CNIC.L Regulatory News (CNIC)

27 February 2023

CENTRALNIC GROUP PLC

("CentralNic" or "the Company" or "the Group")

UNAUDITED PRELIMINARY ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2022

A record year for revenue and Adjusted EBITDA; with a confident outlook for 2023

CentralNic Group Plc (AIM: CNIC), the global internet company that derives recurring revenue from privacy-safe, AI based customer journeys that help online consumers make informed choices as well as from the distribution of domain names, is pleased to announce its unaudited preliminary accounts for the financial year ended 31 December 2022. The audited annual report and accounts for 2022 is expected to be published on 27 March 2023.

Both revenue and profitability have increased significantly year-on-year, driven by a combination of strong organic growth and accretive acquisitions.

Financial summary:

· Revenue increased by 77% to USD 728.2m (FY2021: USD 410.5m)

· Organic revenue growth* of 60% (FY2021: 39%)

· Net revenue (gross profit) increased by 50% to USD 177.7m (FY2021: USD 118.5m)

· Adjusted EBITDA** increased by 86% to USD 86.0m (FY2021: USD 46.3m)

· Operating profit increased by 172% to USD 33.6m (FY2021: USD 12.4m)

· Profit before tax increased dramatically to USD 14.8m (FY2021: USD 1.6m)

· Net debt*** reduced by 30% to USD 56.6m as compared to USD 81.4m at 31 December 2021 notwithstanding c. USD 41m M&A net of related equity raises

· Leverage**** reduced to 0.9x from 2.2x pro forma EBITDA as of 31 December 2021 due to improved profitability and cash generation

· Adjusted operating cash conversion of 110% (FY2021: 122%)

· Adjusted EPS for the year increased by 70% to 20.01 US cents (FY2021: 11.80 US cents)

· Proposed final dividend of 1.0p. This reflects a greater emphasis on returns to shareholders in future

Operational highlights:

· The Group's organic growth further accelerated during the period, driven by ongoing market share gains of its proprietary privacy-safe, AI based customer journeys which address a multi-billion-dollar opportunity

· The number of visitor sessions increased by 77% from 2.6 billion for the year ended 31 December 2021 to 4.6 billion for the year ended 31 December 2022 and the revenue per thousand sessions ("RPM") increased by 37% from USD 76.40 to USD 105.00

· Adjusted EBITDA as a percentage of Net Revenue has increased from 39% for the year ended 31 December 2021 to 48% for the year ended 31 December 2022, demonstrating improved operating leverage

Corporate highlights:

· Acquisition of VGL Verlagsgesellschaft mbH ("VGL"), a leading product review website publisher, on 8 March 2022 for an enterprise value of EUR 60m (c. USD 65m)

· On 18 July 2022, the final deferred consideration payment for the acquisition of KeyDrive SA was settled in cash totalling USD 1.1m

· Acquisition of M.A Aporia ("Aporia") on 13 September 2022 for an initial consideration of USD 11.2m

· Acquisition of Intellectual Property Management Company for an enterprise value of USD 7.3m on 26 October 2022

· On 31 October 2022 the Company re-financed its debt facilities consisting of a USD 150m term loan and a USD 100m revolving credit facility with an initial maturity date of 14 October 2026 and an option to extend by a further year. The borrowing cost of the facilities is determined by CentralNic's net leverage, which is initially 2.75% above SOFR, a notable reduction compared to the 7% above 3-month EURIBOR for the senior secured bond it replaced.

· In November 2022, the Company entered into three separate interest rate swap transactions to fix the variable interest component on USD 75m of the new USD 150m term loan at a blended rate of 3.92%

· Appointment of Michael Riedl as Chief Executive Officer and William "Billy" Green as Group Chief Financial Officer on 12 December 2022

· Acquisition of a portfolio of revenue generating niche websites for USD 5.2m on 19 December 2022

· Launch of the Company's inaugural share buyback programme on 30 December 2022

Michael Riedl, CEO of CentralNic, commented: "I am absolutely delighted with CentralNic's performance in 2022, achieving record revenue and profit, despite the challenging macro-economic environment. This remarkable achievement stands as a testament to the exceptional business portfolio our team has successfully built.

Moving forward, we shall continue to exhibit the same level of discipline and efficiency as we accelerate our product rollouts, launch strategic partnerships, and enhance our scalability. Our unwavering focus on innovation and operational excellence will be the cornerstone of our success.

Whilst early into the new financial year, we anticipate 2023 will see yet another year of robust growth and shareholder returns. We remain committed to delivering outstanding value to our shareholders, and we are confident of another successful year. 

Given this confidence, I am pleased to announce that the Directors intend to propose paying a maiden dividend of 1.0p for the year 2022 to the AGM to be held in late April. This is the next step of our plan of returning cash to shareholders, following the completion of our maiden share buyback programme in early 2023. I look forward to keeping you updated on our progress throughout 2023." 

* Pro forma revenue, adjusted for; acquired revenue, constant currency foreign exchange impact and non-recurring revenues is estimated at USD 743.1m for the year ended 31 December 2022 and at USD 465.5m for the year ended 31 December 2021

** Parent and subsidiary earnings before interest, tax, depreciation, amortisation, impairment, non-cash charges and non-core operating expenses

*** Includes gross cash, bank debt and prepaid finance costs as of 31 December 2022 (cash of USD 94.8m and bank debt and prepaid finance costs of USD 151.4m); includes gross cash, bond debt, bank debt, prepaid finance costs and hedging liabilities as of 31 December 2021 (cash of 56.1m, bond debt, bank debt and prepaid finance costs of USD 131.1m and hedging liabilities of USD 6.4m) 

**** Includes Net Debt as defined under *** (i) excluding prepaid finance costs, (ii) plus guarantee obligations, and (iii) plus the best estimate of any crystallised deferred consideration payable in cash, all divided by pro forma EBITDA, i.e., last twelve months' EBITDA including acquired entities' EBITDA on a pro forma basis, and adjusted for rental expense capitalised under IFRS 16 and non-core operating expenses

All full year 2022 numbers remain subject to audit.

Michael Riedl - CEO

William Green - CFO

For further information:

Forward-Looking Statements

This document includes forward-looking statements. Whilst these forward-looking statements are made in good faith, they are based upon the information available to CentralNic at the date of this document and upon current expectations, projections, market conditions and assumptions about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Group and should be treated with an appropriate degree of caution. 

About CentralNic Group Plc

CentralNic (AIM: CNIC) is a fast-growing London-headquartered software company which helps online consumers make informed choices through privacy-safe and AI-based customer journeys that convert general interest internet users into high conviction buyers. It also operates a leading network for the automated distribution of domain names and associated services. It has delivered 78% CAGR since its IPO in 2013 through a combination of organic growth and acquiring and integrating cash generative businesses in its industry with annuity revenue streams and exposure to revenue markets. 

For more information please visit: www.centralnicgroup.com

MANAGEMENT COMMENTARY ON PERFORMANCE

Introduction

CentralNic's organic growth, combined with its accelerated acquisition strategy, substantially increased the scale and capabilities of the Company. The effect of this is demonstrated in our unaudited preliminary FY2022 results which show a transformational increase in revenues and adjusted EBITDA, which grew by 77% and 86% respectively compared to FY2021.

Performance overview

The Company has performed strongly during the year with the key financial metrics listed below:

1 Please refer to note 9

2 Please refer to note 8

Segmental analysis

Organic growth rates quoted below are calculated on a pro forma basis including all the Group's constituents as of the last balance sheet dates and adjusted for non-recurring or non-cash revenues and on a constant currency basis.

Online Marketing segment

The Online Marketing segment has proven to be largely decorrelated from the softer performance reported by some of the major online marketing players. The Company's Online Marketing segment further accelerated its growth, with revenues increasing by USD 313.5m, or 120%, from USD 261.3m to USD 574.7m. Organic revenue grew at a rate of 86%, predominantly driven by CentralNic's TONIC platform. Inorganic growth was obtained from the full year impact of the Wando and White & Case acquisitions, as well as the acquisitions of VGL and Aporia and, to a lesser degree, Fireball. 

The number of visitor sessions also increased by 77% from 2.6 billion in 2021 to 4.6 billion in 2022 and the revenue per thousand sessions ("RPM") increased by 37% from USD 76.40 to USD 105.003.

CentralNic is a leader in online privacy, as none of our marketing platforms make use of third-party cookies, instead relying on contextual data. We therefore expect that restrictions placed on those practices (e.g., the ban of third-party cookies in Google Chrome or App Tracking Transparency in iOS 14.5 or Android 12 and later versions) will continue to benefit CentralNic, as we provide an alternative for online marketers that is proven to be highly effective, whilst respecting the privacy of internet users. This puts us at the forefront of companies offering solutions for a more privacy conscious world, a key success factor in winning market share.

3 Based on analysis of c.84% of the segment which can be adequately and reliably be described by this KPI

Online Presence segment

Reported revenue in the segment increased by 3% from USD 149.3m for the year ended 31 December 2021 to USD 153.5m for the year ended 31 December 2022. Organic growth for the Online Presence segment was slightly higher at 4% over the year when adjusted for non-USD revenues translating into fewer USD following the deterioration of most global currencies against USD during the early part of the 2022 financial year. 

The average revenue per domain year increased by 5% from USD 9.40 in 2021 to USD 9.90 in 2022, while the number of processed domain registrations decreased by 2% from 12.6m in 2021 to 12.3m in 20224. The share of Value-Added Service revenue for the year ended 31 December 2022 remained stable at 8%. 

Outlook

CentralNic has enjoyed a very strong 2022, particularly in our Online Marketing segment. For the year ended 31 December 2022, we reported 60% organic revenue growth on a pro forma basis. Moreover, as the Company rapidly scales up, the underlying qualities of high recurring revenues and excellent cash conversion become increasingly meaningful. Furthermore, the Group has strong operating leverage, as demonstrated by CentralNic's Adjusted EBITDA as a percentage of Net Revenue increasing from 39% for the year ended 31 December 2021 to 48% for the year ended 31 December 2022.

As a virtually pure-play recurring revenue business with high inherent cash conversion consistently above 100%, the Company continues to improve its key financial metrics as it grows, including its cash position, interest coverage and net debt to EBITDA ratio. Our net leverage has substantially reduced and is now only 0.9x trailing 12-month EBITDA compared to 2.2x as of 31 December 2021. CentralNic is therefore comfortably positioned, particularly given the Group's high cash generation and the expected contribution from recently completed acquisitions. With USD 100m of committed and available to be drawn finance facilities, CentralNic now has additional capacity to find highly earnings accretive M&A opportunities while maintaining its disciplined capital allocation approach and returning cash to shareholders when appropriate.

Whilst the Directors continue to monitor the global macro-economic environment closely, they are confident in the Group's outlook. Targeted investment in people and our market-leading products, in particular our suite of privacy-safe online marketing technologies, position us to succeed.

Michael RiedlChief Executive Officer

4 Based on analysis of c.79% of the segment which can be adequately and reliably be described by this KPI

● Share capital represents the nominal value of the company's cumulative issued share capital.

● Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.

● Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable shares issue costs and other permitted reductions.

● Retained earnings represents the cumulative value of the profits not distributed to shareholders but retained to finance the future capital requirements of the CentralNic Group.

● Share-based payments reserve represents the cumulative value of share-based payments recognised through equity and deferred tax assets arising thereon, net of exercised and lapsed options. 

● Cash flow hedging reserve represents the effective portion of changes in the fair value of derivatives.

● Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.

· Share capital represents the nominal value of the company's cumulative issued share capital.

· Share premium represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable share issue costs and other permitted reductions.

· Merger relief reserve represents the cumulative excess of the fair value of consideration received for the issue of shares in excess of their nominal value less attributable shares issue costs and other permitted reductions.

· Retained earnings represents the cumulative value of the profits not distributed to shareholders but retained to finance the future capital requirements of the CentralNic Group.

· Share-based payments reserve represents the cumulative value of share-based payments recognised through equity and deferred tax assets arising thereon, net of exercised and lapsed options.

· Cash flow hedging reserve represents the effective portion of changes in the fair value of derivatives.

· Foreign exchange translation reserve represents the cumulative exchange differences arising on Group consolidation.

NOTES TO THE UNAUDITED PRELIMINARY ACCOUNTS

1. General information

CentralNic Group Plc is the UK holding company of a group of companies which are engaged in the provision of global domain name services. The Company is registered in England and Wales. Its registered office and principal place of business is 4th Floor, Saddlers House, 44 Gutter Lane, London EC2V 6BR.

The CentralNic Group is a global internet platform that derives recurring revenue from privacy-safe, AI based customer journeys that help online consumers make informed choices as well as from the distribution of domain names and related digital services.

2. Basis of preparation

The financial results for the year ended 31 December 2022 are unaudited and have been prepared on the basis of the accounting policies set out in the Group's 2021 statutory accounts and, for all periods presented, in line with the principal disclosure requirements of IAS 34: Interim Financial Reporting.

The unaudited financial results are condensed and do not represent statutory accounts within the meaning of section 435 of the Companies Act 2016. The statutory accounts for the year ended 31 December 2021, upon which the auditors issued an unqualified opinion, are available on the Group's website and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

As a profitable provider of online recurring revenue services with high cash conversion and solid organic growth, de-centrally organised and catering to solid customers distributed over the entire globe, CentralNic has not been, and is not expected to be, severely affected by recessionary external factors. The debt facilities of the Group were successfully refinanced in October 2022 and the Directors have taken the necessary precautions to preserve the Group's cash and review the acquisition pipeline and financing plans to ensure stability and optimisation of the business strategies in the current global climate.

3. Change of functional currency

On 1 January 2022, CentralNic Group Plc, the parent company of the Group, changed its functional currency from EUR to USD. The change was made to reflect that, when taking into account the impact of derivative financial instruments, USD has become the predominant currency in CentralNic Group Plc, accounting for a significant part of the parent company's foreign currency borrowings. The change has been implemented with prospective effect only and comparatives have not been restated. The financial impact of the change is that the revaluation of the EUR-denominated debt (USD 20.2m reduction in borrowings) is processed through the profit and loss account rather than through other comprehensive income. The change in functional currency also has necessitated a review of the hedge accounting treatment of the forward foreign exchange contracts with HSBC Bank Plc and Global Reach Partners Limited. Following the change in functional currency, these forward foreign exchange contracts were no longer considered to be effective and the cumulative cash flow hedging reserve as at 31 December 2021 was recycled through the profit and loss account for the year ended 31 December 2022.

4. Segment analysis

CentralNic is an independent global service provider building and managing platforms that sell Online Presence and Online Marketing services. Operating segments are organised around the products and services of the business and are prepared in a manner consistent with the internal reporting used by the chief operating decision maker to determine allocation of resources to segments and to assess segmental performance. The Directors do not rely on analyses of segment assets and liabilities, nor on segmental cash flows arising from the operating, investing and financing activities for each reportable segment, for their decision making and therefore have not included them.

The Online Marketing segment creates privacy-safe, AI-based customer journeys that help online consumers make informed choices. The Online Presence segment conducts business as a global distributor of domain names through a network of channel partners as well as selling domain names and ancillary services to end users, monitoring services to protect brands online, technical and consultancy services to corporate clients, and licensing the Group's in-house developed registry management platform on a global basis.

NOTES TO THE UNAUDITED PRELIMINARY ACCOUNTS (continued)

4. Segment analysis (continued)

Management reviews the activities of the CentralNic Group in the segments disclosed below:

5. Revenue

The Group's revenue is generated from the following geographical areas:

* End customers may be located in different territories as notable parts of the business are conducted through channel partners. Looking through the channel partners, North America represents c.42% of group revenue

NOTES TO THE UNAUDITED PRELIMINARY ACCOUNTS (continued)

6. Non-core operating expenses

(1)  Other costs include items related primarily to restructuring expenses.

7. Finance income and costs

NOTES TO THE UNAUDITED PRELIMINARY ACCOUNTS (continued)

8. Earnings per share

Earnings per share has been calculated by dividing the consolidated loss after taxation attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the year. Diluted earnings per share have been calculated on the same basis as above, except that the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares (arising from the Group's share option scheme and warrants) into ordinary shares has been added to the denominator. There are no changes to the loss numerator because of the dilutive calculation. Due to the loss made in the financial years, the impact of the potential shares to be issued on exercise of share options and warrants would be anti-dilutive and therefore diluted earnings per share is reported on the same basis on earnings per share.

Basic and diluted earnings per share of (0.78) cents (2021: (1.56) cents) have been impacted by depreciation, amortisation, impairment, non-core operating expenses, foreign exchange gains and losses and share-based payment expenses.

NOTES TO THE UNAUDITED PRELIMINARY ACCOUNTS (continued)

9. Financial instruments

The CentralNic Group is exposed to market risk, credit risk and liquidity risk arising from financial instruments. The Group's overall financial risk management policy focusses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. The Group does not trade in financial instruments.

Cash conversion for the year ended 31 December 2022 was as follows: