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Jackpotjoy PLC (JPJ)

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Tuesday 14 November, 2017

Jackpotjoy PLC

3rd Quarter Results

RNS Number : 3875W
Jackpotjoy PLC
14 November 2017
 

Jackpotjoy plc

Results for the Three Months and Nine Months Ended 30 September 2017

 

Q3 revenue up 14% year on year

Remain confident in meeting upper end of expectations

 

LONDON, 14 November 2017 - Jackpotjoy plc (LSE: JPJ), the largest online bingo-led operator in the world, today announces the results of the Jackpotjoy group (the "Group") for the three and nine months ended 30 September 2017.

Financial summary

 

 

Three months ended

30 Sept 2017

(£m)

Three months ended

30 Sept 2016

(£m)

Reported

Change

%

Nine months ended

30 Sept 2017

(£m)

Nine months ended

30 Sept 2016

(£m)

Reported

Change

%

Gaming revenue         

75.4

66.4

14

222.0

194.0

14

Net loss (as reported under IFRS)

(7.7)

(18.6)

59

(27.7)

(28.4)

2

Adjusted EBITDA[1]

26.7

25.6

4

85.9

77.1

11

Adjusted net income1

18.3

21.2

(14)

60.9

63.7

(4)

Operating cash flows

32.6

18.3

78

78.2

63.3

24

Financial highlights for the third quarter

·     Strong financial performance:

Gaming revenue rose 14%, supported by 12% growth in the Jackpotjoy segment and 28% growth at Vera&John

Adjusted EBITDA1 increased 4%, reflecting planned increase in marketing costs

Adjusted net income1 decreased 14% year on year due to higher interest costs related to additional debt acquired to pay the earn-out

·     Ongoing good cash generation and net debt reduction:

Operating cash flow growth of 78% year on year, including a working capital inflow

44p of operating cash flow per share[2]

Adjusted EBITDA1 to cash conversion of over 100%

Adjusted net debt[3] reduced by £23.4 million; adjusted net leverage ratio[4] of 3.35x reduced from 3.60x at 30 June 2017

·     No change to full year 2017 outlook, management confident of meeting recently increased market consensus

Operational highlights for the third quarter

·     Continued improvement in core KPIs[5] year on year

Average Active Customers5 grew to 251,186 in LTM to 30 September 2017, an increase of 13% year on year

Average Real Money Gaming Revenue per month5 grew to £22.6 million, an increase of 16% year on year

Monthly Real Money Gaming Revenue per Average Active Customer5 of £90, an increase of 2% year on year

Business segments highlights for the third quarter

·     Jackpotjoy (69% of Group revenue) - Positive quarterly performance across all brands with total revenue growth of 12%; Adjusted EBITDA1 growth of 3% impacted by launch of new TV advertising in September; Starspins and Botemania brands (23% of segment revenues) continued to perform particularly strongly

·     Vera&John (24% of Group revenue) - Revenue growth of 28% and Adjusted EBITDA1 growth of 40%; on a constant currency basis, revenue increased by 21%

·     Mandalay (7% of Group revenue) - Revenue decline of 8% and an Adjusted EBITDA1 increase of 36% due to lower marketing spend

Financial highlights for the nine months of the year

·   Strong financial performance:

o Gaming revenue growth of 14% year on year

o Adjusted EBITDA1 increased 11% year on year

o Adjusted net income1 decreased 4% year on year

Outlook

The strong trading momentum seen over the first six months of the year continued into Q3 and into the early stages of Q4. As previously flagged, there will be an impact on profitability from Q4 onwards from the introduction of the UK point of consumption ("POC") tax on bonuses. Likewise, and also as previously highlighted, marketing spend is weighted towards the second half of the financial year. Management, however, remains confident in meeting the upper end of market expectations for FY17.  

 

Neil Goulden, Executive Chairman, commented:

"The third quarter has seen a continuation in the strong underlying momentum that we saw during the first six months of 2017, with gaming revenue up 14% and Adjusted EBITDA1 up 4%.  There continues to be solid customer growth across the Group, with our Vera&John business segment performing particularly well, with constant currency revenue growth of 21% in the quarter.

I am very proud of the new integrated advertising campaign for our Jackpotjoy brand, which launched in the UK in mid-September. Television personality, Paddy McGuinness, succeeded Barbara Windsor as the new brand ambassador and early signs indicate that the campaign is helping to reinforce our market leadership position in online bingo in the UK.

Finally, in October, the Group announced that Andrew McIver will be stepping down from his role as Chief Executive Officer, having successfully overseen the listing on the London Stock Exchange earlier this year. In my new role as Executive Chairman, I will be responsible for leading the development and execution of long term strategy, while Simon Wykes has joined us as Group Managing Director to provide additional operational expertise.

Andy will step down as a Director on 31 December 2017 and will remain with the Company until 31 January 2018 to ensure a smooth transition of duties to the new members of the executive team. On behalf of the Board of Directors I would like to thank him for his work in helping establish the Group as a UK plc and I wish him well in the future.

Against a positive operational backdrop and given the new management structure in place, I have full confidence that Jackpotjoy plc will continue to go from strength to strength and generate attractive returns for our shareholders."

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 or +1 800 608-0547, or for US shareholders +1 866 966-5335, 10 minutes prior to the scheduled start of the call using the reference ''Jackpotjoy'' when prompted.  A replay of the conference call will be available for 30 days by dialling +44 (0) 20 8196 1998 or +1 888 889-0604 and using reference 7636835#. A transcript will also be made available on Jackpotjoy plc's website at www.jackpotjoyplc.com/investors.

Enquiries

 

 

 

Jackpotjoy plc

Jason Holden

Director of Investor Relations

[email protected]

+44 (0) 207 016 9866

+44 (0) 7812 142118

 

 

Jackpotjoy Group

Amanda Brewer

Vice President of Corporate Communications

 

[email protected]

+1 416 720 8150

 

 

Media Enquires

 

 

 

Finsbury

[email protected]

+44 (0) 207 251 3801

James Leviton, Andy Parnis

 

Note Regarding Non-IFRS Measures

The following non-IFRS measures 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. The Group's method of calculating these measures may differ from the method used by other entities. Accordingly, the Group's 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 before interest expense (net of interest income), income taxes, amortisation and depreciation, share-based compensation, independent committee related expenses, severance costs, (gain)/loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets. Management believes that Adjusted EBITDA is another important indicator of the issuer's ability to generate liquidity to service outstanding debt and fund acquisition earn-out payments and uses this metric for such purpose. The exclusion of share-based compensation eliminates non-cash items and the exclusion of independent committee related expenses, severance costs, (gain)/loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets eliminates items which management believes are non-operational and non-routine.  

Adjusted net income, as defined by the Group, means net income 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, amortisation of acquisition related purchase price intangibles and non-compete clauses, share-based compensation, independent committee related expenses, severance costs, (gain)/loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets. The exclusion of accretion and share-based compensation eliminates the non-cash impact and the exclusion of amortisation of acquisition related purchase price intangibles and non-compete clauses, independent committee related expenses, severance costs, (gain)/loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange, and gain on sale of intangible assets eliminates items which management believes are non-operational and non-routine.   Adjusted net income is considered by some investors and analysts for the purpose of assisting in valuing a company.         

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 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 (including with respect to 2017 trading, POC tax, and our ability to pay down debt and earn-outs from future internally generated cash), the future prospects of the Group's business and operations, the Group's growth opportunities and the execution of its growth strategies. Certain of these statements relating to the Company's anticipated revenue growth and/or meeting the upper end of market expectations for FY 2017 and other similar 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 licenses, 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 amount of expected earn-out payments required to be made; the Group's continued relationship with the Gamesys group and other third parties; the Group's ability 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. The foregoing risk factors are not intended to represent a complete list of factors that could affect the Group. Additional risk factors are discussed in Jackpotjoy plc's annual information form dated 29 March 2017. Although Jackpotjoy plc 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, Jackpotjoy plc 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 are based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While Jackpotjoy plc 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

Revenue

The Group's revenues during the three months ended 30 September 2017 consisted of:

·     £52.2 million in revenue earned from Jackpotjoy's operational activities. 

·     £18.4 million in revenue earned from Vera&John's operational activities.

·     £4.9 million in revenue earned from Mandalay's operational activities.

The Group's revenues during the three months ended 30 September 2016 consisted of:

·     £46.7 million in revenue earned from Jackpotjoy's operational activities. 

·     £14.4 million in revenue earned from Vera&John's operational activities.

·     £5.3 million in revenue earned from Mandalay's operational activities.

 

The increase in revenue for the three months ended 30 September 2017 in comparison with the three months ended 30 September 2016 relates primarily to organic growth of the Vera&John and Jackpotjoy segments, where revenue increased by 28% and 12%, respectively.

 

Costs and expenses

 

Three month period ended

30 September 2017

(£000's)

Three month period ended

30 September 2016

(£000's)

Expenses:

 

 

Distribution costs

36,448

31,518

Administrative costs

29,068

24,689

Transaction related costs

1,361

10,414

Severance costs

-

-

 

66,877

66,621

 

Distribution costs

 

Three month period ended

30 September 2017

(£000's)

Three month period ended

30 September 2016

(£000's)

Selling and marketing

12,591

 10,796

Licensing fees

11,771

 10,510

Gaming taxes

8,742

 7,334

Processing fees

3,344

 2,878

 

36,448

31,518

 

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 Mandalay and Jackpotjoy segments to operate on their respective platforms and game suppliers' fees paid by the Vera&John and Jackpotjoy segments. Gaming taxes largely consist of POC tax, which is a 15% tax on Real Money Gaming Revenue5 introduced in the UK in December 2014. 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 months ended 30 September 2017 compared to the same period in 2016 is mainly due to the higher revenues achieved.

 

Administrative costs

 

Three month period ended

30 September 2017

(£000's)

Three month period ended

30 September 2016

(£000's)

Compensation and benefits

9,631

 7,840

Professional fees

670

 476

General and administrative

2,276

 1,920

Amortisation and depreciation

16,491

14,453

 

29,068

24,689

 

Compensation and benefits costs consist of salaries, wages, bonuses, directors' fees, benefits and share-based compensation expense. The increase in costs for the three months ended 30 September 2017 compared to the same period in 2016, relates to staff additions, operational bonus accruals, and salary increases in various business units.

Professional fees consist mainly of legal, accounting and audit fees.  The variance in professional fees for the three months ended 30 September 2017 compared to the same period in 2016 relates to increases in consulting and legal costs associated with the Group's growth and dual listings on both the London Stock Exchange and the Toronto Stock Exchange. 

General and administrative expenses consist of items, such as rent and occupancy, travel and accommodation, insurance, listing fees, technology and development costs, and other office overhead charges. The increase in these expenses for the three months ended 30 September 2017 compared to the same period in the prior year can be attributed mostly to higher travel costs incurred in the current period.

Amortisation and depreciation consists of amortisation of the Group's intangible assets and depreciation of the Group's tangible assets over their useful lives.  The increase in amortisation and depreciation for the three months ended 30 September 2017 is due to intangible and tangible asset additions since Q1 2016, particularly the non-compete clauses (as defined below).

Transaction related costs

Transaction related costs consist of legal, professional, due diligence, and special committee fees; other direct costs/fees associated with transactions and acquisitions contemplated or completed; costs associated with the UK strategic review undertaken by the Intertain board of directors; implementing Intertain's UK-centred strategic initiatives; and costs related to corporate structure optimisation. 

 

Business unit results

Jackpotjoy

 

Q3 2017

£(millions)

Q3 2016

£(millions)

Variance

£(millions)

Variance %

Revenue

52.2

46.7

5.5

12%

Distribution costs

24.8

20.3

4.5

22%

Administration costs

4.2

3.9

0.3

8%

Adjusted EBITDA1

23.2

22.5

0.7

3%

 

 

Revenue for the Jackpotjoy segment increased quarter over quarter due to organic growth in all real money brands. Jackpotjoy UK brand revenue accounted for 65% of the Jackpotjoy segment's revenue for the three months ended 30 September 2017.  While there has been steady growth at Jackpotjoy UK and Jackpotjoy Sweden brands, the sharp increase in revenue is due to the substantial growth and progression of the Starspins and Botemania brands.  Collectively, they accounted for 23% of the segment's revenue, for the three months ended 30 September 2017.

Selling and marketing costs increased as expected compared to Q3 2016 and prior quarters as a substantial Jackpotjoy UK television campaign was launched in September 2017.  In the three months ended 30 September 2017, compared to the same period in 2016, selling and marketing costs increased by 53%.

Vera&John

 

Q3 2017

£(millions)

Q3 2016

£(millions)

Variance

£(millions)

Variance %

Revenue

18.4

14.4

4.0

28%

Distribution costs

9.1

7.5

1.6

21%

Administration costs

4.4

3.4

1.0

29%

Adjusted EBITDA1

4.9

3.5

1.4

40%

 

Revenue for the Vera&John segment in Q3 2017 increased by 28% compared to Q3 2016 due to organic growth (including new jurisdictions) and GBP to EUR exchange rate movement. On a constant currency basis, revenue increased by 21% from Q3 2016. Distribution costs also increased by 21% in Q3 2017 compared to Q3 2016, as game suppliers and payment providers' costs moved proportionally with revenue. Selling and marketing costs increased by 17%. 

Increases in administration costs for the three months ended 30 September 2017 compared to the same period in 2016, were mainly driven by increases in personnel costs as the segment continues to grow.

Mandalay

 

Q3 2017

£(millions)

Q3 2016

£(millions)

Variance

£(millions)

Variance %

Revenue

4.9

5.3

(0.4)

(8%)

Distribution costs

2.6

3.7

(1.1)

(30%)

Administration costs

0.4

0.2

0.2

100%

Adjusted EBITDA1

1.9

1.4

0.5

36%

 

 

Revenue for the Mandalay segment for the three months ended 30 September 2017 was 8% lower compared to the prior period in 2016 but due to lower marketing spend, the Adjusted EBITDA1 was 36% higher.  Operational margins and deposit hold have been improving since the segment focused on changing promotional spend in Q1 2017.  The segment continues to focus on developing a long term strategy to best maximise future growth.

Unallocated Corporate Costs

Unallocated corporate costs increased from £1.8 million to £3.2 million in the three months ended 30 September 2017 compared to the three months ended 30 September 2016. The variance mainly relates to a £1.0 million increase in compensation due to the addition of new staff and operational bonuses, a £0.3 million increase in general and administrative overhead costs associated with increased headcount and higher travel costs, as well as a £0.2 million increase in professional fees.

 

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 as being real money customers who have placed at least one bet in a given month ("Average Active Customers"). "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.

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 Real Money Gaming Revenue ("Real Money Gaming Revenue") as revenue less revenue earned from the Revenue Guarantee, affiliate websites and social gaming. 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 Real Money Gaming Revenue. 

 

 

Twelve months ended

30 September 2017

Twelve months ended

30 September 2016

Variance

Variance %

Average Active Customers per month (#)

251,186

222,082

29,104

13%

Total Real Money Gaming Revenue (£000's) (1)

271,508

233,514

37,994

16%

Average Real Money Gaming Revenue per month (£000's)

22,626

19,460

3,166

16%

Monthly Real Money Gaming Revenue per Average Active Customer (£)

90

88

2

2%


(1)Total Real Money Gaming Revenue for the twelve months ended 30 September 2017 consists of total revenue less other income earned from the Revenue Guarantee and Platform Migration Revenue of £nil (30 September 2016 - £3.6 million) and revenue earned from affiliate websites and social gaming revenue of £23.5 million (30 September 2016 - £24.1 million).

Monthly Real Money Gaming Revenue per Average Active Customer5 is consistent year over year which is in line with the Group's overall customer acquisition and retention strategy. 

 

Independent review report to Jackpotjoy 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 2017 which comprise the Interim Condensed Consolidated Statement of Comprehensive Income, Interim Condensed Consolidated Balance Sheet, Interim Condensed Consolidated Statement of Changes in Equity, Interim Condensed Consolidated Statement 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 for the three and nine months ended 30 September 2017 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 International Financial Reporting Standards (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 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' as issued by the International Auditing and Assurance Standards Board and  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 or International Standards on Auditing (UK and Ireland) 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 2017 is not prepared, in all material respects, in accordance 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

United Kingdom

14 November 2017

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 30 September 2017

Three months ended  30 September 2016

Nine months ended 30 September 2017

Nine months ended 30 September 2016

 

(£000's)

(£000's)

(£000's)

(£000's)

Revenue and other income

 

 

 

 

Gaming revenue

                      75,423

                  66,368

                  221,992

               193,952

Other income earned from revenue guarantee

 -

 -

 -

                   1,181

Other income earned from platform migration

 -

 -

 -

                     925

Total revenue and other income4

                      75,423

                  66,368

                  221,992

               196,058

 

 

 

 

 

Costs and expenses

 

 

 

 

Distribution costs4,5

                      36,448

                  31,518

                  101,994

                 93,669

Administrative costs5

                      29,068

                  24,689

                   81,945

                 70,050

Severance costs4

 -

 -

 -

                   5,695

Transaction related costs4

                        1,361

                  10,414

                     2,676

                 16,578

Foreign exchange loss4

                        4,607

                       591

                   11,506

                   3,106

Total costs and expenses

                      71,484

                  67,212

                  198,121

               189,098

 

 

 

 

 

Gain on sale of intangible assets

-

-

                    (1,002)

-

 

 

 

 

 

Fair value adjustments on contingent consideration15

                        1,663

14,549

16,364

33,499

(Gain)/loss on cross currency swap10

-

                   (5,693)

                     3,534

                (23,954)

Interest income6

                           (41)

                       (63)

                       (136)

                    (119)

Interest expense6

                        9,648

                    9,173

                   32,366

                 25,938

Financing expenses

                      11,270

                  17,966

                   52,128

                 35,364

 

 

 

 

 

Net loss for the period before taxes

                       (7,331)

                 (18,810)

                  (27,255)

                (28,404)

 

 

 

 

 

Current tax provision/(recovery)

                          447

                      (118)

                        806

                     276

Deferred tax recovery

                         (109)

                      (113)

                       (319)

                    (295)

Net loss for the period

attributable to owners of the parent

                       (7,669)

                 (18,579)

                  (27,742)

                (28,385)

 

 

 

 

 

Other comprehensive income/(loss):  Items that will or may be reclassified to profit or loss in subsequent periods

 

 

 

 

Foreign currency translation gain/(loss)

                      10,150

                   (1,223)

                   28,793

                  (7,886)

Unrealised loss on cross currency hedge reserve10

                       (2,892)

 -

                    (7,737)

 -

Total comprehensive loss for the period attributable to owners of the parent

                         (411)

                 (19,802)

                    (6,686)

                (36,271)

 

 

 

 

 

Net loss for the period per share

 

 

 

 

Basic7

 £(0.10)

 £(0.26)

 £(0.38)

 £(0.40)

Diluted7

 £(0.10)

 £(0.26)

 £(0.38)

 £(0.40)

 

See accompanying notes

 

 

 

 

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

 

As at

30 September 2017

As at

31 December 2016

ASSETS

(£000's)

(£000's)

 

 

 

Current assets

 

 

Cash8

                                 39,208

68,485

Restricted cash8

                                        189

253

Customer deposits

                                   8,736

8,573

Trade and other receivables9

                                  15,625

16,763

Current portion of cross currency swap10,15

 -

38,171

Taxes receivable

                                    9,619

6,832

Total current assets

73,377

139,077

 

 

 

Tangible assets

                                    1,368

852

Intangible assets11

                                308,619

352,473

Goodwill11

                                296,334

296,352

Other long-term receivables

                                    2,169

2,624

Total non-current assets

                                608,490

652,301

 

 

 

Total assets

                                681,867

791,378

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Current liabilities

 

 

Accounts payable and accrued liabilities12

                                  12,363

8,992

Current portion of cross currency swap payable 10,15

                                        756

-

Other short-term payables13

                                 12,163

15,321

Interest payable

                                        547

633

Payable to customers

                                   8,736

8,573

Current portion of long-term debt14

                                 24,583

26,695

Current portion of contingent consideration15

                                  41,073

86,903

Provision for taxes

                                    7,056

7,743

Total current liabilities

                                107,277

154,860

 

 

 

Contingent consideration15

                                    6,480

33,284

Other long-term payables16

                                    9,852

14,505

Cross currency swap payable10,15

                                     6,709

-

Deferred tax liability

                                     1,280

1,897

Convertible debentures17

                                        255

3,266

Long-term debt14

                                312,634

344,098

Total non-current liabilities

                                 337,210

397,050

 

 

 

Total liabilities

                                444,487

                         551,910

 

 

 

Equity

 

 

Retained earnings

                             (198,374)

                    (170,737)

Share capital17

                                   7,405

7,298

Other reserves

                                428,349

402,907

Total equity

                                237,380

                       239,468

 

 

 

Total liabilities and equity

                                681,867

791,378

   See accompanying notes 

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

Share Capital

(£000's)

Share Premium

(£000's)

Merger Reserve

(£000's)

Redeemable Shares

(£000's)

Share-Based Payment Reserve

(£000's)

Translation Reserve

(£000's)

Cross Currency Hedge Reserve

(£000's)

Retained (Deficit)/  Earnings

(£000's)

Total

(£000's)

 

 

 

 

 

 

 

 

 

 

Balance 1 January 2016

7,051

 406,002

  (15,521)

-

 6,779

 14,816

-

 (130,094)

 289,033

 

 

 

 

 

 

 

 

 

 

Comprehensive loss for the period:

 

 

 

 

 

 

 

 

 

Net loss for the period

-

-

-

-

-

-

-

   (28,385)

         (28,385)

Other comprehensive loss

-

-

-

-

-

       (7,886)

-

-

          (7,886)

Total comprehensive loss for the period:

-

-

-

-

-

(7,886)

-

   (28,385)

        (36,271)

 

 

 

 

 

 

 

 

 

 

Contributions by and distributions to shareholders:

 

 

 

 

 

 

 

 

 

Conversion of debentures17

128

3,689

-

-

-

-

-

-

             3,817

Exercise of common share warrants17

4

187

-

-

-

-

-

-

               191

Exercise of options17

55

1,140

-

-

 (349)

-

-

 349

1,195

Share-based compensation17

-

-

-

-

       1,503

-

-

-

            1,503

Total contributions by and distributions to shareholders

 187

 5,016

-

-

 1,154

-

-

 349

 6,706

 

 

 

 

 

 

 

 

 

 

Balance at 30 September 2016

  7,238

411,018

  (15,521)

-

7,933

         6,930

-

   (158,130)

        259,468

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

 7,298

413,293

(15,521)

           50

       8,598

        (3,513)

-

  (170,737)

          239,468

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss) for the period:

 

 

 

 

 

 

 

 

 

Net loss for the period

-

-

-

-

-

-

-

   (27,742)

       (27,742)

Other comprehensive income (loss)

-

-

-

-

-

       28,793

  (7,737)

-

          21,056

Total comprehensive income (loss) for the period

-

-

-

-

-

       28,793

   (7,737)

     (27,742)

          (6,686)

 

 

 

 

 

 

 

 

 

 

Contributions by and distributions to shareholders:

 

 

 

 

 

 

 

 

 

Conversion of debentures17

92

2,986

-

-

-

-

-

-

            3,078

Exercise of options17

15

357

-

-

(105)     

-

-

105

                372

Cancellation of redeemable shares

-

-

-

            (50)

-

-

-

-

                 (50)

Share-based compensation17

-

-

-

-

1,198

-

-

-

            1,198

Total contributions by and distributions to shareholders

   107

   3,343

-

          (50)

     1,093

-

-

          105

          4,598

 

 

 

 

 

 

 

 

 

 

Balance at 30 September 2017

7,405

416,636

  (15,521)

-

9,691

       25,280

    (7,737)

(198,374)

      237,380

See accompanying notes

 

 

 

 

 

 

 

 

 

 

 

 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Three months ended 30 September 2017

Three months ended 30 September 2016

Nine months ended 30 September 2017

Nine months ended 30 September 2016

 

(£000's)

(£000's)

(£000's)

(£000's)

Operating activities

 

 

 

 

Net loss for the period

                       (7,669)

                  (18,579)

                   (27,742)

                (28,385)

Add (deduct) items not involving cash

 

 

 

 

Amortisation and depreciation

                      16,491

                   14,453

                    46,651

                 41,559

Share-based compensation expense17

                           320

                       957

                     1,198

                   1,503

Current tax provision/(recovery)

                           447

                      (118)

                        806

                     276

Deferred tax recovery

                          (109)

                      (113)

                       (319)

                    (295)

Interest expense, net6

                        9,607

                     9,110

                    32,230

                 25,819

Gain on sale of intangible assets

 -

 -

                    (1,002)

 -

Fair value adjustments on contingent consideration15

                        1,663

                   14,549

                    16,364

                 33,499

Realised/unrealised (gain)/loss on cross currency swap10

 -

                    (5,693)

                     3,534

                (23,954)

Foreign exchange loss

                        4,607

                       591

                    11,506

                   3,106

 

                      25,357

                   15,157

                    83,226

                 53,128

Change in non-cash operating items

 

 

 

 

Trade and other receivables

                        1,311

                       169

                        786

                   4,556

Other long-term receivables

                            84

                      (363)

                        536

                    (416)

Accounts payable and accrued liabilities

                        2,766

                       614

                        922

                    (414)

Other short-term payables

                           384

                       857

                    (3,158)

                 10,824

Cash provided by operating activities

29,902

                   16,434

82,312

                 67,678

Income taxes paid

 -

 -

                    (6,899)

                  (6,296)

Incomes taxes received

                        2,656

                     1,872

                     2,758

                   1,872

Total cash provided by operating activities

                      32,558

                   18,306

                    78,171

                 63,254

 

 

 

 

 

Financing activities

 

 

 

 

Restriction of cash balances

                          (229)

 -

                         (54)

 -

Proceeds from exercise of warrants

 -

 -

 -

                     191

Proceeds from exercise of options

 -

                     1,093

                        372

                   1,192

Proceeds from cross currency swap settlement10

 -

 -

                    34,373

 -

Repayment of non-compete liability

                       (2,000)

 -

                    (3,333)

 -

Interest repayment

                       (7,903)

                    (3,228)

                   (23,112)

                (11,685)

Payment of contingent consideration15

 -

 -

                   (94,218)

                  (6,308)

Principal payments made on long-term debt14

                       (5,965)

                    (4,369)

                   (18,771)

                (18,225)

Total cash used in financing activities

                     (16,097)

                    (6,504)

                 (104,743)

                (34,835)

 

 

 

 

 

Investing activities

 

 

 

 

Purchase of tangible assets

                           (88)

                      (500)

                       (851)

                    (597)

Purchase of intangible assets

                          (822)

                      (374)

                    (2,084)

                  (1,109)

Proceeds from sale of intangible assets

 -

 -

                     1,002

 -

Total cash used in investing activities

                          (910)

                      (874)

                    (1,933)

                  (1,706)

 

 

 

 

 

Net increase/(decrease) in cash during the period

                      15,551

                   10,928

                   (28,505)

26,713

Cash, beginning of period

                      23,963

                   51,569

68,485

                 31,762

Exchange (loss)/gain on cash and cash equivalents

                          (306)

                    (1,641)

                       (772)

                   2,381

Cash, end of period

                      39,208

                   60,856

                    39,208

                 60,856

See accompanying notes

 

SUPPLEMENTARY NOTES FOR THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2017

1.   Corporate Information

Jackpotjoy plc is an online gaming holding company and the parent company of The Intertain Group Limited ("Intertain").  Jackpotjoy plc was incorporated pursuant to the Companies Act 2006 (England and Wales) on 29 July 2016. Jackpotjoy plc's registered office is located at 35 Great St. Helen's, London, United Kingdom. Jackpotjoy plc became the parent company of Intertain on 25 January 2017, following a plan of arrangement transaction involving a one-for-one share exchange of all and the then outstanding common shares of Intertain shares for, at each shareholder's election, ordinary shares of Jackpotjoy plc or exchangeable shares of Intertain.  Unless the context requires otherwise, use of "Group" in these accompanying notes means Jackpotjoy plc and its subsidiaries, as applicable.

The Group currently offers bingo, casino and other games to its customers using the Jackpotjoy, Starspins, Botemania, Vera&John, Costa Bingo, InterCasino, and other brands. The Jackpotjoy, Starspins, and Botemania brands operate off proprietary software owned by the Gamesys group, the Group's B2B software and support provider. The Vera&John and InterCasino brands operate off proprietary software owned by the Group. The Mandalay segment's bingo offerings operate off the Dragonfish platform, a software service provided by the 888 group. Additionally, the Group receives fees for marketing services provided by its affiliate portal business. 

These Unaudited Interim Condensed Consolidated Financial Statements were authorised for issue by the Board of Directors of Jackpotjoy plc (the "Board of Directors") on 14 November 2017.

 

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 Intertain's consolidated financial statements for the year ended 31 December 2016 (the "Annual Financial Statements").  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, which also complies 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 cross currency swap and contingent consideration.

Following Jackpotjoy plc becoming the parent company of the group (as detailed in note 1), these Unaudited Interim Condensed Consolidated Financial Statements have been prepared under the merger method of accounting as a continuation of the Intertain business.  This method is commonly applied in such situations as the accounting for such transactions is not prescribed by IFRS 3 - Business Combinations or other applicable IFRS, which instead prompts IFRS-reporting entities to look to alternative generally accepted accounting principles for guidance. The result of the application is to present the Unaudited Interim Condensed Consolidated Financial Statements as if Jackpotjoy plc has always been the parent company and owned all of the subsidiaries, and the comparatives have also been prepared on that basis. The adoption of the merger method of accounting had no impact on reported earnings per share.

The comparative financial information for the year ended 31 December 2016 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 period ended 31 December 2016 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.

As at 30 September 2017, the Group has consolidated current assets and current liabilities of £73.4 million and £107.3 million, respectively, giving rise to a net current liability of £33.9 million. Cash generated through future operating activities is sufficient to cover the net current liability. 

Basis of consolidation

Jackpotjoy plc's Unaudited Interim Condensed Consolidated Financial Statements consolidate the parent company and all of its subsidiaries. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All transactions and balances between companies are eliminated on consolidation.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which Jackpotjoy plc obtains control, and continue to be consolidated until the date that such control ceases.

Intercompany transactions, balances, income and expenses on transactions between Jackpotjoy plc's subsidiaries are eliminated.  Profit and losses resulting from intercompany transactions that are recognised in assets are also eliminated.

 

3.   Summary of Significant Accounting Policies

For a description of the Group's significant accounting policies, critical accounting estimates and assumptions, and related information see note 3 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 2017.

Change in presentation currency

Effective from 1 January 2017, the Group changed its presentation currency from Canadian dollars ("CAD" or "$") to pounds sterling ("GBP" or "£").  Comparative information has been restated in pounds sterling in accordance with the guidance defined in IAS 21 - The Effects of Changes in Foreign Exchange Rates. The Q3 2016 Unaudited Interim Condensed Consolidated Financial Statements have been retranslated from Canadian dollars to pounds sterling using the procedures outlined below:

·      income and expenses were translated into pounds sterling at average quarterly rates of exchange ($:£ - 0.5840). Differences resulting from the retranslation on the opening net assets and the results for the year have been taken to reserves; 

·      share capital and other reserves were translated at historic rates prevailing at the dates of transactions;

·      quarterly average exchange rates were used to convert changes in items not involving cash and cash provided by/(used in) operating activities, financing activities, and investing activities.  Spot rates were used to convert cash balances, beginning of period and cash balances, end of period. 

As a result of this change, no retranslation movement will be recorded in the Statements of Comprehensive Income for subsidiaries whose functional currency is GBP. 

Hedge accounting

Effective from 31 March 2017, the Group has elected to use hedge accounting for the purposes of recognising realised and unrealised gains and losses associated with the New Currency Swap (as defined in note 10), in accordance with guidance provided in IAS 39 - Financial Instruments:  Recognition and Measurement. 

IAS 39 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 have been highly effective.  

Based on the Group's analysis of the requirements outlined above, it was concluded that the New Currency Swap meets all the necessary criteria and qualifies for use of hedge accounting.

 

 

4.   Segment Information

The following tables present selected financial results for each segment and the unallocated corporate costs:

Three months ended 30 September 2017:

 

Jackpotjoy

(£000's)

Vera&John

(£000's)

Mandalay

(£000's)

Unallocated Corporate Costs

(£000's)

Total

(£000's)

 

Total revenue

      52,193

       18,355

      4,875

                -  

    75,423

 

 

 

 

 

 

 

 

Distribution costs

      24,747

         9,094

      2,587

                  20

    36,448

 

Amortisation and depreciation

      12,243

         2,550

      1,604

                  94

    16,491

 

Compensation, professional, and general and

administrative expenses

        4,240

         4,385

         411

              3,541

    12,577

 

Transaction related costs

          -  

           -  

        -  

              1,361

      1,361

 

Foreign exchange

           172

           130

          17

              4,288

      4,607

 

Financing, net

          -  

            (40)

            1

            11,309

    11,270

 

Income/(loss) for the period before taxes

      10,791

         2,236

         255

          (20,613)

     (7,331)

 

Taxes

          -  

           338

        -  

                -  

         338

 

Net income/(loss) for the period

      10,791

         1,898

         255

          (20,613)

     (7,669)

 

 

 

 

 

 

 

 

Net income/(loss) for the period

      10,791

         1,898

         255

         (20,613)

     (7,669)

 

Interest (income)/expense, net

          -  

            (40)

            1

              9,646

      9,607

Taxes

          -  

           338

        -  

                -  

         338

Amortisation and depreciation

      12,243

         2,550

      1,604

                  94

    16,491

EBITDA

      23,034

         4,746

      1,860

         (10,873)

    18,767

Share-based compensation

          -  

           -  

        -  

                 320

         320

Transaction related costs

          -  

           -  

        -  

              1,361

      1,361

Fair value adjustment on contingent consideration

          -  

           -  

        -  

              1,663

      1,663

Foreign exchange

           172

           130

          17

              4,288

      4,607

Adjusted EBITDA

      23,206

         4,876

      1,877

             (3,241)

    26,718

 

 

 

 

 

 

Net income/(loss) for the period

      10,791

         1,898

         255

          (20,613)

     (7,669)

Share-based compensation

          -  

           -  

        -  

                 320

         320

Transaction related costs

          -  

           -  

        -  

              1,361

      1,361

Fair value adjustment on contingent consideration

          -  

           -  

        -  

              1,663

      1,663

Foreign exchange

           172

           130

          17

              4,288

      4,607

Amortisation of acquisition related purchase price intangibles and non-compete clauses

      12,243

         2,190

      1,588

                -  

    16,021

Accretion

          -  

           -  

        -  

              2,000

      2,000

Adjusted net income/(loss)

      23,206

         4,218

      1,860

           (10,981)

    18,303

                 

 

Nine months ended 30 September 2017:

 

Jackpotjoy

(£000's)

Vera&John

(£000's)

Mandalay

(£000's)

Unallocated Corporate Costs

(£000's)

Total

(£000's)

 

Total revenue

     155,191

       51,458

    15,343

                -  

   221,992

 

 

 

 

 

 

 

 

Distribution costs

      68,541

       25,020

      8,355

                  78

   101,994

 

Amortisation and depreciation

      34,177

         7,383

      4,805

                 286

    46,651

 

Compensation, professional, and general and    

administrative expenses

      12,566

       12,069

         961

              9,698

    35,294

 

Transaction related costs

          -  

           -  

        -  

              2,676

      2,676

 

Foreign exchange

            76

           608

          26

            10,796

    11,506

 

Gain on sale of intangible assets

          -  

        (1,002)

        -  

                -  

     (1,002)

 

Financing, net

          -  

          (127)

            3

            52,252

    52,128

 

Income/(loss) for the period before taxes

      39,831

         7,507

      1,193

           (75,786)

   (27,255)

 

Taxes

          -  

           487

        -  

                -  

         487

 

Net income/(loss) for the period

      39,831

         7,020

      1,193

           (75,786)

   (27,742)

 

 

 

 

 

 

 

 

Net income/(loss) for the period

      39,831

         7,020

      1,193

           (75,786)

   (27,742)

Interest (income)/expense, net

          -  

          (127)

            3

            32,354

    32,230

Taxes

          -  

           487

        -  

                -  

         487

Amortisation and depreciation

      34,177

         7,383

      4,805

                 286

    46,651

EBITDA

      74,008

       14,763

      6,001

           (43,146)

    51,626

Share-based compensation

          -  

           -  

        -  

              1,198

      1,198

Fair value adjustment on contingent consideration

          -  

           -  

        -  

            16,364

    16,364

Loss on cross currency swap

          -  

           -  

        -  

              3,534

      3,534

Transaction related costs

          -  

           -  

        -  

              2,676

      2,676

Gain on sale of intangible assets

          -  

        (1,002)

        -  

                -  

     (1,002)

Foreign exchange

            76

           608

          26

            10,796

    11,506

Adjusted EBITDA

      74,084

       14,369

      6,027

             (8,578)

    85,902

 

 

 

 

 

 

Net income/(loss) for the period

      39,831

         7,020

      1,193

           (75,786)

   (27,742)

Share-based compensation

          -  

           -  

        -  

              1,198

      1,198

Fair value adjustment on contingent consideration

    -  

           -  

        -  

            16,364

    16,364

Loss on cross currency swap

    -  

           -  

        -  

              3,534

      3,534

Transaction related costs

    -  

           -  

        -  

              2,676

      2,676

Gain on sale of intangible assets

          -  

        (1,002)

        -  

                -  

     (1,002)

Foreign exchange

            76

           608

          26

            10,796

    11,506

Amortisation of acquisition related purchase price intangibles and non-compete clauses

      34,177

         6,402

      4,774

                -  

    45,353

Accretion

          -  

           -  

        -  

              9,051

      9,051

Adjusted net income/(loss)

      74,084

       13,028

      5,993

           (32,167)

    60,938

                   

 

Three months ended 30 September 2016:

 

 

Jackpotjoy

 (£000's)

Vera&John

(£000's)

Mandalay

(£000's)

Unallocated Corporate Costs

(£000's)

Total

(£000's)

Total revenue and other income

      46,658

       14,422

      5,288

-  

    66,368

Distribution costs

      20,315

         7,470

      3,659

                   74

    31,518

Amortisation and depreciation

      10,428

         2,438

      1,585

                       2

    14,453

Compensation, professional, and general and     administrative expenses

        3,876

         3,424

         264

               2,672

    10,236

Transaction related costs

-   

           200

-   

             10,214

    10,414

Foreign exchange

            55

           343

         (34)

                  227

         591

Financing, net

-   

              (5)

            2

             17,969

    17,966

Income/(loss) for the period before taxes

      11,984

           552

        (188)

         (31,158)

   (18,810)

Taxes

-

          (231)

-

-

        (231)

Net income/(loss) for the period

      11,984

           783

        (188)

         (31,158)

   (18,579)

 

Net income/(loss) for the period

      11,984

           783

        (188)

          (31,158)

   (18,579)

Interest (income)/expense, net

-

              (5)

            2

               9,113

      9,110

Taxes

-

          (231)

-

-   

        (231)

Amortisation and depreciation

      10,428

         2,438

      1,585

                       2

    14,453

EBITDA

      22,412

         2,985

      1,399

         (22,043)

      4,753

Share-based compensation

        -

        -

        -

                957

         957

Fair value adjustment on contingent consideration

        -

        -

        -

             14,549

    14,549

Gain on cross currency swap

        -

        -

        -

           (5,693)

     (5,693)

Transaction related costs

        -

           200

        -

         10,214

    10,414

Foreign exchange

            55

           343

         (34)

             227

         591

Adjusted EBITDA

      22,467

         3,528

      1,365

        (1,789)

    25,571

 

Net income/(loss) for the period

      11,984

           783

        (188)

          (31,158)

   (18,579)

Share-based compensation

-

-

-

                  957

         957

Fair value adjustment on contingent consideration

        -

        -

        -

       14,549

    14,549

Gain on cross currency swap

        -

        -

        -

      (5,693)

     (5,693)

Transaction related costs

        -

           200

        -  

        10,214

    10,414

Foreign exchange

            55

           343

         (34)

            227

         591

Amortisation of acquisition related

purchase price intangibles

      10,428

         2,275

      1,585

        -

    14,288

Accretion

        -

        -

        -

          4,650

      4,650

Adjusted net income/(loss)

      22,467

         3,601

      1,363

       (6,254)

    21,177

 

Nine months ended 30 September 2016:

 

Jackpotjoy

 (£000's)

Vera&John

(£000's)

Mandalay

(£000's)

Unallocated Corporate Costs

(£000's)

Total

(£000's)

Total revenue and other income

 135,645

 43,857

 16,556

-

 196,058

Distribution costs

      61,242

       21,427

    10,773

               227

    93,669

Amortisation and depreciation

      30,912

         6,308

      4,328

              11

    41,559

Compensation, professional, and general and     administrative expenses

      11,505

         8,618

         825

           7,543

    28,491

Severance costs

-

-

-

            5,695

      5,695

Transaction related costs

-

           642

-  

       15,936

    16,578

Foreign exchange

          (278)

           636

        (102)

          2,850

      3,106

Financing, net

-  

 (48)

 5

 35,407

 35,364

Income/(loss) for the period before taxes

 32,264

 6,274

 727

 (67,669)

 (28,404)

Taxes

-  

 (19)

-

-

 (19)

Net income/(loss) for the period

 32,264

 6,293

 727

 (67,669)

 (28,385)

                 

 

Net income/(loss) for the period

 32,264

 6,293

 727

 (67,669)

 (28,385)

Interest (income)/expense, net

-

 (48)

 5

 25,862

 25,819

Taxes

-

 (19)

-

-

 (19)

Amortisation and depreciation

 30,912

 6,308

 4,328

 11

 41,559

EBITDA

 63,176

 12,534

 5,060

 (41,796)

 38,974

Share-based compensation

-

-

-

 1,503

 1,503

Severance costs

-

-

-

 5,695

 5,695

Independent Committee related expenses

-

-

-

 1,693

 1,693

Fair value adjustment on contingent consideration

-

-

-

 33,499

 33,499

Gain on cross currency swap

-

-

-

 (23,954)

 (23,954)

Transaction related costs

-

 642

-  

 15,936

 16,578

Foreign exchange

 (278)

 636

 (102)

 2,850

 3,106

Adjusted EBITDA

 62,898

 13,812

 4,958

 (4,574)

 77,094

 

Net income/(loss) for the period

32,264

6,293

727

(67,669)

(28,385)

Share-based compensation

-

-

-

1,503

1,503

Severance costs

-

-

-

5,695

5,695

Independent Committee related expenses

-

-

-

1,693

1,693

Fair value adjustment on contingent consideration

-

-

-

33,499

33,499

Gain on cross currency swap

-

-

-

(23,954)

(23,954)

Transaction related costs

-

642

-

15,936

16,578

Foreign exchange

(278)

636

(102)

2,850

3,106

Amortisation of acquisition related purchase price intangibles

30,912

5,925

4,328

-

41,165

Accretion

-

-

-

12,845

12,845

Adjusted net income/(loss)

62,898

13,496

4,953

(17,602)

63,745

 

The following table presents net assets per segment and unallocated corporate costs as at 30 September 2017:

 

Jackpotjoy

(£000's)

Vera&John

(£000's)

Mandalay

(£000's)

Unallocated Corporate Costs

(£000's)

Total

(£000's)

Current assets

13,171

34,800

6,747

18,659

73,377

Goodwill

224,348

55,374

16,612

-

296,334

Long-term assets

265,222

33,414

13,425

95

312,156

Total assets

502,741

123,588

36,784

18,754

681,867

 

 

 

 

 

 

Current liabilities

6,360

17,896

1,824

81,197

107,277

Long-term liabilities

-

1,280

-

335,930

337,210

Total liabilities

6,360

19,176

1,824

417,127

444,487

 

 

 

 

 

 

Net assets

496,381

104,412

34,960

(398,373)

237,380

 

The following table presents net assets per segment and unallocated corporate costs as at                          31 December 2016:

 

Jackpotjoy

(£000's)

Vera&John

(£000's)

Mandalay

(£000's)

Unallocated Corporate Costs

(£000's)

Total

(£000's)

Current assets

15,033

38,870

6,509

78,665

139,077

Goodwill

224,348

55,392

16,612

-

296,352

Long-term assets

277,702

38,163

18,020

22,064

355,949

Total assets

517,083

132,425

41,141

100,729

791,378

 

 

 

 

 

 

Current liabilities

5,790

16,711

1,483

130,876

154,860

Long-term liabilities

-

1,897

-

395,153

397,050

Total liabilities

5,790

18,608

1,483

526,029

551,910

 

 

 

 

 

 

Net assets

511,293

113,817

39,658

(425,300)

239,468

 

During the nine months ended 30 September 2017 and 2016, substantially all of the revenue earned by the Group was in Europe. Non-current assets by geographical location as at 30 September 2017 were as follows: Europe £88.8 million (31 December 2016 - £93.6 million) and the Americas £519.7 million (31 December 2016 - £558.7 million).

 

5.   Costs and Expenses

 

Three Months Ended

30 September 2017

(£000's)

Three Months

Ended

30 September

2016

(£000's)

Nine Months Ended

30 September 2017

(£000's)

Nine Months Ended

30 September 2016

(£000's)

Distribution costs:

 

 

 

 

Selling and marketing

            12,591

 10,796

            33,040

 32,362

Licensing fees

             11,771

 10,510

              34,683

 31,148

Gaming taxes

                8,742

 7,334

               25,203

 21,498

Processing fees

               3,344

 2,878

                 9,068

 8,661

 

             36,448

31,518

           101,994 

93,669

 

 

 

 

 

 

 

Administrative costs:

 

 

 

 

Compensation and benefits

                9,631

 7,840

               25,722

 20,641

Professional fees

                   670

 476

                2,675

 3,294

General and administrative

                2,276

 1,920

                6,897

 4,556

Tangible asset depreciation

                    119

 51

                     303

 105

Intangible asset amortisation

               16,372

 14,402

               46,348

 41,454

 

               29,068

 24,689

               81,945

 70,050

6.   Interest Income/Expense

 

Three Months Ended

30 September 2017

(£000's)

Three Months

Ended

30 September

 2016

(£000's)

Nine Months Ended

30 September 2017

(£000's)

Nine Months Ended

30 September 2016

(£000's)

Interest earned on cash held during the period

41

63

136

119

Total interest income

41

63

136

119

 

 

 

 

 

Interest paid and accrued on long-term debt

7,645

4,400

23,309

12,743

Accretion of discount recognised on contingent consideration

752

4,049

5,220

11,197

Interest paid and accrued on convertible debentures

3

123

43

350

Interest accretion recognised on convertible debentures

5

106

35

290

Interest accretion recognised on long-term debt

774

495

2,334

1,358

Interest accretion recognised on other long-term liabilities

469

-

1,425

-

Total interest expense

9,648

9,173

32,366

25,938

 

7.   Earnings per Share

The following table presents the calculation of basic and diluted earnings per share:

 

Three Months Ended

30 September 2017

(£000's)

Three Months Ended

30 September 2016

(£000's)

Nine Months Ended

30 September 2017

(£000's)

Nine Months Ended

30 September 2016

(£000's)

Numerator:

 

 

 

 

Net loss - basic

(7,669)

(18,579)

(27,742)

(28,385)

Net loss - diluted1

(7,669)

(18,579)

(27,742)

(28,385)

 

 

 

 

 

Denominator:

 

 

 

 

Weighted average number of shares outstanding - basic

73,988

70,865

73,801

70,666

 

 

 

 

 

Instruments, which are anti-dilutive:

 

 

 

 

Weighted average effect of dilutive share options

434

801

412

833

Weighted average effect of convertible debentures2

87

2,629

294

2,759

Net loss per share3,4

 

 

 

 

Basic

£(0.10)

£(0.26)

£(0.38)

£(0.40)

Diluted1

£(0.10)

£(0.26)

£(0.38)

£(0.40)

 

1In the case of a net loss, the effect of share options potentially exercisable on diluted loss per share will be anti-dilutive; therefore, basic and diluted net loss per share will be the same.

2     An assumed conversion of convertible debentures had an anti-dilutive effect on loss per share for the three and nine months ended 30 September 2017 and 30 September 2016. 

3     Basic loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of shares outstanding during the year.

4     Diluted loss per share is calculated by dividing the net loss attributable to ordinary shareholders 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.

 

8.   Cash and Restricted Cash

 

 

30 September 2017

(£000's)

31 December 2016

(£000's)

Cash

38,994

33,558

Segregated cash*

214

34,927

Cash and cash equivalents

39,208

68,485

Restricted cash - other

189

253

Total cash balances

39,397

68,738

 

*    This balance consists of cash on deposit with payment service providers, as well as segregated funds held in accordance with the terms of the Jackpotjoy earn-out payment, where the Group was required to segregate 90% of its excess cash flow, less mandatory repayments of the Group's long-term debt and earn-out payments, in a non-operational bank account.  Since the Group made a final earn-out payment of £94.2 million for the non-Spanish assets of the Jackpotjoy segment on 21 June 2017, no cash was required to be segregated for this purpose at 30 September 2017 (£34.7 million as at 31 December 2016).  Segregated cash does not qualify as restricted cash and, as such, it is included in cash.

 

9.   Trade and Other Receivables

Receivables consist of the following items:

 

30 September 2017 (£000's)

31 December 2016

(£000's)

Due from the Gamesys group

6,289

9,242

Due from the 888 group

2,650

1,625

Affiliate revenue receivable

2,178

1,766

Short-term loans receivable

659

572

Swap-related receivable

-

1,948

Prepaid expenses

3,548

967

Other

301

643

 

15,625

16,763

 

10. Cross Currency Swap

On 23 November 2015, the Group entered into a cross currency swap agreement (the "Currency Swap") in order to minimise the Group's exposure to exchange rate fluctuations between GBP and the US dollar ("USD") as cash generated from the Group's operations is largely in GBP, while a portion of the principal and interest payments on the Group's credit facilities are in USD. Under the Currency Swap, 90% of the Group's USD term loan interest and principal payments were swapped into GBP. The Group paid a fixed 7.81% interest in place of floating USD interest payments of LIBOR plus 6.5% (LIBOR floor of 1%). The interest and principal payments were made at a GBP/USD foreign exchange rate of 1.5135 on a USD notional amount of $293,962,500.

On 28 March 2017, the Group terminated the Currency Swap and realised total proceeds of approximately USD 42.6 million (£34.4 million) and subsequently entered into a new cross currency swap agreement (the "New Currency Swap"). Under the New Currency Swap, 50% of the Group's term loan interest and principal payments will be swapped into GBP. The Group will pay a fixed 7.4% interest in place of floating USD interest payments of LIBOR plus 6.5% (LIBOR floor of 1%). The interest and principal payments will be made at a GBP/USD foreign exchange rate of 1.2584 on a USD notional amount of $136,768,333. The New Currency Swap expires on 30 September 2019.  The agreement was entered into at no cost to the Group.

The fair value of the New Currency Swap liability as at 30 September 2017 is £7.5 million                              (31 December 2016 - asset of £38.2 million).

Jackpotjoy plc has elected to use hedge accounting for the purposes of recognising realised and unrealised gains and losses associated with the New Currency Swap.

 

11. Intangible Assets and Goodwill

As at 30 September 2017

 

 

Gaming Licenses

Customer Relationships

Software

  Brand

Partnership Agreements

Non-Compete Clauses

Goodwill

Total

 

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

Cost

 

 

 

 

 

 

 

 

Balance, 1 January 2017

94

340,927

21,670

70,054

12,900

20,434

317,829

783,908

Additions

-

-

1,989

-

-

-

-

1,989

Translation

(1)

292

592

(110)

-

-

(1,715)

(942)

Balance, 30 September 2017

93

341,219

24,251

69,944

12,900

20,434

316,114

784,955

 

 

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

 

 

Balance, 1 January 2017

34

96,811

7,414

6,523

2,824

-

21,477

135,083

Amortisation

11

33,801

3,576

2,628

1,225

5,107

-

46,348

Translation

6

51

241

(30)

-

-

(1,697)

(1,429)

Balance, 30 September 2017

51

130,663

11,231

9,121

4,049

5,107

19,780

180,002

 

 

 

 

 

 

 

 

 

Carrying value

 

 

 

 

 

 

 

 

Balance, 30 September 2017

42

210,556

13,020

60,823

8,851

15,327

296,334

604,953

 

As at 31 December 2016

 

Gaming Licenses

Customer Relationships

Software

Revenue Guarantee

Brand

Partnership Agreements

 

Goodwill

Total

Non-Compete Clauses

 

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

Cost

 

 

 

 

 

 

 

 

 

Balance, 1 January 2016

76

337,502

17,175

4,010

68,284

12,900

-

306,295

746,242

Additions

-

-

1,836

-

-

-

20,434

-

22,270

Translation

18

3,425

2,659

783

1,770

-

-

11,534

20,189

Expiry

-

-

-

(4,793)

-

-

-

-

(4,793)

Balance, 31 December 2016

94

340,927

21,670

-

70,054

12,900

20,434

317,829

783,908

 

 

 

 

 

 

 

 

 

 

Accumulated amortisation

 

 

 

 

 

 

 

 

 

Balance, 1 January 2016

23

47,956

3,279

-

2,681

1,558

-

17,969

73,466

Amortisation

9

47,405

3,683

-

3,466

1,232

-

-

55,795

Translation

2

1,450

452

-

376

34

-

3,508

5,822

Balance, 31 December 2016

96,811

7,414

-

6,523

2,824

-

21,477

135,083

 

 

 

 

 

 

 

 

 

 

Carrying value

 

 

 

 

 

 

 

 

 

Balance, 31 December 2016

60

244,116

14,256

-

63,531

10,076

20,434

296,352

648,825

 

 

Accounts payable and accrued liabilities consist of the following items:

 

 

30 September 2017

(£000's)

31 December 2016

(£000's)

Affiliate/marketing expenses payable

5,112

3,058

Payable to game suppliers

1,512

950

Compensation payable

2,949

2,989

Loyalty program payable

252

260

Professional fees

730

349

Gaming tax payable

416

526

Other

1,392

860

 

12,363

8,992

 

13.  Other Short-Term Payables

Other short-term payables consist of:

 

 

30 September 2017

 (£000's)

31 December 2016

(£000's)

 

 

 

Transaction related payables

3,496

9,321

Current portion of other long-term payables (Note 16)

8,667

6,000

 

12,163

15,321


 

14.  Credit Facilities

Below is the breakdown of the First Lien Facilities and the Second Lien Facility:

 

 

Term Loan

(£000's)

Incremental First Lien Facility

(£000's)

Second Lien Facility

(£000's)

Total

(£000's)

 

 

 

 

 

Balance, 1 January 2016

207,158

-

-

207,158

Principal

-

70,000

90,000

160,000

Repayment

(26,906)

-

-

(26,906)

Debt financing costs

-

(2,482)

(6,792)

(9,274)

Accretion1

1,868

16

35

1,919

Foreign exchange translation

37,896

-

-

37,896

Balance, 31 December 2016

220,016

67,534

83,243

370,793

Repayment

(18,771)

-

-

(18,771)

Accretion1

            1,424

                290

                620

            2,334

Foreign exchange translation

(17,139)

-

-

(17,139)

Balance, 30 September 2017

         185,530

           67,824

            83,863

         337,217

 

 

 

 

 

Current portion

24,583

-

-

24,583

Non-current portion

160,947

           67,824

            83,863

312,634

1 Effective interest rates are as follows:  Term Loan - 8.69%, Incremental First Lien Facility - 8.32%, Second Lien Facility - 11.75%.

 

 

The principal financial instruments used by the Group are summarised below:

Financial assets

 

Loans and receivables

 

30 September 2017

(£000's)

31 December 2016

(£000's)

Cash and restricted cash

39,397

68,738

Trade and other receivables

15,625

16,763

Other long-term receivables

2,169

2,624

Customer deposits

8,736

8,573

 

65,927

96,698

Financial liabilities

 

Financial liabilities at amortised cost

 

30 September 2017

 (£000's)

31 December 2016

(£000's)

Accounts payable and accrued liabilities

12,363

8,992

Other long-term payables

9,852

14,505

Other short-term payables

12,163

15,321

Interest payable

547

633

Payable to customers

8,736

8,573

Convertible debentures

255

3,266

Long-term debt

337,217

370,793

 

381,133

422,083

 

The carrying values of the financial instruments noted above, with the exception of convertible debentures, approximate their fair values. The convertible debentures' fair value as at 30 September 2017 amounted to £0.5 million.  Fair value was determined based on a quoted market price in an active market.

Other financial instruments

 

Financial instruments recognised at fair value through profit or loss - assets (liabilities)

 

30 September 2017

(£000's)

31 December 2016

(£000's)

Cross currency swap

(7,465)

38,171

Contingent consideration

(47,553)

(120,187)

 

(55,018)

(82,016)

 

Fair value hierarchy

The hierarchy of the Group's financial instruments carried at fair value is as follows: 

 

 

Level 2

Level 3

 

30 September 2017

(£000's)

31 December 2016

(£000's)

30 September 2017

(£000's)

31 December 2016

(£000's)

Cross currency swap

(7,465)

38,171

-

-

Contingent consideration

-

-

(47,553)

(120,187)

 

The cross currency swap balance represents the fair value of cash inflows/(outflows) under the Currency Swap or the New Currency Swap, as applicable.

Contingent consideration represents the fair value of the cash outflows under earn-out agreements that would result from the performance of acquired businesses.  The key inputs into the fair value estimation of these liabilities include the forecast performance of the underlying businesses, the probability of achieving forecasted results and the discount rate applied in deriving a present value from those forecasts. Significant increase (decrease) in the business' performance would result in a higher (lower) fair value of the contingent consideration, while significant increase (decrease) in the discount rate would result in a lower (higher) fair value of the contingent consideration.  Additionally, as earn-out periods draw closer to their completion, the range of probability factors will decrease. 

A discounted cash flow valuation model was used to determine the value of the contingent consideration.  The model considers the present value of the expected payments, discounted using a risk-adjusted discount rate of 7%. The expected payments are determined by considering the possible scenarios of forecast EBITDA, the amount to be paid under each scenario and the probability of each scenario. 

Without probability and discount factors, the fair value of the contingent consideration would be approximately 25% higher (£12.1 million), than its value at 30 September 2017, increasing the current portion of the contingent consideration, which is composed of the Botemania earn-out payment and the first Jackpotjoy milestone payment, by £8.6 million and increasing the long-term contingent consideration, which is composed of the final Jackpotjoy milestone payments due in 2019 and 2020, by £3.5 million. This assumes that the financial performance of the Jackpotjoy operating segment remains in line with management's expectations. 

On 21 June 2017, Jackpotjoy plc made a final earn-out payment in the amount of £94.2 million for the non-Spanish assets within its Jackpotjoy segment. 

As at 30 September 2017, the contingent consideration balance related to the earn-out payment remaining on the Spanish assets included in the Jackpotjoy segment and milestone payments related to the Jackpotjoy segment.

The movement in Level 3 financial instruments is detailed below:

 

(£000's)

 

 

Contingent consideration, 1 January 2016

209,625

Addition

-

Fair value adjustments

49,382

Payments

(156,308)

Accretion of discount

15,545

Foreign exchange translation

1,943

Contingent consideration, 31 December 2016

120,187

Fair value adjustments

16,364

Payments

(94,218)

Accretion of discount

5,220

Contingent consideration, 30 September 2017

47,553

 

Current portion

41,073

Non-current portion

6,480

The Group is required to pay the Gamesys group £24.0 million in equal monthly instalments in arrears over the period from April 2017 to April 2020, for additional non-compete clauses that came into effect in April 2017 and that expire in March 2019.  The Group has included £8.7 million of this payable in current liabilities (note 13), with the discounted value of the remaining balance, being £9.9 million, included in other long-term payables.  During the nine months ended 30 September 2017, the Group has paid a total of £3.3 million in relation to the additional non-compete clauses.

As at 30 September 2017, Jackpotjoy plc's issued share capital consisted of 74,052,431 ordinary shares, each with a nominal value of £0.10.  Jackpotjoy plc does not hold any shares in treasury and there are no shares in Jackpotjoy plc's issued share capital that do not represent capital.

The share capital movements presented below for periods prior to the date of completion of the plan of arrangement discussed in note 1 are presented as if each common share of The Intertain Group Limited had the same nominal value as the ordinary shares of Jackpotjoy plc.  The number of Jackpotjoy plc ordinary shares in issue at the date of the plan of arrangement was 73,718,942.

 

 

Ordinary shares

 

(£000's)

#

 

 

 

Balance, 1 January 2016

7,051

70,511,493

Conversion of convertible debentures, net of costs

185

1,853,667

Exercise of options

58

577,492

Exercise of warrants

4

40,625

Balance, 31 December 2016

7,298

72,983,277

Conversion of convertible  debentures, net of costs

92

916,498

Exercise of options

15

152,656

Balance, 30 September 2017

7,405

74,052,431

 

Ordinary shares

Other than for reasons set out below, during the nine months ended 30 September 2017, Jackpotjoy plc did not issue any additional ordinary shares.

 

Convertible debentures

During the nine months ended 30 September 2017 (and prior to completion of the plan of arrangement), debentures at an undiscounted value of £2.3 million were converted into 628,333 common shares of Intertain.  Additionally, during the nine months ended 30 September 2017 (and following the completion of the plan of arrangement), debentures at an undiscounted value of £1.0 million were converted into 288,165 ordinary shares of Jackpotjoy plc.

  

Share options

The share option plan (the "Share Option Plan") was approved by the Board of Directors on                             5 September 2016. Upon completion of the plan of arrangement, all options over common shares of Intertain under Intertain's stock option plan were automatically exchanged for options of equivalent value over ordinary shares of Jackpotjoy plc on equivalent terms and subject to the same vesting conditions under Intertain's share option plan.  The strike price of each grant has been converted from Canadian dollars to pound sterling at the foreign exchange rate of 0.606, being the exchange rate at the date of the plan of arrangement. Following the grant of the replacement options, no further options were, or will be, granted under the Share Option Plan.

During the nine months ended 30 September 2017, nil stock options were granted, 152,656 stock options were exercised, 13,000 stock options were forfeited, and nil stock options expired.

During the three and nine months ended 30 September 2017, the Group recorded £0.3 million and £1.2 million, respectively (2016 - £1.0 million and £1.5 million, respectively) in share-based compensation expense with a corresponding increase in share-based payment reserve.

Long-term incentive plan

On 24 May 2017, Jackpotjoy plc granted awards over ordinary shares under the Group's long-term incentive plan ("LTIP") for key management personnel.  The awards (i) will vest on the date on which the Board of Directors determines the extent to which the performance condition (as described below) has been satisfied, and (ii) are subject to a holding period of two years beginning on the vesting date, following the end of which they will be released so that the shares can be acquired.

The performance condition as it applies to 50% of each 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 25 January 2017 ("TSR Tranche"). The performance condition as it applies to the remaining 50% of the award is based on the Group's earnings per share ("EPS") in the last financial year of that performance period ("EPS Tranche") and vests as to 25% if final year EPS is 133.5 pence, between 25% and 100% (on a straight-line basis) if final year EPS is more than 133.5 pence but less than 160 pence, and 100% if final year EPS is 160 pence or more.

Each award under the LTIP is equity-settled and LTIP compensation expense is based on the award's estimated fair value.  The fair value has been estimated using the Black-Scholes model for the EPS Tranche and the Monte Carlo model for the TSR Tranche.

During the three and nine months ended 30 September 2017, the Group recorded £0.1 million (2016 - £nil) in LTIP compensation expense with a corresponding increase in share-based payment reserve.

Indirect taxation

Jackpotjoy plc companies 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. Revenues 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 2017, the Group had recognised £nil liability (31 December 2016 - £nil) related to potential contingent indirect taxation liabilities.

 

 

[1] 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 4 - Segment Information of the unaudited interim condensed consolidated financial statements on pages 19 through 23 of this release.

[2] Per share figures are calculated on a diluted weighted average basis using the IFRS treasury method.

[3] Adjusted net debt consists of existing term loan, convertible debentures, incremental bond issuance, non-compete clause payout, contingent consideration liability and the fair value of the currency swap less non-restricted cash.

[4] Adjusted net leverage ratio consists of existing term loan, convertible debentures, incremental bond issuance, non-compete clause payout, contingent consideration liability and the fair value of the currency swap less non-restricted cash divided by LTM to 30 September 2017 Adjusted EBITDA of £111.0 million.

[5] For additional details, please refer to the information under the heading "Key performance indicators" on pages 9 and 10 of this release.


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