Final Results

RNS Number : 6777Y

XLMedia PLC

07 March 2017

 

For immediate release

7 March 2017

XLMedia PLC

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

Final results for the year ended 31 December 2016

Another strong financial performance driven by organic growth and diversification

XLMedia (AIM: XLM), a leading provider of digital performance marketing services, is pleased to announce its final results for the year ended 31 December 2016.

Financial highlights

·     Revenues increased 16% to $103.6 million (2015: $89.2 million);

·     Gross profit increased 30% to $53.3 million (2015: $41.1 million);

·     Adjusted EBITDA increased 22% to $34.6 million (2015: $28.4 million);

·     Profit before tax increased 28% to $31.0 million (2015: $24.3 million);

·     Net income increased 27% to $25.6 million (2015: $20.2 million);

·     Strong balance sheet with $35.2 million cash and short term investments;

·     Earnings per share increased 20% to $0.12 (2015: $0.10); and

·     Final dividend of $7.5 million or 3.7864 cents per share, making a total of 7.6069 cent per share for the year.

Operating highlights

·   Strong organic growth in the publishing business, mainly in English speaking markets and non-Scandinavian European markets;

·     Significant progress in the media segment underpinned by strong mobile penetration:

o  Dau-Up received Facebook marketing partner status for technology; 

o  New mobile offering enabling additional performance models (incl. revenue share);

·     Continued diversification of the business:

o  The gambling sector represented 70% of Group revenues in 2016 (2015: 74%, 2014: 83%);

o  The Group's largest customer accounted for 7% of total revenues in 2016 (2015: 9%, 2014: 15%);

o  Revenues from Scandinavia were 32% of the Group's revenues with an additional 27% from other European countries and 21% from North America.

Post period end - further diversification through acquisitions

·     Acquisition of mobile platform ClicksMob Inc ("ClicksMob"):

o  Provides performance-based user acquisition to leading apps;

o  Strong mobile user acquisition technology; and

o  An established customer base in Asia and in non-gambling verticals such as e-commerce, travel, entertainment and finance.

·     Acquisition of Greedyrates.ca ("Greedyrates"):

o  Greedyrates is one of Canada's leading credit card comparison websites;

o  Increases the Group's North American customer base; and

o  Further demonstrates XLMedia's ability to diversify its revenue streams - this time into the financial services sector.

Ory Weihs, Chief Executive Officer of XLMedia, commented:

"We are proud to have delivered another record breaking year in which we have made further progress in executing on our strategic priorities and generated significant value for our shareholders. Our strong financial performance coupled with our ability to maintain a market leading position is supported by our commitment to invest in proprietary products whilst integrating complementary acquisitions.

"The Board would like to thank management and our employees for another excellent year of results and remain committed to delivering further progress in 2017."

Our full annual financial statements are available on our website at the following address:

http://www.xlmedia.com/company-reports/

For our Company presentation please visit: 

http://www.xlmedia.com/media/

A webcast of our results presentation will be available on our website later today:  http://www.xlmedia.com/media/

A presentation for retail and private investors will be held at 4.00pm on Wednesday 8 March 2017 at the offices of Berenberg (60 Threadneedle Street, London EC2R 8HP). Admittance is strictly limited to those who register their attendance for the event. To register, please contact Vigo on [e-mail].   

For further information, please contact:

 

XLMedia plc Ory Weihs www.xlmedia.com	Tel: [phone]
Vigo Communications Jeremy Garcia / Fiona Henson www.vigocomms.com	Tel: [phone]
Cenkos Securities plc (Nomad and Joint Broker) Ivonne Cantu / Camilla Hume www.cenkos.com	Tel: [phone]
Berenberg (Joint Broker) Chris Bowman / Mark Whitmore / Amritha Murali www.berenberg.com	Tel: [phone]

Business review

2016 was another strong year for the Group, with record breaking revenues and profits, reflecting the Group's consistent execution of its stated growth strategy.

Our strategic plan is focused on the following key growth initiatives:

·     broaden our reach to additional geographies and verticals;

·     continue to develop our technology infrastructure to enable growth and increase our competitive edge; and

·     make selective acquisitions that diversify and develop the Group's core operational base.

2016 was another successful year of progress in all aspects. We have achieved diversification both geographically and vertically through a blend of acquisitive and organic growth. Our efforts during the year brought to close two acquisitions in early 2017:

·   Acquisition of Greedyrates, which was completed in January 2017. Greedyrates is the Group's first significant publishing asset in the financial services vertical and significantly enhances the customer base in North America.

·   Acquisition of ClicksMob, which was completed in February 2017. ClicksMob enhanced the Group's presence in the fast growing market for mobile apps, and delivers an enlarged customer base, with over 30% of revenues from Asia.

Further diversification was achieved through organic growth, and a focus on non-gaming apps, e-commerce, and English speaking markets.

Technology is a key component to maintaining the Group's competitive edge and driving growth. During the past year we have continued to invest in our technology infrastructure and achieved a number of key milestones:

·   Dau-Up, the Company's mobile and social media performance marketing platform, was awarded Facebook marketing partner status for technology with Facebook recognising the benefits of the Group's bespoke Rampix system in optimizing campaign management for user acquisition across the Facebook platform.

·   The Group continued to improve Palcon, our proprietary platform for centralised management of websites. During the year we saw improved performance, particularly in mobile, of websites migrated to the Palcon platform. Traffic and click-through rates improved for these websites, which we expect to drive performance and revenues in the publishing business.

·     We further enhanced our internal business intelligence systems to support the growing scales of data produced. Our systems ingest data from thousands of sources daily, which is then processed and analysed to provide business information for campaign and asset optimisation.

·     Our technology teams consisted of 80 employees at the end of 2016, up from 57 at the beginning of the year. This includes both product and development teams and we continue to value the acquisition of talent as a key driver in supporting our organic growth initiatives.

The Group continues to work on broadening our offering in order to drive organic growth, leveraging our existing channels, customers and markets to grow revenues as well as targeting new channels, customers and markets.

The integration of Dau-Up and Marmar Media was completed during 2016 and included the streamlining of both companies into one location and the rationalization of their information systems. We have also optimised our joint sales capabilities in order to better cross-sell our services across existing and new customers. This optimisation has resulted in increased revenues, mainly from existing customers taking additional services from across our enlarged platform.

We have extended Dau-Up's activities into non-gaming apps and introduced performance based revenue share agreements for mobile apps alongside the Cost Per Installation (CPI) model. 

The Group also delivered strong organic growth in the publishing segment, mainly in key strategic geographies, notably English speaking and other European countries (outside Scandinavia).

As we add more services, customers and verticals we expect the Group to continue to see benefits of scale with improved operational infrastructure as well as further diversification of the customer base. In 2016 the largest customer in the Group accounted for 7% of Group revenues and we believe that figure will continue to decline.

The Company has maintained its progressive dividend policy by declaring a final dividend of $7.5 million or 3.7864 cents per share payable on 7 April 2017 to shareholders on the register at 17 March 2017. The ex-dividend date is 16 March 2017. Together with the interim dividend of 3.8205 declared in the interim results, this amounts to a total dividend for the year of 7.6069 cent per share.

Business Segments review

($'000)	Publishing	Media	Partner Network	Total
2016
Revenues	46,057	47,645	9,903	103,605
% of revenues	44%	46%	10%	100%
Direct profit	38,384	13,779	1,160	53,323
Profit margin	83%	29%	12%	51%
2015
Revenues	30,297	45,777	13,145	89,219
% of revenues	34%	51%	15%	100%
Direct profit	23,855	15,411	1,810	41,076
Profit margin	79%	34%	14%	46%

Publishing

Publishing revenues grew 52% to $46.1 million (2015: $30.3 million). The growth was primarily organic, with some additions from new assets acquired at the end of 2015.

We invested significant amounts in technology infrastructure to support the centralised management of our assets and we have seen improvement in conversions and performance of our assets as a result, particularly in mobile.

In January 2017, we announced the acquisition of Greedyrates, a leading Canadian credit card comparison website. This acquisition is our first significant publishing asset in the financial services vertical, and is in line with our stated strategy to expand both geographically and in sector expertise.  The consideration of $9.3 million is presented as payment on account of website acquisition on the balance sheet as of 31 December 2016 since the payment for the acquisition was deposited in escrow at the end of December 2016.

Media

Media revenues grew 4% to $47.6 million (2015: $45.8 million). The growth in the media segment is attributed to strong growth in the gambling verticals offset by a decrease in activities in the utilities verticals, as flagged at the interim results. As we continue to diversify our business and add more verticals we expect overall growth to be less volatile. The recent acquisitions of Greedyrates and ClicksMob have added more customers and verticals to our portfolio and we expect the media division to deliver stronger growth in 2017.

In 2016 we continued to invest in developing our mobile proposition and enhancing our capabilities in that area. This included the integration of media acquisitions into the Group, creating a unified platform from which to offer broad media solutions to customers, and investing in systems and additional performance models.

Mobile marketing continues to drive digital advertising growth with recent research showing digital advertising revenues in the U.S having increased 19% to $32.7 billion in H1 2016, versus the same period in 2015. In addition, 67% of time spent online is spent on mobile devices with 47% of US advertising revenues in H1 2016 generated through mobile.¹ As the industry shifts to mobile we continue to establish our position as a leader in mobile and the acquisition of ClicksMob, a specialist in mobile user acquisition, is a further step in achieving this. 

Direct profit from media for 2016 was $13.8 million or 29% of revenues compared to $15.4 million or 34% or revenues in 2015. As we further grow the media operations in mobile and new verticals we expect to see growth in lower margin products which will in turn lower the overall margin for the division as a percentage of revenues but increase the absolute profit for the division.

Partner Network

Partner network revenues decreased to $9.9 million (2015: $13.1 million, 2014: $6.1 million) as result of a review of our partner base. As part of our ongoing business development and process enhancement activities, we commenced a full review of our partners in this network, with a view to implementing a more stringent sign up and operations criteria. Where necessary, the Group will also cease activity with certain partners to improve overall quality. The consequence of this review has been a reduction in revenues from this segment in 2016. Our partner network serves as a complimentary channel, giving us the opportunity to provide marketing services to clients which are not currently serviced through our existing publishing and media divisions.

Current Trading and Outlook

We have made a strong start to 2017 with sales across all products and verticals progressing well.  The integration of the recently acquired ClicksMob and Greedyrates businesses is on track and once completed, these acquisitions are expected to add significant value to the Group.

The Board therefore looks forward to another year of strong growth and is extremely confident of the medium term trading prospects of the Group.

 

Financial review

	2016	2015	Change
	USD in millions
Revenues	103.6	89.2	+16%
Gross Profit	53.3	41.1	+30%
Operating income	30.1	23.0	+31%
Adjusted EBITDA	34.6	28.5	+22%
Financial income, net	0.9	1.7	-48%
Profit Before Tax	31.0	24.3	+27%
Earnings Per Share (in usd)	0.12	0.10	+20%

With record revenues and profits, 2016 was another great year for the Group.

Revenues for the year were $103.6 million, reflecting 16% growth compared to the last year. The increase in revenues was mainly due to strong organic growth in the publishing segment in the year. The media division continues to be the largest segment generating 46% of FY16 revenues. Strong organic growth drove publishing revenues and profits as the second largest segment with 44% of FY16 revenues.

Gross profit reached $53.3 million or 51% of revenues, representing 30% growth compared to last year (2015: $41.1 million, 46%). The material margin improvement in gross profit during the year stems from the higher growth in the higher-margin publishing segment.

As we continue to implement our strategy to further increase and develop our media business, we expect the Group's revenue mix to shift further towards media, reducing gross margins. Whilst this shift will lower total gross margins (in terms of percentage) across the Group we expect this impact to be more than offset by an increase in higher margin activity in the Group's publishing division.

Operating income increased to $30.1 million or 29% of revenues (2015: $23.0 million, 26%), again due to the higher profitability of the publishing segment, as a result of the organic growth during 2016.

Operating expenses included $2.2 million for research and development expenses (2015: $1.4 million) in addition to capitalized R&D of $3.1 million (2015: $2.0 million). We continue to expand our technology infrastructure, and as at 31 December 2016 our technology and product teams consisted of 80 people compared with 57 people at the beginning of the year. We continue to develop our in-house technology base in order to maintain our competitive edge and drive growth further.

Adjusted EBITDA² reached $34.6 million or 33% of revenues, reflecting an increase of 22% to the previous year (2015: $28.4 million, 32%).

Net financial income for the year was $0.9 million, attributable mainly to the Company's dynamic hedging activity to mitigate material exposure to foreign currencies. As a significant portion of the Group's revenues are denominated in Euros, the Company entered into a series of forward contracts for the sale of Euros and purchase of US Dollars. Additional forward contracts were entered into for the sale of British Pounds and for buying Israeli Shekels for lesser amounts. The Euro exchange rate decreased by 3.4% versus the US Dollar during this period. The Company gained financial income from its hedging activity which partially compensated for the decrease. The majority of financial income was recorded as fair value gains for forward contracts not yet matured and therefore was not received in cash. The Company has entered into additional forward contracts which will mature over the course of the next 12 months.

As a result of the high adjusted EBITDA as well as the financial gain from changes in exchange rates, profit before tax increased by 27% to $31.0 million (2015: $24.3 million).

As of 31 December 2016 we had $35.2 million cash and short term investments compared to $42.6 million on 31 December 2015.  The change in cash reflects an increase of $27.0 million provided by operating activity, offset mainly by use of $21.7 million on investments in technology and acquisitions and $12.4 million of dividends paid during 2016.  

Current assets at 31 December 2016 were $56.7 million (31 Dec 2015: $60.9 million) and non-current assets reached $70.4 million (31 December 2015: $57.9 million). The increase in non-current assets is attributed mainly to the investments in domains and websites, as well as additions to our in-house technology.

Total equity on 31 December 2016 reached $103.3 million, or 81% (2015: 75%). This, with cash and short term investments of $35.2 million, positions the Group well to continue executing its strategic plan.

¹ - IAB/PwC Internet Ad Revenue Report, HY 2016 - industry survey conducted by PwC and sponsored by  the Interactive Advertising Bureau (IAB), November 2016

²- Earnings before interest, taxes, depreciation and amortisation and adjusted to exclude share based payments and expenses related to acquisition agreements

 

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

				Year ended 31 December
				2016			2015
				USD in thousands (except per share data)
Revenues				103,605		89,219
Cost of revenues				50,282		48,143
Gross profit				53,323		41,076
Research and development expenses				2,228		1,438
Selling and marketing expenses				4,142		3,038
General and administrative expenses				16,856		13,640
				23,226		18,116
Operating income				30,097		22,960
Finance expenses				(403)		(523)
Finance income				1,306		2,259
Income before other expenses				31,000		24,696
Other expenses, net				-		(403)
Profit before taxes on income				31,000		24,293
Taxes on income				5,416		4,093
Net income and other comprehensive income				25,584		20,200
Attributable to:
Equity holders of the Company				23,937		18,719
Non-controlling interests				1,647		1,481
				25,584		20,200
Earnings per share attributable to equity holders of the Company:
Basic earnings per share (in USD)				0.12		0.10
Diluted earnings per share (in USD)				0.12		0.10

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

				As of 31 December
				2016		2015
				USD in thousands
Assets
Current assets:
Cash and cash equivalents				32,095		35,741
Short-term investments				3,091		6,866
Trade receivables				17,075		16,088
Other receivables				3,463		2,042
Financial derivatives				1,002		165
				56,726		60,902
Non-current assets:
Long-term financial assets				609		1,102
Other receivables				171		332
Property and equipment				1,229		1,190
Goodwill				26,302		26,302
Deposit for acquisition of websites				9,300		-
Domains and websites				26,739		23,897
Other intangible assets				5,948		4,837
Deferred taxes				85		256
				70,383		57,916
				127,109		118,818

 

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

				As of 31 December
				2016		2015
			USD in thousands
Liabilities and equity
Current liabilities:
Trade payables				9,274		11,146
Contingent consideration payable				-		5,373
Other liabilities and accounts payable				14,196		12,151
				23,470		28,670
Non-current liabilities:
Deferred taxes				126		317
Other liabilities				228		155
				354		472
Equity
Share capital				*)		*)
Share premium				66,812		64,447
Capital reserve from share-based transactions				1,208		1,390
Capital reserve from transaction with non-controlling interests				(506)		(506)
Retained earnings				34,349		22,774
Equity attributable to equity holders of the Company				101,863		88,105
Non-controlling interests				1,422		1,571
Total equity				103,285		89,676
				127,109		118,818

*) Lower than USD 1 thousand.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended 31 December
		2016		2015
		USD in thousands
Cash flows from operating activities:
Net income		25,584		20,200
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to the profit or loss items:
Depreciation and amortisation		3,878		3,775
Finance expense (income), net		(69)		231
Finance expense (income) from financial derivatives		(837)		99
Cost of share-based payment		646		839
Taxes on income		5,416		4,093
Exchange differences on balances of cash and cash equivalents		589		310
		9,623		9,347
Changes in asset and liability items:
Increase in trade receivables		(987)		(3,580)
Increase in other receivables		(930)		(432)
Increase (decrease) in trade payables		(1,872)		1,155
Increase in other accounts payable		1,032		3,892
Increase in other long-term liabilities		73		99
		(2,684)		1,134
Cash received (paid) during the period for:
Interest paid		-		(2)
Interest received		139		72
Taxes paid		(5,710)		(2,352)
		(5,571)		(2,282)
Net cash provided by operating activities		26,952		28,399

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended 31 December
		2016		2015
		USD in thousands
Cash flows from investing activities:
Purchase of property and equipment		(479)		(644)
Acquisition of initially consolidated companies		-		(4,459)
Payment of contingent consideration in respect of acquired company		(5,500)		(3,500)
Acquisition of domains, websites and other intangible assets		(6,742)		(12,326)
Deposit on account of acquisition of  Domains and websites		(9,300)		-
Proceeds from sale of assets		300		300
Short- term and long-term investments, net		4,333		9,625
Net cash used in investing activities		(17,388)		(11,004)
Cash flows from financing activities:
Dividend paid to equity holders of the Company		(12,362)		(8,017)
Dividend paid to non-controlling interests		(1,805)		(694)
Exercise of options		1,546		943
Payments of liabilities to former shareholders of acquired subsidiary		-		(927)
Net cash used in financing activities		(12,621)		(8,695)
Exchange differences on balances of cash and cash equivalents		(589)		(310)
Increase (decrease) in cash and cash equivalents		(3,646)		8,390
Cash and cash equivalents at the beginning of the year		35,741		27,351
Cash and cash equivalents at the end of the year		32,095		35,741

Significant non-cash transactions:
Payables for acquisitions of domains and websites		649		-

NOTE 1:                GENERAL

(a)       General description of the Group and its operations:

The Group is an online performance marketing company. The Group attracts paying users from multiple online and mobile channels and directs them to online businesses who, in turn, convert such traffic into paying customers.

Online traffic is attracted by the Group's publications and advertisements and are then directed, by the Group, to its customers in return for mainly a share of the revenue generated by such user, a fee generated per user acquired, fixed fees or a hybrid of any of these models.

For further information regarding online marketing and the Group's business segments see Note 2.

The Company commenced its operations in 2012. The Company's registered office is located in 12 Castle Street, St Helier, Jersey.

On 21 March 2014 the Company completed an Initial Public Offering ("IPO") on the London Stock Exchange's Alternative Investment Market (AIM). 

(b)    Assessment of going concern:

The Board of Directors has adopted the going concern basis of accounting in preparing the consolidated financial statements.

NOTE 2:         OPERATING SEGMENTS

(a) General:

The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker ("CODM") to make decisions about resources to be allocated and assess its performance. Accordingly, for management purposes, the Group is organised into operating segments based on the products and services of the business units and has operating segments as follows:

Publishing	-	The Group owns over 2,000 informational websites in 17 languages. These websites refer potential customers to online businesses. The sites' content, written by professional writers, is designed to attract online traffic which the Group then directs to its customers online businesses.
Media	-	The Group's Media division acquires online and mobile advertising targeted at potential online traffic with the objective of directing it to the Group's customers. The Group buys advertising space on search engines, websites, mobile and social networks and places adverts referring potential users to the Group's customers' websites or to its own websites.
Partners Network	-	The Group manages marketing partners, whose role is to direct online traffic to the Group's customers for which the Group receives revenues. The Group is responsible for paying its partners. The Group's partner programme enables affiliates 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.

Segment performance (segment profit) is evaluated based on revenues less direct operating costs.

Items that were not allocated are managed on a group basis.

 (b)                Reporting on operating segments:

		Publishing		Media		Partners Network		Total
		USD in thousands
Year ended 31 December 2016:
Revenues		46,057		47,645		9,903		103,605
Segment profit		38,384		13,779		1,160		53,323
Unallocated corporate expenses								(23,226)
Finance income, net								903
Profit before taxes on income								31,000
Year ended 31 December 2015:
Revenues		30,297		45,777		13,145		89,219
Segment profit		23,855		15,411		1,810		41,076
Unallocated corporate expenses								(18,116)
Other expense, net								(403)
Finance income, net								1,736
Profit before taxes on income								24,293

 

(c)  Geographic information:

Revenues classified by geographical areas based on internet user location:

		Year ended 31 December
		2016		2015
		USD in thousands
Scandinavia		33,054		29,414
Other European countries		28,295		16,732
North America		21,724		19,588
Oceania		4,951		2,788
Other countries		2,215		2,610
Total revenues from identified locations		90,239		71,132
Revenues from unidentified locations		13,366		18,087
Total revenues		103,605		89,219

 

END

 

 

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