REG - Gaming Realms PLC - Interim Results
20/09/2022 07:01
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RNS Number : 8136Z Gaming Realms PLC 20 September 2022
20 September 2022
Gaming Realms plc
(the "Company" or the "Group")
Interim Results
Content licensing revenue grows by 57% to £6.4m
EBITDA 1 of £3.5m 2 with a 41% EBITDA margin
Gaming Realms plc (AIM: GMR), the developer and licensor of mobile focused
gaming content, is pleased to announce its interim results for the six months
to 30 June 2022 (the "Period" or "H1'22").
Financial highlights:
H1 2022 H1 2021 Change
£m £m %
Revenue (Content licensing) 6.4 4.1 +57%
Revenue (Brand licensing) * 0.3 1.7 -82%
Revenue (Social) 1.8 1.9 -7%
Total revenue 8.5 7.7 +10%
EBITDA before share option and related charges 3.5 3.1 +12%
EBITDA 3.3 2.7 +25%
Profit before tax 1.3 0.8 +66%
* Brand licensing revenue decreased due to a significant, non-recurring deal
positively impacting revenues in H1 2021.
· Total revenue grew 10% from £7.7m in H1'21 to £8.5m in H1'22.
Group EBITDA grew 12% to £3.5m(2) (H1'21: £3.1m), representing a 41% EBITDA
margin (H1'21: 40%). Excluding brand licensing, revenue grew 36% from £6.0m
in H1'21 to £8.2m in H1'22
· Total licensing revenues grew 15% to £6.7m (H1'21: £5.8m),
with content licensing revenue up 57% to £6.4m (H1'21: £4.1m)
· Revenues from North America of £4.7m representing 55% of total
revenue
· Social revenue decreased 7% to £1.8m (H1'21: £1.9m), but
with a reduction in related expenses, this segment increased its EBITDA by 13%
· Profit before tax increased 66% to £1.3m (H1'21: £0.8m)
Operational highlights:
· Granted Online Gaming Service Supplier License in Connecticut
with launch expected in Q4'22
· Granting of iGaming Supplier License in Ontario and subsequent
launch with 8 operators
· Launched in additional regulated markets in Spain and Denmark
· Launched Slingo content with WLA member Loto-Quebec
· Launched games distribution business with 4ThePlayer in New
Jersey
· Released 8 new games into the market, including Slingo Shark Week
and Slingo DaVinci Diamonds. The Group now has 61 games in its portfolio
(Dec'21: 53 games, Jun'21: 48 games)
Post period-end:
· Licensing revenue increased 53% in the two months post period-end
compared to the same period in 2021
· Launched Betway and Pokerstars in Europe
· Released two new Slingo games: Slingo Stampede and Slingo
Stinkin' Rich
Outlook for FY22:
Gaming Realms has continued to progress during the first half of the year,
with its core strategy of developing and licensing games globally to
market-leading brands and operators delivering high margin revenues.
This growth is expected to continue into the second half of the year as the
Company matures in its key markets. In addition, the Group is aiming to launch
in Connecticut, Portugal and Greece, as well as forecasting growth from the
recently launched markets of Michigan, Pennsylvania, Ontario, Spain and the
Netherlands.
The European market continues to be the largest contributor to content
licensing revenues and, with the launch of 8 games plus entry into new
regulated markets, has grown 19% period on period. We have more direct
integrations with partners, which improves margins and strengthens these
relationships.
Our revenues from North American content licensing have increased 160% period
on period, with the region accounting for 45% of content licensing revenue.
New Jersey continues to be our leading market, but Pennsylvania and Michigan
are growing strongly as we launch more games with new partners. At 30 June
2022, we were live with 7 games in Pennsylvania across 6 partners and 17 games
across 7 partners in Michigan.
In total we have launched with 26 partners in H1 2022 (H1'21: 11). This growth
is supported by the launch of premium games, including Slingo Shark Week and
Slingo Da Vinci Diamonds. We are continuing to invest in our remote game
server and in the period launched our aggregation business in New Jersey with
4ThePlayer.
The Group is continuing to deliver on its clear strategy, expanding into new
markets and launching content which is proving popular with players. It has a
strong pipeline of deals and integrations and the Board expects trading for
FY'22 to be in line with market expectations.
Commenting on the first half performance, Michael Buckley, Executive Chairman,
said:
"The Group has delivered another period of strong growth supported by our
ongoing expansion into newly regulated markets in North America and Europe,
with content licensing revenue increasing by 57%. Whilst brand licensing
declined in the period under review, as a result of the significant contract
in last year's comparative period, this was more than made up by increased
income from our core content licensing. The growth in licensing income has
continued into the second half of this year, with licensing revenues for July
and August 2022 being 53% higher than the comparative months in 2021.
"We have also continued to expand on our existing partnerships, adding new
content through our direct integration agreements, as well as signing new
licensing deals and launching a series of new games.
"Whilst we are mindful of the impact of higher inflation throughout global
markets, the outlook for the Group remains positive. The Group has a strong
new business pipeline and will also see additional revenues coming from North
America, as well as from the new market entries in Europe. As such we expect
to deliver on market expectations for the full year."
An analyst briefing will be held virtually at 9:30am today. To attend, please
contact Yellow Jersey on gamingrealms@yellowjerseypr.com
(mailto:gamingrealms@yellowjerseypr.com) .
The Company also notes that it will be hosting an online presentation to
retail investors on Friday 23rd September at 1pm. Those wishing to join the
presentation are requested to register via the following link: Meeting
Registration
(https://docs.google.com/forms/d/e/1FAIpQLScMWr0wcj9kAezS6K1LrvvcpqkfdUqJeYhIgVc6-KuwWuqlkw/viewform?usp=sf_link)
.
Enquiries
Gaming Realms plc 0845 123 3773
Michael Buckley, Executive Chairman
Mark Segal, CFO
Peel Hunt LLP - NOMAD and broker 020 7418 8900
George Sellar
Andrew Clark
Lalit Bose
Yellow Jersey 07747 788 221
Charles Goodwin
Annabelle Wills
Business review
The Group delivered overall revenue growth of 10% to £8.5m (H1'21: £7.7m),
driven by the Group's core content licensing business. Total expenses
increased 2%, which resulted in a 25% increase in total EBITDA generated
across the Group to £3.3m (H1'21: £2.7m).
The Group recorded a profit before tax for the period of £1.3m, a 66%
increase on the same period in 2021.
Licensing
Licensing segment revenues increased 15% to £6.7m (H1'21: £5.8m), which is
broken down as:
· Content licensing revenue growth of 57% to £6.4m (H1'21:
£4.1m); and
· Brand licensing revenue reduced 82% to £0.3m (H1'21: £1.7m).
The segment delivered £3.6m EBITDA in the period, an 8% overall uplift over
the £3.4m in H1'21.
Content licensing
The core focus of the Group remains delivering growth in the content licensing
business. Continued growth in the games portfolio and increasing the
distribution footprint to an increased number of operators in Europe and North
America underpins the current period's performance.
During the period, the Group began operating with partners in three additional
regulated markets, Ontario, Spain and Denmark. Outside of going live with
partners in these newly entered markets, we also went live with a further 18
partners during the period in existing markets in Europe and North America.
An additional 8 new Slingo games were released to the market during the
period, bringing the Group's games portfolio to 61 games at the period end
(H1'21: 48 games).
This all resulted in a 57% increase in content licensing revenues to £6.4m
(H1'21: £4.1m).
Brand licensing
Revenues from the Group's brand licensing activities, which are non-core, fell
82% to £0.3m (H1'21: £1.7m). This is a result of a significant brand deal
completed in the comparative period which did not repeat in the period.
Social
Revenues in the Group's social publishing business reduced 7% to £1.8m in the
period (H1'21: £1.9m) as a result of a reduction in marketing during the
period.
However, with total segment expenses (excluding share option and related
charges) reducing by 16% to £1.1m (H1'21: £1.3m), the segment actually
delivered EBITDA growth of 13% to £0.7m (H1'21: £0.6m).
The reduction in total segmental expenses comprises a 21% fall in operating
costs, which are largely revenue driven, and a 99% reduction in marketing
costs from the previous period.
Cashflow and balance sheet
The Group's cash balance at 30 June 2022 was £4.0m, a reduction of £0.4m
from the £4.4m reported at 31 December 2021.
The current period fall in cash was largely driven by the £2.0m cash inflow
from operations, offset by £2.1m development costs capitalised during the
period and £0.2m acquisition of tangible and intangible assets.
Subsequent to the period end, the cash balance increased to £4.6m at 31
August 2022, with negative working capital movements in the first half of the
year reversing.
The Group has a convertible loan of £3.0m owed to Gamesys Group plc (see Note
11), due for repayment in December 2022.
Net assets totalled £16.1m (31 December 2021: £13.1m).
Consolidated statement of comprehensive income
for the 6 months ended 30 June 2022
6M 6M
30 June 2022 30 June 2021
Unaudited Unaudited
Note £ £
Revenue 2 8,507,887 7,745,982
Marketing expenses (53,274) (207,428)
Operating expenses (1,179,301) (1,185,859)
Administrative expenses (3,795,212) (3,256,425)
Share option and related charges 10 (162,819) (442,571)
EBITDA 2 3,317,281 2,653,699
Amortisation of intangible assets 6 (1,752,572) (1,461,832)
Depreciation of property, plant and equipment 5 (124,071) (97,282)
Finance expense 3 (117,769) (302,221)
Finance income 3 13,038 11,564
Profit before tax 1,335,907 803,928
Tax credit 44,719 38,347
Profit for the period 1,380,626 842,275
Other comprehensive income
Items that will or may be reclassified to profit or loss:
Exchange gain / (loss) arising on translation of foreign operations 713,266 (84,998)
Total other comprehensive income 713,266 (84,998)
Total comprehensive income 2,093,892 757,277
Profit / (loss) attributable to:
Owners of the parent 1,380,626 843,833
Non-controlling interest - (1,558)
1,380,626 842,275
Total comprehensive income attributable to:
Owners of the parent 2,093,892 758,835
Non-controlling interest - (1,558)
2,093,892 757,277
Earnings per share Pence Pence
Basic 4 0.47 0.29
Diluted 4 0.46 0.28
Consolidated statement of financial position
as at 30 June 2022
30 June 31 December
2022
2021
Unaudited Audited
Note £ £
Non-current assets
Intangible assets 6 12,930,360 11,815,598
Property, plant and equipment 5 464,250 484,578
Other assets 138,798 150,646
13,533,408 12,450,822
Current assets
Trade and other receivables 7 4,680,813 3,260,687
Cash and cash equivalents 3,995,382 4,412,375
8,676,195 7,673,062
Total assets 22,209,603 20,123,884
Current liabilities
Trade and other payables 8 2,138,487 2,241,114
Lease liabilities 157,794 172,887
Other creditors 11 2,950,901 3,489,278
Derivative liabilities 11 638,000 744,000
5,885,182 6,647,279
Non-current liabilities
Deferred tax liability 153,034 199,876
Lease liabilities 95,886 168,227
248,920 368,103
Total liabilities 6,134,102 7,015,382
Net assets 16,075,501 13,108,502
Equity
Share capital 9 29,200,676 28,970,262
Share premium 87,653,774 87,370,856
Merger reserve (67,673,657) (67,673,657)
Foreign exchange reserve 2,131,535 1,418,269
Retained earnings (35,236,827) (36,977,228)
Total equity 16,075,501 13,108,502
Consolidated statement of cash flows
for the 6 months ended 30 June 2021
30 June 30 June
2022
2021
Unaudited Unaudited
Note £ £
Cash flows from operating activities
Profit for the period 1,380,626 842,275
Adjustments for:
Depreciation of property, plant and equipment 5 124,071 97,282
Amortisation of intangible fixed assets 6 1,752,572 1,461,832
Finance income 3 (13,038) (11,564)
Finance expense 3 117,769 302,221
Loss on disposal of property, plant and equipment - 578
Income tax credit (44,719) (38,347)
Exchange differences 5,413 29,803
Share based payment expense 10 253,775 271,859
Increase in trade and other receivables (1,427,075) (877,939)
(Decrease) / increase in trade and other payables (145,627) 185,621
Decrease in other assets 11,848 -
Net cash flows from operating activities 2,015,615 2,263,621
Investing activities
Acquisition of property, plant and equipment 5 (99,376) (119,847)
Acquisition of intangible assets 6 (83,143) (98,473)
Capitalised development costs 6 (2,088,552) (1,614,370)
Proceeds from the sale of other investments - 362,435
Finance lease asset - sublease receipts - 78,840
Net cash used in investing activities (2,271,071) (1,391,415)
Financing activities
Receipt of deferred consideration - 972,554
IFRS 16 lease payments (103,282) (203,878)
Issue of share capital on exercise of options 9 13,332 318,221
Interest paid (99,393) (105,218)
Net cash (used in) / from financing activities (189,343) 981,679
Net (decrease) / increase in cash and cash equivalents (444,799) 1,853,885
Cash and cash equivalents at beginning of period 4,412,375 2,105,167
Exchange gain / (loss) on cash and cash equivalents 27,806 (35,417)
Cash and cash equivalents at end of period 3,995,382 3,923,635
Consolidated statement of changes in equity
for the 6 months ended 30 June 2022
Share capital Share premium Merger reserve Foreign Exchange Reserve Retained earnings Total to equity holders of parents Non-controlling interest Total equity
£ £ £ £ £ £ £ £
1 January 2021 28,664,731 87,258,166 (67,673,657) 1,379,116 (38,768,257) 10,860,099 70,623 10,930,722
Profit for the period - - - - 843,833 843,833 (1,558) 842,275
Other comprehensive income - - - (84,998) - (84,998) - (84,998)
Total comprehensive income for the period - - - (84,998) 843,833 758,835 (1,558) 757,277
Contributions by and distributions to owners
Share-based payment on share options (Note 10) - - - - 271,859 271,859 - 271,859
Exercise of options (Note 9) 205,531 112,690 - - - 318,221 - 318,221
30 June 2021 (unaudited) 28,870,262 87,370,856 (67,673,657) 1,294,118 (37,652,565) 12,209,014 69,065 12,278,079
1 January 2022 28,970,262 87,370,856 (67,673,657) 1,418,269 (36,977,228) 13,108,502 - 13,108,502
Profit for the period - - - - 1,380,626 1,380,626 - 1,380,626
Other comprehensive income - - - 713,266 - 713,266 - 713,266
Total comprehensive income for the period - - - 713,266 1,380,626 2,093,892 - 2,093,892
Contributions by and distributions to owners
Share-based payment on share options (Note 10) - - - - 253,775 253,775 - 253,775
Exercise of options (Note 9) 13,332 - - - - 13,332 - 13,332
Conversion of loan (Note 11) 217,082 282,918 - - 106,000 606,000 - 606,000
30 June 2022 (unaudited) 29,200,676 87,653,774 (67,673,657) 2,131,535 (35,236,827) 16,075,501 - 16,075,501
Notes forming part of the consolidated financial statements
For the 6 months ended 30 June 2022
1. Accounting policies
General Information
Gaming Realms plc ("the Company") and its subsidiaries (together "the Group").
The Company is admitted to trading on AIM of the London Stock Exchange. It is
incorporated and domiciled in the UK. The address of its registered office is
Two Valentine Place, London, SE18QH.
The results for the six months ended 30 June 2022 and 30 June 2021 are
unaudited.
Basis of preparation
The financial information for the year ended 31 December 2021 included in
these financial statements does not constitute the full statutory accounts for
that year. The Annual Report and Financial Statements for 2021 have been filed
with the Registrar of Companies. The Independent Auditors' Report on the
Annual Report and Financial Statement for 2021 was unqualified, did not draw
attention to any matters by way of emphasis, and did not contain a statement
under 498(2) or 498(3) of the Companies Act 2006.
This interim report, which has neither been audited nor reviewed by
independent auditors, was approved by the board of directors on 19 September
2022. The financial information in this interim report has been prepared in
accordance with UK adopted international accounting standards. The accounting
policies applied by the Group in this financial information are the same as
those applied by the Group in its financial statements for the year ended 31
December 2021 and which will form the basis of the 2022 financial statements.
The consolidated financial statements are presented in Sterling.
Going concern
The Group meets its day-to-day working capital requirements from the cash
flows generated by its trading activities and its available cash resources.
The Group prepares cash flow forecasts and re-forecasts at least bi-annually
as part of the business planning process.
The Directors have reviewed forecast cash flows for the period to December
2024, which include the potential repayment of the convertible loan in
December 2022 (see Note 11), and consider that the Group will have sufficient
cash resources available to meet its liabilities as they fall due.
Accordingly, these financial statements have been prepared on the basis of
accounting principles applicable to a going concern, which assumes that the
Group will realise its assets and discharge its liabilities in the normal
course of business.
EBITDA
EBITDA is a non-GAAP company specific measure defined as profit or loss before
tax adjusted for finance income and expense, depreciation and amortisation.
EBITDA is considered to be a key performance measure by the Directors as it
serves as an indicator of financial performance.
2. Segment information
The Board is the Group's chief operating decision-maker. Management has
determined the operating segments based on the information reviewed by the
Board for the purposes of allocating resources and assessing performance.
The Group has two reportable segments.
· Licensing - B2B brand and content licensing to partners in the US
and Europe; and
· Social publishing - provides B2C freemium games to the US and
Europe.
Revenue
The Group has disaggregated revenue into various categories in the following
table which is intended to:
· Depict how the nature, amount, timing and uncertainty of revenue and
cash flows are affected by economic date; and
· Enable users to understand the relationship with revenue segment
information provided below.
Licensing Social Other Total
publishing
H1 2022 revenue £ £ £ £
Primary geographical markets
UK, including Channel Islands 411,529 - 11,000 422,529
USA 2,857,929 1,788,722 - 4,646,651
Isle of Man 359,662 - - 359,662
Malta 1,224,280 - - 1,224,280
Gibraltar 1,208,956 - - 1,208,956
Rest of the World 645,809 - - 645,809
6,708,165 1,788,722 11,000 8,507,887
Contract counterparties
Direct to consumers (B2C) - 1,788,722 - 1,788,722
B2B 6,708,165 - 11,000 6,719,165
6,708,165 1,788,722 11,000 8,507,887
Timing of transfer of goods and services
Point in time 6,708,165 1,788,722 11,000 8,507,887
Over time - - - -
6,708,165 1,788,722 11,000 8,507,887
Licensing Social Other Total
publishing
H1 2021 revenue £ £ £ £
Primary geographical markets
UK, including Channel Islands 381,898 - - 381,898
USA 2,533,481 1,930,171 - 4,463,652
Isle of Man 1,228,087 - - 1,228,087
Malta 981,951 - - 981,951
Gibraltar 249,143 - - 249,143
Rest of the World 441,251 - - 441,251
5,815,811 1,930,171 - 7,745,982
Contract counterparties
Direct to consumers (B2C) - 1,930,171 - 1,930,171
B2B 5,815,811 - - 5,815,811
5,815,811 1,930,171 - 7,745,982
Timing of transfer of goods and services
Point in time 5,735,657 1,930,171 - 7,665,828
Over time 80,154 - - 80,154
5,815,811 1,930,171 - 7,745,982
EBITDA
Licensing Social publishing Head Office Total
H1 2022 £ £ £ £
Revenue 6,708,165 1,788,722 11,000 8,507,887
Marketing expense (13,081) (2,063) (38,130) (53,274)
Operating expense (721,757) (457,544) - (1,179,301)
Administrative expense (2,256,069) (646,386) (892,757) (3,795,212)
Share option and related charges (77,067) (855) (84,897) (162,819)
EBITDA 3,640,191 681,874 (1,004,784) 3,317,281
Licensing Social Head Office Total
publishing
H1 2021 £ £ £ £
Revenue 5,815,811 1,930,171 - 7,745,982
Marketing expense (12,389) (157,862) (37,177) (207,428)
Operating expense (606,247) (579,612) - (1,185,859)
Administrative expense (1,741,832) (583,265) (931,328) (3,256,425)
Share option and related charges (85,401) (4,745) (352,425) (442,571)
EBITDA 3,369,942 604,687 (1,320,930) 2,653,699
3. Finance income and expense
6M 6M
30 June 2022
30 June 2021
£ £
Finance income
Interest received - 6,306
Interest income on unwind of deferred income 13,038 -
Interest income on finance lease asset - 5,258
Total finance income 13,038 11,564
Finance expense
Bank interest paid 9,519 8,743
Fair value loss on other investments - 38,856
Effective interest on other creditor 94,497 228,575
Interest expense on lease liability 13,753 26,047
Total finance expense 117,769 302,221
4. Earnings per share
Basic earnings per share is calculated by dividing the result attributable to ordinary shareholders by the weighted average number of shares in issue during the period. The calculation of diluted EPS is based on the result attributable to ordinary shareholders and weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares. The Group's potentially dilutive securities consist of share options and a convertible loan (see Note 11). The convertible loan is anti-dilutive and so is ignored in calculating diluted EPS.
6M 6M
30 June 2022
30 June 2021
£ £
Profit after tax attributable to the owners of the parent Company 1,380,626 843,833
Number Number
Denominator - basic
Weighted average number of ordinary shares 291,309,072 288,157,560
Denominator - diluted
Weighted average number of ordinary shares 291,309,072 288,157,560
Weighted average number of option shares 7,442,107 12,332,327
Weighted average number of shares 298,751,179 300,489,887
Pence Pence
Basic earnings per share 0.47 0.29
Diluted earnings per share 0.46 0.28
5. Property, plant and equipment
ROU lease assets Leasehold improvements Computers and related equipment Office furniture and equipment Total
£ £ £ £ £
Cost
At 1 January 2022 771,690 62,835 311,325 63,609 1,209,459
Additions - - 98,049 1,327 99,376
Disposals - - - - -
Exchange differences 10,614 590 8,366 3,856 23,426
At 30 June 2022 782,304 63,425 417,740 68,792 1,332,261
Accumulated deprecation and impairment
At 1 January 2022 457,574 32,555 179,656 55,096 724,881
Depreciation charge 75,851 6,718 37,337 4,165 124,071
Disposals - - - - -
Exchange differences 8,916 496 6,212 3,435 19,059
At 30 June 2022 542,341 39,769 223,205 62,696 868,011
Net book value
At 31 December 2021 314,116 30,280 131,669 8,513 484,578
At 30 June 2022 239,963 23,656 194,535 6,096 464,250
6. Intangible assets
Goodwill Customer database Software Development costs Licenses Domain names Intellectual Property Total
£ £ £ £ £ £ £ £
Cost
At 1 January 2022 6,673,924 1,490,536 1,262,416 17,470,157 247,322 8,874 5,844,747 32,997,976
Additions - - 54,229 2,088,552 28,914 - - 2,171,695
Exchange differences 677,911 165,041 133,003 54,241 309 985 649,699 1,681,189
At 30 June 2022 7,351,835 1,655,577 1,449,648 19,612,950 276,545 9,859 6,494,446 36,850,860
Accumulated amortisation and impairment
At 1 January 2022 1,650,000 1,490,536 1,218,108 12,102,389 43,469 8,874 4,669,002 21,182,378
Amortisation charge - - 28,052 1,310,340 33,558 - 380,622 1,752,572
Exchange differences 127,503 165,041 133,003 14,398 - 985 544,620 985,550
At 30 June 2022 1,777,503 1,655,577 1,379,163 13,427,127 77,027 9,859 5,594,244 23,920,500
Net book value
At 31 December 2021 5,023,924 - 44,308 5,367,768 203,853 - 1,175,745 11,815,598
At 30 June 2022 5,574,332 - 70,485 6,185,823 199,518 - 900,202 12,930,360
7. Trade and other receivables
30 June 31 December
2022
2021
£ £
Trade receivables 2,666,693 1,372,749
Other receivables 31,280 41,957
Tax and social security 569,065 394,749
Prepayments and accrued income 1,413,775 1,451,232
4,680,813 3,260,687
All amounts shown fall due for payment within one year.
8. Trade and other payables
30 June 31 December
2022
2021
£ £
Trade payables 633,140 531,939
Other payables 114,638 158,726
Tax and social security 274,052 236,491
Accruals 1,116,657 1,313,958
2,138,487 2,241,114
The carrying value of trade and other payables classified as financial
liabilities measured at amortised cost approximates fair value.
9. Share capital
30 June 30 June 31 December 31 December
2022
2022
2021
2021
Ordinary shares Number £ Number £
Ordinary shares of 292,006,775 29,200,676 289,702,626 28,970,262
10 pence each
The increase of 2,304,149 ordinary shares relates to (i) the exercise of share
options during the period and (ii) the £500,000 partial conversion of the
convertible loan (see Note 11). The changes in share capital and share
premium as a result of these events is shown below.
Share option exercises Loan conversion Total
£ £ £
Share capital 13,332 217,082 230,414
Share premium - 282,918 282,918
13,332 500,000 513,332
10. Share based payments
The share option and related charges income statement expense comprises:
6M 6M
30 June 2022
30 June 2021
£ £
IFRS 2 share-based payment charge 253,775 271,859
Direct taxes related to share options (90,956) 170,712
162,819 442,571
IFRS 2 (Share-based payments) requires that the fair value of equity settled
transactions are calculated and systematically charged to the statement of
comprehensive income over the vesting period. The total fair value that was
charged to the income statement in the period in relation to equity-settled
share-based payments was £253,775 (H1 2021: £271,859).
Where individual EMI thresholds are exceeded or when unapproved share options
are exercised by overseas employees, the Group is subject to employer taxes
payable on the taxable gain on exercise. Since these taxes are directly
related to outstanding share options, the income statement charge has been
included within share option and related charges. The Group uses its closing
share price at the reporting date to calculate such taxes to accrue. The tax
related income statement credit for the period was £90,956 (H1 2021:
£170,712 charge).
On 6 January 2022, the following share options were granted:
· The Group's 2 Executive Directors were granted 2,000,000 share
options with an exercise price of 32.5 pence per share. The options lapse on
the 3(rd) anniversary of grant and vest upon certain non-market-based
conditions.
· The Group's 2 Executive Directors and certain employees were
granted 1,900,000 share options, which vest in three equal tranches on 15
October 2022, 15 October 2023 and 15 October 2024. The options all have an
exercise price of 32.5 pence per share.
11. Arrangement with Gamesys Group plc
In December 2017 the Group entered into a complex transaction with Gamesys
Group plc and Group companies (together 'Gamesys Group'). The transaction
includes a £3.5m secured convertible loan agreement alongside a 10-year
framework services agreement for the supply of various real money services.
Under the framework services agreement the first £3.5m of services are
provided free of charge within the first 5 years.
The convertible loan has a duration of 5 years and carried interest at 3-month
LIBOR plus 5.5%, which has been updated to a fixed 5.75% following cessation
of LIBOR on 31 December 2021. It is secured over the Group's Slingo assets
and business. At any time after the first year, Gamesys Group plc may elect
to convert all or part of the principal amount into ordinary shares of Gaming
Realms plc at a discount of 20% to the share price prevailing at the time of
conversion. To the extent that the price per share at conversion is lower
than 10p (nominal value), then the shares can be converted at nominal value
with a cash payment equal to the aggregate value of the convertible loan
outstanding multiplied by the shortfall on nominal value payable to Gamesys
Group plc. Under this arrangement the maximum dilution to Gaming Realms
shareholders will be approximately 11% assuming the convertible loan is
converted in full.
The option violates the fixed-for-fixed criteria for equity classification as
the number of shares is variable and as a result is classified as a liability.
The fair value of the conversion feature is determined each reporting date
with changes recognised in profit or loss. The initial fair value was £0.6m
based on a probability assessment of conversion and future share price. This
is a level 3 valuation as defined by IFRS 13. The fair value as at 30 June
2022 was £0.7m (31 December 2021: £0.7m) based on revised probabilities of
when and if the option will be exercised. The key inputs into the valuation
model included timing of exercise by the counterparty (based on a probability
assessment) and the share price.
The initial fair value of the host debt was calculated as £2.7m, being the
present value of expected future cash outflows. The initial rate used to
discount future cash flows was 14.1%, being the Group's incremental borrowing
rate. The rate was calculated by reference to the Group's cost of equity in
the absence of reliable alternative evidence of the Group's cost of borrowing
given it is predominantly equity funded. Expected cash flows are based on
the directors' judgement that a change in control event would not occur.
Subsequently the loan is carried at amortised cost.
The residual £0.2m of proceeds were allocated to the obligation of provide
free services.
On 23 February 2022, Bally's Corporation (owner of Gamesys Group) exercised
their option to convert £500,000 of the £3,500,000 convertible loan. The
issue of 2,170,817 new ordinary shares to satisfy the conversion resulted in
an increase in share capital of £217,082 and share premium of £282,918. As
a result of the conversion, a £106,000 reclassification from the fair value
of the derivative liability into retained earnings was made, being the 14.29%
portion of the total loan converted.
Following conversion, the principal convertible loan balance is £3,000,000.
Fair value of debt host Obligation to provide free services Fair value of derivative Liability Total
£ £ £ £
At 1 January 2022 3,429,278 60,000 744,000 4,233,278
Utilisation of free services - (43,000) - (43,000)
Conversion of loan (500,000) - (106,000) (606,000)
Effective interest 94,497 - - 94,497
Interest paid (89,874) - - (89,874)
At 30 June 2022 2,933,901 17,000 638,000 3,588,901
12. Related party transactions
Jim Ryan is a Non-Executive Director of the Company and the CEO of Pala
Interactive, which has a real-money online casino and bingo site in New
Jersey. During the period, total license fees earned by the Group were $10,401
(H1 2021: $24,862) with $940 due at 30 June 2022 (30 June 2021: $12,668).
Towards the end of the period the Group began distributing its content to
certain North American partners via Pala's B2B platform distribution network,
with platform fees of $108 being incurred (H1'21: $Nil) which were all owed at
the period end (30 June 2021: $Nil).
Jim Ryan is a Director of Bally's Corporation ("Bally's") and was previously a
Non-Executive Director of Gamesys Group prior to its acquisition by Bally's.
In December 2017 the Group entered into a 10-year framework services agreement
and a 5-year convertible loan agreement for £3.5m with Gamesys Group plc (see
Note 11).
During the period £75,000 (H1 2021: £75,000) of consulting fees were paid to
Dawnglen Finance Limited, a company controlled by Michael Buckley. No amounts
were owed at 30 June 2022 (30 June 2021: £Nil).
1 EBITDA is profit before interest, tax, depreciation and amortisation
expenses and is a non-GAAP measure. The Group uses EBITDA to comment on its
financial performance.
2 EBITDA before share option and related charges is also discussed above
which is EBITDA with the share option and related charge in the income
statement added back on the basis it is a material non-cash charge.
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