Gfinity plc Annual Report & Financial Statements 2019 1 GFINITY plc | Annual Report & Financial Statements 2019 2 GFINITY plc | Annual Report & Financial Statements 2019 Contents STRATEGIC REPORT Directors, Secretary and Advisers Period Highlights Gfinity At A Glance Executive Chairman’s Report Chief Financial Officer’s Report Principal Risks and Uncertainties GOVERNANCE Corporate Governance Report Board of Directors Board Composition and Performance Directors’ Remuneration Report Directors’ Report Statement of Directors’ Responsibilities FINANCIAL STATEMENTS Independent Auditor’s Report Group Statement of Profit and Loss Group Statement of Comprehensive Income Group Statement of Financial Position Company Statement of Financial Position Group Statement of Changes in Equity Company Statement of Changes in Equity Group Statement of Cash Flows Company Statement of Cash Flows Notes to the Financial Statements 6 7 8 10 14 16 22 23 24 26 29 31 34 40 41 42 43 44 46 48 49 50 3 GFINITY plc | Annual Report & Financial Statements 2019 Annual Report & Financial Statements 2019 STRATEGIC REPORT GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC REPORT Directors, Secretary and Advisers The Board of Directors Garry Cook (Executive Chairman) Legal Advisers Corporate Fladgates Graham Wallace (Global Chief Operating Officer) 16 Great Queen Street London WC2B 5DG Commercial Onside Law 642A Kings Road Fulham London SW6 2DU Registrars Link Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Financial Public Relations Teneo 5th Floor, 6 More London Place London SE1 2DA Registered Number 08232509 Neville Upton (Founder) Jonathan Hall (Chief Financial Officer) John Clarke (Global Brand and Marcomms Officer) Preeti Mardia (Non-Executive Director) Andy MacLeod (Non-Executive Director) Company Secretary Jonathan Hall Registered Office 35 New Bridge Street London EC4V 6BW Nominated Adviser and Broker Allenby Capital Ltd 5 St Helen’s Place, London EC3A 6AB Independent Auditors Rees Pollock Chartered Accountants 35 New Bridge Street London EC4V 6BW 6 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC REPORT Period Highlights “Strong revenue growth driven by strategic partnerships and new account wins” £7.9m Revenue Financial highlights ■ Revenue growth of above 80% for the second consecutive year ■ Gross profit of £1.0m (2018: loss of £3.4m), driven by strategic focus on delivery of higher margin esports solutions for key partners ■ Demonstration of good operating leverage with opex relatively stable despite rapid growth in the business ■ Reduction of 30% in adjusted operating loss1 to £8.6m with further reductions expected in 2019/20 financial year ■ Net cash of £0.6m at year end, supplemented by completion of £5.25m capital raise in July ■ Robust pipeline of new opportunities ■ On track to reach breakeven Adjusted EBITDA2 target by 2021 Business Highlights ■ Refocused business on Strategic Client Management model ■ Strengthened leadership team bringing expertise to maximise opportunities with all key stakeholder groups ■ Continued growth in strategic partnerships with largest games publishers – Appointed by Activision Blizzard to host Call of Duty World League. – Hosted five events for EA Sports as part of the EA SPORTS FIFA 19 Global Series – Renewed partnership with Formula 1 to deliver Season 3 of the F1 New Balance Esports Series ■ Selected by new strategic partners cementing Gfinity’s position as a leading provider of unique esports solutions – Appointed by the Premier League to become the Tournament Operator of the inaugural ePremier League – Selected by TRUXTUN Capital to be the primary consulting and programme management partner for the Esports Wega World Cup 2022. – HP’s gaming brand HP Omen selected Gfinity as the production partner for esports show The Esports Report, Season 2 – Engaged by IndyCar to provide strategic consultancy in development of esports 82.3% Revenue Growth £1.0m Gross Profit 30% Reduction in adjusted operating loss On track to meet targets Post-Period Highlights ■ Continued selection of Gfinity by world’s biggest brands to provide unique esports solutions – Selected to partner with Amazon to design, develop and deliver The Twitch Prime Crown Cup, a global celebrity gaming exhibition – Reappointed by the Premier League as Tournament Operator for the second ePL – Selected as production partner by Formula 1 to create an online TV show “Making of an esports champion” ■ Rapid growth of Gfinity’s unique community organically reaching more than 20 million gamers, generating new recurring revenue streams ■ Successful completion of £5.25m capital raise in July to fund future growth and strengthen commercial capabilities 1 2 Adjusted operating loss is before interest, tax, depreciation, amortisation, impairment and the share-based payment expense. Adjusted EBITDA is earnings before interest, tax, depreciation, impairment, amortisation and the share-based payment expense. 7 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC REPORT Gfinity At A Glance About Gfinity Gfinity is a world leading esports business. Created by gamers for the world’s 2.2 billion gamers, Gfinity has a unique understanding of this fast-growing global community. It uses this expertise to provide both advisory services and to design, develop and deliver unparalleled experiences and winning strategies for game publishers, sports rights holders, commercial partners and media companies. Gfinity connects its partners with the esports community in authentic and innovative ways. This consists of on and off- line competitions and industry leading content production. Partnerships include EA SPORTS, Activision Blizzard, F1 Esports Series and the Forza Racing Championship. Gfinity connects directly with competitive gaming consumers through its growing community of gamers on its own platforms; Gfinity esports and RealSport101. All Gfinity services are underpinned by the Company’s proprietary technology platform delivering a level playing field for all competitors and supporting scalable multi-format leagues, ladders and knock out competitions. What we do Esports Solutions Creating long term, new business verticals in the virtual world Our Approach Strategic Client Management Design; Develop; Deliver What We Deliver Online/offline competitions Tournament Live & ancillary content Competitive gaming entertainment Build community & engagement Advisory services Our Difference Holistic solution development Consumer insights Proprietary tech platform Tribe World class production Long term value creation 8 8 GFINITY plc | Annual Report & Financial Statements 2019 Growth of esports 2.2 Billion People globally who play video games 395 Million Global number of players & enthusiasts in 2018 737 The number of major global Esports events in 2018 $151 Million Prize money broke $150 million mark for the first time in 2018 $1.80 Billion Projected Esport revenue by 2022 32% Global Esports revenue increase duing 2018 Source: Newzoo Global Esports Market Report 2019 Uniquely positioned Gfinity’s value is unparalleled in creating compelling experiences for next generation of digital consumers. The fragmented ecosystem requires end-to-end esports solutions to build large sustainable new revenue streams. Publishers Esports platform and expertise that drives engagement and profitability Media Access to proven esports and entertainment formats engaging a young audience Sports Rights Holders Solutions that future proof franchise, connecting with valuable and hard to reach demographics Consumers Ability to play, compete, be part of communities, and be entertained by engaging content Brands Solutions that deliver memorable experiences and connects hard to reach younger consumers Publishers Media Sports Rights Holders Consumers Brands 9 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC REPORT Executive Chairman’s Report “Gfinity is uniquely positioned in the gaming community and has proven itself to be a trusted partner” In the past 12 months we have confirmed Gfinity’s position as a leading international esports business and trusted independent partner of some of the world’s leading publishers, rights holders and brands. The esports and competitive gaming sector has continued to grow. Its complexity and fragmented nature mean it is a consumer market like no other. Gfinity is uniquely positioned in the gaming community and has proven itself to be a trusted provider in the fragmented esports ecosystem, designing, developing and delivering tailored esports solutions that are helping to create long-term, new business verticals in the virtual world for its clients and partners. During the year the Company’s leadership team has refocused the business around a Strategic Client Management model which has helped build a robust pipeline of new commercial opportunities, whilst at the same time enabling us to deepen relationships with a number of our strategic partners. This revamped growth strategy has delivered a solid financial performance with revenue growth of over 80% for the second year in a row and the focus on higher margin business and discipline on costs, has contributed to a 30% improvement in the adjusted operating loss. In what has been an incredibly busy year, we have performed in line with our expectations and remain confident that the Company is well on the way to its stated target of breakeven Adjusted EBITDA by 2021. The consumer always decides There are currently 2.2 billion gamers globally. Roughly 900 million of them are what we call engaged gamers. These are male and female players, predominantly under the age of 35 and who love esports and competitive gaming. This is not a homogenous group. They have different aspirations and motivations. They play and consume content at a level that surpasses anything seen before in traditional sports. In recent months we have invested in and deepened our understanding of this young and typically hard to reach group, developing proprietary gamer segmentation profiles. In the hands of our in-house gamer experts this is enabling us to deliver insight led and targeted solutions for our partners and clients. The hard to reach young gamer We have seen the next wave of investment into the gaming segment coming from non-endemic brands. Global, household names who see competitive gaming as the answer to their business need to find a younger consumer base and give themselves a platform for future growth. They are looking for a trusted partner to help them navigate this new and exciting opportunity. Gfinity’s value is unparalleled in creating compelling experiences for this next generation of digital consumers. The fragmented esports ecosystem creates an opportunity for end-to-end esports solutions that can build large sustainable Garry Cook Executive Chairman 19 October 2019 10 GFINITY plc | Annual Report & Financial Statements 2019 new revenue streams. Gfinity’s unique position at the centre of this means that we are ideally placed to provide these solutions. Our evolving business model Over the last year we started to evolve our financial model from one dominated by service provision, where Gfinity is contracted to create a solution which the business client then monetises, to a broader Partnership Model. This is where Gfinity and partners own or co-own a solution, create IP and then monetise it, sharing the commercial rights. Over time this model will become a key offering and contribution to the group. We have also seen a significant increase in the demand for Gfinity’s advisory services and the growth in our community building is also going to open up multiple new, recurring revenue streams. Growth in strategic partnerships We have deepened the relationships we have built over a number of years and delivered some memorable events. Activision Blizzard brought Call of Duty World League back to London and hired Gfinity to deliver what turned out to be one of the most talked about esports events the UK has ever seen, with sold out signs at the Copper Box Arena, epic game play and an electric atmosphere generated by thousands of fans. EA Sports chose Gfinity to host five events as part of EA SPORTS FIFA 19 Global Series. While for Formula 1 we completed Season 2 of the Formula 1 Esports Series and we have been reappointed for Season 3. Adding new strategic partners Gfinity’s uniquely strong reputation has led to us securing a number of new partnerships. The Premier League appointed Gfinity as Tournament Operator of the inaugural ePremier League. It proved to be a major success, helped by the first ever final in March being contested by Liverpool and Manchester United. We also entered into a partnership with TRUXTUN Capital to be the primary consulting and programme management partner for the Qatar Esports WEGA Global Games. This promises to be an amazing series of events that is going to further extend the reach of top-level gaming across the globe. We were also appointed by HP Omen as production partner for The Esports Report Season 2, which spanned six episodes and has a worldwide reach. Gfinity’s growing gamer community and media assets To deliver smart and effective esports solutions it was clear that we would benefit from building a robust community. In April 2018 Gfinity acquired RealSport101, a dynamic news portal covering multiple sports, traditional and virtual. During the year we refocused the RealSport101 web and social channels 100% on esports news and features, adding writers, broadening the games covered and serving content at optimum times for both the UK and US markets. Concurrently we have expanded the reach of gfinityesports.com and its social channels. Gfinity now has a large and growing community and features in the daily news and entertainment gathering habits of millions of esports fans. It is now a credible and valuable Media Distribution Channel, reaching over 20 million gamers, creating new, scalable and recurring revenue streams. From ad serving to site takeovers and content sponsorships, publishers and brands now have a dynamic route to reach and engage with young gamers. In addition, our gamer community enables us to continually stay on top of trends, allowing us to create even more focused solutions for our clients and partners. Elite Series Over the last few months we took the decision to review the Elite Series, to relook, reimagine and relaunch it when we have a model that delivers on the strict financial metrics that we have set ourselves. The Elite Series delivered significant value to the business, showcasing our tournament and content creation abilities and driving multiple new commercial relationships. It also became a creative hot house that allowed us to trial formats that had never been seen before, a number of which have now become common practice for publisher-driven global esports programmes. We plan to re-launch the Elite Series with a new format when we have finalised the proposition that works for all stakeholders. 11 GFINITY plc | Annual Report & Financial Statements 2019 Investing in talent Gfinity has an outstanding team of gaming experts and professionals. In the last year we complemented the existing team with the appointment of two seasoned professionals in Graham Wallace as Global Chief Operating Officer and John Clarke as Global Brand and Marcomms Officer. We have continued to add talent that now gives us a unique blend of capabilities across gaming, technology, production, marketing, community building, commercial and operations. This broad skill set makes us invaluable to any organisation looking to connect with young gamers. In April we brought the Gfinity family under one roof, moving to an open plan office in Hammersmith that facilitates collaboration and co-creation. We see the benefits of this move on a daily basis. CSR We are delighted to have been able to once again support the Digital Schoolhouse Esports Tournament initiative. It is inspiring to see young people come together around gaming, to compete, to socialise and to grow. Negative stereotypes continue to exist around gaming but when you see young people taking part in this project you can see how gaming can be a force of good in our communities. We are exploring ways to take our partnership to another level and utilise gaming to assist those children who are currently underachieving at school. Outlook We made good progress in the last year and the Company’s strategic plan is now well embedded in the business. Our focus on a Strategic Client Management model has enabled us to deepen existing relationships and build a robust pipeline of exciting new opportunities. We are on the pathway to breakeven on an Adjusted EBITDA3 basis within the next two years and continue to target a long-term group gross margin of 30-40% and an Adjusted EBITDA margin in the range of 15-25% on a normalised basis. In closing Gaming is an integral part of the way young people now live their lives. Digitisation has changed the way they socialise and engage. They have said no to passive entertainment and yes to interactive entertainment. I am excited about what the future holds and the positive role that Gfinity is playing, and will continue to play, in igniting an esports revolution. Our business is at an inflection point. We are at the epicentre of the fragmented esports ecosystem, trusted to deliver high impact esports solutions to an ever-growing list of organisations looking to connect with young gamers. After a year of great progress and with exciting opportunities ahead, I would like to say thank you to our partners for their support and to all the Gfinity team for their passion for what they do. I am inspired daily. “We are at the epicentre of the fragmented esports ecosystem, trusted to deliver high impact esports solutions to an ever-growing list of organisations looking to connect with young gamers” 3 Adjusted EBITDA is earnings before interest, tax, depreciation, impairment, amortisation and the share-based payment expense. 12 GFINITY plc | Annual Report & Financial Statements 2019 13 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC REPORT Chief Financial Officer’s Report “Revenue of £7.9m represented a year on year increase of over 80% for a second consecutive year” Summary The year to 30 June 2019 was a period of strong growth for the business. I am pleased to be able to report on an 82% increase in revenue, a move to a gross profit position and good cost discipline. Overall this has enabled us to deliver a 30% improvement in the adjusted operating losses. Revenue of £7.9m (2018: £4.3m) represented a year-on-year increase of over 80% for a second consecutive year, reflecting both the value of our investments in people, products and technology in recent years and the strength of our strategic account relationships with a blue chip client base, who continue to look to Gfinity for their esports solutions. Revenue growth and an improved product mix delivered a gross profit of £1.0m (2018: loss of £3.4m), driven by the growth in strategic partnership solutions, coupled with a reduced investment in Gfinity owned content. Notwithstanding the 82% revenue growth and a £4.5m improvement at a gross profit level, administrative expenses (adjusted to remove the impact of certain non-cash items, specifically the share option charge, depreciation, amortisation and impairment of intangible assets) increased by 10%, to £9.6m. This increase reflected the full year impact of cost increases during the previous financial year, with expenses remaining flat on a month on month basis throughout the year to 30 June 2019. This demonstrates the strong operating leverage capability in the business. Year-end cash of £0.6m (2018: £3.7m) was in-line with expectations and was boosted by strong cash collection following the year end. This was supplemented at the end of July 2019 by the completion of an oversubscribed fundraise, raising a further £5.25m (gross) with strong support from both new and existing investors, leaving the business well positioned as it moves into the 2019/20 financial year. Revenue and cost of sales Revenue of £7.9m represented another year of strong growth, driven principally by growth in both the size and number of Gfinity’s strategic client relationships. While relationships with existing major partners, including Microsoft, EA Sports and F1 continued to build, we were also delighted to commence new programmes with Premier League, IndyCar and TRUXTUN Capital. The new programmes with IndyCar and TRUXTUN Capital demonstrate Gfinity’s capability to deliver strategic consultancy programmes around the esports sector. The consultancy programme is a higher margin revenue stream, which we expect to grow significantly through the 2019/20 financial year and in the medium-term and we expect it to contribute approximately 10% of group revenues over time. Revenue from Gfinity Elite Series grew 89% to £1.5m, with the net investment required reducing significantly to £0.4m, reflecting Jonathan Hall Chief Financial Officer 19 October 2019 14 GFINITY plc | Annual Report & Financial Statements 2019 (gross) with strong support from both new and existing investors, leaving the business well positioned going into the 2019/20 financial year. Financial outlook Our results represent a significant step along the path towards the Company’s target of reaching our breakeven Adjusted EBITDA target by 2021.. Strong revenue growth at an improving gross margin is expected to continue, driven by: ■ The development of the Company’s strategic consultancy programme; ■ Sponsorship and advertising relating to Gfinity’s rapidly growing gamer community; ■ Continuing growth in the esports solutions business with major strategic accounts; and ■ Growth in the value of shared commercial rights attached to these esports programmes, as more and more brands, rights holders, publishers and media companies seek to reach the growing audience of esports consumers. Administrative expenses will remain tightly controlled, meaning that this improving gross profit will pass through to the bottom line. The Company continues to target a long- term group gross margin of 30-40% and an Adjusted EBITDA margin in the range of 15-25% on a normalised basis. both the increase in revenue and the fact that only one season was delivered during the year, compared to three in the prior year. This product has gained significant traction in the industry, however, over the past two years it has also drawn on a lot of resources from Gfinity’s business. We are currently looking at restructuring this property, with a view to relaunching it in a revised format, with stronger commercial performance. Revenue from esports programmes with our strategic partnerships also grew strongly in the year, increasing 81% to £6.4m, delivering gross profit of £1.4m at a margin of 21.9%. This margin was strengthened during the year through the inclusion of Gfinity’s first strategic consultancy projects. It also included an increasing proportion of programmes in which Gfinity retained a share of the commercial rights to the programmes, alongside a simple delivery fee. Over the next two years we expect gross margins to strengthen significantly, driven by the growth in strategic consultancy income, a strengthening of the margins across our service delivery work, growth in value of the commercial rights for our esports programmes and the increase in advertising and sponsorship income for access to the rapidly growing Gfinity and RealSport communities. In the medium- term, we expect gross margins to achieve a target blended level of 35%-40%. Administrative Expenses Administrative expenses, excluding non- cash items4, amounted to £9.6m (2018: £8.8m). This 10% year-on-year increase is relatively low in the context of revenue growth of 82%, demonstrating the scalability of the current business and also a reprioritisation of resources throughout the year to the areas driving the greatest value. The small increase reflects the full year impact of the uplift seen during 2017/18, which itself was driven by the targeted recruitment of certain high calibre individuals. Actual underlying administrative expenses on a month- on-month basis have remained constant throughout the year. Full administrative expenses for the year include an impairment charge of £0.4m (2018: £0), in respect of revenues attached to specific account relationships held in CEVO. While overall revenue across the group has grown strongly, in line with expectations, the intangible asset created on acquisition of CEVO related to a specific company relationship from which revenues declined on a year on year basis. In line with IFRS requirements an impairment charge was therefore recognised in respect of this relationship. Operating loss Adjusted operating loss5 for the full year was £8.6m (2018: £12.2m), representing a year-on-year improvement of 30%. We expect to see a further significant improvement in 2019/20, before we reach our breakeven Adjusted EBITDA target by 2021. Share of loss in associates Esports Awards Ltd, in which Gfinity holds a 33% investment, continues to make strong progress as it builds an industry leading awards event for the esports sector. The November 2018 event attracted a global audience of over three million viewers, with more than 300,000 people registered and casting 3.3 million votes between them over the respective award categories. This provides a strong base from which to drive content and sponsorship revenues in the medium-term, which we believe will create an investment property of real value for the group. Gfinity’s share of loss in Esports Awards Ltd in the year was £0.1m (2018: £0.1m). Gfinity Australia achieved some good early traction in terms of audience and commercial partners. However, the net cost required to deliver the programme remained high in relation to the size of the local market. As a result, in August 2019, both Gfinity and the majority shareholder (HT&E plc) announced that the venture would be wound down, ceasing all operations by December 2019. The net loss from this venture during the year was £0.9m (2018: £0.3m). Cash and cash equivalents Year-end cash of £0.6m (2018: £3.7m) was in line with expectations. This figure was impacted by the phasing of invoicing on certain key projects, which resulted in a trade and other receivables balance of £2.3m at year end. A total of £1.8m of this balance was collected in the first three weeks of July 2019. This was supplemented at the end of the month by the completion of an oversubscribed equity fundraise, raising a further £5.25m 4 5 Administrative expenses include £2.5m of non-cash items; depreciation £0.4m (2018: £0.4m), amortisation and impairment of intangibles £1.0m (2018: £0.4m) and share option charge £1.1m (2018: £0.4m). Per note 4 15 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC REPORT Principal Risks and Uncertainties Introduction Gfinity’s long-term success will depend in large part on its ability to manage the key risks affecting the Company. Gfinity is an innovative business in a young and rapidly growing sector. In that context, the risks facing Gfinity can change quickly and the board recognises the importance of identifying key risks and ensuring that the right mitigation strategies are in place for managing them. “Gfinity is an innovative business in a young and rapidly growing sector.” Ultimate responsibility for managing risk lies with the board. Executive responsibility for retaining the register of risks and reporting on these to the board lies with the Chief Financial Officer and Company Secretary. Responsibility for the management of risks lies with different members of the Executive leadership team depending on the nature of the risk. Gfinity distinguishes between strategic risks and operating risks. Strategic risks represent macro level matters, which may impact on the strategy of the Company. Operating risks reflect the ongoing challenges that the business may face in delivering on that strategy. On a day to day basis, responsibility for managing strategic risks lies with the Executive Chairman. Mitigation strategies and the emergence of new strategic risks are considered through the weekly strategic leadership team meetings, which he chairs. Operational risks are the responsibility of the Global Chief Operating Officer and are considered at the weekly Operational Leadership team meeting, including the Chief Financial Officer and heads of respective operational and commercial departments. In assessing its attitude to risk, directors aim to strike a balance between ensuring comprehensive processes and monitoring frameworks are in place, as would be expected of a publicly listed Company, while retaining the dynamism and innovation required to grow quickly within a rapidly developing and changing sector. The directors believe the principal risks currently affecting the business are as outlined below: 16 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC RISKS Risk Description Mitigating Actions Economic and Political Uncertainty Intellectual property risk Perception of video gaming Uncertainty over the United Kingdom’s exit from the European Union, and what future trading arrangements may be put in place, have created a climate of economic and political uncertainty, which creates risks at both a strategic and operational level for Gfinity. At a strategic level, the uncertainty could create challenges with regards to capital availability and the desire of global publishers, rights holders and brands to deliver programmes in the UK. Esports involves the use of intellectual property, typically owned by the publishers of the respective game titles. Gfinity must consider the risk of changes in strategy of the intellectual property owners, resulting in certain games not being available for use by Gfinity in its esports properties, or fees being required for the use of intellectual property, which may present a challenge to Gfinity’s business model. Some people view video gaming negatively, as something that promotes an unhealthy lifestyle and lack of social interaction. There is a risk that this perception will provide a barrier to entry to commercial partners and broadcasters, presenting a risk to Gfinity’s business model. Gfinity completed a fundraise shortly following the 2019/20 financial year end leaving the business well capitalised for the year ahead and in particular, providing financial certainty around the time currently scheduled for the United Kingdom’s departure from the European Union. Gfinity has also diversified its service offering and the geographical base of its clients, providing services ranging from strategic consultancy to providing written and video content direct to a global community of esports fans. This has created a much smaller reliance on the delivery of global partner events from the UK. Gfinity’s brand and technology platform, together with the audience consuming Gfinity content, has been developed across multiple titles, ensuring there is no dependence on any single title. Gfinity maintains strong relationships with multiple game publishers and has demonstrated the value it can bring to them in building communities and driving engagement around their games, which in turn drives revenues for the publishers through sales of the games themselves and in-game content. As a result, a number of the major game publishers have become key clients of Gfinity. Gfinity seeks to educate partners and the wider industry on the positive impact of gaming. Esports provides a social platform for people to play and interact, in a highly accessible way. Even at the top level, where teams and players are practicing for many hours per day, this will frequently be supplemented by fitness and nutrition programmes to keep players healthy. 17 GFINITY plc | Annual Report & Financial Statements 2019 STRATEGIC RISKS Continued... Risk Competition risk Speed of revenue growth Description Mitigating Actions There are currently very few companies globally that can deliver full end to end esports solutions and Gfinity has established a first mover advantage. As the market develops, however, there is a risk of new entrants coming into the market, or game publishers looking to bring the capability in house. Gfinity’s unique capability comes from a combination of its proprietary platform, the cumulative knowledge and breadth of relationships of its experienced team, its deep understanding of the esports community, and the investment in its esports studio. Gfinity continues to invest in these capabilities to retain a lead in the marketplace and to position itself such that any major new entrant to the esports market, or any major publisher looking to expand their esports offering, would be able to move more quickly by acquiring Gfinity than by trying to replicate these capabilities in house. Gfinity operates in a pioneering sector. Directors believe, supported by market research, that the value of that sector is significantly below the level it should reach, given the size and level of engagement of the audience and the attractiveness of that demographic to broadcasters and commercial partners. Nonetheless, that growth may not be linear and that may present a risk to the speed of revenue growth. The directors of Gfinity firmly believe that establishing a market leading position in the fast-growing esports sector is the best route to delivering significant long-term value to shareholders. Nonetheless, in setting budgets and financial commitments, the board considers the short to medium-term pipeline of work available and continues to liaise with key shareholders on an ongoing basis to ensure the availability of further funding if required. 18 GFINITY plc | Annual Report & Financial Statements 2019 OPERATIONAL RISKS Risk Description Mitigating Actions Economic and Political Uncertainty Alongside the strategic risks that this uncertainty creates, it also presents a number of risks at an operational level, including access to equipment, attendance of players and talent at Gfinity events and matters of cross border billing and taxation. Liquidity risk Gfinity is currently a loss-making Company and as such, must ensure that it has sufficient capital available to deliver on its strategy. While the future trading relationship between the United Kingdom and the European Union is undetermined, each department has undertaken a risk assessment, reviewing the potential impact of a worst case scenario ‘no deal’ Brexit. Should this event occur, the business will therefore be in a position to continue to deliver its services without a material disruption to operations. Gfinity maintains a strong core group of investors but has also sought over recent fundraises to broaden this shareholder base, expanding its investment roadshows to new geographies and investigating opportunities with strategic investors, as well as financial institutions and private individuals. Access to key skills Data security risk Esports is a new sector and as such, the number of people with deep experience in developing and delivering esports solutions is limited. Without access to this expertise, Gfinity would not be able to provide the depth of solutions to its client base, or build its own Gfinity “tribe”. Gfinity places a high importance on succession planning within the business, ensuring that skills are not vested in a single individual. This is built through development of existing staff, recruitment of certain key personnel and where appropriate through targeted acquisitions. Senior individuals are also incentivised through an employee option scheme, driving loyalty to the business. Gfinity has undertaken an in-depth review of its data policies and procedures, in conjunction with lawyers and data protection experts in response to recent data protection legislation. All user data held is in a secure and encrypted manner and is only used in compliance with all relevant legislation. Gfinity has built a large community of esports fans playing, watching and socialising through its own platform and those of CEVO and RealSport. Increasing levels of data protection regulation, including GDPR legislation, and ongoing cyber security risks, make it imperative that any data gathered through these platforms is collected, handled and protected in accordance with all relevant regulations. Any failure to do so would significantly erode trust, both among the esports community and prospective commercial partners. This report was approved by the board and signed on its behalf. Garry Cook Executive Chairman 19 October 2019 19 GFINITY plc | Annual Report & Financial Statements 2019 Annual Report & Financial Statements 2019 GOVERNANCE GFINITY plc | Annual Report & Financial Statements 2019 GOVERNANCE Corporate Governance Report The board retains overall responsibility for ensuring strong corporate governance and is supported by the Audit, Nominations and Remuneration Committees. This section provides further detail on the composition and conduct of business of the board and its respective committees, together with information on how they discharge their responsibilities. Board of directors: The Gfinity plc board is responsible for: ■ Setting the strategy across all Gfinity group companies; ■ Defining the business model and the financial framework within which the business must operate; ■ Setting and ensuring the implementation of the culture, to deliver success; ■ Designing and implementing controls and the risk management framework; ■ Ensuring communication with key stakeholders, including staff, shareholders, suppliers and customers; ■ Appointing a senior Executive Team, capable of delivering on the defined strategy; ■ Monitoring performance against the above areas and taking remedial actions as appropriate; ■ Ensuring availability of capital to deliver on the chosen strategy. Chair’s statement on corporate governance: “The Directors recognise the fundamental importance of good corporate governance in providing an efficient, effective and dynamic management framework to ensure that the Company is managed in the right way for the benefit of all shareholders over the medium to long- term. In view of this, the board of Gfinity plc has chosen to apply the QCA Corporate Governance Code (the ‘QCA Code’) published by Quoted Companies Alliance. The QCA Code is a pragmatic and practical tool, which adopts a principles-based approach to corporate governance, which the directors of Gfinity believe is correct for Gfinity in its current stage of growth. This section of the report provides further details on how Gfinity complies with these principles of good corporate governance. Further information can also be found on our investor website gfinityplc.com.” Garry Cook Executive Chairman 22 GFINITY plc | Annual Report & Financial Statements 2019 GOVERNANCE Board of Directors GARRY COOK, EXECUTIVE CHAIRMAN Appointed: 23rd November 2017 A leading sports executive, Garry has worked in a number of high-profile roles, including as CEO for Manchester City Football Club, President of Nike’s “Brand Jordan” and most recently as Head of Global Brand and International Market Development for the mixed martial arts organisation the Ultimate Fighting Championship (‘UFC’). In July 2016 it was announced that UFC had been sold to a consortium led by WME-IMG for a reported $4 billion. Garry joined the Gfinity board in November 2017 and became the Executive Chairman in May 2018. GRAHAM WALLACE, GLOBAL CHIEF OPERATING OFFICER Appointed: 12 July 2018 Graham, a Chartered Accountant, has held senior executive positions with leading sports and entertainment companies including Viacom Inc, MTV Networks Europe and IMG Media. He was Chief Financial Officer and latterly Chief Operating Officer at Manchester City FC, where he led the business transformation programme between 2009 and 2013. He joined Rangers FC as Chief Executive, where he helped to lead the rebuilding of the club following its exit from administration. Recently Graham has worked with several leading investment groups advising on strategic, operational and financial matters in a range of sports and media properties. Graham joined the Gfinity board in July 2018. JOHN CLARKE, GLOBAL BRAND AND MARCOMMS OFFICER Appointed: 18 September 2018 John Clarke is a business professional with more than 25 years of international experience gained working in and with leading global companies. John has worked for HEINEKEN N.V. where he held the positions of Head of Global Communications and Senior Commercial Director within Lagunitas Brewing Company, a 100% owned subsidiary of HEINEKEN N.V. Previously he held senior leadership, corporate affairs and marketing positions within The American Express Company and Burson-Marsteller Public Relations. John joined the board as a Non-Executive Director in September 2018 and was appointed Global Brand and Marcomms Officer in May 2019. JONATHAN HALL, CHIEF FINANCIAL OFFICER Appointed: 1 September 2014 Jon qualified as a Chartered Accountant with Arthur Andersen followed by a period of six years specialising in organisation and business process design with PA Consulting, a leading London based management consultancy firm. He subsequently spent five years as a Finance Director of Saracens Ltd and the wider Premier Team Holdings Group, before joining Gfinity in August 2014 where he led the process of the Company’s admission to AIM. As Chief Financial Officer Jon has responsibility for all aspects of finance and accounting, including financial planning, reporting and accessing capital to fund growth. NEVILLE UPTON, FOUNDER Appointed: 15 January 2014 After graduating at the London school of Economics, Neville joined Coopers & Lybrand where he qualified as a Chartered Accountant. Neville’s formative years were at Euromoney where he gained experience in Finance, M&A and various commercial projects. After a brief spell at The Decisions Group as Finance and Operations Director, in 1998 he established a call centre business, The Listening Company, which specialised in multichannel communication applications and high quality customer service solutions. The business was sold in 2011 to Serco for a sum in excess of £60 million, at which time it had a turnover of £82 million and employed 4,000 people. Neville co-founded Gfinity in 2012. ANDY MACLEOD, INDEPENDENT NON-EXECUTIVE DIRECTOR Appointed: 23 November 2017 Andy has extensive communications industry experience from a variety of senior roles with major carriers and technology vendors. Until recently he spent eleven years at Vodafone Group, firstly as Group Chief Networks Officer responsible for the operation of Vodafone’s telecoms networks world-wide, then as Chief Technology Officer for Verizon Wireless in the USA and finally as the Regional CTO for the thirteen Vodafone Operating Companies outside Europe. He has recently retired from corporate life and has a portfolio of NED and consulting roles. Andy has served on the boards of Verizon Wireless Inc, Vodafone Italy Spa and Indus Towers Ltd, as Deputy Chair of Idex ASA and is currently a Non-Executive Director of IQGeo, an AIM listed geolocation software Company. He holds a degree in Materials Science from Oxford University, an MBA from Warwick Business School and is a Fellow of the Royal Academy of Engineering. Andy joined the Gfinity board in November 2017. PREETI MARDIA, INDEPENDENT NON-EXECUTIVE DIRECTOR Appointed: 23 November 2017 Preeti Mardia has diverse end-to-end operational management and commercial expertise across Electronics, Telecoms, Aerospace and FMCG sectors. Preeti is a Board Director with ThinFilm Electronics ASA, a global leader in printed electronics technology, and a Non-Executive Director of Maistro plc. Prior to the position of Senior Vice President Operations held at IDEX ASA, she was Vice President Operations for Axxcss Wireless UK and Operations Director at Filtronic Plc. She also has FMCG experience in operations with Cadbury Schweppes Plc. Preeti Mardia has a Master’s degree in Management from Ashridge. Preeti joined the Gfinity board in November 2017. 23 GFINITY plc | Annual Report & Financial Statements 2019 Board Composition and Performance: The composition of the Gfinity board is structured to contain the range of skills and personal qualities required to effectively discharge its duties. The board recognises that as Gfinity develops, within a rapidly growing sector the, precise composition required shall change from time to time. Responsibility for reviewing the composition of the board and making recommendations for appointment and removal of directors rests with the Nominations Committee. Further details of this are provided below. Any such recommendations are subject to formal approval of the full board. The board recognises the importance of diversity of skills and approach in effectively conducting its duties, and as such, has sought to appoint high calibre individuals from a wide range of backgrounds and sectors. ATTENDANCE RECORD: Role of Chair: The primary responsibility of the Chair is to lead the board effectively and to oversee the adoption, delivery and communication of the Company’s corporate governance model. As Executive Chairman, Garry Cook also retains responsibility for the development and delivery of the Company’s strategy, supported by the other Executive Directors. The Chair ensures that the board considers the key issues affecting the Group, both operationally and financially, and together with the Company Secretary ensures the correct information flows between the board, its respective committees and between the Independent Directors and senior management. Role of Company Secretary: The Company Secretary acts as a trusted adviser to the Chair and the board and plays a vital role in relation to both legal and regulatory compliance. The Company Secretary supports the work of the respective board committees and also acts as a confidential sounding board to the chairs of those committees. Board Conduct of Business: Full board meetings were previously monthly, but are now held on a quarterly basis, with a minimum of four meetings per annum to conduct the regular business of the board. Further full board meetings shall be held as required to provide approval on specific matters. In months where there is no full formal board meeting, a board call still takes place, in order to keep all directors informed on the progress of the business. The quorum for a board meeting to be considered valid is two. Director Garry Cook Graham Wallace Neville Upton Jonathan Hall John Clarke Preeti Mardia Andy MacLeod Number of Meetings Attended Total Meetings in Period in Office 8 8 8 8 6 8 8 8 8 8 8 6 8 8 The Audit Committee comprises: ■ Preeti Mardia (Chair) ■ Andy MacLeod ■ Graham Wallace The Chief Financial Officer is invited to attend Audit Committee meetings but does not formally form part of the Committee. Board Review and Performance: The board monitors its performance and composition on an ongoing basis and recognises that as the Company grows in a rapidly developing sector, the mix of skills required to best discharge its duties may change from time to time. It was in that context that, during the year, the board appointed two new directors, both with significant leadership experience in relevant sectors. Performance of the board is assessed on an annual basis. This process is led by the Chair of the Nominations Committee, supported by the Financial Director, and assesses the board’s performance against its stated terms of reference, both in terms of the process by which business is conducted and the results achieved. Following the appointment of John Clarke to an Executive Director position, the board is now seeking to redress the balance between Executive and Non- Executive Directors and will be looking to make further Non-Executive Director appointments during the 2019-20 financial year. Audit Committee: The role of the Audit Committee is to provide confidence to shareholders on the integrity of the financial results of the Company, expressed in this annual report and accounts, and other relevant public announcements made by the Company. The Audit Committee also has a key role in the oversight of the effectiveness of the risk management and internal control systems of the Company, and to make recommendations to the board for improvements in this regard. 24 GFINITY plc | Annual Report & Financial Statements 2019 ATTENDANCE RECORD: Director Preeti Mardia Andy MacLeod Graham Wallace Nominations Committee The Nominations Committee ensures there is a robust process for the appointment of new board directors. The committee works closely with the board and the Chair to identify the skills, experience, personal qualities and capabilities required for the next stage in the Company’s development, linking the Company’s strategy to future changes on the board. Only the Nominations Committee is able to formally submit a recommendation to the board for ATTENDANCE RECORD: Director Andy MacLeod Preeti Mardia Graham Wallace Remuneration Committee: The Remuneration Committee is responsible for outlining the principles of remuneration strategy to be applied across the Gfinity Group. It also directly approves the remuneration of all directors, together with the grant of any option over shares in Gfinity plc. Compensation is based on an expectation that the director will spend a minimum of 30 days a year on work for the Company. This will include attendance at a minimum of six board meetings per annum, each general meeting, plus other activities as agreed with the Executive team from time to time, including membership of board committees. ATTENDANCE RECORD: Director Andy MacLeod Preeti Mardia Number of Meetings Attended Total Meetings in Period in Office 3 2 3 3 3 3 the appointment of a new director. All such recommendations are still subject to the approval of the board. A separate Gfinity plc Nominations Committee was constituted following the appointment of an Executive Chairman in May 2018. Prior to this appointment, the role of the Nominations Committee was undertaken by the full board, under the guidance of a Non-Executive Chairman. ■ Andy MacLeod (Chair) ■ Preeti Mardia ■ Graham Wallace Number of Meetings Attended Total Meetings in Period in Office 1 1 1 1 1 1 Non-Executive Directors may support additional projects over and above their role as Non-Executive Directors and may be remunerated at or below market rate for those services. The extent of such services must not, however, compromise their status as Non-Executives, independent of the Executive team. The Remuneration Committee consists of Andy MacLeod and Preeti Mardia. Number of Meetings Attended Total Meetings in Period in Office 3 3 3 3 Full disclosure of director remuneration is provided within the Directors Remuneration Report. 25 GFINITY plc | Annual Report & Financial Statements 2019 GOVERNANCE Directors’ Remuneration Report As the Company is AIM listed, the directors are not required, under Section 420(1) of the Companies Act 2006, to prepare a directors’ remuneration report for each financial year of the Company and so Gfinity plc makes the following disclosures voluntarily, which are not intended to, and indeed do not, comply with the requirements of the Companies Act 2006. The Remuneration Committee is responsible for recommending the remuneration and other terms of employment for the Executive Directors of Gfinity plc. In determining remuneration for the year, the committee has given consideration to the requirements of the UK Corporate Governance Code. All directors hold either shares or share options in the company. The board of Gfinity believes it to be an essential part of attracting high calibre individuals to the board of directors, while preserving cash, in the interests of all shareholders, that Non-Executive Directors are offered options in the Company at a price and level that aligns them with the interests of the wider shareholder base. Service contracts All existing directors at the time of the Company’s admission to AIM entered into new service contracts on 16 December 2014, immediately prior to that admission. All new directors since this date have entered into comprehensive director service contracts at the time, or immediately in advance of commencing their roles. All directors’ appointments are subject to three months’ notice on either side, with the exception of Mr Upton, whose appointment is subject to six months’ notice on either side. All directors are subject to pre and post termination restrictive covenants with the Company, including those relating to non-competition and non-solicitation of customers and staff. No compensation is payable for loss of office and all appointments may be terminated immediately if, among other things, a director is found to be in material breach of the terms of the appointment. Remuneration policy The remuneration of Executive Directors is determined by the committee and the remuneration of Non-Executive Directors is approved by the full board of directors. The remuneration of the Chairman is determined by the Independent Non- Executive Directors, in conjunction with the Global Chief Operating Officer and the Chief Financial Officer. The remuneration packages of Executive Directors comprise the following elements: Basic salary and benefits Basic salaries for Executive Directors are reviewed annually having regard to individual performance, market practice and the financial position of the Company. In most cases salaries paid to Executive Directors are currently towards the low end of the market rate for their respective roles and relative to the experience of the individuals in question. Executive Directors are eligible for pension contributions and participation in the Company’s health insurance and life assurance schemes. Annual bonuses Bonuses awarded to Executive Directors are included in the Directors’ Emoluments table on page 28. Bonuses form part of the overall remuneration of Executive Directors and are aligned to the achievement of financial and strategic milestones which are designed to promote long-term value for all shareholders. Share options The Company believes that share ownership by Executive Directors and employees strengthens the link between their personal interests and those of the Company and the shareholders. The Company has an executive share option scheme, which is designed to promote long-term improvement in the performance of the Company, sustained increase in shareholder value, and clear linkage between executive reward and the Company’s performance. 26 GFINITY plc | Annual Report & Financial Statements 2019 DIRECTORS’ INTERESTS IN SHARES The interests of the Directors at 30 June 2019 in the shares of the Company were: Director Neville Upton Garry Cook Graham Wallace Andrew MacLeod SHARE OPTIONS Number of Ordinary Shares Percentage of issued share capital 14,877,245 1,990,741 312,500 78,704 17,259,190 4.10% 0.55% 0.09% 0.02% 4.76% Directors’ interests in options over the ordinary shares in the company were as follows: Director Garry Cook Graham Wallace Neville Upton John Clarke Jonathan Hall Andy MacLeod Preeti Mardia As at 30 June 2018 Options Granted Options Lapsed As at 30 June 2019 1,000,000 - 7,870,670 - 1,548,571 1,000,000 1,000,000 8,590,446 8,590,446 - 3,000,000 - - - 12,419,241 20,180,892 - - - - - - - - 9,590,446 8,590,446 7,870,670 3,000,000 1,548,571 1,000,000 1,000,000 32,600,133 27 GFINITY plc | Annual Report & Financial Statements 2019 GOVERNANCE Audited Information DIRECTORS’ EMOLUMENTS Emoluments of the directors for the year ended 30 June 2019 are shown below. Director Salary & Fees Bonus Pension Total Remuneration Total Remuneration Year ended 30 June 2019 Year ended 30 June 2018 Garry Cook Graham Wallace Neville Upton Jonathan Hall Preeti Mardia Andrew MacLeod John Clarke 292,400 289,875 150,000 140,000 25,000 25,000 172,500 120,000 80,000 - 30,400 - - 20,800 - - - 548 236 - 548 412,400 369,875 150,000 170,948 25,236 25,000 193,848 1,094,775 251,200 1,332 1,347,307 This report was approved by the board and signed on its behalf. 80,000 - 150,000 125,000 15,278 15,278 - 385,5566 Garry Cook Executive Chairman 19 October 2019 6 This figure does not include remuneration for former directors 28 GFINITY plc | Annual Report & Financial Statements 2019 GOVERNANCE Directors’ Report The directors present their annual report on the affairs of the Company, together with the financial statements and auditor’s report, for the year ended 30 June 2019. Principal activities Capital structure Gfinity is a world leading esports company. As a trusted independent esports provider it designs, develops and delivers esports solutions to publishers, sports rights holders, brands and media companies that connects them with hundreds of millions of young gamers. Gfinity is also becoming a standalone media distribution channel, organically engaging with 20 million gamers each month and providing them with compelling news and innovative content formats. An overview of Gfinity’s strategy and business model is provided within the Gfinity At A Glance section of this Strategic report. Future development Our development objectives for 2019–20 and beyond are disclosed in the Strategic Report. The capital structure is intended to ensure and maintain strong credit ratings and healthy capital ratios, to support the Company’s business and maximise shareholder value. It includes the monitoring of cash balances, available bank facilities and cash flows. No changes were made to these objectives, policies or processes during the year ended 30 June 2019. Results and dividends The consolidated income statement is set out on page 41. The Company’s loss after taxation amounted to £12.0m (2018: £13.6m). The directors do not recommend the payment of a dividend for the year ended 30 June 2019. 29 GFINITY plc | Annual Report & Financial Statements 2019 Events since the balance sheet date On 15 July 2019 Gfinity plc announced its intention to raise up to £5.25m by way of a placing to new and existing shareholders. On 31 July 2019 this placing was approved at an Extraordinary General Meeting of the Company and the new shares were admitted to AIM on 1 August 2019. Research and development The Company undertakes development activities which involve a planned investment in the building and enhancement of Gfinity products. Development expenditure is capitalised as an intangible asset, only if the development costs can be measured reliably and it is anticipated that the product being built will be completed and will generate future economic benefits in the form of cash flows to the Company. Further information on development activities are provided in the Strategic Report. Risk Management Information on Gfinity’s approach to risk management is provided within the Principal Risks and Uncertainties section of this report. Directors Directors’ indemnities The following directors held office as indicated below for the year ended 30 June 2019 and up to the date of signing the consolidated financial statements except where otherwise shown. The Company has made qualifying third party indemnity provisions for the benefit of its directors, which were made during the year and remain in force at the date of this report. Garry Cook Executive Chairman Graham Wallace Global Chief Operating Officer* Neville Upton Founder Jonathan Hall Chief Financial Officer John Clarke† Global Brand and Marcomms Officer† Preeti Mardia Non-Executive Director Andy MacLeod Non-Executive Director *Graham Wallace was appointed to the board on 12 July 2018 †John Clarke was appointed to the board as a Non-Executive Director on 18 September 2018 and assumed the Executive role of Global Brand and Marcomms Officer on 3 May 2019. 30 GFINITY plc | Annual Report & Financial Statements 2019 GOVERNANCE Statement of Directors’ responsibilities The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare company financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for the period. The directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM. In preparing these financial statements, the directors are required to: ■ present fairly the financial position, financial performance and cashflows of the Company; ■ select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently; ■ make judgements and estimates that are reasonable and prudent; ■ state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and ■ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for ensuring the annual report and the financial statements are made available on the corporate website. Financial statements are published on the Company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Auditors Each of the persons who is a director at the date of approval of this annual report confirms that: ■ so far as the director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and ■ the director has taken all the steps that he/she ought to have taken as a director in order to make himself/ herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. The trade and assets of the incumbent auditor, Rees Pollock, were acquired by Blick Rothenberg LLP on 30 September 2019 and Rees Pollock ceased to be regulated to perform statutory audits from that date. The directors appointed Blick Rothenberg LLP, trading under the Rees Pollock brand, to fill the casual vacancy arising and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. By order of the board: Garry Cook Executive Chairman 19 October 2019 31 GFINITY plc | Annual Report & Financial Statements 2019 Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Independent Auditor’s Report to the members of Gfinity PLC for the year ended 30 June 2019 Opinion We have audited the financial statements of Gfinity PLC (‘the parent company’) and its subsidiaries (the ‘group’) for the year ended 30 June 2019 which comprise the group statement of profit or loss, the group statement of comprehensive income, the group and company statements of financial position, the group and company statements of changes in equity, the group and company statements of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the Companies Act 2006. In our opinion: ■ the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 June 2019 and of the group’s loss for the year then ended; ■ the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; ■ the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and ■ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to SME listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: ■ the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or ■ the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 34 GFINITY plc | Annual Report & Financial Statements 2019 Key audit matter How the scope of our audit addressed the risk Going concern assessment (Group and parent company) The group has reported a post-tax loss for the year of £12.5m and at the balance sheet date had net current liabilities of £0.1m, a net decrease for the year of £3.6m, which includes cash and cash equivalents of £0.6m, a net decrease for the year of £3.1m. Continued losses of this magnitude would increase the net current liability and further reduce cash reserves. Accordingly, the going concern assumption has been identified as a key audit risk. If the going concern assumption were not appropriate this would have a pervasive effect which could impact on the group’s ability to realise assets in the normal course of business. The appropriateness of applying the going concern basis has been referenced in note 2 of the financial statements. We evaluated the directors’ assessment of going concern by reviewing cash flow forecasts prepared by management and considering the impact of events that had taken place subsequent to the balance sheet date but prior to the date of approval of the accounts. In particular we have assessed the impact of the share placing that took place on 1 August 2019 which resulted in a further £5.0m of funding (net of placing costs). We challenged the significant inputs and assumptions used in the forecast model and evaluated the feasibility of options available to management in the event that the projected cash flows fall below forecast figures. We considered the judgements made by management in applying the going concern assumption to be reasonable in light of the evidence available to the date of this report. Furthermore, we considered the disclosure in note 2 to the financial statements to be appropriate having given specific regard to this being an area of critical accounting estimate and judgement. Goodwill impairment assessment (Group) The group had goodwill of £2.5m (note 12) with an indefinite life as at 30 June 2019, which is required to be tested for impairment on an annual basis. Management have performed a full impairment review to compare the carrying amount of goodwill to its recoverable value, being the higher of value-in-use and fair value less costs to dispose. The directors have allocated goodwill to individual cash generating units (‘CGUs’) and the determination of the recoverable amount of the CGUs requires significant estimation and judgement, as disclosed in note 3. Accordingly, the carrying value of goodwill has been identified as a key audit risk. We evaluated Management’s assessment of the carrying value of goodwill by reviewing the cash flow and profit forecasts included in the directors’ value-in-use calculations for respective CGUs. We challenged the significant inputs and assumptions used in the calculations and performed sensitivity analysis to the forecasts to ascertain the extent to which reasonable adverse changes would, either individually or in aggregate, require the impairment of goodwill. Based on our procedures and the evidence available to the date of this report we concur with Management’s conclusion that no impairment to the carrying value of goodwill is necessary. 35 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Independent Auditor’s Report to the members of Gfinity PLC for the year ended 30 June 2019(continued) Key audit matter How the scope of our audit addressed the risk Valuation of intangible assets (Group) The group had intangible assets of £1.0m (note 11) with remaining useful economic lives of between 2 and 3 years as at 30 June 2019. Management are required to conduct impairment reviews where there is an indication of impairment of an asset. Management identified an impairment indicator for the Customer relationship asset and therefore performed a full impairment review to compare the carrying amount of asset to its recoverable value, being the higher of value-in-use and fair value less costs to dispose. This resulted in an impairment charge of £0.4m being recognised in the year. The assessment of whether there are impairment indicators and, where indicators are identified, the determination of the recoverable amount of the asset requires significant estimation and judgement, as disclosed in note 3. Accordingly, the carrying value of intangible assets has been identified as a key audit risk. We evaluated Management’s assessment of whether impairment indicators exist for respective assets by reviewing the internal and external factors that were considered in making their assessment in each case. Where impairment indicators were identified and a full impairment review performed, we evaluated Management’s assessment of the carrying value of the asset by reviewing the cash flow forecasts included in Management’s value-in-use calculations for the relevant asset. We challenged the significant inputs and assumptions used in the calculations and performed sensitivity analysis to the forecasts to ascertain the extent to which reasonable adverse changes would, either individually or in aggregate, require the impairment of the intangible assets. Based on our procedures and the evidence available to the date of this report we concur with Management’s conclusion that the carrying value of intangible assets, as disclosed in note 3, represents the recoverable amount and therefore that no adjustment to the carrying value of investments is necessary. For the purposes of this assessment, the value-in-use assessment is calculated on the same basis as that applied to the assessment of goodwill referred to above, and was therefore subject to the same audit procedures. Based on our procedures and the evidence available to the date of this report we concur with Management’s conclusion that no impairment to the carrying value of investments is necessary. Valuation of investments (Parent company) The company had investments in its subsidiaries of £4.5m (note 14) with an indefinite life as at 30 June 2019, which is required to be tested for impairment on an annual basis. Management assess the valuation of these investments with reference to their recoverable amount, being the higher of the assets’ fair value less costs to sell and value-in-use. The determination of the recoverable amount of the investments requires significant estimation and judgement, as disclosed in note 3. Accordingly, the valuation of investments has been identified as a key audit risk. This is not a complete list of all risks identified by our audit. 36 GFINITY plc | Annual Report & Financial Statements 2019 Our application of materiality In planning and performing our audit we applied the concept of materiality. An item is considered material if it could reasonably be expected to change the economic decisions of a user of the financial statements. We used the concept of materiality to both focus our testing and evaluate the impact of misstatements identified. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. Based on our professional judgement, we determined overall materiality for both the parent company’s and the group’s financial statements as a whole to be £700,000 (2018: £600,000). In determining this, we considered a range of benchmarks with specific focus on the loss for the year, total revenue for the year and total assets as at the balance sheet date. This materiality level represents 5.8% (2018: 4.5%) of loss before tax, 8.9% (2018: 13.9%) of revenue and 10.0% (2018: 5.2%) of total assets. We report to the Audit Committee all identified unadjusted errors in excess of £70,000. Errors below that threshold would also be reported if, in our opinion as auditor, disclosure was required on qualitative grounds. An overview of the scope of our audit We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in which they operate. The group is comprised of the parent company and its two subsidiaries, one of which is based in the UK with the other operating in the US. The parent company was subject to a full scope audit based on the materiality set out above and the two subsidiaries were subject to specified audit procedures where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the group. All audit work to respond to the risks of material misstatement of both the group and the parent company was performed directly by the audit engagement team. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 37 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Independent Auditor’s Report to the members of Gfinity PLC for the year ended 30 June 2019(continued) Use of this report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an Auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Philip Vipond Senior Statutory Auditor for and on behalf of Rees Pollock, Chartered Accountants Statutory Auditor 35 New Bridge Street London EC4V 6BW 19 October 2019 Responsibilities of directors As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/ auditorsresponsibilities. This description forms part of our auditor’s report. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: ■ the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and ■ the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: ■ adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or ■ the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or ■ certain disclosures of directors’ remuneration specified by law are not made; or ■ we have not received all the information and explanations we require for our audit. 38 GFINITY plc | Annual Report & Financial Statements 2019 GFINITY plc | Annual Report & Financial Statements 2019 3939 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Group Statement of Profit or Loss Director Notes 1 July 2018 to 30 June 2019 1 July 2017 to 30 June 2018 £ £ CONTINUING OPERATIONS Revenue Cost of sales Gross Profit / (Loss) Administrative expenses Operating loss Finance income Finance costs Share of net loss of associates & impairment of associates Loss on ordinary activities before tax Taxation Retained loss from continuing operations Profit from discontinued operations Earnings per share 4 6 8 8 9 27 20 7,870,166 (6,832,652) 1,037,514 (12,106,612) (11,069,098) 6,481 (1,583) (991,951) (12,056,151) - 59,832 (11,996,319) 1,911 (11,994,408) (0.04) 4,317,325 (7,732,767) (3,415,442) (10,033,326) (13,448,768) 1,432 (1,333) (347,237) (13,795,906) - 222,356 (13,573,550) - (13,573,550) (0.06) 40 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Group Statement of Comprehensive Income Director Notes 1 July 2018 to 30 June 2019 1 July 2017 to 30 June 2018 £ £ GROUP STATEMENT OF COMPREHENSIVE INCOME Loss for the period (11,994,408) (13,573,550) Other comprehensive income Items reclassified to profit or loss Changes in the fair value of derivatives recognised at fair value 18 58,083 108,421 Items that will not be reclassified to profit or loss Derivatives settled during the period reclassified to profit and loss Foreign exchange loss on retranslation of foreign subsidiaries Other comprehensive income for the period Total comprehensive income for the period (166,504) 2,221 (1,717) (106,200) (106,704) (12,100,609) (13,466,846) 41 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Group Statement of Financial Position Director Note 30 June 2019 £ 30 June 2018 £ NON CURRENT ASSETS Property, plant and equipment Goodwill Intangible fixed assets Investment in Associate CURRENT ASSETS Trade and other receivables Cash and cash equivalents Current tax assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Ordinary shares Share premium account Other reserves Retained earnings Total equity Non-current Liabilities Deferred tax liabilities Current liabilities Trade and other payables Derivative financial instruments Total liabilities 10 12 11 14 15 16 19 26 17 18 483,133 2,544,525 1,033,993 - 4,061,631 2,322,379 648,454 - 2,970,833 7,032,465 362,897 37,455,838 1,637,763 (35,731,794) 3,724,704 322,718 2,985,042 - 3,307,760 758,861 2,544,525 2,070,156 264,464 5,638,006 2,159,869 3,679,288 153,000 5,992,157 11,630,163 286,348 31,565,734 585,539 (23,628,965) 8,808,656 366,245 2,238,420 216,842 2,821,507 TOTAL EQUITY AND LIABILITIES 7,032,465 11,630,163 The notes on pages 50 to 83 form an integral part of these financial statements. Garry Cook Executive Chairman 19 October 2019 42 Jonathan Hall Chief Financial Officer 19 October 2019 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Company Statement of Financial Position Director Note 30 June 2019 £ 30 June 2018 £ NON CURRENT ASSETS Property, plant and equipment Investment in Subsidiaries Intangible fixed assets Investment in Associate CURRENT ASSETS Trade and other receivables Cash and cash equivalents Current tax assets TOTAL ASSETS EQUITY AND LIABILITIES Equity Ordinary shares Share premium account Other reserves Retained earnings Total equity Current Liabilities Trade and other payables Derivative financial instruments Total liabilities 10 13 11 14 15 16 19 17 18 459,103 4,466,134 - - 4,925,236 3,760,364 603,076 - 4,363,440 9,288,676 362,897 37,445,838 1,637,259 (33,107,935) 6,348,059 2,940,616 - 2,940,616 739,855 4,466,134 23,807 264,464 5,494,260 2,584,689 3,563,217 153,000 6,300,906 11,795,166 286,348 31,565,734 587,257 (23,028,794) 9,410,545 2,167,778 216,843 2,384,621 TOTAL EQUITY AND LIABILITIES 9,288,676 11,795,166 The notes on pages 50 to 83 form an integral part of these financial statements. As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the Company is not presented as part of these financial statements. The parent Company’s loss for the year amounts to £9,970,720 (2018: loss of £12,973,380). Signed on behalf of the board on 19 October 2019: Garry Cook Executive Chairman 19 October 2019 Jonathan Hall Chief Financial Officer 19 October 2019 43 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Group Statement of Changes in Equity Director Ordinary shares £ Share premium Share option reserve £ £ Retained earnings £ At 30 June 2017 188,664 15,254,085 154,217 (10,163,836) Forex Total equity £ - £ 5,433,130 Loss for the period Other Comprehensive Income Total comprehensive income Proceeds of Shares Issued Shares as Consideration Share issue costs Share options expensed Total transactions with owners, recognised directly in equity - - - - - - 81,763 13,618,704 15,921 3,050,663 - - (357,717) - - - - - - - 433,039 97,684 16,311,650 433,039 (13,573,550) - (13,573,550) 108,421 (1,717) 106,704 (13,465,129) (1,717) (13,466,846) - - - - - - - - - - 13,700,467 3,066,584 (357,717) 433,039 16,842,373 At 30 June 2018 286,348 31,565,735 587,256 (23,628,965) (1,717) 8,808,657 44 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Group Statement of Changes in Equity(Continued) Director Ordinary shares £ Share premium Share option reserve £ £ Retained earnings £ Forex Total equity £ £ At 30 June 2018 286,348 31,565,735 587,256 (23,628,965) (1,717) 8,808,657 Loss for the period Other Comprehensive Income Total comprehensive income Proceeds of Shares Issued Shares as consideration Share issue costs Share options expensed Foreign exchange on retranslation of foreign subsidiaries Total transactions with owners, recognised directly in equity - - - - - - 75,000 5,925,000 1,549 157,211 - - (192,107) - - - - - - - 1,050,002 - 76,549 5,890,104 1,050,002 (11,994,408) - (11,994,408) (108,421) 2,221 (106,200) (12,102,830) 2,221 (12,100,609) - - - - - 0 - - - - - 6,000,000 158,760 (192,107) 1,050,002 - 0 7,016,656 At 30 June 2019 362,897 37,455,839 1,637,258 (35,731,795) 504 3,724,704 45 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Company Statement of Changes in Equity(Continued) Director Ordinary shares Share premium Share option reserve Retained earnings Total equity £ £ £ £ £ At 30 June 2017 188,664 15,254,085 154,217 (10,163,836) 5,433,130 Loss for the period Other Comprehensive Income Total comprehensive income Proceeds of Shares Issued Share issue costs Shares as consideration Share options expensed Total transactions with owners, recognised directly in equity - - - - - - 81,763 13,618,703 - 15,921 - (357,717) 3,050,663 - - - - - - 433,039 97,684 16,311,649 433,039 (12,973,379) (12,973,379) 108,421 108,421 (12,864,958) (12,864,958) - - - - - 13,700,466 (357,717) 3,066,584 433,039 16,842,372 At 30 June 2018 286,348 31,565,734 587,256 (23,028,794) 9,410,544 Loss for the period Other comprehensive income Total comprehensive income Proceeds of Shares Issued - - - - 75,000 5,925,000 Shares as Consideration 1,549 157,211 - - - - - (9,970,720) (9,970,720) (108,421) (108,421) (10,079,141) (10,079,141) - - - - - 6,000,000 158,760 (192,107) 1,050,002 7,016,656 - - (192,107) - 1,050,002 76,549 5,890,104 1,050,002 362,897 37,455,838 1,637,258 (33,107,935) 6,348,048 Share issue costs Share options expensed Total transactions with owners, recognised directly in equity At 30 June 2019 46 GFINITY plc | Annual Report & Financial Statements 2019 GFINITY plc | Annual Report & Financial Statements 2019 4747 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Group Statement of Cash Flows Director Note 30-Jun-19 £ 30-Jun-18 £ (8,470,887) (12,505,936) 6,481 (123,558) - (270,661) 17,678 (370,061) 6,000,000 (192,107) 5,807,893 (3,033,055) 2,221 3,679,288 648,454 1,432 (312,342) (1,049,924) (315,713) - (1,676,547) 13,700,466 (357,717) 13,342,749 (839,736) - 4,519,024 3,679,288 24 8 10 Cash flow used in operating activities Net cash used in operating activities Cash flow from / (used in) investing activities Interest received Additions to property, plant and equipment Acquisition of subsidiaries, net of cash acquired Investment in Associate Proceeds from sale of discontinued operations Net cash used in investing activities Cash flow from / (used in) financing activities Issue of equity share capital Share Issue Costs Net cash from financing activities Net increase in cash and cash equivalents Effect of Currency translation on cash Opening cash and cash equivalents Closing cash and cash equivalents 48 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Company Statement of Cash Flows Director Note 30-Jun-19 £ 30-Jun-18 £ 24 8 10 Cash flow used in operating activities Net cash used in operating activities Cash flow from/(used in) investing activities Interest received Additions to property, plant and equipment Acquisition/Disposal of subsidiaries, net of cash acquired Investment in Associate Inter-company loans Net cash used in investing activities Cash flow from / (used in) financing activities Issue of equity share capital Share Issue Costs Net cash from financing activities Net increase in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents (7,579,304) (11,928,671) 6,481 (115,256) 45,000 (270,661) (854,293) (1,188,730) 6,000,000 (192,107) 5,807,893 (2,960,141) 3,563,216 603,075 1,432 (298,059) (1,066,500) (315,713) (691,046) (2,369,886) 13,700,466 (357,717) 13,342,749 (955,808) 4,519,024 3,563,216 49 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Notes to the Financial Statements 1. General Information Gfinity plc (“the Company”) is a public company limited by shares incorporated in the United Kingdom under the Companies Act 2006, registered in England and Wales and is AIM listed. The address of the registered office is given on page 6. The registered number of the company is 08232509. The functional and presentational currency is £ sterling because that is the currency of the primary economic environment in which the group operates. Foreign operations are included in accordance with the policies set out in note 2. Principal activities are discussed in the Strategic report. Standards, interpretations and amendments to published standards that are not yet effective Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Company’s accounting periods beginning on or after 1 July 2019 or later periods but which the Company has not adopted early are as follows: ■ IFRS 16 ‘Leases’ (effective for accounting periods commencing on or after 1 January 2019); Management continues to monitor the IASB’s on-going work on improvements to financial reporting but does not currently believe that the amendments and interpretations listed above will have a material effect on the Company’s reported income or net assets. The impact of IFRS has been considered in note 23. Interpretations and amendments to published standards effective in the accounts For the purposes of the preparation of the accounts, the Group has applied all standards and interpretations that will be effective for the accounting periods commencing on or after 1 July 2018. The following standards and interpretations have been adopted: ■ Amendments to IFRS 2, ‘Share based payments’, on clarifying how to account for certain types of share- based payment transactions (effective for accounting periods beginning on or after 1 January 2018); ■ IFRS 9 ‘Financial instruments’ (effective for accounting periods beginning on or after 1 January 2018); ■ IFRS 15 ‘Revenue from contracts with customers’ (effective for accounting periods beginning on or after 1 January 2018); ■ IFRIC 22, ‘Foreign currency transactions and advance consideration’ (effective for accounting periods beginning on or after 1 January 2018). 2. Accounting Policies Basis of preparation The Company has prepared the accounts on the basis of all applicable International Financial Reporting Standards (IFRS), including all International Accounting Standards (IAS), Standing Interpretations Committee (SIC) and the International Financial Reporting Interpretations Committee (IFRIC) interpretations issued by the International Accounting Standards Board (IASB) with effective dates for accounting periods beginning on or after 1 July 2018, together with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The accounts have been prepared on the historical cost basis, except for otherwise stated below. The principal accounting policies, which have been consistently applied throughout the period presented, are set out below. The preparation of financial statements in conformity with IFRS requires the use of certain estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. Estimates and judgements are continually reviewed and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. 50 GFINITY plc | Annual Report & Financial Statements 2019 Going concern Gfinity has established itself as a market leader in the fast growing esports sector. Having delivered strong revenue growth for the second consecutive year, the Group is on track to achieve its target of break even at an adjusted operating profit level in the year to 30 June 2021. At the end of the period the Group had cash and cash equivalents amounting to £648,454 and the Company had cash and cash equivalents amounting to £603,076. On 15 July 2019 the Group announced its intention to raise a further £5.25 million (prior to deduction of expenses) via a placing of shares on AIM. This placing was oversubscribed, with strong support from both new and existing shareholders. The transaction was approved by shareholders on 31 July 2019, with shares being admitted to AIM on 1 August 2019. The placing leaves the Group with a strong cash position from which to pursue its objectives, while the strong strategic client relations that Gfinity has built provide confidence of continued revenue and margin growth. In common with any growth business in a rapidly developing sector, however, it should be noted that there is an inherent degree of uncertainty in the forecasts. Alongside the improved financial performance of the business, the oversubscribed nature of the recent placing, the continued strong support of existing shareholders and a growing investment market for the esports sector gives the Directors confidence that should there need to be a raise further funds, then the company would be successful in doing so. Accordingly, the board do not believe there to be a material uncertainty with regards to going concern, hence these accounts have been prepared on a going concern basis. Basis of consolidation The Group accounts consolidate those of the Company and all of its subsidiary undertakings drawn up to 30 June each year. Subsidiary undertakings are those entities over which the Group has the ability to govern the financial and operating policies through the exercise of voting rights. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the acquisition method. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being 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 recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss. All intra group balances, transactions, income and expenses and profit and losses on transactions between the Company and its subsidiaries and between subsidiaries are eliminated. Goodwill Goodwill is initially recognised and measured as set out above. Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (‘CGUs’) expected to benefit from the synergies of the combination. CGUs to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro- rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. Investment in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or join control over those policies. The Group’s interests in jointly controlled entities are incorporated in the financial information using the equity method of accounting. Investments in joint ventures are carried in the balance sheet at cost as adjusted by post acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the individual investments. The Group’s share of the net profit or loss of the joint venture is shown as a single line item in the Consolidated Statement of Comprehensive Income. Where the Group transacts with a joint venture any profit or loss arising is eliminated to the extent of the Group’s interest in the relevant joint venture. The carrying amount of equity-accounted investments is tested for impairment at least annually. Investment in Subsidiaries Investments in subsidiaries are held in the Company balance sheet at cost and reviewed annually for impairment. 51 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Notes to the Financial Statements (Continued) Revenue Revenue comprises the fair value of the consideration received or receivable for the sale of services in the normal course of the Group’s activities. Revenue is shown net of value added tax. To determine whether to recognise revenue, the Group follows a 5-step process: 1. Identifying the contract with a customer 2. Identifying the performance obligations 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies performance obligations by transferring the promised goods or services to its customers. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Revenue comprises of: ■ Partner event fees: Revenue recognised in line with the date at which work is performed. ■ Sponsorship revenues: Revenue is recognised on the date the relevant sponsored event takes place. In the event of long-term sponsorship contracts, the revenue is released on a straight-line basis across the term of the contract, except in instances where a significant proportion of the revenue relates to specific activation activities, in which case the revenue is released in line with when that work is performed. ■ Advertising revenues: Fees are earned each time a user clicks on one of the ads that are displayed on the website. Revenue is recognised on a pay-per-click basis. ■ Ticket sales: Revenue is recognised on the date the relevant event is delivered. ■ Broadcaster revenues: Rights fees are received from linear broadcasters and online streaming platforms in return for rights to access broadcast content. Revenue is recognised once the relevant performance obligations are completed which is typically at the point the broadcast occurs. ■ Website subscriptions: Revenue is invoiced in advance and deferred on a straight-line basis over the subscription period. Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income 52 statement on a straight-line basis over the period of the lease. The impact of the introduction of IFRS 16, Leases, on future accounting periods is discussed in note 23. Foreign currencies Transactions in foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the year. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period. Exchange differences arising from the translation of the Group’s foreign operations are recognised in other comprehensive income. Taxation The taxation expense represents the sum of the tax currently payable and deferred tax. The charge for current tax is based on the results for the period as adjusted for items that are non-assessable or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computations of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or any discount on acquisition) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that the directors do not have a high degree of certainty that sufficient taxable profits will be available in the medium-term to allow all or part of the asset to be recovered. GFINITY plc | Annual Report & Financial Statements 2019 Share Based Payments The Company provides equity-settled share-based payments in the form of share options. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market- based vesting conditions) at the date of grant. The fair value determined at the date of grant is expensed on a straight line basis over the vesting period, based on the Company’s estimate of shares which will eventually vest and adjusted for the effect of non-market based vesting conditions. The Company uses an appropriate valuation model utilising a Black-Scholes model in order to arrive at a fair value at the date share options are granted. In instances when shares are used as consideration for goods or services the shares are valued at the fair value of the goods or services provided. The expense to the company is recognised at the point the goods or services are received. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the carrying amount of the asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and that the cost of the item can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Depreciation is calculated using the straight-line method to allocate the cost or revalued amounts of tangible fixed assets to their residual values over their useful economic lives, as follows: Office equipment 3 years straight line Computer equipment 3 years straight line Production equipment 3 years straight line Leasehold improvements Over the period of the lease or, where management have reasonable grounds to believe the property will be occupied beyond the terms of the lease, 3 years straight line The residual values and useful economic lives of the assets are reviewed, and adjusted if appropriate, at each balance sheet date. The carrying amount of an asset is written down immediately to its recoverable amount if the carrying amount is greater than its estimated recoverable value. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other gains or losses in the income statement. 53 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Notes to the Financial Statements (Continued) Intangible fixed assets Intangible assets other than goodwill are recognised where the purchase or internal development of such assets are expected to directly contribute towards the company’s ability to generate revenues over a multiple years. Intangible fixed assets are stated at historical cost less accumulated amortisation and impairment, if any. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Where the cost is not clearly identifiable discounted cash flows are utilised to estimate either the cost to develop the resource or, where there are already profits attributable the asset, to estimate future cash inflows. Historical cost includes expenditure that is directly attributable to the acquisition or development of the items. Subsequent costs are included in the carrying amount of the asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and that the cost of the item can be measured reliably. Amortisation is charged on a straight-line basis over the estimated useful economic life of the asset as follows: Software development 3 years straight line Web traffic acquired in business combination 3 years straight line Technology Platform 3 years straight line Customer Relationships 5 years 54 GFINITY plc | Annual Report & Financial Statements 2019 Research and development costs Development expenditure is capitalised as an intangible asset, only if the development costs can be measured reliably and it is anticipated that the product being built will be completed and will generate future economic benefits in the form of cash flows to the Group. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less. These are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the company becomes a party to the contractual provisions of the instrument. Financial liabilities are classified according to the substance of the contractual arrangements entered into. All interest-related charges are recognised as an expense in the income statement. Trade and other payables are not interest bearing and are recorded initially at fair value net of transactions costs and thereafter at amortised cost using the effective interest rate method. An equity instrument is any contract that evidence a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Financial assets Financial assets are recognised in the balance sheet when the Company becomes a party to the contractual provisions of the instrument and are recognised in the balance sheet at the lower of cost and net realisable value. Provision is made for diminution in value where appropriate. Income and expenditure arising on financial instruments is recognised on the accruals basis and credited or charged to the statement of comprehensive income in the financial period to which it relates. Trade receivables do not carry any interest and are initially recognised at fair value, subsequently reduced by appropriate allowances for estimated irrecoverable amounts. Derivative Financial Instruments Derivative financial assets and financial liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. Derivatives are initially recorded at fair value and are subsequently remeasured to fair value based on mid-market prices, estimated future cash flows and forward rates as appropriate. The fair value is re-assessed at each period end with the movements recognised initially in the statement of other comprehensive income before being recycled to the income statement. 55 GFINITY plc | Annual Report & Financial Statements 2019 FINANCIAL STATEMENTS Notes to the Financial Statements (Continued) 3. Critical Accounting Judgements and Estimates The preparation of financial statements in conformity with IFRS requires the use of certain estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. Estimates and judgements are continually reviewed and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Revenue recognition: The Group’s revenue recognition policy is based on separating contracts into discrete performance obligations with revenue then recognised based on the percentage completion of each performance obligation. Where the value of each distinct performance obligation is not set out in a contract Management estimate the value of each performance obligation based on the level of resource required to complete the performance obligation in comparison to the overall level of resource required to fulfil the contract. For example, if a contract did not stipulate the value by region of a broadcast agreement Management would use appropriate weighting (e.g. audience size) to estimate the value of each region, with each region viewed as a separate performance obligation. Revenue would then be recognised based on the percentage completion of each performance obligation. In instances where there is no other readily available proxy Management will estimate the value of each performance obligation based on the relative cost to deliver. Revenue settled by means other than cash (e.g. via equity in a associate) is recognised based on the value stipulated in the contract for goods or services, which would be set at fair value, with the revenue then recognised based performance obligations in the manner described above. Intangible assets recognised on business combinations: Intangible assets in business combinations are recognised when the asset is separately identifiable and based on the probable future economic benefit that arises owing to the Group’s control of the asset. Typically, the Group will utilise a discounted cash flow to establish the future economic benefits and therefore the fair value of the asset. The Group identified three intangible assets in relation to the two acquisitions undertaken in the prior year. As these assets have a finite economic life, in line with IAS 36, they are only subject to further testing for impairment when there are either internal or external indicators of impairment. Based on a review of these assets it was concluded that there were indicators of impairment in relation to the Gaming Platform and CEVO customer relationship. This followed a drop in revenue from third parties as CEVO focused on development in support of Group projects requiring an exercise to calculate the recoverable value of the asset. This is discussed below. Following further review it was concluded that there was no impairment to the Gaming Platform as the technology had underpinned the successful delivery of a number of events in the year. The further testing in relation to the customer relationship is discussed below. 56 GFINITY plc | Annual Report & Financial Statements 2019 Impairment testing: The Group tests goodwill for impairment annually. The recoverable amounts of cash generating units have been determined based on value-in-use calculations which require the use of estimates. Management has prepared discounted cash flows based on the latest strategic plan. Discount rate has been calculated using the Capital Asset Pricing model with reference to the value of UK 10 year gilts as a proxy for a risk free rate and the volatility of Gfinity’s share price relative to that of AIM since listing. Goodwill carried in relation to CEVO: The key assumptions in evaluating whether there was any impairment of the goodwill in relation to CEVO was the discount factor (13%) which was calculated in the manner outlined above and the volume of development work to be undertaken on behalf of the group. The development hours were based on the current pipeline of work and the technology requirements to deliver the strategic goals of the business which are then assumed to grow at a CAGR of 6% over a five year period. This was then compared against the cost to fulfil this work by paying a third party as discussed below. The cost savings established are a key determinant in whether there was any evidence of impairment. This was then evaluated over a five year period using a discounted cash flow. The third-party cost for work was determined with reference to CEVO’s own charge out rates with an assumed 5% CAGR growth in the hourly rate. This indicated a value of £1.8m higher than the carrying value of goodwill in relation to CEVO. Reducing development time by 10% has an impact of £0.2m. Goodwill carried in relation to Real Sport: The key assumptions in evaluating whether there was any impairment of the goodwill in relation to Real Sport was the discount factor (13%) which was calculated in the manner outlined above, the prospective growth in users (15% CAGR over five years, per Newzoo the esports industry will grow 20% to FY22) and the timing and successful execution of traffic monetisation strategies. Key costs related to content creation, staff, marketing and traffic acquisition. Where assumptions could not be validated based on historical data they have been benchmarked based on desk based research with a sensitivity considered for the timing of cash flows where monetisation had not yet occurred. Owing to Real Sport’s pre-profit status the discounted cash flow was undertaken for a five year period with the terminal value then being calculated based on the year five cashflows with an assumed growth rate of 0.5%. Based on the above the value of Real Sports was £3.0m higher than the carrying value. Reducing the CAGR for traffic growth by 5% has an impact of £0.7m while a 10% reduction has an impact of £1.4m. The impact of delaying certain monetisation strategies with traffic growth as per the base cost has had an adverse impact of £0.1m. CEVO customer relationships: As revenue from third parties declined in the year it was necessary to test the third-party relationships for impairment. The test was based on a discounted cash flow covering the remaining useful economic life of the asset (three years) with the key assumptions being the discount rate (13%), billable revenue per hour, the number of hours work undertaken and the staffing required to deliver the work. Based on the analysis the recoverable value of the asset was £0.3m requiring an impairment to the carrying value of £0.4m. Valuation of investments: Investments held in the company statement of financial position have been tested in line with the goodwill impairments described above Deferred tax: The Company has not recognised a deferred tax asset in respect of its losses given that there is no track record of taxable profits at this time. Deferred tax assets will be recognised when the Company has established a track record of expected future taxable profit. Detail of the unrecognised asset as at the period end are provided in note 9(c). Share based payments: The Company issues equity-settled share- based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. This fair value is measured by use of a Black-Scholes model. The key assumptions used as inputs into this model are outlined in note 21 on Share Based Payments. In addition, the company has issued share options as partial consideration for services provided. The cost of these has been recognised based on the timing of the delivery of the service and the fair value. 57 GFINITY plc | Annual Report & Financial Statements 2019 4. Revenue The Group’s policy on revenue recognition is as outlined in note 2. The year ending June 2019 included £0.9m included in the contract liability balance at the beginning of the period (2018: £nil). The Group’s revenue disaggregated by primary geographical markets is as follows: 30 June 2019 30 June 2018 Gfinity CEVO Total Gfinity CEVO Total 7,082,948 - 7,082,948 3,007,511 - 3,007,511 539,210 248,007 787,218 240,513 635,238 875,751 - - - 434,063 - 434,063 7,622,159 248,007 7,870,166 3,682,087 635,238 4,317,325 United Kingdom North America ROW Total The Group’s revenue disaggregated by pattern of revenue of revenue recognition is as follows: 30 June 2019 30 June 2018 Gfinity CEVO Total Gfinity CEVO Total 5,251,702 27,778 5,279,480 3,133,484 204,153 3,337,638 2,370,457 220,230 2,590,686 548,602 431,085 979,687 Services transferred at a point in time Services transferred over time Total 7,622,159 248,007 7,870,166 3,682,087 635,238 4,317,325 As at 30 June 2019 the Group had the amounts shown below held on the consolidated statement of financial position in relation to contracts either performed in full during the year or ongoing as at the year end. All amounts were either due within one year or, in the case of contract liabilities, the work was to be performed within one year of the balance sheet date June 2019 £1,085,158 £418, 286 £521,010 June 2018 £1,284,348 £ 447,849 £ 879,881 Trade Receivables Contract Assets Contract Liabilities 58 GFINITY plc | Annual Report & Financial Statements 2019 Trade receivables are non-interest bearing and are generally on 30 day terms. Contract assets are initially recognised for revenue earned while the services are delivered over time or when billing is subject to final agreement on completion of the milestone. Once the amounts are billed the contract asset is transferred to trade receivables. Contract liabilities arise when amounts are paid in advance of the delivery of the service. These are then transferred to the statement of comprehensive income as either milestones are completed or work is completed overtime. Revenue of £0.9m was recognised in the year ending 30 June 2019 that was held as a contract liability as 30 June 2018. All of these amounts were held in Gfinity. 5. Segmental Information The Group manage the business based on two segments: Gfinity and CEVO. The two reportable segments operate as follows: Gfinity: This segment is the largest part of the business and encompasses the majority of esports related activities and broadcast and production capabilities. CEVO: The in-house development capabilities which are key to delivering both Gfinity plc’s strategy and online esports solutions for third parties. This segment also includes several US based technology revenue streams. 30 June 2019 30 June 2018 Gfinity CEVO Group Gfinity CEVO Group Revenue 7,622,158 248,007 7,870,166 3,682,087 635,238 4,317,325 Loss (11,481,149) (513,259) (11,994,408) (13,420,753) (152,797) (13,573,550) Gfinity principally operate in the UK and CEVO principally in the US. The group has four single external customers which have revenue equal to or greater than 10% of the group’s revenue. The revenue from each of these customers is: £1.5m, £1.3m, £1.1m and £1.1m. The customers are major game publishers, media companies and sports rights holders. These revenues are attributed to the Gfinity segment. Segmental information for the statement of financial position has not been presented as management do not view this information on a segmental basis. Intra-group recharges are not considered when monitoring performance with central charges (such as senior management costs) retained in Gfinity plc rather than being apportioned across segments. 59 GFINITY plc | Annual Report & Financial Statements 2019 6. Operating Expenses Operating loss is stated after charging: Depreciation of property, plant and equipment Amortisation & impairment of intangible fixed assets Rentals under operating leases – land and buildings Expensed development costs Staff costs Costs of inventories expensed Auditors’ remuneration for auditing the accounts of the company Auditors’ remuneration for other non-audit services: – Other services supplied pursuant to such legislation – Other services related to taxation – All other services Net foreign exchange (gains)/ losses Year ended 30 June 2019 Year ended 30 June 2018 Group 399,307 1,036,163 613,861 190,308 5,648,905 - 47,500 - 2,500 8,975 24,546 442,221 418,797 609,373 190,517 4,567,202 1,308 21,000 - 1,500 8,250 (11,571) 7. Particulars Of Employees Number of employees The average number of people (including directors) employed by the Company during the financial period was: Group Company Year ended 30 June 2019 Year ended 30 June 2018 Year ended 30 June 2019 Year ended 30 June 2018 62 61 53 58 60 GFINITY plc | Annual Report & Financial Statements 2019 The aggregate payroll costs of staff (including directors) were: Wages and salaries Social security costs Pensions Equity settled transactions Group Company Year ended 30 June 2019 Year ended 30 June 2018 Year ended 30 June 2019 Year ended 30 June 2018 4,081,674 474,358 42,871 1,050,002 3,775,231 380,569 22,769 388,633 3,723,272 445,557 41,744 1,050,002 3,400,923 351,450 21,642 388,633 5,648,905 4,567,202 5,260,575 4,162,648 Total remuneration for Directors during the year was £1,347,307 (2018: £572,910). The board of directors comprise the only persons having authority and responsibility for planning, directing and controlling the activities of the Group. 8. Finance Income/Costs Interest income on bank deposits Interest cost Group Year ended 30 June 2019 Year ended 30 June 2019 £ 6,481 (1,583) £ 1,432 (1,333) 61 GFINITY plc | Annual Report & Financial Statements 2019 9. Taxation (a) Major components of taxation expense for the period ended 30 June 2019 are: Year ended 30 June 2019 Year ended 30 June 2019 Group Income statement Current tax Corporation tax charge / (credit) Total current tax Deferred tax Relating to origination and reversal of temporary differences Taxation charge / (credit) reported in the income statement £ - - (59,832) (59,832) (b) Factors affecting tax charge for the period A reconciliation of taxation expense applicable to accounting profit before taxation at the statutory tax rate of 19% (2017: 19%), to taxation expense at the Company’s effective tax rate for the period is as follows: £ (153,000) (153,000) (69,356) (222,356) Group Loss on ordinary activities before taxation Profit / (Loss) multiplied by rate of tax Effects of: Expenses not deductible for tax purposes Amortisation and impairment of intangibles Movement in unrecognised tax losses Unrecognised deferred tax asset at 17% Prior Year at 19% Year ended 30 June 2019 Year ended 30 June 2019 £ (12,054,190) (2,290,296) - 401,150 196,678 1,632,636 (59,832) 5,615,448 2,578,032 £ (13,795,906) (2,621,222) - 103,345 10,644 (153,000) - 2,437,877 (222,356) (c) Unrecognised deferred tax asset The Company has an unrecognised deferred tax asset arising from trading losses carried forward of £6,338,036 (2018: £4,666,946) calculated at the substantively enacted Corporation tax rate at the balance sheet date of 19% (2018: 19%). These trading losses will reverse against future taxable trading profits and no asset has been recognised due to uncertainties over the timing and nature of such gains in accordance with IAS 12. 62 GFINITY plc | Annual Report & Financial Statements 2019 10. Property Plant and Equipment Group Property Plant and Equipment Office equipment £ Computer & production equipment Leasehold Improvement £ Total £ Cost At 1 July 2017 Additions Disposals At 30 June 2018 Depreciation At 1 July 2017 Charge for the period Disposals At 30 June 2018 Net book value At 30 June 2018 At 30 June 2017 £ 746,413 107,249 0 853,662 238,108 264,093 0 502,201 351,461 508,305 7,947 14,036 0 21,983 4,603 4,927 0 9,530 12,453 3,344 383,451 203,905 0 587,356 19,208 173,202 0 192,410 394,946 364,243 Group Property, Plant and Equipment Continued Cost At 1 July 2018 Additions Disposals Exchange differences Office equipment Computer & production equipment Leasehold Improvement £ £ £ 21,983 40,311 0 853,662 50,070 (1,847) 331 587,356 34,506 0 1,137,811 325,190 0 1,463,001 261,919 442,222 0 704,141 758,860 875,892 Total £ 1,463,001 124,887 (1,847) 331 At 30 June 2019 62,294 902,216 621,862 1,586,373 Depreciation At 1 July 2018 Charge for the period Disposals Exchange Differences At 30 June 2019 Net book value At 30 June 2019 At 30 June 2018 9,530 5,536 0 - 15,066 47,228 12,453 502,201 238,830 (273) 85 192,410 154,940 0 - 704,141 399,307 (273) 85 740,843 347,350 1,103,260 161,373 274,513 483,113 351,461 394,946 758,860 63 GFINITY plc | Annual Report & Financial Statements 2019 Company Property, Plant and Equipment Office equipment £ 7,947 5,070 0 Computer & production equipment Leasehold Improvement £ £ 746,413 89,085 0 383,451 203,904 0 Total £ 1,137,811 298,059 0 Cost At 1 July 2017 Additions Disposals At 30 June 2018 13,017 835,498 587,353 1,435,870 Depreciation At 1 July 2017 Charge for the period Disposals At 30 June 2018 Net book value At 30 June 2018 At 30 June 2017 4,603 2,365 0 6,968 6,049 3,344 238,108 258,531 0 19,208 173,202 0 261,919 434,098 0 496,639 192,410 696,017 338,859 394,945 739,853 508,305 364,243 875,892 64 GFINITY plc | Annual Report & Financial Statements 2019 Company Property, Plant and Equipment continued Office equipment £ Computer & production equipment Leasehold Improvement £ £ Cost At 1 July 2018 Additions Disposals 13,017 37,877 0 835,498 44,399 (1,797) 587,355 34,506 0 Total £ 1,435,870 116,782 (1,797) At 30 June 2019 50,894 878,100 621,861 1,550,855 Depreciation At 1 July 2018 Charge for the period Disposals 6,968 5,536 0 496,639 235,532 (273) 192,410 154,940 0 696,017 396,008 (273) At 30 June 2019 12,504 731,899 347,350 1,091,753 Net book value At 30 June 2019 At 30 June 2018 38,389 6,049 146,202 338,859 274,511 394,945 459,102 739,853 65 GFINITY plc | Annual Report & Financial Statements 2019 11. Intangible Fixed Assets Group Intangible Fixed Assets Customer Relationship Real Sport Web Platform Gaming Platform Software Development Total £ £ - £ - £ - 1,198,661 935,518 281,383 £ 148,750 - 148,750 2,415,562 Cost At 1 July 2017 Additions At 30 June 2018 1,198,661 935,518 281,383 148,750 2,564,312 223,969 - 92,524 - 52,721 75,359 49,583 75,359 418,797 223,969 92,524 52,721 124,942 494,156 Amortisation At 1 July 2017 Charge for the period At 30 June 2018 Net book value At 30 June 2018 974,692 842,994 228,662 At 30 June 2017 - - - 23,808 73,391 2,070,156 73,391 Customer Relationship Real Sport Web Platform CEVO Gaming Platform Software Development £ £ £ £ Total £ Cost At 1 July 2018 Additions 1,198,661 935,518 281,383 148,750 2,564,312 - - - - - At 30 June 2019 1,198,661 935,518 281,383 148,750 2,564,312 Amortisation At 1 July 2018 Charge for the period Impairment 223,969 239,732 403,496 92,524 312,696 52,721 56,431 124,942 23,808 494,156 632,667 403,496 At 30 June 2019 867,197 405,220 109,152 148,750 1,530,319 331,464 974,692 530,298 842,994 172,231 228,662 - 1,033,393 23,808 2,070,156 Net book value At 30 June 2019 At 30 June 2018 66 GFINITY plc | Annual Report & Financial Statements 2019 Company Intangible Fixed Assets Cost At 1 July 2017 Additions At 30 June 2018 Amortisation At 1 July 2017 Charge for the period At 30 June 2018 Net book value At 30 June 2018 At 30 June 2017 Cost At 1 July 2018 Additions At 30 June 2019 Amortisation At 1 July 20178 Charge for the period At 30 June 2019 Net book value At 30 June 2019 At 30 June 2018 Software Development £ 148,750 - 148,750 75,359 49,583 124,942 73,391 23,808 Software Development £ 148,750 - 148,750 124,942 23,808 148,750 - 23,808 Total £ 148,750 - 148,750 75,359 49,583 124,942 73,391 23,808 Total £ 148,750 - 148,750 75,359 49,583 124,943 - 23,808 Software development costs refer to direct costs incurred in development of the Gfinity TV Player media player. The valuation of the Real Sport web platform has been based on the cost to Gfinity of acquiring Real Sport’s traffic 67 GFINITY plc | Annual Report & Financial Statements 2019 Goodwill £ 2,544,525 - 2,544,525 - - - 2,544,525 2,544,525 Total £ 2,544,525 - 2,544,525 - - - 2,544,525 2,544,525 The goodwill has arisen on the acquisitions of 100% of the share capital of CEVO Inc. and RealSM Ltd in the prior year. The goodwill arising on the business combinations has been tested for impairment based on the methods outlined in note 3 on accounting estimates and judgements. In both instances the test indicated there was no impairment of the goodwill. 12. Goodwill Group Cost At 1 July 2018 Additions At 30 June 2019 Impairment At 1 July 2018 Charge for the period At 30 June 2019 Net book value At 30 June 2019 At 30 June 2018 68 GFINITY plc | Annual Report & Financial Statements 2019 13. Investment in subsidiaries At 1 July Investment in subsidiary At 30 June 30 June 2019 £ 4,466,134 - 4,466,134 Company 30 June 2018 £ - 4,466,134 4,466,134 The investments in subsidiaries represent the purchase of CEVO and Real Sport on 24 July 2017 and 13 March 2018 respectively. The fair value of consideration at acquisition for CEVO was £2,158,498 for 100% of the share capital and the fair value at acquisition of Real Sport was £2,307,634 for 100% of the share capital. Both investments are held in Gfinity PLC. Subsidiary undertaking Country of incorporation Holding Proportion of voting rights and capital held Nature of business CEVO Inc. USA Ordinary shares 100% IT Development and Tournament and event operator RealSM Ltd England Ordinary Shares 100% Online media RealSM Ltd registered offices are The Foundry, 77 Fulham Palace Road, London, United Kingdom, W6 8JB. CEVO’s registered address is 128 Maringo Rd, Ephrata, WA 98823. 69 GFINITY plc | Annual Report & Financial Statements 2019 14. Investment in Associates Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £ £ £ £ At 1 July Investment Share of Losses Impairment At 30 June 264,464 727,487 (877,967) (113,984) 50,000 561,701 (347,237) 264,464 727,487 (877,967) (113,984) 50,000 561,701 (347,237) - 264,464 - 264,464 The investment in associate relates to the acquisition of 33% of the Esports Awards Limited on its incorporation in February 2017 and 30% of Gfinity Australia on its incorporation in August 2017. On 14 August 2019 it was announced that Gfinity Australia would close at the end if November 2019. As a result the carrying value of the investment was written off in full. Subsequent investments have maintained Gfinty’s investment at the same percentage holding. Both investments are held in Gfinity plc. Associate undertaking Country of incorporation Holding Proportion of voting rights and capital held Nature of business Esports Awards Ltd Gfinity Esports Australia PTY Limited England Australia Ordinary shares Ordinary Shares 33% 30% Event Operator Tournament and event operator Esports Awards LTD’s registered offices are Belfry House, Champions Way, Hendon, London, England, NW4 1PX. The registered office of Gfinity Esports Australia is Suite 5, Level 1, 100 William Street, Sydney, NSW 2011. 70 GFINITY plc | Annual Report & Financial Statements 2019 15. Trade and Other Receivables Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £ £ £ £ Trade receivables Provision for doubtful debts 1,085,268 (110) 1,504,006 (219,658) 1,054,816 (110) 1,389,124 (219,658) Other receivables Amounts due from group undertakings Amounts due from related undertakings Prepayments and accrued income Amounts due in less than one year Amounts due from group undertakings Prepayments and accrued income 1,085,158 1,284,348 1,054,706 1,169,466 374,058 - 51,214 710,933 227,165 - 128,692 519,664 374,058 - 228,045 610,757 51,214 128,692 647,321 447,729 2,221,364 2,159,869 2,127,299 2,584,689 - 101,015 - 1,532,050 101,015 Total 2,322,379 2,159,869 3,760,364 2,584,689 Amount due from group undertakings of £1,532,050 are considered to be due in more than one year (2018: £17,660) while prepayments include a rental deposit of £101,015 that is viewed as recoverable at the expiration of the lease in 2021. The directors consider that the carrying amount of trade and other receivables approximates to their fair value due to the short-term nature of these financial assets. 71 GFINITY plc | Annual Report & Financial Statements 2019 16. Cash and Cash Equivalents Cash at bank and in hand Short term deposit Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £ 598,324 50,130 £ 3,629,182 50,106 £ 552,946 50,130 £ 3,513,111 50,106 648,454 3,679,288 603,076 3,563,217 Cash at bank and in hand earns interest at floating rates based on daily bank deposit rates. The fair value of cash and cash equivalents does not differ from the carrying value. 17. Trade and Other Payables Trade payables Other taxation and social security Accrued expenditure and deferred revenue Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £ 1,448,232 148,589 £ 666,337 184,688 £ 1,412,800 139,597 £ 621,879 158,506 1,388,221 1,387,395 1,388,219 1,387,393 2,985,042 2,238,420 2,940,616 2,167,778 Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The directors consider that the carrying amount of trade payables approximates to their fair value due to their short-term nature. 72 GFINITY plc | Annual Report & Financial Statements 2019 18. Derivative Financial Instruments Derivative financial liabilities Deferred shares Group & Company 30 June 2019 £ - 30 June 2018 £ 216,843 Deferred shares relate to the acquisition of CEVO Inc.. These were paid in full during the year. The value of the shares at acquisition was £325,264 with a change in value of £108,421 recognised in other comprehensive income at the June 2018 year end. The shares were subsequently issued in September 2018 with the £108,421 recycled to the income statement along with a further £58,803 relating to the change in value between 30 June 2018 and the issue date. 19. Issued Capital The Company has a single class of ordinary share with nominal value of £0.001 each. Movements in the issued share capital of the Company can be summarised as follows: Issued and fully paid Number £ As at 30 June 2017 Issued on 24 July at £0.21 Issued 11 October 2017 at £0.27 Issued 13 March 2018 at £0.1875 Issued 28 March 2018 at £0.12 As at 30 June 2018 Issued on 17 September at £0.10 Issued on 9 November at £0.08 As at 30 June 2019 188,663,570 3,614,049 25,925,926 12,307,382 55,837,283 286,348,210 1,548,877 75,000,000 362,897,087 188,664 3,614 25,926 12,307 55,837 286,348 1,549 75,000 362,897 73 GFINITY plc | Annual Report & Financial Statements 2019 20. Earnings Per Share Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the period. IAS 33 requires presentation of diluted EPS when a Company could be called upon to issue shares that would decrease earnings per share or increase the loss per share. For a loss making Company with outstanding share options, net loss per share would be decreased by the exercise of options and therefore the effect of options has been disregarded in the calculation of diluted EPS. Group Company Year to 30 June 2019 Year to 30 June 2018 Year to 30 June 2019 Year to 30 June 2018 £ £ £ £ (12,102,520) (13,466,846) (9,970,720) (12,863,650) 1,911 Number 000’s Number 000’s Number 000’s Number 000’s 335,573 228,815 335,573 228,815 (0.04) 0.00 (0.06) (0.03) (0.06) Loss attributable to shareholders from continuing operations Profit attributable to shareholders from discontinued operations Weighted average number of ordinary shares Loss per ordinary share for continuing operations Profit per ordinary share for discontinued operations 74 GFINITY plc | Annual Report & Financial Statements 2019 GFINITY plc | Annual Report & Financial Statements 2019 757575 GFINITY plc | Annual Report & Financial Statements 2019 21. Share Based Payments Equity-settled share option plans Options The Company has a share option scheme for all employees of the Group. The tables below summarises the exercise terms of the various options over Ordinary shares of £0.001 each which had been granted, and were still outstanding, as at 30 June 2019. A total of 21,002,651 were granted in the year. No options were exercised during the year and 3,541,293 lapsed due to members of staff leaving. The total number of outstanding options in issue at 30 June 2019 is 54,359,795 (2018: 36,898,437). LTIP options Shares Options as at 30 June 2017 Shares Options Granted Share Options Forfeited LTIP Share Options as at 30 June 2018 Number Weighted average exercise price £ 22,766,711 6,967,440 (335,714) 29,398,437 0.1428 0.1964 (0.1962) 0.1549 Number Weighted average exercise price LTIP options Shares Options as at 30 June 2018 Shares Options Granted Share Options Forfeited LTIP Share Options as at 30 June 2019 29,398,437 21,002,651 (3,541,293) 46,859,795 £ 0.1549 0.1230 (0.1864) 0.1382 76 GFINITY plc | Annual Report & Financial Statements 2019 Options for non-employee services Non-market condition shares Number Weighted average exercise price Shares Options as at 30 June 2018 Shares Options Granted Share Options Lapsed Share Options as at 30 June 2019 7,500,000 - - 7,500,000 £ n/a - - n/a Options vest over periods defined in the respective option agreements and at the discretion of the board of directors. 10,726,129 options vested during the year (2018: 8,485,327). Of the options outstanding 32,600,133 (2018: 12,429,241) are held by directors. Full details of all options held by directors are contained within the Directors’ Remuneration Report. The principal assumptions input into the Black Scholes model to calculate the value of LTIP share options issued for compliance with IFRS 2 “Share Based Payments” are included below, where applicable. Weighted average exercise price Average expected life Expected volatility of options granted in year Risk free rate Expected dividend yield Year ended 30 June 2019 Year ended 30 June 2018 £0.1382 1.0 years 90.02% 1.11% 0% £0.1549 1.8 years 111.11% 1.14% 0% All options were granted at an exercise price equivalent to the market price at the date of grant. The weighted average exercise price of LTIP options outstanding at 30 June 2019 was £0.1382 (2018: £0.1549). The weighted average fair value of options issued during the period was £0.1230 (2018: £0.1119). The average expected life is based on directors’ best estimate taking into account the vesting conditions of the options. Expected volatility has been calculated with reference to the actual volatility of the share price since the Company’s admission to AIM in December 2014. The fair value of the non-employee services options has been based on the fair value of the services provided at the date the services were provided. This equates to a fair value of options issued in the year £nil (2018: £0.0111). All options are held in Gfinity plc with no options held over any of the subsidiaries. 77 GFINITY plc | Annual Report & Financial Statements 2019 22. Related Party Transactions The Directors Remuneration Report provides details of share options issued to certain directors in the period. Further information on share options are provided in Note 21. In addition to the share options granted in the year, Garry Cook and Graham Wallace also participated in the October 2019 share placing acquiring 100,000 and 25,000 shares respectively. These were purchased at the price of £0.08 in line with the amount paid by all other participants in the fund raise. Transactions with Group subsidiaries in the year were inter- company loans from Gfinity to CEVO (£476,208, FY18: £236,274), Real Sport (£471,740 FY18: £347,843). The prior year included an inter-company loan to Excel Interactive limited for £80,289, which was written off in full in the year, and Gfinity undertook transactions worth £18,989 with CEVO in the year ending June 2018. Transactions with associates in the year were £98,600 of revenue from the Esports Awards LTD (£90,000 in the prior year) and £379,848 with Gfinity Australia (£269,893 in the prior year) . These were billable activities based on market rates for delivering the services. At year end £51,214 remained outstanding from the Esports Awards LTD. £332,548 of the revenue from Gfinity Australia was settled via equity. 23. Commitments Under Non-Cancellable Operating Leases The Group and Company have the following total commitments under non-cancellable operating leases expiring as follows: LAND AND BUILDINGS Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £ £ £ £ Less than one year 1 -2 Years 856,368 447,759 372,600 - 856,368 447,759 Total 1,304,127 372,600 1,304,127 372,600 - 372,600 In the year ending June 2020 the Group’s accounts will be impacted by IFRS 16, Leases, which is effective for accounting periods commcing on or after 1 January 2019. If this had been in effect at the year ending 30 June 2019 both assets and liabilities would have increased by £1.3m. 78 GFINITY plc | Annual Report & Financial Statements 2019 24. Notes To The Cash Flow Statement Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 (12,056,151) (13,795,906) (9,971,259) (13,126,379) 399,307 1,036,163 (6,481) 1,050,002 (166,504) 991,951 (420,232) - 28,925 442,221 418,797 (1,432) 433,039 - 347,237 (246,550) - 125,191 396,008 23,807 (6,481) 1,050,002 (166,504) 991,951 (420.232) (44,999) 28,925 434,097 49,583 (1,432) 433,039 - 347,237 (246,550) - 207,198 - - - - (191,435) (624,724) (350,307) (543,679) 710,028 153,539 243,191 153,000 736,244 153,539 365,215 153,000 (8,470,887) (12,505,936) (7,579,304) (11,928,671) – – - - (8,470,887) (12,505,936) (7,579,304) (11,928,671) Cash flows from operating activities Loss before taxation Adjustments for: Depreciation of property, plant and equipment Amortisation & impairment of intangible fixed assets Interest Received Share based payments Fair Value Adjustment on Deferred Consideration Share of Associate Losses Revenue Settled Via Equity Gain on disposal of subsidiary Bad Debt Charge Changes in working capital: Decrease/(Increase) in Inventories (Increase)/ decrease in trade and other receivables Increase in trade and other payables* Corporation tax (paid)/ received Cash used by operating activities Interest paid Net cash used by operating activities 79 GFINITY plc | Annual Report & Financial Statements 2019 25. Financial Instruments And Risk Management Credit risk The Company uses a limited number of financial instruments, comprising cash, short-term deposits, and various items such as trade receivables and payables, which arise directly from operations. The Company does not trade in financial instruments. All of the Company’s financial instruments are measured at amortised cost The Company’s principal financial assets are bank balances and cash, trade and other receivables. Bank balances and cash are held by banks with high credit ratings assigned by independent credit rating agencies. Management is of the opinion that cash balances do not represent a significant credit risk. The Company’s activities expose it to a variety of financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. As the Group does not hold security against trade and other receivables, its credit risk exposure is as follows: Group Company 30 June 2019 30 June 2018 30 June 2019 30 June 2018 £ £ £ £ 1,243,834 1,292,320 2,745,432 1,788,425 The trade receivables balance represents amounts due from third parties. At the balance sheet date, the Group’s trade receivables totalled £1,085,268 less a provision of £110 (2018: £1,504,006 less a provision of £219,658). The Company’s receivables include £1,532,050 of inter-company funding (2018: £610,757). The Company’s trade receivables totalled £1,054,816 less a provision for doubtful debt of £110 (2018: £1,389,124 less a provision for doubtful debt of £219,658). There are no significant overdue but not impaired trade receivables at the balance sheet date. The Company balance sheet includes inter-company receivables which are not considered to be at risk as the Company retains control over the debtor however it is not anticipated that the Group companies will repay these amounts in the next 12 months. At the balance sheet date amounts of £905,026 were due from two customers representing a concentration of credit risk. All amounts have been recovered since the balance sheet date. Liquidity risk All trade and other payables are due for settlement within one year of the balance sheet date. The use of instant access deposits ensures sufficient working capital is available at all times. Foreign exchange risk The Company operates in overseas markets by selling directly from the UK, owns an overseas subsidiary and reports in GBP. It is therefore subject to currency exposures on transactions while the Group is subject to currency exposures on consolidation of the overseas subsidiary. 80 GFINITY plc | Annual Report & Financial Statements 2019 Derivative Financial Instruments The Group holds derivative financial instruments at their value with the gain or loss on remeasurement of fair value immediately in the statement of comprehensive income as outlined in Note 2. The only financial instruments held on the balance sheet related to deferred consideration for the purchase of CEVO with the liability to be settled via shares in Gfinity. Financial instruments held by the Company and their carrying values were as follows: Group June 2019 June 2018 USD ($) GBP (£) USD ($) AUSD ($) GBP (£) 882,474 441,582 901,508 35,393 1,262,719 80,783 316,422 (102,803) 354,674 399,288 (1,367,280) 88,762 377,085 (101,644) - - 380,646 3,380,358 (1,164) (2,160,794) - - - - (216,843) 1,176,876 (171,736) 1,265,711 34,229 2,646,086 Company June 2019 June 2018 USD ($) GBP (£) USD ($) AUSD ($) GBP (£) 843,801 441,582 780,150 35,393 1,168,665 265,100 (86,079) 354,674 394,324 (1,345,017) 321,783 (68,424) - - 380,646 3,319,590 (1,164) (2,115,304) - - - - (216,843) 1,022,822 (154,437) 1,033,509 (34,229) 2,536,754 Trade and other receivables Accured income Cash Trade and other payables Derivative Financial Instruments Net Current Assets/ Liabilities Trade and other receivables Accured income Cash Trade and other payables Derivative Financial Instruments Net Current Assets/ Liabilities Financial liabilities included in the balance sheet relate to the IAS 39 category of other financial liabilities held at amortised cost. As cash is held at floating interest rates, its carrying value approximates to fair value. Assets relate to loans and receivables with the exception of other receivables and prepayments which are classified as non- financial assets. Fair value estimation The aggregate fair values of all financial assets and liabilities are consistent with their carrying values due to the relatively short- term maturity of these financial instruments. Capital management The Company is funded entirely through shareholders’ funds. If financing is required, the board will consider whether debt or equity financing is more appropriate and proceed accordingly. The Company is not subject to any externally imposed capital requirements. 81 GFINITY plc | Annual Report & Financial Statements 2019 26. Deferred tax Group At 1 July Acquisition of subsidiary Credited to profit or loss At 30 June The provision for deferred taxation is made up as follows: Temporary timing differences on intangible assets At 30 June 2019 £ (366,245) - 43,525 (322,718) 2019 £ 322,718 322,718 2018 £ - (435,601) 69,356 (366,245) 2018 £ 366,245 366,245 82 GFINITY plc | Annual Report & Financial Statements 2019 27. Details of the sale of the subsidiary Profit on sale of subsidiary 1 July 2018 to 30 June 2019 1 July 2017 to 30 June 2018 Consideration received or receivable: Cash Total disposal consideration Carrying amount of net assets sold Gain on sale before income tax Tax expense on gain Gain on sale after income tax Losses of Subsidiary in the year Revenue Cost of Sales Gross Profit / (Loss) Administrative Expenses Profit / (Loss) 45,000 45,000 (37,982) 82,982 (15,767) 67,215 - - - - 1 July 2018 to 30 June 2019 1 July 2017 to 30 June 2018 - (17,914) (17,914) (47,389) (65,303) 33,845 (19,574) 14,271 27,321 27,321 83 GFINITY plc | Annual Report & Financial Statements 2019 APPENDIX Image Credits Photographer Joe Brady Photographer Chris Dart Photography Photographer Ben Brotherton / F1 84 Page Credit Cover Image 1 Cover Image 2 Cover Image 3 Page 7 image 2 Page 7 image 3 Page 4 image 4 Page 16 Page 22 Page 29 Page 30 Page Credit Cover Image 4 Page 1 Page Credit Page 2 Page 7 image 1 Page 11 Page 18 GFINITY plc | Annual Report & Financial Statements 2019 85 GFINITY plc | Annual Report & Financial Statements 2019 35 New Bridge Street, London EC4V 6BW gfinityplc.com 86 GFINITY plc | Annual Report & Financial Statements 2019
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