TIDMSTR
RNS Number : 9656H
Stride Gaming PLC
21 November 2018
21 November 2018
Stride Gaming plc
("Stride Gaming" or the "Company" or the "Group")
Audited Results for the year ended 31 August 2018
Continued revenue growth, in line with expectations
Stride Gaming plc (AIM: STR), a leading online gaming operator,
announces its audited results for the year ended 31 August
2018.
Key Financials
Audited Audited
Year Ended Year Ended
31 Aug 18 31 Aug 17
Change
GBP'000 GBP'000 %
Net Gaming Revenue ^ 88,968 81,815 8.7%
Adjusted EBITDA* 16,097 19,670 (18.2%)
Adjusted net earnings* 14,684 18,268 (19.6%)
Loss after tax and discontinued
operations (5,027) (25,623) -
Adjusted basic earnings per
share (in pence) * 20.0 27.1 (26.2%)
Basic loss per share (in pence) (6.9) (38.1) -
Proposed final dividend per
share (in pence) 1.7 1.5 13.3%
Financial highlights:
-- Solid performance in Real Money Gaming, driving an 8.7% increase in Group NGR
-- Like-for-like Adjusted EBITDA*, normalising the impact of
changes in the UK point of consumption tax ("POCT") introduced on
free bets in August 2017, increased by 1.5%
-- Strong balance sheet with net cash of GBP26.6 million (FY
2017: GBP23.7 million) and a high cash conversion
-- A proposed final dividend of 1.7 pence per share, taking the
total dividend for the full year to 3.0 pence per share (FY 2017:
2.7 pence per share), covered 6.5x by Adjusted net earnings
-- The Board intends to return the anticipated GBP6m contingent
consideration proceeds from the sale of QSB Gaming Limited ("QSB")
by way of a special dividend of 8.0 pence per share in the spring
or early summer of 2019
-- In light of the Group's strong, cash generative nature, the
Board intends to adopt a policy for the financial year ended 31
August 2019 and subsequent years of distributing at least 50% of
Adjusted net earnings to shareholders by way of dividends. The
total dividend for the year is expected to be paid in broadly equal
proportions, with one half of the total dividend being paid as an
interim dividend
Operational highlights:
-- Strong performance of the Group's proprietary platform,
resulting in an increase of 23.8% in Real Money Gaming NGR to
GBP60.5 million (FY 2017: GBP48.9 million). This is in line with
the Group's strategy to focus players onto the higher margin,
in-house platform
-- Solid organic growth in UK Real Money Gaming:
o Deposits up 6.8% to GBP157 million (FY 2017: GBP147
million)
o Yield per player** down 2% to GBP144 (FY 2017: GBP147)
o Funded players*** down 6.1% to 137,000 (FY 2017: 146,000)
resulting from the Group's strategy to focus on the lifetime value
of players and reduce the number of players associated with free
bets
o Group gross gaming revenue^^ ("GGR") through mobile and touch
devices increased by 5% and now represents 69% (FY 2017 66%) of the
total Real Money Gaming GGR
-- Final conclusion of investigation by the UK Gambling
Commission ("UKGC") resulting in a GBP7.1 million fine
-- Stride Together, the Group's B2B offering, has seen
significant traction during the year and is performing
satisfactorily ahead of management's initial expectations
-- Disposed of minority interest in Spanish operator QSB Gaming
for initial cash consideration of GBP4.4 million (FY 2017: Nil) and
expected additional GBP6.0 million as contingent consideration
receivable
Eitan Boyd, CEO of Stride Gaming, said:
"Against a very challenging trading environment, we are pleased
to report very satisfactory 8.7% growth in Net Gaming Revenues
("NGR") and an Adjusted EBITDA of GBP16.1 million. This was
achieved after absorbing GBP3.9m of additional fiscal and
regulatory costs, and further demonstrates the strength of our
experienced and dedicated team, scale, proprietary technology and
unique in-house ecosystem.
"We have started the new financial year in a strong cash
position with net cash of GBP26.6 million. We recently concluded
lengthy discussions with the UKGC, not least so we can singularly
concentrate on optimising the undoubted opportunities for us in the
UK Market, a market which, while challenging, remains the largest
single regulated gaming market in the world.
"Since the start of the current financial year, trading has been
satisfactory and in line with our expectations after having
absorbed further fiscal and regulatory costs to reflect the changed
trading environment our industry is required to operate within. We
have and will continue to adjust and right-size our cost base to
mitigate these pressures.
"Looking further ahead, the Board is confident in the quality,
flexibility, efficiency and robustness of the Group's operating
model and ability to continue to grow in both relative and absolute
terms despite the trading environment. The Board believe the Group
will continue to be highly cash generative and against that
backdrop, have announced our intention is to propose a 8p special
dividend in the Spring or early Summer 2019 to return to
shareholders the expected proceeds of the QSB sale on top of a
materially enhanced regular dividend policy for current and future
financial years of paying out 50% of our adjusted net
earnings."
^ NGR includes the Group's share in Asper's revenue and was adjusted
only to demonstrate the effect if it was consolidated on a 50%
basis. This adjustment increased revenue by GBP3.5 million without
an effect on the Adjusted EBITDA results.
* Adjusted net earnings and Adjusted EBITDA exclude income or
expenses that relate to exceptional items and non-cash share-based
charges. A reconciliation between the current year's reported
figures and the prior year's figures to Adjusted net earnings
is shown in the Chief Financial Officer's report.
**Yield per player means the total net cash in the last three
months of the Period divided by the number of funded players at the
end of the Period.
***Funded player means an active player who has made a deposit
with their own funds within the last three months of the
Period.
^^ GGR means gross gaming revenue, being total bets placed by
players less winnings paid to them.
Enquiries:
Stride Gaming plc
Nigel Payne (Non-Executive Chairman)
Eitan Boyd (Chief Executive Officer) +44 (0) 20 7284
Ronen Kannor (Chief Financial Officer) 6080
Investec (Nominated Adviser and Broker)
Chris Treneman
Ed Thomas +44 (0) 20 7597
David Anderson 5970
Hudson Sandler (Financial PR)
Alex Brennan
Hattie O'Reilly +44 (0) 20 7796
Bertie Berger 4133
About Stride Gaming:
Stride Gaming plc, listed on AIM, is a leading online gaming
operator. The Company operates a multi-branded strategy, using a
combination of its proprietary and licensed software to provide an
online gaming offering.
Stride Gaming's real money offering is presently focused on the
UK market, where it is licensed and only operates from the
regulated jurisdictions of the UK and Alderney. With a diverse
portfolio of over 150 brands, Stride Gaming is the third largest
online bingo operator in the UK and has over 25% share of the UK
online bingo landscape.
Stride Gaming operates a partnership platform, Stride Together,
through which the company licenses its proprietary platform to
gaming operators, media partners and retailers in the UK and
globally, enabling them to create an online presence for their
customers and enabling Stride to penetrate new verticals both
within UK markets and overseas territories.
Further information on the Group is available at:
www.stridegaming.com.
CHAIRMAN'S STATEMENT
On behalf of the Board I am pleased to update our shareholders
on a year which has seen the Group deliver further growth in Net
Gaming Revenues ("NGR") and like-for-like an Adjusted EBITDA
increase of 1.5% despite regulatory and fiscal-driven market
disruption and consequential challenging trading conditions in the
Group's core UK market. Against this backdrop, the Group's positive
trading result is testament to the Group's scale, its strong
proprietary technology, its in-house ecosystem and sophisticated
business analytics capabilities, delivered by an experienced and
dedicated management team.
Results and performance
The Group has delivered a resilient set of financial results
with NGR up 8.7% to GBP89.0 million (2017: GBP81.8 million) and has
successfully managed and largely mitigated the increased tax burden
from the implementation of the additional point of consumption tax
("POCT") introduced on 1 August 2017 as applied to free bets, which
had a negative GBP3.9 million impact on EBITDA. The Group has also
navigated through other external challenges during the year, such
as the introduction of GDPR and tighter regulatory controls across
the UK gambling industry. Adjusted EBITDA for the year was GBP16.1
million (2017: GBP19.7 million). After normalising the POCT impact,
like-for-like adjusted EBITDA was marginally up on the previous
year.
Market overview: size, taxation and regulation
The global online gambling industry remains an attractive,
dynamic and fast-growing industry and the UK is still the largest
single gambling market globally. The UK, where Stride derives 96%
of its annual revenues, was estimated to be worth EUR7.3 billion of
gross win in 2018, with the bingo and casino sectors of the market
estimated to be worth EUR3.7 billion (H2 Gambling Capital, August
2018).
In the four years since its Admission to AIM in 2015, Stride has
performed well, increasing its Real Money Gaming funded players
from 52,000 in 2015 to 137,000 in 2018 and increasing its Adjusted
EBITDA pre POCT from GBP9.8m in 2015 to GBP32.1m in 2018.
Despite this growth, however, the fiscal environment in which
UK-facing online gaming businesses operate has become increasingly
expensive and this has had a significant effect on absolute profit
and profit margin.
2015 2016 2017 2018
NGR 26,695 34,974 81,815 85,484
Adjusted EBITDA pre POCT 9,797 13,600 31,291 32,113
Adjusted EBITDA pre POCT
as a % of NGR 37% 39% 38% 38%
Adjusted EBITDA post POCT 7,044 8,213 19,670 16,097
Adjusted EBITDA post POCT
as a % of NGR 26% 23% 24% 19%
The industry's fiscal burden is set to change further still from
April 2019 with a further 40% increase in Remote Gaming Duty
("RGD") from 15% to 21% of NGR (plus the value of the first time
use of free plays). This material change reduces the gross and
therefore net profit derived from UK facing gambling operations by
a further 6%.
In addition to the increased fiscal burden, operators today face
far greater regulatory scrutiny in the UK gambling market than ever
before with tighter regulatory controls being applied over areas
such as frequency of play, customer and age verification,
affordability and anti-money laundering. Whilst these tighter
controls are welcomed by the Group, the Board recognises that their
practical impact is to discourage some players from participating
in gambling, as it becomes increasingly administratively cumbersome
for them to do so. Responsible operators, such as Stride, are
successfully adapting their social responsibility tools, processes
and culture to comply with these tighter regulations and are
consequently well placed to deliver long-term success in what is
still a substantial and growing UK market. In the short-term
however, the tighter controls will inevitably lead to a reduction
in the number of active UK players for many operators.
The combined effect of higher taxes and tighter constraints on
customer activity, together with the introduction of greatly
enhanced data protection laws are having a disruptive effect on the
UK gambling market which the Board believes will change the
competitive dynamics of the UK-facing industry. The UK gambling
market is a more difficult place in which to do business today than
it was a few years ago and it is more difficult to generate
increasing returns from. These changing times, however, are likely
to create significant opportunities for "fit for purpose" operators
like Stride to take advantage of.
The Board believes that the fiscal and regulatory burden (post
the increase in POCT to 21%) is such that there will be increasing
financial pressure on operators that lack scale (and thus cannot
accommodate the increased financial burden), as well as on those
operators who have a high proportion of "VIP" customers (who are
more likely to reduce activity following tighter regulatory
controls) or are dependent on undifferentiated, third-party
technology platforms (and are less agile). The Board believes that
it is highly likely that consolidation and corporate activity will
increase as a result.
As an established player of scale, with its own proprietary
platform, its own in-house ecosystem, its low cost and efficient
infrastructure and with multiple operational levers available to
take advantage in this changing market and accelerate growth, the
Board is confident that the Group is well positioned to capitalise
on the above market disruption and take advantage of the
opportunities that it will undoubtedly present.
It is for these very reasons that Stride, over the past two
years, has and continues to make substantial investment in its
proprietary software platform and development team to ensure that
the Group is well positioned to take advantage of such
opportunities and thrive in what is now a more complex and
compliance orientated UK market. The Board is confident that this
investment will help the Group to grow market share over the medium
term and to mitigate the increased fiscal and regulatory burdens it
now has.
Strategic progress
The Group has a clear growth strategy that is primarily focused
on profitably growing its core UK Real Money Gaming business by
leveraging its high-margin proprietary platform and retaining a
clear focus on mass market, recreational bingo and casino
customers.
During the year, NGR from the Group's proprietary Real Money
Gaming business increased by 23.8% demonstrating the strength of
the Group's core platform as well as the performances of the
successfully integrated 8ball and Tarco brands that were acquired
during 2016. The Board will target investment and focus in its
proprietary platform over the next few years.
In addition to growing the core UK business, the Group is
continuing to explore opportunities to leverage its technology
platform and industry expertise to achieve growth in related areas.
One successful example of this is Stride Together, the Group's B2B
division, which performed well during the Period through its Aspers
Casino partnership. This success underpins the Board's confidence
in the Group's potential to add additional B2B partnerships across
other jurisdictions.
Responsibility
Stride takes its role as a responsible operator seriously and
only operates in markets where it is legal to do so. The Group is
committed to providing a safe, responsible and secure environment
for its customers and has continued to invest in its responsible
gaming processes.
On 13 November 2018, post the Period end, the Group announced
that Daub Alderney Limited ("Daub"), a subsidiary of the Company,
had been fined GBP7.1m by the Gambling Commission of Great Britain
("UKGC") for failings in its anti-money laundering and social
responsibility procedures. After careful consideration, the Group
concluded that whilst it believes the UKGC fine to be excessive and
disproportionate, it was not in the interests of the Group's
stakeholders to appeal the UKGC's finding or penalty. We are of the
view that both the industry and its regulator must be as one in its
combined attempt to better regulate the industry and accordingly,
we will be seeking to engage with the UKGC to improve the
robustness of the process that we have recently been through.
The Board is fully committed to ensuring the robustness of
relevant procedures in the Group's licensed subsidiaries to ensure
compliance with licensing obligations. The controls framework
required to meet its licence conditions and codes of practice have
been assessed by Daub and the Group to be effective, via a
comprehensive evaluation of that framework, supported by an
independent review carried out by Deloitte LLP. In order to provide
further assurance of the robustness of Daub's existing and ongoing
controls and to ensure that Daub is protecting vulnerable players,
Daub has commissioned Deloitte LLP to carry out biennial control
audits in order to independently assess the operational
effectiveness of those controls
Dividend and policy
In line with the Group's progressive dividend policy, the Board
is pleased to recommend a final dividend of 1.7 pence per share
(2017: 1.5p) for the financial year. This final dividend, together
with the interim dividend of 1.3 pence per share, brings the total
dividend for the year ended 31 August 2018 to 3.0 pence per share
(2017: 2.7 pence).
In addition, the Board intends to distribute to shareholders by
way of a special dividend, the earn-out received relating to the
QSB Gaming transaction, which is expected to be in excess of
GBP6.0m. This equates to approximately 8.0p per share and is
expected to be paid in spring or early summer 2019.
Both are subject to the approval of shareholders at the
Company's Annual General Meeting to be held on 6 February 2019.
In light of the Group's strong, cash generative nature the Board
intends to adopt a policy for the financial year ended 31 August
2019 and subsequent years of distributing at least 50% of Adjusted
net earnings in dividends. The total dividend for the year is
expected to be paid in broadly equal proportions, with one half of
the total dividend being paid as an interim dividend.
Current trading and outlook
I am pleased that despite challenging fiscal and regulatory
conditions we have been able to grow the Group's core proprietary
platform business by 23.8% during the year. This success is
testament to Stride's business model and proprietary technology
which allows the Group to be nimble and react quickly to changing
market conditions.
The new financial year has begun in line with expectations, and
the Board is confident in Stride's ability to manage the ongoing
market pressures and leverage its unique infrastructure to
capitalise on the significant growth opportunities. As a result,
the Board believes the Group will continue to be highly cash
generative and consequently the dividend policy has been updated to
ensure that surplus cash is returned to shareholders.
Team
On behalf of the Board, I would like to take this opportunity to
thank the entire Stride Gaming team for their hard work and
commitment during a year in which the Group has made significant
operational changes and progress. The Group's development and
growth would not have been possible without the skill, talent and
commitment of the people throughout the Company.
CHIEF EXECUTIVE'S STATEMENT
Stride Gaming has continued to make progress against its growth
strategy during the year in what has been a challenging market. The
Group delivered good top line growth, investing in our product
offering and further strengthening compliance. Underpinning the
Group's progress are its core strengths including a scaled
operation, first-class proprietary technology platform, in-house
marketing and business intelligence expertise, and an experienced
team. These attributes, combined with a resolute focus on
operational efficiencies, have supported Stride Gaming's growth
during the last financial year.
Long term growth strategy: Be a winner in a disruptive
market
The Group's strategy for long term growth is focused on
delivering profitable growth in its core UK Real Money Gaming
business, primarily aimed at the extensive recreational gaming
market. As the market dynamics shift, leading other operators to
move away from the UK, or ceasing to compete, we see increased
opportunities for us to take market share. The second pillar of the
Group's strategy is to identify new growth opportunities where we
can leverage our technology platform and industry expertise to
achieve growth in related areas of the online gaming market.
Underpinning both strategic pillars is a commitment to continuing
to invest in and develop our people, proprietary technology and
robust standards of responsibility and compliance.
Focus on the core: UK Real Money Gaming
The increased fiscal and compliance pressures on UK operators
that are outlined in the Chairman's section of the Annual Report
are shifting the dynamics of the industry. Notably, changes to
bonus taxation means that operators must be smarter in their
customer acquisition and retention strategies and stricter
responsible gaming and source of funds requirements mean that
higher value players are both scarcer and come with more inherent
risk to operators. Against this backdrop, operators that are not
agile and able to refine their approach to efficiently acquire
customers, and who are not investing in providing a quality
experience to keep those customers engaged, will face significant
challenges.
In a year of major transition in the UK market, the benefits of
owning and developing our own proprietary platform have never been
stronger. We continue to improve our compliance and customer
protection to adapt to the demands of the new market environment,
adjust to new GDPR requirements, and successfully refine our market
focus to reflect the new economic realities of the UK market.
Despite these operational challenges, we have been able to drive
robust growth in NGR of 8.7% which is again testament to the
strength of our platform and team. In line with our strategic
focus, this growth has been driven primarily by NGR generated on
our higher margin proprietary platform, which was up by 23.8% to
GBP60.5 million and accounted for 68.0% of Group NGR (2017:
59.7%).
Refining our focus on the mass-market
During the year we have been successfully refining our customer
acquisition focus towards more recreational, "mass market" players,
thereby reducing exposure to "high-roller" customers, as well as
unprofitable "bonus hunters". The Group's ability to effectively
refine its customer strategy is supported by owning its own
technology platform and in-house marketing capabilities. These
attributes enable the Group to quickly develop its marketing
strategies, test their effectiveness and refine investments
accordingly to continually optimise the cost per acquisition of its
customers. This transition resulted in the number of funded players
decreasing by 6.1% from last year, but keeping yield per player
consistent, reflecting the effectiveness of our marketing and
customer acquisition strategy, as well as our CRM capabilities.
A more focused multi-brand model
A key strength of the Stride Gaming business model is our
multi-brand approach. This enables the Group to leverage its
analytics-driven CRM capabilities and cross-sell customers between
our brands to keep them engaged in the Stride Gaming "ecosystem"
for longer.
Stride's brand portfolio at the year-end comprised over 150
websites, of which 14 were operating on the Group's proprietary
platform. The Group operates a pyramid structure to its brands,
with the top tier of 4 brands (all of which on the proprietary
platform) representing 39% of Group Deposits. The majority of the
Group's marketing, product development, business analytics and
customer retention initiatives are focused on the top tier of
brands.
To adapt to the above-mentioned market dynamics and reflect our
focus on a more recreational customer base, we are refining our
multi-brand approach to focus marketing investment on a smaller
number of our most successful brands. We believe that the prime
brands which already have strong customer appeal have significant
further potential for Stride and we intend to focus our investment
behind these brands in the year ahead, resulting in a more focused
multi-brand approach and further optimising our marketing
investment and cost base.
Product enhancement
We are continually investing in and developing our products,
functionalities and player experience to ensure that our sites
offer a highly engaging experience for customers. This spans
everything from developing new content, optimising players'
journeys and introducing further tools to enhance engagement levels
and using player behaviour analytics, together with product
development to increase monetisation of our customer base.
Mobile and touch devices remain a key growth driver for the
Group and Gross Gaming Revenue ("GGR") from those devices increased
by 5% during Period, to represent 69% of total Real Money Gaming
GGR (2017: 66%)
Synergies and efficiencies
The Group has a resolute focus on driving efficiencies across
all areas of its business.
We continue to drive synergies from the 8Ball and Tarco assets
acquired in August 2016. At the time of the acquisitions, the Group
stated that it planned to deliver GBP2.5 million of cost synergies
once the earn-out period of the acquired businesses was complete.
To help deliver the planned cost benefits, post period end the
Group began the process to close 8Ball's Manchester operations. I
would like to take this opportunity to thank our team in Manchester
for all their hard work and contribution to the success of the
company and their full commitment through this process. The Group
will focus on delivering continued efficiencies and further
operational synergies, leveraging our strong back-office team in
Mauritius, going forward.
New areas for growth
The second pillar of Stride's growth strategy is to leverage our
platform, people and expertise to deliver growth opportunities in
related areas of the online gaming industry.
Stride's B2B partnership division, Stride Together, continued to
perform well through its first partnership with Aspers Casino,
which went live during the year. The site has performed ahead of
management's initial expectations during the Period and is already
one of our leading brands by NGR operated by Stride. This gives the
Board considerable confidence in the potential for Stride Together
and we are appraising and pursuing other partnership opportunities
in the UK and internationally.
The Group believes there are significant growth opportunities to
be explored in new markets over the medium to long-term and is
currently in the process of applying for licences in markets where
we see the most significant potential. Following the changes
imposed on advertising in the Italian market, the Group made a
strategic decision not to enter this market in 2018 and to
prioritise investment in the core UK market. Stride is currently
actively engaged in acquiring operating licences in three European
countries (Spain, Denmark and Sweden) to provide the option of
launching either B2C or B2B products in the future.
In December 2017, the Group invested in acquiring a 51%
strategic controlling investment in Passion Gaming, a rummy-focused
online gaming company operating across India, for GBP2.48 million.
This business continues to perform in line with the Board's
expectations, including the transition of software ownership,
investment in the team and optimisation of marketing channels.
As highlighted at the Half-Year Results, the Board took the
decision to commence the sale of the Social Gaming business,
Infiapps, as a result of the shifting trends in the social gaming
market.
Investment in technology and first-class team
Our performance and growth strategy are underpinned by the
strength of our technology and highly skilled team. During the
year, we invested in our platform and in the development of our
team, with an increased focus on our compliance resources. I would
like to take this opportunity to thank all our team for their
continual hard work and dedication through this year of change, and
I firmly believe we are in a stronger position today to leverage
our core strengths and grow further.
CHIEF FINANCIAL OFFICER'S REVIEW
Stride Gaming delivered solid organic growth during FY 2018. The
Group delivered encouraging NGR growth of 8.7% to GBP89.0 million^
(FY 2017: GBP81.8 million) against an evolving and challenging UK
market. This growth rate was achieved as a result of the strength
of our in-house proprietary platform together with the integration
of 8Ball, Netboost Media and Tarco into the Group post the
completion of the acquisition earn-out periods.
Adjusted EBITDA decreased by 18.2% to GBP16.1 million (FY 2017:
GBP19.7 million) and adjusted EBITDA margins declined by 5% to 19%
(FY 2017: 24%) primarily as a result of the new gaming duty on free
bets ("POCT") introduced in August 2017. On a like for like basis
adjusting for the effect of POCT, underlying adjusted EBITDA
increased by 1.5% and margins were unchanged from the previous
year.
Revenue
Net Gaming Revenue was up 8.7% to GBP89.0 million^ with revenue
generated on the in-house proprietary platform up 23.8% to GBP60.5
million^ (FY 2017: GBP48.9 million). Revenue from third-party
non-proprietary platforms was down 13.5% to GBP28.5 million (FY
2017: GBP33.0 million) which is in line with the Group's strategy
of prioritising investment into the proprietary platform.
Total deposits in the Real Money Gaming vertical were up 6.8% to
GBP157 million (FY 2017: GBP147 million), demonstrating the Group's
strong appeal in the bingo and casino markets, driven by Stride's
multi-brand customer acquisition strategy.
Funded players reduced by 6.1% to 137,000 (FY 2017: 146,000)
however yield per player remained consistent at GBP144 (FY 2017:
GBP147) as the Group increased its focus on the lifetime value of
players and moved away from those players associated with free
betting activity.
Mobile and touch devices revenue increased by 5% compared to the
prior year and accounted for 69% (FY 2017: 66%) of total Group Real
Money Gaming GGR.
In December 2017 the Group acquired a 51% controlling stake in
Passion Gaming, an Indian rummy focused online gaming business.
Passion Gaming is performing in line with the Group's expectations
and we are encouraged by the potential opportunities in the Indian
market. The revenue contribution from this business so far is
immaterial and has not been presented separately in the
results.
Cost of sales
Cost of sales totalled GBP16.0 million (FY 2017: GBP11.6
million) with the year on year increase resulting from the new POCT
rules which became effective for reporting periods commencing on,
or after 1 August 2017. The changes introduced mean that UK licence
holders also pay tax on the value of all first-time free plays.
This increase impacted eleven months of the current reporting
period by GBP3.8 million. If the new tax was applied to the prior
Period's results, cost of sales would have increased by GBP3.7
million.
Distribution costs
Distribution costs of GBP35.8 million (FY 2017: GBP34.2 million)
which include licencing, processing, royalties (third-party games
and platforms) and acquisition and retention marketing, remained
unchanged at 41.9% (FY 2017: 41.9%) as a proportion of Group
NGR.
The Group's primary focus is to drive revenue from its
proprietary platform as the sites hosted on Stride's platform pay
lower software and gaming royalties because there is a higher
percentage of in-house developed games and lower associated costs.
Meaningful cost savings are achieved when a customer migrates from
a third-party site onto Stride's proprietary platform, principally
due to the strength of the Group's marketing, CRM and analytical
capabilities.
During the Period, the Group invested in acquisition and
retention marketing to support the proprietary brands. Total
marketing expenses reached GBP22.3 million (FY 2017: GBP20.7
million), which represents 26% of NGR (FY 2017: 25%), an increase
of 8%, to support the growth of our higher-margin, proprietary
brands.
Administration costs
Administration costs totalling GBP18.0 million (FY 2017:
GBP16.2) represented 21% of NGR (FY 2017: 20%). This slight
increase comes as the Group continued to invest in its people,
software development, business intelligence, compliance and
products to position the Group for future growth in the challenging
UK market.
Capitalised development costs totalled GBP1.4 million (FY 2017:
GBP0.8 million) over the Period and amortisation of capitalised
development costs was GBP1.0 million (FY 2017: GBP0.3 million).
Amortisation of Intangible assets
During the period the useful economic lives of certain
intangibles were re-assessed by considering the future expected
performance of these assets and subsequently adjusted from a total
of 5 - 10 years down to a total of 3 - 4 years. This created an
accelerated amortisation charge of GBP3.7 million in the period, of
which GBP2.9 million related to the software transferred to assets
held for sale.
Exceptional items
In August 2018, a subsidiary of the Company (the "Licensee")
received notice from the Gambling Commission of Great Britain (the
"UKGC") of its intention to require the Licensee to pay a financial
penalty following a review of the manner in which the Licensee has
historically carried on its licensed activities. On 13 November
2018, the UKGC regulatory panel concluded to impose a fine of
GBP7.1 million for procedural failings. After careful
consideration, the Board has concluded that it is not in the best
interests of the Group's stakeholders to appeal the UKGC's finding
or penalty. The Group has made a full provision for the penalty
charge.
Profit on disposal of QSB investment
The Group held a 24.2% investment in QSB Gaming Limited ("QSB"),
an operator of online casino and bingo gaming sites in the Spanish
market. The Group recorded its asset as an available-for-sale
investment in the books as there was no representation on the board
and a lack of significant influence over the investee. In May 2018
QSB was sold to the Rank Group. The terms of the sale agreement
include an initial consideration of EUR21 million and a contingent
consideration based on a multiple of EBITDA for the year ending 31
December 2018 up to EUR52 million, for which the Group is entitled
to its share of GBP24.2%. In May 2018 the Group received GBP4.4m in
respect of the initial payment and expects to receive an additional
GBP6.0 million in respect of the contingent consideration which
reflects the best estimate of the fair value. As a result, a profit
on disposal was recognised in the consolidated statement of profit
or loss in the value of GBP10.4 million (FY 2017: Nil). The group
expects to receive the remaining proceeds by June 2019.
Impairment of intangible assets
An impairment review was undertaken in respect of the
non-proprietary cash generating unit ("CGU") to determine if the
carrying value of assets was supported by the net present value of
future cash flows expected to be derived from those assets. As a
result of the review and due to the significant changes to remote
gaming duties, effective from April 2019, the Board approved an
impairment of GBP9.8 million (FY 2017: GBPNil) charged against the
goodwill and acquired intangibles reflecting the more challenging
tax environment for the gambling industry in the UK.
Assets held for sale and discontinued operations
On 28 February 2018, the Board decided to reclassify InfiApps,
the Group's Social Gaming vertical, as an asset held for sale in
light of the changing trends and dynamics in the social gaming
market. The assets and liabilities relating to this vertical have
been presented separately in the consolidated statement of
financial position and are presented as discontinued operations in
the Group's consolidated statement of comprehensive income. The
comparatives in the latter statement have also been restated to
show the discontinued operations separately from the continuing
operations.
The loss after tax from the discontinued operations for the
period was GBP4.4 million (FY 2017: loss of GBP10.3 million) in
which GBP2.8 million (FY 2017: GBP10.0 million) related to an
impairment of the value of the intangible assets in order to
reflect its recoverable amount through a sale less selling costs.
Management is committed to selling the social gaming operation and
believe its current value represents a fair market value.
Earnout settlements
During the period the 8Ball earnout consideration of
GBP13,092,000 was settled, with GBP9,055,200 satisfied by the issue
of 4,117,482 new ordinary shares of 0.01p each and the remainder of
GBP4,036,800 paid in cash. The second of a two-part annual earn-out
payable to the sellers of InfiApps Limited of GBP932,000 was also
settled.
In addition, in April 2018 the final earn-out consideration of
GBP17,352,217 for Tarco was settled comprising the issue of
3,168,076 new ordinary shares to satisfy GBP7,753,238, and
GBP9,598,979 paid in cash. As a result of the difference between
the share price of the day of issuance of the share and the value
at which the shares were issued in accordance with the agreement,
the group recognised a gain of GBP0.8 million. The performance of
the 8ball and Tarco businesses to date demonstrates the Group's
ability to acquire and integrate quality businesses that complement
or enhance our existing offering, in line with our growth
strategy.
Finance expenses and Tax
Finance expenses for the Period totalled GBP0.6 million (FY
2017: GBP1.5 million) and principally relates to the unwinding of
the discount on the contingent consideration that arose on the
Tarco acquisition of GBP0.3 million (FY 2017: GBP1.0 million). The
tax expense in the Period was GBP0.5 million (FY 2017: credit of
GBP0.2 million).
Cash flow and Balance Sheet
Stride Gaming continues to be highly cash generative, with a
high cash conversion from Adjusted EBITDA. The Group has delivered
another year of solid operating performance with net cash flow from
operating activities (after adjusting for the cash element of the
earnouts in both financial years which are currently included in
the movement of trade and other payables) of GBP14.5 million (FY
2017: GBP16.8 million). Significant cash outflows related to the
8ball and Tarco earn-out payments of GBP9.2 million (FY 2017: Nil),
payment of dividends of GBP2 million for the 2017 financial year
(FY 2017: GBP1.7 million) and a bank capital loan repayment of GBP2
million (FY 2017: GBP1.5 million). In addition, the Group received
GBP4.4 million (FY 2017: Nil) as initial payment for the sale of
its available for sale investment.
Stride Gaming has a solid balance sheet with cash and cash
equivalents of GBP29.2 million (31 August 2017: GBP26.2 million),
which includes customer liabilities of GBP2.7 million (31 August
2017: GBP2.5 million).
As at 31 August 2018, the outstanding bank borrowings of GBP4.4
million (2017: GBP6.4 million) were presented in short-term
liabilities due to the Group's breach of its banking facility
condition as a result of the UKGC fine. Post year end and after
discussions with the bank representatives, a waiver of breaching
the facility conditions has been received.
Adjusted net earnings, EPS and future performance measure
Basic loss per share was (6.9) pence (FY 2017: basic loss per
share of 38.1 pence). Adjusted basic earnings per share was down
26% to 20.0 pence (FY 2017: 27.1 pence) primarily as a result of
the decline in Adjusted net earnings together with an increase of
5.9 million shares in the weighted average number of shares at each
reporting Period, following the settlement of the Tarco and 8ball
contingent earnouts partly through the issue of shares.
The Board believes that adjusted basic earnings per share
(excluding exceptional items such as impairment, contingent
remuneration and consideration, acquisition costs, impairments,
provision for regulatory matters, amortisation of intangible assets
excluding those arising from internal development, share based
payments and associated taxes) enables a better understanding of
the underlying business performance.
Audited Audited
FY 2018 FY 2017
GBP'000 GBP'000
Loss after tax (5,027) (25,623)
Amortisation of intangible assets* 7,276 6,371
Depreciation 306 229
Acquisition and Listing costs 364 -
Contingent remuneration - 14,295
Contingent consideration (1,213) 10,697
Loss from discontinued operations 4,408 10,281
Share-based payments (including
taxes) 929 1,758
Profit on disposal of Available (10,431) -
for Sale assets
Share of profits of equity accounted (104) -
joint ventures
Movement in deferred taxes 257 (739)
Net interest 333 999
Exceptional gambling commission 7,786 -
fine, including related legal
and other costs
Impairment 9,800 -
-------------------------------------- --------- ---------
Adjusted net earnings 14,684 18,268
====================================== ========= =========
Adjusted net earnings per share 20.0 27.1
Adjusted diluted earnings per
share 19.4 25.9
Basic loss per share (6.9) (38.1)
(1) Excluding amortisation of internally generated development costs.
(2) Adjusted diluted earnings per share is calculated using the
effect of share options and contingent share consideration on
business combination and acquisition of intangible assets.
Future performance measure
The Group historically defined Adjusted EBITDA as a key measure
in its income statement and reported its forecasts for the current
year in EBITDA terms. In line with evolving best practice for the
improvement in transparency of disclosures in the financial
statements, the Group has decided to adopt "Adjusted profit" *as a
new key income statement measure in the new financial year.
As a result of substantial adjustments and exceptional items in
the current financial statements, together with several prior
market publications on the Group forecast trading results that
referred to EBITDA, the Group decided to maintain Adjusted EBITDA
in this report for the benefit of shareholders and investor
understanding.
The table below demonstrates the bridge between the current and
new position of the key performance indicator if it was adopted in
the year ended 31 August 2018:
Audited Audited
FY 2018 FY 2017 Change
GBP'000 GBP'000 %
Adjusted EBITDA 16,097 19,670 (18.2%)
Adj EBITDA margin 18.8% 24.0%
Share-based payments (929) (1,758)
Amortisation of development
costs (966) (333)
Depreciation (306) (229)
Share of profits of equity 104 -
accounted joint ventures
Net finance costs (161) (526)
Adjusted Profit 13,839 16,824 (17.7%)
============================= ======== ======== ========
Adj Profit margin 16.2% 20.6%
Dividend
In line with the Group's stated objective of adopting a
progressive dividend policy, in August 2018 the Group paid an
interim dividend of 1.3p per share. Considering the Group's solid
performance, the Board has recommended a final dividend of 1.7p per
share, which takes the total dividend for the full Year to 3.0 p
per share, an increase of 11% over the prior period. (FY 2017: 2.7p
per share).
In addition, the Board intends to distribute to shareholders by
way of a special dividend, the earn-out received relating to the
QSB Gaming transaction, which is expected to be in excess of
GBP6.0m. This equates to approximately 8.0p per share and is
expected to be paid in spring or early summer 2019.
Both dividends remain subject to the approval of shareholders at
the Company's Annual General Meeting to be held on 6 February
2019.
The Board's strategy is to maintain a balance between
sustainable and attractive shareholder returns, investment in
growth opportunities and balance sheet strength.
For the year ending 31 August 2019, and thereafter, the Group,
subject to having available cash, will be materially increasing its
dividend policy and will henceforth declare a minimum dividend of
50% of its Adjusted net earnings for the year. The total dividend
for the year is expected to be paid in broadly equal proportions,
with one half of the total dividend being paid as an interim
dividend.
The dividend timetable:
Ex-dividend date 10 January
2019
Record Date for 11 January
dividend 2019
Payment Date 6 February
2019
Ronen Kannor
Chief Financial Officer
21 November 2018
Consolidated statement of profit or loss
for the year ended 31 August 2018
2018 2017
Note GBP'000 GBP'000
-------------------------------------------------------------------------------------- ---- -------- -----------
Net gaming revenue including 50% joint venture 88,968 81,815
Less joint venture revenue (net of platform fee income) 27 (3,484) -
-------------------------------------------------------------------------------------- ---- -------- -----------
Revenue 1 85,484 81,815
Cost of sales 1 (16,016) (11,621)
-------------------------------------------------------------------------------------- ---- -------- -----------
Gross profit 69,468 70,194
Distribution costs 3 (35,835) (34,261)
Administrative expenses 3 (17,990) (16,263)
Other Income 454 -
-------------------------------------------------------------------------------------- ---- -------- -----------
Adjusted EBITDA 16,097 19,670
-------------------------------------------------------------------------------------- ---- -------- -----------
Share-based payments 3/22 (929) (1,758)
Acquisition costs 3 (364) -
Contingent remuneration 3 - (14,295)
Contingent consideration adjustment 3 1,213 (10,697)
Amortisation of intangible assets 3 (8,241) (6,704)
Impairment of intangible assets 11 (9,800) -
Depreciation 3 (306) (229)
Exceptional gambling commission fine, including related legal and other costs 15 (7,786) -
-------------------------------------------------------------------------------------- ---- -------- -----------
Operating (loss) (10,116) (14,013)
Profit on disposal of available-for-sale investment 28 10,431 -
Share of profits of equity accounted joint ventures 27 104 -
Finance income 116 25
Finance expense 5 (611) (1,550)
-------------------------------------------------------------------------------------- ---- -------- -----------
(Loss) before tax (76) (15,538)
Tax (expense)/credit 7 (543) 196
-------------------------------------------------------------------------------------- ---- -------- -----------
Loss after tax from continuing operations (619) (15,342)
-------------------------------------------------------------------------------------- ---- -------- -----------
Loss from discontinued operations 26 (4,408) (10,281)
-------------------------------------------------------------------------------------- ---- -------- -----------
Loss after tax (5,027) (25,623)
-------------------------------------------------------------------------------------- ---- -------- -----------
Loss for the year attributable to
Owners of the parent (4,706) (25,623)
Non-controlling interest (321) -
-------------------------------------------------------------------------------------- ---- -------- -----------
(5,027) (25,623)
-------------------------------------------------------------------------------------- ---- -------- -----------
Other comprehensive income:
Items that will or may be reclassified to profit or loss
Exchange Gains arising on translation of foreign operations (385) 480
Realised fair value movements on available-for-sale investments reclassified to profit
or
loss / Change in fair value of available-for-sale investment 28 (1,595) 785
-------------------------------------------------------------------------------------- ---- -------- -----------
Total comprehensive income (7,007) (24,358)
-------------------------------------------------------------------------------------- ---- -------- -----------
Total comprehensive income attributable to:
Owners of the parent (6,607) (24,358)
Non-controlling interest (400) -
-------------------------------------------------------------------------------------- ---- -------- -----------
(7,007) (24,358)
-------------------------------------------------------------------------------------- ---- -------- -----------
Loss per share (p) 8
-------------------------------------------------------------------------------------- ---- -------- -----------
Basic (6.86) (38.08)
Diluted (6.86) (38.08)
Loss per share (p) from continuing operations (p)
-------------------------------------------------------------------------------------- ---- -------- -----------
Basic (0.84) (22.80)
Diluted (0.82) (22.80)
The notes on the following pages form part of these financial
statements.
Consolidated statement of financial position
at 31 August 2018
2018 2017
Note GBP'000 GBP'000
----------------------------------------------------------------- ---- -------- --------
ASSETS
Non-current assets
Property, plant and equipment 10 780 661
Intangible assets 11 36,021 57,756
Other receivables 13 253 353
Deferred tax asset 18 138 745
Investment in equity accounted joint venture 27 104 -
Available-for-sale investments 28 - 1,595
----------------------------------------------------------------- ---- -------- --------
37,296 61,110
----------------------------------------------------------------- ---- -------- --------
Current assets
Trade and other receivables 13 10,293 9,891
Income tax receivable 545 453
Cash and cash equivalents 16 28,706 26,175
----------------------------------------------------------------- ---- -------- --------
39,544 36,519
----------------------------------------------------------------- ---- -------- --------
Assets in disposal groups classified as held for sale 26 3,127 -
----------------------------------------------------------------- ---- -------- --------
Total assets 79,967 97,629
----------------------------------------------------------------- ---- -------- --------
LIABILITIES
Non-current liabilities
Trade and other payables 14 25 80
Loans and borrowings 17 - 4,443
Deferred tax liability 18 900 2,539
----------------------------------------------------------------- ---- -------- --------
925 7,062
----------------------------------------------------------------- ---- -------- --------
Current liabilities
Trade and other payables 14 10,870 33,377
Income tax payable - 300
Provisions 15 7,100 -
Loans and borrowings 17 4,443 1,975
----------------------------------------------------------------- ---- -------- --------
22,413 35,652
----------------------------------------------------------------- ---- -------- --------
Liabilities in disposal groups classified as held for sale 26 829 -
----------------------------------------------------------------- ---- -------- --------
Total liabilities 24,167 42,714
----------------------------------------------------------------- ---- -------- --------
Net assets 55,800 54,915
----------------------------------------------------------------- ---- -------- --------
Issued capital and reserves attributable to owners of the parent
Share capital 19 758 680
Share premium 57,839 40,641
Available-for-sale reserve 28 - 1,595
Foreign currency translation reserve 2,746 3,052
Retained earnings (6,236) 8,947
----------------------------------------------------------------- ---- -------- --------
Total equity before non-controlling interest 55,107 54,915
Non-controlling interest 693 -
----------------------------------------------------------------- ---- -------- --------
Total Equity 55,800 54,915
----------------------------------------------------------------- ---- -------- --------
The notes on the following pages form part of these financial
statements.
Approved by the Board on 21 November 2018 and signed on its
behalf by:
Ronen Kannor Stuart Eitan Boyd
Director Director
Company Number: 117876
Consolidated statement of cash flows
for the year ended 31 August 2018
2018 2017
Note GBP'000 GBP'000
------------------------------------------------------------------------------ ---- -------- --------
Cash flows from operating activities
Loss for the year (5,027) (25,623)
Adjustments for:
Depreciation of property, plant and equipment 10 334 261
Amortisation of intangible assets 11 11,353 8,375
Impairment 11 12,614 9,987
Finance expense 5 611 1,550
Finance income (116) (25)
Exceptional gambling commission fine, including related legal and other costs 7,786 -
Share-based payment expense 929 1,758
Share-based payment expense on contingent remuneration - 10,088
Contingent consideration adjustment (1,213) 10,797
Income tax credit 7 (354) (1,126)
Share of profit from JV (104) -
Gain on disposal of asset held for sale (10,431) -
------------------------------------------------------------------------------ ---- -------- --------
16,382 16,042
Decrease in trade and other receivables 443 627
(Decrease) in trade and other payables (18,186) (2,414)
Increase in provisions 7,100 -
------------------------------------------------------------------------------ ---- -------- --------
Cash generated from operations 5,739 14,255
Income taxes paid (1,689) (1,404)
Income taxes paid covered by warranties (Note 7) 1,210 -
------------------------------------------------------------------------------ ---- -------- --------
Net cash flows from operating activities 5,260 12,851
------------------------------------------------------------------------------ ---- -------- --------
Investing activities
Investment in Passion Gaming, net of cash acquired 23 (40) -
Cash held in escrow - (1,929)
Finance income 116 25
Purchases of property, plant and equipment 10 (489) (190)
Purchase of intangibles 11 (871) (489)
Capitalised development costs 11 (1,765) (1,355)
Disposal of investment classified as Available for Sale 4,405 -
------------------------------------------------------------------------------ ---- -------- --------
Net cash generated from/(used in) investing activities 1,356 (3,938)
------------------------------------------------------------------------------ ---- -------- --------
Financing activities
Exercise of share options 739 -
Interest paid (237) (590)
Repayment of related party borrowings - (8,000)
Proceeds from bank borrowings, net of bank fees - 7,905
Repayment of bank borrowings (2,000) (1,500)
Dividends paid 9 (2,054) (1,752)
------------------------------------------------------------------------------ ---- -------- --------
Net cash outflow from financing activities (3,552) (3,937)
------------------------------------------------------------------------------ ---- -------- --------
Net increase in cash and cash equivalents 3,064 4,976
Cash and cash equivalents at beginning of year 26,175 21,080
Exchange gains on cash and cash equivalents 7 119
Cash within assets held for sale 26 (540) -
------------------------------------------------------------------------------ ---- -------- --------
Cash and cash equivalents at end of year 16 28,706 26,175
------------------------------------------------------------------------------ ---- -------- --------
A description of the significant non-cash movements is given in
note 25.
The notes on the following pages form part of these financial
statements.
Consolidated statement of changes in equity
for the year ended 31 August 2018
Foreign Total equity Non-controlling
Available- currency before interest
Share Share Other for-sale translation Retained Non-controlling GBP'000 Total
capital premium reserves reserve reserve earnings interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- ----------
At 1 September
2016 666 38,975 28,545 810 2,572 (2,382) 69,186 - 69,186
Loss for the
year - - - - - (25,623) (25,623) - (25,623)
Other
comprehensive
income - - - 785 480 - 1,265 - 1,265
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- ----------
Total
comprehensive
income for the
year - - - 785 480 (25,623) (24,358) - (24,358)
Contributions by
and
distributions to
owners
Dividends - - - - - (1,752) (1,752) - (1,752)
Acquisition of
intangible
assets for
shares 8 1,666 (1,674) - - - - - -
Share-based
payment - - 1,751 - - - 1,751 - 1,751
Share-based
payment on
contingent
remuneration - - 10,088 - - - 10,088 - 10,088
Issue of shares
placed in trust
(note 22) 6 - - - - (6) - - -
Reserves
transfer - - (38,710) - - 38,710 - - -
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- --------
At 31 August
2017 680 40,641 - 1,595 3,052 8,947 54,915 - 54,915
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- --------
Loss for the
year - - - - - (4,706) (4,706) (321) (5,027)
Other
comprehensive
income - - - (1,595) (306) - (1,901) (79) (1,980)
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- --------
Total
comprehensive
income for the
year - - - (1,595) (306) (4,706) (6,607) (400) (7,007)
Contributions by
and
distributions to
owners
Dividends - - - - - (2,054) (2,054) - (2,054)
Issue of shares
on exercise of
share-based
payments 5 1,278 - - - (545) 738 - 738
Issue of shares
to settle
contingent
remuneration 41 9,014 - - - (9,055) - - -
Issue of shares
to settle
contingent
consideration 32 6,906 - - - - 6,938 - 6,938
Share based
payment - - - - - 1,177 1,177 - 1,177
Non-controlling
interest
acquired on
business
combination - - - - - - - 1,093 1,093
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- --------
At 31 August
2018 758 57,839 - - 2,746 (6,236) 55,107 693 55,800
---------------- ------- ------- -------- ---------- ----------- -------- --------------- ----------------- --------
The notes on the following pages form part of these financial
statements.
The following describes the nature and purpose of each reserve
within equity:
Share premium Amount subscribed for share capital in excess of
nominal value.
Shares to be issued Represents the shares to be issued in respect of
the acquisition of certain intangible assets. The
shares have now been issued in full. Refer to note
12.
Available-for-sale Gains/losses arising on fair value movement of financial
reserve assets classified as available for sale.
Share options Represents the fair value of awards made under the
Group's share option schemes (refer to note 22).
This reserve group has now been transferred to retained
earnings.
Foreign currency Gains/losses arising on retranslating the net assets
translation reserve of overseas operations into Sterling
Retained earnings The account includes cumulative profits and losses
less any distributions made to shareholders and the
nominal value of shares gifted to the employee benefit
trust. In addition, during the year ended 31 August
2017 the total balances in the other reserves which
related to the merger, share option and capital contribution
reserves were transferred to this account and are
available for distribution under the Companies (Jersey)
Law 1991, subject to meeting other Companies Act
requirements.
Notes forming part of the financial statements
for the year ended 31 August 2018
1 Accounting policies
Legal status
Stride Gaming plc, which includes its subsidiaries and together
forms the "Group", is a public limited company incorporated in
Jersey. Stride Gaming plc was incorporated under the Companies
(Jersey) Law 1991 on 25 February 2015. The address of its
registered office is 12 Castle Street, St Helier, Jersey JE2 3RT.
Stride Gaming plc shares are listed on the Alternative Investment
Market ("AIM") of the London Stock Exchange. The Group is not
required to present parent company information.
Basis of preparation
The principal accounting policies adopted in the preparation of
the consolidated financial statements are set out below and have
been prepared on a historical cost basis. The policies have been
consistently applied to all the years presented, unless otherwise
stated.
The consolidated financial statements are presented in Sterling,
which is also the parent's functional currency and amounts are
rounded to the nearest thousand, unless otherwise stated.
These financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively "IFRSs") as
adopted by the European Union and the requirements of the Companies
(Jersey) Law 1991.
The preparation of financial statements in compliance with EU
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. The areas where
significant judgements and estimates have been made in preparing
the financial statements are disclosed below.
Changes in accounting policies
a) New standards, interpretations and amendments effective from
1 September 2017
Where relevant, new standards and amendments to existing IFRSs
that have been published and are mandatory for the first time for
the financial year beginning 1 September 2017 have been adopted but
had no significant impact to the Group accounts.
b) New standards, interpretations and amendments not yet
effective
New standards, amendments to standards and interpretations that
have been issued but are not yet effective (and in some cases have
not yet been adopted by the EU) have not been early adopted. This
includes the following:
IFRS 9 Financial Instruments
This standard becomes effective for the first time for
accounting periods beginning on or after 1 January 2018. It
contains new requirements which cover classification and
measurement, impairment and hedge accounting. The recognition and
derecognition requirements for financial assets and financial
liabilities are unchanged from IAS 39 Financial Instruments:
Recognition and Measurement, which is the standard it is replacing.
Main changes are:
Classification and measurement of financial assets
IFRS 9 replaces the rules-based model in IAS 39 with an approach
which bases classification and measurement on the business model of
an entity and on the cash flows associated with each financial
asset (the solely payments of principal and interest ("SPPI")
test). This has resulted in a revision of the boundary between fair
value and amortised cost. Some key changes include:
-- elimination of the "held to maturity" and "available for sale" categories;
-- elimination of the requirement to separately account for
(i.e. bifurcate) embedded derivatives in financial assets; and
-- elimination of the limited exemption to measure unquoted
equity investments at cost rather than at fair value.
Classification and measurement of financial liabilities
The requirements for the classification and measurement of
financial liabilities are largely unchanged from IAS 39. However,
for financial liabilities designated as at fair value through
profit or loss, IFRS 9 requires that changes in the fair value
which relate to changes in own credit risk should generally be
recognised directly in other comprehensive income.
Unlike financial assets, the concept of embedded derivatives has
been retained for financial liabilities.
Impairment
IFRS 9 sets out a new forward-looking "expected credit loss
("ECL")" model which replaces the incurred loss model in IAS 39 and
applies to:
-- financial assets measured at amortised cost;
-- debt investments measured at fair value through other comprehensive income;
-- trade receivables, contract assets and lease receivables; and
-- certain loan commitments and financial guaranteed contracts.
The new requirements will lead to the earlier recognition of
larger credit losses. Unlike IAS 39, entities will be required to
consider forward-looking information when measuring ECL. Therefore,
a credit event (or impairment "trigger") no longer has to occur
before credit losses are recognised. An entity will now always
recognise (at a minimum) twelve-month ECL. Lifetime ECL will be
recognised on assets for which there has been a significant
increase in credit risk since initial recognition. While most trade
receivables will be subject to a simplified approach to ECL,
entities will still need to consider forward-looking
information.
The Directors do not expect that the adoption of this standard
will have a material impact on the financial statements of the
Group in future periods.
IFRS 15 Revenue from Contracts with Customers
This standard becomes effective for the first time for
accounting periods beginning on or after 1 January 2018. It is
intended to clarify the principles of revenue recognition and
establish a single framework for revenue recognition. IFRS 15
supersedes the following:
-- IAS 11 Construction Contracts;
-- IAS 18 Revenue;
-- IFRIC 13 Customer Loyalty Programmes;
-- IFRIC 15 Agreements for the Construction of Real Estate;
-- IFRIC 18 Transfers of Assets from Customers; and
-- SIC-31 Revenue - Barter Transactions Involving Advertising Services.
The core principle is that an entity should recognise revenue to
depict the transfer of promised goods or services to customers in
an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The
core principle of IFRS 15 is applied through a five-step
approach:
I. Identify the contract(s) with the customer.
II. Identify the performance obligations in the contract.
III. Determine the transaction price.
IV. Allocate the transaction price.
V. Recognise revenue when a performance obligation is
satisfied.
Additionally, the new requirements add specific guidance for
multiple-element arrangements, contract costs, principal versus
agent considerations and disclosures. The Directors do not expect
that the adoption of this standard will have a material impact on
the financial statements of the Group in future periods.
IFRS 16 Leases
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases for both parties
to a contract, i.e. the customer ("lessee") and the supplier
("lessor"). All leases result in a company (the lessee) obtaining
the right to use an asset at the start of the lease and, if lease
payments are made over time, also obtaining financing. Accordingly,
IFRS 16 eliminates the classification of leases as either operating
leases or finance leases as is required by IAS 17 and, instead,
introduces a single lessee accounting model. Applying that model, a
lessee is required to recognise:
a) assets and liabilities for all leases with a term of more
than 12 months, unless the underlying asset is of low value;
and
b) depreciation of lease assets separately from interest on
lease liabilities in the income statement.
IFRS 16 substantially carries forward the lessor accounting
requirements in IAS 17. Accordingly, a lessor continues to classify
its leases as operating leases or finance leases, and to account
for those two types of leases differently.
IFRS 16 is effective from 1 January 2019. A company can choose
to apply IFRS 16 before that date but only if it also applies IFRS
15 Revenue from Contracts with Customers.
IFRS 16 replaces the previous leases standard, IAS 17 Leases,
and related interpretations. The amendments are not yet endorsed
for use in the EU. The Directors are currently assessing the impact
of this standard when it is adopted for the first time. When
implemented the assets associated with the operating leases will be
accounted for on the balance sheet with a corresponding lease
liability.
Basis of consolidation
Acquisition of subsidiaries
A subsidiary is an entity controlled directly or indirectly by
the Group. Control is achieved 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. The cost of the
acquisition is measured at the aggregate of the fair values, at the
date of exchange, of assets given, liabilities incurred or assumed,
and equity instruments issued by the Group in exchange for control
of the acquiree. Acquisition-related costs are recognised in the
income statement as incurred. The acquiree's identifiable assets
and liabilities are recognised at their fair values at the
acquisition date.
The results of subsidiaries acquired or disposed of during the
period are included in the consolidated statement of profit or loss
from the date that control was obtained to the date that control
was lost, as appropriate. Where necessary, adjustments are made to
the financial statements of subsidiaries to bring their accounting
policies into line with those used by the Group.
Uniform accounting policies have been adopted across the Group.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Foreign currencies
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the
rate of exchange ruling at the financial reporting date.
Non-monetary assets and liabilities are translated using exchange
rates prevailing at the date of the transactions. Foreign exchange
differences arising on translation are recognised in the profit or
loss account.
On consolidation, the results of foreign operations are
translated into Sterling at rates ruling when the transaction took
place. All assets and liabilities of foreign operations, including
goodwill arising on the acquisition of those operations, are
translated at the rate ruling at the reporting date. Exchange
differences arising on translating inter-group loans considered to
be investment in subsidiaries that the Directors do not expect to
be repaid for the foreseeable future as well as the opening net
assets at the opening rate and the results of foreign operations at
the actual rate are recognised in other comprehensive income and
accumulated in the foreign currency translation reserve. On
disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign currency translation reserve
relating to that operation up to the date of disposal are
transferred to the consolidated statement of profit or loss and
included in the computation of the profit or loss on disposal.
Revenue recognition
Net gaming revenue ("NGR") is derived from online gambling
operations and is defined as the difference between the amounts of
bets placed by the players less the amount won by players. It is
stated after deduction of certain bonuses, jackpots and prizes
granted to players. Revenue is recognised in the accounting periods
in which the transactions occur.
Social Gaming revenue is derived from the purchase of credits
and awards on the social gaming sites, as well as "in-app"
advertising revenue. Social Gaming revenue is recognised to the
extent that it is probable economic benefits will flow to the Group
and the revenue can be reliably measured and where there are no
further obligations. Revenue is recognised in the accounting
periods in which the transactions occur.
Passion Gaming generates revenue through its rummy-focussed
online gaming platform. Revenue from operating online skill games
are recognised on the completion of each game or tournament. A
service charge is levied on each game referred to as a 'Rake'. The
Rake is a percentage levied on the total money staked in a
game.
Other Income
Other income relates to the Research and Development ("R and D")
tax claims the Group made in relation to financial years ended 31
August 2016 and 2017, and the R and D provision for the year ended
31 August 2018, which has all been recognised in the current
financial year.
Cost of sales
Cost of sales consists primarily of gaming duties.
Distribution costs
Distribution costs represent the costs of delivering the service
to the customer and primarily consist of processing and royalty
fees, promotional and advertising costs, royalties payable to
third-party platform suppliers, together with gaming and other
regulatory costs, all of which are recognised on an accruals basis.
The distribution costs also include royalties payable to
third-party platform suppliers, following the acquisition of 8Ball
Games Limited and the Tarco Assets.
Administrative expenses
Administrative expenses consist primarily of staff costs and
corporate and professional expenses, all of which are recognised on
an accruals basis.
Goodwill
Goodwill represents the excess of the cost of a business
combination over the total acquisition date fair value of the
identifiable assets, liabilities and contingent liabilities
acquired. Cost comprises the fair value of assets given,
liabilities assumed and equity instruments issued, plus the amount
attributable of any non-controlling interests in the acquisition
and dependent on the terms of the sale and purchase agreement,
deferred and contingent consideration.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the profit or loss
account. Costs incurred in respect of the acquisition are expensed
in full in the period of acquisition.
Contingent consideration
When contingent consideration arising on a business combination
requires no ongoing employment from the former owners in order to
receive payment, the fair value of contingent consideration is
included within cost at acquisition date.
Contingent consideration is reviewed at the end of each
accounting period as the consideration payable, revalued to fair
value through the profit or loss account.
When the former owners of an acquired subsidiary are required to
remain in employment at each of the deferred or contingent
consideration payment dates, the fair value of contingent
consideration is built up over the period of service to the date of
payment with a corresponding charge to the profit or loss account.
When future service is required, this is described in the financial
statements as contingent remuneration.
Externally acquired intangible assets
Externally acquired intangible assets including intellectual
property rights, developed software applications and licences are
initially recognised at cost and subsequently amortised on a
straight-line basis over their useful economic lives which is
typically over a period of 3-5 years or over the length of the
licence.
Intangible assets are recognised on business combinations if
they are separable from the acquired entity or arise from other
contractual or legal rights. The amounts ascribed to such
intangibles are arrived at using appropriate valuation techniques
(see section related to critical estimates and judgements
below).
The significant intangibles recognised by the Group, their
useful economic lives and methods used to determine the cost (at
initial recognition) of intangibles acquired in a business
combination are as follows:
Useful economic
Intangible asset life Valuation method
------------------------- --------------- ----------------
Discounted cash
Brands 4-10 years flows
Relief from
Developed software 3-10 years royalty
Discounted cash
Customer relationships 4-14 years flows
Discounted cash
Contractual relationships 3-10 years flows
------------------------- --------------- ----------------
Amortisation is charged to the profit or loss during the
financial period to which it relates.
Internally generated intangible assets (development costs)
Expenditure on internally developed products is capitalised if
it can be demonstrated that:
-- it is technically feasible to develop the product for it to generate revenue;
-- adequate resources are available to complete the development;
-- there is an intention to complete and sell the product;
-- the Group is able to sell the product;
-- sale of the product will generate future economic benefits; and
-- expenditure on the project can be measured reliably.
Capitalised development costs are amortised over the periods the
Group expects to benefit from the assets generated, being three
years.
Development expenditure not satisfying the above criteria is
recognised in the consolidated statement of profit or loss as
incurred.
Maintenance costs in respect of internally generated assets are
expensed within the profit or loss account.
Property, plant and equipment
All property, plant and equipment is stated at cost less
accumulated depreciation. Depreciation is calculated to write off
the cost of fixed assets on a straight-line basis over the expected
useful lives of the assets concerned. The principal annual rates
used for this purpose are:
Fixtures, fittings and equipment - 10-33% straight line
Computer equipment - 33-66% straight line
Motor vehicles - 25% straight line
Subsequent expenditures are included in the carrying amount of
an asset or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits will flow to the
Group and the cost of the item can be measured reliably. All
repairs and maintenance are charged to profit or loss during the
financial period in which they are incurred.
Gains and losses on disposals are determined by comparing
proceeds with the carrying amount and are included in the profit or
loss.
Impairment of property, plant and equipment and internally
generated assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end or whenever events or changes in circumstances
indicate that their carrying amount may be impaired and hence not
recoverable. Where the carrying value of an asset exceeds its
recoverable amount (i.e. the higher of value in use and fair value
less costs to sell), the asset is written down to its recoverable
amount.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows: its cash generating unit
("CGU"). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from the synergies of
the combination giving rise to the goodwill.
Impairment charges are included in the profit or loss account;
an impairment loss recognised for goodwill is not reversed.
Financial instruments
Financial assets and financial liabilities are recognised on the
Group's statement of financial position when the Group becomes
party to the contractual provisions of the instrument. Financial
assets are derecognised when the contractual rights to the cash
flows from the financial asset expire or when the contractual
rights to those assets are transferred. Financial liabilities are
derecognised when the obligation specified in the contract is
discharged, cancelled or expired. Financial assets are either
categorised as loans or receivables or available for sale. There
are no assets classified as held to maturity or fair value through
profit or loss. All financial liabilities are classified as
amortised cost with the exception of contingent consideration which
is at fair value through profit or loss.
Financial assets
Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method less provision for impairment. Appropriate
provisions for estimated irrecoverable amounts are recognised in
the profit or loss account when there is objective evidence that
the assets are impaired. Interest income is recognised by applying
the effective interest rate, except for short-term receivables when
the recognition of interest would be immaterial.
Impairment provisions are recognised when there is objective
evidence (such as significant financial difficulties on the part of
the counterparty or default or significant delay in payment) that
the Group will be unable to collect all of the amounts due under
the net carrying amount and the present value of the future
expected cash flows associated with the impaired receivable. For
trade receivables, which are reported net, such provisions are
recorded in a separate allowance account with the loss being
recognised within administrative expenses in the statement of
comprehensive income. On confirmation that the trade receivable
will not be collectable, the gross carrying value of the asset is
written off against the associated provision.
Cash and cash equivalents
Cash and cash equivalents comprise cash held at bank, demand
deposits and other short-term highly liquid investments that have
maturities of three months or less from inception, are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Available for sale
Non-derivative financial assets not included in the above
categories are classified as available for sale and comprise
principally the Group's strategic investments in entities not
qualifying as subsidiaries, associates or jointly controlled
entities. They are carried at fair value with changes in fair
value, other than those arising due to exchange rate fluctuations
and interest calculated using the effective interest rate,
recognised in other comprehensive income and accumulated in the
available-for-sale reserve. Exchange differences on investments
denominated in a foreign currency and interest calculated using the
effective interest rate method are recognised in the statement of
profit or loss.
Where there is a significant or prolonged decline in the fair
value of an available-for-sale financial asset (which constitutes
objective evidence of impairment), the full amount of the
impairment, including any amount previously recognised in other
comprehensive income, is recognised in profit or loss.
On sale, the cumulative gain or loss recognised in other
comprehensive income is reclassified from the available-for-sale
reserve to profit or loss.
Contingent consideration receivable
Contingent consideration receivables are classified as financial
assets at fair value through profit or loss. The Group determines
the
classification of its financial liabilities at initial
recognition. The measurement of contingent consideration
receivables at fair value through profit or loss are carried on the
balance sheet at fair value with gains or losses recognised in the
income statement.
Financial liabilities
Trade and other payables
Trade payables are initially measured at their fair value and
are subsequently measured at amortised cost using the effective
interest rate method; this method allocates interest expense over
the relevant period by applying the "effective interest rate" to
the carrying amount of the liability. Player liabilities are the
amounts that customers place in their accounts along with any
bonuses and progressive jackpots. These liabilities are recognised
initially at fair value and subsequently at amortised cost.
Loans and borrowings
Loans and borrowings are initially recognised at fair value net
of any transaction costs directly attributable to the issue of the
instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of the liability
carried in the consolidated statement of financial position.
Current and deferred tax
Taxation represents the sum of the tax currently payable and
deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit reported in the
consolidated statement of profit or loss because it excludes items
of income or expense that are taxable or deductible in other years
and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the reporting
date.
Deferred tax
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the asset is realised or the liability is
settled based upon tax rates that have been enacted or
substantively enacted by the reporting date. Deferred tax is
charged or credited to profit or loss, except when it relates to
items credited or charged directly to equity, in which case the
deferred tax is also dealt with in equity through other
comprehensive income.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial information and the corresponding tax bases used
in the computation of taxable profit, and is accounted for using
the balance sheet liability method. Deferred tax assets are
recognised to the extent that it is probable that taxable profits
will be available against which deductible temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at each
consolidated statement of profit or loss date and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be
recovered.
Deferred tax is measured using tax rates that have been enacted
or substantively enacted by the consolidated statement of financial
position date and are expected to apply when the related deferred
tax asset or liability is realised or settled.
Operating leases
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group, these are classified as
operating leases. The total rentals payable under the lease are
charged to profit or loss on a straight-line basis over the lease
term.
Pension costs
The Group operates a defined contribution scheme. The amount
charged to the profit or loss account in respect of pension costs
and other post-retirement benefits is the contributions payable in
the period. Differences between contributions payable in the period
and contributions actually paid are shown as either other
liabilities or prepayments in the consolidated statement of
financial position.
Share capital
Financial instruments issued by the Group are classified as
equity only to the extent that they do not meet the definition of a
financial liability or financial asset.
Share-based payments
Where equity-settled share options (including under the
long-term incentive plan - "LTIP") are awarded to employees (refer
to note 22), the fair value of the options at the date of grant is
charged to the profit or loss account over the vesting period.
Non-market vesting conditions are taken into account by adjusting
the number of equity instruments expected to vest at each reporting
date so that, ultimately, the cumulative amount recognised over the
vesting period is based on the number of options that eventually
vest. Non-vesting conditions and market vesting conditions are
factored into the fair value of the options granted. As long as all
other vesting conditions are satisfied, a charge is made
irrespective of whether the market vesting conditions are
satisfied. The cumulative expense is not adjusted for failure to
achieve a market vesting condition or where a non-vesting condition
is not satisfied.
Where equity instruments are granted to persons other than
employees, the profit or loss account is charged with the fair
value of goods and services received or, in the case of an asset,
recorded within the appropriate classification.
UK National Insurance is payable on gains made by some employees
on exercise of share options granted to them. The eventual
liability to National Insurance is dependent on:
-- the market price of the Group's shares at the date of exercise;
-- the number of options that will be exercised; and
-- the prevailing rate of National Insurance at the date of exercise.
At each period end the potential liability is recorded as an
expense within the profit or loss account and a corresponding
provision recorded.
In relation to the LTIPs, the maximum number of shares expected
to vest on the date of the award are gifted to an employee benefit
trust. The Group has the power to instruct the trust on when to
release the shares to the individuals in the LTIP, subject to
certain performance conditions being met and the options having
vested and being capable of exercise. The cost of gifting these
shares to the trust has been included in retained earnings. These
shares are excluded from the calculation of the weighted average
number of shares used in the basic earnings per share.
Dividends
Dividends are recognised when they become legally payable. In
the case of interim dividends, this is when paid and in the case of
final dividends, this is when approved by the shareholders at the
AGM.
Adjusted EBITDA
The Group defines Adjusted EBITDA as the operating result before
depreciation, amortisation, finance costs, and income or expenses
that relate to items such as contingent consideration, contingent
remuneration, exceptional costs and acquisition costs as well as
non-cash charges relating to share-based payments (including
employer's National Insurance). The Directors believe that Adjusted
EBITDA represents more closely the underlying trading performance
of the business.
Investment in equity accounted joint ventures
Joint ventures are those entities over whose relevant activities
the Group has joint control, established by contractual agreement
and requiring unanimous consent for strategic, financial and
operating decisions. Joint ventures are accounted for using the
equity method and are recognised initially at cost. The Group's
share of post-acquisition profits and losses is recognised in the
consolidated income statement, except that losses in excess of the
Group's investment in the joint ventures are not recognised unless
there is an obligation to make good those losses.
Profits and losses arising on transactions between the Group and
its joint ventures are recognised only to the extent of unrelated
investors' interests in the joint ventures. The investor's share in
the profits and losses of the investment resulting from these
transactions is eliminated against the carrying value of the
investment. Any premium paid above the fair value of the Group's
share of the identifiable assets, liabilities and contingent
liabilities acquired is capitalised and included in the carrying
amount of the investment. Where there is objective evidence that
the investment has been impaired the carrying amount of the
investment is tested for impairment in the same way as other
non-financial assets, and any charge or reversal of previous
impairments is taken to the consolidated income statement. Where
amounts paid for an investment in a joint venture are in excess of
the Group's share of the fair value of net assets acquired, the
excess is recognised as negative goodwill and released to the
consolidated income statement immediately. The Group's share of
additional equity contributions from other joint venture partners
is taken to the consolidated statement of comprehensive income.
Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held
for sale when:
-- They are available for immediate sale
-- Management is committed to a plan to sell
-- It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn
-- An active programme to locate a buyer has been initiated
-- The asset or disposal group is being marketed at a reasonable
price in relation to its fair value, and
-- A sale is expected to complete within 12 months from the date of classification.
Non-current assets and disposal groups classified as held for
sale are measured at the lower of:
-- Their carrying amount immediately prior to being classified
as held for sale in accordance with the group's accounting
policies; and
-- Fair value less costs of disposal.
Following their classification as held for sale, non-current
assets (including those in a disposal group) are not depreciated or
amortised. The results of operations disposed during the year are
included in the consolidated statement of comprehensive income up
to the date of disposal. A discontinued operation is a component of
the Group's business that represents a separate major line of
business or geographical area of operations or is a subsidiary
acquired exclusively with a view to resale, that has been disposed
of, has been abandoned or that meets the criteria to be classified
as held for sale.
Discontinued operations are presented in the consolidated
statement of comprehensive income as a single line which comprises
the post-tax profit or loss of the discontinued operation along
with the post-tax gain or loss recognised on the re-measurement to
fair value less costs to sell or on disposal of the assets or
disposal groups constituting discontinued operations.
Accounting for subsidiaries: Non-controlling interest
A subsidiary is an entity controlled directly or indirectly by
the Group. The Group 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.
On the date of acquisition the assets and liabilities of the
relevant subsidiaries are measured at their fair values. The
non-controlling interest is stated at the non-controlling
interest's proportion of the fair values of the assets and
liabilities recognised.
The results of subsidiaries acquired or disposed of during the
year are included in the consolidated statement of comprehensive
income from the effective date of acquisition or up to the
effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries to
bring their accounting policies into line with those used by the
Group.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. Non-controlling interests consist of the amount of those
interests at the date of the original business combination and the
non-controlling shareholder's share of changes in equity since the
date of the combination. Total comprehensive income is attributed
to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Critical accounting estimates
The preparation of the consolidated financial statements under
IFRS requires the Group to make estimates and judgements that
affect the application of policies and reported amounts. Estimates
and judgements are continually evaluated and are based on
historical experience and other factors including expectations of
future events that are believed to be reasonable under the
circumstances. Actual results may differ from these estimates.
Reference is made in this note to accounting policies which cover
areas that the Directors consider require estimates and assumptions
which have a significant risk of causing a material adjustment to
the carrying amount of assets and liabilities within the next
financial year.
Impairment
In accordance with IAS 36 Impairment of Assets, the Group
regularly monitors the carrying value of its intangible assets. A
detailed review was undertaken at 31 August 2018 to assess whether
the carrying value of assets was supported by the net present value
of future cash flows derived from those assets. The recoverable
amounts of the Group's CGUs have been determined from value in use
calculations based on cash flow projections from formally approved
budgets and long-term forecasts. These budgets and forecasts assume
the underlying business models will continue to operate on a
comparable basis under the current regulatory and taxation regimes,
adjusted for any known changes.
At 31 August 2018, a detailed impairment review was undertaken
for the non-proprietary unit. Following the initial announcement in
May 2018 that the point of consumption tax rate would increase, and
subsequently being a confirmation that this would take place from 1
April 2019, the Group determined that this had an adverse effect on
the projected value in use and consequently the intangible assets
have been written down to their value in use. An impairment of
GBP9,800,000 has been charged against goodwill. Refer to Note 11
for further details.
A detailed impairment review was also completed for the Social
Gaming cash generating unit which was transferred to a disposal
group classified as held for sale. An impairment of GBP2,814,000
has been charged against acquired intangibles and internally
generated asses. Refer to Note 26 for further details.
Capitalisation and amortisation of development costs
The identification of development costs that meet the criteria
for capitalisation is dependent on management's judgement and
knowledge of the work done. Development costs of gaming software
platforms are separately identified. Judgements are based on the
information available at each period end. Economic success of any
development is assessed on a reasonable basis but remains uncertain
at the time of recognition. Capitalised development costs are
subject to amortisation over its useful life and reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The Group
amortises the assets over the life of the product. The estimated
useful life of these assets at period end is three years.
Contingent consideration receivable
The contingent consideration relates to the disposal of QSB
Gaming Limited ("QSB"). As part of this disposal, Stride received
its 24.2% share of the initial consideration of EUR21 million and
is also due a deferred consideration, plus a contingent
consideration based on a multiple of EBITDA for the year ending 31
December 2018. Total consideration cannot exceed EUR52 million. The
Group has recognised a total profit on disposal of GBP10,431,000,
with a receivable from the buyer of GBP6.03 million. This reflects
the information the buyer has released to the market and it's the
best estimate of the contingent consideration's fair value having
regard to the present value of the future expected cash flows using
a risk adjusted probability assessment of the various scenarios
affecting the deferred and contingent consideration.
2 Segment information
For management purposes and for transacting with customers, the
Group's operations can be segmented into the following reporting
segments:
-- Proprietary, which is its leading online operation, using its
in house developed and purchased software to provide online bingo,
casino and related gaming activities to players. This segment only
operates in regulated markets, principally the UK; and
-- Non-proprietary operations using third party software to
provide related activities to players.
Each of these operating segments generates independent revenues,
and the risks and rewards associated with generating these revenues
are considered to be different to each other.
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the
management team including the Chief Executive Officer, the Chief
Operating Officer and the Chief Financial Officer. The key measure
of profit for Management in Stride is Adjusted EBITDA. The
operating segmental analysis has changed from the prior year due to
internal restructuring in the business and so as to be in line with
how the Group report on their performance.
Proprietary Non-Proprietary Total
2018 2018 2018
GBP'000 GBP'000 GBP'000
---------------------------------------------------- ----------- --------------- --------
Total revenue from external customers 56,993 28,491 85,484
---------------------------------------------------- ----------- --------------- --------
Other Income 454 - 454
---------------------------------------------------- ----------- --------------- --------
Adjusted EBITDA 11,971 4,125 16,097
---------------------------------------------------- ----------- --------------- --------
Depreciation (266) (40) (306)
Amortisation (6,652) (1,589) (8,241)
Contingent consideration adjustment - 1,213 1,213
Impairment of intangible assets - (9,800) (9,800)
Gambling commission fine (7,786) - (7,786)
---------------------------------------------------- ----------- --------------- --------
Share of profit from Joint Venture 104
Finance income 116
Share-based payments including National Insurance (929)
Finance expense (611)
Acquisition costs (364)
Profit on disposal of available-for-sale investment 10,431
---------------------------------------------------- ----------- --------------- --------
Group loss before tax (76)
---------------------------------------------------- ----------- --------------- --------
The prior year reported segments were as follows:
-- Real Money Gaming, which is its UK-focused online operations,
using its proprietary and non-proprietary software; and
-- Social Gaming, which internationally provides players with
entertaining applications and games.
Following the decision to dispose of the social gaming segment
during the current year, and the considerations made above, the
prior year comparatives have been restated to show the current year
reportable segments.
Proprietary Non-Proprietary Total
2017 2017 2017
GBP'000 GBP'000 GBP'000
-------------------------------------------------- ----------- --------------- --------
Total revenue from external customers 48,862 32,953 81,815
-------------------------------------------------- ----------- --------------- --------
Adjusted EBITDA 12,663 7,006 19,669
-------------------------------------------------- ----------- --------------- --------
Depreciation (182) (47) (229)
Amortisation (5,164) (1,540) (6,704)
Contingent consideration adjustment - (10,797) (10,797)
Contingent remuneration - (14,194) (14,194)
-------------------------------------------------- ----------- --------------- --------
Finance income 25
Share-based payments including National Insurance (1,758)
Finance expense (1,550)
-------------------------------------------------- ----------- --------------- --------
Group loss before tax (15,538)
-------------------------------------------------- ----------- --------------- --------
External revenue by Non-current assets
location of customers by location of assets
--------------- ------------------------ ------------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ----------- ----------- -----------
United Kingdom 82,044 80,080 15,341 18,046
Alderney - - 19,530 32,554
Israel - - 23 7,464
Other 3,440 1,735 1,907 354
--------------- ----------- ----------- ----------- -----------
85,484 81,815 36,801 58,418
--------------- ----------- ----------- ----------- -----------
3 Operating profit/(loss)
All items presented below Adjusted EBITDA and before operating
profit/(loss) in the consolidated statement of profit or loss are
administrative expenses. Total administrative expenses including
those presented below Adjusted EBITDA for the year were
GBP44,203,000 (2017: GBP49,946,000). Adjusted EBITDA is an
Alternative Profit Measure used by Management to assess the
performance of the Group as it closely represents the underlying
trading performance of the business. Adjusted EBITDA as a metric is
used internally to assess performance and may differ from other
profit measures used by similar businesses.
Operating profit/(loss) from continuing operations is stated
after charging the following:
2018 2017
GBP'000 GBP'000
------------------------------------------------------------------- --- -------- --------
Operating lease expenses 741 728
Employee benefit expenses, excluding share-based payments (note 4) 13,355 13,725
Depreciation of property, plant and equipment 306 261
Amortisation of intangible assets 8,241 8,375
Auditor's remuneration - audit services 180 169
Auditor's remuneration - other assurance services 6 38
Auditor's remuneration - IT services 55 -
Contingent consideration adjustment(a) (1,213) 10,697
Acquisition costs(b) 364 -
Share-based payments(c) 929 1,758
Contingent remuneration(d) - 14,295
Share of profit from joint venture(f) (104) -
Profit on disposal of available-for-sale investment(g) 28 (10,431) -
Gambling commission fine(h) 15 7,786 -
Impairment of intangible assets(e) 9,800 -
------------------------------------------------------------------- --- -------- --------
(a) Contingent consideration adjustment relates to the increase
in the earn-out payable for the acquisition of the Tarco Assets
which is presented below Adjusted EBITDA as it is a non-operational
element of a previous acquisition completed in the year ended 31
August 2016. Refer to note 24 for further details.
(b) The current year costs relate to the acquisition of Passion
Gaming Limited, which are outside the normal course of business and
therefore have been added back to Adjusted EBITDA. Refer to note 23
for further information. The remainder of the cost relates to other
aborted acquisition costs.
(c) During the year the Group issued share options to certain
employees and consultants of the Group. The charge for the year
includes National Insurance. Refer to note 22 for further
information.
(d) Under the terms of the InfiApps Ltd and 8Ball Games Limited
acquisitions in the years ended 31 August 2015 and 31 August 2016
respectively, the contingent remuneration payable was linked to
future employment and therefore has been charged to the profit or
loss account. The total remuneration payable for the 8Ball Games
acquisition was GBP4,036,000 in cash and GBP10,088,000 in
share-based payments (refer to note 24), with the remainder
relating to the InfiApps year two earn-out. Both were settled in
the year.
(e) During the year the value of the non-proprietary cash
generating unit was assessed and subsequently impaired. Considering
this expense is outside of the Group's normal operations it has
been presented below Adjusted EBITDA. Refer to note 11 for further
details.
(f) The share of the profit from the joint venture is the
element of profit achieved from the platform services provided to
Aspers Online Limited. There is only one such revenue stream in the
Group and therefore has been added back.
(g) The profit on disposal relates to the disposal of the
available-for-sale QSB Gaming Limited investment during the year.
This is the first of such profits achieved by Stride Gaming and
therefore has been presented below Adjusted EBITDA.
(h) The Gambling commission fine relates to a penalty from the
UK Gambling Commission and legal expenses incurred as a result of
this. Such fines are not customary to Stride's standard operations
and therefore is presented below the alternative profit
measure.
4 Employee benefit expenses
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------------------------- -------- --------
Employee benefit expenses (excluding Directors and key management personnel)
Wages and salaries 10,177 9,471
Pension costs 113 362
Share-based payment expense (note 22) 175 696
Social security contributions and similar taxes 994 714
-------------------------------------------------------------------------------- -------- --------
11,459 11,243
-------------------------------------------------------------------------------- -------- --------
Benefit expenses of Directors and key management personnel(a)
Wages and salaries 1,814 2,778
Pension costs 107 143
Share-based payment expense (note 22) 751 1,055
Social security contributions and similar taxes 153 264
-------------------------------------------------------------------------------- -------- --------
2,825 4,240
-------------------------------------------------------------------------------- -------- --------
Total employee benefit expense including Directors and key management personnel 14,284 15,483
-------------------------------------------------------------------------------- -------- --------
(a) Key management personnel are those persons having authority
and responsibility for planning, directing and controlling the
activities of the Group, including the Directors of the Group
(listed in note 6) as well as certain directors of subsidiary
companies.
The total employment benefit expense in the prior year excludes
the amounts referred to as contingent remuneration in note 3. From
the total of GBP14,295,000, GBP14,124,000 was payable to key
management personnel of the Group. This is split between
GBP4,036,000 cash remuneration and GBP10,088,000 payable in shares.
This amount was GBPNil in the current year as it settled during the
period. Refer to note 24 for further details.
5 Finance expense
Recognised in consolidated statement of profit or loss
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Loan interest (note 17) 262 551
Unwinding of discount on contingent consideration 333 999
Other 16 -
-------------------------------------------------- -------- --------
Total finance expense 611 1,550
-------------------------------------------------- -------- --------
6 Directors' interests and remuneration
The Directors who served during the year, and their interests in
the share capital of the Group, were as follows:
GBP0.01 ordinary shares GBP0.01 ordinary shares
at 31 August 2018 at 31 August 2017
--------------------- ------------------------- -------------------------
Number Percentage Number Percentage
of shares holding of shares holding
--------------------- ------------ ----------- ------------ -----------
Nigel Terrence Payne 13,889 0.02% 13,889 0.02%
Stuart Eitan Boyd 2,611,151* 3.44% 2,425,213* 3.57%
Darren Brett Sims 1,160,984* 1.53% 1,083,510* 1.59%
Ronen Kannor 39,273 0.05% - -
John Le Poidevin 44,456 0.06% 44,546 0.07%
Adam David Batty 22,727 0.03% 22,727 0.03%
--------------------- ------------ ----------- ------------ -----------
* Shares held via trusts.
The following Directors held share options as at 31 August 2018
and 2017:
Number of Exercise Vesting
options at Date of price period of
Award type 31 August 2018 grant in GBP options
------------------ -------------- --------------- ----------- -------- ----------
Stuart Eitan Boyd Share options 750,000 18 May 2015 1.32 1-3 years
LTIP 111,111 1 Sep 2015 0.00 3 years
LTIP 113,333 1 Sep 2016 0.00 3 years
--------------------------------- --------------- ----------- -------- ----------
Darren Brett Sims Share options 750,000 18 May 2015 1.32 1-3 years
LTIP 111,111 1 Sep 2015 0.00 3 years
LTIP 113,333 1 Sep 2016 0.00 3 years
--------------------------------- --------------- ----------- -------- ----------
Ronen Kannor Share options 500,000 18 May 2015 1.32 1-3 years
LTIP 66,667 1 Sep 2015 0.00 3 years
LTIP 77,778 1 Sep 2016 0.00 3 years
--------------------------------- --------------- ----------- -------- ----------
The following table presents the Directors' remuneration from
the Group for the year ended 31 August 2018:
Salaries Share Total Total
and fees Benefits Pension Bonus options 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- -------- -------- -------- -------- -------- --------
Nigel Terrence Payne 60 - - - - 60 48
Stuart Eitan Boyd 290 17 29 - 171 507 838
Darren Brett Sims 290 7 29 - 171 497 829
Ronen Kannor 185 6 19 - 110 320 559
John Le Poidevin 47 - - - - 47 42
Adam David Batty 47 - - - - 47 42
--------------------- --------- -------- -------- -------- -------- -------- --------
Total 919 30 77 - 452 1,478 2,358
--------------------- --------- -------- -------- -------- -------- -------- --------
7 Taxation
2018 2017
GBP'000 GBP'000
------------------------------------------------------------ -------- --------
Current tax expense
Current tax on profits for the year 275 726
Adjustment in respect of prior periods 48 (97)
------------------------------------------------------------ -------- --------
Total current tax 323 629
------------------------------------------------------------ -------- --------
Deferred tax expense
Origination and reversal of temporary differences (note 18) (692) (1,756)
Effect of increased tax rate on opening balance 13 2
------------------------------------------------------------ -------- --------
Total deferred tax (677) (1,754)
------------------------------------------------------------ -------- --------
Total tax (credit) (354) (1,125)
------------------------------------------------------------ -------- --------
Continuing and discontinued operations:
Income tax expense/(credit) from continuing operations 543 (196)
Income tax (credit) from discontinued operations (note 26) (897) (929)
------------------------------------------------------------ -------- --------
Total tax (credit) (354) (1,125)
------------------------------------------------------------ -------- --------
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 the profit/loss for the year are as follows:
2018 2017
GBP'000 GBP'000
-------------------------------------------------------------- -------- --------
Loss for the year (5,027) (25,623)
Income tax (credit) (including discontinued operations) (354) (1,125)
-------------------------------------------------------------- -------- --------
Loss before income tax (5,381) (26,748)
-------------------------------------------------------------- -------- --------
Tax using the Group's domestic tax rate of 19% (2017: 19.58%) (1,022) (5,237)
Expenses not deductible for tax purposes 2,523 5,638
Adjustments in respect of prior periods 48 (97)
Other temporary differences 13 (42)
Different tax rates applied in overseas jurisdictions (1,916) (1,387)
-------------------------------------------------------------- -------- --------
Total tax expense/(credit) (354) (1,125)
-------------------------------------------------------------- -------- --------
The Group has not recognised deferred tax assets of GBP344,000
(2017: GBP355,000) in respect of losses amounting to GBP2,026,000
(2017: GBP2,110,000) that can be carried forward against future
taxable income.
In the year ended 31 August 2018 the Israeli Tax Authorities
completed a review on the tax liabilities of Netboost Media Limited
for the years ended 31 December 2012-2015. The company is
registered in Israel and was acquired as part of the Tarco Assets
and Netboost Media acquisition in 31 August 2016. A tax liability
of GBP1.06 million arose after the completion of this review, which
in accordance with the sale purchase agreement where the sellers
have provided tax guaranties to cover certain tax liabilities, were
covered by the sellers of Netboost Media Limited in full. As such
there is no effect to the Group tax position as a result of this
review. In exactly the same scenario but for the years ending 31
August 2013-2015, the tax expense of GBP0.24 million was paid by
InfiApps Limited of which GBP0.15 million was recovered from the
previous owners.
8 Earnings per share
2018 2017
Numerator GBP'000 GBP'000
---------------------------------- -------- --------
Loss used in EPS and diluted EPS (5,027) (25,623)
Loss from continuing operations (619) (15,342)
Loss from discontinued operations (4,408) (10,281)
---------------------------------- -------- --------
Denominator '000 '000
-------------------------------------------------------- ------ -------
Weighted average number of shares used in basic EPS 73,256 67,286
Basic loss per ordinary share (p) (6.86) (38.08)
Effects of:
Employee share options 2,287 2,297
Contingent share consideration on business combinations - 1,045
Weighted average number of shares used in diluted EPS 75,543 70,628
-------------------------------------------------------- ------ -------
Diluted loss per ordinary share (p) (6.86) (38.08)
-------------------------------------------------------- ------ -------
Where the result of the Group is a loss for the year there is no
dilutive impact. At 31 August 2018, there are a number of shares
that are contingently issued which will have a further dilutive
effect (refer to note 22).
9 Dividends
An interim dividend of GBP2,054,000 (1.3p per share) was
declared and paid in the year ended 31 August 2018 (2017:
GBP808,000). The Board is recommending a final dividend of 1.7p per
share subject to shareholder approval at the Annual General
Meeting, which has not been accrued at 31 August 2018 (2017: final
dividend of 1.5p per share approved and paid representing a total
of GBP1,078,000).
10 Property, plant and equipment
Fixtures, fittings Computer Motor
and equipment equipment vehicles Total
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ------------------ ---------- --------- --------
Cost or valuation
At 1 September 2016 331 504 18 853
Additions 99 157 - 256
Disposals - (17) - (17)
Foreign exchange movements 1 4 - 5
-------------------------------------- ------------------ ---------- --------- --------
At 1 September 2017 431 648 18 1,097
Additions 261 228 - 489
Acquired through business combination 17 9 - 26
Foreign exchange movements (3) (6) - (9)
Transfer to disposal group (Note 26) (40) (136) - (176)
-------------------------------------- ------------------ ---------- --------- --------
At 31 August 2018 666 743 18 1,427
-------------------------------------- ------------------ ---------- --------- --------
Accumulated depreciation
At 1 September 2016 25 166 - 191
Charge for the year 71 180 10 261
Disposals - (17) - (17)
Foreign exchange movements - 1 - 1
-------------------------------------- ------------------ ---------- --------- --------
At 1 September 2017 96 330 10 436
Charge for the year 134 193 7 334
Foreign exchange movements (1) (2) - (3)
Transfer to disposal group (Note 26) (10) (110) - (120)
-------------------------------------- ------------------ ---------- --------- --------
At 31 August 2018 219 411 17 647
-------------------------------------- ------------------ ---------- --------- --------
Net book value
At 31 August 2016 306 338 18 662
At 31 August 2017 335 318 8 661
-------------------------------------- ------------------ ---------- --------- --------
At 31 August 2018 447 332 1 780
-------------------------------------- ------------------ ---------- --------- --------
11 Intangible assets
Customer
Software and Development Brand and contractual
licences costs names Goodwill relationships Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
Cost
At 1 September 2016 15,708 1,274 8,326 36,238 19,107 80,653
Acquired through business combinations - - - 180 - 180
Additions 489 - - - - 489
Internally generated development costs - 1,355 - - - 1,355
Foreign exchange rate movements 171 9 23 103 50 356
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
At 1 September 2017 16,368 2,638 8,349 36,521 19,157 83,033
Acquired through business combinations 31 - - 1,341 - 1,372
Additions 871 - - - - 871
Internally generated development costs - 1,765 - - - 1,765
Foreign exchange rate movements (85) (8) (11) - (25) (129)
Transfer to disposal group (Note 26) (9,324) (1,462) (1,312) (5,950) (2,881) (20,929)
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
At 31 August 2018 7,861 2,933 7,026 31,912 16,251 65,983
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
Accumulated amortisation
At 1 September 2016 3,277 248 865 - 2,697 7,087
Charge for the year 2,226 588 1,744 - 3,817 8,375
Impairment 2,332 - 266 6,056 1,333 9,987
Foreign exchange rate movements (38) (3) (4) (106) (21) (172)
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
At 1 September 2017 7,797 833 2,871 5,950 7,826 25,277
Charge for the year 5,081 1,362 1,484 - 3,426 11,353
Impairment 1,481 319 434 9,800 580 12,614
Foreign exchange rate movements 112 12 14 - 7 145
Transfer to disposal group (Note 26) (8,237) (1,047) (1,312) (5,950) (2,881) (19,427)
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
At 31 August 2018 6,234 1,479 3,491 9,800 8,958 29,962
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
Net book value
At 1 September 2016 12,431 1,026 7,461 36,238 16,410 73,566
At 1 September 2017 8,571 1,805 5,478 30,571 11,331 57,756
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
At 31 August 2018 1,627 1,454 3,535 22,112 7,293 36,021
--------------------------------------- ------------ ----------- -------- -------- ---------------- --------
Amortisation rates
During the period the useful economic lives of certain software
were re-assessed and adjusted from a total of 5 - 10 years down to
a total of 3 - 4 years. This created an accelerated amortisation
charge of GBP3.7 million in the period, of which GBP2.9 million
related to the software transferred to assets held for sale.
Goodwill
In previous reporting periods the goodwill was allocated to a
number of cash generating units based on different acquisitions
made by the Group. However, they have now been placed into 3 cash
generating units, being proprietary, non-proprietary and Passion
Gaming. The proprietary CGU includes cashflows which cannot be
separately reported, and the value of this CGU is assessed on a
combined basis (previously the Spacebar Media and Table Top
Entertainment CGUs). The non-proprietary segment (previously 8Ball
Games and Tarco Assets CGUs) includes the combined cashflows, which
following internal restructuring and further synergies gained post
acquisition through the centralisation of several departments, are
now being reported as one CGU.
Goodwill is therefore allocated to the following cash generating
units:
2018 2017
GBP'000 GBP'000
---------------- -------- --------
Proprietary 9,944 9,944
Non-proprietary 10,827 20,627
Passion Gaming 1,341 -
---------------- -------- --------
22,112 30,571
---------------- -------- --------
Impairment review
In accordance with IAS 36 Impairment of Assets, the Group
regularly monitors the carrying value of its intangible assets. A
detailed review was undertaken at 31 August 2018 to assess whether
the carrying value of assets was supported by the net present value
of future cash flows derived from those assets. The recoverable
amounts of all the above CGUs have been determined from value in
use calculations based on cash flow projections from formally
approved budgets and long-term forecasts. These budgets and
forecasts assume the underlying business models will continue to
operate on a comparable basis under the current regulatory and
taxation regimes, adjusted for any known changes. The impairment
charge in the period relates to the impairment of goodwill and
intangible assets of the Non-proprietary (GBP9.8 million) unit and
InfiApps (GBP2.8 million) which is included in discontinued
activities.
Proprietary CGU
The recoverable amounts of the proprietary CGU have been
determined from value in use calculations based on cash flow
projections covering the following five-year period and a
calculation into perpetuity which exceeds the total values of each
CGU's assets.
The cash flows for 2019 and 2020 are based on Board-approved
budgets with a long-term growth rate of 2% (2017: 2%) and a
discount rate of 13.9% (2017: 13.9%). These assumptions were based
upon management's experience, past performance and drawing on
industry data where relevant. The recoverable amount of GBP70.5
million, exceeded the total value of the CGU by GBP38.2
million.
The Directors have concluded that there are no reasonably
possible changes in the key assumptions which would cause the
carrying value of goodwill and other intangibles to exceed their
value in use.
Non-proprietary CGU
A detailed impairment review was completed in respect of the
non-proprietary cash generating unit to determine if the carrying
value of assets was supported by the net present value of future
cash flows derived from those assets. The recoverable amount has
been determined from value in use calculations based on cash flow
projections from formally approved budgets and long-term forecasts.
These budgets and forecasts assume the underlying business model
will continue to operate on a comparable basis under the current
regulatory and taxation regimes, adjusted for any known changes. As
a result of this review and following the initial announcement in
May 2018 that the point of consumption tax rate would increase, and
subsequently being a confirmation that this would take place from 1
April 2019, the Group determined that this had an adverse effect on
the projected value in use and consequently the intangible assets
have been impaired by GBP9,800,000.
The cash flows for 2019 and 2020 are based on Board-approved
budgets with a long-term inflationary growth rate of 0.5% (2017:
2%) and a discount rate of 14.2% (2017: 17.2%). These assumptions
were based upon management's experience, past performance and
drawing on industry data where relevant.
The table below shows what the effect of changes in the key
assumptions would have been on the recoverable amount:
Key assumptions used in projections
---------------------------------------------------------------------- ---------------------------------------
Discount Operating Terminal
rate margin growth rate
---------------------------------------------------------------------- ---------- ----------- --------------
Key assumptions used in the projections (equal to the carrying value) 14.18% 13.47% 0.50%
Effect of 1% increase in assumption - GBP'000 (1,659) 2,052 1,227
Effect of 1% decrease in assumption - GBP'000 1,920 (2,035) (1,060)
---------------------------------------------------------------------- ---------- ----------- --------------
The table below shows what the effect of changes in the key
assumptions would have been on the recoverable amount in the prior
year:
Key assumptions used in projections
------------------------------------------------------- ---------------------------------------
Discount Operating Terminal
rate margin growth rate
------------------------------------------------------- ---------- ----------- --------------
Key assumptions used in the projections 17.20% 21.32% 2.00%
Change in assumptions required to equal carrying value 23.05% 15.88% (10.80%)
Effect of 1% increase in assumption - GBP'000 (2,662) 4,460 2,786
Effect of 1% decrease in assumption - GBP'000 3,029 (622) (813)
------------------------------------------------------- ---------- ----------- --------------
Passion Gaming
The goodwill and related assets included within this CGU
resulted from the acquisition of Passion Gaming in the year, a
Rummy-focussed online gaming business operating throughout India
for GBP2.48 million. The recoverable amount of GBP1.6 million not
including cash, has been determined from value in use calculations
based on cash flow projections covering a five-year period and a
calculation into perpetuity, is equal to the carrying value of the
CGU.
Operating margins have been based on past experience of the
acquired entity and future expectations in light of anticipated
economic and market conditions. Discount rates are based on the
Group's weighted average cost of capital, adjusted to reflect the
specific risks of the CGU.
The table below shows what the effect of changes in the key
assumptions would have been on the recoverable amount:
Key assumptions used in projections
---------------------------------------------------------------------- ---------------------------------------
Discount Operating Terminal
rate margin growth rate
---------------------------------------------------------------------- ---------- ----------- --------------
Key assumptions used in the projections (equal to the carrying value) 20.61% 6.86% 2.00%
Effect of 1% increase in assumption - GBP'000 (219) 127 162
Effect of 1% decrease in assumption - GBP'000 248 (127) (145)
---------------------------------------------------------------------- ---------- ----------- --------------
12 Subsidiaries
The subsidiaries of Stride Gaming plc, all of which have been
included in these consolidated financial statements, are as
follows:
Proportion of ownership
interest at 31 August
-------------------------------- ------------------------- -------------------------
Name Country of incorporation 2018 2017
-------------------------------- ------------------------- ------------ -----------
Spacebar Media Limited United Kingdom 100% 100%
SRG Services Limited* Mauritius 100% 100%
Shifttech (Pty) Limited* South Africa 100% 100%
Daub Alderney Limited Alderney 100% 100%
S.T.R. Financials Ltd Israel 100% 100%
8Ball Games Limited United Kingdom 100% 100%
Netboost Media Limited* Israel 100% 100%
InfiApps Ltd* Israel 100% 100%
Madabout Media (2016) Limited** United Kingdom 100% 100%
Think Beyond Media Ltd United Kingdom 100% 100%
Stride Together Ltd United Kingdom 100% 100%
Baldo Line SRL* Italy 100% 100%
Stride Investment Limited Mauritius 100% -
Passion Gaming Private Limited* India 51% -
Stride Gaming Sweden AB Sweden 100% -
-------------------------------- ------------------------- ------------ -----------
* Investment held indirectly.
** Investment held indirectly and struck off the register post year end.
13 Trade and other receivables
2018 2017
GBP'000 GBP'000
--------------------------------- -------- --------
Current
Trade receivables 2,168 3,782
Other receivables 6,351 524
Funds held in escrow - 4,929
Amounts due from related parties 60 2
Prepayments 1,714 654
--------------------------------- -------- --------
10,293 9,891
--------------------------------- -------- --------
Non-current
Other receivables 253 353
--------------------------------- -------- --------
253 353
--------------------------------- -------- --------
The carrying value of trade and other receivables classified as
loans and receivables approximates fair value. All amounts shown in
short-term trade and other receivables fall due for payment within
one year. All non-current receivables are due within three years of
31 August 2018.
As at 31 August 2018 there were no trade receivables (2017:
GBPNil) which were past due and fully impaired. There is currently
no provision for impairment for any of the outstanding trade and
other receivables (2017: GBPNil) with no bad debt expense being
recognised in the year (2017: GBPNil).
Funds held in escrow
During the year ended 31 August 2017 and 2016, as part of the
acquisition of the Tarco Assets, which completed on 31 August 2016,
a total amount of GBP4,000,000 was transferred by the Group to an
escrow account, with an intention to cover part of the earn-out
payment which was made to the sellers within three months of 31
December 2017, following the end of the earn-out period.
Furthermore, in the year ended 31 August 2017 GBP929,000 was
transferred to an escrow account which related to the second year
earn-out of the InfiApps acquisition. Both of these earnouts were
settled in the year ended 31 August 2018.
Other receivables
Included in other receivables at 31 August 2018 is the
receivable from Rank Plc in relation to the disposal of the
available for sale investment during the year. Refer to Note 28 for
further details.
14 Trade and other payables
2018 2017
GBP'000 GBP'000
----------------------------------------------- -------- --------
Current
Trade payables 3,614 2,927
Other payables 605 321
Other taxation and social security 1,562 1,456
Client liabilities and progressive prize pools 2,682 2,489
Contingent remuneration - 4,968
Contingent consideration - 17,417
Amounts due to related parties 248 442
Accruals and deferred income 2,159 3,357
----------------------------------------------- -------- --------
10,870 33,377
----------------------------------------------- -------- --------
Non-current
Other payables 25 80
----------------------------------------------- -------- --------
25 80
----------------------------------------------- -------- --------
The carrying value of trade and other payables classified as
financial liabilities measured at amortised cost approximates fair
value. The contingent remuneration arose because of the 8Ball Games
Limited acquisition in the prior year and the InfiApps acquisition
in the year ended 31 August 2015, of GBP4,036,000 and GBP932,000
respectively. Both amounts were determined at 31 August 2017 and
settled in the current year. The contingent consideration has
arisen from the acquisition of certain trading assets of Tarco
Limited on 31 August 2016 and as reassessed at 31 August 2017. This
amount was settled in the current year. Refer to Note 24 for
further details of the 8ball Games Limited and Tarco Limited
settlements.
15 Provision
2018 2017
GBP'000 GBP'000
---------- -------- --------
Provision 7,100 -
---------- -------- --------
During the year and as announced in August 2018, the UK Gambling
Commission ("UKGC") conducted a review of the manner in which Daub
Alderney Limited, a subsidiary of the Group, had carried out some
of its historical licensed activities in the United Kingdom. The
Group worked cooperatively with the UKGC throughout its review and
has taken actions to address the concerns raised therein. Following
the completion of the review, the Group has recorded a liability of
GBP7,100,000 for the penalty imposed on review, which we expect to
be settled post year end. Also included in the year ended 31 August
2018 were GBP686,000 of legal and other expenses related to the
review. These were recognised in the consolidated statement of
profit or loss.
16 Cash and cash equivalents
2018 2017
GBP'000 GBP'000
------------------------- -------- --------
Cash at bank and in hand 28,706 26,175
------------------------- -------- --------
Cash held on behalf of players and progressive jackpots of
GBP2.7 million (2017: GBP2.5 million) are held in separate
(unrestricted) bank accounts.
17 Loans and borrowings
The book value and fair value of loans and borrowings are as
follows:
2018 2017
GBP'000 GBP'000
---------------------------- -------- --------
Unsecured borrowings
Current bank borrowings 4,443 1,975
---------------------------- -------- --------
4,443 1,975
---------------------------- -------- --------
Unsecured borrowings
Non-current bank borrowings - 4,443
---------------------------- -------- --------
During the year ended 31 August 2017, GBP8.0 million of related
party borrowings were repaid. In November 2016, the Group entered
into a loan facility with Barclays PLC for GBP8.0 million. This
facility matures four years from the date of the initial drawdown
on a 3.6% plus LIBOR annual floating rate basis payable quarterly,
with the principal sum outstanding amortising on a quarterly basis
over the term of the facility. Daub Alderney Limited, Spacebar
Media Limited, S.T.R. Financials Ltd and InfiApps Ltd (all 100%
subsidiaries of the Group) have provided unlimited guarantee on the
borrowings. The effective interest rate of the bank borrowings is
5.74% and the book value of the bank borrowings is not materially
different to its fair value.
During the year the Group breached two of their Financial
Covenants. A formal notice was provided post year end from Barclays
PLC informing Stride Gaming Plc that they would waive any rights
available to the bank as a result of these breaches for the year
ending 31 August 2018. As a result of this the borrowings have
moved all into current liabilities as they are deemed to be
recallable from Barclays on demand, however the above waiver
provides assurance that provider will not action this.
18 Deferred tax
Deferred tax is calculated in full on temporary differences
under the liability method using a tax rate based on the different
jurisdictions it arises.
The movement on the deferred tax accounts is as shown below:
Deferred tax Deferred tax
asset liability
GBP'000 GBP'000
-------------------------------------------- ------------ ------------
At 1 September 2016 217 (3,708)
Recognised in profit and loss 524 1,231
Foreign exchange movements 4 (62)
-------------------------------------------- ------------ ------------
At 31 August 2017 745 (2,539)
Recognised in profit and loss (592) 1,268
Foreign exchange movements (1) 49
At 31 August 2018 152 (1,222)
-------------------------------------------- ------------ ------------
Continued and discontinued operations split
Deferred tax in continuing operations 138 (900)
Deferred tax in discontinued operations 14 (322)
-------------------------------------------- ------------ ------------
At 31 August 2018 152 (1,222)
-------------------------------------------- ------------ ------------
Deferred tax assets have been recognised in respect of other
temporary differences where the Directors believe it is probable
that these assets will be recovered.
The movements in deferred tax assets and liabilities (prior to
the offsetting of balances within the same jurisdiction as
permitted by IAS 12) during the period are shown below:
(Charged)/ (Charged)/
credited to credited to
Asset Liability Net profit or loss equity
31 August 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------- --------- -------- --------------- ------------
Share options 73 - 73 (541) -
Other temporary and deductible differences 79 (49) 30 (73) (1)
Business combinations - (1,173) (1,173) 1,291 49
------------------------------------------- -------- --------- -------- --------------- ------------
Net tax assets/(liabilities) 152 (1,222) (1,070) 677 48
------------------------------------------- -------- --------- -------- --------------- ------------
The movements in deferred tax assets and liabilities (prior to
the offsetting of balances within the same jurisdiction as
permitted by IAS 12) in the prior year are shown below.
(Charged)/ (Charged)/
credited to credited to
Asset Liability Net profit or loss equity
31 August 2017 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------- -------- --------- -------- --------------- ------------
Share options 614 - 614 455 -
Other temporary and deductible differences 131 (26) 105 53 4
Business combinations - (2,513) (2,513) 1,247 (62)
------------------------------------------- -------- --------- -------- --------------- ------------
Net tax assets/(liabilities) 745 (2,539) (1,794) 1,755 (58)
------------------------------------------- -------- --------- -------- --------------- ------------
19 Share capital
Authorised
--------------------------------- --------------------------------------------
2018 2018 2017 2017
Number GBP'000 Number GBP'000
--------------------------------- ----------- -------- ----------- --------
Total ordinary shares of 1p each 250,000,000 2,500 250,000,000 2,500
--------------------------------- ----------- -------- ----------- --------
Issued and fully paid
---------------------------------------------------------- ------------------------------------------
2018 2018 2017 2017
Number GBP'000 Number GBP'000
---------------------------------------------------------- ---------- -------- ---------- --------
Ordinary shares of 1p each
At 1 September 67,959,919 680 66,519,885 666
Issued on settlement of contingent earnout (Note 24) 3,168,076 32 - -
Issued on settlement of contingent remuneration (Note 24) 4,117,483 41 846,701 8
Exercise of share options (Note 22) 559,860 5 - -
Long-term incentive plans (Note 7) - - 593,333 6
---------------------------------------------------------- ---------- -------- ---------- --------
At 31 August 75,805,338 758 67,959,919 680
---------------------------------------------------------- ---------- -------- ---------- --------
During the year ended 31 August 2018 the following transactions
took place:
-- Settlement of the Tarco contingent earnout through the issue
of 3,168,076 as further explained in Note 24;
-- Settlement of the 8ball contingent remuneration through the
issue of 4,117,483 shares as further explained in Note 24; and
-- Exercise of 559,860 share options. Refer to note 22 for further details.
During the prior year the following transactions took place:
-- 846,701 shares were issued relating to the acquisition of
NextTec Software Inc, held as shares to be issued; and
-- 593,333 ordinary shares were issued to a trust controlled by
the Group, which relate to the long-term incentive plan awards that
were granted for 2015/16 and 2016/17. The effect of the issue of
shares to the trust was to increase the issued share capital of the
Group with a corresponding entry in retained earnings. As and when
LTIP conditions are met, the Group will instruct the trust to
release shares to each of the Directors involved in the LTIP. Refer
to note 7 for further details.
20 Leases
Operating leases - lessee
The total future value of minimum lease payments in respect of
leased properties is as follows:
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Not later than one year 638 652
Later than one year and not later than five years 758 1,180
-------------------------------------------------- -------- --------
1,396 1,832
-------------------------------------------------- -------- --------
The total future value of minimum lease payments in respect of
leased motor vehicles is as follows:
2018 2017
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Not later than one year 45 48
Later than one year and not later than five years 68 15
-------------------------------------------------- -------- --------
113 63
-------------------------------------------------- -------- --------
21 Financial instruments - risk management
The Group is exposed through its operations to the following
financial risks:
-- market risk;
-- credit risk;
-- liquidity risk; and
-- foreign exchange risk.
The Group is exposed to risks that arise from its use of
financial instruments. This note describes the Group's objectives,
policies and processes for managing those risks and the methods
used to measure them. Further quantitative information in respect
of these risks is presented below.
There have been no substantive changes in the Group's exposure
to financial instrument risks, its objectives, policies and
processes for managing those risks or the methods used to measure
them from previous periods unless otherwise stated in this
note.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises, are as follows:
-- trade and other receivables;
-- investment in available-for-sale financial instruments;
-- cash and cash equivalents;
-- trade and other payables;
-- contingent consideration and remuneration; and
-- loans and borrowings.
Financial instruments by category
Financial assets
Fair value through profit and loss Available for sale Loans and receivables
------------------------------------- -------------------- -----------------------
2018 2017 2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ------------------ ----------------- ------------- --------- ------------ ----------
Available-for-sale
investment - - - 1,595 - -
Cash and cash
equivalents - - - - 28,706 26,175
Trade and other
receivables 6,030 - - - 2,802 9,589
-------------------- ------------------ ----------------- ------------- --------- ------------ ----------
At 31 August 6,030 - - 1,595 31,508 35,764
-------------------- ------------------ ----------------- ------------- --------- ------------ ----------
The reconciliation of the opening and closing fair value balance
of level 3 financial assets is as follows:
Fair value Available-
through for-sale
profit and loss investment
GBP'000 GBP'000
---------------------------------------------------------------- ----------------- -----------
At 1 September 2016 - 810
Gain in other comprehensive income - 785
---------------------------------------------------------------- ----------------- -----------
At 1 September 2017 - 1,595
Recognition of contingent consideration upon disposal (Note 28) 6,030 -
Disposal of available-for-sale investment - (1,595)
---------------------------------------------------------------- ----------------- -----------
At 31 August 2018 6,030 -
---------------------------------------------------------------- ----------------- -----------
The investment, which is within level 3 of the financial
reporting hierarchy, represents a 24.2% holding in QSB Gaming
Limited which was disposed of during the year. The asset held at
fair-value through the profit and loss account, relates to the
contingent earnout receivable following this disposal. Refer to
note 28.
Financial liabilities
Fair value through profit and loss Financial liabilities at amortised cost
------------------------------------ -----------------------------------------
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- ----------------- ----------------- -------------------- -------------------
Contingent remuneration - - - 4,969
Contingent consideration - 17,417 - -
Trade and other payables - - 9,308 9,535
Loans and borrowings - - 4,443 6,418
------------------------- ----------------- ----------------- -------------------- -------------------
At 31 August - 17,417 13,751 20,922
------------------------- ----------------- ----------------- -------------------- -------------------
The reconciliation of the opening and closing fair value balance
of level 3 financial liabilities is as follows:
Contingent
consideration
GBP'000
------------------------------------------------------------------------------------ --------------
At 1 September 2017 5,620
Tarco unwinding of discount of contingent consideration (note 24) 1,000
Increase in Tarco contingent consideration 10,797
------------------------------------------------------------------------------------ --------------
At 1 September 2018 17,417
Tarco unwinding of discount of contingent consideration (note 24) 333
Decrease in Tarco contingent consideration (note 24) (398)
Gain on fair value on settlement of liability through the issue of shares (note 24) (815)
Settlement of Tarco contingent consideration (note 24) (16,537)
------------------------------------------------------------------------------------ --------------
At 31 August 2018 -
------------------------------------------------------------------------------------ --------------
Financial instruments not measured at fair value
The carrying value of cash and cash equivalents, trade and other
receivables, trade and other payables and loans and borrowings
approximates their fair value.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and, whilst
retaining ultimate responsibility for them, it has delegated the
authority for designing and operating processes that ensure the
effective implementation of the objectives and policies to the
Group's finance function. The overall objective of the Board is to
set policies that seek to reduce risk as far as possible without
unduly affecting the Group's competitiveness and flexibility.
Further details regarding these policies are set out below.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations. The Group's operational credit risk is
primarily attributable to receivables from payment service
providers ("PSPs"), from customers who dispute their deposits made
after playing on the Group's websites and from B2B platform
providers following the acquisitions of 8Ball and Tarco Assets (see
note [23]) and also stemming from social gaming. Senior management
monitors PSP balances on a weekly basis, including aged debtor
analysis, and promptly takes corrective action if pre-agreed limits
are exceeded. Similarly, they monitor the B2B platform providers
for any potential issues and take prompt action if pre-agreed
limits are exceeded.
Within trade and other receivables there is an amount owed by
Rank Group Plc to Stride Gaming (GBP5,560,000). The amount held on
the balance sheet is the value of the total amount, minus that
already received (GBP4,400,000 including selling fees), is the
total earn-out from the acquisition. This is based on the
information Rank provided to the market, which is that they expect
to pay the total earn-out.
Credit risk also arises from cash and cash equivalents and
deposits with banks and financial institutions. For banks and
financial institutions, only independently rated parties with high
ratings are accepted.
Further disclosures regarding trade and other receivables, which
are neither past due nor impaired, are provided in note 13.
Foreign exchange risk
The Group is exposed to translation and transaction foreign
exchange risk. The Group's policy in this case is to allow the
subsidiary to settle liabilities denominated in their functional
currency with the cash generated from their own operations in that
currency. The majority of the remainder of the Group's transactions
are denominated in Sterling; therefore, the Directors deem the
Group's exposure to all other exchange rate fluctuations to be
minimal.
Foreign currency-denominated financial assets and liabilities,
translated into Sterling at the closing rate, are as follows:
At 31 August 2018
---------------------- -------------------------------------------------------
Sterling US Dollar Israeli Shekel Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- --------- -------------- -------- --------
Financial assets 8,672 5 10 145 8,832
Financial liabilities (13,012) (7) (375) (357) (13,751)
---------------------- -------- --------- -------------- -------- --------
Total net exposure (4,340) (2) (365) (212) (4,919)
---------------------- -------- --------- -------------- -------- --------
At 31 August 2017
---------------------- -------------------------------------------------------
Sterling US Dollar Israeli Shekel Other Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------- -------- --------- -------------- -------- --------
Financial assets 7,588 1,196 760 45 9,589
Financial liabilities (35,930) (1,092) (1,026) (291) (38,339)
---------------------- -------- --------- -------------- -------- --------
Total net exposure (28,342) 104 (266) (246) (28,750)
---------------------- -------- --------- -------------- -------- --------
Liquidity risk
Liquidity risk arises from the Group's management of working
capital and the finance charges and principal repayments on its
short-term borrowings. It is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall
due.
The Group's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they
become due and, as at the end of the financial year, projections
indicate that the Group expects to have sufficient liquid resources
to meet its obligations under all reasonably expected
circumstances.
The following table sets out the contractual maturities
(representing undiscounted contractual cash flows) of financial
liabilities:
At 31 August 2018
------------------------- ----------------------------------------
Between Between Between
Up to 3 and 12 1 and 2 2 and 5
3 months months years years
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- --------- -------- --------
Trade and other payables (8,262) (762) - (284)
Loans and borrowings (494) (1,481) (1,975) (493)
------------------------- --------- --------- -------- --------
Total (8,756) (2,243) (1,975) (777)
------------------------- --------- --------- -------- --------
At 31 August 2017
------------------------- ----------------------------------------
Between Between Between
Up to 3 and 12 1 and 2 2 and 5
3 months months years years
GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- --------- -------- --------
Trade and other payables (12,585) (17,260) (13) (62)
Loans and borrowings (559) (1,642) (2,121) (2,541)
------------------------- --------- --------- -------- --------
Total (13,144) (18,902) (2,134) (2,603)
------------------------- --------- --------- -------- --------
22 Share-based payments
The Group has an equity-settled share option scheme for its
employees and non-employees, which includes the following:
(i) Enterprise Management Incentive share options ("EMI
Options") which qualify for favourable tax treatment under the
provisions of Schedule 5 to ITEPA. Holders of EMI options have up
to ten years from the date of grant to exercise these options. The
number of options and vesting dates are in accordance with each
individual agreement.
(ii) Non-qualifying options made available to employees and
Executive Directors of the Group also have up to ten years from the
date of grant to exercise the options. The exact numbers and
vesting dates will depend on each contract agreement, but all
options will vest and will therefore be exercisable in no more than
three years from the date of grant.
(iii) Non-employee options are available to Non-Executives and
individuals providing services to the Group who are non-employees.
The vesting and exercise conditions are the same as non-qualifying
options.
(iv) Long-term incentive plans ("LTIPs") are available to the
three Executive Directors of the Group. Every year, a certain
number of shares (depending on gross salaries and share price on
the date of the award) will be placed in a trust. The vesting date
of each share award will be three years from the date of the award,
and the number of shares to vest will depend on specific earnings
per share targets. The exercise price is GBPNil. The LTIPs are
discussed further in the Directors' Remuneration Report.
Weighted
average
exercise Number
price (GBP) '000
-------------------------------- ------------ ------
Outstanding at 1 September 2016 5,087
Granted during the year 0.54 539
Forfeited during the year 1.32 (116)
-------------------------------- ------------ ------
Outstanding at 31 August 2017 5,510
Exercised during the year 1.32 (560)
Granted during the year 2.11 849
Forfeited during the year 1.32 (54)
-------------------------------- ------------ ------
Outstanding at 31 August 2018 5,745
-------------------------------- ------------ ------
The weighted average exercise price of options outstanding at 31
August 2018 was GBP1.31 (2017: GBP1.19) and their weighted average
contractual life was 3.06 years (2017: 3.13 years).
Of the total share options outstanding at 31 August 2018,
3,041,496 had vested (2017: 2,000,000), although not exercised. All
other outstanding shares at year end are therefore not exercisable.
The weighted average value exercise price of the vested options is
GBP1.32 (2017: GBP1.32)
The weighted average fair value of each option granted during
the period was GBP0.89 (2017: GBP2.15).
Included in the outstanding number of options above are 221,667
(2017: 1,055,000) options issued to non-employees under the
appropriate terms of the share option scheme. Also included in the
outstanding number of options above are 593,333 options issued
under the LTIP.
The following information is relevant in the determination of
the fair value of options granted during the period under the
equity-settled share-based remuneration schemes operated by the
Group.
2018 2017
------------------------------------------------- ------------- -------------
Option pricing model used Black-Scholes Black-Scholes
Weighted average share price at grant date (GBP) 2.10 2.47
Weighted average exercise price (GBP) 2.11 0.54
Weighted average contractual life (in years) 3.00 3.00
Weighted average expected volatility 72.18% 58.22%
Expected dividend growth rate 0.50% 0.50%
Weighted average risk-free interest rate 0.73% 0.39%
------------------------------------------------- ------------- -------------
The volatility assumption, measured at the standard deviation of
expected share price returns, is based on a statistical analysis of
daily share prices of comparable companies over the last three
years.
The share-based remuneration expense comprises:
2018 2017
GBP'000 GBP'000
----------------------------------------------------- -------- --------
Equity-settled schemes expense 1,177 1,751
National Insurance(a) (248) 7
----------------------------------------------------- -------- --------
Equity-settled schemes, including National Insurance 929 1,758
----------------------------------------------------- -------- --------
(a) As the share price at 31 August 2018 was out of the money
for all of the share options, except LTIPS, there was an overall
credit to reduce the National Insurance provision to nil.
During the year the Group also settled the acquisition of 8Ball
Games Ltd through the issue of shares and as this was linked to
remuneration it constituted a share-based payment under IFRS 2. The
total expense in the prior year was GBP10,088,000 and this was
included in the contingent remuneration in the profit or loss
account (refer to note 24 for further details and number of shares
issued). The fair value of the shares was calculated on the date of
the acquisition as GBP2.45 which was based on the share price at
that date of GBP2.45 and an exercise price of GBPNil.
23 Business combinations
Acquisition of Passion Gaming Private Ltd
In December 2017, the group completed its acquisition of 51% of
the voting equity instruments of Passion Gaming Private Ltd
("Passion Gaming"), a rummy-focused online gaming company
registered and operating across India. The acquisition has allowed
the Group to enter new growth markets and has provided an
attractive, related online gaming product. The main factors leading
to the recognition of goodwill, which is not deductible for tax
purposes, was the presence of certain intangible assets, such as
the assembled workforce of the acquired entity, which do not
qualify for separate recognition. It is for this reason that the
cash consideration of GBP2.48 million was invested in the company's
working capital to accelerate growth, instead of going directly to
the sellers, and this is included within the cash on acquisition in
the table below.
Details of the provisional fair value of identifiable assets and
liabilities acquired, purchase consideration and goodwill are as
follows:
Book and fair value
GBP'000
Property, plant and equipment 26
Intangibles 31
Cash 2,437
Trade and other receivables 5
Trade and other payables (270)
Minority interest (1,093)
_______
Total net assets 1,136
Fair value of cash consideration paid 2,477
_______
Goodwill (note 11) 1,341
As part of the acquisition the Group has the right, through call
options (nil value), to acquire at its sole discretion the
remaining 49% of Passion Gaming from the existing shareholders over
a three to five-year period as follows:
-- 24% on the third anniversary following the completion date of the acquisition; and
-- The remaining 25% on the fifth anniversary following the completion date of the acquisition.
Should the options be exercised they will be settled using a
combination of cash and shares based on the future financial
performance of Passion Gaming. The fair value of the call options
are not material and therefore have not been recognised.
Passion Gaming's contribution to the Group's revenue and profit
from the start of the financial year should the acquisition have
taken place then, until 31 August 2018 is not significant therefore
has not been separately disclosed.
Total acquisition costs amounted to GBP98,000 and these have
been recognised in the profit or loss account.
Further to the above acquisition, the Group has a commitment to
acquire a copy of the software which Passion Gaming is currently
utilising for a royalty fee, from an unrelated third party, for a
total consideration of just under GBP400,000. The acquisition will
complete post year end, once all the software and related
intellectual property is delivered to the Group, and from that
date, the cash invested in Passion Gaming, will be used to further
develop and enhance it. A 50% cash deposit was made in the year
ended 31 August 2018, which means the financial commitment is just
under GBP200,000.
24 Related party transactions
Significant shareholders identified below are shareholders with
more than 10% of shareholding, either individually or as part of
the concert party they belong to. There are no individuals or
concert party shareholders who have control over the Group. The
transactions with significant shareholders have been disclosed
below as per prior periods.
The acquisitions of the Tarco Assets and Netboost Media on 31
August 2016 constituted a related party transaction due to the
acquired businesses being under common control of significant
shareholders, as well as certain shareholders being key management
personnel of the Group. As at 31 August 2018 the total contingent
consideration liability was nil (31 August 2017: GBP17,417,000).
The total liability of GBP17,352,217 was settled in April 2018 with
GBP7,753,238 satisfied by the issue of 3,168,076 new ordinary
shares of 0.01p each at 244.73p, being the average closing price of
the ordinary shares for the 90 day period ending on 31 December
2017, and the remainder of GBP9,598,979 paid in cash. The movement
in the contingent consideration liability from 31 August 2017 is
the unwinding of the discount on the consideration of GBP333,000
(2017: GBP1,000,000) included in finance expense, as well as a
final assessment of the amount payable following the end of the
earnout period at 31 December 2017 resulting in a credit of
GBP398,000. A further gain was recognised in the consolidated
statement of profit or loss of GBP815,000, being the difference
between the share price of 219.00p on the date of issue of the
shares (24 April 2018) and the value at which the shares were
issued of 244.73p in accordance with the purchase agreement.
A total of GBP170,000 was due to a company under control of
common significant shareholders at 31 August 2018 and 31 August
2017. The amount due is interest free and there were no
transactions with this related party in the current or prior
year.
The Group entered into related party transactions with certain
other companies under control of significant shareholders or Key
Management Personnel (KMP) for the provision of software platform,
marketing, office rental and other back office services. The total
purchases in the year ended 31 August 2018 were GBP2,297,000 (2017:
GBP5,285,000). From this total GBP993,000 (2017: GBP4,132,000)
related to direct marketing costs placed by the related party, as
well as a marketing fee for providing this service. Total amounts
due by the Group at 31 August 2018 were GBP70,000 (2017:
GBP272,000) and the total amounts receivable by the Group at 31
August 2018 were GBP7,000 (2017: GBP2,000).
On 30 July 2015, the Group entered into a loan agreement with a
shareholder for a total amount of GBP8,000,000. The amount, which
was due for full repayment in July 2017, was incurring interest of
7.5% per annum paid monthly in arrears. On 9 December 2016 the loan
was repaid in full following the refinancing agreed with Barclays
in November 2016. Total interest expense in the period ended 31
August 2018 was GBPNil (2017: GBP158,000 plus an early termination
fee of GBP100,000). There was no balance due at 31 August 2018.
During the prior year a total expense of GBP14,124,000 was
recognised in the profit or loss account in relation to the
contingent remuneration following the acquisition of 8Ball Games
Ltd. This was split between a cash payable amount of GBP4,036,000
and a fixed share-based payment expense of GBP10,088,000 which was
due to the previous owners of the 8Ball Games Ltd who are
considered KMP. The agreed final earnout consideration is
GBP13,092,000 was settled, with GBP9,055,200 satisfied by the issue
of 4,117,482 new ordinary shares of 0.01p each and GBP4,036,800
payable in cash.
Following the establishment of its first business to business
joint venture, Aspers Online Limited, in May 2017 with a leading
gaming operator in the UK, the online business officially launched
in October 2017. In the year ended 31 August 2018 the Group
recognised GBP1,493,000 of platform income (2017: GBPNil) and a
share of profit from the joint venture of GBP106,000 (2017:
GBPNil), both in the consolidated statement of comprehensive
income. As at 31 August 2018, Aspers Online Limited owed the Group
GBP53,000 (31 August 2017: GBPNil).
25 Non-cash movements in cash flow statement
The InfiApps final contingent remuneration in relation to the
second year earnout of $1.2 million, which was settled in the
current period was paid by releasing the funds held in escrow at 31
August 2017.
The Tarco cash contingent consideration settled, as per note 24
in the current period, partly through releasing the GBP4 million
held in escrow at 31 August 2017.
26 Assets held for sale and discontinued operations
On 28 February 2018 the Board decided to classify the trade and
assets of InfiApps Limited, as held for sale. The results of these
operations are presented as discontinued operations in the Group's
Income Statement. The comparatives have been restated to show the
discontinued operation separately from the continuing operations.
Management committed to a plan to discontinue the social gaming CGU
and therefore all assets and liabilities relating to it have been
presented separately in the consolidated statement of financial
position. Results of the discontinued operations for the periods
presented are as follows:
2018 2017
GBP'000 GBP'000
Revenue 4,548 8,107
Distribution costs (1,886) (4,346)
Administrative expenses (1,983) (3,183)
---------------------------------------------------------- ----------- -----------
Adjusted EBITDA 679 578
Contingent remuneration - (101)
Impairment (2,814) (9,987)
Amortisation of intangible assets (3,136) (1,669)
Depreciation (34) (31)
---------------------------------------------------------- ----------- -----------
Operating loss before tax (5,305) (11,210)
Tax credit 897 929
---------------------------------------------------------- ----------- -----------
Loss after tax and other comprehensive
income (4,408) (10,281)
========================================================== =========== ===========
Loss per share from discontinued operations
(p)
Basic (6.02) (15.28)
Diluted (6.02) (15.28)
The carrying value of the disposal group classified as held for sale
at 28 February 2018 was GBP4.3m. At 31 August 2018 this was compared
to its recoverable amount through a sale, less costs to sell. As a result
of this, an impairment was recognised of GBP2,814,000 against the remaining
intangibles of Infiapps.
Cash flows from discontinued operations:
2018 2017
GBP'000 GBP'000
Net cash generated from operating activities 329 1,361
Net cash used in investing activities (116) (4,605)
Net cash generated from discontinued operations 213 (3,244)
================================================== ========= =========
Details of net assets and liabilities held for sale:
Assets
2018
GBP'000
Trade and other receivables 1,014
Deferred tax asset 14
Intangibles 1,503
Property, plant and equipment 56
Cash and cash equivalents 540
--------------------------------- ---------
3,127
=============================== =========
Liabilities
2018
GBP'000
Trade and other payables 507
Deferred tax liability 322
---------------------------- ------------
829
========================== ============
27 Investment in joint venture
In May 2017 the Group set up its first joint venture, Aspers
Online Limited, where it holds a 50% stake. The joint venture
officially launched operations in October 2017, and the share of
profit from the joint venture for the year ended 31 August 2018 was
GBP104,000. Refer to note 24 for further details.
28 Disposal of available-for-sale investment
During the year, the Group disposed of its 24.2% investment in
QSB Gaming Limited ("QSB"), an operator of online casino and bingo
gaming sites in the Spanish market and registered in Alderney.
Despite holding greater than 20% of the voting equity instruments
in QSB, the Directors did not believe that they exercised
significant influence over the investee. This is on the basis that
the Group had no representation on the board and no participation
in decisions over operating and financial policies. The Group
therefore recorded the asset as an available-for-sale
investment.
In May 2018 through agreement of all shareholders, QSB was sold
to a third party. Based on the terms of the sale agreement, which
includes:
-- An initial consideration of EUR21 million; and
-- A contingent consideration based on a multiple of EBITDA for
the year ending 31 December 2018;
together not to exceed EUR52 million, the Group has recognised a
total profit on disposal of GBP10,431,000, with a receivable from
the buyer of GBP6.03 million. This reflects the information the
buyer has released to the market and is the best estimate of the
contingent consideration's fair value having regard to the present
value of the future expected cash flows using a risk adjusted
probability assessment of the various scenarios affecting the
deferred and contingent consideration.
29 Notes supporting statement of cash flows
The cash movements within Financing activities of the cash flow
statement relating to liabilities and assets have been presented
below. Non-cash transactions from financing activities have also
been shown in the reconciliation.
Loans and borrowings Total
GBP'000 GBP'000
--------------------- -------------------- --------
At 1 September 2017 6,418 6,418
Loan repayment (2,000) (2,000)
Interest paid (237) (237)
--------------------- -------------------- --------
Total 4,181 4,181
Non-cash flows
Interest accumulated 262 262
--------------------- -------------------- --------
At 31 August 2018 4,443 4,443
--------------------- -------------------- --------
Corporate information
Country of incorporation of parent company
Stride Gaming plc
12 Castle Street
St Helier
Jersey
JE2 3RT
Legal form
Public limited company
Directors
Nigel Terrence Payne (Non-Executive Chairman)
Stuart Eitan Boyd
Darren Brett Sims
Ronen Kannor
John Le Poidevin (Non-Executive)
Adam David Batty (Non-Executive)
Secretary and registered office
Ronen Kannor
12 Castle Street
St Helier
Jersey
JE2 3RT
Company number
117876
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
Legal advisors
Pinsent Masons LLP
30 Crown Place
Earl Street
London EC2A 4ES
Financial advisor, nominated advisor and joint broker
Investec Bank Plc
30 Gresham Street
London EC2V 7QP
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR BCBDBBSDBGIG
(END) Dow Jones Newswires
November 21, 2018 02:00 ET (07:00 GMT)
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