LeoVegas is leading the way into the mobile future. GIQ Gaming Intelligence Magazine

Transcription

1 LeoVegas is leading the way into the mobile future GIQ Gaming Intelligence Magazine Annual Report 2014

2 The greatest gaming experience number one in mobile casino Contents in brief 8 The LeoVegas story 10 Market overview 12 About the company 14 Board of directors 16 Directors report 18 Two-year review 19 Consolidated statement of comprehensive income 20 Consolidated statement of financial position 21 Consolidated statement of changes in equity 22 Consolidated cash flow statement 23 Parent company statement of comprehensive income 24 Parent company statement of financial position 26 Parent company condensed statement of changes in equity 27 Parent company cash flow statement 28 Notes, common to both the parent company and Group 38 Auditor s report

3 LeoVegas AB, the parent company of the Group, invests in and manages companies with operations in mobile and online gaming and related technolgy development. LeoVegas AB does not con duct any gaming operations of its own. In this annual report, for the sake of simplicity, LeoVegas or the company is consistently used to describe the Group s gaming operations and technology.

4 2014 in brief 190 million euro Deposits from start up until 31 December Number of employees as of 31 December 2014

5 132% Growth in revenues ,9 million euro Revenues full year

6 Award-winning innovation LeoVegas winner of Mobile Casino Product of the Year EGR Operator Awards 2014 LeoVegas winner of Innovation in Mobile and Tablet EGR Innovation Awards 2014 Innovation in casino WINNER LeoVegas winner of Best Innovation in Casino EGR Innovation Awards 2013 LeoVegas winner of Slots App of the Year Gaming App Awards 2014 LeoVegas winner of Honorary Award InternetWorld Top-100, 2014 On the EGR Power 50 list of the most influential gaming operators, LeoVegas ranks no. 1 in mobile. 6

7 Explosive growth Q million euro Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q

8 Mobile changed everything the LeoVegas story In three years, LeoVegas has grown from an unknown brand with zero customers to one of the leading mobile gaming companies in Europe and the market leader in mobile casino. Through strong customer acquisition, an exceptional growth rate and constant innovation, LeoVegas has proven itself as a front-runner in the mobile revolution. With the industry s most prestigious awards under its belt, the LeoVegas team continues to take the gaming experience to next level. Meet the two founders, Gustaf Hagman and Robin Ramm-Ericson. Time flies when you re having fun Time has flown by since that spring evening in May 2011, when the concept of the mobile gaming company Leo- Vegas was born. When other companies considered mobile gaming to be online gaming on a smaller screen, LeoVegas saw a completely new world. With the evolution of the iphone and other smartphones, the media landscape changed radically. The fun and playfulness in mobile usage paved the way. Our idea and vision are as relevant today as when we started out: LeoVegas is to create the greatest mobile gaming experience and be number one in mobile casino, explains Robin Ramm-Ericson. In record time, the company has established itself as the market leader with an explosive growth rate, technological leadership and attractive partnerships with gaming studios and media companies. In January 2015 LeoVegas took mobile gaming to a new level, setting a new world record for the largest single win on a mobile device ever EUR 5.6m. We are determined to be at the forefront as mobile revolutionizes the world The name LeoVegas originates from Leo, Latin for lion, evoking feelings of strength, confidence and royalty, and Vegas, which of course refers to Las Vegas the city of dreams and grand entertainment. LeoVegas insight that the touch function of new smartphones provided closer interaction and playfulness, enabling completely new experiences, put Las Vegas into the palm of one s hand. Innovation and our mobile first mentality in everything we do are at the core of LeoVegas, says Gustaf Hagman. A fantastic hardworking team On 12 January 2012 LeoVegas was launched simultaneously for mobile, tablet and PC. Just an hour later, the biggest mobile advertising campaign to date in the Nordics was rolled out. Our fantastic team worked on Christmas Eve, New Year s Eve and countless nights to make the powerful launch happen. From the very start, it was full steam ahead continues Robin Ramm-Ericson. It would soon become clear that the technology excelled, customers flowed in and a growing number of people were finding something completely new and exciting in LeoVegas. For the team, however, this was only the first step and further innovation was the way forward. Three months after our launch, all our competitors had gone live with their mobile solutions. Yet, if our headstart was ten weeks back then, it has now accelerated to at least ten months. We have no plans to slow down, comments Gustaf Hagman. Many have wondered what will happen when other larger companies embark on mobile initiatives, but the truth is that they have all invested heavily in their mobile product for many years now, without this limiting Leo- Vegas growth curves. 8

9 The mobile gaming revolution Smartphone users worldwide are enjoying explosive growth, amounting to over 2bn today. We stopped seeing mobile phones as merely phones a long time ago. They are now a crucial part of our lives, both professionally and privately. We are using our mobiles increasingly often on average every fifth minute during waking hours. Today, mobiles are our main channel for entertainment. Sweden is at the cutting edge with global gaming icons such as Candy Crush Saga (King.com) and Minecraft (Mojang). Like these success stories, LeoVegas rapid growth emerges from its ability to build close customer relationships, drive innovation and advance the standard of mobile entertainment. Of our new customers, many have played mobile games before, but never casino. We are seeing increased interest from these new customer segments. Playfulness, simplicity and entertainment in the mobile pave the way. It is clear that a growing number of people also want to experience what winning for real is like, which they can do on LeoVegas, unlike many other popular mobile games, explains Gustaf Hagman. Playfulness is key to LeoVegas offering. Our philosophy is that it must be fun for everybody and responsible gaming is a fundamental principle throughout. This matter is taken very seriously indeed by LeoVegas, which has been clear since the start a happy, healthy and responsible attitude to gaming characterize the entire operation. Mobile DNA With a hand-picked team of developers united by their passion for leading the mobile gaming experience, Leo- Vegas creates revolutionary technology in mobile gaming and strives for a wow factor that constantly overshoots expectations. For LeoVegas, mobile first is not just a strategy, but part of its DNA. Data, measurability and innovative marketing enable LeoVegas to cut through the media noise effectively and attract a growing number of new and returning customers. The company s own customer surveys show that practically everybody would gladly recommend LeoVegas to a friend. Such a testimonial speaks for itself. Quality never goes out of fashion. Although we operate in a rapidly evolving market, we have prioritised ensuring high quality in everything we do from technology, marketing and customer experience, to organisation, financial planning and Board work, comments Robin Ramm-Ericson. LeoVegas will continue to spearhead developments 2014 was a fantastic year for LeoVegas in many respects. Revenues grew 132% and the Group was profitable. The company was commended with several international awards, such as Innovation in Mobile and Tablet of the Year and Mobile Casino Product of the Year at the prestigious EGR Awards. At the same time, financing of EUR 11.3m was secured to invest in growth and innovation. Just three years have passed since the birth of LeoVegas. Today, the company has over 100 employees united around the original vision to create the greatest mobile gaming experience. Our journey has only just begun. We are determined to be at the forefront as mobile revolutionizes the world conclude the two founders. 9

10 Market overview Mobile devices are revolutionising the world. Neither TVs nor PCs are at the core of the entertainment industry of the future. Instead, people hold their individual entertainment devices in the palm of their hands. There are tremendous opportunities in the evolving media landscape. In a short space of time, LeoVegas has established itself as the market-leading mobile gaming company with focus on casino, and is now strategically positioned to meet needs and capitalise on the opportunities that follow from three global megatrends. Megatrends 1 The mobile is evolving from being primarily a communication device The mobile is turning into the primary entertainmnet device 2 Offline Gaming Online Gaming Online Gaming Mobile Gaming 3 Casino is moving away from being a niche product Mobile casino is turning into a mass market product 1. The mobile is turning into the primary entertainment device The number of smartphone users worldwide is undergoing explosive growth, amounting to just over 2bn today. In the past year alone, just over 1.2bn smartphones were sold worldwide 1 an increase of just under a third compared with the year before. But, it s not just the number of users that is on the rise. We are increasingly using our phones in fundamentally new ways. The most ground-breaking change is not accessibility, however,but the fact that the mobile has made a rapid transition from a traditional communication channel to an entertainment device. When Google studied what mobile users value most in their smartphones, traditional phone calls only made it to fourth place. Topping the list instead was entertainment, followed by other communication/social media and news monitoring. Around 1.5bn people globally have tested gaming on their mobile or tablet, of which, one third, have put money into it a share that is rapidly increasing. 2 In the US alone, the mobile entertainment 10

11 market amounted to almost USD 10bn in 2014, 57% of which was gaming entertainment 3. And, revenues from gaming entertainment increased by just over 50% from Surveys 5 show that we use our phones for three hours a day on average, or every fifth minute during waking hours. This increased usage naturally fuels both supply and demand for mobile services and entertainment, but also imposes greater demands on speed, user-friendliness, service level and continuous innovation. In this new world, with the mobile as the primary entertainment device, almost everything is measurable. We are spending an increasing amount of time and money on different types of mobile recreation such as music, films, news, games, blogs or social media behaviour that can also be monitored and better understood through data. This means that suppliers of such services compete for the same narrow window of time, and capturing attention through the tremendous din of the media is a constant challenge. Those wishing to reach their target groups must have unique knowledge about user behaviour and an ability to adapt their offering. Investment in and knowledge about ad-tech will therefore form a strategic success factor in the digital market landscape. Data-driven methodology and innovative advertising formats lay the foundation for LeoVegas marketing efficiency. 1 Gartner Group, March Newzoo Mobile Gaming Trend Report, December SNL Kagan research report, January Newzoo Mobile Gaming Trend Report, December Ericsson mobility report, November H2 Gaming Capital, January Gaming offline going online and gaming online going mobile The global casino gaming market has an estimated annual turnover of EUR 131bn 6 a mighty figure in the entertainment industry. The offline market is still dominant with estimates of around 95% of turnover globally and around 85% in Europe. That said, online-based games are undergoing rapid growth, with estimates of over 13% at the European market in 2014, and the transition of gaming from offline to online is undergoing long-term, strong, structural change that presents online gaming entities with great opportunities. Within the online gaming industry in general, casino games make up both the fastest-growing segment when compared to sports betting, poker and bingo and the segment that, alongside lotteries, has the highest profitability. The trend of gaming moving online is strong. Even stronger is the trend of online gaming shifting from PCs to mobiles. Within three to four years, mobile gaming is expected to surpass PC gaming in terms of revenues. Many believe that mobile gaming is mainly about increased accessibility and mobility, but it turns out that the majority of usage, rather than being on the move, actually takes place at home and in other environments where a TV or stationary PC is available. It is, quite simply, more fun to play on a mobile. People play more frequently albeit for shorter spells of time than on PCs. Demands are also higher, however. Users demand a faster, more intuitive and cleaner solution. While competing gaming companies adapted their gaming services from PC to mobile, often based on the perception that mobile gaming is like online gaming on a smaller screen, LeoVegas saw a completely new world of possibilities within the mobile gaming experience. Basing the development process on mobile-first is not just a strategy it s part of the company s DNA. 3. Casino is making the transition from niche product to mass market product Some service segments serve as an engine in the new mobile behaviour social media, multimedia, e-commerce and games. Measured in revenues that pass through the App Store and Google Play, the biggest application download platforms, however, games are by far the biggest category, accounting for more than half of revenues. This is entirely in line with the traditional gaming market which has historically always been highly profitable. Besides Swedish mega successes such as Minecraft and Candy Crush Saga, or Finland s Angry Birds, a growing number of people are finding their way to traditional casino games. Many of LeoVegas customers have played other mobile games before, but never casino. This means that the pleasure and entertainment in LeoVegas offering probably make up its strongest attraction. The strengthening trend that mobile casino is rapidly making the transition towards being a mass market product is thus driven by the increased opportunities presented by the mobile in the form of accessibility and entertainment value. Moreover, large groups of other types of mobile gamers are testing and then continuing to play mobile casino. Unlike many other popular mobile games, on a mobile casino you can win for real. All forecasts indicate that the mobile casino market will grow very strongly in the next few years. Current function of the mobile 1st 2nd 3rd 4th Entertainment Other communication/ social media News monitoring Phone calls 11

12 The mobile gaming company LeoVegas LeoVegas has, in a short space of time, established itself as an m-commerce sensation with an internationally leading position in mobile casino. With cutting-edge technology, focus on the mobile user and constant innovation, the company has revolutionised the consumption of gaming entertainment. Since its launch in January 2012, LeoVegas has exhibited explosive growth. Market leader in mobile casino LeoVegas was created for mobile. When other believed that mobile gaming was online gaming on a smaller screen, LeoVegas saw opportunities for a new level of gaming experience. Starting with a fast, intuitive and fun user experience based on solid, cutting-edge technology, Leo- Vegas created the market s most exciting mobile casino. The company quickly established itself as the category leader, assuming a pole position in the mobile gaming race and consequently has recieved a series of prestigious awards. The company has been commended for its innovation both in Sweden and internationally. In 2014 LeoVegas was named the most influential gaming operator for mobile by reputed industry body EGR (e-gaming Review). LeoVegas endeavours to maintain a leading position in the mobile revolution by continuing to offer a unique gaming experience, constant innovation and the most user-friendly product on the market. LeoVegas in-house developed technology leads the way. LeoVegas also offers the broadest and most prominent range of mobile casino games. The games are developed by or together with the market s most prominent gaming studios. Thanks to its leading position, LeoVegas is offered both favourable strategic terms of cooperation and exclusive advance launches of new games. LeoVegas has, in mobile casino, successfully positioned itself as always first with the latest. Unique ability to attract and retain customers Thanks to an entertaining, fast and intuitive gaming experience, also supported by innovative marketing, a growing number of people are gravitating towards LeoVegas. With the establishment of a strong brand as a basis, the company has attracted new customers through a consistent marketing concept that, just like the company s service, is entertaining, efficient and measurable. In particular, digital advertising in mobile has taken measurability to an entirely new level in terms of user preferences, navigation patterns and habits. This has provided LeoVegas with unique user data and know-how which forms the basis for constant renewal. The company was early to invest in ad-tech. Furthermore, innovative advertising formats and collaboration with leading media companies have been key to the company s expansion. Strong customer loyalty is shown most clearly through cohort analysis. This is a result of the entertainment value and the company s constant development of its offering, and also a high level of service with 24/7 customer support. For LeoVegas, having extremely short support response times and the fastest winnings payouts comes natural. LeoVegas builds on long-term relationships and an enjoyable gaming experience for all mobile users. Time and time again, LeoVegas demonstrates its ability to think out of the box and strategically in its marketing. A typical example is when the company, in September 2014, generated a great deal of attention at Apple s launch of the iphone 6 in Europe on Regent Street in London, where a LeoVegas customer won Europe s first iphone 6. Strong concept for continuing geographic expansion When LeoVegas was launched in January 2012 the company focused primarily on the Nordics, which has extensive smartphone usage and high broadband penetration. In the autumn of 2014 an initiative commenced on the newly regulated UK gaming market, where the company obtained a gaming licence. LeoVegas is on its way to establishing itself as King of Mobile Casino in the UK. Further expansion to new markets lies ahead. The overarching strategy is to launch LeoVegas on markets that are already regulated, or which are in the process of becoming regulated locally. Although local regulation and gaming licences entail increased gaming tax and hence a reduced gross margin for the gaming operator, the company believes that the benefits of regulation outweigh the costs. In the long term, regulation means a reduced legal risk as well as greater marketing opportunities. In addition, it is likely that growth opportunities in certain markets will increase substantially upon regulation. LeoVegas 12

13 welcomes simple and predictable rules and feels great confidence in the ability to act efficiently, and to benefit from the company s mobile leadership on new markets. Explosive growth and a scalable business model Since launch in January 2012 LeoVegas has enjoyed explosive growth with customer deposits exceeding EUR 190m as of 31 December 2014 an achievement very few m-commerce entities globally have managed in such a short space of time. LeoVegas currently employs more than 125 people and has offices in Malta (over 100 employees), Sweden and the UK. The Group s technological development takes place in Sweden, while all gaming operations take place from Malta. Revenue growth in 2014 was 132%. The company has an active growth strategy with an equal focus on retaining existing customers and attracting new ones. Despite strong expansion, substantial marketing initiatives and a sharp increase in the number of staff, in 2014 the company exhibited profitability and clear scalability in the business model. Responsible gaming Mobile gaming is fun, and should be fun for everyone. That said, some people could encounter problems related to their gaming. LeoVegas takes this very seriously indeed, and responsible gaming is a natural basis in everything the company does, which ultimately provides a more positive customer experience and longer customer relationships a win-win situation for customers and the company. Responsible gaming is a key element in LeoVegas offering and organisational culture, and has been since the start. Empowerment of customers and the tools offered for automatic gaming limitation have been success factors for the company, for example: 1 Tool for individuals to automatically limit gaming time or monetary transactions 2 Tool to quickly and simply block an account or cut oneself off entirely if the gaming risks turning into a problem 3 Tools for users or relatives affected by gaming issues that also provide contact with expert organisations Besides tools for players, LeoVegas works internally with responsible gaming as part of its corporate culture. For example, the company has chosen not to offer staff bonuses based on customers gaming volumes. In addition, training courses are held for staff on how to prevent gaming-related problems, and also on how relationships with customers can be further improved. LeoVegas is adamant in its efforts to constantly work with engagement and responsibility for a positive and safe gaming experience for everybody. Marketing model innovation + data = performance 2 13

14 Board of directors Robin Ramm-Ericson Gustaf Hagman Patrik Rosén Mårten Forste Name/title Year of birth Previous experience/other assignments Shareholding Robin Ramm-Ericson Founder & Chairman of the board 1975 Previous experience: Nordic manager Neteller & Optimal Payments ltd, CEO Payson AB, Product Development ATG. 202,014 Gustaf Hagman Founder & board member 1974 Previous experience: CEO Net Gaming AB (publ.), CEO Eurobet Nordic Ltd, Nordic Head Call Entertainment / Call TV. 203,500 Patrik Rosén Board member 1967 Other assignments: CEO and partner Aggregate Media Funds 252,778 (through Aggregate Media Fund V) Mårten Forste Board member 1971 Other assignments: Nordic manager Match.com 9,500 Anders Fast Deputy board member 1968 Other assignments: Partner Baker & McKenzie 0 14

15 LeoVegas always first with the latest 15

16 Directors report The board of directors of LeoVegas AB, corporate identity number , domiciled in Stockholm, Sweden, hereby submits its annual financial statements and consolidated financial statements for the financial year ending 31 December The results for the year and the financial position of the Group and of the parent company are set out in the Directors report, statement of financial position, statement of comprehensive income, statement of cash flows, statement of changes in equity and related notes and comments. The presentation currency of the parent company and Group is the euro. The Group s operations focus on mobile gaming. The parent company, LeoVegas AB (publ), registered in Sweden, invests in and manages companies within gaming operations and related technology development. The parent company does not conduct any gaming operations of its own. The gaming services of the Group are being offered through collaboration with partners and the products of the Malta-based subsidiaries. In this annual report, for the sake of simplicity, LeoVegas is consistently used to describe the Group s gaming operations. This refers to the Maltese subsidiaries gaming operations which, in 2014, were conducted through European gaming licenses in Malta and in the UK. The business concept behind LeoVegas is to create the leading mobile gaming experience. Thanks to technology developed in-house, LeoVegas can offer the market s fastest and most user friendly mobile casino. The Group s strategy is to launch LeoVegas on markets that are already regulated, or which are in the process of becoming regulated. Consolidated revenues and profit Consolidated revenues were EUR 37.9m (16.3), an increase of 132%. Gross profit was EUR 29.3m (11.3), an increase of 159%. Operating profit rose to EUR 1.9m (-0.4) and the operating margin was 5.1% (-2.7). Profit before tax rose to EUR 1.9m (-0.5) and profit amounted to EUR 1.7m (-0.5). Consolidated cash flow was EUR 14.4m (2.0). Cash flow without contribution from share issues was EUR 3.0m (0.1). Financing During the third quarter of the financial year ending 31 December 2014, the company underwent a process of raising capital, with SEB and GP Bullhound as their advisors. This resulted in a contribution of EUR 11.3m to the cash position before related costs. Three long-term institutional funds were added to the list of owners with around 60 new shareholders. A great number of existing shareholders and employees participated in the new share issue. During the course of raising the capital, the company gained exposure to professional investors in Stockholm and London. The share and ownership structure Following the completed process of raising capital, there are 2,244,293 shares in LeoVegas AB. The largest shareholder is Aggregate Media Fund V KB with 11.3%. Following the raising of capital, there were 143 shareholders with only Aggregate Media Fund V KB owning more than 10%. Employees At the end of the year, the Group had 105 employees including consultants working on a full-time basis for the Group. The average number of full-time employees during the year was 86 of which 67 were in Malta. Other important events in 2014 In connection with the regulation of the UK gaming market, LeoVegas applied for a licence to operate in that market. LeoVegas obtained the license during the financial year ending 31 December 2014 ahead of the new rules coming into force. Expected future performance The company does not provide any financial forecast. In the company s opinion, the mobile gaming market in Europe presents further solid growth opportunities in the years to come. In 2015, the company maintains a steady growth strategy with an equal focus on retaining existing customers and attracting new ones. Significant events after the end of the year On January 2015, the capital-raising process, which had been in progress during the autumn, was completed with the registration of the final shares. In May 2015, the Group had more than 125 employees including consultants working full time for the Group. Material risks and uncertainties In most national markets, gaming is regulated by law and subject to a licence. LeoVegas conducts its operations under gaming licences in Malta and in the UK. Therefore, because the operations are subject to a licence, political decisions can affect LeoVegas operations. 16

17 In recent years, the online gaming market has seen a growing number of market entrants. A potential risk for LeoVegas is increased competition from new entrants, but also larger entities that position themselves ahead of forthcoming regulation on national markets in Europe. Marketing is LeoVegas largest expense. Rapid changes to the price of marketing space could present LeoVegas with both a risk and an opportunity. The Group s operations are exposed to different currencies on an ongoing basis. Exchange rate fluctuations affect the Group s earnings. The Group works to reduce currency exposure through efficient liquidity management. However, the Group will remain exposed to future foreign exchange rate fluctuations. The majority of the Group s revenues are generated in the Nordic region. Regulatory changes on the gaming markets of the Nordic region could have both a positive and negative effect on the Group. Changes to marketing laws for gaming products could also affect the Group. Currently, it appears that there will be no changes to legislation on Nordic markets in the near future. The Group carefully monitors proposals for potential regulation on the European market. The subsidiary Gears of Leo AB Gears of Leo is a Group company that develops technical solutions behind LeoVegas leading gaming experience. In 2014, Gears of Leo concentrated on extending and developing its product portfolio. Investments were made in employees and software development. The number of employees grew from 10 at the beginning of the year to 24 at the end of year. 630,550 to the cash position. The total number of outstanding shares at 31 December 2014 was 2,244,293. During the Autumn of 2014 the secondary name of LeoVegas was registered. In summer of 2015 the name was changed to LeoVegas AB from UniverseLeo AB. Appropriation of profits The following profits of the parent company are at the disposal of the AGM: Amounts in EUR: Share premium reserve 11,450,736 Retained earnings 4,968,601 Profit for the year -171,681 Total 16,247,656 The board of directors propose that the entire amount of EUR 16,247,656 be carried forward. Dividend policy The dividend policy is not to issue any dividend in the current growth phase of the Group. The parent company LeoVegas AB The operations of the parent company, LeoVegas AB, are mainly focused on shareholding and group-wide management. The company provides and sells services relating to finance, communication, accounting and administration to other group companies. LeoVegas AB s revenue is earned from interest income from loans due from subsidiaries and services provided to subsidiaries. This will not change in During the year, there was one employee. On 1 January 2014, LeoVegas AB changed its presentation currency to EUR from SEK. The decision to change presentation currency was made at the AGM on 17 October Going forward, all companies in The Group will have the Euro. as their presentation currency. On 26 November the company held an EGM at which a decision was made to issue shares to a maximum number of 425,000 shares. In the issue, 309,390 new shares were registered. The price per share was EUR 36.5, which increased the cash position by EUR 11.3m. In December 2014, 120,000 new shares were also issued for from the 2011 and 2012 warrants programmes. This added EUR 17

18 Two-year review Amounts are in thousands of EUR unless otherwise stated Group 2014 Group 2013 Income statement Revenue 37,874 16,305 Gross profit 29,270 11,284 EBITDA 2, EBIT 1, Profit after tax 1, Balance sheet Intangible non-current assets 1, Property, plant and equipment Current receivables 4,158 2,625 Cash and cash equivalents 16,854 2,437 Total assets 23,074 5,855 Equity 15,081 1,881 Non-current liabilities 24 Current liabilities 7,993 3,950 Total equity and liabilities 23,074 5,855 Cash flow Cash flow from operating activities 4, Cash flow used in investing activities -1, Cash flow from financing activities 11,456 1,910 Total cash flow 14,417 1,989 Profitability and financial position Gross margin % 77.3% 69.2% EBITDA margin % 5.9% -1.8% EBIT margin % 5.1% -2.7% Return on equity % 62.4% -38.7% Equity/assets ratio % 65.4% 32.1% Quick ratio 262.9% 128.2% Employees Average number of employees Definitions Return on equity % Profit after tax for the year divided by average equity during the year excluding the equity contribution from raising capital in December EBIT (Earnings before interest and taxes) Profit before financial income/expense and tax. EBITDA (Earnings before interest, taxes, depreciation and amortisation) Profit before depreciation/amortisation, financial income/expense and tax. Quick ratio % Current assets in relation to current liabilities. Equity/assets ratio % Equity at the end of the period as a percentage of the Statement of Financial Position total at the end of the year. 18

19 Consolidated statement of comprehensive income Amounts in thousands of EUR Note Net sales 4 36,992 16,065 Own work capitalised Other revenue 236 Total revenue 37,874 16,305 Cost of sales -8,604-5,021 Gross profit 29,270 11,284 Marketing expenses -19,211-8,811 Other external expenses 6.7-3,673-1,188 Personnel expenses 8-4,071-1,637 Depreciation and amortisation Other operating income 60 Other operating expenses -98 Operating Profit/(Loss) 1,2,3 1, Profit from financial income/expense Other interest income and similar profit/loss items Interest expense and similar profit/loss items Profit after financial income/expense 1-25 Profit/(Loss) before tax 1, Tax Profit/(Loss) for the year 1, Earnings per share (EUR) Other comprehensive income, income and expense recognised directly in equity Exchange rate differences in the translation to EUR as the presentation currency 0-9 Other comprehensive income for the year 0-9 Total comprehensive income for the year 1, Comprehensive income per share (EUR)

20 Consolidated statement of financial position Amounts in thousands of EUR Note 31/12/ /12/2013 ASSETS Non-current assets Property, plant and equipment Intangible non-current assets 15 1, Total non-current assets 2, Current assets Other receivables 18 3,810 2,534 Prepaid expenses and accrued income Cash and cash equivalents 20 16,854 2,437 Total current assets 21,012 5,062 TOTAL ASSETS 23,074 5,855 EQUITY AND LIABILITIES Equity Share capital Non-registered share capital 1 Other capital contributed 16,683 5,207 Retained earnings -1,627-3,346 Total equity 15,081 1,881 Non-current liabilities Other non-current liabilities Current liabilities Trade payables 2,848 1,440 Tax liabilities Other liabilities 22 2, Accrued expenses and deferred income 23 2,648 2,038 7,993 3,950 TOTAL EQUITY AND LIABILITIES 23,074 5,855 PLEDGED ASSETS AND CONTINGENT LIABILITIES GROUP Amounts in thousands of EUR Note 31/12/ /12/2013 Pledged assets 24 None None Contingent liabilities 24 None None 20

21 Consolidated statement of changes in equity Share capital Non-reg. share capital Other contr. capital Retained earnings inc. profit for the year Total equity Balance as at 1 January ,444-2, Issue of share capital 2 2,030 2,032 Issue expenses Translation difference in equity in change of presentation currency Loss for the year Balance as at 31 December ,207-3,346 1,881 Balance as at 1 January ,207-3,346 1,881 Issue of share capital 4 10,717 10,721 New share issue in progress 1 1,203 1,204 Issue expenses Premium received for issued warrants Profit for the year 1,719 1,719 Balance as at 31 December ,683-1,627 15,081 21

22 Consolidated cash flow statement Amounts in thousands of EUR Note Cash flows from operating activities Operating profit 1, Adjustments for non-cash flow items - Depreciation/amortisation of property, plant and equipment and intangible non-current assets Tax paid -2 Interest received 3 2 Interest paid Cash flow from/(used in) operating activities before changes in working capital 2, Cash flow from changes in working capital Increase(-)/decrease(+) in operating receivables -1,372-1,710 Increase(-)/decrease(+) in operating liabilities 3,676 2,646 Cash flow from operating activities 4, Cash flows from investing activities Acquisition of property, plant and equipment Acquisition of intangible non-current assets 15-1, Cash flow used in investing activities -1, Cash flows from financing activities Issue of share capital 10,824 1,886 Issue of new shares upon redemption of warrants 632 Premium received for warrants 24 Cash flow from financing activities 11,456 1,910 Net movement for the year 14,417 1,989 Cash and cash equivalents at beginning of year 2, Translation difference in translation to EUR -108 Cash and cash equivalents at end of year 16,854 2,437 22

23 Parent company Statement of Comprehensive income Amounts in thousands of EUR Note Net sales Own work capitalised Other revenue 42 Total revenue 71 1,185 OPERATING EXPENSES Marketing expenses -50 Other external expenses Personnel expenses Depreciation and amortisation 9-93 Other operating income 128 Other operating expenses -8 Operating profit/(loss) 1,2, Profit from financial income/expense Profit from participations in group companies 10-3 Other interest income and similar profit/loss items Interest expense and similar profit/loss items 12-1 (Loss)/Profit after financial income/expense Tax on profit for the year 13 (Loss)/Profit for the year

24 Parent company Statement of Financial Position Amounts in thousands of EUR Note 31/12/ /12/2013 ASSETS Non-current assets Financial assets Participations in group companies Non-current receivables from group companies ,387 4,525 Total financial assets 4,388 4,526 Total non-current assets 4,388 4,526 Current assets Current receivables Receivables from group companies Other receivables Prepaid expenses and accrued income Total current receivables Cash and cash equivalents 20 11, Total current assets 12, TOTAL ASSETS 16,533 5,103 24

25 Amounts in thousands of EUR Note 31/12/ /12/2013 EQUITY AND LIABILITIES Equity Restricted equity Share capital Non-registered share capital Unrestricted equity Share premium reserve 11,451 1,883 Translation reserve -9 Retained earnings 4,969 2,744 Profit for the year ,247 4,943 Total equity 16,272 4,963 Non-current liabilities Liabilities to group companies 22-8 Other non-current liabilities Current liabilities Trade payables Liabilities to group companies 8 Other liabilities Accrued expenses and deferred income TOTAL EQUITY AND LIABILITIES 16,533 5,103 PLEDGED ASSETS AND CONTINGENT LIABILITIES PARENT COMPANY Amounts in thousands of EUR Note 31/12/ /12/2013 Pledged assets 24 None None Contingent liabilities 24 4,686 4,708 25

26 Parent company condensed statement of changes in equity Share capital Non-registered share capital Share premium reserve Translation reserve Retained earnings inc. profit for the year Total equity Balance as at 1 January , ,761 Appropriation of profits as decided at AGM -1,782 1,782 Issue of share capital 2 2,030 2,032 Issue expenses Profit for the year Balance as at 31 December , ,069 4,963 Balance as at 1 January , ,069 4,963 Appropriation of profits as decided by AGM -1, ,874 Issue of share capital 4 10,717 10,721 New share issue in progress 1 1,203 1,204 Issue expenses Premium received for issued warrants Loss for the year Balance as at 31 December ,451 4,796 16,272 26

27 Parent company Statement of cash flows Amounts in thousands of EUR Note Cash flows from operating activities Operating profit Adjustments for non-cash flow items - Depreciation/amortisation of property, plant and equipment and intangible non-current assets Exchange rate differences 7 Interest received Interest paid Cash flows (used in)/from operating activities before changes in working capital Cash flow from changes in working capital Increase(-)/decrease(+) in operating receivables Increase(-)/decrease(+) in operating liabilities Cash flows (used in)/ from operating activities Cash flows from investing activities Acquisition of intangible non-current assets Sale of intangible non-current assets 587 Cash flow from investing activities 269 Cash flows from financing activities Issue of share capital 10,824 1,886 Issue of new shares upon redemption of warrants 632 Premium received for warrants 32 Repayment of loans from subsidiaries 1, Loans to subsidiaries ,803 Cash flows from/(used in) financing activities 11, Net movement for the year 11, Cash and cash equivalents at beginning of year Translation difference from change in presentation currency -95 Cash and cash equivalents at end of year 11,

28 Notes with accounting policies and notes to the accounts 28 NOTE 1 General information LeoVegas AB, corporate identity number , conducts investment and management operations. Subsidiaries of LeoVegas (combined, the Group) conduct online gaming operations and gaming platform development. The parent company is a public limited liability company registered in Sweden and domiciled in Stockholm. These consolidated financial statements were approved for publication by the board of directors on 13 May All amounts in the notes are in thousands of euro unless otherwise specified. NOTE 2 ACCOUNTING AND VALUATION POLICIES General accounting policies The consolidated financial statements were prepared in accordance with the Annual Accounts Act, RFR 1, Supplementary Accounting Rules for Groups and International Financial Reporting Standards (IFRS) and IFRIC interpretations, as adopted by the EU. The consolidated financial statements consist of the parent company and LeoVegas International Limited, Malta with its subsidiaries LeoVegas Operational Limited, LeoVegas Gaming Limited, Gears of Leo AB, Leo Services B.V, Leo Marketing N.V and Leo Pay Limited. The parent company prepared its annual financial statements in accordance with the Annual Accounts Act and RFR 2 Accounting for Legal Entities. RFR 2 entails that the parent company shall, in the annual financial statements, apply for the legal entity all EU-approved IFRSs and statements to the extent possible within the bounds of the Annual Accounts Act and with due consideration for the relationship between accounting and taxation. The difference between the parent company financial statements compared with the consolidated financial statements primarily consists of the presentation formats of Statement of Comprehensive Income and Statement of Financial Position ensuing from the presentation format set out by the Annual Accounts Act. Amendments to accounting policies and change of presentation currency This is the first year for which LeoVegas has prepared consolidated accounts and used RFR 1, Supplementary Accounting Rules for Groups and International Financial Reporting Standards (IFRS) and IFRIC interpretations, as adopted by the EU. The company, pursuant to Chapter 7, section 3 of the Annual Accounts Act, has not previously prepared consolidated accounts. The parent company, LeoVegas AB, at the start of the 2014 financial year, changed its presentation currency from SEK to EUR. The comparative figures for 2013 have been translated into EUR at the closing-day rate on 31 December New standards, amendments and interpretations that came into effect in 2014 In 2014 the Group started to apply new standards, amendments and interpretations compulsory for financial years starting on 1 January The introduction of these standards, amendments and interpretations has not had any material impact on the Group s financial statements. New IFRSs and interpretations not yet applied None of the IFRS or IFRIC interpretations, which are initially compulsory for financial years starting after 1 January 2014 or which have been published but are not yet in effect, are deemed to have any material impact on the Group s profit and position. Applied valuation basis and classification The parent company s functional currency is the euro, which is also the presentation currency for the parent company and the Group. All amounts are, unless otherwise specified, rounded to the closest thousand. Assets and liabilities are recognised at acquisition cost. Assets are classified as current assets if they are expected to be sold or are intended to be sold or used in the company s normal operating cycle, if they are held primarily for trading purposes, if they are expected to be sold within twelve months from the Statement of Financial Position date or if they are cash or cash equivalents. All other assets are classified as non-current assets. Liabilities are classified as current liabilities if they are expected to be settled in the company s normal operating cycle, if they are held primarily for trading purposes, if they are expected to be settled within twelve months from the Statement of Financial Position date or if the company lacks an unconditional right to defer settlement of the liability for at least twelve months after the Statement of Financial Position date. All other liabilities are classified as non-current liabilities. Judgements and estimations in the financial statements Preparing financial statements in accordance with IFRS requires corporate management to make judgements and estimations and make assumptions that affect the application of the accounting policies and the recognised amounts of assets, liabilities, income and expense. The actual outcome can deviate from these estimations and judgements. The board is of the opinion that the judgements and estimations made when preparing these financial statements are not so difficult, subjective and complex that they can be described as critical in accordance with the requirements of IAS 1. The area that comprises a high degree of judgements, which are complex or such areas in which assumptions and estimations are of material significance, are mainly assumptions and estimations regarding impairment testing of intangible assets. Consolidated financial statements The consolidated financial statements include the parent company and companies in which the parent company directly or indirectly has more than half of the voting rights or otherwise has control. The consolidated financial statements were prepared in accordance with the purchase method. According to the purchase method, the parent company indirectly acquires the subsidiary s assets and assumes its liabilities. The difference between the acquisition cost of the shares and the fair value at the time of acquisition of acquired net assets constitutes the acquisition cost for goodwill, which is recognised as an asset in the Statement of Financial Position. If the difference is negative, the amount is recognised as revenue in the Statement of Comprehensive Income. Acquisition-related costs are expensed as they arise. Subsidiaries are all companies over which the Group has control. The Group controls a company when it is exposed to or is entitled to variable return from its holding in the company and is able to impact return through its influence over the company. Usually, this means that LeoVegas has more than 50% of the votes. Subsidiaries are included in the consolidated financial statements as of the date on which control is transferred to the Group. They are excluded from the consolidated financial statements as of the date on which control ceases. Subsidiaries income and expense, assets and liabilities are included in the consolidated financial statements from the date on which control arises through the date on which it ceases. Intragroup receivables and liabilities, income or expense and unrealised gains or losses arising from intragroup transactions between group companies, are eliminated in their entirety in the preparation of the consolidated financial statements. Unrealised losses are also eliminated, unless the incurred loss is fully or partially accommodated in the value of previous impairment of the transferred asset. Accounting policies for subsidiaries have been amended in cases where this has been necessary to ensure consistency with the accounting policies for the Group.

29 Segment reporting In accordance with the definition of operating segment in applicable accounting policies, the Group only recognises one operating segment. The basis for identifying reportable operating segments is the internal reporting as reported to and followed up by the Group s highest executive decision-maker, which corresponds to the board of directors of LeoVegas AB. Foreign currency Transactions in a currency other than the company s presentation currency are translated into EUR at the transaction day rate. Receivables and liabilities in a currency other than EUR are measured at the rate of the Statement of Financial Position date. Exchange rate differences arising in the translation are recognised in the Statement of Comprehensive Income. Translation of operations with a functional currency other than the EUR Operations with a functional currency other than the EUR are translated into EUR according to the current method, whereby assets, provisions and liabilities are translated at the rate of the Statement of Financial Position date and Statement of Comprehensive Income items are translated at the average rate. Exchange rate differences arising in the translation translation differences are recognised in the consolidated statement of comprehensive income as other comprehensive income. Revenue recognition Revenue consists of the fair value of amounts received or entered as a receivable for rendering services within the Group s ordinary operations. Revenue is recognised when the revenue amount can be reliably calculated and it is probable that future financial benefit will be received once certain specific criteria have been met. In cases where revenue can be reliably measured, but the transaction has not yet been completed on the Statement of Financial Position date, the revenue will be recognised in the Statement of Financial Position as accrued income. However, it is only in highly exceptional cases that accrued gaming revenue is not definite. Income from the Group s gaming operations is recognised as revenue. Gaming transactions in which the Group s income consists of a fixed percentage of profit or similar are recognised in accordance with IAS 18 Revenue. Gaming revenue is recognised net less player wins, bonus and jackpot contributions. Revenue from services sold is recognised excluding VAT and discounts and after elimination of intragroup sales. Sold services comprise management consulting services. Sold services mainly pertain to intragroup sales. Cost of services sold Cost of services sold refers to expenses in the gaming operations for payment services for depositing bets and paying out winnings, license fees to game suppliers, game tax and the cost of fraud and chargebacks. Own work capitalised Own work capitalised refers to the period s direct expenditure for salaries, other personnel-related expense and purchased services attributable to development projects entered as an asset in the Statement of Financial Position. Other operating income and other operating expense Income and expense for secondary activities in ordinary operations relating to operating receivables and operating liabilities are recognised as other operating income or other operating expense. This item mainly includes exchange gains and exchange losses from operations and gains on the sale, disposal or impairment of non-current assets. Marketing expenses The item marketing expenses includes external expenses for the production and distribution of marketing the Group s gaming operations in various media and the costs associated with collaboration partners and affiliates. Leases Leases are classified either as finance leases or operating leases in the consolidated financial statements. Leases of non-current assets for which the Group is essentially exposed to the same risks and rewards as in direct ownership are classified as finance leases. The leased asset is recognised in non-current assets and the corresponding rent liability falls under interest-bearing liabilities. Leases of assets for which the lessor essentially remains the owner are classified as operating leases and the leasing charge is expensed on a straight-line basis over the term of the lease. All of the Group s current leases have been classified as operating. The scope of paid leasing charges is set out in Note 6. Pension expenses The Group s outgoing payments for defined-contribution pension plans are expensed in the period in which the employees performed the services to which the charge relates. Taxes Tax in the Statement of Comprehensive Income consists of current tax and deferred tax. Tax is recognised in the Statement of Comprehensive Income, except when tax refers to items recognised in other comprehensive income or directly in equity. The current tax liability is based on taxable profit for the year. Taxable profit differs from the net profit recognised in the Statement of Comprehensive Income, because it does not include income and expense items that are not taxable or deductible, or which are taxable or deductible in years other than the current financial year. The Group s current tax liability is calculated according to the tax rates prescribed on the Statement of Financial Position date or which have been announced previously. Deferred tax is the tax which the company expects to pay or receive due to differences between the carrying amount of assets and liabilities and the equivalent amount for tax purposes used in calculating taxable profit. Deferred tax is calculated according to the method for calculating latent tax, based on temporary differences between carrying amounts and amounts for tax purposes of assets and liabilities, using the tax rates and tax rules decided or announced at the Statement of Financial Position date. Deferred taxes receivable relating to deductible temporary differences and loss carry-forwards are only recognised to the extent that it is probable they will be utilised and result in lower future tax payments. Deferred taxes receivable and liabilities are netted when there is a legal right to net current taxes receivable against current tax liabilities and when the deferred taxes receivable and tax liabilities are attributable to income taxes levied by the same tax authority from the same taxable unit or from different taxable units when there is an intention to settle receivables and liabilities on a net basis. Property, plant and equipment Property, plant and equipment consists of office equipment fixture & fittings and leasehold improvement. Property, plant and equipment are recognised in the Group at acquisition cost less accumulated depreciation and any impairment losses. The acquisition cost includes the purchase consideration plus expenses directly attributable to the asset for bringing it to its location and state of utilisation in accordance with the purpose of acquiring it. Depreciation is recognised over the assessed useful life of the asset. Repairs and maintenance are expensed on an ongoing basis. Intangible assets The Group s intangible non-current assets primarily consist of capitalised development expenditure for developing gaming platforms (software). Development work focuses on creating gaming platforms that are to provide the best gaming experience for mobile gaming. The completed gaming platforms are deemed to have a known useful life and are amortised on a straight-line basis over the estimated useful life of 5 years. Capitalised development expenditure for gaming platforms not yet completed is deemed to have an unknown useful life and is not subject to amortisation. Other intangible non-current assets consist of acquired software and domain names and are recognised in the Statement of Financial Position at acquisition cost less accumulated amortisation. Acquired software licenses are recognised at acquisition cost including costs for being able to commence using the software. They are deemed to have a known useful life and are amortised on a straight-line basis over the estimated useful life of 10 years. Development expenditure is capitalised as an asset in the Statement of Financial Position when all conditions have been met It is technically possible to complete the software so that it may be available for use Company management intends to complete the development work of the software and then use, sell or license the software 29

30 There is a possibility to use, sell or license the software It is demonstrable how the software can generate future expected financial benefits The contribution of the capitalised expenditure to developing the software can be credibly measured Sufficient technical, financial and other resources are in place to complete the development of the software and to use, sell or license the software Only expenditure arising as part of the development phase of gaming platforms is capitalised. The asset is entered as of the point in time the decision was made to complete each project and the conditions are in place to do so. The carrying amount includes expenditure for purchased services and direct expenditure for salaries and other personnel-related expenses that may be attributed to the asset in a reasonable and consistent manner. Development expenditure is entered at acquisition cost less accumulated amortisation. Measurement of the ability of intangible assets to generate revenue is regularly performed with the purpose of identifying any impairment need. Costs for maintenance of gaming platforms are expensed as they arise. Depreciation/amortisation and impairment Depreciation/amortisation is based on the original acquisition cost less the calculated residual value and allowance for impairment conducted. Depreciation/amortisation is performed on a straight-line basis over the asset s calculated useful life. The following useful lives are used: Capitalised development expenditure for Gaming platforms Acquired software licences Office equipment and fittings Leasehold improvement 5 years 10 years 3 5 years 3 years The residual value and useful life of an asset are reviewed annually. If there is any indication that the carrying amounts of property, plant and equipment or intangible non-current assets in the Group are excessive, an analysis is performed in which the recoverable amount of individual or naturally related types of assets is established as the higher of net selling price and value in use. The value in use is measured as expected future discounted cash flow. Intangible assets that are not yet complete and which are deemed to have an unknown useful life are not subject to amortisation and are annually impairment tested, whether or not there is indication thereof. Impairment is the difference between the carrying amount and the recoverable amount. When a previously recognised impairment loss is no longer warranted, it is reversed. A reversal may not be higher than an amount that does not exceed the carrying amount that would have been recognised (net of amortisation or depreciation) had no impairment loss been recognised. Financial assets The Group recognises a financial asset in the statement of financial position only when it becomes party to the contractual terms of the instrument. The Group classifies its financial assets as loans receivable and accounts receivable. The classification depends on the purpose for which the financial assets were acquired. Financial assets are recognised initially following the decision of corporate management on classification. Loans receivable and accounts receivable are financial assets that are not derivatives with determined or determinable payments and are not listed on an active market. They arise when the Group provides cash or cash equivalents or renders services for a counterparty without any intention to transfer the asset. Loans receivable and accounts receivable are classified as current assets if they fall due within one year or less. Otherwise, they are classified as non-current assets. Loans receivable are measured at amortised cost including transaction costs. The amortised cost is determined based on the effective rate of interest calculated at the time of acquisition. Accounts receivable are recognised at the amount they are expected to bring less doubtful receivables determined without discounting. The impairment of accounts receivable is recognised in operating expenses. Recovered accounts receivable are recognised as income in the Statement of Comprehensive Income. The financial assets are removed from the statement of financial position when the contractual rights to cash flows from the financial asset have ceased or been transferred and the Group has transferred all risks and benefits ensuing from ownership and no longer has control of the financial asset. At the end of each reporting period, the Group makes an assessment of whether there are objective grounds to indicate an impairment need for a financial asset or group of financial assets. There is an impairment need for a financial asset or group of financial assets and they are impaired, only if there are objective grounds for impairment as a result of one or several events that have transpired after the asset was initially recognised (a loss event ), and this event (or events) has/have an impact on the estimated future cash flows for the financial asset or group of financial assets that could have been reliably measured. First of all, the group assesses whether there are objective grounds to suggest an impairment need for a financial asset or group of financial assets. Criteria used by the Group to determine whether there are objective grounds to indicate an impairment need are: the issuer or debtor encountering severe financial difficulty breach of contract, such as absent or delayed payments of interest or capital amounts it is probable that the borrower will go bankrupt or enter another financial reconstruction arrangement For financial assets measured at amortised cost, impairment losses are calculated as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses not transpired) discounted to the original effective interest rate of the financial asset. If the carrying amount of the financial asset exceeds the calculated present value, the carrying amount shall be impaired and the impairment amount recognised in profit/loss. If, in a subsequent period, the amount pertaining to the impairment decreases and the reduction can be objectively attributed to an event that transpired after the impairment loss was recognised (such as an improvement in the borrower s credit rating), the impairment loss previously recognised shall be reversed. The amount of the reversal shall be recognised in profit/loss. Financial liabilities The Group recognises a financial liability in the statement of financial position only when it becomes party to the contractual terms of the instrument. The Group classifies its financial liabilities as financial liabilities and not as financial liabilities at fair value in the Statement of Comprehensive Income. Financial liabilities are classified as current liabilities if they fall due within one year or less. Otherwise, they are classified as non-current liabilities. Accounts payable are obligations to pay for goods and services acquired in the operating activities from suppliers. Accounts payable are recognised at amortised cost using the effective interest method. Financial assets are removed from the statement of financial position when the Group has fulfilled its contractual obligations, or when the contractual obligations have been cancelled or have ceased. Netting of financial assets and liabilities Financial assets and liabilities are netted against each other and recognised in a net amount in the statement of financial position only when there is a legal right to net the recognised amounts and there is an intention to settle the items with a net amount or at the same time, realise the asset and settle the liability. Cash and cash equivalents Cash and cash equivalents consist of cash and immediately available balances at banks and equivalent institutions, as well as current investments with a maturity from the time of acquisition of less than three months, which are exposed only to a negligible risk of fluctuations in value. Cash and cash equivalents are not funds held on behalf of players. These funds are held as client funds, separated from the Group s own cash and cash equivalents, and with stringent restrictions on usage. Parent company accounting policies The parent company applies the same policies as the Group, with the exception of parent company financial statements having been prepared in accordance with RFR 2. Accounting for Legal Entities and statements from the Swedish Financial Reporting Board. 30

31 Deviations between the consolidated and parent company accounting policies are motivated by the limitations posed by the Annual Accounts Act in the application of IFRS in the parent company and the tax rules that enable different accounting for a legal entity than for the Group. Group companies Participations in group companies are recognised in the parent company at acquisition cost less any impairment. The value of subsidiaries is tested when there is an indication of a decline in value. Dividend received from subsidiaries is recognised as financial income. Transaction expenses in connection with company acquisitions are recognised as part of the acquisition cost. Breakdown of restricted and unrestricted equity In the parent company Statement of Financial Position, equity is broken down into restricted and non-restricted equity pursuant to the Annual Accounts Act. NOTE 3 Segment reporting NOTE 6 Leases The Group only has operating leases. Leasing charges are expensed on an ongoing basis. Future minimum leasing charges are expected to be as follows: Group Parent company Within one year Within two to five years 1, Later than five years Group Parent company During the year, the company s leasing charges have amounted to The company s leases refer to rental contracts for premises. In accordance with the definition of operating segment in applicable accounting policies, the Group only recognises one operating segment. The basis for identifying reportable operating segments is the internal reporting as reported to and followed up by the Group s highest executive decision-making body, which corresponds to the board of directors of LeoVegas AB. LeoVegas AB has no external revenues. All of the Group s external revenues are derived from casino, conducted in the subsidiaries. The breakdown of revenues in the Group and parent company by service is set out in Note 4, and by geographic region in the table below. Out of the Group s intangible non-current assets, 95% (100) is attributable to Sweden and out of the Group s property, plant and equipment, 7% (0) is attributable to Sweden. Net gaming revenue less bonus and jackpot contributions (which is almost the same as net sales) by geographic region in % Nordics 85.1% 97.5% Rest of Europe 13.5% 2.5% Rest of World 1.4% 0.0% NOTE 4 Revenues Group 100% 100% Parent company Revenues from gaming operations Royalty revenues from gaming platforms 948 Consulting revenues, management 71 7 Other revenues 42 NOTE 5 Own work capitalised 36,992 16, Group Parent company Own work capitalised Refers to development work with gaming platforms NOTE 7 Auditor fees and expenses The following remuneration has been paid to auditors and auditing firms for auditing and other review pursuant to legislation and for advice and other assistance prompted by observations in the review (Audit assignment). Remuneration has also been paid for other independent advice, (Other assignments). Group Parent company Audit assignment, Grant Thornton Audit services besides the audit assignment, Grant Thornton Advice on tax matters, Grant Thornton Audit assignment, PwC 59 Audit services besides the audit assignment, PwC 95 Advice on tax matters, PwC 8 Audit assignment, other 16 NOTE Employees, salaries, remuneration and social security expenses Average number of employees of whom of whom 2014 women 2013 women Parent company Sweden Subsidiaries Malta Sweden Group total Corporate management Number of people of whom of whom in executive positions 2014 women 2013 women Parent company Board of directors Group total Board of directors Other senior executives

32 NOTE 8 cont. Salaries, other remuneration and social security expenses Salaries and remuner- Social security ation expenses Salaries and Social remunerationexpenses security Parent company (of which pension expense) ( ) (7) Subsidiaries 3, (of which pension expense) (23) (2) Group total 3, , (of which pension expense) (23) (9) Salaries and remuneration broken down between board members, other senior executives and other employees Parent company 2014 Group companies Total Board of directors Other senior executives Other employees 0 2,987 2,987 Total 90 3,457 3,547 Parent company 2013 Group companies Total Board of directors Other senior executives Other employees Total ,392 Board remuneration and other benefits According to a decision by the 2014 AGM, no fees shall be payable to the board. Amounts in thousands of EUR Base salary/fee Pension expense Base salary/fee Pension expense Robin Ramm-Ericson, Chairman Gustaf Hagman Mårten Forste Patrik Rosén Working board members/ MD of group companies Other senior executives NOTE 9 Depreciation and amortisation Depreciation/amortisation is distributed among each non-current asset, as set out below Group Parent company Gaming platforms Other intangible non-current assets -1 Equipment, fixtures and fittings Leasehold improvement -10 Total NOTE 10 Profit from participations in group companies Parent company Profit from divestment of group companies -3 NOTE 11 Financial income Group -3 Parent company Interest income Interest income, Group companies NOTE 12 Financial expense Group Parent company Interest expense Profit from participations in group companies Robin Ramm-Ericson and Gustaf Hagman actively work in the Group and draw salary and remuneration from group companies. Severance pay There are no agreements in place regarding severance pay or other terms of employment termination that involve material obligations for the Group. 32

33 NOTE 13 Tax NOTE 14 Property, plant and equipment Recognised tax in the Statement of Comprehensive Income Group Parent company Current tax Deferred tax on change in untaxed reserves Total recognised tax in the Statement of Comprehensive Income Profit before tax 1, Tax according to applicable tax rate 22% Tax effect from: Difference in tax rate in foreign operations Non-taxable revenues Non-deductible expenses Issue expenses entered in equity Other Utilisation of loss carry-forward from prior years Deficit that increases accumulated loss carry-forward but which is not recognised as an asset Total current tax The unutilised loss carry-forward at 31/12/2014 amounts to EUR 1,003k for the Group and parent company Group Accumulated acquisition cost Opening balance Investment Closing balance Accumulated depreciation Opening balance Depreciation for the year Closing balance Carrying amount at the end of the period NOTE 15 Other intangible assets Group Accumulated acquisition cost Opening balance Investment 1, Change in exchange rate, switch of presentation currency -9 Closing balance 2, Accumulated amortisation Opening balance Amortisation for the year Change in exchange rate, switch of presentation currency 3 Closing balance Carrying amount at the end of the period 1, Specification of intangible non-current assets Capitalised development expenditure Capitalised software Domain names and brands Total Accumulated acquisition cost 1, ,945 Accumulated amortisation Carrying amount at the end of the period 1, ,759 NOTE 16 Participations in group companies Parent company Accumulated acquisition cost Opening acquisition cost 1 36 Divestments -35 Closing acquisition cost 1 1 Accumulated depreciation/amortisation Opening accumulated impairment -35 Divestments 35 Closing accumulated impairment Carrying amount at the end of the period 1 1 Company Corp. id no. Domiciliation Partici-pation in % Eget kapital 2014 Redovisat värde LeoVegas International Limited C53595 Malta 100% 1,901-1,224 1 Accumulated acquisition cost 1,901-1,224 1 Subsidiaries of LeoVegas International Limited LeoVegas Gaming Limited 99.99% LeoVegas Operational Limited 99.99% Leo Pay Limited 100% Gears of Leo AB 100% Leo Services B.V 100% -Leo Marketing N.V 100% 33

34 NOTE 17 Receivables from group companies NOTE 21 Equity Receivables falling due within a year Receivables falling due between one and five years 4,387 4,525 Receivables falling due after five years or more Receivables from group companies 4,686 4,708 LeoVegas International Limited LeoVegas Gaming Limited 1, LeoVegas Operational Limited Leo Pay Limited 1 Gears of Leo AB 1, Leo Services B.V 774 2,864 Leo Marketing N.V 1-4,686 4,708 The parent company, LeoVegas AB, has issued to group companies a debt coverage guarantee for its intragroup receivables, as above. NOTE 18 Other receivables Group Parent company Receivables from payment service providers 2,729 2,418 Other receivables 1, NOTE 19 Prepaid expenses and accrued income 3,810 2, Group Parent company Prepaid rental and lease expenses Prepaid marketing expenses 180 Other prepaid expenses NOTE 20 Cash and cash equivalents Group Parent company Cash and bank balances 5,961 2, Current investments (deposit accounts at banks) 10,893 10,893 16,854 2,437 11, Parent company Number of shares registered at the Statement of Financial Position date 2,108,588 1,814,903 Number of shares under registration at the Statement of Financial Position date 135,705 Total number of shares including those under registration 2,244,293 1,814,903 Share capital (EUR) at the Statement of Financial Position date 23, , Quotient value per share (EUR) All shares are of the same share class and carry the same voting rights and rights to the company s assets and profit. For a specification of changes in parent company equity, see page 12. NOTE 22 Other liabilities Group Parent company Player accounts Tax and social security expenses for personnel Premiums received for warrants Other liabilities Premiums received for warrants 2, Premiums received for warrants maturing in over 1 year 32 reclassified from a non-current to a current liability 32 of which, received from group companies -8-8 Change in exchange rate In the previous financial year a decision was made to issue 120,000 warrants at a subscription price of SEK 80 per share. All 120,000 warrants were fully subscribed, shares will be allocated between 01/01/2015 and 18/06/2015. Total outstanding warrants amount to 120,000 (240,000). If fully subscribed, share capital will increase by EUR 1,344 (2,688). From the warrants programmes decided in prior years, 120,000 warrants were redeemed for shares during the financial year. NOTE 23 Accrued expenses and deferred income Group Parent company Accrued expenses gaming operations Accrued marketing expenses Accrued payroll expenses and remuneration Audit fees Consulting and legal fees Other accrued expenses ,648 2,

35 NOTE 24 Pledged assets and contingent liabilities LeoVegas AB and its group companies have no pledged assets regarding own liabilities and no material contingent liabilities LeoVegas AB, has issued to group companies a debt coverage guarantee for its intragroup receivables, amounting to 4,686 4,708 NOTE 25 Transactions with related parties Salaries and remuneration for board members are set out in Note 8 above. The parent company has a related-party relationship with its subsidiaries and their subsidiaries, see Notes 16 and 17. Services sold between the parent company and subsidiaries mainly refer to management services. Transactions with related parties are priced on market terms. No services have been provided free of charge. The parent company s receivables from group companies carry an interest rate in line with the market. LeoVegas purchases legal services from law firm Baker & McKenzie in which deputy board member Anders Fast is a partner. For 2014 the company s purchasing amounted to EUR 84k (55). Transactions with related parties Parent company Sale of services to group companies Interest income from group companies Receivables from group companies 4,686 4,719 Acc. impairment, receivables from group companies -11 Book value receivables from group companies 4,686 4,708 NOTE 26 Financial instruments Group 31/12/2014 Loans receivable and accounts receivable Non-financial assets Other financial liabilities Total carrying amount Property, plant and equipment Intangible non-current assets - 1,759 1,759 Other receivables 3,810-3,810 Prepaid expenses Cash and cash equivalents 16,854-16,854 Total 20,664 2, ,074 Accounts payable 2,848 2,848 Financial liabilities 2,497 2,497 Accrued expenses 2,648 2,648 Total 7,993 7,993 Group 31/12/2013 Loans receivable and accounts receivable Non-financial assets Other financial liabilities Total carrying amount Property, plant and equipment Intangible non-current assets Other receivables 2,534-2,534 Prepaid expenses Cash and cash equivalents 2,437-2,437 Total 4, ,855 Accounts payable 1,440 1,440 Other liabilities Accrued expenses 2,038 2,038 Total 3,950 3,950 Loans receivable and accounts receivable Non-financial assets Other financial liabilities Total carrying amount Group 31/12/2013 Participations in group companies Non-current receivables from group companies 4,387-4,387 Other current receivables group companies Other receivables Prepaid expenses 0-0 Cash and cash equivalents 11,800-11,800 Total 16, ,533 Accounts payable Liabilities to group companies 8 8 Other liabilities Accrued expenses Total

36 Loans receivable and accounts receivable Non-financial assets Other financial liabilities Total carrying amount Parent company 31/12/2014 Participations in group companies Non-current receivables from group companies 4,525-4,525 Other current receivables group companies Other receivables Prepaid expenses Cash and cash equivalents Total 5, ,103 Accounts payable 8 8 Liabilities to group companies 8 8 Other liabilities Accrued expenses Total NOTE 27 Financial risks Through the operations it conducts, the Group is potentially exposed to various financial risks, mainly consisting of market risk, including currency risk and interest rate risk, credit risk and liquidity risk. The Group s financial activities are conducted on the basis of a finance policy adopted by the board, which endeavours to minimise the Group s risk level. Financial activities and management of financial risks are coordinated through the parent company LeoVegas AB. Financing subsidiaries to the extent needed occurs through the parent company. Currency risk The Group conducts international operations and its profit is exposed to exchange rate fluctuations from various currencies, but mainly by fluctuations in the SEK and EUR. For competitive reasons, the board chooses not to recognise income and expense by currency. However, expense and income by currency match each other fairly well, so net exposure by currency is not particularly high. Profit is also affected by exchange rate fluctuations when expense, income, assets and liabilities in a currency other than the EUR must be translated into the presentation currency, which is the EUR. The following table contains a summary of the Group s exposure to currencies other than the EUR at 31 December Assets Liabilities Net exposure SEK to EUR 3,855-3, GBP to EUR 1, Other currencies Interest rate risk The Group s revenues and cash flow from the operations are essentially independent of changes in market interest rate levels because financial assets and liabilities usually do not carry interest if they are settled on time. Changes to interest rates in general are not deemed to have any material effect on the parent company s or Group s financial result and position. Counterparty risks and credit risks The Group s financial transactions give rise to credit risks towards financial counterparties. Credit risks in cash and cash equivalents and other receivables are presented below Cash and cash equivalents 16,854 2,437 Receivables from payment service providers 2,729 2,418 Other receivables 1, Total 20,664 4,971 The maximum exposure for credit risks at the Statement of Financial Position date for financial assets as above amounts to their book value. The Group has not received any collateral from debtors. The Group only works with financial institutions of high standard and high creditworthiness. The creditworthiness of payment service providers has been assessed by means of market knowledge and previous experience and collaboration. All financial assets constitute exposure to credit risk and have been considered fully recoverable based on the financial position of the counterparty. In the board s opinion, there was no credit risk of material value at the Statement of Financial Position date. Liquidity risk The operations of the Group are primarily financed through its own funds. Subsidiaries that are not domiciled in Sweden are financed through intragroup loans with the parent company. The Group s non-financial assets mainly consist of capitalised development expenditure for developing gaming platforms. It is considered that future investment in property, plant and equipment and intangible non-current assets can be financed mainly by funds generated in-house or rental solutions. All financial liabilities fall due for payment within one year from the Statement of Financial Position date. No collateral has been pledged for these liabilities. Capital risk management The Group s objective for capital management is to ensure its possibilities of continuing operations with the purpose of generating return for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce capital costs. In order to maintain or adjust the capital structure, the shareholders of the Group have the possibility of deciding at the AGM on distribution to shareholders or transfer to shareholders through redemption or issuing new shares. The Group may also sell assets to reduce its liabilities. 36

37 Stockholm, 13 May 2015 Robin Ramm-Ericson Mårten Forste Chairman Gustaf Hagman Patrik Rosén Our audit report was submitted on 13 May 2015 Grant Thornton Sweden AB Anders Meyer Authorised Public Accountant 37

38 Auditor s report To the Annual General Meeting of LeoVegas AB Corp. id no Report on the annual accounts and consolidated accounts We have conducted our audit of the annual accounts and consolidated accounts of LeoVegas AB for The board s responsibility for the annual accounts and consolidated accounts The board of directors is responsible for the preparation and fair presentation of these annual accounts in accordance with the Annual Accounts Act and of the consolidated accounts in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the board of directors determines is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company s preparation and fair presentation of the annual accounts and consolidated accounts in order to devise audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the board of directors, as well as evaluating the overall presentation of the annual accounts and consolidated accounts. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2014 and of its financial performance and its cash flows for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Group as of 31 December 2014 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the annual meeting of shareholders adopt the Statement of Comprehensive Incom and Statement of Financial Position for the parent company and for the Group. Report on other legal and regulatory requirements In addition to our audit of the annual accounts and consolidated accounts, we have also audited the proposed appropriations of the company s profit or loss and the administration of the board of directors of LeoVegas AB for Board s responsibility The board of directors is responsible for the proposal for appropriations of the company s profit or loss, and the board of directors is responsible for administration under the Companies Act. Auditor s responsibility Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company s profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden. As a basis for our opinion on the board of directors proposed appropriations of the company s profit or loss, we examined whether the proposal is consistent with the Companies Act. As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors is liable to the company. We also examined whether any member of the Board of Directors has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions. Opinions We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the board of directors be discharged from liability for the financial year. Stockholm, 13 May 2015 Grant Thornton Sweden AB Anders Meyer Authorised Public Accountant 38

39 The smartphone market is growing rapidly and the number of users worldwide has now overshot 2bn. At the same time, mobile phones have gone from being a traditional communication channel to the primary gaming entertainment device. LeoVegas success is based on providing the leading gaming experience in mobile phones, putting the company in the number 1 slot for mobile casino.