UNIBET Group PLC (the Company) is a public limited company incorporated in the UK. The principal activities of the Company and its subsidiaries (the Group) are described in note 12. 2. Summary of significant accounting policies
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), previously referred to as International Accounting Standards (IAS).
The financial statements have been prepared on the histori- cal cost basis, except for the revaluation of certain financial instruments. The principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities.
The results of Strategie Dynamique NV (a subsidiary dis- posed of during the year to 31 December 2003) are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal.
Where necessary adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group.
All significant intercompany transactions and balances between Group and enterprises are eliminated on consolidation. Revenue recognition
Revenue represents amounts receivable in respect of bets placed on events which occurred by the year end.
Leasing
All leases are classified as operating leases. Rentals payable under operating leases are charged to income on a straight line basis over the term of the relevant lease.
Foreign currencies
The Company operates both in and outside of the UK. These financial statements are presented in GBP since that is the cur- rency of the country in which the Group is registered. Transac- tions in currencies other than GBP are initially recorded at the rates of exchange prevailing on the dates of transactions. Mone- tary assets and liabilities denominated in such currencies are retranslated at the rates prevailing on the balance sheet date.
Profits and losses arising on exchange are included in the net profit or loss for the period.
The Company does not enter into forward contracts nor options to hedge its exposure to foreign exchange risks.
On consolidation, the assets and liabilities of the Group’s overseas operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are trans- lated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the same period in which the operation is disposed of.
Retirement benefit costs and Pensions
The Group does not operate any pension scheme for employees or directors and therefore incurs no costs operating such schemes.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabil- ities in the financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income state- ment, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Internally generated intangible assets – research and develop- ment expenditure
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the Group is recognised only if all of the following are met: • An asset is created that can be identified (such as a database
or software).
• It is probable that the asset created will generate future economic benefits; and
• The development cost of the asset can be measured reliably. Where no internally generated intangible asset can be recog- nised, development expenditure is recognised as an expense in the period in which it is incurred. Internally generated intangible assets are amortised on a straight line basis over three years. Property, plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.
Depreciation is charged so as to write off the cost or valua- tion of the assets over their estimated useful lives, using the straight line method, on the following bases:
Plant and machinery 3 years
Office equipment 3 years
Fixtures and fittings 3 years
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales pro- ceeds and the carrying amount of the asset and is recognised in income.
Trade Receivables
Trade receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Convertible debenture notes
Convertible debenture notes are regarded as compound instru- ments, consisting of a liability and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convert- ible debt. The difference between the net proceeds of the issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability of the Group, is included in equity (capital reserves). Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carry- ing amount of the convertible loan note.
Trade payables
Trade payables are stated at their nominal value. Equity compensation schemes
No charge is recognised in the income statement in respect of equity settled compensation schemes.
3. Business and geographical segments
For management purposes, the Group is currently organised into two operating divisions – sports betting and non-sports betting. These divisions are the basis on which the Group reports its primary segment information.
The principal activities are as follows:
Sports – Bets taken on sporting events Non-sports betting – Bets taken on non sporting events The work of all employees relates principally to sports betting.
31 Dec 31 Dec 31 Dec
2003 2002 2001
Finance, administration
and management 39 35 27
Marketing 11 9 7
Gaming 17 12 9
Note 3 cont.
Segmental information about these businesses is presented below.
Sports Non-Sports
GBP Betting Betting Total
2003 Revenue External Sales 142,336,430 1,205,519 143,541,949 Total Revenue 142,336,430 1,205,519 143,541,949 Result Segment result 2,689,082 1,084,967 3,774,049 Profit from operations 2,689,082 1,084,967 3,774,049
Finance costs – (25,000)
Income from investments – 112,979
Profit before tax – 3,862,028
Income tax expense (981,802)
Profit after tax 2,880,226
Other information Capital additions 1,134,965 – 1,134,965 Depreciation and amortisation 956,260 – 956,260 Balance sheet Assets – Segment Assets 10,384,852 – 10,384,852 Liabilities – Segment Liabilities 5,548,874 – 5,548,874 2002 Revenue External Sales 102,133,886 – 102,133,886 Total Revenue 102,133,886 – 102,133,886 Result Segment result 1,188,665 – 1,188,665
Profit from operations 1,188,665 – 1,188,665
Finance costs – (100,000)
Income from investments – 43,020
Profit before tax 1,131,685
Income tax expense (55,634)
Profit after tax 1,076,051
Other information Capital additions 613,661 – 613,661 Depreciation and amortisation 650,535 – 650,535 Balance sheet Assets – Segment Assets 6,454,106 – 6,454,106 Liabilities Sports Non-Sports
GBP Betting Betting Total
2001 Revenue External Sales 52,655,013 – 52,655,013 Total Revenue 52,655,013 – 52,655,013 Result Segment result (1,527,532) – (1,527,532)
Loss from operations (1,527,532) – (1,527,532)
Finance costs (28,112)
Income from investments 37,066
Loss before tax (1,518,578)
Income tax expense (55,209)
Loss after tax (1,573,787)
Other information Capital additions 977,044 – 977,044 Depreciation and amortisation 408,676 – 408,676 Balance sheet Assets – Segment Assets 3,737,737 – 3,737,737 Liabilities – Segment Liabilities 3,639,745 – 3,639,745 Geographical segments
Year ended 31 December
GBP 2003 2002 2001
Sales revenue by geographical market
Sweden 66,952,407 57,497,280 36,720,014
Rest of Nordic 35,705,172 20,964,337 4,494,023
Other 40,884,370 23,672,269 11,440,976
143,541,949 102,133,886 52,655,013 Carrying amount of segment assets
Sweden 185,955 390,996 477,086
Other 1,644,265 1,145,699 997,522
Cash 8,554, 632 4,917,411 2,263,129
10,384,852 6,454,106 3,737,737 Additions to Fixed Assets
Sweden 28,398 65,551 500,953
Other 1,106,558 548,110 484,532
4. Profit from operations
Profit from operations has been arrived at after charging:
Year ended 31 December
GBP 2003 2002 2001
Foreign exchange loss on
transactions 277,736 122,769 5,476
Total staff costs incurred during the period amounted to GBP 2,527,933 (2002: GBP 1,664,665 2001: GBP 1,169,000) and total amortisation of intangible assets included in administrative expenses amounted to £339,691 (2002: GBP 200,621, 2001: GBP 96,061). Total depreciation included in administrative expenses amounted to GBP 616,570) (2002: GBP 449,914, 2001: GBP 312,616).
5. Finance costs
Year ended 31 December
GBP 2003 2002 2001
Interest on convertible
loan notes (note 16) 25,000 100,000 28,112
6. Income from investments
Year ended 31 December
GBP 2003 2002 2001
Interest on bank deposits 112,979 43,020 37,066 7. Income tax expense
Year ended 31 December
GBP 2003 2002 2001
Current tax:
Domestic (4,416) 2,664 (7,738)
Foreign (245,269) (16,812) (23,489)
(249,685) (14,148) (31,227) Deferred tax (note 17):
Current year (732,117) (41,486) (23,982)
(732,117) (41,486) (23,982) Total tax charge (981,802) (55,634) (55,209) Domestic income tax is calculated at 30 per cent. (2002: 30 per cent., 2001: 30 per cent.) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the income statement as fol- lows:
Note 7 cont.
Year ended 31 December
GBP 2003 2002 2001
Profit/(Loss) before tax 3,862,028 1,131,685 (1,518,578) Tax at the domestic
income tax rate of 30% (2002: 30%,
2001: 30%) (1,158,608) (339,506) 455,573
Effects of:
Expenses not deductible
for tax purposes (31,446) (28,319) (75,495) Capital allowances in
excess of depreciation (16,561) 796 43,212 Utilisation/(Addition)
of tax losses 250,078 308,469 (608,782)
Overseas tax rates 649,160 (664) 125,223
Other 3,900 (1,570) 5,060
Provision for tax on future remittance of
overseas earnings (676,902) – –
Prior period adjustments (1,423) 5,160 –
Tax charge (981,802) (55,634) (55,209)
8. Dividends
For the three years ended 31 December 2003 there have been no dividends paid or received.
9. Earnings/(Loss) per share
The calculation of the basic and diluted earnings per share is based on the following data:
Year ended 31 December
GBP 2003 2002 2001
Earnings
Earnings for the purposes of basic earnings per share (net profit/(loss)
for the year) 2,880,226 1,076,051 (1,573,787) Effect of dilutive potential
ordinary shares: Interest on convertible
loan notes (net of tax) 18,645 95,084 8,333 Earnings for the purposes
of diluted earnings
Note 9 cont.
Year ended 31 December
2003 2002 2001
Number of shares Weighted average number of ordinary shares for the purposes of basic earnings
per share 11,118,196 10,531,511 10,473,196 Effect of dilutive potential
ordinary shares
Convertible loan notes 350,876 526,315 –
Share options 483,000 455,000 –
Weighted average number of ordinary shares for the purposes of diluted
earnings per share 11,952,072 11,512,826 10,473,196 The denominators for the purposes of calculating both basic and diluted earnings per share have been adjusted to reflect the issue of capital in November 2002.
The basic earnings/(loss) per ordinary share has been cal- culated based upon the number of ordinary shares and potential ordinary shares in issue prior to the Listing.
10. Intangible assets Development GBP costs Total Cost At 1 January 2001 125,297 125,297 Additions 300,713 300,713 At 31 December 2001 426,010 426,010 Additions 324,652 324,652 At 31 December 2002 750,662 750,662 Additions 553,352 553,352 At 31 December 2003 1,304,014 1,304,014 Amortisation At 1 January 2001 10,441 10,441
Charge for the year 96,061 96,061
At 31 December 2001 106,502 106,502
Charge for the year 200,621 200,621
At 31 December 2002 307,123 307,123
Charge for the year 339,691 339,691
At 31 December 2003 646,814 646,814
Carrying Amount
At 31 December 2003 657,200 657,200
At 31 December 2002 443,539 443,539
At 31 December 2001 319,508 319,508
The amortisation period for development costs incurred on the Group’s e-business development is three years.
11. Property, plant and equipment
Group Plant and Fixtures and Office
GBP machinery fittings equipment Total
Cost or valuation At 1 January 2001 29,559 147,433 502,738 679,730 Additions 29,254 146,853 508,665 684,772 Disposals – – (8,441) (8,441) At 31 December 2001 58,813 294,286 1,002,962 1,356,061 Additions – 6,135 282,874 289,009 Disposals (5,668) (5,345) (16,870) (27,883)
Foreign exchange translation difference – – 46,395 46,395
At 31 December 2002 53,145 295,076 1,315,361 1,663,582
Additions 25,849 2,635 553,129 581,613
Disposals – – (2,532) (2,532)
Foreign exchange translation difference – – 62,854 62,854
At 31 December 2003 78,994 297,711 1,928,812 2,305,517
Depreciation
At 1 January 2001 3,152 10,895 52,303 66,350
Charge for the year 14,853 51,333 246,430 312,616
At 31 December 2001 18,005 62,228 298,733 378,966
Disposals (4,251) (3,665) (14,984) (22,900)
Charge for the year 13,039 64,318 372,557 449,914
Foreign exchange translation difference – – 15,349 15,349
At 31 December 2002 26,793 122,881 671,655 821,329
Charge for the year 11,409 59,248 545,913 616,570
Foreign exchange translation difference – – 33,718 33,718
Disposals – – (639) (639) At 31 December 2003 38,202 182,129 1,250,647 1,470,978 Carrying amount At 31 December 2003 40,792 115,582 678,165 834,539 At 31 December 2002 26,352 172,195 643,706 842,253 At 31 December 2001 40,808 232,058 704,229 977,095 12. Subsidiaries
Details of the company’s subsidiaries at 31 December 2003 are as follows:
Proportion of ownership
Name of subsidiary Place of incorporation and voting power Activity
Unibet (London) Limited Great Britain 100 Service Centre
Unibet (Holding) Limited Malta 100 Non-trading
Unibet (International) Limited Malta 100 Call Centre
Firstclear Limited Great Britain 100 Cash Management
Unibet Software R&D AB Sweden 100 Research and development
During the year Strategie Dynamique NV was disposed of to Bart Vermassen and a close family member for a consideration of euro 20,000. Mr Vermassen was a director of certain Unibet Group plc subsidiaries. The transaction created a loss on disposal of GBP 38,217. This does not have a material impact on the consolidated income or balance sheet statements.
15. Capital and translation reserves
On 28 November 2002 645,000 1p shares were issued for GBP 999,750 consideration. The premium arising on these shares was GBP 993,300. The brought forward merger reserve at 1 January 2001 relates to the acquisition of Unibet (London) Limited on 1 August 2000.
During the year ended 31 December 2003 GBP 228,295 of share issue costs relating to the proposed Initial Public Offering on the Stockholm stock exchange were incurred. These have been offset against share premium and will be offset against share capital when the offering is complete.
Share premium Translation Mergeer Accumulated
GBP Share capital account reserve reserve profits Total
Reserves brought forward at 1 January 2001 102,042 – – 1,533,283 (620,763) 1,014,562
Shares issued 2,690 656,345 – – – 659,035
Net loss for the year – – – – (1,573,787) (1,573,787)
Foreign exchange differences on the translation
of net equity investments in foreign enterprises – – (1,818) – – (1,818)
At 31 December 2001 104,732 656,345 (1,818) 1,533,283 (2,194,550) 97,992
Shares issued 6,450 993,300 – – – 999,750
Net profit for the year – – – – 1,076,051 1,076,051
Foreign exchange differences on the translation
of net equity investments in foreign enterprises – – 4,313 – – 4,313
At 31 December 2002 111,182 1,649,645 2,495 1,533,283 (1,118,499) 2,178,106
Share issue costs incurred during potential
Initial Public Offering Costs – (228,295) – – – (228,295)
Net loss for the year – – – – 2,880,226 2,880,226
Foreign exchange differences on the translation
of net equity investments in foreign enterprises – – 5,941 – – 5,941
At 31 December 2003 111,182 1,421,350 8,436 1,533,283 1,761,727 4,835,978
13. Other financial assets
There were no trade receivables arising from the sale of goods at the balance sheet date (2002: GBP nil, 2001: GBP nil). No allowance has been made for estimated irrecoverable amounts from the sale of goods (2002: GBP nil, 2001: GBP nil). No credit period is allowed. The directors consider that the carrying amount of the trade and other receivables approximates their fair values. The group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and cus- tomers.
14. Share capital
Year ended 31 December
GBP 2003 2002 2001
Authorised:
100,000,000 ordinary shares
of GBP 0.01 each 1,000,000 1,000,000 1,000,000 Issued and fully paid
Ordinary shares
of GBP 0.01 each 111,182 111,182 104,732
The issue of 10,204,200 ordinary shares of GBP 0.01 each for the acquisition of Unibet (London) Limited occurred on 1 Novem- ber 2000. The shares were issued at par value in exchange for the entire share capital of Unibet (London) Limited.
On 6 February 2001, 268,994 ordinary shares of GBP 0.01 were issued GBP 2.45 each. On 28 November 2002, a further 645,000 ordinary shares were issued at GBP 1.55.
16. Convertible loan notes
Group 31 December
GBP 2003 2002 2001
Convertible debenture 10% – 1,000,000 1,000,000 The convertible debenture was issued during September 2001 and was secured by way of a floating charge against all assets. The notes were convertible into ordinary shares of the Company at specified dates between the issue of the notes and their set- tlement date, 1 September 2003. On issue, the loan notes were convertible at 1 share per GBP 1.90 loan note. On 31 March 2003 the debenture loan issued in connection with the Conver- tible Debenture 10 per cent. was redeemed in full at par. All other rights, including the warrants element, remained in place until 1 September 2003. This option to convert the debenture into warrants was not exercised.
The financial cost charged in the profit and loss account con- tains the coupon on the debenture.
17. Deferred tax
The Group’s deferred tax position is analysed as follows:
Year ended 31 December
GBP 2003 2002 2001
Deferred tax liabilities (871,706) (130,948) (89,462)
Deferred tax assets 8,641 – –
Net position (863,065) (130,948) (89,462)
Note 17 cont.
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods:
Deferred tax liabilities
Capitalised Tax allocation Unremitted Accelerated tax Unrealised
GBP expenditure reserves earnings depreciation exchange loss Total
At 1 January 2001 (32,159) – – (33,321) – (65,480)
(Charge)/credit to income
for the year (57,303) – – 33,321 – (23,982)
At 31 December 2001 (89,462) – – – – (89,462)
(Charge) to income for the year (34,729) (6,757) – – – (41,486)
At 31 December 2002 (124,191) (6,757) – – – (130,948)
(Charge)/credit to income for the year (59,825) (4,031) (676,902) 1,428 7,213 (732,117)
At 31 December 2003 (184,016) (10,788) (676,902) 1,428 7,213 (863,065)
At 31 December 2003, the Group had unused tax trading losses of GBP 580,784 (2002: GBP 1,357,172, 2001: GBP 2,437,030) available for offset against future profits. A deferred tax asset in respect of GBP 5,093 (2002: GBP 59,910, 2001: GBP 58,715)
of the losses has been recognised in offsetting a deferred tax liability of the same amount. No deferred tax asset has been recognised in respect of the remaining losses.
18. Other financial liabilities
Trade and other payables principally comprise amounts outstand- ing for trade purchases and ongoing costs. It is the Group policy to pay in accordance with suppliers’ terms.
The directors consider that the carrying amount of trade payables approximates their fair value.
19. Capital commitments
The Group has not entered into any contracted fixed asset expenditure as at 31 December 2001, 2002 or 2003.
20. Operating lease commitments
At the balance sheet date, the Group had outstanding commit- ments under non-cancellable operating leases, which fall due as follows:
Year ended 31 December
GBP 2003 2002 2001
Expiry date:
Within one year 1,200 – –
In the second to fifth
years inclusive 118,903 145,322 115,345
After five years 27,609 28,000 –
Operating lease payments represent rent paid by the group on properties in the UK, Sweden and Malta.
21. Subsequent events
The group is currently seeking a listing on Stockholmsbörsen.
22. Related party transactions Year ended 31 December 2001
During 1999 Unibet (London) Limited received a loan from Fivefold & More (Stockholm), a Swedish company in which Anders Strom has a beneficial interest, of 1,000,000 SEK at an interest rate of 6 per cent. compounded annually. By August 2001, only GBP 2,928 of capital remained, and this was consoli-