TIDMNKTN
RNS Number : 9260A
Nektan PLC
27 January 2020
27 January 2020
NEKTAN PLC
("Nektan", the "Company" or the "Group")
Final results for the year ended 30 June 2019
Re-commencement of Trading in Shares
and
Notice of Annual General Meeting
Nektan plc (AIM: NKTN), the fast growing, award-winning
international gaming technology platform and services provider,
announces its audited financial results for the year ended 30 June
2019 (the "Accounts").
With publication of the Accounts in accordance with the AIM
Rules, the temporary suspension of the Company's ordinary shares
under AIM Rule 40 which took effect at 7.30am on 2 January 2020 has
now been lifted, and trading in the Company's ordinary shares will
recommence at 7.30am today, 27 January 2020.
The Company also announces that its Annual General Meeting will
be held on 27 February 2020 at 11.00am (UK time).
This announcement, along with the Annual Report and Notice of
AGM, which are being posted to shareholders today, are available on
the Company's website www.nektan.com.
Financial highlights
Year ended 30 June Year ended 30 June
2019 2018
Continuing operations:
------------------- -------------------
Total revenue (GBP000) 22,577 19,894
------------------- -------------------
Adjusted EBITDA* (GBP000) (2,030) (1,343)
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Operating loss (GBP000) (5,086) (3,297)
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Loss before taxation (GBP000) (6,405) (5,004)
------------------- -------------------
Basic and diluted loss
per share (pence) (11.1) (12.2)
------------------- -------------------
Continuing and discontinued
operations:
------------------- -------------------
Loss for the year (GBP000) (9,215) (6,952)
------------------- -------------------
Basic and diluted loss
per share (pence) (15.9) (16.6)
------------------- -------------------
*The Group defines adjusted EBITDA as the operating result
before depreciation, amortisation, income or expenditure relating
to exceptional items and non-cash charges relating to share based
payments and impairments. Exceptional items are considered income
and expenditure that are separately identified to assist in
understanding the underlying performance of the Group. See note 1
of the Notes to the Consolidated Financial Statements below for
adjusted EBITDA.
Financial and operational highlights
-- Revenue growth of 13.5% to GBP22.6m (2018: GBP19.9m).
-- Adjusted EBITDA loss* increased to GBP2.0m (2018: GBP1.3m),
and an operating loss for the year of GBP5.1m (2018: GBP3.3m). In
2019, the Group disposed of a majority stake in Respin LLC; the
loss for the 9 months to April 2019 of GBP0.8m has been included in
the loss from discontinued operations of GBP2.8m. The prior year
figures have been adjusted to remove the revenues, costs and
resulting loss for the US business.
-- In the second half of the year, the Group's B2C business was
impacted by ongoing regulatory and tax changes. As announced
separately, following the appointment of administrators to its
subsidiary, Nektan (Gibraltar) Limited ("NGL"), the Group's UK B2C
facing business was sold to enable the Group to focus on higher
margin emerging market opportunities.
-- The B2B division saw revenue growth of 308.3% to GBP0.98m (2018: GBP0.24m).
-- Nektan made significant investments in product improvements,
including further multi-language and currency functionality. The
Group expect the benefits of this investment to be realised during
the current financial year where a number of new partners in
international markets have been launched and a pipeline of further
integrations are expected over the course of the year.
-- Further relationships with leading global games studios
increased the total number of games to over 1,000. Nektan now works
with over 40 games studios with exclusive content from Rock Salt
Interactive, Reel Feel Gaming and Rogue Gaming Studios.
-- The overall loss for the year increased from GBP7.0m to
GBP9.2m as a result of increased trading losses, the impact of
restructuring and the loss on disposal of GBP2.8m.
B2C
-- Net Gaming Revenue ("NGR") and cash wagering KPIs showed good
improvement during the year, while New First Time Depositing
Players ("FTDs") KPI reduced overall as the challenging UK market
impacted activity in H2 FY19:
o NGR up by 10.8% to GBP21.5m (2018: GBP19.4m)
o FTDs down by 16.3% to 131,128 (2018: 156,703)
o Total cash wagering up by 6.8%% to GBP597.8m (2018:
GBP559.8m)
-- Launched over 20 new casinos on its network taking the total
at year end to in excess of 160 casinos from more than 30
partners.
-- Expansion of the B2C product offering with the launch of a new mobile-first bingo product.
B2B
-- Since the launch of Evolve Lite, Nektan's B2B content
aggregation platform, in November 2018, Nektan has launched with 12
partners in the period under review, delivering gaming content into
emerging markets in Asia and Africa.
-- New partners launched in the financial year include some of
the industry's leading operators in their markets - BetVictor,
1xBet, Volt Casino, MoPlay, Betika and BetLion.
Strategic highlights
-- In January 2019, a total of 153,270 shares were issued for
consideration of GBP0.1m as a result of warrants exercised by a
noteholder.
-- In February 2019, the Company issued 3,078,020 new ordinary
shares at a subscription price of 15 pence per share, for
consideration of GBP0.5m.
-- In April 2019, the Company restructured its balance sheet
through a series of inter-conditional transactions:
-- The issue of 11,566,668 new ordinary shares at a price of 15
pence per share, for consideration of GBP1.7m.
-- The issue of 43,529,640 new ordinary shares at a price of 15p
per share, as a result of the conversion of GBP4.7m of the GBP8.1m
principal outstanding on the Series A Convertible Loan Note (CLN').
This also included GBP1.9m of outstanding interest due on the CLNs
at the conversion date. The Company also reduced the coupon on the
remaining Series A CLNs to 2.5 %.
-- The issue of 5,583,290 new ordinary shares at a price of 15p per share, as a result of the part-conversion of the Directors' loans of GBP0.65m in principal, representing 32.7% of the GBP1.985m outstanding at the time, and GBP0.2m in accrued interest. The Directors agreed to amend their facility agreement resulting in a reduction of the interest rate from 10% to 2.5% per annum and an extension of term to March 2020.
-- The issue of 528,112 new ordinary shares at a subscription
price of 15p per share, in lieu of fees and expenses to two
Directors.
-- The sale of 57.5% of the issued share capital of its US
subsidiary Respin LLC to Alternative Investment Partners Limited
(AIP), for a consideration of GBP0.3 million in cash as well as the
commitment from them to provide $0.8 million in working capital to
Respin.
-- As a result of the completion of the above inter-conditional
transactions, the total level of debt in the Company was reduced by
GBP5.2m in principal as at the 30 June 2019 leaving the Company
with a stronger balance sheet.
-- In total, the total cash proceeds (net of costs) from the
issue of new ordinary shares in the financial year was GBP2.2m.
-- In relation to UK point of consumption tax, which at 30 June
2019 was GBP4.6m, and at the end of December 2019 had increased to
GBP5.9m, following the appointment of administrators to its
operating subsidiary NGL, the Company will now engage with the
administrators in negotiating a payment schedule to meet all
outstanding creditor balances, including HMRC.
Leadership team changes
-- Lucy Buckley joined as Chief Executive Officer on 3 December
2018 and resigned on 13 August 2019 with Gary Shaw, Founder and
Executive Director, assuming the role of Interim CEO, to stabilise
the business and drive the focus on the international
expansion.
-- The Board will commence a review of the CEO role in H2 FY20.
-- Patrick Sinclair resigned as CFO on 31 May 2019. Simon Hay
joined as Chief Financial Officer on 17 June 2019.
Post year-end highlights
-- In November 2019, the Company completed a further
restructuring of its capital structure through a series of
inter-conditional transactions:
-- The issue of 49.8m new ordinary shares at a subscription
price of 5 pence per share, raising GBP2.5m.
-- A further GBP0.2m was also raised by the issue of 4.7m new
ordinary shares at a subscription price of 5 pence per share,
however the issue of these new shares has been deferred until
January 2020.
-- The issue of 78.4m new ordinary shares at a price of 5 pence
per share, as a result of the conversion of the remaining GBP3.9m
of the Series A CLNs, including the outstanding interest amounting
to GBP0.5m. As a result, there are no outstanding Series A CLNs at
the date of this report.
-- The extension of the terms of the Series B CLNs until March
2023 (previously March 2020), and the reduction of the coupon to
zero (previously 10%) until 1 January 2021, when it will be
reintroduced at 5%.
-- The amendment of the term of the Directors' loans to expire
on 29 April 2021 (previously 29 April 2020), and the issue to the
Directors' of 830,000 warrants to exercise for new ordinary shares
at an exercise price of 5p per share - the coupon on the Directors'
loans of 2.5% remains unchanged.
-- The issue of 1.8m new ordinary shares at a price of 5 pence
per share, in lieu of fees and expenses to Sandeep Reddy, a
Non-Executive Director of the Company.
-- On 19 December 2019, the Company announced the appointment of
Paul Hughes as a Non-Executive Director. Paul has extensive
corporate banking and commercial experience, with a focus on
fundraising, the turnaround of loss-making businesses, risk
management and fast-growing private and public companies. He also
has extensive experience as a non-executive director and chairman
of a variety of private and public companies.
-- During December 2019, and as part of the Group's
restructuring programme to ensure the protection of the
intellectual property within the Group, and the ongoing B2B and
international business, for the benefit of all creditors and
shareholders, the Group transferred certain trade and assets and
all Gibraltar based staff, to two recently incorporated new legal
entities in Gibraltar.
-- In completing the restructuring programme, the Directors made
the decision to seek the protection of administration for the
Group's subsidiary company NGL. Administrators were appointed to
NGL on 7 January 2020, and in one of the first acts following their
appointment, the administrators completed the conditional sale of
the UK B2C business for up to GBP0.2m. The Group secured an ongoing
platform deal for a minimum 3-year period as part of this
transaction.
For further information on the Group, please contact:
Nektan
Gary Shaw, Interim Chief Executive Officer
Simon Hay, Chief Financial Officer
Kam Bansil, IR +44 203 478 2648
Shore Capital (Nominated Adviser and Joint Broker)
Tom Griffiths / David Coaten +44 207 408 4050
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Novum Securities (Joint Broker)
Jon Belliss / Colin Rowbury +44 207 399 9425
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Further information on Nektan can be found on the Group's
website at www.nektan.com.
About Nektan:
Nektan is a fast growing, international gaming technology and
services provider, specialising in mobile casino. It licenses its
proprietary technology to leading operators, including
BetVictor.
Nektan's full end-to-end technology platform, Evolve, enables
the management of the full customer experience and back-office
operations, allowing operators on this platform to allow their
partners to focus on marketing the product to their consumers.
The E-Lite platform is Nektan's B2B gaming content aggregator
and bonusing platform that delivers a wide range of premium content
from the world's leading game studios. It is an easily-integrated
add on module for operators, giving them an array of options and
flexibility on how they manage and distribute a breadth of premium
gaming content across their networks.
Nektan has a material stake in US-based interactive gaming
operator Rapid Games, which provides US land-based casinos with an
in-venue mobile gaming solution. It allows operators to add mobile
technology and content making products accessible to players across
both cabinets and mobile devices inside casinos.
Headquartered in Gibraltar, Nektan is regulated by the Gibraltar
Licensing Authority, the UK Gambling Commission and the Information
Commissioners Office. As a socially responsible license holder,
Nektan endeavours to deliver a safe, secure and robust player
gaming experience.
Nektan plc was admitted to the AIM market of the London Stock
Exchange in November 2014.
Chairman's Review
The year was one of change for the Group; following the year end
we decided to restructure the business from a primarily UK B2C
facing business into one with a truly global outlook, as we take
our casino platform and integrated gaming technology to partners
operating in international markets as diverse as Africa, Taiwan and
across Asia, whilst continuing to develop B2B partner opportunities
closer to home in Europe and the UK.
Following the year-end, the executive management team carried
out a full review of the Group's cost base focusing on both the
cost of sales and overheads level. In the former we have an ongoing
focus to drive margin improvement, whilst the latter was focused on
ensuring the overheads are appropriately based for the Group.
To ensure the Group's long-term success in delivering this
strategy, following the year end the Group embarked on a
restructuring programme which culminated earlier this month,
further details of which are set out below. This required the Group
to make a number of strategic decisions during the financial year
ended 30 June 2019, and since the year end, to re-structure the
business accordingly, including:
-- Divesting the Group of low margin / working capital intensive
business divisions. In April 2019, the Group announced the
completion of the sale of a 57.5% majority stake in its subsidiary
Respin LLC, which delivered cash consideration to the Group of
GBP0.3m, but more importantly removed the ongoing working capital
requirement which was redirecting resources away from our core
business.
-- Reduction in debt. Following the year end, the Group agreed
to convert the entire Series A Convertible Loan Notes ('CLN') of
GBP3.9m (principal and accrued interest) into equity at 5p per
share, leaving the Company with GBP1.1m Series B CLNs. The terms of
this CLN were amended such that: (i) the term was extended to 31
March 2023; (ii) interest of 10 %. per annum has been waived until
1 January 2021; and (iii) interest will recommence on 1 January
2021 at a coupon of 5 %. per annum.
-- Sale of the B2C division. In January 2020, following the
appointment of administrators to its subsidiary, Nektan (Gibraltar)
Limited ("NGL"), the Group's UK B2C facing business was sold to a
leading UK operation. Not only does this see the Group free up
capital to focus on the strategic growth areas where the Group has
a strong proposition, it also allows the Group to retain a foothold
in the UK market by providing the ongoing platform and gaming
content to the acquirer for a monthly fee.
Post year end, the Group has also incorporated two new legal
entities in Gibraltar, as part of completing the restructuring
process to ensure the protection of the intellectual property
within the Group, and the ongoing B2B and international business.
We believe this will provide the appropriate corporate structure
moving into 2020.
In completing the restructuring programme, the Directors made
the decision to seek the protection of administration for the
Group's subsidiary company, NGL. Administrators were appointed to
NGL on 7 January 2020, and in one of the first acts following their
appointment, the administrators completed the conditional sale of
the UK B2C business as noted above. This ensured the conditional
sale could complete and enables the legacy HMRC liability to be
dealt with in an orderly fashion which does not threaten the future
of the Group. This has not impacted the ongoing operations of the
Group.
Finally, I would like to put on record my thanks to our staff,
management, shareholders and partners for their hard work and the
continued support shown to the Company this year. We look forward
to 2020 with renewed vigour.
Jim Wilkinson
Chairman
Nektan's Business Model
Nektan is a fast growing, international gaming technology and
services provider operating in the iGaming sector, specialising in
mobile casino. Through the Evolve platform, it aggregates premium
casino content, including the latest games from the industry's
leading game providers, which, using its proprietary technology, it
delivers either as a platform and content distributor to its
international B2B and B2C partners, or, during the period under
review, as a fully managed white label casino solution to its B2C
partners, prior to the sale of this division.
The E-lite platform is Nektan's B2B gaming content aggregator
and bonusing platform that delivers a wide range of premium content
from the world's leading game studios. It is an easily integrated
add on module for operators, giving them an array of options and
flexibility on how they manage and distribute a breadth of premium
gaming content across their networks.
Nektan's white label solution is delivered via its Evolve
platform, which enables the management of the full customer
experience and back-office operations, allowing partner to focus on
marketing the product to their consumers.
Nektan has a material stake (42.5%) in US-based interactive
gaming operator, Rapid Games, which provides US land-based casinos
with an in-venue mobile gaming solution. Rapid Games allows
operators to add mobile technology and content making products
accessible to players across both cabinets and mobile devices
inside casinos.
As a socially responsible organisation, Nektan's adopts the
necessary compliance and regulatory procedures.
Nektan aims to be the go-to, provider of the richest, most
robust and socially responsible casino platforms globally and the
industry leading services provider of online and mobile casino
gaming.
Interim Chief Executive Officer's Review
Introduction
During the financial year ended 30 June 2019, Nektan continued
to develop its mobile casino product offering, expanded into new
geographic markets, launched new product offerings and grew total
revenues 13.5%, against the backdrop of challenging conditions in
the UK B2C market. Significantly, this financial year saw Nektan
develop and deliver commercial opportunities in emerging
international markets, which have the potential to grow our
revenue, margin and profitability in the coming years.
We believe that our proprietary technology is unique, and we
continue to attract major global partners who wish to use the
feature rich gaming content we have worked so hard to populate our
platforms with. By working closely with the best developers of
casino games globally, we can provide our partners with engaging,
socially responsible and compliant content, suitable to the
geographical location of their players and the local mobile
technology. The growth in B2B we have seen during this financial
year reflects the progress we have made in adding more content and
providing this to a growing list of partners.
Our strategy - a focus on international markets
The international business, supporting B2B and B2C operators, is
at the core of Nektan's future global strategy. This is being
achieved by leveraging the Evolve platform, our full turnkey casino
technology platform, into new, significantly higher margin business
lines, as the Company targets reaching EBITDA break-even on a
monthly basis during FY20. Significant growth in the international
business is expected in FY20 as Nektan integrates with market
leading operators in Asia and Africa.
Nektan has made its proprietary remote gaming server ("RGS")
available to third party games studios who can integrate their
content directly onto it. This strategic move has created an
opportunity to work with leading industry partners to produce
premium content with higher margins, and during the year we
announced we are now working with studios including Habanero, Rock
Salt Interactive, Reel Feel Gaming, Rogue Gaming Studios and Rising
Entertainment, to take their content to a diverse global audience.
A number of these studios are exclusive to Nektan, thereby
increasing our unique competitive position in the market of
providing the best gaming content in the industry.
The Group is in discussions with a number of industry partners
to integrate separate instances of the E-Lite platform, the Group's
standalone casino aggregation platform, giving access to Nektan's
content and other functionality exclusively to these partners on
essentially their own platform. This would be an additional global
revenue stream for the Group and is part of the higher margin B2B
division.
Nektan grew revenues during the financial year from the B2B
business of GBP0.24m to GBP0.98m and is now growing strongly. At
the financial year end, contracts were live with 12 partners
globally, with this forecast to significantly increase in FY20. We
are now supporting sites across a number of countries and
continents, including the USA, Africa and Asia, in 16 languages,
and due to Nektan's speed of integration, we continue to attract
leading global operators in their markets.
Our proven capabilities in B2C white label casino allows us to
leverage our technology and business intelligence expertise into
the B2B industry to support our partners. Our bonus tools, in
particular, allow operators to offer marketing campaigns across all
partner games and are driving improved player loyalty. We continue
to make improvements across all aspects of casino management,
including maximising player entertainment and engagement, through
the enhancement of our Evolve platform and associated services
across CRM, payments, customer service and player marketing.
Controlling our product roadmap offers flexibility and the
opportunity to differentiate our casino offering from other casinos
in a competitive market.
A changing approach for our UK B2C segment
During the financial year, the number of Nektan managed sites
increased in our B2C white label casino business to over 160, and
we operated casinos for over 30 major partners. However, the
challenging environment saw first time depositors decrease to
131,128 from 156,703. This is due to the changing UK market from a
compliance and taxation viewpoint, which has had an impact across
the sector.
Whilst we have delivered growth, and continue to see market
opportunities developing, the B2C market is likely to continue to
see change. For Nektan, this means whilst we will continue to
maintain a B2C presence supporting international partners, the
focus is on transitioning the business to a higher margin operation
via its B2B opportunities.
It is with this backdrop that the Directors made the strategic
decision post year end to focus the business towards the emerging
international market opportunities supporting B2B partners and B2C
opportunities in growth markets. To support this strategic focus,
in January 2020, following the appointment of administrators to the
Group's subsidiary, NGL, the Group's UK B2C operations were sold,
and an ongoing B2B platform agreement secured with the acquirer for
a minimum 3-year period.
Supporting expansion into the USA
Nektan owns a 42.5% stake in Respin LLC, which was previously a
wholly owned subsidiary. Respin LLC operates Rapid Games using
Nektan's technology, and has developed a certified mobile casino
gaming solution that allows players to download an app and play
Class II and Class III games for real money anywhere in the casino.
Rapid Games has gone live with a number of casino partners during
the financial year.
Rapid Games made an adjusted EBITDA loss in the period which is
included in discontinued operations of GBP0.8m (2018: GBP1.8m),
which is reported in the Company's financial statements as a loss
from discontinued operations and share of loss from an associate of
GBP70k.
Compliance & Social Responsibility
Nektan is licensed and regulated by the Gibraltar Licensing
Authority, the UK Gambling Commission and the ICO (Information
Commissioners Office). The Company upholds an ISO 27001:13
certification.
Nektan takes its responsibility of preventing problem gambling
very seriously and we were one of the first online casino
technology providers to fully integrate with GamStop. The
integration ensures that the Evolve platform detects all players
who have signed up to GamStop and prevents them from registering
and playing on Nektan managed sites, reflecting the emphasis on
duty of player care.
As a socially responsible licence holder, Nektan has always
operated with a detailed level of data management options. It has
incorporated a comprehensive list of built-in functions on its
white label platform to give players the ability to manage and be
fully in control of their gaming experience.
Anti-money laundering and player security has been at the heart
of Nektan's core strategy which aims to ensure that its gaming
environments remain safe, secure and compliant. Nektan has invested
heavily in technological developments to its software so that it
delivers on this promise. Providing players with a responsible
gambling environment that does not impact on the quality of play is
made easier by Nektan's enhanced age verification procedures that
have been built into its proprietary platforms. These checks are
done via automated systems and manual procedures. Nektan's staff
undergo rigorous compliance and social responsibility awareness
training to ensure the care of vulnerable players.
As well as introducing Gamcare and GamStop safety measures,
which allow players to initiate self-exclusion and visit limits,
Nektan broadcasts responsible gaming messages across its casino
sites and offers a full-range of expert advice via its internal
training schedule. CRM messaging is responsible and purposefully
written, with all communications compliant under ASA and CAP
guidelines.
Outlook for the year ending 30 June 2020
The completion of the capital raising in November 2019 clearly
demonstrates the support of the Company's investors and
stakeholders in the Board strategy to pursue growth and expansion
opportunities in emerging B2B markets. The Board is confident that
it has a clear strategy and model to execute on these opportunities
which are expected to deliver transformational results for the
Company.
The Group is delighted that its B2C business has been acquired
by Grace Media Limited, part of the Active Win Group; Nektan
believes they will be able to take the business to the next level.
With a B2B deal in place we expect material B2B revenues from this
contract immediately with the potential for further meaningful
monthly growth anticipated over the next 12-24 months. We believe
this will provide the Company with a more stable revenue model from
this market and de-risk the business from exposure to increasing
regulatory and tax costs.
With the restructuring completed we enter 2020 with a clear
focus on our strategy - to deliver enhanced casino technology and
gaming content into emerging international markets with leading
operators. A truly global approach supporting local and
international partners in new territories underpins our year
ahead.
I also take this opportunity to thank all stakeholders for their
continued support of the business.
Gary Shaw
Interim Chief Executive Officer
Chief Financial Officer's Review
Unless otherwise stated, the below review relates to continuing
operations. For the year ended 30 June 2019, total revenue
increased by 13.5% over FY18 with good growth across both the B2C
and B2B segments and a record number of partners live. B2C NGR was
GBP21.5m (2018: GBP19.4m), FTDs were 131,208 (2018: 156,703) and
cash wagering was GBP597.8m (2018: GBP559.8m). At the year end, the
casino network included 160+ white label casinos (2018: 113
casinos).
FY19 FY18 Change
Revenue* GBP22.6m GBP19.9m 13.5%
B2C Net Gaming
Revenue GBP21.6m GBP19.6m 9.96%
B2B Revenue GBP0.98m GBP0.24m 308.3%
First Time Depositors 131,128 156,703 (16.3%)
B2C Cash wagering GBP597.8m GBP559.8m 6.8%
*Net Gaming Revenue (jackpot adjusted) from B2C and Revenue
Share from B2B
The operating loss was GBP5.1m (2018: GBP3.3m) and adjusted
EBITDA loss* was GBP2.0m (2018: GBP1.3m).
*The Group defines adjusted EBITDA as the continuing operating
result before depreciation, amortisation, income or expenditure
relating to exceptional items and non-cash charges relating to
share based payments and impairments. Exceptional items are
considered income and expenditure that are separately identified to
assist in understanding the underlying performance of the Group.
See note 1 of the Notes to the Consolidated Financial Statements
below for adjusted EBITDA.
Financial review
Revenue
Total revenue in the year ended 30 June 2019 was up 13.5% to
GBP22.6m (2018: GBP19.9m), due to the increase in new partners
signed up, an increase in the number of casinos offered by those
partners and improved operational efficiencies across the
network.
The B2B revenues increased to GBP0.98m during the year (2018:
GBP0.24m) following the Group's decision to focus more resource in
developing this market. This growth, alongside the increasing
opportunities being leveraged in emerging international markets,
has seen the Directors focus the Group's strategy on B2B and
international opportunities moving forward.
Expenses
The B2C business operates largely under the revenue share model
and, as such, the marketing, partner and affiliate costs increase
with revenues, and during the year were GBP9,590k (2018:
GBP9,494k). However, as a percentage of total revenues, marketing
costs decreased to 42.5% from 47.7%, demonstrating the efficiencies
in spend achieved during the year in the B2C division.
Administrative expenses, excluding exceptional items,
depreciation, amortisation and share based payment charges,
increased to GBP5,284k (2018: GBP4,227k), as the Company incurred
increased costs associated with operating its Managed Services
division, which have been the subject of a full review subsequent
to year-end.
The adjusted administrative expenses are broken down further
below:
Year ended Year ended
30 June 2019 30 June 2018
GBP'000 GBP'000
Adjusted administrative expenses (5,284) (4,227)
------------------------- -------------------------
Exceptional items (1,510) (404)
Depreciation (71) (78)
Impairment of fixed assets - (152)
Amortisation (1,458) (1,110)
Share based payment charge (17) (210)
------------------------- -------------------------
Total administrative expenses (8,340) (6,181)
Exceptional costs increased to GBP1,510k (2018: GBP404k), are
considered exceptional in nature and include: a full impairment of
GBP919k against the goodwill arising on the prior acquisition of
Mfuse (now Nektan UK Limited) a full impairment of the carrying
value of GBP147k related to the associate investment in Respin LLC;
and a GBP332k impairment provision for amounts due from certain
partners in respect of net house loss. The remaining costs largely
relate to a provision for an onerous contract and restructuring
costs consistent with the prior year. Refer to note 3 for a
breakdown and further information.
Adjusted EBITDA
The operating loss for the year was GBP5,086k (2018: GBP3,297k).
Adjusted EBITDA loss* was GBP2,030k (2018: GBP1,343k).
*The Group defines adjusted EBITDA as the operating result
before depreciation, amortisation, income or expenditure relating
to exceptional items and non-cash charges relating to share based
payments and impairments. Exceptional items are considered income
and expenditure that are separately identified to assist in
understanding the underlying performance of the Group
The overall loss for the year increased from GBP7.0m to GBP9.2m
as a result of increased trading losses, the impact of
restructuring and the loss on disposal of GBP2.8m (2018 comparative
loss of discontinued operation GBP1.9m).
The loss from discontinued operations of GBP2.8m includes loss
for the period of GBP0.8m and loss of disposal of assets of
GBP2.0m).
Cash flow
The Group's cash balance at 30 June 2019 was GBP857k (30 June
2018: GBP1,402k). Net proceeds of GBP2,197k (2018: GBP1,692k) were
raised in the year from issuing new shares (net of transaction
costs). During the year GBP1,829k (2018: GBP1,358k) was spent on
capitalised development costs.
Convertible Loan Note (CLN)
During the year, the Company received conversion notices from
certain Series A CLN holders to the value of GBP4,678,233 (2018:
GBP780,000) as part of the series of inter-conditional transactions
completed in the second half of the year referred to above. These
were converted at 15p per share (2018: 26.25p) resulting in the
issue of 31,188,221 new shares (2018: 2,971,428 new shares), along
with GBP1,851,213 in accrued interest which resulted in the issue
of 12,341,419 new shares at the same price.
At the end of the financial year, the CLN Series A had a
principal of GBP3.4m (2018: GBP8.1m) outstanding and the Series B
had GBP1.1m outstanding.
Following the financial year end, in November 2019, as part of a
series of inter-conditional transactions, the Series A CLN was
converted in full to equity, including the outstanding interest
amounting to GBP0.5m. This resulted in the Company issuing 78.4m
new ordinary shares at a subscription price of 5 pence per
share.
At the same time, the Company amended the terms of the Series B
CLN, extending the maturity until March 2023 and reducing the
coupon to zero (previously 10%) until 1 January 2021, when it will
be reintroduced at 5%.
Going concern
The financial statements have been prepared on a going concern
basis. The Group continues to be loss making however, due to the
disposal of a majority stake in the US business, Respin LLC, the
group no longer funds the capital expenditure and development costs
of Respin LLC which had previously consumed large parts of the
Group's cash reserves.
In November 2019, the Directors announced the successful
completion of an equity fundraising of GBP2.7m, alongside a series
of inter-conditional transactions that resulted in:
i) the full conversion of the Series A convertible loan notes of
GBP3.9m, including accumulated interest of GBP0.5m;
ii) an amendment to the terms of the Series B convertible loan
notes totalling GBP1.1m to extend the repayment date to 31 March
2023, whilst at the same time reducing their coupon rate from 10%
to 0% until 1 January 2021, after which date interest will be
payable at 5%; and
iii) an amendment to the terms to the shareholder loans to
extend the repayment terms to 29 April 2021.
Following the above fundraise in December 2019 the Group
announced that the Directors of the principal trading subsidiary;
Nektan (Gibraltar) Limited had placed that Company into
administration. In relation to UK point of consumption tax, which
at 30 June 2019 was GBP4.6m, and at the end of December 2019 had
increased to GBP5.9m, following the appointment of administrators
to its operating subsidiary Nektan (Gibraltar) Limited ("NGL"), the
Company will now engage with the administrators in negotiating a
payment schedule to meet all outstanding creditor balances,
including HMRC.
The Directors also announced the conditional sale of the UK
facing B2C business to a 3rd party for a purchase price of GBP50k
upfront, contingent consideration of GBP150k with an ongoing
platform fee for the provision of B2B services to the acquirer.
Following the above restructuring and having reviewed the cash
flow forecasts and having received a provisional B2B license
(subject only to completion of administrative purposes only) in its
new B2B subsidiary, the Directors have sufficient confidence that
the Group will continue as a going concern for at least 12 months
from the date of approval of the financial statements. Should
actual results fall short of projections, further fundraising may
be required.
Simon Hay
Chief Financial Officer
NEKTAN PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
As at 30 June 2019
Restated*
2019 2018
Notes GBP'000 GBP'000
Revenue 2 22,577 19,894
Cost of sales (9,733) (7,516)
-------- ----------
Gross profit 12,844 12,378
Marketing, partner and affiliate
costs (9,590) (9,494)
Administrative expenses (8,340) (6,181)
Adjusted EBITDA (2,030) (1,343)
Exceptional items, including expected
credit losses 3 (1,510) (404)
Depreciation 9 (71) (78)
Impairment of fixed assets 9 - (152)
Amortisation 8 (1,458) (1,110)
Share based payment charges 27 (17) (210)
--------------------------------------- ------ -------- ----------
Operating loss 3 (5,086) (3,297)
Finance income 6 2,336 92
Finance expense 6 (3,585) (1,799)
Share of loss of associate 10 (70) -
-------- ----------
Loss before taxation (6,405) (5,004)
Tax charge 7 (47) (98)
Loss for the year from continuing
operations (6,452) (5,102)
Loss for the year from discontinued
operations 21 (2,763) (1,850)
Loss for the year (9,215) (6,952)
-------- ----------
Other comprehensive income for the
year
Exchange differences arising on
translation of foreign operations
which may be reclassified to profit
or loss 428 106
Recycling of foreign exchange reserve (129) -
Total comprehensive loss for the
year (8,916) (6,846)
======== ==========
*The prior year comparatives have been restated due to the
disposal of a subsidiary during the year ended 30 June 2019, see
note 22.
Loss per share from continuing operations
Basic and diluted (pence) 5 (11.1) (12.2)
Total loss per share for the year
Basic and diluted (pence) 5 (15.9) (16.6)
NEKTAN PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
2019 2018
Notes GBP'000 GBP'000
Non-current assets
Intangible assets 8 1,441 6,083
Property, plant and equipment 9 137 145
--------- ---------
1,578 6,228
Current assets
Trade and other receivables 11 1,942 2,602
Cash and cash equivalents 12 857 1,402
--------- ---------
2,799 4,004
Total assets 4,377 10,232
========= =========
Current liabilities
Trade and other payables 13 (9,808) (8,779)
Derivative financial liabilities 14 (12) (2,348)
Convertible loan notes 15 (4,652) -
Shareholder loans 16 (1,480) -
(15,952) (11,127)
Non-current liabilities
Convertible loan notes 15 - (9,411)
Shareholder loans 16 - (898)
Deferred tax 19 (25) (1,157)
--------- ---------
(25) (11,466)
Total liabilities (15,977) (22,593)
========= =========
Net liabilities (11,600) (12,361)
========= =========
Equity attributable to equity holder:
Share capital 18 1,118 474
Share premium 18 38,695 29,679
Merger reserve (2) (2)
Capital contribution reserve 3,306 3,306
Share option reserve 1,055 1,038
Foreign exchange reserve (5) (304)
Retained earnings (55,767) (46,552)
Total deficit (11,600) (12,361)
========= =========
NEKTAN PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Share Share Merger Capital Share Foreign Retained Total
capital premium reserve contribution option exchange earnings equity
reserve reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 30 June
2017 360 27,331 (2) 3,306 828 (410) (39,600) (8,187)
Loss for the
year - - - - - - (6,952) (6,952)
Other comprehensive
income - - - - - 106 - 106
Issue of shares
(net of costs) 114 2,348 - - - - - 2,462
Share based
payments - - - - 210 - - 210
At 30 June
2018 474 29,679 (2) 3,306 1,038 (304) (46,552) (12,361)
--------- --------- --------- -------------- --------- ---------- ---------- ---------
Loss for the
year - - - - - - (9,215) (9,215)
Other comprehensive
income - - - - - 299 299
Issue of shares
(net of costs) 644 9,016 - - - - - 9,660
Share based
payments - - - - 17 - - 17
At 30 June
2019 1,118 38,695 (2) 3,306 1,055 (5) (55,767) (11,600)
========= ========= ========= ============== ========= ========== ========== =========
The following describes the nature and purpose of each reserve
within equity:
Share capital
Represents the nominal value of shares allotted, called up and
fully paid.
Share premium
Represents the amount of subscribed for share capital in excess
of nominal value net of share issue costs.
Share option reserve
Represents the cumulative value of share option charges recorded
in the consolidated statement of comprehensive income.
Capital contribution reserve
Represents:
(a) Nominal value of shares held by a shareholder in a
subsidiary Company and contributed to Nektan plc.
(b) The release of the Group's obligation to repay borrowings of
GBP3,304,000 by a shareholder.
Merger reserve
The difference between the nominal value of the Nektan
(Gibraltar) Limited shares acquired in May 2011 and the nominal
value of shares in Nektan plc issued to acquire these shares as
part of a Group restructuring.
Foreign exchange reserve
Represents the gains/losses arising on retranslating the net
assets of overseas operations into UK Pound Sterling.
Retained earnings
Represents the cumulative net gains and losses recognised in the
consolidated statement of comprehensive income.
NEKTAN PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
2019 2018
Notes GBP'000 GBP'000
Cash flow from operating activities
Loss for the year (9,215) (6,952)
Adjustments for:
Amortisation of intangible
assets 8 1,458 2,184
Depreciation of property, plant
and equipment 9 71 170
Share based payment expense 17 210
Finance expense 6 3,585 1,799
Finance income 6 (2,336) (92)
Impairment of tangible assets 9 - 152
Bad debt expense 3,775 -
Impairment of investment 10 147 -
Impairment of goodwill 8 919 -
Share of loss from associate 10 70 -
Income tax credit 7 (121) (230)
Loss on disposal of subsidiary 21 1,987 -
Operating cash inflow (outflow)
before movement in working
capital 357 (2,759)
Increase in trade and other
receivables (2,142) (797)
Increase in trade and other
payables 931 2,217
------------------------ --------
Cash used in continuing operations (854) (1,339)
Cash flow from investing activities
Purchase and internally development
of intangible assets 8 (1,829) (1,358)
Purchase of property, plant
and equipment 9 (131) (83)
Proceeds from disposal of subsidiary
(net of cash disposed) 22 272 -
Net cash used in investing
activities (1,688) (1,441)
Cash flow from financing activities
Interest paid (100) (109)
Capital payments on finance
lease - (24)
Issue of debt (net of costs) 16 - 1,985
Payment to acquire JV partner (100) -
share
Proceeds on subscription for
shares (net of costs) 19 2,197 1,692
------------------------ --------
Net cash generated from financing
activities 1,997 3,544
Net (decrease)/increase in
cash and cash equivalents (545) 764
Cash and cash equivalents at
beginning of period 12 1,402 638
Cash and cash equivalents at
end of period 12 857 1,402
======================== ========
NEKTAN PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
1. Accounting policies
Basis of preparation
The consolidated financial information has been prepared in
accordance with International Financial Reporting Standards
including International Accounting Standards ('IASs') and
interpretations (collectively 'IFRS') as published by the
International Accounting Standards Board ("IASB") which have been
adopted by the European Commission and endorsed for use in the EU
for the purposes of the Group's full year financial statements.
Nektan Plc (the Group) is incorporated in Gibraltar and registered
in Gibraltar with the address Fiduciary Management Limited, 23
Portland House, Glacis Road, Gibraltar.
The financial information is presented in UK Pounds Sterling
('Sterling') and rounded to the nearest GBP'000.
The financial information does not constitute the Group's
statutory accounts for the year ended 30 June 2019 or the year
ended 30 June 2018. Statutory accounts will be filed with Companies
House Gibraltar following the Company's Annual General Meeting.
In forming their opinion on the financial statements, which is
not modified, the auditors have included a material uncertainty
paragraph which relates to the Group and the Company's ability to
continue as a going concern. The basis for the material uncertainty
is described in note 1 below.
Going concern
The financial statements have been prepared on a going concern
basis. The Group continues to be loss making however, due to the
disposal of a majority stake in the US business, Respin LLC, the
group no longer funds the capital expenditure and development costs
of Respin LLC which had previously consumed large parts of the
Group's cash reserves.
In November 2019, the Directors announced the successful
completion of an equity fundraising of GBP2.7m, alongside a series
of inter-conditional transactions that resulted in:
-- the full conversion of the Series A convertible loan notes of
GBP3.9m, including accumulated interest of GBP0.5m;
-- an amendment to the terms of the Series B convertible loan
notes totalling GBP0.7m to extend the repayment date to 31 March
2023, whilst at the same time reducing their coupon rate from 10%
to 0% until 1 January 2021, after which date interest will be
payable at 5%; and
-- an amendment to the terms to the shareholder loans to extend
the repayment terms to 29 April 2021.
Following the above fundraise in December 2019 the Group
announced that the Directors of the principal trading subsidiary;
Nektan (Gibraltar) Limited had placed that Company into
administration. As previously disclosed that Company had a legacy
balance debt in respect of point of consumption tax due to HMRC
which at the balance sheet date was GBP4.6m and at the date of
approval of the financial statements is GBP5.9m.
The Directors also announced the conditional sale of the UK
facing B2C business to a 3rd party for a purchase price of GBP50k
upfront, contingent consideration of GBP150k with an ongoing
platform fee for the provision of B2B services to the acquirer. The
completion of the transaction is subject to the acquirer's
obtaining the necessary licenses from the UK Gambling
commission.
Following an independent valuation, Nektan (Gibraltar) Limited
has also disposed of its B2B business to Nektan Technology Limited,
a fellow group company for GBP0.2m. Nektan Technology Limited has
received from the Gibraltar Licensing Authority ("GLA") a
provisional B2B license which is subject to the GLA completing
certain administrative procedures, however if this is not formally
issued then this may impact the Group's ability to continue as a
going concern.
The administrators will also commence discussions with HMRC in
order to agree a payment schedule for amounts owed by Nektan
(Gibraltar) Limited for point of consumption tax. In discussions
with the Gibraltar Licensing Authority as part of obtaining the
necessary licenses for the Group Company acquiring the B2B
business, the Directors have confirmed that it is their intention
to see settlement of the full amount of the liability. However,
whilst the Group will make their best endeavours to repay the
amount due, it is dependent on successful trading, potentially
further fund raising and additional B2B contract wins such that
there is sufficient free cash to make the payments, whilst at the
same time ensuring that the ongoing business is able to continue as
a going concern. The Group has not entered into an agreement that
would give rise to a commitment to repay the amounts due to
HMRC.
The Directors have reviewed forecast cash flows for the
forthcoming 12 months from the date of approval of the financial
statements and consider that the Group will have sufficient cash
resources available for that period to meet its liabilities as they
fall due (for the avoidance of doubt this does not include the HMRC
liability). However, this is dependent on meeting the performance
and timings in the forecasts which has required significant
judgement and estimation and as such the Group may require further
funding should trading or other timings of cashflows fall short of
forecasts. The Directors would if required seek additional capital
through further fundraising and/or further asset sales or part
sales.
Having reviewed the forecasts of the business, and, based on the
ability to raise further funds should this be required and B2B
license being formally issued to Nektan Technology Limited, the
Directors have a reasonable expectation to believe that it is
appropriate to continue to prepare the financial statements on a
going concern basis. There are therefore material uncertainties
related to events or conditions that may cast significant doubt on
the Group and Company's ability to continue as a going concern. If
the business is unable to raise additional finance, it may be
unable to realise its assets and discharge its liabilities in the
normal course of business. The financial statements do not include
the adjustments that would result if the Company of the Group were
unable to continue as a going concern.
Adoption of new and revised Standards and Interpretations
The following new Standards and Interpretations issued by the
International Accounting Standards Board ('IASB') were effective
for the first time in the current financial year and had an impact
on the Group. The adoption of these revisions to the requirements
of IFRS as adopted by the EU did not result in substantial changes
to the Company's accounting policies.
IFRS 9 Financial Instruments
IFRS 9, 'Financial instruments' addresses the classification,
measurement and recognition of financial assets and financial
liabilities. The complete version of IFRS 9 was issued in July
2015. Amongst others, it replaces the guidance in IAS 39 that
relates to the classification and measurement of financial
instruments. IFRS 9 retains but simplifies the mixed measurement
model and establishes three primary measurement categories for
financial assets: amortised cost, fair value through OCI and fair
value through profit or loss. The basis of classification depends
on the entity's business model and the contractual cash flow
characteristics of the financial asset. Investments in equity
instruments are required to be measured at fair value through
profit or loss or through OCI, the irrevocable option is at
inception. There is now a new expected credit losses model that
replaces the incurred loss impairment model used in IAS 39. The
standard is effective for accounting periods beginning on or after
1 January 2018. The adoption of IFRS 9, on financial assets is
disclosed in note 21.
The adoption of IFRS 9 has not impacted the reporting and
presentation of the Group's financial assets and liabilities, which
continue to be measured under IFRS 9 consistently with IAS 39.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 deals with revenue recognition and establishes
principles for reporting on the nature, amount, timing and
uncertainty of revenues arising from contracts with customers. The
core principle of IFRS 15 is that a vendor should recognise revenue
to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the vendor
expects to be entitled in exchange for those goods or services.
The application of IFRS 15 is carried out in 5 steps: (1)
identification of the contract, (2) identification of performance
obligations, (3) determining the transaction price, (4) allocation
of the transaction price to performance obligations, and (5)
recognition of revenue as or when each performance obligation is
satisfied.
The 5-step model is applied to individual contracts, however
IFRS 15 permits an entity to apply the model to a portfolio of
contracts (or performance obligations) with similar
characteristics, if the entity reasonably expects that the effects
would not differ materially from applying it to individual
contract
IFRS 15 applies to annual reporting periods beginning on or
after 1 January 2018, therefore the year ended 30 June 2019 is the
first year of application of IFRS 15.
IFRS 15 is either applied retrospectively to each prior period
presented in the financial statement or in the current period with
a cumulative effect adjustment on the date of application. In order
to ensure prior period comparatives are prepared and presented on
the same basis, Directors have chosen to retrospectively apply IFRS
15.
Revenue for the Group comprises RMG revenue, website set up and
management fees for partners and certain B2B activities including
sheltering and platform revenue. Further detail on the application
of the principles of IFRS 15 are discussed under revenue
recognition.
The impact of introducing IFRS 15 for the Group was immaterial
and as such there are no changes to current or prior year
results.
The following relevant standard and interpretation was issued by
the IASB or the IFRIC before the year-end but is as yet not
effective for the 2019 year-end:
IFRS 16 Leases (effective for reporting periods beginning on or
after 1 January 2019)
Under IFRS 16, "Leases", a contract is, or contains, a lease if
the contract conveys the right to control the use of an identified
asset for a period of time in exchange for a consideration. IFRS 16
removes the distinction between operating and finance leases for
lessees, and requires them to recognise a lease liability
reflecting future lease payments and a "right-of-use asset" for
virtually all lease contracts; the only exceptions are short-term
and low-value leases.
The standard is effective for annual periods beginning on or
after 1 January 2019. The Group will apply the standard from its
mandatory adoption date of 1 July 2019 and will apply the
simplified transition approach. Under this approach, the Group will
not restate comparative amounts for the year prior to first
adoption, the lease liability is measured at the present value of
the remaining lease payments as at 1 July 2019, and the
right-of-use assets at that date will be measured at an amount
equivalent to this lease liability plus prepaid lease expenses.
The Group has entered into lease arrangements for the use of
land and buildings; these arrangements were classified as operating
leases under IAS 17. As at the reporting date, the Group has
non-cancellable operating lease commitments in respect of the lease
of these land and buildings which amounted to GBP696k.
The adoption of IFRS 16 will also result in the replacement of
operating lease rental expenditure on this arrangement by
amortisation of the right-of-use asset, and by an interest cost on
the lease liability. Management estimates that rental costs on this
arrangement, amounting to GBP123k for the year ending 30 June 2020,
will be replaced by an annual amortisation charge on the
right-of-use asset and a notional interest expense of totalling
GBP144k.
The adoption of IFRS 16 will therefore result in an increase in
cost for the year ending 30 June 2020 of approximately GBP21k.
The above standard has not been early adopted and the Directors,
based on the review and assessment completed to date, do not expect
that the adoption of this standard to have a material impact on the
financial statements of the Group in future periods.
Critical accounting policies, estimates and judgements
The preparation of 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. These policies, together with references
to the related notes which include the judgements made, can be
found below:
- Revenue recognition (note 1)
- Going concern (note 1)
- Capitalisation of intangible assets (note 8)
- Impairment of goodwill (note 8)
- Impairment of investment in associate (note 10)
- Impairment of trade and other receivables (note 11)
- Convertible loan notes (note 16)
Basis of consolidation
The consolidated financial statements incorporate the financial
information of the Company and entities controlled by the Company
made up to 30 June 2019. Control is achieved where the Company has
the power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities. Entities
included within the consolidation that have been acquired by the
Company are accounted for using acquisition or merger accounting as
appropriate.
The consolidated financial statements include the combination of
businesses achieved through a Group restructuring that falls
outside the scope of IFRS 3 Business Combinations. Accordingly,
following the guidance regarding the selection of an appropriate
accounting policy provided by IAS 8 Accounting policies: Changes in
accounting estimates and errors, these financial statements have
been prepared using the principles of merger accounting set out in
FRS 6 Acquisitions and Mergers and UK Generally Accepted Accounting
Practice ('UK GAAP').
When merger accounting is applied, the investment is recorded in
the Company's balance sheet at the nominal value of shares issued
together with the fair value of any consideration paid.
In the consolidated financial statements, merged subsidiary
undertakings are treated as if they had always been a member of the
Group. Any differences between the nominal value of the shares
acquired by the Company and those issued by the Company to acquire
them are taken to a separate merger reserve.
Where acquisition accounting is applied, 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 and up to the effective date of
disposal, as appropriate.
Where the Group enters into a step-acquisition and moves from
being a joint-venture investment to a controlled subsidiary, this
is accounted for as a business combination. On acquisition, the
joint venture investment is fair valued with the difference being
recorded in the income statement. Where a non-controlling interest
is held, the fair value of assets and liabilities acquired is
recorded in the minority interest reserve.
Where the companies acquire a non-controlling interest, the
amount payable is recorded directly in retained earnings and the
necessary non-controlling interest reserve transferred to retained
earnings.
Uniform accounting policies have been adopted across the Group.
All intra-Group transactions, balances, income and expenses are
eliminated on consolidation.
Foreign currencies
The consolidated financial statements of the Group are prepared
in Sterling, this is in line with the functional and presentational
currency of the Parent company and main operating subsidiaries.
Transactions and balances in foreign currencies are converted into
Sterling as follows:
-- Transactions entered into by the Group in a currency other
than the functional currency are recorded at the rates ruling when
the transactions occur. Foreign currency monetary assets and
liabilities are translated at the rates ruling at the reporting
date. Exchange differences arising on retranslation of unsettled
monetary assets and liabilities are recognised immediately in the
profit and loss.
On consolidation, the results of overseas operations are
translated into Sterling at rates ruling when the transaction took
place. All assets and liabilities of overseas 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 the opening net assets at the
opening rate and the results of overseas operations at the actual
rate are recognised in other comprehensive income and accumulated
in the foreign exchange reserve.
On disposal of a foreign operation, the cumulative exchange
differences recognised in the foreign exchange reserve relating to
that operation up to the date of disposal are transferred to the
consolidated statement of comprehensive income as part of the
profit or loss on disposal.
Revenue recognition (in accordance with IFRS 15)
Revenue comprises the fair value of the consideration received
or receivable for the support of services in the Company's
activities. Revenue in the current year and prior year arises on
real money gaming, website set up and management fees for partners
and certain B2B activities including sheltering and platform
revenue. In the US, revenue is from in-venue gaming set-up fees and
porting 3(rd) party content onto our platform.
The Company recognises revenue when the amount of revenue can be
reliably measured, it is probable that future economic benefits
will flow to the Company and when specific criteria have been met
as described below.
Net gaming revenue derives from online gambling operations and
is defined as the difference between the amounts of bets placed by
players less amounts won by players. It is stated after deduction
of promotional bonuses and jackpot contributions. Net gaming
revenue is recognised in the accounting system at the point in time
the transactions occur.
Other revenue comprises website set up and management fees for
partners and B2B activities including sheltering and platform
revenues and is recognised in the period that the services are
rendered.
In respect of IFRS 15, the Group has individual contracts for
its real money gaming business which represents 95% of the revenue
for the year ended 30 June 2019. Each contract follows a consistent
approach but may contain variations based on partner specific
terms, for example, eligible deductions and revenue share model.
Each contract contains the criteria set out in IFRS 15 to recognise
the revenue:
1. Contracts are approved in writing and the parties are
committed to performing their obligations in the contract.
2. Each party's rights regarding the goods or services to be transferred can be identified.
3. The payment terms of the goods or services can be identified.
4. The contract has commercial substance.
5. It is probable that the consideration for the exchange of
goods or services will be collected.
Performance obligations are defined within the contract, which
in all contracts is the provision of mobile gaming and services to
the partners using their brands under licence. The Group is
required to develop and host gaming sites for the partners'
respective brands.
Contracts include a setup fee and monthly management fee in some
cases, which can be waived in certain contracted circumstances. The
associated fees and costs are identified as a distinct performance
obligation and depict a transfer of services to the customer and
are recognised when the service and costs occur. Revenue commences
in all contracts in the first month that the gaming site is
operational. Once a site is live and operational, revenue is
recognised in the month that the gaming activity through the site
is generated by active players.
Cost of sales
Cost of sales consists primarily of licensing fees, gaming
taxes, regulatory and compliance expenses, merchant fees,
chargebacks and platform licensing expenses. All expenses are
recognised on an accruals basis and in line with the underlying
revenue.
Marketing, partner and affiliate costs
Marketing, partner and affiliate costs consists primarily of
revenue share, commission, affiliate expenses and online
advertising.
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 of any
non-controlling interests acquired. Contingent consideration is
included in cost at its acquisition date fair value and, in the
case of contingent consideration classified as a financial
liability, remeasured subsequently through profit or loss.
Goodwill is capitalised as an intangible asset with any
impairment in carrying value being charged to the consolidated
statement of comprehensive income.
Externally acquired intangible assets
Externally acquired intangible assets are initially recognised
at cost and subsequently amortised on a straight-line basis over
their useful economic lives.
Intangible assets are recognised on business combinations if
they are separable from the acquired entity or give rise to other
contractual or legal rights. The amounts ascribed to such
intangibles are arrived at using appropriate valuation
techniques.
In-process research and development programmes acquired in such
combinations are recognised as an asset even if subsequent
expenditure is written off because the criteria specified in the
policy for development costs below are not met.
The significant intangibles recognised by the Group, their
useful economic lives and methods used to determine the cost of
intangibles acquired in a business combination are as follows:
Intangible asset Useful economic life Valuation method
Developed software Three years Replacement cost
Contractual relationships Term of contract Discounted cash flows
Licenses Five years Residual value
Internally generated intangible assets (development costs)
Expenditure incurred on development activities including the
Group's software development is capitalised only where the
expenditure will lead to new or substantially improved products,
the products are technically and commercially feasible and the
Group has sufficient resources to complete development.
Capitalised development costs are amortised over three years on
a straight line basis. The amortisation expenses are included
within administrative expenses in the consolidated statement of
comprehensive income.
Development expenditure not satisfying the above criteria and
expenditure on the research phase of internal projects are
recognised in the consolidated statement of comprehensive income as
incurred.
Subsequent expenditure on capitalised intangible assets is
capitalised only where it clearly increases the economic benefits
to be derived from the asset to which it relates. All other
expenditure, including that incurred in order to maintain the level
of performance of an intangible asset, is expensed as incurred.
Property, plant and equipment
Depreciation is calculated 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 - 20 - 33 % straight-line
Office equipment - 20 - 33 % straight-line
Computer equipment - 33 % 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 the consolidated statement
of comprehensive income 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
consolidated statement of comprehensive income.
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. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be 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 accordingly.
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 units
("CGUs"). 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 goodwill.
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is
not reversed.
Financial assets (in accordance with IFRS 9)
The Group classifies its financial assets in the following
measurement categories:
-- those to be measured subsequently at fair value (either
through other comprehensive income (OCI) or through profit or
loss), and
-- those to be measured at amortised cost.
The classification depends on the purpose for which the
financial assets were acquired. For assets measured at fair value,
gains and losses will either be recorded in profit or loss or other
changes in OCI.
For investments in equity instruments that are not held for
trading, this will depend on whether the Company has made an
irrevocable election at the time of initial recognition to account
for the equity investment at fair value through other comprehensive
income (FVOCI).
For debt instruments subsequent measurement depends on the
Company's business model for managing the asset and the cash flow
characteristics of the asset. There are three measurement
categories into which the Company classifies its debt
instruments:
-- Amortised cost: Assets that are held for collection of
contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost.
Interest income from these financial assets is included in finance
income using the effective interest rate method. Any gain or loss
arising on de-recognition is recognised directly in profit or loss
and presented in other gains/(losses) together with foreign
exchange gains and losses. Impairment losses are presented as
separate line item in the statement of profit or loss.
-- FVOCI: Assets that are held for collection of contractual
cash flows and for selling the financial assets, where the assets'
cash flows represent solely payments of principal and interest, are
measured at FVOCI. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or
losses, interest income and foreign exchange gains and losses which
are recognised in profit or loss. When the financial asset is
derecognised, the cumulative gain or loss previously recognised in
OCI is reclassified from equity to profit or loss and recognised in
other gains/(losses). Interest income from these financial assets
is included in finance income using the effective interest rate
method. Foreign exchange gains and losses are presented in other
gains/(losses) and impairment expenses are presented as separate
line item in the statement of profit or loss.
-- FVPL: Assets that do not meet the criteria for amortised cost
or FVOCI are measured at FVPL. A gain or loss on a debt investment
that is subsequently measured at FVPL is recognised in profit or
loss and presented net within other gains/(losses) in the period in
which it arises.
From 1 July 2018, the group assesses on a forward-looking basis
the expected credit losses associated with its debt instruments
carried at amortised cost and FVOCI. The impairment methodology
applied depends on whether there has been a significant increase in
credit risk. For trade receivables, the group applies the
simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognised from initial recognition of the
receivables.
Derivative financial assets, including call options, are
recognised initially at fair value, and subsequently re-measured at
each balance sheet date, with the fair value gain or loss taken to
the income statement.
Financial assets are derecognised when the rights to receive
cash flows from the investments have expired or have been
transferred and the Group has transferred substantially all risks
and rewards of ownership.
At initial recognition, the Company measures a financial asset
at its fair value plus, in the case of a financial asset not at
fair value through profit or loss (FVPL), transaction costs that
are directly attributable to the acquisition of the financial
asset. Transaction costs of financial assets carried at FVPL are
expensed in profit or loss.
Financial assets with embedded derivatives are considered in
their entirety when determining whether their cash flows are solely
payment of principal and interest.
Trade and other receivables
Trade receivables are amounts due from customers for services
performed in the ordinary course of business. If collection is
expected in one year or less (or in the normal operating cycle of
the business if longer), they are classified as current assets. If
not, they are presented as non-current assets. Trade and other
receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method,
less provision for impairment. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of
the loss is recognised in profit or loss. When a receivable is
uncollectible, it is written off against the allowance account for
trade and other receivables. Subsequent recoveries of amounts
previously written off are credited against profit or loss.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, 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.
Financial liabilities (in accordance with IFRS 9)
Financial liabilities are classified as financial liabilities at
fair value through profit or loss or as financial liabilities
measured at amortised cost, as appropriate. The Group determines
the classification of its financial liabilities at initial
recognition.
The measurement of financial liabilities depends on their
classification: (i) financial liabilities 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; and (ii)
financial liabilities measured at amortised cost are initially
recognised at fair value and subsequently measured at amortised
cost using the effective interest method. Amortised cost is
calculated by taking into account any issue costs, and any discount
or premium on settlement. Gains and losses arising on the
repurchase, settlement or cancellation of liabilities are
recognised respectively in interest and other revenues and finance
costs. For substantial and non-substantial modifications the Group
derecognises a financial liability from its balance sheet when the
obligation specified in the contract or arrangement is discharged,
cancelled or expires.
Trade and other payables
Trade payables are initially measured at their fair value and
are subsequently measured at their 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.
Convertible debt
Where the convertible debt issued converts into a variable
number of shares the proceeds received on issue are allocated
between the derivative financial liability and the host debt based
upon their fair values. Subsequently the conversion option is
measured at fair value through profit and loss and the debt
component as a financial liability measured at amortised cost until
extinguished on conversion or maturity of the debt.
Debt restructuring
In accordance with IFRS 9 'Financial instruments' when modifying
debt and keeping the original lender the de-recognition treatment
is based on whether the modification is deemed "substantial" or
whether the original debt has been replaced by another debt with
"substantially" different terms.
A "substantial" debt modification is accounted for as an
extinguishment of the original financial liability and the
recognition of a new financial liability at fair value. The
difference between carrying amount of the original financial
liability and fair value of new financial liability is recorded in
the profit and loss.
Transaction costs directly attributable to the raising of
convertible debt are allocated across the derivative financial
liability component and the debt liability component. Transaction
costs allocated to the derivative financial liability component are
expensed to the income statement as they are incurred. Transaction
costs allocated to the debt liability component are deducted from
the residual value recognised as the debt liability on
recognition.
On receipt of a conversion request, the appropriate number of
shares are issued to the loan note holder and the debt is
cancelled. The difference between the nominal value of debt and the
nominal share value is allocated to the share premium account.
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.
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
statement of comprehensive income 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 statement of
financial position date.
Tax losses arising as a result of research and development
expenditure and subsequently surrendered for tax credit are
recognised within other income and as an other debtor.
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 balance sheet date. Deferred tax is
charged or credited in the statement of comprehensive income,
except when it relates to items credited or charged directly to
equity, in which case the deferred tax is also dealt with in
equity.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements 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
statement of financial position 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 not discounted.
Leased assets
Where substantially all of the risks and rewards incidental to
ownership of a leased asset have been transferred to the Group (a
'finance lease'), the asset is treated as if it had been purchased
outright. The amount initially recognised as an asset is the lower
of the fair value of the leased property and the present value of
the minimum lease payments payable over the term of the lease. The
corresponding lease commitment is shown as a liability. Lease
payments are analysed between capital and interest. The interest
element is charged to the consolidated statement of comprehensive
income over the period of the lease and is calculated so that it
represents a constant proportion of the lease liability. The
capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to
ownership are not transferred to the Group (an 'operating lease'),
the total rentals payable under the lease are charged to the
consolidated statement of comprehensive income on a straight-line
basis over the lease term. The aggregate benefit of lease
incentives is recognised as a reduction of the rental expense over
the lease term on a straight-line basis.
Share based payments
Where equity-settled share options are awarded to employees or
service providers, the fair value of the options at the date of
grant is charged to the consolidated statement of comprehensive
income 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 the terms and conditions of options are modified before
they vest, the increase in the fair value of the options, measured
immediately before and after the modification, is also charged to
the consolidated statement of comprehensive income over the
remaining vesting period.
Where equity instruments are granted to persons other than
employees, the consolidated statement of comprehensive income is
charged with the fair value of goods and services received.
Adjusted EBITDA
The Group defines adjusted EBITDA as the operating result before
depreciation, amortisation, income or expenditure relating to
exceptional items and non-cash charges relating to share based
payments and impairments. Exceptional items are considered income
and expenditure that are separately identified to assist in
understanding the underlying performance of the Group. Adjusted
EBITDA is considered to be the most appropriate measure as it
reflects the underlying trading performance of the Group and allows
ease of comparison with the prior year.
Joint ventures and associates
A joint venture is a contractual arrangement whereby the Group
and other parties undertake an economic activity that is subject to
joint control; that is, when the strategic, financial and operating
policy decisions relating to the activities require the unanimous
consent of the parties sharing control.
Associates are all entities over which the Company has
significant influence but not control or joint control. This is
generally the case where the Company holds between 20% and 50% of
the voting rights. Investments in associates are accounted for
using the equity method of accounting, after initially being
recognised at cost. Under the equity method of accounting, the
investments are initially recognised at cost and adjusted
thereafter to recognise the Company's share of the post-acquisition
profits or losses
of the investee in profit or loss, and the Company's share of
movements in other comprehensive income of the investee in other
comprehensive income. Dividends received or receivable from
associates are recognised as a reduction in the carrying amount of
the investment. When the Company's share of losses in an
equity-accounted investment equals or exceeds its interest in the
entity, including any other unsecured long-term receivables, the
Company does not recognise further losses, unless it has incurred
obligations or made payments on behalf of the other entity.
Unrealised gains on transactions between the Company and its
associates and joint ventures are eliminated to the extent of the
Company's interest in these entities. Unrealised losses are also
eliminated unless the transaction provides evidence of an
impairment of the asset transferred. Accounting policies of equity
accounted investees have been changed where necessary to ensure
consistency with the policies adopted by the Company. The carrying
amount of equity-accounted investments is tested for impairment in
accordance with the policy described in note 10.
The Group reports its interests in jointly controlled entities
and associates using the equity method of accounting. Under the
equity method, investments in joint ventures and associates are
carried in the consolidated statement of financial position at cost
as adjusted for post-acquisition changes in the Group's share of
the net assets of the joint venture and associates, less any
impairment in the value of the investment. Losses of a joint
venture and/or associates in excess of the Group's interest in that
investment are not recognised. Additional losses are provided for,
and a liability is recognised, only to the extent that the Group
has incurred legal or constructive obligations or made payments on
behalf of the joint venture and/or associate.
2. Segmental information
The accounting policies of the reportable segments follow the
same policies as described in note 1. Segment result represents the
gross profit earned by each segment without allocation of the share
of administrative costs including Directors' salaries, finance
costs and income tax expense. This is the measure reported to the
Group's Chief Executive for the purpose of resource allocation and
assessment of segment performance. Administrative expenses comprise
principally the employment and office costs incurred by the
Group.
Due to the sale during the year of the on-premise gaming
segment, there is only one segment for the year ended 30 June 2019
(2018: 1). The prior year comparatives have been presented
excluding revenues and costs from the on-premise gaming segment
that was disposed of during the year ended 30 June 2019. The
results of this segment are disclosed as discontinued and also form
part of the disclosure in note 21.
Segment assets and liabilities
Assets and liabilities are not separately analysed or reported
to the Group's Chief Executive and are not used to assist in
decisions surrounding resource allocation and assessment of segment
performance. As such, an analysis of segment assets and liabilities
has not been included in this financial information.
Geographical analysis of non-current assets
The following table provides an analysis of the Group's
non-current assets, excluding goodwill, by geographical
segment:
2019 2018
GBP'000 GBP'000
Gibraltar 1,553 5,100
UK 5 5
India 20 32
US - 172
1,578 5,309
=================== ===================
Geographical analysis of revenues
The following table provides an analysis of the Group's revenue
by geographical segment:
2019 2018
GBP'000 GBP'000
UK 20,347 18,003
Rest of the World 2,230 1,891
22,577 19,894
=================== ===================
3. Operating Loss
Operating loss has been arrived at after charging:
2019 2018
GBP'000 GBP'000
Staff costs (note 4) 3,042 3,100
Auditor's remuneration:
Audit of the Company's annual accounts 83 66
Audit of the subsidiaries' annual
accounts 25 32
Other assurance services 11 6
Tax compliance services 14 3
Other non-audit services 12 6
Rent payable under operating leases 197 278
Amortisation 1,458 2,184
Depreciation 71 170
Impairment of tangible assets - 152
Loss on foreign exchange 240 134
Exceptional charge 1,510 404
=================== ===================
During the year, the Group has incurred certain costs that
warrant separate disclosure to understand the underlying
performance of the Group. Included within exceptional items
are:
2019 2018
GBP'000 GBP'000
Fundraising costs - 65
Write-off of onerous contracts 43 134
Restructuring costs 9 119
Expected credit loss 332 -
Impairment of goodwill 919 -
Impairment of investment 147 -
Other 60 86
------------------- -------------------
1,510 404
=================== ===================
There were no fundraising costs incurred in the year ended 30
June 2019 charged to exceptional costs, however, GBP104,310 was
charged against the share premium reserve in relation to the April
2019 raise.
Those fundraising costs incurred in the year ended 30 June 2018
relate primarily to professional costs incurred in relation to the
issue of loans and equity fundraising in the year.
Where the unavoidable costs under a contract exceed the economic
benefit expected to be received from that contract, the Group
recognises a write-off for the present value of the obligations
under the contract. A write-off has been recognised in the year
ended 30 June 2019 for onerous contracts relating to previous
premises occupied by the Group to a value of GBP43,000. The charge
in the year ended 30 June 2018 for onerous contracts relates to a
professional services provider following the group making the
decision to move some services to Gibraltar which resulted in a
charge of GBP134,000.
Other costs totalling GBP60,000 are principally small legal
costs for one off events or business changes.
A detailed review was undertaken at 30 June 2019 to assess
whether the carrying value of assets was supported by the net
present value of future cash flows derived from those assets, this
resulted in a full impairment of GBP919,000 in respect of
goodwill.
During the year the Company reduced its ownership of Respin LLC
from a 100% subsidiary to a 42.5% held associate. As part of the
ongoing review for impairment it was determined to impair in full
the investment held as an associate of GBP147,000 to zero after
recording the associate share of losses for the period of
GBP70,000.
During the year ended 30 June 2019, the Group incurred a further
restructuring cost of GBP9,000 in relation to the closure of the
London office. The restructuring costs incurred in the year ended
30 June 2018, relate to the decision made by the Group to close the
London office and relocate some of the key roles to Gibraltar,
which led to a restructuring cost of GBP119,000 in the period.
During the year ended 30 June 2019, amounts due from certain
partners in respect of their share of net house loss was impaired
in full totalling GBP332,000 (2018: nil)
4. Staff costs
2019 2018
The average number of employees (including
Directors) employed was:
Management 5 3
Administration and technical staff 86 95
---------------- ----------------
91 98
================ ================
2019 2018
GBP'000 GBP'000
The aggregate remuneration of the
above employees comprised (including
Directors):
Wages and salaries 3,531 3,503
Social security costs 157 240
Pension costs 114 103
Benefits in kind 189 148
3,991 3,994
------------------- -------------------
Staff costs capitalised in respect
of internally generated intangible
assets (949) (894)
------------------- -------------------
3,042 3,100
=================== ===================
In the statement of comprehensive income, total staff costs are
included within administrative expenses.
5. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to Ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
Loss per share for continuing operations
2019 2018
Basic and diluted from continuing operations
Loss after tax from continuing operations
(GBP'000) (6,452) (5,102)
Weighted average number of shares 57,999,367 41,918,199
Weighted average loss per share (pence) (11.1) (12.2)
Basic and diluted for discontinuing
operations
Loss after tax from discontinuing operations
(GBP'000) (2,763) (1,850)
Weighted average number of shares 57,999,367 41,918,199
Weighted average loss per share (pence) (4.8) (4.4)
Basic and diluted for the year
Loss after tax from continuing and
discontinuing operations (GBP'000) (9,215) (6,952)
Weighted average number of shares 57,999,367 41,918,199
Weighted average loss per share (pence) (15.9) (16.6)
The result for the year ended 30 June 2019 and 2018 was a loss
and therefore there was no difference between the basic and diluted
loss per share. The Group has convertible loan notes, share options
and warrants which are all potentially dilutive. At 30 June 2019,
the number of fully diluted shares was 146,940,835 (2018:
105,665,685).
In November 2019, the Company completed a series of
inter-conditional transactions that resulted in the issuance of new
ordinary shares and the amendment of certain terms of the Series B
convertible loan notes. Refer to note 16 for further
information.
6. Finance income and costs
2019 2018
GBP'000 GBP'000
Finance income:
Financial instruments measured at fair value
through profit and loss
Gain on fair value of derivative financial
liabilities 2,336 92
2,336 92
There has been a fair value gain on the convertible loan and
shareholders loan which has been recorded through the profit
and loss (note 14).
Finance expense:
Financial instruments measured at fair value
through profit and loss
Loss on fair value of derivative financial
liabilities - (38)
Financial instruments measured at amortised
cost (723) -
Loss on modification of shareholder loans
Loss on convertible loan note conversion (317) -
Interest payable (2,545) (1,761)
Total finance costs (3,585) (1,799)
=================== ===================
7. Taxation
2019 2018
GBP'000 GBP'000
Current tax charge 47 98
Deferred tax credit (168) (328)
Tax credit on loss on ordinary activities (121) (230)
=================== ===================
The total tax credit can be reconciled to the overall tax charge
as follows:
GBP'000 GBP'000
Factors affecting tax charge for year:
The tax assessed for the relevant period is higher than the
average standard rate of corporation tax in Gibraltar of
10 %. (2018: 10 %.). The differences are explained below:
Loss before taxation (9,336) (7,182)
--------------------- ---------------------
Loss before taxation multiplied by the
average standard rate of tax in the year
of 10 %. (2018: 10 %.) (934) (718)
Effects of:
Expenses not deductible for tax purposes 200 222
Other tax differences (83) (181)
Current year tax losses not recognised 696 447
Income not taxable - -
Tax credit for year (121) (230)
===================== =====================
Reconciliation of continuing tax charge/ (credit) for the
year:
2019 2018
GBP'000 GBP000
Tax charge for the year from continuing
operations 47 98
Deferred tax credit from acquired intangibles
in discontinued operation (168) (328)
------------------- ------------------
(121) 230
The Group has maximum corporation tax losses carried forward at
each period end as set out below:
2019 2018
GBP'000 GBP'000
Corporation tax losses carried forward 45,003 38,049
In addition, the Group has an unrecognised deferred tax asset in
respect of losses which do not expire as follows:
2019 2018
GBP'000 GBP'000
Tax losses carried forward 5,010 4,076
=================== ===================
8. Intangible assets
Developed Acquired Computer Patents Goodwill Total
software Licences software and Trademarks
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July
2017 4,866 4,916 250 35 919 10,986
Externally
acquired
additions - - - 17 - 17
Internally
capitalised
additions 1,341 - - - - 1,341
Acquisition
of
subsidiary* (2,688) - (42) - - (2,730)
--------------------- -------------------- ------------------- ------------------- ------------------- -------------------
At 30 June
2018 3,519 4,916 208 52 919 9,614
Externally - - - - - -
acquired
additions
Internally
capitalised
additions 1,829 - - - - 1,829
Disposals (509) (88) (208) (805)
Respin
Disposal* (915) (4,828) - - (5,743)
Impairment
** (919) (919)
--------------------- -------------------- ------------------- ------------------- ------------------- -------------------
At 30 June
2019 3,924 - - 52 - 3,976
--------------------- -------------------- ------------------- ------------------- ------------------- -------------------
Accumulated
amortisation
At 1 July
2017 3,266 570 250 - - 4,086
Charge for
the year 1,163 966 9 46 - 2,184
Disposals (2,688) - (51) - - (2,739)
At 30 June
2018 1,741 1,536 208 46 - 3,531
Charge for
the year 958 494 - 6 - 1,458
Disposals (88) (208) - - (296)
Respin
Disposal (216) (1,942) (2,158)
At 30 June
2019 2,483 - - 52 - 2,535
--------------------- -------------------- ------------------- ------------------- ------------------- -------------------
Net book
value
At 1 July
2017 1,600 4,346 - 35 919 6,900
At 30 June
2018 1,778 3,380 - 6 919 6,083
At 30 June
2019 1,441 - - - - 1,441
===================== ==================== =================== =================== =================== ===================
* During the year, the Group disposed of 57.5% shares in Respin
LLC, resulting in loss of control and the investment being
classified as investment in associate post-disposal. In the prior
year, this entity was recognised in the Group accounts as fully
owned subsidiary after the Group purchased the remaining shares
from its joint venture partner during the year ended 30 June
2017.
** During the year ended 30 June 2019, the Group realised a full
impairment against the goodwill arising on the prior acquisition of
Mfuse (now Nektan UK Limited).
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 30 June 2019 to assess whether
the carrying value of assets was supported by the net present value
of future cash flows derived from those assets. With the challenges
faced by the B2C business including the imposition of additional
taxes, and review of future budgeted cash flows the directors have
fully impaired the goodwill balance of GBP919,000.
9. Plant, property and equipment
Computer Office Fixtures,
equipment equipment fittings Total
and equipment
GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 July
2017 1,090 58 66 1,214
Additions 65 15 3 83
FX movement - - - -
Disposals (973) (55) (25) (1,053)
At 30 June
2018 182 18 44 244
Additions 51 - 80 131
Disposals (87) (15) (39) (141)
---------------------- ------------------------- ------------------- -------------------
At 30 June
2019 146 3 85 234
---------------------- ------------------------- ------------------- -------------------
Accumulated
depreciation
At 1 July
2017 710 43 29 782
Charge for
the
year 123 12 35 170
Impairment 152 - - 152
Disposals (925) (55) (25) (1,005)
At 30 June
2018 60 - 39 99
Charge for
the
year 57 - 14 71
Disposals (36) - (37) (73)
---------------------- ------------------------- ------------------- -------------------
At 30 June
2019 81 - 16 97
---------------------- ------------------------- ------------------- -------------------
Net book
value
At 1 July
2017 380 15 37 432
At 30 June
2018 122 18 5 145
At 30 June
2019 65 3 69 137
====================== ========================= =================== ===================
10. Investment in associate
2019 2018
GBP'000 GBP'000
At 1 July
Additions 217 -
Share of losses (70) -
Impairment of Respin investment (147) -
------------------- -------------------
At 30 June - -
=================== ===================
During the year ended 30 June 2019, the Group reduced its
shareholding in Respin LLC, incorporated in the US, from 100% to
42.5%, and accordingly recognised an investment in associate of
GBP217,000. The investment was consolidated prior to the reduction
in the shareholding, at which point it became an associate and is
now treated under equity accounting method. The Group's share of
losses from the date on which the entity became an associate until
year end have been recognised, and at year end the remaining
investment has been fully impaired recognising that the Respin LLC
continues to be loss making.
11. Trade and other receivables
2019 2018
GBP'000 GBP'000
Trade Receivables and client
segregated funds 416 726
Prepayments and other debtors 577 675
Payment provider receivables 949 1,201
------------------- -------------------
1,942 2,602
=================== ===================
During the year ended 30 June 2019, amounts due from certain
partners in respect of net house loss was impaired in full
totalling GBP332,000 (2018: nil). The impairment was recorded as an
exceptional item (note 3).
In determining the recoverability of receivables, the Group
considers any change in the credit quality of the receivable from
the date credit was granted up to the reporting date. These debts
relate to customers with no default history:
2019 2018
GBP'000 GBP'000
Between one and two months 22 -
Between two and three months 31 5
More than three months 126 7
179 12
=================== ===================
The Group utilises one principal payment service provider that
processes approximately 80% (2018: 80%) of the Group's payment
receipts. The amount outstanding from this payment service provider
at 30 June 2019 was GBP397k (30 June 2018: GBP765k).
Provision for bad debt:
GBP'000 GBP'000
Prepayments and other debtors 909 675
Provision for impairment (332) -
of other debtors
577 675
=================== ===================
The Directors consider that the carrying amount of the trade
receivables and other approximate to their fair value due to their
short-term maturity. The maximum exposure to credit risk at the
reporting date is the carrying value of each class of receivable
shown above. The Group does not hold any collateral as
security.
12. Cash and cash equivalents
2019 2018
GBP'000 GBP'000
Cash in bank accounts 857 1,402
=================== ===================
Interest is earned at floating rates on cash held on short-term
deposit. All of the Group's cash and cash equivalents are held with
major UK, Gibraltar or US banks.
The following cash and cash equivalent amounts were held in
foreign currencies. The remaining balance was denominated in UK
Pound Sterling (GBP).
2019 2018
GBP'000 GBP'000
Euros 7 2
Indian Rupees 58 58
65 60
=================== ===================
The Directors consider that the carrying value of cash and cash
equivalents is approximate to their fair value.
13. Trade and other payables
2019 2018
GBP'000 GBP'000
Trade payables 847 613
Player balances 860 647
Other payables 551 703
Amounts payable to related 90 -
parties
Owed to former NMS joint
venture partner - 100
Corporation tax liability - 92
Partner revenue shares 463 1,265
Gaming duty 4,649 2,872
Jackpot contribution accruals 1,030 872
Other accruals 1,318 1,614
Finance lease obligations - 1
9,808 8,779
=================== =====================
Player balances represent amounts due to customers including net
deposits received, undrawn winnings, progressive jackpots and
certain promotional bonuses. The Group's policy is to ensure that
these balances are fully covered by either cash or by funds held
with payment processors (note 11).
The Directors consider that the carrying value of trade and
other payables is approximate to their fair value.
14. Derivative financial liabilities
The derivative financial liabilities arise on two separate
elements. Firstly, the fair value derivative component of the
convertible loan notes issued in previous periods and, secondly,
the derivative element of the warrants issued in conjunction with
the loans from Sandeep Reddy and Gary Shaw during the year.
2019 2018
GBP'000 GBP'000
Fair value derivative component of convertible
loan notes (note 15) 12 931
Fair value derivative component of shareholder
loans (note 16) - 1,417
12 2,348
=================== ===================
The derivative financial liability has been fair valued using
the Black-Scholes model at the balance sheet date assuming an
expected life of 0.8 years and a volatility of 47.5%, which has
resulted in a fair value gain to the income statement of
GBP2,336,000 (2018: gain of GBP92,000). Due to the equity issue
during the year, the conversion price of the CLN at year end was
18.75p.
15. Convertible Loan Notes
The Company raised GBP5,829k, Series A loan notes of GBP5,329k
and Series B loan notes of GBP500k, in the year to 30 June 2015
("Tranche 1 and 2") and a further GBP5,272k, Series A loan notes
GBP4,672k and GBP600k Series B loan notes, in the year 30 June 2016
("Tranche 3 and 4"). The conversion price was set at a 25% premium
to the price at the most recent equity issue price prior to the
conversion of the loan notes, subject to a maximum conversion
price. The maximum conversion price is subject to rebasing in the
event of a share issue. At the balance sheet date, the conversion
price was 18.75p (2018: 26.25p) and the maximum conversion price
was 30p (2018: 101.25p). Due to the variation in the conversion
price, the conversion feature is valued and accounted for as a
separate financial instrument is revalued to fair value each report
date (Note 14). On initial recognition, the fair value of the
conversion feature was determined to be GBP389k, with the residual
value of GBP4,973k and GBP467k allocated to the Series A and Series
B loan notes, respectively.
Interest of 10 % per annum was payable quarterly in arrears,
until April 2019, where during the equity raise the Company reached
agreement with the Series A CLN holders to reduce the interest rate
to 2.5%. and to amend the future conversion price to 200 %. - being
30p following the April 2019 raise. However, consistent with the
agreement reached by the Company in previous years, interest
continues to be deferred on the Series A CLNs until April 2020 with
the Company having the option quarterly to restart interest
payments.
At the same time as the agreement to defer interest was agreed,
it was agreed that if the Company exercised its right to defer
interest, the Series A CLN holders would be granted a warrant to
buy Ordinary Shares, exercisable immediately at the lowest
prevailing equity issue price per share up to the value of the
interest so deferred. This agreement did not apply to the VCT
portion, Series B CLN holders, of principal totalling GBP1.1m. The
issue of the warrants gave rise to a share-based payment charge
(see note 27 for more details).
In December 2018, it was agreed with the loan note holders that
the warrants for any future interest deferral would be removed. As
at 30 June 2019, eleven quarters of interest payments (2018: 7) had
been deferred, however, following the Series A CLN conversion in
April 2019, the interest accrual at year end is GBP497k (2018:
GBP854k).
On 30 April 2019, the holders of series A loan notes converted
GBP4,678K of principal loan notes that had a carrying value of
GBP4,379K and accrued interest of GBP1,847k, at a conversion price
of 15p, to 43,529,640 common shares (Note 18). Series B loan notes
were not converted and GBP1.1m principal remains as at 30 June
2019. The total loss from conversion of debt to shares in the year
was GBP317,000 (2018: GBPnil).
During the year ended 30 June 2018, GBP780,000 of the Series A
CLN were converted at a price of 26.25p leading to 2,971,428
ordinary shares being issued.
The number of shares that will be issued upon conversion of the
notes is variable and therefore, on recognition the proceeds
received from the issue of the notes, net of directly attributable
transaction costs, have been allocated between the derivative
financial liability based upon the fair values on inception of the
conversion option and the host debt.
2019 2018
GBP000's GBP000's
Balance at 1 July 2018 9,411 9,094
Principal amount and accrued interest
converted (6,226) (780)
Loss on conversion (317) -
Effective interest 1,287 243
Accrued interest in the period 497 854
--------- ---------
Balance at 30 June 2019 4,652 9,411
--------- ---------
The debt component has subsequently been measured at amortised
cost based on an effective interest rate of 10.8% for Tranches 1
& 2 (2018: 13.6%) and 15.1% for Tranches 3 & 4 (2018:
19.1%). The difference between the carrying amount of the liability
component at the date of issue and the amount reported at 30 June
2019 represents the effective interest rate less the interest paid
to that date.
The Convertible Loan Notes are secured by a first ranking fixed
and floating charge on the assets of the Company and each of the
Company's subsidiaries, with all other loans to the Company ranking
behind the Convertible Loan Notes' security.
As part of the equity raise completed in November 2019, the
Directors reached agreement with the holders of the Series A CLN's
to fully convert their remaining outstanding principal and accrued
interest, totalling GBP3.9m. At the same time, the Directors
reached agreement with the holder of the Series B CLN to amend the
terms of the instrument. Series B VCT portion of the loan notes
(principal GBP1.1m) remains outstanding and was not converted.
16. Shareholder loan
In July 2017, the Company announced that it had secured
commitments to raise GBP2,500,000 through two separate facility
agreements with two of its Directors, Gary Shaw for GBP1,300,000
and Sandeep Reddy for GBP1,200,000, with a redemption date of two
years following draw down and a coupon of 10%.
As part of the commitment secured, the Company agreed to issue
5.36 warrants at a price of 27.5p per warrant for each GBP1 drawn
down. As at 30 June 2018, GBP1,985,000 had been drawn down from
this facility resulting in 10,639,600 27.5p warrants being issued
at the time of this drawdown. The drawdown period per the agreement
expired in July 2019 without further utilisation during the
year.
In addition, anti-dilution warrants were agreed to be issued in
the event of any equity issue at a price of lower than 27.5p in the
12 months from the date the facility was agreed to 28 July 2018.
Due to the variation of the exercise price, the warrants are
treated as a derivative financial instrument and revalued to fair
value each reporting date. On initial recognition, the fair value
of the derivative warrants was determined to be GBP1,508,904 with
the residual value of GBP476,096 allocated to the carrying value of
the shareholder loan notes, accounted for using the effective
interest rate method.
During the year ended 30 June 2019, as part of the equity raise
completed in April 2019, Gary Shaw agreed to convert GBP0.65m of
his principal facility along with accrued interest calculated to 30
June 2019 of GBP0.2m. On the date of conversion the loan and
interest had a carrying value of GBP0.60m and a loss of GBP0.2m was
recognized in the statement of profit and loss. As part of the
equity raise completed in April 2019, the Directors agreed to amend
the terms of the facility agreements, reducing the interest rate
from 10% to 2.5%. This resulted in a substantial modification of
the shareholder loans leading to de-recognition of the existing
loans and recognition of the modified loans at fair value along
with modification losses in the profit and loss account (see note
6). The carrying value of the loan under the old terms was GBP0.82m
and the fair value under the new loan terms was GBP1.3m, resulting
in a loss on modification of GBP0.36m recognized in the statement
of profit and loss.
The movement in shareholder loans during the year was as
below:
GBP GBP GBP
Gary Shaw
Sandeep Reddy Total
Balance, 1
July 2018 458,471 439,649 898,120
Interest 382,789 299,415 682,204
Expense
Principal and (606,653) - (606,653)
Interest
converted in
the period
Extinguishment (232,348) (596,319) (828,667)
of old
shareholder
loans
Principal of
new
shareholder
loans at date
of issue 535,000 800,000 1,335,000
Balance at 30
June 2019 537,259 942,745 1,480,004
=============================================== ==================================== =====================================================
As part of the equity raise completed in November 2019, the
Directors agreed to amend the terms of the facility agreements such
that the redemption date was extended by one year to 29 April 2021
(previously 29 April 2020), with the Directors' receiving 830,000
in warrants in lieu of the extension.
17. Subsidiaries
Details of the Group's subsidiaries as at 30 June 2019 are set
out below:
Country Proportion Nature of business
of incorporation of voting rights
and Ordinary
share capital
Name held
Nektan UK Limited UK 100% Mobile software
development
Nektan (Gibraltar) Gibraltar 100% Internet gaming
Limited services
Nektan Gaming Technologies India 100% Mobile software
Private Limited development
18. Share capital
Ordinary shares Ordinary shares
number GBP
Allotted, issued and fully
paid
At 1 July 2017 36,035,292 360,353
Issued during the year 11,377,310 113,773
At 30 June 2018 47,412,602 474,126
Issued during the year 64,439,000 644,390
--------------------------- ---------------------------
At 30 June 2019 111,851,602 1,118,516
=========================== ===========================
The issued and fully paid share capital of the Company amounts
to GBP1,118,516 and is split into 111,851,602 1p ordinary
shares.
During the year a total of 64,439,000 shares we issued through a
number of transactions:
-- In January 2019, a total of 153,270 shares were issued for
consideration of GBP0.1m as a result of warrants exercised by a
noteholder.
-- In February 2019, the Company issued 3,078,020 new ordinary
shares at a subscription price of 15 pence per share, for
consideration of GBP0.5m.
-- In April 2019, the Company restructured its balance sheet
through a series of inter-conditional transactions:
-- The issue of 11,566,668 new ordinary shares at a price of 15
pence per share, for consideration of GBP1.7m.
-- The issue of 43,529,640 new ordinary shares at a price of 15p
per share, as a result of the conversion of GBP4.7m of the
outstanding on the Series A Convertible Loan Note (CLN'). This also
included GBP1.9m of outstanding interest due on the CLNs at the
conversion date.
-- The issue of 5,583,290 new ordinary shares at a price of 15p
per share, as a result of the part-conversion of the Directors'
loans of GBP0.65m in principal, representing 32.7% of the GBP1.985m
outstanding at the time, and GBP0.2m in accrued interest.
-- The issue of 528,112 new ordinary shares at a subscription
price of 15p per share, in lieu of fees and expenses to two
Directors.
Total cash consideration for the issued shares was GBP2.2m.
Authorised share capital
The authorised share capital of the Company is GBP1,978,880
divided into 197,880,022 Ordinary shares of 1p each (2018:
100,000,000 Ordinary shares of 1p each) of which 111,851,602
Ordinary shares have been issued, credited as fully paid (2018:
47,412,602).
19. Deferred tax liability
Note GBP'000
At 1 July 2017 1,482
Credited to the income statement on acquired
intangibles (328)
Charged to the income statement in respect of
accelerated capital allowances 3
At 30 June 2018 1,157
----------------------------------------
Credit to the income statement on amortization
of acquired intangibles 7 (168)
Credited to the income statement in respect
of disposal of investment. (964)
----------------------------------------
At 30 June 2019 25
----------------------------------------
There is no deferred tax arising in respect of other
comprehensive income.
20. Financial instruments and risk management
The Group is exposed to the risks that arise from its use of
financial instruments. This note describes the objectives, policies
and processes of the Group for managing those risks and the methods
used to measure them. Further quantitative information in respect
of these risks is presented throughout this financial
information.
The Group's overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group's financial performance.
Risk management is carried out by management under policies
approved by the Board of Directors. Management identifies and
evaluates financial risks in close co-operation with the management
of the Group's operating segments. The Board provides principles
for overall risk management, as well as policies covering specific
areas, such as interest rate risk and currency risk.
Principal financial instruments
The principal financial instruments used by the Group, from
which financial instrument risk arises are as follows:
-- Trade and other receivables
-- Trade and other payables
-- Convertible loan notes and derivatives
-- Cash and cash equivalents
-- Shareholder loans
Financial assets
The Group held the following financial assets:
2019 2018
Amortised cost: GBP'000 GBP'000
Cash and cash equivalents 857 1,402
Trade and other receivables 1,942 2,602
2,799 4,004
------------------- -------------------
Financial liabilities
The Group held the following financial liabilities:
2019 2018
GBP'000 GBP'000
Amortised cost:
Trade payables 847 613
Other payables 1,501 1,450
Total accruals 7,460 6,623
Finance lease obligations - 1
Shareholder loans 1,480 898
Convertible loan notes 4,652 9,411
15,940 18,996
=================== ===================
2019 2018
GBP'000 GBP'000
Fair value through profit
and loss:
Derivative financial liability 12 2,348
12 2,348
=================== ===================
Financial instruments not measured at fair value within the
financial statements
Financial instruments not measured at fair value include cash
and cash equivalents, trade and other receivables, trade and other
payables and the non-derivative element of the convertible loan
notes.
Due to their short-term nature, the carrying value of cash and
cash equivalents, trade and other receivables, trade and other
payables and the non-derivative element of the convertible loan
notes approximated fair value.
Financial instruments measured at fair value
Included in level 3 of the fair value hierarchy is derivative
financial liabilities, which is carried at fair value through
profit and loss and therefore movements in fair value are
recognised in the income statement through finance expenses. No
other financial instruments are measured at fair value through
profit and loss. There have been no transfers between levels in any
of the above periods.
The valuation technique used in determining the fair value
measurement of derivative financial liabilities was the Black
Scholes model. The significant unobservable input in this valuation
model is the expected date of conversion, volatility and dividend
yield. At year-end, these inputs were as follows:
-- Expected date of conversion - 0.8 years (2018: 1.5 years)
from year-end for convertible loan notes and 0.8 years (2018: 3
years) for the shareholder loans
-- Volatility - 47.5% (2018: 50%)
-- Dividend Yield - 0% (2018: 0%)
The reconciliation of the opening and closing fair value balance
of level 3 financial liabilities is as follows:
Derivative
financial
liability
GBP'000
As at 1 July 2017 800
Issues 1,419
Fair value loss in profit or loss 129
----------------------
As at 30 June 2018 2,348
Fair value gain in profit or loss (2,336)
----------------------
As at 30 June 2019 12
======================
Management controls and procedures
The Group's Directors monitor and manage the financial risks
relating to the operation of the Group. These risks include market
risk (including foreign currency risk and interest rate risk),
credit risk and liquidity risk.
Market risk
Market risk is the risk that fair value cash flows of a
financial instrument will fluctuate due to changes in market
prices. Market risk reflects interest rate risk, currency risk and
other price risks.
The Group's activities expose it primarily to the financial
risks of changes in foreign currency exchange rates and interest
rates.
Foreign currency risk management
The Group has minimal exposure to foreign currency risk, and
consequently no sensitivity analysis has been prepared.
The Board carefully monitors exchange rate fluctuations and
reviews their impact on the net assets and position of the Group
and seeks to economically hedge the impact of foreign exchange by
holding sufficient cash in the relevant currencies. The Group does
not enter into any derivative financial instruments to manage its
exposure to foreign currency risk.
All trade and other receivable are denominated in Sterling.
Interest rate risk management
The Group has minimal exposure to interest rate risk. The Group
does not have external debt or financial liabilities materially
impacted by interest rate risk. All current financial liabilities
have a fixed interest element if applicable.
During the year to 30 June 2019 the Group was exposed to
interest rate risk on some of its financial assets, being cash held
on bank deposit. The interest rate receivable on these balances was
at a rate less than 0.1% (2018: less than 0.1%). The Directors
currently believe that interest rate risk is at an acceptable level
and continue to monitor interest rate policy and changes.
Due to its minimal exposure to interest rate risk, the Group has
not prepared any sensitivity analysis.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. Credit risk arises principally from the Group's cash
balances and trade and other receivables. The concentration of the
Group's credit risk is considered by counterparty, geography and
currency.
The Group gives careful consideration to which organisations it
uses for its banking services in order to minimise credit risk.
Impairment of financial assets
The Group has two types of financial assets that are subject to
the expected credit loss model:
-- Trade and other receivables, and
-- Other financial assets carried at amortised cost
While cash and cash equivalents are also subject to impairment
requirements of IFRS9, there was no identified impairment loss.
The Group applied the IFRS9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables.
To measure the expected credit losses, trade receivables have
grouped based on shared credit risk characteristics and the days
past due.
The Group concluded that the required additional provision
calculated using IFRS 9 principles was not materially different
than that would have been accounted for under IAS 39.
Receivables for which an impairment provision is recognised are
written off against the provision when there is no expectation of
recovering additional cash.
Impairment losses are recognised in profit and loss within
administrative expenses. Subsequent recoveries of amounts
previously written off are credited against administrative
expenses.
During the year, impairment charges of GBP332,000 (2018: GBPnil)
relating to trade and other receivables (see note 11) was
recognised and a full impairment provision was recognised in
relation to the related party loan with Respin LLC for GBP3,443,111
(2018: GBPnil).
Liquidity risk management
Liquidity risk is the risk that the Group will encounter
difficulty in meeting its financial obligations as they fall due.
This risk relates to the Group's prudent liquidity risk management
and implies maintaining sufficient cash. Ultimate responsibility
for liquidity risk management rests with the Board of Directors.
The Board manages liquidity risk by regularly reviewing the Group's
cash requirements by reference to short-term cash flow forecasts
and medium-term working capital projections prepared by
management.
Maturity of financial liabilities
The following table sets out the non-discounted contractual
maturities of financial liabilities:
Year ended 30 One year One to five Five years
June or less years and over Total
2019
GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 847 - - 847
Other payables 1,501 - - 1,501
Total accruals 7,460 - - 7,460
Derivative
financial
liability 12 - - 12
Shareholder loans 1,480 - - 1,480
Convertible loan
notes 4,652 - - 4,652
-------------------- ----------------------- ------------------- -------------------
15,952 - - 15,952
==================== ======================= =================== ===================
Year ended 30 One year One to five Five years
June or less years and over Total
2018
GBP'000 GBP'000 GBP'000 GBP'000
Trade payables 613 - - 613
Other payables 1,450 - - 1,450
Total accruals 6,623 - - 6,623
Finance lease
obligations 1 - - 1
Derivative
financial
liability 2,348 - - 2,348
Shareholder loans - 898 898
Convertible loan
notes 110 9,301 - 9,411
-------------------- ----------------------- ------------------- -------------------
11,145 10,199 - 21,344
==================== ======================= =================== ===================
Capital management
The Group is currently funded principally through shareholders'
funds and convertible loan notes. During the year ended 30 June
2019, GBP2,197k (net of costs) was raised through equity issues
arising from new equity issued (2018: GBP1,692k).
Going forward the Board will consider whether debt or equity
financing is more appropriate and proceed accordingly. The Group is
not subject to any externally imposed capital requirements.
Fair value estimation
The carrying value less impairment provision of trade
receivables and payables are assumed to approximate their fair
values because of the short-term nature of such assets and the
effect of discounting liabilities is negligible. The risk in
respect of fair value estimation is in respect of acquisition
accounting.
21. Disposal of interest in subsidiary
On 9 April 2019, the Company reduced its ownership of Respin LLC
from a 100% subsidiary to a 42.5% associate. The Directors
determined that control passed to the acquirer at this time and
therefore the investment at this date has been treated as an
investment in associate and accounted for using the equity method
of accounting.
Consideration for the disposal was GBP0.3m and a commitment by
the acquirer to provide a working capital facility to Respin of
$0.8m. At this time the fair value of investment in the Group was
GBP0.2m. As part of a review of carrying values at year end, and
given the ongoing loss performance of Respin, the Company has
determined that this investment should be fully impaired and the
carrying value has been accordingly reduced to zero (note 10). The
Company's share of loss from associate share of loss from
operations of Respin LLC since the disposal date of GBP70,000 (see
note 10) has been recorded in the income statement.
Details of the calculation of the loss on disposal of the
investment held in the Company are as follows:
2019
GBP'000
Investment in Respin LLC
Cash proceeds received 300
Residual investment 217
-------------------
Total proceeds 517
Net liabilities 810
Impairment of intercompany loan (3,443)
Recycle of foreign exchange
from OCI on disposal 129
-------------------
Total loss on disposal (1,987)
Respin loss for the period (776)
-------------------
Total loss for the year from
discontinuing operations (2,763)
-------------------
The results for the period/ year of Respin LLC disposed are as
follows:
2019 2018
GBP000's GBP000's
Revenue 21 175
Administrative expenses (965) (2,353)
Tax credit 168 328
Loss after tax for the
period (776) (1,850)
The major classes of assets and liabilities disposed of were as
follows
2019 2018
GBP000s GBP000s
Fixed assets 37 58
Intangible assets 3,585 4,096
Cash 29 32
Debtors 21 30
Creditors (4,482) (3,177)
------------------- -------------------
Net (liabilities) /
assets (810) 1,039
------------------- -------------------
The statement of cash flow includes the following amounts
relating to discontinued operations:
2019 2018
GBP'000 GBP'000
Net cash generated by operating
activities 912 14
Net cash generated by investing (914) -
activities
Net cash generated by financing - -
activities
Net cash (outflow)/inflow (2) 14
============================== =====================================
22. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
The remuneration of the Directors and other executive
management, who are the key management personnel of the Group, is
set out below:
2019 2018
GBP'000 GBP'000
The aggregate remuneration
comprised:
Salaries/fees 411 317
Bonus 28 56
Payable to related party 90 -
Benefits in kind 36 21
565 394
=================== ===================
Payable to related party is for reimbursement of operational
costs incurred.
The following related party transactions took place during the
period:
During the year, the following directors had transactions or
interests in the Company's Convertible Loan Notes:
2019 2018
Gary Shaw CLN Balance - GBP300,000
Deferred interest GBP24,986 GBP30,000
Deferred interest
warrants - 58,417
Jim Wilkinson CLN Balance - GBP250,000
Deferred interest GBP20,822 GBP25,000
Deferred interest
warrants - 48,682
Venture Tech CLN Balance GBP1,000,000 GBP1,000,000
Assets*
Deferred interest GBP87,466 GBP100,000
Deferred interest
warrants - 194,723
* A company associated with Sandeep Reddy
In July 2017, the Company announced that it had secured
commitments to raise GBP2,500,000 through two separate facility
agreements with two its Directors, Gary Shaw for GBP1,300,000 and
Sandeep Reddy for GBP1,200,000. The draw down facility is now
closed. In April 2019, Gary Shaw converted GBP650,000 of principal
and GBP187,493 of accrued interest calculated to 30 June 2019.
Jim Wilkinson received 180,000 shares in lieu of his management
service charge with respect to his role as Non-Executive Chairman
of the Group.
Sandeep Reddy received 348,112 shares in lieu of his management
service charge with respect to his role as Non-Executive Director
of the Group.
During the year, the Group contributed a further GBP888,355
(2018: GBP1,491,185) to its previous joint venture partner, Respin
LLC. On 9 April 2019, the Group disposed of a majority stake in
Respin LLC and is now accounted for as an associated company.
23. Post-balance sheet events
On 13 August 2019, Lucy Buckley resigned as Chief Executive
Officer with Gary Shaw, Founder and Executive Director, assuming
the role of Interim CEO, to stabilise the business and drive the
focus on the international expansion.
In November 2019, the Company completed a series of
inter-conditional transactions that resulted in:
-- The Company issued 49.8m new ordinary shares at a
subscription price of 5 pence per share, for consideration of
GBP2.5m.
-- A further 4.7m new ordinary shares at a subscription price of
5 pence per share, for consideration of GBP0.2m, were also raised
as part of the November 2019 raise, however these have been
deferred for issue and listing on AIM in January 2020.
-- The Company issue 78.4m new ordinary shares at a subscription
price of 5 pence per share, as a result of the full conversion of
the remaining GBP3.9m of the Series A convertible loan notes
(CLNs), including GBP0.5m of the outstanding interest also
converted at this date.
-- The Company amended the terms of the GBP1.1m Series B
convertible loan notes (CLNs), extending the maturity until March
2023, reducing the coupon to zero (previously 10%) until 1 January
2021, when it will be reintroduced at 5%.
-- The Company amended the term of the Directors' loans to
expire on 29 April 2021 (previously 29 April 2020), with the
Directors' receiving 830,000 in warrants in lieu of the extension -
the coupon of 2.5% remains unchanged.
-- The issue of 1.8m new ordinary shares at a price of 5 pence
per share, in lieu of fees and expenses to Sandeep Reddy, a
Non-Executive Director of the Company.
On 19 December 2019, the Company announced the appointment of
Paul Hughes as a Non-Executive Director. Paul has extensive
corporate banking and commercial experience, with a focus on
fundraising, the turnaround of loss-making businesses, risk
management and fast-growing private and public companies. He also
has extensive experience as a non-executive director and chairman
of a variety of private and public companies.
During December 2019, and as part of the Group's restructuring
programme to ensure the protection of the intellectual property
within the Group, and the ongoing B2B and international business,
for the benefit of all creditors and shareholders, the Group
transferred certain assets and all Gibraltar based staff, to two
recently incorporated new legal entities in Gibraltar.
In completing the restructuring programme, the Directors made
the decision to seek the protection of administration for the
Group's subsidiary company Nektan (Gibraltar) Limited ("NGL").
Administrators were appointed to NGL on 7 January 2020, and in one
of the first acts following their appointment, the administrators
completed the conditional sale of the UK B2C business. The Group
secured an ongoing platform deal for a minimum 3-year period as
part of this transaction.
24. Ultimate parent undertaking
The Directors consider that there is no ultimate controlling
party.
25. Operating leases
The total future value of minimum lease payments due is as
follows:
Land and buildings 2019 2018
GBP'000 GBP'000
Operating leases
Expiring less than one year 123 118
Expiring between one and
five years 573 103
696 221
=================== ===================
26. Contingent liabilities
As part of the Board's ongoing regulatory compliance process,
the Board continues to monitor legal and regulatory developments
and their potential impact on the Group.
Management is not aware of any contingencies that may have a
significant impact on the financial position of the Group.
27. Share based payments and warrants
During the year ended 30 June 2019 no options and warrants were
granted (year ended 30 June 2018: 983,855), no interest deferral
warrants were granted to CLN noteholders (year ended 30 June 2018:
1,734,073), and no further 2018 loan warrants were issued (year
ended 30 June 2018: 14,097,470).
During the year ended 30 June 2019, 538,844 options and warrants
previously issued to service provided and members of staff lapsed
(year ended 30 June 2018: 60,000), 3,457,870 of 2018 loan warrants
lapsed during the year (year ended 30 June 2018: nil), and 153,272
of interest deferral warrants were exercised (year ended 30 June
2018: nil).
Current and Suppliers Interest deferral 2018 loan warrants Total
former employees warrants
Number Average Number Average Number Average Number Average Number Average
price price price price price
As at 1
July
2017 1,113,142 30.6p 912,401 105.3p 5,300,722 27.5p - - 7,326,265 43.4p
Granted
during
the
year 983,855 27.5p - - 1,734,073 24.1p 14,097,470 21.0p 16,815,398 26.3p
Lapsed
during
the
year (60,000) (27.5p) - - - - - - (60,000) (27.5p)
As at 30
June
2018 2,036,997 28.9p 912,401 105.3p 7,034,795 26.1p 14,097,470 21.0p 24,081,663 26.4p
Lapsed
during
the
year (155,136) (39.8p) (383,708) (123.2p) (153,272) (64.0p) (3,457,870) (1.0p) (4,149,986) (14.2p)
===================== =================== ===================== ==================== ===================== =================== ======================= =================== ======================= ===================
As at 30
June
2019 1,881,861 28.1p 528,693 92.3p 6,881,523 46.7p 10,639,600 27.5p 19,931,677 35.9p
===================== =================== ===================== ==================== ===================== =================== ======================= =================== ======================= ===================
The exercise price of options/warrants outstanding at 30 June
2019 ranged between GBP0.01 and GBP2.36 (year ended 30 June 2018:
ranged between GBP0.01 and GBP2.36) and their weighted average
contractual life was 2 years (2018: 4 years three months).
The breakdown of options and warrants is as follows:
Expiry Date Number Price
December 2019 58,617 236.0p
May 2020 109,851 167.5p
October 2020 24,749 155.0p
December 2020 37,517 145.0p
March 2021 51,358 81.0p
April 2021* 3,435,622 27.5p
April 2021* 907,092 21.0p
February 2022 109,091 27.5p
April 2022 2,591,906 81.0p
July 2022** 2,010,000 27.5p
August 2022** 4,556,000 27.5p
December 2022** 4,073,600 27.5p
November 2024 137,510 1.0p
April 2027 250,000 27.5p
June 2027 594,909 27.5p
December 2027 927,219 27.5p
June 2028 56,636 19.0p
---------------------- ------------------
19,931,677 35.9p
* The interest deferral warrants are capable of being exercised
up to 12 months following the CLN final redemption date per the
instrument which is April 2020.
** Warrants issued on each drawdown made from shareholder loan
facility per the facility agreement dated July 2017.
The weighted average fair value of each option/warrant granted
during the period was nil as no options or warrants were granted
during the period (2018: 22.4p).
The following information is relevant in the determination of
the fair value of options/warrants granted during the period:
2018
Option pricing model used Black-Scholes
Share price at date of grant 19p to 26.5p
Exercise price 1.0p to 27.5p
Option life 3 years to
10 years
Risk free rate 0.4%
Expected volatility 50%
Expected dividend yield Nil
The volatility assumption, measured at the standard deviation of
expected share price returns, is based on a statistical analysis of
monthly share prices.
The total share-based payment charge for the year was GBP17,000
(2018: GBP210,000). These were in relation to options issued to an
employee in prior years which vest over 3 years.
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 ZZGZMRDMGGZM
(END) Dow Jones Newswires
January 27, 2020 02:00 ET (07:00 GMT)
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