JPJ Group plc: Results for the Three and Nine Months Ended 30 September 2018

JPJ Group plc: Results for the Three and Nine Months Ended 30 September 2018

Gaming revenue up 8% year-on-year, net leverage reduced significantly;

2018 outlook confirmed

PR Newswire

LONDON, Nov. 14, 2018

LONDON, Nov. 14, 2018 /PRNewswire/ -- JPJ Group plc (LSE: JPJ) (the 'Group'), a leading global online bingo-led operator, today announces the results for the three and nine months ended 30 September 2018.

Financial summary1


Three months ended

30 September 2018

(£m)

Three months ended

30 September 2017

(£m)

Reported

change

(%)

Nine months ended

30 September 2018

(£m)

Nine months ended

30 September 2017

(£m)

Reported

change

(%)

Gaming revenue              

77.8

71.8

8

233.2

210.1

11

Net income / (loss) from continuing operations (as reported under IFRS)

7.4

(8.2)

-

6.6

(29.9)

-

Adjusted EBITDA2

28.8

25.5

13

84.0

81.9

3

Adjusted net income2

23.3

17.1

36

67.1

56.9

18

Operating cash flows

33.0

32.6

1

82.2

78.2

5

Diluted net income / (loss) per share from continuing operations3

0.10

(0.11)

-

0.09

(0.41)

-

Diluted adjusted net income per share2,3

0.31

0.23

35

0.90

0.76

18

Financial highlights for the third quarter

Operational highlights for the third quarter

Business segments highlights for the third quarter

Neil Goulden, Executive Chairman, commented:

"We are pleased with the quarterly performance of JPJ Group given reported gaming revenue growth of 8% and an uplift in adjusted EBITDA2 of 13%. The Vera&John segment is once again the stand-out, with year-on-year revenue growth of 41% on a constant currency basis10. The growth at Vera&John highlights our strategy of international diversification, with 44% of Group revenue generated outside the UK in Q3.   

As part of our commitment to meeting the highest industry standards on responsible gambling, revenues at Jackpotjoy UK have been impacted by the responsible gambling measures we have implemented and the closure of a number of high value accounts. We expect that the impact of closed accounts will begin to annualise during H2 2019 and, provided there are no further regulatory challenges, the Jackpotjoy8 segment will return to revenue growth thereafter.

Overall, we remain confident in our outlook for the full year. We continue to enjoy a strong association with Gamesys in a relationship which provides mutual benefits and we are also excited by the significant growth opportunities that exist in both existing and new markets, where we are well-placed to take advantage of this promising backdrop."

Outlook

Performance in the first nine months of the financial year has been solid as gaming revenue has grown 11% and adjusted EBITDA2 growth has accelerated over the past three months; the Board remains comfortable with market expectations for EBITDA for FY 2018.

The Group's ongoing strong free cash flow4 generation is enabling us to rapidly deleverage, with net debt reduction to below 2.5x net debt/EBITDA remaining a key strategic target and the point at which the Board can consider options to return cash to shareholders. As previously highlighted, the Board expects the impact of responsible gambling measures implemented this year to annualise from H2 2019 and provided there are no further regulatory changes impacting the Group's operations, for revenue growth to resume at Jackpotjoy UK thereafter.

The Group also notes that Sweden is currently undergoing a regulatory process that will result in licensed operators being subject to an 18% tax on Gross Gaming Revenues from January 2019. The Group can confirm that it has applied for the required licences and, in line with other operators in the region, is awaiting confirmation of these approvals.

Conference call

A conference call for analysts and investors will be held today at 1.00pm GMT / 8.00am ET. To participate, interested parties are asked to dial +44(0)20-3003-2666 or +1-800-608-0547, or for US shareholders +1-866-966-5335, 10 minutes prior to the scheduled start of the call using the reference "JPJ" when prompted. 

A replay of the conference call will be available for 30 days by dialling +44(0)20-8196-1998 or +1-866-595-5357 and using reference 6608240#. A transcript will also be made available on JPJ Group plc's website at http://www.jpjgroup.com/investors.


Note Regarding Non-IFRS financial measures

The following non-IFRS definitions are used in this release because management believes that they provide additional useful information regarding ongoing operating and financial performance. Readers are cautioned that the definitions are not recognised measures under IFRS, do not have standardised meanings prescribed by IFRS, and should not be considered in isolation or construed to be alternatives to revenues and net income/(loss) and comprehensive income/(loss) for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. Our method of calculating these measures may differ from the method used by other entities. Accordingly, our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.   

Adjusted EBITDA, as defined by the Group, is income from continuing operations before interest expense including accelerated debt costs and other accretion (net of interest income), income taxes, amortisation and depreciation, share-based compensation, severance costs, realised loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange (gain)/loss, and gain on sale of intangible assets. Management believes that Adjusted EBITDA is an important indicator of the issuer's ability to generate liquidity to service outstanding debt and fund acquisition milestone payments and uses this metric for such purpose. The exclusion of share-based compensation eliminates non-cash items and the exclusion of realised loss on cross currency swap, fair value adjustments on contingent consideration, severance costs, transaction related costs, foreign exchange (gain)/loss, and gain on sale of intangible assets eliminates items which management believes are either non-operational and/or non-routine.

Adjusted Net Income, as defined by the Group, means net income from continuing operations plus or minus items of note that management may reasonably quantify and believes will provide the reader with a better understanding of the Group's underlying business performance. Adjusted Net Income is calculated by adjusting net income for accretion on financial liabilities, amortisation of acquisition related purchase price intangibles (including non-compete clauses), share-based compensation, severance costs, realised loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange (gain)/loss and gain on sale of intangible assets. The exclusion of accretion on financial liabilities and share-based compensation eliminates the non-cash items and the exclusion of amortisation of acquisition related purchase price intangibles (including non-compete clauses), realised loss on cross currency swap, fair value adjustments on contingent consideration, severance costs, transaction related costs, foreign exchange (gain)/loss, and gain on sale of intangible assets eliminates items which management believes are non-operational and/or non-routine.  Adjusted Net Income is considered by some investors and analysts for the purpose of assisting in valuing a company.

Diluted Adjusted Net Income per share, as defined by the Group, means Adjusted Net Income divided by the diluted weighted average number of shares outstanding, calculated using the IFRS treasury method, for the applicable period. Management believes that Diluted Adjusted Net Income per share assists with the Group's ability to analyse Adjusted Net Income on a diluted weighted average per share basis.

Cautionary Note Regarding Forward-Looking Information

This release contains certain information and statements that may constitute 'forward-looking information' (including future-oriented financial information and financial outlooks) within the meaning of applicable laws, including Canadian securities laws. Often, but not always, forward-looking information can be identified by the use of words such as 'plans', 'expects', 'estimates', 'projects', 'predicts', 'targets', 'seeks', 'intends', 'anticipates', 'believes', or 'is confident of' or the negative of such words or other variations of or synonyms for such words, or state that certain actions, events or results 'may', 'could', 'would', 'should', 'might' or 'will' be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause actual results, performance, achievements or developments to be materially different from those anticipated by the Group and expressed or implied by the forward-looking statements. Forward-looking information contained in this release includes, but is not limited to, statements with respect to the Group's future financial performance, the future prospects of the Group's business and operations, the Group's growth opportunities and the execution of its growth strategies, the Group's milestone payment obligations, the future performance of the Jackpotjoy segment, the possibility of the Group drawing on the Revolving Facility, and the statements made under the heading 'Outlook' of this release. Certain of these statements may constitute a financial outlook within the meaning of Canadian securities laws. These statements reflect the Group's current expectations related to future events or its future results, performance, achievements or developments, and future trends affecting the Group. All such statements, other than statements of historical fact, are forward-looking information. Such forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to, the ability of the Group to secure, maintain and comply with all required licences, permits and certifications to carry out business in the jurisdictions in which it currently operates or intends to operate; governmental and regulatory actions, including the introduction of new laws or changes in laws (or the interpretation thereof) related to online gaming; general business, economic and market conditions (including market growth rates and the withdrawal of the UK from the European Union); the Group operating in foreign jurisdictions; the competitive environment; the expected growth of the online gaming market and potential new market opportunities; anticipated and unanticipated costs; the protection of the Group's intellectual property rights; the Group's ability to successfully integrate and realise the benefits of its completed acquisitions, the amount of expected milestone payments required to be made; the Group's continued relationship with the Gamesys group and other third parties; the ability of the Group to service its debt obligations; and the ability of the Group to obtain additional financing, if, as and when required. Such statements could also be materially affected by risks relating to the lack of available and qualified personnel or management; stock market volatility; taxation policies; competition; foreign operations; the Group's limited operating history and the Group's ability to access sufficient capital from internal or external sources.  However, whether actual results and developments will conform with the expectations and predictions contained in the forward-looking information is subject to a number of risks and uncertainties, many of which are beyond the Group's control, and the effects of which can be difficult to predict, including that the assumptions outlined above may not be accurate.  For a description of additional risk factors, see Schedule 'A' attached to JPJ Group plc's most recently filed annual information form. Although the Group has attempted to identify important factors that could cause actual results, performance, achievements or developments to differ materially from those described in forward-looking statements, there may be other factors that cause actual results, performance, achievements or developments not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results, performance, achievement or developments are likely to differ, and may differ materially, from those expressed in or implied by the forward-looking information contained in this release. Accordingly, readers should not place undue reliance on forward-looking information. While subsequent events and developments may cause the Group's expectations, estimates and views to change, the Group does not undertake or assume any obligation to update or revise any forward-looking information, except as required by applicable securities laws. The forward-looking information contained in this release should not be relied upon as representing the Group's expectations, estimates and views as of any date subsequent to the date of this release. The forward-looking information contained in this release is expressly qualified by this cautionary statement.  Investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur.

Any future-oriented financial information or financial outlooks in this release are based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities.  While the Group considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect.  These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, and interest rates or tax rates.

Financial Review

Gaming revenue

The Group's gaming revenue during the three months ended 30 September 2018 consisted of:

The Group's gaming revenue during the three months ended 30 September 2017 consisted of:

The increase in gaming revenue for the three months ended 30 September 2018 in comparison with the three months ended 30 September 2017 relates primarily to organic growth9 of the Vera&John segment, where gaming revenue increased by 40%.

The Group's gaming revenue during the nine months ended 30 September 2018 consisted of:

The Group's gaming revenue during the nine months ended 30 September 2017 consisted of:

Costs and expenses


Three month

period ended

30 September 2018

(£000's)

Three month

period ended

30 September 2017

(£000's)

Nine month

period ended

30 September 2018

(£000's)

Nine month

period ended

30 September 2017

(£000's)

Distribution costs

37,468

34,953

115,776

96,702

Administrative costs

26,922

27,661

79,417

77,679

Transaction related costs

275

1,361

1,338

2,676

Severance costs

400

850


65,065

63,975

197,381

177,057

Distribution costs


Three month

period ended

30 September 2018

(£000's)

Three month

period ended

30 September 2017

(£000's)

Nine month

period ended

30 September 2018

(£000's)

Nine month

period ended

30 September 2017

(£000's)

Selling and marketing

12,717

12,368

39,892

32,008

Licensing fees

10,979

10,499

32,457

30,423

Gaming taxes

9,104

8,742

30,423

25,203

Processing fees

4,668

3,344

13,004

9,068


37,468

34,953

115,776

96,702

Selling and marketing expenses consist of payments made to affiliates and general marketing expenses related to each brand.  Licensing fees consist of the fees for the Jackpotjoy8 segment to operate on its platforms and game suppliers' fees paid by both the Vera&John and Jackpotjoy8 segments. Gaming taxes largely consist of point of consumption taxes ('POC'), payable in the regulated jurisdictions that the Group operates in. Variance in gaming taxes from prior periods relates to a change in UK POC taxes where a 15% general betting duty on all free or discounted online bets ('POC2') was introduced in Q4 2017. Processing fees consist of costs associated with using payment providers and include payment service provider transaction and handling costs, as well as deposit and withdrawal fees.  With the exception of selling and marketing expenses, distribution costs tend to be variable in relation to revenue.

The increase in distribution costs for the three and nine months ended 30 September 2018 compared to the same periods in 2017 is mainly due to higher revenues achieved and increased selling and marketing spending, primarily in the Vera&John segment.

Administrative costs


Three month

period ended

30 September 2018

(£000's)

Three month

period ended

30 September 2017

(£000's)

Nine month

period ended

30 September 2018

(£000's)

Nine month

period ended

30 September 2017

(£000's)

Compensation and benefits

8,532

8,914

24,246

23,514

Professional fees

809

667

2,904

2,662

General and administrative

2,309

2,129

6,787

6,471

Amortisation and depreciation

15,272

15,951

45,480

45,032


26,922

27,661

79,417

77,679

Compensation and benefits costs consist of salaries, wages, bonuses, directors' fees, benefits and share-based compensation expense.  The decrease in these expenses for the three months ended 30 September 2018 compared to the same period in 2017 is due to lower operational bonus accruals.  The increase in these expenses for the nine months ended 30 September 2018 compared to the same period in 2017 is due to additional staff hired in the period.

Professional fees consist mainly of legal, accounting and audit fees. The slight increase in professional fees in the three and nine months ended 30 September 2018 compared to the same periods in 2017 relates to additional gaming industry regulatory requirements that came into effect in the current period.

General and administrative expenses consist of items, such as rent and occupancy, travel and accommodation, insurance, listing authority fees, technology and development costs, and other office overhead charges. The increase in these costs for the three and nine months ended 30 September 2018 compared to the same periods in the prior year can be attributed to marginally higher travel, rent and overhead costs.

Amortisation and depreciation consist of amortisation of the Group's intangible assets and depreciation of the Group's tangible assets over their useful lives.  The decrease in amortisation and depreciation for the three months ended 30 September 2018 is due to the fact that amortisation expense decreases with each passing year of the Group's intangible assets' lives as a result of the amortisation method used. The increase in amortisation and depreciation for the nine months ended 30 September 2018 is due to the non-compete clauses, for which amortisation started in Q2 2017.

Transaction related costs

Transaction related costs consist of legal, professional, due diligence, other direct costs/fees associated with transactions and acquisitions or disposals contemplated or completed, costs associated with the Group's Premium Listing and the refinancing of the Group's external debt. Q1 2017 transaction related costs also included costs associated with the UK strategic review and implementation of UK-centred strategic initiatives, including the listing of the Group on the London Stock Exchange.

Severance costs

Severance costs during the three and nine months ended 30 September 2018 relate to personnel redundancies resulting from internal restructuring.

Business unit results

Jackpotjoy8


Q3 2018

£(millions)

Q3 2017

£(millions)

Variance

£(millions)

Variance

%

Gaming revenue

52.1

53.5

(1.4)

(3%)

Distribution costs

24.7

25.8

(1.1)

(4%)

Administrative costs

4.5

3.8

0.7

18%

Adjusted EBITDA2

22.9

23.9

(1.0)

(4%)

 


YTD 2018

£(millions)

YTD 2017

£(millions)

Variance

£(millions)

Variance

%

Gaming revenue

162.2

158.6

3.6

2%

Distribution costs

78.6

71.6

7.0

10%

Administrative costs

12.6

10.9

1.7

16%

Adjusted EBITDA2

71.0

76.1

(5.1)

(7%)

Gaming revenue for the Jackpotjoy8 segment for the three months ended 30 September 2018 was 3% lower than in the same period in 2017 due to a decline in the Mandalay brands, which accounted for 5% of the segment's revenue. The decrease was partially offset by increases in the Starspins and Botemania brands, which collectively accounted for 27% of this segment's revenue.

Gaming revenue for the nine months ended 30 September 2018 was 2% higher than in the same period in 2017 due to organic growth9 led by increases in the Starspins and Botemania brands. Collectively, they accounted for 26% of this segment's revenue.

The decrease in distribution costs for the three months ended 30 September 2018 compared to the same period in 2017 is driven by a marginal reduction in UK marketing spend.

The increase in distribution costs for the nine months ended 30 September 2018 is driven by costs from the segment's TV marketing campaigns, as well as an incremental gaming tax expense, which relates to tax on bonuses through UK POC2 tax introduced in Q4 2017. The increase in administrative costs for the three and nine months ended 30 September 2018 compared to the same periods in 2017 was mainly driven by increases in administrative overhead costs.

Vera&John


Q3 2018

£(millions)

Q3 2017

£(millions)

Variance

£(millions)

Variance

%

Gaming revenue

25.7

18.4

7.3

40%

Distribution costs

12.7

9.1

3.6

40%

Administrative costs

4.6

4.4

0.2

5%

Adjusted EBITDA2

8.4

4.9

3.5

71%

 


YTD 2018

£(millions)

YTD 2017

£(millions)

Variance

£(millions)

Variance

%

Gaming revenue

71.0

51.5

19.5

38%

Distribution costs

37.2

25.0

12.2

49%

Administrative costs

13.1

12.1

1.0

8%

Adjusted EBITDA2

20.7

14.4

6.3

44%

Gaming revenue for the Vera&John segment for the three and nine months ended 30 September 2018 increased by 40% and 38%, respectively, compared to the same periods in 2017 due to organic growth9. On a constant currency basis10, revenue increased by 41% and 36% in the three and nine months ended 30 September 2018 compared to the same periods in 2017.

Distribution costs increased by 40% and 49%, respectively, for the three and nine months ended 30 September 2018 compared to the same periods in 2017 as a result of higher marketing spend in the current period.  The increase was further driven by higher gaming tax due to increased revenue in regulated jurisdictions compared to the prior period.

The increase in administrative costs for the three and nine months ended 30 September 2018 compared to the same periods in 2017 was mainly driven by increases in personnel and administrative overhead costs as the segment continues to grow.

Unallocated Corporate Costs

Adjusted EBITDA2 on Unallocated Corporate Costs increased from (£3.2) million to (£2.5) million in the three months ended 30 September 2018 as compared to the three months ended 30 September 2017. The variance mainly relates to a £0.6 million decrease in compensation fees and a £0.2 million decrease in general administrative overhead costs, offset by an increase of £0.1 million in professional fees.

Adjusted EBITDA2 on Unallocated Corporate Costs increased from (£8.6) million to (£7.8) million in the nine months ended 30 September 2018 compared to the nine months ended 30 September 2017. The variance mainly relates to a £0.1 million decrease in compensation fees, a £0.5 million decrease in general administrative overhead costs and a £0.1 million decrease in professional fees.

Net loss on Unallocated Corporate Costs decreased from £20.6 million to £8.4 million in the three months ended 30 September 2018 as compared to the three months ended 30 September 2017.  This decrease is primarily related to a lower foreign exchange loss and lower interest expense incurred as a result of the debt refinance that took place in Q4 2017.  The decrease in net loss can further be attributed to the fact that there were no fair value adjustments on contingent consideration in the current period as the final earn-out period ended in Q1 2018.

Net loss on Unallocated Corporate Costs decreased from £75.8 million to £38.6 million in the nine months ended 30 September 2018 as compared to the nine months ended 30 September 2017.  This decrease is primarily related to a lower foreign exchange loss and lower interest expense incurred as a result of the debt refinance that took place in Q4 2017.  The decrease in net loss can further be attributed to the fact that there were no fair value adjustments on contingent consideration in the second and third quarters of 2018 as the final earn-out period ended in Q1 2018.

Costs included in net loss which are excluded from the Adjusted EBITDA2 measure are discussed on page 4 of this release.

Key performance indicators

Average Active Customers is a key performance indicator used by management to assess real money customer acquisition and real money customer retention efforts of each of the Group's brands. The Group defines Average Active Customers ('Average Active Customers') as being real money customers who have placed at least one bet in a given month. 'Average Active Customers per Month' is the Average Active Customers per month, averaged over a twelve-month period. While this measure is not recognised by IFRS, management believes that it is a meaningful indicator of the Group's ability to acquire and retain customers.

Total Real Money Gaming Revenue and Average Real Money Gaming Revenue per Month are key performance indicators used by management to assess revenue earned from real money gaming operations of the business. The Group defines Total Real Money Gaming Revenue ('Total Real Money Gaming Revenue') as revenue less revenue earned from B2B websites. The Group defines Average Real Money Gaming Revenue per Month ('Average Real Money Gaming Revenue per Month') as Real Money Gaming Revenue per month, averaged over a twelve-month period. While these measures are not recognised by IFRS, management believes that they are meaningful indicators of the Group's real money gaming operational results.

Monthly Real Money Gaming Revenue per Average Active Customer is a key performance indicator used by management to assess the Group's ability to generate Real Money Gaming Revenue on a per customer basis. The Group defines Monthly Real Money Gaming Revenue per Average Active Customer ('Monthly Real Money Gaming Revenue per Average Active Customer') as being Average Real Money Gaming Revenue per Month divided by Average Active Customers per Month. While this measure is not recognised by IFRS, management believes that it is a meaningful indicator of the Group's ability to generate Total Real Money Gaming Revenue. 

 


Twelve months ended

30 September 2018

Twelve months ended

30 September 2017

Variance

Variance

%

Average Active Customers per Month (#)

257,929

251,186

6,743

3%

Total Real Money Gaming Revenue (£000's) (1)

305,331

271,508

33,823

12%

Average Real Money Gaming Revenue per Month (£000's)

25,444

22,626

2,818

12%

Monthly Real Money Gaming Revenue per Average Active Customer (£)

99

90

9

10%






(1) Total Real Money Gaming Revenue for the twelve months ended 30 September 2018 consists of total revenue less revenue earned from B2B websites of £7.1 million (30 September 2017 – £6.6 million).

Monthly Real Money Gaming Revenue per Average Active Customer7 increased by 10% year-over-year which is in line with the Group's overall customer acquisition and retention strategy. 


INDEPENDENT REVIEW REPORT TO JPJ GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the three and nine months ended 30 September 2018 which comprises the Interim Condensed Consolidated Statements of Comprehensive Income, the Interim Condensed Consolidated Balance Sheets, the Interim Condensed Consolidated Statements of Changes in Equity, the Interim Condensed Consolidated Statement of Cash Flows and the related notes. 

We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim financial report is the responsibility of and has been approved by the directors. 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board and IFRSs as adopted by the European Union.  The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as issued by the International Accounting Standards Board and International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' as issued by the International Auditing and Assurance Standards Board and  International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing or International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the three and nine months ended 30 September 2018 is not prepared, in all material respects, with International Accounting Standard 34 as issued by the International Accounting Standards Board and International Accounting Standard 34, as adopted by the European Union.

BDO LLP
Chartered Accountants
London
14 November 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


Three months ended

30 September 2018

Three months ended

30 September 2017

Nine months

ended

30 September 2018

Nine months

 ended

30 September 2017


(£000's)

(£000's)

(£000's)

(£000's)

Gaming revenue4

77,753

71,845

233,196

210,050






Costs and expenses





Distribution costs4,5

37,468

34,953

115,776

96,702

Administrative costs5

26,922

27,661

79,417

77,679

Severance costs4

400

850

Transaction related costs4

275

1,361

1,338

2,676

Foreign exchange (gain)/loss4

(13)

4,494

130

11,319

Total costs and expenses

65,052

68,469

197,511

188,376






Gain on sale of intangible assets

(1,002)






Fair value adjustments on contingent consideration16

1,663

11,450

16,364

Realised loss on cross currency swap

3,534

Interest income7

(83)

(41)

(253)

(136)

Interest expense7

4,916

7,648

14,805

23,315

Accretion on financial liabilities7

578

2,000

2,604

9,051

Financing expenses

5,411

11,270

28,606

52,128






Net income/(loss) for the period before taxes from continuing operations

7,290

(7,894)

7,079

(29,452)






Current tax provision

37

447

736

806

Deferred tax recovery

(99)

(109)

(296)

(319)

Net income/(loss) for the period

after taxes from continuing operations

7,352

(8,232)

6,639

(29,939)






Discontinued operation





Income from discontinued operation, net of tax6

191

563

898

2,197

Loss on disposal of discontinued operation6

(4,047)

(4,477)

Net (loss)/income from discontinued operation

(3,856)

563

(3,579)

2,197






Net income/(loss) for the period attributable to owners of the parent  

3,496

(7,669)

3,060

(27,742)






Other comprehensive income/(loss):  Items that will or may be reclassified to profit or loss in subsequent periods





Foreign currency translation (loss)/gain

(132)

10,150

66

28,793

Unrealised loss on cross currency hedge

(2,892)

(7,737)

Unrealised gain/(loss) on interest rate hedge11

316

(658)

Total comprehensive income/(loss) for the period attributable to owners of the parent

3,680

(411)

2,468

(6,686)






Net income/(loss) for the period per share





Basic8

£0.05

£(0.10)

£0.04

£(0.38)

Diluted8

£0.05

£(0.10)

£0.04

£(0.38)






Net income/(loss) for the period per share – continuing operations





Basic

£0.10

£(0.11)

£0.09

£(0.41)

Diluted

£0.10

£(0.11)

£0.09

£(0.41)

See accompanying notes

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS


As at

30 September 2018

As at

31 December 2017

ASSETS

(£000's)

(£000's)




Current assets



Cash16

71,456

59,033

Restricted cash16

207

208

Customer deposits16

8,183

8,180

Trade and other receivables9,16

16,313

19,379

Taxes receivable

7,535

6,432

Total current assets

103,694

93,232




Non-current assets



Tangible assets

1,525

1,339

Intangible assets12

239,400

292,223

Goodwill12

287,799

296,781

Other long-term receivables10,16

5,047

5,604

Total non-current assets

533,771

595,947




Total assets

637,465

689,179




LIABILITIES AND EQUITY






Current liabilities



Accounts payable and accrued liabilities13,16

17,287

17,821

Other short-term payables11,14,16

11,529

12,151

Interest payable16

522

924

Payable to customers16

8,183

8,180

Convertible debentures16,18

254

Current portion of contingent consideration16

4,540

51,866

Provision for taxes

8,323

7,273

Total current liabilities

50,384

98,469




Non-current liabilities



Contingent consideration16

4,244

7,717

Other long-term payables11,16,17

3,329

8,245

Deferred tax liability

1,278

1,204

Long-term debt15,16

370,484

369,487

Total non-current liabilities

379,335

386,653




Total liabilities

429,719

485,122




Equity



Share capital18

7,434

7,407

Share premium and other reserves

200,312

196,650

Total equity

207,746

204,057




Total liabilities and equity

637,465

689,179




   See accompanying notes

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


Share Capital

(£000's)

Share Premium

(£000's)

Merger Reserve

(£000's)

Redeemable Shares

(£000's)

Share-Based Payment Reserve

(£000's)

Translation Reserve

(£000's)

Hedge Reserve

(£000's)

Retained (Deficit)/  Earnings

(£000's)

Total

(£000's)











Balance at 1 January 2017

7,298

403,883

(6,111)

50

8,667

(3,958)

(170,361)

239,468











Comprehensive income/(loss) for the period:










Net loss for the period (continued and discontinued operations)

(27,742)

(27,742)

Other comprehensive income/(loss)

28,793

(7,737)

21,056

Total comprehensive income/(loss) for the period:

28,793

(7,737)

(27,742)

(6,686)











Contributions by and distributions to shareholders:










Conversion of debentures

92

2,986

3,078

Exercise of options

15

357

(105)

105

372

Cancellation of redeemable shares

(50)

(50)

Cancellation of share premium2

(405,932)

405,932

Share-based compensation

1,198

1,198

Total contributions by and distributions to shareholders:

107

(402,589)

(50)

1,093

406,037

4,598











Balance at 30 September 2017

7,405

1,294

(6,111)

9,760

24,835

(7,737)

207,934

237,380











Balance at 1 January 2018

7,407

1,342

(6,111)

9,971

23,649

167,799

204,057











Comprehensive income/(loss) for the period:










Net income for the period (continued and discontinued operations)

3,060

3,060

Other comprehensive income/(loss)

66

(658)

(592)

Total comprehensive income/(loss) for the period:

66

(658)

3,060

2,468











Contributions by and distributions to shareholders:










Conversion of debentures18

6

186

192

Exercise of options18

21

540

(159)

159

561

Share-based compensation18

468

468

Total contributions by and distributions to shareholders:

27

726

309

159

1,221











Balance at 30 September 2018

7,434

2,068

(6,111)

10,280

23,715

(658)

171,018

207,746

See accompanying notes

 













 

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


Three months ended

30 September 2018

Three months ended

30 September 2017

Nine months

ended

30 September 2018

Nine months

 ended

30 September 2017


(£000's)

(£000's)

(£000's)

(£000's)

Operating activities





Net income/(loss) for the period

3,496

(7,669)

3,060

(27,742)

Add (deduct) items not involving cash





Amortisation and depreciation

15,437

16,491

46,635

46,651

Share-based compensation expense18

142

320

468

1,198

Current tax provision

37

447

736

806

Deferred tax recovery

(99)

(109)

(296)

(319)

Interest expense, net7

5,411

9,607

17,156

32,230

Gain on sale of intangible assets

(1,002)

Fair value adjustments on contingent consideration16

1,663

11,450

16,364

Realised loss on cross currency swap

3,534

Foreign exchange (gain)/loss

(32)

4,607

93

11,506

Loss on sale of discontinued operation, net of tax6

4,047

4,477


28,439

25,357

83,779

83,226






Trade and other receivables

126

1,311

1,947

786

Other long-term receivables

43

84

551

536

Accounts payable and accrued liabilities

2,632

2,766

(690)

922

Other short-term payables

(259)

384

(2,589)

(3,158)

Cash generated from operations

30,981

29,902

82,998

82,312

Income taxes paid

(29)

(3,265)

(6,899)

Incomes taxes received

2,082

2,656

2,484

2,758

Total cash provided by operating activities

33,034

32,558

82,217

78,171






Financing activities





Restriction of cash balances

(229)

(75)

(54)

Proceeds from exercise of options

168

561

372

Proceeds from cross currency swap settlement

34,373

Debenture settlement18

(62)

Repayment of non-compete liability17

(2,000)

(2,000)

(6,000)

(3,333)

Interest repayment

(5,355)

(7,903)

(15,609)

(23,112)

Payment of contingent consideration16

(63,455)

(94,218)

Principal payments made on long-term debt15

(5,965)

(18,771)

Total cash used in financing activities

(7,187)

(16,097)

(84,640)

(104,743)






Investing activities





Purchase of tangible assets

(425)

(88)

(588)

(851)

Purchase of intangible assets

(1,163)

(822)

(3,620)

(2,084)

Proceeds from sale of intangible assets

1,450

1,002

Disposal of discontinued operation

17,881

17,678

-

Total cash provided by/(used in) investing activities

16,293

(910)

14,920

(1,933)






Net increase/(decrease) in cash during the period

42,140

15,551

12,497

(28,505)

Cash, beginning of period

29,462

23,963

59,033

68,485

Exchange loss on cash and cash equivalents

(146)

(306)

(74)

(772)

Cash, end of period

71,456

39,208

71,456

39,208

See accompanying notes

SUPPLEMENTARY NOTES FOR THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2018

1.      Corporate information

JPJ Group plc, formerly Jackpotjoy plc, is an online gaming holding company that was incorporated under the Companies Act 2006 (England and Wales) on 29 July 2016.  On 27 June 2018, Jackpotjoy plc changed its name to JPJ Group plc.  JPJ Group plc's registered office is located at 35 Great St. Helen's, London, United Kingdom.  Unless the context requires otherwise, use of 'Group' in these accompanying notes means JPJ Group plc and its subsidiaries, as applicable.

The Group currently offers bingo, casino and other games to its customers using the Jackpotjoy, Starspins, Botemania, Vera&John, Costa Bingo, InterCasino, and other brands. The Jackpotjoy, Starspins, and Botemania brands operate off proprietary software owned by the Gamesys group, the Group's principal B2B software and support provider. The Vera&John and InterCasino brands operate off proprietary software owned by the Group. The Costa Bingo and related brands operate off the Dragonfish platform, a software service provided by the 888 group.

These Unaudited Interim Condensed Consolidated Financial Statements were authorised for issue by the Board of Directors of JPJ Group plc on 14 November 2018.

2.      Basis of preparation

Basis of presentation

These Unaudited Interim Condensed Consolidated Financial Statements have been prepared by management on a going concern basis, are presented in compliance with International Accounting Standard ('IAS') 34 – Interim Financial Reporting, and have been prepared on a basis consistent with the accounting policies and methods used and disclosed in JPJ Group plc's consolidated financial statements for the year ended 31 December 2017 (the 'Annual Financial Statements'), except as described below.  Certain information and disclosures normally included in the Annual Financial Statements prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, and in accordance with IFRS as issued by the International Accounting Standards Board, have been omitted or condensed. 

These Unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the Annual Financial Statements. All defined terms used herein are consistent with those terms as defined in the Annual Financial Statements.

These Unaudited Interim Condensed Consolidated Financial Statements have been prepared under the historical cost convention, other than for the measurement at fair value of the Group's Interest Rate Swap (as defined in note 11), contingent consideration, certain hedged loan instruments, and certain loans receivable.

On 1 February 2017, having been approved in the High Court, the Group's share premium was cancelled. Accordingly, the balance has been reallocated within equity reserves to the Group's retained earnings account. This is now shown in the Unaudited Interim Condensed Consolidated Statements of Changes in Equity as an adjustment to the balances on the Group's equity reserves in the period ending 30 September 2017.  There is no impact on the income statement, on earnings per share or on total equity. 

The comparative financial information for the year ended 31 December 2017 in these Unaudited Interim Condensed Consolidated Financial Statements does not constitute statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 December 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

3.      Summary of significant accounting policies

For a description of the Group's significant accounting policies, critical accounting estimates and assumptions, and related information see note 3 to the Annual Financial Statements.  Other than as described below, there have been no changes to the Group's significant accounting policies or critical accounting estimates and assumptions during the nine months ended 30 September 2018.

Financial instruments

Effective from 1 January 2018, the Group adopted IFRS 9 – Financial Instruments: Recognition and Measurement ('IFRS 9'). In relation to the Gaming Realms Transaction (as defined in note 10), as a result, the Group no longer separates the embedded derivative from its host contract and the entire asset is measured at fair value through profit or loss. Also in relation to this transaction, the adoption of IFRS 9 resulted in balances shown as other long-term receivables and other long-term assets at 31 December 2017 being combined into a single figure and shown as other long-term receivables at 30 September 2018.

Hedge accounting

The Group elected to use hedge accounting for the purposes of recognising realised and unrealised gains and losses associated with the Interest Rate Swap. IFRS 9 permits hedge accounting under certain circumstances provided that the hedging relationship is:

Based on the Group's analysis of the requirements outlined above, it was concluded that the Interest Rate Swap meets all the necessary criteria and qualifies for use of hedge accounting.  The Interest Rate Swap was designated as a cash flow hedge.

Impairment policy

In accordance with IFRS 9, the Group reviewed its impairment policy and concluded that no material impairment provision on its financial instruments, as discussed in note 16, is required.  The Group uses the expected credit loss model to assess impairment.

Revenue recognition

Effective from 1 January 2018, the Group adopted IFRS 15 – Revenue from Contracts with Customers ('IFRS 15'), which replaces IAS 18 – Revenue.  Applying this standard did not impact the Group's financial information as the Group's policy was already in compliance with the key principles outlined in IFRS 15.

4.      Segment information

In March 2018, the Group determined that its reportable operating segments had changed such that the Mandalay segment was aggregated with the Jackpotjoy segment with effect from 1 January 2018, as Mandalay no longer met the criteria for a reportable operating segment, set out in IFRS 8 – Operating Segments. Mandalay was therefore aggregated with the Jackpotjoy segment, consistent with the Group's other third-party platform hosted operations. Additionally, as discussed in note 6, the Group sold its social gaming business in the current period. All current year-to-date and 2017 comparative segment figures have been restated accordingly.

The following tables present selected financial results for each segment and the Unallocated Corporate Costs:

Three months ended 30 September 2018:


Jackpotjoy

(£000's)

Vera&John

(£000's)

Unallocated
Corporate
Costs

(£000's)

Total

(£000's)

Gaming revenue

52,068

25,685

77,753






Distribution costs

24,721

12,726

21

37,468

Amortisation and depreciation

12,580

2,593

99

15,272

Compensation, professional, and general and   

administrative expenses

4,422

4,606

2,622

11,650

Severance costs

400

400

Transaction related costs

275

275

Foreign exchange (gain)/loss

(22)

27

(18)

(13)

Financing, net

2

(28)

5,437

5,411

Income/(loss) for the period before taxes from continuing operations

10,365

5,361

(8,436)

7,290

Taxes

(62)

(62)

Net income/(loss) for the period after taxes from continuing operations

10,365

5,423

(8,436)

7,352






Net income/(loss) for the period after taxes from continuing operations

10,365

5,423

(8,436)

7,352

Interest expense/(income), net

2

(28)

4,859

4,833

Accretion on financial liabilities

578

578

Taxes

(62)

(62)

Amortisation and depreciation

12,580

2,593

99

15,272

EBITDA

22,947

7,926

(2,900)

27,973

Share-based compensation

142

142

Severance costs

400

400

Transaction related costs

275

275

Foreign exchange (gain)/loss

(22)

27

(18)

(13)

Adjusted EBITDA

22,925

8,353

(2,501)

28,777






Net income/(loss) for the period after taxes from continuing operations

10,365

5,423

(8,436)

7,352

Share-based compensation

142

142

Severance costs

400

400

Transaction related costs

275

275

Foreign exchange (gain)/loss

(22)

27

(18)

(13)

Amortisation of acquisition related purchase price intangibles

12,563

2,005

14,568

Accretion on financial liabilities

578

578

Adjusted net income/(loss)

22,906

7,855

(7,459)

23,302

 

Nine months ended 30 September 2018:


Jackpotjoy

(£000's)

Vera&John

(£000's)

Unallocated
Corporate
Costs

(£000's)

Total

(£000's)

Gaming revenue

162,161

71,035

233,196






Distribution costs

78,554

37,176

46

115,776

Amortisation and depreciation

37,737

7,455

288

45,480

Compensation, professional, and general and   administrative expenses

12,572

13,155

8,210

33,937

Severance costs

850

850

Transaction related costs

1,338

1,338

Foreign exchange loss/(gain)

209

(43)

(36)

130

Financing, net

5

(94)

28,695

28,606

Income/(loss) for the period before taxes from continuing operations

33,084

12,536

(38,541)

7,079

Taxes

426

14

440

Net income/(loss) for the period after taxes from continuing operations

33,084

12,110

(38,555)

6,639






Net income/(loss) for the period after taxes from continuing operations

33,084

12,110

(38,555)

6,639

Interest expense/(income), net

5

(94)

14,641

14,552

Accretion on financial liabilities

2,604

2,604

Taxes

426

14

440

Amortisation and depreciation

37,737

7,455

288

45,480

EBITDA

70,826

19,897

(21,008)

69,715

Share-based compensation

468

468

Severance costs

850

850

Fair value adjustments on contingent consideration

11,450

11,450

Transaction related costs

1,338

1,338

Foreign exchange loss/(gain)

209

(43)

(36)

130

Adjusted EBITDA

71,035

20,704

(7,788)

83,951






Net income/(loss) for the period after taxes from continuing operations

33,084

12,110

(38,555)

6,639

Share-based compensation

468

468

Severance costs

850

850

Fair value adjustments on contingent consideration

11,450

11,450

Transaction related costs

1,338

1,338

Foreign exchange loss/(gain)

209

(43)

(36)

130

Amortisation of acquisition related purchase price intangibles

37,687

5,950

43,637

Accretion on financial liabilities

2,604

2,604

Adjusted net income/(loss)

70,980

18,867

(22,731)

67,116

 


Three months ended 30 September 2017:


Jackpotjoy

(£000's)

Vera&John

(£000's)

Unallocated
Corporate
Costs

(£000's)

Total

(£000's)

Gaming revenue

53,490

18,355

71,845






Distribution costs

25,839

9,094

20

34,953

Amortisation and depreciation

13,307

2,550

94

15,951

Compensation, professional, and general and   administrative expenses

3,784

4,385

3,541

11,710

Transaction related costs

1,361

1,361

Foreign exchange loss

76

130

4,288

4,494

Financing, net

1

(40)

11,309

11,270

Income/(loss) for the period before taxes from continuing operations

10,483

2,236

(20,613)

(7,894)

Taxes

338

338

Net income/(loss) for the period after taxes from continuing operations

10,483

1,898

(20,613)

(8,232)






Net income/(loss) for the period after taxes from continuing operations

10,483

1,898

(20,613)

(8,232)

Interest expense/(income), net

1

(40)

7,646

7,607

Accretion on financial liabilities

2,000

2,000

Taxes

338

338

Amortisation and depreciation

13,307

2,550

94

15,951

EBITDA

23,791

4,746

(10,873)

17,664

Share-based compensation

320

320

Fair value adjustments on contingent consideration

1,663

1,663

Transaction related costs

1,361

1,361

Foreign exchange loss

76

130

4,288

4,494

Adjusted EBITDA

23,867

4,876

(3,241)

25,502






Net income/(loss) for the period after taxes from continuing operations

10,483

1,898

(20,613)

(8,232)

Share-based compensation

320

320

Fair value adjustments on contingent consideration

1,663

1,663

Transaction related costs

1,361

1,361

Foreign exchange loss

76

130

4,288

4,494

Amortisation of acquisition related purchase price intangibles

13,291

2,190

15,481

Accretion on financial liabilities

2,000

2,000

Adjusted net income/(loss)

23,850

4,218

(10,981)

17,087

 

Nine months ended 30 September 2017:


Jackpotjoy

(£000's)

Vera&John

(£000's)

Unallocated
Corporate
Costs

(£000's)

Total

(£000's)

Gaming revenue

158,592

51,458

210,050






Distribution costs

71,604

25,020

78

96,702

Amortisation and depreciation

37,363

7,383

286

45,032

Compensation, professional, and general and    administrative expenses

10,880

12,069

9,698

32,647

Transaction related costs

2,676

2,676

Foreign exchange (gain)/loss

(85)

608

10,796

11,319

Gain on sale of intangible assets

(1,002)

(1,002)

Financing, net

3

(127)

52,252

52,128

Income/(loss) for the period before taxes from continuing operations

38,827

7,507

(75,786)

(29,452)

Taxes

487

487

Net income/(loss) for the period after taxes from continuing operations

38,827

7,020

(75,786)

(29,939)






Net income/(loss) for the period after taxes from continuing operations

38,827

7,020

(75,786)

(29,939)

Interest expense/(income), net

3

(127)

23,303

23,179

Accretion on financial liabilities

9,051

9,051

Taxes

487

487

Amortisation and depreciation

37,363

7,383

286

45,032

EBITDA

76,193

14,763

(43,146)

47,810

Share-based compensation

1,198

1,198

Fair value adjustments on contingent consideration

16,364

16,364

Realised loss on cross currency swap

3,534

3,534

Transaction related costs

2,676

2,676

Gain on sale of intangible assets

(1,002)

(1,002)

Foreign exchange (gain)/loss

(85)

608

10,796

11,319

Adjusted EBITDA

76,108

14,369

(8,578)

81,899






Net income/(loss) for the period after taxes from continuing operations

38,827

7,020

(75,786)

(29,939)

Share-based compensation

1,198

1,198

Fair value adjustments on contingent consideration

16,364

16,364

Realised loss on cross currency swap

3,534

3,534

Transaction related costs

2,676

2,676

Gain on sale of intangible assets

(1,002)

(1,002)

Foreign exchange (gain)/loss

(85)

608

10,796

11,319

Amortisation of acquisition related purchase price intangibles

37,332

6,402

43,734

Accretion on financial liabilities

9,051

9,051

Adjusted net income/(loss)

76,074

13,028

(32,167)

56,935

 

The following table presents net assets per segment and Unallocated Corporate Costs as at 30 September 2018:


Jackpotjoy

(£000's)

Vera&John

(£000's)

Unallocated
Corporate
Costs

(£000's)

Total

(£000's)

Current assets

16,140

39,833

47,721

103,694

Goodwill

231,322

56,477

287,799

Other non-current assets

208,113

28,129

9,730

245,972

Total assets

455,575

124,439

57,451

637,465






Current liabilities

9,158

22,625

18,601

50,384

Non-current liabilities

1,278

378,057

379,335

Total liabilities

9,158

23,903

396,658

429,719






Net assets

446,417

100,536

(339,207)

207,746

 

The following table presents net assets per segment and Unallocated Corporate Costs as at 31 December 2017:


Jackpotjoy

(£000's)

Vera&John

(£000's)

Unallocated
Corporate
Costs

(£000's)

Total

(£000's)

Current assets

20,960

41,970

30,302

93,232

Goodwill

240,960

55,821

296,781

Other non-current assets

249,703

31,878

17,585

299,166

Total assets

511,623

129,669

47,887

689,179






Current liabilities

10,958

19,877

67,634

98,469

Non-current liabilities

1,204

385,449

386,653

Total liabilities

10,958

21,081

453,083

485,122






Net assets

500,665

108,588

(405,196)

204,057

 

During the nine months ended 30 September 2018 and 2017, revenue was earned from customers located in the following locations:  United Kingdom – 61% (nine months ended 30 September 2017 – 66%), Sweden – 8% (nine months ended 30 September 2017 – 11%), rest of Europe – 18% (nine months ended 30 September 2017 – 15%), rest of world – 13% (nine months ended 30 September 2017 – 8%).

During the nine months ended 30 September 2018, the Group's affiliate and other B2B revenues comprised 2% (nine months ended 30 September 2017 – 2%) of total Group revenues.  The remaining portion being revenues earned from B2C operations as described in note 1.

Non-current assets by geographical location as at 30 September 2018 were as follows: Europe £84.6 million (31 December 2017 – £87.7 million) and Americas £449.2 million (31 December 2017 – £508.2 million).

5.      Costs and expenses

As discussed in note 6, the Group sold its social gaming business in the current period. As a result, all current year-to-date and 2017 comparative figures have been restated accordingly.

 


Three months ended

30 September 2018

(£000's)

Three months ended

30 September 2017

(£000's)

Nine months

ended

30 September 2018

(£000's)

Nine months

ended

30 September 2017

(£000's)

Distribution costs:





Selling and marketing

12,717

12,368

39,892

32,008

Licensing fees

10,979

10,499

32,457

30,423

Gaming taxes

9,104

8,742

30,423

25,203

Processing fees

4,668

3,344

13,004

9,068


37,468

34,953

115,776

96,702






 

 

Administrative costs:





Compensation and benefits

8,532

8,914

24,246

23,514

Professional fees

809

667

2,904

2,662

General and administrative

2,309

2,129

6,787

6,471

Tangible asset depreciation

159

119

420

303

Intangible asset amortisation

15,113

15,832

45,060

44,729


26,922

27,661

79,417

77,679

 

6.      Discontinued operations

On 31 August 2018, the Group completed the sale of its social gaming business for a cash consideration of £18.0 million, excluding working capital adjustments and costs of disposal paid by the Group. The social gaming business was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of comprehensive income is presented below to show the discontinued operation separately from continuing operations.  The results of the social gaming business have been excluded from notes 4 and 5 above.

Results of discontinued operation


Three months ended

30 September 2018

(£000's)

Three months ended

30 September 2017

(£000's)

Nine months

ended

30 September 2018

(£000's)

Nine months

ended

30 September 2017

(£000's)

Social gaming revenue

1,800

3,578

7,495

11,942

Expenses

1,609

3,015

6,597

9,745

Results from operating activities

191

563

898

2,197

Income tax

Income for the period

191

563

898

2,197

Loss on disposal of discontinued operation

(4,047)

(4,477)

Income tax on loss on sale of discontinued operation

(Loss)/income from discontinued operation, net of tax

(3,856)

563

(3,579)

2,197






Basic (loss)/income per share

£(0.05)

£0.01

£(0.05)

£0.03

Diluted (loss)/income per share

£(0.05)

£0.01

£(0.05)

£0.03

 

Cash flows from discontinued operation


Three months ended

30 September 2018

(£000's)

Three months ended

30 September 2017

(£000's)

Nine months

ended

30 September 2018

(£000's)

Nine months

ended

30 September 2017

(£000's)

Net cash provided by operating activities

337

1,216

2,016

4,003

Net cash provided by investing activities

17,881

17,678

Net cash from financing activities

Net cash flows for the period

18,218

1,216

19,694

4,003

 

Effect of disposal on the financial position of the Group


30 September 2018

(£000's)

Trade and other receivables

184

Non-current assets

10,365

Goodwill

9,638

Net assets

20,187



Working capital adjustment payable

(1,203)

Costs of disposal

(1,118)

Consideration received, satisfied in cash

18,031

Loss on disposal of discontinued operation

(4,477)

 

Goodwill disposed of was allocated to the social gaming business on the basis of its earnings before interest, taxes, depreciation and amortisation, relative to that of the overall segment.

 

7.      Interest income/expense


Three months ended

30 September 2018

(£000's)

Three months ended

30 September 2017

(£000's)

Nine months

ended

30 September 2018

(£000's)

Nine months

ended

30 September 2017

(£000's)

Interest earned on cash held during the period

28

41

93

136

Interest earned on long-term loan receivable

55

160

Total interest income

83

41

253

136






Interest paid and accrued on long-term debt

4,916

7,645

14,799

23,272

Interest paid and accrued on convertible debentures

3

6

43

Total interest expense

4,916

7,648

14,805

23,315






Accretion of discount recognised on contingent consideration

151

752

1,206

5,220

Interest accretion recognised on convertible debentures

5

8

35

Debt issue costs and accretion recognised on long-term debt

147

774

429

2,334

Interest accretion recognised on other long-term liabilities

280

469

961

1,462

Total accretion on financial liabilities

578

2,000

2,604

9,051

 

8.      Earnings per share

The following table presents the calculation of basic and diluted earnings per share:


Three months ended

30 September 2018

 (£000's)

Three months ended

30 September 2017

(£000's)

Nine months

ended

30 September 2018

(£000's)

Nine months

ended

30 September 2017

(£000's)

Numerator:





Net income/(loss) – basic

3,496

(7,669)

3,060

(27,742)

Net income/(loss) – diluted1

3,496

(7,669)

3,060

(27,742)






Denominator:





Weighted average number of shares    outstanding – basic

74,279

73,988

74,211

73,801

Weighted average number of shares outstanding – diluted1

74,974

73,988

74,911

73,801






Instruments, which are anti-dilutive:





Weighted average effect of dilutive share options

434

412

Weighted average effect of convertible debentures2

87

294






Net income/(loss) per share3,4





Basic

£0.05

£(0.10)

£0.04

£(0.38)

Diluted1

£0.05

£(0.10)

£0.04

£(0.38)

1     In the case of a net loss, the effect of share options potentially exercisable on diluted loss per share will be anti-dilutive; therefore, basic and diluted net loss per share will be the same.
2     An assumed conversion of convertible debentures had an anti-dilutive effect on loss per share for the three and nine months ended 30 September 2017.
3     Basic income/(loss) per share is calculated by dividing the net income/(loss) attributable to owners of the parent by the weighted average number of shares outstanding during the period.
4     Diluted income per share is calculated by dividing the net income attributable to owners of the parent by the weighted average number of shares outstanding during the period and adjusted for the number of potentially dilutive share options and contingently issuable instruments.

9.      Trade and other receivables

Trade and other receivables consist of the following items:


30 September 2018

(£000's)

31 December 2017

(£000's)

Due from the Gamesys group

7,580

8,634

Due from the 888 group

1,762

3,101

B2B and affiliate revenue receivable

2,645

2,481

Receivable for intangible assets sold

1,450

Prepaid expenses

2,683

2,375

Other

1,643

1,338


16,313

19,379

10.     Other long-term receivables

On 29 November 2017, the Group entered into a secured convertible loan and services agreement with Gaming Realms plc ('Gaming Realms') (the 'Gaming Realms Transaction').

Key terms of the Gaming Realms Transaction include: (a) five-year secured convertible loan to Gaming Realms in the principal amount of £3.5 million with an interest rate of 3 month UK LIBOR plus 5.5% per annum; (b) conversion option that allows the Group to convert some or all of the loan (in tranches of £0.5 million) into ordinary shares of Gaming Realms after 12 months; (c) a ten-year services agreement ('Services Agreement') for the supply by Gaming Realms of some of its content to websites of the Group's choosing free-of-charge. The value of the free-of-charge services provided under this Services Agreement will be capped at £3.5 million over the first five years of the agreement, at which point the provision of free-of-charge services will cease.

In connection with this transaction, the Group recognised a long-term receivable of £3.6 million for the secured convertible loan, in accordance with IFRS 9, based on the calculation of fair value at 30 September 2018, as explained in note 16.

11.  Interest rate swap

On 16 February 2018, JPJ Group plc entered into an interest rate swap agreement (the 'Interest Rate Swap') in order to minimise the Group's exposure to interest rate fluctuations.  The Interest Rate Swap has an effective date of 15 March 2018 (the 'Effective Date') and an expiry date of 15 March 2023.  Under this agreement, JPJ Group plc will pay a fixed 6.439% rate of interest in place of floating GBP interest payments of GBP LIBOR plus 5.25%. The fixed interest rate will be paid on 60% of the GBP Term Facility (£150.0 million – the 'Notional Amount') to start. The Notional Amount will decrease by £30.0 million every 12 months from the Effective Date.  The Interest Rate Swap was designated as a cash flow hedge, as described in note 3. 

As at 30 September 2018, the fair value of the Interest Rate Swap was a £0.2 million payable. The Group has included £0.1 million of this payable in current liabilities, as shown in note 14, with the value of the remaining balance, being £0.1 million, included in other long-term payables. 

12.  Intangible assets

As at 30 September 2018


Gaming licences

Customer relationships

Software

  Brand

Partnership agreements

Non-compete clauses

Goodwill

Total


(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

Cost









Balance, 1 January 2018

93

337,655

25,211

70,019

12,900

20,434

316,386

782,698

Additions

3,312

3,312

Disposals (note 6)

(18,000)

(9,638)

(27,638)

Translation

(4)

201

348

172

1,387

2,104

Balance, 30 September 2018

89

319,856

28,871

70,191

12,900

20,434

308,135

760,476










Accumulated 

amortisation/impairment









Balance, 1 January 2018

81

139,333

12,551

10,005

4,458

7,661

19,605

193,694

Amortisation

33

30,656

4,024

2,625

1,216

7,661

46,215

Disposals (note 6)

(7,635)

(7,635)

Translation

(69)

194

108

39

731

1,003

Balance, 30 September 2018

45

162,548

16,683

12,669

5,674

15,322

20,336

233,277










Carrying value









Balance, 30 September 2018

44

157,308

12,188

57,522

7,226

5,112

287,799

527,199










 

As at 31 December 2017


Gaming licences

Customer relationships

Software

  Brand

Partnership agreements

Non-compete clauses

Goodwill

Total


(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

(£000's)

Cost









Balance, 1 January 2017

94

340,927

21,670

70,054

12,900

20,434

317,829

783,908

Additions

2,708

2,708

Disposals

(3,822)

(3,822)

Translation

(1)

550

833

(35)

(1,443)

(96)

Balance, 31 December 2017

93

337,655

25,211

70,019

12,900

20,434

316,386

782,698










Accumulated amortisation/impairment









Balance, 1 January 2017

34

96,811

7,414

6,523

2,824

21,477

135,083

Amortisation

41

44,958

4,820

3,504

1,634

7,661

62,618

Disposals

(2,638)

(2,638)

Translation

6

202

317

(22)

(1,872)

(1,369)

Balance, 31 December 2017

81

139,333

12,551

10,005

4,458

7,661

19,605

193,694










Carrying value









Balance, 31 December 2017

12

198,322

12,660

60,014

8,442

12,773

296,781

589,004










13.     Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following items:


30 September 2018

(£000's)

31 December 2017

(£000's)

Affiliate/marketing expenses payable

6,180

6,547

Payable to game suppliers

2,246

1,899

Compensation payable

5,308

4,868

Professional fees

782

875

Gaming tax payable

1,383

2,101

Other

1,388

1,531


17,287

17,821

 

14.     Other short-term payables

Other short-term payables consist of:


30 September 2018

(£000's)

31 December 2017

(£000's)

Transaction related payables

1,624

3,484

Current portion of other long-term payables (note 17)

8,667

8,667

Interest Rate Swap (note 11)

35

Working capital adjustment payable (note 6)

1,203


11,529

12,151

 

15.      Credit facilities


Term Loan

(£000's)

Incremental First
Lien Facility

(£000's)

Second Lien Facility

(£000's)

EUR Term Facility

(£000's)

GBP Term Facility

(£000's)

Total

(£000's)








Balance, 1 January 2017

220,016

67,534

83,243

370,793

Principal advanced

122,574

250,000

372,574

Repayment

(218,793)

(70,000)

(90,000)

(378,793)

Debt financing costs incurred

(1,397)

(3,434)

(4,831)

Accretion*

7,846

2,466

6,757

8

18

17,095

Foreign exchange translation

(9,069)

1,718

(7,351)

Balance, 31 December 2017

122,903

246,584

369,487

Accretion*

129

300

429

Foreign exchange translation

568

568

Balance, 30 September 2018

123,600

246,884

370,484








Current portion

Non-current portion

123,600

246,884

370,484

*Effective interest rates are as follows:  EUR Term Facility – 4.44%, GBP Term Facility – 6.01%.

16.  Financial instruments

The principal financial instruments used by the Group are summarised below:

Financial assets


Financial assets as subsequently measured at amortised cost


30 September 2018

(£000's)

31 December 2017

(£000's)

Cash and restricted cash

71,663

59,241

Trade and other receivables

16,313

19,379

Other long-term receivables

1,473

2,104

Customer deposits

8,183

8,180


97,632

88,904

 

Financial liabilities


Financial liabilities as subsequently measured at amortised cost


30 September 2018

 (£000's)

31 December 2017

(£000's)

Accounts payable and accrued liabilities

17,287

17,821

Other short-term payables

11,494

12,151

Other long-term payables

3,188

8,245

Interest payable

522

924

Payable to customers

8,183

8,180

Convertible debentures

254

Long-term debt

370,484

369,487


411,158

417,062

 

The carrying values of the financial instruments noted above approximate their fair values.

Other financial instruments


Financial instruments at fair value through profit or loss – assets/(liabilities)


30 September 2018

 (£000's)

31 December 2017

(£000's)

Interest Rate Swap

(176)

Contingent consideration

(8,784)

(59,583)

Other long-term receivables

3,574

3,500


(5,386)

(56,083)

 

Fair value hierarchy

The hierarchy of the Group's financial instruments carried at fair value is as follows: 


                              Level 2

        Level 3


30 September 2018

 (£000's)

31 December 2017

(£000's)

30 September 2018

 (£000's)

31 December 2017

(£000's)

Interest Rate Swap

(176)

Other long-term receivables

3,574

3,500

Contingent consideration

(8,784)

(59,583)







The Interest Rate Swap balance represents the fair value of expected cash outflows under the Interest Rate Swap agreement. 

Other long-term receivables represent the fair value of the loan receivable from Gaming Realms.  The key inputs into the fair value estimation of this balance include the share price of Gaming Realms on the date of cash transfer, a five-year risk-free interest rate of 1.386%, and an estimated share price return volatility rate of Gaming Realms of 48.3%.

A discounted cash flow valuation model was used to determine the value of the contingent consideration at 31 December 2017.  The model considered the present value of the expected payments, discounted using a risk-adjusted discount rate of 7%.  The expected payments were determined by considering the possible scenarios of forecast EBITDA, the amount to be paid under each scenario and the probability of each scenario. 

On 15 June 2018, the Group made a final earn-out payment of £58.5 million for the Botemania brand, its Spanish business within the Jackpotjoy segment and a £5.0 million milestone payment related to certain performance achievements within the Jackpotjoy segment. This final payment was met using existing cash resources.

As at 30 September 2018, the entire contingent consideration balance relates to two remaining milestone payments for the Jackpotjoy segment.


The movement in Level 3 financial instruments is detailed below:


(£000's)



Contingent consideration, 1 January 2017

120,187

Fair value adjustments

27,562

Payments

(94,218)

Accretion of discount

6,052

Contingent consideration, 31 December 2017

59,583

Fair value adjustments

11,450

Payments

(63,455)

Accretion of discount

1,206

Contingent consideration, 30 September 2018

8,784



Current portion

4,540

Non-current portion

4,244

 

17.     Other long-term payables

The Group is required to pay the Gamesys group £24.0 million in equal monthly instalments in arrears over the period from April 2017 to April 2020, for additional non-compete clauses that came into effect in  April 2017 and that expire in March 2019.  The Group has included £8.7 million of this payable in current liabilities, as shown in note 14 (31 December 2017 – £8.7 million), with the discounted value of the remaining balance, being £3.2 million (31 December 2017 – £8.2 million), included in other long-term payables.  During the nine months ended 30 September 2018, the Group has paid a total of £6.0 million (nine months ended 30 September 2017 – £3.3 million) in relation to the additional non-compete clauses.

18.     Share capital

As at 30 September 2018, JPJ Group plc's issued share capital consisted of 74,328,930 ordinary shares, each with a nominal value of £0.10. JPJ Group plc does not hold any shares in treasury and there are no shares in JPJ Group plc's issued share capital that do not represent capital.


Ordinary shares of

£0.10


(£000's)

#




Balance, 1 January 2017

7,298

72,983,277

Conversion of convertible debentures, net of costs

92

916,498

Exercise of options

17

165,156

Balance, 31 December 2017

7,407

74,064,931

Conversion of convertible debentures, net of costs

6

56,499

Exercise of options

21

207,500

Balance, 30 September 2018

7,434

74,328,930

Ordinary shares

During the nine months ended 30 September 2018, JPJ Group plc did not issue any additional ordinary shares, except as described below.

Convertible debentures

During the nine months ended 30 September 2018, debentures at an undiscounted value of £0.2 million were converted into 56,499 ordinary shares of JPJ Group plc. The remaining convertible debentures were redeemed in full to the value of £0.1 million on 1 June 2018.

Share options

During the nine months ended 30 September 2018, nil share options were granted, 207,500 share options were exercised, nil share options were forfeited, and nil share options expired.

During the three and nine months ended 30 September 2018, the Group recorded £0.1 million and £0.3 million, respectively (2017 – £0.3 million and £1.2 million), in share-based compensation expense relating to the share option plan with a corresponding increase in share-based payment reserve.

Long-term incentive plan

On 26 March 2018, JPJ Group plc granted an equity-settled mirror award over ordinary shares of JPJ Group plc. The mirror award is on the same commercial terms as the Group's long-term incentive plan for key management personnel.

On 28 March 2018, JPJ Group plc granted additional equity-settled awards over ordinary shares of JPJ Group plc under the Group's long-term incentive plan for key management personnel.

During the three and nine months ended 30 September 2018, the Group recorded £0.1 million and £0.2 million, respectively (2017 – £0.1 million and £0.1 million), in share-based compensation expense relating to the long-term incentive plan with a corresponding increase in share-based payment reserve.

19.     Contingent liabilities

Indirect taxation

JPJ Group plc subsidiaries may be subject to indirect taxation on transactions that have been treated as exempt supplies of gambling, or on supplies that have been zero rated where legislation provides that the services are received or used and enjoyed in the country where the service provider is located. Revenue earned from customers located in any particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or on its financial position.

Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where the likelihood of a liability arising is considered remote, or the possible contingency is not material to the financial position of the Group, the contingency is not recognised as a liability at the balance sheet date.  As at 30 September 2018, the Group had recognised £nil (31 December 2017 – £nil) related to potential contingent indirect taxation liabilities.



[1] All figures in this press release exclude social gaming results.  For more information on the sale of social gaming assets, please refer to Note 6 – 'Discontinued operations' of the unaudited interim condensed consolidated financial statements on pages 25 and 26 of this release.

[2] This release contains non-IFRS financial measures, which are noted where used. For additional details, including with respect to the reconciliations from these non-IFRS financial measures, please refer to the information under the heading 'Note Regarding Non-IFRS Measures' on page 4 of this release and Note 4 – 'Segment Information' of the unaudited interim condensed consolidated financial statements on pages 19 through 24 of this release.

[3] Per share figures are calculated on a diluted weighted average basis using the IFRS treasury method.

[4] Operating cash flow plus proceeds from sale of intangible assets (excluding proceeds from disposal of discontinued operation), net of capital expenditures.

[5] Adjusted net debt consists of existing term loan, non-compete clause payout, fair value of swap and contingent consideration liability, less non-restricted cash.

[6] Adjusted net leverage ratio consists of existing term loans, non-compete clause payout, fair value of swap and contingent consideration liability less non-restricted cash  divided by LTM to 30 September 2018 Adjusted EBITDA of £105.5 million.

[7] For additional details, please refer to the information under the heading 'Key performance indicators' on page 10 of this release.

[8] Effective 1 January 2018, the Mandalay segment has been aggregated with the Jackpotjoy segment.  Refer to Note 4 – Segment Information of the unaudited interim condensed consolidated financial statements on pages 19 through 24 of this release for further discussion.

[9] Organic growth is growth achieved without accounting for acquisitions or disposals.

[10]Constant currency amounts are calculated by applying the same EUR to GBP average exchange rates to both current and prior year comparative periods.

Enquiries




JPJ Group plc

Jason Holden

Director of Investor Relations

jason.holden@jpj.com

+44(0)203-907-4032





Amanda Brewer

Vice President of Corporate Communications

amanda.brewer@jpj.com

+1-416-720-8150





Media Enquires






Finsbury

jpj@finsbury.com

+44(0)207-251-3801


James Leviton, Andy Parnis






 

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