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 2009 CONTENTS FACTSHEET DIRECTORS ADVISORS SECTION A: AS PREPARED UNDER IFRS REPORTS – – – – Chairman’s Statement Report of the Chief Executive Report of the Finance Director Independent Auditor’s report to the Shareholders of Gaming VC Holdings S.A. CONSOLIDATED FINANCIAL STATEMENTS – – – – – – Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Statement of Cashflows Notes to the Consolidated 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 the Company Balance Sheet of Gaming VC Holdings S.A. as prepared under Luxembourg GAAP SECTION C: PREPARED UNDER LUXEMBOURG GAAP Independent Auditor’s report to the Shareholders of Gaming VC Holdings S.A. Page 2 Page 3 Page 4 Page 5 Page 7 Page 9 Page 14 Page 16 Page 16 Page 17 Page 18 Page 19 Pages 20 to 61 Page 63 Page 64 FINANCIAL STATEMENTS OF GAMING VC HOLDINGS S.A. as prepared under Luxembourg GAAP Pages 66 to 74 1 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 class 4 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 Q3-09 – Acquired the trade and assets of “Betboo” a leading Latin American e-gaming business Q3-09 – Announced its intention to re-domicile from Luxembourg to Isle of Man Q4-09 – Announced sale of Gaming VC Corporation S.p.A, the group’s licensed Italian subsidiary Q1-10 – Announced intention to launch additional sports betting operations Announcement of appointment of new senior executives together with expression of sports betting operations, additional marketing spend on existing German business and intention to expand CasinoClub outside Germany. Investor relations website Extensive information on the Group, prior-year financial statements and press releases can be found on the Group’s website: www.gamingvc.com. Websites and languages offered Gaming VC CasinoClub brands CasinoClub PokerKings CasinoClub Betaland Winzingo Betboo Poker English German Italian Spanish French Greek Russian Swedish Turkish Romanian Brasilian Portuguese 2 DIRECTORS Lee Feldman, Chairman, and non-executive director Lee Feldman (42), 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 Blyther-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 Kenneth Alexander (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 (49), 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. The board aims to meet six times a year and more frequently if required. Committees of the Board The board has both Audit and Remuneration Committees. 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 Directors 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. 3 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 125 Old Broad Street London EC2N 1AR 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 CHAIRMAN’S STATEMENT In my second year as Chairman, I am happy to report that, despite 2009’s historically difficult economic operating conditions, the Group has had a relatively successful year, managerially, operationally and financially. Results Financially, the Group has achieved growth in Net Gaming Revenue (“NGR”) to c54.0 million (2008: c50.1 million). Clean EBITDA, at c17.4 million (2008: c19.5 million), was lower than in 2008 as a result of our continued expansion into new business lines with lower margins and increased marketing spend on the mature CasinoClub business. Betboo acquisition Gaming VC completed the acquisition of Betboo in July 2009. Betboo is one of the leading online gaming operators in the still small but rapidly growing Latin American market, and was recently named the Latin American Operator of the Year at the eGaming Review Awards. We have been encouraged by its performance since acquisition. As shareholders will be aware from our previous announcements, the acquisition of Betboo comprised initial consideration of US$4 million (c3 million) together wiht an earn-out capped at US$26 million. Operations The company has now evolved into a mature operating company with industry-leading staff and resources in Malta and Israel, as well as having third party contracts with service providers in Brazil and Uruguay. Regulatory and legal As more fully reported in the Report of the Chief Executive, the Group holds gaming licences in Malta and the Netherlands Antilles, and believes it has the necessary licences 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. Shareholders were made aware on 27 August 2009 of the intended re-domiciliation from Luxembourg to the Isle of Man. The AIM Admission document, together with a circular to shareholders and voting forms, is expected to be dispatched on Monday 19 April and, subject to shareholder approval, we expect the new Isle of Man based holding company to be admitted to AIM in late May 2010. Boss Media Gaming VC is currently in dispute with Boss over an alleged infringement of the Group’s intellectual property. The Group has made its concerns known to Boss. If the dispute is not resolved, Court proceedings will be instituted. The dispute is subject to legal, professional privilege. The Group is also in dispute with Boss over the ability of Boss to terminate a contract for services to the Betaland business. Strategy Gaming VC announced in January 2010 three elements to its strategy: 1. 2. 3. Additional marketing expenditure to protect the core CasinoClub business in Germany; Marketing investment to expand CasinoClub outside German speaking markets; and Launch of additional sportsbooks in new territories to replicate the success the Group has had in Italy. The Group announced the recruitment of Jon Salmon and Jim Humberstone to lead these initiatives. The financial impact of these three elements was expected to be c7 million in 2010. The expansion of CasinoClub outside German speaking markets has been delayed by the dispute with Boss and as a result the Group now expects to invest a total of c5 million during 2010, c2 million lower than earlier anticipated. 5 Dividend The Group paid an interim dividend of c0.20 per share in November 2009 and announced in January 2010 that it expected, following the redomiciliation and in the absence of unforeseen circumstances, to declare a special dividend of not less than c0.50 per share in lieu of the normal final dividend for the year ended 31 December 2009. It is expected that any such dividend will be payable in June 2010. The level of Gaming VC’s future dividends will be affected by the Group’s strategic initiatives and as previously announced, profits for 2010 are expected to be materially lower than in 2009. However, the Group intends to continue to pay out approximately 75% of net cash generated by way of dividend, subject, in 2012, to being able to fund the expected deferred consideration due in respect of the acquisition of Betboo. More detail on this is included in the Report of the Finance Director. Current trading and future prospects The first three months of 2010 have been broadly in line with budget. Group revenues were c14.8 million, slightly down on 2009. Whilst the gaming industry continues to face challenging economic conditions the Board believes that we have the right team and strategy in place to trade through this and to continue to pay dividends to our shareholders. Lee Feldman Non-Executive Chairman 16 April 2010 6 REPORT OF THE CHIEF EXECUTIVE Introduction and financial overviews In 2009, though trading conditions were difficult for the industry as a whole, the Gaming VC Group continued to grow revenues and perform well. Group revenue increased to c54.0 million, and 7.7% compared to 2008. Like for like sports revenues grew 44% from c6.3 million to c9.1 million from a hold of 17.9% (2008: 13.4%). Gaming revenues excluding Betboo were 2.5% lower at c42.7 million (2008: c43.8 million). Betboo revenues amounted to c2.2 million for the six months since acquisition. As explained more fully in the report of the Finance Director, the profit before tax was affected by two non- cash items arising from the Betboo acquisition totalling c1.1 million and exceptional charges of c1.5 million. Clean EBITDA, at c17.4 million (2008: c19.5 million), was c2.1 million lower than 2008 as a result of our continued expansion into new business lines with lower margins and increased marketing spend on the mature CasinoClub business. Operations CasinoClub During the year CasinoClub revenue fell by 18.8% to c29.6 million and contribution in this area of the business fell by 20.1% to c20.6 million. The contribution margin remained at 70%. The core German casino business has been affected by challenging economic conditions which in turn effected player yields, in particular at the VIP levels. The board is encouraged that the volumes have stabilised in the latter part of 2009 with H2 revenues only dropping by 3.3% compared to H1. Jon Salmon, ex-Head of Marketing for Party Gaming, joined the Group earlier in 2010 and increased marketing investment is planned for 2010 to support the CasinoClub brand. The board is confident of the prospects for this business in 2010. Betaland Betaland enjoyed a year of significant growth in 2009 and moved into profitability with total revenues increasing by 56% to c20.8 million; a sports betting margin of 17.9% was achieved (2008: 13.4%). During 2009, 21,845 new funded accounts were created (2008: 15,153) and 4.2 million bets were taken (2008: 3.5 million). The board is pleased with the continued progress that Betaland has made in the year. Within only two years, the business has become profitable. The recruitment of Jim Humberstone, ex-Head of Sportsbook of Sportingbet, who joins the Group on 19 April 2010, further strengthens our sports betting management team. The board is confident that revenues and profits from our European sports betting operations will continue to grow and expects to launch additional language versions in H2 2010. Betboo Betboo, a Latin American e-gaming portal, was acquired in July 2009. The management team responsible for the success of the business has all been retained. Betboo to date has had minimal marketing invested into the brand but marketing will be increased in the second part of 2010. The business is expected to grow materially thereafter. Winzingo Winzingo is a Spanish facing bingo site, focussing on the Spanish market. The business is a small part of the business and results have been disappointing to date. A review of the business is currently being undertaken. Regulatory Unlike the majority of other listed gaming entities, the Gaming VC group has never taken bets or wagers from residents of the USA. The Group has licences in Malta and Netherlands Antilles. The Interstate Treaty regarding gambling in Germany was passed on 1 January 2008. Inter alia, this states that “Public games of chance may only be organised or arranged with the permission of the competent authority of the respective Federal State. Organising and arranging them without this permission (unauthorised game of chance) is 7 prohibited”. Similar provisions exist in Italy. It remains unclear from a legal perspective as to whether national or EU law applies with continued conflicting messages. The board remains confident that a satisfactory resolution will be found but believes it is unlikely that will happen during 2010. Outlook The first three months of 2010 have been broadly in line with budget. Group Revenues were c14.8 million compared to c14.9 million in Q1 2009. The following table illustrates revenues per business unit compared to the previous four quarters and the relevant sports margin % for comparison: d000’s Betaland – number of bets (in 000’s) – average bet size – value of bets – betting margin % – sports revenues net of taxes and duties – gaming revenues – total revenues CasinoClub Betboo Winzingo Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 1,289 ––––––– c12.6 16,299 23.40% 3,645 2,968 ––––––– 6,613 8,021 – 242 ––––––– 14,876 ––––––– 1,017 –––––––– c15.2 15,475 8.80% 1,220 3,061 –––––––– 4,281 7,038 – 314 –––––––– 11,633 –––––––– 722 –––––––– c13.9 10,006 14.38% 1,355 2,279 –––––––– 3,634 7,124 1,126 378 –––––––– 12,262 –––––––– 1,167 –––––––– c10.5 12,271 23.69% 2,837 3.461 –––––––– 6,298 7,443 1,054 392 –––––––– 15,187 –––––––– 1,621 –––––––– c9.9 16,018 15.03% 2,392 3,932 –––––––– 6,324 7,093 1,027 325 –––––––– 14,769 –––––––– CasinoClub is running in line with management’s expectations with NGR around 5% lower than in Q4 2009. Betaland’s sports margin percentage for Q1 2009 was favourably affected by a large number of shock results in Serie A in Italy. In Q1 2010, the margin of 15% is closer to the long-term running margin. The board is encouraged that the number of bets has increased by around one third since Q1 2009. Gaming revenues from Betaland have also increased by just under c1million since Q1 2009. Betboo is trading in line with our expectations, which are broadly to increase the customer base whilst remaining at break-even level. The number of new funded customer accounts grew by 66% to 2,462 compared with 1,480 in Q1 2009. The number of active players was 5,440 compared to 3,622 in Q1 2009. Kenneth Alexander Chief Executive 16 April 2010 8 REPORT OF THE FINANCE DIRECTOR Introduction The results of the group reflect for the first time the impact of the acquisition of Betboo completed on 2 July 2009. There are four areas of impact: Cash balances $4 million (c3 million) was paid to the founders in July 2009 NGR & EBITDA c2.2 million of revenues were earned and c103k of EBITDA was generated Non-cash items Amortisation of c607k, together with c467k of the unwinding of the discount on deferred consideration (re: accounting treatment prescribed under IFRS3) were taken to the Income Statement Balance sheet Reflects the assessment of the total consideration, of which the total amount expected to be paid (c12 million), the discounted value (c8 million), and the discounted value of the deferred consideration at 31 December 2009 (c5.4 million). Financial highlights • • • • • • • • Net Gaming Revenue (“NGR”) increased 7.7% to c54.0 million (2008: c50.1 million) Clean EBITDA c17.4 million (2008: c19.5 million) Like-for-like costs c8.1 million (2008: c8.4 million) Profit before tax c13.8 million (2008: c16.9 million) Own funds at bank c17.6 million despite c3.0 million initial consideration for Betboo and c12.4 million paid in dividends during the year Non-CasinoClub business now generating 45% of NGR (2008: 27%) and 25% of contribution (2008: 7.5%) Basic earnings per share of c0.432 (2008: c0.531) Intended special dividend of c0.50 per share The group’s activities now consist of four distinct brands serving different market places: CasinoClub Betaland Betboo High-roller casino targeting German speaking customers Licensed in Malta Employs staff and has office in Tel Aviv Uses software from Boss Media Clean EBITDA margins > 60% in 2009 Retail sports betting and gaming site targeting Italian customers Licensed in Malta Employs staff and has office in Malta Uses software from Boss Media Gamologist, Net Entertainment and others Clean EBITDA margins of 8% in 2009 Retail gaming portal targeting Brazilians/other South American customers Licensed in Netherlands Antilles Operations outsourced to a third party Uses in-house and Playtech software Break-even in 2009 9 Winzingo Retail bingo operation targeting Spanish players Licensed in Netherlands Antilles Operation outsourced to a third party agency Loss making in 2009 Overall Trends Group NGR has been increasing through the Group’s launch into the Italian and South America markets. These generate significantly lower margins than the highly profitable, but mature, CasinoClub business. d000’s CasinoClub Betaland Winzingo Betboo Gaming Sports H1-06 H2-06 H1-07 H2-07 H1-08 H2-08 H1-09 H2-09 21,208 – – – ––––––– ––––––– 21,208 – ––––––– 21,208 ––––––– 19,365 – – – ––––––– ––––––– 19,365 – ––––––– 19,365 ––––––– 22,001 – – – ––––––– 22,001 ––––––– 22,001 – ––––––– 22,001 ––––––– 18,638 2,000 – – ––––––– 20,638 ––––––– 19,563 1,075 ––––––– 20,638 ––––––– 19,710 6,374 42 – ––––––– 26,126 ––––––– 22,939 3,187 ––––––– 26,126 ––––––– 16,765 6,982 212 – ––––––– 23,959 ––––––– 20,863 3,096 ––––––– 23,959 ––––––– 15,059 10,894 556 – ––––––– 26,509 ––––––– 21,644 4,865 ––––––– 26,509 ––––––– 14,567 9,932 770 2,180 ––––––– 27,449 ––––––– 23,069 4,380 ––––––– 27,449 ––––––– The group’s CasinoClub business has been able to increase its contribution margins from 61% in H1-2007 to 69% in H2-2009 to help stem what would have been a faster decline in profitability from CasinoClub. Group gross profit rose 9% to c44.5 million (2008: c40.9 million) maintaining the gross profit ratio. d000’s Clean Ebitda CasinoClub Betaland Winzingo Betboo Central costs H1-06 H2-06 H1-07 H2-07 H1-08 H2-08 H1-09 H2-09 10,973 – – – ––––––– 10,973 (2,095) ––––––– 8,878 ––––––– 9,746 – – – ––––––– 9,746 (2,195) ––––––– 7,551 ––––––– 12,351 – – – ––––––– 12,351 (2,073) ––––––– 10,278 ––––––– 12,494 (327) – – ––––––– 12,167 (2,462) ––––––– 9,705 ––––––– 13,051 (134) (33) – ––––––– 12,884 (2,024) ––––––– 10,860 ––––––– 10,805 (1,097) (28) – ––––––– 9,680 (992)* ––––––– 8,688 ––––––– 9,507 1,059 (120) – ––––––– 10,446 (1,566) ––––––– 8,880 ––––––– 8,892 682 (102) 103 ––––––– 9,575 (1,027) ––––––– 8,548 ––––––– * after a credit of 2384k relating to the extant “Fort Knox” dispute Review of Expenditure* d000’s 2006 2007 2008 2009 Total CasinoClub Betaland Winzingo 6,210 ––––––– 7,294 ––––––– 8,386 ––––––– 10,106 ––––––– 1,920 ––––––– 2,096 ––––––– 1,986 ––––––– 2,241 ––––––– – ––––––– 663 ––––––– 3,384 ––––––– 3,272 ––––––– – ––––––– – ––––––– – ––––––– 730 ––––––– Betboo – ––––––– – ––––––– – ––––––– 1,270 ––––––– Central 4,290 ––––––– 4,535 ––––––– 3,016 ––––––– 2,593 ––––––– * Based on other operating costs and excluding share option charges, depreciation, amortisation and exceptional items. Other operating costs rose in the year due to incorporation of Winzingo and Betboo. Excluding these businesses, operating costs at c8.1 million were 3% lower than 2008 (c8.4 million). Included in these costs were foreign exchange differences of c170k (2008: c36k). There has been a significant reduction in central costs from c1.6 million in H1-09 to c1 million in H2-09. The costs are unlikely to shrink further. 10 Review of CasinoClub The high margin CasinoClub business has been shrinking due to the combination of a maturing customer base, challenges of the economic crisis, severe restrictions on our ability to advertise and hence grow the business, increasing competition, and limitations in software used. The economic crisis hit hard in the second half of 2008, seeing a 17% decrease in clean EBITDA compared with the first half of 2008. Clean EBITDA have continued to decrease, albeit at a significantly slower rate (H2- 2009 v H2-2008 18%; H2-2009 v H1-2009 6%) d000’s NGR Gross profits Contribution Direct costs Clean Ebitda Q1 Q2 Q3 2009 2008 2007 2006 29,626 ––––––– 23,885 ––––––– 20,640 ––––––– (2,241) ––––––– 18,399 ––––––– 5,073 4,434 4,396 36,475 ––––––– 29,036 ––––––– 25,841 ––––––– (1,985) ––––––– 23,856 ––––––– 6,800 6,251 5,870 40,639 ––––––– 31,625 ––––––– 26,943 ––––––– (2,098) ––––––– 24,845 ––––––– 5,692 6,659 6,607 38,365 ––––––– 30,199 ––––––– 22,639 ––––––– (1,920) ––––––– 20,719 ––––––– H1 10,973 H2 Q4 9,746 ––––––– 20,719 ––––––– The average daily revenues for 2009 were c81k per day – the same as for Q4-2008, albeit lower than the nine months before the economic crisis which saw average daily revenues of c106k per day. 5,887 ––––––– 24,845 ––––––– 4,935 ––––––– 23,856 ––––––– 4,496 ––––––– 18,399 ––––––– CasinoClub has, under difficult trading conditions, been able to increase its contribution margin at 70% of NGR but on lower levels of revenue. The cost base for CasinoClub increased to c2.24 million from c1.98 million reflecting a full year of costs of the Tel Aviv office. Review of Betaland Betaland moved into profit during 2009 generating c20.8 million in NGR (2008: c13.4 million) with c9.1 million from sports (2008: c6.3 million) and c11.7 million from gaming (2008: c7.1 million). Sports hold averaged 17.9% (2008: 13.4%). Gaming VC has revenue sharing arrangements with introducers of business. The consequent contribution amounted to c5.0 million in 2009 (2008: c2.2 million) representing a contribution margin of 24% (2008: 16%). Operating expenses are largely fixed and consist principally of staff, technology and office costs. Expenses fell to c3.27 million from c3.38 million, giving rise to a divisional clean EBITDA of c1.74 million (2008: loss, c1.23 million), representing an operating margin of 8.4%. Review of Winzingo Despite a significant increase in NGR (2009: c1.33 million, 2008: c0.25 million), this business has struggled to break even. It generated a contribution margin of c507k but incurred c729k of costs, resulting in a loss of c222k (2008: c61K). 11 Review of Betboo Betboo generated NGR of c2.2 million in the six months since acquisition; c2 million from gaming (primarily bingo) and c0.2 million from sports from a 6.6% hold. It generated a contribution margin of c1.4 million (63%) and maintained break even. There is greater foreign exchange risk in the Betboo division due to a combination of currency use in Brazilian Real (BRL) and US$. Review of Central Costs d000’s Fort Knox 2009 – 2008 (384) 2007 692 2006 – Other 4,290 ––––––– 4,290 ––––––– Costs have continued to reduce over the last three years, with over c800k of savings being made during 2009. A rise in costs for 2010 is expected, however, due to the strategy to expand the business. 2,593 ––––––– 2,593 ––––––– 3,843 ––––––– 4,535 ––––––– 3,400 ––––––– 3,016 ––––––– Exceptional Items On 17 December 2009, the group announced the sale of GVC Corporation S.p.A., the owner of the loss making Betpro brand, for a nominal sum, to its management. The costs of this disposal, together with the write-off of various loans and balances, amounted to c1 million. Further group restructuring lead to the departure of certain long term contractors resulted in a one-off charge of c283k. The Group’s CasinoClub division operates without a jackpot contribution scheme, taking all jackpot winnings directly to NGR with the exception of large amounts won and withdrawn in cash. During Q4-2009, a single customer withdrew c250k from his account after winning c303k. Depreciation and Amortisation Depreciation rose to c0.7 million from c0.4 million due to there being a full year’s charge on the assets acquired in 2008 (c1,453k) together with depreciation on the current year’s acquisitions (c436k). Of the total amortisation charge of c740k charge in the year, c607k was attributable to the acquisition of intangible assets in Betboo. Financial Income and Financial Expense The significant drop in Euro interest rates led to the fall in interest earnings during the year. The discounting of the deferred consideration arising from the acquisition of Betboo has to be unwound from the period of the earn-out to 30 September 2012. The charge arising in the six month period was c467k (2008: cnil). Taxation The taxation charge for the year remained static. 12 Cash Balances Overall cash balance rose to c19.2 million from c18.8 million, although own funds rose to c17.6 million from c17.5 million. A summary of the cash movements is shown below: Own funds at 31 December 2008 Cash generated from trading operations Add: tax recovered Less: corporation tax paid Initial consideration and costs for Betboo Purchase of tangible assets Purchase of non-Betboo intangible assets Retained before dividend Dividend Own funds at 31 December 2009 Acquisition of Betboo c000’s 17,552 1,652 (2,956) (3,140) (441) (135) ––––––––– 12,532 (12,454) ––––––––– c000’s 17,502 78 ––––––––– 17,580 ––––––––– On 2 July 2009, the Group acquired the trade and assets of Betboo, a leading gaming portal in the fledgling South America market. The group paid an initial consideration of $4 million (c3 million) and is liable to an earn-out capped at a further $26 million. The contract amounts are denominated in US dollars. Pursuant to IFRS3, the group has estimated the total consideration of c12 million of which c9.0 million is payable on 30 September 2012. The Group will need sufficient funds to make this payment at that time. Under IFRS 3, the deferred consideration is discounted to its present value (Gaming VC have used a weighted average cost of capital of 21%) which was c5.4 million at the balance sheet date. The discount is then released to the income statement over the period of the earn out. The estimated deferred consideration of c9.0 million will be payable on 30 September 2012. The group will need sufficient funds to make this payment at that time and will review its ability to pay dividend in this light. Reserves The Company was incorporated in Luxembourg. The ability of the company to pay dividends is determined by the reserves available under Luxembourg GAAP, and not IFRS. At 31 December 2009, the available reserves were c15.6 million – equivalent to 50.6 Euro cents per share. 13 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF GAMING VC HOLDINGS S.A. To the Shareholders of Gaming VC Holdings S.A. 13-15, Avenue de la Liberté L-1931 LUXEMBOURG 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, 2009 and the consolidated statements of income, comprehensive income, changes in equity 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 Reviseurs 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 Reviseur 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 Reviseur 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, 2009, 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 16, 2010 Thierry Remacle Réviseurs d’Entreprises Grant Thornton Lux Audit S.A. 14 CONSOLIDATED FINANCIAL STATEMENTS 15 CONSOLIDATED INCOME STATEMENT For the year ended 31 December 2009 Net Gaming Revenue Cost of sales Gross profits 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 2009 d000’s 53,958 (9,433) –––––––– 44,525 (16,991) –––––––– 27,534 (13,306) Year ended 31 Dec 2008 c000’s 50,085 (9,163) –––––––– 40,922 (12,990) –––––––– 27,932 (11,574) Year ended 31 Dec 2007 c000’s 42,639 (9,234) –––––––– 33,405 (6,128) –––––––– 27,277 (11,085) (10,106) (213) –––––––– (10,319) (1,538) (1,449) –––––––– 14,228 64 (472) –––––––– 13,820 (366) –––––––– 13,454 d 0.432 –––––––– 0.424 –––––––– (8,384) (557) –––––––– (8,941) (1,917) (716) –––––––– 16,358 551 (6) –––––––– 16,903 (360) –––––––– 16,543 c 0.531 –––––––– 0.521 –––––––– (7,294) (815) –––––––– (8,109) – (2,976) –––––––– 16,192 459 (20) –––––––– 16,631 11 –––––––– 16,642 c 0.534 –––––––– 0.534 –––––––– Notes 5 5.4 6 6.1 6.1, 20 6 6.2 6, 10, 11 7 7 8 9.1 9.2 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2009 Profit and total comprehensive income for the year Year ended 31 Dec 2009 d000’s 13,454 –––––––– Year ended 31 Dec 2008 c000’s 16,543 –––––––– Year ended 31 Dec 2007 c000’s 16,642 –––––––– The notes on pages 20 to 61 form part of these financial statements 16 CONSOLIDATED BALANCE SHEET As at 31 December 2009 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 Current Liabilities Trade and other payables Income Taxes payable Other taxation liabilities Total current liabilities Notes 10.3 11.3 8.2 13 8.2 14 15 8.2 16 Year ended 31 Dec 2009 d000’s Year ended 31 Dec 2008 c000’s Year ended 31 Dec 2007 c000’s 1,099 63,182 53 –––––––– 64,334 –––––––– 5,727 3,195 19,195 –––––––– 28,117 –––––––– (6,554) (2,670) (52) –––––––– (9,276) –––––––– 1,538 55,879 11 –––––––– 57,428 –––––––– 6,367 2,611 18,834 –––––––– 27,812 –––––––– (5,477) (2,982) (173) –––––––– (8,632) –––––––– 521 55,724 11 –––––––– 56,256 –––––––– 4,295 – 15,859 –––––––– 20,154 –––––––– (4,404) (18) (26) –––––––– (4,448) –––––––– Current assets less current liabilities 18,841 19,180 15,706 Long Term Liabilities Deferred consideration on Betboo Total net assets As represented by: Equity Issued share capital Share premium Retained earnings 12.5 17 18 (5,354) – – 77,821 76,608 71,962 38,608 8,748 30,465 38,608 13,832 24,168 38,608 51,977 (18,623) Total equity attributable to equity holders of the parent 77,821 76,608 71,962 These Financial Statements were approved by the Board on 16 April 2010 and signed on their behalf by: K.J. Alexander (Chief Executive Officer) R.Q.M. Cooper (Chief Financial Officer) The notes on pages 20 to 61 form part of these financial statements 17 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended 31 December 2009 Attributable to equity holders of the parent company: 2007 Balance at 1 Jan 2007 Share option charges Transfer between reserves Dividend paid Transactions with owners Profit and total comprehensive income Balance as at 31 December 2007 2008 Balance at 1 Jan 2008 Share option charges Transfer between reserves Dividend paid Transactions with owners Profit and total comprehensive income Balance as at 31 December 2008 2009 Balance at 1 Jan 2009 Share option charges Dividend paid Transactions with owners Profit and total comprehensive income Balance as at 31 December 2009 Share Capital c000’s 38,608 – – – –––––––– 38,608 – –––––––– 38,608 –––––––– 38,608 – – – –––––––– 38,608 – –––––––– 38,608 –––––––– 38,608 – – –––––––– 38,608 – –––––––– 38,608 –––––––– Share Premium c000’s 57,926 – – (5,949) –––––––– 51,977 – –––––––– 51,977 –––––––– 51,977 – (38,145) –––––––– 13,832 – –––––––– 13,832 –––––––– 13,832 – (5,084) –––––––– 8,748 – –––––––– 8,748 –––––––– Retained earnings c000’s (29,853) 815 – (6,227) –––––––– (35,265) 16,642 –––––––– (18,623) –––––––– (18,623) 557 38,145 (12,454) –––––––– 7,625 16,543 –––––––– 24,168 –––––––– 24,168 213 (7,370) –––––––– 17,011 13,454 –––––––– 30,465 –––––––– Total d000’s 66,681 815 – (12,176) –––––––– 55,320 16,642 –––––––– 71,962 –––––––– 71,962 557 – (12,454) –––––––– 60,065 16,543 –––––––– 76,608 –––––––– 76,608 213 (12,454) –––––––– 64,367 13,454 –––––––– 77,821 –––––––– The notes on pages 20 to 61 form part of these financial statements 18 CONSOLIDATED STATEMENT OF CASHFLOWS For the year ended 31 December 2009 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Corporate taxes recovered Corporate taxes paid Net cash from operating activities Cash flows from investing activities Interest received Acquisition of Business Disposal of Business 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 2009 d000’s Year ended 31 Dec 2008 c000’s Year ended 31 Dec 2007 c000’s 54,963 (36,730) 1,652 (2,956) –––––––– 16,929 –––––––– 72 (3,140) (295) (441) (135) –––––––– (3,939) –––––––– (5) (12,454) –––––––– (12,459) –––––––– 531 18,834 (170) –––––––– 19,195 –––––––– 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 20 to 61 form part of these financial statements 19 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. Significant accounting policies New accounting and reporting standards Operating segments Alternative presentation of consolidated income statement Geographic and Segmental reporting of Net Gaming Revenue, Contribution and clean EBITDA Operating costs Financial income and Financial expenses Taxation Earnings per share Property, plant and equipment Intangible assets Acquisition of Betboo Receivables and prepayments Cash and cash equivalents Trade and other payables Other taxation payable Segmental analysis of net assets Share Capital Dividends Share option schemes Financial instruments and risk management Related parties Group entities Contingent liabilities Accounting estimates and judgements Going concern Subsequent events 20 1. SIGNIFICANT ACCOUNTING POLICIES Gaming VC Holdings S.A. (the “Company“) is a company registered in Luxembourg and was incorporated on 30 November 2004. The consolidated financial statements of the Company for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the “Group”). The Group’s principal activities are that of operating online casinos, access to online poker rooms, online bingo, and online sports betting. The Group’s principal subsidiaries are listed in note 23. 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, and are prepared on the historical cost basis. The financial statements are prepared on the going concern basis (see note 26). 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. Significant accounting estimates and judgements are discussed in further detail in note 25. 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. 21 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 Company and the presentational currency of the Group 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. 1.5 Property, plant and equipment 1.5.1 Owned assets Property, plant and equipment is 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. 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. Any negative goodwill arising on an acquisition would be 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). 22 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: Asset category Valuation methodology Magazine-related Consulting Software licence Trademarks Trade name Non Contractual customer relationships Goodwill Cost Income (cost saving) Income (incremental value plus loss of profits) Relief from royalty Relief from royalty Excess earnings 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. This includes legal and similar expenditure incurred in registering brands and trade names, which is capitalised, 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 Non Contractual customer relationships 3-5 years 2-4 years 2-15 years 4 years 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. 23 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. 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. 1.11 Net Gaming Revenue 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: Poker: Bingo: 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 net win in respect of rake for poker games that have concluded in the year, stated net of certain promotional bonuses net win in respect of bets placed on bingo games that have concluded in the year, stated net of certain promotional bonuses 1.12 Expenses 1.12.1 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. 24 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 neither 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. 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 In identifying its operating segments, management generally follows the Group’s key brands. The Group has identified the following reportable operating segments: CasinoClub Betaland Winzingo Betboo German online casino operator; Italian online sports-book and gaming operator; Spanish online bingo operator; South American internet gaming operator, offering bingo, casino, poker and sports betting Each of these operating segments is managed separately as each of these service lines requires different technologies and other resources as well as marketing approaches. All inter-segment transfers are carried out at arm’s length prices. The measurement policies the Group uses for segment reporting under IFRS 8 are the same as those used in its financial statements, except that segmental results are only reported to clean EBITDA level (earnings before interest, tax, depreciation and amortisation, and before exceptional items and share option costs). In addition, corporate assets which are not directly attributable to the business activities of any operating segment are not allocated to a segment. 25 1.17 Financial instruments The Group’s financial assets are all classified as loans and receivables and comprise trade and other receivables and cash and cash equivalents. The Group’s financial liabilities comprise trade and other payables and deferred consideration in relation to Betboo, and bank borrowings to the extent they exist. 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. Provisions 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 1.12.1 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. 2. NEW ACCOUNTING AND REPORTING STANDARDS Adoption of IAS 1 “Presentation of Financial Statements” (Revised 2007) The Group has adopted IAS 1 “Presentation of Financial Statements” (Revised 2007) in its consolidated financial statements. This standard has been applied retrospectively. The adoption of the standard does not affect the financial position or profits of the Group, but gives rise to additional disclosures. The measurement and recognition of the Group’s assets, liabilities, income and expenses is unchanged. The standard affects the presentation of owner changes in equity and introduces a “Consolidated Statement of Comprehensive Income” as a primary statement. The “Consolidated Statement of Recognised Income and Expenses” as was presented in the 2008 consolidated financial statements is no longer required. Further, a “Statement of Changes in Equity” is presented as a primary statement. The standard requires presentations of a comparative balance sheet as at the beginning of the first comparative period, in some circumstances. Management are required to present a comparative balance sheet and have chosen to present comparatives for all other primary financial statements as at 31 December 2007, together with related notes, in the consolidated financial statements. 26 Adoption of IFRS 8 “Operating Segments” This standard has been applied retrospectively. The accounting policy for identifying segments is now based on internal management reporting information that is regularly reviewed by the chief operating decision maker. The primary reporting format of management information is by brand, and therefore segmental information is presented by brand in the notes to the consolidated financial statements. In contrast, IAS 14 required the Group to identify two sets of segments (business and geographical) based on risks and rewards of the operating segments. In the 2008 consolidated financial statements, segmental information was primarily split by business. The Group has identified the following reportable operating segments for this year’s consolidated financial statements: CasinoClub; Betaland; Winzingo; Betboo. Each of these operating segments generates independent revenues and the risks and rewards associated with generating these revenues are considered to be different to those of the other products offered by the Group. Costs of share option schemes and taxation is not allocated to individual operating segments. There have been no changes from prior periods in the measurement methods used to determine reported segment results. The new format of presenting segmental information can be found in note 5. Adoption of amendments to IFRS 7 “Financial Instruments: Disclosures” – improving disclosures about financial instruments The amendments require additional disclosures for financial instruments that are measured at fair value in the consolidated balance sheet. The Group’s balance sheet includes no financial instruments measured at fair value through profit or loss, and therefore management have not amended the format of the financial instruments disclosures from prior years. Adoption of IFRIC Interpretation 13 “Customer Loyalty Programmes” IFRIC 13 Customer Loyalty Programmes clarifies that when goods or services are sold together with a customer loyalty incentive (for example, loyalty points or the right to free products), the arrangement is a multiple-element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. The Group’s accounting policy in respect of promotional bonuses (which include loyalty bonuses) is stated in note 1.11. The Group has considered the implications of the interpretation stated in IFRIC 13, and do not believe that the adoption of IFRIC 13 would have a significant impact on the reported results for the current and prior reporting periods. Therefore, no retrospective adjustment to the financial statements is required in respect of the adoption of IFRC 13. New standards not yet effective A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2009 and have not been applied in preparing these consolidated financial statements. Those which may have a significant effect on the financial statements are: Revised IFRS 3 – Business Combinations (effective from 1 July 2009) The standard is applicable for business combinations occurring in reporting periods beginning on or after 1 July 2009 and will be applied prospectively The new standard introduces changes to the accounting requirements for business combinations, but still requires use of the purchase method, and will have a significant effect on business combinations occurring in future reporting periods. Revised IAS 27 – Consolidated and Separate Financial Statements (effective from 1 July 2009) The revised standard introduces changes to the accounting requirements for the loss of control of a subsidiary and for changes in the Group’s interest in subsidiaries. These changes will be applied prospectively in accordance with the transitional provisions and so do not have an immediate effect on the Group’s financial statements. 27 Annual Improvements 2009 (effective from 1 July 2009 and later). The IASB has issued Improvements for International Financial Reporting Standards 2009. Most of these amendments become effective in annual periods beginning on or after 1 July 2009 or 1 January 2010. Preliminary assessments indicate that the effect on the Group’s financial statements will not be significant. Revised IAS 24 Related Party Transactions (effective from 1 January 2011) The revised standard introduces exemptions from IAS 24’s disclosure requirements for transactions with a government that has control, joint control or significant influence over the reporting entity and government-related entities. The revised standard also broadens the definition of related parties. Based on transactions currently undertaken by the Group, the revised standard is not expected to have a significant effect on the consolidated financial statements. IFRS 9 Financial Instruments (effective from 1 January 2013) The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety by the end of 2010, with the replacement standard to be effective for annual periods beginning 1 January 2013. IFRS 9 is the first part of Phase 1 of this project. The main phases are: Phase 1: Classification and Measurement Phase 2: Impairment methodology Phase 3: Hedge accounting In addition, a separate project is dealing with derecognition. Management have yet to assess the impact that this new standard is likely to have on the financial statements of the Group. However, they do not expect to implement the standard until all chapters of the IAS 39 replacement have been published and they can comprehensively assess the impact of all changes. The Group has not yet determined all the potential effect of the new standards and interpretations not yet effective. 3. OPERATING SEGMENTS Management currently identifies the Group’s key brands as operating segments. These operating segments are monitored and strategic decisions are made on the basis of adjusted segments operating results. Segment capital expenditure is the total costs incurred during the year to acquire segment assets that are expected to be used for more than one year. Segmental assets and liabilities are presented in note 17. 28 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 Unwinding of discount on deferred consideration Other Financial expense Profit before tax Taxation (charge) / income Profit after tax Notes 5 5.4 6.1 5.5 6.2 6.1 10 11 7 12.5 7 8 Year ended 31 Dec 2009 d000’s 53,958 (9,433) –––––––– 44,525 Year ended 31 Dec 2008 c000’s 50,085 (9,163) –––––––– 40,922 Year ended 31 Dec 2007 c000’s 42,639 (9,234) –––––––– 33,405 83% (16,991) –––––––– 27,534 (10,106) –––––––– 17,428 (1,538) (213) –––––––– 15,677 (709) (740) –––––––– 14,228 64 (467) (5) –––––––– 13,820 (366) –––––––– 13,454 –––––––– 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 –––––––– 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 GEOGRAPHIC AND SEGMENTAL REPORTING NGR by geographic location of customers Germany Austria Italy Spain Latin America Other Year ended 31 Dec 2009 d000’s 23,052 3,566 21,018 1,549 2,180 2,593 –––––––– 53,958 –––––––– Year ended 31 Dec 2008 c000’s 27,155 4,198 13,502 678 – 4,552 –––––––– 50,085 –––––––– Year ended 31 Dec 2007 c000’s 32,084 6,275 2,271 484 – 1,525 –––––––– 42,639 –––––––– 29 5.2 NGR by quarter 2009 2008 2007 5.3 NGR by brand CasinoClub Betaland Winzingo Betboo TOTALS Q2 c000s Total Q3 Q1 c000s c000s c000s 14,876 11,633 12,262 15,187 53,958 13,278 12,848 12,195 11,764 50,085 11,276 10,725 10,000 10,638 42,639 Q4 c000s Year ended 31 Dec 2009 d000’s 15,059 14,567 –––––––– 29,626 –––––––– 10,894 9,932 –––––––– 20,826 –––––––– 556 770 –––––––– 1,326 –––––––– – 2,180 –––––––– 2,180 –––––––– 26,509 27,449 –––––––– 53,958 –––––––– Year ended 31 Dec 2008 c000’s 19,710 16,765 –––––––– 36,475 –––––––– 6,374 6,982 –––––––– 13,356 –––––––– 42 212 –––––––– 254 –––––––– – – –––––––– – –––––––– 26,126 23,959 –––––––– 50,085 –––––––– Year ended 31 Dec 2007 c000’s 22,001 18,638 –––––––– 40,639 –––––––– – 2,000 –––––––– 2,000 –––––––– – – –––––––– – –––––––– – – –––––––– – –––––––– 22,001 20,638 –––––––– 42,639 –––––––– H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY H1 H2 FY 30 5.4 Contribution by brand CasinoClub Betaland Winzingo Betboo TOTALS Year ended 31 Dec 2009 d000’s 10,574 10,066 –––––––– 20,640 –––––––– 70% Year ended 31 Dec 2008 c000’s 13,979 11,862 –––––––– 25,841 –––––––– 71% Year ended 31 Dec 2007 c000’s 13,432 13,510 –––––––– 26,942 –––––––– 66% 2,729 2,283 –––––––– 5,012 –––––––– 24% 234 273 –––––––– 507 –––––––– 38% – 1,373 –––––––– 1,373 –––––––– 63% 13,519 14,015 –––––––– 27,534 –––––––– 51% 1,489 663 –––––––– 2,152 –––––––– 16% (33) (28) –––––––– (61) –––––––– (24%) – – –––––––– – –––––––– – 15,435 12,497 –––––––– 27,932 –––––––– 56% – 335 –––––––– 335 –––––––– 17% – – –––––––– – –––––––– 66% – – –––––––– – –––––––– – 13,432 13,845 –––––––– 27,277 –––––––– 64% H1 H2 FY Contribution margin H1 H2 FY Contribution margin H1 H2 FY Contribution margin H1 H2 FY Contribution margin H1 H2 FY Contribution margin 31 Year ended 31 Dec 2009 d000’s 9,507 8,892 –––––––– 18,399 –––––––– 62% Year ended 31 Dec 2008 c000’s 13,051 10,805 –––––––– 23,856 –––––––– 65% Year ended 31 Dec 2007 c000’s 12,351 12,494 –––––––– 24,845 –––––––– 61% 1,059 682 –––––––– 1,741 –––––––– 8.4% (120) (102) –––––––– (222) –––––––– (17%) – 103 –––––––– 103 –––––––– 5% 10,446 9,575 –––––––– 20,021 –––––––– 37% (1,566) (1,027) –––––––– (2,593) –––––––– 8,880 8,548 –––––––– 17,428 –––––––– 32% (134) (1,097) –––––––– (1,231) –––––––– (9%) (33) (28) –––––––– (61) –––––––– (24%) – – –––––––– – –––––––– – 12,884 9,680 –––––––– 22,564 –––––––– 45% (2,024) (992) –––––––– (3,016) –––––––– 10,860 8,688 –––––––– 19,548 –––––––– 39% – (327) –––––––– (327) –––––––– (16%) – – –––––––– – –––––––– – – – –––––––– – –––––––– – 12,351 12,167 –––––––– 24,518 –––––––– 57% (2,073) (2,462) –––––––– (4,535) –––––––– 10,278 9,705 –––––––– 19,983 –––––––– 47% 5.5 Clean EBITDA by brand CasinoClub Betaland Winzingo Betboo Total from Operating Divisions Unallocated central Costs Group total H1 H2 FY Ebitda margin H1 H2 FY Ebitda margin H1 H2 FY Ebitda margin H1 H2 FY Ebitda margin H1 H2 FY Ebitda margin H1 H2 FY H1 H2 FY Ebitda margin 32 5.6 Reconciliation of Clean Ebitda to Profit after taxation Year ended 31 December 2009 Clean EBITDA Exceptional items Share option charges Depreciation & amortisation Financial income and financial expense* Taxation Profit after tax Casino Club c000s 18,399 (420) – (367) Betaland Winzingo c000s (222) – – – c000s 1,741 (235) – (475) Betboo c000s 103 – – (607) Central costs c000s (2,593) (883) (213) – Total c000s 17,428 (1,538) (213) (1,449) – – –––––––– 17,612 –––––––– – – –––––––– 1,031 –––––––– – – –––––––– (222) –––––––– (472) – –––––––– (976) –––––––– 64 (366) –––––––– (3,991) –––––––– (408) (366) –––––––– 13,454 –––––––– * includes the unwinding of the discount on the deferred consideration arising from the acquisition of Betboo Year ended 31 December 2008 Clean EBITDA Exceptional items Share option charges Depreciation & amortisation Financial income and financial expense Taxation Profit after tax Year ended 31 December 2007 Clean EBITDA Exceptional items Share option charges Depreciation & amortisation Financial income and financial expense Taxation Profit after tax Casino Club c000s 23,856 – – (366) Betaland Winzingo c000s (61) (1,075) – – c000s (1,231) – – (350) Betboo c000s – – – – Central costs c000s (3,016) (842) (557) – Total c000s 19,548 (1,917) (557) (716) – – –––––––– 23,490 –––––––– – – –––––––– (1,581) –––––––– – – –––––––– (1,136) –––––––– – – –––––––– – –––––––– 545 (360) –––––––– (4,230) –––––––– 545 (360) –––––––– 16,543 –––––––– Casino Club c000s 24,845 – – (2,935) Betaland Winzingo c000s – – – – c000s (327) – – (41) Betboo c000s – – – – Central costs c000s (4,535) – (815) – Total c000s 19,983 – (815) (2,976) – – –––––––– 21,910 –––––––– – – –––––––– (368) –––––––– – – –––––––– – –––––––– – – –––––––– – –––––––– 439 11 –––––––– (4,900) –––––––– 439 11 –––––––– 16,642 –––––––– It is not deemed appropriate to allocate share option charges, financial income and expense by operating segment. 33 6. OPERATING COSTS Other operating costs Exceptional items Depreciation Amortisation 6.1 Other operating costs Other Personnel expenditure Share option charges Total Personnel expenditure Professional fees Technology costs Office, travel and other costs Third party service costs* Foreign exchange differences * provided to Winzingo & Betboo Total by brand CasinoClub Betaland Winzingo Betboo Unallocated central costs Share option charges 6.1.1 Personnel expenditure Wages and salaries, including directors’ remuneration Amounts paid to long term contractors Compulsory social security contributions Pension allowances Year ended 31 Dec 2009 d000’s 10,319 1,538 709 740 –––––––– 13,306 –––––––– Year ended 31 Dec 2009 d000’s 4,255 213 –––––––– 4,468 920 1,457 1,457 1,847 170 –––––––– 10,319 –––––––– 2,242 3,271 730 1,270 2,593 –––––––– 10,106 213 –––––––– 10,319 –––––––– Year ended 31 Dec 2008 c000’s 8,941 1,917 436 280 –––––––– 11,574 –––––––– Year ended 31 Dec 2008 c000’s 4,817 557 –––––––– 5,374 1,102 987 1,442 – 36 –––––––– 8,941 –––––––– 1,985 3,383 – – 3,016 –––––––– 8,384 557 –––––––– 8,941 –––––––– Year ended 31 Dec 2007 c000’s 8,109 – 57 2,919 –––––––– 11,085 –––––––– Year ended 31 Dec 2007 c000’s 3,449 815 –––––––– 4,264 2,161 166 1,271 – 247 –––––––– 8,109 –––––––– 2,097 662 – – 4,535 –––––––– 7,294 815 –––––––– 8,109 –––––––– Year ended 31 Dec 2009 d000’s Year ended 31 Dec 2008 c000’s Year ended 31 Dec 2007 c000’s 3,590 452 169 44 –––––––– 4,255 –––––––– 3,031 1,594 123 69 –––––––– 4,817 –––––––– 1,957 1,378 65 49 –––––––– 3,449 –––––––– Notes 6.1 6.2 Notes 6.1.1 6.1.3 6.1.4 Notes 6.1.2 6.1.2 34 Number of personnel With employment contracts or service contracts Contractors At 31 Dec 2009 Number 60 7 –––––––– 67 –––––––– At 31 Dec 2008 Number 59 11 –––––––– 70 –––––––– At 31 Dec 2007 Number 15 23 –––––––– 38 –––––––– 6.1.2 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 6.2) Year ended 31 Dec 2009 d000’s Year ended 31 Dec 2008 c000’s Year ended 31 Dec 2007 c000’s 1,519 1,209 1,236 – –––––––– 1,519 –––––––– – –––––––– 46 –––––––– 1,255 –––––––– 449 –––––––– 45 –––––––– 1,281 –––––––– – –––––––– The directors who served throughout the year were: Lee Feldman, Kenny Alexander, Nigel Blythe- Tinker, Richard Cooper, Karl Diacono. 6.1.3 Professional fees At 31 December 2009, the group has legal entities in Luxembourg, Cyprus, Malta, Italy, Netherlands Antilles, Jersey and Israel. 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, Spain, where the Winzingo product is marketed, and Brazil, where the Betboo product is marketed. During 2008, 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 2009 d000’s Year ended 31 Dec 2008 c000’s Year ended 31 Dec 2007 c000’s – 920 –––––––– 920 –––––––– (384) 1,486 –––––––– 1,102 –––––––– 692 1,469 –––––––– 2,161 –––––––– 35 6.1.4 Office, travel and other expenditure, by brand CasinoClub Betaland Winzingo Betboo Sub-total Unallocated central costs Year ended 31 Dec 2009 d000’s 507 449 – 83 –––––––– 1,039 418 –––––––– 1,457 –––––––– Year ended 31 Dec 2008 c000’s 458 486 – – –––––––– 944 498 –––––––– 1,442 –––––––– Year ended 31 Dec 2007 c000’s 441 159 – – –––––––– 600 671 –––––––– 1,271 –––––––– 6.2 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. Disposal of GVC Corporation SpA Termination costs related to consultants Abnormal individual jackpot win 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 2009 d000’s 1,005 283 250 Year ended 31 Dec 2008 c000’s – – – Year ended 31 Dec 2007 c000’s – – – Notes 6.2.1 6.2.2 6.2.3 – – – –––––––– 1,538 –––––––– 1,075 526 316 –––––––– 1,917 –––––––– – – – –––––––– – –––––––– 6.2.1 Disposal of GVC Corporation S.p.A As announced on 17 December 2009, the group entered into an agreement to dispose of GVC Corporation S.p.A., its licensed Italian subsidiary, to local management for a nominal sum. The exceptional item recognises the legal costs incurred in this process together with the write-off of the investment held and the net assets parted with at the time of the sale, being 31 August 2009. During the eight month period to 31 August 2009, the company generated NGR of c553k and made a loss (before and after) taxation of c731k. 36 The balance sheet at the date of disposal had the following assets and liabilities: Assets Cash & cash equivalents Trade debtors Trade creditors The loss on disposal was calculated as follows: Write-off of assets Write-off of licences Payment of debt to technology provider Staff terminations d000’s 396 295 182 (744) –––––––– 129 –––––––– d000’s 129 360 360 156 –––––––– 1,005 –––––––– 6.2.2 Termination costs related to consultants The group terminated the contracts with certain long-term senior contractors during the period and has recognised the settlements as exceptional items, being the extension of the restructuring work the group has undertaken. 6.2.3 Unusual jackpot win There was a significant winner of a jackpot during the year ended 31 December 2009. A single player won c309k on a game known as “Roman Empire.” In accordance with the group’s policy, the amount withdrawn by the customer (in this case c250k) has been treated as an exceptional item. 7. FINANCIAL INCOME AND FINANCIAL EXPENSES Financial income – interest income Financial expense – interest payable – Interest payable – Unwinding of discount on deferred consideration Year ended 31 Dec 2009 d000’s 64 –––––––– (5) (467) –––––––– (472) –––––––– Year ended 31 Dec 2008 c000’s 551 –––––––– (6) – –––––––– (6) –––––––– Year ended 31 Dec 2007 c000’s 459 –––––––– (20) – –––––––– (20) –––––––– 37 8. TAXATION 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 asset of c525k (net of tax payable amounts) at 31 December 2009 (2008: Current tax liability of c371k (net of tax receivable amounts)). 8.1 Taxation amounts 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 2009 d000’s 408 – ————— 408 ————— Year ended 31 Dec 2008 c000’s 360 – ————— 360 ————— (42) – – ————— – – – ————— Year ended 31 Dec 2007 c000’s – – ————— – ————— (11) ————— 366 ————— 360 ————— (11) ————— Year ended 31 Dec 2009 d000’s Year ended 31 Dec 2008 c000’s Year ended 31 Dec 2007 c000’s 13,820 3,870 16,903 4,817 16,631 4,936 (3,462) (42) ————— 366 ————— (4,457) – ————— 360 ————— (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. 38 8.2 Taxation amounts recognised in the Balance Sheet At 1 January 2007 Paid/(received) during the year ended 31 December 2007 (Charge)/credit in income statement for the year ended 31 December 2007 Balances at 31 December 2007 Balances at 1 January 2008 Paid/(received) during the year ended 31 December 2008 (Charge)/credit in income statement for the year ended 31 December 2008 Balances at 31 December 2008 Balances at 1 January 2009 Paid/(received) during the year ended 31 December 2009 (Charge)/credit in income statement for the year ended 31 December 2009 Balances at 31 December 2009 Current Tax c000’s c000’s Payable Receivable – (18) Deferred Tax c000’s Asset – c000’s Liability – – – – – Total c000 (18) – – – 11 ———— ———— ———— ———— ———— (7) ———— ———— ———— ———— ———— (7) (18) (18) 11 11 11 – – – – – 7 – – – 7 2,611 (2,971) (360) ———— ———— ———— ———— ———— (360) ———— ———— ———— ———— ———— (360) (2,982) (2,982) 2,611 2,611 11 11 – – – – 2,956 (1,652) – – 1,304 2,236 (2,644) (366) ———— ———— ———— ———— ———— 578 ———— ———— ———— ———— ———— (2,670) 3,195 53 42 – – 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. 9. 9.1 EARNINGS PER SHARE Basic earnings per share and Basic earnings per share before exceptional items Basic earnings per share Basic earnings per share before exceptional items Year ended 31 Dec 2009 g 0.432 ————— 0.482 ————— Year ended 31 Dec 2008 c 0.531 ————— 0.593 ————— Year ended 31 Dec 2007 c 0.534 ————— 0.534 ————— Basic earnings per share has been calculated by taking the profit attributable to ordinary shareholders of c13,454k (2008: c16,543k) and dividing by the weighted average number of shares in issue, being 31,135,762 (2008: 31,135,762). Basic earnings per share before exceptional items has been calculated by taking the profit attributable to ordinary shareholders of c13,454k (2008: c16,543k), adding back the cost of exceptional items of c1,538k (2008: c1,917k) and dividing by the weighted average number of shares in issue, being 31,135,762 (2008: 31,135,762). 39 9.2 Diluted earnings per share and Diluted earnings per share before exceptional items Diluted earnings per share Diluted earnings per share before exceptional items Year ended 31 Dec 2009 g 0.424 ————— 0.473 ————— Year ended 31 Dec 2008 c 0.521 ————— 0.582 ————— Year ended 31 Dec 2007 c 0.534 ————— 0.534 ————— Diluted earnings per share has been calculated by taking the profit attributable to ordinary shareholders of c13,454k (2008: c16,543k) and dividing by the weighted average number of shares in issue as diluted by share options, being 31,707,094 (2008: 31,726,146). Diluted earnings per share before exceptional items has been calculated by taking the profit attributable to ordinary shareholders of c13,454 (2008: c16,543k), adding back the cost of exceptional items of c1,538k (2008: c1,917k) and dividing by the weighted average number of shares in issue, as diluted by share options, being 31,707,094 (2008: 31,726,146). 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 10. PROPERTY, PLANT AND EQUIPMENT 10.1 Cost Year ended 31 Dec 2009 Year ended 31 Dec 2008 Year ended 31 Dec 2007 31,135,762 571,332 ————— 31,135,762 590,384 ————— 31,135,762 – ————— 31,707,094 ————— 31,726,146 ————— 31,135,762 ————— Allocated by brand Total Property Fixtures and Plant and Fittings Equipment g000’s c000’s 112 112 (112) (112) 562 562 Casino Club c000’s 112 (112) – – 562 562 Betaland c000’s – – 562 Central c000’s – – – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– – – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– – – – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– 2,015 (320) 441 2,015 (320) 441 1,190 (320) 345 825 – 96 562 1,453 562 1,453 562 628 – 825 2,136 2,015 2,136 1,215 2,015 1,190 562 825 921 Balance at 1 Jan 2007 Disposals Additions Balance at 31 Dec 2007 Balance at 1 Jan 2008 Additions Balance at 31 Dec 2008 Balance at 1 Jan 2009 Disposals Additions Balance at 31 Dec 2009 40 10.2 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 Balance at 1 Jan 2009 Disposal Depreciation charge for the year Balance at 31 Dec 2009 10.3 Carrying amounts At 31 December 2007 At 31 December 2008 At 31 December 2009 Allocated by brand Total Property Fixtures and Plant and Fittings Equipment g000’s c000’s 56 56 (72) (72) 57 57 Central c000’s – – – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– – Betaland c000’s – – 41 41 41 41 – Casino Club c000’s 56 (72) 16 41 436 – 153 41 283 41 436 477 153 477 ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– – – – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– 477 (149) 709 477 (149) 709 324 (149) 414 153 – 295 1,037 1,037 448 324 589 Allocated by brand Total Property Fixtures and Plant and Fittings Equipment g000’s c000’s 521 521 Casino Club c000’s – Central c000’s – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– – ————– ————– ————– ————– ————– Betaland c000’s 521 1,538 1,538 1,099 1,099 473 626 672 866 41 Software Consulting & Non- contractual customer Licence Magazine relationships d000’s d000’s d000’s 4,919 12,146 – 95 Total d000’s – 105,822 95 – 12,241 12,241 435 12,676 12,676 (313) 2,590 14,953 2,455 12,398 100 14,953 – 12,262 414 12,676 – 12,236 5 12,241 4,919 4,919 – 4,919 4,919 – – 4,919 – 4,919 – 4,919 – 4,919 – 4,919 – 4,919 – 4,919 – 105,917 – 105,917 435 – – 106,352 – 106,352 (313) – 8,268 1,704 1,704 114,307 1,704 8,133 – 106,074 100 – 1,704 114,307 – – – 105,938 414 – – 106,352 – – – 105,912 5 – – 105,917 11. INTANGIBLE ASSETS 11.1 Cost Balance at 1 Jan 2007 Additions Balance at 31 Dec 2007 Balance at 1 Jan 2008 Additions At 31 Dec 2008 Balance at 1 Jan 2009 Disposals Additions At 31 Dec 2009 By brand at 31 Dec 2009 Betboo Casino Club Betaland By brand at 31 Dec 2008 Betboo Casino Club Betaland By brand at 31 Dec 2007 Betboo Casino Club Betaland Goodwill d000’s 73,613 – 73,613 73,613 – 73,613 73,613 – 3,278 76,891 3,278 73,613 – 76,891 – 73,613 – 73,613 – 73,613 – 73,613 Trade- marks & Trade name d000’s 15,144 – 15,144 15,144 – 15,144 15,144 – 696 15,840 696 15,144 – 15,840 – 15,144 – 15,144 – 15,144 – 15,144 42 11.2 Amortisation and Impairment losses Balance at 1 Jan 2007 Amortisation for the year Balance at 31 Dec 2007 Balance at 1 Jan 2008 Amortisation for the year At 31 Dec 2008 Balance at 1 Jan 2009 Amortisation for the year Disposals At 31 Dec 2009 By brand, at 31 Dec 2009 Betboo Casino Club Betaland By brand, at 31 Dec 2008 Casino Club Betaland By brand, at 31 Dec 2007 Casino Club Betaland Goodwill d000’s 33,274 – 33,274 33,274 – 33,274 33,274 – – 33,274 – 33,274 – 33,274 33,274 – 33,274 33,274 – 33,274 Total d000’s 47,274 2,919 50,193 50,193 280 50,473 50,473 740 (88) 51,125 607 50,478 40 51,125 50,406 67 50,473 50,192 1 50,193 Trade- marks & Trade name d000’s – – Software Consulting & Non- contractual customer Licence Magazine relationships d000’s d000’s d000’s – 3,231 10,769 – 1,584 1,335 – – – – – 87 – 87 87 – – 87 – – – – – – 12,104 12,104 176 12,280 12,280 440 (88) 12,632 307 12,285 40 12,632 12,213 67 12,280 12,103 1 12,104 4,815 4,815 104 4,919 4,919 – – 4,919 – 4,919 – 4,919 4,919 – 4,919 4,815 – 4,815 – – – – – 213 – 213 213 – – 213 – – – – – – 43 11.3 Carrying amounts At 31 Dec 2007 At 31 Dec 2008 At 31 Dec 2009 At 31 December 2009 Betboo Casino Club Betaland At 31 December 2008 Betboo Casino Club Betaland At 31 December 2007 Betboo Casino Club Betaland Goodwill d000’s 40,339 40,339 43,617 3,278 40,339 – 43,617 – 40,339 – 40,339 – 40,339 – 40,339 Trade- marks & Trade name d000’s 15,144 15,144 15,753 609 15,144 – 15,753 – 15,144 – 15,144 – 15,144 – 15,144 Software Consulting & Non- contractual customer Licence Magazine relationships d000’s d000’s d000’s – 104 137 Total d000’s 55,724 396 2,321 2,148 113 60 2,321 – 49 347 396 – 133 4 137 – – – – – – – – – – – 104 – 104 – 55,879 1,491 63,182 1,491 – – 7,526 55,596 60 1,491 63,182 – – – – – – – – – 55,532 347 55,879 – 55,720 4 55,724 11.4 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 2009 g000’s 740 ————— Year ended 31 Dec 2008 c000’s 280 ————— Year ended 31 Dec 2007 c000’s 2,919 ————— 11.5 Impairment tests for cash-generating units containing goodwill and trademarks An Impairment Review of the Group’s goodwill and trademarks was carried out for the year ended 31 December 2009. The carrying values of the assets were compared with the recoverable amounts, which were determined with the assistance of independent valuers. The recoverable amount was estimated based upon a value in use calculation, based upon management forecasts for the years ending 31 December 2010 and 31 December 2011. A long-term growth rate of 2.5% 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 post- 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 the goodwill and trademarks was not impaired. 44 The following units have significant carrying amounts of goodwill: Betboo Casino Club 12. ACQUISITION OF BETBOO 31 Dec 2009 d000’s 3,278 40,339 ————— 43,617 ————— 31 Dec 2008 c000’s – 40,339 ————— 40,339 ————— 31 Dec 2007 c000’s – 40,339 ————— 40,339 ————— On 2 July 2009, the Group acquired the trade and assets of betboo.com, a leading South American internet gaming operator, offering, bingo, casino, poker and a sports betting product. The terms of the acquisition were an upfront payment of US$4 million (c3,040k) with the sellers able to earn up to a further US$26 million depending on performance, being the sum of: one times the post tax profits for the year ended 30 June 2010; plus one times the post tax profits for the year ended 30 June 2011; and five times the post tax profits for the year ended 30 June 2012, subject to a maximum total consideration, including the initial consideration, of US$30 million. IFRS3, Business Combinations, requires management to value the asset acquired, and, as there is an element of deferred consideration, to discount this consideration to its present value at the date of acquisition. Over the period of the earn-out, this discount is unwound, resulting in a charge to the Income Statement. The group instructed an independent firm of Chartered Accountants to conduct a valuation of the intangible assets acquired, and a valuation of the purchase price in accordance with IFRS 3. Management have estimated the deferred consideration payable to be c8,963k, and the discount to be c4,076k, resulting in the discounted value being c4,887k. The Group acquired the asset through the acquisition of a shell company, Intera NV, (incorporated in the Netherlands Antilles) and its subsidiary, Intertronic Ltd (incorporated in Malta). 12.1 Cost of acquisition The fair value of the cost of acquisition was c8,027k and includes the components stated below: Initial consideration paid Acquisition costs Fair value of consideration on acquisition Discount back to date of acquisition Non-discounted value of business acquired 8,963 (4,076) ————— Value g000’s 3,040 100 4,887 ————— 8,027 ————— 12,103 ————— The fair value of the cost of acquisition has been estimated using cash flow projections for the 3 years to 2012, and discounted using the estimated weighted average cost of capital of 21%. 45 12.2 Assets acquired at fair values Intangible assets: Pre-acquisition carrying amount c000’s Adjustments to fair value Recognised on acquisition c000’s fair value c000’s Total current assets Total non-current assets Trade and other payables Trade and other receivables Cash and cash equivalents Net identifiable assets and liabilities Goodwill on acquisition non contractual customer relationships software trade name 1,704 2,455 696 ————— 4,855 ————— – – ————— – ————— – ————— 4,855 3,278 ————— 8,133 ————— – – – ————— – ————— 205 1 ————— 206 ————— (312) ————— (106) – ————— (106) ————— 1,704 2,455 696 ————— 4,855 ————— 205 1 ————— 206 ————— (312) ————— 4,749 3,278 ————— 8,027 ————— 4,887 3,140 ————— 8,027 ————— 3,140 (1) ————— 3,139 ————— Goodwill of c3,278k is primarily related to growth expectations, expected future profitability, the skill and expertise of the trained workforce and expected cost synergies. Goodwill has been allocated to the betboo cash generating unit at 31 December 2009. No major line of business will be disposed of as a result of the combination. Cost of acquisition, satisfied in cash Cash and cash equivalents acquired Cost of acquisition, deferred Cost of acquisition, satisfied in cash Cash outflow on acquisition Net assets acquired 12.3 Useful economic life of Intangible assets The fair values of the intangible assets acquired in the transaction, including the tax amortisation benefit, and their useful economic lives are as follows: Asset Useful economic life Non contractual customer relationships Software Trade name Goodwill Total 4 years 4 years 4 years indefinite Value c000’s 1,704 2,455 696 3,278 ————— 8,133 ————— 46 12.4 Summarised income statement for Betboo for the period from 2 July 2009 to 31 December 2009 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 Unwinding of discount on deferred consideration Other Financial expense Loss before tax Year ended 31 Dec 2009 c000’s 2,180 (508) ————— 1,672 77% (299) 1,373 (1,270) ————— 103 – – ————— 103 – (607) ————— (504) – (467) (5) ————— (976) ————— Due to a lack of IFRS specific data prior to the acquisition, pro-forma profit or loss for the combined entity for the complete 2009 period cannot be determined reliably. 12.5 Deferred Consideration The deferred consideration has been discounted to reflect its fair value at the date of acquisition. The effect of this discount will be unwound over the period of the deferral with a charge to the income statement contained within interest expense. The expected impact of this over the earn-out period is shown below: Balance at 1 January Fair value of deferred consideration on acquisition Unwinding of discount charged to income statement Balance at 31 December 2009 d000’s – 4,887 2010 g000’s 5,354 2011 g000’s 6,441 2012 g000’s 7,768 – – – 467 ————— 5,354 ————— 1,087 ————— 6,441 ————— 1,327 ————— 7,768 ————— 1,195 ————— 8,963 ————— 47 13. RECEIVABLES AND PREPAYMENTS Trade receivables Interest receivables Other receivables Loans and receivables Prepayments 31 Dec 2009 d000’s 4,600 – 464 ————— 5,064 663 ————— 5,727 ————— 31 Dec 2008 c000’s 5,475 9 593 ————— 6,077 290 ————— 6,367 ————— 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 2009 amounting to c4.6 million, which corresponds to the revenue generated over the last 3 weeks of the 12 month period ended 31 December 2009. Prepayments include payments as at 31 December 2009 for goods or services which will be consumed after 1 January 2010. 31 Dec 2009 d000’s 31 Dec 2008 c000’s 19,195 – ————— 19,195 ————— 10,994 7,966 235 ————— 19,195 ————— 18,923 130 40 102 ————— 19,195 ————— 4,074 14,760 ————— 18,834 ————— 17,185 1,000 649 ————— 18,834 ————— 18,651 22 147 14 ————— 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 ————— 17,580 1,615 17,502 997 15,232 547 – ————— 19,195 ————— d0.564 335 ————— 18,834 ————— c0.562 80 ————— 15,859 ————— c0.489 14. 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 (note 15) Funds held in escrow representing withholding tax for founder shareholders Amount per share represented by own funds 48 15. TRADE AND OTHER PAYABLES Balances with customers Other trade payables Total trade payables Accruals Other creditors: balances due to founder shareholders in respect of withholding taxes recovered 31 Dec 2009 d000’s 1,615 1,121 ————— 2,736 3,818 31 Dec 2008 c000’s 997 1,254 ————— 2,251 2,891 – ————— 6,554 ————— 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. 16. OTHER TAXATION PAYABLE Social security and other similar taxes Value added taxes Betting taxes and similar 31 Dec 2009 d000’s 24 – 28 ————— 52 ————— 31 Dec 2008 c000’s 13 78 82 ————— 173 ————— 31 Dec 2007 c000’s – – 26 ————— 26 ————— Income taxes principally represent tax on the profits of the operations of GVC Corporation Limited, the Group’s licensed business in Malta. 17. SEGMENTAL ANALYSIS OF NET ASSETS 31 Dec 2009 Casino club Betaland Winzingo Betboo Unallocated Total Non current assets Current assets Current liabilities Net current assets Long term liabilities Net assets Total assets Total liabilities g000’s 56,070 ———— 837 (405) ———— 432 – ———— 56,502 ———— 56,907 (405) g000’s 738 ———— 3,299 (4,244) ———— (945) – ———— (207) ———— 4,037 (4,244) g000’s – ———— 265 (28) ———— 237 – ———— 237 ———— 265 (28) (note 12) g000’s 7,526 ———— 894 (473) ———— 421 (5,354) ———— 2,593 ———— 8,420 (5,827) g000’s – ———— 22,822 (4,126) ———— 18,696 – ———— 18,696 ———— 22,822 (4,126) g000’s 64,334 ———— 28,117 (9,276) ———— 18,841 (5,354) ———— 77,821 ———— 92,451 (14,630) Expenditure on non current assets Property, plant and equipment (note 10) Intangible assets (note 11) 96 135 ———— 231 ———— 345 – ———— 345 ———— – – ———— – ———— – 8,040 ———— 8,040 ———— – – ———— – ———— 441 8,175 ———— 8,616 ———— 49 31 Dec 2008 Non current assets Current assets Current liabilities Net current assets Net assets Total assets Total liabilities Casino club g000’s 56,442 ———— 2,247 (408) ———— 1,839 ———— 58,281 ———— 58,689 (408) Betaland Winzingo g000’s – ———— 18 (1) ———— 17 ———— 17 ———— 18 (1) g000’s 986 ———— 4,056 (2,838) ———— 1,218 ———— 2,204 ———— 5,042 (2,838) Betboo Unallocated g000’s g000’s – – ———— ———— 21,491 – (5,385) – ———— ———— 16,106 – ———— ———— 16,106 – ———— ———— 21,491 – (5,385) – Expenditure on non current assets Property, plant and equipment (note 10) Intangible assets (note 11) 825 25 ———— 850 ———— 628 410 ———— 1,038 ———— – – ———— – ———— – – ———— – ———— – – ———— – ———— 31 Dec 2007 Non current assets Current assets Current liabilities Net current assets Total assets Total liabilities Net assets Casino club g000’s 55,729 ———— 2,781 (811) ———— 1,970 ———— 58,510 (811) ———— 57,699 ———— Betaland Winzingo g000’s – ———— – – ———— – ———— – – ———— – ———— g000’s 527 ———— 1,349 (1,845) ———— (496) ———— 1,876 (1,845) ———— 31 ———— Betboo Unallocated g000’s g000’s – – ———— ———— 16,024 – (1,792) – ———— ———— 14,232 – ———— ———— 16,024 – (1,792) – ———— ———— 14,232 – ———— ———— Total g000’s 57,428 ———— 27,812 (8,632) ———— 19,180 ———— 76,608 ———— 85,240 (8,632) 1,453 435 ———— 1,888 ———— Total g000’s 56,256 ———— 20,154 (4,448) ———— 15,706 ———— 76,410 (4,448) ———— 71,962 ———— Expenditure on non current assets Property, plant and equipment (note 10) Intangible assets (note 11) – 90 ———— 90 ———— 562 5 ———— 567 ———— – – ———— – ———— – – ———— – ———— – – ———— – ———— 562 95 ———— 657 ———— Analysis of non-current assets by geographical region Property, plant and equipment Malta Israel Intangible assets Malta South America Deferred tax asset Malta 2009 d000’s 625 474 ————— 1,099 ————— 55,656 7,526 ————— 63,182 ————— ————— 53 ————— 2008 c000’s 915 623 ————— 1,538 ————— 55,879 – ————— 55,879 ————— ————— 11 ————— 2007 c000’s 521 – ————— 521 ————— 55,724 – ————— 55,724 ————— ————— 11 ————— The analysis of assets by currency is shown in note 21.2.1. 50 18. 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 30,219,369 916,393 ————— 31,135,762 ————— The economic interest in the shares at 31 March 2009 was represented by the following significant shareholders: Audley Capital Management Limited Ora (Guernsey) Limited Steve Barlow Capital Research and Management Co M&G Investment Management 9,109,911 2,629,885 1,951,927 1,491,800 1,400,000 29.3% 8.4% 6.3% 4.8% 4.5% 18.1 Share premium As permitted by Luxembourg company law, c5,084k of the total of c12,454k of the dividend paid during 2009 was debited to the Share Premium account and the balance was charged to retained earnings as more fully shown in the Consolidated Statement of Changes in Equity on page 18. At the 2008 Annual General Meeting, shareholders approved the transfer from Share Premium to retained earnings of c38,145k. 18.2 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 2009 was c78.3 million (2008: c76.6 million). 51 19. DIVIDENDS After the balance sheet date, but up to the date on which these financial statements were approved, the following dividends were proposed by the directors: Total amount Amount per qualifying share 20. SHARE OPTION SCHEMES Year ended 31 Dec 2009 d000’s gnil gnil ————— Year ended 31 Dec 2008 c000’s c6,227,152 c0.20 ————— Year ended 31 Dec 2007 c000’s c6,227,152 c0.20 ————— 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. Subsequently, 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 20.1 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. 20.2 Options outstanding The options which have been granted, and are still capable of being exercised as shown below: Date of grant 21 Dec 2004 28 Sep 2005 16 May 2006 1 Mar 2007 15 May 2007 21 Aug 2007 21 Sept 2007 27 Nov 2007 26 Feb 2008 12 Dec 2008 Vested at 31 Dec 2009 Unvested at 31 Dec 2009 Number Share price of options at 1 Jan 2009 310,000 53,807 140,000 800,000 243,052 110,000 126,500 390,000 150,000 400,000 at date of grant £4.20 £4.20 £3.875 £1.105 £1.26 £1.285 £1.345 £1.21 £1.39 £1.00 Exercise price £4.20 £4.20 £4.20 £1.00 £1.29 £1.285 £1.345 £1.3816 £1.3816 £1.26 Number Lapsed of options during at 31 Dec 2009 310,000 – 140,000 800,000 154,590 – – – 150,000 400,000 the year – (53,807) – – (88,462) (110,000) (126,500) (390,000) – – 2,723,359 (768,769) 1,954,590 1,254,006 700,584 1,954,590 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, 6.28% had been granted and was outstanding. 52 20.3 Directors’ and others interest in options At 31 December 2009 and at 19 April 2010 (when these financial statements were approved) the Directors’ interest, and interest of other option holders in share options was as follows: At 31 December 2009 Individual and grant date L Feldman 21.12.04 16.05.05 N.Blythe-Tinker 21.12.04 16.05.05 K Alexander 01.03.07 R Cooper 12.12.08 Other personnel 15.05.07 26.02.08 Strike price Vested Not vested Total £4.20 £4.20 £4.20 £4.20 155,000 40,313 155,000 85,104 – 4,687 – 9,896 155,000 45,000 155,000 95,000 £1.00 550,000 250,000 800,000 £1.26 100,000 300,000 400,000 £1.29 £1.3816 99,839 68,750 54,751 81,250 154,590 150,000 1,254,006 700,584 1,954,590 On 27 January 2010, the Remuneration Committee made an offer to the Executive Directors to cancel their options that had been vested by that date. The Executive directors accepted that offer and were compensated in cash at the price of £2.11 for those options. The average share price in the three days immediately prior to this offer was £2.13. The individual details of these arrangements were as follows: Director K Alexander R Cooper Number of options vested 566,667 108,333 ————– 675,000 ————– Exercise Compensation price £2.11 £2.11 price £1.00 £1.26 Amount paid £629,000 £92,083 ————– £721,083 ————– At 19 April 2010 (when these financial statements were approved) Individual and grant date L Feldman 21.12.04 16.05.05 N.Blythe-Tinker 21.12.04 16.05.05 K Alexander 01.03.07 R Cooper 12.12.08 Other personnel 15.05.07 26.02.08 Strike price Vested Not vested Total £4.20 £4.20 £4.20 £4.20 155,000 44,063 155,000 93,021 – 937 – 1,979 155,000 45,000 155,000 95,000 £1.00 33,333 200,000 233,333 £1.26 16,667 275,000 291,667 £1.29 £1.3816 112,722 78,125 687,931 41,868 71,875 154,590 150,000 591,659 1,279,590 * 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 preceding the announcement was 81.33p 53 20.4 Weighted average exercise price of options The number and weighted average exercise prices of share options is as follows: Weighted average price 2009 GBP 1.76 – 1.35 Outstanding at the beginning of the year Granted during the year Forfeited during the year Number of Options 2009 2,723,359 – (768,769) Weighted average exercise price 2008 GBP 2.03 1.29 2.44 Number of Options 2008 3,009,883 550,000 (836,524) Outstanding at the end of the year 1.76 1,954,590 1.76 2,723,359 Exercisable at the end of the year 1,254,006 1,075,227 The options outstanding at 31 December 2009 have a weighted average contractual life of 7 years (2008: 8 years). 20.5 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 all individuals was the average market price on grant date, or a premium thereto apart from K Alexander whose options were priced at a premium on the date of the announcement of his appointment. Fair value of share options and assumptions: Share price at date of grant* (in £) 1.08 1.22 1.42 1.42 1.25 1.32 1.33 1.35 1.05 Date of grant 1 Mar 2007 15 May 07 13 Jul 07 13 Jul 07 21 Aug 07 21 Sep 07 27 Nov 07 26 Feb 08 12 Dec 08 Exercise price (in £) 1.00 1.29 2.98 1.60 1.29 1.345 1.33 1.3816 1.26 Expected volatility Exercise multiple Expected dividend yield Risk free rate** Fair value at measure- ment date 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. 54 20.6 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. Share price at date of grant* (in £) £4.20 £5.50 £5.50 £3.89 £3.89 £3.83 Date of grant 21 Dec 04 28 Sep 05 28 Sep 05 23 Jan 06 23 Jan 06 16 May 06 Exercise price (in £) £4.20 £5.50 £4.20 £3.59 £2.98 £4.20 Expected volatility Exercise multiple Expected dividend yield 45% 45% 45% 45% 45% 65% 4.8 4.8 4.8 4.8 4.8 4.8 4% 5% 5% 8% 8% 8% Risk free rate** 4.51% 4.22% 4.22% 4.16% 4.16% 4.70% Fair value at measure- ment date £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. 21. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The Group’s principal financial instruments as at 31 December 2009 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, and deferred consideration 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. 21.1 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. 21.2 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 sells Euro and buys British Pounds for an amount equal to the dividend net of withholding tax. 55 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. GBP g000’s – USD g000’s – Other g000’s – 21.2.1 Analysis of the balance sheet by currency At 31.12.2009 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 Long Term Liabilities – Deferred consideration Euro g000’s 64,334 4,483 3,195 18,923 26,601 (5,820) (2,722) (8,542) 18,059 – Total assets less current liabilities 82,393 – (5,354) (166) 77,821 Total g000’s 64,334 5,727 3,195 19,195 28,117 (6,554) (2,722) (9,276) 18,841 Total g000’s 57,428 6,367 2,611 18,834 27,812 (5,477) (3,155) (8,632) 19,180 76,608 Total g000’s 56,256 4,295 – 15,859 20,154 (4,404) (44) (4,448) 15,706 71,962 752 – 130 882 (61) – (61) 821 (5,354) (4,533) USD g000’s – 22 – 22 44 (151) – (151) (107) (107) 286 – 102 388 (554) – (554) (166) Other g000’s – 72 – 14 86 (130) – (130) (44) (44) USD g000’s – Other g000’s – 100 – 9 109 (741) – (741) (632) (632) – – 14 14 (69) – (69) (55) (55) 206 – 40 246 (119) – (119) 127 – 127 GBP g000’s – 62 – 147 209 Euro g000’s 57,428 6,211 2,611 18,651 27,473 (3,729) (3,155) (1,467) – (6,884) (1,467) (1,258) (1,258) GBP g000’s – 70 – 63 133 (638) – (638) (505) (505) 20,589 78,017 Euro g000’s 56,256 4,125 – 15,773 19,898 (2,956) (44) (3,000) 16,898 73,154 56 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 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. 21.3 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 2009 (2008: nil). 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 2008 or 31 December 2009. 21.4 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 c2.07 million (2008: c2.04 million) and cash balances held with Barclays Bank plc of c11.0 million (2008: c17.2 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 2009 (2008: cnil). No receivable amounts were past due date at 31 December 2009 (2008: cnil). 21.5 Liquidity risk At 31 December 2009, the Group had cash and cash equivalents of c19.2 million (2008: c18.8 million) and considers liquidity risk to be low for the business. All financial liabilities at the year-end are due within one year, with the exception of the deferred consideration on Betboo. 21.6 Fair Values The carrying amounts of the financial assets and liabilities, including deferred consideration in the Balance Sheet at 31 December 2009 and 2008 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. 57 21.7 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: Current assets: Financial assets measured as loans and receivables – Trade and Other receivables Cash and cash equivalents Current liabilities: Financial liabilities measured at amortised cost – Trade and other payables Deferred consideration 22 RELATED PARTIES 22.1 Identity of related parties 31 Dec 2009 g000’s 31 Dec 2008 c000’s 31 Dec 2007 c000’s 5,064 19,195 6,077 18,834 3,561 15,859 6,554 5,354 5,477 – 4,404 – The Group has a related party relationship with its subsidiaries (see note 23) and with its directors and executive officers. 22.2 Transactions with key management personnel The Group’s key management personnel are considered to be the directors as shown in note 6.1.2. Directors of the Company and their immediate relatives control 12,000 of the voting shares of the Company (0.4%). Nigel Blythe-Tinker is the non-executive chairman of Pentasia Limited, a leading recruiter in the field of internet gaming. During the year ended 31 December 2009, Pentasia provided recruitment services to various members of the group to a value of c67,566 (2008: cnil). Karl Diacono is the Chief Executive Officer of Fenlex Limited, a corporate service provider incorporated in Malta. During the year ended 31 December 2009, Fenlex received c52,780 from the group in relation to Company secretarial matters arising in Malta (2008: cnil). Richard Cooper and his wife are the shareholders of Rousset Capital Limited, a company incorporated in the United Kingdom. During the year ended 31 December 2009, Rousset Capital Limited provided conference and meeting room services amounting to £12,600 (c14,354) (2008: cnil). The Directors are satisfied that all of the above arrangements were at arms-length commercial rates. 58 23. GROUP ENTITIES Significant subsidiaries Country of incorporation Ownership interest Gaming VC (Cyprus) Limited Gaming VC Cyprus 2 Limited GVC Corporation B.V. GVC Corporation II B.V. Intera N.V. Gaming VC Corporation Limited Intertronic Limited Gaming VC Corporation S.p.A. Gaming VC (Jersey) Limited Cyprus Cyprus Netherland Antilles Netherland Antilles Netherlands Antilles Malta Malta Italy Jersey 31 Dec 2009 100% 100% 100% nil 100% 100% 100% Nil 100% 31 Dec 2008 100% nil 100% 100% Nil 100% Nil 100% 100% GVC Corporation B.V a. also has a registered branch in Israel b. absorbed the assets and liabilities of GVC Corporation II B.V. through a contractual merger during the year Gaming VC Corporation S.p.A was sold to its local management for a nominal sum with effect from 31 August 2009. Gaming VC Cyprus 2 Limited was incorporated to effect the acquisition of “betboo” and did this through the acquisition of Intera N.V and its wholly owned subsidiary, Intertronic Limited. 24. 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 Gaming VC customers never win such a jackpot, Gaming VC 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 Gaming VC 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. CasinoClub 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 Statement in the period in which it would be won. Across 42 games, the total of the available jackpots at 31 December 2009 was c6.5 million. The single largest jackpot amounted to c2.2 million from the slots game “Alladin’s Lamp.” The total of the available jackpots at the end of December 2008 was c4.0 million (2007: c3.2 million), with the largest available individual jackpot being c1.1 million (2006: c1.6 million). 59 There was a significant winner of a jackpot during the year ended 31 December 2009. A single player won c308,999.08 on a game known as “Roman Empire.” In accordance with the group’s policy, the amount withdrawn by the customer (in this case c250,000) has been treated as an exceptional item (see note 6.2.1). 25. 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. 25.1 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 11.5 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. 25.2 Valuation of betboo.com The acquisition of betboo.com required estimations of the fair value of the consideration payable, as well as judgements relating to the value of the acquired intangible assets. The valuation work to assess the fair value of consideration payable and acquired intangible assets was conducted by Chartered Accountants, BDO Stoy Hayward, London. 25.3 Share options Accounting for share option charges requires a degree of judgement over such matters as dividend yield, and expected volatility. Further details on the assumptions made by management are disclosed in note 20. 25.4 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. Management have assessed that the value of open bets at year end is not material. 26. GOING CONCERN The Group’s business activities, together with the factors likely to affect its future performance and position are set out in the Chairman’s statement and the reports of the Chief Executive and the Finance Director. Note 21 to the financial statements sets out the Group’s financial risk management policies, and its exposure to credit risk and liquidity risk. The Directors have assessed the financial risks facing the business, and compared this risk assessment to the net current assets position and dividend policy. The Directors have also reviewed relationships with key suppliers and software providers and are satisfied that the appropriate contracts and contingency plans are in place. The directors have prepared income statement and cash flow forecasts to assess whether the Group has adequate resources for the foreseeable future. 60 The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the consolidated financial statements. 27. SUBSEQUENT EVENTS Gaming VC is currently in dispute with Boss Media over an alleged infringement of the Group’s intellectual property. The Group has made its concerns known to Boss after the year end. If the dispute is not resolved, Court proceedings will be instituted although this had not taken place at the year end nor up to the date of approval of these financial statements. The Group is also in dispute with Boss regarding a contract in relation to services for its Italian businesses. Legal costs associated with such matters are expensed as incurred. 61 SECTION B – ADDITIONAL UNAUDITED INFORMATION 62 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 2009 c000’s 42,639 33,405 16,192 16,631 15,859 50,085 40,922 16,359 16,903 18,834 53,958 44,525 14,228 13,820 19,195 Notes: 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. 63 RECONCILIATION OF CONSOLIDATED BALANCE SHEET OF GAMING VC HOLDINGS S.A. AS PREPARED UNDER IFRS TO THE 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 66 to 74. All in c000’s and at 31 December 2009 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 Amount owed by affiliated undertakings Other Current liabilities Amounts owed to affiliated undertakings Other Current assets less current liabilities Long Term Liabilities Deferred Consideration on Betboo Net assets As represented by: Retained earnings at 1 Jan 2009 Profit for the year Interim dividends Retained earnings at 31 Dec 2009 Share premium account at 1 Jan 2009 Dividends paid from Share Premium Share option reserve Legal reserve Total reserves Share Capital 1,099 63,182 53 – – 64,334 – 28,117 28,117 – (9,276) (9,276) (1,099) (63,182) (53) 63,696 – (638) 6,261 (14,749) (8,488) (25,546) 9,159 (16,387) – – – 63,696 – 63,696 6,261 13,368 19,629 – – – – – – – – – – – – 63,696 – 63,696 6,261 13,368 19,629 (25,546) (117) (25,663) (1,925) – (1,925) (27,471) (117) (27,588) 18,841 (24,875) (6,034) (1,925) (7,959) (5,354) 77,821 5,354 (20,159) – 57,662 24,168 13,454 (7,370) 30,252 13,832 (5,084) 213 – 39,213 38,608 77,821 (20,134) (2,631) – (22,765) – – 2,606 – (20,159) – (20,159) 4,034 10,823 (7,370) 7,487 13,832 (5,084) 2,819 – 19,054 38,608 57,662 – (1,925) (2,518) (6,161) 6,227 (2,452) 1,980 – (2,819) 1,366 (1,925) – (1,925) – 55,737 1,516 4,662 (1,143) 5,035 15,812 (5,084) – 1,366 17,129 38,608 55,737 64 SECTION C – FINANCIAL STATEMENTS OF GAMING VC HOLDINGS S.A. As prepared under Luxembourg GAAP. 65 GAMING VC HOLDINGS S.A. ANNUAL ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2009 (with report of the Réviseur d’Entreprises thereon) 66 To the Shareholders of GAMING VC HOLDINGS S.A. 13-15, Avenue de la Liberté L-1931 LUXEMBOURG REPORT OF THE REVISEUR D’ENTREPRISES 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, 2009, 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, 2009, 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 16, 2010 Thierry REMACLE Réviseur d’Entreprises Grant Thornton Lux Audit S.A. 67 STATUTORY BALANCE SHEET As at 31 December 2009 In euro ASSETS Formation expenses Fixed assets Financial assets Shares in affiliated undertakings Current assets Amounts owed by affiliated undertakings Debtors becoming due within one year Other Debtors Debtors becoming due within one year 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 due and payable within one year Other creditor due and payable within one year TOTAL CAPITAL, RESERVES AND LIABILITIES Notes 2009 d 2008 c 2.3/3.1 – –––––––––– 2,192,420 –––––––––– 2.4/3.2 63,695,914 –––––––––– 63,813,914 –––––––––– 2.5/3.3 6,260,451 1,071,652 2.5 4 5 6 2.6 7 3,195,191 9,896,461 –––––––––– 19,352,103 276,375 –––––––––– 19,628,478 –––––––––– 2,611,164 1,284,526 –––––––––– 4,967,342 15,255 –––––––––– 4,982,597 –––––––––– 83,324,392 70,988,931 38,608,345 10,728,389 1,365,682 5,034,202 –––––––––– 55,736,618 –––––––––– 38,608,345 15,812,333 992,921 1,515,970 –––––––––– 56,929,569 –––––––––– 27,471,097 116,677 –––––––––– 27,587,774 –––––––––– 13,613,119 446,243 –––––––––– 14,059,362 –––––––––– 83,324,392 70,988,931 The accompanying notes form an integral part of these annual accounts 68 PROFIT AND LOSS ACCOUNT For the year ended 31 December 2009 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 Dividend paid 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 Note 2.3 Year ended 31 Dec 2009 d Year ended 31 Dec 2008 c 375,441 2,192,420 18,750 413,803 2,286,426 85,541 250,468 – 3,878,200 – 11,261,354 ––––––––––– 17,976,633 ––––––––––– 498,497 5,980 316,072 7,673 7,455,224 ––––––––––– 11,069,216 ––––––––––– 15,737,145 4,220 2,235,268 ––––––––––– 17,976,633 ––––––––––– 10,040,256 78,051 950,909 ––––––––––– 11,069,216 ––––––––––– 1,515,970 (372,762) – 5,083,944 (6,227,152) ––––––––––– – 11,261,354 (6,227,152) ––––––––––– 5,034,202 ––––––––––– (30,959,090) (670,642) 38,144,782 – (6,227,152) ––––––––––– 287,898 7,455,224 (6,227,152) ––––––––––– 1,515,970 ––––––––––– The accompanying notes form an integral part of these annual accounts 69 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 (EUR 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. 70 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 (“EUR”) 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 fixed assets Assets are valued in the accounts at cost. Value adjustments are made in respect of 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. 71 3. FINANCIAL ASSETS 3.1 Formation Expenses The movements in the year are as follows: Cost Balance as at 1 Jan 2009 Additions for the year Balance as at 31 Dec 2009 Amortisation Balance as at 1 Jan 2009 Charge for the year Balance as at 31 Dec 2009 Carrying Amounts As at 31 Dec 2008 As at 31 Dec 2009 EUR 11,432,128 – ––––––––––– 11,432,128 ––––––––––– 9,239,708 2,192,240 ––––––––––– 11,432,128 ––––––––––– 2,192,240 – ––––––––––– 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 ––––––––––– 63,557,350 ––––––––––– (15,814) ––––––––––– Gaming VC Corporation Limited, Malta, 100% 240,000 –––––––––––– – ––––––––––– 240,000 ––––––––––– 296,223 ––––––––––– (1,985,968) ––––––––––– Gaming VC Cyprus 2 Limited, 100% – ––––––––––– *The figures are taken from the annual accounts as at December 31, 2009. The shareholder’s equity includes the result for the year as well as the interim dividend paid in Cyprus in 2008. 2,000 –––––––––––– – ––––––––––– 2,000 ––––––––––– 2,000 ––––––––––– In May 2009, Gaming VC Holdings incorporated a wholly owned subsidiary Gaming VC Cyprus 2 Limited. As announced on 17 December 2009, the group entered into an agreement to dispose of GVC Corporation S.p.A., its licensed Italian subsidiary, to local management for a nominal sum. The exceptional item recognises the legal costs incurred in this process together with the write-off of the investment held and the net assets parted with at the time of the sale, being 31 August 2009. 3.3 Amount owed by affiliated undertakings This amount corresponds primarily to costs due by Gaming VC (Malta) Limited, Gaming VC (Cyprus 2) Limited, betboo and Gaming VC (Jersey) Limited, subsidiaries of Gaming VC Holding SA. 72 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 Capital fluctuations during the period are illustrated in the table below: At December 31, 2008 At December 31, 2009 Number of ordinary shares issued 31,135,762 –––––––––––– 31,135,762 –––––––––––– Share value EUR 1.24 1.24 Total Value EUR 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 EUR 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 September 28, 2009, the Board of Directors paid an interim dividend of an aggregate net amount of EUR 6,227,152 on November 6, 2009 (2008: EUR 6,227,152). 5. SHARE PREMIUM ACCOUNT The movements in the Share Premium account are shown below: In EUR Balance at start of year Transfer from Profit and Loss Dividend paid Balance at end of year 6. LEGAL RESERVE Year ended 31 Dec Year ended 31 Dec 2009 2008 15,812,333 – (5,083,944) ––––––––––– 10,728,389 ––––––––––– 53,957,115 (38,144,782) – ––––––––––– 15,812,333 ––––––––––– 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 EUR Balance at start of year Transfer from Profit and Loss account Balance at end of year Year ended 31 Dec Year ended 31 Dec 2009 2008 992,921 372,761 ––––––––––– 1,365,682 ––––––––––– 322,279 670,642 ––––––––––– 992,921 ––––––––––– 73 7. OTHER CREDITORS This amount mainly corresponds to costs incurred by the Company relating to professional fees and external charges. 8. PERSONNEL There were no employees during the year. 9. 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, 2009, 1,954,590 (2,723,359 as of December 31, 2008) share options were outstanding and no share option had been exercised under this programme. 74 sterling 130748