STR.L Regulatory News (STR)

28 November 2016

Stride Gaming plc

("Stride Gaming" or the "Company" or the "Group")

Audited results for the year ended 31 August 2016

Strong organic growth and completion of transformational acquisitions of 8Ball, Netboost Media and the Tarco Assets

Stride Gaming plc (AIM: STR), the multi-branded online soft gaming operator, announces its audited results for the year ended 31 August 2016 ("the year").

In order to show the Group's results in the most meaningful way for all stakeholders, the financial information displayed below for the prior year comparative is shown on a pro-forma basis. The prior year comparatives have been adjusted to show the results as if the acquisition of InfiApps, the mobile social gaming company acquired in July 2015, had in fact taken place at the start of the 12 month comparative year, and as if Point of Consumption Tax ("POCT") had been in effect for the full 12 months in both years, instead of just nine months in the comparative year as was actually the case. No adjustments were required for the acquisitions of 8Ball, Netboost Media and the Tarco Assets, as they were acquired on 31 August 2016.

Key Financials

Financial highlights:

§ Group Net Gaming Revenue ("NGR") up 22% to £47.8 million (2015: Pro-forma £39.3 million and reported of £27.8 million);

§ Group Adjusted EBITDA* up 27% to £12.3 million (2015: Pro-forma £9.7 million and reported £7.3 million);

§ Adjusted earnings* up 27% to £10.9 million (2015: Pro-forma £8.6 million);

§ Adjusted basic earnings per share* up 8% to 21.2 pence per share (2015: Pro-forma 19.6 pence);

§ Strong balance sheet with gross assets up 117% to £105.8 million (2015: £48.7 million), including cash of £21.1 million (2015: £7.4 million);

§ Successful placing of 12 million shares raising £27 million (before expenses);

§ Refinancing of an existing £8 million shareholder loan facility with Barclays PLC post year end; and

§ Final dividend of 1.4 pence per share recommended by the Board, subject to shareholder approval at the AGM, taking the total dividend for the full year to 2.5 pence per share.

Operational highlights:

§ Transformational acquisitions of 8Ball, Netboost Media and the Tarco Assets completed for total consideration payable in shares and cash of up to £70.2 million;

§ Real money gaming funded players** up 37% to 71,220 (2015: 52,000);

§ Yield per player up 7% to £120 (2015: £112) reflecting an improvement in engagement and player monetisation;

§ Gross gaming revenue*** ("GGR") through mobile and touch devices represents 51.8% (2015: 40.4%) of total Group GGR;

§ Successful integration of InfiApps, the mobile social gaming company acquired in July 2015;

§ Average deposit size from InfiApps increased to US$24.5 (2015: US$17) and the daily average revenue per paying user ("Daily ARPPU") increased to US$35 (2015: US$28.5); and

§ Introduction of the Table Top ("TTE") brands and proprietary games onto mobile.

* Adjusted EBITDA is operating profit but excluding income or expenses that relate to exceptional items such as listing and acquisition costs and contingent remuneration, as well as non-cash charges relating to share-based payments (including associated payroll taxes), depreciation and amortisation. Adjusted earnings is profit (or loss) after tax, but before amortisation (excluding amortisation of development costs), depreciation, listing and acquisition costs, contingent remuneration and share based payments (including associated payroll taxes).

** Funded player means an active player who has made a deposit with his or her own funds within the last three months.

*** GGR means gross gaming revenue, being total bets placed by players less winnings paid to them.

Commenting on the results, Eitan Boyd, CEO of Stride Gaming, said:

"I am delighted to present these excellent results to shareholders. 2016 was an exciting year for the Company where we once again delivered strong organic growth and undertook transformational acquisitions. With 105 brands and 10% market share of the UK online bingo market following these acquisitions, Stride Gaming now has material scale, strong operational leverage and occupies a pre-eminent position in the soft gaming market.

"The business has never been in such a strong position to build on its excellent achievements of 2016. Our focus in 2016/17 will be on integrating these recent acquisitions, continuing our strong organic growth and examining entry into other soft gaming verticals. Looking ahead, we are excited by the outlook for the Group as we build on our goal of being the leading UK based soft gaming company and maximising value for shareholders."

Enquiries:

About Stride Gaming:

Stride Gaming is a leading online gaming operator in the soft gaming verticals of online bingo and the global social gaming market. In the real money UK bingo-led business, Stride Gaming operates a multi-branded strategy and uses its own proprietary and purchased software to provide online bingo and slot gaming for its players, and social gaming mobile applications. Following the acquisitions of 8Ball, Netboost Media and the Tarco Assets on 31 August 2016, Stride Gaming has a 10% market share of the UK bingo market and is the fourth largest online bingo operator in the UK. The Company now has 105 brands and its share of the UK online bingo market is 25% (as measured by number of bingo sites).

Stride Gaming is focused on the UK online bingo market, where it is licensed and only operates from the regulated jurisdictions of the UK and Alderney, and in the mobile social gaming market, where its players' reach is international with a focus on the North American market.

Further information on the Group is available at: www.stridegaming.com

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

Chairman's statement

I could not be more pleased with the performance of the business this year; a year in which Stride Gaming has demonstrated the power of its business model. The success of the business reflects our core strengths: owning our own proprietary software; operating it in a clear multi-branded strategy; delivering strong organic growth and making targeted acquisitions, all of which have been delivered by our highly experienced and competent management team.

During the year, not only did the Company achieve very strong organic growth but it also concluded three transformational acquisitions for a total consideration of up to £70.2 million, which have propelled the business to become the fourth largest online bingo operator in the UK. In doing so, Stride Gaming's market share of the UK bingo market has increased from 5% to 10%, and from 2% to over 25% in the UK online bingo market (as measured by number of bingo sites). Stride Gaming now has over 100 different bingo brands and occupies a pre-eminent position within the soft gaming sector. Everyone at Stride Gaming is very excited by the opportunities that now present themselves across our materially enlarged Group.

The business has a proven track record of delivering value to shareholders from both organic growth and from successfully integrating acquisitions into the Group. The recent acquisitions of 8Ball, Netboost Media and the Tarco Assets are the largest set of acquisitions that the Company has undertaken to date, and the Board is confident of its ability to integrate them into the Group and deliver value to shareholders. To this end, the Board will focus heavily on the successful integration of these businesses during the early part of the new financial year to August 2017. The Board remains confident that the acquisitions will be accretive in the first full year of ownership (financial year to August 2017), as well as delivering significant cost synergies.

Dividend

In line with the Company's stated objective of adopting a progressive dividend policy, the Board is pleased to recommend a final dividend of 1.40 pence per share, subject to the approval of shareholders at the Company's Annual General Meeting to be held in January 2017. This final dividend, together with the interim dividend of 1.10 pence per share, brings the total dividend for the year ending 31 August 2016 to 2.50 pence per share.

The final dividend will be paid on the 1st February 2017 to those shareholders who are on the register of members on the record date of 6th January 2017. The ex-dividend date will be the 5th January 2017.

Current trading and outlook

Following this transformational year for the business, Stride Gaming now has material scale, strong operational leverage and significant market share. We believe that we have never been better placed to exploit the opportunities that exist in our market to deliver value to shareholders and we look to the future with excitement and confidence. The integration of our recent acquisitions is progressing well and trading at the start of the new financial year is in line with the Board's expectations.

In addition to integrating the recent acquisitions and striving to deliver strong organic growth, we will in 2016/17 continue to examine entry into other soft gaming verticals. Our aim is to become the leading UK based soft gaming company and to create significant value for shareholders.

Following the placing, we now have a strong and broad institutional following and I'd like to take this opportunity to welcome our new shareholders and thank our existing shareholders for their continued support. I'd also like to thank the rest of my Board and all the Group's employees for their passion and dedication in getting the Company to the position it is in today.

Nigel Payne

Non-Executive Chairman

28 November 2016

Chief Executive's Report

I am delighted to present these excellent results to shareholders. 2016 was an exciting year for the Company where we again delivered strong organic growth and undertook transformational acquisitions. During the year we continued to exploit the market opportunity that exists in the gaming sector and, in contrast to many operators that struggle in this tough regulatory and tax environment, Stride Gaming continued to build scale and increase its market share. The business has never been in such a strong position with material scale and 10% share of the UK bingo market. Stride Gaming is extremely well positioned to build on its excellent achievements of 2016 and to continue to grow organically, look for further acquisition targets and to maximise value for shareholders.

Operational progress

The Company delivered strong operational performance in the year with NGR growth from real money gaming increasing by 31%. Our organic growth has again exceeded expectations as a result of the Company's underlying strengths, which include having significant scale and owning our own proprietary software. This has also been achieved in an environment in which margins are being squeezed due to changes to tax, regulatory compliance and technology costs.

Our number of funded players has now reached 71,220, representing a 37% year-on-year increase, and with software enhancements and continuous improvements to the backend of our platform we have shown a 7% growth in yield per player at £120 (2015: £112).

Adjusted EBITDA for the Group was up 27% on a pro-forma basis to £12.3 million with Adjusted EBITDA for real money gaming up 17% at £8.2 million, despite a full year of POCT. The results also include a full year contribution from the acquired InfiApps business generating £4.1m of Adjusted EBITDA.

Acquisitions of 8Ball, Netboost Media and the Tarco Assets

On 31 August 2016, Stride Gaming completed the acquisitions of 8Ball, Netboost Media and the Tarco Assets for a total consideration of up to £70.2 million. These acquisitions have been transformational for the Company. It has increased Stride Gaming's market share of the UK bingo market from 5% to 10%, making Stride Gaming the fourth largest online bingo operator in the UK. It has expanded the Company's multi-branded offering by 96 brands to 105 brands, increasing Stride Gaming's share of the UK online bingo market from 2% to over 25% (by number of bingo sites). It also brings significant scale and a number of leading bingo brands to Stride Gaming's business, together with the opportunity for meaningful operational leverage.

The acquisitions already present attractive player fundamentals, including the opportunity for significant improvements through leveraging off Stride Gaming's leading software platform and marketing expertise, together with delivering synergies through cross-marketing, lowering of CPA, increasing customer LTV and reducing player churn. We expect the acquisitions to be accretive in the first full year of ownership (pre-synergies), deliver cost synergies (marketing, administration, distribution) of an estimated £2.5 million (post earn-out) and deliver revenue synergies (increase in LTV, yield and net cash hold) of an estimated £3 million (post earn-out).

These acquisitions were funded by a fully subscribed placing of 12 million ordinary shares at a price of 225p per share raising £27 million (pre-costs) and the issue of new ordinary shares to the vendors.

Social gaming

InfiApps, the mobile social gaming company acquired in July 2015, has now been fully integrated into the Group. In Slot Bonanza, our flagship social gaming brand, our focus during the year has been to increase the level of player engagement through the introduction of unique product features, business intelligence and new content, including real money gaming content, which enabled us to increase our monetisation capabilities. As a result, our adjusted EBITDA was up 17% to £4.1 million (2015: pro-forma £3.5 million), our average deposit size increased to US$24.5 (2015: US$17) and the daily average revenue per paying user ("Daily ARPPU") increased to US$35 (2015: US$28.5).

In addition, we developed our Panda Slots app, a multi-technology platform for the faster creation of new mobile social slot games customised on a player level. Using this platform, we can develop once and deploy on both iOS and android platforms, significantly reducing the time and cost to market.

InfiApps completed its first year of a two year earn-out period on 31 August 2016. During the first year the Group focused on achieving high levels of player engagement and profitability. In the second and last year of the earn-out period we will focus on product development and on enhancing the player experience. Whilst we are pleased with the integration of InfiApps into the Group, balancing longer term benefits against shorter term performance targets needs to be managed carefully and presents certain challenges to maximise the performance of the business in the earn-out period.

Mobile

The Group continues to focus on enhancing the gaming experience for its mobile centric customer base. The Company's Responsive Adaptive Design ("RAD") platform has been well received by our customers and on a Group level, mobile and touch represents 51% of gross gaming revenue (2015: 40.4%).

Our Market

The global online gaming industry continues to grow rapidly and is driven by technological advancements, particularly greater connectivity and customers' increased access to smart devices, as well as government regulation. Mobile devices continue to shape the online gaming industry and operators constantly have to innovate to stay ahead of the curve. Increased regulation, tax and compliance costs will continue to squeeze margins on smaller businesses and present challenges for larger operators. However, it also presents significant opportunities for incumbent and established operators that have significant scale to exploit market opportunities.

The UK online gaming market is estimated to have totalled £2.46 billion in 2015. Gambling Compliance Research Services ("GCRS") estimates that UK online gaming NGR will total around £2.69 billion in 2016, and expects segment growth to remain in high single digits over the next few years. UK online gaming NGR is projected to grow 8.1% to £2.91 billion in 2017 before rising a further 8.9% to £3.16 billion in 2018.

The UK bingo-led gaming market in 2016 is estimated to reach £500 million. The global social casino market was valued at US$5.40 billion in 2012 and is expected to reach US$17.40 billion by 2019, growing at a robust CAGR of 16.1%.

There is uncertainty and volatility in the wider market as a result of Brexit. However, to date, there has been no visible impact on the business from the UK's decision to exit the EU and the Board believes Stride Gaming's scale gives it significant flexibility to face any challenges that may arise.

Recent discussions around the new proposed TV daytime advertising regulations for the bingo-led market are expected to have very little direct impact on the Group since the Group is focused more on digital media as a source of traffic.

Growth Strategy

Our aim is to be the leading UK based soft gaming operator. Stride Gaming is focused on building scale and maximising shareholder value by achieving growth through organic and acquisitive means and by focusing on the Company's core strengths. The Company aims to deliver growth by enhancing its proprietary platforms, systems and knowledge, and strategic acquisitions that will allow the Company to enter new verticals and provide scale to existing verticals.

Organic growth and focus on the core business

The Company aims to maintain its average monthly growth and to further increase its profitability and scale, taking advantage of the increased regulatory environment and, in particular, the POCT, which is driving unprecedented change across the industry. This increased regulatory environment is forcing many of the larger gambling operators to consolidate and merge in order to add scale to their operations and is forcing many of the smaller players out of the market entirely. Stride Gaming, in contrast, feels it only has to gain in this environment as it has scale and a number of key strengths, which include owning our own proprietary software, our multi-branded strategy and our highly experienced management team. The Company will look to build on its significant market share following recent acquisitions and take further market share from the larger multi-product operators who are prioritising their marketing spend on their core operations, and from the smaller operators who are being squeezed out of the market.

Stride Gaming aims to accelerate growth through improved levels of engagement, monetisation and marketing:

Engagement - the Company is focused on enhancing the user experience through providing rich and engaging content, loyalty and competitions, thereby creating a high level of stickiness;

Marketing - the Company's marketing strategy is focused on increasing the customer base through optimising conversion rates and CPA levels. Stride Gaming uses an effective marketing mix of online and offline channels including natural search (SEO), player management, e-mail, SMS and direct mails.

Stride Gaming also uses TV, online buying as well as re-targeting campaigns utilising a multitude of online platforms.

The Company will continue to invest in product development and in enhancing its bingo IP, instant game IP and also mobile development. A core part of the growth strategy will be to pursue expansion in international regulated markets such as Italy, Spain and Denmark.

Many bingo-led operators rely on third-party software providers, which creates potential opportunities for Stride Gaming to license its platform to other operators on a B2B basis or otherwise offer white label solutions based on the Group's existing platforms.

Acquisition opportunities

Acquisitions have been an instrumental part of Stride Gaming's rapid growth and success to date and the Company will continue to search for acquisition opportunities that are accretive to earnings. The Company will also look to enter into other soft gaming verticals that complement Stride Gaming's existing business.

The opportunities in these sectors are exciting and could significantly increase Stride Gaming's value for shareholders.

Outlook

Stride Gaming has delivered another excellent year of progress with further transformational acquisitions under its belt and robust organic growth. With 105 brands and 10% of the UK bingo market, Stride Gaming occupies a pre-eminent position in the soft gaming market. Stride Gaming now has the scale and fire power to accelerate its organic growth and undertake further acquisitions. The Board believes the outlook for the Company is highly exciting.

Eitan Boyd,

Chief Executive Officer

28 November 2016

Chief Financial Officer's Review

In order to show the Group's results in the most meaningful way for all stakeholders, the financial information displayed below for the prior year comparative is shown on a pro-forma basis. The prior year comparatives have been adjusted to show the results as if the acquisition of InfiApps, the mobile social gaming company acquired in July 2015 had, in fact, taken place at the start of the comparative year, and as if Point of Consumption Tax ("POCT") had been in effect for the full 12 months in both years, instead of just 9 months in the comparative year as was actually the case. No adjustments were required for the acquisition of the 8Ball, Netboost Media and the Tarco Assets as they were acquired on 31 August 2016.

Stride Gaming's financial results for the year demonstrate continued strong organic revenue growth and adjusted EBITDA performance. The Group delivered pro-forma NGR growth of 22% to £47.8 million (2015: Pro-forma £39.2 million and reported £27.8 million) for the year. This underlying strong organic revenue growth was driven by improvements in player engagement, monetisation and efficient marketing spend across all brands.

Adjusted EBITDA increased on a pro-forma basis by 27% to £12.3 million (2015: Pro-forma £9.7 million and reported £7.3 million) with an increase in the Adjusted EBITDA margin to 25.8% (2015: pro-forma 24.7%). This improvement was achieved by a more efficient and focused marketing spend combined with synergies in processing, royalties and administrative costs gained as a result of the Group's scale following the integration of the TTE sites acquired in September 2014.

Stride Gaming remains highly cash generative due to an excellent financial performance with net cash generated from operational activities at £13.7 million (2015: £4.5 million) and a high cash conversion from Adjusted EBITDA. During the year the Group raised £27 million (pre-costs) through an equity placing to part fund the acquisition of 8Ball, Netboost Media and the Tarco Assets.

Stride Gaming has a strong balance sheet with cash and cash equivalents of £21.0 million (31 August 2015: £7.4 million) and customer liabilities of £1.8 million (2015: £1.4 million).

Revenues

The excellent momentum across the Group since 2015 continued with another record performance for the year. NGR from real money gaming, the Group's largest vertical, was up 31% (2015: Pro-forma 30%), totalling £35.0 million (2015: £26.7 million) in top line revenue. This strong operational momentum can be seen throughout all key performance indicators and reflects the strength of our proprietary software, along with the quality of our brands.

Real money gaming funded players were up 37% to 71,200 (2015: 52,000). Yield per player from real money gaming was up 7% to £120 (2015: £112) as a result of successful player engagement and monetisation. Mobile has been a key driver of growth and gross gaming revenue ("GGR") through mobile and touch devices was up by 28.4% and now represents 51.8% (Pro-forma 2015: 40.4%) of total Group GGR. The Group made continued developments in new content and business intelligence capabilities during the year, which supported our natural growth and has positioned us well for the forthcoming year.

Social gaming revenues from InfiApps remain solid and comprise 26.8% (Pro-forma 32%) of Group revenue. Since the acquisition, the Group's focus has been to increase the level of player engagement through the introduction of unique product features, content and analytics, which has enabled us to increase our monetisation capabilities. Revenue was up 1.8% to £12.8 million (2015: Pro-forma £12.5 million), but reduced on a constant currency basis by 6%.

Expenditure

Distribution costs 

Distribution costs, which include licencing, processing, royalties, hosting (social gaming) and marketing, totalled £18.7 million (2015: Pro-forma £16.4 million and reported £9.9 million) and have reduced to 39% (2015: Pro-forma 42%) as a proportion of NGR. The improvement was achieved as a result of the Group's scale reducing game royalties and processing fees and the introduction of proprietary content. Furthermore, the Group successfully optimised the marketing spend of £10.9 million (2015: Pro-forma £9.6 million), by increasing its customer base whilst reducing the marketing spend as a proportion of NGR, which is down to 23% (2015: Pro-forma 25%).

Cost of sales 

Cost of sales, which totalled £5.4 million (2015: Pro-forma £3.6 million and reported £2.8 million), represents POCT that came into effect in December 2014 and had a full year impact in the current financial year on the real money gaming vertical.

Administration costs 

Administration costs, which totalled £11.4 million (2015: Pro-forma £9.5 million and reported £7.8 million), make up 23.9% (2015: Pro-forma 24.3%) as a proportion of NGR. Costs remained well controlled, taking into account that the additional expenditure incurred as a result of the re-organisation of the Group pre-IPO has had a full twelve-month impact on the results of the current year, as opposed to only seven months in the prior year.

Capitalisation of proprietary software development costs totalled £1.0 million (2015: Pro-forma £0.4 million and reported £0.2 million) and represents 2.1% of NGR (2015: Pro-forma 1.1%). During the year the Group continued to invest in its proprietary software to support its mobile offering, rich content and regulatory requirements.

Adjusted EBITDA and margins

Adjusted EBITDA on a pro-forma basis is up 27% to £12.3 million (2015: Pro-forma £9.7 million and reported £7.3 million) reflecting an Adjusted EBITDA margin of 25.8% (2015: Pro-forma 24.7%). The results exclude the share-based payment charge including associated payroll taxes of £1.9 million (2015: £0.3 million), acquisition and listing costs of £1.1 million (2015: £1.9 million), and contingent remuneration relating to the acquisition of InfiApps of £4.0 million (2015: £0.2 million).

Finance expenses

Finance expenses for the year totalling £0.7 million (2015: £0.8 million) are largely attributable to the £8 million facility provided by one of the Group's shareholders for the acquisition of InfiApps in July 2015. The loan is bearing an annual interest rate of 7.5%. The cost in the previous year relates to the unwinding of the discount on the Table Top Entertainment Limited contingent consideration.

Share placing and acquisitions

On 31 August 2016, Stride Gaming completed the acquisition of the entire issued share capital of 8Ball Games Limited, the entire issued share capital of Netboost Media Limited (a marketing business which services the Tarco Assets) and certain assets of Tarco Limited. The acquisitions were achieved through a successful subscription and placing of 12,000,000 new Ordinary shares in the Company at a Placing Price of 225 pence per share, raising gross proceeds of £27.0 million (£25.9 million net of share issue costs).

The acquisitions have increased Stride Gaming's market share of the UK bingo market from 5% to 10%, making Stride Gaming the fourth largest online bingo operator in the UK. It has also expanded the Company's multi-branded offering and brings significant scale and a number of leading bingo brands to Stride Gaming's business.

Cash flow and Balance sheet

Stride Gaming continues to be highly cash generative delivering another year of solid operating performance with cash flow from operating activities totalling £13.7 million (2015: £4.5 million). Cash outflow from investing activities totalled £24.0 million (2015: £18.9 million), mainly relating to the acquisitions. Cash flow from financing activities related to the issue of shares worth £25.9 million (net), payment of an interim dividend of £0.6 million (2015: £3.0 million) and repayment of the related party borrowings of £1.1 million (2015: £Nil), due to the previous owners of the InfiApps business and paid in accordance with the terms of the sale and purchase agreement in November 2015.

As at 31 August 2016, cash and cash equivalents amounted to £21.1 million (31 August 2015: £7.4 million) with customer liabilities of £1.8 million (2015: £1.4 million). Contingent remuneration liability (within current liabilities) was £3.8 million (2015: £0.2 million) and relates to the InfiApps acquisition. Contingent consideration of £5.6 million (2015: £Nil) in the non-current liabilities has been recognised as part of the fair value exercise following the acquisition of the Tarco Assets.

Available for sale investments held of £0.8 million (2015: £Nil) represents the fair value of the Group's equity share of 24.2% in QSB Gaming Limited, an operator of online casino and bingo gaming sites in the Spanish market.

Post year end (November 2016), the Group entered into an £8.0 million loan facility with Barclays PLC. This committed facility, which refinanced the existing borrowings, matures four years from the date of the initial drawdown, and will incur a 3.6 per cent plus LIBOR annual floating interest rate, payable quarterly, with the principal sum outstanding also paid on a quarterly basis over the term of the facility.

Adjusted earnings, EPS and Dividend

Basic loss per share was 0.8 pence (2015: earnings of 0.9 pence). Adjusted basic earnings per share were up 8% to 21.2 pence (2015: Pro-forma 19.6 pence). The Board believes that adjusted basic earnings per share excluding exceptional items such as acquisition costs, contingent remuneration, listing costs, amortisation of intangible assets and share based payments better assists an understanding of the underlying business performance.

* Excluding amortisation of internally generated development costs.

** Adjusted diluted earnings per share is calculated using the same weighted average number of shares used in the diluted EPS as per note 9 of the financial statements.

In line with the Group's stated objective of adopting a progressive dividend policy, in June 2016 the Group paid an interim dividend of 1.1 pence per share. Taking into account the Group's strong performance the Board has recommended a final dividend of 1.4 pence per share, subject to shareholder approval at the AGM in January 2017, which takes the total dividend for the full year to 2.5 pence per share.

The dividend timetable:

Ronen Kannor

Chief Financial Officer

28 November 2016

Consolidated statement of profit or loss

for the year ended 31 August 2016

Consolidated statement of other comprehensive income

for the year ended 31 August 2016

The notes in the following pages form part of these financial statements.

Consolidated statement of financial position

at 31 August 2016

The notes in the following pages form part of these financial statements.

Consolidated statement of cash flows

for the year ended 31 August 2016

A description of the significant non-cash movements is given in note 26.

The notes in the following pages form part of these financial statements.

Consolidated statement of changes in equity

for the year ended 31 August 2016

The following describes the nature and purpose of each reserve within equity:

Share premium Amount subscribed for share capital in excess of nominal value.

Merger reserve Represents the difference between the nominal value of shares acquired by the Company in the share-for-share exchange with Daub Alderney Limited and the nominal value of shares issued to acquire them as well as the satisfaction of the initial consideration in respect of the acquisition of the trade and assets of Table Top Entertainment Limited and Tarco Limited.

Shares to be issued Represents the shares to be issued in respect of the acquisition of certain intangibles assets.

Available for sale reserve Gains/losses arising on fair value movement of financial assets classified as available for sale.

Capital contribution Represents the release of the Group's obligation to repay borrowings of £6,999,000, the contribution by a shareholder of the entire share capital of Baldo Line SRL, the cash contribution by a shareholder to acquire Spacebar Media Limited and the £8,454,786 payment made in the form of shares by the shareholders to settle obligations following the acquisition of Table Top Entertainment Limited (Refer to note 23).

Share options Represents the fair value of awards made under the Group's share option schemes (Refer to note 22).

Foreign currencytranslation reserve Gains/losses arising on retranslating the net assets of overseas operations into

Sterling as well as inter-company loan balances treated as investment in subsidiaries that the directors believe will not be repaid for the foreseeable future

Retained earnings All other net gains and losses and transactions with owners not recognised anywhere else.

Notes forming part of the financial statements

for the year ended 31 August 2016

1 Accounting policies

Legal status

Stride Gaming Plc, which includes its subsidiaries and together forms the "Group", is a public limited company incorporated in Jersey. Stride Gaming Plc was incorporated under Companies (Jersey) Law 1991 on 25 February 2015. The address of its registered office is 12 Castle Street, St Helier, Jersey JE2 3RT. Stride Gaming Plc shares are listed on the Alternative Investment Market ("AIM") of the London Stock Exchange. The Company is not required to present parent company information.

Basis of preparation

Stride Gaming plc was incorporated on 25 February 2015 and subsequent to this on 19 May 2015 acquired, via a share-for-share exchange, the entire share capital of the Group headed by Daub Alderney Limited. Following this Group reorganisation, the financial statements for the period ended 31 August 2015 have been prepared on a merger accounting basis as though this Group structure had always been in place (see below for further details) and a full year of results is therefore presented for the comparatives.

The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below and have been prepared on a historical cost basis. The policies have been consistently applied to all the years presented, unless otherwise stated.

The consolidated financial statements are presented in Sterling, which is also the parent's functional currency and amounts are rounded to the nearest thousand, unless otherwise stated.

These financial statements have been prepared in accordance with International Financial Reporting Standards (collectively IFRSs) as adopted by the European Union, International Accounting Standards and Interpretations and in accordance with the requirements of the Companies (Jersey) Law 1991.

The preparation of financial statements in compliance with EU adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgement in applying the Group's accounting policies. The areas where significant judgements and estimates have been made in preparing the financial statements are disclosed below.

These financial statements do not constitute the Group's statutory financial statements for the year ended 31 August 2016 or the year ended 31 August 2015. Statutory accounts will be filed following the Company's Annual General Meeting. The auditors have reported on these accounts and their report was unqualified.

Changes in accounting policies

a) New standards, interpretations and amendments effective from 1 September 2015

Where relevant, new standards and amendments to existing IFRS standards that have been published and are mandatory for the first time for the financial year beginning 1 September 2015 have been adopted, but had no significant impact to the Group accounts.

b) New standards, interpretations and amendments not yet effective

New standards, amendments to standards and interpretations that have been issued but are not yet effective (and in some cases have not yet been adopted by the EU) including IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers have not been early adopted and the Directors do not expect that the adoption of these standards will have a material impact on the financial statements of the Group in future periods.

Basis of consolidation

Prior year Group reorganisation

The consolidated financial statements for the comparative year shows the combination of Stride Gaming plc and Daub Alderney Limited following the share for share exchange completed on 19 May 2015 which falls outside the scope of IFRS 3 Business Combinations. Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 Accounting Policies: Changes in Accounting Estimates and Errors, the consolidated financial statements have been prepared using the principles of merger accounting set out in FRS 102 Section 19 and UK Generally Accepted Accounting Practice ("UK GAAP").

When merger accounting is applied, the investment is recorded in the Company's balance sheet at the nominal value of shares issued together with the fair value of any consideration paid. In the consolidated financial statements, merged subsidiary undertakings are treated as if they had always been a member of the Group from the date common control was achieved. The corresponding figures for the previous period include its results for that period, the assets and liabilities at the previous balance sheet date and the shares issued by the Company as consideration as if they have always been in issue. Any differences between the nominal value of the shares acquired by the Company and the nominal value of shares issued by the Company to acquire them are taken to a separate merger reserve.

Acquisition of subsidiaries

A subsidiary is an entity controlled directly or indirectly by the Company. Control is achieved if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in the income statement as incurred. The acquiree's identifiable assets and liabilities are recognised at their fair values at the acquisition date.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss from the date that control was obtained to the date that control was lost, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.

Common control transactions

Baldo Line SRL, a 100% owned subsidiary, was contributed to the Group in the prior year by the former controlling shareholder. As this is a common control transaction it is outside the scope of IFRS 3 Business Combinations. Accordingly, following the guidance regarding the selection of an appropriate accounting policy provided by IAS 8 Accounting Policies: Changes in Accounting Estimates and Errors, the consolidated financial statements have been prepared using the principles of merger accounting set out in FRS 102 Section 19 and UK GAAP. The Group has therefore recognised the book value of assets and liabilities with a corresponding capital contribution being recorded.

The 24.2% shareholding in QSB Gaming Limited was also contributed to the Group in the prior year. The investment met the definition of an available-for-sale financial asset and was therefore recorded at fair value on initial recognition. The fair value is assessed at each reporting date by discounting expected cash flows using a rate based on the market interest rate and the risk premium specific to the investment.

Uniform accounting policies have been adopted across the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.

Foreign currencies

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the financial reporting date. Non-monetary assets and liabilities are translated using exchange rates prevailing at the date of the transactions. Foreign exchange differences arising on translation are recognised in the profit or loss account.

On consolidation, the results of foreign operations are translated into Sterling at rates ruling when the transaction took place. All assets and liabilities of foreign operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating inter-group loans considered to be investment in subsidiaries that the directors do not expect to be repaid for the foreseeable future as well as the opening net assets at the opening rate and the results of foreign operations at the actual rate are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign currency translation reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of profit or loss and included in the computation of the profit or loss on disposal.

Revenue recognition

Net gaming revenue ("NGR") is derived from online gambling operations and is defined as the difference between the amounts of bets placed by the players less the amount won by players. It is stated after deduction of certain bonuses, jackpots and prizes granted to players. Revenue is recognised in the accounting periods in which the transactions occur.

Social gaming revenue is derived from the purchase of credits and awards on the social gaming sites, as well as "in-app" advertising revenue. Social gaming revenue is recognised to the extent that it is probable economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is recognised in the accounting periods in which the transactions occur.

Cost of sales

Cost of sales consists primarily of gaming duties.

Distribution costs

Distribution costs represent the costs of delivering the service to the customer and primarily consist of processing and royalty fees, promotional and advertising costs together with gaming and other regulatory costs all of which are recognised on an accruals basis.

Administrative expenses

Administrative expenses consist primarily of staff costs, corporate and professional expenses, all of which are recognised on an accruals basis.

Goodwill

Goodwill represents the excess of the cost of a business combination over the total acquisition date fair value of the identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair value of assets given, liabilities assumed and equity instruments issued, plus the amount attributable of any non-controlling interests in the acquisition and dependent on the terms of the sale and purchase agreement, deferred and contingent consideration.

Goodwill is capitalised as an intangible asset with any impairment in carrying value being charged to the profit and loss account. Costs incurred in respect of the acquisition are expensed in full in the period of acquisition.

Contingent consideration

When contingent consideration arising on a business combination requires no ongoing employment requirements from the former owners in order to receive payment, the fair value of contingent consideration is included within cost at acquisition date.

Contingent consideration is reviewed at the end of each accounting period as the consideration payable and any subsequent adjustments are recognised in profit or loss account.

When the former owners of an acquired subsidiary are required to remain in employment at each of the deferred or contingent consideration payment dates the fair value of contingent consideration is built up over the period of service to the date of payment with a corresponding charge to the profit or loss account. When future service is required, this is described in the financial statements as contingent remuneration.

Externally acquired intangible assets

Externally acquired intangible assets including intellectual property rights, developed software applications and licenses are initially recognised at cost and subsequently amortised on a straight line basis over their useful economic lives which is typically over a period of 3-5 years or over the length of the license.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at using appropriate valuation techniques (see section related to critical estimates and judgements below).

The significant intangibles recognised by the Group, their useful economic lives and methods used to determine the cost (at initial recognition) of intangibles acquired in a business combination are as follows:

Amortisation is charged to the profit or loss during the financial period to which it relates.

Internally generated intangible assets (development costs)

Expenditure on internally developed products is capitalised if it can be demonstrated that:

• it is technically feasible to develop the product for it to be sold;

• adequate resources are available to complete the development;

• there is an intention to complete and sell the product;

• the Group is able to sell the product;

• sale of the product will generate future economic benefits; and

• expenditure on the project can be measured reliably.

Capitalised development costs are amortised over the periods the Group expects to benefit from the assets generated, being three years.

Development expenditure not satisfying the above criteria is recognised in the consolidated statement of profit or loss as incurred.

Property, plant and equipment

All property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated to write-off the cost of fixed assets on a straight line basis over the expected useful lives of the assets concerned. The principal annual rates used for this purpose are:

Fixtures, fittings and equipment - 10-33% straight line

Computer equipment - 33-66% straight line

Motor vehicles - 25% straight line

Subsequent expenditures are included in the carrying amount of an asset or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits will flow to the Group and the cost of the item can be measured reliably. All repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the profit or loss.

Impairment of property, plant and equipment and internally generated assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may be impaired and hence not recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down to its recoverable amount.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating unit ("CGUs"). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from the synergies of the combination giving rise to the goodwill.

Impairment charges are included in the profit or loss account, an impairment loss recognised for goodwill is not reversed.

Financial instruments

Financial assets and financial liabilities are recognised on the Group's statement of financial position when the Group becomes party to the contractual provisions of the instrument. Financial assets are de-recognised when the contractual rights to the cash flows from the financial asset expire or when the contractual rights to those assets are transferred. Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired. Financial assets are either categorised as loans or receivables or available for sale. There are no assets classified as held-to-maturity or fair value through profit or loss. All financial liabilities are classified as amortised cost.

Financial assets

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method less provision for impairment. Appropriate provisions for estimated irrecoverable amounts are recognised in profit or loss account when there is objective evidence that the assets are impaired. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net; such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

Cash and cash equivalents

Cash and cash equivalents comprise cash held at bank, demand deposits, and other short-term highly liquid investments that have maturities of three months or less from inception, are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Available for sale

Non-derivative financial assets not included in the above categories are classified as available for sale and comprise principally the Group's strategic investments in entities not qualifying as subsidiaries, associates or jointly controlled entities. They are carried at fair value with changes in fair value, other than those arising due to exchange rate fluctuations and interest calculated using the effective interest rate, recognised in other comprehensive income and accumulated in the available-for-sale reserve. Exchange differences on investments denominated in a foreign currency and interest calculated using the effective interest rate method are recognised in the profit or loss statement.

Where there is a significant or prolonged decline in the fair value of an available-for-sale financial asset (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognised in other comprehensive income, is recognised in profit or loss.

On sale, the cumulative gain or loss recognised in other comprehensive income is reclassified from the available-for-sale reserve to profit or loss.

Financial liabilities:

Trade and other payables

Trade payables are initially measured at their fair value and are subsequently measured at amortised cost using the effective interest rate method; this method allocates interest expense over the relevant period by applying the 'effective interest rate' to the carrying amount of the liability. Player liabilities are the amounts that customers place in their accounts along with any bonuses and progressive jackpots. These liabilities are recognised initially at fair value and subsequently at amortised cost.

Loans and borrowings

Loans and borrowings are initially recognised at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the consolidated statement of financial position.

Current and deferred tax

Taxation represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit reported in the consolidated statement of profit or loss 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 reporting date.

Deferred tax

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based upon tax rates that have been enacted or substantively enacted by the reporting date. Deferred tax is charged or credited to profit or loss, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity through other comprehensive income.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial information and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. 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.

The carrying amount of deferred tax assets is reviewed at each consolidated statement of profit or loss date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is measured using tax rates that have been enacted or substantively enacted by the consolidated statement of financial position date and are expected to apply when the related deferred tax asset or liability is realised or settled.

Operating leases

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group, these are classified as operating leases. The total rentals payable under the lease are charged to profit or loss on a straight line basis over the lease term.

Pension costs

The Group operates a defined contribution scheme. The amount charged to the profit or loss account in respect of pension costs and other post-retirement benefits is the contributions payable in the period. Differences between contributions payable in the period and contributions actually paid are shown as either other liabilities or prepayments in the consolidated statement of financial position.

Share capital

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

Share-based payments

Where equity-settled share options are awarded to employees (refer to note 22), the fair value of the options at the date of grant is charged to the profit or loss account over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Where equity instruments are granted to persons other than employees, the profit or loss account is charged with the fair value of goods and services received, or in the case of an asset, recorded within the appropriate classification.

National insurance is payable on gains made by employees on exercise of share options granted to them. The eventual liability to national insurance is dependent on:

• the market price of the Company's shares at the date of exercise;

• the number of options that will be exercised; and

• the prevailing rate of national insurance at the date of exercise.

At each period end the potential liability is recorded as an expense within the profit or loss account and a corresponding provision recorded.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends this is when paid and in the case of final dividends, this is when approved by the shareholders at the AGM.

Adjusted EBITDA

The Group defines Adjusted EBITDA as the operating result before depreciation, amortisation, finance costs, and income or expenses that relate to exceptional items as well as non-cash charges relating to share-based payments (including employers' national insurance). The Directors believe that Adjusted EBITDA represents more closely the underlying trading performance of the business.

Critical accounting estimates

The preparation of the consolidated financial statements under IFRS requires the Group to make estimates and judgements that affect the application of policies and reported amounts. Estimates and judgements are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Reference is made in this note to accounting policies which cover areas that the Directors consider require estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year.

Acquisition accounting and fair value of acquired assets and liabilities including contingent consideration

Identifiable assets, liabilities and contingent liabilities, including earn-outs that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. The identified intangibles are capitalised if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to these assets are arrived at by using appropriate valuation techniques to determine the fair value. Capitalised intangible assets are amortised over the useful economic life of the assets. This has ranged between three to five years for acquisitions to date. The fair value of contingent consideration, including earn-outs is based on the probability of expected cash flow outcomes and the assessment of present values using appropriate discount rates. Further details in relation to key estimates and judgements are set out in note 23.

Capitalisation and amortisation of development costs

The identification of development costs that meet the criteria for capitalisation is dependent on management's judgement and knowledge of the work done. Development costs of gaming software platforms are separately identified. Judgements are based on the information available at each period end. Economic success of any development is assessed on a reasonable basis but remains uncertain at the time of recognition. Capitalised development costs are subject to amortisation over its useful life and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Group amortises the assets over the life of the product. The estimated useful life of these assets at period end is three years.

2 Segment information

For management purposes and for transacting with customers, the Group's operations can be segmented into the following reporting segments:

• real money gaming which is its UK focused, bingo-led online operation, using its proprietary and purchased software to provide online bingo and related gaming activities to players. This segment only operates in regulated markets, principally the UK; and

• social gaming which internationally provides players with entertaining applications and games.

Each of these operating segments generates independent revenues, and the risks and rewards associated with generating these revenues are considered to be different to each other.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the management team including the Chief Executive Officer, Chief Operating Officer and the Chief Financial Officer.

* Other revenue predominantly relates to the social gaming sector.

3 Operating profit

All items presented below adjusted EBITDA and before operating profit in the consolidated statement of profit or loss are administrative expenses. Total administrative expenses for the year were £22,942,000 (2015: £14,009,000).

Operating profit is stated after charging the following:

(a) Listing costs relate to the Group's initial public offering and admission on AIM which completed on 19 May 2015. This excludes any costs associated with the issue of equity which has been allocated against share premium.

(b) Acquisition costs relate to the acquisition of the entire share capital of 8Ball Games Limited, Netboost Media Limited, and assets of Tarco Limited as well as other aborted acquisition costs. Acquisition costs in the prior year related to the acquisition of the entire share capital of InfiApps Limited. Refer to note 23 for further information.

(c) During the year the Company issued further share options to certain employees and consultants of the Group. The charge for the year includes national insurance. Refer to note 22 for further information.

(d) Under the terms of the InfiApps Ltd acquisition the contingent remuneration payable is linked to future employment and therefore has been charged to the profit or loss account. Refer to note 23 for further details.

4 Employee benefit expenses

The total employment benefit expense excludes the amounts referred to as contingent remuneration in note 3.

(a) Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, including the Directors of the Company (listed in note 7) as well as certain Directors of subsidiary companies.

5 Finance expense

Recognised in consolidated statement of profit or loss

6 Available-for-sale investment

The Group holds a 24.2% investment in QSB Gaming Limited, an operator of online casino and bingo gaming sites in the Spanish and Italian market and registered in Alderney. Despite holding greater than 20% of the voting equity instruments in QSB Gaming Limited, the Directors do not believe that they exercise significant influence over the investee. This is on the basis that the Group has no representation on the board and no participation in decisions over operating and financial policies. The Group has therefore recorded the asset as an available-for-sale investment. At 31 August 2016 the fair value has been increased from £1 to £810,000. As the security held is unquoted, the fair value has been assessed in the current year based on expected cash flows discounted using a rate of 35% based on the market interest rate and the risk premium specific to the investment.

7 Directors' interests and remuneration

The Directors who served during the year, and their interests in the share capital of the Company, were as follows:

* Shares held via trusts.

The following Directors held share options as at 31 August 2016:

In the prior year on the IPO date the Executive Directors received an award of share options, which vest in equal tranches on the first, second and third anniversaries of listing. As announced in the 2015 annual report, the Company committed to make the first long-term incentive award under a new long-term incentive plan in the 2015/16 financial year. However, due to the transaction activity during the year it has not been possible to grant the planned awards to date, but this will happen as soon as dealing restrictions allow. It is anticipated that the awards will be in the form of performance shares, with a three year vesting period subject to stretching performance conditions to be set at the time of grant and to include metrics based on financial performance in line with our key objectives of delivering returns to our shareholders through achievement of our growth strategy and continued service.

The following Directors held share options as at 31 August 2015:

The following table presents the Directors' remunerations of the Company for the year ended 31 August 2016:

8 Tax expense

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom applied to profits for the year are as follows:

The Group has not recognised deferred tax assets of £401,000 (2015: £168,000) in respect of losses and share options amounting to £2,004,000 (2015: £840,000) that can be carried forward against future taxable income.

9 Earnings per share

Where the result of the Group is a loss for the year there is no dilutive impact. At 31 August 2016 there are a number of shares that are contingently issued which will have a further dilutive effect (refer to note 23).

10 Dividends

An interim dividend of £564,000 (1.1 pence per share) was declared and paid in the year ended 31 August 2016 (2015: £7.5 million). The Board is recommending a final dividend of 1.4 pence per share subject to shareholder approval at the annual general meeting, which has not been accrued at 31 August 2016.

11 Property, plant and equipment

12 Intangible assets

Software and Licenses

Included within software and licenses additions in the prior year is the acquired software and related programs from NextTec Software Inc, fair valued at £4,132,000, in respect of the underlying gaming platform and software used by Table Top Entertainment. Based on the agreement, the contingent consideration payable (on the first, second and third anniversary) is based on a percentage of net gaming revenue generated from the use of the software up to a maximum of £5,325,000. On 30 September 2015 1,149,071 shares were issued, and post year end on 6 October 2016 a further 846,701 shares were issued. The maximum earn-out was reached by the second anniversary and therefore the full earn-out has now all been settled in shares.

Goodwill

Goodwill is allocated to the following cash generating units.

(a) Increase in goodwill year on year is due to movement in foreign exchange.

Impairment review

In accordance with IAS 36 Impairment of Assets, the Group regularly monitors the carrying value of its intangible assets. A detailed review was undertaken at 31 August 2016 to assess whether the carrying value of assets was supported by the net present value of future cash flows derived from those assets. The recoverable amounts of all the above CGUs have been determined from value in use calculations based on cash flow projections from formally approved budgets and long-term forecasts. These budgets and forecasts assume the underlying business models will continue to operate on a comparable basis under the current regulatory and taxation regimes, adjusted for any known changes.

Table Top Entertainment and Spacebar Media CGUs

The recoverable amounts of the Table Top Entertainment and Spacebar Media have been determined from value in use calculations based on cash flow projections covering the following five-year period and a calculation into perpetuity which exceeds the total values of each CGUs assets.

The cash flows for 2017 and 2018 are based on Board-approved budgets with a long-term growth rate of 2% (2015: 2%) and a discount rate of 13.9% (2015: 13.9%). These assumptions were based upon management's experience, past performance and drawing on industry data where relevant.

The Directors have concluded that there are no reasonably possible changes in the key assumptions which would cause the carrying value of goodwill and other intangibles to exceed their value in use.

8Ball Games

The goodwill and related assets included within this CGU resulted from the acquisition of the entire share capital of 8Ball Games which completed on 31 August 2016 (refer to Note 23). The recoverable amount of £15.3 million, which exceeds the total value of the CGU's assets by £4.0 million, has been determined from value in use calculations based on cash flow projections covering the following five-year period and a calculation in perpetuity.

Operating margins have been based on past experience of the acquired entity and future expectations in the light of anticipated economic and market conditions. Discount rates are based on the Group's weighted average cost of capital, adjusted to reflect the specifics risks of the CGU.

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount.

Tarco CGU

The goodwill and related assets included within this CGU resulted from the acquisition of certain trading assets of Tarco and the entire share capital of Netboost Media Limited, which completed on 31 August 2016 (refer to Note 23). The recoverable amount of £25.6 million, which exceeds the total value of the CGU's assets by £1.6 million, have been determined from value in use calculations based on cash flow projections covering the following five-year period and a calculation into perpetuity.

Operating margins have been based on past experience of the acquired entity and future expectations in the light of anticipated economic and market conditions. Discount rates are based on the Group's weighted average cost of capital, adjusted to reflect the specifics risks of the CGU.

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount.

Social Gaming CGU

The goodwill and related assets included within this CGU resulted from the acquisition of InfiApps Ltd (refer to note 23) which completed in the previous financial year. The recoverable amount of £19.9 million (2015: £21.6 million), which exceeds the total value of the CGU's assets by £0.7 million, has been determined from value in use calculations based on cash flow projections covering the following five-year period and a calculation into perpetuity.

The cash flows for 2017 and 2018 are based on Board-approved budgets as well as on past experience of the acquired entity. Discount rates are based on the Group's weighted average cost of capital, adjusted to reflect the specifics risks of the CGU.

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount.

The table below shows what the effect of changes in the key assumptions would have on the recoverable amount in the prior year:

13 Subsidiaries

The subsidiaries of Stride Gaming Plc, all of which have been included in these consolidated financial statements, are as follows:

* Investment held indirectly.

14 Trade and other receivables

As part of the acquisition of the Tarco assets, which completed on 31 August 2016 (refer to note 23), an amount of £3,000,000 was transferred by the Group to an escrow account, with an intention to cover part of the earn-out payment which will be made to the sellers within 3 months of 31 December 2017, following the end of the earn-out period.

The carrying value of trade and other receivables classified as loans and receivables approximates fair value. All amounts shown in short-term trade and other receivables fall due for payment within one year. All non-current receivables are due within three years of 31 August 2015.

As at 31 August 2016 there were no trade receivables (2015: £Nil) which were past due and fully impaired. There is currently no provision for impairment for any of the outstanding trade and other receivables (2015: £Nil) with no bad debt expense being recognised in the year (2015: £nil).

15 Trade and other payables

The carrying value of trade and other payables classified as financial liabilities measured at amortised cost approximates fair value. The contingent remuneration has arisen as a result of the InfiApps acquisition in the prior year. The contingent consideration has arisen from the acquisition of certain trading assets of Tarco Limited on 31 August 2016 (refer to note 23).

16 Cash and cash equivalent

Cash held on behalf of players is held in a separate (unrestricted) bank account.

17 Loans and borrowings

The book value and fair value of loans and borrowings are as follows:

(a) The short-term interest-free borrowings at 31 August 2015 were due to the previous owners of the InfiApps Ltd business. These were paid in accordance with the terms of the sale and purchase agreement in November 2015.

(b) The full value of the borrowings as at 31 August 2016 is repayable in Sterling on 30 July 2017. The Group has the right to repay the whole or any part of the borrowings at any time before this date and consequently exercised this right post year-end following the refinancing agreed with Barclays (see note 25). The borrowings are incurring interest at 7.5% per annum, paid monthly in arrears.

18 Deferred tax

Deferred tax is calculated in full on temporary differences under the liability method using a tax rate based on the different jurisdictions it arises.

The movement on the deferred tax accounts is as shown below:

Deferred tax assets have been recognised in respect of other temporary differences where the Directors believe it is probable that these assets will be recovered.

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12) during the period are shown below.

The movements in deferred tax assets and liabilities (prior to the offsetting of balances within the same jurisdiction as permitted by IAS 12 in the prior year are shown below.

19 Share capital

During the year 12 million shares were issued on a capital raise with gross proceeds of £27.0 million. Additionally, 1,149,071 shares were issued relating to the acquisition of Nexttec Software Inc, held as shares to be issues, for gross settlement of a liability of £2.5 million.

20 Leases

Operating leases - lessee

The total future value of minimum lease payments in respect of leased properties is as follows:

The total future value of minimum lease payments in respect of leased motor vehicles is as follows:

21 Financial instruments - risk management

The Group is exposed through its operations to the following financial risks:

• market risk;

• credit risk;

• liquidity risk; and

• foreign exchange risk.

The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented below.

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

• trade and other receivables;

• investment in available-for-sale financial instruments;

• cash and cash equivalents;

• trade and other payables;

• contingent consideration; and

• loans and borrowings.

Financial instruments by category

Financial assets

The reconciliation of the opening and closing fair value balance of level 3 financial assets is as follows:

The investment, which is within level 3 of the financial reporting hierarchy, represents a 24.2% holding in QSB Limited (refer to note 6). As the security held is unquoted, the fair value has been assessed in the current year based on expected cash flows discounted using a rate of 35% based on the market interest rate and the risk premium specific to the investment.

Financial liabilities

The reconciliation of the opening and closing fair value balance of level 3 financial liabilities is as follows:

For details of the valuation techniques and significant unobservable inputs related to determining the fair value of the contingent consideration, which is classified in level 3 of the fair value hierarchy, refer to note 23.

Financial instruments not measured at fair value

The carrying value of cash and cash equivalents, trade and other receivables, trade and other payables and loans and borrowings approximates their fair value.

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. Further details regarding these policies are set out below:

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group's operational credit risk is primarily attributable to receivables from payment service providers ("PSPs"), from customers who dispute their deposits made after playing on the Group's websites and from B2B platform providers following the acquisitions of 8 Ball and Tarco assets (see note 23) and also stemming from social gaming. Senior management monitors PSP balances on a weekly basis, including aged debtor analysis, and promptly takes corrective action if pre-agreed limits are exceeded. Similarly, they monitor the B2B platform providers for any potential issues and take prompt action if pre-agreed limits are exceeded.

Credit risk also arises from cash and cash equivalents and deposits with banks and financial institutions. For banks and financial institutions, only independently rated parties with high ratings are accepted.

Further disclosures regarding trade and other receivables, which are neither past due nor impaired, are provided in note 14.

Foreign exchange risk

The Group is exposed to translation and transaction foreign exchange risk. The Group's policy in this case is to allow the subsidiary to settle liabilities denominated in their functional currency with the cash generated from their own operations in that currency. The majority of the remainder of the Group's transactions are denominated in Sterling, therefore the Directors deem the Group's exposure to all other exchange rate fluctuations to be minimal.

Foreign currency denominated financial assets and liabilities, translated into Sterling at the closing rate, are as follows:

The effect of a 10% strengthening of the US dollar against Sterling at the reporting date on the US dollar-denominated financial instruments carried at that date would, all other variables held constant, have resulted in a decrease in post-tax profit for the year and decrease of net assets of £430,000. A 10% weakening in the exchange rate would, on the same basis, have increased post-tax profit and increased net assets by £ 351,000.

The effect of a 10% strengthening of the Israeli Shekel against Sterling at the reporting date on the Israeli Shekel-denominated financial instruments carried at that date would, all other variables held constant, have resulted in a decrease in post-tax profit for the year and decrease of net assets of £136,000. A 10% weakening in the exchange rate would, on the same basis, have increased post-tax profit and increased net assets by £111,000.

The foreign exchange exposure in the prior year was not material.

Liquidity risk

Liquidity risk arises from the Group's management of working capital and the finance charges and principal repayments on its short-term borrowings. It is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due and as at the end of the financial year, projections indicate that the Group expects to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances.

The following table sets out the contractual maturities (representing undiscounted contractual cash flows) of financial liabilities:

22 Share-based payment

The Company established an equity-settled share option scheme in the year for employees and non-employees, which includes the following:

i) Enterprise Management Incentive share options ("EMI Options") which qualify for favourable tax treatment under the provisions of Schedule 5 to ITEPA. Holders of EMI options have up to ten years from the date of grant to exercise these options. The number of options and vesting dates are in accordance with each individual agreement.

ii) Non-Qualifying options made available to employees and Executive Directors of the Group also have up to ten years from the date of grant to exercise the options. The exact numbers and vesting dates will depend on each contract agreement, but all options will vest and will therefore be exercisable in no more than three years from the date of grant.

iii) Non-employee options are available to Non-Executives and individuals providing services to the Company, which are non-employees. The vesting and exercise conditions are the same as non-qualifying options.