Maiden Preliminary Results

RNS Number : 8082G

XLMedia PLC

12 May 2014

 



For immediate release

12 May 2014

XLMedia PLC

 ("XLMedia" or the "Group" or the "Company")

Maiden Preliminary Results for the year ended 31 December 2013

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, is pleased to announce maiden preliminary results for the year ended 31 December 2013.

Financial Highlights^[1]:

·     Revenue increased 32% to $34.5 million (FY 2012: $26.1 million).

·     Gross profit increased 26% to $20.5 million (FY 2012: $16.3 million).

·     Gross margin decreased 3% to 59% (FY 2012: 62%), reflecting the launch of new marketing channels in H2 2013 such as display media buying and social media channels.

·     Operating expenses increased 101% to $8.5 million (FY 2012: $4.2 million) reflecting all infrastructure put into place during 2013 to prepare the Company for listing and future growth.

·     Adjusted EBITDA^[2] increased 6% to $13.3 million (FY 2012: $12.5 million).

·     Total Equity to total balance sheet ratio 79% (2012: 47%).

·     Dividend declared to Equity holders $5.25 million.

·     Maiden dividend of $0.02768 per share payable on 12 June 2014 to shareholders on the register at 23 May 2014.

Operating Highlights:

·     Successful listing on AIM in March 2014

o  Raised approximately $69.5 million (£41.8 million gross*) via a significantly oversubscribed Placing with institutional investors.

o  Proceeds of the placing to fund acquisitions and country specific joint ventures to accelerate organic growth and expansion into new territories as well as continued investment in R&D.

·     Continued strengthening of XLMedia's market position and geographic reach, with expansion into German and English speaking markets.

·     Recent entry into the newly opened U.S. market with agreements in place and dedicated staff to provide traffic to leading gambling brands.

·     Successful growth of the media channel, expanding into display and social media advertising.

·     Board remains confident of continued growth in 2014 and beyond.

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"We are delighted to announce our first full year results since listing in London. Our business has shown strong growth throughout 2013 during which time we generated record levels of revenue. The IPO has provided a positive catalyst for the Group, particularly strengthening our ability to identify acquisition targets and negotiate with potential sellers.

"The business remains well placed to build on the growth experienced during 2013 as we look to continue our growth ambitions and diversify our geographic spread. We are delighted to be declaring a dividend in line with our 50% payment target. In view of our strong start to 2014, the Board remains confident of delivering further future growth."

For further information, contact:

XLMedia PLC                                                                                                                     

Ory Weihs                                                                                                                                      Tel: [phone] (today)

                                                                                                                                                           Tel: [phone] thereafter

www.xlmedia.com

 

Buchanan

Jeremy Garcia / Sophie McNulty/ Clare Akhurst                                                            Tel: [phone]

www.buchanan.uk.com 

 

Cenkos Securities plc

Camilla Hume/ Ivonne Cantu/ Callum Davidson                                                           Tel: [phone]

Operational Review

Introduction

Following its admission to trading on AIM in March 2014, XLMedia is pleased to report its maiden preliminary results.  The Group delivered a record performance for FY 2013, with Revenue up 32% and Gross Profit up 26% compared with FY 2012, underpinned by high levels of organic growth in all segments. Over the course of the year, the Group has seen momentum build with Q4 representing the Group's best ever quarter in terms of Revenue and Gross Profit. This strong trend has continued into the new financial year with 2014 starting positively. 

Group adjusted EBITDA grew 6% in 2013, to $13.3 million. The lesser growth in EBITDA reflects an increase in Operating expenses, particularly General and administrative expenses, as the Group prepared for future growth and executing its acquisition strategy.

The Group's recent admission to trading on AIM not only provided a strong endorsement for the business from institutional investors but has also helped to broaden the Group's profile internationally, will aid in accelerating a number of organic growth opportunities and will provide further financial support as management evaluates selective bolt-on acquisitions.

In November 2013, the Group commenced North American activities. Driving traffic to operators in New Jersey and Nevada was initiated in January 2014.  Whilst our U.S. activities remain very much at an early stage of development, management remains confident that over time significant opportunities exist to expand the Group's market presence in the region.

As articulated at the time of the IPO, acquisitions will form an important component of the Company's ongoing growth strategy and the Board continues to evaluate a number of potential acquisition opportunities ranging in size and complexity.    Since admission, the Company has completed a small bolt-on acquisition of a high potential domain operating in North America for $300,000 and has signed a definitive agreement to purchase another high potential poker website in the US for $130,000. The Board remains confident that XLMedia continues to be well placed to benefit from the consolidation opportunities within the online gaming market. 

In view of the good start to 2014, the Directors remain confident of further improvements in performance in the current financial year and beyond.  XLMedia has achieved a consistent track record of profitable growth and cash generation since its establishment in 2008 with approximately 70% of its revenues coming from lifetime revenue share agreements, providing high quality recurring revenue streams.  The business model and growth prospects support XLMedia's stated intention to return at least 50% of retained earnings to equity holders as dividends and the Board is recommending a dividend pay-out of $5.25 million which reflects a final dividend of $0.02768 per share to shareholders on the register as at 23 May 2014.

Business Summary

XLMedia provides marketing services to online gambling operators. The Group attracts players through online marketing techniques and subsequently seeks to channel high value ''traffic'' (i.e. players) to gambling operators who, in turn, convert such traffic into paying customers. Online gamblers are attracted by the Group's publications and advertisements and are then directed, by the Group, to online gambling operators in return for a share of the revenue generated by such players, a fee generated per player acquired, fixed fees or a hybrid of any of these three models.

The three principal revenue generating activities of the Group are: Content and search, digital media buying and its own affiliate network.

Content and search; XLMedia earns the majority of its revenue from the monetisation of traffic generated by its own portfolio of websites. The Group owns more than 2,000 websites which provide gambling related content, in 17 languages, to potential players. These sites' content, written by professional writers, is designed to attract online gamblers which the Group then directs to gambling operators. The sites either direct players to a certain operator or will allow the players to select the operator most relevant to their requirements.

The Group's strategy is to maintain a high ranking of its sites on leading search engines by continuously adding content and features. The Group seeks to optimise the user interface and experience by utilising sophisticated key word research, on page, off page and content optimisation techniques. The Group tracks the flow and quality of traffic to its customers using a number of in-house platforms to analyse the quality and conversion of traffic generated by its websites into revenue to achieve an improved return on investment.

Once a player is directed through a Group website to the site of an operator, that player is ''tagged'' in the operator's system as a player that was generated by the Group. In this division, the Group's revenues are usually earned once a player generates a win for a gambling operator. The Group's typical remuneration is based on a lifetime revenue share model which can see the Group earn between 30% and 55% of the operator's net winnings related to the relevant player. In certain circumstances, the Group receives either a one-off cost per acquisition ("CPA") fee in lieu of a lifetime revenue share or a fixed periodic fee.

Media Buying; The Group's Media Buying division acquires online advertising media targeted at potential players with the objective of directing them to the Group's customers. The Group buys advertising space on search engines, websites, mobile websites & applications and social networks and places adverts referring potential players to the Group's customers' websites or to its own websites.

The Group has the ability to run a large number of simultaneous marketing campaigns across different platforms and in different languages focusing on key word searches and display adverts on popular websites. The Directors believe that the Group's established industry relationships, scale and track record help it to achieve favourable media buying terms when compared to new entrants in the market.

The Group uses in-house developed platforms and iterative testing of adverts and placements as well as frequent analysis of traffic generation to ensure that returns from this division are maximised. The Group has recently hired a team of experienced individuals to focus on media buying for display, mobile, in app advertising and social networks to address the growing opportunity that the Directors believe exists on these platforms.

Affiliate network; The Group currently manages approximately 300 active affiliates, whose role is to direct potential players to the Group's customers for which the Group receives revenues. The Group is then responsible for paying its affiliate partners. The Directors believe that the Group's affiliate programme is attractive to existing and potential affiliates as it enables them to have a single point of contact to direct traffic to, and receive monies from, rather than engaging in multilateral negotiation, administration and collection of revenues from the operators.

Having a large affiliate network provides the Group with additional scale to negotiate with the gambling operators. The Directors believe that the Group is adept at driving volumes in this segment and it provides the Group with valuable business flow and it will help identify potential acquisition targets for the Group. As the network offers marketing affiliates the ability to promote many brands, the Group often obtains a large share of traffic from the total traffic that that individual affiliate generates.

Growth strategy

Demand for digital marketing within the gambling sector is accelerating and the online gambling market is estimated to grow at an average annual growth rate of 9% per annum to 2018. As regulation of the online gambling market continues to develop, XLMedia expects this market to continue to grow and sees significant opportunities to expand its reach into new and existing territories.

As the EU is currently the largest and most sophisticated area in the gambling market, and one in which XLMedia already has a strong market presence, the Group will continue to concentrate on expanding its existing European footprint, increasing market share in key territories and increasing content and search activities to drive customer attraction.  The Company's current business model allows for expansion across Europe without significant capital expenditure in the near term.

Turning to the U.S. market, although it is currently in its initial stage, it is expected to generate rapid growth as regulation returns to a number of key states, which now include Delaware, Nevada and New Jersey and ongoing discussions pro regulation are being held in other states.  Management has established a strategic partnership which has already started generating online traffic.  Whilst management believes organic growth will increase, a number of potential domain acquisition opportunities that will accelerate both revenue growth as well as the Group's market position in the U.S. have already been identified with one high potential domain already bought.

The Group's Content and Search skills set continues to evolve driven by ongoing investment, mobile marketing, optimisation and social media activities. This cutting-edge technology allows the Group to broaden the offering to target other end markets (e.g. Financial Services, Dating, e-Commerce etc.).  Further investment in this area will enable the Group to maintain its market leading position.

Update on the USA

The U.S. online gambling market, which was previously the largest in the world, effectively closed following the enactment of the Unlawful Internet Gambling Enforcement Act ("UIGEA") in 2006. It has only recently started to re-open with the U.S. States of Delaware, Nevada and New Jersey operating a licensing regime with further U.S. States expected to follow suit. The total US online gambling market was estimated at $502 million in 2013 and is expected to reach a total market of $5.3 billion in 2018, representing average expected growth of 67%^[3].

The following operational and strategic initiatives continue to underpin the Group's U.S. growth prospects:

·     Licensing: The Group has already registered with the state regulator in New Jersey enabling it to contract with operators targeting players in that U.S. state on a fixed fee basis and is in the process of applying for a licence which will enable the Group to operate on a more flexible revenue model based on receiving fees per player referred and allow for a closer partnership with local operators.

·     Customers: The Group has signed agreements with 888.com (for New Jersey), with Borgata Hotel Casino & Spa (for New Jersey) and with Caesars Interactive Entertainment Inc (for New Jersey and Nevada) to serve as an online marketing partner for certain of each entity's respective brands, and is in ongoing discussions with other licensed gambling operators.

·     Operations: The Group is already in the process of recruiting staff, and so far has recruited a dedicated US business manager from one of the leading gambling operators as well as additional 4 dedicated employees. In addition, The Group is developing traffic channels and expanding its U.S. Client Base and so far has bought media campaigns in an amount of approximately $400K targeted at the U.S. market. Since the customers reimburse the Group for most of the media expenses, these will be recorded net in the financial statements of the company and will not be reflected in the revenues or expenses data. 

·     Affiliate Network: The Group intends to expand its affiliate network in the U.S. to capitalise on the early mover advantage that management believes that the Group has from being one of the first affiliate marketing companies to commence operations in the U.S. online gambling sector.

·     Acquisitions: Management continues to identify a number of potential acquisition opportunities that could accelerate both revenue growth and the Group's market position in the U.S and is working on progressing these.

Acquisition strategy

As part of the Group's growth aspirations, an active pipeline of potential acquisition prospects has been developed. This targeted list aims to compliment the Group existing European operations in addition to helping to accelerate the significant opportunity that exists in the U.S.

Since admission, the Company has completed a small bolt-on acquisition of a high potential domain operating in the North American market for $300,000 and has signed a definitive agreement for the acquisition of an additional US poker website for an amount of $130,000.

Management believes that consolidation in what is a highly fragmented market within the gaming arena will help accelerate innovation, geographic reach and the Group's market position.  The Group's strengthened balance sheet following the successful Placing and Admission to AIM will allow the Group to accelerate the conversion of this pipeline.   Whilst the Company expects to complete a number of small bolt on acquisitions, management remains hopeful of completing one significant transaction during the second half of this calendar year.

Recruitment

Since the beginning of the current year the Group has strengthened its team with a number of new hires, mainly in the Media Buying and Content divisions as well as in the R&D team. In the Media Buying and Content teams we continue to grow organically as new media teams deploy additional marketing campaigns in social and mobile platforms, and content specialists are recruited to support our growing network of websites in more languages and markets. In R&D following the IPO we continue to enhance internal development of our own platforms to allow faster scaling and better analysis of marketing data in order to improve optimisation processes. The growth in staff numbers is in line with current growth projections.

Current Trading & Outlook

XLMedia experienced a strong period of growth in 2013. This excellent performance further reinforces the business model and underpins the Board's target through its dividend policy of at least a 50% pay-out rate. 

The current financial year has started well with strong sales growth in our core European markets, particularly in our strategic targets, English and German speaking countries.  The Group continues to be encouraged by the development of the U.S. market and believes the Company is well placed to capitalise on this significant growth opportunity.

With the progress made in 2013, and in view of the strong start to 2014, the Board remains confident of delivering continued growth in 2014.

Financial Review

	FY 2013	FY 2012[4]	Change %
Revenues	34,503	26,135	32%
Gross Profit	20,449	16,272	26%
Gross Margin	59%	62%
Operating expenses	8,447	4,203	101%
Operating Profit	12,002	12,069	-1%
Adjusted EBITDA	13,275	12,484	6%

2013 saw a record financial performance for the Group. Content and Search accounted for 55% of revenues or $18.8 million (2012: 57%), Media Buying for 29% or $10.1 million (2012: 31%) and the affiliate network for 16% or $5.6 million (2012: 12%). Growth in the Content and Search segment came from an increase of traffic to the Group's websites, as well as new websites launched. Growth in the Media Buying segment came from new media channels such as display and social media, which did not exist in 2012.

Results per business segment include the following:

	Content & Search	Media Buying	Affiliate Network	Total
2013
Revenues	18,840	10,071	5,592	34,503
Segment Profit	14,234	5,583	632	20,449
2012
Revenues	14,922	8,183	3,030	26,135
Segment Profit	10,188	5,607	477	16,272
Revenue growth	26%	23%	85%	32%

Gross profit rose 26% in 2013 to $20.5 million with the strongest growth coming from the Content and Search segment. Whilst revenues in the Media Buying segment grew, as expected, Gross profit remained stable due to lower margins resulting from the entry into new media channels, such as display media buying and social media, which are characterized by lower margins compared to the Pay Per Click search campaigns in previous years.

During 2013 operating expenses increased significantly, relating to the recruitment of finance and marketing teams, research and development, IT systems and to prepare for the IPO. Going forward as a public company, whilst we will maintain tight control of expenses, we expect these to grow further as we expand and execute our acquisition strategy, but revenues and Gross profit will rise accordingly.

Cash flow from operating activities remain strong at $11.9 million (2012: $12.9 million). As revenues grew trade receivables grew as well, which brought the operating cash flow slightly down. The Company usually collects revenues within 30 to 60 days. The Board expects cash flow to remain strong going forward.

Cash flow from investing activities amounted to $1.5 million, which was used mainly for investing in business information systems and software, as well as additional websites mainly for the Scandinavian markets.

Cash flow from financing activities was $2.5 million, which included a net $14.3 million investment in the Company by a U.S. fund offset by dividends and other payments to shareholders in the amount of $9.1 million, payments to minority holders of $2.1 million and pre-paid expenses in connection with the Company's IPO in the amount of $0.7 million.

XLMedia's balance sheet remained strong in 2013. As at 31 December 2013, the Company had cash and cash equivalents of $15.5 million (2012:  $2.6 million). Total working capital^[5] was $15.8 million (2012: $3.5 million) and total assets were $33.4 million (2012: $17.3 million), with shareholders' equity of $26.5 million (2012: $8.1 million). The material increase in equity was from net income of $11.1 million and the issuance of shares to the U.S. investor totaling $14.3 million offset by dividends to shareholders of $5.2 million and dividend payments to minority holders in the Group of $2.3 million. Following the IPO and the strengthening of the balance sheet, the Group is well positioned to execute the Company's strategy of growth by acquisitions as well as organic growth.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

				Year ended 31 December		For the period from 22 April (Inception) to 31 December			Year ended 31 December 2012*
				2013			2012
				USD in thousands (except per share data)
Revenues				34,503			17,732		26,135
Cost of revenues				14,054			6,471		9,863
Gross profit				20,449			11,261		16,272
Research and development expenses				907			428		581
Selling and marketing expenses				1,785			656		1,002
General and administrative expenses				5,755			2,031		2,620
				8,447			3,115		4,203
Operating income				12,002			8,146		12,069
Finance expenses				496			143		78
Finance income				123			161		105
Income before other income (expenses)				11,629			8,128		12,096
Other income (expenses), net				32			(190)		1,378
				11,661			7,938		13,474
Profit before taxes
Taxes				552			82		159
Net income and other comprehensive income				11,109			7,856		13,315
Attributable to:
Equity holders of the Company				8,838			6,856		12,237
Non-controlling interests				2,271			1,000		1,078
				11,109			7,856		13,315
Net earnings per share attributable to equity holders of the Company:
Basic and diluted net earnings per share (in USD)				0.087			0.069		0.12
Weighted average number of shares used in computing basic earnings per share (in thousands)				101,436			100,000		100,000
Weighted average number of shares used in computing diluted earnings per share (in thousands)				101,820			100,000		100,000

* Combined financial information of the group . For further details on the combined financial information please refer to the Group's admission document, part 4 - Financial information, Note 2

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
		As of 31 December
			2013				2012
			USD in thousands
Assets
Current assets:
Cash and cash equivalents			15,455				2,562
Short term investments			428				130
Trade receivables			4,498				2,952
Related parties			147				692
Other accounts receivable			1,974				856
			22,502				7,192
Non-current assets:
Property, plant and equipment			738				454
Intangible assets			6,853				7,285
Goodwill			2,416				2,416
Long term investments			340				-
Other account receivable			552				-
			10,899				10,155
			33,401				17,347
Liabilities and equity
Current liabilities:
Trade payables				1,536				854
Related parties				605				-
Business combination consideration payable				2,867				2,000
Other liabilities and accounts payable				1,646				891
				6,654				3,745
Non-current liabilities:
Liabilities to Related Parties				-				2,499
Business combination consideration payable				-				2,690
Other account payable				227				341
				227				5,530
Equity attributable to equity holders of the Company:
Share capital				-				-
Share premium				14,311				-
Capital reserve from transaction with non-controlling interests				106				106
Capital reserve from share-based transactions				479				-
Retained earnings				10,494				6,856
				25,390				6,962
Non-controlling interests				1,130				1,110
Total equity				26,520				8,072
				33,401				17,347

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended 31-Dec 2013		For the period from 22 April (Inception) to 31 December 2012		Year ended* 31-Dec 2012
		USD in thousands
Cash flows from operating activities:
Net income and comprehensive income		11,109		7,856		13,315
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to the profit or loss items:
Depreciation and amortisation		794		386		415
Finance expense (income), net		255		(152)		(145)
Gain from sale of assets		(32)		-		-
Cost of share-based payment		479		-		-
Taxes on income		552		82		159
Gain on bargain purchase		-		-		(179)
Gain from remeasurement of investment in initially consolidated subsidiary		-		-		(1,389)
		2,048		316		(1,139)
Changes in asset and liability items:
Increase in trade receivables		(1,546)		(875)		(765)
Increase in other accounts receivable		(183)		(129)		(148)
Decrease in related parties		93		(577)		(53)
Increase in trade payable		682		854		865
Increase in other accounts payable		594		623		1,068
		(360)		(104)		967
Cash paid and received during the year for:
Interest received (paid), Net		(123)		15		15
Taxes paid		(547)		(155)		(212)
		(670)		(140)		(197)
Net cash from operating activities		12,127		7,928		12,946

* Combined financial information of the group . For further details on the combined financial information please refer to the Group's admission document, part 4 - Financial information, Note 2

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended 31-Dec 2013		For the period from 22 April (Inception) to 31 December 2012		Year ended * 31-Dec 2012
		USD in thousands
Cash flows from investing activities:
Purchase of property, plant and equipment		(482)		(180)		(241)
Acquisition of initially consolidated subsidiary		-		-		(1,469)
Decrease in other financial assets, net  acquired in business combination		457		3,383		-
Purchase of intangible assets		(936)		(702)		(732)
Proceeds from sale of assets		50		-		-
Short term and long term investments		(607)		(124)		(156)
Net cash from investing activities		(1,518)		2,377		(2,598)
Cash flows from financing activities:
Prepaid expenses for share capital  issuance		(707)		-		-
Sale of shares to non-controlling interests		31		393		393
Financing by non-controlling interests		10		75		75
Dividend paid to equity holders		(1,800)		-		-
Dividend to equity holders as result of the Subsidiary acquisition		(2,888)		-		-
Dividend paid to non-controlling interests		(2,292)		(1,011)		(1,089)
Issue of share capital (net of issue expenses)		14,311		-		-
Adjustment of equity arising from business combination		-		-		(7,848)
Repayment of liabilities to Related Parties		(4,381)		(7,200)		(7,200)
Net cash from financing activities		2,284		(7,743)		(15,669)
Increase  in cash and cash equivalents		12,893		2,562		(5,321)
Cash and cash equivalents at the beginning of the period		2,562		-		7,883
Cash and cash equivalents at the end of the year		15,455		2,562		2,562
Significant non-cash transactions:
Adjustment of equity arising from business combination		-		-		10,797
Loans from related party		-		5,388		5,388
Liabilities to Related Parties incurred in business combination		-		9,125		9,125
Purchase of intangible assets		-		341		341
Dividend payable to equity holders as result of the Subsidiary acquisition		512		-		-
Dividend payable to non-controlling interests		237		-		-

* Combined financial information of the group . For further details on the combined financial information please refer to the Group's admission document, part 4 - Financial information, Note 2

Notes to the financial statements

NOTE 1:    GENERAL

General description of the Group and its operations:

The Group is a global digital publisher and marketing company which attracts paying users from different online channels and directs them to online gambling operators.

The Group operates as a marketing affiliate to multiple gambling operators. The Group attracts players through online marketing techniques and subsequently seeks to channel high value "traffic" (i.e. players) to gambling operators who, in turn, convert such traffic into paying customers. Online gamblers are attracted by the Group's publications and advertisements and are then directed, by the Group, to online gambling operators in return for a share of the revenue generated by such players, a fee generated per player acquired, fixed fees or a hybrid of any of these three models.

The Company commenced its operations on 22 April 2012 and purchased business activity and assets.

The Company's registered office is in Jersey.

In November 2013 the Company signed an agreement to acquire the Subsidiary from the Parent Company for a consideration of USD 3.4 million.

In December 2013 the Company has entered into a Share Purchase Agreement with a new investor for consideration for USD 15 million.

On 21 March 2014 the Company completed an Initial Public Offering ("IPO") on London Stock Exchange's Alternative Investment Market (AIM). The total gross funds raised in the IPO were GBP 32.8 million (equal to USD 54.2 million). 

 

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES

The following accounting policies have been applied consistently in the financial statements for all periods presented, unless otherwise stated.

(a)     Basis of presentation of the financial statements:

These financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

The financial statements have been prepared on a cost basis.

The Company has elected to present profit or loss items using the function of expense method.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES (Cont.)

(b)     Consolidated financial statements:

The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases.

The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements.

Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position.

(c)     Business combinations and goodwill:

Business combinations are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred on the date of acquisition with the addition of non-controlling interests in the acquiree. In each business combination, the Company chooses whether to measure the non-controlling interests in the acquiree based on their fair value on the date of acquisition or at their proportionate share in the fair value of the acquiree's net identifiable assets.

Direct acquisition costs are expensed as incurred.

Contingent consideration is recognised at fair value on the acquisition date and classified as a financial asset or liability in accordance with IAS 39. Subsequent changes in the fair value of the contingent consideration are recognised in the statement of income or in the statement of comprehensive income. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement.

Goodwill is initially measured at cost which represents the excess of the acquisition consideration and the amount of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognises the resulting gain on the acquisition date.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of evaluation of impairment of goodwill, goodwill purchased in a business combination is evaluated and attributed to the cash-generating units to which it had been allocated.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES(Cont.)

Non-controlling interests of an entity represent the non-controlling shareholders' share of the net   income and comprehensive income of the entity and their share of the net assets at fair value upon the acquisition of the entity. The non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company.

Business combinations in which the Company acquires an entity that is under the common control of the Parent Company is accounted for in a manner similar to a pooling of interests. The effect of this accounting is to reflect the financial position, results of operations and cash flows of the acquiree as if it had been a subsidiary of the Company for the entire period in which the acquiree had been under the control of the Parent Company. Accordingly, the assets acquired and liabilities assumed are recorded based on their carrying amounts as reflected in the financial statements of the acquiree prior to the business combination. The excess of the consideration paid by the Company over the carrying amount of the net assets acquired is recorded as a reduction of equity in the statement of equity.

(d)     Functional currency, presentation currency and foreign currency:

1.    Functional currency and presentation currency:

The functional and presentation currency of the Company is the U.S. dollar ("Dollar" or "USD").

2.    Transactions, assets and liabilities in foreign currency:

Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at the end of each reporting period into the functional currency at the exchange rate at that date. Exchange rate differences, other than those capitalised to qualifying assets or recorded in equity in hedges, are recognised in profit or loss. Non-monetary assets and liabilities measured at cost in foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined.

(e)     Cash equivalents:

Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of acquisition or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Group's cash management.

(f)      Short-term deposits:

Short-term bank deposits are deposits with an original maturity of more than three months from the date of acquisition. The deposits are presented according to their terms of deposit.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES(Cont.)

(g)     Allowance for doubtful accounts:

           The allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of the Company's management, is doubtful. Impaired debts are derecognised when they are assessed as uncollectible.

(h)     Revenue recognition:

Revenues are recognised in profit or loss when the services are provided, the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenues are measured at the fair value of the consideration received.

The Company usually works with its customers on performance basis, and recognises revenues according to revenue share model or one-time payment per user acquisition.

(i)      Taxes on income:

Taxes on income in profit or loss comprise current and deferred taxes. Current or deferred taxes are recognised in profit or loss, except to the extent that the tax arises from items which are recognised directly in other comprehensive income or in equity. In such cases, the tax effect is also recognised in the relevant item.

1.    Current taxes:

The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting period as well as adjustments required in connection with the tax liability in respect of previous years.

2.    Deferred taxes:

Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes.

Deferred taxes are measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred taxes in profit or loss represent the changes in the carrying amount of deferred tax balances during the reporting period, excluding changes attributable to items recognised in other comprehensive income or in equity.

Deferred tax assets and deferred tax liabilities are presented in the statement of financial position as non-current assets or non-current liabilities, respectively. Deferred taxes are offset in the statement of financial position if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES (Cont.)

(j)      Property, plant and equipment:

Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation. Cost includes spare parts and auxiliary equipment that are used in connection with plant and equipment.

Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows:

			mainly %
Motor vehicles			15%
Office furniture and equipment			10%
Computers and peripheral equipment			33%

Leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including any extension option held by the Group and intended to be exercised) and the expected life of the improvement.

The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate.

Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised. An asset is derecognised on disposal or when no further economic benefits are expected from its use.

(k)     Intangible assets:

Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. After initial recognition, intangible assets are carried at their cost less any accumulated amortisation and any accumulated impairment losses.

Intangible assets with a finite useful life are amortised over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset are reviewed at least at each financial year end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively as changes in accounting estimates. The amortisation of intangible assets with finite useful lives is recognised in profit or loss.

Intangible assets with indefinite useful lives are not systematically amortised and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the asset is tested for impairment. Commencing from that date, the asset is amortised systematically over its useful life.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES(Cont.)

Gains or losses arising from the derecognition of an intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in profit or loss.

Software:

The Group's assets include computer systems comprising hardware and software. Software forming an integral part of the hardware to the extent that the hardware cannot function without the programs installed on it is classified as property, plant and equipment. In contrast, software that adds functionality to the hardware is classified as an intangible asset.

Intangible assets with a finite life are amortised on a straight-line basis over the useful life as follows:

			mainly %
Non-competition			33%
Software (purchased)			33%

Non-competition is amortised over the non-competition agreement term.

(l)      Impairment of non-financial assets:

The Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in profit or loss.

An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised for the asset in prior years, and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognised in profit or loss. The following criteria are applied in assessing impairment of these specific assets:

1.      Goodwill in respect of subsidiaries:

The Company reviews goodwill for impairment once a year as of 31 December or more frequently if events or changes in circumstances indicate that there is an impairment.

Goodwill is tested for impairment by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill has been allocated. An impairment loss is recognised if the recoverable amount of the cash-generating unit (or group of cash-generating units) to which goodwill has been allocated is less than the carrying amount of the cash-generating unit (or group of

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES(Cont.)

cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognised for goodwill cannot be reversed in subsequent periods.

2.      Intangible assets with an indefinite useful life that have not yet been systematically   

   amortised:

The impairment test is performed annually, on 31 December, or more frequently if events or changes in circumstances indicate that there is an impairment.

(m)    Financial instruments:

1.       Financial assets:

The financial assets of the Group include cash and cash equivalents, short term investments, trade and other receivables. The financial assets are initially recognised at fair value plus directly attributable transaction costs and subsequently measured based on its terms at amortised cost, using the effective interest method. The amortisation of the effective interest is recognised in profit or loss in as finance expenses or income.

2.      Financial liabilities:

The financial liabilities of the Group include trade and other accounts payables, liabilities to related parties and business combination consideration payable. The financial liabilities are initially recognised at fair value less directly attributable transaction costs and subsequently measured based on their terms at amortised costs, using the effective interest method. The amortisation of the effective interest is recognised in profit or loss as finance expenses or income.

3.      Offsetting financial instruments:

Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognised amounts and there is an intention either to settle on a net basis or to realise the asset and settle the liability simultaneously.

4.      Derecognition of financial instruments:

a)       Financial assets:

A financial asset is derecognised when the contractual rights to the cash flows from the financial asset expire.

b)       Financial liabilities:

A financial liability is derecognised when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the debtor (the Group) discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES(Cont.)

(n)     Provisions:

A provision in accordance with IAS 37 is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense is recognised in the income statement net of the reimbursed amount.

(o)     Employee benefit liabilities:

The Group has several employee benefit plans:

1.       Short-term employee benefits:

Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognised as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognised when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made.

2.       Post-employment benefits:

The plans are financed by contributions to insurance companies and classified as defined contribution plans.

The Subsidiary has defined contribution plans pursuant to Section 14 to the Severance Pay Law under which the Subsidiary pays fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognised as an expense when contributed concurrently with performance of the employee's services.

(p)     Share-based payment transactions:

The Company's employees and officers are entitled to remuneration in the form of equity-settled share-based payment transactions.

Equity-settled transactions:

The cost of equity-settled transactions with employees and officers is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model.

NOTE 2:    SIGNIFICANT ACCOUNTING POLICIES(Cont.)

The cost of equity-settled transactions is recognised in profit or loss together with a corresponding increase in equity during the period which the performance is to be satisfied ending on the date on which the relevant employees or officers become entitled to the award ("the vesting period"). The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.

(q)     Earnings per share:

Earnings per share are calculated by dividing the net income attributable to equity holders of the Company by the number of Ordinary Shares outstanding during the period. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company. If the number of Ordinary Shares outstanding increases as a result of a capitalisation, bonus issue, or share split, the calculation of earnings per share for all periods presented are adjusted retrospectively.

Potential Ordinary shares are included in the computation of diluted earnings per share when their conversion decreases earnings per share from continuing operations. Potential Ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share.

(r)      Research and development:

Research and development costs are charged to profit and loss as incurred as development costs did not meet the criteria for recognition as an intangible asset.

---

* Gross before expenses, which included £ 32.6 raised for new shares

^[1] The Company was incorporated on 22 April 2012, and purchased the current business which was originally established in 2008, therefore the financial statements include 2012 for nine months only. However, in its admission document to AIM published in March 2014 XLMedia included combined financial information of the Group for the full year ended 31 December 2012. Therefore, all references in the financial highlights refer to comparing full year 2013 to full year 2012. For further details on the combined financial information please refer to the Group's admission document, part 4 - Financial information, Note 2.

^[2]  Earnings before interest, taxes, depreciation and amortisation and adjusted to exclude share based payments.

^[3] Source: H2GC United States data, May 2014

^[4]  The Company was incorporated on 22 April 2012, and purchased the current business which was originally established in 2008, therefore the financial statements include 2012 for nine months only. However, in its admission document to AIM published in March 2014 XLMedia included combined financial information of the Group for the full year ended 31 December 2012. Therefore, all references in the financial highlights refer to comparing full year 2013 to full year 2012. For further details on the combined financial information please refer to the Group's admission document, part 4 - Financial information, Note 2.

^[5]  Current assets less current liabilities

 

 

 

END

 

 

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