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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Jpj Group Plc | LSE:JPJ | London | Ordinary Share | GB00BZ14BX56 | ORD GBP0.10 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 725.00 | 717.00 | 727.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMGYS
RNS Number : 1905T
Gamesys Group PLC
13 November 2019
Gamesys Group plc
Results for the Three and Nine Months Ended 30 September 2019
Q3 Reported revenues increase 23% and 20% pro-forma
International drives the top line and JPJ UK returns to growth, confident in 2019 outlook
LONDON, 13 November 2019 - Gamesys Group plc (LSE: GYS) (the 'Group', 'Gamesys') (formerly JPJ Group plc), the parent company of the online gaming group that provides online bingo and casino games to a global consumer base, announces its results for the three and nine months ended 30 September 2019.
Financial summary[1](,[2])
Hot Features
Premium
Nine months Nine months
Reported ended ended Reported
30 September 30 September
change 2019 2018 change
Three Three
months months
ended ended
30 September 30 September
2019 (GBPm) 2018 (GBPm) (%) (GBPm) (GBPm) (%)
------------------------------ -------------- -------------- --------- -------------- -------------- ---------
Gaming revenue 92.4 75.2 23 262.0 224.2 17
Net income from
continuing operations
(as reported
under IFRS) 3.4 7.6 (55) 8.5 7.4 15
Adjusted EBITDA[3] 25.5 27.6 (8) 79.5 80.6 (1)
Adjusted net
income(3) 17.7 22.1 (20) 58.5 63.8 (8)
Diluted net income
per share from
continuing operations[4] 0.04 0.10 (60) 0.11 0.10 10
Diluted adjusted
net income per
share from continuing
operations(3)
(,) (4) 0.23 0.30 (23) 0.78 0.85 (8)
Pro-forma financial summary[5]
Nine months Nine months
Reported ended ended Reported
30 September 30 September
change 2019 2018 change
Three
months Three months
ended ended 30
30 September September
2019 (GBPm) 2018 (GBPm) (%) (GBPm) (GBPm) (%)
----------------------- -------------- ------------- ------------ -------------- -------------- ---------
Gaming revenue 144.3 119.8 20 410.0 358.1 14
Adjusted EBITDA(3) 38.6 40.2 (4) 118.6 123.8 (4)
Financial highlights for Q3 2019
-- Strong reported financial performance
o Gaming revenue rose 23% year-on-year (20% excluding the Gamesys Acquisition results), mainly as a consequence of high organic growth[6] in markets outside the UK and after including four days of trading from the acquired Gamesys brands (contributing GBP2.3 million)
o Adjusted EBITDA(3) decreased 8% year-on-year principally due to the impact from higher UK gaming taxes introduced in the period
o Adjusted net income(3) decreased by 20% reflecting the reduction in EBITDA
-- Pro-forma financial performance(5) in Q3 2019 reflects accelerating growth in the acquired Gamesys brands of Virgin Games, Virgin Casino, Heart Bingo and Monopoly Casino
o Group gaming revenue rose 20% year-on-year
o Acquired Gamesys brands grew revenues 22% year-on-year, driven by strong organic growth(6) at Virgin Games, Virgin Casino, Heart Bingo and Monopoly Casino
o Adjusted EBITDA(3) decreased 4% year-on-year further reflecting the impact of higher UK gaming taxes
-- Completion of acquisition of Gamesys (Holdings) Limited on 26 September 2019
o Extended existing debt facilities by GBP173.6 million to part-fund the cash component of the acquisition of Gamesys (Holdings) Limited of GBP237.3 million (net of gains from hedging)
o Adjusted net debt[7] of GBP484.7 million
o Consequently, adjusted net leverage ratio[8] of 3.02x increased from 2.47x at 30 June 2019
-- Following another strong quarter, the Board remains confident on the outlook for the remainder of the year
Operational highlights for Q3 2019
-- Successful completion of the Gamesys Acquisition -- Continued high growth of international revenues at Vera&John
-- A return to revenue growth at Jackpotjoy UK as the impact of enhanced responsible gambling measures annualises
-- Ongoing improvement in core KPIs[9](,[10],[11]) year-on-year:
o Average Active Customers per Month(9) (,) (10) (,) (11) grew to 248,945 in the twelve months to 30 September 2019, an increase of 7% year-on-year
o Average Real Money Gaming Revenue per Month(9) (,) (10) (,) (11) grew to GBP27.5 million, an increase of 13% year-on-year
o Monthly Real Money Gaming Revenue per Average Active Customer(9) (,) (10) (,) (11) of GBP110, an increase of 6% year-on-year
Business segments highlights for Q3 2019 (reported)
-- Jackpotjoy(10) (56% of Group revenue) - increase in gaming revenue of 5% year-on-year due to a return to growth at Jackpotjoy UK and double digit growth from Botemania in Spain as well as the inclusion of four days of revenue generated by the brands purchased as part of the Gamesys Acquisition. On a like-for-like basis, revenues in the segment were broadly flat; the decline in adjusted EBITDA(3) reflects the impact of higher gaming taxes in the UK, increased marketing spend as well as recent regulatory changes in Sweden.
-- Vera&John (44% of Group revenue) - high growth in international markets reflected in an increase in gaming revenue of 57% (or 55% on a constant currency basis[12]) which translates into an adjusted EBITDA(3) increase of 22%.
Outlook
Strong trading in the third quarter supports management's confidence in the full-year outturn. Our expectation that Jackpotjoy UK would return to growth in H2 2019 has been confirmed in these numbers and our major international markets and the acquired Gamesys brands are delivering high growth.
Neil Goulden, Executive Chairman, Gamesys Group plc commented:
"I am pleased to report that the Group has delivered another stand-out quarter of revenue growth alongside the expected EBITDA impact from higher gaming taxes. Pro-forma revenues(5) were up 20% in Q3 2019, principally due to the exceptional performance of Vera&John in its international footprint and the high growth in the acquired Gamesys brands, as well as a return to revenue growth in Jackpotjoy UK.
During the quarter, the Group successfully completed the Gamesys Acquisition, creating a leading UK and international operator and offering customers an even greater choice of major brands and different games. It is also worth noting that from 2020 our Q1 and Q3 updates will be shorter form trading updates in line with general UK practice. This reflects the fact that the Group's reporting requirements in Canada will no longer oblige us to report consolidated financial statements for the respective three and nine month periods."
Lee Fenton, Chief Executive Officer, Gamesys Group plc, commented:
"It is a very exciting time for all involved at Gamesys Group plc. The successful combination of two leading and complementary businesses with a unique technology offering, a strong pool of talent and an enhanced portfolio of brands, ensures the Group is in a strong position to take advantage of future growth possibilities and we are already reaping the benefits in terms of operating performance. Q3 has seen excellent growth across the acquired Gamesys brands, an outstanding performance at Vera&John and a return to growth at Jackpotjoy UK which helps underpin our confidence in the outlook."
Conference call
A conference call for analysts and investors will be held today at 1.00pm GMT / 8.00am ET. To participate, interested parties are asked to dial +44 (0) 20 3003 2666 (UK shareholders); +1 866 378- 3566 (Canada); or +1 866 966-5335 (US), 10 minutes prior to the scheduled start of the call using the reference "Gamesys"'. A replay of the conference call will be available for 30 days by dialling +44 (0) 20 8196 1998 or + 1 866 595 5357 and using reference 2081546#. A transcript will also be made available on Gamesys Group plc's website at www.gamesysgroup.com/investors
Enquiries
Gamesys Group plc jason.holden@gamesysgroup.com
Jason Holden +44 (0) 207 478 8150
Director of Investor Relations +44 (0) 7812 142118
Finsbury gamesysgroup-LON@finsbury.com
+44 (0) 207 251 3801
James Leviton, Andy Parnis
Note regarding non-IFRS financial measures
The following non-IFRS definitions are used in this release because management believes that they provide additional useful information regarding ongoing operating and financial performance. Readers are cautioned that the definitions are not recognised measures under IFRS, do not have standardised meanings prescribed by IFRS, and should not be considered in isolation or construed to be alternatives to revenues and net income/(loss) and comprehensive income/(loss) for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. Our method of calculating these measures may differ from the method used by other entities. Accordingly, our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.
Adjusted EBITDA, as defined by the Group, is income from continuing operations before interest expense including accretion (net of interest income), income taxes, amortisation and depreciation, share-based compensation, severance costs, fair value adjustments on contingent consideration, transaction related costs and foreign exchange (gain)/loss. Management believes that Adjusted EBITDA is an important indicator of the issuer's ability to generate liquidity to service outstanding debt and uses this metric for such purpose. The exclusion of share-based compensation eliminates non-cash items and the exclusion of fair value adjustments on contingent consideration, severance costs, transaction related costs and foreign exchange (gain)/loss eliminates items which management believes are either non-operational and/or non-routine.
Adjusted Net Income, as defined by the Group, means net income from continuing operations plus or minus items of note that management may reasonably quantify and believes will provide the reader with a better understanding of the Group's underlying business performance. Adjusted Net Income is calculated by adjusting net income for accretion on financial liabilities, amortisation of acquisition related purchase price intangibles (including non-compete clauses), share-based compensation, severance costs, fair value adjustments on contingent consideration, transaction related costs and foreign exchange (gain)/loss. The exclusion of accretion on financial liabilities and share-based compensation eliminates the non-cash items and the exclusion of amortisation of acquisition related purchase price intangibles (including non-compete clauses), fair value adjustments on contingent consideration, severance costs, transaction related costs and foreign exchange (gain)/loss eliminates items which management believes are non-operational and/or non-routine. Adjusted Net Income is considered by some investors and analysts for the purpose of assisting in valuing a company.
Diluted Adjusted Net Income per share from continuing operations, as defined by the Group, means Adjusted Net Income divided by the diluted weighted average number of shares outstanding, calculated using the IFRS treasury method, for the applicable period. Management believes that Diluted Adjusted Net Income per share from continuing operations assists with the Group's ability to analyse Adjusted Net Income on a diluted weighted average per share basis.
Cautionary Note Regarding Forward Looking Information
This release contains certain information and statements that may constitute 'forward-looking information' (including future-oriented financial information and financial outlooks) within the meaning of applicable laws, including Canadian securities laws. Often, but not always, forward-looking information can be identified by the use of words such as 'plans', 'expects', 'estimates', 'projects', 'predicts', 'targets', 'seeks', 'intends', 'anticipates', 'believes', or 'is confident of' or the negative of such words or other variations of or synonyms for such words, or state that certain actions, events or results 'may', 'could', 'would', 'should', 'might' or 'will' be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause actual results, performance, achievements or developments to be materially different from those anticipated by the Group and expressed or implied by the forward-looking statements. Forward-looking information contained in this release includes, but is not limited to, statements with respect to the Group's future financial performance, the future prospects of the Group's business and operations, the Group's growth opportunities and the execution of its growth strategies, the future performance of the Jackpotjoy segment, the possibility of the Group drawing on the RCF, and the statements made under the heading 'Outlook' of this release. Certain of these statements may constitute a financial outlook within the meaning of Canadian securities laws. These statements reflect the Group's current expectations related to future events or its future results, performance, achievements or developments, and future trends affecting the Group. All such statements, other than statements of historical fact, are forward-looking information. Such forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to, the ability of the Group to secure, maintain and comply with all required licences, permits and certifications to carry out business in the jurisdictions in which it currently operates or intends to operate; governmental and regulatory actions, including the introduction of new laws or changes in laws (or the interpretation thereof) related to online gaming; general business, economic and market conditions (including market growth rates and the withdrawal of the UK from the European Union); the Group operating in foreign jurisdictions; the competitive environment; the expected growth of the online gaming market and potential new market opportunities; anticipated and unanticipated costs; the protection of the Group's intellectual property rights; the Group's ability to successfully integrate and realise the benefits of its completed acquisitions; the Group's relationship with third parties; the ability of the Group to service its debt obligations; and the ability of the Group to obtain additional financing, if, as and when required. Such statements could also be materially affected by risks relating to the lack of available and qualified personnel or management; stock market volatility; taxation policies; competition; foreign operations; the Group's limited operating history and the Group's ability to access sufficient capital from internal or external sources. However, whether actual results and developments will conform with the expectations and predictions contained in the forward-looking information is subject to a number of risks and uncertainties, many of which are beyond the Group's control, and the effects of which can be difficult to predict, including that the assumptions outlined above may not be accurate. For a description of additional risk factors, see Schedule 'A' attached to Gamesys Group plc's most recently filed annual information form. Although the Group has attempted to identify important factors that could cause actual results, performance, achievements or developments to differ materially from those described in forward-looking statements, there may be other factors that cause actual results, performance, achievements or developments not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results, performance, achievement or developments are likely to differ, and may differ materially, from those expressed in or implied by the forward-looking information contained in this release. Accordingly, readers should not place undue reliance on forward-looking information. While subsequent events and developments may cause the Group's expectations, estimates and views to change, the Group does not undertake or assume any obligation to update or revise any forward-looking information, except as required by applicable securities laws. The forward-looking information contained in this release should not be relied upon as representing the Group's expectations, estimates and views as of any date subsequent to the date of this release. The forward-looking information contained in this release is expressly qualified by this cautionary statement. Investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur.
Any future-oriented financial information or financial outlooks in this release (including any such information or outlooks under the heading 'Outlook' on page 3 of this release) are based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While the Group considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, and interest rates or tax rates.
Financial Review(2)
Gaming revenue (reported)
The Group's gaming revenue during the three months ended 30 September 2019 consisted of:
-- GBP52.2 million in revenue earned from Jackpotjoy's(10) operational activities. -- GBP40.2 million in revenue earned from Vera&John's operational activities.
The Group's gaming revenue during the three months ended 30 September 2018 consisted of:
-- GBP49.5 million in revenue earned from Jackpotjoy's(10) operational activities. -- GBP25.7 million in revenue earned from Vera&John's operational activities.
The increase in gaming revenue for the three months ended 30 September 2019 in comparison with the three months ended 30 September 2018 relates to organic growth(6) of the Jackpotjoy(10) and Vera&John segments, where gaming revenue increased by 1% and 57%, respectively.
The Group's gaming revenue during the nine months ended 30 September 2019 consisted of:
-- GBP150.0 million in revenue earned from Jackpotjoy's(10) operational activities. -- GBP112.0 million in revenue earned from Vera&John's operational activities.
The Group's gaming revenue during the nine months ended 30 September 2018 consisted of:
-- GBP153.1 million in revenue earned from Jackpotjoy's(10) operational activities. -- GBP71.0 million in revenue earned from Vera&John's operational activities.
The increase in gaming revenue for the nine months ended 30 September 2019 in comparison with the nine months ended 30 September 2018 relates to organic growth(6) of the Vera&John segment, where gaming revenue increased by 58%.
Costs and expenses
Three month Three month period Nine month period Nine month period
period ended ended ended ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
--------------------- ---------------------- ---------------------- ----------------------
Distribution costs 50,673 36,418 138,585 111,145
Administrative costs 28,970 25,221 81,745 74,229
Severance costs - 400 - 850
Transaction related
costs 3,039 275 15,240 1,340
82,682 62,314 235,570 187,564
--------------------- ---------------------- ---------------------- ----------------------
Distribution costs
Three month Three month period Nine month period Nine month period
period ended ended ended ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
--------------------- ---------------------- ---------------------- ----------------------
Selling and marketing 18,948 12,528 49,928 39,139
Licensing fees 12,392 10,293 35,817 30,117
Gaming taxes 12,431 8,946 34,721 28,927
Processing fees 6,902 4,651 18,119 12,962
--------------------- ---------------------- ---------------------- ----------------------
50,673 36,418 138,585 111,145
--------------------- ---------------------- ---------------------- ----------------------
Selling and marketing expenses consist of payments made to affiliates and general marketing expenses related to each brand. Licensing fees consist of the fees for the Jackpotjoy(10) segment to operate on its platforms and game suppliers' fees paid by both the Vera&John and Jackpotjoy(10) segments. Gaming taxes largely consist of point of consumption taxes, payable in the regulated jurisdictions that the Group operates in. Variance in gaming taxes from prior periods relates to an increase in remote gaming duty from 15% to 21%, which came into effect in the UK in Q2 2019. Processing fees consist of costs associated with using payment providers and include payment service provider transaction and handling costs, as well as deposit and withdrawal fees. With the exception of selling and marketing expenses, distribution costs tend to be variable in relation to revenue.
The increase in distribution costs for the three and nine months ended 30 September 2019 compared to the same periods in 2018 is mainly due to increased revenue and marketing spend in the Jackpotjoy(10) and Vera&John segments.
Administrative costs
Three month Three month Nine month Nine month
period ended period ended period ended period ended
30 September 30 September 30 September 30 September
2019 2018 2019 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------------------ -------------- ------------------------------ --------------
Compensation and
benefits 11,755 7,993 31,409 22,572
Professional fees 1,292 797 3,650 2,846
General and
administrative 3,331 2,534 9,096 7,460
Amortisation and
depreciation 12,592 13,897 37,590 41,351
------------------------------ -------------- ------------------------------ --------------
28,970 25,221 81,745 74,229
------------------------------ -------------- ------------------------------ --------------
Compensation and benefits costs consist of salaries, wages, bonuses, directors' fees, benefits and share-based compensation expense. The increase in these expenses for the three and nine months ended 30 September 2019 compared to the same periods in 2018 is primarily due to additional staff hired as well as higher bonus accruals as the business continues to grow.
Professional fees consist mainly of legal, accounting and audit fees. The increase in professional fees for the three and nine months ended 30 September 2019 compared to the same periods in 2018 can be attributed to services obtained in relation to some of the Group's operational and corporate initiatives.
General and administrative expenses consist of items, such as travel and accommodation, insurance, listing authority fees, technology and development costs, and other office overhead charges. The increase in these costs for the three and nine months ended 30 September 2019 compared to the same periods in 2018 can be attributed to higher office overhead costs.
Amortisation and depreciation expenses consist of amortisation of the Group's intangible assets and depreciation of the Group's tangible assets over their useful lives. The decrease in amortisation and depreciation in the three and nine months ended 30 September 2019 is due to the fact that amortisation expense related to purchase price intangibles recognised in prior periods decreases with each passing period of their useful lives as a result of the amortisation method used. It further relates to the fact that the Group's non-compete clauses were fully amortised during the three months ended 31 March 2019. The decrease is marginally offset by additional depreciation recognised as a result of adoption of IFRS 16.
Transaction related costs
Transaction related costs consist of legal, professional, due diligence, other direct costs/fees associated with transactions and acquisitions or disposals contemplated or completed by the Group. The increase in transaction related costs in the three and nine months ended 30 September 2019 compared to the same periods in 2018 relates to the Gamesys Acquisition.
Business unit results
Jackpotjoy(10)
Q3 2019 Q3 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ --------------- ------------ -----------
Gaming revenue 52,214 49,516 2,698 5%
------------ --------------- ------------ -----------
Distribution costs 29,485 23,647 5,838 25%
Administrative costs 4,537 4,120 417 10%
------------ --------------- ------------ -----------
Adjusted EBITDA(3) 18,192 21,749 (3,557) (16%)
------------ --------------- ------------ -----------
YTD 2019 YTD 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ ------------ ------------ -----------
Gaming revenue 149,955 153,127 (3,172) (2%)
------------ ------------ ------------ -----------
Distribution costs 84,704 73,854 10,850 15%
Administrative costs 12,949 11,582 1,367 12%
------------ ------------ ------------ -----------
Adjusted EBITDA(3) 52,302 67,691 (15,389) (23%)
------------ ------------ ------------ -----------
Gaming revenue for the Jackpotjoy(10) segment for the three months ended 30 September 2019 was 5% higher than in the same period in 2018 primarily as a result of additional revenue of GBP2.3 million generated by the brands purchased as part of the Gamesys Acquisition as well as increases in the Jackpotjoy UK, Starspins and Botemania brands, offset by a decline in the Jackpotjoy Sweden brand. The growth in the Jackpotjoy UK brand, which accounted for 64% (three months ended 30 September 2018 - 67%) of the segment's revenue is due to the fact that the enhanced responsible gambling measures introduced in the UK have started to annualise. The increase is further driven by growth in the Botemania brand, which accounted for 17% (three months ended 30 September 2018 - 15%) of the segment's revenue. The decline in Jackpotjoy's Swedish brand, which accounted for 2% (three months ended 30 September 2018 - 5%) of the segment's revenue is due to recent regulatory changes in Sweden.
Gaming revenue for the Jackpotjoy(10) segment for the nine months ended 30 September 2019 was 2% lower than in the same period in 2018 primarily due to a decline in the Jackpotjoy UK brand, which accounted for 65% (nine months ended 30 September 2018 - 67%) of the segment's revenue, as well as a decline in the Jackpotjoy Sweden brand, which accounted for 3% (nine months ended 30 September 2018 - 5%) of the segment's revenue. The decline in both Jackpotjoy UK and Jackpotjoy Sweden brands is due to enhanced responsible gambling measures introduced in the UK and recent regulatory changes in Sweden. The decrease was partially offset by an increase in the Botemania brand, which accounted for 17% (nine months ended 30 September 2018 - 15%) of this segment's revenue.
The increase in distribution costs for the three and nine months ended 30 September 2019 compared to the same periods in 2018 was primarily driven by an increase in marketing spend in the UK as well as an increase in gaming taxes as a result of an increase in the UK tax rates, which came into effect in Q2 2019 and the introduction of gaming taxes in Sweden.
The increase in administrative costs for the three and nine months ended 30 September 2019 compared to the same periods in 2018 was mainly driven by increases in compensation.
Vera&John
Q3 2019 Q3 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ ---------------- ------------ -----------
Gaming revenue 40,233 25,685 14,548 57%
------------ ---------------- ------------ -----------
Distribution costs 21,188 12,750 8,438 66%
Administrative costs 8,834 4,582 4,252 93%
------------ ---------------- ------------ -----------
Adjusted EBITDA(3) 10,211 8,353 1,858 22%
------------ ---------------- ------------ -----------
YTD 2019 YTD 2018 Variance
(GBP000's) (GBP000's) (GBP000's) Variance %
------------ --------------- ------------ -----------
Gaming revenue 112,018 71,035 40,983 58%
------------ --------------- ------------ -----------
Distribution costs 53,856 37,245 16,611 45%
Administrative costs 22,187 13,086 9,101 70%
------------ --------------- ------------ -----------
Adjusted EBITDA(3) 35,975 20,704 15,271 74%
------------ --------------- ------------ -----------
Gaming revenue for the Vera&John segment for the three and nine months ended 30 September 2019 increased by 57% and 58%, respectively, compared to the same periods in 2018 due to organic growth(6) . On a constant currency basis(12) , revenue increased by 55% and 58% for the three and nine months ended 30 September 2019 compared to the same periods in 2018.
Distribution costs increased by 66% and 45%, respectively, for the three and nine months ended 30 September 2019 compared to the same periods in 2018 as a result of higher marketing spend and higher revenues achieved.
The increase in administrative costs for the three and nine months ended 30 September 2019 compared to the same periods in 2018 was mainly driven by increases in personnel costs, professional fees and administrative overhead costs as the segment continues to grow.
Unallocated Corporate Costs
Adjusted EBITDA(3) on Unallocated Corporate Costs decreased from (GBP2.5) million to (GBP2.9) million in the three months ended 30 September 2019 compared to the same period in 2018. The variance mainly relates to a GBP0.2 million increase in compensation and a GBP0.3 million increase in professional fees offset by a GBP0.1 million decrease in general administrative costs.
Adjusted EBITDA(3) on Unallocated Corporate Costs decreased from (GBP7.8) million to (GBP8.8) million in the nine months ended 30 September 2019 compared to the same period in 2018. The variance mainly relates to a GBP1.1 million increase in compensation and a GBP0.3 million increase in professional fees, offset by a GBP0.4 million decrease in general administrative costs.
Net loss on Unallocated Corporate Costs increased from GBP8.4 million to GBP12.0 million for the three months ended 30 September 2019 compared to the same period in 2018. This increase is primarily driven by higher transaction related costs incurred as a result of the Gamesys Acquisition.
Net loss on Unallocated Corporate Costs increased from GBP38.6 million to GBP41.3 million for the nine months ended 30 September 2019 compared to the same period in 2018. This increase is driven by higher transaction related costs incurred as a result of the Gamesys Acquisition. This movement is partially offset by lower fair value adjustments on contingent consideration due to the fact that the final earn-out period ended in Q1 2018, leaving only the fair value adjustment on the remaining milestone payment to be recognised in the current period.
Key performance indicators
Average Active Customers is a key performance indicator used by management to assess real money customer acquisition and real money customer retention efforts of each of the Group's brands. The Group defines Average Active Customers ('Average Active Customers') as being real money customers who have placed at least one bet in a given month. 'Average Active Customers per Month' is the Average Active Customers per month, averaged over a twelve-month period. While this measure is not recognised by IFRS, management believes that it is a meaningful indicator of the Group's ability to acquire and retain customers.
Total Real Money Gaming Revenue and Average Real Money Gaming Revenue per Month are key performance indicators used by management to assess revenue earned from real money gaming operations of the business. The Group defines Total Real Money Gaming Revenue ('Total Real Money Gaming Revenue') as revenue less revenue earned from B2B websites and revenue earned from 27 September 2019 to 30 September 2019 from brands purchased as part of the Gamesys Acquisition. The Group defines Average Real Money Gaming Revenue per Month ('Average Real Money Gaming Revenue per Month') as Real Money Gaming Revenue per month, averaged over a twelve-month period. While these measures are not recognised by IFRS, management believes that they are meaningful indicators of the Group's real money gaming operational results.
Monthly Real Money Gaming Revenue per Average Active Customer is a key performance indicator used by management to assess the Group's ability to generate Real Money Gaming Revenue on a per customer basis. The Group defines Monthly Real Money Gaming Revenue per Average Active Customer ('Monthly Real Money Gaming Revenue per Average Active Customer') as being Average Real Money Gaming Revenue per Month divided by Average Active Customers per Month. While this measure is not recognised by IFRS, management believes that it is a meaningful indicator of the Group's ability to generate Total Real Money Gaming Revenue.
Twelve months ended Twelve months ended Variance Variance %
30 September 2019 30 September 2018
----------------------- ----------------------- --------- -----------
Average Active Customers per Month (#) 248,945 233,139 15,806 7%
Total Real Money Gaming Revenue (GBP000's)
(1) 329,673 291,677 37,996 13%
Average Real Money Gaming Revenue per Month
(GBP000's) 27,473 24,306 3,167 13%
----------------------- ----------------------- --------- -----------
Monthly Real Money Gaming Revenue per
Average
Active Customer (GBP) 110 104 6 6%
----------------------- ----------------------- --------- -----------
(1) Total Real Money Gaming Revenue for the twelve months ended 30 September 2019 consists of total revenue less revenue earned from B2B activity of GBP14.0 million (30 September 2018 - GBP7.1 million) and GBP2.3 million revenue earned from 27 September 2019 to 30 September 2019 from the brands purchased as part of the Gamesys Acquisition (30 September 2018 - GBPnil).
Monthly Real Money Gaming Revenue per Average Active Customer increased by 6% period-over-period which is in line with the Group's overall customer acquisition and retention strategy.
INDEPENT REVIEW REPORT TO GAMESYS GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the three and nine months ended 30 September 2019 which comprises the Interim Condensed Consolidated Statements of Comprehensive Income, the Interim Condensed Consolidated Balance Sheets, the Interim Condensed Consolidated Statements of Changes in Equity, the Interim Condensed Consolidated Statements of Cash Flows and the related notes.
We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of and has been approved by the directors.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board and IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board and International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the three and nine months ended 30 September 2019 is not prepared, in all material respects, with International Accounting Standard 34 as issued by the International Accounting Standards Board and International Accounting Standard 34, as adopted by the European Union.
BDO LLP
Chartered Accountants
London
13 November 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three months ended Three months Nine months Nine months
30 September 2019 ended ended ended
30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Gaming revenue(5) 92,447 75,201 261,973 224,162
------------------- ------------------- ------------------- -------------------
Costs and expenses
Distribution costs(5,6) 50,673 36,418 138,585 111,145
Administrative costs(6) 28,970 25,221 81,745 74,229
Severance costs(5) - 400 - 850
Transaction related costs(5) 3,039 275 15,240 1,340
Foreign exchange loss/(gain)(5) 874 (13) 597 130
------------------- ------------------- ------------------- -------------------
Total costs and expenses 83,556 62,301 236,167 187,694
------------------- ------------------- ------------------- -------------------
Fair value adjustments on
contingent consideration(17) - - 460 11,450
Interest income(8) (114) (83) (333) (253)
Interest expense(8) 4,998 4,916 14,828 14,805
Accretion on financial
liabilities(8) 377 578 1,028 2,604
------------------- ------------------- ------------------- -------------------
Financing expenses 5,261 5,411 15,983 28,606
------------------- ------------------- ------------------- -------------------
Net income for the period before
taxes from continuing operations 3,630 7,489 9,823 7,862
------------------- ------------------- ------------------- -------------------
Current tax provision 358 37 1,570 736
Deferred tax recovery (94) (99) (276) (296)
------------------- ------------------- ------------------- -------------------
Net income for the period
after taxes from continuing
operations 3,366 7,551 8,529 7,422
------------------- ------------------- ------------------- -------------------
Net loss from discontinued
operations(7) - (4,055) (660) (4,362)
Net income for the period
attributable to owners of the
parent 3,366 3,496 7,869 3,060
Other comprehensive
income/(loss): Items that will or
may be reclassified to profit or
loss
in subsequent periods
Foreign currency translation
gain/(loss) on retranslation of
overseas subsidiaries 117 (132) 277 66
Unrealised loss on cross currency
swap(13) (4,384) - (4,384) -
Unrealised gain on foreign
exchange forward(13) 2,376 - 2,717 -
Reclassification of gain on
foreign exchange forward(13) (2,717) - (2,717) -
Unrealised (loss)/gain on
interest rate swap(13) (744) 316 (1,828) (658)
------------------- ------------------- ------------------- -------------------
Total comprehensive (loss)/income
for the period attributable to
owners of the parent (1,986) 3,680 1,934 2,468
=================== =================== =================== ===================
Net income for the period per
share
Basic(9) GBP0.04 GBP0.05 GBP0.11 GBP0.04
Diluted(9) GBP0.04 GBP0.05 GBP0.10 GBP0.04
=================== =================== =================== ===================
Net income for the period per
share - continuing operations
Basic GBP0.04 GBP0.10 GBP0.11 GBP0.10
Diluted GBP0.04 GBP0.10 GBP0.11 GBP0.10
=================== =================== =================== ===================
See accompanying notes
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at As at
30 September 2019 31 December 2018
ASSETS (GBP000's) (GBP000's)
------------------- ------------------
Current assets
Cash(10,17) 97,896 84,383
Restricted cash(10,17) 16,577 6,161
Customer deposits(10,17) 15,022 9,032
Trade and other receivables(11,17) 30,294 17,070
Taxes receivable 14,485 7,313
------------------- ------------------
Total current assets 174,274 123,959
------------------- ------------------
Non-current assets
Tangible assets 9,790 2,232
Intangible assets and goodwill(3,14) 968,632 514,679
Right-of-use assets(4) 17,050 -
Other long-term receivables(12,17) 5,252 5,036
------------------- ------------------
Total non-current assets 1,000,724 521,947
------------------- ------------------
Total assets 1,174,998 645,906
=================== ==================
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities(17) 77,740 20,606
Other short-term payables(15,17,18) 30,489 9,612
Short-term cross currency and interest rate swap payable(13) 2,669 97
Short-term lease liabilities(4) 4,579 -
Interest payable(17) 434 264
Payable to customers(17) 15,022 9,032
Current portion of contingent consideration(17) - 4,540
Provision for taxes 9,233 8,169
------------------- ------------------
Total current liabilities 140,166 52,320
------------------- ------------------
Non-current liabilities
Other long-term payables(13,17,18) 13,583 1,817
Lease liabilities(4) 12,710 -
Deferred tax liability 877 1,196
Long-term debt(16,17) 541,843 371,450
------------------- ------------------
Total non-current liabilities 569,013 374,463
------------------- ------------------
Total liabilities 709,179 426,783
=================== ==================
Equity
Retained earnings 189,971 182,435
Share capital(19) 10,843 7,434
Share premium 3,439 2,068
Other reserves 261,566 27,186
------------------- ------------------
Total equity 465,819 219,123
------------------- ------------------
Total liabilities and equity 1,174,998 645,906
=================== ==================
See accompanying notes
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share-Based
Share Share Merger Payment Translation Hedge Retained
Capital Premium Reserve Reserve Reserve Reserve Earnings Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Balance at 1
January
2018 7,407 1,342 (6,111) 9,971 23,649 - 167,799 204,057
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Comprehensive
income/(loss)
for the period:
Net income for the
period (continued
and discontinued
operations) - - - - - - 3,060 3,060
Other
comprehensive
income/(loss) - - - - 66 (658) - (592)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
comprehensive
income/(loss) for
the period: - - - - 66 (658) 3,060 2,468
Contributions by
and distributions
to shareholders:
Conversion of
debentures 6 186 - - - - - 192
Exercise of options 21 540 - (159) - - 159 561
Share-based
compensation - - - 468 - - - 468
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
contributions
by and
distributions
to shareholders: 27 726 - 309 - - 159 1,221
Balance at 30
September
2018 7,434 2,068 (6,111) 10,280 23,715 (658) 171,018 207,746
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Balance at 1
January
2019 7,434 2,068 (6,111) 10,395 24,043 (1,141) 182,435 219,123
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Comprehensive
income/(loss)
for the period:
Net income for the
period (continued
and discontinued
operations) - - - - - - 7,869 7,869
Other
comprehensive
income/(loss)(13) - - - - 277 (6,212) - (5,935)
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
comprehensive
income/(loss) for
the period: - - - - 277 (6,212) 7,869 1,934
Contributions by
and distributions
to shareholders:
Issuance of common
shares, net of
costs(19) 3,365 - 240,625 - - - (1,355) 242,635
Exercise of
options(19) 44 1,371 - (552) - - 552 1,415
Issuance of
ordinary
share warrants - - - - - - 470 470
Share-based
compensation(19) - - - 242 - - - 242
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
Total
contributions
by and
distributions
to shareholders: 3,409 1,371 240,625 (310) - - (333) 244,762
Balance at 30
September
2019 10,843 3,439 234,514 10,085 24,320 (7,353) 189,971 465,819
----------- ----------- ----------- ------------ ------------ ----------- ----------- -----------
See accompanying notes
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Operating activities
Net income for the period 3,366 3,496 7,869 3,060
Add (deduct) items not
involving cash
Amortisation and depreciation 12,592 15,437 38,678 46,635
Share-based compensation
expense(19) 76 142 242 468
Issuance of ordinary share
warrants 470 - 470 -
Current tax provision 358 37 1,570 736
Deferred tax recovery (94) (99) (276) (296)
Interest expense, net(8) 5,261 5,411 15,523 17,156
Fair value adjustments on
contingent consideration(17) - - 460 11,450
Foreign exchange loss/(gain)(5) 874 (32) 597 93
Loss on sale of discontinued
operation, net of tax(7) - 4,047 26 4,477
------------------- ------------------- ------------------- -------------------
22,903 28,439 65,159 83,779
Restriction of cash balances (2,097) - (9,270) (75)
(Increase)/reduction in trade
and other receivables (1,845) 126 (6,478) 1,947
(Increase)/reduction in other
long-term receivables (19) 43 (36) 551
Increase/(reduction) in
accounts payable and accrued
liabilities 2,726 2,632 3,439 (690)
(Reduction)/increase in other
short-term payables (3,385) (259) 5,812 (2,589)
------------------- ------------------- ------------------- -------------------
Cash generated from operations 18,283 30,981 58,626 82,923
------------------- ------------------- ------------------- -------------------
Income taxes paid - (29) (4,194) (3,265)
Income taxes received - 2,082 - 2,484
------------------- ------------------- ------------------- -------------------
Total cash provided by
operating activities 18,283 33,034 54,432 82,142
------------------- ------------------- ------------------- -------------------
Financing activities
Proceeds from exercise of
options 477 168 1,414 561
Proceeds from long-term
debt(3,16) 173,578 - 173,578 -
Debt issuance costs(16) (2,617) - (2,617) -
Debenture settlement - - - (62)
Lease payments (811) - (1,437) -
Repayment of non-compete
liability (2,000) (2,000) (6,000) (6,000)
Interest repayment (4,981) (5,355) (14,561) (15,609)
Payment of contingent
consideration(17) - - - (63,455)
------------------- ------------------- ------------------- -------------------
Total cash provided by/(used
in) financing activities 163,646 (7,187) 150,377 (84,565)
------------------- ------------------- ------------------- -------------------
Investing activities
Purchase of tangible assets (366) (425) (3,012) (588)
Purchase of intangible assets (4,885) (1,163) (7,579) (3,620)
Proceeds from sale of
intangible assets - - - 1,450
Disposal of discontinued
operation(7) 6,000 17,881 18,000 17,678
Business acquisitions, net of
cash acquired(3) (199,726) - (199,726) -
------------------- ------------------- ------------------- -------------------
Total cash (used in)/provided
by investing activities (198,977) 16,293 (192,317) 14,920
------------------- ------------------- ------------------- -------------------
Net (decrease)/increase in cash
during the period (17,048) 42,140 12,492 12,497
Cash, beginning of period 114,121 29,462 84,383 59,033
Exchange gain/(loss) on cash
and cash equivalents 823 (146) 1,021 (74)
------------------- ------------------- ------------------- -------------------
Cash, end of period 97,896 71,456 97,896 71,456
=================== =================== =================== ===================
See accompanying notes
SUPPLEMENTARY NOTES FOR THREE AND NINE MONTHSED 30 SEPTEMBER 2019
1. Corporate information
Gamesys Group plc, formerly JPJ Group plc, is an online gaming holding company that was incorporated under the Companies Act 2006 (England and Wales) on 29 July 2016. On 26 September 2019, following the completion of the Gamesys Acquisition (as defined below), JPJ Group plc changed its name to Gamesys Group plc. Gamesys Group plc's registered office is located at 35 Great St. Helen's, London, United Kingdom. Unless the context requires otherwise, use of 'Group' in these accompanying notes means Gamesys Group plc and its subsidiaries, as applicable.
The Group currently offers bingo, casino and other games to its customers using the Jackpotjoy, Starspins, Botemania, Virgin Games, Heart Bingo, Virgin Casino, Monopoly Casino, Vera&John, InterCasino, Solid Gaming and other brands. All brands operate off proprietary software owned by the Group.
On 13 June 2019, the Group entered into a conditional agreement to acquire the business of Gamesys (Holdings) Limited, excluding sports brands and games, for a mixture of cash and new Group shares (the 'Gamesys Acquisition'). The Gamesys Acquisition was completed on 26 September 2019. The total consideration amounted to approximately GBP491.3 million, comprising of: (i) GBP237.3 million in cash (net of gains from hedging), of which GBP173.6 million was funded by an add-on to the Group's existing Term Facility, (ii) GBP10.0 million in deferred consideration and (iii) 33.7 million in newly issued shares, representing approximately GBP244.0 million.
These Unaudited Interim Condensed Consolidated Financial Statements were authorised for issue by the Board of Directors of Gamesys Group plc on 13 November 2019.
2. Basis of preparation
Basis of presentation
These Unaudited Interim Condensed Consolidated Financial Statements have been prepared by management on a going concern basis, are presented in compliance with International Accounting Standard ('IAS') 34 - Interim Financial Reporting, and have been prepared on a basis consistent with the accounting policies and methods used and disclosed in Gamesys Group plc's consolidated financial statements for the year ended 31 December 2018 (the 'Annual Financial Statements'), except as described below. Certain information and disclosures normally included in the Annual Financial Statements prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, and in accordance with IFRS as issued by the International Accounting Standards Board, have been omitted or condensed.
These Unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the Annual Financial Statements. All defined terms used herein are consistent with those terms as defined in the Annual Financial Statements.
These Unaudited Interim Condensed Consolidated Financial Statements have been prepared under the historical cost convention, other than for the measurement at fair value of the Group's Interest Rate Swap, Currency Swap, FX Forward, contingent consideration, certain hedged loan instruments, and certain loans receivable.
The comparative financial information for the year ended 31 December 2018 in these Unaudited Interim Condensed Consolidated Financial Statements does not constitute statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 December 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.
3. Business combinations
On 26 September 2019, the Group completed the Gamesys Acquisition, which includes the Virgin Games, Heart Bingo, Virgin Casino and Monopoly Casino brands and related assets. The purchase was completed for GBP237.3 million in cash (net of gains from hedging), of which GBP173.6 million was funded by an add-on to the Group's existing Term Facility, GBP10.0 million in deferred consideration and 33,653,846 newly issued ordinary shares of the parent company, which at the prevailing share price of GBP7.25 on 26 September 2019 amounted to GBP244.0 million. The Gamesys Acquisition has been accounted for as a business combination. The purchase price allocation set forth below represents the preliminary allocation of the purchase price and the fair value of assets acquired and is subject to change.
Effect of acquisition on the financial position of the Group
26 September 2019
(GBP000's)
---------------------
Assets acquired
Current assets acquired 76,511
Non-current assets acquired 14,872
Unallocated purchase price intangible assets and goodwill 498,828
590,211
---------------------
Liabilities assumed
Current liabilities assumed 89,833
Non-current liabilities assumed 9,105
98,938
---------------------
Net assets acquired 491,273
---------------------
Consideration
Cash* 237,283
Deferred consideration 10,000
Shares issued 243,990
491,273
---------------------
*This balance is net of gains from hedging the foreign exchange rate movements on the purchase price.
The excess purchase consideration over the net fair value of financial and other tangible and intangible assets and liabilities acquired will be allocated to goodwill. The goodwill recognised is primarily attributed to the expected synergies and other benefits from combining the assets and activities of Gamesys (Holdings) Limited with those of the Group.
None of the goodwill is expected to be deductible for income tax purposes. The fair value of the assets acquired and liabilities assumed will be subject to adjustments pending the completion of final purchase price allocations and post-closing adjustments, including recognition of deferred taxation balances.
Since the date of acquisition, this business combination has contributed GBP2.3 million in revenue and GBP0.2 million in net income to the Group. The results of this business combination are included in the Group's Jackpotjoy business segment. The Group has used a significant amount of judgement and simplifying assumptions in estimating the net income and operating profits before income taxes had the business combination occurred at the beginning of the year. Had the business combination occurred at the beginning of the year, it would have contributed GBP150.3 million in revenue and GBP40.1 million in operating profits before income taxes. Operating profits before income taxes takes into account income earned from the software licence fee and other income earned by the acquired business from the reporting entity during the period before the Gamesys Acquisition. As a result of the judgement and simplifying assumptions used to generate these estimates, the amounts should not be used as an indicator of past or future performance of the Group or its acquired subsidiaries.
4. Summary of significant accounting policies
For a description of the Group's significant accounting policies, critical accounting estimates and assumptions, and related information see notes 3 and 4 to the Annual Financial Statements. Other than what is described below, there have been no changes to the Group's significant accounting policies or critical accounting estimates and assumptions during the nine months ended 30 September 2019.
Leases
Effective from 1 January 2019, the Group adopted IFRS 16 - Leases ('IFRS 16'), which replaces IAS 17 - Leases and related interpretations.
The Group elected to apply the modified retrospective approach which does not require restatement of comparative periods. As a result, lease liabilities were recognised in the opening consolidated balance sheet as at 1 January 2019 at an amount equal to the Group's remaining lease payments discounted using the Group's incremental borrowing rate. Additionally, the Group elected to measure right-of-use assets by reference to the measurement of the lease liabilities on the same date. As a result, net assets were not impacted. There was also no impact on the Group's equity at 1 January 2019.
On 1 January 2019, the Group recognised right-of-use assets and lease liabilities of GBP3.2 million related to its existing leases. Furthermore, the Group assumed that leases obtained as part of the Gamesys Acquisition were also subject to IFRS 16 starting on 1 January 2019 and recognised additional right-of-use assets and lease liabilities of GBP9.9 million as a result.
Under IFRS 16, the Group amortises its right-of-use assets and accretes interest on its lease liabilities. As at 30 September 2019, the carrying value of the right-of-use assets amounted to GBP17.1 million and the carrying value of lease liabilities amounted to GBP17.3 million, with GBP4.6 million of this balance shown as short-term lease liabilities and the remaining portion of GBP12.7 million reflected under non-current liabilities.
Hedge accounting
The Group elected to use hedge accounting for the purposes of recognising realised and unrealised gains and losses associated with the Interest Rate Swap and the Currency Swap (as defined in note 13).
IFRS 9 - Financial Instruments ('IFRS 9') permits hedge accounting under certain circumstances provided that the hedging relationship is:
-- formally designated and documented, including the entity's risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness;
-- expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk as designated and documented, and effectiveness can be reliably measured; and
-- assessed on an ongoing basis and determined to be highly effective.
Based on the Group's analysis of the requirements outlined above, it was concluded that the Interest Rate Swap and the Currency Swap meet all the necessary criteria and qualify for use of hedge accounting. Both were designated as cash flow hedges.
5. Segment information
As discussed in note 7, the Group sold its Mandalay business in the period ended 31 March 2019 and it sold its social gaming business in the period ended 30 September 2018. All current period and 2018 comparative segment figures have been restated accordingly. The Mandalay and social gaming businesses were previously reported as part of the Jackpotjoy segment. The results of the Gamesys Acquisition for the period from 27 September 2019 to 30 September 2019 are included in the Jackpotjoy segment.
The following tables present selected financial results for each segment and the Unallocated Corporate Costs:
Three months ended 30 September 2019:
Unallocated
Corporate
Jackpotjoy* Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 52,214 40,233 - 92,447
------------ ------------ ------------ ------------
Distribution costs 29,485 21,188 - 50,673
Amortisation and depreciation 8,208 4,107 277 12,592
Compensation, professional, and general and administrative
expenses 4,537 8,834 3,007 16,378
Transaction related costs - 163 2,876 3,039
Foreign exchange loss 92 33 749 874
Financing, net 152 69 5,040 5,261
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 9,740 5,839 (11,949) 3,630
------------ ------------ ------------ ------------
Taxes 42 142 80 264
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 9,698 5,697 (12,029) 3,366
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 9,698 5,697 (12,029) 3,366
Interest expense, net 152 69 4,663 4,884
Accretion on financial liabilities - - 377 377
Taxes 42 142 80 264
Amortisation and depreciation 8,208 4,107 277 12,592
------------ ------------ ------------ ------------
EBITDA 18,100 10,015 (6,632) 21,483
------------ ------------ ------------ ------------
Share-based compensation - - 76 76
Transaction related costs - 163 2,876 3,039
Foreign exchange loss 92 33 749 874
------------ ------------ ------------ ------------
Adjusted EBITDA 18,192 10,211 (2,931) 25,472
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 9,698 5,697 (12,029) 3,366
Share-based compensation - - 76 76
Transaction related costs - 163 2,876 3,039
Foreign exchange loss 92 33 749 874
Amortisation of acquisition related purchase price
intangibles 8,085 1,892 - 9,977
Accretion on financial liabilities - - 377 377
------------ ------------ ------------ ------------
Adjusted net income/(loss) 17,875 7,785 (7,951) 17,709
------------ ------------ ------------ ------------
*Includes Gamesys Acquisition results from 27 September 2019 to 30 September 2019.
Nine months ended 30 September 2019:
Unallocated
Corporate
Jackpotjoy* Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 149,955 112,018 - 261,973
------------ ------------ ------------ ------------
Distribution costs 84,704 53,856 25 138,585
Amortisation and depreciation 27,034 9,788 768 37,590
Compensation, professional, and general and administrative
expenses 12,949 22,187 9,019 44,155
Transaction related costs - 196 15,044 15,240
Foreign exchange (gain)/loss (83) 168 512 597
Financing, net 169 76 15,738 15,983
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 25,182 25,747 (41,106) 9,823
------------ ------------ ------------ ------------
Taxes 42 1,016 236 1,294
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 25,140 24,731 (41,342) 8,529
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 25,140 24,731 (41,342) 8,529
Interest expense, net 169 76 14,250 14,495
Accretion on financial liabilities - - 1,028 1,028
Taxes 42 1,016 236 1,294
Amortisation and depreciation 27,034 9,788 768 37,590
------------ ------------ ------------ ------------
EBITDA 52,385 35,611 (25,060) 62,936
------------ ------------ ------------ ------------
Share-based compensation - - 242 242
Fair value adjustments on contingent consideration - - 460 460
Transaction related costs - 196 15,044 15,240
Foreign exchange (gain)/loss (83) 168 512 597
------------ ------------ ------------ ------------
Adjusted EBITDA 52,302 35,975 (8,802) 79,475
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 25,140 24,731 (41,342) 8,529
Share-based compensation - - 242 242
Fair value adjustments on contingent consideration - - 460 460
Transaction related costs - 196 15,044 15,240
Foreign exchange (gain)/loss (83) 168 512 597
Amortisation of acquisition related purchase price
intangibles 26,833 5,553 - 32,386
Accretion on financial liabilities - - 1,028 1,028
------------ ------------ ------------ ------------
Adjusted net income/(loss) 51,890 30,648 (24,056) 58,482
------------ ------------ ------------ ------------
*Includes Gamesys Acquisition results from 27 September 2019 to 30 September 2019.
Three months ended 30 September 2018:
Unallocated
Corporate
Jackpotjoy Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 49,516 25,685 - 75,201
------------ ------------ ------------ ------------
Distribution costs 23,647 12,750 21 36,418
Amortisation and depreciation 11,205 2,593 99 13,897
Compensation, professional, and general and
administrative expenses 4,120 4,582 2,622 11,324
Severance costs - 400 - 400
Transaction related costs - - 275 275
Foreign exchange (gain)/loss (22) 27 (18) (13)
Financing, net 2 (28) 5,437 5,411
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 10,564 5,361 (8,436) 7,489
------------ ------------ ------------ ------------
Taxes - (62) - (62)
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 10,564 5,423 (8,436) 7,551
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 10,564 5,423 (8,436) 7,551
Interest expense/(income), net 2 (28) 4,859 4,833
Accretion on financial liabilities - - 578 578
Taxes - (62) - (62)
Amortisation and depreciation 11,205 2,593 99 13,897
------------ ------------ ------------ ------------
EBITDA 21,771 7,926 (2,900) 26,797
------------ ------------ ------------ ------------
Share-based compensation - - 142 142
Severance costs - 400 - 400
Transaction related costs - - 275 275
Foreign exchange (gain)/loss (22) 27 (18) (13)
------------ ------------ ------------ ------------
Adjusted EBITDA 21,749 8,353 (2,501) 27,601
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 10,564 5,423 (8,436) 7,551
Share-based compensation - - 142 142
Severance costs - 400 - 400
Transaction related costs - - 275 275
Foreign exchange (gain)/loss (22) 27 (18) (13)
Amortisation of acquisition related purchase price
intangibles 11,202 2,005 - 13,207
Accretion on financial liabilities - - 578 578
------------ ------------ ------------ ------------
Adjusted net income/(loss) 21,744 7,855 (7,459) 22,140
------------ ------------ ------------ ------------
Nine months ended 30 September 2018:
Unallocated
Corporate
Jackpotjoy Vera&John Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ------------ ------------
Gaming revenue 153,127 71,035 - 224,162
------------ ------------ ------------ ------------
Distribution costs 73,854 37,245 46 111,145
Amortisation and depreciation 33,608 7,455 288 41,351
Compensation, professional, and general and
administrative expenses 11,582 13,086 8,210 32,878
Severance costs - 850 - 850
Transaction related costs - - 1,340 1,340
Foreign exchange loss/(gain) 209 (43) (36) 130
Financing, net 5 (94) 28,695 28,606
------------ ------------ ------------ ------------
Income/(loss) for the period before taxes from continuing
operations 33,869 12,536 (38,543) 7,862
------------ ------------ ------------ ------------
Taxes - 426 14 440
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 33,869 12,110 (38,557) 7,422
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 33,869 12,110 (38,557) 7,422
Interest expense/(income), net 5 (94) 14,641 14,552
Accretion on financial liabilities - - 2,604 2,604
Taxes - 426 14 440
Amortisation and depreciation 33,608 7,455 288 41,351
------------ ------------ ------------ ------------
EBITDA 67,482 19,897 (21,010) 66,369
------------ ------------ ------------ ------------
Share-based compensation - - 468 468
Severance costs - 850 - 850
Fair value adjustments on contingent consideration - - 11,450 11,450
Transaction related costs - - 1,340 1,340
Foreign exchange loss/(gain) 209 (43) (36) 130
------------ ------------ ------------ ------------
Adjusted EBITDA 67,691 20,704 (7,788) 80,607
------------ ------------ ------------ ------------
Net income/(loss) for the period after taxes from
continuing operations 33,869 12,110 (38,557) 7,422
Share-based compensation - - 468 468
Severance costs - 850 - 850
Fair value adjustments on contingent consideration - - 11,450 11,450
Transaction related costs - - 1,340 1,340
Foreign exchange loss/(gain) 209 (43) (36) 130
Amortisation of acquisition related purchase price
intangibles 33,608 5,950 - 39,558
Accretion on financial liabilities - - 2,604 2,604
------------ ------------ ------------ ------------
Adjusted net income/(loss) 67,686 18,867 (22,731) 63,822
------------ ------------ ------------ ------------
The following table presents net assets per segment and Unallocated Corporate Costs as at
30 September 2019:
Jackpotjoy* Vera&John Unallocated Corporate Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ---------------------------- ------------
Current assets 72,692 72,594 28,988 174,274
Intangible assets and goodwill 884,949 82,608 1,075 968,632
Other non-current assets 15,567 12,191 4,334 32,092
Total assets 973,208 167,393 34,397 1,174,998
Current liabilities 89,420 39,513 11,233 140,166
Non-current liabilities 7,994 5,361 555,658 569,013
------------ ------------ ---------------------------- ------------
Total liabilities 97,414 44,874 566,891 709,179
Net assets 875,794 122,519 (532,494) 465,819
------------ ------------ ---------------------------- ------------
*Includes Gamesys Acquisition balance sheet items.
The following table presents net assets per segment and Unallocated Corporate Costs as at
31 December 2018:
Jackpotjoy Vera&John Unallocated Corporate Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------ ------------ ---------------------------- ------------
Current assets 18,055 54,394 51,510 123,959
Intangible assets and goodwill 431,895 81,678 1,106 514,679
Other non-current assets 69 3,507 3,692 7,268
Total assets 450,019 139,579 56,308 645,906
Current liabilities 19,758 25,788 6,774 52,320
Non-current liabilities - 1,196 373,267 374,463
------------ ------------ ---------------------------- ------------
Total liabilities 19,758 26,984 380,041 426,783
Net assets 430,261 112,595 (323,733) 219,123
============ ============ ============================ ============
During the nine months ended 30 September 2019 and 2018, revenue was earned from customers situated in the following locations: United Kingdom - 47% (nine months ended 30 September 2018 - 57%), Japan - 28% (nine months ended 30 September 2018 - 12%), Spain - 10% (nine months ended 30 September 2018 - 10%), Sweden - 4% (nine months ended 30 September 2018 - 9%), rest of Europe - 6% (nine months ended 30 September 2018 - 8%), rest of world - 5% (nine months ended 30 September 2018 - 4%).
During the nine months ended 30 September 2019, the Group's B2B Revenue, Affiliate Revenue and Game Aggregation Revenue comprised 4% (nine months ended 30 September 2018 - 3%) of total Group revenues, with the remaining portion being revenues earned from Net Gaming Revenue operations.
Non-current assets by geographical location as at 30 September 2019 were as follows: Europe GBP94.8 million (31 December 2018 - GBP85.2 million), Americas GBP392.2 million (31 December 2018 - GBP436.8 million) and United Kingdom GBP513.7 million (31 December 2018 - GBPnil).
6. Costs and expenses
As discussed in note 7, the Group sold its Mandalay business in the period ended 31 March 2019 and its social gaming business in the period ended 30 September 2018. All current period and 2018 comparative figures have been restated accordingly. The results of the Gamesys Acquisition for the period from 27 September 2019 to 30 September 2019 are included in the tables below.
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Distribution costs:
Selling and marketing 18,948 12,528 49,928 39,139
Licensing fees 12,392 10,293 35,817 30,117
Gaming taxes 12,431 8,946 34,721 28,927
Processing fees 6,902 4,651 18,119 12,962
------------------- ------------------- ------------------- -------------------
50,673 36,418 138,585 111,145
------------------- ------------------- ------------------- -------------------
Administrative costs:
Compensation and benefits 11,755 7,993 31,409 22,572
Professional fees 1,292 797 3,650 2,846
General and administrative 3,331 2,534 9,096 7,460
Tangible asset depreciation 1,249 144 2,204 375
Intangible asset amortisation 11,343 13,753 35,386 40,976
------------------- ------------------- ------------------- -------------------
28,970 25,221 81,745 74,229
------------------- ------------------- ------------------- -------------------
7. Discontinued operations
On 12 March 2019, the Group completed the sale of its Mandalay business for cash consideration of GBP18.0 million. The Mandalay business was not previously classified as held-for-sale. As discussed in note 7 of the Annual Financial Statements, the Group disposed of its social gaming business in the period ended 30 September 2018. The comparative unaudited interim condensed consolidated statements of comprehensive income are presented below to show the Mandalay and social gaming business discontinued operations separately from continuing operations. The results of the Mandalay and social gaming businesses have been excluded from notes 5 and 6 above.
Results of discontinued operations
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
-------------------- ------------------- ------------------- -------------------
Gaming revenue - 2,552 1,595 9,034
Social gaming revenue - 1,800 - 7,495
Expenses - 4,360 2,229 16,414
-------------------- ------------------- ------------------- -------------------
Results from operating
activities - (8) (634) 115
-------------------- ------------------- ------------------- -------------------
Income tax - - - -
-------------------- ------------------- ------------------- -------------------
(Loss)/income for the period - (8) (634) 115
-------------------- ------------------- ------------------- -------------------
Loss on disposal of discontinued
operations - (4,047) (26) (4,477)
Income tax on loss on disposal - - - -
of discontinued operations
-------------------- ------------------- ------------------- -------------------
Loss from discontinued
operations, net of tax - (4,055) (660) (4,362)
-------------------- ------------------- ------------------- -------------------
Basic loss per share from - GBP(0.05) GBP(0.01) GBP(0.06)
discontinued operations
Diluted loss per share from - GBP(0.05) GBP(0.01) GBP(0.06)
discontinued operations
Cash flows from discontinued operations
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Net cash provided by operating
activities - 1,086 525 5,266
Net cash provided by investing
activities 6,000 17,881 18,000 17,678
Net cash from financing - - - -
activities
------------------- ------------------- ------------------- -------------------
Net cash flows for the period 6,000 18,967 18,525 22,944
------------------- ------------------- ------------------- -------------------
Effect of disposal on the financial position of the Group
30 September 2019
(GBP000's)
------------------
Non-current assets 3,753
Goodwill 14,273
------------------
Net assets 18,026
------------------
Consideration received, satisfied in cash 18,000
Loss on disposal of discontinued operations (26)
------------------
Goodwill disposed of was allocated to the Mandalay business on the basis of earnings before interest, taxes, depreciation and amortisation, relative to that of the overall segment.
8. Interest income/expense
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Total interest income 114 83 333 253
------------------- ------------------- ------------------- -------------------
Interest paid and accrued on
long-term debt 4,992 4,916 14,711 14,799
Fair value adjustment on secured
convertible loan (248) - (248) -
Interest paid and accrued on
lease liabilities 254 - 365 -
Interest paid and accrued on
convertible debentures - - - 6
------------------- ------------------- ------------------- -------------------
Total interest expense 4,998 4,916 14,828 14,805
------------------- ------------------- ------------------- -------------------
Accretion of discount recognised
on contingent
consideration - 151 - 1,206
Interest accretion recognised on
convertible debentures - - - 8
Debt issue costs and accretion
recognised on long-term
debt 162 147 460 429
Interest accretion recognised
on other long-term
liabilities 215 280 568 961
------------------- ------------------- ------------------- -------------------
Total accretion on financial
liabilities 377 578 1,028 2,604
------------------- ------------------- ------------------- -------------------
9. Earnings per share
The following table presents the calculation of basic and diluted earnings per share:
Three months ended Three months ended Nine months ended Nine months ended
30 September 2019 30 September 2018 30 September 2019 30 September 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- -------------------
Numerator:
Net income - basic 3,366 3,496 7,869 3,060
Net income - diluted 3,366 3,496 7,869 3,060
------------------- ------------------- ------------------- -------------------
Denominator:
Weighted average number of shares
outstanding - basic 75,589 74,279 74,802 74,211
Weighted average effect of
dilutive share options 288 695 301 700
Weighted average number of shares
outstanding - diluted 75,877 74,974 75,103 74,911
------------------- ------------------- ------------------- -------------------
Net income per share(1,2)
------------------- ------------------- ------------------- -------------------
Basic GBP0.04 GBP0.05 GBP0.11 GBP0.04
Diluted GBP0.04 GBP0.05 GBP0.10 GBP0.04
------------------- ------------------- ------------------- -------------------
(1) Basic income per share is calculated by dividing the net income attributable to owners of the parent by the
weighted average number of shares outstanding during the period.
(2) Diluted income per share is calculated by dividing the net income attributable to owners of the parent by the weighted average number of shares outstanding during the period and adjusted for the number of potentially dilutive share options and contingently issuable instruments.
10. Cash, restricted cash and customer deposits
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Cash 97,896 84,383
Restricted and cash(1) 16,577 6,161
------------------ -----------------
114,473 90,544
------------------ -----------------
Customer deposits - restricted cash(2) 15,022 3,853
Customer deposits - other(3) - 5,179
------------------ -----------------
15,022 9,032
------------------ -----------------
(1) Increase in balance from 31 December 2018 primarily relates to reserves held with payment service providers.
(2) Customer deposits - restricted cash consists of cash held by the Group in relation to amounts payable to customers where the Group acts as operator. In this regard, the Group has elected to split customer deposits into sub-categories and present GBP3.9 million of its 31 December 2018 balance as customer deposits - restricted cash, rather than customer deposits, to improve comparability with the balances at the current reporting date.
(3) Customer deposits - other includes balances held by third party operators on behalf of the Group in relation to amounts payable to customers.
11. Trade and other receivables
Trade and other receivables consist of the following items:
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Due from the Gamesys group - 8,764
Due from the 888 group - 1,665
B2B and affiliate revenue receivable 7,118 2,722
Sales tax refund receivable 2,707 1,461
Prepaid expenses 15,304 2,925
Other 6,165 533
Less: expected credit loss provision for trade and other receivables (1,000) (1,000)
30,294 17,070
------------------ -----------------
The following table summarises the Group's expected credit loss on its trade receivables and loan receivables:
0-30 days 31-60 days 61-90 days 90 days + Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------- ------------------- ------------------- ------------------- ------------
Trade and other
receivables 1 109 80 460 650
Other long-term
receivables - - - 350 350
1 109 80 810 1,000
------------------- ------------------- ------------------- ------------------- ------------
12. Other long-term receivables
In connection with the Gaming Realms Transaction, the Group recognised a long-term receivable of GBP3.8 million (31 December 2018 - GBP3.6 million) for the secured convertible loan, in accordance with IFRS 9, based on the calculation of fair value at 30 September 2019, as explained in note 17.
As at 30 September 2019, the remaining balance of GBP1.4 million (31 December 2018 - GBP1.5 million) relates to a long-term loan receivable by the Group.
13. Interest rate swap, currency swap and foreign exchange forward
Foreign exchange forward
On 26 June 2019, Gamesys Group plc entered into a foreign exchange forward agreement (the 'FX Forward') in order to minimise the Group's exposure to foreign exchange rate fluctuations between GBP and EUR as the Group added EUR196.0 million to its EUR Term Facility in relation to the Gamesys Acquisition. Under the FX Forward, the Group was able to convert EUR193.0 million to GBP173.7 million at an exchange rate of 0.89970 on 26 September 2019, giving rise to a GBP2.7 million realised gain on settlement of the foreign exchange forward.
Prior to being utilised, the FX Forward was designated as a cash flow hedge. As a result, upon utilising the FX Forward, the entire gain in the amount of GBP0.3 million previously shown in other comprehensive income was reclassified, in accordance with IFRS 9, and formed part of the realised gain on foreign exchange forward discussed above.
Currency swap
On 1 August 2019, the Group entered into a cross currency swap agreement (the 'Currency Swap') in order to minimise the Group's increased exposure to exchange rate fluctuations between GBP and EUR as cash generated from operations is largely in GBP, while a portion of the Group's Term Facilities is in EUR. The Currency Swap has an effective date of 30 September 2019 and a maturity date of 30 September 2022.
As at 30 September 2019, the fair value of the Currency Swap was a GBP4.4 million payable (31 December 2018 - GBPnil). The Group has included GBP1.7 million of this amount in current liabilities with the remaining balance included in other long-term payables, as discussed in note 18. An unrealised loss of GBP4.4 million for the three and nine months ended 30 September 2019 related to the Currency Swap was recognised in other comprehensive income (three and nine months ended 30 September 2018 - GBPnil).
Interest rate swap
On 5 August 2019, Gamesys Group plc amended the terms of its existing Interest Rate Swap to further minimise its exposure to interest rate fluctuations. Under the new terms, the Group will pay a fixed 6.08% rate of interest in place of floating GBP interest payments of GBP LIBOR plus 5.00%. On 15 August 2019, the starting Notional Amount went back to being 60% of the GBP Term Facility (GBP150.0 million) and will decrease to GBP69.0 million by 15 June 2021.
As at 30 September 2019, the fair value of the Interest Rate Swap was a GBP1.9 million payable (31 December 2018 - GBP0.5 million). The Group has included GBP0.9 million of this payable in current liabilities (31 December 2018 - GBP0.1 million), with the value of the remaining balance included in other long-term payables, as discussed in note 18. For the three and nine months ended 30 September 2019, the Group recognised an unrealised loss of GBP0.7 million and GBP1.8 million, respectively, in other comprehensive income (three and nine months ended 30 September 2018 - a gain of GBP0.3 million and a loss of GBP0.7 million, respectively).
14. Intangible assets and goodwill
As at 30 September 2019
Additions
to
intangible
assets
arising
Gaming Customer Partnership Non-compete on business
licences relationships Software Brand agreements clauses combination Goodwill Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Cost
Balance, 1 January
2019 91 320,060 30,955 70,326 12,900 20,434 - 309,121 763,887
Additions* - - 4,986 - 4,828 - 498,828 - 508,642
Disposals (note
7) - (27,200) (350) (1,610) - - - (14,273) (43,433)
Translation 3 (145) (251) 48 (80) - - 787 362
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Balance, 30
September 2019 94 292,715 35,340 68,764 17,648 20,434 498,828 295,635 1,229,458
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Accumulated
amortisation/impairment
Balance, 1 January
2019 56 172,574 18,280 13,577 6,080 17,875 - 20,766 249,208
Amortisation 36 24,651 4,766 2,588 1,873 2,559 - - 36,473
Disposals (note
7) - (24,700) (329) (378) - - - - (25,407)
Translation (41) (95) (122) 23 (7) - - 794 552
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Balance, 30
September 2019 51 172,430 22,595 15,810 7,946 20,434 - 21,560 260,826
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Carrying value
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
Balance, 30
September 2019 43 120,285 12,745 52,954 9,702 - 498,828 274,075 968,632
----------------- ------------------- ---------- -------------- --------------------- --------------- ------------ ---------- ----------------
*On 17 April 2019, the Group entered into a five-year service agreement with a third-party operator, which is reflected as an addition to partnership agreements in the schedule above. Under the terms of the service agreement, the Group will make certain software, content and services available for use by the operator in return for a share of the revenue generated by the operator from certain software, content and services made available to it by the Group.
As at 31 December 2018
Gaming Customer Partnership Non-compete
licences relationships Software Brand agreements clauses Goodwill Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Cost
Balance, 1 January
2018 93 337,655 25,211 70,019 12,900 20,434 316,386 782,698
Additions - - 5,318 - - - - 5,318
Disposals (note
7) - (18,000) - - - - (9,638) (27,638)
Translation (2) 405 426 307 - - 2,373 3,509
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Balance, 31 December
2018 91 320,060 30,955 70,326 12,900 20,434 309,121 763,887
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Accumulated
amortisation/impairment
Balance, 1 January
2018 81 139,333 12,551 10,005 4,458 7,661 19,605 193,694
Amortisation 44 40,496 5,518 3,502 1,622 10,214 - 61,396
Disposals (note
7) - (7,635) - - - - - (7,635)
Translation (69) 380 211 70 - - 1,161 1,753
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Balance, 31 December
2018 56 172,574 18,280 13,577 6,080 17,875 20,766 249,208
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Carrying value
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
Balance, 31 December
2018 35 147,486 12,675 56,749 6,820 2,559 288,355 514,679
---------- --------------- ---------- ---------- ----------- --------------- ---------- ----------
15. Other short-term payables
Other short-term payables consist of:
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Transaction related payables 6,328 516
Other short-term payables assumed through the Gamesys Acquisition 24,161 -
Current portion on non-compete clauses payable - 8,667
Working capital adjustment payable - 429
------------------ -----------------
30,489 9,612
------------------ -----------------
16. Credit facilities
EUR Term Facility GBP Term Facility Total
(GBP000's) (GBP000's) (GBP000's)
------------------ ------------------ ---------------
Balance, 1 January 2018 122,903 246,584 369,487
Accretion* 172 404 576
Foreign exchange translation 1,387 - 1,387
------------------ ------------------ ---------------
Balance, 31 December 2018 124,462 246,988 371,450
------------------ ------------------ ---------------
Add-on Debt 173,578 - 173,578
Debt financing costs (2,617) - (2,617)
Accretion* 141 319 460
Foreign exchange translation (1,028) - (1,028)
------------------ ------------------ ---------------
Balance, 30 September 2019 294,536 247,307 541,843
------------------ ------------------ ---------------
Current portion - - -
------------------ ------------------ ---------------
Non-current portion 294,536 247,307 541,843
------------------ ------------------ ---------------
(*) Effective interest rates are as follows: EUR Term Facility - 4.26% (2018 - 4.44%), GBP Term Facility - 5.97% (2018 - 6.01%).
On 1 July 2019, the Group completed the syndication of a EUR196.0 million additional term loan facility (the 'Add-on Debt') to support the Gamesys Acquisition. The Group's new incremental term loan facility is fungible with the Group's existing EUR Term Facility and the syndication came into effect on 26 September 2019.
17. Financial instruments
The principal financial instruments used by the Group are summarised below:
Financial assets
Financial assets as subsequently measured at
amortised cost
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------------ ---------------------
Cash restricted cash 114,473 90,544
Trade and other receivables 30,294 17,070
Other long-term receivables 1,427 1,462
Customer deposits 15,022 9,032
------------------------ ---------------------
161,216 118,108
------------------------ ---------------------
Financial liabilities
Financial liabilities as subsequently measured at
amortised cost
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
-------------------------- ------------------------
Accounts payable and accrued liabilities 77,740 20,606
Other short-term payables 30,489 9,612
Other long-term payables 10,000 1,429
Interest payable 434 264
Payable to customers 15,022 9,032
Long-term debt 541,843 371,450
-------------------------- ------------------------
675,528 412,393
-------------------------- ------------------------
The carrying values of the financial instruments noted above approximate their fair values.
Other financial instruments
Financial instruments at fair value through profit or loss - assets/(liabilities)
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------------------------------- ---------------------------------------
Interest Rate Swap (1,868) (485)
Currency Swap (4,384) -
Contingent consideration - (4,540)
Other long-term receivables 3,825 3,574
------------------------------------------- ---------------------------------------
(2,427) (1,451)
------------------------------------------- ---------------------------------------
Fair value hierarchy
The hierarchy of the Group's financial instruments carried at fair value is as follows:
Level 2 Level 3
30 September 2019 31 December 2018 30 September 2019 31 December 2018
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
------------------ ------------------ ------------------ ------------------
Interest Rate Swap (1,868) (485) - -
Currency Swap (4,384) - - -
Other long-term receivables 3,825 3,574 - -
Contingent consideration - - - (4,540)
------------------ ------------------ ------------------ ------------------
The Interest Rate Swap and Currency Swap balances represent the fair values of expected cash flows under the Interest Rate Swap and Currency Swap agreements.
Other long-term receivables represent the fair value of the loan receivable from Gaming Realms. The key inputs into the fair value estimation of this balance include the share price of Gaming Realms on the date of cash transfer, a 3.2-year risk-free interest rate of 0.6019%, and an estimated share price return volatility rate of Gaming Realms of 47.8%.
Following completion of the Gamesys Acquisition, the Group will be able to set off the remaining milestone payment for the Jackpotjoy segment against a corresponding receivable included in current assets assumed, as outlined in note 3, through a working capital adjustment. As a result, at 30 September 2019 the remaining milestone payment is considered settled.
The movement in Level 3 financial instruments is detailed below:
(GBP000's)
---------------
Contingent consideration, 1 January 2018 59,583
Fair value adjustments 7,208
Payments (63,455)
Accretion of discount 1,204
---------------
Contingent consideration, 31 December 2018 4,540
---------------
Fair value adjustments 460
Set-off against acquired assets (5,000)
---------------
Contingent consideration, 30 September 2019 -
---------------
18. Other long-term payables
Other long-term payables consist of:
30 September 2019 31 December 2018
(GBP000's) (GBP000's)
------------------ -----------------
Deferred consideration payable (note 3) 10,000 -
Interest Rate Swap (note 13) 934 388
Currency Swap (note 13) 2,649 -
Non-compete clauses payable - 1,429
------------------ -----------------
13,583 1,817
------------------ -----------------
19. Share capital
As at 30 September 2019, Gamesys Group plc's issued share capital consisted of 108,424,806 ordinary shares, each with a nominal value of GBP0.10.
Ordinary shares of
GBP0.10
-------------------------
(GBP000's) #
----------- ------------
Balance, 1 January 2018 7,407 74,064,931
Conversion of convertible debentures, net of costs 6 56,499
Exercise of options 21 207,500
----------- ------------
Balance, 31 December 2018 7,434 74,328,930
----------- ------------
Issuance, net of costs 3,365 33,653,846
Exercise of options 44 442,030
----------- ------------
Balance, 30 September 2019 10,843 108,424,806
----------- ------------
Ordinary shares
During the nine months ended 30 September 2019, Gamesys Group plc issued 33,653,846 additional ordinary shares as part of the consideration paid for the Gamesys Acquisition.
Share options
During the nine months ended 30 September 2019, nil share options were granted, 442,030 share options were exercised, 121,166 share options were forfeited, and nil share options expired.
Long-term incentive plan
On 30 September 2019, Gamesys Group plc granted additional equity-settled awards over ordinary shares of Gamesys Group plc under the Group's long-term incentive plan ('LTIP3') for key management personnel. The awards will (i) vest on the date on which the remuneration committee determines the extent to which the performance conditions (as described below) have been met and (ii) are subject to a holding period of two years beginning on the vesting date. At 30 September 2019, the number of ordinary shares that may be allotted under the Group's 2019 LTIP3 awards is 778,100.
The performance condition as it applies to 25% of each LTIP3 award is based on the Group's total shareholder return compared with the total shareholder return of the companies constituting the Financial Times Stock Exchange 250 index (excluding investment trusts and financial services companies) over three years commencing on 1 January 2019. The performance condition as it applies to another 25% of the award is based on the Group's total shareholder return compared with the total shareholder return of certain companies in a peer group over three years commencing on 1 January 2019. The performance condition as it applies to the remaining 50% of the award is based on the compound annual growth rate ('CAGR') of the Group's earnings per share over a three year period commencing on 1 January 2019 ('EPS CAGR Tranche') and vests as to 25% if the EPS CAGR equals 5.0%, between 25% and 100% (on a straight-line basis) if final year EPS CAGR is more than 5.0% but less than 14.0%, and 100% if final year EPS CAGR is 14.0% or more.
During the three and nine months ended 30 September 2019, the Group recorded GBP0.1 million and GBP0.2 million, respectively (three and nine months ended 30 September 2018 - GBP0.1 million and GBP0.2 million, respectively) in share-based compensation expense relating to its long-term incentive plans with a corresponding increase in share-based payment reserve.
20. Contingent liabilities
Indirect taxation
Gamesys Group plc subsidiaries may be subject to indirect taxation on transactions that have been treated as exempt supplies of gambling, or on supplies that have been zero rated where legislation provides that the services are received or used and enjoyed in the country where the service provider is located. Revenue earned from customers located in any particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or on its financial position.
Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where the likelihood of a liability arising is considered remote, or the possible contingency is not material to the financial position of the Group, the contingency is not recognised as a liability at the balance sheet date. As at 30 September 2019, the Group had recognised GBPnil (31 December 2018 - GBPnil) related to potential contingent indirect taxation liabilities.
[1] All figures in the financial summary, except operating cash flows, exclude Mandalay results. For more information on the sale of the Mandalay assets, please refer to Note 7 - 'Discontinued operations' of the consolidated financial statements on pages 24 and 25 of this release.
[2] All figures in the financial summary and financial review sections of this release include results of the Gamesys Acquisition for the period from 27 September 2019 to 30 September 2019. For more information on the Gamesys Acquisition, please refer to Note 3 - 'Business combinations' of the consolidated financial statements on page 17 of this release.
[3] This release contains non-IFRS financial measures, which are noted where used. For additional details, including with respect to the reconciliations from these non-IFRS financial measures, please refer to the information under the heading 'Note regarding non-IFRS measures' on page 4 of this release and Note 5 - 'Segment information' of the consolidated financial statements on pages 18 through 23 of this release.
[4] Per share figures are calculated on a diluted weighted average basis using the IFRS treasury method.
[5] All figures in the pro-forma financial summary and related discussions present Group results as though the acquired Gamesys brands have been a part of the Group for the entire current year and comparative periods.
[6] Organic growth is growth achieved without accounting for acquisitions or disposals.
[7] Adjusted net debt consists of existing term loans, deferred consideration, fair value of interest rate swap and cross currency swap, less non-restricted cash and cash required to pay for one-time transactional liabilities.
[8] Adjusted net leverage ratio consists of existing term loans, deferred consideration, fair value of interest rate swap and cross currency swap, less non-restricted cash and cash required to pay for one-time transactional liabilities divided by LTM to 30 September 2019 pro-forma adjusted EBITDA of GBP160.5 million.
[9] For additional details, please refer to the information under the heading 'Key performance indicators' on page 10 of this release.
[10] Figures exclude results from the Group's Mandalay and social gaming businesses, where applicable.
[11] Figures exclude results from the Gamesys Acquisition.
[12] Constant currency amounts are calculated by applying the same EUR to GBP average exchange rates to both current and prior year comparative figures.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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November 13, 2019 02:01 ET (07:01 GMT)
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