Final Results

RNS Number : 5218E

CentralNic Group PLC

09 May 2017

Press Release

9 May 2017

CentralNic Group plc

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

Final results

for the year ended 31 December 2016

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

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

Financial summary

	31 Dec 2016	31 Dec 2015	Change	Change
	£'000	£'000	£'000	%
Revenue	22,129	10,393	11,736	+113%
Gross profit	7,667	4,860	2,807	+58%
Adjusted EBITDA*	5,483	3,254	2,229	+68%
Adjusted Profit before taxation**	4,724	2,954	1,770	+60%
Profit before taxation	1,157	1,454	(297)	(20%)
Net cashflow from operating activities	3,318	5,686	(2,368)	(42%)

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

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

·	Revenue increased by 113% to £22.13 million (2015: £10.39 million). Retail revenue grew significantly to £14.32m (2015: £3.41m) with Instra Group transforming the retail division after the acquisition on 14th January 2016. Instra Group contributed £10.28m of revenue in the period since acquisition.
·	Adjusted EBITDA of £5.48 million (2015: £3.25 million) reflected the flow-down effect of the revenue growth in the retail division, including the Adjusted EBITDA contribution from Instra Group of £2.21 million in the period since acquisition. The enterprise division contributed £2.79 million of Adjusted EBITDA (2015: £2.61 million) mainly from premium domain name trading, while the wholesale division contributed £1.24 million (2015: £1.40m). Central overheads, not allocated by division, were £0.96 million (2015: £0.93 million).
·	Profit before taxation of £1.16 million (2015: 1.45 million) reflected the £2.23 million increase in Adjusted EBITDA predominantly offset by non-cash expenses including amortisation of intangible assets of £2.07 million (2015: £0.58 million) and share based payment charges of £0.62 million (2015: £0.32 million). Also offsetting were acquisition costs and exceptional items of £1.26 million (2015: £0.83 million), including fees related to the Group's mergers and acquisition programme and integration costs associated with the Instra Group acquisition. Finance costs of £0.27 million (2015: £nil) included interest charges and professional fees related to the £3.50 million term loan drawn in January 2016.
·	Adjusted profit before taxation, excluding acquired amortisation charges, acquisition costs and exceptional items and the share based payment expense was £4.72 million (2015: £2.95 million), an increase of 60%.
·	Net cash-flow generated from operating activities was £3.32 million (2015: £5.69 million), with 2015 having benefitted from favourable working capital movements as a result of the timing of increased payments to new TLD registry operators combined with additional funds paid on account by retailers to support new TLD activity levels. In 2016 there was also increased activity from retailers in China, who migrated from a pre-pay to a post-pay settlement model. Taking the two years in aggregate, the net cashflow generated from operating activities was in line with expectations, relative to Adjusted EBITDA.
·	Net cash was £7.28 million at the end of the year (2015: £19.06 million). The reduction mainly reflected the cash outflow for the Instra Group acquisition which totalled AU$30.30 million (£14.83 million), offset by the net cashflow generated from operating activities. The Instra acquisition was funded by a combination of the equity placing in December 2015 (which raised £9.40 million net of fees), the £3.50 million term loan facility and £1.93 million from the Group's available cash.

Highlights

·	A year of growth, particularly following the Instra acquisition. Group revenues grew by 113% to £22.13m (2015: £10.39m) and Adjusted EBITDA grew by 68% to £5.48m (2015: £3.25m).
·	Profit before taxation of £1.16m (2015: £1.45m) after deduction of non-cash charges, acquisition costs and exceptional items.
·	Recurring/subscription revenues increased to 81% of overall revenues (2015: 67%).[1]
·	Acquisition of Instra Group completed on 14 January 2016 for consideration of £18.60m (AU$38.04m); contributing Retail revenue of £10.28m and Adjusted EBITDA of £2.21m.
·	Wholesale Division maintained ranking as the world's number one new TLD registry services provider by volume, increasing market share to 32% (2015: 23%). Wholesale domains under management of 9.89m (2015: 3.39m) reflected volume-based promotions of new TLDs which present potential for future renewals.
·	Enterprise revenues included £3.74m (2015: £3.22m) of premium domain name revenues and a full year of dnsXperts revenues.

Post year end

·	Increased renewal revenues are expected to emerge in 2017, as the base of domains due to renew or expire has increased to 9.89m million domains in the Wholesale business (2015: 3.39 million) and 1.27 million in the Retail business (2015: 0.72 million).
·	New Top-Level Domains (nTLDs) contracted but not launched during 2016 include: .basketball, .contact, .fan, .forum, .pid, .rugby, .storage; while the .art, .fun, .realty and .observer TLDs launched in the first quarter of 2017.
·	In the Enterprise Division, the Group has identified online security and brand protection services for corporate customers as an important potential recurring revenue line of business. The Group has recently appointed two experienced executives from this segment - formerly of Group NBT (Netnames) - to lead revenue growth initiatives in this area.
·	Following the successful acquisitions of Internet.bs and Instra Group, CentralNic continues to assess acquisition targets to enhance the Group's product and services suite, market access, customer base and financial performance. CentralNic expects to further strengthen its leadership team with the appointment of a Corporate Development Director in 2017, to accelerate its acquisition processes.
·	In line with the Group's acquisition strategy, discussions are ongoing with SK-NIC, a.s., the registry service provider for the .sk country code top level domain for Slovakia. These discussions have not been concluded. The Board will provide shareholders with a further update in due course.

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

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

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

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

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

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

-Ends-

For further information:

CentralNic Group plc
Ben Crawford, Chief Executive Officer	+44 (0) 203 388 0600
Glenn Hayward, Chief Financial Officer

Zeus Capital - Nomad and Joint Broker
Nick Cowles / Jamie Peel	+44 (0) 161 831 1512
John Goold / Alex Davies	+44 (0) 203 829 5000
Peel Hunt LLP - Joint Broker
Richard Kauffer / Euan Brown (Corporate)	+44 (0) 207 418 8900
Alastair Rae (Syndications)

Abchurch Communications
Julian Bosdet / Tim Thompson / Vera Prokhorenko	+44 (0) 207 398 7719
centralnic@abchurch-group.com	www.abchurch-group.com

About CentralNic Group plc

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

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

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

For more information please visit: www.centralnic.com

Chairman's Statement

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

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

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

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

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

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

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

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

Performance

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

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

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

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

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

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

Dividend

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

Outlook

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

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

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

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

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

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

Mike Turner, Chairman

9 May 2017

Chief Executive Officer's Report

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

Performance overview

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

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

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

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

Wholesale Division

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

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

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

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

Retail Division

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

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

Enterprise Division

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

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

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

Outlook

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

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

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

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

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

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

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

Ben Crawford, Chief Executive

9 May 2017

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2016


		2016	2015
	Note	£'000	£'000

Revenue	2,3	22,129	10,393
Cost of sales		(14,462)	(5,533)


Gross profit		7,667	4,860
Administrative expenses		(5,637)	(3,085)
Share based payments expense		(621)	(316)

Operating profit		1,409	1,459

Adjusted EBITDA*		5,483	3,254
Depreciation		(125)	(72)
Amortisation of intangible assets	7	(2,066)	(578)
Acquisition costs & exceptional items		(1,262)	(829)
Share based payments expense		(621)	(316)
Operating profit		1,409	1,459

Finance income		18	33
Finance costs		(270)	(2)
Finance income - net		(252)	31
Share of loss of investments accounted for using the equity method		-	(36)

Profit before taxation		1,157	1,454

Income tax expense	4	(202)	(548)


Profit after taxation attributable to equity shareholders		955	906
Items that may be reclassified subsequently to profit and loss
Exchange difference on translation of foreign operation		1,910	(1)
Cash flow hedges - effective portion of changes in fair value		(245)	245


Total comprehensive income for the financial year attributable to equity shareholders		2,620	1,150



Earnings per share
Basic (pence)	5	1.00	1.40
Diluted (pence)	5	0.97	1.36

All amounts relate to continuing activities.

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

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2016

		2016	2015
	Note	£'000	£'000
ASSETS
Non-current assets
Property, plant and equipment		161	65
Intangible assets	7	29,822	5,390
Deferred receivables		1,486	295
Investments	6	997	997
Deferred tax assets		1,121	168


		33,587	6,915
Current assets
Trade and other receivables	9	11,529	5,425
Inventory		390	61
Derivative financial instruments		-	245
Cash and bank balances		9,902	19,060


		21,821	24,791


Total assets		55,408	31,706



EQUITY AND LIABILITIES
Equity
Share capital	8	96	92
Share premium	8	16,545	16,522
Merger relief reserve	8	1,879	-
Share based payments reserve		2,004	1,390
Foreign exchange translation reserve		1,910	-
Foreign currency hedging reserve		-	245
Retained earnings		2,785	1,797


Total equity		25,219	20,046


Non-current liabilities
Other payables		3,820	845
Deferred tax liabilities		3,282	65
Borrowings		1,324	-

		8,426	910
Current liabilities
Trade and other payables and accruals	10	19,947	10,349
Taxation payable		783	401
Borrowings		1,033	-


		21,763	10,750


Total liabilities		30,189	11,660


Total equity and liabilities		55,408	31,706

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2016

		Share capital	Share premium	Merger relief reserve	Share based payments reserve	Foreign exchange translation reserve	Foreign currency hedging reserve	Retained earnings	Total
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000

Balance as at 31 December 2014		61	4,935	-	1,018	1	-	885	6,900

Profit for the year		-	-	-	-	-	-	906	906
Other comprehensive income
Translation of foreign operation		-	-	-	-	(1)	-	-	(1)
Cash flow hedge		-	-	-	-	-	245	-	245
Total comprehensive income for the year		-	-	-	-	(1)	245	906	1,150
Transactions with owners
Issue of new shares		31	12,277	-	-	-	-	-	12,308
Share issue costs		-	(690)	-	-	-	-	-	(690)
Share based payments		-	-	-	316	-	-	-	316
Share based payments - reclassify lapsed options		-	-	-	(6)	-	-	6	-
Share based payments - deferred tax asset		-	-	-	62	-	-	-	62
Balance as at 31 December 2015		92	16,522	-	1,390	-	245	1,797	20,046

Profit for the year		-	-	-	-	-	-	955	955
Other comprehensive income
Translation of foreign operation		-	-	-	-	1,910	-	-	1,910
Cash flow hedge		-	-	-	-	-	(245)	-	(245)
Total comprehensive income for the year		-	-	-	-	1,910	(245)	955	2,620
Transactions with owners
Issue of new shares		4	23	1,879	-	-	-	-	1,906
Share based payments		-	-		621	-	-	-	621
Share based payments - reclassify lapsed options		-	-		(33)	-	-	33	-
Share based payments - deferred tax asset		-	-		26	-	-	-	26
Balance as at 31 December 2016		96	16,545	1,879	2,004	1,910	-	2,785	25,219
·	Share capital represents the nominal value of the company's cumulative issued share capital.
·	Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.
·	Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions. Where the consideration for shares in another company includes issued shares, and 90% of the equity is held in the other company.
·	Retained earnings represent the cumulative value of the profits not distributed to shareholders, but retained to finance the future capital requirements of the CentralNic Group.
·	Share based payments reserve represents the cumulative value of share based payments recognised through equity.
·	Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.
·	Foreign currency hedging reserve represents the effective portion of changes in the fair value of derivatives.

CENTRALNIC GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2016

		2016	2015
	Note	£'000	£'000

Cash flow from operating activities

Profit before taxation		1,157	1,454

Adjustments for:
Depreciation of property, plant and equipment		124	71
Amortisation of intangible assets		2,066	578
Reclassification of intangible assets		752	448
Finance income / (cost) - net		130	(1)
Share based payments		621	316
Share of result of associate		-	36
Increase in trade and other receivables		(4,066)	(2,649)
Increase in trade and other payables and accruals		3,350	5,839
Increase in inventories		(278)	(1)


Cash flow from operations		3,856	6,091

Income tax paid		(538)	(405)


Net cash flow generated from operating activities		3,318	5,686

Cash flow used in investing activities
Purchase of property, plant and equipment		(145)	(43)
Purchase of intangible assets		(350)	(104)
Acquisition of a subsidiary, net of cash acquired	11	(14,831)	12


Net cash flow used in investing activities		(15,326)	(135)

Cash flow used in financing activities
Proceeds from borrowings (net)		2,625	-
Proceeds from issuance of ordinary shares		23	11,618
Payment of deferred consideration		(36)	(1,159)
Net cash flow generated from/(used in) financing activities		2,612	10,459



Net (decrease)/increase in cash and cash equivalents		(9,396)	16,010
Cash and cash equivalents at beginning of the year		19,060	3,056
Exchange gains/(losses) on cash and cash equivalents		238	(6)


Cash and cash equivalents at end of the year		9,902	19,060

CENTRALNIC GROUP PLC

NOTES TO FINANCIAL STATEMENTS

1. Basis of preparation

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

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

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

2. Segment analysis

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

	2016
	Revenue	Adjusted EBITDA	Non-current assets	Current assets	Non-current liabilities	Current liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Wholesale Domain Sales	3,176	1,237	2,901	12,614	1,775	13,578
Retail Domain Sales	14,320	2,417	30,564	8,848	6,651	8,159
Enterprise including Premium Domain Name Sales	4,633	2,785	122	359	-	26
Group overheads including costs associated with public company status	-	(956)	-	-	-	-
	22,129	5,483	33,587	21,821	8,426	21,763

	2015
	Revenue	Adjusted EBITDA	Non-current assets	Current assets	Non-current liabilities	Current liabilities
	£'000	£'000	£'000	£'000	£'000	£'000
Wholesale Domain Sales	3,129	1,403	2,711	20,544	585	8,522
Retail Domain Sales	3,405	174	4,198	4,116	325	2,154
Enterprise including Premium Domain Name Sales	3,859	2,608	6	131	-	74
Group overheads including costs associated with public company status	-	(931)	-	-	-	-
	10,393	3,254	6,915	24,791	910	10,750

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

	2016
	Non-current assets	Current assets	Non-current liabilities	Current liabilities
	£'000	£'000	£'000	£'000
UK	3,266	13,781	5,010	13,786
North America	-	33	-	(123)
Europe	9	135	-	26
ROW	30,312	7,872	3,416	8,074
	33,587	21,821	8,426	21,763

	2015
	Non-current assets	Current assets	Non-current liabilities	Current liabilities
	£'000	£'000	£'000	£'000
UK	3,066	19,902	585	2,412
North America	2	948	-	705
Europe	6	54	-	162
ROW	3,841	3,887	325	7,471
	6,915	24,791	910	10,750

3. Revenue

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

	2016	2015
	£'000	£'000
Wholesale Domain Sales
UK	805	902
North America	904	997
Europe	451	458
ROW	1,016	772


	3,176	3,129



Retail Domain Sales
UK	1,215	350
North America	3,416	744
Europe	3,723	1,260
ROW	5,966	1,051


	14,320	3,405




Enterprise including Premium Domain Name Sales
UK	4	-
North America	3,745	3,286
Europe	575	246
ROW	309	327
		\

	4,633	3,859

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

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

	2016	2015
	£'000	£'000

Customer A	287	393
Customer B	189	333
Other customers	2,700	2,403


	3,176	3,129

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

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

4. Income tax expense

	2016	2015
	£'000	£'000

Current tax on profits for the year	282	593
Adjustments in respect of prior years	(48)	-
Current Income Tax	234	593

Deferred Income Tax	(32)	(45)

Income tax expense	202	548

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

	2016	2015
	£'000	£'000

Profit before taxation	1,157	1,454

Tax calculated at domestic tax rates applicable to profits in the respective countries	158	404

Tax effects of;
- Expenses not deductible for tax purposes	82	123
- Unutilised tax losses	10	21
- Adjustment in respect of prior years	(48)	-

Current income tax	202	548

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

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

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

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

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

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

5. Earnings per share

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

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

	2016	2015
Profit after tax attributable to owners (£'000)	955	906
Weighted average number of shares:
Basic	95,632,390	64,537,714
Effect of dilutive potential ordinary shares	2,745,348	1,953,680
Diluted	98,377,738	66,491,394
Earnings per share:
Basic (pence)	1.00	1.40
Diluted (pence)	0.97	1.36

6. Investments

Available for sale investments carried at fair value

	£'000
At 31 December 2015	997
Additions	-
At 31 December 2016	997

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

Name	Place of incorporation/ establishment	Principal activities	Issued and paid-up/ registered capital	Effective interests

Accent Media Ltd	UK	Domain registry operator	Ordinary shares	10.4%

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

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

7. Intangible assets

	Domain names	Software	Customer List	Goodwill	Total
	£'000	£'000	£'000	£'000	£'000
Cost or deemed cost
At 1 January 2015	3,164	960	2,548	1,379	8,051
Additions	-	104	-	194	298
Reclassification	(835)	-	-	-	(835)
Exchange Differences	11	-	-	-	11
At 31 December 2015	2,340	1,064	2,548	1,573	7,525
Additions	-	350	-	-	350
Acquisition of Subsidiary	1,121	1,615	8,738	11,774	23,248
Reclassification	(2,295)	-	-	-	(2,295)
Exchange Differences	-	265	1,430	1,956	3,651
At 31 December 2016	1,166	3,294	12,716	15,303	32,479

Amortisation
At 1 January 2015	1,707	99	127	-	1,933
Charge for the year	142	181	255	-	578
Reclassification	(387)	-	-	-	(387)
Exchange Differences	11	-	-	-	11
At 31 December 2015	1,473	280	382	-	2,135
Charge for the year	196	640	1,230	-	2,066
Reclassification	(1,544)	-	-	-	(1,544)
At 31 December 2016	125	920	1,612	-	2,657

Intangible assets, net
At 31 December 2016	1,041	2,374	11,104	15,303	29,822
At 31 December 2015	867	784	2,166	1,573	5,390

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

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

Goodwill and Customer List

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

	Customer List		Goodwill
	2016	2015	2016	2015
	£,000	£,000	£'000	£'000
Retail Division	11,104	2,166	15,189	1,379
Enterprise Division	-	-	114	194
Total carrying value	11,104	2,166	15,303	1,573

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

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

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

Retail Division	Internet BS	Instra
Revenue - compounded annual growth rate	12%	12%
Gross Margin - before staff and IT costs	13%	59%
Administration expenses - compounded annual growth rate	5%	10%

Discount rates:

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

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

8. Share capital

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

		Share Capital	Share Premium	Merger relief
	Number	£'000	£'000	£'000

At 1 January 2016	92,007,481	92	16,522	-
Consideration shares in respect of the Instra acquisition 14 January 2016 (see note 11)	3,656,450	4	-	1,879
Share options exercised 8 February 2016	20,417	-	2	-
Share options exercised 27 July 2016	210,000	-	21	-

At 31 December 2016	95,894,348	96	16,545	1,879

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

The Company has no authorised share capital.

9. Trade and other receivables

	2016	2015
	£'000	£'000

Trade receivables	5,361	1,855
Accrued revenue	1,123	225
Deferred costs	3,315	1,486
Prepayments	163	110
Prepaid finance costs	-	350
Supplier payments on account	376	333
Amounts due from shareholders	747	729
Other receivables	444	337


	11,529	5,425

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

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

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

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

10. Trade and other payables and accruals

	2016	2015
	£'000	£'000

Accounts payable	3,120	2,425
Accrued expenses	4,596	1,859
Other taxes and social security	220	81
Deferred consideration	-	36
Deferred revenue	7,375	3,126
Customer payments on account	4,602	2,779
Accrued interest	22	3
Other liabilities	12	40


	19,947	10,349

11. Business combinations

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

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

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

Consideration	AU$'000	£'000
Cash	30,000	14,560
Adjustment for working capital	1,449	829
Total Cash Consideration	31,449	15,389
Equity Instruments (3,656,450 ordinary shares)	3,863	1,883
Assumption of loans due from the estate of Antonio Frank Lentino	2,725	1,323
Total consideration	38,037	18,595

Fair value recognised on acquisition	AU$'000	£'000

Assets
Intangible assets - customer list	18,005	8,738
Intangible assets - software	3,275	1,589
Intangible assets - domain names	2,310	1,121
Other intangible assets	52	25
Property, plant & equipment	129	63
Trade receivables	815	395
Other receivables	8,199	3,979
Deferred income tax asset	1,919	931
Cash	1,150	558
	35,854	17,399
Liabilities
Trade payables	391	190
Other payables and accruals	1,835	891
Deferred Revenue	13,513	6,558
Deferred income tax liability	6,384	3,098
Other income tax liabilities	(127)	(62)
	21,996	10,675

Total identifiable net assets at fair value	13,858	6,724

Goodwill arising on acquisition	24,179	11,871

Purchase consideration	38,037	18,595

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

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

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

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

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

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

12. Share Options and Warrants

Share Options

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

The share option scheme is administered by the Remuneration Committee.

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

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

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

Date of Options grant	1^st June 2013	14^th October 2013	28^th April 2015	28^th April 2015	5^th May 2015
Options Granted	2,530,000	1,026,000	537,000	500,000	107,000
Stock price	10p	55p	35p	35p	33.5p
Exercise price	10p	57p	35p	35p	33.5p
Interest rate	5%	5%	5%	5%	5%
Volatility	75%	75%	75%	75%	75%
Vesting period	1/12 per quarter from the date of grant	3 years from the date of grant	3 years from the date of grant	10^th February 2017	3 years from the date of grant
Time to maturity	10 years	10 years	10 years	10 years	10 years

Date of Options grant	4^th Feb 2016	4^th Feb 2016	4^th Feb 2016	4^th Feb 2016	4^th Feb 2016	29^th August 2016	29^th August 2016
Options Granted	700,000	750,000	350,000	48,000	419,000	318,000	235,000
Stock price	51p	51p	51p	51p	51p	43p	43p
Exercise price	40p	40p	40p	51p	40p	40p	40p
Interest rate	5%	5%	5%	5%	5%	4%	4%
Volatility	75%	75%	75%	75%	75%	52%	52%
Vesting period	3 years from the date of grant	15^th September 2018	26^th October 2018	3 years from the date of grant	14^th January 2019	14^th January 2019	3 years from the date of grant
Time to maturity	10 years	10 years	10 years	10 years	10 years	10 years	10 years

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

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

	Number 31 Dec 2016	WAEP* 31 Dec 2016	Number 31 Dec 2015	WAEP* 31 Dec 2015
Outstanding at 1 January	4,604,583	26p	3,551,000	23p
Granted during year	2,820,000	40p	1,144,000	34p
Exercised during year	(230,417)	10p	(75,834)	10p
Lapsed during year	(150,000)	10p	(14,583)	10p
Outstanding at 31 December	7,044,166	32p	4,604,583	26p
Exercisable at 31 December	3,230,166	25p	2,019,583	10p

* weighted average exercise price.

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

Warrants

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

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