GAMING REALMS PLC — Earnings Release 2020

Apr 27, 2021

National Storage Mechanism | Additional information

RNS Number : 6483W

Gaming Realms PLC

27 April 2021

Gaming Realms plc

(the "Company" or the "Group")

Annual Results 2020

Transformational year with strong momentum continuing into 2021 underpinned by growing U.S. footprint

Revenue grows by 66% and Licensing strategy delivers adjusted EBITDA1 profit £3.3m2

Gaming Realms plc (AIM: GMR), the developer and licensor of mobile focused gaming content, announces its annual results for the year ended 31 December 2020 and Q1 highlights for 2021.

Gaming Realms' licensing strategy enabled the Group to deliver profitable growth during FY20, as it distributed its extensive games portfolio to an increasing number of operators in key global markets.

2020 Financial Highlights:

·      Revenue increased by 66% to £11.4m (2019: £6.9m) for the year

o  Licensing revenue increased 81% to £7.5m (2019: £4.1m)

o  Social publishing revenue increased 41% to £3.9m (2019: £2.8m)

·      Adjusted EBITDA before share option and related charges of £3.3m (2019: loss of £0.2m)

·      Adjusted EBITDA from continuing operations of £2.9m (2019: loss of £0.3m)

o  Licensing segment generated £3.7m adjusted EBITDA (2019: £1.4m)

o  Social publishing segment generated £1.4m adjusted EBITDA (2019: £0.8m)

o  Head office costs reduced to £2.2m (2019: £2.4m) through ongoing cost control

·      Loss for the year significantly reduced to £1.5m (2019: £5.4m)

2020 Operational Highlights:

·      Portfolio grew to 44 proprietary games on the Group's Remote Game Server ("RGS") (2019: 34)

·      Launched with 26 new partners for Slingo Originals content, including 888casino.com, DraftKings, Paddy Power Betfair and Sky Betting & Gaming

·   Signed licensing deals with NetEnt, Playtech, Inspired Entertainment and King Show Games to build new innovative Slingo games

·      Unique players in licensing business increased by 140%

·      Submitted licence applications in order to enter the Pennsylvania and Michigan iGaming markets

·      Prepared for launch in the Italian market

Q1 2021 Highlights:

·      Licensing revenues increased 60% in Q1 2021 to £2.1m (Q1 2020: £1.3m)

·      Entered the Italian gaming market with Goldbet and Sisal Group

·      Obtained provisional supplier licence in Michigan and expect to launch imminently

·     Signed multi-State deals with BetMGM, Golden Nugget and Betfair/Fanduel, as well as two distribution deals with GAN for the U.S. and European market

1 EBITDA is profit before interest, tax, amortisation and impairment expenses and is a non-GAAP measure.  The Group uses EBITDA and adjusted EBITDA to comment on its financial performance.  Adjusted EBITDA is EBITDA excluding non-recurring material items which are outside the normal scope of the Group's ordinary activities.  Adjusting items include costs arising from a fundamental restructuring of the Group's operations, management restructuring costs, relocation costs, impairment of financial assets and sales proceeds on business asset disposals.

2 Adjusted EBITDA before share option and related charges.

Outlook

The strong momentum seen in FY20 has continued into 2021, with the Group continuing to focus on expanding internationally, securing additional partnerships and creating new games to drive growth. Gaming Realms successfully launched its Slingo content in the Italian regulated market, and will launch in Michigan, its second U.S. State in May. The Company expects to be granted a supplier licence in Pennsylvania and launch in the first half of the year. With 9 new partners secured to date in 2021, together with the recent launch of Slingo Starburst in collaboration with NetEnt, the Board has every confidence in the strategy being pursued and in the Group's prospects for the year ahead. The Company is trading marginally ahead of Board expectations.

Commenting on the results, Michael Buckley, Executive Chairman, said:

"The Group made excellent progress in FY20, producing a maiden adjusted EBITDA profit of £3.3m and increasing revenue by 66%. This underscores the success of the Company's strategy to focus on its core licensing business segment, as well as its social publishing division.

"By securing 26 new licensing and distribution partners throughout the year, of which many were Tier 1 operators, and adding 10 new games to our hugely popular Slingo portfolio, we successfully increased the number of unique players playing our games by 140% and saw increased international demand for our content.

"We remain committed to the expansion of our global footprint, particularly in the U.S. and European regulated markets, through increasing and strengthening our network of distributors, operators and licensors. With further planned launches in the USA, Denmark, Spain, Canada and Portugal, and a strong pipeline of new and exciting branded Slingo games, the Board is confident in the future prospects of the business and looks forward to keeping its shareholders updated on progress."

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 Will Bell
Yellow Jersey	020 3004 9512
Charles Goodwin Annabel Atkins

About Gaming Realms

Gaming Realms creates and licenses innovative games for mobile, with operations in the UK, U.S. and Canada. Through its unique IP and brands, Gaming Realms is bringing together media, entertainment and gaming assets in new game formats. The Gaming Realms management team includes accomplished entrepreneurs and experienced executives from a wide range of leading gaming and media companies.

Executive Chairman's Statement

The Group made excellent progress during the year, increasing revenues by 66% to £11.4m (2019: £6.9m) and producing a maiden adjusted EBITDA profit before share option and related charges of £3.3m (2019: loss of £0.2m). This underscores the success of the revised strategy we set out at the beginning of 2020 to focus on our core licensing business segment, as well as delivering growth in our social publishing division.

Our focus on content licensing resulted in 81% revenue growth in our licensing business to £7.5m (2019: £4.1m). We are seeing strong momentum within this business, with increased international demand for our Slingo Originals portfolio. With growing distribution via our proprietary Remote Game Server ("RGS"), we have been able to increase our EBITDA margin within the licensing segment to 50% (2019: 34%), resulting in EBITDA of £3.7m (2019: £1.4m).

Licensing business highlights:

·      Increased our library of proprietary games by 10 to 44 games at year-end.

·      Went live with 26 new partners during the year, all of which have licensed our Slingo Originals content.

·      Went live with a number of "Tier 1" partners through our Scientific Games distribution channel.

·      Increased our unique players in the year by 140% to 2.28m (2019: 0.95m)

·      Signed deals with NetEnt, King Show Games and Inspired Entertainment for new branded Slingo games.

·      Maintained in excess of a 3.5% market share of sales in New Jersey, USA, from online slot products throughout the year. During 2020, the New Jersey online casino market grew by 102%.

We grew our social publishing business in the year, reversing the trends of previous years. Revenues grew 41% to £3.9m (2019: £2.8m), the result of both publishing our Slingo Originals portfolio, as well as the development of new tournament and promotional features on the platform. With increasing margins, EBITDA has grown to £1.4m (2019: £0.8m). As a result, the division produced a cash contribution to the Group.

2020 was a challenging year with the difficulties imposed by COVID-19 restrictions. The highly pleasing financial results and groundwork for the future years would not have been achieved without management and staff showing excellent dedication and adaptability in the challenging circumstances. I should like to thank them all for their efforts which are reflected in these Financial Statements.

Outlook for 2021

We are continuing our focus on the following areas:

·      International expansion - particularly in the US and European regulated markets

·      Adding new distributors, operators and licensors

·      Further penetration with existing distributors and operators driven by new games

The Group has made encouraging progress so far in 2021, obtaining a supplier licence in Michigan and expecting to be live imminently. We are committing a lot of resources to growing the U.S. iGaming market and expect to obtain a supplier license and go live in Pennsylvania in the first half of the year.  As a result, we are well prepared to take advantage of the growth of iGaming within the U.S., and have signed several multi-State deals and direct integration agreements with the largest operators, including Rush Street Interactive, DraftKings and BetMGM. We have also signed a distribution agreement with GAN for the U.S. and European markets. In January of this year, we had a successful launch in the Italian regulated market and are encouraged by early trading. We have further launches planned in the regulated markets of Denmark, Spain, Canada and Portugal.

We have also recently launched Slingo Starburst, through our licencing agreement with NetEnt, which has proven extremely popular with our players and partners internationally. It has been our most successful launch to date in both unique player numbers and revenue generated in its first month.

With regards to this year's trading, I am pleased to inform shareholders that our licensing revenues for the first quarter of this year are 60% ahead of the same period in 2020, and we are operating slightly ahead of Board expectations. With these early results, and the imminent launches in both Michigan and Pennsylvania, the Board has every confidence in the strategy being pursued and its expectations for this year and beyond.

COVID-19

Our top priority in response to the pandemic has been the health and welfare of our employees and partners as mentioned above. Our team has demonstrated incredible commitment and focus to maintain complete business continuity and we will continue to support them as we move to a more flexible model post COVID-19. 

Michael Buckley

Executive Chairman

Financial Review

Overview

In 2020 the Group was able to focus on successfully executing its core strategy of scaling the licensing business. 

For the year, the Group delivered adjusted EBITDA on a continuing basis of £2.9m (2019: £0.3m adjusted EBTIDA loss). This has resulted in a significant reduction in the pre-tax loss of £1.6m compared with the previous year (2019: £4.7m loss from continuing operations).

In the prior year, the Group completed its disposal of the real money B2C assets and realised a £0.8m profit on disposal.  The B2C RMG segment is presented as a discontinued operation in the comparative 2019 results.  There were no such asset disposals during 2020.

The table below sets out the split of revenue and adjusted EBITDA on a continuing and discontinued operations basis:

	Continuing operations					Discontinued
	Licensing	Social Publishing	Head office	Total continuing		Real money gaming		Total 2020
2020	£000's	£000's	£000's	£000's		£000's		£000's
Revenue	7,515	3,886	2	11,403		-		11,403
Marketing expense	(18)	(243)	(94)	(355)		-		(355)
Operating expense	(1,071)	(1,161)	-	(2,232)		-		(2,232)
Administrative expense	(2,610)	(1,090)	(1,804)	(5,504)		-		(5,504)
Share option and related charges	(71)	(7)	(294)	(372)		-		(372)
Adjusted EBITDA	3,745	1,385	(2,190)	2,940		-		2,940
	Continuing operations					Discontinued operations
	Licensing	Social Publishing	Head office	Total continuing		Real money gaming		Total 2019
2019	£000's	£000's	£000's	£000's		£000's		£000's
Revenue	4,147	2,758	106	7,011		6,002		13,013
Marketing expense	-	(130)	(82)	(212)		(706)		(918)
Operating expense	(773)	(855)	1	(1,627)		(4,908)		(6,535)
Administrative expense	(1,970)	(1,001)	(2,446)	(5,417)		(1,965)		(7,382)
Share option and related charges	-	-	(10)	(10)		-		(10)
Adjusted EBITDA	1,404	772	(2,431)	(255)		(1,577)		(1,832)

Continuing operations

Year-on-year continuing revenue increased 66% to £11.4m (£2019: £6.9m) due to the strong performance of both the licensing and social publishing segments in the year.

Continuing operations generated adjusted EBITDA of £2.9m (2019: £0.3m loss) and £3.3m before share option and related charges (2019: £0.2m loss).

EBITDA generated from continuing operations was £2.0m (2019: £0.8m loss) including restructuring costs of £0.5m (2019: £0.3m) and impairment of assets of £0.4m (2019: £0.2m). 

Operating expenses for the year increased to £2.2m (2019: £1.5m) principally as a result of costs directly associated with the revenue growth in both the licensing and social publishing segments.

Adjusted administrative expenses increased slightly to £5.5m (2019: £5.4m) due to increased staff costs in the licensing segment in order to drive the revenue growth, offset by head office cost savings compared to 2019.

Licensing

Licensing segment revenues increased 81% to £7.5m (2019: £4.1m) due to the successful implementation of the Group's strategy of growing both the games content and distribution to an increased number of operators in Europe and the US.

During 2020, the Group went live with an additional 26 partners in Europe, New Jersey and Latin America.  After the year-end, the Group went live with a further 9 new operators, including Sisal and Goldbet in Italy, which represents a new regulated market for the Group.

10 new Slingo games were launched to the market during 2020, including Slingo Fluffy Favorites and Slingo Reel King.

Revenues from the U.S. market continue to be a focus for the segment, and in 2020 increased to £2.4m (2019: £1.7m), representing 32% of total licensing revenues (2019: 40%). This market is expected to gain further prominence for the Group given the recently announced successful license application in Michigan and pending application in Pennsylvania.

Social publishing

The Group's social publishing business delivered strong growth in 2020, with revenues increasing to £3.9m (2019: 2.8m). With continued cost controls in place, this resulted in the segment delivering £1.4m adjusted EBITDA for the year (2019: £0.8m).

Marketing expenses of £0.2m were incurred (2019: £0.1m) in order to drive player activity and revenues.

Discontinued operations

Discontinued operations in the prior year relate only to B2C RMG.

In July 2019 the Group concluded its transaction with River Tech plc ("River"), which finalised the Group's strategy of withdrawing from the UK real money B2C market to focus on game development and licensing activities. The Group recorded a profit on disposal of these assets of £0.8m in the prior year.

The Group recorded a loss after tax from discontinued operations of £0.8m in the prior year, comprising £0.7m profit on disposal of assets, £0.2m share of loss of associate prior to disposal, and incurred trading losses until disposal of £1.3m.

Cashflow, Balance Sheet and Going Concern

Net cash decreased by £0.5m in 2020 (2019: increased by £1.0m) to £2.1m at 31 December 2020 (2019: £2.6m). The current year reduction in net cash was largely driven through the £2.4m of development costs capitalised in the year (2019: £2.7m) offset by the £2.0m cash inflow from operating activities (2019: £1.5m outflow). 

After the year-end, on 1 April 2021 the Group received £1.0m from River for full and final settlement of the deferred consideration receivable, certain other receivable balances, and various legal proceedings and out of court disputes between the parties.

Net assets totaled £10.9m (2019: £12.1m).

The prolonged COVID-19 pandemic has brought significant uncertainty to global markets and economies, including the real money gambling sector. The Directors have performed qualitative and quantitative assessments of the associated risks facing the business and its ability to meet its short and medium-term forecasts.  The forecasts were subject to stress testing to analyse the reduction in forecast revenues required to bring about insolvency of the Company unless capital was raised. In such cases it is anticipated that mitigation actions, such as reduction in overheads could be implemented to stall such an outcome.

The Directors confirm their view that they have carried out a robust assessment of the emerging and principal risks facing the business. As a result of the assessment performed, the Directors consider that the Group has adequate resources to continue its normal course of operations for the foreseeable future. 

Dividend

During the year, Gaming Realms did not pay an interim or final dividend. The Board of Directors are not proposing a final dividend for the current year.

Corporation and deferred taxation

The Group received £0.05m (2019: £0.1m) in research and development credits in Canada.  A current year tax charge of £0.1m (2019: £0.1m) principally relates to taxation in overseas jurisdictions in which the Group operates. The Group also recognised an unwind of deferred tax of £0.1m (2019: £0.1m) which arose on prior year business combinations.

Mark Segal

Chief Financial Officer

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2020

		2020	2019
Continuing		£	£
Revenue		11,403,486	6,882,741
Marketing expenses		(355,394)	(212,473)
Operating expenses		(2,232,032)	(1,498,294)
Administrative expenses		(5,971,970)	(5,743,747)
Impairment of financial asset		(449,422)	(200,000)
Share option and related charges		(372,344)	(9,972)
Adjusted EBITDA - continuing		2,939,522	(255,116)
Impairment of financial asset		(449,422)	(200,000)
Restructuring expenses		(467,776)	(326,629)
EBITDA - continuing		2,022,324	(781,745)
Amortisation of intangible assets		(2,817,043)	(2,982,845)
Depreciation of property, plant and equipment		(216,323)	(204,714)
Impairment of property, plant and equipment		(22,876)	-
Finance expense		(882,032)	(842,518)
Finance income		333,664	146,661
Loss before tax		(1,582,286)	(4,665,161)
Tax credit		48,229	31,335
Loss for the financial year - continuing		(1,534,057)	(4,633,826)
Loss for the financial year - discontinued		-	(783,451)
Loss for the financial year - total		(1,534,057)	(5,417,277)
Other comprehensive income
Items that will or may be reclassified to profit or loss:
Exchange loss arising on translation of foreign operations		(226,666)	(305,671)
Total other comprehensive income		(226,666)	(305,671)
Total comprehensive income		(1,760,723)	(5,722,948)
Loss attributable to:
Owners of the parent		(1,527,964)	(5,341,669)
Non-controlling interest		(6,093)	(75,608)
		(1,534,057)	(5,417,277)
Total comprehensive income attributable to:
Owners of the parent		(1,754,630)	(5,647,340)
Non-controlling interest		(6,093)	(75,608)
		(1,760,723)	(5,722,948)
Loss per share		Pence	Pence
Basic and diluted - continuing		(0.54)	(1.60)
Basic and diluted - discontinued		-	(0.28)
Basic and diluted - total		(0.54)	(1.88)

Consolidated Statement of Financial Position

As at 31 December 2020

		31 December 2020	31 December 2019
		£	£
Non-current assets
Intangible assets		11,137,123	11,702,553
Other investments		401,291	289,511
Property, plant and equipment		560,793	760,763
Finance lease asset		-	157,166
Other assets		150,528	150,885
		12,249,735	13,060,878
Current assets
Trade and other receivables		2,343,739	1,850,863
Deferred consideration		972,554	1,298,663
Finance lease asset		140,058	126,354
Cash and cash equivalents		2,105,167	2,626,837
		5,561,518	5,902,717
Total assets		17,811,253	18,963,595
Current liabilities
Trade and other payables		1,943,714	2,125,257
Lease liabilities		343,859	256,527
		2,287,573	2,381,784
Non-current liabilities
Deferred tax liability		320,913	457,492
Other Creditors		3,304,870	3,126,673
Derivative liabilities		627,000	272,000
Lease liabilities		340,175	646,122
		4,592,958	4,502,287
Total liabilities		6,880,531	6,884,071
Net assets		10,930,722	12,079,524
Equity
Share capital		28,664,731	28,442,874
Share premium		87,258,166	87,198,410
Merger reserve		(67,673,657)	(67,673,657)
Foreign exchange reserve		1,379,116	1,605,782
Retained earnings		(38,768,257)	(37,570,601)
Total equity attributable to owners of the parent		10,860,099	12,002,808
Non-controlling interest		70,623	76,716
Total equity		10,930,722	12,079,524

Consolidated Statement of Cash Flows

For the year ended 31 December 2020

		2020	2019
		£	£
Cash flows from operating activities
Loss for the financial year		(1,534,057)	(5,417,277)
Adjustments for:
Depreciation of property, plant and equipment		216,323	211,055
Impairment of property, plant and equipment		22,876	-
Amortisation of intangible fixed assets		2,817,043	2,982,845
Impairment		449,422	200,000
Finance income		(333,664)	(420,512)
Finance expense		882,032	842,518
Income tax credit		(48,229)	(31,335)
Exchange differences		(54,940)	41,336
(Profit) / loss on disposal of property, plant and equipment		(1,000)	28,081
Profit on disposal of assets		-	(683,323)
Share of loss of associate		-	157,307
Share based payment expense		330,308	9,972
(Increase) / decrease in trade and other receivables		(463,237)	1,330,674
Decrease in trade and other payables		(233,543)	(803,124)
Increase in other assets		-	(18,308)
Net cash flows from / (used in) operating activities before taxation		2,049,334	(1,570,091)
Net tax (paid) / received in the year		(33,717)	73,424
Net cash flows from / (used in) operating activities		2,015,617	(1,496,667)
Investing activities
Acquisition of property, plant and equipment		(30,143)	(106,583)
Capitalised development costs		(2,440,559)	(2,680,289)
Proceeds from disposal of assets, net of cash disposed of		-	6,135,529
Costs related to asset disposal		-	(765,867)
Proceeds from disposal of property, plant and equipment		1,000	-
Interest received		47	3,705
Finance lease asset - sublease receipts		163,324	120,507
Net cash (used in) / from investing activities		(2,306,331)	2,707,002
Financing activities
Receipt of deferred consideration		-	385,000
Principal paid on lease liability		(300,086)	(252,376)
Issue of share capital on exercise of options		281,613	-
Interest paid		(225,516)	(322,772)
Net cash used in financing activities		(243,989)	(190,148)
Net (decrease) / increase in cash and cash equivalents		(534,703)	1,020,187
Cash and cash equivalents at beginning of year		2,608,455	1,550,141
Exchange gain on cash and cash equivalents		13,033	38,127
Cash and cash equivalents at end of year		2,086,785	2,608,455

Consolidated Statement of Changes in Equity

For the year ended 31 December 2020

	Share capital	Share premium	Merger reserve	Foreign Exchange Reserve	Retained earnings	Total to equity holders of parents	Non-controlling interest	Total equity
	£	£	£	£	£	£	£	£
1 January 2019	28,442,874	87,198,410	(67,673,657)	1,911,453	(32,238,904)	17,640,176	152,324	17,792,500
Loss for the year	-	-	-	-	(5,341,669)	(5,341,669)	(75,608)	(5,417,277)
Other comprehensive income	-	-	-	(305,671)	-	(305,671)	-	(305,671)
Total comprehensive income for the year	-	-	-	(305,671)	(5,341,669)	(5,647,340)	(75,608)	(5,722,948)
Contributions by and distributions to owners
Share-based payment on share options	-	-	-	-	9,972	9,972	-	9,972
31 December 2019	28,442,874	87,198,410	(67,673,657)	1,605,782	(37,570,601)	12,002,808	76,716	12,079,524
1 January 2020	28,442,874	87,198,410	(67,673,657)	1,605,782	(37,570,601)	12,002,808	76,716	12,079,524
Loss for the year	-	-	-	-	(1,527,964)	(1,527,964)	(6,093)	(1,534,057)
Other comprehensive income	-	-	-	(226,666)	-	(226,666)	-	(226,666)
Total comprehensive income for the year	-	-	-	(226,666)	(1,527,964)	(1,754,630)	(6,093)	(1,760,723)
Contributions by and distributions to owners
Share-based payment on share options	-	-	-	-	330,308	330,308	-	330,308
Exercise of options	221,857	59,756	-	-	-	281,613	-	281,613
31 December 2020	28,664,731	87,258,166	(67,673,657)	1,379,116	(38,768,257)	10,860,099	70,623	10,930,722

Notes to the Consolidated Financial Statements

For the year ended 31 December 2020

1.   Accounting policies

General information

Gaming Realms Plc (the "Company") and its subsidiaries (together the "Group").

The Company is admitted to trading on the Alternative Investment Market (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, SE1 8QH.

The consolidated financial statements are presented in British Pounds Sterling.

Basis of preparation

The Group financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and on a basis consistent with those policies set out in our audited financial statements for the year ended 31 December 2019.

The financial information set out in this document does not constitute the Group's statutory accounts for the year ended 31 December 2020 or 31 December 2019.

Statutory accounts for the year ended 31 December 2019 have been filed with the Registrar of Companies and those for the year ended 31 December 2020 will be delivered to the Registrar in due course; both have been reported on by independent auditors.  The independent auditor's report for the year ended 31 December 2020 is unmodified.

The independent auditor's reports on the Annual Report and Accounts for the year ended 31 December 2020 and 31 December 2019 were unqualified and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Basis of consolidation

The Group financial statements incorporate the financial statements of the Company and entities controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

The results of subsidiaries acquired or disposed of during the period are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition up to the effective date of disposal. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group.

All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

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 2023 and consider that the Group will have sufficient cash resources available to meet its liabilities as they fall due for at least the forthcoming 12 months from the date of the approval of the financial statements. Given the economic uncertainty resulting from the ongoing COVID-19 pandemic, these cash flow forecasts have been subject to short- and medium-term stress testing, scenario modelling and sensitivity analysis through to June 2022, which the Directors consider sufficiently robust. Scenarios considered include but are not limited to; failure to expand into new US states during the forecast period, non-receipt of deferred consideration due to the Group at the year-end and a significant reduction in trading cash flows compared to Group forecasts. The Directors note that in an extreme scenario, the Group also has the option to rationalise its cost base including cuts to discretionary capital, marketing and overhead expenditure. The Directors consider that the required level of change to the Group's forecast cash flows to give a rise to a material risk over going concern are sufficiently remote.

Subsequent to the year-end, on 1 April 2021 the Group received £1.0m from River in respect of the deferred consideration receivable, certain other receivable balances and full and final settlement of all legal proceedings and out of court disputes between the parties. The Directors note that aside from ongoing lease liabilities, the Group has no debt contractually repayable before 31 December 2022.

Accordingly, these financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Group and the Company will realise its assets and discharge its liabilities in the normal course of business.  Management has carried out an assessment of the going concern assumption and has concluded that the Group and the Company will generate sufficient cash and cash equivalents to continue operating for the next 12 months.

Adoption of new and revised standards

New standards that have been adopted by the Group for the year ended 31 December 2020, but have not had a significant impact on the Group are:

·      Definition of a Business (Amendments to IFRS 3);

·      Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16);

·      COVID-19-Related Rent Concessions (Amendments to IFRS 16);

·      IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Disclosure Initiative - Definition of Material); and

·      Revisions to the Conceptual Framework for Financial Reporting.

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early.

The following amendments are effective for the period beginning 1 January 2022:

·      Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37);

·      Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);

·      Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and

·      References to Conceptual Framework (Amendments to IFRS 3).

The Group is currently assessing the impact of these new accounting standards and amendments. 

Business combinations

On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired, including separately identifiable intangible assets, is recognised as goodwill. Any discount on acquisition, i.e. where the cost of acquisition is below the fair value of the identifiable net assets acquired, is credited to the Statement of Comprehensive Income in the period of acquisition.

2.   Adjusted EBITDA

EBITDA and adjusted EBITDA are non-GAAP measures and exclude exceptional items, depreciation, and amortisation. Exceptional items are those items the Group considers to be non-recurring or material in nature that may distort an understanding of financial performance or impair comparability.

Adjusted EBITDA is stated before exceptional items as follows:

			2020	2019
			£	£
Impairment of financial asset			(449,422)	(200,000)
Restructuring costs			(467,776)	(326,629)
Adjusting items			(917,198)	(526,629)

Restructuring costs

Restructuring costs of £0.5m in 2020 relate to a management restructure during the year, following the change in focus to the licensing business.  Restructuring costs of £0.3m in 2019 related to redundancy and relocation costs.

Impairment of financial asset

In accordance with IFRS 9, management have performed an expected credit loss review over its deferred consideration and trade and other receivable balances. As a result of this review, an impairment provision of £449,422 (2019: £200,000) has been recorded in the income statement. The current year provision is split between deferred consideration (£527,446) and other receivables (credit of £78,024).

3.   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 2 continuing reportable operating segments:

·      Licensing - brand and content licensing to partners in Europe and the US

·      Social Publishing - providing freemium games to the US

Management do not report segmental assets and liabilities internally and as such an analysis is not reported.

		Licensing		Social publishing		Head Office		Total
2020		£		£		£		£
Revenue		7,515,114		3,885,971		2,401		11,403,486
Marketing expense		(18,528)		(242,667)		(94,199)		(355,394)
Operating expense		(1,070,766)		(1,161,266)		-		(2,232,032)
Administrative expense		(2,610,275)		(1,090,014)		(1,803,905)		(5,504,194)
Share option and related charges		(70,764)		(6,906)		(294,674)		(372,344)
Adjusted EBITDA - continuing		3,744,781		1,385,118		(2,190,377)		2,939,522
	Impairment of financial asset								(449,422)
	Restructuring expenses								(467,776)
EBITDA - continuing								2,022,324
	Amortisation of intangible assets								(2,817,043)
	Depreciation of property, plant and equipment								(216,323)
	Impairment of property, plant and equipment								(22,876)
	Finance expense								(882,032)
	Finance income								333,664
	Loss before tax - continuing								(1,582,286)

		Licensing		Social publishing		Head Office		Total
2019		£		£		£		£
Revenue		4,146,857		2,758,475		106,164		7,011,496
Marketing expense		-		(130,505)		(81,968)		(212,473)
Operating expense		(772,827)		(854,984)		762		(1,627,049)
Administrative expense		(1,970,455)		(1,001,103)		(2,445,560)		(5,417,118)
Share option and related charges		-		-		(9,972)		(9,972)
Adjusted EBITDA - continuing		1,403,575		771,883		(2,430,574)		(255,116)
Impairment of financial asset								(200,000)
	Restructuring expenses								(326,629)
EBITDA - continuing								(781,745)
	Amortisation of intangible assets								(2,982,845)
	Depreciation of property, plant and equipment								(204,714)
	Finance expense								(842,518)
	Finance income								146,661
	Loss before tax - continuing								(4,665,161)

Segmental revenue includes £nil (2019: £128,755) of inter-segment Licensing revenue. This is shown as an Operating Expense under the real money gaming discontinued operations and eliminates on consolidation.

4.   finance income and expense

		2020	2019
		£	£
Finance income
Interest received		47	3,705
Fair value gain on other investments		111,780	-
Interest income on unwind of finance lease asset		20,500	30,625
Interest income on unwind of deferred consideration receivable		201,337	112,331
Total finance income		333,664	146,661
Finance expense
Bank interest paid		18,663	45,931
Fair value loss on other investments		-	245,619
Fair value movement on derivative liability		355,000	72,000
Effective interest on other creditor		437,050	406,912
Interest expense on lease liability		71,319	72,056
Total finance expense		882,032	842,518

5.   tax credit

	2020	2019
	£	£
Current tax
Current tax expense	(93,997)	(62,784)
Adjustment for current tax of prior periods	(34,232)	(134,631)
R&D tax credit for the year	46,127	97,007
Total current tax	(82,102)	(100,408)
Deferred tax
Unwind of deferred tax	130,331	131,743
Total deferred tax credit	130,331	131,743
Total tax credit	48,229	31,335

The reasons for the difference between the actual tax credit for the period and the standard rate of corporation tax in the UK applied to profits for the year are as follows:

	2020	2019
	£	£
Loss before tax for the year - continuing	(1,582,286)	(4,665,161)
Loss before tax for the year - discontinued	-	(783,451)
Loss before tax for the year	(1,582,286)	(5,448,612)
Expected tax at effective rate of corporation tax in the UK of 19.0% (2019: 19.0%)	(300,634)	(1,035,236)
Expenses not deductible for tax purposes	3,369	36,755
Income not chargeable for tax purposes	-	(129,831)
Effects of overseas taxation	93,997	62,785
Adjustment for under-provision in prior years	34,233	134,631
Research and development tax credit	(46,127)	(97,007)
Timing difference	12,745	29,959
Tax losses for which no deferred tax assets have been recognised	284,519	1,098,352
Unwind of deferred taxes recognised on business acquisitions	(130,331)	(131,743)
	(48,229)	(31,335)

6.   Profit/(Loss) per share

Basic profit/(loss) per share is calculated by dividing the result attributable to ordinary shareholders by the weighted average number of shares in issue during the year. For fully diluted loss per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares. The Group's potentially dilutive securities consist of share options, performance shares and a convertible bond. As the continuing operations of the Group are loss-making, none of the potentially dilutive securities are currently dilutive.

		2020	2019
		£	£
Loss after tax - continuing		(1,527,964)	(4,558,218)
Loss after tax - discontinued		-	(783,451)
Loss after tax - total		(1,527,964)	(5,341,669)
		Number	Number
Weighted average number of ordinary shares used in calculating basic loss per share		285,165,652	284,428,747
Weighted average number of ordinary shares used in calculating dilutive loss per share		285,165,652	284,428,747
		Pence	Pence
Basic and diluted loss per share - continuing		(0.54)	(1.60)
Basic and diluted loss per share - discontinued		-	(0.28)
Basic and diluted loss per share - total		(0.54)	(1.88)

7.   Intangible assets

	Goodwill	Customer database	Software	Development costs	Domain names	Intellectual Property	Total
	£	£	£	£	£	£	£
Cost
At 1 January 2019	7,056,768	1,582,190	1,488,600	9,708,137	29,418	6,194,372	26,059,485
Additions	-	-	-	2,680,289	-	-	2,680,289
Disposals	-	-	-	(144,766)	(20,000)	-	(164,766)
Reclassified as held for sale	-	-	-	(437,023)	-	-	(437,023)
Exchange differences	(207,720)	(61,681)	(68,226)	(8,264)	(365)	(231,600)	(577,856)
At 31 December 2019	6,849,048	1,520,509	1,420,374	11,798,373	9,053	5,962,772	27,560,129
Additions	-	-	-	2,440,559	-	-	2,440,559
Disposals	-	-	-	-	-	-	-
Exchange differences	(151,829)	(44,859)	(36,151)	(6,040)	(268)	(176,593)	(415,740)
At 31 December 2020	6,697,219	1,475,650	1,384,223	14,232,892	8,785	5,786,179	29,584,948
Accumulated amortisation and impairment
At 1 January 2019	1,650,000	1,582,190	1,407,255	5,923,789	29,418	2,618,210	13,210,862
Amortisation charge	-	-	79,731	2,128,156	-	774,958	2,982,845
Disposals	-	-	-	(60,389)	(20,000)	-	(80,389)
Exchange differences	-	(61,681)	(66,612)	(5,521)	(365)	(121,563)	(255,742)
At 31 December 2019	1,650,000	1,520,509	1,420,374	7,986,035	9,053	3,271,605	15,857,576
Amortisation charge	-	-	-	2,050,390	-	766,653	2,817,043
Disposals	-	-	-	-	-	-	-
Exchange differences	-	(44,859)	(36,151)	(5,680)	(268)	(139,836)	(226,794)
At 31 December 2020	1,650,000	1,475,650	1,384,223	10,030,745	8,785	3,898,422	18,447,825
Net book value
At 31 December 2019	5,199,048	-	-	3,812,338	-	2,691,167	11,702,553
At 31 December 2020	5,047,219	-	-	4,202,147	-	1,887,757	11,137,123

8.   Deferred consideration

		Affiliate Marketing	RMG*	Total		RMG*
		Continuing	Continuing	Continuing		Discontinued	Total
		£	£	£		£	£
At 1 January 2019		385,000	280,690	665,690		3,623,425	4,289,115
Deferred consideration received in the year		(385,000)	-	(385,000)		-	(385,000)
Interest recognised as finance income on b/fwd balance		-	22,034	22,034		273,851	295,885
Eliminated on 2019 RMG disposal		-	(302,724)	(302,724)		(3,897,276)	(4,200,000)
Deferred consideration on 2019 RMG disposal		-	1,208,366	1,208,366		-	1,208,366
Interest recognised as finance income on 2019 disposal		-	90,297	90,297		-	90,297
At 31 December 2019		-	1,298,663	1,298,663		-	1,298,663
At 1 January 2020		-	1,298,663	1,298,663		-	1,298,663
Interest recognised as finance income on 2019 disposal		-	201,337	201,337		-	201,337
Impairment recognised		-	(527,446)	(527,446)		-	(527,446)
At 31 December 2020		-	972,554	972,554		-	972,554

* RMG refers to Real Money Gaming which is classified as discontinued. 

9.   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 carries interest at 3-month LIBOR plus 5.5%. 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 at 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 31 December 2020 was £0.6m (2019: £0.3m) 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 cashflows was 14.1%, being the Group's incremental borrowing rate. This 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 cashflows are based on 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 to provide free services.

	Fair value of debt host	Obligation to provide free services	Fair value of derivative Liability	Total
	£	£	£	£
At 1 January 2019	2,795,602	209,000	200,000	3,204,602
Utilisation of free services	-	(8,000)	-	(8,000)
Effective interest	406,912	-	-	406,912
Interest paid	(276,841)	-	-	(276,841)
Change in fair value	-	-	72,000	72,000
At 31 January 2019	2,925,673	201,000	272,000	3,398,673
At 1 January 2020	2,925,673	201,000	272,000	3,398,673
Utilisation of free services	-	(52,000)	-	(52,000)
Effective interest	437,050	-	-	437,050
Interest paid	(206,853)	-	-	(206,853)
Change in fair value	-	-	355,000	355,000
At 31 December 2020	3,155,870	149,000	627,000	3,931,870

10.  Share capital

Ordinary shares

	2020	2020	2019	2019
	Number	£	Number	£
Ordinary shares of	286,647,315	28,664,731	284,428,747	28,442,874
10 pence each

The increase of 2,218,568 ordinary shares relates to the exercise of share options during the year. The total amount received by the Company for the exercise price settlement was £281,613, which has been recorded as an increase in share capital and share premium as follows:

	£
Share capital	221,857
Share premium	59,756
	281,613

11.  POST BALANCE SHEET EVENTS

On 6 January 2021, the Group was awarded a provisional iGaming supplier license by the Michigan Gaming Control Board to allow the Group to provide its Slingo Originals game content to Michigan's licensed online casino operators.

On 1 April 2021, the Group received £1.0m from River for full and final settlement of the deferred consideration receivable, certain other receivable balances, and various legal proceedings and other out of court disputes between the parties.

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