Results for Three and Nine Months ended 30 Sept 18

JPJ Group plc

Results for the Three and Nine Months Ended 30 September 2018

Gaming revenue up 8% year-on-year, net leverage reduced significantly;

2018 outlook confirmed

LONDON, 14 November 2018 - JPJ Group plc (LSE: JPJ) (the 'Group'), a leading global online bingo-led operator, today announces the results for the three and nine months ended 30 September 2018.

Financial summary[1]

Financial highlights for the third quarter

· Ongoing good financial performance 

o Gaming revenue rose 8% year-on-year

o Adjusted EBITDA2 increased 13% year-on-year, reflecting strong earnings growth at Vera&John supported by the proprietary technology platform

o Adjusted net income2 increased 36% year-on-year, partly attributed to a 36% decrease in interest expense

· Remain highly cash generative

o Operating cash flow of £33.0 million, an increase of 1% year-on-year, and 44p of operating cash flow per share3

o Adjusted EBITDA2 to cash conversion of 115%; free cash flow[4] of £31.4 million

o Adjusted net debt[5] reduced by £43.1 million; adjusted net leverage ratio[6] of 3.03x down from 3.41x at 30 June 2018

· Performance in line with expectations; outlook remains positive for the full year

Operational highlights for the third quarter

· Ongoing improvement in core KPIs[7] year-on-year

o Average Active Customers per Month7 grew to 257,929 in the twelve months to 30 September 2018, an increase of 3% year-on-year

o Average Real Money Gaming Revenue per Month7 grew to £25.4 million, an increase of 12% year-on-year

o Monthly Real Money Gaming Revenue per Average Active Customer7 of £99, an increase of 10% year-on-year

Business segments highlights for the third quarter

· Jackpotjoy[8] (67% of Group revenue)

o Quarterly gaming revenue and adjusted EBITDA2 decreased by 3% and 4% year-on-year respectively, mainly due to a decline in the Mandalay brands that was somewhat offset by increases in Starspins and Botemania

o Segment performance also impacted by lower revenues from Jackpotjoy UK following the closure of a number of high value accounts due to responsible gambling measures, with the impact broadly in line with the trends in the second quarter

o Sale of the social gaming business for cash consideration of £18.0 million (excluding costs of disposal paid) completed on 31 August 2018, enabling the Group to be exclusively focussed on its core activity of real money gaming and representing another positive step in reducing net leverage

o Group well-advanced in plans to progress the internalisation of operational functions currently residing within Gamesys and expects to update the market when it reports full year results in March 2019

o JPJ Group can confirm that it is not its intention to seek to renew the non-compete arrangement with Gamesys when it expires in April 2019 as it does not believe it will deliver a meaningful financial benefit to the business or shareholders. While this will leave Gamesys free to consider launching new brands in the UK, Spain and Sweden, the Group does not perceive that this possibility represents a significant incremental competitive threat given JPJ Group's strong, market-leading position in these geographies

· Vera&John (33% of Group revenue)

o Quarterly gaming revenue grew by 40% reflecting strong organic growth[9] in the segment which operates on a proprietary technology platform; on a constant currency basis[10], revenue increased by 41% year-on-year

o Adjusted EBITDA2 increased by 71%; on a constant currency basis10, adjusted EBITDA2 rose by 72%

Neil Goulden, Executive Chairman, commented:

"We are pleased with the quarterly performance of JPJ Group given reported gaming revenue growth of 8% and an uplift in adjusted EBITDA2 of 13%. The Vera&John segment is once again the stand-out, with year-on-year revenue growth of 41% on a constant currency basis10. The growth at Vera&John highlights our strategy of international diversification, with 44% of Group revenue generated outside the UK in Q3.

As part of our commitment to meeting the highest industry standards on responsible gambling, revenues at Jackpotjoy UK have been impacted by the responsible gambling measures we have implemented and the closure of a number of high value accounts. We expect that the impact of closed accounts will begin to annualise during H2 2019 and, provided there are no further regulatory challenges, the Jackpotjoy8 segment will return to revenue growth thereafter.

Overall, we remain confident in our outlook for the full year. We continue to enjoy a strong association with Gamesys in a relationship which provides mutual benefits and we are also excited by the significant growth opportunities that exist in both existing and new markets, where we are well-placed to take advantage of this promising backdrop."

Outlook

Performance in the first nine months of the financial year has been solid as gaming revenue has grown 11% and adjusted EBITDA2 growth has accelerated over the past three months; the Board remains comfortable with market expectations for EBITDA for FY 2018.

The Group's ongoing strong free cash flow4 generation is enabling us to rapidly deleverage, with net debt reduction to below 2.5x net debt/EBITDA remaining a key strategic target and the point at which the Board can consider options to return cash to shareholders. As previously highlighted, the Board expects the impact of responsible gambling measures implemented this year to annualise from H2 2019 and provided there are no further regulatory changes impacting the Group's operations, for revenue growth to resume at Jackpotjoy UK thereafter.

The Group also notes that Sweden is currently undergoing a regulatory process that will result in licensed operators being subject to an 18% tax on Gross Gaming Revenues from January 2019. The Group can confirm that it has applied for the required licences and, in line with other operators in the region, is awaiting confirmation of these approvals.

Conference call

A conference call for analysts and investors will be held today at 1.00pm GMT / 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 "JPJ" when prompted.

A replay of the conference call will be available for 30 days by dialling +44 (0) 20 8196 1998 or +1 866 595-5357 and using reference 6608240#. A transcript will also be made available on JPJ Group plc's website at http://www.jpjgroup.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 from continuing operations 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 (gain)/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 milestone 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 (gain)/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 from continuing operations 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 (including 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 (gain)/loss and gain on sale of intangible assets. The exclusion of accretion on financial liabilities and share-based compensation eliminates the non-cash items and the exclusion of amortisation of acquisition related purchase price intangibles (including non-compete clauses), realised loss on cross currency swap, fair value adjustments on contingent consideration, severance costs, transaction related costs, foreign exchange (gain)/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 Group's milestone payment obligations, the future performance of the Jackpotjoy segment, the possibility of the Group drawing on the Revolving Facility, and the statements made under the heading 'Outlook' of this release. 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 licences, 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 milestone 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, including that the assumptions outlined above may not be accurate. For a description of additional risk factors, see Schedule 'A' attached to JPJ Group 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

Gaming revenue

The Group's gaming revenue during the three months ended 30 September 2018 consisted of:

· £52.1 million in revenue earned from Jackpotjoy's8 operational activities

· £25.7 million in revenue earned from Vera&John's operational activities

The Group's gaming revenue during the three months ended 30 September 2017 consisted of:

· £53.5 million in revenue earned from Jackpotjoy's8 operational activities

· £18.4 million in revenue earned from Vera&John's operational activities

The increase in gaming revenue for the three months ended 30 September 2018 in comparison with the three months ended 30 September 2017 relates primarily to organic growth9 of the Vera&John segment, where gaming revenue increased by 40%.

The Group's gaming revenue during the nine months ended 30 September 2018 consisted of:

· £162.2 million in revenue earned from Jackpotjoy's8 operational activities

· £71.0 million in revenue earned from Vera&John's operational activities

The Group's gaming revenue during the nine months ended 30 September 2017 consisted of:

· £158.6 million in revenue earned from Jackpotjoy's8 operational activities

· £51.5 million in revenue earned from Vera&John's operational activities

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 Jackpotjoy8 segment to operate on its platforms and game suppliers' fees paid by both the Vera&John and Jackpotjoy8 segments. Gaming taxes largely consist of point of consumption taxes ('POC'), payable in the regulated jurisdictions that the Group operates in. Variance in gaming taxes from prior periods relates to a change in UK POC taxes where a 15% general betting duty on all free or discounted online bets ('POC2') was introduced 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 and nine months ended 30 September 2018 compared to the same periods in 2017 is mainly due to higher revenues achieved and increased selling and marketing spending, primarily in the Vera&John segment.

Administrative costs

Compensation and benefits costs consist of salaries, wages, bonuses, directors' fees, benefits and share-based compensation expense. The decrease in these expenses for the three months ended 30 September 2018 compared to the same period in 2017 is due to lower operational bonus accruals. The increase in these expenses for the nine months ended 30 September 2018 compared to the same period in 2017 is due to additional staff hired in the period.

Professional fees consist mainly of legal, accounting and audit fees. The slight increase in professional fees in the three and nine months ended 30 September 2018 compared to the same periods in 2017 relates to additional gaming industry regulatory requirements that came into effect in the current period.

General and administrative expenses consist of items, such as rent and occupancy, travel and accommodation, insurance, listing authority fees, technology and development costs, and other office overhead charges. The increase in these costs for the three and nine months ended 30 September 2018 compared to the same periods in the prior year can be attributed to marginally higher travel, rent and overhead costs.

Amortisation and depreciation consist of amortisation of the Group's intangible assets and depreciation of the Group's tangible assets over their useful lives. The decrease in amortisation and depreciation for the three months ended 30 September 2018 is due to the fact that amortisation expense decreases with each passing year of the Group's intangible assets' lives as a result of the amortisation method used. The increase in amortisation and depreciation for the nine months ended 30 September 2018 is due to the non-compete clauses, 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 or disposals contemplated or completed, costs associated with the Group's Premium Listing 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 London Stock Exchange.

Severance costs

Severance costs during the three and nine months ended 30 September 2018 relate to personnel redundancies resulting from internal restructuring.

Business unit results

Jackpotjoy8

Gaming revenue for the Jackpotjoy8 segment for the three months ended 30 September 2018 was 3% lower than in the same period in 2017 due to a decline in the Mandalay brands, which accounted for 5% of the segment's revenue. The decrease was partially offset by increases in the Starspins and Botemania brands, which collectively accounted for 27% of this segment's revenue.

Gaming revenue for the nine months ended 30 September 2018 was 2% higher than in the same period in 2017 due to organic growth9 led by increases in the Starspins and Botemania brands. Collectively, they accounted for 26% of this segment's revenue.

The decrease in distribution costs for the three months ended 30 September 2018 compared to the same period in 2017 is driven by a marginal reduction in UK marketing spend.

The increase in distribution costs for the nine months ended 30 September 2018 is driven by costs from the segment's TV marketing campaigns, as well as an incremental gaming tax expense, which relates to tax on bonuses through UK POC2 tax introduced in Q4 2017. The increase in administrative costs for the three and nine months ended 30 September 2018 compared to the same periods in 2017 was mainly driven by increases in administrative overhead costs.

Vera&John

Gaming revenue for the Vera&John segment for the three and nine months ended 30 September 2018 increased by 40% and 38%, respectively, compared to the same periods in 2017 due to organic growth9. On a constant currency basis10, revenue increased by 41% and 36% in the three and nine months ended 30 September 2018 compared to the same periods in 2017.

Distribution costs increased by 40% and 49%, respectively, for the three and nine months ended 30 September 2018 compared to the same periods in 2017 as a result of higher marketing spend in the current period. The increase was further driven by higher gaming tax due to increased revenue in regulated jurisdictions compared to the prior period.

The increase in administrative costs for the three and nine months ended 30 September 2018 compared to the same periods in 2017 was mainly driven by increases in personnel and administrative overhead costs as the segment continues to grow.

Unallocated Corporate Costs

Adjusted EBITDA2 on Unallocated Corporate Costs increased from (£3.2) million to (£2.5) million in the three months ended 30 September 2018 as compared to the three months ended 30 September 2017. The variance mainly relates to a £0.6 million decrease in compensation fees and a £0.2 million decrease in general administrative overhead costs, offset by an increase of £0.1 million in professional fees.

Adjusted EBITDA2 on Unallocated Corporate Costs increased from (£8.6) million to (£7.8) million in the nine months ended 30 September 2018 compared to the nine months ended 30 September 2017. The variance mainly relates to a £0.1 million decrease in compensation fees, a £0.5 million decrease in general administrative overhead costs and a £0.1 million decrease in professional fees.

Net loss on Unallocated Corporate Costs decreased from £20.6 million to £8.4 million in the three months ended 30 September 2018 as compared to the three months ended 30 September 2017. This decrease is primarily related to a lower foreign exchange loss and lower interest expense incurred as a result of the debt refinance that took place in Q4 2017. The decrease in net loss can further be attributed to the fact that there were no fair value adjustments on contingent consideration in the current period as the final earn-out period ended in Q1 2018.

Net loss on Unallocated Corporate Costs decreased from £75.8 million to £38.6 million in the nine months ended 30 September 2018 as compared to the nine months ended 30 September 2017. This decrease is primarily related to a lower foreign exchange loss and lower interest expense incurred as a result of the debt refinance that took place in Q4 2017. The decrease in net loss can further be attributed to the fact that there were no fair value adjustments on contingent consideration in the second and third quarters of 2018 as the final earn-out period ended in Q1 2018.

Costs included in net loss which are excluded from the Adjusted EBITDA2 measure are discussed on page 4 of this release.

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 ('Average Active Customers') as being real money customers who have placed at least one bet in a given month. '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 B2B websites. 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 30 September 2018 consists of total revenue less revenue earned from B2B websites of £7.1 million (30 September 2017 - £6.6 million).

Monthly Real Money Gaming Revenue per Average Active Customer7 increased by 10% year-over-year which is in line with the Group's overall customer acquisition and retention strategy. 

INDEPENDENT REVIEW REPORT TO JPJ GROUP 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 and nine months ended 30 September 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 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 and nine months ended 30 September 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

14 November 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

See accompanying notes

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 AND NINE MONTHS ENDED 30 SEPTEMBER 2018

1. Corporate information

JPJ Group plc, formerly Jackpotjoy plc, is an online gaming holding company that was incorporated under the Companies Act 2006 (England and Wales) on 29 July 2016. On 27 June 2018, Jackpotjoy plc changed its name to JPJ Group plc. JPJ Group 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 JPJ Group 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 JPJ Group plc on 14 November 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 JPJ Group 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 certain loans receivable.

On 1 February 2017, having been approved in the High Court, the Group's share premium was cancelled. Accordingly, the balance has been reallocated within equity reserves to the Group's retained earnings account. This is now shown in the Unaudited Interim Condensed Consolidated Statements of Changes in Equity as an adjustment to the balances on the Group's equity reserves in the period ending 30 September 2017. There is no impact on the income statement, on earnings per share or on total equity. 

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.

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 nine months ended 30 September 2018.

Financial instruments

Effective from 1 January 2018, the Group adopted IFRS 9 - Financial Instruments: Recognition and Measurement ('IFRS 9'). In relation to 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. Also in relation to this transaction, the adoption of IFRS 9 resulted in balances shown as other long-term receivables and other long-term assets at 31 December 2017 being combined into a single figure and shown as other long-term receivables at 30 September 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. 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.

Impairment policy

In accordance with IFRS 9, the Group reviewed its impairment policy and concluded that no material impairment provision on its financial instruments, as discussed in note 16, is required. The Group uses the expected credit loss model to assess impairment.

Revenue recognition

Effective from 1 January 2018, the Group adopted IFRS 15 - Revenue from Contracts with Customers ('IFRS 15'), which replaces IAS 18 - Revenue. 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 was aggregated with the Jackpotjoy segment with effect from 1 January 2018, as Mandalay no longer met the criteria for a reportable operating segment, set out in IFRS 8 - Operating Segments. Mandalay was therefore aggregated with the Jackpotjoy segment, consistent with the Group's other third-party platform hosted operations. Additionally, as discussed in note 6, the Group sold its social gaming business in the current period. All current year-to-date and 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 30 September 2018:

Nine months ended 30 September 2018:

Three months ended 30 September 2017:

Nine months ended 30 September 2017:

The following table presents net assets per segment and Unallocated Corporate Costs as at 30 September 2018:

The following table presents net assets per segment and Unallocated Corporate Costs as at 31 December 2017:

During the nine months ended 30 September 2018 and 2017, revenue was earned from customers located in the following locations: United Kingdom - 61% (nine months ended 30 September 2017 - 66%), Sweden - 8% (nine months ended 30 September 2017 - 11%), rest of Europe - 18% (nine months ended 30 September 2017 - 15%), rest of world - 13% (nine months ended 30 September 2017 - 8%).

During the nine months ended 30 September 2018, the Group's affiliate and other B2B revenues comprised 2% (nine months ended 30 September 2017 - 2%) of total Group revenues. The remaining portion being revenues earned from B2C operations as described in note 1.

Non-current assets by geographical location as at 30 September 2018 were as follows: Europe £84.6 million (31 December 2017 - £87.7 million) and Americas £449.2 million (31 December 2017 - £508.2 million). 

5. Costs and expenses

As discussed in note 6, the Group sold its social gaming business in the current period. As a result, all current year-to-date and 2017 comparative figures have been restated accordingly.

6. Discontinued operations

On 31 August 2018, the Group completed the sale of its social gaming business for a cash consideration of £18.0 million, excluding working capital adjustments and costs of disposal paid by the Group. The social gaming business was not previously classified as held-for-sale or as a discontinued operation. The comparative consolidated statement of comprehensive income is presented below to show the discontinued operation separately from continuing operations. The results of the social gaming business have been excluded from notes 4 and 5 above.

Results of discontinued operation

Cash flows from discontinued operation

Effect of disposal on the financial position of the Group

Goodwill disposed of was allocated to the social gaming business on the basis of its earnings before interest, taxes, depreciation and amortisation, relative to that of the overall segment.

7. Interest income/expense

8. Earnings per share

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