Final Results

RNS Number : 3418Z

Crossrider plc

14 March 2017

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014

14 March 2017

Crossrider plc

("Crossrider" or the "Company")

Final results for the year ended 31 December 2016

Crossrider (AIM: CROS), the online distribution and digital product company, announces its final results for the year ended 31 December 2016.

Financial highlights

·      Revenue of $56.5 million (2015: $84.6 million). Decrease is primarily due to the expected decline and decision to cease investment in the web apps platform

·      Adjusted EBITDA¹ of $6.4 million (2015: $10.1 million)

·      Increase in adjusted cash from operations¹ to $7.9 million (2015: $6.9 million)

·      Cash conversion from Adjusted EBITDA of 123 per cent (2015: 69 per cent)

·      Increase in Media and App Distribution combined segment² results to $14.7 million (2015: $12.9 million)

·      Increase in Media and App Distribution combined segment margins to 28.3 per cent (2015: 22.4 per cent)

·      Strong balance sheet with $72.1 million cash (2015: $71.3 million) and no debt

Operational highlights

·      Strengthened the Board, with appointments of Ido Erlichman as Chief Executive Officer and Moran Laufer as Chief Financial Officer

·      Completed restructuring of the business:

-         Delivered $2.0 million of annualised savings

-         Established two core business segments: App Distribution and Media

·      Acquired DriverAgent, a leading device driver repair software and service, which is now fully integrated into the Group

·      Investment in organic growth opportunities gaining traction:

-         Grew and strengthened our digital App Distribution platform

-         Expanded geographical footprint in the Media division into South East Asia, Middle East & Africa

Post period end

The Company announced separately today the acquisition of CyberGhost, a leading cyber security SaaS provider with a focus on the provision of Virtual Private Network ("VPN") solutions. CyberGhost's solution focuses on safeguarding personal information when browsing the Internet through unsecured mobile hotspots. The acquisition is for an initial consideration of €3.2 million, the issue of €3.0 million options over ordinary shares exercisable at nominal value and an EBITDA based earn-out payment capped at €3.0 million

Ido Erlichman, Chief Executive Officer of Crossrider, commented:

"Having joined Crossrider in May, I'm delighted to report significant progress across our business and that we are on track in the execution of our strategic plan. We have refocused Crossrider's core operating activities and are now well positioned to grow a world-class digital distribution platform both organically and through our stated acquisition ambitions.

"We have made a strong start to 2017 and are delighted to have today announced the acquisition of CyberGhost, a leading cyber security provider which is in line with our strategy to broaden our service offering into additional verticals. Through continued acquisitions, organic growth and the integration of CyberGhost, we look forward to continuing to drive profitability and long term growth for the Group."

¹ EBITDA, Adjusted EBITDA and Adjusted cash flow from operations are non GAAP measures. Adjusted EBITDA and adjusted cash flow from operations are company specific measures which exclude certain expenses which are considered to be one off and non-recurring in nature.

² The segment result has been calculated using revenue less costs directly attributable to that segment

Enquiries

Crossrider plc Ido Erlichman, Chief Executive Officer Moran Laufer, Chief Financial Officer	via Vigo Communications
Shore Capital (Nominated Adviser & Broker) Bidhi Bhoma / Toby Gibbs	[phone]
Vigo Communications (Financial Public Relations) Jeremy Garcia / Fiona Henson / Antonia Pollock [e-mail]	[phone]

About Crossrider

Crossrider is an online distribution and digital product company. The Company utilises its proprietary marketing technology platforms to prospect, optimise and monetise mobile and web media, to create a superb user experience. The Company offers improved retention and re-engagement rates, greatly enhancing the value of user activity. Crossrider provides its platforms to its customers for use with their products as well as developing and expanding its own product portfolio. Crossrider's vision is to provide and develop best-in-class digital products for its users globally.

Chairman's statement

2016 has been a year of both change and progress for Crossrider. In June, we commenced a major restructuring to streamline our business and simplify our reporting structure going forward. The Company's restructuring has resulted in achieving significant cost reductions and enabled us to pursue a new strategic direction, focussed on expanding our digital distribution platform.

Strengthening the board 

In May of this year, Crossrider announced the appointment of Ido Erlichman as CEO. Ido's appointment has been pivotal in reshaping our business, as we transition from a pure adtech business to a leading software and digital distribution platform.

Ido has in-depth understanding of the market in which we operate and brings significant experience in the technology sector garnered through roles in private equity, consulting and finance and past experience in his previous CEO role with turning around Visual DNA.

Additionally, Crossrider has appointed Moran Laufer as CFO. Moran has been a key member of the finance team since 2012 and successfully supported the Group's admission to AIM. 

In the short space of seven months, our management team has already been able to implement significant strategic change and we believe it is a very exciting time in the Company's transformation.

New strategic direction

The strategic overhaul of Crossrider has resulted in stable growth in our areas of focus - the App Distribution Division and the Media Division. Since the beginning of 2016 we have been winding down our operations in the web apps vertical and management is now solely focused on our two core divisions.

Crossrider anticipated a decline in the web app sector due to changes in the market environment. As a result, the Company shifted its focus away from the web apps sector in the period, including the browser extension platform, which has been outsourced through a licensing agreement since January 2016. We expect the year to 31 December 2017 to be the last year of reporting for this segment.

Foundation for growth

Crossrider continues to capitalise on opportunities consistent with our strategic vision and is confident in the Company's ability to accelerate the growth trajectory of its digital distribution platform, particularly through acquisitions.

The Company's expansion in this sector started successfully with the acquisition of DriverAgent in October.  Crossrider has now completed the integration of DriverAgent and anticipates its contribution to revenue and earnings to materialise in the coming year. Importantly, this acquisition has proven the efficacy of our platform.  The Board expects to deliver further growth in this division through larger synergistic acquisitions in the coming year. 

We now feel we have a solid foundation in place from which we can drive future growth and continue to strengthen and expand the business.

The significant progress made by the Group in the course of the year would not have been possible without the talented and dedicated Crossrider team who continue to be key in executing on our strategic plan.

Don Elgie

Non-executive Chairman

13 March 2017

Chief Executive Officer's review

2016 has been a transformational year for Crossrider, during which the Company has successfully executed a three step strategic plan to reposition the business as a leading software and digital distribution platform.

Having restructured the business, the Board believes the Company is now ideally placed to capitalise on opportunities to grow organically through investment in our in-house capabilities and through selective acquisitions. The Group's reshaped operations are focussed on combining our strong digital media capabilities with our growing digital product platform, with a particular emphasis on serving the cyber security arena.

In the course of the year, management's primary challenge was to restructure and strengthen the Company's core operations and we are pleased to report that we have been able to achieve $2.0m in annualised savings as a result of this process and, in addition, establish two core business divisions - App Distribution and Media.

Secondly, management was focused on achieving organic growth in these core divisions and we are delighted that our App Distribution segment has achieved 20% growth in the period while our Media division has remained stable.

The third component of our strategy was to lay the foundations for future expansion through bolt-on and strategic acquisitions, building on our existing and refined business model. We have successfully executed on this, announcing in October the highly synergistic acquisition of DriverAgent, a leading device driver search and update service, and we continue to actively assess acquisition opportunities in 2017.

We have also taken further steps to strengthen our cash generative activities, improving working capital discipline whilst still providing quality service to all of our customers and partners, which has resulted in an increase in the cash generated from operations.

All of the initiatives that have been implemented are in support of our strategic decision to expand our existing digital distribution platform and extend our product offering, particularly in the cyber security space.

App Distribution

App distribution product hub, generating revenues from end users purchasing digital products online

In the app distribution division we are now offering two main products, Reimage computer repair software and service and the DriverAgent driver repair software and service. We have 720,000 paying subscribers around the world. Our top three markets are the US, UK & Germany.

In the last year we have strengthened our platform so it now provides an unrivalled and enhanced customer experience and lifetime value, further improving our customer service metrics. We believe that this provides us with a competitive advantage in the marketplace and a strong foundation from which to expand both our product offering and geographic reach.

In addition, we now have better control over our distribution, as we have initiated the process of bringing customer service in house, which allows us to improve the quality of our processes. We have also bolstered our in-house media buying capabilities enabling us to diversify our media sources, resulting in increased traffic volume, quality and market share. We expect these changes to extend customer lifetime value, enable margin consolidation and improve customer retention, thereby increasing profitability.

In October, we announced the acquisition of DriverAgent, which is designed for use with desktop computers, tablets and mobile devices, to identify out-dated drivers. This acquisition was highly complementary to our existing App Distribution hub and is now fully integrated into the Group.

The DriverAgent acquisition demonstrates our progress in successfully expanding our portfolio through our digital product hub and we continue to look to expand this vertical, predominantly through acquisition and third-party strategic partnerships. 

Media

Marketing technology platforms and ad agency activities, generating revenue through agreements with media partners

In the Media division we work with companies primarily in Europe and provide them with end-to-end media and advertising technologies services. These include media buying and ad agency technologies and services, ad-serving technologies as well as programmatic video buying capabilities.

In our Media division we have expanded our foothold in the evolving media and advertising space by leveraging our strong mobile capabilities. We have successfully entered new markets and broadened our current offering into the native, social and content distribution channels.

We continue to develop our advertising technologies and supporting tools to address the constantly evolving marketplace and ensure we optimise our technologies for our media buying services. This is all consistent with our Company-wide strategy to maintain best in class online distribution funnels for our digital products.

Current trading and outlook

This year we have made significant progress in the turnaround of the business, reducing our cost base and realigning our strategic priorities. We believe these significant changes have repositioned the Company, enabling us to complete the turnaround and grow our core divisions in the medium term. The full impact of the turnaround and subsequent benefits will be realised in the coming year.

In 2017, whilst we will continue to drive organic growth opportunities, we will also focus on strategic acquisitions designed to broaden our exposure to SaaS revenues, mainly in the cyber security vertical. We are currently exploring the viability of a number of companies, evaluating them along the following criteria:

·      Sizable and growing user base

·      Recurring revenue sales model

·      Strong technological team

·      Ability to deliver strong synergies with both the Group's media capabilities and digital distribution platform

We have made a strong start to 2017 and continue to drive profitability and long term future growth for the Group.

Chief Financial Officer's review

Overview

Revenue in the year to 31 December 2016 decreased to $56.5 million (2015: $84.6 million) and Adjusted EBITDA to $6.4 million (2015: $10.1 million). The decrease is attributable to the Board's decision to cease investment in the web apps platform and outsource its monetisation to a third party. Excluding the web apps segment, revenue at $52.0 million is lower in comparison to $57.6 million in 2015. However, segment results have significantly increased, at $14.7 million (2015: $12.9 million) and margins have also increased at 28.3 per cent (2015: 22.4 per cent).

Crossrider remains a highly cash generative business, with an increase of $1 million in cash generated from operations after adjusting for one-off non-recurring items of $7.9 million (2015: $6.9 million). This represents adjusted cash conversion of 123 per cent compared to 69 per cent in 2015. The Group balance sheet remains strong with cash of $72.1 million at 31 December 2016 (31 December 2015 $71.3 million) and no debt.

During the period, the Group went through a major restructuring, resulting in changes to its management reporting system and now operates three reportable segments:

·      App distribution - comprising the Group's desktop app distribution platform;

·      Media - comprising the Group's Marketing technology platforms and ad network activities; and

·      Web apps and license - comprising revenue generated from licensing the web apps monetisation platform and associated technology.

Consequently, the previous period segmental results have been restated. The results of these segments are set out below.

Segment Result

		Revenue				Segment result
		2016		Restated 2015		2016		Restated 2015
		$'000		$'000		$'000		$'000
App distribution		38,241		37,229		11,267		9,414
Media		13,783		20,426		3,480		3,499
Web apps and License		4,508		26,980		4,508		13,611
Revenue		56,532		84,635		19,255		26,524

The segment result has been calculated using revenue less costs directly attributable to that segment. Cost of sales comprises commissions paid to publishers and payment processing fees. Direct sales and marketing costs comprise traffic acquisition costs.

App distribution
			2016		2015
			$'000		$'000
Revenue			38,241		37,229
Cost of sales			(2,360)		(1,854)
Direct sales and marketing costs			(24,614)		(25,961)
Segment result			11,267		9,414
Segment margin (%)			29.5		25.3

During the period, App Distribution improved in margins significantly, reaching 29.5 per cent compared to 25.3 per cent in the comparable period, resulting in a $1.9 million increase in the segment result. This represents a 20 per cent uplift. The margin improvement is attributable to two main drivers: improved media buying efficiency resulting in better traffic quality as well as user targeting and secondly, an improvement in customer retention and up selling to existing customers.

In October 2016, Crossrider completed the acquisition of Driver Agent, a driver repair and update software product for a consideration of $1.2m.

Media
			2016		2015
			$'000		$'000
Revenue			13,783		20,426
Direct sales and marketing costs			(10,303)		(16,927)
Segment result			3,480		3,499
Segment margin %			25.25		17.13

In the Media division, revenues have decreased by 32.5 per cent and segment results have remained stable compared to 2015. The decrease in revenues is attributable to two low margin contracts with high working capital requirements that were signed in the fourth quarter of 2015 and terminated in 2016 to improve cash flow and decrease risk. If these contracts were to be excluded the segment results would have shown an increase of circa 11.9 per cent from a base of $3.1 million in 2015.  This increase is attributable to an expansion in new territories and verticals, mainly mobile app distribution.

Web apps and license			2016		2015
			$'000		$'000
Revenue			4,508		26,980
Cost of sales			-		(5,534)
Direct sales and marketing costs			-		(7,835)
Segment result			4,508		13,611
Segment margin %			100		50.45

At the beginning of 2016, the board decided to outsource the monetisation of its web apps platform to a third party. In light of this shift in this part of the Group's business model the Group ceased its media acquisition in this segment. Revenue in the period is comprised of consideration for license of the platform and its associated technology. The year to 31 December 2017 is expected to be the last year of reporting for this segment as the technology license contracts are expiring on September 2017.

Adjusted EBITDA

Adjusted EBITDA for year to 31 December 2016 was $6.4 million (2015: $10.1 million). Adjusted EBITDA is a non-GAAP company specific measure which is considered to be a key performance indicator for the Group's financial performance. It excludes share based payment charges and expenses which are considered to be one-off and non-recurring in nature and are excluded from the following analysis

			2016		2015
			$'000		$'000
Revenue			56,532		84,635
Cost of sales			(2,360)		(7,388)
Direct sales and marketing costs			(34,917)		(50,723)
Segment result			19,255		26,524
Indirect sales and marketing costs			(4,265)		(3,016)
Research and development costs			(1,299)		(2,539)
Management, general and administrative cost			(7,278)		(10,905)
Adjusted EBITDA			6,413		10,064

Operating loss

A reconciliation of Adjusted EBITDA to operating loss is provided as follows:

			2016		2015
			$'000		$'000
Adjusted EBITDA			6,413		10,064
Employee share-based payment charge			(716)		(3,407)
Exceptional and non-recurring costs			(862)		(1,957)
Depreciation and amortisation			(9,884)		(9,370)
Impairment of intangible assets			(4,683)		(9,132)
Operating loss			(9,732)		(13,802)

Exceptional and non-recurring costs in FY2016 comprised non-recurring staff restructuring costs of $0.6 million and a $0.3 million one-time onerous contract written off in the period. The decrease in the Employee share-based payment charge is due to reversal of charges from previous periods for employees that left the Company during the year. 

Impairment of intangible assets

The intangible assets related to the acquisition of the Definiti ad-network in 2014 are allocated to the Group's Media segment and are considered to be separate cash generating unit ("CGU's") for the purpose of assessing carrying values. Following regulatory changes in the mobile subscription vertical in which Definiti operates, management now forecasts modest growth in advertising volumes from the Definiti ad-network over the coming years. The carried value of the intangible assets of Definiti ad-network CGU have therefore been re-assessed resulting in a goodwill impairment of $4.7 million being recognised in the year (2015: $nil)

Loss before tax

Loss before tax was $10.0 million (2015: $14.7 million).

Loss after tax

Loss after tax was $10.7 million (2015: $17.6 million). The tax charge derives mainly from Group subsidiaries residual profits. The Group continues to recognise a deferred tax asset of $0.2m (2015: $0.7m) in respect of tax losses accumulated in previous years.

Cash flow

			2016		2015
			$'000		$'000
Cash flow from operations			5,922		5,910
Exceptional and non-recurring costs			1,951		995
Adjusted cash flow from operations			7,873		6,905
% of Adjusted EBITDA			123%		69%

Cash flow from operations was strong at $7.9 million (2015: $5.9 million). Adjusted cash flows from operations after adding back acquisition payments treated as remuneration and payments that are one off in nature, was $7.9 million this represents an improvement in cash conversion to 123 per cent of adjusted EBITDA from 69 per cent in 2015.

Tax paid in the period was $0.9 million (2015: $1.8 million).

Cash spent in the period on capital expenditure of $0.8 million (2015: $1.8 million) mainly comprises of capitalised development costs and purchase of fixed assets. Cash payments in respect of previous acquisitions totalled $1.4 million (2015: $1.4 million). The Company paid $0.9 million (2015: $0.1 million) in respect of the acquisition of the DriverAgent software business. As a result, net cash outflow from investing activities was $3.0 million (2015: $3.2 million).

The share buy-back programme, announced in November 2015, was completed in January 2016, returning $1.0 million to shareholders in 2016 (2015: $5.1 million).

Financial position

At 31 December 2016, the Group had cash of $72.1 million (31 December 2015: $71.3 million), had net assets of $80.5 million (31 December 2015: $ 91.5million) and is debt free. At 31 December 2016 trade receivables were $5.6 million (31 December 2015: $13.0 million) which represented 44 days outstanding, (31 December 2015: 52 days).

Directors' responsibility statement

We confirm to the best of our knowledge: 

1. The Group financial statements, prepared in accordance with IFRSs as adopted by the European Union give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and 

2. The business review, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties they face.

The Directors of Crossrider plc are listed in the Group's Annual Report and Accounts for the year ended 31 December 2016. A list of current directors is maintained on Crossrider's website, www.crossrider.com.

By order of the Board,

Ido Erlichman Chief Executive Officer 13 March 2017

Moran Laufer Chief Financial Officer 13 March 2017

Consolidated statement of comprehensive income

For the year ended 31 December 2016

			2016		2015
	Note		$'000		$'000
Revenue	2		56,532		84,635
Cost of sales			(2,360)		(7,388)
Gross profit			54,172		77,247
Selling and marketing costs			(39,915)		(54,146)
Research and development costs			(1,661)		(3,500)
Management, general and administrative costs			(7,761)		(14,901)
Depreciation and amortisation			(9,884)		(9,370)
Impairment of intangible assets	10		(4,683)		(9,132)
Total operating costs			(63,904)		(91,049)
Operating loss	3		(9,732)		(13,802)
Adjusted EBITDA			6,413		10,064
Employee share-based payment charge	6		(716)		(3,407)
Exceptional and non-recurring costs	3		(862)		(1,957)
Depreciation and amortisation			(9,884)		(9,370)
Impairment of intangible assets	10		(4,683)		(9,132)
Operating loss	3		(9,732)		(13,802)
Share of results of equity accounted associates			47		(38)
Finance income			4		15
Finance costs			(332)		(870)
Loss before taxation			(10,013)		(14,695)
Exceptional tax charge	4		-		(2,200)
Tax charge	4		(665)		(702)
Loss for the year			(10,678)		(17,597)
Other comprehensive income:
Foreign exchange differences on translation of foreign operations			-		1
Total comprehensive income for the year			(10,678)		(17,596)
Basic earnings per share (cents)	7		(7.6)		(11.9)
Diluted earnings per share (cents)	7		(7.6)		(11.9)

Consolidated statement of financial position

As at 31 December 2016

			2016		2015
	Note		$'000		$'000
Non-current assets
Intangible assets	10		7,113		19,254
Property, plant and equipment			591		1,003
Investments in equity accounted associates			859		812
Deferred tax asset	4		166		716
			8,729		21,785
Current assets
Trade and other receivables			7,950		16,280
Cash and cash equivalents			72,064		71,336
			80,014		87,616
Total assets			88,743		109,401
Equity
Share capital	5		14		14
Additional paid in capital			130,292		131,287
Retained earnings			(49,753)		(39,791)
Equity attributable to equity holders of the parent			80,553		91,510
Non-current liabilities
Deferred tax liabilities	4		691		986
Deferred consideration	8		160		184
			851		1,170
Current liabilities
Trade and other payables			7,096		15,316
Deferred consideration	8		243		1,405
			7,339		16,721
Total equity and liabilities			88,743		109,401

The financial statements were approved by the Board and authorised for issue on 13 March 2017.

Ido Erlichman	Moran Laufer
Chief Executive Officer	Chief Financial Officer

Consolidated statement of changes in equity

For the year ended 31 December 2016

	Share capital	Additional paid in capital	Retained earnings	Total
	$'000	$'000	$'000	$'000
At 1 January 2015	15	136,399	(25,602)	110,812
Loss for the year	-	-	(17,597)	(17,597)
Other comprehensive income:
Foreign exchange differences on translation of foreign operations	-	-	1	1
Total comprehensive income for the year	-	-	(17,596)	(17,596)
Transactions with owners:
Share based payments	-	-	3,407	3,407
Exercise of employee options (note 5)	-	18	-	18
Purchase of own shares (note 5)	(1)	(5,130)	-	(5,131)
At 31 December 2015	14	131,287	(39,791)	91,510
At 1 January 2016	14	131,287	(39,791)	91,510
Loss for the year	-	-	(10,678)	(10,678)
Other comprehensive income:
Foreign exchange differences on translation of foreign operations	-	-	-	-
Total comprehensive income for the year	-	-	(10,678)	(10,678)
Transactions with owners:
Share based payments	-	-	716	716
Purchase of own shares (note 5)	-	(995)	-	(995)
At 31 December 2016	14	130,292	(49,753)	80,553

Consolidated statement of cash flows

For the year ended 31 December 2016

			2016		2015
	Note		$'000		$'000
Cash flow from operating activities
Loss for the year after taxation			(10,678)		(17,597)
Adjustments for:
Amortisation of intangible assets	10		9,421		8,974
Impairment of intangible assets	10		4,683		9,132
Depreciation of property, plant and equipment			463		396
Loss on sale of property, plant and equipment			35		-
Tax charge	4		665		2,902
Interest income			(4)		(15)
Interest expenses			51		210
Share based payment charge	6		716		3,407
Share of results of associates			(47)		38
Unrealised foreign exchange differences			4		660
Operating cash flow before movement in working capital			5,309		8,107
Decrease/(Increase) in trade and other receivables			8,327		(2,529)
Decrease in trade and other payables			(6,625)		(631)
(Decrease)/Increase in other current liabilities			(1,089)		963
Cash flow from operations			5,922		5,910
Tax paid net of refunds			(904)		(1,826)
Cash generated from operations			5,018		4,084
Cash flow from investing activities
Purchases of property, plant and equipment			(108)		(220)
Sale of property, plant and equipment			24		-
Net cash paid on business combination	8		(1,089)		(902)
Intangible assets acquired			(850)		-
Net cash paid on Investment in associates			(350)		(500)
Capitalisation of development costs	10		(744)		(1,593)
Net cash used in investing activities			(3,117)		(3,215)
Cash flow from financing activities
Net payment for purchase of own shares	5		(995)		(5,131)
Net cash generated from financing activities			(995)		(5,131)
Net (decrease)/increase in cash and cash equivalents			906		(4,262)
Revaluation of cash due to changes in foreign exchange rates			(178)		(443)
Cash and cash equivalents at beginning of year			71,336		76,041
Cash and cash equivalents at end of year			72,064		71,336

1.         General information

The financial information provided is for Crossrider plc ("the Company") and its subsidiary undertakings (together the "Group") in respect of the financial years ended 31 December 2016 and 2015.

Crossrider is an online distribution and digital product company. The Company utilises its proprietary marketing technology platforms to prospect, optimise and monetise mobile and web media, to create a superb user experience. The Company offers improved retention and re-engagement rates, greatly enhancing the value of user activity. Crossrider provides its platforms to its customers for use with their products as well as developing and expanding its own product portfolio.

Basis of preparation

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future. They therefore continue to adopt the going concern basis of accounting in preparing the financial statements. 

The financial information set out in this document does not constitute the Group's statutory financial statements for the year ended 31 December 2016 or 31 December 2015. The annual report and financial statements for the year ended 31 December 2016 were approved by the Board of Directors on 13 March 2017 along with this preliminary announcement. The financial statements for the year ended 31 December 2016 have been reported on by the Independent Auditor. The Independent Auditor's report on the financial statements for 2016 was unqualified and did not draw attention to any matters by way of emphasis.

The financial information set out in these preliminary results has been prepared using International Financial Reporting Standards (IFRSs) as adopted by the EU. The accounting policies adopted in these preliminary results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2015. The principal accounting policies adopted are unchanged from those used in the preparation of the statutory accounts for the period ended 31 December 2016. New standards, amendments and interpretations to existing standards, which have been adopted by the Group, have not been listed since they have no material impact on the financial statements.

 

2.         Segmental information

Segment revenues and results

During the period a major restructuring has been undertaken, resulting in changes to the Group's management reporting. The change in reporting provides a more accurate and transparent description of activities. The Group now operates three reportable segments:

·      App distribution - comprising the Group's app distribution platform;

·      Media - comprising the Group's ad network activities and associated technology platforms; and

·      Web Apps and License - comprising revenue generated from monetising web apps and licencing the associated technology

Consequently, the prior year segmental results have been restated.

		App distribution 2016		Media 2016		Web apps and license 2016		Total 2016
		$'000		$'000		$'000		$'000
Revenue		38,241		13,783		4,508		56,532
Cost of sales		(2,360)		-		-		(2,360)
Direct sales and marketing costs		(24,614)		(10,303)		-		(34,917)
Segment result		11,267		3,480		4,508		19,255
Central operating costs								(12,842)
Adjusted EBITDA(1)								6,413
Depreciation and amortisation								(9,884)
Impairment of intangible assets								(4,683)
Employee share-based payment charge								(716)
Exceptional and non-recurring costs								(862)
Operating loss								(9,732)
Share of results of associates								47
Finance income								4
Finance costs								(332)
Loss before tax								(10,013)
Taxation								(665)
Loss after taxation								(10,678)

 

Exceptional and non-recurring costs in 2016 comprised non-recurring staff restructuring costs of $0.6 million and a $0.3 million one-time onerous contract written off in the period. The decrease in the Employee share-based payment charge is due to reversal of charges from previous periods for employees that left the Company during the year. 

The impairment of intangible assets charge of $4,683,000 relates to the Media segment. After allocating this charge to the Media segment, segment result is $1,203,000, loss.

		App distribution 2015		Media 2015		Web apps and license 2015		Total 2015
		$'000		$'000		$'000		$'000
Revenue		37,229		20,426		26,980		84,635
Cost of sales		(1,854)		0		(5,534)		(7,388)
Direct sales and marketing costs		(25,961)		(16,927)		(7,835)		(50,723)
Segment result		9,414		3,499		13,611		26,524
Central operating costs								(16,460)
Adjusted EBITDA(1)								10,064
Depreciation and amortisation								(9,370)
Impairment of intangible assets								(9,132)
Employee share-based payment charge								(3,407)
Exceptional and non-recurring costs								(1,957)
Operating loss								(13,802)
Share of results of associates								(38)
Finance income								15
Finance costs								(870)
Loss before tax								(14,695)
Taxation								(2,902)
Loss after taxation								(17,597)

Exceptional and non-recurring costs in 2015 comprise non-recurring staff costs of $0.1 million and payments of contingent consideration treated as remuneration in respect of the Ajillion and Definiti Media acquisitions expensed through the income statement of $1.9 million.

The impairment of intangible assets charge of $9,132,000 relates to the Web apps and license segment. After allocating this charge to the Web apps and license segment, segment result is $4,479,000.

⁽¹⁾ Adjusted EBITDA is a company specific measure which is calculated as operating loss before depreciation, amortisation, exceptional and non-recurring costs, employee share-based payment charges and impairment of intangible assets which are considered to be one off and non-recurring in nature as set out in note 3. The Directors believe that this provides a better understanding of the underlying trading performance of the business.

Information about major customers

In 2016 and 2015 there were no customers contributing more than 10% of total revenue of the Group.

 

Geographical analysis of revenue

Revenue by origin

			2016		2015
			$'000		$'000
Europe			17,297		3,641
British Virgin Islands			27,520		68,300
Asia			11,715		12,694
			56,532		84,635

 

Geographical analysis of non-current assets

			2016		2015
			$'000		$'000
Europe			3,990		10,245
British Virgin Islands			-		87
Asia			3,714		9,925
Total intangible assets and property, plant and equipment			7,704		20,257

3.         Operating loss

Operating loss has been arrived at after charging:

			2016		2015
			$'000		$'000
Exceptional and non-recurring costs
Non-recurring staff costs			562		95
Onerous contract			300		-
Expensed contingent payments arising from business combinations (note 8)			-		1,862
			862		1,957
Auditor's remuneration:
Audit			147		97
Other services			21		20
Amortisation of intangible assets			9,421		8,974
Depreciation			463		396
Impairment of intangible assets (note 10)			4,683		9,132
Employee share-based payment charge (note 6)			716		3,407
Rent payable under operating leases			459		294

Operating costs

Operating costs are further analysed as follows:

		2016 Adjusted $'000	2016 Total $'000		2015 Adjusted $'000	2015 Total $'000
Direct sales and marketing costs		34,917	34,917		50,722	50,722
Indirect sales and marketing costs		4,265	4,998		3,016	3,424
Selling and marketing costs		39,182	39,915		53,738	54,146
Research and development costs		1,299	1,661		2,539	3,500
Management, general and administrative cost		7,278	7,761		10,906	14,901
Depreciation and amortisation		1,379	9,884		1,048	9,370
Impairment of intangible assets		-	4,683		-	9,132
Total operating costs		49,138	63,904		68,231	91,049

Adjusted operating costs exclude share based payment charges, exceptional and non-recurring costs, amortisation of acquired intangible assets and impairment of intangible assets.

4.         Taxation

The parent company is domiciled, for tax purposes, in both the Isle of Man and the UK. The final tax charge shown below arises partially from the difference in tax rates applied in the difference jurisdictions in which the subsidiaries' jurisdictions.

The tax charge in the year 2015 of $2,902,000 includes an exceptional tax charge of $2,200,000 arising as a result of the change in previously established corporation tax guidance in Israel relating to tax positions taken in respect of the 2013 and 2014 financial years. Of the $2,200,000 charge $1,200,000 has been agreed and settled in relation to profits generated in Israel in 2013, which have subsequently been deemed to be taxable as a result of revised OECD guidance and application. The remaining $1,000,000 has arisen from a retrospective change to the cost plus transfer pricing methodology (which was established and ratified by Israeli case law in 2015) on share option charges incurred by subsidiaries in Israel in 2014. The Group continues to recognise a deferred tax asset of $166,000 (2015: $716,000) in respect of tax losses accumulated in previous years.

The total tax charge can be reconciled to the overall tax charge as follows:

			2016		2015
			$'000		$'000
Loss before taxation			(10,013)		(14,695)
Tax at the applicable tax rate of 20% (2015: 20%)			(2,003)		(2,939)
Tax effect of
Differences in overseas rates			976		2,233
Exceptional tax charge			-		2,200
Expenses not deductible for tax purposes			1,327		1,408
Deferred tax not recognised on losses carried forward			440		-
Tax expense for previous years			(75)		-
Tax charge for the year			665		2,902
Analysed as:
Deferred taxation in respect of the current year			263		(463)
Current tax charge			402		3,365
Tax charge for the year			665		2,902

The group has maximum corporation tax losses carried forward at each period end as set out below:

			2016		2015
			$'000		$'000
Corporate tax losses carried forward			28,320		19,322

 

Details of the deferred tax asset recognised (arising in respect of losses) is set out below:

			2016		2015
			$'000		$'000
At the beginning of the year			716		567
(Derecognised)/Recognised in the year			(558)		166
Foreign exchange revaluation			8		(17)
At the end of the year			166		716

Details of the deferred tax liability recognised (arising from timing differences on intangible valuations on business combinations) is set out below:

			2016		2015
			$'000		$'000
At the beginning of the year			986		1,283
Movement in the year due to temporary differences			(295)		(297)
At the end of the year			691		986

In addition, the Group has an unrecognised deferred tax asset in respect of the following:

			2016		2015
			$'000		$'000
Tax losses carried forward			28,047		10,729

5.         Shareholder's equity

			2016		2015
			Number of Shares		Number of Shares
Issued and paid up ordinary shares of $0.0001			148,496,073		148,496,073

The issued share capital of the Company on incorporation was 10,000 ordinary share of $1.00 par value.

During the year a total of nil of new ordinary shares of $0.0001 par value were issued for cash in relation to share option schemes resulting in cash consideration of $nil (2015: $18,000).

During the year a total of 1,250,000 of ordinary shares of $0.0001 par value were purchased by the Company for a total cash consideration of $994,952 and are held in treasury at the reporting date (2015: $5,130,920).

As for 31 December 2016, the Company hold in the treasury total of 7,451,423 of ordinary shares of $0.0001 per value (2015: 6,201,423).

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

Reserve	Description and purpose
Additional paid in capital	Share premium (i.e. amount subscribed or share capital in excess of nominal value)
Retained earnings	Cumulative net gains and losses recognised in the consolidated statement of comprehensive income

 

6.         Employee share based payments

Options have been granted under the Group's share option scheme to subscribe for ordinary shares of the Company. At 31 December 2016, the following options were outstanding (2015: 14,481,158):

Group	Grant date	Number of shares under option	Subscription price per share
Group 2	29 May 2014	1,182,790	$0.449
Group 3	29 May 2014	2,413,819	$0.538
Group 7	30 September 2014	854,940	$1.662
Group 8	21 April 2015	633,062	$1.523
Group 9	18 November 2015	200,000	$0.820
Group 10	5 January 2016	742,500	$0.820
Group11	31 May 2016	2,000,000	$0.402
Group 12	26 October 2016	2,232,272	$0.445
Total		10,259,383

Vesting conditions

Group 1 - Vested following the Initial Public Offering.

Group 2 - 50% at the end of the first year following the grant date. 12.5% on a quarterly basis during 12 quarters period thereafter.

Groups 3-12 - 25% at the end of the first year following the grant date. 6.25% on a quarterly basis during 12 quarters period thereafter.

The total number of shares exercisable as of 31 December 2016 was 3,840,679 (2015: 8,312,028).

The weighted average fair value of options granted in the year using the Cox, Ross and Rubinstein's Binomial Model (the "Binomial Model") was $0.26. The inputs into the Binomial model are as follows:

		2016		2015
		$'000		$'000
Early exercise factor		100%-150%		100%-150%
Fair value of Group's stock		$0.40-$0.80		$0.75-$1.51
Expected Volatility		60%		60%
Risk free interest rate		0.25-1.89%		0.5-1.93%
Dividend yield		-		-
Forfeiture rate		7%-14%		4%-13%

Expected volatility was determined based on the historical volatility of comparable companies.

Forfeiture rate is assumed to be 7-14% for senior management and 26% for other employees.

The risk-free interest rate was estimated based on average yields of UK Government Bonds.

The Group recognised total share based payments relating to equity-settled share based payment transactions as follows:

			2016		2015
			$'000		$'000
Share-based payment charge			716		3,407

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

		2016			2015
		Weighted average exercise price	Number of options		Weighted average exercise price	Number of options
At the beginning of the year		$0.66	14,481,158		$0.577	13,869,357
Granted		$0.51	5,338,272		$1.42	1,325,500
Lapsed		$0.56	(9,560,047)		$0.538	(680,665)
Exercised		-	-		$0.538	(33,034)
At the end of the year		$0.66	10,259,383		$0.66	14,481,158

The options outstanding at 31 December 2016 had a weighted average remaining contractual life of 7.9 years (2015: 8.5 years).

7.         Earnings per share

Basic loss/earnings per share is calculated by dividing the loss /earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

			2016		2015
			cents		cents
Basic and diluted			(7.6)		(11.9)
Adjusted basic			2.7		4.8
Adjusted diluted			2.7		4.6

Adjusted earnings per share is a non-GAAP measure and therefore the approach may differ between companies. Adjusted earnings have been calculated as follows:

			2016		2015
			$'000		$'000
Loss for the year			(10,678)		(17,597)
Post tax adjustments:
Employee share-based payment charge			823		3,343
Exceptional and non-recurring costs			774		1,941
Amortisation on acquired intangible assets			8,208		8,025
Impairment of intangible assets			4,683		9,132
Exceptional tax charge			-		2,200
Adjusted profit for the year			3,810		7,044

			Number		Number
Denominator - basic:
Weighted average number of equity shares for the purpose of earnings per share			141,068,557		147,779,641
Denominator - diluted
Weighted average number of equity shares for the purpose of diluted earnings per share			141,182,911		152,107,062

The diluted denominator has not been used where this has anti-dilutive effect. Basic and diluted loss per share are therefore the same for reporting purposes.

The difference between weighted average number of Ordinary shares used for basic earnings per share and the diluted earnings per share is 114,354 being the effect of all potentially dilutive Ordinary shares derived from the number of share options granted to employees.

8.         Deferred consideration

(a)        Acquisition of Definiti Media Limited

The consideration for the acquisition of Definiti Media Ltd in May 2014 included $2,489,000 deferred consideration. Of this, $845,000 was repaid during the year ending 31 December 2014, $746,000 was repaid during the year ending 31 December 2015. The remaining was repaid during the year ending 31 December 2016.

In addition, $1,427,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015 as set out in note 3.

 (b)       Acquisition of AjillionMax                                                                                                 

The consideration for the acquisition of certain assets of AjilionMAX Limited in May 2014 included $654,000 deferred consideration. Of this $104,000 was repaid during the year ending 31 December 2014, $156,000 was repaid during the year ending 31 December 2015, $189,000 was repaid during the year ending 31 December 2016 and the remaining will be repaid during the year ending 31 December 2017.

In addition, $435,000, included as part of the acquisition arrangements, has been recognised directly in the income statement during the year ending 31 December 2015 as set out in note 3.

(C)        Investment in Clearvelvet Trading Ltd

In September 2015, the Group acquired 16.67% of the share capital of Clearvelvet Limited for a total consideration of $850,000, of which $350,000 was paid in 2016 on completion of certain development milestones.

(D)        Acquisition of DriverAgent intangibles

In October 2016, the Group acquired the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com, Inc for a total consideration of $1.2 million. The consideration included $0.2 million of deferred consideration which is contingent on future results. Of this $48,000 is expected to be repaid during the year ending 31 December 2017. The remaining is expected repaid during the year ending 31 December 2018.

9.         Related party transactions

The Group is controlled by Unikmind Holdings Limited incorporated in British Virgin Islands, which owns 73% of the Company's shares. The controlling party is the Solidinsight Trust, established under the laws of the Isle of Man. Mr. Teddy Sagi is the sole ultimate beneficiary of the Solidinsight Trust.

(a)        Related party transactions

The following transactions were carried out with related parties:

	2016		2015
	$'000		$'000
Revenue from common controlled company	5,034		4,709
Technical support services to end customers provided by common controlled company	(2,105)		(1,226)
Payment processing services provided by common controlled company	(300)		(774)
Office rent expenses to common controlled companies	(82)		-
Revenue from equity investments	100		-
	2,647		2,709

 (b)       Receivables owed by related parties

		2016		2015
Name	Nature of transaction	$'000		$'000
Parent company	Unpaid share capital	10		10
Equity investments	Loan and Trade	799		-
Companies related by virtue of common control	Trade	1,022		1,501
		1,831		1,511

(c)        Payables to related parties

		2016		2015
Name	Nature of transaction	$'000		$'000
Amount owed to Director		-		1,151
Companies related by virtue of common control	Other	20		425
		20		1,576

10.       Intangible assets

	Intellectual Property	Trademarks		Customer Lists	Goodwill	Internet Domains	Capitalised  Software Development Costs		Total
	$'000	$'000		$'000	$'000	$'000	$'000		$'000
Cost
At 1 January 2015	35,205	9,462		2,383	7,684	69	1,113		55,916
Additions	-	-		-	-	-	1,593		1,593
At 31 December 2015	35,205	9,462	2,383		7,684	69	2,706	57,509
Additions	1,219	-	-		-	-	744	1,963
At 31 December 2016	36,424	9,462	2,383		7,684	69	3,450	59,472

Accumulated amortisation
At 1 January 2015	(16,367)	(3,241)	(400)	-	-	(141)	(20,149)
Charge for the year	(5,953)	(1,892)	(477)	-	-	(652)	(8,974)
Impairment losses	(4,711)	(1,341)	(55)	(2,316)	-	(709)	(9,132)
At 31 December 2015	(27,031)	(6,474)	(932)	(2,316)	-	(1,502)	(38,255)
Charge for the period	(6,528)	(1,494)	(483)	-	-	(916)	(9,421)
Impairment losses	-	-	-	(4,683)	-	-	(4,683)
At 31 December 2016	(33,559)	(7,968)	(1,415)	(6,999)	-	(2,418)	(52,359)

Net book value
At 1 January 2015	18,838	6,221	1,983	7,684	69	972	35,767
At 31 December 2015	8,174	2,988	1,451	5,368	69	1,204	19,254
At 31 December 2016	2,865	1,494	968	685	69	1,032	7,113

In October 2016, the Group exercised an option to acquire the intellectual property of PC maintenance software product, DriverAgent, from eSupport.com Inc for a total consideration of $1,208,000. $150,000 from the consideration was paid in the year ending 31 December 2015 for the option, $850,000 was paid during the year ending 31 December 2016. Another $208,000 is deferred consideration which is contingent on future results of the product.

Goodwill acquired in a business combination is allocated at acquisition to the cash generating units (CGUs), or group of units that are expected to benefit from that business combination. Following the change in reportable segments, the Group goodwill was allocated to the Media segment. Before recognition of the impairment charge, the goodwill has a carrying value as at 31 December 2016 of $5,368,000 (2015: $5,368,000).

The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period.

At 31 December 2016, before impairment testing, the carrying value of intangible assets allocated to the Media CGU was $9,417,000, including goodwill of $5,368,000. As a result of the reduction in the management forecasted cash flows attributable to the acquired intangible assets. The carrying value of the goodwill has therefore been reduced to its recoverable amount of $685,000 through recognition of an impairment loss of $4,683,000.

For the Media CGU, the Group has prepared calculations based on cash flow projections for the next five years from the most recent budgets approved by management and extrapolated cash flows beyond this period using an estimated growth rate of 1 per cent (2015: 1 per cent). This rate does not exceed the average long-term growth rate for the relevant markets. The rate used to discount these forecast cash flows is 25 per cent (2015: 25 per cent).

The discount rate used in the valuation of the Media CGU was 25 per cent. If the discount rate was increased by 1 percentage point the impairment would increase by $176,000.

The discount rate used in the valuation of the Web apps and license CGU was reduced to 10 per cent compared to 25 per cent in 2015 as cash flows are generated from two short term license agreements and are considered to be at low risk.

The carrying value of goodwill and intangible assets by CGU less provisions for impairment is set out as follows:

		Web Apps and License	Media	App Distribution	Total
		$'000	$'000	$'000	$'000
Carrying value before impairment losses at 1 January 2016		974	9,417	1,405	11,796
Provisions for impairment		-	(4,683)	-	(4,683)
Net book value at 31 December 2016		974	4,734	1,405	7,113

At 31 December 2015, before impairment testing, the carrying value of intangible assets allocated to the web apps and License CGU was $17,423,000, including goodwill of $2,316,000. Due to the significant reduction in advertising volumes that management believes can be achieved in the web extensions business in 2016 the group has revised its cash flow forecasts for this CGU. The carrying value of the intangible assets of the web apps and License CGU has therefore been reduced to its recoverable amount of $8,291,000 through recognition of an impairment loss of $9,132,000, of which $2,316,000 has been allocated to goodwill.

		Web Apps and License	Media	App Distribution	Total
		$'000	$'000	$'000	$'000
Carrying value before impairment losses at the 1 January 2015		17,423	10,894	69	28,386
Provisions for impairment		(9,132)	-	-	(9,132)
Net book value at 31 December 2015		8,291	10,894	69	19,254

The Group tests the useful economic life of the Intangible asset whenever events or changes in circumstances indicate that the useful economic life may need to be changed. The Web Apps initial intellectual property and customer lists were fully amortised in the year ending 31 December 2016 due to a change in management assumptions with the expected useful life of these assets. If the management assumption was not changed, the amortisation attributed to the Web apps intellectual property and customer lists would be $3,865,000 instead of $5,807,000.

11.       Subsequent events

On 13 March 2017 the group acquired CyberGhost SRL, a company incorporated in Romania, for initial consideration of €6.1 million and potential maximum consideration of €3 million. CyberGhost is one of the leading cyber security SaaS providers, with a focus on the provision of Virtual Private Network ("VPN") solution. The acquisition meets the group's previously announced intention to strengthen its B2C market reach, allowing it to operate as a digital distribution and product platform, utilising its existing technology and intellectual property.

Due to the acquisition being executed on the same date as the authorisation of the financial statements the detailed acquisition accounting has not yet been undertaken and is therefore incomplete. It is anticipated that the acquisition will be accounted for in full in the interim financial statements for the period ending 30 June 2017.

 

END

 

 

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