annual report 2019
Minds + Machines Group Limited (“MMX” or the “Company” or the “Group”)
is a BVI incorporated company, which is traded on the AIM Market
operated by the London Stock Exchange (“AIM”). MMX is the owner of a
world class portfolio of 32 ICANN approved top-level domains (gTLDs).
The Company generates revenues through the registration and annual
renewal of names by organisations and individuals within each of its
top-level domains, sales being processed through the Group’s network of
global registrar and distribution partners.
The MMX portfolio is currently focused around generic names
(e.g. .work, .vip), consumer interest (e.g. .fashion, .wedding), lifestyle
(e.g. .fit, .surf, .yoga), professional occupations (e.g. .law), beverage (.beer,
.vodka) and geographic domains (e.g. .london, .boston, .miami, .bayern). In
2019, Company has introduced first brand protection product and
contributed full year revenue from ICM acquired in 2018. For more
information on MMX and its rapidly growing renewal base, please visit
www.mmx.co.
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contents
strategic report
governance
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2
8
financial highlights
executive summary
strategic report
financial statements
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28
independent auditor’s
report
group statement of
comprehensive income
30 company statement of
comprehensive income
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33
34
group statement of
financial position
company statement of
financial position
group cash flow
statement
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18
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21
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77
directors’ report
corporate governance
statement
audit committee report
remuneration committee
report
directors’ biographies
company cash flow
statement
group statement of
changes in equity
company statement of
changes in equity
notes to the financial
statements
corporate information
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
financial highlights
a year of growth
accounting renewal
62% of total revenue
domains under management
2018 – 1.81m
$11.7m
2.46m
$6.0m
$18.9m
19%
$6.4m
operating expenses
2018: $5.5m
group revenue
2018: $15.1m
cost of sales
(2018: 23%)
operating EBITDA
2018: $3.6m
operational highlights
key regions
62%
United States
% of revenue (2018: 57%)
17%
Europe
% of revenue (2018: 14%)
21%
Asia
% of revenue (2018: 29%)
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executive summary
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Toby Hall
Chief Executive Officer
Michael Salazar
Chief Financial Officer
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Overview
As a registry, MMX has a growth strategy based on organic
development, innovation and selective acquisition. The Group
operates its portfolio of 32 top-level domains (“TLDs”) on an
outsourced platform model to maximise operational leverage.
The majority of our revenues, over 90%, are generated through
the online sale and renewal of names via third party registrars
(the industry’s retail channel) as well as, to a lesser extent, the
negotiated sale of high-value names via brokers.
As highlighted at the half-year, the 2019 business focus has
been to continue growing the Group’s top-line revenue through
increasing automated new and renewal revenue through the
registrar channel, improving the contribution from the US and
European markets, reducing exposure to one-off brokered sales,
and maintaining a tight control on costs. In short, to improve
both the quantum and quality of revenues to deliver sustainable,
profitable growth.
To that end, we are pleased to report revenues in the year
improved by 25% to $18.9m (2018: $15.1m) with:
• automated sales through the channel up 40% to $17.3m
(2018: $12.4m), now representing 91% of total revenues
(2018: 82%) with:
–
new registration channel revenue up 84% to $5.6m
(2018: $3.0m) and
renewal revenues up 25% to $11.7m (2018: $9.4m),
representing 62% of total revenue (2018: 62%);
–
• one-off brokered sales outside of the channel reduced by
$1.0m to $1.7m (2018: $2.7m), now representing under
10% of total revenue (2018: 18%); and
• US and European revenues improved by 36% and 51%
respectively, benefitting from the introduction of our first
brand protection product and first full-year contribution of
the 2018 ICM acquisition.
Importantly, the ongoing management of costs has allowed the
operational gearing benefits of MMX’s outsourced model to
begin to better evidence itself with Company Costs (ie. COGs,
and OPEX) reduced to 51% of total revenue (2018: 60%), a
02
metric management expects to continue improving to deliver
improved earnings in the coming year.
2019 Financial highlights
• Revenues up 25% to $18.9m (2018: $15.1m);
• Profit after tax improved to $4.7m compared to 2018 loss
of $12.6m;
• Operating EBITDA, net of $0.6m auction revenue, up 79%
to $6.4m (2018: $3.6m);
• 170% improvement in cashflow from operations to $6.2m
(2018: $2.3m) including receipts of $1.6m from private
auctions;
• Cash at the year-end standing at $6.6m (2018: $10.4m)
post re-payment of the Working Capital facility of $3.0m,
final partner and onerous contract related payments of
$6.7m, and $0.4m share buy-back; and
• EPS of 0.51c (2018 1.68c loss).
Current Trading & Outlook
The momentum experienced in Q4 has continued into the first
quarter with healthy trading being experienced across all
regions through the channel in Q1 2020 with no initial signs of
automated sales through the channel from any region (notably
China) being negatively impacted by coronavirus to date. That
said, working practices are having to be significantly adjusted as
a result of key industry events being cancelled, international
travel being temporarily curtailed, and our office based staff
having to work remotely.
Any immediate impact is therefore likely to be most noticeable
in our one-off brokered sales, which currently account for less
than 10% of our business, and certain aspects of business
development. Longer term, the extent to which the wider
environment may impact us is an unknown. However, the high
levels of our recurring revenues and online nature of the
majority of our sales should, in theory, shield us from the worst
of the immediate storm. But to believe that we are fully
insulated from the global crisis would be unwise.
2019 Operational Review
Organic growth
Top-line registration growth
2019 saw another significant year in top-line registration growth
through the registrar channel, with registrations on the DNS
(World Wide Web) growing by 36% to $2.46m contributing to
topline revenue growth of 25%. Encouragingly, outside of .work,
this was achieved without having to rely heavily on aggressive
first year pricing tactics. Instead, it was driven through a
combination of support from major registrars around certain
properties, such as .law, and data analysis/micro price testing
with other registrar partners to identify optimal price points
across multiple properties to attract first year registrations and
their subsequent renewal. As a result, a broader distribution of
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
2019 had been an incredible year for
our company leading in improved
cashflow; growth in renewal revenue
and launch of brand protection
product has given us tremendous
growth opportunity
registration growth across the portfolio has been achieved than
in previous years, a trend we look to continue in the current year.
It has also been encouraging to see global coverage for one of
our properties, .vip, via Premier League TV coverage as a result
of ManBetX, a team shirt sponsor, adopting MX666.vip as its
main advertised site. This coverage coincided with Q4 regular
registrations in .vip growing by over 360,000, of which 267,000
were regular standard sales via GoDaddy.
Improved revenue mix
A constant theme to the business development strategy over
recent years has been the drive to improve the quality of the
Group’s revenue – specifically, replacing one-off high-value
brokered sales with automated sales revenue, notably renewal
and standard based, through the registrar channel. To that end,
new registration revenue through the channel grew by $2.6m and
represents 29% of total revenue, while renewal revenue grew by
$2.4m and now makes up 62% with brokered sales representing
9% of total revenue. The table below charts the significant change
in revenue composition from the last three years.
Brokered Revenue (non channel)
Premium Revenue
Standard Revenue
Renewals Revenue
FY 2017
%
FY 2018
%
FY 2019
%
38%
11%
17%
34%
18%
4%
16%
62%
9%
9%
20%
62%
100%
100%
100%
Improved geographic revenue mix
Of equal importance has been the transition in the regional
make-up of the revenues over the same period. The table below
reflects the $3.1m improvement in US revenues in the last
twelve months, it now accounting for 62% of revenues in 2019
as compared to 32% in 2017, greatly boosted by the ICM
acquisition; the $1.1m improvement in European revenues, now
contributing 17% of Group revenues as compared to 15% in
2017; and Asia transitioning from 53% in 2017 to 21% in 2019.
In terms of 2019 Asia revenues, it should be noted that inspite
of the $0.3m drop in top-line revenues from that region in the
last year, revenue through the channel grew by 61% in the
period, largely compensating for the $1.3m drop in brokered
trades over the year. Encouragingly, revenues continued to be
generated by a broader number of properties in that region
during the year.
US
Europe
Asia
FY 2017
%
FY 2018
%
FY 2019
%
32%
15%
53%
57%
14%
29%
62%
17%
21%
100%
100%
100%
Brand protection contribution
As highlighted in the interims, a significant part of the H1 2019
Innovation activity was the structuring and roll-out of our first
brand protection product, AdultBlock, which the channel
started actively selling to their corporate customer base from
September 2019. This is targeted at the circa 80,000
corporates whose marks are held in the Trademark Clearing
House or participated in the original Sunrise B programme
when ICM launched its first extension in 2011. The AdultBlock+
product, which can be bought on a single year or multi-year
basis, allows brands to protect not just their exact name
matches but also the look-alike variations that can be generated
through non-Latin scripts now permitted on the World Wide
Web’s DNS. During Q4 some initial 2000 blocks were sold to
brands covering in excess of 5 million variations which would
not be reflected in sites covering DNS based registrations, such
as ntldstats.com, given that addresses are blocked at the
registry level without the need for them to be registered on the
DNS.
In revenue recognition terms, AdultBlock generated $1.1m in
revenue in the final two months of the year. Much of the
associated cash collection on AdultBlock sales took place in
January and February of 2020 as the product was introduced
on the normal post-payment model to the registrar channel.
Operational efficiencies
During the year, multiple back-end contracts were renegotiated.
In addition to the financial savings discussed in the Financial
Review, the renegotiated contracts significantly improve the
available capacity across the Group’s outsourced platform,
thereby both improving our operational leverage and ability to
scale.
Post period end, the renegotiated contracts have also allowed
the Group to outsource its last remaining data-centres onto the
cloud thereby allowing a reduction and replacement of in-house
operation and technical headcount. This in turn is providing the
headroom to grow the product development (ie. innovation),
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executive summary
(continued)
commercial development (ie. organic) and corporate
development teams as discussed below whilst remaining in-line
with set KPI’s.
Staff
As a result of the above, we are delighted to announce the
appointments of Ben Anderson as COO, who will be responsible
for platform management and implementing our product
development strategy as it relates to our innovation
programme, and Vaughn Liley as Chief Revenue Officer who will
be responsible for driving growth through the registrar channel.
Meanwhile we are equally pleased to welcome Ronan
Prendergast back as interim CTO who will report into the COO.
As such, the finance, legal, and operations functions will report
into the CFO, and sales, marketing and policy into the CEO.
Innovation
The basic premise of the innovation activity is to develop a suite
of products that provide additional end-customer benefits to
owning names across our portfolio and, as is the case with .luxe,
allow us to take a position of leadership in specific areas that are
likely to impact the registry industry in the coming years.
As discussed earlier, the main innovation activity in 2019
focused on the introduction of our first brand protection
product, AdultBlock. We now look forward to further
developing our brand protection capabilities across the wider
portfolio.
Progress likewise continues to be made on our .luxe R&D
project which is looking at how a standardizing naming
approach with an associated established governance framework
can be applied in a blockchain environment. In 2019, following
securing the relevant ICANN approvals and Ethereum
integration in 2018, we successfully completed .luxe’s
integration into the first multi-chain association engine
developed by our outsourced partner. This technically enables
the same .luxe name (or ID) to be used across multiple chains.
Following Ethereum’s subsequent move to introduce a similar
multichain association engine product in Q4 2019 – we are now
expanding our existing Ethereum API so that .luxe can
potentially support multiple multichain association protocols.
Our points of differentiation in this activity are that:
1. we have developed an easy-to-use mechanism that
integrates with the existing registrar channel to allow
end-users to associate their .luxe name to the blockchains of
their choice;
2. we are providing an over-arching governance system to
name ownership that does not exist within the emerging
blockchain universe;
3. we provide traditional World Wide Web usage for the same
name.
04
As such we are pleased with the steady registration growth in
the extension given it is priced as a premium product in the Asia
region, it reaching 14,600 DNS based registrations by the
year-end.
Selective acquisition
MMX has created a profitable platform based business that has
significant capacity built into it allowing us to scale at marginal
additional operating cost. We will therefore continue to explore
opportunities that can enable us to bolt on additional recurring
revenue streams to that platform which will be significantly
earnings enhancing.
KPIs
Domains under management
Gross revenue
Renewal revenue
Cost of sales as a % of gross revenue
OPEX as a % of gross revenue
Operating EBITDA, net of gTLD
auction revenue
2019
2.46m
1.81m
2018
% change
$18.9m
$15.1m
$11.7m
$9.4m
19%
32%
19%
37%
36%
25%
25%
N/A
N/A
$6.4m
$3.6m
79%
Please refer to the Operational Review and Financial Review
sections for further discussion on each of the KPI’s.
Accounting Renewals
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
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121%
60%
2017
2018
2019
Renewals
COS + OPEX % of Renewals
140%
120%
100%
80%
60%
40%
20%
0%
Domains under management
2,500,000
2,300,000
2,100,000
1,900,000
1,700,000
1,500,000
1,300,000
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2019
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Overheads (on a like for like basis)
Revenue Split
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Accounting Operating EBITDA (net of one off costs)
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2019
Financial Review
Revenue
Gross revenue has increased by just over 25% to $18.9m in
2019 from $15.1m in 2018, in part reflecting the first full year
contribution of ICM.
Growth in new revenue via the registrar channel from new
registrations and AdultBlock was up $2.5m in 2019 to $5.6m,
an 84% increase from 2018 ($3.0m). This growth has come both
through a stronger focus on working with our channel partners
as well as the introduction of new products (e.g., AdultBlock). Of
the $2.5m in new registration revenue, the original MMX TLDs
contributed $1.3m, AdultBlock contributed $1.1m, with the
ICM TLDs contributing $0.1m.
Renewal revenue has also increased by $2.4m in 2019 to
$11.6m, a 25% increase from 2018 ($9.4m). Renewal revenue
growth has primarily benefitted from a full year of ICM
renewals in 2019 compared to 2018.
One-off brokered revenue decreased by $1.1m in 2019 to
$1.7m, a 39% decrease from 2018 ($2.7m). The decrease has
been primarily related to the Management’s increased focus to
drive recurring revenue from its registrar channel versus
focusing efforts to drive higher value non-recurring sales.
Expenditures
Note: 2018 figures have been adjusted for IFRS 16 for a
like-for-like comparison. IFRS 16, effective 1 January 2019,
impacts the accounting and reporting for certain leases. From a
balance sheet view it requires certain leases to be reported as
assets to reflect the value of the leased asset being controlled
and used by the Company as well as recording a liability to
reflect the fair value of future payments towards the lease.
The Company has taken the modified approach to adopting
IFRS 16. As a result the balance sheet now reflects a ‘right-of-
use asset’ of $2.7m related to leases for registry services and
properties and a lease liability of $3.9m. The right of use asset is
being amortised over its useful life and the lease liability is
unwound as payments are made. In addition, the Company is
05
executive summary
(continued)
required to impute interest expense against the lease liability
which is charged to finance costs.
COGs
At $3.6m, cost of sales are up by $0.8m, a 29% increase from
2018 ($2.8m). The increase relates primarily to AdultBlock
commissions and an $0.1m increase in marketing spend. As a
percentage of gross revenue, they remained within
Management’s KPI of 20% of gross revenue at 19%
(2018, 23%).
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OPEX
Operating expenditures are also up by $0.8m in 2019 to $6.0m,
a 15% increase from 2018 ($5.3m). The increase relates
primarily to integrating the ICM operations into MMX which
included a full year of incoming personnel costs as compared to
a half year worth of costs in 2018. At the end of the year,
Management made improvements to certain operational costs
by outsourcing certain functions and reinvested savings into
improving certain key resources.
The business has therefore been able to stay within the range of
its stated goal of $6.0m of operating expenditures thereby
allowing the inherent operational gearing in the Group’s
structure to evidence itself, OPEX as a percentage of revenue
decreasing to 32% in 2019 from 37% the previous year.
However, going into 2020, given increased costs related to
health benefits in the US, Management expects that operating
expenditures could slightly increase but will nevertheless
endeavour to remain within its stated goal of a $6.0m cap during
the year.
Operating EBITDA
Operating Earnings Before Interest, Taxes, Depreciation, and
Amortization (Operating EBITDA), net of gTLD auction
revenue, has increased by $2.8m to $6.4m, a 79% increase from
2018 ($3.6m). Inclusive of $0.6m of auction revenue, 2019
Operating EBITDA was $7.0 (2018: $4.0m). Looking forward,
management does not expect there will be any further, material
monies coming from its sole remaining contended gTLD (.hotel).
Profit/(loss)
Profit for the year is $4.7m compared to the loss of $12.6m in
2018.
The profit for the year includes the accounting gain of $1.4m on
the settlement of the onerous contract negated by the bad debt
write off, the gain on the sale of the join.law reseller platform of
$0.4m, share based payment expenses of $1.3m and
depreciation and amortisation and finance costs of $1.9m
(increased due to IFRS 16).
06
The loss in 2018 was driven by the provision towards the
onerous contract and related write off of $11.3m, bad debt
write offs / provisions of $2.1m and one-off costs of $1.4m.
Cash
Cashflow generated from operating activities has increased
170% to $6.2m (2018: $2.3m). This includes gTLD contention
set proceeds of $1.6m (2018: $0.5m). Excluding the impact of
IFRS 16 of $1.1m (i.e., adding back), subtracting the onerous
contract payment of $6.7m, and adding for a FX gain of $0.1m,
results in the reported cash generation from operating activities
of $0.7m.
Cash balances at the end of 2019, post repayment of the
working capital facility of $3.0m and $6.7m payment against
onerous contract obligations, stood at $6.6m ($10.4m at the
end of 2018). Restricted cash at the period end stood at $1.7m
compared to $3.2m at the end of 2018. The reduction in
restricted cash is the result of renegotiated agreements with
partners and the release of ICANN letters of credit where
contested gTLDs have been resolved.
During the year the Company also authorized up to £1.0m to be
deployed on a share buyback resulting in the repurchase of
5,837,160 shares at an average price of 5.99p and a total cost of
£0.35m/$0.44m.
Balance sheet
Outside of cash, the key changes to the balance sheet in 2019
relate primarily to the implementation of IFRS 16 and the
reduction of certain liabilities. These include:
• $2.4m increase in non-current assets to $87.7m
(2018: $85.3m) which includes the $2.7m ‘right of use’ asset
reflecting the implementation of IFRS 16;
• $5.8m reduction to the onerous contract provision to nil
(2018: $5.8m) reflecting payments made in accordance with
the original agreement and its final settlement;
• $3.8m reduction in trade and other payables to $5.8m
(2018: $9.6m) primarily related to repayment of the $3.0m
working capital facility during H1 2019 relieving the
Company of any outstanding debt from borrowings; and
• $4.0m increase in lease liabilities as a result of IFRS 16.
Onerous Contract provision – update
In December 2019, the Company was able to reach an
agreement to settle its outstanding onerous contract. In
addition to settling its 2018 obligation of $1.4m, which was paid
in H1 2019, the Company paid a full and final settlement of
$5.3m in December 2019. The $5.3m settlement removes any
obligations for future minimum revenue guarantees as well as
any marketing commitments and is expected to save the
Company in excess of $3.0m over the remainder of the contract.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Current Trading & Outlook
The momentum experienced in Q4 has continued into the first
quarter with healthy trading being experienced across all
regions through the channel in Q1 2020 with no initial signs of
automated sales through the channel from any region (notably
China) being negatively impacted by coronavirus to date. That
said, working practices are having to be significantly adjusted as
a result of key industry events being cancelled, international
travel being temporarily curtailed, and our office based staff
having to work remotely.
Any immediate impact is therefore likely to be most noticeable
in our one-off brokered sales, which currently account for less
than 10% of our business, and certain aspects of business
development. Longer term, the extent to which the wider
environment may impact us is an unknown. However, the high
levels of our recurring revenues and online nature of the
majority of our sales should, in theory, shield us from the worst
of the immediate storm. But to believe that we are fully
insulated from the global crisis would be unwise.
Finally we would like to thank our staff and commercial partners
for their effort and support in delivering a successful year of
growth and transformation. Their commitment has been
outstanding, not least during the current uncertainty and
upheaval caused by the coronavirus pandemic.
Toby Hall
Chief Executive Officer
Date: 23 March 2020
Michael Salazar
Chief Financial Officer
Date: 23 March 2020
Releasing the onerous contract provision has resulted in a 2019
gain of $1.4m.
Bad debt provision – update
During the year the Company collected $0.6m in cash related to
contracts entered into in 2017 associated with the bad debt
provisions. However, in spite of also receiving collateral in the
form of equity in two privately held businesses, the Company
believes that it would be prudent to write off the remaining
aged receivables in the amount of $1.4m as a bad debt expense
in the current year as it is currently not appropriate to place a
value on such collateral. In total, $3.0m of China bad debt
provisions relating to 2017 have been written off in the
subsequent two years, removing all long-term China debts from
the balance sheet. The Company nevertheless continues to
pursue collection.
Capital Returns Policy
In normal trading conditions, the business now operates with
increasing visibility of its revenues and its cost base. The
balance sheet has been repaired and the business retains cash
on the balance sheet, no debt and anticipates incremental
cashflow from operations moving forward. It would therefore,
have been our intention to declare a maiden annual dividend.
However, these are not normal times and we have therefore
decided to take the prudent and precautionary measure of
delaying any decision on the dividend until September, as at that
point we will have much better visibility on the real impact, or
not, of COVID-19 on current trading. The initial dividend, as and
when declared, is intended as a base from which we can build a
sustainable progressive dividend policy augmented by
additional returns of cash when appropriate.
Outside of the dividend programme, one of the most value
enhancing actions that we can take is to continue with the share
buyback when the stock market fails to recognize the
fundamental change to the risk profile of the business and the
SaaS type revenue model that we now have. During 2019 we
acquired 5,837,160 shares at an average price of 5.99p and we
intend to continue with the current programme of share
buybacks up to the current limit of £1m and renew such
authority at the appropriate time. Alongside the ongoing share
buyback, we will carefully review the amount of cash that the
business should retain for organic and innovation-based growth
and look to supplement the shareholder returns under the
progressive dividend programme outlined above with either
special dividends or tender offers as circumstances dictate in
future periods. As such, your Board is acutely conscious of the
need for shareholder return and will proactively manage the
balance sheet to maximise value, whilst remaining mindful of the
exceptional global market conditions at present and the need to
maintain healthy cash balances and robust balance sheet.
07
strategic report
to the members of Minds + Machines Group Limited
Cautionary statement
This Strategic Report has been prepared solely to provide
additional information to shareholders to assess the Group’s
strategies and the potential for those strategies to succeed.
This Strategic Report contains certain forward-looking
statements. These statements are made by the directors in good
faith based on the information available to them up to the time
of their approval of this report and such statements should be
treated with caution due to the inherent uncertainties, including
both economic and business risk factors, underlying any such
forward-looking information.
This Strategic Report has been prepared for the Group as a
whole and therefore gives greater emphasis to those matters,
which are significant to MMX and its subsidiary undertakings
when viewed as a whole.
Review of the Group’s Business
The Business Model
Minds + Machines Group Limited operates in the domain name
industry and provides end-to-end domain services generating
revenues across multiple business lines. In total, 31 of the
32 uncontested domains in which the Group has a commercial
interest have entered General Availability, resulting in the
Group having over 2.46 million domains under management at
the year end.
The Group currently has an interest in 1 wholly-owned
contested generic top-level domain (gTLD).
Registry Business
A registry is the authoritative master database of all Domain
Names registered for each Top Level Domain (“TLD”) operated
by a Registry. The registry allows the Domain Name System to
route internet traffic to and from connected devices anywhere
in the world.
The registry generates revenue by selling domain names to
registrars on a recurring subscription basis. Registrars in turn
sell domain names directly to consumers. Prices from the
registry to the registrar are considered wholesale prices, which
are set by the registry. Each registration, known as a second
level domain (SLD), has a registration period from 1 to 10 years.
At the end of each registration period, in order for the SLD to
continue working, the consumer must renew it by paying a
registration renewal fee. As required by ICANN, a registry must
wholesale SLDs to all ICANN-accredited registrars on the same
pricing, terms, and conditions.
Pricing for each SLD is based on the Group’s determination of
whether it is a geographical gTLD, a defined and restricted
market (e.g. .law), a niche market (e.g. .yoga), or a generic market
(e.g. .work). Pricing is further adjusted by other factors such as
the pricing of other SLDs in other new gTLDs that end-users are
likely to view as being comparable (e.g. .site vs. .web vs. .website),
or pricing to match the targeted market of the gTLD (for
instance .luxe focuses on the luxury market which demands
premium prices). Further, some SLDs are considered premium
names (e.g. hotel.TLD) which command a higher annual price.
The Group shares wholesale revenues from certain gTLDs
(including its geographic gTLDs) and retains all the wholesale
revenue for its other wholly-owned gTLDs.
Registry Service Provider
Minds + Machines Group currently has legacy Registry Service
Provider clients however, the systems and processes necessary
to manage this function have been outsourced to Nominet.
Minds + Machines still maintains a small revenue stream from
its two clients to manage Nominet on their behalf.
Registrar Business
The Group discontinued its previous wholly owned ICANN
accredited retail registrar business in 2016. The Group
continued to provide ‘Reseller’ services, the sale of second level
domains for .law and .abogado via an ICANN accredited
registrar platform not owned by the Group. The reseller
business, ‘join.law’, was sold at the end of 2019.
Future developments, strategy and objectives
Please see the Executive Summary.
Key performance indicators
We track several Key Performance Indicators (KPI) against set
KPI targets to help the Board and management evaluate the
performance of our overall business. Please refer to the
Executive Summary.
Principal risks and uncertainties
There are a number of potential risks and uncertainties, which
could have a material impact on the Group’s long-term
performance and could cause actual results to differ materially
from expected and historical results. The Group’s risk
management policies and procedures are also discussed in the
Corporate Governance Statement.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
The market for gTLDs is uncertain, the Group
may fail to attract sufficient new customers
The level of demand for new second level domain names for
those gTLDs in respect of which the Group either provides
registry services or has an economic interest as the gTLD
applicant may be less than expected or the new gTLDs may not
generate the levels of second level domain name sales
anticipated by the Board in which case the Group’s revenues
and profitability may be adversely affected leading to a potential
impairment to the Groups gTLD assets.
The level of demand may decrease due to global events outside
of the control of the Group.
The Group closely monitors the industry and global events to
judge the potential impact to revenue and cashflow and acts
accordingly to ensure that it retains sufficient capital to operate.
The Group has entities that are based in
jurisdictions that may be subject to additional
compliance requirements
The British Virgin Islands recently passed legislation regarding
economic substance requirements where certain entities that
are conducting relevant activities must establish that they
perform adequate substantive activities in that jurisdiction.
The Group has reviewed the legislation requirements and has
taken the necessary steps to ensure compliance.
The Group derives revenue from regions that are
subject to additional compliance requirements
The Group derives significant revenue from China, where as a
registry, it is subject to strict reporting requirements and where
its customers may be subject to certain currency restrictions.
These requirements could impact the Group’s ability to pursue
business opportunities in the region. The Group maintains a
strong presence in the region with an office in Xiamen and
employs highly qualified and well connected personnel. In
addition, the Group has forged strong relationships with several
Chinese based business partners to ensure that opportunities
are taken advantage of as presented.
The Group acquired additional assets in 2018 that are subject
to certain ICANN requirements that have been, and continue to
be, fulfilled.
The Group and/or its customers may fail to meet
certain contractual obligations
The Group currently has certain contractual commitments for
specific TLDs that provide for minimum revenue guarantees. If
total revenues from those specific TLDs do not reach the
minimum annual revenue targets the Group must reallocate
revenues from other areas of its portfolio to ensure appropriate
payment of such commitments. Further, the commitments may
create a significant barrier to achieving overall profitability and
could result in certain impairments to future financial
statements.
The Group determines the credit worthiness of certain
customers prior to extending credit and continually monitors
outstanding balances due.
The Group depends on technology and
advanced information systems, which may fail
or be subject to disruption
As a registry, the Group is dependent on the performance of
software registry system and underlying databases, together
with its back-up systems and disaster recovery plans, to ensure
that critical registry functions are available to end users,
registrars and other parties that must have access to those
functions in the event any circumstance arises that materially
impacts the operation of the primary registry system. The
integrity, reliability and operational performance of the Group’s
IT systems, whether in-house or outsourced, are therefore
critical to the Group’s operations. The Group’s IT systems may
be damaged or interrupted by increases in usage, human error,
unauthorized access, natural hazards or disasters or similarly
disruptive events. Furthermore, Group’s current systems may
be unable to support a significant increase in online traffic or
increased customer numbers, whether as a result of organic or
inorganic growth of the business. Any failure of the Group’s IT
infrastructure or the telecommunications and/or other third
party infrastructure on which such infrastructure relies could
lead to significant costs and disruptions that could reduce
revenue, harm the Group’s business reputation and have a
material adverse effect on the operations, financial performance
and prospects of the Group. The Group has in place business
continuity procedures, disaster recovery systems and security
measures to protect against network or IT failure or disruption.
However, those procedures and measures may not be effective
to ensure that the Group is able to carry on its business in the
ordinary course if they fail or are disrupted, and they may not
ensure the Group can anticipate, prevent or mitigate a material
adverse effect on the Group’s operations, financial performance
and prospects resulting from such failure or disruption. In
addition, the Group’s controls may not be effective in detecting
any intrusion or other security breaches, or safeguarding
against sabotage, hackers, viruses and cybercrime.
The Group has invested and continues to invest in ensuring that
its technology and advanced information systems, whether
in-house or outsourced, are performing as expected and can
support growth of the business.
09
strategic report
to the members of Minds + Machines Group Limited
(continued)
Dependence on key personnel
The Group has a small management team and the loss of any key
individual or the inability to attract appropriate personnel could
adversely impact upon the Group’s future performance.
The Group offers competitive compensation packages including
share options to retain and attract key personnel.
The Directors have a reasonable expectation that the Company
and the Group have adequate resources to continue operational
existence for the foreseeable future and in making this
assessment has considered the potential impact of the
coronavirus on the business. Thus, they continue to adopt the
going concern basis of accounting in preparing the annual
financial statements.
Approval
This report was approved by the Board of Directors on
23 March 2020 and signed on its behalf by:
Michael Salazar
Chief Financial Officer
Date: 23 March 2020
The Group depends on a number of third parties
for the operation of its business
The Group relies on cloud-based services from third party
suppliers in order to provide its registry and RSP services which,
if faulty and thereby causes errors or a service failure, could
adversely affect the Group’s operating results or harm its
reputation. Furthermore, the Group has key contractual
relationships with a number of third parties including suppliers,
partners, banks and payment processors. In particular, the
Group relies on key suppliers in order to carry on its operations
including, but not limited to, Domain Name System (DNS)
services, co-location facilities, Distributed Denial of Services
(DDoS) mitigation services, security vulnerability assessment
services, site and data escrow. The failure of one or more of
these third parties may have an adverse impact on the financial
and operational performance of the Group. Similarly, the failure
of one or more of these third parties to fulfill its obligations to
the Group for any other reason may also cause significant
disruption and have a material adverse effect on its operations,
financial performance and prospects.
The Group puts in place contracts with certain key clients to
ensure continued business relationships. The Group also meets
with individual management from our strategic partners
periodically throughout the year to ensure the continued
alignment of business goals and objectives.
Going concern basis
The Group’s projections, taking account of the level of renewal
revenue and sales through the channel show that the Group is
well funded to operate as normal over the next 12 months with
little to no impact to operations. Further, at the year end, the
Group had current assets of $14.1m and current liabilities
(excluding deferred revenue) of $6.8m and therefore net
current assets (excluding deferred revenue) of $7.3m, including
$6.6 million held as cash and cash equivalents.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
directors’ report
The Directors present their annual report on the affairs of the
Group, including the financial statements and auditor’s report,
for the year ended 31 December 2019. The Corporate
Governance Statement set out on pages 14 to 17 forms part of
this report.
Details of significant events since the balance sheet date are
contained in note 29 to the financial statements. An indication
of likely future developments in the business is included in the
Strategic Report.
Information about the use of financial instruments by the
company and its subsidiaries is given in note 26 to the financial
statements.
Dividend
The Directors do not recommended payment of a dividend.
Capital Structure
Details of the issued share capital is shown in note 24. The
Company has one class of ordinary shares, which carry no right
to fixed income. Each share carries the right to one vote at
general meetings of the Company.
There are no specific restrictions on the size of a holding nor on
the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing
legislation. The directors are not aware of any agreement
between holders of the Company’s shares that may result in
restrictions on the transfer of securities or on voting rights.
Details of employee share schemes are set out in note 25.
No person has any special rights of control over the Company’s
share capital.
With regard to the appointment and replacement of directors,
the Company is governed by its Articles of Association, the BVI
Companies Act and related legislation.
Directors
The Directors who served during the period and since year end
are set out below:
Executive Directors
Toby Hall
Michael Salazar
Non-Executive Directors
Guy Elliott
Henry Turcan
Bryan Disher (appointed 2 April 2019)
Directors’ Remuneration
Directors’ emoluments
Fees/ Benefits
in kind
$ 000s
Basic Salary
$ 000s
Bonus
$ 000s
2019
Total
$ 000s
2018
Total
$ 000s
Executive Directors
Toby Hall
Michael Salazar
Non-Executive Directors
Guy Elliott
Henry Turcan
Bryan Disher (appointed
2 April 2019)
Total
330
330
58
58
43
819
22
38
-
-
-
60
-
-
-
-
-
-
352
368
462
407
58
58
43
100
58
-
879 1,027
Directors’ share options
Aggregate emoluments disclosed above do not include any
amounts for the value of options to acquire ordinary shares in
the company granted to or held by the directors. Details of
directors’ options are as follows:
1 Jan 2019
Granted
Forfeited
Exercised
Expired 31 Dec 2019
Michael Salazar (1)
15,500,000
13,000,000
Toby Hall (2)
15,500,000
13,000,000
Total
31,000,000
26,000,000
-
-
-
-
-
-
(7,500,000)
21,000,000
(7,500,000)
21,000,000
(15,000,000)
42,000,000
(1) At the beginning of the year 15,500,000 options – Exercise
price – Nil, of which 3,000,000 exercisable on the
publication of the 2019 financial statements (will vest on a
straight line basis, from a base share price of 9.375p up to
full vesting of 18.75p). During the year, a grant of
7,500,000 were expired and further grant of 13,000,000
options were awarded – Nil exercise price – exercisable on
the publication of the 2021 financial statements (will vest
on a straight-line basis).
(2) At the beginning of the year 15,500,000 options – Exercise
price – Nil, of which 3,000,000 are exercisable on the
publication of the 2019 financial statements (will vest on a
straight line basis, from a base share price of 9.375p up to
full vesting of 18.75p). During the year, a grant of
7,500,000 were expired and further grant of 13,000,000
options were awarded – Nil exercise price – exercisable on
the publication of the 2021 financial statements (will vest
on a straight-line basis)
There have been no variations to the terms and conditions or
performance criteria for share options during the financial year.
The Group remunerates non-executive Directors to attract the
highest calibre of talent beneficial to the Group and its
shareholders.
11
directors’ report
(continued)
Directors’ Interests
The total beneficial interests of the serving Directors at the year
end in the shares and options of the Company during the period
to 31 December 2019 were as follows:
Director
Toby Hall
31 December 2019
Options*
Shares
31 December 2018
Options*
Shares
500,000 21,000,000
500,000 15,500,000
Michael Salazar
1,975,050 21,000,000
1,975,050 15,500,000
Guy Elliott
20,750,000
- 20,750,000
Henry Turcan
Bryan Disher
-
-
-
-
-
-
-
-
-
* Terms of the options have been disclosed in Directors’ remuneration
report.
Statement of disclosure of information to auditor
As at the date of this report the serving directors confirm that:
•
•
So far as each director is aware, there is no relevant audit
information of which the Company’s auditor is unaware,
and
they have taken all the steps that they ought to have taken
as directors in order to make themselves aware of any
relevant audit information and to establish that the
Company’s auditor is aware of that information.
Auditor
Mazars LLP have expressed their willingness to continue in
office as auditor and a resolution to reappoint them will be
proposed at the forthcoming Annual General Meeting.
Directors’ Indemnities
The company has made qualifying third-party indemnity
provisions for the benefit of its Directors, which were made
during the year and remain in force at the date of this report.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Directors’
Report and the financial statements in accordance with
applicable law and regulations.
Corporate Governance
A statement on Corporate Governance is set out on pages 14 to
17.
Environmental Responsibility
The Company is aware of the potential impact that it and its
subsidiary companies may have on the environment. The
Company ensures that it, and its subsidiaries, at a minimum
comply with the local regulatory requirements and the revised
Equator Principles with regard to the environment.
Employment Policies
The Group is committed to promoting policies which ensure
that high-caliber employees are attracted, retained and
motivated, to ensure the ongoing success for the business.
Employees and those who seek to work within the Group are
treated equally regardless of sex, sexual orientation, marital
status, creed, color, race or ethnic origin.
Health and Safety
The Group’s aim is to achieve and maintain a high standard of
workplace safety. In order to achieve this objective, the Group
will provide training and support to employees and set
demanding standards for workplace safety.
Annual General Meeting (“AGM”)
This report and financial statements will be presented to
shareholders for their approval at the AGM. The Notice of the
AGM will be distributed to shareholders together with the
Annual Report.
The Directors are required to prepare financial statements for
each financial year. 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 Group and Company and of
the profit or loss of the Group and Company 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 IFRS has been followed, subject to any
material departures disclosed and explained in the financial
statements;
provide additional disclosures when compliance with
specific requirements in IFRS is insufficient to enable users
to understand the impact of particular transactions, and
other events and conditions on the Group and Company’s
financial position and financial performance; and
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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 applicable law.
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.
Electronic communication
The maintenance and integrity of the Company’s website is the
responsibility of the Directors. The work carried out by the
auditor does not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for any
changes that may have occurred to the financial statements
since they were initially presented on the website.
The Company’s website is maintained in accordance with AIM
Rule 26. Legislation in the British Virgin Islands governing the
preparation and dissemination of the financial statements may
differ from legislation in other jurisdictions.
On behalf of the board:
Michael Salazar
Chief Financial Officer
Date: 23 March 2020
13
corporate governance
As Chairman of the Board of Directors of Minds and Machines
Group Limited (MMX), it is my responsibility to ensure that
MMX has both sound corporate governance and an effective
Board. As Chairman of the Company, my responsibilities include
leading the Board effectively, overseeing the Company’s
corporate governance model, communicating with
shareholders, and ensuring that good information flows freely
between the Executive and Non-Executives Directors in a
timely manner.
It is the Board’s job to ensure that MMX is managed for the
long-term benefit of all shareholders, with effective and efficient
decision-making. Corporate governance is an important part of
that role, reducing risk and adding value to our business.
A detailed description of the Company’s business model and
strategy can be found on page 8. Further challenges to MMX’s
strategy and long-term goals are highlighted in Principal Risks
and Uncertainties on page 8.
Risk Management
The Board recognizes the need for an effective and well-defined
risk management process, and it oversees and regularly reviews
the current risk management and internal control mechanisms.
The Board considers risk assessment to be important in
achieving its strategic objectives. There is a process of
evaluation of performance targets through regular reviews by
senior management to forecasts. Project milestones and
timelines are regularly reviewed.
The Directors of MMX recognize the value of good corporate
governance in every part of its business. MMX is required to
adopt a recognized corporate governance code and disclose
how it complies with that code, and to the extent the Company
departs from the corporate governance provisions outlined by
that code, it must explain its reasons for doing so. The Directors
have resolved to adopt the Quoted Companies Alliance
Corporate Governance Code (QCA Code), which we believe is
the most appropriate for a company the size and stage of
development of MMX.
The Board will provide annual updates on our compliance with
the QCA Code and note that there have been no changes to the
Company’s key corporate governance arrangements over the
past year. An explanatory report of how we have applied the
QCA Code guidance, and disclosures of any areas of non-
compliance, can be found on our website at: www.mmx.co.
The Board considers that the Group complies with the QCA
Code so far as it is practicable having regard to the size, nature
and current stage of development of the Company. The Board
understands that the application of the QCA Code supports the
Group’s medium to long-term success whilst simultaneously
managing risks and provides an underlying framework of
commitment and transparent communications with
stakeholders.
Strategy and Business Model
The Board believes that long-term value can be delivered to its
shareholders through a process that has three key tenets:
•
•
•
To continue to drive profitable growth through operational
efficiencies and organic business development initiatives
within the current TLD portfolio;
To accelerate scale and earnings through strategic
acquisitions; and
Innovation.
The Board has overall responsibility for identifying, monitoring
and reviewing the Company’s risks, and assessing the systems
of external control for effectiveness. The Executive Directors
report on any new or changed risks, and any changes in risk
management/control to the Board. The Board discusses all
business matters having regard to the risks for the Group, and
to the extent that risks inherent in a particular activity are
considered significant, appropriate action is taken and steps
taken to mitigate the issue.
The Board considers that in light of the control environment
described above, an internal audit function is not considered
necessary or practical due to the size of the Company and the
day to day control exercised by the Executive Directors.
However, the Board will monitor the need for an internal audit
function. The Board has established appropriate reporting and
control mechanisms to ensure the effectiveness of its control
systems. The Board regularly reviews the mechanisms of
internal control it has implemented, assessing for effectiveness.
The Company’s key risks are highlighted under Principal Risks
and Uncertainties on page 8.
The Board
The Board, as a whole, is responsible for the overall
management of the Group and for its strategic direction,
including approval of the Group’s strategy, its annual business
plans and budgets, the interim and full year financial statements
and reports, any dividend proposals, the accounting policies,
major capital projects, any investments or disposals, its
succession plans and the monitoring of financial performance
against budget and forecast and the formulation of the Group’s
risk appetite including the identification, assessment and
monitoring of MMX’s principal risks.
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14
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
At the date of this Report, the Board has five members, whose
biographies are set out on pages 21 and 22 and whose roles are
set out below:
Director’ Name
Toby Hall
Michael Salazar
Guy Elliott
Henry Turcan
Position(s)
Executive Director –
Group Chief Executive Officer
Executive Director –
Chief Financial Officer
Non-Executive Chairman –
Chair of the Remuneration Committee
Non-Executive Director –
member of the Audit Committee
Bryan Disher
(Appointed 2 April 2019)
Independent Non-Executive Director –
Chair of the Audit Committee
The Board meets regularly throughout the year and a calendar
of meetings and principal matters to be discussed is agreed at
the beginning of each year. In order to be efficient, the Directors
meet formally and informally both in person and by telephone.
Board document authors are made aware of proposed
deadlines, allowing board papers to be collated, compiled into a
Board Pack, and circulated with sufficient time prior to each
meeting, thus allowing time for full consideration and necessary
clarifications before the meeting. Management supply the
Board with appropriate and timely information and the
Directors are free to seek any further information they consider
necessary.
In 2019 there were 8 official Board meetings, all of which were
attended by all Directors in addition to other periodic meetings
to update the Board on managements’ progress.
The Board comprises the CEO, Toby Hall, the CFO, Michael
Salazar, and two Non-Independent Non-Executives, Guy Elliott
and Henry Turcan, and one Independent Non-Executive
Director, Bryan Disher who was appointed during the year. Guy
Elliott is the Company’s Chair. Guy Elliott and Henry Turcan, as
significant shareholders and representatives respectively, are
not considered to be independent. The letters of appointment
of all Directors are available for inspection at the Company’s
registered office during normal business hours. The Non-
Executive Directors are expected to dedicate 18 days per
annum to the Company. The Executive Directors work full time
for the Company.
During the year, Board appointed an Independent Non-
Executive Director, Bryan Disher, as highlighted in the Executive
Summary. Bryan Disher is the chair person of Company’s Audit
Committee.
scale and complexity of the Company grows in the future and in
proportion to costs. The Board also notes that the QCA
recommends a balance between Executive and Non-Executive
Directors and recommends that there be two Independent
Non-Executives. The Board will take this into account when
considering future appointments. However, all Directors are
encouraged to use their judgement and to challenge matters,
whether strategic or operational, enabling the Board to
discharge its duties and responsibilities effectively.
The Non-Executive Directors have both a breadth and depth of
skills and experience to fulfil their roles. The Company believes
that the current balance of skills in the Board as a whole reflects
a very broad range of personal, commercial and professional
skills, and notes the range of financial and managerial skills. The
Non-Executive Directors meet without the presence of the
Executive Directors during the year, and also maintain ongoing
communications with Executives between formal Board
meetings.
Meetings are open and constructive, with every Director
participating fully. Senior management can also be invited to
meetings, providing the Board with a thorough overview of the
Company.
In addition to their general Board responsibilities, Non-
Executive Directors are encouraged to be involved in specific
workshops or meetings, in line with their individual areas of
expertise. The Board is kept abreast of developments of
governance and AIM regulations. ONE Advisory provides
updates on governance issues, and the Company’s NOMAD
provides annual Board AIM Rules refresher training as well as
the initial training as part of a new director’s on-boarding.
The Board shall review annually the appropriateness and
opportunity for continuing professional development, whether
formal or informal.
Board Committees
The Board has established the following committees, each
which has its own terms of reference:
Audit Committee
The Audit Committee considers the Group’s financial reporting
(including accounting policies) and internal financial controls.
The Audit Committee comprises of one Independent Non-
executive Director, Bryan Disher (Chairman) and one Non-
Executive Director, Henry Turcan. The Audit Committee is
responsible for ensuring that the financial performance of the
Group is properly monitored and reported on.
The Board continues to recognise the need for an independent
Non-Executive Chair and shall continue to review this as the
During 2019, the Committee met three times with all the
Directors present at all meetings.
15
corporate governance
(continued)
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Remuneration Committee
The Remuneration Committee is responsible for making
recommendations to the Board on Directors’ and senior
executives’ remuneration. It comprises two Non-Executive
Directors, Guy Elliott (Chairman), and Henry Turcan. Non-
Executive Directors’ remuneration and conditions are
considered and agreed by the Board. Financial packages for
Executive Directors are established by reference to those
prevailing in the employment market for executives of
equivalent status both in terms of level of responsibility of the
position and their achievement of recognized job qualifications
and skills. The Committee will also have regard to the terms,
which may be required to attract an equivalent experienced
executive to join the Board from another company.
During 2019, the Committee met once with both Directors
present at the meeting.
Advisers
The Directors have access to the Company’s NOMAD and
lawyers as and when required and are able to obtain advice
from other external bodies when necessary. All Directors have
access to advice from the Company Secretary and independent
professionals at the Company’s expense. Further details of the
Company’ advisers can be found on page 77.
The Company has employed the services of Liam O’Donoghue
of ONE Advisory Limited to act as the Company Secretary, who
is responsible for ensuring that Board procedures are followed
and that the Company complies with all applicable rules,
regulations and obligations governing its operation, as well as
helping the Chairman maintain standards of corporate
governance. If required, the Directors are entitled to take
independent legal advice and if the Board is informed in
advance, the cost of the advice will be reimbursed by the
Company.
Board Evaluation
The Directors consider that the Company and Board are not yet
of a sufficient size for a full Board evaluation to make
commercial and practical sense. In the frequent Board
meetings/calls, the Directors can discuss any areas where they
feel a change would benefit the Company, and the Company
Secretary remains on hand to provide impartial advice. As the
Company grows, it expects to expand the Board and with the
Board expansion, re-consider the need for Board evaluation.
Culture
The Board recognizes that its decisions regarding strategy and
risk will impact the corporate culture of the Company as a whole
and that this will impact the performance of the Company. The
Board is aware that the tone and culture set by the Board will
greatly impact all aspects of the Company as a whole and the
16
way that employees behave. The corporate governance
arrangements that the Board has adopted are designed to
ensure that the Company delivers long term value to its
shareholders, and that shareholders have the opportunity to
express their views and expectations for the Company in a
manner that encourages open dialogue with the Board.
A large part of the Company’s activities are centered upon an
open and respectful dialogue with employees, clients and other
stakeholders. Therefore, the importance of sound ethical values
and behaviors is crucial to the ability of the Company to
successfully achieve its corporate objectives. The Board places
great importance on this aspect of corporate life and seeks to
ensure that this flows through all that the Company does.
The Group operates a whistleblowing policy to facilitate the
reporting by employees of suspected misconduct, illegal acts or
failure to act within the Group. The aim of this Policy is to
encourage employees and others who have serious concerns
about any aspect of the Group’s work to come forward and
voice those concerns. The Group also promotes employee
engagement and receives feedback from employees through
employee commentary and reviews.
The Directors assess various options to engage with the
employees and develop a number of initiatives to ensure
engagement with the entire workforce to understand employee
sentiment. The Directors consider that the Company has an
open culture facilitating comprehensive dialogue and feedback
and enabling positive and constructive challenge. The Company
has adopted a code for Directors’ and employees’ dealings in
securities which is appropriate for a company whose securities
are traded on AIM and is in accordance with the requirements
of the Market Abuse Regulation which came into effect in 2016.
The Directors seek to align their interests with shareholders.
Board Induction and Training
All new Directors participate in a comprehensive induction
programme when they join the Board. The Board ensures that
ongoing training is provided for Directors by way of
conferences, presentations and circulated updates at (and
between) Board and Board Committee meetings on, among
other things, Group’s business, environmental, social, corporate
governance, regulatory developments and investor relations
matters.
Internal controls
The Board is responsible for ensuring that the Group maintains
a system of internal financial controls including suitable
monitoring procedures. The objective of the system is to
safeguard Group assets, ensure proper accounting records are
maintained and that the financial information used within the
business and for publication is reliable.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Internal financial control monitoring procedures undertaken by
the Board include the review of monthly financial reports and
monitoring of performance, setting of annual budgets and
monthly forecasts and the prior approval of all significant
expenditure.
Going concern
After making appropriate enquiries, the Directors have a
reasonable expectation that the Group and the Company have
adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the
going concern basis in preparing the Group accounts.
Treasury Policy
The Group finances its operations through debt and equity. The
Group holds its cash as a liquid resource to fund the obligations
of the Group. The Board approves decisions regarding the
management of these assets. Refer to Note 26 for further
information.
Securities Trading
The Board has adopted a Share Dealing Code that applies to
Directors, senior management and any employee or consultant
who is in possession of inside information. All such persons are
prohibited from trading in the Company’s securities if they are
in possession of inside information. Subject to this condition and
trading prohibitions applying to certain other periods, trading
can occur provided the relevant individual has received the
appropriate prescribed clearance.
Relations with Shareholders
The Board is committed to providing effective communication
with the shareholders of the Company. Significant
developments are disseminated through stock exchange
announcements and regular updates of the Company website.
The Board views the AGM as a forum for communication
between the Company and its shareholders and encourages
their participation in its agenda.
The Directors meet regularly with the Company’s institutional
and other major shareholders in order to communicate mutual
understanding of objectives. The Company intends at its AGMs
to communicate with private investors and encourage their
participation.
Each year shareholders receive a full annual report and an
interim report.
Guy Elliott
Chairman
Date 23 March 2020
17
audit committee report
As the Chairman of MMX’s Audit Committee, I present my first
Audit Committee Report for the year ended 31 December
2019, which has been prepared by the Committee and
approved by the Board.
The Audit Committee recognizes the importance of ensuring
the independence of the Company’s independent Auditor both
in fact and appearance. Each year the Audit Committee reviews
and assesses the quality and efficiency of the service provided.
The Audit Committee currently consists of myself as Chairman
and Henry Turcan. I have the recommended qualifications and
experience to act as Chairman of the audit committee.
This is the eighth year that Mazars have acted as Independent
Auditor, having been appointed in 2012.
The Company has in place a whistle-blowing procedure to allow
staff to raise, in confidence, any concerns about business
practices. This procedure complements established internal
reporting processes.
It is the Company’s policy to conduct all of its business in an
honest and ethical manner, and it has adopted a zero-tolerance
approach to bribery and corruption. The Company is committed
to acting professionally, fairly, and with integrity in business
dealings and relationships. The Company’s anti-bribery and
corruption procedures incorporate appropriate provisions to
meet its obligations under the UK Bribery Act 2010.
With regard to the Company’s financial statements, the Audit
Committee reviews:
•
•
the quality and acceptability of accounting policies and
practices;
the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance
reporting requirements;
• material areas in which significant judgements have been
applied or there has been discussion with the Independent
auditor, and
• whether the Annual Report and Financial Statements,
taken as a whole, present a fair, balanced and
understandable body of information that provides the data
necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Audit Committee, through the Board, receives financial
updates at each Board Meeting as well as regular financial
reports throughout the year. The Board also carries out a
detailed budget planning and review at the start of each
financial year. This is monitored in conjunction with each Board
financial review.
Roles and Responsibilities
The main role and responsibilities of the Audit Committee are
to:
• monitor the integrity of the Financial Statements and any
formal announcements relating to financial performance;
review the internal financial controls and the Company’s
internal control and risk management systems;
•
• make recommendations to the Board in relation to the
appointment, reappointment or removal of the external
auditor and approve remuneration and terms of
engagement of the auditor;
review the Independent Auditor’s independence and
objectivity; and
develop and implement the non-audit services policy.
•
•
Achievement of its Roles and Responsibilities
The Audit Committee met formally two times this year to
consider half-year Interim Results and Prior Full Year Financial
Statements. Additional meetings we held as necessary during
the year to monitor progress of external audits and reviews,
together with any unexpected corporate issues.
The meetings of the Audit Committee are designed to facilitate
and encourage communication among the Audit Committee
members, the Company’s staff and the Company’s Independent
Auditor, Mazars LLP.
Members of the Committee meet the Independent Auditor
regularly throughout the year (with and without Management
present) to discuss the results of their examinations, the overall
quality of the Company’s financial reporting, and the Company’s
internal control environment (including internal control over
financial reporting). In addition, the Audit Committee receives
and reviews the Independent Auditor’s annual ‘Audit
Completion Report’.
The Company does not have an Internal Audit function. This, the
Committee believes, is consistent with the Company’s stage of
development. The need for the establishment of an Internal
Audit function is monitored and it will be established when it is
believed to be appropriate.
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STRATEGIC REPORT
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FINANCIAL STATEMENTS
Financial Statements
During 2019, the Audit Committee:
•
•
• met with the External Auditors to review and approve the
annual audit plan and receive their findings and report on
the annual audit;
considered significant issues and areas of judgement with
the potential to have a material impact on the financial
statements;
considered the integrity of the published financial
information and whether the Annual Report and Financial
Statements taken as a whole are fair, balanced and
understandable and provide the information necessary to
assess the Group’s position and performance, business
model and strategy; and
reviewed and approved the interim 2019 and 2018 year
end results and financial statements.
•
Audit Committee Report
This is the first year the Group has presented an Audit
Committee Report. In future the content and detail of the Audit
Committee Report may be expanded, and formal procedures
will be put in place to assess the effectiveness of the Audit
Committee’s role.
Bryan Disher
Chairman of the Audit Committee
Date: 23 March 2020
19
remuneration committee report
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Dear shareholder,
As the Chairman of MMX’s Remuneration Committee, I present the Remuneration Committee Report for the year ended
31 December 2019, which has been prepared by the Committee and approved by the Board.
Remuneration policy
The Company’s remuneration policy is focused on being able to attract, retain and incentivise management with the skills and expertise
necessary to realise the Group’s objectives and ensure management’s interests are aligned with Shareholders’ interests. The Directors
also recognise the importance of ensuring that all employees are engaged, incentivised and identify closely with the profitability of the
Company.
Roles and Responsibilities
The Remuneration Committee is responsible for determining the remuneration of the Company’s Executive Directors based on agreed
goals and objectives set out each year. In addition, the Remuneration committee seeks to link remuneration to individual and Company
performance thereby creating a performance culture within the business. The Committee is responsible for overseeing the Company’s
long-term incentive plans to ensure the sustained growth of the Company by attracting and retaining the necessary talent to delivery
of shareholder value.
The Committee also monitors market trends and developments in order to assess those relevant for the Group’s future remuneration
schemes.
Governance Process
The Committee meets at least once a year and such other times as the Chair or any member of the Committee requests.
Main Activities
•
•
The Committee set CEO and CFO 2019 remuneration packages based on 2018 individual, Company and market performance;
In relation to the long-term incentive plan, the committee set a three-year plan (covering 2019 to 2021) identifying Company cash
generation targets in conjunction with total shareholder return; and
2020 Company and individual goals were set at the end of the year.
•
2020 Focus
•
•
•
•
Assess Executive team performance against 2019 goals to determine bonus and long term incentive awards;
Reviewing and setting the 2020 to 2022 cash generation targets in conjunction with total shareholder return.
Providing guidance and recommendation on additional 2020 KPI’s; and
Continuing to monitor the effectiveness of the current plans to deliver total shareholder value whilst providing adequate
incentives for performance.
Guy Elliott
Chairman of the Remuneration Committee
Date 23 March 2020
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
directors’ biographies
Guy Elliott
Non-Executive Chairman
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Financial Officer
Guy Elliott is an independent investor,
corporate finance advisor and
entrepreneur specializing in natural
resources and Internet technologies.
From 1993 to 2001 Mr. Elliott was a co-
founder of Croesus Capital Management,
a multi-strategy hedge fund manager
with $1 billion under management. Since
2001, Mr. Elliott has been a co-founder of
F3 Capital management, an alternative
investments advisory that has specialized
in early stage financings of resources and
Internet technology companies. Mr.
Elliott was a co-founder shareholder or
Series A investor in many companies
during the past 15 years including the
following: Iwin, Tagworld, TLDH/Minds +
Machines/MMX, Marathon PGM,
Uramin, Royal Nickel, CDC/CRC, Polo
Resources, Get Pager, Trax Retail and
Collinear Networks.
Toby Hall is a highly experienced
marketeer who has supported a series of
fast growth public and private businesses
in the Internet and natural resources
sector over the last twenty years. In this
capacity, he has been a strategic adviser
to Minds + Machines Group Limited
(MMX) since its inception. Following the
successful launches of .miami and .law,
Toby formally took over the
responsibilities of Chief Marketing
Officer for the Group in January 2016.
On 22 February 2016, Toby was
appointed Chief Executive Officer and
has led the Group as it restructured into
a pure-play registry and successfully
opened up the China market through the
launch of .vip which received Chinese
Government MIIT approval in December
2016. He divides his time between the
US, UK, Europe and Asia.
Prior to joining MMX in December 2012,
Michael was the gTLD Program Director
at ICANN. He was responsible for
developing the new department within
ICANN to implement the gTLD
operations programme and manage the
execution of all operations. Prior to
ICANN, Michael worked at KPMG for
16 years, where he was a partner in the
Advisory Services Group, responsible for
the overall quality and execution of
internal audit and advisory engagements
for a diverse group of clients across a
number of industries, including
technology, media and entertainment,
consumer products and manufacturing.
He co-managed KPMG’s IT Advisory
Services group within Los Angeles and
Orange County. Prior to working in the
Advisory Services Group, Michael spent
considerable time working in KPMG’s
International Tax practice.
21
directors’ biographies
(continued)
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Henry Turcan
Non-Executive Director
Henry has worked in financial services
since 1996, with a focus on equity capital
markets. Having spent the majority of
his career advising growth companies
within investment banking, he switched
to investment management when he
joined Henderson Global Investors
in 2015. In 2017, the funds managed
by Volantis were transferred by
Henderson to Lombard Odier Investment
Management. Henry graduated with an
MA (Hons) in Modern Languages from
Edinburgh University and is a Member
of the Securities Institute. Henry is a
representative of the funds managed
or sub-advised by Lombard Odier
Investments Manager group entities,
collectively one of the Company’s
largest shareholders.
Bryan Disher
Independent Non-Executive Director
and Chair of the
Audit-Committee
Bryan Disher trained as a Chartered
Professional Accountant, Chartered
Accountant in Canada and enjoyed a
successful career spanning over 37 years
at PricewaterhouseCoopers (PwC),
which he joined in 1978 and where he
was appointed as a Partner in 1991. He
held a number of senior positions in PwC
Canada where he was Chair of the
Partnership Board, and Chair of each of
the Finance Committee, Governance
Committee and Admissions Committee
of the Board. He was also Managing
Partner of PwC’s Ottawa office
(2001 - 2008) and Ottawa Audit and
Assurance Leader (1995 - 2001). His final
role at PwC was Managing Partner of its
Ukrainian practice between 2012 and
2015.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
independent auditor’s report
Opinion
We have audited the financial statements of Minds + Machines Group Limited (the ‘parent company’) and its subsidiaries (the ‘group’)
for the year ended 31 December 2019 which comprise the Group and Company Statements of Comprehensive Income, Group and
Company Statements of Financial Position, Group and Company Cash Flow Statements, Group and Company Statements of Changes
in Equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as
issued by the International Accounting Standard Board (IASB).
In our opinion, 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 2019 and of the group’s
profit and the parent company’s loss for the year then ended; and
have been properly prepared in accordance with IFRSs as issued by the International Accounting Standard Board (IASB).
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 and parent company 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 as applied to SME listed entities 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.
The impact of uncertainties due to the COVID-19 coronavirus on our audit
The Directors' view on the impacts of the COVID-19 coronavirus are disclosed on page 4. The full impact following the recent
emergence of the global coronavirus is still unknown. It is therefore not currently possible to evaluate all the potential implications to
the group’s and parent company’s trade, customers, suppliers and the wider economy.
We considered the impacts of COVID-19 coronavirus on the group and parent company as part of our audit procedures, applying a
standard firm wide approach in response to the uncertainty associated with the group’s and parent company's future prospects and
performance. This included reviewing and evaluating the Director’s assessment of the impact of COVID-19 coronavirus on the group
and parent company, including sensitivity analysis of the key underlying assumptions. Based on these procedures, we consider the
Director’s view on the impacts of COVID-19 coronavirus, as disclosed on page 4, to be reasonable.
However, no audit should be expected to predict the unknowable factors or all possible implications for the group and parent company
and this is particularly the case in relation to COVID-19 coronavirus.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
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.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
we identified, including those which had the greatest effect on:
•
•
•
the overall audit strategy;
the allocation of resources in the audit; and
directing the efforts of the engagement team.
23
independent auditor’s report
(continued)
Our response and key observations
Our response:
Our principal audit procedures were:
on a sample basis, testing the split of revenue between the initial
premium arising on sale of the domain name and the ongoing
registry service;
on a sample basis, testing domain registry service revenue
recognised in the period and revenue deferred at the year-end by
reference to the registration period covered by the contractual
terms of service;
reviewing the recognition policy for the new brand protection
service to assess whether it is appropriate and compliant with
IFRS 15; and
on a sample basis, testing whether brand protection services
revenue has been recognised in accordance with the stated
accounting policy.
Key observations:
We consider the group’s revenue recognition policy to be
appropriate and revenue has been recognised correctly in line with
the stated accounting policy.
Our response:
Our principal audit procedures were:
reviewing and evaluating management’s basis for the inclusion of
multiple gTLDs within CGUs;
considering the appropriateness of the key estimates of revenue
growth and discount rate used in the value in use calculations; and
performing sensitivity analysis to assess the impact of reasonable
variations in the estimates of projected revenue growth and the
discount rate used.
Key observations:
We consider that the:
group’s inclusion of multiple gTLDs into certain CGUs is
appropriate;
estimates used in the value in use calculations are reasonable; and
Directors’ conclusion that there is no requirement for further
impairment of intangible assets is reasonable.
Key audit matter
Revenue recognition
The group’s accounting policy in respect of revenue recognition is
set out in note 1(j) ‘Revenue Recognition’ on page 42.
There is a risk of fraud in revenue recognition due to the potential to
inappropriately shift the timing and basis of revenue recognition as
well as the potential to record fictitious revenues or fail to record
actual revenues. For the group, we consider this significant risk to
arise as follows:
the group records revenue immediately for the initial premium
arising on the sale of certain domain names, while recurring fees are
recognised over the period covered by the fee. There is a risk that
inappropriate allocation of fees between the initial premium and
recurring leading to inappropriate revenue recognition;
the group recognises domain registry service revenue evenly over
the relevant registration period. There is a risk that revenue relating
to future periods is not appropriately deferred; and
for the new brand protection service released during the year, the
group has exercised judgement in establishing a policy for the
recognition of revenue, as set out in note 2 on page 49, under which
a proportion of revenue is recognised immediately, with the
remainder recognised over the period covered by the contract.
There is a risk that the revenue recognition policy for the new
product is not compliant with IFRS 15, and a further risk that the
policy is not correctly applied.
Valuation of intangible assets
Included on the group statement of financial position is goodwill of
$2.8m and intangible assets of $81.5m. The group’s accounting
policies in respect of intangible assets are set out in note 1(h)
‘Goodwill’ on page 40, note 1(m) ‘Intangible assets’ on page 43
note 1(n) ‘De-recognition of intangible assets’ on page 44 and
note 1(p) Impairment of fixtures & equipment and intangible
assets excluding goodwill’ on page 44.
The Directors are required to perform an impairment review in
respect of intangible assets on an annual basis. In performing their
review, the Directors are required to assess the fair value of the
intangible assets, being the higher of their market value and their
value in use, within each identified Cash Generating Unit (CGU). In
the absence of a readily available indicator of market value, the
Directors have based their impairment review on calculations of the
value in use of each CGU, based on projected future cash flows.
The significance of the judgements and estimates made in calculating
the value in use of each CGU gives rise to a risk that the value in use is
overstated, and that intangible assets may be impaired below their
carrying value in the financial statements. The Directors’ commentary
on the judgements and estimates involved in the value in use
calculations is set out in note 2 on page 48. Key estimates in the value
in use calculations include projected revenue growth and the discount
rate used to calculate the present value of projected future cash
flows. In addition to these estimates, a key judgement made by the
Directors is the determination of CGUs, being the smallest
identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or groups
of assets. The group has determined that it is appropriate to include
multiple gTLDs within certain CGUs.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Our application of materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both
individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group and parent company materiality
$1.3m
How we determined materiality
The group’s strategy is to generate increasing revenues through exploitation of its asset base, which largely comprises intangible
assets in the form of gTLDs. We therefore consider the group total asset value to be an appropriate basis for determining
materiality.
Rationale for benchmark applied
Having considered factors such as the group’s AIM listing and the absence of external debt at the year end, we determined
materiality at 1.25% of the group total asset value.
Performance materiality – group and parent company
We performed our audit procedures using a lower level of materiality - termed ‘performance materiality’ - which
is set to reduce to an appropriate level the probability that the aggregate of uncorrected misstatements in the
financial statements exceeds materiality for the financial statements as a whole. Having considered factors such
as the group’s control environment, we set performance materiality at 65% of overall materiality.
Reporting threshold – group and parent company
We agreed with the Audit Committee that we would report to that committee all identified corrected and
uncorrected misstatements in excess of this level, together with differences below that level that, in our view,
warranted reporting on qualitative grounds.
$0.8m
$0.04m
An overview of the scope of our audit
As part of designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements. In
particular, we looked at where the Directors made subjective judgements such as making assumptions on significant accounting
estimates.
We gained an understanding of the legal and regulatory framework applicable to the group and parent company, the structure of the
group and the parent company and the industry in which they operate. We considered the risk of acts by the group and parent
company which were contrary to the applicable laws and regulations including fraud. We designed our audit procedures to respond to
those identified risks, including non-compliance with laws and regulations (irregularities) that are material to the financial statements.
We focused on laws and regulations that could give rise to a material misstatement in the financial statements.
We tailored the scope of our group audit to ensure that we performed sufficient work to be able to give an opinion on the financial
statements as a whole. We used the outputs of a risk assessment, our understanding of the group’s and parent company’s accounting
processes and controls and its environment, and considered qualitative factors in order to ensure that we obtained sufficient coverage
across all financial statement line items.
Our tests included, but were not limited to, obtaining evidence about the amounts and disclosures in the financial statements sufficient
to give reasonable assurance that the financial statements are free from material misstatement, whether caused by irregularities
including fraud or error, review of minutes of Directors’ meetings in the year and enquiries of management. As a result of our
procedures, we did not identify any key audit matters relating to irregularities, including fraud (other than the key audit matter on
revenue recognition outlined above).
25
independent auditor’s report
(continued)
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are
discussed under “Key audit matters” within this report.
Our group audit scope included an audit of the group and parent financial statements of Minds + Machines Group Limited. Based on
our risk assessment, all entities within the group were subject to full scope audit performed by the group audit team. The group was
considered to be a single component for the purposes of determining materiality, as all of the entities are engaged in the same business
and use the same systems, processes and controls. All group entities, including the parent company, were therefore audited to the
group materiality thresholds set out in “Our application of materiality” above. The group engagement team also tested the
consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material
misstatement of the aggregated financial information.
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.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 11, 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 the 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.
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.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Use of the audit report
This report is made solely to the company’s members as a body in accordance with our engagement letter. 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.
Mazars LLP
Chartered Accountants
Tower Bridge House
St Katharine’s Way
London
E1W 1DD
Date: 23 March 2020
27
group statement of comprehensive income
for the year ended 31 December 2019
Revenue
Less: Partner payments
Revenue less partner payments
Cost of sales
Gross Profit
Gross Profit Margin %
Profit on contested gTLD applications
Operating expenses
Operating earnings before interest, taxation, depreciation
and amortisation (Operating EBITDA)
Bad debt Expense
Onerous contract provision credit / (charge)
Foreign exchange Gain / (loss)
Gain on termination of lease (IFRS 16)
Profit on disposal of reseller (join.law)
Loss on disposal of fixed assets
Share based payments
Strategic review costs
Acquisition costs
Restructuring costs
Impairment loss on intangible assets
Share of results of joint ventures
Earnings / (Loss) before interest, taxation, depreciation, and
amortisation (EBITDA)
Depreciation and amortisation charge
Finance revenue
Finance costs
Profit / (Loss) before taxation
Income tax (charge) / credit
Profit / (Loss) for the year
Year Ended
31 Dec 2019
$ 000’s
Year Ended
31 Dec 2018
$ 000’s
Notes
4
5
18
20
22
23
16
25
14
17
6
14/15/23
8
9
18,942
(2,882)
16,060
(3,637)
12,423
77%
588
(6,040)
15,094
(2,520)
12,574
(3,481)
9,093
72%
480
(5,526)
6,971
4,047
(1,433)
1,351
378
299
383
-
(1,272)
-
-
-
-
48
(2,112)
(7,154)
(342)
-
-
(12)
(1,153)
(110)
(595)
(743)
(4,145)
4
6,725
(12,315)
(1,207)
9
(649)
4,878
(140)
4,738
(211)
16
(180)
(12,690)
54
(12,636)
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Currency translation differences
Items that will not be reclassified to profit or loss:
Loss on fair value through other comprehensive income financial assets
Other comprehensive income for the year net of taxation
Total comprehensive income / (loss) for the year
Retained profit / (loss) for the year attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income/(loss) for the year attributable to:
Equity holders of the parent
Non-controlling interests
Earnings / (Loss) / per share (cents)
From continuing operations
Basic
Diluted
All operations are considered to be continuing.
The notes set out on pages 38 to 76 form an integral part of these financial statements.
Year Ended
31 Dec 2019
$ 000’s
Year Ended
31 Dec 2018
$ 000’s
Notes
(680)
387
(57)
(737)
(443)
(56)
4,001
(12,692)
4,738
(12,652)
-
16
4,738
(12,636)
4,001
(12,708)
-
16
4,001
(12,692)
11
11
0.51
0.49
(1.68)
(1.68)
29
company statement of comprehensive
income
for the year ended 31 December 2019
Revenue
Less: Partner payments
Revenue less partner payments
Cost of sales
Gross Profit
Gross Profit Margin %
Profit on contested gTLD applications
Operating expenses
Operating earnings before interest, taxation,
depreciation and amortisation (Operating EBITDA)
Bad debt expense – trade receivables
Impairment of investment in subsidiaries/inter-company balance
Foreign exchange gain /(loss)
Gain on termination of Lease (IFRS 16)
Strategic review costs
Acquisition costs
Restructuring costs
Share based payments
Year Ended
31 Dec 2019
$ 000’s
Year Ended
31 Dec 2018
$ 000’s
Notes
4
5
18
20
16
23
7,788
(1,505)
6,283
(2,585)
3,698
59%
588
(3,502)
8,395
(1,013)
7,382
(2,274)
5,108
69%
480
(4,404)
784
1,184
(1,433)
(10,757)
(1,821)
(25,883)
230
59
-
-
-
(391)
-
(110)
(595)
(743)
(969)
(1,090)
Loss before interest, taxation, depreciation, and amortisation (EBITDA)
6
(12,086)
(29,449)
Depreciation and amortisation charge
14/15/23
Finance revenue
Finance costs
Loss before taxation
Income tax
Loss for the year
8
9
Other comprehensive income
Loss on fair value through other comprehensive income financial assets
Other comprehensive loss for the year net of taxation
Total comprehensive loss for the year
All operations are considered to be continuing.
The notes set out on pages 38 to 76 form an integral part of these financial statements.
(287)
9
(250)
(17)
16
(180)
(12,614)
(29,630)
-
-
(12,614)
(29,630)
(57)
(57)
(443)
(443)
(12,671)
(30,073)
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
group statement of financial position
as at 31 December 2019
ASSETS
Non-current assets
Goodwill
Intangible assets
Fixtures and equipment
Right-of-use assets
Investments
Interest in joint ventures
Other long-term assets
Total non-current assets
Current assets
Trade receivables
Prepayments and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Deferred revenue
Onerous contract provision
Lease liabilities
Total current liabilities
Net current liabilities
Non-current liabilities
Onerous contract provision
Lease liability
Total non-current liabilities
Total liabilities
NET ASSETS
Notes
31 Dec 2019
$ 000’s
31 Dec 2018
$ 000’s
13
14
15
23
17
18
20
20
19
21
21
22
23
22
23
2,828
81,494
68
2,673
-
480
185
2,828
81,458
59
-
57
432
435
87,728
85,269
3,864
3,626
6,583
14,073
101,801
4,614
4,515
10,367
19,496
104,765
(5,835)
(13,662)
-
(907)
(9,629)
(14,761)
(2,914)
-
(20,404)
(27,304)
(6,331)
(7,808)
-
(2,860)
(3,040)
(3,040)
-
(2,860)
(23,444)
(30,164)
78,357
74,601
31
group statement of financial position
as at 31 December 2019
(continued)
EQUITY
Share capital
Share premium
Shares to be issued
Other reserves
Foreign exchange reserve
Retained earnings
Non-controlling interests
TOTAL EQUITY
Notes
31 Dec 2019
$ 000’s
31 Dec 2018
$ 000’s
24
12
-
80,217
-
(500)
904
(2,264)
78,357
-
78,357
-
68,912
11,745
(443)
1,584
(6,871)
74,927
(326)
74,601
The notes set out on pages 38 to 76 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 23 March 2020 and signed on its behalf by:
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Financial Officer
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
company statement of financial position
as at 31 December 2019
ASSETS
Non-current assets
Intangible assets
Investment in subsidiaries
Right-of-use assets
Investments
Interest in joint ventures
Other-long term assets
Total non-current assets
Current assets
Trade and other receivables
Prepayments and other receivables
Cash and cash equivalents
Total current assets
TOTAL ASSETS
LIABILITIES
Current liabilities
Trade and other payables
Deferred revenue
Lease liability
Total current liabilities
Net current (liabilities) / assets
Non-current liabilities
Lease liability
Total non-current liabilities
Total Liability
NET ASSETS
EQUITY
Share capital
Share premium
Shares to be issued
Other reserves
Retained earnings
TOTAL EQUITY
Year Ended
31 Dec 2019
$ 000’s
Year Ended
31 Dec 2018
$ 000’s
Notes
14
16
23
17
18
20
20
19
21
21
23
23
24
12
39,543
41,697
672
-
520
185
39,407
44,269
-
57
520
435
82,617
84,688
1,136
6,408
3,589
11,133
3,131
8,761
5,397
17,289
93,750
101,977
(14,861)
(5,094)
(197)
(20,152)
(12,730)
(4,222)
-
(16,952)
(9,019)
337
(797)
(797)
-
-
20,949
16,952
72,801
85,025
-
80,217
-
(500)
(6,916)
72,801
-
68,912
11,745
(443)
4,811
85,025
The notes set out on pages 38 to 76 form an integral part of these financial statements.
These financial statements were approved by the Board of Directors on 23 March 2020 and signed on its behalf by:
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Financial Officer
33
group cash flow statement
for the year ended 31 December 2019
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Cash flows from operations
Operating EBITDA
Adjustments for:
Restructuring costs
Strategic review costs
Decrease in trade and other receivables and
reclassification of restricted cash from other long-term assets
Decrease in trade and other payables
Payments towards Onerous contracts
Onerous contract final settlement
Withdrawal of gTLD applications
Foreign exchange loss
Net cash flow from operating activities
Cash flows from investing activities
Sale of reseller (join.law)
Payments to acquire intangible assets
Payments to acquire fixtures & equipment
Interest received
Payments towards restructuring of contracts
Receipts from the disposal of tangible assets
Acquisition of subsidiary, net of cash acquired
Acquisition costs
Net cash flow from investing activities
Cash flows from financing activities
Interest paid
Proceeds from / (repayment of) borrowings
Share buyback
Principal elements of lease payments
Net cash flow from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The notes set out on pages 38 to 76 form an integral part of these financial statements
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Year Ended
31 Dec 2019
$ 000’s
Year Ended
31 Dec 2018
$ 000’s
Notes
6,971
4,047
-
-
407
(220)
(1,396)
(5,280)
148
101
731
383
(193)
(38)
9
-
-
-
-
(743)
(110)
97
(1,241)
-
-
120
152
2,322
-
(99)
(20)
16
(811)
2
(9,136)
(595)
161
(10,643)
(137)
(3,000)
(440)
(1,099)
(4,676)
(180)
3,000
-
-
2,820
(3,784)
(5,501)
10,367
6,583
15,868
10,367
22
22
16
14
15
12
8
21
25
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
company cash flow statement
for the year ended 31 December 2019
Cash flows from operations
Operating EBITDA
Adjustments for:
Restructuring costs
Strategic review costs
Decrease in trade and other receivables and reclassification of
restricted cash from other long-term assets
Decrease in trade and other payables
Withdrawal of gTLD applications
Foreign exchange loss
Net cash flow from operating activities
Cash flow from investing activities
Interest received
Payments to acquire intangible assets
Acquisition of subsidiary
Acquisition Costs
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from / (repayment of) borrowings
Interest paid
Share buyback
Principal elements of lease payments
Net cash flow from financing activities
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
The notes set out on pages 38 to 76 form an integral part of these financial statements
Year Ended
31 Dec 2019
$ 000’s
Year Ended
31 Dec 2018
$ 000’s
Notes
784
1,184
-
-
1,815
(359)
148
(86)
2,302
9
(159)
-
-
(743)
(110)
1,341
(1,105)
120
(75)
612
16
-
(10,000)
(595)
(150)
(10,579)
(3,000)
(137)
(440)
(383)
(3,960)
(1,808)
5,397
3,589
3,000
(180)
-
-
2,820
(7,057)
12,454
5,397
14
16
21
8
23
19
35
group statement of changes in equity
for the year ended 31 December 2019
At 1 January 2018
Profit / (loss) for the period
Other comprehensive income
Total comprehensive (loss) / income
Additions to share premium
Shares to be issued
Credit to equity for equity-settled
share-based payments
Adjustments arising from change in
non-controlling interest
As at 31 December 2018
Change in accounting policy (Note 23)
Restated as at 1 January 2019
Profit for the period
Other comprehensive income
Total comprehensive (loss) / income
Additions to share premium
Share buy back
Credit to equity for equity-settled
share-based payments
Adjustments arising from change in
non-controlling interest
As at 31 December 2019
Share
Capital
$ 000’s
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share
premium
reserve
$ 000’s
60,060
-
-
-
8,852
-
-
-
-
-
-
-
-
11,745
-
-
Shares
to be
issued
$ 000’s
Other
Reserves
$ 000’s
Foreign
currency
translation
reserve
$ 000’s
Retained
earnings
$ 000’s
1,197
4,367
Total
$ 000’s
65,624
-
-
(443)
(443)
-
-
-
-
-
387
387
(12,652)
(12,652)
-
(56)
(12,652)
(12,708)
-
-
-
-
-
-
8,852
11,745
1,150
1,150
264
264
68,912
11,745
(443)
1,584
(6,871)
74,927
-
-
68,912
11,745
-
-
-
-
-
-
11,745
(11,745)
(440)
-
-
80,217
-
-
-
-
-
(443)
-
(57)
(57)
-
-
-
-
-
1,584
-
(680)
(680)
-
-
-
-
(1,406)
(8,277)
4,738
-
4,738
-
-
(1,406)
73,521
4,738
(737)
4,001
-
(440)
1,275
1,275
-
-
(500)
904
(2,264)
78,357
Non-
controlling
interest
$ 000’s
(70)
16
-
16
-
-
-
(272)
(326)
-
(326)
-
-
-
-
-
Total
equity
$ 000’s
65,554
(12,636)
(56)
(12,692)
8,852
11,745
1,150
(8)
74,601
(1,406)
73,195
4,738
(737)
4,001
-
(440)
1,275
326
-
326
78,357
• Share premium – This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the
issue of shares are deducted from share premium
• Shares to be issued – This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC. The share were
issued in January 2019 (Note 24)
• Other reserves – This reserve represents the gain and losses arising from assets designated as held for sale and marked at fair value
through OCI.
• Foreign currency reserve – This reserve represents gains and losses arising on the translation of foreign operations into the Group’s
presentation currency.
• Retained earnings – This reserve represents the cumulative profits and losses of the Group.
• Non-controlling interests reserve – This reserve represents the share of the interest held by the non-controlling shareholders of the
subsidiary undertakings.
The notes set out on pages 38 to 76 form an integral part of these financial statements.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
company statement of changes in equity
for the year ended 31 December 2019
At 1 January 2018
Loss for the period
Other comprehensive loss
Total comprehensive loss
Additions to share premium
Shares to be issued
Credit to equity for equity-settled
share based payments
As at 31 December 2018
Change in accounting policy (Note 23)
Restated as at 1 January 2019
Loss for the period
Other comprehensive income / (loss)
Total comprehensive loss
Additions to share premium
Share buyback
Credit to equity for equity-settled
share based payments
As at 31 December 2019
Share
Capital
$ 000’s
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Share
premium
reserve
$ 000’s
60,060
-
-
-
8,852
-
-
Shares
to be issued
$ 000’s
Other
Reserves
$ 000’s
-
-
-
-
-
11,745
-
-
-
(443)
(443)
-
-
-
68,912
11,745
(443)
-
-
-
-
-
-
-
-
-
-
11,745
(440)
-
80,217
(11,745)
-
-
-
-
-
-
(57)
(57)
-
-
-
(500)
Retained
earnings
$ 000’s
33,299
(29,630)
-
Total
$ 000’s
93,359
(29,630)
(443)
(29,630)
(30,073)
-
-
1,142
4,811
(387)
4,424
8,852
11,745
1,142
85,025
(387)
84,638
(12,614)
(12,614)
-
(57)
(12,614)
(12,671)
-
-
-
(440)
1,274
(6,916)
1,274
72,801
• Share premium – This reserve includes any premiums received on issue of share capital. Any transaction costs associated with the
issue of shares are deducted from share premium
• Shares to be issued – This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC. The share were
issued in January 2019 (Note 24).
• Other reserves – This reserve represents the gain and losses arising from assets designated as held for sale and marked at fair value
through OCI.
• Retained earnings – This reserve represents the cumulative profits and losses of the Company.
The notes set out on pages 38 to 76 form an integral part of these financial statements.
37
notes to the financial statements
for the year ended 31 December 2019
1 Summary of Significant Accounting Policies
(a) General information
Minds + Machines Group Limited is a company registered in the British Virgin Islands under the BVI Business Companies Act
2004 with registered number 1412814. The Company’s ordinary shares are traded on the AIM market operated by the London
Stock Exchange. The nature of the Group’s operations and its principal activities are set out in note 3.
(b) Basis of preparation
The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standard Board (IASB). These financial statements are presented in US
Dollars and rounded to the nearest thousand. Foreign operations are included in accordance with the policies set out in note 1(l).
(c) Basis of consolidation
The consolidated financial information incorporates the results of the Company and entities controlled by the Company (its
subsidiaries) (the “Group”) made up to 31 December each year. Control is achieved when the Company:
• has the power over the investee;
• is exposed or has rights, to variable return from its involvement with the investee; and
• has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses
control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in the
consolidated income statement from the date the Company gains control until the date when the Company ceases to control the
subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the
non-controlling interests. Total comprehensive income of the subsidiaries is attributed to the owners of the Company and to the
non-controlling interests even if this results in the non-controlling interests having a deficit balance.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line
with the Group’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the members of the
Group are eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-
controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon
liquidation may initially be measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the
acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-
controlling interests are initially measured at fair value. Subsequent to acquisition, the carrying amount of non-controlling
interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in
equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests
having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The
carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative
interests in the subsidiaries. Any difference between the amounts by which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognized directly in equity and attributable to the owners of the Company.
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When the Group loses control of a subsidiary, the gain or loss on disposal recognized in profit or loss is calculated as the difference
between the aggregate of the fair value of the consideration received and the fair value of any retained interest and the previous
carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. All amounts
previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly
disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of
equity as specified / permitted by applicable IFRS). The fair value of any investment retained in the former subsidiary at the date
when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IFRS 7 Financial
Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or
jointly controlled entity.
When a separate identifiable segment meets the definition of Discontinued Operations (i.e. when agreement has either been
reached to sell a component of the Group’s business or the sale has taken place in the reporting period), results of that segment
are accounted for, in line with those applicable accounting standards, as discontinued operations on the Group Statement of Total
Comprehensive Income. Prior period results are also disclosed on a like for like basis. Any assets in still held by the Group at the
end of the reporting period are in respect of these discontinued operations are classified as held for sale in the Group Statement
of Financial Position.
(d) Statement of compliance with IFRS
The Group’s and Company’s financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting Standards Board (IASB).
New and amended standards adopted by the group
i)
The Group has applied the following standards and amendments for the first time for their annual reporting period
commencing 1 January 2019:
IFRS 16
Leases
The group had to change its accounting policies as a result of adopting IFRS 16. The group elected to adopt IFRS
16 using the modified retrospective approach. Under this approach comparative information is not restated. This
is disclosed in note 23.
The other amendments not listed above did not have any impact on the amounts recognized in prior periods and
are not expected to significantly affect the current or future periods.
ii)
New standards and interpretations not yet adopted
At the date of authorization of these financial statements, several new, but not yet effective, Standards and amendments to
existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing
Standards have been adopted early by the Group. Management anticipates that all relevant pronouncements will be adopted
for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and
Interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on
the Group’s financial statements.
(e) Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for the foreseeable future. At the year end, the Group had current
assets of $14.1m and current liabilities (excluding deferred revenue) of $6.8m and therefore net current assets (excluding
deferred revenue) of $7.3m including $6.6 million held as cash and cash equivalents.
In making this assessment the Directors have prepared cash flow forecasts taking into account current trading levels. The
Directors have also considered the impact of the coronavirus to the business and has performed a sensitivity analysis to the cash
flow forecasts. Performing such sensitivity analysis shows that the Group still has adequate resources to continue in operational
existence for the foreseeable future and therefore as a going concern.
39
notes to the financial statements
for the year ended 31 December 2019
(continued)
Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. The group actively
manages the working capital requirements and has enough funds to meet the cash flow requirements.
(f) Business combinations
Acquisition of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interest issued by
the Group in exchange for control of the acquire. Acquisition-related costs are recognized in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognized at their fair value at the
acquisition date, except that:
• deferred tax assets of liabilities and assets or liabilities related to employee benefits arrangement are recognized and measured
in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the
acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-
date amounts of the identifiable assets acquired and liabilities assumed.
(g) Joint ventures
A joint venture is an entity where the Group has joint control and has rights to the net assets of the arrangement. The Group has
interests in joint ventures, which are jointly controlled entities, whereby the ventures have a contractual arrangement that
establishes joint control over the economic activities of the entity. The contractual agreement requires unanimous agreement for
financial and operating decisions among ventures.
The Group’s interests in jointly controlled entities are accounted for by using the equity method. Under the equity method, the
investment in the joint ventures is carried in the statement of financial position at cost plus post acquisition changes in the Group’s
share of net assets of the joint venture. The income statement reflects the share of the results of operations of the joint venture.
The financial statements of the joint venture are prepared for the same reporting period as the Group. Adjustments are made
where necessary to bring the accounting policies in line with those of the Group.
Losses on transactions are recognized immediately if the loss provides evidence of a reduction in the net realizable value of
current assets or an impairment loss. The joint venture is accounted for using the equity method until the date on which the Group
ceases to have joint control over the joint venture.
Upon loss of joint control, the Group measures and recognizes its remaining investment at its fair value. Any difference between
the carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment
and proceeds on disposal are recognized in profit or loss. When the remaining investment constitutes significant influence, it is
accounted for as investment in an associate.
(h) Goodwill
Goodwill is initially recognized and measured as set out in note 1(f).
Goodwill is not amortized but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is
allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating
units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that
the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to other assets of
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the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not
reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
(i) Leases (the group as a lessee) (effective 1 January 2019)
The Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been
restated. This means comparative information is still reported under IAS 17 and IFRIC 4.
The Group as a lessee
For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A
lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time
in exchange for consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which
are whether:
• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being
identified at the time the asset is made available to the Group
• the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of the contract
• the Group has the right to direct the use of the identified asset throughout the period of use.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use
asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the
Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in
advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end
of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for
impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date,
discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing rate.
Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed),
variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments
arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification, or if there are changes in in-substance fixed payments.
When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the
right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of
recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss
on a straight-line basis over the lease term. On the statement of financial position, right-of-use assets have been included in
property, plant and equipment and lease liabilities have been included in trade and other payables.
41
notes to the financial statements
for the year ended 31 December 2019
(continued)
(j) Revenue recognition
The Group and Company recognize revenue to depict the transfer of promised goods or services to customers an amount that
reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Group
and Company follow these steps;
1.
2.
3.
4.
5.
Identify the contract(s) with a customer
Identify the performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognize revenue when (or as) the entity satisfies a performance obligation
Registry revenue
Registry revenue arise from the sale of domain names (fixed fees charged to registrars for the initial registration or renewals of the
domain name) and from the sale of brand protection services (i.e. AdultBlock).
• Revenue from the sale of domain names
Revenue from the sale of domain names arise from fixed fees charged to registrars for the initial registration and renewal.
Where the fee from the initial registration matches the fee from the renewal, the fee from both the initial registration and
renewal is recognized on a straight-line basis over the registration term.
Where the fee from the initial registration is higher than the renewal fee (arising mainly from ‘premium names’), the ‘premium’
(the difference between the first-year fee and ongoing renewal fee) is recognized as revenue immediately with the balance
recognized on a straight-line basis over the registration period. The renewal fee carries on being recognized on a straight-line
basis as well.
Fees from renewals are deferred until the new incremental period commences.
• Revenue from the sale of brand protection services
Revenue from the sale of brand protection services arises from fixed fees charged to registrars both for the initial registration
and renewal. The fee from the initial registration typically matches the fee from the renewal, subject to promotional discounts.
Revenue for such fees is recognised using the output method as prescribed by IFRS 15. Revenue is recognised on the basis of
direct measurement of the value provided to the underlying customer by considering the identified milestones achieved, as
follows:
• verification – occurs at the initial registration and renewals thereafter to ensure that the customer has the right to the label
being protected;
• variants – where purchased, this is a one-time event at the time of registration to create the complete list of confusingly
similar labels being protected; and
• blocking – an ongoing service to ensure that the label (and where applicable, its variants) is blocked from being registered as a
domain name over the registration and renewal period.
A percentage of the registration or renewal fee is allocated to each milestone and recognised as revenue when the milestone is
reached either at a point in time (verification and creation of variants) or over time (blocking) on a straight-line basis.
Rendering of services (Registry service provider (“RSP”) revenue and consultancy services)
Revenue is generated by providing RSP and consultancy services over a period of time. Fees for these services are deferred
and/or accrued and recognized as performance occurs, typically on a straight-line basis over that period.
(k) Partner payments
Partner payments represents the expense relating to certain TLDs where royalty and similar payments are required to be made,
including any minimum revenue guarantees.
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Such payments are based on the Group’s and Company’s billing and are deferred in line with accounting revenue.
(l) Foreign currencies
Functional and presentation currency
The individual financial statements of each Group company are presented in the currency of the primary economic environment in
which it operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial
position of each Group company is expressed in US Dollars, which is the presentation currency for the consolidated financial
statements. The Company’s functional currency is US Dollars.
Transactions and balances
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s functional currency
(foreign currencies) are recognized at the rates of exchange prevailing on the dates of transactions. At each balance sheet date,
monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing at that date. Non-
monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when
the fair value was determined. Non-monetary items that are measured at historical cost in foreign currencies are not retranslated.
Exchange differences are recognized in profit and loss in the period in which they arise.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are
translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average
exchange rates for the period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at
the date of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and
accumulated in equity (attributed to non-controlling interests as appropriate).
On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving
loss of control over a subsidiary that includes a foreign operation, loss of joint control over a jointly controlled entity that includes
a foreign operation, or loss of significant influence over an associate that includes a foreign operation), all of the accumulated
exchange differences in respect of that operation attributable to the Group are reclassified to profit or loss.
In addition, in relation to a partial disposal of a subsidiary that includes a foreign operation that does not result in the Group losing
control over the subsidiary, the proportionate share of accumulated exchange differences are re-attributed to non-controlling
interests and are not recognized in profit or loss. For all other partial disposals (i.e. partial disposals of associates or joint
arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of the
accumulated exchange differences is reclassified to profit or loss.
(m) Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and
accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The
estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in
estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are
carried at cost less accumulated impairment loss.
Internally generated intangible assets – research and development expenditure
Expenditure on research activities is recognized as an expense in the period in which it is incurred.
An internally generated intangible asset arising from the development (or from the development phase) of an internal project is
recognized if, and only if all of the following conditions have been demonstrated:
• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
43
notes to the financial statements
for the year ended 31 December 2019
(continued)
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the
intangible asset; and
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date
when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be
recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
Useful live and amortisation
Amortization is recognized so as to write off the cost of assets less their residual values over their useful lives, using the straight-
line method, on the following basis.
• Generic Top Level Domains – indefinite life (not amortized)
• Contractual based intangible assets – indefinite life (not amortized)
• Software and development costs – over 3 years or over its useful life (as below)
Software and development costs are amortized over their useful economic life. The amortization period and the amortization
method for an intangible asset with a finite useful life are reviewed when circumstances indicate a change to its useful life.
Changes in the expected useful life are accounted for by charging the amortization period and treated as a change in accounting
estimate.
(n) De-recognition of intangible assets
An intangible asset is de-recognized on disposal, or when no future economic benefits are expected from use or disposal. Gains
and losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and
the carrying amount of the asset, are recognized in profit or loss when the asset is de-recognized.
(o) Fixtures and equipment
Fixtures and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is
recognized so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight line
method, on the following basis.
• Fixtures and equipment – over 3 to 5 years
(p)
Impairment of fixtures and equipment and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of
the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset
belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and
consistent allocation basis can be identified.
Recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less that its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately
in profit or loss.
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Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A
reversal of an impairment loss is being recognized immediately in profit or loss.
(q) Finance costs/revenue
Interest expenses are recognized using the effective interest method.
Finance revenue is recognized using the effective interest method.
(r) Financial instruments
Financial assets and financial liabilities are recognized in the Group’s balance sheet when the Group becomes party to the
contractual provision of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from the fair value of the financial assets or liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through
profit of loss are recognized immediately in profit or loss.
Financial assets
All financial assets are recognized and derecognized on a trade date where the purchase or sale of a financial asset is under a
contract whose terms require delivery of the financial assets within the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or
loss, which are initially measured at fair value.
Financial assets are classified into the following specified categories: ‘investments in equity instruments designated at FVTOCI’
and ‘financial assets at amortized cost’. The classification depends on the nature and purpose of the financial assets and is
determined at the time of initial recognition.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income
over the relevant period. The effective interest rate is the rate that exactly discounts estimates future cash receipts (including all
fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premium or
discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on
initial recognition.
Income is recognized on an effective interest basis for debt instrument.
Financial assets at amortized cost
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market
are classified as ‘financial assets at amortized cost’. These assets are measured at amortized cost using the effective interest
method, less Impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables
when recognition of interest would not be material.
Financial assets at amortized cost include cash and cash equivalents. Cash and short-term deposits in the balance sheet comprise
cash at bank and in hand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash
Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank
overdrafts.
Investments in equity instruments designated as FVTOCI
Investments in equity instruments designated as FVTOCI are non-derivatives that are designated as FVTOCI. Changes to the
value of investments in equity instruments are accounted for through OCI.
45
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notes to the financial statements
for the year ended 31 December 2019
(continued)
Listed shares held by the Group that are traded in an active market are classified as being investments in equity instruments and
are stated at fair value. Gains and losses arising from changes in fair value are recognized in OCI and accumulated in the other
reserve. Dividends from investments in equity instruments are recognized in profit or loss when the Group’s right to receive the
dividends is established.
Impairment of financial assets
Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the
estimated future cash flows of the investment have been affected.
For all other financial assets objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• default of delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankrupt or financial re-organization.
For financial assets carried at amortized cost, the amount of the impairment is based on expected credit losses assessed on the
management’s historic experience of losses and factoring in any macro-economic factors.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of
trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is
considered uncollectible, it is written off against the allowance account. Changes in the carrying amount of the allowance account
are recognized in profit and loss.
With the exception of investments in equity instruments designated at FVTOCI, if, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the
investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment
not been recognized.
De-recognition of financial assets
The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group
neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset,
the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group
retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the
financial asset and also recognizes a collateralized borrowing for the proceeds received.
On de-recognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income
and accumulated in equity is recognized in profit or loss.
Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by the Group are recognized at the proceeds received net of direct issue costs.
Financial liabilities
Financial liabilities are classified as trade and other payables.
46
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Trade and other payables
Trade and other payables, including borrowings, are initially measured at fair value, net of transaction costs.
Trade and other payables are subsequently measured at amortized costs using the effective interest method, with interest
expense recognized on an effective yield basis.
The effective interest method is a method of calculating the amortized costs of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial
recognition.
De-recognition of financial liabilities
The Group de-recognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
(s) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes
items that are never taxable or deductible. The Group’s liability for the current year is calculated using jurisdictional tax rates that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in the tax computations and is accounted for using the balance
sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax
assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilized.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is
realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly
to equity, in which case it is also dealt with in equity.
Current and deferred tax for the year
Current and deferred tax are recognized in profit of loss, except when they relate to items that are recognized in other
comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized on other
comprehensive income or directly inequity respectively.
(t) Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be
made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured
using the cash flows estimates to settle the present obligation, its carrying amount is the present value of those cash flows (when
the effect of the time value of money is material).
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a
receivable is recognized as an asset if it is virtually certain that reimbursement will be received, and the amount of the receivable
can be measured reliably.
47
notes to the financial statements
for the year ended 31 December 2019
(continued)
(u) Share-based payment transactions
Equity-settled share-based payments to employees are measured at the fair value of the equity instrument at the grant date. The
fair value excludes the effect of non market-based vesting conditions. The fair value is determined by using the Black-Scholes
model. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in Note 25.
The fair value determined at the grant date of the equity-settled shared-based payments is expensed on a straight-line basis over
the vesting period, based on the Group’s estimate of the equity instruments that will eventually vest. At each balance sheet date,
the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non market-based
vesting conditions. The impact or the revision of the original estimates, if any, is recognized in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.
The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share
(see Note 11).
(v)
Investment in subsidiary undertakings
In the parent company financial statements, fixed asset investment in subsidiaries and joint ventures are shown at cost less
provision for impairment.
2 Significant accounting judgements, estimates and assumptions
The preparation of the Group’s consolidated financial statements requires management to make judgements, estimates and
assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures.
Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying
amount of assets or liabilities affected in future periods.
Other disclosures relating to the Group’s exposure to risks and uncertainties includes:
• Financial instruments risk management and policies
• Sensitivity analysis
Note 26
Note 26
Judgements
In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most
significant effect on the amounts recognized in the consolidated financial statements:
Intangible Assets
Within intangible assets are assets classified as gTLD assets and contract based intangible assets.
Under the requirements of IAS 38 Intangible Assets and the Group’s assessment thereof, the Group has determined that gTLD
assets and contract based intangible assets have an indefinite life as the Group has an automatic right to renew the asset every ten
years.
Determining whether intangible assets are impaired requires an estimation of the value in use of the cash-generating units to
which those assets have been allocated. The value in use calculation requires the entity to estimate the future cash flows expected
to arise from the cash-generating unit and a suitable discount rate in order to calculate present value.
The most significant judgement involved in the impairment review of intangible assets is the determination of cash-generating
units, and this judgement has a significant impact on the outcome of the impairment review. The directors have grouped gTLDs
with similar characteristics to form a single cash-generating unit. The cash generating units have been identified in note 14.
Goodwill and gTLD assets have not been impaired in the current year. Details of goodwill and intangible assets are set out in
note 13 and 14 respectively.
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48
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Revenue recognition
Revenue includes revenue from the sale of brand protection services, which arises from fixed fees charged to registrars both for
the initial registration and renewal. The fee from the initial registration typically matches the fee from the renewal, subject to
promotional discounts.
In considering the revenue recognition policy for revenue generated from the sale of brand protection services, the Group’s and
Company’s existing revenue recognition policy, pursuant to the requirements of IFRS 15 is applied. The policy includes the
identification of performance obligations in the contract. Determining whether a single or multiple performance obligations exists
requires judgement. The contract with the underlying customer is considered to be a single performance obligation as the benefit
of providing contract elements on their own do not provide the intended benefit of brand protection. The entire transaction price
as determined is therefore allocated to this performance obligation.
Consideration has been given as to recognise the revenue on a straight-line basis over the period of the contract, on an input
(i.e. based on the costs incurred) method or output method (based on direct measurement of the value to the customer of the
services transferred to date) as prescribed by IFRS 15.
The output method, including using certain milestones identified (verification, creation of variants and blocking) as the measure of
determining the relevant output is considered to best depict the value of the service provided to the end customer. The value of
each milestone is estimated based on the information available including third party data.
Revenue is therefore recognised as the milestones are achieved either at a point in time once the milestone is achieved or over a
period of time on a straight-line basis where the milestone is provided over a period of time.
Going concern
The Directors have adopted the going concern basis of accounting in preparing the annual financial statements. Determining
whether it is appropriate to adopt the going concern basis requires significant judgement. In making this judgement, the Directors
have considered the current trading the funding level and external factors such as the impact of the coronavirus as disclosed in the
accounting policies (Note 1.e)
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in future financial years, are
described below. The Group based its assumptions and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to
market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions
when they occur.
Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher
of its fair value less costs of disposal and its value in use. In the absence of available data from similar transactions, the recoverable
amount has been assessed by reference to value in use. The value in use calculation is based on a discounted cash flow (“DCF”)
model. The cash flows are derived from the budget for the three years. The recoverable amount is sensitive to the discount rate
used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These
estimates are most relevant to goodwill and other intangibles with indefinite useful lives recognized by the Group. The key
assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and
further explained in Note 13 and Note 14.
Taxes
Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax
assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning
strategies. The Group has $31.1m (2018: $30.6m) of tax losses carried forward. These losses relate to subsidiaries that have a
history of losses, do not expire, and may not be used to offset taxable income elsewhere in the Group. There is uncertainty over
the utilization of these tax losses in future periods and on that basis, the Group has determined that it cannot recognize deferred
49
notes to the financial statements
for the year ended 31 December 2019
(continued)
tax assets on the tax losses carried forward. If the Group was able to recognize all unrecognized deferred tax assets, profit and
equity would have increased by $5,496k. Further details on taxes are disclosed in Note 9.
Fair value measurement of financial instruments
Financial assets relate to cash and bank balances, loans, receivables and investments in equity instruments designated as at fair
value through OCI, financial liabilities relate to trade and other payables. When the fair values of financial assets and financial
liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair
value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable
markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements
include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors
could affect the reported fair value of financial instruments. See Note 26 for further disclosures.
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Credit losses
During 2019, the Group recognized the inherent risk related to long overdue payment plan trade receivables. As a result, during
the year the Group booked bad debt expense of $1,433k (2018: $2,112k).
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable
from the date credit was initially granted up to the reporting date. The bad debt provision consists of individually impaired trade
receivables due from companies. The bad debt provision represents the difference between the carrying amount of these trade
receivables and the value of the expected proceeds from collection activities.
Revenue recognition
Revenue is primarily driven from fixed fees charged to registrars for initial registrations or renewal of domain names.
Where the fee from the initial registration matches the fee from the renewal, the fee from both the initial registration and renewal
is recognized on a straight-line basis over the registration term.
Where the fee from the initial registration is higher than the renewal fee (arising mainly from ‘premium name’), the ‘premium’ (the
difference between the first-year fee and ongoing renewal fee) is recognized as revenue immediately with the balance recognized
on a straight-line basis over the registration period. The renewal fee carries on to be recognized on a straight line basis as well.
Fees from renewals are deferred until the new incremental period commences.
Any fees charges on a variable basis is not recognized as revenue until each party’s performance obligations are met.
Leases
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in
evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an
economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a
significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the
option to renew (e.g., a change in business strategy).
3 Operating segments – Group
Information reported to the Group’s management and internal reporting structure (including the Group’s Chief Executive Officer)
for the purpose of resources allocation and assessment of segment performance is focused on the category for each type of
activity. The principal categories (and the Group’s segments under IFRS 8) are:
• Registry ownership (‘Registry’) – applicant of top level domain name from ICANN and wholesaler of domain names of those top
level domain names
50
• Registry service provider (‘RSP’) and consulting services – back end service provider for a registry
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Segment revenues and results
2019
Revenue
External sales
Total Revenue
Operating EBITDA
Bad debt Expense
Onerous contract provision release
Gain on disposal of reseller
Gain on termination of leases (IFRS 16)
Foreign exchange gain
Share based payment expense
Share of profit of joint venture
EBITDA
Amortisation and depreciation
Finance revenue
Finance costs
Profit before tax
Income tax
Profit after tax
2018
Revenue
External sales
Total Revenue
Operating EBITDA
Strategic Review costs
Acquisition costs
Restructuring costs
Bad debt provision
Impairment loss on intangible assets
Onerous lease provision
Foreign exchange loss
Profit on disposal of tangible assets
Share based payment expense
Share of profit of joint venture
EBITDA
Amortisation and depreciation
Finance revenue
Finance costs
Profit before tax
Income tax
Profit after tax
18,942
18,942
6,971
(1,433)
1,351
383
299
378
(1,272)
48
6,725
(1,207)
9
(649)
4,878
(140)
4,738
Total
$ 000’s
15,094
15,094
4,047
(110)
(595)
(743)
(2,112)
(4,145)
(7,154)
(342)
(12)
(1,153)
4
RSP
$ 000’s
Unallocated
$ 000’s
Total
$ 000’s
Registry
$ 000’s
18,273
18,273
7,280
(1,433)
-
383
299
-
-
48
669
669
(309)
-
1,351
-
-
-
-
-
-
-
-
-
-
-
-
378
(1,272)
-
(894)
6,577
1,042
Registry
$ 000’s
14,250
14,250
4,052
-
(595)
(743)
(2,112)
-
-
-
-
-
-
RSP
$ 000’s
Unallocated
$ 000’s
844
844
(5)
-
-
-
-
(4,145)
(7,154)
-
-
-
-
-
-
-
(110)
-
-
-
-
-
(342)
(12)
(1,153)
4
602
(11,304)
(1,613)
(12,315)
(211)
16
(180)
(12,690)
54
(12,636)
51
notes to the financial statements
for the year ended 31 December 2019
(continued)
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Other segment information
Registry
RSP
Total
Segment assets
Depreciation and amortization*
2019
$ 000’s
98,440
3,361
101,801
2018
$ 000’s
103,136
1,629
104,765
2019
$ 000’s
734
473
1,207
2018
$ 000’s
144
67
211
Depreciation and amortization for 2019 include depreciation cost related to RSP contracts identified under IFRS16 in 2019
(Refer Note 23).
For the purpose of monitoring segment performance and allocating resources between segments, the Group’s Chief Executive
Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable
segments with the exception of interest in joint ventures. Goodwill has been allocated to reportable segments as described in
note 13.
Geographical information
The Group’s information about its segments by geographic location of assets is detailed below.
British Virgin Islands
Ireland
United Kingdom
Germany
Hungary
USA
China
Total
Revenue from external customers
Non-current assets
Additions to Non-current assets
2019
$ 000’s
9,452
-
735
1,074
-
7,681
-
2018
$ 000’s
8,395
3
844
1,229
-
4,623
-
18,942
15,094
2019
$ 000’s
40,186
1,558
-
385
185
45,383
31
87,728
2018
$ 000’s
43,036
146
-
381
189
41,514
3
85,269
2019
$’000’s
2018
$’000’s
-
-
-
-
-
231
-
231
-
98
-
-
-
39,625
-
39,723
Included in revenues arising from the Registry segment are revenues of $2,558k (2018: $1,596k), which arose from sales to the
Group’s largest customer.
The timing of revenue recognition is detailed below:
Timing of revenue recognition
At a point in time (i.e. ‘premium name revenue’)
Over time
Total
2019
$ 000’s
3,485
15,457
18,942
Group
2018
$ 000’s
3,283
11,811
15,094
2019
$ 000’s
2,472
5,316
7,788
Company
2018
$ 000’s
3,037
5,358
8,395
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52
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
4 Partner payments
Partner payments
2019
$ 000’s
2,882
Group
2018
$ 000’s
2,520
2019
$ 000’s
1,505
Company
2018
$ 000’s
1,013
Partner payments represents the royalty or similar payments for certain TLDs. Such payments are based on the Group’s and
Company’s billings and are deferred in line with accounting revenue.
5 Cost of sales
Third Party Fees
ICANN Fees
Marketing
Commissions
Total
6 EBITDA
EBITDA is arrived at after charging/(crediting):
Auditors’ remuneration – current year auditors
- Audit of these financial statements
- Audit of the financial statements of subsidiaries
- Tax compliance
- Other services
Directors’ emoluments – fees and salaries
Operating lease rentals*
Foreign exchange gain/(loss)
2019
$ 000’s
378
1,239
1,611
409
3,637
2019
$ 000’s
103
5
11
1
819
-
379
Group
2018
$ 000’s
736
967
1,317
461
3,481
Group
2018
$ 000’s
83
5
11
1
1,027
818
(342)
2019
$ 000’s
131
866
1,519
69
2,585
2019
$ 000’s
103
-
-
-
619
-
230
Company
2018
$ 000’s
258
795
1,183
38
2,274
Company
2018
$ 000’s
83
-
-
-
619
-
(391)
* From 1 January 2019, the group applied IFRS 16 Leases and has therefore recognised right-of-use assets and liabilities for these leases (see note 23).
7 Employee information (excluding directors)
Staff costs comprise:
Wages and salaries
Monthly average number of employees:
Back office (Operations, Finance/legal and IT)
Sales & Marketing
Total average
2019
$ 000’s
Group
2018
$ 000’s
2019
$ 000’s
Company
2018
$ 000’s
2,453
2,065
15
6
21
17
6
23
-
-
-
-
-
-
-
-
53
notes to the financial statements
for the year ended 31 December 2019
(continued)
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8 Finance costs
Finance Cost
Interest and finance charges paid/payable for lease liability (refer note 23)
2019
$ 000’s
137
512
649
Group
2018
$ 000’s
180
-
180
2019
$ 000’s
137
113
250
Company
2018
$ 000’s
180
-
180
Finance costs relate to interest on borrowings on a facility of $3m which was entered in 2018 and was repaid in 2019 (see note 21
for further details).
9
Income tax expense – Group
The charge for the current year can be reconciled to the loss per the Group statement of comprehensive income as follows:
Current tax (charge) / credit
Deferred tax
Profit / (loss) before tax
Tax at the BVI tax rate of 0%
Research and development tax credit
Income tax (charge)/credit
2019
$ 000’s
(140)
-
(140)
2019
$ 000’s
4,878
-
-
(140)
(140)
2018
$ 000’s
54
-
54
2018
$ 000’s
(12,690)
-
-
54
54
Company
The charge for the current year can be reconciled to the loss per the Company statement of comprehensive income as follows:
Current tax
Deferred tax
Profit / (loss) before tax on continuing operations
Tax at the BVI tax rate of 0%
2018
$ 000’s
2018
$ 000’s
-
-
-
-
-
-
2018
$ 000’s
2018
$ 000’s
(12,614)
(29,630)
-
-
-
-
The British Virgin Islands under the IBC (international business company) imposes no corporate taxes or capital gains. However,
the Company may be liable for taxes in the jurisdictions where it is operating. The Group tax charge of $140K (2018: $54k) relates
to operations taxed in their local jurisdiction.
No deferred tax asset has been recognized because there is insufficient evidence of the timing of suitable future profits against
which they can be recovered. Tax losses carried forward, which may be utilized indefinitely against future taxable profits amount
to $12.7m (2018: $12.5m) in the USA, $1.6m (2018: $1.8m) in Germany, $6.5m (2018: $5.7m) in Ireland, $9.8 m (2018: $10.4m)
in the United Kingdom, $697k (2018: $122k) in Hungary and $234k (2018: $Nil) in China.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
10 Dividends
No dividends were paid or proposed by the Directors in 2019 (2018: $Nil).
11 Earnings per share
The calculation of earnings per share is based on the profit / (loss) after taxation divided by the weighted average number of
shares in issue during the period.
Profit / (Loss) for the purpose of the basic and diluted earnings per share
Profit / (Loss) from continuing operations - excluding non-controlling interests
Total profit / (loss) for the year
Number of shares
Weighted average number of ordinary shares used in calculating basic loss per share
Effect of dilutive potential ordinary shares – share options and warrants
Weighted average number of ordinary shares for the purpose of diluted earnings per share
Profit / (Loss) per share from continuing operations
Basic
Diluted
2019
$ 000’s
4,738
4,738
2019
million
922.04
48.69
970.73
2019
cent
0.51
0.49
2018
$ 000’s
(12,652)
(12,652)
2018
million
752.58
-
752.58
2018
cent
(1.68)
(1.68)
In 2018, all potential shares were anti-dilutive due to the losses reported. The number of potential dilutive ordinary shares is
134.19 million.
12 Business Combinations
There was no business combination in 2019. In 2018, MMX acquired the entire membership interest of ICM Registry, LLC
(“ICM”). The acquisition was completed on 16 June 2018. The consideration for the acquisition was split into a cash payment of
$10m and 225,000,000 new MMX ordinary shares with a value of $20,597k based on the share price of MMX on the date of the
acquisition ($.092/6.9p). Of the 225,000,000 new MMX ordinary shares 96,699,235 shares ($8,852k) were issued on the date of
the acquisition with the remaining 128,300,765 shares ($11,745k) deferred and were issued in January 2019.
55
notes to the financial statements
for the year ended 31 December 2019
(continued)
13 Goodwill
Cost
31 December 2019 and 31 December 2018
Group
$ 000’s
2,828
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units that are expected to benefit
from that business combination as a result of expected synergies from combined operations. Goodwill has been allocated to the
‘Registry’ segment (a single ‘CGU’).
Impairment review
The Group tests goodwill annually for impairment, or more frequently if there are indicators that goodwill might be impaired.
At 31 December 2019, the Directors have carried out an impairment review and have concluded that no impairment is required.
The recoverable amount of the CGU is determined from value in use calculations. The key assumptions for the value in use
calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs.
Management estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and
the risks specific to the CGU.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next
three years and extrapolates cash flows into perpetuity based on an estimated growth rate of 5% (2018: 5%) for seven years
thereafter and 5% (2018: 4%) into perpetuity. The growth rate is appropriate to the new gTLD market that the Group operates in.
The rate used to discount the forecast cash flows is 11.5% (2018: 11.5%).
The Group has carried out sensitivity analysis on the impairment test of the CGU. The Directors believe that any reasonably
possible change in the key assumptions on which the recoverable amount of the CGU is determined would not cause the
aggregate carrying amount to exceed the aggregate recoverable amount of the cash generating unit. A 1% decrease in the growth
rate and an increase of 0.5% in the discount rate are considered reasonably possible.
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14 Intangible assets
Group
Cost
At 1 January 2018
Additions – acquisition of ICM
Additions
Exchange differences
At 31 December 2018
Additions
Exchange differences
At 31 December 2019
Accumulated Amortization and Impairment charges
At 1 January 2018
Amortisation charge for the year
Impairment charge for the year
Exchange differences
At 31 December 2018
Amortisation charge for the year
Exchange differences
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
generic
Top Level
Domains
$ 000’s
Software &
development
costs
$ 000’s
Contract
based
intangible
assets
$ 000’s
Other
$ 000’s
Total
$ 000’s
2,670
4,206
170
41,629
39,603
-
(22)
81,210
-
(12)
81,198
-
-
-
-
-
-
-
-
-
99
(62)
2,707
193
36
2,936
(2,323)
(185)
-
49
(2,459)
(209)
28
(2,640)
-
-
-
-
-
-
48,675
39,603
99
(84)
4,206
170
88,293
-
-
-
-
193
24
4,206
170
88,510
-
-
(4,145)
(61)
(4,206)
-
-
(170)
-
-
-
(170)
-
-
(2,493)
(185)
(4,145)
(12)
(6,835)
(209)
28
(4,206)
(170)
(7,016)
81,198
81,210
296
248
-
-
-
-
81,494
81,458
57
notes to the financial statements
for the year ended 31 December 2019
(continued)
generic
Top Level
Domains
$ 000’s
Software &
development
costs
$ 000’s
Other
$ 000’s
Total
$ 000’s
39,379
-
39,379
-
39,379
-
-
-
-
-
39,379
39,379
106
-
106
159
265
(61)
(17)
(78)
(23)
(101)
164
28
99
-
99
-
99
(99)
-
(99)
-
(99)
39,584
-
39,584
159
39,743
(160)
(17)
(177)
(23)
(200)
-
-
39,543
39,407
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Cost
At 1 January 2018
Additions
At 31 December 2018
Additions
At 31 December 2019
Accumulated amortization
At 1 January 2018
Amortisation charge for the year
At 31 December 2018
Amortisation charge for the year
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
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generic Top Level Domains
The Group applies for new generic Top Level Domains (gTLDs) to the Internet Corporation for Assigned Names and Numbers
(ICANN). Successful applications are transferred from other long-term assets to Intangible assets. The Group capitalizes the full
cost incurred to pursue the rights to operate gTLDs including amounts paid at auction to gain this right where there is more than
one applicant to ICANN for the same gTLDs.
This class of intangible assets is assessed to have an indefinite life as it is deemed that the application fee and amounts paid at
auction give the Group indefinite right to this gTLDs.
Through the acquisition of ICM in 2018 the Group acquired a further four gTLDs onto their portfolio with a value of $39,606k.
There have been no further acquisition during 2019.
The Group tests its gTLDs annually for impairment, or more frequently if there are indicators that the asset might be impaired.
Impairment review of intangible assets
In 2018 management determined that a contract entered into in 2017 that contained a minimum revenue guarantee payable by
the Group to its Business Partner was an onerous contract (see Note 22). Consequently during 2018 it recorded an onerous
contract provision and fully impaired the intangible asset previously recorded related to the contract. The total amount of the
impairment recorded in 2018 was $4,057k which was allocated to the RSP CGU. Further in 2019 there was no impairment of
intangible assets.
As at 31 December 2019, the directors carried out an impairment review of the other intangible assets in their portfolio and
concluded that no further impairments were required. The recoverable amounts of each group of gTLDs, software, and other
intangible assets are determined from value in use calculations. The key assumptions for the value in use calculations are those
regarding the discount rates, growth rates and expected changes to the selling process and direct costs. Management estimate
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risk specific to the
asset.
gTLD assets with indefinite lives are allocated to CGUs, which fall under the Registry operating segment. The carrying values of
the CGUs are $28,834k (2018:$28,544k) for consumer lifestyle gTLDs, $321k (2018:$321k) for geographic gTLDs, $9,177k
(2018:$9,177k) for professional occupations, $39,606 (2018: $39,606) for adult themed gTLDs and $3,556k (2018: $3,556k) for
other generic names.
The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management for the next
three years and extrapolates cash flows based on an estimated growth rate of 5% for seven years thereafter and 5% (2018: 4%)
into perpetuity. The rate used to discount the forecast cash flow is 11.5% (2018: 11.5%). The assumptions are based on past
experiences.
The Group has carried out sensitivity analysis on the impairment test of each CGU. The Directors believe that any reasonable
possible change in the key assumptions on which the recoverable amount of Goodwill in the CGUs would not cause the aggregate
carrying amount to exceed the aggregate recoverable amount of the cash generating unit. A 1% decrease in the growth rate and an
increase of 0.5% in the discount rate are considered reasonably possible.
59
notes to the financial statements
for the year ended 31 December 2019
(continued)
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15 Fixtures and equipment – Group
Cost
At 1 January 2018
Additions
Disposals
Exchange differences
At 31 December 2018
Additions
Disposals
Exchange differences
At 31 December 2019
Depreciation
At 1 January 2018
Depreciation charge for the period
Disposal
Exchange differences
At 31 December 2018
Depreciation charge for the period
Disposals
Exchange differences
At 31 December 2019
Carrying amount
At 31 December 2019
At 31 December 2018
16 Investment in subsidiaries
Investments in subsidiary undertakings of the Company
Cost
At the beginning of the year
Movement in the year
Impairment charge
At 31 December
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Fixtures & equipment
$000’s
365
20
(9)
15
391
38
-
(2)
427
(285)
(26)
11
(32)
(332)
(28)
-
1
(359)
68
59
2019
$ 000’s
44,269
290
(2,862)
41,697
Company
2018
$ 000’s
39,503
30,649
(25,883)
44,269
During the year Company has attributed $290k (2018: $52k) towards share options expenses to its subsidiaries. The movement
in previous year includes investment in ICM Registry, LLC of $30,597k (see business combinations note 12 for further details) .
Of the impairment charge of $2,862k in 2019 (2018: $25,883k), $1,438k (2018: $22,068k) was allocated to the registry CGU
and $1,424k (2018: $3,815k) was allocated to RSP CGU. As a result of Group restructuring activities including the outsourcing of
back-end services, Minds + Machines Limited (Ireland) and Minds + Machines LLC’s operations were reduced therefore the
investment in these subsidiaries was impaired to reflect the recoverable amounts (being their net asset positions). Minds and
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Machines Limited (UK) has been fully impaired due to the recognition of an onerous contract provision relating to its business, see
note 22 for further details.
In addition to the impairment charge of $2,862k (2018: $25,883k), the Company also impaired inter-company balances of
$7,894k (2018: Nil) giving rise to a total impairment charge of $10,757k (2018: $25,883k).
During the year the Group sold its interest in reseller platform (Dot Law, Inc) at a net gain of $383k.
Details of the Company’s subsidiaries are as follows:
Name
Minds + Machines US, Inc. (DE)
Minds + Machines LLC (1)
Minds + Machines LLC (FL) (1)
Bayern Connect GmbH
Minds and Machines GmbH
Minds + Machines Ltd (Ireland)
Minds and Machines Ltd (UK)
Minds + Machines Registrar Ltd (IE) (2)
Place of
Incorporation
(or registration)
and operation
US
US
US
Germany
Germany
Ireland
England & Wales
Ireland
Minds and Machines Registrar UK Ltd
England & Wales
Minds + Machines Hungary
Emerald Names Inc
Boston TLD Management LLC
Dot Law Inc
LW TLD Ltd
Beijing MMX Tech Co. Ltd
ICM (BVI) Ltd.
ICM Registry, LLC (3)
ICM Registry AD, LLC (3)
ICM Registry PN, LLC (3)
ICM Registry SX, LLC (3)
Hungary
US
US
US
BVI
China
BVI
US
US
US
US
Principal
activity
Holding company
Registry
Registry
Registry
Registry
RSP
RSP
Dormant
Dormant
Registry
Registry
Registry
Registrar
Registry
Registry
Registry
Registry
Registry
Registry
Registry
Proportion of
ownership
interest
(%)
Proportion of
voting power
(%)
100
100
100
100
100
100
100
100
100
100
100
99
51
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
99
90
100
100
100
100
100
100
100
(1) Minds + Machines LLC (CA), Minds + Machines LLC (FL) is direct subsidiaries of Minds + Machines US, Inc (DE). During the year, “Dot law Inc” was
dissolved by the Group.
(2) Minds + Machines Registrar Limited (Ireland) is a direct subsidiary of Minds + Machines Ltd (Ireland).
(3) On the 16 June 2018, these subsidiaries were acquired by the parent entity Minds + Machines Group Limited, (see business combinations note 12 for
further details)
61
notes to the financial statements
for the year ended 31 December 2019
(continued)
17 Interest in joint ventures
During 2019, the Group had a 50% interest in two joint ventures; Entertainment Names Inc and Dot Country LLC. These joint
ventures were formed to sell second-level domain names to registrars.
Share of interest in assets / (liabilities)
Assets
- Non-current
- Current
Liabilities
- Current
Share of interest in net assets
- Income
- Cost of sales
- Expenses
Profit / (loss) after income tax
2019
$ 000’s
Group
2018
$ 000’s
96
399
495
(15)
480
66
(5)
(13)
48
152
292
444
(12)
432
18
(12)
(2)
4
There are no commitments arising in the joint ventures.
There are no contingent liabilities relating the Group’s interest in the joint ventures, and no contingent liabilities of the venture
itself.
Each joint venture is individually immaterial.
The principal place of business for Entertainment Names Inc. is the British Virgin Islands. The principal place of business for Dot
Country LLC, is the Cayman Islands.
Company
Interests in joint ventures are accounted for at cost of $520k (2018: $520k) in the Company financial statements.
18 Other long-term assets
Other long-term assets
Total
Group and Company
2019
$ 000’s
185
185
2018
$ 000’s
435
435
During the application process payments for gTLD applications are recorded as other long term receivables. While there is no
assurance that MMX will be awarded any gTLDs, long-term assets are receivables and payments will be reclassified as intangible
assets once the gTLD strings are available for their intended use, which is expected to occur following the delegation of gTLD strings
by ICANN. In general, MMX does not expect to withdraw any of its applications unless the application has not passed the evaluation
process and there is no further recourse or there is an agreement to sell or dispose of its interest in certain applications. If MMX
withdraws its application, a portion of application fee is refundable with the un-refundable portion accounted for as an expense. If
MMX sells or disposes of its interest in an application, the profit, net of the un-refundable application fee is recognized in the profit
and loss account. In 2019, the gain on such disposals (gain on gTLDs auction) is $588k (2018: $480k).
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19 Cash and cash equivalents
The Group has total cash balances of $6,583k (2018: $10,367k). The Company’s cash balance is $3,589k (2018: $5,397k).
Of the Group’s total cash balances $1,741k (2018: $3,221k) are restricted funds, of which $1,592k (2018: $1,000k) is held to
fund letters of credit required by ICANN.
20 Trade and other receivables
Trade receivables
Allowance for doubtful debts
Other receivables (including VAT)
Prepayments (including partner payments and marketing)
Accrued revenue
Balances due from subsidiaries
Due from joint ventures
Total
Provision for doubtful debt
At 1 January 2018
2018 provision
At 31 December 2018
2019 Provision
Less: Utilization of Provision
Closing Balance as of 31 December 2019
Additional bad debt write-off in 2019
2019
$ 000’s
3,864
-
3,864
1,420
2,097
59
-
50
3,626
7,490
Group
2018
$’000’s
6,721
(2,107)
4,614
735
3,621
109
-
50
4,515
9,129
2019
$ 000’s
1,136
-
1,136
187
1,794
-
4,377
50
6,408
7,544
Company
2018
$’000’s
4,952
(1,821)
3,131
662
2,510
109
5,430
50
8,099
11,892
2019
$ 000’s
-
2,107
2,107
-
(2,107)
-
1,433
During 2017 the Group extended credit terms over its standard 30 day payment terms on the sale of certain domain name
inventory. Extended terms of 12 months (and in some cases longer) were typically provided in respect of sales of high value
“premium” names, after assessment of the counter parties ability to meet such payment terms. In 2018 the Group provisioned
$2,107k against aged receivables relating to these extended payment plans from China, USA and Europe. In the current year the
Group is utilizing the full amount of the 2018 provision and wrote off a further $1,433k being there remaining debt from the 2017
extended payment plans. The Group has received collateral in privately held businesses and will seek to monetize the collateral in
due course.
The loans to subsidiaries are interest free and have no fixed repayment date. The loans have been classified to current receivables
in the current year as the directors assess these balances to be recoverable in 2019. The difference between the carrying value
and the fair value of the loan at the reporting date is deemed to be immaterial.
63
notes to the financial statements
for the year ended 31 December 2019
(continued)
Group
Trade receivables disclosed above are measured at amortized cost.
Ageing of receivables:
0 – 30 days
31 – 60 days
61 – 90 days
91 days and over
Total
Company
Trade receivables disclosed above are measured at amortized cost.
Ageing of receivables:
0 – 30 days
31 – 60 days
61 – 90 days
91 days and over
Total
21 Trade and other payables
Trade payables
Registrar prepayments (payments in advance)
Other liabilities
Borrowings
Taxation liabilities
Accruals
Due to joint ventures
Due to subsidiaries
Trade and other payables
Deferred revenue
Trade and other payables including deferred revenue
2019
$ 000’s
2,754
756
89
265
3,864
2019
$ 000’s
665
412
34
26
1,137
2019
$ 000’s
298
209
35
-
-
1,132
241
12,946
14,861
5,094
19,955
2018
$ 000’s
1,944
266
369
4,142
6,721
2018
$ 000’s
958
68
35
3,891
4,952
Company
2018
$ 000’s
174
484
33
3,000
-
828
66
8,145
12,730
4,222
16,952
2019
$ 000’s
1,863
968
524
-
-
2,234
246
-
5,835
Group
2018
$ 000’s
92
1,623
2,081
3,000
8
2,755
70
-
9,629
13,662
19,497
14,761
24,390
Included within other liabilities are liabilities incurred in 2016 as a result of the restructuring of a contract deemed to be onerous
in 2018. In 2019, the liability was settled (2018: $2,032k) as part of settlement of the onerous contract (see note 22).
MMX entered into a Facility Agreement with London and Capital Assets Management Limited, a shareholder in 2018. The facility
provided $3 million of working capital to support future innovation and acquisition orientated activity by the Company. The
amount was fully repaid in April 2019.
Deferred revenue references the transactions price allocated to unsatisfied performance obligation. Management expects that
62% of the transaction price allocated to the unsatisfied contract as of the year ended 2019 will be recognized as revenue in the
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STRATEGIC REPORT
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FINANCIAL STATEMENTS
next reporting period ($8.5m, 2018: $9.1m). The remaining 38% ($5.1m, 2018: $5.7m) will be recognized in the year 2021 and
beyond.
All trade and other payables (other than deferred revenue as disclosed above) are due within one year and approximate their fair
value.
22 Provisions
Onerous contract provision
Current
Non-current
At 1 January 2018
Provision in the year
Payment during the year
Foreign exchange
At 31 December 2018
Payment during the year
Foreign exchange
Less: Settlement of onerous contract
At 31 December 2019
Onerous contract provision release
Release of liabilities relating to onerous contract
Total liabilities released
Less: Payment to settle onerous contract
Gain on settlement of onerous contract settlement
2019
$’000’s
-
-
-
-
-
2018
$’000’s
5,774
5,774
2,914
2,860
5,774
Onerous contract provisions
$’000’s
7,154
(1,147)
(233)
5,774
(1,396)
155
(4,533)
-
Settlement of Onerous contract provision
$’000’s
4,533
2,098
6,631
(5,280)
1,351
In December 2019, the Group reached a settlement on the onerous contract. The Group paid a full and final settlement of $5.3m
in December 2019. The settlement removes any obligations for future minimum revenue guarantees as well as any existing
marketing liabilities of $2,032k (see note 21) and marketing commitments. The settlement is expected to save the Group in excess
of $3.0m over the remainder of the contract. Further releasing the onerous contract provision has resulted in a 2019 gain of
$1.4m.
23 Leases
This note explains the impact of the adoption of IFRS 16 Leases on the group’s financial statements.
As Indicated in Note 1(i), the Group has adopted IFRS 16 Leases from 1 January 2019. IFRS 16 introduced a single, on balance
sheet accounting model for leases. As a result, the Group, as a lessee has recognised right-of-use assets representing its right to
use the assets under lease and lease liabilities representing its obligation to make lease payments.
65
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notes to the financial statements
for the year ended 31 December 2019
(continued)
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4. The
Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is,
or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for
consideration.
The Group has many assets including registry platform. Before the adoption of IFRS 16, the Group classified each of its leases (as
lessee) at the inception date as an operating lease. Prior to IFRS 16, these leases were not capitalised, the lease payments were
recognised as an expense in the profit or loss on a straight-line basis over the lease term. Any prepaid amounts were recognised
under prepayments.
Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases. The Group recognised
right-of-use assets and lease liabilities for those leases previously classified as operating leases. The right-of-use assets for most
leases were recognised based on the carrying amount as if the standard had always been applied. In some leases, the right-of-use
assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid payments previously
recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the
incremental borrowing rate at the date of initial application.
The Group has applied IFRS16 using the modified retrospective approach, under which the cumulative effect of initial application
is recognised in retained earnings at 1 January 2019. Accordingly, the comparative information presented for 2018 has not been
restated - i.e. it is presented, as previously reported, under IAS 17 and related interpretations.
New accounting policies of the Group upon adoption of IFRS 16 are laid out in Note 1(i), which have been applied from the date of
initial application:
Impact on financial statements on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17 leases. These liabilities were measured at the present value of the remaining lease
payments, discounted using the lease’s incremental borrowing rate as of 1 January 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease liabilities on 1 Jan 2019 was 11.5%.
The Group also applied the available practical expedients wherein it:
• Used a single discount rate to a portfolio of leases with reasonably similar characteristics
• Relied on its assessment of whether leases are onerous immediately before the date of initial application
• Applied the short-term leases exemptions to leases with a lease term that ends within 12 months at the date of initial
application
• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application
• Used hindsight in determining the lease term where the contract contains options to extend or terminate the lease
The effect of adoption of IFRS 16 as at 1 January 2019 (increase/(decrease)) is as follows
Assets
Right-of-use assets
Liabilities
Interest-bearing loans and borrowings
Total adjustment on equity:
66
Retained earnings
Prepayments
Total adjustment on equity
Group
1 January
2019
$’000’s
Company
1 January
2019
$’000’s
2,447
678
(3,574)
(1,065)
(1,127)
(279)
(1,406)
(387)
-
(387)
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 December 2018 as
follows:
Operating lease commitments as at 31 December 2018
Add:
Group
Company
1 January
2019
$’000’s
2,369
1 January
2019
$’000’s
697
Payments in optional extension periods not recognised as at 31 December 2018 and the effect of discounting
1,205
368
Lease liabilities as at 1 January 2019
3,574
1,065
On transition to IFRS 16, the Group and the Company has recognized right-of-use assets and lease liabilities, recognizing the
difference in retained earnings. The impact on transition is summarized below.
Right-of-use Assets*
Registry
Platform
$ 000’s
2,328
1,015
(894)
-
-
(63)
2,386
Property
Leases
$ 000’s
119
244
(76)
-
-
-
287
Total
$ 000’s
2,447
1,259
(970)
-
-
(63)
2,673
Right-of-use
Assets*
Registry
Platform
$ 000’s
678
258
(264)
-
672
Lease
Liabilities*
Group
Lease
Liabilities
$ 000’s
3,574
1,259
-
(299)
512
(1,036)
(63)
3,947
907
3,040
3,947
Lease
Liabilities*
Company
Lease
Liabilities
$ 000’s
1,065
258
-
(59)
113
(383)
-
994
197
797
994
As at 1 January 2019
Additions
Depreciation and amortisation expense
Gain on termination of lease
Interest expense
Lease Payments
Foreign exchange
As at 31 December 2019
Current
Non-current
Total
* The Group and the Company has initially applied IFRS 16 at 1 January 2019, using the modified retrospective approach. Under this approach comparative
information is not restated.
67
notes to the financial statements
for the year ended 31 December 2019
(continued)
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24 Share capital and premium
Called up, allotted, issued and fully paid ordinary shares of no par value
Note
As at 1 January 2018
Shares issued:
Number Price per share
of shares (cents/pence)
699,857,562
Total
$ 000
60,060
Issued on the 15 June 2018 for acquisition of ICM Registry, LLC
12
96,699,235
$0.092/6.9p
8,852
31 December 2018
Shares issued:
796,556,797
68,912
Issued on the 4 Jan 2019 for acquisition of ICM Registry, LLC
12
128,300,765
$0.092/6.9p
Share buy back
31 December 2019
(5,837,160)
$0.078/6.0p
919,020,402
11,745
(440)
80,217
During the year Company has bought back 5,837,160 shares ($440k) at an average price of 5.9p. The buyback of ordinary shares
was approved by the board in June 2018.
25 Share-based payments
Share-based payment expense
Equity settled share based payments
Expense as a result of modification of equity settled share based payments
Total
2019
$ 000’s
1,272
-
1,272
2018
$ 000’s
1,150
3
1,153
In the year, 13,900,000 options and 14,600,000 Restricted Stock Units (“RSU’s) were issued to the Executive team and key
employees. This resulted in an increase in the share based payment expense (non-cash) in 2019. The valuation of the issued
options is based on the Black-Sholes method as described below.
The Company has the following share option schemes in place:
• Directors and Employees Share Option Scheme – Directors and certain senior executives are enrolled in a ‘Restricted Share
Option’ (RSU) scheme (see below).
• Restricted Share Option (‘RSU’) scheme – new scheme introduced on the 6 August 2018 for Senior Management.
Directors and Employees Share Option Scheme
Outstanding at the beginning of the year
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at the end of the year
Exercisable at the end of the year
2019
2018
Weighted average
Number of share exercise price
options (cents/pence)
Weighted average
Number of exercise price
share options (cents/pence)
42,950,000
13,900,000
(100,000)
-
(15,000,000)
41,750,000
5.5/4.1
37,150,000
5.5/4.1
Nil
N/A
N/A
N/A
5,800,000
-
-
-
2.3/1.8
42,950,000
Nil
N/A
N/A
N/A
-
9,150,000
11.8/9.3
14,150,000
11.8/9.3
1. Unexercised share options forfeited during the year 2019 is 100k (2018: Nil).
2. None of the shares were exercised in 2019 (2018: Nil).
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
The weighted average contractual life of outstanding options at the end of the year is 0.71 years (2018: 0.76 years). There were
13,900,000 options granted in 2019 (2018: 5,800,000). The aggregate of the estimated fair values of the options granted under
this scheme during 2019 is $1,035k (2018: $530k). The weighted average fair value of the options granted is $0.08/£0.06
(2018: $0.09/£0.07).
The general terms of the share options, under the company share options scheme, vest over 3 years (quarterly vesting, 1/12th of
options vest every quarter) and are exercisable over ten years from the date of grant if the employee remains within the company.
The outstanding share options at the year end range from $0.07/£0.05 to $0.17 / £0.12 (2018: $0.07/£0.05 to $0.15/£0.12).
Directors and employee share option scheme – share options granted in the year:
Weighted average share price (cents/pence)
Weighted average exercise price (cents/pence)
Expected volatility
Expected life
Risk-free rate
Expected dividend yield
2019
7.4/6
Nil
NA
2018
9.0/7.1
Nil
NA
3 years
3 years
2%
Nil
2%
Nil
The expected life used in the model has been adjusted, based on management’s best estimate.
Restricted Share Option Scheme
Outstanding at the beginning of the period
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
2019
2018
Weighted average
Number of share exercise price
options (cents/pence)
Weighted average
Number of exercise price
share options (cents/pence)
7,750,000
14,600,000
(200,000)
-
-
22,150,000
-
-
-
-
-
-
-
-
166,668
7,750,000
(100,000)
(66,668)
-
7,750,000
-
-
-
-
-
-
-
-
*In 2019, none of share were exercised. All share options exercised during the 2018 were under the Restricted Shared Option Scheme which were settled in
cash. This change was treated as a modification of a share based payment from equity settled to cash settled. The amount payable under this settlement
amounted to $11k, of which $3k had been recognized as a share based expense in prior years and therefore reduced from equity in the current year as a
repurchase of equity instrument. The balance of $8k was expensed.
Restricted Share Option Scheme – share options granted in the year:
Under the restricted share option scheme 14,600,000 were granted in 2019 (2018: 7,750,000).
The market price of the ordinary shares at 31 December 2019 was $0.08/£0.06 (2018: $0.08/£0.06) and the range during the
year was $0.0.7/£0.05 to $0.10/£0.77.
The aggregate of the estimate of the fair value of the options granted is $1,087k (2018: $708k). The weighted average fair value
of the options granted is $0.09/£0.07 (2018: N/A).
The weighted average contractual life of outstanding options at the end of the year is 2.33 years (2018: 2.25 years).
The general terms of the share options, under the RSU scheme, vest over 3 years (quarterly vesting, 1/12th of options vest every
quarter) and are exercisable over three years from the date of grant if the employee remains within the company, at a nil exercise
price.
69
notes to the financial statements
for the year ended 31 December 2019
(continued)
Total warrants outstanding
As at 31 December 2019 the outstanding unexercised warrants in issue were:
Exercise Price
15p
Expiry Date
Number of warrants
18 March 2021
650,000
During the year 10,500,000 shares expired. No warrants were exercised in 2019 (2018: $Nil).
As at the 31 December 2018 the outstanding unexercised warrants in issue were:
Exercise Price
10p
13p
15p
Expiry Date
06 May 2019
31 October 2019
18 March 2021
Number of warrants
8,000,000
2,500,000
650,000
26 Financial instruments
Capital risk management
The Group and Company manages its capital to ensure that entities in the Group will be able to continue as going concerns while
maximizing the return to stakeholders through the optimization of the debt and equity balance. On the 7 June 2018, the Group
drew down on a facility of $3 million in order to support the Group’s operations and same was repaid in April 2019.
The capital structure of the Group and Company consists of cash and cash equivalents and equity attributable to equity holders of
the parent, comprising of issued capital, reserves, and retained earnings.
The Group and Company are not subject to any externally imposed capital requirements.
The Group and Company’s strategy is to ensure availability of capital and match the profile of the Group and Company’s
expenditures. To date the Group has relied upon equity and debt funding to finance operations. The Directors are confident that
adequate cash resources exist to finance operations to commercial exploitation, but controls over expenditure are carefully
managed.
The Group and Company has a policy of not using derivative financial instruments for hedging purposes and therefore is exposed
to changes in market rates in respect of foreign exchange risk, However, it does review its currency exposures on an ad hoc basis.
Currency exposures relating to monetary assets held by foreign operations are included within the foreign exchange reserve in
the Group Balance Sheet.
Categories of financial instruments
Group
Financial Instruments
Cash and bank balances
Financial assets at amortized cost
Investments in equity instruments at FVTOCI
Financial liabilities
Financial liabilities at amortized cost
2019
$ 000’s
6,583
8,903
-
2018
$ 000’s
10,367
7,890
57
3,335
6,783
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Company
Financial Instruments
Cash and bank balances
Financial assets at amortized cost
Investments in equity instruments at FVTOCI
Financial liabilities
Financial liabilities at amortized cost
2019
$ 000’s
3,589
7,731
-
2018
$ 000’s
5,397
11,476
57
13,456
11,837
There are no material differences between the book values of financial instruments and their market values.
Financial risk management objectives
The Group and Company’s Finance function provides services to the business, co-ordinates access to domestic and international
financial markets, monitors and manages financial risks related to the operations of the Group and Company through internal risk
reports, which analyses exposures by degree and magnitude of risks.
It is, and has been throughout 2019 and 2018, the policy of both the Group and the Company that no trading derivatives are
contracted.
The main risks arising from the Group and the Company’s financial instruments are foreign currency risk, credit risk, liquidity risk,
interest rate risk and capital risk. Management reviews and agrees policies for mitigating each of these risks, which are
summarized below.
Market risk
The Group and Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and
interest rates. The risk is managed by the Group and Company by maintaining an appropriate mix of cash and cash equivalents in
the foreign currencies it operates in. The Group and Company’s management did not set up any financial instruments policy to
manage its exposure to interest rates and foreign currency risk.
Foreign currency risk
The Group and Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate
fluctuations arise. The Group and Company evaluates exchange rate fluctuations on a periodic basis to take advantage of
favorable rates when transferring funds between accounts denominated in different currencies.
The carrying amount of the Group and Company’s foreign currency denominated monetary assets and monetary liabilities at the
reporting date is as follows
Group
Sterling
USD
Euro
CNY
2019
$ 000’s
1,055
2,216
64
Liabilities
2018
$ 000’s
2,031
4,710
42
Assets
2018
$ 000’s
1,335
16,045
934
2019
$ 000’s
53
13,896
1,509
29
As at 31 December
3,335
6,783
15,487
18,314
71
notes to the financial statements
for the year ended 31 December 2019
(continued)
Company
Sterling
USD
Euro
CNY
2019
$ 000’s
-
12,326
1,131
Liabilities
2018
$ 000’s
-
10,176
1,661
Assets
2018
$ 000’s
3,822
11,723
1,385
2019
$ 000’s
1,180
8,914
939
287
As at 31 December
13,457
11,837
11,320
16,930
Foreign currency sensitivity analysis
The following table details the Group and Company’s sensitivity to a 10% increase and decrease in the functional currency against
the relevant foreign currencies. 10% represents management’s assessment of the reasonably possible change in foreign exchange
rates.
The sensitivity analysis includes only outstanding foreign currency denominated financial instruments and adjusts their
translation at the period end for a 10% change in foreign currency rates. The following table sets out the potential exposure,
where a positive number below indicates an increase in profit or loss and other equity where the US Dollar strengthens 10%
against the relevant currency. For a 10% weakening of the US Dollar against the relevant currency, there would be a comparable
impact on the profit or loss and other equity, and the balances below would be positive.
Group
Pound Sterling impact
Profit or loss (i)
Other equity (ii)
2019
$ 000s
(111)
-
(111)
2018
$ 000s
(337)
-
(337)
Company
Pound Sterling impact
Profit or loss (i)
Other equity
2019
$ 000s
(118)
-
(118)
2018
$ 000s
(382)
-
(382)
2019
$ 000s
(157)
-
(157)
2019
$ 000s
(207)
-
(207)
Euro impact
2018
$ 000s
(98)
-
(98)
2018
$ 000s
(305)
-
(305)
2019
$ 000s
(3)
-
(3)
2019
$ 000s
(29)
-
(29)
CNY impact
2018
$ 000s
-
-
-
Euro impact
2018
$ 000s
-
-
-
• The main attributable to the exposure outstanding on Pound Sterling and Euro is receivables and payables at the balance sheet
date.
• There is no impact on other equity, as the Group does not hold derivative instruments designated as cash flow hedges and net
investments hedges.
In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end
exposure does not reflect the exposure during the year. Whilst the group operates across Europe and North America, operations
are managed in US dollar and these financial statements are presented in US Dollars.
Interest rate risk
The Group and Company’s exposure to interest rate risk is limited to cash and cash equivalents held in interest-bearing accounts
and borrowings at a fixed interest rate.
Interest rate sensitivity analysis
The impact of interest rate fluctuations is not material to the Group and Company accounts.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group
and Company. The Group and the Company’s financial assets are comprise of receivables, cash, and cash equivalents, and other
long-term assets.
The credit risk on cash and cash equivalents is limited as the counterparties are banks with high credit-ratings as determined by
international credit-rating agencies.
The credit risk on other long-term assets is limited as the total amount represents two components: deposits for the right to
secure a revenue-generating asset and restricted cash. The deposits for the right to secure revenue-generating assets are
maintained by a government sponsored global organization that is contractually required to return a portion of these deposits if
requested. Furthermore, the agency, a not-for-profit organization, is well funded by its member organizations and is not a risk to
cease operations. The restricted cash is deposited with banks with a high-credit rating as determined by international credit-rating
agencies.
The exposure of the Group and the Company to credit risk arises from default of its counterparty, with maximum exposure equal
to the carrying amount of receivables (excluding prepaid income), cash and cash equivalents, and other long term assets in the
Group and Company statements of financial position.
As at 1 January 2019, the directors of the Company reviewed and assessed the Group’s existing financial assets and amounts due
from customers for impairment using reasonable and supportable information that is available without undue cost or effort in
accordance with the requirements of IFRS 9 to determine the credit risk of the respective items at the date they were initially
recognized. See note 20 for further details on the Group and Company’s bad debt provision.
The Group and Company do not hold any collateral as security other than as mentioned in Note 19
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has established an appropriate
liquidity risk management framework for the management of the Group and Company’s short, medium, and long-term funding and
liquidity management requirements. The Group and Company manages liquidity risk by maintaining adequate reserves, banking
facilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows, and by matching the maturity
profiles of financial assets and liabilities.
Cash forecasts are regularly produced to identify the liquidity requirement for the Group and Company. To date, the Group has
relied on the issuance of stock warrants and shares to finance its operations. The Group borrowed $NIL million in 2019 (2018:
$3m).
The Group’s and Company’s remaining contractual maturity for its non-derivate financial liabilities with agreed repayment periods
are:
31 December 2019
Non-interest bearing:
Trade and other payables
31 December 2018
Non-interest bearing:
Trade and other payables
Weighted average
effective interest rate
Within 1 year
$ 000s
Group
1 – 5 years
$ 000s
Within 1 year
$ 000s
Company
1 – 5 years
$ 000s
-
-
-
-
-
-
-
-
Weighted average
effective interest rate
Within 1 year
$ 000s
Group
1 – 5 years
$ 000s
Within 1 year
$ 000s
Company
1 – 5 years
$ 000s
5,033
5,033
-
-
3,000
3,000
-
-
73
notes to the financial statements
for the year ended 31 December 2019
(continued)
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Other Group and Company’s non-derivative financial liabilities mature within one year.
The Group and Company had no derivative financial instruments as at 31 December 2019 and at 31 December 2018.
27 Commitments
The group as a lessee
Lease payments recognized under operating leases recognized as an expense in the year
2019
$ 000’s
-
2018
$ 000’s
895
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable
operating leases, which fall due as follows:
Within one year
In the second to fifth years inclusive
2019
$ 000’s
-
-
-
2018
$ 000’s
1,041
1,328
2,369
Operating lease payments represent amounts payable by the Group for its office properties and outsourcing registry operations.
Leases in relation to office properties are negotiated for an average period of three years with fixed rentals. Leases in relation to
outsourcing registry operations are negotiated for a period of three to five years with fixed commitments. From 1 January 2019,
the Group has recognised right-of-use assets for these leases, except for short term and low-value leases, See note 23.
As at 31 December 2019 and 31 December 2018, the Group has no capital commitments.
As at 31 December 2019 and 31 December 2018, the Company had no lease or capital commitments.
28 Related party transactions – Group
Balances and transactions between the company and its wholly owned subsidiaries, which are related parties, have been
eliminated on consolidation. Transactions between the Group and its Joint ventures are disclosed below.
Joint ventures
During the year, the Group entered into transactions with its Joint Ventures that resulted in amounts owed to or due from the
Joint Ventures. The balances at the year end were due to financial and equity requirements across the Joint Ventures. The
balances have no fixed repayment and no interest is received or charged on these balances.
Due to Entertainment Names Inc
Due to Dot Country LLC
2019
$ 000’s
212
(32)
2018
$ 000’s
45
(66)
Remuneration of Key Management Personnel
The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out in the Directors’
report.
Related party transactions – Company
Transactions between the Company and its subsidiaries and subsidiaries are disclosed below.
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STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Subsidiaries
During the year, the Company’s subsidiaries have provided certain services to the Company (RSP services) and recharged certain
costs to the Company. Details of these transactions are shown below
Recharged costs and services from
Minds and Machines LLC
Minds + Machines Limited (IE)
Minds and Machines Group limited
2019
$ 000’s
2,878
180
134
2018
$ 000’s
2,949
784
-
In addition, during the year, the Company has provided financing to its subsidiaries. The net balances due to the Company/(to its
subsidiaries) are detailed below. The balances have no fixed repayment terms and no interest is charged on these balances.
Company
Minds and Machines LLC
Bayern Connect GmbH
Minds and Machines GmbH
Minds + Machines Limited (IE)
Minds + Machines Registrar Limited (IE)
Minds and Machines Limited (UK)
Minds and Machines Registrar UK Limited
Emerald Names, Inc
Minds + Machines (FL)
Minds + Machines, Inc.
Minds + Machines Hungary
Dot Law, Inc.
Boston TLD Management LLC
Beijing MMX Tech Co. Ltd
ICM Registry, LLC
ICM Registry AD, LLC
ICM Registry PN, LLC
ICM Registry SX, LLC
2019
$ 000’s
(4,237)
377
560
(1,130)
-
1,097
9
86
(682)
5
329
-
1,539
287
(6,863)
29
29
29
2018
$ 000’s
(5,245)
443
630
(1,661)
-
2,155
9
86
(566)
5
311
(673)
1,557
209
8
6
6
6
The Company also sold second level domain names to its subsidiary, Dot Law, Inc (DLI). DLI owns and operates join.law, a reseller
of second level domain names. Any secondary domain names sold to DLI are to fulfil third-party orders from end users. Second
level domain names sales and trade receivable balances outstanding at the year end are:
Company
Dot Law, Inc.
Second level sale of domains
Trade receivable outstanding
2019
$ 000s
1,043
2018
$ 000s
785
2019
$ 000s
-
2018
$ 000s
-
75
notes to the financial statements
for the year ended 31 December 2019
(continued)
Joint ventures
During the year, the Company entered into transactions with its Joint Ventures that resulted in amounts owed to or due from the
Joint Ventures. The balances at the year end were due to financial and equity requirements across the joint ventures. The balances
have no fixed repayment and no interest is received or charged on these balances.
Due from Entertainment Names Inc
Due to Dot Country LLC
2018
$ 000’s
167
(32)
2019
$ 000’s
50
(33)
Remuneration of Key Management Personnel
The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out in Directors’ report
along with the share options issued.
29 Post Balance Sheet Events
There are no post balance sheet events.
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corporate information
Registered number
1412814 registered in
British Virgin Islands
Directors
Toby Hall
Chief Executive Officer
Michael Salazar
Chief Finance Officer
Guy Elliott
Non-Executive Chairman
Henry Turcan
Non-Executive Director
Bryan Disher
Independent Non-Executive Director
Company Secretary
One Advisory
201 Temple Chambers
3-7 Temple Avenue
London EC4Y 0DT
United Kingdom
Registered Office
Craigmuir Chambers
Road Town, Tortola
British Virgin Islands
VG 1110
Website
www.mmx.co/about/overview
Auditor
Mazars LLP
Tower Bridge House
St. Katharine’s Way
London E1W 1DD
United Kingdom
Solicitors
Hill Dickinson LLP
The Broadgate Tower
20 Primrose Street
London EC2A 2EW
United Kingdom
Nominated Advisor and Broker
finnCap
60 New Broad Street
London
England
EC2M 1JJ
Registrars
Computershare Investor Services
(Channel Islands) Ltd
PO Box 83
Ordnance House, 31 Pier Road
St Helier JE4 8PW
Channel Islands
Principal Bankers
Silicon Valley Bank
15260 Ventura Blvd #1800
Sherman Oaks, CA 91403
United States of America
Bank of Ireland
40 Mespil Road
Dublin 4
Ireland
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Minds + Machines Group Limited
2505 2nd Ave
Suite 520
Seattle, WA 98121
investors@mmx.co