White label and gaming content provider Nektan has announced plans to raise £3.0m in working capital, as well as restructuring existing loan agreements, warning the business requires new funding to continue as a going concern.
The business aims to raise the £3.0m through an equity placing of new ordinary shares, subject to shareholder approval, with Nektan taking orders for the placement until 25 September.
Should this placement be completed successfully, Nektan has then reached agreements to restructure its Series A and B convertible loan notes (CLNs), as well as loans provided by executive director Gary Shaw and Venture Tech Assets (VTA).
The Series A CLNs, valued at £3.5m and having accrued £0.4m in interest as of 30 June, 2019, will be converted into Nektan ordinary shares. The supplier also negotiating with noteholders to extend the repayment date on the Series B CLNs, and reduce interest on the loans.
Shaw and VTA, a company connected to Nektan’s non-executive director Sandeep Reddy, have agreed to defer the redemption dates of their loans. These loans, totalling £1.3m, will now be due to be repaid by 29 April 2021.
“The proposed placing and associated strengthening of the group's balance sheet through the conversion and extension of its Convertible Loan Notes is a very important development for Nektan and, if successful, will leave us in a materially stronger position,” Nektan non-executive chair Jim Wilkinson said. “I thank the CLN holders for their support in this regard.”
Nektan has agreed to receive £350,000 from the proceeds of the placing while the transactions complete by way of an unsecured loan. This is repayable on demand.
The supplier warned that should it fail to raise the funding through the placement, it would require further capital to continue as a going concern. This would prompt the directors to pursue alternate means of fundraising, or asset sales.
Wilkinson added that Nektan remains convinced its technology platform is well-placed to succeed in a number of markets.
“With a significant number of integrations expected to be delivered during the course of 2019 and a pipeline of exciting opportunities, the group believes it has reached a transformational stage and has an exciting future ahead,” he explained.
In a business update published alongside details of the capital restructuring and share placement, Nektan revealed significant scope to expand its B2B business in its fiscal year ended 30 June 2020.
Having seen B2B revenue grow 308.3% – from a low base – to £980,000, with its solutions live with more than 12 partners in six markets across Asia and Africa, this is expected to grow over the final months of 2019. Integrations with eight partners in Europe are to be completed, as well as seven in India and four in Taiwan.
“Many of the parties with which the group is undertaking integrations are well established brands in their respective geographies and [Nektan] believes that revenues from these integrations, if successful, have the potential to transform the group's financial results,” the supplier explained.
An integration with Kenyan operator Betika was completed in July, with gross gaming revenue growing week-on-week, Nektan added, with more than 1.6m bets being placed each day.
The B2C white label division, however, has struggled in the UK as a result of the increased remote gaming duty and more stringent player verification controls. Nektan noted that it is currently in the process of paying £4.6m in point of consumption tax to Her Majesty’s Revenue and Customs.
However, it added, it has engaged with a number of partners who have agreed to ramp up marketing spend, which in turn is expected to prompt revenue growth.
Work to realign its cost base has also been undertaken, which is expected to see it reach EBITDA break-even by the end of its current financial year — a target previously set for the year ended 30 June 2019.