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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Centralnic Group Plc | LSE:CNIC | London | Ordinary Share | GB00BCCW4X83 | ORD 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 123.20 | 123.20 | 123.60 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMCNIC
RNS Number : 7594P
CentralNic Group PLC
31 May 2018
NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA, JAPAN, JERSEY OR SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DISTRIBUTE THIS ANNOUNCEMENT
The information contained in this announcement is inside information for the purposes of article 7 of Regulation 596/2014.
Press Release 31 May 2018
CentralNic Group plc
("CentralNic" or "the Company" or "the Group")
Final results for the year ended 31 December 2017
CentralNic (AIM: CNIC), the internet platform that derives revenue from the worldwide sales of internet domain names, today announces its audited results for the year ended 31 December 2017.
The Company's full Annual Report is also being published and sent to shareholders by 1 June 2018 if not before and the Company's Annual General Meeting will be held 25 June 2018 at the offices of Taylor Wessing LLP, 5 New Street Square, London, EC4A 3TW at 10.00am.
Financial summary
Hot Features
Premium
31 Dec 2017 31 Dec 2016 Change Change
GBP'000 GBP'000 GBP'000 %
------------ ------------ -------- -------
Revenue 24,348 22,129 2,219 +10%
------------ ------------ -------- -------
Gross profit 9,794 7,667 2,127 +28%
------------ ------------ -------- -------
Adjusted EBITDA* 6,607 5,483 1,124 +20%
------------ ------------ -------- -------
Adjusted Profit before taxation** 5,581 4,724 857 +18%
------------ ------------ -------- -------
Profit before taxation 1,371 1,157 214 +19%
------------ ------------ -------- -------
Net cashflow from operating
activities 3,700 3,318 382 +12%
------------ ------------ -------- -------
* Excludes share based payments expense of GBP453,000 (2016: GBP621,000) and acquisition costs and exceptional items of GBP1,982,000 (2016: GBP1,262,000).
**Excludes share based payments expense of GBP453,000 (2016: GBP621,000), acquisition costs and exceptional items of GBP1,982,000 (2016: GBP1,262,000) and acquired amortisation charges, in relation to the intangible assets of Internet.BS, the Instra Group and SK-NIC of GBP1,775,000 (2016: GBP1,684,000).
Financial Highlights
-- Revenues grew by 10% to GBP24.35m (2016: GBP22.13m) and Adjusted EBITDA grew 20% to GBP6.61m
(2016: GBP5.48m). EBITDA margin increased by 10% to 27% (2016: 25%).
-- Operating profit grew by 34% to GBP1.89m (2016: GBP1.41m) after depreciation, amortisation,
share based payment expense and acquisition costs and exceptional items.
-- Acquisition of SK-NIC, the manager of the exclusive country code top-level domain for Slovakia,
.sk, completed in December 2017 for a total cash consideration of EUR25.70m.
-- Significant growth in the Wholesale and Retail Divisions, up by 48% and 9% respectively on
the previous year contributing to an improvement in the quality of the Group's earnings.
-- Sale of a number of premium domain names for consideration of GBP3.0 million (2016: GBP3.7m).
-- Cash at bank was GBP10.9m (2016: GBP9.9m), an increase of 10%. Net Debt (excluding prepaid
finance fees) was GBP7.22m at the year-end (2016: Net Cash GBP7.28m) as a result of the Company
paying GBP20.27m cash, in December 2017 and financed in part by borrowings, as initial consideration
for the purchase of SK-NIC.
-- Recurring & subscription revenues increased to 84% of overall revenues (2016: 81%) providing
quality of earnings and strong cash generation.
Operational Highlights
-- The Group's financial performance continues to advance in line with its increasing standing
within the industry. CentralNic is now ranked fifth among the world's Registry providers,
with 104 exclusive Registry contracts.
-- Acquisition of SK-NIC, the manager of the exclusive country code top-level domain for Slovakia,
for a maximum consideration of EUR28.1m (GBP24.7m). Funded by the Company's own cash reserves,
a term loan of GBP12m and revolving credit facility of GBP6m, both provided by Silicon Valley
Bank, which also provides a GBP3m overdraft facility (unutilised).
-- Exclusive wholesaler contract with XYZ.com, owner of the .xyz Top-Level Domain ("TLD"), renegotiated
for a term running until May 2032. CentralNic receives a fixed minimum fee which may increase
based on the volume of .xyz domains managed.
-- Don Baladasan joined the Board on 24 July 2017 as Chief Financial Officer, bringing significant
M&A and integration experience.
Commenting on the results, Mike Turner, Chairman of CentralNic, said:
"I am pleased to report on a strong year of growth for CentralNic. The Group continued its strategy to build a diversified internet services business of size and scale through an acquisitive roll-up programme which delivers high-levels of recurring revenues, quality of earnings and strong cash generation.
"SK-NIC, the manager of the exclusive country code top-level domain for Slovakia, was acquired in mid-December 2017 for a maximum cash consideration of EUR25.7 million (GBP22.6 million). The Board anticipates SK-NIC to be earnings enhancing in line with expectations at the time of the acquisition, as well as providing access to a new international market with sustainable growth characteristics, a high renewal rate of over 86%, and the opportunity to leverage CentralNic's existing expertise and bespoke technical platforms in the domain management business.
"Significant growth was delivered in the Wholesale and Retail divisions, which contributed to an increase in recurring revenues and an improvement in the quality of the Group's earnings.
"Whilst the Enterprise Division made a significant contribution to the Group's profits in the year under review, its contribution through one-off domain name sales reduced when compared to the prior year.
"The Directors are confident that the Group will continue to deliver on its strategic goals in 2018, to deliver growth both organically and by expansion of the business, and further improve the percentage of recurring revenues and the Group's quality of earnings."
For further information:
CentralNic Group Plc
Ben Crawford (CEO)
Don Baladasan, Chief Financial Officer +44 (0) 203 388 0600
Zeus Capital Limited - NOMAD and Joint
Broker
Nick Cowles / Jamie Peel (Corporate
Finance)
+44 (0) 161 831 1512
John Goold / Rupert Woolfenden (Institutional
Sales) +44 (0) 203 829 5000
Stifel - Joint Broker
Fred Walsh / Neil Shah / Rajpal Padam +44 (0) 20 7710 7600
Abchurch - Financial PR
Julian Bosdet +44 (0) 20 7469 4631
Dylan Mark +44 (0) 20 7469 4633
Alejandra Campuzano +44 (0) 20 7469 4634
centralnic@abchurch-group.com www.abchurch-group.com
About CentralNic Group plc
CentralNic (AIM: CNIC) is a London-based AIM-listed company which develops and manages software platforms allowing businesses globally to use the internet for their own websites and email, as well as protecting their brands online. Its core growth strategy is identifying and acquiring cash-generative businesses with annuity revenue streams and exposure to emerging markets, and migrating them onto the CentralNic software and operating platforms.
CentralNic operates globally with customers in over 200 countries. It earns revenues from the worldwide sales of internet domain names and hosting on an annual subscription basis.
For more information please visit: www.centralnic.com
Chairman's statement
I am pleased to report on a strong year of growth for CentralNic. The Group continued its strategy to build a diversified internet services business of size and scale through an acquisitive roll-up programme which delivers high-levels of recurring revenues, quality of earnings and strong cash generation. In addition, revenue (10%), gross profit (28%), adjusted EBITDA (20%) and profit after tax (7%) all show year on year increases, a pleasing achievement for the Group.
SK-NIC, the manager of the exclusive country code top-level domain for Slovakia, was acquired in mid-December 2017 for a maximum cash consideration of EUR25.7 million (GBP22.6 million). The Board anticipates SK-NIC to be earnings enhancing in line with expectations at the time of the acquisition, as well as providing access to a new international market with sustainable growth characteristics, a high renewal rate of over 86%, and the opportunity to leverage CentralNic's existing expertise and bespoke technical platforms in the domain management business. The acquisition was funded by the Company's own cash reserves and a term loan and revolving credit facility totalling GBP18 million provided by Silicon Valley Bank, which also provides a GBP3 million overdraft facility.
Significant growth was delivered in the Wholesale and Retail divisions, which contributed to an increase in recurring revenues and an improvement in the quality of the Group's earnings. As part of that, the exclusive wholesaler contract with XYZ.com, owner of the .xyz Top-Level Domain ("TLD"), was renegotiated in September 2017 for a term running until May 2032. CentralNic receives a fixed minimum fee which may increase based on the volume of .xyz domains managed.
Whilst the Enterprise Division made a significant contribution to the Group's profits in the year under review, its contribution through one-off domain name sales reduced when compared to the prior year. In 2017, the Group sold portfolios of premium domain names valued at a total of GBP3.0 million (2016: GBP3.7 million). In line with the Group's strategy, whilst premium domain name trading is a profitable activity, premium domain name sales will be a decreasing proportion of revenues and contribution going forward as the Company focuses on building recurring revenue based business activities.
Performance
In the year ended 31 December 2017, revenue rose by 10% to GBP24.3 million (2016: GBP22.1 million). This was driven by organic growth in the Wholesale Division, which grew by almost 50%, and also in the Retail Division which grew by almost 10%. Gross profit increased by 28% to GBP9.8 million (2016: GBP7.7 million) with gross margins ahead of the previous year in all divisions and, in total 40%, (2016: 35%), an increase of 16%. Despite adverse foreign exchange movements of GBP0.6 million, compared to a positive impact of GBP0.6 million in 2016, adjusted EBITDA was in line with market expectations at GBP6.6 million (2016: GBP5.5 million), representing an increase of 20% on the prior year. Profit after tax increased by 7% to GBP1.02 million (2016: GBP0.96 million).
Cash flow was positive during the year with year-end cash balances of GBP10.9 million (2016: GBP9.9 million) and net debt (excluding prepaid costs) of GBP7.2m (2016: net cash GBP7.3m). During the year, CentralNic entered into a new facility agreement with Silicon Valley Bank, which enabled the Group to acquire SK-NIC and optimise its capital structure and gain access to funding for growth opportunities.
Diluted earnings per share increased by over 6% to 1.04p (2016: 0.97p).
Strategy
The Group's strategy remains to develop and operate scalable software platforms by serving global markets with domain names and related services. It continues to identify and exploit high growth areas within the domain industry, retaining a leading role in new Top-Level Domains, servicing country code domains, and focusing on growth markets including Eastern Europe and Asia. The Group aims to win and retain well-resourced clients with complementary objectives and to make acquisitions which meet the clear strategic criteria of being earnings accretive in the short term with a strong recurring revenue base, high quality of earnings, and high cash conversion.
Management and Board
As part of the strategy to build a diversified business of size and scale, the management team was strengthened to support the Group's ambitions. In May 2017, Sarah Ryan joined CentralNic as Group Corporate Development Director, following the previous year's senior hires of Stuart Fuller and Andy Churley as Group Commercial Director and Group Marketing Director respectively. The Board itself was strengthened further in July 2017 with the appointment of Don Baladasan as Chief Financial Officer, bringing considerable financial expertise in buy-and-build strategies and risk management.
In August 2017 Desleigh Jameson, who joined the Group in January 2016 when it acquired Instra Corporation, stepped down from the Board. The integration of Instra's operations in to the Group was by that time complete following Desleigh's hard work in very quickly merging the highly successful Instra business in to the ever-expanding CentralNic.
I would like to thank all members of the CentralNic team for their professionalism and commitment to the ongoing growth and transformation of the business. It is thanks to our staff, to our clients and to our distribution channel partners, as well as to our shareholders, that the Group continues to maintain and enhance its industry-leading position.
Outlook
Our vision is to join the ranks of world leaders in the industry. CentralNic strives to achieve this by continuing to disrupt existing markets and by identifying and exploiting key growth markets around the world. Moreover, ongoing consolidation in the domain services industry presents step-change acquisition opportunities for the Group to enter new markets and broaden its service offerings.
Trading for the first quarter of 2018 is encouraging and inline with expectations. CentralNic has continued to win new clients including the distribution contract for .ooo TLD, owned by the billion-dollar Mumbai-listed tech company Infibeam. In January 2018 the Group replenished its premium domain trading inventory by acquiring a portfolio of domain names for a total consideration of GBP2.5 million.
As reported in March 2018, discussions are taking place regarding the potential combination of CentralNic and KeyDrive S.A. The combination of the two businesses has strong strategic logic and economies of scale. This represents an opportunity to create a group with advanced technology platforms delivering significant recurring revenues for every major customer type within the industry. Although there can be no certainty that a transaction will occur, the discussions are proceeding well and the Board believes that the transaction will take place in the third quarter of 2018.
The Board believes that the opportunity to continue to build a sizeable business to rival the largest industry players, using the Group's existing infrastructure to deliver economies of scale both financially and operationally, remains strong. The Group's management team has proven its ability to deliver and integrate substantial acquisitions and there is a plentiful pipeline of targets. The Directors are confident that the Group will continue to deliver on its strategic goals in 2018, to deliver growth both organically and by expansion of the business, and further improve the percentage of recurring revenues and the Group's quality of earnings.
Chief Executive Officer's Report
Overview
CentralNic continued to develop as an internet services business of substantial scale that is highly cash generative and built around a recurring revenue model. There are significant opportunities available for growth in the market, of which the Company continues to take advantage.
During the year, the Company's acquisition strategy continued to target companies with a strong existing customer base and a high proportion of recurring revenue, with a particular focus on businesses with exposure to high-growth and emerging markets. Building on the previous acquisitions of Internet.BS in the Bahamas (2014: US$7.5 million) and Instra Group in Australia and New Zealand (2016: AU$38.0 million), the Group acquired SK-NIC in December 2017 for a maximum cash consideration of EUR25.7 million. SK-NIC is the manager of the exclusive country code top-level domain for Slovakia, .sk and realises the majority of its earnings through a recurring revenue stream from a substantial embedded customer base.
SK-NIC offers significant growth potential, achievable through the combination of the strongest domain product in the Slovak market and CentralNic's specialist technical, sales and marketing expertise. CentralNic migrated .sk onto its proprietary software in 2017 and strengthened the local management team to ensure that .sk achieves global best practice as a foundation for that nation's growing digital economy.
Since its acquisition, the integration of SK-NIC has progressed according to plan. The .sk operation has been migrated onto a customised version of the CentralNic registry software in the Slovak language, and the management team in Bratislava has been strengthened with the addition of a Head of Communications. Tasks that were outsourced to the vendors as part of the transition plan are being successfully migrated in-house. Trading since the acquisition was completed is in line with expectations.
In July, CentralNic was recognised as the best performing company in the Infrastructure Services category of the Quoted25 awards. This annual award, created by Megabuyte, acknowledges the top 25 performing technology companies in the mid-tier of the London Stock Exchange's AIM market.
Results
CentralNic achieved revenues of GBP24.3 million, a 10% increase over 2016 revenues of GBP22.1 million, and Adjusted EBITDA of GBP6.6 million, a 20% increase on 2016's Adjusted EBITDA of GBP5.5 million. The profit after tax reflected a 7% increase at GBP1.02m (2016: GBP0.96m).
The Group continues to improve the quality of its earnings, increasing recurring revenues to 84% of total revenues. The Group's global revenues also continued to grow, with over 37% of total revenues coming from outside the UK, North America, and Europe, reflecting a focus on high-growth emerging markets.
At the end of the year, the Group had cash balances of GBP10.9 million (2016: GBP9.9 million) with net debt (excluding prepaid costs) of GBP7.2m (2016: net cash GBP7.3m). During the year, CentralNic entered into a new facility agreement with Silicon Valley Bank, which enabled the group to acquire SK-NIC and optimise its capital structure and gain access to funding for growth opportunities.
Operational Review
Wholesale (Registry Services)
Wholesale revenues grew 48% to GBP4.7 million (2016: GBP3.2 million) and the Company maintained its position as a leading wholesaler of domain names using new gTLDs, with 22.6% market share at the end of 2017. CentralNic's Wholesale Division is the only registry services provider to count six of the top 20 new gTLDs as clients (from around 1,200 launched in total).
CentralNic has continued to be the world leader in winning new clients in its Wholesale Division, including a contract to manage 14 Top Level Domains from OpenRegistry, a subsidiary of KeyDrive Group. CentralNic manages 104 domain extensions (gTLDs, ccTLDs and SLDs) overall, ranking as an impressive 5(th) globally. In September 2017, the Group renegotiated its exclusive wholesaler contract with .XYZ.com, the owner of the world's leading new gTLD, .xyz, on a fixed fee basis until May 2032 with the potential to increase fees based on the number of .xyz domains managed.
Retail
Retail revenues grew 9% to GBP15.6 million in 2017 (2016: GBP14.3 million). The retail business serves three of the main customer groups for domain names and supporting services; small businesses, resellers and domain investment professionals. One of the Retail Division's objectives during 2017 was to broaden the number of supporting products it can provide to its existing customer base. During the year, it added IT security products, web and email hosting, website construction and analysis products to its portfolio available to its existing and future customer base.
The Retail Division increased the number of domain extensions it provides and has continued to optimise the costs associated with domain name provision and therefore increased profitability. This was in part achieved through an outsource arrangement with the leading global reseller platform RRPProxy, a subsidiary of the KeyDrive Group. Considerable management and technical resource has been dedicated to this project which, when completed, will result in CentralNic's retailers obtaining all their domains from a single supplier, rather than supporting hundreds of supplier relationships.
Enterprise
Revenues from CentralNic's Enterprise Division decreased slightly in 2017, down to GBP4.1 million (2016: GBP4.6 million), reflecting the Group's strategy to decrease the proportion of its overall revenues obtained through one-off premium domain name sales. The recurring revenue components of CentralNic's enterprise business continue to grow. With CentralNic's assistance, a number of corporate clients completed the ICANN delegation process in 2017 and have begun to prepare their "DotBrand" Top Level Domains for use. Other corporate and government clients continue to licence CentralNic software and many also use the Group's fee-based support services to distribute domains, develop and implement their own policies and to market and manage their operations in-house.
CentralNic's premium domain name trading business performed well with revenues of GBP3.0 million achieved, reduced from GBP3.7 million the previous year. In line with the Group's strategy to focus on increasing its revenues in the recurring category, premium domain name sales will be a decreasing proportion of revenues and contribution going forward.
Acquisitions: Progressing CentralNic's strategy
Moving forward, CentralNic will continue to identify acquisitions that will add scale and new market leading technology platforms to serve its customers as well as creating opportunities for savings by eliminating duplication in costs. The Group has established a robust foundation for future growth, is able to leverage a suite of world-class software and services, has a large and experienced management team and significant staff resources able to support customers around the world.
Infrastructure for growth
People
During 2017, CentralNic made significant additions to its Board and management team to extend even further its ability to execute our acquisitions-led growth strategy. In July, Don Baladasan joined the Board as Chief Financial Officer, bringing significant public company acquisition and integration experience. At senior management level the Company had already recruited Group Commercial Director Stuart Fuller and Group Marketing Director Andy Churley, from NetNames (formerly GroupNBT), to reinforce and build sales and marketing operations. In May 2017, Sarah Ryan was appointed Corporate Development Director to support the Board in its M&A activities. Sarah was previously Director of International M&A for LexisNexis and Thomson Financial and brings significant transaction experience including in the Middle East, Russia, China, India, South Africa and Europe.
Current market trends
In December 2017, there were approximately 332.4 million domain names under management globally. This represents a growth of 3.1m domain names (0.9%) over 2016. Generic Top Level Domains (gTLDs e.g. .com and .net) had a combined total of approximately 146 million domain names (2.9% growth) and all country code Top Level Domains (e.g. .sk) accounted for approximately 146 million domain names (2.4% growth). The top 20 new gTLDs (of which CentralNic manages six) account for 65% of all registrations in this category.
Post Year End
In January 2018, the Group replenished its premium domain trading inventory for a total consideration of GBP2.5 million, as a step towards ensuring that the company retains the capacity to continue to trade profitably in premium domain names as required. CentralNic also continued winning new clients, including the .ooo TLD, owned by billion-dollar Mumbai-listed tech company, Infibeam.
In March 2018, due to industry speculation, CentralNic announced that it was in advanced negotiations to merge with a leading operator of reseller and corporate platforms in the domain industry, KeyDrive S.A., a Luxembourg company. The combination of the two businesses has strong strategic logic and economies of scale and represents an opportunity to create a group with competitive technology platforms delivering significant recurring revenues for every major customer type within the industry. Discussions are ongoing at the time of publication.
Outlook
Current trading is in line with expectations as the Group continues to grow both organically and through further acquisitions and remains entirely focused on expanding its global footprint in the domain and web services industry.
New products and services are added continually to service customers. For example, the group plans to offer online security and brand protection services to its corporate clients.
Across all its business segments, new customer acquisition remains a priority for the group.
Finally, we will continue to make earnings enhancing acquisitions to achieve further scale, additional capabilities and greater economies of scale.
Chief Financial Officer's Report
The Group showed overall year on year growth in revenue of 10% and Adjusted EBITDA of 20%. Organic growth of 10% was achieved with revenue growing to GBP24.3m (2016: GBP22.1m). This was driven predominately by growth in the Wholesale and Retail Divisions, which enjoyed 48% and 9% year-on-year growth respectively.
The Group's continued focus on improving the quality of the revenue mix and earnings was highly successful with recurring revenues rising to 84% of total revenue, compared to 81% in 2016. The contribution from one-off premium sales was reduced in line with the Board's strategy to focus on visibility and quality of earnings.
The growth in the revenue line flowed down to the Adjusted EBITDA, which increased by 20% to GBP6.6m (2016: GBP5.5m). The overall Adjusted EBITDA Margin grew to 27% (2016: 25%). Adjusted EBITDA is before share based payment expenses, acquisition deal fees and exceptional items. This growth in Adjusted EBITDA was despite adverse foreign exchange movements of GBP0.6 million, compared to a positive impact of GBP0.6 million in 2016.
The attractive cash generative profile for the Group continued in 2017 with the net operating cashflow, before tax and one-off deal costs, being GBP6.8m (2016: GBP5.1m). Cash at the end of 2017 was GBP10.9m (2016: GBP9.9m), an increase of 10% with Net Debt (excluding prepaid costs) of GBP7.2m (2016: net cash GBP7.3m).
In December 2017, the Group progressed its acquisition strategy with the completion of the acquisition for the country code of Slovakia, SK-NIC. SK-NIC matched the characteristics of our acquisition target profile, as a high quality, high margin and recurring revenue asset in a significant growth emerging market. We continue to seek acquisitions which add considerable high quality, high margin and recurring revenues to the Group.
The initial cash consideration of EUR20.3m (GBP17.8m) to acquire SK-NIC was funded by loan-finance from Silicon Valley Bank ("SVB") through a GBP12m term loan and a GBP6m revolving credit facility. SVB also provided a GBP3m overdraft facility which has not been utilised. This transaction created a more balanced capital structure which leverages the cash generative profile for the Group, so this was deemed to be the most appropriate funding route in order to achieve this.
Key Performance Indicators 2017:
-- Revenue GBP24.3m (2016: GBP22.1m)
-- Adjusted EBITDA* GBP6.6m (2016: GBP5.5m)
-- Pro t after taxation GBP1.02m (2016: GBP0.96m)
-- Cash Balance 31 Dec 2017 GBP10.9m (2016: GBP9.9m)
-- Net Debt (excluding prepaid costs) 31 Dec 2017 GBP7.2m (2016: Net Cash GBP7.3m)
* Excludes impact of share payment expense for the share options issued to Directors and Employees and acquisition costs and exceptional items
Wholesale Division
The increase of revenue in the Wholesale Division was driven predominately by the .xyz and radix TLDs, along with registry consultancy. SK-NIC contributed GBP0.3m of revenue, following the completion of its acquisition on 5 December 2017.
Adjusted EBITDA for the Wholesale Division grew by 70% to GBP2.1m (2016: GBP1.2m). This included GBP0.2m contribution from SK-NIC, representing an Adjusted EBITDA margin for SK-NIC of 79%. Excluding the contribution from SK-NIC, the like for like Adjusted EBITDA for Wholesale grew by 51% to GBP1.9m (2016: GBP1.2m) representing an adjusted EBITDA margin of 42% (2016: 39%).
Retail Division
Retail revenue continues to be driven by the Instra Group, with smaller contributions from Internet.bs and the flagship stores. All three Retail businesses showed year-on-year revenue growth with overall retail revenue growing by 9% to GBP15.6m (2016: GBP14.3m).
Instra improved its year-on-year revenue to GBP11.4m (2016: GBP10.3m). This was achieved by selling high value domains, which benefit from higher margins, as well as cutting costs. The resulting improved margins flowed down to the Adjusted EBITDA line with Instra showing 20% growth to GBP2.6m (2016: GBP2.2m).
Enterprise Division
Revenue for the Enterprise Division was GBP4.1m (2016: GBP4.6m). The reduction was expected as the Group continued to move away from its reliance on the sale of Premium Domain names, to focus on improving quality of earnings by shifting the mix from these one-off sales to more predictable, recurring revenue streams. Although revenue reduced for one-off premium domain sales, revenue increased from other Enterprise Division recurring revenue streams to GBP1.1m (2016: GBP0.9m).
Overall Adjusted EBITDA was GBP2.8m (2016: GBP2.8m) with adjusted EBITDA margin of 70% (2016: 60%).
Revenue Profile
The quality of the Group's earnings remains an important strategic priority for the Group and its investors, as we increase the proportion of its revenues derived from predictable sources. This was one important factor in assessing the SK-NIC acquisition, with all of SK-NIC's revenues, earnings and cash ow derived from new registrations and renewals of domain names. This, combined with the management's focus on recurring revenue streams, resulted in the proportion of recurring revenues increasing to 84% (2016: 81%).
AIM and corporate overheads, which have not been allocated by division, were consistent with the prior year at GBP1.0m (2016: GBP1.0m).
Acquisition costs and exceptional items totaled GBP2.0m (2016: GBP1.3m). The acquisition-related costs, supporting the Group's acquisition programme, included a variety of deal costs for SK-NIC and Key Drive Group.
Finance costs include GBP0.3m of expenses for the term loan arrangement fees and associated legal costs related to the acquisition of SK-NIC.
Other non-cash expenses included the amortisation of intangible assets, totaling GBP2.2m (2016: GBP2.1m), re ecting the charges for the Instra customer list, domain names and software acquired. They also included depreciation and the share based payments expense. In accordance with IFRS 2 Share Based Payments, we have included a GBP0.5m charge for Director and employee share options within administrative expenses (2016: GBP0.6m). Further details can be found in note 28 to the Annual Report and Accounts.
The Group's e ective tax rate during the year was 25.4% (2016: 17.5%), with the primary reason for the year-on-year increase being the disallowable nature of the higher acquisition related costs incurred during the period.
Basic earnings per share of 1.07 pence (2016: 1.00 pence), re ected the improved Adjusted EBITDA in the business which were offset by non-recurring acquisition costs, amortisation charges, exceptional items and non-cash charges. Diluted earnings per share, at 1.04 pence (2016: 0.97 pence), re ected the dilutive effect of the share options "in the money" at the average share price for the year.
Further details of the earnings per share calculations are provided in note 12 to the Annual Report and Accounts.
Pensions
The Group created a de ned contribution pension scheme in June 2016 in line with the new auto-enrolment provisions in the UK. In Australia, the Group operates a superannuation scheme in line with statutory requirements, and the KiwiSaver scheme in New Zealand, which is in line with the KiwiSaver Act 2006. The Group does not operate and has never operated any de ned bene t schemes requiring actuarial valuations.
Dividends
It remains the intention of the Group to generate income returns for investors in the future as part of a progressive and commercially prudent dividend policy. However, due to the continued expansion opportunities presented by the sector, the Directors do not propose a nal dividend in 2017.
Group statement of financial position
The Group had net assets of GBP26.5m at 31 December 2017 (2016: GBP25.2m). This increase was driven by the retained pro t for the year and an increase in the share-based payments reserve, offset by downward movements on the foreign exchange translation reserve, mainly due to movements in AU$/GBPGBP exchange rates.
Capital expenditure and investing activities
The most signi cant investment made during the year was the acquisition of SK-NIC, with further details of the acquisition entries provided under Business Combinations in note 25 to the Annual Report and Accounts. The total value of intangible assets includes GBP25.7m of intangibles relating to SK-NIC.
In line with the appropriate treatment for translation of a foreign operation into the Group's presentational currency, both the tangible and intangible assets are translated at the closing rate, generating foreign exchange di erences as presented in notes 13 and 14 to the Annual Report and Accounts.
With the exception of goodwill, the Group's intangible assets are amortised in line with the accounting policy. The carrying value of customer lists and goodwill are tested annually for impairment, while the Directors also consider other intangible assets and investments for indications of impairment. Further details are provided in note 14 and 16 to the Annual Report and Accounts.
Capital expenditure on tangible assets was GBP0.1m during the year (2016: GBP0.2m). Expenditure on plant and equipment was again modest, re ecting the business model, which has a relatively low capital expenditure requirement. Intangible asset additions totaled GBP0.4m (2016: GBP0.4m), including the costs of development activities satisfying the criteria detailed in note 3 part to the Annual Report and Accounts. The slight increase related to capitalised development activities in Instra and dnsXperts UG.
Further details are provided in notes 12, 13 and 25 to the Annual Report and Accounts.
Cashflow and net cash
The cash ow statement for the Group includes two major themes: the entries related to the nancing and completion of the SK-NIC acquisition and the results of the ongoing operations of the business, taking into account the uctuations in working capital.
Net cash ow from operating activities was higher than the previous year at GBP3.7m (2016: GBP3.3m). In both years, the net cash ow from operating activities was in line with expectations relative to Adjusted EBITDA. 2017 bene tted from favourable working capital movements of GBP0.3m.
Investing activities were mainly related to the SK-NIC acquisition, which was completed in December 2017. The net cash outflow related to the SK-NIC acquisition totalled GBP17.4m (net of cash acquired) in 2017 with a further GBP4.8m of deferred and contingent consideration due up to 2024, which was funded by additional SVB debt of GBP16.25m.
Banking facilities
A new facility agreement was entered into with SVB on 29 August 2017, which was amended and restated on the 30th November 2017 to support the SK-NIC acquisition on 5 December 2017.
This agreement refinanced the remaining principal of GBP1.75m due under the original SVB facility agreement entered into for the purposes of acquiring Instra in December 2015.
The new SVB facilities comprises a GBP12m term loan, a GBP6m revolving credit facility, and a GBP3m overdraft facility. The term and revolving credit facility were fully utilised at the end of the year, the overdraft was unutilised.
The principal terms of the debt facility include amortisation of the term loan over 5 years (GBP2 million per annum) with a bullet payment at the end of term. Interest repayments have also been settled quarterly based at a margin above LIBOR. The debt facility is secured over the material companies within the Group. Further detail is provided in note 24 of the Annual Report and Accounts.
Scheduled quarterly repayments were made during the year along with the release of associated nance costs.
Critical accounting policies
The Summary of the Group's Signi cant Accounting Policies is set out in note 3 to the Annual Report and Accounts.
The Group's Revenue recognition policy may be summarised as:
-- Revenue from the sale of services is recognised when the amounts of revenue and cost can be measured reliably;
-- Domain sales are recognised over the period to which the underlying sales contract relates, which can be for periods between one and ten years. Revenues attributable to future periods are deferred to future periods and are included in "Deferred Revenues" and in the case of the Retail business, the direct costs, associated with domain name Retail revenues, that are payable to wholesale suppliers of the domains, are recognised in deferred costs; and
-- Revenues from strategic consultancy and other similar services are recognised in proportion to the stage of completion of the work.
The Group makes estimates and assumptions regarding the future, which are regularly evaluated including expectations of the future that are considered reasonable given historic experience and current circumstances. In the future, actual experience may di er from these estimates and assumptions.
The Board considers the carrying value of Intangible assets in particular given the relative materiality to the Group. While the Board acknowledges that estimates and assumptions could have a material impact on the carrying value of the intangible assets, the Board has considered the potential for impairment as well as the estimated useful lives of the assets and does not consider the carrying values to be impaired. Further details are provided in note 4 to the Annual Report and Accounts.
Group financial risk management
The Board reviews the nancial risk management policy, noting that the Group is exposed to market risk, credit risk and liquidity risk arising from nancial instruments. Further details of the Financial Risk Management Framework is provided in note 29 to the Annual Report and Accounts.
The Group's nance function is responsible for managing investment and funding requirements including cash ow monitoring and projections. The cash ow projections are reviewed regularly by the Board to ensure the Group has su cient liquidity at all times to meet its cash requirements and execute its business strategy.
The Group's strategy is to nance its operations through the cash generated from operations and where necessary, equity and debt nance, notably to support investing activities.
The Group's nancial instruments comprise cash and various items such as trade and deferred receivables. The Group had GBP10.9m of cash at the year-end, with interest bearing nancial assets bearing interest at xed interest rates. Deposit risk is mitigated by the Directors setting policy that the Group only places deposits with banks and nancial institutions with high credit ratings.
The Group's exposure to credit risk from trade receivables is relatively low, due to the fact that the business has traditionally dealt with customers who often pay at the point or sale or in advance. Where there are credit accounts, which is an increasing trend in the industry particularly for the larger domain name registrars, receivables are controlled through credit limits and regular monitoring.
Foreign currency risk
The Board notes that the Group has predominantly traded in US Dollars, Euros, GB Sterling Pounds and Australian Dollars, and considers the exposure to foreign currency risk to be acceptable. The Group has held reserves in each of these currencies to meet trading obligations as required. The currency risk is actively monitored through a periodic review of in ows and outflows by currency, including an assessment of the extent to which currencies are naturally hedged across the Group's business lines. Where this is not the case, consideration is given to the use of hedging instruments.
CENTRALNIC GROUP PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2017
2017 2016
Note GBP'000 GBP'000
----- --------- ---------
Revenue 5,6 24,348 22,129
Cost of sales (14,554) (14,462)
Gross profit 9,794 7,667
Administrative expenses (7,453) (5,637)
Share based payments expense (453) (621)
Operating profit 1,888 1,409
Adjusted EBITDA* 6,607 5,483
Depreciation 13 (100) (125)
Amortisation of intangible
assets 14 (2,184) (2,066)
Acquisition costs & settlement
items 9 (1,982) (1,262)
Share based payments expense 28 (453) (621)
Operating profit 1,888 1,409
Finance income 10 19 18
Finance costs 10 (536) (270)
--------- ---------
Net finance costs 10 (517) (252)
Profit before taxation 7 1,371 1,157
Income tax expense 11 (349) (202)
Profit after taxation attributable
to equity shareholders 1,022 955
Items that may be reclassified
subsequently to profit and
loss
Exchange difference on translation
of foreign operation (302) 1,910
Cash flow hedges - effective
portion of changes in fair
value - (245)
Total comprehensive income
for the financial year attributable
to equity shareholders 720 2,620
Earnings per share
Basic (pence) 12 1.07 1.00
Diluted (pence) 12 1.04 0.97
All amounts relate to continuing activities.
*Earnings before interest, tax, depreciation and amortisation, acquisition costs, settlement items and non-cash charges.
CENTRALNIC GROUP PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2017 2017 2016
Note GBP'000 GBP'000
----- -------- --------
ASSETS
Non-current assets
Property, plant and equipment 13 208 161
Intangible assets 14 53,460 29,822
Deferred receivables 15 1,050 1,486
Investments 16 997 997
Deferred tax assets 22 1,502 1,121
57,217 33,587
Current assets
Trade and other receivables 17 14,054 11,529
Inventory 327 390
Cash and bank balances 18 10,862 9,902
25,243 21,821
Total assets 82,460 55,408
EQUITY AND LIABILITIES
Equity
Share capital 19 96 96
Share premium 19 16,545 16,545
Merger relief reserve 19 1,879 1,879
Share based payments reserve 2,507 2,004
Foreign exchange translation reserve 1,608 1,910
Foreign currency hedging reserve - -
Retained earnings 3,817 2,785
Total equity 26,452 25,219
Non-current liabilities
Other payables 20 5,634 3,820
Deferred tax liabilities 22 5,519 3,282
Borrowings 24 15,541 1,324
26,694 8,426
-------- --------
Current liabilities
Trade and other payables and accruals 23 27,047 19,947
Taxation payable 413 783
Borrowings 24 1,854 1,033
29,314 21,763
Total liabilities 56,008 30,189
Total equity and liabilities 82,460 55,408
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2017
Share Share Merger Share Foreign Foreign Total
capital premium relief based exchange currency Retained
reserve payments translation hedging earnings
reserve reserve reserve
--------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ---------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance as at
31 December
2015 92 16,522 - 1,390 - 245 1,797 20,046
Profit for the
year - - - - - - 955 955
Other
comprehensive
income
Translation of
foreign
operation - - - - 1,910 - - 1,910
Cash flow
hedge - - - - - (245) - (245)
--------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ---------
Total
comprehensive
income for
the year - - - - 1,910 (245) 955 2,620
--------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ---------
Transactions
with owners
Issue of new
shares 4 23 1,879 - - - - 1,906
Share based
payments - - - 621 - - - 621
Share based
payments
- reclassify
lapsed
options - - - (33) - - 33 -
Share based
payments
- deferred
tax asset - - - 26 - - - 26
--------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ---------
Balance as at
31 December
2016 96 16,545 1,879 2,004 1,910 - 2,785 25,219
Profit for the
year - - - - - - 1,022 1,022 Other comprehensive income Translation of foreign operation - - - - (302) - - (302) Total comprehensive income for the year - - - - (302) - 1,022 720 --------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- --------- Transactions with owners Share based payments - - - 453 - - - 453 Share based payments - reclassify lapsed options - - - (10) - - 10 - Share based payments - deferred tax asset - - - 60 - - - 60 --------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- --------- Balance as at 31 December 2017 96 16,545 1,879 2,507 1,608 - 3,817 26,452 --------------- ----------- ----------- ----------- ----------- ------------ ----------- ----------- ---------
-- Share capital represents the nominal value of the company's cumulative issued share capital.
-- Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.
-- Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions. Where the consideration for shares in another company includes issued shares, and 90% of the equity is held in the other company.
-- Retained earnings represent the cumulative value of the profits not distributed to shareholders, but retained to finance the future capital requirements of the CentralNic Group.
-- Share based payments reserve represents the cumulative value of share based payments recognised through equity.
-- Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.
-- Foreign currency hedging reserve represents the effective portion of changes in the fair value of derivatives.
CENTRALNIC GROUP PLC
CONSOLIDATED STATEMENT OF CASH
FLOWS
for the year ended 31 December
2017 2017 2016
Note GBP'000 GBP'000
----- --------- ---------
Cash flow from operating activities
Profit before taxation 1,371 1,157
Adjustments for:
Depreciation of property, plant
and equipment 100 124
Amortisation of intangible assets 2,184 2,066
Finance cost - net 428 130
Share based payments 453 621
Decrease / (Increase) in trade
and other receivables 1,196 (4,066)
(Decrease) / Increase in trade
and other payables and accruals (1,011) 3,350
Decrease in inventories 77 474
Cash flow from operations 4,798 3,856
Income tax paid (1,098) (538)
Net cash flow generated from operating
activities 3,700 3,318
Cash flow used in investing activities
Purchase of property, plant and
equipment (104) (145)
Purchase of intangible assets (415) (350)
Acquisition of a subsidiary, net
of cash acquired 25 (17,368) (14,831)
Net cash flow used in investing
activities (17,887) (15,326)
Cash flow used in financing activities
Proceeds from borrowings (net) 15,298 2,625
Proceeds from issuance of ordinary
shares - 23
Payment of deferred consideration - (36)
--------- ---------
Net cash flow generated from financing
activities
15,298 2,612
Net increase/(decrease) in cash
and cash equivalents 1,111 (9,396)
Cash and cash equivalents at beginning
of the year 9,902 19,060
Exchange (losses)/gains on cash
and cash equivalents (151) 238
9,902
Cash and cash equivalents at end
of the year 10,862 9,902
Bank borrowings (18,078) (2,625)
Net (debt)/cash excluding issue costs of debt (7,216) 7,277
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 December 2017
1. General information (a) Nature of operations
CentralNic Group Plc is the UK holding company of a group of companies which are engaged in the provision of global domain name services. The company is registered in England and Wales. Its registered office and principal place of business is 35-39 Moorgate, London, EC2R 6AR.
The CentralNic Group provides wholesale ("registry"), retail ("registrar") and enterprise services and strategic consultancy for new Top Level Domains ("TLDs"), Country Code TLD's ("ccTLDs") and Second-Level Domains ("SLDs") and it is the owner and registrant of a portfolio of domain names, which it uses as domain extensions and for resale on the domain name aftermarket.
(b) Component undertakings
The principal activities of the subsidiaries and other entities included in the financial statements are presented within the Particulars of Subsidiaries and Associates on pages 78 and 79 of the Annual Report and Accounts.
2. Application of IFRS (a) Basis of preparation
The financial statements are measured and presented in sterling (GBP), unless otherwise stated, which is the currency of the primary economic environment in which many of the entities operate. They have been prepared under the historical cost convention, except for those financial instruments which have been measured at fair value through profit and loss.
The financial statements have been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future. The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").
The Directors have reviewed forecasts and budgets for the coming year having regard to both the macroeconomic environment in which the group operates, historic and current industry knowledge and contracted trading activities and the future strategy of the Group. As a result of that review the Directors consider that it is appropriate to adopt the going concern basis of preparation.
(b) Standards, amendments and interpretations to published standards not yet effective
A number of new standards and amendments to standards and interpretations have been issued but are not yet effective and in some cases have not yet been adopted by the EU.
As described below, the Directors have completed their detailed review of IFRS 9 and IFRS 15 and concluded that the adoption of these standards would have no material impact on Financial Instruments and Revenue Recognition respectively from the next set of financial statements. Whilst Directors carry out their detailed review on IFRS 16, which is effective from 1 January 2019, it is currently expected that no material impact will arise from the adoption of this standard.
IFRS 15 is a prescriptive standard which requires a business to identify the performance obligations which are contracted with its customer base. The transaction price of the contract is determined after which the transaction price is allocated against the identified performance obligations. Revenue is recognised against each of the performance obligations as they are satisfied and as control is transferred. The Group has evaluated the revenue recognition policy in place against the requirement of the standard. Performance obligations within customer contracts have been identified where domain names are sold for a term, where the management, customer and technical support is available to the customer over the period of that term, in both Wholesale and
Retail Division. The transaction price of the contract is evaluated in accordance with IFRS 15, and is attached to the performance obligations of the customer contract. Performance obligations are deemed to be satisfied by transferring control rateably over the period of contractual time, being the anniversary of the expiry date of the domain name. Enterprise and consultancy revenues take a similar approach, however revenues here are either recognised when control is passed onto the customer either on a percentage completion basis inline with contractual milestones or immediately recognised on delivery of the contracted work. Overall, the business has determined that there is no material impact on the adoption of IFRS 15.
IFRS 9 relates to Financial Instruments which contains the requirement for a) the classification and measurement of financial assets and financial liabilities, b) Impairment methodology, and c) general hedge accounting. As disclosed in note 29, the Group measures it's financial assets and liabilities and accounts for any expected credit losses on the basis of fair value recognition. Therefore, the adoption of the IFRS 9 causes no material impact on the financial statements.
3. Summary of significant accounting policies
The financial statements have been prepared on the historical cost basis, as explained in the accounting policies set out below, which has been prepared in accordance with IFRS. The principal accounting policies are set out below.
(a) Basis of consolidation
The consolidated financial statements include the financial statements of all subsidiaries. The financial year ends of all entities in the group are coterminous
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control over the operating and financial decisions is obtained and cease to be consolidated from the date on which control is transferred out of the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
All intercompany balances and transactions, including recognised gains arising from inter-group transactions, have been eliminated in full. Unrealised losses are eliminated in the same manner as recognised gains except to the extent that they provide evidence of impairment.
(b) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, any previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised in profit or loss. If the contingent consideration is not within the scope of IAS 39, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained.
(c) Functional and foreign currencies
(i) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in pounds sterling (GBP) the Group's and the Company's presentational currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency at the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign currency gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except where deferred in other comprehensive income as qualifying cash flow hedges and qualifying net-investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within finance income or finance costs. All other foreign exchange gains and losses are recognised in profit and loss within administrative expenses.
(iii) Group companies
The results and financial position of all of the Group entities, none of which has the currency of a hyper-inflationary economy that have a functional currency different from the presentation currency of the Group are translated as follows:
a) assets and liabilities for each statement of financial position are translated at the closing rate at the date of that statement of financial position;
b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing at the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions).
c) All resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
(d) Financial instruments
Financial assets and liabilities are recognised in the statements of financial position when CentralNic or one of the CentralNic Group entities has become a party to the contractual provisions of the instruments.
The CentralNic Group's financial assets and liabilities are initially measured at fair value plus any directly attributable transaction costs. The carrying value of the CentralNic Group's financial assets (primarily cash and bank balances) and liabilities (primarily CentralNic's payables and other accrued expenses) approximate their fair values.
Financial instruments are offset when the CentralNic Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously.
Financial instruments recognised in the pro forma aggregated statements of financial position are disclosed in the individual policy statement associated with each item.
(i) Financial assets
On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables financial assets, or available-for-sale financial assets, as appropriate.
-- Trade and other receivables
Trade and other receivables (including deposits and prepayments) that have fixed or determinable payments that are not quoted in an active market are classified as other receivables, deposits and prepayments. Other receivables, deposits and prepayments are measured at amortised cost using the effective interest method, less any impairment loss. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
-- Derivative financial instruments
o Cash flow hedge
Derivatives are initially recognised at fair-value on the date a derivative contract is entered into and are subsequently re-measured at their fair-value. The method of recognising the resulting gain or loss depends on whether the derivative is designated a hedging instrument and if so, the nature of the item being hedged.
The Group has only undertaken hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedges).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives which are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion, if any, is recognised immediately in the income statement.
Amounts accumulated in equity are reclassified to profit and loss in the period or periods that the hedged item affects profit and loss. When a hedging instrument expires or is sold, or where a hedge no longer meets the criteria for hedge accounting any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss which was reported in equity is immediately transferred to the income statement.
o Cash and bank balances
Cash and bank balances comprise cash balances that are subject to insignificant risk of changes in their fair value and are used by the CentralNic Group in the management of its short-term commitments.
(ii) Financial liabilities and equity instruments
Financial liabilities are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to financial liabilities are reported in profit or loss. Distributions to holders of financial liabilities are classified as equity and charged directly to equity.
-- Financial liabilities
Financial liabilities comprise long-term borrowings, short-term borrowings, trade and other payables and accruals, measured at amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
-- Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. Equity instruments issued by the CentralNic Group are recognised at the proceeds received, net of direct issue costs.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from proceeds.
Dividends on ordinary shares are recognised as liabilities when approved for appropriation.
(e) Property, plant, and equipment
Property, plant and equipment, including leasehold improvements and office furniture and equipment, are stated at cost less accumulated depreciation and impairment losses, if any.
Depreciation is calculated using the methods below to write off the depreciable amount of the assets over their estimated useful lives. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. The principal annual rates used for this purpose are:
UK Australia New Zealand Germany Slovakia
Depreciation method Reducing Balance Reducing Balance Reducing Balance Straight Line Straight Line
Computer equipment 60% - 65% 25% 25% 33% 20%
Furniture and fittings 15% - 20% 5-10% 5-20% 10% 20%
The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the asset.
Subsequent component replacement costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the CentralNic Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which the CentralNic Group are obliged to incur when the asset is acquired, if applicable.
An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from de-recognition of the asset is recognised in profit or loss.
(f) Intangible assets
Intangible assets represent amounts paid to acquire the rights to own and act as registrant for a portfolio of domain names.
Capitalised domain names have a finite useful life and are measured at cost less accumulated amortisation and impairment losses, if any. Domain names are amortised on an annual basis at the rate of 10% reducing balance.
Domain names not held for resale are included in the balance sheet at amortised cost and classified as "Domain names" and amortised over their useful lives. Domain names held for resale are included in the balance sheet at the lower of cost and net realisable value and classified as stock held for sale, no amortisation being charged. If a decision is taken to sell a domain name previously included in intangible assets it is reclassified as stock at net book value prior to sale.
The useful economic life for the software acquired as part of the Internet.BS, Instra and SK-NIC acquisitions is five years with the customer list acquired being amortised over ten years.
Development costs that the CentralNic Group incurs for identifiable and unique software will be capitalised, where the following criteria are met;
o it is technically feasible to complete the software so that it will be available for use;
o management intends to complete the software product and use or sell it;
o there is an ability to use or sell the software product;
o it can be demonstrated that the asset will probably generate future economic benefits; and
o the expenditure attributable to the software product during its development can be reliably measured.
o that there are adequate technical and finance resources available to complete this development.
Costs capitalised in relation to computer software development may relate to either;
o completely separable software, or;
o enhancements of existing software which are clearly identifiable as new modules within the system or new features which enable the asset to generate additional future economic benefit. For the avoidance of doubt this excludes the ongoing maintenance to the existing software.
Directly attributable costs that are capitalised as part of the software product include the employee costs and an appropriate portion of the relevant overheads. Computer software development recognised as assets are amortised over their estimated useful lives, which are determined by the Directors.
Costs for development initiatives that the CentralNic Group undertakes that are not otherwise allocable to specific domain names or projects are charged to expense through profit and loss when incurred.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets are tested for impairment annually if facts and circumstances indicate that impairment may exist. In the event that the expected future economic benefits of the intangible assets are no longer probable or expected to be recovered, the capitalised amounts are written down to their recoverable amount through profit and loss.
(g) Impairment (i) Impairment of financial assets
Financial assets not categorised at fair value through profit or loss are assessed at the end of each reporting period to determine whether there is any objective evidence of impairment. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset and that loss event(s) had an impact on the estimated future cash flows of the asset. Objective evidence that financial assets are impaired includes default or delinquency by a debtor and the restructuring of an amount due to the CentralNic Group on terms that the CentralNic Group would not consider otherwise.
An impairment loss in respect of a financial asset measured at amortised cost, including other receivables and deposits, is recognised in profit or loss and is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate. Losses are recognized in profit or loss and reflected in an allowance account against the amounts receivable.
When the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.
(ii) Impairment of non-financial assets
The carrying values of non-financial assets, other than deferred tax assets, are reviewed at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. The recoverable amount of the asset is the higher of the asset's fair value less cost to sell and their value-in-use, which is measured by reference to discounted future cash flows.
An impairment loss is recognised if the carrying value of the asset exceeds its recoverable amount.
(ii) Impairment of non-financial assets
An impairment loss is recognised in profit or loss immediately.
In respect of assets other than goodwill, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately.
(h) Cash and cash equivalents
Cash and bank balances comprise of cash in hand, bank balances, deposits with financial institutions and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(i) Employee benefits
Short-term employee benefits, including wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the CentralNic Group.
(j) Leases
Assets held under leases are classified as operating leases and are not recognised in the CentralNic Group's statement of financial position. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as part of the total lease expense, over the term of the lease.
(k) Taxation
Taxation for the year comprises of current and deferred tax.
Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences other than those that arise from goodwill or excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the business combination costs or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. The carrying amounts of deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred tax assets to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same taxation authority.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transactions either in other comprehensive income or directly in equity and deferred tax arising from a business combination is included in the resulting goodwill or excess of the acquirer's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities over the business combination costs.
(l) Share based payments
Employees (including Directors and Senior Executives) of the Group receive remuneration in the form of share-based payment transactions, whereby these individuals render services as consideration for equity instruments ("equity-settled transactions"). These individuals are granted share option rights approved by the Board which can only be settled in shares of the respective companies that award the equity-settled transactions. Share option rights are also granted to these individuals by majority shareholders over their shares held. No cash settled awards have been made or are planned.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant individuals become fully entitled to the award ("vesting point"). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments and value that will ultimately vest. The statement of comprehensive income charge for the year represents the movement in the cumulative expense recognised as at the beginning and end of that period.
The fair value of share-based remuneration is determined at the date of grant and recognised as an expense in the statement of comprehensive income on a straight line basis over the vesting period, taking account of the estimated number of shares that will vest. The fair value is determined by use of Black Scholes model method.
(m) Provisions, contingent liabilities and contingent assets
Provisions are recognised if, as a result of a past event, the CentralNic Group has a present legal or constructive obligation, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at the end of each financial reporting period and adjusted to reflect the current best estimate. Where effect of the time value of money is material, the provision is the present value of the estimated expenditure required to settle the obligation.
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the CentralNic Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.
A contingent liability is not recognised in the financial statements but is disclosed in the notes to the financial statements. When a change in the probability of a contingent outflow occurs so that the outflow is probable, a liability will be recognised as a provision.
A contingent asset is a probable asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the CentralNic Group. The CentralNic Group does not recognise contingent assets but discloses their existence where inflows of economic benefits are probable, but not virtually certain.
(n) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the course of ordinary activities, net of discounts and sales related taxes.
Revenue from the sale of services is recognised when the amounts of revenue and cost can be measured reliably. In particular:
(i) Sale of Wholesale ("registry") services for domain names ("Wholesale Domain sales")
Wholesale revenues are generated from the provision of wholesale and related services between a registrar and registry operator. The sub revenue streams would be those of new registrations and renewals. The division performs the role of both the registry operator and registry service provider for the legacy proprietary domains that the company owns and operates. For third party domain names, the division provides the registry service provision, whether this be purely technical provision, or incorporate marketing and billing and cash collection services. An invoice under the wholesale division could cover the sale of a domain name for a fixed term period which could vary between one and ten years. An invoice generated to the registrar is offset by invoice from the registry operator to derive net revenues. Revenues that relate to the period in which the services are performed are recognised in the income statement of that period, with the amounts relating to future periods being deferred into 'Deferred revenues.'
Revenue from strategic consultancy and similar services is recognised in profit and loss in proportion to the stage of completion of the assignment at the reporting date. The stage of completion is determined based on completion of work performed to date as a percentage of total services to be performed.
(ii) Sale of Retail ("registrar") services for domain names ("Retail Domain sales")
Retail revenues are generated from the provision of retail and similar services to domain registrants and resellers. The sub revenue streams would be those of new registrations and renewals. Revenue originates when a transaction is generated on the service registry platform by the customer. The transaction constitutes a term period which may vary between one and ten years. Revenues that relate to the period in which the services are performed are recognised in the income statement of that period, with the amounts relating to future periods being deferred into 'Deferred revenues.' These revenues are matched to deferred wholesale costs which cover the same period of the underlying sale.
(iii) Sale of Enterprise services including premium domain names ("Enterprise including Premium Domain Name Sales")
Revenue from enterprise services and premium domain name sales are recognised in profit and loss at the point of sale. Revenue from the provision of computer software to a customer is recognised when the Group has delivered the related software and completed all of the adaptions required by the customer for either the whole contract or for a specific milestone deliverable within the contract. Where no adaptions are required revenue is recognised on delivery.
Revenue from strategic consultancy and similar services is recognised in profit and loss in proportion to the stage of completion of the assignment at the reporting date. The stage of completion is determined based on completion of work performed.
4. Critical accounting judgments and key sources of estimating uncertainty
In the application of the CentralNic Group's accounting policies, which are described in note 3, the Directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not apparent from other sources. The estimates and assumptions 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.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date that have a significant risk of causing a significant adjustment to the carrying amounts of assets and liabilities in the Financial statements:
Impairment Testing and Fair Value Assessment
The recoverable amounts of individual non-financial assets are determined based on the higher of the value-in-use or the fair value less costs to sell. These calculations will require the use of estimates and assumptions. It is reasonably possible that assumptions may change, which may impact the Directors' estimates and may then require a material adjustment to the carrying value of investments, tangible and intangible assets.
The Directors review and test the carrying value of investments, tangible and intangible assets when events or changes in circumstances suggest that the carrying amount may not be recoverable. For the purposes of performing impairment tests, assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets or liabilities. If there are indications that impairment may have occurred, estimates will be prepared of expected future cash flows for each group of assets.
For available for sale assets held at fair value, the Directors review the appropriateness and reasonableness of (i) the valuation technique(s) followed to determine the fair value and corroborative support (ii) the assumptions used in preparing such valuations and the evaluation of the sensitivity in such assumptions (iii) the evidence of indicators of a change in fair value and (iv) the adjustments required if there are indications that a change in fair value has arisen.
Expected future cash flows used to determine the value in use of tangible and intangible assets will be inherently uncertain and could materially change over time. The carrying value of the Group's investments, tangible and intangible assets are disclosed in notes 13, 14 and 16 respectively.
Acquisition accounting and goodwill
Where the Group undertakes business combinations, the cost of acquisition is allocated to identifiable net assets and contingent liabilities acquired and assumed by reference to their estimated fair values at the time of acquisition. The remaining amount is recorded as goodwill. The valuation of identifiable net assets involves an element of judgement related to projected results. Fair values that are stated as provisional are not finalised at the reporting date and final fair values may be determined that are materially different from the provisional values stated.
Judgement was exercised in determining the fair value of the SK-NIC a.s. acquisition. Further details are set out in note 25.
5. Segment analysis
CentralNic is an independent global domain name service provider. It provides Wholesale, Retail and Enterprise services and is the owner and registrant of a portfolio of domain names. Operating segments are prepared in a manner consistent with the internal reporting provided to the management as its chief operating decision maker in order to allocate resources to segments and to assess their performance. The segmental analysis is organised around the products and services of the business.
The Wholesale Division is a global distributor of domain names and provides consultancy services to retailers. The Retail Division provides domain names and ancillary services to end users, also on a global basis. The Enterprise Division represents revenue generated by providing technical and consultancy services to corporate and DotBrand clients, licencing of the Group's in house developed registry management platform, and selling premium domain names.
Management reviews the activities of the CentralNic Group in the segments disclosed below.
2017
---------------------------------------------------------------------------
Revenue Non-current Current Non-current Current
Adjusted assets assets liabilities liabilities
EBITDA
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- ----------- ------------ -------- ------------- -------------
Wholesale Domain Sales 4,706 2,098 29,514 13,896 22,203 19,530
Retail Domain Sales 15,577 2,650 27,571 11,070 4,491 9,759
Enterprise including
Premium Domain Name
Sales 4,065 2,828 132 277 - 25
Group overheads including -
costs associated with (969) - - - -
public company status
24,348 6,607 57,217 25,243 26,694 29,314
-------- ----------- ------------ -------- ------------- -------------
2016
-------------------------------------------------------------------------
Revenue Adjusted Non-current Current Non-current Current
EBITDA assets assets liabilities liabilities
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- --------- ------------ -------- ------------- -------------
Wholesale Domain Sales 3,176 1,237 2,901 12,614 1,775 13,578
Retail Domain Sales 14,320 2,417 30,564 8,848 6,651 8,159
Enterprise including
Premium Domain Name
Sales 4,633 2,785 122 359 - 26
Group overheads including - - - - -
costs associated with (956)
public company status
22,129 5,483 33,587 21,821 8,426 21,763
-------- --------- ------------ -------- ------------- -------------
The geographical locations of the non-current and current assets and non-current and current liabilities are located in the following territories.
2017
----------------------------------------------------
Non-current Current Non-current Current
assets assets liabilities liabilities
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- ------------- -------------
UK 3,260 14,817 16,346 18,257
North America - 117 - (12)
Europe 25,874 689 5,857 2,623
Australasia 23,471 5,824 4,491 5,766
ROW 3,036 3,796 - 2,680
------------ -------- ------------- -------------
55,641 25,243 26,694 29,314
------------ -------- ------------- -------------
2016
----------------------------------------------------
Non-current Current Non-current Current
assets assets liabilities liabilities
GBP'000 GBP'000 GBP'000 GBP'000
------------ -------- ------------- -------------
UK 2,993 13,781 5,010 13,786
North America - 33 - (123)
Europe 9 135 - 26
Australasia 25,817 4,804 3,023 5,803
ROW 3,647 3,068 393 2,271
------------ -------- ------------- -------------
32,466 21,821 8,426 21,763
------------ -------- ------------- -------------
6. Revenue
The Wholesale Division generated its revenue from sale of domain names totalling GBP4,105,000 (2016: GBP3,112,000) and GBP601,000 (2016: GBP64,000) from consultancy and other services. The Retail Division wholly represents revenue from provision of reselling domain names totalling GBP15,577,000 (2016: GBP14,320,000). The Enterprise Division generates its revenue from sale of premium domain names amounting to GBP2,992,000 (2016: GBP3,744,000), corporate revenues of GBP590,000 (2016: GBP574,000), software licensing revenues of GBP287,000 (2016: GBP150,000) and dotbrand revenues of GBP196,000 (2016: GBP165,000).
The CentralNic Group's revenue is generated from the following geographical areas:
2017 2016
GBP'000 GBP'000
-------- --------
Wholesale Domain Sales
UK 451 805
North America 1,092 904
Europe 1,260 451
ROW 1,903 1,016
4,706 3,176
Retail Domain Sales
UK 1,402 1,215
North America 3,209 3,416
Europe 4,285 3,723
ROW 6,681 5,966
15,577 14,320
Enterprise including Premium
Domain Name Sales
UK - 4
North America 2,697 3,745
Europe 811 575
ROW 557 309
4,065 4,633
Enterprise including premium domain name sales by nature are subject to annual variation depending on customer demand.
The Wholesale Division had one customer that representing more than 10% of the division's revenue at GBP613,000 (2016: none). No single customer contributes greater than 10% or more of the retail domain sales.
The enterprise including premium domain name sales were principally driven by premium domain name sales of GBP2,992,000 (2016: GBP3,744,000) of which GBP2,638,000 was made to one customer (2016: GBP3,555,000 to one customer).
The CentralNic Group's revenue is generated from the following countries:
2017 2016
GBP'000 GBP'000
-------- --------
Revenue by Customer Location
United States of America 6,054 7,552
United Kingdom 1,603 1,580
Australia 1,434 1,359
China 1,369 670
Germany 866 908
United Arab Emirates 687 595
France 562 488
Singapore 523 476
Italy 508 436
Hong Kong 452 406
New Zealand 404 346
Canada 402 351
Russian Federation 341 325
Chile 268 426
Switzerland 232 225
India 226 199
Other 8,417 5,787
24,348 22,129
7. Profit before taxation
The profit before taxation is stated after charging the following amounts.
2017 2016
GBP'000 GBP'000
-------- --------
Employee benefit expense - wages and
salaries 3,788 3,057
Employee benefit expense - social
security 354 275
Employee benefit expense - pension 178 132
Employee benefit expense - share based
payments 136 123
Staff Consultancy fees 468 567
Directors' remuneration - fees and
salaries 843 925
Directors' remuneration - share based
payments 317 498
Operating Leases - land & buildings 162 148
Operating Leases - equipment 451 431
Fees payable to the company's auditor
for the audit of parent
company and consolidated financial
statements - UK auditor office 55 50
Fees payable to the company's auditor
for the audit of subsidiary
Companies - Overseas auditor associates 50 45
Fees payable to company's auditors
for due diligence and other acquisition
costs 102 128
Net loss / (gain) on foreign currency
translation 588 (567)
Depreciation and amortisation expense 2,284 2,190
8. Employee Information
The average number of persons employed by the group (excluding directors) during the year were 92 (2016: 87), analysed by category, as follows;
2017 2016
Number Number
------- -------
Management and finance 10 7
Technical 28 29
Sales and Marketing 23 21
Administrative 5 6
Operations 26 24
Key management personnel
Total remuneration of key management personnel being the directors and key senior personnel is GBP2,360,000 (2016: GBP1,810,000), and is set out below in aggregate for each of the categories specified in IAS24, related party disclosures.
2017 2016
Directors Senior Total Directors Senior Total
key personnel key personnel
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------------- -------- ---------- --------------- --------
Wages and Salaries 621 743 1,364 623 328 951
Employers NI 68 70 138 57 18 75
Pension 21 37 58 16 16 32
Share based payments 317 35 352 498 25 523
Directors consultancy
fees 133 - 133 162 0 162
Settlements 315 - 315 67 - 67
1,475 885 2,360 1,423 387 1,810
The Group made contributions to defined contribution personal pension schemes for 6 directors in the period (2016: 5). The number of individuals included within the senior key personnel increased to 8 (2016: 4). Included in the above tables, the highest paid director had wages and salaries including pensions of GBP90,000 (2016: GBP162,000), Director's consultancy fees GBPnil (2016: GBP66,000), share based expense of GBP29,000 (2016: GBP118,000), and settlement payments of GBP234,000 (2016: nil) totalling to GBP353,000 (2016: GBP346,000).
The Group operates payrolls in several foreign subsidiaries and fully complies with local jurisdiction obligations. Directors and key personnel are compensated through the payroll of the country in which those individuals fulfill their duties.
9. Acquisition costs & settlement costs
2017 2016
GBP'000 GBP'000
-------- --------
Acquisition related costs 1,554 1,094
Costs in relation to Director and 428 -
employee settlements
Other non trading items - 168
1,982 1,262
10. Finance income and costs
2017 2016
GBP'000 GBP'000
-------- --------
Interest income on loans to shareholders 17 18
Interest income on loans to Accent 2 -
Media Ltd (related party)
Finance income 19 18
Interest expense on short-term borrowings (7) -
Interest expense on long-term bank
borrowings (529) (232)
Cash flow hedges - (38)
Finance costs (536) (270)
Net finance costs (517) (252)
11. Income tax expense
2017 2016
GBP'000 GBP'000
Current tax on profits for the year 887 282
Adjustments in respect of prior years (45) (48)
-------- --------
Current Income Tax 842 234
Deferred Income Tax (note 22) (493) (32)
Income tax expense 349 202
A reconciliation of the current income tax expense applicable to the profit before taxation at the statutory tax rate to the current income tax expense at the effective tax rate of CentralNic is as follows:
2017 2016
GBP'000 GBP'000
Profit before taxation 1,371 1,157
-------- --------
Tax calculated at domestic tax rates
applicable to profits in
the respective countries 204 158
Tax effects of;
- Expenses not deductible for tax
purposes 199 82
- Unutilised tax losses (9) 10
Adjustment in respect of prior years (45) (48)
Current income tax 349 202
The Company provides for income taxes on the basis of its income for financial reporting purposes, adjusted for items that are not assessable or deductible for income tax purposes, in accordance with the regulations of domestic tax authorities.
The effective rate of tax for the year is 25.4% (2016: 17.5%).
In the UK, the applicable statutory tax rate for 2017 is 19% (2016: 20%).
In the USA, federal taxes are due at 15% on taxable income. Under California tax legislation a statutory minimum of $800 of state tax is due.
In Germany, federal taxes are due at 15% on taxable income. With an additional 5.5% solidarity surcharge due on the income tax. A community business tax of c.17% is also levied with rates determined by the municipality.
In addition, for the current year, included within the domestic tax rates applicable to profits are Australia where income tax is due at 30% of taxable income and New Zealand, where income tax is due at 28% on taxable income.
In Slovakia, income tax is due at 21% of taxable income
12. Earnings per share
Earnings per share has been calculated by dividing the consolidated profit after taxation attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share has been calculated on the same basis as above, except that the weighted average number of ordinary shares that would be issued on the conversion of the dilutive potential ordinary shares as calculated using the treasury stock method (arising from the Group's share option scheme and warrants) into ordinary shares has been added to the denominator. There are no changes to the profit (numerator) as a result of the dilutive calculation.
2017 2016
Profit after tax attributable to owners
(GBP'000) 1,022 955
Weighted average number of shares:
Basic 95,894,348 95,632,390
Effect of dilutive potential ordinary
shares 2,922,785 2,745,348
Diluted 98,817,133 98,377,738
Earnings per share:
Basic (pence) 1.07 1.00
Diluted (pence) 1.04 0.97
13. Property, plant and equipment
Computer Furniture Total
equipment and fittings
GBP'000 GBP'000 GBP'000
Cost
At 1 January 2016 356 38 394
Additions 139 6 145
Acquisition of Subsidiary 31 32 63
Exchange differences 51 25 76
Disposals (12) - (12)
----------- -------------- --------
At 31 December 2016 565 101 666
Additions 103 1 104
Acquisition of Subsidiary 47 - 47
Exchange differences (7) (6) (13)
Disposals (1) - (1)
----------- -------------- --------
At 31 December 2017 707 96 803
----------- -------------- --------
Accumulated depreciation
At 1 January 2016 297 32 329
Charge for the year 112 13 125
Exchange differences 45 18 63
Disposals (12) - (12)
----------- -------------- --------
At 31 December 2016 442 63 505
Charge for the year 91 9 100
Exchange differences (2) (7) (9)
Disposals (1) - (1)
At 31 December 2017 530 65 595
----------- -------------- --------
Property, plant, and equipment,
net
At 31 December 2017 177 31 208
=========== ============== ========
At 31 December 2016 123 38 161
=========== ============== ========
Depreciation of property, plant and equipment is included in administrative expenses in the consolidated statement of comprehensive income.
14. Intangible assets
Domain Software Customer List Goodwill Total
names
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost or deemed cost
At 1 January 2016 2,340 1,064 2,548 1,573 7,525
Additions - 350 - - 350
Acquisition of Subsidiary 1,121 1,615 8,738 11,774 23,248
Reclassification (2,295) - - - (2,295)
Exchange Differences - 265 1,430 1,956 3,651
-------- --------- -------------- --------- --------
At 31 December 2016 1,166 3,294 12,716 15,303 32,479
Additions - 415 - - 415
Acquisition of Subsidiary - 132 11,709 13,839 25,680
Reclassification (25) - - - (25)
Exchange Differences - (36) (87) (134) (257)
At 31 December 2017 1,141 3,805 24,338 29,008 58,292
-------- --------- -------------- --------- --------
Amortisation
At 1 January 2016 1,473 280 382 - 2,135
Charge for the year 196 640 1,230 - 2,066
Reclassification (1,544) - - - (1,544)
-------- --------- -------------- --------- --------
At 31 December 2016 125 920 1,612 - 2,657
Charge for the year 104 761 1,319 - 2,184
Reclassification (9) - - - (9)
At 31 December 2017 220 1,681 2,931 - 4,832
-------- --------- -------------- --------- --------
Intangible assets, net
At 31 December 2017 921 2,124 21,407 29,008 53,460
======== ========= ============== ========= ========
At 31 December 2016 1,041 2,374 11,104 15,303 29,822
======== ========= ============== ========= ========
Amortisation of intangible assets is included in administrative expenses in the consolidated statement of comprehensive income.
Certain domain names previously held as intangible assets were reclassified to stock held for resale in the 2017 and the 2016 periods.
Goodwill and Customer List
The Group tests goodwill recognised through business combinations annually for impairment. Additions to goodwill arose through the business combinations outlined in note 25. The carrying value of goodwill and the customer list is allocated to the respective segments as follows:
Customer List Goodwill
2017 2016 2017 2016
GBP,000 GBP,000 GBP'000 GBP'000
Wholesale Division 11,727 - 13,957 -
Retail Division 9,680 11,104 14,933 15,189
Enterprise Division - - 118 114
-------- --------
Total carrying value 21,407 11,104 29,008 15,303
-------- -------- -------- --------
The recoverable amount of goodwill of GBP29,008,000 (2016: GBP15,303,000) at 31 December 2017, is determined based on a value in use using cash flow projections from financial budgets approved by senior management covering a three year period. Cash flow projections beyond the three year timeframe are extrapolated by applying a flat growth rate in perpetuity per the table below which is based on management judgement, historical trends, expected return on investment, experience and discretion. The pre-tax discount rate applied to the cash flow projections is 10.0%. As a result of the analysis, management did not identify any impairment of goodwill.
The assumptions used in the cash flow projections were as follows;
Growth Rates
Wholesale Division 9%
-------------
Retail Division 1%
-------------
Enterprise Division -%
-------------
Discount rates:
Discount rates represent the current market assessment of the risks specific to the CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its WACC, with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The cost of equity is derived from the expected return on investment by the Group's investors.
Management consider that no reasonable change in these key assumptions would cause the carrying amount of this asset to exceed its value in use.
15. Deferred receivables
2017 2016
GBP'000 GBP'000
-------- --------
Deferred costs 976 1,486
Amounts due from related parties 74 -
1,050 1,486
In June 2017 the Company loaned Accent Media Ltd $100k (GBP74k). The loan is due for repayment in three years and accrues interest at 5% which is payable quarterly in arrears. The deferred costs are prepaid invoices for a period over 12 months relating to domain name purchases from wholesalers.
16. Investments
Available for sale investments GBP'000
carried at fair value
At 31 December 2016 997
Additions -
--------
At 31 December 2017 997
--------
The Company owns less than 20% of the following undertakings which are incorporated in the United Kingdom (UK):
Place of Issued and
incorporation/ Principal paid-up/ registered Effective
Name establishment activities capital interests
------------------ ----------------- ----------------- ---------------------- -----------
Domain registry
Accent Media Ltd UK operator Ordinary shares 10.4%
This investment is categorised in the fair value hierarchy under Level 3 as no observable market data was available.
The fair value of the investment at 31 December 2017 continues to be assessed using a price of recent investment valuation technique, supported by a DCF valuation technique to corroborate the measure of fair value of the investment. The valuation method applied to this investment is considered the most appropriate with regard to the stage of the development of the business and the IPEVCV guidelines. In applying the price of recent investment valuation methodology, the basis used is the initial cost of the investment.
In deriving the price of recent investment the Directors have given consideration to the cost of investment arising from transactions involving both the Company and (subsequently) third parties. In determining the continued use of the price of recent investment valuation the directors have considered the continued validity of this method by reference to the timing of the most recent transactions, the existence of indicators of change in fair value and the appropriateness of alternative valuation techniques. The Directors have considered that whilst Accent Media Limited continues to be at an early-stage, more recent developments within the business provide indicators that it is now anticipated to progress during 2018/19 in line with the expectations set when the initial investment was made by the Group.
For the corroborative valuation measures determined by use of DCF techniques, the key significant unobservable inputs include cumulative average growth rate, weighted average cost of capital and expected operating margins. A reasonable change to the input assumptions, such as 2% change in weighted average cost of capital would lead to an increase or decrease in the value of this investment of approximately GBP250,000.
In the event that the performance of Accent Media Limited does not meet future expectations there is a risk that a reduction in the fair value of the investment could arise. The net assets of Accent Media Limited (in which the Group has 10.4% shareholding) in the most recently publicly available unaudited financial statements for the year ended 31 March 2017 were GBP3,619,466.
17. Trade and other receivables
2017 2016
GBP'000 GBP'000
-------- --------
Trade receivables 3,826 5,361
Accrued revenue 3,056 1,123
Deferred costs 3,435 3,315
Prepayments 222 163
Supplier payments on account 563 376
Amounts due from shareholders 764 747
Other receivables 2,188 444
14,054 11,529
-------- --------
As of 31 December 2017, trade receivables of GBP294,000 (2016: GBP451,000) were past due but not impaired. These primarily relate to four customers for whom there is considered a low risk of default.
The aging of the trade receivables past due but not impaired is as follows; 0-30 days GBP3,000 (2016: GBP163,000), 30-60 days GBP46,000 (2016: GBP229,000), 60-90 days GBP20,000 (2016: GBP29,000), and over 90 days GBP225,000 (2016: GBP30,000).
The deferred costs are prepaid invoices for a period within 12 months relating to domain name purchases from wholesalers. Supplier payments on account reflect payments to domain name registries for use against future wholesale domain purchases within the Internet.BS and Instra retail businesses. Other receivables primarily relate to rebates due from registries in the Internet.BS retail business.
Amounts due from shareholders represent amounts due from Jabella Group Limited, a shareholder during the period. Amounts due from Jabella Group Limited were interest free until 31 August 2013, from which time the balance accrued interest at 2% above LIBOR (2017: GBP17,359; 2016: GBP17,749). The loan was granted in August 2011 for an initial term of five years, the balance is currently GBP764,000. The loan is now repayable on demand.
The directors are reviewing the terms of the loan and consider the loan to be fully recoverable. The directors consider that the fair value of this receivable is not materially different from the carrying value.
18. Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:
2017 2016
Amounts held on deposit GBP'000 GBP'000
-------- --------
GBP 1,530 939
USD 7,202 7,428
EUR 1,884 1,171
AUD 157 203
NZD 32 159
CAD 54 -
Other 3 2
10,862 9,902
19. Share capital
The Company's issued and fully paid share capital is as follows:
Share Capital Share Premium Merger relief
reserve
Number GBP'000 GBP'000 GBP'000
----------- -------------- -------------- --------------
Ordinary shares of 0.1 pence each
At 31 December 2016 and 31 December 2017 95,894,348 96 16,545 1,879
----------- -------------- -------------- --------------
The Company has no authorised share capital.
20. Non-current other payables
2017 2016
GBP'000 GBP'000
-------- --------
Deferred revenue 2,282 3,820
Deferred consideration 3,352 -
5,634 3,820
-------- --------
21. Reserves
Share capital represents the nominal value of the company's cumulative issued share capital.
Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.
Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions. Where the consideration for shares in another company includes issued shares, and 90% of the equity is held in the other company.
Retained earnings represent the cumulative value of the profits not distributed to shareholders, but retained to finance the future capital requirements of the CentralNic Group.
Share based payments reserve represents the cumulative value of share based payments recognised through equity.
Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.
Foreign currency hedging reserve represents the effective portion of changes in the fair value of derivatives
22. Deferred tax
Share Based Payments Losses Other temporary differences Total
Deferred tax assets GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- --------------------- -------- ---------------------------- --------
At 1 January 2016 168 - - 168
Acquisition of subsidiary - - 835 835
(Charge)/credit to income 79 194 (357) (84)
(Charge)/credit to equity 26 - - 26
Exchange differences - - 176 176
--------------------------- --------------------- -------- ---------------------------- --------
At 31 December 2016 273 194 654 1,121
--------------------------- --------------------- -------- ---------------------------- --------
Acquisition of subsidiary - - 95 95
(Charge)/credit to income 205 27 17 249
(Charge)/credit to equity 60 - - 60
Exchange differences - - (23) (23)
--------------------------- --------------------- -------- ---------------------------- --------
At 31 December 2017 538 221 743 1,502
--------------------------- --------------------- -------- ---------------------------- --------
SK-NIC intangible assets Instra intangible assets Other temporary Total
differences
Deferred tax liabilities GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 1 January 2016 - - 65 65
Acquisition of subsidiary - 3,002 - 3,002
(Credit)/Charge to income - (399) (18) (417)
Exchange differences - 632 - 632
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 31 December 2016 - 3,235 47 3,282
-------------------------- ------------------------- ------------------------- -------------------------- --------
Acquisition of subsidiary 2,451 - - 2,451
(Credit)/Charge to income (5) (286) 47 (244)
(Credit)/Charge to other
comprehensive income - - (53) (53)
Exchange differences 23 60 - 83
-------------------------- ------------------------- ------------------------- -------------------------- --------
At 31 December 2017 2,469 3,009 41 5,519
-------------------------- ------------------------- ------------------------- -------------------------- --------
23. Trade and other payables and accruals
2017 2016
GBP'000 GBP'000
-------- --------
Trade payables 3,091 3,120
Accrued expenses 7,024 4,596
Other taxes and social
security 208 220
Deferred consideration 523 -
Deferred revenue 9,218 7,375
Customer payments on account 6,877 4,602
Accrued interest 70 22
Other liabilities 36 12
27,047 19,947
-------- --------
24. Borrowings
2017 2016
GBP'000 GBP'000
-------- --------
Non-current
Bank borrowings 16,078 1,458
Prepaid finance costs (537) (134)
-------- --------
15,541 1,324
Current
Bank borrowings 2,000 1,167
Prepaid finance costs (146) (134)
-------- --------
1,854 1,033
Total Borrowings 17,395 2,357
-------- --------
Bank Prepaid Total
borrowings finance
Costs
GBP'000 GBP'000 GBP'000
------------- ---------- --------
Bank borrowings 1 January
2016 - - -
Term Loan drawdown (January
2016) 3,500 (396) 3,104
Repayment in 2016 (875) 128 (747)
------------- ---------- --------
Total borrowing as at
31 December 2016 2,625 (268) 2,357
Repayment of initial loan (2,625) 268 (2,357)
New financing drawdown
(August 2017) 1,750 - 1,750
New financing drawdown
(November 2017) 16,250 (732) 15,518
Repayment of new financing - 49 49
Exchange differences 78 - 78
Total borrowing as at
31 December 2017 18,078 (683) 17,395
------------- ---------- --------
Bank borrowings relate to the GBP18.0m secured debt facility entered into with Silicon Valley Bank ("SVB") on 29 August 2017 as amended and restated on 30 November 2017. The debt facility refinanced the remaining GBP1.75m due in relation to the original debt facility entered into with SVB on 8 December 2015, with the remaining GBP16.25m being drawn down on 30 November 2017 to fund the initial cash consideration of the SK-NIC acquisition.
Interest for the period has been accrued at the applicable margin plus LIBOR. The term of the loan is 5 years with quarterly loan and interest repayments.
25. Business combinations
On 5 December 2017 Centralnic Group completed the acquisition of the entire share capital of SK-NIC a.s. for a total consideration of EUR28.1m, consisting of EUR26.1m in cash less a cash adjustment for working capital at completion of (EUR0.4m), plus a fair value adjustment relating to the deferred and contingent consideration which is due for payment by 2024 (EUR1.1m) and an assumption of loans due from the vendor on completion of EUR3.4m.
The primary reason for the business combination was to acquire the manager of the exclusive country code top-level domain for Slovakia, .SK. The business exhibits a high level of recurring earnings and provides access to a new international market with sustainable growth characteristics in line with the Group strategy.
The following table summarises the consideration to acquire the share capital of the SK-NIC a.s. and the provisional fair value of the assets and liabilities at the acquisition date in line with Group accounting policies.
Consideration EUR'000s GBP'000s
--------- ---------
Initial Cash Consideration 20,273 17,843
Contingent Consideration 4,850 4,269
Deferred Consideration 1,000 880
--------- ---------
Maximum Cash Consideration 26,123 22,992
Adjustment for working capital (421) (371)
--------- ---------
Total Cash Consideration 25,702 22,621
--------- ---------
Fair value adjustment for deferred and contingent
consideration (1,064) (937)
Assumption of loans due from the vendor DanubiaTel
a.s. 3,413 3,004
---------
Total consideration 28,051 24,688
--------- ---------
Fair value recognised on acquisition EUR'000s GBP'000s
--------- ---------
Assets
Intangible assets - customer list 13,304 11,709
Other intangible assets 150 132
Property, plant & equipment 53 47
Trade receivables 244 215
Other receivables 3,905 3,436
Deferred income tax asset 108 95
Cash 539 474
--------- ---------
18,303 16,108
--------- ---------
Liabilities
Trade payables 751 661
Other payables and accruals 571 502
Deferred Revenue 2,028 1,785
Deferred income tax liability 2,785 2,451
Other income tax liabilities (159) (140)
5,976 5,259
--------- ---------
Total identifiable net liabilities at fair
value 12,327 10,849
--------- ---------
Goodwill arising on acquisition 15,724 13,839
Purchase consideration 28,051 24,688
--------- ---------
The initial cash consideration of EUR20.3m was funded by an increase in the SVB term loan and RCF of EUR18.4m and existing cash balances held by the Group of EUR1.9m.
The deferred of EUR1m and contingent consideration of EUR4.85m, totalling EUR5.85 has been placed in to an escrow account and subject to any claims will be released to the vendor in tranches until 2024. Deferred contingent cash consideration of EUR4.85m is dependent on SK-NIC attaining defined growth targets over the next three years, with the remaining deferred cash consideration being payable in 2024. At 2017 year end, the deferred cash consideration has been accounted for in the consolidated statement of financial position at fair value, using a discount factor of 10%, which has amounted to EUR1.06m. This will unwind as the payment stages become due through the consolidated statement of comprehensive income.
The growth rates in relation to the contingent consideration are calculated on the number of registered domains at the end of each financial year over the next 3 years (post completion) with the payment profile being spread over 8 years. The last payment on the profile is not subject to the defined growth rates. The directors have considered the range of outcomes on the target growth rate which would trigger the unwinding of the deferred consideration and on the basis that there exists sufficient headroom against management sensitivity to attain these domain name growth rates, they have concluded that the deferred consideration will be payable in full over the agreed period, with the first payment from the profile having been settled in April 2018 of EUR1.02m.
Management have evaluated the value of the acquired customer list in relation to the domains under management at the time of acquisition and the expected discounted future cashflow that is expected to derive from the existing customer base, with the residual intangible classed as goodwill. Goodwill arising on acquisition primarily relates to the inherent value of the acquired .sk ccTLD and goodwill in relation to employees.
Acquisition related costs of GBP883k (2016: GBP348k) have been recognised in the income statement, which are included in note 9.
For the post-completion period to 31(st) December 2017 revenues of GBP291k (EUR330k) and Adjusted EBITDA of GBP230k (EUR260k) have been generated by SK-NIC. SK-NIC's revenue for the year ended 31 December 2017 was GBP3,207k (EUR3,664k) and Adjusted EBITDA was GBP2,328k (EUR2,659k), with profit before tax of GBP2,292k (EUR2,168k).
The trade and other receivables are stated at gross valuation which equates to the contractual amounts with no provisions being made against them in line with the director's expectations.
26. Related party disclosures
(a) Ultimate controlling party
The company is not controlled by any one party
(b) Related party transactions
Key management are considered to be the directors and key management personnel. Compensation has been disclosed in Note 8, while further information can be found in the Remuneration Report on page 29 of the Annual Report and Accounts.
(i) Shareholders
Balances outstanding with shareholders:
2017 2016
GBP'000 GBP'000
-------- --------
Jabella Group Limited 764 747
Amounts due from Jabella Group Limited were interest free until 31 August 2013, from which time the balance accrued interest at 2% above LIBOR (2017: GBP17k; 2016: GBP18k).
Transactions with one member of Erin Investments & Finance Limited, of which no amounts were outstanding at 2017 and 2016 year ends:
2017 2016
GBP'000 GBP'000
-------- --------
Operating lease payments 64 73
(ii) Non-Executive Directors
During the year CentralNic engaged with Rickert Rechtsanwaltsgesellschaft mBH, of which Thomas Rickert has a controlling interest, to provide legal services in relation to the purchase of intangible assets and advise on potential acquisitions. The fees for 2017 were GBP9,000 (2016 GBP20,000) and no amounts were outstanding as at 2017 and 2016 year ends.
(ii) Other Related Parties
Balances outstanding with other related parties:
2017 2016
GBP'000 GBP'000
-------- --------
Accent Media Ltd 74 -
In June 2017 the Company loaned Accent Media Ltd $100k (GBP74k). The loan is due for repayment in three years and accrues interest at 5% which is payable quarterly in arrears.
27. Commitments
Operating lease commitments
At the end of each of the reporting periods, the minimum lease payments under non-cancellable leases are payable as follows:
2017 2016
Land and Buildings GBP'000 GBP'000
-------- --------
Less than one year 88 136
Between one and five years 11 28
99 164
The Group leases office space at the following locations, all of which are operating leases;
London, UK. The lease agreement was entered into on 1st January 2010 for an initial term of 6 years, extended to 1 April 2018, and subsequently extended on a month by month basis.
Melbourne, Australia. The original lease agreement expired on 30(th) November 2016, with the lease being extended on a month by month basis with a three month notice period.
Napier, New Zealand. The lease agreement was entered into on 1st August 2012 for an initial term of 3 years, with the right to renew every 3 years. The final expiry date is 31(st) July 2021.
Bonn, Germany. The lease agreement was entered into on 1st January 2015 for an initial term of 3 years. The lease will renew each year for a further year unless either party terminates with 6 months notice.
Bratislava, Slovakia. The lease agreement was acquired on acquisition and can be terminated at any point in time with immediate effect and as there exists no minimum commitment period, the above table excludes these amounts.
The Group leases equipment under various operating leases, the majority of which exist can be terminated immediately, and equate to immaterial sums.
28. Share Options and Warrants
Share Options
The share option scheme, which was adopted by CentralNic during 2013, was established to reward and incentivise the executive management team and staff for delivering share price growth. The option schemes are all equity settled.
The share option scheme is administered by the Remuneration Committee.
No options were granted during 2017 (2016: 2,820,000). Out of the 6,929,166 outstanding options (2016:
7,044,166), 3,730,166 options (2016: 3,230,166) were exercisable.
No options were exercised in 2017 (2016: 230,417), with 115,000 options lapsing during the year (2016: 150,000).
A charge of GBP452,989 (2016: GBP621,204) has been recognised in the statement of comprehensive income for the year relating to these options.
These fair values were calculated using the Black Scholes option pricing model. The inputs into the model were as follows:
Date of Options 4(th) 4(th) 4(th) 4(th) 4(th) 29(th) 29(th)
grant Feb 2016 Feb 2016 Feb 2016 Feb 2016 Feb 2016 August August
2016 2016
Options Granted 700,000 750,000 350,000 48,000 419,000 318,000 235,000
---------- ----------- ---------- ---------- ---------- --------- ----------
Stock price 51p 51p 51p 51p 51p 43p 43p
---------- ----------- ---------- ---------- ---------- --------- ----------
Exercise
price 40p 40p 40p 51p 40p 40p 40p
---------- ----------- ---------- ---------- ---------- --------- ----------
Interest
rate 5% 5% 5% 5% 5% 4% 4%
---------- ----------- ---------- ---------- ---------- --------- ----------
Volatility 75% 75% 75% 75% 75% 52% 52%
---------- ----------- ---------- ---------- ---------- --------- ----------
Vesting period 3 years 15(th) 26(th) 3 years 14(th) 14(th) 3 years
from the September October from the January January from the
date of 2018 2018 date of 2019 2019 date of
grant grant grant
---------- ----------- ---------- ---------- ---------- --------- ----------
Time to maturity 10 years 10 years 10 years 10 years 10 years 10 years 10 years
---------- ----------- ---------- ---------- ---------- --------- ----------
Options are exercisable in accordance with the contracted vesting schedules, if the employee leaves the employment of the Group prior to the options vesting then the share options previously granted will lapse. The expected volatility was determined with reference to similar entities trading on AIM.
Details of the share options outstanding at the year-end are as follows:
Number WAEP* Number WAEP*
31 Dec 2017 31 Dec 2017 31 Dec 2016 31 Dec 2016
Outstanding at
1 January 7,044,166 32p 4,604,583 26p
------------- ------------- ------------- -------------
Granted during
year - - 2,820,000 40p
------------- ------------- ------------- -------------
Exercised during
year - - (230,417) 10p
------------- ------------- ------------- -------------
Lapsed during year (115,000) 40p (150,000) 10p
------------- ------------- ------------- -------------
Outstanding at
31 December 6,929,166 32p 7,044,166 32p
------------- ------------- ------------- -------------
Exercisable at
31 December 3,730,166 26p 3,230,166 25p
------------- ------------- ------------- -------------
* weighted average exercise price.
The weighted average remaining contractual life of the options outstanding at the statement of financial position date is 6.8 years.
Warrants
On 12 August 2013, CentralNic Group executed a warrant instrument to create and issue warrants to Zeus Capital to subscribe for an aggregate of 1,772,727 ordinary shares. The warrants will expire six years after admission and were exercisable after the first anniversary of admission (2 September 2014) at the placing price of 55p. The ordinary shares to be allotted and issued on the exercise of any or all of the warrants will rank for all dividends and other distributions declared after the date of the allotment of such shares but not before such date and otherwise pari passu in all respects with the ordinary shares in issue on the date of such exercise allotment.
29. Financial instruments
The CentralNic Group is exposed to market risk, credit risk and liquidity risk arising from financial instruments. The CentralNic Group's overall financial risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the CentralNic Group's financial performance. The group does not trade in financial instruments.
The principal financial instruments used by the CentralNic Group, from which financial instrument risk arises, are as follows:
2017 2016
GBP'000 GBP'000
-------- --------
Current Financial assets
Loan and receivables
Trade and other receivables 9,835 7,673
Cash and cash equivalents 10,862 9,902
20,697 17,575
Current Financial liabilities measured
at amortised costs
Trade and other payables and accruals 10.432 7,971
Loan and borrowing 1,854 1,033
12,286 9,004
-------- --------
(a) Financial risk management framework
The Directors' risk management policies are established to identify and analyse the risks faced by the CentralNic Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits.
(i) Market risk
(i) Foreign currency risk
The CentralNic Group is exposed to foreign currency risk on transactions and balances that are denominated in a currency other than its functional currency, primarily US$ and Euros. Foreign currency risk is monitored on an on-going basis to ensure that the net exposure is at an acceptable level.
The CentralNic Group's exposure to foreign currency risk is minimal as it trades predominantly in US$, Euros, GB Pound Sterling and Australian Dollars. Exposure to currency risk is negated by the CentralNic
Group holding adequate reserves in these four currencies to meet trading and provisioned obligations as the need arises.
As the group evolves, foreign currency risk will be monitored more closely given exposure to additional markets and currencies.
The carrying amounts of the CentralNic Group's financial instruments are denominated in the following currencies at 31 December 2017:
GBP US$ Euro AUS$ other Total
currencies
GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s GBP'000s
------------------------------- --------- --------- --------- --------- ------------ ---------
Current Financial assets
Loan and receivables
Trade and other receivables 4,499 4,419 789 112 16 9,835
Cash and cash equivalents 1,530 7,202 1,884 157 88 10,862
6,029 11,621 2,673 269 104 20,697
Current Financial liabilities
measured at amortised
costs
Trade and other payables 7,000 2,461 566 280 125 10,432
Loan and borrowing (146) - 2,000 - - 1,854
6,854 2,461 2,566 280 125 12,286
------------------------------- --------- --------- --------- --------- ------------ ---------
The sensitivity analyses in the table below details the impact of changes in foreign exchange rates on the CentralNic Group's post-tax profit or loss for the year ended 31 December 2017.
It is assumed that the named currency is strengthening or weakening against all other currencies, while all the other currencies remain constant.
If the GBP strengthened or weakened by 10% against the other currencies, with all other variables in each case remaining constant, then the impact on the CentralNIC Group's post-tax profit or loss would be gains or losses as follows:
Strengthen
/ Weaken
GBP'000
-----------
2017
USD + / - 378
EUR + / - 225
AUD + / - 337
(ii) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The CentralNic Group's exposure to interest rate risk arises mainly from interest-bearing financial assets and liabilities. The Directors' policy is to obtain the most favourable interest rates available.
As at each of 31 December 2016 and 2017, CentralNic Group's long-term debt facility entered into with SVB bearing interest at a margin plus LIBOR.
2017 2016
GBP'000 GBP'000
---------- ---------
Cash and bank balances 10,862 9,902
Effect of interest
rate change of 100
basis points on cash
and bank balances +/- 109 +/- 99
SVB Bank Facilities 17,395 2,357
Effect of interest
rate change of 100
basis points on cash
and bank balances +/- 174 +/- 24
(iii) Equity price risk
The CentralNic Group does not have any quoted investments as at each of 31 December 2016 and 2017 and as such does not have significant exposure to equity price risk. At 31 December 2016 and 2017 the Centralnic Group held an unquoted investment in Accent Media of GBP1.0m which represents a shareholding of 10.4% of the share capital.
(ii) Credit risk
The CentralNic Group's exposure to credit risk arises mainly from counterparty's failure to meet its obligation to settle a financial asset. The Directors consider the CentralNic Group's exposure to credit risk arising from trade receivables to be minimal as the CentralNic Group is often paid at the outset or in advance. Credit risk arising from other receivables is controlled through monitoring procedures, including credit approvals and credit limits, with the balance largely offset by separate liabilities held on the balance sheet relating to the same party.
The CentralNic Group uses ageing analysis to monitor the credit quality of the trade receivables. Any receivables having significant balances past due or more than 90 days, which are deemed to have higher credit risk, are monitored individually. Analysis of the trade receivables past due is disclosed in note 17.
For cash and bank balances, the Directors minimise the CentralNic Group's credit risk by dealing exclusively with banks and financial institution counterparties with high credit ratings.
The carrying amounts of financial assets at the end of the reporting periods represent the maximum credit exposure.
2017 2016
GBP'000 GBP'000
-------- --------
Deferred receivables 74 -
Trade and other receivables 9,835 7,673
Investments 997 997
Cash and bank balances 10,862 9,902
21,768 18,572
(iii) Liquidity risk
Liquidity risk is the risk that the CentralNic Group will encounter difficulty in settling its financial obligations that are settled with cash or another financial asset. The Directors' objective is to maintain, as much as possible, a level of its cash and bank balances adequate enough to ensure that there will be sufficient liquidity to meet its liabilities when they fall due.
The following set forth the remaining contractual maturities of financial liabilities as at:
Carrying Within 1 - 5
GBP'000 amount Total 1 year years
-------------------------- --------- ------- -------- -------
31 December 2016
Trade and other payables
and accruals 7,971 7,971 7,971 -
Borrowings 2,357 2,357 1,033 1,324
10,328 10,328 9,004 1,324
Carrying Within 1 - 5
GBP'000 amount Total 1 year years
-------------------------- --------- ------- -------- -------
31 December 2017
Trade and other payables
and accruals 10,432 10,432 10,432 -
Borrowings 17,395 17,395 1,854 15,541
27,827 27,827 12,286 15,541
(b) Capital risk management
The Directors define capital as the total equity of CentralNic. The Directors' objectives when managing capital are to safeguard the CentralNic Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Directors may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.
The Directors manage CentralNic's capital based on debt-to-equity ratio. The debt-to-equity ratio is calculated as net debt divided by total equity. Net debt is calculated as total liabilities less cash and cash equivalents.
The debt-to-equity ratio of the CentralNic Group as at the end of each of the reporting periods was as follows:
2017 2016
GBP'000 GBP'000
--------- --------
Total liabilities 27,827 10,328
Less: cash and bank balances (10,862) (9,902)
426
Net debt/(cash) 16,965 426
Total equity 26,452 25,219
Debt-to-equity ratio 0.64 0.02
The net cash of the CentralNic Group as at the end of each of the reporting periods was as follows:
2017 2016
GBP'000 GBP'000
--------- --------
Cash and bank balances 10,862 9,902
Less: Borrowings (excluding prepaid
finance costs) (18,078) (2,625)
Net (debt) / cash (7,216) 7,277
(c) Fair values of financial instruments
In addition to the fair value of financial instruments disclosed elsewhere in the financial statements, the following carrying amounts of the financial assets and liabilities reported in the consolidated financial statements approximate their fair values:
2017 2016
----------------------------- -----------------------------
GBP'000 Carrying amount Fair value Carrying amount Fair value
--------------------------------------- ---------------- ----------- ---------------- -----------
Trade and other receivables 9,835 9,835 7,673 7,673
Deferred receivables 74 74 - -
Investments 997 997 997 997
Cash and bank balances 10,862 10,862 9,902 9,902
21,768 21,768 18,572 18,572
Trade and other payables and accruals 10,432 10,432 7,971 7,971
11,336 11,336 10,601 10,601
The SK-NIC acquisition on 5 December 2017 had an element of deferred and contingent consideration of EUR5.85m that has been placed in to an escrow account and subject to any claims will be released to the vendor in tranches until 2024. Deferred cash consideration of EUR5.85m is dependent on SK-NIC attaining defined growth targets over the next three years. At 2017 year end, the deferred cash consideration has been accounted for in the consolidated statement of financial position at fair value, using a discount factor of 10%, which has amounted to EUR1.06m. This will unwind as the payment stages become due through the consolidated statement of comprehensive income.
The growth rates in relation to the contingent consideration are calculated on the number of registered domains at the end of each financial year over the next 3 years (post completion) with the payment profile being spread over 8 years. The last payment on the profile is not subject to the defined growth rates. The directors have considered the range of outcomes on the target growth rate which would trigger the unwinding of the deferred consideration and on the basis that there exists sufficient headroom against management sensitivity to attain these domain name growth rates, they have concluded that the deferred consideration will be payable in full over the agreed period, with the first payment from the profile having been settled in April 2018 of EUR1.02m.
(d) Fair value hierarchy
Financial instruments carried at fair value are analysed by the levels in the fair value hierarchy. The different levels are defined as follows:
Level 1: Fair value measurements are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: Fair value measurements are derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3: Fair value measurements derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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