25 October 2019
("Nektan", the "Company" or the "Group")
Result of Placing
Update on Inter-Conditional Transactions
Result of Placing
Further to the Company's announcement on 18 October 2019, Nektan plc (AIM: NKTN), the fast-growing international gaming technology platform and services provider, is pleased to announce that it has successfully secured subscription agreements and an intention to subscribe from certain investors ("Subscription Agreements") to raise £2.6 million, before expenses, through the issue of an aggregate of 52 million new ordinary shares of 1 penny each in the Company ("Ordinary Shares") at a price of 5 pence per share (the "Placing Price"), conditional, inter alia, on the passing of resolutions ("Resolutions") at an extraordinary general meeting of the Company's shareholders ("EGM") (together, the "Placing"). As announced on 18 September 2019, the unsecured loan of £0.35 million which was extended to the Company ahead of the Placing as part of the support received from certain shareholders forms part of the Subscription Agreements. Following a proposed restructure, the Company is pleased that the overall working capital requirements prior to the Company becoming cash flow positive, as set out below, have been reduced to £2.5 million (net of expenses) enabling a reduced fund raise. The Directors believe that given the short-term commercial prospects referred to below in addition to the reduced dilutive effect, the reduction in the size of the fund raise will be in the best interests of shareholders.
In addition, and inter-conditionally, the Company is delighted to have received commitments to:
· convert all of the remaining Series A CLNs and interest thereon (subject to further amendment of the instrument) at the Placing Price;
· to amend the interest rate, waive interest and to extend the term of the Series B CLNs; and
· for Gary Shaw and VTA to amend their director loans, entered into in July 2017 ("Facility Agreements").
Background to the Placing
As announced in the Company's trading update on 31 July 2019, during FY19 total revenue increased by 14.8 per cent. over FY18 with good growth across both the B2C and B2B segments despite the headwinds experienced in the second half. As stated in the update, management has taken decisive action to ensure the Group is structured appropriately to these market conditions, whilst providing the strategic platform for planned expansion and growth in international markets. This, in conjunction with a further realignment towards higher margin activities, will, the Board believes, deliver an improvement in the Company's profitability. As announced 18 September 2019, in the B2B division, the Group was live with over 12 partners in 6 markets across Asia and Africa and had integrations underway with 19 new partners in these markets. The Group is pleased to report that 5 partners have launched since then and a further agreement has been reached to launch with another operator in Europe. The Group now has 17 partners live with a further 15 scheduled to launch before the end of January 2020.
However, despite this improved annual revenue result, due to the decline in H2 FY19 performance and continued investment in the development of the Company's operations, the Group continues to be loss making and, the Group requires further funding in order to support the integrations outlined above, which the Directors believe, once fully ramped up, should result in the Group becoming cash flow positive in the second half of its current financial year.
Having considered the available funding options and taking the continuing cash requirements of the Group into consideration, the Board decided to undertake the Placing, amendment and conversion of the Series A CLN, restructure of the Series B CLN and extending the maturity of the Facility Agreements. This will result in an improved working capital position for the Group and also significantly strengthen the balance sheet.
In addition, all outstanding Remote Gaming Duty ("RGD") payment issues have been identified and communicated to HMRC and the Company's auditors, with a view to agreeing a payment plan as soon as possible for the Company's subsidiary Nektan Gibraltar Limited ("NGL") with whom the liability to HMRC lies. The Company and NGL will require confirmation from HMRC regarding a payment plan for the outstanding RGD to be agreed as part of auditor sign off of its annual report and accounts. Should HMRC refuse a payment plan or take further steps to enforce payment more quickly than NGL can afford, then further funding may be required or restructuring steps may be taken in respect of NGL.
The Company has entered into the Subscription Agreements, under which the subscribers will invest a minimum of £2.5 million (net of expenses) into the Company, subject to shareholders passing the Resolutions.
The Facility Agreement Amendments and debt conversion
Gary Shaw, Executive Director of the Company, and VTA, a company associated with Sandeep Reddy, a Non-Executive Director of the Company, have agreed with the Company to amend the Facility Agreements such that their redemption date shall be extended to 29 April 2021. In consideration of this further amendment of the redemption date and the amendments made to the interest rate and redemption date in February 2019, Gary Shaw will be issued with 330,000 warrants and VTA 500,000 warrants at the Placing Price ("2019 Debt Warrants"). Each 2019 Debt Warrant will confer on the warrant holder the right to subscribe for one new Ordinary Share at an exercise price of 5 pence for up to 5 years. Any transfer of 2019 Debt Warrants must be in minimum tranches of 20,000 warrants or, if lower, the entirety of the 2019 Debt Warrant holding.
In addition, VTA is owed £90,000 by the Company for the set-up costs of the Company's India operations. This liability to VTA, as recorded in the accounts, will be settled through the issue of 1.8 million new Ordinary Shares at the Placing Price.
The Series A CLN Amendment and Conversion and the Series B CLN Amendment
Pursuant to a deed of amendment and a resolution of holders of the CLNs ("Noteholders"), signed by the requisite number of Noteholders and the conversion notices received by the Company, the remaining principal balance of £3,447,267 of the Series A CLNs, plus all outstanding interest of £470,936 at 18 November 2019 (the proposed date of the EGM), will convert into new Ordinary Shares at the Placing Price resulting in a total of 78,364,063 new Ordinary Shares being issued.
Pursuant to a deed of amendment signed by the Noteholders of the Series B CLN, the principal balance of £1,100,000 of the Series B CLN, which currently has interest paid quarterly on a coupon of 10 per cent., will have its terms amended such that:
· the repayment date is extended by 3 years from 29 April 2020 to 31 March 2023; and
· the noteholders will waive their right to the coupon until 1 January 2021, from when a coupon of 5 per cent. per annum will become payable.
All other conditions of the Series B CLNs will remain as per the original agreement, with the Company having the ability to convert the Series B CLNs where the Company's share price for 10 dealing days prior to serving the notice to convert is equal to or above the conversion price, which is defined as 125% of the price at which new ordinary shares were last issued.
Use of proceeds and working capital
The funds raised by the Placing will be used to support working capital requirements of the Company's operations; to allow the Company to support the continued growth of its European managed gaming solutions business and the continued development of its B2B software licensing and games distribution business.
As the Placing, the Series A CLN amendment, the CLN conversion, the Series B CLN amendment, Facility Agreement amendment and other matters are conditional, inter alia, upon the passing of the Resolutions, shareholders should be aware that, if the Resolutions are not passed, the proceeds of the Placing will not be received by the Company. In such circumstances, the Company would need urgently to pursue additional or alternative funding sources which, if they are available at all, may be expensive and/or onerous for the Company and/or asset sales or part sales.
Related party transactions
Gary Shaw, Executive Director of the Company, and Sandeep Reddy, a Non-Executive Director of the Company, have, either directly or through their associated companies, current holdings of 17,996,291, and 6,779,485 Ordinary Shares respectively (representing 16.1 per cent. and 6.1 per cent. of the Company's issued share capital respectively). Gary Shaw and Sandeep Reddy directly or indirectly, have outstanding loans of £535,000 and £800,000 respectively to the Company under the Facility Agreements. As Directors, their initial participation in the debt fundraise constituted a related party transaction under the AIM Rules for Companies and the amendment of those Facility Agreements now constitute further related party transactions under the AIM Rules for Companies.
The grant of the 2019 Debt Warrants as consideration for the amendment of the Facility Agreements and the payment of the VTA liability of £90,000 by the issue of new Ordinary Shares represent related party transactions under the AIM Rules for Companies.
In addition, VTA is a holder of £1,000,000 Series A CLNs with accrued interest of £271,918 at 18 November 2019 (the proposed date of the EGM) and therefore the Series A CLN Amendment represents a further related party transaction under the AIM Rules for Companies
Pursuant to the Placing, the Company has entered into subscription agreement with Tosca Master, a fund managed by Toscafund Asset Management LLP ("Toscafund"), which has subscribed for, in aggregate, 26,700,000 new Ordinary Shares at the Placing Price. In addition, John de la Hey (via Cheviot Capital), an individual connected to Toscafund, has subscribed for 9,000,000 new Ordinary Shares at the Placing Price. As at the date of this announcement, Toscafund, along with its connected parties, holds 31,623,020 Ordinary Shares representing approximately 28.27 per cent. of the issued share capital of the Company. As such, Toscafund is a substantial shareholder of the Company and its participation in the Placing is a related party transaction under the AIM Rules for Companies.
Jim Wilkinson (the "Independent Director") considers, having consulted with the Company's nominated adviser, Shore Capital, that each of the amended terms of the Facility Agreements, the issue of the 2019 Debt Warrants, the Series A CLN Amendment, the conversion of the debt owed to VTA and the terms of Toscafund's participation in the Placing are fair and reasonable insofar as the Company's shareholders are concerned.
An Extraordinary General Meeting of the Company is expected to be convened at the offices of K&L Gates LLP, One New Change, London, EC4M 9AF and by telephone using telephone number 0800 528 2077 for callers in the UK and +44 (0)20 7855 3285 for callers from outside the UK and passcode 15175426 on 18 November 2019 at 11.00 am (UK time) to consider and, if deemed fit, to approve the resolutions put to shareholders. A circular and notice to shareholders convening the Extraordinary General Meeting, together with a form of proxy and form of direction is expected to be posted later today.
Application will be made to the London Stock Exchange for the admission of the 127,474,063 new Ordinary Shares to trading on AIM (other than the Deferred Settlement Shares as defined below)("Admission"). It is expected that Admission will occur and that dealings will commence at 8.00am on 19 November 2019. The new Ordinary Shares, when issued, will rank pari passu with the existing Ordinary Shares. On Admission, the Company will have 239,325,665 Ordinary Shares in issue and admitted to trading on AIM. This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.
The Company has agreed that settlement be deferred in respect of £234,000, forming part of the Placing, until 31 January 2020. As such, 4,690,000 new Ordinary Shares ("Deferred Settlement Shares") are expected to be admitted to trading on AIM and it is expected that dealings will commence at 8.00am on 3 February 2020. The Deferred Settlement Shares, when issued, will rank pari passu with the then existing Ordinary Shares.
Further announcements will be made as appropriate.
For further information on the Group, please contact:
Jim Wilkinson, Non-Executive Chairman
Gary Shaw, Executive Director and Interim CEO
+44 203 478 2648
Shore Capital (Nominated Adviser, Joint Broker and Joint Bookrunner)
Tom Griffiths / David Coaten
+44 20 7408 4050
Whitman Howard (Joint Bookrunner)
+44 20 7659 1234
Further information on Nektan can be found on the Group's website at www.nektan.com.
Nektan is a fast growing, international gaming technology and services provider, specialising in mobile casino. It licenses its proprietary technology to leading operators, including BetVictor, and provides end-to-end technology and white label casino services for leading brands, including News International's The Sun Play.
Nektan's full end-to-end technology platform, Evolve, enables the management of the full customer experience and back-office operations, allowing partners to focus on marketing the product to their consumers.
The E-Lite platform is Nektan's B2B gaming content aggregator and bonusing platform that delivers a wide range of premium content from the world's leading game studios. It is an easily-integrated add on module for operators, giving them an array of options and flexibility on how they manage and distribute a breadth of premium gaming content across their networks.
Nektan has a material stake in US-based interactive gaming operator Rapid Games, which provides US land-based casinos with an in-venue mobile gaming solution. It allows operators to add mobile technology and content making products accessible to players across both cabinets and mobile devices inside casinos.
Headquartered in Gibraltar, Nektan is regulated by the Gibraltar Licensing Authority, the UK Gambling Commission and the Information Commissioners Office. As a socially responsible license holder, Nektan endeavours to deliver a safe, secure and robust player gaming experience.
Nektan plc was admitted to the AIM market of the London Stock Exchange in November 2014.