LONDON, March 20, 2018 /PRNewswire/ --
Full year gaming revenue up 14%
year-on-year
Healthy double-digit
progression in Group revenues in Q1
2018
Jackpotjoy plc (LSE: JPJ), a leading global online bingo-led
operator, today announces the results of the Jackpotjoy group (the
"Group") for the year ended 31 December
2017.
Financial summary
Year ended Year ended Reported
31 Dec 2017 31 Dec 2016 Change
(GBPm) (GBPm) (%)
Gaming revenue 304.6 266.9 14
Net loss (as reported under IFRS) (67.9) (40.6) (67)
Adjusted EBITDA[1] 108.6 102.2 6
Adjusted net income[1] 76.1 83.5 (9)
Operating cash flows 101.0 83.0 22
Diluted net loss per share[2] GBP(0.92) GBP(0.57) (61)
Diluted adjusted net income per
share[1,2] GBP1.02 GBP1.13 (10)
Financial highlights for the year
- Strong 2017 financial performance:
- Gaming revenue rose 14%, supported by 12% growth in the
Jackpotjoy segment and 28% growth in Vera&John
- Adjusted EBITDA[1] increased 6% (growth of 8% on a
like-for-like basis[3]), reflecting the planned increase in
marketing costs in the second half of the year and the application
of point of consumption tax to gross gaming revenue ("POC2") in the
UK in Q4
- Adjusted net income[1] decreased 9% year-on-year due to higher
net interest costs
- Impressive ongoing cash generation and successful re-financing:
- Record £101.0 million of operating cash flow generated in 2017,
equating to 22% growth year-on-year and 135p of operating cash flow
per share[2]
- Adjusted EBITDA[1] to cash conversion of 93%
- Free cash flow (operating cash flow less capital expenditure)
of £97.8 million
- Successful refinancing of debt facilities and annualised
interest cost savings in excess of £9.0 million a year
- Adjusted net debt[4] of £387.3 million (reduced from £408.1
million at 31 December 2016) and
adjusted net leverage ratio[5] of 3.57x
- Solid start to FY18 with 12% growth in revenues to the end of
February. The Group has comfortable cash resources to meet the
final earn-out payment due to Gamesys in June 2018 (for the Spanish assets, Botemania) and
expects to continue to deleverage the business during the year
Operational highlights for the year
- Continued improvement in core KPIs[6] year-on-year:
- Average Active Customers per month[6] grew to 250,321 in the
year to 31 December 2017, an increase
of 6% year-on-year
- Average Real Money Gaming Revenue per month[6] grew to £23.5
million, an increase of 16% year-on-year
- Monthly Real Money Gaming Revenue per Average Active
Customer[6] of £94, an increase of 9% year-on-year
Business segments highlights for the year
- Jackpotjoy (69% of Group revenue) - Gaming revenue growth of
12%, driven by good operational execution across all major brands;
Adjusted EBITDA[1] growth of 12% partially impacted by higher
distribution costs from the launch of the new TV advertising
campaign in September and the introduction of POC2 on gross gaming
revenue in the UK in Q4; Starspins and Botemania brands (22% of
segment revenues) continued to perform strongly
- Vera&John (24% of Group revenue) - Gaming revenue growth of
28% and Adjusted EBITDA[1] growth of 13%; revenue increased by 20%
on a constant currency[7] basis
- Mandalay (7% of Group revenue) - Gaming revenue decline of 7%
and an Adjusted EBITDA[1] increase of 8% due to lower marketing
spend; operational margins and deposit hold have been improving
since the segment focused on changing promotional spend in Q1
2017
Outlook
The 2018 financial year has seen a solid start with a healthy
double-digit progression in Group revenues. We are due to make the
final earn-out payment to Gamesys in June and expect to meet this
comfortably from existing cash resources. Deleveraging remains core
to our strategy and we expect to make further progress in this area
over the course of the financial year. The UK and other global
online gaming markets continue to offer significant growth
opportunities, and we are confident that we are well-placed to take
advantage of this backdrop and deliver further value to
shareholders.
-------------------------
1. This release contains non-IFRS financial measures, which
are noted where used. For additional details, including with
respect to the reconciliations from these non-IFRS financial
measures, please refer to the information under the heading “Note
Regarding Non-IFRS Measures” on page 6 of this release and Note 5 –
Segment Information of the consolidated financial statements on
pages 33 through 36 of this release.
2. Per share figures are calculated on a diluted weighted average
basis using the IFRS treasury method.
3. Figures reflect Adjusted EBITDA growth factoring out £2.1
million in other income earned in 2016, as it is non-recurring.
4. Adjusted net debt consists of existing term loan, convertible
debentures, non-compete clause payout, and contingent consideration
liability less non-restricted cash.
5. Adjusted net leverage ratio consists of existing term loans,
convertible debentures, non-compete clause payout and contingent
consideration liability less non-restricted cash divided by LTM to
31 December 2017 Adjusted EBITDA of
£108.6 million.
6. For additional details, please refer to the information under
the heading “Key performance indicators” on pages 13 and 14 of this
release.
7. Constant currency amounts are calculated by applying the same
EUR to GBP average exchange rates to both, current and prior year
comparative periods.
Neil Goulden, Executive
Chairman, commented:
"The record financial results we achieved in 2017 reflect the
dedication, ambition and work ethic present in employees across the
business. As an organisation, we are committed to delivering the
best customer experience across all our gaming verticals. We also
strive to represent the highest standards of consumer best practice
in our industry. This is underpinned by wholehearted support for
the ethos of responsible gambling and proactive monitoring of
player behaviour.
We are confident of our prospects for growth against a healthy
market backdrop in global online gaming and determined to ensure we
present an entertaining, fun and responsible environment for our
customers to enjoy."
Conference call
A conference call for analysts and investors will be held today
at 1.00pm GMT / 9.00am ET. To participate, interested parties are
asked to dial +44(0)20-3003-2666 or +1-800-608-0547, or for US
shareholders +1-866-966-5335, 10 minutes prior to the scheduled
start of the call using the reference "Jackpotjoy" when prompted. A
replay of the conference call will be available for 30 days by
dialling +44(0)20-8196-1998 or +1-866-583-1039 and using reference
8070495#. A transcript will also be made available on Jackpotjoy
plc's website at www.jackpotjoyplc.com/investors.
Executive Chairman's Review
Overview and summary of results
Some of the key highlights of this year include a successful UK
listing, record results and the completion of the substantial
majority of earn-out payments for prior year acquisitions. In
addition, we completed a refinancing of all the Group's debt
facilities with a major interest cost saving. We expect to make
further progress in all key areas in 2018, whilst remaining
vigilant over the operational and regulatory challenges which both
the Group and the online gaming industry faces.
Successful UK listing January
2017
The journey of transition from a Canadian listed company began
in July 2016 with the announcement of
the intention to apply for a London listing for Jackpotjoy plc. Our largest
market by far is the UK, but as well as reflecting our
customer-facing profile, a primary motivation was to attain a more
appropriate valuation of the Group's businesses. The Group
successfully listed on the main market of the LSE in January 2017, and we expect the ongoing
transition of shares from Canadian to international investors to be
maintained. We continue to target a move to the Premium list of the
LSE and remain focused on the steps needed to achieve this.
Record operational results
Gaming revenues grew 14% in 2017 to £304.6m, while Adjusted
EBITDA[1] increased 6% to £108.6m representing a record outturn for
the Group since its inception in 2014. Following a payment of
£94.2m in June 2017 for all the non-
Spanish assets acquired from Gamesys, the vast majority of our
earn-out payments have now been met. We finished the year with
Adjusted net debt[4] of £387.3m and having successfully completed a
major refinancing exercise, our interest bill has reduced by c.£9m
per annum.
Senior divisional management appointees
During the year, we appointed two new divisional CEOs to our
largest business segments to substantially enhance our key
leadership team. Irina Cornides became CEO of the Jackpotjoy
division in June 2017. Irina joined
Intertain through the acquisition of Mandalay Media in 2014, where
she served as Managing Director. Her prior industry experience
spans over a decade and includes roles at PartyGaming
(bwin.party/GVC) both pre-and post-IPO.
Subsequently, in September 2017,
it was announced that David Flynn
would be joining the Group as CEO of the Vera&John division.
David was most recently the Group Chief Commercial Officer at NYX
Gaming Group Limited ('NYX'), where he was responsible for NYX's
revenue generation worldwide. With more than 14 years in the
iGaming business, David has extensive digital gaming experience,
having previously been both CEO and COO of NYX Interactive AB,
prior to its merger with NextGen Gaming. He has also held executive
management roles at Microgaming and Ongame.
Leadership team and Board developments
In January 2017, Nigel Brewster and Colin
Sturgeon were appointed to the Board as Non-Executive
Directors.
In October 2017, we announced that
Andy McIver was to step down from
his role as Chief Executive Officer. After several months of
careful consideration and in consultation and agreement with Andy,
the Board's view was that further operational expertise was
required to ensure the Company is positioned to maximise future
growth prospects through its core business segments. Andy left with
our best wishes, having played a major role in achieving our
listing on the LSE.
Under the Company's new management structure, I have become
Executive Chairman, responsible for leading the development and
execution of the Company's long-term strategy and the Board has
appointed experienced gaming executive, Simon Wykes, as Chief Executive Officer of
Jackpotjoy Operations Ltd. Simon had most recently completed an
external consultancy role with Ladbrokes Coral on their merger
integration plans, and he was previously Chief Executive Officer at
Gala Leisure and Managing Director at Gala Coral Group, where he
oversaw the execution of a successful strategic turnaround of its
bingo division. He also served as Managing Director of Rank Group
for over four years. His main role will be working operationally in
the Company's global markets with the senior management teams
across each of the Company's three business segments.
Other Board developments during the year included the
announcement in September that Jörgen Nordlund (a co-founder of
Vera&John) was stepping down as Non-Executive Director of
Jackpotjoy plc following our successful relisting in London. We expect to announce a UK-based
independent Non-Executive Director replacement in the coming
months.
Overview of strategic development and execution
Our primary goals at the beginning of 2017 were to continue to
execute operationally, to successfully list in London, to meet the earn-out obligations and
to refinance our debt. Having successfully addressed each of these,
we remain focused on the delivery of operational progress and
revenue growth and also to deleverage as we seek to position the
Group with a capital structure more akin to a typical UK-quoted
online gaming company. In turn, we expect this to put us in a
position where we can use the strong cash flow of the Group to
return cash to shareholders. As we approach 2019, one of our key
operational challenges will be to determine how we integrate the
Jackpotjoy division employees that currently reside within Gamesys,
and I am confident we have a team in place that can deliver this
successfully.
Neil Goulden
Executive Chairman
20 March 2018
Note Regarding Non-IFRS 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 before
interest expense including accelerated debt costs and other
accretion (net of interest income), income taxes, amortisation and
depreciation, share-based compensation, independent committee
related expenses, severance costs, (gain)/loss on cross currency
swap, fair value adjustments on contingent consideration,
transaction related costs, foreign exchange (gain)/loss, and gain
on sale of intangible assets. Management believes that Adjusted
EBITDA is an important indicator of the issuer's ability to
generate liquidity to service outstanding debt and fund acquisition
earn-out payments and uses this metric for such purpose. The
exclusion of share-based compensation eliminates non-cash items and
the exclusion of independent committee related expenses, severance
costs, (gain)/loss on cross currency swap, fair value adjustments
on contingent consideration, transaction related costs, foreign
exchange (gain)/loss, and gain on sale of intangible assets
eliminates items which management believes are either
non-operational and non-routine.
Adjusted Net Income, as defined by the Group, means net
income plus or minus items of note that management may reasonably
quantify and believes will provide the reader with a better
understanding of the Group's underlying business
performance. Adjusted Net Income is calculated by adjusting net
income for accretion on financial liabilities including
accelerated debt issue costs, amortisation of acquisition
related purchase price intangibles and non-compete clauses,
share-based compensation, independent committee related expenses,
severance costs, (gain)/loss on cross currency swap, fair value
adjustments on contingent consideration, transaction related costs,
foreign exchange (gain)/loss substantially arising on
the Group's credit facilities,
and gain on sale of intangible assets. The exclusion of accretion
on financial liabilities and share-based compensation eliminates
the non-cash impact and the exclusion of amortisation of
acquisition related purchase price intangibles and non-compete
clauses, independent committee related expenses, severance costs,
(gain)/loss on cross currency swap, fair value adjustments on
contingent consideration, transaction related costs, foreign
exchange (gain)/loss, and gain on sale of intangible assets
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, 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 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 Group's earn‐out
obligations and the possibility of the Group drawing on the
Revolving Facility. 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 licenses, permits and certifications to carry out business
in the jurisdictions in which it currently operates or intends to
operate; governmental and regulatory actions, including the
introduction of new laws or changes in laws (or the interpretation
thereof) related to online gaming; general business, economic and
market conditions (including market growth rates and the withdrawal
of the UK from the European Union); the Group operating in foreign
jurisdictions; the competitive environment; the expected growth of
the online gaming market and potential new market opportunities;
anticipated and unanticipated costs; the protection of the
Group's intellectual property rights; the
Group's ability to successfully integrate and realise
the benefits of its completed acquisitions, the amount of expected
earn-out payments required to be made; the Group's
continued relationship with the Gamesys group and other third
parties; the 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. The foregoing risk factors are
not intended to represent a complete list of factors that could
affect the Group. Additional risk factors are discussed in
Schedule "A" attached to Jackpotjoy
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 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
Total revenue and other income
The Group's revenues during the three months ended 31 December 2017 consisted of:
• £56.1 million in revenue earned from Jackpotjoy's operational
activities
• £21.7 million in revenue earned from Vera&John's operational
activities
• £4.8 million in revenue earned from Mandalay's operational
activities
The Group's revenues during the three months ended 31 December 2016 consisted of:
• £52.6 million in revenue earned from Jackpotjoy's operational
activities
• £15.3 million in revenue earned from Vera&John's operational
activities
• £5.1 million in revenue earned from Mandalay's operational
activities
The increase in revenue for the three months ended 31 December 2017 in comparison with the three
months ended 31 December 2016 relates
primarily to organic growth[8] of the Vera&John and Jackpotjoy
segments, where revenues increased by 42% and 7%, respectively.
The Group's revenues during the year ended 31 December 2017 consisted of:
• £211.3 million in revenue earned from Jackpotjoy's operational
activities
• £73.2 million in revenue earned from Vera&John's operational
activities
• £20.2 million in revenue earned from Mandalay's operational
activities
The Group's revenues during the year ended 31 December 2016 consisted of:
• £188.2 million in revenue earned from Jackpotjoy's operational
activities
• £57.0 million in revenue earned from Vera&John's operational
activities
• £21.7 million in revenue earned from Mandalay's operational
activities
• £2.1 million in other income earned from the revenue guarantee
relating to the service agreement entered into with Amaya Inc. (the
"Revenue Guarantee") and Platform Migration Revenue (the "Platform
Migration Revenue") from Amaya Inc. included in the Vera&John
operating segment
The increase in revenue for the year ended 31 December 2017 in comparison with the year
ended 31 December 2016 relates
primarily to organic growth[8] of the Vera&John and Jackpotjoy
segments, where revenues increased by 28% and 12%,
respectively.
Costs and expenses
Three month Three month
period ended period ended Year ended Year ended
31 December 31 December 31 December 31 December
2017 2016 2017 2016
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
Expenses:
Distribution costs 45,489 37,066 147,483 130,735
Administrative
costs 31,094 26,150 113,039 96,200
Transaction related
costs 4,034 6,189 6,710 22,767
Severance costs 700 - 700 5,695
81,317 69,405 267,932 255,397
Distribution costs
Three month Three month
period ended period ended Year ended Year ended
31 December 31 December 31 December 31 December
2017 2016 2017 2016
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
Selling and
marketing 16,720 14,382 49,760 46,744
Licensing fees 12,384 11,505 47,067 42,653
Gaming taxes 12,648 8,271 37,851 29,769
Processing fees 3,737 2,908 12,805 11,569
45,489 37,066 147,483 130,735
---------------------
8.Organic growth is growth achieved without accounting for
acquisitions or disposals.
Selling and marketing expenses consist of payments made to
affiliates and general marketing expenses related to each brand.
Licensing fees consist of the fees for the Mandalay and Jackpotjoy
segments to operate on their respective platforms and game
suppliers' fees paid by the Vera&John and Jackpotjoy segments.
Gaming taxes largely consist of point of consumption ("POC") tax,
which is a 15% tax on Total Real Money Gaming Revenue6
introduced in the UK in December
2014. Gaming taxes also consist of POC2, which was
introduced in the UK in August 2017
and came into effect in Q4 2017. Processing fees consist of costs
associated with using payment providers and include payment service
provider transaction and handling costs, as well as deposit and
withdrawal fees. With the exception of selling and marketing
expenses, distribution costs tend to be variable in relation to
revenue.
The increase in distribution costs for the three months and year
ended 31 December 2017 compared to
the same periods in 2016 is mainly due to the higher revenues
achieved.
Administrative costs
Three month Three month
period ended period ended Year ended Year ended
31 December 31 December 31 December 31 December
2017 2016 2017 2016
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
Compensation and
benefits 9,126 8,849 34,848 29,490
Professional fees 1,074 447 3,749 3,741
General and
administrative 4,503 2,280 11,400 6,836
Amortisation and
depreciation 16,391 14,574 63,042 56,133
31,094 26,150 113,039 96,200
Compensation and benefits costs consist of salaries, wages,
bonuses, directors' fees, benefits and share-based compensation
expense. The increase in costs for the three months and year ended
31 December 2017 compared to the same
periods in 2016 relates to staff additions, bonus accruals, and
salary increases in various business units.
Professional fees consist mainly of legal, accounting and audit
fees. The increase in professional fees for the three months ended
31 December 2017 compared to the same
period in 2016 relates to increases in consulting and legal costs
associated with the Group's growth and dual listings on both, the
London Stock Exchange and the Toronto Stock Exchange. However,
professional fees incurred in the year ended 31 December 2017 are flat in comparison to the
same period in 2016 as prior year balances included one-time costs
related to the Independent Committee.
General and administrative expenses consist of items such as
rent and occupancy, travel and accommodation, insurance, listing
fees, technology and development costs, write-offs of accounts
receivable and other office overhead charges. The increase in these
expenses for the three months ended 31
December 2017 compared to the same period in the prior year
can be attributed mostly to higher travel costs and accounts
receivable write-offs of £1.4 million recorded in the current
period. The increase in these expenses for the year ended
31 December 2017 compared to the same
period in the prior year relates to accounts receivable write-offs
of £1.5 million, as well as higher travel costs and overheads.
Amortisation and depreciation consists of amortisation of the
Group's intangible assets and depreciation of the Group's tangible
assets over their useful lives. The increase in amortisation and
depreciation for the three months and year ended 31 December 2017 is due to intangible and
tangible asset additions since Q1 2016, particularly the
non-compete clauses (as defined below), for which amortisation
started in 2017.
Transaction related costs
Transaction related costs consist of legal, professional, due
diligence, other direct costs/fees associated with transactions and
acquisitions contemplated or completed, initiatives, costs related
to corporate structure optimisation, and the refinancing of the
Group's external debt. 2016 and Q1 2017 transaction related
costs also included costs associated with the UK strategic review
and initiatives undertaken by the Intertain board of directors.
Transaction related costs for the year ended 31 December 2016 additionally included special
committee fees.
Business unit results
Jackpotjoy
Q4 2017 Q4 2016 Variance
GBP(millions) GBP(millions) GBP(millions) Variance %
Revenue 56.1 52.6 3.5 7%
Distribution costs 30.5 26.9 3.6 13%
Administration costs 4.6 4.0 0.6 15%
Adjusted EBITDA1 21.0 21.7 (0.7) (3%)
YTD 2017 YTD 2016 Variance
GBP(millions) GBP(millions) GBP(millions) Variance %
Revenue 211.3 188.2 23.1 12%
Distribution costs 99.1 88.1 11.0 12%
Administration costs 17.1 15.5 1.6 10%
Adjusted EBITDA1 95.1 84.6 10.5 12%
Revenue for the Jackpotjoy segment increased in the three months
and year ended 31 December 2017 due
to organic growth[8] led by sharp increases in Starspins and
Botemania brands. Collectively, they accounted for 25% and 22% of
the segment's revenue for the three months and year ended
31 December 2017, respectively.
Jackpotjoy UK brand revenue accounted for 64% and 66% of the
Jackpotjoy segment's revenue for the three months and year ended
31 December 2017, respectively. In
addition to higher revenues achieved, the increase in distribution
costs for the three months and year ended 31
December 2017 is further driven by the segment's UK TV
marketing campaign launched in September
2017, as well as an incremental gaming tax expense incurred
in Q4 2017, which relates to the introduction of tax on bonuses
through UK POC2 tax.
Vera&John
Q4 2017 Q4 2016 Variance
GBP(millions) GBP(millions) GBP(millions) Variance %
Revenue 21.7 15.3 6.4 42%
Distribution costs 11.6 6.9 4.7 68%
Administration costs 6.5 4.2 2.3 55%
Adjusted EBITDA1 3.6 4.2 (0.6) (14%)
YTD 2017 YTD 2016 Variance
GBP(millions) GBP(millions) GBP(millions) Variance %
Revenue 73.2 57.0* 16.2 28%
Distribution costs 36.6 28.3 8.3 29%
Administration costs 18.6 12.8 5.8 45%
Adjusted EBITDA1 18.0 15.9* 2.1 13%
*Excludes £2.1 million of other income earned from the
Revenue Guarantee and from Platform Migration Revenue in
2016.
Revenue for the Vera&John segment in the three months and
year ended 31 December 2017 increased
by 42% and 28% respectively, compared to the same periods in 2016
due to strong organic growth[8]. GBP to EUR exchange rate movement
also impacted these results. On a constant currency[7] basis, in
the three months and year ended 31 December
2017, revenue increased by 39% and 20% respectively,
compared to same periods in 2016. Distribution costs also increased
by 68% and 29% as game suppliers and payment providers' costs moved
proportionally with revenue. Selling and marketing costs increased
by 72% and 35% in the three months and year ended 31 December 2017 respectively, due to several
marketing campaigns launched in Q4 2017.
Increases in administration costs for the three months and year
ended 31 December 2017 compared to
the same periods in 2016, were mainly driven by accounts receivable
write-offs recorded in Q4 2017, as well as increases in personnel
costs as the segment continues to grow.
Mandalay
Q4 2017 Q4 2016 Variance
GBP(millions) GBP(millions) GBP(millions) Variance %
Revenue 4.8 5.1 (0.3) (6%)
Distribution costs 3.3 3.2 0.1 3%
Administration costs 0.4 0.3 0.1 33%
Adjusted EBITDA[1] 1.1 1.6 (0.5) (31%)
YTD 2017 YTD 2016 Variance
GBP(millions) GBP(millions) GBP(millions) Variance %
Revenue 20.2 21.7 (1.5) (7%)
Distribution costs 11.7 14.0 (2.3) (16%)
Administration costs 1.4 1.1 0.3 27%
Adjusted EBITDA[1] 7.1 6.6 0.5 8%
Revenue for the Mandalay segment for the three months and year
ended 31 December 2017 was 6% and 7%
lower respectively, compared to the same periods in 2016. Adjusted
EBITDA1 for the three months ended 31
December 2017 was 31% lower compared to the prior period due
to incremental gaming tax expense incurred in Q4 2017, which
relates to POC2. This was partially offset by lower marketing spend
in the period.
However, for the year ended 31 December
2017, Adjusted EBITDA1 was 8% higher compared to the same
period in 2016 as a result of lower marketing spend. Operational
margins and deposit hold have been improving since the segment
focused on changing promotional spend in Q1 2017. The segment
continues to focus on developing a long-term strategy to best
maximise future growth.
Unallocated Corporate Costs
Adjusted EBITDA[1] on unallocated corporate costs decreased from
(£2.4) million to (£3.1) million in the three months ended
31 December 2017 compared to the
three months ended 31 December 2016.
The variance mainly relates to a £0.2 million increase in general
and administrative overheads and a £0.6 million increase in
professional fees, which were slightly offset by a £0.2 million
decrease in compensation.
Adjusted EBITDA[1] on unallocated corporate costs decreased from
(£7.0) million to (£11.7) million in the year ended 31 December 2017 as compared to the year ended
31 December 2016. This is primarily
due to an increase of £1.7 million in compensation due to the
addition of new staff and bonuses, a £1.2 million increase in
general and administrative overhead costs associated with increased
headcount and higher travel costs, as well as a £1.8 million
increase in professional fees.
Key performance indicators
Average Active Customers is a key performance indicator
used by management to assess real money customer acquisition and
real money customer retention efforts of each of the Group's
brands. The Group defines Average Active Customers as being real
money customers who have placed at least one bet in a given month
("Average Active Customers").
"Average Active Customers per month" is the Average Active
Customers per month, averaged over a twelve-month period. While
this measure is not recognised by IFRS, management believes that it
is a meaningful indicator of the Group's ability to acquire and
retain customers.
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 the Revenue Guarantee, affiliate websites and
social gaming.
The Group defines Average Real Money Gaming Revenue per month
("Average Real Money Gaming Revenue per month") as Real Money
Gaming Revenue per month, averaged over a twelve-month period.
While these measures are not recognised by IFRS, management
believes that they are meaningful indicators of the Group's real
money gaming operational results.
Monthly Real Money Gaming Revenue per Average Active
Customer is a key performance indicator used by management to
assess the Group's ability to generate Real Money Gaming Revenue on
a per customer basis.
The Group defines Monthly Real Money Gaming Revenue per Average
Active Customer ("Monthly Real Money Gaming Revenue per Average
Active Customer") as being Average Real Money Gaming Revenue per
month divided by Average Active Customers per month. While this
measure is not recognised by IFRS, management believes that it is a
meaningful indicator of the Group's ability to generate Total Real
Money Gaming Revenue.
Year ended Year ended
31 December 31 December
2017 2016 Variance Variance %
Average Active Customers per month (#) 250,321 235,584 14,737 6%
Total Real Money Gaming Revenue
(GBP000's) (1) 282,375 243,042 39,333 16%
Average Real Money Gaming Revenue per
month (GBP000's) 23,531 20,254 3,277 16%
Monthly Real Money Gaming Revenue per
Average Active Customer (GBP) 94 86 8 9%
(1) Total Real Money Gaming Revenue for the
year ended 31 December 2017 consists
of total revenue less other income earned from the Revenue
Guarantee and Platform Migration Revenue of £nil (31 December 2016 - £2.1 million) and revenue
earned from affiliate websites and social gaming revenue of £22.3
million (31 December 2016 - £23.9
million).
Monthly Real Money Gaming Revenue per Average Active Customer6
increased by 9% year-over- year which is in line with the Group's
overall customer acquisition and retention strategy.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year ended Year ended
31 December 2017 31 December 2016
(GBP000's) (GBP000's)
Revenue and other income
Gaming revenue 304,646 266,938
Other income earned from revenue guarantee - 1,181
Other income earned from platform migration - 925
Total revenue and other income[5] 304,646 269,044
Costs and expenses
Distribution costs[5,6] 147,483 130,735
Administrative costs[6] 113,039 96,200
Severance costs[5] 700 5,695
Transaction related costs[5] 6,710 22,767
Foreign exchange loss[5] 10,051 3,098
Total costs and expenses 277,983 258,495
Gain on sale of intangible assets[5,13] (1,271) -
Fair value adjustments on contingent consideration18 27,562 49,382
Loss/(gain) on cross currency swap[12] 12,512 (34,070)
Interest income[7] (182) (156)
Interest expense[7] 30,189 18,243
Accretion on financial liabilities[7] 25,049 17,857
Financing expenses[5] 95,130 51,256
Net loss for the year before taxes (67,196) (40,707)
Current tax provision[22] 1,128 347
Deferred tax recovery[22] (427) (411)
Net loss for the year
attributable to owners of the parent (67,897) (40,643)
Other comprehensive income/(loss): Items that will or may be reclassified to
profit or loss in subsequent periods
Foreign currency translation gain/(loss) 27,607 (18,382)
Loss on cross currency swap[12] (7,737) -
Reclassification of loss on cross currency swap[12] 7,737 -
Total comprehensive loss for the year attributable to owners of the parent (40,290) (59,025)
Net loss for the year per share
Basic[8] GBP(0.92) GBP(0.57)
Diluted[8] GBP(0.92) GBP(0.57)
The accompanying notes form an integral part of the financial statements.
CONSOLIDATED BALANCE SHEETS
As at
As at As at 1 January
31 December 2017 31 December 2016 2016
ASSETS (GBP000's) (GBP000's) (GBP000's)
Current assets
Cash9 59,033 68,485 31,762
Restricted cash9 208 253 175
Customer deposits 8,180 8,573 6,522
Trade and other receivables10 19,379 16,763 17,269
Current portion of cross currency swap12,18 - 38,171 762
Taxes receivable 6,432 6,832 7,375
Total current assets 93,232 139,077 63,865
Tangible assets 1,339 852 233
Intangible assets13 292,223 352,473 380,443
Goodwill13 296,781 296,352 288,326
Cross currency swap12,18 - - 3,972
Other long-term receivables11,18 3,528 2,624 1,317
Other long-term assets11,18 2,076 - -
Total non-current assets 595,947 652,301 674,291
Total assets 689,179 791,378 738,156
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities14 17,821 8,992 6,235
Other short-term payables15 12,151 15,321 530
Interest payable 924 633 -
Payable to customers 8,180 8,573 6,522
Convertible debentures20 254 - -
Current portion of long-term debt17 - 26,695 25,160
Current portion of contingent consideration18 51,866 86,903 5,996
Provision for taxes 7,273 7,743 9,834
Total current liabilities 98,469 154,860 54,277
Contingent consideration18 7,717 33,284 203,629
Other long-term payables19 8,245 14,505 -
Deferred tax liability 1,204 1,897 1,953
Convertible debentures20 - 3,266 7,266
Long-term debt17 369,487 344,098 181,998
Total non-current liabilities 386,653 397,050 394,846
Total liabilities 485,122 551,910 449,123
Equity
Retained earnings (238,133) (170,361) (130,094)
Share capital20 7,407 7,298 7,051
Share premium 407,274 403,883 396,984
Other reserves 27,509 (1,352) 15,092
Total equity 204,057 239,468 289,033
Total liabilities and equity 689,179 791,378 738,156
The accompanying notes form an integral part of the financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Cross
Share-Based Currency Retained
Share Share Merger Redeemable Payment Translation Hedge (Deficit)/
Capital Premium Reserve Shares Reserve Reserve Reserve Earnings Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Balance at 1
January 2016 7,051 396,984 (6,111) - 6,779 14,424 - (130,094) 289,033
Comprehensive
loss for the
year:
Net loss for the
year - - - - - - - (40,643) (40,643)
Other
comprehensive
loss - - - - - (18,382) - - (18,382)
Total
comprehensive
loss for the
year: - - - - - (18,382) - (40,643) (59,025)
Contributions by
and
distributions to
shareholders:
Conversion of
debentures20 185 5,484 - - - - - - 5,669
Exercise of
common share
warrants20 4 187 - - - - - - 191
Exercise of
options20 58 1,228 - - (376) - - 376 1,286
Redeemable
shares - - - 50 - - - - 50
Share-based
compensation20 - - - - 2,264 - - - 2,264
Total
contributions by
and
distributions to
shareholders: 247 6,899 - 50 1,888 - - 376 9,460
Balance at 1
January 2017 7,298 403,883 (6,111) 50 8,667 (3,958) - (170,361) 239,468
Comprehensive
income/(loss)
for the year:
Net loss for the
year - - - - - - - (67,897) (67,897)
Loss on cross
currency swap - - - - - - (7,737) - (7,737)
Reclassification
of loss on cross
currency swap - - - - - - 7,737 - 7,737
Other
comprehensive
income - - - - - 27,607 - - 27,607
Total
comprehensive
income/ (loss)
for the year: - - - - - 27,607 - (67,897) (40,290)
Contributions by
and
distributions to
shareholders:
Conversion of
debentures20 92 2,986 - - - - - - 3,078
Exercise of
options20 17 405 - - (125) - - 125 422
Cancellation of
redeemable
shares - - - (50) - - - - (50)
Share-based
compensation20 - - - - 1,429 - - - 1,429
Total
contributions by
and
distributions to
shareholders: 109 3,391 - (50) 1,304 - - 125 4,879
Balance at 31
December 2017 7,407 407,274 (6,111) - 9,971 23,649 - (238,133) 204,057
The accompanying notes form an integral part of the financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended
31 31
December December
2017 2016
(GBP000's) (GBP000's)
Operating activities
Net loss for the year (67,897) (40,643)
Add (deduct) items not involving cash
Amortisation and depreciation 63,042 56,133
Share-based compensation expense20 1,429 2,264
Current tax provision22 1,128 347
Deferred tax recovery22 (427) (411)
Interest expense, net7 55,056 35,944
Gain on sale of intangible assets (1,271) -
Fair value adjustments on contingent consideration18 27,562 49,382
Realised/unrealised loss/(gain) on cross currency swap12 12,512 (34,070)
Foreign exchange loss 10,051 3,098
101,185 72,044
Change in non-cash operating items
Trade and other receivables (3,009) 3,434
Other long-term receivables 640 (1,161)
Accounts payable and accrued liabilities 6,363 1,851
Other short-term payables (3,170) 7,987
Cash provided by operating activities 102,009 84,155
Income taxes paid (6,899) (6,680)
Income taxes received 5,860 5,530
Total cash provided by operating activities 100,970 83,005
Financing activities
Restriction of cash balances (72) -
Proceeds from exercise of warrants - 209
Proceeds from exercise of options 422 1,286
Proceeds from long-term debt, net of debt issue costs17 367,743 150,726
Proceeds from cross currency swap settlements12 26,094 3,645
Payment of non-compete liability19 (5,333) -
Interest repayment (30,874) (17,526)
Payment of contingent consideration18 (94,218) (156,308)
Principal payments made on long-term debt17 (373,962) (26,906)
Total cash used in financing activities (110,200) (44,874)
Investing activities
Purchase of tangible assets (981) (638)
Purchase of intangible assets (3,212) (1,862)
Proceeds from sale of intangible assets 1,002 -
Secured convertible loan11 (3,500) -
Total cash used in investing activities (6,691) (2,500)
Net (decrease)/increase in cash during the year (15,921) 35,632
Cash, beginning of year 68,485 31,762
Exchange gain on cash and cash equivalents 6,469 1,092
Cash, end of year 59,033 68,485
The accompanying notes form an integral part of the financial
statements.
SUPPLEMENTARY NOTES FOR THE YEAR
ENDED 31 DECEMBER 2017
1. Corporate Information
Jackpotjoy plc is an online gaming holding company and the
Parent Company of The Intertain Group Limited ("Intertain").
Jackpotjoy plc was incorporated pursuant to the Companies Act
2006 (England and Wales) on 29 July
2016. Jackpotjoy plc's registered office is located at 35
Great St. Helen's, London, United
Kingdom. Jackpotjoy plc became the Parent Company of
Intertain on 25 January 2017,
following a plan of arrangement transaction involving a one-for-one
share exchange of all and the then outstanding common shares of
Intertain shares for, at each shareholder's election, ordinary
shares of Jackpotjoy plc or exchangeable shares of Intertain.
Unless the context requires otherwise, use of "Group" in
these accompanying notes means Jackpotjoy plc and its subsidiaries,
as applicable, and use of "Parent Company" refers to Jackpotjoy
plc.
The Group currently offers bingo, casino and other games to its
customers using the Jackpotjoy, Starspins, Botemania,
Vera&John, Costa Bingo, InterCasino, and other brands. The
Jackpotjoy, Starspins, and Botemania brands operate off proprietary
software owned by the Gamesys group, the Group's B2B software and
support provider. The Vera&John and InterCasino brands operate
off proprietary software owned by the Group. The Mandalay segment's
bingo offerings operate off the Dragonfish platform, a software
service provided by the 888 group.
These Consolidated Financial Statements were authorised for
issue by the Board of Directors of Jackpotjoy plc (the "Board of
Directors") on 20 March 2018.
2.Basis of Preparation
Basis of presentation
These Consolidated Financial Statements have been prepared under
the historical cost convention, other than for the measurement at
fair value of the Group's cross currency swap, contingent
consideration, and certain hedged loan instruments.
These Consolidated Financial Statements have been prepared by
management on a going concern basis, are presented in accordance
with International Financial Reporting Standards ("IFRS") as
adopted by the EU.
Following Jackpotjoy plc becoming the Parent Company of the
group (as detailed in note 1), these Consolidated Financial
Statements have been prepared under the merger method of accounting
as a continuation of the Intertain business. This method is
commonly applied in such situations as the accounting for such
transactions is not prescribed by IFRS 3 - Business Combinations,
or other applicable IFRS, which instead prompts IFRS-reporting
entities to look to alternative generally accepted accounting
principles for guidance. The result of the application is to
present the Consolidated Financial Statements as if Jackpotjoy plc
has always been the Parent Company and owned all of the
subsidiaries, and the comparatives have also been prepared on that
basis. The balance on the Group's merger reserve of
£6,111,000 arises on recognition of the Parent Company's investment
in Intertain recorded at the Intertain net asset value on
25 January 2017 as explained in note
1 above. The adoption of the merger method of accounting had no
impact on reported earnings per share.
The financial information for the period ended 31 December 2017 and the period ended
31 December 2016 does not constitute
the company's UK statutory accounts for those years.
Statutory accounts for the period ended 31 December 2016 have been delivered to the UK
Registrar of Companies. The statutory accounts for the period ended
31 December 2017 will be delivered to
the Registrar of Companies in due course.
The auditors' reports to the accounts for the year ended
31 December 2017 and period ended
31 December 2016 were unqualified,
did not draw attention to any matters by way of emphasis, and did
not contain a statement under s498(2) or s498(3) of the Companies
Act 2006.
As at 31 December 2017, the Group
has consolidated current assets and current liabilities of £93.2
million and £98.5 million, respectively, giving rise to a net
current liability of £5.3 million. Cash generated through future
operating activities is sufficient to cover the net current
liability.
Basis of consolidation
Jackpotjoy plc's Consolidated Financial Statements consolidate
the Parent Company and all of its subsidiaries. The parent controls
a subsidiary if it is exposed, or has rights, to variable returns
from its involvement with the subsidiary and has the ability to
affect those returns through its power over the subsidiary. All
transactions and balances between companies are eliminated on
consolidation.
Subsidiaries are fully consolidated from the date of
acquisition, being the date on which Jackpotjoy plc obtains
control, and continue to be consolidated until the date that such
control ceases.
Intercompany transactions, balances, income and expenses on
transactions between Jackpotjoy plc's subsidiaries are eliminated.
Profit and losses resulting from intercompany transactions
that are recognised in assets are also eliminated.
The subsidiaries of Jackpotjoy plc, all of which have been
included in these Consolidated Financial Statements, are wholly
owned by the Group and constitute investment in subsidiaries on the
Parent Company's Balance Sheets, are as follows:
Name of Business Country of
Incorporation and Principal Place of Business
Intertain CallCo
ULC
Canada
The Intertain Group
Limited Canada
Plain Management Bahamas
Ltd.
Bahamas
Libita Group
Ltd.
Bahamas
Ludus Group Ltd.
Bahamas
Jackpotjoy Operations
Ltd.
Bahamas
Wagerlogic Bahamas
Ltd.
Bahamas
Mandalay Media
Ltd.
Bahamas
Jet Management Group
Ltd.
Bahamas
Golden Hero Group
Ltd.
Bahamas
JPJ Group Jersey Finance
Ltd.
Jersey
JPJ Holdings II
Ltd.
Jersey
JPJ Group Holdings
Ltd. Jersey
JPJ Holding Jersey
Ltd.
Jersey
JPJ Jersey
Ltd.
Jersey
Dumarca Holdings
Ltd.
Malta
Dumarca Services
Ltd.
Malta
Dumarca Gaming
Ltd. Malta
Wagerlogic Malta Holdings
Ltd. Malta
Cryptologic Operations
Ltd.
Malta
Cryptologic Trading
Ltd.
Malta
Wagerlogic Alderney
Ltd.
Alderney
Wagerlogic Israel
Ltd.
Israel
Jet Media
Ltd.
Gibraltar
Fifty States (Gibraltar)
Ltd.
Gibraltar
Ramona Investments
Ltd.
Turks and Caicos
Intertain Management (UK)
Ltd.
United Kingdom
Plain Support SA
Costa Rica
Dumarca Asia
Ltd.
Hong Kong
Simplicity V8 Hong Kong
Ltd.
Hong Kong
Intertainment Asia
Inc. British
Virgin Islands
Entserv Asia
Ltd. British
Virgin Islands
Silverspin
AB
Sweden
Intertain Financial Services
AB Sweden
Fifty States
Ltd.
Isle of Man
Intertain Group Finance
LLC
United States of America
Bei Jing Lang Chen Rui Bo Technology Co, Ltd.
China
Luxembourg Investment Company 192 S.a.r.l.
Luxembourg
3.Summary of Significant Accounting
Policies
Business combinations and goodwill
The acquisition method of accounting is used to account for the
acquisition of subsidiaries by Jackpotjoy plc, whereby the purchase
consideration is allocated to the identifiable assets and
liabilities on the basis of fair value at the date of acquisition.
Provisional fair values allocated at a reporting date are finalised
as soon as the relevant information is available, within a period
not to exceed a year from the acquisition date.
Consideration transferred includes the fair values of the assets
transferred, liabilities incurred, and equity interests issued by
Jackpotjoy plc. Consideration also includes the fair value of any
contingent consideration. Subsequent to the acquisition, contingent
consideration that is based on an earnings target and classified as
a liability is measured at fair value with any resulting gain or
loss recognised in net income. Transaction related costs are
expensed as incurred.
Goodwill is initially measured at cost, being the excess of the
aggregate of the consideration transferred over the net
identifiable assets acquired and liabilities assumed. After
initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to Jackpotjoy plc's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision makers.
The Chief Operating Decision Makers, who are responsible for
allocating resources and assessing the performance of the operating
segments, have been identified as the Executive Chairman and the
Chief Financial Officer.
Revenue recognition
Jackpotjoy plc earns its revenue from operating online bingo and
casino websites, social gaming, and affiliate services. Revenue
from online bingo and casino consists of the difference between
total amount wagered by players less all winnings payable to
players, bonuses allocated, and jackpot contributions ("Net
Revenue"). Social gaming revenues are recognised at the
consideration receivable from players at the point of the
transaction, gross of platform fees deducted by platform operators.
Affiliate revenue is calculated in line with the contracts,
typically based on fixed price per player and is recognised to the
extent that its probable economic benefits will flow to Jackpotjoy
plc and the revenue can be reliably measured. Revenue is recognised
in the accounting periods in which the transactions occur.
Fair value measurement
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date.
The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place
either: in the principal market for the asset or liability, or in
the absence of a principal market, in the most advantageous market
accessible by the Group for the asset or liability.
Jackpotjoy plc uses valuation techniques that are appropriate in
the circumstances and for which sufficient data is available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs. All
assets and liabilities for which fair value is measured or
disclosed in the Consolidated Financial Statements are categorised
within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value
measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is directly or
indirectly observable.
Level 3 - Valuation techniques for which the lowest level input
that is significant to the fair value measurement is
unobservable.
The Group determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorisation at the end
of each reporting period.
Foreign currency translation
Functional and presentation currency
Effective from 1 January 2017, the
Group changed its presentation currency from Canadian dollars
("CAD" or "$") to pounds sterling ("GBP" or "£").
Comparative information has been restated in pounds sterling
in accordance with the guidance defined in IAS 21 - The Effects
of Changes in Foreign Exchange Rates and a statement of
financial position as at the beginning of the previous financial
year has been presented. The 2016 Consolidated Financial Statements
have been retranslated from Canadian dollars to pounds sterling
using the procedures outlined below:
• income and expenses were translated into pounds sterling at
average quarterly rates of exchange ($:£ - 0.6036). Differences
resulting from the retranslation on the opening net assets and the
results for the year have been taken to reserves;
• assets and liabilities were translated at spot rates in effect
at the balance sheet closing dates ($:£ 2016 - 0.6037 and 2015 -
0.4900);
• share capital and other reserves were translated at historic
rates prevailing at the dates of transactions;
• quarterly average exchange rates were used to convert changes
in items not involving cash and cash provided by/(used in)
operating activities, financing activities, and investing
activities. Spot rates were used to convert cash balances,
beginning of year and cash balances, end of year.
As a result of this change, no retranslation movement will be
recorded in the Statements of Comprehensive Income for subsidiaries
whose functional currency is GBP.
Foreign currency transactions and balances
Foreign currency transactions are translated into the functional
currency of the respective entity of Jackpotjoy plc, using the
exchange rates prevailing at the dates of the transactions (spot
rates). Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates as
at the reporting date. Foreign exchange gains and losses
resulting from the settlement or translation of monetary items are
recognised in profit and loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of gain or
loss on change in fair value of the item.
Financial instruments
Financial assets and financial liabilities are recognised when
Jackpotjoy plc becomes a party to the contractual provisions of the
financial instrument. Financial assets are derecognised when
the contractual rights to the cash flows from the financial asset
expire, or when the financial asset and all substantial risks and
rewards are transferred. A financial liability is
derecognised when it is extinguished, discharged, cancelled, or
when it expires.
The Group classifies its financial assets and liabilities under
the following categories: fair value through profit or loss
("FVTPL"), loans and receivables, and financial liabilities at
amortised cost. All financial instruments are recognised
initially at fair value. Transaction costs that are directly
attributable to the acquisition or issue of a financial instrument
classified as other than at FVTPL are added to the carrying amount
of the asset or liability.
The accretion of these costs is recognised over the life of the
instrument in accretion on financial liabilities under the
effective interest rate method described below.
Fair value through profit or loss
Financial instruments classified as FVTPL include contingent
consideration and a cross currency swap derivative financial
instrument. Any gains or losses are recorded in net income in the
period in which they arise.
Loans and receivables
Loans and receivables are non-derivative financial instruments
with fixed or determinable payments that are not quoted in an
active market. After initial measurement, such instruments are
subsequently measured at amortised cost using the effective
interest rate ("EIR") method, less impairment. Amortised cost is
calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR.
The EIR amortisation is included in interest income or expense in
the Consolidated Statements of Comprehensive Income. This category
generally applies to cash, restricted cash, customer deposits,
trade and other receivables, and other long-term receivables.
Financial liabilities at amortised cost
With the exception of contingent consideration and derivatives,
all financial liabilities are measured at amortised cost using the
effective interest rate method. This category generally applies to
interest payable, accounts payable and accrued liabilities, other
short-term payables, payable to customers, convertible debentures,
long-term debt, and other long-term payables. All
interest-related charges are reported in profit or loss within
interest expense.
Impairment of financial assets
The Group assesses at each reporting date whether there is
objective evidence that a financial asset or a group of financial
assets is impaired. Financial assets are impaired when there is
objective evidence that a financial asset or a group of financial
assets is impaired.
Objective evidence of impairment could include:
• significant financial difficulty of the issuer or
counterparty;
• a breach of contract such as a default of interest or
principal payment; or
• increased probability that the borrower will enter into a
bankruptcy or financial reorganisation.
Individually significant receivables are considered for
impairment when they are past due or when other objective evidence
is received that a specific counterparty will default. Impairment
of receivables is presented in the Consolidated Statements of
Comprehensive Income within administrative costs, if
applicable.
Compound financial instruments
The Group's compound financial instruments comprise of
convertible debentures that can be converted to equity at the
option of the holder, and the number of shares to be issued does
not vary with changes in fair value. As a result, the
instrument is composed of a liability component and an equity
component. The liability component is recognised initially at the
fair value of a similar liability that does not have an equity
conversion option. The residual amount between the total fair value
of the convertible debenture and the fair value of the liability
component is allocated on initial recognition to equity and
recognised as a reserve in equity. Any directly attributable
transaction costs are allocated to the liability and the equity
component in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of
the convertible debentures is measured at amortised cost using the
effective interest method. The equity component of the convertible
debentures is not remeasured subsequent to initial recognition.
The Group's compound financial instruments further comprise of a
convertible loan receivable that can be converted to equity of the
loan party after 12 months following the date of the loan
agreement. As a result, the instrument is composed of an asset
component and an embedded derivative component. The asset component
is recognised initially at the fair value of a similar asset that
does not have an equity conversion option. The embedded derivative
component is separated from the host contract and is recognised
initially at the fair value established using a risk-neutral
simulation model.
Subsequent to initial recognition, both, the asset component and
the embedded derivative component of the convertible loan
receivable, are measured at amortised cost using the effective
interest method.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the Consolidated Balance Sheets if, and only
if, there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, or to realise the assets and settle the liabilities
simultaneously.
Derivative financial instruments
From time to time Jackpotjoy plc uses derivative instruments for
risk management purposes. Jackpotjoy plc does not use derivative
instruments for speculative trading purposes. All derivatives are
recorded at fair value on the Consolidated Balance Sheets. The
method of recognising unrealised and realised fair value gains and
losses depends on whether the derivatives are designated as hedging
instruments. For derivatives not designated as hedging instruments,
unrealised gains and losses are recorded in interest income/expense
on the Consolidated Statements of Comprehensive Income. For
derivatives designated as hedging instruments, unrealised and
realised gains and losses are recognised according to the nature of
the hedged item and where the hedged item is a non-financial asset,
amounts recognised in the hedging reserve are reclassified and the
non-financial asset is adjusted accordingly.
Hedge accounting
The Group uses derivative financial instruments, such as forward
currency and interest rate swaps to hedge its foreign currency risk
and interest rate risk, respectively. Such derivative financial
instruments are initially recognised at fair value on the date on
which a derivative contract is entered into and are subsequently
remeasured to fair value at each reporting period end. Derivatives
are carried as financial assets when the fair value is positive and
as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of
derivatives are taken directly to profit or loss, except for the
effective portion of cash flow hedges, which is recognised in the
Statements of Other Comprehensive Income and later reclassified to
profit or loss when the hedge item affects profit or loss.
IAS 39 - Financial Instruments: Recognition and
Measurement permits hedge accounting under certain
circumstances provided that the hedging relationship is:
• formally designated and documented, including the entity's
risk management objective and strategy for undertaking the hedge,
identification of the hedging instrument, the hedged item, the
nature of the risk being hedged, and how the entity will assess the
hedging instrument's effectiveness;
• expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk
as designated and documented, and effectiveness can be reliably
measured; and
• assessed on an ongoing basis and determined to have been
highly effective.
For the purpose of hedge accounting, hedges are classified
as:
• fair value hedges when hedging the exposure to changes in the
fair value of a recognised asset or liability or an unrecognised
firm commitment;
• cash flow hedges when hedging the exposure to variability in
cash flows that is either attributable to a risk associated with a
recognised asset or liability or a highly probable forecast
transaction; and
• hedges of a net investment in a foreign operation.
Fair value hedge
The change in the fair value of a hedging instrument is
recognised in the Consolidated Statements of Comprehensive Income
as a finance cost. The change in the fair value of the hedged item
attributable to the risk hedged is recorded as part of the carrying
value of the hedged item and is also recognised in the Consolidated
Statements of Comprehensive Income as a finance cost. For fair
value hedges relating to items carried at amortised cost, any
adjustment to carrying value is amortised through profit or loss
over the remaining term of the hedge using the effective interest
rate method. EIR amortisation may begin as soon as an adjustment
exists and no later than when the hedged item ceases to be adjusted
for changes in its fair value attributable to the risk being
hedged. If the hedged item is derecognised, the unamortised fair
value is recognised immediately in profit or loss.
At 31 December 2017, the Group had
no hedges designated as fair value hedges. Subsequent to year-end,
the Group entered into an interest rate swap agreement and
designated it as a fair value hedge.
Cash flow hedges
The Group uses forward currency contracts as hedges of its
exposure to foreign currency risk in forecast transactions and firm
commitments. The effective portion of the gain or loss on the
hedging instrument is recognised in the Statements of Other
Comprehensive Income in the cash flow hedge reserve, while any
ineffective portion is recognised immediately in profit or loss.
The ineffective portion relating to foreign currency contracts is
recognised in finance costs. Amounts recognised in the Statements
of Other Comprehensive Income are transferred to profit or loss
when the hedged transaction affects profit or loss, such as when
the hedged financial income or financial expense is recognised or
when a forecast sale occurs.
If the hedging instrument or hedged item expires or is sold,
terminated or exercised without replacement or rollover (as part of
the hedging strategy), or if the designation of the arrangement as
a hedge is revoked, or when the hedge no longer meets the criteria
for hedge accounting, any cumulative gain or loss previously
recognised in the Statements of Other Comprehensive Income remains
separately in equity until the forecast transaction occurs or the
foreign currency firm commitment is met.
Effective from 31 March 2017, the
Group designated its New Currency Swap (as defined in note 12) as a
cash flow hedge.
Hedge of net investments in foreign operations
Hedges of a net investment in a foreign operation are accounted
for in a way similar to cash flow hedges. Gains or losses on the
hedging instrument relating to the effective portion of the hedge
are recognised in the Statements of Other Comprehensive Income,
while any gains or losses relating to the ineffective portion are
recognised in profit or loss. On disposal of the foreign operation,
the cumulative value of any such gains or losses recorded in equity
is transferred to profit or loss.
Effective from 14 December 2017,
the Group elected to use its EUR Term Facility as a hedge of its
exposure to foreign exchange risk on its investments in EUR foreign
subsidiaries. Gains or losses on the retranslation of this
borrowing are transferred to the Statements of Other Comprehensive
Income to offset any gains or losses on translation of the net
investments in the subsidiaries.
At 31 December 2017, no material
ineffectiveness arising on net investment hedge was included in the
Consolidated Statement of Comprehensive Income.
Income taxes
Income tax expense consists of current and deferred tax expense.
Income tax expense is recognised in the Consolidated Statements of
Comprehensive Income. Current tax expense is the expected tax
payable on the taxable income for the year, using tax rates enacted
or substantively enacted at year- end, adjusted for amendments to
tax payable with regards to previous years.
Deferred tax assets and liabilities are recognised for deferred
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred taxes are not recognised for
the following temporary differences: the initial recognition of
assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor taxable profit
or loss, and differences relating to investments in subsidiaries to
the extent that it is probable that they will not reverse in the
foreseeable future. Deferred tax assets and liabilities are
measured using the enacted or substantively enacted tax rates
expected to apply when the asset is realised or the liability
settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognised in the Consolidated Statements of
Comprehensive Income in the period that substantive enactment
occurs.
A deferred tax asset is recognised to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. To the extent that the Group does
not consider it probable that a deferred tax asset will be
recovered, the deferred tax asset is reduced.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and deposits held
at call with banks and excludes restricted cash.
The effect on the Consolidated Statements of Cash Flows of
restrictions either taking effect on, or being lifted from, cash
balances is reported with regard to the linkage principle, under
which changes in cash are classified based on the purpose for which
the restricted cash is used. Under this principle, changes in cash
(such as cash, which is obtained for the financing of business
combinations becoming restricted) are treated as a financing cash
outflow.
Tangible assets
Tangible assets are recorded at cost less accumulated
depreciation. These assets are depreciated over their estimated
useful lives as follows:
Computer hardware
33% per annum
Office
furniture 20%
per annum
Leasehold improvements
Over the term of the lease
Depreciation is recorded under administrative costs in the
Consolidated Statements of Comprehensive Income.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired in a
business combination is their fair value at the date of
acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and accumulated
impairment losses. The useful lives of intangible assets are
assessed as either finite or indefinite. Intangible assets with
finite lives are amortised over their useful economic life and
assessed for impairment whenever there is an indication that the
intangible asset may be impaired. The amortisation period and the
amortisation method for an intangible asset with a finite useful
life are reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected pattern of
consumption of future economic benefits embodied in the asset are
considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates.
Amortisation expense is reflected in the Consolidated Statements of
Comprehensive Income.
Amortisation for the material categories of finite life
intangible assets is recorded under administrative costs and is
calculated at the following rates:
Brand 5% per annum
Gaming licenses 5% per annum
Software 20% per annum
Customer relationships and partnership 8% - 25% per annum (variable, according
agreements to the expected pattern of consumption)
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually, either
individually or at the cash-generating unit ("CGU") level. If any
indication of impairment exists, the recoverable amount of the
asset is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not generate
cash flows independently of other assets, the Group estimates the
recoverable amount of the CGU to which the asset belongs.
Recoverable amount is the higher of fair value less cost to sell
(measured according to level 3 in the fair value hierarchy) and
value in use. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to
be less than its carrying amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
The assessment of indefinite life is reviewed annually to
determine whether the indefinite life continues to be supportable.
If not, the change in useful life from indefinite to finite is made
on a prospective basis.
Investments in subsidiaries
Investments comprise direct shareholdings of the ordinary share
capital in the Group's subsidiaries, all of which are included in
the Consolidated Financial Statements. For a list of all the
subsidiaries which are wholly owned by the Group, including name
and country of incorporation, refer to note 2 of these Consolidated
Financial Statements.
Share-based compensation and long-term incentive
plan
Compensation expense for equity-settled stock options awarded
under the Share Option Plan (as defined in note 20) is measured at
the fair value at the grant date using the Black-Scholes valuation
model and is recognised using the graded vesting method over the
vesting period of the options granted. Compensation expense
for equity-settled stock options awarded under the LTIP (as defined
in note 20) is measured at the fair value at the grant date using
the Black-Scholes valuation model for the EPS Tranche (as defined
in note 20) and the Monte Carlo
model for the TSR Tranche (as defined in note 20).
Compensation expense recognised is adjusted to reflect the
number of options that has been estimated by management for which
conditions attaching to service will be fulfilled as of the grant
date until the vesting date so that the ultimately recognised
expense corresponds to the options that have actually vested. The
compensation expense credit is attributed to contributed surplus
when the expense is recognised in the Consolidated Statements of
Comprehensive Income.
Earnings per share
Basic earnings per share are calculated by dividing the net
income or loss for the period attributed to common shareholders by
the weighted average number of common shares outstanding during the
period. Diluted earnings per share are calculated using the same
method as for basic earnings per share and adjusting the weighted
average of common shares outstanding during the period to reflect
the dilutive impact, if any, of options and warrants assuming they
were exercised for that number of common shares calculated by
applying the treasury stock method. The treasury stock method
assumes that all proceeds received by Jackpotjoy plc when options
and warrants are exercised will be used to purchase common shares
at the average market price during the reporting period.
Convertible debt is considered in the calculation of diluted
earnings per share to the extent that it is dilutive.
Provisions
Provisions are recognised when the Group has a present
obligation, legal or constructive, as a result of a past event, it
is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
Research and development costs
Research costs are expensed as incurred. Development
expenditures on an individual project are recognised as an
intangible asset when the Group can demonstrate:
• the technical feasibility of completing the intangible asset
so that the asset will be available for use or sale.
• its intention to complete and its ability to use or sell the
asset.
• how the asset will generate future economic benefits.
• the availability of resources to complete the asset.
• the ability to measure reliably the expenditure during
development.
Following initial recognition of the development expenditure as
an asset, the asset is carried at cost less any accumulated
amortisation and accumulated impairment losses. Amortisation
of the asset begins the same month the asset is recognised and is
amortised over the period of expected future economic benefit to
the Group. During the period of development, the asset is
tested for impairment annually.
Leases
Jackpotjoy plc has classified its rental leases as operating
leases. Operating lease payments are recognised on a straight-line
basis over the lease term, except where another systematic basis is
more representative of the time pattern in which economic benefits
from the leased asset are consumed, in which case that systematic
basis is used. Operating lease payments are recorded under
administrative costs in the Consolidated Statements of
Comprehensive Income unless they are attributable to qualifying
assets, in which case they are capitalised.
Benefits received and receivable as an incentive to enter into
an operating lease are also spread on a straight-line basis over
the lease term.
4. Summary of Significant Accounting
Estimates and Assumptions
The preparation of Jackpotjoy plc's Consolidated Financial
Statements requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenues, expenses,
assets and liabilities, and the accompanying disclosures, and the
disclosure of contingent liabilities. Estimates and judgements are
continuously evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Uncertainty about these assumptions and estimates could
result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future
periods.
The effect of a change in an accounting estimate is recognised
prospectively by including it in the Consolidated Statements of
Comprehensive Income in the period of the change, if the change
affects that period only; or in the period of the change and future
periods if the change affects both.
The estimates and judgements that have a significant risk of
causing material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Business combinations and contingent
consideration
Business combinations require management to exercise judgement
in measuring the fair value of the assets acquired, equity
instruments issued, and liabilities, and contingent consideration
incurred or assumed. In particular, a high degree of judgement is
applied in determining the fair value of the separable intangible
assets acquired, their useful economic lives and which assets and
liabilities are included in a business combination.
In certain acquisitions, the Group may include contingent
consideration which is subject to the acquired company achieving
certain performance targets. At each reporting period,
Jackpotjoy plc estimates the future earnings of acquired companies,
which are subject to contingent consideration in order to assess
the probability that the acquired company will achieve their
performance targets and thus earn their contingent consideration.
Any changes in the fair value of the contingent consideration
between reporting periods are included in the determination of net
income. Changes in fair value arise as a result of changes in the
estimated probability of the acquired business achieving its
earnings targets and the consequential impact of amounts payable
under these arrangements.
Goodwill and intangible assets
Goodwill and intangible assets are reviewed annually for
impairment, or more frequently when there are indicators that
impairment may have occurred, by comparing the carrying value to
its recoverable amount. Management uses judgement in
estimating the recoverable values of the Group's CGUs and uses
internally developed valuation models that consider various factors
and assumptions including forecasted cash earnings, growth rates
and discount rates. The use of different assumptions and estimates
could influence the determination of the existence of impairment
and the valuation of goodwill.
Taxes
Deferred tax assets are recognised for all unused tax losses to
the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant
management judgement is required to determine the amount of
deferred tax assets that can be recognised, based upon the likely
timing and the level of future taxable profits together with future
tax planning strategies.
Group companies may be subject to indirect taxation on
transactions, which have been treated as exempt supplies of
gambling, or on supplies which 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.
5. Segment Information
Segments are reported in a manner consistent with internal
reporting provided to the Chief Operating Decision Maker. The Chief
Operating Decision Maker has been identified as the management team
comprising of the Executive Chairman and the Chief Financial
Officer.
The Vera&John segment consists of the online casino
operating results of various brands, including Vera&John and
InterCasino. The Jackpotjoy segment consist of the real money and
social gaming operating results of the Jackpotjoy, Starspins, and
Botemania brands. The Mandalay segment consists of the operating
results of various online bingo websites operated off the
Dragonfish platform and the operating results of affiliate portal
websites.
The following tables present selected financial results for each
segment and the unallocated corporate costs:
Year ended 31 December 2017:
Unallocated
Jackpotjoy Vera&John Mandalay Corporate Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Gaming
revenue 211,302* 73,167 20,177 - 304,646
Distribution
costs 99,095 36,582 11,660 146 147,483
Amortisation
and
depreciation 46,420 9,956 6,286 380 63,042
Compensation,
professional,
and general
and
administrativ
e expenses 17,112 18,558 1,383 12,944 49,997
Severance
costs - - - 700 700
Transaction
related costs - - - 6,710 6,710
Foreign
exchange 75 599 24 9,353 10,051
Gain on sale
of intangible
assets - (1,002) (269) - (1,271)
Financing,
net - (166) 4 95,292 95,130
Income/(loss)
for the year
before taxes 48,600 8,640 1,089 (125,525) (67,196)
Taxes - 701 - - 701
Net
income/(loss)
for the year 48,600 7,939 1,089 (125,525) (67,897)
Net
income/(loss)
for the year 48,600 7,939 1,089 (125,525) (67,897)
Interest
(income)/expe
nse, net - (166) 4 30,169 30,007
Accretion on
financial
liabilities - - - 25,049 25,049
Taxes - 701 - - 701
Amortisation
and
depreciation 46,420 9,956 6,286 380 63,042
EBITDA 95,020 18,430 7,379 (69,927) 50,902
Share-based
compensation - - - 1,429 1,429
Severance
costs - - - 700 700
Fair value
adjustment on
contingent
consideration - - - 27,562 27,562
Loss on cross
currency swap - - - 12,512 12,512
Transaction
related costs - - - 6,710 6,710
Gain on sale
of intangible
assets - (1,002) (269) - (1,271)
Foreign
exchange 75 599 24 9,353 10,051
Adjusted
EBITDA 95,095 18,027 7,134 (11,661) 108,595
Net
income/(loss)
for the year 48,600 7,939 1,089 (125,525) (67,897)
Share-based
compensation - - - 1,429 1,429
Severance
costs - - - 700 700
Fair value
adjustment on
contingent
consideration - - - 27,562 27,562
Loss on cross
currency swap - - - 12,512 12,512
Transaction
related costs - - - 6,710 6,710
Gain on sale
of intangible
assets - (1,002) (269) - (1,271)
Foreign
exchange 75 599 24 9,353 10,051
Amortisation
of
acquisition
related
purchase
price
intangibles
and
non-compete
clauses 46,420 8,568 6,239 - 61,227
Accretion on
financial
liabilities - - - 25,049 25,049
Adjusted net
income/(loss) 95,095 16,104 7,083 (42,210) 76,072
*Jackpotjoy gaming revenue figure includes social gaming
revenue of £15,394,000 for 2017.
Year ended 31 December 2016:
Unallocated
Jackpotjoy Vera&John Mandalay Corporate Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Gaming
revenue 188,177* 57,013 21,748 - 266,938
Other income - 2,106 - - 2,106
Distribution
costs 88,080 28,349 14,039 267 130,735
Amortisation
and
depreciation 41,341 8,863 5,913 16 56,133
Compensation,
professional,
and general
and
administrativ
e expenses 15,519 12,750 1,099 10,699 40,067
Severance
costs - - - 5,695 5,695
Transaction
related costs - 862 - 21,905 22,767
Foreign
exchange (248) 593 (132) 2,885 3,098
Financing,
net - (83) 6 51,333 51,256
Income/(loss)
for the year
before taxes 43,485 7,785 823 (92,800) (40,707)
Taxes - (64) - - (64)
Net
income/(loss)
for the year 43,485 7,849 823 (92,800) (40,643)
Net income/
(loss) for the
year 43,485 7,849 823 (92,800) (40,643)
Interest
(income)
/expense,
net - (83) 6 18,164 18,087
Accretion on
financial
liabilities - - - 17,857 17,857
Taxes - (64) - - (64)
Amortisation
and
depreciation 41,341 8,863 5,913 16 56,133
EBITDA 84,826 16,565 6,742 (56,763) 51,370
Share-based
compensation - - - 2,264 2,264
Severance costs - - - 5,695 5,695
Independent
Committee
related expenses - - - 1,693 1,693
Fair value
adjustment on
contingent
consideration - - - 49,382 49,382
Gain on
cross currency
swap - - - (34,070) (34,070)
Transaction
related costs - 862 - 21,905 22,767
Foreign exchange (248) 593 (132) 2,885 3,098
Adjusted EBITDA 84,578 18,020 6,610 (7,009) 102,199
Net income/
(loss) for the
year 43,485 7,849 823 (92,800) (40,643)
Share-based
compensation - - - 2,264 2,264
Severance
costs - - - 5,695 5,695
Independent
Committee
related expenses - - - 1,693 1,693
Fair value
adjustment on
contingent
consideration - - - 49,382 49,382
Gain on
cross currency
swap - - - (34,070) (34,070)
Transaction
related costs - 862 - 21,905 22,767
Foreign exchange (248) 593 (132) 2,885 3,098
Amortisation
of acquisition
related purchase
price
intangibles 41,341 8,251 5,913 - 55,505
Accretion on
financial
liabilities - - - 17,857 17,857
Adjusted net
income/(loss) 84,578 17,555 6,604 (25,189) 83,548
*Jackpotjoy gaming revenue figure includes social gaming
revenue £18,137,000 for 2016.
The following table presents net assets per segment and
unallocated corporate costs as at
31 December 2017:
Unallocated
Corporate
Jackpotjoy Vera&John Mandalay Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Current assets 14,573 41,970 6,387 30,302 93,232
Goodwill 224,348 55,821 16,612 - 296,781
Long-term assets 238,943 31,878 10,760 17,585 299,166
Total assets 477,864 129,669 33,759 47,887 689,179
Current liabilities 7,666 19,877 3,292 67,634 98,469
Long-term liabilities - 1,204 - 385,449 386,653
Total liabilities 7,666 21,081 3,292 453,083 485,122
Net assets 470,198 108,588 30,467 (405,196) 204,057
The following table presents net assets per segment and
unallocated corporate costs as at
31 December 2016:
Unallocated
Corporate
Jackpotjoy Vera&John Mandalay Costs Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Current assets 15,033 38,870 6,509 78,665 139,077
Goodwill 224,348 55,392 16,612 - 296,352
Long-term assets 277,702 38,163 18,020 22,064 355,949
Total assets 517,083 132,425 41,141 100,729 791,378
Current liabilities 5,790 16,711 1,483 130,876 154,860
Long-term liabilities - 1,897 - 395,153 397,050
Total liabilities 5,790 18,608 1,483 526,029 551,910
Net assets 511,293 113,817 39,658 (425,300) 239,468
During the years ended 31 December
2017 and 2016, substantially all of the revenue earned by
the Group was in Europe. Revenues
were earned from customers located in the following locations:
United Kingdom - 63% (2016 - 65%), Sweden - 10% (2016 - 10%), rest of
Europe - 14% (2016 - 12%), rest of
world - 13% (2016 - 13%). Non-current assets by geographical
location as at 31 December 2017 were
as follows: Europe £87.7 million
(31 December 2016 - £93.6 million)
and the Americas £508.2 million (31 December
2016 - £558.7 million).
6. Costs and Expenses
Year Ended Year Ended
31 December 2017 31 December 2016
(GBP000's) (GBP000's)
Distribution costs:
Selling and marketing 49,760 46,744
Licensing fees 47,067 42,653
Gaming taxes 37,851 29,769
Processing fees 12,805 11,569
147,483 130,735
Administrative costs:
Compensation and benefits 34,848 29,490
Professional fees 3,749 3,741
General and administrative 11,400 6,836
Tangible asset depreciation 424 338
Intangible asset amortisation 62,618 55,795
113,039 96,200
7.Interest Income/Expense
Year Ended Year Ended
31 December 2017 31 December 2016
(GBP000's) (GBP000's)
Interest earned on cash held during the year 182 156
Total interest income 182 156
Interest paid and accrued on long-term debt 30,144 17,825
Interest paid and accrued on convertible
debentures 45 418
Total interest expense 30,189 18,243
Accretion of discount recognised on contingent
consideration 6,052 15,545
Debt issue costs and accretion recognised on
long-term debt* 17,095 1,919
Accretion recognised on non-compete clauses 1,860 77
Accretion recognised on convertible debentures 42 316
Total accretion on financial liabilities 25,049 17,857
*Includes accelerated accretion of costs of £14.1
million as a result of debt refinancing that took place in
December 2017.
8.Earnings per Share
Year Ended Year Ended
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Numerator:
Net loss - basic (67,897) (40,643)
Net loss - diluted[1] (67,897) (40,643)
Denominator:
Weighted average number of shares
outstanding - basic 73,865 71,239
Instruments, which are anti-dilutive:
Weighted average effect of dilutive share
options 453 726
Weighted average effect of convertible
debentures[2] 238 2,312
Net loss per share[3,4]
Basic GBP(0.92) GBP(0.57)
Diluted[1] GBP(0.92) GBP(0.57)
-----------------------------------------------------------------------
1 In the case of a net loss, the effect of
share options potentially exercisable on diluted loss per share
will be anti-dilutive; therefore, basic and diluted net loss per
share will be the same.
2 An assumed conversion of convertible
debentures had an anti-dilutive effect on loss per share for the
years ended 31 December
2017 and 31 December 2016.
3 Basic loss per share is calculated by
dividing the net loss attributable to common shareholders by the
weighted average number of shares outstanding during the
year.
4 Diluted loss per share is calculated by
dividing the net loss attributable to ordinary shareholders by the
weighted average number of shares outstanding during the period and
adjusted for the number of potentially dilutive share options and
contingently issuable instruments.
9.Cash and Restricted Cash
31 December 2017 31 December 2016
(GBP000's) (GBP000's)
Cash 58,725 33,558
Segregated cash* 308 34,927
Cash and cash equivalents 59,033 68,485
Restricted cash - other 208 253
Total cash balances 59,241 68,738
* This balance consists of cash on
deposit with payment service providers, as well as segregated funds
held in accordance with the terms of the Jackpotjoy earn-out
payment, where the Group was required to segregate 90% of its
excess cash flow, less mandatory repayments of the
Group's long-term debt and earn-out payments, in a
non-operational bank account. Since the Group made a payment
of £94.2 million for the final earn-out on the non-Spanish assets
and the first earn-out instalment on the Spanish assets of the
Jackpotjoy segment on 21 June 2017,
no cash was required to be segregated for this purpose at
31 December 2017 (£34.7 million as at
31 December 2016). Segregated
cash does not qualify as restricted cash and, as such, it is
included in cash.
10. Trade and Other
Receivables
31 December 2017 31 December 2016
(GBP000's) (GBP000's)
Due from the Gamesys group 8,634 9,242
Due from the 888 group 3,101 1,625
Affiliate revenue receivable 2,481 1,766
Receivable for intangible assets sold 1,450 -
Swap-related receivable - 1,948
Prepaid expenses 2,375 967
Other 1,338 1,215
19,379 16,763
11. Other Long-Term Receivables and
Other Long-Term Assets
On 29 November 2017, the Group
entered into a secured convertible loan and services agreement with
Gaming Realms plc ("Gaming Realms") (the "Gaming Realms
Transaction").
Key terms of the Gaming Realms Transaction include: (a)
five-year secured convertible loan to Gaming Realms in the
principal amount of £3.5 million with an interest rate of 3 month
UK LIBOR plus 5.5% per annum; (b) conversion option (the
"Conversion Component") that allows the Group to convert some or
all of the loan (in tranches of £0.5 million) into ordinary shares
of Gaming Realms after 12 months; (c) a ten-year services agreement
("Services Agreement") for the supply by Gaming Realms of some of
its content to websites of the Group's choosing free-of-charge. The
value of the free-of-charge services provided under this Services
Agreement will be capped at £3.5 million over the first five years
of the agreement.
In connection with this transaction, the Group recognised a
long-term receivable of £1.4 million for the loan component of the
convertible loan and a long-term asset of £2.1 for the Conversion
Component of the convertible loan.
12. Cross Currency Swap
On 23 November 2015, the Group
entered into a cross currency swap agreement (the "Currency Swap")
in order to minimise the Group's exposure to exchange rate
fluctuations between GBP and the US dollar ("USD") as cash
generated from the Group's operations is largely in GBP, while a
portion of the principal and interest payments on the credit
facilities held by the Group at the time were denominated in USD.
Under the Currency Swap, 90% of the Group's USD term loan interest
and principal payments were swapped into GBP. The Group paid a
fixed 7.81% interest in place of floating USD interest payments of
LIBOR plus 6.5% (LIBOR floor of 1%). The interest and principal
payments were made at a GBP/USD foreign exchange rate of 1.5135 on
a USD notional amount of $294.0
million.
On 28 March 2017, the Group
terminated the Currency Swap and realised total proceeds of
approximately USD 42.6 million (£34.4
million) and subsequently entered into a new cross currency swap
agreement (the "New Currency Swap"). Under the New Currency Swap,
50% of the Group's term loan interest and principal payments were
swapped into GBP. The Group paid a fixed 7.4% interest in place of
floating USD interest payments of LIBOR plus 6.5% (LIBOR floor of
1%). The interest and principal payments were made at a GBP/USD
foreign exchange rate of 1.2584 on a USD notional amount of
$136.8 million.
On 4 December 2017, the Group made
a payment of £8.3 million to settle the New Currency Swap in
full. As a result, the fair value of the Group's currency swap
agreements as at 31 December 2017 is
£nil (31 December 2016 - asset of
£38.2 million).
Excluding the termination settlements referred to above, the net
cash flows arising on the cross currency swaps during the period
were an outflow of £0.3 million. All other changes in the values of
the cross currency swaps related to changes in the assessment of
fair value.
Jackpotjoy plc elected to use hedge accounting (as described in
note 3) for the purposes of recognising realised and unrealised
gains and losses associated with the New Currency Swap. As a
result, upon settlement of the hedged item, being the future
foreign currency term loan cash payments as explained in note 17,
the entire loss on the New Currency Swap in the amount of £12.5
million was reclassified to profit and loss, in accordance with IAS
39.
13. Intangible Assets and
Goodwill
As at 31 December
2017
Customer
Gaming Relationsh Partnership Non-Compete
Licenses ips 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 2017 94 340,927 21,670 70,054 12,900 20,434 317,829 783,908
Additions - - 2,708 - - - - 2,708
Disposals* - (3,822) - - - - - (3,822)
Translation (1) 550 833 (35) - - (1,443) (96)
Balance, 31 December 2017 93 337,655 25,211 70,019 12,900 20,434 316,386 782,698
Accumulated amortisation/impairment
Balance, 1 January 2017 34 96,811 7,414 6,523 2,824 - 21,477 135,083
Amortisation 41 44,958 4,820 3,504 1,634 7,661 - 62,618
Disposals* - (2,638) - - - - - (2,638)
Translation 6 202 317 (22) - - (1,872) (1,369)
Balance, 31 December 2017 81 139,333 12,551 10,005 4,458 7,661 19,605 193,694
Carrying value
Balance, 31 December 2017 12 198,322 12,660 60,014 8,442 12,773 296,781 589,004
*On 6 December 2017, the Group
entered into an agreement to sell certain affiliate contracts for
£1.5 million.
As at 31 December
2016
Customer
Gaming Relationsh Revenue Partnership Non-Compete
Licenses ips Software Guarantee Brand Agreements Clauses Goodwill Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Cost
Balance, 1 January 2016 76 337,502 17,175 4,010 68,284 12,900 - 306,295 746,242
Additions - - 1,836 - - - 20,434 - 22,270
Translation 18 3,425 2,659 783 1,770 - - 11,534 20,189
Expiry - - - (4,793) - - - - (4,793)
Balance, 31 December 2016 94 340,927 21,670 - 70,054 12,900 20,434 317,829 783,908
Accumulated amortisation
Balance, 1 January 2016 23 47,956 3,279 - 2,681 1,558 - 17,969 73,466
Amortisation 9 47,405 3,683 - 3,466 1,232 - - 55,795
Translation 2 1,450 452 - 376 34 - 3,508 5,822
Balance, 31 December 2016 34 96,811 7,414 - 6,523 2,824 - 21,477 135,083
Carrying value
Balance, 31 December 2016 60 244,116 14,256 - 63,531 10,076 20,434 296,352 648,825
Goodwill impairment testing
For the purpose of the annual impairment test, goodwill has been
allocated to each operating segment of the business, which also
represent the Group CGUs.
The recoverable amount of the Vera&John CGU has been
determined based on a fair value less selling costs calculation
using cash flow projections from financial forecasts approved by
senior management covering a five-year period. The pre-tax
discount rate applied to cash flow projections is 22% (2016 - 22%)
and cash flows beyond the five-year period are extrapolated using a
2.5% (2016 - 2.5%) growth rate.
The recoverable amount of the Mandalay CGU has been determined
based on a fair value less selling costs calculation using cash
flow projections from financial forecasts approved by senior
management covering a five-year period. The pre-tax discount rate
applied to cash flow projections is 16% (2016 - 16%) and cash flows
beyond the five-year period are extrapolated using a 2.5% (2016 -
2.5%) growth rate.
The recoverable amount of the Jackpotjoy CGU has been determined
based on a fair value less selling costs calculation using cash
flow projections from financial forecasts approved by senior
management covering a five-year period. The pre-tax discount rate
applied to cash flow projections is 14% (2016 - 18%) and cash flows
beyond the five-year period are extrapolated using a 2.5% (2016 -
2.5%) growth rate.
The fair value less selling costs calculations are based on
level 3 in the fair value hierarchy.
As at 31 December 2017, there was
no indication of impairment of goodwill, nor do the Directors
expect any reasonably possible change in a key assumption that may
give rise to an impairment.
14. Accounts Payable and Accrued
Liabilities
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Affiliate/marketing expenses payable 6,547 3,058
Payable to game suppliers 1,899 950
Compensation payable 4,868 2,989
Loyalty program payable 252 260
Professional fees 875 349
Gaming tax payable 2,101 526
Other 1,279 860
17,821 8,992
15. Other Short-Term Payables
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Transaction related payables 3,484 9,321
Current portion of other long-term payables (Note
19) 8,667 6,000
12,151 15,321
16. Financial Risk Management
Credit risk
Credit risk is the risk of loss associated with the
counterparty's inability to fulfill its payment obligations. As at
31 December 2017, the Group is
largely exposed to credit risk through its relationship with its
service providers, the Gamesys group, the 888 group, as well as its
cash balances. Credit risk also arises from payment services
providers ("PSPs"). Prior to accepting new PSPs, credit checks are
performed using a reputable external source. Management monitors
PSP balances on a weekly basis and promptly takes corrective action
if pre-agreed limits are exceeded. As at 31
December 2017, none of the Group's receivables are
considered past due or impaired. Quantitative analysis of the
Group's exposure to credit risk arising from its receivables is
included in note 10 and analysis of the Group's exposure to its
credit risk arising from cash is presented below.
A significant amount of cash is held with the following
institutions:
As at As at
31 December 31 December
2017 2016
Financial Institution Rating (GBP000's) (GBP000's)*
A+ 7,677 6,931
A 7,307 39,124
A- 60 154
AA- 18,209 9,692
BBB+ 289 42
BBB 7,893 6,026
BB 9,122 5,018
The Group monitors the credit ratings of counterparties
regularly and at the reporting date does not expect any losses from
non-performance by the counterparties. The Group's policy is to
transfer significant concentrations of cash held at lower-rated
financial institutions to higher rated financial institutions as
swiftly as possible.
*2016 ratings have been restated to match ratings of
respective banks at 31 December
2017.
Interest rate risk
Interest rate risk relates to the risk that the fair value or
future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. Jackpotjoy plc is exposed to
cash flow interest rate risk on its credit facilities, described in
note 17, which bear interest at variable rates. A one percentage
point increase (decrease) in interest rates would have decreased
(increased) net earnings before income taxes by approximately £3.5
million for the year ended 31 December
2017 (31 December 2016
- £3.7 million), with all other variables held constant.
Management monitors movements in the interest rates by reviewing
the LIBOR on a frequent basis.
Subsequent to 31 December 2017,
Jackpotjoy plc entered into an Interest Rate Swap (as defined in
note 29) to mitigate its exposure to interest rate volatility.
Foreign exchange risk
Foreign exchange risk arises when individual group entities
enter into transactions denominated in a currency other than their
functional currency. Jackpotjoy plc's policy is, where
possible, to allow the Group's entities to settle liabilities
denominated in their functional currency with the cash generated
from their own operations in that currency. Where Jackpotjoy
plc's entities have liabilities denominated in a currency other
than their functional currency (and have insufficient reserves of
that currency to settle them), cash already denominated in that
currency will, where possible, be transferred from elsewhere within
Jackpotjoy plc.
Apart from these particular cash flows, the Group aims to fund
expenses and investments in the respective currency and to manage
foreign exchange risk at a local level by matching the currency in
which revenue is generated and expenses are incurred, as well as by
matching the currency of its debt structure with the currency cash
is generated in.
The following table summarises the Group's discounted net
financial assets/liabilities by currency and the effects on total
comprehensive income, and therefore total equity as a result of a
10% change in the value of the foreign currencies against pounds
sterling where the Group has significant exposure. The analysis
assumes that all other variables remain constant.
Effect of 10%
Effect of 10% weakening in
Net foreign strengthening in foreign
currency foreign exchange exchange
financial rates on rates on
assets/(liabil comprehensive comprehensive
At 31 December 2017 ities) income income
(GBP000's) (GBP000's) (GBP000's)
Canadian dollar (816) (82) 82
EURO (109,095) (10,910) 10,910
United States dollar 7,320 732 (732)
Effect of 10% Effect of 10%
Net foreign strengthening in weakening in
currency foreign exchange foreign exchange
financial rates on rates on
assets/(liabil comprehensive comprehensive
At 31 December 2016 ities) income income
(GBP000's) (GBP000's) (GBP000's)
Canadian dollar (7,522) (752) 752
EURO 11,848 1,185 (1,185)
United States dollar (202,757) (20,276) 20,276
Liquidity risk
The Group requires capital and liquidity to fund existing and
future operations and future cash payments. The Group's policy is
to maintain sufficient capital levels to fund the Group's financial
position and meet future commitments and obligations in a
cost-effective manner.
Liquidity risk arises from the Group's ability to meet its
financial obligations as they become due. The following tables
summarise the Group's undiscounted financial and other liabilities
as at 31 December 2017 and
31 December 2016:
Less than After 5
At 31 December 2017 On demand 1 year 1-2 years 3-5 years years
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Accounts payable and accrued liabilities 17,821 - - - -
Other short-term/long-term payables 4,151 8,000 10,000 - -
Payable to customers 8,180 - - - -
Contingent consideration - 53,348 8,750 - -
Convertible debentures - 258 - - -
Long-term debt - - - - 374,292
Interest payable on long-term debt - 20,621 39,461 39,407 39,461
30,152 82,227 58,211 39,407 413,753
Less than After 5
At 31 December 2016 On demand 1 year 1-2 years 3-5 years years
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Accounts payable and accrued liabilities 8,992 - - - -
Other short-term/long-term payables 9,321 6,000 16,000 2,000 -
Payable to customers 8,573 - - - -
Contingent consideration - 89,386 33,602 3,750 -
Convertible debentures - - 3,585 - -
Long-term debt - 26,695 53,390 53,390 254,929
Interest payable on long-term debt - 31,680 56,005 47,957 12,081
26,886 153,761 162,582 107,097 267,010
The Group manages liquidity risk by monitoring actual and
forecasted cash flows in comparison with the maturity profiles of
financial assets and liabilities. The Group does not anticipate
fluctuations in its financial obligations (with the exception of
the Jackpotjoy earn-out payment, as it is dependent on the future
performance of the Jackpotjoy segment), as they largely stem from
interest payments related to the EUR Term Facility (as defined
below) and the GBP Term Facility (as defined below).
Management believes that the cash generated from the Group's
operating segments is sufficient to fund the working capital and
capital expenditure needs of each operating segment in the short
and long term, assuming there are no significant adverse changes in
the markets in which the Group operates. The Group is actively
managing its capital resources to ensure sufficient resources will
be in place when the remaining Jackpotjoy earn-out payment and Term
Facilities (as defined below) payments and interest repayments
become due.
As at 31 December 2017, the Group
believes it will be able to fund remaining obligations under the
Jackpotjoy earn-out payment through internally generated cash.
Subject to meeting certain financial covenants, the Group may have
the ability to draw on the £13.5 million RCF (as defined below) as
a further capital resource.
17. Credit Facilities
Incremental Second
First Lien Lien EUR Term GBP Term
Term Loan Facility Facility Facility Facility Total
(GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's) (GBP000's)
Balance,
1 January
2016 207,158 - - - - 207,158
Principal - 70,000 90,000 - - 160,000
Repayment (26,906) - - - - (26,906)
Debt
financing
costs - (2,482) (6,792) - - (9,274)
Accretion1 1,868 16 35 - - 1,919
Foreign
exchange
translation 37,896 - - - - 37,896
Balance, 31
December
2016 220,016 67,534 83,243 - - 370,793
Principal - - - 122,574 250,000 372,574
Repayment (218,793) (70,000) (90,000) - - (378,793)
Debt
financing
costs - - - (1,397) (3,434) (4,831)
Accretion[1] 7,846 2,466 6,757 8 18 17,095
Foreign
exchange
translation (9,069) - - 1,718 - (7,351)
Balance, 31
December
2017 - - - 122,903 246,584 369,487
Current
portion - - - - - -
Non-current
portion - - - 122,903 246,584 369,487
1 Effective interest rates are as follows:
Term Loan - 8.69%, Incremental First Lien
Facility - 8.32%, Second Lien Facility
- 11.75%, EUR Term Facility - 4.44%, GBP
Term Facility - 6.01%.
On 8 April 2015, the Group entered
into a credit agreement (as amended and restated from time to time,
including on 27 October 2016 and
16 December 2016, the "Credit
Agreement") in respect of: (i) a seven-year USD 335.0 million first lien term loan credit
facility (the "Term Loan"); and (ii) a USD
17.5 million revolving credit facility (the "Revolving
Facility", and together with the Term Loan, the "Credit
Facilities").
On 27 October 2016, the Credit
Agreement was amended to, among other things, permit the plan of
arrangement. On 16 December 2016, the
Credit Agreement was further amended and restated to, among other
things, establish a £53,276,000 incremental first lien term loan
facility and the €20,000,000 first lien term loan facility under
the Credit Agreement (collectively, the "Incremental First Lien
Facility" and together with the Credit Facilities, the "First Lien
Facilities"), permit the incurrence of a £90.0 million second lien
term loan facility (the "Second Lien Facility") pursuant to a
second lien credit agreement (the "Second Lien Credit Agreement"),
and permit the Jackpotjoy and Starspins contingent consideration
pre-payment of £150.0 million.
On 6 December 2017, Jackpotjoy plc
entered into a senior facilities agreement ("Senior Facilities
Agreement") pursuant to which debt facilities were made available
to Jackpotjoy plc and certain of its subsidiaries in an aggregate
sterling equivalent amount of approximately £388,492,000, comprised
of (i) a €140,000,000 term facility (the "EUR Term Facility", (ii)
a £250,000,000 term facility (the "GBP Term Facility and, together
with the EUR Term Facility, the "Term Facilities") and (iii) a
£13,500,000 revolving credit facility (the "RCF" and, together with
the Term Facilities, the "Facilities"). Proceeds from the Term
Facilities were used in part to repay the Group's existing First
and Second Lien Facilities on 14 December
2017, at which point, the accretion of the remaining debt
issue costs on the First and Second Lien facilities was
accelerated. Proceeds from the RCF can be applied to, among other
things, working capital and general corporate purposes and
financing or refinancing capital expenditure.
The Term Facilities are non-amortising and mature in December
2024. The RCF matures in December
2023.
The EUR Term Facility has an interest rate of EURIBOR (with a 0%
floor) plus an opening margin of 4.25% per annum, subject to a
margin ratchet with step downs of 0.25% to 3.50% based on
reductions in the senior secured net leverage ratio ("SSLR") and
meeting certain ratings requirements. The GBP Term Facility has an
interest rate of LIBOR (with a 0% floor) plus an opening margin of
5.25% per annum, subject to a margin ratchet with step downs of
0.25% to 4.50% based on reductions in the SSLR and meeting certain
ratings requirements. The RCF has an interest rate of EURIBOR (for
Euro loans, with a 0% floor) or LIBOR (for GBP and USD loans, with
a 0% floor) plus, in each case, an opening margin of 4.25% per
annum, subject to a margin ratchet with step downs of 0.50% to
3.25% based on reductions in the SSLR.
The Senior Facilities Agreement contains certain restrictions
on, amongst other things, asset disposals, debt incurrence, loans
and guarantees, joint ventures and acquisitions, subject in each
case to various permissions. The Senior Facilities Agreement also
contains a senior secured leverage ratio maintenance covenant and
an interest cover maintenance covenant.
Jackpotjoy plc was in compliance with the terms of the Senior
Facilities Agreement as at 31 December
2017.
18. Financial Instruments
Financial assets
Loans and receivables
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Cash and restricted cash 59,241 68,738
Trade and other receivables 19,379 16,763
Other long-term receivables 3,528 2,624
Customer deposits 8,180 8,573
90,328 96,698
Financial liabilities
Financial liabilities at
amortised cost
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Accounts payable and accrued liabilities 17,821 8,992
Other short-term payables 12,151 15,321
Other long-term payables 8,245 14,505
Interest payable 924 633
Payable to customers 8,180 8,573
Convertible debentures 254 3,266
Long-term debt 369,487 370,793
417,062 422,083
The carrying values of the financial instruments noted above,
with the exception of convertible debentures, approximate their
fair values.
Other financial
instruments
Financial instruments recognised at
fair value through profit or loss -
assets (liabilities)
31 December 2017 31 December 2016
(GBP000's) (GBP000's)
Cross currency swap - 38,171
Contingent consideration (59,583) (120,187)
Other long-term assets 2,076 -
(57,507) (82,016)
Fair value hierarchy
The hierarchy of the Group's financial instruments carried at
fair value is as follows:
Level 2 Level 3
31 December 31 December 31 December 31 December
2017 2016 2017 2016
(GBP000's) (GBP000's) (GBP000's) (GBP000's)
Cross currency swap - 38,171 - -
Other long-term
assets 2,076 - - -
Contingent
consideration - - (59,583) (120,187)
Other long-term assets represent the fair value of the
Conversion Component of the secured convertible 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 five-year risk-free interest rate
of 1.035%, and an estimated share price return volatility rate of
Gaming Realms of 46.5%.
Contingent consideration represents the fair value of the cash
outflows under earn-out agreements that would result from the
performance of acquired businesses. The key inputs into the fair
value estimation of these liabilities include the forecast
performance of the underlying businesses, the probability of
achieving forecasted results and the discount rate applied in
deriving a present value from those forecasts. Significant increase
(decrease) in the business' performance would result in a higher
(lower) fair value of the contingent consideration, while
significant increase (decrease) in the discount rate would result
in a lower (higher) fair value of the contingent consideration.
Additionally, as earn-out periods draw closer to their completion,
the range of probability factors will decrease.
A discounted cash flow valuation model was used to determine the
value of the contingent consideration. The model considers the
present value of the expected payments, discounted using a
risk-adjusted discount rate of 7%. The expected payments are
determined by considering the possible scenarios of forecast
EBITDA, the amount to be paid under each scenario and the
probability of each scenario.
Without probability and discount factors, the fair value of the
contingent consideration would be approximately 12% higher (£7.4
million), than its value at 31 December
2017, increasing the current portion of the contingent
consideration, which is composed of the Botemania earn-out payment
and the first Jackpotjoy milestone payment, by £5.1 million and
increasing the long-term contingent consideration, which is
composed of the final Jackpotjoy milestone payments due in 2019 and
2020, by £2.3 million. This assumes that the financial performance
of the Jackpotjoy operating segment remains in line with
management's expectations.
On 21 June 2017, Jackpotjoy plc
made a payment in the amount of £94.2 million for the final
earn-out on non-Spanish assets and a first earn-out instalment on
the Spanish assets within its Jackpotjoy segment.
As at 31 December 2017, the
contingent consideration balance related to the earn-out payment
remaining on the Spanish assets included in the Jackpotjoy segment
and milestone payments related to the Jackpotjoy segment.
The movement in level 3 financial instruments is detailed
below:
(GBP000's)
Contingent consideration, 1 January 2016 209,625
Addition -
Fair value adjustments 49,382
Payments (156,308)
Accretion of discount 15,545
Foreign exchange translation 1,943
Contingent consideration, 31 December 2016 120,187
Fair value adjustments 27,562
Payments (94,218)
Accretion of discount 6,052
Contingent consideration, 31 December 2017 59,583
Current portion 51,866
Non-current portion 7,717
19. Other Long-Term Payables
The Group is required to pay the Gamesys group £24.0 million in
equal monthly instalments in arrears over the period from
April 2017 to April 2020, for additional non-compete clauses
that came into effect in April 2017
and that expire in March 2019. The Group has included £8.7
million of this payable in current liabilities (note 15,
31 December 2016 - £6.0
million), with the discounted value of the remaining balance, being
£8.2 million (31 December 2016
- £14.5 million), included in other long-term payables.
During the year ended 31 December
2017, the Group has paid a total of £5.3 million
(31 December 2016 - £nil) in
relation to the additional non-compete clauses.
20. Share Capital
The share capital movements presented below for periods prior to
the date of completion of the plan of arrangement discussed in note
1 are presented as if each common share of The Intertain Group
Limited had the same nominal value as the ordinary shares of
Jackpotjoy plc. The number of Jackpotjoy plc ordinary shares in
issue at the date of the plan of arrangement was 73,718,942.
Jackpotjoy plc does not hold any shares in treasury and there
are no shares in Jackpotjoy plc's issued share capital that do not
represent capital.
Ordinary shares of
GBP0.10
(GBP000's) #
Balance, 1 January 2016 7,051 70,511,493
Conversion of convertible debentures, net of costs 185 1,853,667
Exercise of options 58 577,492
Exercise of warrants 4 40,625
Balance, 31 December 2016 7,298 72,983,277
Conversion of convertible debentures, net of costs 92 916,498
Exercise of options 17 165,156
Balance, 31 December 2017 7,407 74,064,931
Convertible debentures
During the year ended 31 December
2017 (and prior to completion of the plan of arrangement),
debentures at an undiscounted value of £2.3 million were converted
into 628,333 common shares of Intertain. Additionally, during the
year ended 31 December 2017 (and
following the completion of the plan of arrangement), debentures at
an undiscounted value of £1.0 million were converted into 288,165
ordinary shares of Jackpotjoy plc.
Share options
The share option plan (the "Share Option Plan") was approved by
the Board of Directors on 5 September 2016. Upon completion of
the plan of arrangement, all options over common shares of
Intertain under Intertain's stock option plan were automatically
exchanged for options of equivalent value over ordinary shares of
Jackpotjoy plc on equivalent terms and subject to the same vesting
conditions under Intertain's share option plan. The strike price of
each grant has been converted from Canadian dollars to pound
sterling at the foreign exchange rate of 0.606, being the exchange
rate at the date of the plan of arrangement. Following the grant of
the replacement options, no further options were, or will be,
granted under the Share Option Plan.
The changes in the number of share options outstanding during
the year ended 31 December 2017 were
as follows:
Weighted
average
Number of exercise
options proceeds
# (GBP)
Outstanding, January 1, 2016 2,863,776 5.81
Granted* 1,340,000 6.79
Forfeited (375,138) 7.48
Exercised (577,492) 2.42
Outstanding, 31 December 2016 3,251,146 6.62
Forfeited (58,000) 9.26
Exercised (165,156) 2.71
Outstanding, 31 December 2017 3,027,990 6.79
*Options granted expire 5 years from their grant date.
The fair value of options granted is determined using the
Black-Scholes options pricing model. The key inputs are as
follows: expected volatility - 35%, risk-free
interest rate - 0.61, term - 5 years,
price on grant date and exercise price -
£6.79.
Share option plan
As at 31 December 2017, 2,923,726
options are exercisable (31 December
2016 - 2,449,018). The weighted average
remaining contractual life of share options outstanding as at
31 December 2017 is approximately 2.6
years (31 December 2016 - 3.5 years).
During the year ended 31 December
2017, the Group recorded £1.3 million (2016 - £2.3 million)
in share-based compensation expense relating to the share option
plan with a corresponding increase in share-based payment
reserve.
Long-term incentive plan
On 24 May 2017, Jackpotjoy plc
granted awards over ordinary shares under the Group's long-term
incentive plan ("LTIP") for key management personnel. The awards
(i) will vest on the date on which the Board of Directors
determines the extent to which the performance condition (as
described below) has been satisfied, and (ii) are subject to a
holding period of two years beginning on the vesting date,
following the end of which they will be released so that the shares
can be acquired.
The performance condition as it applies to 50% of each award is
based on the Group's total shareholder return compared with the
total shareholder return of the companies constituting the
Financial Times Stock Exchange 250 index (excluding investment
trusts and financial services companies) over three years
commencing on 25 January 2017 ("TSR
Tranche"). The performance condition as it applies to the remaining
50% of the award is based on the Group's earnings per share ("EPS")
in the last financial year of that performance period ("EPS
Tranche") and vests as to 25% if final year EPS is 133.5 pence, between 25% and 100% (on a
straight-line basis) if final year EPS is more than 133.5 pence but less than 160 pence, and 100% if final year EPS is
160 pence or more.
Each award under the LTIP is equity-settled and LTIP
compensation expense is based on the award's estimated fair value.
The fair value has been estimated using the Black-Scholes
model for the EPS Tranche and the Monte
Carlo model for the TSR Tranche.
During the year ended 31 December
2017, the Group recorded £0.1 million (2016 - £nil) in LTIP
compensation expense, with a corresponding increase in share-based
payment reserve.
Reserves
The following describes the nature and purpose of each reserve
within the Group's Consolidated Statements of Changes in
Equity.
Share capital
The purpose of this reserve is to show Jackpotjoy plc's issued
share capital at its nominal value of £0.10.
Share premium
The purpose of this reserve is to show amount subscribed for
Jackpotjoy plc's issued share capital in excess of nominal
value.
Merger reserve
The purpose of this reserve is to present the Consolidated
Statements of Changes in Equity under the merger method of
accounting, as if Jackpotjoy plc has always been the Parent Company
and owned all of the subsidiaries. The balance on the Group's
merger reserve of £6,111,000 arises on recognition of the Parent
Company's investment in Intertain recorded at the Intertain net
asset value on 25 January 2017 as
explained in note 1.
Redeemable shares
The purpose of this reserve is to show redeemable shares issued
by Jackpotjoy plc on 15 August 2016
and cancelled following the plan of arrangement transaction
described in note 1.
Share-based payment reserve
The purpose of this reserve is to show cumulative share-based
compensation expense relating to the Group's share option plan and
LTIP and recognised in the Consolidated Statement of Comprehensive
Income.
Translation reserve
The purpose of this reserve is to show gains and losses arising
on retranslating balances denominated in currencies other than
GBP.
Retained (deficit)/earnings
The purpose of this reserve is to show cumulative net gains and
losses recognised in the Consolidated Statements of Comprehensive
Income.
21. Capital Management
Jackpotjoy plc defines the capital that it manages as its
aggregate shareholders' equity. Its principal source of cash is
operating activities, the issuance of common shares, and long-term
debt. Jackpotjoy plc's capital management objectives are to
safeguard its ability to continue as a going concern and to have
sufficient capital to meet its financial obligations as they become
due. To maintain or adjust the capital structure, Jackpotjoy plc
may attempt to issue new shares, issue new debt, acquire or dispose
of assets.
The Group monitors its SSLR, which is calculated in accordance
with the Senior Facilities Agreement on a frequent basis as this
ratio impacts, among other things, the amount of excess cash flow
required to be applied in prepayment of the Term Facilities.
Commencing on 31 December 2018, if
the Group's SSLR is greater than 2.5, 50% of the Group's excess
cash flow is required to be applied in prepayment of the Term
Facilities. If the Group's SSLR falls between 2.0 and 2.5, 25% of
the Group's excess cash flow is required to be applied in
prepayment of the Term Facilities. If the Group's SSLR falls below
2.0, 0% of the Group's excess cash flow is required to be applied
in prepayment of the Term Facilities.
Excess cash flow is calculated in accordance with the Senior
Facilities Agreement and is based on consolidated EBITDA (also
calculated in accordance with the Senior Facilities Agreement) to
which certain adjustments are made (such as the deduction of
certain items such as earn-out payments and debt prepayments).
Jackpotjoy plc is not subject to any externally imposed capital
requirements. Jackpotjoy plc manages the Group's capital structure
and makes adjustments to it in light of changes in economic
conditions and the risk characteristics of the Group's underlying
assets.
There have been no changes to Jackpotjoy plc's approach to
capital management or in the items the Group manages as capital
during the year ended 31 December
2017.
22. Taxes and Deferred Taxes
Year ended Year ended
31 31
December December
2017 2016
(GBP000's) (GBP000's)
Current tax expense
Total current tax on profits for the year 1,128 347
Deferred tax
Origination and reversal of temporary
differences related to business
combinations (427) (411)
Total tax expense/(credit) 701 (64)
The reasons for the difference between the actual tax charge for
the year and the standard rate of corporation tax in the
United Kingdom applied to profits
for the year are as follows:
Year ended Year ended
31 31
December December
2017 2016
(GBP000's) (GBP000's)
Loss for the year before taxes (67,196) (40,707)
Tax using Jackpotjoy's domestic tax rate of 19.25% (2016 - 26%) (12,935) (10,584)
Effect of different tax rates applied in overseas jurisdictions 9,998 (1,726)
Non-capital loss for which no tax benefit has been recorded 3,638 12,374
Total tax expense/(credit) 701 (64)
As at 31 December 2017, taxes
receivable and payable balances consist of taxes owing and
recoverable related to the 2016 and 2017 fiscal years.
The Group has unused UK tax losses of approximately £18.9
million (2016 - £nil) that are available indefinitely for
offsetting against future taxable profits. There is no
certainty over the use or timing of use of tax losses and as a
result, no deferred tax assets have been recognised in the
year.
23. Contingent Liabilities
Indirect taxation
Jackpotjoy 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.
Revenues earned from customers located in any particular
jurisdiction may give rise to further taxes in that jurisdiction.
If such taxes are levied, either on the basis of current law or the
current practice of any tax authority, or by reason of a change in
the law or practice, then this may have a material adverse effect
on the amount of tax payable by the Group or on its financial
position.
Where it is considered probable that a previously identified
contingent liability will give rise to an actual outflow of funds,
then a provision is made in respect of the relevant jurisdiction
and period impacted. Where the likelihood of a liability arising is
considered remote, or the possible contingency is not material to
the financial position of the Group, the contingency is not
recognised as a liability at the balance sheet date. As at
31 December 2017, the Group had
recognised £nil liability (31 December
2016 - £nil) related to potential contingent indirect
taxation liabilities.
24. Related Party
Transactions
Compensation of key management
Key management is comprised of the Board of Directors, Officers,
and Members of Management of the Group. Key management personnel
compensation for service rendered is as follows:
Year ended Year ended
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Salaries, bonuses and benefits* 3,062 3,815
Severance costs 700 5,695
Stock-based compensation 936 1,147
4,698 10,657
*Compensation paid to management included in transaction
related costs is included in this balance.
Related party transactions
As disclosed in note 11, the Group entered into loan and
services agreements with Gaming Realms plc. Jim Ryan is a
Director of both Jackpotjoy plc and Gaming Realms plc. Mr.
Ryan recused himself from all discussions related to these
agreements.
25. Employees
Year ended Year ended
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Wages and salaries* 12,534 15,822
Pensions 120 80
Social security 692 409
Benefits 52 85
13,398 16,396
*Wages and salaries figures include severance
costs.
The average number of employees on a full-time equivalent basis
during the year was as follows:
31 December 31 December
2017 2016
(#) (#)
Group 209 153
26. Auditors’ Remuneration
Remuneration of the Parent Company's auditors for the auditing
of these financial statements and for other services provided are
as follows:
Year ended Year ended
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Audit fees 316 386
Audit related assurance services 121 137
Taxation compliance services 10 6
Taxation advisory services 24 718
Other non-audit services fees 300 1,410
771 2,657
27. Operating Leases
The Group has entered into operating leases for office
facilities, which require the following approximate future minimum
lease payments due under the non-cancellable operating lease
payments.
31 December 31 December
2017 2016
(GBP000's) (GBP000's)
Within one year 1,043 664
Later than one year but not later than 5 years 998 387
2,041 1,051
During year ended 31 December
2017, the Group incurred £0.9 million (2016 - £0.6
million) in operating lease expenses.
28. Recent Accounting
Pronouncements
The Group has not adopted any new accounting standards since
31 December 2016.
Recent Accounting Pronouncements - Not Yet
Effective
IFRS 9 - Financial Instruments
The IASB issued IFRS 9 relating to the classification and
measurement of financial assets. IFRS 9 uses a single approach to
determine whether a financial asset is measured at amortised cost
or fair value, replacing the many different rules in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial
instruments (i.e. its business model) and the contractual cash flow
characteristics of such financial assets. IFRS 9 also includes a
new hedge accounting model, together with corresponding disclosures
about risk management activity for those applying hedge accounting.
IFRS 9 will be applied retrospectively for annual periods beginning
on or after 1 January 2018, with
early adoption permitted.
Management completed a review of the potential changes and
impact of applying this standard on the Group's financial
information and concluded that:
• it remains appropriate for the Group to continue measuring its
loans and receivables, as well as its financial liabilities at
amortised cost;
• it remains appropriate for the Group to continue measuring its
contingent consideration at fair value through profit and loss;
and
• in relation to its financial assets, the Group will no longer
separate the embedded derivative from its host contract.
The Group will not be applying IFRS 9 prior to its effective
date.
IFRS 15 - Revenues from Contracts with Customers
IFRS 15 affects any entity that enters into contracts with
customers. This IFRS will supersede the revenue recognition
requirements in IAS 18 and most industry-specific guidance.
On 27 July 2015, the IASB
decided to postpone the initial 1 January
2017 effective date to 1 January
2018 with early adoption permitted.
Management completed a review of the potential changes and
impact of applying this standard on the Group's financial
information and concluded that the new pronouncement will not
impact the Group's revenue recognition policy as the Group's
current policy is already in compliance with the key principles
outlined in the new pronouncement.
IFRS 16 - Leases
In January 2016, the IASB issued
IFRS 16 - Leases, which replaces IAS 17 - Leases and
related interpretations. IFRS 16 provides a single lessee
accounting model, requiring the recognition of assets and
liabilities for all leases, unless the lease term is twelve months
or less or the underlying asset has a low value. The distinction
between operating leases and finance leases is removed from the
perspective of a lessee. IFRS 16 will be applied retrospectively
for annual periods beginning on or after 1
January 2019. Early adoption is permitted if IFRS 15 has
also been applied.
Management completed a review of the potential changes and
impact of applying this standard on the Group's financial
information and concluded that, while the Group will have to start
presenting its operating leases on its Consolidated Balance Sheets,
the impact of this change will not be material as the Group does
not have a large number of such leases.
The Group will not be applying IFRS 16 prior to its effective
date.
29. Subsequent Events
On 16 February 2018, Jackpotjoy
plc entered into an interest rate swap agreement (the "Interest
Rate Swap") in order to minimise the Group's exposure to interest
rate fluctuations. The Interest Rate Swap has an effective
date of 15 March 2018 (the "Effective
Date") and an expiry date of 15 March
2023. Under this agreement, Jackpotjoy plc will pay a
fixed 6.439% interest in place of floating GBP interest payments of
GBP LIBOR plus 5.25%. The fixed interest rate will be paid on
60% of the GBP Term Facility (£150.0 million) to start. The
notional amount will decrease by £30.0 million every 12 months from
the Effective Date. The Interest Rate Swap will be designated
as a fair value hedge, as described in note 3.
Enquiries
Jackpotjoy plc
Jason Holden
Director of Investor Relations
jason.holden@jpj.com
+44(0)203-907-4032
+44(0)7812-142118
Jackpotjoy Group
Amanda Brewer
Vice President of Corporate Communications
amanda.brewer@jpj.com
+1-416-720-8150
Media Enquires
Finsbury
James Leviton, Andy Parnis
jackpotjoy@finsbury.com
+44(0)207-251-3801