First Quarter Results

Jackpotjoy plc

Results for the Three Months ended 31 March 2018

Gaming revenue up 13% year-on-year

Trading in line with expectations

LONDON, 15 May 2018 - Jackpotjoy plc (LSE: JPJ), a leading global online bingo-led operator, today announces the results of the Jackpotjoy group (the "Group") for the three months ended 31 March 2018.

Financial summary

Financial highlights for first quarter

· Good financial performance 

o Gaming revenue rose 13% year-on-year, supported by 7% revenue growth in the Jackpotjoy3 segment and 35% revenue growth in Vera&John

o Adjusted EBITDA1 decreased 7% year-on-year reflecting the planned increase in marketing costs and the application of point of consumption tax to gross gaming revenue ('POC2') in the UK from Q4 2017

o Adjusted net income1 increased 3% year-on-year principally due to a decrease in interest expense following the debt refinancing in Q4 2017

· Strong ongoing cash generation

o Operating cash flow of £24.4 million, an increase of 5% year-on-year, and 33p of operating cash flow per share2

o Adjusted EBITDA1 to cash conversion of 90%

o Free cash flow4 of £24.7 million

o Adjusted net debt5 of £379.9 million (compared to £387.3 million at 31 December 2017) and adjusted net leverage ratio6 of 3.57x

· After a solid start to 2018, and strong double-digit revenue growth, the outlook is positive for the full-year and the Group is trading in line with expectations

Operational highlights

· Continued improvement in core KPIs7 year-on-year:

o Average Active Customers per Month7 grew to 256,699 in the twelve months to 31 March 2018, an increase of 7% year-on-year

o Average Real Money Gaming Revenue per Month7 grew to £24.5 million, an increase of 17% year-on-year

o Monthly Real Money Gaming Revenue per Average Active Customer7 of £95, an increase of 9% year-on-year

Business segments highlights for Q1 2018

· Jackpotjoy3 (74% of Group revenue) - Gaming revenue growth of 7% year-on-year, driven by good operational execution across all major brands; Our Mandalay business is now consolidated in this segment; Adjusted EBITDA1 decreased 6% due to the impact of higher distribution costs from the ongoing UK TV advertising campaign and the introduction of POC2 on gross gaming revenue in the UK in Q4 2017; Starspins and Botemania brands (24% of segment revenues) continued to perform strongly

· Vera&John (26% of Group revenue) - Gaming revenue growth of 35%; Adjusted EBITDA1 decreased 9% due to trailing costs from marketing campaigns launched in Q4 2017; revenue increased by 31% on a constant currency basis8

Outlook

Trading in the first quarter has been in line with expectations and we anticipate that this momentum will be maintained during the course of FY18. The Botemania earn-out period finished in March 2018 and we are due to make the final earn-out payment to the Gamesys group in June 2018. We expect to meet this payment comfortably from existing cash resources and to rapidly de-leverage thereafter; reducing net debt remains a key strategic target for the Group. Significant growth opportunities continue to exist in the UK and other global online gaming markets, and we are confident that we are well-placed to take advantage of this backdrop and deliver value to shareholders.

Neil Goulden, Executive Chairman, commented:

"The first quarter has seen a continuation in the good underlying momentum we saw in 2017. Group revenues were up 13% with Jackpotjoy3, our largest business segment, up 7%, and Vera&John, up 35%, as both new and existing players continue to have a high level of engagement with our portfolio of games. Adjusted EBITDA1 decreased 7% year-on-year impacted by our TV advertising campaign in the UK, along with the introduction of POC2 in Q4 last year. As we have previously flagged, the investment in TV advertising will continue in Q2 2018 including a campaign-launch in Spain. I am confident that we will continue to drive good growth and attractive returns for our shareholders over the remainder of FY18 and beyond."

Conference call

A conference call for analysts and investors will be held today at 1.00pm BST / 8.00am ET. To participate, interested parties are asked to dial +44 (0) 20 3003 2666 or +1 800 608-0547, or for US shareholders +1 866 966-5335, 10 minutes prior to the scheduled start of the call using the reference ''Jackpotjoy'' when prompted. A replay of the conference call will be available for 30 days by dialling +44 (0) 20 8196 1998 or +1 866 583-1035 and using reference 7715401#. A transcript will also be made available on Jackpotjoy plc's website at www.jackpotjoyplc.com/investors.

Note Regarding Non-IFRS financial measures

The following non-IFRS definitions are used in this release because management believes that they provide additional useful information regarding ongoing operating and financial performance. Readers are cautioned that the definitions are not recognised measures under IFRS, do not have standardised meanings prescribed by IFRS, and should not be considered in isolation or construed to be alternatives to revenues and net income/(loss) and comprehensive income/(loss) for the period determined in accordance with IFRS or as indicators of performance, liquidity or cash flows. Our method of calculating these measures may differ from the method used by other entities. Accordingly, our measures may not be comparable to similarly titled measures used by other entities or in other jurisdictions.

Adjusted EBITDA, as defined by the Group, is income before interest expense including accelerated debt costs and other accretion (net of interest income), income taxes, amortisation and depreciation, share-based compensation, severance costs, realised loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange loss, and gain on sale of intangible assets. Management believes that Adjusted EBITDA is an important indicator of the issuer's ability to generate liquidity to service outstanding debt and fund acquisition earn-out payments and uses this metric for such purpose. The exclusion of share-based compensation eliminates non-cash items and the exclusion of realised loss on cross currency swap, fair value adjustments on contingent consideration, severance costs, transaction related costs, foreign exchange loss, and gain on sale of intangible assets eliminates items which management believes are either non-operational and/or non-routine.

Adjusted Net Income, as defined by the Group, means net income plus or minus items of note that management may reasonably quantify and believes will provide the reader with a better understanding of the Group's underlying business performance. Adjusted Net Income is calculated by adjusting net income for accretion on financial liabilities, amortisation of acquisition related purchase price intangibles and non-compete clauses, share-based compensation, severance costs, realised loss on cross currency swap, fair value adjustments on contingent consideration, transaction related costs, foreign exchange loss and gain on sale of intangible assets. The exclusion of accretion on financial liabilities and share-based compensation eliminates the non-cash impact and the exclusion of amortisation of acquisition related purchase price intangibles and non-compete clauses, realised loss on cross currency swap, fair value adjustments on contingent consideration, severance costs, transaction related costs, foreign exchange loss, and gain on sale of intangible assets eliminates items which management believes are non-operational and/or non-routine. Adjusted Net Income is considered by some investors and analysts for the purpose of assisting in valuing a company.

Diluted Adjusted Net Income per share, as defined by the Group, means Adjusted Net Income divided by the diluted weighted average number of shares outstanding, calculated using the IFRS treasury method, for the applicable period. Management believes that Diluted Adjusted Net Income per share assists with the Group's ability to analyse Adjusted Net Income on a diluted weighted average per share basis. 

Cautionary Note Regarding Forward-Looking Information

This release contains certain information and statements that may constitute 'forward-looking information' (including future-oriented financial information and financial outlooks) within the meaning of applicable laws, including Canadian securities laws. Often, but not always, forward-looking information can be identified by the use of words such as 'plans', 'expects', 'estimates', 'projects', 'predicts', 'targets', 'seeks', 'intends', 'anticipates', 'believes', or 'is confident of' or the negative of such words or other variations of or synonyms for such words, or state that certain actions, events or results 'may', 'could', 'would', 'should', 'might' or 'will' be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause actual results, performance, achievements or developments to be materially different from those anticipated by the Group and expressed or implied by the forward-looking statements. Forward-looking information contained in this release includes, but is not limited to, statements with respect to the Group's future financial performance, the future prospects of the Group's business and operations, the Group's growth opportunities and the execution of its growth strategies, the trading of Jackpotjoy plc shares on the London Stock Exchange; the Group's earn‐out obligations and the payment thereof, the anticipated de-leveraging of the Group, and the ability of the Group to deliver attractive returns to shareholders. Certain of these statements may constitute a financial outlook within the meaning of Canadian securities laws. These statements reflect the Group's current expectations related to future events or its future results, performance, achievements or developments, and future trends affecting the Group. All such statements, other than statements of historical fact, are forward-looking information. Such forward-looking information is based on a number of assumptions which may prove to be incorrect, including, but not limited to, the ability of the Group to secure, maintain and comply with all required licenses, permits and certifications to carry out business in the jurisdictions in which it currently operates or intends to operate; governmental and regulatory actions, including the introduction of new laws or changes in laws (or the interpretation thereof) related to online gaming; general business, economic and market conditions (including market growth rates and the withdrawal of the UK from the European Union); the Group operating in foreign jurisdictions; the competitive environment; the expected growth of the online gaming market and potential new market opportunities; anticipated and unanticipated costs; the protection of the Group's intellectual property rights; the Group's ability to successfully integrate and realise the benefits of its completed acquisitions, the amount of expected earn-out payments required to be made; the Group's continued relationship with the Gamesys group and other third parties; the ability of the Group to service its debt obligations; and the ability of the Group to obtain additional financing, if, as and when required. Such statements could also be materially affected by risks relating to the lack of available and qualified personnel or management; stock market volatility; taxation policies; competition; foreign operations; the Group's limited operating history and the Group's ability to access sufficient capital from internal or external sources. However, whether actual results and developments will conform with the expectations and predictions contained in the forward-looking information is subject to a number of risks and uncertainties, many of which are beyond the Group's control, and the effects of which can be difficult to predict. For a description of such risk factors, see Schedule 'A' attached to Jackpotjoy plc's most recently filed annual information form. Although the Group has attempted to identify important factors that could cause actual results, performance, achievements or developments to differ materially from those described in forward-looking statements, there may be other factors that cause actual results, performance, achievements or developments not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results, performance, achievement or developments are likely to differ, and may differ materially, from those expressed in or implied by the forward-looking information contained in this release. Accordingly, readers should not place undue reliance on forward-looking information. While subsequent events and developments may cause the Group's expectations, estimates and views to change, the Group does not undertake or assume any obligation to update or revise any forward-looking information, except as required by applicable securities laws. The forward-looking information contained in this release should not be relied upon as representing the Group's expectations, estimates and views as of any date subsequent to the date of this release. The forward-looking information contained in this release is expressly qualified by this cautionary statement. Investors should not place undue reliance on forward-looking statements as the plans, intentions or expectations upon which they are based might not occur.

Any future-oriented financial information or financial outlooks in this release are based on certain assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. While the Group considers these assumptions to be reasonable, based on information currently available, they may prove to be incorrect. These risks, uncertainties and other factors include, but are not limited to: credit, market, currency, operational, liquidity and funding risks, including changes in economic conditions, and interest rates or tax rates.  

Financial Review

Revenue

The Group's revenues during the three months ended 31 March 2018 consisted of:

· £59.5 million in revenue earned from Jackpotjoy's3 operational activities. 

· £21.2 million in revenue earned from Vera&John's operational activities.

The Group's revenues during the three months ended 31 March 2017 consisted of:

· £55.7 million in revenue earned from Jackpotjoy's3 operational activities. 

· £15.7 million in revenue earned from Vera&John's operational activities.

The increase in revenue for the three months ended 31 March 2018 in comparison with the three months ended 31 March 2017 relates to organic growth9 of the Vera&John and Jackpotjoy3 segments, where revenues increased by 35% and 7%, respectively.

Costs and expenses

Distribution costs

Selling and marketing expenses consist of payments made to affiliates and general marketing expenses related to each brand. Licensing fees consist of the fees for the Jackpotjoy3 segment to operate on its platforms and game suppliers' fees paid by the Vera&John and Jackpotjoy3 segments. Gaming taxes largely consist of point of consumption taxes ('POC'), which is a 15% tax on Real Money Gaming Revenue (a non-IFRS measure defined in the 'Key performance indicators' sub-section of this release) introduced in the UK in December 2014. Gaming taxes also consist of a 15% general betting duty on all free or discounted online bets ('POC2'), which came into effect in Q4 2017. Processing fees consist of costs associated with using payment providers and include payment service provider transaction and handling costs, as well as deposit and withdrawal fees. With the exception of selling and marketing expenses, distribution costs tend to be variable in relation to revenue.

The increase in distribution costs for the three months ended 31 March 2018 compared to the same period in 2017 is mainly due to higher revenues achieved and increased selling and marketing spending in the Jackpotjoy3 and Vera&John segments.

Administrative costs

Compensation and benefits costs consist of salaries, wages, bonuses, directors' fees, benefits and share-based compensation expense. The increase in these expenses in the three months ended 31 March 2018 compared to the same period in 2017 is due to additional staff hired in the period as well as bonus accruals.

Professional fees consist mainly of legal, accounting and audit fees. These costs remained relatively flat in the three months ended 31 March 2018 compared to the same period in 2017, with a slight increase relating to additional regulatory requirements post listing on the London Stock Exchange.

General and administrative expenses consist of items such as rent and occupancy, travel and accommodation, insurance, listing fees, technology and development costs, and other office overhead charges. The slight increase in these expenses for the three months ended 31 March 2018 compared to the same period in the prior year can be attributed to marginally higher travel, rent and overhead costs.

Amortisation and depreciation consists of amortisation of the Group's intangible assets and depreciation of the Group's tangible assets over their useful lives. The increase in amortisation and depreciation for the three months ended 31 March 2018 is due to intangible and tangible asset additions since Q1 2017, particularly the non-compete clauses (as defined below), for which amortisation started in Q2 2017.

Transaction related costs

Transaction related costs consist of legal, professional, due diligence, other direct costs/fees associated with transactions and acquisitions contemplated or completed, and the refinancing of the Group's external debt. Q1 2017 transaction related costs also included costs associated with the UK strategic review and implementation of UK-centred strategic initiatives, including the listing of the Group on the LSE.

Severance costs

Severance costs during the period relate to personnel redundancies resulting from internal restructuring.

Business unit results

Jackpotjoy3

Revenue for the Jackpotjoy3 segment increased in the three months ended 31 March 2018 due to organic growth9 led by sharp increases in Starspins and Botemania brands. Collectively, they accounted for 24% of this segment's revenue. Jackpotjoy UK brand revenue accounted for 60% of the Jackpotjoy3 segment's revenue for the three months ended 31 March 2018. In addition to higher revenues achieved, the increase in distribution costs for the three months ended 31 March 2018 is further driven by costs from the segment's UK TV marketing campaign, as well as an incremental gaming tax expense, which relates to tax on bonuses through UK POC2 tax introduced in Q4 2017.

Vera&John

Revenue for the Vera&John segment for the three months ended 31 March 2018 increased by 35% compared to the same period in 2017 due to a combination of organic growth9 and year-over-year GBP to EUR exchange rate movement. On a constant currency8 basis, revenue increased by 31% in the three months ended 31 March 2018 compared to the same period in 2017. Distribution costs increased by 67% as a result of higher marketing spending in the current period. The increase was further driven by increased gaming tax due to increased revenue in regulated jurisdictions compared to the prior period.

Increases in administrative costs for the three months ended 31 March 2018 compared to the same period in 2017 were mainly driven by increases in personnel and office related costs as the segment continues to grow.

Unallocated Corporate Costs

Adjusted EBITDA1 on Unallocated Corporate Costs decreased from (£2.9) million to (£3.0) million in the three months ended 31 March 2018 as compared to the three months ended 31 March 2017. The variance mainly relates to a £0.6 million increase in compensation, partially offset by a £0.3 million decrease in general and administrative overheads and a £0.2 million decrease in professional fees.

Key performance indicators

Average Active Customers is a key performance indicator used by management to assess real money customer acquisition and real money customer retention efforts of each of the Group's brands. The Group defines Average Active Customers as being real money customers who have placed at least one bet in a given month ('Average Active Customers'). 'Average Active Customers per Month' is the Average Active Customers per month, averaged over a twelve-month period. While this measure is not recognised by IFRS, management believes that it is a meaningful indicator of the Group's ability to acquire and retain customers.

Total Real Money Gaming Revenue and Average Real Money Gaming Revenue per Month are key performance indicators used by management to assess revenue earned from real money gaming operations of the business. The Group defines Total Real Money Gaming Revenue ('Total Real Money Gaming Revenue') as revenue less revenue earned from affiliate websites and social gaming. The Group defines Average Real Money Gaming Revenue per Month ('Average Real Money Gaming Revenue per Month') as Real Money Gaming Revenue per Month, averaged over a twelve-month period. While these measures are not recognised by IFRS, management believes that they are meaningful indicators of the Group's real money gaming operational results.

Monthly Real Money Gaming Revenue per Average Active Customer is a key performance indicator used by management to assess the Group's ability to generate Real Money Gaming Revenue on a per customer basis. The Group defines Monthly Real Money Gaming Revenue per Average Active Customer ('Monthly Real Money Gaming Revenue per Average Active Customer') as being Average Real Money Gaming Revenue per Month divided by Average Active Customers per Month. While this measure is not recognised by IFRS, management believes that it is a meaningful indicator of the Group's ability to generate Total Real Money Gaming Revenue. 

(1) Total Real Money Gaming Revenue for the twelve months ended 31 March 2018 consists of total revenue less other income earned from the Revenue Guarantee and platform migration of £nil (31 March 2017 - £0.9 million) and revenue earned from affiliate websites and social gaming revenue of £20.5 million (31 March 2017 - £23.8 million).

Monthly Real Money Gaming Revenue per Average Active Customer7 increased by 9% year-over-year, which is in line with the Group's overall customer acquisition and retention strategy. 

Independent review report to Jackpotjoy plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the three months ended 31 March 2018 which comprises the Interim Condensed Consolidated Statements of Comprehensive Income, the Interim Condensed Consolidated Balance Sheets, the Interim Condensed Consolidated Statements of Changes in Equity, the Interim Condensed Consolidated Statement of Cash Flows and the related notes.

We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim financial report is the responsibility of and has been approved by the directors.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as issued by the International Accounting Standards Board and International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'' as issued by the International Auditing and Assurance Standards Board and International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing or International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the three months ended 31 March 2018 is not prepared, in all material respects with International Accounting Standard 34 as issued by the International Accounting Standards Board and International Accounting Standard 34, as adopted by the European Union.

BDO LLP

Chartered Accountants

London

15 May 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes

SUPPLEMENTARY NOTES FOR THREE MONTHS ENDED 31 MARCH 2018

1. Corporate information

Jackpotjoy plc is an online gaming holding company that was incorporated under the Companies Act 2006 (England and Wales) on 29 July 2016. Jackpotjoy plc's registered office is located at 35 Great St. Helen's, London, United Kingdom. Unless the context requires otherwise, use of 'Group' in these accompanying notes means Jackpotjoy plc and its subsidiaries, as applicable.

The Group currently offers bingo, casino and other games to its customers using the Jackpotjoy, Starspins, Botemania, Vera&John, Costa Bingo, InterCasino, and other brands. The Jackpotjoy, Starspins, and Botemania brands operate off proprietary software owned by the Gamesys group, the Group's principal B2B software and support provider. The Vera&John and InterCasino brands operate off proprietary software owned by the Group. The Costa Bingo and related brands operate off the Dragonfish platform, a software service provided by the 888 group.

These Unaudited Interim Condensed Consolidated Financial Statements were authorised for issue by the Board of Directors of Jackpotjoy plc (the 'Board of Directors') on 15 May 2018.

2. Basis of preparation

Basis of presentation

These Unaudited Interim Condensed Consolidated Financial Statements have been prepared by management on a going concern basis, are presented in compliance with International Accounting Standard ('IAS') 34 - Interim Financial Reporting, and have been prepared on a basis consistent with the accounting policies and methods used and disclosed in Jackpotjoy plc's consolidated financial statements for the year ended 31 December 2017 (the 'Annual Financial Statements'), except as described below. Certain information and disclosures normally included in the Annual Financial Statements prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union, and in accordance with IFRS as issued by the International Accounting Standards Board, have been omitted or condensed. 

These Unaudited Interim Condensed Consolidated Financial Statements should be read in conjunction with the Annual Financial Statements. All defined terms used herein are consistent with those terms as defined in the Annual Financial Statements.

These Unaudited Interim Condensed Consolidated Financial Statements have been prepared under the historical cost convention, other than for the measurement at fair value of the Group's Interest Rate Swap (as defined in note 11), contingent consideration, certain hedged loan instruments, and loan receivable.

The comparative financial information for the year ended 31 December 2017 in these Unaudited Interim Condensed Consolidated Financial Statements does not constitute statutory accounts for that year. The auditors' report on the statutory accounts for the year ended 31 December 2017 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Basis of consolidation

Jackpotjoy plc's Unaudited Interim Condensed Consolidated Financial Statements consolidate the parent company and all of its subsidiaries. The parent controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. All transactions and balances between companies are eliminated on consolidation.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which Jackpotjoy plc obtains control, and continue to be consolidated until the date that such control ceases.

Intercompany transactions, balances, income and expenses on transactions between Jackpotjoy plc's subsidiaries are eliminated. Profit and losses resulting from intercompany transactions that are recognised in assets are also eliminated.

3. Summary of significant accounting policies

For a description of the Group's significant accounting policies, critical accounting estimates and assumptions, and related information see note 3 to the Annual Financial Statements. Other than as described below, there have been no changes to the Group's significant accounting policies or critical accounting estimates and assumptions during the three months ended 31 March 2018.

Financial instruments

Effective from 1 January 2018, the Group adopted IFRS 9 - Financial Instruments: Recognition and Measurement ('IFRS 9') to account for the Gaming Realms Transaction (as defined in note 10). As a result, the Group no longer separates the embedded derivative from its host contract and the entire asset is measured at fair value through profit or loss. The adoption of IFRS 9 resulted in balances shown as other long-term receivables and other long-term assets at 31 December 2017 to be combined into a single figure and shown as other long-term receivables at 31 March 2018.

Hedge accounting

The Group elected to use hedge accounting for the purposes of recognising realised and unrealised gains and losses associated with the Interest Rate Swap, in accordance with guidance provided in IFRS 9. 

IFRS 9 permits hedge accounting under certain circumstances provided that the hedging relationship is:

· formally designated and documented, including the entity's risk management objective and strategy for undertaking the hedge, identification of the hedging instrument, the hedged item, the nature of the risk being hedged, and how the entity will assess the hedging instrument's effectiveness;

· expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk as designated and documented, and effectiveness can be reliably measured; and

· assessed on an ongoing basis and determined to have been highly effective.

Based on the Group's analysis of the requirements outlined above, it was concluded that the Interest Rate Swap meets all the necessary criteria and qualifies for use of hedge accounting. The Interest Rate Swap was designated as a cash flow hedge.

Revenue recognition

Effective from 1 January 2018, the Group adopted IFRS 15 - Revenue from Contracts with Customers ('IFRS 15'). Applying this standard did not impact the Group's financial information as the Group's policy was already in compliance with the key principles outlined in IFRS 15.

4. Segment information

In March 2018, the Group determined that its reportable operating segments had changed such that the Mandalay segment is aggregated with the Jackpotjoy segment with effect from 1 January 2018, as Mandalay no longer met the criteria set out in IFRS 8 - Operating Segments for a reportable operating segment. Mandalay has therefore been aggregated with the Jackpotjoy segment consistent with the Group's other third-party platform hosted operations and all 2017 comparative segment figures have been restated accordingly.

The following tables present selected financial results for each segment and the unallocated corporate costs: 

Three months ended 31 March 2018

* Jackpotjoy gaming revenue figure includes social gaming revenue £2.9 million for Q1 2018.

Three months ended 31 March 2017

*Jackpotjoy gaming revenue figure includes social gaming revenue of £4.5 million for Q1 2017.

The following table presents net assets per segment and unallocated corporate costs as at 31 March 2018:

The following table presents net assets per segment and unallocated corporate costs as at 31 December 2017:

During the three months ended 31 March 2018 and 2017, substantially all of the revenue earned by the Group was earned in Europe. Revenue was earned from customers located in the following locations: United Kingdom - 61% (three months ended 31 March 2017 - 65%), Sweden - 9% (three months ended 31 March 2017 - 11%), rest of Europe - 16% (three months ended 31 March 2017 - 11%), rest of world - 14% (three months ended 31 March 2017 - 13%). 

Non-current assets by geographical location as at 31 March 2018 were as follows: Europe £84.8 million (31 December 2017 - £87.7 million) and Americas £495.2 million (31 December 2017 - £508.2 million). 

5. Costs and expenses

6. Interest expense/income

7. Earnings per share

The following table presents the calculation of basic and diluted earnings per share:

1 In the case of a net loss, the effect of share options potentially exercisable on diluted loss per share will be anti-dilutive; therefore, basic and diluted net loss per share will be the same.

2 An assumed conversion of convertible debentures had an anti-dilutive effect on loss per share for the three months ended 31 March 2018 and 31 March 2017.

3 Basic loss per share is calculated by dividing the net loss attributable to common shareholders by the weighted average number of shares outstanding during the period.

4 Diluted loss per share is calculated by dividing the net loss attributable to ordinary shareholders by the weighted average number of shares outstanding during the period and adjusted for the number of potentially dilutive share options and contingently issuable instruments.

8. Cash and restricted cash

9. Trade and other receivables

Trade and other receivables consist of the following items:

10. Other long-term receivables

On 29 November 2017, the Group entered into a secured convertible loan and services agreement with Gaming Realms plc ('Gaming Realms') (the 'Gaming Realms Transaction').

Key terms of the Gaming Realms Transaction include: (a) five-year secured convertible loan to Gaming Realms in the principal amount of £3.5 million with an interest rate of 3 month UK LIBOR plus 5.5% per annum; (b) conversion option (the 'Conversion Component') that allows the Group to convert some or all of the loan (in tranches of £0.5 million) into ordinary shares of Gaming Realms after 12 months; (c) a ten-year services agreement ('Services Agreement') for the supply by Gaming Realms of some of its content to websites of the Group's choosing free-of-charge. The value of the free-of-charge services provided under this Services Agreement will be capped at £3.5 million over the first five years of the agreement, at which point the provision of free-of-charge services ceases.

In connection with this transaction, the Group recognised a long-term receivable of £3.5 million for the secured convertible loan, in accordance with IFRS 9, based on the calculation of fair value at 31 March 2018, as explained in note 16.

11. Interest rate swap

On 16 February 2018, Jackpotjoy plc entered into an interest rate swap agreement (the 'Interest Rate Swap') in order to minimise the Group's exposure to interest rate fluctuations. The Interest Rate Swap has an effective date of 15 March 2018 (the 'Effective Date') and an expiry date of 15 March 2023. Under this agreement, Jackpotjoy plc will pay a fixed 6.439% interest in place of floating GBP interest payments of GBP LIBOR plus 5.25%. The fixed interest rate will be paid on 60% of the GBP Term Facility (£150.0 million) to start. The notional amount will decrease by £30.0 million every 12 months from the Effective Date. The Interest Rate Swap was designated as a cash flow hedge, as described in note 3. 

As at 31 March 2018, the fair value of the Interest Rate Swap was a £0.4 million payable (31 December 2017 - £nil). The Group has included £0.1 million of this payable in current liabilities, as shown in note 14 (31 December 2017 - £nil), with the value of the remaining balance, being £0.3 million (31 December 2017 - £nil), included in other long-term payables. 

12. Intangible assets

As at 31 March 2018

As at 31 December 2017

13. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following items:

14. Other short-term payables

Other short-term payables consist of:

15. Credit facilities

*Effective interest rates are as follows: EUR Term Facility - 4.44%, GBP Term Facility - 6.01%.

16. Financial instruments

The principal financial instruments used by the Group are summarised below:

Financial assets

Financial liabilities

The carrying values of the financial instruments noted above, with the exception of convertible debentures, approximate their fair values.

Other financial instruments

Fair value hierarchy

The hierarchy of the Group's financial instruments carried at fair value is as follows:

Other long-term receivables represent the fair value of the loan receivable from Gaming Realms. The key inputs into the fair value estimation of this balance include the share price of Gaming Realms on the date of cash transfer, a five-year risk-free interest rate of 1.339%, and an estimated share price return volatility rate of Gaming Realms of 39.3%.

Contingent consideration represents the fair value of the cash outflows under earn-out agreements that would result from the performance of acquired businesses. The key inputs into the fair value estimation of these liabilities include the forecast performance of the underlying businesses, the probability of achieving forecasted results and the discount rate applied in deriving a present value from those forecasts. Significant increase (decrease) in the business' performance would result in a higher (lower) fair value of the contingent consideration, while significant increase (decrease) in the discount rate would result in a lower (higher) fair value of the contingent consideration. Additionally, as earn-out periods draw closer to their completion, the range of probability factors will decrease. 

A discounted cash flow valuation model was used to determine the value of the contingent consideration. The model considers the present value of the expected payments, discounted using a risk-adjusted discount rate of 7%. The expected payments are determined by considering the possible scenarios of forecast EBITDA, the amount to be paid under each scenario and the probability of each scenario. As at 31 March 2018, the Botemania payment makes up 82% of the contingent consideration and the probability used for the Botemania payment was set at 100%.

Without probability and discount factors, the fair value of the contingent consideration would be approximately 3% higher (£2.5 million), than its value at 31 March 2018, increasing the current portion of the contingent consideration, which is composed of the Botemania earn-out payment and the first Jackpotjoy milestone payment, by £0.7 million and increasing the long-term contingent consideration, which is composed of the final Jackpotjoy milestone payments due in 2019 and 2020, by £1.8 million. This assumes that the financial performance of the Jackpotjoy operating segment remains in line with management's expectations. 

As at 31 March 2018, the contingent consideration balance related to the earn-out payment remaining on the Spanish assets included in the Jackpotjoy segment and milestone payments related to the Jackpotjoy segment.

The movement in Level 3 financial instruments is detailed below:

17. Other long-term payables

The Group is required to pay the Gamesys group £24.0 million in equal monthly instalments in arrears over the period from April 2017 to April 2020, for additional non-compete clauses that came into effect in April 2017 and that expire in March 2019. The Group has included £8.7 million of this payable in current liabilities, as shown in note 14 (31 December 2017 - £8.7 million), with the discounted value of the remaining balance, being £6.6 million (31 December 2017 - £8.2 million), included in other long-term payables. During the three months ended 31 March 2018, the Group has paid a total of £2.0 million (three months ended 31 March 2017 - £nil) in relation to the additional non-compete clauses.

18. Share capital

As at 31 March 2018, Jackpotjoy plc's issued share capital consisted of 74,258,930 ordinary shares, each with a nominal value of £0.10. Jackpotjoy plc does not hold any shares in treasury and there are no shares in Jackpotjoy plc's issued share capital that do not represent capital.

Ordinary shares

During the three months ended 31 March 2018, Jackpotjoy plc did not issue any additional ordinary shares, except as described below.

Convertible debentures

During the three months ended 31 March 2018, debentures at undiscounted value of £0.2 million were converted into 56,499 ordinary shares of Jackpotjoy plc.

Share options

During the three months ended 31 March 2018, nil share options were granted, 137,500 share options were exercised, nil share options were forfeited, and nil share options expired.

During the three months ended 31 March 2018, the Group recorded £0.1 million (three months ended 31 March 2017 - £0.5 million) in share-based compensation expense relating to the share option plan with a corresponding increase in share-based payment reserve.

Long-term incentive plan

On 26 March 2018, Jackpotjoy plc granted a mirror award over ordinary shares of Jackpotjoy plc. The mirror award is on the same commercial terms as the Group's long-term incentive plan for key management personnel.

On 28 March 2018, Jackpotjoy plc granted additional awards over ordinary shares of Jackpotjoy plc under the Group's long-term incentive plan for key management personnel.

19. Contingent liabilities

Indirect taxation

Jackpotjoy plc subsidiaries may be subject to indirect taxation on transactions that have been treated as exempt supplies of gambling, or on supplies that have been zero rated where legislation provides that the services are received or used and enjoyed in the country where the service provider is located. Revenue earned from customers located in any particular jurisdiction may give rise to further taxes in that jurisdiction. If such taxes are levied, either on the basis of current law or the current practice of any tax authority, or by reason of a change in the law or practice, then this may have a material adverse effect on the amount of tax payable by the Group or on its financial position.

Where it is considered probable that a previously identified contingent liability will give rise to an actual outflow of funds, then a provision is made in respect of the relevant jurisdiction and period impacted. Where the likelihood of a liability arising is considered remote, or the possible contingency is not material to the financial position of the Group, the contingency is not recognised as a liability at the balance sheet date. As at 31 March 2018, the Group had recognised £nil liability (31 December 2017 - £nil) related to potential contingent indirect taxation liabilities.