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Minds + Machines Grp - Final Results

RNS Number : 3393H
Minds + Machines Group Limited
24 March 2020
 

Strictly embargoed until 07.00 a.m., 24th March 2020

 

Minds + Machines Group Limited

("MMX" or the "Company")

Final Results

 

Minds + Machines Group Limited (AIM: MMX), one of the world's leading owners and operators of Internet Top-Level Domains ("TLDs"), is pleased to announce Final Results for the year ended 31 December 2019.

 

Commenting on the results, Toby Hall, CEO of MMX, said:

 

"We are pleased to report a strong set of results. We have worked hard, repaired the balance sheet and delivered a robust, scaleable platform with highly predictable and balanced revenue streams that mirror a SaaS-type business model. This achievement is based on continued organic growth through the online retail channel, augmented by ongoing innovation and selective acquisition. With a largely fixed operating cost, and capacity across the platform, we expect future growth to be incrementally positive."

 

2019 Financial highlights

·      Profit after tax of $4.7m compared to 2018 loss of $12.6m

·      Revenues up 25% to $18.9m (2018: $15.1m)

automated sales through the channel up 40% to $17.3m (2018: $12.4m), now representing 91% of total revenues (2018: 82%) with:

§ new registration channel revenue up 84% to $5.6m (2018: $3.0m)

§ renewal revenues up 25% to $11.7m (2018: $9.4m), representing 62% of total revenue (2018: 62%)

one-off brokered sales outside of the channel reduced by $1.0m to $1.7m (2018: $2.7m), now representing under 10% of total revenue (2018: 18%)

·      Operating EBITDA, net of $0.6m auction revenue, up 79% to $6.4m (2018: $3.6m)

·      170% improvement in adjusted cashflow from normal operations to $6.2m (2018: $2.3m), including receipts of $1.6m from private auctions

·      Cash at year-end standing at $6.6m (2018: $10.4m) after re-payment of the Working Capital facility of $3.0m; final partner and onerous contract related payments of $6.7m; and a $0.4m share buy-back

·      EPS of $0.51 (2018 $1.68 loss)

·      Share buyback programme to continue in order to maximise balance sheet efficiency

 

2019 Operational Highlights

·      Strong organic growth and improved revenue mix as per the financial highlights above

·      Improved geographic revenue mix

US and European revenues improved by 36% and 51% respectively, reflecting in part a full-year ICM contribution and the brand protection service launch, the US now representing 62% of revenue, Europe 17% and Asia 21%

·      Succesful launch and strong contribution from first brand protection product: AdultBlock

some 2,000 blocks sold during Q4, generating $1.1m in revenue in the final two months of 2019

·      Onerous contract and supplier contracts renegotiated leading to improved operational efficiences

·      Investment in product development, commercial development and corporate development teams post period end.

Commenting on Current Trading and Outlook, Toby Hall said:

 

"The momentum experienced in Q4 has continued into the first quarter of 2020. Healthy trading through the online channel has been experienced across all regions Q1 to date, with no initial signs of online channel sales that accounted for 91% of 2019 revenues being negatively impacted in any area, notably China, by COVID-19. That said, working practices have had to be significantly adjusted due to both local and international travel restrictions which may in turn impact our one-off brokered sales, which currently account for less than 10% of total revenue in 2019, as well as certain aspects of business development. Longer term, the extent to which the wider environment may impact us is an unknown. However, the  high levels of our recurring revenues and online nature of the majority of our sales should, in theory, shield us from the worst of the immediate storm. But to believe that we are fully insulated from the global crisis would be unwise. We are therefore taking the prudent and precautionary measure of delaying any decision on the dividend indicated in our January trading update until September as at that point we will have much better visibility on the real impact, or not, of COVID-19 on current trading.

 

"During the interim, one of the most value enhancing actions that we can take is to continue with the share buyback. To that end, we intend to continue with the already authorised programme of share buybacks up to the current limit of £1.0m and renew such authority as required at the appropriate time. As such, your Board remains acutely conscious of the need for shareholder return whilst remaining mindful of the exceptional global market conditions at present and the need to maintain healthy cash balances and a robust balance sheet.

 

"Finally, I would like to thank our staff and commercial partners for their effort and support in delivering a successful year of growth and transformation. Their commitment has been outstanding, not least during the current uncertainty and upheaval caused by the coronavirus pandemic."

 

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

 

*- ends - *

 

For further information

 

Minds + Machines Group Limited

 

Toby Hall, CEO

Tel: +44 (0) 7713 341072

Michael Salazar, CFO

Tel: +1 (310) 740 7499

 

 

finnCap Ltd

Tel:+ 44 (0) 20 7220 0500

Corporate finance - Stuart Andrews/Carl Holmes/Simon Hicks

Corporate broking - Tim Redfern/Richard Chambers

 

 

 

Belvedere Communications Limited

Tel: +44 (0) 74 070 23147

John West

Llew Angus

 

 

 

 

 

 

About MMX

 

Minds + Machines Group Limited (LSE: MMX) is the owner of a world class portfolio of 32 ICANN approved top-level domains (gTLDs). The Company generates revenues through the registration and annual renewal of names by organisations and individuals within each of its top-level domains, sales being processed through the Group's online network of global registrar and distribution partners.

 

The MMX portfolio is currently focused around generic names (e.g. .work, .vip), consumer interest (e.g. .fashion, .wedding), lifestyle (e.g. .fit, .surf, .yoga), professional occupations (e.g. .law), and geographic domains (e.g. .london, .boston, .miami, .bayern). In 2018, the Company completed its first acquisition, the ICM portfolio, and launched its first innovation based project, .luxe, which combines the strengths of the World Wide Web's naming system with that of blockchain. In 2019, it launched its second innovation initiative in the brand protection arena. For more information on MMX, please visit www.mmx.co.

 

Executive Summary

 

Overview

As a registry, MMX has a growth strategy based on organic development, innovation and selective acquisition. The Group operates its portfolio of 32 top-level domains ("TLDs") on an outsourced platform model to maximise operational leverage. The majority of our revenues, over 90%, are generated through the online sale and renewal of names via third party registrars (the industry's retail channel) as well as, to a lesser extent, the negotiated sale of high-value names via brokers.

As highlighted at the half-year, the 2019 business focus has been to continue growing the Group's top-line revenue through increasing automated new and renewal revenue through the registrar channel, improving the contribution from the US and European markets, reducing exposure to one-off brokered sales, and maintaining a tight control on costs. In short, to improve both the quantum and quality of revenues to deliver sustainable, profitable growth.

To that end, we are pleased to report revenues in the year  improved by 25% to $18.9m (2018: $15.1m) with:

·      automated sales through the channel up 40% to $17.3m (2018: $12.4m), now representing 91% of total revenues (2018: 82%) with:

new registration channel revenue up 84% to $5.6m (2018: $3.0m) and

renewal revenues up 25% to $11.7m (2018: $9.4m), representing 62% of total revenue (2018: 62%);

·      one-off brokered sales outside of the channel reduced by $1.0m to $1.7m (2018: $2.7m), now representing under 10% of total revenue (2018: 18%); and

·      US and European revenues improved by 36% and 51% respectively, benefitting from the introduction of our first brand protection product and first full-year contribution of the 2018 ICM acquisition.

 

Importantly, the ongoing management of costs has allowed the operational gearing benefits of MMX's outsourced model to begin to better evidence itself with Company Costs (ie. COGs, and OPEX) reduced to 51% of total revenue (2018: 60%), a metric management expects to continue improving to deliver improved earnings in the coming year.

 

2019 Financial highlights

-       Revenues up 25% to $18.9m (2018: $15.1m);

-       Profit after tax improved to $4.7m compared to 2018 loss of $12.6m;

-       Operating EBITDA, net of $0.6m auction revenue, up 79% to $6.4m (2018: $3.6m);

-       170% improvement in cashflow from operations to $6.2m (2018: $2.3m) including receipts of $1.6m from private auctions.

-       Cash at the year-end standing at $6.6m (2018: $10.4m) post re-payment of the Working Capital facility of $3.0m, final partner and onerous contract related payments of $6.7m, and $0.4m share buy-back; and

-       EPS of $0.51 (2018 $1.68 loss).

 

Current Trading & Outlook

The momentum experienced in Q4 has continued into the first quarter with healthy trading being experienced across all regions through the channel in Q1 2020 with no initial signs of automated sales through the channel from any region (notably China) being negatively impacted by coronavirus to date.  That said, working practices are having to be significantly adjusted as a result of key industry events being cancelled, international travel being temporarily curtailed, and our office based staff having to work remotely.

Any immediate impact is therefore likely to be most noticeable in our one-off brokered sales, which currently account for less than 10% of our business, and certain aspects of business development. Longer term, the extent to which the wider environment may impact us is an unknown. However, the  high levels of our recurring revenues and online nature of the majority of our sales should, in theory, shield us from the worst of the immediate storm. But to believe that we are fully insulated from the global crisis would be unwise.

 

2019 Operational Review

Organic growth

Top-line registration growth

2019 saw another significant year in top-line registration growth through the registrar channel, with registrations on the DNS (World Wide Web) growing by 36% to 2.46m contributing to topline revenue growth of 25%. Encouragingly, outside of .work, this was achieved without having to rely heavily on aggressive first year pricing tactics. Instead, it was driven through a combination of support from major registrars around certain properties, such as .law, and data analysis/micro price testing with other registrar partners to identify optimal price points across multiple properties to attract first year registrations and their subsequent renewal. As a result, a broader distribution of registration growth across the portfolio has been achieved than in previous years, a trend we look to continue in the current year. It has also been encouraging to see global coverage for one of our properties, .vip, via Premier League TV coverage as a result of ManBetX, a team shirt sponsor, adopting MX666.vip as its main advertised site. This coverage coincided with Q4 regular registrations in .vip growing by over 360,000, of which 267,000 were regular standard sales via GoDaddy.

Improved revenue mix 

A constant theme to the business development strategy over recent years has been the drive to improve the quality of the Group's revenue - specifically, replacing one-off high-value brokered sales with automated sales revenue, notably renewal and standard based, through the registrar channel. To that end, new registration revenue through the channel grew by $2.6m and represents 29% of total revenue, while renewal revenue grew by $2.4m and now makes up 62% with brokered sales representing 9% of total revenue. The table below charts the significant change in revenue composition from the last three years.

 

FY 2017

%

FY 2018

%

FY 2019

%

Brokered Rev (non channel)

38%

18%

9%

Premium Revenue

11%

4%

9%

Standard Revenue

17%

16%

20%

Renewals Revenue

34%

62%

62%

 

100%

100%

100%

           

 

Improved geographic revenue mix

 

Of equal importance has been the transition in the regional make-up of the revenues over the same period. The table below reflects the $3.1m improvement in US revenues in the last twelve months, it now accounting for 62% of revenues in 2019 as compared to 32% in 2017 and greatly boosted by the ICM acquisition; the $1.1m improvement in European revenues, now contributing 17% of Group revenues as compared to 15% in 2017; and Asia transitioning from 53% in 2017 to 21% in 2019. In terms of 2019 Asia revenues, it should be noted that inspite of the $0.3m drop in top-line revenues from that region in the last year, revenue through the channel grew by 61% in the period, largely compensating for the $1.3m drop in brokered trades over the year. Encouragingly, revenues continued to be generated by a broader number of properties in that region during the year.

 

FY 2017

%

FY 2018

%

FY 2019

%

US

                      32%

                     57%

                    62%

Europe

                       15%

                       14%

                       17%

Asia

                       53%

                       29%

                       21%

 

100%

                    100%

                    100%

 

Brand protection contribution

As highlighted in the interims, a significant part of the H1 2019 Innovation activity was the structuring and roll-out of our first brand protection product, AdultBlock, which the channel started actively selling to their corporate customer base from September 2019. This is targeted at the circa 80,000 corporates whose marks are held in the Trademark Clearing House or participated in the original Sunrise B programme when ICM launched its first extension in 2011. The AdultBlock+ product, which can be bought on a single year or multi-year basis, allows brands to protect not just their exact name matches but also the look-alike variations that can be generated through non-Latin scripts now permitted on the World Wide Web's DNS. During Q4 some initial 2000 blocks were sold to brands covering in excess of 5 million variations which would not be reflected in sites covering DNS based registrations, such as ntldstats.com, given that addresses are blocked at the registry level without the need for them to be registered on the DNS.

In revenue recognition terms, AdultBlock generated $1.1m in revenue in the final two months of the year. Much of the associated cash collection on AdultBlock sales took place in January and February of 2020 as the product was introduced on the normal post-payment model to the registrar channel.

 

Operational efficiencies

During the year, multiple back-end contracts were renegotiated. In addition to the financial savings discussed in the Financial Review, the renegotiated contracts significantly improve the available capacity across the Group's outsourced platform, thereby both improving our operational leverage and ability to scale.

Post period end, the renegotiated contracts have also allowed the Group to outsource its last remaining data-centres onto the cloud thereby allowing a reduction and replacement of in-house operation and technical headcount. This in turn is providing the headroom to grow the product development (ie. innovation), commercial development (ie. organic) and corporate development teams as discussed below whilst remaining in-line with set KPI's.

Staff

As a result of the above, we are delighted to announce the appointments of Ben Anderson as COO, who will be responsible for platform management and implementing our product development strategy as it relates to our innovation programme, and Vaughn Liley as Chief Revenue Officer who will be responsible for driving growth through the registrar channel. Meanwhile, we are equally pleased to welcome Ronan Prendergast back as interim CTO who will report into the COO. As such, the finance, legal, and operations functions will report into the CFO, and sales, marketing and policy into the CEO.

 

Innovation

The basic premise of the innovation activity is to develop a suite of products that provide additional end-customer benefits to owning names across our portfolio and, as is the case with .luxe, allow us to take a position of leadership in specific areas that are likely to impact the registry industry in the coming years.

As discussed earlier, the main innovation activity in 2019 focused on the introduction of our first brand protection product, AdultBlock. We now look forward to further developing our brand protection capabilities across the wider portfolio.

Progress likewise continues to be made on our .luxe R&D project which is looking at how a standardizing naming approach with an associated established governance framework can be applied in a blockchain environment. In 2019, following securing the relevant ICANN approvals and Ethereum integration in 2018, we successfully completed .luxe's integration into the first multi-chain association engine developed by our outsourced partner. This technically enables the same .luxe name (or ID) to be used across multiple chains. Following Ethereum's subsequent move to introduce a similar multichain association engine product in Q4 2019 - we are now expanding our existing Ethereum API so that .luxe can potentially support multiple multichain association protocols. Our points of differentiation in this activity are that:

1.     we have developed an easy-to-use mechanism that integrates with the existing registrar channel to allow end-users to associate their .luxe name to the blockchains of their choice;

2.     we are providing an over-arching governance system to name ownership that does not exist within the emerging blockchain universe;

3.     we provide traditional World Wide Web usage for the same name.

 

As such we are pleased with the steady registration growth in the extension given it is priced as a premium product in the Asia region, it reaching 14,600 DNS based registrations by the year-end.

 

Selective acquisition

MMX has created a profitable platform based business that has significant capacity built into it allowing us to scale at marginal additional operating cost. We will therefore continue to explore opportunities that can enable us to bolt on additional recurring revenue streams to that platform which will be significantly earnings enhancing.

KPIs

 

2019

2018

% change

Domains under management

2.46m

1.81m

36%

Gross revenue

$18.9m

$15.1m

25%

Renewal revenue

$11.7m

$9.4m

25%

Cost of sales as a % of gross revenue

19%

19%

N/A

OPEX as a % of gross revenue

32%

37%

N/A

Operating EBITDA, net of gTLD auction revenue

$6.4m

$3.6m

79%

 

Please refer to the Operational Review and Financial Review sections for further discussion on each of the KPI's.

 

Financial Review

Revenue

Gross revenue has increased by just over 25% to $18.9m in 2019 from $15.1m in 2018, in part reflecting the first full year contribution of ICM.

Growth in new revenue via the registrar channel from new registrations and AdultBlock was up $2.5m in 2019 to $5.6m, an 84% increase from 2018 ($3.0m). This growth has come both through a stronger focus on working with our channel partners as well as the introduction of new products (e.g., AdultBlock). Of the $2.5m in new registration revenue, the original MMX TLDs contributed $1.3m, AdultBlock contributed $1.1m, with the ICM TLDs contributing $0.1m.

Renewal revenue has also increased by $2.4m in 2019 to $11.6m, a 25% increase from 2018 ($9.4m).  Renewal revenue growth has primarily benefitted from a full year of ICM renewals in 2019 compared to 2018.

One-off brokered revenue decreased by $1.1m in 2019 to $1.7m, a 39% decrease from 2018 ($2.7m).  The decrease has been primarily related to the Management's increased focus to drive recurring revenue from its registrar channel versus focusing efforts to drive higher value non-recurring sales.

Expenditures

Note: 2018 figures have been adjusted for IFRS 16 for a like-for-like comparison. IFRS 16, effective 1 January 2019, impacts the accounting and reporting for certain leases. From a balance sheet view it requires certain leases to be reported as assets to reflect the value of the leased asset being controlled and used by the Company as well as recording a liability to reflect the fair value of future payments towards the lease.

The Company has taken the modified approach to adopting IFRS 16. As a result the balance sheet now reflects a 'right-of-use asset' of $2.7m related to leases for registry services and properties and a lease liability of $3.9m. The right of use asset is being amortised over its useful life and the lease liability is unwound as payments are made. In addition, the Company is required to impute interest expense against the lease liability which is charged to finance costs.

COGs

At $3.6m, cost of sales are up by $0.8m, a 29% increase from 2018 ($2.8m). The increase relates primarily to AdultBlock commissions and an $0.1m increase in marketing spend. As a percentage of gross revenue, they remained within Management's KPI of 20% of gross revenue at 19% (2018, 23%). 

OPEX

Operating expenditures are also up by $0.8m in 2019 to $6.0m, a 15% increase from 2018 ($5.3m).  The increase relates primarily to integrating the ICM operations into MMX which included a full year of incoming personnel costs as compared to a half year worth of costs in 2018. At the end of the year Management made improvements to certain operational costs by outsourcing certain functions and reinvested savings into improving certain key resources. 

The business has therefore been able to stay within the range of its stated goal of $6.0m of operating expenditures thereby allowing the inherent operational gearing in the Group's structure to evidence itself, OPEX as a percentage of revenue decreasing to 32% in 2019 from 37% the previous year. However, going into 2020, given increased costs related to health benefits in the US, Management expects that operating expenditures could slightly increase but will nevertheless endeavour to remain within its stated goal of a $6.0m cap during the year.

 

Operating EBITDA

Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (Operating EBITDA), net  of gTLD auction revenue, has increased by $2.8m to $6.4m, a 79% increase from 2018 ($3.6m).  Inclusive of $0.6m of auction revenue, 2019 Operating EBITDA was $7.0 (2018: $4.0m). Looking forward, management does not expect there will be any further, material monies coming from its sole remaining contended gTLD (.hotel).

Profit/(loss)

Profit for the year is $4.7m compared to the loss of $12.6m in 2018.

The profit for the year includes the accounting gain of $1.4m on the settlement of the onerous contract negated by the bad debt write off, the gain on the sale of the join.law reseller platform of $0.4m, share based payment expenses of $1.3m and depreciation and amoritisation and finance costs of $1.9m (increased due to IFRS 16).

The loss in 2018 was driven by the provision towards the onerous contract and related write off of $11.3m, bad debt write offs / provisions of $2.1m and one-off costs of $1.4m.

Cash

Cashflow generated from operating activities has increased 170% to $6.2m (2018: $2.3m). This includes gTLD contention set proceeds of $1.6m (2018: $0.5m). Excluding the impact of IFRS 16 of $1.1m (i.e., adding back), subtracting the onerous contract payment of $6.7m, and adding for a FX gain of $0.1m, results in the reported cash generation from operating activities of $0.7m.

Cash balances at the end of 2019, post repayment of the working capital facility of $3.0m and $6.7m payment against onerous contract obligations, stood at $6.6m ($10.4m at the end of 2018). Restricted cash at the period end stood at $1.7m compared to $3.2m at the end of 2018. The reduction in restricted cash is the result of renegotiated agreements with partners and the release of ICANN letters of credit where contested gTLDs have been resolved.

During the year the Company also authorized up to £1.0m to be deployed on a share buyback resulting in the repurchase of 5,837,160 shares at an average price of 5.99p and a total cost of £0.35m / $0.44m.

Balance sheet

Outside of cash, the key changes to the balance sheet in 2019 relate primarily to the implementation of IFRS 16 and the reduction of certain liabilities. These include:

·      $2.4m increase in non-current assets to $87.7m (2018: $85.3m) which includes the $2.7m 'right of use' asset reflecting the implementation of IFRS 16;

·      $5.8m reduction to the onerous contract provision to nil (2018: $5.8m) reflecting payments made in accordance with the original agreement and its final settlement;

·      $3.8m reduction in trade and other payables to $5.8m (2018: $9.6m) primarily related to repayment of the $3.0m working capital facility during H1 2019 relieving the Company of any outstanding debt from borrowings; and

·      $4.0m increase in lease liabilities as a result of IFRS 16

 

Onerous Contract provision - update

In December 2019, the Company was able to reach an agreement to settle its outstanding onerous contract. In addition to settling its 2018 obligation of $1.4m, which was paid in H1 2019, the Company paid a full and final settlement of $5.3m in December 2019.  The $5.3m settlement removes any obligations for future minimum revenue guarantees as well as any marketing commitments and is expected to save the Company in excess of $3.0m over the remainder of the contract. Releasing the onerous contract provision has resulted in a 2019 gain of $1.4m.

Bad debt provision - update

During the year the Company collected $0.6m in cash related to contracts entered into in 2017 associated with the bad debt provisions.  However, in spite of also receiving collateral in the form of equity in two privately held businesses, the Company believes that it would be prudent to write off the remaining aged receivables in the amount of $1.4m as a bad debt expense in the current year as it is currently not appropriate to place a value on such collateral. In total, $3.0m of China bad debt provisions relating to 2017 have been written off in the subsequent two years, removing all long-term China debts from the balance sheet  The Company nevertheless continues to pursue collection.

 

Capital Returns Policy

In normal trading conditions, the business now operates with increasing visibility of its revenues and its cost base. The balance sheet has been repaired and the business retains cash on the balance sheet, no debt and anticipates incremental cashflow from operations moving forward. It would therefore have been our intention to declare a maiden annual dividend. However, these are not normal times and we have therefore decided to take the prudent and precautionary measure of delaying any decision on the dividend until September, as at that point we will have much better visibility on the real impact, or not, of COVID-19 on current trading. The initial dividend, as and when declared, is intended as a base from which we can build a sustainable progressive dividend policy augmented by additional returns of cash when appropriate.

Outside of the dividend programme, one of the most value enhancing actions that we can take is to continue with the share buyback when the stock market fails to recognize the fundamental change to the risk profile of the business and the SaaS type revenue model that we now have. During 2019 we acquired 5,837,160 shares at an average price of 5.99p and we intend to continue with the current programme of share buybacks up to the current limit of £1m and renew such authority at the appropriate time. Alongside the ongoing share buyback, we will carefully review the amount of cash that the business should retain for organic and innovation-based growth and look to supplement the shareholder returns under the progressive dividend programme outlined above with either special dividends or tender offers as circumstances dictate in future periods. As such, your Board is acutely conscious of the need for shareholder return and will proactively manage the balance sheet to maximise value, whilst remaining mindful of the exceptional global market conditions at present and the need to maintain healthy cash balances and robust balance sheet.

 

Current Trading & Outlook

The momentum experienced in Q4 has continued into the first quarter with healthy trading being experienced across all regions through the channel in Q1 2020 with no initial signs of automated sales through the channel from any region (notably China) being negatively impacted by coronavirus to date.  That said, working practices are having to be significantly adjusted as a result of key industry events being cancelled, international travel being temporarily curtailed, and our office based staff having to work remotely.

Any immediate impact is therefore likely to be most noticeable in our one-off brokered sales, which currently account for less than 10% of our business, and certain aspects of business development. Longer term, the extent to which the wider environment may impact us is an unknown. However, the high levels of our recurring revenues and online nature of the majority of our sales should, in theory, shield us from the worst of the immediate storm. But to believe that we are fully insulated from the global crisis would be unwise.

Finally we would like to thank our staff and commercial partners for their effort and support in delivering a successful year of growth and transformation. Their commitment has been outstanding, not least during the current uncertainty and upheaval caused by the coronavirus pandemic.

 

 

Toby Hall                                                                                                                Michael Salazar

Chief Executive Officer                                                                                       Chief Financial Officer

Date: 23 March 2020                                                                                          Date: 23 March 2020

 

Group Statement of Comprehensive Income for the year ended 31 December 2019

 

 

Notes

Year Ended

31 December 2019

$ 000's

Year Ended

31 December 2018

$ 000's

 

 

 

 

Revenue

 

18,942

15,094

 

 

 

 

Less: Partner payments

 4

(2,882)

(2,520)

Revenue less partner payments

 

16,060

12,574

Cost of sales

 5

(3,637)

(3,481)

Gross Profit

 

12,423

9,093

Gross Profit Margin %

 

77%

72%

 

 

 

 

Profit on contested gTLD applications

 18

588

480

Operating expenses

 

(6,040)

(5,526)

 

 

 

 

Operating earnings before interest, taxation, depreciation and amortisation (Operating EBITDA)

 

6,971

4,047

 

 

 

 

Bad debt Expense

20

(1,433)

(2,112)

Onerous contract provision credit / (charge)

22

1,351

(7,154)

Foreign exchange Gain / (loss)

 

378

(342)

Gain on termination of lease (IFRS 16)

23

299

-

Profit on disposal of reseller (join.law)

16

383

-

Loss on disposal of fixed assets

 

-

(12)

Share based payments

25

(1,272)

(1,153)

Strategic review costs

 

-

(110)

Acquisition costs

 

-

(595)

Restructuring costs

 

-

(743)

Impairment loss on intangible assets

14

-

(4,145)

Share of results of joint ventures

17

48

4

Earnings / (Loss) before interest, taxation, depreciation, and amortisation (EBITDA)

 6

6,725

(12,315)

 

 

 

 

Depreciation and amortisation charge

14/15/23

(1,207)

(211)

Finance revenue

 

9

16

Finance costs

  8

(649)

(180)

Profit / (Loss) before taxation

 

4,878

(12,690)

 

 

 

 

Income tax (charge) / credit

  9

(140)

54

Profit / (Loss) for the year

 

4,738

(12,636)

 

 

 

Notes

Year Ended

31 December 2019

$ 000's

Year Ended

31 December 2018

$ 000's

Other comprehensive income

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

Currency translation differences

 

(680)

387

Items that will not be reclassified to profit or loss:

 

 

 

Loss on fair value through other comprehensive income financial assets

 

(57)

(443)

Other comprehensive income for the year net of taxation

 

(737)

(56)

 

 

 

 

Total comprehensive income / (loss) for the year

 

4,001

(12,692)

 

 

 

 

Retained profit / (loss) for the year attributable to:

 

 

 

Equity holders of the parent

 

4,738

(12,652)

Non-controlling interests

 

-

16

 

 

4,738

(12,636)

 

 

 

 

Total comprehensive income/(loss) for the year attributable to:

 

 

 

Equity holders of the parent

 

4,001

(12,708)

Non-controlling interests

 

-

16

 

 

4,001

(12,692)

Earnings / (Loss) / per share (cents)

 

 

 

From continuing operations

 

 

 

Basic

11

0.51

(1.68)

Diluted

11

0.49

(1.68)

 

 

 

 

All operations are considered to be continuing.

The notes form an integral part of these financial statements

 

Company Statement of Comprehensive Income for the year ended 31 December 2019

 

 

Notes

Year Ended

31 December 2019

 $ 000's

Year Ended

31 December 2018

$ 000's

 

 

 

 

Revenue

 

7,788

8,395

Less: Partner payments

 4

(1,505)

(1,013)

Revenue less partner payments

 

6,283

7,382

Cost of sales

 5

(2,585)

(2,274)

Gross Profit

 

3,698

5,108

Gross Profit Margin %

 

59%

69%

 

 

 

 

Profit on contested gTLD applications

 18

588

480

Operating expenses

 

(3,502)

(4,404)

Operating earnings before interest, taxation, depreciation and amortisation (Operating EBITDA)

 

784

1,184

 

 

 

 

Bad debt expense - trade receivables

20

(1,433)

(1,821)

Impairment of investment in subsidiaries/inter-company balance

16

(10,757)

(25,883)

Foreign exchange gain /(loss)

 

230

(391)

Gain on termination of Lease (IFRS 16)

23

59

-

Strategic review costs

 

-

(110)

Acquisition costs

 

-

(595)

Restructuring costs

 

-

(743)

Share based payments

 

(969)

(1,090)

 

 

 

 

Loss before interest, taxation, depreciation, and amortisation (EBITDA)

 6

(12,086)

(29,449)

 

 

 

 

 

Depreciation and amortisation charge

  14/15/23

(287)

(17)

 

Finance revenue

 

9

16

 

Finance costs

  8

(250)

(180)

 

Loss before taxation

 

(12,614)

(29,630)

 

 

 

 

 

 

Income tax

  9

-

-

 

Loss for the year

 

(12,614)

(29,630)

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

Loss on fair value through other comprehensive income financial assets

 

(57)

(443)

 

Other comprehensive loss for the year net of taxation

 

(57)

(443)

 

 

 

 

 

 

Total comprehensive loss for the year

 

(12,671)

(30,073)

 

 

All operations are considered to be continuing.

The notes form an integral part of these financial statements

 

 

Group Statement of Financial Position  as at 31 December 2019

 

 

 

 

Notes

 

 

 

31 December

2019
$ 000's

 

 

31 December

2018
$ 000's

ASSETS

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

Goodwill

 

13

 

 

2,828

 

2,828

Intangible assets

 

14

 

 

81,494

 

81,458

Fixtures and equipment

 

15

 

 

68

 

59

Right-of-use assets

 

23

 

 

2,673

 

-

Investments

 

 

 

 

-

 

57

Interest in joint ventures

 

17

 

 

480

 

432

Other long-term assets

 

18

 

 

185

 

435

Total non-current assets

 

 

 

 

87,728

 

85,269

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Trade receivables

 

20

 

 

3,864

 

4,614

Prepayments and other receivables

 

20

 

 

3,626

 

4,515

Cash and cash equivalents

 

19

 

 

6,583

 

10,367

Total current assets

 

 

 

 

14,073

 

19,496

TOTAL ASSETS

 

 

 

 

101,801

 

104,765

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Trade and other payables

 

21

 

 

(5,835)

 

(9,629)

Deferred revenue

 

21

 

 

(13,662)

 

(14,761)

Onerous contract provision

 

22

 

 

-

 

(2,914)

Lease liabilities

 

23

 

 

(907)

 

-

Total current liabilities

 

 

 

 

(20,404)

 

(27,304)

 

 

 

 

 

 

 

 

Net current liabilities

 

 

 

 

(6,331)

 

(7,808)

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

Onerous contract provision

 

22

 

 

-

 

(2,860)

Lease liability

 

23

 

 

(3,040)

 

-

Total non-current liabilities

 

 

 

 

(3,040)

 

(2,860)

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

(23,444)

 

(30,164)

 

 

 

 

 

 

 

 

NET ASSETS

 

 

 

 

78,357

 

74,601

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

 

Share capital

 

 

 

 

-

 

-

Share premium

 

24

 

 

80,217

 

68,912

Shares to be issued

 

12

 

 

-

 

11,745

Other reserves

 

 

 

 

(500)

 

(443)

Foreign exchange reserve

 

 

 

 

904

 

1,584

Retained earnings

 

 

 

 

(2,264)

 

(6,871)

 

 

 

 

 

78,357

 

74,927

Non-controlling interests

 

 

 

 

-

 

(326)

TOTAL EQUITY

 

 

 

 

78,357

 

74,601

 

 

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 23 March 2020 and signed on its behalf by:

 

 

Toby Hall                                                                               Michael Salazar

Chief Executive Officer                                                       Chief Financial Officer     

 

 

Company Statement of Financial Position as at 31 December 2019

 

 

 

Notes

 

31 December

2019
$ 000's

 

31 December

2018
$ 000's

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

Intangible assets

 

14

 

39,543

 

39,407

Investment in subsidiaries

 

16

 

41,697

 

44,269

Right-of-use assets

 

23

 

672

 

-

Investments

 

 

 

-

 

57

Interest in joint ventures

 

17

 

520

 

520

Other-long term assets

 

18

 

185

 

435

Total non-current assets

 

 

 

82,617

 

84,688

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Trade and other receivables

 

20

 

1,136

 

3,131

Prepayments and other receivables

 

20

 

6,408

 

8,761

Cash and cash equivalents

 

19

 

3,589

 

5,397

Total current assets

 

 

 

11,133

 

17,289

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

 

93,750

 

101,977

 

LIABILITIES

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Trade and other payables

 

21

 

(14,861)

 

(12,730)

Deferred revenue

 

21

 

(5,094)

 

(4,222)

Lease liability

 

23

 

(197)

 

-

Total current liabilities

 

 

 

(20,152)

 

(16,952)

 

 

 

 

 

 

 

Net current (liabilities) / assets

 

 

 

(9,019)

 

337

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

Lease liability

 

23

 

(797)

 

-

Total non-current liabilities

 

 

 

(797)

 

-

 

 

 

 

 

 

 

Total Liability

 

 

 

20,949

 

16,952

 

 

 

 

 

 

 

NET ASSETS

 

 

 

72,801

 

85,025

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Share capital

 

 

 

-

 

-

Share premium

 

24

 

80,217

 

68,912

Shares to be issued

 

12

 

-

 

11,745

Other reserves

 

 

 

(500)

 

(443)

Retained earnings

 

 

 

(6,916)

 

4,811

 

 

 

 

 

 

 

TOTAL EQUITY

 

 

 

72,801

 

85,025

 

 

The notes form an integral part of these financial statements.

These financial statements were approved by the Board of Directors on 23 March 2020 and signed on its behalf by:

 

 

Toby Hall                                                               Michael Salazar

Chief Executive Officer                                       Chief Financial Officer

 

 

Group Cash Flow Statement for the year ended 31 December 2019

 

 

Notes

Year ended
31 December 2019
$ 000's

 

Year ended
31 December 2018
$ 000's

Cash flows from operations

 

 

 

 

Operating EBITDA

 

6,971

 

4,047

Adjustments for:

 

 

 

 

Restructuring costs

 

-

 

(743)

Strategic review costs

 

-

 

(110)

Decrease in trade and other receivables and reclassification of restricted cash from other long-term assets

 

407

 

97

Decrease in trade and other payables

 

(220)

 

(1,241)

Payments towards Onerous contracts

22

(1,396)

 

-

Onerous contract final settlement

22

(5,280)

 

-

Withdrawal of gTLD applications

 

148

 

120

Foreign exchange loss

 

101

 

152

Net cash flow from operating activities

 

731

 

2,322

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Sale of reseller (join.law)

16

383

 

-

Payments to acquire intangible assets

14

(193)

 

(99)

Payments to acquire fixtures & equipment

15

(38)

 

(20)

Interest received

 

9

 

16

Payments towards restructuring of contracts

 

-

 

(811)

Receipts from the disposal of tangible assets

 

-

 

2

Acquisition of subsidiary, net of cash acquired

12

-

 

(9,136)

Acquisition costs

 

-

 

(595)

Net cash flow from investing activities

 

161

 

(10,643)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Interest paid

8

(137)

 

(180)

Proceeds from / (repayment of) borrowings

21

(3,000)

 

3,000

Share buyback

25

(440)

 

-

Principal elements of lease payments

23

(1,099)

 

-

Net cash flow from financing activities

 

(4,676)

 

2,820

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(3,784)

 

(5,501)

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

10,367

 

15,868

Cash and cash equivalents at end of period

       19

6,583

 

10,367

 

The notes form an integral part of these financial statements

 

 

Company Cash Flow Statement for the year ended 31 December 2019

 

 

Notes

Year ended
31 December 2019
$ 000's

 

Year ended
31 December 2018
$ 000's

Cash flows from operations

 

 

 

 

Operating EBITDA

 

784

 

1,184

Adjustments for:

 

 

 

 

Restructuring costs

 

-

 

(743)

Strategic review costs

 

-

 

(110)

Decrease in trade and other receivables and reclassification of restricted cash from other long-term assets

 

1,815

 

1,341

Decrease in trade and other payables

 

(359)

 

(1,105)

Withdrawal of gTLD applications

 

148

 

120

Foreign exchange loss

 

(86)

 

(75)

Net cash flow from operating activities

 

2,302

 

612

 

 

 

 

 

Cash flow from investing activities

 

 

 

 

Interest received

 

9

 

16

Payments to acquire intangible assets

14

(159)

 

-

Acquisition of subsidiary

16

-

 

(10,000)

Acquisition Costs

 

-

 

(595)

Net cash flow from investing activities

 

(150)

 

(10,579)

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Proceeds from / (repayment of) borrowings

21

(3,000)

 

3,000

Interest paid

8

(137)

 

(180)

Share buyback

 

(440)

 

-

Principal elements of lease payments

23

(383)

 

-

Net cash flow from financing activities

 

(3,960)

 

2,820

Net (decrease) / increase in cash and cash equivalents

 

(1,808)

 

(7,057)

Cash and cash equivalents at beginning of period

 

5,397

 

12,454

Cash and cash equivalents at end of period

19

 

3,589

 

5,397

 

The notes form an integral part of these financial statements

 

Group Statement of Changes in Equity for the year ended 31 December 2019

 

 

Share Capital

Share premium reserve

Shares to be issued

 

Other Reserves

Foreign currency translation reserve

Retained earnings

Total

Non-controlling interest

Total equity

 

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

-

60,060

-

-

1,197

4,367

65,624

(70)

65,554

 

 

 

 

 

 

 

 

 

 

Profit / (loss) for the period

-

-

-

-

-

(12,652)

(12,652)

16

(12,636)

Other comprehensive income

-

-

-

(443)

387

-

(56)

-

(56)

Total comprehensive (loss) / income

-

-

-

(443)

387

(12,652)

(12,708)

16

(12,692)

Additions to share premium

-

8,852

-

-

-

-

8,852

-

8,852

Shares to be issued

-

-

11,745

-

-

-

11,745

-

11,745

Credit to equity for equity-settled share-based payments

-

-

-

-

-

1,150

1,150

-

1,150

Adjustments arising from change in non-controlling interest

-

-

-

-

-

264

264

(272)

(8)

As at 31 December 2018

-

68,912

11,745

(443)

1,584

(6,871)

74,927

(326)

74,601

 

 

 

 

 

 

 

 

 

 

Change in accounting policy (Note 23)

-

-

-

-

-

(1,406)

(1,406)

-

(1,406)

Restated as at 1 January 2019

-

68,912

11,745

(443)

1,584

(8,277)

73,521

(326)

73,195

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

4,738

4,738

-

4,738

Other comprehensive income

-

-

-

(57)

(680)

-

(737)

-

(737)

Total comprehensive (loss) / income

-

-

-

(57)

(680)

4,738

4,001

 

4,001

Additions to share premium

-

11,745

(11,745)

-

-

-

-

-

-

Share buy back

-

(440)

-

-

-

-

(440)

-

(440)

Credit to equity for equity-settled share-based payments

-

-

-

-

-

1,275

1,275

-

1,275

Adjustments arising from change in non-controlling interest

-

-

-

-

-

-

-

326

326

As at 31 December 2019

-

80,217

-

(500)

904

(2,264)

78,357

-

78,357

 

·      Share premium - This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issue of shares are deducted from share premium

·      Shares to be issued - This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC. The share were issued in January 2019 (Note 24)

·      Other reserves - This reserve represents the gain and losses arising from assets designated as held for sale and marked at fair value through OCI.

·      Foreign currency reserve - This reserve represents gains and losses arising on the translation of foreign operations into the Group's presentation currency.

·      Retained earnings - This reserve represents the cumulative profits and losses of the Group.

·      Non-controlling interests reserve - This reserve represents the share of the interest held by the non-controlling shareholders of the subsidiary undertakings.

 

The notes form an integral part of these financial statements.

 

Company Statement of Changes in Equity  for the year ended 31 December 2019

 

 

Share Capital

Share premium reserve

Shares to be issued

 

Other Reserves

Retained earnings

Total

 

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

 

 

 

 

 

 

 

At 1 January 2018

-

60,060

-

-

33,299

93,359

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

(29,630)

(29,630)

Other comprehensive loss

-

-

-

(443)

-

(443)

Total comprehensive loss

-

-

-

(443)

(29,630)

(30,073)

Additions to share premium

-

8,852

-

-

-

8,852

Shares to be issued

-

-

11,745

-

-

11,745

Credit to equity for equity-settled share based payments

-

-

-

-

1,142

1,142

As at 31 December 2018

-

68,912

11,745

(443)

4,811

85,025

 

 

 

 

 

 

 

Change in accounting policy (Note 23)

-

-

-

-

(387)

(387)

Restated as at 1 January 2019

-

-

-

-

4,424

84,638

 

 

 

 

 

 

 

Loss for the period

-

-

-

-

(12,614)

(12,614)

Other comprehensive income / (loss)

-

-

-

(57)

-

(57)

Total comprehensive loss

-

-

-

(57)

(12,614)

(12,671)

Additions to share premium

-

11,745

(11,745)

-

-

-

Share buyback

-

(440)

-

-

-

(440)

Credit to equity for equity-settled share based payments

-

-

-

-

1,274

1,274

As at 31 December 2019

-

80,217

-

(500)

(6,916)

72,801

 

·    Share premium - This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issue of shares are deducted from share premium

·    Shares to be issued - This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC. The share were issued in January 2019 (Note 24).

·    Other reserves - This reserve represents the gain and losses arising from assets designated as held for sale and marked at fair value through OCI.

·    Retained earnings - This reserve represents the cumulative profits and losses of the Company.

The notes form an integral part of these financial statements.

 

Notes to Financial Statements

 

1  Summary of Significant Accounting Policies

(a)  General information

Minds + Machines Group Limited is a company registered in the British Virgin Islands under the BVI Business Companies Act 2004 with registered number 1412814. The Company's ordinary shares are traded on the AIM market operated by the London Stock Exchange. The nature of the Group's operations and its principal activities are set out in note 3.

 (b)  Basis of preparation

The Group's and Company's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standard Board (IASB). These financial statements are presented in US Dollars and rounded to the nearest thousand. Foreign operations are included in accordance with the policies set out in note 1(l).

(c)  Basis of consolidation

The consolidated financial information incorporates the results of the Company and entities controlled by the Company (its subsidiaries) (the "Group") made up to 31 December each year. Control is achieved when the Company:

·      has the power over the investee;

·      is exposed or has rights, to variable return from its involvement with the investee; and

·      has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with the Group's accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the Group are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group's equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may initially be measured at fair value or at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group's interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amounts by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributable to the owners of the Company.

When the Group loses control of a subsidiary, the gain or loss on disposal recognized in profit or loss is calculated as the difference between the aggregate of the fair value of the consideration received and the fair value of any retained interest and the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified / permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 7 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

When a separate identifiable segment meets the definition of Discontinued Operations (i.e. when agreement has either been reached to sell a component of the Group's business or the sale has taken place in the reporting period), results of that segment are accounted for, in line with those applicable accounting standards, as discontinued operations on the Group Statement of Total Comprehensive Income. Prior period results are also disclosed on a like for like basis. Any assets in still held by the Group at the end of the reporting period are in respect of these discontinued operations are classified as held for sale in the Group Statement of Financial Position.

(d)  Statement of compliance with IFRS

The Group's and Company's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

New and amended standards adopted by the group

i)   The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2019:

-       IFRS 16 Leases

The group had to change its accounting policies as a result of adopting IFRS 16. The group elected to adopt IFRS 16 using the modified retrospective approach. Under this approach comparative information is not restated. This is disclosed in note 23.

The other amendments not listed above did not have any impact on the amounts recognized in prior periods and are not expected to significantly affect the current or future periods.

ii)  New standards and interpretations not yet adopted

At the date of authorization of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group's financial statements.

(e)  Going concern

The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. At the year end, the Group had current assets of $14.1m and current liabilities (excluding deferred revenue) of $6.8m and therefore net current assets (excluding deferred revenue) of $7.3m, including $6.6 million held as cash and cash equivalents.

In making this assessment the Directors have prepared cash flow forecasts taking into account current trading levels. The Directors have also considered the impact of the coronavirus to the business and has performed a sensitivity analysis to the cash flow forecasts. Performing such sensitivity analysis shows that the Group still has adequate resources to continue in operational existence for the foreseeable future and therefore as a going concern.

Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. The group actively manages the working capital requirements and has enough funds to meet the cash flow requirements.

(f)  Business combinations

Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by the Group in exchange for control of the acquire. Acquisition-related costs are recognized in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognized at their fair value at the acquisition date, except that:

·      deferred tax assets of liabilities and assets or liabilities related to employee benefits arrangement are recognized and measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and

·      assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed.

 (g)  Joint ventures

A joint venture is an entity where the Group has joint control and has rights to the net assets of the arrangement. The Group has interests in joint ventures, which are jointly controlled entities, whereby the ventures have a contractual arrangement that establishes joint control over the economic activities of the entity. The contractual agreement requires unanimous agreement for financial and operating decisions among ventures. 

The Group's interests in jointly controlled entities are accounted for by using the equity method. Under the equity method, the investment in the joint ventures is carried in the statement of financial position at cost plus post acquisition changes in the Group's share of net assets of the joint venture.  The income statement reflects the share of the results of operations of the joint venture. The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made where necessary to bring the accounting policies in line with those of the Group.

Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of current assets or an impairment loss. The joint venture is accounted for using the equity method until the date on which the Group ceases to have joint control over the joint venture.

Upon loss of joint control, the Group measures and recognizes its remaining investment at its fair value. Any difference between the carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds on disposal are recognized in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate.

(h)  Goodwill

Goodwill is initially recognized and measured as set out in note 1(f).

Goodwill is not amortized but is reviewed for impairment at least annually.  For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

 (i)  Leases (the group as a lessee) (effective 1 January 2019)

The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated. This means comparative information is still reported under IAS 17 and IFRIC 4.

The Group as a lessee

For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:

•      the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group

•      the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract

•      the Group has the right to direct the use of the identified asset throughout the period of use.

 

Measurement and recognition of leases as a lessee

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).

 

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

 

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate.

 

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

 

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

 

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

 

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term. On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in trade and other payables.

 (j)  Revenue recognition

The Group and Company recognize revenue to depict the transfer of promised goods or services to customers an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Group and Company follow these steps;

1.     Identify the contract(s) with a customer

2.     Identify the performance obligations in the contract

3.     Determine the transaction price

4.     Allocate the transaction price to the performance obligations in the contract

5.     Recognize revenue when (or as) the entity satisfies a performance obligation

 

Registry revenue

Registry revenue arise from the sale of domain names (fixed fees charged to registrars for the initial registration or renewals of the domain name) and from the sale of brand protection services (i.e. AdultBlock).

•      Revenue from the sale of domain names

Revenue from the sale of domain names arise from fixed fees charged to registrars for the initial registration and renewal. 

Where the fee from the initial registration matches the fee from the renewal, the fee from both the initial registration and renewal is recognized on a straight-line basis over the registration term.

Where the fee from the initial registration is higher than the renewal fee (arising mainly from 'premium names'), the 'premium' (the difference between the first-year fee and ongoing renewal fee) is recognized as revenue immediately with the balance recognized on a straight-line basis over the registration period. The renewal fee carries on being recognized on a straight-line basis as well.

Fees from renewals are deferred until the new incremental period commences. 

•      Revenue from the sale of brand protection services

Revenue from the sale of brand protection services arises from fixed fees charged to registrars both for the initial registration and renewal. The fee from the initial registration typically matches the fee from the renewal, subject to promotional discounts.

Revenue for such fees is recognised using the output method as prescribed by IFRS 15. Revenue is recognised on the basis of direct measurement of the value provided to the underlying customer by considering the identified milestones achieved, as follows:

verification - occurs at the initial registration and renewals thereafter to ensure that the customer has the right to the label being protected;

variants - where purchased, this is a one-time event at the time of registration to create the complete list of confusingly similar labels being protected; and

blocking - an ongoing service to ensure that the label (and where applicable, its variants) is blocked from being registered as a domain name over the registration and renewal period.

A percentage of the registration or renewal fee is allocated to each milestone and recognised as revenue when the milestone is reached either at a point in time (verification and creation of variants) or over time (blocking) on a straight-line basis.

Rendering of services (Registry service provider ("RSP") revenue and consultancy services)

Revenue is generated by providing RSP and consultancy services over a period of time. Fees for these services are deferred and / or accrued and recognized as performance occurs, typically on a straight-line basis over that period.

 (k)   Partner payments

Partner payments represents the expense relating to certain TLDs where royalty and similar payments are required to be made, including any minimum revenue guarantees.

Such payments are based on the Group's and Company's billing and are deferred in line with accounting revenue.

(l)  Foreign currencies

Functional and presentation currency

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group company is expressed in US Dollars, which is the presentation currency for the consolidated financial statements. The Company's functional currency is US Dollars.

Transactions and balances

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recognized at the rates of exchange prevailing on the dates of transactions.  At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing at that date.  Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.  Non-monetary items that are measured at historical cost in foreign currencies are not retranslated.

Exchange differences are recognized in profit and loss in the period in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the date of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group's entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.

In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e. partial disposals of associates or joint arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

(m)  Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment loss.

Internally generated intangible assets -research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally generated intangible asset arising from the development (or from the development phase) of an internal project is recognized if, and only if all of the following conditions have been demonstrated:

•      the technical feasibility of completing the intangible asset so that it will be available for use or sale;

•      the intention to complete the intangible asset and use or sell it;

•      the ability to use or sell the intangible asset;

•      how the intangible asset will generate probable future economic benefits;

•      the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

•      the ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

Useful live and amortisation

Amortization is recognized so as to write off the cost of assets less their residual values over their useful lives, using the straight-line method, on the following basis.

•      Generic Top Level Domains - indefinite life (not amortized)

•      Contractual based intangible assets - indefinite life (not amortized)

•      Software and development costs - over 3 years or over its useful life (as below)

Software and development costs are amortized over their useful economic life. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed when circumstances indicate a change to its useful life. Changes in the expected useful life are accounted for by charging the amortization period and treated as a change in accounting estimate.

(n)  De-recognition of intangible assets

An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is de-recognized.

(o)  Fixtures and equipment

Fixtures and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight line method, on the following basis.

•      Fixtures and equipment - over 3 to 5 years

 (p)  Impairment of fixtures and equipment and intangible assets excluding goodwill

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less that its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is being recognized immediately in profit or loss.

(q)  Finance costs/revenue

Interest expenses are recognized using the effective interest method.

Finance revenue is recognized using the effective interest method.

(r)      Financial instruments

Financial assets and financial liabilities are recognized in the Group's balance sheet when the Group becomes party to the contractual provision of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit of loss are recognized immediately in profit or loss.

Financial assets

All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial assets within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: 'investments in equity instruments designated at FVTOCI' and 'financial assets at amortized cost'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimates future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instrument.

Financial assets at amortized cost

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'financial assets at amortized cost'. These assets are measured at amortized cost using the effective interest method, less Impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when recognition of interest would not be material.

Financial assets at amortized cost include cash and cash equivalents. Cash and short-term deposits in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

Investments in equity instruments designated as FVTOCI

Investments in equity instruments designated as FVTOCI are non-derivatives that are designated as FVTOCI. Changes to the value of investments in equity instruments are accounted for through OCI.

Listed shares held by the Group that are traded in an active market are classified as being investments in equity instruments and are stated at fair value. Gains and losses arising from changes in fair value are recognized in OCI and accumulated in the other reserve. Dividends from investments in equity instruments are recognized in profit or loss when the Group's right to receive the dividends is established.

Impairment of financial assets

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For all other financial assets objective evidence of impairment could include:

•      significant financial difficulty of the issuer or counterparty; or

•      default of delinquency in interest or principal payments; or

•      it becoming probable that the borrower will enter bankrupt or financial re-organization.

For financial assets carried at amortized cost, the amount of the impairment is based on expected credit losses assessed on the management's historic experience of losses and factoring in any macro-economic factors.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit and loss.

With the exception of investments in equity instruments designated at FVTOCI, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

De-recognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

On de-recognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received net of direct issue costs.

Financial liabilities

Financial liabilities are classified as trade and other payables.

Trade and other payables

Trade and other payables, including borrowings, are initially measured at fair value, net of transaction costs.

Trade and other payables are subsequently measured at amortized costs using the effective interest method, with interest expense recognized on an effective yield basis.

The effective interest method is a method of calculating the amortized costs of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

De-recognition of financial liabilities

The Group de-recognizes financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

(s)  Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year.  Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.  The Group's liability for the current year is calculated using jurisdictional tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the tax computations and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case it is also dealt with in equity.

Current and deferred tax for the year

Current and deferred tax are recognized in profit of loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized on other comprehensive income or directly inequity respectively.

(t)  Provisions

Provisions are recognized 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.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimates to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable can be measured reliably.

(u)  Share-based payment transactions

Equity-settled share-based payments to employees are measured at the fair value of the equity instrument at the grant date.  The fair value excludes the effect of non market-based vesting conditions.  The fair value is determined by using the Black-Scholes model.  Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 25.

The fair value determined at the grant date of the equity-settled shared-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the equity instruments that will eventually vest.  At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based vesting conditions.  The impact or the revision of the original estimates, if any, is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 11).

(v)  Investment in subsidiary undertakings

In the parent company financial statements, fixed asset investment in subsidiaries and joint ventures are shown at cost less provision for impairment.

2  Significant accounting judgements, estimates and assumptions

The preparation of the Group's consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Other disclosures relating to the Group's exposure to risks and uncertainties includes:

•      Financial instruments risk management and policies                    Note 26

•      Sensitivity analysis                                                                               Note 26

Judgements

In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Intangible Assets

Within intangible assets are assets classified as gTLD assets and contract based intangible assets.

Under the requirements of IAS 38 Intangible Assets and the Group's assessment thereof, the Group has determined that gTLD assets and contract based intangible assets have an indefinite life as the Group has an automatic right to renew the asset every ten years.

Determining whether intangible assets are impaired requires an estimation of the value in use of the cash-generating units to which those assets have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.

The most significant judgement involved in the impairment review of intangible assets is the determination of cash-generating units, and this judgement has a significant impact on the outcome of the impairment review.  The directors have grouped gTLDs with similar characteristics to form a single cash-generating unit. The cash generating units have been identified in note 14.

Goodwill and gTLD assets have not been impaired in the current year. Details of goodwill and intangible assets are set out in note 13 and 14 respectively.

Revenue recognition

Revenue includes revenue from the sale of brand protection services, which arises from fixed fees charged to registrars both for the initial registration and renewal. The fee from the initial registration typically matches the fee from the renewal, subject to promotional discounts.

In considering the revenue recognition policy for revenue generated from the sale of brand protection services, the Group's and Company's existing revenue recognition policy, pursuant to the requirements of IFRS 15 is applied. The policy includes the identification of performance obligations in the contract. Determining whether a single or multiple performance obligations exists requires judgement. The contract with the underlying customer is considered to be a single performance obligation as the benefit of providing contract elements on their own do not provide the intended benefit of brand protection. The entire transaction price as determined is therefore allocated to this performance obligation.

Consideration has been given as to recognise the revenue on a straight-line basis over the period of the contract, on an input (i.e. based on the costs incurred) method or output method (based on direct measurement of the value to the customer of the services transferred to date) as prescribed by IFRS 15.

The output method, including using certain milestones identified (verification, creation of variants and blocking) as the measure of determining the relevant output is considered to best depict the value of the service provided to the end customer. The value of each milestone is estimated based on the information available including third party data.

Revenue is therefore recognised as the milestones are achieved either at a point in time once the milestone is achieved or over a period of time on a straight-line basis where the milestone is provided over a period of time.

Going concern

The Directors have adopted the going concern basis of accounting in preparing the annual financial statements. Determining whether it is appropriate to adopt the going concern basis requires significant judgement. In making this judgement, the Directors have considered the current trading the funding level and external factors such as the impact of the coronavirus as disclosed in the accounting policies (Note 1.e)

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in future financial years, are described below. The Group based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Impairment of non-financial assets

Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. In the absence of available data from similar transactions, the recoverable amount has been assessed by reference to value in use. The value in use calculation is based on a discounted cash flow ("DCF") model. The cash flows are derived from the budget for the three years. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognized by the Group. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Note 13 and Note 14.

Taxes

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. The Group has $31.1m (2018: $30.6m) of tax losses carried forward. These losses relate to subsidiaries that have a history of losses, do not expire, and may not be used to offset taxable income elsewhere in the Group. There is uncertainty over the utilization of these tax losses in future periods and on that basis, the Group has determined that it cannot recognize deferred tax assets on the tax losses carried forward. If the Group was able to recognize all unrecognized deferred tax assets, profit and equity would have increased by $5,496k. Further details on taxes are disclosed in Note 9.

Fair value measurement of financial instruments

Financial assets relate to cash and bank balances, loans, receivables and investments in equity instruments designated as at fair value through OCI, financial liabilities relate to trade and other payables. When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. See Note 26 for further disclosures.

Credit losses

During 2019, the Group recognized the inherent risk related to long overdue payment plan trade receivables. As a result, during the year the Group booked bad debt expense of $1,433k (2018: $2,112k).

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The bad debt provision consists of individually impaired trade receivables due from companies. The bad debt provision represents the difference between the carrying amount of these trade receivables and the value of the expected proceeds from collection activities.

Revenue recognition

Revenue is primarily driven from fixed fees charged to registrars for initial registrations or renewal of domain names.

Where the fee from the initial registration matches the fee from the renewal, the fee from both the initial registration and renewal is recognized on a straight-line basis over the registration term.

Where the fee from the initial registration is higher than the renewal fee (arising mainly from 'premium name'), the 'premium' (the difference between the first-year fee and ongoing renewal fee) is recognized as revenue immediately with the balance recognized on a straight-line basis over the registration period. The renewal fee carries on to be recognized on a straight line basis as well.

Fees from renewals are deferred until the new incremental period commences. 

Any fees charges on a variable basis is not recognized as revenue until each party's performance obligations are met.

Leases

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

3  Operating segments - Group 

Information reported to the Group's management and internal reporting structure (including the Group's Chief Executive Officer) for the purpose of resources allocation and assessment of segment performance is focused on the category for each type of activity. The principal categories (and the Group's segments under IFRS 8) are:

·      Registry ownership ('Registry') - applicant of top level domain name from ICANN and wholesaler of domain names of those top level domain names

·      Registry service provider ('RSP') and consulting services - back end service provider for a registry

 

Segment revenues and results

2019

Registry
$ 000's

RSP
$ 000's

Unallocated
$ 000's

Total
$ 000's

 

 

 

 

 

Revenue

 

 

 

 

External sales

18,273

669

-

18,942

Total Revenue

18,273

669

-

18,942

 

 

 

 

 

Operating EBITDA

7,280

(309)

-

6,971

Bad debt Expense

(1,433)

-

-

(1,433)

Onerous contract provision release

-

1,351

-

1,351

Gain on disposal of reseller

383

-

-

383

Gain on termination of leases (IFRS 16)

299

-

-

299

Foreign exchange gain

-

-

378

378

Share based payment expense

-

-

(1,272)

(1,272)

Share of profit of joint venture

48

-

-

48

EBITDA

6,577

1,042

(894)

6,725

Amortisation and depreciation

 

 

 

(1,207)

Finance revenue

 

 

 

9

Finance costs

 

 

 

(649)

Profit before tax

 

 

 

4.878

Income tax

 

 

 

(140)

Profit after tax

 

 

 

4,738

 

2018

Registry
$ 000's

RSP
$ 000's

Unallocated
$ 000's

Total
$ 000's

 

 

 

 

 

Revenue

 

 

 

 

External sales

14,250

844

-

15,094

Total Revenue

14,250

844

-

15,094

 

 

 

 

 

Operating EBITDA

4,052

(5)

-

4,047

Strategic Review costs

-

-

(110)

(110)

Acquisition costs

(595)

-

-

(595)

Restructuring costs

(743)

-

-

(743)

Bad debt provision

(2,112)

-

-

(2,112)

Impairment loss on intangible assets

-

(4,145)

-

(4,145)

Onerous lease provision

-

(7,154)

-

(7,154)

Foreign exchange loss

-

-

(342)

(342)

Profit on disposal of tangible assets

-

-

(12)

(12)

Share based payment expense

-

-

(1,153)

(1,153)

Share of profit of joint venture

-

-

4

4

EBITDA

602

(11,304)

(1,613)

(12,315)

Amortisation and depreciation

 

 

 

(211)

Finance revenue

 

 

 

16

Finance costs

 

 

 

(180)

Profit before tax

 

 

 

(12,690)

Income tax

 

 

 

54

Profit after tax

 

 

 

(12,636)

 

Other segment information

 

 

Segment assets

 

Depreciation and amortization*

 

 

2019

 

2018

 

2019

 

2018

 

 

$ 000's

 

$ 000's

 

$ 000's

 

$ 000's

Registry

 

98,440

 

103,136

 

734

 

144

RSP

 

3,361

 

1,629

 

473

 

67

Total

 

101,801

 

104,765

 

1,207

 

211

 

Depreciation and amortization for 2019 include depreciation cost related to RSP contracts identified under IFRS16 in 2019 (Refer Note 23).

For the purpose of monitoring segment performance and allocating resources between segments, the Group's Chief Executive Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of interest in joint ventures. Goodwill has been allocated to reportable segments as described in note 13.

Geographical information

The Group's information about its segments by geographic location of assets is detailed below.

 

 

Revenue from external customers

 

Non-current assets

Additions to Non-current assets

 

 

2019

 

2018

 

2019

 

2018

2019

2018

 

 

$ 000's

 

$ 000's

 

$ 000's

 

$ 000's

$'000's

$'000's

British Virgin Islands

 

9,452

 

8,395

 

40,186

 

43,036

-

-

Ireland

 

0

 

3

 

1,558

 

146

-

98

United Kingdom

 

735

 

844

 

-

 

-

-

-

Germany

 

1,074

 

1,229

 

385

 

381

-

-

Hungary

 

-

 

-

 

185

 

189

-

-

USA

 

7,681

 

4,623

 

45,383

 

41,514

231

39,625

China

 

-

 

-

 

31

 

3

-

-

Total

 

18,942

 

15,094

 

87,728

 

85,269

231

39,723

 

Included in revenues arising from the Registry segment are revenues of $2,558k (2018: $1,596k), which arose from sales to the Group's largest customer.

The timing of revenue recognition is detailed below:

 

 

 

Group

 

 

Company

 

 

2019
$ 000's

 2018
$ 000's

 

2019
$ 000's

 2018
$ 000's

Timing of revenue recognition

 

 

 

 

 

At a point in time (i.e. 'premium name revenue')

3,485

3,283

 

2,472

3,037

Over time

15,457

11,811

 

5,316

5,358

Total

18,942

15,094

 

7,788

8,395

 

4  Partner payments 

 

 

 

 

Group

 

 

Company

 

 

2019
$ 000's

 2018
$ 000's

 

2019
$ 000's

 2018
$ 000's

Partner payments

2,882

2,520

 

1,505

1,013

 

Partner payments represents the royalty or similar payments for certain TLDs. Such payments are based on the Group's and Company's billings and are deferred in line with accounting revenue.

 

 

5  Cost of sales

 

 

 

 

Group

 

 

Company

 

 

2019

$ 000's

2018

$ 000's

 

2019

$ 000's

2018

$ 000's

Third Party Fees

378

736

 

131

258

ICANN Fees

 

1,239

967

 

866

795

Marketing

 

1,611

1,317

 

1,519

1,183

Commissions

 

409

461

 

69

38

Total

 

3,637

3,481

 

2,585

2,274

 

6  EBITDA

 

EBITDA is arrived at after charging/(crediting):

 

 

Group

 

 

Company

 

2019

$ 000's

2018

$ 000's

 

2019

$ 000's

2018

$ 000's

Auditors' remuneration - current year auditors

 

 

 

 

 

     - Audit of these financial statements

103

83

 

103

83

     - Audit of the financial statements of subsidiaries

5

5

 

-

-

     - Tax compliance

11

11

 

-

-

     - Other services

1

1

 

-

-

Directors' emoluments - fees and salaries

819

1,027

 

619

619

Operating lease rentals*

-

818

 

-

-

Foreign exchange gain/(loss)

379

(342)

 

230

(391)

 

*From 1 January 2019, the group applied IFRS16 Leases and has therefore recognised right-of-use assets and liabilities for these leases (see note 23).

 

7  Employee information (excluding directors)

 

 

 

Group

 

Company

 

 

2019 $

000's

2018 $

000's

 

2019

$ 000's

2018

$ 000's

 

Staff costs comprise:

 

 

 

 

 

 

Wages and salaries

2,453

2,065

 

-

-

 

 

 

 

 

 

 

 

Monthly average number of employees:

 

 

 

 

 

 

Back office (Operations, Finance / legal and IT)

15

17

 

-

-

 

Sales & Marketing

6

6

 

-

-

 

Total average

21

23

 

-

-

 

 

8  Finance costs

 

 

 

 

Group

 

 

Company

 

 

2019

$ 000's

2018

$ 000's

 

2019

$ 000's

2018

$ 000's

Finance Cost

137

180

 

137

180

Interest and finance charges paid/payable for lease liability (refer note 23)

512

-

 

113

-

 

649

180

 

250

180

 

Finance costs relate to interest on borrowings on a facility of $3m which was entered in 2018 and was repaid in 2019 (see note 21 for further details).

 

9  Income tax expense - Group

 

The charge for the current year can be reconciled to the loss per the Group statement of comprehensive income as follows:

 

 

2019
$ 000's

2018
$ 000's

Current tax (charge) / credit

(140)

54

Deferred tax

-

-

 

(140)

54

 

 

 

 

2019
$ 000's

2018
$ 000's

Profit / (loss) before tax

4,878

(12,690)

Tax at the BVI tax rate of 0%

-

-

Research and development tax credit

-

-

Income tax (charge)/credit

(140)

54

 

(140)

54

 

Company

The charge for the current year can be reconciled to the loss per the Company statement of comprehensive income as follows:

 

2018
$ 000's

2018
$ 000's

Current tax

-

-

Deferred tax

-

-

 

-

-

 

 

 

 

2018
$ 000's

2018
$ 000's

Profit / (loss) before tax on continuing operations

(12,614)

(29,630)

Tax at the BVI tax rate of 0%

-

-

 

-

-

 

The British Virgin Islands under the IBC (international business company) imposes no corporate taxes or capital gains. However, the Company may be liable for taxes in the jurisdictions where it is operating. The Group tax charge of $140K (2018: $54k) relates to operations taxed in their local jurisdiction.

No deferred tax asset has been recognized because there is insufficient evidence of the timing of suitable future profits against which they can be recovered. Tax losses carried forward, which may be utilized indefinitely against future taxable profits amount to $12.7m (2018: $12.5m) in the USA, $1.6m (2018: $1.8m) in Germany, $6.5m (2018: $5.7m) in Ireland, $9.8 m (2018: $10.4m) in the United Kingdom, $697k (2018: $122k) in Hungary and $234k (2018: $Nil) in China.

 

10  Dividends

No dividends were paid or proposed by the Directors in 2019 (2018: $Nil).

 

11  Earnings per share

 

The calculation of earnings per share is based on the profit / (loss) after taxation divided by the weighted average number of shares in issue during the period.

 

2019
$ 000's

2018
$ 000's

Profit / (Loss) for the purpose of the basic and diluted earnings per share

 

 

Profit / (Loss) from continuing operations - excluding non-controlling interests

4,738

(12,652)

Total profit / (loss) for the year

4,738

(12,652)

 

 

 

Number of shares

2019
million

2018
million

Weighted average number of ordinary shares used in calculating basic loss per share

922.04

752.58

Effect of dilutive potential ordinary shares - share options and warrants

48.69

-

Weighted average number of ordinary shares for the purpose of diluted earnings per share

970.73

752.58

 

 

 

Profit / (Loss) per share from continuing operations

2019
cent

2018
cent

Basic

0.51

(1.68)

Diluted

0.49

(1.68)

 

In 2018, all potential shares were anti-dilutive due to the losses reported. The number of potential dilutive ordinary shares is 134.19 million.

12  Business Combinations

 

There was no business combination in 2019. In 2018, MMX acquired the entire membership interest of ICM Registry, LLC ("ICM"). The acquisition was completed on 16 June 2018. The consideration for the acquisition was split into a cash payment of $10m and 225,000,000 new MMX ordinary shares with a value of $20,597k based on the share price of MMX on the date of the acquisition ($.092/6.9p). Of the 225,000,000 new MMX ordinary shares 96,699,235 shares ($8,852k) were issued on the date of the acquisition with the remaining 128,300,765 shares ($11,745k) deferred and were issued in January 2019.

13  Goodwill

 

Cost

Group

$ 000's

31 December 2019 and 31 December 2018

2,828

 

Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit from that business combination as a result of expected synergies from combined operations.  Goodwill has been allocated to the 'Registry' segment (a single 'CGU').

Impairment review

The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired.

At 31 December 2019, the Directors have carried out an impairment review and have concluded that no impairment is required.

The recoverable amount of the CGU is determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs. Management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three years and extrapolates cash flows into perpetuity based on an estimated growth rate of 5% (2018: 5%) for seven years thereafter and 5% (2018: 4%) into perpetuity. The growth rate is appropriate to the new gTLD market that the Group operates in.  The rate used to discount the forecast cash flows is 11.5% (2018: 11.5%).

The Group has carried out sensitivity analysis on the impairment test of the CGU. The Directors believe that any reasonably possible change in the key assumptions on which the recoverable amount of the CGU is determined would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash generating unit. A 1% decrease in the growth rate and an increase of 0.5% in the discount rate are considered reasonably possible.

14  Intangible assets

 

Group

 

generic Top Level Domains

Software & development costs

Contract based intangible assets

Other

Total

 

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

Cost

 

 

 

 

 

At 1 January 2018

41,629

2,670

4,206

170

48,675

Additions - acquisition of ICM

39,603

-

-

-

39,603

Additions

-

99

-

-

99

Exchange differences

(22)

(62)

-

-

(84)

At 31 December 2018

81,210

2,707

4,206

170

88,293

 

 

 

 

 

 

Additions

-

193

-

-

193

Exchange differences

(12)

36

-

-

24

At 31 December 2019

81,198

2,936

4,206

170

88,510

 

 

 

 

 

 

Accumulated Amortization and Impairment charges

 

 

 

 

 

At 1 January 2018

-

(2,323)

-

(170)

(2,493)

Amortisation charge for the year

-

(185)

-

-

(185)

Impairment charge for the year

-

-

(4,145)

-

(4,145)

Exchange differences

-

49

(61)

-

(12)

At 31 December 2018

-

(2,459)

(4,206)

(170)

(6,835)

 

 

 

 

 

 

Amortisation charge for the year

-

(209)

-

-

(209)

Exchange differences

-

28

-

-

28

At 31 December 2019

-

(2,640)

(4,206)

(170)

(7,016)

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 31 December 2019

81,198

296

-

-

81,494

At 31 December 2018

81,210

248

-

-

81,458

 

Company

 

generic Top Level Domains

$ 000's

Software & development costs

$ 000's

Other

$ 000's

Total

$ 000's

Cost

 

 

 

 

At 1 January 2018

39,379

106

99

39,584

Additions

-

-

-

-

 

 

 

 

 

At 31 December 2018

39,379

28

-

39,407

 

generic Top Level Domains

The Group applies for new generic Top Level Domains (gTLDs) to the Internet Corporation for Assigned Names and Numbers (ICANN). Successful applications are transferred from other long-term assets to Intangible assets. The Group capitalizes the full cost incurred to pursue the rights to operate gTLDs including amounts paid at auction to gain this right where there is more than one applicant to ICANN for the same gTLDs.

This class of intangible assets is assessed to have an indefinite life as it is deemed that the application fee and amounts paid at auction give the Group indefinite right to this gTLDs.

Through the acquisition of ICM in 2018 the Group acquired a further four gTLDs onto their portfolio with a value of $39,606k. There have been no further acquisition during 2019.

The Group tests its gTLDs annually for impairment, or more frequently if there are indicators that the asset might be impaired.

Impairment review of intangible assets

In 2018 management determined that a contract entered into in 2017 that contained a minimum revenue guarantee payable by the Group to its Business Partner was an onerous contract (see Note 22). Consequently during 2018 it recorded an onerous contract provision and fully impaired the intangible asset previously recorded related to the contract. The total amount of the impairment recorded in 2018 was $4,057k which was allocated to the RSP CGU. Further in 2019 there was no impairment of intangible assets.

As at 31 December 2019, the directors carried out an impairment review of the other intangible assets in their portfolio and concluded that no further impairments were required. The recoverable amounts of each group of gTLDs, software, and other intangible assets are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to the selling process and direct costs. Management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risk specific to the asset.

gTLD assets with indefinite lives are allocated to CGUs, which fall under the Registry operating segment. The carrying values of the CGUs are $28,834k (2018:$28,544k) for consumer lifestyle gTLDs, $321k (2018:$321k) for geographic gTLDs, $9,177k (2018:$9,177k) for professional occupations, $39,606 (2018: $39,606) for adult themed gTLDs and $3,556k (2018: $3,556k) for other generic names.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next three years and extrapolates cash flows based on an estimated growth rate of 5% for seven years thereafter and 5% (2018: 4%) into perpetuity. The rate used to discount the forecast cash flow is 11.5% (2018: 11.5%). The assumptions are based on past experiences.

The Group has carried out sensitivity analysis on the impairment test of each CGU. The Directors believe that any reasonable possible change in the key assumptions on which the recoverable amount of Goodwill in the CGUs would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the cash generating unit. A 1% decrease in the growth rate and an increase of 0.5% in the discount rate are considered reasonably possible.

 

15  Fixtures and equipment - Group

 

 

Fixtures & equipment

$000's

Cost

 

 

At 1 January 2018

 

365

Additions

 

20

Disposals

 

(9)

Exchange differences

 

15

At 31 December 2018

 

391

 

 

 

Additions

 

38

Disposals

 

-

Exchange differences

 

(2)

At 31 December 2019

 

427

 

 

 

Depreciation

 

 

At 1 January 2018

 

(285)

Depreciation charge for the period

 

(26)

Disposal

 

11

Exchange differences

 

(32)

At 31 December 2018

 

(332)

 

 

 

Depreciation charge for the period

 

(28)

Disposals

 

-

Exchange differences

 

1

At 31 December 2019

 

(359)

 

 

 

Carrying amount

 

 

At 31 December 2019

 

68

At 31 December 2018

 

59

 

 

16  Investment in subsidiaries

 

 

 

Company

Investments in subsidiary undertakings of the Company

2019

$ 000's

2018

$ 000's

Cost

 

 

At the beginning of the year

44,269

39,503

Movement in the year

290

30,649

Impairment charge

(2,862)

(25,883)

At 31 December

41,697

44,269

 

During the year Company has attributed $290k (2018: $52k) towards share options expenses to its subsidiaries. The movement in previous year includes investment in ICM Registry, LLC of $30,597k (see business combinations note 12 for further details).

Of the impairment charge of $2,862k in 2019 (2018: $25,883k), $1,438k (2018: $22,068k) was allocated to the registry CGU and $1,424k  (2018: $3,815k) was allocated to RSP CGU. As a result of Group restructuring activities including the outsourcing of back-end services, Minds + Machines Limited (Ireland) and Minds + Machines LLC's operations were reduced therefore the investment in these subsidiaries was impaired to reflect the recoverable amounts (being their net asset positions). Minds and Machines Limited (UK) has been fully impaired due to the recognition of an onerous contract provision relating to its business, see note 22 for further details.

In addition to the impairment charge of $2,862k (2018: $25,883k), the Company also impaired inter-company balances of $7,894k (2018: Nil) giving rise to a total impairment charge of $10,757k (2018: $25,883k).

During the year the Group sold its interest in reseller platform (Dot Law, Inc.) at net a gain of $383k.

Details of the Company's subsidiaries are as follows:

Name

Place of Incorporation (or registration) and operation

Principal activity

Proportion of ownership interest (%)

Proportion of voting power (%)

Minds + Machines US, Inc. (DE)

US

Holding company

100

100

Minds + Machines LLC (1)

US

Registry

100

100

Minds + Machines LLC (FL) (1)

US

Registry

100

100

Bayern Connect GmbH

Germany

Registry

100

100

Minds and Machines GmbH

Germany

Registry

100

100

Minds + Machines Ltd (Ireland)

Ireland

RSP

100

100

Minds and Machines Ltd (UK)

England & Wales

RSP

100

100

Minds + Machines Registrar Ltd (IE) (2)

Ireland

Dormant

100

100

Minds and Machines Registrar UK Ltd

England & Wales

Dormant

100

100

Minds + Machines Hungary

Hungary

Registry

100

100

Emerald Names Inc

US

Registry

100

100

Boston TLD Management LLC

US

Registry

99

99

Dot Law Inc

US

Registrar

51

90

LW TLD Ltd

BVI

Registry

100

100

Beijing MMX Tech Co. Ltd

China

Registry

100

100

ICM (BVI) Ltd.

BVI

Registry

100

100

ICM Registry, LLC (3)

US

Registry

100

100

ICM Registry AD, LLC (3)

US

Registry

100

100

ICM Registry PN, LLC (3)

US

Registry

100

100

ICM Registry SX, LLC (3)

US

Registry

100

100

 

(1)   Minds + Machines LLC (CA), Minds + Machines LLC (FL) is direct subsidiaries of Minds + Machines US, Inc (DE). During the year, "Dot law Inc" was dissolved by the Group.

(2)   Minds + Machines Registrar Limited (Ireland) is a direct subsidiary of Minds + Machines Ltd (Ireland).

(3)   On the 16 June 2018, these subsidiaries were acquired by the parent entity Minds + Machines Group Limited, (see business combinations note 12 for further details)

17  Interest in joint ventures

 

During 2019, the Group had a 50% interest in two joint ventures; Entertainment Names Inc and Dot Country LLC.  These joint ventures were formed to sell second-level domain names to registrars.

 

 

Group

Share of interest in assets / (liabilities)

2019

$ 000's

2018

$ 000's

Assets

 

 

- Non-current

96

152

- Current

399

292

 

495

444

Liabilities

 

 

- Current

(15)

(12)

 

 

 

Share of interest in net assets

480

432

 

 

 

- Income

66

18

- Cost of sales

(5)

(12)

- Expenses

(13)

(2)

Profit / (loss) after income tax

48

4

 

There are no commitments arising in the joint ventures.

There are no contingent liabilities relating the Group's interest in the joint ventures, and no contingent liabilities of the venture itself.

Each joint venture is individually immaterial.

The principal place of business for Entertainment Names Inc. is the British Virgin Islands. The principal place of business for Dot Country LLC, is the Cayman Islands.

Company

Interests in joint ventures are accounted for at cost of $520k (2018: $520k) in the Company financial statements.

 

18  Other long-term assets

 

 

 

Group and Company

 

 

2019

$ 000's

 

2018

$ 000's

Other long-term assets

185

 

435

Total

185

 

435

 

During the application process payments for gTLD applications are recorded as other long term receivables. While there is no assurance that MMX will be awarded any gTLDs, long-term assets are receivables and payments will be reclassified as intangible assets once the gTLD strings are available for their intended use, which is expected to occur following the delegation of gTLD strings by ICANN. In general, MMX does not expect to withdraw any of its applications unless the application has not passed the evaluation process and there is no further recourse or there is an agreement to sell or dispose of its interest in certain applications. If MMX withdraws its application, a portion of application fee is refundable with the un-refundable portion accounted for as an expense. If MMX sells or disposes of its interest in an application, the profit, net of the un-refundable application fee is recognized in the profit and loss account. In 2019, the gain on such disposals (gain on gTLDs auction) is $588k (2018: $480k).

19  Cash and cash equivalents

 

The Group has total cash balances of $6,583k (2018: $10,367k). The Company's cash balance is $3,589k (2018: $5,397k).

Of the Group's total cash balances $1,741k (2018: $3,221k) are restricted funds, of which $1,592k (2018: $1,000k) is held to fund letters of credit required by ICANN.

20  Trade and other receivables

 

 

 

 

Group

 

Company

 

 

2019

$ 000's

2018

$'000's

2019

$ 000's

2018

$'000's

Trade receivables

 

3,864

6,721

1,136

4,952

Allowance for doubtful debts

 

-

(2,107)

-

(1,821)

 

 

3,864

4,614

1,136

3,131

Other receivables (including VAT)

 

1,420

735

187

662

Prepayments (including partner payments and marketing)

 

2,097

3,621

1,794

2,510

Accrued revenue

 

59

109

-

109

Balances due from subsidiaries

 

-

-

4,377

5,430

Due from joint ventures

 

50

50

50

50

 

 

3,626

4,515

6,408

8,099

Total

 

7,490

9,129

7,544

11,892

 

Provision for doubtful debt

 

2019

 

$ 000's

At 1 January 2018

-

2018 provision

2,107

At 31 December 2018

2,107

2019 Provision

-

Less: Utilization of Provision

(2,107)

Closing Balance as of 31 December 2019

-

 

 

Additional bad debt write-off in 2019

1,433

 

During 2017 the Group extended credit terms over its standard 30 day payment terms on the sale of certain domain name inventory. Extended terms of 12 months (and in some cases longer) were typically provided in respect of sales of high value "premium" names, after assessment of the counter parties ability to meet such payment terms. In 2018 the Group provisioned $2,107k against aged receivables relating to these extended payment plans from China, USA and Europe. In the current year the Group is utilizing the full amount of the 2018 provision and wrote off a further $1,433k being there remaining debt from the 2017 extended payment plans. The Group has received collateral in privately held businesses and will seek to monetize the collateral in due course.

The loans to subsidiaries are interest free and have no fixed repayment date. The loans have been classified to current receivables in the current year as the directors assess these balances to be recoverable in 2019. The difference between the carrying value and the fair value of the loan at the reporting date is deemed to be immaterial.

Group

Trade receivables disclosed above are measured at amortized cost.

Ageing of receivables:

 

2019

2018

 

$ 000s

$ 000s

0 - 30 days

2,754

1,944

31 - 60 days

756

266

61 - 90 days

89

369

91 days and over

265

4,142

Total

3,864

6,721

 

Company

Trade receivables disclosed above are measured at amortized cost.

Ageing of receivables:

 

2019

$ 000's

2018

$ 000's

0 - 30 days

665

958

31 - 60 days

412

68

61 - 90 days

34

35

91 days and over

26

3,891

Total

1,137

4,952

 

21  Trade and other payables

 

 

 

Group

 

Company

 

2019

2018

2019

2018

 

$ 000's

$ 000's

$000's

$ 000's

Trade payables

1,863

92

298

174

Registrar prepayments (payments in advance)

968

1,623

209

484

Other liabilities

524

2,081

35

33

Borrowings

-

3,000

-

3,000

Taxation liabilities

-

8

-

-

Accruals

2,234

2,755

1,132

828

Due to joint ventures

246

70

241

66

Due to subsidiaries

-

-

12,946

8,145

Trade and other payables

5,835

9,629

14,861

12,730

 

 

 

 

 

Deferred revenue

13,662

14,761

5,094

4,222

Trade and other payables including deferred revenue

19,497

24,390

19,955

16,952

 

Included within other liabilities are liabilities incurred in 2016 as a result of the restructuring of a contract deemed to be onerous in 2018. In 2019, the liability was settled (2018: $2,032k) as part of settlement of the onerous contract (see note 22).

MMX entered into a Facility Agreement with London and Capital Assets Management Limited, a shareholder in 2018. The facility provided $3 million of working capital to support future innovation and acquisition orientated activity by the Company. The amount was fully repaid in April 2019.

Deferred revenue references the transactions price allocated to unsatisfied performance obligation. Management expects that 62% of the transaction price allocated to the unsatisfied contract as of the year ended 2019 will be recognized as revenue in the next reporting period ($8.5m, 2018: $9.1m). The remaining 38% ($5.1m, 2018: $5.7m) will be recognized in the year 2021 and beyond.

All trade and other payables (other than deferred revenue as disclosed above) are due within one year and approximate their fair value.

22  Provisions

 

 

2019

$'000's

2018

$'000's

Onerous contract provision

-

5,774

 

-

5,774

 

 

 

Current

-

2,914

Non-current

-

2,860

 

-

5,774

 

 

Onerous contract provisions
$'000's

At 1 January 2018

 

Provision in the year

7,154

Payment during the year

(1,147)

Foreign exchange

(233)

At 31 December 2018

5,774

 

 

Payment during the year

(1,396)

Foreign exchange

155

Less: Settlement of onerous contract

(4,533)

At 31 December 2019

-

 

 

Settlement of Onerous contract provision
$'000's

Onerous contract provision release

4,533

 Release of liabilities relating to onerous contract

2,098

Total liabilities released

6,631

 

 

Less : Payment to settle onerous contract

(5,280)

Gain on settlement of onerous contract settlement

1,351

 

In December 2019, the Group reached a settlement on the onerous contract. The Group paid a full and final settlement of $5.3m in December 2019.  The settlement removes any obligations for future minimum revenue guarantees as well as any existing marketing liabilities of $2,032k (see note 21) and marketing commitments. The settlement is expected to save the Group in excess of $3.0m over the remainder of the contract. Further releasing the onerous contract provision has resulted in a 2019 gain of $1.4m

23  Leases

 

This note explains the impact of the adoption of IFRS 16 Leases on the group's financial statements.

As Indicated in Note 1(i), the Group has adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on balance sheet accounting model for leases. As a result, the Group, as a lessee has recognised right-of-use assets representing its right to use the assets under lease and lease liabilities representing its obligation to make lease payments.

Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.

The Group has many assets including registry platform. Before the adoption of IFRS 16, the Group classified each of its leases (as lessee) at the inception date as an operating lease. Prior to IFRS 16, these leases were not capitalised, the lease payments were recognised as an expense in the profit or loss on a straight-line basis over the lease term. Any prepaid amounts were recognised under prepayments.

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases. The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases. The right-of-use assets for most leases were recognised based on the carrying amount as if the standard had always been applied. In some leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.

The Group has applied IFRS16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been restated - i.e. it is presented, as previously reported, under IAS 17 and related interpretations.

New accounting policies of the Group upon adoption of IFRS 16 are laid out in Note 1(i), which have been applied from the date of initial application:

 

Impact on financial statements on adoption of IFRS 16

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17 leases. These liabilities were measured at the present value of the remaining lease payments, discounted using the lease's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 Jan 2019 was 11.5%

The Group also applied the available practical expedients wherein it:

·      Used a single discount rate to a portfolio of leases with reasonably similar characteristics

·      Relied on its assessment of whether leases are onerous immediately before the date of initial application

·      Applied the short-term leases exemptions to leases with a lease term that ends within 12 months at the date of initial application

·      Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application

·      Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease

 

The effect of adoption of IFRS 16 as at 1 January 2019 (increase/(decrease)) is as follows:

 

 

1 January 2019

January 2019

 

$'000's

$'000's

 

 

Group

Company

Assets

 

 

Right-of-use assets

2,447

678

 

 

 

Liabilities

 

 

Interest-bearing loans and borrowings

(3,574)

(1,065)

Total adjustment on equity:

 

 

Retained earnings

(1,127)

(387)

Prepayments

(279)

-

Total adjustment on equity

(1406)

(387)

 

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as follows:

 

 

1 January 2019

1 January 2019

 

$'000's

$'000's

 

Group

Company

Operating lease commitments as at 31 December 2018

2,369

697

Add:

 

 

Payments in optional extension periods not recognised as at 31 December 2018 and the effect of discounting

1,205

368

 

 

 

Lease liabilities as at 1 January 2019

3,574

1,065

 

On transition to IFRS 16, the Group and the Company has recognized right-of-use assets and lease liabilities, recognizing the difference in retained earnings. The impact on transition is summarized below.

 

 

Right-of-use Assets

 

Lease Liabilities*

Right-of-use Assets*

Lease Liabilities*

 

 

 

 

Group

 

Company

 

Registry Platform

$ 000's

Property Leases

$ 000's

 

Total

$ 000's

Lease Liabilities

$ 000's

Registry Platform

$ 000's

 

Lease Liabilities

$ 000's

 

 As at 1 January 2019

2,328

119

2,447

3,574

678

1,065

 Additions

1,015

244

1,259

1,259

258

258

 Depreciation and amortisation expense

(894)

(76)

(970)

-

(264)

-

Gain on termination of lease

 

 

 

(299)

 

(59)

 Interest expense

-

-

-

512

 

113

 Lease Payments

-

-

-

(1,036)

 

(383)

Foreign exchange

(63)

-

(63)

(63)

-

-

 As at 31 December 2019

2,386

287

2,673

3,947

672

994

 

 

 

 

 

 

 

 Current

 

 

 

907

 

197

 Non-current

 

 

 

3,040

 

797

 Total

 

 

 

3,947

 

994

 

*The Group and the Company has initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach comparative information is not restated.

24  Share capital and premium

 

Called up, allotted, issued and fully paid ordinary shares of no par value

Note

Number of shares

Price per share (cents/pence)

Total $ 000

 

 

 

 

 

 

 

 

 

 

As at 1 January 2018

 

699,857,562

 

60,060

Shares issued:

 

 

 

 

Issued on the 15 June 2018 for acquisition of ICM Registry, LLC

12

96,699,235

$0.092/6.9p

8,852

 

 

 

 

 

31 December 2018

 

 

796,556,797

68,912

 

 

 

 

 

Shares issued:

 

 

 

 

Issued on the 4 Jan 2019 for acquisition of ICM Registry, LLC

12

128,300,765

$0.092/6.9p

11,745

Share buy back

 

(5,837,160)

$0.078/6.0p

(440)

31 December 2019

 

919,020,402

 

80,217

 

During the year Company has bought back 5,837,160 shares ($440k) at an average price of 5.9p. The buyback of ordinary shares was approved by the board in June 2018.

25  Share-based payments

 

Share-based payment expense

2019

$ 000's

2018

$ 000's

Equity settled share based payments

1,272

1,150

Expense as a result of modification of equity settled share based payments

-

3

Total

1,272

1,153

 

In the year, 13,900,000 options and 14,600,000 Restricted Stock Units ("RSU's) were issued to the Executive team and key employees. This resulted in an increase in the share based payment expense (non-cash) in 2019. The valuation of the issued options is based on the Black-Sholes method as described below.

The Company has the following share option schemes in place:

•      Directors and Employees Share Option Scheme - Directors and certain senior executives are enrolled in a 'Restricted Share Option' (RSU) scheme (see below).

•      Restricted Share Option ('RSU') scheme - new scheme introduced on the 6 August 2018 for Senior Management.

 

Directors and Employees Share Option Scheme

 

 

2019

2018

 

Number of share options

Weighted average exercise price (cents / pence)

Number of share

options

Weighted average exercise price (cents / pence)

Outstanding at the beginning of the year

42,950,000

5.5/4.1

37,150,000

5.5/4.1

Granted during the year

13,900,000

Nil

5,800,000

Nil

Forfeited during the year

(100,000)

N/A

-

N/A

Exercised during the year

-

N/A

-

N/A

Expired during the year

(15,000,000)

N/A

-

N/A

Outstanding at the end of the year

41,750,000

2.3/1.8

42,950,000

-

Exercisable at the end of the year

9,150,000

11.8/9.3

14,150,000

11.8/9.3

 

1. Unexercised share options forfeited during the year 2019 is 100k (2018: Nil).

2. None of the shares were exercised in 2019 (2018: Nil).

 

The weighted average contractual life of outstanding options at the end of the year is 0.71 years (2018: 0.76 years).  There were 13,900,000 options granted in 2019 (2018: 5,800,000). The aggregate of the estimated fair values of the options granted under this scheme during 2019 is $1,035k (2018: $530k). The weighted average fair value of the options granted is $0.08/£0.06 (2018: $0.09/£0.07).

The general terms of the share options, under the company share options scheme, vest over 3 years (quarterly vesting, 1/12th of options vest every quarter) and are exercisable over ten years from the date of grant if the employee remains within the company. The outstanding share options at the year end range from $0.07/£0.05 to $0.17 / £0.12 (2018: $0.07/£0.05 to $0.15/£0.12).

Directors and employee share option scheme - share options granted in the year:

 

2019

2018

Weighted average share price (cents/pence)

7.4/6

9.0/7.1

Weighted average exercise price (cents/pence)

Nil

Nil

Expected volatility

NA

NA

Expected life

3 years

3 years

Risk-free rate

2%

2%

Expected dividend yield

Nil

Nil

 

The expected life used in the model has been adjusted, based on management's best estimate.

 

Restricted Share Option Scheme

 

 

2019

2018

 

Number of share options

Weighted average exercise price (cents / pence)

Number of share options

Weighted average exercise price (cents / pence)

Outstanding at the beginning of the period

7,750,000

-

166,668

-

Forfeited during the period

(200,000)

-

(100,000)

-

Exercised during the period

-

-

(66,668)

-

Expired during the period

-

-

-

-

Outstanding at the end of the period

22,150,000

-

7,750,000

-

Exercisable at the end of the period

-

-

-

-

 

*In 2019, none of share were exercised. All share options exercised during the 2018 were under the Restricted Shared Option Scheme which were settled in cash. This change was treated as a modification of a share based payment from equity settled to cash settled. The amount payable under this settlement amounted to $11k, of which $3k had been recognized as a share based expense in prior years and therefore reduced from equity in the current year as a repurchase of equity instrument. The balance of $8k was expensed.

Restricted Share Option Scheme - share options granted in the year:

Under the restricted share option scheme 14,600,000 were granted in 2019 (2018: 7,750,000). 

The market price of the ordinary shares at 31 December 2019 was $0.08/£0.06 (2018: $0.08/£0.06) and the range during the year was $0.0.7/£0.05 to $0.10/£0.77.

The aggregate of the estimate of the fair value of the options granted is $1,087k (2018: $708k). The weighted average fair value of the options granted is $0.09/£0.07 (2018: N/A).

The weighted average contractual life of outstanding options at the end of the year is 2.33 years (2018: 2.25 years). 

The general terms of the share options, under the RSU scheme, vest over 3 years (quarterly vesting, 1/12th of options vest every quarter) and are exercisable over three years from the date of grant if the employee remains within the company, at a nil exercise price.

Total warrants outstanding

As at 31 December 2019 the outstanding unexercised warrants in issue were:

Exercise Price

Expiry Date

Number of warrants

15p

18 March 2021

650,000

 

During the year 10,500,000 shares expired. No warrants were exercised in 2019 (2018: $Nil).

As at the 31 December 2018 the outstanding unexercised warrants in issue were:

Exercise Price

Expiry Date

Number of warrants

10p

06 May 2019

8,000,000

13p

31 October 2019

2,500,000

15p

18 March 2021

650,000

 

26  Financial instruments

 

Capital risk management

The Group and Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance.  On the 7 June 2018, the Group drew down on a facility of $3million in order to support the Group's operations and same was repaid in April 2019.

The capital structure of the Group and Company consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising of issued capital, reserves, and retained earnings.

The Group and Company are not subject to any externally imposed capital requirements.

The Group and Company's strategy is to ensure availability of capital and match the profile of the Group and Company's expenditures.  To date the Group has relied upon equity and debt funding to finance operations. The Directors are confident that adequate cash resources exist to finance operations to commercial exploitation, but controls over expenditure are carefully managed.

The Group and Company has a policy of not using derivative financial instruments for hedging purposes and therefore is exposed to changes in market rates in respect of foreign exchange risk, However, it does review its currency exposures on an ad hoc basis. Currency exposures relating to monetary assets held by foreign operations are included within the foreign exchange reserve in the Group Balance Sheet.

Categories of financial instruments

 

Group

Financial Instruments

2019

$ 000's

2018

$ 000's

Cash and bank balances

6,583

10,367

Financial assets at amortized cost

8,903

7,890

Investments in equity instruments at FVTOCI

-

57

Financial liabilities

 

 

Financial liabilities at amortized cost

3,335

6,783

 

Company

Financial Instruments

2019

$ 000's

2018

$ 000's

Cash and bank balances

3,589

5,397

Financial assets at amortized cost

7,731

11,476

Investments in equity instruments at FVTOCI

-

57

Financial liabilities

 

 

Financial liabilities at amortized cost

13,456

11,837

 

There are no material differences between the book values of financial instruments and their market values.

Financial risk management objectives

The Group and Company's Finance function provides services to the business, co-ordinates access to domestic and international financial markets, monitors and manages financial risks related to the operations of the Group and Company through internal risk reports, which analyses exposures by degree and magnitude of risks. 

It is, and has been throughout 2019 and 2018, the policy of both the Group and the Company that no trading derivatives are contracted.

The main risks arising from the Group and the Company's financial instruments are foreign currency risk, credit risk, liquidity risk, interest rate risk and capital risk. Management reviews and agrees policies for mitigating each of these risks, which are summarized below.

Market risk

The Group and Company's activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The risk is managed by the Group and Company by maintaining an appropriate mix of cash and cash equivalents in the foreign currencies it operates in. The Group and Company's management did not set up any financial instruments policy to manage its exposure to interest rates and foreign currency risk.

Foreign currency risk

The Group and Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise.  The Group and Company evaluates exchange rate fluctuations on a periodic basis to take advantage of favorable rates when transferring funds between accounts denominated in different currencies.

The carrying amount of the Group and Company's foreign currency denominated monetary assets and monetary liabilities at the reporting date is as follows:

Group

Liabilities

Assets

 

2019
$ 000's

2018
$ 000's

2019
$ 000's

2018
$ 000's

Sterling

1,055

2,031

53

1,335

USD

2,216

4,710

13,896

16,045

Euro

64

42

1,509

934

CNY

 

 

29

 

As at 31 December

3,335

6,783

15,487

18,314

 

Company

Liabilities

Assets

 

2019
$ 000's

2018
$ 000's

2019
$ 000's

2018
$ 000's

 

 

 

 

 

Sterling

-

-

1,180

3,822

USD

12,326

10,176

8,914

11,723

Euro

1,131

1,661

939

1,385

CNY

 

 

287

 

As at 31 December

13,457

11,837

11,320

16,930

 

Foreign currency sensitivity analysis

The following table details the Group and Company's sensitivity to a 10% increase and decrease in the functional currency against the relevant foreign currencies. 10% represents management's assessment of the reasonably possible change in foreign exchange rates.

The sensitivity analysis includes only outstanding foreign currency denominated financial instruments and adjusts their translation at the period end for a 10% change in foreign currency rates. The following table sets out the potential exposure, where a positive number below indicates an increase in profit or loss and other equity where the US Dollar strengthens 10% against the relevant currency. For a 10% weakening of the US Dollar against the relevant currency, there would be a comparable impact on the profit or loss and other equity, and the balances below would be positive.

 

Group

Pound Sterling Impact

Euro Impact

CNY impact

 

 

2019

2018

2019

2018

2019

2018

 

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

Profit or loss (i)

(111)

(337)

(157)

(98)

(3)

-

Other equity (ii)

-

-

-

-

-

-

 

(111)

(337)

(157)

(98)

(3)

-

 

 

 

 

 

 

 

 

Group

Pound Sterling Impact

Euro Impact

CNY impact

 

 

2019

2018

2019

2018

2019

2018

 

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000'

Profit or loss (i)

(118)

(382)

(207)

(305)

(29)

-

Other equity

-

-

-

-

-

-

 

(118)

(382)

(207)

(305)

(29)

-

 

•      The main attributable to the exposure outstanding on Pound Sterling and Euro is receivables and payables at the balance sheet date.

•      There is no impact on other equity, as the Group does not hold derivative instruments designated as cash flow hedges and net investments hedges.

In management's opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year.  Whilst the group operates across Europe and North America, operations are managed in US dollar and these financial statements are presented in US Dollars.

Interest rate risk

The Group and Company's exposure to interest rate risk is limited to cash and cash equivalents held in interest-bearing accounts and borrowings at a fixed interest rate.

Interest rate sensitivity analysis

The impact of interest rate fluctuations is not material to the Group and Company accounts.

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and Company.  The Group and the Company's financial assets are comprise of receivables, cash, and cash equivalents, and other long-term assets. 

The credit risk on cash and cash equivalents is limited as the counterparties are banks with high credit-ratings as determined by international credit-rating agencies.

The credit risk on other long-term assets is limited as the total amount represents two components: deposits for the right to secure a revenue-generating asset and restricted cash. The deposits for the right to secure revenue-generating assets are maintained by a government sponsored global organization that is contractually required to return a portion of these deposits if requested. Furthermore, the agency, a not-for-profit organization, is well funded by its member organizations and is not a risk to cease operations.  The restricted cash is deposited with banks with a high-credit rating as determined by international credit-rating agencies.

The exposure of the Group and the Company to credit risk arises from default of its counterparty, with maximum exposure equal to the carrying amount of receivables (excluding prepaid income), cash and cash equivalents, and other long term assets in the Group and Company statements of financial position.

As at 1 January 2019, the directors of the Company reviewed and assessed the Group's existing financial assets and amounts due from customers for impairment using reasonable and supportable information that is available without undue cost or effort in accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially recognized. See note 20 for further details on the Group and Company's bad debt provision.

The Group and Company do not hold any collateral as security other than as mentioned in Note 19

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate liquidity risk management framework for the management of the Group and Company's short, medium, and long-term funding and liquidity management requirements.  The Group and Company manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity profiles of financial assets and liabilities.

Cash forecasts are regularly produced to identify the liquidity requirement for the Group and Company.  To date, the Group has relied on the issuance of stock warrants and shares to finance its operations. The Group borrowed $NIL million in 2019 (2018: $3m).

The Group's and Company's remaining contractual maturity for its non-derivate financial liabilities with agreed repayment periods are:

 

 

Group

Company

31 December 2019

Weighted average effective interest rate

Within 1 year

$ 000s

1 - 5 years

$ 000s

Within 1 year

$ 000s

1 - 5 years

$ 000s

Non-interest bearing:

 

 

 

 

 

Trade and other payables

 

-

-

-

-

 

 

-

-

-

-

 

 

 

Group

Company

31 December 2018

Weighted average effective interest rate

Within 1 year

$ 000s

1 - 5 years

$ 000s

Within 1 year

$ 000s

1 - 5 years

$ 000s

Non-interest bearing:

 

 

 

 

 

Trade and other payables

 

5,033

-

3,000

-

 

 

5,033

-

3,000

-

Other Group and Company's non-derivative financial liabilities mature within one year.

The Group and Company had no derivative financial instruments as at 31 December 2019 and at 31 December 2018.

27  Commitments

The group as a lessee

2019

$ 000's

2018

$ 000's

Lease payments recognized under operating leases recognized as an expense in the year

-

895

 

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

 

2019

2018

 

$ 000's

$ 000's

Within one year

-

1,041

In the second to fifth years inclusive

-

1,328

 

-

2,369

 

Operating lease payments represent amounts payable by the Group for its office properties and outsourcing registry operations. Leases in relation to office properties are negotiated for an average period of three years with fixed rentals. Leases in relation to outsourcing registry operations are negotiated for a period of three to five years with fixed commitments. From 1 January 2019, the Group has recognised right-of-use assets for these leases, except for short term and low-value leases, See note 23.

As at 31 December 2019 and 31 December 2018, the Group has no capital commitments.

As at 31 December 2019 and 31 December 2018, the Company had no lease or capital commitments.

28  Related party transactions - Group

Balances and transactions between the company and its wholly owned subsidiaries, which are related parties, have been eliminated on consolidation. Transactions between the Group and its Joint ventures are disclosed below.

Joint ventures

During the year, the Group entered into transactions with its Joint Ventures that resulted in amounts owed to or due from the Joint Ventures. The balances at the year end were due to financial and equity requirements across the Joint Ventures. The balances have no fixed repayment and no interest is received or charged on these balances.

 

2019
$ 000's

2018
$ 000's

Due to Entertainment Names Inc

212

45

Due to Dot Country LLC

(32)

(66)

 

Remuneration of Key Management Personnel

The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out in the Directors' report.

Related party transactions - Company

Transactions between the Company and its subsidiaries and subsidiaries are disclosed below.

Subsidiaries

During the year, the Company's subsidiaries have provided certain services to the Company (RSP services) and recharged certain costs to the Company. Details of these transactions are shown below:

Recharged costs and services from

2019
$ 000's

2018
$ 000's

Minds and Machines LLC

2,878

2,949

Minds + Machines Limited (IE)

180

784

Minds and Machines Group limited

134

-

 

In addition, during the year, the Company has provided financing to its subsidiaries. The net balances due to the Company / (to its subsidiaries) are detailed below. The balances have no fixed repayment terms and no interest is charged on these balances.

Company

2019
$ 000's

2018
$ 000's

Minds and Machines LLC

(4,237)

(5,245)

Bayern Connect GmbH

377

443

Minds and Machines GmbH

560

630

Minds + Machines Limited (IE)

(1,130)

(1,661)

Minds + Machines Registrar Limited (IE)

-

-

Minds and Machines Limited (UK)

1,097

2,155

Minds and Machines Registrar UK Limited

9

9

Emerald Names, Inc

86

86

Minds + Machines (FL)

(682)

(566)

Minds + Machines, Inc.

5

5

Minds + Machines Hungary

329

311

Dot Law, Inc.

-

(673)

Boston TLD Management LLC

1,539

1,557

Beijing MMX Tech Co. Ltd

287

209

ICM Registry, LLC

(6,863)

8

ICM Registry AD, LLC

29

6

ICM Registry PN, LLC

29

6

ICM Registry SX, LLC

29

6

 

The Company also sold second level domain names to its subsidiary, Dot Law, Inc (DLI). DLI owns and operates join.law, a reseller of second level domain names. Any secondary domain names sold to DLI are to fulfil third-party orders from end users. Second level domain names sales and trade receivable balances outstanding at the year end are:

 

Company

Second level sale of domains

Trade receivable outstanding

 

2019

$ 000s

2018

$ 000s

 

2019

$ 000s

 

2018

$ 000s

Dot Law, Inc.

1,043

785

-

-

 

Joint ventures

During the year, the Company entered into transactions with its Joint Ventures that resulted in amounts owed to or due from the Joint Ventures. The balances at the year end were due to financial and equity requirements across the joint ventures. The balances have no fixed repayment and no interest is received or charged on these balances.

 

2019
$ 000's

2018
$ 000's

Due from Entertainment Names Inc

167

50

Due to Dot Country LLC

(32)

(33)

 

Remuneration of Key Management Personnel

The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out in Directors's report along with the share options issued.

29  Post Balance Sheet Events

There are no post balance sheet events.

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
END
 
 
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Quick facts: Minds + Machines Group Limited

Price: 5.85

Market: AIM
Market Cap: £53.76 m
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