Nektan plc Annual Report and Accounts 2016

Transcription

1 Nektan plc Annual Report and Accounts

2 DELIVERING INNOVATIVE MOBILE REAL MONEY GAMING PRODUCTS AND SERVICES ON A PROPRIETARY PLATFORM WITHIN REGULATED MARKETS. CONTENTS Strategic Report 1 Highlights 3 Chief Executive s Review 6 Operational and Financial Review 8 Principal Risks Governance 10 Board of Directors 12 Corporate Governance Statement 13 Directors Remuneration Report 15 Statement of Directors Responsibilities Financial Statements 16 Independent Auditor s Report 18 Consolidated Statement of Comprehensive Income 19 Consolidated Statement of Financial Position 20 Consolidated Statement of Changes in Equity 21 Consolidated Statement of Cash Flows 22 Notes to the Consolidated Financial Statements 45 Parent Company Balance Sheet 46 Parent Company Statement of Changes in Equity 47 Notes to the Parent Company Financial Statements 52 Directors, Offices and Advisors

3 Strategic Report Governance Financial Statements DIRECTORS REPORT HIGHLIGHTS YEAR-END HIGHLIGHTS: Net Gaming Revenue (NGR) growth of 1,402% to 5,783,000 (: 358,000) Delivered improved underlying growth momentum by expanding our engaged registered customer base: Recruited 48,723 new First Time Depositing Players (FTDs) (: 5,461) Total cash wagering up by 1,128% to 150m (: 13.3m) Processed 39,589,325 transactions (bets or spins) from 50,805 cash players in the financial year Adjusted LBITDA of 5,744,000 ( 5,109,000) and loss for the year of 10,486,000 ( 8,142,000) Launched 29 new partners on our casino network on multi-year contracts, helping to underpin recurring revenue growth, with an increasing focus on those that add most value to the casino network through player acquisition and product development improvements Continued strengthening of the business to deliver sustainable growth across Europe by improving player attraction and retention and maximising player life time values through a number of product and process improvements: Migration of all players and partners to our Evolve II platform, Nektan s upgraded proprietary back office platform offering: scalable, faster and simpler games and content management promotion extension of the customer journey and associated payments to enable multi-currency processing and the facilitation of international gaming transactions improved data collection, analysis and reporting New payment methods available to players, including BOKU facilitating payments on mobile Apple and Google play app upgrades Addition of 110 new best of breed casino games from the leading providers including IGT, NetEnt and SciGames, offering players an enhanced casino games portfolio, which we expect to continue to improve Launch of Nektan Marketing Services, a joint venture providing our casino partners with digital player acquisition and marketing services Respin LLC, our US joint venture (which became a subsidiary after the year end) in partnership with Spin Games, continued to innovate, with the launch of its Rapid Games product, a Class II Mobile in venue cash wagering solution, offering casino patrons the opportunity to wager on their own devices when in a casino: In January, Respin became the first company to be approved by Apple Inc. for mobile in-venue gaming In June, Respin received approval from the designated independent test lab BMM for release of its Rapid Games. This Class II compliance certification opens the way for tribal jurisdictions to start deploying Rapid Games. The Directors are not aware of any other mobile product that currently has Class II compliance As at, Respin had approvals in over 50 sites across California, Nevada, Washington and Louisiana Rapid Games has fast become Respin s core focus, although it continues to offer Xtraspin wheels where positive opportunities are presented 1

4 DIRECTORS REPORT HIGHLIGHTS CONTINUED POST PERIOD END HIGHLIGHTS: Q1 trading to the end of September positive growth momentum which is accelerating in to Q2 Q1 %age change Net Gaming Revenue (NGR) 2.1m 0.5m +295% First Time Depositors 14,037 6, % Cash Wagering 65.9m 15.4m +328% FY2017 FY Continued realignment of our businesses in Europe and the US to accelerate more profitable and sustainable growth: 29 December, the Company increased its ownership of Respin Inc, the Class II mobile onpremise solution provider, to 85% as additional funding of $1.7m provided beyond that originally anticipated was converted to an increased membership interest, transitioning the business to an operating subsidiary of Nektan from a joint venture 22 August, the Company entered in to an asset disposal and simultaneous licensing agreement with Buckingham HMB Ltd for three of the Company s wholly-owned gaming brands for 1.95m in cash and a separate five-year licencing agreement New equity support from existing shareholders and the Company s convertible loan note holders to underpin the Company s growth in both the European and US business as follows: Agreed placing of 2.275m for new shares at a price of 27.5p. These include Sandeep Reddy and Jim Wilkinson who are also Non-Executive Directors of the Company, and Gary Shaw and Leigh Nissim who are Executive Directors Obtained the necessary approvals to restructure the Company s convertible loan notes, where the Company shall have the option to defer the interest payable in return for issuing share options to the value of the deferred interest at the fund raising price of 27.5p. The Company has confirmed that it plans to exercise this option for

5 Strategic Report Governance Financial Statements DIRECTORS REPORT CHIEF EXECUTIVE S REVIEW Nektan has made significant operational and strategic progress in key markets in Europe and the US over the last year. Overview Nektan has made significant operational and strategic progress in our key markets in Europe and the US over the last year and following the period-end, delivering growth momentum from our casino partners, with a significant and expanding base of active registered players as we keep selectively expanding the casino network with quality partners, helping to ensure that we continue to deliver sustainable profitable growth. The Real Money Gaming business continues to be Nektan s core focus in Europe, leveraging our Gibraltar and UK gaming licence, proprietary back office platform (Evolve) and operational expertise to offer a rewarding and entertaining player experience across a network of 56 white label casinos. Our casino offering to partners includes 233 casino games titles from leading gaming suppliers such as NetEnt, IGT, NYX and SciGames, as well as Nektan s own proprietary games. We will continue to improve our excellent casino games portfolio, through the addition of best-ofbreed content from leading suppliers, supplemented with our own games and those of our US partner, Spin Games. During the year, the casino network processed 39,589,325 transactions and registered 50,805 new players, demonstrating the importance and flexibility of the Evolve platform to support and deliver additional growth. We strive to be the best in all operating disciplines across casino management, maximising player entertainment and engagement through the intelligent use of our back office platform and associated services across customer relationship management, payments, customer service and player marketing. Nektan s operating expertise, combined with the Evolve back office, are two critical components to the success of Respin Inc, which continues to innovate in the North American casino market. The Respin team have worked hard to bring new and fresh products to the US tribal casino market that cater for Millennials, whilst bringing additional revenues to US casinos through the intelligent use of HTML5 technologies distributed via mobile devices, either bring your own devices ( BYOD ) or within a cabinet or wheel. After the year end Nektan increased its ownership of Respin LLC to 85% of the total equity through the conversion of certain loans made in the year. Transitioning the business from a joint venture to an operating subsidiary is an important milestone as it consolidates the business into the Group as we continue to strengthen our position as an international gaming provider, offering solutions and services that are fresh, high quality and tangibly different from other suppliers in both Europe and North America, leveraging the strengths, products and assets of both businesses for mutual success. Nektan is also focussed on realigning our capital structure, whilst proactively managing our cost base for maximum efficiency, in order to provide a solid foundation to achieve additional growth opportunities across our key markets in Europe and North America. In this regard, Nektan has achieved support from existing shareholders and the Company s convertible loan note holders for a further 2.275m in new equity and the restructuring of the Company s convertible loan notes, where the Company shall have the option to defer the interest payable in return for issuing share options. 3

6 DIRECTORS REPORT CHIEF EXECUTIVE S REVIEW CONTINUED Performance During the year, the Group s European business has delivered material growth in all Real Money Gaming (RMG) casino KPIs house win or net gaming revenue in the year ending June was 5.783m (: 385,000). year end, the casino network included 56 white label partners, processing 10.5m cash deposits from 55,708 unique players. The upgrade of our Evolve back office during the year positions the casino network well for future growth and geographic expansion. Controlling our product roadmap offers flexibility and the opportunity to differentiate our casino offering from other casinos in a competitive market, which benefits our white label partners. During the upgrade, we also introduced the ability to accept multi-currency payments from players whilst this is not yet a material part of our business, we expect this functionality to facilitate entry in to new markets and increase the attraction and retention of players. In the US, Respin continues to innovate, with the launch of its Rapid Games product a mobile in-venue cash wagering product, offering casino patrons the opportunity to wager on their devices when in a casino. This new product functions from a Class II casino engine, targeting a growing and sizeable content category in the North American gaming market. In January, Respin became the first company to be approved by Apple Inc. for mobile in-venue gaming and in April Respin won the igaming North America Best Innovation in North America. A further milestone was achieved in June when Respin received approval from the designated independent test lab BMM for release of its Rapid Games product, a Class II Mobile in venue gaming solution. This Class II compliance certification opens the way for tribal jurisdictions to start deploying this product which will allow players to play Class II games on their own mobile device within designated areas of casino property. The directors are not aware of any other mobile product that currently has Class II compliance. As at, Respin had approvals in over 50 sites across California, Nevada, Washington and Louisiana. Rapid Games has fast become Respin s core focus, although it continues to offer Xtraspin wheels where positive opportunities are presented. The operating loss for the year was 8.3m (: 7.2m loss). Adjusted EBITDA, which excludes exceptional items, and non-cash charges relating to share based payments was a loss of 5.7m (: 5.1m loss). Since the period end, growth momentum across the Group has accelerated in the first quarter to the end of September: Net Gaming Revenue increased to 2.1m (Q1 FY : 0.5m / Q4 FY : 1.9m); we recruited 14,037 new First Time Depositing Players (FTDs) (Q1 FY : 6,518 / Q4 FY : 16,597); and total cash wagering is up by 29% quarter on quarter to 65.9m (Q1 FY : 15.4m / Q4 FY : 51.2m) Key drivers Over the past 12 months, we have continued to invest in our Evolve gaming platform to ensure that our product remains market-leading and that we retain our competitive advantage. Evolve is focused on supporting mobile gaming first as well as enabling desktop, ensuring our products provide a superior mobile entertainment experience for end users. The Group can identify architecture developments and prioritise these as we deem fit due to having full ownership of our platform, which also allows the Group to integrate third-party software in short timeframes and at a lower cost. The design of Evolve allows the Group the flexibility to meet the demand of its white label casino partners, US casinos and their players, ensuring it has a speed-to-market advantage and the ability to produce a casino software solution in a matter of weeks rather than months. The existing investment in Evolve s software architecture and product development acts as a significant barrier to entry in offering a robust B2B mobile gaming platform. Europe We continue to selectively add high quality partners and, at the year-end, we had 56 live RMG casino partners, including the landmark multi-year relationship with The Sun newspaper in the UK to develop and operate Sun Play, an innovative new gaming product relaunched in the UK in March. The team s increased focus on efficient casino management has started to bear positive results, supported by an ever-improving casino games portfolio, an engaging player marketing programme, a robust production environment, operational excellence and clear, innovative product roadmaps. We will continue to accelerate improvements, with input from our customers and their players, with a continued positive improvement in the growth of all our player and revenue KPIs. In line with these efforts, in August, Nektan entered into an asset disposal and simultaneous licensing agreement with Buckingham HMB Ltd ( Buckingham ) to sell three of the Company s wholly-owned gaming brands. Buckingham paid the Company a total cash consideration of 1.95m for the assets, whilst separately entering in to a five-year licensing agreement with the Group for the continuing operation of the brands under Nektan s white label Evolve platform for a monthly royalty on terms consistent with other white label agreements the Company has entered into. The assets disposed principally comprised the customer databases, web domains and brands relating to Chomp Casino, SpinPrincess and Sapphire Rooms, which were all developed in-house. The proceeds of the asset transfer have been used for the Group s working capital requirements to further develop Nektan s business in Europe and our US joint venture, Respin LLC. 4

7 Strategic Report Governance Financial Statements North America Respin LLC, our joint venture partnership with Spin Games (which became a subsidiary after the year end), is focussed on mobile onpremise digital gaming, primarily for the Class II tribal gaming market. This important US content category is worth over $33 billion in revenue annually (Source: National Indian Gaming Commission), offering players and casinos the opportunity to play floor-favourite bingo games and slots on mobile devices when in the casino. In the year, Respin s mobile product, Rapid Bingo, has received approval from the designated independent test lab BMM for release of its Rapid Games product, a Class II Mobile in venue gaming solution, adding a multitude of features that improve player engagement and utility. We are encouraged with the interest received from US casinos for Respin s suite of mobile products and will continue to focus on being best-inclass for Class II mobile gaming on a casino s property. Nektan increased its ownership of Respin Inc to 85% as additional funding of $1.7m provided beyond that originally anticipated was converted to an increased membership interest. Outlook In Europe, Nektan continues to focus on accelerating momentum and optimising its casino network, with the selective addition of new partners, high quality casino games and improved features and facilities to keep attracting and retaining players, which we are further building on to deliver profitable growth. We expect that our North American Respin business, which became an operating subsidiary of the Group after the year end, will increase its installed customer base amongst tribal casinos due to the strength of our product, pipeline and level of interest from potential casino customers. We expect that the work underway on augmenting our innovative and exciting in-venue mobile wagering products, with the addition of new games and player features, will add to this installed base. The Company is also looking to leverage its assets, expertise and networks across both North America and Europe, to maximise revenue in both businesses and deliver profitable growth to shareholders. We are pleased to have now secured new equity support from existing shareholders and the Company s convertible loan note holders to underpin the Company s growth in both the European and US business. On behalf of the Board, I would like to thank all of Nektan s employees for their continued hard work and commitment. Leigh Nissim Chief Executive Officer 5

8 STRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW Nektan has made significant operational and strategic progress in its key markets in Europe and the US over the last year and following the period-end, delivering growth momentum from its casino partner base, with a growing base of registered players that continues to increase as we selectively expand the casino partners we launch on our network to ensure sustainable profitable growth. Europe partners Our casino offering to partners includes 256 casino games from leading gaming suppliers such as NetEnt, IGT, NYX and SG Gaming, mixed with Nektan s own proprietary games. Our goal is to continually improve our casino games portfolio, through the addition of best-ofbreed content from leading suppliers, supplemented with our own games and those of our US joint venture partner, Spin Games. During the year, the casino network processed 39,589,325m transactions and recruited 14,037 new players, demonstrating the importance and flexibility of the Evolve platform to cater for additional growth. We strive to be the best in all operating disciplines across casino management, maximising player entertainment and engagement, through the intelligent use of our back office platform and associated services across CRM, payments, customer service and player marketing. Real money gaming KPIs The performance of the Group during the year demonstrates the operational progress achieved. The Directors regard, in addition to net gaming revenue and EBITDA, the growth in first time depositors, player deposits and player cash stakes as reliable measures of performance that demonstrate growing sustainable lifetime revenues from players: first time depositors were 16,597 in Q4 FY16 versus 6,518 in Q1 FY16 cash stakes were 51.2m in Q4 FY16 versus 15.4m in Q1 FY16 NGR was 1.9m in Q4 FY16 versus 0.5m in Q1 FY16 WHITE LABEL PARTNER REVENUE JOURNEY DEVELOP DRIVE GENERATE MANAGE COLLECT Nektan develops and operates Partner Mobile Casino Partner drives traffic to their casino Players generate revenues from the real money games Nektan manages all aspects of the end-to-end player lifecycle Nektan collects and shares revenues with partners 6

9 Strategic Report Governance Financial Statements Revenue The Group has seen material growth in all RMG casino key performance measures. RMG net gaming revenue in the year ending June was 5,783,000 (: 385,000). This is due to the increase in new partners signed up during the year and an increase in marketing spend, both on our own brands and that made by our partners Expenses The marketing, partner and affiliate costs were 4.9m for the year (: 0.8m), consistent with the increase in NGR. Administrative expenses, excluding exceptional items, increased to 6.3m (: 5.9m). The Company incurred exceptional items of 1.3m (: 1.3m). Further details are given in note 3 of the financial statements. In January of this year, the Group completed a full review of the fixed cost base and took actions to reduce this significantly. Following this, the fixed cost base has reduced to approximately 330,000 per month. Adjusted EBITDA The operating loss for the year was 8.3m ( 7.2m loss). Adjusted EBITDA, which excludes, exceptional items, and non-cash charges relating to share based payments, was a loss of 5.7m (: 5.1m loss). Nektan contributed 2.6m (: 1.7m) to the Respin joint venture for the development of in-venue class II mobile gaming product. The Group s share of the loss of Respin was 1.4m (: 0.7m) Cash flow The Group s cash balance at was 0.1m (: 3.4m). Net proceeds of 6.4m (: 13.2m) were raised in the year from issuing new shares of 1.8m ( : 7.7m) (net of transaction costs) and Convertible Loan Notes of 4.6m (: 5.5m) (net of transaction costs). During the year the 1.4m (: 1.9m) was spent on purchase of intangible fixed assets related to the capitalisation of developed intangible assets. Post balance sheet events After the year end, the Group disposed of three casino brands for total proceeds of 1.95m in cash to Buckingham HMB LLP. A directors wife has a 8.45% interest in Buckingham HMB LLP and is also a designated member of the LLP. On 29 December, the Directors announced an equity fundraising of approximately 2.275m, at a price of 27.5p per share subject to approval by the Group s shareholders at the AGM on 27 January The Directors have received irrevocable undertakings to vote in favour of the resolutions from a significant proportion of the Group s shareholders. Additionally, the Group has reached agreement with Convertible Loan Note (CLN) holders to defer interest on 10m of the 11.1m principal until For each 1 of interest deferred, holders will be granted the option to subscribe for 1 of ordinary shares at the lowest price equity has been issued at in the period. On 29 December, the Group increased its ownership in ReSpin from 50% to 85%. PLAYER JOURNEY REGISTER DEPOSIT PLAY CONTROL COLLECT Player registers with Partner Mobile Casino Player funds their account by card or mobile payment and chooses to play their games from the casino lobby Player places their stakes in the game and plays Player can set play and deposit limits and review games played Player requests winnings or balance to be paid back to them 7

10 STRATEGIC REPORT PRINCIPAL RISKS There are a number of potential risks and uncertainties that could have a material impact on the Group s long-term performance and could cause results to differ materially from expected and historical results. The principal risks to which the business is exposed are set out below: Risk Background Mitigating controls Legal and regulatory risks Loss of gambling licences Failure to comply with the terms of the Group s existing or future gambling licences may lead to penalties, sanctions or ultimately the revocation of relevant operating licences. The Group overall has a focused compliance approach with a dedicated in house compliance resource to develop relationships with regulators, keep up to date with legal and regulatory developments, ensure necessary staff training and enable continuation of all necessary licences to allow the Group to continue its business. Brexit In the June referendum, the UK voted to leave the EU. This may increase the volatility of global currency and financial markets. In addition, it may reduce the Group s ability to operate in certain EU markets without a change in domiciliation, which could carry a higher tax burden. The Group will continue to monitor the situation and respond as the timing and terms of the UK s exit from the EU become clearer. Change in regulations and restrictions on expansion into target markets The marketplace The laws, regulations and taxation governing remote gambling are highly complex, vary greatly from jurisdiction to jurisdiction and are constantly evolving. Further, there are often differences between the activities and types of games that are permitted to be offered, the technical requirements and restrictions which apply to those games, the manner and extent to which they can be marketed and other conditions of operation imposed in different jurisdictions. As an established regulated supplier, the Group monitors legal and regulatory developments in all of its material markets closely and generally seeks to keep up to date on legal and regulatory developments affecting the remote gambling industry as a whole. Dependency on success of partner marketing The success of the Group s services is dependent on the strength of its white label partners brands and the effectiveness of their marketing. If its partners do not invest in the marketing of the Group s services or do not market effectively, the amount of revenue generated by customers of those products is likely to be impacted. The Group works closely, through its account management team, with its broad base of partners to ensure best marketing practice is implemented and that partners fulfil their obligations. 8

11 Strategic Report Governance Financial Statements Risk Background Mitigating controls Financing As outlined in note 1, the group will need to secure additional funding during The Group regularly monitors its cash requirements and is actively pursuing additional funding. Competition The online gambling and social gaming markets are becoming increasingly competitive as the popularity and sophistication of mobile technology rises. Failure to compete effectively may result in losing customers and market share to existing and/or new competitors. The Group continues to invest significant resources to improve its technology and content portfolio whilst also diversifying its partner and geographical base. Fraud Technology Online transactions, and in particular online gambling transactions, may be subject to sophisticated schemes or collusion to defraud, launder money or other illegal activities. There is a risk that the Group s products or systems may be used for those purposes by its customers. The Group has implemented policies and procedures designed to minimise the risk of fraud and money laundering, including conducting anti-money laundering checks on its customers. Dependence on technology Employees As a provider of online gambling services, the Group s business is reliant on technology and advanced information systems. If the Group does not invest in the maintenance and further development of its technology systems, there is a risk that these systems may not cope with the needs of the business and may fail. The Group is reliant on the Internet and is vulnerable to activities such as distributed denial of service attacks, other forms of cyber-crime and a wide range of malicious viruses. The Group continues to invest in its proprietary platform to ensure the necessary features and functionality meet their partner needs. In addition it has adopted industry standard protections to detect intrusions or other security breaches and implements preventative measures to protect against sabotage, hackers, viruses and other cyber-crime. Reliance on key personnel The Group s future success depends on the continued service of senior and key management, the retention of which cannot be guaranteed. The Group ensures that key personnel are appropriately rewarded and incentivised. This is through a mixture of short-term and long-term incentives. 9

12 GOVERNANCE BOARD OF DIRECTORS Nektan s Board and management team is a key strength of the business, with extensive experience of operating both B2B and B2C gaming businesses. Jim Wilkinson Non-executive Chairman Jim is Chief Financial Officer of Oxford Sciences Innovation plc, a company recently established to invest in companies transferring technology created from Oxford University s research into commercial enterprises. Prior to this role he held the position of Chief Financial Officer of Lonrho Limited, an African facing conglomerate, from August 2013 until June. He held the same position at Sportingbet Plc between 2008 and 2013, Johnson Service Group PLC between 2004 and 2007, and Informa Group PLC between 1997 and Apart from Lonrho all the companies were quoted on the London Stock Exchange. Jim is a qualified chartered accountant, having trained with Touche Ross where he worked for eight years. Leigh Nissim Chief Executive Officer Leigh has over 11 years of gaming industry experience, and joined Nektan from International Game Technology PLC ( IGT ), the global leader in gaming, where he was the Global Commercial Director for the Interactive Business, responsible for the growth of the real money wagering business across multiple regulated markets in Europe and North America. Leigh has a strong track record of successfully growing gambling businesses across our product verticals and geographies. Prior to IGT, Leigh was Managing Director of Swiftstake Technologies, an innovative company focused on real time data segmentation and up-selling retail betting customers at the point-of-sale. Before joining Swiftstake, Leigh was the Commercial Director of GTECH G2 and Managing Director of St Minver, where he was responsible for G2 s customer accounts and aspects of new business sales, signing and launching over 70 gaming deals and commercial contracts across Europe. Within this role, Leigh was instrumental in launching and growing the UK s first 90 ball online bingo network which quickly developed to become Europe s largest bingo network across 8 countries. Alongside the bingo network, Leigh also played a key role in growing the company s International Poker Network and successfully launched a managed casino product in 5 European languages with games from leading suppliers. Before St Minver, Leigh was the Chief Operating Officer of Vitesse Media Plc, an AIM listed publishing company, acquiring an events company and relaunching the company s portfolio of websites. Prior to this he was CEO of BusinessesForSale.com, building the business to deliver sustained profitability through paid-for online subscription services in the UK and US, the launch of FranchiseSales. com, paid events and white label partnerships with FT.com, ThisIsMoney, TimesOnline, the Telegraph and other quality business websites. His past experience includes management consultancy with Deloitte and Corporate Finance with Lloyds of London. 10

13 Strategic Report Governance Financial Statements Sandeep Reddy Non-executive Director Sandeep is the co-founder of Peepul Capital, an Indian private equity firm with approximately $700 million of investments. Prior to the launch of Peepul Capital in 2000, he had 10 years of experience in strategy consulting with PricewaterhouseCoopers LLP in San Francisco and with Andersen Consulting in London. He has been one of the early participants in the rapidly evolving Indian private equity industry having been active for over ten years. Sandeep takes overall responsibility in defining and executing Peepul Capital s strategy. He is a Director of VTA, a substantial shareholder in the Company. He received a BS in Computer Science and Finance from Utah State University and an MBA from IMD, Switzerland. Alan Turner Non-executive Director Alan is a co-founder, a director and the chief operating officer of Disruptive Tech Limited ( DTL ), an active investor in technology-centric businesses. He represents DTL on the boards of a number of its portfolio companies, which includes Nektan, and has been involved in various aspects of early stage investing since exiting his own technology company, Pontis Consulting, in March His primary areas of interest and expertise are technology, gaming and payments. Gary Shaw Strategy Director Gary founded the business as a spin out from a joint venture with GTECH in He is an entrepreneur with a consistent track record of creating significant shareholder value. In 1994 he left Johnson Press PLC to start and self-fund Hughes Rae. Hughes Rae became one of the pioneers of internet application development across Europe working in the retail bank and pharmaceutical sectors, which he sold in 1999 to Morse PLC (at that point a FTSE 250 company). In 2000, Gary left Morse to join Victor Chandler establishing the casino and poker products. He contributed to setting up the world s first poker network which launched in conjunction with Tribeca Tables, and also worked to establish the first European white label gaming business, launching white label deals with the Racing Post and Virgin Media. Gary left Victor Chandler in 2002 to establish his own gaming company, St Enodoc, which acquired the Gibraltar-based underperforming assets of Gala Interactive. He led the recovery of the business, launching a series of gaming business ventures, including both the IPN Poker network with Boss Media, and in 2004 the IBN Bingo Network. St Enodoc became Europe s largest end-to-end white label operator with 84 partners in 24 countries including Virgin Games, Yahoo, The Daily Mail and Sportingbet. Gary was the Executive Chairman when St Enodoc was acquired by GTECH-Lottomatica for $55 million in He remained with GTECH-Lottomatica working in the US, until forming Nektan. 11

14 GOVERNANCE CORPORATE GOVERNANCE STATEMENT As an AIM listed group, Nektan plc is not required to follow the provisions of the UK Corporate Governance Code (the Code). The Board however recognises the importance and value of good corporate governance procedures and accordingly have selected those elements of the code they consider to be relevant and appropriate to the Group, given it size and structure. Role of the board the start of the year, the Board comprised six Directors including the Executive Chairman and two further Executive Directors and three Non-executive Directors. On 7 December David Sparks resigned and on 12 January David Gosen resigned. From that date the Board comprised of four Directors. On that date, Gary Shaw moved from Executive Chairman to Interim Chief Executive, pending appointment of a new Chief Executive. Jim Wilkinson became Chairman. On 25 July, Leigh Nissim joined as Chief Executive and Gary Shaw became Strategy Director. The Board meets regularly to consider strategy, performance and the framework of internal controls. The Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties given the size and scale of operations of the Company. The Director appointments are based on the specific skills required by the Company and the Board combines a group of directors with diverse backgrounds that combine to provide the resources and expertise to drive the continuing development of the Group and advance its commercial objectives. Board committees The Directors have established and Audit committee, a Remuneration committee and a Nominations committee with formally delegated rules and responsibilities. Each of the committees currently comprises the Non-executive Directors and meets at least twice a year. Audit committee The Audit Committee meets at least twice a year and is responsible for ensuring that the Group s financial performance is properly monitored, controlled and reported. The Audit Committee is responsible for the scope and effectiveness of the external audit and compliance by the Group with statutory and other regulatory requirements. It meets at least once per year without the Executive Directors being present. The Audit committee is comprised of Jim Wilkinson (Chairman), Alan Turner and Sandeep Reddy. Jim Wilkinson is deemed to have recent and relevant financial experience and is the Audit Committee financial expert. Remuneration committee The Remuneration Committee determines and agrees with the Board the framework or broad policy for the remuneration of the Directors and determines the total individual remuneration package of each Executive Director, including bonuses, incentive payments and share options, with due regard to the interests of shareholders. The Remuneration committee ensures that contractual terms are fair to the individual and the Company and determines the structure and targets for any performance-related pay schemes operated by the Company. The Audit committee is comprised of Sandeep Reddy (Chairman), Alan Turner and Jim Wilkinson. Nominations committee The Nominations committee is responsible for reviewing the size, structure and composition of the Board and for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Nominations committee gives full consideration to succession planning in the course of its work, taking into account the challenges and opportunities facing the Group, and the skills and expertise needed on the Board. The Nominations committee is comprised of Alan Turner (Chairman), Sandeep Reddy and Jim Wilkinson. Risk management and internal controls The Board has ensured there has been an ongoing process for identifying, evaluating and managing the significant risks faced by the Group. The Board considers the principal risk factors likely to impact the financial position and prospects of the Group, including any changes thereto. The identified risks are monitored through the day to day operations with the involvement of the relevant parties. This monitoring process is guided by a risk template set out in the Group s separate Overview of Strategic Risk Management. The Group s internal control procedures continue to be reviewed, progressively developed and formalised to ensure that the sufficiently meet the requirements of the Group. Executive members of the Board are involved daily in all aspects of the business and attend regular management meetings at which performance against plan and business prospects are reviewed. The Bribery Act 2010 (Bribery Act) which came into force in the UK on 1 July 2011 prescribes criminal offences for individuals and businesses relating to the payment of bribes and, in certain cases, a failure to prevent the payment of bribes. The Group therefore has established procedures designed to ensure that no member of the Group engages in conduct for which a prosecution under the Bribery Act may result. External Auditors The Audit committee meets periodically to review the adequacy of the Group s internal control systems, accounting policies and compliance with applicable accounting standards and to consider the appointment of external auditors and audit fees. As a matter of best practice, the auditors have held discussions with the Audit committee on the subject of auditor independence and have confirmed their independence. 12

15 Strategic Report Governance Financial Statements DIRECTORS REMUNERATION REPORT Nektan has elected voluntarily to prepare the unaudited Directors remuneration report set out below. Remuneration policy overview The aim of the remuneration policy is to encourage and reward superior performance by the Executive Directors and senior management, with performance being measured by reference to the achievement of corporate goals, strong financial performance and the delivery of value to shareholders. The policy is designed to offer awards that enable the Group to attract and retain the management talent it needs to ensure its success and to incentivise the achievement of the Group s strategy and the delivery of sustainable long term performance of the Group. The remuneration policy is reviewed by the Remuneration Committee on an annual basis to ensure it is in line with the Group s objectives and shareholders interests. The Remuneration Committee determines and agrees with the Board the framework or broad policy for the remuneration of the Directors and determines the total individual remuneration package of each Executive Director, including bonuses, incentive payments and share options. Directors emoluments This section is audited. The Directors received the following remuneration during the year: Basic salary/ Fees Executive Directors Gary Shaw David Gosen David Sparks Non-executive Directors Sandeep Reddy Alan Turner Jim Wilkinson Benefits Pension Loss of office Total Basic salary/ Fees Executive Directors Gary Shaw David Gosen David Sparks Non-executive Directors Sandeep Reddy Alan Turner Jim Wilkinson Steven Caetano Benefits Pension Total The Executive Directors base salaries are reviewed annually. The Remuneration Committee seeks to assess the market competitiveness of pay primarily in terms of total remuneration, with less emphasis on base salary. The timing and amount of bonuses are decided by the Remuneration Committee with reference to the individual s performance and contribution to the Group. No such bonuses were paid in the current or prior year. The Group introduced a defined contribution pension scheme during the year. 13

16 GOVERNANCE DIRECTORS REMUNERATION REPORT CONTINUED Directors interest in shares The details of the Director s interest as at were as follows: Number of ordinary shares Percentage of issued share capital Gary Shaw 3,270, % Jim Wilkinson 120, % Venture Tech Assets 3,249, % Directors interest in the Convertible Loan Note (CLN) at were as follows: Nominal value held Percentage of CLN Gary Shaw 300, % Jim Wilkinson 250, % Venture Tech Assets 1,000,000 9% Venture Tech Assets is a company controlled by Sandeep Reddy, a Director of the company Share options The company has adopted the Nektan plc 2014 share plan to provide share incentives to employees and Directors within the Group on a discretionary basis. The share plan provides for the grant of rights to acquire ordinary shares (awards) and with be administered by either the Board or the Remuneration Committee, depending on the type of participant. No awards have yet been granted under the share plan. Service contracts Gary Shaw has a service agreement with the Company dated 28 October 2014 setting out the terms of his appointment as a Director. Either party may terminate the agreement on 6 months notice. After the year end, the Company entered into a service contract with Leigh Nissim setting out the terms of his appointment as Chief Executive. His remuneration is 185,000 pa, plus benefits which include a car allowance of 7,900pa, health insurance and a pension contribution. For the year ending 2017, he is entitled to a performance related bonus of 100% of basic salary depending on performance, 50% of which is guaranteed. He is also entitled to options over up to 2% of the Company s equity (depending on performance) with a strike price of 39.5p. On joining he was awarded a year s worth of salary as options with no performance criteria with a strike price of 39.5p. The Non-executive Directors have entered into letters of appointment with the Company are entitled to annual fee and reimbursement of reasonable expenses, but no other remuneration. The appointments may be terminated by either party giving 90 days written notice. 14

17 Strategic Report Governance Financial Statements STATEMENT OF DIRECTORS RESPONSIBILITIES Directors responsibilities The directors are responsible for preparing financial statements for each financial year which give a true and fair view of the state of affairs of the Group and Company and of the profit or loss for the year and which comply with the Gibraltar Companies Act Under that law, the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and the Company financial statements in accordance with GFRS 102: The Gibraltar Financial Reporting Standard. In preparing the financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the accounts comply with applicable law. 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. Auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Group s auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures 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 15

18 FINANCIAL STATEMENTS INDEPENDENT AUDITOR S REPORT TO THE MEMBERS OF NEKTAN PLC Report on the financial statements We have audited the financial statements of Nektan plc (the Company ) and its subsidiaries (the Group ) for the year ended which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows, the Company Balance Sheet and the related notes. The financial reporting framework that has been applied in the preparation of the consolidated financial statements is applicable law in Gibraltar and International Financial Reporting Standards ( IFRSs ) as adopted for use in the European Union. The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law in Gibraltar and GFRS 102: The Gibraltar Financial Reporting Standard 102. In line with our engagement letters this report is made solely to the Company s members, as a body, in accordance with Section 257 of the Gibraltar Companies Act 2014 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 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. Directors responsibilities for the financial statements As explained more fully in the statement of directors responsibilities, the directors are responsible for the preparation of these financial statements in accordance with applicable law in Gibraltar and for being satisfied that they give a true and fair view. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibilities Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council s (FRC s) Ethical Standards for Auditors and to plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the directors report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion In our opinion: the financial statements give a true and fair view of the state of the Group s and the parent Company s affairs as at and of the Group s loss and cash flows for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Company financial statements have been properly prepared in accordance with GFRS 102: The Gibraltar Financial Reporting Standard 102; and the financial statements have been properly prepared in accordance with the Gibraltar Companies Act Emphasis of a matter going concern In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosures made in note 1 to the financial statements concerning the Group and the Company s ability to continue as a going concern. This is dependent on the ability of the directors to successfully raise further funds as well as the joint venture partner in respect of Nektan Marketing Services Limited not exercising their put option over the remaining 50% of share capital. These conditions, along with other matters disclosed in note 1 to the financial statements indicate the existence of a material uncertainty which may cast significant doubt about the Company s and Group s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company or Group were unable to continue as a going concern. 16