Interim Results

Source: RNS
RNS Number : 5153A
Minds + Machines Group Limited
30 September 2020
 

Strictly embargoed until 07.00 a.m., 30th September 2020

 

Minds + Machines Group Limited

("MMX" or the "Company")

Interim Results

 

Minds + Machines Group Limited (AIM: MMX), one of the world's leading owners and operators of Internet Top-Level Domains ("TLDs"), is pleased to announce the Group's unaudited interim results for the six month period ended 30 June 2020 ("the period").

 

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

 

"As a Group our core business is profitable, cash generative, and debt-free, with the majority of our revenue being recurring. Our ongoing focus on improving cash generation and revenue mix has resulted in uplifts in both cash generation and channel revenue in the period. As expected, the replacement of one-off brokered revenue with recurring channel revenue that is waterfalled over the life of the registration, has resulted in revenue after partner payments effectively remaining flat at $7.4m, with total revenues down 5%, in spite of the 7% uplift in underlying H1 billings. Given the highly predictable cash generative nature of our core channel business, we are pleased to announce that a tender offer of £3m will take place in November. This will be supplemented by an ongoing buyback and an intention to target further distributions of approximately 50% of free cashflow from operations each subsequent financial year."

 

Financial Highlights

 

·    Total gross revenue down 5% to $8.4m (H1 2019: $8.9m) primarily reflecting the switch from brokered to channel revenues;

·      Revenues net of partner payments steady at $7.4m;

·      Channel based revenues unimpacted by COVID, up 4% to $8.3m (H1 2019: $8.0m)

channel revenues contributing 99% of gross revenue (H1 2019: 90%)

recurring channel revenues contributing 67% of gross revenues;

·      Operating EBITDA down to $2.3m (H1 2019: $3.3m inclusive of gTLD auction profit, $2.7m net);

·      Profit after tax commensurately down $0.5m to $1.2m (H1 2019: $1.7m);

·      Cash generation from operations up 19% to $2.5m (H1 2019: $2.1m);

·      $1.2m of cash generated used to repurchase 15,936,418 of outstanding shares;

·      Cash at 30 June 2020 of $7.3m compared to $6.6m at 31 December 2019; and

·      EPS of 0.13c (H1 2019: 0.19c).

 

Operational Highlights from period

 

·      Registrations improved 31% to 2.38m (H1 2019: 1.82)

·     Channel billings up 20% contributing to a 7% uplift in total H1 billings with brokered sales reduced to 1% of H1     billings

·      Improved geographic mix maintained - Americas improved to 58% of Group contribution (H1 2019: 52%), Europe       steady at 21% (H1 2019: 20%), with Asia down to 21% (H1 2019: 28%)

·      Ongoing streamlining and improvement of systems following the transition of the Company's last internal data           systems onto the Cloud

 

Commenting on Current Trading and Outlook, Toby Hall said:

 

"As previously indicated, we are profitable, cash generative, and debt-free, with the majority of our revenue being recurring through the channel. As a traditionally H2 weighted business, we expect revenues and operating EBITDA in the second half to be ahead of H1 based on the predictability of those channel based revenues. The degree to which H2 exceeds H1 will largely be dictated by the timing and quantum of revenues from the Q4 marketing campaigns of certain key registrar partners in relation to AdultBlock which were previously delayed in the year due to COVID-19. 

 

"In parallel, we are also pleased to report that we have initiated a series of steps that are expected to reduce costs in aggregate across OPEX, COGs and partner payment by over $1m in 2021 when compared to their expected amounts in 2020.

 

"Finally, I would like to thank our staff and commercial partners for their ongoing effort and support. Their commitment has been outstanding, not least during the current uncertainty and upheaval caused by the coronavirus pandemic." 

 

 

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

 

*- ends - *

 

For further information

 

Minds + Machines Group Limited

 

Toby Hall, CEO

Tel: +44 (0) 7713 341072

Michael Salazar, CFO

Tel: +1 (310) 740 7499

 

 

finnCap Ltd

Tel:+ 44 (0) 20 7220 0500

Corporate finance - Stuart Andrews/Carl Holmes/Simon Hicks

Corporate broking - Tim Redfern/Richard Chambers

 

 

 

Belvedere Communications Limited

Tel: +44 (0) 74 070 23147

John West

Llew Angus

 

 

 

 

 

 

About MMX

 

Minds + Machines Group Limited (LSE: MMX) is the owner of a world class portfolio of 33 ICANN approved top-level domains (gTLDs). The Company generates revenues through the registration and annual renewal of names by organisations and individuals within each of its top-level domains, sales being processed through the Group's online network of global registrar and distribution partners.

 

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

 

 

Executive Summary for the period ended 30 June 2020

 

Overview

 

As a registry, MMX has a growth strategy based on organic development, innovation and selective acquisition. The Group operates its portfolio of 33 top-level domains ("TLDs") on an outsourced platform model to maximise operational leverage. The majority of our revenues are generated through the online sale and renewal of names via third party registrars (the industry's retail channel) as well as, to a lesser extent, the negotiated sale of high-value names via brokers. As such our cash generation and profitability is based on a SaaS type revenue model.

 

To that end, and discussed in full in the Operational Review, in H1 2020 we have maintained our operational focus on: replacing one-off brokered revenue with recurring revenue through the channel; maintaining the improved geographical balance of revenues achieved in 2019; and improving our cash generation.

 

The replacement of one-off brokered revenues, which are generally recognized in full at the time of sale, with recurring channel revenues which are recognized over the life of the registration has, as expected and quite naturally, impacted our reported revenue and profit in spite of the YoY improved billings and cash generation reported in the H1 trading update.

 

H1 2020 financial highlights

 

-       Total gross revenue down 5% to $8.4m (H1 2019: $8.9m) primarily reflecting the switch from brokered to channel     revenues;

-        Revenues net of partner payments remained steady at $7.4m;

-       Channel based revenues unimpacted by COVID improving 4% to $8.3m, representing 99% of gross revenue (H1         2019: $8.0m representing 90% of gross revenue ) with recurring revenues accounting for 67% of gross revenues;

-       Operating EBITDA down to $2.3m (H1 2019: $3.3m inclusive of gTLD auction profit, $2.7m net);

-       Profit after tax commensurately down $0.5m to $1.2m (H1 2019: $1.7m);

-       Cash generation from operations up 19% to $2.5m (H1 2019: $2.1m);

-       $1.2m of cash generated used to repurchase 15,936,418 of outstanding shares;

-       Cash at 30 June 2020 of $7.3m compared to $6.6m at 31 December 2019; and

-       EPS of 0.13c (H1 2019: 0.19c).

 

Current Trading & Outlook

 

As a Group we are profitable, cash generative, and debt-free, with the majority of our revenue being recurring. As a traditionally H2 weighted business, we expect revenues and operating EBITDA in the second half to be ahead of H1 based on the predictability of our channel based revenues. The degree to which H2 exceeds H1 will largely be dictated by the timing and quantum of revenues from certain key registrar partners in relation to campaigns focused on upgrading the original 65,000 10-year Sunrise B blocks taken by brands in 2011 to AdultBlocks.

 

Whilst the Covid pandemic continues to make forecasting the precise timing of new revenue initiatives challenging, as set out above the core business remains, and should continue to remain, cash generative. Against this background, the Board believes that the most advantageous way to reward shareholders is to return excess capital to shareholders. As set out previously, the manner of such returns will be subject to continuous review; however, given the current share price, the Board considers that a tender offer accompanying the ongoing share buyback is likely to be the most accretive. The Company intends initially to announce a tender offer of £3m to take place in November. This will be supplemented by an ongoing buyback and an intention to target further distributions of approximately 50% of free cashflow from operations each financial year. The final terms and price of the tender offer will be subject to a further announcement in due course.

 

Operational Review

 

Organic growth

Top-line registration growth

 

In H1 we have seen a continuation of the top-line registration growth we saw in 2019, the H1 2020 registration growth of 31% to 2.38m from 1.82m in H1 2019 very much mirroring the 36% growth of FY 2019.

 

As in H2 2019, the growth - outside of .work - has not been driven by aggressive discounting and reflects increasing usage of names within our portfolio. For example, even within the .work extension, we are now seeing 32% of registrations with websites associated to them (28% in .com) and 30% having emailing addresses.

 

Improved revenue mix

 

A constant theme to the organic growth story has been the consistent drive to improve the quality of the Group's revenue - specifically, replacing one-off low quality brokered revenue with high quality automated sales revenue through the channel. H1 has seen a continuation of that trend, new registration revenue through the channel increasing by 35% to $2.7m with brokered revenue declining $0.8m to $0.1m, representing 1% of total revenue in H1. The table below charts the significant change in H1 revenue composition from the last three years with brokered revenue reduced from a high of 24% in H1 2018 to 1% this year.

 

Billings mix improvement

H1 2018

H1 2019

H1 2020

Brokered (non-channel)

24%

10%

1%

Premium (channel)

6%

9%

8%

Standard (channel)

17%

13%

24%

Renewal (channel)

53%

68%

67%

 

Improved geographic revenue mix

 

Of similar importance has been the transition in the regional make-up of the revenues over the same period. It should be noted that due to our expanding base of registrar partners, the Company is now reporting regional revenue based on registrar office location to better reflect regional revenues. Previously this information was reported on the main regional markets associated with a TLD. The below table reflects adjustments to the same basis for previous years.

 

Regional split improvement

H1 2018

H1 2019

H1 2020

Americas

41%

52%

58%

EMEA

16%

20%

21%

Asia Pacific

43%

28%

21%

 

Brand protection contribution

As indicated in the H1 trading update, the planned marketing roll-out of AdultBlock by certain registrars in Q2 to their installed base was delayed due to COVID-19. As such the AdultBlock contribution to H1 revenue was minimal. We do not, however, consider this as a missed opportunity but rather a delayed one, the benefit of which will come through in the following 18 months. When .xxx was originally launched in 2011 circa 65,000 labels (domain names) were blocked by brand owners in the extension for a 10 year period as a more cost efficient mechanism to registering their name on an annual basis. In 2019 we introduced an enhanced replacement product for the original 10 year block and tested it with a select number of registrars to understand the natural interest in the product. The results were ahead of expectations and as a result two registrars holding over 25% of the original registrations were identified for the its roll-out in 2020. Whilst their scheduled activities were paused in Q2, we are pleased to confirm both are now engaged in the preparatory phases to allow the product to be actively sold to their base from mid Q4 2020. 

 

Operational efficiencies

As discussed in the 2019 year-end results, as part of the ongoing improvement of operational efficiencies, in early January the last remaining in-house data-centres were moved onto the cloud thereby allowing a reduction and replacement of operational and technical headcount. Following the introduction of our new COO, the ongoing streamlining and improvement of internal systems to deliver better efficiencies has accelerated allowing us to begin the process of selecting a single back-end provider to address our full portfolio needs. In addition, against the wider COVID-19 backdrop, we have brought forward our annual review of the cost base to understand where additional savings could be delivered across partner payments, cost of goods sold (COGs), and Operating expenditures (OPEX), of which the consolidation of registry infrastructure services into a single partner forms a part, the goal being to reduce costs across all three in aggregate by more than $1m against expected 2020 costs across all three.

 

Innovation

The primary focus in 2020 has been to complete the widening of the Ethereum API to allow addresses from multiple blockchains to be associated to a single .luxe address. We are pleased to report that .luxe names can now be associated to wallets and addresses across eighteen leading blockchains  and expect others to be added on an ongoing basis. As previously discussed, the .luxe initiative continues to provide us valuable insights, connections and potential commercial opportunities into how naming conventions can help better connect and improve useability between the traditional DNS and the wider internet. It is also helping inform our decisions on how MMX may wish to participate in the next new gTLD round as and when it occurs.

 

Selective acquisition

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

 

KPIs

 

H1 2020

H1 2019

% Change

Domains under management

$2.38 m

$1.82 m

31%

Gross Revenue

$8.4 m

$8.9 m

(5%)

Renewal Revenue

$5.6 m

$6 m

(6%)

Cost of sales as a % of gross revenue

22%

18%

N/A

OPEX as a % of gross revenue

38%

35%

N/A

Operating EBITDA, net of gTLD auction revenue

$2.3 m

$2.7 m

(12%)

 

The above financial KPIs are discussed within the Financial Review below.

 

Financial Review

 

Revenue

Revenue has decreased by $0.5m to $8.4m in H1 2020 (H1 2019: $8.9m) primarily reflecting the replacement of $0.8m of brokered billings (H1 2020 was $0.1m versus H1 2019 which was $0.9m) with channel billings. For purposes of clarity, channel billings (i.e. invoiced sales) are generally recognised as revenue over the life of the registration. For example, a one year registration would have revenue recognized equally (i.e. 1/12th) per month over 12 months.  The unrecognized revenue from billings is reported on the Statement of Financial Position as Deferred Revenue. Conversely, billings from a one-off brokered sale are generally recognized immediately as revenue. Accordingly, it is possible, as with this period, for the billings to be ahead (i.e. 7%) of the prior period but reported revenues down (i.e. 5%).

 

In terms of revenue make-up, revenues from the channel increased $0.3m to $8.3m in H1 2020 (H1 2019: $8.0m), revenues from new registrations increasing $0.7m to $2.7m (H1 2019: $2.0m), with renewal revenues down $0.4m to $5.6m in H1 2020 (H1 2019: $6.0m) and one-off brokered revenues declining by $0.8m to $0.1m in H1 2020 (H1 2019: $0.9m) in line with expectations.

 

It should be noted that the reduction in renewal revenue relates to the decreased ICM renewal billings experienced in 2018 and 2019. However, Group renewal billings in the period were 17% ahead of H1 2019 and therefore Management expects that renewal revenue will increase going forward.

 

In relation to the current year, revenues, net of partner payments, in H1 have remained flat at $7.4m reflecting a reduction in partner payments in H1 2020 which were $1.1m compared to $1.5m in H1 2019. This in part reflects the restructuring of the onerous contract in 2019.

 

Expenditures

 

COGs

COGs have increased by $0.3m to $1.9m in H1 2020 (H1 2019: $1.6m) resulting primarily from the sales commissions associated to the H2 2019 AdultBlock sales, which are recognized (i.e. waterfalled) in line with the associated revenue.

 

OPEX

OPEX has marginally increased by $0.03m rounding to $3.2m in H1 2020 (H1 2019: $3.1m) despite the improvement in operational efficiencies and reduction in operational and technical headcount. This is due to an additional $0.2m of costs being incurred during the period associated with closing the data centre and staff termination related payments.

 

Operating EBITDA

Whilst net revenue remains flat, Operating Earnings Before Interest, Taxes, Depreciation and Amortisation (Operating EBITDA) has decreased by $1.0m from $3.3m in H1 2019 to $2.3m in H1 2020. Excluding profits from gTLD auctions realized in H1 2019, Operating EBITDA has decreased by $0.4m to $2.3m in H1 2020 (H1 2019: $2.7m) and reflects the increase in costs (COGs and OPEX) detailed above.

 

Profit/(loss)

The profit for the period has decreased by $0.5m to $1.2m in H1 2020 (H1 2019: $1.7m). While Operating EBITDA has decreased by $0.9m the Company had savings in other areas (foreign exchange, share based payments, depreciation & amortisation charge and finance costs) of $0.5m thereby reducing the impact of the reduction in Operating EBITDA to overall profit.

 

Cash

The Company continues to maintain a robust balance sheet with net assets of $78.8m, no debt, and cash balances - post $1.2m of buy-backs during the period -  of $7.3m at the period end, up from $6.6m as of 31 December 2019. The improvement reflects the $0.4m uplift in cash from operations (net of gTLD auction proceeds and onerous contract payments) to $2.5m in H1 2020 (H1 2019: $2.1m).

 

Balance sheet

Outside of cash, the key changes to the balance sheet in H1 2020 include:

 

-       A $3.0m decrease in trade and other receivables to $4.5m in H1 2020 compared to $7.5m at 31 December 2019.    $1.9m of the decrease reflects the collection of AdultBlock billings from the end of 2019 and the collection of  $1.1m in VAT refunds.

-       A $2.5m decrease in trade and other payables to $3.3m in H1 2020 compared to $5.8m at 31 December 2019.          Trade payables decreased by $1.7m and reflect VAT payments related to the onerous contract settled in 2019 and payments to vendors for 2019 costs. The remaining $0.9m reflects partner payments typically higher at the year-end due to the cyclical nature of billings and other year-end accruals (such as sales commissions) which were paid in 2020.

 

Capital Returns

During the period, 15,936,418 of outstanding shares were bought back at an average price of 6.00p. Whilst the Covid pandemic continues to make forecasting the precise timing of new revenue initiatives challenging, the core business remains cash generative. Against this background the Board believes that the most advantageous way to reward shareholders is to return excess capital to shareholders. As set out previously, the manner of such returns will be subject to continuous review; however, given the current share price, the Board considers that a tender offer accompanying the ongoing share buyback is likely to be the most accretive. The Company intends initially to announce a tender offer of £3m to take place in November. This will be supplemented by an ongoing buyback and an intention to target further distributions of approximately 50% of free cashflow from operations each financial year. The final terms and price of the tender offer will be subject to a further announcement.

 

Conclusion

As previously indicated, we are profitable, cash generative, and debt-free, with the majority of our revenue being recurring. This has allowed us to successfully weather the first wave of COVID-19 with both revenue and billings through the channel ahead of last year and H1 cash generation 19% ahead of last year at $2.5m. We likewise believe we are now well placed to navigate the second wave, the strength of our existing channel based business outside of any new brand protection revenues, giving us every reason to believe H2 revenues and Operating EBITDA will be ahead of H1. Further we are confident that the underlying growth of our core business will naturally accelerate in 2021 as we enter the renewal period for 10yr registrations made in 2011 within the ICM portfolio.

 

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

 

 

 

Toby Hall, CEO                                                                                                      Michael Salazar, CFO

29 September 2020                                                                                           29 September 2020

 

 

Consolidated Statement of Total Comprehensive Income for the period ended 30 June 2020

 

 

Notes

Six Months to

30 June 2020 (unaudited)

$ 000's

Six Months to

30 June 2019 (unaudited)

$ 000's

Year Ended

31 December 2019 (audited)

$ 000's

 

 

 

 

 

Revenue

 

8,408

8,884

18,942

Less: Partner payments

4

(1,055)

(1,470)

(2,882)

Revenue less partner payments

 

7,353

7,414

16,060

Cost of sales

5

(1,851)

(1,602)

(3,637)

Gross Profit

 

5,502

5,812

12,423

Gross Profit Margin %

 

75%

78%

77%

 

 

 

 

 

Profit on gTLD auctions

 

-

588

588

Operating expenses

 

(3,163)

(3,129)

(6,040)

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

 

2,339

3,271

6,971

Bad debt provision

 

-

-

(1,433)

Onerous contract provision credit

 

-

-

1,351

Foreign exchange (losses) / gains

 

(192)

(96)

378

Gain on termination of lease (IFRS 16)

 

-

-

299

Profit on disposal of reseller (join.law)

 

-

-

383

Share based payments

6

(299)

(575)

(1,272)

Share of results of joint ventures

12

1

47

48

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

 

1,849

2,647

6,725

 

Depreciation and amortisation charge

7

(404)

(588)

(1,207)

Finance revenue

 

-

6

9

Finance costs

8

(226)

(327)

(649)

Profit before taxation

 

1,219

1,738

4,878

Income tax

9

(1)

(14)

(140)

Profit for the period

 

1,218

1,724

4,738

 

 

Consolidated Statement of Total Comprehensive Income for the period ended 30 June 2020 (continued)

 

 

 

Notes

Six Months to

30 June 2020 (unaudited)

$ 000's

Six Months to

30 June 2019 (unaudited)

$ 000's

Year Ended

31 December 2019 (audited)

$ 000's

Other comprehensive income

 

 

 

 

Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Currency translation differences

 

130

(24)

(680)

Items that will not be reclassified to profit or loss:

 

 

 

 

Loss on fair value through other comprehensive income financial assets

 

-

(57)

(57)

Other comprehensive income for the period net of taxation

 

130

(81)

(737)

Total comprehensive income for the period

 

1,348

1,643

4,001

 

 

 

 

 

Profit for the period attributable to:

 

 

 

 

Equity holders of the parent

 

1,218

1,723

4,738

Non-controlling interests

 

-

1

-

 

 

1,218

1,724

4,738

 

 

 

 

 

Total comprehensive income for the period attributable to:

 

 

 

 

Equity holders of the parent

 

1,348

1,642

4,001

Non-controlling interests

 

-

1

-

 

 

1,348

1,643

4,001

 

Earnings per share (cents)

 

 

 

 

 

 

 

 

 

Basic

10

0.13

0.19

0.51

Diluted

10

0.12

0.18

0.49

 

Condensed Consolidated Statement of Financial Position as at 30 June 2020

 

 

Notes

30 June 2020 (unaudited)

$ 000's

31 December 2019 (audited)

$ 000's

30 June 2019 (unaudited)

$ 000's

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Goodwill

 

2,828

2,828

2,828

Intangible assets

11

81,700

81,494

81,523

Tangible assets

 

73

68

51

Right-of-use asset

18

2,402

2,673

2,848

Interest in joint ventures

12

180

480

479

Other long-term assets

13

185

185

185

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

14

4,458

7,490

7,502

Cash and cash equivalents

15

7,296

6,583

8,946

Total current assets

 

11,754

14,073

16,448

 

 

 

 

 

TOTAL ASSETS

 

99,122

101,801

104,362

 

 

 

 

 

LIABILITIES

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

16

(3,305)

(5,835)

(7,150)

Deferred revenue

17

(13,192)

(13,662)

(13,161)

Provisions

 

-

-

(1,563)

Lease liabilities

18

(948)

(907)

(970)

Total current liabilities

 

(17,445)

(20,404)

(22,844)

 

 

 

 

 

Non-current liabilities

 

 

 

 

Provisions

 

-

-

(2,762)

Lease liabilities

18

(2,865)

(3,040)

(3,343)

 

Condensed Consolidated Statement of Financial Position as at 30 June 2020 (continued)

 

Notes

30 June 2020 (unaudited)

$ 000's

31 December 2019 (audited)

$ 000's

30 June 2019 (unaudited)

$ 000's

Total non-current liabilities

 

(2,865)

(3,040)

(6,105)

 

 

 

 

 

TOTAL LIABILITIES

 

(20,310)

(23,444)

(28,949)

 

 

 

 

 

NET ASSETS

 

78,812

78,357

75,413

 

 

 

 

 

Share capital

19

-

-

-

Share premium

19

79,025

80,217

80,657

Shares to be issued

 

-

-

-

Other reserves

 

(500)

(500)

(500)

Foreign exchange reserve

 

1,034

904

1,560

Retained earnings

 

(747)

(2,264)

(5,979)

Equity attributable to owners of the Company

 

78,812

78,357

75,738

Non-controlling interests

 

-

-

(325)

TOTAL EQUITY

 

78,812

78,357

75,413

 

 

 

Condensed Consolidated Statement of Cash Flows for the period ended 30 June 2020

 

 

Notes

Period Ended

30 June 2020

(unaudited)

$ 000's

Period Ended

30 June 2019 (unaudited)

$ 000's

Year Ended

31 December 2019 (audited)

$ 000's

Cash flows from operations

 

 

 

 

Operating EBITDA

 

2,339

3,271

6,971

Adjustments for:

 

 

 

 

Foreign exchange gain / (loss)

 

(51)

(276)

101

Withdrawal of gTLD applications

 

-

148

148

Payment towards onerous contracts

 

-

-

(1,396)

Onerous provision utilisation

 

-

(1,449)

(5,280)

Decrease / (increase) in trade and other receivables

 

1,874

1,628

407

Increase / (decrease) in trade and other payables

 

(1,637)

(1,083)

(220)

Net cash inflow / (outflow) from operations

 

2,525

2,239

731

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

Interest received

 

-

6

9

Sale of reseller (join.law)

 

-

-

383

Payments to acquire intangible assets

11

(315)

(173)

(193)

Joint venture distribution

 

123

-

-

Payments to acquire fixtures & equipment

 

(21)

(6)

(38)

Net cash inflow / (outflow) from investing activities

 

(213)

(173)

161

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

Interest paid

 

-

(97)

(137)

Proceeds / (repayment) from borrowings

 

-

(3,000)

(3,000)

Share buyback

 

(1,192)

-

(440)

Principal elements of lease payments

 

(407)

(390)

(1,099)

Net cash inflow / (outflow) from financing activities

 

(1,599)

(3,487)

(4,676)

Net increase / (decrease) in cash and cash equivalents

 

713

(1,421)

(3,784)

Cash and cash equivalents at beginning of period

 

6,583

10,367

10,367

Cash and cash equivalents at end of period

 

7,296

8,946

6,583

 

 

Condensed Consolidated Statement of Changes in Equity for the period ended 30 June 2020

 

 

Share Capital

Share premium

Shares to be issued

 

Other reserves

Foreign currency translation reserve

Retained earnings

Total

Non-controlling interest

Total equity

 

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

$ 000's

As at 1 January 2019

-

68,912

11,745

(443)

1,584

(8,277)

73,521

(326)

73,195

Profit for the period

-

-

-

-

-

1,723

1,723

1

1,724

Other comprehensive income

-

-

-

(57)

(24)

-

(81)

-

(81)

Total comprehensive income

-

-

-

(57)

(24)

1,723

1,642

1

1,643

Additions to share premium

-

11,745

(11,745)

-

-

-

-

-

-

Share based payments

-

-

-

-

-

575

575

-

575

As at 30 June 2019 (unaudited)

-

80,657

-

(500)

1,560

(5,979)

75,738

(325)

75,413

 

 

 

 

 

 

 

 

 

 

As at 1 January 2019

-

68,912

11,745

(443)

1,584

(8,277)

73,521

(326)

73,195

Profit for the period

-

-

-

-

-

4,738

4,738

-

4,738

Other comprehensive income

-

-

-

(57)

(680)

-

(737)

-

(737)

Total comprehensive income

-

-

-

(57)

(680)

4,738

4,001

-

4,001

Additions to share premium

-

11,745

(11,745)

-

-

-

-

-

-

Share buy back

-

(440)

-

-

-

-

(440)

-

(440)

Share based payments

-

-

-

-

-

1,275

1,275

-

1,275

Adjustments arising from change in non-controlling interest

-

-

-

-

-

-

-

326

326

As at 31 December 2019

-

80,217

-

(500)

904

(2,264)

78,357

-

78,357

 

 

 

 

 

 

 

 

 

 

As at 1 January 2020

-

80,217

-

(500)

904

(2,264)

78,357

-

78,357

Profit for the period

-

-

-

-

-

1,218

1,218

-

1,218

Other comprehensive income

-

-

-

-

130

-

130

-

130

Total comprehensive income

-

-

-

-

130

1,218

1,348

-

1,348

Share buy back

-

(1,192)

-

-

-

-

(1,192)

-

(1,192)

Share based payments

-

-

-

-

-

299

299

-

299

As at 30 June 2020 (unaudited)

-

79,025

-

(500)

1,034

(747)

78,812

-

78,812

 

Condensed Consolidated Statement of Changes in Equity for the period ended 30 June 2020 (continued)

 

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

·      Shares to be issued - This reserve represents shares to issued arising from the acquisition of ICM Registry, LLC.

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

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

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

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

 

 

 

Notes to Financial Statements for the period ended 30 June 2020

 

1.  Reporting Entity

 

Minds + Machines Group Limited is a company registered in the British Virgin Islands under the BVI Business Companies Act 2004. The Company's ordinary shares are traded on the AIM market operated by the London Stock Exchange.

 

2.  Basis of Preparation

 

The condensed consolidated interim financial statements have been prepared on the basis of Company accounting policies and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2019 ('last annual financial statements'). They do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last financial statements. The summary of results for the year ended 31 December 2019 is an extract from the published Annual Report and Financial Statements which were approved by the board of Directors on 23 March 2020. The audit report on the Annual Report and Financial Statements was unqualified and did not contain an emphasis of matter paragraph.

 

The condensed consolidated interim financial statements have not been audited but have been reviewed by the auditor in accordance with International Standard on Review Engagements (UK and Ireland) 2410 issued by the Auditing Practices Board.

 

Management has reviewed forecasts which have been modelled for different plausible downside scenarios including as a result of the COVID 19 pandemic. These scenarios support a going concern basis. As a result, the directors have a reasonable expectation that the Group has the adequate resources to meet its obligations as they fall due for a period of at least 12 months from the date of signing these financials statements. Accordingly, they continue to adopt the going concern basis in preparing the half year financial statements.

 

The accounting policies used in the preparation of these condensed consolidated interim financial statements is the same as those disclosed in the last annual financial statements.

 

Basis of consolidation

The condensed consolidated financial information incorporates the results of the Company and its subsidiaries.

 

Approval

These interim financial statements were authorized for issue by the Company's board of directors on 29 September 2020.

 

New standards and interpretations not yet adopted

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

 

3.  Use of Judgements and Estimates

 

In preparing these interim financial statements, management has made judgements and estimates that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

 

The significant judgements made by management in applying the Group's accounting policies and the key source of estimation uncertainty were the same as those described in the last annual financial statements.

 

4.  Partner Payments

 

Partner payments represents the expense relating to certain TLDs where royalty payments are required to be made. Such payments are based on the Group's billing and are deferred in line with accounting revenue.

 

5.  Cost of Sales

 

 

 

H1 2020

$'000's

(unaudited)

H1 2019

$'000's

(unaudited)

ICANN Fees

 

686

630

Marketing

 

694

701

Other (includes commission on new products)

 

471

271

 

 

1,851

1,602

 

6.  Share Based Payments

 

Share based payments expenses of $299k (H1 2019: $575k) relate to the fair value of the share options determined by using the Black-Scholes model expensed over the vesting period of the share option. During the period the Company granted 13,853,200 options and 10,915,400 Restricted Stock Units ("RSU's) to the Executive team and key employees. During the period 8,950,000 options/RSU's were cancelled/expired.

 

7.  Depreciation and Amortisation

 

 

H1 2020

$'000's

(unaudited)

H1 2019

$'000's

(unaudited)

Right of use-assets (see note 18)

274

472

Other

130

116

 

404

588

 

8.  Finance Costs

 

 

H1 2020
$'000's

(unaudited)

H1 2019
$'000's

(unaudited)

Imputed interest on leases (see note 18)

226

230

Loan interest

-

97

 

226

327

 

 

9.  Income tax expenses

 

 

H1 2020
$'000's

(unaudited)

H1 2019
$'000's

(unaudited)

Current tax charge

1

14

 

1

14

 

The British Virgin Islands where the Group derives majority of profits imposes no corporate taxes. However, the Group may be liable for taxes in other jurisdictions where it is operating. Currently the Group has sufficient tax losses carried forward to cover taxable profits in such jurisdictions. The Group tax charge of $1k (H1 2019: $14k) relates to local taxes paid.

 

10.  Earnings per share

 

 

H1 2020
$'000's

(unaudited)

H1 2019
$'000's

(unaudited)

Earnings for the purpose of basic and diluted earnings per share

 

 

Earnings for the period

1,218

1,723

 

 

 

Number of shares

 

 

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

913.74

920.99

Effect of potentially dilutive ordinary shares - share options and warrants (millions)

65.66

39.80

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

979.40

960.79

 

 

 

Earnings per share

 

 

Basic (cents)

0.13

0.19

Diluted (cents)

0.12

0.18

 

 

11.  Intangible Assets

 

 

generic Top Level Domains
$ 000's

Software & development costs
$ 000's

Contract based intangible assets
$ 000's

Other
$ 000's

Total
$ 000's

Cost

 

 

 

 

 

At 1 January 2019

81,210

2,707

4,206

170

88,293

Additions

-

193

-

-

193

Exchange differences

(12)

36

-

-

24

At 31 December 2019

81,198

2,936

4,206

170

88,510

 

 

 

 

 

 

Additions

-

315

-

-

315

Exchange differences

3

7

-

-

10

At 30 June 2020 (unaudited)

81,201

3,258

4,206

170

88,835

 

 

 

 

 

 

Accumulated amortization and impairment

 

 

 

 

 

At 1 January 2019

-

(2,459)

(4,206)

(170)

(6,835)

Charge for the year

-

(209)

-

-

(209)

Exchange differences

-

28

-

-

28

At 31 December 2019

-

(2,640)

(4,206)

(170)

(7,016)

 

 

 

 

 

 

Charge for the period

-

(111)

-

-

(111)

Exchange differences

-

(8)

-

-

(8)

At 30 June 2020 (unaudited)

-

(2,759)

(4,206)

(170)

(7,135)

 

 

 

 

 

 

Carrying amount

 

 

 

 

 

At 30 June 2020 (unaudited)

81,201

499

-

-

81,700

At 31 December 2019

81,198

296

-

-

81,494

 

generic Top Level Domains

In 2012, the Group applied for new generic Top Level Domains ("gTLDs") to the Internet Corporation for Assigned Names and Numbers (ICANN). Successful applications are transferred from Other Long-term Assets to Intangible assets. The Group capitalises the full cost incurred to pursue the right to operate gTLDs including amounts paid at auction to gain this right where there are more than one applicant to ICANN for the same gTLD.

 

This class of intangible assets is assessed to have an indefinite life as it is deemed that the application fee and amounts paid at auction give the Group the indefinite right to this generic Top Level Domain. As at H1 2020 the Directors believe there is no indication of impairment. A full review will be performed at year end.

 

12.  Interest in Joint ventures

 

 

30 June 2020

$'000's

(unaudited)

31 December 2019
$'000's

Assets

 

 

- Non-Current

99

96

- Current

94

399

 

193

495

Liabilities

 

 

- Current

(13)

(15)

 

 

 

Share of interest in net assets

180

480

 

 

Six Months to 30 June 2020 (unaudited)

$ 000's

Six Months to 30 June

2019 (unaudited)

$ 000's

- Revenue

9

1

- Cost of Sales 

-

(5)

- Expenses

(8)

(6)

- Profit on contested gTLD applications

-

51

Profit after income tax

1

47

 

The Company has an interest in two Joint ventures; "Entertainment Inc." and "Dot Country LLC".

 

13.  Other Long-Term Assets

 

During the application process, payments for gTLD applications are included in Other Long Term Assets as there is no assurance that the Group will be awarded any of the related gTLDs. These long-term receivables payments will be reclassified as intangible assets once the gTLD strings are available for their intended use, which is expected to occur following the delegation of gTLD strings by ICANN. In general, the Group does not expect to withdraw any of its applications unless the application has not passed the evaluation process and there is no further recourse or there is an agreement to sell or dispose of the Group's interest in certain applications.

 

There was no change to Other Long-Term assets in H1 2020.

 

14.  Trade and Other Receivables

 

 

30 June 2020
$'000's

(unaudited)

31 December 2019

$'000's

Trade receivables

1,982

3,864

Allowance for doubtful debts

-

-

Net receivables

1,982

3,864

 

 

 

Other receivables

216

1,420

Prepayments (including partner payments and marketing)

2,210

2,097

Accrued revenue

-

59

Due from joint ventures (see note 12)

50

50

 

2,476

3,626

 

4,458

7,490

 

Trade receivables are amounts due from customers and are stated at the original invoice amount less allowance made for doubtful receivables, of which there are none. Management believes that the net trade receivables as reflected above are recoverable and stated at fair value.

 

15.  Cash and Cash Equivalents

 

The Group has total cash balances of $7,296k (2019: $6,583k). Of the Group's total cash balances $807k (2019: $1,986k) are restricted funds. These amounts are held to fund the letters of credit required by ICANN and other vendor requirements.

 

16.  Trade and Other Payables

 

 

30 June 2020
$'000's

(unaudited)

31 December 2019
$'000's

Trade payables

198

1,863

Credit balances on customer accounts

1,210

968

Other liabilities

39

524

Accruals (including partner payments)

1,792

2,234

Due to joint ventures (see note 12)

66

246

Trade and other payables

3,305

5,835

 

 

 

17.  Deferred revenue

 

 

30 June 2020
$'000's

(unaudited)

31 December 2019
$'000's

Deferred revenue

13,192

13,662

 

Billings (i.e. fees from invoices sales) are generally recognised as revenue over the life of the registration. A portion of billings may be recognised immediately as revenue (for example, for brand protection services or brokered sales).

 

Deferred revenue represents the fee from billings not recognised as revenue at the balance sheet date as its underlying registration or renewal extends beyond the balance sheet date.

 

18.  Leases

 

 

 

 

Right-of-use Assets

Lease Liabilities

 

Registry Platform

$ 000's

Property Leases

$ 000's

Total

$ 000's

Lease Liabilities

$ 000's

 As at 1 January 2019

2,328

119

2,447

3,574

 Additions

1,015

244

1,259

1,259

Depreciation and amortisation expense

(894)

(76)

(970)

-

Gain on termination of lease

-

-

-

(299)

 Interest expense

-

-

-

512

 Lease Payments

-

-

-

(1,036)

Foreign exchange

(19)

(44)

(63)

(63)

As at 31 December 2019

2,430

243

2,673

3,947

 

 

 

 

 

 Current

 

 

 

907

 Non-current

 

 

 

3,040

 Total

 

 

 

3,947

 

18.  Leases (continued)

 

 

 

 

Right-of-use Assets

Lease Liabilities

 

Registry Platform

$ 000's

 

Property Leases

$ 000's

Total

$ 000's

Lease Liabilities

$ 000's

 As at 1 January 2020

2,430

243

2,673

3,947

 Additions

-

-

-

-

 Depreciation and amortisation expense

(230)

(44)

(274)

-

 Interest expense

-

-

-

226

 Lease Payments

-

-

-

(407)

Foreign exchange

3

-

3

47

 As at 31 June 2020 (unaudited)

2,203

199

2,402

3,813

 

 

 

 

 

 Current

 

 

 

948

 Non-current

 

 

 

2,865

 Total

 

 

 

3,813

 

19.  Share Capital and Premium

 

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

Number of shares
 

Price per share
(cents/pence)

Total

$'000's

 

 

 

 

As at 1 January 2019

796,556,797

 

68,912

Shares issued:

 

 

 

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

128,300,765

9.2c/6.9p

11,745

Share buy back

(5,837,160)

7.8c/6.0p

(440)

31 December 2019

919,020,402

 

80,217

 

 

 

919,020,402

 

80,217

(15,936,418)

7.5c/6.0p

(1,192)

903,083,984

 

79,025

 

20.  Post Balance Sheet Events

 

As of the balance sheet signing date the Company has bought back 1,050,000 shares at 7.8c/6p per ordinary share ($83k) and will continue to buy back shares as and when appropriate.

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