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Gaming Realms PLC

Gaming Realms PLC - Final Results

RNS Number : 4758D
Gaming Realms PLC
27 April 2017
 

 

Gaming Realms plc

 

("Gaming Realms" or the "Company")

 

Final Results for the year ended 31 December 2016

 

2016 Revenue Growth of 60%

 

Gaming Realms is a rapidly growing developer, publisher and licensor of mobile real money and social games. It creates unique and innovative real money online games and brands from which it generates revenue through real money gaming, social publishing and IP and content licensing.

 

2016 Financial Highlights:

 

·      Revenue grew by more than 60% to £34.0m (2015: £21.2m) for the year ended 31 December 2016. 106% growth excluding disposed non-core assets.

Real money gaming revenue increased by 100% to £21.5m (2015: £10.8m).

Daily social publishing revenue rose by 22% to £21,600 (2015: £17,747).

Licensing revenue increased 700% to £0.8m (2015: £0.1m).

·      Improved profitability trend with H2/16 adjusted EBITDA of £2.0m (H2/15: loss £1.7m).

·      Total new depositing players increased 47% to 249,355 (2015: 169,988).

·    Full year adjusted EBITDA loss reduced to £1.0m (2015: £4.1m) which includes an adjusted EBITDA loss of £1.8m (10 August 2015 to 31 December 2015: £1.5m) from social publishing.

 

2016 Operational Highlights:

 

·      Game library growth to 8 proprietary games on our Grizzly platform.

·      Own game content and IP generated 44% (2015: 34%) of real money gaming and social publishing revenue.

·      Strategic brand partnership deployments with Britain's Got Talent, the X Factor, Express Newspapers and Deal or No Deal.

·      Integration of real money gaming and social game development roadmap:

Deployment of Slingo Arcade on Facebook and mobile featuring Slingo real money games and lottery game library.

·      IP licensing deals with Zynga and Scientific Games generated c. £0.7m in revenue in 2016.

·      Development of Remote Game Server completed for licensing of content to adjacent markets. Ready to generate new revenue vertical in 2017.

Current Trading Q1 2017:

·      Real money gaming, social publishing and licensing revenue growth c. 19% year-on-year.

·      Content platform approved in New Jersey, USA:  

4 new licensees - Caesar's Interactive, Pala Interactive, Resorts and one other US casino operator.

Patrick Southon, CEO of Gaming Realms said:

 

"2016 has been another year of progress for Gaming Realms. Rapidly growing revenues, reduced losses and EBITDA positive in H2. Having scaled the business our plan is to be profitable in 2017 by continuing to drive top line growth and allocating our capital towards real money gaming and content licensing, the most profitable parts of our business."                                                                                                 

Enquiries:

 

Gaming Realms plc

0845 123 3773

Patrick Southon, CEO

Mark Segal, CFO

 

 

 

 

Peel Hunt LLP

 

020 7418 8900

Dan Webster

Adrian Trimmings

George Sellar

 

 

 

 

 

Instinctif

 

020 7457 2020

Matthew Smallwood

Justine Warren

 

 

About Gaming Realms

 

Gaming Realms, founded in 2012, creates and publishes innovative real money and social games for mobile, with operations in the UK and North America. Through its market leading mobile platform and unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats and driving market growth. The Gaming Realms management team includes accomplished entrepreneurs and experienced executives from a wide range of leading gaming and media companies who have significant experience of growing and managing businesses to a substantial size.

 

 

Chairman's Statement

 

2016 has been another year of significant progress for Gaming Realms. Revenue increased by more than 60% to £34.0m (2015: £21.2m). The Group also delivered its first profitable reporting period in H2/16 with an adjusted EBITDA profit of £2.0m (H2/15: loss of £1.7m), reinforcing the Board's view that its strategy of investing in high quality, high value assets and the focus on execution has allowed the Group to achieve strong top line growth while delivering an improving bottom line performance.

 

During the first half of 2016 non-core assets, including our bingo sites on a third-party platform were disposed of, focusing the Group on our own platform. In addition, we disposed of QuickThink Media to Ayima, integrating our in-house digital marketing agency with a high growth full service agency in exchange for an equity stake in Ayima.

 

2016 has also been the first full year of integration and operation of the Slingo IP and social publishing business acquired from Real Networks in H2/15. In addition to driving significant new content for our real money gaming business, this acquisition has delivered third party royalty savings as well as providing a significant new addressable market for Gaming Realms' game content, IP and marketing capability. During the year we created and deployed several new social apps and integrated aspects of the business with our real money gaming business. Through further operational synergies as well as innovative new product growth, it is our expectation that these investments and enhancements to the way we operate will deliver greater profitability in 2017.

 

The Board continues to review growth opportunities in adjacent markets for our existing content. The acquisition of the Slingo brand and IP has allowed us to achieve significant licensing partnerships with Scientific Games, Zynga and Instant Win Gaming which are already yielding c. £0.7m in recurring revenue with limited recurring cost.

 

With increased focus on producing our own proprietary games for our real money gaming business, we are developing additional high margin revenue opportunities in social and real money game content licensing markets. These will come on stream in 2017.

 

We are delighted with the performance of our real money gaming business in which we were awarded the Mobile Casino Product of the Year award by eGaming Review. This is a strong endorsement of our execution in 2016 and how our mobile first strategy is yielding significant growth over the twelve-month period.

 

Our investment in producing our own content and developing this on our own platform has allowed us greater flexibility to deliver high rate revenue growth. As we scale revenue across our fixed costs this will deliver increased margin and enable us to achieve greater bottom line contribution. Using our own platform has reduced content royalties by 39% in the last year alone. In addition, the revenue from new content distribution and further IP licensing will further drive high margin revenue across the same fixed costs. 

 

In summary, the Group has never been in a better position to drive further profitable growth across our real money gaming and content licensing revenue streams.

 

Real money gaming delivered year on year revenue growth of c. 100%. The Group could have shown a small profit for the year had we decided to invest less heavily in the development and marketing of our new social publishing business. The social publishing EBITDA loss was £1.8m (10 August 2015 to 31 December 2015: £1.5m) due to new app development and new launches including the successful Slingo Arcade featuring our Slingo Original content.

 

Outlook for 2017

 

The Board has approved the 2017 operating plan which is to drive continued top line growth in UK real money gaming operations on our Grizzly platform and balance that with continuing to improve bottom line contribution from social publishing and content licensing. As in 2016, we will invest significantly in marketing during H1 particularly focused on the real money gaming business through strategic TV partnerships to build awareness and play frequency and reap the benefits of a scaled player base across the full year.

 

Following the disposal of our non-core assets in 2016, and as we continue to scale the business, we are now focused on profitable growth. We will allocate our capital and resources on the most profitable areas particularly real money gaming and our new content licensing revenue stream. Our plan is to achieve profitability for the full year in 2017.

 

We have announced an extension to our presence in New Jersey, having achieved both product and platform approval. With the addition of several new licensees including Caesar's Interactive, Pala Interactive, Resorts and one other US operator, we will introduce our real money Slingo games into the territory. We will continue to benefit from the investment in development and integration synergies which were undertaken during 2016 in our social publishing business.

 

 

Michael Buckley

Chairman

 

 

Chief Executive's Review

Overview 

In 2016, the Group achieved market leading growth in its UK real money gaming business, integrated its new social business, built award winning content to complement its newly acquired IP and executed unique strategic partnerships with globally recognized brand licensors and gaming licensees.

 

The investment in both our proprietary platform and marketing has resulted in excellent growth in a competitive UK market place by allowing us to focus on a younger mobile based audience. Mobile now accounts for 84.0% (2015: 78.3%) of our player base.

 

Growth in 2016 has been supported by key media deals with Fremantle including the X Factor and Britain's Got Talent, which have allowed us to offer a more targeted gambling offering to our key demographic. We have augmented this by the in-house creation of 8 new unique 'Slingo Original' mobile games, which account for over £101m (2015: £56m) in wagering on the platform or 17% of the gross gaming revenue for the year. The most recent game Magic Mine is truly original in combining skill and chance as it attempts to mirror the 'fun element' of many social games, which are lacking in harder edged gambling products.

 

Overall wagering has increased by 51% to £609m (2015: £404m) and deposits have more than doubled to £49.0m (2015: £24.0m). As a more established platform we have been able to reduce bonus costs to 29% (2015: 43%) of gross gaming revenue and lessen direct costs associated with the operation to 35% (2015: 42%) of revenue. This has allowed greater focus on marketing and revenue growth in the year. 

 

Demand for our unique content has been such that it has led to the development of a Remote Game Server ("RGS") which allows our 'Slingo Original' games to be licensed to third party operators as premium content. This will form an increasing part of our strategy in 2017 as we look to differentiate ourselves from our competitors, as well as expand the reach of our content into new territories. Licensing deals to Zynga, Scientific Games and Instant Win Games in 2016 have paved the way for further deployment of our content into new jurisdictions such as Quebec through the Provincial Lottery monopoly and New Jersey through iGaming and Pala Interactive.

 

We have further integrated the social business, bought from Real Networks in 2015, with the creation of a shared development path which now allows us to deliver content simultaneously to both real money gaming and social audiences. The first offering in this regard is Slingo Arcade which, following launch in late Q4/16 rapidly has become the second highest grossing social app, scaling to an average of $8,000 per day in March 2017. In future, emphasis will be on using this channel to monetize content developed for real money gaming similar to licensing our content to third party operators. This will have resulted in a reduction in headcount from 53 in June 2016 to approximately 29 in June 2017 within social publishing.

 

Disposal of non-core assets

 

During the year we disposed of our non-core legacy third party platform assets which has allowed us to focus resources on our higher margin proprietary mobile gaming platform and our own high performance game content.

 

The disposal of our in-house digital marketing agency in a strategic partnership between Gaming Realms and Ayima, has allowed the Group to benefit from an enlarged marketing capability. We have been seeing the benefits of this on our acquisition channels on Grizzly. 

 

Marketing

 

As a result of our marketing strategy our cost per acquisition on our Grizzly platform was £86 (2015: £79), one of the lowest across the industry for a UK casino and we gained 116,349 (2015: 78,198) new depositing players in the year. Our revenue per depositing player increased 22% to £153 (2015: £125) which is reflective of the greater operational improvements in the business despite a lower than normal gaming margin in H2.

 

Market overview

 

We are continuing to focus on the younger more casual gambling demographic. We are targeting them through mobile delivery and original game IP. This is enabling us to acquire and engage players away from the more crowded, male orientated sportsbook market. The 25 to 34 year-old group are our largest segment accounting for over 40% of all players. A result of our content strategy, women are delivering higher lifetime values on the platform despite the fact that the active players, male to female ratio is 50:50.

 

Key Goals for 2017

 

·    Allocation of capital and investment to the most profitable business segments i.e. real money gaming and content licensing.

·    Focus on scaling UK real money gaming business for full year double digit revenue and profit growth.

·      New regulated third party licensees for Gaming Realms proprietary content.

·     Profitability in social publishing through integrated content development, marketing capability and focused marketing spend.

·      Continued proprietary content development available across all revenue streams

·      Further expansion of strategic media partnerships across all revenue streams

 

 

Patrick Southon

Chief Executive Officer

 

 

Financial Review

 

Overview

 

Gaming Realms has delivered year-on-year revenue growth of more than 60% to £34.0m (2015: £21.2m). This growth is a result of our proprietary platform scaling in both real money gaming and social publishing. Real money gaming on the Grizzly platform has grown 100% to £21.5m (2015: £10.8m), with social gaming and licensing adding £8.7m (2015: £2.5m) of which content licensing was £0.8m (2015: £0.1m). In addition affiliate marketing of £1.8m (2015: £2.1m) and disposed white label operations and agency business of £1.9m (2015: £5.7m) included below under real money gaming and marketing services. Adjusted EBITDA loss was £1.0m (2015: £4.1m) because of the investment in social publishing which contributed an adjusted EBITDA loss of £1.8m (10 August 2015 to 31 December 2015: £1.5m) due to continued app development and new launches including Slingo Arcade.

 

Marketing for the year, excluding disposed assets, was £13.9m (2015: £9.1m) as the Group continued to acquire players to grow its platform and revenues.

 

During the year, Gaming Realms disposed of its non-core legacy third party assets and its digital agency assets into a strategic partnership with Ayima. This has resulted in a profit on disposal in the year of £0.3m.

 

 

2016

 

 

Real money gaming and marketing services

£

Social gaming

£

Licensing

£

Other

£

Total

2016

£

Revenue

25,241,659

7,884,101

786,843

45,515

33,958,118

Marketing expense

(10,847,107)

(3,937,053)

-

(26,756)

(14,810,916)

Operating expense

(7,729,060)

(1,608,789)

-

-

(9,337,849)

Administrative

(3,815,567)

(4,140,794)

(343,488)

(2,526,921)

(10,826,770)

Adjusted EBITDA*

2,849,925

(1,802,535)

443,355

(2,508,162)

(1,017,417)

 

2015

 

Real money gaming and marketing services

£

Social gaming

£

Licensing

£

Other

£

Total

2015

£

Revenue

18,640,602

2,413,566

123,592

30,686

21,208,446

Marketing expense

(10,040,166)

(1,404,699)

-

(65,890)

(11,510,755)

Operating expense

(5,163,629)

(561,626)

-

-

(5,725,255)

Administrative

(4,268,580)

(1,940,543)

(19,332)

(1,851,397)

(8,079,852)

Adjusted EBITDA*

(831,773)

(1,493,302)

104,260

(1,886,601)

(4,107,416)

 

 

Income statement items

Like-for-like revenue growth (excluding the disposed assets) was 106% to £32.0m (2015: £15.5m) driven by the increase in real money gaming and social publishing.

 

Real money gaming and marketing services

 

The increase in revenue in real money gaming to £21.5m (2015: £10.8m) reflects the continuing investment into development, £1.5m (2015: £1.8m) and marketing £9.6m (2015: £6.7m). The marketing performance has exceeded expectations in the year delivering 116,349 (2015: 78,198) new depositing players at a cost per acquisition of £86 (2015: £79). Marketing services including disposed non-core assets contributed £3.7m (2015: £7.8m) to Group revenue, of which affiliate marketing services contributed £1.8m (2015: £2.1m) in revenue.

 

 

Operating expenses include point of consumption tax, third party royalties and transaction costs. The total cost of £10.8m (2015: £10.0m) includes the increased costs of £7.6m (2015: £4.6m) with respect to our real money gaming vertical, because of the increase in revenue and size of the operation. However, due to operational leverage that scale gives us, we saw a reduction in the year to 35% (2015: 42%) as a proportion of revenue.

 

Real money gaming and marketing services delivered positive adjusted EBITDA of £2.8m (2015: loss of £0.8m).

 

Social gaming and licensing

 

Key highlights for 2016 include:

·    Completed development of RGS enabling a single development platform for our real money gaming operations, social publishing and content licensing.

·      Investments in regulatory approvals in New Jersey provides a new high margin growth market for our proprietary content.

·      New IP licensing revenue from Zynga and Scientific Games.

·    22% annualised social publishing revenue growth despite limited impact of new investment in Slingo Arcade which was launched in December 2016.

·      Growth in player base to 1.2m (2015: 1.0m) average monthly active users.

 

Dividend

 

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

 

Corporation and deferred taxation

 

The Group received £27,961 (2015: £213,083) in research and development credits in the year and has recognised the unwind of deferred tax of £248,941 (2015: £122,692) on business combinations.

 

Mark Segal

Chief Financial Officer

 

 

Consolidated Statement of Profit and Loss and Other Comprehensive Income

For the year ended 31 December 2016

 

 

Note

1 January 2016 to 31 December 2016

£

1 January 2015 to 31 December 2015

£

Revenue

 

21,208,446

Marketing expenses

 

(14,810,915)

(11,510,755)

Operating expenses

 

(9,337,851)

(5,725,255)

Administrative expenses

 

(10,826,769)

(8,079,852)

 

 

 

 

Adjusted EBITDA*

 

(4,107,416)

Acquisition costs

2

-

(318,853)

Profit on disposal of digital marketing agency and third-party platform driven website properties

2

318,834

-

Share-based payment

 

(993,349)

(673,730)

EBITDA

 

(1,691,932)

(5,099,999)

 

 

 

 

Amortisation of intangible assets

 

(3,979,941)

(2,230,940)

Depreciation of property, plant and equipment

 

(120,789)

(59,861)

Finance expense

5

(1,178,154)

(393,579)

Finance income

5

3,022

7,579

Loss before tax

 

(7,776,800)

Tax credit

6

272,451

335,775

Loss for the financial year

 

(6,695,343)

(7,441,025)

 

 

 

 

Other comprehensive income

 

 

 

Items which may change in future periods:

 

 

 

Exchange losses arising on translation of foreign operations

 

1,836,352

605,546

Total other comprehensive income

 

1,836,352

605,546

Total comprehensive income

 

(4,858,991)

(6,835,479)

 

 

 

 

Loss attributable to:

 

 

 

Owners of the parent

 

(6,685,120)

(7,441,025)

Non-controlling interest

 

(10,223)

-

 

 

(6,695,343)

(7,441,025)

 

 

 

 

Total comprehensive income attributable to:

 

 

 

Owners of the parent

 

(4,882,234)

(6,835,479)

Non-controlling interest

 

23,243

-

 

 

(4,858,991)

(6,835,479)

 

Loss per share

 

 

 

Basic and diluted (pence)

7

(2.55)

(3.45)

 

 

 

 

 

Consolidated Statement of Financial Position

As at 31 December 2016

 

 

Note

31 December 2016
£

31 December 2015
£

Assets

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

373,307

189,652

Goodwill

8

16,545,864

18,092,116

Available for sale investment

3

540,000

-

Intangible assets

8

12,115,973

10,835,685

Other assets

 

152,000

152,000

 

 

29,727,144

29,269,453

Current assets

 

 

 

Trade and other receivables

 

3,347,595

4,018,084

Cash and cash equivalents

 

2,616,267

2,536,388

 

 

5,963,862

6,554,472

Total assets

 

35,691,006

35,823,925

 

 

 

 

Liabilities

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

7,058,781

4,327,965

Deferred and contingent consideration

 

3,135,356

4,990,966

 

 

10,194,137

9,318,931

Non-current liabilities

 

 

 

Deferred tax liability

 

1,202,889

1,232,597

Deferred and contingent consideration

 

-

2,474,533

 

 

1,202,889

3,707,130

Total liabilities

 

11,397,026

13,026,061

 

 

 

 

Net assets

 

24,293,980

22,797,864

Equity

 

 

 

Share capital

9

27,413,329

24,920,829

Share premium

 

87,095,455

85,127,955

Merger reserve

 

(67,673,657)

(68,393,657)

Foreign exchange reserve

 

2,408,432

605,546

Retained earnings

 

(25,154,580)

(19,462,809)

Total equity attributable to owners of the parent

 

24,088,979

22,797,864

Non-controlling interest

 

205,001

-

Total equity

 

24,293,980

22,797,864

 

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2016

 

 

Note

2016
£

2015
£

Cash flows from operating activities

 

 

 

Loss for the year

 

(6,695,343)

(7,441,025)

Adjustments for:

 

 

 

Depreciation of property, plant and equipment

 

120,789

59,861

Amortisation of intangible fixed assets

8

3,979,941

2,230,940

Finance income

5

(3,022)

(7,579)

Finance expense

5

36,850

21,409

Movement in deferred and contingent consideration

5

1,141,304

372,170

Contingent consideration on prior period acquisitions

 

-

105,000

Unrealised currency translation gains

 

(191,548)

-

Unwind of deferred tax recognised on business acquisitions

6

(248,941)

(122,692)

Loss on disposal of property, plant and equipment

 

6,531

42,372

Loss on disposal of intangible assets

8

-

106,043

Profit on disposal of digital marketing agency and third-party platform driven website properties

3

(318,834)

-

Share-based payment expense

 

993,349

673,730

 

 

 

 

Increase/(decrease) in trade and other receivables

 

643,961

(1,177,150)

Increase in trade and other payables

 

2,759,244

1,458,801

Decrease in other assets

 

-

6,500

Net cash flows from operating activities

 

2,224,281

(3,671,620)

 

 

 

 

Investing activities

 

 

 

Acquisition of subsidiary, net of cash acquired

10

18,759

(6,652,050)

Purchases of property, plant and equipment

 

(289,256)

(68,055)

Purchase of intangibles

8

(3,969,611)

(1,805,913)

Proceeds from disposal of third-party platform driven website properties

 

1,200,000

-

Interest received

5

3,022

7,579

Net cash from investing activities

 

(3,037,086)

(8,518,439)

 

 

 

 

Financing activities

 

 

 

Proceeds of Ordinary Share issue

 

4,025,000

12,500,000

Issuance cost of shares

 

(45,000)

(501,534)

Payment of deferred consideration

 

(3,071,447)

(1,250,000)

Repayment of other loans

 

-

(14,504)

Interest paid

5

(36,850)

(21,409)

Net cash from financing activities

 

871,703

10,712,553

Net increase/(decrease) in cash and cash equivalents

 

58,898

(1,477,506)

Cash and cash equivalents at beginning of year

 

2,516,820

3,994,326

Exchange gains on cash and cash equivalents

 

21,747

-

Cash and cash equivalents at end of year

 

2,597,465

2,516,820

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

 

 

Share capital
£

Share premium
£

Merger reserve
£

Foreign exchange reserve

£

Retained earnings
£

Total to equity holders of parent
£

Non-controlling interest

£

Total equity

£

1 January 2015

19,517,049

78,119,547

(69,334,935)

-

(12,695,514)

15,606,147

-

15,606,147

Loss for the year

-

-

-

-

(7,441,025)

(7,441,025)

-

(7,441,025)

Other comprehensive income

-

-

 

605,546

-

605,546

-

605,546

Total comprehensive income for the year

-

-

-

605,546

(7,441,025)

(6,835,479)

-

(6,835,479)

Contributions by and distributions to owners

 

 

 

 

 

 

 

 

Shares issued as part of the consideration in a business combination

413,722

-

941,278

-

-

1,355,000

-

1,355,000

Shares issued as part of the capital raising

4,990,058

7,509,942

-

-

-

12,500,000

-

12,500,000

Cost of issue of Ordinary Share capital

-

(501,534)

-

-

-

(501,534)

-

(501,534)

Share-based payment on share options

-

-

-

-

673,730

673,730

-

673,730

31 December 2015

24,920,829

85,127,955

(68,393,657)

605,546

(19,462,809)

22,797,864

-

22,797,864

Loss for the year

-

-

-

-

(6,685,120)

(6,685,120)

(10,223)

(6,695,343)

Other comprehensive income

-

-

-

1,802,886

-

1,802,886

33,466

1,836,352

Total comprehensive income for the year

-

-

-

1,802,886

(6,685,120)

(4,882,234)

23,243

(4,858,991)

Contributions by and distributions to owners

 

 

 

 

 

 

 

 

Shares issued as part of the consideration in a business combination

480,000

-

720,000

-

-

1,200,000

-

1,200,000

Shares issued as part of the capital raising

2,012,500

2,012,500

-

-

-

4,025,000

-

4,025,000

Cost of issue of Ordinary Share capital

-

(45,000)

-

-

-

(45,000)

-

(45,000)

Share-based payment on share options

-

-

-

-

993,349

993,349

-

993,349

Non-controlling interests on acquisition of subsidiary

-

-

-

-

-

-

181,758

181,758

31 December 2016

27,413,329

87,095,455

(67,673,657)

2,408,432

(25,154,580)

24,088,979

205,001

24,293,980

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2016

 

1. Accounting policies

General information

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

 

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

 

Basis of preparation

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below.

 

The consolidated financial statements are presented in sterling.

 

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) as adopted by the EU.

 

The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2015 or 31 December 2016.

 

Statutory accounts for the year ended 31 December 2015 have been filed with the Registrar of Companies and those for the year ended 31 December 2016 will be delivered to the Registrar in due course; both have been reported on by independent auditors. The independent auditors' reports on the Annual Report and Accounts for the year ended 31 December 2015 and 31 December 2016 were unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

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

 

Basis of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 31 December 2016 and the results of all subsidiaries for the year then ended.

 

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

 

Intercompany transactions, balances and unrealised gains on transactions between entities in the Group are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date on which control ceases.

 

Going concern

The financial statements have been prepared on a going concern basis. In August 2017 the final deferred consideration of $4m falls due to Real Networks from the acquisition made on 10 August 2015. The Directors have received draft terms, subject to normal commercial agreements, for an external debt facility of up to £5m and therefore have confidence that sufficient funds can be raised. The Directors will consider the approval of this external debt facility along with other options available to them.

 

Having reviewed the forecasts of the business and based on the status of current discussions with regards additional investment or financing, the Directors have a reasonable expectation to believe it is appropriate to continue to prepare the financial statements on a going concern basis.

 

2. Adjusted EBITDA 

 

 

2016
£

2015
£

Acquisition costs

 

-

(318,853)

Profit on disposal of digital marketing agency and third-party platform driven website properties

 

318,834

-

Share-based payments

 

(993,349)

(673,730)

 

 

(674,515)

(992,583)

 

3. Profit on disposal

 

Disposal of third-party platform driven website properties

 

On 4 March 2016, the Group disposed of its third-party platform driven website properties, for a total consideration of £2.4m. Black Spark Media Limited paid the Group an upfront cash payment of £1.2m with the remaining £1.2m payable by Silverspin Media Limited, was settled by way of waiving the final earn out payment to the previous shareholders of Blueburra Holding Limited. This is due as part of the three-year earn out and is being settled at a reduced rate by the Group. Chris Phillips and Scott Logan, shareholders of Silverspin Media, and were Directors of the Company's subsidiaries Blueburra Holdings Limited and Digital Blue Limited at the time of the disposal and are therefore classified as related parties. The above waiving of £1.2m contingent consideration in exchange for the disposal of assets constitutes a major non-cash transaction in the year. An additional £500,000 is receivable under a transitional services agreement over a 5-month period with Black Spark Media Limited.

 

 

2016
£

Consideration received

 

Cash consideration

1,200,000

Contingent consideration waived with respect to the Blueburra Holdings Limited

1,200,000

 

2,400,000

 

 

Net assets disposed:

 

Property, plant and equipment

427

Intangible

246,081

Goodwill

2,266,241

Trade and other receivables

14,763

Trade and other payables

(108,060)

 

2,419,452

Loss on disposal of the third-party platform driven website properties

(19,452)

 

Disposal of digital marketing agency

 

On 6 June 2016, the Group entered into a strategic partnership with digital marketing company Ayima Limited. Under the terms of the partnership, the Group has agreed to contribute assets comprising its external digital marketing agency to Ayima Limited. As consideration for the disposal of the Assets, the Group were issued shares to 10% of the enlarged issued share capital of Ayima Limited. The 10% shares have been valued at approximately £540,000, based on a valuation performed by an external advisor. This is a level 3 valuation as defined by IFRS 13. The valuation is based on the net present value of future results. The directors consider the value unchanged at the reporting date.

 

 

2016
£

Consideration received

 

Available-for-sale investment in Ayima Limited

540,000

 

 

Net assets disposed:

 

Property, plant and equipment

4,190

Goodwill

247,524

Trade and other payables

(50,000)

 

201,714

Profit on disposal of the digital marketing agency

338,286

 

4. Segment information

The Board is the Group's chief operating decision-maker. Management has determined the operating segments based on the information reviewed by the Board for the purposes of allocating resources and assessing performance. The Group has three reportable segment. The social publishing provides freemium games to the US and Europe. Licensing includes IP brand and content licensing to partners in the US and Europe. The real money gaming products and marketing services operates our brands and provides other digital marketing services to both gaming and non-gaming clients in the UK. 

 

During the year, the Group disposed of the digital marketing agency and third-party platform driven website properties previously included in the real money gaming and marketing services segments.

 

Revenue by product:

 

2016
£

2015
£

Real money gaming and affiliate marketing

23,313,208

12,933,225

Disposed white label and agency business

1,928,451

5,707,377

Social publishing

7,884,101

2,413,566

Licensing

786,843

123,592

Other

45,515

30,686

 

33,958,118

21,208,446

 

There was 0 (2015: 1) customer who generated more than 10% of total revenue. Total sales to this customer, which received marketing services in the prior year were £1,296,670.

 

Geographical information

The Group considers that its primary geographic regions are the UK, including Channel Islands, US and the Rest of World. No revenue is derived from real money gaming in the US. Revenues from customers outside the UK (including Channel Islands) and US are not considered sufficiently significant to warrant separate reporting. All non-current assets are based in the UK.

 

 

External revenue by location of customers
2016
£

External revenue by location of customers
2015
£

UK, including Channel Islands

23,925,469

17,656,043

US

6,754,016

1,752,753

Rest of the World

3,278,633

1,799,650

 

33,958,118

21,208,446

 

Segmental reporting for the year is as below:

 

 

Real money gaming and marketing services

£

Social gaming

£

Licensing

£

Other ^

£

Total

2016

£

Revenue

25,241,659

7,884,101

786,843

45,515

33,958,118

Marketing expense

(10,847,107)

(3,937,053)

-

(26,756)

(14,810,916)

Operating expense

(7,729,060)

(1,608,789)

-

-

(9,337,849)

Administrative

(3,815,567)

(4,140,794)

(343,488)

(2,526,921)

(10,826,770)

Adjusted EBITDA

2,849,925

(1,802,535)

443,355

(2,508,162)

(1,017,417)

Profit on disposal of digital marketing agency and third-party platform driven website properties

 

 

 

 

318,834

Share-based payment

 

 

 

 

(993,349)

EBITDA

 

 

 

 

(1,691,932)

Amortisation of Intangible assets

 

 

 

 

(3,979,941)

Depreciation of property, plant and equipment

 

 

 

 

(120,789)

Finance expense

 

 

 

 

(1,178,154)

Finance income

 

 

 

 

3,022

Loss before tax

 

 

 

 

(6,967,794)

 

 

Real money gaming and marketing services

£

Social gaming

£

Licensing

£

Other^

£

Total

2015

£

Revenue

18,640,602

2,413,566

123,592

30,686

21,208,446

Marketing expense

(10,040,166)

(1,404,699)

-

(65,890)

(11,510,755)

Operating expense

(5,163,629)

(561,626)

-

-

(5,725,255)

Administrative

(4,268,580)

(1,940,543)

(19,332)

(1,851,397)

(8,079,852)

Adjusted EBITDA

(831,773)

(1,493,302)

104,260

(1,886,601)

(4,107,416)

Listing and acquisition costs

 

 

 

 

(318,853)

Share-based payment

 

 

 

 

(673,730)

EBITDA

 

 

 

 

(5,099,999)

Amortisation of Intangible assets

 

 

 

 

(2,230,940)

Depreciation of property, plant and equipment

 

 

 

 

(59,861)

Finance expense

 

 

 

 

(393,579)

Finance income

 

 

 

 

7,579

Loss before tax

 

 

 

 

(7,776,800)

 

^ Other segment noted above includes unallocated head office activities. Management do not report segmental assets and liabilities internally and as such an analysis is not reported.

 

 

5. Finance income and expense

 

 

2016
£

2015
£

Finance income

 

 

Interest received

3,022

7,579

Total finance income

3,022

7,579

 

 

 

Finance expense

 

 

Bank interest expense paid

36,850

21,409

Deferred and contingent consideration movement

292,212

233,053

Fair-value adjustment of contingent consideration

-

(134,017)

Foreign exchange movement on deferred consideration

849,092

273,134

Total finance expense

1,178,154

393,579

 

The deferred consideration in relation to the acquisition from RealNetworks, Inc. was retranslated at the year-end exchange rate which resulted in a £849,092 (2015: £273,134) charge in the current year.

 

6. Tax expense

 

 

2016
£

2015
£

Tax expense

 

 

Current tax expense

 

 

Adjustment for over provision in prior periods

(4,451)

-

Current tax credit on losses for the period

27,961

213,083

Total current tax

23,510

213,083

Deferred tax expense

 

 

Origination and reversal of temporary differences

248,941

122,692

Total deferred tax

248,941

122,692

Total tax expense

272,451

335,775

 

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

 

 

 

2016
£

2015
£

Loss for the period

(6,967,794)

(7,776,800)

Expected tax at effective rate of corporation tax in the UK of 20% (2015: 20.25%)

(1,393,559)

(1,574,802)

Expenses not deductible for tax purposes

224,896

273,077

Depreciation in excess of capital allowances

7,543

18,501

Effects of overseas taxation

(224,795)

316,501

Unwind of deferred tax recognised on business acquisitions

(248,941)

(122,692)

Research & development tax credit

(27,961)

(213,083)

Adjustment for over provision in prior periods

4,451

-

Tax losses carried forward

1,385,915

966,723

Total tax credit

(272,451)

(335,775)

 

7. Loss per share

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

 

2016
£

2015
£

Loss after tax

(6,695,343)

(7,441,025)

 

 

 

 

Number

Number

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

262,432,743

215,672,706

 

 

 

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

262,432,743

215,672,706

 

 

 

Basic and diluted loss per share (pence)

(2.55)

(3.45)

 

 

8. Intangible assets

 

 

Goodwill

£

Customer database
£

Software
£

Development costs
£

Domain names

£

Intellectual property

£

Total
£

Cost

 

 

 

 

 

 

 

Balance at 1 Jan 2015

13,543,905

3,189,553

361,684

1,082,811

26,514

-

18,204,467

Acquired through business combination

4,300,671

1,289,563

1,039,236

-

320,832

5,076,493

12,026,795

Additions

-

-

-

1,805,913

-

-

1,805,913

Disposals

-

-

(361,684)

-

-

-

(361,684)

FX movement

247,540

64,532

52,005

-

16,055

277,886

658,018

At 31 December 2015

18,092,116

4,543,648

1,091,241

2,888,724

363,401

5,354,379

32,333,509

Acquired through business combination (Note 10)

75,413

-

217,216

-

-

-

292,629

Additions

-

-

-

3,969,611

-

-

3,969,611

Disposals

(2,513,765)

(698,446)

-

-

-

-

(3,212,211)

FX movement

892,100

266,769

230,043

-

66,217

1,047,051

2,502,180

At 31 December 2016

16,545,864

4,111,971

1,538,500

6,858,335

429,618

6,401,430

35,885,718

Amortisation

 

 

 

 

 

 

 

Balance at 1 Jan 2015

-

857,986

222,834

365,795

428

-

1,447,043

Disposals

-

-

(255,641)

-

-

-

(255,641)

FX movement

-

(4,711)

(3,797)

-

(1,172)

(6,954)

(16,634)

Amortisation charge

-

1,202,670

172,321

554,061

46,325

255,563

2,230,940

At 31 December 2015

-

2,055,945

135,717

919,856

45,581

248,609

3,405,708

Amortisation charge

-

1,156,153

440,219

1,517,989

132,965

732,615

3,979,941

Disposals

-

(452,365)

-

-

-

-

(452,365)

FX movement

-

81,939

67,052

260

20,386

120,960

290,597

At 31 December 2016

-

2,841,672

642,988

2,438,105

198,932

1,102,184

7,223,881

Net book value

 

 

 

 

 

 

 

At 1 January 2015

13,543,905

2,331,567

138,850

717,016

26,086

-

16,757,424

At 31 December 2015

18,092,116

2,487,703

955,524

1,968,868

317,820

5,105,770

28,927,801

At 31 December 2016

16,545,864

1,270,299

895,512

4,420,230

230,686

5,299,246

28,661,837

 

 

 

9. Share capital

Ordinary shares

 

2016
Number

2016
£

2015
Number

2015
£

Ordinary shares of 10 pence each

274,133,292

27,413,329

249,208,292

24,920,829

 

On 2 March 2016, 7,625,000 shares were issued at £0.20 per share for a total consideration of £1,525,000.

 

On 9 June 2016, 4,800,000 shares were issued at £0.25 per share to the previous shareholders of Blueburra Holdings Limited to satisfy the final £1,200,000 share element of vendor consideration.

 

On 2 September 2016, 12,500,000 shares were issued at £0.20 per share for a total consideration of £2,500,000.

 

10. Business combinations during the YEAR

Acquisition of Hullabu Inc

On 22 July 2016, Blastworks Inc acquired 62.5% of the share capital of Hullabu Inc a company that develops and publishes social games. Hullabu Inc in conjunction with Blastworks Inc, developed, published and marketed the Hidden Artefacts game, the acquisition of Hullabu Inc is expected to expedite the development and growth of Hidden Artefacts. Details of the fair value of identifiable assets and liabilities acquired and purchase consideration and goodwill are as follows:

 

Book value
£

Adjustment
£

Fair value
£

Software

-

217,216

217,216

Trade and other receivables

378,344

-

378,344

Cash

18,759

-

18,759

Trade and other payables

(2,516)

(127,114)

(129,630)

Total net assets

394,587

90,102

484,689

Less: Non-controlling interest at fair value

 

 

(181,758)

Total attributable net assets

 

 

302,931

 

 

£

Deferred consideration - Loan note

378,344

Total consideration

378,344

Goodwill arising on acquisition (Note 8)

75,413

 

The existing shareholders of Hullabu Inc, issued new shares equating to 62.5% of the overall share capital of Hullabu Inc in exchange for a loan note of $500,000. The loan is expected to be repaid monthly over a twelve-month period.

 

Goodwill recognised in the acquisition of Hullabu Inc relates to the presence of certain intangible assets such as an experienced workforce, which do not qualify for separate recognition. Prior to acquisition for the period 1 January 2016 to 21 July 2016, the revenue generated was $111,123 and loss after tax was $34,670. Since acquisition, Hullabu Inc generated $124,285 in revenue and loss after tax of $109,604.

 

 


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