UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of September 2018

Commission File Number: 001-37403

 

THE STARS GROUP INC.

(Translation of registrant’s name into English)

 

 

200 Bay Street

South Tower, Suite 3205

Toronto, Ontario, Canada

M5J 2J3

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☐             Form 40-F ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

op

 

 

 

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On September 17, 2018, The Stars Group Inc. (the “Corporation”) filed a Business Acquisition Report (the “BAR”) on SEDAR at www.sedar.com with respect to a subsidiary of the Corporation’s acquisition of Sky Betting & Gaming on July 10, 2018. On the same date, the Corporation issued a news release announcing the same and providing certain supplemental information (the “Release”). Copies of the BAR and the Release are each attached hereto as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

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EXHIBIT INDEX

 

 

 

Exhibit 99.1

FORM 51-102F4

BUSINESS ACQUISITION REPORT

 

The Stars Group Inc.

200 Bay Street

South Tower, Suite 3205

Toronto, Ontario, Canada

M5J 2J3

 

References to the “The Stars Group” or “the Company” in this business acquisition report (this “Report”) refer to The Stars Group Inc. and its subsidiaries or any one or more of them, unless the context requires otherwise.

 

The following is the name and business telephone number of an executive officer of The Stars Group who is knowledgeable about the significant acquisition and this Report:

Brian Kyle

Chief Financial Officer

+1 437-371-5742

 

On July 10, 2018, The Stars Group completed, through an indirect wholly-owned subsidiary, its previously announced acquisition (the “SBG Acquisition”) of Cyan Blue Topco Limited and its subsidiaries, carrying on business as Sky Betting & Gaming (“SBG”). The SBG Acquisition was completed pursuant to a sale and purchase deed among The Stars Group and certain of its subsidiaries, Cyan Blue Jerseyco Limited, Sky UK Limited (a subsidiary of Sky plc, and together with its subsidiaries, “Sky”), Cyan Blue Manco Limited and 12 individual management shareholders (the “Acquisition Agreement”).

SBG is a leading mobile-led online betting and gaming provider that currently primarily operates in the UK. During 2016, SBG began to expand internationally, and currently, SBG holds gaming operator licenses in the UK, Ireland, Alderney, Italy and Malta. SBG exclusively licenses the “Sky” brand for certain betting and gaming products and has long-term commercial agreements with Sky that provide for advertising and certain exclusive digital integration with “Sky Sports”.

SBG currently operates in four business lines:

Betting. SBG’s betting brand, Sky Bet, is one of the UK’s leading online betting operators by number of customers, offering pre-match and in-play odds in a wide range of markets, including football, horseracing, greyhound racing, golf, cricket, tennis, rugby, politics and TV

 

 

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and film. SBG also operates some of the UK’s most popular free-to-play sports games (included within the betting business line), such as Soccer Saturday Super 6, Sky Sports Fantasy Football, Sky Sports Fantasy Six-A-Side and ITV Pick 7.

Gaming. SBG’s gaming offerings are delivered through the Sky Vegas, Sky Casino, Sky Poker, and Sky Bingo brands. Sky Vegas is one of the UK’s leading online gaming brands by customers, with a product offering of more than 600 games, including table games (such as roulette and blackjack) and a range of slot machine and instant win games. Sky Casino offers SBG’s customers a live casino experience 24 hours a day. In addition to live games, Sky Casino offers a broad range of slot machine content and random number generator table games. Sky Poker is one of the UK’s leading online poker rooms, with an enriched experience that includes chat, tournaments and poker in contemporary formats. Sky Bingo aims to provide the exciting and social feel of bingo and includes a chat function and competitions. Finally, SBG owns Core Gaming, a proprietary in-house game development studio that provides new content for SBG and also licenses its games to third-party operators on a business-to-business basis.

Oddschecker. SBG’s Oddschecker is one of the UK’s leading odds comparison websites and provides its customers with easy access to betting odds, tips and other information. Oddschecker operates websites in the UK, Ireland, Italy, Germany, Australia, Denmark and Spain.

International. SBG’s international offering provides online sports betting and gaming (excluding bingo and poker) products and services to customers in Italy, and online sports betting products to customers in Germany and Austria. These international markets each have a strong sporting heritage and an established Sky brand presence.

For further information regarding the nature of the business of SBG, please refer to the information in the prospectus supplement of The Stars Group, dated June 21, 2018 (the “Prospectus Supplement”) under the headings “Business of Sky Betting & Gaming”, “Management’s Discussion & Analysis of Sky Betting & Gaming” and “Risk Factors – Risks Related to the Business of Sky Betting & Gaming”. The Prospectus Supplement is available under The Stars Group’s profile on SEDAR at www.sedar.com.

The Stars Group completed the SBG Acquisition on July 10, 2018.

The aggregate purchase price for the SBG Acquisition under the Acquisition Agreement was $4.7 billion, of which $3.6 billion was paid in cash and the remainder was paid through the issuance of 37,934,054 newly issued common shares of The Stars Group.

To finance the cash portion of the purchase price of the SBG Acquisition, repay the Company’s existing first lien term loans and repay SBG’s existing long-term debt, The Stars Group used cash on its balance sheet, $621.8 million of net proceeds (before expenses and excluding the over-allotment) from the issuance of additional common shares as a result of an equity offering under the Prospectus Supplement and incurred or issued new debt consisting of:

 

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Unless otherwise noted, all dollar ($) amounts in this Report are in U.S. dollars.

The Stars Group does not have any current plans or proposals for material changes to the respective activities of The Stars Group or SBG that would have a significant effect on The Stars Group’s financial performance or financial position.

See the unaudited pro forma condensed consolidated financial statements of The Stars Group as well as the notes thereto, included in Schedule B hereto, for information on the effect of the SBG Acquisition on the financial position of The Stars Group.

To the knowledge of The Stars Group, there has been no valuation opinion obtained within the last 12 months by The Stars Group or SBG required by securities legislation of a Canadian exchange or market to support the consideration paid by The Stars Group for the SBG Acquisition.

The SBG Acquisition was not a transaction with an informed person, associate or affiliate of The Stars Group (as such terms are defined in National Instrument 51-102 – Continuous Disclosure Obligations).

September 17, 2018.

The following financial statements, together with the notes thereto, are included as schedules to this Report:

 

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Cautionary Note Regarding Forward-Looking Statements

This Report contains certain information that may constitute forward-looking information and statements (collectively, “forward-looking statements”) within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable securities laws, including financial and operational expectations and projections. These statements, other than statements of historical fact, are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions, including market and economic conditions, business prospects or opportunities, future plans and strategies, projections, technological developments, anticipated events and trends and regulatory changes that affect the Company, its subsidiaries and their respective customers and industries. Although the Company and management believe the expectations reflected in such forward-looking statements are reasonable and are based on reasonable assumptions and estimates as of the date hereof, there can be no assurance that these assumptions or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements are inherently subject to significant business, regulatory, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ materially from those expressed or implied in such statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “would”, “should”, “believe”, “objective”, “ongoing”, “imply” or the negative of these words or other variations or synonyms of these words or comparable terminology and similar expressions.

Specific factors and assumptions include, without limitation, the following factors, which are discussed in greater detail in the “Risk Factors and Uncertainties” section of the Company’s annual information form for the year ended December 31, 2017 (the “2017 Annual Information Form”) and in the “Risk Factors” section of the Prospectus Supplement: the heavily regulated industry in which the Company carries on its business; risks associated with interactive entertainment and online and mobile gaming generally; current and future laws or regulations and new interpretations of existing laws or regulations, or potential prohibitions, with respect to interactive entertainment or online gaming or activities related to or necessary for the operation and offering of online gaming; potential changes to the gaming regulatory framework; legal and regulatory requirements; ability to obtain, maintain and comply with all applicable and required licenses, permits and certifications to offer, operate, and market its product offerings, including difficulties or delays in the same; significant barriers to entry; competition and the competitive environment within addressable markets and industries; impact of inability to complete future or announced acquisitions or to integrate businesses successfully; the Company’s substantial indebtedness requires that it use a significant portion of its cash flow to make debt service payments; the Company’s secured credit facilities contain covenants and other restrictions that may limit the Company’s flexibility in operating its business; risks associated with advancements in technology, including artificial intelligence; ability to develop and enhance existing product offerings and new commercially viable product offerings; ability to mitigate foreign exchange and currency risks; ability to mitigate tax risks and adverse tax consequences, including, without limitation, the imposition of new or additional taxes, such as value-added and point of consumption taxes, and gaming duties; the Company’s exposure to greater than anticipated tax liability; risks of foreign operations generally; protection of proprietary technology and intellectual property rights; ability to recruit

 

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and retain management and other qualified personnel, including key technical, sales and marketing personnel; defects in product offerings; losses due to fraudulent activities; management of growth; contract awards; potential financial opportunities in addressable markets and with respect to individual contracts; ability of technology infrastructure to meet applicable demand and reliance on online and mobile telecommunications operators; systems, networks, telecommunications or service disruptions or failures or cyber-attacks and failure to protect customer data, including personal and financial information; regulations and laws that may be adopted with respect to the Internet and electronic commerce or that may otherwise impact the Company in the jurisdictions where it is currently doing business or intends to do business, particularly those related to online gaming or that could impact the ability to provide online product offerings, including, without limitation, as it relates to payment processing; ability to obtain additional financing or to complete any refinancing on reasonable terms or at all; customer and operator preferences and changes in the economy; dependency on customers’ acceptance of its product offerings; consolidation within the gaming industry; litigation costs and outcomes; expansion within existing and into new markets; relationships with vendors and distributors; and natural events; contractual relationships of SBG or the Company with Sky; counterparty risks; failure of systems and controls of the Company to restrict access to its products; reliance on scheduling and live broadcasting of major sporting events; macroeconomic conditions and trends in the gaming and betting industry; bookmaking risks; an ability to realize projected financial increases attributable to acquisitions and the Company’s business strategies; and an ability to realize all or any of the Company’s estimated synergies and cost savings in connection with acquisitions. These factors are not intended to represent a complete list of the factors that could affect the Company; however, these factors, as well as those risk factors presented under the heading “Risk Factors and Uncertainties” in the 2017 Annual Information Form, under the heading “Risk Factors” in the Prospectus Supplement, and in other filings that The Stars Group has made and may make in the future with applicable securities authorities, should be considered carefully.

The foregoing list of important factors and assumptions may not contain all the material factors and assumptions that are important to shareholders and investors. Shareholders and investors should not place undue reliance on forward-looking statements as the plans, assumptions, intentions or expectations upon which they are based might not occur. The forward-looking statements contained in this Report are expressly qualified by this cautionary statement. Unless otherwise indicated by the Company, forward-looking statements in this Report describe the Company’s expectations as of the date of this Report or other specified date, and, accordingly, are subject to change after such date. The Company does not undertake to update or revise any forward-looking statements to reflect events and circumstances after the date hereof or to reflect the occurrence of unanticipated events, except in accordance with applicable securities laws.

 

 

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Exhibit 99.1

SCHEDULE A – AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF SBG

See attached.

 

 

 

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Cyan Blue Topco Limited

 

Non-statutory financial statements

for the year ended 30 June 2018

 

Registered on the Island of Jersey

 

Registered number: 116297

 

 

 

 

 

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Directors’ Responsibilities Statement

The directors are responsible for preparing the non-statutory financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year.  Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs).  Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.  In preparing these financial statements, International Accounting Standard 1 requires that directors:

 

•properly select and apply accounting policies;

•make an assessment of the company's ability to continue as a going concern.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Group.  They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

 

 

 

 

Cyan Blue Topco Limited

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Independent auditor’s report to the members of Cyan Blue Topco Limited

 

Report on the audit of the non-statutory financial statements

 

Opinion

In our opinion the non-statutory financial statements:

 

We have audited the non-statutory financial statements of Cyan Blue Topco Limited and its subsidiaries (the ‘Group’) which comprise:

•the consolidated statement of comprehensive income;

•the consolidated balance sheet;

•the consolidated cash flow statement;

•the consolidated statement of changes in equity; and

•the related notes 1 to 31.

 

The financial reporting framework that has been applied in the preparation of the Group’s financial statements is IFRSs as issued by the IASB.

 

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the non-statutory financial statements section of our report.

 

We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the non-statutory financial statements in the UK, including the Financial Reporting Council’s (FRC’s) Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Conclusions relating to going concern

We are required by ISAs to report in respect of the following matters where:

 

We have nothing to report in respect of these matters.

 

 

 

 

 

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the non-statutory financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is

 

 

Cyan Blue Topco Limited

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Independent auditor’s report to the members of Cyan Blue Topco Limited

 

necessary to enable the preparation of non-statutory financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the non-statutory financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

Auditor’s responsibilities for the audit of the non-statutory financial statements

Our objectives are to obtain reasonable assurance about whether the non-statutory financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these non-statutory financial statements.

 

A further description of our responsibilities for the audit of the non-statutory financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

 

 

 

 

 

 

 

Deloitte LLP

Leeds, United Kingdom

23 August 2018

 

 

 

Cyan Blue Topco Limited

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Consolidated Statement of Comprehensive Income

For the year ended 30 June 2018

 

The accompanying notes are an integral part of this Consolidated Statement of Comprehensive Income.  

 

All results relate to continuing operations.

 

 

 

 

 

 

 

 

 

 

Cyan Blue Topco Limited

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Consolidated Balance Sheet

As at 30 June 2018

The accompanying notes are an integral part of this Consolidated Balance Sheet.

These financial statements of Cyan Blue Topco Limited, registered number 116297 were approved by the Board of Directors and authorised for issue on  23 August 2018. They were signed on its behalf by:

I D F Proctor

Director

 

 

 

Cyan Blue Topco Limited

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Consolidated Cash Flow Statement

For the year ended 30 June 2018

 

 

(1) On 14 September 2017 the Group paid a dividend to its equity shareholders of £540.3 million.

 

The accompanying notes are an integral part of this Consolidated Cash Flow Statement. All results relate to continuing operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cyan Blue Topco Limited

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Consolidated Statement of Changes in Equity

For the year ended 30 June 2018

 

 

 

 

 

The accompanying notes are an integral part of this Consolidated Statement of Changes in Equity.

 

 

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements

For the year ended 30 June 2018

1.  Accounting policies

General information

Cyan Blue Topco Limited (the “Company”) is a company incorporated in the island of Jersey.  The principal activity of the Company and its subsidiaries (collectively, the “Group”) is the provision of digital betting and gaming services.

 

Prior to 10 July 2018 the Company was controlled by Cyan Blue Jerseyco Limited, with Sky UK Limited owning 21.6% of the Company and the remaining 1.7% shareholding being held by certain members of management and an Employee Benefit Trust.  Cyan Blue Jerseyco Limited is wholly owned by funds advised by CVC Capital Partners.

 

On 21 April 2018, The Stars Group Inc. announced that it had signed a definitive agreement to acquire the Company from CVC Capital Partners and Sky plc for $4.7bn. The acquisition completed on 10 July 2018 and The Stars Group Inc. (a company incorporated in Canada) became the ultimate controlling party from that date. The immediate parent company from 10 July 2018 is Stars Group Holdings (UK) Limited, a company incorporated in England and Wales, number 11316497. Its registered address is 10th Floor The Met Building, 22 Percy Street, London, United Kingdom, W1T 2BU.

 

a) Basis of preparation

These non-statutory consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The principal accounting policies are summarised below. All of these have been applied consistently throughout the current and prior year.

 

These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates.

 

The Group’s policy is to maintain a 52 or 53 week fiscal year ending on the Thursday nearest to 30 June in each year.  In fiscal year 2018, this date was 28 June 2018 (fiscal year 2017: 29 June 2017, 52 week year).

 

b) Going concern

The Directors have reviewed the financial position of the Group, the forecasted cash flows and the availability of financing facilities to the Group and they have formed a judgement at the time of approving the financial statements that the Group will have access to adequate resources to continue in operational existence for the foreseeable future. In making this assessment, the Directors have considered the going concern status for a period of at least 12 months from the date of signing the financial statements and evaluated sensitivities to the Group’s business plan. Further, the Directors have considered the availability of funding from The Stars Group Inc.

The Group was in a net liabilities position as at 30 June 2018 due to interest payable on shareholder and external funding.  The Group’s external funding was repaid on 10 July 2018 following the issue of new share capital which moved the Group into a net assets position. See note 31 regarding the post balance sheet acquisition of the Group by The Stars Group Inc.

The Group generates strong cash flows and it is expected that sufficient funds will be available for ongoing operations and future developments.

Accordingly, the Directors continue to adopt the going concern basis in preparing the financial statements.

 

1.  Accounting policies (continued)

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

c) Basis of consolidation

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income (“SCI”) from the date the Company gains control until the date when the Company ceases to control the subsidiary.

 

Control is achieved when the Company:

 

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.

 

d) Business combinations

Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of assets transferred to the Group, liabilities incurred by the Group and the equity interest issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in the SCI as incurred.

 

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except:

 

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in the SCI as a bargain purchase gain.

 

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (12 months from the acquisition date), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as at the acquisition date that, if known, would have affected the amounts recognised on that date.

 

 

1.  Accounting policies (continued)

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

e) Goodwill

Goodwill is initially recognised and measured as set out above.

 

Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash generating units expected to benefit from the synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.

 

The process performed and the results of this are set out in note 8.

 

f) Leases

The Group only has operating leases. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred.

 

In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

 

g) Retirement benefit costs

Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have rendered service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

 

h) Intangible assets and Property, Plant and Equipment (“PPE”)

i. Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation of an intangible asset begins from the start of the month nearest to when the asset is available for use and is recognised on a straight line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

 

 

 

1.  Accounting policies (continued)

h) Intangible assets and Property, Plant and Equipment (“PPE”)

i. Intangible assets (continued)

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following conditions have been demonstrated:

 

 

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Any other development expenditure is recognised in operating expense as incurred. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

 

Other intangible assets, which are acquired by the Group separately or through a business combination, are stated at cost or fair value, respectively, less accumulated amortisation and impairment losses, other than those that are classified as held for sale, which are stated at the lower of carrying amount and fair value less costs to sell.  Intangible assets acquired in a business combination are recognised separately from goodwill.

 

The Group’s intangible assets are amortised in line with accounting policy below.

 

Internally generated intangible assets4 years

Customer relationships8-16 years

Technology5-10 years

Other intangible assets3-25 years

 

ii. Property, plant and equipment

Owned PPE is stated at cost, net of accumulated depreciation and any impairment losses, see accounting policy i), other than those items that are classified as held for sale, which are stated at the lower of carrying amount and fair value less costs to sell.  When an item of PPE comprises major components having different useful economic lives, the components are accounted for as separate items of PPE.

 

The cost of PPE is depreciated in operating expense on a straight-line basis over its estimated useful life. Principal useful economic lives used for this purpose are:

 

Equipment, furniture and fixtures 4 -10 years

 

1.  Accounting policies (continued)

i) Financial instruments

Financial assets and liabilities are initially recognised at fair value plus any directly attributable transaction costs. At each Balance Sheet date, the Group assesses whether there is any objective evidence that any financial asset is impaired. Financial assets and liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provisions of the financial asset or liability. Financial

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

assets are derecognised from the Balance Sheet when the Group’s contractual rights to the cash flows expire or the Group transfers substantially all the risks and rewards of the financial asset. Financial liabilities are derecognised from the Balance Sheet when the obligation specified in the contract is discharged, cancelled or expires.

 

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs, except for those financial assets classified at fair value through profit or loss, which are initially measured at fair value.

 

Financial assets are classified into the following specified categories: financial assets ‘at fair value through profit or loss’ (“FVTPL”); ‘held-to-maturity’ investments, ‘available-for-sale’ (“AFS”); financial assets; and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

 

ii. Available-for-sale investments

Equity investments intended to be held for an indefinite period are classified as available-for-sale investments.  They are carried at fair value with movements in the fair value being recognised directly in the available-for-sale reserve.

 

Available-for-sale investments are included within non-current assets unless the carrying value is expected to be recovered principally through sale rather than continued use in which case they are included in current assets. On disposal the difference between the carrying amount and the sum of the consideration received and any cumulative gain or loss that had previously been recognised directly in reserves is recognised in the SCI.

 

iii. Loans and receivables

Trade and other receivables are non-derivative financial assets with fixed or determinable payments and, where no stated interest rate is applicable, are measured at the original invoice amount, if the effect of discounting is immaterial. Where discounting is material, trade and other receivables are measured at amortised cost using the effective interest rate method. An allowance account is maintained to reduce the carrying value of trade and other receivables for impairment losses identified from objective evidence, with movements in the allowance account, either from increased impairment losses or reversals of impairment losses, being recognised in the SCI.

 

 

 

 

 

1.  Accounting policies (continued)

i) Financial instruments (continued)

iv. Effective interest rate method

The effective interest rate method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

 

v. Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each Balance Sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

 

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

 

For financial assets carried at amortised cost, the amount of the impairment is the differences between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

 

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectable, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in the SCI.

 

vi. Cash and cash equivalents

Cash and cash equivalents include cash in hand, bank accounts, deposits receivable on demand and deposits with maturity dates of three months or less from the date of inception. Bank overdrafts that are repayable on demand and which form an integral part of the Group’s cash management are included as a component of cash and cash equivalents where offset conditions are met.

 

vii. Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.

 

 

 

1.  Accounting policies (continued)

i) Financial instruments (continued)

viii. Other financial liabilities

Trade and other payables are non-derivative financial liabilities and are measured at amortised cost using the effective interest rate method. Trade and other payables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial.

 

The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

 

ix. Derivatives

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

Derivative are held at fair value from the date on which the derivative contract is entered into.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under IFRS 13 Fair Value Measurement.  Further information about valuation techniques are included in note 20.

 

j) Impairment

At each Balance Sheet date the Group reviews the carrying amounts of all its assets excluding financial assets (see accounting policy h) and deferred taxation (see accounting policy l) to determine whether there is any indication that any of those assets have suffered an impairment loss.

 

An impairment is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. The recoverable amount is the greater of net selling price, defined as the fair value less costs to sell, and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which to which the asset belongs.

 

An impairment loss for an individual asset or cash generating unit shall be reversed if there has been a change in estimates used to determine the recoverable amount since the last impairment loss was recognised and is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

 

k) Provisions

Provisions are recognised when the Group has a probable, present legal or constructive obligation to make a transfer of economic benefits as a result of past events where a reliable estimate is available. The amounts recognised represent the Group’s best estimate of the transfer of benefits that will be required to settle the obligation as of the Balance Sheet date. Provisions are discounted if the effect of the time value of money is material using a pre-tax market rate adjusted for risks specific to the liability.

1.  Accounting policies (continued)

k) Provisions (continued)

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

l) Revenue recognition

Revenue, which excludes value added tax, represents the gross inflow of economic benefit from the Group’s operating activities. The Group’s main sources of revenue are recognised as follows:

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

 

m) Tax, including deferred tax

The tax expense represents the sum of the tax currently payable and deferred tax. The Group’s liability for current tax is based on taxable profits for the year, and is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

 

Deferred tax assets and liabilities are recognised using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities in the Balance Sheet and the corresponding tax bases used in the computation of taxable profits. Temporary differences arising from goodwill and the initial recognition of assets or liabilities that affect neither accounting profit nor taxable profit are not provided for.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and adjusted to reflect an amount that is probable to be realised based on the weight of all available evidence. Deferred tax is calculated at the rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax assets and liabilities are not discounted. Deferred tax is charged or credited in the statement of comprehensive income, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also included within equity. Deferred tax assets and liabilities are offset when there is a legal enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

1.  Accounting policies (continued)

n) Adoption of new and revised Standards

The Group has adopted amendments to IAS 12 and annual improvements to IFRS 2014-2016 cycle. None of these have a material impact on the financial statements.

 

The Group has not yet adopted certain new standards, amendments and interpretations to existing standards, which have been published but are only effective for our accounting periods beginning on or after 1 July 2018 or later periods. These new pronouncements are listed below:

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

The Directors are currently evaluating the impact of the adoption of these standards, amendments and interpretations in future periods. The following standards impact the results as set out below and affect the disclosure requirements in future periods:

 

IFRS 15

When IFRS 15 is adopted, it can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with the cumulative impact of IFRS 15 applied as an adjustment to equity on the date of adoption; when the latter approach is applied, it is necessary to disclose the impact of IFRS 15 on each line item in the financial statements in the reporting period.

 

IFRS 15 provides a single, principles-based five-step model to be applied to all contracts with customers:

–Identify the contract with the customer;

–Identify the performance obligations in the contract, introducing the new concept of ‘distinct’;

–Determining the transaction price;

–Recognise revenue when (or as) the entity satisfies its performance obligation.

 

IFRS 15 also introduces new guidance on, amongst other areas, combining contracts, discounts, variable consideration, contract modifications and requires that certain costs incurred in obtaining and fulfilling customer contracts be deferred on the SFP and amortised over the period an entity expects to benefit from the customer relationship.

 

1.  Accounting policies (continued)

n) Adoption of new and revised Standards

In the current year, the Group has conducted a detailed accounting review of the impact of IFRS 15 across the products and services within the Group’s revenue streams.  The Group has determined that the impact of IFRS 15 will not be material.

 

IFRS 9

When IFRS 9 is adopted the standard is expected to impact the classification and measurement of financial instruments and is expected to require certain additional disclosures. IFRS 9 should be applied subject to certain exemptions.  The standard introduces the following:

-Embedded derivatives are no longer separated from financial asset hosts.

 

The group have reviewed the impact of IFRS 9 impacting from 1 July 2018 with the only material impact being as follows:

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

During the year to 30 June 2018 the group refinanced and under IAS 39 classified as a non-substantial modification. The treatment of a non-substantial modification differs under IFRS 9. The adjustment required on transition to IFRS 9 on the USD loan was £2.2m. On the GBP loan, the adjustment required on transition to IFRS 9 was £7.8m with the opposite side being posted to reserves.

 

Qualitatively the Group will see the following impacts of IFRS 9:

 

 

1.  Accounting policies (continued)

n) Adoption of new and revised Standards

 

IFRS 16

When IFRS 16 is adopted, it can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with the cumulative retrospective impact of IFRS 16 applied as an adjustment to equity on the date of adoption; when the latter approach is applied it is necessary to disclose the impact of IFRS 16 on each line item in the financial statements in the reporting period. The Group has not yet determined which method will be adopted.

 

IFRS 16 replaces IAS 17 ‘Leases’ and will primarily change lease accounting for lessees; lessor accounting under IFRS 16 is expected to be similar to lease accounting under IAS 17. Lessee accounting under IFRS 16 will be similar in many respects to existing IAS 17 accounting for finance leases, but is expected to be substantively different to existing accounting for operating leases.

 

Where a contract meets IFRS 16’s definition of a lease and new associated guidance, where the Group acts as a lessee, lease agreements will give rise to the recognition of a non-current asset representing the right to use the leased item, and a loan obligation for future lease payables on the Group’s SFP.

 

Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability, which may impact the phasing of operating profit and profit before tax, compared to existing cost profiles and presentation in SCI, and will also impact the classification of associated cash flows.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

The Group is still in the process of quantifying the implications of this standard. However, qualitatively the Group expects the following impacts:

 

–There is expected to be an increase in total assets, as leased assets which are currently accounted for off the SFP (i.e. classified as operating leases under IAS 17) will be recognised on the SFP. The biggest asset category impacted for the group is expected to be land and buildings.

–There is expected to be an increase in debt, as liabilities relating to existing operating leases are recognised.

–Operating lease expenditure will be reclassified and split between depreciation and finance costs. Therefore operating profit will increase. Future depreciation and finance costs for our historic leases are also affected by our choice of transition method, which is still under review.

–There may be a corresponding effect on tax balances in relation to all of the above impacts.

 

o) Interest income

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.

 

 

1.  Accounting policies (continued)

p) Critical accounting judgements and key sources of estimation uncertainty

Included below are critical judgements that the Directors have made in the process of applying the Group’s accounting policies and that have most significant effect on the amounts recognised in the financial statements. Additionally the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting period that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, are discussed below:

 

Critical accounting judgements

i. Impairment of goodwill

Calculations of the value in use of the cash generating units to which goodwill are associated are used to evaluate whether an impairment has arisen.  Such calculations involve estimates of the future forecast cash flows and selecting an appropriate discount rate.  Note 9 provides information on the assumptions used and sets out the impact of changes in these assumptions.

 

Judgement is required in identifying the cash generating units to which the goodwill is associated for the purposes of goodwill impairment testing.  Identification of cash generating units involves the assessment of whether assets or groups of assets generate cash flows that are largely independent.  Goodwill is then allocated to each identified cash generating unit that is expected to benefit from the synergies of the business combination from which the goodwill has arisen.

 

Key sources of estimation uncertainty

i. Revenue Recognition

Revenue, which excludes value added tax, represents the gross inflow of economic benefit from the Group’s operating activities. Revenue is measured at the fair value of the consideration received or receivable. Selecting the appropriate timing for, and amount of, revenue to be recognised requires judgement.

 

The key area of judgement within revenue recognition is in relation to unsettled bets at year end. These require a number of key assumptions and judgements to be made in order to determine the appropriate revenue recognition.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

ii. Measurement at fair value

A number of the Group’s accounting policies require the measurement of fair values, specifically for financial assets and liabilities including the free bets creditor and antepost liability.  Fair value measurement requires an element of judgement in determining the most relevant inputs and valuation techniques.  

 

When measuring the fair value the Group uses market observable data as far as possible and it categorises the fair values into the different levels in the fair value hierarchy based on the inputs used.  The fair value hierarchy is as follows;

 

1.  Accounting policies (continued)

p) Critical accounting judgements and key sources of estimation uncertainty (continued)

Key sources of estimation uncertainty (continued)

 

Further information about the assumptions used in measuring fair values are included in note 20.

 

2.  Revenue

Revenue, which excludes value added tax, represents the gross inflow of economic benefit from the Group’s operating activities. Revenue is measured at the fair value of the consideration received or receivable.  The majority of customers are based in the UK and as such no geographical split has been provided.

 

 

All revenue relates to the rendering of digital betting and gaming services and is all from continued operations.

The Group has two reportable divisions which are defined based on product type and reflects how the Group’s operations are monitored and managed.  In addition there are head office costs which include costs associated with International sports betting.

 

The Group is organised as follows;

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

 

The following table provides an analysis of the Group’s divisional information for the year to 30 June 2017:

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

2.  Revenue (continued)

 

The following table provides an analysis of the Group’s divisional information for the year to 30 June 2018:

 

The accounting policies of the reportable division are the same as the Group’s accounting policies described in note 1. Segmental profit represents the profit earned by each division without the allocation of finance costs, revaluation gains and losses, investment income, tax expense and non-directly attributable administration costs.

 

3.  Operating expenses

Administration costs include £48.8 million of costs related to the acquisition by the Stars Group Inc. (2017: £nil).

Amortisation is included within Administration expenses.

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

4. Revaluation on financial instruments measured at fair value

 

(i) The fair value loss on financial assets relates to the revaluation of certain assets within the investment in NYX, see note 12 and 13.

(ii) The fair value gain on financial liabilities relates to the revaluation of rate interest hedging instruments, see note 13.

 

5.  Investment income and finance costs

a) Investment income

 

b) Finance costs

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

6.  Profit/(loss) before tax

 

7. Tax

a) Tax recognised in the Statement of Comprehensive Income

 

Changes were enacted in the Finance (No 2) Act 2015, which reduced the main rate of UK corporation tax from 20% to 19% with effect from 1 April 2017 and then from 19% to 18% with effect from 1 April 2020.  In UK Finance Act 2016, a further change was enacted which reduced the main rate of UK corporation tax to 17% with effect from 1 April 2020.  Deferred tax balances at 30 June 2018 have been measured at 17.5% (2017: 17.7%).

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

7. Tax (continued)

b) Reconciliation of effective tax rate

The tax expense for the year is higher (Year ended 30 June 2017: higher) than the expense that would have been charged using the standard rate of corporation tax in Jersey at 30 June 2018 of 0% (Year ended 30 June 2017: 0%) applied to the profit before tax.  The differences are explained below:

 

Goodwill of £319.2 million was generated during the year ended 30 June 2015 when the Group acquired Sky Betting and Gaming. It is composed of a number of elements including workforce, future technology and future customers of both Sky Betting and Gaming and Oddschecker. The goodwill is not expected to be deductible for income tax purposes.

Goodwill of £1.3 million was generated during the year ended 30 June 2016 when the Group acquired Core Gaming Limited in June 2016. The goodwill is not expected to be deductible for income tax purposes.

The adjustment to goodwill in the year ended 30 June 2017 reflected new information obtained about facts and circumstances that existed at the acquisition date.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (“CGUs”) that are expected to benefit from the business combination.  The carrying amount of goodwill has been allocated to 3 CGUs on the basis that these represent the lowest level at which goodwill is monitored for internal management purposes, and are not larger than the operating segments.

The recoverable amounts of the CGUs is determined as the higher of fair value less cost to sell and value in use.  Value in use calculations were used to value all 3 of the CGUs at 30 June 2018 as a fair value was not readily available.

The key assumptions for the value in use calculations are those regarding the discount rates and growth rates. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs and the group of units. The growth rates are based on industry growth forecasts. The rates used to discount the forecast cash flows for the CGUs are based upon the Group’s weighted average cost of capital (“WACC”) and are as follows:

 

The Group prepares cash flow forecasts derived from the most recent 5 year financial budgets approved by management and extrapolates cash flows based on a 2% growth rate into perpetuity, which is based on current management expectations and industry specific data.

The principal assumptions underlying the cashflow forecasts are as follows:

Costs are forecast from a bottom up approach, assessing each cost line in detail against the strategic direction provided by senior management.The Group has conducted a sensitivity analysis on the impairment test of each CGU.  The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amount of Goodwill in all 3 CGUs are based would not cause the carrying value to exceed the recoverable amount of the CGU.

9. Intangible assets

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

 

Included in the amortisation charge above is amortisation relating to the intangible assets identified in the acquisition of Sky Betting and Gaming and Core Gaming Limited, as well as the amortisation on the Sky brand licence.  The amortisation charge relating to these assets (“PPA amortisation”) was  £55.7 million in the year ended 30 June 2018, and £57.2 million in the year ended 30 June 2017.

 

The estimated future amortisation expense on intangible assets with finite lives for each of the next five years is set out below. It is likely that amortisation will vary from the figures below as the estimate does not include the impact of any future investments, disposals or capital expenditure.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

9. Intangible assets (continued)

 

In FY16, within the Betting CGU, the Group started developing a new platform from which to launch their Italy product.  This platform was developed in house however following a review of the operating model for the Italy product and the assets capitalised in relation to it, £6.3 million of assets in relation to this project were impaired at 30 June 2017 (£7.8m of cost less £1.5m of accumulated amortisation) as result of the carrying amount exceeding the present value of the estimated future cash flows.  No other impairments were recognised in any of the other reported periods.

 

10. Property, plant and equipment

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

11. Investments in subsidiaries

The Group consists of a parent company, Cyan Blue Topco Limited, incorporated on the Island of Jersey and a number of subsidiaries held directly and indirectly by Cyan Blue Topco Limited.

 

Details of the direct subsidiary at 30 June 2018 and 30 June 2017 are as follows:

 

 

Details of the indirect subsidiaries at 30 June 2018 and 30 June 2017 are as follows:

 

The investments in subsidiaries are all stated at cost less provision for impairment.

 

12.  Other investments

 

12.  Other investments (continued)

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

During the year ended 30 June 2016 the Group acquired £2.5 million of ordinary shares in NYX. This investment included warrants 2018: £nil (2017: £nil) giving the Group the option to acquire further shares up to 3 years post acquisition. The ordinary shares were classified as available-for-sale and accounted for at fair value under IAS 39 Financial Instruments: Recognition and Measurement.

 

During the year ended 30 June 2016 the Group invested in £20 million convertible preference shares issued by a subsidiary of NYX. The value of these convertible preference shares was split into a debt element comprising the underlying preference shares and an embedded derivative element comprising the conversion option.  The conversion option related to both a put and call option.  The put option gave NYX the right to force the conversion of the preference shares in the event that the ordinary share price exceeded a specified amount.  The call option enabled the Group to force the conversion of the preference shares after a standstill period. The preference shares were classified as loans and receivables (see above) and the conversion option classified as FVTPL.

 

On 5 January 2018, the ordinary shares and the convertible preference shares were sold for £24.4 million, resulting in a gain on disposal of £2.1 million recognised in the statement of comprehensive income.

 

13.  Derivatives financial instruments

 

(i) On 25 August 2017 the Group entered into three agreements to swap floating interest rate for fixed interest rate to hedge exposure to future interest rate and foreign currency rate exposure of the new $450 million of external debt. All 3 swap agreements expire in June 2020. On 2 March 2018 the Group entered into an arrangement to swap floating USD interest rate for fixed GBP interest rate to hedge exposure to future interest rate and foreign currency rate exposure of the $52.5m of external debt raised in March 2018. The agreement expires in June 2021.

As a result of the proposed acquisition by The Stars Group Inc the Group de-designated its cash flow hedges in April 2018.

(ii) On 7 July 2015 the Group entered into two agreements to swap floating interest rate for fixed interest rate to hedge any exposure to future interest rate increases. Both agreements are for £150 million with the floating interest rate fixed and payable at 1.42% and 1.43% respectively. The swaps have since been novated post year end as set out on page 44.

(iii) See note 20.

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

14.  Trade and other receivables: Amounts falling due in more than one year

Other receivables relate to loans issued to employees.

 

15.  Trade and other receivables: Amounts falling due within one year

 

The Directors consider that the carrying amount of trade and other receivables approximates to their fair values.

Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.  

The Group does not hold any collateral or other credit enhancements over any of its trade receivables nor does it have a legal right of offset against any amounts owed by the Group to the counterparty.

For trade receivables that are neither past due nor impaired, the Directors have assessed that there is no change in the credit quality from the date credit was initially granted and the amounts are still considered recoverable.

Other receivables increase driven by £42.7m capital contribution from Shareholders, see note 23.

The below tables provide an analysis of amounts overdue:

Ageing of trade receivables

 

Ageing of trade receivables

 

15.  Trade and other receivables: Amounts falling due within one year (continued)

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

Movement in allowance for doubtful debts:

 

In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited.

 

16.  Trade and other payables: Amounts falling due within one year

 

The Directors consider that the carrying amount of trade and other payables approximates to their fair values. Included within Other payables is an amount of £30.8 million (2017: £25.9 million) in respect of amounts due to customers representing deposits received and customer winnings. Accruals include £45.3 million (2017: £nil) of transaction costs associated with the sale to The Stars Group Inc.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

17.  Provisions

 

(i) The onerous lease provision relates to the unavoidable costs of properties, which are no longer occupied by the Group.

 

(ii) The jackpot payment provision relates to funds held in jackpots within games of which the payout date is unknown.  The provision is expect to be fully utilised in a period of more than one year.

 

(iii) The dilapidations provision relates to expected costs payable in relation to dilapidations of leased buildings at the end of the leased term.  The provision will be fully utilised by 2026.

 

(iv) The redundancy provision relates predominately to restructuring in the Group.  The redundancy provision will be fully utilised within the next 12 months.

 

(v) Other provisions primarily relate to amounts expected to be paid in respect of third party games content.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

18.  Borrowings

 

The Directors consider that the carrying amount of borrowings approximates to their fair values.

The key features of the borrowings are as follows:

(i) The loans with the Group’s immediate parent relate to amounts payable to Cyan Blue Jerseyco Limited of £283.7 million (2017: £336.8 million) (payable by Cyan Blue Topco Limited). Interest is payable at 10% per annum.  Interest is payable in the form of PIK notes which are issued at 31 December each year and subsequently attract interest at 10% per annum. The repayment date is 19 March 2055.

 

(ii) The loans with related parties include amounts payable to the Sky plc group of £104.2 million (2017: £94.7 million) due from Cyan Blue Topco Limited with interest payable at 10% per annum.  Unpaid interest accrues and compounds onto the principal amount at 31 December each year, until the repayment date on 18 March 2022.  

 

(iii) The preference shares issued by Cyan Blue Topco Limited to Cyan Blue Manco Limited of £6.5m with interest payable at 10% per annum compounding on the 19 March of each year until the repayment data in March 2055.

 

(iv) During the year the bank loan of £340.0 million plus accrued interest due was repaid. Two new loans were raised during the same period, £475 million with interest payable at a floating rate of 4.25%+3 month GBP LIBOR and $450 million with interest payable of 3.5% +3 month USD LIBOR. Both loans expire in August 2024. On 5 March 2018, the Company agreed a number of amendments to the Credit Agreement including repricing of the USD tranche to 2.75% + USD LIBOR and increasing the USD tranche to $500 million and reducing the Sterling loan principal to £437m. The incremental USD debt was used to pay partially repay the GBP tranche.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

19.  Deferred tax

Recognised deferred tax (assets)/liabilities

 

Deferred tax assets have been recognised in respect of fixed asset and short term timing differences on the basis that the Director’s deem it probable that the companies in which these assets reside will have sufficient taxable profits against which these assets can be utilised. The Group has unutilised tax losses carried forward of £1,198,000 (30 June 2017: £968,000) and Research and Development Expenditure Credits carried forward of £4,000 (30 June 2017: £8,000). Deferred tax assets have not been recognised in respect of either these tax losses or tax credits on the basis that the companies in which they reside are not expected to be able to utilise them in the foreseeable future.

 

20.  Financial instruments

a) Significant accounting policies

Details of the significant accounting policies and methods adopted for each class of financial asset, financial liability and equity instrument are disclosed in note 1.

 

b) Categories of financial instruments

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

20.  Financial instruments (continued)

c) Financial risk management objectives

The Group monitors and manages the financial risks relating to its operations.

 

d) Liquidity risk

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by monitoring the maturity profiles of financial assets and liabilities and by continuously monitoring forecast and actual cash flows.

 

The following table analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

 

e) Credit risk

The Group is exposed to default risk amounting to cash and cash equivalents of £220.1 million (2017: £122.8 million).

The Group’s maximum exposure to credit risk on trade receivables is the carrying amount disclosed in note 15.

 

 

 

Cyan Blue Topco Limited

---

Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

20.  Financial instruments (continued)

f) Interest rate and foreign currency risk

The Group is exposed to fluctuations in interest rates on a £437 million bank loan within Cyan Blue Holdco 3 Limited which attracts interest at 4.25% above 3 month LIBOR.  The Company manages this risk with two interest rate swaps, both for £150 million which the Company pays at 1.42% and 1.43% and receives LIBOR.  

 

The Group is exposed to fluctuations in exchange rates and interest rates on a $499 million bank loan within Cyan Blue Holdco 3 Limited which attracts interest at 2.75% above 3 month USD LIBOR. The company manages this risk with four cross currency swaps. Three of these are for $150 million and swap floating USD interest rate for fixed GBP interest rate of 4.27%, 4.28% and 4.28%. The fourth swap agreement is for $52.5 million and swaps floating USD interest rate for fixed GBP interest rate at 4.03% to hedge exposure to future interest rate and foreign currency rate exposure. (See note 31, events after the balance sheet).

g) Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

 

The capital structure of the Group consists of net debt (borrowings disclosed in note 18 after deducting cash and bank balances) and equity of the Group (comprising issued capital, and retained earnings).

 

h) Fair value of financial instruments

Fair value of financial instruments carried at amortised cost

The Directors consider that the carrying amounts of the financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair value.

Fair value measurements recognised in the Balance Sheet

The following tables provide an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from quoted process (unadjusted) in active markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data.

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

20.  Financial instruments (continued)

 

Valuation techniques and assumptions applied for the purposes of measuring fair value

 

The contingent consideration has been valued using a discounted cashflow forecast.  The unobservable inputs in determining the fair value are the discount rate and forecast cashflow information.  The discount rates have been determined using market information and benchmarking.  The forecasts have been developed for management based on the most recent information on company trading and performance.

 

The antepost and freebet creditors, measured at FVTPL have been valued based on internally generated expectations.

 

The equity option contracts have been valued using the Black Scholes method. On 5 January, NYX Gaming Group was acquired by Scientific Games via a scheme of arrangement. As a result of this, the Group redeemed its convertible preferences shares in NYX for £22.0 million and, under the terms of the scheme of arrangement, received $(CAD) 4.0 million for its Ordinary Shares in NYX. The Group had fair valued the equity investment based on the trading price of the investment on the open market until sold on 5 January 2018.

 

The Group has valued the interest rate and cross currency swap contracts using publically available information about the business and industry which is not directly related to the asset or liability being valued.  This information is used to derive forward curves, including adjustments for the Group’s credit risk, from which the swap contract value is estimated.

 

 

 

20.  Financial instruments (continued)

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

Ante post bets are a liability arising from an open position at the period end date in accordance with the Group’s accounting policy for derivative financial instruments.Ante post bets at the year end totalled £9 million (2017: £3 million) and are classified as current liabilities within other payables.

 

Ante post bet liabilities are valued using methods and inputs that are not based upon observable market data and all fair value movements on the balance are recognised in revenue in the Income Statement. Reasonably possible changes to assumptions or inputs could lead to material changes in the fair value determined (see note 1), although the final value will be determined by future sporting results. The principal assumptions relate to anticipated gross win margins on unsettled bets.

21.  Share capital

The Group’s ordinary shares carry no right to fixed income.

 

In September 2017 100 of the 200 contingent value shares were bought back and redeemed.

 

22.  Share premium

The share premium reserve represents the amount paid by the Shareholders in excess of the nominal value of the shares purchased.

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

23. Other reserves

During the prior year the Sky plc group provided the Group with a £0.8 million early repayment discount due to the early repayment of the loan provided to Cyan Blue VLNCo Limited (see note 18). This was recognised as a capital contribution in the Group.

 

The current year capital contribution relates to professional fees incurred by the Company associated with the acquisition by The Stars Group Inc. which the shareholders have agreed to fund.

 

24. Available-for-sale reserve

The Available-for-sale reserve represented the revaluation of ordinary shares acquired in NYX (see note 12), which were classified as available for sale assets.

There is no taxable amount due on these balances therefore the amounts are both gross and net of tax.

The purpose of available for sale is to record the cumulative changes in the fair value of available for sale assets which are not recorded in the statement of comprehensive income.

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

25. Notes to the Cash Flow Statement

 

Reconciliation of profit/(loss) before taxation to cash generated from operations

 

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Group. This amount includes £31.3 million (2017: £25.9 million) of customer funds.  Cash and cash equivalents at the end of the reporting period as shown in the consolidated cash flow statement £220.1 million (2017: £122.8 million) reconciles to the related items in the Consolidated Balance Sheet position.

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

26.  Transactions with related parties

The tables below set out the related party transactions and year end balances between the Group and its related parties.

 

Transactions with Sky plc group

At the balance sheet date, Sky plc group had a 20% interest in the Sky Betting and Gaming business. The Group continues to purchase goods and services from companies that form part of the Sky plc group at arm’s length prices.

 

 

During the current year the Group received income for platform services provided to the Sky plc group.

 

 

The amount outstanding with Sky plc group at the end of the year was £4.4 million (2017: £9.8 million).

 

Sky plc had invested in the group in the form of shareholder loan notes and the following table details the interest costs charged to the Group during the year.

 

 

 

The table below details the amounts outstanding on the Balance Sheet at the year end due to Sky plc group.

 

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

26.  Transactions with related parties (continued)

Transactions with Openbet

On 16 May 2016 the Group invested £22.5 million in NYX (see note 13) through convertible preference shares in a subsidiary company and ordinary shares in NYX.  NYX owns Openbet which is the Group’s platform provider. The Group has charged £4.5 million of costs relating to Openbet through the consolidated statement of comprehensive income up to the point of sale of the Group’s interest in NYX on 5 January 2018 (year ended 30 June 2017: £10.2 million).

 

Transactions with Cryptologic

On 16 May 2016 the Group invested £22.5 million in NYX (see note 13) through convertible preference shares in a subsidiary company and ordinary share in NYX.  NYX owns Cryptologic who supply games to the Group.  

 

Employee Benefit Trust

A number of employees of Group companies have invested in the Group through the Employee Benefit Trust.  During the 48 week period to 30 June 2015 the parent company issued a loan to the Employee Benefit Trust.  This loan is interest bearing at a rate of 10% and is repayable on demand.

 

Interest charged on the loan to the Employee Benefit Trust during the year is detailed below:

 

 

As at the Balance Sheet date the Group had an outstanding balance due to the Employee Benefit Trust of £1.2 million (30 June 2017: £1.1 million).

 

Key Management Personnel

The remuneration of the 4 Directors, who are the key management personnel of the Group, as well as holding investments in the Group, is paid for by one of the Company’s subsidiary companies.  The table below summarises the remuneration paid during the years.

 

 

Other

At the year end outstanding from Shareholders’ was a balance of £42.7 million in relation to the capital contribution, see note 23.

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

27.  Operating lease arrangements

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

Operating lease payments represent rentals payable by the group for certain of its office properties.

 

28.  Financial commitments

The financial commitments detailed above include amounts for technology and IT contracts.

 

29.  Retirement benefit schemes

The Group participates in a defined contribution retirement benefit scheme for all qualifying employees of the subsidiary Hestview Limited. The assets of the schemes are held separately from those of the Group in funds under the control of trustees. Where there are employees who leave the schemes prior to vesting fully, the contributions payable by the Group are reduced by the amount of forfeited contributions. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

The total cost charged to income of £2.7 million (year ended 30 June 2017: £2.3 million) represents contributions payable to these schemes by the group at rates specified in the rules of the schemes. As at 30 June 2018, contributions of £0.6 million (2017: £0.4 million) due in respect of the current reporting period had not been paid over to the schemes.

 

 

 

 

Cyan Blue Topco Limited

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Notes to the consolidated financial statements (continued)

For the year ended 30 June 2018

31.  Events after the balance sheet date

On 21 April 2018, The Stars Group Inc. announced that it signed a definitive agreement to acquire the Company from CVC Capital Partners and Sky plc for $4.7bn. The acquisition completed on 10 July 2018.

 

As part of the acquisition the following changes to the Group’s financing structure took place:

 

1. The external bank debt including all interest accrued to 10 July 2018 of £437,648,967 and $498,226,193 held in Cyan Blue Holdco 3 Limited was repaid in full.

2. All interest rate and cross currency derivative contracts held in Cyan Blue Holdco 3 Limited were novated at market value to Stars Group Holdings BV, a Netherlands based subsidiary of  The Stars Group Inc.

3. The Note C shareholder loan between Cyan Bidco Limited and Cyan Blue Holdco 3 Limited was repaid in full, including all accrued interest to 10 July 2018.

4. All shareholder loans held in Cyan Blue Topco Limited, due to Sky UK plc and Cyan Blue Jerseyco Limited were repaid in full, including all interest accrued to 10 July 2018.

5. All preference shares held in Cyan Blue Topco Limited, due to Cyan Blue Manco Limited were repaid in full, including all interest accrued to 10 July 2018.

6. The Employee Benefit Trust loan along with accrued interest of £1.2m was repaid on 10 July 2018.

 

To fund the repayment of the debt noted above Cyan Blue Topco Limited issued a share to Stars Group Holdings (UK) Limited with a nominal value of £0.01 for £1,272,935,591.64.  The Group is now funded by intercompany loans.

 

 

 

 

 

Cyan Blue Topco Limited

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SCHEDULE B – UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE STARS GROUP

See attached.

 

 

 

 

 

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THE STARS GROUP INC.

Unaudited pro forma condensed consolidated financial statements

As at and for the six months ended June 30, 2018 and for the year ended December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

---

 

 

 

---

 

 

 

i

 

---

 

 

ii

 

---

 

 

 

 

 

 

iii

 

---

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

On April 21, 2018, The Stars Group Inc. (“The Stars Group” or the “Corporation”) entered into a purchase and sale deed (the “Acquisition Agreement”) to acquire Cyan Blue Topco Limited, carrying on business as Sky Betting & Gaming (“SBG”), from Cyan Blue JerseyCo Limited (the holding vehicle for investment funds and vehicles advised by affiliates of CVC Capital Partners), Sky UK Limited (a subsidiary of Sky plc) and certain management shareholders (the “Acquisition”). The transaction closed on July 10, 2018. Under the terms of the Acquisition Agreement and based on the closing price of common shares on July 10, 2018, the purchase price for the acquisition was $3,216,846, which was composed of $1,845,530 in cash consideration and an aggregate of 37,934,054 newly-issued common shares. The Stars Group acquired SBG’s loan notes, preferred shares and outstanding long-term debt which amounted to $1,752,998 on June 30, 2018 for a total enterprise value of $4,969,884. The Stars Group raised debt and equity financing which was used to finance the cash consideration payable in connection with the Acquisition, refinance certain of the Corporation’s and SBG’s existing indebtedness and to pay fees and expenses in connection with these transactions.

 

These unaudited pro forma condensed consolidated financial statements present the impact of the following transactions and have been prepared on the basis described in Note 2 Basis of Preparation.

 

 

 

The Corporation’s unaudited pro forma condensed consolidated statement of financial position as at June 30, 2018 and the unaudited pro forma condensed consolidated statements of earnings for the six months ended June 30, 2018 and the year ended December 31, 2017 have been prepared by management for the purpose of presenting the impact of the Acquisition, the Debt Financing and the Equity Offering, as described in Notes 3 and 6, Notes 10 and 11, and Note 12, respectively. The unaudited pro forma condensed consolidated statement of financial position includes the effect of these transactions as if they had occurred on June 30, 2018. The unaudited pro forma condensed consolidated statements of earnings for the six months ended June 30, 2018 and the year ended December 31, 2017 give effect to these transactions as if they had occurred on January 1, 2017.

 

The accounting policies used in the preparation of the unaudited pro forma condensed consolidated statement of financial position as at June 30, 2018 and the unaudited pro forma condensed consolidated statements of earnings for the six months ended June 30, 2018 and the year ended December 31, 2017 incorporate the significant accounting policies used by The Stars Group for the respective periods in the consolidated financial statements filed on the System for Electronic Document Analysis and Retrieval (“SEDAR”) which can be accessed at www.sedar.com. The unaudited pro forma condensed consolidated financial statements include all adjustments necessary for the fair presentation of the unaudited pro forma condensed consolidated financial statements in accordance with the recognition and measurement principles of International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

iv

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

 

Pro forma adjustments reflected in the unaudited pro forma condensed consolidated financial statements are based on items that are factually supportable, directly attributable to the Acquisition for which there are firm commitments, and are expected to have a continuing impact on the unaudited pro forma condensed consolidated financial statements for which complete financial effects are objectively determinable.

 

All dollar amounts, except for per share information, or unless otherwise specified, are expressed in thousands of U.S. dollars (“USD” or “$”) which is the presentation currency of The Stars Group.

 

The Corporation’s unaudited pro forma condensed consolidated financial statements have been prepared using the following information:

 

 

 

 

 

v

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

 

The unaudited pro forma condensed consolidated financial statements, including the notes thereto, should be read in conjunction with The Stars Group and SBG historical financial statements which are filed on SEDAR or are included elsewhere in this BAR.

 

The unaudited pro forma condensed consolidated financial statements are prepared based on assumptions and adjustments that are described in the accompanying notes. The unaudited pro forma condensed consolidated financial statements do not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the Acquisition, the Debt Financing or Equity Offering. The unaudited pro forma condensed consolidated financial statements have been prepared for illustrative purposes only and are not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized if The Stars Group and SBG had been a consolidated company during the specified periods. Additionally, the application of the acquisition method of accounting depends on certain valuations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revisions as additional information becomes available and additional analyses are performed and have been made solely for the purposes of providing unaudited pro forma
condensed consolidated financial statements. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed consolidated financial statements and the consolidated company’s future earnings and financial position.

 

 

 

The Stars Group completed the acquisition of 100% of the outstanding shares of SBG in exchange for cash and share consideration of $3,216,846 which was composed of $1,845,530 in cash consideration and the issuance of an aggregate of 37,934,054 newly-issued common shares. The Acquisition is considered to be an acquisition under IFRS 3 Business Combinations (“IFRS 3”) with The Stars Group as the acquirer and SBG as the acquired entity. The unaudited pro forma condensed consolidated financial statements have been prepared using the acquisition method of accounting in accordance with IFRS 3. The purchase price calculation has been made based on the closing date of the Acquisition of July 10, 2018 and the determination of the fair values of the assets acquired and the liabilities assumed is dependent upon fair value estimates and assumptions as at the acquisition date.

 

The Stars Group has not yet completed a valuation analysis of the fair market value of SBG’s assets to be
acquired and liabilities to be assumed and has estimated preliminary allocations to such assets and liabilities. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed consolidated financial statements. The final purchase price allocation will be determined following the completion of the detailed valuation, other studies, and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation used to prepare the pro forma adjustments. The final purchase price allocation may include changes in allocations to intangible assets and goodwill based on the results of certain valuations and other studies that have yet to be completed and other changes to assets and liabilities.

vi

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

Reclassification adjustments have been made to the consolidated statement of earnings of The Stars Group for the year ended December 31, 2017 to conform with The Stars Group’s presentation in the second quarter of fiscal 2018, which had a $nil impact on the net income (loss) for the period presented.

 

 

vii

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The historical financial information of SBG was prepared in accordance with IFRS as issued by the IASB and presented in British Pounds Sterling (“GBP” or “£”). SBG’s fiscal year end is June 30 and historical financial information was used to present unaudited pro forma condensed consolidated financial statements based on the fiscal year of The Stars Group being December 31. Reclassification adjustments have been made to SBG’s historical financial information to comply with The Stars Group’s presentation which resulted in a net impact of $nil on the net earnings (loss) for the periods presented and on the statement of financial position. Based on The Stars Group management’s review of SBG’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of SBG to conform to the accounting policies of The Stars Group are not expected to be significant and therefore no pro forma adjustments other than those listed below have been made.

 

The historical financial information was translated from GBP to USD using the following historical exchange rates:

 

 

viii

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The unaudited condensed consolidated statement of loss for the six months ended June 30, 2018 is constructed by subtracting the unaudited financial information derived from the accounting records of SBG for the six months ended December 31, 2017 from the audited consolidated statement of loss for the year ended June 30, 2018. The table below presents the construction, presentation reclassification adjustments which had a $nil impact on net loss and translation of SBG’s consolidated statement of loss for the six months ended June 30, 2018:

 

 

ix

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The unaudited condensed consolidated statement of earnings for the twelve months ended December 31, 2017 is constructed by adding unaudited financial information derived from the accounting records of SBG for the six months ended December 31, 2017 to the audited consolidated statement of earnings for the year ended June 30, 2017 and by subtracting the unaudited financial information derived from the accounting records of SBG for the six months ended December 31, 2016. The table below presents the construction, presentation reclassification adjustments which had a $nil impact on net income and translation of SBG’s consolidated statement of earnings for the twelve months ended December 31, 2017:

 

 

 

 

x

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The table below presents the presentation reclassification adjustments which had a $nil impact on the total assets, liabilities and deficit accounts and translation of SBG’s consolidated balance sheet as at June 30, 2018:

 

 

xi

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

 

 

 

The unaudited pro forma condensed consolidated financial statements include the following pro forma assumptions and adjustments:

 

 

xii

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The following table summarizes the components of the purchase consideration:

 

 

 

The Corporation has prepared a preliminary estimate of the fair market value of assets acquired and liabilities assumed under the Acquisition. Pro forma adjustments have been made to eliminate SBG’s historical carrying values and to reflect the allocation of the preliminary purchase price where there is a difference between the carrying value and fair value. The following table summarizes the allocation of the preliminary purchase price:

 

 

 

 

As a result of the fair value adjustments above, amortization expense increased by $41,929 during the six months ended June 30, 2018 and by $77,355 during the year ended December 31, 2017, respectively.

xiii

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

 

 

The unaudited pro forma condensed consolidated statement of earnings for the six months ended June 30, 2018 has been adjusted to reflect a reduction in general and administrative expenses of $34,500 as a result of the elimination of costs incurred by The Stars Group during the six months ended June 30, 2018 that are directly related to the Acquisition. The Stars Group expects to incur additional transaction costs of $6,271 which are reflected as a decrease in cash and a reduction in the equity balance as at June 30, 2018. These amounts have been eliminated on a pro forma basis, as they are not expected to have a continuing effect on the operating results of the consolidated Corporation.

 

 

 

The Stars Group entered into deal contingent forwards with an aggregate notional amount of £700,000 to hedge the foreign currency risk on the payment of the GBP denominated cash consideration due under the Acquisition Agreement. As the deal contingent forwards were settled on the closing date of the Acquisition, a pro forma adjustment has been made to eliminate the June 30, 2018 deal contingent forward liability balance of $59,889 and the corresponding financial expense recorded in net financing charges during the six months ended June 30, 2018 as well as to record a reduction in cash of $54,673 based on the acquisition date settlement value. As a result of fair value movements from June 30, 2018 to the acquisition date, an adjustment to equity to reflect fair value gains of $5,216 has been recorded. The settlement value of the deal contingent forward was determined based on its fair value as of July 10, 2018 which is the closing date of the Acquisition.

 

 

 

For the purpose of the pro forma adjustments included in the unaudited pro forma condensed consolidated financial statements, the following tax rates were applied:

 

xiv

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

 

 

 

 

The Corporation has obtained fully committed debt financing of $5,268,650 including $4,568,650 of first lien term loans and a $700,000 revolving credit facility under the Senior Facilities agreement. The Corporation incurred indebtedness of $4,668,650 under the first lien term loans which is composed of $3,575,000 under the USD tranche, $993,650 (€850,000 translated at the June 30, 2018 closing rate of 1.1690) under the EUR tranche in addition to $100,000 under the revolving facility to finance the cash portion of the Acquisition, refinance the Corporation’s existing term loans and repay SBG’s outstanding debt. 

 

xv

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

 

 

 

 

 

 

As a result of the Senior Facilities, a pro forma adjustment was made to the unaudited pro forma condensed consolidated statement of financial position to record the net increase in cash of $55,991, as a result of the net increase in the current portion of long-term debt of $14,050 and the net increase in long-term debt of $64,168, offset by deferred financing costs of $22,227 previously included in the debt balance, but already paid for in prior years. The unaudited pro forma condensed consolidated statement of financial position was also adjusted to reflect a reduction in prepaid expenses and other current assets and accounts payable and other liabilities of $4,580 in relation to transaction costs incurred and a reduction in equity of $22,227 in relation to the write-off of historical transaction costs.

 

The unaudited pro forma condensed consolidated statements of earnings reflect a pro forma adjustment to reflect an increase (decrease) in net financing charges composed of the following:

 

 

xvi

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The following shows the interest expense incurred on the Senior Facilities and the effect of an increase (decrease) in the applicable interest rate:

 

 

The impact of foreign exchange translation (loss) gain on the USD portions of the Senior Facilities to the functional currency of the issuing subsidiary in the amounts of $(92,116) and $478,888 are not included in the unaudited pro forma condensed consolidated statements of earnings for six months ended June 30, 2018 and the year ended December 31, 2017. The translation loss and gain have not been recognized on the basis that they are not factually supportable based on the Corporation’s plans to manage the foreign exchange risk under their existing risk management strategy through derivative instruments that will effectively hedge this risk. This risk management strategy has been implemented subsequent to the close of the Acquisition and issuance of the Debt Financing.  

 

The following table shows the resulting foreign exchange translation (loss) gain on the Senior Facilities which are not included in the unaudited pro forma condensed consolidated statements of earnings for the six months ended June 30, 2018 and the year ended December 31, 2017 and shows the effect of an increase (decrease) in the applicable foreign exchange rates:

 

 

 

 

Interest expense related to cross currency interest rate swaps of $10,233 and $17,529 included in the unaudited pro forma condensed consolidated statement of earnings for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively, presented in Net Financing Charges, and the fair value of the cross currency interest rate swaps of $61,868 included in the unaudited pro forma condensed consolidated statement of financial position as at June 30, 2018 in non-current Derivative liabilities has not been subject to pro forma adjustment.

 

 

xvii

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

The Stars Group issued senior unsecured notes as part of the Notes Offering to finance a portion of the Acquisition in the amount of $1,000,000 with an applicable interest rate of 7.0%, due upon maturity in July 2026 on the completion date of the Acquisition. The Corporation incurred $4,604 in transaction costs during the six months ended June 30, 2018 which are reflected in the prepaid expenses and other current assets and accounts payables and other liabilities balances. The Corporation incurred an additional $35,475 in transaction costs during the month of July 2018. Proceeds from the Senior Notes are recognized in the unaudited pro forma condensed consolidated statement of financial position as an increase in cash and in long-term debt of $959,921 net of transaction costs of $40,079, and a decrease in prepaid expenses and other current assets and accounts payable and other liabilities of $4,604. The following table shows the interest expense that would be incurred on the new debt as well as the effect of an increase (decrease) in the applicable interest rate:

 

 

 

The impact of foreign exchange translation (loss) gain on the USD Senior Notes to the functional currency of the issuing subsidiary in the amount of $(24,061) and $125,087 are not included in the unaudited pro forma condensed consolidated statements of earnings for six months ended June 30, 2018 and the year ended December 31, 2017. The translation loss and gain have not been recognized on the basis that they are not factually supportable based on the Corporation’s plans to manage the foreign exchange risk under their existing risk management strategy through derivative instruments that will effectively hedge this risk.  This risk management strategy will be implemented subsequent to the close of the Acquisition and issuance of the Debt Financing.

 

The following table shows the resulting foreign exchange translation (loss) gain on the USD Senior Notes which are not included in the unaudited pro forma condensed consolidated statements of earnings for six months ended June 30, 2018 and the year ended December 31, 2017 and show the effect of an increase (decrease) in the applicable foreign exchange rates:

 

 

 

 

xviii

 

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Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements

(Expressed in thousands of U.S. dollars except earnings per share and per share amounts)

 

 

On June 26, 2018, the Corporation completed an offering of 17,000,000 additional common shares at $38.00 per common share for gross proceeds of $646,000 and incurred transaction costs of $26,618 for net proceeds of $619,382 which are reflected in The Stars Group’s statement of financial position as at June 30, 2018. The weighted average number of shares outstanding for the calculation of basic and diluted earnings per share in the unaudited pro forma condensed consolidated statements of earnings have been adjusted to give effect to this transaction as if it had occurred on January 1, 2017.

 

 

 

Basic and diluted net income per share is calculated by dividing the net income for the period by the pro forma weighted average numbers of common shares that would have been outstanding during the period using the treasury stock method. The weighted average number of common shares was determined by taking the historical weighted average number of common shares outstanding and adjusting for the shares issued under the Acquisition and shares issued under the Equity Offering as follows:

 

 

 

 

xix

 

Exhibit 99.2

The Stars Group Files Business Acquisition Report and Provides Supplemental Information for Sky Betting & Gaming

TORONTO, September 17, 2018 – The Stars Group Inc. (NASDAQ: TSG)(TSX: TSGI) today filed a business acquisition report with respect to its acquisition of Sky Betting & Gaming (“SBG”) and is providing certain supplemental historic financial information and additional highlights and updates for SBG. The business acquisition report includes, among other information, SBG’s audited financial statements for its fiscal year ended June 30, 2018, as well as certain pro forma unaudited financial statements and information of The Stars Group.  Unless otherwise noted, all dollar ($) amounts are in U.S. dollars and all references to “£” and “Pound Sterling” are to Great Britain pound sterling.

 

“2018 is a transformative year for the business, with three acquisitions and related financings and other significant changes to our corporate and capital structure,” said Rafi Ashkenazi, The Stars Group’s Chief Executive Officer. “We’ve executed on these transactions and looking forward into 2019, are now focused on integration and we are confident that we will deliver on our plans to grow market share both globally and in key markets. SBG is a key component of this plan and we are excited about its potential as the fastest growing and one of the largest online and mobile sports betting and gaming businesses in the UK, the world’s largest regulated online gaming market,” concluded Mr. Ashkenazi.

 

“The 2018 fiscal year was another strong year for SBG, with continued product leadership and innovation,” said Richard Flint, Chief Executive Officer of SBG. “We enjoyed another year of growth, extending our leadership as the UK’s most popular online betting and gaming brand. We also continued our investment in brand, technology and people, and continued delivering innovative products that meet the needs of our customers, all of which we believe combined to drive strong operating results,” continued Mr. Flint.

 

“I am also particularly pleased with the progress we made to deliver a safer gambling environment to our customers and to continue our record of job creation and investment in Yorkshire, as well as our contribution to regional and national taxation in the UK,” said Mr. Flint.

 

“The transaction with The Stars Group will allow us to offer our best-in-class products to a truly global audience. We enter the rest of 2018 and head into 2019 as part of one of the world’s largest publicly listed online gaming companies, and I am excited about the opportunities that this combination presents,” concluded Mr. Flint.

  

SBG Fiscal Year 2018 Financial Summary

 

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SBG Fiscal Year 2018 Quarterly Financial Summary

 

 

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¹ Non-IFRS measure. For important information on SBG’s non-IFRS measures, see below under “Non-IFRS Measures” and the tables under “Reconciliation of Non-IFRS Measures to Nearest IFRS Measures”.

 

SBG Fiscal Year 2018 and Subsequent Financial Highlights

 

 

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SBG Fiscal Year 2018 and Subsequent Operational Highlights

 

 

 

 

 

 

 

SBG Fiscal Year 2018 Quarterly Financial and Operational Highlights

 

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2018 Full Year Guidance

 

 

 

 

 

These unaudited expected results reflect management’s view of current and future market and business conditions, including assumptions of (i) expected Betting Net Win Margin of between 8.0% and 10.5%, (ii) continued negative operating conditions in Poland and potential negative operating conditions in Russia resulting from prior regulatory changes, including constraints on payment processing, (iii) no other material regulatory events or investments associated with the entry into new markets, (iv) no impact from the gaming advertising ban in Italy, and (v) no material foreign currency exchange rate fluctuations, particularly against the Euro, Great Britain pound sterling and Australian dollar. Such guidance is also based on a Euro to U.S. dollar

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exchange rate of 1.17 to 1.00, a Great Britain pound sterling to U.S. dollar exchange rate of 1.32 to 1.00 and an Australian dollar to U.S. dollar exchange rate of 0.74 to 1.00, and the Proforma 2018 Guidance includes pre-acquisition actual results using historical foreign exchange rates and forward guidance post-acquisition for each of the three acquisitions using the foreign exchange rates in the assumptions above. Such guidance is also based on Diluted Shares of between 241,000,000 and 243,000,000 for the high and low ends of the Adjusted Diluted Net Earnings per Share range, respectively, and certain accounting assumptions.

 

Capital Expenditures include estimated spend on intangible assets, property, plant and equipment and certain development costs.

Business Acquisition Report and Additional Information

The Stars Group’s business acquisition report with respect to its acquisition of SBG, as well as additional information relating to The Stars Group, SBG and their businesses, can be found on SEDAR at www.sedar.com, Edgar at www.sec.gov and The Stars Group’s website at www.starsgroup.com.

 

In addition to press releases, securities filings and public conference calls and webcasts, The Stars Group intends to use its investor relations page on its website as a means of disclosing material information to its investors and others and for complying with its disclosure obligations under applicable securities laws. Accordingly, investors and others should monitor the website in addition to following The Stars Group’s press releases, securities filings and public conference calls and webcasts. This list may be updated from time to time.

Investor Conference Call and Webcast

The Stars Group will host an investor conference call today, September 17, 2018 at 8:30 a.m. ET to discuss the information presented in this news release and the business acquisition report. To access via tele-conference, please dial +1 877-451-6152 or +1 201-389-0879 ten minutes prior to the scheduled start of the call. The playback will be made available two hours after the event at +1 844-512-2921 or +1 412-317-6671. The Conference ID number is 13683167. To access the webcast please use the following link: http://public.viavid.com/index.php?id=131264

Reconciliation of Non-IFRS Measures to Nearest IFRS Measures

The tables below present reconciliations of Adjusted EBITDA of SBG to operating profit, which is the nearest IFRS measure:

 

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¹ Fiscal Year 2018 includes disposals of £1.9.

For additional information on SBG’s non-IFRS measures, see below under “Non-IFRS Measures” and “Key Metrics and Other Data”.

The Stars Group has not provided a reconciliation of the non-IFRS measures to the nearest IFRS measures included in its full year 2018 financial guidance or full year 2018 pro forma financial guidance provided in this news release, including Adjusted EBITDA, Adjusted Net Earnings and Adjusted Diluted Net Earnings per Share, because certain reconciling items necessary to accurately project such IFRS measures, particularly net earnings (loss), cannot be reasonably projected due to a number of factors, including variability from potential foreign exchange fluctuations impacting financial expenses, and the nature of other non-recurring or one-time costs (which are excluded from non-IFRS measures but included in net earnings (loss)), as well as the typical variability arising from the audit of annual financial statements, including, without limitation, certain income tax provision accounting, and related accounting matters.

About The Stars Group

The Stars Group is a provider of technology-based product offerings in the global gaming and interactive entertainment industries. Its brands have millions of registered customers globally and collectively are leaders in online and mobile betting, poker, casino and other gaming-related offerings.  The Stars Group owns or licenses gaming and related consumer businesses and brands, including PokerStars,

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PokerStars Casino, BetStars, Full Tilt, BetEasy, Sky Bet, Sky Vegas, Sky Casino, Sky Bingo, and Sky Poker, as well as live poker tour and event brands, including the PokerStars Players No Limit Hold’em Championship, European Poker Tour, PokerStars Caribbean Adventure, Latin American Poker Tour, Asia Pacific Poker Tour, PokerStars Festival and PokerStars MEGASTACK. The Stars Group is one of the world’s most licensed online gaming operators with its subsidiaries collectively holding licenses or approvals in 19 jurisdictions throughout the world, including in Europe, Australia, and the Americas. The Stars Group’s vision is to become the world’s favorite iGaming destination and its mission is to provide its customers with winning moments.

 

Cautionary Note Regarding Forward Looking Statements

 

This news release contains forward-looking statements and information within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable securities laws, including, without limitation, certain financial and operational expectations and projections, such as certain future operational and growth plans and strategies, including as it relates to SBG and full year 2018 financial guidance. Forward-looking statements and information can, but may not always, be identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “would”, “should”, “believe”, “objective”, “ongoing”, “imply”, “assumes”, “goal”, “likely” and similar references to future periods or the negatives of these words or variations or synonyms of these words or comparable terminology and similar expressions. These statements and information, other than statements of historical fact, are based on management’s current expectations and are subject to a number of risks, uncertainties, and assumptions, including market and economic conditions, business prospects or opportunities, future plans and strategies, projections, technological developments, anticipated events and trends and regulatory changes that affect The Stars Group, its subsidiaries, including SBG, and its and their respective customers and industries. Although The Stars Group and management believe the expectations reflected in such forward-looking statements and information are reasonable and are based on reasonable assumptions and estimates as of the date hereof, there can be no assurance that these assumptions or estimates are accurate or that any of these expectations will prove accurate. Forward-looking statements are inherently subject to significant business, regulatory, economic and competitive risks, uncertainties and contingencies that could cause actual events to differ materially from those expressed or implied in such statements. Specific risks and uncertainties include, but are not limited to: the heavily regulated industry in which The Stars Group carries on its business; risks associated with interactive entertainment and online and mobile gaming generally; current and future laws or regulations and new interpretations of existing laws or regulations, or potential prohibitions, with respect to interactive entertainment or online gaming or activities related to or necessary for the operation and offering of online gaming; potential changes to the gaming regulatory framework; legal and regulatory requirements; ability to obtain, maintain and comply with all applicable and required licenses, permits and certifications to offer, operate and market its product offerings, including difficulties or delays in the same; significant barriers to entry; competition and the competitive environment within addressable markets and industries; impact of inability to complete future or announced acquisitions or to integrate businesses successfully; The Stars Group’s substantial indebtedness requires that it use a significant portion of its cash flow to make debt service payments; The Stars Group’s secured credit facilities contain covenants and other restrictions that may limit its flexibility in operating its business; risks associated with advancements in technology, including artificial intelligence; ability to develop and enhance existing product offerings and new commercially viable product offerings; ability to mitigate foreign exchange and currency risks; ability to mitigate tax risks and adverse tax consequences, including, without limitation, the imposition of new or additional taxes, such as value-added and point of consumption taxes, and gaming duties; The Stars Group’s exposure to greater than anticipated tax liability; risks of foreign operations generally; protection of proprietary technology and intellectual property rights; ability to recruit and retain management and other qualified personnel, including key technical, sales and marketing personnel; defects in product offerings; losses due to fraudulent activities; management of growth; contract awards; potential financial opportunities in addressable markets and with respect to individual contracts; ability of technology infrastructure to meet applicable demand and reliance on online and mobile telecommunications operators; systems, networks, telecommunications or service disruptions or failures or cyber-attacks and failure to protect customer data, including personal and financial information; regulations and laws that may be adopted with respect to the Internet and electronic commerce or that may otherwise impact The Stars Group in the jurisdictions where it is currently doing business or intends to do business, particularly those related to online gaming or that could impact the ability to provide online product offerings, including, without limitation, as it relates to payment processing; ability to obtain additional financing or to complete any refinancing on reasonable terms or at all; customer and operator preferences and changes in the economy; dependency on customers’ acceptance of its product offerings; consolidation within the gaming industry; litigation costs and outcomes; expansion within existing and into new markets; relationships with vendors and distributors; and natural events; contractual relationships of SBG or The Stars Group with Sky plc and/or its subsidiaries; counterparty risks; failure of systems and controls of The Stars Group to restrict access to its products; reliance on scheduling and live broadcasting of major sporting events; macroeconomic conditions and trends in the gaming and betting industry; bookmaking risks; an ability to realize projected financial increases attributable to acquisitions and The Stars Group’s business strategies; and an ability to realize all or any of The Stars Group’s estimated synergies and cost savings in connection with acquisitions. Other applicable risks and uncertainties include, but are not limited to, those identified in The Stars Group’s annual information form for the year ended December 31, 2017, including under the heading “Risk Factors and Uncertainties”, in the June 21, 2018 prospectus supplement to the short form base shelf prospectus dated January 16, 2018 (the “Prospectus Supplement”) under the heading “Risk Factors”, and in The Stars Group’s management’s discussion and analysis for the three and six months ended June 30, 2018 (the “Q2 2018 MD&A”), including under the headings “Risk Factors and Uncertainties”, “Limitations of Key Metrics, Other Data and Non-IFRS Measures” and “Key Metrics and Non-IFRS Measures”, each available on SEDAR at www.sedar.com, EDGAR at www.sec.gov and The Stars Group’s website at www.starsgroup.com, and in other filings that The Stars Group has made and may make with applicable securities authorities in the future. Investors are cautioned not to put undue reliance on forward-looking statements or information. Any forward-looking statement

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or information speaks only as of the date hereof, and The Stars Group undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

Non-IFRS Measures

 

This news release references non-IFRS financial measures of SBG, including QNY, Adjusted EBITDA and Adjusted EBITDA Margin, and of The Stars Group, including Adjusted EBITDA, Adjusted Net Earnings and Adjusted Diluted Net Earnings per Share. The Stars Group believes these non-IFRS financial measures will provide investors with useful supplemental information about the financial performance of its and SBG’s business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating its business. Although management believes these financial measures are important in evaluating The Stars Group and SBG, they are not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with IFRS. They are not recognized measures under IFRS and do not have standardized meanings prescribed by IFRS. These measures may be different from non-IFRS financial measures used by other companies, limiting its usefulness for comparison purposes. Moreover, presentation of certain of these measures is provided for year-over-year comparison purposes, and investors should be cautioned that the effect of the adjustments thereto provided herein have an actual effect on The Stars Group’s operating results. In addition to QNY, which is defined below under “Key Metrics and Other Data”, The Stars Group provides the following non-IFRS measures in this news release, in each case as they relate solely to SBG:

Adjusted EBITDA means profit/(loss) for the period attributable to equity shareholders before tax expense/(credit), finance costs, investment income, revaluation of financial instruments measured at fair value, depreciation, amortization, impairment and exceptional items (being transaction-related costs, which are adjusted for in this news release but are not adjusted for in SBG’s audited financial statements for its fiscal year ended June 30, 2018). See the reconciliation table presented above within this news release for additional information.

Adjusted EBITDA Margin means Adjusted EBITDA as a proportion of total revenue.

For additional information on SBG’s non-IFRS measures, see elsewhere in this news release and the Prospectus Supplement, including under the headings “Cautionary Note Regarding Use of Non-GAAP Measures” and “Management’s Discussion and Analysis of Sky Betting & Gaming”.

The Stars Group provides the following non-IFRS measures in this news release, in each case as they relate solely to The Stars Group on a consolidated basis and as it relates to full year 2018 financial guidance and full year 2018 pro forma financial guidance provided in this news release:

 

Adjusted EBITDA means net earnings before financial expenses, income taxes expense (recovery), depreciation and amortization, stock-based compensation, restructuring, net earnings (loss) on associate and certain other items.

 

Adjusted Net Earnings means net earnings before interest accretion, amortization of intangible assets resulting from purchase price allocations following acquisitions, deferred income taxes, stock-based compensation, restructuring and certain other items.

 

Adjusted Diluted Net Earnings per Share means Adjusted Net Earnings attributable to the shareholders of The Stars Group divided by Diluted Shares. Diluted Shares means the weighted average number of common shares of The Stars Group (“Common Shares”) on a fully diluted basis, including options, other equity-based awards, warrants and preferred shares. The effects of anti-dilutive potential Common Shares are ignored in calculating Diluted Shares. For the purposes of the full year 2018 financial guidance and full year 2018 pro forma financial guidance provided in this news release, Diluted Shares equals between 241,000,000 and 243,000,000 for the high and low ends of the Adjusted Net Earnings per Diluted Share range, respectively.

 

For additional information on The Stars Group’s non-IFRS measures, see elsewhere in this news release and the Q2 2018 MD&A, including under the headings “Management’s Discussion and Analysis”, “Limitations of Key Metrics, Other Data and Non-IFRS Measures” and “Key Metrics and Non-IFRS Measures”.

 

Key Metrics and Other Data

 

The Stars Group provides the following key metrics in this news release, in each case as they relate solely to SBG:

 

QAUs means active unique customers (online, mobile and desktop client) who have settled a stake on any betting or gaming product within the relevant quarterly period. SBG defines unique as a customer who played at least once on one of its real-money offerings during the period, and excludes duplicate counting, even if that customer is active across more than one vertical (betting and gaming). QAUs are disclosed in this news release on a combined basis for SBG’s real-money online gaming and betting brands. The average QAU numbers provided in this news release reflect a simple average for the respective periods presented.

 

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QNY is calculated by dividing the quarterly betting and gaming revenue (total revenue less other revenue generated by SBG’s Oddschecker and international divisions) generated by SBG by the number of QAUs in the period indicated. QNY is a non-IFRS measure. The Stars Group does not provide a reconciliation for the numerator of QNY as the revenue components thereof (i.e., betting and gaming revenues) are set forth in this news release.

 

Stakes means betting amounts wagered on SBG’s online betting product offerings, and is also an industry term that represents the aggregate amount of funds wagered by customers within the betting line of operation for the period specified.

 

Betting Net Win Margin is calculated as betting revenue as a proportion of Stakes.

Capital Expenditure for SBG specifically means the purchase of property, plant and equipment and the purchase of intangible assets.

For additional information on SBG’s key metrics and other data, see the Prospectus Supplement, including under the heading “Management’s Discussion and Analysis of Sky Betting & Gaming”.

 

For investor relations, please contact:

Tim Foran

Tel: +1 437-371-5730

ir@starsgroup.com

 

For media inquiries, please contact:

 

Eric Hollreiser

Press@starsgroup.com