35-39 Moorgate
London
EC2R 6AR
www.centralnic.com
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Annual Report
2018
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OVERVIEW
CentralNic Group Plc
“
I am pleased to report on a year of
outstanding growth for CentralNic, following
the KeyDrive acquisition. The Group made
its most significant step forward to date in
its strategy to build a global domain name
and web services provider, which effectively
doubled the Group’s size and completed
its transition to a virtually pure play recurring
revenue business.
”
Mike Turner
Chairman
Contents
Overview
Financial statements
Highlights 2
Independent auditors’ report 32
Our sales 4
Consolidated statement of comprehensive income 37
Reseller segment 5
Consolidated statement of financial position 38
Small business segment 6
Consolidated statement of changes in equity 39
Corporate segment 7
Consolidated statement of cash flows 40
CentralNic Group at a glance 8
Notes to the consolidated financial statements 41
Strategic report
Chairman’s statement 10
Chief Executive Officer’s report 11
Chief Financial Officer’s report 14
Governance
Board of Directors 18
Directors’ report 20
Corporate governance 24
Audit committee report 28
Remuneration report 29
Company statement of financial position 75
Company statement of changes in equity 76
Notes to the Company financial statements 77
Particulars of subsidiaries and associates 83
Shareholder information 86
Glossary 88
CentralNic Group Plc Annual Report 2018
1
OVERVIEW
A transformational year
Financial highlights
Revenue increased by a factor of 14 times
since flotation in 2013
£3.1m
£6.1m
£10.4m
£22.1m
£24.3m £42.7m
2013
2018
Revenue up 100% to £42.7m
(2017 £21.4m*)
Gross Profit up 69% to £19.7m
(2017: £11.6m*)
Adjusted EBITDA** up 66% to £7.0m
(2017: £4.2m)
Cash balance up 66% to £18.0m
(2017: £10.9m)
Net interest bearing debt reduced by 66% to £2.5m
(2017: £7.2m)
* Excluding premium domain sales – no longer a core activity of the Group.
** Excludes impact of share based payments expense for options, premium domain sales, foreign currency exchange and non core operating costs.
2 CentralNic Group Plc Annual Report 2018
Operational highlights
• Transformational acquisition of KeyDrive integrating to plan:
– Doubled size of Group with additional staff in Germany,
USA and Luxembourg
– Augments CentralNic’s market strength, doubling customer numbers
– Diversifies business providing cross-selling opportunities
– Provides market leading technology which facilitates future acquisitions
– Cost synergies being realised
• Acquisition of GlobeHosting increased presence in Romania and Brazil
• SK-NIC integration successfully completed with pleasing contribution
to the Group
• Global customer footprint expanded
• Recurring revenues stable at 90% (2017: 91%)
Post year-end events
• Michael Riedl (former CFO of KeyDrive) appointed CFO of CentralNic
• Don Baladasan appointed MD of CentralNic to focus on integrations
• CentralNic awarded management of c.680,000 domain names by ICANN
CentralNic Group Plc Annual Report 2018
3
OVERVIEW
Our sales
Who we sell to
£3.4m
£18.3m
£20.9m
Reseller
Small businesses
Corporate
What we sell
% of revenue by domain suffix
19%
7%
58%
.com .sk
.net
.org
.xyz
.de
.info
.io
.ae
.eu
others
In total, CentralNic serves more than 250,000
customers within three customer segments
• c. 5,000 resellers including all the largest
domain retailers in the world which
sell domain names to their customers
• c.300 corporations with up to
50,000 domain names each to
protect their brands
• c.250,000 small businesses in
almost every country in the world
who need domain names for their
websites and email
Current services
Our platforms supported approximately
15.6 million domain names in 2018
New services
We are scaling up additional services
to our customers such as hosting,
website building, security certification
and online brand protection
4%
3%
2%
2%
1%
2%
1%
1%
Customer concentration is low with the largest
customer representing only c.4% of revenues
4 CentralNic Group Plc Annual Report 2018
Reseller segment
CentralNic is one of the world’s leading domain name reseller platforms, supplying domain
names to more than 5,000 reseller clients. These include all of the world’s largest domain
name retailers, and some of the biggest companies in the world.
Our Reseller segment was transformed in 2018 by the acquisition of KeyDrive and
a full year’s contribution from our November 2017 acquisition of SK-NIC.
Revenue in the Reseller segment increased 264% from £5.7m to £20.9m. Gross profit
for the segment nearly doubled from £4.9m to £9.7m.
DEC 2018
13,473,089
DEC 2017
7,478,862
GROWTH
5,994,227
80%
80%
Domains supplied
to resellers up 80%
• Over 5,000 customers
• 264% revenue growth to £20.9m in 2018 (2017: £5.7m)
• 100% gross profit growth to £9.7m in 2018 (2017: £4.9m)
• 47% gross margin in 2018 (2017: 85%)
• Ranked No. 2 as wholesale registrar and in top 5 as registry backend
• Renewal rate 85-90%
CASE STUDY: LEADING US HOSTING COMPANY
Services CentralNic provides:
• Supplies domains with over 1,000 different
• Automates all the manual processes required
top-level domain extensions, including the long
tail, high-margin country-code domain names,
sourced from 200+ countries and territories
around the world
• Standardises the processes for acquiring those
domain names
in registering domain names
• Centralises billing with single invoices covering
domains with hundreds of sources
• Saves resellers from having to work with dozens
of additional suppliers around the world, each
with its own unique protocols, technologies
and manual processes and billing
CentralNic Group Plc Annual Report 2018
5
OVERVIEW
Small business segment
CentralNic provides more than 250,000 small businesses in almost every country in the world
with domain names and value-added services.
These are all provided via a subscription model leading to substantial recurring revenues.
Our Small Business Segment revenues for 2018 were £18.3m up 24% from £14.7m in
2017. Gross profit increased from £6.0m in 2017 to £7.5m in 2018. The portfolio of Small
Businesses portals was extended during the year to include domaindiscount24, Moniker.com,
and GlobeHosting.
DEC 2018
1,991,158
DEC 2017
626,566
GROWTH
1,364,592
218%
2m
Around 2m domains
supplied to small
businesses
• Over 250,000 customers
• 24% revenue growth to £18.3m in 2018 (2017: £14.7m)
• 25% gross profit growth to £7.5m in 2018 (2017: £6.0m)
• Gross margin 41% (2017: 41%)
• Renewal rate 65- 85%
CASE STUDY: SINGLE OFFICE, SINGAPORE-BASED COMPANY
Services CentralNic provides:
• Sells customer a small portfolio of
domain names
• Provides website hosting
• Provides email hosting
• Provides security certificates as a reseller
of third-party providers
• Manages the customer relationship
including billing and customer service
• Provides expert advice, as an outsourced
IT partner, to assist the customer’s growth
6 CentralNic Group Plc Annual Report 2018
Corporate segment
CentralNic manages the domain portfolios of over 300 clients. Some of which are the world’s
biggest brands. Many of these companies buy several thousand domain names in order to
protect these brands from being compromised and to ensure they are renewed at appropriate
time, preventing risk of substantial reclaim costs.
This is a relatively new business for CentralNic and is witnessing rapid growth rates. The business
also enjoys the highest gross margins across the Group and a renewal rate of over 90%.
Our new Corporate services have the highest renewal rates of our 3 segments, replacing our
phased out premium domain sales business.
Adjusting for phased out premium domain sales, revenues for the segment increased by 290%
from £0.9m to £3.4m, and gross profit increased by 207% from £0.8m to £2.5m.
DEC 2018
137,309
DEC 2017
0
GROWTH
137,309
Corporate business
transformed to recurring
revenue model
• Over 300 customers
• 290% revenue growth to £3.4m
in 2018 (2017: £0.9m adjusted for phased out one off premium domain sales)
• 207% gross profit growth to £2.5m
in 2018 (2017: £0.8m adjusted for phased out one off premium domain sales)
• 72% gross margin
in 2018 (2017: 89% adjusted for phased out one off premium domain sales)
• Renewal rate 91.4%
CASE STUDY: A LEADING FMCG BRAND
Services CentralNic provides:
• Buys all domain names that are relevant to the
customer on its behalf
• Provides expert advice and guidance on new
registrations and administration of the portfolio
• Administers and reports on the customer’s
domain portfolio
• Mitigates online business continuity risk by
ensuring domain names are renewed at
appropriate time
• Protect customers’ brand and web presence
from being compromised, and from facing
substantial costs to reclaim lost domain names
• Provides online domain name monitoring
services to effectively and proactively mitigate
and defend against online abuse of brands
CentralNic Group Plc Annual Report 2018
7
OVERVIEW
CentralNic Group at a glance
Building the global
A truly global business with customers
in almost every country in the world.
Our global presence continues to rapidly expand as a result
of our acquisitive and organic expansion and
clear focus on growth markets.
Domains in
the USA
DEC 2017
1,105,697
DEC 2018
2,723,014
146.3%
Percentage growth
Revenue model
Our subscription business model provides high levels of recurring revenues
at 90%. Visibility has been greatly improved by phasing out our one-off
premium domain sales business.
Customer renewal rates are highly predictable depending on domain, segment
and customer maturity and range from between c.65% and c.90%.
We enjoy high cash conversion (pre-tax) with annual subscriptions all paid
in advance.
8 CentralNic Group Plc Annual Report 2018
digital economy
Domains in
Western Europe
365.2%
Percentage growth
DEC 2018
5,617,807
DEC 2017
1,207,505
Market
The market opportunity is huge. The Total
Addressable Market is estimated at US$30bn.
CentralNic currently has less than 1%
penetration and the industry is highly
fragmented and ripe for consolidation.
Domains in the
Rest of the World
DEC 2017
5,792,226
25.4%
Percentage growth
DEC 2018
7,260,735
CentralNic Group Plc Annual Report 2018
9
STRATEGIC REPORT
Chairman’s statement
I am pleased to report on a year of outstanding
growth for CentralNic, following the KeyDrive
acquisition. The Group made its most significant
step forward to date in its strategy to build a
global domain name and web services provider,
which effectively doubled the Group’s size and
completed its transition to a virtually pure play
recurring revenue business.
Mike Turner Chairman
Both CentralNic’s traditional business and the newly acquired
KeyDrive continued to grow organic revenues with healthy
profit margins, generating high levels of operating cash flow.
This transformational evolution of the Group is the result of
enormous hard work from our executives and staff, and I thank
them on behalf of the Board and the Shareholders for their
efforts. I also welcome the new staff and senior executives
who joined the enlarged Group through the KeyDrive
acquisition, as well as the new Shareholders who joined the
register as part of that transaction. Notably Alex Siffrin, the
founder of KeyDrive, has joined CentralNic as Chief Operating
Officer, as well as taking most of his consideration for the sale
of KeyDrive in CentralNic shares, making his family office one
of our largest Shareholders.
Coinciding with the transaction, we extended our borrowing
facility with Silicon Valley Bank, whose continued support of
the Group is also worthy of recognition.
The new financial year has started with continuing progress
on integration, including the appointment of the former
KeyDrive CFO, Michael Riedl, to the Board in the position of
Group Chief Financial Officer. In addition, CentralNic’s former
CFO, Don Baladasan, was appointed to the new position of
Group Managing Director, with special responsibility for the
integration of new acquisitions.
Results to date in the new financial year, together with the
Group’s high percentage of recurring revenues, provide the
Board with every confidence of meeting market expectations
for 2019.
Furthermore, the continued availability of attractive acquisition
targets coupled with the Group’s proven ability to source,
complete and integrate complex acquisitions around the
world, provides an excellent opportunity to build a sizeable
global business to rival the largest industry players. Given its
equity position has substantially improved and its current
trading is favourable to market expectations, the Company is
currently reviewing its capital structure for efficiency in view
of its continued acquisition strategy.
Mike Turner
Chairman
12 May 2019
10 CentralNic Group Plc Annual Report 2018
Chief Executive Officer’s report
CentralNic enjoyed a successful year in 2018,
with its organic growth supplemented by the
transformative acquisition of KeyDrive, which
contributed to the results for the last five months
of the year. Revenues for the year were £42.7m,
a 100% increase over 2017, and EBITDA was
£7m in 2018, a 66% improvement on 2017 –
excluding the £3.0m revenue and EBITDA
contribution made in 2017 by premium
domain name trading, which is no longer a
core activity of the Group.
Ben Crawford Chief Executive Officer
Market and strategy
CentralNic’s reported revenues are now 14 times higher than they
were on listing on AIM five years ago. Facing an addressable
market estimated at over US$30 billion, we are committed to
continuing the strategy proven to deliver this excellent growth,
combined with strong margins and cash generation.
As a foundation technology of the internet, domain names are
governed by global standards, meaning that in every region of
the world, the domain industry uses similar technologies and
exhibits the same fundamental business dynamics of recurring
revenues with highly predictable renewal rates and high cash
conversion. CentralNic was formed by combining a number of
the most advanced technical platforms – developed over the
past 20 years as the internet in the US and Western Europe
became a ubiquitous tool for business. Our core strategy is
globalising these platforms, focusing on growth markets –
both through winning new customers and making earnings
acquisitions – and upselling additional technical services to
our domain name customers.
CentralNic is the only Company among its peers to offer
comprehensive and quality services to all its defined customer
groups – Resellers, Small business and Corporates. For each
of those customer types, CentralNic has developed and
operates a highly automated software platform. Our organic
growth strategy includes continuing to win and retain new
clients, but it also extends to introducing additional subscription
services to those customers.
CentralNic has sales and operations teams dedicated to
achieving organic growth. In addition, distinct corporate
development and integration teams focus on sourcing and
completing acquisitions and integrating them into our
operations. This achieves savings while obtaining additional
customers and services. CentralNic has executed five
acquisitions in the past five years. Similarly, KeyDrive, which
CentralNic acquired in 2018, acquired the same number of
businesses over the same time period. There remain dozens
of attractive acquisition opportunities around the world, and
CentralNic’s proven team maintains a healthy deal pipeline.
The economic drivers of the business remain strong. The
internet now has four billion active users, meaning at least two
billion adults are yet to start using it. Whilst micro-businesses
are catered to, in some countries by platforms like Facebook,
Amazon, WhatsApp and WeChat, small businesses and
corporations continue to rely on domain names as the
foundations for their websites, emails and online brand
protection strategies.
Further to this, the five-year period of disruption from 2013 to
2018, when the market was flooded with low-cost domain
names, is now behind us, with adoption of these domain
names only accounting for less than 10% of the market.
CentralNic’s most popular domains such as .com, .net and .uk
continue to show robust growth both in volumes and pricing.
CentralNic Group Plc Annual Report 2018
11
STRATEGIC REPORT
Chief Executive Officer’s report continued
Acquisitions
Three successful acquisitions contributed to CentralNic’s
extraordinary growth in 2018.
On 2 August 2018, CentralNic acquired KeyDrive, a company
with complementary technology platforms and customer
bases. This has created an enlarged Group that now owns
and operates proprietary software platforms for each major
customer type for domains and web presence services.
Additionally, there was direct duplication of activities within
CentralNic and KeyDrive in some areas, creating
opportunities for cost synergies, which we are well advanced
in realising. Due to the rapid integration of the acquired
KeyDrive businesses, which has included merging
businesses and migrating customers between businesses,
the separate contributions of what were formerly
independent business cannot be reliably reported
post-acquisition. The combined entities have the number
and breadth of senior managers to continue organic
growth from a much higher base than the Company had
previously, as well as to accelerate the roll-up strategy
designed to make us a global player at scale.
CentralNic previously acquired SK-NIC, the manager of the
exclusive country code top-level domain for Slovakia,.SK,
on 12 December 2017. SK-NIC supplies more than 390,000
domain names via 2,300 retailers, 99% of which are
domiciled in Slovakia, a country with one of the strongest
growth rates in the European Union. .SK is among the 50
most popular ccTLDs in the world, with an 84% renewal
rate. Like most European ccTLD operators, SK-NIC is
privately held, yet it is virtually unique in that it has a
perpetual contract with the national Government.
CentralNic retained the staff and management in Slovakia,
upgraded the software to its own proprietary platform,
and made strategic hires to better position .SK as a
foundation of the Slovak digital economy.
Finally, CentralNic acquired the business assets of
GlobeHosting on 6 September 2018, increasing its market
share in the growing Romanian and Brazilian markets, and
adding the proprietary SSL certificate product GlobeSSL
to CentralNic’s assets.
Through these acquisitions, CentralNic doubled its headcount,
with additional staff in Germany (housed in a purpose-built
engineering headquarters near Saarbrücken), the USA,
Luxembourg, Slovakia and Romania.
In addition to the contribution these acquisitions have made
to the continued growth of CentralNic, they also represent a
practical demonstration of our team’s ability to source and
complete deals around the world and successfully integrate
them. We continue to build a pipeline of acquisition targets
that fit our criteria with a view to making further acquisitions
in the coming years.
Operational review
Due to the rapid integration of the acquired KeyDrive
businesses, which has included merging businesses and
migrating customers between businesses, the separate
contributions of what were formerly independent business
cannot be reliably reported post-acquisition.
CentralNic experienced both acquisition-driven and organic
growth across its three segments, which reflect its main
customer types of Resellers, Small business and Corporates.
All three segments share the same virtuous characteristics
of selling subscription-based products and services with
highly predictable renewal rates and cash generation.
All three benefited both operationally and financially from
integration activity.
Supplying domains to resellers became CentralNic’s largest
business in 2018, growing by more than 260%, principally as
a result of the KeyDrive and SK-NIC acquisitions. It provides
the long tail of country code and new TLD domain inventory to
5,000 resellers including virtually all the world’s leading domain
name retailers, which in turn resell the domains to their
customers. Therefore, the growth from those retailers drives
our reseller business forwards. CentralNic has retained its
leading position for the past five years, as a distributor of new
TLDs. Additional growth in 2018 was provided by new reseller
wins and exclusive registry backend contracts, notably with
.icu and .ooo, which both ranked in the top 20 new TLDs by
volume. Cost savings were achieved by the closure of
KeyDrive’s Open Registry operation, with the clients migrated
onto the CentralNic Registry platform.
Revenue from the small business customer group grew by 24%
in 2018 largely through the KeyDrive acquisition. At year-end,
c.250,000 small business customers use CentralNic retailers to
purchase domain names for their websites and email services.
CentralNic acquires customers using search engine marketing
and upselling them via email marketing and telesales. Integration
savings were achieved in 2018 by consolidating the supplier
accounts and connections between legacy CentralNic and
KeyDrive businesses, combining purchasing power and
reducing duplication to improve margins.
12 CentralNic Group Plc Annual Report 2018
CentralNic’s Corporate customer segment services large
corporations that view domain names as a form of intellectual
property similar to trademarks, which must be secured and
protected by brand owners. The over 300 corporate clients
who have entrusted their domain portfolio management to
CentralNic include many S&P 500 companies and household
brand names. In the years to 2017, CentralNic operated a
business within the Corporate segment trading in high priced
premium domain names. In 2018, the strategic focus shifted
from premium domain sales, and via the KeyDrive acquisition it
was replaced by BrandShelter – a company which manages
large domain portfolios for corporate customers. In so doing,
CentralNic replaced a business based on one-off transactions
with a recurring revenue business with comparable revenues,
while providing the highest renewal rates, margins and growth
rates in the Group.
The objective for us now is to maintain our revenue growth
and healthy margins across all three segments, while we
rapidly scale the business up via continued acquisitions.
Post year-end and outlook
Trading in Q1 2019 was in line with management expectations.
This included revenue growth across all segments and hitting
milestones in the integration of the new acquisitions. For
example, to eliminate duplication, KeyDrive’s KS Registry
clients were migrated to the CentralNic Registry platform,
while CentralNic’s EPP Gateway clients were migrated to
the KeyDrive reseller platform.
Additionally, we won new customers across the three
segments, including being selected by the internet regulator,
ICANN (Internet Corporation for Assigned Names and
Numbers) for the bulk transfer of c.680,000 domain names
from a former registrar that was no longer accredited.
We also upgraded our United Kingdom corporate headquarters
and New Zealand office in the beginning of 2019.
In the five years since it first listed, CentralNic’s revenues
increased 14-fold from £3.1m to close to £42.7m. The
expectations for the business are to continue on its aggressive
growth trajectory, supported by continued demand, the planned
introduction of new products and services such as cloud
hosting, managed DNS and online brand protection, plus a
healthy pipeline of earnings enhancing acquisition prospects.
Ben Crawford
Chief Executive Officer
12 May 2019
CentralNic Group Plc Annual Report 2018
13
STRATEGIC REPORT
Chief Financial Officer’s report
2018 was a year of transformational events,
most importantly, the acquisition of KeyDrive SA
in August 2018. Through this acquisition,
CentralNic augmented its market share across
all its key business areas and now has access
to a technology platform that will facilitate the
integration of future acquisitions.
Michael Riedl Chief Financial Officer
The KeyDrive SA acquisition was then complemented with the
acquisition of GlobeHosting, a Romanian/Brazilian hosting
business. Management expects that the earnout conditions will
be met in full, testimony to the great performance of these assets.
The transaction was financed by an oversubscribed cash
offering, raising £24.0m and an expansion of CentralNic’s
facility with Silicon Valley Bank to £24.0m from £18.0m. The
founder and largest Shareholder of KeyDrive took most of their
consideration in CentralNic shares. This demonstrates the
continued support of management, and both the equity and
debt capital markets, in the ongoing prospects of the
Company. In consequence, equity at year-end was £61.0m,
up 131% from the prior year’s £26.5m balance.
Further, the Group enjoyed the full year effect of the 2017
acquisition of SK-NIC, the operator of the Slovakian top-level
domain .SK, augmenting revenue by £3.1m and EBITDA by
£1.7m. At the same time, the volatile and unpredictable
one-off income from premium domain name sales faded from
£3.0m to below £0.1m, in line with the Group strategy.
In total, this led to overall year-on-year growth in revenue of
100% from £21.4m, excluding premium domain sales, to
£42.7m. The growth in the revenue line largely flowed
down to Adjusted EBITDA*, which increased by 66% to
£7.0m (2017: £4.2m, excluding premium domain sales).
The overall Adjusted EBITDA Margin was diluted slightly to
16.3%, reflecting the integration of the lower margin KeyDrive
business (2017: 19.7% excluding premium domain sales).
Foreign exchange movements were £0.6m favourable,
compared to £0.6m adverse in 2017.
The attractive cash generative profile of the Group continued
in 2018 with the net operating cash flow, before tax and
one-off deal costs and replenishment of the premium
domain inventory, being £16.1m (2017: £6.8m). Cash at the
end of 2018 was £18.0m (2017: £10.9m), an increase of
66% with Net Debt (including prepaid costs) of £1.7m
(2017: net debt £6.5m).
Key Performance Indicators 2018:
• Revenue: £42,7m (2017: £21.4m excluding premium
domain sales)
• Adjusted EBITDA*: £7.0m (2017: £4.2m excluding
premium domain sales)
• Loss after taxation: £4.9m (2017: profit after taxation of £1.0m)
• Cash Balance 31 Dec 2018: £18.0m (2017: £10.9m)
• Net interest bearing debt excluding prepaid costs as at
31 Dec 2018: £2.5m (2017: £7.2m)
* Earnings before interest, tax, depreciation and amortisation, foreign exchange,
and non-core operating costs and revenues (acquisition costs, integration costs,
share option expense, settlement items, and premium domain sales).
14 CentralNic Group Plc Annual Report 2018
Due to the rapid integration of the acquired KeyDrive
businesses, which has included merging businesses and
migrating customers between businesses, the segment
reporting has been amended to absorb the businesses of the
KeyDrive group. The new segments are constructed around
customer types, namely Resellers, Small Businesses and
Corporates, with each having distinct needs that are served
by CentralNic’s proprietary SaaS platform. For each segment,
revenue and gross profit contributions to the total operating
expenditure platform are determined. The Reseller segment
includes the former Wholesale division, Small business
segment comprises the former Retail division and Corporate
segment absorbs the former Enterprise division.
Reseller segment
Three Reseller portals, namely RRP proxy, PartnerGate and
Toweb, have been added through the acquisitions in the year.
This has contributed to revenue in the Reseller segment
increasing by 264% from £5.7m to £20.9m. Gross profit for
the segment doubled from £4.9m to £9.7m.
Small business segment
The portfolio of Small business portals was extended by
domaindiscount24, Moniker.com, and GlobeHosting. In total,
the Small Business segment yielded revenue of £18.3m, an
increase of 24% over the £14.7m recorded in 2017. Gross
profit in 2018 was £7.5m, an increase of 25% over the 2017
figure of £6.0m.
Corporate segment
Revenue in the Corporate segment was £3.4m, a decrease
of 11% from the £3.9m reported in 2017, and Gross Profit
declined by 35% to £2.5m from £3.8m. Adjusting for the
significantly reduced premium domain sales, however,
resulted in revenues for the segment increasing by 290% from
£0.9m to £3.4m and Gross Profit increasing by 207% from
£0.8m to £2.5m.
Overhead expenses
Group overhead expenses excluding foreign exchange,
depreciation, amortisation, impairment and non core operating
expenses increased 71% from £7.4m to £12.7m, of which
£4.1m is attributable to KeyDrive for the five months
post-acquisition and £1.1m to the full year effect of the
SK-NIC acquisition.
Earnings profile
The quality of the Group’s earnings remains an important
strategic priority for the Group and its investors, as we increase
the proportion of revenues derived from predictable sources.
This was one important factor in assessing the SK-NIC
acquisition, with all of SK-NIC’s revenues, earnings and cash
flow derived from new registrations and renewals of domain
names. Recurring revenues is stable at 90% (2017: 91% on
a pro-forma basis).
Adjusted EBITDA of £7.0m (2017: £4.2m) has been derived
from the operating profit of (£2.7m) (2017: £1.9m) after
adjusting for the following items: a) depreciation of £0.3m
(2017: £0.1m), b) amortisation of intangible assets of £4.2m
(2017: £2.2m), c) fair value movement of investment of £1m
(2017: nil), d) non core operating expenses of £4.5m (2017:
£2.0m), e) foreign exchange gain of £0.6m (2017: loss of
£0.6m), f) immaterial non core premium domain name sales in
2018 (2017: £3.0m), g) immaterial amounts of share of
associate income in 2018 (2017: nil), and h) share based
payment expense of £0.3m (2017: £0.4m).
Non core costs (including acquisition and other costs) totalled
£4.5m (2017: £2.0m). The acquisition-related costs, supporting
the Group’s acquisition programme, included a variety of deal
costs for SK-NIC, KeyDrive Group, GlobeHosting and the
accompanying equity and debt capital market transactions.
Other non-cash expenses included the acquired amortisation
of intangible assets, totaling £4.2m (2017: £2.2m). This
reflected the scheduled amortisation for identified intangible
assets of KeyDrive and SK-NIC. Further, in evaluating the fair
value of the investment in Accent Media, the Group recorded
a reduction of £1.0m. The value may be recovered, should the
Company’s financial prospects significantly improve. The
Jabella loan of £0.8m has been repaid to the Group in full.
Basic earnings per share of (3.82) pence (2017: 1.07 pence)
has been impacted by non-recurring acquisition costs,
amortisation charges, and other significant non core operating
costs. Diluted earnings per share, at (3.82) pence (2017: 1.04
pence) reflected the dilutive effect of the share options “in the
money” at the average share price for the year.
Further details of the earnings per share calculations are
provided in note 12 to the financial statements.
Pensions
The Group created a defined contribution pension scheme in
June 2016 in line with the new auto-enrolment provisions in
the UK. In Australia, the Group operates a superannuation
scheme in line with statutory requirements, and the KiwiSaver
scheme in New Zealand, which is in line with the KiwiSaver
Act 2006. In Germany and Luxembourg, all staff are subject to
the federal pension schemes and the Group contributes to
voluntary complementary pension schemes. The Group does
not operate and has never operated any defined benefit
schemes requiring actuarial valuations.
Dividends
It remains the intention of the Group to generate income
returns for investors in the future as part of a progressive and
commercially prudent dividend policy. However, due to the
continued expansion opportunities presented by the sector,
the Directors do not propose a final dividend in 2018.
CentralNic Group Plc Annual Report 2018
15
STRATEGIC REPORT
Chief Financial Officer’s report continued
Group statement of financial position
The Group had net assets of £61.0m at 31 December 2018
(2017: £26.5m). This increase was driven by share issues
for cash and for contribution in kind in the context of the
KeyDrive acquisition. This was offset by the net loss for year,
partially mitigated by favourable movements of the foreign
exchange reserve.
Capital expenditure and investing activities
The most significant investment made during the year was
the acquisition of KeyDrive SA, with further details on the fair
value provided in note 25 to the financial statements. In total,
£46.2m of non-current assets have been added. £31.6m
of this was attributable to Goodwill, of which £29.0m was
attributable to the KeyDrive acquisition. Software, net of
amortisation, increased by £6.4m and other intangible assets
by £8.2m, both largely attributable to the KeyDrive acquisition.
In line with the appropriate treatment for translation of a foreign
operation into the Group’s presentational currency, both the
tangible and intangible assets are translated at the closing
rate, generating foreign exchange differences as presented in
notes 13 and 14 to the financial statements.
With the exception of goodwill, intangible assets are amortised in
line with the Group’s accounting policy. The carrying value of
goodwill is tested annually for impairment, while the Directors
also consider other intangible assets and investments for
indications of impairment.
Further details are provided in notes 13, 14 and 16 to the
financial statements.
Cash flow and net cash
The cash flow statement for the Group includes two major
themes: the entries related to the financing and completion
of the KeyDrive acquisition and the results of the ongoing
operations of the business, taking into account fluctuations
in working capital.
the revolving credit facility was increased by £6.0m to £12.0m
and the maximum amount of the uncommitted ‘accordion’
facility was reduced by £6.0m to £9.0m. The term of the loans
remains as stated above. The debt facility is secured over the
material companies within the Group. Further detail is provided
in note 24 to the financial statements.
The Group is in compliance with the maintenance covenant
ratios and its payment obligations under the facilities agreement.
Significant accounting policies and critical
accounting judgments
The Summary of the Group’s significant accounting policies is
set out in note 3 and the Group’s critical accounting judgments
is set out in note 4 to the financial statements.
Group risk management
The Directors reviews the financial risk management policy,
noting that the Group is exposed to deposit risk, credit risk,
market risk, IT security, impact on society, foreign currency risk
and other risks arising from financial instruments. Further
details of the Financial Risk Management Framework are
provided in note 29 to the financial statements.
The Group’s finance function is responsible for managing
investment and funding requirements including cashflow
monitoring and projections. The cashflow projections are
reviewed regularly by the Directors to ensure the Group has
sufficient liquidity at all times to meet its cash requirements
and execute its business strategy.
The Group’s strategy is to finance its operations through the
cash generated from operations and where necessary, equity
and debt finance, notably to support investing activities.
The Group’s financial instruments comprise cash and various
items such as trade and deferred receivables. The Group had
£18.0m of cash at the year-end, with interest bearing financial
assets bearing interest at fixed interest rates.
Net cash flow from operating activities after tax was higher
than the previous year at £6.7m (2017: £3.8m). In both years,
the net cash flow from operating activities was in line with
expectations relative to Adjusted EBITDA.
Deposit risk
Deposit risk is mitigated by the Directors setting policy that
the Group only places deposits with banks and financial
institutions with high credit ratings.
Investing activities were mainly related to the KeyDrive
acquisition, which was completed in August 2018. The net
cash outflow related to the KeyDrive acquisition totalled £9.0m
(net of cash acquired) in 2018 with a further £4.9m of earnout
consideration due up to 2020, whereas up to 85% of the
earnout consideration may be settled in shares.
Banking facilities
On 16 July 2018, the Company and Silicon Valley Bank
entered into an amendment agreement to amend the terms of
the Silicon Valley Bank Facilities. The amount available under
Credit risk
The Group’s exposure to credit risk from trade receivables is
relatively low, due to the fact that the business has traditionally
dealt with customers who often pay at the point or sale or in
advance. Where there are credit accounts, which is an
increasing trend in the industry particularly for the larger
domain name registrars, receivables are controlled through
credit limits and regular monitoring.
16 CentralNic Group Plc Annual Report 2018
presentational currency in compliance with IAS 21 to US
Dollars for all financial years commencing after 31 December
2018. Aligning the reporting currency to the dominant trading
currency will reduce the exposure to foreign currency risk and
facilitate benchmarking to listed peers.
Other risk
The Directors give due consideration to other risk factors as they
arise. Particular attention is attributed to the United Kingdom
invocation of Article 50 of the Treaty on European Union,
commonly referred to as “Brexit”, as well as additional regulatory
requirements being attributed to business in the domain industry,
by national or supranational lawmakers, or regulatory bodies
such as ICANN or the London Stock Exchange.
In the opinion of the Directors, Brexit carries limited risk for the
day-to-day operations of the Group, as only a small fraction of
the Group’s trade is to UK customers or from UK subsidiaries
to EU customers. Only 4% of global sales are with UK
customers. Yet, the Directors are cognisant of more general
risk such as market turmoil or increased volatility of the Pound
Sterling to other currencies.
Pertaining to regulatory requirements, the Group has assured
that its subsidiaries are compliant with the EU General Data
Protection Regulation (GDPR) respectively in their
implementations to each pertinent jurisdiction law.
The Group is monitoring developments in relation to EU State
Aid investigations following the EU Commission opening a
State Aid investigation into the Group Financing Exemption in
the UK’s Controlled Foreign Company regime in October
2017. In line with current UK tax law, the Group applies this
regime. Based on its current assessment, the Group does not
consider any provision is required in relation to this issue.
Michael Riedl
Chief Financial Officer
12 May 2019
Market risk
There is a risk that the market for domains for which the Group
provides registry and registrar services may not increase as
quickly as expected or that the new TLDs may not generate
the revenue levels anticipated by the Directors. In either case,
the Group’s revenues could reduce below expectations with
an impact on profitability. The risk is mitigated to a degree by
operating multiple lines of business themselves exposed to
many vertical markets and segments, the majority of which
have very little reliance on new TLDs.
IT security
If the Group does not prevent security breaches or becomes
susceptible to cyber-attacks, it may be exposed to lawsuits,
lose customers, suffer harm to its reputation, and incur
additional costs. Unauthorised access, computer viruses,
accidents, employee error or malfeasance, intentional
misconduct by computer “hackers” and other disruptions can
occur that could compromise the security of the Group’s
infrastructure or confidential information. The Group has
created a resilient network infrastructure and Domain Name
System server constellation, with failover secondary systems
to ensure critical registry functions are maintained. The
Reseller segment has been certified under ISO 27001/2013
for data security, thereby mitigating risk by adherence to
international best practice.
Impact on society
The Group has a positive impact on society by offering internet
services in developing countries, contributing to the United
Nations Broadband Commission’s objective of connecting the
50% of the world that is still offline with affordable internet. The
Company can see little negative impact on society from its
activities. Whilst the internet itself adds a potential avenue
through which fraudsters and other undesirables can operate,
the Company has stringent policies relating to its position as an
enabler of such traffic and at all times adheres to laws and
regulations in each and every jurisdiction, including working
with regulatory authorities at all times.
Foreign currency risk
The Directors notes that the Group has predominantly traded
in US Dollars, Euros, GB Pounds Sterling and Australian
Dollars, and considers the exposure to foreign currency risk
to be acceptable. The Group has held reserves in each of
these currencies to meet trading obligations as required.
The currency risk is actively monitored through a periodic review
of inflows and outflows by currency, including an assessment of
the extent to which currencies are naturally hedged across the
Group’s business lines. Where this is not the case,
consideration is given to the use of hedging instruments.
Given the Group does more than half its trade in US Dollars
and the industry in which it operates is predominantly trading
in US Dollars, the Directors are considering to amend its
CentralNic Group Plc Annual Report 2018
17
GOVERNANCE
Board of Directors
18 CentralNic Group Plc Annual Report 2018
Mike Turner Chairman (aged 58)
Mike is a recognised leader in UK and cross-border Technology M&A. He has
over 30 years of experience working in London, New York and Los Angeles,
advising private and publicly held clients on corporate transactions in
technology, telecoms, advertising/marketing services, traditional/digital media,
internet and e-commerce sectors. Mike is a Partner and Global Head of
Technology Media and Communications at the international law firm Taylor
Wessing, as well as holding a number of non-executive Board positions with
media and technology companies. Previously, Mike was a General Partner
responsible for technology investments at Oakfield Partners. Mike obtained an
LLB at the University of Reading.
Benjamin Crawford Chief Executive Officer (aged 53)
Under Ben Crawford’s leadership, CentralNic has increased its revenues by
a factor of 20 over 10 years. Ben is a specialist in global business and
corporate development in complex internet-related business with crucial
stakeholder relations requirements, including government relations at up to
Ministerial level. His former positions included Founding President of Louise
Blouin Media, integrating 11 acquisitions in three countries and personally
managed relationships with the Chinese Government; Managing Director of
SportBusiness Group; and Executive Producer of the official website of the
Sydney Olympic Games, where he first developed extensive experience in
working with Governments on highly sensitive internet projects. Ben has an
MBA from the Australian Graduate School of Management and a First-Class
Honours Degree from the University of Sydney.
Don Baladasan Group Managing Director (aged 45)
Don, a Chartered Management Accountant, has years of experience as a
Finance Director of AIM listed companies. Over the last five years he has
assisted AIM listed businesses in raising £25m of equity, in addition to
overseeing a series of acquisitions including reverse takeovers. Don has
experience of integrating internationally acquired companies from a finance,
governance and commercial perspective. Don was Head of Accounting
Development at Stemcor, an international steel trader which at the time had
operations in 46 countries and a turnover in excess of £6bn. Don initially studied
Medicine at Guy’s Hospital before completing a BSc in Economics at CASS
Business School. He was then awarded a place on the Financial Times
graduate scheme where he trained as a Chartered Management Accountant.
Michael Riedl Chief Financial Officer (aged 43) (appointed on 19 March 2019)
Michael Riedl was Executive Vice President and CFO of KeyDrive S.A. from
August 2011, overseeing the growth of the company over the next seven years.
Prior to joining KeyDrive S.A., Michael held managing positions in the private
equity and ICT industries. He started his career with Roland Berger Strategy
Consultants where he specialised in performance improvement programmes.
Michael was Chief Restructuring Officer at Group Saint-Paul in Luxembourg
from 2004 to 2007 before joining DZ Equity Partners, the private equity firm, in
Frankfurt in 2007. In 2008, Michael joined BIP Investment Partners where he
worked on private equity opportunities with a focus on buyouts until 2011.
Michael holds a Bachelor’s degree in Computer Science from James Madison
University, USA, a Master of Science degree in Business Administration from
European Business School, Germany, and an LLM from Frankfurt School of
Finance and Management. He is also a Chartered Management Accountant.
Thomas Rickert Non-Executive Director (aged 49)
Thomas Rickert is an attorney-at-law in Germany. He is the owner of Rickert
Rechtsanwaltsgesellschaft mbH, a law firm based in Bonn, Germany. Thomas
has extensive experience in the domain industry working on domain disputes as
well as advising Registrars, Registry Service Providers and Registry Operators
both on contractual as well as policy matters. Thomas is an expert speaker on
domain related subjects both at the national and international level. Thomas
served on the Council of the Generic Names Supporting Organisation (GNSO),
which is the body responsible for developing policy for generic domain names,
for four years (2011-2015). He is one of the co-chairs of the CCWG-ACCT, a
group that works on improving ICANN’s accountability.
Samuel Dayani Non-Executive Director (aged 41)
Samuel Dayani is a partner at the Joseph Samuel Group, where he is responsible
for managing the Group’s investments and business development in the Real
Estate, Medtech, Energy & Renewables, Fashion and Technology & Telecoms
sectors. Samuel was responsible for purchasing CentralNic in 2003 and
managing the restructuring of the business, building the management team and
delivering an institutional grade business for its listing in 2013. Previously Samuel
was the Chief Operating Officer and later Managing Director of ViaVision Ltd, an
interactive TV company on Sky, when it was sold to Yoomedia plc in 2004.
Thomas Pridmore Non-Executive Director (aged 47)
Tom Pridmore began his career as a solicitor at Norton Rose, specialising in
corporate finance, where he acted on behalf of institutional clients in relation
to a variety of corporate finance and M&A activities. Tom then joined
Flextech/Telewest Plc as Head of Corporate Strategy, where he was
responsible for directing investment into strategic Internet and interactive
television companies. In 2000, Tom co-founded the international fund manager
and investment adviser Development Capital Management Limited. In this
capacity he has set up and managed real estate investment and development
operations in Turkey, India, North Africa, Eastern Europe and the UK on behalf
of both institutional and private clients.
Iain McDonald Non-Executive Director (aged 48)
Iain is a global expert in technology and e-commerce, having had a strong track
record in investing in early stage companies such as ASOS, The Hut Group,
Eagle Eye Solutions, Anatwine and Metapack. He is the founder of Belerion
Capital, an investor and investment advisor in technology and e-commerce
companies. Iain is also a non-executive director of various of his investee
companies, as well as other technology companies such as The Hut Group
and Boohoo.com. Previously, Iain was a top-ranked retail and e-commerce
analyst and held positions in a number of UK investment banks. Iain graduated
from the London School of Economics and Political Science (LSE), with a
BSc in Economics & Economics History.
CentralNic Group Plc Annual Report 2018
19
GOVERNANCE
Directors’ report
Principal activities
CentralNic Group Plc is the ultimate holding company of a
Group of companies.
The principal activities of the Group are the provision of
domain name Reseller, Small business and Corporate services.
A more comprehensive description of the Group’s activities,
performance, and likely developments are provided in the
Chairman’s statement, the Chief Executive Officer’s report, the
Chief Financial Officer’s report, the Corporate Governance
report, the Audit committee report and the Remuneration report,
which are incorporated by reference into this annual report.
A list of the subsidiary undertakings is disclosed in the
Particulars of Subsidiaries and Associates on pages 83 to 85
of the financial statements.
Financial instruments
Details of the use of financial instruments and financial risk
management are included in note 29 to the financial statements.
Results and dividends
Information on the results is provided in the Chairman’s
statement and the Chief Financial Officer’s report.
It remains the intention of the Group to generate income
returns for investors in the future as part of a progressive and
commercially prudent dividend policy. However, due to the
continued expansion opportunities presented by the sector,
the Directors do not propose a final dividend in 2018.
Directors
The Company was incorporated on 19 June 2013, with a view
to becoming the Parent Company of the Group after admission
to AIM. The admission was completed on 2 September 2013,
and at this time the Board was expanded.
There were no changes in Board members in 2018. On 19 March
2019, Michael Riedl was appointed as Chief Financial Officer to
reflect the development of the business. The Directors who
served during the year were as follows:
Executive Directors
Benjamin Crawford (Chief Executive Officer)
Donald Baladasan (Chief Financial Officer in 2018,
and Group Managing Director in 2019)
Non-Executive Directors
Mike Turner (Non-Executive Chairman)
Samuel Dayani
Thomas Rickert
Thomas Pridmore
Iain McDonald
The biographical details of the Directors are provided on pages
18 and 19 of this annual report.
Four Directors will retire at the Company’s Annual General
Meeting and being eligible will offer themselves for re-election.
The Directors and their interests in the shares in the Group
The Directors of the Company, and their interests in the shares
and share options of the Company, are shown in the
Remuneration Report on pages 29 to 31 of this annual report.
Transactions with any parties related to the Directors are
disclosed in note 26 to the financial statements.
Post year-end
Further details on post year-end events are disclosed in the
Chief Executive Officer’s report.
Directors’ conflicts of interest
Each Director is required, in accordance with the provisions of
the Companies Act 2006, to declare any interests that may give
rise to a conflict of interest with the Company on appointment
and subsequently as they arise. Where such a conflict or
potential conflict arises, the Board is empowered under the
Company’s Articles of Association to consider and authorise
such conflicts as appropriate.
Articles of Association
The Company’s Articles of Association set out the Company’s
internal regulation and cover such matters as the rights of
Shareholders, the appointment and removal of Directors and
the conduct of Board and general meetings.
A copy of the Company’s Articles of Association is available on
the Group’s website.
Subject to the provisions of legislation, the Company’s Articles
of Association and any directions given by resolutions of the
Shareholders, the Board may exercise all powers of the
Company and may delegate authorities to committees and
management as it sees fit. Details of the committees of the
Board and their activities are contained in the Corporate
Governance report on pages 24 to 27 of this annual report.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website.
Principal risks and uncertainties
The Board’s assessment of the principal risks and uncertainties,
together with the mitigating factors, are presented in the
Strategic report on pages 16 and 17.
20 CentralNic Group Plc Annual Report 2018
Substantial Shareholders
In addition to the Directors’ interests disclosed in the
Remuneration report, the Company has been notified that the
following Shareholders’ interests exceeded 3% of the
Company’s ordinary share capital in issue at 30 April 2019:
Ordinary shares Percentage
Inter.Services GMBH 28,006,607 16.41%
Kestrel Investment Partners 23,869,555 13.99%
Erin Invest & Finance Ltd 21,630,382 12.68%
Gresham House plc 13,427,571 7.87%
Schroders 11,200,867 6.56%
Chelverton Asset Management 10,000,000 5.86%
Herald Investment Management 8,909,615 5.22%
Jabella Group Limited 7,902,276 4.63%
Cavendish Asset Management 6,595,124 3.86%
Miton Group plc 6,435,903 3.77%
No substantial Shareholders have different voting rights to other
holders of the share capital of the Company.
Corporate governance
The Corporate Governance report, on pages 24 to 27 is
incorporated into this annual report by reference.
Corporate responsibility
The Board recognises its employment, environmental and
health and safety responsibilities, and devotes appropriate
resources towards monitoring and improving compliance
with existing standards.
Management and staff
CentralNic’s management team has been assembled to ensure
the Group has the number of people and range of skills required
to deliver the business strategy and to support the expansion of
the Group as it becomes an increasingly international business.
The team is diverse and brings functional expertise across a
number of disciplines including technical and operational
delivery, finance, law, marketing and sales.
While the business is managed under budgetary controls, the
Directors focus on ensuring there is succession planning in
place as is appropriate for a business of our size.
Our staff and consultants represent a number of different
nationalities, and we are pleased by the gender diversity in
our business.
The executive leaders within the business recognise the
importance of engaging with employees and do so informally
on a day-to-day basis. We often use a cascade approach to
employee communications, with the heads of departments
disseminating appropriate information to their teams, including
those situated in various locations around the world.
While we do not believe that human rights issues are a
significant risk to our business currently, we are conscious that
as we expand into new international markets issues of human
rights may become more significant. The Directors keep all
aspects of business development under review, and act with
caution and integrity to ensure all our activities and specifically
business development activities are respectful of human rights.
Communication with employees is primarily through formal and
informal meetings and through the use of the Group’s
information systems. This comprises regular communication of
information affecting our managers and their teams, to ensure all
employees are kept up to date with issues affecting them.
The Board recognises the importance of engaged employees
working within the Group and how they are vital to the future
success of the business. However, given the size of the Group
and the specialist nature of its technical operations, there is
dependency on a few key individuals and this is discussed
further in the Strategic report on pages 10 to 17.
The Group is committed to achieving equal opportunities and to
complying with anti-discrimination legislation. The Group is
committed to offering employees and job applicants equal and
fair opportunity to benefit from employment without regard to
their sex, sexual orientation, marital status, race, religion or belief,
age or disability.
At the year-end the Board of Directors comprised seven
members, all of whom are male, the Senior Management team of
10 was made up of seven men and three women, and the overall
staff number of 217 contained 146 males and 71 females.
The Group has a policy of share participation for employees
across the Group at all levels.
Standards accreditations
CentralNic’s Reseller segment is certified against ISO 27001
(Information security management), ISO 9001 (Quality
management system) and ISO 22301 (Business continuity
management) having achieved ISO 22301 accreditation during
2016. These certifications are internationally recognised and
provide CentralNic’s stakeholders with additional levels of
assurance as to the technical integrity of the Group’s IT system.
CentralNic Group Plc Annual Report 2018
21
GOVERNANCE
Directors’ report continued
Anti-bribery and corruption, anti-money laundering
and sanctions compliance
CentralNic conducts business ethically, maintains financial integrity
and strives to behave responsibly in its business dealings.
The Group’s Directors and its senior management are
committed to ensuring strict adherence to its anti-bribery and
corruption policy and compliance with anti-bribery and
corruption laws. The Group also maintains and ensures
adherence to its policies in relation to Anti-Money Laundering
and Trade Sanctions and Embargoes, again to comply with
relevant laws across the relevant jurisdictions.
All Directors, employees and consultants have received training
in maintaining the highest standards of professional conduct and
are aware of the need to carry out business fairly, honestly and
openly. Clear lines of communication and responsibility are in
place to report any incidences or suspected incidences of
abuse to provide an effective, trusted reporting mechanism.
Environment
The Group is committed to operating in an environmentally
responsible manner. The Directors consider environmental
impact when making decisions.
The community, charitable and political donations
The Directors consider the impact on the community when
making decisions. During the year charitable donations totaling
£10,000 were made (2017: nil).
The Group made no political donations during the year, either
in the UK or overseas.
Policy on the payment of creditors
The Group’s policy is to agree terms and conditions for its
business transactions with suppliers and to endeavour to abide
by these terms and conditions, subject to the suppliers meeting
their obligations.
No one supplier is considered to be essential to the business
of the Group.
R&D activity
The Group undertakes research and development activities to
enhance its competitive position in its chosen markets, drawing
on skilled development resource from across the Group.
Health and safety
The Directors and senior management are committed to
providing for the welfare, health and safety of the Group’s
employees and have procedures in place, including regular
monitoring by third party specialists, to ensure compliance
with its legal and contractual obligations.
Business continuity
The Group has built a resilient technology infrastructure,
designed to provide data security and continuity of service.
The Board recognises the ongoing importance of resilience to
cyber threats and invests in primary and secondary data centres
along with a distributed domain name server constellation
operated by the Group and third party providers. The Board
keeps the infrastructure requirements under review and adopts a
continuous improvement approach to further investment, within
appropriate parameters, as business activities expand. The
technical provision, alongside customer support, is considered
one of the most significant aspects of business continuity.
Statement of Directors’ responsibilities in respect of
the annual report and the financial statements
The Directors are responsible for preparing the Strategic report,
the Directors’ report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
with International Financial Reporting Standards (IFRS) as
adopted by the EU and applicable law.
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and the Group and of
the profit or loss of the Group for that period. In preparing these
financial statements, the Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgments and accounting estimates that are
reasonable and prudent;
• state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
22 CentralNic Group Plc Annual Report 2018
Auditors
The Company’s independent external auditors, Crowe U.K. LLP,
were initially appointed on 17 July 2013 and were most recently
reappointed at the Company’s Annual General Meeting of
25 June 2018. It is proposed by the Board they be put forward
for reappointment as auditors and a resolution concerning their
reappointment will be proposed at the forthcoming AGM.
Registered office
35-39 Moorgate, London EC2R 6AR
Registered number: 08576358
Approved by the Board and signed on its behalf by:
Mike Turner
Chairman
12 May 2019
They are further responsible for ensuring that the Strategic report
and the Directors’ report and other information included in this
annual report and financial statements is prepared in accordance
with applicable law in the United Kingdom.
The maintenance and integrity of the CentralNic website is the
responsibility of the Directors; the work carried out by the
auditors does not involve the consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred in the accounts since they
were initially presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of the accounts and the other information included
in annual reports may differ from legislation in other jurisdictions.
Disclosure of audit information
The Directors confirm that, as at the date of approval of this
annual report, so far as each Director is aware there is no
relevant audit information of which the Company’s auditor is
unaware and that he or she has taken all the steps that he or
she ought to have taken as a Director in order to make himself
or herself aware of any relevant audit information and to establish
that the Company’s auditor is aware of that information.
Going concern
The Directors have in place procedures to review the forecasts
and budgets for the coming year, which have been drawn
up with appropriate regard for both the macroeconomic
environment in which the Group operates and the particular
circumstances influencing the Domain Name industry and the
Group itself. These were prepared with reference to historic and
current industry knowledge, contracted trading activities and
prospects that relate to the future strategy of the Group. As a
result, at the time of approving the financial statements, the
Directors consider that the Company and the Group have
sufficient resources to continue in operational existence for the
foreseeable future and that it is appropriate to adopt the going
concern basis in the preparation of the financial statements.
As with all forecasts, the Directors cannot guarantee that the
going concern basis will remain appropriate given the inherent
uncertainty relating to future events. Principal areas of
Uncertainty and Risks are highlighted on pages 16 and 17.
CentralNic Group Plc Annual Report 2018
23
GOVERNANCE
Corporate governance
Introduction
The Directors appreciate the value of good corporate governance
and have with effect from September 2018 adopted the QCA
Corporate Governance Code. The Company takes steps to
ensure compliance by the Board and employees with the terms
of the code.
Directors’ time commitment
We set out the likely time commitment for each Non-Executive
Director in their appointment letter. This is of course an estimate
and may change depending on the demands of the business.
We expect Non-Executive Directors to devote to discharge their
duties effectively and attend all meetings of the Board.
The Board of CentralNic Group Plc places governance and
controls at the centre of its strategy. The Company has a
dedicated Compliance committee which meets monthly.
The remit of the Compliance committee is to ensure that all
governance policies are administered, reviewed and complied
with across the Group. Don Baladasan, the Managing Director
of the Group, chairs this committee and provides a conduit
between the Board and the committee. This ensures timely
decisions and challenges are communicated to the Board.
In addition, a formal summary report relating on the Compliance
committee is reported at Board meetings.
Board governance and policy
At year-end, the Board comprised of a Non-Executive Chairman,
two Executive Directors and four Non-Executive Directors.
The Board meets regularly to consider the business strategy,
performance and the framework of internal controls. To enable
the Board to discharge its duties, all Directors receive
appropriate and timely information. Briefing papers are
distributed to all Directors in advance of Board meetings.
All Directors have access to the advice and services of the
Company Secretary, who is responsible for ensuring that the
Board procedures are followed, and that applicable rules and
regulations are complied with.
In addition, procedures are in place to enable the Directors to
obtain independent professional advice in the furtherance of their
duties, if necessary, at the Company’s expense. In line with the
requirements of the Company’s Articles of Association, the
Group has voluntarily chosen that four Directors will retire at the
Annual General Meeting and, being eligible, will offer themselves
for re-election.
The majority of the Board is made up of independent
Non-Executive Directors. We judged the Chairman to be
independent at the time of his appointment, and consider all
other Non-Executive Directors to be independent under the
terms of the Code.
In addition, procedures are in place to enable the Directors to
obtain independent professional advice in the furtherance of
their duties, if necessary, at the Company’s expense.
Throughout their period in office the Directors are continually
updated on the Group’s business, the industry, corporate social
responsibility matters and other changes affecting the Group by
written briefings and meetings with senior management. They
are also updated on changes to the legal and governance
requirements of the Group, and upon themselves as Directors,
on an ongoing and timely basis.
The attendance of each Director at Board and committee
meetings during the during the financial year ending
31 December 2018 is set out in the table below:
Attendance table
Audit Remuneration Nominations
Board Committee Committee Committee
Don Baladasan 8/8 – – –
Ben Crawford 8/8 – – –
Thomas Rickert 8/8 3/3 4/4 2/2
Sam Dayani 8/8 – 4/4 –
Mike Turner 8/8 2/3 4/4 2/2
Iain McDonald 8/8 3/3 – 2/2
Tom Pridmore 8/8 3/3 4/4 2/2
Attendance is expressed as the number of meetings
attended/number eligible to attend. Directors’ attendance by
invitation at meetings of committees of which they are not a
member is not reflected in the above table.
Board performance evaluation
A formal process of performance evaluation of the Board, its
committees and its individual Directors takes place every year.
The review may be conducted internally or by external
consultants. The performance of the Board, its committees
and its individual Directors is also continually monitored by
the Chairman.
The Remuneration and Nominations committees coordinate on
succession planning of the executive leadership team and make
recommendations to the Board for the re-appointment of
Non-Executive Directors if and when necessary.
As the business has developed, the composition of the Board
has been under constant review to ensure that it remains
appropriate to the managerial requirements of the Group. In line
with the requirements of the Company’s Articles of Association,
the Group has voluntarily chosen that four Directors will retire at
the Annual General Meeting and, being eligible, will offer
themselves for re-election.
24 CentralNic Group Plc Annual Report 2018
Board committees
The Company has established Audit, Nomination and
Remuneration committees.
The terms of reference for the three committees were reviewed
during the year and are available for inspection on request from
the Company Secretary.
Audit committee
The Audit committee has Iain McDonald as Chairman and other
members of the committee include Mike Turner, Thomas Rickert
and Thomas Pridmore. The Chief Financial Officer is invited to
and regularly does attend the committee meetings, as does the
Chief Executive Officer.
The Audit committee reviews all fees related to non-audit work,
and the committee reviews any material non-audit work prior to
commencement. Details of auditor fees can be found in note 7
to the financial statements.
Remuneration committee
The Group’s Remuneration committee is responsible, on behalf
of the Board, for developing remuneration policy. Details of
objectives and policy are provided in the Remuneration report
on pages 29 to 31.
The Remuneration committee has Tom Pridmore as its
Chairman and other members of the committee include
Mike Turner, Samuel Dayani and Thomas Rickert.
The primary responsibilities of the committee, having due regard
for the interests of Shareholders, include:
The primary responsibilities of the committee, having due regard
for the interests of Shareholders include:
• Monitoring the integrity of the half yearly and annual financial
statements and formal announcements regarding the Group’s
financial performance.
• Reviewing significant accounting policies, areas of significant
estimates and judgments and disclosures in financial reports.
• Monitoring the quality and effectiveness of internal control
procedures and risk management systems.
• Considering the requirement for Internal Audit, taking into
account the size, distribution and nature of the Company
and the Group and its operations.
• Reviewing the external auditor reports relating to the
Company’s accounting and internal control procedures.
• Overseeing the Board’s relationship with the external
auditors, including their continued independence and
making recommendations to the Board on the selection
of external auditors.
The Audit committee is required to meet at least twice a year.
During the year the committee met on three occasions.
The appointment of the independent external auditor is
approved by the Shareholders annually. The independent
auditor’s audit of the financial statements is conducted in
accordance with International Standards on Auditing, ISA (UK
and Ireland) issued by the Auditing Practices Board.
It is noted that the external auditor also operates procedures
designed to safeguard their objectivity and independence.
After taking into account the size, distribution, current robust
procedures and controls, together with the nature of the
Company and the Group and its operations, the Audit
committee has concluded that an internal audit function is not
presently required. The Audit committee will re-evaluate this
position on a regular basis.
• Determining and agreeing with the Board the remuneration
policy for the Chairman of the Board, the Non-Executive
Directors and the Executive Directors and other senior
managers.
• Reviewing the design of share incentive plans for approval by
the Board and determining the award policy to Executive
Directors and personnel under existing plans.
• Determining the remainder of the remuneration packages
(principally salaries, bonus and pension) for the Executive
Directors and senior management including any
performance-related targets.
• Reviewing and noting remuneration trends across the Group.
• Coordinating with the Nominations committee in relation to the
remuneration to be offered to any new Executive Director.
• Taking responsibility for the selection criteria and if appropriate
selecting, appointing and setting terms of reference for any
remuneration consultants engaged to advise the committee.
• The Remuneration committee was created in September
2013 and is required to meet at least twice a year. During
2018 the committee met on four occasions.
• It is the Group’s policy that Executive Directors’ service
contracts contain at least a three month notice period.
Nominations committee
The Group’s Nominations committee has the power and
authority to carry out a selection process of candidates before
proposing new appointments to the Board.
The Nominations committee has Mike Turner as its Chairman
and other members of the committee include Iain McDonald,
Thomas Rickert and Tom Pridmore.
CentralNic Group Plc Annual Report 2018
25
GOVERNANCE
Corporate governance continued
The Nominations committee was created in September 2013
and is required to meet at least once a year. During 2018 the
committee met on two occasions.
The Company prepares annual budgets which are reviewed by
the Board. The budgets are then updated during the year to
provide latest forecasts.
Capital expenditure is regulated by the budget process, and is
kept under regular review during the year. Investment appraisal
techniques, using discounted cash flow projections, are
deployed in relation to material investments and are reviewed
by the Board as part of good governance such that material
transactions that are significant in terms of their size or type are
only undertaken after Board review.
The Board acknowledges that there are processes in place for
identifying, evaluating and managing risks faced by the Group,
and places emphasis on continuous process improvement.
Corporate responsibility, the environment
and health and safety
The Group is committed to maintaining and promoting high
standards of business integrity. Company values, which
incorporate the principles of corporate social responsibility
and sustainability, guide the Group’s relationships with its
stakeholders including clients, employees and the communities
and environment in which the Group operates.
The Group’s approach to sustainability addresses both its
environmental and social impacts, supporting the Group’s vision
to remain an employer of choice, while meeting client demands
for socially responsible partners. By way of example the Group
Companies have arranged and promoted a number of ACE
(Athletics, Community and Environmental) activities in the past.
In the last financial year, the Company has taken steps to
ensure slavery and human trafficking is not taking place in our
supply chains or in any part of our business. Our full statement
in response to Section 54, Part 6 of the Modern Slavery Act
2015 which sets out the steps that the Group has taken and
its ongoing commitment to this vitally important topic can
be found on the CentralNic Investor site at https://investor.
centralnicgroup.com/investors/anti-slavery-statement/
The Group respects local laws and customs while supporting
international laws and regulations. These policies have been
integral in the way Group Companies have done business in the
past and will continue to play a central role in influencing the
Group’s practice in the future.
The Group has adopted a policy for Directors and key employee
share dealings which is appropriate for an AIM-quoted Group.
The Directors comply with Rule 21 of the AIM rules relating to
Director’s dealings and take reasonable steps to ensure
compliance by the Group’s applicable employees.
The Executive and Non-Executive Directors service contracts
are available for inspection by Shareholders on request to the
Company Secretary.
The Chairman and Non-Executive Directors do not participate in
agenda items at any meeting when discussions in respect of
matters relating to their own position take place.
Risk management and internal controls
The Board has primary responsibility for establishing and
maintaining the Group’s financial and non-financial controls,
as well as identifying the major risks facing the Group.
Internal control systems are designed to meet the particular
needs of the Group and the risks to which it is exposed. By their
nature, internal controls can provide reasonable but not absolute
assurance against material misstatement or loss.
The Executive Directors and Senior Management have specific
responsibilities for aspects of the Group’s affairs and have
regular discussions to address operational matters, as well as
considering the skill sets required in their teams to maintain the
internal controls required.
Accounting procedures
The financial processes and control systems are kept under
regular review by the Executives with oversight from the Board,
with a view to further evolution and improvement as the Group’s
activities expand. This includes the maintenance of and
adherence to a Financial Procedures Board Memorandum
which is reviewed and updated periodically.
Accounting procedures are managed on a day-to-day basis by
the Finance team. Responsibility levels are set and agreed with
the Board, with authority delegated to appropriate responsible
managers as well as the Executive. Segregation of duties is
deployed to the degree this is practical and efficient, noting the
size and geographic distribution of the Group.
Monthly management accounts are reported to the Board, under
IFRS (EU) with the content aligned to the Group’s management
information requirements. The Board reviews the accounts in
detail during each Board meeting and requests further information
as the need arises. Comparisons to approved budgets and
forecasts are prepared with associated commentary provided.
26 CentralNic Group Plc Annual Report 2018
Communications with Shareholders
The Board regards the importance of effective communication
with Shareholders as essential. Relations with Shareholders are
managed principally by the Chief Executive Officer, Chief
Financial Officer and the Chairman, and meetings are regularly
held with institutional investors and analysts during the year.
The Chairman, Chief Executive Officer, the Chief Financial Officer
and if required other Executive and Non-Executive Directors
make themselves available for meetings with major Shareholders
either individually or collectively. The Group’s Shareholders are
invited to attend the AGM at which the majority of Directors are
present. The Group’s Nominated Advisors and Joint Brokers
also convey Shareholder opinions to the Chairman and Chief
Executive Officer and these are discussed with the Board.
The Group’s website contains information on current business
activities, including the annual and interim results.
Annual General Meeting date
The Annual General meeting will be convened in accordance
with the provisions of the Companies Act 2006. The Annual
General Meeting will take place on Thursday, 20 June 2019 at
10.00am at the offices of the Company’s solicitors:
DWF LLP
20 Fenchurch Street, London EC3M 3AG
The proposed resolutions together with proxy forms and
this annual report will be distributed to Shareholders by the
24 May 2019, if not before.
CentralNic Group Plc Annual Report 2018
27
GOVERNANCE
Audit committee report
The role of the Audit committee and members is outlined
on page 25.
During the year the Audit committee received and reviewed
reports from the Chief Financial Officer, other members of
management and external auditors relating to the interim and
annual accounts and the accounting and internal control
systems in use throughout the Group.
The Chief Executive Officer and Chief Financial Officer are
invited to attend parts of meetings, with other senior financial
managers required to attend when necessary. The external
auditors attended meetings to discuss the planning and
conclusions of their work and meet with the members of the
committee. The committee was able to call for information
from management and consults with the external auditors
directly as required.
The objectivity and independence of the external auditors was
safeguarded by reviewing the auditors’ formal declarations,
monitoring relationships between key audit staff and the
Company and tracking the level of non-audit fees payable to
the auditors. Significant attention was given to the level of
non-audit fees provided.
As noted above, the committee met three times during the
year, to review the 2017 annual accounts and the interim
accounts to 30 June 2018 and audit planning for the year
ended 31 December 2018. The committee reviewed with the
independent auditor its judgements as to the acceptability of
the Company’s accounting principles.
Since the year end the committee has met further with the
auditors to consider the 2018 financial statements. In particular,
the committee discussed the significant audit risks, accounting
for acquisitions during the year, application of the new
accounting standards, IFRS 9 and IFRS 15, and the future
application of IFRS 16. The committee reviewed and discussed
the auditor’s comments on improvements which could be
made to the internal controls. In addition, the committee
monitors the auditor firm’s independence from Company
management and the Company.
28 CentralNic Group Plc Annual Report 2018
Remuneration report
As the Company is an AIM listed company, it is not required to
present a Directors’ Remuneration Report. However, the Board
has chosen to do so in line with evolving best practice.
Remuneration committee
The membership of the committee and the principal activities
are detailed in the Corporate Governance section of this annual
report on page 25.
Remuneration policy
The Company’s remuneration policy is focused on being able to
attract, retain and incentivise management with the appropriate
skills and expertise to realise the Group’s strategic objectives
and align management’s interests with those of Shareholders.
The Directors believe that it is important to properly motivate and
reward key senior employees and executives and to do so in a
manner that aligns their interests with the interests of the
Shareholders. The Directors also recognise the importance of
ensuring that all employees are engaged, incentivised and
identify closely with the profitability of the Company.
Directors’ remuneration
The average number of staff employed by the Group is included
in note 8 to the financial statements.
Disclosure of the remuneration for key management personnel,
as required under IAS 24, is also detailed in note 8 to the
financial statements.
In particular the Remuneration committee seeks to link payment
to performance and as a result create a performance culture
within the business.
In terms of the remuneration of the Company’s Directors, entries
to profit and loss included in the Statement of Comprehensive
Income include:
Share based
Salaries & fees Bonus Pension payments 2018 2017
£’000 £’000 £’000 £’000 £’000 £’000
Non-Executive Directors
Samuel Dayani 20 – – – 20 –
Thomas Rickert 51 – – 50 101 106
Tom Pridmore 50 – 1 50 101 101
Mike Turner 40 – – 87 127 163
Iain McDonald 50 – 1 45 96 106
Executive Directors
Robert Pooke – – – – – 7
Ben Crawford 230 297 11 – 538 341
Glenn Hayward – – – – – 202
Desleigh Jameson – – – – – 354
Donald Baladasan 251 138 – – 389 96
692 435 13 232 1,372 1,476
Included in the Directors’ emoluments above are the following:
• A charge of £20,000 included in the year to the Company
and Group by Samuel Dayani (2017: nil).
• A charge of £40,000 to the Company and Group by Taylor
Wessing LLP, a partnership where Mike Turner is a partner
(2017: £40,000).
• There were no charges included in the year in relation to
Robert Pooke (2017: £7,000).
• Ben Crawford’s salaries and fees include salary amounts of
£178,000 (2017: £182,000) and social security costs of
£52,000 (2017: £32,000). The special bonus of £297,000
is included in the bonus section.
• There were no charges in the year in relation to Glenn
Hayward (2017: £81,000).
• There were no charges in the year in relation to Desleigh
Jameson (2017: £234,000).
• A charge of £383,000 in the year to the Company and Group
by Mataxis Ltd of which Donald Baladasan has a controlling
interest (2017: £96,000).
• Not included in the table above, a charge of £72,000 was
included in the year to the Company and Group by Neozoon
Sàrl of which Michael Riedl has a controlling interest (2017: nil)
in the administrative expenses. Michael Riedl was appointed
Chief Financial Officer of the Group on 19 March 2019.
Share options
Prior to admission to AIM, CentralNic established both an
unapproved share option scheme and an Enterprise
Management Incentive option scheme (EMI) under which certain
key executives and employees were invited to participate.
These options were rolled over into the Company during 2013.
CentralNic Group Plc Annual Report 2018
29
GOVERNANCE
Remuneration report continued
To reflect existing commitments, the options granted in June 2013
for the unapproved option scheme and the EMI scheme vest in
12 equal instalments at three month intervals following the
Admission. The unapproved options granted on 14 October 2013
vest three years after the date of grant.
Iain McDonald these options were issued with a vesting date to
coincide with the third anniversary of their appointments, namely
15 September 2018 and 26 October 2018. There were also
further unapproved options issued to Tom Pridmore and Thomas
Rickert, both with a vesting date of 3 February 2019.
Ben Crawford participates in both the June 2013 and October
2013 unapproved scheme, and Donald Baladasan participates
in the June 2013 unapproved scheme.
Glenn Hayward (a former Director) participated in the EMI
scheme, with options granted on 28 April 2015. The EMI
options granted to Glenn Hayward vested on 10 February 2017.
These options were exercised in October 2018.
No options were issued to the Directors during the year.
These share incentive arrangements are designed to support
the strategy of generating significant sustainable value for
Shareholders by linking the rewards for executives and the
Board with the value created for Shareholders and thereby
aligning the interests of key executives with those of
Shareholders.
Desleigh Jameson (a former Director) participated in the
unapproved scheme with the options granted in February 2016
with a vesting date of 14 January 2019.
Shares acquired or options granted under any share incentive
arrangements operated by the Company will be limited in total
to 10% of the Company’s issued share capital from time to time.
Unapproved options were also issued to Non-Executive
Directors during 2016. In the case of Mike Turner and
The table below shows the outstanding share options issued to
Directors and former Directors at 31 December 2018:
Number of options Exercise price Options granted
Outstanding at 1 January 2018 and 31 December 2018
Ben Crawford 1,316,000 10p 1 June 2013
Donald Baladasan 52,083 10p 1 June 2013
Ben Crawford 850,000 55p 14 October 2013
Thomas Rickert 88,000 55p 14 October 2013
Tom Pridmore 88,000 55p 14 October 2013
Mike Turner 750,000 40p 4 February 2016
Iain McDonald 350,000 40p 4 February 2016
Thomas Rickert 350,000 40p 4 February 2016
Tom Pridmore 350,000 40p 4 February 2016
Desleigh Jameson (former Director) 200,000 40p 4 February 2016
Total 4,394,083
Glenn Hayward (former Director) had 500,000 share options
outstanding as at 1 January 2018 which were granted on
28 April 2015 at exercise price of 35 pence each. These share
options were exercised in October 2018.
No options were exercised during the year by the Directors or
former Directors and no options have expired with the exception
of Glenn Hayward. All options expire within 10 years of grant.
Further details are provided in relation to share based payments
in note 28 to the financial statements.
In addition, a further 1,893,083 options over ordinary shares
were in issue at 31 December 2018 (2017: 2,053,083), being
held by the Group’s employees.
The IFRS 2 charge in the year for all share option plans relating
to the Directors was £232,000 (2017: £317,000).
On 31 December 2018, the closing market price of CentralNic
Group plc ordinary shares was 51.0 pence. The highest and
lowest price of these shares in the year were 63.0 pence during
January 2018 and 49.0 pence during August 2018 respectively.
30 CentralNic Group Plc Annual Report 2018
Directors’ interests
(a) As at 31 December 2018, the interests of the Directors,
including persons connected with the Directors within the
meaning of section 252 of the Companies Act 2006, in the
issued share capital of the Company are as follows:
Ordinary shares Percentage
Erin Invest & Finance Ltd* 21,630,382 12.68%
Jabella Group Ltd** 4,203,276 2.46%
Natwest FIS Nominees*** 3,699,000 2.17%
Donald Baladasan 159,455 0.09%
Iain McDonald**** 107,653 0.06%
*
**
***
The beneficial holder of Erin and Natwest FIS Nominee Limited is the father
of Samuel Dayani, a Director of the Company.
Jabellla Group Limited is a BVI company owned inter alia, by Erin.
4,203,276 ordinary shares are held by Jabella Group Limited in which
Natwest FIS Nominee and Erin Invest & Finance Ltd have a 65% interest.
****
Iain McDonald has an interest, held through a contract for difference,
in 11,500 ordinary shares in the Company.
(b) Save as disclosed in this annual report, none of the
Directors nor any members of their families, nor any person
connected with them within the meaning of section 252 of the
Act, has any interest in the issued share capital of the
Company or its subsidiaries.
(c) Save as disclosed in this annual report, as at the date of this
annual report, no Director has any option over any warrant to
subscribe for any shares in the Company.
(d) None of the Directors nor any members of their families,
nor any person connected with them within the meaning of
section 252 of the Act, has a related financial product (as
defined in the AIM Rules) referenced to the ordinary shares.
(e) None of the Directors is or has been interested in any
transaction which is or was unusual in its nature or conditions
or significant to the business of the Company and which was
effected by the Company and remains in any respect
outstanding or unperformed.
(f) There are no outstanding loans made or guarantees
granted or provided by the Company to or for the benefit of
any Director other than disclosed in notes 17 and 26 to the
financial statements.
(g) Save as disclosed in this annual report, there are no potential
conflicts of interest between any duties to the Company of the
Directors and their private interests or their other duties.
CentralNic Group Plc Annual Report 2018
31
FINANCIAL STATEMENTS
Independent auditors report
to the Members of CentralNic Group plc
Opinion
We have audited the financial statements of CentralNic Group
Plc and its subsidiaries (the “Group”) and CentralNic Group plc
(the “Parent Company”) for the year ended 31 December 2018,
which comprise:
• the Group consolidated statement of comprehensive income
for the year ended 31 December 2018;
• the Group consolidated and Parent Company statements
of financial position as at 31 December 2018;
• the Group consolidated and Parent Company statements
of cash flows for the year then ended;
• the Group consolidated and Parent Company statements
of changes in equity for the year then ended; and
• the notes to the financial statements, including a summary
of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted
by the European Union. The financial reporting framework that
has been applied in the preparation of the Parent Company
financial statements is applicable law and United Kingdom
Accounting Standards, including Financial Reporting Standard
102 the Financial Reporting Standard applicable in the UK
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
Conclusions relating to going concern
We have nothing to report in respect of the following matters in
relation to which ISAs (UK) require us to report to you when:
• the Directors’ use of the going concern basis of accounting in
the preparation of the financial statements is not appropriate; or
• the Directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Group’s or the Parent Company’s ability to
continue to adopt the going concern basis of accounting for
a period of at least twelve months from the date when the
financial statements are authorised for issue.
Overview of our audit approach
Materiality
In planning and performing our audit we applied the concept of
materiality. An item is considered material if it could reasonably
be expected to change the economic decisions of a user of
the financial statements. We used the concept of materiality to
both focus our testing and to evaluate the impact of
misstatements identified.
Based on our professional judgment, we determined overall
materiality for the Group and Company financial statements as a
whole to be £320,000 (2017: 200,000) and £160,000 (2017:
£160,000) respectively. In determining this, we considered a
range of benchmarks with specific focus on approximately
0.75% of Group, approximately 5% of adjusted EBITDA (a key
performance measure used by the Group), and, 5% Company
profit before tax for the financial year.
• the financial statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 December 2018 and of the Group’s profit for the period
then ended;
• the Group financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union;
We use a different level of materiality (performance materiality) to
determine the extent of our testing for the audit of the financial
statements. Performance materiality is set based on the audit
materiality as adjusted for the judgments made as to the entity
risk and our evaluation of the specific risk of each audit area
having regard to the internal control environment.
• the Parent Company financial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
Where considered appropriate performance materiality may be
reduced to a lower level, such as for related party transactions
and Directors’ remuneration.
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described
in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the
Group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for
our opinion.
We agreed with the Audit committee to report to it all identified
errors in excess of £15,000 (2017: £6,000). Errors below that
threshold would also be reported to it if, in our opinion as
auditor, disclosure was required on qualitative grounds.
Overview of the scope of our audit
We conducted full scope audit work in seven countries in which
the Group has significant operations. In addition, we performed
the audit of specific balances and transactions in six countries.
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at
each of the components by us, as the primary audit
engagement team. For the full scope components in Australia
New Zealand, Luxembourg and Germany, Slovakia, and, the
United States, where the work was performed by component
auditors, we determined the appropriate level of involvement to
enable us to determine that sufficient audit evidence had been
obtained as a basis for our opinion on the Group as a whole.
32 CentralNic Group Plc Annual Report 2018
The primary team led by the Senior Statutory Auditor was ultimately
responsible for the scope and direction of the audit process. The
primary team interacted regularly with the component teams where
appropriate during various stages of the audit, reviewed working
papers and were responsible for the scope and direction of the
audit process. We visited the component auditors for Luxembourg
and Germany. This, together with the additional procedures
performed at Group level, gave us appropriate evidence for our
opinion on the Group financial statements.
Key Audit Matters
In preparing the financial statements, management made a
number of subjective judgments, for example in respect of
significant accounting estimates that involved making
assumptions and considering future events that are inherently
uncertain. We focused our work primarily on these areas by
assessing management’s judgments against available evidence,
forming our own judgments and evaluating the disclosures in the
financial statements. We also addressed the risk of management
override of controls, including evaluating whether there was
evidence of bias by management, which may represent a risk of
material misstatement, especially in areas of critical accounting
estimates and judgments as outlined in note 4.
In our audit, we tested and examined information, using
sampling and other auditing techniques, to the extent we
considered necessary to provide a reasonable basis for us to
draw conclusions. We obtained audit evidence through testing
the effectiveness of controls, substantive procedures or a
combination of both. In determining the key audit matters we
noted the following changes from the prior year:
• The assessment of both the KeyDrive S.A business combination
and the GlobeHosting business combination are significant
audit risks for the current year ended 31 December 2018.
• The assessment of the SK.Nic A.S. business combination
was a significant audit risk was specific for the prior year
ended 31 December 2017.
There have been no other changes in the Group’s overall
operations during the current year that significantly impacted our
audit. Therefore, our assessment of the most significant risks of
material misstatement and resulting key audit matters, which are
those risks having the greatest effect on the audit strategy and
requiring particular focus, are otherwise the same as in the prior
year and are detailed below. This is not a complete list of all
risks identified by our audit.
Key audit matter
Revenue recognition
The Group’s operating revenue arises from Reseller sales,
Small business services and Corporate revenues amounted
to £42.7m for the year ended 31 December 2018.
The key revenue recognition risks are in respect of the
following:
• Appropriate recognition of revenue in accordance with the
stated policies ensuring appropriate cut-off is applied for
the recognition in the correct period and of accrued and
deferred revenue;
• Completeness of revenue in a digital environment; and
• The transition to IFRS 15 and the application of the
revenue in accordance with satisfaction of the respective
performance obligations of each revenue stream.
How the scope of our audit addressed the key audit matter
We obtained an understanding of the revenue agreements
and evaluated the Group’s processes and controls in place
to calculate the amount and timing of subscription and
activity based revenue transactions.
We performed the following audit procedures on a sample
basis, for both existing and new contracts, having regard to
satisfaction of performance obligations, to assess the
appropriateness of revenue recognition for individual
transactions:
• Assessed the appropriateness of the allocation of various
revenue elements with reference to the terms of the contract;
• Ensured revenue recognised from subscription fees was
supported by signed contracts;
• Assessed the existence of debtors through testing to
contracts, cash received where applicable and a review of
credit notes issued after year-end;
• Assessed that revenue was recognised in the correct period,
agreeing back to supporting documentation the contract
price and the period in which the services were delivered;
• Reviewed the Group’s assessment of the impact of IFRS
15 on the revenue streams in the business and their
modified accounting policies; and
• Undertook IT procedures around the systems and controls
in respect of revenue.
CentralNic Group Plc Annual Report 2018
33
FINANCIAL STATEMENTS
Independent auditors report continued
Key audit matter
How the scope of our audit addressed the key audit matter
Business combinations and acquisition accounting (Including the carrying value of goodwill
and separately identifiable intangible assets)
During the year, the Group completed the separate
acquisitions of both KeyDrive S.A and GlobeHosting as
disclosed in note 25.
The Group has determined these acquisitions to be business
combinations, the accounting for which can be complex.
For both acquisitions the Group has determined the amounts
to be recognised for fair value of both the consideration paid
and the acquired assets and liabilities. This can involve
significant estimates and judgments including, at the
acquisition date, determining how purchase price is to be
allocated between acquired assets and liabilities and
identified intangible assets, and leading to the resultant
recognition of goodwill at their respective fair values.
There is a risk that inappropriate assumptions could result
in material errors in the acquisition accounting.
The Group used projected financial information in the
purchase price allocation (PPA) exercise. Management use
their best knowledge to make estimates when utilising the
Group’s valuation methodologies. In order to determine the
fair value of the separately identifiable intangible assets on a
business combination, the valuation methodologies require
input based on assumptions about the future and use
discounted cash flows and cash flow forecasts.
Due to the Group’s estimation process in the PPA Exercise and
the work effort from the audit team, business combinations is
considered a key audit matter.
Carrying value of goodwill, investments and intangible assets
When assessing the carrying value of goodwill, investments
(including fair value) and intangible assets, management
make judgments regarding the appropriate cash generating
unit, strategy, future trading and profitability and the
assumptions underlying these. We considered the risk that
goodwill, investments and/or intangible assets were impaired.
Our procedures included the following:
• Assessing the competence and independence of third party
engaged in undertaking the PPA valuation for Management;
• Reviewing the share purchase agreement in respect of each
business combination to understand the nature and terms
of each transaction and to agree the consideration paid;
• Assessing whether the acquisition during the year met
the criteria of a business combination in accordance with
IFRS 3;
• Validating whether the date of acquisition was correctly
determined by scrutinising the key transaction documents
to understand key terms and conditions;
• Assessing the fair value of assets and liabilities recorded in
the purchase price allocation, by performing procedures
including considering the completeness of assets and
liabilities identified and the reasonableness of any
underlying assumptions in their respective valuations and
this would also include assessment on the reasonableness
of the useful lives of the intangible assets and the
consideration given;
• Assessing and challenging the valuation techniques,
assumptions (including those relating to growth rates
and discount rates), models and calculations used to
determine the fair value of the separately identifiable
intangible assets and goodwill recognised on date of
acquisition; and
• Assessing the disclosures in respect of the business
combination.
We evaluated, in comparison to the requirements set out in
IAS36, management’s assessment (using discounted cash
flow models) as to whether goodwill, investments and/or
intangible assets were impaired and the appropriateness in
respect of any reversal of previous impairment made.
We examined management’s evaluation of the fair value
of investments.
We challenged, reviewed and considered by reference to
external evidence, management’s impairment and fair value
models as appropriate and their key estimates, including the
discount rate. We reviewed the appropriateness and
consistency of the process for making such estimates.
34 CentralNic Group Plc Annual Report 2018
We have no other key audit matters to report with respect to our
audit of the Parent Company financial statements.
Our audit procedures in relation to these matters were designed
in the context of our audit opinion as a whole. They were not
designed to enable us to express an opinion on these matters
individually and we express no such opinion.
Other information
The Directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is
a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion based on the work undertaken in the course of
our audit:
• the information given in the Strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the Directors’ report and Strategic report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the Group and
the Parent Company and their environment obtained in the
course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
• the Parent Company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Responsibilities of the Directors for the
financial statements
As explained more fully in the Directors’ responsibilities
statement set out on pages 22 and 23, the Directors are
responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for
such internal control as the Directors determine is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group’s and Parent Company’s
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern
basis of accounting unless the Directors either intend to liquidate
the Group or the Parent Company or to cease operations, or
have no realistic alternative but to do so.
CentralNic Group Plc Annual Report 2018
35
FINANCIAL STATEMENTS
Independent auditors report continued
Auditor’s responsibilities for the audit of the
financial statements
Our objectives are to obtain reasonable assurance about
whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken
on the basis of these financial statements.
A further description of our responsibilities for the audit of the
financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities.
This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so
that we might state to the Company’s members those matters
we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Nigel Bostock (Senior Statutory Auditor)
for and on behalf of
Crowe U.K. LLP
Statutory Auditor
London
12 May 2019
36 CentralNic Group Plc Annual Report 2018
Consolidated statement of
comprehensive income
for the year ended 31 December 2018
2018 2017**
Note £’000 £’000
Revenue 5,6 42,672 24,348
Cost of sales (22,999) (9,720)
Gross profit 19,673 14,628
Administrative expenses (22,058) (12,287)
Share based payments expense (360) (453)
Operating (loss)/profit (2,745) 1,888
Adjusted EBITDA* 6,957 4,203
Depreciation 13 (250) (100)
Amortisation of intangible assets 14 (4,230) (2,184)
Fair value movement of investment 16 (997) –
Non core operating expenses 9 (4,485) (1,982)
Foreign exchange 631 (588)
Premium domain sales 23 2,992
Share of associate income (34) –
Share based payments expense 28 (360) (453)
Operating (loss)/profit (2,745) 1,888
Finance income 10 2 19
Finance costs 10 (1,094) (536)
Net finance costs 10 (1,092) (517)
Share of associate income 34 –
(Loss)/profit before taxation 7 (3,803) 1,371
Income tax expense 11 (1,064) (349)
(Loss)/profit after taxation (4,867) 1,022
Items that may be reclassified subsequently to profit and loss
Exchange difference on translation of foreign operation 1,377 (302)
Total comprehensive (loss)/income for the period (3,490) 720
(Loss)/profit is attributable to:
Owners of CentralNic Plc (4,867) 1,022
Non-controlling interest – –
(4,867) 1,022
Total comprehensive (loss)/income is attributable to:
Owners of CentralNic Plc (3,486) 720
Non-controlling interest (4) –
(3,490) 720
2018 2017
Note pence pence
Earnings per share
Basic (pence) 12 (3.82) 1.07
Diluted (pence) 12 (3.82) 1.04
* Earnings before interest, tax, depreciation and amortisation, foreign exchange, and non-core operating costs and revenues (acquisition costs, integration costs,
settlement items, and premium domain sales).
** 2017 numbers have been restated to reclassify payroll and consultancy costs of £4.8m from cost of sales into administrative expenses, in line with the 2018
presentational change.
All amounts relate to continuing activities.
The notes on pages 41 to 74 form an integral part of these financial statements.
CentralNic Group Plc Annual Report 2018
37
FINANCIAL STATEMENTS
Consolidated statement
of financial position
as at 31 December 2018
2018 2017
Note £’000 £’000
ASSETS
Non-current assets
Property, plant and equipment 13 728 208
Intangible assets 14 99,428 53,460
Deferred receivables 15 865 1,050
Investments fair value through other comprehensive income 16a – 997
Investments 16b 1,086 –
Deferred tax assets 22 1,270 1,502
103,377 57,217
Current assets
Trade and other receivables 17 19,047 14,054
Inventory 3,052 327
Cash and bank balances 18 18,039 10,862
40,138 25,243
Total assets 143,515 82,460
EQUITY AND LIABILITIES
Equity
Share capital 19 171 96
Share premium 19 54,173 16,545
Merger relief reserve 19 1,879 1,879
Share based payments reserve 2,660 2,507
Foreign exchange translation reserve 2,985 1,608
(Accumulated losses)/retained earnings (890) 3,817
Capital and reserves attributable to owners of the Group 60,978 26,452
Non-controlling interests 4 –
Total equity 60,982 26,452
Non-current liabilities
Other payables 20 5,994 5,634
Deferred tax liabilities 22 9,839 5,519
Borrowings 24 17,917 15,541
33,750 26,694
Current liabilities
Trade and other payables and accruals 23 46,655 27,047
Taxation payable 353 413
Borrowings 24 1,775 1,854
48,783 29,314
Total liabilities 82,533 56,008
Total equity and liabilities 143,515 82,460
These financial statements were approved and authorised for issue by the Board of Directors on 12 May 2019 and were
signed on its behalf by:
Mike Turner
Chairman
Company Number: 08576358
The notes on pages 41 to 74 form an integral part of these financial statements.
38 CentralNic Group Plc Annual Report 2018
Consolidated statement
of changes in equity
for the year ended 31 December 2018
Accu- Equity
Share Foreign mulated attributable
Merger based exchange (losses)/ to owners of Non-
Share Share relief payments translation retained the Parent controlling Total
capital premium reserve reserve reserve earnings Company interests equity
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
Balance as at 31 December 2016 96 16,545 1,879 2,004 1,910 2,785 25,219 – 25,219
Profit for the year – – – – – 1,022 1,022 – 1,022
Other comprehensive income
Translation of foreign operation – – – – (302) – (302) – (302)
Total comprehensive income for the year – – – – (302) 1,022 720 – 720
Transactions with owners
Issue of new shares
Share based payments – – – 453 – – 453 – 453
Share based payments
– reclassify lapsed options – – – (10) – 10 – – –
Share based payments
– deferred tax asset – – – 60 – – 60 – 60
Balance as at 31 December 2017 96 16,545 1,879 2,507 1,608 3,817 26,452 – 26,452
(Loss)/profit for the year – – – – – (4,867) (4,867) 4 (4,863)
Other comprehensive income
Translation of foreign operation – – – – 1,377 – 1,377 – 1,377
Total comprehensive income for the year – – – – 1,377 (4,867) (3,490) 4 (3,486)
Transactions with owners
Share issued 75 38,673 – – – – 38,748 – 38,748
Share issue costs – (1,045) – – – – (1,045) – (1,045)
Share based payments – – – 360 – – 360 – 360
Share based payments
– reclassify lapsed options – – – (160) – 160 – – –
Share based payments
– deferred tax asset – – – (47) – – (47) – (47)
Balance as at 31 December 2018 171 54,173 1,879 2,660 2,985 (890) 60,978 4 60,982
• Share capital represents the nominal value of the Company’s cumulative issued share capital.
• Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of
their nominal value less attributable share issue costs and other permitted reductions.
• Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess
of their nominal value less attributable share issue costs and other permitted reductions. Where the consideration for shares in
another company includes issued shares, and 90% of the equity is held in the other company.
• Retained earnings represent the cumulative value of the profits not distributed to Shareholders but retained to finance the future
capital requirements of the CentralNic Group.
• Share based payments reserve represents the cumulative value of share based payments recognised through equity.
• Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.
• The non-controlling interests comprise the portion of equity of subsidiaries that are not owned, directly or indirectly, by the Group.
These non-controlling interests are individually not material for the Group.
The notes on pages 41 to 74 form an integral part of these financial statements.
CentralNic Group Plc Annual Report 2018
39
FINANCIAL STATEMENTS
Consolidated statement
of cash flows
for the year ended 31 December 2018
2018 2017
Note £’000 £’000
Cash flow from operating activities
(Loss)/profit before taxation (3,803) 1,371
Adjustments for:
Depreciation of property, plant and equipment 250 100
Amortisation of intangible assets 4,230 2,184
Fair value movement of investment 997 –
Profit on investment in associate (34) –
Finance cost – net 1,092 517
Share based payments 360 453
Decrease in trade and other receivables 1,892 1,196
Increase/(decrease) in trade and other payables and accruals 6,667 (1,011)
(Increase)/decrease in inventories (2,725) 77
Cash flow from operations 8,926 4,887
Income tax paid (2,260) (1,098)
Net cash flow generated from operating activities 6,666 3,789
Cash flow used in investing activities
Purchase of property, plant and equipment (299) (104)
Purchase of intangible assets (3,389) (415)
Payment of deferred consideration (510) –
Acquisition of a subsidiary, net of cash acquired 25 (8,969) (17,368)
Net cash flow used in investing activities (13,167) (17,887)
Cash flow used in financing activities
Proceeds from borrowings (net of repayments) 2,342 15,298
Proceeds from issuance of ordinary shares 24,185 –
Costs from share issue (1,045) –
Payment of debt like items (11,187) –
Interest paid (511) (89)
Net cash flow generated from financing activities 13,784 15,209
Net increase/(decrease) in cash and cash equivalents 7,283 1,111
Cash and cash equivalents at beginning of the year 10,862 9,902
Exchange (losses)/gains on cash and cash equivalents (106) (151)
Cash and cash equivalents at end of the year 18,039 10,862
Bank borrowings (excluding prepaid costs) (20,517) (18,078)
Net (debt)/cash excluding issue costs of debt (2,478) (7,216)
The notes on pages 41 to 74 form an integral part of these financial statements.
40 CentralNic Group Plc Annual Report 2018
Notes to the consolidated
financial statements
for the year ended 31 December 2018
1. General information
(a) Nature of operations
CentralNic Group Plc is the UK holding company of a group of companies which are engaged in the provision of global domain
name services. The Company is registered in England and Wales. Its registered office and principal place of business is
35-39 Moorgate, London EC2R 6AR.
The CentralNic Group provides Reseller, Small business, and Corporate and strategic consultancy for new Top Level Domains (TLDs),
Country Code TLD’s (ccTLDs) and Second-Level Domains (SLDs) and it is the owner and registrant of a portfolio of domain names,
which it uses as domain extensions and for resale on the domain name aftermarket.
(b) Component undertakings
The principal activities of the subsidiaries and other entities included in the financial statements are presented within the Particulars
of Subsidiaries and Associates on pages 83 to 85 of these financial statements.
2. Application of IFRS
(a) Basis of preparation
The financial statements are measured and presented in sterling (£) rounded to the nearest thousand, unless otherwise stated, which
is the currency of the primary economic environment in which many of the entities operate. They have been prepared under the
historical cost convention, except for those financial instruments which have been measured at fair value through profit and loss.
The financial statements have been prepared on the going concern basis, which assumes that the Group will continue to be able to
meet its liabilities as they fall due for the foreseeable future. The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the EU (IFRS) issued by the International Accounting Standards Board
(IASB), including related interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC).
The Directors have reviewed forecasts and budgets for the coming year having regard to both the macroeconomic environment in
which the Group operates, historic and current industry knowledge and contracted trading activities and the future strategy of the
Group. As a result of that review the Directors consider that it is appropriate to adopt the going concern basis of preparation.
(b) Standards adopted in the year
During the year, the Group adopted IFRS 9 – Financial Instruments and IFRS 15 – Revenue from contracts with customers which were
effective for accounting periods commencing on 1 January 2018.
As described in the last annual report, the Directors completed their detailed review of IFRS 9 and IFRS 15 at the time of reporting of
the year ended 31 December 2017 results and concluded that the adoption of these standards would have no material impact on the
financial statements.
IFRS 15 is a prescriptive standard which requires a business to identify the performance obligations which are contracted with its customer
base. The transaction price of the contract is determined after which the transaction price is allocated against the identified performance
obligations. Revenue is recognised against each of the performance obligations as they are satisfied and as control is transferred. The
Group evaluated the revenue recognition policy in place against the requirement of the standard. Performance obligations within customer
contracts have been identified where domain names are sold for a term, where the management, customer and technical support is
available to the customer over the period of that term, in Reseller division. The transaction price of the contract is evaluated in accordance
with IFRS 15, and is attached to the performance obligations of the customer contract. Performance obligations are deemed to be satisfied
by transferring control rateably over the period of contractual time, being the anniversary of the expiry date of the domain name. Small
business and Corporate revenues take a similar approach, however revenues here are either recognised when control is passed on to the
customer either on a percentage completion basis inline with contractual milestones or immediately recognised on delivery of the
contracted work. Overall, the business determined that there is no material impact on the adoption of IFRS 15.
IFRS 9 relates to Financial Instruments which contains the requirement for a) the classification and measurement of financial assets
and financial liabilities, b) impairment methodology and c) general hedge accounting. As disclosed in note 29, the Group measures its
financial assets and liabilities and accounts for any expected credit losses on the basis of the simplified approach within IFRS 9 using
a provision matrix in the determination of the lifetime expected credit losses. Therefore, the adoption of IFRS 9 causes no material
impact on the financial statements.
There have been no other standards adopted that have had a material impact on the financial statements and no standards adopted
in advance of their implementation date.
CentralNic Group Plc Annual Report 2018
41
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
2. Application of IFRS continued
(c) Standards, amendments and interpretations to published standards not yet effective under IFRS 16 Lease
IFRS 16 supersedes IAS 17 Leases and introduces a new single lessee accounting model which eliminates the current distinction
between operating and finance leases for lessees. IFRS 16 will primarily affect the accounting for the group’s operating leases and is
effective for the next accounting period. As at the reporting date, the Group has non-cancellable operating lease commitments of
£1,032,000, see note 27. Under IFRS 16, the obligations to pay the future leases rentals over the expected lease term (as outlined in
note 27) will be recognised as a lease liability (current and non-current) discounted at the incremental borrowing rate with a
corresponding right of use asset also being recognised in the statement of financial position. Whilst there will be a material change in
gross assets and liabilities, as a result of recognising the leases as right-of-use assets and liabilities, for the change in accounting
policy, it is not anticipated that there will be a material impact on net assets. Additionally, whilst the depreciation on the right of use
asset and the interest on the finance liability would be different to the present operating lease charge, it is not expected to have a
material impact on the reported result in the statement.
There are no other standards issued not yet effective that will have a material effect on the financial statements.
3. Summary of significant accounting policies
The financial statements have been prepared on the historical cost basis, as explained in the accounting policies set out below,
which has been prepared in accordance with IFRS. The principal accounting policies are set out below:
(a) Basis of consolidation
The consolidated financial statements include the financial statements of all subsidiaries. The financial year-ends of all entities in the
Group are coterminous.
The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control over the
operating and financial decisions is obtained and cease to be consolidated from the date on which control is transferred out of the
Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee.
All intercompany balances and transactions, including recognised gains arising from inter-group transactions, have been eliminated in full.
Unrealised losses are eliminated in the same manner as recognised gains except to the extent that they provide evidence of impairment.
(b) Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the acquiree. For each
business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate
share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host contracts by the acquiree.
Where not all of the equity of a subsidiary is acquired, the non-controlling interests are recognised at the non-controlling interest’s
share of the acquiree’s net identifiable assets. Upon obtaining control in a business combination achieved in stages, the Group
remeasures its previously held equity interest at fair value and recognises a gain or a loss to the income statement.
Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration classified as
a financial liability, remeasured subsequently through profit or loss.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised
for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair
value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has
correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired
over the aggregate consideration transferred, then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are
expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
42 CentralNic Group Plc Annual Report 2018
3. Summary of significant accounting policies continued
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on
disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the
portion of the cash-generating unit retained.
(c) Functional and foreign currencies
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Pounds
Sterling (£), the Group’s and the Company’s presentational currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency at the exchange rates prevailing at the dates of the
transactions or valuation where items are re-measured. Foreign currency gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies
are recognised in the income statement, except where deferred in other comprehensive income as qualifying cash flow hedges and
qualifying net-investment hedges. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are
presented in the income statement within finance income or finance costs. All other foreign exchange gains and losses are
recognised in profit and loss within administrative expenses.
(iii) Group Companies
The results and financial position of all of the Group entities, none of which has the currency of a hyper-inflationary economy, that
have a functional currency different from the presentation currency of the Group are translated as follows:
a) assets and liabilities for each statement of financial position are translated at the closing rate at the date of that statement of
financial position;
b)
income and expenses for each income statement are translated at average exchange rates (unless this average is not a
reasonable approximation of the cumulative effect of the rates prevailing at the transaction dates, in which case income and
expenses are translated at the rate on the dates of the transactions); and
c) all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
(d) Financial instruments
Financial assets and liabilities are recognised in the statements of financial position when CentralNic or one of the CentralNic Group
entities has become a party to the contractual provisions of the instruments.
The CentralNic Group’s financial assets and liabilities are initially measured at fair value plus any directly attributable transaction costs.
The carrying value of the CentralNic Group’s financial assets (primarily cash and bank balances) and liabilities (primarily CentralNic’s
payables and other accrued expenses) approximate their fair values.
Financial instruments are offset when the CentralNic Group has a legally enforceable right to offset and intends to settle either on a
net basis or to realise the asset and settle the liability simultaneously.
The Group classifies its financial assets into one of the categories discussed below. The Group’s accounting policy for each
category is as follows:
(i) Amortised cost
These assets arise principally from the provision of goods and services to customers (eg trade receivables), but also incorporate other types
of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are
solely payments of principal and interest. They are initially recognised at fair value plus transaction costs that are directly attributable to their
acquisition or issue and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.
Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9
using a provision matrix in the determination of the lifetime expected credit losses. During this process the probability of the
non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from
default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such
provisions are recorded in a separate provision account with the loss being shown as impairment charge in the consolidated
Statement of profit or loss and other comprehensive income. On confirmation that the trade receivable will not be collectable, the
gross carrying value of the asset is written off against the associated provision.
CentralNic Group Plc Annual Report 2018
43
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
3. Summary of significant accounting policies continued
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward-looking
expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset, 12 months expected credit losses along with gross interest income are
recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest
income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest
income on a net basis are recognised.
From time to time, the Group elects to renegotiate the terms of trade receivables due from customers with which it has previously had
a good trading history. Such renegotiations will lead to changes in the timing of payments rather than changes to the amounts owed
and, in consequence, the new expected cash flows are discounted at the original effective interest rate and any resulting difference to
the carrying value is recognised in the consolidated statement of profit or loss and other comprehensive income (operating profit).
The Group’s financial assets measured at amortised cost comprise trade and other receivables and cash and cash equivalents in the
consolidated statement of financial position.
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with
original maturities of three months or less, and – for the purpose of the statement of cash flows – bank overdrafts. Bank overdrafts
are shown within loans and borrowings in current liabilities on the consolidated statement of financial position.
(ii) Fair value through other comprehensive income
The Group has an equity interest in a number of investments in unlisted entities which are not accounted for as subsidiaries, associates or
jointly controlled entities. For those investments, the Group has made an irrevocable election to classify the investments at fair value through
other comprehensive income rather than through profit or loss as the Group considers this measurement to be the most representative of
the business model for these assets. They are carried at fair value with changes in fair value recognised in other comprehensive income
and accumulated in the fair value through other comprehensive income reserve. Upon disposal any balance within fair value through other
comprehensive income reserve is reclassified directly to retained earnings and is not reclassified to profit or loss.
Dividends are recognised in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment,
in which case the full or partial amount of the dividend is recorded against the associated investments carrying amount.
Purchases and sales of financial assets measured at fair value through other comprehensive income are recognised on settlement
date with any change in fair value between trade date and settlement date being recognised in the fair value through other
comprehensive income reserve.
(iii) Financial liabilities and equity instruments
Financial liabilities are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest,
dividends, gains and losses relating to financial liabilities are reported in profit or loss. Distributions to holders of financial liabilities are
classified as equity and charged directly to equity.
Financial liabilities
Financial liabilities comprise long-term borrowings, short-term borrowings, trade and other payables and accruals, measured at
amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees on
points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts)
through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities.
Equity instruments issued by the CentralNic Group are recognised at the proceeds received, net of direct issue costs.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are
shown in equity as a deduction, net of tax, from proceeds.
Dividends on ordinary shares are recognised as liabilities when approved for appropriation.
44 CentralNic Group Plc Annual Report 2018
3. Summary of significant accounting policies continued
(e) Property, plant and equipment
Property, plant and equipment, including leasehold improvements and office furniture and equipment, are stated at cost less
accumulated depreciation and impairment losses, if any.
Depreciation is calculated using the methods below to write off the depreciable amount of the assets over their estimated useful lives.
Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully
depreciated. The principal annual rates used for this purpose are:
UK Australia New Zealand Slovakia Germany Luxembourg
Depreciation method Reducing Reducing Reducing Straight Straight Straight
balance balance balance line line line
Computer equipment 60-65% 25% 25% 20% 33% 20-25%
Furniture and fittings 15-20% 5-10% 5-20% 20% 9-10% –
Motor vehicles – – – – 16.7% –
The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each reporting
period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates and the expected
pattern of consumption of the future economic benefits embodied in the asset.
Subsequent component replacement costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to
the CentralNic Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is
derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.
Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which
the CentralNic Group are obliged to incur when the asset is acquired, if applicable.
An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use.
Any gain or loss arising from de-recognition of the asset is recognised in profit or loss.
Intangible assets
(f)
Intangible assets represent amounts paid to acquire the rights to own and act as registrant for a portfolio of domain names.
Capitalised domain names have a finite useful life and are measured at cost less accumulated amortisation and impairment losses,
if any. Domain names are amortised on an annual basis at the rate of 10% reducing balance.
Domain names not held for resale are included in the balance sheet at amortised cost and classified as “Domain names” and
amortised over their useful lives. Domain names held for resale are included in the balance sheet at the lower of cost and net
realisable value and classified as stock held for sale, no amortisation being charged. If a decision is taken to sell a domain name
previously included in intangible assets it is reclassified as stock at net book value prior to sale.
The useful economic life for the software acquired as part of the Internet.BS, Instra, and SK-NIC is five years with the customer list
acquired being amortised over ten years. The useful economic life for the software acquired as part of the KeyDrive acquisition is three
to nine years with the customer list acquired being amortised over seven to 10 years.
Patent and Trademarks acquired as part of the acquisition of KeyDrive and GlobeHosting are amortised over the shorter of their useful
life and/or contractual life or legal rights. If the contractual or legal right are renewed, the useful life will include the renewal period.
Patent and trademarks are amortised over 5 to 15 years.
Development costs that the CentralNic Group incurs for identifiable and unique software will be capitalised, where the following
criteria are met:
• it is technically feasible to complete the software so that it will be available for use;
• management intends to complete the software product and use or sell it;
• there is an ability to use or sell the software product;
• it can be demonstrated that the asset will probably generate future economic benefits;
• the expenditure attributable to the software product during its development can be reliably measured; and
• that there are adequate technical and finance resources available to complete this development.
CentralNic Group Plc Annual Report 2018
45
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
3. Summary of significant accounting policies continued
Costs capitalised in relation to computer software development may relate to either:
• completely separable software; or
• enhancements of existing software which are clearly identifiable as new modules within the system or new features which enable
the asset to generate additional future economic benefit. For the avoidance of doubt this excludes the ongoing maintenance to the
existing software.
Directly attributable costs that are capitalised as part of the software product include the employee costs and an appropriate portion of
the relevant overheads. Computer software development recognised as assets are amortised over their estimated useful lives, which
are determined by the Directors.
Costs for development initiatives that the CentralNic Group undertakes that are not otherwise allocable to specific domain names or
projects are charged to expense through profit and loss when incurred.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business
combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development
costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets are tested for impairment annually if facts and circumstances indicate that impairment may exist. In the event that the
expected future economic benefits of the intangible assets are no longer probable or expected to be recovered, the capitalised
amounts are written down to their recoverable amount through profit and loss.
(g) Impairment of non-financial assets
The carrying values of non-financial assets, other than deferred tax assets, are reviewed at the end of each reporting period to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of the asset is the higher of the asset’s fair value less cost to sell and their value-in-use, which is measured
by reference to discounted future cash flows.
An impairment loss is recognised if the carrying value of the asset exceeds its recoverable amount.
An impairment loss is recognised in profit or loss immediately.
In respect of assets other than goodwill, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the
previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of
amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately.
(h) Cash and cash equivalents
Cash and bank balances comprise of cash in hand, bank balances, deposits with financial institutions and short-term, highly liquid
investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(i) Employee benefits
Short-term employee benefits, including wages, salaries, paid annual leave and sick leave, bonuses and non-monetary benefits are
accrued in the period in which the associated services are rendered by employees of the CentralNic Group.
(j) Leases
Assets held under leases are classified as operating leases and are not recognised in the CentralNic Group’s statement of financial
position. Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.
Lease incentives received are recognised as part of the total lease expense, over the term of the lease.
(k) Taxation
Taxation for the year comprises of current and deferred tax.
Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the
tax rates that have been enacted or substantively enacted at the end of the reporting period.
46 CentralNic Group Plc Annual Report 2018
3. Summary of significant accounting policies continued
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements.
Deferred tax liabilities are recognised for all taxable temporary differences other than those that arise from goodwill or excess of the
acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the business
combination costs or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the
time of the transaction, affects neither accounting profit nor taxable profit.
Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent
that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and
unused tax credits can be utilised. The carrying amounts of deferred tax assets are reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred
tax assets to be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or
the liability is settled, based on the tax rates that have been enacted or substantively enacted at the end of the reporting period.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when the deferred income taxes relate to the same taxation authority.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in
correlation to the underlying transactions either in other comprehensive income or directly in equity and deferred tax arising from a
business combination is included in the resulting goodwill or excess of the acquirer’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities over the business combination costs.
(l) Share based payments
Employees (including Directors and Senior Executives) of the Group receive remuneration in the form of share based payment
transactions, whereby these individuals render services as consideration for equity instruments (equity-settled transactions). These
individuals are granted share option rights approved by the Board which can only be settled in shares of the respective companies
that award the equity-settled transactions. Share option rights are also granted to these individuals by majority Shareholders over their
shares held. No cash settled awards have been made or are planned.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the
performance and/or service conditions are fulfilled, ending on the date on which the relevant individuals become fully entitled to the
award (vesting point). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date
reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments and
value that will ultimately vest. The statement of comprehensive income charge for the year represents the movement in the cumulative
expense recognised as at the beginning and end of that period.
The fair value of share based remuneration is determined at the date of grant and recognised as an expense in the statement of
comprehensive income on a straight-line basis over the vesting period, taking account of the estimated number of shares that will
vest. The fair value is determined by use of Black Scholes model method.
(m) Provisions, contingent liabilities and contingent assets
Provisions are recognised if, as a result of a past event, the CentralNic Group has a present legal or constructive obligation, when it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable
estimate of the amount can be made. Provisions are reviewed at the end of each financial reporting period and adjusted to reflect the
current best estimate. Where effect of the time value of money is material, the provision is the present value of the estimated
expenditure required to settle the obligation.
A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence
of one or more uncertain future events not wholly within the control of the CentralNic Group. It can also be a present obligation arising
from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount
of obligation cannot be measured reliably.
A contingent liability is not recognised in the financial statements but is disclosed in the notes to the financial statements. When a
change in the probability of a contingent outflow occurs so that the outflow is probable, a liability will be recognised as a provision.
CentralNic Group Plc Annual Report 2018
47
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
3. Summary of significant accounting policies continued
A contingent asset is a probable asset that arises from past events and whose existence will be confirmed only by the occurrence or
non-occurrence of one or more uncertain events not wholly within the control of the CentralNic Group. The CentralNic Group does not
recognise contingent assets but discloses their existence where inflows of economic benefits are probable, but not virtually certain.
(n) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services
provided in the course of ordinary activities, net of discounts and sales related taxes.
Revenue from the sale of services is recognised when the performance obligations are met under the customer contract. In particular:
(i) Sale of Reseller services for domain names to registrars
Reseller revenues are derived from their customer base, registrars, via the following three channels:
a) Registry channel – These revenues are being generated from the provision of services through the registry service provider
mechanism. CentralNic operates as a back end service provider for third party Top Level Domains on an exclusive basis, enabling
the registrars to sell domain names to registrants.
b) Reseller channel – Revenues are derived by facilitating the sale of domain names to registrars by acting as a reseller platform provider.
c) Registry Operator channel – CentralNic is an asset holder for Country Code TLD .SK, and therefore generates revenues through
sale of domain names of .SK extension to registrars.
In accordance with IFRS 15, each segment evaluates the representation of the underlying customer contracts with the registrars, and
identifies the performance obligation that are required to be met under the customer contract. Determining the transaction price and
allocating the transaction price to the performance obligation is done is also considered, followed by the fulfilment of the performance
obligation, therefore leading to the revenue recognition of the sale.
For the Registry revenues and Registry operator channels, upon evaluation of the customer contract, the registry channel has several
performance obligations that need to be met over the term of the domain name sale. An invoice under these divisions could cover the sale
of a domain name for a fixed term period which could vary between one and ten years, and the performance obligations are expected to
be fulfilled over the course of this term on a straight-line basis. Revenues that relate to the period in which the services are performed are
recognised in the income statement of that period, with the amounts relating to future periods being deferred into ‘Deferred revenues’.
For the Reseller channel, upon evaluation of the customer contract, the registry channel has performance obligations that are met at
point of sale of the domain name. An invoice under this division could cover the licence to utilise the domain name for a fixed term
period which could vary between one and ten years, however, all performance obligations are met at the point of sale, and therefore
no revenue is deferred.
(ii) Sale of Small business services for domain names to domain registrants
Small business revenues are generated from the provision of retail and similar services to domain registrants. The sub revenue
streams would be those of new registrations and renewals. Revenue originates when a transaction is generated on the service registry
platform by the customer.
For the small business division, upon evaluation of the customer contract, the registry channel has performance obligations that are
met at point of sale of the domain name. An invoice under this division could cover the licence to utilise the domain name for a fixed
term period which could vary between one and ten years, however, all performance obligations are met at the point of sale, and
therefore no revenue is deferred.
(iii) Sale of Corporate services
Revenue from the provision of computer software to a customer is recognised when the Group has delivered the related software and
completed all of the adaptions required by the customer for either the whole contract or for a specific milestone deliverable within the
contract. The revenue is recognised at the point of fulfilment of the performance obligation, in line with the customer contract.
Revenue from strategic consultancy and similar services is recognised in profit and loss in proportion to the stage of completion of the
performance obligation at the reporting date. The stage of performance obligation fulfilment is determined based on completion of
work performed to date as a percentage of total services to be performed.
(iv) Changes during the year
By exception, due to the refund policy which has been amended on 1 November 2018 as part of the integration, revenues of Instra (Small
business and Reseller segments) and UK (small business segments) billed before the 1 November 2018 have been recognised over the
course fixed term period of domain name sale, with the amounts relating to future periods being deferred into ‘Deferred revenues’ which
are effectively customer payments on account in advance of satisfaction of the performance obligations.
48 CentralNic Group Plc Annual Report 2018
3. Summary of significant accounting policies continued
(o) Inventories
Inventories consists of Domain Names which are initially recognised at cost, and subsequently at the lower of cost and net realisable
value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present
location and condition.
Weighted average cost is used to determine the cost of ordinarily interchangeable items.
(p) Associates
Where the Group has the power to participate in (but not control) the financial and operating policy decisions of another entity, it is
classified as an associate. Associates are initially recognised in the consolidated statement of financial position at cost. Subsequently
associates are accounted for using the equity method, where the Group’s share of post-acquisition profits and losses and other
comprehensive income is recognised in the consolidated statement of profit and loss and other comprehensive income (except for
losses in excess of the Group’s investment in the associate unless there is an obligation to make good those losses).
Profits and losses arising on transactions between the Group and its associates are recognised only to the extent of unrelated
investors’ interests in the associate. The investor’s share in the associate’s profits and losses resulting from these transactions is
eliminated against the carrying value of the associate.
Any premium paid for an associate above the fair value of the Group’s share of the identifiable assets, liabilities and contingent liabilities
acquired is capitalised and included in the carrying amount of the associate. Where there is objective evidence that the investment in an
associate has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.
4. Critical accounting judgments and key sources of estimating uncertainty
In the application of the CentralNic Group’s accounting policies, which are described in note 3, the Directors are required to make
judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not apparent from other sources.
The estimates and assumptions are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the statement of
financial position date that have a significant risk of causing a significant adjustment to the carrying amounts of assets and liabilities in
the financial statements:
Impairment testing and fair value assessment
The recoverable amounts of individual non-financial assets are determined based on the higher of the value-in-use and the fair value
less costs to sell. These calculations will require the use of estimates and assumptions. It is reasonably possible that assumptions
may change, which may impact the Directors’ estimates and may then require a material adjustment to the carrying value of
investments, tangible and intangible assets.
The Directors review and test the carrying value of investments, tangible and intangible assets when events or changes in
circumstances suggest that the carrying amount may not be recoverable. For the purposes of performing impairment tests, assets are
grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets or liabilities. If there
are indications that impairment may have occurred, estimates will be prepared of expected future cash flows for each group of assets.
For fair value through other comprehensive income financial assets, the Directors review the appropriateness and reasonableness of
(i) the valuation technique(s) followed to determine the fair value and corroborative support (ii) the assumptions used in preparing such
valuations and the evaluation of the sensitivity in such assumptions (iii) the evidence of indicators of a change in fair value and (iv) the
adjustments required if there are indications that a change in fair value has arisen.
Expected future cash flows used to determine the value in use of tangible and intangible assets will be inherently uncertain and could
materially change over time. The carrying value of the Group’s tangible, intangible and investment assets are disclosed in notes 13,
14 and 16 respectively.
CentralNic Group Plc Annual Report 2018
49
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
4. Critical accounting judgments and key sources of estimating uncertainty continued
Acquisition accounting and goodwill
Where the Group undertakes business combinations, the cost of acquisition is allocated to identifiable net assets and contingent liabilities
acquired and assumed by reference to their estimated fair values at the time of acquisition. The remaining amount is recorded as goodwill.
The valuation of identifiable net assets involves an element of judgment related to projected results. Fair values that are stated as provisional
are not finalised at the reporting date and final fair values may be determined that are materially different from the provisional values stated.
In addition, the fair value of the deferred consideration arising on the business combination/acquisition is a key area of accounting estimate.
Judgment was exercised in determining the fair value of the assets and liabilities and the deferred consideration in the KeyDrive
acquisition. Further details are set out in note 25.
5. Segment analysis
CentralNic is an independent global domain name service provider. It provides Reseller, Small business and Corporate services and is
the owner and registrant of a portfolio of domain names. Operating segments are prepared in a manner consistent with the internal
reporting provided to the management as its chief operating decision maker in order to allocate resources to segments and to assess
their performance. The Directors do not rely on segmental cash flows arising from the operating, investing and financing activities for
each reportable segment for their decision making and have therefore not included them. There was a change in the composition in
the segmental analysis and the comparatives have been updated. The segmental analysis is organised around the products and
services of the business.
The Reseller division is a global distributor of domain names and provides consultancy services to retailers. The Small business
division provides domain names and ancillary services to end users, also on a global basis. The Corporate division represents revenue
generated by providing technical and consultancy services to corporate clients, licencing of the Group’s in house developed registry
management platform, and selling premium domain names.
Management reviews the activities of the CentralNic Group in the segments disclosed below:
2018
Reseller Small business Corporate Total
£000 £000 £000 £000
Revenue 20,881 18,344 3,447 42,672
Gross profit 9,730 7,461 2,482 19,673
Total administrative expenses (22,058)
Share based payments expense (360)
Operating loss (2,745)
Adjusted EBITDA 6,957
Depreciation (250)
Amortisation of intangibles assets (4,230)
Fair value movement of investment (997)
Non core operating expenses (4,485)
Foreign exchange 631
Premium domain sales 23
Share of associate income (34)
Share based payment expense (360)
Operating loss (2,745)
Finance cost (net) (1,092)
Share of associate income 34
Loss before taxation (3,803)
Income tax expense (1,064)
Loss after taxation (4,867)
50 CentralNic Group Plc Annual Report 2018
5. Segment analysis continued
2017
Reseller Small business Corporate Total
£000 £000 £000 £000
Revenue 5,743 14,736 3,869 24,348
Gross profit 4,856 5,978 3,794 14,628
Total administrative expenses (12,287)
Share based payments expense (453)
Operating profit 1,888
Adjusted EBITDA 4,203
Depreciation (100)
Amortisation of intangibles assets (2,184)
Non core operating expenses (1,982)
Foreign exchange (588)
Premium domain sales 2,992
Share based payment expense (453)
Operating profit 1,888
Finance cost (net) (517)
Profit before taxation 1,371
Income tax expense (349)
Profit after taxation 1,022
The geographical locations of the non-current and current assets and non-current and current liabilities are located in the following territories.
2018
Non-current Non-current
assets Current assets liabilities Current liabilities
£’000 £’000 £’000 £’000
UK 4,996 12,626 28,532 19,907
North America 862 3,367 – 1,226
Europe 73,725 13,882 5,218 19,135
Australasia 21,013 7,121 – 6,020
ROW 2,781 3,142 – 2,495
103,377 40,138 33,750 48,783
2017
Non-current Non-current
assets Current assets liabilities Current liabilities
£’000 £’000 £’000 £’000
UK 3,826 14,817 16,346 18,257
North America – 117 – (12)
Europe 25,970 689 5,857 2,623
Australasia 24,385 5,824 4,491 5,766
ROW 3,036 3,796 – 2,680
57,217 25,243 26,694 29,314
CentralNic Group Plc Annual Report 2018
51
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
6. Revenue
The Reseller division generated its revenue from reselling domain names totaling £19,325,000 (2017: £4,946,000), £1,386,000
(2017: £601,000) from consultancy and £170,000 (2017: £196,000) from DotBrand revenues. The Small Business division wholly
represents revenue from provision of domain names sales totaling £18,344,000 (2017: £14,736,000). The Corporate division
generated its revenue from premium domain sales of £23,000 (2017: £2,992,000), corporate revenues of £3,096,000 (2017:
£590,000), and software licensing revenues of £328,000 (2017: £287,000). As part of the streamlining of the segmental analysis
in 2018, DotBrand revenues are now included in the Reseller segment from the Corporate segment in 2017.
For revenues recognised in accordance with note 3 (n) (iv) there was a net increase in deferred revenue during 2018 of £447,000.
The CentralNic Group’s revenue is generated from the following geographical areas:
2018 2017
£’000 £’000
Reseller domain sales
UK 505 527
North America 4,053 1,317
Europe 13,536 1,491
ROW 2,787 2,408
20,881 5,743
Small business domain sales
UK 1,453 1,326
North America 4,578 3,036
Europe 4,396 4,054
ROW 7,917 6,320
18,344 14,736
Corporate sales
UK 523 –
North America 1,101 2,645
Europe 1,743 811
ROW 80 413
3,447 3,869
Corporate sales including premium domain name sales by nature are subject to annual variation depending on customer demand.
The Reseller division had no one customer that representing more than 10% of the division’s revenue (2017: £613,000). No single
customer contributes greater than 10% or more of the Small business sales.
The Corporate division has one customer that represented more than 10% of the division’s revenue in the year of £466,000
(2017: £2,992,000 which principally represented one premium domain customer).
52 CentralNic Group Plc Annual Report 2018
6. Revenue continued
The CentralNic Group’s revenue is generated from the following countries:
2018 2017
£’000 £’000
Revenue by customer location
United States of America 9,085 6,054
Germany 7,259 866
United Kingdom 1,875 1,603
Switzerland 1,771 232
Australia 1,610 1,434
China 1,065 1,369
United Arab Emirates 758 687
France 963 562
Singapore 656 523
Italy 801 508
Hong Kong 476 452
New Zealand 408 404
Canada 561 402
Russian Federation 563 341
Chile 90 268
India 291 226
Other 14,440 8,417
42,672 24,348
7. Profit before taxation
The profit before taxation is stated after charging the following amounts.
2018 2017
£’000 £’000
Employee benefit expense – wages and salaries 6,518 3,788
Employee benefit expense – social security 947 354
Employee benefit expense – pension 177 178
Employee benefit expense – share based payments 112 136
Staff consultancy fees 723 468
Directors’ remuneration – fees and salaries 1,140 843
Directors’ remuneration – share based payments 232 317
Operating leases – land & buildings 315 162
Operating leases – equipment 493 451
Fees payable to the Company’s auditor for the audit of Parent
Company and consolidated financial statements – UK auditor office 63 55
Fees payable to the Company’s auditor for the audit of subsidiary
companies – Overseas auditor associates 50 50
Fees payable to Company’s auditors for due diligence and other acquisition costs 506 102
Net loss/(gain) on foreign currency translation (631) 588
Depreciation and amortisation expense 4,480 2,284
CentralNic Group Plc Annual Report 2018
53
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
8. Employee information
The average number of persons employed by the Group (excluding Directors) during the year were 217 (2017: 92), analysed by
category, as follows:
2018 2017
£’000 £’000
Management and finance 31 10
Technical 67 28
Sales and marketing 42 23
Administrative 30 5
Operations 47 26
Key management personnel
Total remuneration of key management personnel being the Directors and key senior personnel is £2,546,000 (2017: £2,360,000)
and is set out below in aggregate for each of the categories specified in IAS24, related party disclosures.
Key management are considered to be the Directors and key management personnel. Compensation has been disclosed in this
note 8, while further information can be found in the Remuneration report on pages 29 to 31.
2018 2017
Senior key Senior key
Directors personnel Total Directors personnel Total
£’000 £’000 £’000 £’000 £’000 £’000
Wages and salaries 755 996 1,751 621 743 1,364
Social security 67 118 185 68 70 138
Pension 13 26 39 21 37 58
Share based payments 232 34 266 317 35 352
Directors consultancy fees 305 – 305 133 – 133
Settlements – – – 315 – 315
1,372 1,174 2,546 1,475 885 2,360
The Group made contributions to defined contribution personal pension schemes for three Directors in the period (2017: six). The
number of individuals included within the senior key personnel was 10 (2017: eight). Included in the above tables, the highest paid
Director had wages and salaries including pensions of £241,000 (2017: £90,000), a special bonus of £297,000 (2017: nil), no
settlement payments (2017: £234,000), no amounts attributable to share based payment (2017: £29,000) totaling
to £538,000 (2017: £353,000).
The Group operates payrolls in several foreign subsidiaries and fully complies with local jurisdiction obligations. Directors and key
personnel are compensated through the payroll of the country in which those individuals fulfill their duties.
9. Non core operating expenses
2018 2017
£’000 £’000
Acquisition related costs 3,675 1,554
Costs in relation to Director and employee settlements – 428
Integration and streamlining 810 –
4,485 1,982
54 CentralNic Group Plc Annual Report 2018
10. Finance income and costs
2018 2017
£’000 £’000
Interest income on loans to Shareholders – 17
Interest income on loans to Accent Media Ltd (related party) 2 2
Finance income 2 19
Unwinding of deferred consideration (117) –
Interest expense on loans to Shareholders (4) –
Interest expense on short-term borrowings (62) (7)
Interest expense on long-term bank borrowings (911) (529)
Finance costs (1,094) (536)
Net finance costs (1,092) (517)
11. Income tax expense
2018 2017
£’000 £’000
UK corporation tax
Current tax on profits for the year 1,074 887
Adjustments in respect of prior years 242 (45)
Current income tax 1,316 842
Foreign tax
Current tax on profits for the year 149 –
Adjustments in respect of prior years 130 –
279 –
Total current tax 1,595 842
Deferred income tax (note 22) (531) (493)
Income tax expense 1,064 349
A reconciliation of the current income tax expense applicable to the profit before taxation at the statutory tax rate to the current
income tax expense at the effective tax rate of CentralNic is as follows:
2018 2017
£’000 £’000
(Loss)/profit before taxation (3,803) 1,371
Tax calculated at domestic tax rates applicable to profits in the respective countries (632) 204
Tax effects of:
– Expenses not deductible for tax purposes 1,283 199
– Tax losses movement 386 484
– Share based payment 70 –
– Deferred tax (531) (493)
– Withholding tax 279 –
– Other adjustments (4) –
Adjustment in respect of prior years 242 (45)
Irrecoverable foreign tax (29) –
Current income tax 1,064 349
The Company provides for income taxes on the basis of its income for financial reporting purposes, adjusted for items that are not
assessable or deductible for income tax purposes, in accordance with the regulations of domestic tax authorities.
The effective rate of tax for the year is 27.9% (2017: 25.4%).
CentralNic Group Plc Annual Report 2018
55
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
11. Income tax expense continued
In the UK, the applicable statutory tax rate for 2018 is 19% (2017: 19%).
In the USA, federal taxes are due at 21% on taxable income. Under California tax legislation a statutory minimum of US$800 of state
tax is due.
In Germany, federal taxes are due at 15% on taxable income. Further, a community business tax of c.14%-17% is also levied with
rates determined by the municipality. An additional 5.5% solidarity surcharge is due on the federal and municipal tax, taking the total
effective tax charge to c.30%-34%.
In addition, for the current year, included within the domestic tax rates applicable to profits are Australia where income tax is due at
30% of taxable income and New Zealand, where income tax is due at 28% on taxable income.
In Slovakia, income tax is due at 21% of taxable income.
12. Earnings per share
Earnings per share has been calculated by dividing the consolidated profit after taxation attributable to ordinary Shareholders by the
weighted average number of ordinary shares in issue during the period.
Diluted earnings per share has been calculated on the same basis as above, except that the weighted average number of ordinary
shares that would be issued on the conversion of the dilutive potential ordinary shares as calculated using the treasury stock method
(arising from the Group’s share option scheme and warrants) into ordinary shares has been added to the denominator. There are no
changes to the profit (numerator) as a result of the dilutive calculation. Due to the loss made in the year ended 31 December 2018,
the impact of the potential shares to be issued on exercise of share options and warrants would be anti-dilutive and therefore diluted
earnings per share is reported on the same basis on earnings per share.
2018 2017
Profit after tax attributable to owners (£’000) (4,867) 1,022
Weighted average number of shares:
Basic 127,515,308 95,894,348
Effect of dilutive potential ordinary shares – 2,922,785
Diluted 127,515,308 98,817,133
Earnings per share:
Basic (pence) (3.82) 1.07
Diluted (pence) (3.82) 1.04
56 CentralNic Group Plc Annual Report 2018
13. Property, plant and equipment
Motor Computer Furniture
vehicles equipment and fittings Total
£’000 £’000 £’000 £’000
Cost
At 1 January 2017 – 565 101 666
Additions – 103 1 104
Acquisition of subsidiary – 47 – 47
Exchange differences – (7) (6) (13)
Disposals – (1) – (1)
At 31 December 2017 – 707 96 803
Additions – 293 6 299
Acquisition of subsidiary 23 366 109 498
Exchange differences 1 (21) (10) (30)
At 31 December 2018 24 1,345 201 1,570
Accumulated depreciation
At 1 January 2017 – 442 63 505
Charge for the year – 91 9 100
Exchange differences – (2) (7) (9)
Disposals – (1) – (1)
At 31 December 2017 – 530 65 595
Charge for the year 8 221 21 250
Exchange differences 1 (3) (1) (3)
At 31 December 2018 9 748 85 842
Property, plant and equipment, net
At 31 December 2018 15 597 116 728
At 31 December 2017 – 177 31 208
Depreciation of property, plant and equipment is included in administrative expenses in the consolidated statement of
comprehensive income.
CentralNic Group Plc Annual Report 2018
57
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
14. Intangible assets
Domain Patents &
names Software Customer list trademarks Goodwill Total
£’000 £’000 £’000 £’000 £’000 £’000
Cost or deemed cost
At 1 January 2017 1,166 3,294 12,716 – 15,303 32,479
Additions – 415 – – – 415
Acquisition of subsidiary – 132 11,709 – 13,839 25,680
Reclassification (25) – – – – (25)
Exchange differences – (36) (87) – (134) (257)
At 31 December 2017 1,141 3,805 24,338 – 29,008 58,292
Additions – 377 1,150 249 1,613 3,389
Acquisition of subsidiary 9 7,017 7,014 2,183 29,056 45,279
Exchange differences – 238 268 76 948 1,530
At 31 December 2018 1,150 11,437 32,770 2,508 60,625 108,490
Amortisation
At 1 January 2017 125 920 1,612 – – 2,657
Charge for the year 104 761 1,319 – – 2,184
Reclassification (9) – – – – (9)
At 31 December 2017 220 1,681 2,931 – – 4,832
Charge for the year 92 1,224 2,845 69 – 4,230
At 31 December 2018 312 2,905 5,776 69 – 9,062
Intangible assets, net
At 31 December 2018 838 8,532 26,994 2,439 60,625 99,428
At 31 December 2017 921 2,124 21,407 – 29,008 53,460
For the purposes of the impairment evaluation, the intangible assets are evaluated according to their cash generating units (CGUs)
which are the separate identifiable entities acquired in each of the Instra, SK Nic, Internet.bs, and KeyDrive acquisitions.
Amortisation of intangible assets is included in administrative expenses in the consolidated statement of comprehensive income.
Certain domain names previously held as intangible assets were reclassified to stock held for resale in 2017.
The purchase of GlobeHosting, an asset acquisition is included in the additions line of the note above. The acquisition was completed on
6 September 2018. The total consideration of €2,558,000 comprises an initial consideration of €1,500,000, coupled with a deferred
payment of €608,000 due on the first anniversary of completion and €450,000 due on the second anniversary of completion. The total
consideration of €2,558,000 represents 3.0x of GlobeHosting's revenues of €849,000 for the 12 months to 31 July 2018 and 6.1x of its
EBITDA of €419,000. The total consideration was reflected after price adjustments on the initial consideration and discounting factors on
the deferred consideration. The list of Globehosting asset acquisition is as follows: a) customer list of €1,308,000, b) Goodwill of
€735,000, c) Patents and trademark of €283,000, d) domain names of €93,000, and tangible fixed assets of €28,000. For future
impairment evaluation of intangibles acquired in respect of the GlobeHosting acquisition, these will be considered within the KeyDrive
cash generating unit in which the acquisition has been made.
Goodwill and customer list
The Group tests goodwill recognised through business combinations annually for impairment. Additions to goodwill arose through the
business combinations outlined in note 25. The carrying value of goodwill and the customer list is allocated to the respective
segments within the CGUs as follows:
Customer list Goodwill
2018 2017 2018 2017
£’000 £’000 £’000 £’000
Reseller division 16,458 12,335 36,288 14,985
Small business division 9,412 9,072 19,800 13,905
Enterprise division 1,124 – 4,537 118
Total carrying value 26,994 21,407 60,625 29,008
58 CentralNic Group Plc Annual Report 2018
14. Intangible assets continued
The recoverable amount of goodwill of £60,625,000 (2017: £29,008,000) at 31 December 2018 is determined based on a value in use
using cash flow projections from financial budgets approved by senior management covering a one to three years period. Cash flow
projections beyond the one to three year time frame are extrapolated by applying a flat growth rate in perpetuity per the table below which
is based on management judgment, historical trends, expected return on investment, experience and discretion. The pre-tax discount
rate applied to the cash flow projections is 8.5%-10.3% depending on the segment within each CGU. As a result of the analysis,
management did not identify any impairment of goodwill.
The assumptions used in the cash flow projections were as follows:
Growth rates
Reseller division 1-5%
Small business division 1%
Corporate division –%
Discount rates
Discount rates represent the current market assessment of the risks specific to the CGU, taking into consideration the time value of
money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate
calculation is based on the specific circumstances of the Group and its operating segments and is derived from its WACC, with
appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. The cost of equity is derived
from the expected return on investment by the Group’s investors.
Management considers that no reasonable change in these key assumptions would cause the carrying amount of this asset to
exceed its value in use.
15. Deferred receivables
2018 2017
£’000 £’000
Deferred costs 787 976
Amounts due from related parties 78 74
865 1,050
In June 2017 the Company loaned Accent Media Ltd US$100,000 (2018: £78,000, 2017: £74,000). The loan is due for repayment
in two years and accruals interest at 5% which is payable quarterly in arrears.
The deferred costs are prepaid invoices for a period over 12 months relating to domain name purchases from wholesalers.
16. Investments
(a) Fair value through other comprehensive income
£’000
At 31 December 2016 and 31 December 2017 997
Fair value movement (997)
At 31 December 2018 –
The Company owns less than 20% of the following undertaking which is incorporated in the United Kingdom (UK):
Place of incorporation/ Issued and paid-up/
Name establishment Principal activities registered capital Effective interests
Accent Media Ltd UK Domain registry operator Ordinary shares 10.4%
CentralNic Group Plc Annual Report 2018
59
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
16. Investments continued
This investment is categorised in the fair value hierarchy under Level 3 as no observable market data was available.
The fair value of the investment at 31 December 2018 continues to be assessed using a price of recent investment valuation technique,
supported by a DCF valuation technique to corroborate the measure of fair value of the investment. The valuation method applied to this
investment is considered the most appropriate with regard to the stage of the development of the business and the IPEVCV guidelines.
In applying the price of recent investment valuation methodology, the basis used is the initial cost of the investment.
In deriving the price of recent investment the Directors have given consideration to the cost of investment arising from transactions
involving both the Company and (subsequently) third parties. In determining the continued use of the price of recent investment
valuation the Directors have considered the continued validity of this method by reference to the timing of the most recent
transactions, the existence of indicators of change in fair value and the appropriateness of alternative valuation techniques. Whilst the
Directors accept that Accent Media continues to be at an early stage, and envisage its profitability to improve, due to the business’s
current profitability, a prudent approach of applying a full impairment in 2018 has been adopted of £997,000.
The net assets of Accent Media Limited (in which the Group has 10.4% shareholding) in the most recently publicly available
unaudited financial statements for the year ended 31 March 2017 were £3,619,466.
(b) Investments in associates
£’000
At 31 December 2017 –
Additions 1,016
Share on profit on associate 34
Foreign exchange movement 36
At 31 December 2018 1,086
The Company owns the following investment in associates:
Place of incorporation/ Issued and paid-up/
Name establishment Principal activities registered capital Effective interests
Thomsen Trampedach GmbH Germany Domain registry operator Ordinary shares 26.5%
2018
£’000
% of ownership interests/voting rights held by the Group
At 31 December:
Non-current assets 221
Current assets 1,150
Current liabilities (735)
Net assets 636
Group’s share of net assets 168
Others 468
Year ended 31 December 2018:
Revenue 2,558
Profit from continuing operations 309
Post-tax profit or loss from continuing operations 270
Total comprehensive income 270
60 CentralNic Group Plc Annual Report 2018
17. Trade and other receivables
2018 2017
£’000 £’000
Trade receivables 9,682 3,826
Accrued revenue 4,016 3,056
Deferred costs 2,778 3,435
Supplier payments on account 1,212 563
Amounts due from Shareholders – 764
Prepayments and other receivables 1,359 2,410
19,047 14,054
As of 31 December 2018, trade receivables of £502,000 (2017: £294,000) were past due but not impaired. These primarily relate to
several customers for whom there is considered a low risk of default.
The ageing of the trade receivables past due but not impaired is as follows; 0-30 days £124,000 (2017: £3,000), 30-60 days
£91,000 (2017: £46,000), 60-90 days £68,000 (2017: £20,000), and over 90 days £267,000 (2017: £225,000).
The deferred costs are prepaid invoices for a period within 12 months relating to domain name purchases from wholesalers. Supplier
payments on account reflect payments to domain name registries for use against future wholesale domain purchases within the Internet.BS
and Instra retail businesses. Other receivables primarily relate to rebates due from registries in the KeyDrive and UK businesses.
Amounts due from Shareholders for 2017 represented amounts due from Jabella Group Limited, a Shareholder during the period.
Amounts due from Jabella Group Limited bore interest at 2% above LIBOR. Interest receivable is disclosed in note 26. The loan was
repaid in the year (2017: £764,000).
These are no contract assets within trade and other receivables.
18. Cash and cash equivalents
For the purpose of the statement of cash flows, cash and cash equivalents comprise the following:
2018 2017
Amounts held on deposit £’000 £’000
GBP 986 1,530
USD 9,679 7,202
EUR 6,705 1,884
AUD 153 157
NZD 187 32
CAD 42 54
Other 287 3
18,039 10,862
CentralNic Group Plc Annual Report 2018
61
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
19. Share capital
The Company’s issued and fully paid share capital is as follows:
Merger relief
Share capital Share premium reserve
Ordinary shares of 0.1 pence each Number £’000 £’000 £’000
At 31 December 2017 95,894,348 96 16,545 1,879
Issued in the year 74,758,454 75 37,628 –
At 31 December 2018 170,652,802 171 54,173 1,879
On 9 February 2018 598,000 options were exercised for a £184,800 and on 1 August 2018 the Group issued 74,160,454
Ordinary shares of 0.1 pence for £37,518,582, net of share issue cost.
The Company has no authorised share capital.
20. Non-current other payables
2018 2017
£’000 £’000
Deferred revenue 2,460 2,282
Deferred consideration 3,534 3,352
5,994 5,634
Deferred revenue represents amounts billed on account of revenues where performance obligations have not been met for
recognition of revenue.
21. Reserves
Share capital represents the nominal value of the Company’s cumulative issued share capital.
Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their
nominal value less attributable share issue costs and other permitted reductions.
Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of
their nominal value less attributable share issue costs and other permitted reductions. Where the consideration for shares in another
company includes issued shares, and 90% of the equity is held in the other company.
Retained earnings represent the cumulative value of the profits not distributed to Shareholders, but retained to finance the future
capital requirements of the CentralNic Group.
Share based payments reserve represents the cumulative value of share based payments recognised through equity.
Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.
62 CentralNic Group Plc Annual Report 2018
22. Deferred tax
Share based Other temporary
payments Losses differences Total
Deferred tax assets £’000 £’000 £’000 £’000
At 1 January 2017 273 194 654 1,121
Acquisition of subsidiary – – 95 95
(Charge)/credit to income 205 27 17 249
(Charge)/credit to equity 60 – – 60
Exchange differences – – (23) (23)
At 31 December 2017 538 221 743 1,502
(Charge)/credit to income 78 (6) (241) (169)
(Charge)/credit to equity (47) – – (47)
Exchange differences (4) (14) 2 (16)
At 31 December 2018 565 201 504 1,270
KeyDrive SK-NIC Instra Other
intangible intangible intangible temporary
assets assets assets differences Total
Deferred tax liabilities £’000 £’000 £’000 £’000 £’000
At 1 January 2017 – – 3,235 47 3,282
Acquisition of subsidiary – 2,451 – – 2,451
(Credit)/charge to income – (5) (286) 47 (244)
(Credit)/charge to other comprehensive income – – – (53) (53)
Exchange differences – 23 60 – 83
At 31 December 2017 – 2,469 3,009 41 5,519
Acquisition of subsidiary 4,291 – – 1,156 5,447
(Credit)/charge to income (206) (166) (385) (1) (758)
(Credit)/charge to other comprehensive income – – – – –
Exchange differences 153 (133) (410) 21 (369)
At 31 December 2018 4,238 2,170 2,214 1,217 9,839
23. Trade and other payables and accruals
2018 2017
£’000 £’000
Trade payables 7,225 3,091
Accrued expenses 9,487 7,024
Other taxes and social security 255 208
Deferred consideration 5,923 523
Deferred revenue (note 20) 7,806 9,218
Customer payments on account 15,385 6,877
Accrued interest 179 70
Other liabilities 395 36
46,655 27,047
CentralNic Group Plc Annual Report 2018
63
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
24. Borrowings
2018 2017
£’000 £’000
Non-current
Bank borrowings 18,517 16,078
Prepaid finance costs (600) (537)
17,917 15,541
Current
Bank borrowings 2,000 2,000
Prepaid finance costs (225) (146)
1,775 1,854
Total borrowings 19,692 17,395
Bank Prepaid
borrowings finance costs Total
£’000 £’000 £’000
Bank borrowings 1 January 2017 2,625 (268) 2,357
Repayment of initial loan (2,625) 268 (2,357)
New financing drawdown (August 2017) 1,750 – 1,750
New financing drawdown (November 2017) 16,250 (732) 15,518
Repayment of new financing – 49 49
Exchange differences 78 – 78
Total borrowing as at 31 December 2017 18,078 (683) 17,395
New financing drawdown 4,342 (310) 4,032
Repayment of new financing (2,000) 168 (1,832)
Exchange differences 97 – 97
Total borrowing as at 31 December 2018 20,517 (825) 19,692
Bank borrowings relate to the £20.5m secured debt facility entered into with Silicon Valley Bank (SVB) on 29 August 2017 as
amended and restated on 30 November 2017 and August 2018. The debt facility refinanced the remaining £1.75m due in relation
to the original debt facility entered into with SVB on 8 December 2015, with the remaining £16.25m being drawn down on
30 November 2017 to fund the initial cash consideration of the SK-NIC acquisition. In August 2018, £3m was drawn down and
in September an additional €1.5m was drawn down from the SVB facility.
Interest for the period has been accrued at the applicable margin plus LIBOR. The term of the loan is five years with quarterly loan
and interest repayments.
25. Business combinations
KeyDrive acquisition
On 2 August 2018 CentralNic Group completed the acquisition of the entire share capital of KeyDrive S.A. for an initial consideration of
US$35.8m plus a performance based deferred consideration of US$10.5m (discounted at US$6.5m). The enterprise value of US$44.5m
was adjusted for settlement of debt like items of US$16.0m, offset by the impact of cash and working capital adjustments for US$7.3m,
and after taking the discounted deferred consideration into account of US$6.5m, this resulted in the total consideration of US$42.3m.
The primary reason for the business combination is to substantially increase CentralNic’s scale and product range, adding KeyDrive’s
strength in the domain reseller and corporate services market to CentralNic’s existing expertise in the domain registry and retail
registrar segments.
The enlarged Group will rank as the 11th largest domain name registrar globally by gTLD volume and be among the top five registry
service providers by number of registry clients.
64 CentralNic Group Plc Annual Report 2018
25. Business combinations during the period continued
The following table summarises the consideration to acquire the share capital of KeyDrive S.A. and the provisional fair value of the
assets and liabilities at the acquisition date in line with Group accounting policies.
Consideration US$’000 £’000
Initial cash consideration 16,477 12,426
Deferred consideration 6,513 4,912
Total cash consideration 22,990 17,338
Initial share consideration 19,311 14,563
Total consideration 42,301 31,901
Fair value recognised on acquisition US$’000 £’000
Assets
Intangible assets – customer list 9,300 7,014
Software platform technology 9,105 7,017
Other intangible assets 2,907 2,192
Property, plant and equipment 661 498
Investment in associate 1,347 1,016
Deferred tax on acquisition related intangibles (5,690) (4,291)
Other long-term assets 4 3
Other receivables 8,921 6,728
Cash 4,583 3,457
31,338 23,634
Liabilities
Trade payables 795 599
Other payables and accruals 18,780 14,164
Debt like liability 5,767 4,349
Other deferred tax liability 1,533 1,156
Other income tax liabilities 691 521
27,566 20,789
Total identifiable net liabilities at fair value 3,772 2,845
Goodwill arising on acquisition 38,529 29,056
Purchase consideration 42,301 31,901
The initial cash consideration and associated expenses were funded through the Placing, raising gross proceeds of £24m, its own
cash resources and debt. SVB will be providing debt of c.£6m, which is an extension of the current facilities entered in to for the
SK.NIC acquisition.
In addition to the cash and Consideration Shares, if certain financial performance tests are met, CentralNic will pay Inter.Services a
performance-based earn-out of up to US$10.5m, a minimum of 15% of which shall be settled in cash and up to 85% of which may be
settled by the issue of additional consideration shares, taking the total maximum enterprise value to US$55.0m. If the performance-based
earn-out pays out less than US$10.5m in total, CentralNic will pay for certain tax losses within the KeyDrive Group on the same basis as
the payment of the performance-based earn-out but only to the extent that such tax losses are used by the enlarged Group and
provided that the aggregate consideration for the earn-out and the tax losses does not exceed US$10.5m. As at 31 December 2018,
the deferred consideration of US$10.5m was discounted to US$6.5m using the discount rate outlined in note 14.
CentralNic Group Plc Annual Report 2018
65
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
25. Business combinations during the period continued
Management has evaluated the value of the acquired customer list in relation to the domains under management at the time of
acquisition and the expected discounted future cash flow that is expected to derive from the existing customer base, with the residual
intangible classed as goodwill. Goodwill arising on acquisition primarily relates to the inherent value of the acquired KeyDrive gTLD
and goodwill in relation to employees.
Acquisition related costs of £2,443,000 (2017: £883,000) have been recognised in the income statement, which are included in
note 9.
For the post-completion period to 31 December 2018 revenues of US$26.2m and Adjusted EBITDA of US$3,868,000 have been
generated by KeyDrive. KeyDrive’s revenue for the year ended 31 December 2018 was US$62,547,000 and Adjusted EBITDA was
US$6,724,000, with profit before tax of US$2,148,000. US$14,081,000 of debt like items have also been settled in cash and
US$750,000 of debt like item have been settled in shares.
The trade and other receivables are stated at gross valuation which equates to the contractual amounts with no provisions being
made against them in line with the Directors’ expectations.
GlobeHosting acquisition
The GlobeHosting acquisition which completed on 6 September 2019 is summarised in note 14.
SK NIC acquisition in 2017
On 5 December 2017 Centralnic Group completed the acquisition of the entire share capital of SK-NIC a.s. for a total consideration
of €28.1m, consisting of €26.1m in cash less a cash adjustment for working capital at completion of (€0.4m), plus a fair value
adjustment relating to the deferred and contingent consideration which is due for payment by 2024 (€1.1m) and an assumption of
loans due from the vendor on completion of €3.4m.
The primary reason for the business combination was to acquire the manager of the exclusive country code top-level domain for
Slovakia, .SK. The business exhibits a high level of recurring earnings and provides access to a new international market with
sustainable growth characteristics in line with the Group strategy.
The following table summarises the consideration to acquire the share capital of the SK-NIC a.s. and the provisional fair value of the
assets and liabilities at the acquisition date in line with Group accounting policies.
Consideration €’000 £’000
Initial cash consideration 20,273 17,843
Contingent consideration 4,850 4,269
Deferred consideration 1,000 880
Maximum cash consideration 26,123 22,992
Adjustment for working capital (421) (371)
Total cash consideration 25,702 22,621
Fair value adjustment for deferred and contingent consideration (1,064) (937)
Assumption of loans due from the vendor DanubiaTel a.s. 3,413 3,004
Total consideration 28,051 24,688
66 CentralNic Group Plc Annual Report 2018
25. Business combinations during the period continued
Fair value recognised on acquisition €’000 £’000
Assets
Intangible assets – customer list 13,304 11,709
Other intangible assets 150 132
Property, plant & equipment 53 47
Trade receivables 244 215
Other receivables 3,905 3,436
Deferred income tax asset 108 95
Cash 539 474
18,303 16,108
Liabilities
Trade payables 751 661
Other payables and accruals 571 502
Deferred revenue 2,028 1,785
Deferred income tax liability 2,785 2,451
Other income tax liabilities (159) (140)
5,976 5,259
Total identifiable net liabilities at fair value 12,327 10,849
Goodwill arising on acquisition 15,724 13,839
Purchase consideration 28,051 24,688
The initial cash consideration of €20.3m was funded by an increase in the SVB term loan and RCF of €18.4m and existing cash
balances held by the Group of €1.9m.
The deferred of €1m and contingent consideration of €4.85m, totaling €5.85 has been placed in to an escrow account and subject to
any claims will be released to the vendor in tranches until 2024. Deferred contingent cash consideration of €4.85m is dependent on
SK-NIC attaining defined growth targets over the next three years, with the remaining deferred cash consideration being payable in
2024. At 2017 year-end, the deferred cash consideration has been accounted for in the consolidated statement of financial position
at fair value, using a discount factor of 10%, which has amounted to €1.06m. This will unwind as the payment stages become due
through the consolidated statement of comprehensive income.
The growth rates in relation to the contingent consideration are calculated on the number of registered domains at the end of each
financial year over the next 3 years (post completion) with the payment profile being spread over 8 years. The last payment on the
profile is not subject to the defined growth rates. The Directors have considered the range of outcomes on the target growth rate
which would trigger the unwinding of the deferred consideration and on the basis that there exists sufficient headroom against
management sensitivity to attain these domain name growth rates, they have concluded that the deferred consideration will be
payable in full over the agreed period, with the first payment from the profile having been settled in April 2018 of €1.02m.
Management have evaluated the value of the acquired customer list in relation to the domains under management at the time of
acquisition and the expected discounted future cash flow that is expected to derive from the existing customer base, with the residual
intangible classed as goodwill. Goodwill arising on acquisition primarily relates to the inherent value of the acquired .sk ccTLD and
goodwill in relation to employees.
CentralNic Group Plc Annual Report 2018
67
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
26. Related party disclosures
(a) Ultimate controlling party
The Company is not controlled by any one party.
(b) Related party transactions
Key management are considered to be the Directors and key management personnel. Compensation has been disclosed in note 8,
while further information can be found in the Remuneration report on pages 29 to 31.
(i) Shareholders
Balances outstanding with Shareholders:
2018 2017
£’000 £’000
Jabella Group Limited – 764
Amounts due from Jabella Group Limited were interest free until 31 August 2013, from which time the balance accrued interest at 2%
above LIBOR. Following the loan repayment, there was no interest received in the year. An amount of £4,000 interest income over
accrued in the previous year was released in the year (2017: £17,000).
During the year Inter.Services GmbH, a company of which A Siffrin is a Shareholder provided services totaling £170,000 (2017: nil)
to the Group. £12,000 (2017: nil) was outstanding at the year-end.
During the year the Group incurred rental costs of £2,000 (2017: nil) from H Siffrin, a close relative of A Siffrin is a Director. There were
no balances outstanding for the year-ended 2018 and 2017.
The Group provided services amounting to £11,000 (2017: nil) to Shortdot S.A., a company of which M Riedl is a Director and
Shareholder. The amount outstanding at the year-end amounted to £5,000 (2017: nil).
Operating lease payable to Erin Investments & Finance Limited of which S Dayani is a member, amounted to £64,000 (2017: £64,000)
for the year. The Company was recharged £27,000 for the service charges. £26,000 (2017: nil) was payable at the year-end.
(ii) Non-Executive Directors
During the year, CentralNic engaged with Rickert Rechtsanwaltsgesellschaft GmbH, of which Thomas Rickert has a controlling
interest, to provide legal services in relation to the purchase of intangible assets and advise on potential acquisitions and other legal
works. The fees were £5,000 (2017: £9,000) and no amounts were outstanding as at 2018 and 2017 year-ends.
(iii) Other related parties
Balances outstanding with other related parties:
2018 2017
£’000 £’000
Accent Media Ltd 78 74
In June 2017 the Company loaned Accent Media Ltd US$100,000 (2018: £78,000 and 2017: £74,000). The loan is due for
repayment in three years from the date of advance and accrues interest at 5% which is payable quarterly in arrears. Interest receivable
in the year amounted to £2,000 (2017: £2,000).
68 CentralNic Group Plc Annual Report 2018
27. Commitments
Operating lease commitments
At the end of each of the reporting periods, the minimum lease payments under non-cancellable leases are payable as follows:
2018 2017
Land and buildings £’000 £’000
Less than one year 410 88
Between one and five years 567 11
977 99
2018 2017
Motor vehicles £’000 £’000
Less than one year 39 –
Between one and five years 16 –
55 –
The Group leases office space at the following locations, all of which are operating leases:
Moorgate London, UK. The lease agreement was entered into on 1 January 2010 for an initial term of six years, extended to 1 April 2018,
and subsequently extended on a month by month basis. The property was vacated on 30 April 2019.
Bank London, UK. The lease agreement was entered into on 7 March 2019 with a break clause on 6 March 2024 and an expiry date
of 6 March 2029. The post balance sheet lease commitment to the break clause date is £1,210,000.
Melbourne, Australia. The original lease agreement expired on 30 November 2016, with the lease being extended on a month by
month basis with a three month notice period.
Napier, New Zealand. The lease agreement was entered into on 1 August 2012 for an initial term of three years, with the right to
renew every 3 years. The property was vacated on 15 April 2019.
Marine Parade, Napier, New Zealand. The lease agreement was entered into on 16 April 2019 for an initial term of three years with
the right to renew every three years. The final expiry date is 31 July 2027.
Bonn, Germany. The lease agreement was entered into on 1 January 2015 for an initial term of three years. The lease will renew
each year for a further year unless either party terminates with six months notice.
Munich Germany. The Group also acquired several leases on its acquisition of KeyDrive Group for a period of 36 months from
August 2012. The leases are renewed automatically and cancellation is subject to a months notice by either party.
Köln Germany. The lease agreement was entered into on 1 July 2018 for an initial term of five years. The lease will then be renewed
for two years after the lease date unless a year’s notice is provided.
Bratislava, Slovakia. The lease agreement was acquired on acquisition and can be terminated at any point in time with immediate
effect and as there exists no minimum commitment period, the above table excludes these amounts.
Luxembourg. The lease agreement was acquired on acquisition of the KeyDrive Group. The contracts are renewed by tacit
agreement for a period of 12 months subject to a notice period either side of three months.
Leesburg, Virginia, USA. The lease agreement was entered into on 1 October 2013 for an initial term of 3 years. The lease will renew
each year for a further year unless either party terminates with 6 months notice.
Motor vehicles
The Group also acquired several motor vehicle leases on its acquisition of the KeyDrive Group. These leases run for a period of 36 months.
The Group leases equipment under various operating leases, the majority of which can be terminated immediately, and equate to
immaterial sums.
CentralNic Group Plc Annual Report 2018
69
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
28. Share options and warrants
Share Options
The share option scheme, which was adopted by CentralNic during 2013, was established to reward and incentivise the executive
management team and staff for delivering share price growth. The option schemes are all equity settled.
The share option scheme is administered by the Remuneration committee.
No options were granted during 2018 (2017: 0,00). Out of the 6,287,166 outstanding options (2017: 6,929,166), 3,607,166 options
(2017: 3,730,166) were exercisable.
598,000 share options were exercised in 2018 (2017: nil), with 44,000 options lapsing during the year (2017: 115,000).
A charge of £359,537 (2017: £452,989) has been recognised in the statement of comprehensive income for the year relating to
these options.
These fair values were calculated using the Black Scholes option pricing model. The inputs into the model were as follows:
Date of options grant 4 Feb 2016 4 Feb 2016 4 Feb 2016 4 Feb 2016 4 Feb 2016 29 August 2016 29 August 2016
Options granted 700,000 750,000 350,000 48,000 419,000 318,000 235,000
Stock price 51p 51p 51p 51p 51p 43p 43p
Exercise price 40p 40p 40p 51p 40p 40p 40p
Interest rate 5% 5% 5% 5% 5% 4% 4%
Volatility 75% 75% 75% 75% 75% 52% 52%
Vesting period 3 years from 15 Sept 26 Oct 3 years from 14 Jan 14 Jan 3 years from
the date 2018 2018 the date 2019 2019 the date
of grant of grant of grant
Time to maturity 10 years 10 years 10 years 10 years 10 years 10 years 10 years
Options are exercisable in accordance with the contracted vesting schedules, if the employee leaves the employment of the Group
prior to the options vesting then the share options previously granted will lapse. The expected volatility was determined with reference
to similar entities trading on AIM.
Details of the share options outstanding at the year-end are as follows:
Number WAEP* Number WAEP*
31 Dec 2018 31 Dec 2018 31 Dec 2017 31 Dec 2017
Outstanding at 1 January 6,929,166 32p 7,044,166 32p
Granted during year – – – –
Exercised during year (598,000) 31p – –
Lapsed during year (44,000) 40p (115,000) 40p
Outstanding at 31 December 6,287,166 32p 6,929,166 32p
Exercisable at 31 December 3,607,166 27p 3,730,166 26p
* weighted average exercise price.
The weighted average remaining contractual life of the options outstanding at the statement of financial position date is 5.8 years.
Warrants
On 12 August 2013, CentralNic Group executed a warrant instrument to create and issue warrants to Zeus Capital to subscribe for
an aggregate of 1,772,727 ordinary shares. The warrants will expire six years after admission and were exercisable after the first
anniversary of admission (2 September 2014) at the Placing price of 55p. The ordinary shares to be allotted and issued on the exercise
of any or all of the warrants will rank for all dividends and other distributions declared after the date of the allotment of such shares but
not before such date and otherwise pari passu in all respects with the ordinary shares in issue on the date of such exercise allotment.
70 CentralNic Group Plc Annual Report 2018
29. Financial instruments
The CentralNic Group is exposed to market risk, credit risk and liquidity risk arising from financial instruments. The CentralNic Group’s
overall financial risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effects on the CentralNic Group’s financial performance. The Group does not trade in financial instruments.
The principal financial instruments used by the CentralNic Group, from which financial instrument risk arises, are as follows:
2018 2017
£’000 £’000
Financial assets measured at amortised cost
Trade and other receivables 14,808 9,835
Cash and cash equivalents 18,039 10,862
32,847 20,697
Financial liabilities measured at amortised costs
Trade and other payables and accruals 17,483 10,432
Loan and borrowing (current liabilities) 1,775 1,854
19,258 12,286
Current and non-current loans and borrowings are included within section (ii), credit risk below.
(a) Financial risk management framework
The Directors’ risk management policies are established to identify and analyse the risks faced by the CentralNic Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits.
(i) Market risk
Foreign currency risk
The CentralNic Group is exposed to foreign currency risk on transactions and balances that are denominated in a currency other than
its functional currency, primarily US$ and Euros. Foreign currency risk is monitored on an on-going basis to ensure that the net
exposure is at an acceptable level.
The CentralNic Group’s exposure to foreign currency risk is minimal as it trades predominantly in US$, Euros, GB Pound Sterling and
Australian Dollars. Exposure to currency risk is negated by the CentralNic Group holding adequate reserves in these four currencies
to meet trading and provisioned obligations as the need arises.
As the Group evolves, foreign currency risk will be monitored more closely given exposure to additional markets and currencies.
The carrying amounts of the CentralNic Group’s financial instruments are denominated in the following currencies at 31 December 2018:
Other
GBP US$ Euro AUS$ currencies Total
£’000s £’000s £’000s £’000s £’000s £’000s
Current financial assets
Loan and receivables
Trade and other receivables 8,567 3,062 2,835 62 282 14,808
Cash and cash equivalents 986 9,679 6,706 153 515 18,039
9,553 12,741 9,541 215 797 32,847
Current Financial liabilities measured
at amortised costs
Trade and other payables 12,648 3,408 952 458 17 17,483
Loan and borrowing (225) – 2,000 – – 1,775
12,423 3,408 2,952 458 17 19,258
The sensitivity analyses in the table below details the impact of changes in foreign exchange rates on the CentralNic Group’s post-tax
profit or loss for the year ended 31 December 2018.
CentralNic Group Plc Annual Report 2018
71
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
29. Financial instruments continued
It is assumed that the named currency is strengthening or weakening against all other currencies, while all the other currencies
remain constant.
If the GBP strengthened or weakened by 10% against the other currencies, with all other variables in each case remaining constant,
then the impact on the CentralNic Group’s post-tax profit or loss would be gains or losses as follows:
2018 2017
Strengthen/ Strengthen/
weaken weaken
£’000 £’000
USD +/– 943 +/– 378
EUR +/– 665 +/– 225
AUD +/– 25 +/– 337
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates. The CentralNic Group’s exposure to interest rate risk arises mainly from interest-bearing financial assets and liabilities.
The Directors’ policy is to obtain the most favourable interest rates available.
As at each of 31 December 2017 and 2018, CentralNic Group’s long-term debt facility entered into with SVB bearing interest at a
margin plus LIBOR.
2018 2017
£’000 £’000
Cash and bank balances 18,039 10,862
Effect of interest rate change of 100 basis points on cash and bank balances +/– 180 +/– 109
SVB Bank Facilities 19,692 17,395
Effect of interest rate change of 100 basis points on cash and bank balance +/– 197 +/– 174
Equity price risk
The CentralNic Group does not have any quoted investments as at each of 31 December 2017 and 2018 and as such does not have
significant exposure to equity price risk. At 31 December 2017 CentralNic Group held an unquoted investment in Accent Media of £1.0m
which represents a shareholding of 10.4% of the share capital. The investment has been fully written off as at 31 December 2018.
(ii) Credit risk
The CentralNic Group’s exposure to credit risk arises mainly from counterparty’s failure to meet its obligation to settle a financial asset.
The Directors consider the CentralNic Group’s exposure to credit risk arising from trade receivables to be minimal as the CentralNic Group
is often paid at the outset or in advance. Credit risk arising from other receivables is controlled through monitoring procedures, including
credit approvals and credit limits, with the balance largely offset by separate liabilities held on the balance sheet relating to the same party.
The CentralNic Group uses ageing analysis to monitor the credit quality of the trade receivables. Any receivables having significant
balances past due or more than 90 days, which are deemed to have higher credit risk, are monitored individually. Analysis of the trade
receivables past due is disclosed in note 17 and analysis of trade and other receivables by foreign currency exposure is noted above.
There have been no material changes in the credit risk profile of the Group during the year.
For cash and bank balances, the Directors minimise the CentralNic Group’s credit risk by dealing exclusively with banks and financial
institution counterparties with high credit ratings.
The carrying amounts of financial assets at the end of the reporting periods represent the maximum credit exposure.
2018 2017
£’000 £’000
Deferred receivables 78 74
Trade and other receivables 14,808 9,835
Investments – 997
Cash and bank balances 18,039 10,862
32,925 21,768
72 CentralNic Group Plc Annual Report 2018
29. Financial instruments continued
(iii) Liquidity risk
Liquidity risk is the risk that the CentralNic Group will encounter difficulty in settling its financial obligations that are settled with cash or
another financial asset. The Directors’ objective is to maintain, as much as possible, a level of its cash and bank balances adequate
enough to ensure that there will be sufficient liquidity to meet its liabilities when they fall due.
The following set forth the remaining contractual maturities of financial liabilities as at:
£’000 Carrying amount Total Within 1 year 1 – 5 years
31 December 2018
Trade and other payables and accruals 17,483 17,483 17,483 –
Borrowings 19,692 19,692 1,775 17,917
37,175 37,175 19,258 17,917
£’000 Carrying amount Total Within 1 year 1 – 5 years
31 December 2017
Trade and other payables and accruals 10,432 10,432 10,432 –
Borrowings 17,395 17,395 1,854 15,541
27,827 27,827 12,286 15,541
(b) Capital risk management
The Directors define capital as the total equity of CentralNic. The Directors’ objectives when managing capital are to safeguard the
CentralNic Group’s ability to continue as a going concern in order to provide returns for Shareholders and benefits for other stakeholders
and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Directors
may adjust the amount of dividends paid to Shareholders, return capital to Shareholders, issue new shares or sell assets to reduce debt.
The Directors manage CentralNic’s capital based on debt-to-equity ratio. The debt-to-equity ratio is calculated as net debt divided by
total equity. Net debt is calculated as total liabilities less cash and cash equivalents.
The debt-to-equity ratio of the CentralNic Group as at the end of each of the reporting periods was as follows:
2018 2017
£’000 £’000
Total liabilities 37,175 27,827
Less: cash and bank balances (18,039) (10,862)
Financial instruments – net debt/(cash) 19,136 16,965
Total equity 60,982 26,452
Debt-to-equity ratio 0.31 0.64
The net cash of the CentralNic Group as at the end of each of the reporting periods was as follows:
2018 2017
£’000 £’000
Cash and bank balances 18,039 10,862
Less: borrowings (excluding prepaid finance costs) (20,517) (18,078)
Net (debt)/cash (2,478) (7,216)
CentralNic Group Plc Annual Report 2018
73
FINANCIAL STATEMENTS
Notes to the consolidated
financial statements continued
29. Financial instruments continued
(c) Fair values of financial instruments
In addition to the fair value of financial instruments disclosed elsewhere in the financial statements, the following carrying amounts of
the financial assets and liabilities reported in the consolidated financial statements approximate their fair values:
2018 2017
£’000 Carrying amount Fair value Carrying amount Fair value
Trade and other receivables 14,808 14,808 9,835 9,835
Deferred receivables 78 78 74 74
Investments – – 997 997
Cash and bank balances 18,039 18,039 10,862 10,862
32,925 32,925 21,768 21,768
Trade and other payables and accruals 17,483 17,483 10,432 10,432
15,442 15,442 11,336 11,336
The SK-NIC acquisition on 5 December 2017 had an element of deferred and contingent consideration of €5.85m that has been
placed in to an escrow account and subject to any claims will be released to the vendor in tranches until 2024. Deferred cash
consideration of €5.85m is dependent on SK-NIC attaining defined growth targets from 2018 to 2020. At 2018 year-end, the deferred
cash consideration has been accounted for in the consolidated statement of financial position at fair value, using a discount factor of
10%, which has amounted to €918,000. This will unwind as the payment stages become due through the consolidated statement of
comprehensive income.
The growth rates in relation to the contingent consideration are calculated on the number of registered domains at the end of each
financial year over the next three years (post completion) with the payment profile being spread over eight years. The last payment on
the profile is not subject to the defined growth rates. The Directors have considered the range of outcomes on the target growth rate
which would trigger the unwinding of the deferred consideration and on the basis that there exists sufficient headroom against
management sensitivity to attain these domain name growth rates, they have concluded that the deferred consideration will be
payable in full over the agreed period.
In addition, the KeyDrive Group acquisition on 2 August 2018 included earn-out commitments, if certain financial performance tests are met,
CentralNic will pay Inter.Services a performance-based earn-out of up to US$6.5m, a minimum of 15% of which shall be settled in cash and
up to 85% of which may be settled by the issue of Additional Consideration Shares. If the performance-based earn-out pays out less than
US$6.5m in total, CentralNic will pay for certain tax losses within the KeyDrive Group on the same basis as the payment of the
performance-based earn-out but only to the extent that such tax losses are used by the Enlarged Group and provided that the aggregate
consideration for the earn-out and the tax losses does not exceed US$6.5m. At 2018 year-end, the earn-out element has been accounted
for in the consolidated statement of financial position at fair value, using a discount factor of 1-10%, which has amounted to £4,912,000.
(d) Fair value hierarchy
The different levels are defined as follows:
Level 1:
Level 2:
Level 3:
Fair value measurements are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Fair value measurements are derived from inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly or indirectly; and
Fair value measurements derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
30. Post balance sheet events
The Group also upgraded our United Kingdom corporate headquarters and New Zealand office in the beginning of 2019.
The UK lease agreement was entered into on 7 March 2019 with a break clause on 6 March 2024 and an expiry date of 6 March
2029. The post balance sheet lease commitment to the break clause date is £1,210,000. The New Zealand lease agreement was
entered into on 16 April 2019 for an initial term of 3 years with the right to renew every three years. The final expiry date is 31 July 2027.
74 CentralNic Group Plc Annual Report 2018
Company statement of
financial position
as at 31 December 2018
2018 2017
Note £’000 £’000
ASSETS
Fixed assets
Investments 7 52,413 13,528
Deferred tax asset 8 377 361
52,790 13,889
Current assets
Other debtors, deposits and prepayments 9 32,128 27,148
Cash and bank balances 667 127
32,795 27,275
Total assets 85,585 41,164
LIABILITIES
Current liabilities
Creditors – amounts falling due within one year 11
Trade and other payables and accruals 10,160 1,229
Borrowings 1,775 1,854
11,935 3,083
Non-current liabilities
Creditors – amounts falling due after one year
Borrowings 17,917 15,541
17,917 15,541
Total liabilities 29,852 18,624
Net assets 55,733 22,540
CAPITAL AND RESERVES
Share capital 10 171 96
Share premium 10 54,173 16,545
Merger relief reserve 10 1,879 1,879
Share based payments reserve 2,098 2,038
Retained earnings/(accumulated losses) (2,588) 1,982
Shareholders funds 55,733 22,540
The loss for the year, including Other Comprehensive Income was £4,713,000 (December 2017: loss £1,383,000).
These financial statements were approved and authorised for issue by the Board of Directors on 12 May 2019 and were
signed on its behalf by:
Mike Turner
Chairman
Company Number: 08576358
The notes on pages 77 to 82 form an integral part of these financial statements.
CentralNic Group Plc Annual Report 2018
75
FINANCIAL STATEMENTS
Company statement of
changes in equity
for the year ended 31 December 2018
Retained
Share based earnings/
Share Share payments Merger relief (accumulated
capital premium reserve reserve losses) Total
£’000 £’000 £’000 £’000 £’000 £’000
Balance as at 1 January 2017 96 16,545 1,720 1,879 3,365 23,605
Loss for the year – – – – (1,383) (1,383)
Share based payments – – 282 – – 282
Share based payments
– Deferred tax asset – – 36 – – 36
Balance as at 31 December 2017 96 16,545 2,038 1,879 1,982 22,540
Loss for the year – – – – (4,713) (4,713)
Share issue 75 38,673 – – – 38,748
Share issue costs – (1,045) – – – (1,045)
Share based payments – – 232 – – 232
Share based payments
– deferred tax asset – – (29) – – (29)
Share based payments
– reclassify lapsed options – – (143) – 143 –
Balance as at 31 December 2018 171 54,173 2,098 1,879 (2,588) 55,733
• Share capital represents the nominal value of the Company’s cumulative issued share capital.
• Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of
their nominal value less attributable share issue costs and other permitted reductions.
• Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess
of their nominal value less attributable share issue costs and other permitted reductions. Where the consideration for shares in
another company includes issued shares, and 90% of the equity is held in the other company.
• Retained earnings represent the cumulative value of the profits not distributed to Shareholders, but retained to finance the future
capital requirements of the Company.
• Share based payments reserve represents the cumulative value of share based payments recognised through equity.
The notes on pages 77 to 82 form an integral part of these financial statements.
76 CentralNic Group Plc Annual Report 2018
Notes to the Company
financial statements
for the year ended 31 December 2018
1. General information
Nature of operations
CentralNic Group Plc (the Company) is the UK holding company of a group of companies which are engaged in the provision of
global domain name services. The Company is registered in England and Wales. Its registered office and principal place of business
is 35-39 Moorgate, London EC2R 6AR.
2. Basis of preparation
The financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of
certain fixed assets. The financial statements have been prepared in accordance with FRS 102 – The Financial Reporting Standard
applicable in the UK and Republic of Ireland and the Companies Act 2006. The principal accounting policies are described below.
They have all been applied consistently throughout the period.
3. Significant accounting policies
(a) Going concern
At 31 December 2018, the Company had net current assets of £20,860,000 (2017: £24,192,000) with the main current asset being
amounts owed from its subsidiaries amounting to £32,018,000 (2017: £27,121,000). The Company has assessed its ongoing costs
with cash generated by its subsidiaries to ensure that it can continue to settle its debts as they fall due.
The Directors have, after careful consideration of the factors set out above, concluded that it is appropriate to adopt the going
concern basis for the preparation of the financial statements and the financial statements do not include any adjustments that would
result if the going concern basis was not appropriate.
(b) Investments
Investments held as fixed assets are stated at cost less provision for impairment.
(c) Taxation
Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax
rates and laws that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at
the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the
financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they
are recognised in the financial statements.
A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can
be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing
differences can be deducted.
Deferred tax is not recognised when fixed assets are revalued unless by the balance sheet date there is a binding agreement to sell
the revalued assets and the gain or loss expected to arise on sale has been recognised in the financial statements. Neither is deferred
tax recognised when fixed assets are sold and it is more likely than not that the taxable gain will be rolled over, being charged to tax
only if and when the replacement assets are sold.
Taxation arising on disposal of a revalued asset is split between the profit and loss account and the statement of changes in equity
on the basis of the tax attributable to the gain or loss recognised in each statement.
CentralNic Group Plc Annual Report 2018
77
FINANCIAL STATEMENTS
Notes to the Company
financial statements continued
3. Significant accounting policies continued
(d) Financial instruments
Financial assets and liabilities are recognised in the statements of financial position when the Company has become a party to the
contractual provisions of the instruments.
The Company’s financial assets and liabilities are initially measured at fair value plus any directly attributable transaction costs.
The carrying value of the Company’s financial assets, primarily cash and bank balances, and liabilities, primarily the Company’s
payables and other accrued expenses, approximate their fair values.
(i) Financial assets
On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity
investments, loans and receivables financial assets, or available-for-sale financial assets, as appropriate.
Trade and other receivables
Trade and other receivables (including deposits and prepayments) that have fixed or determinable payments that are not quoted in an
active market are classified as other receivables, deposits, and prepayments. Other receivables, deposits, and prepayments are
measured at amortised cost using the effective interest method, less any impairment loss. Interest income is recognised by applying
the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
(ii) Financial liabilities and equity instruments
Financial liabilities are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest,
dividends, gains and losses relating to financial liabilities are reported in profit or loss. Distributions to holders of financial liabilities are
classified as equity and charged directly to equity.
Financial liabilities
Financial liabilities comprise long-term borrowings, short-term borrowings, trade and other payables and accruals, measured at
amortised cost using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest income over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees on
points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts)
through the expected life of the financial liability or where appropriate, a shorter period to the net carrying amount on initial recognition.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. Equity
instruments issued by the Company are recognised at the proceeds received, net of direct issue costs.
(e) Debtors
Short-term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value net of
transaction costs and are measured subsequently at amortised cost using the effective interest method, less any impairment.
(f) Creditors
Short-term creditors are measured at the transaction price. Other financial liabilities including bank loans, are measured initially at fair
value net of transaction costs and are measured subsequently at amortised cost using the effective interest method.
78 CentralNic Group Plc Annual Report 2018
3. Significant accounting policies continued
(g) Parent Company disclosure exemptions
In preparing the separate financial statements of the Parent Company, advantage has been taken of the following disclosure
exemptions available in FRS 102:
• only one reconciliation of the number of shares outstanding at the beginning and end of the period has been presented as the
reconciliations for the Group (see note 19 in the notes to the Group financial statements) and the Parent Company would be
identical. Hence, the Parent Company has not disclosed this reconciliation in its notes to the financial statements;
• disclosures in respect of the Parent Company’s financial instruments and share based payment arrangements have not been
presented as equivalent disclosures have been provided in respect of the Group as a whole;
• no disclosure has been given for the aggregate remuneration of the key management personnel of the Parent Company as their
remuneration is included in the totals for the Group as a whole;
• no cash flow statement has been presented for the Parent Company;
• disclosure of related party transactions with wholly owned fellow Group companies; and
• the effect of future accounting standards not yet adopted.
4. Critical accounting judgments and key sources of estimation uncertainty
In the application of the Company’s accounting policies, which are described in note 3, the Directors are required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not apparent from other sources. The
estimates and assumptions are based on historical experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the statement of
financial position date that have a significant risk of causing a significant adjustment to the carrying amounts of assets and liabilities in
the financial statements:
Share based payment
The fair value of share based remuneration is determined at the date of grant and recognised as an expense in the statement of
comprehensive income on a straight line basis over the vesting period, taking account of the estimated number of shares that will
vest. The fair value is determined by use of Black Scholes model method.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be
available in the future against which the reversal of temporary differences can be deducted. To determine the future taxable profits,
reference is made to the latest available profit forecasts. Where the temporary differences are related to losses, relevant tax law is
considered to determine the availability of the losses to offset against the future taxable profits.
CentralNic Group Plc Annual Report 2018
79
FINANCIAL STATEMENTS
Notes to the Company
financial statements continued
5. Profit for the financial period
The Company has taken advantage of section 408 of the Companies Act 2006 and, consequently, a profit and loss account for the
Company alone has not been presented. The Company’s loss for the financial period was £4,713,000 (2017: loss £1,383,000) which
included a net loss on foreign currency translation of £611,000 (2017: loss of £209,000). The Company’s loss for the financial year
has been arrived at after charging auditor’s remuneration payable to Crowe U.K. LLP for audit services to the Company of £63,000
(2017: £60,000).
6. Employees and Directors’ remuneration
Staff costs during the period by the Company were as follows:
2018 2017
£’000 £’000
Wages and salaries 755 621
Social security 67 68
Pension 13 21
Share based payments 232 317
Directors consultancy fees 305 133
Settlements – 315
1,372 1,475
The average number of employees of the Company including Directors performing under a service contract during the period was:
2018 2017
Number Number
Directors under employment contracts only 4 7
Directors under service contracts only 2 2
Directors under a combination of employment and service contracts 1 –
7 9
The Group made contributions to defined contribution personal pension schemes for three Directors in the period (2017: six).
The number of individuals included within the senior key personnel was 10 (2017: eight). Included in the above tables, the highest
paid Director had wages and salaries including pensions of £241,000 (2017: £90,000), a special bonus of £297,000 (2017: nil),
no settlement payments (2017: £234,000), no amounts attributable to share based payment (2017: £29,000) totaling to £538,000
(2017: £353,000).
80 CentralNic Group Plc Annual Report 2018
7. Investments
The amount invested by the Company relates to the direct investment made in CentralNic (Ireland) Limited. The funds received by
CentralNic (Ireland) Limited was used to acquire KeyDrive via CentralNic Germany GmbH. A summary of consideration to acquire the
share capital of KeyDrive S.A. and the provisional fair value of the assets and liabilities at the acquisition date in line with Group
accounting policies are provided in note 25.
£’000
At 1 January 2017 4,575
Additions – acquisition of Instra Group of companies 8,826
Share Options issued on behalf of subsidiaries 171
Share Options – deferred tax (44)
At 31 December 2017 13,528
Share Options issued on behalf of subsidiaries 91
Share Options – deferred tax (23)
Additions – investment in CentralNic (Ireland) Limited 38,817
At 31 December 2018 52,413
8. Deferred tax
Share based
payments
Deferred tax assets £’000
At 1 January 2017 181
Credit to income 180
At 31 December 2017 361
Credit to income 16
At 31 December 2018 377
9. Debtors
2018 2017
£’000 £’000
Amounts owed by Group undertakings 32,017 27,121
Other debtors 76 27
Taxation receivable 35 –
32,128 27,148
CentralNic Group Plc Annual Report 2018
81
FINANCIAL STATEMENTS
Notes to the Company
financial statements continued
10. Share capital and share premium
Details of the Company’s share capital are set out in note 19 to the consolidated financial statements.
11. Creditors: amounts falling due within one year
2018 2017
£’000 £’000
Bank overdraft 1,807 –
Trade creditors 378 477
Amounts owed to Group undertakings 7,388 –
Accruals and deferred income 408 675
Accrued interest 179 70
Taxation payable – 7
10,160 1,229
82 CentralNic Group Plc Annual Report 2018
Particulars of subsidiaries
and associates
The companies listed below are 100% subsidiaries of Group Companies and only have ordinary share capital unless otherwise stated.
Country of incorporation
Parent Company Subsidiary and principal operations Principal activity Registered office
CentralNic Limited CentralNic USA Li mited USA US sales office c/o C T Corporation System, 818 West
7th Street, Los Angeles, CA 90017
CentralNic Limited GB.com Limited England and Wales Dormant – holds domain name 35-39 Moorgate, London, EC2R 6AR
CentralNic Limited Whois Privacy Limited England and Wales Dormant 35-39 Moorgate, London, EC2R 6AR
CentralNic Limited dnsXperts UG Germany Domain management Beueler Bahnhofsplatz 18, 53225 Bonn
software services
CentralNic Limited Dot Fan Ltd England and Wales Dormant 35-39 Moorgate, London, EC2R 6AR
CentralNic Limited FANS TLD Limited England and Wales Dormant 35-39 Moorgate, London, EC2R 6AR
CentralNic Limited CNIC Services India Domain management 818, Indraprakash Building 21, Barakhamba
Private Limited software services Road New Delhi New Delhi Dl 110001
TLD Registrar Solutions Limited Internet Domain Service Commonwealth of Domain registrar services
BS Corp The Bahamas provider
PO Box SS-19084, Ocean Centre, Montagu
Foreshore, East Bay Street, Nassau,
New Providence, The Bahamas.
TLD Registrar Solutions Limited Whois Privacy Corp Commonwealth of Domain registrar services
The Bahamas provider
Instra Holdings (UK) Ltd Domain Directors England and Wales Domain registrar services provider 35-39 Moorgate, London, EC2R 6AR
(Europe) Ltd
Instra Holdings (UK) Ltd Europe Registry Ltd England and Wales Domain registrar services provider 35-39 Moorgate, London, EC2R 6AR
Instra Holdings (UK) Ltd Instra Corporation England and Wales Domain registrar services provider 35-39 Moorgate, London, EC2R 6AR
(Europe) Ltd
Instra Holdings (UK) Ltd White Label Domains Malaysia Domain registrar services provider No/ 36B, 2nd floor, Jalan Tun Mohd Fuad 2.
SDN BHD B12 Taman Tun Dr Ismail, Kuala Lumpur, 60000,
Malaysia
Instra Holdings (UK) Ltd Domain Directors Finland Domain registrar services provider 5th floor, Keilaranta 16, Espoo, 02150, Finland
(Finland) Oy
Instra Holdings (UK) Ltd Sublime Technologies France Domain registrar services provider 2, Rue Robert Geffré Bat n°11- 17000
(France) Sarl La Rochelle – France
Instra Holdings (UK) Ltd Domain Directors France Domain registrar services provider 2, Rue Robert Geffré Bat n°11- 17000
(France) Sarl La Rochelle – France
Instra Holdings (UK) Ltd Tunglim International Hong Kong Domain registrar services provider 2003., 20/F Towers China Hong Kong City,
Pty Limited Tsim Sha Tsui, Kowloon, Hong Kong
Instra Holdings (UK) Ltd Sublime Technology Hong Kong Domain registrar services provider 2003., 20/F Towers China Hong Kong City,
Limited Tsim Sha Tsui, Kowloon, Hong Kong
Instra Holdings (Aus) Pty Ltd Domain Directors PTY Ltd Australia Domain registrar services provider Level 2, 222 Beach Road, Mordialloc,
VIC 3195
Instra Holdings (Aus) Pty Ltd Ozenum PTY Ltd Australia Domain registrar services provider Level 2, 222 Beach Road, Mordialloc,
VIC 3195
Instra Holdings (Aus) Pty Ltd Instra Corporation Australia Domain registrar services provider Level 2, 222 Beach Road, Mordialloc,
PTY Limited VIC 3195
Instra Corporation PTY Limited Instra Domain The Netherlands Domain registrar services provider Beechavenue 54-62, 1119PW, Schiphol-Rijk
Directors B.V.
Instra Corporation PTY Limited Instra Corporation PTE Ltd Singapore Domain registrar services provider c/o Asiabiz Services PTE Ltd, 30 Cecil Street,
#19-08, Prudential Tower, Singapore 049712
Instra Corporation PTY Limited Domain Escrow England and Wales Domain registrar services provider 35-39 Moorgate, London, EC2R 6AR
Services Limited
Instra Corporation PTY Limited Instra-Internet Services Greece Domain registrar services provider 1 Dimokraatias Square, Thessaloniki, 54629,
One-person LLC Greece
Instra Corporation PTY Limited Instra Domain Directors Inc Canada Domain registrar services provider Suite 2300 Bentall 5, 550 Burrard Street,
Vancouver, British Columbia, V6C 2B5
Instra Holdings (NZ) Ltd Instra Corporation Limited New Zealand Domain registrar services provider C/o Grant Thornon New Zealand Ltd, LR,
152, Fanshawe Street, Auckland, 1010,
New Zealand
CentralNic Group Plc Annual Report 2018
83
FINANCIAL STATEMENTS
Particulars of subsidiaries
and associates continued
Country of incorporation
Parent Company Subsidiary and principal operations Principal activity Registered office
Instra Holdings (NZ) Ltd Only Domains Limited New Zealand Domain registrar services provider C/o Grant Thornon New Zealand Ltd, LR,
152, Fanshawe Street, Auckland, 1010,
New Zealand
Instra Holdings (NZ) Ltd Private Ranger Limited New Zealand Domain registrar services provider C/o Grant Thornon New Zealand Ltd, LR,
152, Fanshawe Street, Auckland, 1010,
New Zealand
CentralNic Germany GmbH KeyDrive S.A. Luxembourg Domain registrar services provider 1-3, Boulevard de la Foire, L-1528
Luxembourg
KeyDrive S.A. Toweb Sarl Luxembourg Domain registrar services provider 1-3, Boulevard de la Foire, L-1528
Luxembourg
KeyDrive S.A. Key-Systems GmbH Germany Domain registrar services provider Im oberen Werk 1, 66386 St. Ingbert,
Germany
KeyDrive S.A. OpenRegistry SA Luxembourg Domain registrar services provider 1-3, Boulevard de la Foire, L-1528
Luxembourg
KeyDrive S.A. Moniker.com Inc USA Domain registrar services provider 6301 NW 5th Way, Suite 4500,
Ft Lauderdale, FL 33309. Mailing address:
13727 SW 152nd Street #513, Miami,
FL 33177
KeyDrive S.A. Traffic.club Sarl Luxembourg Domain registrar services provider 1-3, Boulevard de la Foire, L-1528
Luxembourg
Moniker.com Inc Moniker Online USA Domain registrar services provider 6301 NW 5th Way, Suite 4500,
Services LLC Ft Lauderdale, FL 33309. Mailing address:
13727 SW 152nd Street #513, Miami,
FL 33177
Moniker.com Inc Moniker Privacy USA Domain registrar services provider 6301 NW 5th Way, Suite 4500,
Services LLC Ft Lauderdale, FL 33309. Mailing address:
13727 SW 152nd Street #513, Miami,
FL 33177
Key-Systems GmbH Key-Systems USA Inc USA Domain registrar services provider 885 Harrison St. SE, Leesburg, VA 20175
Key-Systems GmbH PTS GmbH Germany Domain registrar services provider Neunkircher Straße 43, 66299 Friedrichsthal
Key-Systems GmbH PartnerGate GmbH Germany Domain registrar services provider Wilhelm-Wagenfeld-Str. 16, 80807 Munich
Key-Systems GmbH KS Internet Solutions Mexico Domain registrar services provider San Pedro Garza García, N.L., Mexico
S DE RL DE CV
Key-Systems GmbH Toweb Brasil LTDA Brazil Domain registrar services provider 423, Praia da Costa, Vila Velha, Brazil
Key-Systems GmbH Skyway Datacenter Germany Domain registrar services provider Im oberen Werk 1, 66386 St. Ingbert
Key-Systems GmbH Dot Saarland GmbH Germany Domain registrar services provider Im oberen Werk 1, 66386 St. Ingbert
Key-Systems GmbH KS Domains Ltd BC, CA Domain registrar services provider c/o Stuart A. Moir, Lawyer; 1201-11871
Horseshoe Way; Richmond BC V7A 5H5;
Canada
Key-Systems GmbH AZ.pl Inc USA Dormant no legal domicile
Key-Systems GmbH KS Registry GmbH Germany Domain registrar services provider Im oberen Werk 1, 66386 St. Ingbert
Key-Systems GmbH 1@1 AZ.pl Inc USA Dormant no legal domicile
Key-Systems GmbH 1 AZ.pl Inc USA Dormant no legal domicile
Key-Systems GmbH 1@3 AZ.pl Inc USA Dormant no legal domicile
Key-Systems GmbH 1@2 AZ.pl Inc USA Inactive no legal domicile
Key-Systems GmbH 1@4 AZ.pl Inc USA Dormant no legal domicile
Key-Systems GmbH Thomsen-Trampedach Switzerland Domain registrar services provider Riedstrsse 1, 6343 Rotkreuz, Switzerland
GmbH (26.5% associate)
PTS GmbH Local Presence England and Wales Domain registrar services provider Carpenter Court 1 Maple Road, Bramhall,
Services Ltd Stockport, Cheshire, SK7 2DH
Key-Systems USA Inc Key-Systems LLC Germany Domain registrar services provider Im oberen Werk 1, 66386 St. Ingbert
PartnerGate GmbH RegistryGate GmbH Germany Domain registrar services provider Wilhelm-Wagenfeld-Str. 16, 80807 Munich
84 CentralNic Group Plc Annual Report 2018
CentralNic Group PLC’s interest is 100% in the issued ordinary share capital of these undertakings included in the consolidated accounts:
Country of incorporation
Subsidiary and principal operations Principal activity Registered office
CentralNic Limited England and Wales Domain registry services provider 35-39 Moorgate, London, EC2R 6AR
TLD Registrar Solutions Limited England and Wales Domain registrar services provider 35-39 Moorgate, London, EC2R 6AR
Hoxton Domains Limited England and Wales Aftermarket domain services 35-39 Moorgate, London, EC2R 6AR
Instra Holdings (UK) Ltd England and Wales Holding company 35-39 Moorgate, London, EC2R 6AR
Instra Holdings (Aus) Pty Ltd Australia Holding company Level 2, 222-225 Beach Road, Mordialloc, Victoria, VIC3195
Instra Holdings (NZ) Ltd New Zealand Holding company C/o Grant Thornon New Zealand Ltd, LR, 152, Fanshawe
Street, Auckland, 1010, New Zealand
SK-NIC a.s. The Slovak Republic Registry Operator for .SK Námestie SNP 14
Bratislava - mestská cast’ Staré Mesto 811 06
ˇ
CentralNic (Ireland) Limited Ireland Holding company 24/26 City Quay, Dublin 2
CentralNic Luxembourg SARL Luxembourg Holding company 1-3 boulevard de la Foire 1528 Luxembourg
CentralNic Germany GmbH Germany Holding company Kaiserplatz 7-9, 53113, Bonn
CentralNic Group Plc Annual Report 2018
85
FINANCIAL STATEMENTS
Shareholder information
Financial calendar
Annual General Meeting
The Annual General Meeting will be held on Thursday, 20 June
2019 at 10.00am at the offices of the Company’s solicitors:
Solicitors to the Company
DWF LLP
20 Fenchurch Street
London EC3M 3AG
DWF LLP
20 Fenchurch Street, London EC3M 3AG
Taylor Wessing LLP
5 New Street Square
London EC4A 3TW
Announcements
• Half-year results for 2019 are expected in September 2019.
• Full year results for 2019 are expected in April 2020.
Dates are correct at the time of printing, but are subject to change.
Solicitors to the Nominated Adviser and Broker
DAC Beachcroft LLP
100 Fetter Lane
London EC4A 1BN
Directors
Mike Turner (Chairman)
Benjamin Crawford (Chief Executive Officer)
Donald Baladasan (Group Managing Director)
Michael Riedl (Chief Financial Officer)
Samuel Dayani (Non-Executive Director)
Thomas Rickert (Non-Executive Director)
Thomas Pridmore (Non-Executive Director)
Iain McDonald (Non-Executive Director)
Registered office
35-39 Moorgate London EC2R 6AR
Company Secretary
DWF LLP
Company website
www.centralnic.com
Nominated Adviser and Broker
Zeus Capital Limited
82 King Street
Manchester M2 4WQ
41 Conduit Street
London W1S 2YQ
3 Brindleyplace
Birmingham B1 2JB
Joint Broker
Stifel Nicolaus Europe Limited (Stifel)
150 Cheapside
London
EC2V 6ET
Auditors
Crowe U.K. LLP
St Bride’s House
10 Salisbury Square
London EC4Y 8EH
86 CentralNic Group Plc Annual Report 2018
Financial PR
Newgate Communications
Sky Light City Tower
50 Basinghall Street
London, EC2V 5DE
Bankers
Silicon Valley Bank
Alphabeta
14-18 Finsbury Square
London EC2A 1BR
HSBC Bank plc
89 Buckingham Palace Road
London SW1W 0QL
Company Registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Link Asset Services is our registrar and they offer many services
to make managing your shareholding easier and more efficient.
Share portal
The Share Portal is a secure online site where you can manage
your shareholding quickly and easily. You can:
• View your holding and get an indicative valuation
• Change your address
• Arrange to have dividends paid into your bank account
• Request to receive Shareholder communications by email
rather than post
• View your dividend payment history
• Make dividend payment choices
• Buy and sell shares and access a wealth of stock market
news and information
• Register your proxy voting instruction
• Download a stock transfer form.
• Use the details on the FCA Register to contact the firm.
• Call the FCA Consumer Helpline on 0800 111 6768 if there
are no contact details on the Register or you are told they are
out of date.
• Search our list of unauthorised firms and individuals to avoid
doing business with.
REMEMBER: if it sounds too good to be true, it probably is!
If you use an unauthorised firm to buy or sell shares or other
investments, you will not have access to the Financial
Ombudsman Service or Financial Services Compensation
Scheme (FSCS) if things go wrong.
REPORT A SCAM
If you are approached about a share scam you should tell the FCA
using the share fraud reporting form at http://www.fca.org.uk/
scams, where you can find out about the latest investment scams.
You can also call the Consumer Helpline on 0800 111 6768.
If you have already paid money to share fraudsters you should
contact Action Fraud on 0300 123 2040.
Identity theft
Tips for protecting your shares in the Company:
• Ensure all your certificates are kept in a safe place or hold
your shares electronically in CREST via a nominee.
• Keep correspondence from us and Link in a safe place and
destroy any unwanted correspondence by shredding.
• If you change address, inform Link in writing or update your
address online via the Shareholder portal. If you receive a
letter from Link regarding a change of address but have not
moved, please contact them immediately.
• Consider having your dividend paid directly into your bank.
This will reduce the risk of the cheque being intercepted or
lost in the post. If you change your bank account, inform Link
of the details of your new account. You can do this by post
or online via the Shareholder portal.
• If you are buying or selling shares, only deal with brokers
registered and authorised to carry out that type of business.
• Be wary of phone calls or e-mails purporting to come from us
or Link asking you to confirm personal details or details of your
investment in our shares. Neither we nor Link will ever ask
you to provide information in this way.
To register for the Share Portal just visit www.signalshares.com.
All you need is your investor code, which can be found on your
share certificate or your dividend tax voucher.
Customer support centre
Alternatively, you can contact Link’s Customer Support Centre
which is available to answer any queries you have in relation to
your shareholding:
By phone – UK – 0871 664 0300 (UK calls cost 12p per minute
plus network extras). From overseas – +44 371 664 0300.
Lines are open 9.00am to 5.30pm, Monday to Friday, excluding
public holidays.
By email – shareholderenquiries@linkgroup.co.uk
By post – Link Asset Services, The Registry, 34 Beckenham
Road, Beckenham, Kent, BR3 4TU.
Sign up to electronic communications
Help us to save paper and get your Shareholder information
quickly and securely by signing up to receive your Shareholder
communications by email.
Registering for electronic communications is very straightforward.
Just visit www.signalshares.com. All you need is your investor
code, which can be found on your share certificate or your
dividend tax voucher.
Donate your shares to charity
If you have only a small number of shares which are
uneconomical to sell you may wish to donate them to charity
free of charge through ShareGift (Registered Charity10528686).
Find out more at www.sharegift.org.uk or by telephoning
020 7930 3737.
Share fraud warning
Share fraud includes scams where investors are called out of
the blue and offered shares that often turn out to be worthless or
non-existent, or an inflated price for shares they own. These
calls come from fraudsters operating in ‘boiler rooms’ that are
mostly based abroad.
While high profits are promised, those who buy or sell shares in
this way usually lose their money.
The Financial Conduct Authority (FCA) has found most share
fraud victims are experienced investors who lose an average of
£20,000, with around £200m lost in the UK each year.
PROTECT YOURSELF
If you are offered unsolicited investment advice, discounted
shares, a premium price for shares you own, or free company or
research reports, you should take these steps before handing
over any money:
• Get the name of the person and organisation contacting you.
• Check the Financial Services Register at
http://www.fca.org.uk/ to ensure they are authorised.
CentralNic Group Plc Annual Report 2018
87
Glossary
Top Level Domain or ‘TLD’
The suffix attached to internet domain names e.g., .com, .net
Second Level Domain or ‘SLD’
A domain that is directly below a top-level domain e.g. uk.com
Internet Corporation for Assigned Names
and Numbers or ‘ICANN’
A non-profit private organisation that was created to oversee a
number of Internet-related tasks previously performed directly on
behalf of the U.S. government
Country Code Top Level Domain or ‘ccTLD’
An Internet top-level domain generally used or reserved for a
country, a sovereign state, or a dependent territory e.g., .uk, .jp
Domain Name System or ‘DNS’
A hierarchical distributed naming system for computers, services,
or any resource connected to the Internet or a private network
Registry Operator
An entity that maintains the database of domain names for a
given top-level domain and generates the zone files which
convert domain names to IP addresses. It is responsible for
domain name allocation and technically operates its top-level
domain, sometimes by engaging a Registry Service Provider
Domain Name Registrar
An organisation or commercial entity that manages the
reservation of Internet domain names
Registry Service Provider
A company that performs the technical functions of a TLD on
behalf of the TLD owner or licensee. The registry service
provider keeps the master database and operates DNS servers
to allow computers to route Internet traffic using the DNS
88 CentralNic Group Plc Annual Report 2018
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EC2R 6AR
www.centralnic.com
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Annual Report
2018