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Nektan PLC (NKTN)

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Tuesday 31 March, 2020

Nektan PLC

Half-year Report

RNS Number : 1956I
Nektan PLC
31 March 2020
 

 

31 March 2020

NEKTAN PLC

("Nektan", the "Company" or the "Group")

Interim Results for the six months ended 31 December 2019

FOCUS ON INTERNATIONAL EXPANSION AS A GAMING TECHNOLOGY AND CONTENT PROVIDER

Nektan plc (AIM: NKTN), the international gaming technology and services provider, announces its unaudited interim results for the six months ended 31 December 2019.

 

These unaudited results are released at time of material uncertainty for the sector, from which Nektan is not immune. While progress has been made in the Company's transformation to a B2B business, in light of the unforeseen impact of COVID-19, the Directors announce that they are in discussions with advisors and stakeholders regarding the future of the Group, including but not limited to efforts to secure funding by the issue of new equity to provide the necessary additional working capital.  The Company, like others in the sector, faces material uncertainty as to the impact of COVID-19 on its business, including the possible consequential impact arising from how key stakeholders, including partners and suppliers, are able to respond. A further announcement will be made in due course.

 

The Directors have prepared these interim results on the same basis as the Company's audited accounts for the year ended 30 June 2019.

 

Financial Summary:

 

Unaudited six months ended 31 December 2019

£'000

Unaudited six months ended 31 December 20181

£'000

 

Revenue from continuing operations

797

310

Total Adjusted EBITDA2

(1,653)

(1,773)

Operating loss from continuing operations

(2,469)

(2,310)

Loss before taxation from continuing operations

(2,923)

(2,952)

Profit / (loss) for the period from discontinued operations

157

(1,821)

Basic & diluted loss per share (pence) continuing operations

(2.3)

(9.3)

Basic & diluted loss per share (pence) continued & discontinued operations

(2.2)

(14.9)

 

 

 

1 Comparatives for the unaudited six months ended 31 December 2018 have been restated to reflect the Company's continuing business at 31 December 2019.

2 Adjusted EBITDA loss excludes depreciation, amortisation, income or expenditure relating to exceptional items, non-cash charges relating to share based payments and impairments. 

 

Summary:

· Revenue in H1 FY20 up 157% versus six months ended 31 December 2018 (H1 FY19) on a continuing basis.

· The UK B2C operations have been classified as discontinued in the current and prior periods following the Company's announcement on 7 January 2020 of the sale of its UK B2C business to Grace Media Limited.  The prior period also reflects the US operations as discontinued.  The associated assets and liabilities of these two segments have been classified as held for sale in the current and prior periods.

· The operating loss from continuing operations increased in H1 FY20 as the continuing business gains traction with new partner launches while continuing to absorb a higher cost base currently supporting the transition of the UK B2C business to Grace Media Limited.

· Refocused the business strategy in H1 FY20 towards international gaming technology and content provision, working with leading operators in their respective markets.

· This higher margin business is currently forecast to deliver a breakeven / EBITDA positive result on a monthly basis in H1 FY21, subject to securing the required working capital from funding.

· In August 2019, Lucy Buckley resigned as CEO of the Company, and Gary Shaw, Founder and Executive Director, was appointed Interim CEO to stabilise the business and drive the focus on the international expansion.

· In November 2019, the Company completed a restructuring of its capital structure, raising £2.725m (before costs) in new equity, converting the full outstanding principal and accrued interest on the Series A CLN, and restructuring the terms of the Series B CLN and shareholder loans.

· In December 2019, the Company announced the appointment of Paul Hughes as a Non-Executive Director, bringing extensive corporate banking and commercial experience to the Board.

· In December 2019, and as part of the Group's restructuring programme to ensure the protection of the intellectual property within the Group, and the ongoing B2B and international business, for the benefit of all creditors and shareholders, the Group transferred certain trade and assets and all Gibraltar based staff, to two recently incorporated new legal entities in Gibraltar.

 

Post period-end:

· In January 2020, following the appointment of administrators to Nektan (Gibraltar) Limited, the administrators completed the sale of the UK B2C business to Grace Media Limited, for an upfront cash consideration of £0.2m and an ongoing, exclusive, platform arrangement for which the Company receives an ongoing royalty.

· At the end of January 2020, the Company was live with 34 sites in its expanding B2B portfolio, and there are currently a further 21 confirmed sites currently in the pipeline to be launched over coming months.

· In February 2020, the Directors were advised that Rapid Games has now ceased to operate following the inability of the majority shareholder to secure additional funding in the current economic climate, and following the closure of casinos in North America.  This is not expected to impact on FY20 full year results as the carrying value of our investment had been reduced to zero in FY19.

 

Gary Shaw, Interim Chief Executive Officer of Nektan, said:

"Whilst we are currently live with 34 sites across multiple continents, we see a strong pipeline of partner launches from leading global businesses to deliver their online gaming solutions. The roll-out of these sites should take place over the next 2-3 months, which will significantly transform the revenue profile of the Group.  This higher margin revenue is forecast to drive the Group to EBITDA break-even by the end of this current financial year.

 

However, the effects of COVID-19 are only beginning to be understood by the Company and our sector, which creates material uncertainty as we understand the effects on our key stakeholders.  The Directors are assessing all available options and we will provide further updates as appropriate.

 

I place on record my thanks to the Board, our staff, our partners and all stakeholders in their continued efforts and support for the business."

 

For further information on the Group, please contact: 

Nektan

Jim Wilkinson, Chairman

Gary Shaw, Interim Chief Executive Officer

+44 203 478 2648

 

 

 

Shore Capital (Nominated Adviser and Joint Broker)

Tom Griffiths / David Coaten

+44 207 408 4050

 

 

Novum Securities (Joint Broker)

Jon Belliss / Colin Rowbury

+44 207 399 9425

 

 

Further information on Nektan can be found on the Group's website at  www.nektan.com
 

About Nektan:

Nektan is an international gaming technology and services provider, specialising in mobile casino. It licenses its proprietary technology to leading operators, including BetVictor.

 

Nektan's full end-to-end technology platform, Evolve, enables the management of the full customer experience and back-office operations, allowing operators on this platform to allow their partners to focus on marketing the product to their consumers.

 

The E-Lite platform is Nektan's B2B gaming content aggregator and bonusing platform that delivers a wide range of premium content from the world's leading game studios. It is an easily-integrated add on module for operators, giving them an array of options and flexibility on how they manage and distribute a breadth of premium gaming content across their networks.

 

Headquartered in Gibraltar, Nektan is regulated by the Gibraltar Licensing Authority, the UK Gambling Commission and the Information Commissioners Office. As a socially responsible licence holder,   Nektan endeavours to deliver a safe, secure and robust player gaming experience.

 

Nektan plc was admitted to the AIM market of the London Stock Exchange in November 2014.

 

 

INTERIM CHIEF EXECUTIVE'S STATEMENT

 

Overview

The first six months of this current financial year have continued to be one of change for the Group; primarily to focus the Group's strategy on becoming a leading international gaming technology and content provider.  Moving away from operating the UK B2C business which dominated our recent history, we now have a truly global outlook, with our casino platform and integrated gaming technology adopted by partners in markets across Europe, Africa and Asia.

 

Restructuring the Group to provide the platform to support this growth, we are now working at speed to deliver integrations with partners across global markets, including expansion into LATAM in the coming months, which we believe will transform the revenue profile of the Group.

 

Strategic and corporate review

As previously announced, and to support the Group in this  strategy, the Group embarked on a restructuring programme in the first six months of the current financial year, whereby it (i) raised £2.725 million of new equity through the issuance of new shares at 5p per share in November 2019, (ii) reduced debt through the conversion of the entire Series A Convertible Loan Notes ('CLN') of £3.9m (principal and accrued interest) into equity at 5p per share, leaving the Company with £1.1m Series B CLNs, the terms of which were amended, (iii) restructured the terms of the Shareholder Loans, and (iv) afforded protection through administration to the Group's previous exposure to the UK HMRC for Remote Gaming Duty of £5.9m at 31 December 2019. 

The Group incorporated two new legal entities in Gibraltar, as part of completing the restructuring process to ensure the protection of the intellectual property within the Group, and the ongoing B2B and international business. 

On 19 December 2019, the Company announced the appointment of Paul Hughes as a Non-Executive Director.  Paul has extensive corporate banking and commercial experience, with a focus on fundraising, the turnaround of loss-making businesses, risk management and fast-growing private and public companies. He also has extensive experience as a non-executive director and chairman of a variety of private and public companies.

Finally, in completing the restructuring programme, the Directors made the decision to seek the protection of administration for the Group's subsidiary company, Nektan (Gibraltar) Limited ("NGL"). Administrators were appointed to NGL on 7 January 2020, and in one of the first acts following their appointment, the administrators completed the conditional sale of the UK B2C business to Grace Media Limited.  Not only does this see the Group free up capital to focus on the strategic growth areas where the Group has a strong proposition, it also allows the Group to retain a foothold in the UK market by providing the ongoing platform and gaming content to the acquirer for a monthly fee.

This ensured the conditional sale could complete and enables the legacy HMRC liability to be considered in an orderly fashion which does not threaten the future of the Group. This has not impacted the ongoing operations of the Group.

Financial Review and KPIs

The financial review and KPIs are impacted in H1 FY20 due to the decision to dispose of the Company's UK B2C business, which means the continuing business revenues as reported for the six months ended 31 December 2019 are delivered through the full existing cost base of the Group.  This cost base also supports the sale of the UK B2C business through the transition to its new owner.

However, notwithstanding, the KPIs for the continuing business demonstrate robust growth for the Company.  Significantly, the ongoing business has reported a 157% increase in revenues over H1 FY19, and with the continued growth in revenue, new partner launches and close control on costs, we continue on our path to profitability.

· Revenues increased to £797k (H1 FY19: £310k);

· Number of sites live 28 (H1 FY19: 5); and 

· Sites in pipeline to launch 21 (H1 FY19: 6).

Taking the continued operations, adjusted EBITDA loss has decreased to £1,653k (H1 FY19 £1,773k).

The total loss for the period, including discontinued operations, reduced to £2,767k (H1 FY19: £4,798k).

Our technology and business model

Nektan is a growing, international gaming technology and services provider operating in the iGaming sector, specialising in mobile casino. Through the Evolve platform it aggregates premium casino content, including the latest games from the industry's leading game providers, which, using its proprietary technology, it delivers as a platform and content distributor to its international partners.  During H1 FY20, Nektan also operated a fully managed white label casino solution to its B2C partners, prior to the sale of this division.

The E-lite platform is Nektan's B2B gaming content aggregator and bonusing platform that delivers a wide range of premium content from the world's leading game studios. It is an easily integrated add on module for operators, giving them an array of options and flexibility on how they manage and distribute a breadth of premium gaming content across their networks.

We are now supporting sites across a number of countries and continents, including Europe, Africa and Asia, in 16 languages, and due to Nektan's speed of integration, we continue to attract leading global operators in their markets.

Nektan's previously operated white label solution was delivered via its Evolve platform, which enabled the management of the full customer experience and back-office operations, and allowed partners to focus on marketing the product to their consumers.

Nektan had a material stake (42.5%) in US-based interactive gaming operator, Rapid Games, which provides US land-based casinos with an in-venue mobile gaming solution. The Directors have been advised that Rapid Games has now ceased to operate following the inability of the majority shareholder to secure additional funding in the current economic climate, and following the closure of casinos in North America.  This is not expected to impact on FY20 full year results as the carrying value of our investment had been reduced to zero in FY19.

As a socially responsible organisation, Nektan adopts the necessary compliance and regulatory procedures.

Nektan aims to be the go-to provider of the richest, most robust and socially responsible casino platforms globally.

Outlook and Current Funding

The Company expects revenue from continuing operations to grow in coming months, not only as existing and recently launched sites gain traction in their respective markets, but also as the pipeline of new sites are launched in the coming months.  We anticipate a number of these sites to become strategic partners for the Group and to deliver significant revenues to the business in the coming years.

The Group remains committed to reaching an agreement with the administrators of Nektan (Gibraltar) Limited ("NGL") on a repayment plan that would see all creditors of NGL paid in full over an agreed period. 

 

Finally, this is a time of material uncertainty for the sector, from which Nektan is not immune. While progress has been made in the Company's transformation to a B2B business, in light of the unforeseen impact of COVID-19, the Directors announce that they are in discussions regarding the future of the Group, including but not limited to efforts to secure funding by the issue of new equity to provide additional working capital.  The Company, like others in the sector, faces material uncertainty as to the impact of COVID-19 on its business, including the possible consequential impact arising from how key stakeholders, including partners and suppliers, are able to respond. A further announcement will be made in due course.

 

Team

 

On behalf of the Board, I would like to thank the entire team at Nektan for all their hard work over the period. Without their belief in the business and considerable efforts over the last six months, we would not be in this position of looking towards sustained profitability for the Group in the short to medium term.  It is their dedication and professionalism that is driving the Company and helping to attract major partners who want to use our technology to enhance and build their gaming brands across the globe.

 

 

Gary Shaw

Interim Chief Executive Officer
 

 

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months ended 31 December 2019

 

 

Unaudited six months to 31 December 2019

Unaudited six months to 31 December 2018

 

Notes

£'000

£'000

 

 

 

 

Revenue

2

797

310

Cost of sales

 

(266)

-

Gross profit

 

531

310

 

 

 

 

Marketing, partner and affiliate costs

 

-

-

Administrative expenses

 

(3,000)

(2,620)

 

 

 

 

Adjusted EBITDA

 

(1,653)

(1,773)

Exceptional items

 

(209)

(6)

Depreciation

 

(95)

(28)

Amortisation of intangible assets

 

(465)

(484)

Impairment of fixed assets

 

(47)

-

Share based payment charge

 

-

(19)

 

 

 

 

Operating loss

 

(2,469)

(2,310)

Net finance expense

4

(454)

(642)

Loss before taxation

 

(2,923)

(2,952)

Tax credit/(charge)

 

(1)

(25)

 

 

 

 

Loss after tax from continuing operations

 

(2,924)

(2,977)

Profit/(loss) from discontinued operations

 

157

(1,821)

 

 

 

 

Loss after tax from continuing and discontinued operations

 

 

(2,767)

(4,798)

Other comprehensive income for the period

 

 

 

Exchange differences arising on translation of foreign operations which may be reclassified to profit or loss

 

(63)

41

Total comprehensive loss for the period

 

(2,830)

(4,757)

 

Loss per share attributable to the Ordinary equity holders of the parent

 

 

 

 

Loss per share from continuing operations

 

 

 

Basic and diluted (pence)

3

(2.3)

(9.3)

 

 

 

 

Profit/(loss) per share from discontinuing operations

 

 

 

Basic and diluted (pence)

3

0.1

(5.7)

 

 

 

 

Loss per share from continuing and discontinuing operations

 

 

 

Basic and diluted (pence)

3

(2.2)

(14.9)

 

 

 

 

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

For the six months ended 31 December 2019

 

 

Unaudited as at 31 December 2019

 

Audited at 30 June 2019

 

 

 

 

 

Notes

£'000

£'000

 

 

 

 

Non-current assets

 

 

 

Intangible assets

 

1,641

1,441

Property, plant and equipment

 

58

137

Right of use assets

 

475

-

 

 

2,174

1,578

 

 

 

 

Current assets

 

 

 

Trade and other receivables

5

1,501

993

Cash and cash equivalents

6

589

857

Assets in disposal groups classified as held for sale

10

1,678

949

 

 

3,768

2,799

 

 

 

 

Total assets

 

5,942

4,377

 

 

 

 

 

Current liabilities

 

 

 

Trade and other payables

7

(10,047)

(8,948)

Derivative financial liabilities

 

-

(12)

Convertible loan notes

8

-

(4,652)

Shareholder loans

12

(1,497)

(1,480)

Liabilities in disposal groups classified as held for sale

10

(846)

(860)

 

 

(12,390)

(15,952)

 

 

 

 

Non-current liabilities

 

 

 

Convertible loan notes

8

(1,100)

-

Lease liability

11

(489)

-

Deferred tax

 

-

(25)

 

 

(1,589)

(25)

 

 

 

 

Total liabilities

 

(13,979)

(15,977)

 

 

 

 

Net liabilities

 

(8,037)

(11,600)

 

 

 

 

Equity attributable to equity holder:

 

 

 

 

 

 

 

Share capital

9

2,418

1,118

Share premium

 

43,788

38,695

Merger reserve

 

(2)

(2)

Capital contribution reserve

 

3,306

3,306

Share option reserve

 

1,055

1,055

Foreign exchange reserve

 

(68)

(5)

Retained earnings

 

(58,534)

(55,767)

Total deficit

 

(8,037)

(11,600)

 

 

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 31 December 2019

 

 

 

Share capital

Share premium

Share option reserve

Capital contribution reserve

Merger reserve

Foreign exchange reserve

Retained earnings

Total equity

 

 

 

 

 

 

 

 

 

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

At 1 July 2018

474

29,679

1,038

3,306

(2)

(304)

(46,552)

(12,361)

Loss for the period

-

-

-

-

-

-

(4,798)

(4,798)

Other comprehensive income

-

-

-

-

-

41

-

41

Issue of shares (net of costs)

-

-

-

-

-

-

-

-

Share based payments

-

-

19

-

-

-

-

19

At 31 December 2018

474

29,679

1,057

3,306

(2)

(263)

(51,350)

(17,099)

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

-

(4,417)

(4,417)

Other comprehensive income

-

-

-

-

-

258

-

258

Issue of shares (net of costs)

644

9,016

-

-

-

-

-

9,660

Share based payments

-

-

(2)

-

-

-

-

(2)

At 30 June 2019

1,118

38,695

1,055

3,306

(2)

(5)

(55,767)

(11,600)

 

 

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

-

-

(2,767)

(2,767)

Other comprehensive income

-

-

-

-

-

(63)

-

(63)

Issue of shares (net of costs)

1,300

5,093

-

-

-

-

-

6,393

Share based payments

-

-

-

-

-

-

-

-

At 31 December 2019

2,418

43,788

1,055

3,306

(2)

(68)

(58,534)

(8,037)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following describes the nature and purpose of each reserve within equity:

 

Share capital

Represents the nominal value of shares allotted, called up and fully paid.

 

Share premium

Represents the amount of subscribed for share capital in excess of nominal value.

 

Share option reserve

Represents the cumulative value of share option charges recorded in the consolidated statement of comprehensive income.

 

 

Capital contribution reserve

Represents:

(a)  Nominal value of shares held by a shareholder in a subsidiary Company and contributed to Nektan plc.

(b)  The release of the Group's obligation to repay borrowings of £3,306,000 by a shareholder.

 

Merger reserve

The difference between the nominal value of the Nektan (Gibraltar) Limited shares acquired in May 2011 and the nominal value of shares in Nektan plc issued to acquire these shares as part of a Group restructuring.

 

Foreign exchange reserve

Represents the gains/losses arising on retranslating the net assets of overseas operations into UK Pound Sterling.

 

Retained earnings

Represents the cumulative net gains and losses recognised in the consolidated statement of comprehensive income.

 

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 31 December 2019

 

 

Unaudited six Months to 31 December 2019

Unaudited six Months to 31 December 2018

 

Notes

£'000

£'000

Cash flow from operating activities

 

 

 

Loss for the period

 

(2,767)

(4,798)

Adjusted for:

 

 

 

Amortisation of intangible assets

 

465

1,039

Amortisation of right of use assets

 

61

-

Impairment of intangible assets

 

-

2,974

Impairment of fixed assets

 

47

-

Impairment of investments

 

39

-

Movement in intangibles

 

(200)

-

Depreciation of property, plant and equipment

 

34

52

Share based payment expense

 

-

19

Finance expense

 

465

622

Finance income

 

(11)

  -

Income tax charge/(credit)

 

1

Movement in foreign exchange

 

(31)

Operating cash flow before movement in working capital

 

(1,897)

(231)

Increase in trade and other receivables

 

(512)

(55)

Increase in trade and other payables

 

1,074

1,114

Increase in trade and other receivables held for sale

 

(729)

(213)

Decrease in trade and other payables held for sale

 

(14)

(252)

Net cash (used in)/generated from operating activities

 

(2,077)

363

 

Cash flow from investing activities

 

 

 

Purchase and internally developed intangible fixed assets

 

(467)

(1,258)

Purchase of property, plant and equipment

 

(6)

(161)

Net cash (used in)/generated from investing activities

 

(473)

(1,419)

 

 

 

 

Cash flow from financing activities

 

 

 

Interest paid

 

(42)

(28)

Payment of lease liability

 

(60)

-

Payment to acquire JV partner share

 

-

(100)

Proceeds on subscription for shares (net of costs)

 

2,385

-

Net cash generated from/ (used in) financing activities

 

2,283

(128)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(268)

(1,184)

 

 

 

 

Cash and cash equivalents at beginning of period

6

857

1,402

 

 

 

 

Cash and cash equivalents at end of period

6

589

218

 

 

 

 

 

 

1.  Accounting policies

 

General information

 

The unaudited condensed interim consolidated financial statements for the six months ended 31 December 2019, which were approved by the Board of Directors on 31 March 2020, do not comprise statutory accounts and should be read in conjunction with the Annual Report and Accounts, which includes audited financial information for the year ended 30 June 2019. 

 

The report of the auditors on those accounts drew attention to the fact that in forming their opinion on the financial statements, which was unmodified, that they have considered the adequacy of the disclosures made in note 1 to the financial statements concerning the Group and the Company's ability to continue as a going concern.  The report stated that there was a material uncertainty relating to going concern and this was dependent on the ability of the directors to successfully secure sufficient funding for the foreseeable future, including further funds should Board approved forecasts not be met.

 

Basis of preparation

 

The unaudited interim condensed consolidated financial statements are prepared on the basis of the accounting policies stated in the Group's Annual Report and Account for the year ended 30 June 2019, with the exception of the adoption of IFRS 16 Leased Assets which is effective for the first time, which has brought onto the balance sheet operating leases as a right of use asset with a corresponding liability.

 

The interim financial statements have been prepared on a going concern basis.  

 

The Directors have reviewed forecast cash flows for the forthcoming 12 months from the date of approval of these interim financial statements and consider that provided new equity is raised, that the business has sufficient cash resources to continue as a going concern.  If however, circumstances were to change, the Directors would look at other options including seeking additional capital through further fundraising and/or asset sales or part sales.  In addition, the Directors remain in discussions with the administrators of Nektan (Gibraltar) Limited in regards to agreeing a repayment plan for creditors of this business (including HMRC).

 

Based on the above, the Directors have a reasonable expectation to believe that it is appropriate to continue to prepare the financial statements on a going concern basis.  However, there are therefore material uncertainties related to events or conditions that may cast significant doubt on the Group and the Company's ability to continue as a going concern. If the business is unable to raise additional finance, it may be unable to realise its assets and discharge its liabilities in the normal course of business.

 

2.  Segmental information

 

Due to the sale during the year of the on-premise gaming segment, there is only one segment for the period ended 31 December 2019. 

Geographical analysis of non-current assets

The following table provides an analysis of the Group's non-current assets, excluding goodwill and assets held for sale

 

Unaudited at 31 December 2019


Audited at 30 June 2019

 

£'000

£'000

 

 

 

Gibraltar

1,845

1,553

UK

4

5

India

125

20

 

1,974

1,578

 

 

Geographical analysis of revenues

The following table provides an analysis of the Group's revenue by geographical segment:

 

 

Unaudited six Months to 31 December 2019

Unaudited six Months to 31 December 2018

 

£'000

£'000

 

 

 

UK

288

84

Rest of the World

509

226

 

797

310

 

3.  Loss per share

 

Basic loss per share is calculated by dividing the (loss)/profit attributable to Ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

 

Unaudited six months to 31 December 2019

Unaudited six months to 31 December 2018

Basic and diluted - continuing operations

 

 

Loss after tax (£'000)

(2,924)

(2,977)

Weighted average number of shares

126,807,521

32,120,224

Weighted average loss per share (pence)

(2.3)

(9.3)

 

Basic and diluted - discontinuing operations

 

 

Profit/(loss) after tax (£'000)

157

(1,821)

Weighted average number of shares

126,807,521

32,120,224

Weighted average profit/(loss) per share (pence)

0.1

(5.7)

 

Basic and diluted - continuing &discontinued operations

 

 

Loss after tax (£'000)

(2,767)

(4,798)

Weighted average number of shares

126,807,521

32,120,224

Weighted average loss per share (pence)

(2.2)

(14.9)

 

At the period-end there are a number of potentially dilutive instruments including share options and convertible loan notes.  However, as the exercise price of the share options and convertibles is in excess of the share price at period-end and throughout the period, none of these instruments give rise to a dilution impact for the purposes of calculating the diluted earnings per share.  The result for the six months ended 31 December 2019 was a loss and therefore there was no difference between the basic and diluted loss per share.

 

4.  Finance income and costs

 

 

Unaudited six months to 31 December 2019

Unaudited six months to 31 December 2018

 

£'000

£'000

Finance income

 

 

Gain on movement in fair value of derivative financial instruments

11

157

Total finance income

11

157

 

 

 

Finance expense

 

 

Loss on movement in fair value of derivative financial instruments

(90)

(210)

Interest expense on convertible loan notes

(86)

(469)

Interest on leases

Bank interest and charges

(13)

(19)

-

-

Interest on shareholder loans

Interest payable - effective rate adjustment

(24)

(233)

(120)

-

Total finance expense

(465)

(799)

Net finance expense

(454)

(642)

 

 

 

5.  Trade and other receivables

 

 

Unaudited at 31 December 2019

Audited at 30 June 2019

 

£'000

£'000

 

 

 

Trade receivables and client segregated funds

Payment processor receivables

533

1,678

416

949

Prepayments & other receivables

968

577

 

3,179

1,942

 

 

The Directors consider that the carrying amount of the trade and other receivables approximate to their fair value due to their short-term maturity.The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable shown above. The Group does not hold any collateral as security.

 

 

6.  Cash and cash equivalents

 

 

Unaudited at 31 December 2019

Audited at 30 June 2019

 

£'000

£'000

 

 

 

Cash in bank accounts

589

857

 

 

 

 

Interest is earned at floating rates on cash held on short-term deposit.  All of the Group's cash and cash equivalents are held with major UK, Gibraltar or US banks.  The Directors consider that the carrying value of cash and cash equivalents is approximate to their fair value.

 

7.  Trade and other payables

 

 

Unaudited at 31 December 2019

Audited at 30 June 2019

 

£'000

£'000

 

 

 

Trade payables

868

847

Other payables

376

551

Amounts payable to related parties

-

90

Partner revenue shares

708

463

Gaming duty

5,864

4,649

Jackpot contribution accruals

1,127

1,030

Other accruals

1,104

1,318

 

10,047

8,948

 

 

The Directors consider that the carrying value of trade and other payables is approximate to their fair value.

 

The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe and no interest has been charged by any suppliers as a result of late payment of invoices.

 

8.  Convertible Loan Notes

 

The Company raised £11.1m through the issue of convertible loan notes in the years ended 30 June 2015 and 30 June 2016.  The conversion price was set at a 25% premium to the price at the most recent equity issue price prior to the conversion of the loan notes, subject to a maximum conversion price. The maximum conversion price is subject to rebasing in the event of a share issue.  At the balance sheet date, the conversion price was 6.25p.

 

Interest of 10 % per annum was payable quarterly in arrears, however in the year ended 30 June 2019, the Company reached agreement with the Series A CLN holders to reduce the interest rate to 2.5%.  This followed agreement in the year ended 30 June 2018 to defer the interest on the Series A CLN until April 2020, with the Company having the option quarterly to restart interest payments.  If the Company exercised its right to defer interest, the Series A CLN holders were granted a warrant to buy Ordinary shares, exercisable immediately at the lower prevailing equity issue price per share up to the value of the interest so deferred. This agreement did not apply to the VCT portion, Series B CLN holders, of principal totalling £1.1m.

On 18 November 2019, as part of the equity fundraising completed at this time, the Directors reached agreement with the holders of the Series A CLN to fully convert their remaining outstanding principal and accrued interest, giving rise to a loss on conversion of debt to shares in the period of £3,877,000.  At the same time, the Directors reached agreement with the holder of the Series B CLN to amend the terms of its instrument.  This resulted in a substantial modification of the Series B CLN leading to derecognition of the existing Series B CLN and recognition of the modified Series B CLN, giving rise to a loss on modification of £1,052,000.

The Convertible Loan Notes are secured by a first ranking fixed and floating charge on the assets of the Company and each of the Company's subsidiaries, with all other loans to the Company ranking behind the Convertible Loan Notes' security.

 

Unaudited at 31 December 2019

Audited at 30 June 2019

 

£'000

£'000

 

 

 

Balance at 1 July 2019

4,652

9,411

Principal amount and accrued interest converted

 

(6,226)

Loss on conversion of Series A CLN

(3,877)

(317)

Loss on modification of Series B CLN

(1,052)

-

Effective interest

234

1,287

Accrued interest in the period

43

497

Principal of new CLN

1,100

-

Balance at 31 December 2019

1,100

4,652

 

With the full conversion of the Series A CLN during the period, the derivative financial liability has been revalued at the balance sheet date to zero.   

 

9.   Share capital

 

 

Ordinary shares Number ('000)

Ordinary shares £

Allotted, issued and fully paid

 

 

At 31 December 2018

47,413

474,126

Issued during the period

64,439

644,390

At 30 June 2019

111,852

1,118,516

Issued during the period

129,974

1,299,741

At 31 December 2019

241,826

2,418,257

 

 

Authorised share capital

 

The authorised share capital of the Group is £5,000,000 divided into 500,000,000 Ordinary Shares of £0.01 each, of which 241,825,665 Ordinary Shares have been issued, credited as fully paid (2018: 47,412,602) at the balance date.

 

As part of the 18 November 2019 raise, the issue of 4,690,000 shares was deferred until January 2020.

 

 

10.  Net assets and liabilities held for Sale

 

Following the Company's decision to consider a sale of its UK B2C business, subsequently completed by the administrators of Nektan (Gibraltar) Limited in January 2020, the following are the assets and liabilities held for sale in respect of the UK B2C business at 31 December 2019. 

 

 

 

Unaudited at 31 December 2019 £'000

Audited at 30 June 2019  £'000

Client segregated funds

1,678

949

Player balances

(846)

(860)

Net assets held for sale

832

89

 

Player balances represent amounts due to customers including net deposits received, undrawn winnings and certain promotional bonuses.

 

11.  Right of use assets

 

For financial years beginning on or after 1 January 2019, IFRS 16, "Leases" now applies.  The period to 31 December 2019 is the first reporting period for which IFRS 16 has been applied by the Group.

Under IFRS, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. IFRS 16 removes the distinction between operating and finance leases for lessees, and requires them to recognise a lease liability reflecting future lease payments and a "right-of-use asset" for virtually all lease contracts; the only exceptions are short-term and low-value leases.

The Group has applied the standard from its mandatory adoption date of 1 July 2019 and has applied the simplified transition approach. Under this approach, the Group will not restate comparative amounts for the year prior to first adoption, the lease liability is measured at the present value of the remaining lease payments as at 1 July 2019, and the right-of-use assets at that date will be measured at an amount equivalent to this lease liability plus prepaid lease expenses. The Group has entered into lease arrangements for the use of land and buildings; these arrangements were classified as operating leases under IAS 17.

The adoption of IFRS 16 will also result in the replacement of operating lease rental expenditure on this arrangement by amortisation of the right-of-use asset, and by an interest cost on the lease liability. These figures have been separately shown in this report.

The table below represents the cumulative effects of the initial application of IFRS 16 on the Condensed Consolidated Statement of Financial Position at 31 December 2019.

 

 

Unaudited at 31 December 2019 £'000

Assets

 

Right of use asset

475

 

 

Total assets

475

 

 

Liabilities

 

Lease liability

(489)

 

 

Total liabilities

(489)

 

 

 

Under IFRS 16, the Group has recognised amortisation and interest costs, instead of operating lease expense.  During the six months ended 31 December 2019, the Group recognised £61k in amortisation charges for right of use assets and £13k in additional interest costs from leases.

 

Set out below is the carrying amount of the right of use asset and lease liability for the Group including the movement during the period.

 

 

12.  Related party transactions

 

Balances and transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

 

During the period, the following directors had transactions or interests in the Company's Convertible Loan Notes:

 

 

At 31 December 2019

At 30 June 2019

 

 

 

 

Gary Shaw

CLN Balance

-

-

 

Interest received in the period

-

-

 

Deferred interest balance

-

£24,986

 

Deferred interest warrants

-

-

 

 

 

 

Jim Wilkinson

CLN Balance

-

-

 

Interest received in the period

-

-

 

Deferred interest balance

-

£20,822

 

Deferred interest warrants

-

-

 

 

 

 

Venture Tech Assets*

CLN Balance

-

£1,000,000

 

Interest received in the period

-

-

 

Deferred interest balance

£9,658

£87,466

 

Deferred interest warrants

-

-

 

In July 2017, the Company announced that it had secured commitments to raise £2,500,000 through two separate facility agreements with two of its Shareholders, Gary Shaw for £1,300,000 and Venture Tech Assets, a company associated with Sandeep Reddy, for £1,200,000, with a redemption date of two years following the draw down and a coupon of 10%.  As part of the equity raise completed in April 2019, the Directors agreed to amend the terms of the facility agreements, reducing the interest rate from 10% to 2.5%. As part of the November 2019 raise, the Directors agreed to amend the terms of the facility agreements, extending the redemption date to April 2021.

During the year ended 30 June 2019, as part of the equity raise completed in April 2019, Gary Shaw agreed to convert into equity £0.65m of his principal facility along with accrued interest calculated to 30 June 2019 of £0.2m.

At the balance sheet date, the position with respect to the Shareholder Loans was as follows:

 

 

 

At 31 December 2019

At 30 June 2019

 

 

 

 

Gary Shaw

Loan facility

£1,300,000

£1,300,000

 

Loan drawn down

£535,000

£535,000

 

Interest paid

-

-

 

Interest accrued

£9,002

£2,259

 

 

 

 

 

 

 

 

 

 

 

 

Venture Tech Assets*

Loan facility

£1,200,000

£1,200,000

 

Loan drawn down

£800,000

£800,000

 

Interest paid

-

-

 

Interest accrued

£152,827

£142,745

 

 

 

 

 

* A company associated with Sandeep Reddy

 

13.  Acquisitions and disposals

 

UK

 

During the six months ended 31 December 2019, Directors began the process of exploring a sale of the UK B2C business.  At the balance sheet date, negotiations were progressing well.

 

The assets and liabilities related to the UK B2C business have been presented separately in the Condensed Consolidated Statement of Financial Position and are presented as discontinued operations in the Condensed Consolidated Statement of Comprehensive Income.  The comparatives in the prior year have also been restated. 

 

 

14.  Post-balance sheet events

 

In completing the restructuring programme commenced during the period, the Directors made the decision to seek the protection of administration for the Group's subsidiary company Nektan (Gibraltar) Limited ("NGL"). Administrators were appointed to NGL on 7 January 2020, and in one of the first acts following their appointment, the administrators completed the conditional sale of the UK B2C business. The Group secured an ongoing platform deal for a minimum 3-year period as part of this transaction.

On 31 January 2020, the Directors announced that the 4,690,000 of Ordinary Shares subscribed in the November 2019 raise, but deferred, would be admitted to trading on AIM on 3 February 2020, following which the Company had 246,515,665 Ordinary Shares in issue and admitted to trading on AIM.

 

 


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