RNS Number : 7375D
Gaming Realms PLC
28 June 2019
 

Gaming Realms Plc

 

("Gaming Realms", the "Company" or the "Group")

 

Annual Results 2018

 

Delivering on Licensing Strategy and Real Money Gaming Divestment

Gaming Realms plc (AIM: GMR), the developer and licensor of mobile focused gaming content, announces its annual results for the year ended 31 December 2018 and Q1 highlights for 2019.

Due to the difficult UK regulatory environment the Board took the decision to dispose of the Affiliate Marketing business in March 2018, dispose of part of the B2C Real Money Gaming ("RMG") business in July 2018 and, in February 2019, exchanged contracts to sell the remaining B2C RMG business.

Upon completion of the sale of the remaining B2C RMG business (which is expected very shortly having received the necessary regulatory approvals), the remaining business will be focused on development and licensing of games for third party real money and social gaming operators. This is a part of the business that we have grown organically and is showing significant growth with some global market leading partners.

2018 Financial Highlights:

·      Total profit of £0.9m (2017: £8.2m loss)

·      Continuing revenue down by 19% to £6.2m (2017:  £7.6m) for the year;

Licensing revenue increased 167% to £2.2m (2017: £0.8m)

Social publishing revenue decreased by 43% to £3.9m (2017: £6.9m), with 63% reduction in costs

·      Total Adjusted EBITDA loss £0.5m (2017: £0.8m profit)

·      Continuing Adjusted EBITDA loss £0.1m (2017: £2.8m loss);

o Licensing £1.0m Adjusted EBITDA profit (2017: £0.2m loss)

Social publishing £1.6m Adjusted EBITDA profit (2017:  £0.1m loss)

·      Net cash inflow £0.2m (2017: £1.3m outflow) with a further £10m due post the completion of the sale of the remaining B2C RMG business, which is expected shortly

 

2018 Operational Highlights:

 

Licensing

 

·      Launched with 13 new partners for "Slingo Originals" content

·      19 new games launched in period

 

Other

 

·      Affiliate Marketing business sale completed in March 2018 for £2.4m

·      Sale of part of the B2C RMG business to River iGaming plc ("River") in August 2018 for minimum proceeds of £8.4m (of which £4.2m was payable on completion and £4.2m deferred)

 

 

Q1 2019 Highlights:

 

·      Gross gaming revenue ("GGR"), measuring the total revenue generated by Gaming Realms' partners from its licensed content, increased by 37% quarter-on-quarter to £10.8m (Q4 2018: £7.9m).

·      Slingo Originals content went live on 8 new sites during the quarter, taking the total distribution to 34 gaming sites globally

·      Announced proposed sale of remaining B2C RMG business to River for total consideration of £11.5m (which includes settlement of the £4.2m deferred consideration mentioned above, and of which £1.5m is deferred until 2020)

 

Outlook:

 

·      We have recently received necessary regulatory approvals to complete the sale of the remaining B2C RMG business. We are now working through the closing documents and expect to complete shortly

·      Having developed the Licensing business in 2017, and seen the great growth we have been achieving, we are hugely excited about the future

·      42% of Licensing play is currently outside the UK, and this should increase with recent deals signed:

Scientific Games deal gives access to up to 200 new worldwide customers

Relax Gaming deal opens up the Nordics with access to 80 potential new customers

·      Business is targeting to be cashflow positive by Q1 2020 based on delivery of above deals

 

 

Commenting on the results, Patrick Southon, CEO, said: "We began our licensing business in 2017 as part of the strategy to fully capitalise on the strength of our games development operations. In a period of 24 months we have developed, licensed and launched 34 games via major gaming partners such as GVC and 888 and captured over 3.5% market share in New Jersey.  As a result, and post the imminent completion of the sale of the remaining B2C RMG business, we are looking forward to focusing solely on increasing the cadence of game development and licensing delivery as more B2B partners come online.

 

"The success to date in licensing our Slingo content illustrates a clear market opportunity to grow our revenue and profitability on an international level. This view has been further reinforced by the recent deal with Scientific Games to distribute of all our Slingo games via its global platform, which we expect to start contributing revenue in the latter part of 2019."

 

 

Enquiries:

 

Gaming Realms plc

0845 123 3773

Patrick Southon, CEO

Mark Segal, CFO


 

Peel Hunt LLP

 

020 7418 8900

George Sellar

Guy Pengelley

 

 

 

Yellow Jersey

 

07747 788 221

Charles Goodwin

Georgia Colkin                                   

Abena Affum


 

 

About Gaming Realms

 

Gaming Realms creates and publishes innovative real money and social games for mobile, with operations in the UK, U.S. and Canada. Through its market leading mobile platform and unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats. The Gaming Realms management team includes accomplished entrepreneurs and experienced executives from a wide range of leading gaming and media companies.

 

Chairman's Statement

 

During 2016 and 2017 it became increasingly difficult to operate profitably within the UK online gaming market. This was due initially to competition from the plethora of operators, coupled with pressure on margins from the introduction of Point of Consumption Tax.

 

Continued increases in costs to be borne by operators has only increased with the passage of time;

·      Point of Consumption Tax has increased by 40% in April 2019

·      Changes in European data laws

·      Provisions to combat money laundering

·      Regulations relating to responsible gaming and gambling

 

All of these items encompassing new legislation and regulations, have increased costs to the point where a smaller B2C gaming company finds it difficult to operate at a profit in the UK, let alone grow the business for the future.

 

Given the adverse changes in the B2C marketplace, your Board decided towards the end of 2017 that the best course of action was to sell the larger part of our B2C sites and concentrate on game development and distribution to a worldwide audience. This resulted in a deal with River which closed in August 2018, and was followed by an announcement on 22nd February 2019 of a further sale to River of all the remaining assets involved in operating B2C sites in the UK online market, subject to a number of conditions, for an aggregate consideration of £11.5m. We expect to complete this disposal very shortly.

 

This introduction is intended to give shareholders an outline and some background to the difficulties your Company has faced, and which have led to the reorganisation which is nearing completion.

 

Your Board is also considering its options to sell or rationalise the Social Publishing division. This process, coupled with the imminent sale of the B2C RMG assets, will lead to a dramatic reduction in overall Company costs, with a decrease in employees of over 60%.

 

The Group will then concentrate on game development and international licensing using primarily its Slingo brand, and this division which is experiencing heathy growth will become its main focus. An increasing number of gaming companies are signing up to distribute our content on their sites, both in the UK and overseas. We are licensed as a game supplier in New Jersey, USA, where our games account for approximately 3.5% of sales from slot products. The Company is engaged in applying for a license in Pennsylvania and will continue to pursue direct opportunities outside the UK to distribute its games.

 

The Group delivered an Adjusted EBITDA loss for 2018 of £0.5m (2017 £0.8m profit). These results mask the excellent progress made by our Licensing division, where revenue increased by 167% to £2.2m (2017: £0.8m) with an EBITDA surplus of £1.0m (2017: £0.2m loss) before allocation of central costs. The Licensing division went live with 17 new partners during the year, and our library of proprietary games increased to 28 games from 9 games at the start of the year under review. A number of new deals with game distributors have been announced during 2019, which will further increase worldwide exposure and income from our games once the necessary integrations have been completed.

 

Further details on the 2018 results are contained in the Statements from the Chief Executive and Finance Director which follow.

 

Outlook for 2019

The operating plan for 2019 adopted by the Board, is to continue the development and licence of mobile focused games using our unique Slingo brand, with increased income from our game portfolio through international distribution. Capitalising on our success in New Jersey, we intend to enter any new states in America which regulate online gaming.

 

With regard to the future, I am pleased to welcome Chris Ash to the Board of Directors. Chis has a long and successful history in online game development and distribution, and I am sure will make a valuable contribution to this ongoing Company activity.

 

Once the sale of the remaining B2C RMG business is completed and we conclude on the Social Publishing strategy, your Board believes shareholders can look forward to a period of increasing stability. This will show growth in Licensing income and a very significant reduction in Group costs, and a trend towards Group profitability.

 

In our 2019 Interim Results, we will report on the cash availability post transaction, forecast working capital needs, and the Board's intentions with regard to any surplus.

 

Michael Buckley

Chairman

 

 

Chief Executive's Review

 

Overview 

In 2018, the Group's strategy continued to build its proprietary "Slingo Originals" content and increase its distribution with new partnerships. The Group also disposed of non-core assets as it moved away from being a RMG operator in order to focus on content licensing.

 

The Group's decision to dispose of its B2C RMG operations has been driven by further regulatory headwinds and the recent increase in Point of Consumption Tax effective from 1 April 2019. The first phase of this asset disposal was completed in August 2018, with the sale of four B2C RMG brands to River. We also streamlined our Social Publishing business further, resulting in positive EBITDA of £1.6m (2017: £0.1m loss). However, after capitalisation the net cash inflow was £0.3m (2017: £1.3m outflow).

 

We have invested resources into new proprietary games and introduced a further 19 games to the market, bringing the total number of licensed games at the end of 2018 to 28 (2017: 9). At the same time, we increased our content distribution and were live with 17 partners at the end of 2018 (2017: 4). Partners we have gone live with during the year include GVC, 888, Rank as well as Golden Nugget and Hard Rock Casino. 

 

This increase in taking our Slingo Originals games to market, as well as launching with new partners, has resulted in revenue growing 167% to £2.2m (2017: £0.8m).  Our Licensing business also became profitable in the year, generating an Adjusted EBITDA of £1.0m (2017: £0.2m loss) before the allocation of central costs.

 

In 2019, to date, we have grown revenues in the online casino market in New Jersey and now account for c.3.5% of the growing market. We have also signed deals with several "tier 1 operators" in Europe and are now live with William Hill and Gaming Innovation Group. We are aiming to finalise our integration with NYX, which will vastly increase our international footprint, by Q3 2019. Relax Gaming will also give us reach into new markets, in particular with the large tier 1 Scandinavian operators. Our games are also now certified for the newly regulated Swedish market, as well as with the Maltese regulator, and we are planning to obtain licences in other regulated jurisdictions in 2019.

 

We are excited to announce that we are due to release our Monopoly Slingo game to the international market in Q3 2019. We expect this to deliver increased revenue and also greater exposure on our partner sites. We are already creating a "Slingo" genre of games and this very much complements our portfolio of unique IP and a well-known gaming brand.

 

Market overview

The games market is a very crowded environment, in which most operators have 700 plus games available on their sites. We are seeing that Slingo can cut through this with its unique brand and format. As such we are seeing enhanced placements on our partner sites. With the increase in Point of Consumption Tax, together with increased regulation in the UK, it is becoming more important to grow our revenues outside the UK market. We have a good footprint in the New Jersey market and have also gone live with Gaming Innovation Group, as well as currently integrating into Relax Gaming and NYX - both of whom allow access to a much larger market for Slingo.

 

Key Goals for 2019

1.   To complete the sale of the B2C RMG operations

2.   Conclude on options to sell or rationalise the Social Publishing division

3.   Continue the strategic investment in Slingo Originals content, with a view to branded partnerships with other brand owners

4.    Increase new licensees for Slingo Original content

5.   Further expansion of strategic brand licensing in adjacent markets

 

 

 

Patrick Southon

Chief Executive Officer

 

 

Financial Review

 

Overview

The operations of the Group have changed significantly in 2018 and into 2019 as the Group has continued with its strategy of disposing of non-core assets and focusing its resources on Licensing.

 

Gaming Realms delivered a profit after tax of £0.9m (2017: £8.2m loss) due to the sale of B2C real money gaming and Affiliate assets in year. We have treated the B2C real money gaming and Affiliate marketing segments as discontinued operations in the current year and the comparative period.

 

Adjusted EBITDA totalled £0.5m loss (2017: £0.8m profit) as a result of declining revenues off the back of reduced marketing spend.

 

Profit on disposal initially totalled £12.5m in real money gaming for the disposal of four of our B2C brands in August 2018. Regulatory pressures adversely impacted the performance of these brands post sale, therefore at the year-end we impaired the investment in associate by £2.8m and recognised a fair value loss on contingent earn-out consideration of £1.9m This has resulted in a net realised profit for the transaction of £7.8m.

 

The table below sets out the split of revenue and Adjusted EBITDA on a continuing and discontinued basis:

 

2018

 


 Discontinued

 Continuing



 Real money gaming

 Affiliate marketing

 Total 
discontinued 2018

 Licensing

 Social publishing

 Head office

 Total continuing
2018

 Total 2018


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 Revenue

16,365

168

16,533

2,248

3,921

394

6,563*

23,096

 Marketing expense

(4,319)

(15)

(4,334)

-

(414)

(251)

(665)

(4,999)

 Operating expense

(9,170)

(16)

(9,186)

(200)

(1,092)

-

(1,292)

(10,478)

 Administrative expense

(3,324)

(116)

(3,440)

(1,055)

(861)

(2,738)

(4,654)

(8,094)

 Share-based payments

-

-

-

-

-

(68)

(68)

(68)

 Adjusted EBITDA

(448)

21

(427)

993

1,554

(2,663)

(116)

(543)

 

2017

 


 Discontinued

 Continuing



 Real money gaming

 Affiliate marketing

 Total 
discontinued 2017

 Licensing

 Social publishing

 Head office

 Total continuing
2017

 Total 2017


 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 £'000

 Revenue

22,718

1,323

24,041

840

6,879

179

7,898*

31,939

 Marketing expense

(8,022)

(128)

(8,150)

-

(2,171)

(110)

(2,281)

(10,431)

 Operating expense

(8,868)

(76)

(8,944)

(25)

(1,755)

-

(1,780)

(10,724)

 Administrative expense

(3,155)

(226)

(3,381)

(1,036)

(3,010)

(2,721)

(6,767)

(10,148)

 Share-based payments

-

-

-

-

-

150

150

150

 Adjusted EBITDA

2,673

893

3,566

(221)

(57)

(2,502)

(2,780)

786

 

* Licensing revenue includes £389,464 (2017: £291,506) of inter-segment revenue. This is shown as an Operating Expense under the Real Money Gaming segment and eliminates on consolidation.

 

EBITDA and Adjusted EBITDA are non-GAAP measures and exclude exceptional items, interest, depreciation, tax and amortisation. Exceptional items are items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.

 



 

Continuing operations

Continuing operations generated Adjusted EBITDA loss of £0.1m (2017: £2.8m loss).

 

EBITDA from continuing operations was a £0.6m loss (2017: £3.7m loss) including restructuring costs of £0.2m.

 

Year-on-year revenue declined 19% to £6.2m (2017: £7.6m) due to the declining performance in Social, partially offset by the growth in Licensing.

 

Marketing for the year totalled £0.7m (2017: £2.3m) as the Group restricted spend for the Social division.

 

Administrative expenses reduced to £4.9m (2017: £7.5m) as a result of restructuring the Social business in 2017 including the closure of our Seattle office.

 

Licensing

Licensing revenue increased 167% to £2.2m (2017: £0.8m) due to the continued success of distributing our proprietary games via our remote game server ("RGS") to key operators in Europe and New Jersey.

 

During 2018 we went live with an additional 13 partners in Europe and New Jersey bringing the total to 17 (2017: 4).

 

Social Publishing

Social Publishing achieved profitability in 2018, delivering Adjusted EBITDA profit of £1.6m (2017: Adjusted EBITDA loss £0.1m) as a result of reducing marketing spend by 81% and administrative expenses by 71%. Despite the significant reduction in marketing investment, Social Publishing revenue decreased at a lower rate of 43% to £3.9m (2017: £6.9m).

 

During 2017, Gaming Realms closed its Seattle operations resulting in significant cost savings for 2018 of £2.5m.

 

Impairment of Social goodwill of £1.7m was recognised in the year as a result of revised forecasts based on the reduced performance of this segment.

 

Discontinued operations

Discontinued operations relate to B2C real money gaming and affiliates. Profit after tax from discontinued operations was £6.6m (2017: £0.2m) including profit on disposal of £12.5m, write down of contingent consideration of £1.9m, impairment of associate of £2.8m, and loss for the year of £1.0m.

 

Real money gaming

Revenue fell by 28% to £16.4m (2017: £22.7m) due to ongoing reductions in marketing of 46% to £4.4m as a result of regulatory pressures (2017: £8.0m).

 

In August 2018 four of the Group's real money gaming brands were sold to River generating an initial profit on disposal of £12.5m. The Group continues to operate these brands via a white label agreement until River obtains their own operating licence, recognising revenue and costs with net profit passed back to River after retaining a platform fee. As a result, additional operational costs of £1.4m were incurred, being the profit share payable to River.

 

Post year end the Group has entered into an agreement for the sale of the remaining B2C real money gaming business to River for £11.5m, which includes settlement of the remaining proceeds from the 2018 disposal and the Group's associate interest in River UK Casino. This sale is subject to regulatory approvals. As a result, this segment has been disclosed as a discontinued operation.

 

Operating expenses include point of consumption tax, third party royalties and transaction costs which have reduced due to declining revenues. Operating costs in total have increased 3% to £9.2m (2017: £8.9m) as a result of the additional £1.4m profit share payable to River.

 

This segment became EBITDA loss making in 2018 due to declining revenues, the new profit share to River coupled with fixed administrative costs increasing 5% on prior year.

 

Affiliates

The Affiliate marketing business was sold in March 2018 for £2.4m after generating revenues of £0.2m in 2018 (2017: £1.3m). The loss on disposal was £0.1m.

 

Cashflow, Balance Sheet and Going Concern

Net cash increased by £0.2m in 2018 (2017: decreased by £1.3m). The current year cash position was boosted by the sale of the Affiliate business for £2.4m plus the sale of certain real money gaming assets to River for £4.2m cash in 2018. The post year end sale agreement with River will, subject to completion, generate an additional £11.5m, of which £1.5m is deferred to 2020.

 

Net assets totalled £17.7m (2017: £16.4m).

 

Following the global high margin opportunities in game content licensing and the 2019 sale of the remaining B2C real money gaming segment the Directors believe the Group is in a strong position and expects to continue to be cash generative for 2019. As a result, the Directors consider that the Group has adequate resources to continue its normal course of operations for the foreseeable future.

 

Dividend

During the year, Gaming Realms did not pay an interim or final dividend. The Board of Directors are not proposing a final dividend for the current year.

 

Corporation and deferred taxation

The Group received £0.1m (2017: £0.4m) in research and development credits in Canada and has recognised an unwind of deferred tax of £0.3m (2017: £0.2m) which arose on prior year business combinations.

 

 

 

Mark Segal

Chief Financial Officer 

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2018


2018

2017

 Continuing

 £

 £

 Revenue

6,173,196

7,606,110

 Marketing expenses

(665,363)

(2,280,855)

 Operating expenses

(901,807)

(1,487,905)

 Administrative expenses

(4,870,226)

(7,502,371)

 Impairment of financial asset

(228,451)

-

 Share-based payments

(67,824)

4,810




 Adjusted EBITDA* total

(542,911)

786,402

 Adjusted EBITDA - discontinued

427,242

(3,566,356)

 Adjusted EBITDA - continuing

(115,669)

(2,779,954)

 Impairment of financial asset

(228,451)

-

 Restructuring costs

(216,355)

(880,257)

 EBITDA* continuing

(560,475)

(3,660,211)




 Amortisation of intangible assets

(3,535,972)

(4,292,283)

 Depreciation of property, plant and equipment

(145,269)

(173,638)

 Impairment of goodwill

(1,650,000)

-

 Finance expense

(576,107)

(752,600)

 Finance income

419,894

239,603

 Loss before tax

(6,047,929)

(8,639,129)

 Tax credit

412,987

612,903

 Loss for the financial year - continuing

(5,634,942)

(8,026,226)

 Profit/(Loss) for the financial year - discontinued

6,564,246

(201,441)

 Profit/(Loss) for the financial year - total

929,304

(8,227,667)

 Other comprehensive income



 Items that will or may be reclassified to profit or loss:



 Fair value gain on available for sale assets (pre 31 Dec 2017)

                                -  

                     207,222

 Exchange gain/(loss) arising on translation of foreign operations

491,611

(1,022,056)

 Total other comprehensive income

491,611

(814,834)

 Total comprehensive income

1,420,915

(9,042,501)

 Profit/(loss) attributable to:



 Owners of the parent

946,804

(8,225,956)

 Non-controlling interest

(17,500)

(1,711)


929,304

(8,227,667)

 Total comprehensive income attributable to:



 Owners of the parent

1,443,741

(9,007,324)

 Non-controlling interest

(22,826)

(35,177)


1,420,915

(9,042,501)




 (Loss)/gain per share

Pence

Pence

 Basic and diluted - continuing

(1.98)

(2.89)

 Basic and diluted - discontinued

2.31

(0.07)

 Basic and diluted - total

0.33

(2.96)

 

Consolidated Statement of Financial Position

As at 31 December 2018


31 December 2018

31 December 2017


 £

 £

 Non-current assets



 Intangible assets

12,848,623

20,464,170

 Other investments

535,130

747,222

 Property, plant and equipment

127,556

263,069

 Other assets

132,577

163,865


13,643,886

21,638,326

 Current assets



 Trade and other receivables

2,681,500

3,759,434

 Deferred consideration

665,690

-

 Cash and cash equivalents

467,033

2,283,302


3,814,223

6,042,736

 Assets classified as held for sale

11,392,013

2,292,881

 Total assets

28,850,122

29,973,943

 Current liabilities



 Trade and other payables

2,484,592

9,269,732

 Liabilities classified as held for sale

4,830,076

-


7,314,668

9,269,732

 Non-current liabilities



 Deferred tax liability

607,943

881,512

 Other Creditors

3,004,602

2,843,529

 Derivative liabilities

200,000

600,000


3,812,545

4,325,041

 Total liabilities

11,127,213

13,594,773

 Net assets

17,722,909

16,379,170

 Equity



 Share capital

28,442,874

28,442,874

 Share premium

87,198,410

87,198,410

 Merger reserve

(67,673,657)

(67,673,657)

 Available for sale reserve

-

207,222

 Foreign exchange reserve

1,911,453

1,419,842

 Shares to be issued

-

145,000

 Retained earnings

(32,308,495)

(33,530,345)

 Total equity attributable to owners of the parent

17,570,585

16,209,346

 Non-controlling interest

152,324

169,824

 Total equity

17,722,909

16,379,170

 

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2018


2018

 2017


£

 £

 Cash flows from operating activities



 Profit/(loss) for the period

929,304

(8,227,667)

 Adjustments for:



 Depreciation of property, plant and equipment

145,269

173,638

 Amortisation of intangible fixed assets

4,319,920

4,932,699

 Impairment

4,479,026

3,127,381

 Share of loss of associate

172,360

-

 Finance income

(679,160)

(239,603)

 Finance expense

576,107

792,891

 Income Tax credit

(412,987)

(612,903)

 Unrealised currency translation gains

(11,076)

(57,957)

 Loss on disposal of property, plant and equipment

41,646

11,670

 Profit on disposal of assets

(12,421,621)

-

 Fair value movement on contingent consideration

1,900,065

-

 Cash settlement of director share-based payment

(145,000)

-

 Share-based payments (release)/expense

67,824

(4,810)

 Increase in trade and other receivables

(310,396)

(411,839)

 (Decrease)/increase in trade and other payables

(951,414)

1,166,029

 Net cash flows from operating activities before taxation

(2,300,133)

649,529

 Research and Development tax receipts in the year

133,130

389,286

 Net cash flows from operating activities

(2,167,003)

1,038,815




 Investing activities



 Acquisition of associate

(3,000)

-

 Purchases of property, plant and equipment

(34,712)

(91,447)

 Purchase of intangibles

(3,017,674)

(3,197,971)

 Proceeds from disposal of property, plant and equipment

-

382

 Proceeds from disposal of assets, net of disposal costs

5,725,593

-

 Interest received

120

1,294

 Net cash used in investing activities

2,670,327

(3,287,742)




 Financing activities



 Proceeds of Ordinary Share issue

-

1,132,499

 Proceeds from issue of convertible debt

-

122,966

 Cost relating to issue of convertible debt

(24,846)

(96,763)

 Interest paid

(232,241)

(173,192)

 Net cash from financing activities

(257,087)

985,510

 Net (decrease)/increase in cash and cash equivalents

246,237

(1,263,417)

 Cash and cash equivalents at beginning of period

1,319,098

2,597,465

 Exchange (gain)/losses on cash and cash equivalents

(15,194)

(14,950)

 Cash and cash equivalents at end of period

1,550,141

1,319,098

 

 

 

 


Consolidated Statement of Changes in Equity

For the year ended 31 December 2018


 Share capital

 Share premium

 Merger reserve

 Available for sale reserve

 Foreign Exchange Reserve

 Shares to be issued

 Retained earnings

 Total to equity holders of parents

 Non-controlling interest

 Total equity


 £

 £

 £

 £

 £

 £

 £

 £

 £

 £

 1 January 2017

27,413,329

87,095,455

(67,673,657)

-

2,408,432

-

(25,154,580)

24,088,979

205,001

24,293,980

 Loss for the year

-

-

-

-

-

-

(8,225,956)

(8,225,956)

(1,711)

(8,227,667)

 Other comprehensive income

-

-

-

207,222

(988,590)

-

-

(781,368)

(33,466)

(814,834)

 Total comprehensive income for the year

-

-

-

207,222

(988,590)

-

(8,225,956)

(9,007,324)

(35,177)

(9,042,501)

 Contributions by and distributions to owners











 Shares issued as part of the capital raising

1,029,545

102,955

-

-

-

-

-

1,132,500

-

1,132,500

 Share-based payment to Director 

-

-

-

-

-

145,000

-

145,000

-

145,000

 Share-based payment on share options

-

-

-

-

-

-

(149,810)

(149,810)

-

(149,810)

 31 December 2017

28,442,874

87,198,410

(67,673,657)

207,222

1,419,842

145,000

(33,530,345)

16,209,345

169,824

16,379,169

 Impact of adoption of IFRS 9

-

-

-

(207,222)

-

-

207,222

-

-

-

 1 January 2018

28,442,874

87,198,410

(67,673,657)

-

1,419,842

145,000

(33,323,123)

16,209,346

169,824

16,379,170

 Loss for the year

-

-

-

-

-

-

946,804

946,804

(17,500)

929,304

 Other comprehensive income

-

-

-

-

491,611

-

-

491,611

-

491,611

 Total comprehensive income/(loss) for the year

-

-

-

-

491,611

-

946,804

1,438,415

(17,500)

1,420,915

 Contributions by and distributions to owners











 Share-based payment to Director settled via cash

-

-

-

-

-

(145,000)

-

(145,000)

-

(145,000)

 Share-based payment on share options

-

-

-

-

-

-

67,824

67,824

-

67,824

 31 December 2018

28,442,874

87,198,410

(67,673,657)

-

1,911,453

-

(32,308,495)

17,570,585

152,324

17,722,909

 


Notes to the Preliminary Results

For the year ended 31 December 2018

 

1.   Accounting policies

General information

Gaming Realms Plc (the "Company") and its subsidiaries (together the "Group").

 

The Company is admitted to trading on AIM of the London Stock Exchange. It is incorporated and domiciled in the UK. The address of its registered office is One Valentine Place, London, SE1 8QH.

 

Basis of preparation

The consolidated financial statements are presented in sterling.

 

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) as adopted by the EU and on a basis consistent with those policies set out in our audited financial statements for the year ended 31 December 2017. 

 

The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2017 or 31 December 2018.

 

Statutory accounts for the year ended 31 December 2017 have been filed with the Registrar of Companies and those for the year ended 31 December 2018 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2018 includes a material uncertainty in respect of going concern.

 

The auditors draw attention to the disclosures made in note 1 to the financial statements concerning the Group and the Company's ability to continue as a going concern. The report states that that the business is dependent on the receipt of the deferred consideration due following the disposal of brands to River iGaming Plc, or the completion of the proposed sale of the remainder of the Group's real money gaming business to the same purchaser to enable it to continue as a going concern. The matters referred to in note 1 to the financial statements indicate that a material uncertainty exists that may cast significant doubt on the Group and Company's ability to continue as a going concern. The auditor's opinion is not modified in respect of this matter.

 

The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2018 and 31 December 2017 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

Going concern

The Group meets its day-to-day working capital requirements from the cash flows generated by its trading activities and its available cash resources. These are supplemented when required by the Group's bank overdraft facility, which is available until August 2019.

 

Whilst there are a number of risks to the Group's trading performance, as summarised in the full Annual Report, the Group is confident of its ability to continue to access sources of funding in the medium term. The Group's strategic forecasts, based on reasonable assumptions, indicate that the Group should be able to operate within the level of its currently available facilities. After making enquiries and after consideration of the Group's existing operations, cash flow forecasts and assessment of business, regulatory and financing risks, the potential risks and impacts of Brexit, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.

 

As of the date of approval of these financial statements, the proposed sale of the remaining B2C RMG business to River is yet to complete.  If this sale does not go through as planned, £4.2m is still receivable under the original 2018 sale and is due in August 2019.  The Group's facility with its banker expires in August 2019.  As such, if there is a material delay in either the completion of the sale of the remaining B2C RMG business or the receipt of the £4.2m deferred consideration, alternative funding arrangements would be required in the interim which are not yet in place.  This therefore represents a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern.

 

Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.

 

The preparation of financial statements in compliance with adopted IFRSs requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies.

 

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition up to the effective date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

 

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

 

Business combinations

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired, including separately identifiable intangible assets, is recognised as goodwill. Any discount on acquisition, i.e. where the cost of acquisition is below the fair value of the identifiable net assets acquired, is credited to the Statement of Comprehensive Income in the period of acquisition.

 

Interests in associates

Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Where the interest in the associate arises as a result of the disposal of a subsidiary, the amount recognised as cost is the fair value of the interest retained in the associate.

 

Subsequently associates are accounted for using the equity method, where the Group's share of post-acquisition profits and losses and other comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for losses in excess of the Group's investment in the associate unless there is an obligation to make good those losses).

 

Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated investors' interests in the associate. The investor's share in the associate's profits and losses resulting from these transactions is eliminated against the carrying value of the associate.

 

Any premium paid for an associate above the fair value of the Group's share of the identifiable assets, liabilities and contingent liabilities acquired is capitalised and included in the carrying amount of the associate. Where there is an indicator that the investment in an associate may have been impaired the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

 

2.   Adjusted EBITDA           

EBITDA and Adjusted EBITDA are non-GAAP measures and exclude exceptional items, depreciation, and amortisation. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.

 

 

 

Adjusted EBITDA is stated before exceptional items as follows:


 2018

 2017


 £

 £

 Restructuring costs - share-based payment

-

(145,000)

 Restructuring costs

(216,355)

(735,257)

 Adjusting items

(216,355)

(880,257)

 

Disposal of RMG assets to River

On 16th August 2018 the Group entered into an Asset Purchase Agreement with River for the sale of 4 of the Group's Real Money brands including customer lists, domain names and contractual agreements. The resulting initial profit on disposal of £12.5m has been classified as exceptional due to its one-off nature.

 

 

Disposal of Affiliate business

On 22 March 2018, the Group sold its Affiliate business to First Leads Ltd. The resulting loss on disposal of £0.1m has been classified as exceptional due to its one-off nature.

 

Restructuring costs

During 2018 restructuring costs of £0.2m were incurred relating to redundancy and consulting costs.

 

During 2017 the Group closed the Seattle office. Restructuring costs in the prior year related to the closure costs associated with this including employee severance payments.

 

3.   Segment information

The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance.

 

The Group has 2 continuing reportable operating segments:

·      Licensing - brand and content licensing to partners in the US and Europe

·      Social publishing - provides freemium games to the US and Europe

 

There were no customers who generated more than 10% of total revenue. Management do not report segmental assets and liabilities internally and as such an analysis is not reported.

 


 Licensing

 Social publishing

 Head Office

 Total 
2018


 £

 £

 £

 £

 Revenue

2,248,003

3,920,619

394,038

6,562,660*

 Marketing expense

                    -  

(414,064)

(251,298)

(665,362)

 Operating expense

(199,412)

(1,091,460)

(400)

(1,291,272)

 Administrative expense

(1,054,712)

(861,253)

(2,737,906)

(4,653,871)

 Share-based payments

                    -  

                    -  

(67,824)

(67,824)

 Adjusted EBITDA

993,879

1,553,842

(2,663,390)

(115,669)

 Restructuring costs




(216,355)

 EBITDA - continuing




(332,024)

 Amortisation of Intangible assets




(3,535,972)

 Depreciation of property, plant and equipment




(145,269)

 Impairment




(1,878,451)

 Finance expense




(576,107)

 Finance income




419,894

 Loss before tax - continuing




(6,047,929)

 

 


Licensing

 Social publishing

 Head Office

 Total 
2017


£

£

£

£

 Revenue

839,541

6,878,760

179,315

7,897,616*

 Marketing expense

                    -  

(2,171,341)

(109,514)

(2,280,855)

 Operating expense

(24,961)

(1,754,450)

                    -  

(1,779,411)

 Administrative expense

(1,036,352)

(3,010,164)

(2,720,598)

(6,767,114)

 Share-based payments

                    -  

                    -  

149,810

149,810

 Adjusted EBITDA

(221,772)

(57,195)

(2,500,987)

(2,779,954)

 Restructuring costs




(735,257)

 Restructuring costs - share-based payment




(145,000)

 EBITDA - continuing




(3,660,211)

 Amortisation of Intangible assets




(4,292,283)

 Depreciation of property, plant and equipment




(173,638)

 Finance expense




(752,600)

 Finance income




239,603

 Loss before tax - continuing




(8,639,129)

 

* Segmental revenue includes £389,464 (2017: £291,506) of inter-segment Licensing revenue. This is shown as an Operating Expense under the real money gaming discontinued operations and eliminates on consolidation.

 

 

4.   finance income and expense



 2018

 2017



 £

 £

 Finance income




 Interest received


120

1,295

 Unwind of interest on deferred consideration receivable

20A

                      19,774

                              -  

 Fair value gain on derivative liability

 23

400,000

                              -  

 Foreign exchange movement on deferred consideration


                              -  

                    238,309

 Total finance income


419,894

239,604

 Finance expense




 Bank & loan interest paid


364,014

272,613

 Unwind of interest on deferred consideration payable


                              -  

479,987

 Fair value loss on other investments

 15

212,093

                              -  

 Total finance expense


576,107

752,600

 

The deferred consideration in relation to the acquisition from RealNetworks Inc. was denominated in USD and the final payment of $4.5m was settled on 15th December 2017.

 

The retranslation of this balance resulted in a £238,309 gain in the prior year.

 

5.   tax credit


 2018

 2017


 £

 £

 Current tax



 Adjustment for current tax of prior periods

(11,078)

(67)

 R&D tax credit for the period

144,208

389,354

 Total current tax credit

133,130

389,286

 Deferred tax



 (Decrease)/increase in deferred tax liabilities 

279,857

223,617

 Total deferred tax credit

279,857

223,617

 Total tax credit

412,987

612,903

 

The reasons for the difference between the actual tax credit for the period and the standard rate of corporation tax in the UK applied to profits for the year are as follows:


 2018

 2017


£

£

 Loss for the period - continuing

(6,047,930)

(8,639,129)

 Profit/(loss) for the period - discontinued

6,564,247

(201,441)

516,317

(8,840,570)

 Expected tax at effective rate of corporation tax in the UK of 19% (2017: 19.3%)

98,100

(1,701,507)

 Expenses not deductible for tax purposes

920,066

7,840

 Income not chargeable for tax purposed

(1,999,096)

-

 Effects of overseas taxation

290,594

179,516

 Adjustment for over provision in prior periods

11,078

67

 Research and Development tax credit

(144,208)

(389,354)

 Timing difference not recognised

115,285

-

 Tax losses for which no deferred tax assets have been recognised

295,194

1,290,535

 Total tax credit

(412,987)

(612,902)

 

 

6.   Loss per share

Basic profit/(loss) per share is calculated by dividing the result attributable to ordinary shareholders by the weighted average number of shares in issue during the year. For fully diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares. The Group's potentially dilutive securities consist of share options, performance shares and a convertible bond. As the continuing operations of the Group are loss-making, none of the potentially dilutive securities are currently dilutive.


 2018

 2017


 £

 £

 Loss after tax - continuing

(5,634,942)

(8,026,226)

 Profit/(loss) after tax - discontinued

6,564,246

(201,441)

 Profit/(loss) after tax - total

929,304

(8,227,667)





 Number

 Number

 Weighted average number of ordinary shares used in calculating basic loss per share

284,428,746

278,166,853

 Weighted average number of ordinary shares used in calculating dilutive loss per share

284,428,746

278,166,853





 Pence

 Pence

 Basic and diluted loss per share - continuing

(1.98)

(2.89)

 Basic and diluted profit/(loss) per share - discontinued

2.31

(0.07)

 Basic and diluted profit/(loss) per share - total

0.33

(2.96)

 

 



 

7.   Intangible assets


 Goodwill

 Customer database

 Software

 Development costs

 Domain names

 Intellectual Property

 Total


 £

 £

 £

 £

 £

 £

 £

 Cost








 Balance at 1 January 2017

16,545,864

4,111,971

1,538,500

6,858,335

429,618

6,401,430

35,885,718

 Additions

-

-

-

3,197,971

-

-

3,197,971

 Disposals

-

-

-

-

-

-

-

 Reclassified as held for sale

(5,420,262)

(2,343,632)

-

-

-

-

(7,763,894)

 FX Movement

(480,045)

(141,830)

(134,559)

(9,198)

(35,287)

(558,338)

(1,359,257)

 At 31 December 2017

10,645,557

1,626,509

1,403,941

10,047,108

394,331

5,843,092

29,960,538

 Additions

-

-

-

3,017,674

-

-

3,017,674

 Disposals

(2,191,809)

(133,550)

-

-

(364,986)

-

(2,690,345)

 Reclassified as held for sale

(1,699,000)

-

-

(3,374,902)

-

-

(5,073,902)

 FX Movement

302,020

89,231

84,659

18,257

73

351,280

845,520

 At 31 December 2018

7,056,768

1,582,190

1,488,600

9,708,137

29,418

6,194,372

26,059,485

 Amortisation








 Balance at 1 January 2017

-

2,841,672

642,988

2,438,105

198,932

1,102,184

7,223,881

 Amortisation charge

-

916,459

490,691

2,627,075

135,287

763,187

4,932,699

 Reclassified as held for sale

-

(2,343,632)

-

-

-

-

(2,343,632)

 FX Movement

-

(86,841)

(76,019)

(3,918)

(21,606)

(128,196)

(316,580)

 At 31 December 2017

-

1,327,658

1,057,660

5,061,262

312,613

1,737,175

9,496,368

 Amortisation charge

-

300,949

277,088

2,946,864

52,470

742,549

4,319,920

 Disposals

-

(133,550)

-

-

(336,262)

-

(469,812)

 Impairment

1,650,000

-

-

-

-

-

1,650,000

 Reclassified as held for sale

-

-

-

(2,108,114)

-

-

(2,108,114)

 FX Movement

-

87,133

72,507

23,777

597

138,486

322,500

 At 31 December 2018

1,650,000

1,582,190

1,407,255

5,923,789

29,418

2,618,210

13,210,862

 Net book value







-

 At 1 January 2017

16,545,864

1,270,299

895,512

4,420,230

230,686

5,299,246

28,661,837

 At 31 December 2017

10,645,557

298,851

346,281

4,985,846

81,718

4,105,917

20,464,170

 At 31 December 2018

5,406,768

-

81,345

3,784,348

-

3,576,162

12,848,623

 

 

 

 

8.   discontinued operations

During the year, the Group sold its affiliate CGU, disposed of certain elements of the real money gaming CGU and was sufficiently progressed with active discussions concerning the remainder of the real money gaming CGU that this element has been classified as held for sale as at 31 December 2018.

 

Analysis of profit for the financial year - discontinued operations:



2018

2017

 Real money gaming


 £

 £

 2018 Disposal




 Profit on disposal

A

12,492,369

-

 (Loss)/profit for the financial year

C

(977,362)

2,033,894

 Real money gaming business reclassified as held for sale




 Share of loss of associate


(172,360)

-

 Impairment in associate


(2,829,026)

-

 Fair value movement on contingent consideration


(1,900,065)




6,613,556

2,033,894

 

Affiliate




 2018 Disposal




 Loss on disposal

B

(70,748)

-

 (Loss)/profit for the financial year

C

21,438

892,046

 Affiliate business reclassified as held for sale


-

-

 Impairment


-

(3,127,381)



(49,310)

(2,235,335)

 Profit/(loss) for the financial year - discontinued


6,564,246

(201,441)

 

Real money gaming

Disposal in 2018

On 16th August 2018 the Group entered into an Asset Purchase Agreement with River for the sale of 4 of the Group's real money brands.

 

The disposed brands and associated activities were contributed to a newly incorporated company in Malta, River UK Casino. As part of the sale agreement, the Group received a 30% equity interest in this company. In addition, a put and call option was entered into giving River the right to purchase, and the Group the right to sell to River, Gaming Realms' 30% share of River UK Casino at the end of the earn-out period based on an Enterprise value of 5.5 times River UK Casino's EBIT.

 

The minimum consideration receivable of £8.4m is structured as follows; £4.2m received on completion plus a further £4.2m payable 31 August 2019. Further consideration is achievable on an earn-out basis, payable no later than 30 September 2019 based on 5.5 times River UK Casino's EBIT for the 12 months to 30 June 2019 to a maximum of £14.7m.

 

Further to this, River UK Casino has entered into a five-year B2B platform and content agreement with the Group.

 

Transfer to held for sale

The B2C RMG CGU has been classified as held for sale as at 31 December 2018. Management were actively seeking a sale for the remainder of this business prior to the year end and heads of terms had been signed with River. The sale is expected to complete very shortly, following regulatory approvals.

 

 

A - RMG profit on disposal



 £

 Cash consideration


4,200,000

 Deferred consideration

 i

3,629,074

 Contingent consideration

 ii

1,900,065

 Fair value of put/call option

 iii

-

 Investment in River UK Casino

 iv

5,266,579

 Less: Disposal costs


(311,540)

 Net proceeds


14,684,178

 Less: Assets disposed



 Intangible assets


(2,191,809)

 Profit on disposal of discontinued operation


12,492,369

 

i

A discount rate of 14.5% was used to calculate the present value of £4.2m due 31 August 2019 at inception based on the Group's Weighted Average Cost of Capital. The deferred consideration is recognised in the respective subsidiaries involved in the disposal. As a result of the proposed disposal of Bear Group Limited and the transfer of the company to held for sale, £3.6m of deferred consideration is included in the disposal group, and interest unwind of £0.3m included in discontinued operations. The remaining deferred consideration of £0.3m is included in continuing operations.

ii

At inception the Group was expecting to achieve an additional £2.2m earn-out. A discount rate of 14.5% was used to calculate the fair value at inception based on the Group's incremental borrowing rate.

iii

The put/call option was considered to have nil value at inception and as at 31 December 2018 on the basis the 5.5x multiple is considered a market rate.

iv

The initial carrying value of the Group's investment in River UK Casino has been calculated as the expected proceeds receivable upon exercise of the option to dispose of the interest (see iii) in 2020. Based on management's forecast at the date of the transaction, a further £7.1m was expected to be received in August 2020. A discount rate of 14.5% was used to calculate the present value at inception based on the Group's Weighted Average Cost of Capital.

 



 Continuing

 Held for sale

 Total

 Deferred consideration for RMG

A

           260,916

         3,368,159

      3,629,074

 Deferred consideration for Affiliate

B

           385,000

                     -  

         385,000

 Unwind of discount


             19,774

            255,266

         275,040



           665,690

         3,623,425

      4,289,115

 

Affiliate business

On 22 March 2018 the Group sold its Affiliate CGU for total consideration of £2.4m to First Leads Ltd. First Leads paid £2.0m on closing, and a further £0.4m was received in January 2019 based on the achievement of performance targets.

 

B - Loss on disposal of the Affiliate CGU

 



 £

 Cash consideration 


2,000,000

 Deferred consideration

i

385,000

 Less: Disposal costs


(162,867)

 Net proceeds


2,222,133

 Less: Assets disposed



 Intangible assets


(2,292,881)

 Loss on disposal of discontinued operation


(70,748)

 

i

The amount of deferred consideration was capped at £400,000 and reduced based on performance targets. The amount receivable of £385,000 was confirmed with First Lead Ltd as at 31 December 2018 and was received in January 2019.

 

C - Results of discontinued operations:

 



2018

2017

 Real money gaming


 £

 £

 Revenue


16,364,816

22,717,729

 Marketing expenses


(4,318,842)

(8,022,410)

 Operating expenses


(9,169,594)

(8,867,787)

 Administrative expenses


(3,325,060)

(3,153,222)

 EBITDA


(448,680)

2,674,310





 Amortisation of intangible assets


(783,948)

(640,416)

 Finance income


255,266

-



(977,362)

2,033,894

 

 Affiliates




 Revenue


168,018

1,322,713

 Marketing expenses


(14,833)

(128,316)

 Operating expenses


(15,809)

(76,316)

 Administrative expenses


(115,938)

(226,035)



21,438

892,046

 Adjusted EBITDA - discontinued


(427,242)

3,566,356

 

The results of the discontinued RMG operations include the results generated by the brands disposed to River UK Casino and operated under the B2B platform and content agreement.

 

9.   assets and liabilities classfified as held for sale

On 22 March 2018 the Group sold its Affiliate CGU, which was classified as held for sale in the comparative balance sheet, for total consideration of £2.4m to First Leads Ltd. During H2 2018 the Board concluded to pursue the sale of the remaining RMG business and to accelerate the conclusion of the put/call option over the Group's 30% interest in River UK Casino. Advisors were appointed and offers invited, which were actively being discussed during late 2018. The group has therefore reclassified this business and the Group's interest in River UK Casino as held for sale as at 31 December 2018.

 

No impairment has been recognised based on the recoverable amount of goodwill attributable to this segment. Recoverable amount has been calculated as fair value less the costs of disposal. Fair value is measured at £11.5m based on active offers received during late 2018.

 

Analysis of assets and liabilities classified as held for sale in the year

The following major classes of assets and liabilities relating to these operations have been classified as held for sale in the consolidated statement of financial position on 31 December 2018:


31 December 2018

31 December 2017


 £

 £

 Non-current assets



 Intangible assets - goodwill

1,699,000

2,292,881

 Intangible assets - platform development costs

1,266,788

-

 Investment in associate

2,268,192

-

 Property, plant and equipment

12,789

-

 Other assets

32,000

-


5,278,769

2,292,881

 Current assets



 Trade and other receivables

1,388,330

-

 Deferred consideration

3,623,425

-

 Cash and cash equivalents

1,101,489

-

 Assets held for sale

11,392,013

2,292,881

 Current liabilities



 Trade and other payables

4,830,076

-

 Liabilities held for sale

4,830,076

-

 

Associate investment in River UK Casino

The Group uses the equity method of accounting for associates. The following table shows the aggregate movement in the Group's interests in associates:


 2018


 £

 At 1 January 2018

-

 Initial recognition of associate

5,269,578

 Share of associate's loss

(172,360)

 Impairment

(2,829,026)

 At 31 December 2018

2,268,192

 

On 16 August Gaming Realms Plc acquired an investment of 30% of the ordinary share capital of River UK Casino Limited, a newly incorporated company in Malta, for consideration of £3,000. The Group is able to exert significant influence over River UK Casino by way of its 30% holding and its seat on the Board of directors.

 

10.  Arrangement with JackpotJoy group

In December 2017 the group entered into a complex transaction with Jackpotjoy plc and group companies (together "Jackpotjoy Group"). The transaction includes a £3.5m secured convertible loan agreement alongside a 10-year framework services agreement for the supply of various real money services.

 

The convertible loan principle of £3.5m was paid directly by Jackpotjoy Group to RealNetworks to settle the outstanding $4.5m (£3.4m) deferred consideration obligation, with the excess cash of £0.1m transferred to the Group. Under the framework services agreement the first £3.5m of services are provided free-of-charge within the first 5 years.

 

The convertible loan has a duration of 5 years and carries interest at 3-month LIBOR plus 5.5%. It is secured over the Group's Slingo assets and business. At any time after the first year, Jackpotjoy Group may elect to convert all or part of the principal amount into ordinary shares of Gaming Realms Plc at a discount of 20% to the share price prevailing at the time of conversion. To the extent that the price per share at conversion is lower than 10p (nominal value), then the shares can be converted at nominal value with a cash payment equal to the aggregate value of the convertible loan outstanding multiplied by the shortfall on nominal value payable to Jackpotjoy Group. Under this arrangement, the maximum dilution to Gaming Realms shareholders will be approximately 11%, assuming the convertible loan is converted in full.

 

The option violates the fixed-for-fixed criteria for equity classification as the number of shares is variable and as a result is classified as a liability.

 

The fair value of the conversion feature is determined at each reporting date with changes recognised in profit or loss. The initial fair value was £0.6m based on a probability assessment of conversion and future share price. This is a level 3 valuation as defined by IFRS 13. The fair value as at 31 December 2018 was £0.2m (2017: £0.6m) based on revised probabilities of when and if the option will be exercised. The key inputs into the valuation model included timing of exercise by the counterparty (based on a probability assessment) and the share price.

 

The initial fair value of the host debt was calculated as £2.7m, being the present value of expected future cash outflows. The rate used to discount future cashflows was 14.1%, being the Group's incremental borrowing rate. This rate was calculated by reference to the Group's cost of equity in the absence of reliable alternative evidence of the Group's cost of borrowing given it is predominantly equity funded. Expected cashflows are based on directors' judgement that a change in control event would not occur. Subsequently the loan is carried at amortised cost.

 

The residual £0.2m of proceeds were allocated to the obligation to provide free services.

 


 Fair value of debt host

 Obligation to provide free services

 Fair value of derivative Liability

 Total


 £


 £

 £

 At 1 January 2018

2,630,469

213,000

600,000

3,443,469

 Change in fair value

-

-

(400,000)

(400,000)

 Cost relating to issue of convertible debt

(24,846)

-

-

(24,846)

 Utilisation of free services

-

(4,000)

-

(4,000)

 Effective interest (14.4%)

360,475


-

360,475

 Interest paid

(170,495)


-

(170,495)

 At 31 December 2018

2,795,603

209,000

200,000

3,204,603

 

11.  Share capital

Ordinary shares


 2018

 2018

 2017

 2017


 Number

 £

 Number

 £

 Ordinary shares of

284,428,747

28,442,874

284,428,747

28,442,874

 10 pence each

 

 

On 11 August 2017 10,295,455 shares were issued at £0.11 per share for a total consideration of £1,132,500.

 

12.  Post balance sheet events

On 21 February 2019 Gaming Realms Plc entered into an agreement ("Transaction") with River to sell the remaining B2C real money operations via the sale of Bear Group Ltd, a Company incorporated in Alderney for total consideration of £11.5m, which includes settlement of the deferred consideration, disposal of the associate and settlement of the put/call option. The Company also has gaming licences issued by the UK Gambling Commission and the Alderney Gambling Commission. The Transaction also provides for the transfer of the 30% shareholding Gaming Realms has in River UK Casino and the acquisition of a sole perpetual licence for the use, development and distribution of a gaming platform. River have now received UK GC approval and expect to complete very shortly.

 

 

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
END
 
 
FR BCGDLRGDBGCR