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CentralNic Group Revenue up 95% making another record year

CentralNic Group plc (LON:CNIC), a global internet platform company that derives revenue from the subscription sales of internet domain names and internet services, announced today its audited results for the year ended 31 December 2019.

Financial Highlights

Revenue up 95% to USD 109.2m (2018: USD 56.0m)

Recurring Revenues at 92% (2018: 90%)

Gross profit up 65% to USD 42.8m (2018: USD 25.9m)

Adjusted EBITDA* up 96% to USD 17.9m (2018: USD 9.1m)

Adjusted diluted EPS** up 43% to USD 6.81 cents (2018: USD 4.77 cents)

Cash balance at year end USD 26.2m (2018: USD 23.1m)

Net Debt at year end USD 75.0m*** (2018: USD 3.2m)

*Excludes impact of share-based payments expense, foreign exchange and non-core operating costs

** Adjusted for amortisation, share-based payments expense, foreign exchange and non-core operating costs

***Including prepaid finance costs

Operational Highlights

Significant client wins including .blog, the ccTLD .bh, MarkMonitor, ZDNS, and Automattic

Operational efficiencies and savings of c. USD 1m achieved through integration of earlier acquisitions.

Four further acquisitions strengthening our core offering, facilitating a strategic expansion into a new segment with the acquisition of Team Internet in December 2019

Augmented CentralNic’s market strength, with 45% growth of customer base

Post year-end events
Trading proves to be resilient to the global impact of COVID-19
Team Internet integrating to plan with strong fundamentals for FY19 and pleasing contribution to the Group for Q1 2020
Management restructure with new hires:
• Chief People Officer, Tracey Hickling
• Head of Reseller segment, Robbie Birkner

Q1 Trading Update**

Revenue of USD 56m

Gross profit of USD 17.7m

Adjusted EBITDA*** of USD 8.1m

Net debt of USD 76.8m****

**This is CentralNic Group PLC’s first Q1 trading update and consequently no prior year comparable is provided

*** See definition in Financial Highlights above

**** Including prepaid finance costs

Ben Crawford, CEO of CentralNic, commented: “I am delighted to report CentralNic Group enjoyed another record year in 2019, with 61% year-on-year growth of revenue, excluding the effect of acquisitions made during 2019. Including the four acquisitions made in the second half of 2019, revenues for the year were USD 109.2m, a 95% increase over 2018, taking the Group’s Compound Annual Growth Rate (CAGR) since it listed in 2013 to 73%. Adjusted EBITDA for 2019 was USD 17.9m, a 96% improvement on 2018, with margins and cash generation maintained year-on-year.

The Group trading in Q1 2020 was in line with our expectations, despite the global business restrictions to slow the progress of COVID-19. As some of our companies are considered critical infrastructure, our Group has a long history of being focussed on business continuity, which prepared us well for switching our staff to working from home while providing undiminished service to our customers.

“As a profitable provider of online subscription services with high cash-conversion and solid organic growth, we do not expect CentralNic to be severely affected by COVID-19, but we will continuously review our acquisition and financing strategy to ensure that we maintain stability and optimise our business strategies in the new global climate.”

Chairman’s statement

In this era of unprecedented interruption to business activities, I am pleased to report on another year of outstanding growth for CentralNic Group plc (‘CentralNic Group’ or ‘the Group’) in 2019, effectively doubling revenue and adjusted EBITDA while remaining a pure play recurring revenue business. The results for the first quarter of 2020 support the resilience of the Group’s businesses, as it continues to take significant steps forward in its strategy to build a leading global domain name and web services provider.

All divisions continued to grow organically during 2019, through a combination of new client wins and increased business from existing customers, with continued healthy profit margins generating high levels of operating cash flow. The Group also made four earnings accretive acquisitions during the year, expanding its service offering and increasing scale. In addition, CentralNic Group widened its market offering at the end of 2019 by adding a new business model – Domain name monetisation – via the acquisition of Team Internet AG, which has already proved to be a highly earnings accretive addition to the Group.

The Group’s continued transformation is the result of enormous hard work from our executives and staff, and I thank them on behalf of the Board and the shareholders for their efforts. We have worked hard to ensure that the businesses that we acquired have been integrated into our group structure to ensure consistent standards and efficient use of resources. I would also like to welcome the new staff and senior executives who joined the enlarged Group in 2019, as well as the new investors who joined the share register or who subscribed to CentralNic Group’s maiden bond issue, listed on the Oslo exchange in October 2019. The new financial year has started with a number of new appointments to strengthen the Group’s leadership, including Robbie Birkner, as Head of our Reseller segment and Tracey Hickling as the Group’s Chief People Officer. These appointments are expected to enhance the Group’s ability to drive rapid organic and M&A led growth.

Trading in Q1 2020, together with the Group’s high percentage of recurring revenues, provide the Board with every confidence of meeting market expectations for 2020. The Group’s long-standing proactive focus on ensuring business continuity for itself and its customers has prepared it well for the challenges presented by the novel COVID-19, including the movement of our global workforce to home working – completed before it was mandated by Government. We continue to monitor the situation and our Group’s results closely.

We continue to see lots of interesting bolt-on M&A opportunities. We have chosen to defer the payment of our maiden dividend to preserve capital to make tactical acquisitions. In the current business environment, we believe that this will generate better returns for shareholders. The Directors will continue to monitor the potential payment of a dividend and will keep shareholders informed of any decision.

Iain McDonald, Chairman

Chief Executive Officer’s Report

CentralNic Group enjoyed another record year in 2019, with 60.9% year-on-year growth excluding the effect of acquisitions made during 2019. Including the four acquisitions made in the second half of 2019, revenues for the year were USD 109.2m, a 95% increase over 2018, taking the Group’s Compound Annual Growth Rate (CAGR) since it listed in 2013 to 73%. Adjusted EBITDA for 2019 was USD 17.9m, a 96% improvement on 2018, with margins and cash generation maintained year-on-year.

Market and Strategy

CentralNic Group is a leading global vendor of online subscriptions to domain names – a key infrastructure component of the internet used as the foundation for both email and websites. In 2019, over 90% of Group revenues came from domain names, with the remainder from recurring revenue domain-related services. CentralNic Group has a loyal and sticky customer base, with approximately 80% of CentralNic Group’s revenues derived from recurring annual fees that were agreed in years prior to 2019. The balance of domain revenues is derived from first year domain registrations generated by our resellers or acquired directly by CentralNic Group.

The total addressable market (TAM) for CentralNic Group’s services is estimated at USD 30 billion, with the majority of those markets currently served by smaller independent companies – providing significant opportunities for CentralNic Group to grow market share by winning new customers and through acquisitions.

A truly global company, CentralNic Group’s staff are concentrated in its main hubs in Germany, Australasia and the UK, while it distributes domains from those centres to customers in almost every country in the world. In 2019, CentralNic Group supplied over 28 million domains to over 370,000 customers. Customer concentration was minimal with CentralNic Group’s largest customer representing less than 10% of its revenues.

CentralNic Group is a leader among its peers as the first omni-platform provider. It developed an integrated stack of highly automated proprietary software platforms, customised top each customer type, which it now maintains, updates and operates.

Reseller segment

CentralNic Group is a world leader in its Reseller segment, which grew 122% in 2019. This segment operates platforms for resellers such as registrars, hosting companies and telcos.  It operates under the brands Key-Systems, Hexonet, PartnerGate, TPP Wholesale and Toweb – and is ranked number two in the World by volume. In addition to domain names, the Group is starting to sell in-demand services such as Microsoft Office 365 and AWS hosting, which the Directors expect will provide a meaningful contribution to organic growth in the future.

The Reseller segment also includes Centralnic Group’s Registry Solutions business, which operates a platform for registries of country-codes (ccTLDs) and new Top-Level Domains (nTLDs). With over 115 TLDs using its registry platform, CentralNic Group’s Registry Solutions business is ranked in the top five globally and is the leading registry provider for new TLDs, finishing 2019 with over 40% market share of nTLDs by volume.

Small Business segment

CentralNic Group’s Small Business segment is a rapidly growing challenger, emerging from a field of hundreds of local competitors as a global player of increasing importance, growing 56% in 2019. Our online retailers target high-margin and high-growth niches globally, specialising in customers buying large quantities of domain names and country-code domains, and upselling other domain-related services to these customers.

Corporate segment

CentralNic Group’s Corporate segment grew 140% in 2019. It services large corporations that view domain names as a form of intellectual property similar to trademarks, which must be secured and protected by brand owners. Over 1,000 corporate clients to date have entrusted their domain portfolio management to CentralNic Group, which includes Fortune 1000 companies and household brand names.

IT and Shared Services

Behind the scenes, CentralNic Group businesses are serviced by a central hub of IT and corporate services, including finance, HR, development, and a single procurement function for domains and other microservices, streamlining the internal supply chain. The Company also has a dedicated team that oversees the successful integration of each newly acquired business.

Operational Review

CentralNic Group experienced both acquisition-driven and organic growth in its Reseller, Small Business and Corporate segments in 2019.  Given the difficulties of switching suppliers in the domain industry, customers tend to be very sticky, and client wins from other suppliers are relatively rare, which of course benefits the Group on the flipside. Nonetheless, CentralNic Group has continued to win more customers away from its competitors with its focus on expert service, close collaboration with clients, and feature rich, flexible and automated technology.

Significant customer wins in the Reseller segment include registry service contracts for the TLDs .Blog, .Gay, .Music, .Build, .Luxury, .Bond and .BH. CentralNic Registry Solutions ended 2019 with over 40% of the total nTLD market by volume, which is more than the next five competitors combined. Major resellers recruited in 2019 included Automattic, MarkMonitor, ZDNS and Telenor. These new client wins, together with growth of existing customers, resulted in the reseller businesses CentralNic Group owned for the full year 2019 increasing their domains under management from 13.5 million to 25.5 million during the year.

In the retail sector, the businesses CentralNic Group owned for the whole of 2019 enjoyed growth from 2.0 million to 2.3 million domains under management. In March 2019, CentralNic Group was selected by the internet regulator, ICANN (Internet Corporation for Assigned Names and Numbers) for the bulk transfer of 680,000 domain names from a former registrar that was no longer accredited.

Following a full competitive application process ICANN selected CentralNic Group to take over management of the domain names. Such a process is the official procedure when a former registrar loses accreditation in order to ensure the end customers enjoy continuity of service. A number of criteria were taken into account in selecting CentralNic Group as the successful candidate, including the Company’s experience, history of compliance, stability, and overall reputation for professionalism. CentralNic Group completed the migrations in the space of two months.

In CentralNic Group’s Corporate segment, domains under management increased from 137,000 to 154,000 in 2019, as a result of increased activity from existing clients as well as new client wins.

Integrations

Recurring net cost savings of approximately USD 1 million were realised in 2019, comprising the full year effect of cost savings made in 2018 plus successes in integrations in 2019. This included KeyDrive’s KS Registry clients being migrated to the CentralNic Registry platform, while CentralNic Group’s EPP Gateway clients were migrated to the KeyDrive reseller platform. Both the KS Registry and EPP Gateway platforms were retired. Additionally, our Instra retail business switched to the Central Domain Procurement platform for 400 Top-Level Domains, in some instances Instra’s lower procurement costs were shared among Group companies.

CentralNic Group has a dedicated team of integration project managers who plan and track integrations according to a clearly defined blueprint. For each acquisition made, the integration plan following that blueprint includes ten work streams which list hundreds of tasks from immediate actions like changing signatories on bank accounts, through to long term projects such as the merging of software platforms. Key objectives for integration include obtaining visibility and control of costs and earnings, use of Group resources, cross-selling opportunities and cost reductions.

Acquisitions

Customers are very sticky in the domain business given the high levels of automation and high switching costs, with transfers between providers amounting to a small proportion of all transactions. This customer stickiness, combined with the high value and quality of earnings of existing customer books, makes the domain industry a very attractive and relatively low risk industry in which to acquire businesses.

In total, five successful acquisitions contributed to CentralNic Group’s growth in 2019, with the acquisition of Team Internet AG being completed on 24 December 2019 and having its first material impact on 2020. CentralNic Group enjoyed the full year effect of its acquisitions of KeyDrive, completed on 2 August 2018, and Globehosting, completed the following month, making a significant contribution to the growth experienced in 2019. All acquisitions were of companies with a high level of recurring revenues, excellent customer retention and high levels of cash conversion.

On 1 August 2019 CentralNic Group acquired the Sydney-based business TPP Wholesale, the leading platform for resellers of domain names and hosting in Australasia – a carve out of certain trade and assets from ARQ Group Limited (“ARQ”), a company listed on the Australian Securities Exchange. TPP Wholesale serves around 14,000 reseller customers and has 840,000 domains under management, including 19% of all .com.au registrations. TPP Wholesale is an extension in Australia and New Zealand of CentralNic Group’s largest business unit, which supplies domain names to resellers globally including most of the world’s top ten domain name retailers by volume. CentralNic Group has provided TPP Wholesale customers with continuity of service, while it will also upgrade the service with new products. The TPP Wholesale acquisition also marked the first steps in CentralNic Group becoming a reseller of Amazon Web Services and Microsoft Office 365. The total consideration was AUD 24m including taxes, paid in cash and by assuming certain liabilities of c. AUD 1.6m (USD 1.1m) from ARQ at completion. CentralNic Group incurred a number of one-off integration costs of which AUD 0.7m arose in CentralNic Group’s 2019 financial year.

On 7 August 2019 CentralNic Group acquired all of the shares in Hexonet, a leading international platform for resellers of domain names, with operations in Canada and Germany, in close proximity to CentralNic Group’s main German operation. Hexonet sells domain name subscriptions directly and via more than a thousand resellers in over 110 countries, managing over 3.8 million domains on its proprietary software platforms. In 2018, Hexonet’s revenues were c.EUR 16.5 million (c.USD 19.4m), representing a CAGR of 8% on a USD basis for the two preceding years, with an EBITDA of c.EUR 0.8m (c.USD 0.9m). CentralNic Group acquired all of the shares in Hexonet for up to EUR 10.0 million, subject to customary net cash and working capital adjustments, the payment being subject to Hexonet being delivered by the seller with over EUR 0.3m (c.USD 0.4m) of ongoing cost reductions compared to the 2018 cost base. Further, CentralNic Group filled staff vacancies budgeted at EUR 0.3m (c.USD 0.4m) with staff from Hexonet.

On 7 August 2019 CentralNic Group acquired the international domain name retailer Ideegeo Group Ltd (“Ideegeo”). The acquisition was both strategic and earnings accretive to CentralNic Group. Ideegeo is the operator of the retail website iwantmyname.com, a leading innovator in the application of User Centered Design to the retailing of domain names, with 180,000 domains under management. Since the acquisition CentralNic Group has started to deploy the design solutions developed by Ideegeo across its retail websites, noting that high usability is particularly ideal for customers in emerging economies, which is a key target market for CentralNic Group. The Company retained the staff of Ideegeo and appointed one of the founders as Customer Engagement Product Planner and Manager across its retail brands. For the financial year ended 31 March 2019, Ideegeo’s revenues were c.NZD 6.2 million (c.USD 4.2m), with an EBITDA (adjusted for the costs of the shareholders leaving the business) of NZD 0.9m (c.USD 0.6m). The consideration represents a multiple of 5.8 times trailing adjusted EBITDA and was paid in cash.

To fund the above acquisitions and to refinance its bank debt, CentralNic Group successfully placed a debut EUR 50m senior secured bond issue on 24 June 2019, which was subsequently listed on the Oslo Stock Exchange and tapped for an additional EUR 40m for the Team Internet AG acquisition. The bond, which matures in July 2023, has a coupon of three-month EURIBOR (with a floor of zero per cent) plus 7% p.a. with quarterly interest payments. Pareto Securities acted as Sole Bookrunner for the bond issue. CentralNic Group was advised by Rothschild & Co in connection with the bond issue. The issue was oversubscribed and supported by a wide range of debt capital markets investors globally. This bond established CentralNic Group as an issuer and, in combination with our strong support among equity market investors, provides us with considerable financial flexibility, over the medium term, to pursue our strategic growth objectives.

On 24 December 2019, CentralNic Group acquired web services company Team Internet AG, a leading provider of monetisation services for domain investors. As reported by Matomy Media Group Ltd. as part of their audited annual report for FY2019, during the period from 1 January 2019 through 24 December 2019, the date of the sale of Team Internet AG to CentralNic Group, Team Internet recorded revenue of USD 74.0m and adjusted EBITDA of USD 12.3m. CentralNic Group acquired Team Internet AG for a total consideration of USD 48m cash, equivalent to 3.9 times Team Internet AG’s EBITDA for the period 1 January 2019 to 24 December 2019. The acquisition is earnings enhancing and expected to be significantly accretive in the financial year ending 31 December 2020, before any synergies.

Through these acquisitions in combination with its organic growth, CentralNic Group doubled its revenue run-rate from the beginning of 2018 to the beginning of 2019. Recurring revenues from domain name subscription sales form the foundation of CentralNic Group’s business and contributed the vast majority, an estimated 92%, of CentralNic Group’s revenues in 2019. However, the highly attractive additional, domain-related software and services represent an earnings opportunity significantly greater than domain names, and CentralNic Group has been focused on rapidly gaining exposure to those services. In that respect, 2019 was a transformational year, in which the acquisitions made have the effect that our pro forma revenues from domain sales are now matched by the pro forma revenues from selling domain-related software and services.

In addition to the contribution these acquisitions have made to the continued growth of CentralNic Group, they also represent a practical demonstration of our team’s ability to source and complete deals around the world and successfully integrate them. The Directors continue to build a pipeline of acquisition targets that fit the Group’s criteria with a view to making further acquisitions in the coming years. As CentralNic Group’s sector is proving resilient to business interruption, the Directors note the continued availability of attractive acquisition targets, which, coupled with the Group’s proven ability to source, complete and integrate complex acquisitions around the world, provide an ongoing opportunity to build a sizeable global business to rival the largest industry players.

Post Year-end and Outlook

I am delighted to report that trading in Q1 2020 was in line with the Directors’ expectations, despite the global business restrictions to slow the progress of COVID-19. As some of our group companies are considered critical infrastructure, our Group has a long history of being focussed on business continuity, which prepared us well for switching our staff to working from home while providing undiminished service to our customers.

As a provider of online subscription services with high cash-conversion and solid organic growth, we do not expect CentralNic Group to be severely affected by COVID-19, but we will take the necessary precautions to preserve our cash and review our acquisition pipeline and financing plans to ensure that we maintain stability and optimise our business strategies in the new global climate.

Ben Crawford, CEO

Chief Financial Officer’s Report

2019 was yet another transformational year for CentralNic Group, not only by the number and volume of acquisitions completed, but also in the way that the Group structured and financed them. Most importantly, the acquisitions were immediately accretive as demonstrated by CentralNic Group’s 2019 financial performance.

In the financial year 2019, the Group recorded overall year-on-year growth in revenues of 95% from USD 56.0m to USD 109.2m. The growth in the revenue line flowed proportionally down to Adjusted EBITDA*, which increased by 96% to USD 17.9m (2019: USD 9.1m). The Adjusted EBITDA Margin increased from 16.3% to 16.5%. Foreign exchange gains were USD 1.4m, after USD 0.8m in 2018.

The attractive cash generative profile of the Group continued in 2019 with net operating cash flow before tax and non-core expenses being USD 18.6m (2018: USD 11.8m). Cash at the end of 2019 was USD 26.2m (2018: USD 23.1m).

Key Performance Indicators 2019:

•             Revenue: USD 109.2m (2018: USD 56.0m)

•             Adjusted EBITDA*: USD 17.9m (2018: USD 9.1m)

•             Operating loss: USD 0.5m (2018: USD 3.6m)

•           Adjusted diluted EPS** up 43% to USD 6.81 cents (2018: USD 4.77 cents)

•             Cash Balance 31 Dec 2019: USD 26.2m (2018: USD 23.1m)

•             Net Debt 31 Dec 2019: USD 75.0m*** (2018: USD 3.2m)

* Earnings before interest, tax, depreciation and amortisation, foreign exchange, and non-core operating costs and revenues (acquisition costs, integration costs, share option expense and settlement items)

**Adjusted for amortisation, share-based payments expense, foreign exchange and non-core operating costs

*** Including prepaid finance costs

In 2018 the Company adopted segments related to customer types, namely Resellers, Small Businesses and Corporates, with each having distinct needs that are served by CentralNic Group’s proprietary SaaS platform. For each segment, revenue and gross profit contributions to the total operating expenditure to operate the omni-platform shared services core are reported below.

Reseller segment

Two Reseller portals, namely Hexonet and TPP Wholesale, have been added through the acquisitions in the year. The Reseller segment now addresses c.29,000 customers with c.25.6m domain names under management. This has contributed to revenue in the Reseller segment increasing by 122% from USD 27.3m to USD 60.7m. Gross profit for the segment increased by 53% from USD 12.9m to USD 19.6m. The decrease in the gross margin from 47% to 32% is driven by the higher blended share of registrar business coming from the acquisitions as opposed to the near 100% gross margin registry business of the legacy CentralNic Group business – and is not indicative of declining prices.

Small Business segment

The portfolio of Small Business portals was extended by the acquisition of the IWantMyName.com portal. In total, the Small Business segment now addresses c.340,000 customers owning c.2.2m domain names and yielded revenue of USD 37.8m, an increase of 56% over the USD 24.2m recorded in 2018. Gross profit in 2019 was USD 16.1m, an increase of 64% over the 2018 figure of USD 9.9m.

Corporate segment

Revenue in the Corporate segment was USD 10.8m, an increase of 140% from the USD 4.5m reported in 2018, and Gross Profit increased by 120% to USD 7.0m from USD 3.2m in 2018. It served c.1,000 customers and managed c.154,000 domains on their behalf. For 2019, the one week of trading of Team Internet AG under CentralNic ownership has been included in the Corporate segment.

Overhead Expenses

Group overhead expenses excluding foreign exchange, depreciation, amortisation, impairment and non-core operating expenses increased 48% from USD 16.8m to USD 24.9m.

Going forward, the Company plans to amend its segmental reporting to reflect the new reality subsequent to the 2019 acquisitions and the accompanying review of the management structure.

Earnings Profile

The quality of the Group’s earnings remains an important strategic priority for CentralNic Group and its investors, as the Group increases the proportion of revenues derived from predictable sources. Today, virtually all the Group’s revenue is from recurring, and in most cases, subscription-based services.

Adjusted EBITDA of USD 17.9m (2018: USD 9.1m) has been derived from the operating loss of USD 0.5m (2018: USD 3.6m) after adjusting for the following items: a) depreciation of USD 1.3 m (2018: USD 0.3m); b)  amortisation of intangible assets of USD 8.3 m (2018: USD 5.6m); c) fair value movement of investment of USD 0.0m (2018: USD 1.3m); d) noncore operating expenses of USD 7.3m (2018: USD 5.8m); e) foreign exchange gains of USD 1.5m (2018: USD 0.8m); f) immaterial amounts of associate income; and g) share based payment expense of USD 2.9m (2018: USD 0.5m).

Non-core expenses of USD 7.3m included USD 3.4m acquisition expenses, USD 3.3m integration expenses and USD 0.6m other expenses.

Other non-cash expenses included the acquired amortisation of intangible assets of USD 8.3m (2018: USD 5.6m). This reflects the full year effect of the scheduled amortisation for identified intangible assets of KeyDrive, as well as the 5 months post-acquisition of TPP, Hexonet, Ideegeo and for a marginal part Team Internet AG.

Basic earnings per share of -4.67 cents (2018: -5.04 cents) has been impacted by non-recurring acquisition costs, amortisation charges, and other significant non-core operating costs. Diluted earnings per share, at -4.67 cents (2018: -5.04 cents) reflected the dilutive effect of the share options “in the money” at the average share price for the year.

Group statement of financial position

The Group had net assets of USD 77.4m at 31 December 2019 (2018: USD 78.1m).

Capital expenditure and investing activities

Other than acquisitions, the Group had relatively limited capital expenditure. Excluding acquisitions, USD 4.5m of property, plant, and equipment have been added. Out of these, USD 3.6m related to recognising so called Right of Use Assets under IFRS 16. Further, USD 0.2m of intangible assets have been acquired. Excluding acquisitions and IFRS 16, USD 1.1m of tangible and intangible assets have been added, representing c.1% of group revenue.

In line with the appropriate treatment for translation of a foreign operation into the Group’s presentational currency, both the tangible and intangible assets are translated at the closing rate, generating foreign exchange differences.

Except for goodwill, intangible assets are amortised in line with the Group’s accounting policy. The carrying value of goodwill is tested annually for impairment, while the Directors also consider other intangible assets and investments for indications of impairment.

Cash flow and net cash

The cash flow statement for the Group includes two major themes: the entries related to the financing and completion of acquisitions and the results of the ongoing operations of the business, considering fluctuations in working capital.

Net cash flow from operating activities after tax was higher than the previous year at USD 16.3m (2018: USD 8.8m). In both years, the net cash flow from operating activities was in line with expectations relative to Adjusted EBITDA.

Investing activities were mainly related to the four acquisitions completed during the financial year. The net cash outflow totalled USD 79.4m in 2019 as compared with USD 17.6m in 2018 where the KeyDrive acquisition was largely financed through an issue of equity.

Bond issue and loan refinancing

On 3 July 2019, the Company successfully issued EUR 50m of bonds in private placement to 40 institutional investors. The bond carries a coupon of 7% above 3-month EURIBOR, with a floor at 0%. It matures on 3 July 2023 and the Company is able to call the bond without indemnification anytime in the 12 months preceding the maturity. In case of a change of control, the Company may call the bond at 105% and the bondholders may put the bond at 101% of nominal value. The collateral is similar to the collateral formerly provided to Silicon Valley Bank (SVB), whose loan has been fully repaid from the bond proceeds. A major difference is that the collateral may be flexibly shared with other finance providers, either in the form of pari passu loans or bond issues, revolving credit facilities (RCF) or letter of credit facilities (LCF). The Company has issued additional bonds for EUR 40m on 23 December 2019 to Macquarie Principal Finance.

The bond was listed on the Oslo Stock Exchange on 30 September 2019 and is the first security of the Company being listed on a Regulated Market in the meaning of the EU’s Financial Services Action Plan. The Company has adopted a policy of quarterly trading updates.

The relationship with SVB has been maintained. The Company currently has a super senior revolving credit facility (RCF) and letter of credit facility for a combined total amount of EUR 7.5m. On the balance sheet date, the RCF has been utilised for an equivalent of USD 2.2m and the LCF has been utilised for an equivalent of USD 1.75m.

The Group is in compliance with the maintenance covenant ratios and its payment obligations under the bond and facilities agreement.

Consideration shares

Under the earnout agreed for the acquisition of KeyDrive SA in 2018, during the 2019 financial year, USD 6,834,000 Additional Consideration attributable to the FY2018 objectives became payable to Inter.Services. 15%, equalling USD 1,025,100 has been settled in cash. The remainder of the Additional Consideration attributable to FY2018 objectives was settled by issuing 7,384,978 Additional Consideration Shares, at 59.3p per share. Inter.Services holding increased from c.16.4% to c.19.1% of the issued share capital of the Company.

Out of the total consideration of USD 48m for the acquisition of Team Internet AG, USD 45m is cash-settled and USD 3m has been settled in CentralNic Group Plc shares on completion. CentralNic Group Plc shares have been valued at 59p, resulting in 3,911,650 shares having been issued to the sellers, subject to a 12 months restriction on sales and a 6 months orderly market condition.

Earnout and Deferred Consideration

SK-Nic met its performance target and therefore USD 1.8m was paid to the vendors during 2019.  Further tranches of USD 1.7m, USD 0.7m and USD 1.1m will become payable subject to the achievement of performance criteria in each of 2020, 2022, and 2024.

For KeyDrive, out of the USD 6.8m having become due under the earnout USD 1.0m has been settled in cash. The remaining earnout amount due is expected to be determined and settled in June 2020.

In relation to GlobeHosting, USD 0.7m became payable in September 2019 and another USD 0.5m is anticipated to become payable in September 2020.

For Team Internet AG, USD 3.0m have been deferred until June 2020 and USD 1.0m will be withheld until March 2021 to cover eventual warranty breaches.

Other Post-completion obligations

For the TPP Wholesale acquisition was an asset deal, meaning that stamp duties of AUD 270k have been assessed as payable in 2020. Further a two-year migration program has been commissioned from the seller, who is a public IT services business, to move the operations out of the seller’s IT infrastructure into a Cloud environment. The estimated project cost is AUD 2.8m.

Financial risk management is addressed in note 20.

Michael Riedl, CFO

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