Annual Report and Financial Statements 2019 © 2020 XLMedia PLC Annual Report and Financial Statements 2019 Table of Contents Performance Publisher of Choice 2019 Annual Report About XLMedia plc What we do 2019 Highlights Our Business Model Improving User Journeys Wholly owned and operated sites Case study – Money Under 30 Chairman’s Statement Chief Executive Officer Review Chief Financial Officer’s Review XLMedia’s Board Advisors Directors’ Report Risk Factors Corporate Governance Report Audit Committee Report Remuneration Committee Report 2019 Audited Financial Statements 4 4 5 6 7 8 9 10 12 22 26 28 30 40 46 54 64 76 About XLMedia plc Performance Publisher of Choice XLMedia has a long track record in online performance publishing owns and operates an extensive global portfolio of websites across numerous sectors. including gambling, sports betting, personal finance and technology. The Group's core skill is to stimulate active engagement by sending paying customers to our partners and sharing the revenues associated with these activities. Our publishing assets, proprietary technology, and data are the unmatched force that helps us serve highly valuable, engaging, timely, and relevant content to millions of users worldwide. Consumer engagement and providing an enhanced consumer experience is central to our vision. Controlling and managing a diverse publishing portfolio puts the Group in a better position to create higher levels of engagement than other traditional performance marketing, encouraging consumers to actively choose the content they want to digest, generating both greater value and increased levels of engagement. What we do Technology-Driven Performance Marketing Publishing, technology, and data constitute the foundation of all XLMedia’s operations, allowing us to maintain our competitive edge, greater great levels of consumer engagement, and grow our business successfully. Digital publishing expertise The websites, which we own and operate, rank at the top of search results. The success in dominating the Search Engine Results Pages ('SERPs') comes from our expert understanding of content creation, user experience, and website management. Such professional know-how also helps us generate maximum returns on these digital publishing assets. Our dedicated, in-house teams of expert writers, UX/UI professionals, and editors create content that resonates with consumers, fits their intent, and motivates them to act. Data and Programmatic Learning We are a data driven business and as such, we make the most out of advanced machine learning algorithms, content management systems, and data platforms. Our smart tracking tools and advanced content management systems allow for scalability, improved optimization, and help us match the best advertisers have to offer to users’ preferences. On top of that, these vast technological capabilities allow us to boost our performance and generate profit margins. Our websites produce vast amounts of data. Thanks to our statistical and data modeling tools, we can index millions of unique data points at different stages of the user journey, identify consumer activities, and spot trends in consumer behavior. 4 4 2019 Highlights Performance Publisher of Choice Financial summary Revenues of $79.7 million (2018: $93.5million*) Gross profit of $53.7 million (2018: $63.4 million*) Adjusted EBITDA(2) of $33.5 million (2018: $43.6 million*) Adjusted profit before tax(1) of $25.3 million (2018: $36.4 million*) Impairment Loss of $81.4 million (2018: $0.3 million) Follows an independent and comprehensive review of recorded asset values at year end as required by IAS 36 Further reductions follow the demotion of the Group’s websites by Google in January 2020 Income (Loss) from discontinued operations of $2.2 million (2018: ($11.3) million) Reported profit (Loss) before tax of ($57.7) million (2018: $36.1 million) Cash and short-term investments of $29.9 million (31 December 2018: $47.6 million) – the Company has minimal debt (<$1m) which is expected to be fully repaid by the half year Operating summary New Executive Management Team joined late 2019/early 2020 bringing significant successful transformation experience to evolve the Company to reposition for growth markets and territories. Investment areas: Operating Model – evolution to support strategic ambition and growth through significant transformation program Data & Programmatic learning – harness data to create compelling consumer experiences US Sports – resources, technology and expertise to develop US presence New Markets – resources to develop existing verticals into new markets On 18 January 2020, the Company became aware that a number of its casino sites had been manually de-ranked by Google Management remains optimistic that a number of premium sites will be re-ranked and fully operational during H2 2020 The Company has increased its focus and resources on premium sites, accelerating planned changes to business model The Company made a solid start to 2020 before the Google de-ranking and COVID 19 pandemic effects The year-end exit trajectory and renewed operating platform will form a strong basis for future growth and development Board will not be recommending a dividend or share buyback programme for the foreseeable future 5 2019 Annual Report(*) Reclassified - excluding discontinued operations1 Excluding loss from impairment and reorganization costs 2 Earnings Before interest, Taxes, Depreciation, Amortization and excluding share-based payments, impairment and reorganisation costs Our Business Model Driving Consumer Engagement Improving User Journeys The Outcome 2019 Annual Report By controlling and managing a diverse publishing portfolio, XLMedia seeks to generate higher levels of engagement than other traditional marketing techniques by encouraging consumers to actively choose the content they want to digest, generating both greater value and increased levels of engagement. This is what we call a performance-based business model. It assures everyone involved benefits from a win-win solution. Such a business approach adds a level of trust between XLMedia and its partners. On top of that, it minimizes the financial risk taken on by our partners since we invest our own capital into our partners’ marketing budget. Our revenue sharing, CPA, and other business models ensure our partners only pay after users take meaningful actions. 1 Users search for specific information Users search results 4 Revshare/CPA 2 Top-Ranked XLMedia Asset 3 Users Directed to Partner From static to dynamic Personalized content based on the full user journey Optimized brand exposure Based on browsing history, click-outs, conversions, and device performance Maximizing player value Optimized marketing offers based on audience segmentation New monetization opportunity Cross-selling brands and verticals while optimizing advertising and content 66 7 XLMedia PLC is a leading performance publishing group that wholly owns and operates diversified digital publishing assets across a wide variety of verticals, including gambling, sports betting, personal finance, tech, and more. Our publishing assets, proprietary technology, and data are the unmatched force that helps us serve highly valuable, engaging, timely, and relevant content to millions of users worldwide. Consumer engagement and providing an enhanced consumer experience is central to our vision. As we move forward, in addition to sustaining our core assets we will also be investing in new and early-stage geographies and business verticals to maximize our impact. Wholly owned and operated sites Our Assets Portfolio Our wholly owned and operated content-rich sites rank at the top of search results for thousands of high-intent keywords. The sites are in 18 languages and attract and engage more than 5 million users monthly. Business Verticals Over the years, XLMedia has exhibited impressive success in each of the verticals we operate: The U ltimate Personal Finance Publisher Our personal finance websites successfully promote a wide variety of products, such as credit cards, insurance types, loans, robo-advisors, and more. The Ultimate Tech Publisher Continuous innovation and investment in user experience enables us to provide the most immersive and valuable content for our tech product review sites. These content-rich websites feature detailed reviews of tech and utility products in areas ranging from cybersecurity and antivirus technology to selecting the right VPN. The Ultimate Gaming Publisher XLMedia has a stellar reputation in the gambling industry. Our assets serve several loyal communities of users, providing them with authentic first-hand user reviews and community generated insights to enable crowd-wisdom to flourish. The user-generated content platforms also have diversified offerings and a substantial social media presence resulting in several awards. The Ultimate Sports Betting Publisher XL Media is an authoritative publisher in the sports betting sector. Our publishing assets harbor unique content written by professional sports betting thought leaders and tipsters who specialize in areas such as horse racing, football, boxing, and more. 8 Money Under 30 Case study moneyunder30.com In 2017, XLMedia purchased Money Under 30 which has since become a top personal Money Under 30 now ranks first for all major credit card keywords, finance site in the United States, offering vital including on Google, and features over information on topics ranging from business 100 partners. and travel credit cards to balance transfer and low APR. The site has steadily grown since its purchase, in terms of both traffic and revenue. In January 2018, we migrated the site to our internal proprietary network. As a result, by the end of 2019, the site saw double the traffic volume as it previously had. Money Under 30 continues to draw millions of users and be featured in top-tier global publications such as Forbes. Number of users per month 9 2019 Annual Report$200k$150k$100k$250k$300k$350k$400k1,200,0001,000,000800,0001,400,0001,600,0001,800,0002,000,000Average 12 months before purchaseAverage 12 months after purchase2019Average$179,689$198,169$378,807+10%+110%812,826+24%1,876,7381,005,184+131%RevenueTraffic$200k$150k$100k$250k$300k$350k$400k1,200,0001,000,000800,0001,400,0001,600,0001,800,0002,000,000Average 12 months before purchaseAverage 12 months after purchase2019Average$179,689$198,169$378,807+10%+110%812,826+24%1,876,7381,005,184+131%RevenueTraffic Chairman’s Statement Annual Report 2019 was a year of limited financial progress for the Group, as management sought to mitigate a number of operationally frustrating scenarios and global sector headwinds, predominantly within our online casino vertical. Greater clarity on the situation with Google is outlined in the Chief Executive review later in the document. In February 2019, we made the decision to reduce a significant part of the Group’s advertising and media activities, reflecting the Board’s desire to limit our exposure to certain gambling and digital marketing sectors, with a view of becoming a pure play digital publishing operator. This move was further consolidated with the sale of our advertising media subsidiary in August 2019, which was considered both low margin and non-core to our ongoing activities. In addition, ongoing gambling regulatory uncertainty, specifically in Sweden and Germany remained ,and therefore continued to impact our financial performance in territories which have historically been strong for the Group. Despite these challenges, the Group delivered a credible performance in FY 2019, producing revenues of $79.7 million (2018: $93.5 million), gross profit of $53.7 million (2018: $63.4 million) and an Adjusted EBITDA of $33.5 million (2018: $43.6 million). It is against this backdrop that we decided to make a number of significant Executive Management changes. Ory Weihs, who served as Chief Executive Officer since our IPO in 2014, moved to a Non- Executive Director role, with Stuart Simms appointed as Chief Executive Officer in October 2019, following an extensive executive search conducted by Egon Zehnder. Since Stuart’s appointment, he has already made a significant and positive contribution in both the day to day running of the business and our strategic direction, more of which is covered in his strategic review of the business. Also, our Chief Financial Officer, Yehuda Dahan, tendered his resignation and we were pleased to appoint Iain Balchin as Group CFO in February 2020. Iain has a wealth of transformation experience having held a number of Group CFO roles, making him ideally placed for our business. In both Stuart and Iain, we have two highly skilled and experienced senior executives who are now working tirelessly to reshape and reposition XLMedia for sustainable and long-term growth. Stuart has also completely restructured his executive team, further rejuvenating our business and positioning us well for the future. 10 2019 Annual Report In early 2020, the Company became aware that a number of its casino sites had been manually demoted by Google, impacting their online ranking and therefore significantly reducing their ability to generate revenues. The Company is continuing to work with Google to restore the rankings of these sites as soon as possible. There is no question that the business is now undergoing a significant period of transformation with our new management team evaluating new geographies and end markets, alongside an improved focus upon our efforts to generate greater levels of end consumer engagement. To that end, we remain committed to investing in the core business alongside additional organic investment initiatives and as a result the Board will not be recommending a dividend or share buyback programme for the foreseeable future. We continue to monitor very closely the impact of the COVID-19 virus across the world in relation to our dedicated colleagues and of course our customers. The health and safety of our staff is of paramount importance and we have implemented a number of measures to protect our global workforce aligned with the latest local government and industry recommendations. In each of the jurisdictions we operate within, the Board and I would all like to thank all our colleagues for their persistent dedication during what has been, and continues to be a challenging period for the business and wish them all a safe and healthy future. Christopher Bell Non-Executive Chairman 7 May 2020 11 2019 Annual Report Chief Executive Officer Review Annual Report Introduction Our proposition I joined XLMedia in October 2019 with both optimism and a defined strategic ambition that XLMedia has a long track record of success in online performance marketing and currently necessitated an overhaul of the businesses working practices, executive team and organisation operates over 2,000 websites across numerous sectors. The Group's core skill is to stimulate structure. It is clear that the Company’s recent growing pains, coupled with broader industry active engagement by sending paying customers to our partners and sharing the revenues changes mean that the Company must evolve and be able to constantly adapt to dynamic market associated with these activities. conditions. In addition, it is evident to the Board and I that there are significant market opportunities for rich and highly interactive sites, such as moneyunder30.com, to less interactive domains. Typically, performance marketing companies that can truly activate and engage consumers, whilst also the Group’s financial services websites utilise a qualitative approach whereby consumers are cultivating strategic, tenured partnerships with brands and operators alike. Specifically, with brands encouraged to browse and digest a highly sophisticated level of content. Conversely, the Group’s increasing their direct-to-consumer marketing activities, and traditional value chains collapsing, gambling segment utilises a methodology based around quantity, targeting multiple sites across companies like XLMedia should be thriving in many verticals and markets, offering access to the same segment or geography. Going forward, we will be focused on a qualitative approach and consumers and players for an attractive return. are now prioritising the development of more engaging websites, seeking to develop the Group’s To date, the Group has managed an extensive portfolio of online websites ranging from content However, the historical focus of the Group has been on the European gambling segment, unregulated markets, which as the Group’s FY2019 results show, include some of the most volatile markets, especially when becoming regulated, such as Sweden. Therefore, it has been paramount to shift the focus of the Company, its resources, its investment strategy and culture towards a more global, cross vertical operating model, that thrives in regulated markets, with a particular focus on the US Sports market opportunity and personal finance. XLMedia has a strong balance sheet to power the transformation and shift required, providing both leverage and growth. This also applies to our ability to survive situations that many other publishing activities and enhancing consumer engagement. Currently, roughly 50% of Group revenues are generated by 20 sites, underlining the need for a more consolidated and focused approach. To this end, we have been focused on closing down older, legacy sites which generate either minimal or no revenue for the Group. Controlling and managing a diverse publishing portfolio puts the Group in a better position to create higher levels of engagement than other traditional performance marketing, encouraging consumers to actively choose the content they want to digest, generating both greater value and companies might not, such as the Google de-ranking of a number of our websites, which we are increased levels of engagement. using as a catalyst to drive and deliver change, faster than anticipated and with a renewed clarity of purpose and commitment. I firmly believe that we are defining and building the capabilities to support our future growth, whilst making hard decisions to restructure our operations and priorities; such as to shut down or dispose of non-core business groups, refresh the Executive team, focus on premium assets (removing legacy sites), and re-platform from legacy technology systems and processes. 12 Operational Review Having joined the Group in October 2019, it was clear then that XLMedia was in need of transformation. It was a typical mid-sized company that had seen dramatic growth but was not fully prepared for the next phase of development, instead seeking to maximise short-term profits over investing for the future. 13 Chief Executive Officer Review Annual Report This is not uncommon in many companies of its size and age, and many of the problems are During the period we also made the decision to focus solely on XLMedia’s core publishing familiar to me from previous experience. However, there is no ‘quick fix’ and shareholders will activities. Therefore, we terminated all media activities as of Q1 2020. have to understand that unpicking years of underinvestment will take time, but when completed, sustainable, predictable growth will again be possible. The first step for any transformation is Despite these challenges, the Group delivered a very creditable performance in FY 2019, People, and I feel confident that I am assembling a team that can lead us through the next phase of producing revenues of $79.7 million (2018: $93.5 million), gross profit of $53.7 million (2018: $63.4 growth and beyond. million) and an adjusted EBITDA of $33.5 million (2018: $43.6 million). To that end, I have prioritised the following key areas of investment: Going forward, management is focused on becoming a ‘pure play’ global digital performance Operating Model – business processes and organisation design to support future growth publisher. 2019 Annual Report Data & Programmatic learning – using machines to harness data and create compelling Consumer experiences US Sports – M&A, US infrastructure and resources with Sport specific technology New Markets – utilise XLMedia’s expertise and experience to grow existing verticals into new markets As our FY 2019 financial performance highlights, the business needs to transform to meet the future demands of both customers and consumers, and to operate in growth verticals and markets. Therefore, management will remain focused on further developing the Group’s core publishing activities, positioning XLMedia for further growth. Within the Group’s European gambling markets, well documented regulatory headwinds, specifically in Germany and Sweden, have had an impact on revenue growth in the period, although the Group has maintained its market share, albeit at lower volumes. A further update on the broader regulatory landscape is set out below. The Group’s North American personal finance assets continue to perform well and now account for 16.5% of Group revenues and continues to be a key growth market. North America as a whole (Sports and Personal Finance) represents currently 20.3 % of Group revenues. Regulation All of XLMedia’s business units in some way are controlled or impacted by regulations. We believe that, on the whole, regulation offers sustainable revenues and significant market opportunities for companies such as ourselves, who have the experience, size and maturity to support regulation, protecting the consumer, brands and operators. Further to being sustainable, regulation offers market consolidation opportunities and therefore market share growth as with Sweden, albeit with total revenues diminishing. Therefore, as gambling markets transform into regulated territories, investors should expect short term revenue volatility as new regulation impacts volumes, though, this should be followed by more predictable revenues streams in the longer term. It is also important to note that micro-verticals often face differences in regulation, for example slot machines are treated very differently from Bingo. We will continue to operate across a broad spectrum of micro-verticals and over time intend to provide more commentary on the revenue split and the opportunities and risks associated with each. Our plan is to globalise our Personal Finance offering and brands, which currently only operate in North America. 14 15 2019 Annual Report Chief Executive Officer Review Annual Report A key capability in the Group will be to continue to monitor and abide by regulations worldwide, a consequence of this review and analysis, XLMedia is transferring its premium revenue generating whilst also investing in technology to quickly respond to changing environments and new sites impacted by the Google demotion to a new operating environment, that supports improved compliance needs. content management, innovative design and more commoditised resources / operational support. The broader implications for the business will be a shift to a flexible, lower operating cost model, I passionately believe that XLMedia’s role is to embrace regulations, and, in some instances, help which supports the Company’s aspirations as a premium performance marketing company. tighten and control them to further protect consumers. I believe that our future revenues will be focused predominantly on regulated markets operating in Sports, other gambling segments and Management remains optimistic that a number of premium de-ranked sites will be fully operational Personal Finance. Google update during H2 2020. As announced in February 2020, management expect a monthly reduction in Group revenues of between $1 million and $2 million (assuming only a minor fall in its repeat revenues) as a result of the On 18 January 2020, the Company became aware that a number of its casino sites had been Google demotions. In addition, management anticipates that any lengthy period of demotion could manually demoted by Google, impacting their online ranking and therefore significantly reducing impact the rankings once restored, and that it may take a period of time to re-establish. However, their ability to generate revenues. The Company is continuing to work with Google to restore their based on industry experience, we do expect re-ranked sites eventually to outperform any historical rankings as soon as possible. results. Currently, circa. 100 websites have been demoted, ranging from ‘premium’ revenue generating sites to low grade, typically legacy sites, or low commercial value domains. Of these sites demoted Transformational strategy by Google, 23 are ‘premium’ sites and are predominantly within the online casino vertical. Currently, Google de-ranking and COVID-19 have not changed our strategic ambition or goals for the Google has not impacted personal finance. transformation, and in some ways have amplified them, acting as a catalyst to accelerate and drive Management understands that the large number of low-grade, typically legacy sites, operated change. by the Company had a collective negative impact when reviewed by Google. Therefore, we have I believe with the Executive team we are building – (who have the skills and experience to deliver removed or de-indexed a large number of these sites. transformation), and the balance sheet – (to survive the intense market conditions), we will come out of this period leaner, better operationally structured and driven to grow quickly. Separately, XLMedia has reviewed its entire online publishing assets, to focus on significantly reducing the total number of non-revenue generating sites and increasing the focus on ‘premium’ In terms of change, as highlighted above, we are focused on shifting the emphasis of the business sites, as well as both incubating and developing new sites. from ‘quantity to the quality’ of websites. We are a performance-based business at heart, and this Part of this review was to analyse the Groups technology platform strategy, specifically Palcon. As diverse global portfolio of premium websites that deliver significant intrinsic value for consumers. will not change. We will continue to be focused on connecting brands to consumers by operating a 16 17 2019 Annual Report Chief Executive Officer Review Annual Report To that end, management are focused on the following strategic goals: Further investment in regulated (mature) markets – stable revenue growth Consolidation of publishing assets, focusing of resources We continue to invest in fully regulated gambling markets which we believe provide a solid framework from which to generate stable revenue growth, with a specific focus on developing our Currently the Group operates over 450 online publishing assets globally, ranging from premium Sports assets and associated technology. and highly interactive sites to basic, legacy sites. We have therefore decided to reduce the total number of sites operated by the Company, instead focusing on building strong brand recognition across a focused number of ‘premium’, highly profitable, online assets. This process has been accelerated by the de-ranking of circa.100 casino assets by Google, which Capital allocation / Dividend Given the current cash balance and lower levels of cash generation from the Group, the Board is recommending that no final dividend is proposed for the 2019 financial year, with no dividend has prompted the Company to begin the process of upgrading over 20 ‘premium’ sites. expected to be proposed until further notice. Alongside consolidating the Group’s online assets, management are enhancing the focus and capabilities on consumer experience, putting this at the heart of what we do. Using our rich data In addition, while we give due consideration to capital allocation activities such as a share buyback programme or tender offer, in order to accelerate a number of strategic initiatives highlighted and intelligence capabilities to improve consumer engagement, segmentation and understanding. above, such initiatives are not expected to be offered for the foreseeable future. We believe this will be better for the consumer, and as importantly, the customers we represent. Sites such as moneyunder30.com offer an initial blueprint for how the Group is seeking to develop existing assets going forward. US Sports and Personal Finance investment – targeting high growth markets The US sports betting market represents a significant opportunity for us. As a result, we are firmly focused on building our US presence to develop organic investment opportunities, partnerships, acquisitions and use of technology. Earlier this year we opened our first US office in New York and look to expand further into regional offices. XLMedia has already established a solid revenue foothold within personal finance and will seek to further develop growth opportunities by deploying local resources and further increasing editorial COVID-19 update XLMedia’s global workforce has been working remotely since March 2020, in line with current regulations globally and the health and wellbeing of our employees remains of the utmost importance. This required XLMedia to accelerate a dramatic change to daily operations, technology (laptops) and embracing more flexible working practices. Previously, only a limited number of staff were provided with laptops and working from home was prohibited with a clocking in and out system in place to monitor attendance. Due to the excellent work by the HR function and IT team, to date, we have not seen any negative impact on our remote working policy and the business remains well placed to weather a prolonged period of self- isolation, with morale seeming high and the team remaining engaged. Further to this we believe that the improvements made to how we operate, will continue and evolve further when COVID-19 ends. This will provide us with a more flexible and agile workforce, supporting one of our key goals to become one of the localised content. Acquisitions and partnerships remain key vehicles to deliver growth. most progressive employers in Israel and around the world. 18 19 Chief Executive Officer Review Annual Report However, Coronavirus is having an impact on a number of our key business verticals and revenue Therefore, as with many other companies, Q2 2020 looks likely to be a very challenging period, one streams. Starting in February 2020, many sport events were cancelled around the world which looks during which significant change is being delivered against a background of increasing one-time likely to continue for much of the remainder of the year with major championships such as European costs as we further embed our transformation plans. 2019 Annual Report While the Google de-ranking impact and the direct impact of COVID 19 are expected to remain, management are confident that the impact of both taken together will not be in excess of the previous guidance over the course of the year. Stuart Simms Chief Executive Officer 7 May 2020 Football Championship and the Olympics being postponed or cancelled. In addition, personal finance has also been affected with many banks and financial services organisations pulling back marketing spend in favour of a “wait and see” strategy. Both Business Groups responsible for Personal Finance and Sports have been creative in adopting new working practices, improving editorial workflow and finding new revenue sources. This decrease should be marginally offset by increases in in other verticals, such as online gambling and cyber security, but has obviously been hampered by many of the sites remaining de-ranked. The Group is actively assessing and responding to the potential impact of the outbreak, but since there is uncertainty regarding the extent of the effects and future events, there is uncertainty regarding the total effect on the Group revenue. Outlook Despite making a solid start to 2020, the Company is still unable to determine the full impact of Google's demotions, although initial indications are that the previous guidance of a monthly reduction in Group revenues of between $1 million and $2 million (assuming only a minor fall in its repeat revenues) is accurate. In addition, COVID-19 will continue to create uncertainty in the short to medium-term, impacting a number of our end-customers and verticals. Management continues to monitor this situation closely and will align the Company’s cost base accordingly. 20 21 Chief Financial Officer’s Review Annual Report XLMedia revenues in 2019 totalled $79.7m (2018: $93.5 million), a decrease of 15% compared to the previous year due to expected regulatory headwinds in key Swedish, German and Swiss markets. Gross profit for 2019 was $53.7 million and gross margin was 67% (2018: $63.4 million, 68% gross margin), representing a 15% decrease, proportional to the decrease in revenues. Operating expenses for 2019 were $27.3 million (2018: $26.4 million), principally in line with 2019. Adjusted EBITDA for 2019 was $33.5 million or 42% of revenues (2018: $43.6 million, 47%), a decrease of 23% on the previous year. The decrease in the margin was due entirely to the reduction $'000 2019 2018 (*) Change Revenues 79,695 93,502 -15% Gross profit 53,693 63,369 -15% Operating profit before impairment and reorganisation costs 26,346 36,985 -29% in revenues. Adjusted EBITDA² 33,471 43,571 -23% Net financing expenses for 2019 were $1.0 million (2018: $0.5 million). The increase in financing expenses mainly reflects the initial adoption of IFRS 16 in which the Group recognises interest and Impairment loss (81,350) (300) exchange rate differences on its lease liabilities. IAS36 requires that a company ensures that its assets are carried at no more than their recoverable value. Under IAS 36, when the carrying amount of the assets exceeds its recoverable amount an impairment loss is recorded. Following an independent and comprehensive review of recorded asset values at year end and further reductions following the demotion of the Group’s websites by Google in January 2020, XL Media has booked an impairment loss of $81.4 million in its 2019 accounts (2018: $0.3m). 22 Reorganisation costs (1,682) Adjusted1 profit before tax 25,302 36,448 -31% Income (loss) from discontinued operations 2,217 (11,284) Profit (loss) before tax (57,730) 36,148 (*) Reclassified - excluding discontinued operations 1 Excluding loss from impairment and reorganization costs 2 Earnings Before interest, Taxes, Depreciation, Amortization and excluding share-based payments, impairment and reorganisation costs 23 2019 Annual Report Chief Financial Officer’s Review Directors’ Report In 2019 the Group recorded reorganisation costs of $1.7 million following the commencement of a Total equity as at 31 December 2019 was $63.5 million or 64% of total assets (2018: $166.8m significant future restructuring plan of the Group. This program will complete during 2020. or 85% of total assets). The decrease in the equity was mainly as a result of the net loss for the Adjusted profit before tax in 2019 was $25.3 million (2018: $36.4 million), a decrease of 31%. year of $58.7 million, acquisitions of treasury shares of $29.7 million and dividend payments to In 2019 the Group recorded income from discontinued operations of $2.2 million (2018: loss of $11.3 shareholders of $14.2 million. million) as result of the Company’s Board decision to reduce certain parts of its Media activities I joined the Company in February 2020 with a firm belief that under a visionary new Management which had lower profit margins. In August 2019, the Company completed the sale of Webpals team with proven turnaround experience, a right sized but strong balance sheet and no debt, the Mobile Ltd which was a substantial component of the discontinued operation. The gain derived Company remains poised to deliver strong future returns for its shareholders. from the sale was $1.8 million. 2020 will undoubtedly be a testing and transformative year for the Group but I fully expect that As at 31 December 2019, the Company had $29.9 million in cash and short-term investments (2018: these changes should put us in a strong position as we move into 2021 and beyond. $47.6 million). The change in cash is a reflection of $40.1 million generated by operating activities offset by $7.3 million used for investment activity, and $51.0 million used for financing activities (acquisition of treasury shares of $29.7 million, dividend payments to shareholders of $14.2 million and repayments of bank loans of $5.5 million). Current assets as at 31 December 2019 were $42.4 million (31 December 2018: $69.2 million) The decrease in current assets was predominantly as a result of the decrease in cash and cash- equivalents mentioned above and a decrease in trade receivables of $8.4 million, mainly as a result of discontinued operations. Non-current assets as at 31 December 2019 were $57.0 million (31 December 2018: $127.3 million). The decrease in non-current assets is mainly from the impairment adjustment of $81.4 million. Current liabilities as at 31 December 2019 were $27.2 million (31 December 2018: $28.1 million). Non-current liabilities as at 31 December 2019 were $8.6 million (31 December 2018: $1.6 million). The increase in non-current liabilities is mainly attributable to the lease liability of $8.1 million recognized as result of the initial adoption of IFRS 16. Iain Balchin Chief Financial Officer 7 May 2020 24 25 2019 Annual Report Xlmedia’s Board Company Information Christopher Bell Independent Non-Executive Chairman Stuart Simms Group CEO Mr. Simms joined XLMedia as Chief Executive Officer in October 2019. He brings significant experience in technology companies and specifically those in the performance marketing sector. Mr. Simms has previously held several board and senior executive positions, including Chief Executive Officer of Rakuten Marketing, one of the largest performance marketing companies, and has also held senior executive positions with leading technology businesses including Microsoft, and Rackspace. Mr. Bell has considerable listed board experience across a range of sectors. He has, since 2015, been Senior Independent Director for The Rank Group PLC, where he also serves on both the Audit Committee and the Nominations Committee. Mr. Bell is Non-Executive Chairman of three AIM-listed companies: Team 17 Group PLC, TechFinancials Inc and OnTheMarket PLC, all of which he took to market and on which he serves on key governance committees. Mr. Bell joined Ladbroke Group PLC in 1991, becoming Managing Director of its Racing Division in 1995. In 2000, he became Chief Executive of Ladbrokes Worldwide and joined the Board of the rebranded Hilton Group PLC, becoming Chief Executive of Ladbrokes PLC, following the sale of the Hilton International Hotel division, until 2010. He has also served as Non-Executive Director at Spirit Pub Company PLC (from 2011 to 2015) and as Senior Independent Director at Quintain Estates and Development PLC (from 2010 to 2015). Prior to joining Ladbrokes PLC (formerly Hilton Group PLC and Ladbrokes Group PLC), Mr. Bell held senior marketing positions at Allied Lyons PLC. 26 Richard Rosenberg Jonas Mårtensson Independent Non-Executive Director and Chairman of the Audit Committee Independent Non-Executive Director and Chairman of the Remuneration Committee Mr. Rosenberg is a qualified chartered accountant and a partner in SRLV, a London-based multidisciplinary accountancy and consultancy firm, which he co-founded in 1988. Mr. Rosenberg is the Non-Executive Chairman of Livermore Investments Group Limited, an AIM quoted investment firm. Amit Ben Yehuda Non-Executive Director Mr. Ben Yehuda has over twenty years’ experience across a number of high-growth industries focusing on implementing strategic growth initiatives and executing significant levels of M&A. Mr. Ben Yehuda has Bachelor’s degrees in Economics and Political Science and an M.B.A, all received from Tel Aviv University. Currently, Mr. Ben Yehuda is the Chief Executive Officer of Kardan Communications and Kardan Technologies. Mr. Mårtensson has substantial experience in both corporate and capital markets and great experience with the Nordic countries. Mr. Mårtensson is currently CEO of Mojang AB (“Mojang”), the Swedish video game developer and publisher acquired by Microsoft in 2014, that’s best known for creating the popular independent game, Minecraft. Mr. Mårtensson previously founded a betting operator, Mobilbet.com, and held senior roles at Betsson, latterly at Betsson Technologies AB, as Head of Mobile. Mr. Mårtensson holds a Master of Science in Business Administration, major in entrepreneurship from Stockholm University School of Economics and Management, and a Master of Science in Business Administration, major in Business Development from Södertörn University College, Sweden. Ory Weihs Non-Executive Director Mr. Weihs is one of the founders of XLMedia and held the role of Group CEO until October 2019. He is an entrepreneur who has been deeply involved in the online gambling and performance marketing industries for over fifteen years. 27 2019 Annual Report Advisors Company Information Registrars: Link Asset Services The Registry 34 B eckenham, RoadB eckenha m, Ke nt BR3 4 TU Joint Corporate Broker: Joh. Berenberg, Gossler & Co. KG 6 0 Threadneedle Street , London EC2R 8HP Auditors to the Company: Kost Forer Gabbay & Kasierer (a member of Ernst & Young Global) 3 Amin adav Street , Tel Av iv 67067 Israe l Company Secretary: Mr. Matan Daniely 6 Agi as Marinas, Yerma s ogeia Limas s ol Cypr us, 40 44 Jersey Law Counsel Carey Olsen 47 Esplanade, St . Helier, JEI 0R D, Jers ey w w w.c areyols en.com Nominated Adviser and Joint Corporate Broker: C en ko s Se curit i es pl c, 6.7.8 . To ke nh o us e Yard Lon d on , EC2 R 7 AS Public Relations advisor: Vigo Communications 180 P icc adil l y, Lo n do n W1J 9HF Registered Office: 12 C a st le S t re et S t . H el ier Je rs ey, J E 2 3RT UK Law Counsel CMS Cameron McKenna Nabarro Olswang LLP 78 C a nn on St reet , Lo n don , EC 4 N 6A F, U n ite d K i ngd om w w w.c ms. law Pinsent Masons LLP 30 C rown Pl ac e, E arl St reet , Lo n do n, EC 2A 4 ES, U n ite d K i ngd o m, w w w.pi ns e nt m as o n s.c om 28 29 2019 Annual Report Directors’ Report The Directors present their report for the year ended 31 December 2019. Results and review of the business The Directors’ Report should be read in conjunction with the full 2019 Annual Report and financial statements. Share capital The authorized and issued share capital of the Company are shown in note 13 of the financial statements. Pursuant to the decision passed by shareholders at the last Annual General Meeting, and in accordance with the Company’s Article of Association, the directors are authorised to allot up to an aggregate number of 69,967,835 shares, being 33% of the issued share capital of the Company as of the date of the Annual General Meeting. Also, the Board was authorized by shareholders to allot and issue, wholly for cash, with disapplication of pre-emption right, up to 20,990,350 shares representing 10% of the issued share capital of the Company as if the date of the Annual General Meeting. These authorities 30 will expire on the date of the Annual General Meeting to be held on 27 May 2020 and approval will be sought for new authorities at the Annual General Meeting. 2019 Annual Report 31 2019 Annual Report Major Shareholders Directors’ Report As of 31 December 2019, the following interests of shareholders in excess of 3%, had been notified to the Company: Shareholder’s Name Number of shares held Shares as % of issued share capital Axxion S.A. 18,160,460 9.7% Buy back & Tender Offer On 18 December 2018 the Company instigated a share buyback programme with repurchased shares being held in treasury (the “First Programme”). The First Programme was approved by the Board pursuant to the general authority to buy back shares provided by the shareholders of the Company on the annual general meeting held on 23 May 2018. Under the First Programme the Company has repurchased 11,728,150 shares for an aggregate sum of £7.3 million, On 4 June 2019 the Company instigated a second share buyback programme with repurchased shares being held in treasury (the “Second Programme”). The Second Programme was approved by the Board pursuant to the general authority to buy back shares provided by the shareholders of the Company on the annual general meeting held on 29 May 2019. Under the Second Programme the Company has repurchased 1,820,593 shares for an aggregate Premier Investissement SAS 16,845,650 9.0% sum of £1.1 million. Fidelity Management & Research Company 11,065,893 5.9% Hargreaves Lansdown AM 9,368,122 5.0% Both the First Programme and the Second Program were funded from the Company’s existing cash balances. Between 15 July 2019 and 15 August 2019, the Company held a tender offer to repurchase its own shares at a purchase price of 80 pence per share and up to a total of 19,675,000 Shares with repurchased shares being held in treasury (the “Tender Offer”). The Tender Offer was approved by the shareholders of the Company at the special general meeting of shareholders held on 16 August 2019. River and Mercantile Asset Management 9,214,987 4.9% The Company’s issued share capital, as at 31 December 2019, consists of 220,352,402 ordinary shares of which 33,223,743 were on 31 December 2020 held by the Company as treasury shares without voting or economic rights. Therefore, the number of ordinary shares in issue as at 31 December 2019 was 187,128,659 (excluding treasury shares). Invesco Advisers, Inc. 6,025,000 3.2% 32 33 2019 Annual Report Dividends Directors’ Report On 1 November 2019 the Company paid an interim dividend for H1 2019 of 5.8 million On 4 February For more information about the Remuneration Committee, directors remuneration and bonus and 2020 the Company announced that in order to accelerate a number of strategic initiatives, share option schemes please refer to the Remuneration Committee Report on pages 64-75 of this alongside evaluating potential acquisition opportunities, no final dividend is proposed for the 2019 Annual Report. financial year, with no dividend expected to be proposed until further notice. The Board has established a Risk Committee chaired by Ory Weihs. The other members of Senior Management Changes On 29 July 2019, the Company announced the appointment of Stuart Simms as Chief Executive Officer with effect from 2 October 2019. On 3 October 2019, Mr. Simms was also appointed as a member of the Board. On 23 September 2019, the Company announced that Yehuda Dahan had notified the Board of his decision to step down as Chief Financial Officer with immediate effect and Liat Hellman assumed the role of interim Chief Financial Officer. On 4 February 2020, Mr. Iain Balchin was appointed as Chief Financial Officer of the Group. Directors’ indemnity insurance The Group has provided to all of its Directors limited indemnities in respect of costs of defending claims against them and third-party liabilities. The Group has made qualifying third party indemnity provisions for the benefit of its Directors which were available during the period and remain in force at the date of this report. Corporate Governance In September 2018, the Company adopted the QCA Corporate Governance Code published by the Quoted Companies Alliance. For more information about Corporate Governance and the implementation of the QCA Code please refer to the Corporate Governance Report on pages 46- 53 of this Annual Report. Board Committees The Board has established an Audit Committee, a Remuneration Committee and a Risk Committee. For more information about the Audit Committee and for information about the internal and external auditors please refer to the Audit Committee Report on pages 54-63 of this annual report. 34 the Committee consist of Richard Rosenberg, Christopher Bell and Stuart Simms. The Risk Committee receives presentations from management on risk, compliance and regulatory issues and reviews the related internal control systems. Our Financial Instruments The Group’s financial instruments are discussed in note 12 to the financial statements. Our Procedures The Group’s Procedures including our Code of Business Conduct, Anti-Bribery and Corruption Policy, Disclosure Policy, dealing code, Social Media Policy, Whistle-blowing Policy and Modern Slavery Policy are determined and set out for all employees to review. The Company’s management is responsible for the implementation of these procedures. Our Share Dealing Code The Company has adopted a share dealing code for Directors and applicable employees of the Group for the purpose of ensuring compliance by such persons with the provisions of the AIM Rules relating to dealings in the Company’s securities (including, in particular, Rule 21 of the AIM Rules) and in accordance with the Market Abuse Regulations. The Directors consider that the share dealing code is appropriate for a company whose shares are admitted to trading on AIM. Statement of Directors’ responsibilities in respect of the financial statements The Directors are responsible for preparing the annual reports and the Group and Company financial statements in accordance with applicable law and regulations. Jersey Companies Law requires the Directors to prepare accounts for each financial period. Under that law, and as required by the AIM Rules for Companies, the Directors have elected to prepare the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). 35 2019 Annual Report Statement of Directors’ responsibilities in respect of the financial statements Directors’ Report In preparing these financial statements, the Directors are required to: Directors’ statement as to disclosure of information to auditors Directors’ Report The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 26-27. Having made enquiries of fellow Directors and of the Company’s auditors each of these Directors confirms that: Present fairly the Group and Company financial position, financial performance and cash flows; To the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditors are unaware; and Select suitable accounting policies in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors and apply them consistently; Each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s auditors are aware of that information. Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; Employees Make judgments that are reasonable; Provide additional disclosures when compliance with the specific requirements in IFRS, as adopted by the EU, is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s and Company’s financial position and financial performance; and State whether the Group and Company financial statements have been prepared in accordance with IFRS, as adopted by the EU, subject to any material departures disclosed and explained in the financial statements. The Directors recognize the value of involving employees in the business and ensuring that matters of concern to them, including the Group’s aims and objectives, are communicated in an open and regular manner. Management frequently briefs employees of the Group’s performance and activities and discusses matters of concern or interest. Our employees participate in the Global Share Incentive Plan. Recruitment gives equal opportunity to all employees regardless of age, sex, color, race, religion or ethnic origin. Training programs are held for all levels of staff. These are aimed at increasing skills and contribution. Going concern The Board is satisfied that the Group has adequate financial resources to continue to operate for the foreseeable future and is financially sound. For this reason, the going concern basis is considered appropriate for the preparation of financial statements. 36 37 2019 Annual Report Annual General Meeting of Shareholders The Company will be holding its 2020 AGM on 27 May 2020. Shareholders should note the provisions in the notice of Annual General Meeting with regard to the holding of this year’s Annual General Meeting in light of the restrictions arising from the COVID-19 outbreak Auditor A resolution to reappoint Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global (EY), as auditors of the Company will be put to the Annual General Meeting. The Directors will also be given the authority to fix the auditors’ remuneration. For more information about the Auditors please refer to the Audit Committee Report on pages 54-63 of this Annual Report. During the year the auditors undertook certain specific pieces of non-audit work (including work in relation to tax matters and the evaluation of potential acquisition targets). EY were selected to undertake these tasks due to their familiarity with the online industry and, as regards tax, their alignment with work carried out under the audit. In order to maintain EY’s independence and objectivity, EY undertook its standard independence procedures in relation to those engagements. By Order of the Board Matan Daniely Company Secretary 1 2 Castl e Street St Helier Jers ey JE2 3RT 38 39 2019 Annual Report Risk Factors The Risk Committee and the Board evaluate the operational risks facing the Company on an ongoing basis to monitor for changes in risks and risk impact and to set guidelines for risk mitigation. The most significant risks identified by the Risk Committee and the Board are listed below. 40 41 2019 Annual Report Powerful market participants may intentionally or unintentionally stop or interrupt our operations Risk Factors Search engine providers as well as social networks are continuously changing their platforms. Unfavourable terms and conditions We engage with some of our customers through online affiliate program platforms. Such platforms include terms and conditions for participation which may be unfavourable to us, or which may require us to rely heavily on the platform for information as to users and revenue streams, and which may expose us to liability and loss of revenues. We manage this risk by trying to engage with our customers through direct negotiated agreements which limit our liability and secure our revenue Because of their powerful market positions, any such changes may adversely affect us, including stream. materially disrupting traffic to our websites and decreasing the amount of revenues generated by our publishing assets. We seek to manage this risk by regularly reviewing our websites and adapting them to fully comply with the platforms’ guidelines and ensure our marketing strategies focus on quality, value add services, usability, relevancy, functionality and testing. Gambling laws and regulations as well as online marketing regulations are constantly evolving and becoming more stringent Although we do not conduct any online gambling operations, we are dependent on the online gambling industry, which comprises the majority of our customers. The laws and regulations surrounding the online gambling industry are complex, constantly changing and in some cases also subject to uncertainty and interpretation. Moreover, online gambling may become prohibited and/or highly restricted in countries we operate in. As publishers of online gambling businesses, we are also subject to advertisement and customer protection regulations – these are also a complex set of rules which differ between markets and geographies. If regulations or enforcement policies in the main markets we operate in change in a manner that affects us or our customers, then our ability to produce the same stream of revenues in such markets may be adversely affected. Moreover, if enforcement or other regulatory actions are brought against us or any of our customers (whether current or future), our revenue streams from such customers may be adversely affected as well. Protracted expansion into new sectors and markets We are seeking to expand our activities into areas such as personal finance and other new markets in order to both increase and diversify our revenue streams. In many of these sectors and markets the Company does not have an established brand or presence which may result in our expansion taking longer than expected or increased costs as we build market share. We seek to manage these risks by ensuring a deep understanding of the market and customer base we are seeking to address and delivering a strong and robust product offering. Reliance on a clear value proposition to our clients We engage with some of our customers through online affiliate program platforms. Such platforms include terms and conditions for participation which may be unfavourable to us, or which may require us to rely heavily on the platform for information as to users and revenue streams, and which may expose us to liability and loss of revenues. We manage this risk by trying to engage with our customers through direct negotiated agreements which limit our liability and secure our revenue stream. Protracted expansion into new sectors and markets We are seeking to expand our activities into areas such as personal finance and other new markets in order to both increase and diversify our revenue streams. In many of these sectors and markets We manage this risk by closely monitoring regulatory developments throughout the territories we the Company does not have an established brand or presence which may result in our expansion operate in to allow planning, adapting and preparation of our business for the upcoming changes. taking longer than expected or increased costs as we build market share. We seek to manage We engage with external advisors in various territories to provide us with periodical regulatory these risks by ensuring a deep understanding of the market and customer base we are seeking to reviews in such territories and their possible effects on our business. address and delivering a strong and robust product offering. 42 43 2019 Annual Report Reliance on a clear value proposition to our clients Risk Factors We are reliant on establishing a competitive advantage in a highly competitive and fragmented market. We seek to manage this risk by ensuring we have a market leading product offering and value proposition and by increasing presence in high growth markets. Revenues mainly derive from top 10 customers In 2019, $38.7 million of our revenues derived from our top 10 customers. Failure to adapt to changing business practices, competitors and client behaviour and changing technology may result in becoming less competitive Our continued success will partly depend on our ability to enhance and improve our websites and the marketing of such sites. We need to respond to technological advancements in digital We seek to manage this risk by diversifying our business to reduce reliance on key customers and marketing and the development of alternative platforms for gambling used by operators such as by attempting to win more customers in existing and new territories. Large portion of gambling revenues deriving from non-regulated gambling markets Large portion of our gambling revenues derive from non-regulated gambling markets, where the future of regulation and enforcement is uncertain. Regulatory changes and increased enforcement may result in volatility and unpredictable revenues and may result in loss of business and revenues. We seek to mitigate this risk by diversifying into regulated markets, non gambling markets, and by keeping up with regulatory developments. Heavy reliance on third party systems to validate commission payments We engage with some of our customers through online affiliate program platforms. Such platforms include terms and conditions for participation which may be unfavourable to us, or which may require us to rely heavily on the platform for information as to users and revenue streams, and which may expose us to liability and loss of revenues. We manage this risk by trying to engage with our customers through direct negotiated agreements which limit our liability and secure our revenue stream. 44 Mobile and Social. If we were unable to adapt and enhance our content and marketing skills to meet market demand in a timely manner, we could lose existing customers and struggle to attract new customers. To mitigate this risk we seek to ensure our innovation and evolution by designing and implementing a structure that follows the developments of business practices and supports innovation, we ensure core capabilities are present to harness data, and ensure structures and roles are well documented and we acquire new technologies through M&A, internal developments, or sourcing and acquiring. Coronavirus/COVID-19 While the COVID-19 pandemic is not directly affecting the ability to conduct online advertisement, it has led to the cancellation of major sporting events around the world and a reduction in advertising spending by many banks and financial services organisations. As a result, our sports betting and personal finance businaesses are likely to see less activity until there is some degree of re-opening of economies and events. We seek to manage the risks posed by the COVID-19 pandemic through continuous monitoring of the markets and adapting to the resulting effects, seeking alternative revenue sources, improving editorial content and adopting improved working practices. 45 2019 Annual Report 2019 Annual Report Corporate Governance Report As an AIM listed company working within highly regulated markets, our Board recognizes the report below how we apply the ten principles of the Code, using the disclosures indicated by the importance of applying sound and consistent governance principles appropriate to the nature, Code. scale and business of the Company and the need to apply best practices wherever possible to help manage risk within the business. Our Board is committed to upholding high standards of corporate The Board believes that the Group complies with the principles of the Code as far as possible and governance throughout the Group. Our Board acknowledges its role in setting the culture, values has explained below where it does not comply. The Board will continue to monitor how the Code is and ethics of the Group and in ensuring good corporate governance principles are maintained for interpreted in practice to ensure we can continue to comply with the principles of the Code as far the long-term benefit of the Group. as possible. In line with the requirement in the AIM Rules requiring all AIM quoted companies to adopt and comply with a recognized corporate governance code and detail how they comply with that code, in September 2018 the Board formally adopted the QCA Corporate Governance Code (the “Code”) and reports annually on the Company’s compliance with the Code and any exceptions. The Code is constructed around ten key governance principles that the QCA has identified as focusing on the pursuit of medium to long-term value for shareholders. We have set out in the 46 47 2019 Annual Report Deliver Growth Corporate Governance Report Principle 1 Establish a strategy and business model which promote long-term value for shareholders Our strategy and business operations are set out in pages 4-21 of this annual report. That section other matters. We nominated our CEO, Mr. Stuart Simms and our CFO, Mr. Iain Balchin as the responsible officers for shareholder engagement and have in place a mailbox to address investor feedback (ir@Xlmedia.com). We also operate a free newsletter tool on our website, which allows subscribers to receive breaking news about the Company and the covers our business model, our strategy and how Group via e-mail. Registration to the newsletter we aim to drive long-term value for shareholders. can be made here: The risk sections of this Annual Report are on https://www.xlmedia.com/investor-relations/rns- pages 40-45 of this Annual Report and deal with news-alerts/#alerts. the major challenges the business faces and how Additional information about the ways in these challenges are addressed and mitigated. For more information about our strategy please see: https://www.xlmedia.com/what-we-do/. Principle 2 Seek to understand and meet shareholders’ needs and expectations We are committed to listening and communicating openly with our shareholders to ensure that our strategy, business model and performance are understood. One or more senior representatives of the Company and the Board are present in the Annual General Meetings of the Company to answer questions from shareholders who attend the meetings. Additionally, our Chairman of the Board and the Chief Executive Officer meet and talk regularly with shareholders and potential investors directly and through analysts and brokers in order to receive feedback on market expectations or 48 which the Group is communicating with its shareholders is available on our website: https://www.xlmedia.com/investor-relations/ significant-shareholders/ and on https://www. xlmedia.com/about-us/corporate-governance/ Principle 3 Take into account wider stakeholder and social responsibilities and their implications for long-term success We are mindful of our corporate social responsibilities and the need to build and maintain strong relationships across a range of stakeholder groups. Our key stakeholders are our shareholders, customers and their end customers, suppliers, employees and regulators. We nominated our CEO, Mr. Stuart Simms, as the responsible officer for stakeholder engagement and set up a mailbox to address stakeholders’ feedback (ir@Xlmedia.com). The specific needs of each stakeholder group are considered when the Company reviews and responds to that feedback. We are committed to ensuring a high level of customer service. We frequently correspond with, and seek feedback from, key customers to improve our services. All customer feedback and requests are handled carefully and promptly. Our executives also regularly meet with key customers at professional conventions and other events to improve customer relations and to better understand customers’ needs. We are catering our end customers’ needs and always endeavor to provide them with highest quality services and products to tailor fit their needs and expectations. We view highly trained and satisfied employees as another essential part of business growth. As such, we strive to train and develop our employees to ensure professionalism, excellence and personal development and progression. We recruit employees who fit our open and dynamic working environment and our employees are encouraged to provide feedback on ongoing matters through informal discussions with managers and executives at all levels and during their annual meetings with their managers. Managers are simultaneously encouraged to act on the feedback received. We have established an anonymous mailbox and telephone line handled by Mr. Richard Rosenberg, chair of the audit committee of the Board, to allow employees to provide feedback to the Board in a discreet manner. We believe that excellent suppliers are key to providing long term excellency in services and are therefore essential for supporting our long-term success. Many of our suppliers rank at the top of their services category. Suppliers are asked by the relevant functions in our Group to provide feedback about their services and expertise. Any feedback is discussed by us and further action, if required, is considered. Principle 4 Embed effective risk management, considering both opportunities and threats, throughout the organization The Board has embedded an effective risk management framework to identify, evaluate, manage and mitigate risks, in order to ensure the Company is well positioned to execute its strategy and achieve its business objectives. The Company’s risk register is compiled with input from our executives and other employees. The Risk Committee of the Board is responsible for reviewing the risk register and other risks facing the Company and discussing all compliance issues and regulatory developments based on the risk register and other periodical management updates designed to highlight any new or developing risks. In addition, we have an internal audit function performed by Chaikin Cohen Rubin & Co. which conducts audits periodically pursuant to an internal audit plan. The specific internal audit plan is established each year based on the issues identified by the Audit Committee and the Board as most relevant to such year. Each report published by the internal auditors is discussed by the Audit Committee and action items identified in such reports are handled by the Company. Further details on the risk management process, the key risks and challenges facing the business and how they are mitigated are set out in pages 40-45 of this Annual Report. 49 2019 Annual Report Maintain a Dynamic Management Framework Corporate Governance Report Principle 5 Maintain the board as a well-functioning, balanced team led by the chair The Board is charged with the responsibility of directing and governing the Company’s affairs, including: the formulation and approval of the Company’s long-term objectives, mission and strategy; the approval of budgets; the oversight of the Company’s operations and delegation of authority to management; the establishment and monitoring of sound internal controls and risk management systems; and the evaluation of the implementation of the Company’s policies and business plan. The Board operates formally through meetings of both the full Board and of its sub-committees, and informally through regular contact between Directors. The Board convenes at least once every quarter to review and monitor the implementation of the Company’s strategy, budgets and progress and more frequently if necessary. Whilst the Board may delegate responsibilities, there are formal matters specifically reserved for decision by the Board. Such reserved matters include, amongst other things, the approval of significant capital expenditures, material business contracts and major co rporate transactions. A formal schedule of Matters Reserved for the Board was adopted by the Company. The Board comprises six directors, one of whom is an Executive Director and five of whom are Non-executive Directors, including the Chairman. The Board views Christopher Bell, Richard Rosenberg, and Jonas Mårtensson as independent directors. Members of the Board 50 must be re-elected by the shareholders of the Company at the Company’s annual general meeting at least once every three years. The Board consists of directors presenting an appropriate balance of skills and experience to effectively operate and control the business and, where deemed necessary, the Board also consults with external advisors or with executive officers of the Company. The Board is an independent unit acting for the benefit of the Company and its composition ensures that no individual (or a small group of individuals) can dominate its decision making. The Board has established an Audit Committee, a Remuneration Committee and a Risk Committee, each with formally delegated duties and responsibilities. More information about the composition and the duties and responsibilities of each Board Committee is available in the Company’s website on: https://www.xlmedia.com/about-us/corporate- governance/. At this stage of the Company’s development the Board does not consider it necessary to establish a Nominations Committee and the Board will take decisions regarding the appointment of new directors and senior employees following a thorough assessment of a potential candidate’s skill and suitability for the role. Non-executive directors are expected to devote as much time as is necessary for the proper performance of their duties. Executive directors are full-time employees or services providers and expected to devote as much time as is necessary for the proper performance of their duties. During 2019 the Board held ten (10) meetings. all directors attended all ten (10) meetings other than Jonas Martensson and Amit Ben Yehuda who attended 9 meetings each. Additionally, the board also passed 16 unanimous written Resolutions. Principle 6 Ensure that between them, the directors have the necessary up-to-date experience, skills and capabilities The Board considers its current composition to be appropriate and suitable with the adequate and up-to-date experience, skills and capabilities to make informed decisions. Each member of the Board brings a different set of skills, expertise and experience, making the Board a diverse unit equipped with the necessary set of skills required to create maximum value for the Company. The Board is fully committed to ensuring its members have the right skills. Members of the Board must be re-elected by the shareholders of the Company if they have not been re-elected at the previous two annual general meetings in accordance with the Company’s Articles of Association, thereby providing shareholders the ability to decide on the election of the Company’s Board. The Directors’ biographical details and relevant experience can be found on pages 26-27 of This Annual Report and on the following URL: https://www.xlmedia.com/about-us/board- management/#board Throughout the year, members of the Board receive updates on corporate governance matters from either the General Counsel, the Company Secretary and/or the Company’s Nominated Advisor. During the year the Directors receive regular updates of our business from the CEO and CFO and regular comprehensive regulatory updates from the General Counsel. More information about the Group’s management and the relevant internal functions can be found here: https://www.xlmedia.com/ about-us/board-management/#management. The Board also consults with external advisors and with executives of the Company on various matters as deemed necessary and appropriate by the Board. 51 2019 Annual Report Maintain a Dynamic Management Framework Corporate Governance Report Principle 7 Evaluate board performance based on clear and relevant objectives, seeking continuous improvement In order to ensure that the Board as a whole and its members collectively function in an efficient and productive manner, a formal external Board evaluation was carried out in November 2018 by Board Eventuation Ltd., a company with vast experience in evaluating boards of UK public companies. Evaluation questionnaires were circulated to and completed by all Board members and a thorough analysis of members’ responses conducted by Board Evaluation. The evaluation took into consideration various criteria such as the effectiveness of the composition of the Board, the Board’s approach to its work, its culture and dynamics, its structure and processes, its accessibility to information, its ongoing training, its success in achieving its goals and the need for succession planning. The Board evaluation characterized discussions at the Board level as an open boardroom culture, with good level of debate and without conflict of interests and found that the Board and its committees work well. The evaluation further found the Board members to be highly qualified, experienced and with the right set of skills to lead the Group, noting that while legal and HR skills were not represented within skills of current members of the Board, the Company does seek advice as needed in relation to such and other areas. Some issues were identified as requiring improvement, such as improving communication and Board information. The learnings from this process have been and will continue to be addressed on a regular basis. 52 Given the thoroughness of the 2018 process, no external review was carried out in 2019 but one is expected to be carried out during calendar year 2020. The method of assessing Board effectiveness and performance will be reviewed on a continuing Principle 8 Promote a corporate culture that is based on ethical values and behaviors We are committed to acting ethically and with integrity. We expect all employees, officers, directors and other persons associated with us to conduct their day-to-day business activities in a fair, honest and ethical manner. For that purpose, we have adopted a Code of Business Conduct (“Code”) which applies to all our workforce personnel. Pursuant to the Code, employees, directors and other relevant stakeholders are required to comply with all laws, rules and regulations applicable to us. These include, without limitation, laws covering anti-bribery, copyrights, trademarks and trade secrets, data privacy, insider trading, illegal political contributions, antitrust prohibitions, rules regarding the offering or receiving of gratuities, environmental hazards, employment discrimination or harassment, occupational health and safety, false or misleading financial information or misuse of corporate assets. The Code also includes provisions for disclosing, identifying and resolving conflicts of interest of employees and Board members The Code includes provisions requiring all employees to report any known or suspected violation and ensures that all reports of violations of the Code will be handled sensitively and with the CEO and the directors to discuss matters for discretion. We also recognize the benefits of the Board. a diverse workforce and are committed to We will continue to review our governance providing a working environment that is free from structures with the QCA Code in mind and are discrimination. committed to the evolution of our corporate We have also adopted a share dealing code, governance in line with best practices, to regulating trading by persons discharging the extent the directors judge it appropriate managerial responsibility and persons closely considering the Company’s size, stage of associated with them (“PDMRs”). We take all reasonable steps to ensure compliance by PDMRs and any relevant employees with the terms of the Dealing Code. Principle 9 Maintain governance structures and processes that are fir for purpose and support good decision- making by the board The Board Committees are comprised of a majority of independent Board members to development and resources. Build Trust Principle 10 Communicate how the group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders We are committed to an open communication and dialogue with our stakeholders. Our main stakeholder groups are our shareholders, our customers, our suppliers and our employees. ensure that resolutions adopted are conflict-free. We communicate with stakeholders inter alia Further details of the composition and meetings through the Annual Report, the annual general of these Committees can be found on pages meeting of shareholders, the full-year, half-year 34-35 and 54-75 of this Annual Report. Each and other regulatory market announcements, of the Board Committees has the ability to use investor roadshows and through the Group’s external advisors as it sees fit in the furtherance website. of its duties. Our website is regularly updated, and users The Company’s CEO is responsible for the can register to be alerted via email when leadership and day-to-day management announcements are posted on the website. of the Group. This includes formulating and Annual reports and notices of annual general recommending the Group’s strategy for Board meetings from admission can be found on our approval and then executing the approved website. strategy. The Chairman’s main responsibility is As of 2019 we publish on the Company’s website the leadership and management of the Board’s in a clear and transparent manner the outcomes business and its governance and acting as its of the general meetings of shareholders, facilitator. He meets regularly and separately with including a breakdown of votes cast. 53 2019 Annual Report 2019 Annual Report Audit Committee Report General and Composition of the Audit Committee The Audit Committee is a sub-committee of the Board. The Audit Committee chairman reports formally to the Board on all matters within the Committee’s duties and responsibilities and on how the Audit Committee discharges its responsibilities. The Audit Committee members are Christopher Bell, Richard Rosenberg and Amit Ben Yehuda. The Committee is chaired by Mr. Rosenberg. All members of the Audit Committee are independent directors. For further information about the qualifications of the Audit Committee members please refer to pages 26-27 of this Annual Report and the Company’s website on https://www.xlmedia.com/about-us/board-management/. The Audit Committee meets at least four times a year at appropriate times in the reporting and audit cycle and otherwise as required. The Audit Committee also meets regularly with the Company’s internal and external auditors. 54 55 2019 Annual Report Purpose and Responsibilities of Audit Committee Audit Committee Report The purpose of the Audit Committee is to assist the Board to carry out the following functions: Oversight of the integrity of the Group’s formal reports, statements and announcements relating to the Group’s financial performance; Reviewing compliance with internal guidelines, policies and procedures and other prescribed internal standards of behaviour; To achieve such purposes, the Audit Committee has been assigned with the following responsibilities; Reviewing the half-year and full-year financial statements with management and with the external auditors as necessary prior to their approval by the Board; Reviewing financial results announcements of the Group and any other formal announcements relating to the Group’s financial performance and recommending them to the Board for approval; Reviewing recommendations from the CFO and the external auditors on the key financial and accounting principles to be adopted by the Group in the preparation of the financial statements; Reviewing the Group’s systems for internal financial control; Approving the appointment and termination of appointment of the Group’s internal auditors, reviewing and approving the Group’s internal audit plan and ensuring the internal auditors have the necessary resources and access to information to enable them to fulfil their mandate; Considering and making recommendations to the Board, to put to shareholders for approval at the AGM, the appointment, re-appointment and removal of the Company’s external auditors and oversee the relationship with the external auditors; Reviewing and approving the external audit plan and regularly monitoring the progress of implementation of the plan Determining and monitoring the effectiveness and independence of the internal and external auditors; Monitoring the level of resources related to the management of audit functions across the Group. 56 57 2019 Annual Report Main Activities in 2019 Audit Committee Report 25 March 2019 8 May 2019 3 June 2019 The Audit Committee The Audit Committee The Audit Committee reviewed and approved reappointed Ernst & Young reviewed the financial the financial statements for as the external auditors results of the Company for FY2018 and discussed the and discussed the internal Q1 2019. internal auditors report. auditors’ reports. 22 September 2019 18 December 2019 The Audit Committee The Audit Committee reviewed and approved the reviewed the external financial statements of the auditors' plans for the Company for H1 2019 annual report of FY2019 and reviewed the financial results of the Company for Q3 2019. 58 59 2019 Annual Report201920182020 Internal Auditors Audit Committee Report The internal auditors of the Company are Chaikin Cohen Rubin & Co. The internal auditors provide their audit based on an audit plan. Each year specific topics are identified by the Audit Committee for audit during such year. Each report of the internal auditors is discussed by the Audit Committee and if necessary by the Board and its results are learned and implemented as required. External Auditors The external auditors of the Company are Kost Forer Gabbay & Kasierer (Ernst & Young Israel) (“EY”). The appointment of EY as auditors by the Audit Committee was based on their performance during past years and their offer for auditing the reports for 2019. The Audit Committee review of the external auditors confirmed the appropriateness of their reappointment and included assessment of their independence, qualification, expertise and resources, and effectiveness of their audit process. Both the Board and the external auditors have safeguards in place to avoid the possibility that the auditors’ objectivity and independence could be compromised. The services provided by the external auditors include the Audit-related services and tax consulting. In recognition of public concern over the effect of consulting services on auditors’ independence, the external auditors are not invited to provide general consulting work which can affect their independence as external auditors. 60 The total remuneration of the external auditors for 2019 and for 2018 was as listed in the table below USD in thousands External Auditors’ remuneration 2019 2018 Audit services 184 Acquisition and assurance services 186 35 Tax compliance 112 168 The Audit Committee and the auditors found that the external audit plan for 2019, the work of the external auditors for 2019 and the remuneration of the external auditors for 2019 did not undermine the independence of the external auditors. Whistleblowing The Group has a Whistleblowing Policy permitting each employee of the Group to raise concerns in confidence about possible improperness in various aspects and matters. Issues raised will be handled appropriately by the management of the Group. 61 2019 Annual Report 2019 Annual Report Financial Reporting Audit Committee Report The Group’s trading performance is monitored on an ongoing basis. An annual budget is prepared, and specific objectives and targets are set. The budget is reviewed and approved by the Board. The key trading aspects of the business are monitored constantly and internal management and financial accounts are prepared monthly. The results are compared to budget and prior year performance. The Audit Committee has taken and will continue to take further steps to ensure the Group’s control environment is working effectively and efficiently. Richard Rosenberg Chairman of the Committee 62 63 2019 Annual Report Remuneration Committee Report General The Remuneration Committee is responsible for determining and recommending to the Board the framework for the remuneration of the Board chairman, executive directors and other designated senior executives and, within the terms of the agreed framework, determining the total individual remuneration packages of such persons including, where appropriate, bonuses, incentive payments and share options or other share awards. The Remuneration Committee consists of three members, all of whom are independent non- executive directors. Currently the Remuneration Committee comprises Christopher Bell, Richard Rosenberg and Jonas Mårtensson. Until 3 June 2019 Mr. Ben Yehuda was a member of and chaired the committee and since then Mr. Jonas Mårtensson has been a member of and the chairman of the committee. The Remuneration Committee meets at least twice a year and otherwise as required. 64 2019 Annual Report 65 2019 Annual Report Key Elements in Remuneration Remuneration Committee Report As an AIM-listed company, the Company is not required to comply with the remuneration reporting requirements applicable to fully listed companies in the UK. However, set out below are certain disclosures relating to directors’ remuneration: Responsibilities of the Remuneration Committee Remuneration Committee Report The responsibilities of the Remuneration Committee include the below and other responsibilities as set forth in the Charter of the Committee: The remuneration of executive directors and certain other senior executives is set by Setting the remuneration policy for all executive directors, including pension rights, and comparison to market rates at levels aimed to attract, retain and motivate the best staff, compensation payments; recognizing that they are key to the ongoing success of the business. The remuneration of non-executive directors is a matter for the Chairman and the CEO management personnel; to determine. Recommending and monitoring the level and structure of remuneration for senior No Director is involved in any decision as to his or her own remuneration. The remuneration and grant of bonuses to senior management are linked to their performance and to their achievement of predefined targets. The remuneration of senior management includes equity-based payments vested over time to retain their employment. Approving the design of, and determining targets for, any performance-related pay schemes operated by the Group and approving the total amount of payments made under such schemes; Reviewing the design of all share incentive plans for approval by the Board and shareholders. For any such plans, determining each year whether award will be made, and if so, the overall amount of such awards, the individual awards to executive directors and other designated senior executives and the performance targets to be used; and working and liaising, as necessary, with all other Board committees. 66 67 2019 Annual Report Share Option Schemes Remuneration Committee Report The Company operates a Global Share Incentive Plan (the “GSIP”) approved by the Board which deals with the grant of options to Group employees. IBI Capial (formally known as Tamir Fishman Management Ltd.), is the appointed trustee under the GSIP (the “Trustee”). Non-Executive Directors’ Interests in Share Options and Shares As of 31 December 2019, the Directors’ interests in the Ordinary Share capital of the Company were: In connection with the share options granted to date, on 21 January 2015 and on 14 July 2017, the Number of Ordinary Shares Trustee has subscribed for 14,000,000 ordinary shares of US$0.000001 each in the Company at par. The shares held by the Trustee will be used to satisfy future obligations of the Company under the GSIP. Under the terms of the agreement entered into by the Company and the Trustee, the Trustee has agreed to waive its voting rights and all entitlements to dividends paid by the Company, in each case, in respect of such shares prior to the transfer of those shares to satisfy the exercise of options pursuant to the terms of the GSIP. On 31 December 2019 the balance of the Trustee’s shares was 3,315,521. 31.12.2019 31.12.2018 A new Share Incentive Plan (the “LTIP”) is being put forward for shareholder approval. The LTIP Christopher Bell 357,000 357,000 is a discretionary share plan that will be administered by the Remuneration Committee and will allow awards to take the form of share options with an exercise price determined by the Remuneration Committee, contingent rights to acquire shares for no consideration (Restricted Stocks Units or RSUs), contingent rights to acquire shares for no consideration subject to the achievement of performance conditions (Performance Stocks Units or PSUs), other share- based awards r contingent awards of cash. Deferred bonus awards may also be granted in the form of contingent rights to acquire shares for no consideration or options with an exercise price equal to the par value of a share or nil. Richard Rosenberg 51,000 51,000 Ory Weihs 7,012,444 4,556,735 68 69 2019 Annual Report Non-Executive Directors’ Interests in Share Options and Shares Remuneration Committee Report As of 31 December 2019, non-executive directors’ interests in the Company’s share options were as follows: Options granted Exercise price Expiry date Vested at the end of 2019 Cancelled Amit Ben Yehuda 180,000 69.7p 27/07/2024 180,000 Christopher Bell 270,000 57.75p 21/01/2023 270,000 Richard Rosenberg 180,000 57.75p 21/01/2023 180,000 Ory Weihs 900,000 196.8p 31/1/2026 225,000 As of 31 December 2019, executive directors’ interests in the Company’s share options were as follows: Stuart Simms* 920,223 nominal value per share 31/1/2026 0 *The options are subject to performance conditions. For further information, see note 14 to the consolidated financial statements. 70 71 2019 Annual Report Directors’ Remuneration in 2019 Remuneration Committee Report The Directors’ remuneration for the year ended 31 December 2019 is set out in the table below. Management Costs of share fees/salary and bonus-based related payments USD Stuart Simms 158,770 35,082 Christopher Bell 139,307 Richard Rosenberg 61,636 Amit Ben Yehuda 92,484 3,308 Jonas Mårtensson 62,000 Ory Weihs 302,612 -159,556 Total 2019 193,852 139,307 61,636 95,792 62,000 143,056 72 For further information, see note 19 to the consolidated financial statements. 73 2019 Annual Report 2019 Annual Report Historical Pay and Share Performance Remuneration Committee Report For historical pay and share performance please see our previous annual reports and on our website: https://www.xlmedia.com/ investor-relations/share-price-information/.price-information/. The Committee remains committed to a fair and responsible approach to executive pay whilst ensuring it remains in line with best practice and appropriately incentivizes executive directors over the longer term to deliver the Group’s strategy. Jonas Mårtensson, Chairman of the Committee 74 75 2019 Annual Report 2019 Audited Financial Statements 76 77 2019 Annual Report Independent Auditor’s Report To the Shareholders of XLMedia PLC (cid:3) (cid:3) Kost Forer Gabbay & Kasierer 77 Haenergia st. Advanced Technologies Park Beer Sheva 8470912, Israel Tel: +972-8-6261300 Fax: +972-3-5622555 ey.com Report on the audit of the consolidated financial statements Opinion Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards)(IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. We have audited the consolidated financial statements of XLMedia PLC and its subsidiaries (the Group), which comprise the consolidated statements of financial position as of 31 December 2019 Key audit matters and 2018 and the consolidated statements of profit or loss and other comprehensive income, Key audit matters are those matters that, in our professional judgment, were of most significance consolidated statements of changes in equity and consolidated statements of cash flows for each in our audit of the consolidated financial statements of the year ended 31 December 2019. These of the years then ended, and notes to the consolidated financial statements, including a summary matters were addressed in the context of our audit of the consolidated financial statements as of significant accounting policies. a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided In our opinion, the accompanying consolidated financial statements present fairly, in all material in that context. respects, the financial position of the Group as of 31 December 2019 and 2018 and its financial performance and its cash flows for each of the years then ended in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. 78 79 2019 Annual Report Independent Auditor’s Report To the Shareholders of XLMedia PLC continued We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Description of Key Audit Matter and why a matter of most significance in the audit Description of Auditor’s Response Revenue recognition In 2019 in order to gain the required level of assurance, we performed Revenues which amounted to substantive audit procedures relating 79.7 million in 2019 are significant to the recognition and recording to the consolidated financial of revenues, including tests of statements based on their reconciliations from underlying quantitative materiality. As such, data to the financial accounts. IT there is inherent risk that revenues audit specialists were deployed to may be improperly recognised, assist in understanding the design inflated or misstated and operation of the relevant IT Recognition of revenues in the accounts of the Group is a highly automated process. The Group is heavily reliant on the reliability systems and in performing various data analyses in order to test completeness, accuracy and timing of the recognition of revenues. and continuity of its in-house IT We also evaluated the adequacy of platform to support automated data the disclosures provided in relation processing in its recognition and to revenue in Notes 2 and 17 to the recording of revenues. consolidated financial statements. Goodwill Domains and Websites and other intangible assets – impairment test Our audit procedures included, among others evaluating the assumptions and methodologies used by the Group. In particular, we tested the Group’s determination of the recoverability of these assets by As of 31 December 2019, the total net reviewing management’s forecasts carrying amount (before impairment) of revenues and profitability. We of goodwill, domains and websites assessed the reliability of these with indefinite useful life and other forecasts through, among others, a intangible was approximately USD review of actual performance against 128 million. In accordance with IFRSs previous forecasts. We evaluated as adopted by the European Union, and tested the discount rates and the Group is required to annually attribution of expenses, and we test these assets for impairment. considered the reasonableness of As result of the impairment test management’s other assumptions. the Group recorded an impairment We also verified the adequacy of loss for the amount of USD 81,350 the disclosure of the assumptions thousands, which is included in the and other data in Note 8 to the statement of profit or loss. consolidated financial statements. We included in our team tax specialists to analyse and evaluate the assumptions used to determine The Group’s operations are subject tax provisions. We evaluated and to income tax in various jurisdictions. tested the underlying support, Taxation is significant to our audit such as transfer price studies, for because the assessment process the calculation of income taxes in is complex and judgmental and the the various jurisdictions. We also amounts involved are material to the assessed the adequacy of the consolidated financial statements as Group’s disclosures in Note 16 to the a whole. consolidated financial statements. Taxation 80 81 2019 Annual Report Independent Auditor’s Report To the Shareholders of XLMedia PLC continued Emphasis of matter – Subsequent event We draw attention to Note 22 of the consolidated financial statements, which describes the uncertainties of the potential impact of Coronavirus on the Company’s operation subsequent to the reporting period. Our opinion is not modified in respect of this matter. Other information included in the Group’s 2019 Annual Report Other information consists of the information included in the Group’s 2019 Annual Report other than the consolidated financial statements and our auditor’s report thereon. Management is responsible for the other information. The Group’s 2019 Annual Report is expected to be made available to us after the date of this auditor’s report. Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. Responsibilities of management and the board of directors for the consolidated financial statements In preparing the consolidated financial statements, management is responsible for assessing the Group’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 management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The board of directors is responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated 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 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 consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a Management is responsible for the preparation and fair presentation of the consolidated financial basis for our opinion. The risk of not detecting a material misstatement resulting from fraud statements in accordance with IFRS as adopted by the European Union, and for such internal is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional control as management determines is necessary to enable the preparation of consolidated omissions, misrepresentations, or the override of internal control. financial statements that are free from material misstatement, whether due to fraud or error. 82 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. 83 2019 Annual Report Independent Auditor’s Report To the Shareholders of XLMedia PLC continued Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the board of directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the board of directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. 84 From the matters communicated with the board of directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the year ended 31 December 2019 and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements The consolidated financial statements have been prepared in accordance with the requirements of the Companies (Jersey) Law 1991. 21 April 2020 Beer Sheva, Israel Albert Perez For and on behalf of KOST FORER GABBAY & KASIERER A Member of Ernst & Young Global 85 2019 Annual Report Consolidated Statements of Financial Position As of 31 December 2019 2018 As of 31 December 2019 2018 Note USD in thousands Note USD in thousands Assets Current assets: Cash and cash equivalents Short-term investments Trade receivables Other receivables Financial derivatives Non-current assets: Long-term investments Property and equipment Goodwill Domains and websites Other intangible assets Deferred taxes Other assets 5 (a) 6 (a) 6 (b) 12(b) 5 (b) 7 8 8 8 15 27,108 2,785 7,755 4,522 222 44,627 2,996 16,112 4,697 805 Liabilities and equity Current liabilities: Trade payables Other liabilities and accounts payable Income tax payable Financial derivatives Current maturities of long-term bank loans 42,392 69,237 Current maturities of lease liabilities 682 9,431 – 40,215 6,428 – 278 57,034 99,426 633 1,296 23,652 92,053 9,146 99 435 127,314 196,551 Non-current liabilities: Long- term bank loans Lease liability Deferred taxes Other liabilities Total liabilities 9 15 12 (b) 10 11 10 11 15 3,028 9,625 11,874 79 1,465 1,161 6,416 6,967 9,049 91 5,585 – 27,232 28,108 – 8,067 516 65 8,648 35,880 1,380 – – 248 1,628 29,736 The accompanying notes are an integral part of the consolidated financial statements. 86 87 2019 Annual Report Consolidated Statements of Financial Position continued Consolidated Statements of Profit or Loss and other Comprehensive Income As of 31 December 2019 2018 USD in thousands Note 13 *) 112,624 2,276 (2,445) (30,159) (19,041) 63,255 291 63,546 99,426 *) 112,224 2,590 (2,445) (468) 54,623 166,524 291 166,815 196,551 Equity Share capital Share premium Capital reserve from share-based transactions Capital reserve from transaction with non-controlling interests Treasury shares Retained earnings (accumulated deficit) Equity attributable to equity holders of the Company Non-controlling interests Total equity *) Lower than USD 1 thousand. The accompanying notes are an integral part of the consolidated financial statements. 21 April 2020 Date of approval of the financial statements Chris Bell Chairman of the Board of Directors Stuart Simms Chief Executive Officer Iain Balchin Chief Financial Officer 88 Revenues Cost of revenues Gross profit Research and development expenses Sale and marketing expenses General and administrative expenses Operating profit before Impairment and Reorganisation costs Impairment loss Reorganisation costs Operating profit (Loss) Finance expenses Finance income Finance expenses, net Profit (loss) before taxes on income Taxes on income Income (loss) from continuing operations Income (loss) from discontinued operations, net Net income (loss) Note 17 8 2(a) 15 16 Year ended 31 December 2019 2018 (*) USD in thousands 79,695 26,002 53,693 1,554 4,579 21,214 27,347 26,346 81,350 1,682 93,502 30,133 63,369 1,043 5,044 20,297 26,384 36,985 300 – (56,686) 36,685 (1,879) 835 (1,044) (57,730) 3,188 (60,918) 2,217 (58,701) (837) 300 (537) 36,148 4,089 32,059 (11,284) 20,775 89 2019 Annual Report Consolidated Statements of Profit or Loss and other Comprehensive Income continued Consolidated Statements of Changes in Equity Year ended 31 December 2019 2018 (*) Note USD in thousands Net income (loss) and other comprehensive income Attributable to: Equity holders of the Company Non-controlling interests Earnings per share attributable to equity holders of the Company: 13 (e) Basic and Diluted earnings (loss) per share from continuing operation (in USD) Basic and Diluted earnings (loss) per share from discontinued operation (in USD) (*) Reclassified for discontinued operations – See Note 16. (58,701) 20,775 (59,474) 773 (58,701) 19,818 957 20,775 (0.31) 0.14 0.01 (0.05) The accompanying notes are an integral part of the consolidated financial statements. l a t o T y t i u q E – n o N g n i l l o r t n o c s t s e r e t n i l a t o T i d e n a t e R i s g n n r a e ) s e s s o l ( y n a p m o C e h t f o s r e d o h y t i l l u q e o t e b a t u b i r t t A l a t i p a C m o r f e v r e s e r s n o i t c a s n a r t l a t i p a C – n o n h t i w m o r f e v r e s e r s d n a s u o h t n i D S U y r u s a e r T g n i l l o r t n o c d e s a b – e r a h s e r a h S s e r a h s s t s e r e t n i s n o i t c a s n a r t i m u m e r p e r a h S l a t i p a c , 5 1 8 6 6 1 1 9 2 4 2 5 6 6 1 , 3 2 6 4 5 , ) 8 6 4 ( ) 5 4 4 2 ( , 0 9 5 2 , 4 2 2 2 1 1 , ) * ) 1 0 7 8 5 ( , 3 7 7 ) 4 7 4 9 5 ( , ) 4 7 4 9 5 ( , – ) 3 7 7 ( ) 3 7 7 ( – ) 1 9 6 9 2 ( , ) 8 1 2 ( ) 0 9 1 4 1 ( , 4 0 3 – – – – 4 0 3 ) 1 9 6 9 2 ( , ) 8 1 2 ( – – ) 0 9 1 4 1 ( , ) 0 9 1 4 1 ( , – – ) 1 9 6 9 2 ( , – – – – – – – – – – – – ) 8 1 2 ( – ) 6 9 ( – – – – 0 0 4 – – 6 4 5 3 6 , 1 9 2 5 5 2 3 6 , ) 1 4 0 9 1 ( , ) 9 5 1 0 3 ( , ) 5 4 4 2 ( , 6 7 2 2 , 4 2 6 2 1 1 , – – – – ) * – ) * 90 r e h t o d n a s s o l t e N e v i s n e h e r p m o c e m o c n i 9 1 0 2 y r a u n a J 1 f o s a e c n a a B l y r u s a e r t f o n o i t i i s u q c A s e r a h s ) m o r f e m o c n i ( f o t s o C t n e m y a p d e s a b - e r a h s s n o i t p o f o e s c r e x E i e h t f o s r e d o h l y n a p m o C y t i u q e o t d n e d v D i i - n o n o t d n e d v D i i s t s e r e t n i g n i l l o r t n o c 9 1 0 2 r e b m e c e D 1 3 f o s a e c n a a B l 91 2019 Annual Report Consolidated Statements of Changes in Equity continued Consolidated Statements of Cash Flows l a t o T y t i u q E – n o N g n i l l o r t n o c s t s e r e t n i s d n a s u o h t n i D S U l a t o T i d e n a t e R i s g n n r a e y r u s a e r T g n i l l o r t n o c d e s a b – e r a h s e r a h S s e r a h s s t s e r e t n i s n o i t c a s n a r t i m u m e r p e r a h S l a t i p a c l a t i p a C m o r f e v r e s e r s n o i t c a s n a r t l a t i p a C – n o n h t i w m o r f e v r e s e r y n a p m o C e h t f o s r e d o h y t i l l u q e o t e b a t u b i r t t A 92 7 5 6 6 1 1 , 1 9 2 6 6 3 6 1 1 , 7 6 1 9 4 , 5 7 7 0 2 , 7 5 9 8 1 8 9 1 , 8 1 8 9 1 , ) 7 5 9 ( ) 7 5 9 ( – 8 1 6 2 4 , ) 8 6 4 ( 7 6 6 1 , ) 2 6 3 4 1 ( , 5 8 8 – – – – – 5 8 8 8 1 6 2 4 , ) 8 6 4 ( 7 6 6 1 , – – – ) 2 6 3 4 1 ( , ) 2 6 3 4 1 ( , – – – – – ) 8 6 4 ( – – – – – – – – – – – – – – 7 6 6 1 , – – 8 1 6 2 4 , – – – ) 4 0 3 ( 9 8 1 1 , – – ) 5 4 4 2 ( , 7 2 2 1 , 7 1 4 8 6 , ) * – – – – – ) * – ) * e v i s n e h e r p m o c r e h t o d n a e m o c n i t e N e m o c n i e c n a u s s i l a t i p a c e r a h S f o t s o c e u s s i f o t e N ( ) n o i l l i m 6 . 1 D S U y r u s a e r t f o n o i t i i s u q c A s e r a h s d e s a b - e r a h s f o t s o C t n e m y a p 8 1 0 2 y r a u n a J 1 f o s a e c n a a B l s n o i t p o f o e s c r e x E i e h t f o s r e d o h l y n a p m o C y t i u q e o t d n e d v D i i 8 1 0 2 r e b m e c e D 1 3 f o s a e c n a a B l g n i l l o r t n o c - n o n s t s e r e t n i o t d n e d v D i i , 5 1 8 6 6 1 1 9 2 4 2 5 6 6 1 , 3 2 6 4 5 , ) 8 6 4 ( ) 5 4 4 2 ( , 0 9 5 2 , 4 2 2 2 1 1 , Year ended 31 December 2019 2018 USD in thousands Cash flows from operating activities: Net income (loss) (58,701) 20,775 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Adjustments to the profit or loss items: Depreciation and amortisation Impairment loss Finance expense (income), net Gain from sale of property Loss (gain) from discontinued operation Cost of (income from) share-based payment Taxes on income Exchange differences on balances of cash and cash equivalents Changes in asset and liability items: Decrease in trade receivables Decrease (increase) in other receivables Decrease in trade payables Increase (decrease) in other accounts payable 7,511 81,350 1,976 – (1,811) (218) 3,228 (661) 6,203 300 (1,577) (10) 9,938 1,667 4,387 954 91,375 21,862 6,465 371 (2,239) 4,482 2,838 (509) (3,397) (4,571) 93 . s t n e m e t a t s l i a c n a n i f d e t a d i l o s n o c e h t f o t r a p l a r g e t n i i n a e r a s e t o n g n y n a p m o c c a e h T . d n a s u o h t 1 D S U n a h t r e w o L ) * 2019 Annual Report Consolidated Statements of Cash Flows continued Increase (decrease) in other long-term liabilities Cash received (paid) during the year for: Interest paid Interest received Taxes paid Taxes received Net cash provided by operating activities Year ended 31 December 2019 2018 USD in thousands (183) 8,896 (752) 101 (2,859) 2,061 (1,449) 40,121 47 (5,592) (469) 196 (5,544) 557 (5,260) 31,785 The accompanying notes are an integral part of the consolidated financial statements. 94 Cash flows from investing activities: Purchase of property and equipment Proceeds from sale of assets and property Acquisition of and additions to domains, websites and other intangible assets Acquisition of and additions to technology Proceeds from the sale of discontinued operation *) Short- term and long-term investments, net Net cash used in investing activities Cash flows from financing activities: Year ended 31 December 2019 2018 USD in thousands (260) – (406) (8,447) 1,547 281 (7,285) (553) 270 (47,306) (8,210) – 1,735 (54,064) Dividend paid to equity holders of the Company (14,190) (14,362) Share capital issuance, net of issuance costs Acquisition of treasury shares Dividend paid to non-controlling interests Exercise of options Repayment of long and short-term liability Repayment of lease liabilities Receipt of long-term loan from bank Net cash provided by (used in) financing activities Exchange differences on balances of cash and cash equivalents Increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year *) net of cash balance of discontinued operation. – (29,691) (652) 270 (5,500) (1,253) – (51,016) 661 (17,519) 44,627 27,108 42,618 (468) (1,285) 976 (4,000) – 5,965 29,444 (954) 6,211 38,416 44,627 95 2019 Annual Report Notes to the Consolidated Financial Statements Note 1: General (a) General description of the Group and its operations: The Group is a leading global digital performance publisher. The Group attracts traffic from multiple online channels and directs them to online businesses who, in turn, convert such traffic into paying customers. Online traffic is attracted by the Group’s publications and are then directed, by the Group, to its customers in return for mainly a share of the revenue generated by such user, a fee generated per user acquired, fixed fees or a hybrid of any of these models. (c) Assessment of going concern: As part of their ongoing responsibilities, the Directors have recently undertaken a thorough review of the Group’s cash flow forecast and potential liquidity risks. Forecasts of operating results and cash flow projections have been prepared for 2020 and 2021 which show that the Group’s will have sufficient liquidity for its operations during the period. The Directors have determined that the Group is likely to continue in business for at least 12 months from the date of the consolidated financial statements. Accordingly, the Board of Directors applied the going concern basis of accounting in preparing the consolidated financial statements. Note 2: Significant Accounting Policies The Company is incorporated in Jersey and commenced its operations in 2012. The following accounting policies have been applied consistently in the financial statements for all Since March 2014, the Company’s shares are traded on the London Stock Exchange’s Alternative Investment Market (AIM). (a) Basis of presentation of the consolidated financial statements: periods presented, unless otherwise stated. (b) Definitions: In these financial statements: The Company The Group – – XLMedia PLC. The Company and its consolidated subsidiaries Subsidiaries Entities that are controlled (as defined in IFRS 10) by the Company and These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS as adopted by the EU”) and in accordance with the requirements of the Companies (Jersey) Law 1991. The financial statements have been prepared on a cost basis, except for financial assets and liabilities (derivatives) that are presented at fair value through profit or loss. whose accounts are consolidated with those of the Company. The Company has elected to present profit or loss items using the function of expense – For a list of the main subsidiaries see Note 23. method. Related parties – as defined in IAS 24 Dollar/USD – U.S. dollar In 2019 new Standards and amendments became effective, regarding the effect on the consolidated financial statements, see Note 2(t). 96 97 2019 Annual Report Notes to the Consolidated Financial Statements continued Classification of expenses in profit or loss Cost of revenues- includes mainly compensation of personnel, media buying costs, affiliates network costs and websites promotion and content. Research and development and sale and marketing- includes primarily compensation of personnel. General and administrative- includes primarily compensation and related costs of personnel, amortisation and depreciation expenses, costs related to the Group’s facilities and fees for professional services. Reorganisation costs – includes primarily termination benefits to former key management personnel and various consulting fees. (b) Consolidated financial statements: The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases. The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements. Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of other comprehensive income are attributed to the Company and to non-controlling interests. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statement of financial position. A change in the ownership interest of a subsidiary without a change of control is accounted for as an equity transaction in accordance with IFRS 10. (c) Business combinations and goodwill: Business combinations are accounted for by applying the acquisition method. The cost of the acquisition is measured at the fair value of the consideration transferred on the date of acquisition with the addition of non-controlling interests in the acquiree. In each business combination, the Company chooses whether to measure the non-controlling interests in the acquiree based on their fair value on the date of acquisition or at their proportionate share in the fair value of the acquiree’s net identifiable assets. Direct acquisition costs are expensed as incurred. Contingent consideration is recognised at fair value on the acquisition date and classified as a financial asset or liability in accordance with IAS 39. Subsequent changes in the fair value of the contingent consideration are recognised in profit or loss. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement. 98 99 2019 Annual Report Notes to the Consolidated Financial Statements continued Goodwill is initially measured at cost, which represents the excess of the acquisition (e) Cash equivalents: consideration and the amount of non-controlling interests over the net identifiable assets acquired and liabilities assumed. If the resulting amount is negative, the acquirer recognises the resulting gain on the acquisition date. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For purposes of evaluation of impairment of goodwill, goodwill purchased in a business combination is evaluated and attributed to the cash-generating units to which it had been allocated. (d) Functional currency, presentation currency and foreign currency: 1. Functional currency and presentation currency: Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of acquisition or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Group’s cash management. (f) Short-term and long-term deposits: Short-term bank deposits are deposits with an original maturity of more than three months and less than twelve months from the date of acquisition. Long-term deposits are deposits with maturity of more than twelve months from the reporting date. The deposits are presented according to their terms of deposit. The functional and presentation currency of the Company and of its subsidiaries is the (g) Revenue recognition: U.S. dollar (“USD”). 2. Transactions, assets and liabilities in foreign currency: On January 1, 2018, the Company first adopted IFRS 15, “Revenue from Contracts with Customers” (“the Standard”). Transactions denominated in foreign currency are recorded upon initial recognition Revenue from contracts with customers is recognised when the control over the services is at the exchange rate at the date of the transaction. After initial recognition, monetary transferred to the customer. The transaction price is the amount of the consideration that is assets and liabilities denominated in foreign currency are translated at the end of each expected to be received based on the contract terms. reporting period into the functional currency at the exchange rate at that date. Exchange rate differences, other than those capitalised to qualifying assets or recorded in equity in Revenue from rendering of services: hedges, are recognised in profit or loss. Non-monetary assets and liabilities measured at cost in foreign currency are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined. Revenue from rendering of services is recognized over time, during the period the customer simultaneously receives and consumes the benefits provided by the Company’s performance. The Company charges its customers based on payment terms agreed upon in specific agreements. 100 101 2019 Annual Report Notes to the Consolidated Financial Statements continued In determining the amount of revenue from contracts with customers, the Group evaluates Taxes that would apply in the event of the disposal of investments in investees have whether it is a principal or an agent in the arrangement. The Group is principal when the not been taken into account in computing deferred taxes, as long as the disposal of Group controls the promised services before transferring them to the customer. In these the investments in investees is not probable in the foreseeable future. Also, deferred circumstances, the Group recognises revenue for the gross amount of the consideration. taxes that would apply in the event of distribution of earnings by investees as dividends When the Group is an agent, it recognises revenue for the net amount of the consideration, have not been taken into account in computing deferred taxes, since the distribution of after deducting the amount due to the principal. dividends does not involve an additional tax liability or since it is the Group’s policy not to initiate distribution of dividends from a subsidiary that would trigger an additional tax (h) Taxes on income: liability. Current or deferred taxes are recognised in profit or loss, except to the extent that they relate to items which are recognised in other comprehensive income or equity. 1. Current taxes: The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the reporting date as well as adjustments required in connection with the tax liability in respect of previous years. 2. Deferred taxes: Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes. Deferred taxes are measured at the tax rate that is expected to apply when the asset is realised or the liability is settled, based on tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is not probable that they will be utilised. Deductible temporary differences for which deferred tax assets had not been recognised are reviewed at each reporting date and a respective deferred tax asset is recognised to the extent that their utilisation is probable. Deferred taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority. (i) Leases: As detailed in paragraph 2 (t) below regarding the initial adoption of IFRS 16, “Leases” (“the Standard”), the Group elected to apply the provisions of the Standard using the modified retrospective approach (without restatement of comparative data). The accounting policy for leases applied effective from 1 January 2019, is as follows: The Group accounts for a contract as a lease when the contract terms convey the right to control the use of an identified asset for a period of time in exchange for consideration. 1. Recognition of assets and liabilities: For leases in which the Group is the lessee, the Group recognizes on the commencement date of the lease a right-of-use asset and a lease liability, excluding leases whose term is up to 12 months and leases for which the underlying asset is of low value. For these excluded leases, the Group has elected to recognize the lease payments as an expense in profit or loss on a straight-line basis over the lease term. 102 103 2019 Annual Report Notes to the Consolidated Financial Statements continued In measuring the lease liability, the Group has elected to apply the practical expedient 3. Lease extension and termination options: in the Standard and does not separate the lease components from the non-lease components (such as management and maintenance services, etc.) included in a single contract. On the commencement date, the lease liability includes all unpaid lease payments discounted at the interest rate implicit in the lease, if that rate can be readily determined, or otherwise using the Group’s incremental borrowing rate. After the commencement date, the Group measures the lease liability using the effective interest rate method. On the commencement date, the right-of-use asset is recognized in an amount equal to the lease liability plus lease payments already made on or before the commencement date and initial direct costs incurred. The right-of-use asset is measured applying the cost model and depreciated over the shorter of its useful life or the lease term (see Note 2(j) below). The Group tests for impairment of the right-of-use asset whenever there are indications of impairment pursuant to the provisions of IAS 36. 2. Variable lease payments that depend on an index: On the commencement date, the Group uses the index rate prevailing on the commencement date to calculate the future lease payments. For leases in which the Group is the lessee, the aggregate changes in future lease payments resulting from a change in the index are discounted (without a change in the discount rate applicable to the lease liability) and recorded as an adjustment of the lease liability and the right-of-use asset, only when there is a change in the cash flows resulting from the change in the index (that is, when the adjustment to the lease payments takes effect). 104 A non-cancellable lease term includes both the periods covered by an option to extend the lease when it is reasonably certain that the extension option will be exercised and the periods covered by a lease termination option when it is reasonably certain that the termination option will not be exercised. In the event of any change in the expected exercise of the lease extension option or in the expected non-exercise of the lease termination option, the Group remeasures the lease liability based on the revised lease term using a revised discount rate as of the date of the change in expectations. The total change is recognized in the carrying amount of the right-of-use asset until it is reduced to zero, and any further reductions are recognized in profit or loss. 4. Lease modifications: If a lease modification does not reduce the scope of the lease and does not result in a separate lease, the Group remeasures the lease liability based on the modified lease terms using a revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use asset. If a lease modification reduces the scope of the lease, the Group recognises a gain or loss arising from the partial or full reduction of the carrying amount of the right-of-use asset and the lease liability. The Group subsequently remeasures the carrying amount of the lease liability according to the revised lease terms, at the revised discount rate as of the modification date and records the change in the lease liability as an adjustment to the right-of-use asset. 105 2019 Annual Report Notes to the Consolidated Financial Statements continued The accounting policy for leases applied before 1 January 2019 is as follows: The criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the following principles as set out in IAS 17. Operating leases - the Group as lessee: Lease agreements are classified as an operating lease if they do not transfer substantially all the risks and benefits incidental to ownership of the leased asset. Lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. (j) Property and equipment: Property and equipment are measured at cost, including directly attributable costs, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows: Office furniture and equipment Computers and peripheral equipment Right of use leased assets and leasehold improvement (over the lease term) mainly % 10 33 10–15 Right of use leased assets and leasehold improvements are depreciated on a straight-line basis over the shorter of the lease term (including any extension option held by the Group and intended to be exercised) and the expected life of the asset. 106 The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised. An asset is derecognised on disposal or when no further economic benefits are expected from its use. (k) Intangible assets: Separately acquired intangible assets are measured on initial recognition at cost including directly attributable costs. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Expenditures relating to internally generated intangible assets, excluding capitalised development costs, are recognised in profit or loss when incurred. Intangible assets with a finite useful life are amortised over their useful life and reviewed for impairment whenever there is an indication that the asset may be impaired. The amortisation period and the amortisation method for an intangible asset are reviewed at least at each year end. Intangible assets (domains and websites) with indefinite useful lives are not systematically amortised and are tested for impairment annually or whenever there is an indication that the intangible asset may be impaired. Since the content of the domains and websites is being updated on a current basis management believes that these assets have indefinite useful lives. The useful life of these assets is reviewed annually to determine whether their indefinite life assessment continues to be supportable. If the events and circumstances do not continue to support the assessment, the change in the useful life assessment from indefinite to finite is accounted for prospectively as a change in accounting estimate and on that date the asset is tested for impairment. Commencing from that date, the asset is amortised systematically over its useful life. 107 2019 Annual Report Notes to the Consolidated Financial Statements continued Research and development expenditures: (l) Impairment of non-financial assets: Research expenditures are recognised in profit or loss when incurred. An intangible asset The Group evaluates the need to record an impairment of the carrying amount of non- arising from a development project or from the development phase of an internal project is financial assets whenever events or changes in circumstances indicate that the carrying recognised if the Group can demonstrate: the technical feasibility of completing the intangible amount is not recoverable. asset so that it will be available for use or sale; the Company’s intention to complete the intangible asset and use or sell it; the Company’s ability to use or sell the intangible asset; If the carrying amount of non-financial assets exceeds their recoverable amount, the assets how the intangible asset will generate future economic benefits; the availability of adequate are reduced to their recoverable amount. The recoverable amount is the higher of fair value technical, financial and other resources to complete the intangible asset; and the Company’s less costs of sale and value in use. In measuring value in use, the expected future cash flows ability to measure reliably the expenditure attributable to the intangible asset during its are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The development. recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in The asset is measured at cost less any accumulated amortisation and any accumulated profit or loss. impairment losses. Amortisation of the asset begins when development is completed, and the asset is available for use. The asset is amortised over its useful life. Testing of impairment is An impairment loss of an asset, other than goodwill, is reversed only if there have been performed annually over the period of the development project. Software: The Group’s assets include computer systems comprising hardware and software. Software forming an integral part of the hardware to the extent that the hardware cannot function without the programs installed on it is classified as property and equipment. In contrast, software that adds functionality to the hardware is classified as an intangible asset. changes in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. Reversal of an impairment loss, as above, shall not be increased above the lower of the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised for the asset in prior years, and its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognised in profit or loss. The following criteria are applied in assessing impairment of these specific assets: Systems and software (purchased and in- house development cost) are amortised on a straight-line basis over the useful life of three years 1. Goodwill Non-competition is amortised on a straight-line basis over the agreement term (between 2 to frequently if events or changes in circumstances indicate that there is impairment need The Company reviews goodwill for impairment once a year as of 31 December or more 3 years). 108 for such review. 109 2019 Annual Report Notes to the Consolidated Financial Statements continued Goodwill is tested for impairment by assessing the recoverable amount of the cash- The Company classifies and measures debt instruments in the financial statements generating unit (or group of cash-generating units) to which the goodwill has been based on the following criteria: allocated. An impairment loss is recognised if the recoverable amount of the cash- generating unit (or group of cash-generating units) to which goodwill has been allocated – The Company’s business model for managing financial assets; and is less than the carrying amount of the cash-generating unit (or group of cash-generating units). Any impairment loss is allocated first to goodwill. Impairment losses recognised for goodwill cannot be reversed in subsequent periods. 2. Domains and websites - Intangible assets with an indefinite useful life that are not systematically amortised. The impairment test is performed annually, on 31 December, or more frequently if events or changes in circumstances indicate that there is an impairment. (m) Financial instruments: On January 1, 2018, the Company first adopted IFRS 9, “Financial Instruments” (“the Standard”). The Company elected to adopt the provisions of the Standard retrospectively without restatement of comparative data. The accounting policy for financial instruments applied commencing from January 1, 2018, is as follows: 1. Financial assets: – The contractual cash flow terms of the financial asset. a) Debt instruments are measured at amortized cost when: The Company’s business model is to hold the financial assets in order to collect their contractual cash flows, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, the instruments in this category are measured according to their terms at amortised cost using the effective interest rate method, less any provision for impairment. b) Financial assets held for trading: Financial assets held for trading (derivatives) are measured through profit or loss unless they are designated as effective hedging instruments. 2. Impairment of financial assets: The Company reviews at the end of each reporting period the provision for loss of financial debt instruments which are measured at amortized cost. The Company has Financial assets are measured upon initial recognition at fair value plus transaction costs short-term trade receivables in respect of which the Company applies a simplified directly attributable to the acquisition of the financial assets, except for financial assets approach and measures the loss allowance in an amount equal to the lifetime expected measured at fair value through profit or loss in respect of which transaction costs are credit losses. recorded in profit or loss. An impairment loss on debt instruments measured at amortized cost is recognized in profit or loss with a corresponding loss allowance that is offset from the carrying amount of the financial asset. 110 111 2019 Annual Report Notes to the Consolidated Financial Statements continued 3. Derecognition of financial assets: (n) Fair value measurement: A financial asset is derecognized when the contractual rights to the cash flows from the Fair value is the price to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset’s or the liability’s principal market, or in the absence of a principal market, in the most advantageous market. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. financial asset expire. 4. Financial liabilities: a) Financial liabilities measured at amortized cost: Financial liabilities are initially recognized at fair value less transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, the Company measures all financial liabilities at amortized cost using the effective interest rate method, except for: – Financial liabilities at fair value through profit or loss such as derivatives; – Contingent consideration recognized by the buyer in a business combination within the scope of IFRS 3. b) Financial liabilities measured at fair value through profit or loss: At initial recognition, the Company measures financial liabilities that are not measured at amortized cost at fair value. Transaction costs are recognised in profit or loss. After initial recognition, changes in fair value are recognized in profit or loss. 5. Derecognition of financial liabilities: A financial liability is derecognised only when it is extinguished, that is when the obligation is discharged or cancelled or expires. 112 113 2019 Annual Report Notes to the Consolidated Financial Statements continued All assets and liabilities measured at fair value or for which fair value is disclosed are (p) Employee benefit liabilities: categorised into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement: Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs other than quoted prices included within Level 1 that are observable – either directly or indirectly. Level 3 inputs that are not based on observable market data (valuation techniques – which use inputs that are not based on observable market data). (o) Provisions: A provision in accordance with IAS 37 is recognised 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. When the Group expects part or all of the expense to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense is recognised in profit or loss net of the reimbursed amount. The Group has several employee benefit plans: 1. Short-term employee benefits: Short-term employee benefits include salaries, paid annual leave, paid sick leave, recreation and social security contributions and are recognised as expenses as the services are rendered. A liability in respect of a cash bonus or a profit-sharing plan is recognised when the Group has a legal or constructive obligation to make such payment as a result of past service rendered by an employee and a reliable estimate of the amount can be made. 2. Post-employment benefits: The plans are financed by contributions to insurance companies or pension funds and classified as defined contribution plans. The Israeli subsidiaries of the Group have defined contribution plans pursuant to Section 14 to the Severance Pay Law under which the subsidiary pays fixed contributions and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient amounts to pay all employee benefits relating to employee service in the current and prior periods. Contributions to the defined contribution plan in respect of severance or retirement pay are recognised as an expense when contributed concurrently with performance of the employee’s services. 114 115 2019 Annual Report Notes to the Consolidated Financial Statements continued (q) Share-based payment transactions: (s) Earnings (loss) per share: The Group’s employees and officers are entitled to remuneration in the form of equity-settled Earnings per share are calculated by dividing the net income (loss) attributable to equity share-based payment transactions. Equity-settled transactions: The cost of equity-settled transactions with employees and officers is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using an acceptable option pricing model - additional details are given in Note 14. In estimating fair value, the vesting conditions (consisting of service conditions and performance conditions other than market conditions) are not taken into account. The cost of equity-settled transactions is recognised in profit or loss together with a corresponding increase in equity during the period which the performance is to be satisfied ending on the date on which the relevant employees or officers become entitled to the award (“the vesting period”). The cumulative expense recognised for equity-settled transactions at holders of the Company by the weighted average number of Ordinary Shares outstanding during the period. The Company’s share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company. If the number of Ordinary Shares outstanding increases as a result of a capitalisation, bonus issue, or share split, the calculation of earnings per share for all periods presented are adjusted retrospectively. Potential Ordinary shares are included in the computation of diluted earnings per share when their conversion decreases earnings per share from continuing operations. Potential Ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. (t) Initial adoption of new financial reporting and accounting standards and amendments to existing financial reporting and accounting standards: the end of each reporting period until the vesting date reflects the extent to which the vesting 1. Initial adoption of IFRS 16, “Leases”: period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether the market condition is satisfied, provided that all other vesting conditions (service and/or performance) are satisfied. (r) Discontinued operations: In January 2016, the IASB issued IFRS 16, “Leases” (“the Standard”), which supersedes IAS 17, “Leases” (“the old Standard”), IFRIC 4, “Determining Whether an Arrangement Contains a Lease”, and SIC-15, “Operating Leases - Incentives”. The Standard has been applied for the first time in these financial statements. As permitted by the Standard, the Group elected to adopt the provisions of the Standard using the modified retrospective method whereby the carrying amount of the right-of- A discontinued operation is a component of the Company that either has been disposed of use assets is identical to the carrying amount of the lease liability. or is classified as held for sale. The operating results relating to the discontinued operation (including comparative data) are presented separately in profit or loss, net of the tax effect. 116 117 2019 Annual Report Notes to the Consolidated Financial Statements continued According to this approach, comparative data has not been restated. The carrying b) The Group determined the appropriate interest rate for discounting its leases amount of the lease liability as of the date of initial adoption of the Standard is calculated based on credit risk, the weighted average term of the leases and other economic using the Group’s incremental borrowing rate on the date of initial adoption of the variables. A weighted average incremental borrowing rate of 6% was used to Standard. a) Following are data relating to the initial adoption of the Standard as of 1 January 2019, in respect of existing leases as of that date: According to the previous accounting policy The change USD in thousands As presented according to IFRS 16 Non-current assets: Property and equipment: Right-of-use assets Current liabilities: Lease liabilities Non-current liabilities: Lease liabilities – – – 10,470 10,470 1,223 1,223 9,247 9,247 Reconciliation of total commitment for future minimum lease payments to lease liability as of 1 January 2019: discount future lease payments in the calculation of the lease liability on the date of initial adoption of the Standard. c) Practical expedients applied in the initial adoption of the Standard- The Company elected to apply a single discount rate to a portfolio of leases with reasonably similar characteristics. 2. IFRIC 23, “Uncertainty over Income Tax Treatments”: In June 2017, the IASB issued IFRIC 23, “Uncertainty over Income Tax Treatments” (“the Interpretation”). The Interpretation clarifies the accounting for recognition and measurement of assets or liabilities in accordance with the provisions of IAS 12, “Income Taxes”, in situations of uncertainty involving income taxes. The Interpretation provides guidance on considering whether some tax treatments should be considered collectively, examination by the tax authorities, measurement of the effects of uncertainty involving income taxes on the financial statements and accounting for changes in facts and circumstances in respect of the uncertainty. The Interpretation has been initially applied in these financial statements. USD in thousands The initial adoption of the Interpretation did not have a material effect on the Group’s Total future minimum lease payments for non-cancellable leases as per IAS 17 according to the financial statements as of 31 December 31 2018 Effect of discount of future lease payments at the Group’s incremental borrowing rate on initial date of adoption Total lease liabilities as per IFRS 16 as of 1 January 2019 13,008 (2,538) 10,470 financial statements. 118 119 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 3: Significant Accounting Judgments, Estimates and Assumptions used in the Preparation of the Financial Statements Note 4: Disclosure of New Standards in the Period Prior to their Adoption Estimations and assumptions: IFRS 3, “Business Combinations”: The preparation of the financial statements requires management to make estimates and In October 2018, the IASB issued an amendment to the definition of a “business” in IFRS 3, assumptions that have an effect on the application of the accounting policies and on the reported “Business Combinations” (“the Amendment”). The Amendment is intended to assist entities in amounts of assets, liabilities, revenues and expenses. Changes in accounting estimates are determining whether a transaction should be accounted for as a business combination or as an reported in the period of the change in estimate. acquisition of an asset. The key assumptions made in the financial statements concerning uncertainties at the end of the The Amendment is to be applied prospectively to all business combinations and asset acquisitions reporting period and the critical estimates computed by the Group that may result in a material for which the acquisition date is on or after the beginning of the first annual reporting period adjustment to the carrying amounts of assets and liabilities within the next financial year are beginning on or after January 1, 2020, with earlier application permitted. discussed below. – Impairment of goodwill, domains and websites: The Group reviews goodwill, domains and websites for impairment at least once a year. This requires management to make an estimate of the projected future cash flows from the continuing use of the cash-generating units to which the assets are allocated and also to choose a suitable discount rate for those cash flows. See also Note 8. – Income taxes The Group is subject to income tax in various jurisdictions and judgment is required in determining the provision for income taxes. During the ordinary course of business, there are transactions and calculations for which the ultimate tax determination may be uncertain. The Group recognises tax liabilities based on assumptions supported by, among others, Note 5: Short-Term and Long-Term Investments (a) Short-term investments: Short-term bank deposits (2): In USD In NIS In EURO (b) Long-term financial assets: Bank deposits- in NIS (2) Annual interest rate (1) As of 31 December 2019 2018 USD in thousands 0.8 0.4 0.6 1,308 1,470 7 2,785 682 1,307 1,497 192 2,996 633 transfer price studies. The Group believes that its accruals for tax liabilities are adequate for (1) The above interest rates are the weighted average rates as of 31 December 2019. all open audit years based on its assessment of many factors including past experience and interpretations of tax law. See also Note 15. 120 (2) Includes deposits for the amount of USD 3,467 thousand with fixed liens recorded as security for credit card transactions in connection with advertising campaigns and other online purchasing over the internet as well as for financial derivative transactions and bank guarantee provided in connection with a lease agreement on property. 121 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 6: Trade and Other Receivables Note 7: Property and Equipment a. Trade receivables: Open accounts Less - allowance for doubtful accounts Trade receivables, net As of 31 December, 2019 2018 USD in thousands 8,666 911 7,755 17,800 1,688 16,112 1. As of 31 December 2019, the Group has no material amounts that are past due and not impaired. 2. Doubtful accounts expenses included in general and administrative expenses USD 211 thousands (2018- USD 530 thousands). 3. See Note 12 (b) (2) on credit risk of trade receivables. b. Other receivables: Prepaid expenses Government authorities Other receivables 122 As of 31 December 2019 2018 USD in thousands 2,391 2,012 119 4,522 2,407 1,536 754 4,697 Computers, furniture, office equipment and others Leasehold improvements Right of use leased assets – Offices (2) Total USD in thousands Cost: Balance as of 1 January 2018 Acquisitions during the year Disposals during the period Balance as of 31 December 2018 Initial application of IFRS 16 Acquisitions during the year Adjustments for indexation Decreases during the year: Discontinued operation (1) Termination of leases Balance as of 31 December 2019 Accumulated depreciation: Balance as of 1 January 2018 Depreciation during the year Disposals during the period Balance as of 31 December 2018 Depreciation during the year Decreases during the year: Discontinued operation (1) Termination of leases Balance as of 31 December 2019 Depreciated cost as of 31 December 2019 Depreciated cost as of 31 December 2018 (1) (2) See Note 16. See Note 11. 2,530 489 (27) 2,992 – 208 – (384) – 2,816 1,584 425 (17) 1,992 337 (321) – 2,008 808 1,000 442 64 – 506 – 52 – (20) – 538 158 52 – 210 59 (10) – 259 279 296 – – – – 10,470 47 33 – (879) 9,671 – – – – 1,402 – (75) 1,327 8,344 – 2,972 553 (27) 3,498 10,470 307 33 (404) (879) 13,025 1,742 477 (17) 2,202 1,798 (331) (75) 3,594 9,431 1,296 123 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 8: Intangible Assets a. Composition and movement: Domains and websites Non- competition Systems, software and other Total Goodwill USD in thousands Cost: Balance as of 1 January 2018 30,052 Acquisitions during the year Costs capitalised during the year (in-house development cost) – – 47,367 46,591 4,240 715 – – Balance as of 31 December 2018 30,052 93,958 4,955 Acquisitions during the year Costs capitalised during the year (in-house development cost) – – 408 – – – 17,037 1,195 7,015 25,247 1,342 98,696 48,501 7,015 154,212 1,750 7,105 7,105 Balance as of 31 December 2019 30,052 94,366 4,955 33,694 163,067 Accumulated amortisation and impairment: Balance as of 1 January 2018 Amortisation during the year Impairment loss from discontinued operation (1) Other impairment loss – – 6,400 – Balance as of 31 December 2018 6,400 – 23,652 30,052 Amortisation during the year Impairment loss (2) Balance as of 31 December 2019 Amortised cost as of 31 December 2019 Amortised cost as of 31 December 2018 (1) (2) See Note 16. See Note b below. 1,605 – – 300 1,905 – 52,246 54,151 3,467 733 174 – 4,374 477 104 4,955 9,225 4,993 2,464 – 16,682 5,236 5,348 27,266 14,297 5,726 9,038 300 29,361 5,713 81,350 116,424 b. Additional information on impairment: In January 2020, 107 of the Group’s sites were demoted in search results by Google, of which 23 were premium sites. The demotion of the sites is expected to have a material impact on the Group’s future revenues. Based on the value in use of the Publishing operations of the Group performed by an independent valuation specialist, the carrying amount of the goodwill was written down to nil. The remaining amount of the impairment loss was allocated to the other intangible assets based on their relative carrying amounts. As result the Company recorded an impairment loss for the amount of USD 81,350 thousands, which is included in the statement of profit or loss. The pre-tax discount rate applied to the cash flow projection is 15.5% (2018-13.1%). The projected cash flows are estimated using mainly fixed growth rate of 4.5% for the years 2021- 2024 and terminal growth rate of 3% (2018-3%). The key assumptions used in calculating the value in use: Revenues and operational profit - the revenues and the profit rate assumptions are based on management expectations and forecasts for the coming year and the management’s forecasted cash flows for the following three years. These forecasts included an evaluation of those specific sites that suffered a demotion or other factors which could adversely affect – 40,215 – 6,428 46,643 revenues and profitability 23,652 92,053 581 8,565 124,851 Discount rate - the discount rate reflects management’s assumptions regarding the Group’s specific risk premium. 124 125 2019 Annual Report Notes to the Consolidated Financial Statements continued Growth rate - the growth rate applied for the period beyond the four-year forecasted period is based on the long-term average growth rate as customary in similar industries. Sensitivity analyses of changes in assumptions: With respect to the assumptions used in determining the value in use, management believes that a significant change in key assumptions, in particular, a decrease in forecasted revenues, would result in a further impairment of the intangible assets. Note 9: Other Liabilities and Accounts Payable Employees and payroll accruals Government authorities Accrued expenses Other liabilities As of 31 December 2019 2018 USD in thousands 5,073 724 3,043 785 9,625 3,750 741 1,513 963 6,967 Note 10: Loans From Bank a. Composition: Long-term bank loans Less - current maturities b. Loan terms: As of 31 December 2019 2018 USD in thousands 1,465 1,465 – 6,965 5,585 1,380 In December 2017, a subsidiary of the Company received a loan from a bank for the amount of USD 5 million. The loan was repayable in 24 equal instalments and carried an interest rate of USD Libor +4.45%. The loan was repaid fully in 2019. In June 2018, a subsidiary of the Company received a loan from a bank for the amount of USD 6 million. The loan is repayable in 24 equal instalments and carries an interest rate of USD Libor +4.4% (as of 31 December 2019 – 6.36 %). The Company’s subsidiary committed towards the bank, amongst others, to maintain financial covenants, which will be measured on a quarterly basis. As of 31 December 2019, the Company’s subsidiary is meeting the financial covenants. c. Liens- see Note 18. 126 127 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 11: Lease Liabilities a. Composition: Lease liabilities Less - current maturities 31 December 2019 U.S. dollars in thousands 9,228 1,161 8,067 b. Information on leases in which the Company is a lessee: Depreciation expense for right-of-use assets Finance expense (including exchange rate differences) for lease liability Total cash outflow for leases Note 12: Financial Instruments Year ended December 31 2019 U.S. dollars in thousands 1,402 1,310 1,697 Group companies (as lessee) have entered into commercial real estate lease agreements. a. Classification of financial assets and liabilities: The leases include an exit point in December 2020 (with extension option periods) with annual lease fees of approximately USD 1.6 million. As of 31 December 2019, these extension options have been taken into consideration in the determination of the lease liabilities. The Group recorded fixed liens on long-term bank deposit in connection with these agreements (see Note 5). The financial assets and financial liabilities in the statement of financial position are classified by groups of financial instruments as follows: Financial assets Financial assets at fair value through profit or loss: As of 31 December 2019 2018 USD in thousands As more fully described in Note 2(t), on adoption of IFRS 16 the Group recognised lease Financial derivatives 222 805 liabilities in relation to these leases which previously were classified as operating leases under Financial assets measured at amortised cost: IAS 17. See Note 7 for the related right of use assets and Note 12b for details of lease liability maturities. In September 2019 the Company terminated, without penalty, a lease of office space which was originally leased till 2028 with an annual lease payment of USD 83 thousand. As a result, the Company derecognised the right-of-use leased asset for the net amount of USD 804 thousand and the related liability for the amount of USD 893 thousands. 128 Cash and cash equivalents Short-term and long-term investments Trade receivables Other receivables Total financial assets measured at amortised cost Total financial assets Total current Total non-current 27,108 3,467 7,755 25 38, 355 38,577 37,895 682 44,627 3,629 16,112 754 65,122 65,927 65,294 633 129 2019 Annual Report Notes to the Consolidated Financial Statements continued Financial liabilities Financial assets at fair value through profit or loss: As of 31 December 2019 2018 USD in thousands For the year ended 31 December 2019 the Group recorded foreign exchange rate differences income, net for the amount of USD 619 thousand (net of gain on forward transactions, see below) (2018- expenses of USD 95 thousand). Financial derivatives 79 91 The open positions as of 31 December 2019, all for period until end of June 2020: Financial liabilities measured at amortised cost: Trade payables Other liabilities and account payables Lease liabilities Bank loan Total financial liabilities measured at amortised cost Total financial liabilities Total current Total non-current b. Financial risks factors: The Group’s activities expose it to various financial risks. 1. Market risk - Foreign exchange risk: 3,028 8,480 9,228 1,465 22,201 22,280 14,213 8,067 6,416 5,637 – 6,965 19,018 19,109 17,729 1,380 A significant portion of the Group’s revenues are received in EURO. The Group also has revenues that are received in GBP. A significant portion of the Israeli subsidiaries expenses are paid in New Israeli Shekels (“NIS”). Therefore, the Group is exposed to fluctuations in the foreign exchange rates in EURO, GBP and NIS against the USD. The Company entered into forward contracts with the intention to reduce the foreign exchange risk of forecasted cash flows. These contracts are not designated as hedges for accounting purposes and are measured at fair value through profit or loss. Forward transactions for the sale of EURO in exchange for USD totaling EURO 9.3 million (USD 10.7 million). Forward transactions for the sale of GBP in exchange for USD totaling GBP 2.6 million (USD 3.4 million). As of 31 December 2019, the total fair value of the above forward transactions amounted to USD 79 thousand (liabilities) and USD 222 thousand (assets). 2. Credit risk: The Group usually extends 30-60 day term to its customers. The Group regularly monitors the credit extended to its customers and their general financial condition but does not require collateral as security for these receivables. The Group maintains cash and cash equivalents and short-term investments and long- term investments in various financial institutions. These financial institutions are located in the EU, Israel, Europe and US. 130 131 2019 Annual Report Notes to the Consolidated Financial Statements continued 3. Liquidity risk: c. Fair value: The table below summarises the maturity profile of the Group’s financial liabilities based The carrying amounts of the Group’s financial assets and liabilities approximate their fair on contractual undiscounted payments (including interest payments): value. As of 31 December 2019: The fair value of financial derivatives is categorised within level 2 of fair value hierarchy. Less than one year 1 to 2 years 2 to 3 years 3 to 4 years Above 4 years Trade payables 3,028 Other liabilities and account payables Financial derivatives Lease liabilities Bank loan 8,480 79 1,586 1,465 – – – – – – – – – – – – 1,650 1,650 1,676 4,629 – – – – Total 3,028 8,480 79 11,191 1,465 14,638 1,650 1,650 1,676 4,629 24,243 As of 31 December 2018: Trade payables Other liabilities and account payables Financial derivatives Bank loan Less than one year 1 to 2 years Total USD in thousands 6,416 5,637 91 5,786 17,930 – – – 1,529 1,529 6,416 5,637 91 7,315 19,459 132 d. Sensitivity tests relating to changes in market factors: As of 31 December 2019 2018 USD in thousands Sensitivity test to changes in Euro to Dollar exchange rate: Gain (loss) from the change: Increase of 10% in exchange rate Decrease of 10% in exchange rate Sensitivity test to changes in NIS to Dollar exchange rate: Gain (loss) from the change: Increase of 10% in exchange rate Decrease of 10% in exchange rate Sensitivity test to changes in GBP to Dollar exchange rate: Gain (loss) from the change: Increase of 10% in exchange rate Decrease of 10% in exchange rate (295) 295 299 (299) (184) 184 (765) 765 (1,318) 1,421 583 (583) The sensitivity tests reflect effects of reasonably possible changes in exchange rates on hedging position of the Group for the above currencies as of the end of the year. As described in (b) 1 above, these contracts are intended to reduce the Group’s exposure to fluctuations in exchange rates on future revenues and expenses. Therefore, although it is expected the above effects will be offset by contra effects upon the recording of the revenues and expenses, the timing of these effects may not coincide in the same reporting period. 133 2019 Annual Report Notes to the Consolidated Financial Statements continued Sensitivity tests and principal assumptions: The selected changes in the relevant risk variables were determined based on management’s estimate as to reasonable possible changes in these risk variables. The Group has performed sensitivity tests of principal market risk factors that are liable to affect its reported operating results or financial position. The sensitivity tests present the effects (before tax) on profit or loss and equity in respect of each financial instrument for the relevant risk variable chosen for that instrument as of each reporting date. The test of risk factors was determined based on the materiality of the exposure of the operating results or financial condition of each risk with reference to the functional currency and assuming that all the other variables are constant. Note 13: Equity a. Composition of share capital: As of 31 December 2019 Authorised Issued and outstanding *) Number of shares Ordinary Shares of USD 0.000001 par value 100,000,000,000 183,813,138 As of 31 December 2018 Authorised Issued and outstanding*) Number of shares The Group does not have significant exposure to interest rate risk. Ordinary Shares of USD 0.000001 par value 100,000,000,000 216,106,363 e. Changes in liabilities arising from financial activities: Long term loans Leases liabilities USD in thousands Total liabilities arising from financing activities Balance as of 1 January, 2018 Cash flows Balance as of 31 December, 2018 New finance lease obligation recognized Cash flows Effect of changes in exchange rate Termination of leases Other changes 5,000 1,965 6,965 – (5,500) – – – Balance as of 31 December, 2019 1,465 – – – 10,517 (1,697) 33 (893) 1,268 9,228 5,000 1,965 6,965 10,517 (7,197) 33 (893) 1,268 10,693 *) Net of treasury shares, see below. In addition to the above issued shares, as of 31 December 2019, 3,315,521 Ordinary Shares are held in trust to satisfy the Company’s share based payment plan. b. Movement in share capital: 1. In January 2018 the Company issued 16,000,000 Ordinary Shares in a placing to institutional investors at a price of 198 pence per Ordinary share. The total gross funds raised were approximately GBP 31.7 million (USD 44.2 million) and the related costs amounted to approximately GBP 1.1 million (USD 1.6 million) 2. In 2018 the Company issued 1,069,010 Ordinary shares upon the exercise of options. 3. In 2019 the Company issued 438,216 Ordinary shares upon the exercise of options. 134 135 2019 Annual Report Notes to the Consolidated Financial Statements continued c. The board of the Company had approved a buyback programme (the “Programme”) to buy e. Net earnings per share: back up to USD 10 million of the Company’s Ordinary shares (the “Shares”). Details of the number of shares and income used in the computation of earnings per share: The Programme ran from 18 December 2018 to the conclusion of the 2019 annual general meeting of the Company. At the 2019 annual general meeting another buyback programme was approved to buy back up to additional USD 10 million of the Company’s Shares. On 16 July 2019 the Company ceased the buyback programme and published a tender offer, which was accepted on 16 August 2019. As a result, the Company purchased 19,675,000 Shares at 80 pence per share at a cost of USD 20,034 thousand including transaction expenses. During 2019 the Company acquired 32,731,441 Shares at a total cost of USD 29,691 thousands. (2018- 492,302 shares for USD 468 thousands). d. Dividends paid to equity holders of the Company: Date 13 March 2018 23 September 2018 5 April 2019 4 October 2019 Total amount Per share USD in millions 8.0 6.5 8.4 5.8 USD 0.037 0.030 0.040 0.031 Year ended 31 December 2019 Net loss from continuing operating attributable Net income 2018 Net income from continuing operating attributable Weighted number of to equity holders of the from discontinued Weighted number of to equity holders of the Net loss from discontinued shares Company operations shares Company operations In In thousands USD in thousands thousands USD in thousands Number of shares and income (loss) for the computation of basic net earnings 198,396 (61,691) 2,217 215,441 31,102 (11,284) Effect of potential dilutive Ordinary shares *) For the computation of – – – 1,889 – – diluted net earnings 198,396 (61,691) 2,217 217,330 31,102 (11,284) *) Options, see Note 14. In 2019 all options have been excluded because their effect on loss per share is antidilutive. 136 137 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 14: Share-based Payment The expense (income) recognised in the financial statements for services received is shown in the following table: Total expense (income) arising from share-based payment transactions Year ended December 31, 2019 2018 USD in thousands (218) 1,667 a. In August 2013 the Company adopted a Share Option Plan. In December 2017 the Company adopted an additional plan. According to the plans, the Company’s Board of Directors are entitled to grant certain employees, officers and other service providers (together herein “employees”) of the Group remuneration in the form of equity-settled share-based payment transactions. Pursuant to the plans, the Company’s employees may be granted options to purchase the Company’s Ordinary shares. These options may be exercised, subject to the continuance of engagement of such employees with the Company, within a period of eight years from the grant date, at an exercise price to be determined by the Company’s Board of Directors at the grant date. All grants to Israeli employees were made in accordance with Section 102 of the Income Tax Ordinance, capital-gains track (with a trustee). 2019 grants In March and November 2019, the Company granted 323,500 options to employees exercisable to 323,500 Ordinary shares at an exercise price subject to adjustment for dividends. The options vest over a period of 4 years from the grant date and are exercisable for a period of up to 8 years. The following table specifies the inputs used for the fair value measurement of the grant: Option pricing model Exercise price GBP (USD) Dividend yield (%) Expected volatility of the share price (%) Risk- free interest rate (GBP curve) Expected life of share options (years) Black–Scholes–Merton formula 0.6–0.63 (0.84–.0.78) 0 50.67% ,52.94% ,0.76% 0.53% 5.2 Share price GBP (USD) 0.56 (0.74), 0.69 (0.89) The total fair value of the options granted was calculated at USD 123 thousand at the grant date (average of USD 0.37 per option). In November 2019, the Company granted the Group’s CEO 920,223 options exercisable to 920,223 Ordinary shares with nill exercise price. The number of options granted was determined as 150% of the CEO’s annual remuneration divided by the share price at the grant date. The vesting of the option is subject to a performance target comparing the average net return achieved by the Company relative to the net return achieved by the constituents of the FTSE AIM 100 during the three-year period ending in November 2022. The total fair value of the options granted was calculated at approximately USD 600 thousands at the grant date. 138 139 2019 Annual Report Notes to the Consolidated Financial Statements continued 2018 grants The following table specifies the inputs used for the fair value measurement of the grant: In January 2018, the Company granted 3,000,000 options to employees (including to the Company’s former CEO and other former key management personnel), exercisable to 3,000,000 Ordinary shares at an exercise price adjusted for dividends. The options vest over a period of 4 years from the grant date and are exercisable for a period of up to 8 years. The following table specifies the inputs used for the fair value measurement of the grant: Option pricing model Exercise price GBP (USD) Dividend yield (%) Expected volatility of the share price (%) Risk- free interest rate (GBP curve) Expected life of share options (years) Share price GBP (USD) Black–Scholes–Merton formula 2.0 (2.85) 0 47.3% 1.13% 5.2 1.9 (2.71) The total fair value of the options granted was calculated at USD 3,413 thousand at the grant date (USD 1.14 per option). In September 2018, the Company granted 415,000 options to employees, exercisable to 415,000 Ordinary shares at an exercise price adjusted for dividends. The options vest over a period of 4 years from the grant date and are exercisable for a period of up to 8 years. 140 Option pricing model Exercise price GBP (USD) Dividend yield (%) Expected volatility of the share price (%) Risk- free interest rate (GBP curve) Expected life of share options (years) Share price GBP (USD) Black–Scholes–Merton formula 1.1 (1.44) 0 52.0% 1.23% 5.2 1.0 (1.3) The total fair value of the options granted was calculated at USD 270 thousand at the grant date (USD 0.63 per option). b. Movement during the year: 2019 2018 Number of options Weighted average exercise price Number of options Weighted average exercise price in thousands USD in thousands USD Share options outstanding at beginning of year Share options granted during the year 8,110 1,244 Share options forfeited during the year (3,390) Share options exercised during the year Share options outstanding at end of year Share options exercisable at end of year (438) 5,526 3,490 1.56 0.21 2.24 0.69 0.99 1.09 6,788 3,415 (1,024) (1,069) 8,110 3,194 1.01 2.68 1.24 0.83 1.56 0.84 141 2019 Annual Report Notes to the Consolidated Financial Statements continued c. The weighted average remaining contractual life for the options outstanding as of Technological preferred enterprise - an enterprise for which total consolidated revenues 31 December 2019 was 5 years (2018- 6 years). of its parent company and all subsidiaries are less than NIS 10 billion. A technological preferred enterprise, as defined in the Law, which is located in the center of Israel will be d. The range of exercise prices for options outstanding as of 31 December 2019 was subject to tax at a rate of 12% on profits deriving from intellectual property. USD 0.65-2.52 (2018- USD 0.66- USD 2.85). Note 15: Taxes on Income Any dividends distributed to “foreign companies”, as defined in the Law, deriving from income from the technological enterprises will be subject to a withholding tax at a rate of 4%. a. Starting 2018 the Company is subject to Cyprus tax at the standard corporate income tax rate of 12.5%. The above amendments apply for one of the Group’s subsidiaries. b. Tax law applicable to the Company’s Israeli subsidiaries is the Israeli tax law- Income Tax c. The applicable U.S. federal statutory income tax rate for the Company’s subsidiary for 2019 is Ordinance (new version) 1961. 21% (2018- same). In addition, state and city taxes are applicable. – The general Israeli corporate tax rate applicable in 2019 is 23% (2018- 23%). d. Final tax assessments: – Amendments to the Law for the Encouragement of Capital Investments, 1959: Tax Authorities in Israel for the years 2012 – 2015. In 2017 two subsidiaries in Israel reached a final tax assessment agreement with the Income According to Amendment 71 to the Law, the tax rate for certain preferred enterprises is e. Losses carried forward for tax purposes: reduced to a flat tax rate of 16%. The Amendment also prescribes that any dividends distributed to individuals or foreign residents from the preferred enterprise’s earnings as above will be subject to withholding tax at a rate of 20%. – Amendment 73 to the Law also prescribes special tax tracks for technological enterprises, which became effective in 2017, as follows: As of 31 December 2019, carry-forward capital tax losses of a subsidiary company total approximately USD 19 million. The tax benefit in respect of losses has not been recorded in the financial statements due to the uncertainty of their utilization. 142 143 2019 Annual Report Notes to the Consolidated Financial Statements continued f. Taxes on income included in profit or loss: Current taxes Deferred taxes Taxes in respect of previous years Total g. Theoretical tax: Year ended 31 December 2019 2018 USD in thousands 3,991 615 (1,418) 3,188 3,979 523 (413) 4,089 The reconciliation between the tax expense, assuming that all the income and expenses were taxed at the statutory tax rate in Cyprus and the taxes on income recorded in profit or loss is as follows: Year ended 31 December 2019 2018 USD in thousands Profit (Loss) from continuing operation before taxes on income Statutory tax rate Tax computed at the statutory tax rate Adjustment due to the difference between the Company’s statutory tax rate and tax rates applicable to the subsidiaries Non-deductible expenses for tax purposes Tax benefit of net additional deduction Taxes in respect of previous years Unrecognized temporary differences and others Total taxes (57,730) 12.5% (7,216) 24 10,246 (1,527) (1,418) 3,079 3,188 36,148 12.5% 4,519 59 184 (2,371) (413) 2,111 4,089 h. Deferred taxes: Composition: Statements of financial position Statements of profit or loss December 31, Year ended December 31, 2019 2018 2019 2018 USD in thousands Deferred tax liabilities: Domains and websites Other intangible assets Property and equipment Deferred tax assets: Property and equipment Lease liability Other intangible assets Allowance for doubtful account Employee benefits Deferred tax expenses Deferred tax assets (liabilities), net 608 173 – 781 8 122 – 7 128 265 221 – 6 227 – – 213 15 98 326 (516) 99 387 173 (6) (8) (122) 213 8 (30) 615 221 (42) 6 4 – 329 29 (24) 523 The deferred taxes are computed at the tax rates of 12% based on the tax rates that are expected to apply upon realization (2018- same). 144 145 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 16: Discontinued Operations a. In February 2019, the Company’s board of directors decided to reduce certain parts of its Media activities (comprising one CGU) which had lower profit margins. In August 2019, the Company completed the sale of Webpals Mobile Ltd (“Mobile”) which is a substantial component of the CGU. Under the terms of the agreement Mobile paid the inter-company balances to the Group on completion. The gain derived from the sale is USD 1.8 million. Prior to the classification of the CGU as a disposal group, the recoverable amount of the assets sold was calculated as fair value less expected sale costs. Based on that calculation the Group recorded in 2018, an impairment loss for the amount of USD 9,038 thousands. b. Below is data of the operating results attributed to the discontinued operation: Year ended 31 December 2019 2018 USD in thousands Revenues from sales Cost of sales Gross profit Sale, general and administrative expenses and research and development expenses Impairment loss and other non-recurring cost of the discontinued operation Operating income (loss) Financial income (expenses), net Gain from sale of discontinued operation Income (loss) before income taxes from discontinued operation Taxes on income *) Income (loss) from discontinued operation, net *) Tax on income on discontinued operation 9,752 7,733 2,019 1,610 – 409 37 1,811 2,257 40 2,217 24,364 19,789 4,575 5,573 9,938 (10,936) (50) – (10,986) 298 (11,284) c. Below is data of the net cash flows provided by (used in) the discontinued operation: Year ended 31 December 2019 2018 USD in thousands 1,109 80 (9) (1,407) Operating activities Investing activities Note 17: Operating Segments a. General: The operating segments are identified on the basis of information that is reviewed by the chief operating decision maker (“CODM”) to make decisions about resources to be allocated and assess its performance. In 2019 the main part of the Group’s Media activities was classified a discontinued activity and sold. Other Media activities which provided complementary activities to the Publishing activities were integrated into the Publishing segment activities. Subsequent to this integration the Group has one operating segment – Publishing, which consists the operation of over 2,300 owned informational websites in 18 languages. These websites refer potential customers to online businesses. The sites’ content, written by professional writers, is designed to attract online traffic which the Group then directs to its customers online businesses. 146 147 2019 Annual Report Notes to the Consolidated Financial Statements continued b. Geographic information: Revenues classified by geographical areas based on user location: Year ended 31 December 2019 2018 USD in thousands 34,667 21,458 16,162 224 1,375 104 73,990 5,705 79,695 42,362 26,804 14,510 56 1,668 2,191 87,591 5,911 93,502 Scandinavia Other European countries North America Asia Oceania Other countries Total revenues from identified locations Revenues from unidentified locations Total revenues Note 18: Liens Note 19: Balances and Transactions with Related Parties a. Balances: As of 31 December 2019 2018 USD in thousands Current liabilities: Management fees and other short–term payables Non–current liability 785 3 106 185 b. Benefits to key management personnel: *) Short–term benefits Termination benefits Cost (income) of share–based payments As of 31 December 2019 2018 USD in thousands 1,749 739 (205) 2,283 1,962 – 1,050 3,012 As collateral for subsidiary’s bank loans, fixed charges have been placed on the subsidiary’s share *) Includes directors. capital and goodwill and floating charges on the subsidiary’s assets. 148 149 2019 Annual Report Notes to the Consolidated Financial Statements continued Note 20: Post-employment Benefits Note 22: Subseqeunt Events The post-employment employee benefits are financed by contributions classified as defined The spread of Coronavirus will have an impact on the Group’s operations. The Group has a well- contribution plans. Expenses in respect of defined contribution plans *) 1,739 1,824 Year ended 31 December 2019 2018 USD in thousands balanced portfolio of assets, however in February 2020 many sport events were cancelled around the world which will have a negative effect on the Group’s revenue. A similar effect is expected in the Finance and Technology units. It is expected that these decreases will be offset, at least in part, by increases in other verticals, namely Casino and New Business. The Group is continually monitoring and responding to the potential impact of the outbreak, but as there is uncertainty regarding the duration of the impact and future events there is uncertainty regarding the total effect *) Including discontinued operation for the amount of USD 95 thousand and USD 283 thousand for 2019 and on the Group’s operations. 2018 accordingly. Note 21: Supplementary Information to the Statements of Profit or Loss Employee benefit expenses are included in: (1) (2) Cost of revenues Research and development before capitalization Sale and marketing General and administrative Reorganisation costs Year ended 31 December 2019 2018 USD in thousands 11,980 8,828 5,027 6,229 918 32,982 11,846 7,334 6,766 6,788 – 32,734 (1) Includes cost of share based payment. (2) Including discontinued operation for the amount of USD 1,750 thousand and USD 4,985 thousand for 2019 and 2018 accordingly. Note 23: List of Main Subsidiaries 2019 2018 Shares conferring voting rights Shares conferring rights to profits Shares conferring voting rights Shares conferring rights to profits % % 100 100 100 100 – 100 100 100 100 100 100 – 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 XLMedia Finance Limited XLMedia Publishing Limited Webpals Holdings Ltd Webpals Systems S.C Ltd Webpals Mobile Ltd Marmar Media Ltd Webpals, Inc. 150 151 2019 Annual Report Annual Report and Financial Statements 2019 © 2020 XLMedia PLC
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