|
Others: |
|
|
|
|
Blastmedia LLC - loss on disposal |
C |
(108,165) |
- |
|
Affiliate Marketing - loss on disposal |
D |
- |
(70,748) |
|
Affiliate Marketing - profit for the financial year |
E |
- |
21,438 |
|
|
|
|
|
|
(Loss)/profit for the financial year - discontinued |
|
(783,451) |
6,564,246 |
B2C RMG
Disposal in 2019
On 17 July 2019, the Group completed the transaction to (i) sell the entire issued share capital of Bear Group Limited, (ii) license the Company's real money gaming platform, and (iii) sell the Company's residual interest in River UK Casino Limited, to River iGaming plc.
The cash consideration of the transaction is £11.5m on a cash-free, debt-free basis, with £1.5m deferred for receipt until 31 December 2020. The transaction terminated the £4.2m deferred consideration due on 31 August 2019 and the put/call option over the Group's 30% shareholding in River UK Casino.
Disposal in 2018
On 16 August 2018 the Group entered into an Asset Purchase Agreement with River for the sale of 4 of the Group's B2C RMG brands.
The disposed brands and associated activities were contributed to a newly incorporated company in Malta, River UK Casino. As part of the sale agreement, the Group received a 30% equity interest in this Company. In addition, a put and call option was entered into giving River the right to purchase, and the Group the right to sell to River, Gaming Realms' 30% share of River UK Casino at the end of the earn-out period based on an Enterprise value of 5.5 times River UK Casino's EBIT.
The minimum consideration receivable of £8.4m was structured as follows; £4.2m received on completion plus a further £4.2m payable 31 August 2019. Further consideration was achievable on an earn-out basis, payable no later than 30 September 2019 based on 5.5 times River UK Casino's EBIT for the 12 months to 30 June 2019 to a maximum of £14.7m.
A - B2C RMG profit on disposal
|
|
|
2019 |
2018 |
|
|
|
|
|
|
Cash consideration |
|
6,967,718 |
4,200,000 |
|
Deferred consideration |
|
1,208,366 |
3,629,074 |
|
Deferred consideration cancelled |
|
(4,200,000) |
- |
|
Contingent consideration |
|
- |
1,900,065 |
|
Fair value of put/call option |
|
- |
- |
|
Investment in River UK Casino |
|
- |
5,266,579 |
|
Total consideration received |
|
3,976,084 |
14,995,718 |
|
Cash disposed of |
|
(811,858) |
- |
|
Net cash inflow on disposal |
|
6,155,860 |
4,200,000 |
|
Net assets disposed (other than cash): |
|
|
|
|
Intangible assets |
|
3,402,811 |
2,191,809 |
|
Investment in Bear Group Limited |
|
1 |
- |
|
Investment in River UK Casino |
B |
2,110,885 |
- |
|
Property, plant and equipment |
|
8,100 |
- |
|
Other assets |
|
32,000 |
- |
|
Trade and other receivables |
|
494,787 |
- |
|
Trade and other payables |
|
(4,441,713) |
- |
|
Total net assets disposed (other than cash) |
|
1,606,871 |
2,191,809 |
|
Gain on disposal of discontinued operation |
|
1,557,355 |
12,803,909 |
|
Less: Disposal costs |
|
(765,867) |
(311,540) |
|
Profit on disposal of discontinued operation |
|
791,488 |
12,492,369 |
B - Share of loss in associate investment in River UK Casino
The Group used the equity method of accounting for associates. The following table shows the aggregate movement in the Group's interests in associates:
|
|
|
2019 |
2018 |
|
|
|
|
|
|
At 1 January |
|
2,268,192 |
- |
|
Initial recognition of associate |
|
- |
5,269,578 |
|
Share of associate's loss |
|
(157,307) |
(172,360) |
|
Impairment |
|
- |
(2,829,026) |
|
Disposal of associate |
|
(2,110,885) |
- |
|
At 31 December |
|
- |
2,268,192 |
C - Disposal of Blastmedia LLC
On 11 February 2019 the Group disposed of its investment in Blastmedia LLC, a software development company, for consideration of $100 (£77), which resulted in a loss on disposal of the investment being recognised of £108,165.
|
|
|
2019 |
|
|
|
|
|
Cash consideration |
|
77 |
|
Cash disposed of |
|
(20,408) |
|
Net cash outflow on disposal |
|
(20,331) |
|
Less: Assets disposed |
|
|
|
Investment in Blastmedia LLC |
|
12,076 |
|
Intangible assets |
|
72,680 |
|
Property, plant and equipment |
|
4,528 |
|
Other receivables |
|
1,124 |
|
Other payables |
|
(2,574) |
|
Total net assets disposed (other than cash) |
|
87,834 |
|
Loss on disposal of Blastmedia LLC |
|
(108,165) |
D - Loss on disposal of the Affiliate Marketing CGU
On 22 March 2018 the Group sold its Affiliate Marketing CGU for total consideration of £2.4m to First Leads Ltd. First Leads paid £2.0m on closing, and a further £0.4m was received in January 2019 based on the achievement of performance targets.
|
|
|
2019 |
2018 |
|
|
|
|
|
|
Cash consideration |
|
- |
2,000,000 |
|
Deferred consideration |
|
- |
385,000 |
|
Less: Disposal costs |
|
- |
(162,867) |
|
Net proceeds |
|
- |
2,222,133 |
|
Less: Assets disposed |
|
|
|
|
Intangible assets |
|
- |
(2,292,881) |
|
Loss on disposal of discontinued operation |
|
- |
(70,748) |
E - Results of discontinued operations
|
|
|
2019 |
2018 |
|
B2C RMG |
|
|
|
|
Revenue |
|
6,002,455 |
16,364,816 |
|
Marketing expenses |
|
(706,213) |
(4,318,842) |
|
Operating expenses |
|
(4,907,731) |
(9,169,594) |
|
Administrative expenses |
|
(1,965,488) |
(3,325,060) |
|
EBITDA - B2C RMG |
|
(1,576,977) |
(448,680) |
|
|
|
|
|
|
Amortisation of intangible assets |
|
- |
(783,948) |
|
Depreciation of property, plant and equipment |
|
(6,341) |
- |
|
Finance income |
|
273,851 |
255,266 |
|
Loss for the financial year - B2C RMG |
|
(1,309,467) |
(977,362) |
|
|
|
|
|
|
|
|
2019 |
2018 |
|
Affiliate Marketing |
|
|
|
|
Revenue |
|
- |
168,018 |
|
Marketing expenses |
|
- |
(14,833) |
|
Operating expenses |
|
- |
(15,809) |
|
Administrative expenses |
|
- |
(115,938) |
|
EBITDA - Affiliate Marketing |
|
- |
21,438 |
|
|
|
|
|
|
Total EBITDA - discontinued |
|
(1,576,977) |
(427,242) |
|
|
|
|
|
|
Total loss for the financial year - discontinued |
|
(1,309,467) |
(955,924) |
9. assets and liabilities classfified as held for sale
During H2 2018 the Board concluded to pursue the sale of the remaining real money gaming business and to accelerate the conclusion of the put/call option over the Group's 30% interest in River UK Casino. Advisors were appointed and offers invited, which were actively being discussed during late 2018. The Group therefore reclassified this business and the Group's interest in River UK Casino as held for sale as at 31 December 2018. These items were subsequently disposed of as part of the July 2019 disposal of the remaining B2C RMG CGU.
Analysis of assets and liabilities classified as held for sale in the year
The following major classes of assets and liabilities relating to these operations were classified as held for sale in the consolidated statement of financial position on 31 December 2018:
|
|
|
31 December |
31 December |
|
|
|
|
|
|
Non-current assets |
|
|
|
|
Intangible assets - goodwill |
|
- |
1,699,000 |
|
Intangible assets - platform development costs |
|
- |
1,266,788 |
|
Investment in associate |
|
- |
2,268,192 |
|
Property, plant and equipment |
|
- |
12,789 |
|
Other assets |
|
- |
32,000 |
|
|
|
- |
5,278,769 |
|
Current assets |
|
|
|
|
Trade and other receivables |
|
- |
1,388,330 |
|
Deferred consideration |
|
- |
3,623,425 |
|
Cash and cash equivalents |
|
- |
1,101,489 |
|
Assets held for sale |
|
- |
11,392,013 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
- |
4,830,076 |
|
Liabilities held for sale |
|
- |
4,830,076 |
10. Arrangement with GAMESYS GROUP PLC (PREVIOUSLY JackpotJoy group)
In December 2017 the Group entered into a complex transaction with Gamesys Group plc (previously Jackpotjoy plc) and group companies (together "Jackpotjoy Group"). The transaction includes a £3.5m secured convertible loan agreement alongside a 10-year framework services agreement for the supply of various real money services. Under the framework services agreement the first £3.5m of services are provided free-of-charge within the first 5 years.
The convertible loan has a duration of 5 years and carries interest at 3-month LIBOR plus 5.5%. It is secured over the Group's Slingo assets and business. At any time after the first year, Gamesys Group plc may elect to convert all or part of the principal amount into ordinary shares of Gaming Realms plc at a discount of 20% to the share price prevailing at the time of conversion. To the extent that the price per share at conversion is lower than 10p (nominal value), then the shares can be converted at nominal value with a cash payment equal to the aggregate value of the convertible loan outstanding multiplied by the shortfall on nominal value payable to Gamesys Group plc. Under this arrangement, the maximum dilution to Gaming Realms shareholders will be approximately 11%, assuming the convertible loan is converted in full.
The option violates the fixed-for-fixed criteria for equity classification as the number of shares is variable and as a result is classified as a liability.
The fair value of the conversion feature is determined at each reporting date with changes recognised in profit or loss. The initial fair value was £0.6m based on a probability assessment of conversion and future share price. This is a level 3 valuation as defined by IFRS 13. The fair value as at 31 December 2019 was £0.3m (2018: £0.2m) based on revised probabilities of when and if the option will be exercised. The key inputs into the valuation model included timing of exercise by the counterparty (based on a probability assessment) and the share price.
The initial fair value of the host debt was calculated as £2.7m, being the present value of expected future cash outflows. The rate used to discount future cashflows was 14.1%, being the Group's incremental borrowing rate. This rate was calculated by reference to the Group's cost of equity in the absence of reliable alternative evidence of the Group's cost of borrowing given it is predominantly equity funded. Expected cashflows are based on directors' judgement that a change in control event would not occur. Subsequently the loan is carried at amortised cost. The residual £0.2m of proceeds were allocated to the obligation to provide free services.
|
|
Fair value of debt host |
Obligation to provide free services |
Fair value of derivative Liability |
Total |
|
|
|
|
|
|
|
At 1 January 2019 |
2,795,602 |
209,000 |
200,000 |
3,204,602 |
|
Utilisation of free services |
- |
(8,000) |
- |
(8,000) |
|
Effective interest |
406,912 |
- |
- |
406,912 |
|
Interest paid |
(276,841) |
- |
- |
(276,841) |
|
Change in fair value |
- |
- |
72,000 |
72,000 |
|
At 31 December 2019 |
2,925,673 |
201,000 |
272,000 |
3,398,673 |
11. Share capital
Ordinary shares
|
|
2019 |
2019 |
2018 |
2018 |
|
|
Number |
|
Number |
|
|
Ordinary shares of |
284,428,747 |
28,442,874 |
284,428,747 |
28,442,874 |
|
10 pence each |
12. Post balance sheet events
Following the COVID-19 outbreak and the uncertainty this has brought to global markets and economies, the Directors have performed qualitative and quantitative assessments of the associated risks facing the business and its ability to meet its short and medium term forecasts. See the strategic report and note 1 for further information.
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.
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