TIDMZATT
RNS Number : 1716N
Zattikka PLC
26 September 2012
For immediate release 26 September 2012
ZATTIKKA PLC
('Zattikka' or the 'Company')
Interim Results for the six months ended 30 June 2012
Successful integration underpinning strong base for organic
growth
andfuture acquisition programme
Zattikka, the online games entertainment group today publishes
its maiden interim results for the six months ended 30 June 2012.
The Company is focused on developing and publishing digital
entertainment products for web delivery across open browsers,
mobile devices, social networks and other internet connected
devices.
The Company was incorporated on 16 November 2011 and listed on
AIM on 16 April 2012.The majority of the listing net proceeds was
used on the same date to complete the acquisitions of four
companies:Hattrick Holdings Limited, Concept Art House Inc., Sneaky
Games Inc.and Expedite 5 Inc. Previously, the Company had no
trading activities and therefore these acquisitions marked the
effective operational debut of the Company. These maiden Interim
Results reflect the period of consolidated operations from 16 April
2012 to 30 June 2012.
Financial Highlights
Consolidated financials for the period from 16 April 2012 to 30
June 2012
-- Revenue $2,168,000 (prior year n/a),
-- EBITDA (adjusted)* loss $442,000, (prior year n/a),
-- Cash and cash equivalents $4,739,000 (prior year n/a)
Pro-forma financials for the six months ended 30 June 2012**
-- Revenue $5,675,000 (prior year n/a),
-- EBITDA (adjusted)* loss $128,000 (prior year n/a),
* Adjusted EBITDA is defined as earnings excluding interest,
tax, depreciation, amortization, changes in deferred revenue, share
based payments, exceptional and acquisition costs as set out in
note 3 to the following summary financial statements.
**Pro-forma is on the basis that the acquisitions took place on
1(st) January 2012.
Operating Highlights
-- Majority of integration plan has been successfully completed
with further initiatives now underway to identify and deliver
further cost savings;
-- Key financial and internal control processes now in place across group companies;
-- Hattrick subscriber base has stabilised and is now showing consistent monthly growth;
-- SNAP analytics platform rolled out throughout Sneaky and
Hattrick brands and underpinning all new product development;
-- Concept Art House ('CAH') now providing art services group-wide; and
-- Product development programmes established across the Company.
Mark Opzoomer, Group Chief Executive, commented:
"Our objective since inception has been to build a broad
IP-based, global games entertainment group. We have made
significant progress to achieve this, having now laid strong
foundations in the US, China and Europe. The first half of 2012 has
been a landmark period for the development of Zattikka as we
successfully brought the combined group to AIM and made substantial
progress in building the common analytics and hosting platform,
installing common financial and management control systems and IP
development plans. I am particularly pleased that our SNAP
analytics system is now implemented across our product portfolio,
delivering key insights into game performance and player
behaviour.
"This initial period was always going to be about integration to
lay the solid foundations upon which we can rapidly accelerate the
growth of the Company. We have amassed a blend of talent, games
content, technical know-how and realistic organic growth
opportunities, which we are now exploiting. Our core objective is
to combine organic growth with the selective acquisition of
additional IP and distribution assets, as set out in our Admission
Document. We continue to evaluate a range of potential bolt-on
acquisition targets that satisfy this strategy.
"The Board remains confident in our future trading prospects and
expects to see a rapid acceleration in both revenue and profit
growth during 2013,as we begin to see the full impact of our
activities during the current financial year."
Enquiries:
Zattikka
Mark Opzoomer, Chief Executive Officer +44 (0) 20 7491 6410
Rob Gorle, Chief Financial Officer
Canaccord Genuity Limited(Nominated Adviser
and Broker)
Simon Bridges/ Peter Stewart +44 (0) 20 7523 8000
Buchanan
Jeremy Garcia / Clare Akhurst +44 (0) 20 7466 5000
About Zattikka:
Zattikka is a developer and publisher of social and casual games
entertainment products across internet connected platforms.
Zattikka combines videogame, internet and mobile distribution and
social/casual gaming talent to compete in the fast growing online
and "freemium" games market. Zattikka has developed an analytical
platform, SNAP, that allows efficient online marketing and
optimisation of gameplay, a key factor for success in this
sector.
Through its admission to AIM in April 2012, Zattikka acquired
four companies: Hattrick Holdings, Concept Art House, Sneaky Games
and Expedite 5, Inc. These companies provide Zattikka with games
that can be sold to gamers in key US, Chinese and European markets,
either directly through its own websites, through established
third-party digital distribution channels, such as mobile app
stores, social networks or the expanding range of gaming enabled,
internet connected, platforms. Through further strategic
acquisitions and by accelerating on-going organic growth, Zattikka
is executing a clear strategic vision to become a large scale,
diverse games publisher with products operating across growing
digital platforms, and with a geographic emphasis on the US, China
and Europe.
For more information visit www.zattikka.com
Operational Overview
Introduction
We are delighted to report our maiden Interim Results for the
period ended 30 June 2012. Whilst we have only been operating as a
group since the second quarter of the current year our team has
achieved much during that time. Our successful admission to AIM in
April was clearly a crucial point in the group's development.
During that process, the Company was delighted to attract support
from a number of blue chip institutional shareholders.
Now that the companies acquired by Zattikka on its admission to
AIM have been integrated, the management team's focus has shifted
to developing new revenue generating opportunities across the web
browser and mobile games arena. The broader games market continues
to evolve creating new opportunities for our brands to exploit. The
evolution of the mobile space through smart phones and tablet
devices, and the expansion of other gaming enabled devices,
continues to expand the active gaming community worldwide. We
believe the Zattikka platform provides an excellent base from which
we can address this exciting market opportunity.
Group Overview
Zattikka is focused on developing and publishing social and
casual games entertainment products across internet connected
platforms, through various media channels. These channels include
PC web browsers, mobile devices (including smartphones and
tablets),social networks, connected consoles, and other emerging
gaming enabled platforms, including IP TVs and set top boxes.
On admission to AIM in April 2012 Zattikka completed the
acquisitions of four companies, Hattrick Holdings Limited, Concept
Art House Inc.,Sneaky Games Inc and Expedite 5 Inc..These
acquisitions provide Zattikka with infrastructure and products that
can then be sold to customers in key US, Chinese and European
markets, either directly through its own websites, or through
third-party digital distribution channels or other new digital
platforms.Brief descriptions of the key assets of the businesses
acquired are as follows:
Hattrick
Hattrick operates two high profile browser based games; the
eponymous Hattrick game and Popmundo. Hattrick is a free to play
online football manager game where players create their own club,
build a team, and compete against hundreds of thousands of other
individuals from all over the globe in real time. Popmundo is music
industry role playing game where the players strive for fame in a
virtual music industry and, again, is played in real time.
Concept Art House ('Concept')
Concept is a leading art and design company working on
well-known gaming projects including Command and Conquer, It Girl,
Mafia Wars and World of Warcraft. Concept has produced art and
design for successful Facebook games, such as Nightclub City and
Kingdoms of Camelot, and provides the wider group with access to
both Western and Eastern markets with a foothold in the Asian
social and mobile gaming market.
Sneaky Games ('Sneaky')
Sneaky combines mobile and social game development and direct
marketing expertise with relationships in the gaming industry.
Sneaky Games has built an excellent fledgling reputation in the
social games space, having developed and launched a portfolio of
games specialising in the mid-core fantasy role playing genre.
SNAP Analytics
Zattikka (through Expedite 5) has developed its own cloud based
analytics and metrics platform, called "SNAP", capable of reporting
on any game, regardless of the platform.SNAPhas been successfully
implemented into each of the games in the Company's product
portfolio. This platform allows the product development team to
analyse the success of each individual feature in the game after it
has gone live, and to determine, from the user behaviour, which
areas of the game need to be improved to enhance user engagement,
retention, virality and monetisation. This service may be suitable
to be extended to other game developers or publishers at some point
in the future.
Group Strategy
We believe that there is a compelling opportunity presented by
the rapid growth and fragmentation of the multibillion dollar games
entertainment business to create a new large scale, diverse games
publisher with multiple successful products and services across all
the popular digital platforms. We view the future of games as
highly social, connected, and mobile - anywhere, anytime,
anyhow.
Zattikka currently comprises operations in China (Shanghai, 104
staff), the USA (San Francisco 16 staff, Austin 22 staff) and
Europe (London 14 staff, Malmo 22 staff). We derive revenue from
subscriptions, publishing services (work for hire), virtual goods,
and advertising revenues from games across the web browser, mobile
devices and social networks. Our initial audience focus is
principally younger male, which weintend to leverage through
circles of audience overlap from games targeted at the younger
audience, such as, arcade, sci-fi, fantasy role playing games and
sports. We will then look to broaden our product mix to more female
audiences and niche verticals.
Management's vision is to become a large scale, diverse games
publisher with products operating across the growing digital
platforms, and with a targeted geographic emphasis on the US, China
and Europe. The Company intends to achieve this by continuing to
develop Zattikka through strategic acquisitions and accelerating
on-going organic growth of the existing businesses.
Operational Review
During the period under review Zattikka has focused on
broadening a number of key revenue generating activities in the
games market. Split into four broad categories the Company has made
steady progress.
Game development
A core objective during this period has been to leverage the
Company's expertise to fully exploit the opportunity of Hattrick,
the award winning browser based football management game.
This activity has focused on several near term objectives, which
include: implementing SNAP to provide deep analysis into game
performance; developing a comprehensive product roadmap to drive
game improvements so as to increase user retention and in-game
monetisation; trialling low-cost marketing programmes to drive user
acquisition and; increasing advertisingincome by building direct
relationships with large advertisers. Specific actions we have
undertaken include:
-- continuous minor refinements to increase user retention,
including significantly improving the early game experience with a
new player tutorial and delivering instant game activity for new
players;
-- broadening the availability of the game with the launch of
new iPhone and Android game management apps;
-- implementing Facebook Connect to allow easy user registration
and social network enabled recruitment; and
-- dedicated marketing plans targeting new user acquisition and
increased monetisation from existing players.
In addition, we have restructured the Hattrick team to support
and drive the long term growth potential and productivity of this
business. The core team will focus on the day-to-day running and
development of the existing browser based product. A newly formed,
dedicated new product team, 'Powered by Hattrick', will now focus
on developing a number of exciting initiatives specifically
designed for social networks and tablet playing audiences.These
product developments are all on target for launch in first half of
2013.
The "Powered By Hattrick" team are alsodeveloping a dedicated
localised Chinese product and have commenced a series of local
focus-group research. They are also beginning discussions with
potential local partners.
The Company is confident that these actions have established a
firm foundation for future long term growth for the Hattrick brand
and look forward to delivering significant growth from 2013 and
beyond.
Elsewhere, Sneaky Games has recently launched its first iOS
game, Cloud Village, a companion product to the existing Facebook
game, Fantasy Kingdoms. Early indications are that this game has
been well received and is performing in line with the team's
expectations. We are also reviewing Sneaky Games' other existing
pre-acquisition products, Vampire Legacy and Syfy Monster Island,
analysing the games' performance on Facebook. With the aid of SNAP
analytics insight we are assessing the opportunities for these
games to attract new audiences on other platforms such as
mobile.
Post-acquisition, Sneaky Games has continued with its new
product development with the next game expected for release in the
first half of 2013. This will be its first game developed utilising
the full group expertise in analytics, art and game
development.
Since acquisition, the Concept iOS development team, based in
Shanghai, has been reduced in size leaving a smaller group of
specialists in place working on puzzle-based game concepts. As a
new initiative, a high calibre mobile game development groupis now
based in San Francisco and it is expected that itwill release three
titles by the end of 2012, including one mobile conversion of an
existing successful Facebook product and two featuring newly
developed in-house IP. These two teams have been separated out to
form a new game development studio, Spellgun East (Shanghai) and
Spellgun West (SanFrancisco).
Publishing Services (Work for Hire)
Our creative art studio, Concept Art House has continued to
attract new service clients and ad-hoc mandates. Significant
business development activity has taken place, post-acquisition,
targeting new clients in Europe and Japan as well as further
developing the US business. This has led to new clients including
LucasArts, Storm 8, Ngmoco (DeNa) and Wooga. To date this activity
has performed in line with our expectations.
Game revenue - subscriptions / downloads / virtual goods
Our game revenue streams have, as expected, not materially grown
in the period under review. However, we do expect accelerated
growth following a number of scheduled product launches in last
quarter of this year and first half of 2013.
Subscription revenue, predominantly in Hattrick, continues to be
the core component of Zattikka game revenue. Several new
initiatives are now in place which we expect will have a
significant positive impact on this revenue stream during 2013.
These include:
-- price point research and package analysis;
-- planned switch to continuous payments for automatic subscription renewals; and
-- additional payment partners in territories such as Turkey and
Brazil to improve both the player base and monetisation conversion
rates.
Advertising
New and better quality inventory has been created within the
Hattrick business through an extensive redesign of the existing
offering and the inclusion of advertising within the new iPhone and
Android apps. In addition to boosting inventory, direct
relationships with advertising partners for the Hattrick and
Popmundo game inventory are progressing well and are expected to
deliver significant improvements both in gross advertising revenue
and the overall eCPM. The establishment of these direct
relationships with advertisers are expected to develop revenue
opportunities for in-game advertising across the full portfolio of
Zattikka products over time.
Acquisition Strategy
As stated in its Admission Document, the Company is committed to
pursuing an active acquisition policy and has an on-going pipeline
of potential targets. Since the successful admission of Zattikka to
AIM, the Company has seen an increased number of potential targets
and continues to evaluate each of these opportunities.We look
forward to updating the market on our progress in due course.
Summary & Outlook
Following the integration of our cornerstone assets and the
current use of SNAP throughout our business, the opportunities to
expand our revenue arestronger than ever. Our operational plans to
accelerate our organic revenue growth span subscription growth,
creative work-for-hire services, game development, advertising
opportunities and international distribution opportunities.
Demand for games and other related specialist services continue
to expand and we are now channelling all our efforts to maximize
our IP base and geographic reach. We also continue to test and
launch new products in North America and Europe, although China
remains a key territory for the future.
The outlook for the group remains positive and we remain
committed to adding game IP assets, skills and services to our
established base through selective bolt-on acquisitions. Our team
continues to assess a number of potential target companies as we
seek to acquire established IP in the browser or mobile games
arena.
Given the significant progress the Company has made since April
in integrating four step change acquisitions, the Board is
confident that both revenue and profit growth are set to increase
during 2013.
Financial Overview
Introduction
The Company was incorporated on 16 November 2011 and changed its
name from Zattikka No.1 plc to Zattikka plc on 2 December 2011. On
16 April 2012 the entire issued share capital of Zattikka plc was
listed on AIM and on the same date Zattikka plc completed the
acquisitions of four companies, Hattrick Holdings Limited, Concept
Art House Inc., Sneaky Games Inc. and Expedite 5 Inc.
The principal activity of the Company is development and
publishing of interactive games, entertainment products across
internet connected platforms, through various media channels.
This half yearly report is prepared on a consolidated basis and
includes the results of Zattikka plc from 1 January 2012 to 30 June
2012, plus the results of the businesses acquired from 16 April
2012 to 30 June 2012.
Key financial metrics
We include Revenue Bookings (or "Bookings") and Adjusted EBITDA,
which we use to evaluate our business and measure our performance.
We believe they are better indicators of activity in a given period
but should be considered along with the IFRS measures presented in
this report.
Bookings is a non-IFRS financial measure that is equal to
revenue recognized during the period plus change in deferred
revenue during the period. Bookings, as opposed to revenue, are the
fundamental top-line metric we use to manage our business, as we
believe it is a better indicator of the sales activity in a given
period.
We believe that Adjusted EBITDA provides useful information to
investors and others in understanding and evaluating our operating
results in the same manner as our management and board of
directors. Adjusted EBITDA is defined as: Earnings before interest,
tax, depreciation, amortization, changes in deferred revenue, share
based payment charges, exceptional items and acquisition costs.
Income statement
These acquisitions contributed $2.2m towards revenue for the
half year to 30 June 2012 and revenues booked were $1.9m.
Adjusted EBITDA loss for the half year was $0.4m. The share
based payment charge for the half year was $0.7m, which arose
following the implementation of a share award scheme.
The operating loss for the period was $2.9m and is stated after
charging share based payments, exceptional items, acquisition
costs, depreciation and amortisation.
Exceptional items in the period were $0.2m which comprises of
reorganisation costs following the four acquisitions.
Loss after tax for the half year was $3.0m.
Cash flow
At 30 June 2012 the Group had cash of $4.7m. The net cash raised
from the issue of shares was $18.4m and the net cash out flow
relating to the purchase of acquisitions was $13.6m.
Condensed Consolidated Statement of Comprehensive Income
for the period ended 30 June 2012
Note Period Period to
to
30 June 31 December
2012 2011
(unaudited) (audited)
$'000
Continuing operations
Revenue 3 2,168 -
Cost of sales (401) -
------------ ------------
Gross profit 1,767 -
Operating expenses (4,485) -
------------ ------------
EBITDA 3 (2,718) -
Adjusted EBITDA 3 (442) -
Depreciation (24) -
Amortisation (161) -
------------ ------------
Operating loss (2,903) -
Finance costs (133) -
------------ ------------
Loss before tax (3,036) -
Tax 5 (13) -
------------ ------------
Loss for the period (3,049) -
Other comprehensive income, net
of tax
Exchange translation differences 293 -
on foreign operations
------------ ------------
Total comprehensive loss (2,756) -
for the period
Basic and fully diluted
earnings per share 6 (0.34c) -
Adjusted basic and fully
diluted earnings per share 6 (0.06c) -
Condensed Consolidated Statement of Financial Position
For the period ended 30 June 2012
30 June 2012 31 December 2011
(unaudited) (audited)
$'000 $'000
Assets
Non-current assets
Goodwill 7 52,543 -
Other intangible assets 334 -
Property, plant and equipment 216 -
Deferred tax assets 148 -
------------- -----------------
53,241 -
Current assets
Inventory 122 -
Trade and other receivables 1,604 -
Cash and cash equivalents 4,739 0.02
------------- -----------------
6,465 0.02
Total assets 59,706 0.02
Liabilities
Current liabilities
Taxation (64) -
Trade and other payables 8 (16,740) -
(16,804) -
Net current (liabilities)/assets (10,339) 0.02
------------- -----------------
Total assets less current
liabilities 42,902 0.02
Non-current liabilities
Loan notes (11,408) -
------------- -----------------
Net assets 31,494 0.02
Shareholders' equity
Called up share capital 9 3,520 0.02
Share premium account 30,079 -
Share-based payment reserve 651 -
Translation reserve 293 -
Retained earnings (3,049) -
------------- -----------------
Total shareholders' equity 31,494 0.02
Condensed Consolidated Statement of Changes in Equity
For the period ended 30 June 2012
Share Share Share Translation Retained Total
capital Premium Based reserve earnings
account Payment
reserve
$'000 $'000 $'000 $'000 $'000 $'000
Share issues 0.02 - - - - 0.02
-------- --------- -------- ------------ --------- ---------
Total transactions with owners 0.02 - - - - 0.02
-------- --------- -------- ------------ --------- ---------
At 31 December 2011 (audited) 0.02 - - - - 0.02
Loss for the period - - - - (3,049) (3,049)
Other comprehensive income:
Exchange translation differences
on foreign operations - - - 293 - 293
-------- --------- ------------ --------- ---------
Total comprehensive income for the
period - - - 293 (3,049) (2,756)
-------- --------- -------- ------------ --------- ---------
Share based payment - - 651 - - 651
Shares issued 3,520 30,079 - - - 33,599
Transaction with owners 3,520 30,079 651 - - 34,250
-------- --------- -------- ------------ --------- ---------
At 30 June 2012 3,520 30,079 651 293 (3,049) 31,494
Condensed Consolidated Cash Flow Statement
For the period ended 30 June 2012
30 June 2012 31 December 2011
(unaudited) (audited)
$'000 $'000
Cash flows from operating activities
Cash flows from operations 129 -
Tax paid (60) -
------------- -----------------
Net cash generated from operating 69 -
activities
Cash flows from investing activities
Purchase of intangible assets (48) -
Purchase of property, plant and (31) -
equipment
Acquisition of businesses (13,637) -
------------- -----------------
Net cash used in investing activities (13,716) -
Cash flows from financing activities
Net proceeds from issue of ordinary
share capital 18,386 0.02
------------- -----------------
Net cash generated from financing
activities 18,386
Net change in cash and cash equivalents 4,739 0.02
------------- -----------------
Cash and cash equivalents at
end of period 4,739 0.02
------------- -----------------
Reconciliation of loss for the period to net cash generated from
operating activities
Period to
30 June
2012
(unaudited)
$'000
Profit after tax (3,049)
Finance costs 133
Taxation 13
Depreciation 24
Amortisation of intangible assets 161
Share based payment 651
Shares issued at nil value 125
Foreign exchange translation differences 1,020
Decrease in inventory 3
Decrease in receivables 1,525
Decrease in payables (477)
------------
Cash flows from operating activities 129
Notes to the accounts for the period ended 30 June 2012
1. General information
The interim financial statements have been prepared using
accounting policies consistent withInternational Financial
Reporting Standards ("IFRSs") as adopted for use in the EU. While
thefinancial information included in this interim announcement has
been compiled in accordance withthe recognition and measurement
principles of IFRSs, this announcement does not itself
containsufficient information to comply with IFRSs. These interim
financial statements do not constitutestatutory financial
statements within the meaning of section 240 of the Companies Act
1985.
The information for the half year ended 30 June 2012 is
unaudited, butreflects all normal adjustments which are, in the
opinion of management, necessary to provide a fairstatement of
results and the group financial position for and as at the period
presented. Theresults of operations for the period ended 30 June
2012 are not necessarily indicative of theoperating results for
future operating periods.
2. Accounting policies
Basis of preparation
The annual financial statements of Zattikka Plc are to be
prepared in accordance with IFRSs as adopted by the European Union.
This condensed set of financial statements has not been reviewed or
audited by the Company's auditors.
Business Combination
The acquisition of subsidiaries is accounted for using the
acquisition method. The cost of the acquisition is measured as 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. Costs
directly attributable to the business combination are expensed as
incurred. The acquiree's identifiable assets, liabilities and
contingent liabilities that meet the conditions for recognition
under IFRS 3 (revised) Business Combinations are recognised at
their fair value at the acquisition date. As noted in note 11, due
to the recent completion of the acquisitions, the fair values of
significant assets and liabilities are provisional and will be
finalised during the period to 15 April 2013.
Goodwill
Goodwill arising on consolidation represents the excess of the
cost of acquisition over the Group's interest in the fair value of
the identifiable assets and liabilities of a subsidiary, associate
or jointly controlled entity at the date of acquisition. Goodwill
is initially recognised as an asset at cost and is subsequently
measured at cost less any accumulated impairment losses. Any
impairment is recognised immediately in profit or loss and is not
subsequently reversed. The Group tests goodwill annually for
impairment or more frequently if there are indicators that goodwill
might be impaired. Goodwill is allocated to cash generating units
that are expected to benefit from the business combination in which
the goodwill arose, for the purpose of impairment testing.
Notes to the accounts for the period ended 30 June 2012
2 Accounting policies (continued)
Property, plant and equipment
Property, plant and equipment are recognised initially at cost.
Depreciation is provided on cost in equal instalments over the
estimated useful lives of the assets concerned. The following
annual rates are used.
Computer hardware - 33%
Office equipment - 33%
Short leasehold improvements - 33%
Purchased software - 33%
An asset's residual values and useful lives are reviewed and
adjusted if appropriate, at each statement of financial position
date. The gain or loss on the disposal or retirement of an asset is
determined as the difference between the sale proceeds and the
carrying amount of the asset and is recognised in profit or
loss.
Intangible assets
Costs associated with maintaining computer software are
recognised as an expense as incurred.Development costs that are
directly attributable to the design and testing of identifiable and
unique software products controlled by the Group are recognised as
intangible assets when the following criteria are met:
-- It is technically feasible to complete the software product
so that it will be available for use
-- Management intends to complete the software product and use
or sell it
-- There is an ability to use or sell the software product
-- It can be demonstrated how the software product will generate
probable future economic benefits
-- Adequate technical, financial and other resources to complete
the development and to use or sell the software product are
available
-- The expenditure attributable to the software product during
its development can be reliably measured
Where no internally generated intangible asset can be
recognised, development expenditure is recognised as an expense in
the period in which it is incurred. Research expenditure is
expensed as incurred. Software development expenditure is stated at
cost less accumulated amortisation and impairment losses. The
expenditure capitalised includes the cost of materials and direct
labour. Amortisation is charged to the profit or loss on a
straight-line basis over the estimated useful lives of the products
concerned. The amortisation period for development costs is six to
twelve months.
Purchased computer software is capitalised and amortised over
three years.
Notes to the accounts for the period ended 30 June 2012
2 Accounting policies (continued)
Impairment of non financial assets
At each statement of financial position date, the Group reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does
not generate cash flows that are independent from other assets, the
Group estimates the recoverable amount of the cash-generating unit
to which the asset belongs. An intangible asset with an indefinite
useful life is tested for impairment annually and whenever there is
an indication that the asset may be impaired.
The recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a revalued
amount, in which case the impairment loss is treated as a
revaluation decrease.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately, unless the
relevant asset is carried at a revalued amount, in which case the
reversal of the impairment loss is treated as a revaluation
increase.
Trade receivables
Trade and other receivables do not carry any interest and are
initially stated at their fair value andsubsequently at amortised
cost using the effective interest rate method as reduced by
appropriateallowances for estimated impairment losses.
The carrying amount of financial assets is reduced by any
impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying value is reduced
through the use of an allowance account. When a trade receivable is
considered uncollectible, it is written off against the allowance
account. Subsequent recoveries of amounts previously written off
are credited against the allowance account.
Changes in the carrying amount of the allowance account are
recognised in profit or loss.Indicators of impairment considered by
the Group include review of past payment history and the financial
status of the customers.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits, and other short-term highly liquid investments that are
readily convertible to a known amount of cash with three months or
less remaining to maturity and are subject to an insignificant risk
of changes in value.
Trade payables
Trade payables are not interest bearing and are stated initially
at their fair value and are subsequently measured at amortised cost
using the effective interest rate method.
Notes to the accounts for the period ended 30 June 2012
2 Accounting policies (continued)
Deferred taxation
Deferred tax is recognised in respect of all temporary
differences that have originated but not reversed at the reporting
date where transactions or events that result in an obligation to
pay more tax in the future or a right to pay less tax in the future
have occurred at the reporting date. Temporary differences are
differences between the Group's taxable profits and its results as
stated in the financial statements.
Deferred tax assets are recognised to the extent that it is
regarded as more likely than not that they will be recoverable
against suitable taxable profits in the future. Deferred tax is
measured at the average tax rates that are expected to apply in the
periods in which timing differences are expected to reverse, based
on tax rates and laws that have been enacted or substantively
enacted by the reporting date. The company recognises deferred tax
in respect of the profits of overseas subsidiaries except where the
timing of the receipt of these profits is controlled by Group and
it is not probable that the profits will be distributed in the
foreseeable future.
Equity investments
Equity instruments issued by the Company are recorded at the
proceeds received, net of direct issue costs.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable for goods and services provided in the
normal course of business, net of discounts and commissions, VAT
and other sales-related taxes.
The Group provides on line games as live services and allows the
user to purchase non-basic features and rights. Subscription
revenue is recognised over the period in which it relates. Durable
virtual goods revenue is recognised over the estimated average
playing period of paying players for the applicable game, which
represents its best estimate of the estimated average life of
durable virtual goods. Consumable virtual goods revenue is
recognised when occurred.
Merchandising revenue is recognised on the date of dispatch.
Advertising, royalty fees and other services is recognised over the
period the revenue relates. Revenue earned from outsourcing
development services is recognised as labour hours are delivered
and other direct expenses incurred.
Foreign exchange
The Company's presentation currency is US dollars. In preparing
the accounts of each company, transactions in currencies other than
the entity's functional currency (foreign currencies) are recorded
at the rate of exchange prevailing on the date of transactions. At
each balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items carried at
fair value that are denominated in foreign currencies are
translated at the rates prevailing at the date when the fair value
was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary
items, and on the retranslation of monetary items, are included in
profit or loss for the period. Exchange differences arising on the
retranslation of non-monetary items carried at fair value are
included in profit or loss for the period except for differences
arising on the retranslation of non-monetary items in respect of
which gains and losses are recognised directly in equity. For such
non-monetary items, any exchange component of that gain or loss is
also recognised directly in equity.
Notes to the accounts for the period ended 30 June 2012
2 Accounting policies (continued)
Financial Instruments
The Group's financial instruments comprise cash and cash
equivalents, together with trade and other receivables, trade and
other payables, loans and available for sale investments. Financial
assets and financial liabilities are recognised in the Group's
reporting when the Group becomes a party to the contractual
provisions of the instrument.
Inventories
Inventories are stated at the lower of cost and net realisable
value. Cost comprises direct purchases of game related merchandise
and related products.
Segmental accounting
The Chief Operating Decision Maker is the Board of Directors.
The Board reviews the Group's internal reporting in order to assess
performance of the business. Management has determined the
operating segments based on the reports reviewed by the Board. The
Board considers the business from a product viewpoint, monitoring
performance in two businesses of publishing services and online
games.
Share based payments
The Group operates two share options schemes; the Enterprise
Management Incentive Scheme and the 2012 Share Option Scheme (HM
Revenue & Customs unapproved). The fair value of options is
determined using the Black Scholes valuation model, recognised as
an employee benefit expense with a corresponding increase in
reserves over the vesting period. The proceeds received net of any
directly attributable transaction costs are credited to share
capital (nominal value) and share premium when the options are
exercised.
Leased assets
Rentals payable under operating leases are charged to the profit
or loss on a straight-line basis over the term of the relevant
lease.
Exceptional items
Items that are material in size, unusual and non-recurring in
nature are presented as exceptional items in thestatement of
comprehensive income. The directors are of the opinion that the
separate recording of non-recurring costs provides helpful
information about the Group's underlying performance
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
Derivative financial instruments
The Group does not enter into derivative transactions.
Operating profit/ (loss)
Operating profit/ (loss) is defined as profit/(loss) after
taxation, less tax, finance income and finance costs.
Notes to the accounts for the period ended 30 June 2012
2 Accounting policies (continued)
Going Concern
On 16 April 2012, the company was listed on AIM and raised $20
million (before expenses) through the placing of 12,637,433 shares
at GBP1.00 each. Part of the net proceeds was used in the purchase
of four online game companies. The remaining proceeds is being used
for working capital purposes to expand these companies and to
strengthen the balance sheet of the Group.
After reviewing the Group's performance and forecast future cash
flows, (including the financial impact of the acquisitions on 16
April 2012) the directors consider the Company has adequate
resources to continue in operational existence for the foreseeable
future.
3 Segmental information
The Group operates in one business the development and
publishing of interactive games, entertainment products across
internet connected platforms, through various media channels. The
Board considers the business from a product and service viewpoint.
It monitors performance by the following segments - online games
and publishing services. The cash collection agencies which the
group uses to collect some of its revenue, do not keep sufficient
accurate records to enable Zattikka to report on a geographical
basis.
Notes to the accounts for the period ended 30 June 2012
3. Segmental Information (continued)
Online Publishing
Games services Total
(unaudited) (unaudited) (unaudited)
$'000 $'000 $'000
Revenue 1,208 960 2,168
Change in deferred
revenue (240) - (240)
------------ ------------ ----------------
Bookings 968 960 1,928
Segment result:
---------------------------- ------------ ------------ ------------ ----------------
EBITDA adjusted (107) (327) (442)
Change in deferred revenue 240 - 240
Share-based payment (372) (287) (651)
Acquisition costs (939) (691) (1,630)
Exceptional items (note 4) (105) (130) (235)
------------ ------------ ----------------
EBITDA (1,283) (1,435) (2,718)
------------------------------------- ------ ------------ ------------ ----------------
Depreciation and amortisation (184) (1) (185)
------------ ------------ ----------------
Segment result: operating
loss (1,467) (1,436) (2,903)
Finance costs (133)
Tax (13)
----------------
Profit after tax (3,049)
Other segment items
Capital expenditure on property,
plant and equipment 31 - 31
Expenditure on intangible
assets 22 10 32
Statement of Financial Position
Segment assets 6,417 264 6,681
Goodwill 40,316 12,227 52,543
Intangible assets 325 9 334
Deferred tax assets 148 - 148
------------ ------------ ----------------
Total assets 47,206 12,500 59,706
Segment liabilities 25,682 2,530 28,212
------------ ------------ ----------------
Total liabilities 28,212
No one customer accounted for more than 10% of the total revenue
in the period.
The company did not trade during the period ending 31 December 2011.
Notes to the accounts for the period ended 30 June 2012
4. Exceptional items
Exceptional items incurred during the period ended 30 June 2012
relate primarily to the costs of integration of the acquisitions
acquired on 16 April 2012. No exceptional items were incurred
during the period ending 31 December 2011.
5. Taxation
Period to Period to
30 June 31 December
2012 2011
(unaudited) (audited)
$'000 $'000
Overseas tax 13 -
Tax charge 13 -
The effective tax rate for the group was 0.5% for the period
ending 30 June 2012. The low tax rate is as result of losses around
the group.
6. Basic earnings per share and fully diluted earnings per
share
Period to Period to
30 June 31 December
2012 2011
(unaudited) (audited)
$'000 $'000
Basic and diluted earnings per
share
Loss attributable to shareholders (3,049) -
Share-based payment 651 -
Acquisition costs 1,630 -
Exceptional items 235 -
------------ --------------
Adjusted profit attributable (533) -
to shareholders
------------ --------------
Weighted average number of shares 9,098,537 -
Notes to the accounts for the period ended 30 June 2012
7. Goodwill
Period to
30 June
2012
(unaudited)
$'000
Addition 53,984
Foreign exchange (1,441)
At 30 June 2012 52,543
As noted in Note 9, due to the recent completion of the
acquisitions, the fair values of the significant assets and
liabilities are provisional and will be finalised during the period
to 15 April 2013. This may impact the value of goodwill stated
within the accounts for the half year 30 June 2012.
8. Trade and other payables: amounts falling due within one
year
Period to Period to
30 June 31 December
2012 2011
(unaudited) (audited)
$'000 $'000
Trade payables 2,983 -
Other taxation and social security 262 -
Deferred revenue 2,124 -
Accruals 966 -
Contingent consideration 10,176 -
Other payables 229 -
16,740 -
Notes to the accounts for the period ended 30 June 2012
9. Share capital
The Company was incorporated with share capital represented by
an unlimited number of ordinary shares of GBP0.01 value.
On 11 April 2012 the issued share capital was converted into 10
pence shares.
Share capital as at 30 June 2012 amounted to $3,520,037 (31
December 2011 $0.02). During the period the Group issued the
following shares:
No of shares
Part of the consideration for the acquisition
Concept Art House Inc 4,423,102
Part of the consideration for the acquisition
Expedite 5 Inc 1,579,679
Part of the consideration for the acquisition
Hattrick Holdings Limited 1,650,828
Part of the consideration for the acquisition
Sneaky Games Inc 1,848,224
Issue of shares to non-executive directors 78,985
Issued for cash 12,637,433
-------------
22,218,251
-------------
In recognition of the work completed by the non-executive
directors leading up to Zattikka Plc being listed on the London
Stock exchange, they were issued 78,985 shares at nil
consideration.
10. Dividend
The Directors have not proposed an interim dividend.
Notes to the accounts for the period ended 30 June 2012
11. Acquisitions
Concept Art HouseInc
On 16 April 2012, Zattikka plc acquired the entire share capital
of Concept Art House Inc. Concept is a work for hire art and design
company based in San Francisco and Shanghai. This acquisition
brings to the group a presence and experience in the growing Asian
market and provides high quality creative art and design work. Due
to the recent completion of the acquisition, the fair values of
significant assets and liabilities are provisional and will be
finalised during the period to 15 April 2013, as permissible under
IFRS 3 (revised).Quantification of the fair values of the acquired
assets is a detailed exercise for which we are engaging third party
advisors. In these provisional numbers all of the excess paid over
the value of net assets in the individual company balance sheets
has been shown as goodwill. The book and estimated fair values of
those assets and liabilities as at 16 April 2012 are set out
below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
16 April 2012
Book and Provisional
Fair value
(unaudited)
$'000
Net assets acquired
Property, plant and equipment 137
Trade and other receivables 811
Cash and cash equivalent 896
Trade and other payables (181)
Total identifiable assets 1,663
Goodwill 12,227
---------------------
Consideration 13,890
---------------------
Satisfied by:
Cash 3,600
Loan notes 2,400
Zattikka Plc GBP0.10 Ordinary shares 7,000
Working capital adjustment 890
Total amount payable in respect of
the acquisition 13,890
Cash consideration 4,490
Less: cash and cash equivalent balances
acquired (896)
Net cash outflow arising on acquisition 3,594
Notes to the accounts for the period ended 30 June 2012
11. Acquisitions (continued)
Expedite 5 Inc
On 16 April 2012, Zattikka plc acquired the entire share capital
of Expedite 5 Inc. This company has developed SNAP, a cloud based
analytics service to work across all distribution platforms to
collect and analyse user behaviour. This technology is in the
process of being implemented throughout the three other
acquisitions. Due to the recent completion of the acquisition, the
fair values of significant assets and liabilities are provisional
and will be finalised during the period to 15 April 2013, as
permissible under IFRS 3 (revised). Quantification of the fair
values of the acquired assets is a detailed exercise for which we
are engaging third party advisors. In these provisional numbers all
of the excess paid over the value of net assets in the individual
company balance sheets has been shown as goodwill.The book and
estimated fair values of those assets and liabilities as at 16
April 2012 are set out below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
16 April 2012
Book and Provisional
Fair value
(unaudited)
$'000
Net assets acquired
Intangible assets 64
Property, plant and equipment 11
Trade and other receivables 205
Cash and cash equivalent 22
Trade and other payables (3,886)
Total identifiable assets (3,584)
Goodwill 6,087
---------------------
Consideration 2,503
---------------------
Satisfied by:
Zattikka Plc GBP0.10 Ordinary shares 2,503
Total amount payable in respect of
the acquisition 2,503
Cash consideration -
Less: cash and cash equivalent balances
acquired (22)
Net cash outflow arising on acquisition (22)
Notes to the accounts for the period ended 30 June 2012
11. Acquisitions (continued)
Hattrick Holdings Limited
On 16 April 2012, Zattikka plc acquired the entire share capital
of Hattrick Holdings Limited.Hattrick provides an online football
manager game and a music lifestyle role playing game. Hattrick will
provide the group with an entry into the sports gaming market and
in the long term lead to opportunities in other team sports. Due to
the recent completion of the acquisition, the fair values of
significant assets and liabilities are provisional and will be
finalised during the period to 15 April 2013, as permissible under
IFRS 3 (revised).Quantification of the fair values of the acquired
assets is a detailed exercise for which we are engaging third party
advisors. In these provisional numbers all of the excess paid over
the value of net assets in the individual company balance sheets
has been shown as goodwill. The book and estimated fair values of
those assets and liabilities as at 16 April 2012 are set out
below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
16 April 2012
Book and Provisional
Fair value
(unaudited)
$'000
Net assets acquired
Intangible assets 376
Property, plant and equipment 47
Inventory 125
Trade and other receivables 2,071
Cash and cash equivalent 304
Trade and other payables (2,823)
Corporation tax (57)
---------------------
Total identifiable assets 43
Goodwill 29,882
---------------------
Consideration 29,925
---------------------
Satisfied by:
Cash 8,778
Loan notes 8,512
Zattikka Plc GBP0.10 Ordinary shares 2,660
Contingent consideration: - cash 9,975
---------------------
Total amount payable in respect of
the acquisition 29,925
Cash consideration
Less: cash and cash equivalent balances
acquired 8,778
(327)
---------------------
Net cash outflow arising on acquisition 8,451
Notes to the accounts for the period ended 30 June 2012
11. Acquisitions (continued)
Sneaky Games Inc
On 16 April 2012, Zattikka plc acquired the entire share capital
of Sneaky Games Inc.Sneaky has developed a portfolio of games in
the mid-core fantasy role playing genre. This acquisition brings
social game development and direct marketing expertise to the
group. Due to the recent completion of the acquisition, the fair
values of significant assets and liabilities are provisional and
will be finalised during the period to 15 April 2013, as
permissible under IFRS 3 (revised).Quantification of the fair
values of the acquired assets is a detailed exercise for which we
are engaging third party advisors. In these provisional numbers all
of the excess paid over the value of net assets in the individual
company balance sheets has been shown as goodwill. The book and
estimated fair values of those assets and liabilities as at 16
April 2012 are set out below.
Recognised amounts of identifiable assets acquired and
liabilities assumed
16 April 2012
Book and Provisional
Fair value
(unaudited)
$'000
Net assets acquired
Intangible assets 23
Property, plant and equipment 14
Deferred taxation 149
Trade and other receivables 42
Cash and cash equivalent 96
Trade and other payables (402)
Corporation tax (7)
---------------------
Total identifiable assets (85)
Goodwill 5,788
---------------------
Consideration 5,703
---------------------
Satisfied by:
Cash 1,710
Loan notes 1,140
Zattikka Plc GBP0.10 Ordinary shares 2,925
Working capital adjustment (72)
Total amount payable in respect of
the acquisition 5,703
Cash consideration 1,710
Less: cash and cash equivalent balances
acquired (96)
Net cash outflow arising on acquisition 1,614
Notes to the accounts for the period ended 30 June 2012
11. Acquisitions (continued)
Had a full period's trading been recorded for the four
acquisitions for the period between 1 January 2012 and 30 June
2012, the unaudited pro-forma revenue (IFRS) would have been $5.7
million and Adjusted EBITDA losswould have been $0.1 million. The
EBITDA margin may not be representative for future accounting
periods.
Acquisition related costs (included in acquisition costs in the
Condensed Consolidated Statement of Comprehensive Income for the
period ended 30 June 2012) amounted to $1.6m.
(EBITDA is defined as: Earnings before interest, taxes, changes
in deferred revenue, depreciation, exceptional items, acquisition
costs and amortization.)
12. Risks and Uncertainties
A detailed explanation of the potential risks and uncertainties
which could have a material impact on the Group's performance are
as follows:
Market developments and trends
Zattikka Plc operates in a new and rapidly evolving market.
Changes in the popularity of different gaming platforms could make
the Group's offerings obsolete, increase marketing costs, or create
a requirement for further development cost. The Group's competitors
include large, technically competent and well capitalized companies
which may be able to react to these changes faster.
The Group will depend on a small number of games for the
majority of its revenue for the foreseeable future. The Group's
depends on its ability to develop new games that achieve
significant popularity.
We have mitigated these risks through diversity of revenue
streams across web browser subscriptions, mobile devices and social
network virtual goods, and work for hire services.
Integration of acquisitions
The Group has a strategy of acquiring other companies, some of
which may require new systems and training to meet Group standards
of internal controls and reporting in order to report performance
on a timely basis and allocate resources across the Group.
We have mitigated the risk through due diligence to identify the
key risks in advance and help develop priority plans prior to
acquisition to address any weaknesses.
13. Financial and credit risk
The Group's finance function is responsible for procuring the
Group's capital resources and maintaining an efficient capital
structure, together with managing the Group's liquidity, foreign
exchange and interest exposures.
The Group's portfolio of cash and cash equivalents is managed
such that there is no significant concentration of credit risk in
any one bank or other financial institution. Management monitors
closely the credit quality of the intuitions with which it holds
deposits. Management places funds which are required on deposit at
the best interest rates it is able to secure from bankers.
Before accepting a new work for hire customer, the Group
assesses each potential customer's credit quality and risk.
Customer contracts are drafted to reduce any potential credit risk
to the Group. Where appropriate the customer's recent financial
statements are reviewed. Subscription fees paid for use of on-line
games are payable in advance, so there is no credit risk.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DMGZLKVVGZZG
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