115178 Gaming Cover 28/4/09 5:40 pm Page 1 GAMING VC HOLDINGS S.A. (Incorporated in the Grand Duchy of Luxembourg, Registered Number RC Luxembourg B 104348) FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2008 115178 Gaming Part 2 28/4/09 5:31 pm Page 61 115178 Gaming Intro 28/4/09 5:49 pm Page 1 CONTENTS FACTSHEET DIRECTORS ADVISORS SECTION A: AS PREPARED UNDER IFRS REPORTS – – – – Chairman’s Statement Chief Executive’s Statement Finance Director’s Statement Independent Auditor’s report to the Shareholders of Gaming VC Holdings S.A. CONSOLIDATED FINANCIAL STATEMENTS – – – – – Consolidated Income Statement Consolidated Statement of Recognised Income and Expense Consolidated Balance Sheet Consolidated Statement of Cashflows Notes to the Financial Statements SECTION B: ADDITIONAL UNAUDITED INFORMATION – – Trading history in the period since incorporation Reconciliation of the Consolidated Balance Sheet of Gaming VC Holdings S.A. as prepared under IFRS to Company Balance Sheet of Gaming VC Holdings S.A. as prepared under Luxembourg GAAP Page 2 Page 3 Page 4 Page 5 Page 6 Page 8 Page 13 Page 15 Page 15 Page 16 Page 17 Page 19 to 47 Page 49 Page 50 SECTION C: PREPARED UNDER LUXEMBOURG GAAP FINANCIAL STATEMENTS OF GAMING VC HOLDINGS S.A. as prepared under Luxembourg GAAP Pages 52 to 60 1 115178 Gaming Intro 28/4/09 5:49 pm Page 2 FACTSHEET The Company was incorporated in Luxembourg on 30 November 2004 and it was listed on AIM on 21 December 2004. The company is therefore bound by the corporate laws of Luxembourg, the Company’s Articles of Association, and the AIM rules of the London Stock Exchange. It is not bound by the Takeover code. The principal operating currency of the Group is the Euro. The shares are traded in GBP. Shares are held in registered, not certificated form. To enable CREST settlement, depository interests, rather than shares, are traded. Capita IRG Trustees Limited record the depository interests. Under a Deed Poll, depository interest holders have the same economic rights as other shareholders. Voting is also mirrored as depository interest holders provide Capita with a “form of direction” – this is akin to a proxy vote. Key milestones Q3-07 – Granted a licence by the LGA in Malta Q3-07 – Sportsbook operation started Q1-08 – Winzingo, Bingo site targeting Spanish customers, launched Q4-08 – Granted a licence by the Italian authorities Q1-09 – Launch of Slots Club Q2-09 – Entered long-term contract with Boss Media for supply of casino and poker software Website Extensive information on the Group, and prior-year financial statements and press releases can be found on the Group’s website: www.gamingvc.com. Brands operated www.casinoclub.com www.pokerkings.com www.slotsclub.com www.betaland.com www.betpro.it www.winzingo.com Committees of the Board The board has both Audit and Remuneration Committee. The Audit Committee, currently chaired by Karl Diacono, is required to give its approval before the release of; the annual report and accounts, the preliminary year-end statement, the interim financial statements, and any other release of financial information to the market. The Remuneration Committee, currently chaired by Nigel Blythe-Tinker, reviews the remuneration packages of the Executive Director and is required by the board to review the bonus arrangements of any employee or consultant to the group. The committee meets at least twice a year. The Board The board currently comprises five directors. The board aims to meet six times a year and more frequently if required. 2 115178 Gaming Intro 28/4/09 5:49 pm Page 3 DIRECTORS Lee Feldman, Chairman, and non-executive director Lee Feldman (41), holds a law degree from Columbia University and is currently the Managing Partner of Twin Lakes Capital, a private equity firm based in New York City. He joined the board at the time when the Company was admitted to AIM, and serves on both the Audit and Remuneration committees. He currently serves on a number of boards, including MacKenzie-Childs LLC and LRN Corporation. Prior to Twin Lakes, Mr. Feldman was a partner at Softbank Capital Partners. Nigel Blythe-Tinker, Non-Executive Director – Chairman of the Remuneration Committee Nigel Blythe-Tinker (58), trained as a solicitor and is a Fellow of the Institute of Chartered Secretaries and Administrators. He has extensive City experience of over 30 years which covers being Group Corporate Secretary/Legal counsel and board member of a number of private and publicly quoted companies in the leisure, gaming and industrial sectors. He joined the board at the time when the Company was admitted to AIM, and serves on both the Audit and Remuneration committees. He is also the Chairman of Pentasia Limited, a recruitment business specialising in the gaming sector. Karl Diacono, Non-Executive Director – Chairman of the Audit Committee Karl Diacono (46), holds a Master Degree in Management and is currently CEO of the Fenlex Group, a corporate service provider based in Malta, and Managing Director of Impetus Europe Consulting Group. He joined the board on 5 December 2008 and serves on both the Audit and Remuneration committees. He currently sits on a number of boards in Malta and overseas and is also actively involved in the hospitality industry. Kenneth J Alexander, Chief Executive Officer Kenny (39), is a Chartered Accountant by training. He was formerly the European Managing Director for Sportingbet plc, the pioneering, AIM listed internet gaming and sportsbetting company, where he worked since 2000. Kenny joined the board in March 2007. Richard Cooper, Finance Director Richard Cooper (48), is a Chartered Accountant by training. In his early career he worked in the financial markets, holding the position of UK Finance Director at moneybrokers Tulletts, and CFO at Fidelity Brokerage. He then undertook a number of restructuring roles in both private and publicly traded companies. In 2005 he became a founder director of Trident Gaming plc, which later went on to sell its Gamebookers asset to PartyGaming plc. Richard joined the board on 5 December 2008. 3 115178 Gaming Intro 28/4/09 5:49 pm Page 4 ADVISORS Registered Office: Financial PR Advisers: Nominated Adviser and Broker: Lawyers to the Company: Auditor: Depositary: Registrar 13-15 Avenue de La Liberté L-1931 Luxembourg Abchurch Communications Ltd 100 Cannon Street London EC4N 6EU Arbuthnot Securities Limited Arbuthnot House 20 Ropemaker Street London EC2Y 9AR As to matters of UK law Nabarro LLP Lacon House 84 Theobald’s Road London WC1X 8RW As to matters of Luxembourg Law Loyens & Loeff 14 rue Edward Steichen L-2540 Luxembourg Grant Thornton Lux Audit S.A. 83 Parc d’Activité Capellen L-8308 Luxembourg Capita IRG Trustees Limited The Registry 34 Beckenham Road Beckenham KENT BR3 4TU ATC Corporate Services (Luxembourg) S.A. 13-15 Avenue de la Liberté L-1931 Luxembourg 4 115178 Gaming Intro 28/4/09 5:49 pm Page 5 CHAIRMAN’S STATEMENT In my first year end statement as Chairman, I am happy to report that the Group has had a successful year, managerially, operationally and financially, particularly in light of the challenging worldwide economic climate. Results Financially, the Group has achieved significant growth in Net Gaming Revenue to c50.1 million (2007: c42.6 million). Profits before tax also increased to c16.9 million (2007: c16.6 million), despite a substantial growth in affiliate costs and infrastructure. Operations Over the last two years Gaming VC has become less dependent on outsourcing and has evolved into a more mature operating company with industry-leading staff and resources in Malta, Italy, and Israel. The team now in place will allow the Group to continue to grow its existing business and seek new opportunities and acquisitions, which the Board deems appropriate. Regulatory As more fully reported in the Chief Executive’s Statement, the Group holds gaming licenses in Malta, Italy and the Netherlands Antilles, and believes it has the necessary licenses to conduct its current gaming operations. That said, there remains a lack of legal clarity among members of the European Union on the issue of European regulation, and this therefore continues to pose an unquantifiable risk to GVC. Strategy The Group’s strategy is to continue to diversify to reduce its reliance on one marketplace; to seek to make non-dilutive acquisitions; and to maintain its dividend. The Board is recommending a final dividend of c0.20 per share, giving a total distribution of c0.40 per share. The final dividend will be paid on 29 May 2009 to all shareholders on record at the close of business on 1 May 2009. Management The Group has recently appointed two experienced industry executives to the Board. Karl Diacono, a Non- Executive Director based in Malta, who provides the Board with critical regulatory and corporate knowledge regarding Malta, where Gaming VC holds its primary gaming license. Karl now also chairs the Audit Committee. Richard Cooper, Group Finance Director, was previously the CFO of Trident Gaming where he was instrumental in building and managing for the company, a portfolio of online gaming assets including Gamebookers, which was subsequently sold to PartyGaming. His prior experience of quoted companies together with gaming and M&A expertise should prove invaluable as the Group develops. Current Trading The impact of the current economic crisis on the Group is difficult to forecast. In line with other industry players Gaming VC did experience some decline in volumes during the fourth quarter of 2008. However, in the first quarter of 2009 the Group has begun to see recovery in volumes and is cautiously optimistic of its trading prospects for the year as well as beyond. Lee Feldman Chairman 20 April 2009 5 115178 Gaming Intro 28/4/09 5:49 pm Page 6 CHIEF EXECUTIVE’S STATEMENT Introduction and financial overview I am delighted that the Board’s strategy to diversify the Group’s product offering away from Germany continues to be successful. Group Net Gaming Revenue (“NGR”) has increased 17.5%, gross profit increased 22.5%, and profit before tax is slightly ahead of 2007 despite the required spending on marketing and infrastructure to support the business. Non-German NGR was 46% of total revenue in 2008 compared to 24% in 2007. Gaming VC achieved total revenues of c50.1 million, of which, c6.5 million (2007: c1.1 million) was from sports. A margin of 13.2% was achieved on the Group’s sports business during 2008, (2007: 11.8%). Highlights • • • • • • • Net Gaming Revenue increased by 17.5% to c50.1 million (2007: c42.6 million) Gross profits increased by 22.5% to c40.9 million (2007: c33.4 million) Southern European business now generating 9% of contribution (2007: 1%) Operating profit increased to c16.4 million (2007: c16.2 million) Profit before tax rose, despite investment in marketing, to c16.9 million (2007: c16.6 million) Proposed final dividend of c0.20 per share Cash at bank, net of customer balances, at the balance sheet date equal to c0.56 per share, and c0.75 at 31 March 2009 Net current assets and cash, were, at year-end, c19.2 million and c18.8 million respectively (2007: c15.7 million, and c15.9 million), 22% and 19% greater than 2007. Net of customer and similar liabilities the Group’s cash position was c17.5million. Additional analysis and comments on the financial performance and financial position are included in the Finance Director’s Statement. Operations 2008 was the Group’s first full year operating from its Maltese licence (granted August 2007) and Gaming VC’s first full year of operating the sportsbook brand www.betaland.com. In April 2008, the Group was granted a licence in Italy and trades under www.betpro.it. Both of these offerings were heavily marketed to boost growth and the Board continues to be pleased with the results with quarter on quarter growth being seen on both brands. The Group’s sportsbooks have achieved net win margins of over 13% and generated 13% of Group revenues and 15% of its gross profits. In line with Group strategy, the launch of other products outside its core German casino market continued to assist GVC in diversifying away from Germany in 2008. The Board expects our non-German revenues as a percentage of total revenues to continue to grow in 2009. GVC’s office in Malta has now been staffed-up with highly skilled personnel in both customer services and sports trading, and it is already seeing the benefits of bringing these skills in-house. During the year, the Group opened a legal branch in Israel, employing first class customer relationship management (“CRM”) and affiliate marketing teams. GVC now has around 70 people in the Group, including long-term contractors, and closely monitors their performance and link rewards to their performance and Group performance, so that business interests are aligned. GVC continues to work closely with its software providers, principally Boss Media, to ensure that the Group’s customers receive quality products. Recently the Group signed a long term contract with Boss Media to continue to offer their games to GVC’s German customers. Outside Germany GVC uses other suppliers such as Net Entertainment, Parlay, Evolution Gaming and Game Account. 6 115178 Gaming Intro 28/4/09 5:49 pm Page 7 Winzingo, the Group’s Spanish focused Bingo site was launched in Q1 2008. Its growth was slower than anticipated, but the Board remains committed to maximising the Spanish bingo market, which it believes will be profitable as local understanding improves. GVC has written-off its working capital loan in Winzingo during 2008 and treated this as an exceptional item and the business is now close to achieving break-even. Costs continue to be closely controlled. The executive team was strengthened in 2008 by the appointment of an industry experienced Group Finance Director and GVC expects to see efficiencies in 2009 in the area of outsourced professional services. Acquisitions The Group continues actively to review potential acquisitions and is in advanced negotiations to acquire a leading South American online sport and gaming business, currently with a focus on the Brazilian marketplace. There are of course no assurance that the transaction will complete. A further announcement will be made in due course. It is the Board’s intention to utilise the knowledge and skills of the Group’s stronger management team to look for additional acquisitions which can leverage GVC’s CRM, marketing, and trading capabilities, whilst, being able to maintain the Group’s dividend. Regulatory Unlike many of other listed gaming groups GVC has never taken bets or wagers from residents of the USA. Accordingly there is no exposure to either US fines or penalties. The Group has licences in Malta, Italy and the Netherlands Antilles and its core German business operates under the European licence in Malta. Following the passing in January 2008 of the German Interstate Treaty, the EU Commission took infringement provisions against Germany whose action was seen to be contrary to EU law. Therefore, it continues to be unclear from a legal perspective as to whether national or EU law applies. Q1 2009 Trading update and outlook Against the backdrop of a slower Q4 2008 across the industry, the first three months of 2009 trading has been slightly ahead of management’s expectations. Group NGR was c14.9 million in Q1 2009 compared to c13.3 million in Q1 2008 and c11.6 million in Q4 2008. This represents 26% growth compared to last quarter and 12% compared to the same quarter in 2008. Casino Club remains the GVC’s largest brand, but the Group’s other brands are growing in importance. Betaland and Betpro, whilst operating on lower margins, continue to show solid growth (up 105% on Q1 2008). Thus in Q1 2009, Betaland and Betpro represented 44% of NGR (Q1 2008: 24%). Diversification outside Germany continued in Q1 2009 with non German revenues for the first time representing a majority at 56% of total. The strategy of using our experienced CRM team to maintain the profits in GVC’s German casino has allowed the Group to continue to invest in new products or acquisitions outside Germany in 2009. This strategy is not expected to alter the Group’s current dividend policy. The Group’s strategy to diversify away from Germany continues to be successful. GVC’s non-German brands are growing strongly and their percentage contribution to Group revenue is increasing. GVC continues to seek acquisition opportunities in selected additional markets. In the first three months of 2009, trading has been slightly ahead of management’s expectations across all divisions of the Group and the Board is cautiously optimistic that 2009 will be a successful year. Kenneth Alexander Chief Executive 20 April 2009 7 115178 Gaming Intro 28/4/09 5:49 pm Page 8 FINANCE DIRECTOR’S STATEMENT Overview GVC has introduced three new terms into its consolidated income statement to better explain its results going forward. The first, “Contribution” represents gross profits less marketing expenditure; the second, “EBITDA” is well understood, and means earnings before interest, taxation, depreciation and amortisation. The third is “Clean EBITDA”, which is EBITDA before exceptional items and share option charges. • • • • • • • • • Net Gaming Revenue grew 17.5% to c50.1million (2007: c42.6 million) Gross profits rose 22.5% to c40.9 million (2007: c33.4 million) Contribution rose 2.4% to c27.9 million (2007: c27.3 million) Non-German business now generating 31% of contribution (2007: 21%) Clean EBITDA reduced slightly to c19.5 million (2007: c20.0 million) Operating profit increased to c16.4 million (2007: c16.2 million) Profit before tax rose to c16.9 million (2007: c16.6 million) Proposed final dividend of c0.20 per share Cash at bank (net of customer balances) as at 31 December 2008 of c17.5 million and c24 million as at 17 April 2009 Net Gaming Revenue (“NGR”) The engine of growth during 2008 was the sportsbook, with revenues rising to c6.3 million (2007: c1.1 million) from a net win margin of 13.2% (2007: 11.7%). Gaming revenues grew 5% to c43.8 million (2007: c41.6 million), with Poker at c6.3 million (2007: c3.4 million) and Casino falling 2% to c37.5 million (2007: c38.2 million). In 2008, the mix of revenues both geographically and by product line changed. NGR from Germany was 54% (2007: 76%) and NGR from sports was 13% (2007: 3%). Cost of sales and Gross profit Cost of sales principally includes: payment processing costs, royalties on software licences and chargebacks/bad debts. By their very nature these costs vary with business activity and the mix of business. The Group has, in a number of circumstances, been able to favourably renegotiate the financial terms of some of these arrangements. Gross profit rose 22.5% to c40.9 million (2007: c33.4 million) increasing the gross profit ratio to 82% from 78%. Contribution Total marketing and affiliate costs rose to c13.0 million (2007: c6.1 million) reflecting the growth in business outside Germany. The net result of higher revenues, increased profit margins and higher marketing costs led to a c0.6 million increase in contribution to c27.9 million (2007: c27.3 million). The business outside Germany earned c8.7 million in contribution (2007: c5.6 million), 31% of the total (2007: 21%). 8 115178 Gaming Intro 28/4/09 5:49 pm Page 9 Operating expenses Total operating expenses at c11.6 million were c0.5 million higher than in 2007 (c11.1 million). Before exceptional items, share option charges, depreciation and amortisation, other operating costs grew to c8.4 million from c7.3 million. Much of this increase was associated with bringing in-house the CRM and customer service functions in the offices of Malta and Israel. Personnel expenses (other than share option charges) Professional fees – Fort Knox Professional fees – Other Office running Foreign exchange differences Other Total Personnel Expenses d000’s 2008 4,817 (384) 1,486 1,755 36 674 –––––– 8,384 –––––– d000’s 2007 3,449 692 1,469 784 247 653 –––––– 7,294 –––––– The Group’s headcount grew from 38 to 70 during the year. The costs, (net of share option charges), rose by 40% from c3,449k to c4,817k as the Group built-up its in-house presence in CRM and customer services in both Israel and Malta. Share option charges fell back from c815k to c557k as some options issued during 2004 reached the end of their charge period under accounting standard IFRS 2 – share based payments. Professional fees The Group has geographical presence in seven jurisdictions and licences in three. There are eight separate legal entities in the Group. As a consequence, a substantial amount of expenditure each year is incurred with professional advisors. The Group seeks at all times to get best-value for its shareholders yet at the same time have access to top quality advice. During the year the costs fell overall from c2.2 million to c1.1 million, but the bulk of this reduction was a due to a substantial charge made in 2007 and a subsequent credit in 2008 relating to the Fort Knox claim which has previously been disclosed to shareholders. Foreign Exchange Differences The Group’s principal operating currency is the Euro. Costs are also incurred in Israeli Shekels, US Dollars and British Pounds. Exchange differences are created when net current assets/liabilities in currencies other than the Euro are translated into the Euro. In the aggregate, exchange losses of c36k were incurred in the year (2007: loss of c247k). Exceptional items The Group incurred exceptional costs during the year. c316k was incurred on professional fees arising from the abortive bid approach; c526k was incurred on termination and other costs associated with changing the Board during 2008; c1,075k loaned to the external operator of Winzingo was written off, as in the opinion of the directors, it is not collectable in the short term. Depreciation and Amortisation The depreciation charge increased from c57k to c436k principally as the Group registered, and fitted-out a branch office in Israel. Around 27 staff are employed on a formal payroll in Israel. Amortisation decreased from c2,919k to c280k as the majority of intangible assets subject to amortisation were fully amortised in 2007. 9 115178 Gaming Intro 28/4/09 5:49 pm Page 10 Financial income and expense The Group’s average cash balance over 2008 was c17.3 million (2007: c12.6 million). Interest rates have of course been falling throughout 2008. The Group earned c551k (2007: c459k) during 2008, an average rate of 3.2% (2007: 3.6%). Corporate Taxation The Group’s tax charge was derived primarily from its operations in Malta, a company which started trading in August 2007 and became profitable in 2008. The Group tax charges include: • • Malta – a rate of 35% on taxable profits which can be reduced to an effective rate of 4.17% through a tax claim made by Gaming VC Holdings S.A. (Luxembourg). Netherland Antilles – a rate of 2% of its trading profits. This has been sheltered, through the write- down of intangible assets in prior years. Further profits arising in the Netherlands Antilles up to c20 million should be sheltered from tax in future years. The Group is exposed potentially to additional tax charges as profits are passed up the Group, by dividends, depending on the composition of the underlying profits. Based on maintaining an annual Group dividend of c0.40 per share the Group could incur c1.2 million of non-reclaimable withholding tax. The Group is currently investigating ways to mitigate this risk. Property, plant and equipment c1.5 million of Property, plant and equipment was acquired in the year, principally through the establishment of a legal branch in Israel and further fitting-out for our offices in Malta and Rome. These assets are being depreciated over three years. Intangible assets Additional licences costing c435k were acquired in the year. These are being amortised over between three and five years. Net current assets, cash and treasury matters The Group had c19,180k of net current assets at 31 December 2008 (2007: c15,706k), an increase of 22%. The Group had c18,834k (2007: c15,859k) of cash and cash equivalents at the balance sheet date, an increase of 18.8% on 2007. Customer account balances and the related cash and cash equivalent balances, associated with our Betaland and Betpro sites are shown on the balance sheet within both Payables and Cash and Cash Equivalents. Own funds, (excluding balances held to cover customer account balances and similar), were c17.5 million (2007: c15.2 million). This equates to c0.562 (2007: c0.489) per share. 10 115178 Gaming Intro 28/4/09 5:49 pm Page 11 The Group’s cash is held in a variety of leading financial institutions. At the balance sheet date, the principal positions were as follows: Barclays Bank of Valletta (Malta) Other Total The currency components of the cash balances were, in Euro equivalents: Euros US dollars GB Pounds Other c000’s 2008 17,185 1,000 649 –––––– 18,834 –––––– c000’s 2008 18,651 22 147 14 –––––– 18,834 –––––– c000’s 2007 14,090 1,256 513 –––––– 15,859 –––––– c000’s 2007 15,773 63 9 14 –––––– 15,859 –––––– Bank of Valletta has a Fitch credit rating of A- and a Moody’s Investor Service rating of A3. Barclays has a Fitch credit rating of AA- and a Moody’s Investor Service rating of Aa3. The Group is seeking to diversify its banking deposits. Customer balances Customers depositing funds for our betaland.com and betpro.it websites do so directly with GVC. The funds are held in dedicated bank and processor accounts and, in the case of betaland.com, are reported monthly to the Maltese regulator, the LGA, to comply with their requirements regarding the holding of segregated funds to cover such balances. There is no similar requirement from the Italian regulator, but the same policy is applied internally. At year-end the balances were c997k (2007: c547k). Customers depositing funds for betting on our other sites, principally www.casinoclub.com and www.pokerkings.com, do so via Webdollar, an affiliate of Boss Media AB. Webdollar retain at all times sufficient funds to cover these balances, clearing down to GVC only the funds lost by players. Neither these customer balances, nor the associated funds held by Webdollar, are shown on the balance sheet of GVC either within receivables or trade payables. Reserves and dividends The Group paid an interim dividend of c0.20 per share on 31 October 2008, and, subject to shareholder approval, the final dividend, a further c0.20 per share will be paid on 29 May 2009 to all shareholders on the register on 1 May 2009. The dividend will be paid in GBP, based upon the Euro/GBP spot rate offered by Barclays Bank plc on Tuesday 8 May 2009. Dividends are paid out of the reserves of Gaming VC Holdings S.A, (“GVC Lux”) as a stand-alone corporate entity, and not on a consolidated basis. The calculation of reserves for GVC Lux. is performed under Luxembourg GAAP, not IFRS, as Luxembourg, whilst being in the EU, has not adopted IFRS. As GVC Lux is not a trading company, its reserves are dependent on dividends received from elsewhere in the Group. Additionally, under Luxembourg corporate law, there is a legal reserve. Each year, 5% of the profit after tax is transferrable to the legal reserve, until an amount of c3,113,576 (or 10% of the issued share capital if greater) is reached. 11 115178 Gaming Intro 28/4/09 5:49 pm Page 12 GVC Lux has c1.5 million of distributable reserves. However, the group has had tax clearance to make a dividend payment from share premium. The short-term impact of this is that the rate of withholding tax on the final dividend will be reduced from 15% to 2.7%, resulting in a net dividend per share of c0.195, as opposed to the historically lower amount of c0.17 per share. Proforma statement of reserves of Gaming VC Holdings S.A. prepared under Luxembourg GAAP (in d000’s) At 31 Dec 07 Transfer to legal reserve Write-off of historical losses Final dividend paid in May 2008 Profit for the year Transfer to legal reserve Interim dividend paid October 2008 Sub-total Final dividend Net result Withholding tax thereon Net dividend Effective rate of withholding tax Share Ordinary reserves premium Legal reserve Total reserves 53,957 (38,145) – 15,812 – – 15,812 (5,084) 10,728 0 4,913 Nil (30,959) (671) 38,145 (6,227) 288 7,455 (373) (6227) 1,143 (1,143) – 171 1,143 15.0% 322 671 – – 993 – 373 – 1,366 – 1,366 0 – 23,320 – – (6,227) 17,093 7,455 – (6,227) 18,321 (6,227) 12,094 171 6,056 2.7% For a reconciliation of Consolidated Balance Sheet of Gaming VC Holdings S.A. as prepared under IFRS to Company Balance Sheet of Gaming VC Holdings S.A. as prepared under Luxembourg GAAP please refer to page 50. Richard Cooper Group Finance Director 20 April 2009 12 115178 Gaming Intro 28/4/09 5:49 pm Page 13 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GAMING VC HOLDINGS SA To the Shareholders of Gaming VC Holdings S.A. Report of the Réviseur d’Entreprises Report on the consolidated financial statements We have audited the accompanying consolidated financial statements of Gaming VC Holdings S.A. and its subsidiaries (the “Group”), which comprise the consolidated balance sheet as at December 31, 2008 and the consolidated statements of income, recognised income and expense and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes. Board of Directors’ responsibility for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Responsibility of the Réviseur d’Entreprises Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted by the Institut des Réviseurs d’Entreprises. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the judgement of the Réviseur d’Entreprises, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the Réviseur d’Entreprises considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as of December 31, 2008, and of its financial performance and its consolidated cash flow for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union. Report on other legal and regulatory requirements The consolidated management report, which is the responsibility of the Board of Directors, is in accordance with the consolidated financial statements. Luxembourg, April 20, 2009 Thierry Remacle Réviseurs d’Entreprises Grant Thornton Lux Audit S.A. 13 115178 Gaming Part 1 28/4/09 5:44 pm Page 14 CONSOLIDATED FINANCIAL STATEMENTS 14 115178 Gaming Part 1 28/4/09 5:44 pm Page 15 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2008 Net Gaming Revenue Cost of sales Gross profit Marketing and affiliate costs Contribution Operating costs (as below) Other operating costs Share option charges Exceptional items Depreciation and amortisation Operating profit Financial income Financial expense Profit before tax Taxation (charge)/income Profit after taxation Earnings per share Basic Diluted Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s Notes 5 6 6 7 7 8 8.1 8.1,22 8 8.2 8 9 10 11.1 11.2 50,085 (9,163) –––––––– 40,922 (12,990) –––––––– 27,932 (11,574) (8,384) (557) –––––––– (8,941) (1,917) (716) –––––––– 16,358 551 (6) –––––––– 16,903 (360) –––––––– 16,543 d 0.531 –––––––– 0.521 –––––––– 42,639 (9,234) –––––––– 33,405 (6,128) –––––––– 27,277 (11,085) (7,294) (815) –––––––– (8,109) – (2,976) –––––––– 16,192 459 (20) –––––––– 16,631 11 –––––––– 16,642 c 0.534 –––––––– 0.534 –––––––– CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2008 Profit and total recognised income and expense for the year The notes on pages 19 to 47 form part of these financial statements 15 Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 16,543 –––––––– 16,642 –––––––– 115178 Gaming Part 1 28/4/09 5:44 pm Page 16 CONSOLIDATED BALANCE SHEET As at 31 December 2008 Assets Property, plant and equipment Intangible assets Deferred tax asset Total non-current assets Receivables and prepayments Taxation reclaimable Cash and cash equivalents Total current assets Liabilities Trade and other payables Taxes payable Total current liabilities Current assets less current liabilities Notes 12 13 14 15 16 17 18 31 Dec 2008 d000’s 1,538 55,879 11 –––––––– 57,428 –––––––– 6,367 2,611 18,834 –––––––– 27,812 –––––––– 31 Dec 2007 c000’s 521 55,724 11 –––––––– 56,256 –––––––– 4,295 – 15,859 –––––––– 20,154 –––––––– (5,477) (3,155) –––––––– (8,632) –––––––– (4,404) (44) –––––––– (4,448) –––––––– 19,180 15,706 Total assets less current liabilities 19 76,608 71,962 As represented by: Equity Issued share capital Share premium Retained earnings Total equity attributable to equity holders of the parent 20 38,608 13,832 24,168 76,608 38,608 51,977 (18,623) 71,962 These Financial Statements were approved by the Board on 20 April 2009 and signed on their behalf by: K.J. Alexander (Chief Executive Officer) R.Q.M. Cooper (Chief Financial Officer) The notes on pages 19 to 47 form part of these financial statements 16 115178 Gaming Part 1 28/4/09 5:44 pm Page 17 CONSOLIDATED STATEMENT OF CASHFLOWS For the year ended 31 December 2008 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Taxes paid Net cash from operating activities Cash flows from investing activities Interest received Disposal of equipment Acquisition of property, plant and equipment Acquisition of intangible assets Net cash from investing activities Cash flows from financing activities Interest paid Dividend paid Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at end of the year Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 47,528 (30,703) (8) –––––––– 16,817 –––––––– 542 – (1,453) (435) –––––––– (1,346) –––––––– (6) (12,454) –––––––– (12,460) –––––––– 3,011 15,859 (36) –––––––– 18,834 –––––––– 41,598 (22,545) – –––––––– 19,053 –––––––– 459 40 (562) (95) –––––––– (158) –––––––– (20) (12,176) –––––––– (12,196) –––––––– 6,699 9,407 (247) –––––––– 15,859 –––––––– The notes on pages 19 to 47 form part of these financial statements 17 115178 Gaming Part 1 28/4/09 5:44 pm Page 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. Significant accounting policies New accounting and reporting standards Segmental reporting and business segments Alternative presentation of consolidated income statement Net Gaming Revenue Gross profit and cost of sales Contribution, marketing and affiliate costs Operating costs Financial income Income tax expense Earnings per share Property, plant and equipment Intangible assets Receivables and prepayments Taxation reclaimable Cash and cash equivalents Trade and other payables Taxation payable Segmental analysis of net assets Statement of changes in equity Dividends Share option schemes Financial instruments and risk management Related parties Group entities Contingent liabilities Accounting estimates and judgements Going concern Subsequent events 18 115178 Gaming Part 1 28/4/09 5:44 pm Page 19 1. SIGNIFICANT ACCOUNTING POLICIES Gaming VC Holdings S.A. (the “Company”) is a company registered in Luxembourg and incorporated on 30 November 2004. The consolidated financial statements of the Company for the year ended 31 December 2008 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group’s principal activity is that of operating an online casino, online poker and sports-betting. 1.1 Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. 1.2 Basis of preparation The financial statements are presented in the Euro, rounded to the nearest thousand. They are prepared on the historical cost basis. The preparation of financial statements in conformity with IFRSs requires directors to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. The accounting policies have been applied consistently by Group entities. 1.3 Basis of consolidation 1.3.1 Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. 1.3.2 Transactions eliminated on consolidation Intragroup balances and any unrealised gains and losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. 19 115178 Gaming Part 1 28/4/09 5:44 pm Page 20 1.3.3 Business combinations All business combinations are accounted for by applying the purchase method. The cost of a business combination is measured as the aggregate of the fair values, at the acquisition date, of the assets given, liabilities incurred or assumed, and equity instruments issued by the Group, plus any costs directly attributable to the combination. The identifiable assets, liabilities and contingent liabilities of the acquiree are measured initially at fair value at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities is recognised as goodwill. 1.4 Foreign currency The functional currency of the Group and the Company is the Euro. 1.4.1 Foreign currency transactions Transactions in foreign currencies are translated to the Euro at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the Euro at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the consolidated income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. 1.4.2 Financial statements of foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Euro at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to the Euro at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity. 1.5 Property, plant and equipment 1.5.1 Owned assets Property, plant and equipment are stated at cost, less accumulated depreciation (see 1.5.2. below) and impairment losses (see accounting policy 1.7). Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. 1.5.2 Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: Fixtures and fittings:– 3 years The residual value, if not insignificant, is reassessed annually. 20 115178 Gaming Part 1 28/4/09 5:44 pm Page 21 1.6 Intangible assets 1.6.1 Goodwill Acquired goodwill represents the excess of the cost of a business combination over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree at the date of acquisition. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. At the date of acquisition, goodwill is allocated to cash generating units for the purpose of impairment testing. Negative goodwill arising on an acquisition is recognised directly in profit or loss. 1.6.2 Other intangible assets Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (see 1.6.4 below) and impairment losses (see accounting policy 1.7). The cost of intangible assets acquired in a business combination is the fair value at acquisition date. The valuation methodology used for each type of identifiable asset category is detailed below: Magazine-related Consulting Software licence Trademarks Goodwill Cost Income (cost saving) Income (incremental value plus loss of profits) Relief from royalty Residual balance Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense is incurred. 1.6.3 Subsequent expenditure Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. 1.6.4 Amortisation Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Goodwill and trademarks with an indefinite useful life are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Consulting agreements Capitalised development costs Software licence agreements 3-5 years 2-4 years 3-15 years 21 115178 Gaming Part 1 28/4/09 5:44 pm Page 22 1.7 Impairment At each reporting date, the Group assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the group makes an estimate of the recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is written down to its recoverable amount. Recoverable amount is the higher of fair value less costs to sell and value in use and is determined for an individual asset. If the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, the recoverable amount of the cash generating unit to which the asset belongs is determined. Discount rates reflecting the asset specific risks and the time value of money are used for the value in use calculation. For goodwill and trademarks that have an indefinite useful life, the recoverable amount is estimated at each balance sheet date. 1.8 Dividends paid to holders of share capital Dividend distributions payable to equity shareholders are included in “other short term financial liabilities” when the dividends are approved in general meeting prior to the balance sheet date. 1.9 Employee benefits 1.9.1 Pension arrangements The Group does not operate any pension schemes. The Group, as part of general remuneration arrangements, makes payments directly to employees as a pension contribution allowance. 1.9.2 Share options The Group has a share option scheme which allows Group employees and contractors to acquire shares of the Company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial valuation model (for options granted after 1 January 2007) and the Black-Scholes valuation model for options granted before 1 January 2007). These valuation methods take into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. 1.10 Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 22 115178 Gaming Part 1 28/4/09 5:44 pm Page 23 1.11 Net Gaming Revenue (“NGR”) Net gaming revenue is measured at the fair value of consideration received or receivable net of betting duties and similar taxes, and comprises the following elements: Casino: Sportsbook: net win in respect of bets placed on casino games that have concluded in the year, stated net of certain promotional bonuses gains and losses in respect of bets placed on sporting events in the year, stated after certain promotional bonuses. Open position are carried at fair market value and gains and losses arising on this valuation are recognised in revenue, as well as gains and losses realised on position that have closed. Poker: net win in respect of rake for poker games that have concluded in the year, stated net of certain promotional bonuses 1.12 Expenses 1.12.1 Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease, where the lessee does not bear substantially all of the risks and rewards of ownership associated with the asset. 1.12.2 Financial expenses Financial expenses comprise interest payable on borrowings calculated using the effective interest rate method. 1.13 Exceptional items Exceptional items are those that in judgement of the directors, need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information. 1.14 Financial Income Financial income is interest income recognised in the income statement as it accrues, using the effective interest method. 1.15 Tax Current tax is the tax currently payable based on taxable profit for the year. Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries is not provided if reversal of these temporary differences can be controlled by the group and it is probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets. Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date. 23 115178 Gaming Part 1 28/4/09 5:44 pm Page 24 Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the income statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity. 1.16 Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. 1.17 Financial instruments Financial assets are all classed as loans and receivables. The Group’s financial assets comprise trade and other receivables and cash and cash equivalents which are classified as loans and receivables. The Group’s financial liabilities comprise trade and other payables and bank borrowings. 1.17.1 Non-derivative financial instruments Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non derivative financial instruments are recognised initially at fair value, plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost using the effective interest method. Provision for impairment are made against financial assets if considered appropriate, and any impairment is recognised in profit or loss. 1.17.2 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Accounting for financial income and financial expense is discussed in notes 1.14 and 1.12.2 respectively. 1.18 Equity Equity comprises the following: “Share capital” represents the nominal value of equity shares. “Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue. “Retained earnings” represents retained profits. 24 115178 Gaming Part 1 28/4/09 5:44 pm Page 25 2. NEW ACCOUNTING AND REPORTING STANDARDS A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2008, and have not been applied in preparing these consolidated financial statements. Those which may have a significant effect on the financial statements are: IFRS 8 Operating Segments – which becomes mandatory for the Group’s 2009 financial statements, will require the disclosure of segment information based on the internal reports reviewed by the Group’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. This standard is concerned only with disclosure and replaces IAS 14. Revised IAS 1 – Presentation of Financial Statements is aimed at improving users’ ability to analyse and compare the information given in financial statements. The amended version of this standard changes the terminology and presentation of the primary financial statements and will require comparative balance sheets at both 31 December 2007 and 2008 to be disclosed in next year’s financial statements. The revised standard also requires a “statement of changes in equity” to be disclosed as a primary statement, showing either all changes in equity or changes in equity comprising profit or loss, other items of income and expense and effects of changes in accounting policies and correction of errors (in which case it will be called a “statement of recognised income and expense”). Revised IFRS 3 – Business Combinations continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently re- measured at fair value through income. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to minority interest. All transaction costs will be expensed. Revised IAS 27 – Consolidated and Separate Financial Statements provides mainly guidance on changes in the ownership interests. The Group has not yet determined all the potential effect of the new standards and interpretation not yet effective. 3. SEGMENTAL REPORTING AND BUSINESS SEGMENTS Segment information is presented in respect of the Group’s business and geographical segments. Based on risks and returns and transacting with customers, the management considers that the Group’s primary reporting format is by following two business segments: • Gaming; • Sports Betting. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one year. 25 115178 Gaming Part 1 28/4/09 5:44 pm Page 26 4. ALTERNATIVE PRESENTATION OF CONSOLIDATED INCOME STATEMENT To better aid shareholders and other interested parties, the Directors have prepared an alternative presentation of the Consolidated Income Statement. This is included below: Net Gaming Revenue Cost of sales Gross profit Gross profit ratio Marketing and affiliate costs Contribution Other operating costs Clean EBITDA Exceptional items Share Option Charges EBITDA Depreciation Amortisation Operating Profit Financial income Financial expense Profit before tax Taxation (charge) / income Profit after tax Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s Notes 5 6 6 7 7 8.1 8.2 8.1 12 13 9 10 50,085 (9,163) –––––––– 40,922 82% (12,990) –––––––– 27,932 (8,384) –––––––– 19,548 (1,917) (557) –––––––– 17,074 (436) (280) –––––––– 16,358 551 (6) –––––––– 16,903 (360) –––––––– 16,543 –––––––– 42,639 (9,234) –––––––– 33,405 78% (6,128) –––––––– 27,277 (7,294) –––––––– (19,983) – (815) –––––––– 19,168 (57) (2,919) –––––––– 16,192 459 (20) –––––––– 16,631 11 –––––––– 16,642 –––––––– 5. 5.1 NET GAMING REVENUE Analysis by quarter and by segment Year ended 31 December 2008 Gaming Sports Total Year ended 31 December 2007 Gaming Sports Total Q1 c000s Q2 c000s Q3 c000s Q4 c000s Total c000s 11,588 11,351 11,045 1,150 1,497 1,690 9,818 43,802 6,283 1,946 13,278 12,848 12,195 11,764 50,085 11,276 10,725 – – 9,699 301 9,864 41,564 1,075 774 11,276 10,725 10,000 10,638 42,639 26 115178 Gaming Part 1 28/4/09 5:44 pm Page 27 5.2 Analysis by geography and by segment Year ended 31 December 2008 Gaming Sports Total Year ended 31 December 2007 Gaming Sports Total Germany c000s Austria c000s Southern Europe c000s Other Europe c000s 27,154 – 27,154 4,198 – 4,198 7,983 6,283 14,266 32,468 – 32,468 6,355 – 6,355 1,272 1,075 2,347 3,954 – 3,954 1,415 – 1,415 Other c000s TOTAL c000s 513 – 513 43,802 6,283 50,085 54 – 54 41,564 1,075 42,639 6. GROSS PROFIT AND COST OF SALES Cost of sales principally includes: payment processing costs, royalties on software licences, and chargebacks/bad debts. Gross profit is calculated as Net Gaming Revenues less Cost of Sales. Gross profit Year ended 31 December 2008 Gaming Sports Total Year ended 31 December 2007 Gaming Sports Total Germany c000s Austria c000s Southern Europe c000s Other Europe c000s 21,615 – 21,615 3,342 – 3,342 6,345 6,065 12,410 25,358 – 25,358 4,963 – 4,963 898 1,039 1,937 3,147 – 3,147 1,105 – 1,105 Other c000s TOTAL c000s 408 – 408 34,857 6,065 40,922 42 – 42 32,366 1,039 33,405 7. CONTRIBUTION, MARKETING AND AFFILIATE COSTS Contribution is calculated as Gross profit, less Marketing expenditure, and Affiliate charges (being commissions and similar paid to third parties). Contribution Year ended 31 December 2008 Gaming Sports Total % of total Year ended 31 December 2007 Gaming Sports Total % of total Germany c000s Austria c000s Southern Europe c000s Other Europe c000s Other c000s TOTAL c000s 1,883 673 2,556 9.2% 219 175 394 2,801 – 2,801 363 – 363 27,259 673 27,932 10.0% 1.3% 944 – 944 36 – 36 27,102 175 27,277 1.5% 3.5% 0.1% 19,238 – 19,238 68.9% 21,663 – 21,663 79.4% 2,974 – 2,974 10.6% 4,240 – 4,240 15.5% 27 115178 Gaming Part 1 28/4/09 5:44 pm Page 28 8. OPERATING COSTS Other operating costs Exceptional items Depreciation Amortisation 8.1 Other operating costs Other Personnel expenditure Share option charges Total Personnel expenditure Professional fees Office running expenses Foreign exchange differences Other expenditure Note: Excluding share option charges Notes 8.1 8.2 Notes 8.1.1 8.1.3 8.1.4 Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 8,941 1,917 436 280 –––––––– 11,574 –––––––– 8,109 – 57 2,919 –––––––– 11,085 –––––––– Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 4,817 557 –––––––– 5,374 1,102 1,755 36 674 –––––––– 8,941 –––––––– 8,384 –––––––– 3,449 815 –––––––– 4,264 2,161 784 247 653 –––––––– 8,109 –––––––– 7,294 –––––––– The Directors do not consider that operating expenses can be meaningfully allocated to individual segments. 8.1.1 Other personnel expenditure Wages and salaries, including directors’ remuneration Amounts paid to long term contractors Compulsory social security contributions Pension allowances Notes 8.1.2 8.1.2 Number of personnel With employment contracts or service contracts Contractors 28 Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 3,031 1,594 123 69 –––––––– 4,817 –––––––– At 31 Dec 2008 Number 59 11 –––––––– 70 –––––––– 1,957 1,378 65 49 –––––––– 3,449 –––––––– At 31 Dec 2007 Number 15 23 –––––––– 38 –––––––– 115178 Gaming Part 1 28/4/09 5:44 pm Page 29 8.1.2 Directors’ remuneration Included in wages and salaries are amounts paid to the directors for services during the year: Directors’ remuneration (included with wages and salaries) Pension allowances (included within pension allowances) Total remuneration included within Personnel Expenditure Termination payments included in exceptional items (note 8.2) Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 1,209 46 –––––––– 1,255 –––––––– 449 –––––––– 1,236 45 –––––––– 1,281 –––––––– – –––––––– No payment was made in relation to the surrender of share options held by G.Cassels. The directors who served throughout the year were: Lee Feldman Kenny Alexander Nigel Blythe-Tinker Appointed on 5 December 2008 Richard Cooper Karl Diacono Served from 1 January 2008 to 4 December 2008 Adrian Smith Gerard Cassels Included within exceptional items are the contractual termination costs, legal fees, and recruitment expenses associated with the board changes in December 2008. 8.1.3 Professional fees The group has legal entities in the following jurisdictions: Luxembourg, Cyprus, Malta, Italy, Netherlands Antilles, Jersey and Israel. The business of Winzingo, is operated from Spain. Accordingly the group seeks professional advice in these and other jurisdictions including the UK where its shares are traded on the Alternative Investment Market (“AIM”) of the London Stock Exchange. During the year, the Group settled legal claims with Fort Knox Consulting LLC which were provided for in 2007. (Credit) / Costs incurred in the settlement of fees with Fort Knox Consulting LLC Other professional fees Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s (384) 1,486 –––––––– 1,102 –––––––– 692 1,469 –––––––– 2,161 –––––––– 29 115178 Gaming Part 1 28/4/09 5:44 pm Page 30 8.1.4 Office expenditure A full years running costs for the office in Malta were incurred, together with eight months for the office in Israel. 8.2 Exceptional items The Group incurred expenditure on exceptional items (as defined in accounting policy note 1.14). These are items which are both exceptional in size and nature. Write-off of working capital loan to New Town Capital Limited (trading as Winzingo) Termination and other costs associated with Board changes* Professional fees associated with abortive take-over during the year Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 1,075 526 316 –––––––– 1,917 –––––––– – – – –––––––– – –––––––– * c449k of which have been classified as personnel expenditure (see note 8.1.2) and c77k of expenditure was incurred in legal and recruitment costs. The costs underlying the working capital loan to New Town Capital Limited (trading as Winzingo) comprise: staff costs, marketing costs and office expenditure. The loan has been provided for as management do not consider this balance to be recoverable in the short term 9. FINANCIAL INCOME Interest income Year ended 31 Dec 2008 d000’s –––––––– 551 –––––––– Year ended 31 Dec 2007 c000’s –––––––– 459 –––––––– 30 115178 Gaming Part 1 28/4/09 5:44 pm Page 31 10. INCOME TAX EXPENSE Current tax Current tax for the current and prior periods is classified as a current liability to the extent that it is unpaid. Amounts paid in excess of amounts owed are classified as a current asset. There is a current tax liability of c371,000 (net of tax receivable amounts) at 31 December 2008 (2007: c18,000). Recognised in the income statement Current tax expense Current year Adjustments for prior period Deferred tax income Origination and reversal of temporary differences Reduction in tax rate Benefits of tax losses recognises Total income tax expense/(income) in income statement Reconciliation of effective tax rate Profit before tax Income tax using the domestic corporation tax rate Effect of tax rates in foreign jurisdictions (Rates decreased) Capital allowances for period in access of depreciation Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 360 – –––––––– 360 –––––––– – – – –––––––– 360 –––––––– – – –––––––– – –––––––– (11) – – –––––––– (11) –––––––– Year ended 31 Dec 2008 d000’s Year ended 31 Dec 2007 c000’s 16,903 16,631 4,817 (4,457) – –––––––– 360 –––––––– 4,936 (4,936) (11) –––––––– (11) –––––––– A deferred tax asset was recognised as the Group considers that it more probable than not that future taxable profits will be available against which the asset could be utilised. 31 115178 Gaming Part 1 28/4/09 5:44 pm Page 32 11. EARNINGS PER SHARE 11.1 Basic earnings per share and Basic earnings per share before exceptional items Basic earnings per share (in c) Basic earnings per share before exceptional items (in c) Year ended 31 Dec 2008 0.531 –––––––– Year ended 31 Dec 2007 0.534 –––––––– 0.593 –––––––– 0.534 –––––––– Basic earnings per share has been calculated by taking the profit attributable to ordinary shareholders, c16,543k (2007: c16,642k) and dividing by the weighted average number of shares in issue, 31,135,762 (2007: 31,135,762). Basic earnings per share before exceptional items has been calculated by taking the profit attributable to ordinary shareholders of c16,543k, (2007: c16,642k) adding back the cost of exceptional items of c1,917k (2007: nil), and dividing by the weighted average number of shares in issue, 31,135,762 (2007: 31,135,762). 11.2 Diluted earnings per share and Diluted earnings per share before exceptional items Diluted earnings per share (in c) Diluted earnings per share before exceptional items (in c) Year ended 31 Dec 2008 0.521 –––––––– Year ended 31 Dec 2007 0.534 –––––––– 0.582 –––––––– 0.534 –––––––– Diluted earnings per share has been calculated by taking the profit attributable to ordinary shareholders, c16,543k (2007: c16,642k) and dividing by the weighted average number of shares in issue as diluted by share options, 31,726,146 (2007: 31,135,762). Diluted earnings per share before exceptional items has been calculated by taking the profit attributable to ordinary shareholders of c16,543k, (2007: c16,642k) adding back the cost of exceptional items of c1,917k (2007: nil), and dividing by the weighted average number of shares in issue, as diluted by share options, 31,726,146 (2007: 31,135,762). Diluted number of shares Weighted average number of ordinary shares at end of the year Effect of share options in issue Weighted average number of ordinary shares (diluted) at end of year Year ended 31 Dec 2008 31,135,762 590,384 ––––––––––– Year ended 31 Dec 2007 31,135,762 – ––––––––––– 31,726,146 ––––––––––– 31,135,762 ––––––––––– 32 115178 Gaming Part 1 28/4/09 5:44 pm Page 33 12. PROPERTY, PLANT AND EQUIPMENT Cost Balance at 1 Jan 2007 Disposals Additions Balance at 31 Dec 2007 Balance at 1 Jan 2008 Additions Balance at 31 Dec 2008 Depreciation and impairment losses Balance at 1 Jan 2007 Disposal Depreciation charge for the year Balance at 31 Dec 2007 Balance at 1 Jan 2008 Depreciation charge for the year Balance at 31 Dec 2008 Carrying amounts At 31 December 2007 At 31 December 2008 Fixtures and Fittings c000’s Total Property Plant and Equipment c000’s 112 (112) 562 –––––––– 562 –––––––– 562 1,453 –––––––– 2,015 –––––––– 56 (72) 57 –––––––– 41 –––––––– 41 436 –––––––– 477 –––––––– 521 –––––––– 1,538 –––––––– 112 (112) 562 –––––––– 562 –––––––– 562 1,453 –––––––– 2,015 –––––––– 56 (72) 57 –––––––– 41 –––––––– 41 436 –––––––– 477 –––––––– 521 –––––––– 1,538 –––––––– Capital expenditure related primarily to the setup of the Israeli office in the year. 33 115178 Gaming Part 1 28/4/09 5:44 pm Page 34 13. INTANGIBLE ASSETS Cost Balance at 1 Jan 2007 Additions Balance at 31 Dec 2007 Goodwill d000’s 73,613 – 73,613 Trade- marks d000’s 15,144 – 15,144 Software Consulting Magazine Total licence d000’s 12,146 95 12,241 d000’s d000’s d000’s 419 – 419 4,500 – 105,822 95 4,500 105,917 Balance at 1 Jan 2008 73,613 15,144 12,241 419 4,500 105,917 Additions At 31 Dec 2008 – – 435 – – 435 73,613 15,144 12,676 419 4,500 106,352 Amortisation and Impairment losses Balance at 1 Jan2007 Amortisation for the year Balance at 31 Dec 2007 Balance at 1 Jan 2008 Amortisation for the year At 31 December 2008 Carrying amounts At 31 Dec 2007 At 31 Dec 2008 33,274 – 33,274 33,274 – 33,274 – – – 10,769 1,335 12,104 – – – 12,104 176 12,280 211 104 315 315 104 419 3,020 1,480 4,500 47,274 2,919 50,193 4,500 – 50,193 280 4,500 50,473 40,339 15,144 40,339 15,144 137 396 104 – – – 55,724 55,879 13.1 Amortisation and impairment charge The amortisation for the year is recognised in the following line items in the income statement. Net operating expenses Year ended 31 Dec 2008 d000’s –––––––– 280 –––––––– Year ended 31 Dec 2007 c000’s –––––––– 2,919 –––––––– 34 115178 Gaming Part 1 28/4/09 5:44 pm Page 35 13.2 Impairment tests for cash-generating units containing goodwill and trademarks An Impairment Review was carried out at the year end of the Group’s goodwill and trademarks in CasinoClub. The carrying values of the assets were compared with the recoverable amounts, these were determined with the assistance of independent valuers. The recoverable amount was estimated based upon a value in use calculation for the Casino business, based upon management forecasts for the years ending 31 December 2009 and 31 December 2010. A long-term growth rate of 2% was used, to reflect the risk of adverse changes in legislation in the future on potential market growth. A discount rate of 18% was used, based on company specific pre-tax weighted average cost of capital. Having performed appropriate sensitivity analysis on the key assumptions (including reducing the growth rate to nil and increasing the discount rate to 20%), it was concluded that the carrying value of goodwill and trademarks was not impaired. The following units have significant carrying amounts of goodwill: Casino operation: GVC Corporation II B.V. 14. RECEIVABLES AND PREPAYMENTS Trade receivables Interest receivables Other receivables Loans and receivables Prepayments 31 Dec 2008 d000’s 40,339 –––––––– 31 Dec 2008 d000’s 5,475 9 593 –––––––– 6,077 290 –––––––– 6,367 –––––––– 31 Dec 2007 c000’s 40,339 –––––––– 31 Dec 2007 c000’s 3,021 – 540 –––––––– 3,561 734 –––––––– 4,295 –––––––– Trade receivables include funds held by third party collection agencies as of 31 December 2008 amounting to c5.4 million, which corresponds to the revenue generated over the last 3 weeks of the 12 month period ended 31 December 2008. Prepayments include payments as at 31 December 2008 for goods or services which will be consumed after 1 January 2009. 15. TAX RECLAIMABLE Tax reclaimable 31 Dec 2008 d000’s 2,611 –––––––– 31 Dec 2007 c000’s – –––––––– Tax reclaimable represents a portion of the tax paid by GVC Corporation Limited (a wholly owned company incorporated in Malta) which is refundable by the Maltese tax authorities to Gaming VC Holdings S.A. shortly after the submission of the audited accounts and tax computation for GVC Corporation Limited. 35 115178 Gaming Part 1 28/4/09 5:44 pm Page 36 16. CASH AND CASH EQUIVALENTS Cash and cash equivalents Bank balances Treasury deposits held with banks Held in the following institutions: Barclays Bank Bank of Valletta (Malta) Other Held in the following currencies (in euro equivalents at the balance sheet date): Euro US Dollars British Pounds Other Comprising: Own funds Customer balances Funds held in escrow representing withholding tax for founder shareholders 31 Dec 2008 d000’s 4,074 14,760 –––––––– 18,834 –––––––– 17,185 1,000 649 –––––––– 18,834 –––––––– 18,651 22 147 14 –––––––– 18,834 –––––––– 17,502 997 335 –––––––– 18,834 –––––––– 31 Dec 2007 c000’s 15,859 – –––––––– 15,859 –––––––– 14,090 1,256 513 –––––––– 15,859 –––––––– 15,773 63 9 14 –––––––– 15,859 –––––––– 15,232 547 80 –––––––– 15,859 –––––––– Amount per share represented by own funds d0.562 c0.489 17. TRADE AND OTHER PAYABLES Balances with customers Other trade payables Total trade payables Accruals Other creditors: balances due to founder shareholder in respect of withholding taxes recovered 31 Dec 2008 d000’s 997 1,254 –––––––– 2,251 2,891 335 –––––––– 5,477 –––––––– 31 Dec 2007 c000’s 547 991 –––––––– 1,538 2,786 80 –––––––– 4,404 –––––––– With-holding taxes held in escrow represent the liability to founder shareholders in relation to the recovery of withholding taxes from the Luxembourg fiscal authorities. It was paid on to the founder shareholders in January 2009. The fair value of open bets at either period end is not material. 36 115178 Gaming Part 1 28/4/09 5:44 pm Page 37 18. TAXATION PAYABLE Social security and other similar taxes Value added taxes Betting taxes and similar Income taxes 31 Dec 2008 d000’s 13 78 82 2,982 –––––––– 3,155 –––––––– 31 Dec 2007 c000’s – – 26 18 –––––––– 44 –––––––– Income taxes principally represent tax on the profits of the operations of GVC Corporation Limited, the Group’s licensed business in Malta. 19. SEGMENTAL ANALYSIS OF NET ASSETS 31 Dec 2008 Non current assets Current assets Current liabilities Net current assets Net assets Gaming d000’s 55,760 Sports Unallocated d000’s d000’s 898 770 Total d000’s 57,428 2,829 (4,514) (1,685) 3,346 (1,442) 1,904 21,637 (2,676) 27,812 (8,632) 18,961 19,180 54,075 2,674 19,859 76,608 Expenditure on non current assets – Property, plant and equipment (note 12) – Intangible assets (note 13) 180 25 205 338 410 748 935 – 935 1,4535 435 1,888 Total d000’s 56,256 Gaming d000’s 55,802 2,142 (1,097) 1,045 Sports Unallocated d000’s d000’s 193 261 1,248 (441) 807 16,764 (2,910) 20,154 (4,448) 13,854 15,706 56,847 1,068 14,047 71,962 82 75 157 289 – 289 191 20 211 562 95 657 31 Dec 2007 Non current assets Current assets Current liabilities Net current assets Net assets Expenditure on non current assets – Property, plant and equipment – Intangible assets The analysis of assets by currency is shown in note 23.2.1. 37 115178 Gaming Part 1 28/4/09 5:44 pm Page 38 20. STATEMENT OF CHANGES IN EQUITY Reconciliation of movement in capital and reserves Attributable to equity holders parent company Balance at 1 Jan 2007 Share option charges Dividend paid in year Total recognised income and expense Share Capital Share Premium (note 20.1) (note 20.2) d000’s 57,926 – (5,949) – d000’s 38,608 – – – Retained earnings d000’s (29,853) 815 (6,227) 16,642 Total d000’s 66,681 815 (12,176) 16,642 Balance at 31 Dec 2007 38,608 51,977 (18,623) 71,962 Balance at 1 Jan 2008 Share option charges Transfer between reserves (note 20.2) Dividend paid in year Total recognised income and expense 38,608 – – – 51,977 – (38,145) – – (18,623) 557 38,145 (12,454) 16,543 71,962 557 – (12,454) 16,543 Balance at 31 Dec 2008 38,608 13,832 24,168 76,608 20.1 Share capital Since 20 December 2004 the authorised and issued share capital has been: Number of Ordinary shares Par value per share Aggregate paid up value Number of Redeemable shares Par value per share Aggregate value Authorised 40,000,000 c1.24 c49,600,000 Issued 31,135,762 c1.24 c38,608,345 30,000 c1.24 c37,300 Nil – – The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. However, should the Company not be satisfied as to the true identity of the shareholders it can suspend the entitlement of those shareholders to receive dividends. As Luxembourg shares are not eligible for CREST settlement, economic interests in shares are traded through depository interests. At 31 March 2009 the true split of shares was: Held in registered form by Capital IRG Trustees Limited Held in registered form by other shareholders 30,250,542 885,220 ––––––––––– 31,135,762 ––––––––––– 97.2% 2.8% 38 115178 Gaming Part 1 28/4/09 5:44 pm Page 39 The economic interest in the shares at 31 March 2009 was represented by the following significant shareholders: Audley Capital Management Limited Capital Group International Inc Steve Barlow Toscafund Asset Management Capital Research and Management Co New Star Asset Management M&G Investment Management 9,109,911 2,570,054 1,951,927 2,547,616 1,596,600 1,555,348 1,400,000 29.259% 8.270% 6.269% 8.182% 5.128% 4.995% 4.496% 20.2 Share premium At the 2008 Annual General Meeting, shareholders approved the transfer from Share Premium to retained earnings of c38,145k. 20.3 Capital management policies and procedures The Group’s capital management objectives are to ensure its ability to continue as a going concern and to provide an adequate return to shareholders and benefits to other stakeholders by pricing services commensurately with the level of risk, and maintaining an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may issue new shares, return capital to shareholders, limit the amount of dividends paid, or sell assets. Total equity employed at 31 December 2008 was c76.6 million (2007: c72.0 million). 21. DIVIDENDS After the balance sheet date the following dividends were proposed by the directors. The dividends have not been provided for and there are no income taxes consequences. Dividends paid from Luxembourg, are however subject to local with-holding taxes of 15%. The withholding tax is payable within eight days of the payment of the dividend. c0.20 per qualifying ordinary share (2007: c0.20) Year ended 31 December 2008 Year ended 31 December 2007 6,227,152 ––––––––––––– 6,227,152 –––––––––––– 39 115178 Gaming Part 1 28/4/09 5:44 pm Page 40 22. SHARE OPTION SCHEMES At 2 December 2004, the Group established a share option programme that entitles key management personnel and senior employees to purchase shares in the Group. During 2008 grants were made available to eligible individuals under the programme as detailed below. In accordance with the programme options are exercisable at the market price of the shares at the starting date of employment or the date of grant. Based on the advice of external valuation experts, the valuation of the share options is conducted on two bases: Options granted prior to 1 January 2007 Options granted after 1 January 2007 Black Scholes Binominal 22.1 Vesting On the first anniversary of the grant date, 25% of the option grant vests. Thereafter the balance of the option grant vests over three years, at 1/36th per month. 22.2 Options outstanding The options which have been granted, and are still capable of being exercised as shown in the table below Date of grant 21 Dec 2004 28 Sep 2005 16 May 2006 1 Mar 2007 15 May 2007 21 Aug 2007 21 Sep 2007 24 Nov 2007 26 Feb 2008 12 Dec 2008 Exercise price £4.20 £4.20 £4.20 £1.00 £1.29 £1.285 £1.345 £1.3816 £1.3816 £1.26 Share price at date of grant £4.20 £5.48 £3.875 £1.105 £1.26 £1.285 £1.345 £1.21 £1.39 £1.00 Number of options 310,000 53,807 140,000 800,000 243,052 110,000 126,500 390,000 150,000 400,000 –––––––––––––––––– 2,723,359 –––––––––––––––––– The existing share option scheme allows the company to grant up to 10% of the issued Ordinary Share Capital in share options. At the balance sheet date, 7.1% had been granted and was outstanding. 40 115178 Gaming Part 1 28/4/09 5:44 pm Page 41 22.3 Directors’ interest in options At 31 December 2008 and at 20 April 2009 (when these financial statements were approved) the Directors’ interest in share options was as follows: Date of grant Exercise price L Feldman 21 Dec 2004 16 May 2006 N Blythe-Tinker 21 Dec 2004 16 May 2006 K Alexander R Cooper K Diacono 1 Mar 2007* 12 Dec 2008 – £4.20 £4.20 £4.20 £4.20 £1.00 £1.26 – Number of options 155,000 45,000 –––––––––– 200,000 –––––––––– 155,000 95,000 –––––––––– 250,000 –––––––––– 800,000 400,000 – –––––––––– 1,650,000 –––––––––– * The exercise price for K Alexander was determined on the date of the announcement of him joining the company, 2 February 2007, when the mid-market closing price of the shares in the three days immediately preceeding the announcement was 81.33p 22.4 Weighted average exercise price of options The number and weighted average exercise prices of share options is as follows: Weighted average exercise price 2008 GBP Number of Options 2008 Weighted average exercise price 2007 GBP 2.03 1.29 2.44 3,009,883 550,000 (836,524) 1.76 2,723,359 1,075,227 4.06 1.27 3.36 2.03 Number of Options 2007 1,063,898 2,222,180 (276,195) 3,009,883 592,339 Outstanding at the beginning of the year Granted during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year The options outstanding at 31 December 2008 have a weighted average contractual life of 8 years. 22.5 Options granted after 1 January 2007 – Binomial valuation method The fair value of services received in return for share options granted in 2008 and 2007 were measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured on a Binomial valuation model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Binomial model. The option exercise price for individuals who were employed at 21 December 2004 was the market price on admission to AIM of £4.20 and for all other individuals either the average market price on grant date or a premium there to. 41 115178 Gaming Part 1 28/4/09 5:44 pm Page 42 Fair value of share options and assumptions: Date of grant 1 Mar 2007 15 May 07 13 Jul 07 13 Jul 07 21 Aug 07 21 Sep 07 24 Nov 07 26 Feb 08 12 Dec 08 Share Price at date of grant* Exercise price (in £) Expected volatility Exercise multiple Expected dividend yield Risk free Fair value at rate** measurement date 1.08 1.22 1.42 1.42 1.25 1.32 1.33 1.35 1.05 1.00 1.29 2.98 1.60 1.29 1.35 1.33 1.3816 1.26 65% 50% 60% 60% 60% 55% 50% 50% 50% 2 2 2 2 2 2 2 2 2 8% 8% 8% 8% 8% 8% 8% 12% 12% 5.02% 5.33% 5.63% 5.63% 5.07% 5.08% 4.80% 4.53% 3.02% 0.46 0.40 0.53 0.53 0.48 0.48 0.44 0.35 0.17 * This is the bid price, not the mid-market price, at market close, as sourced from Bloomberg. ** The measurement of the risk-free rate was based on rate of UK sovereign debt prevalent at each grant date over the expected term of the option. The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. There are no market conditions associated with the share option grants. 22.6 Options granted before 1 January 2007 – Black-Scholes valuation method The fair value of services received in return for share options granted prior to 2007 were measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured on a Black-Scholes valuation model. The contractual life of the option (10 years) is used as an input into this model. Expectations of early exercise are incorporated into the Black- Scholes model. The option exercise price for individuals who were employed at 21 December 2004 was the market price on admission to AIM of £4.20 and for all other individuals was a range of prices, not being lower than the mid-market price of the shares on the three days immediately before the grant date. Date of grant 21 Dec 04 28 Sep 05 28 Sep 05 23 Jan 06 23 Jan 06 16 May 06 Share Price at date of grant* £4.20 £5.50 £5.50 £3.89 £3.89 £3.83 Exercise price (in £) £4.20 £5.50 £4.20 £3.59 £2.98 £4.20 Expected volatility Option Life (in years) Expected dividend yield Risk free Fair value at rate** measurement date 45% 45% 45% 45% 45% 65% 4.8 4.8 4.8 4.8 4.8 4.8 4% 5% 5% 8% 8% 8% 4.51% 4.22% 4.22% 4.16% 4.16% 4.70% £1.33 £1.58 £1.95 £0.94 £1.10 £1.23 The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options), adjusted for any expected changes to future volatility due to publicly available information. There are no market conditions associated with the share option grants. 42 115178 Gaming Part 1 28/4/09 5:44 pm Page 43 23. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Group’s principal financial instruments as at 31 December 2008 comprise cash and cash equivalents. The main purpose of these financial instruments is to finance the Group’s operations. The Group has other financial instruments which mainly comprise receivables and payables which arise directly from its operations. Cash and cash equivalents and trade and other receivables have been classified as loans and receivables and trade and other payables as financial liabilities measured at amortised cost. During the year the Group did not use derivative financial instruments to hedge its exposure to foreign exchange or interest rate risks arising from operational, financing and investment activities. The Group does not hold or issue derivative financial instruments for trading purposes. 23.1 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or value of its holdings of financial instruments. Exposure to market risk (which includes currency and interest rate risk) arises in the normal course of the Group’s business. 23.2 Foreign exchange risk Foreign exchange risk arises from transactions, recognised assets and liabilities and net investments in foreign operations. The Group does not use foreign exchange contracts to hedge its currency risk. The Group dividend is declared in the Euro as a Luxembourg company. Two weeks before the dividend is due to be paid, the Company will sell the Euro and buy British Pounds for an amount equal to the dividend net of withholding tax. The Group considers its net exposure to currency risk to be low and that the potential savings from managing this exposure to be minimal. The Group has investments in foreign operations which are all denominated in Euros minimising the Group’s exposure to currency translation risk. 43 115178 Gaming Part 1 28/4/09 5:44 pm Page 44 23.2.1 Analysis of the balance sheet by currency At 31.12.2008 Non-current assets Receivables and prepayments Tax reclaimable Cash and cash equivalents Total current assets Trade and other payables Taxation payable Total current liabilities Net current assets Total assets less current liabilities At 31.12.2007 Non-current assets Receivables and prepayments Tax reclaimable Cash and cash equivalents Total current assets Trade and other payables Taxation payable Total current liabilities Net current assets Total assets less current liabilities Euro d000’s 57,428 6,211 2,611 18,651 27,473 GBP d000’s – USD d000’s – Other d000’s – 62 – 147 209 22 – 22 44 72 – 14 86 Total d000’s 57,428 6,367 2,611 18,834 27,812 (3,729) (3,155) (1,467) – (6,884) (1,467) (151) – (151) (130) – (5,477) (3,155) (130) (8,632) 20,589 (1,258) (107) (44) 19,180 78,017 (1,258) (107) (44) 76,608 Euro d000’s 56,256 4,125 – 15,773 19,898 GBP d000’s – USD d000’s – Other d000’s – 70 – 63 133 100 – 9 109 – – 14 14 Total d000’s 56,256 4,295 – 15,859 20,154 (2,956) (44) (3,000) (638) – (638) (741) – (741) (69) – (69) (4,404) (44) (4,448) 16,898 (505) (632) (55) 15,706 73,154 (505) (632) (55) 71,962 A significant proportion of the Group’s financial assets and liabilities are denominated in Euros, which minimises the Group’s exposure to foreign exchange risk. Management do not consider the impact of possible exchange rate movements based on current market conditions to be material to the net result for the year. 44 115178 Gaming Part 1 28/4/09 5:44 pm Page 45 23.3 Interest rate risk The Group earns interest from bank deposits. During the year, the Group held cash on deposits with a range of maturities of less than three months. The Group had no committed borrowing facilities as at 31 December 2008. Management do not consider the impact of possible interest rate movements based on current market conditions to be material to the net result for the year or the equity position at the year end for either the year ended 31 December 2007 or 31 December 2008. 23.4 Credit risk The Group has no significant concentrations of credit risk with exposure spread over a large number of customers. The Group does not grant credit facilities to any of its customers and the maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. The Group has material exposure to credit risk through amounts owed by Webdollar (a third party collection agency owned by Boss Media, the Group’s principal software provider) of c2.04m (2007: c2.07m) and cash balances held with Barclays Bank plc of c17.2 million (2007: c14.1 million). The Group considers the credit risk associated with these balances to be low, having assessed the credit ratings and financial strength of the counter-parties involved. The Group is seeking to diversify its banking deposits to further reduce credit risk. No provision for impairment has been made at 31 December 2008 (2007: nil). No receivable amounts were past due date at 31 December 2008 (2007: nil). 23.5 Liquidity risk At 31 December 2008, the Group had cash and cash equivalents of c18.8 million (2007: c15.9 million) and considers liquidity risk to be low for the business. All liabilities at the year end are due within one year. 23.6 Fair Values The carrying amounts of the financial assets and liabilities in the balance sheet at 31 December 2008 and 2007 for the Group and Company are a reasonable approximation of their fair values. All trade and other receivables and payables have a maturity of less than one year. 23.7 Summary of financial assets and liabilities by category The carrying amounts of the group’s financial assets and liabilities recognised at the balance sheet date are categorised as follows: 31 Dec 2008 d000’s 6,077 18,834 31 Dec 2007 c000’s 3,561 15,859 5,477 4,404 Current assets Loans and receivables Cash and cash equivalents Current liabilities Financial liabilities measured at amortised cost: trade and other payables 45 115178 Gaming Part 1 28/4/09 5:44 pm Page 46 24. RELATED PARTIES 24.1 Identity of related parties The Group has a related party relationship with its subsidiaries (see note 25) and with its directors and executive officers. 24.2 Transactions with key management personnel The Group’s key management personnel are considered to be the directors as shown in note 8.1.2. Directors of the Company and their immediate relatives control nil% of the voting shares of the Company. G Cassels, who left the board on 5 December 2008, received part of his remuneration through a UK Service company, LNC Associates Limited, beneficially controlled by himself and his immediate family. There remains a contract with LNC Associates Limited through which other non-family personnel are employed, and who carry out accounting services on an arms length basis. The Group incurred expenses of c95k (2007: c159k) due to LNC Associates Limited during the year. 25. GROUP ENTITIES Significant subsidiaries Country of incorporation Gaming VC (Cyprus) Limited Gaming VC (Jersey) Limited GVC Corporation B.V.* GVC Corporation II B.V. Gaming VC Corporation Limited Gaming VC Corporation S.p.A. Cyprus Jersey Netherland Antilles Netherland Antilles Malta Italy *GVC Corporation B.V. also has a registered branch in Israel. Ownership interest 31 Dec 2007 31 Dec 2008 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 26. CONTINGENT LIABILTIES The group, through its trading websites, offers progressive jackpots on slot machines. Betaland progressive jackpots The progressive jackpot fund in which the Betaland site participates is part of a network scheme – that is to say it is built up based on the gaming activity of every player from every operator in the network – at the end of each month, each operator pays into the central fund the amount added into it as calculated from the play of their own customers and receives back from the fund the value of jackpots won by their own customers (less a deduction to re-seed the jackpot to its starting value). If GVC customers never win such a jackpot, GVC still has to pay into the fund, but it has the peace of mind that if one of their customers does win a substantial jackpot then GVC does not have to carry that cost itself – it is basically an insurance policy, but one which provides a strong revenue-generating tool in the jackpot games themselves. Casino Club progressive jackpots Unlike Betaland, CasinoClub does not participate in the network progressive jackpot scheme – instead it offers an equivalent system in which only its own customers participate. This means that CasinoClub make no contributions to the central fund as it builds up (since they are the only operator in the scheme, this would serve no purpose), and should a CasinoClub customer win the progressive jackpot there is no central fund to cover the payout so the cost of this would be taken directly to the Income 46 115178 Gaming Part 1 28/4/09 5:44 pm Page 47 Statement in the period in which it would be won. In the 2008 financial year there were no significant one-off jackpot winners on the CasinoClub’s slot machine games with associated “progressive” jackpots. The total of the available jackpots at the end of December 2008 was c4.0m (2007: c3.2m), with the largest available individual jackpot being c1.1m (2006: c1.6m). 27. ACCOUNTING ESTIMATES AND JUDGEMENTS The directors discuss the development, selection and disclosure of the Group’s critical accounting policies and estimates and the application of these policies and estimates. The estimates and judgements which have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 27.1 Impairment of goodwill and trademarks Determining whether goodwill and trademarks with an indefinite useful life are impaired requires an estimation of the value in use of the cash-generating units. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and select a suitable discount rate in order to calculate present value. Note 13.2 provides information on the assumptions used in these financial statements. The valuation work to assess the impairment of goodwill and intangible assets was conducted by Chartered Accountants, BDO Stoy Hayward, London. 27.2 Share options Accounting for share option charges requires a degree of judgement over such matters as dividend yield, and expected volatility. 27.3 Open bets The directors review the scale and magnitude of open bets frequently, and in particular at the balance sheet date. Assessments are made on whether to make provisions for the outcome of such open bets. 28. GOING CONCERN The directors have assessed the financial risks facing the business, compared this risk assessment to the net current asset position and dividend policy and consider that the group has adequate resources to continue operations for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. 29. SUBSEQUENT EVENTS There have been no subsequent events between 31 December 2008 and the date of the signing of these accounts that merit inclusion. 47 115178 Gaming Part 1 28/4/09 5:44 pm Page 48 SECTION B – ADDITIONAL UNAUDITED INFORMATION 48 115178 Gaming Part 1 28/4/09 5:44 pm Page 49 TRADING HISTORY IN THE PERIOD SINCE INCORPORATION Net Gaming Revenue Gross profit Operating profit Profit before tax Cash at the balance-sheet date 2005 c000’s 40,443 31,585 13,362 12,807 7,233 2006 c000’s See note below 40,573 30,201 12,630 12,707 9,407 2007 c000’s 2008 c000’s 42,639 33,405 16,192 16,631 15,859 50,085 40,922 16,359 16,903 18,834 Notes: 1. 1.2 the one month period from 30 November 2004 to 31 December 2004 has been omitted as being unrepresentative In the 2006 financial year, there was a charge of c33,274k for impaired goodwill, and a charge of c8,272k for the accelerated amortisation of the software licences. The numbers above exclude these charges. Including these charges, there was an operating loss of c28,934k and a loss before tax of c28,839k. 49 115178 Gaming Part 1 28/4/09 5:44 pm Page 50 RECONCILIATION OF CONSOLIDATED BALANCE SHEET OF GAMING VC HOLDINGS S.A. AS PREPARED UNDER IFRS TO COMPANY BALANCE SHEET OF GAMING VC HOLDINGS S.A. AS PREPARED UNDER LUXEMBOURG GAAP This reconciliation, which has not been audited, is designed to assist shareholders with their understanding of the preparation of the accounts of the Company under Luxembourg GAAP, which appears on pages 54 to 60. All in c000’s and at 31 December 2008 Consolidated Balance Consolidation sheet Adjustments Balance Adjustments under Sheet of Balance Sheet of The Company Under the Luxembourg Luxembourg GAAP GAAP Company Non Current Assets Property, plant & equipment Intangible fixed assets Deferred tax asset Shares in affiliated undertakings Formation expenses Current assets Amounts owed by affiliated undertakings Other Current liabilities Amounts owed to affiliated undertakings Other 1,538 55,879 11 – – 57,428 – 27,812 27,812 – (8,632) (8,632) (1,538) (55,879) (11) 63,814 – 6,386 1,072 (23,902) (22,830) (11,876) 8,186 (3,690) – – – 63,814 – 63,814 1,072 3,910 4,982 – – – – 2,192 2,192 – – – – – – 63,814 2,192 66,006 1,072 3,910 4,982 (11,876) (446) (12,322) (1,737) – (1,737) (13,613) (446) (14,059) Net assets 76,608 (20,134) 56,474 455 56,929 As represented by: Retained earnings at 1 Jan 2008 Transfer from share premium account Profit for the year Dividends paid in year Share option reserve Retained earnings at 31 Dec 2008 Share premium account Legal reserve Total reserves Share Capital * For Reconcilliation see page 55 (18,623) 22,858 4,235 (3,947) 288* 38,145 16,543 (12,454) 557 24,168 13,832 – 38,000 38,608 76,608 (38,145) (7,452) – 2,605 (20,134) – – (20,134) – (20,134) – 9,091 (12,454) 3,162 4,034 13,832 – 17,866 38,608 56,474 – (1,636) 6,227 (3,162) (2,518) 1,980 993 455 – 455 – 7,455 (6,227) – 1,516 15,812 993 18,321 38,608 56,929 50 115178 Gaming Part 2 28/4/09 5:31 pm Page 51 SECTION C – FINANCIAL STATEMENTS OF GAMING VC HOLDINGS S.A. As prepared under Luxembourg GAAP. 51 115178 Gaming Part 2 28/4/09 5:31 pm Page 52 GAMING VC HOLDINGS S.A. ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2008 (with report of the Réviseur d’Entreprises thereon) 52 115178 Gaming Part 2 28/4/09 5:31 pm Page 53 To the Shareholders of Gaming VC Holdings S.A. 13-15 Avenue de la Liberté L-1931 Luxembourg REPORT OF THE RÉVISEUR D’ENTERPRISES Report on the annual accounts We have audited the accompanying annual accounts of GAMING VC HOLDINGS S.A., which comprise the balance sheet as at December 31, 2008, and the profit and loss account for the year then ended, and a summary of significant accounting policies and other explanatory notes to the annual accounts. Board of Director’s responsibility for the annual accounts The Board of Directors is responsible for the preparation and fair presentation of these annual accounts in accordance with Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and the fair presentation of annual accounts that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Responsibility of the Réviseur d’entreprises Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted by the Institut des réviseurs d’entreprises. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the annual accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend the judgement of the réviseur d’entreprises, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risks assessments, the réviseur d’entreprises considers internal control relevant to the entity’s preparation and fair presentation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the annual accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our audit opinion. Opinion In our opinion, the annual accounts give a true and fair view of the financial position of GAMING VC HOLDINGS S.A. as of December 31, 2008, and of the results of its operations for the year then ended in accordance with the Luxembourg legal and regulatory requirements relating to the preparation of the annual accounts. Report on other legal and regulatory requirements The management report, which is the responsibility of the board of directors, is consistent with the annual accounts. Luxembourg, April 20, 2009 Thierry REMACLE Réviseur d’Entreprises Grant Thornton Lux Audit S.A. 53 115178 Gaming Part 2 28/4/09 5:31 pm Page 54 STATUTORY BALANCE SHEET As at 31 December 2008 In euro ASSETS Formation expenses Fixed assets Financial assets Notes 2008 d 2007 c 2.3/3.1 2,192,420 –––––––––– 4,478,846 –––––––––– Shares in affiliated undertakings 2.4/3.2 63,813,914 –––––––––– 63,813,914 –––––––––– Current assets Amounts owed by affiliated undertakings Debtors becoming due within one year Other Debtors Debtors becoming due within one year 2.5 Cash at bank Prepayments TOTAL ASSETS LIABILITIES Capital and reserves Subscribed capital Share premium account Legal Reserve Profit and loss account Creditors Amounts owed to affiliated undertakings becoming payable after more than one year Amounts owed to affiliated undertakings becoming due and payable within one year Other creditors due and payable within one year 1,071,652 1,071,790 2,611,164 1,284,526 –––––––––– 4,967,342 15,255 –––––––––– 4,982,597 –––––––––– – 5,001,901 –––––––––– 6,073,691 41,920 –––––––––– 6,115,611 –––––––––– 70,988,931 74,408,371 4 6 2.6 7 7 8 38,608,345 15,812,333 992,921 1,515,970 –––––––––– 56,929,569 –––––––––– 38,608,345 53,957,115 322,279 (30,959,090) –––––––––– 61,928,649 –––––––––– – 9,500,000 13,613,119 446,243 –––––––––– 14,059,362 –––––––––– 2,838,415 141,307 –––––––––– 12,479,722 –––––––––– TOTAL CAPITAL, RESERVES AND LIABILITIES 70,988,931 74,408,371 The accompanying notes from an integral part of these annual accounts 54 115178 Gaming Part 2 28/4/09 5:31 pm Page 55 PROFIT AND LOSS ACCOUNT For the year ended 31 December 2008 In euro CHARGES External charges Value adjustment in respect of formation expenses Other operating charges Interest payable and similar charges Concerning affiliated undertakings Other interest and similar charges Exceptional Items Other Taxes not shown under the above items Profit for the year INCOME Income from affiliated undertakings Interest receivable and similar income Tax Credit STATEMENT OF MOVEMENT ON PROFIT AND LOSS ACCOUNT Balance as at 1 January Transfer to legal reserve Transfer from share premium account Final dividend paid after the year-end Profit for the year Interim dividend paid during the year Balance as at 31 December * Refer to page 50 Note 2.3 Year ended 31 Dec 2008 d Year ended 31 Dec 2007 c 413,803 2,286,426 85,541 710,605 2,286,426 251,864 498,497 5,980 316,072 7,673 7,455,224 ––––––––––– 11,069,216 ––––––––––– 430,350 6,733 – – 13,412,844 ––––––––––– 17,098,822 ––––––––––– 10,040,256 78,051 950,909 ––––––––––– 11,069,216 ––––––––––– 17,050,000 48,822 – ––––––––––– 17,098,822 ––––––––––– (30,959,090) (670,642) 38,144,782 (6,227,152) ––––––––––– 287,898* 7,455,224 (6,227,152) ––––––––––– 1,515,970 ––––––––––– (38,144,782) – – – ––––––––––– 38,144,782 13,412,844 (6,227,152) ––––––––––– (30,959,090) ––––––––––– The accompanying notes form an integral part of these annual accounts 55 115178 Gaming Part 2 28/4/09 5:31 pm Page 56 NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL Gaming VC Holdings S.A. (the “Company”) was incorporated under the laws of Luxembourg on November 30, 2004 under the legal form of a “Société Anonyme”. The Company is established for an unlimited period. The registered office of the Company is at 13-15 Avenue de la Liberte, L-1931 Luxembourg and the Company is registered with the Register of Commerce of Luxembourg under the section B number 104348. The purpose of the Company is the acquisition of ownership interests, in Luxembourg or abroad, in any form whatsoever, and the management of such ownership interests. The Company may in particular acquire by subscription, purchase, and exchange or in any manner any stock, shares and other securities, bonds, debentures, certificates of deposit and other debt instruments and more generally any securities and financial instruments issued by any public or private entity whatsoever. The Company may participate in establishment, development of any financial, industrial or commercial enterprises. The Company may also borrow in any form and proceed to the issue of notes, bonds and debentures, and any kind of debt and/or equity securities. The Company may lend funds including the proceeds of any borrowings and/or issues of debt securities to its subsidiaries, affiliated companies or to any other group company. It may also give guarantees and grant security interests in favour of third parties to secure its obligations or the obligations of its subsidiaries, affiliated companies or any other group company. The Company may further mortgage, pledge, transfer, encumber or otherwise hypothecate all or some of its assets. The Company may also acquire and exploit all patents and all other ancillary property rights which are reasonable and necessary for the exploitation of such patents. On December 21, 2004, the Company raised GBP 81 (EURO 117.5) million through the subscription by Collins Stewart of Ordinary Shares, and their placing with institutional and other investors at 420 pence per share (“the Placing”). The Placing was subject to Admission of the Company on the Alternative Investment Market (“AIM”) in London. The Company’s financial year begins on the first day of January and terminates on the last day of December. The Company prepares consolidated financial statements. Copies of the consolidated financial statements are available at the parent company’s registered office. 56 115178 Gaming Part 2 28/4/09 5:31 pm Page 57 2. SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of presentation The annual accounts of the Company are prepared in accordance with current Luxembourg legal and regulatory requirements. 2.2 Basis of conversion for items originally expressed in foreign currency The Company maintains its accounting records in euro (“EURO”) and the balance sheet and profit and loss account are expressed in this currency. Income and charges are translated at the exchange rates ruling at the transaction date. Fixed assets are valued using historical exchange rates. Other current assets and liabilities expressed in foreign currencies are translated into euro at the rates of exchange in effect at the balance sheet date. Realised exchange gains and losses and unrealised exchange losses are recognised in the profit and loss account. 2.3 Formation expenses Expenses relating to the creation or extension of the Company are recorded as formation expenses. Formation expenses are amortised on a straight-line basis at an annual rate of 20%. 2.4 Valuation of financial fixed assets Financial assets are valued in the accounts at cost. Value adjustments are made in respect of financial fixed assets to recognise a durable reduction in the value of the investments, such reduction being determined and made for each investment individually. 2.5 Debtors Debtors are stated at their nominal value. Value adjustments are recorded at the end of the financial year if the net realisable value is lower than the book value. 2.6 Creditors Creditors are stated at their nominal value. 57 115178 Gaming Part 2 28/4/09 5:31 pm Page 58 3. FINANCIAL ASSETS 3.1 Formation Expenses The movements in the year are as follows Cost Balance as at 1 Jan 2008 Additions for the year Balance as at 31 Dec 2008 Amortisation Balance as at 1 Jan 2008 Charge for the year Balance as at 31 Dec 2008 Carrying Amounts As at 31 Dec 2007 As at 31 Dec 2008 EURO 11,432,128 – ––––––––––– 11,432,128 ––––––––––– 6,953,282 2,286,426 ––––––––––– 9,239,708 ––––––––––– 4,478,846 2,192,420 3.2 Shares in affiliated undertakings Financial assets represent shares in the following undertakings: Acquisition cost EURO Value adjustment EURO Net book value Shareholders’ equity(*) EURO Result for the year(*) EURO Gaming VC (Cyprus) Limited , 100% 105,000,000 –––––––––––– (41,546,086) –––––––––––– 63,453,914 ––––––––––– 63,571,440 ––––––––––– 2,422 ––––––––––– Gaming VC Corporation Limited, Malta, 100% 240,000 –––––––––––– 240,000 ––––––––––– 2,282,191 ––––––––––– 2,060,616 ––––––––––– Gaming VC Corporation S.p.A Italy, 100% (2,296,664) ––––––––––– *The figures are taken from the annual accounts as at December 31, 2008. The shareholders equity includes the result for the year as well as the interim dividend paid in Cyprus in 2008. 120,000 –––––––––––– (2,178,892) ––––––––––– 120,000 ––––––––––– As at December 31, 2006, the Company decided to record a value adjustment on its shares in Gaming VC (Cyprus) Limited for an amount of EURO 41,546,086 in order to reflect the durable reduction in the value of this investment. In July 2007 GVC Holdings incorporated two wholly owned subsidiaries, GVC Corporation Limited in Malta and GVC Corporation SpA in Italy. No provision has been made for the Company’s investments in Gaming VC Corporation SpA as the directors believe the deficit on shareholders’ equity will reverse in future periods. 58 115178 Gaming Part 2 28/4/09 5:31 pm Page 59 3.3 Amount owed by affiliated undertakings This amount corresponds primarily to costs due by Gaming VC (Jersey) Limited, a subsidiary of the Group Gaming VC, relating to the acquisition of intangible assets by this subsidiary. 4. CAPITAL AND RESERVES The authorised share capital of the Company is 40,000,000 ordinary shares of c1.24 each and 30,000 redeemable shares of c1.24 each. The authorised and not yet issued share capital of the Company is 8,864,238 ordinary shares of c1.24 each and 30,000 redeemable shares of c1.24 each. Capital fluctuations during the period are illustrated in the table below: At December 31, 2007 At December 31, 2008 Number of ordinary shares issued 31,135,762 –––––––––––– 31,135,762 –––––––––––– Share value EURO 1.24 1.24 Total Value EURO 38,608,344.88 –––––––––––––– 38,608,344.88 –––––––––––––– The Company has not issued any redeemable shares since incorporation. On admission to the AIM market, a share premium of EURO 78,953,651 was recorded. At the AGM held on 20 May 2008 in Luxembourg shareholders agreed to write down the share premium reserve by an equal amount to the historic retained losses. 4.1. INTERIM DIVIDENDS Based on the interim balance sheet of the Company as at October 10, 2008, the Board of Directors paid an interim dividend of an aggregate net amount of EURO 6,227,152 on October 31, 2008 (2007: EURO 6,227,152) 5. SHARE PREMIUM ACCOUNT The movements in the Share Premium account are shown below: In EURO Balance at start of year Transfer from profit and loss account Balance at end of year Year ended 31 Dec Year ended 31 Dec 2008 2007 53,957,115 (38,144,782) ––––––––––– 15,812,333 ––––––––––– 59,905,945 (5,948,830) ––––––––––– 53,957,115 ––––––––––– 59 115178 Gaming Part 2 28/4/09 5:31 pm Page 60 6. LEGAL RESERVE Under Luxembourg corporate law, the Company must appropriate annually at least 5% of its statutory net profits to a legal reserve until the aggregate reserve equals 10% of the subscribed share capital. Such reserve is not available for distribution. The movements in the Legal reserve are shown below: In EURO Balance at start of year Transfer from profit and loss account Balance at end of year Year ended 31 Dec Year ended 31 Dec 2008 2007 322,279 670,642 ––––––––––– 992,921 ––––––––––– 322,279 – ––––––––––– 322,279 ––––––––––– 7. AMOUNTS OWED TO AFFILIATED UNDERTAKINGS Amounts owed to affiliated undertakings becoming due and payable within one year corresponds to costs incurred by the Company relating to staff and external charges in 2008 which have been paid by various subsidiaries of the Group and the loan granted by Gaming VC Corporation B.V. with maturity on December 31, 2009 and bearing interest at a rate per annum expend to EURIBOR + 0.5%. 8. OTHER CREDITORS This amount mainly corresponds to costs incurred by the Company relating to staff, external charges and withholding tax payable in relation with the interim dividends paid. 9. PERSONNEL There were no employees during the year. 10. COMMITMENTS AND CONTINGENCIES On December 2, 2004, the Group established a share option programme that entitles key management personnel and senior employees to purchase shares in the Group. On December 21, 2004, a grant was made to two non-executive directors and on September 28, 2005, a grant was made to other eligible individuals under the programme. On 23 January 2006, and 16 May 2006, grants were made to eligible individuals under the programme. During 2007 and 2008 additional grants were made to eligible individuals under the programme. In accordance with these programmes, options are exercisable at a set price, normally the market price, of the shares at the date of grant. Options vest and become exercisable as to one quarter on the first anniversary of the date of grant with the balance vesting and becoming exercisable in 36 equal monthly installments over the subsequent three years. As of December 31, 2008, 2,723,359 (3,009,883 as of December 31, 2007) share options were outstanding and no share option had been exercised under this programme. 60 115178 Gaming Part 2 28/4/09 5:31 pm Page 61 115178 Gaming Part 2 28/4/09 5:31 pm Page 62 sterling 115178