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CentralNic Group PLC  -  CNIC   

Final Results

Released 07:00 09-May-2017

RNS Number : 5218E
CentralNic Group PLC
09 May 2017
 

 

 

Press Release

9 May 2017

 

CentralNic Group plc

 

("CentralNic" or "the Company" or "the Group")

 

Final results

for the year ended 31 December 2016

 

CentralNic (AIM: CNIC), the internet platform that derives revenue from the worldwide sales of internet domain names, today announces its audited results for the year ended 31 December 2016. 

The Company's full Annual Report is also being published and sent to shareholders today, and the Company's Annual General Meeting will be held on 7 June 2017 at the offices of DWF LLP, 20 Fenchurch Street, London, EC3M 3AG at 10.00am.

Financial summary

 

 

31 Dec 2016

31 Dec 2015

Change

Change

 

£'000

£'000

£'000

%

Revenue

22,129

10,393

11,736

+113%

Gross profit

7,667

4,860

2,807

+58%

Adjusted EBITDA*

5,483

3,254

2,229

+68%

Adjusted Profit before taxation**

4,724

2,954

1,770

+60%

Profit before taxation

1,157

1,454

(297)

(20%)

Net cashflow from operating activities

3,318

5,686

(2,368)

(42%)

         

* Excludes share based payments expense of £621,000 and acquisition costs and exceptional items of £1,262,000

** Excludes share based payments expense of £621,000, acquisition costs and exceptional items of £1,262,000 and acquired amortisation charges, in relation to the intangible assets of Internet.BS and the Instra Group, of £1,684,000.

 

 

 

·    

Revenue increased by 113% to £22.13 million (2015: £10.39 million).  Retail revenue grew significantly to £14.32m (2015: £3.41m) with Instra Group transforming the retail division after the acquisition on 14th January 2016.  Instra Group contributed £10.28m of revenue in the period since acquisition.

·    

Adjusted EBITDA of £5.48 million (2015: £3.25 million) reflected the flow-down effect of the revenue growth in the retail division, including the Adjusted EBITDA contribution from Instra Group of £2.21 million in the period since acquisition.  The enterprise division contributed £2.79 million of Adjusted EBITDA (2015: £2.61 million) mainly from premium domain name trading, while the wholesale division contributed £1.24 million (2015: £1.40m).  Central overheads, not allocated by division, were £0.96 million (2015: £0.93 million).

·    

Profit before taxation of £1.16 million (2015: 1.45 million) reflected the £2.23 million increase in Adjusted EBITDA predominantly offset by non-cash expenses including amortisation of intangible assets of £2.07 million (2015: £0.58 million) and share based payment charges of £0.62 million (2015: £0.32 million). Also offsetting were acquisition costs and exceptional items of £1.26 million (2015: £0.83 million), including fees related to the Group's mergers and acquisition programme and integration costs associated with the Instra Group acquisition.  Finance costs of £0.27 million (2015: £nil) included interest charges and professional fees related to the £3.50 million term loan drawn in January 2016.

·    

Adjusted profit before taxation, excluding acquired amortisation charges, acquisition costs and exceptional items and the share based payment expense was £4.72 million (2015: £2.95 million), an increase of 60%.

·    

Net cash-flow generated from operating activities was £3.32 million (2015: £5.69 million), with 2015 having benefitted from favourable working capital movements as a result of the timing of increased payments to new TLD registry operators combined with additional funds paid on account by retailers to support new TLD activity levels.  In 2016 there was also increased activity from retailers in China, who migrated from a pre-pay to a post-pay settlement model.  Taking the two years in aggregate, the net cashflow generated from operating activities was in line with expectations, relative to Adjusted EBITDA.

·    

Net cash was £7.28 million at the end of the year (2015: £19.06 million).  The reduction mainly reflected the cash outflow for the Instra Group acquisition which totalled AU$30.30 million (£14.83 million), offset by the net cashflow generated from operating activities.  The Instra acquisition was funded by a combination of the equity placing in December 2015 (which raised £9.40 million net of fees), the £3.50 million term loan facility and £1.93 million from the Group's available cash.

 

 

Highlights

 

·    

A year of growth, particularly following the Instra acquisition.  Group revenues grew by 113% to £22.13m (2015: £10.39m) and Adjusted EBITDA grew by 68% to £5.48m (2015: £3.25m).

·    

Profit before taxation of £1.16m (2015: £1.45m) after deduction of non-cash charges, acquisition costs and exceptional items.

·    

Recurring/subscription revenues increased to 81% of overall revenues (2015: 67%).[1]

·    

Acquisition of Instra Group completed on 14 January 2016 for consideration of £18.60m (AU$38.04m); contributing Retail revenue of £10.28m and Adjusted EBITDA of £2.21m.

·    

Wholesale Division maintained ranking as the world's number one new TLD registry services provider by volume, increasing market share to 32% (2015: 23%).  Wholesale domains under management of 9.89m (2015: 3.39m) reflected volume-based promotions of new TLDs which present potential for future renewals.

·    

Enterprise revenues included £3.74m (2015: £3.22m) of premium domain name revenues and a full year of dnsXperts revenues.

 

 

Post year end

 

·    

Increased renewal revenues are expected to emerge in 2017, as the base of domains due to renew or expire has increased to 9.89m million domains in the Wholesale business (2015: 3.39 million) and 1.27 million in the Retail business (2015: 0.72 million). 

·    

New Top-Level Domains (nTLDs) contracted but not launched during 2016 include: .basketball, .contact, .fan, .forum, .pid, .rugby, .storage; while the .art, .fun, .realty and .observer TLDs launched in the first quarter of 2017.

·    

In the Enterprise Division, the Group has identified online security and brand protection services for corporate customers as an important potential recurring revenue line of business.  The Group has recently appointed two experienced executives from this segment - formerly of Group NBT (Netnames) - to lead revenue growth initiatives in this area.

·    

Following the successful acquisitions of Internet.bs and Instra Group, CentralNic continues to assess acquisition targets to enhance the Group's product and services suite, market access, customer base and financial performance.  CentralNic expects to further strengthen its leadership team with the appointment of a Corporate Development Director in 2017, to accelerate its acquisition processes.

·    

In line with the Group's acquisition strategy, discussions are ongoing with SK-NIC, a.s., the registry service provider for the .sk country code top level domain for Slovakia.  These discussions have not been concluded. The Board will provide shareholders with a further update in due course.

 

Commenting on the results, Mike Turner, Chairman of CentralNic, said:

 

"In my first full year as Chairman of the CentralNic Group I have been pleased with the Group's strategic development.  We now have a more diverse business active in the majority of the world's geographic markets, notably with expansion of our retail services following the acquisition of the Instra Group.  This is important to the future of our business, not least in providing a strong and comprehensive retail capability in close geographic proximity to emerging domain name markets, notably in the Asia Pacific region.

 

"Another significant development during 2016 was the increased adoption of domain names from the new Top Level Domain name programme.  The new TLD programme is regarded as the biggest change in our industry for many years.  It is particularly pleasing that, as a result of the first application round of new TLDs, CentralNic is contracted as registry service provider to some of the most successful new TLDs, including the leader by volume, .xyz.

 

"The Enterprise Division presents interesting opportunities to grow revenues at relatively high margins by adopting a more service-led approach.  In seeking to unlock the potential of our corporate-facing business, I am pleased we have recently been able to strengthen our management team with senior commercial hires, bringing considerable experience in this market segment.

 

"The amount of change in the business is significant, with activity levels high across each of our three divisions and with our mergers and acquisitions programme continuing to bring benefits and present new and interesting opportunities to the Group.

 

"With continued progress in all areas of our business, at this stage of the year we remain confident in the outlook for 2017."

 

 

-Ends-

 

 

 

 

For further information:

 

CentralNic Group plc

 

Ben Crawford, Chief Executive Officer

+44 (0) 203 388 0600

Glenn Hayward,  Chief Financial Officer 

 

 

 

Zeus Capital - Nomad and Joint Broker

 

Nick Cowles / Jamie Peel

+44 (0) 161 831 1512

John Goold / Alex Davies

+44 (0) 203 829 5000

 

Peel Hunt LLP - Joint Broker

 

Richard Kauffer / Euan Brown (Corporate)

+44 (0) 207 418 8900

Alastair Rae (Syndications)

 

 

 

Abchurch Communications

 

Julian Bosdet / Tim Thompson / Vera Prokhorenko 

+44 (0) 207 398 7719

centralnic@abchurch-group.com

www.abchurch-group.com

 

About CentralNic Group plc

 

CentralNic (AIM: CNIC) is a London-based AIM-listed company which operates globally with customers in over 200 countries.  It earns revenues from the worldwide sales of internet domain names using its proprietary technology platform.  CentralNic sells these domain names on an annual subscription basis.  Customers pay for domain names upfront, making CentralNic a cash-generative business with annuity revenue streams. 

 

CentralNic comprises three business lines within the domain name industry including wholesale, retail and enterprise divisions.  It operates a global network, supplying domain names to over 1,500 vendors in 77 countries to reach over 100,000 resellers.  CentralNic is the exclusive wholesaler for over 30 new Top-Level Domain (nTLDs) extensions such as  .xyz, .site, .online, .website, .space, and .tech (the new alternatives to .com and .net).  They rank amongst the top 25 most subscribed nTLDs.  About one in three of all domains registered under nTLDs globally use the CentralNic platform.  This positions CentralNic as the leading global supplier with more than eight million of these domains under management.

 

CentralNic is also a leading global domain name retailer, with retail websites including internetbs.net, buydomains.london and domain.luxury.  After acquiring Instra Group, CentralNic Group now includes instra.com and a number of other leading retail websites.  Through its enterprise programme, CentralNic supplies domain names (itself owning approximately 37,500 premium domain names that it trades), software and services directly to large companies and governments including Saudi Telecom Company, Etisalat and Kuwait Finance House.

 

For more information please visit: www.centralnic.com

 

 

 

Chairman's Statement

 

2016 was a year of transformation for the CentralNic Group, delivering a step change in the scale and scope of the Group's operations.  This was particularly noteworthy in our Retail Division, having completed the acquisition of the Instra Group in January 2016.  There was also strong volume growth in our Wholesale Division as new Top-Level domain awareness increased.  In a domain name sector that is consolidating, the increased scale delivered in 2016 evidences the Group's growth ambitions, in pursuit of enhanced returns for our shareholders.

 

In my first full year as Chairman of the CentralNic Group I have been pleased with the Group's strategic development.  We now have a more diverse business active in the majority of the world's geographic markets, notably with expansion of our retail services following the acquisition of the Instra Group.  This is important to the future of our business, not least in providing a strong and comprehensive retail capability in close geographic proximity to emerging domain name markets, notably in the Asia Pacific region.  Instra Group offers one of the broadest range of domain names of all domain name retailers as well as offering other related services, such as shared hosting.  The result being a retail business exposed to the vast majority of the world's geographic markets.  And as a long-established business, Instra also exhibits the characteristics that make the domain name industry attractive to investors, with relatively high levels of recurring revenues and healthy cash generation.

 

The completion of the Instra Group acquisition was a positive start to 2016, with the Group taking ownership on 14th January 2016.  This prompted structural changes in our senior management team, combining our retail operations in one integrated division under the leadership of Desleigh Jameson (who has continued as CEO of the enlarged Retail business).  This had the effect of consolidating our retail operations under the management team in Australia and New Zealand, as defined in the Group's integration plan.  Progress to date has focused on the operational integration, with synergy benefits including the consolidation of the Group's support functions into our service centre in New Zealand, consolidation of third party supplies and addressing any duplicated costs.

 

Our Retail Division sustained growth levels in domain volumes under management across all of our retail brands during this integration phase.  Instra Group increased its domain names under management by 12% while Internet.BS, the Group's other main retail brand, by 24% - both largely due to growing demand for the new Top-Level Domains.  I believe it will now be important to drive organic growth across all of our retail brands, assisted by tactical marketing initiatives focused on the products, segments and geographies of greatest interest to us.  I look forward to seeing the Group's success as it strives for enhanced levels of retail customer acquisition in 2017.

 

Another significant development during 2016 was the increased adoption of domain names from the new Top Level Domain name programme.  The new TLD programme is regarded as the biggest change in our industry for many years.  It has brought hundreds of additional domain name choices for consumers while enabling greater choice for accredited retailers in terms of domain products to supply and promote.  This industry-wide development has presented smaller players like CentralNic with the opportunity to expand both Wholesale and Retail operations.  In addition, it has encouraged new industry participants and provided consumers with lower-priced mass market domains.  It is particularly pleasing that, as a result of the first application round of new TLDs, CentralNic is contracted as registry service provider to some of the most successful new TLDs, including the leader by volume, .xyz.  The .xyz domain achieved 5.8 million new registrations during 2016.  While many of these were sold at low promotional prices, the domains present opportunities for higher priced future renewals.  Given the larger base of domains under management and the enhanced increase in consumer awareness of new TLDs, we look forward to tracking new registration and renewals performance closely across all of our new TLD domains during 2017. 

 

Across the CentralNic Wholesale portfolio of Top-Level Domains, our technical systems have coped admirably with the additional volumes registered in 2016 with nearly 10 million domains under the management of our Wholesale Division by the end of the year.  This presents another step change in the scale of our operations and positions our Wholesale Division as a strong competitor for future growth opportunities.  The Board is keen to achieve additional scale to enjoy the benefits of our automated wholesale platform and relatively low marginal costs.

 

The Group's strategy is focused on profitable growth.  The Board is aligned behind the objectives of our acquisition programme alongside performance improvements within each of our Divisions.  The Board is also committed to enhancing our recurring earnings model, partly achieved through further development of our Wholesale and Retail Divisions to increase their scale and improve their relative market positions.

 

The Enterprise Division presents interesting opportunities to grow revenues at relatively high margins by adopting a more service-led approach.  We believe this will deliver additional recurring value to brand owners through domain name and online brand protection services.  The Group continues to reduce reliance on non-recurring revenues, such as premium domain name sales.  Our Enterprise business will continue to engage with major brand owners directly and via corporate channels as we seek to deploy our Enterprise services.  In seeking to unlock the potential of our corporate-facing business, I am pleased we have recently been able to strengthen our management team with senior commercial hires, bringing considerable experience in this market segment.

 

Performance

I am pleased to report that 2016 was another very successful year, with the Group's financial performance in line with expectations.

 

The Group's revenue grew by 113% to £22.13m (2015: £10.39m).  This included almost a full year of revenues from Instra Group, increased trading in valuable premium domain names on the secondary market and organic revenue growth in Internet.BS.  Adjusted EBITDA also grew by 68% to £5.48m (2015: £3.25m) again in line with the plan, reflecting the growth in total revenues in part offset by the greater concentration of lower margin retail revenues.  Profit before taxation was £1.16m (2015: £1.45m).  Recurring and subscription revenues across the Group, before deferrals, increased to £17.23m (2015: £7.19m), which as a proportion of total revenues increased to 81% (2015: 67%).

 

Net cashflow from operating activities was £3.32m (2015: £5.69m).  The beneficial working capital movements in 2015 were unusual and did not recur to the same extent in 2016 due to a change in the mix of activity between prepaid and post-paid registrar accounts related to the new TLDs and also the timing of payments to registry operators.  Across 2015 and 2016, total net cashflow from operating activities was broadly in line with Adjusted EBITDA across the same two year period.

 

In terms of divisional performance, the Instra acquisition boosted Retail business revenues significantly to £14.32m (2015: £3.41m).  Instra Group contributed £10.28m of the growth, with organic growth from Internet.BS generating a further £0.64m increase.  Instra's revenue performance was consistent with 2015 while the primary focus was on operational integration.  Recent tactical marketing initiatives commenced in the first quarter of 2017, and are showing early promise as we focus on driving organic growth and optimising gross profit performance.

 

The Wholesale Division delivered net revenue of £3.18m (2015: £3.13m).  There was a change in the mix during the year, masking underlying growth in revenues from new Top-Level Domains of £0.43m.  The divisional result continues the trend of a lower average sale price from the generic Top-Level Domains combined with the expected decline in demand for the higher priced Second-Level Domains.  Scaling up activity levels in this division remains an important priority given relatively low marginal costs, and we are well-positioned to do so given our credentials and the leading role we occupy in the new TLD programme.

 

The Group's Enterprise Division made steady progress in 2016, delivering revenue of £4.63m (2015: £3.86m).  Revenues were again weighted towards non-recurring premium domain name sales and commissions of £3.74m (2015: £3.22m).  Other revenues included £0.56m from a full year of dnsXperts (2015: £0.21m) and dot brand customer revenues of £0.17m (2015: £0.07m).

 

Dividend

It remains the intention of the Group to generate income returns for investors in the future as part of a progressive and commercially prudent dividend policy.  However due to the continued expansion opportunities presented by the sector the Directors do not propose a final dividend in 2016. Dividend policy is reviewed annually.

 

Outlook

The outlook for the Group is promising, as we strive to deliver growth opportunities that enhance our profitability and increase our recurring revenue streams.  Internet adoption continues to drive sustained demand for domain names, notably from emerging markets.  The Group is well positioned to benefit from demand in these markets via its Retail and Wholesale businesses and will seek to leverage its platforms across additional geographies and language scripts as we move forward.

 

Awareness of the new Top-Level Domains is also increasing across a number of geographic markets, in part due to the marketing successes of our registry operator clients, notably in the Far East.  This has created a larger base of domain names on our platform that are due to renew or expire in 2017.  We look forward to seeing the trends in renewal performance as they emerge in the coming months.

 

Larger corporates present another segment of interest to us, with unlocked potential in selling domain names and related domain portfolio management and brand protection services.  A combined channel and direct sales approach will be adopted by our commercial team.  This will help build and convert opportunities from our sales pipeline, as well as identifying additional value that we can bring to corporate customers.  Success will be important to us as we seek to reduce reliance on non-recurring revenues.

 

The Group is also focussed on opportunities to accelerate our growth, via earnings enhancing acquisitions that deliver strategic benefits, such as market access or diversified products and services.  The Board recognises the importance of acquisitions to accelerate our profitable growth, while adding scale and capability in a sector which is consolidating.

 

The amount of change in the business is significant, with activity levels high across each of our three divisions and with our mergers and acquisitions programme continuing to bring benefits and present new and interesting opportunities to the Group.  I would like to take this opportunity to thank staff across the Group for their dedication to CentralNic and for their passion and drive to achieve our goals. I would also particularly like to thank our existing and new investors and lenders who have supported our team during a transformational year for the Group.

 

With continued progress in all areas of our business, at this stage of the year we remain confident in the outlook for 2017.

 

Mike Turner, Chairman

9 May 2017

 

Chief Executive Officer's Report

 

In 2016 CentralNic has continued to deliver strong growth as well as strategic successes across the business.

 

Performance overview

CentralNic continued on its trajectory of rapid growth during 2016: achieving revenues of £22.13m (an increase of 113% over 2015), and Adjusted EBITDA of £5.48m (an increase of 68% over 2015).  Our Retail and Enterprise Divisions experienced growth in Adjusted EBITDA and profit before taxation and there was growth in our new Top-Level Domain revenues in the Wholesale Division, as demand notably from the Chinese market emerged as one of the industry's principal growth drivers and where CentralNic has taken a leading role.

 

Our strategic successes were equally significant.  In 2016 CentralNic increased the proportion of its revenues in the recurring category to 81% of its total revenues, which includes domain name renewals, new domain name registrations and other recurring revenues stated before deferrals.  CentralNic grew its share of the new Top-Level Domain market from 23% to over 32%, increasing its share as the world's premier wholesaler of new Top-Level Domains by volume, in a year when the total number of domains using new Top-Level Domains rose from 11.2 million to over 27.6 million.

 

At the same time, we successfully acquired and integrated the domain retailer Instra Group, vastly increasing the inventory that we sell and giving us exposure to attractive new markets.  And we continued to win new clients, launch new services and close significant sales.

 

At the end of the year the Group had cash balances of £9.90m (2015: £19.06m, of which £14.83m was used for the Instra acquisition in January 2016) and net cash balances of £7.28m (2015: £19.06m).

 

Wholesale Division

With revenues of £3.18m (2015: £3.13 million) in its Wholesale Division, CentralNic increased its lead as the world's leading wholesaler (or "Registry Backend Provider") of domain names using new gTLDs, from 23% market share at the end of 2015 to over 32% at the end of 2016.  At the end of 2016 we had approaching 9 million new TLD names registered (the number two provider having around 6 million).  CentralNic ended the year with six new TLDs in the ranks of the Top Twenty-five sellers by volume, from a total universe of around 1,200 launched in total.  CentralNic's wholesale platform was able to supply domains to more retailers actively selling them than any competitor: in the table of TLDs with the highest number of retailers supporting them, CentralNic-distributed TLDs hold nine out of the top ten positions.  (Source: industry statistics website ntldstats.com)

 

A number of factors are contributing to the success of CentralNic's Wholesale Division.  These include our proven ability to win new business, which continued in 2016 with the addition of .store, .art, .fun and .fm to our customer base.  We also soft-launched a second "Registry Gateway" wholesale platform in 2016, which provides the country code TLDs .am, .cx and .la to retailers globally.

 

CentralNic has notably supported new pricing and promotional strategies that have disrupted the traditional domain name wholesale model and captured most of the growth in the domain industry.  As well as supporting premium-priced restricted TLDs like .reit for Real Estate Investment Trusts, CentralNic has supported its clients in launching marketing initiatives which have succeeded in achieving unprecedented registration numbers.  For example, the 2nd anniversary .xyz marketing campaign in June 2016 boosted the number of .xyz registrations with over 3.6 million new domains registered in that month, increasing the total domains registered under .xyz to over 6.1 million domain names.

 

CentralNic's focus on emerging markets, especially China, which predates our IPO in 2013, has proven prescient, as China has been the single largest market for domain names using new TLDs during 2015 and 2016, accounting for an estimated 60% of new TLD registrations.  This demand has also propelled the country code .cn to become the world's second most registered domain extension after .com.  We believe CentralNic is the most successful non-Chinese distributor of new TLDs in China, and it finished 2016 with four of its TLD clients being granted accreditation from China's Ministry for Industry and Information Technology, officially allowing those TLDs to be used for websites hosted in China.

 

Retail Division

CentralNic's Retail Division revenues in 2016 were £14.32m (2015: £3.41m), reflecting the significant increase in retailing activities following the acquisition of Instra Group in January 2016.  This acquisition increased the breadth of domains offered by our retailers to include virtually all new gTLD extensions and most country code extensions, with CentralNic now ranked among the leading vendors of domains ranging from .law for lawyers to .ae for the United Arab Emirates.  The Instra acquisition also gives CentralNic direct retail exposure to desirable customer segments, notably including small businesses in emerging markets and corporate customers who maintain large portfolios of domain names as part of their Intellectual Property and brand protection activities.  Finally Instra Group gives CentralNic its first exposure to the shared hosting market, which exhibits attractive margins.

 

In 2016 the Retail Division also launched new dedicated websites for the Spanish language TLDs .hoteles, .vuelos and .passagens as well as for .law (under contract from Minds and Machines Plc).

 

Enterprise Division

CentralNic's Enterprise Division continued to grow in 2016, with revenues of £4.63m (2015: £3.86m).

 

Our premium domain name business performed well with revenue of £3.74m achieved during the year (2015: £3.22m).  Notably, Accent Media, the Registry Operator for the .tickets TLD (in which CentralNic holds a c.10% minority equity stake) achieved one of the most successful Premium domain name sales under a new TLD, receiving USD200,000 for broadway.tickets in cash proceeds plus a 10% equity stake in that site, which is intended to be used to aggregate a market for theatre ticket sales on Broadway.

 

The recurring revenue components of our enterprise business continue to grow.  With our assistance a number of corporate clients completed the ICANN processes required to obtain their own Dot Brand Top-Level Domains, with Saudi Telecom notably launching their new TLDs in 2016.  Other corporate and government clients continue to license CentralNic software and use our support services to sell domains or manage them in-house.

 

Outlook

I am delighted to report a number of major steps forward in 2017.

 

Increased renewal revenues are expected to emerge in 2017, as the base of domains due to renew or expire has increased to 9.89m million domains in the Wholesale business (2015: 3.39 million) and 1.27 million in the Retail business (2015: 0.72 million).  Renewal rates we have experienced in 2016 for .xyz and our other high volume TLDs are in line with our expectations.

 

New TLDs already launched on the CentralNic Wholesale platform in 2017 include .fun, .realty, .observer, and .art.  In addition, there is a further pipeline of new TLDs in the process of contracting to migrate to the CentralNic Wholesale platform. 

 

Additionally, the industry regulator ICANN continues its review of the new TLD programme as a first step towards opening future rounds of applications - meaning potential future opportunities for CentralNic.

 

In our Enterprise Division, we have identified online security and brand protection services for corporate customers as an important potential recurring revenue line of business.  The Company has appointed two experienced executives from this segment - the former Commercial Operations Director and former Marketing Director of Group NBT (Netnames) - to lead revenue growth initiatives in this area.

 

Finally, following our successful acquisitions of Internet.bs and Instra Group, CentralNic has identified a number of acquisition targets with high levels of recurring earnings, which potentially would combine earnings accretion with strategic benefits as we seek to expand the Group's product and services suite, geographic reach and customer base.  CentralNic is planning to further strengthen its leadership team in 2017 to accelerate its acquisition processes moving forward, and is in active discussions with the operator of the Slovakian ccTLD.

 

CentralNic continues to prove its ability to identify and exploit growth opportunities in the domain name services industry, by winning clients, launching new products and services and successfully acquiring and integrating other businesses.  This dynamic and agile approach to a rapidly evolving market has driven CentralNic's 113% revenue growth in 2016, and we fully anticipate it will continue to serve the Group equally well in the future.

 

Ben Crawford, Chief Executive

9 May 2017

 

 

 

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

 

2015

 

Note

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Revenue

2,3

 

 

 

22,129

 

10,393

Cost of sales

 

 

 

 

(14,462)

 

(5,533)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

7,667

 

4,860

Administrative expenses

 

 

 

 

(5,637)

 

(3,085)

Share based payments expense

 

 

 

 

(621)

 

(316)

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

1,409

 

1,459

 

 

 

 

 

 

 

 

Adjusted EBITDA*

 

 

 

 

5,483

 

3,254

Depreciation

 

 

 

 

(125)

 

(72)

Amortisation of intangible assets

7

 

 

 

(2,066)

 

(578)

Acquisition costs & exceptional items

 

 

 

 

(1,262)

 

(829)

Share based payments expense

 

 

 

 

(621)

 

(316)

Operating profit

 

 

 

 

1,409

 

1,459

 

 

 

 

 

 

 

 

Finance income

 

 

 

 

18

 

33

Finance costs

 

 

 

 

(270)

 

(2)

Finance income - net

 

 

 

 

(252)

 

31

Share of loss of investments accounted for using the equity method

 

 

 

 

-

 

(36)

 

 

 

 

 

 

 

 

Profit before taxation

 

 

 

 

1,157

 

1,454

 

 

 

 

 

 

 

 

Income tax expense 

4

 

 

 

(202)

 

(548)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit after taxation attributable to equity shareholders

 

 

 

 

955

 

906

Items that may be reclassified subsequently to profit and loss

 

 

 

 

 

 

 

Exchange difference on translation of foreign operation

 

 

 

 

1,910

 

(1)

Cash flow hedges - effective portion of changes in fair value

 

 

 

 

(245)

 

245

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the financial year attributable to equity shareholders

 

 

 

 

2,620

 

1,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share

 

 

 

 

 

 

 

Basic (pence)

5

 

 

 

1.00

 

1.40

Diluted (pence)

5

 

 

 

0.97

 

1.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

All amounts relate to continuing activities.

 

*Earnings before interest, tax, depreciation and amortisation, acquisition costs, exceptional items and non-cash charges.

 

 

 

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

 

 

 

 

 

 

2016

 

2015

 

Note

 

 

 

£'000

 

£'000

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

161

 

65

Intangible assets

7

 

 

 

29,822

 

5,390

Deferred receivables

 

 

 

 

1,486

 

295

Investments

6

 

 

 

997

 

997

Deferred tax assets

 

 

 

 

1,121

 

168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,587

 

6,915

Current assets

 

 

 

 

 

 

 

Trade and other receivables

9

 

 

 

11,529

 

5,425

Inventory

 

 

 

 

390

 

61

Derivative financial instruments

 

 

 

 

-

 

245

Cash and bank balances

 

 

 

 

9,902

 

19,060

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,821

 

24,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

 

 

 

55,408

 

31,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Share capital

8

 

 

 

96

 

92

Share premium

8

 

 

 

16,545

 

16,522

Merger relief reserve

8

 

 

 

1,879

 

-

Share based payments reserve

 

 

 

 

2,004

 

1,390

Foreign exchange translation reserve

 

 

 

 

1,910

 

-

Foreign currency hedging reserve

 

 

 

 

-

 

245

Retained earnings

 

 

 

 

2,785

 

1,797

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity

 

 

 

 

25,219

 

20,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Other payables

 

 

 

 

3,820

 

845

Deferred tax liabilities

 

 

 

 

3,282

 

65

Borrowings

 

 

 

 

1,324

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

8,426

 

910

Current liabilities

 

 

 

 

 

 

 

Trade and other payables and accruals

10

 

 

 

19,947

 

10,349

Taxation payable

 

 

 

 

783

 

401

Borrowings

 

 

 

 

1,033

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,763

 

10,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

30,189

 

11,660

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity and liabilities

 

 

 

 

55,408

 

31,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2016

 

 

Share capital

Share premium

Merger relief reserve

Share based payments reserve

Foreign

exchange

translation

reserve

Foreign currency hedging reserve

 

Retained earnings

Total

 

£'000

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

 

 

 

 

 

 

 

 

Balance as at 31 December 2014

61

4,935

-

1,018

1

-

885

6,900

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

-

906

906

Other comprehensive income

 

 

 

 

 

 

 

 

Translation of foreign operation

-

-

 

-

-

(1)

-

-

(1)

Cash flow hedge

-

-

-

-

-

245

-

245

Total comprehensive income for the year

-

-

 

-

 

-

 

(1)

 

245

 

906

1,150

Transactions with owners

 

 

 

 

 

 

 

 

Issue of new shares

31

12,277

-

-

-

-

-

12,308

Share issue costs

-

(690)

-

-

-

-

-

(690)

Share based payments

-

-

-

316

-

-

-

316

Share based payments

- reclassify lapsed options

-

-

 

-

 

(6)

 

-

 

-

 

6

 

-

Share based payments

- deferred tax asset

-

-

 

-

 

62

 

-

 

-

 

-

62

Balance as at 31 December 2015

92

16,522

-

1,390

-

245

1,797

20,046

 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

-

-

955

955

Other comprehensive income

 

 

 

 

 

 

 

 

Translation of foreign operation

-

-

 

-

-

1,910

-

-

1,910

Cash flow hedge

-

-

-

-

-

(245)

-

(245)

Total comprehensive income for the year

-

-

 

-

-

1,910

(245)

955

2,620

Transactions with owners

 

 

 

 

 

 

 

 

Issue of new shares

4

23

1,879

-

-

-

-

1,906

Share based payments

-

-

 

621

-

-

-

621

Share based payments

- reclassify lapsed options

-

-

 

(33)

-

-

33

-

Share based payments

- deferred tax asset

-

-

 

26

-

-

-

26

Balance as at 31 December 2016

96

16,545

1,879

2,004

1,910

-

2,785

25,219

·     

Share capital represents the nominal value of the company's cumulative issued share capital.

·     

Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.

·     

Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.   Where the consideration for shares in another company includes issued shares, and 90% of the equity is held in the other company.

·     

Retained earnings represent the cumulative value of the profits not distributed to shareholders, but retained to finance the future capital requirements of the CentralNic Group.

·     

Share based payments reserve represents the cumulative value of share based payments recognised through equity.

·     

Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.

·     

Foreign currency hedging reserve represents the effective portion of changes in the fair value of derivatives.

                   

 

 

 

 

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2016

 

 

 

 

 

 

2016

 


2015

 

 

 

Note

 

£'000

 

£'000

 

 

 

 

 

 

 

 

Cash flow from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before taxation

 

 

 

 

1,157

 

1,454

 

 

 

 

 

 

 

 

Adjustments for:

 

 

 

 

 

 

 

Depreciation of property, plant and equipment

 

 

 

 

124

 

71

Amortisation of intangible assets

 

 

 

 

2,066

 

578

Reclassification of intangible assets

 

 

 

 

752

 

448

Finance income / (cost) - net

 

 

 

 

130

 

(1)

Share based payments

 

 

 

 

621

 

316

Share of result of associate

 

 

 

 

-

 

36

Increase in trade and other receivables

 

 

 

 

(4,066)

 

(2,649)

Increase in trade and other payables and accruals

 

 

 

 

3,350

 

5,839

Increase in inventories

 

 

 

 

(278)

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

 

 

 

3,856

 

6,091

 

 

 

 

 

 

 

 

Income tax paid

 

 

 

 

(538)

 

(405)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flow generated from operating activities

 

 

 

 

3,318

 

5,686

 

 

 

 

 

 

 

 

Cash flow used in investing activities

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

 

 

(145)

 

(43)

Purchase of intangible assets

 

 

 

 

(350)

 

(104)

Acquisition of a subsidiary, net of cash acquired

 

 

11

 

(14,831)

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flow used in investing activities

 

 

 

 

(15,326)

 

(135)

 

 

 

 

 

 

 

 

Cash flow used in financing activities

 

 

 

 

 

 

 

Proceeds from borrowings (net)

 

 

 

 

2,625

 

-

Proceeds from issuance of ordinary shares

 

 

 

 

23

 

11,618

Payment of deferred consideration

 

 

 

 

(36)

 

(1,159)

Net cash flow generated from/(used in) financing activities

 

 

 

 

2,612

 

10,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

 

 

 

(9,396)

 

16,010

Cash and cash equivalents at beginning of the year

 

 

 

 

19,060

 

3,056

Exchange gains/(losses) on cash and cash equivalents

 

 

 

 

238

 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of the year

 

 

 

 

9,902

 

19,060

 

 

 

 

 

 

 

 

 

 

 

CENTRALNIC GROUP PLC

NOTES TO FINANCIAL STATEMENTS

1.             Basis of preparation

 

The financial statements are measured and presented in sterling (£), unless otherwise stated, which is the currency of the primary economic environment in which many of the entities operate.  They have been prepared under the historical cost convention, except for financial instruments that have been measured at fair value through profit and loss.

 

The financial statements have been prepared on the going concern basis, which assumes that the Group will continue to be able to meet its liabilities as they fall due for the foreseeable future.  The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU ("IFRS") issued by the International Accounting Standards Board ("IASB"), including related interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC").

 

The Directors have reviewed forecasts and budgets for the coming year having regard to both the macroeconomic environment in which the group operates, historic and current industry knowledge and contracted trading activities and the future strategy of the Group.  As a result of that review the Directors consider that it is appropriate to adopt the going concern basis of preparation.

 

2.             Segment analysis

 

CentralNic is an independent global domain name service provider.  It provides Wholesale, Retail and Enterprise services and it is the owner and registrant of a portfolio of domain names, which it uses as SLD domain extensions.  Operating segments are prepared in a manner consistent with the internal reporting provided to the management as its chief operating decision maker in order to allocate resources to segments and to assess their performance.  These reportable operating segments includes the aggregation of certain operating units.  Management reviews the activities of the CentralNic Group in the segments disclosed below.

 

 

 

2016

 

Revenue

Adjusted EBITDA

Non-current assets

Current assets

Non-current liabilities

Current liabilities

 

£'000

 

£'000

£'000

£'000

£'000

£'000

Wholesale Domain Sales

3,176

1,237

2,901

12,614

1,775

13,578

Retail Domain Sales

14,320

2,417

30,564

8,848

6,651

8,159

Enterprise including Premium Domain Name Sales

4,633

2,785

122

359

-

26

Group overheads including costs associated with public company status

-

 

(956)

 

-

 

-

 

-

 

-

 

22,129

5,483

33,587

21,821

8,426

21,763

 

 

 

 

 

2015

 

Revenue

Adjusted EBITDA

Non-current assets

Current assets

Non-current liabilities

Current liabilities

 

£'000

 

£'000

£'000

£'000

£'000

£'000

Wholesale Domain Sales

3,129

1,403

2,711

20,544

585

8,522

Retail Domain Sales

3,405

174

4,198

4,116

325

2,154

Enterprise including Premium Domain Name Sales

3,859

 

2,608

 

6

131

-

74

Group overheads including costs associated with public company status

-

 

(931)

-

-

-

-

 

10,393

3,254

6,915

24,791

910

10,750

 

The geographical locations of the non-current and current assets and non-current and current liabilities are located in the following geographic territories.

 

 

2016

 

Non-current assets

Current assets

Non-current liabilities

Current liabilities

 

£'000

£'000

£'000

£'000

UK

3,266

13,781

5,010

13,786

North America

-

33

-

(123)

Europe

9

135

-

26

ROW

30,312

7,872

3,416

8,074

 

33,587

21,821

8,426

21,763

 

 

2015

 

Non-current assets

Current assets

Non-current liabilities

Current liabilities

 

£'000

£'000

£'000

£'000

UK

3,066

19,902

585

2,412

North America

2

948

-

705

Europe

6

54

-

162

ROW

3,841

3,887

325

7,471

 

6,915

24,791

910

10,750

 

 

 

3.             Revenue

The CentralNic Group's revenue is generated from the following geographical areas:

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

£'000

 

£'000

Wholesale Domain Sales

 

 

 

 

 

 

 

 

UK

 

 

 

 

 

805

 

902

North America

 

 

 

 

 

904

 

997

Europe

 

 

 

 

 

451

 

458

ROW

 

 

 

 

 

1,016

 

772

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,176

 

3,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail Domain Sales

 

 

 

 

 

 

 

 

UK

 

 

 

 

 

1,215

 

350

North America

 

 

 

 

 

3,416

 

744

Europe

 

 

 

 

 

3,723

 

1,260

ROW

 

 

 

 

 

5,966

 

1,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,320

 

3,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Enterprise including Premium Domain Name Sales

 

 

 

 

 

 

 

 

UK

 

 

 

 

 

4

 

-

North America

 

 

 

 

 

3,745

 

3,286

Europe

 

 

 

 

 

575

 

246

ROW

 

 

 

 

 

309

 

327

 

 

 

 

 

 

 

 

\

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,633

 

3,859

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Enterprise including premium domain name sales by nature are subject to annual variation depending on customer demand.

 

The following table shows customers that represented 10% or more of the wholesale domain sales:

 

 

 

 

 

 

 

2016

 

2015

 

 

 

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

 

 

Customer A

 

 

 

 

 

287

 

393

Customer B

 

 

 

 

 

189

 

 333

Other customers

 

 

 

 

 

2,700

 

2,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,176

 

3,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No single customer contributes greater than 10% or more of the retail domain sales.  

 

The enterprise including premium domain name sales were principally driven by premium domain name sales of £3,744,000 (2015: £3,221,000) of which £3,555,000 was made to one customer (2015: £3,079,000 to one customer).

 

 

 

4.             Income tax expense

 

 

 

 

2016

 

2015

 

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

Current tax on profits for the year

 

 

 

282

 

593

Adjustments in respect of prior years

 

 

 

(48)

 

-

Current Income Tax

 

 

 

234

 

593

 

 

 

 

 

 

 

Deferred Income Tax

 

 

 

(32)

 

(45)

 

 

 

 

 

 

 

Income tax expense

 

 

 

202

 

548

 

 

 

 

 

 

 

 

A reconciliation of the current income tax expense applicable to the profit before taxation at the statutory tax rate to the current income tax expense at the effective tax rate of CentralNic is as follows:

 

 

 

 

 

2016

 

2015

 

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

Profit before taxation

 

 

 

1,157

 

1,454

 

 

 

 

 

 

 

Tax calculated at domestic tax rates applicable to profits in

the respective countries

 

 

 

 

158

 

 

404

 

 

 

 

 

 

 

Tax effects of;

 

 

 

 

 

 

 - Expenses not deductible for tax purposes

 

 

 

82

 

123

 - Unutilised tax losses

 

 

 

10

 

21

 - Adjustment in respect of prior years

 

 

 

(48)

 

-

 

 

 

 

 

 

 

Current income tax

 

 

 

202

 

548

 

 

 

 

 

 

 

 

The Company provides for income taxes on the basis of its income for financial reporting purposes, adjusted for items that are not assessable or deductible for income tax purposes, in accordance with the regulations of domestic tax authorities. 

 

The effective rate of tax for the year is 17.5% (2015: 37.7%).

 

In the UK, the applicable statutory tax rate for 2016 is 20% (2015: 20%).  

 

In the USA, federal taxes are due at 15% on taxable income.  Under California tax legislation a statutory minimum of $800 of state tax is due.

 

In Germany, federal taxes are due at 15% on taxable income. With an additional 5.5% solidarity surcharge due on the income tax. A community business tax of c.17% is also levied with rates determined by the municipality.

 

In addition, for the current year, included within the domestic tax rates applicable to profits are Australia where income tax is due at 30% of taxable income and New Zealand, where income tax is due at 28% on taxable income.

 

 

 

5.             Earnings per share

Earnings per share has been calculated by dividing the consolidated profit after taxation attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

 

Diluted earnings per share has been calculated on the same basis as above, except that the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares (arising from the Group's share option scheme and warrants) into ordinary shares has been added to the denominator.  There are no changes to the profit (numerator) as a result of the dilutive calculation.

 

 

2016

2015

Profit after tax attributable to owners (£'000) 

955

906

Weighted average number of shares:

 

 

Basic

95,632,390

64,537,714

Effect of dilutive potential ordinary shares

2,745,348

1,953,680

Diluted

98,377,738

66,491,394

Earnings per share:

 

 

Basic (pence)

1.00

1.40

Diluted (pence)

0.97

1.36

 

6.             Investments

Available for sale investments carried at fair value

 

 

£'000

At 31 December 2015

997

Additions

-

At 31 December 2016

997

 

 

 

The Company owns less than 20% of the following undertakings which are incorporated in the United Kingdom (UK):

 

Name

Place of incorporation/ establishment

Principal activities

Issued and paid-up/ registered capital

Effective interests

 

 

 

 

 

Accent Media Ltd

UK

Domain registry operator

Ordinary shares

10.4%

 

This investment is categorised in the fair value hierarchy under Level 3 as no observable market data was available

 

The fair value of the investment at 31 December 2016, has been assessed using recent investment price, supported by information available to the Directors regarding cashflow forecasts.  The key significant unobservable inputs include cumulative average growth rate, weighted average cost of capital and expected operating margins.  A reasonable change to the input assumptions, such as 2% change in weighted average cost of capital would lead to an increase or decrease in the value of this investment of approximately £250,000.  The valuation method applied to this investment (price of recent investment) is considered the most appropriate with regard to the stage of the development of the business and the IPEVCV guidelines.  In applying the price of recent investment valuation methodology, the basis used is the initial cost of the investment.  

 

 

 

7.             Intangible assets

 

 

Domain

names

Software

Customer List

Goodwill

Total

 

£'000

£'000

£'000

£'000

£'000

Cost or deemed cost

 

 

 

 

 

At 1 January 2015

3,164

960

2,548

1,379

8,051

Additions

-

104

-

194

298

Reclassification

(835)

-

-

-

(835)

Exchange Differences

11

-

-

-

11

At 31 December 2015

2,340

1,064

2,548

1,573

7,525

Additions

-

350

-

-

350

Acquisition of Subsidiary

 

1,121

 

1,615

 

8,738

 

11,774

 

23,248

Reclassification

(2,295)

-

-

-

(2,295)

Exchange Differences

-

265

1,430

1,956

3,651

At 31 December 2016

1,166

3,294

12,716

15,303

32,479

 

 

 

 

 

 

Amortisation

 

 

 

 

 

At 1 January 2015

1,707

99

127

-

1,933

Charge for the year

142

181

255

-

578

Reclassification

(387)

-

-

-

(387)

Exchange Differences

11

-

-

-

11

At 31 December 2015

1,473

280

382

-

2,135

Charge for the year

196

640

1,230

-

2,066

Reclassification

(1,544)

-

-

-

(1,544)

At 31 December 2016

125

920

1,612

-

2,657

 

 

 

 

 

 

Intangible assets, net

 

 

 

 

 

At 31 December 2016

1,041

2,374

11,104

15,303

29,822

At 31 December 2015

867

784

2,166

1,573

5,390

 

Amortisation of intangible assets is included in administrative expenses in the consolidated statement of comprehensive income.

 

Certain domain names previously held as intangible assets were reclassified to stock held for resale in the 2016 and the 2015 periods.

 

Goodwill and Customer List

The Group tests goodwill recognised through business combinations annually for impairment.  Additions to goodwill arose through the business combinations outlined in note 11.  The carrying value of goodwill and the customer list is allocated to the respective segments as follows:

 

 

Customer List

 

Goodwill

 

 

2016

 

2015

 

2016

2015

 

£,000

£,000

 

£'000

£'000

Retail Division

11,104

2,166

 

15,189

1,379

Enterprise Division

-

-

 

114

194

Total carrying value

11,104

2,166

 

15,303

1,573

 

 

 

 

 

 

 

The recoverable amount of goodwill of £15,303,000 (2015: £1,573,000) and customer list of £11,104,000 (2015: £2,166,000) at 31 December 2016, is determined based on a value in use using cash flow projections from financial budgets approved by senior management covering a five year period.  Cash flow projections beyond the five year timeframe are extrapolated by applying a flat growth rate in perpetuity.  The pre-tax discount rate applied to the cash flow projections is 10.0%.  As a result of the analysis, management did not identify any impairment of goodwill.

 

Goodwill in the enterprise division has decreased in the year due to an amount due to the parent company on acquisition of dnsXperts in 2015 of £80,000 previously treated as a cost of acquisition being reclassified as being due from the Company.  An amount of £80,000 is now included within other receivables.  

 

The assumptions used in the cash flow projections were as follows;

 

Retail Division

Internet BS

Instra

Revenue  - compounded annual growth rate

12%

12%

Gross Margin - before staff and IT costs

13%

59%

Administration expenses - compounded annual growth rate

5%

10%

 

Discount rates:

Discount rates represent the current market assessment of the risks specific to the CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates.  The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its WACC, with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate.  The cost of equity is derived from the expected return on investment by the Group's investors.

 

Management consider that no reasonable change in these key assumptions would cause the carrying amount of this asset to exceed its value in use. 

 

 

 

8.             Share capital

                The Company's issued and fully paid share capital is as follows:

 

 

Share Capital

Share Premium

Merger relief

 

Number

£'000

£'000

£'000

 

 

 

 

 

At 1 January 2016

92,007,481

92

16,522

-

Consideration shares in respect of the Instra acquisition 14 January 2016 (see note 11)

3,656,450

4

-

 

1,879

Share options exercised 8 February 2016

20,417

-

2

-

Share options exercised 27 July 2016

210,000

-

21

-

 

 

 

 

 

At 31 December 2016

95,894,348

96

16,545

1,879

 

On 14 January 2016 the company issued 3,656,450 new ordinary shares to the estate of Antonio Frank Lentino of 0.1 pence each at 40 pence per share.  A merger relief reserve of £1,879,415 was created on the issue of these shares reflecting the fair value of those shares at 51.5 pence per share.

 

The Company has no authorised share capital.

 

 

 

9.             Trade and other receivables

 

 

 

 

2016

 

2015

 

 

 

 

£'000

 

£'000

 

 

 

 

 

 

 

Trade receivables

 

 

 

5,361

 

1,855

Accrued revenue

 

 

 

1,123

 

225

Deferred costs

 

 

 

3,315

 

1,486

Prepayments

 

 

 

163

 

110

Prepaid finance costs

 

 

 

-

 

350

Supplier payments on account

 

 

 

376

 

333

Amounts due from shareholders

 

 

 

747

 

729

Other receivables

 

 

 

444

 

337


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,529

 

5,425

 

As of 31 December 2016, trade receivables of £451,000 (2015: £209,000) were past due but not impaired.  These primarily relate to four customers for whom there is considered a low risk of default.  Deferred costs reflect the wholesale cost of domain names in the Internet BS and Instra retail businesses.  Supplier payments on account reflect payments to domain name registries for use against future wholesale domain purchases within the Internet BS and Instra retail businesses.

 

The prepaid finance costs relate to the debt facility agreement signed on 8 December 2015.

 

Amounts due from shareholders represent amounts due from Jabella Group Limited, a shareholder during the period.  Amounts due from Jabella Group Limited were interest free until 31 August 2013, from which time the balance accrued interest at 2% above LIBOR (2016: £17,749; 2015: £18,032).  The loan was granted in August 2011 for an initial term of five years, the balance is currently £747,000.  The loan is now repayable on demand.

 

The directors are reviewing the terms of the loan and consider the loan to be fully recoverable.  The directors consider that the fair value of this receivable is not materially different from the carrying value.

 

 

10.          Trade and other payables and accruals

 

 

2016

 

2015

 

 

£'000

 

£'000

 

 

 

 

 

Accounts payable

 

3,120

 

2,425

Accrued expenses

 

4,596

 

1,859

Other taxes and social security

 

220

 

81

Deferred consideration

 

-

 

36

Deferred revenue

 

7,375

 

3,126

Customer payments on account

 

4,602

 

2,779

Accrued interest

 

22

 

3

Other liabilities

 

12

 

40

 

 

 

 

 

 

 

 

 

 

 

 

19,947

 

10,349

 

 

 

11.          Business combinations

On 14 January 2016 Centralnic Group completed the acquisition of the entire share capital of the companies forming the Instra Group for a total consideration of AU$38m, consisting of AU$30m in cash plus a cash adjustment for working capital at completion of AU$1.4m, AU$3.9m in shares in Centralnic Group plc, plus an adjustment for the reclassification of loans due to the company on completion of AU$2.7m.

 

The primary reason for the business combination was to expand the retail division's footprint so that it benefits from exposure to the majority of the world's geographic and emerging domain name markets.

 

The following table summarises the consideration to acquire the share capital of the Instra Group and the provisional fair value of the assets and liabilities at the acquisition date in line with Group accounting policies.

 

Consideration

 

 

 

AU$'000

 

£'000

Cash

 

 

 

30,000

 

14,560

Adjustment for working capital

 

 

 

1,449

 

829

Total Cash Consideration

 

 

 

31,449

 

15,389

Equity Instruments (3,656,450 ordinary shares)

 

 

 

3,863

 

1,883

Assumption of loans due from the estate of Antonio Frank Lentino

 

 

 

2,725

 

1,323

Total consideration

 

 

 

38,037

 

18,595

 

 

 

 

 

 

 

Fair value recognised on acquisition

 

 

 

AU$'000

 

£'000

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Intangible assets - customer list

 

 

 

18,005

 

8,738

Intangible assets - software

 

 

 

3,275

 

1,589

Intangible assets - domain names

 

 

 

2,310

 

1,121

Other intangible assets

 

 

 

52

 

25

Property, plant & equipment

 

 

 

129

 

63

Trade receivables

 

 

 

815

 

395

Other receivables

 

 

 

8,199

 

3,979

Deferred income tax asset

 

 

 

1,919

 

931

Cash

 

 

 

1,150

 

558

 

 

 

 

35,854

 

17,399

Liabilities

 

 

 

 

 

 

Trade payables

 

 

 

391

 

190

Other payables and accruals

 

 

 

1,835

 

891

Deferred Revenue

 

 

 

13,513

 

6,558

Deferred income tax liability

 

 

 

6,384

 

3,098

Other income tax liabilities

 

 

 

(127)

 

(62)

 

 

 

 

21,996

 

10,675

 

 

 

 

 

 

Total identifiable net assets at fair value

 

 

 

13,858

 

6,724

 

 

 

 

 

 

Goodwill arising on acquisition

 

 

 

24,179

 

11,871

 

 

 

 

 

 

Purchase consideration

 

 

 

38,037

 

18,595

 

 

 

 

 

 

 

 

The fair value of the 3,656,450 ordinary shares issued as part of the consideration paid was based on 51.5 pence per share based on the share price on the date of issue 14 January 2016.  The mid-market foreign exchange rate was used at 12 noon on 13 January 2016 being the business day pre-completion.

 

AU$5m of the cash consideration has been placed in to an escrow account and, subject to any claims, will be released to the vendor over 5 years in equal instalments on the anniversary of the completion date.

 

The cash consideration was funded by the equity placing of the 29 December 2015, together with a new secured debt facility comprising a £3.5m term loan with the remainder from existing cash balances held by the Group.

 

Acquisition related costs of £77,000 (2015: £604,000) have been recognised in the income statement, with a further £577,000 being charged to the share premium account in 2015 in relation to the placing which took place on 29 December 2015.

 

For the post-completion period to 31st December 2016 revenues of £10.28m (AU$18.58m) and Adjusted EBITDA of £2.21m (AU$4.00m) have been generated by the Instra group.

 

Goodwill arising on acquisition primarily relates to the inherent value of the acquired brands, goodwill in relation to employees and the multiple registry accreditations which enables the Instra Group to position itself as a global domain name retailer.

 

 

 

12.  Share Options and Warrants

Share Options

 

The share option scheme, which was adopted by CentralNic during 2013, was established to reward and incentivise the executive management team and staff for delivering share price growth.  The option schemes are all equity settled. 

The share option scheme is administered by the Remuneration Committee.

 

There were 2,820,000 options granted during 2016 (2015: 1,144,000).  Out of the 7,044,166 outstanding options (2015: 4,604,583), 3,230,166 options (2015: 2,019,583) were exercisable.  Options exercised in 2016 resulted in 230,417 shares (2015: 75,834) being issued at a weighted average price of 10p each.  The share prices at the dates options were exercised were between 45p and 50p.  In addition, 150,000 options lapsed during the year (2015: 19,583).

 

A charge of £621,204 (2015: £316,199) has been recognised in the statement of comprehensive income for the year relating to these options.

 

These fair values were calculated using the Black Scholes option pricing model. The inputs into the model were as follows:

 

Date of Options grant

1st June 2013

14th October 2013

28th April 2015

28th April 2015

5th May 2015

Options Granted

2,530,000

1,026,000

537,000

500,000

107,000

Stock price

10p

55p

35p

35p

33.5p

Exercise price

10p

57p

35p

35p

33.5p

Interest rate

5%

5%

5%

5%

5%

Volatility

75%

75%

75%

75%

75%

Vesting period

1/12 per quarter from the date of grant

3 years from the date of grant

3 years from the date of grant

10th February 2017

3 years from the date of grant

Time to maturity

10 years

10 years

10 years

10 years

10 years

 

Date of Options grant

4th Feb 2016

4th Feb 2016

4th Feb 2016

4th Feb 2016

4th Feb 2016

29th August 2016

29th August 2016

Options Granted

700,000

750,000

350,000

48,000

419,000

318,000

235,000

Stock price

51p

51p

51p

51p

51p

43p

43p

Exercise price

40p

40p

40p

51p

40p

40p

40p

Interest rate

5%

5%

5%

5%

5%

4%

4%

Volatility

75%

75%

75%

75%

75%

52%

52%

Vesting period

3 years from the date of grant

15th September 2018

26th October 2018

3 years from the date of grant

14th January 2019

14th January 2019

3 years from the date of grant

Time to maturity

10 years

10 years

10 years

10 years

10 years

10 years

10 years

 

 

  

Options are exercisable in accordance with the contracted vesting schedules.  The expected volatility was determined with reference to similar entities trading on AIM.

 

Details of the share options outstanding at the year-end are as follows:

 

 

Number

31 Dec 2016

WAEP*

31 Dec 2016

Number

31 Dec 2015

WAEP*

31 Dec 2015

Outstanding at 1 January

4,604,583

26p

3,551,000

23p

Granted during year

2,820,000

40p

1,144,000

34p

Exercised during year

(230,417)

10p

(75,834)

10p

Lapsed during year

(150,000)

10p

(14,583)

10p

Outstanding at 31 December

7,044,166

32p

4,604,583

26p

Exercisable at 31 December

3,230,166

25p

2,019,583

10p

 

* weighted average exercise price.

 

The weighted average remaining contractual life of the options outstanding at the statement of financial position date is 7.8 years.

 

Warrants

 

On 12 August 2013, CentralNic Group executed a warrant instrument to create and issue warrants to Zeus Capital to subscribe for an aggregate of 1,772,727 ordinary shares.  The warrants will expire six years after admission and were exercisable after the first anniversary of admission (2 September 2014) at the placing price of 55p.  The ordinary shares to be allotted and issued on the exercise of any or all of the warrants will rank for all dividends and other distributions declared after the date of the allotment of such shares but not before such date and otherwise pari passu in all respects with the ordinary shares in issue on the date of such exercise allotment.

 

These fair values were calculated using the Black Scholes warrant pricing model.  The inputs into the model were as follows:

 

 

Warrants issued 12 August 2013

Warrants Granted

1,772,727

Stock price

55p

Exercise price

55p

Interest rate

5%

Volatility

75%

Time to maturity

6 years

 

A charge of £675,409 was recognised in the share premium account in 2013.

-Ends-

 

 

[1] Recurring/subscription revenues include revenue from domain registrations, domain renewals and other recurring revenues stated before deferrals


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