TIDMXLM
RNS Number : 4165K
XLMedia PLC
22 April 2020
22 April 2020
XLMedia PLC
("XLMedia" or the "Group" or the "Company")
Audited Results for the Year Ended 31 December 2019
XLMedia (AIM: XLM), a leading provider of digital performance
marketing services, announces the Company's audited results for the
year ended 31 December 2019.
Financial summary
-- Revenues of $79.7 million (2018: $93.5million*)
-- Gross profit of $53.7 million (2018: $63.4 million*)
-- Adjusted EBITDA(2) of $33.5 million (2018: $43.6 million*)
-- Adjusted profit before tax(1) of $25.3 million (2018: $36.4 million*)
-- Impairment Loss of $81.4 million (2018: $0.3 million)
o Follows an independent and comprehensive review of recorded
asset values at year end as required by IAS 36
o Further reductions follow the demotion of the Group's websites
by Google in January 2020
-- Income (Loss) from discontinued operations of $2.2 million (2018: ($11.3) million)
-- Reported Profit (Loss) before tax of ($57.7) million (2018: $36.1 million)
-- Cash and short-term investments of $29.9 million (31 December
2018: $47.6 million) - the Company has minimal debt (<$1m) which
is expected to be fully repaid by the half year
(*) Reclassified - excluding discontinued operations
1 Excluding loss from impairment and reorganization costs
2 Earnings Before interest, Taxes, Depreciation, Amortization
and excluding share-based payments, impairment and reorganisation
costs
Operating summary
-- New Executive Management Team joined late 2019/early 2020
bringing significant successful transformation experience to evolve
the Company to reposition for growth markets and territories
-- Investment areas:
o Operating Model - evolution to support strategic ambition and
growth through significant transformation program
o Data & Programmatic learning - harness data to create
compelling consumer experiences
o US Sports - resources, technology and expertise to develop US
presence
o New Markets - resources to develop existing verticals into new
markets
-- On 18 January 2020, the Company became aware that a number of
its casino sites had been manually de-ranked by Google
o Management remains optimistic that a number of premium sites
will be re-ranked and fully operational during H2 2020
o The Company has increased its focus and resources on premium
sites, accelerating planned changes to business model
COVID-19 update
-- The Company's global workforce has been working remotely
since March 2020, in line with current regulations globally
-- The global impact of Coronavirus has had an impact on all
business verticals and revenue streams, negatively in Sports and
Personal Finance, but likely to be positive in Casino in the medium
term
-- The forced change in working practices and proactive decision
to accelerate the Group's transformation program offers the Company
an opportunity to become more efficient and progressive in its
working practices and organisational capabilities
Outlook
-- The Company made a solid start to 2020 before the Google
de-ranking and COVID 19 pandemic effects
-- As previously guided the Company currently estimates a
monthly reduction in Group revenues as a result of the Google
de-ranking of between $1 million and $2 million (assuming only a
minor fall in its repeat revenues)
-- Experience to date has shown the Google de-ranking impact has
been within that range and management are confident that, taken
together with the direct impact of COVID 19, the reduction of
revenues will not be in excess of this guidance range over the
course of the year
-- COVID-19 will continue to create uncertainty in the short to
medium-term, impacting a number of the Company's consumers and
verticals and subsequently our revenues. However, the Company is
using the opportunity to accelerate the transformation program and
review attractive acquisition opportunities
-- Q2 2020 will be a challenging period, one during which
significant changes are being delivered increasing one-off costs,
and whose impacts are compounded by reduced revenues in the core
verticals / markets due to the ongoing Google de-ranking and COVID
19
-- The year-end exit trajectory and renewed operating platform
will form a strong basis for future growth and development
-- Board will not be recommending a dividend or share buyback
programme for the foreseeable future
Christopher Bell, Non-Executive Chairman, of XLMedia
commented:
"There is no question that the business is now undergoing a
significant period of transformation with our new management team
evaluating new geographies and end markets, alongside an improved
focus on our efforts to generate greater levels of end consumer
engagement.
"To that end, we remain committed to investing in the core
business alongside additional organic investment initiatives.
"The health and safety of our staff is of paramount importance
during the current coronavirus pandemic and we have implemented a
number of measures to protect our global workforce aligned with the
latest local government and industry recommendations.
"I would like to thank all our staff for their ongoing
dedication to our clients and our business."
A webcast of our results presentation will be available on our
website within the next 48 hours:
https://www.xlmedia.com/investor-relations/webcasts/
For further information, please contact:
XLMedia plc Stuart Simms, Chief Executive Via Vigo Communications
Officer Iain Balchin, Chief Financial
Officer www.xlmedia.com
Vigo Communications Jeremy Garcia www.vigocomms.com Tel: 020 7390 0233
Cenkos Securities plc (Nomad and Joint Tel: 020 7397 8900
Broker) Giles Balleny / Max Gould www.cenkos.com
Berenberg (Joint Broker) Chris Bowman Tel: 020 3207 7800
/ Mark Whitmore / Simon Cardron www.berenberg.com
Chairman's statement
2019 was a year of limited financial progress for the Group, as
management sought to mitigate a number of operationally frustrating
scenarios and global sector headwinds, predominantly within our
online casino vertical. Greater clarity on the situation with
Google is outlined in the Chief Executive review later in the
document.
In February 2019, we made the decision to reduce a significant
part of the Group's advertising and media activities, reflecting
the Board's desire to limit our exposure to certain gambling and
digital marketing sectors, with a view of becoming a pure play
digital publishing operator.
This move was further consolidated with the sale of our
advertising media subsidiary in August 2019, which was considered
both low margin and non-core to our ongoing activities.
In addition, ongoing gambling regulatory uncertainty,
specifically in Sweden and Germany remained, and therefore
continued to impact our financial performance in territories which
have historically been strong for the Group.
Despite these challenges, the Group delivered a credible
performance in FY 2019, producing revenues of $79.7 million (2018:
$93.5 million), gross profit of $53.7 million (2018: $63.4 million)
and an Adjusted EBITDA of $33.5 million (2018: $43.6 million).
It is against this backdrop that we decided to make a number of
significant Executive Management changes. Ory Weihs, who served as
Chief Executive Officer since our IPO in 2014, moved to a
Non-Executive Director role, with Stuart Simms appointed as Chief
Executive Officer in October 2019, following an extensive executive
search conducted by Egon Z ehnder .
Since Stuart 's appointment, he has already made a significant
and positive contributi on in both the day to day running of the
business and our strategic direction, more of which is covered in
his strategic review of the business.
Also, our Chief Financial Officer, Yehuda Dahan, tendered his
resignation and we were pleased to appoint Iain Balchin as Group
CFO in February 2020. Iain has a wealth of transformation
experience having held a number of Group CFO roles , making him
ideally placed for our business.
In both Stuart and Iain, we have two highly skilled and
experienced senior executives who are now working tirelessly to
reshape and reposition XLMedia for sustainable and long-term
growth. Stuart has also completely restructured his executive team,
further rejuvenating our business and positioning us well for the
future.
In early 2020, the Company became aware that a number of its
casino sites had been manually demoted by Google, impacting their
online ranking and therefore significantly reducing their ability
to generate revenues. The Company is continuing to work with Google
to restore the rankings of these sites as soon as possible.
There is no question that the business is now undergoing a
significant period of transformation with our new management team
evaluating new geographies and end markets, alongside an improved
focus upon our efforts to generate greater levels of end consumer
engagement .
To that end, we remain committed to investing in the core
business alongside additional organic investment initiatives and as
a result the Board will not be recommending a dividend or share
buyback programme for the foreseeable future.
We continue to monitor very closely the impact of the COVID-19
virus across the world in relation to our dedicated colleagues and
of course our customers.
The health and safety of our staff is of paramount importance
and we have implemented a number of measures to protect our global
workforce aligned with the latest local government and industry
recommendations.
In each of the jurisdictions we operate within, the Board and I
would all like to thank all our colleagues for their persistent
dedication during what has been, and continues to be a challenging
period for the business and wish them all a safe and healthy
future.
Christopher Bell
Non-Executive Chairman
22 April 2020
Chief Executive Officer review
Introduction
I joined XLMedia in October 2019 with both optimism and a
defined strategic ambition that necessitated an overhaul of the
businesses working practices, executive team and organisation
structure. It is clear that the Company's recent growing pains,
coupled with broader industry changes mean that the Company must
evolve and be able to constantly adapt to dynamic market
conditions.
In addition, it is evident to the Board and I that there are
significant market opportunities for performance marketing
companies that can truly activate and engage consumers, whilst also
cultivating strategic, tenured partnerships with brands and
operators alike. Specifically, with brands increasing their
direct-to-consumer marketing activities, and traditional value
chains collapsing, companies like XLMedia should be thriving in
many verticals and markets, offering access to consumers and
players for an attractive return.
However, the historical focus of the Group has been on the
European gambling segment, unregulated markets, which as the
Group's FY2019 results show, include some of the most volatile
markets, especially when becoming regulated, such as Sweden.
Therefore, it has been paramount to shift the focus of the Company,
its resources, its investment strategy and culture towards a more
global, cross vertical operating model, that thrives in regulated
markets, with a particular focus on the US Sports market
opportunity and personal finance.
XLMedia has a strong balance sheet to power the transformation
and shift required, providing both leverage and growth. This also
applies to our ability to survive situations that many other
companies might not, such as the Google de-ranking of a number of
our websites, which we are using as a catalyst to drive and deliver
change faster than anticipated and with a renewed clarity of
purpose and commitment.
I firmly believe that we are defining and building the
capabilities to support our future growth, whilst making hard
decisions to restructure our operations and priorities; such as to
shut down or dispose of non-core business groups, refresh the
Executive team, focus on premium assets (removing legacy sites),
and re-platform from legacy technology systems and processes.
Our proposition
XLMedia has a long track record of success in online performance
marketing and currently operate over 2,000 websites across numerous
sectors. The Group's core skill is to stimulate active engagement
by sending paying customers to our partners and sharing the
revenues associated with these activities.
To date, the Group has managed an extensive portfolio of online
websites ranging from content rich and highly interactive sites,
such as moneyunder30.com, to less interactive domains. Typically,
the Group's financial services websites utilise a qualitative
approach whereby consumers are encouraged to browse and digest a
highly sophisticated level of content. Conversely, the Group's
gambling segment utilises a methodology based around quantity,
targeting multiple sites across the same segment or geography.
Going forward, we will be focused on a qualitative approach and are
now prioritising the development of more engaging websites, seeking
to develop the Group's publishing activities and enhancing consumer
engagement.
Currently, roughly 50% of Group revenues are generated by 20
sites, underlining the need for a more consolidated and focused
approach. To this end, we have been focused on closing down older,
legacy sites which generate either minimal or no revenue for the
Group.
Controlling and managing a diverse publishing portfolio puts the
Group in a better position to create higher levels of engagement
than other traditional performance marketing, encouraging consumers
to actively choose the content they want to digest, generating both
greater value and increased levels of engagement.
Operational Review
Having joined the Group in October 2019, it was clear then that
XLMedia was in need of transformation. It was a typical mid-sized
company that had seen dramatic growth but was not fully prepared
for the next phase of development, instead seeking to maximise
short-term profits over investing for the future. This is not
uncommon in many companies of its size and age, and many of the
problems are familiar to me from previous experience. However,
there is no 'quick fix' and shareholders will have to understand
that unpicking years of underinvestment will take time, but when
completed, sustainable, predictable growth will again be possible.
The first step for any transformation is People, and I feel
confident that I am assembling a team that can lead us through the
next phase of growth and beyond.
To that end, I have prioritised the following key areas of
investment:
-- Operating Model - business processes and organisation design to support future growth
-- Data & Programmatic learning - using machines to harness
data and create compelling consumer experiences
-- US Sports - M&A, US infrastructure and resources with Sport specific technology
-- New Markets - utilise XLMedia's expertise and experience to
grow existing verticals into new markets
As our FY 2019 financial performance highlights, the business
needs to transform to meet the future demands of both customers and
consumers, and to operate in growth verticals and markets.
Therefore, management will remain focused on further developing the
Group's core publishing activities, positioning XLMedia for further
growth.
Within the Group's European gambling markets, well documented
regulatory headwinds, specifically in Germany and Sweden, have had
an impact on revenue growth in the period, although the Group has
maintained its market share, albeit at lower volumes. A further
update on the broader regulatory landscape is set out below.
The Group's North American personal finance assets continue to
perform well and now account for 16.5% of Group revenues and
continues to be a key growth market. North America as a whole
(Sports and Personal Finance) represents currently 20.3 % of Group
revenues.
During the period we also made the decision to focus solely on
XLMedia's core publishing activities. Therefore, we terminated all
media activities as of Q1 2020.
Despite these challenges, the Group delivered a very creditable
performance in FY 2019, producing revenues of $79.7 million (2018:
$93.5 million), gross profit of $53.7 million (2018: $63.4 million)
and an adjusted EBITDA of $33.5 million (2018: $43.6 million).
Going forward, management is focused on becoming a 'pure play'
global digital performance publisher.
Regulation
All of XLMedia's business units in some way are controlled or
impacted by regulations. We believe that, on the whole, regulation
offers sustainable revenues and significant market opportunities
for companies such as ourselves, who have the experience, size and
maturity to support regulation, protecting the consumer, brands and
operators.
Further to being sustainable, regulation offers market
consolidation opportunities and therefore market share growth as
with Sweden, albeit with total revenues diminishing. Therefore, as
gambling markets transform into regulated territories, investors
should expect short term revenue volatility as new regulation
impacts volumes, though, this should be followed by more
predictable revenues streams in the longer term.
It is also important to note that micro-verticals often face
differences in regulation, for example slot machines are treated
very differently from Bingo. We will continue to operate across a
broad spectrum of micro-verticals and over time intend to provide
more commentary on the revenue split and the opportunities and
risks associated with each.
Our plan is to globalise our Personal Finance offering and
brands, which currently only operate in North America.
A key capability in the Group will be to continue to monitor and
abide by regulations worldwide, whilst also investing in technology
to quickly respond to changing environments and new compliance
needs.
I passionately believe that XLMedia's role is to embrace
regulations, and, in some instances, help tighten and control them
to further protect consumers. I believe that our future revenues
will be focused predominantly on regulated markets operating in
Sports, other gambling segments and Personal Finance.
Google update
On 18 January 2020, the Company became aware that a number of
its casino sites had been manually demoted by Google, impacting
their online ranking and therefore significantly reducing their
ability to generate revenues. The Company is continuing to work
with Google to restore their rankings as soon as possible.
Currently, 105 sites have been demoted, ranging from 'premium'
revenue generating sites to low grade, typically legacy sites, or
low commercial value domains. Of the 105 sites demoted by Google,
23 are 'premium' sites and are predominantly within the online
casino vertical. Currently, Google has not impacted personal
finance.
Management understands that the large number of low-grade,
typically legacy sites, operated by the Company had a collective
negative impact when reviewed by Google. Therefore, we have removed
or de-indexed a large number of these sites.
Separately, XLMedia has reviewed its entire online publishing
assets, to focus on significantly reducing the total number of
non-revenue generating sites and increasing the focus on 'premium'
sites, as well as both incubating and developing new sites.
Part of this review was to analyse the Groups technology
platform strategy, specifically Palcon. As a consequence of this
review and analysis, XLMedia is transferring its premium revenue
generating sites impacted by the Google demotion to a new operating
environment, that supports improved content management, innovative
design and more commoditised resources / operational support. The
broader implications for the business will be a shift to a
flexible, lower operating cost model, which supports the Company's
aspirations as a premium performance marketing company.
Management remains optimistic that a number of premium de-ranked
sites will be fully operational during H2 2020.
As announced in February 2020, management expect a monthly
reduction in Group revenues of between $1 million and $2 million
(assuming only a minor fall in its repeat revenues) as a result of
the Google demotions. In addition, management anticipates that any
lengthy period of demotion could impact the rankings once restored,
and that it may take a period of time to re-establish. However,
based on industry experience, we do expect re-ranked sites
eventually to outperform any historical results.
Transformational strategy
Google de-ranking and COVID-19 have not changed our strategic
ambition or goals for the transformation, and in some ways have
amplified them, acting as a catalyst to accelerate and drive
change.
I believe with the Executive team we are building - (who have
the skills and experience to deliver transformation), and the
balance sheet - (to survive the intense market conditions), we will
come out of this period leaner, better operationally structured and
driven to grow quickly.
In terms of change, as highlighted above, we are focused on
shifting the emphasis of the business from 'quantity to the
quality' of websites. We are a performance-based business at heart,
and this will not change. We will continue to be focused on
connecting brands to consumers by operating a diverse global
portfolio of premium websites that deliver significant intrinsic
value for consumers.
To that end, management are focused on the following strategic
goals:
-- Consolidation of publishing assets, focusing of resources
Currently the Group operates over 450 online publishing assets
globally, ranging from premium and highly interactive sites to
basic, legacy sites. We have therefore decided to reduce the total
number of sites operated by the Company, instead focusing on
building strong brand recognition across a focused number of
'premium', highly profitable, online assets.
This process has been accelerated by the de-ranking of over 100
casino assets by Google, which has prompted the Company to begin
the process of upgrading over 20 'premium' sites.
Alongside consolidating the Group's online assets, management
are enhancing the focus and capabilities on consumer experience,
putting this at the heart of what we do. Using our rich data and
intelligence capabilities to improve consumer engagement,
segmentation and understanding. We believe this will be better for
the consumer, and as importantly, the customers we represent.
Sites such as moneyunder30.com offer an initial blueprint for
how the Group is seeking to develop existing assets going
forward.
-- US Sports and Personal Finance investment - targeting high growth markets
The US sports betting market represents a significant
opportunity for us. As a result, we are firmly focused on building
our US presence to develop organic investment opportunities,
partnerships, acquisitions and use of technology. Earlier this year
we opened our first US office in New York and look to expand
further into regional offices.
XLMedia has already established a solid revenue foothold within
personal finance and will seek to further develop growth
opportunities by deploying local resources and increasing localised
editorial content. Acquisitions and partnerships remain key
vehicles to delivering growth.
-- Further investment in regulated (mature) markets - stable revenue growth
We continue to invest in fully regulated gambling markets which
we believe provide a solid framework from which to generate stable
revenue growth, with a specific focus on developing our Sports
assets and associated technology.
Capital allocation / Dividend
Given the current cash balance and lower levels of cash
generation from the Group, the Board is recommending that no final
dividend is proposed for the 2019 financial year, with no dividend
expected to be proposed until further notice.
In addition, while we give due consideration to capital
allocation activities such as a share buyback programme or tender
offer, in order to accelerate a number of strategic initiatives
highlighted above, such initiatives are not expected to be offered
for the foreseeable future.
COVID-19 update
XLMedia's global workforce has been working remotely since March
2020, in line with current regulations globally and the health and
wellbeing of our employees remains of the utmost importance. This
required XLMedia to accelerate a dramatic change to daily
operations, technology (laptops) and embracing more flexible
working practices. Previously, only a limited number of staff were
provided with laptops and working from home was prohibited with a
clocking in and out system in place to monitor attendance.
Due to the excellent work by the HR function and IT team, to
date, we have not seen any negative impact on our remote working
policy and the business remains well placed to weather a prolonged
period of self-isolation, with morale seeming high and the team
remaining engaged. Further to this we believe that the improvements
made to how we operate, will continue and evolve further when
COVID-19 ends. This will provide us with a more flexible and agile
workforce, supporting one of our key goals to become one of the
most progressive employers in Israel and around the world.
However, Coronavirus is having an impact on a number of our key
business verticals and revenue streams. Starting in February 2020,
many sport events were cancelled around the world which looks
likely to continue for much of the remainder of the year with major
championships such as European Football Championship and the
Olympics being postponed or cancelled. In addition, personal
finance has also been affected with many banks and financial
services organisations pulling back marketing spend in favour of a
"wait and see" strategy. Both Business Groups responsible for
Personal Finance and Sports have been creative in adopting new
working practices, improving editorial workflow and finding new
revenue sources.
This decrease should be marginally offset by increases in in
other verticals, such as online gambling and cyber security, but
has obviously been hampered by many of the sites remaining
de-ranked. The Group is actively assessing and responding to the
potential impact of the outbreak, but since there is uncertainty
regarding the extent of the effects and future events, there is
uncertainty regarding the total effect on the Group revenue.
Outlook
Despite making a solid start to 2020, the Company is still
unable to determine the full impact of Google's demotions, although
initial indications are that the previous guidance of a monthly
reduction in Group revenues of between $1 million and $2 million
(assuming only a minor fall in its repeat revenues) is
accurate.
In addition, COVID-19 will continue to create uncertainty in the
short to medium-term, impacting a number of our end-customers and
verticals. Management continues to monitor this situation closely
and will align the Company's cost base accordingly.
Therefore, as with many other companies, Q2 2020 looks likely to
be a very challenging period, one during which significant change
is being delivered against a background of increasing one-time
costs as we further embed our transformation plans.
While the Google de-ranking impact and the direct impact of
COVID 19 are expected to remain, Management are confident that the
impact of both taken together will not be in excess of the previous
guidance over the course of the year.
Stuart Simms
Chief Executive Officer
22 April 2020
Financial Review
$'000 2019 2018 (*) Change
Revenues 79,695 93,502 -15%
============================================ ======== ========= =======
Gross profit 53,693 63,369 -15%
============================================ ======== ========= =======
Operating expenses (27,347) (26,384) + 4%
============================================ ======== ========= =======
Operating profit before impairment and
reorganisation costs 26,346 36,985 -29%
============================================ ======== ========= =======
Adjusted EBITDA(2) 33,471 43,571 -23%
============================================ ======== ========= =======
Impairment (loss)/Profit (81,350) (300)
============================================ ======== ========= =======
Reorganisation costs (1,682) -
============================================ ======== ========= =======
Adjusted(1) profit before tax 25,302 36,448 -31%
============================================ ======== ========= =======
Income (loss) from discontinued operations 2,217 (11,284)
============================================ ======== ========= =======
Profit (loss) before tax (57,730) 36,148
-------- --------- -------
(*) Reclassified - excluding discontinued operations
(1) Excluding loss from impairment and reorganization costs
(2) Earnings Before interest, Taxes, Depreciation, Amortization
and excluding share-based payments, impairment and reorganisation
costs
XLMedia revenues in 2019 totalled $79.7m (2018: $93.5 million),
a decrease of 15% compared to the previous year due to expected
regulatory headwinds in key Swedish, German and Swiss markets.
Gross profit for 2019 was $53.7 million and gross margin was 67%
(2018: $63.4 million, 68% gross margin), representing a 15%
decrease, proportional to the decrease in revenues.
Operating expenses for 2019 were $27.3 million (2018: $26.4
million), principally in line with 2019.
Adjusted EBITDA for 2019 was $33.5 million or 42% of revenues
(2018: $43.6 million, 47%), a decrease of 23% on the previous year.
The decrease in the margin was due entirely to the reduction in
revenues.
Net financing expenses for 2019 were $1.0 million (2018: $0.5
million). The increase in financing expenses mainly reflects the
initial adoption of IFRS 16 in which the Group recognises interest
and exchange rate differences on its lease liabilities.
IAS36 requires that a company ensures that its assets are
carried at no more than their recoverable value. Under IAS 36, when
the carrying amount of the assets exceeds its recoverable amount an
impairment loss is recorded. Following an independent and
comprehensive review of recorded asset values at year end and
further reductions following the demotion of the Group's websites
by Google in January 2020, XL Media has booked an impairment loss
of $81.3 million in its 2019 accounts (2018: $0.3m).
In 2019 the Group recorded reorganisation costs of $1.7 million
following the commencement of a significant future restructuring
plan of the Group. This program will complete during 2020.
Adjusted profit before tax in 2019 was $25.3 million (2018:
$36.5 million), a decrease of 31%.
In 2019 the Group recorded income from discontinued operations
of $2.2 million (2018: loss of $11.3 million) as result of the
Company's Board decision to reduce certain parts of its Media
activities which had lower profit margins. In August 2019, the
Company completed the sale of Webpals Mobile Ltd which was a
substantial component of the discontinued operation. The gain
derived from the sale was $1.8 million.
As at 31 December 2019, the Company had $29.9 million in cash
and short-term investments (2018: $47.6 million). The change in
cash is a reflection of $40.1 million generated by operating
activities offset by $7.3 million used for investment activity, and
$51.0 million used for financing activities (acquisition of
treasury shares of $29.7 million, dividend payments to shareholders
of $14.2 million and repayments of bank loans of $5.5 million).
Current assets as at 31 December 2019 were $42.4 million (31
December 2018: $69.2 million) The decrease in current assets was
predominantly as a result of the decrease in cash and
cash-equivalents mentioned above and a decrease in trade
receivables of $8.4 million, mainly as a result of discontinued
operations. Non-current assets as at 31 December 2019 were $57.0
million (31 December 2018: $127.3 million). The decrease in
non-current assets is mainly from the impairment adjustment of
$81.3 million.
Current liabilities as at 31 December 2019 were $27.2 million
(31 December 2018: $28.1 million). Non-current liabilities as at 31
December 2019 were $8.6 million (31 December 2018: $1.6 million).
The increase in non-current liabilities is mainly attributable to
the lease liability of $8.1 million recognized as result of the
initial adoption of IFRS 16.
Total equity as at 31 December 2019 was $63.5 million or 64% of
total assets (2018: $166.8m or 85% of total assets). The decrease
in the equity was mainly as a result of the net loss for the year
of $58.7 million, acquisitions of treasury shares of $29.7 million
and dividend payments to shareholders of $14.2 million.
I joined the Company in February 2020 with a firm belief that
under a visionary new Management team with proven turnaround
experience, a right sized but strong balance sheet and no debt, the
Company remains poised to deliver strong future returns for its
shareholders.
2020 will undoubtedly be a testing and transformative year for
the Group but I fully expect that these changes should put us in a
strong position as we move into 2021 and beyond.
Iain Balchin
Chief Financial Officer
22 April 2020
INDEPENT AUDITOR'S REPORT
To the Shareholders of
XLMedia PLC
Report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of XLMedia
PLC and its subsidiaries ( the Group ), which comprise the
consolidated statements of financial position as of 31 December
2019 and 2018 and the consolidated statements of profit or loss and
other comprehensive income, consolidated statements of changes in
equity and consolidated statements of cash flows for each of the
years then ended , and notes to the consolidated financial
statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the financial
position of the Group as of 31 December 2019 and 2018 and its
financial performance and its cash flows for each of the years then
ended in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union .
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report. We are independent of the Group in accordance with the
International Code of Ethics for Professional Accountants
(including International Independence Standards)(IESBA Code), and
we have fulfilled our other ethical responsibilities in accordance
with the IESBA Code. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the year ended 31 December
2019. These matters were addressed in the context of our audit of
the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on
these matters. For each matter below, our description of how our
audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the
Auditor's responsibilities for the audit of the consolidated
financial statements section of our report, including in relation
to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The
results of our audit procedures, including the procedures performed
to address the matters below, provide the basis for our audit
opinion on the accompanying consolidated financial statements.
Description of Key Audit Matter Description of Auditor's
and why a matter of most significance Response
in the audit
Revenue Revenues which amounted to $79.7 In 2019 in order to gain
recognition million in 2019 are significant the required level of
to the consolidated financial assurance, we performed
statements based on their quantitative substantive audit procedures
materiality. As such, there is relating to the recognition
inherent risk that revenues may and recording of revenues,
be improperly recognised, inflated including tests of reconciliations
or misstated from underlying data
to the financial accounts.
Recognition of revenues in the IT audit specialists
accounts of the Group is a highly were deployed to assist
automated process. The Group is in understanding the
heavily reliant on the reliability design and operation
and continuity of its in-house of the relevant IT systems
IT platform to support automated and in performing various
data processing in its recognition data analyses in order
and recording of revenues. to test completeness,
accuracy and timing of
the recognition of revenues.
We also evaluated the
adequacy of the disclosures
provided in relation
to revenue in Notes 2
and 17 to the consolidated
financial statements.
------------------------------------------- ------------------------------------
Goodwill As of 31 December 2019, the total Our audit procedures
Domains net carrying amount (before impairment) included, among others
and Websites of goodwill, domains and websites evaluating the assumptions
and other with indefinite useful life and and methodologies used
intangible other intangible was approximately by the Group. In particular,
assets USD 128 million. In accordance we tested the Group's
- impairment with IFRSs as adopted by the European determination of the
test Union, the Group is required to recoverability of these
annually test these assets for assets by reviewing management's
impairment. As result of the impairment forecasts of revenues
test the Group recorded an impairment and profitability. We
loss for the amount of USD 81,350 assessed the reliability
thousands, which is included in of these forecasts through,
the statement of profit or loss. among others, a review
of actual performance
against previous forecasts.
We evaluated and tested
the discount rates and
attribution of expenses,
and we considered the
reasonableness of management's
other assumptions. We
also verified the adequacy
of the disclosure of
the assumptions and other
data in Note 8 to the
consolidated financial
statements.
------------------------------------------- ------------------------------------
Taxation The Group's operations are subject We included in our team
to income tax in various jurisdictions. tax specialists to analyse
Taxation is significant to our and evaluate the assumptions
audit because the assessment process used to determine tax
is complex and judgmental and provisions. We evaluated
the amounts involved are material and tested the underlying
to the consolidated financial support, such as transfer
statements as a whole. price studies, for the
calculation of income
taxes in the various
jurisdictions. We also
assessed the adequacy
of the Group's disclosures
in Note 16 to the consolidated
financial statements.
------------------------------------------- ------------------------------------
Emphasis of matter - Subsequent event
We draw attention to Note 22 of the consolidated financial
statements, which describes the uncertainties of the potential
impact of Coronavirus on the Company's operation subsequent to the
reporting period. Our opinion is not modified in respect of this
matter.
Other information included in the Group's 2019 Annual Report
Other information consists of the information included in the
Group's 2019 Annual Report other than the consolidated financial
statements and our auditor's report thereon. Management is
responsible for the other information. The Group's 2019 Annual
Report is expected to be made available to us after the date of
this auditor's report.
Our opinion on the consolidated financial statements does not
cover the other information and we will not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above when it becomes available and, in doing so,
consider whether the other information is materially inconsistent
with the consolidated financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.
Responsibilities of management and the board of directors for
the consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRS as adopted by the European Union, and for such internal
control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
The board of directors is responsible for overseeing the Group's
financial reporting process.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional scepticism
throughout the audit. We also:
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made
by management.
Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditors' report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with the board of directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the board of directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with the board of directors, we
determine those matters that were of most significance in the audit
of the consolidated financial statements of the year ended 31
December 2019 and are therefore the key audit matters. We describe
these matters in our auditor's report unless law or regulation
precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Report on other legal and regulatory requirements
The consolidated financial statements have been prepared in
accordance with the requirements of the Companies (Jersey) Law
1991.
Albert Perez
21 April 2020 For and on behalf of
Beer Sheva, Israel KOST FORER GABBAY & KASIERER
A Member of Ernst & Young
Global
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of 31 December
-------------------
2019 2018
-------- ---------
Note USD in thousands
----- -------------------
Assets
Current assets:
Cash and cash equivalents 27,108 44,627
Short-term investments 5 (a) 2,785 2,996
Trade receivables 6 (a) 7,755 16,112
Other receivables 6 (b) 4,522 4,697
Financial derivatives 12(b) 222 805
-------- ---------
42,392 69,237
-------- ---------
Non-current assets:
Long-term investments 5 (b) 682 633
Property and equipment 7 9,431 1,296
Goodwill 8 - 23,652
Domains and websites 8 40,215 92,053
Other intangible assets 8 6,428 9,146
Deferred taxes 15 - 99
Other assets 278 435
57,034 127,314
-------- ---------
99,426 196,551
======== =========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As of 31 December
-------------------
2019 2018
---------- -------
Note USD in thousands
------ -------------------
Liabilities and equity
Current liabilities:
Trade payables 3,028 6,416
Other liabilities and accounts payable 9 9,625 6,967
Income tax payable 15 11,874 9,049
Financial derivatives 12 (b) 79 91
Current maturities of long-term bank loans 10 1,465 5,585
Current maturities of lease liabilities 11 1,161 -
---------- -------
27,232 28,108
---------- -------
Non-current liabilities:
Long- term bank loans 10 - 1,380
Lease liability 11 8,067 -
Deferred taxes 15 516 -
Other liabilities 65 248
---------- -------
8,648 1,628
---------- -------
Total liabilities 35,880 29,736
Equity 13
Share capital *) *)
Share premium 112,624 112,224
Capital reserve from share-based transactions 2,276 2,590
Capital reserve from transaction with non-controlling
interests (2,445) (2,445)
Treasury shares (30,159) (468)
Retained earnings (accumulated deficit) (19,041) 54,623
---------- -------
Equity attributable to equity holders of
the Company 63,255 166,524
Non-controlling interests 291 291
---------- -------
Total equity 63,546 166,815
---------- -------
99,426 196,551
========== =======
*) Lower than USD 1 thousand.
The accompanying notes are an integral part of the consolidated
financial statements.
21 April 2020
-------------------- ------------------- --------------- ---------------
Date of approval Christopher Bell Stuart Simms Iain Balchin
of the
financial statements Chairman of the Chief Executive Chief Financial
Board of Directors Officer Officer
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Year ended
31 December
-------------------
2019 2018 (*)
--------- --------
Note USD in thousands
------ -------------------
Revenues 17 79,695 93,502
Cost of revenues 26,002 30,133
--------- --------
Gross profit 53,693 63,369
Research and development expenses 1,554 1,043
Sale and marketing expenses 4,579 5,044
General and administrative expenses 21,214 20,297
--------- --------
27,347 26,384
--------- --------
Operating profit before Impairment and Reorganisation
costs 26,346 36,985
--------- --------
Impairment loss 8 81,350 300
Reorganisation costs 2(a) 1,682 -
Operating profit (Loss) (56,686) 36,685
Finance expenses (1,879) (837)
Finance income 835 300
--------- --------
Finance expenses, net (1,044) (537)
--------- --------
Profit (loss) before taxes on income (57,730) 36,148
Taxes on income 15 3,188 4,089
--------- --------
Income (loss) from continuing operations (60,918) 32,059
Income (loss) from discontinued operations,
net 16 2,217 (11,284)
Net income (loss) (58,701) 20,775
========= ========
Net income (loss) and other comprehensive income (58,701) 20,775
========= ========
Attributable to:
Equity holders of the Company (59,474) 19,818
Non-controlling interests 773 957
--------- --------
(58,701) 20,775
========= ========
Earnings per share attributable to equity holders
of the Company: 13 (e)
Basic and Diluted earnings (loss) per share
from continuing operation (in USD) (0.31) 0.14
========= ========
Basic and Diluted earnings (loss) per share
from discontinued operation (in USD) 0.01 (0.05)
========= ========
(*) Reclassified for discontinued operations - See Note 16.
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Attributable to equity holders of the Company
-----------------------------------------------------------------------------------
Capital
reserve
Capital from
reserve transactions
from with Retained
Share Share share-based non-controlling Treasury earnings Non-controlling Total
capital premium transactions interests shares (losses) Total interests Equity
-------- -------- ------------- --------------- --------- --------- -------- --------------- --------
USD in thousands
--------------------------------------------------------------------------------------------------------------
Balance as of 1 16 6 , 16 6 ,
January 2019 *) 112,224 2,590 (2,445) (468) 5 4 , 623 524 291 815
Net loss and
other
comprehensive
income - - - - - (59,474) (59,474) 773 (58,701)
Acquisition of
treasury shares - - - - (29,691) - (29,691) - (29,691)
Cost of (income
from)
share-based
payment - - (218) - - - (218) - (218)
Dividend to
equity holders
of the
Company - - - - - (14,190) (14,190) - (14,190)
Exercise of
options *) 400 (96) - - - 304 - 304
Dividend to
non-controlling
interests - - - - - - - (773) (773)
--------- -------- ------------- --------------- --------- --------- -------- --------------- --------
Balance as of 31
December 2019 *) 112,624 2,276 (2,445) (30,159) (19,041) 63,255 291 63,546
========= ======== ============= =============== ========= ========= ======== =============== ========
Attributable to equity holders of the Company
-----------------------------------------------------------------------------------
Capital
reserve
Capital from
reserve transactions
from with
Share Share share-based non-controlling Treasury Retained Non-controlling Total
capital premium transactions interests shares earnings Total interests Equity
-------- -------- ------------- --------------- --------- --------- -------- --------------- --------
USD in thousands
--------------------------------------------------------------------------------------------------------------
Balance as of 1
January 2018 *) 68,417 1,227 (2,445) - 49,167 116,366 291 116,657
Net income and
other
comprehensive
income - - - - - 19,8 18 19,8 18 957 20,775
Share capital
issuance (Net
of
issue cost of
USD 1.6
million) - 42,618 - - - - 42,618 - 42,618
Acquisition of
treasury shares - - - - (468) - (468) - (468)
Cost of
share-based
payment - - 1,667 - - - 1,667 - 1,667
Dividend to
equity holders
of the
Company - - - - - (14,362) (14,362) - (14,362)
Exercise of
options *) 1,189 (304) - - - 885 - 885
Dividend to
non-controlling
interests - - - - - - - (957) (957)
--------- -------- ------------- --------------- --------- --------- -------- --------------- --------
Balance as of 31 16 6 , 16 6 ,
December 2018 *) 112,224 2,590 (2,445) (468) 5 4 , 623 524 291 815
========= ======== ============= =============== ========= ========= ======== =============== ========
*) Lower than USD 1 thousand.
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
31 December
------------------
2019 2018
--------- -------
USD in thousands
------------------
Cash flows from operating activities:
Net income (loss) (58,701) 20,775
--------- -------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Adjustments to the profit or loss items:
Depreciation and amortisation 7,511 6,203
Impairment loss 81,350 300
Finance expense (income), net 1,976 (1,577)
Gain from sale of property - (10)
Loss (gain) from discontinued operation (1,811) 9,938
Cost of (income from) share-based payment (218) 1,667
Taxes on income 3,228 4,387
Exchange differences on balances of cash and
cash equivalents (661) 954
--------- -------
91,375 21,862
--------- -------
Changes in asset and liability items:
Decrease in trade receivables 6,465 2,838
Decrease (increase) in other receivables 371 (509)
Decrease in trade payables (2,239) (3,397)
Increase (decrease) in other accounts payable 4,482 (4,571)
Increase (decrease) in other long-term liabilities (183) 47
--------- -------
8,896 (5,592)
--------- -------
Cash received (paid) during the year for:
Interest paid (752) (469)
Interest received 101 196
Taxes paid (2,859) (5,544)
Taxes received 2,061 557
--------- -------
(1,449) (5,260)
--------- -------
Net cash provided by operating activities 40,121 31,785
========= =======
The accompanying notes are an integral part of the consolidated
financial statements.
1. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended 31 December
------------------------
2019 2018
----------- -----------
USD in thousands
------------------------
Cash flows from investing activities:
Purchase of property and equipment (260) (553)
Proceeds from sale of assets and property - 270
Acquisition of and additions to domains, websites
and other intangible assets (406) (47,306)
Acquisition of and additions to technology (8,447) (8,210)
Proceeds from the sale of discontinued operation
*) 1,547 -
Short- term and long-term investments, net 281 1,735
----------- -----------
Net cash used in investing activities (7,285) (54,064)
----------- -----------
Cash flows from financing activities:
Dividend paid to equity holders of the Company (14,190) (14,362)
Share capital issuance, net of issuance costs - 42,618
Acquisition of treasury shares (29,691) (468)
Dividend paid to non-controlling interests (652) (1,285)
Exercise of options 270 976
Repayment of long and short-term liability (5,500) (4,000)
Repayment of lease liabilities (1,253) -
Receipt of long-term loan from bank - 5,965
----------- -----------
Net cash provided by (used in) financing activities (51,016) 29,444
----------- -----------
Exchange differences on balances of cash and cash
equivalents 661 (954)
----------- -----------
Increase (decrease) in cash and cash equivalents (17,519) 6,211
Cash and cash equivalents at the beginning of the
year 44,627 38,416
----------- -----------
Cash and cash equivalents at the end of the year 27,108 44,627
=========== ===========
*) net of cash balance of discontinued operation.
NOTE 1: GENERAL
(a) General description of the Group and its operations :
The Group is a leading global digital performance publisher. The
Group attracts traffic from multiple online channels and directs
them to online businesses who, in turn, convert such traffic into
paying customers.
Online traffic is attracted by the Group's publications and are
then directed, by the Group, to its customers in return for mainly
a share of the revenue generated by such user, a fee generated per
user acquired, fixed fees or a hybrid of any of these models .
The Company is incorporated in Jersey and commenced its
operations in 2012.
Since March 2014, the Company's shares are traded on the London
Stock Exchange's Alternative Investment Market (AIM).
(b) Definitions:
In these financial statements:
The Company - XLMedia PLC.
The Group - The Company and its consolidated subsidiaries
Subsidiaries - Entities that are controlled (as defined
in IFRS 10) by the Company and whose accounts
are consolidated with those of the Company.
For a list of the main subsidiaries see Note
23.
Related parties - as defined in IAS 24
Dollar/USD - U.S. dollar
(c) Assessment of going concern:
As part of their ongoing responsibilities, the Directors have
recently undertaken a thorough review of the Group's cash flow
forecast and potential liquidity risks. Forecasts of operating
results and cash flow projections have been prepared for 2020 and
2021 which show that the Group's will have sufficient liquidity for
its operations during the period. The Directors have determined
that the Group is likely to continue in business for at least 12
months from the date of the consolidated financial statements.
Accordingly, the Board of Directors applied the going concern basis
of accounting in preparing the consolidated financial
statements.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies have been applied consistently
in the financial statements for all periods presented, unless
otherwise stated.
(a) Basis of presentation of the consolidated financial statements:
These financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS as adopted by the EU") and in accordance with
the requirements of the Companies (Jersey) Law 1991.
The financial statements have been prepared on a cost basis,
except for financial assets and liabilities (derivatives) that are
presented at fair value through profit or loss.
The Company has elected to present profit or loss items using
the function of expense method.
In 2019 new Standards and amendments became effective, regarding
the effect on the consolidated financial statements, see Note
2(t).
Classification of expenses in profit or loss
Cost of revenues- includes mainly compensation of personnel,
media buying costs, affiliates network costs and websites promotion
and content.
Research and development and sale and marketing- includes
primarily compensation of personnel.
General and administrative- includes primarily compensation and
related costs of personnel, amortisation and depreciation expenses,
costs related to the Group's facilities and fees for professional
services.
Reorganisation costs - includes primarily termination benefits
to former key management personnel and various consulting fees.
(b) Consolidated financial statements:
The consolidated financial statements comprise the financial
statements of companies that are controlled by the Company
(subsidiaries). Control is achieved when the Company 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. Potential voting rights are considered
when assessing whether an entity has control. The consolidation of
the financial statements commences on the date on which control is
obtained and ends when such control ceases.
The financial statements of the Company and of the subsidiaries
are prepared as of the same dates and periods. The consolidated
financial statements are prepared using uniform accounting policies
by all companies in the Group. Significant intragroup balances and
transactions and gains or losses resulting from intragroup
transactions are eliminated in full in the consolidated financial
statements.
Non-controlling interests in subsidiaries represent the equity
in subsidiaries not attributable, directly or indirectly, to a
parent. Non-controlling interests are presented in equity
separately from the equity attributable to the equity holders of
the Company. Profit or loss and components of other comprehensive
income are attributed to the Company and to non-controlling
interests. Losses are attributed to non-controlling interests even
if they result in a negative balance of non-controlling interests
in the consolidated statement of financial position.
A change in the ownership interest of a subsidiary without a
change of control is accounted for as an equity transaction in
accordance with IFRS 10.
(c) Business combinations and goodwill:
Business combinations are accounted for by applying the
acquisition method. The cost of the acquisition is measured at the
fair value of the consideration transferred on the date of
acquisition with the addition of non-controlling interests in the
acquiree. In each business combination, the Company chooses whether
to measure the non-controlling interests in the
acquiree based on their fair value on the date of acquisition or
at their proportionate share in the fair value of the acquiree's
net identifiable assets.
Direct acquisition costs are expensed as incurred.
Contingent consideration is recognised at fair value on the
acquisition date and classified as a financial asset or liability
in accordance with IAS 39. Subsequent changes in the fair value of
the contingent consideration are recognised in profit or loss. If
the contingent consideration is classified as an equity instrument,
it is measured at fair value on the acquisition date without
subsequent remeasurement.
Goodwill is initially measured at cost, which represents the
excess of the acquisition consideration and the amount of
non-controlling interests over the net identifiable assets acquired
and liabilities assumed. If the resulting amount is negative, the
acquirer recognises the resulting gain on the acquisition date.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For purposes of evaluation of
impairment of goodwill, goodwill purchased in a business
combination is evaluated and attributed to the cash-generating
units to which it had been allocated.
(d) Functional currency, presentation currency and foreign currency:
1. Functional currency and presentation currency:
The functional and presentation currency of the Company and of
its subsidiaries is the U.S. dollar ("USD").
2. Transactions, assets and liabilities in foreign currency:
Transactions denominated in foreign currency are recorded upon
initial recognition at the exchange rate at the date of the
transaction. After initial recognition, monetary assets and
liabilities denominated in foreign currency are translated at the
end of each reporting period into the functional currency at the
exchange rate at that date. Exchange rate differences, other than
those capitalised to qualifying assets or recorded in equity in
hedges, are recognised in profit or loss. Non-monetary assets and
liabilities measured at cost in foreign currency are translated at
the exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currency and measured
at fair value are translated into the functional currency using the
exchange rate prevailing at the date when the fair value was
determined.
(e) Cash equivalents:
Cash equivalents are considered as highly liquid investments,
including unrestricted short-term bank deposits with an original
maturity of three months or less from the date of acquisition or
with a maturity of more than three months, but which are redeemable
on demand without penalty and which form part of the Group's cash
management.
(f) Short-term and long-term deposits:
Short-term bank deposits are deposits with an original maturity
of more than three months and less than twelve months from the date
of acquisition. Long-term deposits are deposits with maturity of
more than twelve months from the reporting date. The deposits are
presented according to their terms of deposit.
(g) Revenue recognition:
On January 1, 2018, the Company first adopted IFRS 15, "Revenue
from Contracts with Customers" ("the Standard").
Revenue from contracts with customers is recognised when the
control over the services is transferred to the customer. The
transaction price is the amount of the consideration that is
expected to be received based on the contract terms.
Revenue from rendering of services:
Revenue from rendering of services is recognized over time,
during the period the customer simultaneously receives and consumes
the benefits provided by the Company's performance. The Company
charges its customers based on payment terms agreed upon in
specific agreements.
In determining the amount of revenue from contracts with
customers, the Group evaluates whether it is a principal or an
agent in the arrangement. The Group is principal when the Group
controls the promised services before transferring them to the
customer. In these circumstances, the Group recognises revenue for
the gross amount of the consideration. When the Group is an agent,
it recognises revenue for the net amount of the consideration,
after deducting the amount due to the principal.
(h) Taxes on income:
Current or deferred taxes are recognised in profit or loss,
except to the extent that they relate to items which are recognised
in other comprehensive income or equity.
1. Current taxes:
The current tax liability is measured using the tax rates and
tax laws that have been enacted or substantively enacted by the
reporting date as well as adjustments required in connection with
the tax liability in respect of previous years.
2. Deferred taxes:
Deferred taxes are computed in respect of temporary differences
between the carrying amounts in the financial statements and the
amounts attributed for tax purposes.
Deferred taxes are measured at the tax rate that is expected to
apply when the asset is realised or the liability is settled, based
on tax laws that have been enacted or substantively enacted by the
reporting date.
Deferred tax assets are reviewed at each reporting date and
reduced to the extent that it is not probable that they will be
utilised. Deductible temporary differences for which deferred tax
assets had not been recognised are reviewed at each reporting date
and a respective deferred tax asset is recognised to the extent
that their utilisation is probable.
Taxes that would apply in the event of the disposal of
investments in investees have not been taken into account in
computing deferred taxes, as long as the disposal of the
investments in investees is not probable in the foreseeable future.
Also, deferred taxes that would apply in the event of distribution
of earnings by investees as dividends have not been taken into
account in computing deferred taxes, since the distribution of
dividends does not involve an additional tax liability or since it
is the Group's policy not to initiate distribution of dividends
from a subsidiary that would trigger an additional tax
liability.
Deferred taxes are offset if there is a legally enforceable
right to offset a current tax asset against a current tax liability
and the deferred taxes relate to the same taxpayer and the same
taxation authority.
(i) Leases:
As detailed in paragraph 2 (t) below regarding the initial
adoption of IFRS 16, "Leases" ("the Standard"), the Group elected
to apply the provisions of the Standard using the modified
retrospective approach (without restatement of comparative
data).
The accounting policy for leases applied effective from 1
January 2019, is as follows:
The Group accounts for a contract as a lease when the contract
terms convey the right to control the use of an identified asset
for a period of time in exchange for consideration.
1. Recognition of assets and liabilities:
For leases in which the Group is the lessee, the Group
recognizes on the commencement date of the lease a right-of-use
asset and a lease liability, excluding leases whose term is up to
12 months and leases for which the underlying asset is of low
value. For these excluded leases, the Group has elected to
recognize the lease payments as an expense in profit or loss on a
straight-line basis over the lease term. In measuring the lease
liability, the Group has elected to apply the practical expedient
in the Standard and does not separate the lease components from the
non-lease components (such as management and maintenance services,
etc.) included in a single contract.
On the commencement date, the lease liability includes all
unpaid lease payments discounted at the interest rate implicit in
the lease, if that rate can be readily determined, or otherwise
using the Group's incremental borrowing rate. After the
commencement date, the Group measures the lease liability using the
effective interest rate method.
On the commencement date, the right-of-use asset is recognized
in an amount equal to the lease liability plus lease payments
already made on or before the commencement date and initial direct
costs incurred. The right-of-use asset is measured applying the
cost model and depreciated over the shorter of its useful life or
the lease term (see Note 2(j) below). The Group tests for
impairment of the right-of-use asset whenever there are indications
of impairment pursuant to the provisions of IAS 36.
2. Variable lease payments that depend on an index:
On the commencement date, the Group uses the index rate
prevailing on the commencement date to calculate the future lease
payments.
For leases in which the Group is the lessee, the aggregate
changes in future lease payments resulting from a change in the
index are discounted (without a change in the discount rate
applicable to the lease liability) and recorded as an adjustment of
the lease liability and the right-of-use asset, only when there is
a change in the cash flows resulting from the change in the index
(that is, when the adjustment to the lease payments takes
effect).
3. Lease extension and termination options:
A non-cancellable lease term includes both the periods covered
by an option to extend the lease when it is reasonably certain that
the extension option will be exercised and the periods covered by a
lease termination option when it is reasonably certain that the
termination option will not be exercised.
In the event of any change in the expected exercise of the lease
extension option or in the expected non-exercise of the lease
termination option, the Group remeasures the lease liability based
on the revised lease term using a revised discount rate as of the
date of the change in expectations. The total change is recognized
in the carrying amount of the right-of-use asset until it is
reduced to zero, and any further reductions are recognized in
profit or loss.
4. Lease modifications:
If a lease modification does not reduce the scope of the lease
and does not result in a separate lease, the Group remeasures the
lease liability based on the modified lease terms using a revised
discount rate as of the modification date and records the change in
the lease liability as an adjustment to the right-of-use asset.
If a lease modification reduces the scope of the lease, the
Group recognises a gain or loss arising from the partial or full
reduction of the carrying amount of the right-of-use asset and the
lease liability. The Group subsequently remeasures the carrying
amount of the lease liability according to the revised lease terms,
at the revised discount rate as of the modification date and
records the change in the lease liability as an adjustment to the
right-of-use asset.
The accounting policy for leases applied before 1 January 2019
is as follows:
The criteria for classifying leases as finance or operating
leases depend on the substance of the agreements and are made at
the inception of the lease in accordance with the following
principles as set out in IAS 17.
Operating leases - the Group as lessee:
Lease agreements are classified as an operating lease if they do
not transfer substantially all the risks and benefits incidental to
ownership of the leased asset. Lease payments are recognised as an
expense in profit or loss on a straight-line basis over the lease
term.
(j) Property and equipment:
Property and equipment are measured at cost, including directly
attributable costs, less accumulated depreciation.
Depreciation is calculated on a straight-line basis over the
useful life of the assets at annual rates as follows:
mainly %
--------
Office furniture and equipment 10
Computers and peripheral equipment 33
Right of use leased assets and leasehold improvement
(over the lease term) 10-15
Right of use leased assets and leasehold improvements are
depreciated on a straight-line basis over the shorter of the lease
term (including any extension option held by the Group and intended
to be exercised) and the expected life of the asset.
The useful life, depreciation method and residual value of an
asset are reviewed at least each year-end and any changes are
accounted for prospectively as a change in accounting estimate.
Depreciation of an asset ceases at the earlier of the date that
the asset is classified as held for sale and the date that the
asset is derecognised. An asset is derecognised on disposal or when
no further economic benefits are expected from its use.
(k) Intangible assets:
Separately acquired intangible assets are measured on initial
recognition at cost including directly attributable costs.
Intangible assets acquired in a business combination are measured
at fair value at the acquisition date. Expenditures relating to
internally generated intangible assets, excluding capitalised
development costs, are recognised in profit or loss when
incurred.
Intangible assets with a finite useful life are amortised over
their useful life and reviewed for impairment whenever there is an
indication that the asset may be impaired. The amortisation period
and the amortisation method for an intangible asset are reviewed at
least at each year end.
Intangible assets (domains and websites) with indefinite useful
lives are not systematically amortised and are tested for
impairment annually or whenever there is an indication that the
intangible asset may be impaired. Since the content of the domains
and websites is being updated on a current basis management
believes that these assets have indefinite useful lives. The useful
life of these assets is reviewed annually to determine whether
their indefinite life assessment continues to be supportable. If
the events and circumstances do not continue to support the
assessment, the change in the useful life assessment from
indefinite to finite is accounted for prospectively as a change in
accounting estimate and on that date the asset is tested for
impairment. Commencing from that date, the asset is amortised
systematically over its useful life.
Research and development expenditures:
Research expenditures are recognised in profit or loss when
incurred. An intangible asset arising from a development project or
from the development phase of an internal project is recognised if
the Group can demonstrate: the technical feasibility of completing
the intangible asset so that it will be available for use or sale;
the Company's intention to complete the intangible asset and use or
sell it; the Company's ability to use or sell the intangible asset;
how the intangible asset will generate future economic benefits;
the availability of adequate technical, financial and other
resources to complete the intangible asset; and the Company's
ability to measure reliably the expenditure attributable to the
intangible asset during its development.
The asset is measured at cost less any accumulated amortisation
and any accumulated impairment losses. Amortisation of the asset
begins when development is completed, and the asset is available
for use. The asset is amortised over its useful life. Testing of
impairment is performed annually over the period of the development
project.
Software:
The Group's assets include computer systems comprising hardware
and software. Software forming an integral part of the hardware to
the extent that the hardware cannot function without the programs
installed on it is classified as property and equipment. In
contrast, software that adds functionality to the hardware is
classified as an intangible asset.
Systems and software (purchased and in- house development cost)
are amortised on a straight-line basis over the useful life of
three years
Non-competition is amortised on a straight-line basis over the
agreement term (between 2 to 3 years).
(l) Impairment of non-financial assets:
The Group evaluates the need to record an impairment of the
carrying amount of non-financial assets whenever events or changes
in circumstances indicate that the carrying amount is not
recoverable.
If the carrying amount of non-financial assets exceeds their
recoverable amount, the assets are reduced to their recoverable
amount. The recoverable amount is the higher of fair value less
costs of sale and value in use. In measuring value in use, the
expected future cash flows are discounted using a pre-tax discount
rate that reflects the risks specific to the asset. The recoverable
amount of an asset that does not generate independent cash flows is
determined for the cash-generating unit to which the asset belongs.
Impairment losses are recognised in profit or loss.
An impairment loss of an asset, other than goodwill, is reversed
only if there have been changes in the estimates used to determine
the asset's recoverable amount since the last impairment loss was
recognised. Reversal of an impairment loss, as above, shall not be
increased above the lower of the carrying amount that would have
been determined (net of depreciation or amortisation) had no
impairment loss been recognised for the asset in prior years, and
its recoverable amount. The reversal of impairment loss of an asset
presented at cost is recognised in profit or loss.
The following criteria are applied in assessing impairment of
these specific assets:
1. Goodwill
The Company reviews goodwill for impairment once a year as of 31
December or more frequently if events or changes in circumstances
indicate that there is impairment need for such review.
Goodwill is tested for impairment by assessing the recoverable
amount of the cash-generating unit (or group of cash-generating
units) to which the goodwill has been allocated. An impairment loss
is recognised if the recoverable amount of the cash-generating unit
(or group of cash-generating units) to which goodwill has been
allocated is less than the carrying amount of the cash-generating
unit (or group of cash-generating units). Any impairment loss is
allocated first to goodwill. Impairment losses recognised for
goodwill cannot be reversed in subsequent periods.
2. Domains and websites - Intangible assets with an indefinite
useful life that are not systematically amortised.
The impairment test is performed annually, on 31 December, or
more frequently if events or changes in circumstances indicate that
there is an impairment.
(m) Financial instruments:
On January 1, 2018, the Company first adopted IFRS 9, "Financial
Instruments" ("the Standard"). The Company elected to adopt the
provisions of the Standard retrospectively without restatement of
comparative data.
The accounting policy for financial instruments applied
commencing from January 1, 2018, is as follows:
1. Financial assets:
Financial assets are measured upon initial recognition at fair
value plus transaction costs directly attributable to the
acquisition of the financial assets, except for financial assets
measured at fair value through profit or loss in respect of which
transaction costs are recorded in profit or loss.
The Company classifies and measures debt instruments in the
financial statements based on the following criteria:
- The Company's business model for managing financial assets; and
- The contractual cash flow terms of the financial asset.
a) Debt instruments are measured at amortized cost when:
The Company's business model is to hold the financial assets in
order to collect their contractual cash flows, and the contractual
terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding. After initial recognition, the
instruments in this category are measured according to their terms
at amortised cost using the effective interest rate method, less
any provision for impairment.
b) Financial assets held for trading:
Financial assets held for trading (derivatives) are measured
through profit or loss unless they are designated as effective
hedging instruments.
2. Impairment of financial assets:
The Company reviews at the end of each reporting period the
provision for loss of financial debt instruments which are measured
at amortized cost. The Company has short-term trade receivables in
respect of which the Company applies a simplified approach and
measures the loss allowance in an amount equal to the lifetime
expected credit losses.
An impairment loss on debt instruments measured at amortized
cost is recognized in profit or loss with a corresponding loss
allowance that is offset from the carrying amount of the financial
asset.
3. Derecognition of financial assets:
A financial asset is derecognized when the contractual rights to
the cash flows from the financial asset expire.
4. Financial liabilities:
a) Financial liabilities measured at amortized cost:
Financial liabilities are initially recognized at fair value
less transaction costs that are directly attributable to the issue
of the financial liability.
After initial recognition, the Company measures all financial
liabilities at amortized cost using the effective interest rate
method, except for:
- Financial liabilities at fair value through profit or loss such as derivatives;
- Contingent consideration recognized by the buyer in a business
combination within the scope of IFRS 3.
b) Financial liabilities measured at fair value through profit or loss:
At initial recognition, the Company measures financial
liabilities that are not measured at amortized cost at fair value.
Transaction costs are recognised in profit or loss.
After initial recognition, changes in fair value are recognized
in profit or loss.
5. Derecognition of financial liabilities:
A financial liability is derecognised only when it is
extinguished, that is when the obligation is discharged or
cancelled or expires.
(n) Fair value measurement:
Fair value is the price to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date.
Fair value measurement is based on the assumption that the
transaction will take place in the asset's or the liability's
principal market, or in the absence of a principal market, in the
most advantageous market.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities measured at fair value or for which
fair value is disclosed are categorised into levels within the fair
value hierarchy based on the lowest level input that is significant
to the entire fair value measurement:
Level - quoted prices (unadjusted) in active markets
1 for identical assets or liabilities.
Level - inputs other than quoted prices included within
2 Level 1 that are observable either directly or
indirectly.
Level - inputs that are not based on observable market
3 data (valuation techniques which use inputs that
are not based on observable market data).
(o) Provisions:
A provision in accordance with IAS 37 is recognised when the
Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation. When the Group expects part or all of the expense to be
reimbursed, for example under an insurance contract, the
reimbursement is recognised as a separate asset but only when the
reimbursement is virtually certain. The expense is recognised in
profit or loss net of the reimbursed amount.
(p) Employee benefit liabilities:
The Group has several employee benefit plans:
1. Short-term employee benefits:
Short-term employee benefits include salaries, paid annual
leave, paid sick leave, recreation and social security
contributions and are recognised as expenses as the services are
rendered. A liability in respect of a cash bonus or a
profit-sharing plan is recognised when the Group has a legal or
constructive obligation to make such payment as a result of past
service rendered by an employee and a reliable estimate of the
amount can be made.
2. Post-employment benefits:
The plans are financed by contributions to insurance companies
or pension funds and classified as defined contribution plans.
The Israeli subsidiaries of the Group have defined contribution
plans pursuant to Section 14 to the Severance Pay Law under which
the subsidiary pays fixed contributions and will have no legal or
constructive obligation to pay further contributions if the fund
does not hold sufficient amounts to pay all employee benefits
relating to employee service in the current and prior periods.
Contributions to the defined contribution plan in respect of
severance or retirement pay are recognised as an expense when
contributed concurrently with performance of the employee's
services.
(q) Share-based payment transactions:
The Group's employees and officers are entitled to remuneration
in the form of equity-settled share-based payment transactions.
Equity-settled transactions:
The cost of equity-settled transactions with employees and
officers is measured at the fair value of the equity instruments
granted at grant date. The fair value is determined using an
acceptable option pricing model - additional details are given in
Note 14.
In estimating fair value, the vesting conditions (consisting of
service conditions and performance conditions other than market
conditions) are not taken into account.
The cost of equity-settled transactions is recognised in profit
or loss together with a corresponding increase in equity during the
period which the performance is to be satisfied ending on the date
on which the relevant employees or officers become entitled to the
award ("the vesting period"). The cumulative expense recognised for
equity-settled transactions at the end of each reporting period
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 that will ultimately vest. No expense is
recognised for awards that do not ultimately vest, except for
awards where vesting is conditional upon a market condition, which
are treated as vesting irrespective of whether the market condition
is satisfied, provided that all other vesting conditions (service
and/or performance) are satisfied.
(r) Discontinued operations:
A discontinued operation is a component of the Company that
either has been disposed of or is classified as held for sale. The
operating results relating to the discontinued operation (including
comparative data) are presented separately in profit or loss, net
of the tax effect.
(s) Earnings (loss) per share:
Earnings per share are calculated by dividing the net income
(loss) attributable to equity holders of the Company by the
weighted average number of Ordinary Shares outstanding during the
period. The Company's share of earnings of investees is included
based on the earnings per share of the investees multiplied by the
number of shares held by the Company. If the number of Ordinary
Shares outstanding increases as a result of a capitalisation, bonus
issue, or share split, the calculation of earnings per share for
all periods presented are adjusted retrospectively.
Potential Ordinary shares are included in the computation of
diluted earnings per share when their conversion decreases earnings
per share from continuing operations. Potential Ordinary shares
that are converted during the period are included in diluted
earnings per share only until the conversion date and from that
date in basic earnings per share.
(t) Initial adoption of new financial reporting and accounting
standards and amendments to existing financial reporting and
accounting standards:
1. Initial adoption of IFRS 16, "Leases":
In January 2016, the IASB issued IFRS 16, "Leases" ("the
Standard"), which supersedes IAS 17, "Leases" ("the old Standard"),
IFRIC 4, "Determining Whether an Arrangement Contains a Lease", and
SIC-15, "Operating Leases - Incentives".
The Standard has been applied for the first time in these
financial statements. As permitted by the Standard, the Group
elected to adopt the provisions of the Standard using the modified
retrospective method whereby the carrying amount of the
right-of-use assets is identical to the carrying amount of the
lease liability.
According to this approach, comparative data has not been
restated. The carrying amount of the lease liability as of the date
of initial adoption of the Standard is calculated using the Group's
incremental borrowing rate on the date of initial adoption of the
Standard.
a) Following are data relating to the initial adoption of the
Standard as of 1 January 2019, in respect of existing leases as of
that date:
According
to the previous As presented
accounting according
policy The change to IFRS 16
---------------- ---------- ------------
USD in thousands
------------------------------------------
Non-current assets:
Property and equipment:
Right-of-use assets - 10,470 10,470
---------------- ---------- ------------
Current liabilities:
Lease liabilities - 1,223 1,223
---------------- ---------- ------------
Non-current liabilities:
Lease liabilities - 9,247 9,247
---------------- ---------- ------------
Reconciliation of total commitment for future minimum
lease payments to lease liability as of 1 January
2019:
USD in thousands
----------------
Total future minimum lease payments for non-cancellable
leases as per IAS 17 according to the financial
statements as of 31 December 31 2018 13,008
Effect of discount of future lease payments
at the Group's incremental borrowing rate
on initial date of adoption (2,538)
----------------
Total lease liabilities as per IFRS 16 as
of 1 January 2019 10,470
================
b) The Group determined the appropriate interest rate for
discounting its leases based on credit risk, the weighted average
term of the leases and other economic variables. A weighted average
incremental borrowing rate of 6% was used to discount future lease
payments in the calculation of the lease liability on the date of
initial adoption of the Standard.
c) Practical expedients applied in the initial adoption of the
Standard- The Company elected to apply a single discount rate to a
portfolio of leases with reasonably similar characteristics.
2. IFRIC 23, "Uncertainty over Income Tax Treatments":
In June 2017, the IASB issued IFRIC 23, "Uncertainty over Income
Tax Treatments" ("the Interpretation"). The Interpretation
clarifies the accounting for recognition and measurement of assets
or liabilities in accordance with the provisions of IAS 12, "Income
Taxes", in situations of uncertainty involving income taxes. The
Interpretation provides guidance on considering whether some tax
treatments should be considered collectively, examination by the
tax authorities, measurement of the effects of uncertainty
involving income taxes on the financial statements and accounting
for changes in facts and circumstances in respect of the
uncertainty.
The Interpretation has been initially applied in these financial
statements.
The initial adoption of the Interpretation did not have a
material effect on the Group's financial statements.
NOTE 3: SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND
ASSUMPTIONS USED IN THE PREPARATION OF THE FINANCIAL STATEMENTS
Estimations and assumptions:
The preparation of the financial statements requires management
to make estimates and assumptions that have an effect on the
application of the accounting policies and on the reported amounts
of assets, liabilities, revenues and expenses. Changes in
accounting estimates are reported in the period of the change in
estimate.
The key assumptions made in the financial statements concerning
uncertainties at the end of the reporting period and the critical
estimates computed by the Group that may result in a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are discussed below.
- Impairment of goodwill, domains and websites:
The Group reviews goodwill, domains and websites for impairment
at least once a year. This requires management to make an estimate
of the projected future cash flows from the continuing use of the
cash-generating units to which the assets are allocated and also to
choose a suitable discount rate for those cash flows. See also Note
8.
- Income taxes
The Group is subject to income tax in various jurisdictions and
judgment is required in determining the provision for income taxes.
During the ordinary course of business, there are transactions and
calculations for which the ultimate tax determination may be
uncertain. The Group recognises tax liabilities based on
assumptions supported by, among others, transfer price studies. The
Group believes that its accruals for tax liabilities are adequate
for all open audit years based on its assessment of many factors
including past experience and interpretations of tax law. See also
Note 15.
NOTE 4: DISCLOSURE OF NEW STANDARDS IN THE PERIOD PRIOR TO THEIR
ADOPTION
IFRS 3, "Business Combinations":
In October 2018, the IASB issued an amendment to the definition
of a "business" in IFRS 3, "Business Combinations" ("the
Amendment"). The Amendment is intended to assist entities in
determining whether a transaction should be accounted for as a
business combination or as an acquisition of an asset.
The Amendment is to be applied prospectively to all business
combinations and asset acquisitions for which the acquisition date
is on or after the beginning of the first annual reporting period
beginning on or after January 1, 2020, with earlier application
permitted.
NOTE 5: SHORT-TERM AND LONG-TERM INVESTMENTS
Annual As of 31 December
-------------------
interest 2019 2018
--------- --------
rate (1) USD in thousands
-------- -------------------
(a) Short-term investments:
Short-term bank deposits (2):
In USD 0.8 1,308 1,307
In NIS 0.4 1,470 1,497
In EURO 7 192
2,785 2,996
========= ========
(b) Long-term financial assets:
Bank deposits- in NIS (2) 0.6 682 633
========= ========
(1) The above interest rates are the weighted average rates as
of 31 December 2019.
(2) Includes deposits for the amount of USD 3,467 thousand with
fixed liens recorded as security for credit card transactions in
connection with advertising campaigns and other online purchasing
over the internet as well as for financial derivative transactions
and bank guarantee provided in connection with a lease agreement on
property.
NOTE 6: TRADE AND OTHER RECEIVABLES
a. Trade receivables:
As of 31 December,
--------------------
2019 2018
--------- ---------
USD in thousands
--------------------
Open accounts 8,666 17,800
Less - allowance for doubtful accounts 911 1,688
Trade receivables, net 7,755 16,112
========= =========
1. As of 31 December 2019, the Group has no material amounts
that are past due and not impaired.
2. Doubtful accounts expenses included in general and
administrative expenses USD 211 thousands (2018- USD 530
thousands).
3. See Note 12 (b) (2) on credit risk of trade receivables.
b. Other receivables:
As of 31 December
---------------------
2019 2018
--------- --------
USD in thousands
---------------------
Prepaid expenses 2,391 2,407
Government authorities 2,012 1,536
Other receivables 119 754
--------- --------
4,522 4,697
========= ========
NOTE 7: PROPERTY AND EQUIPMENT
Right
of use
Computers, leased
furniture, assets
office equipment Leasehold - Offices
and others improvements (2) Total
----------------- ------------- ------------- -------------
USD in thousands
Cost:
Balance as of 1 January
2018 2,530 442 - 2,972
Acquisitions during the
year 489 64 - 553
Disposals during the period (27) - - (27)
Balance as of 31 December
2018 2,992 506 - 3,498
----------------- ------------- ------------- -------------
Initial application of IFRS
16 - - 10,470 10,470
Acquisitions during the
year 208 52 47 307
Adjustments for indexation - - 33 33
Decreases during the year:
Discontinued operation (1) (384) (20) - (404)
Termination of leases - - (879) (879)
----------------- ------------- ------------- -------------
Balance as of 31 December
2019 2,816 538 9,671 13,025
================= ============= ============= =============
Accumulated depreciation:
Balance as of 1 January
2018 1,584 158 - 1,742
-
Depreciation during the
year 425 52 - 477
Disposals during the period (17) - - (17)
Balance as of 31 December
2018 1,992 210 - 2,202
----------------- ------------- ------------- -------------
Depreciation during the
year 337 59 1 ,402 1 ,798
Decreases during the year:
Discontinued operation (1) (321) (10) - (331)
Termination of leases - - (75) (75)
Balance as of 31 December
2019 2,008 259 1,327 3,594
================= ============= ============= =============
Depreciated cost as of 31
December 2019 8 08 279 8,344 9,431
================= ============= ============= =============
Depreciated cost as of 31
December 2018 1,000 296 - 1,296
================= ============= ============= =============
(1) See Note 16.
(2) See Note 11.
NOTE 8: INTANGIBLE ASSETS
a. Composition and movement:
Systems,
Domains software
Goodwill and websites Non-competition and other Total
----------- ------------- --------------- ----------- ---------
USD in thousands
Cost:
Balance as of 1 January 2018 30,052 47,367 4,240 17,037 98,696
Acquisitions during the year - 46,591 715 1,195 48,501
Costs capitalised during the
year (in-house development
cost) - - - 7,015 7,015
----------- ------------- --------------- ----------- ---------
Balance as of 31 December
2018 30,052 93,958 4,955 25,247 154,212
----------- ------------- --------------- ----------- ---------
Acquisitions during the year - 408 - 1,342 1,75 0
Costs capitalised during the
year (in-house development
cost) - - - 7,105 7,105
Balance as of 31 December 163,06
2019 30,052 94,366 4,955 33,694 7
=========== ============= =============== =========== =========
Accumulated amortisation and
impairment:
Balance as of 1 January 2018 - 1,605 3,467 9,225 14,297
Amortisation during the year - - 733 4,993 5,726
Impairment loss from discontinued
operation (1) 6,400 - 174 2,464 9,038
Other impairment loss - 300 - - 300
Balance as of 31 December
2018 6,400 1,905 4,374 16,682 29,361
Amortisation during the year - - 477 5,236 5,713
Impairment loss (2) 23,652 52,246 104 5,348 81,350
----------- ------------- --------------- ----------- ---------
Balance as of 31 December
2019 30,052 54,151 4,955 27,266 116,424
=========== ============= =============== =========== =========
Amortised cost as of 31 December
2019 - 40,215 - 6,428 46,643
=========== ============= =============== =========== =========
Amortised cost as of 31 December
2018 23,652 92,053 581 8,565 124,851
=========== ============= =============== =========== =========
(1) See Note 16.
(2) See Note b below.
b. Additional information on impairment:
In January 2020, 107 of the Group's sites were demoted in search
results by Google, of which 23 were premium sites. The demotion of
the sites is expected to have a material impact on the Group's
future revenues.
Based on the value in use of the Publishing operations of the
Group performed by an independent valuation specialist, the
carrying amount of the goodwill was written down to nil. The
remaining amount of the impairment loss was allocated to the other
intangible assets based on their relative carrying amounts.
As result the Company recorded an impairment loss for the amount
of USD 81,350 thousands, which is included in the statement of
profit or loss.
The pre-tax discount rate applied to the cash flow projection is
15.5% (2018-13.1%). The projected cash flows are estimated using
mainly fixed growth rate of 4.5% for the years 2021-2024 and
terminal growth rate of 3% (2018-3%).
The key assumptions used in calculating the value in use:
Revenues and operational profit- the revenues and the profit
rate assumptions are based on management expectations and forecasts
for the coming year and the management's forecasted cash flows for
the following three years. These forecasts included an evaluation
of those specific sites that suffered a demotion or other factors
which could adversely affect revenues and profitability
Discount rate - the discount rate reflects management's
assumptions regarding the Group's specific risk premium.
Growth rate - the growth rate applied for the period beyond the
four-year forecasted period is based on the long-term average
growth rate as customary in similar industries.
2. Sensitivity analyses of changes in assumptions:
With respect to the assumptions used in determining the value in
use, management believes that a significant change in key
assumptions, in particular, a decrease in forecasted revenues,
would result in a further impairment of the intangible assets.
NOTE 9: OTHER LIABILITIES AND ACCOUNTS PAYABLE
As of 31 December
-------------------
2019 2018
--------- --------
USD in thousands
-------------------
Employees and payroll accruals 5,073 3,750
Government authorities 724 741
Accrued expenses 3,043 1,513
Other liabilities 785 963
--------- --------
9,625 6,967
========= ========
NOTE 10: LOANS FROM BANK
a. Composition:
As of 31 December
-------------------
2019 2018
--------- --------
USD in thousands
-------------------
Long-term bank loans 1,465 6,965
Less - current maturities 1,465 5,585
- 1,380
========= ========
b. Loan terms:
In December 2017, a subsidiary of the Company received a loan
from a bank for the amount of USD 5 million. The loan was repayable
in 24 equal instalments and carried an interest rate of USD Libor
+4.45%.
The loan was repaid fully in 2019.
In June 2018, a subsidiary of the Company received a loan from a
bank for the amount of USD 6 million. The loan is repayable in 24
equal instalments and carries an interest rate of USD Libor +4.4%
(as of 31 December 2019 - 6.36 %).
The Company's subsidiary committed towards the bank, amongst
others, to maintain financial covenants, which will be measured on
a quarterly basis.
As of 31 December 2019, the Company's subsidiary is meeting the
financial covenants.
c. Liens- see Note 18.
NOTE 11: LEASE LIABILITIES
a. Composition:
31 December
-------------
2019
-------------
U.S. dollars
in thousands
-------------
Lease liabilities 9,228
Less - current maturities 1,161
-------------
8,067
=============
Group companies (as lessee) have entered into commercial real
estate lease agreements. The leases include an exit point in
December 2020 (with extension option periods) with annual lease
fees of approximately USD 1.6 million. As of 31 December 2019,
these extension options have been taken into consideration in the
determination of the lease liabilities.
The Group recorded fixed liens on long-term bank deposit in
connection with these agreements (see Note 5).
As more fully described in Note 2(t), on adoption of IFRS 16 the
Group recognised lease liabilities in relation to these leases
which previously were classified as operating leases under IAS 17.
See Note 7 for the related right of use assets and Note 12b for
details of lease liability maturities.
In September 2019 the Company terminated, without penalty, a
lease of office space which was originally leased till 2028 with an
annual lease payment of USD 83 thousand. As a result, the Company
derecognised the right-of-use leased asset for the net amount of
USD 804 thousand and the related liability for the amount of USD
893 thousands.
b. Information on leases in which the Company is a lessee:
Year ended
December 31
2019
-------------
U.S. dollars
in thousands
-------------
Depreciation expense for right-of-use assets 1,402
=============
Finance expense (including exchange rate
differences) for lease liability 1,310
=============
Total cash outflow for leases 1,697
=============
NOTE 12: FINANCIAL INSTRUMENTS
a. Classification of financial assets and liabilities:
The financial assets and financial liabilities in the statement
of financial position are classified by groups of financial
instruments as follows:
As of 31 December
-------------------
2019 2018
---------- -------
Financial assets USD in thousands
-------------------
Financial assets at fair value through
profit or loss:
Financial derivatives 222 805
---------- -------
Financial assets measured at amortised
cost:
Cash and cash equivalents 27,108 44,627
Short-term and long-term investments 3,467 3,629
Trade receivables 7,755 16,112
Other receivables 25 754
Total financial assets measured at
amortised cost 38, 355 65,122
---------- -------
Total financial assets 38,577 65,927
========== =======
Total current 37,895 65,294
========== =======
Total non-current 682 633
========== =======
As of 31 December
-------------------
2019 2018
----------- ------
Financial liabilities USD in thousands
-------------------
Financial assets at fair value through
profit or loss:
Financial derivatives 79 91
Financial liabilities measured at amortised
cost:
Trade payables 3,028 6,416
Other liabilities and account payables 8,480 5,637
Lease liabilities 9,228 -
Bank loan 1,465 6,965
Total financial liabilities measured
at amortised cost 22,201 19,018
----------- ------
Total financial liabilities 22,280 19,109
=========== ======
Total current 14,213 17,729
=========== ======
Total non-current 8,067 1,380
=========== ======
b. Financial risks factors:
The Group's activities expose it to various financial risks.
1. Market risk - Foreign exchange risk:
A significant portion of the Group's revenues are received in
EURO. The Group also has revenues that are received in GBP. A
significant portion of the Israeli subsidiaries expenses are paid
in New Israeli Shekels ("NIS"). Therefore, the Group is exposed to
fluctuations in the foreign exchange rates in EURO, GBP and NIS
against the USD.
The Company entered into forward contracts with the intention to
reduce the foreign exchange risk of forecasted cash flows. These
contracts are not designated as hedges for accounting purposes and
are measured at fair value through profit or loss.
For the year ended 31 December 2019 the Group recorded foreign
exchange rate differences income, net for the amount of USD 619
thousand (net of gain on forward transactions, see below) (2018-
expenses of USD 95 thousand).
The open positions as of 31 December 2019, all for period until
end of June 2020:
Forward transactions for the sale of EURO in exchange for USD
totaling EURO 9.3 million (USD 10.7 million) .
Forward transactions for the sale of GBP in exchange for USD
totaling GBP 2.6 million (USD 3.4 million).
As of 31 December 2019, the total fair value of the above
forward transactions amounted to USD 79 thousand (liabilities) and
USD 222 thousand (assets).
2. Credit risk:
The Group usually extends 30-60 day term to its customers. The
Group regularly monitors the credit extended to its customers and
their general financial condition but does not require collateral
as security for these receivables.
The Group maintains cash and cash equivalents and short-term
investments and long-term investments in various financial
institutions. These financial institutions are located in the EU,
Israel, Europe and US.
3. Liquidity risk:
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted payments
(including interest payments):
As of 31 December 2019:
Less than 1 to 2 to 3 to Above
one year 2 years 3 years 4 years 4 years Total
--------- -------- ------
Trade payables 3,028 - - - - 3,028
Other liabilities
and account payables 8,480 - - - - 8,480
Financial derivatives 79 - - - - 79
Lease liabilities 1,586 1,650 1,650 1,676 4,629 11,191
Bank loan 1,465 - - - - 1,465
--------- --------- ---------
14,638 1,650 1,650 1,676 4,629 24,243
========= ======== ========= ========= ========= ======
As of 31 December 2018:
Less
than 1 to
one year 2 years Total
--------- -------- ------
USD in thousands
---------------------------
Trade payables 6,416 - 6,416
Other liabilities and account payables 5,637 - 5,637
Financial derivatives 91 - 91
Bank loan 5,786 1,529 7,315
17,930 1,529 19,459
========= ======== ======
c. Fair value:
The carrying amounts of the Group's financial assets and
liabilities approximate their fair value.
The fair value of financial derivatives is categorised within
level 2 of fair value hierarchy.
d. Sensitivity tests relating to changes in market factors:
As of 31 December
-------------------
2019 2018
-------- ---------
USD in thousands
-------------------
Sensitivity test to changes in Euro
to Dollar exchange rate:
Gain (loss) from the change:
Increase of 10% in exchange rate (295) (765)
Decrease of 10% in exchange rate 295 765
Sensitivity test to changes in NIS to
Dollar exchange rate:
Gain (loss) from the change:
Increase of 10% in exchange rate 299 (1,318)
Decrease of 10% in exchange rate (299) 1,421
Sensitivity test to changes in GBP to
Dollar exchange rate:
Gain (loss) from the change:
Increase of 10% in exchange rate (184) 583
Decrease of 10% in exchange rate 184 (583)
The sensitivity tests reflect effects of reasonably possible
changes in exchange rates on hedging position of the Group for the
above currencies as of the end of the year. As described in (b) 1
above, these contracts are intended to reduce the Group's exposure
to fluctuations in exchange rates on future revenues and expenses.
Therefore, although it is expected the above effects will be offset
by contra effects upon the recording of the revenues and expenses,
the timing of these effects may not coincide in the same reporting
period.
Sensitivity tests and principal assumptions:
The selected changes in the relevant risk variables were
determined based on management's estimate as to reasonable possible
changes in these risk variables.
The Group has performed sensitivity tests of principal market
risk factors that are liable to affect its reported operating
results or financial position. The sensitivity tests present the
effects (before tax) on profit or loss and equity in respect of
each financial instrument for the relevant risk variable chosen for
that instrument as of each reporting date.
The test of risk factors was determined based on the materiality
of the exposure of the operating results or financial condition of
each risk with reference to the functional currency and assuming
that all the other variables are constant.
The Group does not have significant exposure to interest rate
risk.
e. Changes in liabilities arising from financial activities:
Total liabilities
arising
Long term from financing
loans Leases liabilities activities
---------- ------------------- ------------------
USD in thousands
---------------------------------------------------
Balance as of 1 January,
2018 5,000 - 5,000
Cash flows 1,965 - 1,965
---------- ------------------- ------------------
Balance as of 31 December,
2018 6,965 - 6,965
---------- ------------------- ------------------
New finance lease obligation
recognized - 10,517 10,517
Cash flows (5,500) (1,697) (7,197)
Effect of changes in
exchange rate - 33 33
Termination of leases - (893) (893)
Other changes - 1,268 1,268
---------- ------------------- ------------------
Balance as of 31 December,
2019 1,465 9,228 10,693
========== =================== ==================
NOTE 13: EQUITY
a. Composition of share capital:
As of 31 December 2019
-----------------------------
Issued and
outstanding
Authorised *)
--------------- ------------
Number of shares
-----------------------------
Ordinary Shares of USD 0.000001
par value 100,000,000,000 183,813,138
=============== ============
As of 31 December 2018
-------------------------------
Issued and
Authorised outstanding*)
--------------- --------------
Number of shares
-------------------------------
Ordinary Shares of USD 0.000001
par value 100,000,000,000 216,106,363
=============== ==============
*) Net of treasury shares, see below.
In addition to the above issued shares, as of 31 December 2019,
3,315,521 Ordinary Shares are held in trust to satisfy the
Company's share based payment plan.
b. Movement in share capital:
1. In January 2018 the Company issued 16,000,000 Ordinary Shares
in a placing to institutional investors at a price of 198 pence per
Ordinary share. The total gross funds raised were approximately GBP
31.7 million (USD 44.2 million) and the related costs amounted to
approximately GBP 1.1 million (USD 1.6 million)
2. In 2018 the Company issued 1,069,010 Ordinary shares upon the exercise of options.
3. In 201 9 the Company issued 438 , 216 Ordinary shares upon the exercise of options .
c. The board of the Company had approved a buyback programme
(the "Programme") to buy back up to USD 10 million of the Company's
Ordinary shares (the "Shares").
The Programme ran from 18 December 2018 to the conclusion of the
2019 annual general meeting of the Company. At the 2019 annual
general meeting another buyback programme was approved to buy back
up to additional USD 10 million of the Company's Shares.
On 16 July 2019 the Company ceased the buyback programme and
published a tender offer, which was accepted on 16 August 2019. As
a result, the Company purchased 19,675,000 Shares at 80 pence per
share at a cost of USD 20,034 thousand including transaction
expenses. During 2019 the Company acquired 32,731,441 Shares at a
total cost of USD 29 , 691 thousands. (2018- 492,302 shares for USD
468 thousands).
d. Dividends paid to equity holders of the Company:
Date Total amount Per share
------------------ --------------- ---------
USD in millions USD
--------------- ---------
13 March 2018 8.0 0.037
23 September 2018 6.5 0.030
5 April 2019 8.4 0.040
4 October 2019 5.8 0.031
e. Net earnings per share:
Details of the number of shares and income used in the
computation of earnings per share:
Year ended 31 December
----------------------------------------------------------------------------------------
2019 2018
------------------------------------------- -------------------------------------------
Net
Net income
loss from from
continuing continuing
operating operating
attributable attributable
to equity Net income to equity Net loss
Weighted holders from Weighted holders from
number of the discontinued number of the discontinued
of shares Company operations of shares Company operations
---------- -------------- --------------- ---------- --------------- --------------
In In
thousands USD in thousands thousands USD in thousands
---------- ------------------------------- ---------- -------------------------------
Number of shares
and income
(loss) for the
computation
of basic net
earnings 198,396 (61,691) 2,217 215,441 31,102 (11,284)
Effect of -
potential
dilutive
Ordinary shares
*) - - - 1,889 -
---------- -------------- --------------- ---------- --------------
For the
computation of
diluted net
earnings 198,396 (61,691) 2,217 217,330 31,102 (11,284)
========== ============== =============== ========== =============== ==============
*) Options, see Note 14. In 2019 all options have been excluded
because their effect on loss per shar is antidilutive.
NOTE 14: SHARE-BASED PAYMENT
The expense (income) recognised in the financial statements for
services received is shown in the following table:
Year ended December
31,
---------------------
2019 2018
---------- ---------
USD in thousands
---------------------
Total expense (income) arising from share-based
payment transactions (218) 1,667
========== =========
a. In August 2013 the Company adopted a Share Option Plan. In
December 2017 the Company adopted an additional plan. According to
the plans, the Company's Board of Directors are entitled to grant
certain employees, officers and other service providers (together
herein "employees") of the Group remuneration in the form of
equity-settled share-based payment transactions.
Pursuant to the plans, the Company's employees may be granted
options to purchase the Company's Ordinary shares. These options
may be exercised, subject to the continuance of engagement of such
employees with the Company, within a period of eight years from the
grant date, at an exercise price to be determined by the Company's
Board of Directors at the grant date.
All grants to Israeli employees were made in accordance with
Section 102 of the Income Tax Ordinance, capital-gains track (with
a trustee).
2019 grants
In March and November 2019, the Company granted 323,500 options
to employees exercisable to 323,500 Ordinary shares at an exercise
price subject to adjustment for dividends. The options vest over a
period of 4 years from the grant date and are exercisable for a
period of up to 8 years.
The following table specifies the inputs used for the fair value
measurement of the grant:
Option pricing model Black-Scholes-Merton
formula
Exercise price GBP (USD) 0.6-0.63 (0.84-.0.78)
Dividend yield (%) 0
Expected volatility of the share price (%) 50.67% ,52.94%
Risk- free interest rate (GBP curve) ,0.76% 0.53%
Expected life of share options (years) 5.2
Share price GBP (USD) 0.56 ( 0.74 ),
0.69 (0.89)
The total fair value of the options granted was calculated at
USD 123 thousand at the grant date (average of USD 0.37 per
option).
In November 2019, the Company granted the Group's CEO 920,223
options exercisable to 920,223 Ordinary shares with nill exercise
price. The number of options granted was determined as 150% of the
CEO's annual remuneration divided by the share price at the grant
date. The vesting of the option is subject to a performance target
comparing the average net return achieved by the Company relative
to the net return achieved by the constituents of the FTSE AIM 100
during the three-year period ending in November 2022.
The total fair value of the options granted was calculated at
approximately USD 600 thousands at the grant date.
2018 grants
In January 2018, the Company granted 3,000,000 options to
employees (including to the Company's former CEO and other former
key management personnel), exercisable to 3,000,000 Ordinary shares
at an exercise price adjusted for dividends. The options vest over
a period of 4 years from the grant date and are exercisable for a
period of up to 8 years.
The following table specifies the inputs used for the fair value
measurement of the grant:
Option pricing model Black-Scholes-Merton
formula
Exercise price GBP (USD) 2.0 (2.85)
Dividend yield (%) 0
Expected volatility of the share price (%) 47.3%
Risk- free interest rate (GBP curve) 1.13%
Expected life of share options (years) 5.2
Share price GBP (USD) 1.9 (2.71)
The total fair value of the options granted was calculated at
USD 3,413 thousand at the grant date (USD 1.14 per option).
In September 2018, the Company granted 415,000 options to
employees, exercisable to 415,000 Ordinary shares at an exercise
price adjusted for dividends. The options vest over a period of 4
years from the grant date and are exercisable for a period of up to
8 years.
The following table specifies the inputs used for the fair value
measurement of the grant:
Option pricing model Black-Scholes-Merton
formula
Exercise price GBP (USD) 1. 1 ( 1.44
)
Dividend yield (%) 0
Expected volatility of the share price (%) 52.0%
Risk- free interest rate (GBP curve) 1.23%
Expected life of share options (years) 5.2
Share price GBP (USD) 1.0 ( 1.3
)
The total fair value of the options granted was calculated at
USD 270 thousand at the grant date (USD 0.63 per option).
b. Movement during the year:
2019 2018
Weighted Weighted
average average
Number exercise Number exercise
of options price of options price
------------ --------- ------------ ---------
in thousands USD in thousands USD
------------ --------- ------------ ---------
Share options outstanding
at beginning of year 8,110 1.56 6,788 1.01
Share options granted during
the year 1,244 0.21 3,415 2.68
Share options forfeited during
the year (3,390) 2.24 (1,024) 1.24
Share options exercised during
the year (438) 0.69 (1,069) 0.83
------------ --------- ------------ ---------
Share options outstanding
at end of year 5,526 0.99 8,110 1.56
============ ========= ============ =========
Share options exercisable
at end of year 3,490 1.09 3,194 0.84
============ ========= ============ =========
c. The weighted average remaining contractual life for the
options outstanding as of 31 December 2019 was 5 years (2018- 6
years).
d. The range of exercise prices for options outstanding as of 31
December 2019 was USD 0.65-2.52 (2018- USD 0.66- USD 2.85).
NOTE 15: TAXES ON INCOME
a. Starting 2018 the Company is subject to Cyprus tax at the
standard corporate income tax rate of 12.5%.
b. Tax law applicable to the Company's Israeli subsidiaries is
the Israeli tax law- Income Tax Ordinance (new version) 1961.
- The general Israeli corporate tax rate applicable in 2019 is 23% (2018- 23%).
- Amendments to the Law for the Encouragement of Capital Investments, 1959:
According to Amendment 71 to the Law, the tax rate for certain
preferred enterprises is reduced to a flat tax rate of 16%.
The Amendment also prescribes that any dividends distributed to
individuals or foreign residents from the preferred enterprise's
earnings as above will be subject to withholding tax at a rate of
20%.
- Amendment 73 to the Law also prescribes special tax tracks for
technological enterprises, which became effective in 2017, as
follows:
Technological preferred enterprise - an enterprise for which
total consolidated revenues of its parent company and all
subsidiaries are less than NIS 10 billion. A technological
preferred enterprise, as defined in the Law, which is located in
the center of Israel will be subject to tax at a rate of 12% on
profits deriving from intellectual property.
Any dividends distributed to "foreign companies", as defined in
the Law, deriving from income from the technological enterprises
will be subject to a withholding tax at a rate of 4%.
The above amendments apply for one of the Group's
subsidiaries.
c. The applicable U.S. federal statutory income tax rate for the
Company's subsidiary for 2019 is 21% (2018- same). In addition,
state and city taxes are applicable.
d. Final tax assessments:
In 2017 two subsidiaries in Israel reached a final tax
assessment agreement with the Income Tax Authorities in Israel for
the years 2012 - 2015.
e. Losses carried forward for tax purposes:
As of 31 December 2019, carry-forward capital tax losses of a
subsidiary company total approximately USD 19 million. The tax
benefit in respect of losses has not been recorded in the financial
statements due to the uncertainty of their utilization.
f. Taxes on income included in profit or loss:
Year ended 31 December
------------------------
2019 2018
------------- ---------
USD in thousands
------------------------
Current taxes 3,991 3,979
Deferred taxes 615 523
Taxes in respect of previous years (1,418) (413)
------------- ---------
Total 3,188 4,089
============= =========
g. Theoretical tax:
The reconciliation between the tax expense, assuming that all
the income and expenses were taxed at the statutory tax rate in
Cyprus and the taxes on income recorded in profit or loss is as
follows:
Year ended 31 December
------------------------
2019 2018
------------ ----------
USD in thousands
------------------------
Profit (Loss) from continuing operation
before taxes on income (57,730) 36,148
Statutory tax rate 12.5% 12.5%
------------ ----------
Tax computed at the statutory tax rate (7,216) 4,519
Adjustment due to the difference between
the Company's statutory tax rate and
tax rates applicable to the subsidiaries 24 59
Non-deductible expenses for tax purposes 10,246 184
Tax benefit of net additional deduction (1,527) (2,371)
Taxes in respect of previous years (1,418) (413)
Unrecognized temporary differences and
others 3,079 2,111
------------ ----------
Total taxes 3,188 4,089
============ ==========
h. Deferred taxes:
Composition:
Statements of financial Statements of profit
position or loss
------------------------- ----------------------
Year ended December
December 31, 31,
------------------------- ----------------------
2019 2018 2019 2018
------------- ---------- ---------------- ----
USD in thousands
-------------------------------------------------
Deferred tax liabilities:
Domains and websites 608 221 387 221
Other intangible assets 173 - 173 (42)
Property and equipment - 6 (6) 6
------------- ----------
781 227
Deferred tax assets:
Property and equipment 8 - (8) 4
Lease liability 122 - (122) -
Other intangible assets - 213 213 329
Allowance for doubtful
account 7 15 8 29
Employee benefits 128 98 (30) (24)
----
265 326
------------- ----------
Deferred tax expenses 615 523
================ ====
Deferred tax assets
(liabilities), net (516) 99
============= ==========
The deferred taxes are computed at the tax rates of 12% based on
the tax rates that are expected to apply upon realization (2018-
same).
NOTE 16: DISCONTINUED OPERATIONS
a. In February 2019, the Company's board of directors decided to
reduce certain parts of its Media activities (comprising one CGU)
which had lower profit margins. In August 2019, the Company
completed the sale of Webpals Mobile Ltd ("Mobile") which is a
substantial component of the CGU. Under the terms of the agreement
Mobile paid the inter-company balances to the Group on completion.
The gain derived from the sale is USD 1.8 million.
Prior to the classification of the CGU as a disposal group, the
recoverable amount of the assets sold was calculated as fair value
less expected sale costs. Based on that calculation the Group
recorded in 2018, an impairment loss for the amount of USD 9,038
thousands.
b. Below is data of the operating results attributed to the discontinued operation:
Year ended
31 December
------------------
2019 2018
------- ---------
USD in thousands
------------------
Revenues from sales 9,752 24,364
Cost of sales 7,733 19,789
------- ---------
Gross profit 2,019 4,575
Sale, general and administrative expenses
and research and development expenses 1,610 5,573
Impairment loss and other non-recurring
cost of the discontinued operation - 9,938
------- ---------
Operating income (loss) 409 (10,936)
Financial income (expenses), net 37 (50)
Gain from sale of discontinued operation 1,811 -
Income (loss) before income taxes from
discontinued operation 2,257 (10,986)
Taxes on income *) 40 298
Income (loss) from discontinued operation,
net 2,217 (11,284)
======= =========
*) Tax on income on discontinued operation
c. Below is data of the net cash flows provided by (used in) the discontinued operation:
Year ended
31 December
----------------------
2019 2018
------- ---------
USD in thousands
------------------
Operating activities 1,109 (9)
======= =========
Investing activities 80 (1,407)
======= =========
NOTE 17: OPERATING SEGMENTS
a. General:
The operating segments are identified on the basis of
information that is reviewed by the chief operating decision maker
("CODM") to make decisions about resources to be allocated and
assess its performance.
In 2019 the main part of the Group's Media activities was
classified a discontinued activity and sold. Other Media activities
which provided complementary activities to the Publishing
activities were integrated into the Publishing segment activities.
Subsequent to this integration the Group has one operating segment
- Publishing, which consists the operation of over 2,300 owned
informational websites in 18 languages. These websites refer
potential customers to online businesses. The sites' content,
written by professional writers, is designed to attract online
traffic which the Group then directs to its customers online
businesses.
b. Geographic information:
Revenues classified by geographical areas based on user
location:
Year ended 31 December
------------------------
2019 2018
----------- -----------
USD in thousands
------------------------
Scandinavia 34,667 42,362
Other European countries 21,458 26,804
North America 16,162 14,510
Asia 224 56
Oceania 1,375 1,668
Other countries 104 2,191
----------- -----------
Total revenues from identified locations 73,990 87,591
Revenues from unidentified locations 5,705 5,911
----------- -----------
Total revenues 79,695 93,502
=========== ===========
NOTE 18: LIENS
As collateral for subsidiary's bank loans, fixed charges have
been placed on the subsidiary's share capital and goodwill and
floating charges on the subsidiary's assets.
NOTE 19: BALANCES AND TRANSACTIONS WITH RELATED PARTIES
a. Balances:
As of 31 December
-------------------
2019 2018
--------- --------
USD in thousands
-------------------
Current liabilities:
Management fees and other short-term
payables 785 106
========= ========
Non-current liability 3 185
========= ========
b. Benefits to key management personnel: *)
As of 31 December
-------------------
2019 2018
--------- --------
USD in thousands
-------------------
Short-term benefits 1,749 1,962
Termination benefits 739 -
Cost (income) of share-based payments (205) 1,050
--------- --------
2,283 3,012
========= ========
*) Includes directors.
NOTE 20: POST -EMPLOYMENT BENEFITS
The post-employment employee benefits are financed by
contributions classified as defined contribution plans.
Year ended 31 December
------------------------
2019 2018
----------- -----------
USD in thousands
------------------------
Expenses in respect of defined contribution
plans *) 1,739 1,824
=========== ===========
3.
*) Including discontinued operation for the amount of USD 95
thousand and USD 283 thousand for 2019 and 2018 accordingly.
NOTE 21: SUPPLEMENTARY INFORMATION TO THE STATEMENTS OF PROFIT
OR LOSS
Year ended 31 December
------------------------
2019 2018
----------- -----------
USD in thousands
------------------------
Employee benefit expenses are included
in: (1) (2)
Cost of revenues 11,980 11,846
Research and development
before capitalization 8,828 7,334
Sale and marketing 5,027 6,766
General and administrative 6,229 6,788
Reorganisation costs 918 -
----------- -----------
32,982 32,734
=========== ===========
(1) Includes cost of share based payment.
(2) Including discontinued operation for the amount of USD 1,750
thousand and USD 4,985 thousand for 2019 and 2018 accordingly.
NOTE 22: SUBSEQUENT EVENTS
The spread of Coronavirus will have an impact on the Group's
operations. The Group has a well-balanced portfolio of assets,
however in February 2020 many sport events were cancelled around
the world which will have a negative effect on the Group's revenue.
A similar effect is expected in the Finance and Technology units.
It is expected that these decreases will be offset, at least in
part, by increases in other verticals, namely Casino and New
Business. The Group is continually monitoring and responding to the
potential impact of the outbreak, but as there is uncertainty
regarding the duration of the impact and future events there is
uncertainty regarding the total effect on the Group's
operations.
NOTE 23: LIST OF MAIN SUBSIDIARIES
2019 2018
------------------------
Shares Shares Shares Shares
conferring conferring conferring conferring
voting rights voting rights
rights to profits rights to profits
----------- ----------- ----------- -----------
% %
------------------------
XLMedia Finance Limited 100 100 100 100
XLMedia Publishing Limited 100 100 100 100
Webpals Holdings Ltd 100 100 100 100
Webpals Systems S.C Ltd 100 100 100 100
Webpals Mobile Ltd - - 100 100
Marmar Media Ltd 100 100 100 100
Webpals, Inc. 100 100 100 100
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
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contact rns@lseg.com or visit www.rns.com.
END
FR GZGZDLMRGGZM
(END) Dow Jones Newswires
April 22, 2020 02:00 ET (06:00 GMT)
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